Brutal Assault on Reason Watch.* Today is election day, so we’ll run one more rundown of election-related news. We”ll start with my post from last week at IowaBiz.com, Tax stakes for entrepreneurs next Tuesday. An excerpt:
Mitt Romney’s tax plan is built around a 20% across-the-board individual tax rate cut, to be paid for by a eliminated deductions and tax breaks. He would also repeal the 3.8% investment income tax.
These individual rates are important to entrepreneurs because most business are now organized as “pass-throughs” — typically as S corporations or LLCs taxed as partnerships. Income of pass-through businesses is taxed on their owners’ 1040s, so the top individual rate is also the top rate on business income. The Romney approach, with its 28% top rate, takes the tax law in a very different direction than the Obama 44%+ top rate.
Robert D. Flach commands, VOTE!
Martin A. Sullivan, The Post-Election Fiscal Mess (Tax.com)
Joseph Thorndike, Soda Taxes and the Case for a GOP Majority (Tax.com)
Joseph Henchman, State and Local Ballot Initiatives to Watch (Tax Policy Blog)
*The “Brutal Assault on Reason Watch” is my roundup of election-related tax posts. The title comes from Arnold Kling’s description of political campaigns:
To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.
So if your post is listed in the Brutal Assault on Reason Watch, it doesn’t mean your post was a brutal assault on reason (though it happens). It means that it had something to do with election season.
Richard Morrison, Chart of the Day: High Earners and Business Income
Don’t ask if you’re not ready to tell. If you inquire about participating in the IRS offshore voluntary disclosure program and you let slip who you are, you’d better be prepared to follow through. From Tax Analysts ($link):
Rebecca Sparkman, CI director (operations policy and support), said that CI checks to ensure that taxpayers who undergo a pre-clearance check for acceptance into the voluntary disclosure programs follow through with disclosure. “Those [taxpayers] are suspect, and we are looking at those who decided not to continue to come through. Will it be Criminal Investigation? I don’t know; it could be a civil audit,” she said at the annual meeting of the California Tax Bar and California Tax Policy Conference in Coronado, Calif.
The IRS is long overdue for a standing simple offshore amnesty, like many states have for business non-filers. If a taxpayers who have not been contacted by the IRS would file, say, five years of FBARS, asset disclosures and amended returns, and owe less than some generous threshold of tax — maybe $250,000 — then offshore sins would be forgiven and they can get on with their lives. Maybe next Commissioner.
Many talents, but tax compliance wasn’t one of them. A man with multiple skills will have a restricted arena in which to use them for many years. An Ohio attorney last week received an 85-month sentence after being convicted of tax offenses, false statements and witness tampering. From a Department of Justice press release:
According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005. In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990. Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary.
At least he wasn’t an accountant. Plans like this can work great, until the IRS notices them, and then they don’t work at all. Plan B also went badly:
The evidence at trial further showed that after learning of the federal grand jury investigation into his business activities in May of 2006, Rick Matsa, together with Loula Matsa and others, conspired to obstruct justice by concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses and lying to federal investigators.
Rick Matsa’s tenant, P. Maria Galloway, the owner of an art gallery located next door to Matsa’s law firm, also testified after pleading guilty to conspiracy to obstruct justice. Galloway testified that she signed numerous documents at Rick Matsa’s direction, including federal income tax returns for Matsa’s law firm and a number of his nominee entities, which Matsa used as part of his scheme to obstruct the IRS, and that she made false statements to agents and the grand jury during the investigation.
I bet that stuff wasn’t in her lease.
The Moral? People who think trusts have magical powers to make your taxable income go away are mistaken. You might be able to fool the IRS for awhile, but with enough time the IRS is likely to figure it out. When Plan B involves getting your tenant to sign false papers for you, maybe it’s time to look at a plea deal.