Thursday, September 18, 2025
When Thera Are No Surplus Proceeds From a Tax Sale Yet Equity Shifts to the Purchaser
One situation in which this problem-solution conundrum often pops up is when a property owner fails to pay real property taxes, the taxing jurisdiction causes the property to be sold, and the property owner loses whatever equity the property owner had in the property.
Five years ago, in Who Gets Surplus Proceeds From a Tax Sale?, I explained that the Michigan Supreme Court issued a decision in a case involving the sale of a property on which the real property taxes had been unpaid. A Michigan statute permitted the taxing jurisdiction to retain any excess of the selling price of the property over the amount of unpaid taxes, interest, fees, and costs. The Michigan Supreme Court held that permitting the taxing jurisdiction to retain more than the unpaid taxes, interest, fees, and costs violated the Michigan Constitution. Michigan was one of about twelve states with that sort of statute and I noted that it remained to be seen whether other states would eliminate this practice.
Three years later, in Supreme Court Puts An End to a Bad Tax Practice, I explained that a dispute involving a similar practice in Minnesota has reached the United States Supreme Court, which held that this practice violated the Takings Clause of the United States Constitution. The Court explained that a government cannot take more from a taxpayer than what is owed. Presumably, if a taxing jurisdiction in any other state with a statute similar to those in Michigan or Minnesota retains or tries to retain the excess proceeds, it will face a challenge and it will lose that challenge. Presumably the problem was solved.
But then a year later, in It Turns Out the Supreme Court Didn’t Put An End to a Bad Tax Practice, I had to backtrack on my previous headline, “Supreme Court Puts An End to a Bad Tax Practice,” with a commentary whose headline, “It Turns Out the Supreme Court Didn’t Put An End to a Bad Tax Practice,” because states had found a way to get around the Supreme Court’s holding. In this commentary, I explained that officials in Oakland County, Michigan, seized the home of a delinquent property owner, gave that home to a private company, which sold the house, remitted the unpaid taxes to the county, and kept the excess. The property owner received nothing. When the property owner sued, the judge dismissed the case because “the government itself didn’t make a profit.” What made this situation outrageous was the explanation from the property owner’s lawyer that the private company in question was operated by the mayor and the city administrator. Apparently the company collected $10 million in selling houses in this manner. In July of this year, the Michigan Supreme Court held that what had happened violated the Michigan Constitution, in Jackson v. Southfield Neighborhood Revitalization Initiative.
Today Reader Morris alerted me to a Pennsylvania Commonwealth Court decision, , Gaynor v. Delaware County Tax Claim Bureau and CJD Group, LLC, filed earlier this year. A property owner neglected to pay real estate taxes in 2020 because the pandemic paused visits to the courthouse and paused enforcement of overdue real estate taxes. When she later tried to pay those taxes her payment, unbeknownst to her, was applied to her 2021 tax bill. Later, when notices with respect to the 2020 taxes were sent she apparently did not respond because, according to this story, her mental faculties were declining. The county then sold the property to a private company for the amount of the unpaid taxes, interest, fees, and costs. The home, worth about $247,000, was sold to the private company for $14,000, and the company acquired the $233,000 equity. The homeowner received nothing. The homeowner sued, alleging that the notice of the tax sale was insufficient or defective, that she was not offered an installment payment plan, and that the property was worth more than 15 times what was paid by the private company at the tax sale. The Common Pleas Court rejected the homeowner’s petition, and the homeowner appealed to the Commonwealth Court. On appeal, the homeowner argued “that the trial court erred by failing to find that the price for which the Property was sold was grossly inadequate in comparison to the actual sale price.” The Commonwealth Court explained that the homeowner “did not allege any sale irregularities in her Petition, nor did she present any evidence thereof at the trial court hearing,” and held that, “ Thus, assuming, arguendo, that the Property was sold for a grossly inadequate price, because there is no evidence to even suggest that there were irregularities in the tax sale that contributed to the grossly inadequate sales price, the trial court properly denied the Petition.”
The Commonwealth Court noted, in a footnote, that the Statement of Questions Involved portion of her brief, the homeowner had presented two additional issues for the court to review, specifically “(1) whether the trial court erred by failing to exercise its equitable powers to set the tax sale aside where [homeowner’s] son testified that he would be able to pay all tax arrearages; and (2) whether the trial court erred by failing to set the tax sale aside where the County Tax Claim Bureau (Bureau) had failed to give proper notice or service of the sale in accordance with the requirements of Section 602 of the Real Estate Tax Sale Law.” The Court pointed out that the only issue addressed in the Summary of Argument and Argument portions of her brief was the question of “whether the trial court erred by failing to find that the price for which the Property was sold was grossly inadequate in comparison to the actual sale price.” The court treated the failure to address in the Argument portion of the brief the two issues described in the Statement of Questions Involved portion as having been waived.
There are two ways to analyze this case, which perhaps is being appealed to the Pennsylvania Supreme Court. One is that a procedural glitch prevented the court from getting to the root of the problem and that had the issues been presented in accordance with the procedural rules it would have reached a different conclusion. The other is that even if the court considered those other two issues it would still have concluded, based on its reasoning, that so long as there were no irregularities in the sale, the sale was valid and the property owner’s equity shifted to the buyer.
The story about the homeowner’s loss of her home and her equity in it revealed that according the Channel 6 in Philadelphia, the company that purchased the homeowner’s property has purchased 62 properties since 2011. It is not the only company engaged in this practice.
Several Pennsylvania legislators have introduced a bill designed to stop these situations from happening through a change in the notice procedure. It would permit homeowners to designate an agent who would also receive the notices. This would protect homeowners who for some reason don’t receive the notices, or receive them but fail to act perhaps because their faculties are declining, are in the hospital, or dealing with some other setback. However, this does not solve the problem. The problem is that the taxing authority is permitted to sell the property for less than its fair market value. In a time when housing is scare and prices high, it is puzzling that no one showed up to acquire a $247,000 property for more than $14,000. Surely someone wanting to purchase a home similar in size, features, and location to the one in question but who could, and was willing to, pay, say, $150,000 or some similar amount would have jumped at the opportunity to make such a purchase. Why that did not happen is a question that can and should be asked of real estate agents who are representing buyers. Why not take the potential buyer, who is struggling to find a sufficiently sized yet affordable home, to these tax sale auctions?
