Monday, November 16, 2020
A Tax Proposal That Misses the Mark
Of course, I didn’t stop there as some would. I read the details. First, the proposal would only apply to individuals whose employers offer them “permanent desks” at the workplace, so it would not apply to employees compelled to work at home. In other words, the tax would target those who could go to the office but choose not to do so. Second, the tax would not apply to self-employed individuals, nor would it apply to “low-paid staff.” Third, the tax would not apply if the government advises people to work from home.
The bank rationalized that people who work at home can afford to pay the tax because they would be spending less on “travel, food, and clothes” by working at home. That, of course, is an oversimplification. Yes, people working from home eliminate the cost of travel to the office, but that cost can range from very low if the office is nearby to rather high if the office is in a more distant location. Food costs, though, very easily could be the same because there are employees who pack their own lunches and thus are paying the same for their meal regardless of where they eat it. As for clothes, it depends on the job, because people who work from home but who must use videoconferencing to perform their duties must dress in the same way if they are expected to act and appear professional.
The bank noted that even after the pandemic ends more employees will be working remotely than before the pandemic. The bank refers to working from home as a “privilege.” It claims that people working from home “have gained many benefits, . . . such as convenience and flexibility.” Tell that to the people who are working from home while trying to help their children navigate remote learning. Tell that to the people who have had to re-purpose a living room or dining room to serve as an office. Tell that to the people who are working from home because a child is sick, or because the employee is too sick to go to an office and spread germs but who can manage to get some work done at home.
The bank claims that people working from home “are contributing less to the infrastructure of the economy while still receiving its benefits.” Clearly the bank failed to take into account the contribution to the environment by the elimination of pollution that would be caused by the employee’s use of a vehicle to commute. Clearly the bank failed to take into account the contribution of the work-at-home employee to the reduction of traffic congestion by not participating in rush hour commuting. Clearly the bank failed to take into account the fact that the employee would still direct net income to the purchase of goods and services, or investments in turn used to finance lending.
The bank justifies the proposal by pointing to the amount of revenue it could raise, and suggesting that the proceeds should be “used to support people on low incomes who cannot do their jobs remotely.” Of course it makes sense to increase the wages of underpaid low-income workers. But why do that by imposing the funding on employees whose wages might not be very much higher? If the response is that the tax would also fall on high-income employees, is that not support for a better proposal, which is cutting the extravagant salaries of high-income employees where the ratio of top salary to bottom salary in a company exceeds what it was when the economy was in better condition? In some ways, the proposal is both a distraction from the need to re-align compensation arrays as well as a reminder that existing compensation arrays are a major ingredient for current economic distress, worker unrest, fiscal problems, and political turmoil.
I should note that I have no horse in this race. The work I have done at home over the years was work as a self-employed writer and consultant. The work I have done as an employee has been done principally at the school, with three small exceptions. One, I am teaching at home because the university wants me to do that, and as soon as things revert to pre-pandemic conditions, I will return to the school to teach, assuming they still want me and my body and brain are still functioning well enough. Two, if I get an email from a student when I am at home, I will take a few minutes to read and answer it. Three, I have always found myself, while at home doing something mindless, thinking about my courses, curriculum, topics, and other things related to my teaching. So this proposed tax is not one, if adopted, that would affect me. It simply is an idea that highlights a problem but does not provide a solution because it rests on very shaky rationales and fails to take into account the entire picture of people working at home.
P.S. I wonder if anyone catches what I did with the title to this post in light of the source of the proposal. It wasn’t intentional. I noticed it after I started writing. That’s how bad it sometimes gets.
Friday, November 13, 2020
Taking a Walk and Thinking About Genealogy and Tax
Today I share a long story about my family history research in which tax sits on the periphery. What brought this story to mind was a thought that popped into my head during my walk the other day. Usually I walk in my neighborhood, because going outside of the neighborhood requires either walking on one of two heavily traveled roads or driving somewhere to walk in a park or on a trail. So the other day I realized I could walk in another neighborhood by walking for a hundred feet along one of those major roads. The other neighborhood is simply a dead-end road with several houses, but it provides a change of scenery. As I walked I thought to myself, “I’ve been here before. Oh, wait. Conrad Wilson lived in one of these houses.” Who is Conrad Wilson? Now to the story.
My interest in family history was sparked by a pamphlet supposedly written by my great-great-great grandfather William Maule, though decades later I learned that he funded the research and publication of the pamphlet but did not write what was in it. My father read that pamphlet to us after dinner for several nights in a row when I was about 12 years old. When I finally started digging into genealogy ten years later I was puzzled by a reference to where Thomas Maule of Radnor lived. Thomas Maule of Radnor, a son of Thomas Maule of Salem, Massachusetts, though erroneously described in the pamphlet as his grandson, came to Philadelphia with his widowed mother, married, had four children, and after his wife died, remarried, to Zillah Walker, and had seven sons. When he remarried, it was to a woman from the “Great Valley,” which today includes parts of Upper and Lower Merion Townships, Radnor Township, Tredyffrin Township, and several others further west. After their marriage, Thomas and Zillah moved to the Great Valley. The pamphlet described the location of their home as “within a few yards of the Pennsylvania Railroad, about one mile east of the Eagle Station, and directly between the Railroad and Lancaster turnpike.” It also stated that the “venerable mansion which he erected 120 years ago is still standing in a state of good preservation.” Though by the time I started researching, the pamphlet was 110 years old, I wondered if their house was still standing. In these days before google maps, I could not figure out the location, so I wrote a letter to the Radnor Historical Society. Several weeks later I received a reply from Katy Cummin, a member of the Society and, it turned out, the author of “A Rare and Pleasing Thing: Radnor Demography (1798) and Development”, which had been published several months earlier. Her book analyzes the ownership and genealogies of the owners’ families, of each property enumerated in the 1798 property census taken for purposes of the unsuccessful Federal Direct Tax, which measured value by the number and size of windows. See the connection?
