MauledAgain

I know that in many instances headlines are not written by the author of the story to which the headline is attached. Sometimes the story author writes the headline. I don’t know what the practice is for Yahoo stories, such as this one, in which the headline proclaims, “The IRS already has all your income tax data – so why do Americans still have to file their taxes?” My reaction to the headline was along the lines of "You've got to be kidding me." The story is another defense of the Ready Return concept, in which the federal government prepares the tax return for taxpayers, who may or may not accept the consequences with or without reviewing the IRS work. I have explained, in many commentaries, why the Ready Return concept does not work with tax systems such as the federal income tax, in contrast to other types of taxes such as real property taxes. For those interested, my commentaries on the flaws of Ready Return include Hi, I'm from the Government and I'm Here to Help You ..... Do Your Tax Return, ReadyReturn Not a Ready Answer, Ready It Was Not: The Demise of California’s Government-Prepared Tax Return Experiment, As Halloween Looms, Making Sure Dead Tax Ideas Stay Dead, Oh, No! This Tax Idea Isn’t Ready for Its Coffin, Getting Ready for More Tax Errors of the Ominous Kind, Federal Ready Return: Theoretically Attractive, Pragmatically Unworkable, First Ready Return, Next Ready Vote?, 14-part series, Simplifying theTax Return Process, Surely This Does Not Boost Confidence In The ReadyReturn Proposal, Imagine ReadyReturn Afflicted with This Sort of IRS Error, Debating the ReadyReturn Proposal, In Writing, and Yet Another Reason the IRS is Not Ready for ReadyReturn. I also published a 14-part series on the concept’s shortcomings, with an index, and engaged in a published debate, Perspectives on Two Proposals for Tax Filing Simplification, with Prof. Joseph Bankman, one of the most vigorous proponents for government-prepared tax returns.

Nonetheless, several points made by Professor Beverly Moran deserve further scrutiny. She offers several arguments that are enticing on the surface but lack sufficient foundation.

Moran argues that “Return-free filing is not difficult” because “[a]t least 30 countries permit return-free filing. However, the income tax systems in those countries are different. If the United States adopted a system similar to those, then perhaps Ready Return would have a better chance of being effective and efficient, but what comes along with those other systems are programs and policies repugnant to enough Americans to make the proposition politically dead on arrival.

Moran argues that “In a no-return system, the government reveals its knowledge of the taxpayer’s income before the taxpayer files,” pointing out that “95% of American taxpayers receive at least one of more than 30 types of information returns that let the government know their exact income.” Though it is true that 95 percent of American taxpayers receive at least one information return, it is not true that this lets the IRS know their exact income. All sorts of income escapes information returns. Letting taxpayers think that “the IRS is taking care of it” increases substantially the number of instances in which income not reported on an information return ends up not being reported. And with the IRS continually struggling to audit returns, the odds of that unreported income being detected would drop even more. Putting responsibility on taxpayers to prepare, or to observe and verify what is being prepared on, returns enhances the sense of civic responsibility so critical to preservation of democracy.

By focusing on income and information returns, Moran ignores the many taxpayers whose returns contain more than income information. Depending on the year, between 12 and 30 percent of taxpayers, a not insignificant number, itemize deductions. The IRS does not know what these taxpayers paid in medical expenses, or gave to charity. Teachers who do not itemize might nonetheless claim an above-the-line deduction for certain teaching-related expenditures, another item of which the IRS is unaware. If a taxpayer has a child during the taxable year, thus creating or increasing deductions and credits tied to children, the IRS has no knowledge of information that impacts the taxpayer’s return. Many of these taxpayers do not itemize but nonetheless qualify for credits. And in some instances a child no longer qualifies, often for reasons of which the IRS is unaware. The IRS won’t know if a taxpayer becomes eligible to claim the credit for the elderly and the disabled, or adopts a child, or pays for education justifying the American Opportunity and Lifetime Learning Credits, or purchases property eligible for the residential energy credit. These are just a few examples of why the IRS cannot prepare most taxpayers’ returns, and should not be presumed to be able to prepare any returns accurately, unless the next step in the Ready Return movement is to have every monetary transaction, family change, health care decision, and physical life change reported to the IRS. It is easy to imagine the slippery slope once a federal Ready Return is enacted, along the lines of the IRS and Ready Return advocates exclaiming, “This can’t be done unless we have access to taxpayers’ complete financial records.” And that would be a starter.

Of course, Ready Return could work for an income tax system that is as simple as something like the real property tax. The real property tax has only two variables, namely value and rate, though complicating exemptions have crept into most real property tax systems. Supporters of Ready Return, who justify their position on the need to help taxpayers deal with an increasingly complicated federal income tax system, would gather more support if instead of offering the unworkable Ready Return band-aid, they pushed for the sort of simplification of the federal income tax that would make Ready Return work as simply as do real property tax systems. But that would require jettisoning all of the provisions that are in the income tax law because Congress trusts the IRS more than it trusts the appropriate agency to implement its policy decisions. I daresay many, if not most or even all, Ready Return advocates would balk at stripping the federal income tax law for individuals down to a system of all income being reported and subjected to a set of rates, with no deductions or credits, leaving aside of course the taxation of businesses including sole proprietorships.

Worse, Ready Return would make it easier for those who keep complicating the Internal Revenue Code to set aside worries about the impact of a new deduction or credit on taxpayers because “Ready Return will shelter them from the impact on tax return preparation.” It would also encourage more legislators to saddle the Internal Revenue Code with provisions that belong elsewhere or even nowhere. Imagine huge chunks of American health care, child care, employment, education, and other policies being left to the whims of Ready Return. Of course, as I’ve pointed out in my other commentaries, taxpayers would still need to invest time and money in auditing the IRS-prepared return. Having been both a writer and and editor for almost all of my professional life and beyond my professional life, I subscribe to the proposition that it is easier (and more fun) to do the writing than to work through what someone else has written.

It’s been about a year since I last wrote about a television court show. The ones I watched during that period either had nothing related to tax or were repeats. Actually, most were repeats, and were among the cases discussed in commentaries such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, and A Taxing WhatAboutIsm Attempt.

