irs

IRS’s Corporate Auditors Find $9,354 Of Additional Tax Owed Per Hour

by Reuters on January 18, 2012

Huffington Post…

(The author is a Reuters columnist. The opinions expressed are his own.) By David Cay Johnston Jan 17 (Reuters) – Congress will spend a trillion dollars more than it levies this year, so how do Washington’s politicians respond to the 11th consecutive year of federal budgets in red ink? They plan to shrink the IRS. Go figure. Cutting the IRS budget by more than 5 percent in real terms makes as much sense as a hospital firing surgeons or a car dealer laying off salespeople when customers fill the showroom. Shrinking the IRS makes sense if you believe government is too big and that cutting everywhere is the best way to shrink government. But this is the staff that generates revenue, and there is easy money to be made. Congress should listen to the national taxpayer advocate, a position it created to make sure taxpayers had a voice in how the IRS operates. In her annual report, released last week, advocate Nina Olson said Congress needed to “ensure that the IRS continues to be effective, either by reducing the IRS’ workload or by providing adequate funding to enable it to accomplish its assigned mission.” Instead of cutting, we should be expanding the revenue-generating staff because there is plenty of tax money to be had, even in this awful economy. IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll. WHY CUT? It makes no economic sense to trim the ranks of auditors who generate more than a hundred times their annual salaries. Run a business that way and you go broke. So why would President Barack Obama and Congress cut the IRS budget? Their actions illuminate the rise of corporate power and values, and the diminishing voice of Joe Sixpack, thanks partly to how we finance election campaigns. Then there is the growing army of corporate lobbyists and the Supreme Court’s decision in Citizens United, which allows corporations (and unions) to spend all they can afford on influencing elections. Keep in mind the IRS costs just a half penny for each dollar of tax collected. Its proposed $11.8 billion budget would be less than the Agriculture Department spends each month. If the IRS budget is cut, the losers will be workers and ordinary investors, who will find it harder to get their questions answered and their problems resolved by the agency. On the whole, these people do not cheat on their taxes because their incomes are easily checked – through reports by employers, mortgage banks and others. Under a law taking effect in stages between last year and next, brokerages must report the cost basis of securities. This change will reduce capital gains cheating. TAX CHEATS The winners will be tax cheats among sole proprietors and other business owners, who are subject to less verification. The latest IRS tax gap report, issued Jan. 6, estimates that just one percent of wages escapes tax, while 56 percent of “amounts subject to little or no” verification do so. http://link.reuters.com/daw95s America’s biggest corporations, those with more than $250 million in assets, also may escape some tax if the IRS budget is cut. These nearly 14,000 companies pay about 86 percent of corporate income taxes. Audits of these big firms were down even without a budget cut. And audits have become far more complicated, partly because Congress changed the tax code more than once a day on average from 2001 through 2010, Olson reported. From 2005 to 2009, hours spent auditing the biggest corporations declined by 33 percent, according to IRS records analyzed by the Transactional Records Access Clearinghouse at Syracuse University in New York. http://link.reuters.com/faw95s Two decades ago, when the economy was a third smaller, the IRS staff numbered about 118,000. Now it numbers 95,000 and is on the way to about 90,000. The likelihood of a big company being audited has plummeted 50 percentage points from 72 percent in 1990 to 22 percent in 2010. Big company audits are now limited to specific issues known to the companies in advance, not unlike when cops tip off owners of favored gambling dens before a raid. Each audit also begins with an “estimated time to completion.” Working auditors tell me this is really a hard deadline that allows companies to run out the clock with delays in producing documents. Some IRS tax detectives privately ridicule this system, calling it “audit lite.” Whether you like the corporate income tax or think it is an abomination, failing to enforce it with the same rigor as taxes on wage earners and most investors is indefensible on economic, budget deficit and moral grounds. IRS budget cuts worsen budget deficits and send a corrosive signal that only chumps file honest tax returns. So you have a choice. Do nothing and suffer the consequences or call your congressman, senators and the White House – today – and then vote in politicians who support, rather than undermine, tax law enforcement. (Editing By Howard Goller and Eddie Evans)

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IRS’s Corporate Auditors Find $9,354 Of Additional Tax Owed Per Hour

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Swiss Bankers Charged With Hiding U.S. Taxpayer Accounts From The IRS

by Jillian Berman on January 3, 2012

Huffington Post…

Three Swiss bankers were charged Tuesday with hiding more than $1.2 billion in U.S. taxpayer accounts from the IRS, by Preet Bharar, the Manhattan U.S. Attorney. Michael Berlinka, Urs Frei And Roger Keller allegedly conspired with some U.S. taxpayers and others to hide Swiss bank accounts and the income generated from them while working as client advisers for a Swiss bank, according to a press release from Bharar’s office. The three worked on dozens of undeclared bank accounts in 2008 and 2009 in an effort to scoop up business lost by UBS and another Swiss bank following reports that UBS was helping U.S. account holders evade taxes, according to the press release. The case has been assigned to Judge Jed Rakoff, according to the release. The three bankers allegedly helped U.S. clients open using sham corporation names in other countries as well as used code names and numbers on undeclared accounts to minimize references to the clients’ actual names, according to the press release. In addition, they allegedly made sure that any mail related to the accounts wasn’t sent to clients at their U.S. addresses and communicated using their personal email accounts to avoid detection, among other allegations, according to the release. The charges come as tensions between Switzerland and the U.S. are rising over Swiss bank secrecy — a result of a Swiss law that prevents Swiss bankers from revealing client information, according to Reuters. S wiss banks hold an estimated $2 trillion in offshore wealth and the U.S. Justice Department is investigating 11 Swiss banks suspected of helping wealthy Americans evade through Swiss accounts.

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Swiss Bankers Charged With Hiding U.S. Taxpayer Accounts From The IRS

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Man That Wrote A Book About Tax Evasion Convicted

September 16, 2011

A former Littleton, Colo. resident, Donald Turner (also known as Donald Wood), has been found guilty of conspiring to defraud the Internal Revenue Service, CBSDenver reports . According to a Department of Justice press release , Turner wrote and promoted a book entitled “Tax Free! How the Super Rich Do It,” a program that shows readers how to avoid paying federal income tax. And that’s just what Daniel Leveto, a Meadville, Pa., veterinarian did — he purchased one of Turner’s programs in 1991 and followed the instructions. Leveto sold his veterinary business to an alleged offshore entity called Center Company to hide the income from the IRS. However, Leveto actually retained control over the veterinary business. For which, Leveto was convicted in 2005 and sentenced to nearly four years in prison, 7News reports . GoErie reports that Turner, who was indicted along with Leveto in 2001, turned himself in to federal authorities in 2010. Turner now faces up to five years in prison and a $250,000 fine. His sentence hearing is scheduled for January 2012, according to The Denver Post .

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1031 Exchange – Trade Real Estate Investments and Defer Taxable …

June 2, 2011

The “like kind” provision for Real property is quite broad and includes land, rental and commercial property ; any of which can be exchanged for the other. The “like kind” provision for personal property is more restrictive. … Your interest in a partnership cannot be traded for an interest in another partnership . Exception: The partnership “as an entity” can exchange real estate it owns for other like-kind real estate . D. Transfer between Spouses …

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Slush-Fund Surtax? IRS Could Penalize Secret Campaign Spending

