Tax Planning - Repairman Jack Style

Source: http://www.forbes.com/sites/peterjreilly/2013/01/22/tax-planning-repairman-jack-style/

There is only one guy who refuses to file tax returns that I have unswerving admiration for.  His name is Jack.  Just Jack.  He’ll give you a last name if you insist.  He has lots of them.  Jack’s designation as a “repairman” is metaphorical.  What he fixes are situations that are at variance with his moral code. Wikipedia catches the spirit of his business pretty well:

He is something of an underground mercenary, hired by everyday people to fix situations that cannot be dealt with through legal means (e.g. by blackmail). He is careful about who he agrees to do fix-its for, preferring innocent, desperate citizens being victimized with no one else to turn to.

 There is a little bit of the  Zorro or the Lone Ranger about Jack.  The only thing is that after Jack has “fixed” a situation, he does not want somebody to say “Who was that masked man ?”  He would prefer “What the _____ ?”.  Jack does take a fee for his fixes.  Clearly gross income – and based on his lifestyle he makes enough to have a filing requirement and a significant liability.  He doesn’t file and he doesn’t pay and I really admire him.

Before you report to the various bodies that can sanction me, I should probably mention that Repairman Jack is a fictional character, the creation of F. Paul Wilson.  He appears in a series of novels that disclose “The Secret History of The World”.  You could tackle the “secret history” in chronological order (which is different from the order the books were published).   I’m engaged in that project right now. (Warning: if you are a tax blogger, you might take a productivity hit.)  It will be a while before you meet Jack if you take that course.  I’d recommend that you start with The Tomb, but, dammit Jim, I’m a tax blogger not a book reviewer, I’m here to tell you how Jack manages to not pay any taxes without forfeiting his liberty.

Be In The Right Business

The people who need Jack’s fix-it help have reasons that they cannot deal with the authorities.  Not anything that someone with a chaotic good alignment would hold against them, immigration issues for example.  At any rate his customers understand why they need to pay cash and won’t be inclined to send him a 1099.  When Jack’s girl friend prevails on him to “fix” the theft of some toys from a pediatric AIDS clinic where she volunteers, he resists because of their record keeping requirements.  He ends up doing the job gratis, but that’s a different part of the story.

When Jack explains why he can’t do paid work for a charity, his girl friend is more or less stunned:
She shook her head. “How can that be? You’ve got to have a social security number. You’ve got to have a bank account, a credit card, a driver license. You can’t function without them.”

Get Off To A Good Start

Jack was born in 1969+/-.  This was a great help in his subsequent plan to live “off the grid”.  If he was born much later, his CPA father would very likely have gotten a social security number for him in order to claim him as a dependent.  Jack had an entrepeneurial streak and was busily mowing lawns for pay by the time he was fourteen.  His first employer who ran a kind of antique shop was not bothered by the lack of a social security number.  He even paid Jack a few cents more an hour because of the avoided paperwork.

Honesty Is The Best Policy

Young Jack earns the trust of his employer by passing an honesty test, the details of which escape me at the moment.  He passes a much more significant test when the owner’s nephew appears in the store in the guise of a customer.  He tries to interest Jack in stealing from the owner.  When Jack resists, he reveals himself, praises Jack and offers him his card.  When Jack decides to move to New York City, Abe becomes his best friend, confidant and weapons supplier.

Because You Have To Have Friends

Jack may live off the grid, but he lives in community.  You will only learn about Jack’s special capabilities by referral.  You can contact him through his website which includes enough discussions of appliance repair to cover the true nature of his business.  He will then set up a meeting with you at a bar called Julio’s that is decorated in a manner to drive off yuppies.  Before you get to see Jack you will be scrutinized by Julio.  Julio’s problems with an unreasonable partner were among one of the earliest fixes that Jack achieved when he was starting his “career” in New York.

And A Retirement Plan

Being an urban merecenary can be demanding physically.  It is probably not a good job for really old men but Jack cannot have an IRA or a 401(k).  Much of his savings are in the form of Krugerands or other bullion coins.  They are hidden in the walls of his appartment.  Unlike paper money they won’t burn in a fire.  They are taped to pipes so that even a metal detector equipped burglar will be less likely to find them.

