Wednesday, February 28, 2018
In Kirkpatrick, the taxpayer and his wife divorced. One of the paragraphs in the consent order entered on September 24, 2012, provided, “ORDERED, that the [taxpayer] shall transfer to [his wife] the sum of One Hundred Thousand Dollars ($100,000.00) directly (and in a non-taxable transaction) into an IRA appropriately titled in [his wife’s] name within fourteen (14) days of the entry of this Order and that the funds will not be withdraw [sic] until 2013.” The taxpayer and his wife were separated during the entire year in question, and their divorce became final on June 30, 2014.
The taxpayer did not transfer any money into an IRA titled in his wife’s name at any time after the consent order was entered or before the divorce was finalized. The taxpayer made payments directly to his wife throughout 2013. At that time the taxpayer was over 59-1/2 years of age, and paid the money he was ordered to pay to his wife through a series of checks. To make these payments, he withdrew funds from two of his IRAs held at JPMorgan Chase, and transferred that money to his JPMorgan Chase checking account, from which he wrote checks to his wife.
The taxpayer received two Forms 1099-R from JPMorgan Chase for the 2013 taxable year. One showed gross distributions of $116,489.39 from the first account. The other showed gross distributions of $294,665.64 from the second account. Each had a box checked to indicate that the taxable amount was not determined. Petitioner and his wife filed a joint federal income tax return for 2013, on which they reported total IRA distributions of $411,155, with only $116,489 of that amount claimed to be taxable.
The IRS determined, among other things, that the taxpayer had taxable retirement income of $294,665 from JPMorgan Chase. The taxpayer conceded all of that amount but for $140,000, which had been reported as nontaxable on the joint return.
Generally, distributions from an IRA must be included in gross income. An exception exists for transfers incident to divorce. Section 408(d)(6) provides, “The transfer of an individual’s interest in an [IRA] to his spouse or former spouse under a divorce or separation instrument described in [section 71(b)(2)(A)] is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an [IRA] of such spouse, and not of such individual.”
The taxpayer made three arguments in support of his position that the IRA withdrawals fell within the exception. First, he argued that the consent order is a written instrument incident to a divorce within the meaning of section 71(b)(2)(A). Second, he argued that nothing in section 408 or its regulations offers any specific guidance on the timing of a transfer for it to qualify under the section 408(d)(6) exception, and thus it is logical to assume that any transfer is nontaxable so long as it occurs in a timeframe beginning with the issuance of a written instrument, such as the consent order, and through a judgment of absolute divorce, as happened in this instance. Third, the taxpayer argued that the fact the funds passed through his checking account on the way from him to his spouse’s IRA should have no bearing on the taxability of the exchange because the funds were moved within the allowable time limit for this type of transaction.
The IRS also made three arguments in support of its position that the IRA withdrawals were taxable. First, it argued that the taxpayer did not transfer an interest in his IRAs to his wife, because no IRA was opened in her name, nor were any funds transferred from the taxpayer’s IRAs to an IRA owned by his wife. Second, though conceding that the consent order was a written instrument incident to a divorce, the IRS argued that the taxpayer did not comply with its terms because he did not make the required transfer within 14 days, and thus any transfer that was made was not made pursuant to the order. Third, the IRS argued that any argument by the taxpayer that state divorce law should be determinative as to the IRA distributions’ taxability is erroneous, because state-specific requirements for obtaining a divorce do not preempt or override the Internal Revenue Code.
The taxpayer rebutted the IRS arguments, claiming that there was a transfer of his interest in his IRAs, that they were made under a divorce instrument, and that he complied with all of the conditions in the consent order. He explained that his wife failed to establish an IRA to receive the transferred funds, but that he is not responsible for that failure. He also claimed that state divorce law with respect to taxability from time to time conflict with the IRS position and that to ignore the state court position would put him in contempt of court.
The Tax Court first disposed of $40,000 of the amount in dispute, noting that it had nothing to do with the ordered transfer of an IRA interest. Instead, it related to another paragraph in the consent order requiring the taxpayer to pay attorney fees and litigation costs. The IRA withdrawals made for that purpose would not fall within the exception, and because the taxpayer did not address this amount, the Tax Court considered the taxpayer to have conceded this amount, leaving in dispute the $100,000 IRA transfer.
