MauledAgain

My commentaries about indictments of tax return preparers, in posts such as Tax Fraud Is Not Sacred, Another Tax Return Preparation Enterprise Gone Bad, More Tax Return Preparation 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, and Is This How Tax Return Preparation Fraud Can Proliferate?, have focused on the consequences to tax return preparers of their bad behavior, though I have also mentioned the need for taxpayers to be careful when selecting a tax return preparer.

Now comes a report that drives home the danger to taxpayers whose returns are prepared by unscrupulous tax return preparers. In a sense, the headline is an attention-grabber: “Customers under IRS audit after local company prepared their tax returns; Clients promised ‘maximum’ tax refunds must now give money back to government.”

The tax preparation firm followed through on its promise of “maximum” tax refunds by entering erroneous information on their clients’ tax returns. I wonder, did the taxpayers look at their returns before allowing them to be filed? Did they see any entries that did not seem right? For example, did they see charitable contributions listed for amounts far in excess of what they knew they paid? Did they see names of dependents that they did not recognize? Part of me finds it difficult to be totally sympathetic with taxpayers who don’t look a the returns prepared for them, or who, if doing so, ignore what clearly is erroneous information. On the other hand, to the extent the erroneous information was buried in worksheets not filed with the return, it becomes a bit easier to sympathize with the taxpayer who, after having spent the refund, learns that there is now a debt payable to the IRS. That can’t be fun.

One customer of the tax preparation firm expressed a desire that the company refund to her the tax return preparation fees she paid to the company. Good luck. I wonder how much cash or other resources the company will have after the IRS and prosecutors are finished with it. This customer recalled that after asking the employee preparing her return, :How is it possible that you’re getting people back a lot of money?” and he replied, “We get you the most exemptions and deductions possible.” She said that she did not immediately notice that her return had more deductions that it should have had. But that was because the preparer did not give her a copy of Schedule A, which listed the details of the deductions. Should a customer be required to ask for that schedule? No. Many, perhaps most, people using commercial tax return preparers would not know if Schedule A had been prepared or to ask for it if it was missing from “the copy of the return” provided by the preparer. This customer did not learn of the problem until contacted by the IRS. On the other hand, with the 1040 form showing $33,000 in gross income and almost $33,000 in deductions, perhaps some sort of red flag should have popped up. But perhaps not. Yet this customer explained that she told the preparer she did not have any deductions, although the preparer then entered almost $9,900 in gasoline expenses, $9,900 in miscellaneous expenses, and $9,857 in charitable contributions on the customer’s return. Though the return prepared by the company showed the customer getting a refund of $2,456, when the IRS finished its audit, the customer’s refund was only $166. The company took its $1,058 fee out of the customer’s refund and put the balance into her bank account. So although only $1,398 went into her bank account, she is on the hook for repaying $2,290 to the IRS. This customer was not alone. Others also had similar experiences, including a couple for whom the company prepared a return showing a refund of $4,379 but who, after the IRS audit, ended up owing $1,095 and not being entitled to any refund.

At least six of the customers filed complaints with the Better Business Bureau. Because the company did not respond to the Bureau’s request for explanations, it issued an “F” rating for the company. Other complaints have been filed with at least one state agency.

What makes the story more interesting is the claim by the owner of the company that “he was unaware of the customer complaints” and that “he did not realize most of the phone lines at his company’s nine Central Florida locations had been disconnected.” With the phone lines down, customers who have been audited are unable to get help from the company. The owner shifted blame to his “management team.” After this news broke, the company established a new phone line and issued an apology.

What’s a taxpayer to do? Talk with relatives, friends, and business associates. Ask them to describe their experiences with the tax return preparer that they use. Seek out a tax return preparer who has been preparing the other person’s returns for many years free of problems. Beware of the advice to use a tax return preparer who has been used only once, or even not at all. Look at reviews on various web sites. Google the name of the tax return preparer. If the preparer is a company, ask for the names of its owners and managers, and google those names. If the return that is prepared is “too good to be true,” don’t agree to its being filed, but ask for a copy and take it to another preparer for a second opinion. If it’s good to go, return to the original preparer and approve the filing. If it’s not good to go, file a complaint about the preparer with the IRS, and seek a fee refund from the original preparer.

The story begins in 2017. Summarizing what I wrote in “Creative” Attempt to Boost Tax Revenue Fails Court Test, a dispute arose between school districts and owners of land on which billboards were located. The dispute centered on a Pennsylvania state law that, thanks to lobbyists, prohibits localities and school districts from subjecting billboards, wind turbines, amusement park rides, and silos used to store animal feed to the real property tax.

As reported in this Philadelphia Inquirer story, the school districts’ attorney took a “creative” approach by arguing that the value of the taxable land was increased by the existence of the billboards. The owners of the billboard companies objected, and after the Board of Assessment and Appeals agreed with them, the school districts appealed to the Court of Common Pleas. They lost.

The attorney for the school districts explained, “If I own a piece of ground and I’m renting it to a billboard company for $2,000 a month, why shouldn’t I have to pay tax on the ground as if I can rent it for $2,000 a month?” I pointed out two flaws in this rhetorical question. First, in addition to income, replacement cost and comparable sales are factors in determining the value of property. Second, the presence of the billboard increases the value of the property, but that doesn’t mean that it increases the value of the land. For example, assume that the small plot of land is worth $10,000. Assume that a billboard is constructed and that it has a value of $40,000. The property is now worth $50,000. The school district’s “creative” argument is that the land is now worth more than $10,000. But because the property continues to be worth $50,000, assigning a value of, for example, $30,000, to the land means that the billboard is being treated as worth $20,000. If the billboard is removed, the land continues to be the same $10,000 piece of land that it was before the billboard was installed (assuming that the land was not otherwise damaged or improved, which is most likely the case). In other words, the issue is a matter of determining how much of the property value to allocate to the land. The land’s value does not change when an improvement is made. What changes is the value of the property. Those are two different things. I then pointed out the flaw in treating billboards, wind turbines, amusement park rides, and animal feed silos differently from, for example, cell towers.

The School districts appealed to Pennsylvania Commonwealth Court. I discussed in the court’s decision in If It’s Real Property, It Should Be Subject to the Real Property Tax. According to this Philadelphia Inquirer article, the court concluded that the land on which billboards are placed is subject to the real property tax even though the billboards themselves are not exempt from the tax under the statute. In other words, the court rejected the taxpayers’ argument that because the billboards are exempt, the land on which they sit is exempt. The court’s conclusion makes sense because otherwise putting property that is not real property and thus not subject to the real property tax, such as vehicles, tables, chairs, tools, or equipment, on land would make the land exempt. The court also rejected the taxpayers’ argument that the legislature intended to exempt the land, for the simple reason that the statutory language does not exempt the land but only the billboard. The court reversed the decision of the Court of Common Pleas and held that the assessment of the taxed land on which the billboard sits could reflect the increase in the value of the land due to the existence of the billboard.

The taxpayers appealed to the Pennsylvania Supreme Court. Last week, the Court issued its decision. The Court framed the question as follows: “Where a real estate owner leases real estate or grants an easement to a billboard owner to situate a billboard upon the real estate, is a taxing district prohibited by the statutory exclusion for “signs and sign structures” contained in [the statute] from considering the rents and other payments from the billboard owner to the parcel owner when valuing the real estate for the purposes of real estate tax assessment.”

