MauledAgain

On Memorial Day ten years ago, in Free, Freedom, Fees, and Taxes, I examined the extent to which Americans understand the meaning of the oft-heard and oft-written sentiment that those we are honoring today served to protect the freedom of the nation. I wrote:

Americans surely understand the word “free,” for it shows up frequently in the phrase “free market” and in the slogan “free to do what I want.” Yet when asked to pay for freedom, too many Americans balk, even when the cost facing them is far less than their time, their physical well-being, and their life. The notion that freedom is free is becoming ever more omnipresent in the culture.

I focused on a New Jersey Sea Grant Consortium contest in which beaches that did not charge a user fee emerged as the winner, even as other reports explained that even beach communities charging a fee were struggling to provide the services demanded by visitors, perhaps in part because the fees were nominal. The towns with free beaches were facing even steeper financial challenges. I suggested that these towns charge fees, even though officials worry about the risk of visitors not returning if fees are imposed but also threatening to stay away if services are diminished in quantity or quality. These same officials are aware that most visitors don’t care about the fiscal woes of the town they are visiting, and that their only interest is in having fun. The notion of “let’s have fun but let someone else pay for the things we get for free” is pernicious. I then shared these observations:

In order for a person to have something for free, someone else must pay. * * *

The question of who pays the bills to use a free beach would be irrelevant but for the fact that this nation exists, has beaches, and has a citizenry that is free to go to the beach. In some countries, people aren’t free even to travel outside their home village, let alone jump in a car, train, or plane to head for some resort. There are people who paid for that freedom with something far more than suitcases full of cash, namely, with their lives, and they deserve recognition and thanks on this Memorial Day. Paying taxes or beach fees pales in comparison to paying the price that has been paid by the veterans whom we cannot thank in person. The best we can do is to honor their memory. And the best way to do that is to respect freedom and to acknowledge that freedom is not free.

Though in that essay I centered my attention on the fiscal aspect of freedom, it is important to understand that the cost of freedom is not only the lives of those who have fought to defend it and the taxes and fees paid by those who enjoy it, but also other costs, costs too often ignored or at least noted without any reference to the impact on freedom.

Consider those who think that freedom means “free to do what I want.” This is the perception often heard from those making the transition from childhood to maturity, a transition that unfortunately does not happen for everyone. When someone making that proclamation is asked to describe what happens when encountering someone who makes the same proclamation but who wants to do something that interferes with the first person’s desires, the back-and-forth eventually results in what can best be described as a philosophy of “I am free to do what I want, and that means I am free to prevent others from doing what they want.” It is the essence of selfishness, self-centeredness, and immaturity. And it has been increasingly going viral.

Consider two examples. The person who claims that they are free to drive at whatever speed they select, regardless of speed limits, can end up imposing the cost of that “freedom” on the people they kill and injure when they learn, too late, that there are reasons a person should not, and cannot, drive at whatever speed they select at any time, in any place, and under any conditions. The person who claims that they are free to go maskless and unvaccinated can end up imposing the cost of that “freedom” on the people they sicken and even kill who are unable to be vaccinated or wear masks. It is no comfort that the person claiming the right to be free might also end up paying the price of injury, sickness, or death.

Too often, those who claim that this unregulated “freedom” is sacrosanct point to the arrival of Puritans in what is now Massachusetts. They are idolized as seekers of freedom, trying to escape religious and political persecution. Yet when they arrived in the Massachusetts Bay Colony, they immediately started acting in the same manner as had their tormenters, in turn suppressing those whose religious beliefs or political positions conflicted with those set down by the Puritans. The contrast with Pennsylvania, also settled by victims of religious persecution, but where those of diverse origins and religions were welcomed, is startling. I didn’t learn this in school because it isn’t taught in this manner, nor is this lesson noted. I learned this when I did the research to write the biography of Thomas Maule of Salem, reading not only his works and those of others, both in his day and thereafter, but also studying the social and cultural environment in which his fellow citizens, of a different religious persuasion, acquitted him of the seditious libel charges brought by Puritan authorities who resented being tagged as hypocrites. And they truly were. Seem familiar?

The question at the moment is what sort of “freedom” will this nation embrace? To ignore this question is to dishonor those who fought and died for freedom, because answering the question incorrectly makes the price they paid a price paid in vain. Will the model be the “freedom” to escape torment and persecution only to torment and persecute others? Or will the model be the “freedom” to welcome those with different perspectives while refusing to adopt the methods of those from whom freedom was sought?

Indeed, freedom is not free. It comes with a cost. The cost is more than monetary. The cost can be the reduction of speed, the stopping at a red light or stop sign, the obedience to the yield sign, the wearing of a mask, the ceasing of the 1 a.m. fireworks, the toning down of the party noise at 2 a.m., the picking up of the pet’s poop, the use of a trash or recycling container rather than the gutter when disposing of trash, the extinguishing of the cigarette when in a closed space or close to others, the use of words rather than weapons when in a disagreement, telling the truth, and learning to think critically.

Freedom is not free. It disappears when the cost, whether in lives, taxes, or proper behavior, no longer is paid. Memorial Day means little if the freedom for which the fallen fought is disregarded, abused, or limited to fewer than everyone. The cost of freedom is much more than taxes.

In its American Families Plan Tax Compliance Agenda report, the Department of Treasury told that world that during calendar year 2018, more than 4.2 million partnership returns were filed, but only 140 were audited by the IRS. Yes, 140 out of 4,200,000.

How did this low audit rate happen? The report tells us that over the last decade, “the IRS budget fell by about 20%, leading to a sustained decline in its workforce particularly among specialized auditors who conduct examinations of high-income and global high net worth individuals and complex structures, like partnerships, multi-tier pass-through entities, and multinational corporations.”

Why is this low audit rate a problem? As the report explains, and as more than a few tax professionals understand, and as some other people have learned, “noncompliance has been exacerbated by enhanced opportunities to shield income from tax liability, and even from audits. These opportunities are particularly available for those in the top end of the income distribution who can avoid taxes through sophisticated strategies such as offshoring, creating complex partnership structures, or moving taxable assets into the crypto economy.”

Why is auditing partnership difficult? Again, the report explains, during the last decade, “there has been a rise in complex business structures, such as partnerships, which also require significant efforts by IRS agents to obtain a complete understanding of interrelated business activities. Partnership income as a share of total income grew from less than 5% to more than 35% since 1990. * * * Examining these returns is resource-intensive for the IRS because many partnerships use tiered organizational structures where multiple levels of domestic and sometimes foreign business entities combine to obscure the ultimate beneficiaries of the business operations. Some recent research suggests that 30% of partnership income cannot unambiguously be traced to the ultimate owner.”

Why does auditing partnerships require more resources? In addition to the need to find, hire, and pay people with the ability to dig through the partnership manipulation in which many wealthy individuals engage, audit for partnerships “average around 333 hours per return. In contrast, routine field audits of less complex taxpayers average approximately 40 hours per return.”

What is the solution for this problem? The report concludes that the answer is to “[p]rovide the IRS the resources it needs to address sophisticated tax evasion,” to do things such as “modernizing information technology, improving data analytic approaches, and hiring and training agents dedicated to complex enforcement activities.”

It won’t be easy getting the IRS up to speed when it comes to auditing partnerships. I taught partnership taxation for almost 40 years. I taught more than 60 semesters of Partnership Taxation in Villanova’s Graduate Tax Program. I taught partnership taxation to J.D. students, in watered-down form, both in a Partnership Law and Taxation course and then in an Introduction to Taxation of Business Entities course. I have yet to meet a student who has not characterized these courses as the most difficult courses in their respective programs. Partnership taxation is so complex that it makes other areas of tax law seem simple in comparison, and as anyone familiar with taxation knows, those other courses are far from simple. The complexity of partnership taxation arises from the failure of the Congress to enact a complete entity approach or an aggregate approach because it chose to compromise and cobbled together a hybrid approach that creates the need for complicated provisions such as basis adjustments, “hot asset” rules, contributed property allocation rules, and special allocation provisions. These interconnected highly detailed cobwebs of almost incomprehensible provisions offer a maze which the engineers of tax avoidance schemes can manipulate to their benefit. On top of that, taxpayers who want to comply too easily make errors, not because they are trying to avoid tax, but because they and their tax return preparers understandably stumble and fall when they try to comply with the complicated mess that is partnership taxation.

It will be difficult for the IRS to find enough tax professionals willing to turn aside from highly compensated tax planning positions in the private sector to accept low government compensation jobs auditing the tax returns generated by those private sector planners. Partnership tax law complexity benefits the wealthy, generates significant costs for what I call “run of the mill” small partnerships, and harms taxpayers generally by contributing substantially to the tax gap.

Though hiring and training, or trying to hire and train, more partnership tax auditors is a worthy goal, in and of itself at best it will make a small dent in the problem. The solution lies with the Congress, frightening a thought as that is. Partnership taxation needs to be simplified. Publicly, almost everyone agrees, and privately, very few are willing to object while admitting that they and their client benefit from the complexity. Many years ago, before the exponential growth in the use of partnerships, I predicted the problem and proposed a solution. I did this at an ABA Tax Section meeting. The reaction was overwhelmingly negative, which surprised me because the same people claiming to dislike the complexity turned out to be even more disapproving of the solution. They knew their clients would object. And that is what will happen if Congress attempts to fix the problem, because those who benefit from the existence of the problem are the same people with the funds to ensure that the Congress serves their own needs rather than the needs of taxpayers generally.

