Tax Update Blog: March 2006 Archives
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CAT'S OUT OF THE BAG
March 31, 2006
After seeming to resign himself to a compromise on estate tax repeal, Treasury Secretary Snow yesterday "clarified" his position:
Another aspect of tax relief that I think is important to touch on here today since it is often on the minds of American taxpayers, in particular families and small businesses, is the estate tax, the death tax. This tax is without a doubt one of the larger undue burdens weighing on taxpayers today. And I want to make it clear that Congress needs to pass legislation that permanently repeals the death tax, without compromise.
The remarks, which you can read in full here, are stronger than those he made earlier in the week to the Tax Executives Institute:
"I would hope that we'd have the chance to test the political strength of that idea and hopefully prevail," Snow said of estate tax repeal. "But if not, come to some second-best outcome that would also be more advantageous than where we are today."
The talk of compromise may have been a gaffe in the classic sense of letting the truth slip out in an unguarded moment. Estate tax repeal seems unlikely to pass; I suspect if it could get the 60 needed Senate votes, it would have passed already. It will only come to a vote to help burnish Senator Frist's credentials in his bid for the presidency in 2008.
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GOVERNOR SIGNS HOLDING PERIOD BILL
March 31, 2006
Governor Vilsack on Wednesday signed into law the bill (H.F. 2465) on the "holding period" rules for Iowa's capital gain exclusion. The bill applies federal tax law holding period rules in determining whether property has been "held" the necessary 10 years to qualify for the Iowa capital gains breaks.
This bill overrides a risible Department of Revenue position on holding periods effective for capital gains on sales starting January 1, 2006. It's unclear whether the bill will have any effect on pending disputes with the department.
WHO QUALIFIES FOR THE EXCLUSION
The exclusion applies in several different circumstances, including:
1. Capital gains on the sale by an individual or pass-through entity of substantially all of the assets of a business held at least 10 years, if the taxpayer "materially participated" in the business for at least 10 years.
2. The sale of real estate held for at least ten years out used in a business in which the taxpayer materially participated for 10 years.
3. Gain to a shareholder on the liquidation of a corporation in which the taxpayer meets the 10-year holding and participation requirements.
"Material participation" is determined using the federal standards from the "passive activity" rules. They are summarized in the extended entry below.
Link • Eye on the Legislature ~ • Iowa Tax Law Bookmark: del.icio.us • Digg • reddit
BAD TAX NUMBERS
March 30, 2006
For most taxpayers this time of year, the concerns are dollars, cents, and where to file the return. For a few, though, the meaningful tax numbers are years, months, and where they will be until they can return.
Lobbyist Jack Abramoff will go away for 70 months after pleading guilty to a tax evasion charge arising out of a scheme to defraud Indian casinos. (Correction: The 70-month sentence is a state sentence. The tax sentence will be meted out after he finishes cooperating with prosectors in other cases.)
You don't have to be as disreputable as a lobbyist to get into tax trouble. Strip club owner Richard Goldring pleaded guilty to a tax charge yesterday in New York. Mr. Goldring's establishment, the "Scores" club, made the news when an executive of St. Louis-based Savvis spent over $200,000 there on his company credit card. Early indications were that the club owners were going to try to blame their accountant, but they've apparently thought better of it.
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EVERSON, TAXPAYER ADVOCATE OLSON DEFEND DISCLOSURE REGS
March 30, 2006
When the kerfuffle over the proposed new regulations on return disclosures arose, I was puzzled. It seemed to me that the danger of preparers marketing taxpayer information already exists.
In testimony before Congress yesterday, Taxpayer Advocate Nina Olson agreed with me (Tax Analysts free link):
Expanding on earlier comments she posted to a tax e-mail discussion group, Olson said complaints from consumer groups are unfounded. Although the groups have correctly pointed out that the new regs partly relax how return preparers can “use” information taxpayers have consented to share, Olson said preparers are already allowed to “disclose” return information freely.
“The current regulations allow tax [return] preparers to disclose taxpayer information to anybody once [they] have consent,” she said. “And once that information’s disclosed, it can be used and redisclosed to anybody.”
I think it's wrong for preparers to sell taxpayer information. Maybe the solution is a 200% excise tax on revenues received by preparers for selling tax return data.
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RIPPING THE NATIONAL SALES TAX
March 30, 2006
My unfavorable view of the "Fair Tax" national retail sales tax plan is up at Chequer-board.net, where I have been guest-posting this week.
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JUSTICE DEPARTMENT CLEARS MAYTAG DEAL
March 29, 2006
From Reuters:
U.S. antitrust authorities said on Wednesday they had approved Whirlpool Corp.'s planned acquisition of rival appliance maker Maytag Corp.
After an investigation that lasted several months, the Justice Department said it would not oppose the deal, which would give the combined company a commanding share of the U.S. market for washing machines and dryers.
Sanity 1, Politicians 0.
Prior Tax Update coverage:
MAYTAG ACCEPTS WHIRLPOOL $21 OFFER
WHIRLPOOL BID FOR MAYTAG BOOSTED TO $21
MAYTAG SHAREHOLDERS - WHAT WILL YOU PAY IN TAXES?
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GREAT MOMENTS IN REGULATION
March 29, 2006
This came in today's mail:
Click for larger view.
The Licensing Division Newsletter publishes summaries of disciplinary actions. Maybe we'll see things like this come through:
Case 08-02 Giles S. Finlayson Mechanicsville, IowaThis matter concerns charges filed against respondent Giles S. Finlayson . The Interior Design Examining Board held a contested case hearing on May 23, 2008.
The board charged Respondent with acts discreditable to the practice of interior design as follows:
Count 1. Garish placement of an art-deco table, clearly suitable only for a room with moderne sensibilities, in a room with dark wood paneling and a painting of Elvis.
In the hearing respondent said that the art-deco table was "fabulous" in its context and that the Board "has no sense of the ironic." The board finds Respondent in violation of Count 1.
2. Reckless and negligent use of '70s motifs.
Respondent said that he was inspired by a book "Interior Decorations" by one James Lileks in decorating the house at issue. The board explained that the book is really titled "Interior Desecrations" and is in fact a mockery of '70s design. After discussion, the board ruled the results "fabulous" and cleared respondent of the charges.
SANCTION.
The legislature has granted the board a wide array of disciplinary sanctions. The board may revoke, suspend, or refuse to renew a license, or any combination.
The board considers its role to be educational as well as disciplinary. We order Respondent to take 8 hours of continuing education, as approved in advance by the board, and to consent to having any use of art-deco items cleared in advance by an outside designer as designated by the board.
