Posts Tagged ‘tax protesters’

Tax Roundup, 7/2/15: Lives, Fortunes and Sacred Honor Edition. And: why Iowa can’t have nice things.

Thursday, July 2nd, 2015 by Joe Kristan


20150702-1Patriotism can be costly. The founders pledged “our Lives, our Fortunes, and our sacred Honor” when they voted for independence 239 years ago today. But not everyone is down for the “Fortunes” part.

A construction contractor in Florida leaned on patriotism to minimize taxes. The Tax Court takes up the story (citations omitted):

Petitioner became involved with certain organizations and individuals, such as the Patriot Network, We the People, and Richard Cornforth, that advocate tax avoidance and encourage actions to frustrate and delay the IRS’ collection efforts. He paid an annual fee to the Patriot Network for access to its Web site and for assistance with tax problems. Petitioner testified that he became convinced that Federal income taxes were “illegitimate” and that caselaw showed that individuals who had refused to pay taxes were prevailing in court.

That caselaw must be interesting. This sort of tax protest argument never actually works in avoiding taxes, though occasionally tax deniers can convince a jury that they actually believed this stuff enough to not be intentional tax criminals.

The taxpayer tried some legal incantations to help his patriotic cause:

On January 23, 2008, petitioner filed a notarized document entitled “Official Declaration of Domicile” with the Clerk of the Circuit Court, Volusia County, Florida. The document stated that petitioner did not believe himself to be a U.S. citizen but was rather “One of the People”, a “Florida [S]tate Citizen”, a “Sovereign”, and a “Man upon the land”. Petitioner filed this document at the suggestion of one of the tax-avoidance organizations.

20120531-2The “man upon the land” thing is a new one, to me. Unfortunately for our taxpayer, it didn’t work any better than the “One of the People” thing in Tax Court yesterday. He appears to have been a successful contractor, if the amount of taxes he was assessed is an indication, and the IRS probably noticed that there was no income being reported on the 1099s issued to him.

An examination got underway, and it went as well as you might expect, given the patriotic advice he was taking (my emphasis):

Revenue Agent Pritchard sent petitioner a letter dated April 24, 2009, stating that he had submitted Form 12153 prematurely, as no tax had been assessed yet. On May 6, 2009, Revenue Agent Pritchard sent petitioner a letter informing him that his arguments were frivolous and providing Code citations and IRS guidance pertaining to his filing requirements and respondent’s authority to impose and collect income tax. The letter specifically addressed promoters of tax-avoidance activities, stating: “These people base their arguments on legal statements taken out of context and on frivolous arguments that have been repeatedly rejected by [F]ederal courts.”

Nevertheless, at the suggestion of the aforementioned tax-avoidance organizations, petitioner continued to send letters to Revenue Agent Pritchard espousing similar arguments and often accompanied by Forms 12153. For example, with assistance from the Patriot Network, petitioner sent Revenue Agent Pritchard a letter dated May 13, 2009, threatening legal action against her and the United States. Petitioner also sent Revenue Agent Pritchard a letter dated July 14, 2009, “demanding that * * * [she] send * * * [him] a certified assessment of how * * * [she has] now came [sic] up with this alleged amount & the name of the person or persons preparing it”, and a letter dated October 23, 2009, and addressed to “Tax Collector” that requests a section 6320/6330 hearing and is accompanied by an attachment of materials that petitioner received from the Patriot Network

IMG_0216Lacking cooperation from the taxpayer, the IRS did things the hard way, backing into taxable income based on bank deposits and 1099s. The result was over $238,000 in taxes assessed over four years, plus interest and fraud penalties.

At some point after the taxpayer commenced Tax Court proceedings, lucidity overcame him:

Petitioner relied on the Patriot Network Web site during the early stages of this case. For example, petitioner followed the Patriot Network’s advice to file a request for admissions and a motion in limine to exclude from evidence the bank  records that respondent had obtained. However, petitioner testified that he subsequently realized he had made foolish mistakes “in trying to follow other people” and that he was trying to fix those mistakes. He hired an accountant to file late returns for 2008-11, and he testified that he would no longer be paying the annual fee to the Patriot Network.

That probably helped him establish business deductions that the IRS might not have otherwise allowed, but it didn’t undo his prior patriotism:

We commend petitioner for adjusting his behavior during the pendency of this case and for his considerable work in reconstructing largely accurate and very helpful summaries of his business income and expenses for the years at issue. However, we cannot discount months of uncooperative behavior that gives insight into petitioner’s intent in not filing Federal tax returns. Petitioner’s failure to cooperate with respondent is persuasive circumstantial evidence of fraud.

So he kept his life and, perhaps, his honor, but he lost a fortune: $237,976 in fraud penalties on top of $328,000 in taxes and $57,000 in late payment penalties.

The Moral? If you follow the advice of “Patriot” outfits to not pay your taxes, you may be unwittingly pledging your fortune. Unlike the founders, though, you won’t win.

Cite: Porter, T.C. Memo 2015-122.


Gretchen Tegeler, Why priorities don’t get funded (

One of the most significant “built-in” spending components affecting all state and local governments in Iowa is public pension debt. Our public pension systems guarantee retirees a monthly benefit for life, the size of which depends on how long they worked and at what salary. The system is built upon a financial model that involves a whole series of assumptions. If the assumptions don’t pan out, taxpayers are still on the hook to pay the benefits.

And the assumptions have not panned out.

Public defined benefit pensions are a lie. It is either a lie to the taxpayers about the cost of current services, a lie to the public employees about the size of their pensions, or some of both. A move to a defined contribution model, where benefits are limited to the amount funded, is long overdue.



Kay Bell, Tax record keeping rules and tips. Jeb Bush keeps his tax returns for at least 33 years. Should you?

Jason Dinesen, From the Archives: Issue a 1099-C to a Deadbeat Client or Customer? Um, no.


Scott Greenberg, Gavin Ekins, Tax Policy Helped Create Puerto Rico’s Fiscal Crisis (Tax Policy Blog). “While the United States federal tax code helped create the conditions for Puerto Rico’s fiscal crisis, the Puerto Rican tax code played a much more direct role in bringing the crisis to a head.”

Tracy Gordon, Puerto Rico: Not Your Father’s Debt Crisis – or Your Greek Uncle’s (TaxVox). “In a remarkable statement, Governor Alejandro Garcia Padilla announced this week that Puerto Rico’s debts are ‘not payable.’ Nobody was really surprised.”

Cara Griffith, Texas Comptroller Improves Transparency of Administrative Decisions (Tax Analysts Blog)

Patrick J. Smith, The Implications for Tax Litigation of the Supreme Court’s Decision in Michigan v. EPA (Procedurally Taxing) “While it is probably the case that in many challenges to tax regulations, the cost of compliance with the regulation may not be a realistic basis for challenge, there is no principled reason why in appropriate cases, the cost of compliance with a tax regulation might not form part or all of the basis for challenge.”

TaxProf, The IRS Scandal, Day 784


No Tax Update tomorrow. Our office is closed for Independence Day. Enjoy the fireworks, but spare a thought for those who have fought for independence, including 10 men who never made it back to base from a mission 71 years ago Sunday.



Tax Roundup, 6/11/15: Remember the June 15 deadlines. And: The Bernie Sanders bait and switch.

Thursday, June 11th, 2015 by Joe Kristan


20140728-1Programming Note: No tax roundup tomorrow. See you Monday!


Things that are due Monday: 

– Second Quarter estimated tax payments.

– Returns for filers living abroad

The IRS reminds us Taxpayers with Foreign Assets May Have FBAR and FATCA Filing Requirements in June.


Kyle Pomerleau, How Scandinavian Countries Pay for Their Government Spending (Tax Policy Blog).  This post considers avowed Socialist and quixotic presidential candidate Bernie Sander’s affection for Scandinavian tax and spending policies:

Specifically, Sanders wants the United States to adopt a lot of the spending policies that many of the Scandinavian countries (Denmark, Norway, Sweden) are commonly known to have. Policies such as government sponsored college education, paid parental leave, and universal healthcare.

