Tax Update Blog: August 2005 Archives
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KATRINA RELIEF
August 31, 2005
If you are sitting on your roof waiting for a boat, even the IRS can see you probably can't file your September 15 returns on time. The IRS has automatically extended all September 15 and October 15, 2005 return due dates to October 31 for areas affected by the storm.
In addition, the IRS has waived penalties for employment and excise tax deposits due from August 28 - September 23, if the payments are made by October 31
To claim the relief, taxpayers should mark late-filed returns in red on top with the words "Hurricane Katrina."
The disaster relief currently covers the following:
• 31 Louisiana parishes: Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Pointe Coupee, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John, St. Mary, St. Martin, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge and West Feliciana;
• 15 Mississippi counties: Amite, Forrest, George, Greene, Hancock, Harrison, Jackson, Lamar, Marion, Pearl River, Perry, Pike, Stone, Walthall, and Wilkinson; and
• Three Alabama counties: Baldwin, Mobile and Washington.
The relief is likely to be extended to additional areas. Considering the nature of the devastation, additional extensions of time may be granted for parts of the affected area.
Links: IR 2005-84, a summary of tax relief for affected taxpayers.
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MAKING LEMONADE
August 31, 2005
Now that the heady days of the tax-shelter era are over, what do the big firms that marketed the shelters have to offer? Advice on how to not be embarrassed by your tax planning!
According to an article by Martin Sullivan in today's Tax Analysts (subscriber only link), different times demand different measures:
Press attention to accounting scandals and the use of aggressive tax shelters has translated into more resources for tax authorities and regulators. And as sure as night follows day, that makes tax compliance more onerous and tax planning more challenging. But in this post-Enron, post-WorldCom, post-Parmalat world, there's a new dimension of risk associated with overambitious efforts to lower taxes. Now the actions of the tax department can tarnish a company's public image.
It's not just KPMG sounding the alarm. All of the Big Four accounting firms are urging their clients to give careful consideration to "tax risk management."
It's sort of like the computer hacker who takes a job as a security consultant for Microsoft...
UPDATE: The good TaxProf has now made the article available to non-subscribers here, by arrangement with Tax Analysts.
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SPRING-TIME IS OVER FOR VALUING LIFE INSURANCE POLICIES
August 31, 2005
The Treasury has issued new regulations (TD 9223) dealing with "springing" cash-value life insurance and other issues in valuing insurance contracts. The regulations respond to a variety of ploys to artificially lower insurance values temporarily for income and estate tax planning.
In the past, a life policy's cash value was often considered the same as it's "fair market value." To take advantage of this, policies were created that had a low cash value for a few years, before the cash value "springs" to a big number.
A number of tax planning defices were built around this concept. In income-tax planning, a small pension plan would buy a springing policy and transfer it to a beneficiary -- say, the business owner -- at thelow "unsprung" value. The plan would then "spring" to life, and the owner could borrow against the policy tax free. The Treasury press release for the regs explains:
The contract is structured so that the cash surrender value increases significantly after it is transferred to the employee. The use of this springing cash value life insurance results in a mismatch between the employer's deduction and the employee's recognition of income. The employer takes a deduction for the entire value of the premiums paid into the insurance plan and the employee pays taxes only on the artificially depressed value of the contract allowing the employee to avoid taxes on the true value of the contract while the employer taxes the full deduction for the premiums paid.
The new regulations say that "fair market value" means, well, fair value, unreduced for gimmicks like springing cash value. The regulations apply to policy transfers starting February 13, 2004.
Links: Treasury Press Release
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SOMETIMES TAX GUYS REALLY PAY THEIR WAY
August 30, 2005
Attorneys from Fenwick & West LLP prevailed today in a $100 million Tax Court case. The Fenwick group, including Kenneth B. Clark, successfully defended Xilinx, Inc. in its allocation of employee stock option (ESO) costs with a foreign subsidiary under an R&D cost-sharing agreement.
The court found the IRS arguments wanting:
Simply put, the regulations applicable to the years in issue did not authorize respondent to require taxpayers to share the spread or the grant date value relating to ESOs. Petitioners are merely required to be compliant, not prescient.
The taxpayer victory also prevented the IRS from making $20 million in penalties stick.
Cite: Xilinx, Inc. and Subsidiaries v. Commissioner, 125 T.C. No. 4.
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PROFESSIONAL GAMBLING: THE TAX IMPLICATIONS
August 30, 2005
The hardest part of being a professional gambler would be making money at it. Close behind are the tax problems. Russ Fox studies what the tax law requires of "professional" gamblers in the third installment of his Taxes and Online Gambling series up at Taxable Talk.
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$458 MILLION KPMG SETTLEMENT APPROVED; SEVEN FORMER PARTNERS INDICTED
August 29, 2005
The KPMG settlement has been approved by a federal judge. The Justice Department then announced the indictment of seven former KPMG partners on tax charges. A KPMG former senior manager and a non-KPMG attorney were also indicted.
Tax Analysts reports the following were indicted on tax conspiracy charges:
Jeffrey Stein, former deputy chairman of KPMG, former vice chairman of KPMG in charge of tax;
John Lanning, former vice chairman of KPMG in charge of tax
Richard Smith, former vice chairman of KPMG in charge of tax, a former leader of KPMG’s Washington National Tax;
Jeffrey Eischeid, former head of KPMG’s innovative strategies group and its personal financial planning group;
Philip Wiesner, former partner-in-charge of KPMG’s Washington National Tax office;
Mark Watson, a former KPMG tax partner in its Washington National Tax office.
Robert Pfaff.
Also indicted were John Larson, a former KPMG senior tax manager, and Raymond J. Ruble, a former tax partner in the New York office of a prominent national law firm.
LINKS:
New York Times: U.S. Indicts 8 Ex-KPMG Employees of Sales of Tax Shelters.
Transcript of Attorney General remarks at press conference on KPMG case.
Investors.com: KPMG to pay $456M to settle tax-shelter charges
UPDATE: Copy of Indictment (pdf)
And the TaxProf has a comprehensive set of links to KPMG settlement documents.
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HIGH AND DRY CARNIVAL
August 29, 2005
Not much of a party in New Orleans today, but the Carnival of the Capitalists rocks on this week at CaseySoftware.com. This weekly compilation of economics and business weblog postings is always worth a visit.
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MISS AMERICA: CORPORATE WELFARE QUEEN?
August 29, 2005
The Miss America Pageant in leaving Atlantic City in search of a better provider. The CEO of Miss America said The pageant's subsidy wasn't enough to keep its lifestyle at the level to which it would like to be accustomed:
He told the Atlantic City Convention and Visitors Authority at a board meeting that the state's $725,000 annual subsidy to Miss America wasn't enough and he wanted the agency to release it from the last two years of its five-year contract.