Katy invited me, on my next visit home, to accompany her to the site of the Thomas Maule – Zillah Walker home. So on my next trip home, I met her, she took me not only to see where the Thomas Maule home had been – more on that in a moment – but also to see the still-standing home of his son Jacob Maule, the location of where the home of Daniel Maule, another son of Thomas Maule and my 5-great-grandfather, had been located, the location of where the widow of Thomas Maule’s son John had lived, along with several other significant Radnor properties.
She then took me to the home of Conrad Wilson, another member of the Radnor Historical Society. He had a copy of my still-in-draft-form manuscript that became my 1981 now-out-of-print and unavailable ”The History and Genealogy of the Maules”, now in updated form at my family history web site. He had the copy because I had sent a copy to Katy after I had received her letter and by the time I made my visit, a month or so later, she had shared it with other members of the Society at my request. I remember walking into Conrad’s home and thinking, “This guy is definitely into books,” as every wall in the house seemed to be filled with bookshelves crammed with books, not unlike what is now in my house. I remember Conrad telling me, “I can fill in some of the branches in your family that apparently you’ve not yet found.”
And, of course, remembering my visit and tour of Radnor, I recalled my surprise when Katy showed me where the Thomas Maule house had been located. It was in the center of what is now the town of Wayne. I realized that when in college and working for H&R Block in Wayne, I was working as a tax return preparer in a building located on what was my 6-great-grandparents’ farm. See? A second connection! The house, which had been demolished, had served for some time as the manse of Wayne Presbyterian Church. Decades later, after learning that several law school colleagues sang in an Oratorio Society based at the church, and being encouraged by several choir members at my church who where in that Oratorio Society to attend a concert, I met the director at the time, and when I noted that the Church was built on the farm of Thomas Maule and Zillah Walker, he pointed out that he, too, was a Walker descendant. We figured we are about fifth cousins.
As for the other Maule properties, the still-standing house owned and expanded by Jacob Maule (brother of my 5-great-grandfather Daniel Maule) is one-half mile away as the crow flies. The house in which the widow of John Maule (another brother of Daniel) lived was located about 1,200 feet from my house as the crow flies. Daniel Maule’s farm, adjacent to his father Thomas Maule’s farm, is about a mile from my house. And Wayne is about 2 miles from my house as the crow flies.
So even while taking walks, genealogy and tax continue to wander around my brain. And then the story ideas percolate.
Wednesday, November 11, 2020
The List of What Not to Do As a Tax Collector Has Become Even Longer
Reader Morris is as interested as I am in the activities of this former Seminole County tax collector. I should ask him if he thinks that at some point this guy’s story should be made into a movie. The chances have increased with two more things to add to the list, both brought to my attention by reader Morris.
The first story, from January of this year, describes allegations that the former tax collector asked one of his friends to attack the county’s computers and demand a half-million dollar ransom. The evidence behind the allegations comes from a network security specialist who had a contract with the former tax collector while the tax collector was still in office. Though the security specialist told his story to Florida authorities, they refrained from investigating because they considered it a case of one person’s word against another. Of course, the former tax collector denied the allegations, and countered with allegations that the security specialist threatened to shoot people and had been fired from a subsequent job with another state agency. State records show that those two allegations by the former tax collector were false. A year and a half after the security specialist stopped working for the tax collector, the tax collector allegedly summoned the security specialist’s mother, a 30-year employee of the tax collector’s office, confronted her along with his assistant, three lawyers and a court reporter. He allegedly tried to get her to give a sworn statement claiming that the security specialist and his girlfriend, also an employee of the tax collector’s office, had committed certain unspecified violations. Two days later, the tax collector fired both the mother and girlfriend of the security specialist. Since then, the taxpayers of Florida have paid $40,000 to settle a claim by the girlfriend, and will pay whatever comes out of negotiations with the mother. Allegedly, the former tax collector concocted the computer ransom plan to get revenge on a Seminole County Commissioner, who was falsely accused by the tax collector of fraudulently claiming a homestead exemption. In addition, the security specialist claimed that he gave the tax collector a key logger program to track the keystrokes of office employees.
The second story is from a few days ago. According to auditors examining the records of the tax collector’s office, the former tax collector used taxpayer dollars to purchase equipment and other items for himself and to reimburse legal fees he has incurred in defending himself against these various charges. The auditors also reported that the former tax collector used taxpayer money to install a cryptocurrency computer inside a private room in the office, and when it was moved to another location, it caused a power surge that started a fire. Insurance did not cover the damage because the cause of the fire was the negligence of the tax collector.
Will any of these allegations generate state or federal indictments. Perhaps. As I wrote in Lengthening the List of What Not to Do As a Tax Collector, “One would think that a tax collector should be collecting taxes. For some reason, in Florida, tax collectors also do other things unrelated to tax collection, such as renewing and replacing drivers’ licenses, issuing copies of birth certificates, issuing hunting and fishing licenses, issuing concealed weapons permits, and other services best confined to other agencies. Concentration of too much power and authority in one office or one person is dangerous. The situation with the former Seminole County tax collector is proof enough of the need to diversify who provides these services.” To that I add, enough with the nepotism. Enough with packing government offices, whether a local tax collector office or the White House, with family and friends.
Monday, November 09, 2020
Tax Payment Failure Exposes Auto Registration and Identity Fraud
Though I enjoy watching these for several reasons, including the acquisition of material for this blog, I don’t have the time to view every episode of every show. In fact, because the recently added Judge Jerry show conflicts with Hot Bench in the schedule, I have seen only a handful of its episodes. But reader Morris has alerted me to an episode involving tax that aired very recently. This is at least the second time reader Morris has directed my attention to a television court show I had not seen.