The solution I proposed years ago was to treat partnerships as S corporations. Now, I think a better solution is to tax partnerships as entities, and to let the partners divide up the tax liability among themselves however they wish, so long as the tax is paid by the partnership. This is a topic for a future post, eventually.

About a year ago, in How Not to Write Tax Break Statutes, I described a decision by the Pennsylvania Commonwealth Court in Dechert LLP v. Pennsylvania Department of Community and Economic Development. The court held that the Pennsylvania statute providing tax beaks to businesses in Keystone Opportunity Zones (KOZs), Keystone Opportunity Expansion Zones (KOEZs) and Keystone Opportunity Improvement Zones (KOIZs) – all of which can be called Keystone Zones (KZs) – did not prohibit a law firm from getting KZ tax breaks while in one KZ and then obtaining a new set of KZ tax breaks by moving into another KZ. Although the agency that administers the KZ programs denied the law firm’s request because the program “is designed to encourage businesses to locate in economically distressed communities; to become economic anchors of the communities; and to re-enter the state and local tax rolls at the end of the KOZ term,” the court granted the law firm’s request for a declaration that it would not lose tax breaks by relocating into a new KZ.

The statute does not address the treatment of a business that relocates from one KZ to another. Though the agency administering the program argued that “zone hopping” would “frustrate the purpose of the statute,” the Court concluded that because the statute did not address movement from one KZ to another, nothing in the statute prohibited the law firm from obtaining the tax breaks available by moving into the new KZ. The Court noted that there is no prohibition on zone hopping in the statute. So it granted summary relief to the law firm and entered the declaratory judgment that it had sought. As I had predicted when I evaluated the possibility of an appeal and reversal, specifically, that “it is difficult to envision the Supreme Court reversing the decision,” the Pennsylvania Supreme Court, in a one-sentence order issued last week, affirmed the decision of the Commonwealth Court.

In its 2020 opinion, the Commonwealth Court pointed out that fixing what the agency considers to be a problem requires a legislative remedy. Put another way, the problem exists because the legislature failed to consider and address the question one way or the other. Apparently no one asked, “What happens if a taxpayer or business stays in a zone until it expires and then moves to another zone that is active? Should the taxpayer or business get another batch of tax breaks?” Answering the question would then cause the legislators and their staffs to realize another provision in the statute was necessary.

It took almost a year, but according to this Philadelphia Inquirer report, a bipartisan bill has been introduced in the Pennsylvania House of Representatives to prevent taxpayers from obtaining a second batch of KZ tax breaks if they move from an expired KZ into a new one. My guess is that the legislators waited to see if the Supreme Court would reverse the Commonwealth Court’s decision. Some legislators apparently took note of the law firm’s attorney who stated that he has “additional clients seeking the same relief.” The proposed legislation would also cut some of the KZ tax breaks. It also would deny the tax breaks to real estate investment trusts, venture capital funds, and hedge funds. The legislation odes permit zone hopping if doing so “is necessary to meet the expansion or operational needs of the business and the business anticipates a significant financial impact on the zone into which the business is relocating.” It isn’t difficult to envision lawyers and others finding ways to describe a business move as meeting that exception.

Interestingly, though the original 1999 KZ legislation was intended, as described by its legislative sponsor, to bring one-time economic relief to “bombed out” areas of the state, it was the legislature that added more and more sites to the list of places qualifying for the tax breaks, even though most of them were not in dire economic condition. Some were in much better shape. The city of Philadelphia has lost $400 million in tax revenue during the period when the KZ designation was in effect for the building in which the law firm is located and from which it has planned to move, though it is now unclear whether those plans will change because of the proposed legislation. Nor is it precisely clear how the city of Philadelphia will deal with future requests for KZ designations though it does have a list of places for which it has been authorized by City Council to seek KZ designations.

Much of this could have been avoided had the statute been drafted with a provision permitting or prohibiting zone hopping. This flaw, in failing to “think through” an idea, afflicts not only legislators but anyone drafting something. Overlooked consequences can pop up when drafting contracts, when writing law school exam answers, when giving advice, when posting on social media, or when designing and drafting computer code. It’s much easier to think things through when the solitary drafter or small drafting team has the opportunity to welcome comments from even more persons who bring different perspectives and thus might be more likely to spot the “what if” questions that need to be asked. It helps to have transparency when drafting. It helps to listen to, rather than block or shut down, those whose questions and observations can improve what is being drafted, even when the question initially seems inarticulate or dimwitted. It will be interesting to see what sort of public hearing and review process is undertaken for the proposed legislation.

On several occasions I’ve written about people who are unable or unwilling to focus on details when reacting to Biden’s tax increase proposals. For example, in Tax Lies and Misleading Tax Claims, I explained that it is foolish and dangerous to omit or ignore the qualification that the proposed increase would only apply to incomes exceeding $400,000.

In a recent letter to the editor of the New Hampshire Register, Norman Bender makes an important observation by pointing out that any increase would only apply to the income exceeding $400,000. Using his example, he apparently has encountered people with $500,000 of taxable income who think that a two percent increase in the rate would increase their tax liability by $10,000. Bender explains that a two percent increase applied to the excess of $500,000 over $400,000 would be $2,000, not $10,000. That’s a five-fold mistake and one that easily triggers a major emotional reaction. Of course, for someone with $10,000,000 of taxable income, the mistake is nowhere near five-fold. The erroneous conclusion that the increase would be $200,000 (two percent of $10,000,000) rather than $192,000 (two percent of the $9,600,000 excess of $10,000,000 over $400,0000) isn’t much of a difference.

Polls show that there isn’t much sympathy for the cries of poverty raised by someone with $10,000,000 of taxable income, who surely has more than that in actual income, when a $192,000 tax increase is proposed. There aren’t enough people in those income categories to make a dent in polling. But if they could somehow get significant numbers of other people to object, they might succeed in preserving their unwarranted previous tax cuts. How can that be done? It’s simple. Tell people that their taxes will increase without bothering to mention that those with taxable incomes equal to or under $400,000 won’t be affected. Tell people with taxable incomes exceeding $400,000 that the rate increase will apply to all of their income. Tell people with taxable incomes exceeding $400,000 that the proposed higher rate will apply to all of their income.

Why does this technique work? It works because too many people don’t understand the facts and are willing to let others do the work of analyzing the facts. They trust in those others without having checked the reliability of those others. They become susceptible to liars. They succumb to the lie because it appeals to them emotionally. When I started teaching tax a long time ago, I expected, perhaps foolishly, that after decades of doing so, in collaboration with thousands of others also teaching tax, the overall ability of the nation to understand the basic principles of tax would improve. Certainly I didn’t expect it to get worse, and certainly I did not expect that there would be people having as their goal the de-education of taxpayers and voters. Figuring out the impact of the proposed tax increase isn’t rocket science. Figuring out how to put an end to the lying apparently is, considering how successful the liars have been.

Someone reading this post’s caption probably reacts as did the spellchecker. What is a polyworker? Is it even a word? It is now. So, too, is “polywork.” An article that popped up late last week describes the formation of Polywork, described as “a new professional social network that has been created for people who do more than one type of work and cannot be defined by a single job title.”

According to the article, a study by the Polywork network “reveals that nearly half of young professionals (47 percent) consider themselves people who ‘polywork’ doing an average of five different types of work – with one in ten (11 percent) saying they currently do more than ten types of professional work at the same time.” Technically, I think “at the same time” doesn’t mean at the same moment, but during a period of time. The article gives examples by describing the activities of several people. One person “does more than five different types of professional work across multiple countries including software engineering, public speaking, writing, podcasting, investing, advising, and mentoring.” Another “has three different types of work on the go at once: producing a musical; managing his technology investments; and running a non-profit company.” This person added, “Modern working attitudes and flexible technology allows my generation to juggle a multitude of things in a way we’ve never been able to before.”

The study by the Polywork network revealed that “[t]he majority of 21 to 40 year-old professionals (81 percent) say the pandemic has changed their attitude towards work forever with 45 percent saying they would not consider doing one single type of work for life, but would choose to polywork instead. Three quarters of all young professionals (72 percent) say virtual ways of working have opened up more work possibilities in the last 12 months compared to previous years.” It also discovered that “[o]ver half of all 21 to 40 year-olds (55 percent) said an ‘exciting’ professional life is more important to them than money with 62 percent saying the opportunity to learn more skills, more quickly through different types of work is more rewarding than professional ‘security’.” Reflecting on this, the founder of the Polywork network explained, “There is a new generation of professionals who do more than one type of work both in their regular job and outside of it, and they no longer feel a single job title reflects what they do or who they are. During the pandemic people have re-evaluated what they want to do, which in turn has accelerated the trend of polywork, using technology to connect with different and varied opportunities, whatever and wherever they may be. We do not see this trend disappearing, not least because Gen Z and Millennials see a variety of work as a way to achieve a more exciting life.”

