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IRS and the Illegals from the North.

 

During my work on the Great Earthquake of 1994 in Los Angeles I learned that the insurance industry was not withholding U. S. Federal Taxes from their employee’s paychecks.  Using the excuse that their employees were “independent contractors”  they claimed that they were not responsible for withholding the taxes.

 

Then I discovered that the insurance industry was using Canadian Insurance Adjusters, who it seems were not paying either U. S. taxes nor Canadian taxes as the U. S. insurance companies did not report the income to the Canadian tax authority.

 

One American adjuster one day bitterly complained to me that he had just been informed that the insurance adjusting company we worked for, Crawford and Company,  would start withholding taxes from his paycheck.  I tried to explain to him that the taxes would have to be paid in any case.  But he objected that if he now had to pay taxes on the little he was paid he “could not afford” to continue working on the claims.  (This may explain why so many of the claims were improperly adjusted.)

 

It was no use to try and explain that in that case his  real problem was not the taxes but the pay.  The insurance companies were using the unpaid taxes as a kind of direct subsidy of their claims operation.  They were bringing in adjusters from all over America and Canada and, with a wink and a nod, letting them avoid withholding or payment of the U. S. tax.

 

Presumably the IRS would eventually catch up with the Americans but the Canadians would return to Canada without ever paying the U. S. tax.  It was not even clear if the Canadian’s income was being reported to the IRS.  As a result of this favorable tax treatment the Canadian contingent of adjusters was steadily growing in 1994 and 1995 as the earthquake claims were being worked. 

 

I reported this Canadian tax scam to the IRS and even filed an application for a reward. 

 

Then later at another claims project, this time in Florida working Hurricane claims, I had the distinct impression that I was being watched by some of the Crawford and Company management.  Later, the following year in Portland Maine, working on an oil spill incident, one of the Crawford adjusters mentioned that he had heard about my report to the IRS about how the insurance companies used the Canadian tax cheats.  And a claims supervisor for Crawford explained that he had been contacted by the IRS to provide information on the businesses in Portland Maine.

 

(The businesses were making claims for lost income due to the oil spill and as part of the claims process they provided information on their income.  The IRS wanted the information to use in their audit process to collect taxes, especially since many of the waterfront businesses are cash businesses.  (Organized crime is into the fish business due to the highly time sensitive nature of the business.  Fish is a perishable commodity and companies will pay “extra” to avoid “delays.”))

 

This well established relationship between the IRS and Crawford and Company is how Crawford had learned that I had notified the IRS about the use of Canadian adjusters in California a year and a half earlier.  I had dealt with a Mr. William Winbush of the Atlanta Criminal Investigation unit of the IRS.  He apparently had connections with Crawford and Company which is headquartered in Atlanta.  Apparently the IRS thought betraying me to Crawford was worth more to them than any information I provided because Crawford is an international company and can provide far more information than I ever could.

 

But this was not the end of it.  The Crawford adjusters in Portland Maine thought that giving information to the IRS about the Canadian adjusters, who were taking the money and returning to Canada without paying U. S. taxes, was a breach of “professional”  ethics.  Never mind that the insurance industry had used the unpaid taxes as a subsidy for their claims operation.   That the insurance executives thought it a good idea to use the tax cheating as a way of saving on their expenses; this was not thought something for the likes of us to consider.  That the insurance executives were complicit in the tax cheating was not an issue; my colleagues thought we should not “squeal.”  (Of course, the IRS’s Mr. Winbush had “squealed” on me, but that was not an issue for by colleagues either.)

 

I tried contacting the Senators, to whom I had written years earlier, to tell them about the IRS abuse of its power.  (see Math Project and New Ruskin College Project)  But no one responded.  I even wrote to former President Bush.  No one seemed to care that the IRS had used its influence with Crawford and Company to get information on the businesses in Maine that were making claims for lost income.  Nor did anyone seem to care what the IRS had done to me.  (The Senate did open a hearing on the IRS.  Senator Moynihan noted at the time, that they were the first hearings on the IRS practices since its founding.  But these hearings resulted from hundreds of complaints of political abuse by the IRS not me.)

 

Then, after the Portland oil claims project I got a call for an assignment in Canada.  Oh, of course, I went, why not?  Had I done anything wrong?  It turned out that that project had been a set up by the adjusters to get even with me for reporting the tax cheating in California several years earlier.  I paid the Canadian tax and the U. S. tax on the little income I earned.