The Supreme Court began by pointing out that the assessment of taxable real property must reflect its fair market value, defined as “the price a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, considering all uses to which the property is adapted and might reasonably be applied.” Because the landowners receive rent or easement payments from the billboard companies, the Court concluded that so long as purchasers of the land would continue to receive those payments, those payments would enhance the fair market value of the land using the income approach to real estate valuation. The Court rejected the taxpayers’ argument that taking into account the rent income from the billboard would put part of the billboard’s exempt value into the value of the tax-exempt land, reasoning that although the value of the billboard reflects the income it generates from advertisers, its actual value must also take into account the expenses of operating it. The Court treated the premise of the taxpayers’ argument as conflating income from the advertisers to the billboard owner with the income the landowners received from the billboard owner. In other words, the Court disagreed with the taxpayers’ description of the “billboard’s value” as the value before the lease payments are taken into account whereas the Court considered those payments not to be a part of the billboard’s value. The Court concluded that the capitalized value of the lease payments, not being part of the billboard’s value, can be considered as part of the value of the land without shifting any value of the exempt billboard into the value of the tax-exempt land. And, the Court continued, this conclusion does not violate the exempt status of the billboard because it does not include the value of the billboard, net of lease payments, in the value of the land. Accordingly, the Court affirmed the decision of the Commonwealth Court.

How does the Court’s analysis change the analysis I shared in the example I provided several years ago. In that example, I posited a small plot of land worth $10,000, and the construction of a billboard on the land with a value of $40,000, making the value of the property $50,000. I argued that the approach taken by the school district, and approved by the Court, shifts some of the value of the billboard to the land. In other words to treat the land as worth $20,000 would require treating the billboard as worth $30,000. What the Court appears to be saying is that the existence of the billboard creates additional value, such that the billboard continues to be worth $40,000, while the land increases in value to, say, $20,000, making the property in its entirety worth $60,000. There is some sense to this conclusion, which can be demonstrated as follows. When the land was empty, it had a value of $10,000. With a billboard on it that generates an income stream to the landowner, the land has more value. A third party would be willing to pay more than $10,000 for the land if it came with an income stream. But is the purchaser buying the land for more than $10,000, or is the purchaser paying $10,000 for the land and, say, another $10,000 for the income stream? Put another way, should the income stream be treated as part of the land because the land generates that income stream? According to the Court, the answer is yes. The flaw In the reasoning is that the land is not generating the income stream. The billboard is generating the income stream. Without the billboard, the income stream does not exist. To use another example, suppose someone owns land, parks vehicles on the land, and rents those vehicles to individuals needing cars under year-long leases. The value of the vehicles has nothing to do with the value of the land. If the landowner sells the land, along with the vehicles and existing leases, the fact that the purchaser would pay more for the package than for just the land does not change the value of the land. Put another way, the capitalized value of the lease payments from renting out the cars does not increase the value of the land on which the cars are parked. The fact that the owner of the land is the owner of the car should not make a difference.

All of this is attributable to a deeper flaw. What generated this litigation is the statutory exemption for billboards, an exemption that also applies to wind turbines, amusement park rides, and animal feed silos, but not, for example, cell towers. If the legislature would treat all structures on land as real property, the dispute over the valuation of the land and the structure would be unnecessary. The law would be less complicated, an outcome that is desirable when the complication is necessary only because of special interest lobbying.

Interestingly, the Philadelphia Inquirer article that alerted me to the Pennsylvania Supreme Court’s decision characterized the court as having “overturned a long-accepted property tax exemption for billboards.” Technically, it did not overturn the exemption. The outcome of the case does not cause the entire value of the billboard to be included in the value of the taxed land on which it sits. Some commentators suggest that school districts and other taxing authorities might try to increase the assessments on land occupied by wind turbines, amusement park rides, and animal feed silos. The attorney for the school districts noted that the revenue to the school districts generated by the Court’s decision will continue “at least until lobbyists get to the legislators again and change the law.” My guess is not that the legislature will remove the special treatment of billboards, wind turbines, amusement park rides, and animal feed silos, but will add cell towers and who-knows-what-else to the list of exempt items. Unfortunately, it is unlikely that people’s residences would be added in their entirety to such a list of exempt items.

During the past week or so, television news shows, social media posts, and newspapers have been abuzz with reports about the President’s tax returns and the assertion that he has paid little or no taxes in many of the years in which he has filed federal income tax returns. One of the recurring themes is the unhappiness about the higher rate of federal income tax paid by average taxpayers and the lower rate paid by millionaires and billionaires.

For example, in the CNN Report with the grammatically incorrect but attention-getting headline of “Why you pay taxes, and rich Americans -- like Donald Trump -- don't always have to,” Anna Bahney asks, “How is it that a millionaire can pay hardly any income taxes -- or none at all -- while most people, earning far less, owe more?” Among her explanation is this quote from Frank Clemente, executive director of Americans for Tax Fairness: “Real estate professionals are able to claim losses from depreciation of their properties. Even if the property value goes up, because the building located on the property depreciates, it reduces tax liability.”

As I wrote in The Parade of Tax Horribles Never Ends, “The depreciation deduction is not one of my favorites. Too often, it permits taxpayers to report, and pay tax on, a taxable income amount that is much less than the taxpayer’s economic profit.” Anyone who browses my MauledAgain commentary, or who has been reading them as they’ve been published, notices that my complaints about the depreciation deduction appear at least once a year. Why? Because every time we blink, the folks who benefit the most from the depreciation deduction, use some of their resources to persuade the Congress to expand the scope of the deduction to reach even more properties. They claim that doing this for them will make the economy better, though that’s not the case, and of course, any attempt to rein in this ill-conceived deduction is met with claims that cutting back on it will destroy the economy.

More than eleven years ago, in Instead of More Favorable Depreciation Deductions, Eliminate Them?, reacting to proposals to expand depreciation, I pointed out “the bizarre impact of a deduction that is allowable to a taxpayer even when the taxpayer is becoming wealthier.” I explained, “Deductions should be triggered by a decline in wealth, or out-flow, just as gross income is triggered by in-come. Not all income becomes gross income, and not all out-flow becomes a deduction, but it's flat out silly to permit a deduction to someone on account of a pretensive decline in value of property that has not only failed to decline in value but that has increased in value.” Reacting to those who justify depreciation of buildings that increase in value by pointing out the less favorable depreciation rates applicable to real property, I tagged the differences as misleading, noting that “Giving two pounds of cheese to a wealthy person when distributing five pounds of cheese to a poor person when operating a food bank for the hungry doesn't reduce the absurdity of giving free food to someone who is not financially bereft.”

At about the same time, in Abolish Real Estate Depreciation Deduction? An Idea Gathers Attention, I offered this analysis:

As the debate over an economic recovery stimulus package continues, the idea of eliminating a deduction that is inconsistent with economic reality may find more advocates. Tax breaks ought not be extended to those who don't need them. Casualty loss deductions don't exist for taxpayers who have not endured casualties, trade or business deductions are not allowed to taxpayers who are not carrying on a trade or business, interest deductions aren't provided to those who are not in debt, and thus depreciation deductions ought not be permitted for properties that aren't depreciating.

Five years ago, in The Parade of Tax Horribles Never Ends, I wrote, “It’s time to limit depreciation to the economic decline in the value of the property. If it remains acceptable to provide deductions for economic losses that haven’t happened and that may never happen, perhaps it’s time to tax future economic gains that haven’t happened and that may never happen. Imagine the outcry.”