This time, in episode 242 of Judge Judy’s twentieth season first aired in 2016, the plaintiff entered into an arrangement with the defendant, under which the plaintiff would purchase a truck and the defendant would drive the truck. The plaintiff explained that he paid for the truck but put title in the defendant’s name because when the plaintiff tried to purchase the truck, the dealer would not title it in the plaintiff’s name because the plaintiff did not have a commercial driver’s license. Judge Judy observed that the plaintiff was wrong when he tried to purchase the truck without having the required license. The plaintiff describe the relationship as a partnership. He then testified that he lent money to the defendant, and when the defendant was unable to pay the loan, the defendant agreed to have the plaintiff withhold amounts from each of the paychecks from the plaintiff to the defendant. Later in his testimony, the plaintiff referred to the defendant as an independent contractor. Judge Judy asked the plaintiff to explain the discrepancy. The plaintiff replied, “He was my partner but when it came time to issue 1099s to him he was an independent contractor.” Judge Judy laughed and said, “That’s the second thing you did wrong,” referring to the constantly changing description of the relationship and the inconsistency between issuing paychecks but also Forms 1099. Judge Judy then explained the difference between partners and independent contractors. She didn’t point out that an employment is different from those two types of relationships.

The plaintiff stumbled while trying to explain why he was suing for payment of a loan allegedly satisfied by withholding amounts from the defendant’s paychecks. He tried to claim that there was a second loan, but his testimony was so confusing and inconsistent with documentary evidence, including a cashed check, that Judge Judy dismissed his case. Neither party was a lawyer, and it appeared that neither party had consulted a lawyer when setting up their business arrangement.

The lesson is simple. Decide how the business will be structured, execute documents consistent with that decision, and act in accordance with the decision. Trying to be both a partnership and an independent contractor arrangement while engaged in a business relationship, trying to have an entity be simultaneously a partnership and an S corporation for the same purpose, and trying to treat another party as both an employee and independent contractor with respect to the same transaction are all examples of inconsistencies that eventually lead to confusion and disadvantageous outcomes.

Reader Morris brought my attention to a proposal advanced by an economics professor at the University of South Carolina and one of his students. The idea can be expressed simply, and though its advocates claim it will generate simplification of the federal income tax filing and audit system, it is another theory that fails in the face of practical reality.

The idea? “Biennial filing and collection of taxes.” This idea is not new nor original to the professor and his student. Jay Soled proposed a two-year tax accounting period back in 1997, in “A Proposal to Lengthen the Tax Accounting Period,” 14 Am Journal of Tax Policy 35. That same year,, the idea was incorporated into a Senate Bill 261, which was primarily a proposal to shift Congressional budgeting from an annual to a biennial process of budgeting and making appropriations. The proposed legislation failed.

The professor and his student argue, on The Indicator from Planet Money, that their idea would create “a system in which Americans would pay our taxes not once a year, but once every two years.” My immediate reaction was a simple one. “They think Americans pay taxes once a year?” Americans pay taxes throughout the year. They pay taxes each time an employer withholds and remits income taxes to the Treasury on their behalf. They pay estimated income taxes as often as every quarter. The idea that taxes are paid only once a year, when a return is filed, is inconsistent with the reality of the federal income tax payment system.

But let’s turn to the proposal. There are all sorts of problems at the practical level.

The proponents argue that their idea “would minimize taxpayer and paperwork burdens, free up IRS funding, and result in a de facto doubling of the audit rate.” They argue that shifting to biennial filing would cut in half the number of returns that the IRS must process. They waffle on whether all taxpayers would file in the same year or if taxpayers would be divided into two groups. But unless half the returns were filed one year and half filed another year, the proposal would require the IRS either to keep its filing system and associated employees operating and working every year, or to go through a process of letting employees go and then two years later finding far more new employees who need to be trained than if employees had stayed on board. Biennial returns would contain twice as much information and would require IRS computers to double the amount of matching that would need to be done. Would employers, charities, banks, and other institutions that report information want to re-tool their system so that Forms W-2, Forms 1099, and contribution statements go out in even years for some employees, investors, and donors, and odd years for others? If the proposal puts half of taxpayers in two-year periods ending in odd years and the other half in two-year periods ending in even years, what happens when an odd-year person marries an even-year person and they want to file a joint return? Will taxpayers need to fill out a new form, “Application to Change from Even-Year to Odd-Year or Odd-Year to Even-Year Filing Period?” If they do so, would there be a one-year filing or a three-year filing to re-align the filing periods? What does that do the the cumulative effect of progressive rate applied to bunched income or halved income? Of course there would be more, not less, complexity.

Would taxpayer burdens and paperwork be minimized? Of course not. In addition to the additional complexities described in the preceding paragraph with respect to biennial filing, taxpayers would need to collect and retain, and then go through, twice as much information for each biennial filing. The idea that an employer would issue one Form W-2 for a two-year period of employment not only runs into the “some employees are even year and the others are odd year filers” issue previously mentioned, but as a practical matter increasing numbers of individuals are changing jobs more frequently, and thus face the prospect of additional Forms W-2. The same can be said for investors and Forms 1099. Individuals who donate to charities almost certainly would be retaining and going through twice as many tax-compliant thank you notifications from the charities. To deal with these sorts of issues, the proponents suggest that each biennial return would contain two columns, one for each year. This is the equivalent of filing two returns. It does nothing to reduce taxpayer information acquisition and retention.

The idea that cutting the number of returns that are filed would double the audit rate ignores the fact that each audit would need to cover twice as many taxpayer transactions, twice as many documents, and analysis of taxpayer activities over a period twice as long as associated with an annually filed return. It also means reaching back one additional year in time to find information. If there is some bit of economy of scale savings it is minimal. The proponents claim that the time needed to audit a two-year return would not be double the time needed to audit a one-year return, but they offer no empirical studies to support that claim. In fact, with their proposed two-year return being nothing more than two returns on one piece of paper, so to speak, it isn’t very different from what happens now when multiple returns are audited at the same time.

