Tax Update Blog: June 2005 Archives

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"ENERGY DOESN'T COME FROM PORK"

June 30, 2005

Arnold Kling, scary-smart co-proprietor of Econlog, tells you all you need to know about the bloated "energy bill" that passed the Senate this week.

Prior coverage:

HOW THE TAX LAW GETS COMPLICATED, EXAMPLE #93,412

THE ENERGY POLICY TAX ACT GETS MAULED

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BLOGGER BASH SHOUT-OUT

June 30, 2005

If you miss a meeting, chances are you get named to a committee. That's what happened when I failed to show up in Iowa City at the recent blogger bash. Now I get to plan the next one. If you are an Iowa blogger, please read the extended entry below; I need to know whether strawberry or lime Jello is best for the wrestling event.

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H&R CELLBLOCK?

June 30, 2005

Many prisoners toil away for pennies an hour in the licence-plate in the licence plate and rock-breaking sectors of the economy. Others have discovered the joy of tax.

WASHINGTON (AP) -- A South Carolina prison inmate told a rapt House panel Wednesday about how he defrauded the U.S. government of $3.5 million by filing bogus tax returns.

The man, an anonymous 37-year-old inmate dubbed ''John Doe,'' testified behind a partition to prevent him from being photographed or videotaped during the House Ways and Means subcommittee on oversight hearing.

He said he started out by filing phony returns for 10 inmates in 1991, which netted $4,200 to $5,400. He kept a $1,000 commission on each return.

"Over the years, I filed six to seven hundred returns," Doe said. "The total dollar amount would be approximately $3.5 million, face value," of which he netted $600,000 to $700,000.

The funds helped support a thriving prison economy:

"The money and drugs eventually lead to beatings, stabbings and extortion," he said. "With the money I personally made, I often looked out for poor or indigent inmates who got no help from home." But he conceded he also used the money to buy sneakers, a color TV and "lots of drugs."

Amazingly, tax privacy laws have no exception for jailbirds:

Nancy J. Jardini, chief of criminal investigation at the IRS, said one obstacle to cracking down on the problem is a section of the IRS code which prevents the agency from disclosing tax information, with a few exceptions.

"None of the exceptions permit the IRS to refer refund fraud information to prison officials for the imposition of administrative sanctions," she said.

I can see the warden now: "Boy, you'd better get me one of them big ree-funds, or you'll be breakin' rocks in the yard until they carry you out!"

Link: Tax Analysts coverage.

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DISTURBING THOUGHT OF THE DAY

June 29, 2005

"TaxProf Blog: 'Head Cheerleader on the IRS Pom Pom Squad'"

And I doubt he'd find this in his size, anyway:

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TAX HONESTY QUOTE OF THE DAY

June 29, 2005

John W. Sedwick, U.S. District Judge, Alaska District, on a case filed by a Mr. James Fountain seeking to stop paying U.S. Taxes:

While it is difficult to be sure from plaintiff's papers, it appears that he is contesting his responsibility to pay federal income taxes on the basis that somehow the money he gains from his labors is not subject to such taxation. There are myriad ways that people have attempted to shirk their financial responsibility to the government and their fellow citizens, and it is not precisely clear on what theory or theories Fountain relies, but the fact is that the chances of success on the merits of such claims is essentially zero.

Link to case here.

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TAX INCREASE? I DIDN'T SEE NO TAX INCREASE

June 29, 2005

No surprise here:

Senate Finance Committee Chair Chuck Grassley, R-Iowa, on June 28 told reporters that GOP committee members have reached a consensus on Social Security solvency that includes an increase in revenues.

They telegraphed the probability of a tax increase some time ago. But they didn't say they would hide it:

Grassley said the revenue increase will be done in such a "roundabout" way that people won't even notice an increase in taxes. While he wouldn't go into detail, he said the revenue increase will be combined with adjustments to how benefits are calculated and an adjustment in the retirement age.

A secret tax increase? How do you do that? "Hey, look! A UFO! No, I didn't take your wallet, you must have lost it."

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ESTATE TAX: BIGGER EXEMPTION, BUT SAME RATES?

June 29, 2005

Tax Analysts brings us the latest rumors on the progress towards a permanent estate tax compormise:

Senate Finance Committee ranking minority member Max Baucus, D- Mont., told reporters on June 28 that his compromise efforts on the estate tax are still preliminary, but that some Democrats have noted that raising the exemption tends to cost less than lowering the rates.

"There's a little more emphasis now on exemptions," he said.

Baucus also said there is little support for carving out specific exemptions for family-owned businesses or farms, largely because such exemptions are "so incredibly complicated."

Tax Analysts link (subscribers only)

Recent Tax Update coverage: ESTATE TAX TO OUTLIVE KPMG?

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PRICELESS

June 29, 2005

The good Dr. Yin notes a letter to a judge from recently-convicted corporate looter Dennis Kozlowski demanding a tough sentence for Girish Shah, who embezzled from a Tyco subsidiary.

I wonder if Mr. Shah has returned the favor.

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TOYOTA HIGHLANDER QUALIFIES FOR CLEAN-BURNER DEDUCTION

June 28, 2005

The IRS has certified the 2006 Toyota Highlander SUV for the clean-fuel deduction.

The clean-fuel deduction is "above the line" and available to non-itemizers. There is no separate return line or form for the deduction; you just add $2,000 to the amount on line 35, which is the total of adjustments to income, and write "clean fuel" next to the total.

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THE HOME SALE EXCLUSION: DON'T GIVE IT AWAY

June 28, 2005

The cheerfully-named Death and Taxes blog has a good little piece this morning about how gifting your residence can squander the exclusion for capital gains on home sales.

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TAX COURT: TRUST INVESTMENT FEES GET 2% HAIRCUT

June 28, 2005

The tax law disallows deductions for "miscellaneous itemized deductions," except to the extent they exceed 2% of adjusted gross income. These expenses include tax preparation fees and investment expenses. In some ways this has been a blessing for practitioners, who no longer have to explain to clients that their Maxim subscriptions don't qualify as investment expenses, because they fall victim to the haircut anyway. It also gives us the opportunity to pitch a "2% of AGI return preparation fee system" (no takers, alas). The blessing is well-disguised, though, because clients are happier with deductions than without.

Optimistic practitioners have grasped onto a part of the tax law that eliminates the 2% haircut for trusts, at least for expenses "which would not have been incurred if the property were not held in such trust or estate." The argument is that all investment expenses by a trust "would not have been incurred" absent the trust.