So to the extent that Donald J. Trump’s low taxes are attributable to depreciation deductions claimed on real estate that has increased in value – and I doubt that this accounts for more than a small portion of his “tax saving” strategy – he is not to blame, except to the extent he contributed to the funding of the lobbyists who pushed for continuation and expansion of depreciation deductions for real property and to the funding of campaigns waged by Congressional candidates who support the deduction in order to gather campaign contributions and votes. The American people are responsible for who sits in the Congress, so to the extent the American people are repulsed by the idea of letting real estate owners reduce their taxes through the use of an unjustified deduction, they can vote for legislators who support ending this unnecessary economic lifeline to people being given tx breaks while their real properties increase in value.

Every indictment of a tax return preparer discloses a unique set of allegations. I have written about indictments of tax return preparers in posts such as Tax Fraud Is Not Sacred, Another Tax Return Preparation Enterprise Gone Bad, More Tax Return Preparation Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, and Need a Tax Return Preparer? Don’t Use a Current IRS Employee.

Sometimes, perhaps often, Indictments of tax return preparers lead to guilty pleas or convictions. In turn, that leads to sentencing. Last week, the Department of Justice announced the sentencing of a tax return preparer. He was sentenced to 46 months in prison and ordered to pay restitution to the United States “for aiding and assisting in the preparation of false returns.” Not only did he prepare false tax returns on which false education credits and false business losses were claimed, he “trained his employees to prepare false tax returns.”

What remains to be learned is what these employees do in the future. Are they aware of what has happened to their employer? Will they learn from his experience that it is unwise to file false returns? Will they set aside the tricks and techniques he taught them? Or will they decide that his mistake was getting caught, conclude that they can avoid getting caught, and open their own tax return preparation businesses in which they engage in the same or similar behavior? It is not unusual for subordinates or associates of an imprisoned criminal to pick up where the convict left off.

Perhaps the Department of Justice spoke with the employees and explained the risk of continuing the practices of their former employer. Will the Department of Justice keep an eye on the former employees? Surely there are answers to these questions, but I don’t have them.

Though it’s unclear whether it is a newly filmed episode or one produced before the pandemic set in, a new Judge Judy episode popped up last week. And it had a tax twist, as has been the case with other television court shows on which I have commented 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, and How Is Tax Relevant in This Contract Case?.

In season 25, episode 15, Judge Judy dealt with a plaintiff who sued the defendant for back rent and a tenant who counterclaimed for damage to a generator. Two years before the trial, the plaintiff acquired a property “for free,” though it appears that title to the property was conveyed to the plaintiff at a time when the mortgage on the property exceeded its value. The property included a house and a trailer. The plaintiff rented space in the house and trailer to five people, including the defendant. Those five people paid rent to the plaintiff. At some point the electricity to the house was cut off, so the tenants obtained electricity from the defendant’s generator, which eventually broke down from the continuous use. The defendant stopped paying rent.

The mortgage creditor foreclosed on the property. The plaintiff testified that she had paid a monthly premium to another company to keep the property out of foreclosure. She could not produce any documentation proving this allegation.

The plaintiff failed to pay real property taxes on the property for the entire period that she owned it. When she characterized the defendant as a squatter for living on the property without paying rent, Judge Judy characterized the plaintiff as a squatter for owning and renting out property on which she had not paid the property taxes.

Accordingly, Judge Judy dismissed the plaintiff’s claim. She summarily dismissed the defendant’s counterclaim without getting into the details. During the post-trial hallway interview, the plaintiff claimed she had paid several hundred dollars to repair the defendant’s generator.

Technically, an owner of property who uses the property, either by occupying it or renting it to others who occupy it, is not a squatter. Failure to pay real property taxes or any other obligation associated with the property, such as mortgage payments or utility bills, does not make the owner a squatter. It gives the creditor, whether the local government, the bank, or the utility company, a right to take steps that can result in the creditor or a purchaser at a foreclosure sale becoming the owner. In that situation, if the former owner fails to vacate the property, at that point the former owner becomes a squatter. It was unclear whether in this case the foreclosure proceedings had reached the sale stage, but even if they had, the plaintiff was not occupying the property and apparently was no longer collecting rent.

That does not mean Judge Judy reached the wrong result. The plaintiff’s failure to pay the real property taxes meant that she was coming into court with “unclean hands,” which justifies dismissing her complaint against a defendant who, by admittedly not paying rent, also had unclean hands. That also would justify dismissal of the defendant’s counterclaim.

Of course, the fact that someone failing to pay real property taxes is not a squatter does not justify failure to pay those taxes. This case, though, is a warning to those who are delinquent on tax payments that they face a steeper, or perhaps unsurmountable, challenge when bringing a lawsuit concerning the property in question.

In a series of posts about the former Seminole County, Florida, Tax Collector, 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, and Tax Collector Behaving Badly: From Even Worse to Even More Than Even Worse, I reviewed the still-developing story about his alleged misdeeds while in office. Claims against him include stalking and impersonating a political opponent, impersonating a student, manufacturing fake IDs using information from drivers’ licenses surrendered to his office, sex trafficking a minor using information accessed through his office, and spending public funds on a private enterprise he had formed. He also settled lawsuits brought by employees who alleged sexual harassment, racial discrimination, and First Amendment violations. As the allegations piled up, he resigned his office.

Reader Morris picked up on a related story. According to this report, radio personality Moira, legally Lynn Dictor, is running for the office of tax collector in Seminole County. The story inspired reader Morris to ask me, “What qualifications do you need to be a tax collector?” He also observed, “It would appear anyone would be better than the previous Seminole county tax collector.”

The short answer to his question is, “It depends.” The duties and responsibilities of tax collector depends on the language of the statute or ordinance that creates the position. In Seminole County, according to the Seminole County Tax Collector web site, the tax collector issues certified copies of birth certificates, collects the county local business tax and issues receipts for payment of those taxes, serves as agent for “performing limited permit application processing functions” for concealed weapons permits, handles title, education, and other services for vehicle dealers, provides most driving license services for county residents, sells hunting, fishing, and related licenses and permits, maintains records for those licenses and permits, and collects property taxes. In contrast, in New Jersey, according to state rules, municipal tax collectors computes and bills taxpayers, cooperates with the assessor, the board of taxation, and other financial authorities, designs and implements efficient methods of issuing bills, has a working knowledge of property tax exemptions, abatements, and deductions, and electronic data processing of tax rolls and tax billing, receives and accounts for payments of taxes, ensures proper disposition of collected funds, maintains detailed accounting records, processes electronic data related to collections, initiates and implements enforcement, assists in foreclosures, provides reports to the governing body and appropriate municipal officials, ensures compliance with all statutes, rules, regulations, and directives pertaining to municipal tax collection, and may be assigned certain secondary duties such as, but not limited to, tax search officer, collector of utility accounts, municipal treasurer, and treasurer of school monies. In New Jersey, tax collectors are not involved with issuing birth certificates or concealed weapons permits, and is not involved in supervising vehicle dealers apart from taxes. Both Florida and New Jersey, and presumably other states, have specific, detailed requirements for certification as a tax collector that relate to the skills and knowledge necessary to carry out the specified duties. In New Jersey, the qualifications include successful completion of courses though it appears this need not be done until the collector is elected or appointed. It seems a similar provision applies in Florida. Thus, running for office does not require having any specific qualifications, though winning election subjects the successful candidate to the education and other requirements.

As for reader Morris’ observation that “anyone would be better than the previous Seminole county tax collector,” I note that as bad as things seem to be, they can always get worse. Life is full of stories about people hitting rock bottom only to have the bottom fall out. I can imagine tax collector behavior even worse than what has been alleged against the former Seminole County tax collector, but I will refrain from putting ideas of this sort into people’s heads. Yes, it could be worse though the chances of that are very slim, and with any luck, things will get better for the people of Seminole County when it comes to the tax collector.