 

However, that still was not the end of it.  Later the IRS audited my return for that year I worked in Canada.  Why?  Because they said my Canadian employer had not used U. S. tax forms.  Why should the Canadian employer use U. S. tax forms?  None.  No reason at all. And the IRS even took the case to tax court.  During the process the IRS admitted that if I had not reported the Canadian income the IRS would have had no way of knowing that I had earned any income at all.  The very same way that the Canadian employees had themselves avoided not only U. S. but Canadian taxes.

 

The IRS finally, when it was forced to present its case in court backed down and accepted my tax return as filed.  They did not collect the  $6,000 they had demanded.  Not so much as a penny was changed.  I of course had my attorney’s fees.  But then that is perhaps just what the IRS wanted all along.  The entire audit and suit were simply harassment.

 

So in the end maybe my letters to the Senate about the harassment, the criminal misconduct of the IRS, did have a response after all.  The response was further misconduct by the IRS.

 

And this is what you call a democracy?

 

The day I left for Canada, I was listening to the radio as the plane was waiting at the terminal.  On KQED Michael Krasney asked a guest on his program, “What is it with these Gentiles,  they hate us but they love our women?”

 

As I flew across America that day I thought about the question.  Why indeed?  What is it about Yvonne, for example?  Then at night, as I looked down on the snow fields of Canada as the plane approached the airport I realized what it was:  they spoil one.  (See Clones, 2nd edition) 

 

Over the last few weeks this website has been visited by the IRS.com .

 

Site Report for: www.newruskincollege.com

Date Range: 6/26/2004 to 7/2/2004

 

82.

usdoj.gov

6

113.

lrs.com

5

135.

nasa.gov

4

168.

noaa.gov

3

170.

uscourts.gov

3

192.

navy.mil

3

 

 

 

202.

nih.gov

3

 

201.                 ed.gov

3

 

213.

army.mil

3

 

 

235.

usps.gov

2

70.

usgs.gov

2

281.

ssa.gov

2

337.

fdic.gov

2

333.

osd.mil

2

342.

doe.gov

2

353.

anl.gov

2

377.

epa.gov

2

408.

faa.gov

1

421.

af.mil

1

Site Report for: www.newruskincollege.com

Date Range: 6/19/2004 to 6/25/2004  

126.

uscourts.gov

3

155.

usdoj.gov

2

210.

faa.gov

2

237.

usps.gov

2

251.

fdic.gov

1

254.

af.mil

1

260.

lrs.com

1

321.

ssa.gov

1

341.

noaa.gov

1

390.

usgs.gov

1

 

You are watching me?  Hey, IRS, as our Vice President says, go f--- off.

 

Counselor:  I’m starting to get worried.

 

What about?  The IRS?

 

Counselor: No, not the IRS.

 

What then?  The Army, Navy, Air Force? 

 

Counselor:  No, not that.

 

What then?

 

Counselor:  You never mentioned the USPS. 

 

Oh, well.  You know a lot of that is exaggerated.  Hey, USPS, I’ve got a tip for you.  The third attack on the Senate.  My guess is that it will be like the other two.  Just a wild guess. (see Army Navy Club Item No. 9)

 

 

I wrote to Yvonne:

 

“What is it with these Gentiles, they hate us but they love our women?”--- Michael Krasney, KQED

 

Dear Yvonne;

 

Our women?  Do you agree?

 

Guest on KQED:  To the victors  belong  the spoils.

 

Victors?  Spoils?  Is this your world view?  Are you a spoils?

I sent a copy of this along with my letter to Yvonne:

 

 

To:       IRS

From:  [deletion]

            [deletion]

            [deletion], CA [deletion]

 

Re.:      Proposed Changes in the 1998 tax return. [deletion]

 

1          I disagree with every change proposed.

2          The Government proposes that I pay a tax of over 250% of my income.

3          The Government thinks its resources best employed auditing the return where it agrees the gross income is under $20,000 (US), and where the Government has admitted that over 60% of that income was earned out side of the United States and the Government would not have known of the income save that the taxpayer reported it.

4          The Government proposes that I was able to travel to Cincinnati, Ohio and Montreal, Quebec, Canada, for months at  a time, and not incur any expenses. Travel, hotel, meals, equipment, materials, all free according to the Government.  I did not maintain a toll free international phone, employed no translators of Quebec French, maintained no offices, posted no advertising to prospective employers, and all of the equipment used never required repair, no cars were rented, in the world the Government proposes.

