Roth & Company, P.C. Tax Update Blog
HAVE A NON-TAXING WEEKEND!
May 16, 2008
The Principal building, 801 Grand, looms over Nationwide's Walnut Street building in Downtown Des Moines.
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IRS SNATCHES BACK ISO-AMT REFUND
May 16, 2008
Incentive Stock Options are a textbook case of grim unintended consequences from a tax break. Unlike regular "non-qualified" stock options, ISOs don't generate taxable salary income when they are exercised; if you hold on to them for one year after exercise and then sell them, any gain you have is long-term capital gain, taxed at preferential rates. This is supposed to be a tax break.
But there's a catch: the "bargain element" on the ISOs - the difference between their value and the price paid to exercise the options - IS taxable for alternative minimum tax in the year the option is exercised, even if the stock received on exercise isn't sold. If the stock becomes worthless between the exercise date and the sale date, the taxpayer pays AMT when the stock is exercised, but can only take the loss on the sale to the extent of other capital gains, plus $3,000 per year. Taxpayers have argued that there should be an AMT "net operating loss" rather than a capital loss, so that they could retroactively recover the AMT through an NOL carryback, but the Merlo decision rejected that argument.
The McLeod nightmare ISOs
This problem became all too real for many employees at McLeod Communications in Cedar Rapids -- perhaps most famously, Ronald Speltz.
Another McLeod employee, Bryce Nemitz, attempted to use the NOL carryback argument. Mr. Nemitz sold McLeod stock he had received from exercising ISOs in 2001. McLeod stock had tanked, so he had a huge loss compared to the amount he had to pay AMT on. On an amended 2001 return filed in November 2002, he computed an NOL that he carried back to 1999 and 2000. Things went well at first, as the IRS issued him carryback refunds of $53,942 for 1999 and $1,476,656 for 2000. Then the IRS realized what it had done and asked for the money back.
Did the IRS assess too late?
By the time the case reached Tax Court, the Merlo decision settled the issue of whether a loss on the sale of ISO shares could generate a net operating loss, rather than a capital loss ("no"). Mr. Nemitz tried to save the day by arguing that the IRS had asked for the money back too late, missing the three-year statute of limitations.
The IRS pointed out that assessments can be made on erroneous net operating loss carrybacks, the statute of limitations runs out three years after the filing of the return that generated the loss to be carried back - in this case, the 2001 return, under Code Sec. 6501(h).
Not really an NOL claim?
Mr. Nemitz argued that the refund was governed by Sec. 6501(a), the usual three-year statute of limitations for timely-filed returns, which would have expired for 1999 and 2000 by the time the deficiency notice was issued in 2005. He cleverly argued that since the amount carried back turned out not to qualify as an NOL under Merlo, it wasn't really an NOL, and so it didn't trigger the extended NOL statute of limitations. He also argued that the special NOL carryback statute applied only to regular NOLs, not AMT NOLs.
The Tax Court didn't go for either argument. Regarding the "it wasn't really an NOL" point, the court said:
The record establishes, and we have found, that petitioners claimed a net operating loss, and not a capital loss, for AMT purposes in the 2001 amended return and that they carried back that net operating loss for AMT purposes in the 1999 amended return and the 2000 amended return.
In other words: you claimed it as an NOL and the refund was erroneously issued as a result of the NOL claim, so the NOL statute applies.
Then the court addressed the claim that the special NOL statute only applies to "regular" losses:
As we understand it, petitioners are arguing that, because section 6501(h) refers only to a net operating loss carryback, and not to a net operating loss carryback for AMT purposes, that section does not apply to the deficiency for each of their taxable years 1999 and 2000 that is attributable to the carryback to each of those years of the net operating loss for AMT purposes that they claimed in the 2001 amended return.Section 6501(h) applies in the case of a deficiency attributable to the application of a net operating loss carryback. The only provision in the Code that allows a net operating loss carryback is section 172(b). That section, which is entitled "Net Operating Loss Carrybacks and Carryovers", allows, inter alia, a taxpayer to carry back a net operating loss. Section 172(b) does not refer to, or distinguish between, a net operating loss for regular tax purposes and a net operating loss for AMT purposes. See Plumb v. Commissioner, 97 T.C. 632, 638 (1991). That section provides rules that apply to both the carryback of a net operating loss for regular tax purposes and the carryback of a net operating loss for AMT purposes. .