The combination of a pandemic shutdown and a summer recess in many television show productions means that the supply of court show episodes that are new to me has dwindled, and the few that were, in fact, new to me did not involve tax. Of course, whenever tax does become a factor in a television court show episode I like to write something about it for this blog, as I have done in the past with 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”, and Re-examining Damages When Tax Software Goes Awry.

A few days ago, up popped a re-run of a Judge Judy episode, specifically season 25, episode 10, from earlier this year. It probably aired originally on a day that I was teaching or otherwise occupied. It was a contract case, and I was not expecting the focus on tax that developed.

The plaintiff had hired the defendant, a tutor, to assist her two children with their academic studies. The defendant is a tutor by profession, with roughly 25 clients for whom he renders tutoring services each week. In March of the academic year in question, the defendant sent a letter to his clients, indicating that he was going to reduce his tutoring activities. However, he explained that he was still in school, that school was expensive, and that he would appreciate a donation of $3,000 from each client as a thank-you for having tutored their children. He promised that for any client who transferred $3,000 to him, he would continue to tutor their children.

The plaintiff testified that she received the letter and thereafter had a conversation with the defendant about the letter. She agreed to pay him $3,000 in exchange for his agreement to tutor one of her children until that child’s graduation. The graduation was in the following year. The defendant argued that by “graduation,” he meant the end of the current academic year. That is when he stopped tutoring, after engaging in five one-hour tutoring sessions with the plaintiff’s child. The plaintiff sued for return of $2,500, based on the defendant’s $100-per-hour fee.

Early in the proceedings, as the plaintiff was describing the situation, Judge Judy asked her, “Did you 1099 the defendant?” After explaining what she meant by that, namely, sending a Form 1099 to the IRS for both the previous tutoring payments and the later $3,000 amount, the plaintiff replied, “No.” Judge Judy then asked the defendant how much income he had reported on his income tax return for the year. He replied with a number a little bit in excess of $42,000. The testimony had already revealed that the defendant had an hourly rate of $100 sometimes discounted to $90, and that he tutored roughly 25 clients per week for an hour each. Using these numbers, Judge Judy determined that his income would be at least $112,500, assuming he tutored 50 weeks a year. The defendant and Judge Judy went back and forth on the appropriate number of weeks, with the defendant pointing out that he did not tutor during the summer and during school breaks. Judge Judy finally decided that 39 weeks was a more appropriate figure, and concluded that his income was at least $80,000.

So why was this discussion of Forms 1099 and the defendant’s tax return relevant. Judge Judy explained that she asked these questions “to know who I am dealing with.” After holding that the plaintiff was entitled to a $2,500 refund from the defendant, Judge Judy repeated what she had earlier mentioned, specifically addressing the defendant with these words: “Cross your fingers that the IRS is not watching.”

Though there are complex rules about the introduction of tax returns into evidence in a case that is not a tax case, in this instance tax returns were not introduced. Instead, Judge Judy simply asked the defendant for one piece of information from his tax return. She formed an opinion about him, not by questioning the truthfulness of his answer, as there was no basis to know what actually was reported on the return, but by estimating what he should have reported. That estimate may or many not have been within range of reality, but unless the defendant was overstating the amount of tutoring he did or what he charged, there seemed to be a discrepancy big enough to cause Judge Judy to consider the defendant someone of questionable character. It would have been interesting to observe this case tried in a different venue with lawyers representing the parties, to see if the line of questioning would have been pursued, to see if an objection would be raised, and, if so, to see what the ruling on the objection would be.

Of course, we will never know if the IRS, or more accurately, someone working for the IRS, watched the episode. And we will never know if the defendant was audited or, if he was, what the outcome of the audit turned out to be. But we do know that we never know when what was done on a tax return will be the subject of some sort of inquiry.

A little more than a month ago, in An Unwise Tariff Decision, I criticized the tariff imposed by the current Administration on aluminum imported from Canada. I explained how the tariff would be, in effect, a hidden regressive tax increase on Americans. I pointed out that although the President claimed that Canadian aluminum producers were “flooding the U.S. with exports,” imports of Canadian aluminum had, in fact, decreased. I shared the warning that planned Canadian retaliation would threaten American jobs. Finally, I noted that although the tariff was damaging to both the United States and Canada, it would benefit a Swiss trading firm and a Russian producer. Yet the “deal maker” crowed about the wonderfulness of his tariff.

Now comes news that the Administration has cancelled the tariff, not quite a month after they went into effect. It claimed that the reason for the cancellation was a return of Canadian imports to normal, yet that was the case back in August when the tariff went into effect. The more likely reason was the realization, by someone with the capacity to see the bigger picture, that Canada’s retaliation would be damaging to American jobs. Of course, the realization might be a narrower perception, namely, that the loss of even more American jobs because of an ill-advised tariff is unwelcome as an election approaches.

Canadian officials took pains to emphasize that, contrary to Administration statements suggesting otherwise, Canada had not negotiated the cancellation of the tariff nor had it agreed to conditions that the Administration stated it expected of Canada. Nowhere has anyone apologized for an unwise decision that was the opposite of what the Administration advertised.

This sort of “deal making” demonstrates that headlines and tweets mean more to the President than does substance, in the same vein that peace agreements between countries that have never been at war is all bluster and disguise. Hailed as a triumph for American workers, the tariff is nothing more than a menace to American workers. Again I ask, how many people complaining or worrying about their economic situation, their health challenges, and their safety will take the time to understand what actually is happening?

The headline caught my eye. Multiple news outlets have shared the story, most with the same or very similar headlines. For example, NBC New York put it this way: “NJ Homeowner Nearly Loses Her House Because She Owed 6 Cents in Back Taxes”

Six cents? How does this happen? The story doesn’t answer my question.

What the stories tell us is that somehow a 90-year-old woman suffering from Alzheimer’s disease came up six cents short on her 2019 real estate taxes. Somehow, with interest and administrative costs, her debt grew to $300.

The town put the woman’s house on the market, on the same day the woman’s daughter learned what had been happening. The daughter noted that even if her mother knew about the six cents, she probably would have quickly forgotten. Though the town’s tax collector had spoken with the woman and realized that something was wrong because she wasn’t understanding the problem, the town moved forward with the planned tax sale. After contacting everyone in the town’s government, the daughter received a response from the mayor, who stated, "Naturally it's really embarrassing the town would put someone's home up for sale over six cents. It's silly." The mayor admitted that “the system needs fixing.” The system, he explained, “is all computer-generated, not something that a human can correct.” It was only a movie, but it’s becoming real: “Open the pod bay doors, please, HAL. Open the pod bay doors, please, HAL.” Seriously, nice programming. End sarcasm. The daughter wondered why no one in the tax collection office could figure out how to come up with six cents in order to prevent the tax sale mandated by state law from being triggered. The daughter paid the tax bill and the house was taken off the market.

Two things make the story even more disturbing. The woman had enough money to pay the six cents. The woman now doesn’t remember or understand that the house won’t be sold, and is calling her daughter almost constantly asking if her house is going to be sold, if she needs to pack, if she will find a place to live.

So here is my question. Why aren’t the real estate taxes in that town, or in New Jersey, rounded down, or down and up? The IRS, for example, permits taxpayers to round amounts to the nearest whole dollar. Pennsylvania requires rounding. As explained, for example, in the instructions to form PA-40, “On the PA-40 form and schedules, show money amounts in wholedollars. Eliminate any amount less than $0.50 and increase any amount that is $0.50 or more to the next highest dollar.” If the woman’s tax bill in the New Jersey story had been rounded, it would have been rounded to zero. That would have prevented the attempted tax sale, the time invested by the daughter making phone calls, and the anxiety endured by the woman and her daughter. Perhaps some good will come out of this story and New Jersey and the town will fix the problem before another person gets snagged by the broken system.