Surely this could qualify for a Grow Iowa Values grant, and an annual pageant at the Wells Fargo Arena or Principal Park - maybe between games of a double-header. How do you spell glamour? "D-E-S M-O-I-N-E-S!"
Hat Tip: Tax Foundation Blog
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PROFESSIONAL RESPONSIBILITY AND TAX SCHEMES
August 29, 2005
As indictements start to come down in tax shelter cases, you can expect to see tax professionals use the accountant's version of the Nuremberg defense: "I was only doing it because our national tax office said it was ok."
Two professors at the University of New Orleans (interesting place today, no doubt) look at the conduct of those involved in the scheme, and they conclude that professionals are accountable for what they sign and sell, regardless of what the national tax office says:
As Prof. Calvin Johnson stated, Circular 230 require a
‘‘one-in-three realistic possibility of success.’’ The ‘‘audit
lottery’’ factor and ‘‘dumb agent’’ are not acceptable
defenses for tax professionals.
That essential and elementary advice went unheeded
at KPMG and other leading accounting firms. Not only
did firms not guide their clients to ethical tax positions,
they went so far as to aggressively market son-of-BOSS
tax schemes. The tax professionals who signed those
fraudulent returns should be systematically identified by
accounting firms and promptly dismissed. Further, the
Treasury should identify signers of those returns and
prohibit them from practice before the IRS.
In other words, the article says tax practitioners can't punt responsibility to higher-ups in the firm; in fact, the higher-ups have a duty to enforce proper behavior and hold all personnel accountable:
If the accounting firms are unwilling or unable to hold
those individuals who signed returns employing son-of-
BOSS tax shelters and similar schemes responsible, then
regulators should hold them accountable (for example, as
part of any settlement agreements, deferred prosecution
agreements, or by IRS enforcement action). Importantly,
the recommendation is equally applicable for lawyers
and investment bankers.
You sign it, you live with it.
Thanks to the TaxProf for pulling this article from behind the Tax Analysts subscriber firewall.
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'I FORGOT' - TRANSCENDENTAL MEDITATION FOR THE CPA?
August 29, 2005
Go to Krieg Mitchell's place for your Monday spiritual guidance:
The CPA’s mistakes could result in the taxpayer going to jail; facing penalties, interest, and additions to tax; and the loss of a hard-earned business reputation, the business itself, and even taxpayer’s family and friends. Yet, based on the CPA's testimony, the CPA seems to be indifferent to his client's situation. In fact, he seems to be completely at peace with his client's situation.
This just goes to show that we don't need religion, spirituality, medication, or even meditation or yoga to find inner peace. The secret to finding inner peace is simply to forget everything...
It costs less than this, anyway.
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YIKES
August 28, 2005
We interrupt our regularly-unscheduled weblog for this bulletin:
Unless there is a miracle, a disaster slow-approaching yet inexorable will wreak havoc on a scale not seen in the United States for decades. People alive today will be dead soon, and New Orleans as we have known it will no longer exist by Tuesday.
Have a nice day.
Link:What the "big one" would do to New Orleans.
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KPMG - FROM DEFIANCE TO DEFERRED PROSECTION
August 28, 2005
Today's editions of The New York Times provides background on how KPMG went from "stonewalling" government investigators to pledging full cooperation as part of a "deferred prosection" agreement.
According to the story, KPMG felt it was falling behind other firms in the lucrative tax shelter market. Jeffrey M. Sein, a "charismatic lawyer," was brought in to turn it around. From the report:
Throughout the late 1990's, Mr. Stein held mandatory weekly conference calls with KPMG's 500 or so tax partners. A former KPMG senior manager who sat in on the calls and objected to Mr. Stein's approach said Mr. Stein would tell anyone who questioned a tax strategy that they were "either on the team or off the team."
Under Mr. Stein, Mr. Rosenthal and others, KPMG built an aggressive marketing machine to sell tax shelters it created, with names like Blips, Flip, Opis and SC2. From the late 1990's, KPMG operated a telemarketing center in Fort Wayne, Ind., that cold-called potential clients, gleaned from public lists of firms and companies.
By 2002, $1.2 billion of KPMG's $3.2 billion in revenues were generated by their tax deparment.
When the IRS and Congress began to investigate the tax shelter practices of the major accounting firms, KPMG took its own path. While the other firms settled with the government, KPMG fought back. That worked, until it didn't. Congressional investigations were the beginning of the end:
Then KPMG hit a wall. The Senate subcommittee report, brimming with internal e-mail messages and documents obtained from informants and through subpoenas, portrayed the firm's tax department as a place where questions about the legitimacy of shelters were barely considered, where the fees from such shelters were seen as outweighing the risks and where clients could be coaxed into buying them. The Senate hearing "was the beginning of the end" for KPMG, said the former senior manager.
By last year, KPMG's resistance was bearing bitter fruit. A new chief lawyer was brought in and KPMG admitted "unlawful conduct" in the tax shelter business. KPMG is expected to pay $456,000 in fines, and a number of former partners are expected to face charges that could carry 30-year prison terms, according to reports.
If nothing else, tax firms will tread gingerly in the tax-shelter business for a few years, at least. In the eternal battle between greed and fear, fear now has the upper hand.
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KPMG SETTMENT: $456,000,000 / 1600 = $285,000
August 27, 2005
The New York Times reports today that KPMG has agreed to settle tax crime charges with the Justice Department. The report says that KPMG will have to pay $456 million in fines and accept an outside overseer to avoid indictment. That works out to about $285,000 per partner for the 1,600-partner firm.
The report says the settlement is slated to be announced Monday.
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S CORPORATION OWNERS TEMPT FATE, WIN
August 26, 2005
S corporation shareholders have to have "basis" in either their stock or in loans they have personally made (not just guaranteed!) in their S corporation. The Tax Court yesterday allowed S corporation owners to take losses for year-end loans made to their corporation, even though they took the money back out only a few days later.
S corporations don't normally pay taxes on their income. The income is instead taxed on the personal returns of their owners.
"Basis" is normally your original cost of something. The basis of S corporation stock is adjusted upward for income taxed to the owners and capital contributions, and downward for losses passed to the owner returns, and for distributions of earnings.
BAD YEARS FOR BROOKS AG COMPANY
The owners of Brooks AG Company, Inc. had no basis left in their shares. In order to take losses for 1999, they found they would have to either add to their stock basis or make an advance to their company. The shareholders each advanced funds to the company as follows:
December 31, 1999: $800,000 advanced to company
January 3, 2000: $800,000 advance is repaid.
December 29, 2000: $1,100,000 advanced to company.
Brooks Ag had losses of $882,586 in 1999 and $827,888 in 2000; the losses were split almost equally between two shareholders.