The Tax Court yesterday reaffirmed its disapproval of this argument. The Sixth Circuit has disagreed with the Tax Court's position, but the Tax Court will continue to require the 2% haircut in cases that can be appealed to other circuits. The Tax Court reasons:

We believe that the thrust of the language of section
67(e) is that only those costs which are unique to the
administration of an estate or trust are to be deducted
from gross income without being subject to the 2-
percent floor on itemized deductions set forth at
section 67(a). Examples of items unique to the
administration of a trust or estate would be the fees
paid to a trustee and trust accounting fees mandated by
law or the trust agreement. Individual investors
routinely incur costs for investment advice as an
integral part of their investment activities.
Consequently, it cannot be argued that such costs are
somehow unique to the administration of an estate or
trust simply because a fiduciary might feel compelled
to incur such expenses in order to meet the prudent
person standards imposed by State law.

The Eighth Circuit, which covers Iowa, has yet to rule on the issue. Iowans' who ignore the 2% haircut for trust investment expenses will find a trip to Tax Court is a waste of time, and will probably instead choose to litigate this one in district court.

Cite: Willim L. Rudkin Testamentary Trust v. Commissioner, 124 T.C. No. 19.

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MISSING THE BOAT WITH ANDERSON'S ARK

June 28, 2005

The Tax ~~Protester~~ Honesty crowd is crowing over the jury acquittal of one of their pied pipers, Joe Banister, on conspiracy charges. Back in the real world, people who follow tax protester arguments continue their unbroken and monotonous record of defeat in challenging their actual tax liabilities.

The Tax Court handed down two tax protester decisions yesterday.

HAWKS V. COMMISSIONER

This case involved a couple that bought into the Anderson's Ark tax scam. The A.A. ringleaders are serving up to 20 years in federal prison. These A.A. customers aren't necessarily going to jail, but they will have to pay up $55,590 in back taxes, $11,118 in penalties, and interest.

STANG V. COMMISSIONER

Alan Stang skipped filing tax returns for 1999, 2000 and 2001 after he:

...executed a statement asserting that he was a sovereign citizen of Arizona; a Form W-8, Certificate of Foreign Status; another Form W-4 claiming exemption from Federal income tax withholding; a document entitled "AFFIDAVIT OF CITIZENSHIP AND DOMICILE"; and a document entitled "AFFIDAVIT OF CLAIMS FOR EXEMPTION AND EXCLUSION FROM GROSS INCOME OF REMUNERATION, WAGES AND WITHHOLDING". The affidavits enumerated a litany of typical tax-protester assertions, including that the Internal Revenue Code was Federal legislation inapplicable to him as a citizen of one of the 50 States and therefore not within the territorial jurisdiction of the United States, that wages and remuneration for labor were property not subject to indirect taxation, and that the income tax was voluntary.

Despite his deft use of CAPITAL LETTERS, Mr. Stang was assessed his taxes for the three years ($26,234) and penalties of $7,840.82. He sufficiently vexed the Tax Court that they also fined him $5,000 for wasting the court's time with frivolous arguments. All in all, H&R Block would have been a better deal.

There's nothing particularly unusual about these decisions; the Tax Court has some of these just about every week. In light of the tax protester excitement over Mr. Banisters acquittal, though, it's worth highlighting what "Tax Honesty" advice actually does for folks foolish enough to follow it.

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HEALTH COSTS: A WEIGHTY ISSUE

June 28, 2005

The BenefitsBlog has a collection of links on the tie between obesity and health costs.

Two solutions come to mind:

1. Let insurers charge fat people higher rates.
2. Impose futile but lucrative taxes on junk food.

Which do you think is more likely?

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WARM WEATHER CARNIVAL

June 27, 2005

This week's edition of the Carnival of the Capitalists" is up at "BusinessBlogcasting." Lot's of stuff there on the Supreme Court's Kelo decision on eminent domain. If you are looking for more cheeful reading, Photon Courier tells how the introduction of some very basic technology can make a big difference for some of the world's poorest people.

The Carnival is a weekly roundup of economics and business blog posts.

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ADVENTURES IN WISHFUL THINKING

June 27, 2005

As expected, the tax protest crowd is citing the acquittal of anti-tax charlatan Joe Banister as evidence that people don't have to pay taxes. They have issued a press release:

Sacramento California -- On Thursday June 23, a federal jury found former IRS Criminal Investigative Division (CID) Special Agent and CPA Joseph Banister not guilty of all counts alleging criminal tax fraud and conspiracy related to actions he took on behalf of a California business owner who had openly defied the IRS over several years by stopping withholding of all income and employment taxes from the paychecks of his workers.

During the trial the Department of Justice was unable to put forth any evidence that Banister had either engaged in a conspiracy or had acted unlawfully when he shared legal research with business owner Al Thompson concluding that he had no legal obligation to withhold taxes from his workers or when he (Banister) prepared corrected tax returns for Thompson claiming his taxable income was, under U.S. law, zero.

The release omits one fact a reader might find useful: Al Thompson is doing six years in federal prison for following through with the conclusion he arrived at from Mr. Banister's "legal research."

During the trial, Banister's former supervisor at IRS's San Jose CID office, Robert Gorini (who testified via video recording) when pointedly asked, was unable to cite any U.S. law that required Banister to pay income taxes.

We can help. Title 26 (the Internal Revenue Code of 1986), Section 1, says:

(a) Married individuals filing joint returns and surviving spouses. There is hereby imposed on the taxable income of�
every married individual (as defined in section 7703 ) who makes a single return jointly with his spouse under section 6013 , and

every surviving spouse (as defined in section 2(a) ),

a tax determined in accordance with the following table: (table omitted).

(b) Heads of households.There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b) ) a tax determined in accordance with the following table: (table omitted)

(c)Unmarried individuals (other than surviving spouses and heads of households).
There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b) ) who is not a married individual (as defined in section 7703 ) a tax determined in accordance with the following table: (table omitted).

That's a federal law that requires Banister to pay taxes, assuming he makes any money.

WHAT THE KELO DECISION REALLY MEANS

June 26, 2005

Iowa City blog-genius Salieri sums up the Supreme Court's controversial emininent domain decision:

"1. Mayor Richard M. Daley is holding his calls: he's been..."

This is a family blog; you have to follow the link to read the rest.

The Chicago Daleys are notoriously an ~~Axis of Evil~~ White Sox family; this may mean a Wal-Mart is coming soon to Clark and Addison.