Many of these new government programs would be expensive and necessitate higher taxes. It is instructive to look at how Scandinavian countries structure their tax systems in order to raise revenue for these programs. Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Two charts from the post tell the story:

High top rates…



…that kick in at much lower income levels than here:



In words, somebody making just a little more than the average income in Denmark pays a 60.4% rate on every additional dollar of income, while you have to make 8.5 times the average U.S. income to hit the top U.S. marginal rate of 39.6%.

A high top tax rate sounds great when it’s being paid by some rich guy you don’t know, but when you pay it, it doesn’t soound so good. That’s the bait and switch behind the spending policies of Bernie Sanders and his ideological soulmates. They tell you that somebody else will pay for all of this bountiful government spending, but the rich guy isn’t buying — he can’t.


Leona May, Accounting Firms Need More Career Options If They Want to Retain Talent (Going Concern):

With partner being the only laudable end goal, no wonder the big accounting firms have become essentially an accounting industry training ground. Firms pay to train us, and then we jump ship after a few years if that shinin’ disco light partner standard does not jibe with our long-term career aspirations.

The failure to retain good employees who don’t want equity is an expensive failure for our industry.


Robert D. Flach says SEE YOUR TAX PRO FIRST! “Very, very important – if you are considering entering into a business enterprise visit your tax professional and your accountant (if not the same person or firm) before you visit your attorney.”

Hank Stern, Centennial State HIX Hiccups (InsureBl0g). On the ugly state of Colorado’s ACA exchange.

Robert Wood, IRS Still Isn’t Ready For Obamacare, Says Watchdog

Carl Smith, Is The Tax Court an Agency or a Court for FOIA Purposes? (Procedurally Taxing)

Kay Bell, NYC attorney pleads guilty to amended tax return fraud. If the tax agency asks you why you haven’t filed your tax returns, filing fraudulent ones is an unwise response.

Jack Townsend, The Vatican Signs On To FATCA

Andrew Mitchel, U.S. Government Continues to Pursue Taxpayers Committing Tax Fraud




TaxProf, The IRS Scandal, Day 763. Today’s link puts the Tea Party scandal in its context as part of the larger movement to regulate (and, inevitably, restrict) free speech via campaign finance “reform.”

Renu Zaretsky, “The Waiting Is the Hardest [and Most Constant] Part”  Today’s TaxVox headline roundup covers the IRS funding standoff and the continuing Kansas budget fight, among other things.

Cara Griffith, Are REITs Paying Their Fair Share to States? (Tax Analysts Bl0g)

Carl Davis, Sales-Tax-Free Purchases on Amazon Are a Thing of the Past for Most (Tax Justice Blog). “Effective June 1, Amazon is now collecting sales taxes in fully half the states that are collectively home to over 247 million people, or 77 percent of the country’s population.”


This could catch on a lot better than that Irwin Schiff stuff. Austrian Brothel Offering Free Sex And Drinks In Tax Protest



Tax Roundup, 1/13/15: Another bad day for Mr. Banister in Tax Court.

Tuesday, January 13th, 2015 by Joe Kristan

Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.

lizard20140826“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.

In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.

This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):

During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.

The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.

It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.

Mr. Banister tried to use his own medicine to fight the IRS:20120511-2

During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.

It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.

Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly  to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.

The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.

I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.

Cite: Banister, T.C. Memo 2015-10

Russ Fox has more: The Second Time Wasn’t the Charm


20120620-1Busy day, so just some quick links.

Robert D. Flach has fresh Tuesday Buzz,  with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.

Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.


Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).

Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:

Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.

Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.


Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):

TaxProf, The IRS Scandal, Day 614


Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)


Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.


FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258


Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.


Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS


Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers


TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.


News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)



Tax Roundup, 2/28/14: Somber reasoning and copious citation edition. And: tax soda, not pop!

Friday, February 28th, 2014 by Joe Kristan

crackedThe courts rarely spend much time on tax protesters.  While optimistic and deluded folks may spend lots of time submitting documents trying to convince the judge that he is sitting in an admiralty court or something, courts rarely rise to the bait.  They typically dismiss the nonsense filings this way, in language arising from Crain (CA-5, 1984):

We shall not painstakingly address petitioner’s assertions with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.

The Tax Court made an exception yesterday.   A taxpayer whose tax information apparently appears on a well-known tax protester site showed up before Judge Buch, and the judge decided to take advantage of a teaching opportunity:

The Court has taken the time, however, to address those arguments because Mr. Waltner appears to be perpetuating frivolous positions that have been promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The Fascinating Truth About Taxation in America (2007). Indeed, it appears not merely that Mr. Waltner’s positions are predicated on that book but that his returns and return information have been used to promote the frivolous arguments contained in that book. Consequently, a written opinion is warranted.

I have mentioned Mr. Hendrickson before.  His most recent appearance here involved an appeal of his sentence on tax convictions.  Needless to say, if Mr. Hendrickson has “cracked the code,” a lot of good it did him.  Judge Buch addresses some of the contentions Mr. Hendrickson’s book makes, including the idea that most of us aren’t “persons” subject to the tax law and that “private sector” income is non-taxable.  Judge Buch addresses Mr. Hendrickson’s qualifications in tax law (let’s just say they are non-traditional, including a firebombing conviction).

The opinion describes Mr. Hendrickson’s main tax tactic:

This misguided view leads to the author’s strategy for filing tax returns, which was mirrored by Mr. Waltner’s returns. The author recommends “correcting” Forms 1099 by including a declaration that nothing that was received was taxable. Mr. Waltner did this. The author recommends creating substitute W-2s by changing only the amount of the reported wages. Mr. Waltner did this. The author recommends filing a Form 1040 based on these inappropriately revised forms. Mr. Waltner did this. The author recommends including FICA taxes amongst the taxes withheld. Mr. Waltner did this. 

In the end, this long Tax Court opinion comes to the same conclusion as all of the shorter ones addressing the same arguments, concluding that they don’t work.  The taxpayer, Mr. Waltner, was hit with a $2,500 penalty for making frivolous arguments.

The Moral:   No matter how many words they throw out there, tax protest arguments don’t work.  Also, it’s unwise to take tax advice from advisors whose arguments can’t keep themselves out of prison.

Cite: Waltner, TC Memo 2014-35

Related: Russ Fox, He Cracked the Code (but Won’t be Happy with the Result)


William Perez, Tax Credits for Families with Children

Me, IRS issues 2014 auto depreciation limits; luxury begins at $15,800

Jack Townsend, Another Sentencing of UBS Client.  In case you think bank secrecy still works.


20131209-1Len Burman, Hidden Taxes in the Camp Proposal (TaxVox):

The plan resurrects the 1960s era add-on minimum tax—the granddaddy of today’s uber-complex Alternative Minimum Tax. Effectively, the surtax can be0 thought of as an additional tax on certain preference items such as the value of employer-sponsored health insurance, interest on municipal bonds, deductible mortgage interest, the standard deduction, itemized deductions (except charitable contributions), and untaxed Social Security benefits. Although the list of preference items differs from the old add-on minimum tax, the idea is eerily similar.

The more I see of the Camp plan, the less it seems like reform.


Clint Stretch, 10 Reasons Democrats Should Like the Camp Tax Bill. (Tax Analysts Blog)  Generally reasons why it doesn’t count as actual reform.

Joseph Rosenberg, How Does Dave Camp Pay for Individual Tax Cuts? By Raising Revenue from Corporations (TaxVox)

Kay Bell, GOP’s tax reform bill DOA


TaxProf, The IRS Scandal, Day 295

Johannes Schmidt, New Soda Tax Proposed in Illinois (Tax Policy Blog).  That must mean it only applies in Southern Illinois, because it’s (properly) called “Pop” everywhere else in the state.