The Tax Court next disposed of the taxpayer’s argument that the conflict between the state court’s reference to “nontaxable manner” and the IRS position. It pointed out that if a conflict existed, the Supremacy Clause of the U.S. Constitution would resolve the matter in favor of the IRS position. It also pointed out that there was no conflict, because the state court was not holding that any transfer would be nontaxable but that the taxpayer was required to make the transfer in a manner that would cause it to be nontaxable under federal income tax law, something that the taxpayer failed to do.
The Tax Court turned to the applicability of the section 408(d)(6) exception. Relying on prior cases, it explained that there are only two ways to fall within the exception. One is to change the name on the IRA account. The other is to have the trustee of the taxpayer’s IRA transfer funds to the trustee of the wife’s IRA. The taxpayer did not do either of these things. Instead, the taxpayer did what the Tax Court had previously concluded did not fall within the exception, namely, he took a distribution from his IRA and then transferred that cash to his wife.
The Tax court noted that, “Ultimately, [the taxpayer’s] argument rests on the idea that the alleged substance of what occurred should govern and not its strict form.” The court declined to do so, even if the money had been placed by the taxpayer’s wife in an IRA, something that had not been proven, because, as the Court of Appeals to which the case is appealable stated, “’Form’ is ‘substance’ when it comes to law. The words of law (its form) determine content (its substance).” Though that notion has been honored in the breach in some instances, in this case the Tax Court pointed out that section 408(d)(6) refers to an “interest in an individual retirement account” and not “assets from an individual retirement account” or “interest in or assets from an individual retirement account.” The Tax Court summed it up in two words: “Form matters.” And thus the $100,000 must be included in the taxpayer’s gross income.
The taxpayer’s failure to cause his actions to mesh with the required form cost the taxpayer tens of thousands of dollars. It is not difficult to ask the trustee of an IRA to transfer a particular amount of money or other assets into an IRA established in the name of the transferee. In some ways, it would be easier to do that than to ask for the distribution, and then write and deliver one or more checks.
People who insist that proper form be followed often are tagged as picky, demanding, obsessive, or worse. Yet, in so many fields, form matters. Proper form matters in sports, in music, in grammar, in posture, in etiquette, and in many other situations. Form matters.
Monday, February 26, 2018
The worst way to use the tax law to encourage behavior is to hand out tax breaks without requiring anything in return other than promises. Promises too often are made to be broken. This is why the legislation enacted in December is proving to be a long-term failure. It came with promises of increased pay and increased production, but it did nothing to require those things. So a few bonus crumbs of several hundred dollars were handed to a small fraction of the work force, an even smaller group picked up a $1,000 bonus, and tens of thousands of individuals lost their jobs.
A good example of why strings-free tax cuts is a bad approach to stimulating the economy is provided by another in the ever-growing list of large corporations that, having been the beneficiaries of huge tax reductions, do the opposite of stimulating the economy. As reported in many stories, including this one, Pfizer has announced that it is terminating its research into cures or treatments for Alzheimer’s and Parkinson’s disease. It also is terminating the jobs of 300 workers. Surely if someone said, “Gee, we expected you would use that huge tax cut, amounting to at least $5,000,000,000, to increase research and hire people,” the response would be either, “We promised no such thing,” or “What we’re doing is better for everyone than expanding research and hiring people,” the translation being, “What we’re doing is better for our highly compensated executives and our shareholders.” The key to that translation is Pfizer’s planned $10 billion share buyback. Do the decision makers in the Congress and at these corporations not understand that the key to increased sales in the future is a consumer class with money to spend, something that doesn’t happen when inflation outpaces raises, when one-time bonus payments fail to reappear, when workers are laid off, and when income and wealth inequality grow rather than diminish?
Of course, this is not earth-shaking news. In 2004, a similar tax break, permitting companies to repatriate foreign earnings without the otherwise applicable tax consequences generated layoffs, share buybacks, and increases in the compensation of the executives. The beneficiaries of this tax break had promised to hire more employees and increase business investment. It’s just so easy to make a promise when there are no adverse consequences to breaking it. The corporations can break their promises and their tax cuts are not rescinded. The Congress breaks its promises and Americans let it get away with its failures, time and again.