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ANDREW MITCHELL LLC - GREAT TAX RESOURCE COLLECTION

June 26, 2005

Professor Maule gets the word out about the great collection of tax resoureces at the Andrew Mitchel LLC - International Tax Services site. The site contains charts showing common transactional fact patterns. It also diagrams leading corporate tax cases from Atlas Tool to Zenz. This page belongs in your tax bookmarks.

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MORE CIVIL DISCOURSE

June 25, 2005

Over at Tax & Business Law Commentary, Stuart Levine has this to say:

Some commentators have taken issue with my denominating those who follow Republican economic nostrums as being either knaves or fools. I have detailed at some length on this blog the outright lies of the right wing commentators with respect to the tax system (e.g., that the estate tax threatens closely-held family businesses and farms, that the U.S. tax system is beginning to burden the wealthy, etc.) and their willful omission of critical facts (e.g., that if you abolish the estate tax and replace the revenue loss by repealing the basis step-up rules, you shift the tax burden from the very wealthy to the less wealthy).

I believe that when individuals supporting a proposition regularly and repeatedly lie about the facts of their proposals and regularly and repeatedly fail to set forth relevant facts, they can justifiably be classified as knaves. I also believe that when the lies and omissions appear with sufficient regularity and are as egregious and transparent (or easily discoverable) as they are, individuals who buy the crap that these individuals are selling can justifiably be called fools.

We count ourselves among the commentators taking issue with the whole "knaves and fools" thing.

Calling opponents names isn't just bad manners; it is ineffective. In many issues there is a large audience that has unformed views but that might not yet agree with your position. There is also a group with tentative views that might be changed if challenged with a coherent argument. Calling such folks "knaves and fools" for not agreeing with you yet doesn't do much to bring them around.

Mr. Levine also paints opponents with too broad a brush. He seems to believe there is a monolithic "right wing" that universally follows a single set of "Republican economic nostrums." That's no more accurate than saying there is a single left-wing policy.

I may be "right-wing" from Mr. Levines standpoint. There's something I find viscerally unsettling about the state claiming a majority of somebody's net worth at death. Yet I am not dogmatically opposed to an estate tax; I see where the basis step-up it allows at death provides tremendous advantages in administering the income tax. I am opposed to the estate tax in its pre-2001 form, with its 50%+ rates and its application to a broad and growing sector of the upper middle class. I am also opposed to all of the small-business carve-outs, which are almost impossible to use anyway.

I do favor a much lower rate and a much higher exemption, so only the wealthiest have to screw around with all of the complexity involved, and so there is less need for all of the baroque loopholes in the estate tax rules. I don't think that makes me a knave, or a fool.

My views may be wrong. By disagreeing with Mr. Levine, I realize I am disagreeing with a smart man, and I have no reason to doubt his good intentions. But Mr. Levine is a lot more likely to convince me I'm wrong by pointing out how I'm wrong than by saying I'm evil or stupid. And if I continue to disagree with him -- well, grown-ups can look at the same situation and honestly come up with different conclusions. When another issue comes up, he's more likely to get my sympathy if he hasn't recently called me evil and stupid.

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TAX COURT GETS UNWELCOME COVERAGE FROM CHICAGO TRIBUNE

June 24, 2005

The Chicago Tribune reports today on the astounding backroom rewrite of the special trial judge's opinion in the Kanter case:

D. Irvin Couvillion, a special trial judge for the tax court, oversaw the trial of the case in 1994 and filed his findings in 1998. Pursuant to normal tax court rules, those findings were sent to Tax Court Judge Harold Dawson for review and issuance of a final decision.

Dawson found that there had been a fraud, stating in the first paragraph of his decision that he "agrees with and adopts the opinion of the Special Trial Judge, which is set forth below."

But last month, after a five-year court battle, Couvillion's original findings were made public and revealed that Couvillion actually had found there was no fraud and rejected the multimillion-dollar IRS claim against Kanter and his partners, Claude Ballard of Florida and Robert Lisle of Texas.

Prior Coverage: DID WE SAY "ADOPTED?" OH, WE MEANT "ADAPTED."

Hat Tip: TaxProf.

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OUR ENTRY: "WHATEVER MR. PUTIN SAYS IT IS."

June 24, 2005

In the United States, we use emininent domain to dispossess property owners for the benefit of the powerful. In Russia, they use the tax law to achieve similar results, but in more thorough and humiliating fashion.

Apparently the conveniently elastic definition of "tax evasion" in Russia has become an embarrassment even to the authorities. The authorities have luanched a contest to define "tax evation," as opposed to tax "optimization," or, as we call it in the states, tax avoidance. The successful entry gets a 300,000 ruble prize; don't bother, we think we're a lock. Now if we can just find something to buy with rubles...

Hat tip: Taxable Talk.

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TAX PROTESTER WINS JURY VERDICT; DELUSION, PARANOIA BREAK OUT

June 24, 2005

Prominent anti-tax charlatan Joe Banister was acquitted of tax conspiracy charges by a federal jury in California yesterday. He was charged with conspiring with fast-driving Al Thompson to evade taxes for Thompson and his business. Mr. Thompson is serving a six-year sentence for his tax evasion conviction.

DOES THIS MEAN THE TAX LAW IS INVALID?

Whenever a tax protest figure dodges a conviction in a jury trial, members of the Tax ~~Delusion~~ Honesty movement cite the acquittal as proof that the income tax really is invalid. That's like John Gacy citing the O.J. acquittal as evidence that there is "no law" against murder. It just means that for whatever reason, the prosecutors failed to convince the jury that Mr. Banister was guilty of conspiracy.

WHAT'S WITH THE GOVERNMENT?

The ponderous IRS response to tax protestors has always been puzzling. The government should have a special unit devoted to swiftly and publicy shutting down sellers of tax non-compliance schemes. By responding slowly, the IRS gives the Tax Honesty charlatans more time to get more folks in trouble. As time passes without injunctions and arrests, the gullible see it as evidence that their goofy theories actually work.

While the IRS and the Justice Department have stepped up their efforts in recent years against the tax protesters, the Banister acquittal may indicate that their efforts are still haphazard and unfocused. Tax Analysts quotes one frustrated observer of the tax protest movement:

McNab expressed frustration because only the regional CI (criminal investigation) office was able to move on Banister, rather than having the IRS build a more comprehensive case.

"I don't know why they don't treat him [Banister] as a national figure. He certainly has more than one client," she said. "Joe's a promoter. Al Thompson never was."

