Trust not flaky trusts. There’s a sort of folk belief that the rich and the sophisticated skip out of income taxes through clever use of trusts. That’s not true; trust income is taxed either to the trust owners, their beneficiaries, or to the trusts themselves — and at high effective rates. The 39.6% top rate that kicks in for unmarried individuals at $413,200 applies starting at $12,300 for trusts.
Still, this folk belief creates a market of gullible people who want to be like the sophisticated kids that don’t pay taxes. Where there’s a market, someone will attempt to meet the demand. That can go badly.
It went very badly for two westerners last week. From a Department of Justice press release:
Joseph Ruben Hill aka Joe Hill, 56, and Lucille Kathleen Hill aka Kathy Hill, 58, both of Cheyenne, Wyoming, and Gloria Jean Reeder, 68, of Sedona, Arizona, were convicted on charges of conspiracy to defraud the United States and obstructing a grand jury investigation following a three-week trial. In July 2014, Joe Hill, Kathy Hill and Reeder were indicted for conspiring to defraud the United States by promoting and using a sham trust scheme. Joe Hill and Reeder were also indicted for conspiring to obstruct the grand jury investigation in the District of Wyoming by causing individuals to withhold records required to be produced by federal grand jury subpoenas.
What were they selling?
Essentially, the scheme involved assigning income to the trust by using a bank account in the trust’s name that was opened with a false federal tax identification number. The Hills, Reeder, and many other CCG clients who testified during the trial used the CCG trusts to conceal income and assets from the IRS.
All of their customers can count on thorough and painful IRS exams.
Jana Luttenegger Weiler, Did you miss the last holiday in May? Friday was 529 Day (Davis Brown Tax Law Blog). “A recent Forbes article discussing the so-called holiday reported two-thirds of Americans are unfamiliar with 529 Plans.”
Hank Stern, The Flip Side of Halbig/King/Burntwell. “But there’s another side to this, one which has thus far gone unremarked: is there a potential upside to folks whose subsidies go away? (Insureblog)
William Perez, Identity Theft Statistics from the Latest TIGTA Report
Annette Nellen, Should Sales Tax Deduction Be Made Permanent? House Says Yes
These psychologists, anthropologists and other observers of human nature suggested that a couple of lines be added to tax collection letters:
“The great majority of people in your local area pay their tax on time. Most people with a debt like yours have paid it by now.”
I’m sure this approach has its limits, but it contains an important insight: people will pay their taxes if they think other people do. But if they feel other people get away with not paying, they’ll stop. Nobody likes to be a chump.
Jack Townsend, New IRS FBAR Penalty Guidance
Jim Maule, Can Anyone Do Business Without Tax Subsidies? Most of us have to — which is a powerful case against giving special favors to the well-connected and well-lobbied.
Andy Grewal, The Un-Precedented Tax Court: Summary Opinions (Procedurally Taxing). “It’s a bit strange to pretend that a judicial opinion does not exist…”
Peter Reilly, Structuring – First Kent Hovind – Now Dennis Hastert. The IRS has overreached in its structuring seizures, but keeping deposits under $10,000 in order to avoid the reporting rules for large tax transactions is still illegal. Bank personnel are trained to report suspected structuring. If you do it consistently, your chances of getting caught approach 100%.
Robert Wood, 20 Year Old Oral Agreement To Split Lottery Winnings Is Upheld. Still, it’s always better to get things in writing.
TaxGrrrl, Man’s Tax Refund Seized For Parking Tickets On Car He Never Owned. This sort of injustice is inevitable when the tax law is drafted into service for non-tax chores.
Russ Fox, I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption. Eddie Vrdolyak may be involved.
Tony Nitti, Rick Santorum Announces A Second Run For President: A Look At His Tax Plan. Mr. Santorum is slightly more likely to be president than I am.
TaxProf, The IRS Scandal, Day 753, The IRS Scandal, Day 752, The IRS Scandal, Day 751. I like this from Day 752: “The job of the IRS should be to collect taxes, fairly and efficiently. Since the income tax was enacted in 1913, however, the IRS has appropriated to itself—sometimes on its own, sometimes with congressional blessing—the right to make political judgments about groups of citizens. That is the central failure revealed by this scandal.”
Scott Drenkard, How Tax Reform Could Help Stabilize the Housing System (Tax Policy Blog):
Removing the impediment to saving baked into the tax code, then, has real impacts on real people. It helps people save for down payments on homes, or to put money toward education. Perhaps, if pared with a reduction in policies meant to artificially reduce down payments, tax reform could be an important component to stabilizing the housing market.
No-down-payment means you’re betting someone else’s money.
Richard Phillips, Martin O’Malley’s Record on Taxes is Progressive (Tax Policy Blog). That means he likes to raise them.
News from the Profession. Madoff Auditor Better at Cooperating Than Auditing, Won’t Serve Time (Caleb Newquist, Going Concern)
There will be no leftovers at the putlucks. Indiana Marijuana Church Granted Tax-Exempt Status, Plans ‘Call To Worship’ When Members Will Light Up (TaxProf).