MauledAgain

Like other readers of this blog, reader Morris knows that I pay attention to the adventures of tax return preparers who do things that they ought not to do or failed to do something they ought to have done. I have written about these situations on many occasions, including posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, and Don’t Get Burned By a Tax Return Preparer.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In 2015, Kenneth Warren Sauter received $20,712 from the Social Security Administration which it reported on a Form SSA-1099. He also received $97,188 from Alma Products Holdings, Inc., which it reported on a Form 1099-MISC. When he filed his 2015 federal income tax return, Sauter reported the income from the Social Security Administration but not the income from Alma Products. The IRS issued a notice of deficiency, Sauter filed a petition in the Tax Court, the IRS moved for summary judgment, Sauter did not respond, and the Tax Court granted the IRS’ motion, finding Sauter’s arguments in his petition to be frivolous and without merit.

Sauter appealed to the United States Court of Appeals for the Fifth Circuit. He did not dispute having received the $97,188 from Alma Products, but argued that the income is not taxable because “trade or business” in Internal Revenue Code section 7701(a)(26) is defined as “includ[ing] the performance of the functions of a public officer,” and, thus, only those trade or business activities that can be defined as “the performance of the functions of a public office” are taxable. In 2019, the Court of Appeals explained that section 61(a)(6) defines “gross income” as “all income from whatever source derived, including . . . [c]ompensation for services.” I.R.C. § 61(a). It explained that section 7701(c) further clarifies that “includes” and “including” when used in a definition “shall not be deemed to exclude other things otherwise within the meaning of the term defined.” Id. at § 7701(c). Agreeing with the Tax Court that this argument was frivolous and without merit, the Court of Appeals affirmed the Tax Court’s judgment.

On his 2016 federal income tax return, Sauter did not report $85,106 that he received from Alma Products. Again, the IRS, after issuing a Form CP2000 to Sauter and getting a reply reciting the same argument rejected by the Tax Court and the Court of Appeals, issued a notice of deficiency. Again, Sauter raised the same rejected argument, and again the Tax Court entered summary judgment pursuant to the IRS motion for summary judgment. It also imposed a penalty of $2,500 under section 6673(a)(1)(B), noting that Sauter had been warned at least three times in dealing with his 2016 return that his argument was frivolous and without merit.

Again, Sauter appealed to the United States Court of Appeals for the Fifth Circuit. Again, he did not dispute having received the $85,106 from Alma Products. Again, he raised the same argument he had raised previously. Again, earlier this week, the Court of Appeals rejected the argument as frivolous, pointing out that it had previously been presented with the same argument by Sauter and had concluded it was frivolous. As for the penalty, the Court of Appeals held that the Tax Court did not abuse its discretion when it imposed a penalty on a taxpayer who continued to advance “long-defunct arguments,” had been warned multiple times of the possibility of penalties, and had been put on notice that the Court of Appeals had previously concluded that his argument was frivolous. The Court of Appeals affirmed the Tax Court decision in its entirety.

Understanding that a definition that contains an “including” phrase does not restrict the application of the definition to items listed after the word “including” is not something limited to law, and is something many people not trained in law understand. Yet, it is possible that someone reading such a definition might be confused or otherwise not quite grasp the difference between the word “including” and the phrase “is limited to.” That is ignorance. Ignorance can be cured, and is cured through education. The Tax Court and the Court of Appeals educated Sauter multiple times with respect to the litigation involving his 2015 tax return. When Sauter persisted in advancing the same rejected argument, it was no longer a matter of ignorance. It was a matter of obstinance. Ignorance, of course, poses an deep threat to people and to nations. Obstinance, which is embraced ignorance, is an even greater danger, posing an existential threat to people, nations, and democracy.

Again I turn to commentary by Tom Giovanetti of the Institute for Policy Innovation, but this time to agree with an important point he makes about the SALT cap. The SALT cap is a limit on how much state and local taxes paid by a taxpayer can be deducted on the taxpayer’s federal income tax return. Ostensibly, it is targeted at the wealthy, because the wealthy generally pay more state and local taxes than do those who are not wealthy. However, the cap is set at an amount, primarily $10,000. This causes a reduction not only in how much wealthy taxpayers can deduct but also how much can be deducted by many middle-class taxpayers.

