Denmark’s “Fat Tax”

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It’s bad enough that the tastiest foods are always so bad for you, now in Denmark they are getting more expensive too.

Beginning October 1st Denmark initiated it’s new “fat tax,” which increases the price of certain foods by 16 krone (about $3) per kilo of saturated fat. It is expected to have a substantial impact on the price of everyday staples such as milk, cheese, bacon, and butter. The Danish (the people and the pastry) are not thrilled. These traditional goodies are said to be made with generous amounts of butter:

Although the government approved the tax by an overwhelming majority, the people of Denmark and others have made the following arguments in opposition to the tax:

  1. Negative impact on organic dairy farmers
  2. No distinction in the law between fat in whole foods, processed foods, or even fast food
  3. The government passed the tax to increase revenue, not to improve the health of the Danish
  4. May have unintended consequence of driving people to purchase cheaper, less healthful foods
  5. A fat tax should focus on cutting trans fats, not saturated fats
  6. Many people will still eat the same things they ate before the tax
I guess the upside is that tax relief and weight relief will now come in the same package.

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.”

FTB Live Chat

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Starting today the California Franchise Tax Board (FTB) is expanding its Live Chat program to business entity questions. Live Chat is a web-based communication application that was first launched about 6 months ago and is open to both taxpayers and practitioners. It is a quick way to get answers to general state tax questions — quicker, apparently, than waiting on the phone. However, account-specific questions will not be addressed in this manner. If you have questions or issues to address about a specific tax account, you must go through the normal channels.  Live Chat is available 8:00am to 5:00pm Monday – Friday. Check it out here.

IRS Audit Issue Going to Supreme Court

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If the IRS is thinking about auditing you, they currently have 3 years from the date your return is filed to decide. It’s called the Assessment Statute Expiration Date (ASED). There is an exception: in cases where the taxpayer omits 25% or more of his gross income, the IRS has 6 years to initiate an audit.

A number of lower courts have ruled one way or another on what constitutes a 25% income omission, and now the US Supreme Court has agreed to review the issue. Of course the IRS would like as much time as they can get, so they argue for a liberal interpretation. They argue that anything having the same effect as a 25% income omission (like an overstated tax basis) should result in a 3 year extension of the statute.

The case that the Supreme Court agreed to hear is Home Concrete & Supply v. U.S.. We need to keep an eye on this one. Currently it is not very common to see tax liabilities going back more than 10 years. The Collection Statute Expiration Date (CSED) on federal tax liabilities is 10 years; after that, the liability drops off the books. But the clock starts to run when the liability is assessed, so if the IRS waits 3 years to conduct an audit and assess the tax on your 2005 return, it would expire (at the very soonest) 13 years later — in 2019. This is assuming the return was filed on time (April 2006) and no other clock-stopping events have occurred in the interim.

If the Supreme Court rules in favor of the IRS, then we could start seeing more 16-year-old liabilities here and there.

A Tax Even the Wealthy Can’t Pay

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Greek parliament approved the new controversial property tax Tuesday evening. The hope is that this will increase the country’s chances of obtaining further bail-out money, precisely 8 billion euros, and keep the country solvent. However, the government has to be willing to exchange solvency for turmoil and unrest. Experts believe this is the wrong approach, and what the people of Greece really need is tax relief and drastic trimming of the public sector.

The property tax will be devastating to normal citizens; many will not be able to pay. However, even more telling is the effect it may have on wealthy government officials. If they can’t pay it, then it’s difficult to tell who can.

I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time. . . . The property I own was purely obtained through inheritance. Personally, I have never bought anything. . . .  I will be obliged to sell some of these properties. There is nothing else I can do.

~ Theodoros Pangalos, Deputy Prime Minister of Greece

See full story here.

Greece Increases Already Burdensome Property Tax

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The new property tax announced by the finance ministry of Greece over the weekend was like a knife in the chest of struggling homeowners.  Now, with tax relief nowhere in sight, the government is doing a little knife twisting.

Just a few days after the tax was announced at the rate of 10 euros per square meter, the government further increased the tax rate to 16 euros. And the nifty thing about having the tax paid through the property owner’s power bill is, if the tax is not paid, then the lights get switched off.  Full story here.

Heightened Enforcement of 1099 Compliance

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Politicians are desperately trying to increase revenue without raising taxes.  One way to do this is to beef up enforcement of the tax laws already on the books.  According to the IRS, the best place to focus these efforts is on small businesses and their tax obligations, specifically their 1099 reporting requirements.  The IRS has always had a more difficult time getting money out of the self-employed.

IRS Commissioner, Doug Shulman, recently told a Congressional committee: “the thing you have to remember about the [tax] gap is it’s like a deep shale oil reserve, it’s not money sitting there that’s easily tapped, in many ways we have tapped the easy money… the real answer, the place where we have leverage, is information reporting.”

What this means for the regular taxpayer is that the IRS is going to be furiously ramping up its collection efforts in the coming months.  The government seems eager to pour more money into the IRS.  According to Commissioner Shulman, each 1 percent improvement in compliance will produce an added $20 billion in revenues.  For more details, click here.

IRS Has Increased Criminal Investigations and Convictions

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According to an August 29, 2011 press release by the Treasury Inspector General for Tax Administration (TIGTA), IRS criminal investigations are up 12.3% and criminal convictions have risen 6.9% since 2009.  These figures include investigations of illegal businesses and income sources, but the Criminal Investigation division of the IRS still spends a majority of its time with “legal source” investigations.

Often a bearer of bad news, the last time I mentioned TIGTA, they had reported a 74% increase in tax lien filings at the IRS.  Of course the government doesn’t see it this way, in fact TIGTA commended the IRS for surpassing its goals and expectations.