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Tax Update Blog: March 2004 Archives

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March 31, 2004

The Treasury let fly a salvo of Health Savings Account guidance yesterday. Key items include:

-a transition rule for HSAs using high-deductible plans with prescription benefits that would otherwise disqualify the plan.

-a rule allowing existing HSAs to cover costs incurred as far back as January 2004.

The mighty BenefitsBlog is all over the new guidance.

Our prior coverage of HSAs:




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March 31, 2004

"The length of time it takes us to complete the audit of a large, complex corporation is five years from the date the return is filed, which in most cases is already eight and one-half months after year end. And these figures don't include the appeals process, which runs another two years before the matter is settled or goes to court. That means that half of our current inventory of large cases is from the mid 1990s or the early 1990s. In today's rapidly changing world, we might as well be looking at transactions from the Civil War."

-IRS Commissioner Mark Everson testifying before the House Ways and Means Committee yesterday.

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March 30, 2004

About this time every year, the IRS gives us friendly reminders that while "Service" is in their name, "Revenue" comes first.

The IRS yesterday reminded us of the expensive consequences of making foolish arguments about the tax laws in court - arguments like "the income tax is unconstitional" or "there is no statute that makes me liable for the income tax." In IR-2004-41, the IRS reminds us:

   In the past year, the U.S. Tax Court
   imposed nearly $136,000 in penalties   
   on 23 taxpayers for pursuing frivolous 
   cases to delay tax collections.

They helpfully added:

   The Tax Court may impose sanctions 
   of up to $25,000 on those who misuse
   their right to a court review merely to
   stall their tax payments. Last May, the
   court imposed this maximum penalty
   for the first time, finding in the case of
   Aston v. Commissioner that the
   taxpayer’s groundless argument was
   primarily for the purpose of delay,
   wasting the court’s time and


Just in case these friendly hints aren't sufficient, the Justice Department reminds us not to try to deduct personal expenses as business expenses with the conviction of two officers of Benton Manufacturing Co. in Tennessee on tax evasion charges. From the DOJ press release:

   The defendants were accused of using
   the accounts to obtain cash and to pay
   personal expenses for remodeling
   projects, lavish vacations and vacation
   property, lawn care services, oil
   paintings, furniture, clothing and
   jewelry. Evidence at trial established
   that the defendants prepared false
   books and records which caused the
   company's return preparer to treat
   the personal expenditures as
   legitimate business expenses. The
   Stones filed fraudulent income tax
   returns which did not report those
   amounts as income, evading individual
   income taxes totaling $135,878. The
   defendants also made false
   statements and provided backdated or
   otherwise false documents to the IRS
   to conceal their ownership of real 

Just so we get the point, they note:

   Conspiring to defraud the IRS carries a
   maximum penalty of five years
   imprisonment, a $250,000 fine, or both. 
   Each violation of the felony income tax 
   evasion statute carries a maximum
   penalty of five years imprisonment, a 
   $250,000 fine, or both. 

Look for more friendly reminders of the need to comply with the tax laws over the next couple of weeks. Oh, and have a nice day!

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March 30, 2004

The U.S. Supreme Court announced yesterday that it will hear two cases on the taxation of legal judgments and settlements with contingent attorney fees. The Court will hear appeals of a Ninth Circuit Case holding that the gross amount of an award, including contingent legal fees, is taxable. It will also hear a conflicting Sixth Circuit case holding that only the net amount - after fees - is taxable.


You may be thinking "aren't attorney fees deductible?" Well, yes and no. They are deductible as an itemized deduction for regular tax, to the extent they exceed 2% of adjusted gross income when combined with other "miscellaneous" deductions. For alternative minimum tax, they aren't deductible at all.

The lack of an AMT deduction for attorney fees has led to perverse results. In some cases the taxes on a settlement have exceeded the amount received by the plaintiff after attorney fees. If the Supreme Court decides that contingent fees aren't includible in income in the first place, the AMT problem disappears.

This problem doesn't apply to all legal settlements. For example, legal fees involving an settlement for impairment of a capital asset may offset the recovery.


Banaitis v. Comm (CA-9, 2003)

John W. Banks II v. Comm. (CA-6, 2003)

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March 29, 2004

The tax law has imposed special limits on depreciation for vehicles since the Reagan administration. The limits are revised annually for inflation. The IRS has just published the inflation-adjusted depreciation rates for 2004 (Rev. Proc. 2004-20)

For the first time, the IRS has published different limits for trucks and vans to reflect "the higher rate of price inflation that trucks and vans have been subject to since 1988." The higher limits apply SUVs, pickups and full-size van.