When I read the article, two thoughts entered my mind. The first was a question. Will increasing numbers of tax professionals engage in polywork? For example, will tax professionals who only prepared tax returns begin doing other tax-related activities? Will tax litigators do other things? The answer is easy. It was my second thought.

My second thought on reading the article was simple. Polywork is not new. Perhaps technology makes it easier for some people to polywork. Perhaps technology permits polyworkers to increase the number of work activities in which they are engaged. But polyworking has been with us for as long as there have been workers. Many tax return preparers also do tax planning. Many tax litigators also do tax advising. Some practicing lawyers also teach as adjunct faculty members. The list is long. By its very nature, tax involves polywork. So, too, does law. And surely those in other professions can share similar lists. I have known people in my parents’ generation, including my parents, who fit the definition of “polyworker.” It’s not a new concept. What’s new is the increasing numbers of polyworkers and the extent to which technology makes it easier to engage in multiple activities.

What made me think that polywork is not new is my own experience. There have been, and are, weeks when I can find myself teaching a class, writing a blog post, giving tax or legal advice, preparing tax returns, writing an article or book about tax, mentoring a student asking about a particular career path, doing my sexton tasks at the church, designing and programming computer assisted tax education modules, and preparing and offering a CLE program. Fear not, over the past few years I have backed away from or scaled down several of those activities. The Polywork network was “created for people who do more than one type of work and cannot be defined by a single job title.” I first encountered that challenge years ago when I had to decide what to put in the “occupation” box on the federal tax return. I learned that the box, in paper or digital form, is too small for “law professor, lawyer, author, programmer, tax return preparer, church sexton.” So I wonder, will “polyworker” now begin showing up in the occupation box on the federal tax return?

Last week, the Department of Justice announced in this press release that Charles Agee Atkins had pled guilty to “filing a false tax return and being a felon in possession of a firearm.” Atkins “controlled and operated several risk consulting businesses,” and from 2011 through 2017 he “underreported the income that he received from these businesses on his tax returns, causing a tax loss of more than $380,000 to the Internal Revenue Service.” He “also admitted that he failed to pay more than $420,000 in taxes he owed to the IRS for several previous years.” On top of that he “also pleaded guilty to being a felon in possession of a firearm.” Why was he a felon? Because in 1988 he had been convicted of tax fraud.

Curious, I dug up the appellate opinion, U.S. v. Atkins and Hack, 869 F.2d 135 (2d Cir, 1989), dealing with his previous conviction. In a jury trial, Atkins and his co-defendant were convicted of willfully making and subscribing false individual and partnership tax returns, and aiding and assisting in the filing of false individual and partnership returns. In total, Atkins was convicted on 28 tax-related counts. Atkins was the founder and principal owner of a limited partnership, one of whose activities was creating tax write-offs for investors in money market instruments, primarily United States government securities. Because the Treasury had shifted from issuing paper certificates to making entries on Federal Reserve system computers, it was possible for dealers to create artificial entries by simply putting something on their books “indicating a purchase of transactions or purchase of some volume of securities as of day one in a sale as of some later day and then have corresponding transactions with some other party that also is self-reversing in that way. And that could be done without any transactions actually having to exist or be delivered over the delivery network in the government securities market. It didn't require that treasury securities actually exist.” So at one point the limited partnership owned by Atkins had a balance sheet showing “$24 billion of assets and liabilities, with less than a $100 million of capital.” As the court explained, “Although the Groups' offering memoranda represented that the Groups intended to handle clients' investments for the primary purpose of realizing economic gains, its real purpose was to generate tax losses for investors who needed them to offset unrelated gains. Such investors were promised 4 to 1 tax write-offs based on an investment consisting of 25 percent cash and 75 percent notes.” The court noted that the government had proved beyond a reasonable doubt that Atkins, with the help of Hack and other unindicted accomplices, “created, purchased, and sold millions of dollars in fraudulent tax losses for his companies and his customers,” using rigged straddles and rigged repurchase agreements. Essentially, to avoid the risk in a straddle, which involves holding both a “long” position – a contract to buy securities for future delivery – and a “short” position – a contract to sell securities not necessarily presently owned, the limited partnership found accomplices willing to enter into artificial paper or computer transactions designed to eliminate the risk of market fluctuations. In this way, losses would be recognized in one tax year, with the offsetting gain postponed, thus, in effect artificially recognizing accelerating losses that did not happen. Similar arrangements were made with the repurchase agreements. On top of this, Atkins and Hack “backdated or caused to be backdated a large number of documents in order to increase the amount of their fraudulent claims.”

On appeal, Atkins and Hack argued that “they were deprived of due process because they did not know in advance that their conduct was unlawful.” The court dismissed this claim as bordering on the “specious” because of the “proven falsification and backdating of documents, the secret oral agreements, the lies and the concealment of facts.” It then cited a litany of cases that had made it clear what was being done was fraudulent. Several other arguments were dismissed as misplaced, affirming the same conclusions reached by the trial court.

At the time, as noted in this report, the case was called by the government “the largest tax-fraud case in U.S. history.” This report also pointed out that the clients for whom Atkins and his colleagues manufactured artificial tax losses included celebrities and public officials. They had rushed to invest in an arrangement that promised $4 in tax losses for every $1 invested. The list included Michael Landon, Andy Warhol, Sidney Poitier, Lorne Greene, Norman Lear, then Postmaster General Preston R. Tisch, and his brother Laurence A. Tisch, then head of CBS. These unfortunate taxpayers, though not charged with crimes, had to experience IRS audits and the joys of paying back taxes plus interest and penalties.

The report also noted that Atkins is “the son of former Ashland Oil Co. chairman Orin E. Atkins,” and that he “took Wall Street by storm in the early 1980s with a series of tax shelters and investment partnerships that attracted tens of millions of dollars.” With that sort of background, even aside from the previous conviction, surely it should be no surprise that the eyes of the IRS were watching closely.

Managing risk involves both minimizing risk and setting in place ameliorative mechanisms to offset the impact of the adverse consequences produced when a risk materializes. It’s risky to commit tax fraud. It’s very risky to commit tax fraud, get caught, get convicted, and then commit tax fraud again. It is very difficult to slip back under the IRS radar after being convicted of tax fraud. The best way to manage that risk is to refrain from committing tax fraud again.

When I taught the basic federal income tax course, which I stopped doing eight years ago, I did not invest much time in the cost of goods sold offset. I simply let the students understand a basic principle. If a business sells an item for $14 that it purchased for $9, there is $5 of gross income. I did not get into the computation of cost of goods sold, because it is complex, heavily arithmetic, and too detailed for a basic course. So I did not get into LIFO and FIFO, average cost, spreading the cost of shipment among multiple items, adding in indirect costs for manufactured items, and other issues.

What I never thought to mention to the students is that there is no cost of goods sold offset if no goods are sold. I figured it would and should go without saying. For example, there is no interest deduction if there is no loan on which interest is being paid or accrued.

So I found it interesting that the issue was addressed by the Tax Court. In BRC Operating Company v. Comr., T.C. Memo 2021-59, the Tax Court held that if no goods are sold there is no cost of goods sold offset. Technically, the issue was whether the economic performance requirement in section 461(h)(1) applies to, and precludes recognition of, estimated drilling costs reported by the taxpayer as cost of goods sold. To reach the case, go to the docket for the case, scroll down to item 71 and click on “Memorandum Opinion,” because the URL for the opinion is too long to include in an html URL tag.

The case involved BRC Operating Co., organized as a limited liability company in 2008, and wholly owned by another limited liability company, Bluescape Resources Co. BRC was treated as a disregarded entity. Bluescape was a partnership for federal tax purposes and used the accrual method of accounting. Bluescape purchased mineral and lease interests and planned to explore for, extract, and sell natural gas. On its partnership returns for 2008 and 2009, it treated $100 million and $60 million, respectively, as costs of goods sold, based on estimated drilling costs for exploration and extraction. Bluescape did not drill, receive drilling services from third parties, or receive drilling property during the tax years in issue. It reported no gross receipts or sales during these years attributable to the sale of natural gas.

The IRS disallowed the cost of goods sold offset, determining that Bluescape had not established that it satisfied the all events test and the economic performance requirement in section 461(h)(1). When the dispute reached the Ta Court, the IRS moved for for partial summary judgment, arguing that the undisputed facts show that economic performance under section 461(h)(1) did not occur with respect to the reported costs of goods sold during the years in issue, and, in the alternative, that the reported costs of goods sold should be disallowed because they were derived from Bluescape’s use of a method of accounting that failed to clearly reflect income. Bluescape and BRC moved for partial summary judgment, arguing that the economic performance requirement in section 461(h)(1) does not apply to the amounts claimed as costs of goods sold for the tax years in issue.

The IRS cited regulations section E.g., sec. 1.61-3(a), which provides, “[A]n amount cannot be taken into account in the computation of cost of goods sold any earlier than the taxable year in which economic performance occurs with respect to the amount[.]”). The taxpayers argued that the economic performance requirement does not apply because the regulations “extending” it to amounts included in cost of goods sold went too far. They argued that, as an offset against gross receipts to arrive at gross income, cost of goods sold is an “item of gross income” the timing of which is governed by section 451 and the corresponding regulations, and therefore the economic performance requirement in section 461 does not apply.

