MauledAgain

Last September, in Suppose They Gave a “Tax Break” And No One Used It?, I noted that many employers had planned to ignore the payroll tax deferral tax break put in place by the Trump Administration. In fact, many employers followed through and continued to withhold the usual payroll taxes to spare their employees the consequences of doing so, namely, an increase in payroll tax withholding in early 2021.

Now it appears that another tax break, this time at the state level, has gone unused. It’s not because taxpayers refrained from claiming it because of adverse consequences, but it was a tax break for which apparently no individuals qualified, or if they did, they either chose for some reason to ignore it or did not realize it existed. According to Arizona Department of Revenue, “for four consecutive fiscal years that no individual taxpayers have claimed the income tax credit for qualified employment of recipients of temporary assistance for needy families.” The Department explained that under section 43-224 of the Arizona statutes, individual taxpayers will no longer be eligible for that credit starting in 2021. Corporate taxpayers will continue to be eligible for the credit. The termination of the credit becomes fully effective when the legislature enacts the technical corrections legislation submitted by the Department of Revenue.

Curious, I searched for the statute in question. It provides as follows:

43-224. Individual and corporate income tax credits; annual report; termination of unused credits

A. On or before September 30 of each year, the department shall report to the directors of the joint legislative budget committee and the governor's office of strategic planning and budgeting on the amount of individual income tax credits and corporate income tax credits that were claimed in the previous fiscal year.

B. Except as provided by subsection C of this section, if, in any four consecutive reports under subsection A of this section, an individual or corporate income tax credit was not claimed by or allowed to any individual or corporate taxpayer, the director of the department of revenue shall:

1. Terminate the recognition and servicing of that credit for taxable years beginning from and after December 31 of the year in which the fourth report is issued.

2. Issue a public announcement, including on the department's website, of the termination of the credit under authority of this section.

3. Notify the governor's office of strategic planning and budgeting, the president of the senate, the speaker of the house of representatives, the joint legislative budget committee and the legislative council.

4. Include the repeal of all statutes relating to the terminated credit in technical tax correction legislation for enactment in the next regular session of the legislature. If the legislature fails to enact this legislation, the director shall rescind the termination of the credit.

C. The director may not terminate under subsection B of this section the recognition and servicing of any income tax credit that is subject by law to preapproval by the Arizona commerce authority unless over any period of four consecutive calendar years both of the following conditions occur with respect to the credit:

1. The department has not received notice of preapproval of any applicant or project for the credit from the Arizona commerce authority.

2. In the report issued under subsection A of this section, the credit was not claimed by or allowed to any taxpayer.

I wonder, but I am not about to try to research, whether there are any federal credits or deductions, or for that matter credits or deductions in other states, that have gone unclaimed by taxpayers for one or more years. Similarly, I wonder if any other states have provisions similar to Arizona’s section 43-224. What I really would like to see is an automatic repeal provision for tax breaks based on promises that are not fulfilled, coupled with a “give back” requirement for those tax breaks.

Following the statute, the IRS has explained that eligibility for the 2021 stimulus payment is based on the taxpayer’s 2019 adjusted gross income: “Generally, if you have adjusted gross income for 2019 up to $75,000 for individuals and up to $150,000 for married couples filing joint returns and surviving spouses, you will receive the full amount of the second payment. For filers with income above those amounts, the payment amount is reduced.”

But if for some reason, a person did not receive a stimulus payment that they should have received, the person can claim the recovery rebate credit on their 2020 federal income tax return when they file in 2021. The IRS explains the credit in this statement. However, in the same statement the IRS explains, “The Recovery Rebate Credit is figured like the 2020 Economic Impact Payment, except that the credit eligibility and the credit amount are based on the tax year 2020 information shown on the 2020 tax returns filed in 2021.” That means that a person filing as single in 2019 who had adjusted gross income of $73,000 but who has adjusted gross income in 2020 of $110,000 will not get the credit even though they would have received the stimulus payment had the IRS managed to send it last month or this month.

Yet if the taxpayer did receive a stimulus check because 2019 adjusted income was low enough, but 2020 adjusted gross income was high enough to entitle the taxpayer to a lower, or no, stimulus payment, the taxpayer is not required to return the difference. Guaranteed, many taxpayers are going to be confused, and I daresay some tax return preparers will be challenged when trying to explain to their clients what is happening.

For a preview, take a look at the recovery rebate credit worksheet on page 59 of the DRAFT of Form 1040 instructions from the IRS. This is an example of why some people dread filing tax returns and others, albeit few, find it to be fun.

About a month ago, in Not That More Proof Is Needed, But Here’s Another Example That Taxes Aren’t “Just Numbers”, I wrote about the dispute between Philadelphia tax officials and the Chamounix youth hostel. The tax officials sought to impose on the hostel the hotel occupancy tax. For this purpose, title 61 section 38.3 of the Pennsylvania statutes defines a hotel as “A building in which the public may, for a consideration, obtain sleeping accommodations, including establishments such as inns, motels, tourist homes, tourist houses or courts, lodging houses, rooming houses, summer camps, apartment hotels, resort lodges and cabins and other building or group of buildings in which sleeping accommodations are available to the public for periods of time less than 30 days.” Section 19-2401(5) of the ordinance enacted by Philadelphia to add to the hotel occupancy tax includes in the list of establishments treated as hotels “any place recognized as a hostelry.”

The hostel, operated by the Friends of Chamounix Mansion, is owned by the city of Philadelphia, to which the hostel pays an annual $1 rent. The hostel argues that it is not a hotel because it is a hostel, but the city poited out that other hostels in the city pay the tax, and notes that section 19-2401(5) of the ordinance enacted by Philadelphia to add to the hotel occupancy tax includes in the list of establishments treated as hotels “any place recognized as a hostelry.” After the city sent an invoice for more than $500,000 in back taxes and the hostel refused to pay, the city went to its Tax Review Board, which decided it had no jurisdiction. And that is how the dispute ended up in the Court of Common Pleas.

In that previous post, I wrote, “So this should be an easy case. . . . The tax applies to hostels and the organization admits it is a hostel.” The statutory language is clear, even though it leads to a questionable result. I suggested that the Friends of the Chamounix Mansion should ask City Council to enact an exception, though noting that such a move would open the door to a parade of exception seekers.

Now comes news that a Philadelphia Common Pleas judge has ruled that Philadelphia’s attempt to collect the taxes is invalid. The judge wrote that the tax applies to payments for “the use or occupancy by a transient of a room or rooms.” Thus, according to the judge, because the hostel charges visitors by the bed, not by the room, and provides the beds in dormitory-like group settings, the tax does not apply. The judge also held that after the hostel alleged it had not been notified by the city that it planned to assess the tax retroactively, the city failed to prove that it had provided the proper notice.

Dismissing the attempt to collect the tax because of a failure to provide proper notice makes sense. However, it only applies to the years in question and has no effect when and if the city attempts to collect the tax for other years. But the conclusion that charging by the bed and not by the room somehow causes the hostel not to fall within the statutory definition of hotel does not make sense. The hostel is a building. It is open to the public. It charges money for sleeping accommodations. The statute applies to establishments such as summer camps. Summer camps often house attendees in dormitory-type rooms, and charge by the bed. If the hostel is not within the statute, neither is a summer camp. Yet the statute clearly applies to summer camps, nor is it limited to the listed types of establishments because it uses the phrase “such as.” As of the time I am writing this, the judge’s opinion has not been published, and it remains to be seen whether it will be, because very few Philadelphia Common Pleas Court opinions are published. It would be helpful to learn if the judge found some other statute that limited the definition of hotel to establishments that charge by the room and not by the bed, or some other statute that provides an organization that admits it is a hostel is not subject to a tax that applies to hostels.

In my previous commentary, I noted, “My guess is that when the ordinance was enacted, no one was paying attention to what was happening in a mansion owned by the city and rehabilitated by the Friends of Chamounix Mansion.” Thus, the entire situation is another instance of legislative failure. We’ve seen quite a bit of that lately, at multiple government levels. We’ve seen too much of it.

I have written about tax return preparers getting into trouble because they falsify client returns or invent fake clients in order to get fraudulent refunds, 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?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, and Fraudulent Tax Return Preparation for Clients and the Preparer.