If the vehicle is eligible for bonus depreciation (that is, if it is new), it is subject to higher limits.

The limits for vehicles placed in service in 2004 are set out in the tables below.

Automobiles using bonus first-year
         Tax Year                                Amount 
         1st Tax Year                          $10,610
         2nd Tax Year                           $4,800
         3rd Tax Year                           $2,850
         Each Succeeding Year                   $1,675
Trucks and vans using bonus first-year
         Tax Year                              Amount
         1st Tax Year                          $10,910
         2nd Tax Year                           $5,300
         3rd Tax Year                           $3,150
         Each Succeeding Year                   $1,875

Automobiles not using bonus depreciation

         Tax Year                                Amount
         1st Tax Year                            $2,960
         2nd Tax Year                           $4,800
         3rd Tax Year                           $2,850
         Each Succeeding Year                   $1,675

Trucks and vans not using bonus first-year depreciation

         Tax Year                               Amount
         1st Tax Year                            $3,260
         2nd Tax Year                           $5,300
         3rd Tax Year                            $3,150
         Each Succeeding Year                    $1,875

Rev. Proc. 2004-20 also has depreciation limits for electric vehicles.

The tax law also has a provision to limit the tax avoidance possiblities of leasing vehicles to get around the depreciation limits. Taxpayers using leased vehicles have to add an amount to income. The Revenue Procedure has the updated lease add-back tables for vehicles placed in service in 2004.

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March 28, 2004

A peek at an old part of the Better Homes and Gardens Building.

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March 26, 2004

If you have been looking for a good reason to dispose of the fine motor vehicle on blocks in your front yard, the Senate Finance Committee may have just provided it.

A provision in the "must-pass" bill repealing the "extraterritorial income exclusion" (ETI) would add a new restriction to the deduction available for charitable donations of used vehicles. If the charity sold the donated vehicle, the provision would limit the deduction to the car sales price.

Under current law, the proceeds received by the car are not linked to the donation. Instead taxpayers can deduct the "fair market value" of the car. This deduction is typically determined using "Blue Book" values. A recent General Accounting Office study determined that the cars typically sell for far below the claimed value, and often the charities only receive a fraction of the actual sales price after selling expenses.

The GAO study followed one 1983 truck through the process. The donor claimed a $2,400 deduction. The vehicle sold at auction for $375; after expenses, the charity received $31.50.

Car donation.gif

The new provisions would take effect for donations after June 30. The ETI repeal, also known as the "JOBS" bill, is tied up in the Senate, but because $4 billion of trade sanctions will continue on American goods until it is enacted, it seems likely to pass.


           A high-value donation?

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March 25, 2004

The IRS today issued a notice (Notice 2004-27) informing taxpayers that they can't take a theft loss for a stock price decline caused by executive misbehavior:

   The Internal Revenue Service and Treasury
   Department are aware that some taxpayers 
   who acquired stock on the open market for 
   investment have been advised that they may 
   be able to deduct as a theft loss the decline 
   in market value of their stock caused by 
   disclosure of accounting fraud or other illegal 
   misconduct of the officers or directors of the 
   corporation that issued the stock. The 
   purpose of this notice is to advise taxpayers 
   that the Service intends to disallow such 
   deductions and may impose penalties under 
   § 6662.

The result isn't surprising. In fact, it's likely some folks saw this coming.

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March 25, 2004

The F.E. Schumacher Company, Inc. apparently is in no hurry to embrace this "computer" stuff. Searches with Google, Yahoo and Teoma turn up no web site for the Ohio manufacturer of aluminum doors and windows. In fact, the company's web presence now consists largely of stories about the company's costly run-in with the IRS over its insistence on remitting its payroll taxes the old-fashioned way.

In 1999 the IRS told employers to remit their payroll and withholding taxes electronically via the "Electronic Federal Tax Payments System," or EFTPS. Many taxpayers use the Internet to make their EFTPS remittances, but you can also make EFTPS payments with a touch-tone phone.

It's uncertain whether F.E. Schumacher Company was resisting the touch-tone conversion, but for whatever reason it continued to pay its payroll taxes the old-fashioned way, sending someone to the bank to manually transfer funds using a deposit coupon and the bank's TT&L account. The deposits were all made on time, but the IRS hit the company with $84,895.19 in 10% late penalties for 1999, 2000 and 2001 payroll taxes.