Like section 172(b), section 6501(h) does not refer to, or distinguish between, a net operating loss for regular tax purposes and a net operating loss for AMT purposes. If Congress had intended that section 6501(h) not apply with respect to the carryback of a net operating loss for AMT purposes, it would have so stated. It did not.
Bottom line: Mr. Nemitz has to pay back over $1.5 million to the IRS, in the hopes of getting some of it back over time under the relief provisions enacted in late 2006 for ISO victims.
The case has a sad note aside from the woeful consequence to the taxpayer; it was one of the last cases argued by our friend Burns Mossman, who died last year. It made me misty-eyed to see his name at the top of the opinion. If Burns couldn't pull it out, I'd say it was hopeless to start with.
Cite: Bryce E. and Michelle S. Nemitz, 130 T.C. No. 9.
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YOU CAN TELL IT'S A BAD DAY WHEN...
May 16, 2008
It can't be a good sign for a taxpayer when his Tax Court judge starts his opinion with a history of the taxpayer's record of failure in Tax Court:
John Green has not had much success in Tax Court. In 1993, Green wanted to escape paying income tax on money he’d embezzled ten years earlier, claiming he was exempt because he is a Native American. We held him liable for both the tax and penalties.
Sure enough, things went downhill from there for Mr. Green. Russ Fox has the gory details.
Cite: John O. Green, T.C. Memo. 2008-130
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WHAT TO DO ABOUT SCREWED-UP REBATE CHECKS?
May 16, 2008
So not only has the IRS miscalculated the amount of Uncle Sugar's Crazy Fun Bux rebates, it has sent a good chunk of them to the wrong accounts. If you haven't gotten yours, IRS says to trust them, you'll get yours. If you've gotten somebody else's rebate, and you spend it, you get yours, too -- good and hard, according to the IRS.
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STUPID IS AS STUPID DOES
May 15, 2008
"IRS says up to 350,000 tax rebate checks wrong".
Bad ideas, badly executed. Bipartisanship at work!
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WEB SITES FOR SALE: THE MORE YOU PAY, THE MORE YOU DEDUCT?
May 15, 2008
The retail cattle feeding tax shelters of the 1970s used a simple scheme to generate deductions: Sell a cow worth $500 for $5,000 (heck, $10,000 - who cares?) to the tax shelter - but accept a non-recourse note from the shelter as payment. The shelter would then depreciate the $10,000 "cost" of the the cow, but with no intention of ever paying off the note.
Now comes word from Virginia of a new economy twist on this old scheme involving Virginia CPA John T. Hoang:
The complaint alleged that Hoang, through his company Tax Smart Technology Services, sold customers Web sites worth almost nothing. But the sales contracts between Tax Smart and customers falsely stated that the Web sites were worth tens of thousands, hundreds of thousands or even millions of dollars. Hoang then allegedly prepared customers’ federal income tax returns, improperly using the false values to claim large depreciation deductions. The lawsuit asserts that Hoang used offsetting sham promissory notes to create the appearance of sales of valuable assets, while in reality customers paid Hoang a small sum and Hoang then provided customers a worthless Web site and a large tax deduction. The government complaint estimates that the harm from Hoang’s misconduct exceeds $6.1 million.
Mr. Hoang has now consented to a permanent injunction barring him from preparing returns or promoting this scheme.