The proposal would not free up IRS funding, presumably for use in other IRS functions such as taxpayer assistance and increased operators on the phone lines. Even aside from transitional costs, the IRS would still need the same number of auditors, or more. It would need to increase training expenditures because there would be more employee turnover if all returns were filed in the same year.

There is another problem inherent in the proposal. The more often a task is undertaken, the easier it is to remember how to do the task and the more likely it is to remember to do the task. Consider the difference between doing something every day, such as checking email, and doing something four times a year, such as going online to pay estimated taxes. It is easier to remember “every April 15,” than to remember “every other April 15,” and it is easier to do something once each year than once every two years. Imagine the fun in a family in which the two parents luckily are both even-year filers and the two children are odd-year filers. The practical effect of doing the returns, or visiting a tax return preparer each year, but for different members of the household, creates far more confusion and complexity rather than any sort of simplification or cost savings.

There’s another twist. Most employees choose to have more taxes withheld from their pay because they want to avoid owing additional amounts in April and, in some cases, because they like the psychological effect of a refund. Most taxpayers filing estimated taxes do the same thing. But instead of getting a refund every April, they will need to wait an additional year because the refund would be issued every other year.

What happens if the federal biennial filing idea is enacted but states don’t go along? Taxpayers would need to put together a pro forma federal return for their “off year” in order to figure out their state income tax situation. In a state like Pennsylvania, there would be no reduction of required time and effort to file a state income tax return. However this problem would be worked out, it would generate more, not less, complexity.

The proponents then shift into a defense of ReadyReturn, making the same easily rebutted arguments that other proponents of that idea have made.* They do so not only to support that idea, but to predict opposition to their biennial filing proposal from the same folks who oppose ReadyReturn. That is probably a safe prediction, though it would not be surprising if persons not opposed to ReadyReturn found reasons to object to the biennial filing idea. The proponents suggest that companies opposing ReadyReturn because it would cut revenue would react in the same manner to their biennial filing proposal. I disagree. For one thing, even with ReadyReturn taxpayers would need to purchase tax preparation software or hire a professional to review the pre-prepared return that more than likely will have errors. And, as suggested by the example of the household with individuals on both the odd and even year filing, tax preparation software would need to be purchased each year even if a biennial system were to be adopted, and there would not be a 50 percent reduction in sales of, and revenue from, tax preparation software sales. And, of course, unless states went along with the biennial filing idea, taxpayers would still need to deal with filing every year and would need to purchase tax preparation software.

It is no wonder that the biennial idea did not get enacted back in 1997. Details matter. Practical reality overshadows theory. Even if it provided savings in money and time, the biennial filing proposal would require far more additional complexity than currently exists. Though the proponents of biennial filing created their idea in order to deal with existing complexity and IRS funding shortages, their proposal is misdirected. The solution to both of those problems sits with the Congress, a Congress seemingly incapable of working for the betterment of all Americans rather than their own partisan interests. The Congress needs to simplify the tax law, rather than using it and complicating it in order to appease their partisan money sources, and the Congress needs to fund the IRS adequately rather than playing to the self-centered crowd. The biennial filing proposal, like ReadyReturn, concedes defeat in the effort to get Congress to act responsibly and instead would shift onto taxpayers the burden of working through the mess created by the Congress. If as much time and effort were plowed into reforming Congress as is invested in proposals such as biennial filing and ReadyReturn, perhaps not only the tax mess but a lot of other messes would be cleaned up rather quickly and easily.

* For those interested, my commentaries on the flaws of Ready Return include Hi, I'm from the Government and I'm Here to Help You ..... Do Your Tax Return, ReadyReturn Not a Ready Answer, Ready It Was Not: The Demise of California’s Government-Prepared Tax Return Experiment, As Halloween Looms, Making Sure Dead Tax Ideas Stay Dead, Oh, No! This Tax Idea Isn’t Ready for Its Coffin, Getting Ready for More Tax Errors of the Ominous Kind, Federal Ready Return: Theoretically Attractive, Pragmatically Unworkable, First Ready Return, Next Ready Vote?, 14-part series, Simplifying theTax Return Process, Surely This Does Not Boost Confidence In The ReadyReturn Proposal, Imagine ReadyReturn Afflicted with This Sort of IRS Error, Debating the ReadyReturn Proposal, In Writing, and Yet Another Reason the IRS is Not Ready for ReadyReturn. I also published a 14-part series on the concept’s shortcomings, with an index, and engaged in a published debate, Perspectives on Two Proposals for Tax Filing Simplification, with Prof. Joseph Bankman, one of the most vigorous proponents for government-prepared tax returns.

Readers of MauledAgain know that I have written a series of commentaries on the antics of tax return preparers who commit fraud. Those commentaries include 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), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns, and Overused Fraudulent Tax Return Preparation Ploys.

Reader Morris directed me to a tax return preparation story with a new twist on fraudulent tax return preparation. That story led me, through several links, to the Ohio Inspector General’s report on the situation. I will try to condense the 66-page report to something suitable for a blog post.

The story began when the Ohio Department of Taxation (ODOT) notified the Inspector General that during routine monitoring of filed income tax returns it discovered what it suspected to be “improper activity.” ODOT identified 59 taxpayers claiming Schedule C1 deductions for false expenses. Five of the 59 were employees of the State of Ohio. ODOT also told the Inspector General that the 59 returns in question had been filed using information technology resources belonging to or registered to the State of Ohio Department of Administrative Services (ODAS). ODOT sent letters to the 59 taxpayers asking for supporting documentation for the claimed expenses. Responses to the letters confirmed that the expenses were false. One of the taxpayers, identified as “Employee 1,” explained that they had prepared the 59 returns in question. Employee 1 worked at the Ohio Department of Rehabilitation and Correction (ODRC), and provided ODOT with a list of the other 58 taxpayers and proof of payments received from them for tax preparation services. ODOT determined that Taxpayer 1 had been filing tax returns for multiple individuals for several years.