The taxpayer admitted that it was supposed to file electronically, but it argued that it shouldn't be penalized because the taxes were paid on time, even if not the right way. It also argued that its concern about the "Y2K" problem (remember that?) and about the "integrity" of the EFTPS gave it reasonable cause to disregard the EFTPS requirements.

The U.S. District Court for the Northern District of Ohio disagreed:

   Other than a bare assertion, Plaintiff provides no  
   facts upon which it depends for the position that the
   EFTPS does not provide internal control and security
   features as sufficient as those Plaintiff maintained 
   under the old system and/or its method of depositing
   employment taxes. In fact, given the superiority of
   the EFTPS with regard to taxpayers' ability to
   personally track funds by computer at any time and
   monitor receipt by the IRS by way of expeditious
   acknowledgment notices, it is difficult to imagine
   how Plaintiff's method was more secure or provided
   more control. Plaintiff's Y2K concerns similarly do
   not support its behavior as being consistent with
   ordinary business care and prudence. As stipulated,
   the time period during which Plaintiff refused to
   comply dates from mid-1999 (second and third
   quarters) through early2001...  Concerns
   generated by Y2K theories were squelched very soon
   after January 1, 2000. Plaintiff's refusal to use the
   EFTPS, however, includes the remainder of 2000
   and even into 2001. Accordingly, the refusal was not
   the result of reasonable concerns over the potential
   for Y2K computer problems which were absent
   shortly after January 1, 2000. 

The moral? Old-fashioned craftsmanship is great, but it is expensive when used to pay payroll taxes.

No link to the case is available.

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March 25, 2004

"The tax Code is complex and often requires intensive scrutiny by tax professionals to ensure compliance therewith. The perplexity of the Code renders it vulnerable to selective interpretations favorable to taxpayers. Plaintiff's myopic reading of Section 6656 attempts to escape the mandates of one provision by relying on an isolated and literal interpretation of another."

-U.S. District Court Judge John M. Manos
F.E. Schumacher Company, Inc. v. US (2004)

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March 24, 2004

It's Iowa vs. Iowa in an election-year Senate floor battle. Senator Tom Harkin yesterday stymied Senator Charles Grassley's efforts to win approval for a "must pass" tax bill. At stake: $4 billion of trade sanctions imposed on U.S. businesses starting March 1, 2003 until the bill is enacted.

The bill repeals the "extraterritorial income exclusion (ETI)," a tax break ruled an illegal export subsidy by the World Trade Organization. It would replace the ETI with a deduction for manufacturers and farmers. The bill passed the Senate Finance Committee, chaired by Senator Grassley, earlier this month by a vote of 16-2.

Senator Harkin is holding the bill hostage to block proposed changes in minimum wage regulations.

Go here for our prior coverage of the ETI repeal bill.

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March 23, 2004

The Salt Lake Tribune recently had an article discussing the implications of the same-sex marriage debate on a persistent, if illegal, Utah phenomenon - polygamy. The debate is probably moot - simply requiring "plural marriages" to comply with the bewildering consolidated return rules would make anyone content with only one spouse.

The article ends with a rather jarring statement, not attributed to anyone and not set off by quotation marks:


   The ripple effect of polygamy could reach outside 
   the home to tourism, one of the top industries in 
   the state, by attracting visitors to polygamous 

It's not clear how this is supposed to work, but it at least has the merit of requiring minimal government investment. A plural marriage theme park, perhaps? And if they add slot machines...

Thanks to BenefitsBlog for the pointer.

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March 22, 2004

Most of us are familiar with the use of mileage rates to value personal use of company cars. Not so many of us have to worry about valuing personal trips on company aircraft. For those who do, the IRS publishes "SIFL" (Standard Industry Fare Level) rates for valuing personal use of company aircraft.

The IRS just released the SIFL rates for the first half of 2004 (Rev. Rul. 2004-36). The rates have two parts: a "Terminal Charge" that applies to each trip, no matter the length, and a mileage charge. Of course, it has to be more complicated: the mileage charge is multiplied by an "aircraft multiple" before it is added to the "terminal charge." If you are a "control employee," you use a different aircraft multiple.

For flights taken January 1, 2004 through June 30, 2004 the terminal charge will be $34.45. For the first 500 miles of a trip, the SIFL rate per mile is $.1884. For the next 1000 miles, the rate is $.1437; for miles after that, the rate is $.1381 per mile.

