Friday, May 08, 2020

A Tax That Won’t Accomplish Its Purpose 

Governments around the world are facing the challenge of persuading and compelling people to maintain physical distancing. Understandably, most people do not prefer to self-isolate or be in quarantine. Most people get tired of staying at home very quickly. Different governments take different approaches to achieving their physical distancing goals. Almost all use various sorts of announcements and publication of rules. Enforcement officials in some cases issue warnings. In other instances, tickets are issued and fines are imposed. In still other situations, arrests are made.

Government officials in Delhi, India, have come up with an interesting approach to dealing with the failure of people to comply with physical distancing. According to this story, these officials have enacted a tax of 70 percent on retail alcohol purchases. The stated goal is to “deter large gatherings at stores” while lockdown restrictions are gradually eased.

When I read the story, several questions popped into my head. Even if a tax on alcohol reduces the size of crowds at alcohol stores, how does it encourage those who are present to maintain physical distancing? Even if a tax on alcohol somehow encourages physical distancing at alcohol stores, how does it bring about physical distancing at grocery stores, hardware stores, clothing stores, shoe stores, and other retail outlets?

The answer, I think, to each of those questions is, “It doesn’t.” So if the question is, “Why enact that tax?” the answer is found in the fact that alcohol taxes are significant portion of the revenue stream for most of India’s states and territories. And, of course, like other governments around the world, they are facing severe revenue shortages.

This sort of tax is regressive. Its computation does not take into account the economic status of the alcohol purchaser. If the tax does deter some people from purchasing alcohol, it will be the poor and lower middle-class that don’t show up. The wealthy can afford to pay the tax, and they can order online or pay a poor person to stand in line.

There are other ways to encourage or enforce physical distancing at stores. Decades ago, when gasoline shortages generated long lines at service stations that spilled into roads and disrupted traffic, officials in some states put into place an even-odd license plate final digit system. This halved the number of vehicles waiting for gasoline on a particular day. Depending on the item being sold, purchasers can be separated on the basis of a variety of benchmarks, such as first letter of surname, first digit in home address, or some other similar characteristic.

One official commented that if physical distancing is violated, the government “will have to seal the area and revoke the relaxations there.” Though that makes sense, it does not make the tax in question sensible. Using taxes to encourage social behavior is, at best, only very marginally effective and then only in certain limited circumstances. That is especially the case when it seems the tax is intended to raise revenue rather than affect behavior though marketed as a means of controlling behavior.

Wednesday, May 06, 2020

Why Tax Law Is More of a Mess Than It Needs to Be 

Ever wonder why the federal income tax law is a mess? Ever wonder why it keeps getting changed? Ever wonder why it’s unclear. Here’s a good example.

One of the relief provisions enacted by Congress in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is the Paycheck Protection Program (“PPP”). As explained by the Small Business Administration (“SBA”), under the PPP loans are provided to small businesses to help them keep workers on the payroll. If a business keeps all of its employees on the payroll for at least eight weeks and uses the loan money for payroll, rent, mortgage interest, or utilities, the SBA will forgive the loan.

That brings us to the tax aspect of PPP. Under section 1106(i) of the CARES Act, if the loan is forgiven, the amount of the loan forgiveness is not included in gross income. This is an exception to the general rule that includes loan forgiveness in gross income.

In Notice 2020-32, the IRS explained that expenses paid with the proceeds of a forgiven PPP loan cannot be deducted. It based its conclusion on Internal Revenue Code section 265, and Regulations section 1.265-1, which provide that “no deduction shall be allowed for . . . any amount otherwise allowable as a deduction which is allocable to one or more classes of income other than interest . . . wholly exempt from the taxes imposed by this subtitle.” Citing several cases, the IRS explained that paying these expenses with the proceeds of a forgiven loan is equivalent to paying expenses and then being reimbursed. As any student of federal income tax law understands, a taxpayer who is reimbursed for paying an expense either includes the reimbursement in gross income offset by deducting the expense or excludes the reimbursement from gross income while not deducting the expense. Either way, the net effect on the taxpayer’s taxable income is zero. That makes sense because both in the case of reimbursement and in the case of the forgiven loan, the taxpayer is neither richer nor poorer, and thus taxable income is unaffected.

It didn’t take long for taxpayers and members of Congress to complain about the IRS Notice. Some tax advisors argue that because the CARES Act does not expressly deny the deductions, they ought to be allowed. Of course, if those tax advisors looked at the text of section 265 they would see that the answer to the question of whether the deductions should be allowed already is in the Internal Revenue Code. The answer is no.

One tax advisor, according to this report, claims that for taxpayers who are denied deductions means that “in effect they’re paying tax on this loan, which makes it worth less. Losing a deduction is the same as being taxed on something.” The lack of logic in this argument is appalling. Losing a deduction is not the same thing as being taxed on something if the something is, as is the case, excluded from gross income. Under this advisor’s argument, which apparently others share, the taxpayer should not only escape being taxed on the loan forgiveness but also should get a deduction that, in effect, has been paid by the Treasury (translation, other taxpayers) and not by the taxpayer. This advisor explains that “he believes PPP loan money wasn’t intended to be treated like normal tax-exempt income under the law.” We’ll get to that issue in a moment, but tax law should be based on reasoning and thinking, not believing and hoping.

Some members of Congress have chimed in. According to this article, Senate Finance Committee Chair Chuck Grassley argued, “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible. This notice is contrary to that intent.” My question to Grassley is simple. Where in the CARES Act is there an exception to section 265? If that is what you intended, why isn’t it in the legislation?