For that reason, some Democratic members of Congress want to repeal the SALT cap and return to the uncapped deduction for state and local taxes that existed before the 2017 tax legislation was enacted. Giovanetti, in Democrats' Massive Tax Cut for the Wealthy correctly points out that repeal of the cap would be a much bigger benefit for the wealthy than for a anyone else. He is correct. We could quibble over his claim that it is upper-income households and especially the wealthy who pay more than $10,000 in state and local taxes and thus are affected by the SALT cap, because there are taxpayers caught by the cap who surely are not “upper-income.” We also could quibble over how much the cap hurts the wealthy, because the benefit to the wealthy of an uncapped state and local tax deduction pales in comparison to the tax breaks they get from things such as depreciation deductions on real estate that is not depreciating, the step-up in basis at death, reduced tax rates, charitable contribution deductions for the value of appreciated property without taxation of the inherent gain, and dozens more provisions designed to help starving oligarchs, to say nothing of low audit rates. But those issues matter not to finding a solution to the SALT cap problem.

Here is what I think is the best idea for dealing with the SALT cap. The cap should not be a fixed amount. It should be a fixed amount, adjusted for inflation, reduced by ten percent of the taxpayer’s modified adjusted gross income. I’m open to which definition of modified gross income is used, but certainly tax-exempt income should be included. Here are some examples. Set the cap at $40,000 minus ten percent of adjusted gross income. What is the outcome? For someone with adjusted gross income of $400,000 or more, the cap would be zero, that is, no deduction for state and local taxes. For someone with adjusted gross income of $100,000, the cap would be $30,000, though taxpayers with adjusted gross income rarely, if ever, pay state and local taxes anywhere near $30,000. For someone with adjusted gross income of $50,000, the cap would be $35,000, though again, that taxpayer would not be paying that much in state and local taxes.

Why did I pick $40,000 as the fixed amount? Because that amount, applied to the formula, would cause little or no loss of the state and local tax deduction for taxpayers with less than $400,000 of modified adjusted gross income, the breakpoint being used in the proposed legislation for other changes. It also means that taxpayers with $400,000 or more of modified adjusted gross income would be denied the state and local tax deduction. This certainly would change the proposal from a repeal that benefits the wealthy more than other taxpayers to one that spares taxpayers who are not wealthy from the SALT cap while leaving it in place for the wealthy.

Supporters of the SALT cap cannot object to my proposal unless they want the SALT cap kept in place for the taxpayers who are not wealthy but who are caught by the cap. That would be rather telling. Opponents of the SALT cap cannot object to my proposal unless they are supporters of letting those with $400,000 or more of modified adjusted gross income have a deduction for state and local taxes of at least $10,000 if not an unlimited deduction. That, too, would be rather telling.

I invite anyone with “connections” to those who are drafting the legislation or engaging in negotiations to share this proposal, by sharing the URL for this post. I'm good at some things, but being my own publicist isn't one of them. But please attribute it to me so that if anyone wants to criticize it you can step aside and let the counter-arguments come my way. And, of course, if it gains traction, well, I don’t mind being credited.

Tom Giovanetti, of the Institute for Policy Innovation, thinks that, to quote the headline of recent IPI commenatry that “It's Impossible to Accurately Tax an Unrealized Gain.” His argument rests on the premise that the only way to determine “true value of something” is to wait until a willing seller and a willing buyer provide that information by engaging in a presumably arms’-length transaction. He argues that “Value cannot be accurately determined without a transaction between a willing buyer and a willing seller.” Therefore, he argues, “that’s just one reason why the tax on unrealized gains being proposed by some Democrats is such a terrible idea.”

Yet tax law, whether based on income or property value, contract law, tort law, and many other areas of law function smoothly in determining value without the benefit of an actual purchase and sale of the item in question. Local real estate taxes are assessed on the computed market value of real properties. Estate taxes and state inheritance taxes are computed by determining the value of property owned by a decedent or inherited by a beneficiary without that property having been sold to a willing buyer. Insurance claims on stolen or totaled vehicles are paid based on value reflecting other transactions. Losses from breach of contract are calculated without actual transactions having taken place. Business school classes on valuation take students through the details of the comparable sales method, the discounted cash flow method, the earnings multiplier method, and similar analytical approaches.