The aircraft multiples are:

 Maximum                 Aircraft              Aircraft
 certified         multiple for a        multiple for a
 take-off                 control           non-control
 weight of the           employee              employee
 aircraft               (percent)             (percent)
 -------------      -------------           -----------
 6,000 lbs. or less          62.5                  15.6
 6,001-10,000 lbs.          125.0                  23.4
10,001-25,000 lbs.          300.0                  31.3
25,001 lbs. or more         400.0                  31.3

So Joe Executive, CFO, has a 2000 mile flight in the company Boeing to go golfing. As a control employee, his aircraft multiple is 400%. The amount added to the W-2 is as follows:

First 500 miles: 400% x $.1884 x 500 =  $376.80
Next 1000 miles: 400% x $.1437 x 1000 = $574.80
Last 500 miles: 400% x $.1381 x 500 =   $276.20
+ Terminal Charge:			  34.35
Total amount added to Joe's W-2:       $1262.15

If his wife accompanies him, another $1,262.15 is added.

If he takes the Saratoga next time (maximum takeoff weight 3,600 lbs) his aircraft multiple will only be 62.5%, and his W-2 add-back will be only $226.19.

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March 17, 2004

The IRS has issued (Rev. Rul. 2004-39) the minimum interest rates for loans made in April 2004:

Short Term (demand loans and loans with terms of 1-3 years): 1.47%
Mid-Term (loans from 3-9 years): 3.15%
Long-Term (over 9 years): 4.66%

Historical AFRs are available on the “Links” page at

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March 17, 2004

The calendar shows that that 78 days have passed since 2003, and 28 days remain to get your taxes done. When it comes to tax planning, 2003 is over.

Or not.

Even though there the calendar shows that 2003 is over, some folks still can cut their 2003 taxes.


For those taxpayers who qualify, there is still time to make a deductible IRA contribution for 2003. The deadline for this is April 15 at midnight. For qualifying taxpayers the maximum deduction is $3,000 ($6,000 on a joint return), or, if less, your total of wage income and self-employment income.

You can qualify if:

-neither you or your spouse are eligible to participate in a qualified plan, or

-You are a joint filer and you or your spouse are eligible to participate in a qualified pension or profit-sharing plan (including a 401(k)), and your adjusted gross income does not exceed $60,000. The deduction phases out between $60,000 and $70,000. For the spouse who doesn't participate in a qualified plan, the phaseout range is $150,000 - $160,000.

-You are a single taxpayer eligible to participate in a qualified plan and your adjusted gross income does not exceed $40,000. The deduction phases out between $40,000 and $50,000.

If you were at least 50 years old by the end of 2003, you can add $500 to these limits.

Don't forget Roth IRAs: even if you qualify for a deductible IRA contribution, you may prefer to contribute to a Roth IRA instead (any contribution to a Roth IRA reduces your maximum deductible IRA contribution). Roth IRA contributions are not deductible, but all Roth IRA earnings are tax-free on withdrawal if certain conditions are met. Go here for more on Roth IRAs.


Some taxpayers get an additional benefit for IRA contributions. Taxpayers 18 or older with adjusted gross income below $50,000 may qualify for a credit that can reduce federal tax by as much as $1,000.

The "saver's credit" is available to taxpayers filing joint returns with adjusted gross income of up to $50,000 ($37,500 for heads of household and $25,000 for single taxpayers). The credit directly reduces federal taxes by 10% to 50% of the IRA contribution, depending on income, with a maximum credit of $1,000.

This credit is unavailable to dependents or full-time students. You claim the credit by filing Form 8880.

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March 14, 2004

Oh, those wacky IRS agents!

IRS Agent Greg Heck was retiring after years of toiling in the vineyards of the tax law. IRS agents like a good party, like anyone else. One hundred revelers filled a restaurant in Tempe, Arizona, to celebrate Agent Heck's career. For whatever reason, the guest list included two defense attorneys with clients who were subjects of an ongoing criminal tax investigation.

That's how the party really got going.

We'll let the opinion of the Ninth Circuit Court of Appeals set the scene:

During the party, some of the guests "roasted" Special Agent Heck about his career as an IRS agent. In response to his friends' attempts at humor, Special Agent Heck read a prepared "counter-roast" and presented mementos to accompany his remarks. When he gave a Bagel Nosh baseball cap to a colleague, he commented as follows:

And from the owner of Bagel Brothers, Bagel Nosh, I almost said that right, Bagel Nosh. An item of evidence that you missed at the search of the Vullo's [sic] and ah Siddiqui's [sic] house. They want you to have it. It says tax evasion evidence inside. It's still a pending case.