Why Is Tax Evasion OK For Jack But Not For Me And You ?

People refuse or fail to file required income tax returns for a variety of reason.  There are disorganized procrastinators, some of whom cannot discipline themselves to live on their after tax income.  There are people, sometimes called “tax protesters”, who have adopted often wacky theories about why the tax laws don’t apply to them.  The theories will often be supported by a pastiche of out of context quotations from case law, statutes and regulations.  There are “war tax” resisters, some of whom file without paying.  I have a variety of reactions to these folks.  I have a lot of sympathy for the disorganized procrastinators.  Over the years I have tried to give a couple of them the tough love that I thought they needed, but dammit Jim, I’m a CPA not a therapist.  I kind of admire the “war tax” resisters.  The tax protesters.  Much as I like to have them comment on my blog I’m hard pressed as to determine whether they are idiots are sociopaths.  Probably the proportions vary.  Jack is different.

The reason that Jack is different is that he has a special role to play in “The Secret History Of The World”, a titanic struggle spanning millenia between forces that we can never fully understand.  People are often merely pawns in this great struggle.  The tentacles of the conspiracies involved in the struggle reach everywhere.  That is probably why Jack feels moved to live off the grid, even though he is only gradually learning the true significance that he has.

I’m still working my way through the Repairman Jack corpus.  There may be some other planning tips buried in there.  I’ll keep my eyes open and let you know.

Here is his link on Twitter! @peterreillycpa.

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When Tax Cuts Were a Tough Sell

Source: http://economix.blogs.nytimes.com/2013/01/22/when-tax-cuts-were-a-tough-sell/

By BRUCE BARTLETT

Bruce Bartlett held senior policy roles in the Reagan and George H. W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

Fifty years ago this week, on Jan. 24, 1963, John F. Kennedy sent a special message to Congress on tax reduction and tax reform. Enacted the following year by Lyndon B. Johnson, the legislation cut the top federal income tax rate to 70 percent from 91 percent and the bottom rate to 14 percent from 20 percent. Ironically, it later became the template for Republican tax policy.

Those who don’t know the history probably assume that the tax cut was a slam-dunk for Kennedy, something that was overwhelmingly popular. In fact, a big tax cut was highly controversial because at that time Republicans actually cared about the deficit and recognized that tax cuts would increase it. This view was shared by the large bloc of conservative Southern Democrats then in Congress and the general public as well.

For example, on Dec. 14, 1960, before Kennedy was inaugurated, Senator Harry F. Byrd Sr., Democrat of Virginia and chairman of the powerful Senate Finance Committee, warned Kennedy against even thinking about a big tax cut, given the deficit situation. According to an Associated Press report published in The New York Times, Senator Byrd told Kennedy that a tax cut “would be the worst thing we could do.”

A July 1962 Gallup poll asked the American people, “Would you favor or oppose a cut in federal income taxes at this time, if a cut meant that the government would go further in debt?” Only 19 percent of people supported a tax cut, even though the high World War II-era tax rates were still in place; 72 percent were opposed.

Even among those who said that their taxes were too high, only 31 percent supported a tax cut if it would add to the deficit; 61 percent were opposed.

However, in mid-1962, Kennedy was concerned that the economy was not growing enough and that this would endanger his re-election in 1964 unless some action were taken. His economic advisers, under the influence of the British economist John Maynard Keynes, advocated an intentional increase in the deficit to stimulate aggregate demand.

But they were divided about the best way to do it. John Kenneth Galbraith, who had tutored Kennedy in economics at Harvard and was serving as ambassador to India, argued in favor of an increase in public spending to deal with unmet social needs. Kennedy rejected this advice because it would never pass Congress and because he was worried about inflation and growing pressure on the dollar from abroad.
Kennedy’s other economists favored a temporary tax cut to put money into peoples’ pockets. This course had been recommended in a 1961 report from Paul A. Samuelson of the Massachusetts Institute of Technology. Kennedy endorsed the idea at a June 7, 1962, news conference, but he remained concerned about both the politics and economics of this approach.