May 25, 2011

WASHINGTON — Top Republican political strategist Karl Rove’s method of secretly funneling unlimited contributions from big donors was so hugely successful in the 2010 campaign that Democrats are now trying to copy it. But his model may yet end up backfiring spectacularly. In one scenario, groups like Rove’s Crossroads Grassroots Political Strategies could find themselves subject to massive fines, ranging as high as 35 to 70 percent of the money they received in secret donations. In another scenario, their deep-pocket donors could be hit by a 35 percent tax on their contributions. Rove may well have found a way around the nation’s federal election laws. But now the key question is whether the Internal Revenue Service is willing to be assertive. Because if it is, then just like with Al Capone, it could be the IRS that gets him. In Crossroads GPS’s solicitations for money, the group describes itself as a tax-exempt 501(c)(4) organization, and due to a controversial loophole in federal campaign finance rules, the names of donors to those organizations do not have to be disclosed publicly. But contrary to popular belief, Rove’s group has not formally attained 501(c)(4) status. The group’s application, requesting the IRS to classify it as a “social welfare” group, is still pending. And while the designation is typically not much more than a formality — organizations routinely call themselves (c)(4) groups before they’ve been formally approved — tax and campaign finance experts contacted by The Huffington Post said the IRS could well deny Crossroads GPS’s application. IRS guidelines for 501(c)(4) status state that social welfare groups “must operate primarily to further the common good and general welfare of the people of the community” — which “does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” Intervening in political campaigns isn’t prohibited, it just can’t be the primary activity. Were Crossroads GPS denied its 501(c)(4) status, the organization could be on the hook for tens of millions of dollars in fines. And operating in secrecy would suddenly come with an enormous new price tag. THE RISE OF 501(c)(4)s In the 2010 cycle, Rove wasn’t the only one to use a 501(c)(4) as a source of clandestine funds. A slew of other , mostly conservative, often interrelated groups did so as well, led by the Wall Street-backed American Action Network . Indeed, more of these groups seem to be popping up every day, with Rove’s organization often cited as a role model. “If people look at what Crossroads did over the course of the last couple of years, that’ll give them a good sense of our activity,” said Bill Burton, a former aide to President Barack Obama and one of the co-founders of Priorities USA, a newly-formed Democratic 501(c)(4), in an interview with The Huffington Post last week. Crossroads GPS spokesman Jonathan Collegio confidently insists that his group “is comfortably within the guidelines set out by the IRS” for social welfare groups. “GPS invested millions of dollars in social welfare issue advocacy advertising before the FEC’s 60 day reporting window last summer,” he said in an email. And, Collegio added, “we’ve been one of the most heavily active issue advocacy organizations in Washington over the last six months.” But when it comes to defining political activities, the IRS doesn’t engage in the same kind of legalistic hairsplitting that the Federal Election Commission does, and much of the spending Collegio puts on the non-political side of his group’s ledger, the IRS might well decide does not belong there. “Lots and lots of things that would not be considered ‘express advocacy’ by the FEC, the IRS would consider intervention in a political campaign,” said Donald Tobin, a tax and campaign finance law expert at the Moritz College of Law. TIPPING THE SCALE To qualify as a legitimate 501(c)(4) organization, in its first fiscal year Crossroads GPS would need to have spent more on what the IRS considers non-political expenditures than on political ones, said Marcus S. Owens, a Washington lawyer who used to head the IRS division that oversees tax-exempt organizations. “My guess is they haven’t,” he said. And there’s not enough time to take dramatic measures to restore the balance, either — the group’s first fiscal year ends on May 31. Consider the numbers: Crossroads GPS dropped a whopping $17 million on campaign spending that it considered obligated to report to the FEC — most of it on televised attack ads — in the run-up to the November 2010 elections. And while Collegio said the group raised a total of $43 million in 2010 — leaving plenty available for other purposes — there are few indications that it spent more than a fraction of that money on anything that, by IRS standards, is unrelated to campaigning. Asked for examples of big-ticket expenditures that weren’t election-related, Collegio came up short. Crossroads GPS made a $750,000 ad buy in March attacking public sector unions, and recently launched an anti-Obama wiki , he said. But all that only amounts to pocket change for the group. Collegio also cited as unrelated to elections the $1 million Crossroads GPS spent to run an ad in California during August 2010, that called on Democratic Sen. Barbara Boxer “to stop the Medicare cuts.” Boxer was facing reelection three months later. “What Crossroads is going to argue is that these ads you’re talking about are lobbying — and lobbying is a social welfare purpose — because they say in the tagline: ‘Call Barbara Boxer,’” Tobin said. “But that is using federal election law jurisprudence, not tax jurisprudence.” The IRS, he said, takes a “fact and circumstances approach” to decide whether ads — or groups — are basically there to influence elections. And the group’s primary purpose really couldn’t be clearer. Its own blog recently linked to a Wall Street Journal story in which Rove and fellow Republican strategist Ed Gillespie — the co-founders of Crossroads GPS and its Super PAC twin American Crossroads — announced that they’re “raising $120 million in the effort to defeat President Barack Obama, win a GOP majority in the Senate and protect the party’s grip on the House in the 2012 election.” “There’s a good chance the IRS will deny the (c)(4) application,” said Lloyd Mayer, who teaches tax law at the University of Notre Dame. So what would the group do should it come to that? Collegio told The Huffington Post he was “not going to argue hypotheticals based on a tax expert’s opinion.” And he stuck to his guns, adding: “[t]he laws as they are set out by the FEC and IRS are clear, and Crossroads follows them closely.” MILLIONS IN PENALTIES But without its 501(c)(4) status, the group would find itself in real trouble. Experts say the most likely scenario is that the IRS would classify Crossroads GPS as a “527″ organization instead. Unlike 501(c)(4), Section 527 of the U.S. Code is specifically intended for organizations that are primarily engaged in political advocacy. It exempts them from taxes and allows unlimited donations from individuals and corporations. And, thanks to recent Supreme Court decisions, it no longer imposes any limits on what they can say in their ads. But Section 527 also explicitly requires political groups to publicly disclose from whom they got their money and how they spent it. Karl Sandstrom, a former FEC commissioner now at the Washington law firm of Perkins Coie, predicts that “the IRS would come in and say, ‘you’re not properly a (c)(4), all indications are that you’re operating as a political organization. And political organizations have a responsibility to file regular reports with the IRS, and you failed to do so.’” Suddenly in violation of those disclosure rules, the group would then be subject to a massive penalty, established in the statute as the maximum corporate tax rate (35 percent) times all the money that should have been disclosed but wasn’t. For Crossroads GPS, that turns out to be a lot. “You would aggregate all donations that were not disclosed, and you would take that amount at 35 percent,” said Tobin. If indeed the group took in $43 million in donations in 2010 alone, that would mean well over $15 million in penalties right there. “In addition, the organization is also taxed on non-disclosed expenditures, so my reading of the statute would subject all expenditures that were not disclosed to the FEC to the 35 percent tax,” Tobin said. So Crossroads GPS would also owe more than a third of however much it spent beyond the $17 million it has already reported. In a twist sure to be frustrating to disclosure advocates, however, the group still would not have to disclose its donors’ identities once it paid its fines. But that would be secrecy at a very high price, indeed. The tax experts consulted by The Huffington Post say that another possible path exists for Crossroads GPS should it be denied its 501(c)(4) status: It could conceivably declare itself a regular, tax-paying corporation. But the group would arguably take a huge hit there, as well. In that case, the company would potentially have to pay corporate income tax on all the money in took in as donations. And all those campaigns ads wouldn’t be deductible, as they don’t qualify as ordinary and necessary business expenses. WAITING ON THE IRS Why, then, is Collegio still so confident? And why, given these huge potential pitfalls, are political (c)(4)s the hottest thing in D.C.? Because the IRS may be afraid of a fight. “That’s the issue here,” said Mayer, the Notre Dame law professor. “Because usually when there are penalties — especially of this magnitude, especially when you’re dealing with an organization this politically sensitive — the IRS blinks.” An IRS spokesman declined to comment for this story. Mayer described what he considers a likely scenario: The IRS denies Rove’s group its (c)(4) status, but ends up letting him off with just a slap on the wrist. “The IRS can waive those penalties if they find that the failure was due to reasonable cause and not due to willful neglect,” Mayer said. “And, of course, reasonable cause is all in the eye of the beholder.” “That would be the easy way out,” he added. Another possibility is that the IRS could just decide to let the issue drag out indefinitely, Mayer said. As it is, the earliest opportunity for decisive action may not be for almost another year. Experts say that at this point, the IRS would be wise to hold off on any action until Crossroads GPS files it annual tax form, a Form 990. By law, that form has to include a lot of detailed information about donations and expenditures. But Crossroads GPS will have four and a half months after the end of its fiscal year to file its taxes. That won’t be until Oct. 15. And tax rules make it pretty easy to get extensions for as long as six months, or until mid-April 2012 — still before the November elections, but not soon enough to stop the proliferation of copycats 501(c)(4)s. The IRS is notoriously skittish about making political decisions, Mayer said. “They will go after these (c)(4)s, but they may not have the stomach or the resources to fight a battle royale all the way to the Supreme Court.” That’s particularly the case if Rove’s group fights back hard — as it would be expected to do — and accuses the IRS of trying to limit free speech, he said. But this time around, the IRS could also face a lot of heat if it blinks — not just if it doesn’t. This past fall, IRS Commissioner Doug Shulman was besieged with letters demanding that he enforce the (c)(4) rules. Senate Finance Committee Chairman Max Baucus (D-Mont.) requested an investigation into the use of tax-exempt groups for political advocacy, generally speaking. Sen. Dick Durbin (D-Ill.) sent a letter requesting an investigation of the tax status of Crossroads GPS and other groups like it. And campaign finance reform groups Democracy 21 and the Campaign Legal Center called for an investigation of Crossroads GPS, in particular. “If the IRS investigation establishes that the facts and circumstances show that Crossroads GPS is primarily engaged in participating or intervening in political campaigns,” the letter from the reform groups said, “appropriate penalties should be imposed on the organization, including penalties that take into account the need to deter similar widespread violations from occurring in future elections.” THE COST OF GIVING There have also been some signs lately that the IRS is getting a bit bolder in this area. Last December, when it released its annual workplan, the IRS’ Exempt Organizations Division noted its intention to broaden its historical historical concentration on 501(c)(3) organizations — groups that are not only tax-exempt, but can accept tax-deductible contributions. “Beginning in FY 2011, we are increasing our focus on section 501(c)(4), (5) and (6) organizations,” the workplan said. And during the last two weeks, media reports have disclosed that the IRS is examining what could be the first five of many cases in which taxpayers who donated large amounts of money to 501(c)(4)s failed to report them on their gift tax returns. Gift taxes are not an issue for most people; gifts greater than $13,000 — or $26,000 per couple — don’t need to be reported at all. And there is a $5 million lifetime exemption for gifts made after 2010. But for the really big donors, especially those who give away several million dollars a year, the gift tax could result in a hefty assessment on some or all of their contributions. The gift tax rate is 35 percent this year. And unless Congress acts, it will jump to 55 percent in 2013, even as the lifetime exemption falls to $1 million. The IRS insisted in a statement to reporters that the examinations were “not part of a broader effort looking at donations to 501(c)(4)s” but rather were initiated by career employees looking at non-filing of gift and estate tax returns. But this could nevertheless be the tip of a very big iceberg. The examinations in the news were based on 2008 donations to (c)(4)s — back when such groups were still severely limited in what sorts of campaign ads they could run. The 2010 elections brought a huge infusion of campaign money, a good chunk of which is thought to have come from a handful of deep-pocket donors, such as the Koch brothers on the right, and George Soros on the left. For the IRS, cross-referencing those huge donations with gift tax filings would be the work of seconds. (Groups that don’t disclose their donors publicly still have to report them to the IRS in a confidential section of their Form 990s.) What it all comes down to is that, just as 501(c)(4)s weren’t designed to enable non-disclosure of massive political spending, the gift tax may turn out to be an accidental — but hugely effective — enforcement mechanism. By contrast, the gift tax issue wouldn’t be an issue at all if donors hadn’t tried to circumvent disclosure with (c)(4)s, as donations to 527 groups are, by statute, exempt from the gift tax. “That’s sort of one of the underlying themes here, that there is a potential cost to your anonymity,” said Ofer Lion, a Los Angeles tax lawyer who represents tax-exempt organizations. “Your anonymity is currently worth 35 percent of your contribution,” he said. “And 55 percent in 2013.” ************************* Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an email , bookmark his page ; subscribe to his RSS feed , follow him on Twitter , friend him on Facebook , and/or become a fan and get email alerts when he writes.

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Tax Cheats Received Billions In Stimulus Cash, Report Finds

May 24, 2011

WASHINGTON — Thousands of companies that cashed in on President Barack Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found. The Government Accountability Office, in a report being released Tuesday, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion from the stimulus effort owed $757 million in back taxes as of Sept. 30, 2009, the end of the budget year. The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined and cautioned that the real number might be higher because the known tax debt does not measure such factors as income underreporting. Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.” A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million. The GAO referred those two cases and 13 others to the IRS for further investigation. On Tuesday, a Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report. Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. While the federal government requires contractors to present documentation that their taxes are paid, some recipients escaped federal review because the money was disbursed at state or local levels. Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it’s been known for years that a few federal contractors and grantees don’t pay their taxes. He said a program to recover funds from tax delinquents has been strengthened, and “the executive branch has made it clear” that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should “get on with it” and bar “the worst of the tax cheats from the contractor workforce.” “It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else,” said Sen. Tom Coburn of Oklahoma, the panel’s top Republican. “That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress.’” The stimulus package, enacted in February 2009, funneled some $821 billion into the recession-hit economy. Of that, about $275 billion was designated for contracts and grants, of which nearly $200 billion had been paid out as of March 25, 2011. The report noted that about 35 percent of the unpaid taxes were for debts incurred prior to 2003 and that more than half of the apparent violations, $417 million, were from unpaid corporate taxes. Another quarter, $207 million, came from unpaid payroll taxes. The most serious documented case was a security firm that owed $9 million, mainly in unpaid payroll taxes from the mid-2000s. IRS records indicated that the company paid other creditors while shirking its tax obligations. The company, which received more than $100,000 in stimulus money, had a history of being uncooperative, missing deadlines and repeatedly filing appeals, according to the records. Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said every unpaid tax dollar was “added to our deficit or taken from future generations, so I will certainly use the conclusions from this report to look for new ways to ensure everyone pays their fair share.” For Republican the report provided another way to criticize Obama’s recovery package. “This shows how fundamentally flawed the failed stimulus has turned out to be when Washington jams through almost a trillion dollars in spending with little scrutiny,” said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee. ___ Associated Press writer Stephen Ohlemacher contributed to this report.

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Eric Schoenberg: How I Paid Only 1% of My Income in Federal Income Tax

April 25, 2011

In 2009, the median U.S. family had an income of just under $50,000, on which they would have paid roughly $2,761 (or about 5.5%) in federal income tax. I, by contrast, enjoyed an income of $207,415 in 2009, but paid only $2,173 (or 1.0%) in income tax. In a recent newspaper interview, I mentioned my absurdly low tax rate to illustrate the extent to which the tax system is biased in favor of the wealthy (my income varies widely from year to year, but is typically north of half a million dollars). My point was that with our country facing frightening budget deficits amid an ever-widening income gap between the rich and everybody else, I consider it both unwise and unfair that a former investment banker like myself pays less in taxes than working Americans with far lower incomes. Among the dozens of emails I received in response were many from people who assumed that rich people avoid taxes through complicated strategies devised by an army of expensive advisors (many correspondents asked for the name of my accountant). But under our current tax system, the rich don’t need high-priced lawyers who exploit obscure loopholes; I wasn’t even trying to minimize my taxes (and, in fact, could have paid zero tax if I was). Warren Buffett has observed that if there’s class warfare in this country, the rich are winning. I offer my 2009 tax return, then, as a flare to illuminate the battlefield. Americans are understandably angry over the government’s multi-billion-dollar bailouts of reckless bankers. But low tax rates on investment income have put far more money into Wall Street’s pockets than the TARP bill did. Even President Obama’s proposal to let the Bush tax cuts lapse for the richest Americans would leave a top marginal rate on capital gains and qualified dividends of just 20% — half the proposed rate on labor income. This difference creates a loophole you can drive a Rolls Royce through. Having left Wall Street in 2002, I now earn far more money from my financial portfolio than from my job as an Adjunct Professor, and as a result I consistently pay under 15% of my income to the IRS. Still, I was astonished when my accountant told me that my tax rate for 2009 was a mere 1%. I knew my deductions were an unusually large percentage of my income that year due to three items: $46,000 in charitable gifts, $56,000 in state and local taxes (mostly related to 2008, when my income was much higher) and $45,000 in investment expenses (basically fees paid to various money managers). Personally, I think there are reasonable arguments to be made for keeping each of these types of deduction, but the numerous “tax expenditures” that litter the tax code mean that citizens with similar incomes can end up paying wildly different amounts in tax. Even after deductions and exemptions, however, I still had taxable income of $37,349, putting me in the 15% bracket (higher than the average rate I’ve paid in years past with income twenty times as large). If I’d been an ordinary worker, my tax bill would have been $4,764. But wait! Under the Bush tax cuts, if one’s income from other sources is low enough (which mine was after deductions), certain types of investment income are subject to zero — yes, zero — tax. In my case, the qualified dividends I received in 2009 would have escaped taxation altogether if not for the Alternative Minimum Tax. Even under the AMT, however, I paid less than half the income tax paid by a wage-earner with the same taxable income (and less than a third of the tax burden when including social security taxes, which are not due on investment income). Does that seem fair to you? Advocates of lower taxes on investment income argue that they increase the incentives for folks like me to create jobs. As a long time investor, I’m skeptical. After all, job growth was much higher in the years following the Clinton tax hike in 1993 than it has been over the last decade as investment tax rates were repeatedly slashed. And lower rates on investment income also reward financial speculators, whose actions in recent years haven’t exactly promoted increased employment. Middle class anger in the Tea Party era, meanwhile, has been directed primarily at government spending. Arguing that government will simply waste whatever money it receives, Tea Party supporters oppose higher taxes on anybody (which explains why this is one populist movement which many billionaires are happy to support). But by focusing attention solely on whether government costs too much, the Tea Party ignores the completely separate question of who pays those costs. Last year, the answer was: not me. And I’m not happy about it. Some Tea Party types have observed that I am welcome to pay more voluntarily to the federal government if I want, but this entirely misses the point. Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. “Taxes are the price we pay for civilization,” and since we all share in that benefit, we should all pay our fair share of the cost. While the Republicans talk about the “shared sacrifices” necessary to close our government’s budget deficit, their plan imposes pain mostly on the sick, the elderly, and the poor. Asking the rich to sacrifice by paying higher tax rates surely pales in comparison. I believe that having wealthy investors pay taxes at the same rate as middle-class workers would be an important step towards making sure that we all contribute to putting our fiscal house in order.