Unfortunately, it's too late for the board to deal with some design crimes:
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EMILY LITELLA: ONLY 30 MILLIONAIRES GOT AUDITED!
March 29, 2006
A classic never mind moment in the tax world yesterday:
Only 30 out of nearly 200,000 taxpayers who reported income of at least $1 million in 2005 faced an in-person audit, according to a prominent watchdog group’s analysis of IRS data.
That would make my clients seem incredibly unlucky; at that rate, I should have a client audited roughly once every 70 years. Oh, never mind:
IRS spokesman Bruce Friedland told Tax Analysts that the IRS had actually performed nearly 12,000 total audits during that period of taxpayers claiming at least $1 million, including more than 7,000 field audits and roughly 4,500 correspondence audits, which are done through the mail.
The IRS spokesman attributed the misreading to a change in the way the IRS presented their statistics this year.
UPDATE: The TaxProf has more.
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SNOW TALKS (DOWN) TAX REFORM
March 29, 2006
Treasury Secretary John Snow discussed tax policy at a meeting of the Tax Executive Institute yesterday. After being chewed out by Ways and Means Chairman Thomas the day before, the big-company tax officers probably were happier with Secretary Snow's speech. The Snow message: we'll protect your loopholes.
Secretary Snow's prepared remarks are here, but a Tax Analysts report ($ link) indicates that he departed from the prepared remarks to comment on consumption taxes, tax rates and estate taxes.
ESTATE TAX
The Secretary gave a hint that the administration will be unable to push a repeal of estate taxes through this Congress. Tax Analysts reports (free link):
"I would hope that we'd have the chance to test the political strength of that idea and hopefully prevail," Snow said of estate tax repeal. "But if not, come to some second-best outcome that would also be more advantageous than where we are today."
Translation: Repeal isn't going to happen this year, and we'll be happy now if we can just get a lower rate and a bigger exemption before we lose seats in November.
WE LIKE REFORM, JUST NOT, YOU KNOW, REFORM
The Secretary displayed some of the wishy-washiness that makes real tax reform in this administration seem unlikely:
"It's easy to say fairer, simpler, more growth-oriented, but the devil is always in the details," he said.
Offering another possible preview of the administration's tax reform deliberations, Snow implored the tax executives in the audience to avoid viewing lower rates as "the end all and be all" when reforms like full expensing or faster depreciation would have an equivalent effect.
And:
Snow assured the audience that the administration was committed to a permanent and enhanced research credit, but charged the executives to act as better ethical gatekeepers of corporate capitalism.
No, no, no! Lower rates may not be "the end all and be all," but in tax systems, they're the next best thing. The ideal tax system would minimize the need to take taxes into account in business decisions, and only lower rates can do that.
DEDUCTIONS ARE NEVER THE SAME AS LOW RATES
"Full expensing or faster depreciation" can NEVER have "an equivalent effect" to lower rates because they encourage different actions. A low-rate system gets the tax code out of the decision of when to buy new equipment, and how much, or how to allocate spending between capital, labor or outside purchases. Full expensing of capital equipment will encourage businesses to look at their taxable income before year-end and buy stuff they might not otherwise buy just to lower their taxes. Some find that a correct result, but I find it an
unhealthy meddling in business decisions via the tax code.
The committment to the research credit is also misguided. I think this is more of a spiff than a motivation for taxpayers. Tax advisors do studies to help taxpayers claim the credit for stuff they do already; I've yet to see a taxpayer do more research than they would otherwise just so to qualifiy for more credit. I suspect a low marginal rate and a simpler system would do at least as much as the current credit to motivate research spending.
As long as tax policy makers won't touch things like the research credit, tax-free treatment for health insurance, and other sacred cows, the day of low rates and tax-neutral business decisions will never dawn.
Cross-posted at Chequer-board.net, where I'm guest-posting this week.
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WAYS AND MEANS CHAIR RIPS CORPORATE TAX LOBBY
March 28, 2006
Corporate America's pursuit of selfish tax breaks has created a tax quagmire that will resist reform for years. So says outgoing Ways and Means Chairman Bill Thomas. In a speech to the Tax Executives Institute, Mr. Thomas pulled no punches:
American businesses have spent too much time lobbying for the preservation of narrow tax breaks, and they may have lost the opportunity for overhauling an inefficient U.S. corporate tax code as a result, the House's top tax writer said Monday.
"One of the things I want to talk to you about today is how you blew it," House Ways and Means Committee Chairman Bill Thomas told a meeting of the Tax Executives Institute, a group that represents corporate executives who deal with tax-related matters.
In 2004, Mr. Thomas proposed a 2% corporate tax rate cut to replace the Extraterritorial Income Exclusion, which needed to be repealed to stop trade sanctions. Instead a House-Senate conference apoproved the execrable Section 199 "production deduction," which provides a narrow tax break, but a great deal of billable work for tax advisors.
(Via the Tax Policy Blog)
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IRS GETS IT WONG IN TAX COURT
March 28, 2006
A strange Tax Court case yesterday shows that the IRS can't just phone it in and win.
Karen McNanus ended up in Tax Court because the IRS said she got a 1099-MISC from a company named Heath and Associates, which had gone out of business before trial. IRS agent Pam Wong testified on behalf of the government. It went poorly:
During cross-examination as well as direct, Ms. Wong's responses appeared evasive. It was also readily apparent she was unfamiliar with the case and unprepared to provide any insight outside of what she could recall from reading the file.
Furthermore, respondent did not provide documentary evidence to support Ms. Wong's testimony or to show compensation was paid to petitioner by Heath & Associates. At one point during cross- examination, Ms. Wong admitted she had no documentary evidence to support her statements.
Finally, respondent informed the court he was unable to obtain the third-party records from Heath & Associates because the company had ceased to exist. Thus, any evidence concerning moneys paid by Heath & Associates to petitioner was based solely upon the notice of deficiency and the memory and credibility of Ms. Wong.
That "memory and credibility" was not pursuasive:
Outside of Ms. Wong's unconvincing testimony, respondent presented no evidence proving petitioner received any income in 1996.
The moral: A 1099, by itself, isn't necessarily enough to ensure in IRS win. If you get an erroneous 1099, you can fight back and win.
Cite: Karen McManus, T.C. Memo. 2005-57.
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CELEBRATING TAX TIME
March 28, 2006
The "Taxilicious" blog introduces us to a man who gets happy feet at tax time:
If you click on the picture, Taxilicious presents an interpretive dance of the tax season (may not work in Internet Explorer). It's sort of like Stravinsky's "Rite of Spring," but more so.
Go to Taxilicious and scroll down for more disturbing tax humor.
(Hat tip: "Death and Taxes" - the guide to tax humor!)
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THINK HE'LL MISS $296 MILLION?