On Aug. 6, 1962, Kennedy met with Representative Wilbur Mills, chairman of the House Ways and Means Committee, and Mr. Mills suggested that the president consider a permanent tax rate reduction rather than a temporary one, which would be viewed as an election ploy. This would satisfy the desire of Keynesian economists to stimulate demand, and in a way that would be hard for conservatives to oppose.

On Aug. 10, 1962, Kennedy met with his economic advisers and they endorsed this approach. We know what transpired at these meetings because Kennedy secretly taped them. They were published in 2001.
Kennedy’s Jan. 24 message got the ball rolling. Using rhetoric that could easily have been spoken by Ronald Reagan two decades later, Kennedy said:

As I have repeatedly emphasized, our choice today is not between a tax cut and a balanced budget. Our choice is between chronic deficits resulting from chronic slack, on the one hand, and transitional deficits temporarily enlarged by tax revision designed to promote full employment and thus make possible an ultimately balanced budget.

Kennedy even made a “Laffer curve” case that the economic stimulus would be so great that it would offset much of the estimated revenue loss:

Once this tax brake is released, the base of taxable income, wages, and profits will grow – and a temporary increase in the deficit will turn into a permanent increase in federal revenues. The purpose of cutting taxes, I repeat, is not to create a deficit but to increase investment, employment and the prospects for a balanced budget.

Largely forgotten to history is that Kennedy also favored tax reforms to offset some of the estimated revenue loss. The most important of these would have been to tax all unrealized capital gains at death. Then, as now, unrealized capital gains held until death are never taxed; heirs treat the property as if it were purchased for a price equal to its value at the time of death, no matter how large the amount or how wealthy the decedent. This is an unjustified loophole that tax reformers still object to.

Kennedy’s tax plan was exactly what Republicans today recommend, but they opposed it strenuously at the time. The Republican members of the Ways and Means Committee unanimously opposed it, saying, “It is morally and fiscally wrong, and will do irreparable damage to the Republic.”

When the tax cut came up for a final vote in the House of Representatives on Sept. 25, 1963, only 48 Republicans supported it; 126 voted against it. Nevertheless, it passed by a vote of 271 to 155.
The prospects for the tax cut in the Senate were always far more dicey. A conservative coalition of Republicans and Southern Democrats had essentially controlled that body since the late 1930s, and they put budget balance ahead of tax reduction.

It is probably only because of Kennedy’s assassination in November 1963 and the strenuous efforts of Johnson, who had led the conservative coalition in the 1950s as Senate majority leader, that the tax cut passed the Senate. Even so, 11 Democrats and 10 Republicans voted against its final passage on Feb. 7, 1964.

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Small businesses face tax certainty but political uncertainty

Source: http://www.nbcnews.com/business/economywatch/small-businesses-face-tax-certainty-political-uncertainty-1B8035042

Jeff Schneider recently had his busiest November and December ever, as the tax preparer’s small business clients clamored for information about how the fiscal cliff negotiations could impact their taxes.

“It was unbelievable,” said Schneider, who runs SFS Tax and Accounting in Port St. Lucie, Fla.
The last-minute deal to avert the fiscal cliff left clients at least knowing what their tax bills would look like.
But Schneider said he’s still hearing some gripes amid the continued political bickering over the debt ceiling, spending cuts and other issues. That’s despite the fact that some also are talking about expanding their businesses or opening new locations.

 “When you talk to people they tell you face to face that the economy stinks, but they’re talking more politically than economically,” said Schneider, whose clients include doctors, dentists, a pawn shop and even an oxygen bar.

It’s no secret that Americans are fed up with all the political squabbles over taxes, spending and the federal debt load. For some small-business owners, the frustration is also tinged with fear: They’re worried that Congress’s inability to find common ground will hurt the economic recovery, and cut into their business.
Bill Dunkelberg, chief economist with the National Federation of Independent Businesses, said one in four businesses told the small business trade group in December that it was a bad time to expand because of political uncertainty. That’s despite other signs that the economy is slowly improving in areas like housing and
employment.

He said many small businesses also reported that their top problems involved issues like uncertainty about government policy and health care costs.

“The things you think businesses should worry about were way down on the list,” he said. “Government dominates the top part of the list.”