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THE MCCAIN TAX PLAN
May 15, 2008
Roni Deutch profiles John McCain's tax proposals. There are a lot of items that are sensible there, but there's also this:
The more revolutionary aspect of his plan is the offering of an optional flat tax system. This system would be held out as an alternative to the current progressive system and the myriad of credits, exemptions, deductions, carryover rules, and different tax rates for different forms of income. McCain’s plan would be to tax all taxpayers on all income sources at one single rate. The flat rate would be set at 19% for first two years, 17% thereafter.
Optional flat taxes are just weird. In real life everyone would compute their tax under the "regular" and optional systems and pay the lower amount. That way we could do taxes three ways:
1. The current regular tax;
2. The Alternative Minimum Tax, and
3. The optional flat tax.
Oh, joy.
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MORE GREAT MOMENTS IN ECONOMIC DEVELOPMENT
May 15, 2008
The Tax Policy Blog notes a new Michigan tax credit "for Construction of Entertainment Complexes," noting that "Tax credits for the construction of entertainment complexes are ridiculous."
That must be why Des Moines and Polk County skipped the tax credits and went with direct subsidies instead.
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WHY TAX CREDITS ARE THE SAME AS SPENDING
May 15, 2008
Daniel Shaviro has a concise explanation:
My favorite example of the core point made by tax expenditure analysis remains one that I got from David Bradford. Let's cut both taxes and spending by $50 billion, David pretended to urge, by zeroing out $50 billion of military spending (to buy advanced weapons) and enacting instead $50 billion worth of "tradable tax credits" that would go to the very same weapons suppliers for the very same weapons. At the end of the day, everything would be exactly the same, but taxes and spending would each be reported as $50 billion lower. Without a tax expenditure concept, it is hard to show as crisply that nothing in this scenario has genuinely changed.
State economic development tax credits work exactly the same way. It's money that the state takes from some taxpayers to give to their friends. And if you think the politicians in Des Moines are smart enough to invest taxpayer money in private businesses, why aren't they millionaire venture capitalists instead of $25,000-per-year legislators?
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HOW TO APPROACH CORPORATE WELFARE
May 14, 2008
The Mall of America wants a subsidy. Some wise perspective from James Lileks:
It’s come to this: unless the state gives the Mall of America more money to build a new addition, it won’t get built.Well, don’t build it, then.
See? That’s not so hard. I understand that there are other markets that would love to have the Mall of America, and some day soon we may behold the distressing sight of the Mall jacked up, put on trucks and moved to Iowa, but if you can’t afford to build an addition without state money, perhaps the fundamentals of the proposal aren’t sound.
I just hope that this doesn't give Iowa's economic development people any ideas. Mike Tramantino may already be trying to locate a mall-moving service.
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IRS GOES FORWARD WHERE IOWA DEPARTMENT OF REVENUE CHICKENS OUT
May 14, 2008
In 2005 and 2006, the Iowa Department of Revenue web site had a system that enabled taxpayers and their advisors to access taxpayer account information. It a great too for confirming estimated tax payments when preparing tax returns. In our practice, taxpayer errors in estimated taxes - forgetting payments they made, or reporting payments that weren't made - generate more taxpayer notices than any other cause. The website easily prevented hundreds of tax return errors, and notices, statewide.
Iowa shut down this feature for this year's tax season. The Department director cites information security concerns in defending this decision. Now it looks like the IRS is going where Iowa fears to tread. Tax Analysts reports ($link):
Taxpayers will be able to access their personal account information on the IRS Web site by the fall, an IRS official said during a May 13 IRS Tax Talk Today webcast.Beth Jones, the director of electronic products and services support in the IRS Wage and Investment Division, called the creation of the "my IRS account" service "a big step."
Maybe a successful federal program will cause Iowa to reconsider.
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IGOR SELLS HIS BANKERS?