March 27, 2006
The Wall Street Journal ($ link) reports:
Apple Computer Inc. CEO and chairman Steve Jobs has given up nearly half of his stake in the company to satisfy tax obligations on 10 million restricted Apple shares that vested this month.
In a filing with U.S. securities regulators last week, Apple said it has withheld more than 4.5 million company shares, worth $296 million, from Mr. Jobs, leaving the Apple executive with 5.4 million company shares, worth $323 million. The shares were part of 10 million shares of restricted stock Apple awarded to Mr. Jobs in March 2003, a grant that vested over three years.
At 99 cents, that tax translates into approximately 299 million I-tunes downloads, which would almost fill the new 60-gig I-pod.
Cross posted at Chequer-board.net, where I'm filling in this week.
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INDICTED EX-PARTER FLIPS IN TAX SHELTER CASE
March 27, 2006
David Rivkin, one of the 19 individuals indicted in the KPMG tax shelter case, entered a guilty plea today and agreed to cooperate with prosecutors:
Rivkin admitted that he conspired with others between January 1999 and May 2004 to prepare and execute false documents so that clients could file false tax returns.He also admitted that he took steps to conceal the existence of fraudulent tax shelters from the Internal Revenue Service and avoided registering the shelters with the IRS by claiming attorney-client privileges.
In pleading guilty to conspiracy and tax evasion, Rivkin signed an agreement to cooperate with prosecutors, who could then ask the judge to consider giving Rivkin a more lenient sentence rather than the years he might face in prison. Sentencing was set for Feb. 9, 2007.
This is the first crack in the solid front of resistance of those indicted in the case. Expect the remaining defendants to say that the guilty plea was the result of irrisistable pressure by the prosecution.
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IOWA CORPORATE TAXES: A MODEST PROPOSAL
March 27, 2006
The Iowa Revenue Estimating Conference last week issued its latest guess at fiscal-year 2006 state revenues. It's worth looking at just to see where the state gets its money. Of Iowa's $5.23 billion in FY 2005 tax revenue, the corporate income tax contributed only $280.9 million - about 5.4%. Individual income tax receipts were $2.78 billion for the same period.
The proposal to exempt the pension income of seniors from Iowa tax is slated to reduce tax receipts around $200 million annually. Like so many bad ideas, this transparent pandering to a big voting bloc is touted as "economic development."
If they're serious about economic development, here's an idea: repeal the corporate income tax. If they want to make up the lost revenue, they can repeal all of the state's economic development credits at the same time.
The economic development benefits of repealing the corporate tax are obvious. If you are trying to make Iowa attractive to businesses, what's a better pitch:
A. "No corporate income tax?," orB. "Tax-free living for old folks."
I think "A" sells better, myself.
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DOUG'S BIRTHDAY CARNIVAL
March 27, 2006
Help Mom celebrate big brother's birthday this week by visiting one of our favorite carnivals!
The Carnival of Personal Finance is up at "Financial Baby Steps." I like the "Desparate Measures for Grocery Budgeting" post that tells how you can use gift cards to keep within your budget. That does sound desparate, but it's make sense in a strange way. Lots of other good savings and investing posts.
This week's Carnival of the Capitalists is also up at Decker Marketing. My favorite post there this week is on why you shouldn't be snotty to "underlings" - The Art of Sucking Down. Here's an excerpt:
A friend who worked at O'Hare International Airport told me this story. He once watched a passenger absolutely scream at an airline ticket agent. The ticket agent, however, remained completely calm. After the tirade was over, my friend asked her how she could remain so calm, and she said, “That's easy. He's going to Paris, but his bags are going to Sydney.”
The post adds some great advice for most social interactions: "Make them smile."
Lots of other good posts.
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FRAUD = FRAUD? NOT ALWAYS
March 24, 2006
Former attorney Ellis Neder was a bad boy. He...
...was convicted of conspiracy to defraud a financial institution, bank fraud, mail fraud, wire fraud, making false statements to financial institutions, racketeering, and filing false tax returns for 1985 and 1986. He was sentenced to 12 years and 3 months in prison and 5 years of probation, and he was ordered to make restitution totaling more than $25 million to various financial institutions. Petitioner's prison sentence included 3 years for filing a false tax return for 1985.
One of the grim facts of tax crime is that going to jail doesn't get you off the hook. You still have to pay the taxes you evaded, of course. What's more, the IRS can assert a "civil fraud" penalty of 75% of the tax that was dodged. Considering he went to jail on criminal tax evasion penalties, you'd think surely the civil fraud penalty would stick. Think again.
The Tax Court yesterday said that Mr. Neder was only liable for the 25% "substantial understatement" penalty. Tax Court Judge Colvin said there was not enough evidence presented at the criminal trial to show that Mr. Neder "fraudulently intended to evade tax." The burden of proof is on the IRS to show fraudulent intent; without additional proof, the judge declined to slap Mr. Neder with fraud penalties.
Things are turned around with respect to the 25% "substantial understatement" penalty; the burden of proof is on the taxpayer, not the IRS. The taxpayer presented no evidence that his underreporting was justified, so he got the 25% penalty.
The Moral? It's a perverse tax law that can jail you for evasion but not fine you for fraud in the same case.
Cite: Ellis E. Neder, Jr., T.C. Memo. 2006-54
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WIDE LEFT
March 24, 2006
Former San Francisco 49ers kicker Ray Wersching has worse problems now than swirly winds at Candlestick. He has been indicted on embezzlement and tax evasion charges involving $3.6 million. Russ Fox has the ugly details.
Mr. Wersching was famous among accountants for working as a CPA in the off-season during his playing days. A quick Google search of the terms "Ray Wersching" CPA shows how the profession seized on this to show that we accountants aren't all a bunch of uncoordinated dorks. Now maybe we can boast how a CPA certificate can be the key to a glamorous and lucrative career in white-collar crime.
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CONSUMPTION TAX VS. INCOME TAX
March 24, 2006
The Tax Prof this week has featured a debate over the merits of an income tax vs. a consumption tax:
Rumor has it that Paul Caron will referee a no-holds-barred cage match between the authors of these pieces.
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WILL YOUR PREPARER SELL YOUR 1040 INFORMATION?
March 23, 2006
If you were shopping for a car, how would you feel if your friendly salesman went to the back room and came out saying, "You know, at your adjusted gross income level you could really afford this car with the LX option package and whitewalls. Oh, and I'm sure you have some borrowing capacity on your home equity line, so financing will be no problem!"