ODRC has a policy of requiring employees to obtain from their supervisors permission to conduct outside employment and to comply with statutory requirements and ODRC procedures while engaged in outside employment. It also has a policy prohibiting employees from performing services for outside employment during their ODRC hours, and from using state equipment, supplies, computer software, or computer systems, including e-mail, to perform outside employment tasks. It also has a policy prohibiting employees from using its systems to operate a business.

The Inspector General’s staff examined ODOT spreadsheets, which flagged 156 and 105 tax returns for 2018 and 2019, respectively, that ODOT suspected claimed false business expense deductions. All 261 flagged returns filed for those two years were suspected of being filed by Employee 1. The staff learned there were 11 other State of Ohio employees included in the list of taxpayers filing the 261 returns. The staff decided to focus on the returns filed by the 11 state employees. Three of those employees had both their 2018 and 2019 returns flagged, and the other 8 had returns flagged for only one of the years. The staff noted that all the returns had been filed using FreeTaxUSA.com tax preparation software. The staff issued subpoenas to the 11 state employees, requesting the copies of their 2018 and 2019 returns, supporting documentation for every deduction and credit, all communication with Employee 1, and evidence of payment to any tax return preparer.

The Inspector General’s staff interviewed the state employees and examined the correspondence between Employee 1 and the 11 state employees. They learned that many of those employees were unaware of the information that Employee 1 had reported on their tax returns to increase their refunds. One employee, after requesting a copy of the return, had learned that the return was incorrect, but was unable to get Employee 1 to cooperate in fixing the return. In fact, Employee 1 told the employee that the employee had been told what Employee 1 was going to do and agreed to it, but the employee at that time denied, to Employee 1, having so agreed. When Employee 1 did file an amended return, the employee disagreed with the explanation provided by Employee 1 on the amended return. The employee eventually used another tax return preparer to fix the mess. Similar accounts were obtained when interviewing many of the other employees.

The staff also determined that Employee 1 had used their ODRC email account to operate their tax preparation activities. Some of the returns were filed using State of Ohio computers. In some instances, the staff examined ODRC time records and determined that the tax preparation work and filing was done while Employee 1 was on duty for ODRC.

In addition to the returns for the 11 employees, the Inspector General’s staff examined returns prepared by Employee 1 for former state employees, and for 4 other individuals. They discovered the same pattern of false returns, use of state resources, and activities conducted while on duty for ODRC.

The Inspector General concluded that Employee 1 had filed false tax returns on behalf of clients, and used state resources to operate the tax return preparation business. The Inspector General recommended to ODRC that it review the conduct of the employees discussed in the report and determine if administrative action is necessary, determine whether the approval of secondary employment is warranted for the ODRC employees discussed in the report who claim to operate a business in addition to their ODRC employment, and consider requiring employees seeking secondary employment to submit a yearly application whereby management may review and document any changes in employment status. The Inspector General recommended to ODOT that it review the tax returns that were flagged for containing false business-related expenses and determine if penalties are necessary, and ensure that the necessary variance letters and/or adjustments to refunds are sent to taxpayers whose returns were flagged and who were or are unable to support the business-related expenses reported. Finally, the Inspector General decided to refer the report to the Cuyahoga County Prosecutor’s Office and the IRS for consideration, and to refer it to the Ohio Ethics Commission for consideration regarding Employee 1’s misuse of State of Ohio work time and resources in their tax preparation business.

So in the process of filing false income tax returns, Employee 1 also ran afoul of employment regulations. Whether those violations cause criminal charges in addition to those expected from the IRS and ODOT or simply generate civil repercussions such as employment termination is a conclusion I am unable to reach, because I am not an expert in Ohio employment law. But it is a good reminder that committing one crime often leads to the commission of other as well as bad decisions that might not be crimes. Though the term “slippery slope” is used in other contexts, it also can be used in this instance.

So with a new year heading our way very soon, and aware that 2022 is pronounced 2020, too, I extend to everyone a wish that 2022 not be like 2020. Or, for that matter, 2021.

I hope that 2022 brings tax simplification and tax fairness to federal, state, and local tax systems and laws.

I hope that 2022 brings a decrease in, or even elimination of, the folks who choose to engage in fraudulent tax return preparation.

I hope that 2022 brings a decrease in, or even elimination of, the folks who choose to file fraudulent returns, to engage in tax evasion transacations, and to fail to file and pay taxes that are due.

I hope that 2022 brings an end to the practice of the wealthy using their wealth to decrease their tax burdens so that the need for revenue or the impact of reduced or terminated programs falls on those who are least able to bear those burdens.

I hope that 2022 brings an end to using tax laws to accomplish goals that are best funded directly, openly, and efficiently.

I hope that 2022 brings an end to the pandemic, so that the IRS, tax practitioners, and taxpayers can say goodbye to delays, complications, and confusion.

I hope that 2022 brings a restoration of postal service, not only for the few people who use mail to file tax returns, but also for everyone who uses the postal service because they don't have digital access (yes, there are some in that position), or cannot afford private delivery service, or who are transmitting something that cannot be sent electronically.

I hope that 20022 brings a surge in quality education, and a disappearance of propaganda and social media mistruths, not only with respect to tax, but also with respect to health, shopping, contracts, travel, and everything else for which being educated provides an advantage over being ignorant or misinformed.

I hope that 2022 brings an end to those on the losing end of a score claiming that they are winners, and who seek to cheat rather than accepting the reality of their performance.

I hope that 2022 brings peace, justice, good health, and integrity to all in the world.

One thing that strikes me as bewildering about tax return preparation fraud is that preparers will try the very same stunt that brought other preparers to court and prison. One need only read some of the instances discussed in my previous commentaries on this issue to see what I am describing. Take a look at 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), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, and It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns.

This time, according to a Department of Justice news release brought to my attention by reader Morris. According to the release, an Indiana tax return preparer was sentenced to 39 months in prison, a year of supervised release, and payment of more than $1 million in restitution after pleading guilty to inventing non-existent income in order to increase clients’ earned income tax credits, and to inventing false information to generate education credits. During the three years in question, the preparer filed more than 300 fraudulent returns, including his own. By charging roughly $1,000 per return, he pulled in hundreds of thousands of dollars in revenue. His falsifications generated more than $1,000,000 in excess tax refunds for his clients. And, of course, he did not report any of his fees as gross income. Even worse, he had previously pled guilty to criminal tax charges five years earlier, was sentenced, and after learning he was being investigated yet again, opened 15 new bank accounts while claiming he no longer prepared returns.