Though I dislike using the tax law to encourage behavior, Congress should at least have the good sense to tie the tax break to the promised hiring, the promised research, the promised price cuts, the promised pay raises, and everything else the tax cut advocates dished out during their slick marketing campaign. But, I suppose, after enough workers are fired, after enough people realize they are worse off than they were two years ago, let alone ten years ago, perhaps Americans will shut the door on these tax cut sales pitches and demand accountability, including accountability in the form of tax cuts tied to performance rather than to promises.
Friday, February 23, 2018
What seems to be driving the approval is a combination of personal experience by a handful of taxpayers, and expectations by many others that the bonus payments others are receiving will come their way. In both instances, time will tell. Many of those who see decreased federal withholding in their paychecks will be surprised to discover in early 2019 that their refunds are smaller and, in some instances, taxes will be due. Most of those expecting their employers to announce a bonus will find their dreams turned into nightmares. And speaking of nightmares, imagine the delight of workers in Louisiana, who are discovering what I described in State Tax Increases Cut the Tax Cuts. According to this story, these folks will see their paychecks go down because of increased state tax withholding. This will also happen in other states, but it will take longer. And, of course, looming on the horizon are those Medicare, Medicaid, and Social Security cuts that are planned by the tax cut advocates to offset the revenue losses generated by those tax cuts.
Tax cut advocates know that this tax cut euphoria is short-term. It is designed to last until after the November 2018 elections. Then, when people start seeing the reality, they will need to wait another two years to send a message. And by then, another ruse of some sort will have been concocted and sold to a continually unsuspecting public. One doesn’t need to fool all of the people all of the time. One just needs to fool some of the people some of the time. How long will it take before fooling more than a few people becomes impossible because people have insisted on, and obtained, sufficient education to wipe out the ignorance?
Wednesday, February 21, 2018
Is this any way to run a country? Of course not. But the Congress isn’t known for its ability to run a country, let alone run it efficiently and effectively. Do the members of Congress and members of their staff understand that changing the rules after the game has been played is foolish, dangerous, and thoroughly inappropriate? Do any of them understand how the tax return filing process works? Do they understand that in order to prepare and file tax returns in February, March, and early April, preparations must begin in the previous fall and be finished by the middle of January? Do they understand how much time and money must be expended by ordinary citizens and the IRS to accommodate this poor planning by the Congress? The operating rule should be simple. If you want something to apply to a particular taxable year, enact legislation by October 1. Otherwise, it’s too late. That sort of rule, however, apparently doesn’t apply to the privileged few who are accustomed to having everyone else bow and scrape to appease their royal highnesses.
Understandably, Americans are fed up with how the federal government, especially the Congress, operates. So they claim to vote for “change,” but all that has been accomplished is “more of the same.” When people are poised to complain about something that the federal government has done, is doing, or is about to do, perhaps they ought to ask themselves if the candidates for whom they voted are responsible for the mess. If the answer is yes, then the person ready to complain should remember that they have contributed to the problem and enabled the chaos.
Monday, February 19, 2018
It didn't take very long, as I completed my J.D. education and entered practice, to discover that BNA Tax Management portfolios were the best and most-used tax references available, though calling them references is insufficient. They offered, and still offer, detailed commentary, explanations, examples, hints, and other analyses that have, for decades, helped tax practitioners provide advice and guidance to their clients. Over the decades, the scope of the portfolio series grew. An idea that started when Leonard realized the tax practice world needed help with the newly enacted Internal Revenue Code of 1954 blossomed into multiple sets of treatises, books, and digital materials that blanketed global tax issues and accounting practice. What he created and shepherded through the years made a huge difference in the lives not only of tax practitioners aware of the portfolios but also of client taxpayers who may or may not have known that those portfolios had provided value to their planning and their litigation issues.
As part of the process of being accepted as an author, I spoke with Leonard, who, in effect, interviewed me. It went well, I wrote the portfolio, and then I was asked to write another, and another, and another, until eventually I had written seventeen. Writing those portfolios, chapters in the Tax Practice Series, and other writing projects kept me in contact with Leonard for almost 35 years.
