Saturday, December 24, 2022

Does a Tax on Robot Value Help Retain Workers Or Is the Solution Less Simplistic? 

MIT has released a recent study by MIT economists with the tagline, “Should we tax robots?” The study isn’t suggesting that robots be required to file tax returns. Instead, it suggests “that a tax on robots should range from 1 percent to 3.7 percent of their value.” The reasoning is that the tax would give employers “incentive to help retain workers” as well as to replace the “dropoff in payroll taxes when robots are used.”

If the suggested tax were to be imposed annually, the cost of a robot would increase significantly. But that’s not the only concern. Most employers live in jurisdictions that impose property taxes, so wouldn’t the robot-value tax simply be a duplication of the property tax?

Imagine where we would be had a similar “tax on worker replacements” had been in effect when street-cleaning vehicles with one driver replaced perhaps a dozen street sweepers, when one painter with spraying equipment replaced several or more painters using brushes, when one employee driving a snow plow truck replaced however many workers moving snow with shovels. In every instance of technological advance and replacement, the key has been to shift employee tasks. Individuals working in buggy whip factories took jobs in automobile factories. Employees of carriage making companies went to work for Fisher Body and similar companies.

As increasing numbers of robots are manufactured and placed into service, employees are needed not only to build robots, but to design them, to write programming code for them, to work in the factories that manufacture the components, to work for agencies that check the quality and safety of the robots, and to repair or reprogram robots that are misfunctioning or need to be adapted to a different use. The key to these shifts is education. The learning of new skills, especially as a person gets older, is challenging. Yet it often is a necessity, has been so throughout history, and will continue to be a requirement of progress and survival. Companies that want to manufacture and program robots, and companies that want to use them, need to retrain employees, and need to enter into arrangements with companies closing down or laying off employees because of robot replacement. Should those costs be funded by a tax on the owners of robots? On the manufacturers of robots? On the companies laying off employees? Or perhaps on the consumers of the goods and services provided by the robots, as part of a price increase that puts the burden on those who benefit from the lower costs generated by the use of robots that would be partially offset by the price increase? The analysis of how increasing replacement of human workers with robots needs to reach beyond the simplistic concept of a tax on the value of robots and examine instead the correlation between who benefits from the use of robots and the cost of retraining humans to function in a robot world.

Wednesday, December 14, 2022

The Tax Consequences of Social Media Influencing 

Though there wasn’t a tax issue mentioned, a television court show presented facts that caused me to wonder about what actually is happening for tax purposes in the sort of transaction at play in the case. Yes, I’ve written about television court shows many times, 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, A Taxing WhatAboutIsm Attempt, When Establishing A Business Relationship, Be Consistent, as the Alternative Can Be Unpleasant Litigation, Sadness on Multiple Levels: Financial Literacy, Factual Understanding, Legal Comprehension, and When a Tax PIN is Used Without Permission.

This time I’m watching America’s Court with Judge Ross, a repeat episode from 2020 but the program doesn’t give me the episode number. The case is a breach of contract claim by a hotel against a social media influencer. The defendant, who bills herself as a social media influencer, approached the hotel and proposed that she be allowed to stay free for several night in exchange for her posting favorable commentary on social media. Because of questionable behavior by a member of hotel management, the defendant did not publish the second and third promised commentary. The hotel sued, seeking payment for the value of the hotel stay. The judge held in favor of the defendant because of the inappropriate behavior of the hotel employee. So the defendant ended up with the value of a hotel stay without paying for it, in exchange for one social media posting. Of course, my brain asked me, “What are the tax consequences?”

At the theoretical level, there’s no question that the value of whatever an influencer receives in exchange for a contractual obligation to publish favorable commentary is included in gross income. Social media influencers, who operate on their own, are independent contractors and are taxed as such.

At the practical level, depending on the value of what is provided, the person or entity providing cash, property, or services in exchange for the favorable commentary may or may not issue a Form 1099. The influencer is responsible to track the amount that is received even if no Form 1099 is received. As a practical matter, influencers probably find it easier to keep track of cash, checks, and digital payments, while overlooking the value of goods and services.

Another practical problem is liquidity. It’s one thing to receive cash or its equivalent and set aside a portion to pay taxes. When a substantial portion of the influencer’s receipts consist of goods and services, the influencer may face the need to sell some or all of the goods, apart from those that cannot be sold (for example, cosmetics), in order to raise cash to pay taxes. However, that’s more easily said than done, and even if a sale can be made the sale price might end up being less than what the influencer bargained for when entering the contracts with the providers of the goods. It is possible that savvy influencers who are paid with goods and services would request a supplemental amount of cash to fund the resulting tax liability, but providers might resist because it is much easier to provide an otherwise empty hotel room or excess inventory holding a sunk cost than to dip into cash accounts.

