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Friday, November 16, 2018

Fighting Over a Tax Refund 

Another Hot Bench episode provides an important lesson for people who live together, have children together, or do both, without being married. These television court shows continue to be a generous supplier of material for this blog. Some of the episodes that have contributed to MauledAgain include Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, and Be Careful When Selecting and Dealing with a Tax Return Preparer.

In Episode 56 of season 5 of Hot Bench – this is the best link I can find – the plaintiff sued the father of her children, because she claimed that they had an agreement for him to give her one half of his income tax refund each time he received an income tax refund. The parties had been together for five years, had two children, and until they broke up, the defendant was the source of income for the family. He claimed the two children as dependents on his tax return, and for the year in question received a $10,000 refund. After they broke up, the plaintiff obtained a job.

The defendant denied that the alleged agreement existed. The plaintiff testified that every year since their first child was born the defendant gave the plaintiff $1300 of his tax refund if he received a refund. The defendant agreed with that assertion. The plaintiff admitted that she did not know how much of a refund the defendant received each year. The defendant explained that the $10,000 refund was extraordinary, and that in the past when there was a refund it was usually $3000 to $4000, and that he gave plaintiff a random portion each year. The plaintiff agreed. The plaintiff testified that the largest portion of a tax refund that she ever received from defendant was $1,500.

When asked by one of the judges, the parties admitted that they had not been to family court with respect to child support and other financial issues.

The plaintiff agreed that the agreement did not apply after they broke up, but that the defendant received the $10,000 refund before they broke up. The parties agreed that the defendant had been paying child support regularly, and that one child was receiving SSI because of a disability. The plaintiff then argued that the defendant owed her $1,300 but that he did not pay her, because for some unexplained reason, some money of the defendant had been garnished. It was unclear whether the $1,300 was a different amount, or a change in the plaintiff’s position with respect to how much she claimed the defendant owed her.

During deliberations, one judge pointed out that once they broke up and the plaintiff started working, the agreement made no sense, because the plaintiff possibly could claim at least one of the children as a defendant. The judges agreed that the defendant had no legal obligation to pay the plaintiff, but decided that based on the prior course of dealing between the parties, the defendant should give $1,300 to the plaintiff. The judges told the parties to get legal advice, go to family court, and resolve their financial issues before they encountered more points of contention.

The lesson to be learned from this case is important, and should be obvious though unfortunately it is not. When making financial agreements with someone, put it in writing. When the agreement is between individuals who are not married, it is even more important that the agreement be put in writing because there is no recourse to state law applicable to married couples to provide remedies. Of course, even if the parties are married, it makes sense to enter into agreements to reduce or eliminate the disputes that can arise even though state law might apply. State law might not apply and if it does, it might not provide an answer that the parties would have preferred.

An agreement of the sort that the plaintiff claimed existed could provide additional parameters, such as the computation of the portion of the refund to be transferred, outcomes if no refund existed, the outcome if additional tax was due, the outcome if the amount to be transferred is a fixed amount that exceeds the refund, the date on which the payment is due, the consequences of failing to make the payment, and similar concerns. Not only does an agreement provide a memorial of the terms, in the event that one or both parties forgets or if they disagree, but also to encourage the parties to think about the terms of the agreement in advance rather than after the relationship falls apart.

Wednesday, November 14, 2018

Oregon Voters Stop Attempt to Protect Business Tax Breaks 

Reader Morris directed my attention to an election report on the outcome of an Oregon ballot initiative that would have subjected changes in tax exemptions, credits, deductions, and fees to the same three-fifths legislative majority requirement that applies to tax rate increases. The initiative was proposed after Oregon’s Supreme Court held that the three-fifths requirement did not apply to the legislature’s elimination of tax exemptions and tax rebates. That decision is consistent with how most other states apply supermajority tax increase requirements.

Proponents of the ballot initiative feared that the legislature would use the decision as justification for increasing revenue and spending. Opponents pointed out that the initiative was intended to protect 367 tax breaks that cost the state more than $12 billion and that primarily benefit businesses. Fingers were pointed at real estate agents, who think that the state’s mortgage interest deduction is at risk.

When Oregon voters went to the polls, 65 percent of them voted against the initiative. That wasn’t quite a supermajority of voters, but it was much more than enough to defeat the initiative.