From time to time Leonard would call me, or invite me to a meeting, where he would pick my brain. One of the many things that impressed me was his deep interest in technology. Born into a generation often unfairly stereotyped as technology adverse, he would read a story about a technological development and immediately ask how it could be used to improve the tax practice world, specifically, how it could make Portfolios and other products and services more useful to subscribers. When a two-person venture of which I was one member suggested ways to move the Portfolios into cyberspace and add features that technology could provide, Leonard jumped at the ideas. He was ever supportive, even though for other reasons it took more than a few years for the transition to occur. Without his support and enthusiasm, perhaps it would not have happened or happened quickly enough for the market.
The first time I entered Leonard’s office, I noticed the photographs. These photographs told me how respected he was in the world of taxation. The photographs were of Leonard with each of the nation’s Presidents from the time he entered practice until the last time I was in his office, about six years ago. It dawned on me that not much happened in the tax world without Leonard being involved, and that nothing happened in the tax world of which Leonard was unaware.
He and I had other conversations that extended beyond taxation. He loved to ask me about my teaching, about my students, how they were learning, what sorts of things I did in the classroom, and whether I was getting students to focus on the sorts of issues and thought processes he considered important to the development and education of the next group to enter the tax practice world. From time to time, we talked about life. His life extended far beyond taxation, as is apparent from his obituary.
I will miss Leonard. He clearly has had a significant impact on my professional experience. I learned from him. Through him I saw, and still see, the world of tax and the atmosphere of the nation’s capital in ways that are very different from how most people see them and from how I would have seen them. He helped me become a better tax person.
The world, and the tax practice world, needs more people like Leonard Silverstein. It is difficult to open or look at a Portfolio without his face and his voice popping into my head. I hope it is that way for everyone else who makes use of a Bloomberg Tax product or service. Without Leonard Silverstein, it would not exist. He made a difference.
Friday, February 16, 2018
Now there is reason to think that opponents of increasing the national debt had good reason not to worry about the inconsistency between voting for the legislation and increasing the national debt. The answer is in the budget proposed by the Administration, which might come as a shock to some people once they look at it closely, but perhaps was expected all along by the advocates of tax cuts for the wealthy. The proposal is to slash $1.5 trillion from Medicare, Medicaid, food stamps, and other programs that assist, wait, the poor and the middle class.
Though this stupidity might seem quite clever in the short term to those who are engineering what has been happening, in the long run it is counterproductive even to the interests of the oligarchs and others who support supply-side economics, trickle-down theory, and other outdated, disproven, and foolish approaches to governance.
Once the two percent of Americans who received those overhyped $200 and $300 bonus payments realize that that income falls far short of making up for the loss of all the programs being reduced or eliminated, will it be too late for them also to realize that voting for candidates based on their words rather than on their actions is just as foolish as the decisions being made by the candidates who prevailed?
Wednesday, February 14, 2018
One idea that has gained traction, most recently in New Jersey according to this story is to replace the state and local taxes, or at least some portion of them, with payments to charitable funds. Why do this? Though the federal tax law has for decades imposed limitations on charitable contribution deductions, those limitations are so generous that they would prevent the deduction only in the most unusual of circumstances.
Advocates of this approach admit that they are unsure if the idea will work. The governor, who is pushing for the plan, “can’t guarantee . . . success.” But he, and others, see little harm in trying. Most agree that the state would need to enact legislation to implement the plan.
Perhaps my conclusion will break their hearts. The plan won’t work. Here’s why.
To be deductible as a charitable contribution, a payment must satisfy several requirements. One of those requirements is that the payment be voluntary. Another is that the payment not be a quid pro quo.
If New Jersey enacts legislation that reduces some portion of state and local taxes and replaces that payment obligation with a requirement that taxpayers make payments to a charitable fund, then there is no charitable contribution deduction because the payment is not voluntary. If the payment is made voluntary, state and local revenues will decrease because surely there will be many taxpayers who choose not to make a voluntary payment.
If New Jersey enacts legislation that reduces some portion of state and local taxes and replaces that payment obligation with a requirement that taxpayers make payments to a charitable fund, then there is no charitable contribution deduction because the payment is a quid pro quo. First, the payment can be viewed as a transfer of money in exchange for lower tax bills. Second, the payment can be viewed as a transfer of money in exchange for state and local government services.