Embroidered on the back of the cap was a citation to 26 U.S.C. § 7201. Section 7201 provides that tax evasion is a felony, punishable by a fine and/or imprisonment of not more than five years. When the citation was read aloud, one of (Bagel Nosh's) defense counsel called out "7206(1)." Section 7206(1) of the Internal Revenue Code provides that a person who willfully makes a false statement is guilty of a felony punishable by a fine and/or imprisonment of not more than three years.

Yessir, this party had it all: a roast, souvenirs, code sections countered by code subsections - and, as the court put it,

...a grossly negligent violation of § 6103(a)(1).

Section 6103 is the law requiring the IRS to keep taxpayer information confidential.


A district court awarded the aggrieved taxpayers - five business owners and the business itself - $1,000 each in damages for one unauthorized disclosure of tax return information. The taxpayers thought that there were 100 unauthorized disclosures because there were 100 people in the room. Under that arithmetic, the awards to the six taxpayers would total $600,000, rather than $6,000.

The Ninth Circuit turned to Webster's Dictionary and decided that one "act" of disclosure occurred, even though 100 people witnessed the act. The court also ruled that punitive damages weren't clearly authorized under the facts, so they could not be assessed. After attorney fees, it's unlikely that the $1,000 received by each of the six taxpayers will go very far.

Ironically, now we all know about the Tempe Bagel Nosh criminal tax investigation, thanks to the lawsuit. What a party that is...

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March 09, 2004

The Iowa Department of Revenue released new rules yesterday that limit the benefits of a tax break for S corporations with out-of-state sales. The new rules are designed to reduce the benefit of the "apportionment credit" claimed on Form 134 when an Iowa resident shareholder has received S corporation distributions exceeding the federal tax on the S corporation income. These rules take effect for years begining on and after January 1, 2004.


The new rules work the way most practitioners thought the apportionment credit rules worked before the Department released its Humes declaratory ruling last year. The new rules use a complex formula to reduce the S corporation credit when distributions of current S corporation income exceed a deemed amount of federal taxes attributable to the S corporation.

The Humes ruling held that the Department's prior regulations provided that S corporation AAA distributions - that is, almost all S corporation distributions - were not counted in determining whether distributions exceeded federal taxes. In effect, the ruling held that the Department's regulations failed to achieve their intent. The new rules correct this perceived error.

The old rules remain in effect for prior years. Iowa resident S corporation shareholders have until April 30, 2004 to amend 2000 returns to claim apportionment credit unreduced by AAA distributions, if they haven't already done so.

For a quick overview of current S corporation rules, go here and look under the "current law" column for S corporations.

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March 05, 2004

You may have seen the tough test used in the University of Georgia "Coaching Principles and Strategies of Basketball" class in 2001.

If tax practice were a big-time college sport, our college classes might have been a lot easier. They might have had questions like this:

1. On what day in the middle of April is Form 1040 due?

a) April 1
b) April 30
c) April 32
d) April 15

2. Form 1040 is due on April 15 unless you file:

a) for an extra year of eligibility
b) your nails
c) for free agency
d) an extension

3. The federal taxing agency is called

a) The NCAA
b) The Big 10
c) The SEC
d) The Internal Revenue Service

4. If you overpay your taxes, the IRS will:

a) Revoke your eligibility
b) Cancel your scholarship
c) reset the shot clock
d) Send you a refund.

Alas, tax practice will never be a spectator sport...

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March 05, 2004

Iowa allows some business owners to exclude capital gains on the sale of a business, or of business real estate. Taxpayers wishing to qualify for this "capital gain deduction" must clear two hurdles:

-10-Year holding period: the property has to be "held" for 10 years or more prior to the sale.

-10-year material participation: the taxpayer has to have "materially participated" in the business for 10 years.

The "material participation" test for the capital gain deduction piggybacks on the definition of the term under the federal "passive loss" rules. The tax law disallows net losses from "passive" activities; such losses carry forward until they are offset against passive income. These rules are very complex, but the basics are easy to grasp.

You "materially participate" in an activity if you meet one of several tests:

- You participate in an activity more than 500 hours in a year.

- You participate in multiple activities over 100 hours per year, and the time in such activities added together exceeds 500 hours.

- You participate more than 100 hours in a year in an activity, and more than anyone else.

- Your participation in the activity is all the participation there is.

- You participate more than 100 hours, and your participation under the circumstances is "regular, continuous and substantial." As a practical matter, this mostly covers the first or last years of participation when the participation began too late in the year to meet the 500-hour test.