THE IRS VIEW
The IRS argued that the basis of the open account debt should be measured separately for each advance, on a first-in, first-out basis. In their view, the tax effects of the transactions to each shareholder was:
1999 loan from shareholder $800,000 Less: 1999 loss used against loan (441,293) Basis of 1999 loan 358,707 Repayment of loan made in January 2000 (800,000) Taxable (gain) on loan repayment (441,293)
THE TAX COURT SAYS OTHERWISE
Fortunately for the Brooks AG shareholders, the tax law is on their side. The Tax Court explained:
Sec. 1.1367-2(a), Income Tax Regs., provides that advances and repayments of open account debt are treated as a single indebtedness for the purpose of making debt basis adjustments and defines open account debt as "shareholder advances not evidenced by separate written instruments and repayments on the advances".
As a result, the only date that matters in measuring the basis of the advances is December 31. For 1999 and 2000, that means
1999 loan from shareholder $800,000 Less: 1999 loss used against loan (441,293) Basis of 1999 loan 358,707 Repayment of loan made in January 2000 (800,000) Advance Made December 29, 2000 1,100,000 S corp loss for 2000 (413,944) Basis in advanced loans, 12/31/2000 $244,763
In other words, the owners got to take their whole 2000 loss, and they didn't have taxable gain on the January 2000 loan repayment.
DANGERS OF THIS APPROACH
Notwithstanding the taxpayer victory here, we normally wouldn't advise taxpayers to put large amounts of cash into an S corporation right before year-end to take losses and then withdraw it right after year-end. The IRS has other tools they could use to attack such short loans, and those attacks might succeed under other circumstances. They might attack the loan as lacking substance, for example, especially if the check didn't clear before it was repaid; this would be a twist on the Oren case. Or they might say the taxpayer wasn't really "at-risk" for the loan over such a short period, especially if the lent funds were borrowed from a related party as in Van Wyk.
If a deduction for the losses is important, you should at least let the money you put into your S corporation at year-end cool down for a few weeks before you take it back out. Even if you win ultimately, it's easier to win if the IRS isn't tempted to come after you in the first place. While the taxpayers won yesterday, they'd have been happier if they didn't have to go to Tax Court at all.
Cite: Brooks v. Commissioner, T.C. Memo. 2005-204.
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COULD THIS ARTICLE HAVE SAVED MR. MISHNE?
August 26, 2005
The TaxProf highlights a new article, 'Til Death Do Us Part ... After That, My Dear, You're on Your Own: A Practitioner's Guide to Disinheriting a Spouse in Illinois.
Had Mr. Mishne disinherited his lovely bride, maybe he'd be alive today.
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HEALTH SAVINGS ACCOUNTS TO END LIFE ON EARTH?
August 26, 2005
The California Insurance Commissioner seems to think so. The InsureBlog knows better. InsureBlogger Hank Stern takes on aspiring Lieutenant Governor and Insurance Commissioner Garamendi with a 2-part defense of HSAs:
Fallen-away Iowan David Hogberg also finds Mr. Garamendi's arguments unpersuasive.
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KPMG INDICTMENTS: EIGHT SCAPEGOATS?
August 25, 2005
UPDATE 8-29-05: Seven former KPMG partners and one former senior manager have been indicted. Follow this link for details.
Original 8-25-05 post:
Reuters and Bloomberg News say eight former KPMG partners are expected to face federal criminal charges relating to KPMG's tax shelter activities. From the Bloomberg report, dated yesterday:
Robert Fink said he expects his client, a former partner at KPMG whom he wouldn't identify, to be formally notified of the indictments in New York today or tomorrow. He wouldn't disclose his source of information about the charges or identify the other seven defendants. Fink said he believes the federal charges will likely include conspiracy to defraud the Internal Revenue Service, tax evasion and possibly obstruction of justice.
"My client has always believed that KPMG did legitimate tax planning that accountants throughout America were doing and that the government is distorting that into an alleged tax crime," said Fink, a partner at New York-based Kostelanetz & Fink. He said his client will plead not guilty to all charges and go to trial.
Meanwhile, the Wall Street Journal reports that former SEC Chairman Richard Breeden is the tentative pick to serve as "outside monitor" of KPMG under a still-pending "deferred prosecution" arrangement that would enabale KPMG itself to avoid indictment. From the Journal story (subscriber-only link):
Other provisions of a deferred-prosecution agreement likely would include new restrictions on the firm's tax practice and heightened government supervision, including Mr. Breeden's appointment as an outside monitor. Deferred-prosecution agreements, which have become more common, allow companies to avoid prosecution in exchange for adhering to certain conditions over time.
Interesting times for our profession.
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QUOTE OF THE DAY
August 25, 2005
In discussing whether a lawyer includes payments in income when he prepares wills for members of his church, who donate cash to the church in return, Professor Maule observes:
Several participants pointed out that "it does not make sense" to treat the donations as the lawyer's gross income. There's something to be said for this position. Yet, it is not unusual for the tax law to require an outcome that does not make sense.
Truer words were never spoken.
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ACCEPT NO COMPROMISES
August 25, 2005
The tax law has long allowed the IRS to compromise tax liabilities when there is doubt about whether am amount owing is legitimately due, or when the taxpayer has no way to pay (the technical term for such a taxpayer is "turnip," I believe).
In 1998 Congress allowed the IRS to comrpomise tax es taking into account "factors such as equity, hardship and public policy where a compromise of an individual taxpayer’s income tax liability would promote effective tax administration."
After six years, the IRS still makes very few compromises under the 1998 changes. Thanks to the TaxProf Blog, a discussion of the IRS compromise policy written for Tax Analysts is available today to non-subscribers: The 'Effective Tax Administration' Offer in Compromise.
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HOW DARE YOU LACK SYMPATHY FOR A POOR WIDOW?
August 24, 2005
Sometimes it's easy, actually:
"Ms. Mishne was convicted of involuntary manslaughter in the 2004 slaying of her husband, Mickey Mishne. Ms. Mishne's boyfriend is serving a life sentence for aggravated murder in connection with the killing. Now Ms. Mishne has filed papers to collect a portion of her husband's estate -- this article has the details. (Evidently Mr. Mishne left most of his property to her under his Will, although the article suggests that Ms. Mishne is making her claim as surviving spouse.)"
The Death and Taxes blog has the whole story.
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SAVE THE MOVIE STARS!
August 24, 2005
How bad have state taxes gotten in California? This bad:
California Film Commission Report Backs Tax Credit for Movie Industry
The California Film Commission has released a 25-page study, What Is the Cost of Run-Away Production? Jobs, Wages, Economic Output and State Tax Revenue at Risk When Motion Picture Productions Leave California, in support of proposed legislation to provide a California tax credit of 12% on wages and other production costs for movies and TV shows
California's top individual rate is 10.3%, and a 1% additional "millionaire surtax" is in the works. The 10.3% rate with no deduction for federal taxes would be roughly equivalent to a 13.5% rate in a state where federal taxes are deductible (e.g., Iowa).