Friday, September 05, 2025
Can Tax Reductions Encourage People to Do What They Don’t Want to Do?
Denmark’s Culture Minister commented that “he hopes the change will see more books flying off the shelves.” Though the repeal of the tax on books will cut government revenue, proponents of the repeal see it as “an investment in the country’s cultural future.”
Of course, the ability to read is not simply a matter of a nation’s cultural future. It’s a matter of life and death, because the inability to read road signs, medicine bottle labels, appliance and tool safety instructions, and a long list of other things increases the risks of traffic accidents, workshop injuries, unintentional overdoses and poisonings, and a long list of other tragedies.
Yet lowering the cost of books by repealing the tax on books will increase reading activity and book sales only if the reason youngsters are not reading from books is the impact of the tax. It is possible that someone might refrain from buying a $20 book because the tax raises the cost to $25 but I propose that the reason for the decline in reading skills lies in a different direction. And it’s an issue that extends far beyond the borders of Denmark.
The time once invested in reading is now invested in looking at and listening to screen. The decline has its origins not in the internet but in television and digital technology has merely accelerated that decline. The decline in reading isn’t a phenomenon limited to today’s youngsters. Many adults, today and even in the latter decades of the twentieth century and the first two decades of this one, read very little, especially reading for fun. The reasons include a lack of time, a problem faced by adults trying to raise children and hold down a job, but also the ease of watching or listening, especially when it is possible to watch or listen while doing various tasks.
Youngsters, who are somewhat more comfortable and certainly more adept with digital technology, are even more likely to turn to the screen unless they are required to read a book. And given that books can be read online or on a tablet or similar device, purchasing a book in “hard format” is an idea that continues to attract fewer and fewer people as the years pass.
Getting people, particularly youngsters and students, to use print books perhaps is near impossible or very difficult. Most prefer audiobooks and videos. One popular remedy, banning screens from classrooms, has a negative effect. I speak from experience. Student achievement increased as I incorporated more and more digital technology into my teaching. This included front-of-the-room screens and the administration of mini-exams requiring responses inputted through computer or phone internet connections to my laptop. The front-of-the-room screen in the classroom, in many ways, is nothing more than a modernized blackboard. It still required students to have the ability to read. As pointed out in the preceding paragraph, a person can read from something on a screen.
The reading problem isn’t the screen per se. It’s the failed use of the screen, when there is accompanying audio that simply repeats the words on the screen, or when the screen is text-free, as is the case with many video games. Worse, too often what is on the screen is too short, or uses oversimplified vocabulary, and becomes nothing more than a visual version of a misleading audio sound bite. The worst versions are the videos that contain only text and that take 10 times as much time to hear as would be required simply to read the text.
The issue ultimately isn’t the purchase and use of books, though some of us, myself included, simply enjoy holding a book to read. Yet more and more of my reading has shifted from paper books to the digital environment. The issue is finding ways to teach and encourage people, especially youngsters, to read text whether on a printed page or a screen.
So is the tax law the avenue for encouraging people to read? No. Slightly reducing the price of books impacts only the very few who choose to buy a book for $20 but not $25. Tax credits or deductions for buying books would do nothing more than open the door to wholesale fraud, to say nothing of the challenges presented when trying to administer such provisions.
Friday, August 22, 2025
Revisiting “Do IRS Agents Watch Television Court Shows?”
I did get responses. Two. I suppose the next question will be, “Do IRS agents read my blog?” Well, at least two have. Both of the respondents are retired. One simply said, “If I did, how would I know where these people live unless they post their appearance on their social media pages?” My reaction is that finding someone isn’t as difficult as one might think, and the IRS surely has ways of finding someone that isn’t as difficult as those who are simply using internet sites or social media.
The other “noted that IRS agents do watch television court shows, along with other shows, for entertainment purposes, and if they see something on the show or on social media, news, or some other source and there appears to be a potential tax violation they can refer it for further attention.” So there’s no agency-wide policy of watching television court shows, but there are procedures in place if an agent happens to notice something awry when watching television court shows (and probably other television shows, such as news reports).
So advice to people appearing on television court shows should include the same advice given to people on social media. Think before you write or speak or post. One never knows who is watching, reading, or listening.
Sunday, August 10, 2025
Ride-Share Drivers and the Mileage-Based Road Fee
Several days ago reader Morris directed my attention to an opinion piece on Freightwaves from 2021 that asked “What would a vehicle mileage tax mean for ride-share?” In examining that question the article repeats concerns that I have addressed in previous commentaries.
With respect to ride sharing, the article suggests that privacy concerns would discourage ride-share drivers from driving as much as they currently do, as the author gleans from surveys taken from ride-share drivers. The basis for this prediction, according to those drivers, is the presumed use of GPS technology used to track vehicle mileage. The concern certainly cannot be the tracking of mileage, because as I have explained more than once in previous commentaries, odometers track mileage and when vehicles are taken in for inspection the inspecting mechanic records the odometer reading. So, too, do many states when the annual vehicle registration application is submitted. Insurance companies also track the miles driven by insured drivers because it affects rate setting. The concern apparently is the ability of GPS information to provide a viewer the location that a vehicle is in or has visited over the period of time during which mileage is being computed. Yet other than when vehicles are in private garages, vehicles are out in the public and can be seen by whomever observes them. The notion of privacy makes little sense when an activity is being done in public. Of course, this presupposes GPS technology rather than odometer readings would be used to compute the mileage-based road fee. The only reason it would need to be used is to deal with states that want to impose the tax on out-of-state vehicles for which they do not receive odometer readings. As a practical matter, GPS technology already exists in modern vehicles, used, for example, for emergency services requests. So why the concern? Perhaps drivers who are charging customers for rides don’t want to leave evidence of the routes they took. Why? If the stories about taxi drivers and ride-share drivers taking customers on circuitous routes to jack up the cost are true, then perhaps those drivers might be wary of letting evidence exist of their route choices. And, of course, busy drivers don’t need to do that because they want to get passengers delivered as quickly as possible so they can pick up their next fare, which brings in more revenue due to higher initial mile charges and flat fees than would investing time racking up phantom miles for a passenger on a trip already underway. Another concern is that GPS data can reveal whether a driver is violating traffic laws such as those imposing speed limits, but frankly, I have no sympathy for those who resist technology because it impedes law breaking. As a practical matter, as increasing numbers of speed cameras and traffic light cameras are installed, focusing on GPS as a threat to traffic law breaking will becoming increasingly misdirected. So either the privacy concerns are misplaced or the result of keen awareness of the impact of technology on questionable driving and fare-charging practices.