Rental activity doesn't count for material participation unless you are a "real estate professional" who spends more than half of your working time and more than 750 hours per year in your rental real estate businesses.


The tax law does give taxpayers a few breaks in reaching these requirements:

- Your spouse's participation counts as your participation.

- You are considered to participate in an activity for a year if you have materially participated for five of the past ten years.

- If you participate in a "personal service" activity for three years, you are considered a material participant for life.


The tax law will ignore participation if it's just "make work" to get hours in. For example, time spent by a factory owner's spouse answering phones may not qualify.


That's a darn good question. A diary or time reports would be ideal, but normal people (as opposed to accountants and attorneys) don't keep such things. The tax law doesn't require a diary or log of your participation. In cases and IRS exams, phone logs, overnight mail receipts, signed documents, and narrative descriptions of the business activity have been used to help document the participation. A narrative description will help if the other evidence supports it. Commuting time doesn't count. If your participation is borderline, you might want to keep a log and build your paper trail.

Prior coverage of the Iowa capital gain deduction:


The Iowa regulations on the capital gain deduction, including material participation rules, are here.

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March 03, 2004

The pension law is full of provisions to prevent owner-employees from discriminating against non-owner employees. The Supreme Court yesterday ruled that pension law does not require owner-employees to be treated worse than non-owner employees when the employer goes bankrupt.

The BenefitsBlog has the details.

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March 01, 2004

The European Union imposed long-threatened trade sanctions today in reaction to the failure of Congress to repeal the "extraterritorial income exclusion" (ETI).

The sanctions are designed to inflict hurt on politically-sensitive areas of the economy in an election year.

The ETI allows taxpayers to exclude a portion of their income related to exported manufactured goods. The need to repeal the tax break has been apparent since 2001, when the WTO declared the ETI exclusion an illegal export subsidy.

Well, if the country faces punishment for its export sins, American taxpayers should at least enjoy the sinning. Learn more about how you can use this "illegal" trade subsidy here - remember, while it's illegal under international trade rules, it's perfectly legal under the tax law!

Prior coverage of the ETI repeal controversy:




A PDF file listing the goods subject to sanctions is here.

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March 01, 2004

Mardi Gras is over, but the Carnival of the Capitalists rocks on this week. The Carnival, a collection of weblog discussions of economics and policy, has items this week on Martha Stewart and executive compensation, the "jobless" economic recovery, Alan Greenspan's observations on Social Security, and, always, outsourcing. Much good stuff this week.

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March 01, 2004

It's a mistake anybody could make.

"Plaintiffs L. Thorne McCarty and Mary Lynne Robertson claim they are entitled to a tax refund of approximately $5000 because they filed an income tax return in 1997 on which they 'mistakenly' represented themselves as a married couple. Plaintiffs now contend that they were not 'legally married.' As a consequence, they claim they are entitled to file amended income tax returns as non-married individuals."

Of course, under the circumstances, it was an understandable mistake.

"Plaintiffs participated in a marriage ceremony in Fiji on June 20, 1997. Though they now claim that the ceremony was 'symbolic,' and that their 'intention was to adopt the form of marriage, while negating the substance,' they appear to have taken steps consistent with a legally cognizable marriage, such as filing a Certificate of Marriage in Fiji, rather than (for instance) having a private ceremony without the benefit of official sanctions"

Mr. and... Mrs? McCarty apparently decided they were mistaken when they realized their tax as married taxpayers filing joint returns was about $5,000 higher than it would have been had they filed as single taxpayers sinfully cohabitating. The filed a refund claim to undo their mistake, but the IRS said they were right the first time, and they were married. A U.S. District Court in New Jersey sided with the IRS (sorry, no link available).

It's a bad sign for you when the judge has this to say about your case:

"Plaintiffs engage in a complex and protracted analysis of cases which might be analogous if their marriage were indeed void, as well as an interesting, diligently researched, and totally irrelevant exploration of inapplicable precedents for determining when a marriage is void due to mistake. "

The couple also left an inconvenient paper trail:

"Further undermining their post-hoc pronouncements that they intended the ceremony to be 'symbolic' are the indications in the record that the parties clearly knew that they were getting married, even going so far as to craft an explicit 'Antenuptial Agreement,' in which they described themselves as 'husband' and 'wife,' and their prospective relationship as 'marriage.'"

So the unhappily-married couple is down about $5,000 in cash; still, they have the inestimable benefit of being honorably wed, with the word of both the Governor-General of Fiji and the U.S. District Court for New Jersey to prove it.

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