IRS Loves TMZ

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If you’ve ever stumbled upon the TMZ website, you know how they love to expose celebrity tax problems.  If I didn’t know better, I’d say they have some secret relationship with the IRS.  I mean, what a huge benefit to the IRS to have these cases all over the internet where people can see them.

A quick perusal of the TMZ website reveals the tax issues (past and present) of the following celebs:

  1. Christie Brinkley
  2. Bow Wow
  3. Chris Tucker
  4. Sandra Oh
  5. Al Pacino
  6. The Osbournes
  7. Nicolaus Cage
  8. Val Kilmer
  9. Toni Braxton

The list goes on and on.  My apologies if this blog is starting to look TMZ-ish, but celebrities just can’t stay out of tax trouble.  As their fame (and income) start to slide, they find themselves overextended and tax bills often go unpaid. Besides, I do think it is constructive to call out the celebs, especially if it gets us to ponder our own spending habits and live more frugally.

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Chris Tucker Sheds Assets to Pay Back IRS

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Chris Tucker, the actor best known for his work in the Rush Hour series of films, has been selling his properties in Florida to pay back what he owes to the IRS.

Mr. Tucker owes $11.5 million in back taxes (perhaps somewhat less now that he has sold off some assets). Reports indicate that he sold his Florida properties for much less than fair market value, which indicates to me that he was in a big hurry to raise some cash under pressure from the IRS.

We don’t have the complete details, but with a $11.5 million tax bill, certainly the IRS has already threatened to seize his property. Why else would he take less than it’s worth? The dilemma for Mr. Tucker is if he had not sold the property, the IRS would have seize it and auctioned it off to the top bidder. A taxpayer can normally get a much better price in a private sale than what can be fetched in a public IRS auction. But the IRS doesn’t allow the taxpayer to put a property on the market and wait until he gets his asking price. Pressure from the IRS usually forces the seller to accept less — in this case, less than fair market value.

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Rihanna too Mainstream for NPR

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Bob Boilen and his co-hosts shared their favorite songs of 2011 recently on NPR’s “All Songs Considered.”

I often appreciate the music on this program and I sometimes even like the commentary, although much of the time it lacks the “analysis” that a lawyer would expect. A professional music critic should find better ways of describing a song than by saying, “it just takes me to this certain place . . . “

What bothered me most about the 2011 “favorites” episode is one of the guest commentators, Stephen Thompson, really wanted to pick Rihanna’s “We Found Love” but selected a different song under duress. Apparently Bob Boilen told him to pick something different. IMHO the credibility of this program, or its hosts, or its producers, would have been enhanced if they had just gone with this pick. Yes, Rihanna is more mainstream and most of her fans are probably under 18, but that shouldn’t matter, right?  A good song is a good song.  I just feel like the All Songs Considered crew are a little more concerned about picking the obscure, hipster musicians’ work than with picking really good songs.

Maybe I was also annoyed because I just really like “We Found Love.” I can’t believe I’m defending Rihanna. That’s a little embarrassing.  Ok, I think I understand now.

DOJ Shuts Down “Redemption Theory” Tax Fraud Ring

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This week the US Department of Justice released the names of seven individuals who have been charged in a $120 million tax fraud scheme. According to the indictment, the false return scheme was national in scope, causing the filing of tax returns for at least 180 clients from 30 different states, and requesting more than $120 million worth of fraudulent tax refunds. The indictment alleges that the defendants and clients of the scheme collectively filed more than 380 tax returns, mostly from tax year 2008, reporting the amount of their personal debt obligations as both income and as federal tax withholding.

Other reports mention the scammers were promulgating a “redemption theory.” Here’s the scoop on this bizarre tax protestor theory according to Wikipedia:

Redemption theory involves claims that when the U.S. government abandoned the gold standard in 1933, the government pledged its citizens as collateral so that the government could borrow money. The movement also asserts that common citizens can gain access to funds in secret accounts using obscure procedures and regulations.

According to the theory, the government created a fictitious person (or “straw man”) corresponding to each newborn citizen with bank accounts initially holding $630,000. The theory further holds that through obscure procedures under the Uniform Commercial Code, a citizen can “reclaim” the straw man and write checks against its accounts.

The “straw man” argument is cited by the IRS as one of the 40 frivolous tax arguments which, if made, subjects the taxpayer to tougher penalties. The “straw man” argument is #18.

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IRS Thinks Levy Power Needs More Teeth

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One of the methods the IRS uses to collect past-due taxes is the levy. It has the authority to work with third-party financial institutions to seize cash from your bank account (bank levy) or with employers to intercept your paycheck (wage garnishment or wage levy).

Not all levies work the same. The levy on wages is “continuous.” In other words, once the levy is issued, the employer is instructed to submit payments to the IRS each pay period until the tax liability is paid in full or until the IRS otherwise releases the levy.  But the bank levy doesn’t work this way.  A bank levy affects only the funds that are in a specified account when the levy is issued.  If the IRS wishes to levy the account at a later date, it must submit another bank levy.  A levy on self-employment income works much like a bank levy in the sense that it is not continuous.  The levy on self-employment income is submitted to the third-party payor, and that person or company has a one-time obligation to turn over everything that is owed to the delinquent taxpayer.

The non-continuous nature of some levies is seen as an impediment to collections.  However, the IRS is trying to get this changed legislatively.