Giovanetti argues, “So an unrealized gain simply cannot be accurately valued, and how can you accurately tax wealth that cannot accurately be valued? You can’t. And that’s one of the reasons why we have never even attempted to tax unrealized gains.” On that score, he is wrong. Including unrealized gain in gross income already exists in the federal income tax law. Take a look, for example, at Internal Revenue Code section 475 (and state statutes based on it). The computation is based on the listed market price of securities, which is nothing more than a proposed price similar to the asking prices given by Giovanetti as examples of why it supposedly is impossible to put a value on something until that something is actually sold. The battle Giovanetti is fighting was lost long ago, when section 475 was enacted.

That’s not to say that taxing unrealized gains on everything every year is necessarily a good idea. There are worthwhile arguments against the idea, based on issues of liquidity, market disruption, administrability, and ease of avoidance. With those stronger arguments available, it makes no sense to rely on a “cannot determine the true value of something without a sale” objection. If that is perceived as the strongest, or only, argument being offered in opposition to the taxation of unrealized gains, section 475 might soon be expanded beyond the narrow set of situations to which it currently applies.

Of course, the idea that taxation should not take place until something is sold, when coupled with the step-up in basis at death, provides the foundation for the construction of the oligarchic dynasties that are causing far more problems for the nation than the few benefits, if any, that trickle down to the not-wealthy from these gargantuan money piles. Eliminating the step-up in basis at death does nothing to solve the problem because properties are passed from one generation of oligarchs to the next. A wealth tax is problematic, not only because of the administrability and evasion issues, but also because in years when wealth decreases, payments would flow from government to oligarch (not that government funds don’t already flow in that direction, outside of the spotlight that is aimed on payments to the impoverished and struggling middle class).

Perhaps the answer is to undo the cause of the wealth accumulation. Here is something to ponder. What would the nation’s economy look like, and what would the economic situation for the poor, the middle class, the wealthy, and the ultrarich look like if federal and state income tax rates had remained where they were when this nation was in the heyday of the “greatness” that so many want to revive? Why not undo the slide from those years of “greatness” by computing what each individual and corporation would have paid in income tax in each of the last 40 years (going back to when the oligarch takeover began), subtracting what was paid, computing interest, and sending invoices to the taxpayers or their successors in interest, with an exemption for all incomes under, say, $1,000,000 in 2021 dollars adjusted for each year’s equivalent amount. It is possible that under this formula, a few or some taxpayers would receive refunds rather than invoices, though most taxpayers in that situation would be those with incomes too low to have taken advantage of the tax breaks dished out to the ultrarich. Too computationally complicated? Not with modern digital technology.

If nothing is done, and people can debate what should be done, but if nothing is done, the exponential increase in the percentage of the economy owned and operated by the super-ultra-rich will continue and accelerate, the number of people sliding into poverty will increase, the disappearance of the middle class will get worse, and the realization that oligarchic capitalism is simply another version of feudalism and serfdom will come too late. So long as there are enough people willing to defend, and vote for, oligarchic capitalists and their operatives, the slide from “greatness” also will accelerate. What is most troubling is how so many people unhappy with the slide from “greatness” vote for the persons and policies that fuel that slide.

From the outset of this blog, I have made it a point to work Halloween into MauledAgain, usually looking for the silly or goofy but occasionally taking a more serious approach. The posts began with Taxing "Snack" or "Junk" Food (2004), and have continued through Halloween and Tax: Scared Yet? (2005), Happy Halloween: Chocolate Math and Tax Arithmetic (2006), Tricky Treating: Teaching Tax Trumps Tasty Tidbit Transfers (2007), Halloween Brings Out the Lunacy (2007), A Truly Frightening Halloween Candy Bar (2008), Unmasking the Deductibility of Halloween Costumes (2009), Happy Halloween: Revenue Department Scares Kids Into Abandoning Pumpkin Sales (2010), The Scary Part of Halloween Costume Sales Taxation (2011), Halloween Takes on a New Meaning and It Isn’t Happy (2012), Some Scary Halloween Thoughts (2013), The Inequality of Halloween? (2014), When Candy Isn’t Candy (2015), Beyond Scary: Tax-Based Halloween Costumes (2016), Another Halloween Treat? I Think Not (2017), If Halloween Candy Isn’t Food, Is it Medicine? (2018), The Halloween Parent Tax: Seriously? (2019), and Halloween Chocolate Construction Project (2020). This year, it's a serious consideration.