WHAT'S WITH TAX ANALYSTS?

The Tax Analysts story on the Bandister acquittal has this strange paragraph:

The Banister case now joins the 1991 Supreme Court decision in United States v. Cheek (498 U.S. 192), the 1993 Eastern District of Tennessee decision in United States v. Lloyd R. Long (CR-1-93-1), and the 2003 Western District of Tennessee decision in IRS v. Kuglin as the preeminent decisions shielding tax protesters.

"Preeminent decisions shielding tax protesters?" Only in the way the O.J. verdict is a preeminent decision shielding multiple homicides.

In Cheek, the Supreme Court ruled that a tax protester could try to convince a jury that he really believed his goofy theories. Mr. Cheek got another trial, and another conviction.

In both the Long and Kuglin cases, tax protestors won aquittal by a jury on criminal counts. They still had to pay the taxes, though.

These cases do next to nothing to "shield" tax protesters, despite their earnest assertions otherwise. It's strange that Tax Analysts seems to agree with them.

OR IS IT JUST A CLEVER CONSPIRACY?

The subscription-only version of the Tax Analysts article quotes a tax protester as taking a more sinister view of the Banister acquittal:

Longtime tax protester Otto U. Skinner said that because Department of Justice attorneys are notorious for bringing tax cases they are 90 percent sure they can win, the defeat all but confirms the theory that Banister may still be operating as an IRS mole.

"If Banister gets off, it's because the government put on a weak case," he said. "And that can only be done on purpose."

That's right, Otto, you're surrounded by spies. And how do we know you're not one, eh?

UPDATE:The TaxProf has more, with links.

Also: New York Times coverage.

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NORTH CAROLINA GROUP SUES OVER DELL TAX INCENTIVES

June 23, 2005

The North Carolina Institute for Constitutional Law has sued in a North Carolina court to block $280 million in subsidies and incentives granted to Dell, Inc. for a plant in Winston-Salem.

The suit echoes the Cuno suits percolating through federal courts to challenge tax credits.

There's no telling how this will play out, as far as I can tell. The signs point every which way:

-The Supreme Court today ruled that local governments can seize private property for developers over the objections of the property owners. This would seem to indicate that states can do whatever they please to help powerful interests, including preferential tax treatment. BUT-

-The Supreme Court also has ruled that homegrown marijuana used at home is part of the stream of interstate commerce, and is thus beyond the scope of state control. As the anti-subsidy Cuno decision is based on Commerce Clause law, this would seem to indicate that everything is interstate commerce, and states can't interfere with it via tax policy.

How will it come out? If the recent Supreme Court decisions are a guide, simply bet against what I want. That means you should bet on the ~~corporate welfare~~ tax incentive supporters.

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DON'T SEAT THESE GUYS TOGETHER

June 23, 2005

Interesting juxtaposition in our visitor listing this morning:

The KPMG visitor stopped by to read "VIC FLEISHER TO KPMG: DIE." The Dept. of Justice visited "KPMG TO BE INDICTED FOR TAX SHELTER MISDEEDS?" They behaved and didn't cause a scene in our virtual shop here.

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WHERE THERE'S A WILL, THERE'S A WAY. BUT WHERE'S THE WILL?

June 23, 2005

The Death and Taxes blog has a helpful piece about making sure your will is in a safe place.

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TORT SHARKS CIRCLE WOUNDED KPMG

June 23, 2005

An article in yesterday's New York Times reports that KPMG's courtroom problems don't end even if it avoids being indicted. Their admission of "unlawful conduct" has had a calming effect on its civil litigation akin to that of throwing bloody meat into shark-infested waters:

With the admission of unlawful conduct, "the firm's willingness to help the government presumably can be used against it in civil actions," said Howard E. Abrams, a white-collar defense lawyer in Atlanta.

Indeed, lawyers for investors who bought questionable shelters from KPMG were delighted by the admission.

"It's stunning," said Gerald H. Silk, whose New York firm, Bernstein Litowitz Berger & Grossmann, is pressing a lawsuit against KPMG in a state court in Arkansas. "Obviously, it's very helpful."

The report also quotes "a former top Internal Revenue Service official" on the likely outcome of the KPMG criminal investigation:

A former top Internal Revenue Service official said he expected that prosecutors were "not trying not to bring down the firm" but wanted to impose a deferred-prosecution agreement, with "a penalty in the tens of millions of dollars," as well as a ban lasting months on accepting publicly traded companies as new clients. The former official also said that he expected the Justice Department to pursue individual partners.

The tax-shelter industry may turn out to be as profitable to the accounting professon as a methamphetamine addiction.

Hat tip: The TaxProf Blog, which has a roundup of KPMG coverage this morning.

UPDATE:: Firms Compete for Class Settlement Action in KPMG Investor Suits

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TUSK AND TALON V. IRS, HERITAGE FOUNDATION

June 22, 2005

Chad of Tusk and Talon isn't afraid of a fight. Yesterday he took on both the IRS's new ruling on single-client insurance arrangements and the Heritage Foundation's proposal to eliminate the tax exemption for employer-provided health insurance.

No word on when Chad will pick on someone his own size...

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ESTATE TAX TO OUTLIVE KPMG?

June 22, 2005

The Wall Street Journal also reports that a compromise that would enable the estate tax to survive, but increase the exemption to $3 million, may be imminent:

According to aides close to the Senate talks, Republican and Democratic negotiators so far have agreed to dramatically and permanently lower the estate-tax rate beyond 2010 and boost the amount per person that is exempt from taxes to more than $3 million. By contrast, the personal exemption was $1 million in 2001, and this year is $1.5 million.

I wonder what crow tastes like?

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VIC FLEISHER TO KPMG: DIE.

June 22, 2005

Victor Fleisher, a UCLA Tax prof and blogger, writes in A Taxing Blog:

KPMG is getting its arm twisted over some tax shelters. Larry Ribstein thinks the government, or at least the criminal division, should back off. Christine Hurt also thinks the government is being a little harsh. I disagree.

...
One problem with both criminal indictments/staggeringly high civil penalties is that they may punish the whole firm for the misdeeds of a few. But this threat is necessary to encourage internal monitoring among law firm and accounting firm partners. Law firms will invest a lot more resources in reviewing tax opinions if their future livelihoods depend on it.