The article also shares concerns about accessibility. It points out that older vehicles do not have built-in GPS technology or the OBD-II port that can be, and often is, used to connect the devices used to track mileage. The OBD-II port became standard in 1996, though not in diesel vehicles until 2006). How many 30-year-old non-diesel vehicles are still on the road? How many 20-year-old diesel vehicles are still on the road? There are some, but their numbers are decreasing, and by the time federal and state governments get around to replacing antiquated fuel taxes with a mileage-base road fee, which will be when highways, bridges, and tunnels are disintegrating en masse, the only non-OBD-II-port vehicles still on the road will be classics, which for the most part are driven so little that they probably are worth an exception.
The article, though, claims that the “tech also experiences problems when paired with electric, hybrid and alternative fuel vehicles,” and that “ For drivers of older models or vehicles with alternate fuel sources, that means a VMT tax isn’t feasible — their cars simply won’t fit into the system.” Though I understand the issue with respect to very old vehicles, as addressed in the preceding paragraph, I don’t understand the premise that electric, hybrid, and alternative fuel vehicles are not, or cannot be, fitted with GPS technology. In fact, to the best of my knowledge, these more recent high-tech vehicles rely heavily on GPS and internet connectivity, and have odometers – or their digital equivalents – to keep track of miles driven for a variety of purposes, including recharging or refueling.
The article expressed concerns that a mileage-based road fee “could disproportionately impact low-income drivers.” First, has anyone done computations to demonstrate that the mileage-based road fee would generate a higher cost than the amount paid at the pump for federal and state fuel taxes? Second, just as ride-share drivers factor fuel taxes into the rate they charge customers, so too they can factor in the mileage-based road fee when making that determination. The article also notes that some states are charging mileage-based road fees in addition to, rather than as replacements for, fuel taxes. That is an important observation, and one that causes me to point out that my proposal, along with most others, would REPLACE fuels taxes with the mileage-based road fee and not permit it to be an additional charge.
Next, the article notes that ride-share drivers “are routinely paid less than minimum wage.” That is, of course, something that should not be happening. Yet it isn’t caused by fuel taxes, nor would it be caused by mileage-based road fees. It is caused by the same business practice that causes wage underpayments throughout too many industries. Ride-share companies need to compensate drivers sufficiently to cover the costs encountered by the drivers and for the time they invest in driving.
Finally, the article concludes, “For the ride-share industry to survive a VMT tax, the model requires some major tweaks by policymakers. They’ll have to * * * enact variable pricing that takes into account things like a person’s income or job status.” That makes no sense. No one pulls up to a gasoline pump and selects from an assortment of fuel tax rates based on income or job status. Existing tolls reflect miles driven on the toll road and are not adjusted for the driver’s income level or job status. The solution to the income-expense dilemma faced by ride-share drivers and too many other Americans does not sit within complex “tweaks” to a fuel tax or mileage-based road fee but within the much wider inequality structure that is afflicting American society and culture.
Tuesday, July 29, 2025
Do IRS Agents Watch Television Court Shows?
When I asked that question, I did not know the answer. I still do not know the answer. Today, reader Morris pointed me in the direction of a Reality Blurb story, describing how the IRS caught up with a character on Real Housewives of New Jersey and successfully charged her with tax fraud. According to the director of IRS field operations, an IRS agent who happened to be watching the show and noticed that the character purchased furniture with $120,000 in cash.
The news that an IRS agent was watching a reality show does not answer the question of whether IRS agents watch television court shows. Perhaps it makes a bit more likely. I did find a Reddit thread, in which someone described watching a Judge Judy episode in which she claimed many IRS agents watch the show to find tax cheaters. Some of the responses suggested she said this simply for sake of drama while others pointed out that it was possible, and still another asserted that there was not enough tax dollars involved in television court show cases to make it worthwhile for IRS agents to watch the shows. So reader Morris and I aren’t the only ones who wonder if IRS agents watch television court shows looking for tax violations.
Perhaps an IRS agent, or a friend or relative of an IRS agent, is willing to share that they watch television court shows. Perhaps they watch simply to be entertained. Perhaps they watch in order to spot people and situations deserving of audits and investigations. If I get any responses, I’ll share them.
Thursday, July 17, 2025
The Mileage-Based Road Fee Is Much Better Than a Federal Fuel Tax Increase
Today, reader Morris directed my attention to a proposal by the Truckload Carriers Association for a "Gallons-Based User Fee” or GBUF. Though described as a “simple, common-sense update to the current fuel tax,” it is nothing more than an increase in the existing federal fuel tax along with an “annual registration fee for electric vehicles.” That fee would be $250 annually for electric vehicles and $100 annually for hybrid vehicles. The proposal also includes repeal of the federal 12 percent excise tax on new trucks and trailers. The proponents of GBUF make two arguments. First, they argue that the “federal fuel tax is the most efficient and cost-effective way to fund highway improvements.” Second, they argue that the GBUF “does not require a new collection system or a costly bureaucracy.” They don’t mention that they are not so subtly changing the designation of the revenue from a tax to a user fee, perhaps to make it appear new or perhaps, and more likely, to avoid accusations of supporting a tax increase, something that finds little favor these days.