About two weeks ago, reader Morris directed my attention to this story about a dental office buying back Halloween candy. From doing a bit of research, this is not an isolated situation but one that is common, though I must point out that when I was in my Halloween door-to-door-with-two-large-pillowcases stage, I never did hear of any dentists buying Halloween candy from children. It now is a nation-wide undertaking. So how much are the children paid? This dental office offers $3 per pound.

Reader Morris then posed two questions. He asked, “Are the kids technically receiving gross income for the candy?” and “Can the dental office deduct the purchase cost as a business expense?”

The children receive the candy as a gift, though perhaps some people might claim that they dish out treats in order to “persuade” children not to refrain from stopping by the following year on Mischief Night, Soap Night, Egg Night, Chalk Night, or whatever other pre-Halloween night is being observed by some youth. Because it is a gift, the children have an adjusted basis in the candy equal to the price paid by the person giving the candy, and when they sell it to the dental office they probably are receiving an amount less than the adjusted basis. So they are realizing a loss, and it is not deductible because the children are not in the trade or business of selling candy, carrying on a for-profit activity, or suffering from a casualty (though some children “persuaded” by their parents to fork over their candy for cash might consider it a tragedy, but not all tragedies are casualties).

Why do I think the children are incurring a loss? On Amazon, a one-pound Hershey’s Bar sells for $19.99, so getting $3 for that bar (assuming anyone is handing out something like that) is far from generating gross income. Walmart sells a 40 ounce bag of small candy bars for $23.96, which is $9.58 per pound, a better deal than the one-pound Hershey’s bar but still much less than $3 per pound. I checked these prices when reader Morris sent his email so they may have increased or decreased, there may have been sales, there may be different prices at other retailers, but as a general proposition, $3 per pound is not generating realized gain for the children who sell their candy loot to the dental office.

Two years ago, Kelly Phillips Erb addressed the tax consequences of Halloween candy buy back transactions. She did so by examining exchanges of the candy “for other stuff.” She addressed the income question only by noting that if the “candy is exchanged for a similar item, there should be no gain and no tax consequences.” As a practical matter that is true, but if a child found someone willing to fork over a one-pound Hershey’s bar for half of the candy in that 40 ounce bag, that would generate gross income of $8.01. If “similar item” means candy of an equal value, she is correct both theoretically and pragmatically. Though she doesn’t mention a sale for cash, her reasoning would bring us to the same conclusion that my reasoning did. She also notes, as I have, that the children handing over the candy at a loss would not be allowed a deduction.

As for a deduction by the dental office, which is, of course, a trade or business, the question is whether the amount paid for the candy is an ordinary and necessary business expense. Is it? One argument in favor of a deduction is that the business is paying for some combination of advertising and public health information. The program is designed to reduce the amount of candy that children (and their parents) eat during Halloween season, and because the cost of publishing a “don’t eat or don’t eat too much candy” message would be deductible by a dentist, sending that message through a buy-back program would also be deductible. An argument in favor of denying the deduction would rest on the nature of what is being purchased. Unlike dental care supplies, dental tools, and similar items, dentists do not need to purchase candy in order to operate their businesses.

There are two twists to the tax consequences faced by the dental businesses that buy the candy. One is that under the national program the candy is donated to a charitable organization that distributes the candy to members of the Armed Forces. So instead of a trade or business deduction, the business would claim a charitable contribution deduction in an amount equal to what it paid (because the property is short-term capital gain property in the hands of the business). The other twist is that some businesses making the purchases do so with donated money. In this instance the business would not get a deduction because it is not expending any money for the candy. Determining whether the sponsors get a charitable contribution deduction requires identifying additional facts and is beyond the scope of the question that was asked. So, too, is the non-tax issue of why it makes sense to reduce the amount of candy in the hands of the children while increasing the candy in the hands of members of the Armed Forces, and I leave readers to explore what the national candy buy back program shares as an explanation.