News from the Profession: Big 4 Firms Making Necessary March Madness Preparations as Usual (Going Concern)



Tax Roundup, 12/20/2013: S corporation built-in gain window closing? And more!

Friday, December 20th, 2013 by Joe Kristan

S-SidewalkThe S corporation Built-in gain window is closing.  The main benefit of S corporations since 1986 is that their income is only taxed once — when it is earned, on the tax returns of its owners.  After-tax earnings may be distributed to owners without another tax; undistributed earnings increase the basis of the owners’ stock, reducing gains when the stock is sold.

C corporations, in contrast pay a tax on their own income.  C corporation shareholders pay a second tax when the after-tax earnings are distributed; they don’t get a basis step-up for undistributed earnings, so they pay the second tax on undistributed earnings as part of their gain when they sell their shares.

To keep C corporations from becoming S corporations and liquidating the next day, Congress enacted the Built-in Gains Tax in the 1986 tax reforms.  This tax applies to any C corporation that makes an S corporation election.  It hits all “built-in gains” recognized during the “recognition period” following the election at 35%; the after-tax built-in gains are then also taxed on shareholder returns.

“Built-in gains” are any income items accrued as a C corporation as of the day of the S election.  For example, if the corporation owns land with a cost of $10,000 and a value of $15,000 as of the date of the S election, it has a $5,000 built-in gain.  If it sells the land during the “recognition period,” it pays the tax on the lesser of the actual gain or the $5,000 built-in gain.

The recognition period was 10 years when the tax was enacted.  It has been reduced to 5 years by temporary legislation, but absent new legislation it will revert to 10 years starting January 1.  That means S corporations that made elections taking effect in 2004-2007 can sell built-in gain assets before December 31 without the tax, but the same gain will be subject to the tax starting January 1.   That has obvious year-end planning implications.   If you are going to sell soon, it may be best to sell right now, as two weeks from now may be too late.

Yes, it is possible that the five-year period will get extended again, but who wants to count on Congress?

More 2013 year-end tax tips every day through December 31 at the Tax Update!


Why the IRS shouldn’t get political.  People who don’t think the IRS Tea Party scandal is serious need to consider how other places use the tax law.  France24 reports: Putin to pardon jailed tycoon Mikhail Khodorkovsky.

Mr. Khordorkovsky was imprisoned for 10 years on tax evasion charges.  His real offense was opposing Vladimir Putin while wealthy.  The message was surely heard by other wealthy Russians with the means to oppose the regime.

As complicated as the tax law is, it would be easy work for a politicized IRS to make trouble for disfavored opponents.  That’s why the Tea Party scandal is so serious, and why the new proposals to regulate 501(c)(4) outfits are so outrageous.  And yes, it could happen here.  It did.


Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

If it needs a subsidy to happen, it probably shouldn’t happen.  Tax break for wind power is up in the air, advocates say (Des Moines Register)

The wind provision is one of about 50 tax credits that are expected to expire at the end of 2013. U.S. Sen. Chuck Grassley, R-Ia., said the tax credits, which are usually dealt with together, failed to get a vote in Congress this year because key lawmakers thought they could include them as part of a major tax-reform bill.

Grassley told reporters that passage of a more sweeping tax overhaul appears unlikely. Senate Finance Chairman Max Baucus, D-Mont., told him last week that Congress expects to deal with wind and the other tax credits in 2014. “He wasn’t specific on when it would happen, but he said we are going to have to do (extensions of the tax credits) next year,” Grassley told reporters.

These things are passed one year at a time to pretend that they are much less expensive than they are under Congressional budget rules.   A felony in the private sector, business as usual in Congress.


Alan Cole,  Party in the UK (Tax Policy Blog)

Critically, the UK has improved its tax system substantially. It is moving towards a more competitive, more neutral tax base that treats all sorts of economic activity equally. While they have been willing to increase sales taxes – a neutral, simple tax – they are also reducing the costly corporate tax. Corporate taxes tend to substantially reduce the welfare of everyone – both the owners of corporate stock and the workers who depend on heavy capital investments. They have also abolished crippling financial transaction taxes.

Crippling financial transaction taxes like the one supported by Iowa Senator Harkin and his would-be successor Bruce Braley.


Jason Dinesen, Death Master File Changes Coming — Finally!  “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

William Perez,  Using a Donor-Advised Fund to Donate to Charity at Year End

Howard Gleckman,  A New Look at Who Benefits from Tax Expenditures.  “There is a tax expenditure under the holiday tree for just about everyone.”

Speaking of trees.  O Christmas Tree, O Christmas Tree, Please Congress don’t tax our Christmas Trees (Kay Bell)

TaxGrrrl,  12 Days Of Charitable Giving 2013: Helping Hands Center For Special Needs   


TaxProf, The IRS Scandal, Day 225

Tax Justice Blog,  State News Quick Hits in Wisconsin, Illinois, Kentucky and Oklahoma

News from the Profession.  Short Sellers, Moms, Son of God, all Credited with Encouraging PwC’s Vigorous Audit of Herbalife (Going Concern)

Get your Friday Buzz from Robert D. Flach!


IrwinIrwinirwin.jpgQuotable me.  From Peter Reilly, Andrew Schiff Does Not Recommend That You Imitate His Father Irwin:

When I asked Joe Kristan for his thoughts on the matter he summed up the realist perspective pretty well:

“Oh, my.

“I don’t care to go down the rabbit hole on the tax protester arguments. However convincing they may seem to adherents, they just don’t work. Given the choice between Irwin Schiff’s theories and all the federal judges that have ruled on these arguments – and they’ve been put before the courts countless times – a wise taxpayer goes with what the judges say. Every time. You can believe there is no income tax, but if the IRS agent, the federal judge, the federal marshals, and the Bureau of Prisons say otherwise, for all practical purposes there is an income tax.”

Yep, I said that.  Thanks, Peter!


Mom can’t share everything.  Mothers are famous for sharing all with their kids, but sometimes it doesn’t work out.  From

A Creve Coeur venture capitalist was sentenced to five years in federal prison Thursday on a tax evasion charge for dodging millions of dollars in taxes from 2006-2009, the U.S. Attorney’s office said.

Burton Douglas Morriss, 50, should have paid $5.5 million, prosecutors said, but used $18 million in tax losses in 2007 alone to reduce the amount he claimed to owe. The companies that incurred the losses “were established as single member limited liability companies for Morriss’s mother” and she had already claimed those losses in past returns, prosecutors said.

Five years is the maximum sentence for a one-count tax evasion plea.   It’s not nice to steal Momma’s tax losses.



Tax Roundup, 12/6/2013: Fools Gold Edition. And: corporations can have their identity stolen too!

Friday, December 6th, 2013 by Joe Kristan

We’ve all had narrow misses with bad ideas.  For example, the general manager of the Yankees and Red Sox owner went out drinking and negotiated a trade of Ted Williams for Joe DiMaggio, only to call it off in the light of day.  Think of the time you almost went into business with your brother-in-law.  Fortunately, we usually think better of it in time to avoid disaster.

Not Robert Kahre.  He got this great idea to pay employees in gold and silver coins, which are worth far more than their original face value, while reporting the income and paying taxes at the face value.

Kahre met John Nelson (Nelson), who authored books and taught classes about the IRS and the monetary system, and Nelson’s ideas influenced Kahre to develop the payment system at issue.

According to Kahre, he developed his gold payroll system because the United States government had debauched the national currency and utilized inflation to confiscate the wealth of U.S. citizens. Kahre relied on court cases and the Gold Bullion Coin Act of 1985 that approved gold coins as legal tender. Kahre devised the independent contractor agreements to reflect that the IRS was a foreign agent for the World Bank and the International Monetary Fund (IMF). In Kahre’s view, by collecting taxes for the IRS, employers illegally served as foreign agents for the World Bank and IMF. Kahre relied on several federal statutes, regulations, and “Presidential Documents” in the process of developing his payroll system to avoid the collection of taxes on behalf of foreign agents.