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Grant Cardone: Are the Rich Greedy?

April 25, 2011

Are the rich really greedy or is this just what those that aren’t rich say about those that are? And can a person’s income or net worth determine whether that person is greedy or not? When a person is promoted from a $60,000 a year to one paying $250,000 do they suddenly become consumed with greed? It is preposterous to think that that amount of money a person earns or the wealth they control have anything to do with greed! Greed is defined as the excessive desire to possess wealth or goods with the intention to keep it for one’s self. Greed by definition is then determined by desire and intention not by a person’s net worth. It seems that the rich are most often labeled greedy by two groups: 1) those that haven’t created financial success. 2) those with political agendas. This labeling is created from myths and misinformation about the rich. The misconception that the rich don’t help or don’t do their part or that they are greedy only demonstrates a misunderstanding, even an ignorance about the rich and wealth. This thinking stands in the way of entire classes of people from ever improving their financial situations. The Obama administration asserts that financial literacy is a ‘national crisis’ . Surveys suggest 75% of all workers don’t know how much money they need for retirement. Multiple studies of 12th graders produced consistent failing scores of only 50-55% on practical money questions. In my seminars I often hear, “if I had $1 million I would use it to help the less fortunate.” I always respond, “The most effective way to help the less fortunate is to quit being one of the less fortunate!” If you don’t come from wealth, I didn’t, then the only way to create it today is through hard work, risks, entrepreneurial effort, innovative thinking and by saving and investing! Those that create wealth honestly should be admired not labeled. Go to any third world country and financial success is admired and perceived as an ethical issue — a duty, obligation, even a responsibility to ensure the survival of their futures. Be honest, do you have a resentment of rich people? Do you believe rich people are greedy, shallow, unhappy and dysfunctional? Do you believe that the rich got rich by stepping over others? Do you believe the rich made money their god or that they don’t care about the less fortunate? If you harbor any of these beliefs creating financial security for yourself and your family is going to be almost impossible! And what about all the misinformation and myths about the rich. Consider the most simple of facts that if you are reading this from a computer you are rich compared to most people in the world. 1/3 of the people on this planet live on less than $166 a month making even those at poverty levels in the USA wealthy by comparison! The median income in the USA is $44,000 a year but the world median income is $2000 a year. The next time you say, “the rich are greedy”, by world standards, you are talking about yourself! Also, we determine who is rich and who is not. You may resent the hedge fund guys on Wall Street or the CEO’s of the big banks but it is you and me investing in their funds and banks. Steve Jobs’ net worth is in the multi-billions and was determined by all of us buying his products and downloading apps onto iPhones and iPads. Not even a criminal, is able to create riches without the help, trust and support of the marketplace. Others suggest that the rich are greedy and don’t give their fare share. The top 1.4 million earners in 2008 paid over 38% of ALL the income taxes collected by the IRS. Also just those earning incomes over $1 million a year were responsible for over 50% of all charitable donations? I have been studying the wealthy for years and one of the biggest differences is a willingness to work with no pay in hopes of some bigger payoff later. The poor and middle class see working for nothing unthinkable. At the age of 29 I went into business for myself and my income dropped by 1/3 from my previous job with me working 20 hours a day. Minimum wage may have made a bigger middle class but it also trapped entire classes of people to think in terms how much they get per hour rather than their financial freedom. Before you jump on the ‘rich people are greedy’ bandwagon consider the facts: 1) Rich has nothing to do with greed. 2) They pay most of the taxes collected. 3) They are responsible for 50% of all charitable donations. 4) Resenting the rich guarantees that you will always be poor or you have a political agenda! Grant Cardone, NY Times Best Selling Author The 10X Rule-The Difference Between Success and Failure

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Bradley T. Borden: Budget Deals, Service Cuts, Tax Returns, and Pure Frustration

April 18, 2011

This year’s tax filing season coincides with the recent budget deal and President Obama’s proposal to reduce the deficit by $4 trillion. We learn about cuts to public services as we write checks to pay for them. The confluence of these events frustrates most of us. Yet, further thought deepens the level of frustration. As you prepare your tax return (or provide information to a return preparer), you probably sift through your old receipts to maximize your deductions. Perhaps you have deductible moving expenses. Maybe you can deduct a charitable contribution you made. If you own a house, you can deduct the property tax and interest you paid on your mortgage. The few thousand dollars of deductions you have saves you a few hundred dollars of taxes. You might be relieved because you save a few hundred dollars (one or two thousand if you have more children) of taxes because of the child tax credit. In the end, however, you’re still frustrated because you have to pay taxes. The real frustration comes when you realize that the tax savings you obtained through your deductions and credits are a pittance compared to what the wealthiest portion of the population saved . As a former colleague quipped, “I’m a tax attorney but I can’t afford to hire myself.” His observation suggests that a small percentage of the population — the wealthiest — reduce their taxes in ways that the middle class can’t. In fact, real tax savings come long before a person files a tax return. For example, large corporations hire tax attorneys to establish fake entities in tax havens and pretend to move their income offshore. Property owners hire tax attorneys to help them create complicated like-kind exchanges so they can pay no taxes when they sell property. Business owners sell their businesses and hire tax attorneys to help them structure the sale to be tax-free. The wealthiest save hundreds of thousands (often millions or billions) of tax dollars, compared to the hundreds of dollars those in the middle class save. Many of the tax-avoidance techniques that are available to the wealthy are legal because the wealthy promote laws that create loopholes . By supporting those laws and then paying attorneys to exploit the laws, the wealthy reduce the amount of tax they pay. If the IRS audits a wealthy person , that person can hire expensive tax attorneys to challenge the IRS’s efforts. Even wealthy tax cheats may fare better with expensive tax counsel. Middle class Americans can’t hire tax attorneys or influence legislation because they don’t have enough money. Assume a tax attorney makes $250,000 and is in the top 2% of the population (but still in the middle class). That attorney may charge tens of thousands of dollars to provide tax advice. The tax savings a tax attorney helps create must be greater than the fee the attorney charges. (For example, no one would pay an attorney $100 to save $50 of tax.) To save tens of thousands of dollars of tax, a person must have hundreds of thousands of dollars of income. And such income often comes from transactions. Even tax attorneys who make $250,000 a year generally don’t own businesses or property worth hundreds of thousands of dollars (other than a home, furniture, cars, and assets in retirement savings), so they don’t have transactions that are large enough to justify the costs of tax planning. Consequently, they get hundreds of dollars of tax savings, while they save their clients millions. This behavior of the wealthy hurts everyone. The middle class must pay more taxes or the country must forfeit services because the wealthy pay lower taxes. To illustrate, the most recent budget deal cuts spending for education, health and human services, and transportation . Those cuts affect the middle class and especially the poor; they stymie growth, hurting the future of the country. To help end the frustration most of us feel, I offer a bold proposition to both sides of the budget wrangling: do nothing else until you take goodies away from the wealthy , including corporations, and raise taxes on the wealthy. President Obama once again promised that he would not renew tax cuts for the wealthy and promised to eliminate some of the tax breaks they receive. This time he must stick with those promises, and go further (despite the efforts of those who will come to the aid of the wealthy ). Some people make millions of dollars a year. Those people should pay tax at an even higher rate than a person making $250,000. Take away the preferences for the wealthy, tax them fairly, and then worry about the other expenses. That would help reduce the frustration we feel this time of year.

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How To File An Extension On Tax Day

April 18, 2011

(AP) NEW YORK – If you’ve waited this long to file your tax return, it may be time to put aside the 1040 and go straight for the 4868. That’s the form you’ll need to request a six-month extension from the Internal Revenue Service if you can’t make tonight’s midnight deadline. You’re far more likely to make a mistake if you’re rushing to finish a return. Asking for extra time may be the ticket to avoid problems and miss out on deductions. Almost all taxpayers are entitled to an extension, and the form can be e-filed at no cost. About 10 million individuals are expected to seek extensions, according to H&R Block Inc. You don’t have to explain why you need the extension. There is one catch: The additional time is only for filing a return, it’s not for paying any taxes due for 2010. If you expect to owe the government money, you’ll have to make a payment today, or you’ll owe interest and possibly penalties as well. Credit and debit cards may be used for payments, but you’ll incur an additional charge — up to 2.35 percent for credit payments, or up to 1.9 percent for debit payments. There are no service charges for using an electronic withdrawal from your bank account, which is available using most tax preparation software. Free electronic versions of form 4868 can be found on the IRS website, www.irs.gov, and most major preparer websites.

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America’s Richest Taxpayers See Federal Taxes Dramatically Drop

April 17, 2011

WASHINGTON — As millions of procrastinators scramble to meet Monday’s tax filing deadline, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all. The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992. Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent. The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation’s tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent. There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank. “It’s the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes,” said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes. The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue. President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama’s proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate. In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS. More than half of the nation’s tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes. Obama wants the wealthy to pay so “the amount of taxes you pay isn’t determined by what kind of accountant you can afford.” Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves. Shoenberg, who now teaches a business class at Columbia University, said his income is usually “north of half a million a year.” But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000. “I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?’” Schoenberg said. Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There’s nothing stopping you. “There’s still time before the filing deadline for them to give Uncle Sam some more money,” Hatch said. Schoenberg said Hatch’s suggestion misses the point. “This voluntary idea clearly represents a mindset that basically pretends there’s no such things as collective goods that we produce,” Schoenberg said. “Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?” The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch. The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes. The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said. In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income. About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed. “As a matter of policy, there would be a lot of ways to save money and actually make these things work better,” said Leonard Burman, a public affairs professor at Syracuse University. “As a matter of politics, it’s really, really difficult.” ___ Online: Tax Policy Center: http://www.taxpolicycenter.org National Taxpayer Advocate: http://www.irs.gov/advocate United for a Fair Economy: http://www.faireconomy.org

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Donna Fenn: When Is It Best To Hire A Contractor?

April 15, 2011

Q: When is it better to work with contractors rather than hire employees? The following answers are provided by the Y.E.C. Mentors . Co-Founded by Donna Fenn and Scott Gerber , Y.E.C. Mentors is an initiative of the Young Entrepreneur Council , a nonprofit organization that provides young entrepreneurs with access to tools, mentorship, community and educational resources that support each stage of their business’s development and growth. Y.E.C. Mentors’ members are successful executives, serial entrepreneurs and thought leaders. A: Use Contractors in Non-Core Areas When our team encounters issues beyond our capabilities, we hire a project based contractor. The high cost of unemployment insurance and other employee contributions could last longer than the project. If the project is only short term, we do not want that extra overhead. However, we have retained as full time, two project staff because of their amazing culture and abilities. –Tom Walter, Tasty Catering A: Keep Fixed Costs Minimal, But Don’t Contract Out Critical Positions Look for independent contractors with the expertise to speed your way to success. It is much more cost effective to hire them by the hour instead of taking on their salaries; but beware that you have the right “work for hire” agreements in place to you own what you pay them for doing. And make sure you comply with the IRS rules on independent contractors. –Sharon Lechter ( @sharonlechter ), Pay Your Family First A: Invested Employees Sustain Growth Often times, you have more “control” over contractors than employees. They typically cost more per hour but you can use them only when you need them. Unless it’s core to your business contractors offer much more flexibility but come at a cost — such as their experience leaves with them. –Michael Holthouse ( @lemonadeday ), Prepared 4 Life A: Contactors are Invaluable for Bootstrappers The answer to your question isn’t really what’s better, but what is the nature of your relationship with the worker. If you are the sole company he or she works for and if you control his/her schedule and how the job is performed, then the worker is most likely an employee. Check out www.irs.gov which provides a list of criteria a worker must meet in order to be considered a contractor. –Susan Solovic ( @susansolovic ), It’s Your Biz

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IRS Gives $513M In Homebuyer Credits To Unqualified Taxpayers

April 15, 2011

WASHINGTON — The Internal Revenue Service has paid out more than a half-billion dollars in homebuyer tax credits to people who probably didn’t qualify, a government investigator said Friday. Most of the money – about $326 million – went to more than 47,000 taxpayers who didn’t qualify as first-time homebuyers, said the report by J. Russell George, the Treasury inspector general for tax administration. Other credits went to prison inmates, taxpayers younger than 18 and people who did not actually buy homes. “The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate homebuyer credits,” George said. “However, many of the actions occurred after hundreds of thousands of homebuyer credits had already been issued, including fraudulent and erroneous credits totaling millions of dollars.” The popular credit provided up to $8,000 to first-time homebuyers and up to $6,500 to qualified current owners who bought another home during parts of 2009 and 2010. The IRS said it worked hard to enforce a complicated tax credit that provided more than $27 billion to almost 3.9 million taxpayers. The agency said it corrected math errors on more than 370,000 returns and audited more than 400,000 taxpayers claiming the credit, denying hundreds of thousands of questionable claims. In all, the agency said its enforcement efforts saved more than $1.3 billion and identified more than 200 criminal schemes. The agency questioned some of the inspector general’s findings, but said it would follow up on the report and continue working to recoup any credits that were incorrectly paid out. The tax credit for first-time homebuyers was part of President Barack Obama’s economic recovery package enacted in 2009. In November 2009, Congress extended the credit and expanded it to longtime owners who bought new homes. Homebuyers qualifying for the credit had until April 30, 2010, to sign purchase agreements. They had until Sept. 30 to complete their purchases, after Congress extended the deadline. The extensions and expansion of the credit created a complicated system that made it hard for many taxpayers to determine which credit they qualified for, if any. There were also income requirements.