Readers of this blog know that I pay attention to the adventures of tax return preparers who do things that they ought not to do or failed to do something they ought to have done. I have written about these situations on many occasions, including posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, and There Was Nothing Magical About This Tax Return Preparation Business.

Among those readers is reader Morris, who spotted a story out of North Carolina about a tax return preparer who did something that ought not to have been done and that was something that, until now, I had not hear of a tax return preparer doing. According to the story, Andrivia Wells was sentenced to 70 months in prison after pleading guilty to filing more than 6,000 fraudulent tax returns claiming more than $3 million in fraudulent refunds unbeknownst to the clients, and then taking roughly $1.2 million in fees from her clients’ refunds without informing the clients. She also filed fraudulent returns on her own behalf. These actions aren’t novel for noncompliant tax return preparers. What Wells did was worse.

In 2017, when the IRS demanded that Wells turn over records, a suspicious fire broke out at her office on the day that Wells was to submit the records requested by the IRS, and the records went up in smoke. Two years later, Wells was indicted and arrested on charges of tax fraud and obstruction of justice. Ten days later, while in jail, Wells spoke with her daughter and two associates after a grand jury demanded records, discussing how to eliminate the evidence. The call, made from jail, was recorded. Someone on the call said, “We’ve got to get the stuff out before they put the locks on. . . . We have files in there, clients we’ve done. We’ve got to get a U-Haul and move all of that stuff out of the place at one time. A very large U-Haul.” They didn’t get a U-Haul. They set a fire that destroyed the records.

The sentencing judge described the second fire as “one fire too many.” I beg to differ. It was two fires too many. And it’s worse. Wells already had been convicted of a felony, having served eight years of a 151-month sentence for participating in a drug-trafficking conspiracy. So those fraudulent returns, stolen refunds, and fires were “way too many crimes too many.” The lesson is clear. As I’ve written many times, when retaining a tax return preparer, do some research and even a background check. No one wants to be burned by a tax return preparer.

I have written many commentaries about the mileage-based road fee, including posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, and What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions. Now it’s time to follow-up on the most recent post.

In that most recent post, I described how Mariya Frost of the Washington Policy Center, in an opinion piece on the pending federal mileage-based road fee pilot program, objected to the fact that the pilot program language is “buried deep in a larger infrastructure package that lawmakers have to vote for or against in totality.” That observation is correct, and I pointed out that it was not a rejection of the mileage-based road fee concept or the pilot program, but a complaint about the legislative process in general. That, of course, is a much bigger and more serious problem with this nation’s polity.

One of the side effects of burying a proposal in legislation is that very few people actually read the language of the proposal. Those who do have a choice. They can try to accurately report, or at least try to accurately summarize, the proposal, or they can twist it into propaganda used for questionable purposes. Granted, some people who try to accurately explain a proposal might suffer from an inability to understand it and generate misleading information. When proposals are complicated, or the language murky, that can happen. It’s bad, but it’s not evil. On the other hand, those who deliberately mis-inform the public do not have any sort of acceptable excuse.

Consider a meme now circulating on social media outlets. It reads, “The dems are trying to push through a 8 cents a mile vehicle tax. You say well 8 cents doesn’t sound to [sic] bad. Allow me to break it down for you. If you drive 12,000 miles a year, you will pay an extra $960 per year. If you get 18 miles to the gallon, it will cost you an extra $1.44 per gallon. If you put 20 gallons in your car, the cost comes out to an extra $28.80 per fill up. This will amount to the largest tax hike in history. Not to mention what this will do to the trucking industry. You think your groceries are expensive now! You just wait. It will cost a semi that drives 100,000 miles a year for example an extra $8000 dollars a year. Do you think the trucking companies are just going to eat that cost? No I don’t think they will. They will pass the cost onto their customers who will in turn pass it on to you. If this passes, it will be catastrophic for the economy I guarantee it.” It is unclear whether the person whose name appears below the meme is the author. It is unclear whether the the spelling, punctuation, syntax, and other errors is the product of someone lacking the requisite writing skills or is a deliberate attempt by polished propaganda artists to make the meme look as though it is coming from a grassroots source. Either way, it is full of nonsense.