That thought has the tax world shook up this week. The IRS has proposed to update its 32-year old regulations (301.7216-3) on when tax preparers can disclose their customers' tax information. Some consumer groups say the new regulations could open the door to the sale of tax return information by tax preparers. Villanova tax law prof James Maule is irate:
Can someone explain to me why a tax return preparer needs to sell, or give away, customer tax data? What other incentive or purpose could there be other than money? Note that where there is a legitimate purpose for disclosure, the regulations permit the disclosure, but these are limited instances for which there is a logical explanation. These sorts of disclosures, such as sharing the data with another preparer who assists in doing the return, make sense. Sale of the tax information does not.
It's not clear to me that preparers can't sell tax return information with taxpayer consent already. While it is a crime to make an unauthorized disclosure of someone else's tax return information, there is no law that says you can't disclose your own information. People give their tax returns to bankers all of the time; often they ask their preparers send copies of tax returns to the banker, and we can do so with written permission.
If you want to, you could put your 1040 on the internet; if you give somebody permission, they can do the same thing. Is it that big a step from there to authorizing your preparer to sell your data?
It's not hard to imagine a big tax preparer having all of their customers sign a standard waiver to allow them to sell return information. Heck, they might even give you $10 off their fee. I'm not sure they can't do this already. The regulations already read:
If a tax return preparer has obtained from a taxpayer a consent described in paragraph (b) of this section, he may disclose the tax return information of such taxpayer to such third persons as the taxpayer may direct.
Could they not "direct" the preparer to sell their info to Equifax? Consumers can already legally do dumb things with their tax information. Can you keep consenting adults from letting other people sell their tax information? Should you? If so, how? While I think collecting and selling 1040 information, even with consent, is sleazy, lots of sleazy things are legal. I would like to see them keep preparers from selling information; the trick is to do so without keeping preparers from doing useful things like providing copies of returns to lenders. Or to bloggers.
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YOU MADE A DEAL WITH AMERICAN EXPRESS. HERE COMES THE IRS.
March 23, 2006
Credit cards are just too handy for some folks. It's too much for some people to walk past that new plasma TV when you can take it home just by pulling out your credit card. The new bankruptcy law makes it harder to walk away from credit card debt, so more debtors will be trying to work out compromises with their credit card companies. When they succeed in getting part of their balance forgiven, they'll find that the IRS will share in their success.
The tax law normally requires you to report income when your debts are forgiven. Creditors are required to report debt forgiveness on a form 1099-C, so the IRS computers are set to make sure you do report it. Henry Martins learned this unpleasant lesson in the Tax Court yesterday.
Mr. Martins, an engineer for Ford, moonlighted as an importer. He financed his imports on this American Express Card. When he ran into collection problems with his customers he got upside-down with AmEx, and they turned things over to a collection agency. In 2002 Mr. Martens cut a deal where he settled the $21,831.38 debt with a $15,000 payment.
Sure enough, AmEx issued a 1099-C for $6,831.38. Mr. Martins didn't count on sharing his debt relief with the tax man and he didn't report it on his 2002 Form 1040. The IRS computers noticed, and Mr. Martins ended up in Tax Court. He said that he had enough "membership rewards points" that he didn't really have debt forgiveness, that the delinquency fees shouldn't count, and that he never got the 1099-C. The judge disagreed:
Petitioner claims he did not receive a Form 1099-C from American Express discharging the debt. "The moment it becomes clear that a debt will never have to be paid, such debt must be viewed as having been discharged." The nonreceipt of a Form 1099 does not convert a taxable item to a nontaxable item.
The moral? When you cut a deal on your credit card debt, put aside something for the tax man. They don't go for for the "I didn't get the 1099-C" ploy.
The TaxProf Blog has more.
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I WANT A BIG RING AND A SMALL DEDUCTIBLE
March 23, 2006
Chivalry is truly dead. From The Wall Street Journal ($ link):
Christine Ferris is searching online for that special someone. "I would like to meet a man who can relax and enjoy the woods, the fog, the sea, the mountains," says her profile on dating site True.com. "Someone who can feel the wonder of nature. I am a romantic and you are too."
Also, her ideal man should "have health insurance and use it."
Maybe this will mean Hank Stern will have a new career as a matchmaker.
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MOONLIGHTING WALTZ
March 23, 2006
I am guest-blogging over at the big-time "Chequer-Board of Nights and Days" blog for the next few days. The Chequer-Board is a group blog run by former Iowan Pejman Yousefzadeh, and I am filling-in while he is on vacation. It is on my daily reading list, and I'm thrilled to be asked to post there.
That mostly means I will be doing versions of what I do here, except when I post there I need to remember that the readers won't necessarily know what "AMT" means. Unless I post non-tax stuff over there - not too likely this time of year - all of my posts there will also be cross-posted here. In the interests of the environment, I may also recycle some posts that the Chequer readers might not have seen.
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TO ENCOURAGE THE OTHERS
March 22, 2006
The old-time generals would shoot deserters "to encourage the others." The IRS takes a similar approach at tax time, shutting down tax scams and imprisoning tax evaders as a friendly reminder to the rest of us of the reach of the tax law.
This week the Department of Justice has gone after two scams - an offshore trust operation out of Seattle and a "corporation sole" racket out of Idaho. They remind us that you can't ship your tax troubles overseas, and that the corporation sole scam doesn't work.
Meanwhile, three operators of a Maryland nail salon chain were sentenced for evading taxes on over $800,000 in manicure income. The sentences ranged from 18 months in prison to six months home detention. The IRS can still pursue civil fraud penalties of 75% of the underpaid tax.
It's sad to see entrepreneurs go to jail. For all I know, they are nice people who thought they were doing what everyone else does. Still, they have competitors who obey the tax law, and this sentence is as much for them as for the defendants; this is how the tax law tries to tell us that paying taxes isn't just for suckers.
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CLAIMING CALIFORNIA LLC REFUNDS
March 21, 2006
The CCH (I think) Tax News Blog reports that California has issued a "protective" procedure to claim refunds of the state's LLC fee. The fee was recently ruled unconstitutional. The protective refund claim procedure enables taxpayers to preserve their rights to a refunds while the case works its way through the appeals process. The report says:
Taxpayers should fax their protective claims to the FTB at 916-845-9796. In the fax, taxpayers should note that this is a protective claim and assert that the LLC fee is an unconstitutional tax. The following information should also be included: (1) the LLC's name and identification number; (2) the tax years involved; (3) the amount of the claim; and (4) the name of a contact person and his or her phone number and fax number. The FTB will send an immediate fax confirmation.
You may also claim the refunds by mail. Claims for refunds for 2001 from taxpayers with a calender taxable year must be filed by April 15, 2006.
Link: Prior Tax Update coverage.