The writer of the article observes, “Still, there are good arguments for deductions too. There could be a dispute about what Congress really meant in the hastily passed CARES Act, and the push-back from some in Congress suggests that. Despite the IRS statement, some people have said they may try to deduct these expenses anyway and fight with the IRS about it if needed. And the tax law is sufficiently debatable that some of those taxpayers could win, too.” If such a case made it to court, would a judge ignore the language of section 265? Would a judge pretend that there is an exception in section 265 even though it isn’t there? Should the judge ignore the arguments of textualist Supreme Court justices, scholars, and others who argue that the applicable law is what is enacted and not what people think, or Congress says outside of legislation, what was meant? Will the opponents of “activist” judging stand up and cheer for a court’s rewriting of the statute?

As a practical matter, it would not be a surprise if Congress gets its act together and amends section 265. Whether that is a good idea in terms of tax policy is a different question. It’s not, but that’s not the answer that appeals to taxpayers who want to take deductions, and get tax savings, for expenses they are not paying. Imagine. Someone – in this case the Treasury (translation, other taxpayers) tell a business, “Hang in there, we will pay your expenses,” and the recipient of this assistance says, “Whoa! That’s not enough. Not only do I want you to pay my expenses, I also want you to give me an additional tax break computed as if I paid the expenses out of my own pocket.”

It's this sort of nonsense that make the tax law more complicated, and more unfair, than it needs to be. And the time and money expended in dealing with the dispute is another price that is paid for the Congress having failed to provide in legislation what it now claims it intended to provide.

Monday, May 04, 2020

Using a Revenue Agency to Collect a Fine Does Not Convert the Fine Into a Tax 

Reader Morris directed my attention to this story and asked, “Is this a case where a fine becomes a tax?” According to the story, the president of Belgium’s top law enforcement agency has explained that fines imposed on people who violate the nation’s confinement measures would be added to their tax receipt. The tax receipt is equivalent to a tax bill. The issue is a serious one, with more than 60,000 instances of violations having been reported by police.

My answer to reader Morris was a simple “No.” I explained that the authorities are simply using their tax agency’s collection mechanisms to compel payment of the fine. It’s not a new idea. Similar approaches to enforcing payment of various obligations have been in place in the United States for years. Under section 6402 of the Internal Revenue Code, a taxpayer’s tax refund can be diverted to payment of past-due federal taxes, unpaid state income taxes, certain state unemployment compensation repayments, child support obligations, spousal support obligations, and nontax federal debts such as student loans. When a taxpayer’s refund is diverted to state unemployment compensation repayments, child support obligations, spousal support obligations, or nontax federal debts such as student loans, it does not convert those items into taxes. For example, a taxpayer who is delinquent in paying child support, and whose refund is diverted to payment of child support, is credited with having paid child support, not a tax.

Why do government authorities use revenue agencies to collect obligations that are not taxes? For the same reason creditors garnish wages. Go where the money is. As much as politicians delight in criticizing, and even seeking to eliminate, revenue agencies, they are quick to make use of the convenience they offer to collect debts that are not taxes.

Friday, May 01, 2020

When One Tax Break Giveaway Isn’t Enough 

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

Now comes more news about the tax break grab described in Tax Breaks for Wealthy People Who Pretend to Be Poor. In that commentary, I described how David Tepper, who owns the Carolina Panthers, an NFL team that plays in Charlotte, North Carolina, asked for $120 million from South Carolina so he could build the team’s practice facility in that state. Using a typical wealth sports owner threat, he explained that without the money he would keep the practice facility in North Carolina. The facility would be 30 miles from the stadium in Charlotte and would be built just inside the South Carolina state line. Fortunately, there was opposition to the demand. Unfortunately, the opposition failed to stop the money grab by Tepper, who is worth roughly $10 billion.

Shortly after I published my objections to Tepper’s money grab, the state, as reported in various articles, including this report, approved $115 million in assistance to the apparently financially struggling Tepper. As bad as that was, it gets even worse. Having pulled taxpayer money from the state that surely could have been put to better use that benefits all South Carolinians, or that could have been reduced for a tax cut, Tepper went after the county in which the practice facility is built. As reported in this story, York County, South Carolina, by a 4-3 vote of its Council, approved a plan by which Tepper would not pay property taxes for at least 20 years, but would pay fees at a lower rate that would be plowed back into the facility site. Fees paid to the city of Rock Hill would be returned to Tepper’s organization, while the county would give back 65 percent and the school district would give back 75 percent of the fees. So instead of getting property taxes to be used to educate students, the school district would get a token amount of money so that the taxes that otherwise would have been paid by Tepper are used to build “public infrastructure” necessitated by the construction of the practice facility.

One of the Council members supporting the giveaway explained, ““We’re creating a foundation for tremendous growth.” Another Council proponents claimed that hotels, restaurants, and “other attractions” would be built near the practice facility, making the city and county a “destination” for visitors. Seriously, considering that NFL teams rarely open practice to visitors, how many people are going to flock to a facility that is closed most of the time? And if any hotel operator or amusement park owner actually decides it is a good idea to build in that area, guaranteed they, too, will come hand held out begging for tax breaks.

At the public meeting held by the Council, most speakers wanted at least a delay in approving the giveaway, and many wanted the land to be reassessed. In response, the president of a local tourist organization claimed, “The majority of the people don’t understand the concept of this development, and what this is going to bring to the area. With everything that Rock Hill and York County has now from a tourism and economic development status, they’ve never seen anything like this.” Well, perhaps they haven’t seen the consequences of these tax break giveaways to wealthy professional sports franchise owners, but people in many other places in the country have, and it hasn’t worked out well for them. It only works out well for the billionaire owners who struggle to survive on their meager incomes. It would not surprise me that people will be charged to watch practice on the handful of days practice is open to the public.