One supporter of the plan pointed to tax credits offered in other states for charitable contributions. The flaw in that comparison is that those credits are provided by the state legislatures as reductions in state and local taxes, not as attempts to recharacterize state and local taxes as charitable contributions for purposes of the federal income tax.
I’m not alone in concluding that this attempt to cloak state and local taxes in the garb of charitable contributions will not work. As Jared Walczak of the Tax Foundation, put it, “IRS and Treasury officials weren't born yesterday. They will see right through these proposals, recognizing the contributions for what they are: payment of taxes."
Monday, February 12, 2018
Now comes more bad news. Verizon has announced that “Tax-reform legislation will have a positive impact to cash flow from operations in 2018 of approximately $3.5 billion to $4 billion." What does it plan to do with this money? It plans to spend between $17.0 billion and $17.8 billion for capital expenditures in 2018, compared to the $17.2 billion it spent in 2017. In other words, Verizon’s tax cut money isn’t going to other businesses. Verizon announced it will give stock shares to its employees. Its 155,000 employees will share $400 million in stock, which amounts to less than $2,600 per employee. Crumbs. Surely the employees would prefer cash. So where is that tax cut money going? It’s going to “be used primarily to strengthen Verizon’s balance sheet.” In other words, it’s going to the owners. Though there are shareholders among those in the consumer class, keep in mind that the richest ten percent of Americans own 84 percent of the stock market. So when someone claims that tax cuts are good for stock ownership, the translation is that it’s very good for the richest ten percent, and lets a few more crumbs fall down to the other 90 percent. That’s not good long-term planning for the economy or the nation.
Friday, February 09, 2018
The geese don’t care whether the owner of the property they are polluting is rich or poor. One would assume that a wealthy individual, unlike most people whose income barely covers existing bills, or falls short, can pay some experts to show up and deal with the problem. But for a New Jersey billionaire, according to this article, the solution is to refuse to pay his real property taxes. This fellow claims that he has tried all sorts of devices to keep the geese off his property, and that they have not worked. It is unclear whether he himself has been out stringing up fishing line, installing decoys, and spraying liquids, or whether he has paid someone to do this. Surely he has the resources to pay someone, and surely if they fail to delivery he can refuse to pay the bill.
Why is this billionaire refusing to pay his property taxes because geese are fouling his property? He argues that the geese problem is reducing the value of his property. That probably is true, and he has the option of seeking a revaluation, and surely a revaluation will not reduce his taxes to zero. Instead, he claims that the town has an obligation to solve the problem. The town’s position is that it’s a private property problem. Apparently this billionaire thinks that his taxes are paid for the purpose of financing geese removal and that failure of the town to live up to its end of the contract he unilaterally wants to impose on it justifies his nonpayment of the real estate taxes. Interestingly, the taxes he currently is refusing to pay are school taxes. The logic behind refusing to pay for school funding because the town is not solving a private property owner’s problem escapes me.
The geese appear to provide a convenient pretext for this billionaire. He plans to file class action litigation on behalf of property owners who think their taxes are too high. His claims that the property tax valuation process needs repair are not without merit, but surely there are other ways to contribute to the betterment of the public good. Why not establish a foundation to fund the training and expertise that he explains tax assessors need, and to provide management improvements so that the assessors make better use of their time that he claims is necessary. For a billionaire who supports education and health care, as this guy does, it’s a no-brainer to put some money to work finding ways to fix the geese problem. He might even make money if he comes up with a solution.
There’s an inconsistency in adding to the list of things someone wants a government to do while at the same time trying to reduce the revenue available to that government. Money that could be used to deal with the geese problem will be diverted to pay the legal fees of defending the litigation that has been promised. Perhaps money can buy principle, as he claims is the case, but it appears that money cannot buy common sense.
Wednesday, February 07, 2018
Perhaps that is why Paul Ryan, according to numerous stories, including this one, decided to issue a tweet sharng the news that a public high school secretary was “pleasantly surprised her pay went up $1.50 a week.” Technically, her gross pay is unchanged. Her take-home pay was reduced because the employer withheld $1.50 less in federal income taxes.