A conviction would destroy KPMG and leave only three firms in the business of auditing the largest companies. A Wall Street Journal piece yesterday (subscribers only) indicates that even with the existing four firms, it can be impossible to get an acceptable competing bid for a big company audit:

Intel Corp. is one of the many big companies now bumping up against the limitations. After using Ernst & Young LLP as its auditor for more than three decades, the semiconductor maker considered switching recently for a fresh look at its financials. But it stuck with Ernst after receiving proposals from the other Big Four firms: Deloitte & Touche LLP, KPMG and PricewaterhouseCoopers LLP. That is because federal regulations bar the three other firms from serving as Intel's independent auditor unless they give up valuation, computer-software and other work they do for Intel

While certainly KPMG partners should go to jail for crimes that KPMG seems to admit took place, and KPMG should be sanctioned, it's hard to see where anybody benefits from destroying the firm.

UPDATE: Today the Wall Street Journal reports:

Securities and Exchange Commission officials are privately discussing steps to take in the event of a collapse of one of the Big Four accounting firms, including temporarily relaxing some rules they put in place two years ago to try to improve the quality of audits.

It would be morbidly funny if the effort to punish KPMG for tax crimes led to weaker audits.

Prior Coverage:

KPMG TO BE INDICTED FOR TAX SHELTER MISDEEDS?
WE LEAD, WALL STREET JOURNAL FOLLOWS

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GOING UP THE RIVER? BE SURE TO TELL IRS

June 22, 2005

We've all moved, and we all know the ritual of sending forwarding information to our friends. Next time, don't forget your friends at the Internal Revenue Service. David Broomfield forgot, and yesterday it led to his defeat in Tax Court.

Mr. Broomfield was disputing a deficiency on his 1991 tax return. He had a telephone conference with an IRS Appeals officer on November 6, 2002, and was given a December 11 deadline to file back tax returns.

Mr. Broomfield was involuntarily given a new address on November 14, 2002: the Oakhill Correctional Institution in Oregon, Wisconsin; it seems that he had pleaded guilty to a "5th+" charge of operating while intoxicated. He had mentioned this move to the appeals officer, but hadn't given him a forwarding address.

TIMING IS EVERYTHING, IN TAX COURT

After Mr. Broomfield failed to file the back tax returns, the IRS on January 30, 2003 mailed him a "Notice of Determination," which gives a taxpayer 30 days to file a Tax Court petition to fight the tax. If you miss the deadline, your only recourse is to pay the tax and sue for a refund in U.S. District Court.

Unfortunately for Mr. Broomfield, the notice was mailed to his home address, rather than to the prison. Mr. Broomfield's petition wasn't postmarked until March 15, 2003 - after the 30 days had expired. The Tax Court ruled that the IRS had mailed the notice to his last known address, and that he had missed his chance in Tax Court.

Somewhat ironically, some cases have ruled that if the IRS puts you in jail, they are assumed to know your new address. That loophole was unavailable to Mr. Broomfield.

THE MORAL: Even when your new address is the Graybar Motel, be sure to file Form 8822 so your "friends" at IRS can reach you.

Cite: Broomfield v. Commissioner, T.C. Memo. 2005-148.

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NOW THIS IS HOW TO ILLUSTRATE DEFICIT DISCUSSIONS

June 22, 2005

The headline of Martin Sullivan's piece in Tax Analysts subscriber-only edition this morning is reassuring, in a not very reassuring way: "Economic Analysis: U.S. Financing Crises at Least a Decade Away"

He concludes:

By all historical and international standards, the United States is not close to any sort of financial meltdown, despite large fiscal and current account deficits in 2005. The first indications of any financial instability are likely to occur in about 10 years when, if there are no significant changes in law to reduce the federal deficit, the United States could lose its AAA bond rating. Even then, U.S. debt would still be investment grade. And it would still be another decade after that before the risk of default became significant.

Expecting to be around still in 10 and 20 years, this is sort of good news; we're not dead yet. But more impressive is Mr. Sullivan's use of graphics. No, not this:

THIS:

It's not clear what this illustrates, but it's not clear anyone cares. The picture is near a section titled "Gloom and Doom." If that's what doom looks like, I'm not going to worry about it.

More of this, and they'll stop calling economics the "dismal science."

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DeLAY SAYS THERE'S NO PUTTING OFF TAX REFORM

June 22, 2005

One day after a Senate taxwriter said tax reform would be put off to 2007, House Majority Leader Tom DeLay said otherwise:

"We cannot put it off," he said. "I�m glad to see the tax reform commission is being serious about what they may recommend."

That makes sense; it's unlikely that tax reform will happen at all in the Bush administration if it's delayed to 2007. Still, this part of the report makes us question how reliable his tax observations are:

DeLay is a longtime supporter of a consumption tax and said he is pleased with how the national sales tax bill from Rep. John Linder R-Ga., has gained momentum.

"I think a lot of people are starting to push aside the flat tax idea because they know it won�t work longer than two years."

That's about two years longer than sales tax rates over 35% would work.

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THE ENERGY POLICY TAX ACT GETS MAULED

June 21, 2005

Congress is set to pass the misbegotten "Energy Policy Tax Incentives Act of 2005," which will lard up the tax code with "12 new income tax credits and 2 new excise tax credits, 6 modifications and expansions of existing credits, 3 credit sunset extensions, 3 new deductions, a deduction modification, and 2 other provisions," by Professor Jim Maule's count.

We discussed this ugly legislation recently, but Prof. Maule has pitched in with much more detail, scholarship, and righteous disgust:

Americans should be expected to do what is right, even if laws need to be enacted to tell us what is right. But to rely on tax incentives to get people to do what they ought to be doing, and very well might already be doing, is wrong. Very wrong. After all, what's next, a tax credit for stopping at stop signs? A tax credit for owning a gun and going a full year without shooting someone out of anger or revenge? A tax credit for eating broccoli?

While I can quibble with some of the good professor's other policy prescriptions ("Where are the tax credits for encouraging use of passenger trains, oh, wait, Congress is cutting Amtrak funding."), his analysis of the folly of this bill is dead on.

Link: Senate language, HR. 6

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TWO YEARS TO TAX REFORM?

June 21, 2005

Senator Jon Kyl, a member of the Senate Finance Committee, says that tax reform might be on the back burner for awhile. Tax Analysts reports:

An aide to Senate Finance Committee member Jon Kyl, R-Ariz., on June 20 confirmed comments the senator made in an interview with Bloomberg News in which Kyl said congressional action on fundamental tax reform is likely to be postponed until 2007.

According to Bloomberg, Kyl said that waiting to act on tax reform would give lawmakers enough time to discuss the findings of the President�s Advisory Panel on Federal Tax Reform and debate the issue during 2006, an election year. After debate, Congress could then move forward on changes to the tax system in 2007, Kyl said.