The earned income tax credit ploy has been used repeatedly by fraudulent tax return preparers. One would think that by now they would have figured out that it doesn’t work in the long run. The new bank account trick is also timeworn yet still used by those who think that they are special and won’t get caught. And, of course, another practice, failing to report tax return preparation fees as gross income makes it even easier for the IRS and Department of Justice to find these folks. True, there may be some preparers who have used these “techniques” who haven’t been caught, but it’s simply that they haven’t *yet* been caught.

The parade of tax return preparers trying to get away with a crime and then getting caught continues. If you’ve missed the parade, some portions of it can be viewed by reading the commentaries in which I have discussed the activities of some of these preparers. I’ve done so 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), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, and Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer.

But this time, according to a recent Department of Justice news release, it wasn’t a tax return preparer who rigged up a tax fraud scheme. It was a mortgage underwriter who in 2015 and 2016, along with several others, told their clients that they could pay off their mortgage loans by filing forms with the IRS claiming that substantial amounts of taxes had been withheld when, in fact, that was not the case. The mortgage underwriter and his co-conspirators knew that the forms were false. The forms filed by the clients and detected by the IRS generated more than $4 million in unjustified tax refunds. The mortgage underwriter charged fees of between 20 and 35 percent of the refunds, and then shared some of those fees with the others involved in the scheme. When the IRS discovered the fraud and began its investigation, he provided the clients with fraudulent documents to send to the IRS, telling the clients to hide his role in the filing of their returns and also advising a client to remove funds from his bank account to prevent the IRS from collecting the taxes that were due. On account of these activities, he was convicted of conspiring to defraud the IRS, aiding and assisting in the preparation of false tax returns, and obstructing the IRS.

It gets worse. The mortgage underwriter also failed to file a return for 2016. He also did not pay taxes on any of his income for that year, including the income derived from marketing and operating the fraudulent filing scheme. For this, he was convicted of failing to file a tax return.

For all of these crimes, he was sentenced to 12 years in prison. He also was ordered to serve three years of supervised release and to pay about $4.2 million in restitution to the United States.

So if he is in prison, how does he come up with $4.2 million? Does he have that much in assets? Probably not. He probably collected about $1 million in fees, gave some to his co-conspirators, and surely spent at least some of what remained. Perhaps he has some other assets. Perhaps not. Will he, when released, have the ability and time to earn the amount that must be paid in restitution? Should he be spared prison so he can earn the amount needed? No. One can only wonder how he would then try to find $4.2 million. Of course, perhaps the IRS can collect some of the fraudulently paid refunds, but even if it does so, it ought not reduce the required restitution.

The lesson? In addition to being careful in selecting a tax return preparer, be just as careful when getting tax advice from someone who is not a tax expert. A mortgage underwriter tells you to file a particular form in order to pay off a mortgage? Take the form to a reputable tax professional and find out if it is legal, not just in a tax sense but also in terms of debtor-creditor law.

Over the years, television court shows have been supplying me with material for this blog. Some of my commentaries about these episodes include Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, and A Taxing WhatAboutIsm Attempt.

This time it’s episode 4 of Hot Bench’s season 8. Piecing together the facts is a bit challenging because both parties were rather disorganized in presenting their case.

Many years ago, the plaintiff and the defendant were in a relationship. The defendant became pregnant, and put the baby up for adoption. The plaintiff and defendant broke up. Years later, they reconnected and got married. The defendant had taxable income. The plaintiff received nontaxable disability benefits. The defendant compared filing a joint return with filing separately, and concluded that filing separately would generate a larger refund than if they filed jointly. However, at another point the defendant suggested that filing separately would cause her to owe additional tax. The parties agreed that the defendant would claim her husband, the plaintiff, on her return – how that was possible was not explained, nor was it clear that is what the defendant did – and also would take a child tax credit for the plaintiff’s daughter from a previous relationship. Again, how that was possible was not explained. The defendant stated that by claiming her husband and his daughter she would receive a refund rather than owing additional tax.

According to the plaintiff, the defendant agreed to give him a portion of her refund equal to $3,500 minus however much was held back to pay back child support owed by the plaintiff. When asked several times during the proceeding how much back child support he owed, the plaintiff gave three different answers, including $700, $1,700, and $3,500.

The defendant denies that there was an agreement. The court pointed out that the plaintiff would not have given the defendant permission to make claims with respect to him and his daughter if he wasn’t getting something in return. At the time of the alleged agreement, the plaintiff and defendant were not on good terms.

The plaintiff then alleged that no child support was taken out of the defendant’s refund by the IRS because the back child support had been taken out of his state income tax refund. There was no inquiry into why the plaintiff would be filing a state income tax return if his only income was nontaxable disability payments. The plaintiff alleged that the defendant did not transfer any money to him, which was why he was suing her.

The defendant then claimed that the plaintiff did get the money and that it went to pay his back child support. She claimed that on her federal income tax return she designated that part of her refund be deposited into the plaintiff’s bank account. When showed the bank account number, the plaintiff stated that it was not his bank account. The defendant then claimed that all of her refund went to pay the plaintiff’s back child support. She claimed that she then had to file an amended return because she received a letter from the IRS telling her to do so, but she could not produce the letter. It was unclear why the IRS would have sent her such a letter, and it is possible that no such letter was sent.

The plaintiff also sued for return of his wedding ring, and the defendant countersued for alleged damage to their house, and for the plaintiff’s alleged harassment and insulting the defendant’s son by a previous relationship. The plaintiff had already filed a different lawsuit for return of his property but did not include his wedding ring because he had not discovered it was missing until after that lawsuit was final.

The judges agreed that there was an agreement as the plaintiff described. They did not find proof that the bank account number was for the plaintiff’s bank account. They also found the plaintiff more credible than the defendant. However, the plaintiff’s confusing statements of how much back child support he owed, for which he gave three very different amounts, left the judges insufficiently convinced that the plaintiff had met his burden of proof with respect to damages.