5          The Government’s position is particularly corrupt when one considers that it was because of the Government’s own misconduct that I was forced to work in Canada.  The Government, through its agent, Wendell (William) Winbush, (and Noah Lyle, both of) (IRS Atlanta Regional Office), had asked me to help with an IRS investigation.  Then the Government betrayed me to Crawford and Co.  When Crawford and Co. learnt that I had cooperated with the Government, they, my main employer over many years, stopped employing me.  My income dropped and I am now forced to bankruptcy.  Dennis Smith, CEO Crawford and Co., personally investigated the matter after he was told of letters sent to the U. S. Senate identifying the Crawford and Co. employees, (with a photo taken by long time Crawford employee Gene Howard), in the Portland Maine Claims Office of Crawford and Co. as they harassed me.  (Gene Howard was called back to the Atlanta Office to report on what was going on.)

            Having ruined my career in the United States the Government now complains that my Canadian Employer did not identify me as a “statutory employee.”  The Government complains that a foreign firm conducting its business in a foreign country with an employee that the Government’s wrongful conduct had forced out of the United States; this corrupt evil disgraceful Government complains that its “statutory” definitions have not been complied with.  (“This isn’t Russia.”  ---  DPM      It’s Arkansas.)

6          The Government would not allow any credit (in contradiction to U. S. Law) for the $3,500 (Canadian) paid to the Country in which the income was earned.  The Government is an ass.

7          Oh, I disagree with each and every proposed change.  

 

Note:

After I sent a copy of this to Yvonne, Garrison Keeler had an amusing story about a man clinching and working his jaw while muttering “the government, the government, the government.”

 

At no time has the IRS ever contacted me to investigate these charges of misconduct, presumably because they know that they are all perfectly true. 

 

 
 
 
January 9,  1997
Portland Press Herald
 
Director of IRS to resign at end of filing season
 
Washington - Margaret Milner Richardson chief of the Internal Revenue Service, plans to resign at the end of this year's tax filing season, the IRS said Wednesday.
 
Richardson, 53, said in a letter to Treasury Secretary Robert E. Rubin she believes " that this is an appropriate time for me to pursue other career opportunities and allow the selection of a successor who could serve during (President Clinton's) full second term."
 
Richardson's tenure, which began in May 1993, has been a turbulent period for the tax agency.  It has continued to struggle, as it has for more than a decade, to upgrade its computer and data processing systems.

 

 

01-08-97

 

To:       U. S. Senators

            President George Bush, (41)

 

 

From:  Anonymous

            Portland, Maine

 

Re.:      No good deed should go      unpunished! --- to hell with children --- but God save the insurance companies from the IRS.

 

My only involvement, (over four years ago), with this oligarchy institutionalized that you are pleased to call our government, was to comment, to make a public statement.

 

For this I have been followed, investigated, harassed, my rights, (of privacy, for example), have been taken, I have been threatened, my livelihood taken, spat upon.  What next?

 

It is easy for you to say that in “our government” there are no secrets.  Easily said.  It is one of the characteristics of oligarchy that it is indifferent to its unfairness.  (How else can it be?)

 

But when President Bush’s aids can not protect their own F. B. I. files what can scribblers expect?

 

------ Anonymous

 

 

The quote  “no secrets” in the above letter was from something George Will had said during a This Week broadcast;   he had made references to the earlier letters:

 

“There are no secrets in our government.”

--- George Will, ABC, This Week

 

There were numerous comments in the media, which suggested that there had been a leak.  For example:

 

“How are you ‘adjusting,’ . . .  to your new life . . . in . . . ‘white collar crime.’

--- John McLaughlin,  The McLaughlin Group

 

So I was already suspicious that the IRS had leaked my name that I had cooperated with their investigation by providing information on tax cheats before I went to the Portland Maine oil spill claims office.  Cliff Mote specifically said that I had given information on crooked adjusters to the IRS.  Louis Manter and Carlton Stubing were both present when Mote made his comments. (Cliff Mote is from Pascagoula, Mississippi.)  Photo courtesy Gene Howard.  Mr. Howard took the photo of Cliff Mote standing on one side of my cubicle secretly giving me the “double bird” as he complained about “IRS snitches.”    