To survive, well-connected businesses carve loopholes. This puts more upward pressure on rates, creating more incentive to carve out loopholes.
(Via the TaxProf Blog)
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TAX ANALYSTS: JUSTICE DEPARTMENT TAX DIVISION OK'S KPMG PARTNER INDICTMENTS
August 24, 2005
Tax Analysts reports this morning that the Justice Department Tax Division has given the go-ahead for indictments of "most" of the 22 ex-KPMG partners who had been identified as targets. From the story:
The individual indictments, which have to be presented to the grand jury that has been investigating KPMG’s shelter involvement for the past 18 months, are likely to be announced Thursday, according to lawyers familiar with the cases. But the “tail wagging the dog” is when the deferred prosecution agreement with the firm is ready, according to one lawyer.
The government’s lead charge against the former KPMG partners is that they conspired to defraud the IRS, according to lawyers involved.
The government’s chief witness is likely to be Domenick DeGiorgio, the former banker with the German bank HVB, who earlier this month pleaded guilty to wire fraud, tax evasion, and “tax shelter fraud conspiracy,” charges related to his involvement in promoting the tax shelter transactions known as bond linked issue premium structures, or BLIPS, which were sold to KPMG clients.
The subscriber-only version of the story hints at the likely defense:
Not only is DeGiorgio's credibility suspect at the outset because of his personal problems, but much of the information he provided that the government is relying on regarding the transaction's profit potential and the investors' income tax returns is not based on DeGiorgio's own knowledge, said one defense attorney.
Furthermore, conspiracy thrives on secrecy, argued another criminal defense lawyer. The BLIPs product at issue was approved after a very long, deliberative process among a number of lawyers and accountants at KPMG, the lawyer explained. "If the intention from the beginning had been to scam the IRS, it would never have made any sense to have all those people involved."
The indictments are tied to a deal that would enable KPMG itself to avoid prosecution. KPMG's cooperation may be the Governments trump card in prosecutions of the former partners.
We don't much care for KPMGs tax-shelter practices. Still, the prosecutions are scary to all tax practitioners. If the Justice Department goes ahead with indictments, we hope that it has evidence of criminal behavior, rather than, say, malpractice.
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TAX FRAUD: PRISON TIME DOESN'T MEAN YOU'RE DONE
August 23, 2005
Iowa State University student-athlete Jason Berryman mugged a fellow student, leading to about a year in jail. Now he's back on the Iowa State football team and back on scholarship. Some say that because he spent time in jail, Mr. Berryman has paid his dues and we should let bygones be bygones.
The IRS is more vindictive. Kevin Morse, a Minnesota farmer, spent 18 months in prison for tax evasion and paid $61,700 in back taxes. Yesterday the Eighth Circuit Court of Appeals ruled that he also must pay civil tax fraud penalties equal to 75% of the tax deficiencies.
The Moral: Cyclone fans should be glad the IRS Commissioner isn't running the football team.
Link: Morse v. Commissioner
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YOU MAYBE GOT A DRIVERS LICENSE FROM THERE?
August 23, 2005
Hansen contends this Court does not have personal jurisdiction over him because he declares his domicile to be Heaven. The Court is not persuaded by these arguments.
-From an order in U.S. v. Hansen, where a Federal District Judge told a tax scam promoter that it ain't heaven, it's California.
Link: Court order
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STRANGI FRUIT
August 23, 2005
The TaxProf today lifts Lee Sheppard's analysis of the Strangi family limited partnership cases out of the Tax Analysts firewall. Her summary:
So where are we now? It will be much more difficult, if not impossible, for the family limited partnership doing nothing but holding the portfolio assets of some core affluent decedent to be justified by a made-up business purpose. The business purpose inquiry comes late, after the inquiry whether the decedent retained possession and enjoyment of the transferred assets (or controlled their disposition), but the point is that it comes eventually. Estate planners have lost their bid to keep business purpose out of the evaluation of the paper transactions they create.
Keep reading past the references to Japanese teenagers and ugly handbags; it's worth it.
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WASHINGTON POST: KPMG MAY SETTLE CRIMINAL CHARGES THIS WEEK
August 23, 2005
The Washington Post reports today that KPMG may sign an agreement by the end of the week to avoid indictment in connection with its tax shelters. In exchange, KPMG will pay a fine of between $300 million and $500 million and operate under "independent review," according to the report.
While KPMG may dodge this bullet, some of its former partners may not be so lucky:
The deal would mark an end to months of intense negotiations among prosecutors and KPMG leaders, who took the unusual step of issuing a public statement in June that said the firm took "full responsibility for the unlawful conduct by former KPMG partners."
Several of those former partners could face criminal charges by a New York grand jury within the next few days related to their work on the shelters, which brought the firm $124 million in fees between 1997 and 2001, according to Senate investigators.
.
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MAYTAG ACCEPTS WHIRLPOOL $21 OFFER
August 22, 2005
Maytag and Whirlpool have entered into a definitive merger agreement. We have updated our analysis of the effect on shareholders to reflect the $21 price - which is subject to adjustment as part of the agreement.
Links:
SEC filing on today's agreement (includes a good Q&A section on the deal).
Maytag Signs Whirlpool $2.7B Offer (MarketWatch.com)
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TAX AMNESTY IN THE GREAT WHITE NORTH
August 22, 2005
Minnesota will waive penalties and criminal charges for participants in "abusive" tax shelters under an amnesty program that runs through January 31, 2006. It appears to be directed at participants in mass-marketed tax shelters identified as listed transactions by the IRS.
Minnesota is a remote Canadian province noted for its fish-based economy.
Link: Minnesota Department of Revenue summary of amnesty.
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SHOULD HE BE FREED TO FIND THE REAL TAX EVADER?
August 22, 2005
Adrian Karsten, an ESPN sportscaster, is going to be sidelined for 11 months as a result of tax injuries. Mr. Karsten was sentenced for failing to file tax returns in 2000 and 2002 in an attempt to evade around $167,000 in taxes.
Mr. Karsten's sentence shows how fortunate Futureman is to have only received probation for evading $131,000 in taxes. But at least one former sportscaster is even more fortunate.