How do you suppose that worked out?  Well, the above description comes from a federal appeals court decision upholding a 190-month prison sentence for Mr. Kahre, if that’s any indication.   More from the decision:

Appellants contend that the district court erred in denying their motions to dismiss the indictments because they did not know that their use of gold and silver coins for payroll payments was illegal under the tax laws. Appellants specifically maintain that the district court’s tax valuation predicated on the fair market value of the gold and silver coins unfairly imputed criminal intent to their unknowing actions.

A footnote helps show why the court wasn’t persuaded (citations omitted, emphasis added.):

Appellants contend that gold and silver coins are statutorily valued at face value. However, this appeal does not really concern the statutory value of gold and silver coins when utilized as legal tender. Instead, this appeal addresses Appellants’ payment of wages in gold and silver coins in a scheme to avoid payroll taxes, as evidenced by the facts that Kahre’s employees were required to immediately return the coins for cash and, that if an employee retained the coins, his wages were reduced by the fair market value of the coins.


The moral?  The tax law isn’t required to believe every ridiculous thing you read, and there is no Tax Fairy.

Cite: Kahre, CA-9, NO. 09-10471


TIGTAIt’s not just individual identity theft.  TIGTA: IRS Issues $2.3 Billion/Year in Fraudulent Tax Refunds Based on Phony Employer Identification Numbers. (TaxProf). Considering this, and the identity theft epidemic, and their worsening taxpayer service, their wish to devote resources to regulating preparers is hard to take.


Now there’s a shocker.  Democrats, liberals pan Gov. Terry Branstad’s flat tax idea (Jason Noble).  If you can’t get the cooperation you need to pass even a half-way plan, you can at least change the terms of the debate by going bold.


Jason Dinesen, Stock Losses and Taxes:

Beware of “wash sales.”  A wash sale occurs when you sell stock at a loss and then buy the same stock within 30 days before or after the sale.  (Example:  you sell Stock A at a loss on August 1 and then re-purchase Stock A on August 15.  This is a wash sale and the August 1 loss is not currently deductible but instead adjusts the basis of the stock you purchased on August 15.)

Year-end loss sales are a common tax planning move, but you need to be willing to do without the shares for 30 days.


Kay Bell,  Low corporate tax rates don’t guarantee more jobs.  No, but you won’t convince anybody that high corporate taxes help.’

Kyle Pomerleau, New Report on Corporate Income Taxes and Employment Doesn’t Come Close (Tax Policy Blog).  “Their conclusion is akin to blindly picking two jellybeans from a bag of 1,000, getting two red ones, and then concluding that the rest of the jellybeans in the bag must be red.”


Dueling cronyism.  Missouri Lawmakers to Washington: We’ll See Your $8.7 Billion, And… (Tax Justice Blog)

William Perez,  Year End Deduction Strategies for the Self Employed

 Andrew Mitchel,  New Resource Page: Monetary Penalties for Failure to File Common U.S. International Tax Forms.  They’re quite ugly.


Elaine Maag,  Analyzing Taxes and Transfers Together (TaxVox)

Keith Fogg,  What is a return – the long slow fight in the bankruptcy courts (Procedurally Taxing)

Jack Townsend,  Economic Substance Uncertainty in Civil Cases

Tax Trials, Supreme Court Adopts IRS Position on Jurisdiction and Application of Partnership Penalties


Courtesy Gateway Pundit.

Courtesy Gateway Pundit.

Fiduciary Income Tax Blog,  Valuation of Indirect Ownership Through a Trust


TaxProf, The IRS Scandal, Day 211


Robert D. Flach has a meaty Friday Buzz!

TaxGrrrl,  Flushing Out The Toilet Paper Tax Exemption   

News from the Profession.  Former CPA and Procrastinator Ordered By the State to Get Around to Removing “CPA” From All Her Stuff (Going Concern)


Happy St. Nicholas Day!





Tax Roundup, 10/14/2013: Tomorrow’s the day for filing extended 1040s! And Pope Francis won’t get you off the hook.

Monday, October 14th, 2013 by Joe Kristan

20111040logoTomorrow’s is it.  Extended 1040s are due tomorrow.  There are no further extensions available. Get ‘er done!  As Russ Fox says, It’s One Minute Before Midnight….  Russ has some excellent advice for last minute filers.


TaxGrrrl, Shutdown Or No, IRS Filing Deadline Remains October 15.

Kay Bell, 4 Oct. 15 tax deadlines: 1 filing, 3 retirement related


Some folks have, well, unorthodox ideas of how the tax law works.  Destry James Marcotte of Illinois, for example.  Mr. Marcotte was indicted on charges of claiming improper tax refunds.  As part of his defense he filed an “AFFIDAVIT” that testifies to his approach to taxes.   It starts off:


There are 14 pages of this sort of thing, including:




The Pope Francis thing is an innovation in the tax law, but too much of one for the U.S. District Court of Illinois, where Mr. Marcotte was found guilty of tax charges.

The Moral:  Mr. Marcotte went through a lot of work here.  All in all, it would have been easier to file his returns correctly.  No matter how much crazy he put into his tax filings, it wasn’t enough.  He’s likely to get some time in federal prison to ponder his next tax planning moves.



2014 State Business Tax Climate IndexLyman Stone, Taxes and Economic Outcomes: Indiana and Wyoming Edition (Tax Policy Blog)

At least for this sample, when we look at apples-to-apples comparisons of similar states, taxes matter. They aren’t the only variable, something we make clear in the Index report, but they are a significant variable that legislators can control directly. 

Taxes may not be everything, but it defies everything we know about economics to say they are nothing.


Tax Trials, Tax Court Reverses Itself on Qualified Appraisals for Façade Easements

TaxProf, The IRS Scandal, Day 158

Jack Townsend,  HSBC Depositor Convicted.  Bank secrecy isn’t what it once was.

Brian Mahany, It’s Too Late To Close Your Foreign Account – FATCA Post

Stephen Olsen,  Procedure Roundup for 10/11/2013 (Procedurally Taxing)


Robert D. Flach has a special Monday Edition Buzz.

The Critical Question: Judge Orders Man To Stay Dead Despite His Insistence He’s Alive: Could You Be Next? (TaxGrrrl) and Jim Maule, Do Dead People Pay Taxes?



Tax Roundup, 6/3/2013: Annals of Crime and Redemption Edition.

Monday, June 3rd, 2013 by Joe Kristan

20130603-1How to make Zumba popular with men.  From The Guardian Express:

Zumba instructor and prostitute Alexis Wright has been convicted in an Alfred, Maine courtroom of prostitution, conspiracy, tax evasion, and theft by deception.

Wright used her Zumba training facility as a front to run a prostitution  ring.  She has been sentenced to ten months in jail.  She will also have to repay $57,280 for accepting welfare funds of more than $40,000.  It is believed that she netted more than $150,000 from prostitution.

The story has gotten some extra mileage because it happened in Kennebunkport, a picturesque and posh seaside town where George Bush the Elder maintained a place.  She also videotaped her private exercise sessions and had a client list including “prominent members of the seaside community.”

According to the story, the Zumba entrepreneuress has turned over a new leaf:

Now that her life of prostitution, conspiracy, and tax evasion has ended, Wright promised a change in her life after her release.

“It’s my intention to stand up for what is right. When I’m out, I’m going to pursue helping people fight through situations that are similar to mine. I’m optimistic that something good will come out of this,” Wright said Friday, according to the AP.

An inspiration to us all.  To pay our taxes, at least.


Speaking of misplaced inspiration, a Tennessee man who claimed the power to “decode” the tax law apparently misplaced his decoder ring. reports:

 U.S. District Judge Thomas Phillips sentenced David Miner, 61, to an 18-month prison term for plotting a campaign to impede and harass IRS agents in a bid to help his paying clientele to avoid paying taxes and failing to file his own tax returns.