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DEFENDING THE UGLY: HOW TO LOVE THE ALTERNATIVE MINIMUM TAX
March 21, 2006
As a task it ranks up there with defending Avian Flu, but Jonathan Rauch has penned a defense of the Alternative Minimum Tax:
Seen in a fiscal light, the AMT looks less like a train wreck than a safety net. It produces automatic tax increases as inflation extends its reach, and does so at precisely the time when tax increases will be most needed. If one believed in providence, one might say it had pre-positioned the AMT to kick in at America's hour of maximum fiscal need and minimum political will.
...
The upshot is that the AMT may spur a broad tax reform; it may lay the groundwork for a broad reform; or it may simply turn out to be a politically tolerable tax increase at a time when the country needs all the fiscal help it can get. In a first-choice world, the AMT is a horror. But in Tax Land, which is a third-choice world at best, the AMT looks heaven-sent.
Heaven looks to have a wacky sense of humor. Sadly, though, Mr. Rauch may be on to something. If we do see tax reform, the individual income tax is likely to resemble the AMT.
Hat Tip: TaxProf Blog.
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HOW TO GET THE BUYERS TO STORM YOUR AUCTION
March 21, 2006
The IRS Auction Website writer was inspired when writing this:
"Come to Clear Lake and see where Buddy Holly played his last concert then enjoy condo living right on the lake." (click to enlarge).
OK, then. If that makes sense, imagine how well D.C. realtors can do with "visit historic Ford's Theater and then move to Washington!" But a good lakefront condo is hard to come by, so let's take a look:
Ooooh!
Does the dirty snow come with it? (Note to IRS: when trying to market a resort property in a northern climate, there are two times of year to take the pictures: when there is a new snow cover, or when the grass is green. Never in the middle of a mid-winter thaw.)
NICE wallpaper!
You can make this place yours at the May 25 auction - just in time for Memorial Day weekend!
Resort living isn't for everyone. If you are looking for something more permanent:
Suggested IRS Auction tag line: "Once you settle in, you'll never want to leave!"
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SNOWY-DAY CARNIVAL
March 21, 2006
Its a wet, snowy mess here in Iowa today, so snuggle up with some hot chocolate under your quilt and enjoy this week's carnivals.
The Carnival of the Capitalists is at CaseySoftware blog this week. It has valuable information from The Art of the Handshake to the InsureBlog's explanation why Employers are Stupid (present company excepted?).
If you are snug at home because you are keeping yourself warm burning threatening letters from creditors, the Carnival of Personal Finance at "AllThingsTinancial" blog. You can start by learning why Cheap is Cool. After controlling the spending, get more to spend by learning How to Ask for a Raise. I hope no Roth & Company employees are reading this...
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STOCK OPTIONS AND ALIEN LUCK
March 20, 2006
Napoleon supposedly said that the best generals are lucky generals. If that works for executives, The Wall Street Journal has identified some titans. In a report in their weekend edition($ link), they found some executives who had just amazing good fortune in having their stock options priced on the days when the stock price happened to be unusually low - in hindsight.
Stock options are designed to give executives an incentive to boost the value of the company stock. The executive normally can buy the stock for an extended period at the stock's price on the date the option is issued. If the stock price goes up, the executive profits. That's why it's lucky to have your options issued on a day when the price is depressed.
The CEO of Affiliated Computer Services, the wonderfully-named Jeffrey Rich, had an amazing run of luck:
His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.
Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.
The implication, of course, is that the credit goes not to luck, but to 20-20 hindsight and artful backdating. The Journal reports that the SEC is investigating some of these "lucky" executives.
INCENTIVE STOCK OPTIONS
This brings to mind the tax law rules on "Incentive Stock Options." While most stock options generate ordinary income when they are exercised, ISOs generate no income for regular tax purposes on exercise (but they do generate potentially ruinous alternative minimum tax). If the options are held for a year after exercise and two years after grant, the gain is taxed as capital gains, typically at a much lower rate.
The tax law requires the exercise price of ISOs to be no lower than the stock price on their issue date. This is the issue that cost IRS whistleblower Remy Welling her job when she tried to enforce this rule on Micrel, Inc. Micrel beat the problem through a process that looks a lot like old-boy cronyism.
I don't know whether any of the options cited in the Journal article are ISOs, but if they are, the IRS may come snooping, and the companies involved may make a discreet call to Micrel to see if they know any good string-pullers.
FURTHER READING
The Taxprof has more on the Wall Street Journal story, with links and discussion of why the option dates look too good to be true and an explanation of the securities law issues.
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2006 AUTO DEPRECIATION LIMITS ISSUED
March 20, 2006
The IRS has released (Rev. Proc. 2006-18) the limits for depreciation for autos placed in service in 2006. The limits are as follows:
The 2005 limits may be found here.
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APRIL 2006 FEDERAL RATES (AFR) ISSUED
March 20, 2006
The IRS has issued (Rev. Rul. 2006-22) the minimum interest rates for loans made in April 2006:
-Short Term (demand loans and loans with terms of up to 3 years): 4.77%
-Mid-Term (loans from 3-9 years): 4.72%
-Long-Term (over 9 years): 4.79%
Historical AFRs are available via the “Links” page at www.rothcpa.com.
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NO HURRY, IT'S ONLY A CRIME IN PROGRESS
March 17, 2006
Note the dates:
The Justice Department announced today that it has sued a Cincinnati-area man in federal court, seeking to halt an allegedly fraudulent tax scheme. The lawsuit alleges that Richard W. Standring, of Batavia, Ohio, gives seminars at which he falsely claims that he can help customers “decode” IRS records to help them establish that they need not file federal income tax returns or pay federal income taxes. Standring, who also does business as “VIP Sales” and operates several websites to promote his schemes, allegedly calls his scheme a “Document Decoding Service.”
The Justice Department announced today that a federal court in Cincinnati has issued a preliminary injunction barring Batavia, Ohio resident Richard Standring, and his business, VIP Sales, from marketing, selling, or promoting an IRS document “decoding” tax scheme.
I remain appalled at how long it takes for the government to shut down what looks like an obvious, blatant and egregious scam. This scam apparently has continued to fleece its customers and the government for 16 months since the IRS first went to court.
Why is there not a special team of attorneys to target and immediately shut down these things? And are federal courts so backlogged that they can't stop an obvious scam in less than 16 months?
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DON'T HIRE A POLLSTER TO DO YOUR TAXES
March 17, 2006
The Wall Street Journal released a poll this week (link for WSJ online subscribers):
About two in five U.S. adults did nothing this year to minimize their U.S. income tax liability, a new Wall Street Journal Online/Harris Interactive personal finance poll shows.
The poll includes a chart showing the popularity of various "strategies":
(Source: Wall Street Journal online edition.)