After the parties briefed their position, the Court scheduled a hearing on the motions to pose a basic question to the parties: Can Bluescape recognize costs of goods sold before it has any gross receipts from the sale of goods? The Court explained that before the question of whether cost of goods sold are subject to the economic performance requirement is answered, a precedent question must be resolved, namely, is there a cost of goods sold offset when there are no gross receipts to offset yet? The issue, the Court clarified, is not whether the estimated drilling costs can ever give rise to costs of goods sold but whether they can give rise to costs of goods sold for the years in issue before there are receipts to offset. The taxpayers argued that “matching” of cost of goods sold and gross receipts is not required.

After proving a history and explanation of the cost of good sold offset, the court cited previous cases for the proposition that “cost of goods sold is not allowable unless, and until, the taxpayer actually sells or disposes of goods,” and for the proposition that “taxpayers] have to capitalize an item’s cost in the year of acquisition or production and either amortize it or wait until the year the item’s sold to make the corresponding adjustment to gross income.”

So it turned out that this was not the first time a taxpayer tried to claim a cost of goods sold offset before selling anything or during a year in which nothing was sold. In keeping with the tagline for this blog, I point out that one of the cases cited by the Court involved a model train store that tried to claim cost of goods sold before it started selling to the public.

The Court explained that “Cost of goods sold does not exist in a vacuum, as a stand alone deduction in the Code, but serves as an offset against gross receipts.” The Court noted that the taxpayers had not cited, nor could it find, any cases that allowed an offset for cost of goods sold as a stand alone deduction in advance of any gross receipts. Thus, the court rejected the taxpayers’ argument that cost of goods sold need not “match” gross receipts because it could not bridge the gap in their logic. Some of the cases cited by the taxpayers in support of their position involved expenses claimed as business deductions not part of cost of goods sold or deductions for worthless inventory, neither of which was congruent with the facts of the case. Other cases cited by the taxpayers were put aside by the Court because the facts of those cases did not involve, as the taxpayers claimed, taxpayers who did not sell goods during the year.

Because of its resolution of the first argument made by the IRS, the Court did not reach its second argument that the reported costs of goods sold should be disallowed because the Bluescape used a method of inventory accounting that failed to clearly reflect income. The Court simply held that without gross receipts from the sale of goods, Bluescape may not recover its estimated drilling costs as costs of goods sold.

So if I were to ever again teach a basic federal income tax course I would include a simple statement that there is no cost of goods sold offset if there are no goods sold during the year. Because the chances of again teaching that course are extremely slim and for all intents and purposes, none, I am not planning to revise my eight-year-old teaching notes.

According to various reports, including this one, the governor of Georgia has, by executive order, suspended the collection of the state’s liquid fuel tax until Sunday, May 16. Why did he do this? The shutdown of the Colonial Pipeline thanks to a cyberattack, and other supply and demand pressures including a shortage of fuel delivery truck drivers and a surge in driving, has caused fuel prices to increase as well as fuel shortages in certain parts of the state.

Georgia’s governor explained that his actions will “probably help level the price for a little while.” The price f regular unleaded gas in the state has risen by 11 cents in one week though the suspension of the tax will drop the price of fuel by roughly 20 to 30 cents per gallon.

What will this do? One only needs to think of the words “toilet paper” to suggest the answer. Many people will conclude that filling up their vehicle tanks before Sunday is a wise thing to do. From a self-centered perspective, it surely is. And it’s not just vehicle tanks. It’s those 3 and 5 gallon cans used to supply lawn mowers, leaf blowers, and other equipment.

The governor is aware of this. According to the report, “he urged Georgians to avoid a rush to the fuel pumps.” He advised Georgians that they “don’t need to go out and fill out every five gallon tank you’ve got. Get what you need, let everybody else get what they need, get to work and do the things you need to do.” Of course, he assumes that the self-centered perspective will yield to a community-focused one. Good luck. Am I cynical? Perhaps. But it wasn’t that long ago when the mad stampedes for toilet paper, hand sanitizer, bleach, and other cleaning products made the headlines. According to this story, “panic buying and long lines” already were underway earlier this week.

How does reducing the price reduce demand? The governor explained, “We are seeing some shortages around the state, and we don’t want a run on the pumps.” Then don’t encourage a run on the pumps by lowering the price. That’s simple economics, a subject poorly understood by most Americans and especially badly understood by too many politicians. Add to this the temptation presented to residents of adjacent states, especially those living close to the Georgia border, to make tank-filling trips into Georgia because gasoline prices in that state have dropped because of the suspension of the tax. How does that help the situation for Georgia residents?

The report explained that two previous Georgia governors had either suspended the tax on fuel or halted an increase in the tax when fuel prices rose sharply for one reason or another. According to this study, only 2/3 of the tax reduction passed through to Georgia purchasers when the tax was suspended in 2005. This outcome had been predicted in an earlier study, which also identified other disadvantages to suspending the tax on fuels and offered other suggestions to deal with rising fuel prices. Interestingly, that study apparently caused every state other than Georgia not to suspend the tax in 2005, but Georgia did so and the predicted results indeed materialized.

I put this tax suspension into the category of “look, I’m doing something wonderful for you even though it isn’t what it appears to be and hopefully you won’t figure out that what it purports to do for you isn’t what it does for you and it actually can make things worse.” Of course, the cyberattack that has fueled this crisis is an example of what happens when government fails in its responsibility to protect the nation. Decades of anti-government, anti-tax, and anti-regulation sentiment fueled and funded by lobbyists for the private sector is demonstrating how inadequate the private sector can be when government is pushed aside. Distracted by debates reflecting divided opinions with respect to invented disagreements, the nation isn’t paying attention to the increasing size of the hacker fleet sitting offshore. Cutting fuel taxes not only fails to alleviate the supply problem, it also encourages more tax-cutting efforts when the last thing the nation needs is a reduction in support for defense of its people.

Ignorance is a bad thing. It is no less threatening than a biological virus. In some ways it is even more dangerous. The people it harms the most are the ones most resistant to efforts to eradicate it. I have written many times about ignorance, usually focusing on tax ignorance but also expressing my concern about ignorance generally and how it is ripping apart the threads that hold civilized society together. A probably incomplete list of my commentaries about ignorance and its dangers includes Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat, The Dangers of Ignorance, Present and Eternal, Defeating Ignorance, and Not Just in the Tax World, Tax Ignorance or Tax Deception?, The Institutionalization of Ignorance, Disinterest in Tax: Should Difficulty in Understanding Justify Ignorance?, and When It’s About Numerals, A Majority of Ignorance.

Last week, the folks at Credello released the results of a poll about taxes. The headline alone is alarming: “SURVEY: Millennials & Men Are Most Likely to Be Overconfident About Their Tax Expertise.” The article begins with these two questions: “You remember that one (or multiple) guy(s) from high school who knew everything about everything? Or at least said he did?” My high school faculty was superb in ridding that thought from our brains even before our brains formed it. We learned to learn what we didn’t know, and we learned how to learn what we didn’t but needed to know and understand. Unfortunately, it’s too easy for people to believe those who claim they have all the answers, even ones who eluded the draft but claim to know more than the generals do.

According to the poll results, “[m]any respondents claimed to know more about taxes than they actually do. Millennials were particularly overconfident as 83% of Gen Yers surveyed said they know enough or everything about taxes, but about a third of respondents scored a B or lower on a relatively simple tax literacy quiz.” Wow. The author of the Credello report points out that this is another example of the “Dunning-Kruger effect, . . . a cognitive bias that people with a lower skill level overestimate their ability, thinking they’re smarter or more capable than they really are.” I love how the author put it: “ In other words, these dummies are too dumb to identify their own incompetence. And on the flip side, their higher-skilled counterparts tend to underestimate their ability.”

Some of the tax literacy quiz responses were telling. When asked whether the taxpayer or the taxpayer’s accountant is responsible for filing errors, 42 percent put the onus on the accountant. Wrong. Asked to select which one of two statements was true, 44 percent chose the wrong answer, “You can claim a pet as a dependent,” rather than the correct response, “Even illegal activity is taxable.” Presented with a question about marginal rates, an issue I recently described in Fixing a Subhead and a Sentence That Reference Tax Brackets, 51 percent selected “You pay your marginal tax rate on all of your income” as the correct choice rather than the correct statement, “You pay the same rate as others on income up to a certain amount, then a higher rate on every dollar until the next threshold.” This ignorance, of course, is used by the ultra-wealthy and their advocates to spread fear among the 99 percent to gain support for their opposition to tax increases that would have no effect on those who are not ultra-wealthy.

So what is the solution to ignorance, no matter the subject? The answer, in two words, is quality education. When education was once found in schools, books, newspapers, radio, and television, it now percolates not only in those sources but also on internet web sites, social media platforms, and other avenues that operate without the filters available when educators are educated people. The willingness to “learn” about taxes or some other matter from what some random person or manipulated robot posts online while pushing aside what the educated experts have to say about the issue is the product of deep psychological problems. The willingness to believe what one wants to hear opens the door to the scammers and spammers, and eliminates the very freedom that is the excuse given by those who believe they are free to believe whatever they want to believe, even when it conflicts with indisputable facts.