In this episode, the defendant purchased a car using her sister’s identity. Her sister, the plaintiff, claimed that she did not give the defendant permission to use her identity. The defendant claimed that the plaintiff had handed her driver’s license to her, telling her to use it to purchase a car. Judge Jerry made it clear that with or without permission what the defendant did was a crime, and if the plaintiff participated in the deception she, too, committed a crime.
The plaintiff explained that she did not know about the deception until she tried to register her own car. Her attempt was rejected. The clerk told her that her attempt failed because she had failed to pay town taxes on another vehicle that she owned. The plaintiff, who did not own another vehicle, ascertained that the car being driven by her sister, the defendant, had been registered in her, the plaintiff’s, name. To be able to register her car in the town, the plaintiff needed the unpaid taxes to be paid, so she sued her sister for the amount of the taxes.
The defendant claimed that she had paid money to her sister but the plaintiff denied this claim. The defendant then claimed that her sister, the plaintiff, had let her use the plaintiff’s driver’s license because the defendant had done babysitting for the plaintiff and somehow this absolved any obligation. The defendant did not provide any evidence that she had paid the car taxes.
Judge Jerry explained that the babysitting and any other favors that the defendant did for the plaintiff were separate and not relevant. He concluded that the car belongs to the defendant, that the taxes on the car are the obligation of the defendant, and that the defendant’s failure to prove she paid the taxes required a decision that the defendant owed the plaintiff for the taxes.
The first tax lesson from this case is simple and obvious. The owner of a car must pay the taxes. The other lessons are just as important though they are not tax lessons. Do not register a vehicle using another person’s name. Do not present yourself using someone else’s identity documents. Do not pay someone to use their identity documents. Do not enter into agreements to commit identity fraud.
The second tax lesson from this case also is simple but perhaps not so obvious. Failure to pay taxes not only triggers audits and collection procedures, it also can reveal other activity by the taxpayer, and others, that is or borders on criminal violations as well as actions that justify civil judgments in favor of third parties. Worse, sometimes information on a tax return can alert authorities that the taxpayer is engaged in activities that raise suspicions and create referrals to the Department of Justice, U.S. Attorneys, state attorneys general, or local prosecutors.
Friday, November 06, 2020
What Happens to Employees When Employers Fail to Remit Withheld Taxes?
A question popped into my head. What happens to the employees who file returns showing that they paid their taxes through withholding, as indicated on their Forms W-2, but who didn’t pay the tax because the employer failed to remit the withheld taxes? I thought I knew the answer, and checked to confirm I was correct. In South Carolina, under title 12 of South Carolina Code of Laws Unannotated, section 12-8-2010(B), “If a withholding agent fails to remit an amount withheld from a taxpayer under this chapter to the department, the taxpayer is allowed a credit for the amount of income tax withheld from him but not remitted.” In other words, the employee is not the one required to track down the employer and recover the unremitted tax; the state does that work. This provision tracks the result under Internal Revenue Code section 31(a)(1), and similar statutes exist in other states.
What is interesting to me is the contrast between what happens when an employer or other withholding agent goes bad, and when a tax return preparer goes bad. As I discussed 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, Is This How Tax Return Preparation Fraud Can Proliferate?, and When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, taxpayers need to be careful when selecting a tax return preparer, because intentional or unintentional “mistakes” by the preparer are attributed to the taxpayer. In contrast, an intentional or unintentional “mistake” by an employer or other withholding agent with respect to remitting withheld taxes is not attributed to the taxpayer (unless, of course, the taxpayer was complicit). Why the difference? A taxpayer using a tax return preparer has the opportunity to review the return before signing it, whereas the typical employee does not have the opportunity to review the payments being made, or not being made, by the employer to the IRS and state revenue departments.
Wednesday, November 04, 2020
Pandemics: Financially Bad for Most People, Good for a Few
So who are the Americans who have not only survived through the pandemic but have prospered during its run? According to the U.S. Billionaires Wealth Growth spreadsheet, maintained by the Americans for Tax Fairness, the total net worth of America’s 644 billionaires increased 31.6 percent from March 18 through October 13. Their collective net worth rose from $2,947,500,000,000 (that’s $2.95 TRILLION) to $3,878,233,000,000 (that’s $3.88 trillion). That’s an increase of $930,733,000,000 (that’s $931 billion, or nearly a trillion dollars).
In the meantime, as Americans for Tax Fairness reports, the collective work in come of rank-and-file employees in the private sector, constituting the bottom 82 percent of the workforce, fell by 3.5 percent from mid-March through mid-September. Almost 62 million lost work during that same time period. As of mid-September 25 million were on unemployment. Almost 100,000 businesses, almost all of which are small outfits, closed permanently. Employer-sponsored health care coverage for 12 million Americans terminated. Sadly, for the period September 2 through September 28, 22 million adults, with 14 million children in their households, reported not having enough food. Roughly 15 percent of renters were behind in September rent payments.
So how is that “trickle down” economic policy working out? What good is “supply side” economics when there are fewer and fewer people able to afford whatever it is that is being supplied?
Sadly, we are reaping the results of the bad decisions that certain politicians and their admirers have advocated and sown. The rich play, and everyone else pays.
And to think so much of this was avoidable. I wonder if historians, assuming there are any in the decades and centuries ahead, will call this “The Era When Ignorance Triumphed.”
Monday, November 02, 2020
Tax Lies and Misleading Tax Claims
Biden has not made any such proposal. Every organization and individual that has fact-checked the claim has concluded it is baseless.