First, the proposal is nothing more than the funding of a voluntary pilot program to study the mileage-based road fee. The volunteers will not be out any money. Second, there is no reference to 8 cents per mile in the proposal. The 8 cents figure comes from the report of a Pennsylvania commission set up to study transportation funding. Third, if a mileage-based road fee were adopted, it would be, as indicated in various proposals, a replacement for the liquid fuels tax, and thus not in its entirety an “extra” anything.

It's bad enough someone wrote this, whether out of ignorance or a deliberate intention to rile up the base and motivate the anti-tax anti-government crowd. What’s worse is that people read this, react emotionally without doing any research to determine its validity, and then re-post it so that this nonsensical piece of ignorance spreads like a virus among those unvaccinated against ignorance. Yes, education is the vaccine against ignorance and propaganda. Yes, there are people who are opposed to education because they are afraid of what it does, even though there is nothing to fear about making efforts to acquire knowledge and education and to learn how to separate emotion from critical thinking. Ignorance about a pilot program to examine the feasibility of a mileage-based road fee is a concern, but it is merely one facet of the widespread ignorance and lack of critical thinking about every important aspect of society that is eating away at the core of civilization. The clock is ticking, and time is running out.

According to this report, as gasoline prices increase, Republicans in New York State are asking the governor to suspend the gasoline tax. The leader of the state’s Senate Republicans argues that the current price of $3.46 per gallon is a 55 percent increase from “last year.” Before examining the suggestion to suspend gasoline taxes, it makes sense to review gasoline prices in New York state.

According to the New York State Energy Research and Development Authority, the average price of gasoline in New York State in September 2021 was $3.22. Though it is a significant increase from the September 2020 pandemic-induced low price of $2.19, it is not as much of an increase from the September 2019 price of $2.65, the September 2018 price of $2.91. It is LESS than the September 2014 price of $3.59, the September 2013 price of $3.78, the September 2012 price of $4.04, and the September 2011 price of $3.83. So over the long run, the September 2021 price is consistent with the typical up-and-down roller-coaster change in gasoline prices that reflect supply and demand, which in turn reflect production, weather, alternative costs, and similar factors.

The article quotes a consumer who explained that he “can’t really afford to go anywhere, any more.” Though it’s unclear how many miles per week he drives or would want to drive, and thus unclear whether he’s facing a $10 per month or $100 per month increase in gasoline costs, a suspension of the state sales tax would not solve the problem for that consumer or others who are facing financial challenges. Was this consumer able to afford the $3.59 per gallon cost in September 2014? Did this consumer’s income go down? Did other costs go up? A suspension of the 40 cent per gallon state gasoline tax (which includes the sales tax component) is a band-aid on a deeper financial hemorrhaging faced by this consumer and others in a similar situation. Worse, suspending the gasoline tax provides a windfall to the gasoline purchasers who are not struggling financially. And even worse, it cuts off funding for keeping New York State roads, bridges, and tunnels in safe condition, thus trading off a short-term benefit to some residents in exchange for far more serious and much more expensive long-term costs in the form of accidents, deaths, injuries, and property damage.

Why not address the root cause of the problem instead of the symptoms? The problem for people unable to pay for gasoline at a rate that is lower than what it was earlier in the decade is that they have insufficient income to cover their expenses. Without seeing the budgets prepared and followed by these consumers, and thus assuming that there are no unnecessary expenses making demands on their financial resources, their incomes are insufficient because wages and similar payments have not kept pace with worker productivity and decades-long overall cost increases. What these consumers are suffering are symptoms of the income and wealth inequality disease that is eating away at the foundations of American democracy.

