Worst Idea of All Time

Think of all the bad ideas in America’s past: Smell-O-Vision, Leisure Suits, New Coke, Hydrogen-Filled Blimps, Barney, dare I say tax liens.  I guess the Land of the Free is a breeding ground for horrible ideas because the list is LONG.

And it should come as no surprise that the mother of all bad ideas was cooked up recently by a bone-headed politician. I speak of Rep. Jim Cooper’s proposal to let the IRS prepare our tax returns. Once you’re finished laughing hysterically, dry your eyes and try to compose yourself for a moment longer. But don’t think there’s any more to it than that. There is no “catch” here. He literally wants the IRS to “save us the time and money” expended in preparation of the returns ourselves. Nevermind the money we would lose by “asking the fox to watch the hen house.” The IRS would rob us blind!

The proposal may possibly be considered by the (as Newt Gingrich calls it) “maniacally stupid” debt reduction supercommittee. However, it seems unlikely that it will become part of their final proposal since its only proponents appear to be Rep. Cooper and Pres. Obama.

Weiwei Caved

Chinese artist Ai Weiwei gave in and paid what the tax authorities were demanding before he moves forward with his appeal. He wired the $1.3 million guarantee to the government to protect his wife and business associates from the potential threat of police action. He probably made the right move. Who knows what might have happened in a country where, in the words of Weiwei, “those in power have the right to do anything and their power faces no restrictions.”

Pot Permits Suspended in Sacramento

Tonight the Sacramento City Council voted to halt issuance of any new medical marijuana dispensary permits until the dust settles from the federal crackdown. But don’t take this to mean that the city will be surrendering to the bullying of the feds, not as long as there is revenue to be collected from the pot shops. In fact, tonight’s vote actually extended the deadline to submit new permit applications until May 2012 and it extended the final day that dispensaries can operate without a permit from January 2012 to August 2012. Read full story here.

Weiwei “Lawyered Up” to Challenge Tax Bill

Ai Weiwei is ready to pony up the cash (8.5 million yuan) to the Chinese tax authorities, but they are not in agreement over the method of payment. According to Weiwei’s lawyer, the law dictates that they must guarantee the funds before they can dispute the assessment, but they have to be careful that the way they do it does not admit liability. They would prefer to provide the government with a bank deposit certificate and hold the funds in Weiwei’s account. The government, of course, wants the money wired directly to them. Full story here.

Weiwei is no idiot.  He has reason to be concerned with wiring the tax authorities the payment, which amounts to $1.3 million. In the United States if your hard-earned money somehow finds its way into IRS coffers (by way of bank levy or wage garnishment), it is significantly more difficult to get it back than if it was never collected in the first place. No comment, by the way, on whether or not the funds earmarked for Weiwei’s tax debt were hard-earned given the fact that it was gifted to him by many of his political allies. I’m sure if Weiwei were to pay them the amount in dispute, and then win his tax case, getting that money back would be a procedural nightmare for his attorney.

How Much Can They Take?!

The short answer to this question is “A LOT.”

My clients always ask me how much the IRS can take from their paycheck if the IRS decides to issue a wage garnishment. This is a common question from someone who does not understand how the process works. The IRS does not take a percentage of one’s income; instead, the IRS is bound by a complex set of levy exemptions. The IRS takes all the income except the amount that is exempt from levy as shown on the tables in Publication 1494. It may be more appropriate to ask, “How much is the IRS required to leave for me?”

The amount of income that is exempt from levy depends primarily on the taxpayer’s filing status, the number of exemptions claimed, and the pay frequency. As an example, a single wage earner claiming one exemption who is paid once a month is allowed to take home $791.67 based on the 2011 rate. The IRS gets the rest regardless of the taxpayer’s actual earnings. That same wage earner, if he were paid weekly, would take home only $182.69. A married wage earner filing jointly and claiming two exemptions is allowed to take home $1,583.33 if paid monthly, and $365.38 if paid weekly.

A wage garnishment can deal a crippling blow to your finances. But a wage garnishment can be stopped. Contact Montgomery & Wetenkamp for more information.

www.mwattorneys.com

The Forgotten Tax Accounts

Last week I blogged about Private Debt Collection (PDC) firms hired by the IRS and FTB to collect overdue taxes. This is a new development at FTB, and something that was tried for a few years and then discontinued at IRS.