The proponents make no mention of the fact that some states have already implemented the mileage-based road fee in some form, whether as a pilot program, a voluntary opt-in arrangement, or some similar plan. Though the mileage-based road fee does not require a costly bureaucracy because it would rely on existing vehicle and internet technology to calculate and impose the fee, it easily could be adapted so that states use their fee collection system to collect revenue on behalf of the federal government and remit those collections to the Treasury.
I wonder if one of the reasons the Truckload Carriers Association prefers raising the fuel tax instead of opting for a more accurate mileage-based road fee is that the road fee takes into account the weight of the vehicle, because the heavier the vehicle the more damage to the roads, bridges, and tunnels. For example, compare a 10,000 pound diesel powered box truck with an 80,000 pound diesel powered tractor trailer. The former gets between 13 to 20 miles per gallon whereas the latter gets between 6 to 8 miles per gallon. So to go the same distance of 1000 miles, the tractor-trailer would use between 125 to 167 gallons whereas the box truck would use between 50 and 77 gallons. The tractor trailer would use between 1.6 to 3.3 times as much fuel to cover that distance, and would pay between 1.6 to 3.3 times as much fuel tax. Yet the tractor trailer does far more than 1.6 to 3.3 times as much damage to the roads, bridges, and tunnels. According to the GAO’s Truck Weight and Its Effect on Highways, an 80,000 pound tractor trailer “has the same impact on an interstate highway as 9,600 automobiles,” and “a truck axle carrying 18,000 pounds is only 9 times heavier than a 2,000-pound automobile axle, it does 5,000 times more damage.” In effect, the current fuel tax system, no matter the amount of the per-gallon tax, causes lighter weight vehicles to subsidize a significant portion of the damage done by heavier weight vehicles. The mileage-based road fee, with rates set to match vehicle weights, ameliorates this funding imbalance.
Just as bad, a flat fee for electric and hybrid vehicles presupposes that those vehicles do the same damage to highway infrastructure when, in fact, the miles that each of those vehicles are driven can vary from as little as 2,000 annually to as much as 30,000 or more annually. The mileage-based road fee takes those differences into account. The flat fee does not. On top of this flaw, though the GBUF proponents claim that their proposal “does not require a new collection system or a costly bureaucracy,” it indeed would require a new federal mechanism to impose those flat fees.
In conclusion, though raising the federal fuel tax is better for preservation of federally supported highway infrastructure than doing nothing, it pales in comparison to implementing a mileage-based road fee. Fairness and efficiency weigh in favor of a permanent remediation rather than the seemingly easier but eventually ineffective band-aid of raising a 20th century tax mechanism that doesn’t function well in a 21st century world.
Wednesday, July 02, 2025
A Scheme to Hide Wages from the IRS Does Nothing But Make a Mess
This particular television court show was episode 176 of season 10 of Hot Bench, which originally aired on 19 August 2024. I could not find the actual episode online other than behind some unfamiliar pay sites.
The plaintiff and defendant worked for the same contractor. The defendant did not want to fill out a W-9 for the contractor because, as the defendant admitted, he was in arrears on child support and did not want the IRS to know he had wages that could be used to pay the child support obligations.
So the contractor, the plaintiff, and the defendant entered into an arrangement that made the plaintiff, in effect, a subcontractor. Under the arrangement, the contractor would remit to the plaintiff the wages that would have been paid to the defendant, and the plaintiff would pay that amount to the defendant. The plaintiff made the payments in cash because the defendant refused to accept a check.
The plaintiff had three other employees. Those employees filled out W-9 forms delivered to the plaintiff, and the plaintiff paid those employees with checks.
According to the plaintiff, a fourth W-9, in a name other than the defendant’s, was included with the other three W-9 forms, when the plaintiff’s tax returns were prepared by the plaintiff’s tax return preparer. The defendant denied filling out a W-9 form. When asked about this W-9 form, the plaintiff testified he had not looked at it and did not realize it had a name other than the defendant’s name. One of the judges asked the plaintiff if it was not strange that the defendant, who refused to fill out a W-9 for the contractor, would have filled out a W-9 form for the plaintiff.
The IRS and the California Franchise Tax Board sent notices to the plaintiff that taxes had not been remitted for the payments made to the defendant. The plaintiff did not have those documents to present as evidence for the explanations provided by those two agencies. The IRS and the Franchise Tax Board levied on the plaintiff’s bank account. The plaintiff sued the defendant, seeking reimbursement from the defendant.
One judge noted that the failure to bring the documents issued by the agencies made it difficult to conclude that the amounts taken were on account of the payments made to the defendant by the plaintiff. The court found the plaintiff’s explanations inadequate to justify a decision in his favor. The court also pointed out that the arrangement into which the parties entered meant that the plaintiff was coming into court with “unclean hands.” The court also noted that the plaintiff waited three years to bring the lawsuit against the defendant. During the deliberations, the judges observed that the plaintiff could have turned to the IRS and Franchise Tax Board to explain that those agencies had made an error and that he did not have an employee with the name on the W-9 form, and that he had not done so.
For these reasons, the court dismissed the plaintiff’s complaint. That conclusion was not a surprise. As I watched the episode, very early on I knew what the outcome would be, because the unclean hands doctrine was so readily apparent. The defendant could not have been more obvious in declaring a refusal to fill out a required tax form because of a desire to hide wages from the IRS. The plaintiff knew what was being planned and went along with the scheme. Unfortunately, the contractor was not in court and could not be questioned, especially the question asked by one of the judges during deliberations, which was why not simply fire an employee who refused to fill out and submit to the employer a required W-9 form.
Wednesday, June 25, 2025
Was This Convicted Tax Return Preparer Courageous or Foolish?
What got my attention this time wasn’t the fact that a tax return preparer filed fraudulent returns on behalf of clients, many of whom did not know he had claimed credits on their returns to which they were not entitled. It was the fact that after being convicted and while awaiting sentencing he continued to prepare fraudulent returns.