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JACK KNOWS JACK
August 22, 2005
Tax Analysts notes a somewhat old case from May in which Jack Cohen, the sponsor of the now defunct "taxax.org" website gets a permanent injunction against promoting his tax protestor theories. The judge describes the issue:
Through the internet, Mr. Cohen has promoted the idea that the U.S. tax system is a "hoax" and that the payment of federal income taxes is voluntary. (Pl's. Ex. 1). Additionally, Mr. Cohen advertised a number of products on his website aimed at "educating" people about their "right" to not pay taxes. Examples of these products are his book American Liberty vs. Forced Withholding and a Custom Letter, which is designed to "build a solid foundation to reverse the government's presumption that we are 'taxpayers' pursuant to the Code, instead of `taxpayers' in the ordinary sense of the term," and to "keep the IRS scrambling . . ." (Pl's Ex. 24). The distinction that Mr. Cohen draws between "tax payers" and "taxpayers" is based on his contention that the I.R.C. is not a real "code of laws," that the Secretary of the Treasury does not have authorization to operate outside of the territorial confines of Washington, D.C., and that the only people subject to tax are foreign nationals. (Cohen Dep. At 24, 30; Cohen Aff. at 13, 15).
You gotta love the transcendent significance the "Tax Honesty" crowd gives to capitalization, punctuation and compound word structure. Last week we noted a case where the taxpayer (tax payer?) fought the IRS on the ground that their given name had lower-case letters, so the notice that used all caps was invalid. Others like to put commas in their names, as if to ward off government jurisdiction beams.
Unfortunately for Mr. Cohen, the Court of Appeals seems more concerned with filing fees than with grammar.
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LIVEBLOGGING THE STATE FAIR
August 19, 2005
This morning the Tax Update staff volunteered to help man the Salvation Army booth at the State Fair. Business was slow...
...and they were nice enough to let me go run and play.
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'WAITING AT OUR DOOR TO GET TREATS'
August 19, 2005
A resolution supporting legislation to override the Cuno decision against state corporate welfare provisions tax incentives was unable to clear a committee of the National Conference of State Legislatures this week. In a story reported in State Tax Today (sorry, subscription-only link), state legislators were surprisingly ambivalent about the tax incentives they routinely pass:
NCSL committee members seemed to hold less certain conclusions regarding Cuno and tax incentives, in general, than those presented by the two panelists. Many said they favored the incentives, but many others expressed frustration with the corporate tax policies for which they said they felt compelled to vote.
Montana state Sen. Jim Elliott (D) said when the Cuno decision came down he hoped that it would give legislators "who do not support tax incentives but feel we have to vote for them . . . a logical reason to no longer support tax incentives."
THE IOWA ANGLE: TIME FOR TREATS
An Iowa legislator had a vivid description of the problem:
Similarly, Iowa state Rep. Don Shoultz (D) said Cuno might have opened up an opportunity for states to produce a clearer consensus, better discussion, and even a solution to the competitive problems caused by incentives. "We always rely on the same argument: Well, everybody else is doing it," Shoultz said, adding that "the people supporting [federal legislation] are the ones who are usually waiting at our door to get treats."
Rep. Shoultz, Nancy Reagan had it right: just say no. Or if Nancy doesn't do anything for you, listen to Bill Gates:
The merits and pitfalls of corporate tax incentives, Cuno, and federal legislation may have left committee members stumped at the end of the day, but Bill Gates, chair and chief software architect for Seattle-based Microsoft Corp., started the day with clear sentiments on the topic.
"You can go overboard on those things," Gates said in the August 17 keynote address. His industry, he said, is far more sensitive to talent than to tax policies. "Again I go back to education as really trumping all other things."
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HE COULD HAVE DONE AS WELL WITH LESS WORK
August 19, 2005
Glenn Stinson set up four trusts and put Oklahoma real estate into them to keep them out of the hands of the IRS. He then spent months fighting the IRS in court. For all this trouble, he still lost, and now has to pony up $263,000 in taxes covering 12 years. The judge wasn't even swayed by this slam-dunk logic:
If the judge doesn't understand that capital letters change everything, there's no hope...
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PLAYING POKER: THE ODDS ON OFFSHORE TAXES
August 19, 2005
Russ Fox at Taxable Talk says online poker players who think offshore winnings are tax-free are playing a losing hand.
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WHY THEY CAN'T ALL BE CALIFORNIA GIRLS
August 19, 2005
The TaxProf links to an eye-opening story today that also talks about taxes. The linked story explains how Natalie Gulbis, "the Anna Kournikova of golf," has found Reno less taxing than her former California home. It also tells how moving to Florida saved Tiger Woods $4 million on his Nike deal.
So how does California respond to the exodus of athletes? It raises their taxes. Ingenious.
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ERSTWHILE?
August 18, 2005
The TaxProf has kindly linked to our discussion of Cindy Sheehan's vow to not pay her 2004 taxes. Yet his link leaves us a little uneasy:
Erstwhile Joe Kristan notes:
In the normal process of such cases, the Tax Court would be unlikely to hear her case before 2007. By then, her campout near the Bush ranch in Crawford, Texas will be yesterday's news. The Tax Court procedures aren't likely to morph into some sort of Nurenberg Trial; the judges there tend to focus on tax liability, rather than allegations of war crimes. As the tax law has no gold-star mother exception, Ms. Sheehan can expect to hear that she does, in fact, owe some pennies.
Erstwhile? Dictionary.com defines "erstwhile" thusly:
adj : belonging to some prior time; "erstwhile friend"; "our former glory"; "the once capital of the state"; "her quondam lover" [syn: erstwhile(a), former(a), once(a), onetime(a), quondam(a), sometime(a)] adv : at a previous time; "once he loved her"; "her erstwhile writing" [syn: once, formerly, at one time, erst]
I'm still here! At least as far as I can tell... My posting is light this week, but I'm here!
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NO, YOU HAVE TO TAKE THE $16 MILLION
August 17, 2005
It's no surprise to Big 10 football fans that when Northwestern makes the news, it's off the field. From the Death and Taxes blog:
College football fans are probably familiar with Rashidi Wheeler, the Northwestern University football player who died during a preseason practice in 2001. Mr. Wheeler's mother, Linda Will, was appointed as a co-administrator of his estate, and later filed a wrongful-death case against the University.
This morning's Chicago Tribune has an update on the case, with the headline "Judge orders mom to take $16 million in Wheeler case." My first thought was, can a judge force someone to accept a settlement offer? The answer is yes, because of Mrs. Will's fiduciary duty to the other beneficiaries of her son's estate.
I think that's almost enough for tuition there.
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ESTATE TAX STANDOFF: EVIL, OR STUPID?
August 17, 2005
Pondering the state of the estate tax -- scheduled to vanish in 2010 and return with a vengeance a year later -- tax attorney Kreig Mitchell is moved to ask:
Are the Uncertainties In Our Estate & Gift Tax Laws A Strategy to Stifle Tax Planning?