In Tax Breaks for Wealthy People Who Pretend to Be Poor, I wrote:
Tepper’s response is almost laughable. He explains, “It’s going to cost us a lot of money to go down to South Carolina. We’re going to have to put out real money to go down there. So it’s not like we get that money from South Carolina, and that’s it. There’s a lot of money in a facility that we have to invest.” What nonsense. Here is how businesses should work, and did work until wealthy individuals and business owners started playing the pretend-you-are-poor game. Analyze the proposal. If it makes sense to spend business assets on the proposal, that is, if it generates profits for the benefits, then do it. If it doesn’t, then don’t do it. If it doesn’t generate profits without taxpayer assistance, then it’s not worth doing. All over America, small business owners develop proposals, and forge ahead without taxpayer financing because they do not have the requisite wealth and power to “persuade” legislators to dish out public funds. Another tactic available to Tepper is to solicit funds from Panthers fans, giving them access to the practice facility in exchange for some sort of subscription or stock in his business. In that way, the cost falls on those who are interested in his team. Tepper claims that “most of the people in South Carolina want this.” Then give those people in South Carolina who want this the opportunity to contribute funds directly to Tepper. I doubt the money will roll in, because I think, or at least hope, that most South Carolinians aren’t in the habit of giving freebies to wealthy people who claim to be in need of money. There’s a word for people drowning in money who beg for more. It’s called addiction. It’s time for Americans to stop the enabling of this woeful malady that is at the root of so many of the nation’s problems. To borrow a phrase, just say no.
Once again, the politicians said “yes” to a plan that hurts many more people than it helps. Do these politicians realize that people will not flock to Rock Hill, South Carolina, to see a football practice the way they flock to Branson, Missouri, Orlando, Florida, or Las Vegas? It will take decades for the tax revenue generated by the smattering of fans who show up to offset the tax breaks being grabbed by Tepper.

The lesson is simple. If it can’t be built with private money, it ought not be built unless it is something that is essential for the survival of society and civilization. A team’s practice facility does not qualify, and ought not be financed with public money. That logic, however, is wasted when shared with money-addicted billionaires.

Wednesday, April 29, 2020

Tax and “Write-Offs” 

Reader Morris referred me to an entry on the Seinfeld Law blog. It describes one of the plot threads in the episode, “The Package.” The facts are simple. Jerry’s stereo malfunctions but because it is out of warranty the manufacturer will not replace it or pay for repairs. Kramer comes up with an idea. He breaks the stereo into pieces, puts them in a package, takes it to the post office, declares it to be a stereo, insures it, and mails it to Jerry. When Jerry gets the package, it contains, of course, a broken stereo, and Jerry puts in a claim on the insurance. When describing his plan, Kramer claims “that the $400 payment on the insurance claim is just a ‘write-off’ for the” Postal Service.

The question posed to me by reader Morris was a simple one. He asked, “Is the insurance claim settlement of $400 gross income for Kramer? If so why?” Indeed, it is gross income. The tougher question is, “For whom.” If Kramer is treated as acting as an agent for Jerry, who owns the stereo, then the gross income is Jerry’s, not Kramer’s. Because the money is intended to acquire a replacement stereo for Jerry, it makes sense to treat Kramer as Jerry’s agent. On the other hand, there is a good argument that Kramer was acting on his own plan, collected the $400, and thus has gross income. He would then be treated as making a gift to Jerry, which would have no income tax consequences. Why is it gross income? Because gross income is income that is not within an exclusion. No exclusion applies. The insurance recovery is income because it is a clearly realized increase in wealth. The fact that the recovery is procured through fraud and is subject to being forfeited does not change the conclusion that it is gross income.

But what got my attention was the question posed on the Seinfeld Law blog: “Is it actually a write-off? Does anyone even know what a write-off is?” The blog writer then concludes, “Simply put, a write-off is another term for the deductions a person, business, or corporation can take to reduce their taxable income when filing their taxes.” Though it is true that people sometimes refer to tax deductions as “write-offs,” the term “write-off” has a much wider application. An expense taken into account in computing a profit and loss statement can be, and sometimes is, described as a “write-off.” Similarly, when a merchant gives a credit to a customer, the reduction of the price can be, and sometimes is, described as a “write-off.”

It gets better. The blog writer continues with this question: “Now that we know what a write off is, can the Postal Service just write off the payment they made to Kramer for Jerry’s broken stereo?” The write concludes that the $400 payment would be deductible by the Postal Service under section 162 in computing its taxable income because it is an ordinary and necessary business expense. There is, however, a serious flaw in the conclusion and the reasoning leading up to it. The Postal Service is tax-exempt. Though it computes a hypothetical federal income tax on the portion of its activities that involve sales of competitive products, it simply moves that amount from the Competitive Products Fund to the Postal Service Fund, rather than transferring it to the Treasury. A tax-exempt entity does not need to compute taxable income on its entire bundle of activities.

So, the $400 paid to Kramer would be a “write-off” for the Postal Service, but only for accounting and fund transfer purposes, but not for purposes of computing income tax deductions.

Monday, April 27, 2020

Tax Fraud, Alameda Style 

According to this story, two tax return preparers in Alameda, California, have been charged with conspiring to file dozens of fraudulent tax returns. The two preparers, a mother and daughter, are charged with 36 crimes.

How were they caught? Internal Revenue Service software detected suspicious entries on returns. Specifically, the software looks at returns filed by a tax return preparer, and if the refund rate exceeds 50 percent, additional investigation is undertaken. The returns filed by these preparers reached as high as 86 percent. In other words, almost every client received a refund. The IRS sent an agent to the preparers’ office, posing as a client. The agent brought information that, if properly reported, would generate a tax due. During their meeting, one of the preparers told the agent that money would be owed, but that, “it’s your return and I can give you one of those charity things, but once you sign it, it’s you.” The agent agreed, and the preparer added a $2,000 charitable contribution deduction to the return even though the agent had told he preparer that he had not given anything to charity for the year in question. The IRS did not stop at that point. Instead, it interviewed the preparers’ clients and found 35 returns that it considered suspicious. Then the IRS interviewed the two preparers. One of them “allegedly admitted she sometimes exaggerated a client’s deductibles, adding that she ‘felt sorry’ for people who owed money.” In the complaint, an IRS special agent wrote that one of the preparers, Blakely, “stated if a client gives her a $500 amount for expenses, she might add a ‘1’ in front of it. Blakely stated that she knows she is held to a higher standard, but she wants to help her clients.”