What the secretary didn’t mention, probably because, like most Americans, she is unaware of the issue, is whether the withholding decrease is too much. If it is, she will end up with a smaller refund in the early months of 2019 or, worse, find herself writing a check or making an electronic funds transfer to the U.S. Treasury. Why? There has been too little time for the IRS to issue revised withholding tables that are sufficiently accurate. Taxpayers should run pro forma analyses to determine if their withholding has decreased by too much, but very few people do that sort of computation. Instead, they rely on the IRS and employers to “do the right thing.” Though usually well-intentioned, the IRS and employers don’t always get it right.
Perhaps the secretary was pleasantly surprised because she’s one of those people who don’t pay attention to news, tunes out of political discussions, and perhaps is among the half of eligible voters who didn’t bother to go to the polls in November of 2016. Would she be pleasantly or unpleasantly surprised to learn that while she banks an additional $1.50 per week, the Koch Brothers stand to gain $1,400,000,000 and tossed $500,000 into Paul Ryan’s pockets as a thank-you gift?
Shortly after posting the tweet, Ryan deleted it. The California’s Lieutenant Governor’s reaction was not unlike mine and that of many others: “Guess someone told Paul Ryan you shouldn't go around praising yourself for giving a working person an extra $1.50 a week.” It is just amazing to me how oligarchs and their puppets think they deserve high praise, obedience, and votes because they hand tax cut crumbs to ordinary Americans. I suppose they take this approach because they can, and because enough Americans buy into their propaganda. At some point, will enough Americans wake up? Or will it take the next great crash to motivate people to learn something about long-term economic and tax policy?
Monday, February 05, 2018
Now comes news that Home Depot is emulating Walmart. Only those employees with 20 years of service will receive a $1,000 bonus. How many Home Depot employees have been with that company for 20 or more years. Surely nowhere near 100 percent, 50 percent, 25 percent, or even 10 percent. Employees with two to four years of service will receive $250. Those with fewer than two years of service will receive $200. What’s the average? Somewhere between $200 and $1,000, but surely closer to $200 because there are so few long-tenured employees. Even using $500 as the average, the bonus payments will cost Home Depot $190,000,000 before taking into account the tax savings from the tax deduction for the bonus payments. Shortly before the tax legislation was signed, but as it was making its final journey through Congress, Home Depot announced a $15,000,000,000 share buyback program for its shareholders. Count the zeroes in each number.
Those bonus payments amount to pennies per hour. But it’s not a raise. There’s no promise of a bonus payment in 2019. Employees receiving a bonus cannot commit to higher long-term expense commitments. They will not be able to commit to higher monthly mortgage payments, higher monthly rents, higher monthly car payments, or much of anything.
Though those who pushed the unwise tax legislation through Congress claim that it will toss thousands of dollars into each household, no one should expect such a result, as I explained in Another Word for Fake Tax Math. According to a Reuters/Ipso poll released about a week ago, only two percent of American adults responded that they are getting a raise or bonus as a result of the tax legislation. For almost everyone, their economic challenges continue.
All of this propaganda is working, at least on some Americans. According to a Monmouth University poll the percentage of Americans who approve of the tax legislation increased from 26 percent to 44 percent, while those disapproving of it fell from 47 percent to 44 percent. I wonder how many of those people who changed their minds, even though the legislation wasn’t changed, suddenly figured that they, too, would be getting a raise or bonus. By the time people realize that their economic condition hasn’t improved or hasn’t improved by much more than a crumb, will it be too late for them to undo the votes that they will come to regret? That happens, as is evident from the number of people finally waking up to Michael Bloomberg’s warning that they failed to heed. In the meantime, the cash flowing into the hands of oligarchs and large corporations will contribute to inflationary pressure, making economic conditions even more difficult for ordinary people, even those dancing with joy because they received a $300 bonus on which they must pay taxes. It’s just too bad that so many Americans are incapable or unwilling to learn economics, analyze economic trends, understand long-term impacts, avoid being blinded by temporary economic distractions, and evaluate politicians on the basis of performance and not cheap talk. While they are so excited about what amounts to pretty much nothing, their future economic chances are being undercut. This is not going to end well, except for the rich and powerful.
