Dampening Tax Payment Unhappiness By Exploring All Options

In Pennsylvania, bills for the real property tax that supports schools are arriving. If social media posts are any indication, people are unhappy. They are unhappy because the tax has increased compared to last year. That happens every year. Some people also are unhappy because they do not want to pay for the education of someone else's children. Responses by others that public education is a societal benefit because it produces employees who have at least minimal skills and citizens who understand how civilizations prosper or fail are brushed aside. Most of the objections come from people who argue that they paid school taxes when their children were in school, paid those taxes for many years, and are now entitled to be free of these taxes because they have "paid enough."

Many of the people objecting to paying the taxes propose that no one over the age of 65 should be required to pay school taxes. Some go so far as to suggest that "freedom from taxes for anyone over 65" should apply to all taxes.

This is not the first time I have addressed the proposals to eliminate all taxes, or any taxes, for people over 65. Twenty-two years ago, in Killing the Geese, I explained:

The cry that real property taxes hurt the elderly is as misleading as the silliness the late Rep. Claude Pepper rode to fame. His mantra that "the elderly are poor" led to a shift in government outlay allocation that has left us with a nation in which poverty is rampant among children. The simple fact is that a person's age should no more be used as a measure of their economic status as should their hair color or lack thereof. And, of course, there are people who cannot be classified as "elderly" for whom real property tax increases are a serious burden, though most young poor don't have the opportunity to own real property.

Most of the people who post on social media complaints about the burden of paying real property school taxes don't share their economic situation. It's quite possible all of them are facing financial challenges and that individuals facing real property school taxes that are not a burden aren't posting complaints. But I doubt it. It's obvious from discussions about taxes during the past many decades, if not centuries, that most people do not like paying taxes and that includes not only the poor but also those who are comfortable financially and those who are wealthy, ultrawealthy, and megawealthy.

Stereotyping by age is wrong. It is wrong when dealing with taxes because it is wrong to assume that all people over the age of 65 lack the financial resources to pay taxes. It is wrong when dealing with the ability to drive a vehicle, because retesting should be done for everyone at some point rather than assuming all people in their 40s and 50s do not pose risks when driving vehicles. It is wrong when dealing with retirement, because some people over the age of 65 are more than adequate and often excellent at what they are doing, just as some people in their 30s, 40s, and 50s are no longer, if they ever were, capable of fulfilling their employment responsibilities.

A few years ago, Pennsylvania addressed the tax relief issue by enacting a real property tax rebate for property owners who have attained the age of 65 and have income of $48,110 or less. In computing income, only one-half of social security benefits are taken into account. The rebate ranges from $380 to $1,000, which doesn't make a big dent in most real property tax bills but it helps. Supplemental rebates ranging from $190 to $500 are available to people living in Philadelphia, Pittsburgh, or Scranton, and for people whose income is $32,070 or less and whose property taxes exceed 15 percent of their total income. The rebate program is available not only to people age 65 or over, but also to surviving spouses who have attained the age of 50 to people with disabilities who have attained the age of 18.

What surprised me, in reading social media posts and responses, is the number of people eligible for the rebate who were unaware that it exists. It is a sign of tax complexity that provisions helpful to taxpayers can go unnoticed. So if you are reading this and know someone who might qualify, please let them know.

Here's the twist. The rebate is claimed by filing a separate form, the PA-1000. It can be filed online or by mail. There are deadlines, usually December 31 of the year following the year in which the tax applied. Perhaps this is why the rebate is overlooked by people.

Here's a suggestion. Why not make the rebate part of the personal income tax form? Pennsylvania provides a tax forgiveness credit on the personal income tax form. The core requirement is that the person's eligibility income not exceed a specified amount, which varies by filing status and number of dependent children. Yes, it's complicated. But it's rarely overlooked because there is a line on the personal income tax form for the credit. Would it be difficult to add a credit line for the property tax rebate and making the PA-1000 an attachment just as the tax forgiveness credit form is an attachment? Yes, I know that the rebate is funded from lottery proceeds and the tax on slot machines but certainly existing technology makes it easy for the Department of Revenue to make the accounting entries and adjustments to deal with where funds are sourced and where they go.

How Not to Report Dividend Income for Income Tax Purposes

Internal Revenue Code sections 61(a)(7) and 301(c)(1) require dividends, as defined in section 316, to be included in gross income. Depending on a taxpayer's other income and deductions, dividends included in gross income increase the taxpayer's taxable income.

As described in a recent Department of Justice press release, failure to include dividends in gross income can have serious adverse consequences for the taxpayer.

According to the press release, the taxpayer owned 50 percent of a business that sold internet access to members of the Armed Forces and civilian contractors stationed on Kandahar Airfield in Afghanistan. The taxpayer also owned 50 percent of another business that sold internet access to members of the Armed Forces stationed at Guantanamo Bay in Cuba. In 2013, these two businesses began paying significant dividends to the taxpayer. What did the taxpayer do? The taxpayer stopped filing federal income tax returns. Three years later, the taxpayer filed a false affidavit with the U.S. Citizenship and Immigration Service, attaching unfiled copies of federal income tax returns and falsely attesting they were filed.

In 2019, the taxpayer received letters from the IRS on account of the unfiled returns. The taxpayer hired a tax attorney and tax return preparers and falsely told them that the dividends he had received between 2013 and 2018, amounting to more than $3.8 million, were nontaxable loans. He told the professionals he had retained that he did not know the other shareholders of the businesses, which was untrue. Relying on this false information, the tax professional prepared income tax returns that underreported income and tax liability. The taxpayer filed those returns. As a result, the taxpayer failed to report about $4,620,000 in come and underreported tax liability of roughly $1,570,000.

The taxpayer was indicted and pleaded guilty to one count of tax evasion. The taxpayer faces up to five years of imprisonment, supervised release, restitution, and monetary penalties.

Though tax law is complicated, some aspects are rather simple. Wages are gross income. Interest is gross income. Dividends are gross income. Though business arrangements can be complex, some transactions are simple. Dividends are a distribution of corporate income. They are not loans. They are not distributed to shareholders with an accompanying promise to repay after a set period of time while incurring interest obligations on the recipient.

The motivations for tax fraud can be both easy and difficult to understand. A person who is barely making ends meet and who received a small amount of additional gross income that generates additional tax liability that reduces the net amount received to something even smaller may be tempted to find a way to avoid those taxes because there are children to feed and rent to pay. But a person who receives millions of dollars of income but who chooses to commit fraud to avoid paying taxes is operating on a different level. Even after paying the taxes, that person puts millions into their bank and investment accounts. Yes, it is possible that the person receiving millions of dollars of income has millions of dollars of debt to repay, though almost always that debt arises from bad decision making and ought not become a burden imposed on taxpayers who are paying their tax liabilities.