According to a Department of Justice press release issued yesterday, a Yeadon, Pa., tax preparer was sentenced to three years in prison, one year of supervised release, a $10,000 fine, and $12,717 in restitution, for “knowingly and willfully including false energy credits in tax forms that he prepared for paying customers.” He did this for tax years 2018 through 2020, preparing at least 146 returns “that falsely offset tax liabilities or claimed reimbursable credits for money allegedly spent on wind turbines, solar panels, or other energy improvements.” According to the Department of Justice, he did this “because he wanted to increase client refunds and client satisfaction.” These false returns “caused his clients to understate their tax liabilities by more than $700,000.” In September of 2024, the preparer “pleaded guilty to an information charging him with one count of aiding and assisting in the preparation of a false tax return, and admitted to filing the other 145 false returns, along with his own false returns for the same three tax years.” The restitution is for the taxes he evaded on his own return. His clients are responsible, unfortunately, for the understated taxes on their returns.
It wasn’t the press release that drew my attention to the case. It was this article in this morning’s Philadelphia Inquirer. It may be behind a paywall, but I’ve not been able to find any other online source for the additional information revealed in the article. According to the article, after pleading guilty, the preparer continued to prepare tax returns. Court officials and the Department of Justice were initially unaware of this development. When they discovered that the preparer continued to prepare tax returns, they figured out that he did so using his mother’s electronic filing identification number. By the time his continued tax return preparation activities were discovered he had filed more than another one thousand returns. During court proceedings, the preparer claimed he was no longer working as a preparer, and making money by doing Lyft and Uber driving and doing home health services. When the sentencing hearing was postponed because of the discovery, the preparer did not stop and filed another 70 returns using his mother’s identification number.
Though the prosecutors asked that the prepare be sentenced to 41 to 51 months in prison, the judge limited the sentence to three years. Three years is the statutory maximum for the offenses to which the preparer had pleased guilty. It is unclear whether additional chargers will be brought. I suppose it depends on whether there were fraudulent claims on the more than 1,000 additional returns he prepared and on whether prosecutors decide to pursue perjury charges for his false testimony that he had stopped preparing returns.
So is it foolishness or courage when a person continues to engage in behavior that causes the person to be indicted and convicted of – or to plead guilty to – criminal tax fraud charges? We often hear the question, “What were they thinking?” and often the answer is, “They weren’t.” But in this instance the use of the mother’s identification number suggests that the continued tax return preparation activity, together with the denial that it was underway, was not simply accidental or negligent. The Philadelphia Inquirer article notes that the preparer “has a master’s degree and kept up with annual tax-prep training.” Wondering if “master’s degree” meant an LL.M. (Taxation) or a Masters of Taxation, I checked and learned that he has an M.B.A. and not a tax degree. Yet one would think that “annual tax-prep training” would include warnings about the impropriety and illegality of claiming deductions and credits for which taxpayers are not eligible as well as the risks of getting caught and the consequences that flow from preparing and filing false returns.
Thursday, June 12, 2025
Tax Cuts for the Wealthy and Corporations: What Else is There to Say?
Monday, May 26, 2025
Memorial Day: Honoring Those Who Died for Freedom While Rejecting Those Who Fight for Anti-Freedom
So many of the articles, commentaries, broadcasts, social media postings, cartoons, and memes that address Memorial Day proclaim respect, appreciation, and gratitude for those who fought and died to protect “our freedoms.” In other words, they fought FOR freedom. They fought to DEFEND freedom. But against whom or what have they fought? Freedom needs protection and defense only if there is something that opposes freedom. There are all sorts of names for what opposes freedom, ranging from repression through authoritarianism to totalitarianism, and many hours and words have been devoted to debates over which of these words properly describe what stands in the way of freedom. But does it matter? All of these movements, ideologies, and worldviews can be lumped together under the term “anti-freedom.” Memorial Day is a day to honor those who fought against and died fighting anti-freedom.
Does it not make sense that the best way to honor those who fought and died defending freedom against anti-freedom is to follow a path that does not lead to, and does not wander through, the anti-freedom desert? Does it not make sense that following a freedom path requires those who are alive and benefitting from freedom do their part in standing up to anti-freedom when its ugly head reappears, as it has over the millennia during which humans have lived? Does it make sense to behave in the same manner as those against whom the defenders of freedom fought and sacrificed their lives in doing so? Of course not. It makes no sense to throw away all that was saved, protected, and cherished by those who fought and died, because to do so means that their lives were sacrificed in vain. Do we want them observing this nation and asking themselves, and asking us, “Why did we bother?”
Yet there are those who claim to be “freedom lovers,” many of whom join in Memorial Day tributes of one sort of another to our fallen heroes, whose behavior is frighteningly similar to that of those who posed the threats against freedom that sparked the battles and wars in which the heroes fell. How does one explain this incongruity? The answer rests in that tension between “freedom to do” and “freedom from” that I described in Freedom To Do or Freedom From or Both?. A simple example of this tension is the conflict between “freedom to do” 90 miles per hour on the highway and another person’s “freedom from” injury and death while driving. As I wrote in that post,
What makes the analysis particularly difficult on Memorial Day is a troubling tension between “freedom from” and “freedom to do.” On Memorial Day we remember and honor those who died to give this nation “freedom from” authoritarianism, dictatorship, repression, and ethnocentrism. Yet we also seem increasingly complacent when those who benefitted from the sacrifice of those we honor claim to have the “freedom to do” the very same behaviors the suppression of which was the purpose for which those we honor fought and died. It is particularly disturbing when people who profess a deep admiration for those who gave their lives to protect the nation from those enumerated evils are at the same time supporting people and policies that nurture and enlarge those same evils in this nation. What was the point of so many sacrifices to eliminate authoritarianism, dictatorship, repression, and ethnocentrism when there are people who want those same attributes to become the linchpin of this nation’s existence?And now, a year later, it isn’t just a matter of those who are “increasingly complacent” but those who are “supportive” of those whose behavior, policies, and decisions are less aligned with the freedom for which many died and more aligned with the ideologies and goals of those who wear the hat of “anti-freedom.”