Emotionally, suspending the state’s gasoline tax appeals to many, particularly those who do not take the time to engage in full-blown analysis of their own and local, state, and national finances and economics. Suspending the gasoline tax does not solve the problem, and once those proposing it get the votes they need and want by making these sorts of emotional appeals, the tax will return and the problems faced by consumers claiming inability to pay will continue. Interestingly, those most adamant about the symbolic maneuver of reducing a small state gasoline tax are also the most adamant about doing anything to address the underlying problem of income inequality, rising CEO-to-worker pay ratios, and inequity in the overall taxation rates faced by high income and low income individuals.

Until people stop voting for those responsible for the problems that disturb, anger, and outrage those voters, they will continue to suffer, as do the individuals who insist on maintaining relationships with people who physically abuse them. Being easily distracted by small tokens of apology, such as temporary and useless suspension of a tax that is but a tiny fraction of the problem, is an emotional trait on which the servants of the oligarchs depend.

As readers of this blog already know, I have written about fraudulent tax return preparers on many occasions, including posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, and When Dishonest Tax Return Preparers Are Married. When writing about these situations, I focus on what the preparer did that ought not to have been done. This time, my focus is different.

In a recent Department of Justice press release, an Acting United States Attorney and an IRS-Criminal Investigation Special Agent in Charge announced that two tax return preparers have pleaded guilty to aiding and assisting in the preparation of false income tax returns. The two preparers operated separate businesses. What they did wasn’t different from what other tax return preparers have done that got them into trouble. They knowingly claimed false deductions and credits on clients’ returns.

What caught my eye was the name of one of the businesses. According to the news release, the preparer “operated a tax preparation business under the name Magic Tax Service.” One can imagine the tag line. “Owe taxes? With a bit of magic I can turn that into a refund.” Magic, of course, involves deception. So, too, does fraud. If a tax return preparer asked about the wisdom of using Magic in the name of the business, I would ask if it would make sense to operate a business called “Fraudulent Tax Service.”

I wonder if the name of the business was a red flag for the IRS. Perhaps. How the IRS and the Department of Justice detected what was happening isn’t something that gets publicized. But it would not surprise me if certain business names, advertisements, and social media claims don't get noticed.

I don’t follow boxing or auto racing, and I pay little attention to who gets knighted by Queen Elizabeth II. So it was by happenstance that I came upon an ESPN article that brought those topics together with tax. It was the headline. It stated, “Lewis Hamilton has 'huge respect' for Tyson Fury despite tax comments.” Not recognizing these two names, I had to read the article and do a bit more research.

Lewis Hamilton is an auto racing driver. Hamilton has set several records, and ended up on the Queen’s 2020 Honours list. In other words, he was knighted.

Another UK citizen, Tyson Fury, who holds the heavyweight boxing crown, was miffed that he was not on the Queen’s Honours list, and thus not knighted. In his gripe about being omitted from the list, he stated, “Unlike Lewis Hamilton I live and pay taxes.”

Hamilton lives in Monaco, which is a tax haven. Debate about his decision to live abroad has persisted in the UK for quite some time. Hamilton responded, race in 19 different countries, so I earn my money in 20 different places and I pay tax in several different places, and I pay a lot here as well.”

Despite their feuding over taxes and knighthood, when Fury retained his title this past weekend, Hamilton sent a message of congratulations and praise. He said that he respects Fury “no matter what he’s said about me.”

All of which goes to show that people can disagree about tax issues and still respect each other’s accomplishments. They can. Does everyone?

The list of tax return preparers getting in trouble continues to grow. I’ve written about these situations in posts such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, and Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf.

Usually the preparers who get in trouble are sole proprietors, or working with a business partner, or perhaps working as employer and employees. This time, it’s a husband and wife who came under scrutiny and who, as reported by the Department of Justice, have been permanently enjoined by federal district court from “preparing returns for others and from owning, operating, or franchising any tax return preparation business in the future.”

According the complaint that was filed, the wife, who used two different personal names, and who did business as Su Casa Income Tax Service, prepared federal income tax returns containing false and fraudulent claims. After the IRS began investigating her, her husband, doing business as I-Tax Services, prepared fraudulent returns in concert with his wife. Then, she prepared and filed returns but used her husband’s name as preparer. The returns in question included false or inflated dependency exemptions and child tax credits, false filing statuses, and fictitious income so that the earned income tax credit could be claimed or inflated.