The uncertainty in the estate and gift tax laws benefit the government. The uncertainty has created apathy and caused a number of affluent taxpayers to put off talking with their estate and tax advisors. The thought is "Why bother planning my estate now when the laws are going to change in a few years?" Similarly, tax advisors are currently less likely to recommend various tax avoidance techniques (due to the irrevocable nature of such techniques) in light of the uncertainties. The net result is fewer affluent taxpayers employing tax avoidance measures. Fewer tax avoidance measures will eventually result in more tax revenues for the government. So is this a strategy to raise tax revenues without politicians having to risk telling taxpayers that they intend to raise taxes?
Stupid or evil? Maybe both!
These issues leave me wondering whether the uncertainty in our estate and gift tax laws is intentional on the part of a small group of lawmakers or if the government inadvertently stumbled on a way to stifle tax planning?
These are very good questions. While cyncicism and expedience were behind the current state of legislation, a plot to prevent tax planning is far too subtle and sophisticated for our Congresscritters.
The death and Phoenix-like rebirth of the estate tax was instead a calculated gamble (or cynical ploy) to attack the estate tax while fitting within some budget rule. Those responsible either assumed that they would be able to permanently remove the tax in subsequent years (this in the era of budget surplus), or that this would keep the issue on the table for years to their own political advantage.
We should know next month whether the estate tax will live, and in what form.
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FUTUREMAN GETS HIS FUTURE BACK
August 16, 2005
Flecktones fans, rejoice!
Roy Wooten (aka Futureman), percussionist for the Flecktones, will not have to serve prison time after pleading guilty to tax evasion. He was sentenced to two years probation on August 8 by a federal judge in Nashville.
This appears to be a light sentence. The sentence comes out of a plea agreement with prosecutors in which 3 charges were dismissed. Mr. Wooten will also have to pay about $131,000 in back taxes. The maximum sentence for one count of tax evasion is five years in jail, and the "guideline range" for prison for the amount involved is 8-14 months, according to the plea agreement.
Mr. Wooten apparently got into tax trouble by believing "Tax Honesty" arguments that the tax law is invalid for various reasons. From the light sentence, it would appear the government agreed that Mr. Wooten was was more naive than cunning when he failed to pay his taxes. It's good that they can distinguish between Futureman and tax protest promoters.
UPDATE In case you were wondering, he can travel with the band. From the sentencing document linked below:
The Defendant is permitted to work by performing music without geographic limitation. Provided, however, Defendant shall advise the Probation Office in advance of any travel outside the United States and shall provide an itinerary for such work related travel. This Special Condition supersedes the Standard Conditions of Supervision.
UPDATE II: It looks like it was a light sentence. An ESPN sportscaster will serve 11 months in prison for evading $167,000 in taxes.
Documents (links fixed now):
Prior Coverage:
FUTUREMAN PLEADS GUILTY TO TAX EVASION
TAKE A TAX PROTESTER POSITION ON YOUR RETURN: ARE YOU OUT OF YOUR MIND?
I would link to media coverage of the sentencing, but I haven't found any. I have a Google "news alert" to keep me posted on tax evasion cases - and one for Futureman specifically - and have come up empty.
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BAD TAX IDEA IN CRAWFORD
August 16, 2005
Cindy Sheehan, the anti-war protester who lost a son in Iraq, has a very bad tax idea (Via The Drudge Report):
Sheehan, who is asking for a second meeting with President Bush, says defiantly: "My son was killed in 2004. I am not paying my taxes for 2004. You killed my son, George Bush, and I don't owe you a penny...you give my son back and I'll pay my taxes. Come after me (for back taxes) and we'll put this war on trial."
In the normal process of such cases, the Tax Court would be unlikely to hear her case before 2007. By then, her campout near the Bush ranch in Crawford, Texas will be yesterday's news. The Tax Court procedures aren't likely to morph into some sort of Nuremberg Trial; the judges there tend to focus on tax liability, rather than allegations of war crimes. As the tax law has no gold-star mother exception, Ms. Sheehan can expect to hear that she does, in fact, owe some pennies.
(Via Megan McCardle, as substitute for Instapundit).
UPDATE: Reader Dave Gross writes:
I think you dismiss Cindy Sheehan's tax refusal too quickly. She isn't like the various "constitutionalist" tax protesters who don't pay their taxes because of a deluded legal theory they're trying to convince other people is true. She knows that it is against the law for her to stop paying taxes but intends to do it anyway as a form of civil disobedience.
Her view of the war in Iraq may not be yours, and her choice of tactics may not be as you would recommend, but as a technique it has good credentials.
America's original civil disobedient, Henry David Thoreau, was jailed for tax resistance. And none other than Gandhi endorsed tax resistance ("Withholding payment of taxes is one of the quickest methods of overthrowing a government"):
"He or she who supports a State organized in the military way whether directly or indirectly participates in the sin. Each man old or young takes part in the sin by contributing to the maintenance of the State by paying taxes."
I suspect that you're right that Sheehan will not have the opportunity to raise Nuremberg-style defenses in tax court, but that may not be what she means when she says she'll put the war on trial. She seems to have a knack for getting the press and the people to talk about the war and its human costs by means of some well-placed performance art. Being pursued by the IRS might be another good opportunity ("I gave them my son, haven't I given them enough?").
Mr. Gross has a site devoted to pacifist tax resistance, http://www.sniggle.net/Experiment/.
He is certainly right about the distinguished pedigree of civil disobedience, but I don't see it working here. The administration has some P.R. savvy of it's own, and I would be surprised to see any aggressive IRS action before December 2008, by which time other events will have taken center stage. But Ms. Sheehan will still have a tax mess to clean up, and whatever you think of her politics, she really doesn't need any more problems.
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LARKEN DOESN'T COME OUT SMELLING LIKE A ROSE
August 16, 2005
Tax charlatan Larken Rose, a longtime proponent of the ridiculous "Section 861" argument that U.S. income isn't subject to income tax, will now face the consequences of following his own advice. A jury found him guilty August 12 of five counts of failure to file tax returns.
Mr. Rose, a "medical transcriptionist," faces a year in prison for each count.
Mr. Rose had testified on behalf of Richard Simkanin, whose seven-year tax crime prison sentence was affirmed on appeal recently.
Link: New York Times coverage (free registration required)
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RAPPER FACES TAX CHARGES
August 16, 2005
It doesn't figure that rappers would be particularly conscientious taxpayers:
Louisiana authorities issued a statement that the rapper Mystikal could face more jail time for failing to file taxes for two consecutive years. David Dugas, the U.S. Attorney of Baton Rouge, and Michael Nelson, a Special Agent in Charge of the New Orleans IRS field office reported that Mystikal, born name Michael Tyler, could face up to one year prison for each of the two years that have gone unpaid.
Jail time may actually be a good career move in Mystikal's business, but I wonder if tax charges carry the same cachet among hip-hop fans as, say, assault, murder or drug charges?