A little more than four years ago, in Ignorance in the Face of Facts, I wrote:

A recent survey by the Public Policy Institute of California reveals how the spread of misinformation through social media has contributed to the inability of Americans to distinguish fact from fiction. The survey asked people in California to identify the largest areas of state spending. Thirty-nine percent of the respondents identified prisons and corrections as the biggest expenditure. Less than ten percent of the California budget is spent on the prisons and corrections system. Only 16 percent of the respondents correctly identified K-12 public education, which consumes almost 43 percent of the state budget, as the largest expenditure. It’s not as though the information is classified or difficult to find. So few people know the answer in part because so few people care about learning this sort of information, and in part because it’s so easy to accept as true whatever information gets pumped out of someone’s favorite source of “news.” I wonder what would happen if the survey respondents were asked the question, and then given the opportunity to research the answer. How many could take themselves to an official California state budget web site to discover the answers?

Why does it matter? Who cares? It matters because decisions are made based on the facts people think exist. For example, in California, voters are given the opportunity to approve or reject propositions that directly affect taxation and spending. Advocates of more spending for a particular area of the budget strive to convince voters that the particular area in question is underfunded. Those seeking to cut spending on particular areas try to convince voters that those areas are overfunded.

Six years ago, in The Grand Delusion: Balancing the Federal Budget Without Tax Increases, I pointed out:

A month and a half ago, the Kaiser Family Foundation released poll results revealing that 40 percent of Americans “think that foreign aid is one of the two biggest areas of spending in the federal budget.” This, of course, is totally incorrect.

Yet this piece of tax misinformation persists. How can good decisions be made when reality is different from perception? Imagine what happens if surgeons, electricians, auto mechanics, and engineers made decisions based on misinformation rather than on actual facts. Just imagine.

Yes, just imagine. Is it any wonder that more and more unfortunate outcomes are afflicting the nation and the world? The price that is paid for ignorance is steep. Unfortunately, the price paid for one person’s ignorance is not necessarily paid by that person and too often is paid by many others. Ignorance can be eradicated. So when those opposed to what eradicates ignorance, that is, quality education, fight increases in education funding and push for decreases, when they advocate the establishment of and support for institutions of miseducation, when they fund and support media and web platform outlets that spew falsehoods, everyone else should ask, “Why are they doing this?” The answer is simple. They benefit from ignorance and miseducation, they know and understand the consequences of a fully educated national and world population. That is why they foster anti-intellectualism, because they cannot risk too many people being sufficiently educated to also know and understand the consequences of pervasive quality education. They prefer ignorance, and that is no less harmful than preferring the incubation and spread of a virus.

This recent story out of Long Island, New York is an example of how much work still needs to be done to make certain tax systems function properly. The story begins with a 94-year-old woman who had been paying $2,694 annually in local real property taxes on her home. This amount reflected two exemptions, one for her age and one for her status as a veteran. But then someone in the country tax office marked her as dead, even though she wasn’t and isn’t dead. The erroneous death tag cancelled the two exemptions, and the annual real property tax on her home jumped from $2,694 to $7,921. The mortgage company simply paid the increased amount, and debited the funds from the woman’s account.

When she learned that the monthly payments had been significantly increased because of the tax increase, the taxpayer had her daughter call the county’s Department of Assessment. That is when she and her daughter learned that someone had decided the taxpayer was dead. Someone in that Department’s office admitted that an error had been made, and told the taxpayer that the process for fixing it needed would take more than a year. In the meantime, the taxpayer overpaid the taxes by roughly $5,000 to $6,000, amounts beyond the taxpayer’s ability to pay. Apparently she had some financial assistance from her daughter.

The taxpayer and her daughter contacted county administration officials, including the county executive, but ran into a brick wall. They then turned to a county legislator for help, but he also could not get answers. So the legislator called a press conference to let people know what was happening.

A spokesperson for the county claimed that “corrections were made right away, along with a petition that will be approved by the legislature on Monday to refund the taxpayer.” He reported that a refund check should be mailed to the taxpayer by May 10, and noted, “it's unfortunate that an elderly woman was used as a political prop by politicians when a solution has already been found.”

No, what’s unfortunate is that someone marked the taxpayer as dead, no verification seems to have been made, no red flag popped up on a supervisor’s computer, no cross-checking with the state’s department of vital statistics to confirm the filing of a death certificate was processed, no rapid correction was made, no response was provided to the taxpayer by certain county officials, and perhaps no interest was paid on the refunded amount. No information has been provided on how the error took place. Did someone contact the tax office, perhaps as a prank, hoax, or attempt to steal the woman’s home, and report the taxpayer as having died? If so, what sort of confirmation was required? Did someone accidentally hit a button on a computer keyboard? If so, did a “do you really want to mark this person as deceased?” confirmation question pop up on the screen? Did a request for confirmation get sent to the supervisor? Worse, was a “you have been marked as deceased and the tax on the property has increased” notice sent to the taxpayer’s address? Was the taxpayer’s name confused with another taxpayer who actually did die? Was the box that should have been clicked above or below the box adjacent to the taxpayer’s name and associated with a different person?

System design is difficult. Everyone makes mistakes. The more costly a mistake, the more resources should be plowed into the design of a system. Systems that deal with taxes and other finances, such as banking, with health and medical issues, with arrest and prison records, and with similar “high consequences if an error” situations deserve careful planning and implementation. Not only do these systems need careful planning to prevent or at least reduce the number of mistakes and to reduce the impact of mistakes, they also need processes that fix mistakes, and quickly. Why it would have taken more than a year, absent the intervention, to fix the error is baffling. It was easy check the “taxpayer is dead” box, so it should be just as easy to uncheck it, and check a “send refund” box.

It is a story like this that turns public opinion even more sharply against taxes. This sort of error is bad public relations, and it would be behoove the county tax office in question to release an explanation of what went wrong and the steps taken to prevent similar and identical errors in the future. And it ought not take more than a year to do that.

Indeed, as I wrote last week, the list of tax return preparers who have been indicted or charged or whose businesses have been shut down by authorities continues to grow. I’ve written about some of these situations in posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), and When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them.

This time, in a situation very similar to the one I mentioned last week, a tax return preparer made it easy for the IRS to spot the fraudulent returns cranked out by the preparer. Last week I pointed out the foolishness in falsely claiming that a client attended school at a particular institution despite knowing that the client had not done so. Was not the preparer aware that IRS computers or IRS personnel would cross-check the school listed on the tax return with information about students matriculated at that school?

According to this Department of Justice news release, a Florida tax return preparer was convicted by a jury of 14 counts of filing false returns on behalf of unknowing clients and 3 counts of filing false tax returns on behalf of himself. The preparer inserted into the clients’ returns “grossly inflated deductions for state and local sales taxes, unreimbursed employee expenses, and gifts to charity by cash or check.” On his own 2013 return, he reported $10,160 in income when he actually earned at least $83,848 that year. On his 2014 return, he reported $2,695 in income when he actually earned $252,652 that year. On his 2015 return, he reported $10,255 in income when he actually earned $234,936 that year. Did he really think he could omit 88 percent, 99 percent, and 96 percent of gross income an not get noticed by the IRS?

The news release described another red flag unfurled by the preparer. “For example, on one tax return, [he] claimed a sales tax deduction of $5,883 for a client who had a gross income of $43,476. In order for that client to claim a sales tax deduction that large, the client would have had to have made taxable purchases totaling $89,926 (including the tax) -- or more than twice the client’s claimed gross income.” Finding this sort of fraud is something that the IRS computers easily detect.

Because the preparer can be sentenced for up to three years for each count, he could be facing 51 years in federal prison. Restitution also is being sought. In When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, I wrote:

Some unscrupulous tax return preparers might be difficult for the IRS to spot, or perhaps avoid detection for long periods of time. But others seem to be raising red flags so obvious that they might was well post “Fraudulent Tax Returns Prepared Here” signs in their storefront windows or on their websites. Lack of ethics combined with lack of knowledge about how tax returns are examined and audited is a recipe for a much shorter time as a preparer.

When tax return preparers don’t understand the chances of being caught and the high price paid when caught, and they are focused only on the seemingly quick and easy cash windfall from filing fraudulent returns, they are destined for disappointment despite any short-term success. It’s too bad that they not only mess up their own lives, they create inconvenience, aggravation, anxiety, and frustration for their clients. Please, people, take a look at my advice in More Thoughts About Avoiding Tax Return Preparers Gone Bad and save yourself some agony.

The attention given to the accusations made against the former Seminole County, Florida, tax collector propelled me into describing not only his adventures but the charges brought against other tax collectors. My commentary appeared in a series of posts, starting with A Reason Not to Run for Tax Collector (or Any Other Office)?, and continuing through Perhaps Yet Another Reason Not to Run for Tax Collector, Running for Tax Collector (or Any Other Office)? Don’t Do These Things, When Behaving Badly as a Tax Collector Gets Even Worse, Tax Collector Behaving Badly: From Even Worse to Even More Than Even Worse, When Tax Collectors Do Too Many Things, So Who’s the Worse Tax Collector? , and So Is There Now a “Worst Tax Collector” Contest?.