The judges dismissed the claim for the wedding ring on procedural grounds because the plaintiff had filed a previous suit for property and should file motion for reconsideration of that case in the court that heard it. They rejected the defendant’s counterclaims for lack of proof because she had offered no evidence but her own uncorroborated testimony.

The lessons from this case should be obvious. First, put the agreement in writing. Second, retain evidence of what was done pursuant to the agreement. A written agreement and appropriate evidence would have cleared up the confusion that clouded the case. The plaintiff failed to provide evidence of how much back child support was in play. The defendant failed to produce the alleged letter from the IRS. The plaintiff failed to provide evidence of back child support being taken out of a state income tax refund. The defendant failed to provide evidence that any money was paid to the plaintiff.

It is understandable that people enter into oral agreements, as unwise as that is in many instances, because it is quick, inexpensive, and perhaps a repeat of previous successful deals. But when the two parties are not on good terms, as was the situation in this case, or as is the case when there is litigation to be settled, the agreement must be in writing. And there is no good reason not to put it in writing.

Like other readers of this blog, reader Morris knows that I pay attention to the adventures of tax return preparers who do things that they ought not to do or failed to do something they ought to have done. I have written about these situations on many occasions, including 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), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, and Don’t Get Burned By a Tax Return Preparer.

Reader Morris came across a news story that he knew would get my attention. Why? Because it tells the tale of a tax return preparer whose misdeeds soar beyond those of the tax return preparers who have been the subject of previous commentaries. According the story, the owner of a tax return preparation business was charged not only with preparing fraudulent returns but also with operating a “Tax School” where the preparer taught others how to prepare fraudulent returns. For the past five years, students at this “school” would pay $500 to learn how to “manipulate returns by listing fake businesses and fake expenses on tax forms.” Prosecutors allege that during one class, the preparer “described how she created a fictitious dog grooming business on a client’s return, created a fake profit and loss statement and even instructing a client to print out dog photos to support the claim of a business.”

The preparer has been charged with one count of aiding and assisting in the preparation of false and fraudulent federal income tax returns. The sentence if there is a conviction is a maximum of three years in federal prison and a $100,000 fine. That’s not enough. Surely the more people she taught how to commit tax fraud, the longer should be the sentence. It’s unclear how many people attended the preparer’s “school” and how many of them went on to prepare fraudulent tax returns. Surely after five years the numbers must be in the dozens if not more. So if, for example, this fraudulent tax return preparer spawned another 36 fraudulent tax return preparers, the maximum sentence is one month for each person led astray. That’s not enough. It’s not even close to what is necessary. It’s also unclear whether prosecutors are tracking down the persons who attended this “school” to determine if they engaged in fraudulent tax return preparation. My guess is that those investigations, if they happened, are already concluded, because the news of the “teacher” at that “tax fraud school” being charged would have the students running for cover. It remains to be seen how many of those students, if successfully sued by their clients for the consequences of fraudulently altering their returns, will in turn sue the owner and teacher of what I would call “Tax Fraud School.”

Reader Morris pointed me in the direction of Yahoo reprint of a Business Insider article that suggests treating loans taken out by the wealthy as realized income. The article points out that by borrowing on assets rather than selling them, the wealthy can extract cash without adverse income tax consequences. That conclusion is correct. The article contends that when assets “are used as collateral to draw a line of credit and avoid a taxable event, it creates immediate value for the owner.” This conclusion is incorrect. There is no increase in value when a taxpayer adds cash to the asset side of the balance sheet and an equivalent amount of debt to the liabilities side of the balance sheet. Income arises when a person is wealthier, and borrowing money does not make a person wealthier.

The key, though, is determining when to tax an increase in wealth. Existing tax law does not tax increases in asset value until that increase is “realized.” Under existing law, borrowing money while using the asset as collateral is not a realization event, whereas a sale of the asset is a realization event. Proposals to tax unrealized income, that is, the increase in asset value that isn’t taxed under current law, encounter objections because determining value can be difficult in some instances. On the other hand, because most lenders limit the amount of a collateralized loan to something less than the asset’s value, the act of borrowing money while using an asset as collateral can establish some amount of a minimum value.

Reader Morris asked me, “Does this article describe an easy way to tax billionaires that would actually work?” I doubt it. First, defining borrowing as a realization event could have unintended consequences. What if the borrowing is designed to raise cash to invest in the business rather than to support consumption? The article describes reducing consumption by the wealthy as one objective of reducing or eliminating the use of collateralized loans to generate untaxed cash flow. Second, finding an appropriate, justifiable, and fair way to spare the non-wealthy from being taxed when collateralizing assets to borrow money would be challenging. It not only requires deciding if wealth or income should be the measuring stick, but also determining where the cut-off should be. On top of that, how to treat taxpayers whose wealth or income fluctuates above and below the cut-off poses challenges. If this proposal were to be enacted and curtail borrowing by the wealthy, what would that do to credit markets and interest rates? Perhaps someone already is doing studies to determine the answer. But without assurance that the outcome would not have undesirable unintended consequences, taking this approach requires great caution.

Reader Morris also asked me, “Do you have an easy way or anyway to tax billionaires that would actually work?” I jokingly replied that perhaps it was a proposal I had seen, perhaps not intended as a joke, that the tax law should have a section that states, “You are now worth a billion dollars. You won! You have all you need. Any income over $20,000,000 a year will be taxed at 100 percent so others can enter the game.” Seriously, the easy way is to repeal the provisions that were enacted under the pretext of trickle-down, and to do so retroactively. One specific provision that has been in the tax law since the beginning that needs to be jettisoned is the allowance for depreciation deductions on property that is not depreciating in value, one of the major types of assets used to collateralize the sort of loans the Business Insider article wants to tax.

