Worst Idea of All Time

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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.

The Weiwei Tax Relief Fund

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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.

Tax Reform Buzz

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Some great soundbites in the news today:

If you have a dramatic change in the tax structure at the federal level it’s going to upset the apple cart in every single state in one way or other, so it’s a tsunami.

~ Joan Wagnon, FedTax.net

GOP presidential hopefuls each have their own idea of what needs to be changed about the current tax system.  And each claims to know the effect their changes would have, whether it be tax relieffor the middle class or if there will be sufficient revenues to run the government.  But according to Wagnon, they’re just guessing (or hoping):

The trickiest question of any proposal is whether you are going to be able to replace all of the income tax and make up the same amount of revenue. It’s impossible to know.

Politicians also talk of abolishing the tax code and eliminating the IRS, but is this realistic?

You’re still going to have a white building with lawyers and accountants. They’re still going to do audits and there’s still going to be complexity to it.

~ Matt Schlapp, Cove Strategies

TAS No Longer Taking Simple “Delay” Cases

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The Taxpayer Advocate Service (TAS) — that independent organization within the IRS whose mission it is to assist taxpayers — announced that it no longer has the manpower to assist taxpayers where the only complaint is IRS delay. Taxpayers must go elsewhere for real tax relief.

TAS groups its cases into two broad categories: (1) Economic Burden and (2) Systemic Burden. They will continue to handle all Economic Burden cases, but the following “systemic burden” issues will be remanded to the IRS:

  1. Processing of Original Returns
  2. Unpostable/Rejected Returns
  3. Processing of Amended Returns
  4. Injured Spouse Claims
According to the TAS, delays associated with these 4 issues are typically due to the IRS being overloaded with work. And the way they see it, it makes no sense to push the problem off on them, who are also overloaded with work. So, the TAS will temporarily not be helping taxpayers with these specific issues. Of course, a systemic issue could be causing (or about to cause) an economic burden, and in that case, the TAS will hear it. Full details here.

Can Greece Improve its Tax Morale?

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One of the reasons Greece has had such a difficult time raising revenue is because tax evasion is sort of their national pastime.

In Greece the “tax gap” (the difference between what should be paid by taxpayers and what actually gets paid) is about 1/3 of total tax revenue. About 28% of all business in Greece is conducted outside of the tax system (“under the table”). And the cost of tracking down so many tax cheats is astronomical. All other factors being equal, Greece spends 4 times what the US spends on tax collection efforts.

One author believes that this culture of tax evasion is the result of poor enforcement practices and low “tax morale.” See The New Yorker article “Dodger Mania” by James Surowiecki.

Enforcement

  • tax collectors in Greece frequently accept bribes
  • tax laws have too many loopholes and are not applied fairly
  • even when tax cheats are caught, justice comes very slowly in backlogged tax courts

Tax Morale

  • the people of Greece doubt their government will spend the tax revenues judiciously
  • since the rich and prominent members of society avoid paying taxes, the burden falls on those who can afford it least
  • citizens in any country tend to pay if they see others paying, but if they see others cheating then the tendency is to cheat (paying taxes seems to be a social animal)

It’s easy to see how these problems are related. Low tax morale leads to difficulties with enforcement, and enforcement problems lead to poor tax morale. The morale issues will probably work themselves out over time as long as Greece really cracks down on enforcement. Maybe they should start putting away famous tax evaders like the IRS has done here; that would send a strong message.

Weed Wars in Oakland, CA

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Oakland’s Harborside pot dispensary has a nifty slogan: “Out of the Shadows, Into the Light.” It’s actually a pretty good description of what the Internal Revenue Service has done with their tax returns recently.

Ever since California legalized marijuana for medical purposes, pot shops here are thriving . . . but not if the IRS can help it. The IRS recently audited the 2007 and 2008 returns of Oakland’s Harborside Health Center and hit them with a $2.4 million tax bill. It sounds like a lot of money, but Harborside’s is a huge dispensary with 84 full-time employees and gross revenues of $22 million a year. And what really inflated the tax bill is the IRS’s disallowance of their business expenses. Well, the IRS did allow them to deduct the cost of “medicine” purchased (that’s what Harborside calls it on their website), but nothing more. The IRS’s position is based on an old rule forbidding business expense deductions for operations that traffic in illegal drugs.

I have no idea why the IRS would question the legitimacy of this joint knowing they are the official 1st place winner of the coveted 2011 High Times Medical Cannabis Cup.

Harborside is fighting the audit and publicizing their good deeds, like the fact that they are pumping all kinds of money into the local economy. On Friday, September 30th, Harborside made a ceremony out of its $360,000 city tax payment as if it were some kind of voluntary contribution.

** I can’t take credit for the clever title of this blog post. The Discovery Channel will be airing a reality show based on the Harborside drama called “Weed Wars.”

IRS Fresh Start Webinar

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The IRS webinar detailing their Fresh Start Initiative, which originally aired on August 31, 2011,  has been posted to the IRS video portal for all to see.  The Fresh Start Initiative is a tax reliefprogram designed to help taxpayers who are struggling to meet their tax obligations in this down economy.

As part of the initiative, the IRS has adjusted its lien filing procedures, opened up the installment agreement option to more businesses, and  instituted a “streamlined” Offer in Compromise program. I was hoping the IRS would, through this webinar, elaborate on the Fresh Start program and provide more details on exactly how these changes will impact taxpayers with balances that they cannot immediately pay. But they didn’t. Instead the speakers rehash what has already been explained on the IRS website and then go into a fairly detailed discussion of liens.

This is a good video for someone who wants a basic understanding of liens, how & why the IRS files them, and how to get them released. The IRS representatives even go into an explanation of lien “release” vs. lien “withdrawal,” complete with an analogy comparing it to a “divorce” vs. an “annulment.”

Unfortunately, very little was said about the changes that have been made to the Offer in Compromise program either. Click here to see the entire video.

U2 Scorned for Tax Dodging

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Activist group, Art Uncut, has planned a protest during U2′s performance at this weekend’s Glastonbury Festival in England.   The group has not said exactly what actions they will take to make their point.

Most people looking for tax relief don’t have the liberty of selecting which country they want to pay taxes in.  But in 1996 U2 went shopping around with the intention of moving their business affairs to a country with lower taxes, and they landed in the Netherlands.   Art Uncut’s position is that this “tax dodging,” (by U2 and others) although not illegal, is causing poor countries like the band’s native Ireland to grow even poorer.  Furthermore, it is their view that this move really undermines frontman Bono’s highly publicized campaigns aimed at reducing poverty in developing nations.

Interestingly, Forbes recently placed U2 at the very top of their list of highest paid musicians, earning $195 million over the relevant 12 month period.