Why would someone claim that he has? It’s simple. When truth doesn’t work to their advantage, some people turn to lies. Consider this example from a long time ago:
Parent: “Stop chewing your fingernails.”
Child: “Why?”
Parent: “It looks bad, and if your nails are dirty it can be unhealthy.”
Child: “I don’t care.”
Parent, frustrated: “And, by the way, one of your nails, but no one knows which one, is poison and chewing on it will kill you.”
Because the truth didn’t work, rather than exerting effort to find another, honest, approach to dissuading the child from fingernail-chewing, the parent turned to a falsehood. And what happens when the child learns, later, that the parent lied?
A similar absurdity pops up in political ads favoring Donald Trump. The ads contain a clip of Biden saying, “I’m going to raise taxes,” and then cuts to several people bemoaning the horrors of increased taxes and complaining how that will hurt them. Of course, the ad took Biden’s statement, “I’m going to raise taxes on people with incomes over $400,000” and clipped off the second part of the sentence. Of course, the people in the ads complaining about tax increases are portrayed as individuals who surely are not earning more than $400,000 annually. The point of the ad is, again, fear generated by a false or misleading statement.
I wonder how the liars and manipulators would feel if they were asked, “Did you rob the bank?” and they replied “Absolutely not,” and then discovered that someone cropped their words so that when asked, “Did you rob the bank?” their answer would show up as “Absolutely.” I suspect they would be screaming foul more loudly than anyone reacting to their mendacious political advertising.
Of course, if Americans were sufficiently educated about everything that matters, took the time to do research, made the effort to think critically, and troubled themselves to engage in critical analysis, the lies and misleading statements would have no effect. The purveyors of these lies and misleading statements would either fade out of the picture or learn to tell the truth and construct arguments based on truth.
Friday, October 30, 2020
Halloween Chocolate Construction Project
Thanks to reader Morris, I have learned that this Halloween, people can buy kits that permit them to build haunted houses made out of chocolate. I suppose if Christmas can get gingerbread house builders all excited, why not let Halloween inspire those who want to use chocolate as construction material. Apparently the materials come in the form of cookies, candies, and icing.
Of course, reader Morris saw the tax angle. He asked, “What taxes {sales , VAT, use tax, sugar tax, etc.} if any, would you need to pay on this product if delivered to Pennsylvania from UK?”
My answer: “I know that the Pennsylvania use tax, not its sales tax, would apply. There is no sugar tax on a non-beverage item. I don’t know enough about the UK VAT to answer.” But I should amend that answer. The Pennsylvania sales and use tax does not apply to cookies, candy, and icing because they are food, and food is exempt, but perhaps if the food is used as a construction material it is not exempt. Yet should that matter? Think of how many children “play with their food” before eating it and who are told, “Don’t play with your food.” Playing with food does not cause it to be excluded from the sales tax exemption. Surely playing with it by building a haunted house does not cause it to be subject to sales or use tax. Or does it?
But then everything came crashing down. Curious, I tried to determine if the seller of the chocolate haunted house construction kit collected any taxes. What I quickly noticed was this frightening warning: “International Delivery: Not available for this item.” So much for my thoughts of doing some “tax research” by ordering this item. Oh, well, Happy Halloween!
Wednesday, October 28, 2020
How Not to Prove You Know Taxes and the Tax Code Better Than Anyone Else
After setting out my benchmarks for determining if someone “knows taxes,” summarized again in Disinterest in Tax: Should Difficulty in Understanding Justify Ignorance?, I noted that his statements that the “fair tax is okay” and the “flat tax is okay” “demonstrate you know very little about taxation that matters.” I pointed out that his statements were “Certainly not enough to set yourself up as an omniscient tax expert.”
A few months later, in “Who Knows the Tax Code Better Than Me?”, I commented on Trump’s rhetorical quip, “Who knows the tax code better than me?” I answered the question, “a lot of other people.”
Reader Morris has shared with me story that brings home this maxim: what’s worse than being ignorant and declaring knowledge is demonstrating that ignorance. Here is the transcript between NBC’s Savannah Guthrie and tax expert Donald J. Trump:
GUTHRIE: It also says that you paid $750 in taxes in the year you were elected. Is that true or not?A filing number? A filing fee? Hello! Tax experts would not say something like that in the context of the question that was asked. And who doesn’t have a rough idea of how much they have paid in federal income taxes?TRUMP: Yes, because that’s a statutory number. It’s a statutory -- it’s not that --
GUTHRIE: But is that true?
TRUMP: I think it’s a filing number. You pay $750, it’s a filing -- or a filing fee.
GUTHRIE: But is that all you paid because most people here probably paid more?
TRUMP: No, I don’t know. I can’t tell you this, if they have my tax returns, as you know, they have to go to jail. It’s illegal. But their numbers were wrong.
Perhaps the self-anointed tax expert would be willing to sit down and take an exam in a basic federal income tax course. Then he could prove he knows taxes and the tax code better than anyone else. Or perhaps after reading the first question he would get up and storm out of the room.
Monday, October 26, 2020
Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”
This time, however, I have struggled to understand the tax issue raised in the latest Judge Judy episode that I have watched. I paid close attention to episode 213 of season 23 because its title drew me in. Why wouldn’t I sit up and notice an episode entitled, “The Weaponization of Child Protective Services?!; Tax Fraud Conspiracy?!” ? Note that the first part of the episode title refers to a different case handled in the same episode that had nothing to do with taxes.
The case was not a tax case but involved a painting contract. The plaintiff contracted with the defendant for the defendant to do painting work in the plaintiff’s home. When Judge Judy asked for a copy of the contract, she was given an unsigned document. The defendant said that it was signed but that the plaintiff had the signed original. The plaintiff denied having the original. But both parties agreed that there was a signed contract under which the defendant would be paid $3,800 to do the painting work.