Now comes a report of more bad news for tax return preparers who are thinking that fraudulent return preparation is an easy way to make quick money. According to this news release from the Department of Justice, a tax return preparer in Newport News, Virginia, has been sentenced to 27 months in prison for preparing false tax returns. The preparer owned a tax return preparation business that she ran not only in her home but also in hotel rooms. Over a five-year stretch ending in 2018, she put fraudulent credits and deductions on returns in order to increase her clients’ refunds. On top of that, she did not sign the returns as preparer, so that the returns appeared to be self-prepared by the taxpayers. And if that wasn’t enough, she did not go over the completed returns with her clients before they signed. And, as the bonus cherry on top, she did not give her clients copies of the returns even when they asked for them. She filed more than 400 false returns, creating at least $700,000 in refunds to which the taxpayers were not entitled.

A list of what tax return preparers should do includes, among other things, filling out returns accurately, review the return with the client, sign as preparer, and provide a copy to the client. It's almost as though the preparer in question looked at such a list and intentionally ignored each item. That’s a recipe for the outcome experienced by this tax return preparer and that looms on the horizon for others who imitate what she did.

I have written so often about the failure of supply-side trickle-down tax and economic theory that I won’t even try to list all of the posts in which I have tried to explain why tax cut legislation based on that flawed theory has failed to deliver the promises provided by its advocates. Suffice it to say that it’s a bad theory that refuses to go away despite its persistent failure.

An important aspect of life is learning from one’s mistakes. An equally important aspect is learning from the mistakes of others. But apparently the Republican governor and legislators of Mississippi either haven’t been paying attention or are simply so beholden to the handful of wealthy individuals who benefit from tax cuts that they are pursuing an unwise dream, the repeal of the state income tax.

According to this story, the governor plans to ask the legislature to phase out the personal income tax. Four years ago, the state enacted legislation that phases out the 3 percent bracket by 2022. The current governor was lieutenant governor when that law was passed.

The governor claims that the state “could be more competitive” if it also eliminates the 4 percent and 5 percent brackets. In effect, that would eliminate the state income tax. The governor calls the income tax “one huge speed bump to long-term economic growth and recovery.”

The lieutenant governor, also a Republican, cautions that no one should rush into the repeal because of the economic uncertainty arising from the pandemic. He noted that the state needs resources to increase teacher pay and to strengthen state services. He pointed out that eliminating the income tax would reduce revenue by hundreds of millions of dollars of revenue that the state would need to “make up” somehow. That means either reducing state services significantly or increasing or enacting a different type of tax. And here is where the nonsense begins. Supporters of the income tax repeal claim that repeal would create more economic activity, creating revenue growth, presumably in other taxes. That fantasy has never played out in any jurisdiction in which the trickle-down theory and supply-side economics have driven tax policy. The lieutenant governor noted that Mississippi would need a “tremendously profitable” year to make up the lost revenue, pointing out that the state hasn’t had that sort of growth. Though tax repeal advocates would claim that the slow growth is due to taxes, careful analysis would demonstrate that high growth requires things that cost money, such as quality education, reliable and adequate infrastructure, and affordable health care.

After looking at Mississippi’s tax rate schedule, the problem is obvious. The 4 percent rate kicks in at $4,000 in 2021 and $5,000 in 2022, and the 5 percent rate kicks in at $10,000. That lumps working class taxpayers in the same category as multi-millionaires and billionaires. One of the organizations supporting the repeal, a group dedicated to limited government, claims that repealing the income tax would give Mississippi workers more money to spend, arguing that “increased consumption in the economy drives new jobs and higher wages.” That argument supports the idea of eliminating the income tax for the poor and increasing it for the wealthy. Why? The wealthy plow relatively little of their money into consumer goods and services. On the other hand, to apply the top rate to someone with relatively little income makes no sense.

Opponents of the proposal are pointing the the Kansas experience, about which I’ve also written numerous commentaries. Simply put, when Kansas reduced its income tax rates substantially, it ended up in economic agony. And that was without completely repealing its income tax. As one opponent noted, investing in education would make Mississippi “more livable.” Indeed. Long-term investment in education, infrastructure, and health care is a much more solid foundation for growth than is the superficially appealing tax cut approach.

Readers of this blog know that I oppose using tax breaks to finance construction of facilities for, or operations of, professional sports franchises owned by wealthy individuals. They also know that I oppose using tax breaks to help wealthy individuals and corporations engage in business ventures. The tax break grab is justified by claims that they are doing something “good for the public,” but this reasoning would support tax breaks for almost everyone, thus destroying government and civilization. I have explained this tax break grab game in posts such as Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, When One Tax Break Giveaway Isn’t Enough, and It’s Not Just Sports Franchise Owners Grasping at Tax Breaks.

For decades, sports franchise owners who pretend to be poor have sought tax breaks that ultimately burden those who aren’t wealthy. Casino owners have jumped into the tax break buffet. And now comes news from the Philadelphia Inquirer of a tax break pumped out to the developer of a water park in Atlantic City, New Jersey. The tax break consists of an annual rebate of as much as $2.5 million in sales tax revenue generated by the water park for 20 years, along with tax breaks on materials used to build the park. Who approved the tax break? The Casino Reinvestment Development Authority.

According to the mayor of Atlantic City, the tax break is a “true game-changer.” I’m not sure what qualifies as a false game changer. Perhaps realizing that the tax break simply shifts the tax burden to the residents of Atlantic City, most of whom are far from wealthy, or to the residents of New Jersey? The mayor is excited because Atlantic City is dominated by gambling and wants to focus on family attractions. He claims, “If you build it, they will come.” Then, fine, build it, people pay to use the water park, and the owner of the water park makes money. So why is the tax break needed? There are two possible reasons. The first is that not enough people will show up to make the water park profitable, so the owner of the water park, working with the Casino Reinvestment Development Authority, decides that taxpayers, including those who don’t use water parks, should provide the financial resources not provided by the water park customers. Why not raise admission fees? The answer is that increased admission fees would reduce the number of customers. In other words, the project is financially unfeasible. The second is that the water park would be profitable, but a tax break would make it even more profitable, just another manifestation of the disjointed world in which we live, a world in which profits are never sufficient.

What would happen if someone wanted to start a necessary business in Atlantic City? Would the person get tax breaks for twenty years? Would the person get tax breaks on the equipment or services that are purchased to start the business? I doubt it.

The history of the project is interesting. In 2014, the Showboat Casino closed. It was purchased by the water park developer in 2016 and reopened as a non-gambling hotel. Three years later he proposed resuming gambling activities in the hotel, and obtained preliminary approval to seek a casino license. If approved, it would be Atlantic City’s tenth casino. It is unclear whether the casino license will be pursued. The water park is proposed for vacant land next to the Showboat. A previous attempt to build a water park, sought by a different developer, fell apart when financing could not be obtained. The same developer also tried unsuccessfully to build a water park in the environs of Atlantic City. Eight years ago, a third group proposed a water park in the city but it, too, failed.

As I wrote in It’s Not Just Sports Franchise Owners Grasping at Tax Breaks: “Here is how truly free capitalism, which doesn’t exist in this country, works. A developer proposes a project. If it’s a home run, investors flood the developer’s inbox and voicemail. If it’s a pretty good idea, enough investors show up. If an insufficient number of investors or investment dollars show up, then it’s a project not worth pursuing.” [Water parks] are not essential functions of society and do not deserve tax breaks, especially when taxpayers are lining up at food banks, facing eviction, and losing jobs. Public dollars, that is, money paid by taxpayers, should be put into facilities and projects over which the public, not oligarchs, have control. The price for public money, whether tax breaks or kickbacks of fees, should be public control.” So, It seems to me that someone who wants to build a water park should run the numbers. If the numbers pan out, financing should be available. If financing is not available, it’s a good indication that the project doesn’t have a promising future. If the only way to make the project work is to ask taxpayers to pay more in order to give tax breaks to the proponent, then the taxpayers should be given the opportunity to answer a referendum question, “Are you in favor of tax breaks in the amount of [whatever], to be granted for a period of [so many years], to be provided to [name of proponent or developer]?” I am confident the tax break seekers would recoil at the thought of making the tax break dependent on a taxpayer referendum.