 

The Double Bird
port.jpg
Portland Maine Claims Office

 

So here we have photo graphic evidence of the harassment and yet the reader is invited to consider what little difference this evidence makes.  Admittedly the average reader may say that the double bird is directed at someone else.  Or if at me then perhaps for some other reason than that the IRS leaked my name.  But this website has not been set up for the average reader.  My audience has become rather select.  I am only interested in the ones who do know the truth, who have known the truth for years,  and do nothing.

 

All that is required . . .     

 

Index of Prior Correspondence:

 

#8 From: IRS May 6, 1996

 

Deborah S. Decker

Director, Service Center

 

Internal Revenue Service

Department of the Treasury

Western region

1160 West 1200 South

Ogden, UT  84201

 

#7  To:  IRS  03-31-96

 

IRS Atlanta Service Center

P. O. Box 47-422

Stop 75B

Doraville, GA. 30362

 

“2    .  .  .  I informed Noah Lyle and Mr. William Winbush . . . .

 

“3    Mr. Winbush, in October 1995, requested that I obtain and forward on to the IRS the names of Crawford employees working in  Florida to assist him in the investigation of Crawford’s noncompliance with IRS regulations.  I complied with his request.”

 

#6    To:   IRS     02-05-96

 

IRS

Atlanta Service Center

P. O. Box 47-422

Stop 75B

Doraville, GA. 30362

 

#5  From:    IRS      December 8,  1995

 

From: 

Noah Lyle

IRS

Atlanta Service Center

P. O. Box 47-422

Stop 75B

Doraville, GA. 30362

 

#4 To:  IRS  12-01-95

 

IRS

Atlanta Service Center

P. O. Box 47-471

Stop 223

Doraville, GA. 30362

 

“. . . My claim supervisor, Gail Bowers told me that the [deletion] [deletion] working with their [deletion] [deletion] [deletion], also a supervisor, had been given enormous numbers of files.  (Supervisors make the file assignments.)  So many files in fact that they could not adjust all of them.  The insured above referred to reported that he had not seen Mr. [deletion] and was unaware that he had “written a scope” of his damages.  He thinks Mr. [deletion] was handling the claim for the [deletion]  Mr. [deletion] [deletion].  When I told my supervisor, Mr. Bowers, he said he wondered what else would be found if Mr. [deletion]’s files were examined, and that his [deletion] protected his [deletion].

 

“ It now appears that many Canadian adjusters are involved in a systematic program of kick backs and operate through [deletion] and Crawford along with American employees to obtain claim files and refer these files to their fellow conspirators.”  

 

#3   From:   IRS      04-17-95

 

IRS

Fresno Service Center

Fresno, CA  93776

 

“ . . . has been transferred to the Service Center at the address shown below.  Any future correspondence should be directed to their address.

IRS

Atlanta Service Center

P. O. Box 47-471

Stop 223

Doraville, GA. 30362

Kenny Clark

Fresno Service Center

 

#2   To:  IRS     02-27-95

 

C. E. Zarin

Chief, Service Center

Joint Compliance Branch

P. O. Box 12067, stop 8534

Fresno, CA 93776

 

“ . . . I trust that this report and my prior report will be kept confidential as Crawford and Company is a major employer in the insurance industry and may not hire me if they suspect that I have reported their improper handling and reporting of taxes owed to te IRS.

         Since  my original report Crawford employees have raised the issure of taxes with me but have not made any specific remarks.”

 

 

 

#1  From: IRS   May 23, 1994

 

C. E. Zarin

Chief, Service Center

Joint Compliance Branch

P. O. Box 12067, stop 8534

Fresno, CA 93776

 

Over the years there have been many occasions when I thought that a reference may have been made in the mass media to me.  Sometimes you only get a snippet of conversation and have to guess what went before, as on the occasion of Moynihan’s and Brinkley’s last interview:

 

David Brinkley:  (During a commercial break.)   ‘What ever happened to that guy that wrote all those letters about laser disks.  Remember that guy?’

 

Senator Moynihan:  ‘I haven’t heard from him . . .’  Then they came back from the commercial break and the microphone was on the air:  “He’s probably waiting for some hard news.”

 

David Brinkley:  Laughing.  (Sees that they are back on the air, and keeps laughing.  Can’t stop.  Moynihan realizes that they are on air.  Brinkley keeps laughing.)

 

From the New Ruskin College Project:

 

“I would just like to say to the children back home.  Study hard.”  American Prisoner of War, Iraq, 1991

 

. . . I had to work hard at it!