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Obama Prevents Budget Cuts To Favorite Programs

April 12, 2011

WASHINGTON — Details of last week’s hard-won agreement to avoid a government shutdown and cut federal spending by $38 billion were released Tuesday morning. They reveal that the budget cuts, while historic, were significantly eased by pruning money left over from previous years, using accounting sleight of hand and going after programs President Barack Obama had targeted anyway. Such moves permitted Obama to save favorite programs – Pell grants for poor college students, health research and “Race to the Top” aid for public schools, among others – from Republican knives. And big holes in foreign aid and Environmental Protection Agency accounts were patched in large part. Republicans also gave up politically treacherous cuts to the Agriculture Department’s food inspection program. The full details of Friday’s agreement were released early Tuesday Morning. They reveal a lot of one-time savings and cuts that officially “score” as cuts to pay for spending elsewhere, but often have little to no actual impact on the deficit. As a result of the legerdemain, Obama was able to reverse many of the cuts passed by House Republicans in February when the chamber approved a bill slashing this year’s budget by more than $60 billion. In doing so, the White House protected favorites like the Head Start early learning program, while maintaining the maximum Pell grant of $5,550 and funding for Obama’s “Race to the Top” initiative that provides grants to better-performing schools. Instead, the cuts that actually will make it into law are far tamer, including cuts to earmarks, unspent census money, leftover federal construction funding, and $2.5 billion from the most recent renewal of highway programs that can’t be spent because of restrictions set by other legislation. Another $3.5 billion comes from unused spending authority from a program providing health care to children of lower-income families. Still, Obama and his Democratic allies accepted $600 million in cuts to a community health centers programs, $414 million in cuts to grants for state and local police departments, and a $1.6 billion reduction in the Environmental Protection Agency budget, almost $1 billion of which would come from grants for clean water and other projects by local governments and Indian tribes. The National Institutes of Health, which funds critical medical research, would absorb a $260 million cut, less than 1 percent of its budget, instead of the $1.6 billion cut sought by House Republicans. Family planning programs would bear a 5 percent cut rather than being completely eliminated. Homeland security programs would have to take their first-ever cut, though much of the 2 percent decrease comes from a $786 million cut to first responder grants to state and local governments. The IRS would see its budget frozen but be spared the 5 percent cut sought by House Republicans. About $10 billion of the cuts already have been enacted as the price for keeping the government open as negotiations progressed; lawmakers tipped their hand regarding another $10 billion or so when the House passed a spending bill last week that ran aground in the Senate. For instance, the spending measure reaps $350 million by cutting a one-year program enacted in 2009 for dairy farmers then suffering from low milk prices. Another $650 million comes by not repeating a one-time infusion into highway programs passed that same year. And just last Friday, Congress approved Obama’s $1 billion request for high-speed rail grants – crediting itself with $1.5 billion in savings relative to last year. The underlying issue is long overdue legislation to finance the day-to-day budget of every Cabinet department, including the Pentagon, for the already half-completed 2011 fiscal year. The measure caps 2011 funding for such operating budgets at about $1.2 trillion. About $10 billion of the cuts comes from targeting appropriations accounts previously used by lawmakers for so-called earmarks, those pet projects like highways, water projects, community development grants and new equipment for police and fire departments. Republicans had already engineered a ban on earmarks when taking back the House this year. Republicans also claimed $5 billion in savings by capping payments from a fund awarding compensation to crime victims. Under an arcane bookkeeping rule – used for years by appropriators – placing a cap on spending from the Justice Department crime victims fund allows lawmakers to claim the entire contents of the fund as budget savings. The savings are awarded year after year. Even before details of the bill came out, some conservative Republicans were assailing it. Rep. Mike Pence, R-Ind., said he probably won’t vote for the measure, and tea party favorite Michele Bachmann, R-Minn., is a “nay” as well. The $38 billion in cuts, Rep. Tim Huelskamp, R-Kan., wrote on his Facebook page, “barely make a dent” in the country’s budget woes. Huelskamp and other conservatives are also upset that most conservative policy “riders” added by Republicans were dropped from the legislation in the course of the talks. The White House rejected GOP attempts to block the EPA’s ability to issue global warming rules and other reversals of environmental regulations. Obama also forced Republicans to drop an effort to cut off Planned Parenthood from federal funding, as well as GOP moves to stop implementation of Obama’s overhauls of health care and Wall Street regulation. The administration also thwarted a GOP attempt to block new rules governing the Internet, as well as a National Rifle Association-backed attempt to neuter a little-noticed initiative aimed at catching people running guns to Mexican drug lords by having regulators gather information on batch purchases of rifles and shotguns. Anti-abortion lawmakers did, however, succeed in winning a provision to block taxpayer-funded abortions in the District of Columbia. And House Speaker John Boehner, R-Ohio, won funding for a personal initiative to provide federally funded vouchers for District of Columbia students to attend private schools. Instead of sharply cutting the Securities and Exchange Commission and the Commodities Futures Trading Commission, both agencies would get increases under the legislation as they gear up to implement last year’s overhaul of financial regulation. And renewable energy programs are cut $407 million below last year, almost 20 percent. The Army Corps of Engineers , which funds flood control and inland waterway projects, will absorb a $578 million cut, representing about 10 percent of its budget.

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Republicans Threatening Shutdown Over Planned Parenthood

April 8, 2011

WASHINGTON — The United States government is on the verge of shutting down over a dispute about subsidized pap smears, according to sources familiar with the budget negotiations. The White House and Senate Democrats have publicly capitulated to ever-increasing Republican demands for spending cuts, but negotiations over the budget for the remainder of the fiscal year have shifted their focus from money to so-called riders — provisions that restrict the federal government from spending money on certain projects or entities. Riders are used by members of Congress to make social policy without going through the regular congressional committee process, or they are used to benefit business interests by specifically blocking the government from spending money to write or enforce certain regulations. At a late-night White House meeting between the president and key congressional leaders, House Speaker John Boehner (R-Ohio) made clear that his conference would not approve funding for the government if any money were allowed to flow to Planned Parenthood through legislation known as Title X. “This comes down to women’s health issues related to Title X,” a person in the meeting told HuffPost. The negotiations are dominated by men: All of the principal negotiators in both parties are male, as are most of the senior staff involved . (House Democrats, led by Minority Leader Nancy Pelosi (Calif.), have largely been left out of key talks.) House Republicans have been insisting the roadblock to cutting a new budget deal is not just the culture-war riders attached to the spending plan, but a source familiar with a top-level White House meeting earlier Thursday said most of the discussion in fact was about the riders. Senate Majority Leader Harry Reid (D-Nev.), House Speaker John Boehner (R-Ohio) and President Barack Obama met at 1 p.m., and while the discussion started with the numbers, a senior Democratic aide said it soon turned to non-budgetary provisions like defunding Planned Parenthood, Environmental Protection Agency rules — and then some. “They started talking about the money, but most of meeting was spent on the riders,” a senior Democratic source said. “It wasn’t just the top-line stuff. They got down into the smaller details and provisions — things like mountaintop mining and other rules.” A similar dynamic played out late Thursday night in a meeting that led to no agreement. Following the midday meeting, Senate Democrats met to chart a course forward and emerged united in opposition to any riders regarding Planned Parenthood — which does not use federal funds to pay for abortions — or the EPA. “The riders that have nothing to do with deficit reduction have sort of taken over Boehner and the Republican Party,” Sen. Charles Schumer (D-N.Y.) told reporters. “And unless they back off those riders, it’s going to be impossible pretty much to avoid a shutdown. It’s that simple.” Sen. Dick Durbin (D-Ill.), the number-two Democrat in the upper chamber, said that Boehner was under pressure on social issues not from the Tea Party, but from senior Republicans. “It’s not about reducing the deficit. It’s about hitting programs. He’s gotta cut programs. And we think still we can reach agreement on the money. But he is under enormous pressure and he says it’s not from the Tea Party, it’s from the old guard, the Republican guard, that wants to once and for all show that they can force through some of these social issues, like abortion,” Durbin told reporters Thursday evening in the Capitol. “The rider list gets longer and longer and non-negotiable.” A GOP aide confirmed Durbin’s claim that it’s the senior members who are insisting on riders. Polls show that the public is likely to blame the Tea Party for any shutdown, but ironically, most new members are more passionate about spending than social issues. Yet the public is likely to conflate the Tea Party with the culture wars if the government ultimately shuts down due to a dispute over funding for family planning. “It’s mostly a few older members who have seen an opportunity,” said the GOP aide. “If you were to ask the freshmen individually, only a few would say this is all about the riders. And even amongst that smaller group, they would be split,” with some focused on the EPA and others on restricting funds for health care. “The true Tea Party guys in our conference are all about spending. That’s it. Whatever the final deal is — even if we got [the National Right to Life Committee] to score it — we’d lose some guys because it didn’t meet the full $100 billion,” the aide added. HuffPost spoke to a number of GOP freshmen, many of whom said they were more committed to funding cuts than policy riders. Although most voted for Republican-sponsored policy riders, some said they were willing to compromise as long as the final figure for cuts was large enough. “My motivation is reducing the threat of the federal budget deficit, and I am flexible as to what gets cut so long as things get cut sufficient to avoid a federal government bankruptcy,” Rep. Mo Brooks (R-Ala.) told HuffPost in March. House Majority Leader Eric Cantor (R-Va.) said Thursday that the spending-cut difference between the two parties was minuscule. “If you look at the amount of money that we’re actually talking about, in terms of the difference of where the White House is and where the House Republicans are, it’s equal to maybe one penny of the entire federal budget,” Cantor said at a press conference. “So that means that you can’t find one penny to cut out of every dollar that the IRS spends? You can’t find one penny out of every dollar that the post office spends? That’s what we’re talking about here.” Pelosi identified the distinction between the newer Tea Party members and the old guard weeks ago. “I had followed the debate very carefully on [the previous spending bill] and the 200 amendments. The newer members are about money, the more senior members are about riders,” Pelosi said in mid-March. A GOP leadership aide, however, told HuffPost that the culture wars were not the sticking point. “Spending, spending, spending — that’s the big issue,” said the aide, adding that the GOP wanted more than $33 billion in cuts. Either way, Democrats have no plans to defund Planned Parenthood at the insistence of House Republicans, Schumer said Thursday night. “We have been against them from the beginning and we’re not changing, nor should we. These are fights that have nothing to do with the deficit,” he said. Schumer said earlier Thursday that Democrats were ready to meet Boehner’s number, but that Boehner was using money as a distraction so that the public wouldn’t realize his members were fighting over cultural issues. “The only reason the numbers aren’t solved is because Speaker Boehner knows that if he did that, then everyone would know that it’s the riders, and he doesn’t want that out. But if you look at how many hours in the rooms of negotiators that discussing riders, it’s predominant,” he said. “The Speaker’s folks have admitted that we’ve been fair on the numbers.” “At one point we had an agreement on money, even though Boehner denies it,” said Durbin. “It’s hard to believe they would shut down the government because they can’t get a vote on family planning and Planned Parenthood. Honest to goodness. Is that what the last election was about? I don’t think so.” Cecile Richards, the president of Planned Parenthood, told HuffPost that the funding cut would be a threat to women’s health. “We have three million come to us every year and two million come through some kind of federal program either for an annual pap or for birth control or for a breast exam or even prenatal care,” she noted, adding that the cuts would disproportionately impact rural areas with relatively few medical options. “More than 70 percent of our health centers, more than 800 centers in the country, are located in rural America or communities that are medically underserved communities. That’s what’s getting lost here.” Conservative activists have long been pushing for cultural riders and, with Republicans back in control the House, have a chance to push them forward. “Why can’t you slash Planned Parenthood and NPR and these — these non-vital programs? Why can’t you slash them?” Fox News host Bill O’Reilly demanded of Rep. Charlie Rangel (D-N.Y.) Thursday evening. “Well, we’re talking about health care. We’re talking about education,” Rangel replied. “Health care is another matter,” O’Reilly said. “That has to be taken very methodically because people’s lives are affected. Nobody’s life is affected by NPR. Nobody’s life is affected by Planned Parenthood. These are options.” Mike McAuliff, Elise Foley, Laura Bassett and Amanda Terkel contributed reporting