A long-time reader shared with me a situation he has seen raised on tax forums. A parent owns a vacation home that sits empty most of the year. The parent doesn’t have the desire to invest time and energy renting out the property. The parent’s child suggests that the parent let the child list the property on AirBnB, handle the contracts, and deal with the tenants. The parent tells the child to go ahead, keep the rental proceeds, but make sure the property isn’t rented out during July and August, the two months the parent has always used the property. So the child registers with AirBnB and is listed as the landlord in the contracts with tenants.

The reader asked if the parent has rental income, pointing out that the parent owns the property and has the legal right to rent the property. The reader suggested that under Lucas v. Earl, 281 US 111 (1930), the parent should not be able to assign the rental income to the child. Yet the child is doing all of the work to generate the rental income, and the parent is not giving up anything or being inconvenienced. The reader wondered if the transaction should be treated as a loan of the property by the parent to the child.

My response is that the child is acting as the agent of the parent. The parent owns the property. The parent can end the arrangement whenever the parent chooses to do so. The leeway granted to the child in terms of handling the specific details of renting out the property doesn’t shift ownership of the property or the income it generates from the parent to the child any more than leaving the details of a brokerage account investments to the broker causes the account income to shift from its owner to the broker. The rental income is the parent’s, the rental expenses are the parent’s, and whatever net income the parent permits the child to retain is a combination of compensation to the child for his rental agent activities, which is a fact question, and to the extent the net income exceeds reasonable compensation for the child’s services, a gift by the parent to the child. So the parent’s adjusted gross income would reflect an amount equal to the amount of the gift, reflecting gross income equal to the rental income, deductions equal to the rental expenses and the compensation to the child. Presumably, the child acts as an independent contractor, so the parent would not have any employer withholding obligations.

The reasoning behind my response reflects what would happen if the parent entered into the same arrangement with an unrelated third party. The twist would be that to the extent the third party kept all of the net income, the facts would indicate that the entire net income kept by the third party was compensation to the third party. Of course, to the extent that amount exceeded a fair market value compensation amount, the parent would not enter into the same arrangement, which is further support for concluding that when the arrangement is with the child, the excess kept by the child is a gift by the parent to the child.

I pointed out that the numbers could be tricky. Suppose that the depreciation on the property exceeds the net cash income. Because of the parent’s use of the property (presumably the days of use in July and August exceed the greater of 14 or 10 percent of the rental days) section 280A would block any loss (except to the extent somehow interest and taxes alone exceeded the net rental income). But that would not change the tax treatment of the amounts kept by the child, nor would it diminish the parent’s rental income.

Treating the arrangement as a loan of the property simply complicates matters, because it would require a determination of deemed rent paid by the child to the parent, and would not prevent the parent from having some sort of rental income. There probably are better ways to handle the arrangement. For example, the parent and the child could enter into a partnership, with the parent contributing the property and the child contributing services. That would permit some of the net income to be reported by the child rather than by the parent. The arrangement as described does not have sufficient indicia of an intent to create a partnership. Another example would be transfer of the property to the child, with a reserved right of occupancy. Whether the transfer should be a gift, a sale, or a part-gift-part-sale, and the other details of the transfer, depend on the particular facts and circumstances of the parent’s financial and tax situation, whether the child is an only child, and similar concerns.

My guess is that when these arrangements occur, neither the parent nor the child thinks about the tax and other consequences. There is a conversation, the idea makes sense to the parent, the parent agrees, and off goes the child to list the property for rent. And if something goes awry, tax or otherwise, disputes will arise. For example, who gets sued and is ultimately responsible if a hazard on the property causes physical injury to a tenant? Who is listed as owner on the property insurance policy? Ultimately, it’s not just a tax issue, and the assistance of legal counsel is highly recommended.

A recent U.S. Court of Federal Claims case, Brown v. United States, demonstrates what not to do when it is time to sign an amended tax return. The taxpayers, George P. Brown and Ruth Hunt-Brown, filed a claim for tax refunds with respect to their 2015 and 2017 federal income tax returns. The returns for those years were filed, respectively, on March 7, 2016, and January 23, 2018. Both returns were signed electronically. On October 3, 2018, the IRS received the taxpayers' first amended tax return for 2015, claiming a $7,636 refund. This 2015 amended return did not contain the taxpayers' signatures, but was signed by their tax return preparer, John Anthony Castro, without the required power of attorney form. On the same day, the IRS received the taxpayers’ amended tax return for 2017, claiming a $5,061 refund. This return also was not signed by the taxpayers, but by Castro, also without the required power of attorney form.

On November 15, 2018, the IRS issued a Letter 916C, indicating that it could not consider the taxpayers' 2015 refund because "[their] supporting information was not complete." On that same day, Mr. Castro faxed to the IRS the required power of attorney form, intending to give three individuals -- himself, Tiffany Michelle Hunt, and Kasondra Kay Humphreys -- the authority to represent taxpayer George Brown before the IRS for 2014 through 2018. The power of attorney form was not signed by George Brown but by Tiffany Michelle Hunt.

On January 14, 2019, the IRS received the taxpayers’ second amended tax return for 2015, claiming the same $7,636 refund as claimed on the first amended return. Again, this amended return was signed by Mr. Castro but not by the taxpayers, and it was not accompanied by a power of attorney form. On April 26, 2019, the IRS issued a Letter 569 (DO), proposing to disallow the 2015 and 2017 refunds. On May 28, 2019, Mr. Castro submitted a Request for Appeals Review for 2017 on behalf of the taxpayers.

On June 10, 2019, the taxpayers filed their original complaint with the Court of Federal Claims, asserting refund claim for 2015. On June 25, 2019, they filed their first amended complaint, also for 2015. On September 5, 2019, they filed their second amended complaint, expanding their lawsuit to 2016 and 2017. On May 15, 2020, the United States filed a motion to dismiss, arguing that the court lacked jurisdiction over the complaint because the taxpayers had failed to "verify, under the penalties of perjury, the 2015 and 2017 administrative claims for refund on which they base this suit" and failed to properly authorize a representative to sign on their behalf. On June 12, 2020, the taxpayers filed a response to the motion to dismiss, asserting that the IRS waived the taxpayer signature requirement by fully investigating the merits of plaintiffs' claims. On June 29, 2020, the United States filed a reply, contending that the doctrine of waiver is inapplicable to the taxpayer signature requirement and that, even if it were, the taxpayers had not satisfied its required elements. The court held oral argument on October 20, 2020.

The court explained that in order for it to have jurisdiction over the refund claim, the taxpayer must first duly file a claim for refund or credit with the IRS. To be duly filed, the claim must be “verified by a written declaration that it is made under the penalties of perjury.” This requirement can be satisfied “when a legal representative certifies the claim and attaches evidence of a valid power of attorney.” The court noted that the taxpayers had failed to sign the amended returns on which they based their claims for refund, and that those returns were not accompanied by a power of attorney demonstrating that Mr. Castro had the authority to sign on the taxpayers' behalf. The power of attorney form subsequently filed by Mr. Castro failed to include the taxpayers’ signatures.

The taxpayers conceded that they had not complied with the requirement of a written declaration, but argued that the IRS waived that requirement when it investigated the merits of their refund claim. The United States replied that the doctrine of waiver does not apply to the taxpayer signature requirement, and if it did, the elements of waiver had not been satisfied. The court explained that the Supreme Court has held that the waiver doctrine applies to regulatory but not statutory requirements. The signature requirement, though set forth in regulations, also is required by sections 6061 and 6065 of the Internal Revenue Code. The taxpayers argued, in effect, that because the regulations repeat the statutory signature requirement, the requirement became a regulatory requirement and no longer is a statutory requirement. They also argued that the statute does not create a signature requirement. The court concluded that the requirement is statutory and cannot be waived. Thus, the court did not address whether the requirements of a waiver had been met. It also noted that reaching the opposite conclusion “would be inconsistent with the tax code's purpose as the ‘IRS's requirement that taxpayers sign under penalties of perjury enables the IRS `to enforce directly against a rogue taxpayer.’” The court granted the motion to dismiss.

Though taxpayers need to review returns prepared by a third party before signing them, to make certain that the returns do not contain false information and do not omit relevant information, to what extent are taxpayers required to demand or request that a tax return preparer give them the opportunity to sign amended returns? If the tax return preparer replies that the preparer can sign under a power of attorney, how much responsibility does the taxpayer have to make certain that the power of attorney is properly completed and signed? How much tax procedure must taxpayers know and understand when a tax return preparer is doing the work? To what extent must taxpayers become the supervisors of tax returns preparers? Interestingly, the court noted that it had addressed the signature requirement in two earlier cases, both involving taxpayers for whom Mr. Castro had been the tax return preparer.