 

 

 

 

Jude the Obscure:

By the light of the flickering lamps he rambled home to supper, and had not long been sitting at table when his landlady brought up a letter that had just arrived for him. She laid it down as if  impressed with a sense of its possible importance, and on looking at it Jude perceived that it bore the embossed stamp of one of the Colleges whose heads he had addressed. 

 

"One---at last!' cried Jude.

 

The communication was brief, and not exactly

what he had expected; though it really was from the Master in person. It ran thus:

 

"BIBLIOLL COLLEGE.

 

"SIR,--I have read your letter with interest; and, judging from your description of yourself as a working-man, I venture to think that you will have a much better chance of success in life by remaining in your own sphere and sticking to yourtrade than by adopting any other course.  

 

That, therefore, is what I advise you to do. Yours faithfully, 'T. TETUPHENAY.

 

'To Mr. J. FAWLEY, Stone-mason.'

 

This terribly sensible advice exasperated  Jude.

He had known all that before.  He knew it was true. Yet it seemed a hard slap after ten years of labour, and its effect upon him just now was to make him rise recklessly from the table, and, instead of reading as usual, to go downstairs and into the street.  He stood at a bar and 'tossed off two or three glasses, then unconsciously sauntered along till he came to a spot

called The Fourways in the middle of the city, gazing abstractedly at the groups of people like one in a trance, till, coming to himself, he began talking to the policeman fixed there.

That officer yawned, stretched out his elbows,

elevated himself an inch and a half on the balls of his toes, smiled, and looking humorously at Jude, said.

 

“You've had a wet, young man.”

 

“No; I've only begun,” he replied cynically.

 

Whatever his wetness, his brains were dry enough.  He only heard in part the policeman's further remarks, having fallen into thought on what struggling people like himself had stood at that Crossway, whom nobody ever thought of now. It had more history than the oldest college in the city. It was literally teeming, stratified, with the shades of human groups, who had met there for tragedy, comedy, farce ; real enactments of the intensest kind. At Fourways men had stood

and talked of Napoleon, the loss of America, the execution of King Charles, the burning of the Martyrs, the Crusades, the Norman Conquest, possibly of the arrival of Caesar. Here the two sexes had met for loving, hating, coupling, parting; had waited, had suffered, for each other ; had triumphed over each other; cursed each other in jealousy, blessed each other in forgiveness.  He began to see that the town life was a book of humanity infinitely more palpitating, varied, and compendious than the gown life. These struggling men and women before him were the reality of Christminster, though they knew little of Christ or Minster.  That was one of the humours of things. The floating population of students and teachers, who did know both in a way, were not Christminster in a local sense at all.

 

He looked at his watch, and, in pursuit of this idea, he went on till he came to a public hall, where a promenade concert was in progress. Jude entered, and found the room full of shop youths and girls, soldiers, apprentices, boys of eleven smoking cigarettes, and light women of the more respectable and amateur class.

 

He had tapped the real Christminster life. A band was playing, and the crowd walked about and jostled each other, and every now and then a man got upon a platform and sang a comic song. The spirit of Sue seemed to hover round him and prevent his flirting and drinking with the frolicsome girls who made advances---wistful to gain a little joy.

 

At ten o'clock he came away, choosing a circuitous route homeward to pass the gates of the College whose Head had just sent him the note.

 

The gates were shut,  and, by an impulse, he took from his pocket the lump of chalk which as a workman he usually carried there, and wrote along the wall :

 

"I have understanding as well as you, I am not

inferior to you yea, who knoweth not such things as these?' ---Job xii. 3.II.-vii.

 

THE stroke of scorn relieved his mind, and the next morning he laughed at his self-conceit.

--- Thomas Hardy, Jude the obscure

 

20 MILLION ILLEGAL ALIENS?
By Michelle Malkin      January 03, 2005 11:02 AM

Barron's has an important lead article out today on "the underground economy" (password required). According to Robert Justich, a senior managing director at Bear Stearns Asset Management in New York, current estimates of the illegal alien population (most news articles cite the old 8 to 13 million figure) are too low. He puts the figure at 18 million to 20 million.

The article's author, Jim McTague, notes some devastating consequences of the failure to enforce our immigration laws--and he does so with a bluntness that is unusual for the usually open-borders-friendly business press:

[T]he underground economy is undermining the effectiveness of the Internal Revenue Service, which is highly dependent on employees' withholding taxes. If the IRS could collect all the taxes it says that it is owed from the underground economy in a given year, then the current budget deficit would disappear overnight. And if the IRS could collect these taxes every year, then the nation would have surpluses as far as the eye can see.