The Small Business/Self-Employed Division recognized the barriers the ROs [Revenue Officers] face when taking levy action and has taken some corrective action.  The Small Business/Self-Employed Division is preparing a legislative change proposal to expand continuous levies on additional income sources.  I.R.C. § 6331(e)  and § 6331(h) permit the continuous levy of salary and wages and certain other payments from the time of issuance until the levy is released.  The IRS has identified four additional categories of non-wage income that could be levied in a manner similar to wages and salary: non-employee compensation, rental income, royalties, and fishing boat proceeds.  These income sources totaled approximately $1.4 trillion for Tax Year 2009.  The proposal would expand the continuous levy authority to these additional categories of income and may increase revenue and assist taxpayers in becoming compliant through the use of additional collection options.

~ TIGTA Report #2012-30-007

It is beyond me how this change would “assist taxpayers.”  Taxpayers don’t need any “additional collection options”!  If this becomes law, it would be a major victory for the IRS.

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Forget Packers Stock, Get US Savings Bonds

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I know some people are already looking forward to next year’s tax refund check. If it’s not going to be spent paying off Christmas credit card debt then you may want to consider purchasing some US Savings Bonds.

All you need to do is fill out a simple form — Form 8888 — and attach it to your tax return when you file. On Form 8888 you simply indicate who the bonds should be issued to and the amount you want to purchase (in increments of $50.00 and up to a maximum of $5,ooo.00). If you do not want your entire refund going to the purchase of savings bonds, simply indicate what you want to do with the balance: paper refund check, one or more bank accounts, my bank account perhaps.

Savings bonds may seem like an old-fashioned investment, but it’s a smart investment these days. The Treasury Department describes them as a “low-risk, liquid savings product” that earns interest and protects you from inflation. You must pay federal taxes on the interest earned from savings bonds. But no worries about volatility, and they’re worth considerably more than Green Bay Packers stock.

If you like the feel of actually holding a paper savings bond in your hand, then purchasing them with part of your tax refund may be your last shot at doing so. Beginning January 1, 2012 paper savings bonds will no longer be available for purchase at financial institutions. Electronic savings bonds are available for purchase at any time through www.treasurydirect.gov.

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Will IRS Continue to Ship Via USPS?

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As you may know, the United States Postal Service (USPS) will be scaling back its operations in a major way come next spring.  Over the years, the internet has caused most of us to go “paperless” in virtually every aspect of our lives, which in turn has damaged the paper industry and also those in the business of shipping paper. USPS does not receive funding from tax dollars; instead, it is dependent on the revenues it generates from postage income. Not surprisingly, the USPS is hurting financially. In fact, it plans on closingover half of its mail processing centers to remain viable, which will certainly affect speed of delivery.

If you have tax problems or if you work in the tax relief industry, you know first hand how much mail the IRS sends through the USPS. In case you’re wondering, the IRS doesn’t ship for free. “The United States Postal Service bills the IRS on monthly basis via the Intergovernmental Payment and Collection (IPAC) for one-twelfth of the yearly postage estimate” (IRM 1.22.4.2).

Internal Revenue Manual 1.22.4 contains detailed guidance on postage accountability and reporting requirements for IRS personnel. Although one of the aims of this guidance is to reduce waste,  it seems that much more could be done to reduce the IRS’ reliance on a mode of communication that is becoming more outdated and less reliable. It will be interesting to see how the changes at USPS will affect one of its largest customers, the IRS.

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Christie Brinkley Owes Taxes

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A wise person once told me that the best way to make this blog visually appealing is to post pictures of models.  I always liked the idea, but I couldn’t figure out how I would get away with it on a tax relief blog . . . until now.  Of course, now that I have an opportunity to follow through on that advice, it’s a 57-year-old model!

Christie Brinkley owes $531,000 in back taxes.  She says it was an innocent oversight and she is going to pay it right away.  There.  End of story.

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Cain Out

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The tax code is due for an overhaul. Even though some kind of tax reform is probably inevitable, it looks like we’re never going to be able to see one called 9-9-9. And I guess we’re never going to see the National Free Pizza Day that I was hoping for either.

This morning Republican presidential candidate, Herman Cain, decided to drop out of the race.

Technically he is “suspending” his campaign (as opposed to formally ending his bid) because that will allow him to use the money he has raised to travel around and promote his “Plan B.”

There has not been much time to digest the announcement yet; there are still so many open questions. For instance, now what happens to the “Women for Cain” website that everyone loves to hate?

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The Payroll Tax Cut Extension

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There are always two sides to the tax relief coin. Heads: slash taxes. Tails: find a way to pay for it.

Both Republicans and Democrats agree that the payroll tax cut needs to be extended, but can’t agree on how to fund it, and unless they start making concessions soon, it will expire.

Republicans want to pay for the tax cut by cutting spending elsewhere. Specifically, they want to freeze federal workers’ pay through 2015 and reduce the government bureaucracy to the tune of 200,000 jobs.

Democrats want to tax the rich. Specifically, they want to make deeper cuts to the payroll tax and pay for it by imposing a 3.25 percent surtax on income exceeding $1 million.

Both of these measures have been put to votes and both have been killed. Still we are being told that the payroll tax cut will likely be extended in one form or another before Congress breaks for Christmas.

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