That approach doe not “help” the clients. It makes a mess of their life. Not only are they interviewed by the IRS, they end up being required to pay back the refund along with the tax that they would have owed had the return been done properly. In theory, the clients can sue the preparers, but as a practical matter the chances of recovery are far from 100 percent.

What’s unclear from the facts is whether the preparers charged their clients more than they would have charged them had they not falsified the returns. In other words, were the preparers getting a portion of the refunds? If they did, then the claim that they were just trying to help their clients becomes less credible. Of course, even if they did not, their alleged actions still fall within the scope of conspiracy to file fraudulent tax returns.

Friday, April 24, 2020

Even in a Crisis, Tax Breaks Disproportionately Benefit the Wealthy 

In a report covered in many stories, including this Philadelphia Inquirer article, the Joint Committee on Taxation has revealed that more than 80 percent of a tax break squeezed into the recent coronavirus legislation will benefit people who earn more than one $1,000,000 a year. It is no surprise that the provision in question was pushed into the legislation by Senate Republicans.

Some background is in order. In 2017, in order to offset other tax breaks dished out to the wealthy, Congress imposed a limit on how much loss owners of pass-through entities can deduct from investment income. The provision snuck into the coronavirus legislation suspends that limitation. This is one of the oldest tricks in the legislative playbook. Get something by giving up something, and then take back what was given up without giving up what was taken. Of course, advocates for the wealthy claim that enactment of the 2017 limitation was a “mistake” and that suspending it provides “badly need liquidity” to the wealthy. Really? If there’s anyone in this country who isn’t being crushed by liquidity problems, it’s wealthy individuals who apparently see every crisis as an opportunity to add more feathers to their nests.

This tax break for the wealthy will cost $90 billion in 2020, and another $80 billion over the next 10 years. Imagine how much personal protective equipment, virus testing kits, and medical equipment could be acquired for that amount of money. Imagine how much replacement income for laid-off workers and genuinely small businesses could be provided with $80 billion this year.

Interestingly, in response to Democratic criticism of the tax break, a spokesperson for the Senate Finance Chair claimed that the criticism is a “stink of partisan politics” because the Democratic Senators voted for the bill. Of course they did. Had they balked, they would have been subject to the same criticism directed at House members who are holding up legislation that contains even more breaks for the wealthy while omitting necessary assistance for those truly harmed financially by the coronavirus crisis. Damned if they do, damned if they don’t is yet another tricks in the legislative playbook and finds it way into the political propaganda playbook.

As bad as the coronavirus has been, is, and will be, money addiction has been causing, is causing, and will be causing even more damage. I daresay a cure for, or a preventive vaccine against, this coronavirus will show up before a cure or vaccine for money addiction is discovered.

Wednesday, April 22, 2020

A Most Horrendous Children’s Tax Story 

It started with “Tax Story,” which I discussed in A Frightening Tax Story, and continued with “The Bike Shop,” which I discussed in Another Children’s Tax Story. What started and continued? My reaction to tax stories that reader Morris dug up. Well, he found another one, called Sylvester overcomes Tax problems. I am going to go through the book, selecting particular sentences or paragraphs. One of the challenges is to deal with the formatting, because the larger font letters cover some of the smaller font letters.

Sentence: “He has no tax credits or dependents and has few reasons to deduct money from his taxes.” What does that mean? What gets deducted from taxes? Technically, nothing. But using the word deducted to mean subtracted, one subtracts credits. When something is deducted, it is deducted from gross income or from adjusted gross income.”

Sentence: “This makes him . . . “ That ends the page, and when the page is turned, the thought is not continued.

Sentence: “He doesn’t think his adjusted gross income is enough money to be bringing home.” Perhaps this is an attempt to explain that his take-home pay is insufficient? One does not bring home adjusted gross income.

Sentence: “Since he makes enough money to support himself according to the government, he has a lot of taxable income.” The amount of money considered adequate to support a person is nowhere near “a lot of taxable income.”

Sentence: “His first idea was to cheat the Internal Revenue Service and lie about his income so he has a lower income regressive progressive tax.” The incoherence of this sentence might be attributable to formatting glitches, but it makes no sense.

Paragraph: “Then he gets a brilliant idea, get married! Then they can get married filing jointly and the FICA will decide that they together won’t have to pay as much. After their filing status they get a little more of their income. He will now be in a lot better place in the Federal Tax Bracket. The only bad thing would be that he can’t do the easy form, but he’ll have to fill out the W2 form.” First, filing status for the previous year’s tax return is not affected by a marriage after the close of that year. Second, if he gets married his taxes will increase unless his spouse has little or no income. It’s called the marriage penalty. Third, the FICA doesn’t decide anything. FICA is the acronym for the social security payroll tax. Fourth, the only taxpayers that fill out W-2 forms are employers.

Sentence: “After his genius idea, he’s a lot happier person, his job as a nurse provides for him and his family, he gets direct deposits with holdings paycheck standard deductions IRS Publication 561 with a smile.” The formatting makes it impossible to figure out what really is being said. It is possible to have a family without being married, but if that were the case, why is he not considering head of household filing status? IRS Publication 561 deals with “Determining the Value of Donated Property” and that has nothing to do with what’s being written.