The IRS has estimated that its tax gap -- the estimated amount of taxes owed minus the amount collected -- is around $311 billion in any given year. The agency will produce a new estimate in 2005, and it could be as high as $400 billion, says former IRS Commissioner Donald Alexander.

McTague addresses pollyannas who note that our underground economy is smaller than other high-tax European countries:

To be sure, the U.S. underground economy, as a percentage of GDP, is smaller than those of some other countries. In a 2000 paper in a publication of the Independent Institute, a nonprofit research organization, Schneider found that Greece, as of 1998, had the largest underground economy, at 29% of its GDP, followed by Italy at 27.8% and Spain at 23.4%. Countries with high tax burdens and high social security costs lead the list.

But the sheer growth of the underground economy in the U.S. is cause for concern. If Justich's estimate of illegal immigrant workers is correct, the underground economy may now be growing at a markedly faster rate than the legitimate economy. Justich, working with Bear Stearns colleague Betty Ng, an emerging- markets economist, says he's found evidence of a larger illegal immigrant population by analyzing data on construction and on remittances sent from the U.S. to Mexico and other countries. He also had conversations with over 100 immigrants from Mexico, Brazil, the Dominican Republic, Guinea, China and Tibet. And he interviewed local business owners, real-estate sales people and police...

McTague also considers the impact Justich's research may have in Washington:

A larger number of illegal immigrants also would have a profound impact on coming discussions on immigration reform. President Bush proposes temporary amnesty for illegal aliens already in the country, allowing them to obtain permits to work legally for three years and stay longer if their jobs otherwise can't be filled by native-born workers. But if there are, in fact, 20 million illegal aliens, the Bush proposal could engender a situation not unlike the German unification of the 1990s, which triggered huge demand for social services in East Germany. Unanticipated costs here could be enormous.

The article should be must-reading for every member of Congress as President Bush prepares to foist his amnesty plan on America.

 

Going Underground: America's Shadow Economy
By Jim McTague
Baron's | January 6, 2005


America has two economies, and one is flourishing at the expense of the other.  First, there's the legitimate economy, in which craftsmen are licensed and employers and employees pay taxes.  Then there's the fast-growing underground economy, where millions of nannies, construction workers and others are paid off-the-books, their incomes largely untaxed. The best guess as to the size of the output of this shadow economy is about $970 billion, or nearly 9% that of the real economy.  It should soon pass $1 trillion.

What is largely fueling the underground economy, experts say, is the nation's swelling ranks of low-wage illegal immigrants.  The government puts this population at 8.5 million, but that may represent a serious undercount.

Robert Justich, a senior managing director at Bear Stearns Asset Management in New York, makes a persuasive case in a forthcoming paper, "The Underground Labor Force Is Rising to the Surface," that illegal immigrants actually number 18 million to 20 million.  If true, the economic implications are profound and could help shape debates slated in Washington this year over both immigration policies and tax reform.

Measuring the size of the underground economy is, of course, more art than science, since most of its denizens seek to remain anonymous.  But convincing anecdotal evidence and a number of credible academic studies suggest that it is expanding briskly -- probably by an average of 5.6% a year since the early 1990s, edging out the real economy.

In the process, the underground economy is undermining the effectiveness of the Internal Revenue Service, which is highly dependent on employees' withholding taxes.  If the IRS could collect all the taxes it says that it is owed from the underground economy in a given year, then the current budget deficit would disappear overnight.  And if the IRS could collect these taxes every year, then the nation would have surpluses as far as the eye can see.

The IRS has estimated that its tax gap -- the estimated amount of taxes owed minus the amount collected -- is around $311 billion in any given year. The agency will produce a new estimate in 2005, and it could be as high as $400 billion, says former IRS Commissioner Donald Alexander.  Now a lawyer in Washington, he cites a rise in private contracting and the opportunities it affords for not reporting income.

The gap number measures only a portion of the underground economy. Because the number is extrapolated from audited returns, it makes no allowances for criminal enterprises that report no income, and it even fails to capture some garden varieties of non-reporting.  The unreported wages of illegal immigrants alone could be costing the government another $50 billion a year, says Justich.

Growth of the underground economy is partly a result of corporate downsizing, which has forced many former employees to go out on their own.