May 14, 2008
Last month we noticed that California billionaire Igor Olenicoff stands to get a laughably light sentence after pleading guilty to a filing false returns in a tax scheme involving $52 million. Now comes news that the bankers who helped the Newport Beach real estate mogul with his scheme have been indicted on federal tax charges. The Wall Street Journal reports:
As part of a widening probe, the U.S. has charged a former UBS AG banker and a Liechtenstein consultant with helping clients avoid taxes by opening secret bank accounts, destroying documents, using Swiss credit cards and filing false tax returns.One client was billionaire California real-estate developer Igor Olenicoff. Mr. Olenicoff set up a web of secret bank accounts in Switzerland and Liechtenstein to avoid taxes on $200 million in assets, a person familiar with the U.S. case said. Mr. Olenicoff has been cooperating with investigators in the wake of his December guilty plea to a criminal count of filing a false 2002 U.S. tax return. He was ordered to pay $52 million.
The story also provides a hint on why Mr. Olenicoff may face a light sentence:
The case could lead to other U.S. clients: The indictment says the two financiers -- former UBS private banker Bradley Birkenfeld and Liechtenstein financial adviser Mario Staggl -- courted rich Americans and helped some of them avoid paying taxes.
So Mr. Olenicoff's cooperation might be leading the IRS to other rich tax evaders, as well as their enablers. This could get interesting.
The TaxProf has a big-media roundup and a link to the indictment.
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SMALL CHARITIES: TOMORROW IS YOUR DEADLINE
May 14, 2008
A new deadline looms tomorrow for many charities. Non-profits with annual receipts under $25,000 have never had to make annual filings with the IRS -- until now. From an IRS release:
Beginning this year, most organizations whose gross receipts are normally $25,000 or less must file Form 990-N, also known as the e-Postcard. Previously these small organizations did not have an annual filing requirement."The e-Postcard is fast and easy. An organization just quickly answers a few questions online," said Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division of the IRS. "It’s free, totally paperless and will help ensure integrity and transparency in the tax-exempt community."
To file your "e-postcard" by the May 15 deadline, go here.
Larger charities and foundations who file on a calendar year also have to file their 990-series forms by tomorrow, unless they get an extension.
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NO DO-OVERS WHEN THE SWAP TAKES TOO LONG
May 13, 2008
A reader poses a Section 1031 problem:
After selling property using a qualified escrow arrangment, Taxpayer A contracts to purchase replacement like kind property. The contract requires the seller, Taxpayer B, to replat the property, but that doesn't happen and the deal doesn't close in 180 days.Can Taxpayer A get an extension of his 180-day deadline?
If you enter into a deferred like-kind "Section 1031" exchange, you have 45 days to identify replacement property and 180 days to close, or the exchange fails to qualify and the escrowed proceeds become taxable. Unfortunately for Taxpayer A, there are no extensions or do-overs. The sale of his original property is now taxable. He may or may not have a case against Taxpayer B under contract law, but as far as the tax law is concerned, he loses.
Link: IRS Fact Sheet on Like-kind Exchanges.
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WE THE TARGETED
May 13, 2008
Robert Schulz, head of the tax protest organization "We the People Foundation," says he has turned over to IRS the names of 225 people who received "legal termination of tax withholding" kits from the foundation. From PostStar.com:
Schulz, the founder of the We the People Foundation and We the People Congress, was ordered to provide the names, addresses, phone numbers and Social Security numbers of the people who received his "Legal Termination of Tax Withholding" -- a packet of information that purports to show how an employee can legally stop federal withholding on paychecks.Schulz was told his stay-of-enforcement application was denied by the office of Justice Ruth Bader Ginsburg at 3:45 p.m. Monday -- 15 minutes before U.S. District Court Judge Thomas McAvoy's deadline.
That's 225 people who can look forward to a little extra IRS attention.
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IRS LOSES ANOTHER ACCRUAL WORKPAPER CASE
May 13, 2008
The IRS has lost its second district court case seeking workpapers used in developing the tax accrual for a public company's financial statements.