It is easy to propose that taxpayers should know that they must sign every original and amended return or that they must sign a power of attorney permitting someone else to sign the returns. But as a practical matter, how can taxpayers be educated with respect to these requirements? Are they taught these things in the K-12 educational system? Do they enroll in post-secondary-education courses that teach these things? I daresay most taxpayers do not understand or understand only to a limited degree not only the signature requirements but the need for the power of attorney to be properly completed. The answer is that the tax return preparer or other advisor has the responsibility to make certain that the returns and other documents comply with all requirements, particularly those likely to be beyond the understanding of the taxpayer client. These issues add to the long list of reasons taxpayers need to select their tax return preparers carefully, especially when it is tempting to make the choice based on cost, promises of increased refunds, or similar reasons. One thing that taxpayers can do is to check for a preparer’s professional credentials, starting with this explanation from the IRS, and making use of this Directory of Federal Tax Return Preparers with Credentials and Select Qualifications, though further exploration of online reviews and advice from other professionals is advisable.

For years I have been arguing that trickle-down supply-side economics, a theory used to persuade people that tax cuts for the wealthy are good for everyone else, is a foolish idea, and one that has been discredited each time it is implemented and meets practical reality. Though in the past I have wondered whether the theory is nothing more than a mask used to disguise greed or an intellectual inability to understand the flaws of supply-side reasoning, I am becoming increasingly convinced that it is a deliberate attempt to satisfy the money appetites and addictions of those who are attached to money in harmful ways.

On more than a few occasions I have explained why demand-side economics makes much more sense, and why supply-side economics makes no sense. In The Expensing Deduction is an Expensive and Broken Idea, I reacted to a proposal “to deduct all expenditures related to the operation of their business in the United States” with this explanation:

However, it nonetheless amounts to nothing more than a windfall tax break for those businesses, chiefly large enterprises that are buying equipment. Giving a tax deduction for an expenditure that already is being made surely is not an incentive to make that expenditure. The solution to job creation is not supply-side, but demand-side. Some members of Congress understand this. Others don’t, continuing to drop raw eggs on the concrete floor from three stories up, in the belief that the eggs won’t break.

In Does Repealing the Corporate Income Tax Equal More Jobs?, I explained why repealing the corporate income tax does not create jobs. I explained:

There currently are corporations drowning in cash, and they aren’t hiring. Why? A business does not hire unless it needs employees. Acquisition of cash is not a reason to hire. A business hires if it needs employees. It needs employees if it has more work to do than its current employees can handle. Those situations arise when the gross receipts of the business increase. That happens when customers spend more. Customers do not spend more unless they have both resources and either a need or desire for the goods or services being sold by the business. That happens when money is infused into the hands of consumers. In other words, what works is demand-side economics. Eliminating the corporate income tax does not increase demand.

In Tax Perspectives of the Wealthy: Observing the Writing on the Wall, I reacted to a letter written by almost four dozen New York millionaires supporting an increase in New York state income taxes applicable to millionaire income. I wrote:

What motivates these millionaires is the realization that, in the long run, insufficient tax revenue erodes the infrastructure on which the economy rests, an economy that generate the income and wealth held by the millionaire and billionaires. Similarly, as the number of “New Yorkers who are struggling economically” increases, there is a decrease in the amount of purchased goods and services, in turn harming the overall economy. Put simply, though these millionaires did not articulate it in this manner, a healthy state economy, just like the national and global economies, depends on demand-side activity. The death of supply-side, trickle-down economic theory is a slow one, but its final breath draws nearer.

In Kansas Demonstrates Again Why Supply-Side Economics Fails, I reviewed my earlier commentaries on the supply-side disaster in Kansas, and noted. “Apparently belief in failed supply-side economics dies hard.”

Of course, from time to time, advocates of supply-side economics and trickle-down nonsense write to me, claiming that I am wrong, that I don’t understand reality, that I have no clue about economics, and that I would be best served by supporting the desire of the wealthy for even more money. Why these acolytes of foolish theories persist in clinging to their beliefs when it is clear that the theories don’t work puzzles me. Is it simply a belief that this approach to national tax policy increases the chances of each of these acolytes to join the ranks of the wealthy? Is it fear of change? Is it fear of losing clients?

And in this atmosphere of diehard adherents of supply-side theory clinging desperately to their dreams, along comes a study from the London School of Economics that puts the final nail in the coffin of trickle-down nonsense. According to the study, tax breaks for the wealthy increase income inequality by sizeable amounts but have no significant effect on economic growth or employment. Though my focus has almost always been on United States taxation, the researchers at the London School of Economics looked at data from 18 countries, including the United States. They examined economies from 1970 through 2020.

Consistent with what I have argued, the study demonstrates that cutting taxes on the wealthy does not cause the wealthy to create jobs, just as a separate study showed that “income tax holidays and windfall gains do not lead individuals to significantly alter the amount they work.” One of the researchers explained, “Our research shows that the economic case for keeping taxes on the rich low is weak. Major tax cuts for the rich since the 1980s have increased income inequality, with all the problems that brings, without any offsetting gains in economic performance.” Another added, “Our results might be welcome news for governments as they seek to repair the public finances after the COVID-19 crisis, as they imply that they should not be unduly concerned about the economic consequences of higher taxes on the rich.”

As I have previously noted, it's tough watching people go back for seconds and thirds at the buffet table when other people aren’t even getting a decent meal. Claiming that heaping more food onto the buffet table will solve the problem is clever by too much. In Tax Perspectives of the Wealthy: Observing the Writing on the Wall, I also wrote, “The concern is not that the writing is on the wall for outdated trickle-down economic theory. The concern is that some people are unable to read that writing or to understand what it means or why it is there.”

To me, the study is yet more proof that what we need is a repayment tax, which I explained in Learning About Wealth Taxes By Watching What Happens in Argentina, and A Better Alternative to a Wealth Tax? It is time for the folks who broke the promises they made to get tax breaks pay back what they grabbed. It is time for the advocates of supply-side economics and trickle-down theories to admit they have been wrong and to redeem themselves. It is time for those addicted to money, for the billionaires and multi-millionaires whose thirst for even more wealth can never be sated, to get into economic rehabilitation. It is time for intervention.

It has been decades since I learned the meaning of “Christmas Tree legislation.” It was when I was working in Washington, D.C., dealing with tax issues. During a discussion about some tax legislation proposed by a special interest group, someone commented to the effect that another Christmas tree bill was being constructed. Though there is some dispute about who first coined the phrase, the Senate now provides this definition: “Informal nomenclature for a bill on the Senate floor that attracts many, often unrelated, floor amendments. The amendments which adorn the bill may provide special benefits to various groups or interests.”

Though Christmas tree legislation can pop up at any time during the year, it seems fitting that this year’s version was enacted shortly before Christmas. It is the Consolidated Appropriations Act of 2021. The bill consists of 5,593 pages. As often is the case with Christmas tree legislation, members of Congress were asked to vote on the bill before they had an opportunity to read it. The excuse for this nonsense is that Congress was up against a deadline, but the reason Congress was up against a deadline was its failure to give itself enough time because playing partisan politics is a priority for most of the members.

So let’s explore what sort of surprise gifts were left by Santa for the special interest groups. I’m not referring to the provisions in the legislation that were expected and that are relevant to the purpose of the legislation, provisions dealing with stimulus checks, unemployment compensation supplements, small business loans, grants to closed venues, school funding, rental assistance and money for vaccine acquisition and distribution. I’m referring to things such as

• Restoration of a full deduction for corporate business meals, ostensibly to help restaurants but which is unlikely to increase the amount of food and drinks consumed during corporate business meals though cutting taxes for taxpayers in a position to benefit from corporate business meals
• Creating two new museums at the Smithsonian
• Establishing safety standards for portable fuel containers
• Expansion of the Saguaro National Park and creation of a new national park in West Virginia
• Money for the Space Force
• The naming of a mountain as Miracle Mountain because a wildfire burned itself out on the mountain before reaching Elk Ridge City
• Repeal of criminal penalties for transporting water hyacinths, alligator grass, and water chestnut plants across state lines
• Repeal of criminal penalties for unauthorized use of the Swiss coat of arms, the 4-H Club emblem, the Smokey Bear character, the Woodsy Owl character, and the Golden Eagle insignia
• New horse racetrack safety standards and creation of a horse racing anti-doping program
• Prohibiting the use of the United States Postal Service for delivering electronic vaping products
• Requiring carbon monoxide detectors in public housing
• Statements of policy with respect to Tibet, including the succession or reincarnation of the Dalai Lama
• Statements of policy with respect to Belarus
• Increased penalties for illegal streaming

There are others, but these should be enough to demonstrate why the legislation requires thousands of pages.