Monday, November 12, 2018

Election Outcomes and Taxes 

So what’s in the future when it comes to taxes at the federal level? Four points are made in this recent post-election article.

The first point is simple. “Because Democrats will control the schedule [in the House], GOP efforts to . . . broadly cut taxes anew won't see the light of day.” I think that is a safe, and easy, prediction, unless Trump is being honest about his wish to cut taxes on the middle class and his having an open mind to rolling back some of the 2017 tax cuts for wealthy individuals and large corporations and is able to persuade Senate Republicans to go along. All things considered, it is unlikely Senate Republicans, and their financial backers, will let that happen.

The second point is simple. “Democrats . . . could propose . . . requiring presidential and vice presidential candidates to release tax returns.” Legislation of that sort probably would pass the House, but, again, it is not difficult to envision Senate Republicans blocking it.

The third point is connected to the first point. “[Democrats] also want to upgrade roads, schools, mass transit and communication systems. . . . The big dispute is over how to finance the mammoth investment. . . . How to pay for their initiatives? Some Democrats say privately that one possibility is erasing reductions that last year's GOP-written, $1.5 trillion tax cut bestowed on wealthy Americans.” It is difficult to imagine Senate Republicans, and their wealthy financial backers, letting that happen.

The fourth point is related to the first and third points. “Another possibility [for financing infrastructure improvements] is raising the 18.4 cents per gallon federal gasoline tax, last boosted in the 1990s, by up to 1 percent annually.” Perhaps if they call it a user fee they might find a way around the mindless “no tax increases ever no matter what” position of the anti-tax crew. There is a chance that intelligence will prevail over emotion and some sort of adjustment to the tax to reflect inflation will be made, but I hesitate to call it anything more than a chance.

With a divided Congress, it is unlikely much of anything will be accomplished in the federal tax world. It is likely, however, that sparks will fly when it comes time to pass a budget. It would not be going out on a limb to predict that government shutdowns and stalemates with respect to federal budget decision are likely.

Friday, November 09, 2018

Be Careful When Selecting and Dealing with a Tax Return Preparer 

Those television court shows continue to provide material for this blog. Some examples can be found in previous posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, and Yet Another Easy Tax Issue for Judge Judy.

This time it’s a Hot Bench episode, for which I cannot find an online link. The plaintiff and defendant opened a joint bank account, with the plaintiff as the primary owner and the defendant as the secondary owner. Sometime thereafter, the plaintiff was incarcerated. When he was released from prison, he tried to open a bank account and become a customer of a bank. The bank refused to let him open the account, because a credit check revealed that the bank had a claim against the plaintiff. It wasn’t clear why the bank did not accept the plaintiff’s money and then seize it in satisfaction of the claim. The facts are unclear and there probably are banking law nuances of which I am not aware.

So what happened? While the plaintiff was in prison, the defendant went to a tax return preparer to have her tax return prepared. The return was prepared, a refund was computed, and the preparer arranged for the IRS to deposit the refund in the preparer’s account. The preparer then wrote and delivered a check to the defendant. The defendant cashed the check, and the bank did not hold the check and delay handing over the cash until the check cleared. Of course, the check bounced because there was no money in the preparer’s account. The bank started a process to get the money back from the defendant. The defendant testified that she tried to remove the plaintiff from the account while he was in prison, but the bank would not do so because it required the plaintiff to appear in person. The defendant also testified that she tried to find the preparer, but was unsuccessful because all she had was the preparer’s name.

The plaintiff sued the defendant, seeking damages on the basis that by depositing a bad check into the joint account, she made it impossible for him to open a bank account and move forward with his life financially. The court dismissed the plaintiff’s claim because it was not yet ripe. The court explained that the case was not ripe because no one had, as of yet, sued the plaintiff, recovered money from the plaintiff, or otherwise caused the plaintiff to be out-of-pocket incurring damages. The court also explained that the plaintiff had not provided sufficient proof of economic damage.

What struck me about the case were two questions about the defendant’s decisions with respect to the tax preparer. First, why go to a tax return preparer and not obtain not only the preparer’s name, but also the preparer’s address, telephone number, email address, web site link, if any, and a business card? A preparer who cannot provide that information is not a preparer who ought to be given someone’s business. Second, why permit the preparer to have the refund deposited into the preparer’s account instead of having the refund sent directly to the taxpayer? It simply makes no sense. The defendant was not asked these questions, probably because the answers did not bear directly on the issue in the case.