Now comes another story about a tax collector in trouble. The story showed up in my local paper, and a day later reader Morris found the story in a different source. He described the subject of the story as “another candidate for worst tax collector contest,” but that’s not the sort of contest I’d want to run or judge. As I learned when I was a child, pointing out that someone else, for example, a sibling, did something worse is not a defense when called to account by a parents. As an aside, this is why the “whataboutism” that has infected the national discourse on a long list of issues is unhelpful.

In this instance, Jeanne Bowser, who served as tax collector for Center Township in Beaver County, in western Pennsylvania, for several decades, and who resigned in 2019 following an audit, has admitted to stealing $1,028,000 from the township’s tax revenue. As part of her plan, she used school tax revenue to fill township tax accounts and vice versa. She also failed to report the embezzled funds as gross income, and for those unfamiliar with basic tax law, stolen money must be reported as gross income. She pleaded guilty to wire fraud and filing a false tax report. She faces a prison sentence and a requirement to make restitution of the stolen funds and to pay the $275,000 in federal income taxes not paid on the embezzled funds. When she pays the $1,028,000, she will be entitled to a deduction but I doubt it will be of much use to her.

What is amazing is that she did this for eight years before being caught. In a world of dual authentication to reduce the risk of digital hacking, ought there not be some system to keep more than just the tax collector’s eyes on the receipt and deposit of tax revenues? Many businesses separate the tasks related to revenue receipt among multiple employees. It’s not my intention to map out how that can be done, but simply a question for officials in jurisdictions that haven’t set up such a system. The question is, “Why not now?”

I learned a long time ago that the headlines in many commercial news and commentary publications are not written by the author of the article. Years ago, a reporter wrote a story about my basic tax class, and after it was published I spoke to him and expressed admiration for the headline. He quickly told me he could not take credit for it as someone else had written it. I cannot find the story online, but it is described in this post on Paul Caron’s TaxProf blog.

So that is probably what happened with the headline and subhead in this Kiplinger article. The headline is a question: “What Are the Income Tax Brackets for 2021 vs. 2020?” The subhead tells us, “For both 2020 and 2021, you can end up in one of seven different federal income tax brackets – each with its own marginal tax rate – depending on your taxable income.” Of course, that’s not true. The only taxpayers who end up in ONE bracket are taxpayers whose taxable income equals or is less than the cut-off amount for the lowest bracket. The taxable income of a person whose taxable income exceeds that amount would be in at least two brackets, the lowest bracket and the next highest bracket. The author of the article, though, got it right in an example but wrong in an explanation.

In the example, the author wrote:

Suppose you're single and have $90,000 of taxable income in 2020. Since $90,000 is in the 24% bracket for singles, would your tax bill simply be a flat 24% of $90,000 – or $21,600? No! Your tax would actually be less than that amount. That's because, using marginal tax rates, only a portion of your income would be taxed at the 24% rate. The rest of it would be taxed at the 10%, 12%, and 22% rates.

This example demonstrates that the taxpayer’s taxable income falls into FOUR brackets, or perhaps one could say that the taxpayer’s taxable income is spread out over FOUR brackets. But certainly the example dispels any thought that the taxable income is within ONE bracket.

Yet in the article, the author also states, “That means you could wind up in a different tax bracket when you file your 2021 return than the bracket you're in for 2020 – which also means you could be subject to a different tax rate on some of your 2021 income, too.” Perhaps this use of the singular suggested to the headline writer that a taxpayer’s taxable income ends up in “a . . . tax bracket,” that is, ONE tax bracket. The sentence can be fixed by adding the word “MARGINAL” before the phrase “tax bracket” and before the phrase “tax rate.” So it would read, “That means you could wind up in a different marginal tax bracket when you file your 2021 return than the bracket you're in for 2020 – which also means you could be subject to a different marginal tax rate on some of your 2021 income, too.”

The same fix would work for the subhead. Adding the word “MARGINAL” before the phrase “income tax brackets” and removing that word from before the phrase “tax rate” produces this subhead: “For both 2020 and 2021, you can end up in one of seven different federal marginal income tax brackets – each with its own tax rate – depending on your taxable income.”

Why did I capitalize MARGINAL? I wanted to emphasize the importance of the various adjectives used to describe the phrases “tax rate” and “tax bracket.” Those adjectives have meaning, and omitting them or using the wrong ones can produce, in many instances, incorrect or misleading statements. There are marginal tax rates. There are average tax rates. There are effective tax rates. There are flat tax rate. There are progressive tax rates. There are regressive tax rates. There are nominal tax rates. Those are objective adjectives. There are dozens of subjective adjectives used to describe tax rate or tax brackets, including oppressive, heavy, high, severe, exorbitant, favorable, unfair, light, confiscatory, and many others.

Though there is pressure to shorten sentences, headlines, subheads, email texts, manifest with the proliferation of tweets, sound bites, and buzz phrases, the change I proposed to the subhead did not lengthen it because it simply moved a word from one place to another. In contrast, the change I proposed to the sentence in the text lengthened it by two words. So sometimes the issue is length and sometimes it’s word placement.

Note: reader Morris suggests that my suggestion “For both 2020 and 2021, you can end up in one of seven different federal marginal income tax brackets – each with its own tax rate – depending on your taxable income.” would be even better if it read, “For both 2020 and 2021, you can end up in one of seven different federal marginal income tax brackets – each with its own tax rate – depending on your taxable income and filing status.” Of course, that makes the subhead longer, which migh pose composition (font, spacing, etc.) issues. Perhaps an even better and no less technically correct subheading would be, “For both 2020 and 2021, your taxable income can end up subject to one of seven different federal marginal income tax rates.”

Reader Morris asked an interesting question. He pointed me to a story about an employer providing a $200 gift card, also described as a gift certificate, to any employee who chooses to receive a COVID-19 vaccination. Reader Morris asked, “Is this gross income for federal and state income tax purposes?” The question is important because reportedly many employers across the nation are offering incentives to employees to get vaccinated. Some are offering cash, gift cards, gift certificates, or bonuses in varying amounts. Some are offering paid leave. Some are offering increased vacation time to salaried workers.

For federal income tax purposes, the cash, gift cards, gift certificates, and bonuses are gross income. They are gross income because they are income, and thus included in gross income unless an exclusion applies. The only possible exclusion is the employee de minimis fringe benefit exclusion under section 132. But under the Regulations, specifically section 1.132-6(c), the provision of cash, gift certificates, and the use of credit cards are not excluded as a de minimis fringe benefit. The other fringe benefit exclusions are, by definition, inapplicable.

What about paid leave? Under those circumstances the employee continues to be paid the employee’s compensation, which is included in gross income. The same result applies to increases in vacation time. The employee’s compensation remains unchanged and continues to be included in gross income. Of course, the employer offering paid leave might be entitled to the tax credit under section 45S, but that does not bear on the question of the employee’s gross income.

As for state income taxes, it depends on the income tax law in each state that has an income tax. I am unaware of any state having enacted an exclusion for vaccination incentives, though perhaps one has. It would not surprise me if in one or another state legislation has been proposed for such an exclusion.

Should there be an exclusion? That’s a different question. What would happen if there were such an exclusion? Would employers reduce the amount of the incentive to match what the employee would be pocketing from a taxed incentive?

Are employers properly reporting these payments as wages? That, too, is a different question, and I simply do not know.

There seems to be no end to the list of tax return preparers who have been indicted or charged or whose businesses have been shut down by authorities. I’ve written about some of these situations in posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, and Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees).

A few days ago, according to this Department of Justice press release, a tax return preparer in Suwanee, Georgia, has been permanently enjoined from preparing tax returns for other taxpayers. The preparer had been doing what many unscrupulous preparers do. She had been understating tax liabilities and overstating refunds by “understating business income by fabricating or inflating reported business losses; fabricating or overstating itemized deductions; and claiming unsupported education credits.” The court that granted the injunction determined that the preparer had “knowingly prepared and filed hundreds of false tax returns,” and that “she did so despite two separate attempts by the IRS to bring her into compliance, both of which resulted in penalties assessed against her.”

What caught my eye was the blatant foolishness of one of the preparer’s “techniques” to lower clients’ tax liabilities to less than what they should have been. The press release explains that “on over 100 returns, [she] falsely claimed that taxpayers attended school at a particular institution despite knowing that they had not done so.” Duh. What did she think would happen when the IRS computers or IRS personnel cross-checked the school listed on the tax return with information about students matriculated at that school? Or perhaps a client, after returning home, looks at the return, decides enough is enough, and rather than confronting the preparer, contacts the IRS directly or through another professional in order to amend the return out of fear that the client would be held accountable for fraud.

Some unscrupulous tax return preparers might be difficult for the IRS to spot, or perhaps avoid detection for long periods of time. But others seem to be raising red flags so obvious that they might was well post “Fraudulent Tax Returns Prepared Here” signs in their storefront windows or on their websites. Lack of ethics combined with lack of knowledge about how tax returns are examined and audited is a recipe for a much shorter time as a preparer.