According to Tax Analysts ($link), this decision involved 20 documents totaling 151 pages; another 260,000 pages were turned over to the IRS. Tax Analysts reports:
The court conducted an in camera review of the withheld documents. The documents all related to one transaction engaged in by Regions.The core documents -- documents created by E&Y and the law firm Alston & Bird LLP -- expressed opinions, provided legal theories, and listed possible attacks by the IRS. The other documents at issue, called derivative documents, explained, discussed, or quoted the core documents.
This decision, even if upheld, doesn't seem like an enormous taxpayer victory, as it applies to a narrow set subset of the audit workpapers.
Link: Court order and copy of summons
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IRS FACT SHEET ON BUSINESS INCOME
May 13, 2008
The IRS ha issued a "fact sheet" to remind taxpayers that they need to report business income:
Small business owners and self-employed taxpayers must report on their tax returns all income received from their businesses unless specifically excluded by law. In most cases, business income will be in the form of cash, checks and credit card charges.But business income can be in other forms, such as property or services. There are many forms, including: bartering, real estate rents, personal property rents, interest and dividend income, canceled debt, promissory notes, lost income payments, damages, economic injury payments, as well as kickbacks.
All income earned is taxable. Directing payment of income to a third party does not remove the reporting and payment requirements for small businesses and self-employed taxpayers.
"No 1099" doesn't mean "tax exempt."
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I'M SO DISILLUSIONED
May 12, 2008
Al Sharpton, a tax cheat? I thought he was a man of the people. More here. How could I be more disillusioned?
Well, maybe if I found out that the statewide 1-cent sales tax increase enacted last month by the Iowa legislature wasn't really passed just to help the children:
City officials could redirect money collected from local-option sales taxes without the public's vote under a last-minute amendment added to a state budget bill in the final hours of this year's legislative session.It means that special 1-cent sales taxes that voters have approved in hundreds of Iowa cities for such things as road and sewer improvements could instead be used to give tax breaks to developers or in numerous other ways.
The new sales tax replaces county-by-county local option sales taxes. The county taxes had to be renewed every ten years by referendum, and the politicians just hated that. They argued for the new statewide tax on the grounds that the money was needed for education. Some naifs believed them. Or said they did.
"This bill allows cities to use a bait-and-switch on their citizens," Michael King, president of the Iowa State Association of Counties, wrote in a May 2 letter to Gov. Chet Culver.Under the revision, public officials could change the use of the tax collection as long as it's used to help pay for an urban renewal project. Such renewal areas are generally locations that city and state officials have designated as slums or blighted, making them eligible for property tax breaks known as tax increment financing.
Yet the next time a sales tax or bond referendum goes down in flames, the elected officials will be just astounded that they aren't trusted.
State 29 has more.
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TAX EVASION KILLS?
May 12, 2008
From guardian.co.uk:
Illegal tax evasion by companies is depriving the developing world of $160bn (£82bn) a year, which could be used to prevent the deaths of 1,000 children every day, Christian Aid says today.In a new report, Death and taxes: the true cost of tax dodging, the charity says the sums being lost to tax evasion globally are equivalent to almost one and a half times the amount of foreign aid given to poor countries each year. If legal tax avoidance were added in, the sums would be several times greater.
If the money lost to illegal evasion were allocated according to current spending patterns to prevent poverty and disease, it says, the lives of 350,000 children, 250,000 of them infants, could be saved each year.
I don't buy it. In much of the developing world governments are merely lawless gangster regimes. Millions of people trying to scratch out a living in countries without the rule of law survive only because they, or their employers, hide enough to eat from their parasitical overlords. In such places tax evasion saves lives by letting people feed their children, rather than their dictators' Swiss bank accounts. It's hard to see where the people of Burma, for example, or companies that operate there, have a moral obligation to feed a government that won't even let outsiders in to help feed their subjects after a humanitarian disaster.
It's wrong to apply the same kind of ethical standards to tax evasion in a despotic land that applies in the U.S. While our tax system has flaws (heaven knows it does), at least you have some predictability as to what is taxable, and you have a reasonably fair system to turn to if you disagree with the IRS. Try telling, say, the Cuban or Russian government that you disagree with their tax assessment and see how far you get.