Last weekend the White House postponed the due date for the Tax Reform panel's report.

If tax reform waits two years, it might as well wait 20. Tax reform necessarily involves slaughtering a lot of sacred cows, and Congress is loath to do so in the runup to an election.

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QUOTE OF THE DAY

June 21, 2005

"If you want to reform the health insurance markets, you must reform the tax system."

Robert Moffit, Heritage Foundation, at a forum advocating elimination of the tax-free status of employer health insurance.

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"MOM TO 130 BABIES"

June 21, 2005

The Des Moines Register today includes a feature article about a former colleague and his wife. Gene and Marilyn Joerger were foster parents to 130 children. Their run as foster parents ended when Marilyn was struck with blindness in a back operation gone sour.

The good work the Joergers did can hardly be put into words. Our hats off to them, and best wishes.

The online edition is a bit garbled; you will need to scroll down on the link to get to where they start talking about the Joergers. The article is here.

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WE LEAD, WALL STREET JOURNAL FOLLOWS

June 20, 2005

Last week we posted pieces on the unwisdom of the potential indictment of KPMG and on the conviction of the Tyco looters. Today the first two editorials in the print edition of the Wall Street Journal:

"Gunning for KPMG..."

"...and Tyco Justice."

But unlike the Wall Street Journal pieces, ours are available without a subscription! You're welcome.

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LLCs VS. CORPORATION SUBSIDIARIES - STRANGE INSURANCE RESULT

June 20, 2005

The Treasury issued a revenue ruling Friday (Rev. Rul. 2005-40) discussing what sort of arrangements constitute "insurance" under the tax law. The bottom line seems to be that if a company sells "insurance" to only one client, it's not really insurance under the tax law.

Two example puzzle us. In each of the examples, all of the risks of 12 subsidiaries of a single corporation are insured by a single "insurer."

In one case, a company has 12 subsidiaries formed as LLCs treated as "disregarded entities." In these cases no tax returns are filed for the subsidiaries, and they are included on the parent corporation's tax return as if they were divisions of the parent company.

In the other case, the 12 LLCs elect to be taxed as corporations, presumably to be included on the parent's consolidated return (although the example doesn't say so).

The company with the "disregarded" LLCs is not treated as having "insurance." The arrangement for the identical structure that has elected corporation treatment, in contrast, is treated has having insurance.

WHY IT MATTERS

If a company is treated as selling insurance, it qualifies for certain favorable tax treatments, including the ability to accrue loss reserves. Insurance premiums are deductible to the insured; if the payments fail to qualify as insurance, it may be a non-deductible deposit or loan.

WHY WE'RE PUZZLED

The consolidated return rules are designed to allow affiliated corporate groups to compute their taxable income as if they were a single entity. If the LLCs are disregarded entities, their taxable income actually is computed as a single entity. It is strange that corporations using disregarded LLCs as subsidiaries are treated differently from those using wholly-owned corporations as subsidiaries. We can understand how they can get to this point via legal analysis - disregarded entities are treated as non-existent, while corporation subsidiaries are not - but the ending result is odd.

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FATHER'S DAY CARNIVAL

June 20, 2005

This Week's Carnival of the Capitalists is up at Blog Business World. The Carnival is a weekly roundup of economics and business weblog postings.

Many posts this week there. One post close to our own heart talks about helping clients cope with sticker shock from consulting projects; it doesn't say to bill the clients for time you spend listening to them ask why the bill is so high.

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ILLINOIS CORPORATE WELFARE DISCLOSURE WEBSITE

June 20, 2005

Under new legislation, beneficiaries of certain Illinois tax breaks and subsidies are listed on a state web site. You can see the 35 or so recipients of the "EDGE Tax Credit," including struggling worthies like Abbot Labs, Target Corporation and U.S. Cellular.

You can also see the list of beneficiaries of the Corporate Headquarters Relocation Program. It's not long:

Thanks to David Brunori of Tax Analysts for the pointer.

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WHY GM BONDS ARE "JUNK" - THE SHORT COURSE

June 20, 2005

To wit:

What company provides health coverage for 1.1 million people (a population great than the state of Rhode Island), but only has 160,000 or so current employees?

BenefitsBlog has the scoop.

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IRS ISSUES JULY 2005 APPLICABLE FEDERAL RATES

June 20, 2005

The IRS has issued (Rev. Rul. 2005-38) the minimum interest rates for loans made in July 2005:

-Short Term (demand loans and loans with terms of up to 3 years): 3.45%
-Mid-Term (loans from 3-9 years): 3.85%
-Long-Term (over 9 years): 4.35%

Historical AFRs are available via the �Links� page at www.rothcpa.com.

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THE LIMITS OF ABSENT-MINDEDNESS

June 17, 2005

One of the boldest uses of ditziness yet attempted in a major criminal trial failed today. Former Tyco CEO Dennis Kozlowski was convicted on a 22 federal counts arising from his, well, generous compensation package. From the Wall Street Journal's online report:

The strongest prosecution evidence involved a 1999 transaction in which Mr. Kozlowski had $25 million wiped from the amounts he owed Tyco under a loan program, and Mr. Swartz had an additional $12.5 million of loans forgiven. Among other things, the sums didn't show up on either executive's W-2 tax form for the year, which prosecutors cited as evidence that the defendants were trying to hide the alleged theft.
Both defendants testified that the failure to include the amounts on the W-2 was a mistake they didn't catch at the time, but the notion that somebody wouldn't notice mega-millions missing from their tax returns must have strained credulity.

Years ago noted criminal law expert and Egyptologist Steve Martin recommended just such a defense:

You say.. "Steve.. how can I be a millionaire.. and never pay taxes?" First.. get a million dollars. Now.. you say, "Steve.. what do I say to the tax man when he comes to my door and says, 'You.. have never paid taxes'?" Two simple words. Two simple words in the English language: "I forgot!"

Absent success on appeal, it's back to the old drawing board for the white-collar defense community.

Mr. Kozlowski's CFO, Mark Swartz, was also convicted on 22 counts. Sentencing is set for August 2.

Those jurors must have had hearts of stone. Who hasn't forgotten about $25 million somewhere along the line? Must have been a bunch of Yankees fans...

More here.

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YOU BLOCKHEAD! YOU DIDN'T SUBSTANTIATE YOUR DEDUCTIONS!