Nine years ago, in The Precision of Tax Language, I explained, “The IRS DOES NOT ENACT INTERNAL REVENUE CODE SECTIONS.” (upper case letters in original) I elaborated, “It is the CONGRESS that enacts Internal Revenue Code sections. That’s very basic stuff. Extremely basic stuff.” Two years, later, I expounded on this theme in Tax Myths: Part II: The IRS Enacted the Internal Revenue Code.

Recently, I have noticed a similar misattribution showing up in headlines and news stories about tax matters. For example, in this CNBC report, the headline claimed that “Biden announces tax credit for businesses giving paid leave for Covid vaccinations and recovery.” In its report, Reuters put it this way: “Biden offers tax credits for COVID-19 vaccination paid time off.” The Philadelphia Inquirer proclaimed that the “White House offers a tax credit to spur COVID-19 vaccinations as Biden nears his 200 million goal.” From The State we get this characterization: “Paid time off for COVID vaccinations encouraged under Biden tax credit.” Dozens, if not hundreds, of other newspapers, web sites, and other commentaries are publishing similar, if not identical, headlines.

Why do I tag these claims as misattributions? I do so because the credit in question was not enacted by the White House or the president. It is the product of the Congress, which enacted, and thus announced and offered, the credit in question when, in section 9641 of the American Rescue Plan Act of 2021, it added section 3131 to the Internal Revenue Code. None of the stories I read make any mention of the legislative origin of the credit.

Fortunately, some news outlets use more precise, and thus more appropriate, language. For example, this Bloomberg story comes with this more accurate headline: “Biden Touts Tax Credit to Prod Businesses on Workers’ Shots.” From Medpage Today we get this title: “Biden Pushes Tax Credit to Spur More COVID Shots.” Another characterization comes from the Huffington Post: “Biden Hopes Tax Credit Will Encourage Vaccine-Hesitant Americans To Get One Anyway.” Unlike the headlines and stories noted in two paragraphs above, these writers avoid attributing the source of the credit to the Administration.

When politicians, writers, and others attributed tax laws to the IRS, they are focusing on rules unliked by taxpayers and are shifting the blame away from the Congress. There is no question that members of Congress, even if not individually responsible for these misleading claims, benefit from the spotlight shift. Apparently someone figured out that if a tax law provision is one that taxpayers do or will like, it’s just as easy for some other part of the government that is not the Congress to take credit for that provision. This just makes things worse. In a nation few of whose citizens understand how federal, state, and local governments function, and even fewer of whom have sat through a high school Civics course, the lack of knowledge makes it much easier for the foundations of democracy to erode to the point they are easily knocked down.

Perhaps people were surprised or even shocked when various reports, including this Reuters article, shared the testimony of the IRS Commissioner given to the Senate Finance Committee that the tax gap approaches and possible exceeds $1 trillion annually, a substantial increase since the last official estimates in 2011 through 2013 of a $441 billion annual shortfall.

The tax gap is the difference between what taxpayers should be paying if they were in full compliance with the tax law and successful in avoiding mistakes and what taxpayers actually pay in taxes. Note that the tax gap in question is the federal income tax gap, and surely states, especially those whose tax liability computations start with federal gross, adjusted gross, or taxable income, have their own income tax gaps.

I was not surprised by the Commissioner’s testimony. In , Tax Gap Becoming a Tax Chasm, I noted that “The tax gap for calendar year 2003, the latest year for which sufficient statistical information is currently available, is $1.0417 trillion.” My guess is that the tax gap in 2018, 2019, and 2020 probably exceeds not only $1 trillion but $1.5 trillion. What does surprise me is the willingness with which authorities accept the low figures reported by the IRS. For example, in Closing the Federal Tax Gap , I noted that in 2006, three years after the Bureau of Economic Analysis had computed the $1 trillion figure, the National Taxpayer Advocate issued a report pegging the annual tax gap as “somewhere between $250 to $300 billion.” I suppose the IRS is caught between a rock and a hard place. It could report the higher number in an effort to encourage Congress to stop cutting its budget and restore its ability to ramp up audits and foster compliance. But reporting that higher number poses the risk that Congress and others would judge the IRS as unworthy of any funding by treating it as the cause of the tax gap.

Much paper, ink, and digital bytes have been dedicated to discussion of the tax gap and proposals for dealing with it. I have no intention of trying to write a treatise about the tax gap. I simply will review some of the things I have written about it over the years. In Tax Gap Becoming a Tax Chasm, I noted:

One must wonder what motivates noncompliance. Perhaps some psychologists will conduct surveys to determine if it simply greed, or a growing rebellion in which people are "voting with their feet" by appropriating unto themselves their own special tax break that they cannot get through the Congress because they lack the clout of the lobbyists who have managed to reduce the tax on capital gains to extremely low levels. How much of the noncompliance is simple ignorance, stupidity, carelessness, or confusion? How much of the gap arises from people trying to hide information about the activities generating the income?

Some people may not realize they are contributing to the tax gap, because they are making good faith efforts to comply with an absurdly and unjustifiably complex income tax system. Others know full well what they are doing when they engage in "pay cash, pay less" schemes, launder money, or simply fail to file. I suppose this reflects our culture, for surely it resembles what one finds on our highways: drivers who try to comply and succeed, drivers who are ignorant, stupid, careless and confused, and drivers who think they are so much more important than or better than everyone else that they flaunt whatever rules get in the way of their own self-centered approach to life.

A fun calculation is to determine how much tax has not been paid on the tax gaps for 2002, 2001, 2000, and earlier years, add interest and penalties, and imagine what happens if Treasury had the ability to collect the total amount due. The shock to the world economy might be staggering. We'll never know, because Treasury lacks the ability to collect even a minute fraction of this amount. Why? Because Congress has not implemented a system that ensures all taxpayers pay their fair shares.

Until Congress does two things, the tax gap will continue to grow, and the ultimate outcome might be far worse than the impact of quadrupled prices for oil and gas, shortages of concrete, or devastating hurricanes. Congress must reform the income tax system so that it is easy to understand, inviting of compliance, and difficult to evade. Congress must also put in place safeguards that prevent noncompliance and punish tax evaders. Ideally, a well-designed system that prevents tax evasion will reduce the number of tax evaders and thus reduce the need for prosecution of tax evaders. Law enforcement could then redirect more resources to the prevention of, and prosecution of, other crimes.

In Closing the Federal Tax Gap, I shared these thoughts:

The tax gap fascinates me and frustrates me. * * * I'm both fascinated and frustrated by the willingness of people to avoid their legal responsibilities. Of course, that fascination and frustration is not limited to tax avoidance devotees but also the behavior of those who violate a variety of rules and regulations.

* * * * *

[The National Taxpayer Advocate’s] report points out that when taxable transactions are properly reported to the IRS, the rate of tax collection exceeds 90 percent, but when payments are not reported compliance drops to a range of 20 to 68 percent, depending on the type of transaction. Sometimes reporting does not occur because people are noncompliant. Sometimes reporting does not occur because it is not required. * * *

[The National Taxpayer Advocate] recommends expanding the list of transactions that must be reported. This is the sort of suggestion that makes one wonder why it wasn't done decades ago. The answer is easy. As [the National Taxpayer Advocate] points out, tax revenues would climb if every taxable transaction was subject to reporting requirements. That, however, would be an onerous burden. * * *

I add that compliance is enhanced when withholding takes place, because withholding shifts the tax payment and not just information to the Treasury.

A year later, in Closing the Tax Gap Requires Congressional Introspection, I described a GAO report, "TAX COMPLIANCE Multiple Approaches Are Needed to Reduce the Tax Gap." I described the report thusly:

The report concludes that the tax gap "has multiple causes and spans different types of taxes and taxpayers." Accordingly, "Multiple approaches are needed to reduce the tax gap. No single approach is likely to fully and cost-effectively address noncompliance since, for example, it has multiple causes and spans different types of taxes and taxpayers."

Three major approaches are considered:

1. Simplifying or reforming the tax code.

2. Providing the IRS with more enforcement tools.

3. Devoting additional resources to enforcement. Minor approaches include "periodically measuring noncompliance and its causes, setting tax gap reduction goals, evaluating the results of any initiatives to reduce the tax gap, optimizing the allocation of IRS’s resources, and leveraging technology to enhance IRS’s efficiency."

The report points out that billions of dollars of the tax gap could be avoided if the tax law were simplified or fundamentally reformed. It explains, for example, that the IRS "has estimated that errors in claiming tax credits and deductions for tax year 2001 contributed $32 billion to the tax gap."

Unfortunately, the report then concludes that "these provisions serve purposes Congress has judged to be important and eliminating or consolidating them could be complicated." Even fundamental reform, in which tax preferences are limited and "taxable transactions are transparent to tax administrators," is "difficult to achieve." The report provides an almost irrefutable axiom, that "any tax system could be subject to noncompliance." Finally, it provides another difficult-to-rebut observation: "Withholding and information reporting are particularly powerful tools."