"We have had an 85% taxpayer compliance rate," says Nina Olson, the IRS's taxpayer advocate.  "I expect the number to decline," because the portion of employees subject to withholding is on the wane.  Such employees are 99% compliant with tax laws, she says, but in the 21st-century economy, "More and more people are being treated as independent contractors.  We are losing people from the withholding environment."

Entrepreneurs often are stymied by the complexity of estimating their taxes and making quarterly payments, which leads to mistakes or out-and-out avoidance.  The growth of online commerce may be exacerbating the situation.


There were over 40 million regular users of eBay alone in 2003, up from 23 million in 2002.  The sellers are responsible for paying taxes.  Some of them set up a business and get a taxpayer ID number; others don't.  (An eBay spokesman says the company isn't a tax adviser -- it's up to members to report their taxes.)

Most unsettling to IRS bureaucrats, taxpayers as a group appear to have become less honest.  Former New York City Police Commissioner Bernard Kerik is the latest poster boy for the phenomenon.  He had to drop his bid to become secretary of homeland security because he failed to pay Social Security taxes for his children's illegal-immigrant nanny.

Kerik is hardly alone: Any homeowner who has been offered two prices by a handyman or a gardener -- a higher one for a payment by check, a lower one for all cash -- knows how quickly the savings can add up.  In one twist on off-the-books business, the New York Times recently reported on a rise in mechanics who repair cars at curbside for untraceable cash payments.  They are not in want of customers.  In some cities, including Boston, owners of battered cars get similar offers from itinerant body-repair "experts."

In speeches, IRS Commissioner Mark Everson is fond of citing a survey by his agency showing that the number of Americans who consider tax-cheating acceptable rose from 11% in 1999 to 17% in 2003.

Former Commissioner Alexander, who ran the agency during the Nixon, Ford and Carter administrations, said he urged Congress to pass a law making customers responsible for withholding some taxes on services provided by carpenters, plumbers and other self-employed contractors.  Customers would have had to hold back 5% of the cost of services and forward it to the IRS, but Congress failed to embrace the measure.

Result: The underground economy has kept growing nearly unchecked. Academics accept the work of Austrian Friedrich Schneider as the best estimate of the underground economy's size.  Using data on currency flows and the consumption of electricity, he guessed that in 1996 it was about 8.8% of the nation's gross domestic product.  This estimate was made before the flood of immigration from South America, so it might be conservative if used today, when the nation's GDP stands at $11 trillion.

To be sure, the U.S. underground economy, as a percentage of GDP, is smaller than those of some other countries.  In a 2000 paper in a publication of the Independent Institute, a nonprofit research organization, Schneider found that Greece, as of 1998, had the largest underground economy, at 29% of its GDP, followed by Italy at 27.8% and Spain at 23.4%.  Countries with high tax burdens and high social security costs lead the list.

But the sheer growth of the underground economy in the U.S.  is cause for concern.  If Justich's estimate of illegal immigrant workers is correct, the underground economy may now be growing at a markedly faster rate than the legitimate economy.  Justich, working with Bear Stearns colleague Betty Ng, an emerging- markets economist, says he's found evidence of a larger illegal immigrant population by analyzing data on construction and on remittances sent from the U.S.  to Mexico and other countries.  He also had conversations with over 100 immigrants from Mexico, Brazil, the Dominican Republic, Guinea, China and Tibet.  And he interviewed local business owners, real-estate sales people and police.

Justich, a veteran securities analyst, currently specializes in fixed-income strategies at Bear Stearns Asset Management, which oversees some $29 billion in investments.  He began digging into the underground economy because of its broad ramifications for the real economy.  In his spare time, he has been exploring the immigrant communities of northern New Jersey for his work as executive producer of a documentary film about immigrants and the importance of their former national anthems in their lives.

From all this, Justich concludes that Fed Chairman Alan Greenspan's estimates of productivity gains are overly rosy.  "The productivity miracle may be slightly overstated because they are counting the output of millions of illegal immigrants but not counting the input," he says.  Likewise, long-term budget projections could be overstating the potential growth of the legitimate U.S. economy or underestimating the need for high illegal immigrant flows to hit the forecast growth targets.

Ideas like that could well become food for thought for House Ways and Means Committee Chairman Bill Thomas of California.  He wants to push ahead with tax reform this year, including the creation of a national sales tax and reduction of income taxes.  In theory, a sales tax would capture the underground economy, since all wage earners have to spend money to live.


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