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Bob Samuels: Why California Is Broke, and What We Can Do About It

April 7, 2011

Last week, I wrote an article arguing that Governor Jerry Brown should push for a progressive tax that would raise enough revenue to prevent any cuts to needed social programs. I stressed that California has a $1.9 trillion economy, but its current state budget is less than $86 billion. The main reason why that state has so few resources is that its tax system is plagued with loopholes and corporate tax breaks. To understand how the wealthiest corporations in the world avoid paying taxes, we can look at a recent list of Fortune 500 businesses paying little or no taxes: Exxon Mobil made19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings. Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion. Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS. Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009. Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year. Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction. Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department. Citigroup last year made more than4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury. Conoco Phillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction. Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent. 57 Fortune 500 corporations have their home headquarters in California, and they all do business in this state, yet it is unclear if any are paying their full taxes here. For instance, Apple computer avoided paying most of its state taxes to California by moving its investment wing to Nevada, and Intel has done the same by locating its finance department (Intel Capital) in the Cayman Islands. Thus, as California has led the way in the high-tech global economy, its corporations have used new technologies to simply avoid paying state and federal taxes. In fact, many of these corporations use a loophole in our tax code to declare their profits in countries that charge a low tax rate. So even if companies stay in California and use the schools, police, and roads of the Golden State, they claim that their revenue was generated in another country. While the Republicans want to argue that the real issue is excessive governmental spending, it should be clear that the main problem is that wealthy individuals and corporations are simply not paying their fair share. The solution then for California and the rest of the country is to get rid of corporate and millionaire welfare. Of course, people will argue that companies will simply move to places charging lower taxes, but many studies have shown that corporations like to be located in places with good schools and infrastructure, they simply don’t want to pay for anything. A progressive tax in California would make everyone pay their fair share.

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Obama: Government Shutdown Will Delay Pay To Troops

April 6, 2011

WASHINGTON — The Obama administration warned Wednesday that a federal shutdown would undermine the economic recovery, delay pay to U.S. troops fighting in three wars, slow the processing of tax returns and limit small business loans and government-backed mortgages during peak home buying season. ( SCROLL DOWN FOR UPDATES ) The dire message, delivered two days before the federal government’s current spending authority expires, appeared aimed at jolting congressional Republicans into a budget compromise. Billions of dollars apart, congressional negotiators were working to strike a deal by Friday to avert a shutdown by setting spending limits through the end of September. The last such shutdown took place 15 years ago and lasted 21 days. President Barack Obama telephoned House Speaker John Boehner Wednesday, and Boehner’s office said the speaker told Obama he was hopeful a deal could be reached. As the talks continued, the White House sought to put the prospect of a shutdown in terms people would care about, warning even that the beloved Cherry Blossom parade in the nation’s capital would be wiped out. The Smithsonian Institution and national parks around the country would also be closed. A shutdown would come at an especially busy time for the Smithsonian. The Cherry Blossom Festival, which concludes this weekend, draws many tourists to an area near the museums. The Smithsonian counts about 3 million visits each April and has already sold 23,000 IMAX movie and lunch combos to school groups for the month. Under long-standing federal rules, agencies would not be affected that provide for U.S. national security, dispense most types of federal benefit payments, offer inpatient medical care or outpatient emergency care, ensure the safe use of food and drugs, manage air traffic, protect and monitor borders and coastlines, guard prisoners, conduct criminal investigations and law enforcement, oversee power distribution and oversee banks. Mail deliveries will continue in the event of a shutdown. U.S. postal operations are not subsidized by tax dollars. According to the shutdown scenario described by the administration, the government would have to significantly cut staffing across the executive branch, including workers at the White House and civilian employees at the Defense Department; close to 800,000 workers would be affected. Congress and the federal court system will also be subject to a shutdown. At the Pentagon, defense officials were finalizing plans that would lay out how the department would deal with a shutdown. But they already have acknowledged that U.S. military troops – including those in war zones – would receive one-week’s pay instead of two in their next paycheck if the government closes. Military personnel at home and abroad would continue to earn pay, but they won’t get paychecks until there is a budget agreement and government operations resume. Col. Dave Lapan, a Pentagon spokesman, said that the Pentagon will be open on Monday and will be staffed. He said decisions on which Defense Department employees must report to work will depend on their jobs, rather than where they are based. Key national security responsibilities, including operations in Afghanistan, Iraq and Libya and earthquake assistance to Japan would not be interrupted by a shutdown, the Pentagon said. The CIA also won’t be closing, though it will be drawing down some non-essential personnel, to be in compliance with federal law, according to a senior intelligence official, speaking on condition of anonymity to discuss matters of intelligence. Officials familiar with the shutdown say essential counterterrorism functions in other parts of the intelligence community will continue, like monitoring of the terrorist watch lists, and essential intelligence collection and analysis. At the Internal Revenue Service, the tax filing deadline remains April 18 – delayed three days because of a local holiday in Washington. Tax audits, however, will be suspended if there is a shutdown. The IRS won’t process paper returns during a shutdown. Those expecting a refund should file their returns electronically and ask that the money be deposited directly into their bank accounts. Tax payments are welcome, though it is still unclear whether help lines for taxpayers will be staffed. Social Security payments will continue to be delivered, and applications for benefits will continue to be processed. But some services will be limited, Social Security Commissioner Michael Astrue said. “The checks will continue to go out. The problem will be on an extended CR, it will be increasingly difficult to get changes in address, changes in status, and those types of things done,” Astrue said. Astrue said Social Security headquarters and regional offices will be closed. Some limited services will still be available at field offices, but the details are still being worked out, he said. Medicare would still pay medical claims for its 48 million recipients, who are mainly seniors but also several million younger people who are permanently disabled or have kidney failure. Payments to doctors, hospitals and other service providers could be delayed, however, should a shutdown continue for several months. At the National Institutes of Health, groundbreaking medical research would experience a disruption. Patients already being treated at the NIH’s famed hospital in Bethesda, Md., would continue to get that care, but new patients could not be admitted. Likewise, no new studies of drugs or other treatments could begin. The Federal Housing Administration, which guarantees about 30 percent of home mortgages, would stop guaranteeing loans. The issuance of government backed loans to small businesses would be suspended, according to the White House. The Obama administration said the impact on the housing market would be more severe than in 1995, the last time there was a government shutdown. The Federal Housing Administration accounts for 30 percent of the mortgage market, nearly three times the amount 16 years ago. The nation’s 15,700 air traffic controllers would keep working, as would many of the Federal Aviation Administration’s 6,100 technicians who install and maintain the equipment for the nation’s air traffic control system. ___ Associated Press writers Lolita Baldor, Anne Gearan, Joan Lowy, Lauran Neergaard, Stephen Ohlemacher, Ricardo Alonso-Zaldivar, Brett Zongker and Marcia Dunn in Cape Canaveral contributed to this report.

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Tax Day 2011 Isn’t April 15

April 6, 2011

Reminder: Tax day isn’t April 15th this year, and that has nothing to do with a government shutdown . While many are used to the normal last minute rush to get their taxes squared away before the mid-April deadline, this year things are a bit different. A D.C. holiday has pushed the date back a bit, giving taxpayers a few extra days. Taxes aren’t actually due until April 18. The IRS made the announcement back in October according to WalletPop , but you can check for yourself here, at the IRS website . The delay is caused by a little-known holiday. Emancipation Day, which generally falls on April 16, is being observed in D.C. on April 15 this year, according to CNN Money . The holiday celebrates the emancipation of slaves in the district. Under the U.S. tax code, deadlines can’t fall on Saturdays, Sundays or holidays, according to CNN Money . However, other deadlines have not generally been extended as a well. The overseas extension remains July 15, according to WalletPop , but the normal extension (which generally extends to October 15) is now October 17, because the 15th falls on a Saturday.

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Julian Block: Travel Deductions for Gamblers

April 4, 2011

The tax rules for gamblers can be summed up simply: “Heads, the IRS wins; tails, gamblers lose.” The faux-friendly feds routinely nail gamblers for taxes on their entire winnings from horses, lotteries, slot machines, cards or other games of chance. But their losses are deductible just to the extent of their winnings. What’s more, losing bets that undergo IRS scrutiny generally are allowable only when they’re corroborated by records that pass muster with the agency — a requirement that’s neither more nor less stringent than for other kinds of write-offs The Form 1040 instructions mandate separate reporting for winnings and losses. Gamblers can’t reduce winnings by losses and report the difference, the way investors do for capital gains and losses. They must report the full amount of winnings for the year on the 1040 line for “other income” (line 21 on the 1040 for 2010). The instructions also tell them to specify “gambling” as the source of the winnings in the box to the left of line 21. This remains the case even if winnings are less than losses. The tax code mandates that under no circumstances can a loss deduction exceed reported winnings for the year in question. This holds true whether those losses are incurred by recreational gamblers or professional gamblers. Moreover, the law absolutely bars any use of excess losses to offset wages, dividends, interest and other kinds of income. These rules are similar to the ones for hobbies. Hobby expenses are allowable only up to the amount of income generated by the hobby and can’t offset income from other sources. Gamblers can’t deduct losses if they use the standard deduction. Gamblers can deduct losses only if they itemize on Schedule A of Form 1040. Year in and year out, gamblers get tripped up by this limitation. Gambling losses are considered miscellaneous deductions that are claimed at the bottom of Schedule A. But gambling losses aren’t subject to the nondeductible floor of two percent of adjusted gross income that applies to other kinds of miscellaneous expenses–for instance, unreimbursed employee business expenses, such as employment-related educational expenses and dues for unions or professional associations, and fees for return preparation and tax planning and investment advice. Several imaginative taxpayers have tried to sidestep restrictions on loss deductions by claiming write-offs for their spending on trips to local tracks or longer jaunts to places like Las Vegas. For instance, John Shigeta made regular pilgrimages from California to shoot craps at the Sands Hotel and other establishments in Las Vegas. John’s losses at the crap tables ran to $50,000 over a 10-year period, despite “dogged” efforts to improve his skill. For 1967, his score was $1,300 won and $10,000 lost. In addition to subtracting losses of $1,300 from his winnings, John decided to reduce his tax bite by writing off $1,230 spent traveling to Las Vegas and staying in hotels there as an expense “for the production of income.” But the law says such expenses are deductible only if an activity is profit-motivated. Consequently, the judge, though sympathetic, concluded that John flunked this test and threw out the entire $1,230. His honor reasoned that the main motivation for any crapshooter with an abysmal record like John’s wasn’t profit but pleasure. *** Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), “an accomplished writer on taxes” (Wall Street Journal) and “an authority on tax planning” (Financial Planning Magazine). His books include Julian Block’s Easy Tax Guide for Writers, Photographers, and Other Freelancers: Trim Taxes to the Legal Minimum

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House Republicans Trying To Use Tax Law To Limit Abortions

March 31, 2011

WASHINGTON — A House panel voted Thursday to limit tax breaks for insurance policies that cover abortions as House Republicans try to chip away at President Barack Obama’s health overhaul. The House Ways and Means Committee voted 22-14 on a party-line vote to pass the bill, which would prevent people from deducting the cost of an abortion from their taxable income. The bill also would prevent small businesses and taxpayers from using tax credits in the new health care law to provide or pay for insurance policies that cover the procedure. If women pay for an abortion using tax-free income set aside in a health savings account, the money would have to be reported as taxable income. There would be exceptions for cases of rape or incest, or if a physician certified that a woman’s life would be in danger if she didn’t end the pregnancy. All Republicans voted in favor of the bill and all Democrats voted against it. The bill now goes to the full House, where it is supported by GOP leaders. The bill, however, faces strong opposition in the Democratic-controlled Senate. Current law bars federal money for abortion, with the same exceptions as those in the bill. The health overhaul creates state marketplaces for insurance known as exchanges, and allows participating plans to cover abortions, as long as they collect a separate premium from policyholders and that money is kept apart from federal subsidies. The abortion language in the new law resulted from a compromise among Democrats that didn’t leave everyone happy. Republicans were united in opposing the overhaul. Now, with their efforts to repeal it stalled in the Democratic-controlled Senate, Republicans are attacking it piece by piece. Supporters say the bill is necessary because current law doesn’t go far enough in ensuring that no tax money is used to subsidize abortions. According to congressional estimates, the bill would raise only a negligible amount of tax revenue. “The legislation is necessary because the Democrats’ health care law included a massive expansion of the IRS’ authority and concocted a host of ways to funnel taxpayer funds for various costs and procedures, including abortions,” said Rep. Dave Camp, R-Mich., the Ways and Means Committee chairman. Rep. Pat Tiberi, R-Ohio, said, “What we are trying to do is codify longstanding policy that federal dollars should not be used for abortion.” Opponents say the bill would make it difficult, if not impossible, for many women to obtain medical insurance that covers abortions – even if they pay for it themselves. Worse, they say, it could put the IRS in the awkward position of determining whether women who get abortions were sexually assaulted, so the agency can decide whether the procedure is tax-deductible. “We will intrude into your life in the most difficult of circumstances and send in IRS agents, the ultimate bean-counters, to determine whether your medical records, your criminal records, are sufficient,” said Rep. Richard Neal, D-Mass. By law, people can deduct medical expenses that exceed 7.5 percent of their adjusted gross income, a threshold that increases to 10 percent in 2013. They can set side tax-free money in health savings accounts and spend it on approved medical expenses. The Internal Revenue Service lists the cost of an abortion as an approved medical expense. The bill would not affect employer-provided health insurance. But Donna Crane, policy director for NARAL Pro-Choice America, said she is concerned the bill would cause insurers in the state marketplaces to drop abortion coverage, making it unavailable even for women who pay their own premiums.