I’ve written several times that freedom has its limitations, and that it comes at a price. The price is not only the sacrifice of those who fought and died protecting it, but the recognition of those who benefit from freedom that there are limits to what freedom permits someone to do. Freedom does not provide permission to be, or support, anti-freedom. By definition, freedom cannot be, cannot support, and cannot abide, anti-freedom.
Friday, May 16, 2025
Are Tax Professionals Sufficiently Social To Lower Their Dementia Risk?
Monday’s Philadelphia Inquirer brought a small item that described the results of research exploring the connection between childhood music lessons and long-term brain health. The headline caught my eye because I could relate to it. When I saw “Those clarinet lessons helped you tune up for your later years,” I had no practical choice but to keep reading. Why? When I was a child, my father taught me to play the clarinet. Or perhaps I should say that he tried to teach me. I made progress, but certainly not to the level that would open the doors to any concert hall. Part of my failure to progress competently was my resistance to what I perceived as an irrelevant instrument in the days when playing guitar – especially electric guitar – seemed to be the gateway to success in a variety of venues. My father would have nothing of rock music. * * * I, however, long ago abandoned the clarinet, though I still own several. I did not abandon my love of music, and dabble with keyboards, though quite inadequately.Note that I suggested both “Certainly more research is in order,” and “What I prefer to see is an appropriately conducted study.”
So this Philadelphia Inquirer story suggested that I might owe my father an apology. According to the report, researchers examined 70 adults with similar levels of education and fitness, and who had no symptoms of Alzheimer’s disease. The adults were give a battery of cognitive tests. Who scored the best? Those with ten or more years of musical training. Who scored the lowest? Those with no musical training. Those running the study want to do more research, to determine if the cognitive performance enhancement is caused by the music lessons or by some other factor.
The lead research tossed out an idea that I found quite plausible. “Since studying an instrument requires years of practice and learning, it may create alternate connections in the brain that could compensate for cognitive declines as we get older.” If that indeed is the case, then would not the same cognitive achievement be attained by other endeavors requiring years of practice and learning? Certainly more research is in order.
So where does tax fit in? Two questions pop into my brain. Do years of practice and learning involving tax have the same effect as years of practice and learning involving music? Do years of practice and learning involving music make a person more proficient in learning tax? When I was a student in the basic federal income tax course, the professor often referred to “music majors” as a stereotype of students he expected to struggle in the course. Yet, my years of teaching have taught me that music majors do well in tax law. Though I’ve not conducted any empirical or laboratory research, I have convinced myself that the reason rests on the number of shared characteristics between music and tax law. Both require attention to detail. Both require careful reading. Both emphasize the need to recognize and apply patterns and sequences. Both are highly structured. Both are, to some extent, mathematical. Both involve interpretation. Both require precision. Both require the learning of a new language. The only difference between music and tax law that I could find has nothing to do with the learning process. Music makes almost everyone happy. That cannot be said about tax law.
This isn’t my first foray into the connections between tax and cerebral characteristics. Not long ago, in The Tax Brain, I asked:Is there such a thing as a tax brain? Is there something to be said for the fact that most tax practitioners are proficient in semantic language processing and arithmetic calculation? Are there areas of a tax person’s brain that are larger or smaller than the typical brain, or that show higher or lower levels of activity? Are the brains of tax professionals awash with dopamine or with noradrenaline?Now, to that list of questions, I add, “Do musicians and tax professionals find themselves in the same part of the intellectual family tree?” Perhaps a more important question is this: “Do tax professionals face a lower risk of cognitive decline as they get older?” There are plenty of anecdotes that I could share. What I prefer to see is an appropriately conducted study.
Today Reader Morris referred me to that fourteen-year-old commentary and directed my attention to two studies. The first, Education, occupational complexity, and incident dementia: A COSMIC collaborative cohort study, concludes that “The meta-analytic results indicated that both education and occupational complexity were independently associated with increased dementia-free survival time, . . .” The study did not dig to the granular level of analyzing the various complex occupations to determine whether tax professional and music professionals have different outcomes with respect to dementia-free survival time, let alone the many other complex professions in which people engage. Nor did the study explore – as it was not designed to focus on – the physical and neurological impact on the brain of engaging in music or tax for long periods of time at a more than superficial level.
The second study, described in this report, looked at the connection between occupations and Alzheimer’s disease (AD). In short, “Researchers have found that the risk of death due to AD is markedly lower in taxi and ambulance drivers compared with hundreds of other occupations. And the reason could be that these drivers develop structural changes in their brains as they work.” This difference did not show up when testing for dementia other than AD. The study suggested that perhaps the reason for this outcome is that ambulance and taxi drivers need to use “real-time spatial and navigational skills” in their jobs. Yet persons in other occupations requiring these skills, such as aircraft pilots and ship captains, not only did not experience the same low incidence of AD but “had some of the highest rates of death due to AD.” Bus drivers also did not benefit but fell within the average rate of death due to AD.
The study questions, “And why aren't bus drivers, pilots, and ship captains similarly protected? The study authors suggest these other jobs involve predetermined routes with less real-time navigational demands. Thus, they may not change the hippocampus as much.” I think there is something else involved. I see a difference between ambulance and taxi drivers on the one hand and bus drivers, aircraft pilots, and ship captains on the other, and I wonder if it matters. The former interact with their passengers (consider that ambulance drivers also function as EMTs) whereas the latter don’t interact or if they do, they interact infrequently and with less depth. Other studies, such as New Studies Suggest Social Isolation Is a Risk Factor for Dementia in Older Adults, Point to Ways to Reduce Risk, and Being Social May Delay Dementia Onset by Five Years, suggest that continued social engagement tends to lower dementia risk whereas it increases in older people who are isolated and have little or no social interaction.