June 17, 2005

Perhaps somewhere a Bartholemew Simpson is in his mid-twenties, mulling whether to change the name his parents gave him before anybody heard of Bart, Homer and Mr. Burns.

Charles Brown apparently made his peace with this issue long ago. The Tax Court says Mr. Brown has been an attorney for 30 years, which makes him about 55 years old. Charles Schultz had just invented the Charlie Brown character when Charles was born, but it was not yet a cultural icon.

Unfortunately, even a cultural icon has to substantiate his deductions.

Mr. Brown worked full time for a company called Mecca, but he also had a law practice on the side. His 1998 law practice schedule C showed $1,800 of income and $17,394 in expenses. An audit ensued.

AUTO EXPENSES: NO SUBSTANTIATION, NO DEDUCTION

Mr. Brown "reconstructed" a log book to support his $2,496 vehicle expense deduction. Based on the log book, the IRS allowed $494 of the deduction and nixed the rest. The Tax Court upheld the disallowance:

To substantiate the adequate records requirement for a passenger automobile, �a taxpayer shall maintain an account book, diary, log, statement of expense, trip sheets, or similar record * * * which, in combination, are sufficient to establish each element of an expenditure�. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).3 Based on a reconstructed log provided by Mr. Brown, respondent allowed a total of 7,562 business miles on a leased 1997 Acura, and accordingly allowed a deduction for a percentage of the vehicle�s lease payment, insurance, and gasoline expenses. Mr. Brown did not provide any additional account book, diary, log, statement of expense, trip sheets, or similar record for the remaining amounts of his vehicle expenses at trial. Mr. Brown testified to these expenses with estimations.

We are generally permitted to approximate the amount of an
expense if it is deductible but unsubstantiated, bearing heavily
against the taxpayer whose inexactitude is of his or her own
making.

Similar substiation failures cost Mr. Brown other home office, business and charitable contribution deductions.

THE MORAL: get a log and track those auto deductions, or you may end up feeling like a real blockhead.

Cite: Brown v. Commissioner, T.C. Summary Opinion 2005-85.

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TAX REFORM REPORT DELAYED TO SEPTEMBER 30

June 16, 2005

The President today signed an executive order delaying the deadline for the tax reform panel's report to September 30. The deadline had been July 31.

Why the delay? It might indicate that there is actual debate over the plan; in that case they might need more time. Yet the press release quotes the co-charis of the committee as saying "We were on track to issue our report by July 31," so they might be delaying for another reason.

Our guess: they figured nobody will be in Washington on July 31 anyway, so they may as well take their time and make their report when people are back from the beach and paying attention.

UPDATE: It looks like the summer vacation theory is right:

Treasury spokesman Taylor Griffin confirmed the delay was not due to fears that the panel would fail to get its work done on time. Rather, he said, the extension was granted to make sure tax reform is not lost in the shuffle amid other priorities such as energy legislation, Social Security reform, highway funding, judicial nominations, and appropriations.

The text of the release is in the extended entry below.

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LESSONS IN TAX COURT DEPORTMENT

June 16, 2005

Kris at Random Mentality links to an piece by a jaded public defender full of helpful advice for her potential clients. Consider this helpful tip for courtroom deportment:

When you come to court, consider your dress. If you�re charged with a DUI, don�t wear a Budweiser shirt. If you have some miscellaneous drug charge, think twice about clothing with a marijuana leaf on it or a t-shirt with the �UniBonger� on it. Long sleeves are very nice for covering tattoos and track marks. Try not to be visibly drunk when you show up.

Similar advice is in order for Tax ~~protesters~~ Honesty Movement adherents when they visit Tax Court. Yesterday a Tax Court special trial judge Couvillion outlined some helpful "don'ts" for plaintiff Regina Bruce:

Petitioner's positions were those of a classic tax protester. Before, during, and after trial, petitioner flooded respondent and this Court with exhibits and inflammatory affidavits advancing her position that the U.S. tax system is unlawful, and the IRS is abusive. Furthermore, her conduct at trial was highly improper. She refused to answer factual questions during trial about how much money she earned, whether she had ever filed a tax return, or whether she obtained tax advice from anyone. Instead, petitioner persisted in repeating her statements about the illegality of the Internal Revenue Code and the oppression of the IRS toward her and all fellow citizens. When the Court reprimanded her for wasting time on frivolous arguments, petitioner simply restated her beliefs and accused the Court of trying to silence her. Finally, when the Court denied her objections as to the relevancy of respondent's routine questions and ordered her to answer, petitioner answered each question with "I have amnesia; I don't know."

To help make sure she would remember not to do these things, the court fined Ms. Bruce $10,000.

Cite: Bruce v. Commissioner, T.C. Memo. 2005-139

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SARBANES-OXLEY COMPLIANCE IS TOO EXPENSIVE FOR SMALL FIRMS. DUH.

June 16, 2005

With typical finesse, Congress reacted to the Enron and Worldcom scandals by firing into the crowd. The Congressional response, the Sarbanes-Oxley act ("SOX"), treats all public companies as potential criminals. The SOX law saddles all public companies with punishing compliance costs. While these might seem a small price to pay for a multi-billion dollar company like Microsoft, the costs aren't much less for a $50 million company.

The cost of being a public company has led many smaller companies to consider withdrawing from the public markets. The New York Times reports today that the Securities and Exchange Commission is now holding hearings on SOX costs to smaller companies. The article reports:

Big corporations are complaining about Sarbanes-Oxley, too. But there is little question that the financial burden of compliance falls more heavily on smaller companies. A study by Nasdaq released in April found that, as a percentage of revenue, "companies that have revenues less than $100 million spent 11 times more than companies with revenues of $2 billion or more." Another study, released in March by Financial Executives International, a professional association for corporate financial officers that is based in Washington, said costs averaged $824,000 for companies with annual revenues under $100 million, compared with $1,572,933 for companies with sales of $100 million to $500 million.

Once again showing that when Congress tries to solve a problem, it just makes more problems.

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KPMG TO BE INDICTED FOR TAX SHELTER MISDEEDS?

June 16, 2005

The Wall Street Journal reports this morning that U.S. prosecutors are debating whether to indict the world's fourth largest CPA firm. The article says that KPMG's tax shelter promotions have put it in peril of following the Andersen path to oblivion:

Federal prosecutors and KPMG's lawyers are now locked in high-wire negotiations that could decide the fate of the firm, according to lawyers briefed on the case. Under unwritten Justice Department policy, companies facing possible criminal charges often are permitted to plead their case to higher-ups in the department. These officials are expected to take into account the strength of evidence in the case -- the culmination of a long-running investigation -- and any mitigating factors, as well as broader policy issues posed by the possible loss of the firm.