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IRS: Tax Refunds Could Be Delayed Due To Government Shutdown

March 31, 2011

Internal Revenue Service Commissioner Douglas Shulman said the Obama administration has not decided whether the IRS would process tax returns and issue refunds if Congress cannot agree to a plan to avert a halt of government spending authority on April 8. “We’ve never had a government shutdown in the middle of the filing season before,” Shulman said in testimony before a House Ways and Means subcommittee today in Washington. “The closer we get to April 15, the more consideration and factors are at play.”

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Government Shutdown Could Slow Tax Refunds, Crimp Use Of Largest Federal Anti-Poverty Program

March 29, 2011

WASHINGTON — A prolonged government shutdown could deliver a blow to many poor American families by limiting or delaying access to the federal government’s largest anti-poverty program, the Earned Income Tax Credit. Last year, 26 million families received about $59 billion from the EITC, according to the Treasury Department . While a broad majority of recipients may be unaffected by a possible government shutdown, which at the earliest could come little over a week from this year’s April 18 deadline for individual tax returns, the sheer scope of EITC recipients means a vast number of households can still be hurt by any problems with poverty-relief payments. Such pain could throw a wrench into federal efforts to fight poverty during the worst economic downturn since the Great Depression. The details of a potential shutdown — including its possible duration and effects — remain unclear . And even if Congress cannot strike a deal to continue government operations, some programs would still be designated as “essential” functions and permitted to continue running. But it remains to be seen exactly which programs would be considered essential, and some operations of the Internal Revenue Service may not be. The IRS and the Treasury Department declined to comment for this report, but policy observers say that while it is very unlikely that a shutdown would prevent the government from collecting tax money, other key IRS functions — including the delivery of billions in tax refunds — could be affected. “Our expectations are … taxes will be processed as if there was no shutdown,” said Cristina Martin Firvida, the director for economic security for AARP’s government-relations division. “We’re unclear whether or not there would be significant delays in refunds, including refunds that involve the EITC.” For many citizens, their tax refund from the EITC program represents a critical component of their annual income, sometimes as much as 30 percent of their household finances. The average EITC benefit is around $2,250, but some families receive as much as $5,666, depending on their circumstances. Benefits are scaled to the number of children a family has and the family’s annual income. Individuals making $13,460 or less can receive $467 from the EITC, while families with up to three children can receive the $5,666 benefit if they make less than $48,362. For families at the lower end of the economic spectrum, the EITC can be essential for paying their bills. Fortunately, most poor families file their refunds relatively early in tax season, hoping to receive government checks sooner rather than later. But many families still wait until the mid-April tax filing deadline, and roughly one-fourth of American households who qualify for the EITC never actually apply for it, according to Adam Perry, an organizer for Capital Area Asset Builders ‘ DC EITC assistance program . Those unaware citizens often file much later in tax season, since they do not realize they are eligible for anti-poverty benefits in earlier months. DC EITC provides free tax preparation and advice to low-income residents of the nation’s capital, avoiding expensive tax preparation services , some of which have been flagged as predatory by consumer advocates. Perry says his group’s efforts to reach out to potential EITC recipients continue right up to the filing deadline. “The good news is that since its April 8, it’s almost the end of tax time, so the majority of people will have it done,” he said. “The bad news is, a lot of people still wait to the last date.” The consequences of a delayed refund for poor households can be devastating. “If that check was to be delayed, that would cause a problem, much more so than for families making $100,000 a year,” said Lee Davenport of OneEconomy Corp. , a global nonprofit that attempts to advance the interests of low-income households through techonology. OneEconomy is currently promoting software that helps low-income households file their taxes online for free. Perry said he is also concerned that the IRS may not be available to answer questions from taxpayers, noting that his volunteer advocates frequently confer with IRS experts about individual cases. “The problem is, if the IRS call centers are classified as ‘not essential’ and they’re not able to answer questions, the folks who need help the most are going to be the ones left to try and figure things out on their own,” Perry said. The peculiar funding specifics of the local Washington, D.C. government could also create hurdles for poor taxpayers living in the nation’s capital. Local government funds rely on congressional approval, and if they don’t get it, many local buildings will be forced to close. DC EITC offers help at 11 locations in the city, including one at the public Martin Luther King, Jr. Memorial Library. Perry estimated that between 400 and 500 people who planned on filing with his organization during the last week before tax day will have to make alternative plans if the library closes for the second week in April.

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IRS Drastically Increases Its Audits Of America’s Richest Taxpayers

March 27, 2011

In 2009, the Internal Revenue Service announced plans to unleash a new enforcement unit called the Global High Wealth Industry, the goal being to better investigate the complex finances of America’s wealthiest taxpayers. They weren’t kidding. Recently released IRS statistics indicate that the federal government increased their audits of America’s richest taxpayers — those with incomes above $10 million — by 75 percent last year. Nearly one in five — 18.5 percent — of America’s richest households dealt with an audit. In 2009, the Global High Wealth Industry’s first year of operation, the IRS audited only one in ten of America’s richest taxpayers. Complex tax evasion has become an increasing problem in recent years, with popular strategies including conversion of income into capital gains and stashing cash in Swiss banks . Audit rates also increased among some lower income brackets, but none so much. The second highest audit increase was among the second highest income bracket: those reporting incomes of $5M-$10M. They saw a 55 percent increase in their audit rate, totaling 11.6 percent. High, but much smaller than the increase experienced by the $10M-plus bracket. Audits rate for those with incomes between $1-$75K remained largely the same. Overall, the IRS increased the percentage of audits by about 11 percent from the year prior. That means 1.58 million tax returns — about 1.11 percent of all returns filed — were audited, costing the IRS about 53 cents per $100 collected — a 3 cent increase from 2009. Criminal investigations by the IRS also increased by 14.2 percent this year, according to Businessweek . Demographic breakdowns of the alleged criminals are unavailable.

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Julian Block: Filing-Time Fantasies

March 24, 2011

Most myths are fairly short lived. Some, though, just refuse to die. Take, for example, the one that makes the rounds every filing season about how to lessen the likelihood of an audit. According to that fable, the IRS programs its computers to go after late filers, not early filers. Why does the IRS pay less attention to early returns? Supposedly, the agency expects people whose 1040s can’t stand a close look to delay submission of their forms until the last minute. The companion myth is to go the reverse route. The computers are less likely to kick out the 1040s of late filers because the feds are overwhelmed with all kind of returns around April 15. Actually, says the IRS, and knowledgeable tax professionals agree, it makes absolutely no difference whether returns reach the agency early, in between or barely make the due date. That’s because it’s not until much later in the year that all returns go through computers that look them over for arithmetic errors and also single out those most ripe for audit on the basis of top-secret computations that assign scores to various items–charitable contributions and interest expenses, for instance. High-scoring returns, along with some chosen purely at random, are then closely scrutinized by IRS agents to determine which ones should actually be examined. The odds against any return being audited are reassuringly long–better than 100 to one. Put another way, the IRS examines about one percent of all individual returns. That said, it should come as no surprise that those odds can shorten considerably, depending on such factors as the amount and type of income you declare and what you do for a living. Overall odds may not mean that much anyway. Some years, the tax enforcers zero in certain occupations–doctors, dentists, attorneys and accountants, to cite several of the high-visibility groups that are routinely favored for audits. Why is that? Because, among other reasons, these folks file returns that show high incomes, hefty personal deductions in relation to their incomes, and sizable gray-area write-offs for business, as well as losses on investments in questionable tax shelters or in sideline ventures that turn out to be “hobbies,” defined by the IRS as activities pursued without expectations of profits. Hobbyists in IRS cross hairs include persons who offset their full-time salaries and other sources of income with losses they incurred in breeding horses or dogs, collecting and selling coins and stamps, or painting, photography and writing, to note just a few of the many possibilities. But hobby expenses are allowable only up to the extent of hobby income. Moreover, as the IRS learned long ago, many professionals are persistently poor record keepers who are unable to substantiate their spending for business expenditures, mainly because of the strict record-keeping requirements for entertainment and travel expenses. HOW NOT TO DO BATTLE WITH THE IRS . An Illinois taxpayer charged the IRS with violating his civil rights by picking his return for audit, thereby requiring more supporting data from him than from the millions who escaped examination. The Tax Court was cold to his complaint. Then there was Dean M. Hicks, a Costa Mesa, Calif., engineer. Dean was successfully prosecuted by the feds on charges that he fired 13 mortar shells at an IRS Service Center in Fresno, and placed a truck bomb–discovered before it exploded–at the agency’s West Los Angeles office. His motive? Dean told of a telephone conversation, during which IRS staffers made rude remarks and joked about the disallowance of a contribution deduction. *** Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), “an accomplished writer on taxes” (Wall Street Journal) and “an authority on tax planning” (Financial Planning Magazine). His books include Julian Block’s Easy Tax Guide for Writers, Photographers, and Other Freelancers: Trim Taxes to the Legal Minimum.

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Bob Meighan: Tax Saving Tips for Procrastinating Filers

March 23, 2011

With just a few weeks left to go, millions of taxpayers are scrambling to meet the April tax deadline. If you’re among them, you’re not alone. An estimated 27 percent of taxpayers wait until the last two weeks to file their return. This year, there’s some good news for all the procrastinators out there, an extra three days to file your federal taxes. The federal tax deadline is Monday, April 18 instead of April 15. Double check with your state as not all state tax deadlines are the same. For those who are waiting until the last minute, there’s still time to reduce your 2010 tax bill. Here are a few things to remember: Go online. Taxpayers can go online to prepare and e-file taxes up to the last minute. Online tax preparation is fast, easy and convenient E-file your return. You avoid long lines at the post office and with direct deposit, get your refund back in as little as eight days. Contribute to your IRA. Even procrastinators can save money on their taxes. Taxpayers have until the April 18 deadline to contribute to an IRA and get a deduction on this year’s return. Remember charitable contributions. Cash and in-kind donations made in 2010 are deductible for itemizers. Even mileage to and from volunteering is deductible. Take advantage of higher education tax breaks. Tax credits like The American Opportunity Credit and The Lifetime Learning Credit are available if you or your children were in college in 2010 – don’t miss the potential tax savings available to you. Don’t just take the standard deduction if you think you’re running out of time. It may be worth more to itemize. Software programs like TurboTax can compare both and help you decide which is best for you. Need more time? Taxpayers can get an extra six months to file (until Oct. 17, 2011). But remember, an extension to file, is not an extension to pay your tax bill. Individuals still need to send the IRS a payment for taxes owed, within 90 percent accuracy, to avoid late penalties. What if you can’t pay? You’re not alone. Taxpayers who can’t pay the full amount they owe can ask for a streamlined installment plan. You may qualify for a streamlined plan as long as you don’t owe more than25,000, and you must be able to pay your tax bill off within five years. See here . These simple tips can provide even the most procrastinating taxpayer with real savings on their 2010 tax bill. Despite the temptation to put off taxes until the very last minute, the clock is ticking so it’s time to get going. Spending a few minutes to take advantage of any of these tips can help you get big savings on your tax return. As vice president for consumer advocacy for Intuit’s TurboTax business, Bob Meighan works with customers to help ensure TurboTax products meet their needs. A Certified Public Accountant, Meighan holds a bachelor’s degree in business administration from the University of North Carolina.