UPDATE: The Tax Prof has more.
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GOOD ON TAXES, NOT SO GOOD ON ECONOMICS
May 12, 2008
Villanova tax professor James Maule and I have had a friendly discussion going over tax and economic policy. Well, economics, really, as I'm not sure I have any disagreements I have with him over tax policy.
Dr. Maule worries about future resource scarcity, and he thinks the government should mobilize to do something about it. He says that the market can't be relied on to provide "essential" items.
I think it's exactly the opposite - only the market can provide essentials. The history of the Soviet Union and the Eastern Bloc was a 75-year experiment that demonstrated the inability of governments to reliably supply essentials. This continues to be demonstrated in the countries were the communist experiment continues in spite of all reason: Cuba and North Korea. Whenever the government meddles, they inevitably just make things worse.
An Instapundit correspondent sums it up well:
Good Lord, now we've got Republicans proposing Five Year Plans and Seven Step programs like some 1930's Soviet Beet Kommissar. The last thing we need is the know-nothings in Congress pretending they have the expertise required to plan the future of a market segment as huge and critical as energy. They have no such knowledge because that knowledge doesn't exist anywhere as some type of accessible whole. It takes a market with millions upon millions of people, each with their own intimate knowledge of their own needs and capabilities, participating in an open energy marketplace with free prices to coordinate such an unimaginably huge, ever-changing body of knowledge and action.
But when Dr. Maule talks taxes, he talks wisely. Here he speaks of the so-called "anti-foreclosure" legislation going through Congress:
The provision that would provide a tax credit to encourage the purchase of homes in foreclosure has been replaced by a provision that would allow a tax credit to first-time home buyers. How this prevents foreclosures baffles me. How it rescues the housing market also baffles me, because the foreclosures are hitting higher-priced markets far more severely than they are affecting entry-level markets....
This bill is a classic example of bad tax policy and bad legislation. First, the provisions do not address the underlying cause of the housing market mess. Second, the provisions will not accomplish what they are marketed as accomplishing. Third, tax breaks wholly unrelated to the mess are tagged onto the legislation as it works its way through the legislative process, for a variety of reasons that are far more political than economically sound. Fourth, the legislation will make the tax law and tax return preparation more complicated. Fifth, it will make tax compliance and tax return preparation more difficult.
Amen, brother Maule.
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SLOW START
May 12, 2008
Sorry for failing to serve up freshly warmed-over tax news so far this morning. I had to clear about 700 spam comments from the site. I had to add a few new blocker words to the spam filter. My apologies in advance to anybody who for some reason tries to post a non-spam item with the words "Nokia" or "ringtones."
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HAVE A GREAT MOTHERS DAY WEEKEND!
May 09, 2008
Mothers Day week flowers at the Gateway Park, downtown Des Moines
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FARM BILL, TAX BILL
May 09, 2008
Congress has finally reached agreement on just how badly to work over the rest of us to subsidize the ag industry. Tax Vox has a wonderful post about the pending farm bill. Some choice bits:
$451 million in tax breaks for timber companies. Ka-ching. $500 million for biodiesel. Ka-ching. $126 million for racehorse breeders. Ka-ching. $20 million for Aggie bonds. Ka-ching.It is farm bill time, so grab your wallet. When it comes to agricultural subsidies, there are no deficit hawks. There are only farm-state lawmakers, for whom no subsidy is too great, and big city pols, who can only watch in envy.
Crop prices are low? We need subsidies! Crop prices are high? We need... subsidies!
Backers say the bill is fiscally responsible. They point to a small future cut in ethanol tax credits from 51 cents to 45 cents. Sounds good, although I have a funny feeling the credit won’t ever be reduced. Reductions in out-year tax cuts never seem to happen. Instead, they become yet another tax extender.The other alleged nod to fiscal responsibility is an agreement to eliminate some subsidy payments to farmers who make more than $750,000, or $1.5 million per couple. Bush tried to cap the payments for those earning $200,000 or more. But that was a long time ago.