Today is Thanksgiving. For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things. Aside from 2008, when I did not post and I don’t have any recollection of why or how that happened, I’ve dedicated a post on or around Thanksgiving. I started in 2004, with Giving Thanks, and continued in 2005 with A Tax Thanksgiving, in 2006 with Giving Thanks, Again, in 2007 with Actio Gratiarum, in 2009 with Gratias Vectigalibus, in 2010 with Being Thankful for User Fees and Taxes, in 2011 with Two Short Words, Thank You, in 2012 with A Thanksgiving Litany, in 2013 with “Don’t Forget to Say Thank-You”, in 2014 with Giving Thanks: “No, Thank YOU!” , in 2015 with Thanks Again!, in 2016 with Thankfully Repetitive, in 2017 with Never-Ending Thanks, in 2018 with Particularly Thankful This Time Around, in 2019 with Quest'anno è il Ringraziamento, and in 2020 with Different, But Thanksgiving Nonetheless.

As I stated the past eight years, “I have presented litanies, bursts of Latin, descriptions of events and experiences for which I have been thankful, names of people and groups for whom I have appreciation, and situations for which I have offered gratitude. Together, these separate lists become a long catalog, and as I have done in previous years, I will do a lawyerly thing and incorporate them by reference. Why? Because I continue to be thankful for past blessings, and because some of those appreciated things continue even to this day.” When I re-read those lists, I realized that the people, events, and things for which I am appreciative are far from obsolete.

So once again I will look back at the past twelve months, and remember the people, events, and things for whom and for which I give thanks. If some of these seem repetitive, they are, for there are gifts in life that keep on giving:

• I am thankful for a wonderful son, daughter, daughter-in-law, grandson, and granddaughter.
  
• I am thankful for all the people who continue to help update the multiple family trees I develop, maintain, update, and publish.
  
• I am thankful for the cousins I have met through FTDNA, ancestry, and 23andme, who I did not know existed, and for the opportunity to get in touch with cousins who I knew existed but with whom I had no contact until they showed up on one or more of those genetic genealogy sites.
• I am thankful that we found a way for my congregation’s choir to resume singing, using special masks and distancing, for its continuing toleration of me as its president, and for our Minister of Music, who has guided the choir through a long period of uncertainty and unexpected challenges.
  
• I am thankful that we are once again able to gather in the sanctuary for worship, and, yes, that I continue to ring the narthex bell.
  
• I am thankful for having had the opportunity to continue teaching law courses, for the patience of students who had to endure another Zoom session last spring even though classes had returned to the building, because of social distancing class size challenges that affected the course I was teaching.
  
• I am thankful that, barring some extraordinary obstacle, I return to the classroom for next semester’s course.
  
• I am thankful for all the people in the world who continue to fight ignorance, crime, terror, evil, and corruption.
  
• I am thankful for people being willing to read the things I write.

Fifteen years ago, in Giving Thanks, Again, I shared my Thanksgiving advice. I liked it so much that I repeated it again, in 2009 in Gratias Vectigalibus, yet again in 2013 in “Don’t Forget to Say Thank-You”, still again in 2014 in Giving Thanks: “No, Thank YOU!” , even yet again in 2015 in Thanks Again!, even still again in Thankfully Repetitive, yet once more in Never-Ending Thanks, yet even once more in Particularly Thankful This Time Around, again in Quest'anno è il Ringraziamento, and last year in Different, But Thanksgiving Nonetheless. For me, it does not lose its impact:

Have a Happy Thanksgiving. Set aside the hustle and bustle of life. Meet up with people who matter to you. Share your stories. Enjoy a good meal. Tell jokes. Sing. Laugh. Watch a parade or a football game, or both, or many. Pitch in. Carve the turkey. Wash some dishes. Help a little kid cut a piece of pie. Go outside and take a deep breath. Stare at the sky for a minute. Listen for the birds. Count the stars. Then go back inside and have seconds or thirds. Record the day in memory, so that you can retrieve it in several months when you need some strength.

I am thankful to have the opportunity to share those words yet again. And I am thankful that even in another pandemic-affected Thanksgiving it is possible for even more of us to do all of those things, and for others of us to most of those things.

Section 9901(c) of the American Rescue Plan Act provides roughly $195 billion to be allocated among the 50 states, the District of Columbia, and specified territories to be used for one or more of four purposes: (1) providing assistance to “households, small businesses, and nonprofits” and “impacted industries such as tourism, travel, and hospitality”; (2) responding “to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers”; (3) making up for pandemic-related reductions in state government revenue; and (4) paying for “necessary investments in water, sewer, or broadband infrastructure.” Id. § 802(c)(1)(A-D). The legislation also prohibited the states and territories from putting the money into “any pension fund,” or using the funds to “directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” A group of states challenged the second restriction, and a few days ago a federal district judge, in West Virginia v. U.S. Dept. of Treasury held that the restriction is inconsistent with the limitations placed on the spending clause by Supreme Court precedent.

Id. § 802(c)(2)(A). The phrase “directly or indirectly offset” is not defined in the ARPA. The ARPA requires any State that receives funds to “provid[e] a detailed accounting” to the Secretary of “all modifications to the State's . . . tax revenue sources” for the covered period, as well as “such other information as the Secretary may require for the administration of” the Tax Mandate. Id. § 802(d)(2). The Secretary can recoup funds that she interprets were used in violation of the Tax Mandate. Id. § 802(e)(1). The Tax Mandate's “covered period” extends from March 3, 2021, until all funds “have been expended or returned to, or recovered by, the Secretary.” Id. § 802(g)(1). The ARPA also authorizes the Secretary “to issue such regulations as may be necessary or appropriate to carry out” the applicable statutory provisions. Id. § 802(f). The principal problem is that the legislation does not describe how it can be determined if the funds are used to directly or indirectly reduce state taxes.