I criticized the report because it presupposed Congress as a whole does not even know what is in the tax law though some individual members are aware of whatever provision they championed. I also questioned why members of Congress caved in to the lobbyists whose clients oppose the expansion of reporting and withholding and who misrepresented attempts to increase withholding by falsely describing the effort as a “new tax.” I then explained:

Left to instinct, most people would prefer to pay no taxes, and exist as beneficiaries of others. History teaches that most of those who can grab have done so, and that many who could not exerted themselves to find ways to do so. The tax gap is a reflection of some unintentional errors and lots of intentional evasion. Careful intellectual reasoning, though, teaches us that civilization requires taxation, economic principles tell us that taxation should be efficient, common sense tells us it should be simple, and ethical principles tell us that it should be fair. It takes leadership to persuade the civilized world why it makes no sense, in the long-run, to behave in ways that generate tax gaps. Fraudulent behavior by taxpayers contributes to the tax gap. So, too, does the way in which Congress does business. Ought not the Congress take the first step in leading by example? Until the Congress understands that the way it does business encourages the non-filers, the protesters, the illegal tax shelter promoters, and the rest of the noncompliant population to act in ways that undermine the tax law and fuel the rapid growth in the tax gap, talking about closing the tax gap is not much more than rhetoric. Yes, I talk and write about it, but I've not undertaken the responsibility that members of Congress have sought and accepted. If they don't think they can or want to fix the problem, no one will stop them from returning home.

Shortly after I wrote those words, I received a letter from Senator Max Baucus, chairman of the Senate Finance Committee, and Senator Charles E. Grassley, ranking member of that committee, in which they asked for "suggestions on ways to improve compliance with our tax laws, including specific recommendations to reduce the tax gap." I described my response in Congress Invites My Ideas for Improving Tax Compliance and Of Course I Respond, and I included in that posting a copy of the letter I sent to the Congress. I do not republish it today because a quick click on the preceding link should suffice. In summary, I pointed out that a six-prong approach is required, namely, making tax education a part of high school curricula, simplifying the tax law, increasing reporting, expanding withholding, funding increased and improved audits, and strengthening the ability of the Department of Justice to prosecute tax crimes. I closed that day’s post by telling readers “I will let you know if I receive a response.” I did not. I did not receive a direct response. Nor have I seen the Congress respond by taking steps to deal with a rapidly ballooning tax gap.

Almost a decade later, in Tax Compliance and Non-Compliance: Identifying the Factors, I reacted to yet another report from the Taxpayer Advocate. The report focused on characteristics of so-called high-compliance and low-compliance taxpayers. I noted:

Some of the findings are not surprising. According to the survey underlying the report, high-compliance taxpayers are more trustful of government, appear to be more intent on minimizing mistakes on their tax returns, viewed government positively, are more likely to rely on tax return preparers, and were motivated by moral concerns and deterrence. Low-compliance taxpayers are less trustful of preparers, are less likely to follow a preparer’s advice when using a preparer, tend to think that other taxpayers have negative views of law and the IRS, are suspicious of the tax system, and are more likely to consider the tax system unfair. All taxpayers viewed the tax law as complicated.

Other findings struck me as unexpected. Low-compliance taxpayers are “more likely to participate in local organizations.” They also asserted that they had a moral duty to report income accurately. Non-compliance is higher among sole proprietors of construction companies and real estate rental firms than sole proprietors of other types of businesses.

Though the IRS explains that geographic location is not a factor in selecting returns for audit, the survey results revealed that low-compliance taxpayers were clustered in specific areas. Towns and neighborhoods near San Francisco, Houston, Atlanta, and the District of Columbia, including Beverly Hills, California, Newport Beach, California, New Carrollton, Maryland, and College Park, Georgia, were among 350 communities in which low compliance taxpayers were clustered. In contrast, very few of the 350 communities were in the Midwest or Northeast. What about high-compliance taxpayers? The top of the list consisted of the Aleutian Islands, West Somerville, Massachusetts, Portersville, Indiana, and Mott Haven, a neighborhood in the Bronx.

It did not take long for stories about the Taxpayer Advocate’s report to focus on the nature of the identified communities. For example, an MSN report noted that the low-compliance clusters were in very wealthy neighborhoods. A Yahoo news story put the conclusion in its headline, “IRS Report Shows Many of Biggest Tax Cheaters Live in Wealthy Areas.”

The Taxpayer Advocate report does not disclose whether the low-compliance taxpayers in these clusters were high-income individuals, but it is safe to assume that at least a significant number of them were. Yet what sort of conclusions can be drawn? Is it possible that most low-income taxpayers are not low-compliance taxpayers because they don’t have much income to begin with, and thus no income to hide? Is it possible that because most low and middle income taxpayers realize most of their income from wages subject to tax withholding they have far fewer opportunities to cheat on their taxes? It would not surprise me to discover that someone will argue that the wealthy do cheat more, but would reduce their cheating if their tax rates were lowered. As logical as that proposition might sound, to the extent that greed and money addiction energize every sort of tax reduction attempt, whether lobbying for special breaks and low rates or taking the cheater’s route, it is unlikely that anything other than a zero percent tax rate will satisfy these folks, and even that probably is not enough.

And then, again almost a decade later, I drew attention to a major cause of the tax gap. In Tax Noncompliance: Greed on Steroids, I described the news revealed in a report by the Treasury Inspector General for Tax Administration issued a report, High-Income Nonfilers Owing Billions of Dollars Are Not Being Worked by the Internal Revenue Service:

The news is bad.

After pointing out that the tax gap – the shortfall between what the law requires taxpayers to pay and what taxpayers are in fact paying – is estimated to be $441 billion for 2011, 2012, and 2013, the report reveals that $39 billion is due from taxpayers who fail to file tax returns. Most of this shortfall is attributable to “high-income nonfilers.” The Inspector General determined that although the IRS is developing a new approach to dealing with nonfilers, it has not yet implemented that approach, and when implemented, it will be “spread across multiple functions with no one area being primarily responsible for oversight.”

Worse, the Inspector General determined that for taxable years 2014 through 2016, 879,415 high-income nonfilers failed to pay roughly $45.7 billion in taxes. Of those 879,415 high-income nonfilers, the IRS did not pursue 369,180 of them, accounting for an estimated $20.8 billion in unpaid taxes. Of the 369,180 were not put into the queue for pursuit of the unpaid taxes and the cases for 42,601 were closed without further action. The other 510,235 of the 879,415 high-income nonfilers “are sitting in one of the Collection function’s inventory streams and will likely not be pursued as resources decline.”

Even worse, because the IRS works on each tax year separately rather than combining cases when a taxpayer fails to file for more than one year, it “is missing out on opportunities to bring repeat high-income nonfilers back into compliance.” Of these high-income nonfilers for 2014 through 2016 that the IRS failed to address or resolved, the top 100 owed an estimated $10 billion in unpaid taxes. The Inspector General has proposed seven changes to deal with these problems, but the IRS agreed in full only to two of them, partially agreed with four, and disagreed with one. The IRS objected to putting the nonfiler program under its own management structure.

Here and there a failure to file arises from an understandable problem, such as a taxpayer falling ill without anyone realizing it in time, or developing dementia or similar mental impairments. Sometimes the failure to file arises from financial setbacks for taxpayers who don’t realize that in those situations it is best to file and indicate the inability to pay. Some instances of failure to file are expressions of principled protest against specific government policies. A significant portion reflect a deep greed rooted in a taxpayer’s perception that they have no obligation to contribute to society, with the failure to file and pay almost always defended as a justified expression of the taxpayer’s anti-tax philosopy.

Is it any wonder that so many people are enraged? Though there are many ingredients fueling social unrest, an important one is the growing sense among Americans that they are fools for complying with tax laws when “high income nonfilers” are “getting away with it.” Would it be a surprise if more taxpayers choose not to file, knowing that the IRS lacks the resources to chase them down? This sort of mob mentality is no less likely to spread among taxpayers as it can spread among crowds encouraged to break other laws.

Though it is easy to suggest that Congress needs to wake up and provide sufficient funding to the IRS, especially because every dollar invested returns roughly seven, but the Congress is incapable of doing this. Enough of It is controlled by the anti-tax, anti-government crowd that it lacks the ability to do what needs to be done. Until the makeup of the Congress changes, the tax gap will persist and even increase, adding to the growing deficit that threatens to cause havoc more catastrophic than what currently afflicts the nation. The greed that is fueling the income and wealth inequality contributing to so many of the nation’s problems is growing as though on steroids, and needs to be neutralized expeditiously.

We are at a tax system breaking point. We are here because the worst offenders have persuaded the non-offenders and the minor offenders that any effort to put an end to the shenanigans of the worst offenders will produce the most harm for the non-offenders and the minor offenders. Here is a helpful analogy. Underfunded highway troopers driving vehicles that are too slow to catch the “rocket ship” drivers instead focus on the speeders who are 5, 10, or 15 miles per hour over the limit. When a proposal is made to purchase high-end chase cars for the troopers so that they can catch, ticket, and even arrest the worst speeders, the lobbyists for those “entitled to speed without restriction because of freedom, freedom, freedom” characters persuade the majority of drivers, who are either not speeding or speeding just somewhat, that the proposal will cause the authorities to arrest the compliant drivers and confiscate their vehicles. What’s evil is the lobbying message. What’s sad is the fact that it works way too often. It is time to stop worrying about the specks and to start dealing with the logs.