Kudos to the Tax Foundation for pointing out the "apples and oranges" flaw in
Buffett's ongoing bleating about how the rich are so "favored" in the current tax
environment, as compared to average folk.
Citing a recent report by the Congressional Budget Office, the Foundation notes
that, in fact, the "super rich" (top1% of households) are now paying a record 27.6
percent of (all) Federal taxes and a record 38.8 percent of income taxes. By contrast,
the bottom 80 percent of households (some 90 million of them) pay 31.1 percent of
Federal taxes and a mere 13.7 percent of income taxes.
"In other words," concludes Tax Foundation President Scott Hodge, "the top 1.1
million American households pay a greater share of the income tax burden than the
bottom 90 million combined."
These facts, in the face of the incessant harangue that the "Bush tax cuts" are the
root of all evil….
And as you get ready to embark on the annual fun associated with preparing your
income tax return (and writing your check), you will probably not be pleased to hear
of the conclusions contained in the recent report of the Treasury Inspector General for
Tax Administration (TIGTA, for short) entitled, "Internal Revenue Service Databases
Continue to Be Susceptible to Penetration Attacks."
The report presents the results of TIGTA's inquiry into concerns about whether
databases used by IRS computer applications are secure from exploitation by
unauthorized individuals. Since 2003, indeed, TIGTA has identified and reported
upon "significant weaknesses" in IRS database security controls. And previous
reviews have demonstrated that control weaknesses could be exploited to gain access
to sensitive taxpayer information, and disrupt IRS computer operations. And in short,
TIGTA now concludes that, "We are very concerned that these high-risk weaknesses
continue to exist and that greater efforts have not been taken to correct them."
And what has IRS been doing all these years?
"We also found that a majority of the IRS databases scanned do not have the latest
software updates (patches) installed. Our scans found 65 percent of the databases
scanned needed to be updated, with more than 300 databases being outdated from 11
months to 20 months. As a result, outdated IRS data bases were collectively
susceptible to nearly 40,000 database vulnerabilities, one-half of which are
considered high risk."
Presumably the good news in all of this is that IRS management agreed with all of
TIGTA's recommendations.
Nice--we can hardly wait for the next status report.
CONSULT YOUR TAX ADVISOR - This article contains general information about
various tax matters. You should consult your CPA regarding the implications to your
particular situation. Jeff Quinn, the author of this article, is a shareholder in Ashley
Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He is also a
contributor to the recently published tenth edition of Tax Savvy for Small Business,
published by Nolo. He may be reached at 831-7288, and welcomes comments at
jquinn@ashleyquinncpas.com.
Warren Buffett's Fuzzy Math
by Jeff Quinn
1/4/08
|
Indeed, as the tax filing season approaches, the Revenooers have found it necessary to
augment their ever-growing list of what they consider “frivolous” income tax filing postures,
warning folks of the related penalties which can be imposed. Run for the nearest exit if somebody
suggests one of these tax “strategies:”
~You don’t have to pay because the Ninth Amendment to the Constitution exempts folks with
religious or other objections to military spending from paying taxes to the extent the dough will be
spent on such nefarious activities.
~Only fiduciaries are taxpayers, or only persons with a fiduciary relationship to the United
States are obligated to pay taxes, and the United States or the IRS must prove the fiduciary
status or relationship.
~A taxpayer who is employed on board a ship that provides meals at no cost to the taxpayer
as part of the employment may claim a “Mariner’s Tax Deduction” allowing the taxpayer to deduct
from gross income the cost of the meals as an employee business expense.
~A taxpayer may claim the “fuels tax credit,” which is limited to gasoline used in an off-highway
business use, even though the taxpayer did not purchase and use gasoline during the taxable
year.
And if, like us, you’re in that “Baby Boomer” category, we hope you’ve been monitoring your
savings, in the hope/expectation that some day (which will come sooner rather than later) you
may have enough shekels to allow you to retire.