Indictments of tax return preparers appear to be increasing. Though I discussed one in 2009 in Tax Fraud Is Not Sacred, there have been at least four indictments of tax return preparers in 2020 that I have discussed in Another Tax Return Preparation Enterprise Gone Bad, More Tax Return Preparation Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, and Surely There Is More to This Tax Fraud Indictment.

Now comes another press release from the Department of Justice describing a guilty plea in response to yet another indictment of a tax return preparer. The preparer was arrested and charged by criminal complaint rather than indictment. That might be the reason I was unaware of the case, or perhaps it’s because I didn’t notice any press releases about the criminal complaint.

This time, it is a former IRS employee charged with aiding and assisting the preparation and filing of at least 70 false tax returns for herself and others. The preparer has pleaded guilty to four counts of aiding and assisting the filing of a false tax return and four counts of filing a fraudulent tax return by an employee of the United States. The preparer was an IRS employee for more than 22 years, serving as a Lead Contact Representative. A Lead Contact Representative assists other IRS employees who are trying to resolve difficult and complex questions from taxpayers. During those 22 plus years, the preparer was given training in tax law, ethics, information protection and disclosure, privacy, identity theft, and identity protection.

From 2012 through 2018, the preparer electronically filed more than 500 tax returns for herself and other taxpayers. She did so in violation of IRS rules that prohibit employees from “Engaging in the preparation of tax returns for compensation, gift, or favor.” In pleading guilty, the preparer admitted that between approximately February 2012 and April 2018, she prepared or assisted in preparing and filing of at least 70 tax returns for herself and others that she knew contained materially false items such as false individual retirement account deductions, false medical expenses, false and inflated unreimbursed business expenses, false tax preparation fees, and false child and dependent care credits.

Someone seeking assistance in preparing and filing a tax return might find it tempting to get help from a friend or relative who works for the IRS. The temptation finds strength not only in the assumption that an IRS employee understands tax law – many do but not all IRS employees deal with taxes – but also on the assumption that an IRS employee has some sort of insight into how to file a return that is highly beneficial to the taxpayer and in a manner that reduces or eliminates the risk of audit. That’s a temptation deserving of nothing but complete rejection. It never occurred to me, until now, to suggest that taxpayers ask their potential preparers if they are current IRS employees. If the answer is yes, stop and go find someone else. On the other hand, if the person is a former IRS employee, they can offer expertise and experience that is helpful. The distinction matters, so it is best to do some background checks and research just as one would do when looking for a physician or roofer.

About three months ago, in A Reason Not to Run for Tax Collector (or Any Other Office)?, I commented on a story about an incumbent tax collector who stalked and impersonated a political opponent and impersonated a student in order to make false allegations about the opponent. He also created a fake Twitter account, pretending to be his opponent and making his opponent appear to be a segregationist and white supremacist. As a result of these activities, federal charges were brought against the tax collector.

About a month later, in Perhaps Yet Another Reason Not to Run for Tax Collector, I reacted to another story about the same tax collector. Additional federal charges were brought, accusing him of using information from surrendered drivers’ licenses to manufacture fake IDs with his picture on it. After this indictment was handed down, he resigned his office.

A month after that, in Running for Tax Collector (or Any Other Office)? Don’t Do These Things, I shared my thoughts on yet more news about the same tax collector. In a superseding federal indictment, was been charged with sex trafficking a minor. According to the indictment, he was able to get “personal information from motor vehicle records to engage in commercial sex acts and accessed personal information to engage in ‘sugar daddy’ relationships, including with someone who was between the ages of 14 and 18.” The tax collector’s attorney said that his client denies the charges.

Two days ago, in When Behaving Badly as a Tax Collector Gets Even WorseI wrote about still more news about the same tax collector. According to the story, six women who worked for him at the tax collector’s office settled lawsuits and complaints against the Tax Collector’s Office, based on allegations of sexual harassment, racial discrimination, and First Amendment violations. Shortly after I wrote Monday’s post, reader Morris sent me a link to the same story published by another news outlet. I let him know that I had seen the story and that my commentary would appear on Monday. Soon thereafter, reader Morris sent me a link to yet another story about the same tax collector. Somehow I missed this story, which was published about a month ago. According to the story, Seminole County records reveal that the tax collector spent more than $65,000 in county funds to purchase computer servers for a blockchain company that he had formed. Eventually he repaid the county, at about the time the Tax Collector’s Office retained an attorney to represent it in one of the criminal investigations underway with respect to the tax collector’s activities. At this point the County undertook a forensic audit and discovered that the tax collector had funneled roughly $3.5 million to friends and associates through consulting contracts and employment. The tax collector, who has been charged with using information from surrendered drivers’ licenses to manufacture fake IDs and using motor vehicle records to engage in commercial sex acts, planned to use his private blockchain company to take information from property tax records, tax payments, and drivers’ licenses onto a blockchain to start a digital ID arrangement. The tax collector had a private business partner in his enterprise, and he caused the Tax Collector’s Office to hire that partner as blockchain advocate and legislative affairs director drawing a taxpayer-funded salary. The tax collector referred to these allegations with a word describing excrement from a bull, and launched into criticism of the federal government and its “all out assault on anyone that attempts to embrace crypto and change the way our financial system is set up.” I suspect that when people voted for this fellow they did not know what he had been doing and what he would end up doing. Perhaps close investigation, analysis, and critical thinking would have revealed something. Perhaps not. But I fear that even if it did, too many people would simply see the candidate’s party affiliation and pull the lever or push the button or check the box or do whatever was necessary to put the candidate into office despite the red flags. That has happened with the nation’s highest office so it’s likely that it would have happened with a minor office such as tax collector even if the electorate knew what was happening. There’s ignorance and there’s willful disregard of information. Both are dangerous. Both put people at risk. Both threaten democratic (lower case “d”) values. Both are a sorry testament to the deterioration of this nation.

About three months ago, in A Reason Not to Run for Tax Collector (or Any Other Office)?, I commented on a story about an incumbent tax collector who stalked and impersonated a political opponent and impersonated a student in order to make false allegations about the opponent. He also created a fake Twitter account, pretending to be his opponent and making his opponent appear to be a segregationist and white supremacist. As a result of these activities, federal charges were brought against the tax collector.

About a month later, in Perhaps Yet Another Reason Not to Run for Tax Collector, I reacted to another story about the same tax collector. Additional federal charges were brought, accusing him of using information from surrendered drivers’ licenses to manufacture fake IDs with his picture on it. After this indictment was handed down, he resigned his office.

A month after that, in Running for Tax Collector (or Any Other Office)? Don’t Do These Things, I shared my thoughts on yet more news about the same tax collector. In a superseding federal indictment, was been charged with sex trafficking a minor. According to the indictment, he was able to get “personal information from motor vehicle records to engage in commercial sex acts and accessed personal information to engage in ‘sugar daddy’ relationships, including with someone who was between the ages of 14 and 18.” The tax collector’s attorney said that his client denies the charges.

Another month has gone by, and yes, there is still more news about the same tax collector. According to the story, six women who worked for him at the tax collector’s office have settled lawsuits and complaints against the Tax Collector’s Office. Those lawsuits and complaints were based on allegations of sexual harassment, racial discrimination, and First Amendment violations. Though the settlements took place over the past 10 months, information about them only recently began to appear. The allegations, based on testimony from the women and from witnesses, include the use of racial epithets, discrimination against women of color, dismissals in violation of state law based on campaigning for the tax collector’s primary election opponent, failure to discipline other employees for making inappropriate sexual jokes and comments, social media posts denigrating a Muslim employee, and firing that employee after she filed a complaint.