For $1,200, Miner sold a program to “decode” via an IRS manual a client’s Individual Master File, or IMF, which uses computer codes to document a person’s tax history, point out errors and write letters demanding the IRS fix those problems.

Assistant U.S. Attorney Frank Dale argued for a harsh sentence:

“Miner has written a book and other documentary materials, operated an Internet website, and spoken at various meetings, presumably on subjects related to defying the tax system,” Dale continued.

Not just a website, but an internet website!  Which is still up, oddly enough.  It’s full of tax protester nonsense, but I can’t argue with this assertion there:

We can’t help you convince your family and friends that you are not crazy or Satanic or destined for jail.

I’ve been trying for a long time, but my family and friends are convinced that some or all of these things are true about me.

How did the defendant justify himself?

Miner insisted that he believed his IRx-Solutions Inc. firm was not selling a scam. He said he was inspired by Joe Nelson Sweet, a Florida man currently serving a 10-year prison term for a similar venture.

The moral: when seeking inspiration, don’t look to folks serving ten-year sentences.


Debit cards don’t confer tax exempt status either.  A North Carolina man has pleaded guilty to tax crime charges:

William Robert Hupman Jr., pleaded guilty today to corruptly endeavoring to obstruct or impede the due administration of the internal revenue laws, the Justice Department and the Internal Revenue Service (IRS) announced today.

According to court documents, Hupman managed and controlled Security Concepts LLC.  a security alarm company based in Mebane, N.C.  Instead of receiving a salary from Security Concepts, Hupman received income by using a Security Concepts debit card to pay his expenses.

That sort of brazen skimming is likely to get caught eventually in any case, but the man may have done a little extra to attract IRS attention:

Despite the fact that employment taxes were withheld from the wages of Security Concepts employees, Security Concepts has not paid employment taxes and filed the required tax form since the third quarter of 2009.

The IRS notices that sort of thing pretty quickly.


Andrew Mitchel, U.S. Government Continues to Pursue Taxpayers Committing Tax Fraud, a roundup of recent tax crime news.

Jack Townsend,  Reminder on FBAR Filing for 2012 Year – Must be Received by June 28, 2012


Paul Neiffer,  The Advantages of Commodity Contributions

Brian Strahle, “SUBJECT TO CHANGE”:

If something bad has happened in life, or with your company’s state tax position, the good news it is probably temporary.  There is most likely a practical and effective way to mitigate the risk, exposure or liability. 

TaxGrrrl, June A Busy Month At IRS For Taxpayers and Tax Pros.   FBARs, second quarter estimates, and more.


Kyle Pomerleau,  Another Study Confirms: U.S. Has One of the Highest Effective Corporate Tax Rates in the World

Trish McIntire,  Fiscal Cliff-Kansas Style

Peter Reilly,  NFL As Tax Exempt Less Than Meets The Eye ?

Tony Nitti, Raising Capital Gains Rates In the Name Of Tax Reform


TaxPro, The IRS Scandal, Day 24

Getting ahead of the game. IRS issues preemptive apology for tax conference excesses(Kay Bell) But boy, they can dance!

Megan McArdle, IRS White House Visits: Less Than Meets the Eye

Russ Fox, The Answer Is in Washington


Robert D. Flach,  AND YOU WONDER WHY I DO NOT USE TAX PREPARATION SOFTWARE.  Robert passes on a tax software horror story, which we all have.  Yet for all of its flaws, there is a reason most practitioners use tax software.  It saves an enormous amount of duplicative work, avoids the vast majority of math errors, and enables you to get much more done.  But you don’t want to cheap out on your software — you get what you pay for.

Robert is welcome to his hand-crafted returns, but I’d quit rather than do a 20-state 1065 by hand.


Not strictly tax-related, but when people get nostalgic for how wonderful things were back in the day, remember that back then TV makers actually competed on how easy it was to fix them when they broke.



Tax Roundup, 5/30/2013: Galt’s Gulch, NY? And: taxes are unconstitutional, but refunds are just great!

Thursday, May 30th, 2013 by Joe Kristan

20130530-2David Brunori, Worst Tax Idea of the Year? Cuomo Wins by a Landslide:

An ideal tax system is based on a broad base and low rates. At least that is what the thinking folks believe. An ideal tax system also treats similarly situated people and organizations the same. People concerned about fairness have always thought that. And an ideal tax system minimizes economic distortions. Now politicians of every stripe violate that ideal every day. Personally, I think politicians violate this idea because 1) they arrogantly want to dictate their views on the rest of us, or 2) they want to enrich their friends.

Now the Governor of New York wants to create tax-free zones:

Not everything, everyone, or everywhere in New York will be tax-free. The tax-free communities will be all of the state universities (and curiously a number of private universities) outside New York City. Companies that open shop in these communities will be exempt from sales, income, and property taxes. That’s better than living in New Hampshire. Better still, employees who work for businesses in the new tax free communities will be exempt from paying state income taxes.
So if you are in the community you don’t pay tax. If you are outside, even by six inches, you do.

I agree that this is a terrible idea, as is.  But if Governor Coumo is willing to go further and create libertarian free cities in his state, that would be pretty cool.  Galt’s Gulch, NY could give the Free State Project in neighboring New Hampshire a run for its money.


William McBride, CBO: Tax Expenditures in the Eye of the Beholder.  With this handy chart:




TaxProf, The IRS Scandal, Day 21

Russ Fox, The Big Questions Remain Unanswered (IRS Scandal Update):

 Why did the IRS scrutinize “conservative” and “tea party” applications?  It’s clear the orders came from Washington.  Who ordered it?  The IRS employees in Cincinnati were most likely just following the orders from Washington.  Someone came up with the idea to have this scrutiny.

It clearly wasn’t just some rogue Ohioans.

NBC News, IRS higher-ups requested info on conservative groups, letters show

Ed Driscoll, The Ohio Players.  A reminder that the IRS scandal includes the illegal disclosure of confidential applications for exempt status by right-side organizations to a left-side 501(c)(3).

Linda Beale, The real IRS scandal.  To her, the real scandal is that anybody is paying attention.

Patrick Temple-West, IRS gets a new risk officer, and more (Tax Break)


Peter Reilly raises an interesting argument In Defense of Special Tax Breaks:

Clearly there is value in keeping that Greek Revival facade, but there is no way that the owner of the property can reap that value.  If there is a CVS there, I will go in and buy a bottle of Mountain Dew or get a prescription filled which will help pay the rent that the highest and best use yields the property owner.  Having me look at the facade and imagine the men and women who thought that there was an ancient precedent for the new form of government that they were devising is tough to charge for.

That is why there needs to be some sort of public support for the preservation of historic structures. 

I disagree.  As much as I like cool old buildings, giving them special tax treatment means other people subsidize my aesthetic preferences.  What makes that OK, but wrong to make me subsidize a velvet Elvis?   The tax law has enough to do to fund the government; making it the Swiss Army Knife of public policy makes it not very good at anything.


Robert D. Flach, DON’T BLAME APPLE!

The fault lies not with APPLE or the members of the 47% or the “wealthy”.  The fault lies with the idiots in Congress who write the tax law. 



TaxGrrrl, Copyright Troll Lawyer Pleads Poverty, Asks To Be Let Off The Hook

Tax Justice Blog, State News Quick Hits: Nicolas Cage Lobbies, Massachusetts Raises Revenues and More


It’s unconstitutional, except for the part where I cash in.  An case of cognitive dissonance from California via the Central Valley Business Times:

Randy Barker, 59, of Chico, is off to three years and 10 months in federal prison where he can mull over the 16th Amendment to the Constitution, the amendment that established the federal income tax. 

He’s associated with the so-called “Tax Challenger” community, a group that believes that the tax laws are unconstitutional or otherwise invalid. 

According to testimony presented at trial, Mr. Barker filed an income tax return in February 2009 that falsely claimed more than $1.4 million in interest income and falsely claimed that the same amount had been withheld in tax.