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Kit Yarrow, Ph.D.: The Behavioral Economics of Tax Refunds

March 21, 2011

If you were about to get a check for $3,000, what would you do with it? If you’ve already thought about it, you’re not alone. It’s tax refund time and two thirds of Americans have received or are anticipating a refund. Last year 119 million Americans received refunds totaling more than $358 billion. So far this year the average tax refund is close to $3,200. Obviously a large refund means you’ve overpaid your taxes during the year. Yet only 19 percent of Americans receiving refunds plan to reduce their withholdings. Why? Some overpay out of fear they’ll owe money at tax time. A few are surprised to be getting a refund. But most use Uncle Sam as a savings enforcer. Debt reduction seems more dramatic when it happens all at once, savings feel more meaningful in large chunks and vacations are easier to save for if the money’s automatically set aside. Having money deducted from your paycheck before you can spend it is a tried and true savings method. But with all that technology has brought to banking, it’s easier than ever to do it yourself and gain the advantage of making the savings work for you in the meantime. Here’s how Americans plan to use their tax refunds this year, and why they should have withheld less instead. Spend It Tanya admits that she looks forward to “splurging” when she gets her refund. “It’s always gone before I know it, it seems like so much money — but after dinner out, a couple bills paid and a little shopping, it’s gone.” While most people logically understand that a tax refund is simply the return of their own money, emotionally it can feel like a windfall. And windfalls are typically spent more frivolously and extravagantly than hard-earned cash. Over half of those getting refunds plan to spend it. Stacy is getting a new iPad. “Perfect timing,” she says. Rudy is getting his dog’s teeth cleaned, and Jay just bought a bigger television. According to a study conducted by BIGresearch for the National Retail Federation, 12 percent plan to use their refunds for a vacation. The same survey finds that 30 percent plan to spend their checks on “everyday expenses” and 13.2 percent on big ticket items like furniture or electronics. Save It But 42 percent plan to sock it away. That percentage has been growing since the start of the recession. In 2007, 38 percent planned to save their refund. Savers could have saved even more if they’d been tucking it away (with interest) or investing part of a bigger paycheck all year long. Pay Down Debt A “tax refund savings plan” makes the least sense of all for the 42 percent of Americans who plan to use their refunds to pay down debt. “I usually use my tax refund to pay any leftover holiday bills,” says Carrie. But if Carrie had withheld less and paid her bills when they arrived, she would have avoided finance charges. Debt reduction is normally the top pick in annual tax refund surveys. This year the lowest percentage since 2006 are using their refunds to pay off debt. Which might mean that survey-takers are getting more honest. Federal Reserve statistics show that credit debt is typically reduced or slowed around refund time but it’s nowhere near the numbers you’d anticipate by the percentage found on previous year’s surveys. BONUS STAT: Wondering if you’ll get audited? Last year the IRS examined 1.5 million individual tax returns. Sources: IRS 2010 Data Book National Retail Federation 2011 Tax Survey Federal Reserve Statistical Release on Consumer Credit IRS Tax Stats Bankrate.com 2010 Tax Survey

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Robert Siciliano: Tax Related Identity Theft Scams up 300%

March 10, 2011

Cases of stolen tax returns have surged over the past five years, leaving many identity theft victims struggling to recoup their lost refunds. Approximately 155 million tax forms are filed annually. This provides identity thieves with an opportunity to come out of the woodwork and steal from Americans who are just trying to pay their taxes correctly. A recent Scripps Howard News Service investigation analyzed more than 1.4 million ID theft records from the U.S. Federal Trade Commission from 2005 through early 2010. In it they found that fraud complaints about stolen tax return-related identity theft jumped from 11,010 complaints in 2005 to 33,774 in 2009. That’s nearly 300 percent. Thieves may steal victims’ refunds, trick them into disclosing Social Security or credit card numbers, or even pose as the IRS. Below is more information for those common and lesser-known tax scams to watch out for. Employment Identity Theft Scams : If you ever receive documentation in the mail indicating earned income that you are not aware of, it may mean that someone else has used your Social Security number to gain employment. Account Takeover Scams : If, when filing your tax return, you receive a letter from the IRS saying that you have already filed, it it likely that someone else has filed a fraudulent return on your behalf, in order to steal your refund. Tax Preparer Scams: In an old scam that’s still in play, tax preparers tell clients they must pay back stimulus payments, and then pocket the money. Ads are also placed by scammers posing as accountants to get your returns. Make sure you do research and choose your tax preparer wisely. Late Payment Scam: As people fall behind on their taxes, lists are created and are printed in the local paper as public record. Thieves can use these lists to call unassuming people and pose as collectors. Internet Phishing Scams: The IRS doesn’t send emails. Phony IRS emails that try to lure taxpayers into giving out personal information are a common scam. The messages are generally intended to convince recipients to provide personal or financial information that enables the perpetrators to commit credit card or bank fraud, or other forms of identity theft. Unless you are actively engaged in dialogue with an IRS agent, do not respond to emails or phone calls supposedly coming from the IRS. IRS Scams : If a scammer posing as an IRS agent ever contacts you, they may already have some of your personal information, which they can use to try to convince you that they are actually from the IRS. This data could come from public records or even your trash. The scammer will often put pressure on you to comply with their request, or even offer you a tax refund. Here are some suggestions to protect yourself and make sure that you get your return: 1. Protect yourself by filing early. It seems crazy to think that someone would fraudulently file taxes in your name, but it’s being done. Once they find a few W2s or other tax-related documents, they can file in your name and claim your refund before you’ve even begun the process. File before they do. 2. Secure your mail with a locking mailbox. Mail is stolen every day, and tax forms tend to include Social Security numbers, making them especially valuable to a thief. Don’t send out your tax return by sticking it in your home mailbox. Instead, take it to the post office or use a big blue post office drop box. 3. Protect your PC. Whether or not you file online, securing your PCs is essential. Make sure you have updated antivirus software, a two-way firewall, that you run spyware removal software regularly, and that your wireless Internet connection is protected with a network key. If you are ever a victim of a scam involving the IRS, you may be disappointed by the way it is handled by government agencies. They simply don’t allocate the resources to fix this problem proactively, nor are they adept at responding once it has occurred. The biggest issue is the thief’s privacy. Even if you think you know who is responsible, neither the IRS nor any other government agency will release that information. All you can do is follow the IRS’s instructions for resolving the issue. Be patient, as rectifying it may take many hours, days, or weeks. If you subscribe to an identity theft protection service, a fraud resolution agent may be able to help. McAfee Identity Protection includes proactive identity surveillance to monitor subscribers’ credit and personal information, as well as live access to fraud resolution agents. For additional tips, visit CounterIdentityTheft.com . Robert Siciliano is a McAfee consultant and identity theft expert. See him explain how a person becomes an identity theft victim on CounterIdentityTheft.com (Disclosures)

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Stopgap Budget Proposal To Be Sent To Obama

March 2, 2011

WASHINGTON — The Senate on Wednesday sent President Barack Obama a Republican-drafted stopgap funding bill that trims $4 billion from the budget, completing hastily processed legislation designed to keep partisan divisions from forcing a government shutdown. Moments later, Obama called on congressional leader to meet with top administration figures including Vice President Joe Biden to discuss a longer-term measure to fund the government through Sept. 30. “We can find common ground on a budget that makes sure we are living within our means,” Obama said. “This agreement should be bipartisan, it should be free of any party’s social or political agenda, and it should be reached without delay.” The White House said Obama will sign the bill. Congressional Republicans said it’s up to Democrats to offer an alternative to carry into the talks. They have yet to produce one to respond to a $1.2 trillion omnibus spending measure that passed the House last month. “The House position is perfectly clear. We cut $100 billion off the president’s request for this fiscal year,” said House Speaker John Boehner, R-Ohio. “We have no clue where our colleagues on the Senate side are.” The Senate cleared the temporary measure by an overwhelming 91-9 vote that gives the GOP an early but modest victory in its drive to rein in government. Obama has until Friday to sign the measure and keep federal offices open and operations intact. The House passed the legislation on Tuesday. The measure buys time for Obama, the GOP-dominated House and the Democratic-led Senate to start talks on legislation to fund the government through the end of September. House Republicans last month muscled through a measure cutting this year’s budget by more than $60 billion from last year’s levels – and $100 billion from Obama’s request – while trying to block implementation of Obama’s health care law and a host of environmental regulations. The White House has promised a veto and it will take weeks or months to negotiate a compromise funding measure that Obama would sign. Federal Reserve Chairman Ben Bernanke said in testimony Wednesday that the House GOP spending cuts plan would reduce economic growth by as much as two-tenths of a percentage point and hurt job growth. “That would translate into a couple hundred thousand jobs,” Bernanke said. “It is not trivial.” The $4 billion in savings comes from some of the easiest spending cuts for Congress to make, hitting accounts that Obama already has proposed eliminating and reaping some of the money saved by earlier moves by Republicans to ban lawmakers from “earmarking” pet projects for their districts and states. At issue are the operating budgets of every federal agency, including the Pentagon, where Defense Secretary Robert Gates is increasingly anxious for a full-year funding bill. “Discretionary spending” represents about a third of the overall $3.8 trillion federal budget. “Our priorities are twofold. One, keep the government running so essential services don’t get interrupted,” said Senate Majority leader Harry Reid, D-Nev. “Equally important, we need to lay the groundwork with a budget that keeps what works and cuts what doesn’t.” Some Republicans were restive that the bill didn’t cut further. “While some have been patting themselves on the back for proposing $4 billion in so-called `cuts,’ in reality, this bill fully funds billions upon billions of dollars in wasteful, duplicative programs that should be eliminated, reduced, or reformed,” said freshman GOP Sen. Mike Lee of Utah. But other Republicans seized on the vote as setting a precedent for cuts of $2 billion a week – which, if extended through the end of the budget year, would match the $61 billion in cuts in a measure passed by the House last month to meet their promise of cutting federal agency operating budgets back to levels in place before Obama took office. “It’s hard to believe when we’re spending $1.6 trillion more than we’re taking in a single year, that it would take this long to cut a penny in spending, but it’s progress nonetheless,” said Senate GOP leader Mitch McConnell of Kentucky. “It’s encouraging that the White House and congressional Democrats now agree that the status quo won’t work, that the bills we pass must include spending reductions.” The White House has promised a veto of the bigger GOP measure, citing crippling cuts to many federal agencies and studies by economists that predict the spending cuts would harm the economy. The GOP won control of the House and gained seats in the Senate last fall with the backing of tea party activists demanding deep, immediate cuts in federal spending. They say that an early down payment on those cuts would send a confidence-building signal to financial markets and the business community. Still, difficult negotiations loom between House Republicans, Senate Democrats and the White House over the full-year spending measure. It blends cuts across hundreds of programs – education, the environment, homeland security and the IRS among them – with a slew of provisions that attack clean air and clean water regulations, family planning and other initiatives.

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IRS: BP Payments For Lost Wages Should Be Taxable

June 25, 2010

WASHINGTON — The Internal Revenue Service says oil spill victims who receive BP payments for lost wages will have to pay up come tax time. Under current law, BP payments for lost wages are taxable – just like the wages would have been, the IRS said in tax guidance issued Friday. Payments for physical injuries or property loss, however, are generally tax free. Payments for emotional distress? Taxable, though medical expenses related to the emotional distress are deductible. BP officials have agreed to create a $20 billion fund for spill victims, as well as a $100 million fund to support displaced oil rig workers. The IRS issued the guidance Friday to help spill victims sort through the law’s complexities. The agency has posted tax information for oil spill victims on its website and plans to hold forums in seven Gulf Coast cities on July 17 to help victims with tax troubles or questions. “As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it,” IRS Commissioner Doug Shulman said. “We encourage anyone who has an issue with the IRS to contact us and explain their hardship, and we will work with them to find a solution.” “We’ll do everything we can under current law to help taxpayers,” Shulman added. Rep. Charlie Melancon, D-La., introduced a bill this week to exempt from taxes all BP payments to spill victims, though its prospects for becoming law were uncertain. “Compensation from BP will help, but during this uncertain time Louisianians will need to stretch every dollar and should not have to worry about setting aside a portion of the payments for taxes,” Melancon said in a statement. Ken Hoagland, chairman of the National FairTax campaign, an anti-tax group, said, “These modest payments are just putting food on the table and should not be taxed.” The IRS has a number of programs to help people who make a good-faith effort but cannot afford to pay their tax bills. Agents can postpone collections in certain hardship cases or allow delinquent taxpayers to skip installment payments if they have made timely payments in the past. The IRS will hold its July 17 forums for oil victims in these cities: Mobile, Ala.; Panama City, Fla.; Pensacola, Fla.; New Orleans; Houma, La.; Baton Rouge, La.; and Gulfport, Miss. ___ On the Net: IRS guidance: http://tinyurl.com/33jus6j File a claim: http://www.Disasterassistance.gov

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IRS Takes 167,000 SF in NoMa

December 16, 2009

The Internal Revenue Service leased 167,000 square feet at 77 K St. NE in Washington, DC. The federal agency will take floors one through six at the 11-story building. The IRS will relocate from 500 N. Capitol St. NW, an eight-story, 183,129-square…

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FDIC Issues New Guide on Commercial Real Estate Loans | Tampa …

November 2, 2009

Separately, it should be noted that the IRS also recently provided guidance regarding CMBS loans to allow for an improved tax environment for lenders renewing ballooning notes that have excessive loan to value ratios. …

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Video: Form 800: IRS Hiring

October 16, 2009

The IRS will hire more than 800 new employees. The department plans to open offices in Beijing and Panama City. (The Bloomberg News)

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Housing (38)

October 15, 2009

a landlord can put you in a tricky tax situation. Oct 14 2009 | Topics: Personal Finance, Taxes, Real Estate, IRS Consumer Action Is Time Running Out for Ultra-Low Mortgage Rates? The 30-year fixed is averaging 5.15%. How long can it last? Sep 25 2009 |

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Housing (37)

October 14, 2009

a landlord can put you in a tricky tax situation. Oct 14 2009 | Topics: Personal Finance, Taxes, Real Estate, IRS Consumer Action Is Time Running Out for Ultra-Low Mortgage Rates? The 30-year fixed is averaging 5.15%. How long can it last? Sep 25 2009 |

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UBS Bank Accounts: More Than 7,500 Americans Come Forward About Secret Foreign Accounts

October 14, 2009

Faced with a Thursday midnight deadline to avoid possible prosecution, more than 7,500 Americans have come clean about secret foreign bank accounts, a senior IRS official said in an interview for broadcast tonight on “ABC World News with Charles Gibson.”