Taxes aren’t the only issue it says has the potential to hurt small businesses. The small business trade group has been a staunch opponent of President Barack Obama’s health care plan, the Affordable Care Act. The group was a lead plaintiff in the Supreme Court lawsuit that sought to halt the plan.

Dunkelberg said it’s too early to say whether concerns about political and government issues will ease in January, now that the fiscal cliff issues are resolved. Congress is still wrangling over other issues, such as the nation’s borrowing limit and possible federal spending cuts. Both could hurt small businesses owners who contract with the government or otherwise rely on government spending.

But some say that for many small business owners they work with, the fiscal cliff negotiations were the major potential distraction because it most directly impacted their taxes.

 “When finally the compromise was struck, I think there was an overall sigh of relief that at least there was something that had happened,” said Kim Loewer, a tax practitioner who runs Loewer and Associates in Weyridge, Vt. “The uncertainty had gone away.”

Now that many of the mom and pop shops he works with know what their tax liabilities are, Loewer said they are able to better plan for things like hiring and expansion.

 In general, Loewer said his clients – who run the gamut from consultants to retailers – are mostly reporting that business is going well.

“I don’t hear as much about where the economy is heading anymore,” he said. “I think that right now, from my clients’ point of view, we have seen an uptick in the economy (and) their businesses are doing better this year.”

Schneider, the tax preparer in Florida, said he is expanding the advertising and social media efforts for his own small accounting and bookkeeping business. That’s on the theory that spending more on marketing will draw in more clients even when the economy isn’t as strong.

He’s even called in his wife, an interior designer, to help fight the effects of the recession and weak economic recovery.

“I made her feng shui my office so I could get rid of the bad vibes,” he said.

 These posts are for informational use only to educate people about their online income taxes and the financial world around them. If you found this helpful, share the original article or this one, and help spread the word! With tax season rapidly approaching let us get you the best income tax return you can possibly have by e-filing! Leave us a comment if you want to share your opinion. How do you think small businesses will be affected? Have you considered Feng Shui?

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Philly cop and brother charged in $500000 tax scheme

Source: http://articles.philly.com/2013-01-20/news/36447992_1_tax-scam-false-tax-returns-false-claims

A PHILADELPHIA police officer and his brother have been accused of running a tax-fraud conspiracy that submitted more than $500,000 in false claims to the IRS.



A federal indictment unsealed Friday alleges that Officer Jose Tirado, 38, and his brother, Victor Tirado, 36, prepared more than 100 false tax returns in from 2008 to 2010.

The pair allegedly obtained names, birth dates and Social Security numbers and used them to prepare fraudulent returns. In some cases, they recruited the people whose information they had obtained and listed fake dependents or falsely inflated income in order to obtain refunds like the earned-income-tax credit, according to the indictment.

The refunds generated from the returns were directed to bank accounts controlled by the Tirados, the indictment alleges.

They submitted a total of $507,974 in more than 100 false claims, prosecutors said.
Jose Tirado, a 10-year police veteran, was assigned to North Philadelphia's 25th District, but is now suspended for 30 days with intent to dismiss, police said.

He is charged with 14 counts of false claims, his brother is charged with three, and they both face conspiracy charges.

- Philly.com

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Inmate cheats IRS out of $2.8M in refunds

Source:  http://www.ajc.com/news/news/inmate-cheats-irs-out-of-28m-in-refunds/nTykw/

By Christopher Seward

The Atlanta Journal-Constitution

Federal prosecutors said Wednesday a Marietta man cheated the Internal Revenue Service out of $2.8 million in tax refunds by filing false returns from state prison.

Arnold Tobias Gervais, 34, admitted in U.S. District Court that he’d hoped to get more than $3.4 million in federal tax refunds before his scheme of claiming wages and withholdings from a fictitious company unraveled, the U.S. Attorney’s Office said in a release.

Prosecutors said Gervais was in state prison in 2009 serving time for trying to get more than $600,000 in state income tax refunds illegally when he had his wife file a 2008 return to get more than $800,000 in federal refunds illegally.