So paying tax returns is unconstitutional, but it’s just fine to file returns claiming that the government is sitting on a bunch of your money?  I need to re-read my constitution.

The most interesting part to me:

This combination allowed Mr. Barker to claim a refund of $987,900 in allegedly overpaid income tax.

Evidence showed that, after receiving the refund, Mr. Barker and his wife spent most of the money within weeks by making extensive cash withdrawals and by purchasing a $495,000 house, more than $90,000 in home furnishings, and a truck.

So this guy managed to steal almost $1 million with a laughably stupid tax return.  Sure, he got caught, but that money is gone forever.  I suppose the IRS is just too busy examining prayers to stop cash from flying out the back door.



Tax Roundup, 3/25/2013. Three weeks to go. And Cargo Cults!

Monday, March 25th, 2013 by Joe Kristan
Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)

Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)

Heresies of the Cargo Cult.  When some remote societies encountered the industrial world in World War II, they had trouble grasping what they were seeing.  Wikipedia explains:

Cargo cult activity in the Pacific region increased significantly during and immediately after World War II, when the residents of these regions observed the Japanese and American combatants bringing in large amounts of matériel.   When the war ended, the military bases closed and the flow of goods and materials ceased. In an attempt to attract further deliveries of goods, followers of the cults engaged in ritualistic practices such as building crude imitation landing strips, aircraft and faux radio equipment out of bamboo or whatever materials they had at hand, and mimicking the behavior that they had observed of the military personnel operating there.

While it’s easy to mock an islander for building a refrigerator-like box in hopes of conjuring up an icy six-pack, cargo cult behavior also occurs in modern societies.   Without describing it as such, tax historian Joseph Thorndike writes about the cargo cult of the 1950s, where modern policy wonks try to conjure up 1950s-style growth through a ritualistic process of duplicating tailfin-era totems.  For example, Timothy Noah thinks the crushing stated top marginal rates of that era might help generate those Happy Days results.  Mr. Thorndike sees problems with that approach:

We still don’t know if high statutory rates and (relatively) high average rates were a drag on growth. And we can’t know, because we also can’t know what growth might have been in a different tax climate.

Moreover, a range of nontax factors were probably more important in shaping growth patterns in the 1950s. In particular, the economic disruptions of World War II had left the United States in a uniquely dominant position; by one estimate, U.S. manufacturing output constituted 60 percent of the world’s total in 1950.

In other words, it takes more than a bamboo box to conjure up that beer.

After all, the tax system of the Eisenhower era was not a very good one: It paired notionally sky-high rates with a deeply flawed tax base and created distortions both coming and going.

I understand that progressives like Noah are fighting a different battle: They are trying to beat back the rate-cutting mania that often serves as a definition of tax reform these days. But I think we might take a lesson from the tax experts of the 1950s, who understood the problems bedeviling their own tax system. As economist Harold Groves said at the time, “The impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that makes these rates specious.”

Mr. Thorndike is more sympathetic to high rates than I ever will be.  Doing taxes for a living, I see first-hand how high rates affect behavior, and I have no patience for academics who say otherwise.  But he wisely notes that simply trying to recreate the totems of the 1950s, like high tax rates, misses all of the other things that put cold beer in the refrigerator.  Same thing goes for other 1950s fetishes like tail fins, industrial unionism and defined benefit pension plans.



To serve and protect.  Former Pittsburgh Police Chief Charged with Conspiracy, Failure to File Federal Tax Returns (FBI Press Release):

Former Pittsburgh Police Chief Nathan E. Harper has been indicted by a federal grand jury in Pittsburgh on charges of conspiracy and willful failure to file income tax returns, U.S. Attorney David J. Hickton announced today.

The five-count indictment named Harper, 60, of Pittsburgh.

According to the indictment, Harper was the chief of the city of Pittsburgh Police Department. From 2009 to 2012, he caused at least $70,628.92 in checks and cash received by the special events office of the department to be diverted to two accounts at the Greater Pittsburgh Police Federal Credit Union. Using Visa debit cards, Harper obtained more than $31,000 in ATM withdrawals and debit purchases, all for his personal benefit. Harper also failed to file federal tax returns for the years 2008 through 2011.

If he’s convicted, maybe the special events office can throw a little party for the occasion.


What could possibly go wrong?  James Timothy Turner was convicted last week of masterminding a cunning plan. reports:

According to a U.S. Department of Justice press release, Turner was convicted of conspiracy to defraud the U.S., attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service, failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding.                           

The FBI began investigating Turner in 2010 after he and three other people sent packages to all 50 governors demanding they leave office.                           

Turner is the president of a group of what prosecutors called “sovereign citizens” known as the “Republic for the united States of America.”

Send “packages” to all of the governors telling them to resign?  Well, at least they weren’t trying to hide what they were doing.

Turner toured the country in 2008 and 2009 teaching seminars that instructed attendees how to submit bonds to pay off tax debt.                           

According to prosecutors, these bonds were completely fictitious and often written for amounts in excess of $1 billion.

Silly man.  Only the Federal Reserve can do that.  Unless we’re talking about the $1 trillion magic coin


Every theater needs a dirctor, including economic development theater.  Economic development director accuses senator of engaging in “political theater” over Orascom deal (O. Kay Henderson, via TheBeanwalker)


William Perez,  Penalty Relief Available for Some 2012 Federal Tax Returns

Jack Townsend,  Ethicist Question About Tax Professionals Exploiting Loopholes:

So, for those tax professionals engaging in such transactions that they know violated a known legal duty, their conduct is illegal and unethical.  For those transactions engaging in such transactions where they don’t know (perhaps are willfully ignorant) that the conduct is illegal (ultimately most of the b—-t tax shelters are found to be
illegal), then at least the ethical issues arise.  These are smart professionals, paid (supposedly) to predict what a court will do with the b—–t tax shelter.  Yet, in the prominent civil cases that swat down b—–t tax shelters, they fail miserably in their predictions.


Kay Bell,  A tax lawyer has ethical problems with tax loopholes

Janet Novack,  How Much Tax Will You Owe On A $320 Million Powerball Jackpot? A Lot More Than In 2012 .  I knew I should have arranged to win that Powerball last year.

Jim Maule,  Tax Meets the Chicken and the Egg

Trish McIntire,  Extensions

Patrick Temple-West,  Athletes’ tough tax bills, and more

TaxGrrrl,  Senate Passes Budget, Calls For Nearly $1 Trillion In Tax Increases

You are required to go to the party.  The Affordable Care Act Turns 3 (Richard Morrison, TaxVox).


The Critical Question: Who Will Play Margaret Fuller When The Movie Comes Out ?  (Peter Reilly)

Tony Nitti, IRS Employees’ Star Trek Parody Is As Wonderfully Awful As It Sounds

Russ Fox,  To Boldly Go Where No IRS Employee Has Gone Before…

You mean it’s not a documentary?  IRS Releases Gilligan’s Island Parody Training Video (TaxProf).

Frankly, they don’t give a dam. Beavers defiant after convicted of tax evasion (Chicago Tribune)



Tax Roundup, 3/12/2013: What tax protester “victory” really means.

Tuesday, March 12th, 2013 by Joe Kristan

20130312-2It just doesn’t work.  The “Tax Honesty Movement” got excited a few years back when Louisiana attorney Tom Cryer was acquitted on criminal tax charges.  For example:

The Internal Revenue Service has lost a lawyer’s challenge in front of a jury to prove a constitutional foundation for the nation’s income tax, and the victorious attorney now is setting his sights higher.              

“I think now people are beginning to realize that this has got to be the largest fraud, backed up by intimidation and extortion and by the sheer force of taking peoples property and hard-earned money without any lawful authorization whatsoever,” lawyer Tom Cryer told WND just days after a jury in Louisiana acquitted him of two criminal tax counts.