The author of the book is “Ana Leigh.” Underneath the book is the word “analeighgoodwin.” Nothing on the web site provides any information about her, other than she joined the site in 2013. The book bears a copyright of 2010, but it is unclear if that was when the book was written. Attempts to figure out if she was a child or high school student when the book was written were not fruitful.

So I don’t know if the author of the book should be criticized for its content, because it could be the work of a fifth grader. Or it could be the work of a high school student who is reflecting what was taught or what she thinks was taught in a class. Or, horrors, it could be the work of an adult. In any event, running it by a tax professional would have been wise. As for the formatting mess, one would expect that the web site operators would provide some sort of screening, or at least the author would view the book and realize that portions are impossible to understand because of the formatting glitches.

If this story is intended to be read to or by children, and I have no clue how someone can read it without stumbling over incoherent sentences, then perhaps we have reached new lows. Yes, if these are being written by children and high school students, it is a good exercise to have them write, but they learn very little, if anything, unless someone reviews what they are writing and helps them learn from their mistakes. Otherwise, they will grow up and continue to crank out erroneous and confusing slop.

Monday, April 20, 2020

Was It Tax Fraud? 

It’s time for another television court show commentary, this time with tax front and center. Sometimes that happens, but often the tax issue is a side issue or part of the backstory. If curious, there’s a long list of MauledAgain posts dealing with television court shows that have episodes involving tax,including 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, and Was Tax Avoidance the Reason for This Bizarre Transaction?.

This newest addition to that list is from Hot Bench, season 5, episode 200. The plaintiff sued the defendant, her son, for reimbursement of $2,250 in accounting fees she paid a tax return preparer to refile tax returns. I wonder how many tax practitioners have dealt with a story like this.

From January 2015 until August 2015, the defendant lived with his mother. He did not pay rent, and contributed $200 per month for food while admitting he ate more than that amount. In August of 2015 he moved to college. From that point through at least the end of 2017 he lived in a dorm or in his own apartment. He testified that he paid his own rent and worked full-time as an office assistant. He used his earnings from his job to pay his expenses. When asked about tuition, he stated that it was paid with student loans, but it quickly was established that his mother took out the loans and made payments on them.

Questions from the bench revealed that the reason the mother took out the loans was to make it easier for the son to get financial assistance in the form of grants. To do this, the mother claimed the son as a dependent on her tax return. She explained that she has other children who are younger, and also claimed them. She testified that the father of the children, including the defendant son, had never claimed the children as dependents. The defendant knew that he was being claimed by his mother on her 2015, 2016, and 2017 tax returns.

On his 2015, 2016, and 2017 tax returns, the son claimed a personal exemption deduction for himself even though he knew he was being claimed on his mother’s return. One of the judges pointed out that the mother properly claimed the son as a dependent because the facts made it clear that she provided more than half his support. Nothing was mentioned about the other requirements but it appears they were met. One of the judges pointed out that he knew his mother was claiming him as a dependent.

One of the judges asked him why he claimed himself, which meant that he took the position that he provided more than half his own support. His reply? “Because I needed the money.” That caused a judge to comment, “You may have defrauded the government.”

Though it wasn’t clear how the mother found out what her son had done, she retained a tax return preparer to amend the son’s returns. She told her son she was doing this, and he agreed to reimburse her for the cost of getting the amended returns prepared and filed. When asked why she did this, the mother replied, “I’m worried he’s going to end up in prison like Wesley Snipes because of tax fraud.”

The son did not reimburse his mother. When asked why he didn’t reimburse his mother, the son said that he had helped her financially during the past year. Asked about her son’s behavior, the mother explained that in 2014 her son had an accident that caused serious injuries, and might have suffered a brain injury. No evidence about the son’s health was mentioned or introduced.

One of the judges asked, “Why are you defending yourself against your mother? Why not reimburse your mother?” Several more questions along those lines were asked, and eventually the defendant son conceded he should reimburse his mother.

The judges’ deliberations were brief. One of them concluded that the son had committed tax fraud, knowing he would be claimed by his mother, and that he had breached his agreement with her to reimburse her. The other judges agree.

When handing down the verdict, the court stated that the plaintiff mother had proved she had right to claim him as a defendant, had proved he committed tax fraud, had proved he agreed to reimburse her, and had proved that he had failed to do so. Judgement was entered for the plaintiff.

Did the son commit tax fraud? Taken facially, the facts indicate yes. Yet one of the facts, the possible brain injury, raises the question of whether a person commits tax fraud if they lack the requisite mental intent. The son made it clear he knew he was being claimed by his mother on her return, he knew he should not claim himself, he deliberately claimed himself, and he did so because he needed the money. Under those circumstances, it is pretty much impossible to show that a brain injury, if there was one that persisted, interfered with the son’s intention to do something he knew violated the law. I doubt, though, that the son was or will be prosecuted for tax fraud because the situation was quickly fixed and the amount of tax in question was small.

Friday, April 17, 2020

Perhaps the Most Absurd Tax Proposal Ever 

Generally, when I am commenting about tax law and tax policy, I prefer to react to, and write about, current developments. But this time I need to make an exception. Somehow, reader Morris came across what I consider the most absurd tax proposal ever. It is a suggestion by a Japanese economist to impose a tax on handsome men.

The impetus for this strange tax proposal is a population replacement problem in Japan. It is no secret that Japan has the oldest population in the world. Some predict that within 40 years its population will decrease by 30 percent. What is causing these demographic shifts? The birth rate is falling. Some point to the fact that increasing numbers of Japanese women are working and are focused on careers. Perhaps that is the reason. Perhaps it isn’t. There are plenty of nations where women have careers and work, but have more than zero children.

According to the economist proposing this “handsome man” tax, it will make it easier for “less-attractive men” to “find love.” His explanation needs to be quoted, “If we impose a handsome tax on men who look good to correct the injustice only slightly, then it will become easier for ugly men to find love, and the number of people getting married will increase."