Eliminate "some" subsidies to farmers making over $1.5 million? Those farm budgeteers are just ruthless.
And never fear, there are plenty of winners. It appears that just one company, timber giant Weyerhaeuser, stands to gain $100 million a year in tax breaks. While Congress may trim subsidies for ethanol, it would add $537 million in tax breaks for biodiesel and renewable diesel And, having learned nothing from the ethanol debacle, it would create a “temporary” credit of $1.01 per gallon for biofuels made from farm waste, switch grass and the like.
Don't be surprised if the next step is a provision declaring that "farm waste" means "corn" and "soybeans."
The bill would create a special loss limit for farm losses -- apparently limiting even non-passive farm losses to the greater of $300,000 or net farm income "if the taxpayer receives Farm Bill commodity payments."
The President is pledging to veto the bill; whether the veto would stick is uncertain.
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TAX FREEDOM FINALLY HITS CONNECTICUT
May 09, 2008
The Tax Foundation determines a "Tax Freedom Day" for the U.S. as a whole and for each state. The national Tax Freedom Day was April 23; Iowa's was April 16. The last one was yesterday, in Connecticut. What a dreary honor.
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THE HILLARY TAX PLAN
May 09, 2008
Roni Deutch tackles the Clinton tax program in her series of the candidates' tax policy plans, including her college tax credit plans:
At the heart of her plan to strengthen the middle class is Hillary’s tax cuts designed to make college more affordable for everyone. "When it comes to higher education – we shouldn’t be playing catch-up with the world – we should be leading it," claimed Clinton in a press release about her plan. "I believe that college shouldn’t just be a privilege for the wealthy – but an opportunity for anyone with the talent, determination and ambition to learn. And I believe that every American should have access to lifelong learning opportunities – from apprenticeships, to community college, to the most select four-year institutions."Hillary’s college plan would basically boil down to a $3,500 credit which she claims is enough to cover more than 50% of the cost of tuition at the average public institution.
Remember: When politicians say they want to "make college more affordable," they really mean they want to "raise tuition."
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MARC WARD STARTS 'IOWA LLC BLOG'
May 09, 2008
Marc Ward, LLC maven at the Dickinson law firm and sometime Des Moines school board member, has started the "Iowa LLC Blog." Marc has helped to craft the current Iowa limited liability company statute; he is also an author of the CCH "Limited Liability Company Guide." The blog is on the blogroll to the right under "Friends and Neighbors."
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ARE PAM ANDERSON AND DOLLY PARTON ENTERED?
May 08, 2008
"World Gross Masters Gather for Chest Tournament in Sofia"
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BITTER DIVORCE AND TAX EVASION -- MORE FUN TOGETHER!
May 08, 2008
One subplot of the Robert Beale tax evasion saga was the way his ex-wife ended up with his Florida house during his run from the tax man. It makes one think that fighting a divorce battle while evading taxes might just be too much fun to have all at once. A recent case out of Milwaukee supports that theory.
Ronald Miserendino was a successful Milwaukee-area real estate investor who didn't take his wife's divorce petition well. From the California Divorce and Family Law blog:
According to court records, within a month of the divorce filing, Miserendino secretly set out to liquidate his company's assets and go underground. The divorce court judge, John DiMotto, had ordered that all the company assets be frozen until the divorce was final.Miserendino enlisted the aid of his son from his first marriage, Mark, whom he had made a vice president of Trace. Son [Cynthia Son, Mr. Miserendino's wife], who had been Trace's secretary, was removed from the company roster.
The effort involved taking out a bank loan for $5 million, a $500,000 advance on the company's line of credit, and cashing in Treasury bonds worth more than $10 million, according to court records. Miserendino gave the $5 million from the bank loan to his son. Mark got smaller cashier's checks and sent them to his father, who was secretly in Hawaii, where Trace owned a house and two lots.