Friday, February 02, 2018
My attitude about advertising and marketing does not mesh with the views held by most people in those industries. To me, advertising and marketing are necessary when a product or service is new, so that what’s being sold can be brought to the attention of the public. It also is necessary if new information needs to be shared, such as the reduction of a price or a change in a product or service in response to competition or customer suggestions and concerns. What is not necessary is advertising to hype a successful product. Almost all, if not all, of the hottest selling products and services have benefitted from word of mouth, or, in the digital age, by “going viral.”
If the Republican tax act is so wonderful, people will realize that without someone needing to beg them to think that it is so. When people open their weekly paychecks and discover another $100,000, oh, wait, my mistake, discover another $8, will they dance in the streets and tell their friends how wonderful the Republican tax plan has made their lives? When they receive the layoff notice, will they sing praises to the architects and devotees of trickle-down-not? When they read in the paper or learn online that the store where they are employed is closing, will they write thank-you notes to the Congress that is within the grasp of the Koch brothers and other oligarchs? When they are starving and are permitted to eat the crumbs that fall from the table, will they bow in abject gratitude to those who have made their lives miserable? Will $20 million of “advertising” change their minds and convince them that being treated badly is a wonderful experience?
Let’s face it. Last time around, people figured out pretty quickly what went wrong with cutting taxes while increasing spending. So this time, the purveyors of supply-side economic theory are emulating the child who tells the parent when the parent walks in the door, “I didn’t break the cookie jar.” Hopefully the planned propaganda campaign will be just as effective as a preemptive strike.
Wednesday, January 31, 2018
The taxpayer and his wife separated in December 2007. Their community property assets were liquidated subject to a stipulation order in December 2007. The taxpayer prepared and signed a federal income tax return for 2007, reporting a filing status of married filing jointly and a tax liability of $46,073. On April 15, 2008, the taxpayer left the joint return and a check for $46,073 “under the mat at the front door” of his wife’s residence for her to sign and mail to the IRS. No evidence was presented showing that the return was mailed or that the check was negotiated. The taxpayer did not request an extension of time to file the joint return, but he asked his wife to request an extension. Neither the request for an extension of time nor the joint return was filed with the IRS.
The IRS prepared a substitute for return for 2007. Based on the substitute for return, the IRS issued a notice of deficiency to the taxpayer, determining a deficiency and additions to tax for 2007. During the course of the examination and after the notice of deficiency was issued, the taxpayer submitted a 2007 federal income tax return, reporting a filing status of married filing separately, and tendered a payment of $43,490 with the separate return. The IRS accepted the payment, and it was the basis for the recalculation of the additions to tax for which the IRS determined that the taxpayer was liable.
Because the IRS and the taxpayer had resolved the issue of tax liability, the Tax Court was left with deciding whether the additions to tax determined by the IRS should be upheld. The taxpayer’s attempt to avoid the addition to tax for failure to file a timely return, based on his having left the joint return with his wife along with a check and his history of filing tax returns in a timely manner, did not convince the court. The court noted that prior cases had established that a taxpayer cannot rely on an agent to file a timely tax return, and that failure to obtain a spouse’s signature on a joint return when the couple is separated does not per se constitute reasonable cause for failing to file the return in a timely manner.
The taxpayer escaped the addition to tax for failure to pay tax shown on the return because the IRS did not place into the record the necessary forms to meet its burden of production. Another failure by the IRS to meet its burden of production spared the taxpayer the addition to tax for failure to pay estimated tax.
There are safe and prudent ways to obtain a spouse’s signature on a joint return. Though the fact that a couple is separated can make the process more challenging, it is inappropriately risky to leave a tax return and a check under a doormat. The list of things that could happen to the return and the check is long, and I’ll let readers imagine the possibilities. For starters, consider various wild and domestic animals and weather. In fact, it’s quite possible that the taxpayer’s wife never found the return and check. The better course of action would be to arrange a meeting. Even handing the return and check to the other spouse poses risks, because the other spouse can forget to sign and mail the return. Though it is tempting to think that couples who are not separated don’t face challenges, think of what might happen if the return and check are left on the kitchen counter. This time, for starters, consider domestic animals and children.