Where do I begin? The easiest flaw to identify in this absurd proposal is the need to identify “handsome men.” If beauty is in the eye of the beholder, there surely are men who are considered handsome by some people but not by others. So who is the “beholder”? Some sort of government agency? A television reality show with audience or celebrity voting?

It gets worse. If Japanese men and women are refraining from having children for reasons of career and, finances, is that not a problem for men of every physical sort? Is there evidence that “less handsome” men in Japan want to have children but cannot find women to join them in the enterprise? If most or many Japanese women don’t want to have children, how will a tax on “handsome men” change their minds? The answer is, “It won’t.”

It gets crazier. Genuine love has nothing to do with money or looks, though for many or most of us, money and looks can interfere with, masquerade as, or otherwise distort conclusions with respect to love. All the money in the world cannot buy love. So taking money from “handsome men” is no more likely to cause a not-so-handsome man, whatever that means, to fall in love with or love someone.

It gets even crazier. How would a tax on “handsome men” take those men off the market and make room for “less handsome” men to succeed in having babies? If the tax were high enough to cause “handsome men” to cease socializing and marrying, all that it would accomplish is to decrease the pool of potential fathers.

It gets more interesting. Love and having children, although often connected, aren’t necessarily entwined. There apparently are plenty of Japanese couples who love each other but who are not having children. Taxing “handsome men” isn’t going to cause those couples to stop loving each other or prompt them to have babies. And as experiences throughout the word demonstrate, plenty of babies are born even though their parents aren’t in love and don’t love each other. Sometimes, sadly, they don’t even know each others’ names.

So is there anything a government can do to boost its nation’s birth rate? Yes. For the past few years, the Japanese government has been paying people to have babies. It appears that the increase in Japan’s birth rate is linked to these payments. That’s not surprising. In this instance, paying someone to do something is far more practical than imposing a tax that would not, and cannot, accomplish its stated goal.

When reader Morris drew my attention to this proposal, he asked, “is this a sin tax? Is this a progressive or regressive tax?" I didn’t answer his first question, but I will now. Whether it’s a sin tax depends on the definition of “sin” in Japan, and if failing to have babies is the “sin,” then the proposed tax is not a “sin” tax because it isn’t aimed at people who are failing to have babies. I doubt there is any evidence that “handsome men” make up all or most of the men who are not fathers.

As to his second question, I pointed out that it is impossible to answer his question because I don’t have, and I doubt there exists, any data that correlates adjusted gross income of Japanese men with how “handsome” they are. One might guess that more attractive people in Japan have higher incomes, but, again, who defines “attractive”?

So, I answered a question reader Morris did not ask. I shared my reaction to the tax proposal advanced by the Japanese economist. “It’s essentially a stupid idea.”

Wednesday, April 15, 2020

Tax Deductions Do Not Include Tax Credits 

Perhaps it is fitting that on April 15 I have an opportunity to remind everyone that tax credits are not deductions. That concept is one of the basic principles of income taxation that I expect students in a basic income tax course to understand if they want to earn a grade that is not the sixth letter of the Western alphabet.

So why am I bringing this up? Several days ago I came upon an article with the title, “6 Things You Didn’t Know Were Tax Deductions.” One of the items, under the heading “Ongoing Education,” was described as follows:
If you continue your education after high school, some of your educational expenses might be tax deductible, even if you’re not a full-time college student. With the Lifetime Learning credit, you can deduct up to $2,000 per tax year of the cost for your ongoing education.
The lifetime learning credit does not provide a deduction. It provides a credit.

If I were editing this article, or reviewing a student paper, I would point out two things with respect to this issue. First, the quoted language should be rewritten as follows:
If you continue your education after high school, some of your educational expenses might generate a tax credit, even if you’re not a full-time college student. With the Lifetime Learning credit, you can subtract from your tax liability up to $2,000 per tax year of the cost for your ongoing education.
Second, I would retitle the article “6 Things You Didn’t Know Were Tax Breaks.”

It's that simple. Really.

Monday, April 13, 2020

Another Children’s Tax Story 

On the heels of discovering Tax Story on a children’s book web site, which I discussed in A Frightening Tax Story, reader Morris found another story on that web site that mentions tax issues. It’s called The Bike Shop, and describes the formation and tax treatment of a partnership.

The book begins with the first character sharing his desire to start a bike shop and asking the second character if he wants to start a bike shop together. The second character agrees, and the first character asks, “How would taxes work?” The second character replies, “The business itself doesn’t have to pay taxes. Us, the partners of the business pay taxes on the share of income that we generate.” The conversation then turns to other issues, such as management and resolving conflicts. The first character then states, “I also learned in law school that the law doesn’t require a written partnership,” and the second character responds, “Wow thats [sic] Great! Lets [sic] Start as soon as possible.” And the story ends.

Reader Morris asked me several questions. For ease of continuity, I take them out of order.

He asked, “Is the answer on pg. 6 correct?” Reader Morris is referring to the first character’s statement, “The business itself doesn’t have to pay taxes. Us, the partners of the business pay taxes on the share of income that we generate.” There are several problems with this statement. First, a partnership is required to pay a variety of taxes, such as real estate taxes on its real property, sales taxes it collects from its customers, taxes included in its utility bills, and a variety of state and local taxes applicable to a bike shop, depending on where the business is established. Second, the partners pay federal and state income taxes based on their distributive shares of partnership income, which could reflect the shares of income that they generate but which won’t necessarily be computed in that manner, depending on what is in the agreement. Third, the first character’s statement is incomplete because it says nothing about losses.