The divorce was granted, and the court awarded Cynthia Son $5 million plus the family home in River Hills. But the money was gone -- much of it to taxes and penalties. But Miserendino also had converted nearly $5 million to cash and had stashed it in safe deposit boxes in Australia and in several states, according to court records.
This worked out poorly for Mr. Miserendino. Now the 72 year-old has been sentenced to four years in prison for tax evasion and money laundering charges arising out of the ill-fated divorce planning. The sentence also requires him to forfeit $750,000 property to the government for payment to his ex-wife, who was awarded $5 million in the divorce.
The Moral? Hell hath no fury like a woman scorned, but it's much worse if the IRS is on her side.
Links:
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CAVALCADE OF MAY
May 08, 2008
The new Cavalcade of Risk, the wonderful roundup of insurance and risk management blog posts, is up at Hill's Personal Finance.
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HOPE FOR HIGHER TAXES
May 08, 2008
Roni Deutch is reviewing the tax policy proposals of the remaining presidential candidates. From her Obama review:
In addition to letting the Bush tax cuts expire, Obama also advocates increasing the income cap on payroll taxes. This would essentially be a huge tax increase for taxpayers earning between $97,000.00 and $250,000.00, which goes against Obama’s prior commitment to not raise taxes on individuals making less than $250,000.00.
It would make me bitter, if I didn't have so much hope.
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THE JOB-CREATING IOWA CIGARETTE TAX
May 08, 2008
While the $1-per-pack cigarette tax was primarily a revenue grab by our free-spending state officials, it may have an unintended side effect. It will replace the many of the good meth manufacturing jobs exported to Mexico by the pseudoephedrine crackdown with high-quality cigarette smuggling jobs. From the Tax Foundation:
The blunt fact, which politicians of both political parties are determined to ignore, is that high cigarette taxes in New York have led to a bloody, decades-long smuggling epidemic.While the problem first surfaced during the Great Depression, tax hikes in the early 1960s created a major profit opportunity for smugglers and kicked the epidemic into high gear. By 1967, a quarter of the cigarettes consumed in the Empire State were bootlegged. New York City's finance administrator labeled cigarette smuggling the "principal stoking facility of the engine of organized crime."
Smuggling? That can't happen here!
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THEY CAN ALSO LOSE WEIGHT BY ADDING CALORIES
May 08, 2008
This lead to a Tax Analysts article ($link) promises to solve all of the world's problems instantly:
Senate Democrats introduced energy legislation May 7 seeking to lower oil and gas prices and impose a 25 percent tax on oil company windfall profits, while House Democrats announced they will soon take up a bill that would include similar measures in addition to extending renewable energy tax incentives and expired business tax breaks.
So we lower prices by increasing the producer's costs? The more we tax producers, the lower the cost of what they produce? Why didn't we try that before? If we just impose enough tax, everything will be free!
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MEGAN'S RULES
May 07, 2008
Megan McArdle has some words to live by in making tax policy (emphasis mine):
Complexity is bad because it ups compliance costs, often makes evasion easier, and because complexity itself increases uncertainty: as tax laws proliferate, it becomes harder to know whether you are in compliance. It also makes the government's administrative overhead multiply like those bacteria that can kill you in five minutes after first contact.Uncertainty is bad because it reduces the ability of people and corporations to plan for the future. It's hard to estimate your ROI if the tax laws that govern your investment change every year.
Change is bad in general because every time the tax law changes, your nation experiences a sudden loss of human capital: all the understanding of how the old law becomes useless, and people have to spend valuable hours learning to understand the new law. This is often time that could have been better spent doing new deals, or regrouting the bathtub. Mold doesn't take care of itself, you know.
I could quibble with the mold thing, as it seems to be taking care of itself quite nicely in the coffee cup I forgot behind my desk during tax season.
Ms. McArdle then points out how the candidates have banded together to violate all of these rules. It's short, and worth reading in full.
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