The two preparers joined in the motion for the injunction. It permits the federal government to continue post-judgment discovery so that compliance by the two preparers can be monitored. In addition, they must send a notification that they have been enjoined to each person for whom they prepared returns or claims for refund beginning in 2016 and continuing through the litigation.

What’s unclear is whether one of the two started filing fraudulent returns and then brought the other one into the schemes, or whether they collaborated from the outset. Perhaps one started while hiding the behavior and the other discovered what was happening and rather than reporting the activity was persuaded to jump on board. I cannot access the actual documents in the case, and it’s unclear whether the facts were memorialized in writing or simply provided orally at hearings.

There is a meme floating around facebook, and elsewhere on social media. Purportedly written by a Todd Hagopian, it reads, “By the time I am 67, over $600,000 will be paid into #SocialSecurity on my behalf. That money would have been worth $1.9 million if I had gotten a 5% return. My annual interest would be $95K. The Government promise me $3,075/month at 67, which is $37K/year. How is that not THEFT?”

Curious, I tried to figure out how this Todd Hagopian computed his analysis. He doesn’t state his age, nor how long he has been subject to social security, nor if he has earned income each year equal to or exceeding the social security earnings cap for that year. There is no indication of when the meme was written. Yet he computed that his benefit would be $3,075, which suggests that the year he would start receiving social security benefits would be 2020. So perhaps the meme is a year old. Yet he states that he would begin getting benefits at age 67, which is the normal retirement age for persons born in or after 1960. He would not be 67 until at least 2027, and there is no way to compute benefits payable by Social Security in 2027.

So the best I could do was to do a computation for someone born in 1955, subject to social security through 2020 as an employee, earning income equal to at least the social security cap for each year, and retiring at the end of 2020. Such a person, over the 45 years of working, would pay $200,696 in social security taxes. The person’s employer would pay $200,696, for a total of $401,392.

What would that amount be worth if, instead of being paid into the Social Security Trust Fund, it was invested? First, not all of it would be available for investment, because the portion paid by the employer to the employee would be taxable to the employee, unlike the non-taxation of the amount paid by an employer into the Social Security Trust Fund on behalf of the employee. Though some contributions to retirement plans are tax deductible, I chose not to assume that a similar treatment would apply to the sort of comparison made in the meme. It is likely that someone with income of at least the social security cap would face a marginal rate of roughly 30 percent during the period in question. I did not try to compute the tax for each of the years in question. That would mean that a total of $341,183 would be paid in during the period in question.

I used the 5 percent rate of return rather than trying to compute returns for each year using some arbitrary measure of interest rates or stock market performance for each year. I then computed what each year’s total contribution would be if invested at that rate of 5 percent. The total? $894,022, not $1.9 million. If at the end of the 45-year-period, that amount were drawn down as an annuity, the annual payout would be, assuming the person lived for 25 years, $63,433, exhausting the fund at the end of the period.

Yes, getting $37,000 annually is nowhere near as good as getting $63,433 annually. But that is the nature of how social security works. One can do a computation for someone who earned minimum wage after entering the work force at age 50 after raising children and lives until age 100, and that person would do better under social security. So is the Social Security program theft? No. Why not? Because the program is insurance. There is no guarantee that a person will get back what the person paid in, let alone interest. Consider someone who dies before retiring, or who dies shortly after starting to take social security payments. Putting aside survivor benefits, the person is in the same position as someone who pays homeowner’s insurance and never suffers a loss, or automobile insurance and whose vehicle is never stolen nor involved in an accident. Why do I claim that social security is insurance? The social security tax is imposed by the Federal Insurance Contributions Act, which is why it is referred to as FICA, and funds the Old-Age, Survivors, and Disability Insurance program, the official name of the social security program. So as is the case with all insurance, some people will pay in more than they get back, some people will get back more than they pay in, and a handful of people might coincidentally get back what they pay in. So, no, it is not theft, no more than automobile or homeowner’s insurance premiums constitute theft.