Gervais also filed fraudulent returns for 2004, 2005, 2006, 2007, and 2009, and he filed another one for 2009 for an acquaintance. He claimed false wages and federal tax withholdings from a fictitious Rome, Ga., company called “Safety Shoes & More Inc.”

Prosecutors said Gervais sought refunds of more than $3.4 million, and was able to persuade the IRS to refund him $2.8 million. The agency, however, was able to recover $2.2 million from accounts Gervais controlled.

The 34-year-old man, who pleaded guilty Wednesday to filing false claims for income tax refunds, could receive up to five years in federal prison and a fine of up to $250,000.

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IRS gives Ten Tips to Help You Choose a Tax Preparer

Source: http://www.clarksvilleonline.com/2013/01/21/internal-revenue-service-gives-ten-tips-to-help-you-choose-a-tax-preparer/

Washington, D.C. – Many people look for help from tax professionals at tax time according to the Internal Revenue Service.

Probably not a good choice for a tax preparer!

Remember, though, that even if someone else prepares your tax return, you are legally responsible for what’s on it.

So, it’s very important to choose your tax preparer carefully.

1. Check the preparer’s qualifications. Regulations now require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN). In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. If your preparer is an enrolled agent, a certified public accountant (CPA) or an attorney, they have passed a high-level test to earn their title. These are the only three types of tax professionals who can represent you before all offices of the IRS.

2. Use a registered tax return preparer. By the end of 2013, paid preparers who are not enrolled agents, CPAs, or attorneys must take a basic competency test on Form 1040 tax preparation. They will become Registered Tax Return Preparers (RTRPs) once they pass it. Hiring a person with one of these four important credentials to do your taxes is your best choice.

3. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions through the state board of accountancy for certified public accountants; the state bar association for attorneys; and the IRS Office of Enrollment for enrolled agents.

4. Ask about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers. Remember your refund should only be deposited directly into accounts that are in your own name, your spouse’s name or both if it’s a joint account.

5. Ask if they offer electronic filing. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing. Make sure your preparer offers IRS e-file.

6. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

7. Provide all records and receipts needed to prepare your return. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub. This is against IRS e-file rules.

8. Never sign a blank return. Avoid tax preparers who ask you to sign a blank tax form. Before you sign your completed tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN, as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.  The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report suspicious tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from www.IRS.gov or order by mail at 800.TAX.FORM (800.829.3676).

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France Proposes an Internet Tax

Source:http://www.nytimes.com/2013/01/21/business/global/21iht-datatax21.html?_r=0

How it would feel paying a tax on the internet!

PARIS — France, seeking fresh ways to raise funds and frustrated that American technology companies that dominate its digital economy are largely beyond the reach of French fiscal authorities, has proposed a new levy: an Internet tax on the collection of personal data.

The idea surfaced Friday in a report commissioned by President François Hollande, which described various measures his government was taking to address what the French see as tax avoidance by Internet companies like Google, Amazon and Facebook. 

These companies gather vast reams of information about their users, harnessing it to tailor their services to individuals’ interests or to direct customized advertising to them. So extensive is the collection of personal details, and so promising the business opportunities linked to it, that the report described data as the “raw material” of the digital economy. 

“They have a distinct value, poorly reflected in economic science or official statistics,” the report said.

Google generates more than $30 billion a year in advertising revenue, including an estimated €1.5 billion, or $2 billion, in France. Yet, like other American Internet companies, it pays almost no taxes in France. That state of affairs upsets France’s policy makers, as public finances have been stretched thin and French Internet companies struggle to gain traction. 

“We want to work to ensure that Europe is not a tax haven for a certain number of Internet giants,” the digital economy minister, Fleur Pellerin, told reporters in Paris on Friday. 

But getting Google and other U.S. technology companies to pay more corporate taxes on their profits in France could take a long time, the report acknowledges, because this will require international cooperation.

In the meantime, France has discussed a variety of other taxes. Under the predecessor to Mr. Hollande, Nicolas Sarkozy, the government proposed a levy on Internet advertising. But that idea languished after local companies complained that it would affect them more than Google. Mr. Hollande’s government is also overseeing talks between Google and French online publishers, who want the search engine to pay them for linking to their content.

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