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IRS Tells New York Auditors to Focus on Offshore Hedge Funds’ Loan Income

September 24, 2009

By Ryan J. Donmoyer Sept. 24 (Bloomberg) — The Internal Revenue Service told its auditors in Manhattan to develop cases against offshore hedge funds and foreign companies it said are trying to avoid taxes on income from loans they make in the U.S. The agency, in a Sept. 22 directive, urged the Manhattan field director of the IRS financial services section to pursue a transaction the agency says seeks to improperly take advantage of an otherwise legal tax break. The agency also urged the official to be watchful for similar techniques. “We understand that foreign corporations and non-resident aliens may have used other strategies to originate loans in the United States, giving rise” to tax obligations, Steven Musher, the top lawyer in the IRS’s international department, wrote in a memo to Kathy Robbins, the Manhattan field director. “We encourage you to develop these cases and we stand ready to assist you in the legal analysis,” Musher wrote. It is unusual for IRS lawyers to recommend audit targets to field investigators, said Robert Willens , founder of Robert Willens LLC, which advises investors on accounting and tax rules. The IRS is “obviously incensed about this and intends to pursue the strategy quite vigorously,” Willens said in an interview. Hedge Fund Risks The IRS memo signals new tax risks for hedge funds and foreign investors making and refinancing loans to Americans after the financial system crash, lawyer Roger Lorence , a partner at Sadis & Goldberg LLP in New York, said in an interview. “Anything that doesn’t involve buying a loan in the secondary market is arguably affected by this IRS action,” said Lorence, who advised clients in a letter today to “consider their structure in light of the IRS’s conclusions.” “Who knows how far they’ll go,” Lorence said. IRS spokesman Bruce Friedland said Robbins and Musher weren’t immediately available for comment. According to HedgeFund.net, a provider of information on the industry owned by Channel Capital Group Inc., assets in mostly U.S.-based hedge funds focused on lending totaled $15.6 billion worldwide at the end of February. Vice President Peter Laurelli said HedgeFund.net can’t quantify how much additional money is lent through other funds that don’t focus solely on lending. Lorence said that amount may be more than $1 trillion. “There is a gigantic amount,” he said. Lorence called the IRS memorandum “very ominous” because it signals the agency is increasing activity in this area. Broad Inquiry The IRS said in November 2007 it had begun an inquiry into suspected tax abuses at hedge funds and private-equity firms. IRS Commissioner Douglas Shulman also has said he is redirecting enforcement resources to focus more on cross-border transactions. Most hedge funds set up offshore corporations in the Cayman Islands or similar low-tax countries that don’t have full tax treaties with the U.S. to shield foreign and U.S.-based non- profit investors such as pension funds from taxes. The law says these companies can buy and sell U.S. loans on the secondary market without triggering U.S. tax obligations. If they start originating loans within the U.S., the income they generate can trigger what the IRS calls “effectively connected income.” This week’s memo described a scenario in which an overseas company, entirely owned by foreigners, hires a U.S. firm to solicit U.S. borrowers, negotiate terms, perform credit analyses and all other loan origination activities. Employees of the foreign-based company only approve the loans and sign the loan documents at the offshore location. Final Approval Musher, associate chief counsel in charge of international matters at the IRS, concluded in the memo that the foreign company can’t deny it made the loan in the U.S. Therefore, he wrote, the income from the loan creates an obligation to file tax returns and pay taxes. The memo didn’t identify any specific fund carrying out such transactions. “The IRS said, ‘no, forget it, the agent is your agent, and the activities of the agent will be attributed to you,’” said Ken Werner, a partner at the New York law firm Richards, Kibbe & Orbe. Even so, he said the circumstances of other cases may be less clear. “It sounds like they’re really going to start looking very hard at this whole area,” Werner said. To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net

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Tax Amnesty Deadline: IRS Extends Cutoff For Applicants

September 22, 2009

WASHINGTON — Procrastinating tax cheats will get a few extra weeks to apply for an amnesty program that has been flooded with applications from people who hid assets overseas. The Internal Revenue Service said Monday it will extend the deadline, originally set for Wednesday, until Oct. 15. More than 3,000 Americans have applied for the program, which promises no jail time and reduced penalties for tax dodgers who come forward, said a government official who spoke on condition of anonymity because the agency has not publicly released the size of the program. The IRS is extending the deadline to give a rush of applicants more time to prepare their paperwork. The agency said there will be no additional extensions. Tax advisers said the program, combined with a high-profile case against Swiss banking giant UBS AG, has generated a lot of calls from nervous tax dodgers. “They’re sitting in disbelief that this is going on,” said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. “I ask people to ask of themselves, ‘What is their peace of mind worth? What is a fresh start worth? What is a clear conscience worth?’” The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution. Fewer than 100 people apply for the program in a typical year, in part because the penalties can far exceed the value of the hidden account, depending on how long the account holder has evaded U.S. taxes. But in March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. The program was extended after tax advisers from across the country contacted the IRS, requesting more time to prepare applications, IRS spokesman Terry Lemons said. The amnesty program is part of a larger effort by federal authorities to crack down on international tax evaders. In August, the U.S. and Switzerland resolved a court case in which Swiss banking giant UBS AG agreed to turn over details on 4,450 accounts suspected of holding undeclared assets from American customers. The process of turning over the information is expected to take several months. But once the IRS obtains information about an international tax dodger, they will be ineligible for the amnesty program. “This era of true banking secrecy is over,” said Peter Zeidenberg, a litigation partner at the law firm DLA Piper in Washington. “I think most practitioners would tell you it’s foolhardy to think the IRS is not going to get their hands on this information.” It’s still difficult for U.S. authorities to get information about some foreign accounts, many of which aren’t labeled with names and Social Security numbers, said Matt Campione, a tax lawyer at Vienna, Va., law firm of Smolen Plevy. But, Campione said, tax dodgers can’t rest easy just because they escape this year’s crackdown. “If it’s not this year or next year, it’s three or four years from now,” Campione said. “I believe the government is going to get more and more creative in going after these accounts.” ___ On the Net: IRS: http://www.IRS.gov

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IRS: Deadline extended for amnesty program

September 22, 2009

IRS: Deadline extended for amnesty program

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Video: Chrysler’s Press Owes IRS Almost $1M

September 21, 2009

Chrysler’s Deputy C.E.O. owes IRS $600,000 in back taxes. (Bloomberg News)

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IRS Eases Rules on Commercial Mortgage Loan Modifications

September 19, 2009

The IRS has issued a new tax rule that will allow commercial real estate borrowers to proactively discuss possible modifications to securitized loans that are at risk of default without triggering tax penalties. Revenue Procedure 2009-45describes the

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IRS Eases Rules on Commercial Mortgage Loan Modifications

September 19, 2009

The IRS has issued a new tax rule that will allow commercial real estate borrowers to proactively discuss possible modifications to securitized loans that are at risk of default without triggering tax penalties. Revenue Procedure 2009-45describes the

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Rich Americans Scrambling Over Tax Dodge Crackdown

August 15, 2009

By STEPHEN OHLEMACHER, Associated Press Writer WASHINGTON – A deal with Switzerland settling U.S. demands for the names of suspected tax dodgers from a Swiss bank has a lot of wealthy Americans with offshore accounts nervously running to their tax advisers — and the Internal Revenue Service. “They are very frightened,” said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. “You have the super rich who are not used to being pushed around and they are finding themselves in unfamiliar territory.” The U.S. and Swiss governments announced a court settlement last week in efforts by the IRS to force Zurich-based UBS AG to turn over the names of some 52,000 Americans believed to be hiding nearly $15 billion in assets in secret accounts. Justice Department and UBS lawyers told a federal judge in Miami in a brief conference call Wednesday they had initialed a final deal. But they did not disclose any details, such as how many of the 52,000 names sought by the IRS will be revealed. Even before the settlement, the high-profile case — coupled with other U.S. efforts to go after Americans hiding undeclared assets — has scared hundreds of tax dodgers to turn themselves in. Boggs said his firm has been taking on 100 new cases a month, a big increase over previous years. Peter Zeidenberg, a litigation partner at the law firm DLA Piper in Washington, said he, too, is he seeing more people with undeclared assets seeking information about their legal options. His advice: “I don’t think you have much of a choice but to come forward. … I think the landscape is permanently changed.” The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution. In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. IRS Commissioner Doug Shulman said the response has been unprecedented. Shulman wouldn’t say how many people have applied so far. But the IRS said 400 people applied to voluntarily disclose undeclared assets in a single week in July, compared with fewer than 100 applications all last year. The amnesty program, which ends Sept. 23, is part of a larger effort by federal authorities to crack down on international tax evaders. “Each time someone walks through the door with a disclosure, we get more information. We get more information about other people. We get more information about other financial institutions,” Shulman said. “If people have been hiding assets in the past, they should be nervous, and they should be a lot more suspect about doing it in the future.” The U.S. recently reached agreements with several countries, including Luxembourg and Switzerland, to share more tax information in the future, just as the IRS is strengthening its enforcement ranks. President Barack Obama, in his proposed 2010 budget, asked Congress to pay for 800 additional agents, examiners and lawyers to go after people who hide money overseas. Obama also wants Congress to require overseas financial institutions doing business in the U.S. to share more information with the IRS. Earlier this year, UBS admitted assisting U.S. citizens in evading taxes as part of a deferred prosecution agreement with the Justice Department. UBS agreed to disclose the names of about 300 American clients and pay a $780 million penalty. The IRS subsequently filed its case seeking the names of 52,000 additional U.S. taxpayers believed to be hiding assets in UBS accounts. So far, four UBS customers whose names were given to U.S. authorities under the prior agreement have made deals to plead guilty to tax charges in federal court. “The UBS case, the agreements we are signing, the legislative proposals and the enforcement efforts are all meant to send one message, which is that if you owe tax to the U.S., we are going to use every tool we have available to get that,” said Michael Mundaca, acting assistant treasury secretary. Sen. Carl Levin, D-Mich., applauded the administration’s efforts, but said more can be done to catch tax evaders. Levin has introduced a bill that would direct the treasury secretary to maintain a list of nations that “impede U.S. tax enforcement” and give him authority to impose financial penalties against uncooperative countries. Levin’s initial list of 34 countries and other jurisdictions would include Switzerland, the Cayman Islands, Bermuda, the Bahamas, Hong Kong and Panama. “We should have put a clampdown on these tax havens a long time ago,” he said in an interview. Raymond Baker of Global Financial Integrity, a Washington-based group that advocates tougher policies against international money laundering, said he is encouraged by the administration’s efforts. But he’s not ready to call it a crackdown. “As we get past the UBS case, is the momentum for continuing to go after tax evaders going to be sustained?” Baker said. “I think it’s too early to tell.” It would, however, be risky for a wealthy tax dodger to wait to see if the government’s stepped up efforts continue, said Boggs, the tax adviser. He said his firm usually recommends a “strategic surrender” to the IRS. “We basically are waving a white flag and telling the IRS that we have every intention of resolving this issue in the mutual best interest of the government and our client,” Boggs said. “Historically, the best outcomes that we have been able to negotiate have always involved good faith from the taxpayer,” he said. “And good faith means getting to the IRS before they get to you.”

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Video Essay: Real estate agent lost millions

July 31, 2009

Carlos Justo is $20 million in debt. He is five months into a massive bankruptcy filing, and the IRS is after him for $6 million, but he is plotting his comeback. Photojournalist Lynne Skadky explains in this

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Video Essay: Real estate agent lost millions

July 31, 2009

Carlos Justo is $20 million in debt. He is five months into a massive bankruptcy filing, and the IRS is after him for $6 million, but he is plotting his comeback.

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