Reader Morris asked, “Is the statement on pg 10 correct? If so, would you give this advice to your students?” He is referring to the statement by the first character, “I also learned in law school that the law doesn’t require a written partnership.” I assume the first character intends to refer to a “written partnership agreement,” because the idea of a “written partnership” is very strange. Yes, it is true that a partnership can exist based on an oral, rather than written, agreement. But is that wise? No. Absolutely not. In the event of a dispute, the resolution becomes a matter of “one person said, the other person said.” Drafting a written agreement forces the partners to consider an array of issues that might arise and to agree on resolution, whereas an oral agreement rarely addresses more than a few issues, including tax allocation issues. My advice to students has always been, not only in the context of partnership agreements but any other sort of contract or agreement, “put it in writing.”

Reader Morris asked, “What grade would you give this book for accuracy?” Probably a low passing grade. If I were to take into account grammar, it would be a barely passing grade. Not only is the lack of apostrophes a sign of inattention to required detail, the use of “Us” when “We” is the appropriate word corroborates a concern about the attention to detail that is necessary when writing about, or giving, legal advice.

Unlike the case with Tax Story, I could not identify the author of this bike shop book. So I have no way of knowing anything about the author. I do hope it was not written by a lawyer or a tax practitioner.

Finally, reader Morris asked me, “Could you write a book explaining partnership taxation to children?” Yes, I could, but would I? No. I don’t think it is helpful for children to be taken into the weeds of partnership taxation. Writing a partnership taxation book for children would be just as unwise as writing a book for children about quantum physics, string theory, organic chemistry, or molecular biology. There’s no need to rush them into these sorts of complexities. Let them be children.

Friday, April 10, 2020

I Agree, It’s Time for an Excess Profits Tax 

Some tax commentators are suggesting that it’s time for an excess profits tax. For example, Reuven Avi-Yonah explains his proposal in It’s Time to Revive the Excess Profits Tax, Nick Shaxson provides his similar opinion in Tax justice and the coronavirus, Emmanuel Saez and Gabriel Zucman share their viewpoint in Jobs Aren’t Being Destroyed This Fast Elsewhere. Why Is That?, and Jeremy Kahn offers the same perspective in World War II offers lessons—and warnings—for the coronavirus fight.

The imposition of an excess profits tax is not a new idea. It was used during both World Wars. That’s why Avi-Yonah uses the word “revive” in the title of his commentary. The design already exists, and only a few tweaks are needed to implement it.

Of course, those who are raking in substantial profits are likely to object to this tax. They surely would be vociferously opposed if the rate were set at what it was in some previous years when the tax applied. The rate was as high as 95 percent.

The excess profits tax was enacted during wartime because wars cause economic disruption. So, too, do pandemics, though that is not the reason several national leaders have referred to the effort to combat the SARS-CoV-2 virus as a war. The economic disruption adversely affects many individuals and businesses, while it provide a handful of individuals and corporations an opportunity to rake in significant profits, not because they have invented something but because they are benefitting from the distress of others. They are in a position to raise prices to shocking levels, and some have already done so. Others are manipulating markets to leverage themselves into profits that do not reflect improvements in the quality of what they are brokering, but their ability to take advantage o their relationships with those who supposedly are protecting the markets. Still others are putting buyers into the unfortunate position of competing for falsely scarce equipment and supplies by bidding up prices.

The anti-tax crowd surely will argue that an excess profits tax will discourage individuals and companies from selling what the marketplace needs in the time of a pandemic. That’s true. It will cause profiteers to decide that it’s not worth milking the market for every possible penny of a profit because almost all of that profit will be remitted to a federal or state Treasury. Thus, it becomes an incentive to cut prices and desist from price gouging. Whether economic benefit flows to the distressed portion of the economy through excess profits tax revenue or through the reduction and normalization of prices.

Wars and pandemics ought not be opportunities to businesses to make money hand over fist. That happens, it always has happened, but that doesn’t mean it ought to continue to happen. Even if an excess profits tax doesn’t put an end to pandemic profiteering, it can put a big dent into it. And that, in the long run, is much more beneficial for economic recovery than is the further enrichment of the wealthy and the further impoverishment of everyone else.

Wednesday, April 08, 2020

A Frightening Tax Story 

Reader Morris directed my attention to what he called a children’s book called Tax Story. The site describes itself as a place to “Find Stories and Create Books for Kids.” I’m not certain what is meant by “kids” because some of the words in Tax Story aren’t what I expect children in the early grades to be reading. But my concern is the number of errors in the book. Reader Morris pointed out some of them to me. I found more. I will go through the book sentence by sentence.

According to the book, Jack is a pirate who wants to claim his crew as dependents. That’s problematic, because it is unlikely that the crew will fit the definition. However, the story did not state that he did so, only that he wanted to do so. The story continues by stating that Jack went to the post office and “picked up his W-2 form.” Well, first of all, Jack is described as an independent contractor pirate so who would be issuing a W-2 form to him? And perhaps he is picking up mail at the post office, and the mail includes, weirdly, a W-2 form but the story also notes that Jack tries to pick up a 1040 EZ form, so the implication is that one goes to the post office to pick up W-2 forms and 1040 EZ forms. He doesn’t get a 1040 EZ form because “he made to [sic] much money.”

Jack then picks up IRS Publication 561 “so he could figure out the value of the goods he had donated.” Technically, that publication simply tells Jack HOW to figure out the value of the goods he had donated. That is a fact question and it requires evidence not found in Publication 561.

The story tells us that “Jack found out that he would only receive a standard deduction because he was not married filing jointly.” Someone who is married and files separately indeed can get a standard deduction, provided the spouse does not itemize deductions.

Jack then “discovered that he had sent to [sic] much in withholdings to the government,” but again, who is withholding taxes from Jack’s pay if Jack is an independent contractor pirate? Worse, Jack “had received several tax credits due to his charity work,” but not only does charity work not generate a tax benefit, as only donations of property do, but the benefit is not a credit but a deduction.