Monday, January 29, 2018
We’ve been told that handing $1.5 trillion in tax breaks mostly to big corporations and the wealthy nonetheless is a good thing because they will create jobs. But what have they been doing? They have been handing out crumb-size bonus payments, cutting jobs, and shying away from raising wages, as I have described in Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, and Oh, Those Bonus Payments! Much Ado About Almost Nothing. Yes, here and there a corporation has raised wages a bit, but the overall picture isn’t one of money flooding into the hands of the middle-income and poverty-level households.
Now comes news, as reported by various sources, including this one, that another beneficiary of tax cuts is doing some cutting itself. Kimberly-Clark Corporation has announced it will layoff roughly 5,500 employees and close 10 of its plants. According to this report, that’s about 13 percent of its workforce. Though its revenue has decreased somewhat over the past five years, its earnings increased 1 percent in the last quarter of 2017, and its adjusted earnings per share rose 8.3 percent. Its total revenue in 2018 was $18.3 billion, an increase over 2017, and its operating profit was $3.3 billion. The company plans to increase its dividend by 3.1 percent. In addition, as this report reveals, the company anticipates a lower tax rate in 2018 than it faced in 2017. In other words, this is a company that isn’t hurting financially, and if it wanted to scale back, surely could let attrition, rather than job deprivation, be the pathway to implementing its plans.
This situation is more proof that cutting taxes for big corporations doesn’t save American jobs nor prevent the closing of American manufacturing plants. According to this report, Kimberly-Clark plans to use the tax cut to pay for the restructuring plan that includes the layoffs. In other words, it costs money to get rid of workers, and tax breaks are being used to finance layoffs.
I wonder how the roughly 5,500 workers who find themselves on the street with no job feel about the tax cut that will save them a few dollars. I wonder how they feel about the claim that cutting taxes for big corporations is a better approach than cutting taxes for the poor and middle class, especially considering that cutting taxes for big corporations and the wealthy hasn’t helped the poor and middle class when it’s happened in the past. I wonder how many of them, if any, has thought about supply-side economics and trickle-down theory, examined the history, or thought that when voting, they were voting in favor of that approach to managing the national economy. I wonder how many of them celebrated when the tax cut legislation was enacted, thinking it would be a good thing for them, only now to discover not only would it not lift them up economically, it is financing their trip to joblessness. I wonder if they went into work thinking they would be getting a bonus, and not the dreaded pink slip. I wonder if they realize that the people who claimed to have their back didn’t.
Friday, January 26, 2018
On closer examination, as demonstrated by WalletHub’s 2017’s Most & Least Federally Dependent States, it turns out that the four “red” states in Baldwin’s list – Alaska, Louisiana, Mississippi, and West Virginia – rank among the most federally dependent states, ranking 2, 5, 12, and 23. On the other hand, the four “blue” states on his list – California, Connecticut, Illinois, and New York – rank among the least federally dependent states, ranking 34, 42, 46, and 47. In other words, the “red” states can pull off their “come here, taxes are low, but services are high” campaigns because federal money pours into those states from “blue” states whose residents finance the low-tax ride that “red” state residents enjoy. This isn’t a new revelation. In The Colors of Making and Taking and More Tax Colors, I explored the disparity between the states that held to progressive tax and economic policies and those that held to regressive tax and economic policies.Several days ago, I was informed that WalletHub had released its 2018’s Most & Least Educated States in America. Curious, I looked to see where those eight states ranked. The four “red” states in Baldwin’s list – Alaska, Louisiana, Mississippi, and West Virginia – rank 25, 48, 50, and 49, respectively. The four “blue” states on his list – California, Connecticut, Illinois, and New York – rank
26, 3, 13 , and 12, respectively.
Is there a lesson to be learned here? Is this simply coincidental correlation? Or is it a matter of causation? Could it be that states with higher taxes provide higher quality education to its citizens? Could it be that using money for improving the minds and brains of Americans is more valuable than using money to acquire power and control over Americans? Does educational disparity have something to do with the ability to distinguish facts from fake news, truth from propaganda, and false promises from aspirations and hope? Does it have something to do with the ability to understand and analyze issues before reaching conclusions? Does educational disparity have something to do with the reason voters in “red” and “blue” states vote as they do?
For years I have complained about the “dumbing down” of America. Reducing analyses to a handful of characters and sound bites does nothing to assist the nation in holding its place in the international order. In the long run, education matters.