There’s just one problem with the idea that this struck a death blow to the income tax:  he still owes the taxes.  Even though he’s dead.  Being aquitted in a criminal tax case doesn’t make it legal to not pay taxes any more than the O.J. Simpson acquittal legalized multiple homicides in Brentwood.

The Tax Court yesterday ruled that Mr. Cryer owes taxes, interest and civil fraud penalties for tax years for which he didn’t file income tax returns.  From the Tax Court:

In essence, Mr. Cryer claimed that the income he received during the tax years at issue from certain “sources” was taxable under Louisiana law, but not under Federal law. In United States v. Clayton, 506 F.3d 405, 412 (5th Cir. 2007), the Court to which an appeal would lie in this case, cited and followed its prior unpublished opinion holding that “the argument that income derived from sources within the United States” is not taxable under Federal law is “patently frivolous” and “absurd”.

The moral: No matter how convincing they are on the Internet, “Tax Honesty” arguments don’t work.  They will not keep the IRS from taxing you.  When “winning” means staying out of jail but paying 75% civil fraud penalties, you set the bar for victory too low.

Cite: Cryer, T.C. Memo. 2013-69

Related: Daniel B. Evans, The Tax Protester FAQ



Nick Kasprak, Weekly Map: State and Local Sales Tax Rates, 2013 (Tax Policy Blog)



Peter Reilly,  Carried Interest Debate Heats Up Without Much Light .  A reasonable outline of the issues involved in the so-called “loophole” for private equity:

If “carried interest” were really just a loophole it would not need such an elaborate fix.  In fact, it is based on fundamental principles of partnership taxation.

I don’t think it’s a problem, so I don’t think it needs fixing.  Related:  New York Times Dealbook, Why Carried Interest Is a Capital Gain.


Tony Nitti, Contrarian Tax Planning: Increasing Income To Take Advantage Of The AMT

Missouri Tax Guy, Is that Gift Taxable?

Martin Sullivan, Showdown in Kansas: Realtors vs. Governor (  Will Kansas eliminate the home mortgage deduction on its state returns?

Jeffrey M. Kadet,  Tax And Territoriality: The Corporate 99% Versus The Law School 1%

William Perez,  IRS Plans Spending Cuts Due to Sequestration.  They can’t answer their phones, but they still want to regulate preparers.

Kay Bell,  NYC soda ban overturned. Would a soda tax have been better?  Maybe better, but still unwise.

TaxGrrrl, Former Detroit Mayor Found Guilty On Multiple Counts, Including Tax Charges.  Poor Detroit.


Tax News from the Animal Kingdom.

Beavers’ tax-evasion trial to begin (

Former Bear Chris Zorich charged in tax case  (

Fmr. Eagle Freddie Mitchell pleads guilty in tax scheme (


Remember, Calendar 2012 1120 and 1120-S returns are due Friday!



Tax Roundup, 10/15/2012: no more procrastination edition. Also: how not to stay in touch with your ex.

Monday, October 15th, 2012 by Joe Kristan


Today is it for extended 2011 1040s. File your return today, if you haven’t done so.  Get your 8879 to your preparer, e-file yourself,  send it certified mail, return receipt requested, or use an authorized private delivery service with the return addressed to the proper service center street address.  There are no more extensions available!

Related:  The End of Procrastination Season Is Upon Us  (Russ Fox);  TODAY IS “THE DAY”! (Robert D. Flach).


Brutal Assault on Reason Watch: 

Kay Bell, Top 10 tax moments in VP debate

Patrick Temple-West,   Essential reading: Biden and Ryan dispute economic toll of raising the top tax rates, and more

TaxGrrrl,  What The VP Debate Taught Us About Romney/Ryan – and Didn’t Tell Us About Tax

Joseph Henchman,   Biden, Ryan Give Tax Policy Rationales (Tax Policy Blog)

Donald Marron,  Five Things You Should Know about Mitt Romney’s “$5 Trillion Tax Cut”  (TaxVox)

Richard Morrison,   Chart of the Day: The Gains of the 1% Don’t Come at the Expense of the Middle Class  (Tax Policy Blog):


Peter Reilly,   Romney Wants No Estate Tax – Case For 2012 Mega Gift Remains Compelling:

When you break down possible outcomes on the political scene, they all argue for at least looking at your assets and sitting down with a planner to see if there is something worth doing.

Peter sees value in large-scale family gifting, no matter how the elections turn out.

Janet Novack,  The Forbes Guide To Estate Planning


Jim Maule,  Taking Tax Money Without Giving Back: Another Reality :

It is not surprising that, although they come at the problem from different angles and propose different solutions, both this commentator and the writer of this report consider taxpayer financing of private sector sports enterprises to be a very bad idea.

Brian Strahle, Non-Big 4 Firm SALT Professionals:  GOT LEVERAGE?

And, of course, Robert D. Flach came through with a Buzz this weekend.


So much for any chance of reconciliation.  A Fort Atkinson, Iowa man probably scored no points with his ex-wife while looking for tax refunds in all the wrong places.  Now Gene Jirak will serve a 45-month sentence for filing false refund claims.  From

Prosecutors say Jirak devised a scheme by filing two tax returns claiming he was entitled in each return to a refund of over $50,000. Authorities say Jirak filed the first tax return as an amended joint return, using his ex-wife’s name and Social Security number and forging her signature.

Well, if he had a refund coming, maybe he should have asked for her signature.  Well, maybe because he didn’t have a refund coming.  Court documents show that Mr. Jirak attempted to get refunds under the absurd “1099-OID” theory, which, as much as I can make any sense of it holds that we all have big accounts in our name at the U.S. Treasury that we can tap by filing the right tax forms.    The judge wasn’t persuaded.

Acting as his own lawyer, Mr. Atkinson was convicted of five counts arising from the transaction.  Amazingly, he actually received a check from the IRS for $69,139.07 (still a few flaws in the old refund claim review system, I guess).  According the the indictment, his poor relationship with his ex caused things to go awry:

On or about March 9, 2009, defendant GENE JIRAK presented the Treasury check for deposit at Viking State Bank & Trust in Decorah, Iowa.  At the time the check was presented, it bore a forged endorsement signature [of his ex-wife].  When Viking State Bank & Trust determined [the] endorsement was forged, the bank returned the Treasury check to the IRS.

The Moral?  Don’t use ridiculous tax theories to claim tax refunds.  Oh, and forging your ex-spouse’s signature is never a great idea.


Tax Roundup, 9/19/2012: 47% Frenzy, Day 2! And the dangers of filing unneeded returns.

Wednesday, September 19th, 2012 by Joe Kristan

Who know tax policy would finally take center stage in the presidential campaign?  The Romney “secret video” saying 47% of taxpayers won’t be interested in him because they pay no taxes continues to crowd high unemployment and foreign policy disaster from the headlines.  Will Freeland of the Tax Policy Blog takes an approach nobody else (besides me) seems to have, looking at both taxing and recipients of government spending.  It’s worse than 47%:


The red top line is the top 1% of taxpayers; the remaing lines are quintiles of taxpayers, top to bottom. The bottom 3 quintiles (60%) receive more in government payments than they pay in taxes.

If this controls voting (and it doesn’t), Mitt is doomed.

More 47% frenzy coverage:

Kelly Phillips Erb (TaxGrrrl):  Note to Romney: We’re all on the dole (USA Today)

Christopher Bergin,  Romney Steps in Taxes, Again (

Roberton Williams,  Why Do People Pay No Federal Income Tax?  (TaxVox)

Peter Reilly,  Mitt Romney And The 47% All A Matter Of Context

Trish McIntire,  Stoning Glass Houses – Again

Linda Beale,  Romney’s Tax Views Lead to Blooper Comments Denigrating America’s Elderly and Poor

Tyler Durden,  Your Taxes At Work: All You Need To Know About Who Pays What Taxes In The US (Via Instapundit)



If you’ve ever been snookered into buying a lame extended warranty for a car, you’ll like this.  From the St. Louis Post Dispatch:

Cory Atkinson, a former co-owner of what was once one of the nation’s largest seller of auto service contracts, was sentenced in federal court here Tuesday to 40 months in prison on charges of tax fraud conspiracy and tax fraud charges for bilking both consumers and the IRS.