It is important to understand that I am not suggesting these are bad provisions. For example, it makes good sense to require carbon monoxide detectors in public housing. It doesn’t hurt to have a new national park. Nor am I suggesting that all of these provisions belong in federal legislation, and readers surely can identify several that ought not be distracting Congress when it has more important business to handle. My point is that these provisions that are unrelated to each other should be the subject of separate bills so that they can be evaluated independently. Instead, fearful that a provision will not get enacted when standing alone, sponsors, acting on behalf of special interest groups, threaten to withhold support for important legislation unless their gift to the special interest group is included. It’s the equivalent of saying, “I will vote for this important legislation only if you give me, in that bill, an additional provision that deals with a subject unrelated to the purpose of the legislation and that probably could not get enacted on its own.” There’s a name for that, when someone gets a “gift” to do something. It’s an awful way to do business, and it contributes to the legislative logjams that disadvantage most Americans. When allegiance to party and allegiance to pet projects take priority over responsibility to the entire nation, only the grinches celebrate.

Three years ago, the Congress, or more specifically, the Republican members of Congress, didn’t flinch when they enacted a tax bill that gave crumbs to most people while serving up gourmet million and multimillion dollar tax breaks to their wealthy friends, and, in some instances, to themselves. So what that the tax break giveaway for the wealthy and large corporations would add more than a trillion dollars to the federal deficit? What happened to those Republicans who once upon a time advocated a balance budget amendment and complained loudly whenever proposed legislation threatened to enlarge the deficit? Well, they’re still around, but they reserve their deficit increase fears only when the workers stand to benefit from legislation.

Here is an example. Back in 2017, as reported in various news outlets, including this story, Senator Ron Johnson, a Wisconsin Republican, “cut a deal with Senate leadership” to become the deciding 50th vote for that ill-advised 2107 tax legislation. Johnson, who had been a staunch opponent of increasing the deficit, tossed aside concerns about the impact of the legislation on the deficit because, he claimed, the legislation would generate enough growth to offset the deficit increase. Aside from that claim defying mathematical possibility, it didn’t happen, and it would not have happened with or without the pandemic, because it is just more nonsense from the supply side economic policy and trickle down theory crowd. The deal that Johnson cut expanded tax breaks for certain pass-through entities, including those in which Johnson, a multimillionaire, owns interests. In other words, the deal cut by Johnson provided a tax break for Johnson and his wife.

So that happens all the time in the Congress. What’s the big deal? Last Friday, in a bipartisan effort to break the COVID relief logjam, Senators Bernie Sanders of Vermont, an independent who usually lines up with Democrats, and Josh Hawley, a Republican from Missouri, offered a compromise for which they requested unanimous consent. Unanimous consent moves legislation through the Senate more quickly than the usual process. But they didn’t get the unanimous consent. Why? Because Johnson, the guy who back in 2017 tossed off deficit increases as nothing to worry about, blocked the unanimous consent request, twice. According to this report, Johnson explained that he did not support assistance to individuals, though he still advocates assistance to businesses, because he is “concerned about our children's future. ... We do not have an unlimited checking account.” Oh, really? And that wasn’t an issue in 2017?

Back in 2014, I wrote, in Why Do Those Who Dislike Government Spending Continue to Support Government Spenders?:

There’s something not quite right in the collective psyche of the anti-government-spending crowd. Enraged by high taxes, they manage to put into office, and keep in office, people who dish out tax revenues as though there were no limits on taxation. Of course, the tax breaks go to those who are in least need of economic assistance. Their excuse, that they will use the tax breaks to help those in need, is hilarious, because the best way to help those in need is to direct assistance directly to them so that they can infuse those dollars into the economy. That makes the economy grow. Handing tax dollars to those who don’t need financial assistance is nothing more than helping some people grow their Swiss bank stash.

I followed that quote with this reaction, in When Those Who Hate Takers Take Tax Revenue:

At what point will enough voters see through the con game and send packing the takers who took over political control by demonizing takers? When will political hypocrisy disappear? At what point will people realize that economic growth consists of creating something of economic value and not simply moving jobs from one place to another?

The answer to my bolded, and perhaps bold, question is, “Unfortunately not yet.”

Johnson and his ilk definitely prove the observation that Republicans don’t like deficit spending unless it arises from handing out tax breaks to the wealthy. When it comes to assisting the vast non-wealthy segment of the nation’s population, these politicians cringe at the thought of letting the deficit grow. And here is news for Johnson: If you had not enacted that foolish 2017 tax legislation, the nation would be in better financial shape to meet the economic needs of those who are suffering. What is sad is that so many people deeply in need of help continue to vote for Johnson and politicians like him. They remind me of the abused spouse who complains and seeks sympathy but goes back to the abuser, repeating this behavioral pattern until tragedy strikes. How many more times will the help-the-wealth-the-poor-be-damned politicians get votes and support? How many more times until the tragedy that strikes is irremediable?

When tax return preparers get into trouble, it’s almost always because they falsify client returns or invent fake clients in order to get fraudulent refunds. I have written about these situations 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?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, and Tax Return Preparer Fails to Evade the IRS.

But now comes a case in which the preparer not only prepared and filed false returns for clients, but also failed to report as income the fees collected from the clients. According to this this Department of Justice report, a tax return preparer in Portland, Oregon, pleaded guilty to 13 counts of preparing and filing false and fraudulent tax returns for clients and four counts of filing false income tax returns for herself, after having been indicted on 25 total counts. The counts were based on preparation activities from 2015 through 2018, and involved 1,196 fraudulent returns prepared for about 629 clients. These returns generated about $3 million in false tax refunds. In the meantime, the preparer failed to report any business income from preparing returns for the years 2014 through 2017.

The preparer ran the business from her home, and advertised that she would obtain the “Biggest Refund Guaranteed.” The refunds were computed by using false filing statuses, false credits, and false tax schedules.

It’s no secret that there are tax return preparers who do not comply with the tax laws. It’s no secret that they get caught. It’s no secret that they are indicted and either plead guilty or are convicted. Yet there are tax return preparers who continue to prepare and file false returns. Given the eventual outcome, why do they do this? Yes, there are people who think they can “get away” with a crime, but when the activity leaves a paper trail, it makes it too easy for the IRS and Department of Justice to discover the reality.

The headline to this story caught my eye: “2 women charged with bribing former DeKalb tax official.” I thought to myself, what happened to the bribe recipient? So, it was time for more research.

According to this earlier article, back in March, a former supervisor in the DeKalb County Tax Commissioner’s Office was charged with bribery and blackmail. He allegedly received more than $30,000 in bribes to register vehicles that did not qualify for registration. Over a 28-month period, he registered vehicles that had failed emissions tests or that were owned by people lacking valid drivers’ licenses. His “fees” ranged from $100 for vehicles failing the emissions tests, $200 for vehicles owned by people without valid drivers’ licenses, and between $500 and $1,000 for vehicles for which people did not have titles or tag applications.

When he confessed to the FBI that he had accepted the bribes, he was fired by the Commissioner’s Office. Shortly thereafter, the former supervisor met with an individual who did not know he had been fired and who provided the former supervisor with money and paperwork to register non-qualifying vehicles. Several days later, the individual asked for a return of the money and paperwork, but the former supervisor tried to persuade the individual to give him more money in exchange for his not disclosing to the FBI the individual’s involvement in the scheme.

In July, according to this article, he pleaded guilty to the bribery and blackmail charges. He was sentenced to two years in prison and three years of supervised release.

According to the article whose headline caught my eye, earlier this month two women who had bribed the former supervisor were indicted on charges of fraud and bribery. They bribed the supervisors because they lacked valid licenses. According to the indictment, they gave him thousands of dollars in $200 bribes over a 6-month period.