The defendant did the painting, and when the plaintiff requested additional work be done, the parties agreed on an additional cost. The defendant did the additional work and in November of the year in which the work was done presented the plaintiff with an invoice for $5,500. The plaintiff paid that amount. Two years later she sued for a return of the entire amount because she claimed the work was not done properly. The plaintiff offered evidence of defects, but the defendant denied that the flaws were his doing. As Judge Judy went through the video provided by the plaintiff, the defendant pointed out that the damage was done by the plaintiff’s actions or were problems that pre-dated his work. The defendant produced texts sent by the plaintiff after he was finished in which she described the work as “gorgeous.” The plaintiff claimed that the word “gorgeous” was a reference to the paint color. Judge Judy dismissed the plaintiff’s case.
Here’s the tax twist. After asking for the contract and learning of the agreement for additional work, Judge Judy asked for a copy of the invoice. She noted that the date on the invoice was January of the year following the year in which the work was done. She asked why, considering that the defendant had testified he finished the work and sent the invoice in November of the year in which he did the work, did the invoice had a date of January of the following year. The defendant testified that he changed the date on the invoice from November to January at the request of the plaintiff so that she “could use it on her taxes.” At first, the plaintiff disagreed but then did agree that she had asked for the change in the date and that she did so for tax purposes. Judge Judy remarked that what the defendant had described was “a conspiracy to commit tax fraud.”
What has baffled me is figuring out what advantage the plaintiff would obtain by shifting the date on the invoice to the following year. It certainly was not a sales tax issue, because she paid the invoice when it was received in November and presumably the defendant remitted any sales tax to the state in that year. It surely was not a real property tax issue, because a $5.500 paint job in the nature of maintenance does not add any realistically measurable value to a home and would not trigger a re-assessment. And if it did, the amount of the tax increase would be negligible, surely in the range of one or two digits.
So it must have been an income tax issue. But for that to be the case, the amount paid by the plaintiff would need to be deductible. The only possible deduction would be the portion of the invoice amount allocated to a home office, assuming the plaintiff had one. But moving the date of the invoice would not change anything. If the plaintiff did not want a deduction in the year the work was done because it would not reduce taxable income on account of the section 280A limitation or because taxable income was otherwise negative, it would simply have increased the loss carryforward shifted into the next year. So moving the deduction into the next year would not provide an advantage.
There must be more to the story, but no additional facts were presented during the proceedings that would answer the question or provide additional clues. Perhaps the plaintiff erroneously thought that postponing the deduction would be advantageous. In that case, it would be difficult to characterize the postponement as fraud, especially as it provided no advantage.
So what specific tax advantage motivated her to make the date change request of the defendant? Perhaps there is some tax angle I’m overlooking.
Friday, October 23, 2020
No, I Did NOT Reply to the Sender of This Letter
Of course, alarm bells went off even before I reached that part of the letter. I read the letter because I knew it would be amusing. I wanted to see how many indications of scam I could identify. I will share those indications so that people who read this blog post can learn, if they don’t already know, what sorts of clues warn us that something that might appear to be genuine surely isn’t.
Clue number one: the letter arrived in an envelope without a return address. Legitimate business correspondence should carry a return address.
Clue number two: my name and address were not printed directly on the envelope but was printed on a peel-and-stick label attached to the envelope. Legitimate business correspondence should not be addressed as though it was one of at least thousands of similar mailings.
Clue number three: the letter lacked a letterhead. Legitimate business correspondence should carry a letterhead.
Clue number four: The letter opened with the writer’s introduction of what is allegedly his name. I will not repeat the name. I will refer to the person as the alleged sender. The alleged sender claimed to be based in Hong Kong. The envelope was mailed with a Canadian stamp, not a Hong Kong stamp.
Clue number five: The name given as the alleged writer is a real person based in Hong Kong. However, the person is not a lawyer, nor did the person identify himself as the executor of the decedent’s estate or as the trustee of a trust. Legitimate business correspondence would not be so vague.
Clue number six: The letter provided a legal citation that does not correspond to any existing legal authority.
Clue number seven: The surname of the alleged decedent is the same as mine. There are six individuals in my family database with the same first name stated in the letter. Three died long before the alleged decedent mentioned in the letter died, and the other three are alive.
Clue number eight: The letter claimed that the alleged decedent’s estate would forfeit to the Hong Kong Monetary Fund unless a beneficiary was nominated. Being familiar with intestacy provisions in American states, that claim struck me as rather unusual. It turns out that Hong Kong intestacy law is not unlike intestacy provisions in the United States, and there is no way I would be entitled to the amount in question. A legitimate business inquiry would ask if I was related within the specified degrees of relationship listed in the appropriate statute.
Clue number nine: The letter writer claimed that he intended to retire and wanted to close out matters on his desk. The alleged sender of the letter is decades from retirement, and is not involved in administering estates.
Clue number ten: The letter writer claimed to have exclusive access to the alleged decedent’s file. That is nonsense. Information about a decedent would also be held by the relevant probate court, creditors of the estate, and others involved in the administration of the estate.
Clue number eleven: The letter writer’s proposal to split the alleged funds in three ways explained that “you can be made the beneficiary of these funds, this would be made easy and will go unnoticed in the system.” Legitimate business correspondence about an inheritance does not brag about making transactions “go unnoticed in the system.” In addition, the grammar in the entire paragraph is not up to the standards expected in legitimate business correspondence.
Clue number twelve: The letter writer requested that I “please trust me on this,” which is not what a legitimate business correspondent in this sort of situation would write.