The PDC firms hired by the IRS were given mostly low-yield, low-priority cases from which they were able to squeeze out $98 million in revenue between 2006 and 2009.  The IRS, however, discontinued its PDC program in 2009. And according to a TIGTA audit report, when the unresolved cases were handed back to the IRS, many of them just sat stagnant. Collection actions were not taken on 47% of the cases selected for the TIGTA audit. TIGTA recommended that the IRS develop policies and procedures for working the kinds of cases that were previously transferred to PDC firms. If the IRS does not have the resources to handle these cases, TIGTA even suggested the possibility of reinstating the PDC Program.

Before you get too upset about the statistics cited in this report (particularly the 47% figure), you should know that the sample of cases selected for audit was only 62. For whatever its worth, I have noticed that it is common for TIGTA to work with very small sample sizes in its audits, even though the agency claims it uses “generally accepted government auditing standards.”

IRS Return Preparer Program

After yesterday’s comments from the Commish (that’s IRS Commissioner Douglas Shulman) at the AICPA fall meeting, there is reason for some tax preparers to be concerned. They have to be careful that their desire to offer taxpayers maximum tax relief and maximum refunds does not override their desire to perform their duties ethically.

Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers.

~ Douglas Shulman, IRS Commissioner

The enforcement segment of the IRS Return Preparer Program will include:

  1. Letters to preparers who have been identified as “high risk,” making sure they are doing their due diligence.
  2. In-person visits with preparers who have been identified as “egregious.”
  3. Letters and in-person visits to return preparers who are not using the Earned Income Tax Credit correctly.
  4. Special crackdown on “ghost preparers” (those who don’t sign or identify themselves with their PTIN)
  5. Undercover shopping visits to preparers who are suspected of engaging in fraud.
  6. Civil and/or criminal prosecution where appropriate.
  7. Coordinated effort with the Office of Professional Responsibility and the Department of Justice.
While there are many undefined terms being thrown around, there appears to be a spectrum of poor conduct and discipline emerging. At one end is the return preparer who has exhibited a pattern of honest-appearing errors who will receive a letter from the IRS (this is something new). At the other end is the preparer who is suspected of something more “egregious” who very well could be tracked down and thrown in jail (this is not new).

In the Spirit of “Movember” . . .

There are countless and obvious good reasons to grow a mustache, especially during the month of Movember. But have you ever considered the tax implications of maintaining and proudly displaying your mo?

No?

Well, that’s because there are none. At least not yet. All this talk of simplifying (or eliminating) the tax code sounds nice, but it fails to recognize our individual differences, including our facial hair propensities. We need to consider a tax code amendment that would create a tax incentive for mo growers.  Please take the time to view this important public service message from the American Mustache Institute to learn more about how the STACHE Act could help stimulate the economy.

The Weiwei Tax Relief Fund

Last week we learned about outspoken Chinese artist, Ai Weiwei, and his tax problems. Today the news from China is that Weiwei’s supporters are pooling their money to the tune of $800,000 (and rising) to help him pay what he owes.

Weiwei certainly has the money to pay his tax bill, so what’s the motivation behind these donations? Are these wealthy art collectors who don’t want their Weiwei pieces to lose value? Unlikely. This is an artist who is known and adored for controversy; refusal to pay the government will probably only increase his popularity and increase the value of his work. Also, wealthy collectors would probably not make airplanes out of money and toss it over the gate to Weiwei’s home. Certainly some of the donations are coming from the wealthy and politically connected. However, it is clear that many of the donations are from average Chinese protestors who are symbolically “casting their vote” according to Weiwei.

It’s probably only a matter of time before a high-profile tax protestor in the Unites States pulls some publicity stunt designed to lure like-minded citizens to vote with their checkbooks like they have done in China. Good luck getting that to work here though.

Anti-Tax Evasion Agreement Emerges from G20 Summit

Tax shelters seem to be especially despised these days — both the people who use them and the countries that harbor them. With so many countries struggling financially, it’s hard to sit back and do nothing to the uber-wealthy individuals and corporations that hide their billions offshore. This past Friday, each G20 nation pledged to make greater efforts to work together to fight tax evasion. This also means they will strive to do more to enforce the tax laws within the borders of their own countries. Besides Switzerland, one of the most infamous tax havens, there are several other nations that have transparency problems, including Monaco, Panama, and Uruguay. Moving forward, the goal will be to get these other nations to sign on as well.

www.mwattorneys.com