And that brings me back to tax and music. Musicians engage in social contact, not only with other members of a chorus, orchestra, or band, but also with audiences, fans, promoters, agents, stage hands, and the entire array of people who interact with the performers. What about tax professionals? Despite the perception that “tax geeks” sit alone immersed in reading the Internal Revenue Code as a novel (though I did do that, years ago), tax professionals interact with clients, with co-workers, with other professionals, with federal, state, and local tax collectors and auditors, with employees, and sometimes with judges. Is this social interaction of sufficient amount? Can it be measured and compared to the social interaction of musicians and persons in other occupations? Perhaps these questions will be the subject of future studies.
Friday, May 02, 2025
Who Should Teach Personal Finance?
There are many different descriptions of what college education should provide. These descriptions are not necessarily mutually exclusive. Yes, there are college programs and majors that prepare students for specific professions and jobs that cannot be performed competently with only a K-12 education, just as trade schools prepare students for careers and jobs that require more than what is learned in K-12 schools. Yes, college gives students opportunities to grow, to learn more about a wider world than what they saw while in K-12 systems. Yes, college gives students opportunities for self-discovery, for emotional and educational growth, and to develop independence, but those aspects of college can also be experienced in other life paths. Some claim that college teaches students how to think critically and solve problems, but college isn’t the only place that these skills can be learned.
What college should not be teaching, other than in a remedial context when dealing with students whose K-12 educations have been deficient, are skills and knowledge that everyone needs. Why? Those skills and knowledge need to be taught before students graduate from K-12 institutions because there is no guarantee that the life paths they choose will take them to a place where those skills and knowledge can be acquired.
Everyone needs to learn how to think critically and to solve problems. Everyone needs to learn personal finance. These are not life skills that are needed only by people who attend college. That is why these skills need to be addressed in the K-12 system. Of course, they’re not the only skills that need to be developed in the K-12 system. Though K-12 students are instructed in reading, writing, and arithmetic, and many are exposed to courses in science, foreign languages, and history, there are deficiencies. I have written many times about the need for K-12 students to learn basic principles of taxation, to study civics, to learn geography, to learn world history, and to learn how to learn. So it should be no surprise that my answer to the question heading this commentary is simple. Somewhere in the K-12 journey students need to learn about personal finance.
Though I advocate for a mandatory personal finance course (and perhaps an elective advanced personal finance course) in K-12 education, I also propose that parents not abandon the teaching of personal finance to the school system. Though some parents themselves are far from proficient when it comes to their own finances, many parents have learned, somehow, how to handle their personal finances and do so competently. There are ways of teaching children at home about budgeting, saving, taxes, interest rates, and investments without disclosing to the children details that the parents do not want to share with their children. And it’s not just personal finance that needs to be explained at home. It’s just one of many skills and pieces of knowledge that too often don’t get transmitted to youngsters at home for a variety of reasons. Though the K-12 system can provide this education in a professional manner, experiences at home can reinforce what the schools are teaching.
Though I may be wrong, I interpret the result of the survey as an acknowledgement by way too many college students that they are lacking necessary personal finance skills. Is it as many as 2 in 3? Probably not, because there surely are college students who learned these skills through other means but who are aware that their college is not teaching these skills. Perhaps they are thinking that their colleges should be teaching these skills, perhaps because they think that is where they should be taught. Or perhaps they are aware of the deficiencies in their K-12 education and think that colleges bear the responsibility for filling in the gaps left by the K-12 experience. Remedial education to fill in gaps in prior educational systems isn’t limited to undergraduate programs filling in what’s missing in their incoming students. Graduate and post-graduate programs also face the need, and may step up to fill it, when they assess the skills and knowledge of their students.
Trying to live life without personal finance skills is like trying to eat soup with a fork. It might be possible, but it’s going to take a long time, and it’s going to be messy. It’s easier to find a spoon, just as life is easier, much easier, when lived with the ability to handle one’s personal finances.
Tuesday, April 22, 2025
For Tax Law Issues (and Almost Everything Else), Do the Research and Communicate with an Expert
I have been addressing this issue almost as long as I’ve been writing this blog. My attempts to educate people began with Bush Pages Through the Tax Code?, and continued through Anyone Want to Count the Words in the Internal Revenue Code?, Tax Commercial’s False Facts Perpetuates Falsehood, How Tax Falsehoods Get Fertilized, How Difficult Is It to Count Tax Words, A Slight Improvement in the Code Length Articulation Problem, and Tax Ignorance Gone Viral, Weighing the Size of the Internal Revenue Code, Reader Weighs In on Weighing the Code, Code-Size Ignorance Knows No Boundaries, Tax Myths: Part XII: The Internal Revenue Code Fills 70,000 Pages, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN, The Infection of Ignorance Becomes a Pandemic, Getting Tax Facts Correct: Is It Really That Difficult?, Reaching New Lows With Tax Ignorance, Incorrectly Breaking Down the Internal Revenue Code, Is Tax Ignorance Eternal?, So How Long Does It Take to Read the Internal Revenue Code?, Much More Than the Internal Revenue Code, and A Tax Expert Is Just a Phone Call or Email Away.
Yet sometimes it is valuable to revisit a topic that has been dormant for a while but has resurfaced. Why? If the resurgence continues to parrot the erroneous information, people who are new to the debate can be easily misled. This is especially so if they don’t take the time to do some research and evaluate what they are reading or hearing rather than simply taking everything they hear or read at face value. Sadly, that’s a pattern of behavior that has an impact far beyond the question of the size of the Internal Revenue Code.
Fortunately, there are people who know the realities of Internal Revenue Code size and who know it is a topic I’ve often addressed. Today a reader shared with me a link to an article on The Hill, in which Tobias Burns, writing about the current disputes and machinations about and at the IRS, claims, “The U.S. has one of the most complicated sets of tax laws in the world, spanning millions of words and tens of thousands of pages, excluding myriad pages of case law.” Had he done a bit of research he would have discovered that my last commentary on the topic also involved an article in The Hill written by Joseph Chamie. In A Tax Expert Is Just a Phone Call or Email Away, I criticized Chamie for writing, among other things, that “The tax code or Title 42 of laws that the IRS enforces involves no less than 2,600 pages or well over 1 million words.” Aside from noting his erroneous reference to “tax code or Title 42 of laws,” which was subsequently fixed, I also pointed out that the assertions about the number of pages and the number of words were wrong. At least Chamie provided the sources of his information, namely Vox and the Tax Foundation, though both sources were similarly at best exaggerated and at worst deliberately misleading. The Burns article does not provide any citations or other indications of where he obtained his information. Needless to say, what he writes in terms of pages and words is wrong.