The moral is simple. The price paid in trying to avoid paying taxes, fixing a vehicle’s emissions system, getting a drivers’ license or a valid vehicle title, can be far more than the cost of doing what should have been done. What is the financial cost of serving a prison sentence? As for taking bribes, is a bit more than $30,000 worth two years?

I am guessing that there are some other people in DeKalb or nearby counties who have read or will read the same story I did. I am guessing that at least some of them are now wondering if and when there will be a knock on the door.

Time and again I have written about my opposition to the use of tax breaks to finance construction of facilities for, or operations of, professional sports franchises owned by wealthy individuals. Even though these individuals claim that they deserve tax breaks because they are doing something that is “good for the public,” their reasoning would support tax breaks for almost everyone, thus destroying government and civilization. I have explained this tax break grab game in posts such as Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, and When One Tax Break Giveaway Isn’t Enough.

But, of course, it’s not just sports franchise owners who pretend to be poor while they seek tax breaks that ultimately burden those who aren’t wealthy. Sports franchises get attention because they are so often in the public spotlight, and gather interest from a significant portion of the public. An example of the scope of the “we are wealthy but pretend we can’t survive without tax breaks” game has popped up in Biloxi, Mississippi. According to this story, the developers of a resort featuring a hotel, casino, and conference center have come begging to the city council not only for forgiveness of half of the ad valorem tax on the project for five years but also a kickback of 10 percent of the city’s share of casino license fees for five years. A parallel request is being made to Harrison County, in which Biloxi is located. And while this is going on, the developers of another casino wants public financing assistance, though tax increment financing bonds, for infrastructure improvements. Back in June the city council approved a tourism tax rebate for that project.

The developers want these tax breaks “to entice investors to support” the project. Of course, they claim that they will be creating jobs. Isn’t that true of anyone who wants to start or continue a business, construct a building, or initiate any other public activity. So why doesn’t a plumber, for example, who wants to expand the business and hire several employees, thus creating jobs, get a tax break? My guess is that the plumber lacks the resources to “persuade” politicians to dish out tax breaks for the plumbing business. Remember that quip from Leona Helmsley? "We don't pay taxes; only the little people pay taxes."

Perhaps a factor in the tax break request is the increase in the proposed cost of the resort from $400 million a year ago to $700 million now. So how does the cost of a project almost double in a year? Doubling of wages paid to the construction workers? Hardly. Doubling of materials costs? Very unlikely, and even a doubling of materials costs would not double the cost of the project. Adding more features and frills? Perhaps. The solution, of course, would be to scale the project back down to what it was, just as many Americans without jobs are scaling back their expenditures. Or could it be that funds are being funneled into other projects outside of Biloxi? Maybe. Maybe not. But surely if I were sitting on Biloxi Council, I would want to know why a developer who easily doubles the cost of the project can’t afford to pay taxes.

As for the “to entice investors to support” the project excuse, it’s nonsense. Here is how truly free capitalism, which doesn’t exist in this country, works. A developer proposes a project. If it’s a home run, investors flood the developer’s inbox and voicemail. If it’s a pretty good idea, enough investors show up. If an insufficient number of investors or investment dollars show up, then it’s a project not worth pursuing.

As much as I enjoy watching professional sports, and even though I have stopped in several Las Vegas casinos from time to time, those are not essential functions of society and do not deserve tax breaks, especially when taxpayers are lining up at food banks, facing eviction, and losing jobs. Public dollars, that is, money paid by taxpayers, should be put into facilities and projects over which the public, not oligarchs, have control. The price for public money, whether tax breaks or kickbacks of fees, should be public control. I am confident the tax break seekers would recoil at that thought.

Last week, in Learning About Wealth Taxes By Watching What Happens in Argentina, I pointed out some of the administrative drawbacks to wealth taxes. I also noted that I would prefer a “repayment tax,” which would require taxpayers who received tax breaks based on promises of job creation or similar society-benefitting activity to repay those tax breaks to the extent that they did not fulfill those promises. Now comes news that the United Kingdom’s Wealth Tax Commission is proposing that individuals holding wealth of 2 million or more pounds pay one percent of their wealth for each of five consecutive years. The proposal raises the same administrative issues that plague any wealth tax.

While thinking about the proposal, it struck me that a wealth tax could hurt individuals who are in fact creating jobs or engaging in society-benefitting activities. For example, consider a fairly new business focused on a new technology that benefits most people. The business hires thousands of workers. It plows profits back into the business, with its 10 owners taking sustenance salaries. Because of its success and promising future, the company’s value is very high. Does it make sense to require the 10 owners to pull money out of the company to pay a wealth tax? Worse, a company or trust that has accumulated great wealth because of previous tax breaks, and that is doing little or nothing to create jobs, and perhaps has even reduced the number of employees, can easily pay the wealth tax because it is just a tiny fraction of the tax breaks and earnings accumulated on those tax breaks.

After considering this and similar examples, I have become an even stronger advocate of the repayment tax. Two steps are necessary. The first is to identify taxpayers, including trusts and corporations, that received tax breaks. That information is easily calculated by the IRS or equivalent revenue departments. The second is to determine whether those taxpayers used those funds to hire workers, or to engage in society-benefitting activity, or instead stashed their tax breaks in assorted “piggy banks.” This step is what would generate opposition, or at least strong criticism, of the repayment tax. How does one determine if a taxpayer failed to provide jobs? That, to me, is easy. Look at the track record. Identify the tax-break-receiving corporations and businesses that cut jobs after getting tax breaks, or whose employment did not increase. How does one define society-benefitting activity? Tax break recipients can argue that if they invest their tax breaks in banks, that allows banks to increase the amount of loans they make to people needing money either to live or to start the sort of company I described in the preceding paragraph. But what if they spent their tax break on a yacht manufactured in another country? What if the tax break funds are invested in an offshore, or domestic, tax shelter? These concerns encourage wealth tax advocates to continue pushing for wealth taxes.

The dilemma, of course, is the typical situation in which the solutions for solving a problem are much more difficult to craft than the prevention steps that could and should have been taken to prevent the problem in the first place. Over the past four decades, as wealthy individuals, their lobbyists, and their “persuaded” legislators have pushed for, and received, tax breaks, those with a better sense of the situation warned that among the dangers of stripping governments of resources was the distinct possibility that the day would come when the government needed resources and had no ready-to-implement mechanism in place to deal with the crisis. When the crisis is one exacerbated by the income and wealth inequality exacerbated by the adoption of discredited supply-side economics and trickle-down theories, the situation becomes dire. It won’t be easy to undo those mistakes, and some of those who reaped the benefits of those errors aren’t around to remediate their windfalls. But as difficult as it will be to claw back unwise tax breaks, it must be done. The alternatives are few and unpromising.

Many people think that tax is “just numbers,” including students who would arrive in my office before or at the beginning of the basic federal income tax course, expressing concern that their “math deficiencies” would jeopardize their grades because “the math majors and the accountants have the edge” in the A-grade collection game. I explained to them that the accountants and math majors don’t have an edge, and might even have a disadvantage. Why? If they haven’t built up for themselves an expertise with the use of words, they will stumble at least as many times over language as the self-professed “mathphobic” students will stumble over numbers. Some examples are illustrative.