Jack then “requested a direct deposit, but because he did not have a bank account, an agent of the Internal Revenue Service (IRS) cane and gave Jack his large refund.” Goodness, that is not how refunds of any size are delivered to taxpayers. Absent direct deposit, a check is sent in the mail.

The author of the book is “jarredcope.” Nothing on the web site provides any information about him, other than he joined the site in 2013. The book bears a copyright of 2010, but it is unclear if that was when the book was written. A thought popped into my head. Perhaps he is himself a child and is writing a story based on what he has heard others say about taxes, or what he thinks he has heard others say about taxes. So I did a little research, and the only Jarred Cope I find graduated from high school in 2014. So if he is the author of the book, he published it when he was a high school junior. If he is the author, I then wondered if he based the story on what he was being taught in a high school business or similar course.

So I don’t know if the author of the book should be criticized, though perhaps running it by a tax professional would have been wise. Yet I don’t know what constraints were put on him when he wrote the book. Was he prohibited from doing research or getting advice? I don’t know to what extent he was misinformed. Perhaps he was restricted to what he was taught in a class, and there’s no way to know if he was taught the wrong things or didn’t pick up what was being taught correctly. Yet if it were the latter, would what I presume was an assignment that he later published not have been returned to him with corrections?

I worry how many people are reading this book and coming away with wrong ideas about how the federal income tax works. But, there are so many books and articles on the web with erroneous information that this book is just one drop of water in an ocean of error.

Monday, April 06, 2020

Was Tax Avoidance the Reason for This Bizarre Transaction? 

Sometimes I wonder why television court shows with episodes involving tax tend to show up in clusters. Is it my viewing habit? Perhaps. Is it purely random? Perhaps. Maybe someone in need of a research topic can study why there is such a feast-or-famine aspect to tax issues showing up in television court shows. No matter, it’s time for another one, to be added to the list that includes 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, and Wider Consequences of a Cash Only Tax Technique.

This time it was a rerun of Hot Bench season 6, episode 34, which I had not previously seen. So perhaps my viewing pattern is a factor in when I get to write about television court shows that involve tax issues.

The plaintiff, who operates a solar panel business, entered into an arrangement with a third party to purchase an interest in the plaintiff’s business. The plaintiff directed the third party to send a check for the purchase price of shares in the company to the company’s business manager rather than to the plaintiff. The plaintiff directed the business manager, who was inexperienced and on the job for only a few months, to deposit the check into a bank account in her name that had been set up by the plaintiff. The plaintiff also directed the office manager to then withdraw the amount of the check in cash and deliver the cash to him. The plaintiff sued the office manager because, according to the plaintiff, she failed to deliver the cash to him. The office manager testified that she did deliver the cash to the plaintiff.

When asked why he structured the transaction in this manner, the plaintiff replied that he did so because he did not have a bank account. But on further examination, he admitted that he did have a business bank account and that checks had been deposited into it. The plaintiff also added that the defendant office manager would be give a Form 1099 for the amount of the check she deposited. When asked to provide proof that the defendant did not give him the cash, the plaintiff offered several requests sent to the defendant shortly before the trial but could not provide proof requested by the judges that he had reacted at the time of the check deposit with inquiries about the alleged failure of the defendant to deliver the cash.

The third party who was buying shares in the plaintiff’s company testified that he wrote the check to the office manager because he was told to do so because her name was on the account, and that he was also told that the check would clear more quickly if he did it that way. He admitted on questioning that it did seem odd to him, and one of the judges remarked, not odd, but stupid. To prove what the transaction was, the plaintiff submitted a stock purchase agreement, which turned out to be unsigned, and to which was attached a notarized statement having nothing to do with the unsigned stock purchase agreement.

An independent contractor who worked as the operations manager for the plaintiff testified that in her time doing work for the plaintiff she had seen similar dealings that she characterized as shady. She described the defendant office manager as honest, and claimed that the defendant had paid the cash to the plaintiff. She noted that the office manager was retained as an employee of the plaintiff’s company for at least two more months after the check was deposited, and suggested that this retention was inconsistent with the plaintiff’s claim that the defendant did not pay him the cash. The plaintiff admitted that the defendant had continued to be employed by the plaintiff’s company for two months after the transaction. The independent contractor also testified that the plaintiff was being sued by other people in multiple cases, including one in which the independent contractor was suing the plaintiff for nonpayment.

During the trial, the judges offered several observations. One noted that it made no sense to issue a Form 1099 to the defendant, who was an employee and not an independent contractor. One of the judges described the situation as a bizarre arrangement and that its only purpose seemed to be tax avoidance, in an attempt to have the amount in the check taxed to the defendant. One of them pointed out that neither party seemed upset about not having the money, and said that something wasn’t “sitting right” about the situation. One of the judges suggested the situation should be referred for prosecution, pointing out that tax fraud puts a burden on taxpayers who pay what they owe.

In chambers, one judge said she was unclear if it was tax fraud or some other scheme. They all agreed that the plaintiff did not have clean hands. They also agreed that he did not prove that the defendant did not pay him the cash. The judges were unanimous that the plaintiff had committed a fraud.

In the closing interview, the plaintiff said he was going to file a police report against the defendant for theft. Asked about possible IRS action, he replied that he was unconcerned.

Surely there are missing facts. Something isn’t right. For example, if the check written by the third party was to purchase additional shares issued by the plaintiff’s company, it would not constitute gross income to anyone. So what would be the point of shifting it into the defendant’s bank account? Maybe the check was for stock owned by the plaintiff, with a significant amount of gain, possibly short-term capital gain. The transaction surely was designed to hide something, probably to hide it from the IRS. Whenever something is made more complicated than it needs to be, there’s something else happening. I doubt we will ever know what was underfoot in this situation.

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