Not surprisingly, the Tax Collector’s Office denied the allegations and claimed that the employees who were dismissed were terminated for legitimate business reasons. At least one case settled not because the Tax Collector’s Office wanted to dispose of the matter quietly, but because the plaintiff decided, after learning of the tax collector’s resignation, that “it was in the best interest of the Tax Collector’s Office and the residents of Seminole County” that the case be settled rather than become the focus of a “public spectacle.”

The amounts paid by the Tax Collector’s Office to settle the lawsuits and complaints are taken from a county self-insurance account, which is funded by taxpayers. There is something a bit disturbing about a tax collector collecting taxes, some of which go into a fund used to compensate employees of the office who claim to have been mistreated one way or another by that same tax collector.

There will be more to this story. The tax collector has pleaded not guilty to all of the criminal charges filed against him. His trial is set for early next year. In my earlier posts on the situation, I lamented the “lies, ignorance, dirty tricks, altered images, fake videos, and false allegations permeating political campaigns,” and how it deters decent people from running for office, including that of tax collector. In my last commentary, I wrote:

It remains to be seen if the former Florida tax collector is convicted or acquitted. Perhaps he will take a plea. No matter how this plays out, it won’t be good. If he is convicted or takes a plea, it will, in the minds of many people, reinforce their belief that “all politicians are corrupt.” If he is acquitted, he nonetheless has suffered and yet another instance of false accusations polluting the system will have accomplished what its perpetrators sought, as it would not be easy for him to repair the damage.

Now, however, even if he is acquitted, the shadow of these accusations and settlements will hover over him.

Perhaps all of this will encourage voters to do more research rather than blindly voting for candidates of a particular party. Perhaps one day every voter in this country will register as an independent. That would make the Founders happy, but that’s a discussion for others to continue.

Looking at my facebook newsfeed, it caught my eye. It was a photograph of a portion of a newspaper page, with a chart circled in red. It was posted in the context of a claim by the facebook user posting the chart that Joseph Biden’s tax plan would cripple the nation.

The chart consisted of these words and numbers:

Corporate Taxes
Trump: 21.0%
Biden: 28.0%
Income and Payroll Taxes
Trump: 37.0%
Biden: 52.0%*
Small-Business Taxes
Trump: 29.6%
Biden: 39.6%
Capital Gains and Dividend Taxes
Trump: 23.8%
Biden: 43.4%

Because the fragment of the newspaper page contained the name of the paper, I was able to find the entire article. It is a commentary by Wes Moss, chief investment strategist for Atlanta-based Capital Investment Advisors.

Having looked at Biden’s tax proposals, I immediately realized that the chart was misleading, oversimplified, and in its present form, frightening to anyone who hasn’t done serious examination of Biden’s tax proposals. In the text, Moss puts a notation, “Keep in mind, these figures are for the highest or maximum tax bracket for each of the four categories. What you ultimately pay is your effective tax rate, a blend of the different tax brackets ratcheting higher as income moves higher. Of course, effective tax rates are unique to each person’s individual tax situation, and I thought it would be helpful to look at the new proposed highest brackets where there’s the potential for the most change.” The problem is that the folks putting a circle around the chart and circulating it are focusing only on the chart, and the people who look at social media posts in which the chart appears will focus on the chart, unless they are like me and already understand the misleading nature of the chart. That means most people will look at the chart, think that they are going to be hit with big tax increases under the Biden proposals, and retweet or forward the chart to others. This is how misinformation goes viral.

There would have been much less panic, much less re-posting, and much less circulation of the chart had it been captioned. If the top of the chart contained the legend, “What Happens to Rich People Under Biden’s Tax Proposals,” then most people would have thought, “This doesn’t affect me.” But, of course, there’s much more publicity if something gets a high amount of re-circulation, so leaving the chart in its indeterminate form works. It’s common knowledge that people’s eyes are drawn to photographs and charts rather than text, so that disclaimers about photographs and charts need to be part of the photograph or chart and not buried in accompanying text that might not even show up adjacent to, or near, the photograph or chart depending on the formatting, especially when the publication is in digital form.

Moss, however, also claims that “Biden’s proposal would affect a very large swath of the American economy and paychecks,” and though he points out that “the largest tax hikes [gp] to high-earning individuals and corporations,” the implication is that everyone gets hit with a tax hike.

Moss claims that raising the corporate rate will “impact” individuals’ “401(k)” plans. Yet fewer than one-third of workers invest in a 401(k) plan, and those that do tend not to be among the Americans suffering the most under the current dysfunctional economy. On top of that, whether increases in the corporate tax rate translate to declines in the value of 401(k) plans is debatable.

When it comes to the proposed payroll tax changes, at least Moss gets it right. He explains that it would affect “business owners who earn a salary of over $400,000 annually” and would affect “high-earning business owners.” In the current crisis, those folks are not suffering, those folks do not need tax relief, and those folks already are awash in a series of tax cuts for the wealthy that have failed to create the promised jobs for those who are suffering from how the current dysfunctional economy favors the wealthy.

Moss claims that Biden plan includes “reducing or eliminating existing tax deductions” for small businesses. What Biden plans to do is to undo the unwise deductions inserted into the tax law in 2017. Even though advertised as good for small business, the bulk of the benefits went to the wealthy, not unlike how loan programs designed to help small businesses funneled money into the bank accounts of large corporations and wealthy individuals. Fixing this mess is not something deserving of lamentation.

The increases in tax rates on capital gains and dividends that Moss dislikes again will impact the wealthy and not the large majority of Americans who struggle to earn income from wages. Again, this is a case of reversing tax giveaways that have benefitted the wealthy and done little or nothing for the people struggling in today’s economy.

Moss drags out the long-disproven but too-often-repeated claim that higher taxes on the wealthy are bad for the economy and that the only way to get the economy to work for everyone is to funnel money into the coffers of the rich. That’s nonsense. What makes the economy work is demand, because demand creates the need for jobs, and attracts investment into goods and services that are needed rather than in overseas shelters, newly-invented financial products, and other gimmicks designed to give the wealthy something to do with their money when they don’t need all of it to buy lobbyists, politicians, and elections. Circulating money into the hands of the poor and middle class is what makes and keeps a nation great. Moss writes, “Resolving the deficit problem will take robust economic growth,” and that “Tax hikes stand only to smother this rebound.” Yet tax hikes that claw back unwise tax cuts and put money into the hands of consumers is what generates economic growth. I have written about supply-side economic policies, most recently in The Illogic of Tax Cuts Based on Supply-Side Theory, which has links to some of my other commentaries on the subject.

Moss points out that over the next ten years the Biden tax proposals would raise $3.5 trillion in revenue. He suggests this is unacceptable. Yet this is nothing more than reversing the flow of trillions of dollars to the wealthy provided by a series of unwise tax giveaways to the rich over the past few decades. Rebalancing the accounts is necessary, and in the long run will benefit everyone, even the wealthy, more than trickle-down nonsense ever did or could.

Moss praises the idea of indexing capital gains by Executive fiat while maintaining special low tax rates on capital gains. Aside from the fact indexing basis requires Congressional legislation, it is a bad idea absent the repeal of special low tax rates for capital gains. In fact, I prefer indexing coupled with the repeal of those special low tax rates for capital gains. I explained why in posts such as Tax Hogs at The Tax Trough, Defending the Indefensible Tax Idea: A Reflection on Tax Policy Ignorance, When Lower Tax Rates Aren’t Enough, and Clamoring for Tax Basis Indexing AND Special Low Rates: Inspired by Greed.