I suppose some readers might ask, “You’re just now realizing there are tax issues with social media influencing?” My response is, “Yes, because I don’t pay attention to that side of the digital world. I’m not into advertising and marketing, other than to be on the target end of incessant emails, phone calls, and postal mail. I’m not into the clout rage. I’m not a celebrity whose talent with one activity causes people to think I’m an expert on some unrelated service or product. I’m not a celebrity wannabe desiring to make efforts persuading people to use a particular service or purchase a particular product. I doubt the world has any interest in knowing what brand shoe I am wearing or cares about which automobile dealership I prefer to patronize. I suppose some might then ask, “Isn’t MauledAgain designed to influence? Haven’t you, as a teacher for many years, tried to influence students?” To those good questions, I point out that to the extent I try to influence people, it’s not to influence them to purchase or use particular goods and services, but to influence behavior. For me, that matters much more.

Saturday, December 03, 2022

When It Comes to Fraudulent Tax Returns, It's Not Always the Preparers 

When it comes to the filing of fraudulent tax returns, it’s often the preparer who initiates the scheme, in most instances leaving the client unaware of the malfeasance or brought into it on the assurances of the preparer, viewed by the client as more knowledgeable about taxes. More than once I’ve advised people to be careful when choosing a preparer. I’ve written about the woes of misbehaving tax return preparers in commentaries such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns, Overused Fraudulent Tax Return Preparation Ploys, It’s Not Just Law Enforcement That Confronts Misbehaving Tax Return Preparers, When An Injunction Doesn’t Stop a Tax Return Preparer from Filing False Returns, and Filing a Fraudulent Tax Return Is Bad, Filing More Than 3,000 Is Outrageously Bad.

But it’s not always the preparer who is at fault. Not long ago, according to this Department of Justice press release, a jury convicted a Michigan attorney of filing five fraudulent tax returns. Were his tax return preparers at fault? Apparently not. According to the press release, the attorney, who also owned a real estate company and two medical-related companies, concealed income “from his tax preparers and the IRS” by depositing receipts into his lawyer’s trust accounts. These accounts, known as IOLTA, are used by lawyers to hold funds that belong to clients, are not to be used for any other funds, and are subject to strict regulation designed to protect clients.

The attorney was convicted of filing fraudulent individual returns for 2012, 2015, and 2018, for filing a fraudulent amended individual return for 2012, and for filing a fraudulent corporate return for one of the medical-related companies for 2015. The jury relied on evidence that the attorney did not report roughly $600,000 of income earned in 2012, $800,000 of income in 2015, $300,00 of income in 2018. Altogether the attorney failed to report more than $2,600,000 in income. Sentencing awaits.

I’m not sure if the three-year pattern of 2012, 2015, 2018 was by design or happenstance. Perhaps the usual three-year statute of limitations that apples in non-fraud situation was some sort of factor in the attorney’s thinking.

What should a preparer do when handling a client’s tax return? It is possible, as this case demonstrates, for a client to succeed in hiding information from a preparer. Preparers need to ask questions, and document the answers. Perhaps this attorney’s preparers did that. Imagine them asking, “And did you receive any other receipts or income?” and getting “No” as a response. Unless there are clues that raise suspicions, such as expenditures far exceeding receipts and income, preparers cannot search and seize the client’s records that the client doesn’t provide to the preparers. Of course, if the preparers are suspicious and are dealing with an uncooperative client, they can terminate the relationship.

Sadly, the conviction of this attorney leaves the clients in a bad spot. The challenges faced by the clients and the options for them to have their cases handled are mapped out in an article by an unrelated attorney whose firm handles the same sort of personal injury cases as did the convicted attorney. Though I leave the “how to switch attorneys” issue to commentaries by those who specialize in the impact of professional responsibility rules on personal injury cases, I did learn from the article that the convicted attorney used for marketing purposes a telephone number converted to the slogan “855-Car-Hit-U.” Clever, in contrast to the foolishness of plowing receipts and income into IOLTA accounts prohibited from receiving them.

I wonder who has the phone number “855-IRS-Hit-U” and, no, I did not and will not “dial” it. (I put “dial” in quotation marks because as its use as a verb in connection with telephone calls is fading away and has become one of those benchmarks used to guess a person’s age!)

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