Clue number thirteen: The letter writer stated that the decedent “always talked about a relative who shared the exact same name.” In one respect, so what? That proves nothing. From another perspective, there are thousands of individuals who carry that surname. Nothing indicates that the alleged decedent mentioned me, and considering the peel-and-stick address label, surely this letter was sent to everyone the letter writer could find who bears the surname, hoping that even a one-tenth of one percent response rate would provide at least one potential victim.
Clue number fourteen: The letter writer stated, “there is no wrong-doing on your part as I am the sole architect of this project.” That is very close to an admission that the entire letter is the scheme of the letter writer.
Clue number fifteen: The letter writer claimed the he alone determines who “the inheritor is.” In every jurisdiction in which a decedent’s estate is administered, the probate court or its equivalent must approve the distribution of the assets. Clearly, the letter sender doesn’t know much about Hong Kong probate law.
Clue number sixteen: The letter writer asks to be contacted by telephone, fax, or email, but provides only one number and one email. Legitimate business correspondence does not exhibit that sort of mistake, especially in an era where use of facsimile transmissions is almost extinct.
Clue number seventeen: The email was a generic account and not within the domain of the company for which the alleged sender works.
Clue number eighteen: The phone number provided in the letter does not correspond to any legitimate business.
Curious, I did a bit more research. Apparently, scamsters have been circulating this letter, in varied forms. According to this South China Morning Post report, the names used and the companies alleged to be holding the money vary. The letters are being sent from various countries. The letters, though, share common characteristics, including the existence of an unclaimed estate left by a decedent whose surname matches the surname of the letter recipient. The South China Morning Post staff pursued the sender of the letter it obtained, and encountered the typical response from a scamster. Some of the language in that letter matches word-for-word the language in the letter I received.
So how does the scam work? At some point, after the victim responds and is pulled along into the trap, the victim is asked to pay a fee of some sort, usually because of a sudden and unexpected difficulty with some alleged government or a bureaucrat or some other invented situation. Too often, people send the money. Then the scamster disappears.
And that is why I have shared this story. It took me 20 seconds to identify the letter as a scam. It took me more than an hour to write this post and do some research. My goal is to educate people, to alert them to the fact that although scams seemingly have moved to the internet while still showing up in phone calls, there still are scamsters using postal mail. My goal is to stress the importance of critical thinking, of careful analysis of words, of attention to detail, of fact-checking, and of resisting what makes these scams work, which is, as the South China Post reporter explained, “by preying on people's greed.”
My last laugh at the scamster, who doesn’t know I laughed, arose when I thought, “I wonder if this clown realizes he sent this letter to a lawyer who happens to teach a course dealing with inheritance.” But then I realized, very few of the scamster’s letter recipients are lawyers, let alone lawyers who teach wills and trusts. And that is when I decided I needed to write this commentary. I hope it saves someone from being bamboozled by a scamster con artist.
Wednesday, October 21, 2020
Tax “Quadrupling”: Stupidity, Ignorance, Mendaciousness, or a Con Job?
Quadruple taxes? Really? Is the man stupid? Ignorant? Full of mendaciousness? Or engaged in another con job?
The answer, I think, is all four.
There is absolutely nothing in Joe Biden’s tax plan that would quadruple anyone’s taxes. Rather than take my word for it, consider the debunking of this nonsense by Factcheck.org, CNN, the American Enterprise Institute, and dozens of other reputable and knowledgeable sources.
It is stupid to make a claim so outlandish that no one in their right mind would believe it. The claim demonstrates total ignorance of what Biden has proposed. The claim is a lie, nothing more and nothing less. It is not, as one commentator tried to excuse it, simply “campaign bluster.” And, of course, it is yet another attempt to trick, deceive, delude, and mislead gullible and naïve Americans into thinking that Trump has their back. He doesn’t. Granted, there are Trump supporters who know that his “quadruple” claim is nonsense, but they toss it aside because they’re not concerned so much about taxes as they are about the single issue for which they cheer on their hero.
So why make such an outrageously false and ridiculous claim? Because Trump knows it will resonate with the emotions of the segment of his base who make their decisions based on emotion rather than rational analysis. Taxes trigger emotional reactions in many people. Those emotions range from fear of the IRS putting them in jail for minor errors to anxiety about the seemingly economic devastation to the household budget if taxes are increased, blended with anger that everyone else is getting away with avoiding taxes and frustration with trying to understand an unnecessarily complicated tax law. Unfortunately, rational thought, if applied, would focus attention on those who have created the tax system these folks despise but it would create deep cognitive dissonance because the hero they support, and his oligarchic buddies, are major contributors to the complexity and unfairness of our tax laws.
Though it is good that so many sources, whether leaning left, leaning right, or trying to hold the center, have debunked this falsehood, very few of the people who cheered on the lie will bother to try deciding if it is indeed true or false and will not read the logical analysis demonstrating the absurdity of the claim. It’s one thing to be deceived by a lie that is within the realm of possibility but to be duped by a lie that makes an impossible claim is a demonstration of how much time, energy, and other resources need to be devoted to fixing the collective undereducation of too big of a segment of the American population. For someone like myself, who has always valued intellectual curiosity, analytical thinking, and education supporting those traits, watching collective American mentality regress is troubling. But then again, it is no wonder that regressive is the opposite of progressive, and it is only natural that those who dislike progressive ideas, such as easily accessible high quality education, would support regressive approaches to life. Tossing out false and ridiculous claims while engaged in rabble rousing surely isn’t progressive. If we keep on this path, eventually everyone will learn this, and it will be quite a hard lesson.
Monday, October 19, 2020
Beware of the Partner’s Tax Lien
The episode carries the title, “Tax Lien & Gutted Getaway” but I do not have a season or episode designation. Though the television guide on the screen has given that information for other court shows, for this one it did not. Nor did an internet search turn up the information. But those who want to view the episode can find it by searching for its title.