The listing of these "strategies" is puzzling. Many of these aren't really tax savings strategies at all, or are self-defeating if done solely to save taxes.
Let's start at the top:
"I contributed to charities." Contributing to charities is insane if done strictly as a tax savings strategy. Sure you can reduce your taxable income by your contribution, saving up to 35% on your federal tax bill. But you got that by giving away 100% of the amount you contributed. Deducting contributions you'll make anyway might be considered a tax-savings strategy, but not making the gift in the first place.
"I gave deductible monetary gifts." This seems to repeat the first question, because the only "deductible monetary gifts" are those made to charities. Gifts to your children can save taxes if they are in a lower bracket, but those gifts aren't deductible, even though your kids may seem like charity cases some days.
"I Itemized/plan to itemize travel or commuting as a work expense." Don't hire whoever wrote these poll questions to do your taxes. "Commuting" from your home to your job is never deductible. There is a deduction for travel expenses away from home if you itemize and your employer does not reimburse you, but that deduction has to exceed 2% of your adjusted gross income (AGI) to work, and it doesn't work if you have AMT. In other words, it is unlikely to apply to the 12% of taxpayers who say they will claim it.
"I filed/plan to file taxes separately, rather than with my spouse." This is a "tax-savings strategy" only in the rarest of cases. It can work if both spouses have income and one spouse has extraordinary medical expenses; separate returns can then enable one spouse to deduct expenses that would otherwise be barred by the 7.5% of AGI floor for medical expense deductions. In 20 years of tax practice, I think I've seen this work twice.
Separate return filers ordinarily go up the tax brackets much faster than joint filers, and there are some serious limitations on their deductions. Separate returns are best reserved for cases where you don't want anything to do with your loved one's return, and are willing to pay a little extra to avoid being entangled in a spouse's tax problems.
WHAT IS A "TAX-SAVINGS STRATEGY"?
To me a "tax-savings strategy" doesn't mean just filling out a return properly. It means actually doing something to reduce your taxes. The only two strategies listed in this survey are "purchasing an IRA" and timing the sale of stocks. Both are good ideas, even if the IRA is not deductible. Some other useful strategies for your toolkit:
-Maximize your 401(k) contribution; at the very least, maximize your employer match.
-When you give to charity, use appreciated long-term stock.
-If you have the opportunity, set up and fund a Health Savings Account."
Remember that tax-saving is only a means to a goal: a full cigar box. If you have to spend a dollar to save 35 cents in taxes, you're not putting any cash in the cigar box.
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DON'T TRY THIS AT HOME. OR ANYWHERE.
March 17, 2006
The IRS yesterday took time out of its busy schedule to outline some of the absurd arguments that people try to use to get out of paying taxes. The TaxProf has a complete set of links to the notices and rulings released yesterday.
Just for fun, I've made up some absurd arguments of my own. See if you can distinguish the authentic absurd arguments below from the imposter absurd arguments. Answers at bottom in the extended entry (click "read more" to see them, if you don't already).
1. "The only persons subject to federal income and employment taxation are federal employees and persons residing in Washington, D.C., or federal territories."2. "The suppression of the southern rebellion in the 1860s was contrary to the Constitution, so any legislation enacted with the votes of the members of the Confederacy are invalid."
3. "The 16th Amendment is invalid because it contradicts the original Constitution, was not properly ratified, and lacks an enabling clause."
4. "The Treaty of Paris was never ratified by the states, so federal statutes not enacted under the Articles of Confederation are invalid."
5. "The constitutional amendment permitting direct election of Senators was never properly ratified, so all statutes since enacted are null and void."
6. "A taxpayer can avoid income tax by referring to a separate 'straw man' entity created by the use of the taxpayer's name in all capital letters, or other variations of a taxpayer's name, in government documents."
7. "Because politicians use federal taxes to buy votes with wasteful projects, federal income taxes are illegal 'in-kind' campaign contributions under McCain-Feingold."
8. "Residents of states, such as New York or California, are residents of a foreign country and therefore not subject to U.S. income tax."
9. "Filing a tax return is 'voluntary.'"
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I'M GLAD THIS WASN'T A PROBLEM WHEN I WAS A GRAD STUDENT
March 16, 2006
The TaxProf links to a post on "What to do if you fall in love with your research assistant." As far as I know, this wasn't an issue when I was R.A. for David Strupeck and Rolland Wright. Thank goodness.
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REGULATE THOSE OTHER GUYS
March 16, 2006
The Tick Marks blog notes that the Public Companies Accounting Oversight Board is proposing new restrictions on public companies:
The proposed rules would bar CPA firms which audit publicly-traded firms from providing the following tax services for these clients: tax services involving contingent fees, tax advice or planning that is considered confidential or which takes aggressive positions and tax services provided to certain financial executives and their family members if the financial executive plays an important role in audited financials.
Tick Marks notes a risk of this approach:
The potential problem here is that small CPA firms, which already fear "creeping PCAOB influence" may find this sort of requirement unacceptable.
This risk would come to life if the the AICPA or state regulators began to impose these requirements. I hope this doesn't happen, and I expect it won't.
Private companies prevent a very different accounting and tax planning problem than public companies. Public companies have an inherent "agency problem," where the interests of the managers and the owners are likely to conflict. It's these conflicts that create the issues addressed by PCAOB.
PRIVATE IS DIFFERENT
In private companies the managers typically are the owners; in fact, given the widespread use of pass-through entities, the owners often pay the taxes for the business on their personal returns. Separating the corporate and individual tax planning can be impossible for these entities, and having the same firm do the audit and tax work often brings significant costs savings. It's hard (no, not impossible) to imagine the AICPA and state accountancy boards failing to take these differences into account.
SMALL FIRM OPPORTUNITY FROM NEW RULES
In some ways these regulations may in fact benefit small firms. There is already a trend towards local firms doing tax work for executives of public companies; we're seeing that with Des Moines - based public company executives. A market may also be developing for "boutique" tax firms to do tax work for public companies, especially smaller ones, to comply with the PCAOB rules.
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CONFERENCE FINALLY BEGINS ON TAX BILL
March 16, 2006
The Senate passed its bill November 15. The House of Representatives voted for its version December 8. On March 15 a House-Senate conference began work to reconcile the two bills. Who says Congress can't work fast?
The big items in the bill include an extension of AMT relief (a larger exemption) through 2006 and an extension of lower capital gain and dividend rates to 2010. Failure to pass an exemption will throw 30 million taxpayers into AMT this year, while the extension of reduced rates is a big part of the President's tax policy agenda. The bills also include a number of popular tax breaks, including the research credit, the deduction for teacher expenses, and making energy credits available for taxpayers subject to AMT.