This case provides lessons to be learned by anyone who retains a tax return preparer. Get recommendations from friends and relatives who are trusted. Get more than the preparer’s name. Don’t let the preparer direct a refund into the preparer’s account. Be careful with joint bank accounts, and learn about the advantages, disadvantages, and risks of using them. Tax season might be a few months away, but it’s not too soon to begin thinking about who to use as a preparer in February, March, and April of next year.

Wednesday, November 07, 2018

Doing the Same Tax Thing Time and Again With the Same Adverse Outcome 

One definition of insanity that circulates through society is the notion that doing the same thing over and over again and expecting a different result. People who disagree will point to a child shooting free throws in a basketball game who misses time and again and then hits one. The problem with that objection to the definition is that it does not take into account adjustments made by the child in shooting the ball, which is a natural reaction to having failed. If the child insisted that there was no need to adjust because all of the previous shots had fallen through the net, coaches and parents, and probably teammates, would become extremely concerned about the child’s eyesight or mental skills.

Last week, a meme popped up on my facebook feed. It pointed out that
Stock market is where it was a year ago. Wages are stagnant. National debt is out of control. Interest rates rising. Housing sales down. All this after huge tax cuts for corporations and billionaires. How much longer until Republicans learn that trickle down economics don’t work.”
I could not resist. I replied with a fairly short, for me, response:
They've had multiple opportunities to learn, considering that they have done this time and again with the same results. They know but don't care that trickle-down supply-side economics does not work, they aren't trying to help the middle class and the poor, the term is just a slogan to dupe Americans into voting for the oligarchs who want to own the world and relegate 99.9 percent to the status of, at best, serfs.
And before those who think my reaction is too extreme, Republicans, perhaps confident that gerrymandering and vote suppression will continue to leave a minority party running a nation the majority of whose voters don’t approve of their policies, have announced that they intend to cut Social Security, Medicare, and Medicaid payments. Some even claim that their goal is to eliminate those programs. It doesn’t take rocket science to figure out what the consequences will be if those things happen. Those who profess concern for the middle class and the poor by claiming that trickle down economics works, but who also are determined to cut or eliminate programs essential to the well-being of the middle class and the poor, are becoming increasingly bold and transparent with their actual intentions, just as some others are similarly becoming bold and transparent about their feelings. The bottom line is that trickle down economics, and its corollary supply-side economic theory, has the adverse effect that its proponents want. All that has changed is that they are confident that those adversely affected don’t have the determination, will, and courage to stand up to being bullied and mistreated. How sad.

Monday, November 05, 2018

Throwing Tax Into a Welcoming Conversation 

Every now and then I remind people that tax is everywhere. I did that 13 years ago in Truly, Tax is Everywhere, 12 years ago in Attack of the Tax Form Clones, 7 years ago in Judge Judy and Tax Law Part II, and 6 years ago in Taxes as an Element in Damages, to mention but a few of the times I have made that point.

The other day I read a sports article, and to my surprise, and admittedly delight, up popped a tax tale, though not what one would expect. The article described the welcome that wide receiver Golden Tate received from Eagles fans when he was traded from Detroit to Philadelphia last week. Somehow, on his flight from Detroit to Philadelphia were Eagles fans returning to Philadelphia from attending the Eagles-Jaguars game in London, England. I say “somehow” as a one-word summary at the strange paths people must take when flying from one place to another.

Anyhow, according to the article, “On the plane, Tate took his seat next to a man who kept peering at his phone and glancing at the former Detroit Lions receiver. When the connection was made that it was, in fact, Tate sitting next to him, they started talking. The fan works for the IRS and told Tate about Philadelphia's wage tax, offering tax advice for the Eagles' road games. That's a new Welcome to Philadelphia moment.”

So many thoughts popped into my head. First, an IRS employee working in the Philadelphia area surely knows about the Philadelphia wage tax, but the IRS does not, contrary to what some people think, administer or enforce the Philadelphia wage tax. Second, should an IRS employee be giving tax advice to someone, even if the tax in question is not one administered by the IRS? Third, was the advice in the form of, “If you don’t have a good tax attorney adept with state and local taxes, they are easy to find in Philadelphia.” Fourth, did the IRS employee suggest, “When you look for a tax attorney in Philadelphia, make certain the attorney holds an LL.M. (Taxation) from Villanova University Charles Widger School of Law”? Fifth, was the IRS employee an attorney who at some point sat in one of my tax classes at Villanova? That’s not improbable, because many of my students have been avid Philadelphia Eagles fans, and kindly tolerated their colleagues who walked into class wearing jerseys of other teams, particularly those other three in the NFC East Division.