We hear that just a few weeks ago, folks born on or after January 1, 1946 (among 80 million or
so of “Boomers” born between 1946 and 1964) began calling on their Social Security benefits.
And for some, the harsh reality is now setting in, once they realize how meager the Social
Security benefits truly are, relative to spending requirements of those who want to enjoy a
comfortable retirement.
So even if you’re behind in your savings, don’t wait a day longer to get on this. Better late than
never, we always say.
And from our “$10 billion here, $10 billion there, pretty soon you’re talking about serious
money” department comes word of Barack’s recently unveiled “economic stimulus” plans, which
include:
~Tax credits to some workers and “one time” payments to some Social Security recipients,
costing $75 billion (plus another $45 billion if the economy weakens);
~$10 billion to increase pre-foreclosure counseling;
~$10 billion to help state and local governments facing budget problems as a result of the
housing problems in the economy;
~$10 billion for more unemployment insurance
And the beat goes on.
CONSULT YOUR TAX ADVISOR - This article contains general information about various tax
matters. You should consult your CPA regarding the implications to your particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants,
Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published
tenth edition of Tax Savvy for Small Business, published by Nolo. He may be reached at
831-7288, and welcomes comments at jquinn@ashleyquinncpas.com.
Time For More Frivolity
by Jeff Quinn
1/18/08
|
Economic Stimulus Mumbo Jumbo
by Jeff Quinn
1/25/08
|
The more things change, the more they seem to remain the same.
Haven’t we been down this so-called “economic stimulus” path before? And isn’t it curious that
as a presidential election nears, suddenly the Democrats are cuddling up to the Republicans—in
the name of “bipartisanship”—for essentially the first time since the 2006 elections, in an effort to
woo otherwise economically beleaguered voters.
Suddenly we hear all this talk about the fact that some of us may soon receive a check from
good old, benevolent Uncle Sam. Big deal, isn’t it?
Maybe so, until you realize that it’s much ado about nothing—a P.R. ploy to make us all think
that taking from the “rich” and giving to the “poor” will suddenly make everything alright in this
staggering economy. Literally a Robin Hood move if we’ve ever heard of one. More sophisticated
economists would call it a “redistribution” of wealth. But that’s the point—no new wealth will be
created; just a reshuffling of the deck in the hope that the blokes who receive a few hundred
bucks from the government will immediately run out and buy some big ticket item with it.
These short-term, attempted quick fixes are just a bunch of smoke and
mirrors—they surely don’t create any new wealth in the economy. On the other hand, what would
be of true benefit would be stabilization of tax policy in a manner which preserves the current low
tax rates associated with saving and investing. Notes The Heritage Foundation’s Brian M. Riedl,
by reference to U.S. Commerce Department statistics:
“The 2003 tax cuts lowered income, capital gains, and dividend tax rates. These policies were
designed to increase market incentives to work, save, and invest, thus creating jobs and
increasing economic growth. An analysis of the six quarters before and after the 2003 tax cuts
shows that the policies worked:
~GDP grew at an annual rate of just 1.7 percent in the six quarters before the 2003 tax cuts.
In the six quarters following the tax cuts, the growth rate was 4.1 percent.
~Non-residential fixed investment declined for 13 consecutive quarters before the 2003 tax
cuts. Since then, it has expanded for 13 consecutive quarters.
~The S&P 500 dropped 18 percent in the six quarters before the 2003 tax cuts but increased
by 32 percent over the next six quarters. Dividend payouts increased as well.
~The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six
quarters, it added 307,000 jobs—and 5.3 million jobs over 13 quarters.”
And on the charitable front, we know some of you, out there, have established a
so-called “donor advised fund” with your favorite charity—a fund or account owned and
controlled by a sponsoring charity, separately identified by reference to contributions of a donor
who has, or reasonably expects to have, advisory privileges with regard to the distribution or
investment of the assets in the fund. Kind of like having your own private foundation, without all
the administrative headaches of managing the critter.