These "policy issues" are the existence of only four firms now in the business of auditing the largest enterprises. When Andersen was convicted of securities violations - charges recently thrown out by the Supreme Court - it lost its state licences and was forced out of business.

KPMG issued a statement that doesn't exactly proclaim innocence:

KPMG issued a statement early Thursday in which the firm said it "takes full responsibility for the unlawful conduct by former KPMG partners" during the period under investigation by the Justice Department. KPMG said it has taken actions "to ensure that this type of conduct does not occur again," including "firm-wide structural, cultural and governance reforms." The statement said KPMG employees "no longer provide the services in question."

We have no affection for KPMG, but it is mind-boggling that the government would even consider indicting another national firm after the Andersen debacle. By all means they should go after lawbreaking partners, but it's hard to see any point in killing one of the four big auditing firms -- especially seeing how they are all swamped now with the additional audit work triggered by Sarbanes-Oxley.

Link to WSJ Article: KPMG Faces Indictment Risk On Tax Shelters
(probably only works for WSJ online subscribers).

Link: KPMG statement

Link: NY Times Article "KPMG Says Tax Shelters Involved Wrongdoing"

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LESSONS IN RETURN FILING

June 15, 2005

Mr. Randon Scholet once took an H&R Block tax course. The Tax Court added to his tax knowledge today, but H&R Block was probably cheaper.

Mr. Scholet learned at least two valuable lessons:

LESSON #1: A LAME ASSERTION BY LETTER IS NOT A TAX RETURN.

Rather than filing a 1998 form 1040, Mr. Scholet and his wife notified the IRS by letter that:

We still sincerely believe that we are not a
person liable or required to file a 1040 U.S.
Individual Income Tax Return for 1998.

When the court determined that Mr. Scholet owed an additional $463,386 in tax for 1998, it also considered asserting a 25% failure to file penalty. Mr. Scholet said his "sincere" letter counts as a tax return, so he did file. The Tax Court explained otherwise. This lesson in the tax law comes to Mr. Scholet at a cost of $112,138.

LESSON #2: IF YOU DON'T FILE, YOU DON'T FILE JOINT

Mr. Scholet learned another unpleasant lesson: if you are married and don't file a joint return, the IRS gets to assess tax at the higher married filing separate rates. This lesson probably cost Mr. Scholet about $13,200. Expensive, yes, but a bargain compared to lesson #1.

Cite: Scholet v. Commissioner, T.C. Memo. 2005-140.

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I THINK WIKI SAYS THAT TO ALL THE GUYS

June 15, 2005

I received an email yesterday telling me that I am "one of the more forward-thinking people regarding the online collaboration of tax issues." I was excited until I noticed that Stuart Levine of Tax & Business Law Commentary got the same email.

The e-mail announced that Intuit is developing a tax "wiki" at www.taxalmanac.org. A wiki is a collaborative online encyclopedia where volunteers contribute and edit articles; the "Wikipedia" is the prototype for these things.

We accepted the invitation and visited it. It looks a bit rough. It could be a very cool tool, but it reminds me of some study groups we were in as college freshmen. One person might study the coursework; the other group members would then pump that person for information, in lieu of actually reading the material.

The Wiki will work if the ratio of study-ers to pumpers is high enough to not discourage the study-ers. It will be interesting to watch.

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WILL 51% TAX 49% TO OBLIVION?

June 15, 2005

Efforts to ensure tax cuts don't disproportionally benefit people who actually pay taxes have now excluded 58 million U.S. households from the income tax system, according to a report in the Tax Policy Blog.

This seems like a bad idea. When such a large block pays no taxes, they have no stake in restraining government spending - heck, spend some more, those other guys will pay!

UPDATE: State 29 is beating up Dick Doak with this.

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ANSWER: AS CLOSE AS DES MOINES IS TO IOWA

June 15, 2005

Question:

"How close are we already coming to legalized bribery here?"

Minneapolis Attorney John P. James, discussing state tax incentives at the annual meeting of the Federation of Tax Administrators in San Antonio, as reported by Tax Analysts.

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HOW THE TAX LAW GETS COMPLICATED, EXAMPLE #93,412

June 15, 2005

Headline from Tax Analysts free site:

Grassley Packs $16 Billion in Incentives Into Energy Tax Title

The Senate Finance Committee fell just short of its spending target with the June 14 release of a $16 billion energy bill tax title that includes tax breaks for almost every segment of the energy industry.

According to the Joint Committee on Taxation, the chairman�s mark would cost $16 billion over 10 years, but over the first 5 years would cost just less than the $11 billion allowance in the 2006 budget resolution. Finance Committee Chair Chuck Grassley, R-Iowa, and ranking minority member Max Baucus, D-Mont., held costs down by sunsetting many of the tax breaks and only temporarily extending several others. But the legislation has little in common with the $8 billion House version, making it likely the cost could again balloon in conference negotiations.

In real life, rising energy prices are all the incentive needed for increased energy production and conservation. That, and maybe the government getting out of the way of exploration and refinery construction. But Congress is here to help.

The firewalled version of the article spells out some of the new tax breaks:

For energy conservation and efficiency, the Senate left the House behind with tax credits for efficient commercial buildings ($766 million, sunsetting in 2009), business credits for construction of energy-efficient homes ($706 million, sunsetting in 2007), a building credit for efficient heating and cooling systems ($1 billion, sunsetting in 2008), and new credits for more efficient home dishwashers, clothes washers, and refrigerators ($300 million staggered sunsets).

You know things are out of hand when even the sunsets are staggered by the tax breaks.

The Senate bill also takes care of the powerful oil and coal lobbies, providing $2 billion in incentives for generating electricity with clean coal, $727 million to allow expensing of equipment for refining liquid fuels, and $1.1 billion for enhanced oil recovery.

Despite the high combined price tags of the House and Senate tax titles, and the president's admonishments on cost, Grassley said he remained confident tax incentives would not hold up the bill.

No, they'll help it slide right on through.

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CRAWLING UP THE LEARNING CURVE

June 14, 2005

Paul J. Sulla, Jr., a Hawaii-based attorney, has now litigated four cases to decision in the Tax Court. He has lost them all. He is making progress, though - the Tax Court has not fined him now in two consecutive decisions.

The court sanctioned Mr. Sulla in