Perhaps it isn’t all that surprising that tax pops up on an airplane. I encounter tax questions not only at the school, even though I haven’t taught a tax course for two years, but also at the gym, at church, in the neighborhood, at family gatherings, on facebook, and at stores. And in many instances, the conversation starts before the other person or persons realize I know a thing or two about tax.

I say that tax is everywhere, but I wonder if tax exists in the afterlife. Eventually I’ll find out. If I can, I’ll let you know.

Friday, November 02, 2018

Tax Ballot Wording Matters 

After reading this Philadelphia Inquirer article I concluded that inattention to precise wording causes needless confusion. A bit of background is important to understanding the issue.

Last year, California enacted increases in vehicle fees and gasoline taxes in order to fund repairs to crumbling highway infrastructure. The anti-tax crowd objected, and placed on this November’s ballot a proposal, Proposition 6, which would require voter approval of any increase in vehicle fees or gasoline taxes enacted after January 1, 2017. One might think the positions of those favoring and those opposing Proposition 6 are clear. So what is the language problem?

On the ballot, Proposition 6 is titled, “ELIMINATES CERTAIN ROAD REPAIR AND TRANSPORTATION FUNDING. REQUIRES CERTAIN FUEL TAXES AND VEHICLE FEES BE APPROVED BY THE ELECTORATE. INITIATIVE CONSTITUTIONAL AMENDMENT.” Proposition 6 proponents do not like that wording, because it does not “convey quickly enough its mission,” which is the repeal of the 2017 fee and tax increases. Though there is a process for challenging ballot language, but Proposition 6 proponents did not do so. Instead, proponents published advertisements, disseminated literature, and made robocalls telling voters that there was a mistake in the Proposition 6 language on the ballot. The mailer was designed to appear as though it was an official publication of government officials. This prompted those officials to alert voters that there is no Proposition 6 ballot error. Their advertising and mailers use the words “GAS TAX REPEAL INITIATIVE.” Proponents explained that they prefer to spend money educating voters rather than paying lawyers to contest the ballot language.

Opponents of Proposition 6 have characterized the supporters’ advertising, mailers, and calls as “deceptive.” They point out that the ballot language isn’t what they most preferred, which would be “The attack on roads and bridges.” They note that even though the language of the ballot isn’t what they wanted, they are “not trying to deceive voters.” Their campaign against Proposition 6 consists of showing voters how the increased revenues would fix roads and bridges in their neighborhoods.

Polling by a nonpartisan organization shows that between January and October of this year, support for Proposition 6 fell from 47 percent to 41 percent. Proponents of the proposition attribute the change to the inclusion of the ballot title in the more recent polling. Opponents attribute the change to how their campaign against Proposition 6 is resonating among voters. It probably also helps that opponents have raised $44 million, whereas proponents of Proposition 6 have raised $5 million.

One recipient of the official-looking mailer explained his dislike for it by noting that, “I felt like they were trying to pull one over on people who want to believe voting against every tax is a good thing.” On the other hand, a supporter argued that the mailer “ is just getting the conversation started about what the phrasing actually means on the bills we're voting on. I think the layperson doesn't understand the government rhetoric. They make it as complicated as possible."

Though surely there are better ways to title the ballot measure, claiming that the title is rhetoric and that people don’t understand the language is quite an overstatement, and does not justify trying to make campaign statements appear to come from election officials. There is a process for contesting ballot language, and a decision not to follow that process might turn out not to have been wise.

What title would I have put on the ballot? Something along these lines: “REQUIRE VOTER APPROVAL OF FUEL TAXES AND VEHICLE FEES ENACTED TO REPAIR HIGHWAYS AND BRIDGES, THUS ELIMINATING EXISTING AND FUTURE ROAD REPAIR PROJECTS.” In crafting this language, I try to avoid the proponents’ favored language, which omits the impact of approval, and I try to avoid putting the funding consequence ahead of the purpose of the proposal. I am confident neither side would be happy with my language, which perhaps suggests it sits nicely in the middle.

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