When Moss states that taxes is “one issue coming to the forefront of our nation’s decision-making process,” he is correct. He also is correct that “Tax policy is a hot-button issue in most presidential elections.” What he overlooks is the need for the distribution of accurate and fully informative explanations of competing tax proposals. His fear-inducing chart that has caused people to fear their taxes will increase under Biden’s proposals when, in fact, they will not, does not help the discourse. It fuels emotion over logic. And it totally neglects what the other major candidate’s tax proposals will do to people: while the wealthy wallow in their tax breaks, those dependent on payroll tax revenue will suffer. Sadly, many of the people circulating the chart are the ones most likely to be hurt if the nation does not change its tax course.

Almost 85 years ago, Carl Sandburg, in his poem “The People, Yes,” wrote “Sometime they’ll give a war, and nobody will come.” Jump forward about forty years, and the phrase was reworked into “Suppose they gave a war and no one came?” by Charlotte Keyes, writing about her son’s protests against the war in Vietnam. Her turn of the phrase caught on and flourished for a time.

Taking some liberties, I have adapted the phrase to describe a similar situation, in which “leaders” act in ways that demonstrates a lack of understanding about what those they are leading want to see happen. In some ways, it is the failure of “leaders” to understand the meaning of “servant leadership,” which is a far nobler way to describe the role and responsibilities of those who are elected or appointed to positions of leadership.

In this instance, I am referring to the silly decision by the current Administration to defer payroll taxes for the rest of 2020, an action I have criticized in posts such as Tax Policy by Dictatorship and Muddying the Tax Waters: When Certain Members of Congress Are Frightened. Many commentators have also explained why this action is unwise, and have pointed out the many technical and logistical challenges presented by an idea that was not well thought through past the theory stage. The practical problems are significant.

Because of the many practical problems presented by this foolish decision, and wary of being held liable for making up the deferred taxes with respect to employees whose employment ends before the employer has a chance to withhold the deferred payroll taxes, many employers are declining to stop withholding the payroll tax. In Thanks, but no: Small businesses shun payroll tax deferral, Joyce M. Rosenberg shares the reaction of company owners who have declined to go along with the current Administration’s desperate attempt to close barn doors after the horses have escaped. Payroll tax deferral, of course, does nothing for the unemployed who are in the most need of help. Employers who care about their employees also worry about the consequences of their workers being slammed with a doubling of their payroll tax withholding in early 2021 when there is no promise that their financial situation will give them capacity to absorb that hit.

One employer noted that the deferral isn’t really a tax break because the “money is still due by April 30” of 2021. He is correct that it is not a tax break, despite the attempt by the current Administration to con people into thinking that this deferral is a “tax break” for the rank-and-file worker. Other employers point out the lack of guidance leaves them at risk of being forced to pay large lump sum amounts to the Treasury. In several states, state law puts employers in dicey situations with respect to cutting take-home pay in 2021 to make up for the omitted withholding. Still other employers wonder if employees have an option of electing into or out of the deferral, whether the decision rests with the employer, or whether an employee or union vote can be binding on all employees. Employers also point out that the administrative effort required to implement a four-month deferral isn’t worth the distraction from the more important long-term planning and operation of their businesses. Anecdotally, some employees don’t want the deferral because they, too, are wary of what the future will bring. A major payroll processing company, which says it is “ready to adjust its computer systems to stop withholding the tax if companies request it,” notes that “so far, there’s little interest” in cutting back the payroll tax withholding.

Perhaps increasing numbers of people are realizing that con game gimmicks are best avoided in the same way emails from alleged Nigerian princes and phone calls from law enforcement imposters should be. Sometimes what appears to be a good thing is only a good thing for the person making the offer and brings nothing but sorrow and devastation to the alleged beneficiary of the gimmick. Hopefully even more people realize that this stunt is just the testing of the waters for a permanent elimination of payroll taxes and the eventual destruction of Social Security and Medicare.

Several days ago, in this news release, the Department of Justice announced that a federal grand jury in Las Vegas, Nevada, had returned a superseding indictment charging Lance K. Bradford with conspiracy to defraud the IRS. He had previously been charged with aiding and assisting in the filing of false individual, corporate, and partnership returns on behalf of other individuals and businesses. In this indictment, he was charged with conspiring with others to prepare tax returns on behalf of several automotive collision centers on which more than $11 million in fake deductions were claimed over a three-year period.

At first reading, it appeared that yet another tax return preparer had been indicted. Indictments of tax return preparers is becoming more frequent, and though I discussed one in 2009 in Tax Fraud Is Not Sacred, there have been three indictments this year that I have described in Another Tax Return Preparation Enterprise Gone Bad, More Tax Return Preparation Gone Bad, and Are They Turning Up the Heat on Tax Return Preparers?.

Curious, I searched and found a local Las Vegas news report that shed more light on the indictment. Bradford is described in the story as a developer, who had recently been involved in developing a property near the Las Vegas Raiders practice facility. The story also noted that he is a certified public accountant. So is he a developer who prepares tax returns? A tax return preparer who got into real estate development? According to this web site, he heads a firm of construction engineers. According to the Relationshipscience web site, he also is president of MVP REIT, Inc., and has served on the board of Vestin Group, Inc., which according to Bloomberg is a real estate fund managing firm that “offers real estate loans for commercial, construction, acquisition and development, land, and residential sectors.” The reference in the news release to “others” suggests that this is a more complicated case than a tax return preparer entering false information on tax returns. How entangled it is remains to be seen. . It does seem, though, that there is yet another reason to think that the IRS and Department of Justice are turning up the heat on tax return preparers.

The current President made a statement that has caused alarm bells to ring. At his news conference on August 12, as reported in multiple sources, including this report, he stated, “At the end of the year, the assumption that I win, I’m going to terminate the payroll tax, which is another thing that some of the great economists would like to see done. We’ll be paying into Social Security through the General Fund.”

Reactions to this statement have included denial that he said it, claims that he was referring to the deferred 2020 payroll taxes, claims that if carried out the plan would terminate Social Security, arguments that there are insufficient general fund revenues to make up for the loss of payroll tax revenue, and assertions that repealing the payroll taxes will cause the economy to recover so strongly that the government will be awash in revenues that can be used to replace the lost payroll tax revenue. No one seems to be paying attention to the impact of payroll tax repeal on Medicare, but perhaps someone has and it just hasn’t come to my attention.

Of course he said it. Of course he wasn’t referring to the deferred 2020 payroll taxes. Those claims are attempts by his cronies to walk back a proposal that any sensible, clear-headed, carefully thinking American knows would rip apart an essential fabric of American society. Those claims arise out of fear that voters will react to what might appear to be a premature revelation of true intent.

What about the claim that repealing a tax will generate at least as much, if not, more revenue that the repealed tax generated? It’s just another version of the myth that cutting taxes increases tax revenue by at least the amount of the repealed tax. That hasn’t happened. Would repealing the payroll tax terminate the Social Security program? Technically, no, because, according to the Social Security Administration, there are enough funds in the social security trust funds to continue making payments for roughly another three years. But then what? Does the funding of social security become a political football every year? Does it get held hostage every time Congress cannot agree to a budget? Do payments get suspended every time the government “shuts down”?