The case involved two dance teachers who formed a partnership to teach dance. Each had previously operated her own business as a sole proprietor. When one of the two partners, the plaintiff, tried to pay an expense of the business, she discovered that there was only $2,000 in the business joint account rather than the expected $8,000. Where was the $6,000 that was missing? It was taken by the state after it imposed a tax lien on the account for back taxes owed by the other partner, the defendant, on her personal income unconnected with the business.
The plaintiff was upset that the defendant did not tell her about the money being taken from the account because of the defendant’s tax lien. The defendant argued that she did not tell the plaintiff because it happened quickly, testifying that “it all happened in two days.” But Judge Ross refused to accept her explanation. He explained that she would have received a notice, would have been given a period of time to dispute the tax claim, and would have received a second notice. The defendant explained that she did not receive the notice because she had changed her address after she moved to another state.
The defendant then testified that she straightened out the tax lien and the state that had imposed the lien and seized the $6,000 returned the money. But the money did not go back into the joint account because it was closed. It was closed when the plaintiff used the $2,000 balance to pay expenses of the business.
There was some dispute over the computation of the business profits and how much each partner was entitled to receive. A complicating factor was the partners’ agreement at the outset that the defendant would be compensated for engaging in marketing activities for the business. The defendant testified that she not only invested additional time in marketing efforts, for which she was to be compensated, but also that she paid marketing expenses on behalf of the business, for which she should be reimbursed. These amounts, she argued, should offset most of what the plaintiff was claiming she was due from the joint account that had been closed.
The defendant counterclaimed. She claimed that because of the situation with the account, the plaintiff resigned from the partnership, causing both the plaintiff and defendant to return to teaching dance as sole proprietors. The defendant testified that when the parent of one of her students asked why the business had closed, the plaintiff told the parent that it was because the defendant was going to jail for not paying taxes. So that parent withdrew her child as a student of the defendant, causing the defendant a loss of revenue. The plaintiff denied having said the defendant was going to jail, and testified that she had said to the parent, after explaining why the business closed, “You can’t cheat Uncle Sam and that’s how those big celebrities go to jail.” The judge explained that the plaintiff’s statement was not an allegation that the defendant was going to jail but was equivalent to saying that if someone fails to pay taxes, there is a possibility that person would go to jail. Thus, Judge Ross explained, truth is a defense and because the plaintiff’s statement was true, the defendant had no claim.
After doing some computations, the judge held that the plaintiff was entitled to $500, much less than what she sought. He then dismissed the defendant’s counterclaim.
The primary lesson to be learned from this case is that people should operate a business in a manner that insulates its assets from the personal debts of each of the partners or owners. That is fairly easy to do when operating in corporate form but much more challenging when operating as a partnership. The details are a matter of business organization law, and the debts can arise from a variety of transactions. In this case, they happened to arise from taxes. The case would not have been very different had the lien been a mechanics’ lien imposed on the defendant for failure to pay an invoice for work done on her residence. I leave discussion of business formation to those whose blogs and other commentaries focus on that subject.
Another lesson to be learned from this case is to be careful when making allegations about another person’s legal problems, including tax issues. In this case, the plaintiff wisely or luckily made her statement in a manner that stood true as a general rule rather than as a specific allegation about the defendant. But too often people make statements about other people without having done research, without knowing all the facts, and without necessarily having a need to make any statement at all. In this case, for example, it turned out that because of her change of residence to a state without an income tax, the amount that was taken under the tax lien was returned to the defendant.
With respect to both business formation and making statements about existing or former business partners, it is best to be careful. Carefulness appears to be another beneficial behavioral trait that is less evident than it once was.
Friday, October 16, 2020
Lengthening the List of What Not to Do As a Tax Collector
When I pointed out in Monday’s post that “It definitely is a still-developing story,” I didn’t expect that even more allegations would show up so quickly. Reader Morris, also fascinated by this story, directed my attention to this story. According to the report, the former tax collector has been accused of “ ‘practicing’ how to make fake concealed weapons permits.” According to federal prosecutors, earlier this year, when the section of the tax collector’s office that issues concealed carry permits was closed because of the pandemic, the former tax collector called an employee to find out how to fix the special printer that prints the permits, and when asked by the employee why he needed to use that printer when permits were not being issued, the former tax collector replied that he was simply “messing” with the printer. After he resigned his office, unspecified individuals found in his office pieces of the special card stock paper used for those permits, ad some show that he was experimenting at printing fake concealed weapons permits, particularly the security stripe.
One would think that a tax collector should be collecting taxes. For some reason, in Florida, tax collectors also do other things unrelated to tax collection, such as renewing and replacing drivers’ licenses, issuing copies of birth certificates, issuing hunting and fishing licenses, issuing concealed weapons permits, and other services best confined to other agencies. Concentration of too much power and authority in one office or one person is dangerous. The situation with the former Seminole County tax collector is proof enough of the need to diversify who provides these services.
Wednesday, October 14, 2020
When It Comes to Taxes, Words Matter, Just As They Do With Everything Else
When asked about the economy, Senator Harris, at 25 minutes and 16 seconds into the debate, referred to the 2017 tax legislation, and said, “On day one, Joe Biden will repeal that tax bill.” Vice President pence, at 27 minutes and 27 seconds into the debate, in replying to a variation on the same question, said, “you just heard Senator Harris tell you, on day one Joe Biden's gonna raise your taxes.” But then after the moderator turned that question over to Senator Harris, the Vice President, on his third interruption of her response at 29 minutes and 59 seconds into the debate, asserted, “Joe Biden said twice in the debate last week that on day one he was going to repeal the Trump tax cuts.”