In Don’t Tax My Chocolate!!!, I examined whether large marshmallows are food exempt from the Pennsylvania sales tax or candy to which the sales tax applies. In Halloween and Tax: Scared Yet?), I focused on the dilemma of whether candy bars made with flour are candy subject to the sales tax or baked goods exempt from that tax. In Halloween Brings Out the Lunacy, I addressed whether pumpkins are food exempt from the sales tax. In Why Tax Practitioners Must Be Good With Words, and Not Just Numbers, I discussed a case in which the issue was whether aircraft hangars were exempt from property taxation under a provision that exempted any “building used primarily for . . . aircraft equipment storage.” In Pets and the Section 119 Meals Exclusion I shared the challenges of deciding whether the section 119 exclusion for meals applied to food purchases by the taxpayer for a pet. In Who Is a Farmer? A Taxing Question?, I discussed the issue of who qualifies for a New Jersey real estate property tax limitation applicable to land actively devoted to agricultural or horticultural use.” In Tax Meets the Chicken and the Egg, I explained how a property tax exemption for “all poultry” and a property tax exemption for “raw materials of a manufacturer” required a court to determine whether chicken eggs constitute poultry and whether hatching and raising chickens constitutes manufacturing. In When Tax Isn’t About Numbers: What is a Bank?, I explained the challenges of determining whether a particular entity qualifies as a bank. In Taxes, Strip Clubs, and Creativity, I commented on the attempt by a New York strip club to avoid sales taxes by arguing that its dancers were providing therapy to its customers, and thus the amounts it charged customer fit within the sales tax exception applicable to amounts paid for massage therapy or sex therapy. In Tax Question: What Is a Salad?, I described how the Australian Taxation Office gave up trying to define “salad” for purposes of the goods and services tax exemption for fresh salads, sharing the comments of a representative of that office who noted, “It depends on what you define a salad as. Some may define it as a bowl of lettuce, some may define it as a BBQ chicken shredded up with three grains of rice on it. I'm not trying to be facetious... there [are] a range of products that are very, very different that are marketed as salads." In Another One of Those Non-Arithmetic Tax Questions: What Is a Sport?, I shared the challenges faced by the English Bridge Union when it took the position that for purposes of applying the value-added tax on competition entry fees, which exempted fees paid to enter sports competitions, bridge is a sport. In Getting Exercised About A Sales Tax Exercise Exception, I pondered whether yoga constituted exercise for purposes of the New York City sales tax that applies to sales of services by weight control salons, health salons, gymnasiums, Turkish and sauna bath and similar establishment.

Though more proof that tax involves much more than “just numbers” isn’t necessary, I did take note of a recent Philadelphia Inquirer article describing a hotel tax controversy in Philadelphia. The city of Philadelphia adds to the Pennsylvania hotel occupancy tax an additional amount. The definition of a hotel for city purposes piggybacks on the definition in Pennsylvania law. Under title 61 section 38.3, a hotel is defined as “A building in which the public may, for a consideration, obtain sleeping accommodations, including establishments such as inns, motels, tourist homes, tourist houses or courts, lodging houses, rooming houses, summer camps, apartment hotels, resort lodges and cabins and other building or group of buildings in which sleeping accommodations are available to the public for periods of time less than 30 days.”

The dispute involves the Chamounix youth hostel, which occupies a old mansion in West Fairmount Park owned by the city. The mansion was restored by the Friends of Chamounix Mansion, which operates the rehabilitated property as a youth hostel, paying the city $1 annually as rent. The city is attempting to collect more than $500,000 from the Friends of Chamounix Mansion for hotel occupancy taxes that it did not pay for the years 2008 through 2013. The Friends of Chamounix Mansion argue that because it is a hostel, it is not a hotel. The city points out that other hostels in the city pay the tax, and notes that section 19-2401(5) of the ordinance enacted by Philadelphia to add to the hotel occupancy tax includes in the list of establishments treated as hotels “any place recognized as a hostelry.”

So this should be an easy case. When the city discovered that the Friends of Chamounix Mansion had not been paying the tax, it sent an invoice, which the organization refused to pay. The city went to its Tax Review Board, which decided it had no jurisdiction. And that is how the dispute ended up in the Court of Common Pleas.

The Friends of Chamounix Mansion argue that if it is forced to pay the tax it will go out of business. The city argues that if the organization prevails, then outfits such as Airbnb, Roost, and Sonder, which currently pay the tax, would use a decision in favor of the Friends of Chamounix Mansion to stop collecting and paying the tax.

The Friends of Chamounix Mansion offered the testimony of two former mayors of the city. Both testified that they were “astonished” to learn that the city was trying to collect the tax. Former mayor Michael Nutter stated, “I never considered it a hotel. It’s a youth hostel.” It’s unclear whether the city’s attorneys asked Nutter to read the city ordinance and explain why it made a difference that the mansion is operated as a hostel and not as a hotel. The organization’s attorney described how it operates, which is how most hostels operate, and claimed, “We are not a motel. We are not an inn. We are not a guesthouse. Our license compels us to operate as a hostel.” If the ordinance applies to hostels, as it states, then what is the point of admitting that the mansion is a hostel?

As the Philadelphia Inquirer put it, “in this case, being right and doing right may be two different things.” This case is an instance in which the statute clearly provides for a result, a result that some or perhaps many would consider unwise, inappropriate, or counterproductive. The article continues, “Now it’s up to [the judge] to define what a hotel is, once and for all.” But that’s not the judge’s role. The judge’s role is to apply the ordinance as written. The tax applies to hostels and the organization admits it is a hostel. The solution that the Friends of Chamounix Mansion can and perhaps should pursue is to ask City Council to enact an exception, though once that proposal is made, many other establishments will be knocking on Council’s doors asking for similar relief. My guess is that when the ordinance was enacted, no one was paying attention to what was happening in a mansion owned by the city and rehabilitated by the Friends of Chamounix Mansion.

It’s a tax case. And it’s a tax case involving the meaning of a word. Resolving the issue does not require math.

According to numerous reports, including this one, Argentina has enacted a wealth tax to fund a variety of measures related in some way to the pandemic, ranging from medical supplies and poverty relief to development of the natural gas industry. The tax has two sets of progressive rates, one reaching as high as 3.5 percent on assets held in the country and the other reaching as high as 5.25 percent on assets held outside of Argentina. The government estimates that the tax will affect about 12,000 people in a nation of 44 million. It is estimated that the tax will raise the equivalent of $3.75 billion.

A legislator who supported the tax explained that 42 percent of the affected taxpayers “have dollarized assets, of which 92 percent is located” outside Argentina. Thus, he argued, the tax is “far from taxing productive activity.” Opponents describe the tax as “confiscatory” and worry that rather than being a one-time levy, it will “stay forever.”

Aside from the question of whether it makes more sense to tax wealth than income, or whether it makes more sense to tax wealth rather than transactions, there exist many questions about implementation. It appears that taxpayers “declare” wealth and then compute the tax. But how is wealth computed? Though it is fairly easy to determine the value of a stock or bond investment, it isn’t quite as simple when it comes to putting values on real estate, patents, works of art, know-how, and intangibles. Having not found the language of the enactment, I do not know if the tax reaches all wealth or simply investment wealth, but even so there still are valuation issues to resolve. What happens if a taxpayer does not declare some or all of the taxpayer’s wealth? How does the Argentinian government figure out what a taxpayer owns, particularly if the asset is held overseas? What happens with wealth buried in complex arrays of pass-through and other entities? What are the risks of the government discovering wealth held in kind, such as jewels or art works, but stored at some remote secure site? How much of the tax revenue is diverted to the costs of enforcement, including training new or reassigned employees of the tax agency? What happens to administration and enforcement of other taxes when employees are diverted to dealing with the new tax?

I am not a fan of wealth taxes. Administering wealth taxes is too complicated. I am, however, a fan of a “repayment tax,” under which taxpayers who received tax breaks based on broken promises to create jobs or to provide some other allegedly society-benefitting activity repay, with interest, the tax breaks received over the years. This claw-back of unjustified tax breaks would, of course, reduce the wealth of those who grabbed the tax breaks, but that would be a secondary effect of undoing unwise tax legislation enacted over the past several decades.

Time will tell us what happens with the Argentina wealth tax. In the meantime, waiting and watching what happens there could be most educational.

Within the past week, there has been a good bit of criticism, analysis, and commentary with respect to the new naturalization test. The focus includes the obscurity of some questions, the misleading character of some questions, and a few instances of incorrect answers being treated as correct and vice versa. The topics being discussed, at least in the commentaries I read, included areas of law other than tax. So I dug up the the new naturalization test and looked to see which questions or answers, if any, referred to tax. There are four.

Question 63 reads as follows: “There are four amendments to the U.S. Constitution about who can vote. Describe one of them. One of the accepted correct answers is “You don’t have to pay (a poll tax) to vote.” Considering there are three other accepted answers, not involving tax, that doesn’t seem to be an unfair question.

Question 70 reads as follows: “What is one way Americans can serve their country?” One of the six accepted answers is “Pay taxes.” True, paying taxes is a way of serving one’s country (and state, and county, and locality, and so on).