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WHIRLPOOL BID FOR MAYTAG BOOSTED TO $21
August 12, 2005
Whirlpool has increased its offer for Maytag to $21 per share. Other than the price change, the increased bid appears to be the same package we discussed earlier this week.
An analysis of the reverse merger structure used in Whirlpool's bid, prepared by Robert Willens for Tax Analysts, is available for public viewing today courtesy of the TaxProf Blog.
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TELECOM MILLIONAIRE ANDERSON STIFFING HIS LAWYERS?
August 12, 2005
A published report says the man charged with the largest individual tax evasion in U.S. history has stopped paying his lawyers:
Lawyers for Walter Anderson filed a motion in U.S. District Court in Washington to withdraw from the case because of their client's "inability to pay his attorney fees."
"While counsel understands that Mr. Anderson has made efforts to obtain the funds ... his inability to do so, regrettably, has resulted in a deterioration of the attorney-client relationship."
Yes, that will do that. No money, no honey, as they say.
Mr. Anderson, who is accused of stashing over $450 million offshore to avoid taxes, may request a court-appointed attorney. The prosecutors aren't having it:
"The government does not believe the defendant to be indigent," the U.S. Attorney's Office wrote, adding that Anderson has repeatedly offered to pay a substantial bond in exchange for his release.
Well sure, but that's different. Lawyers might get you off, but if you pay bond and flee somewhere with no extradition, you avoid jail for sure.
Prior coverage: NO BOND FOR WALT.
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BANKER PLEADS GUILTY IN SHELTER CASE
August 12, 2005
A former banker for the German bank BHV pleaded guilty yeasterday to tax charges for his role in promoting a KPMG-related tax shelter. Domienick Degiorgio was involved in selling the "BLIPS" tax shelter, which the IRS declared abusive in 2000 (Notice 2000-44).
The New York Times reported yesterday that KPMG is likely to avoid indictment for its role in promoting tax shelters. "Fragile" negotiations are leading towards an agreement that will require KPMG to pay a large fine and establish an independent monitor to keep an eye on the firm, according to the report.
While KPMG struggles to avoid indictment, two plaintiffs firms are battling in federal court over who gets to be the lead firm in a class action against KPMG. While we don't have particular concern for KPMG, watching class-action law firms at battle is sort of like watching the Yankees play the Mets: it's too bad only one team can lose.
LINK: Slide show explaining the BLIPS shelter.
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BREAK OUT THE CARDS, RUSS IS BACK
August 11, 2005
Russ Fox is back from vacation and Taxable Talk is back in business with a discussion of the tax rules of poker. For those so inclined, Russ lays out the IRS house rules.
Related: THE HOUSE ALWAYS WINS
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HOWARD HUGHES MEMORIES
August 11, 2005
Joel Shoenmeyer takes us back to our youth at Death and Taxes with a discussion of the Howard Hughes probate battle. Assetes in the billions and no will - but lots of keepsakes and nice shoes. Per Mr. Shoenmeyer:
Mr. Hughes died in 1976, and it appeared at the time that he had died intestate (i.e. without a valid Will). However, soon after Mr. Hughes' death, a handwritten Will turned up at the headquarters of The Church of Jesus Christ of Latter-day Saints. That Will was supposedly signed by Mr. Hughes and left 1/16th of his probate estate ($156 million) to a man named Melvin Dummar. For his part, Mr. Dummar claimed that one night he had found Mr. Hughes on a deserted Nevada road, and had then driven Mr. Hughes back to his home in Las Vegas. Mr. Hughes' heirs were (unsurprisingly) not amused, and a court battle ended with the Will being declared a forgery (and therefore invalid); as a result, Mr. Hughes' entire probate estate passed via intestacy to his cousins.
Which no doubt pleased the cousins.
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TIMELY-MAILED, TIMELY-FILED? PROVE IT!
August 11, 2005
The TaxProf today makes available Robert Wearing's essay for Tax Analysts of the recent Grossman Tax Court case - a tale of a lawyer's travails in proving a Tax Court petition was timely filed - and the lessons to be drawn from it.
We addressed Grossman here.
We've said it before, but it bears repeating that the TaxProf perfoms a tremendous service by making available to all some of the excellent Tax Analysts work that is otherwise only available to Tax Analysts subscribers.
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SPEAKING IN TONGUES
August 11, 2005
The BenefitsBlog breaks into the Song of the Benefits Specialist today, speaking in employee benefit acronyms:
However, after practicing for awhile in the area, one does come to accept and use the most common acronyms that prevail in the industry, to the point that we sometime forget what the acronym actually stands for. Anyway, here is a list and I am sure there are more, so email me ones that come to mind, and I will add them:
ERISA, IRC, DB, DC, CODA, IRAs, SEPs, SIMPLEs, SERPs, NQDC, ADEA, NESTEG, ERTA, TEFRA/DEFRA/REA, GUST, USERRA, SBJPA, TRA, RRA, CRA, UCA, OBRA, GATT, EGTRRA, JGGTRA, WFTRA, SOX, HSAs, HRAs, FSAs, HIPAA, COBRA, HMOs, DOL, EBSA, IRS, PBGC, HHS, CMS, EEOC, GAO, FASB, EPTA, TE/GE, ISOs, AMT, COLIs, DROPs, FLSA, FMLA, FICA, VEBAs, ESOPs, TRASOPs, PAYSOPs, KSOPs, SRI, ETI, LRMs, EPCRS, SCP, VCP, CAP, PT, UBTI, SPD, SMM, MEWA, QDRO, ACP/ADP, HCEs, non-HCEs or NHCEs, QNECs, J & S, . . .
At which point men in white coats appeared...
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HAPPY BIRTHDAY
August 10, 2005
Herbert Hoover was born 131 years ago today in West Branch, Iowa. He probably was the last president we will see with a mining engineering background.
Alas, his tax returns appear to be lost to history.
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MAYTAG SHAREHOLDERS - WHAT WILL YOU PAY IN TAXES?
August 10, 2005
Whirlpool has increased its offer for Maytag to $20 per share - half to be paid in cash, half in Whirlpool stock. (Update - the bid has since been raised to $21, also half in cash and half in stock; the numbers below now reflect the $21 price).
The prospect of payment in stock gets tax people excited because that may make a deal partially tax-free. Alas, not so here:
We are offering to acquire all of Maytag's outstanding shares by means of a merger that would provide Maytag shareholders $20.00 of total consideration per Maytag share in a taxable transaction.
The transaction is a "reverse subsidiary merger." Whirlpool will set up a transitory subsidiary that will merge into Maytag. In the merger, Maytag shares will convert automatically into (roughly) $10 cash and $10 in Whirlpool stock (the exact amount of consideration is subject to adjustment).
The tax law allows mergers to be "tax-free" reorganizations under some circumstances. This isn't one of them.