As the title of my previous post, A Tax Expert Is Just a Phone Call or Email Away, it’s rather easy to get to the reality of Internal Revenue Code size. As I wrote in that previous post, “There are tax professionals who could have steered him to an article such as Andrew Grossman’s 2014 explanation in Slate, or goodness, to my ongoing thread addressing the issue.” Failure to do research and to check in with experts, I continued, “increases the circulation of ambiguous, inarticulate, and misleading information about tax law. I wish he had called or emailed someone who understands the scope of the Internal Revenue Code and tax law.” The same can be said about the need for research and checking in with experts in almost every other area of life.
Thursday, April 17, 2025
Deciding Who Pays Taxes and If Businesses Should Pay Taxes
Tom suggests that “If, in an ideal world, we had a zero tax rate on business income, as a consumer you would pay lower prices, as an employee you would earn more, and as an investor you would enjoy higher returns. Sounds great, doesn’t it? Except you’d also be paying higher taxes on your higher income and higher investment returns.” That’s true. He then adds, “But there would still be a net gain because of economic efficiencies gained through reduced compliance costs.” It is on this point that I want to comment about the incidence of taxes if business were not taxed.
I can best illustrate my point by posing a simple hypothetical. Suppose a taxing jurisdiction raises its revenue through a real property tax (though admittedly that’s not the ideal form of revenue generation but it works for purposes of the illustration). The jurisdiction has a 1,000 adult taxpaying citizens and two businesses. The value of Business One’s real property is $15,000,000. The value of Business Two’s real property is $10,000,000. Each of half of the citizens own real property worth $100,000. Each of the other half owns real property worth $50,000. For simplicity sake, I will assume all citizens are unmarried. Likewise, I will assume that all of the businesses’ owners, customers, and employees are citizens of the jurisdiction.
The jurisdiction provides one service, which is fire protection and fire fighting. All other services are provided by the larger jurisdiction, such as a state or county, in which the illustrative jurisdiction is situated. The cost of this fire protection and fighting service is $3,000,000.
The first alternative is based on the premise that only individuals pay taxes. Thus, the $300,000 is imposed on the real-property-owning citizens as follows. There is $75,000,000 of real property owned by the citizens (500 citizens x $100,000 plus 500 citizens x $50,000 [$50,000,000 plus $25,000,000). To raise $3,000,000, the real property tax rate needs to be 4 percent. So each property owner with a property worth $100,000 pays $4,000 real property tax, and each property owner with a property worth $50,000 pays $2,000 real property tax.
The second alternative includes the two businesses in the computation. In this instance, the taxable real property value includes both the $75,000,000 of real property owned by the individual citizens and the $25,000,000 of real property owned by the two businesses, for a total of $100,000,000. Now the real property rate drops to 3 percent. So each property owner with a property worth $100,000 pays $3,000 real property tax, each property owner with a property worth $50,000 pays $1,5000 real property tax, Business One pays $450,000, and Business Two pays $300,000. The two businesses can pass the taxes on to their owners, customers, and employees.
Is there a difference in what is called the incidence of the tax? Yes. Consider citizen A and citizen B, each owning a $100,000 property. Citizen A buys twice as much product from the two businesses as does citizen B. Under the first alternative, the two citizens bear the same burden of the tax, but under the second alternative citizen A bears a higher burden; the exact difference depends on how much of the real property tax paid by the businesses is passed on to customers rather than owners or employees. Or consider citizen C and citizen D, each owning a $100,000 property. Citizen C is employed by one of the businesses. Citizen D is retired. Under the first alternative, the two citizens bear the same burden of the tax, but under the second alternative citizen C bears a higher burden; the exact difference depends on what citizen C’s employer decides to do with respect to employee compensation.
The point is that the service for which the jurisdiction charges a tax has value to the businesses that benefits customers, owners, and employees in a proportion that is different from the proportion of real property owned by individuals. The same point can be made for other types of taxes used by the jurisdiction to fund the fire department but the computations are much more complicated.
The underlying problem is that the jurisdiction chooses to fund the fire department through taxes. Would it not be much better to fund the fire department through user fees based on the value of the protected properties. Of course, user fees are passed along to customers, owners, and employees. Does that or should that raise the same concerns about taxes that are passed along? No. Businesses pay other costs, such as utilities, insurance, security, and similar services. The costs of those services are passed along to customers, owners, and employees. They are the ones who should bear the burden of those costs.
Though not everything that taxpayers receive in exchange for paying taxes can be converted into a user fee, if user fees are adopted for everything that can be financed by a user fee, then the amount of taxes paid by businesses that are passed along to customers, owners, and shareholders is reduced because businesses would be paying fewer taxes and more user fees.
What about people who cannot afford to pay user fees? Presumably those people also face challenges paying taxes. Dealing with that problem requires examining a wider set of policies than simply taxation. It requires analysis of compensation issues, minimum wage amounts, the allocation of health care costs, and poverty reduction efforts, which in turn involves analysis of education opportunities, identification, prevention, and cure of mental health problems, elimination of domestic violence, and crime deterrence.
Incidentally, I chose fire protection and fire fighting services for a reason. Some might argue that it’s not the best example because many jurisdictions rely on volunteers and voluntary contributions to fund raising campaigns. Those days are rapidly passing into history. There is a nationwide crisis, as the number of volunteers decrease significantly, because deaths and retirements exceed new additions. The costs of equipment and training continue to rise, so many jurisdictions are facing the prospect of needing to fund their fire departments. This provides an opportunity to consider enacting user fees rather than taxes.