Curious, I examined the transcript for the debate between the candidates for President. At no point did Joe Biden state that “on day one” he was going to repeal the 2017 legislation. What he said was, “but that's why I'm going to eliminate the Trump tax cuts. And we're going to eliminate those tax cuts.”
But Biden did say, not during the debate but some months earlier at the South Carolina Democrat Convention, "And folks, on day one, I will move to eliminate Trump's tax cuts." During the Poor People’s Forum in June 2019, he stated, “The first thing I would do is eliminate the President’s tax cut.”
On the first day of his Presidency, if he were to be elected, Joe Biden certainly could “move” to repeal or amend the 2017 legislation. That is, he could ask one or more members of Congress to introduce legislation to that effect. As a practical matter, if he were to be elected, he would have time before the inauguration to make arrangements with members of Congress to introduce tax legislation even though the success of that legislation would depend on the make-up of both the Senate and the House.
What a President cannot do on the first or any other day of a Presidency is to eliminate or repeal legislation. Only Congress can do that. Perhaps that is why during the debate, after saying “but that's why I'm going to eliminate the Trump tax cuts,” he quickly switched pronouns, stating, “And we're going to eliminate those tax cuts.” He demonstrated that this sort of change in the tax law is not a matter of “I” but a matter of “we.” As for why Senator Harris claimed that “On day one, Joe Biden will repeal that tax bill,” something he would not be able to do, my guess is that she was trying to compress a more accurate, “At the top of the list of what he plans to do, Joe Biden will ask the Congress to repeal the 2017 legislation” into the highly compressed time frame into which two people are asked to analyze and explain positions on dozens of issues.
But shorthand can be dangerous. Tweets and sound bites and compressed debate quips can be misleading. They can create anxiety when none is necessary. They can create unfortunate opportunities for opponents to misconstrue what was intended by focusing on poor choices of words. They can contribute to, and reinforce, ignorance.
Words matter. The claim of “That’s not what I meant” often is rebutted with “But that’s not what you said.” Words matter. They need to be chosen carefully, even when time is short, or even when the protest placard is of limited size. Words matter, and sometimes more words are necessary than the advocates of tweets, sound bites, slogans, buzz phrases, quips, and two-minute debate responses would prefer. Language is a gift. It ought to be used carefully.
Monday, October 12, 2020
The Legacy of Misbehaving Tax Collectors
It definitely is a still-developing story. It amazes me how inadequate our political system is to prevent these sorts of situations. Reader Morris also has been engrossed in this story. This week he alerted me to three more reports focusing on the plight of the Seminole County tax collector.
First, reader Morris directed my attention to what I had written in What Qualifications Are Needed to Be a Tax Collector?:
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.Reader Morris then noted that he “did additional research about the previous tax collector of Seminole County,” and suggested, “I believe if you had seen and read this story, you may have written this same conclusion from your blog.” So, of course, I looked at the story reader Morris mentioned.. The short version is that the previous Seminole County tax collector, who held the position for almost 30 years, allegedly increased his net worth twenty-fold by taking advantage of his access to tax deeds and auctions by using aliases, his corporation, and his limited liability company to purchase properties up for auction. He allegedly omitted his limited liability company from his financial disclosure forms. Though there have been calls for prosecutors to investigate and bring corruption charges, and other reports of misdeeds, it appears as though no prosecution has occurred. So, yes, had I been writing about the office of Seminole County Tax Collector in 2016, I probably would have noted that things can always get worse. But perhaps then I would have been accused of jinxing the people of Seminole County once it became apparent things did get worse. But it does seem as though misbehavior by the Seminole County tax collector is not just a one-tax-collector show.
Second, reader Morris directed my attention to another story about the Seminole County tax collector who recently resigned. Soon after taking office, the tax collector announced that he and some of his staff would openly carry firearms, claiming that he was required to do so as a state revenue officer. However, the state’s Attorney General’s office issued an informal opinion stating that although revenue officers are permitted to “carry guns and act like law enforcement officers,” tax collectors do not qualify as revenue officers. What triggered the opinion was a complaint filed against the tax collector who, apparently unhappy with how someone was driving, followed the driver home using a white strobe light on his personal vehicle, flashing a badge and carrying the gun, and confronted the driver. The tax collector’s reaction to the opinion was to note that he disagreed, pointing out that the Attorney General’s term was over in a few days, and that he would try to work out something with the incoming Attorney General. If there has been a more recent opinion, I cannot find it, though it does appear that there are some tax collectors in Florida who claim to be revenue officials. Nonetheless, the idea that a tax collector can make traffic stops using a private vehicle is unwise, and if Florida law permits that sort of behavior it needs to be revised. Reader Morris asked if impersonating a law enforcement officer a crime in Seminole County or in Pennsylvania. To the best of my knowledge, anyone who is not a law enforcement officer who impersonates one is committing a crime in every state.
Third, reader Morris informed me about yet another story involving the Seminole County tax collector. According to this report, representative Matt Gaetz is now coming under criticism for what he said in 2017. According to this story, Gaetz had this to say about the Seminole County tax collector and the then-upcoming campaign for the Seventh District of Florida:
That is a Republican seat. That is a seat that really should be won by Republicans. Joel Greenberg has gone to the Seminole county Tax Collector’s office and been a disrupter. If you look at what people want in the country right now, they want that disrupter.Had the tax collector entered that race and won, imagine the damage that would have been done. Though in the same report the Seminole County tax collector described himself as not a career politician, if even a few of the allegations are true, he surely has been acting as badly as have some career politicians.
Friday, October 09, 2020
When Tax Return Preparers Go Bad, Their Customers Can Pay the Price
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.