WHY THIS WOULD BE TAXABLE
While a "reverse subsidiary merger" can qualify as tax-free, that only would work if Whirlpool got "control" (meaning here, 80%) of Maytag for stock. As only 50% of the deal is Whirlpool stock, they fall short.
WHY IT MATTERS LESS THAN YOU MIGHT THINK
In a "tax-free" corporate reorganization, any cash received in the deal is treated as taxable gain starting with the first dollar, until all gain is recognized. If the Whirlpool offer did qualify has a reorganization, it would only benefit Maytag shareholders whose basis is less than $10 (i.e., 50% of the $20 offer price) because all of the cash they would receive would be taxable. Here's how it would work for two hypothetical owners - one who paid $8 for a share of Maytag, and one who paid $13:
Owner 1 Owner 2 Purchase price, Maytag share (basis) $8.00 $13.00 Offer price 21.00 21.00 Gain 'realized' (cash + stock - basis) (A) 13.00 8.00 Cash portion of offer (B) 10.50 10.50 Taxable gain (lesser of B or A) $10.50 $8.00 Basis of new Whirlpool stock received $8.00 $10.50
WHIRLPOOL DEAL WOULD ALL BE TAXABLE AT ONCE
There is no tax-free feature in the actual Whirlpool offer. Should the Whirlpool proposal be accepted, Maytag shareholders would pay tax as if they had sold their shares for $20 cash. The shares of Whirlpool stock received would be taxed as if they were cash; there is no "like-kind exchange" provision for corporate stock. In real life, the fictional shareholders in the above example would be taxed like this:
Owner 1 Owner 2 Purchase price, Maytag share (basis) $8.00 $13.00 Offer price 21.00 21.00 Gain 'realized' (cash + stock - basis) 13.00 8.00 Cash portion of offer 10.50 10.50 Taxable gain (same as gain realized) $13.00 $8.00 Basis of new Whirlpool stock received $10.50 $10.50
WHAT TAX RATES WOULD APPLY?
If you have held your Maytag shares for over one year, and you have a gain, the gain will be long-term capital gain. The federal tax on this will be no higher than 15%, whether you are in regular tax or AMT. Taxpayers in the 10% or 15% brackets will pay no more than 5% federal tax.
If you have held your shares for less than a year when the deal closes, you will have short-term capital gain taxable at ordinary income rates.
Iowa will tax any gain on the deal at the same rates as ordinary income.
WILL THERE BE ANY AMT EFFECT?
Taxpayers in states with income taxes who also have a big long-term capital gain are likely to face alternative minimum tax. While the capital gain rate is the same for regular tax and AMT, there is no deduction for state taxes for AMT. Taxpayers have to compute both regular tax and AMT and pay the higher tax. When two taxes are computed at the same rate, the one with fewer deductions will probably be higher.
WOULD THE OTHER DEAL BE ANY BETTER, TAX-WISE?
The Ripplewood offer that started the whole Maytag bidding war was a $14 per share cash-merger. This would be treated as a sale of Maytag shares for $14 each. It would be slightly more user-friendly in one sense - all amounts needed to pay taxes on any gain would already be cash. In the Whirlpool deal, Maytag shareholders face the minor inconvenience of selling Whirlpool shares to become fully liquid. The additional $6 for share value of the Whirlpool deal is more than covers this inconvenience.
Strictly from a tax standpoint, there is no advantage to either deal.
CAUTION: THIS ISN'T A DONE DEAL!
This is all based on documents for a transaction that isn't yet settled, and may well settle on different terms. See your own tax advisor for your Maytag deal tax planning.
Links:
Whirlpool Offer for Maytag filed with SEC
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TOP SENATE TAX STAFFERS BLAST AMT
August 10, 2005
The top two Republican staffers on the Senate Finance Committee attack the alternative minimum tax while defending Senator Grassley's AMT record in a Tax Notes article made available by the TaxProf today.
DEFENDING GRASSLEY
The staffers are responding to criticism that the AMT has been used cynically to enable Congress to enact tax cuts that are really illusory because they don't work for AMT. Their response to the criticism, largely consisting of saying Senate Finance Committee Chairman Grassley has long opposed the AMT, is unconvincing. They cite a 1999 bill to repeal the AMT vetoed by President Clinton; that bill "was never serious legislation," as tax prof Sheldon Pollack recounts, and should not be considered a serious attack on AMT.
Tax revenue projections are critical parts of all tax legislation. Whether used cynically or not, they are deeply woven into the legislative process. The AMT greatly reduces the cost of many different tax breaks; the just-enacted credits for residential energy savings are a classic example. The AMT probably made the president Bush's 2001 tax cuts possible by reducing their size.
Senator Grassley has been on the Finance Committee since the current version of the AMT came to life in 1986. While he can't be held solely responsible for the state of the tax law, he has been the chief Senate taxwriter for most of the last three presidential terms. No legislator has had more ability to affect the tax law over that time then Senator Grassley, so attempts to deflect responsibility from him can't entirely succeed.
THE AMT PROBLEM
The staffers are on more solid ground when they describe the practical effect of AMT:
But there are other very compelling reasons to repeal
the AMT. Not only has the AMT failed in its original
objective, but the AMT has lost its policy purpose.
Currently, the AMT derives its revenue base from large
families and those who pay high state income taxes.
According to data provided by Everson to Sens. Grassley
and Baucus in 2004, the top 15 states affected by the AMT (in order of impact) are: New York, New Jersey, California, Connecticut, Maryland, Massachusetts, Rhode Island, Oregon, Ohio, Maine, Wisconsin, Illinois, Minnesota, New Hampshire, and Vermont. From a horizontal equity perspective, Kevin Hassett made the following remark in his May testimony: "While it was originally motivated as a tax to ensure social justice, it likely does the opposite. It taxes individuals across states in a hodgepodge way, hitting similar individuals quite differently."
This is exactly right. A two-earner professional couple with children is pretty much doomed to AMT in Iowa, for example, but will be AMT-free in Nevada.
They defend their stopgap attempts to prevent AMT from affecting even more taxpayers -- Congress has increased the individual AMT exemption several times -- and they correctly note that failure to index AMT exemptions have made the AMT problem worse.
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ADVERTISING WORKS! BUT NOT ALWAYS ACCORDING TO PLAN
August 09, 2005
Richard Simkanin achieved a measure of fame by participating in a full-page ad in USA Today boasting that he no longer paid taxes or withheld taxes for his employees. He claimed his study of the tax law taught him that the tax laws are invalid, at least with respect to himself.
The Fifth Circuit Court of Appeals graded his efforts last week. It looks like an "F."
The court upheld Mr. Simkanen's 84-month prison sentence. The three-judge appeals panel rejected a host of challenges to the jury instructions, the conduct of the trial, and the length of the sente