As the allegations and denials spread throughout news outlets and social media, two members of Congress wrote a letter to Stephen Goss, Chief Actuary of the Social Security Administration. Charles Grassley, chair of the Senate Finance Committee, and Kevin Brady, ranking member of the House Ways and Means Committee, both Republicans, chastised Goff for “using [his] office for political purposes.” Specifically, they objected to the fact that Goss replied to a question from three Senators asking the Social Security Administration to analyze “hypothetical legislation” that would eliminate the payroll tax. Grassley and Brady argued that the “hypothetical legislation” did not exist because it “has not been proposed by anyone and has never, to our knowledge, been proposed or referred to the Senate Finance Committee or Committee on Ways and Means, at least in modern history." Duh. That’s why it was described as hypothetical and was not a reference, for example, to a pending bill. What’s so terrible about asking for the consequences of legislative action even if no bill has been introduced? Grassley and Brady provide the answer in their letter, “The intention behind the Senators’ inquiry was clear: argue that the President would ‘terminate’ payroll taxes that fund Social Security, leaving the trust funds without that important source of revenue, and then argue that the President and others want to destroy Social Security.” Exactly. The inquiring Senators want the American public to understand the consequences of what the current President has proposed. Waiting until a bill is introduced, after the election, would prevent voters from having information that is critical to their decision making. Though Grassley and Brady are correct that “no one has proposed the legislation” to repeal the payroll taxes, certainly the current President has announced his intention to have someone do so on his behalf if he is re-elected. Because Grassley and Brady are among those with a vested interest in the re-election of the current President, and surely fear the consequences of a different outcome, they are keenly aware that the current President’s proposal, if not deflected or hidden behind smokescreens and mirrors, is damaging to their political agenda.

The letter also contains allegations about previous reports by the Chief Actuary being partisan with respect to issues having nothing to do with the payroll tax proposal. It also suggests that questions could be posed by other “hypothetical legislation” reflecting suggestions made years ago about other aspects of the Social Security program. These deflections do nothing but muddy the tax waters. The innuendo, to use their word, tries to conflate a simple question about an outrageous proposal with other issues raised by the letter writers in an attempt to distract people’s attention with some “whataboutism.” It highlights their anxiety about the damage being done by the revelation of what the current President and his allies and cronies want to do.

Grassley and Brady express annoyance that the response by the Goss to the question “provided fuel for the ensuing misleading political messaging that was the most likely desired outcome of the Senators’ inquiry on their ‘hypothetical.’” Of course. Truth always provides fuel for discourse. Why would Grassley and Brady prefer that the Chief Actuary of the Social Security Administration NOT explain to Americans the consequences of the current President’s proposal? The answer is simple. They do not want people to know the truth if the truth stands in the way of their agenda. They go so far as to claim that the question posed to Goff refers to a proposal that “does not correspond to any proposal by the Administration.” Of course it does. What the current President said is clear and unquestionable. He wants to repeal the payroll taxes. The question posed asked about the consequences of repealing the payroll taxes. Perhaps if Grassley and Brady don’t like the answer, they can ask themselves why they are defending a person whose proposal generates answers they don’t like, and that they know a great number of Americans don’t like. Or perhaps it’s not that they don’t like the answer, but that they fear the consequences of everyone else knowing the answer, and understanding the reality of what the current President plans to do if re-elected.

Real property taxes in Pennsylvania, like most states, are based on the assessed value of real property. In Pennsylvania, the assessment process was problematic, with many properties being reassessed only at the time of sale. This meant that properties that had been owned by the same person or entity for many years was assessed much more below market value. After a series of cases challenging assorted flaws in the assessment and appeals processes, the Delaware County Court of Common Pleas, following a Pennsylvania Supreme Court decision, ordered Delaware County to reassess all properties at fair market value as of July 2019.

The order prohibited the reassessment from changing the total revenue raised by each of the affected taxes, which are the county real property tax, the municipality or township real property tax, and the school district real property tax. In other words, the tax RATE would be decreased to the extent the total fair market value of assessed properties INCREASED.

Here is an example. Suppose the total assessment of properties in the taxing jurisdiction before reassessment was $100. Suppose the tax rate was 5 percent. The revenue would be $5. If after the reassessment the total assessment of the properties is $150. To maintain total revenue of $5, the tax rate would be reduced to 3.33 percent.

When the reassessment was announced, and notices published on web sites, mailed to property owners, and discussed in newspaper and other articles, it was made very clear that the tax rate would need to be reduced because the overall assessments were expected to increase. And now that the reassessment is complete, aside from appeals, indeed the total assessment of properties has increased. That was bound to happen, because overall properties had been underassessed compared to fair market value.

Once the reassessment was complete, the county sent each property owner a notice of the new assessment. Technically, the county sent several notices with opportunities for property owners to challenge underlying facts, such as the size of the parcel, the number of bedrooms, and similar characteristics. After that part of the process ended, the county sent the final reassessed value, with provisions for appeal if the property owner disagreed.

It didn't take long for expressions of unhappiness to pop up on neighborhood social media sites. Some property owners complained, paraphrasing, "My assessment went up so my taxes will go up." Several property owners complained about jurisdictions having "extra money" to spend. Despite attempts by others to explain the reality, some people continued to argue that the explanations were not true facts.

One point that had been made consistently throughout the process was that the real property tax for a particular property could end up increasing, decreasing, or staying the same, depending on the change in the tax rate and the change in assessment for a particular property. How can that happen?

Here is an example. Suppose there are five properties, subject to a hypothetical rate of 5 percent:

Property	Former assessed value	tax
Property 1	100	5
Property 2	120	6
Property 3	150	7.50
Property 4	200	10
Property 5	300	15

So the total assessed value is 870, and the total tax revenue is 43.50. Now suppose these are the new assessments:

Property	New assessed value
Property 1	150
Property 2	150
Property 3	180
Property 4	250
Property 5	400

The total assessed value after reassessment is 1130. To maintain revenue at 43.50, the new tax rate must be set at 3.85 percent (after a slight rounding). Therefore, the new amount of tax for each property, compared to the pre-reassessment tax, is as follows:

Property	New assessed value	New tax	Old tax	Change
Property 1	150	5.78	5	+0.78
Property 2	150	5.78	6	--0.22
Property 3	180	6.93	7.50	--0.57
Property 4	250	9.63	10	--0.37
Property 5	400	15.40	15	+0.40

So of the five properties, taxes have increased on two and have decreased on three. Though the arithmetic can be a bit tedious for some, it is troubling that two basic principles cannot be understood. With the prohibition against using reassessments to increase total revenue, the idea that taxing jurisdictions will have “extra money” is contrary to logic and common sense. Similarly, the mere fact that the assessment on a property has increased does not mean that the tax will increase, because until the new rate is set, the required computation to make a comparison cannot be done. This, too, is a matter of logic and common sense. Too many people either lack one or both of these traits or simply refuse to make use of them. One need not understand quantum physics to understand the basic principles, and examples, of the reassessment process. Put another way, jumping to conclusions without having all the facts, or having the facts but failing to perform critical analysis, is dangerous in so many ways. These flaws, insufficient or erroneous information and failure to think rather than respond emotionally when emotion is irrelevant, are two of the underlying causes of many of the problems troubling the nation.

Yes, I have taught tax. I have prepared tax returns. I have offered tax advice. I have written about tax. Of course, tax isn't all that I have done or that I do. It has occupied fewer than half the hours of my life. And the portion of my life it occupies has been decreasing since I stopped teaching tax courses and reduced my tax writing.

But even at the peak of my tax involvement, and even now, no, just no, I will now wear this, I will not buy this, I will not desire this. But I won't laugh at anyone who does.

Just take a look.