Sooo, along come the Revenooers, sniffing potential trouble with these vehicles, and studying
some aspects of the arrangements, including whether retention by donors of any rights or
privileges (including advisory rights or privileges with respect to the making of grants or the
investment of assets) is consistent with the treatment of such transfers as completed gifts that
qualify for a tax deduction!
Stay tuned.
CONSULT YOUR TAX ADVISOR - This article contains general information about various tax
matters. You should consult your CPA regarding the implications to your particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants,
Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published
tenth edition of Tax Savvy for Small Business, published by Nolo. He may be reached at
831-7288, and welcomes comments at jquinn@ashleyquinncpas.com.
Taxpayer Advocate Suggests Some Changes
by Jeff Quinn
2/1/08
|
Annually, at about this time of year, the National Taxpayer Advocate reports to Congress.
The report usually contains something for everybody. Among the “most serious problems
encountered by taxpayers…..”
1. Issue One: The impact of late-in-the-year tax law changes. And this most recent year, of
course, was one for the ages—even worse than 2006, in which, notes the Advocate, Congress
waited until after the Form 1040 package and shrink-wrapped tax software products had been
finalized, to “extend” several popular tax deductions. Taxpayers ultimately claimed these
deductions about 1.4 million times less frequently than in 2005, when the deductions were
included in the Form 1040 instructions and built into all tax software.
2. Tax consequences of cancellation of debt income (which undoubtedly will be a big deal,
this tax season, in view of the housing market mess). Notes the Advocate, “The tax treatment
of cancelled debts is extremely complex and poses a significant challenge to affected
taxpayers. If the lender incorrectly values property, the amount of cancelled debt it reports will
be wrong. If the taxpayer is insolvent, the cancelled debt is excludable from gross income up to
the amount of the insolvency. If the debt is nonrecourse, the cancelled debt is not income. Our
review of IRS forms, instructions, and publications reveals that the IRS does not provide
adequate guidance to taxpayers.”
3. Identity theft procedures. The National Taxpayer Advocate first raised her concerns about
the IRS’ identify theft procedures in her 2005 Annual Report to Congress. And while some
improvements have ensued, IRS “has not done enough to improve procedures for victims of
identity theft or to secure its filing system from fraudulent filers.”
4. Here’s a good one: “The IRS should develop a behavioral research lab that can test and
enhance IRS products, thereby improving taxpayer service.” (And you thought they had their
hands full in simply administering the tax law!)
5. The “determination letter” process (i.e.—the drill through which organizations desiring tax
exempt status must go through) is fraught with unreasonable delays. (We can personally
attest to this one.)
6. Audits of “S” corporations should be expanded, and IRS should continue its “struggle” to
develop a comprehensive strategy to address “S” corporation noncompliance, including the
biggie: a significant number of “S” corporations classify all payments to their officers as
“distributions” rather than “wages,” effectively avoiding employment taxes.
Among “key legislative recommendations,” the Advocate actually suggests that a “fair and
just tax system should acknowledge IRS mistakes and delays in taxpayer issue resolution (an
understatement – ed.), and where such situations cause excessive expense or undue burden
on a taxpayer make a de minimis “apology” payment. (Don’t hold your breath on this one.)
And finally, in response to all you “flat tax,” “fair tax,” “simplification” and other similar
dreamers out there, the Advocate notes that among the most litigated tax issues, is the most
basic concept of all: the very definition of “gross income” under Internal Revenue Code
Section 61. We have been harping on this for years—you can dream up the simplest “post
card” sized tax form in the world. But the real issue lies in the King’s English: just what is
income, anyway?
CONSULT YOUR TAX ADVISOR - This article contains general information about various tax
matters. You should consult your CPA regarding the implications to your particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants,
Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published
tenth edition of Tax Savvy for Small Business, published by Nolo. He may be reached at
831-7288, and welcomes comments at jquinn@ashleyquinncpas.com.