To me, it seems as though the problem would not have arisen had the language of section 9901(c) been drafted more carefully. To ensure that the funds were used for the intended purposes, the legislation could have provided that the state demonstrate that the amount it spent for each of the four purposes during the covered period equaled or exceeded the average annual amount it had spent on each purpose during the, say, five-year period preceding the date of enactment of the legislation multiplied by the number of years in the covered period. In other words, require the states to select one or more of the four purposes and then increase the amount spent on each purpose. That would prevent the funds from being used to reduce taxes because reducing taxes would require the state to spend less than the required amount on the selected purposes which would cause a reduction in the funds being disbursed to the state. If the state reduced taxes in order to cut funding for purposes other than the four purposes, that would not involve using the allocated funds for the required increases in the four specified purposes. Thus, for example, a state could cut its gasoline tax if that tax was dedicated solely for highway infrastructure repair and maintenance, not one of the four specified purposes, and reduce spending on highway infrastructure repair and maintenance.

In all fairness, careful drafting takes time. Like most legislation, the American Rescue Plan Act was amended and altered in the hours leading up to passage. When faced with a deadline embedded in “get this drafted within the next 30 minutes,” the legislative language becomes more conceptual and theoretical rather than useful for practical application, which was the core of the complaint raised by state officials. This problem is just one example of how the Congress is dysfunctional in meeting its responsibility to tend to the legislative needs of the nation.

Six days ago, in SALT Cap Conundrum: The Solution Is Easy, I proposed a solution to the SALT cap conundrum. An existing proposal to eliminate the cap on the state and local tax deduction would disproportionately benefit the wealthy. So I suggested that the cap should be a fixed amount, adjusted for inflation, reduced by ten percent of the taxpayer’s modified adjusted gross income. I did not get into the details of defining modified adjusted gross income other than suggesting that it include tax-exempt income. I selected $40,000 as the initial fixed amount because that amount, applied to the formula, would cause little or no loss of the state and local tax deduction for taxpayers with less than $400,000 of modified adjusted gross income, the breakpoint being used in the proposed legislation for other changes. My proposal would mean that taxpayers with $400,000 or more of modified adjusted gross income would be denied the state and local tax deduction.

I then invited anyone with “connections” to those who are drafting the legislation or engaging in negotiations to share this proposal, by sharing the URL for this post. So perhaps it is coincidence that yesterday, according to this Norman Transcript article and this Bloomberg report, among others, Senator Bernie Sanders announced that he and some of his colleagues are “working on a plan that would give an unlimited deduction on federal returns for state and local taxes, or SALT, under a certain income level that is still being negotiated.” His plan, unlike mine, would permit the wealthy to continue deducting up to $10,000 of state and local taxes. He added that he and his colleagues “are still discussing how the phase out of the unlimited write-offs would work.” My proposal isn’t the only way to accomplish this, but I am guessing that it, or at least its phase-out mechanism, is on the table. But don’t let that stop anyone with “connections” to share my proposal, as the more times it reaches the legislative staff, the more attention it will get.

The channel guide summary of a Justice with Judge Mablean episode caught my eye, for a reason I will describe below. As readers of MauledAgain know, when I get a chance to watch a television court show episode, I do so to see if a tax twist turns up in the proceedings. I have commented on television court show episodes in posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, and A Taxing WhatAboutIsm Attempt.

The episode in question was season 7, episode 50, entitled, ““Broken Prom Promise & Help a Brotha Out.” The facts are amusing and yet instructive. The plaintiff and defendant are twins. The twins go out one evening and have a good time. The next morning, the defendant twin is so hung over that he calls the plaintiff twin and asks him to fill in for him at his job as a truck driver at an airport. Both twins testified that throughout their lives they had switched places. So the defendant twin goes to the airport, and drives the truck. When asked by the judge what would have happened had he simply not showed up, the plaintiff twin responded that he probably would have been suspended or perhaps even fired.

So the defendant twin, tired from the previous evening, decided to pull the truck over on the tarmac to take a quick nap. Somehow, as he was pulling over, he dozed off for a moment and was jarred awake from his truck hitting another truck. A supervisor or someone with the employer then suspended the employee twin for a week. The plaintiff twin, the one who was suspended, sued his brother for lost wages.

The judge held that Judge ruled that because the defendant twin replaced the plaintiff twin, the defendant twin “became” the plaintiff twin, so that legally it was the plaintiff twin who was treated as having hit the truck, and thus the suspension was on account of the plaintiff twin’s actions, and not the actions of defendant twin. Accordingly, the judge held for the defendant twin. I wonder, though, if the defendant twin had run over and killed a third party, which twin would be prosecuted for that act.

The episode’s summary, and then the episode itself, reminded me of a series of experiences I had early in my teaching career. One Friday afternoon, one of the students in the basic tax class came into my office with a tax question. The facts that he posited, and the way he phrased the question seemed a bit unusual but I attributed it to nervousness or insecurity or some other sort of uncertainty. As I started to reply, I heard lots of laughter in the hallway. In came several students, including, wait, one that looked totally identical to the one in my office. It turned out that the student had a twin brother, who, I learned, was in medical school.

A few weeks later they tried the stunt again. It didn’t work. For some reason I had noticed what the student twin was wearing in class that day – I think it was a t-shirt with a particular Philadelphia sports team logo – so when the medical student twin came in wearing a different shirt and with another fabricated tax question, I simply responded by asking what sort of medical test would be required. Immediately there was laughter from the hallway, and the two twins realized why the stunt failed.

Another few weeks go by, and in comes the student twin. Surely it was him, as he was wearing what he had been wearing in class that day, another Philadelphia sports team t-shirt but not the same team as the last time he stepped in. So he poses his pretensive tax question, and I begin to answer, and again there is laughter from the hallway. It turned out that the two twins had exchanged clothes just before coming to my office.

I lost touch with the twins. A few years ago, I am listening to a sports radio talk show and the host interviews a sports medicine doctor. The doctor’s surname matches that of the two twins. Is it him? He begins to speak, and indeed, it must be him. Because I was driving, I resisted the temptation to call into the show and try to pull a retaliatory stunt by asking a legal question of the doctor and then noting that “perhaps your brother would know.”

No, I am not going to disclose their names. Perhaps one of them will read this commentary and react. I doubt it. Perhaps one of the many students who were in on the pranks, will recognize them from reading this commentary and let them know that their prank has been memorialized in a blog post decades later. The good news is that unlike the twins in the Justice with Judge Mablean episode, these two’s switching prank did not turn out badly.