Question 71 asks, “Why is it important to pay federal taxes?” There are four accepted answers: (1) “Required by law.” (2) “All people pay to fund the federal government.” (3) “Required by the (U.S.) Constitution (16th Amendment).” (4) “Civic duty.” I quibble with several of these answers. Not all people pay to fund the federal government. Some people don’t pay federal taxes. Most children, and almost all infants, do not pay federal taxes. People making use of legal, but unwise, loopholes find ways to avoid paying federal taxes. There are people without gross income and who do not engage in transactions subject to federal excise taxes who do not pay taxes to the federal government. And if by “people,” the drafters intended to include corporations, as the Supreme Court has unjustifiably classified them, there are many corporations that do not pay taxes to the federal government. On top of this, the Sixteenth Amendment does not require people to pay taxes. It simply permits the Congress to enact an income tax, something that the Congress is not required to do, though, of course, it did do. Thus, the requirement to pay income taxes is based on certain provisions of the Internal Revenue Code. Nor does the Sixteenth Amendment have anything to do with federal taxes other than income taxes.

Question 72 reads as follows: “Name one reason why the Americans declared independence from Britain.” One of the accepted answers is “High taxes.” Another is “Taxation without representation.” Though the latter clearly is correct, the former can be questioned. One can wonder if there still would have been a Declaration of Independence if the taxes in question had not been particularly high. I think the answer is yes, because the dispute was one of principle, including taxation without representation, and not simply the rate of the tax. As noted in commentary (“Fact check: Did taxation really cause the American Revolution?”), “While taxation was a main cause for revolution, the reason why it was so abhorrent was not that the taxes were high and needed to be cut. It was a problem because the colonies had no say in how they wanted to be taxed. As noted by Prof. Wayne E. Lee at UNC Chapel Hill, “Among other things, the Revolution was not about a desire to CUT taxes.”

Certainly questions about taxes should be part of the naturalization test. Technically, only one question asked about tax. The other three simply make inquiries for which a reference to taxation is one (or two) of several correct answers. Considering how important taxation is to the nation and its political subdivisions, and in the lives of citizens, it might make sense to have more than one of the questions be a question directly about taxes.

For many years, commentators, tax practitioners, business owners, and many taxpayers have complained about the complexity of tax law, often trying to prove their point by claiming that the Internal Revenue Code fills a great many pages. Many of these people claim that the Code fills as many as 74,000 pages, which, of course, is erroneous. I have written about the size of the Internal Revenue Code, mostly in response to absurd claims about the number of pages it fills, in many posts, beginning with Bush Pages Through the Tax Code?, and continuing with Anyone Want to Count the Words in the Internal Revenue Code?, Tax Commercial’s False Facts Perpetuates Falsehood, How Tax Falsehoods Get Fertilized, How Difficult Is It to Count Tax Words, A Slight Improvement in the Code Length Articulation Problem, and Tax Ignorance Gone Viral, Weighing the Size of the Internal Revenue Code, Reader Weighs In on Weighing the Code, Code-Size Ignorance Knows No Boundaries, Tax Myths: Part XII: The Internal Revenue Code Fills 70,000 Pages, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN, The Infection of Ignorance Becomes a Pandemic, Getting Tax Facts Correct: Is It Really That Difficult?, Reaching New Lows With Tax Ignorance, Incorrectly Breaking Down the Internal Revenue Code, Is Tax Ignorance Eternal?, So How Long Does It Take to Read the Internal Revenue Code?, and Much More Than the Internal Revenue Code.

The other day, I found myself reading a report about Robert Brockman, a “software executive charged in the largest-ever tax case against a U.S. individual.” He is accused of “using a complex trust structure in the Caribbean to hide $2 billion in income over two decades.” The main focus of the story was the request by Brockman’s lawyers to move his case from San Francisco to Houston, where he is undergoing medical treatment to deal with progressive dementia.

But what caught my eye was the revelation that during an earlier court hearing in the case, “defense lawyer Neal Stephens said the case against Brockman involves 22 million pages of documents.” Two thoughts popped into my brain. The first was a question. How many other cases involving one taxpayer, if any, involved 22 million pages of documents or more? I tried to research the question, and though I found references to court cases and to other disputes not involving litigation that involved “millions of pages” of documents, none provided enough information to determine if “millions” meant three million or 10 million or 50 million. Many of these situations involved multiple parties, and very few, if any, were tax cases. I ignored references to matters such as property tax records maintained by governments that consisted of millions of pages because those databases related to tens of thousands and hundreds of thousands, if not a few million, taxpayers. So it’s unclear whether 22 million pages is a record.

The second thought that occurred to me was an observation. For those who find the idea of finding relevant tax law in the Internal Revenue Code, an effort simplified by the combination of search tools and digital technology, imagine being tasked with reading 22 million pages of documents in a tax case. No one person can do that in the applicable time frame. It takes a team. Yet it also requires someone to coordinate that team and to find ways to connect relevant information discovered by different team members in order to construct a chronology, a summary, or some other guide that is useful for the judicial proceedings.

Why am I confident no one person can read the 22 million pages within the time constraints of the litigation? The first step is to determine how many words are on 22 million pages. That is difficult because some of the pages might contain pictures, charts, graphs, or similar non-word material. It also is difficult because the margins, spacing, font size, and other characteristics of the material is unknown. The general rule of thumb is that a single-spaced page holds 500 words and a double spaced page holds 250 words. So, using 375 words per page as a rough benchmark, 22 million pages would contain 8.25 billion words. The second step is to determine how long it takes to read 8.25 billion words. As I wrote in So How Long Does It Take to Read the Internal Revenue Code?, “the answer depends on how fast a person reads. The average person reads roughly 200 to 250 words per minute. Note that it’s one thing to read, and a totally different thing to understand. Someone trying to understand written text might need to read more slowly, or to go back and reread some or all of the text.” Considering reading the material, and setting aside understanding, analyzing, interpreting, summarizing, or comparing the material to other information, it would take 41.25 million minutes, or 687,500 hours, to read 22 million pages. Reading for 12 hours a day, for 365 days, would require 157 years. Allowing time for understanding, analyzing, and otherwise absorbing the impact of the material would require many more years.

And some think reading the Internal Revenue Code, cover to cover, which I have done, is a horrendous undertaking. There probably are, however, a few people who enjoy reading long books, including those that consist of multiple volumes. If you need a list of suggested titles, check out this List of Longest Novels, on which War and Peace comes in at 32nd. And, no, the Internal Revenue Code isn’t on the list though it would be, near the bottom, if it were a novel, which it isn’t.

Though I often write about tax return preparers who run afoul of the law, 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?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, and Tax Return Preparer Fails to Evade the IRS, it’s not always tax return preparers who get into this sort of trouble. In an indictmentannounced last Wednesday, the Department of Justice charged a business owner and the corporation’s accountant with a long list of offenses. The owner of the corporation was charged with bank fraud, conspiracy to defraud the IRS, six counts of filing false tax returns, ten counts of filing false reports with unions, and 18 counts of failing to make contributions to union employee benefit funds on behalf of employees. The accountant was charged with conspiracy to defraud the IRS and three counts of aiding and abetting the preparation and filing of false income tax returns.

The indictment alleges that the business owner and the accountant worked together to falsify corporate records so that the business owner’s federal income tax liability would be less than what it should have been. One of the “techniques” used by the pair was the hiring of the business owner’s wife for a “no show job,” paying her $166,400 annually, and classifying it as a legitimate compensation business expense. In other words, taxable income of the corporation was reduced by creating fake salary deductions. Also classified as corporate business expenses were salaries paid to employees who renovated a condominium owned by the wife, and expenses paid for the wife’s use of a car.

The indictment also alleges that when the business owner learned that the IRS had been anonymously alerted to the creation of the no-show job for his wife and the use of corporate employees to renovate his wife’s condominium, he filed amended tax returns removing some improper business deductions but which continued to claim deductions for the wife’s no-show job and for her car expenses. The indictment allege that the accountant helped the business owner try to hide the fraud by “secretly changing properly recorded personal expenditures to make them appear to be business expenses.”

As the First Assistant U.S. Attorney put it, the business owner “found an accountant to help him defraud the IRS by secretly changing properly recorded expenses into fraudulent ones. And when the defendants thought their scheme might be uncovered, they allegedly cooked the books even further to cover their tracks.” In other words, the business owner and the accountant are charged with, among other things, committing tax fraud in order to hide tax fraud. As I wrote in Tax Return Preparer Fails to Evade the IRS, “Sometimes when a person gets into a hole, they dig furiously to get out, but too often that makes the hole deeper and bigger.”

If the charges are proven, and the defendants are convicted or take a plea, the question that probably will not be answered is, “Was it worth it?”