The reconciliation bill is important because it can pass the Senate with 50 votes; most tax bills require 60. Its size is limited, though, so its not clear that both rate relief and AMT relief can be included. One possibility is to try to pass the AMT relief separately to enable the rate cuts to go with the reconciliation. This strategy would dare Democrats, who oppose the rate breaks, to vote against separate AMT relief - a vote that would result in a big tax increase in states with Democratic senators.
Another possibility is that tax increase items not in either bill could be used to enable both rate and AMT cuts to go forward; Senator Grassley hinted at that approach yesterday. If that happens, expect the bill to include the long discussed codification of the "economic substance doctrine" as an anti tax-shelter measure.
The left-leaning Center for Budget and Policy Priorities has a decent summary of the issues in the reconcilation bill.
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GOING PUBLIC WITH TAX RETURNS?
March 15, 2006
Should corporate returns be available for public review? IRS Commissioner Everson says it's worth thinking about, given the different and conflicting goals of financial and tax reporting:
“If we are not willing to operate the two systems by the same set of rules, it makes sense to discuss whether corporate tax returns should be public.”
Tax return privacy is vital to tax compliance; taxpayers would be much less willing to go along with tax reporting if their neighbors or competitors could peek at their financial secrets. For public companies, this argument is much less compelling, and return disclosure might actually make sense. Given the financial MRI required by Sarbanes-Oxley, tax returns might not hold many business secrets, while making tax cheating too difficult to hide.
Those arguing for such disclosure should need to make a convincing case that such disclosure wouldn't start down a slippery slope to more widespread disclosure, with disastrous consequences. They also should show that such disclosure wouldn't be likely to scare companies out of the public equity markets; Sarbanes-Oxley does that already quite well enough.
I think there are also good arguments for some kind of tax information sharing with prison wardens; convicted felons by definition forfeit important privacy rights, and the problem of prisoner-run tax scams is serious enough to warrant sharing information with prison authorities.
In contrast, the "homeland security" argument for expanded tax disclosure doesn't make sense. Taxpayer Advocate Nina Olson is right to oppose using tax information for non-tax law enforcement, as it will just encourage more folks to drop out of the tax system.
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SNOWING DEEP ON THE COMMUNITY BANKERS
March 15, 2006
Treasury Secretary John Snow, fresh from piling it on deep for the Credit Unions, visited Americas Community Bankers annual Government Affairs Conference yesterday. Let's compare and contrast his remarks to the bankers with those to the credit unions.
TO THE CREDIT UNIONS:
I meet and work with financial leaders every day, but I can easily say that Credit Unions have the most heart. Your motto rings true to your culture: "not for charity, not for profit, but for service."
TO THE BANKERS:
Community banks, including many of ACB's members, form the backbone of our local communities. You understand the businesses in local communities and are vitally important for ensuring that credit for investment continues to be made available in your communities.
Short version: credit unions = "heart"; community banks = spine and brain. Advantage: banks, I guess.
One time my wife told our impressionable child that she supported her favorite political party because the other one, which I tend to favor, was "heartless." I quickly noted that her favorite party was "brainless." Perhaps a similar dynamic is going here (but without an ensuing frosty silence).
TO CREDIT UNIONS:
We don't want less small-business lending. We don't want fewer home mortgages. We want a continuation of your tax exemption and we want to continue to have a strong relationship with a group of financial institutions that are dedicated to their communities, who want to see their customers educated and financially literate.
TO BANKS:
I can't imagine an America without community bankers, and I deeply appreciate what you do.
Short version: thanks for the taxes, bankers, I deeply appreciate it! We don't want less of them!
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IOWA SENATE VOTES TO ROLL BACK TAX ON MATH-IMPAIRED
March 14, 2006
It was a busy day for the Iowa Senate yesterday. Not only did they fix the state's super-duper-long-term capital gain deduction holding period rule and select a state fish, they voted to remove the state-run slot machines video lottery installations. The roll call is here.
UPDATE: Don't miss this fly-on-the-wall account of yesterday's Touchplay debate.
Speaking of math-impaired, here is a hilarious list of measurements of the internal revenue code by our elected officials. My favorite, from Rep. Nick Smith of Michigan:
"the federal tax code has about four times as many words as the bible. Accompanying the law are a staggering two-and-a-half million pages of regulations"
I never knew you could fit 2.5 million pages in five paperback volumes that take up less than a foot of shelf space. Must be the fine print...
Of course it's funny, but not so much when you realize we elect these people. Is it just to get them to go away? (Hat tip: The Tax Prof.)
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BOBBY'S BIRTHDAY CARNIVAL
March 14, 2006
This upstanding young man celebrates his 8th birthday today, and there are two great new Carnivals where you can also celebrate.
The Carnival of Personal Finance is at the Personal Finance Advice blog this week. This carnival has something for everyone, whether you are looking advice on portfolio allocation or you are just trying to figure out how to save a buck to invest in the first place.
The Capitalists are having their Carnival at ProHipHop. You can learn about everything from time management to finding disability insurance for a stay-at-home spouse.
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SENATE PASSES IOWA HOLDING PERIOD FIX
March 13, 2006
The Iowa State Senate today unanimously approved HF 2465 to conform Iowa's "holding period" rules to the federal tax law. The Iowa House has already approved the bill, so now it goes to the Governor.
The bill is a reaction to the Department of Revenue's "master tax guide" rule for determining holding periods. The legislature apparently prefers something that makes sense.
In other important news, the Iowa Senate voted to make the Channel Cat the official state fish. I hope that doesn't make it a protected species or something.
The noble Iowa State Fish (proposed)
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POLK COUNTY WEBSITE HACKED?
March 13, 2006
Looks that way. A screenshot taken at about 11:00 a.m.:
Click image for larger view.
Or maybe a county html coder is just having fun. The "official" Polk county home page is at http://www.co.polk.ia.us, but the county does control Polkcountyiowa.gov.
Update, 1:40 pm: looks like a hack. And now the home page seems to be down.
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TOUCHPLAY: LOTTERY ON STEROIDS?
March 13, 2006
The Tax Policy Blog has a great roundup of revenue statistics by state. This one caught my eye: State Lottery Sales Per Capita, FY 2004.
It shows that in 2004, Iowans bought $71 of lottery tickets per person, per year.
But now we have Touchplay slot machines video lottery installations. In their first eight months of operation, the Touchplays grossed $212,100,000. That also works out to about $70 per Iowan - in only eight months. And an additional 4,500 machines are set to be installed in the next year, over the 6,000 already in place.
Who gets that money? Some insights here.
You can't lose if you don't play!
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WHEN IT ABSOLUTELY, POSITIVELY HAS TO BE DEDUCTED LAST YEAR
March 13, 2006
You really meant well. You really meant to keep an eye on your taxes last year. You meant to pencil out a projection and know by December how big your refund would be, so you could have plenty of time to select the chrome turbo-jet gas grill that whopping check would buy.
Yet the year went by and your good intentions went the way of the diet and the workout program. Now you’ve taken that first pass at your taxes and the only grilling to come out of your tax return is the one your spouse will give you when you explain how that cruise you had planned this year will be in the Tunnel of Love at the state fair.
Despair not. Things may not be as bad as you think. A few deductions might be out there for you yet.
IRAs. You may be able to make a deductible IRA contribution for 2005. You have until April 17, 2006 to make IRA contributions for 2005. You can deduct at least part of a contribution of up to $4,000 for yourself ($4,500 if you reached age 50 during 2005) if:
1. You had at least that much “earned income” last year. “Earned” income means wage and self-employment income.2. You didn’t participate in a pension or profit-sharing plan at work, or
3. You did participate in a pension plan and your adjusted gross income (AGI) is no more than $80,000 ($60,000 if you are single filer).
4. You participated in a pension plan, but your spouse worked and did not, and your joint AGI is less than $160,000.
Self-employed? If you have self-employment (schedule C) income, you can set up a “SEP-IRA” for 2005 as late as April 17, 2006. You can do this even if your schedule C is part-time and you participate in a pension plan at your full-time job. If you qualify, you may be able to contribute as much as 25% of your schedule C income to the SEP. Contact your bank or broker to find out how to open the account. If you extend your return, you have until the extended due date to actually make the contribution. But be careful – if you have employees, you have to cut them in, too.
Harvesting the Tax Breaks
While it’s good to cut your taxes by buying an IRA deduction, it’s even better to get a tax break just for being YOU. Don’t forget these items:
The 401(k) and IRA deferral credit can give you an additional tax credit – a dollar-for-dollar reduction in taxes – for IRA contributions and amounts you elect to put into your 401(k) plan at work. This is available for joint filers with adjusted gross income (AGI) up to $50,000 and single filers with AGI up to $25,000. This doesn’t reduce any other 401(k) or IRA tax breaks.
The Earned Income Tax Credit is a widely-missed tax credit. If your AGI is below $35,000, and it’s from wages or self-employment, you might qualify for this tax break. You can learn more at www.clintonfoundation.org.
The Credit for the Elderly and the Disabled applies to taxpayers who are 65 or retired due to disability. You may qualify if you are married with adjusted gross income up to $25,000, or are single with AGI up to $17,500.
Education Credits are available if you have a child in college. You may qualify if you had 2005 AGI up to $107,000 on a joint return, or $53,000 on a single return. If your income is too high, your dependent might be able to qualify.
All of these credits have limits and qualification rules, so check them out at www.irs.gov or call your tax advisor to see if they might help you.
A version of this post is scheduled for the April 2006 issue of the Des Moines Register publication 50 Plus Lifestyles.
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IOWA TAX LAW LEGION OF DUMB
March 13, 2006
Mike Nelson, the hyperliterate trust man from Carroll, Iowa, has started a weekly column in the Des Moines Business Record. He asked me to help him come up with some of the "dumbest aspects" of Iowa's income taxes. Here's what we came up with:
* Complicating corporate taxation with credits instead of lowering rates or just getting rid of the tax.
* The Iowa Department of Revenue's inexplicable failure to follow the feds in interpreting "10-year holding period" as it applies to some 1031 exchanges.
* Giving S corporation owners a break on out-of-state sales while denying the same break to partners and limited liability company owners.
* Iowa's obscenely complicated recomputing of the itemized deduction phase-out on individual returns -- mega work for mini revenue.
* Tax credits for football cleats and prom tickets.
* The new policy to make non-resident members of Iowa LLCs file personal Iowa returns.
Of course, connoisseurs of bad tax policy may differ. I would certainly add Iowa's hodgepodge of venture capital credits to the list. But like fine wines and baseball, bad tax law is a source of endless interest.
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TAX CRIME IN THE NEWS
March 12, 2006
"THEY GOT SPIRO AGNEW ON TAX CHARGES" DEPARTMENT (I)
The former Mayor of Atlanta got on the wrong side of the tax law when he was convicted on evading taxes on $160,000 of income. Bill Campbell, who served as mayor form 1994 to 2002, was aquitted of official corruption charges.
Russ Fox has more.
Washington Post
"THEY GOT SPIRO AGNEW ON TAX CHARGES" DEPARTMENT (II)
Bill Campbell can only hope his sentencing goes as well his colleague in ex-mayordom, former D.C. Mayor Marion Barry. Mr. Berry was sentenced last week to three years probation for evading taxes of $195,000 over a five year period. Not a heavy sentence, but considering his prior public service, that's understandable.
YOU HAVE NO IDEA OF THE POWER OF THE DARK SIDE OF THE FORCE
William Henry, an Irvington, N.J. resident, is getting familiar with the tax law from every side. Formerly an IRS agenet and a criminal investigator for a county attorney's office, he turned to tax preparation. Then things went bad:
Under questioning from the judge, Henry admitted that he failed to pay between $40,000 and $70,000 in taxes for the years 1998, 1999 and 2000. He earned most of the money preparing returns for taxpayers at the family business he ran in Irvington, William John Henry and Daughters Co.
While it's by no means widespread, I'm surprised at how often I see cases of ex-agents going bad. Why do they do it? Do they become cocky because they think they know how to beat the system? Do they become lackadaisical because they think they can fix it later? Or do they just develop a taste for forbidden fruit? When it leaves to prison, it leaves a bitter aftertaste.
ON THE LOCAL SCENE...
A Des Moines man was fined $2,000 and received probation for his part in a nationwide tax investigation of dirty bookstore magnate Eddie Wedelstedt of Littleton, Colorado (scroll down the linked story) Mr. Boten worked for "Bachelor's Library," a local shop owned by Mr. Wedelstedt.
The law was less kind to Mr. Wedelstedt, who will have to go away for 13 months for his part in the case.
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HE'S NOT YOUR RELATIVE, HE'S YOUR BROTHER!
March 10, 2006
The TaxProf's Tax Analysts feature today covers the Garber Industries case, where a corporation lost the use of loss carryforwards because of stock dealings between two brothers. For this purpose the brothers weren't considered relatives, so the transaction was an "ownership change" triggering the tax laws' "section 382" limits on losses.
We covered the same case here. The TaxProf featured another discussion of the issue back in February 2005.
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MAINTAINING YOUR REPUTATION
March 10, 2006
A