Atkinson, 42, of Chesterfield, will also have to pay $4.49 million in back taxes.

40 months? that’s less than a lot of extended warranties.

The company’s profit on a typically contract worth $2,000 or more was often more than $1,200. Fidelis kept 60 percent of that.

Unhappy customers canceled, sometimes at a rate as high as 60 percent, but US Fidelis staffers were told to arbitrarily withhold 10 percent to 40 percent of their money, according to plea documents.

I suspect few of the extended warranty customers will miss being able to work with this guy for the next 40 months.


You don’t want to give me more money?  Traitor!   As Taxes Edge Upwards, Leaders Question Taxpayer Patriotism  (TaxGrrrl). 

True that:   Tales from the Tax Field: Don’t “Start a Business” Just to Get Tax Deductions  (Jason Dinesen)

Jana Luttenegger,  Top Tax Errors in Estate Planning  (Davis Brown Tax Law Blog)

William Perez:  Avoid the Medicare Surtax by Giving Incoming-Producing Investments to Minor Children

Missouri Tax Guy,  Tax Misperceptions – Small Business

Jack Townsend,  The Role of the DOJ Tax Division in Criminal Tax Enforcement

It’s Wednesday, so it’s time for a Buzz!  Robert D. Flach Obliges.

Going Concern:  Audit Finds That IRS Small Business Division Not So Different From That Attractive Person at the Bar That Seemed Really Interested in You

Get ‘er done, Iowans!   Could Iowans get any fatter? Yes, new study concludesRelated?  ISU economist says now may be the time to stock up on meat


I’m going to get even with you by getting myself sent to federal prison!  A Nebraska couple has a funny idea of vengeance, based on this item from the North Platte Bulletin:

Evidence presented at trial showed that the Kleensangs had not filed any tax returns in 2003-06 or in 2008-11, U.S. Attorney Deb Gilg said.

The Kleensangs testified under oath in state court proceedings in Sheridan County that they did not have to file tax returns because they were not federal employees and did not live in the District of Columbia.

However, in 2008, together they filed a total of 67 returns for 2007, with David Kleensang filing 57 separate returns for himself and Bernita Kleensang filing 10 separate returns on her behalf.

That’s a lot of returns if you don’t have to file.  What’s that all about?

During the investigation, Gilg said the Kleensangs admitted that they filed the bogus returns to “get justice” for judgments that were rendered against them in Sheridan County. The total amount of the refunds they claimed was $48.4 million.

Yeah, we’ll file bogus tax returns.  That’ll teach Sheridan County!  What could go wrong?

The frivolous returns were detected by the Frivolous Return Program Unit, established by the Internal Revenue Service around 2001, Gilg said. Frivolous returns are pulled and the filer is sent a warning letter that says if the returns are not corrected, the filer could be assessed a $5,000 penalty.

Not only did the Kleensangs not correct their initial returns, they continued to file similar returns for nearly four months, seeking refunds, Gilg said.

So they ended up convicted of fraud and false claims charges.  It will be a long time before Sheridan County messes with that couple — six years, anyway.


Tax Roundup, 8/13/2012: Let the film credit revisionism begin! Also: a study in retirement planning.

Monday, August 13th, 2012 by Joe Kristan Star-struck in Iowa.  Even after Iowa’s embarrassing and disastrous film tax credit fiasco, there are still people who think it’s a nifty idea for taxpayers to subsidize Hollywood, reports the Quad City Times.  Take Kent Newman, described as “a former board member with the Iowa Motion Picture Association who does production work in the Des Moines area and remains connected with various aspects of the film business.”:

 Newman said there were many positive aspects from the film tax credit program that included considerable training for young people interested in working in the entertainment industry and several projects that successfully used the tax incentives to complete high-quality productions. However, when the incentive program was suspended in 2009 many projects and people moved to Michigan, Louisiana and other places where there were jobs being offered.

An interesting observation.  Iowa spent $32 million, of which $28 million was pretty much pure waste and/or fraud, based on the state auditor’s report on the film program.  For that we trained people who moved away.  Success!

Newman said in the current environment that “unless and until Iowa has some level of a competitive incentive program that is well managed, we’re never going to have very much production happening here.”

He said he was hopeful local communities would fill in that void by offering to waive the first month of hotel-motel tax for production crews or other incentives that could entice film projects in the range of $3 million to $10 million that would headquarter in an Iowa city where they would be a short distance from rural locales that would be prime destinations for a film shoot.

In other words, unless we pay Hollywood to be our friends, they won’t like us.  Unless every business and employee who is already paying taxes here working for unsubsidized businesses ponies up tax money to bribe the filmmakers to come here, they won’t come here.

If Hollywood wants to make movies here with their own money or money from private investors, fine.   We should have a business environment that is welcoming to in-state and out-of-state entrepreneurs.   Then you don’t need “incentives” in the first place.


It doesn’t make sense to bribe other businesses either.  Some wisdom on Tax Policy from David Brunori ($ link): 

As first reported in the Las Vegas Sun, Nevada’s decision to grant Apple $89 million in tax breaks was made by one man. The decision rested with Steve Hill, the state economic development director. Where would one unelected bureaucrat get the power to hand over $89 million to a corporation that has a market capitalization of over $500 billion? Why would Nevada give a dime to a corporation that has revenue of over $110 billion and profit of $26 billion?

     In a society that has laws against everything, you’d think there would be some prohibition against handing over public money to fabulously successful private enterprises. Nevada politicians claim that Apple will hire 35 (yes, 35!) employees. Apple will also invest $2 billion over the next 30 years. But the truth is that Apple would have invested in Nevada even without the tax breaks. That’s almost always the case when states give incentives to individual businesses.

And don’t get me started on wind tax credits.


Sure they’re humble nowHumble church founders convicted of tax fraud. (

Assisted living would have been cheaper.  A user of the absurd “1099-OID” tax refund scheme faces expensive but substandard retirement living, according to a Department of Justice Press release:

Richard Kellogg Armstrong, 77, of Prescott, Ariz., was sentenced today by U.S. District Court Judge Robert E. Blackburn to 108 months in prison followed by three years of supervised release.  Judge Blackburn ordered the sentence to run consecutively to the 660 day prison term and $1,021,500 of fines cumulatively imposed upon Armstrong as punitive sanctions for 10 acts of contempt of court. He also ordered Armstrong to pay restitution to the Internal Revenue Service (IRS) in the amount of $1,678,834 and to forfeit two residences and a personal aircraft.

He gets to start over when he’s 86.  That’ll be fun.

The 1099-OID scheme claims that one way or another the government has a bunch of money for you that you can claim by dummying-up a 1099-OID showing withholding for you.  Wikipedia covers it here.   You can see an item advocating it here, but good luck trying to make any sense of it.


Jim Maule watches People’s Court and ponders tax and other implications.

Jana Luttenegger, Taxing Gold Meals (Davis Brown Tax Law Blog)

It’s Romney-Ryan,and the tax bloggers are on it:

Kay Bell, Don’t look for GOP vice presidential nominee Paul Ryan’s tax returns either

TaxGrrrl, Romney, Ryan and Reagan: The Winning Team?

Anthony Nitti, What Does Paul Ryan Mean For Potential Tax Reform?

Tax Break, Essential reading: Attack targets Romney’s role in Marriott tax deals, and more

Peter Reilly: Son Of Boss – Don’t Blame Romney Blame His Tax Pros

Robert D. Flach keeps Buzzing his roundups of tax blog posts from his new Pennsylvania lair.

Finally, Russ Fox tells us that the Accountant Who Solicited Hit Man Pleads Guilty:

Back in March I reported on Steven Martinez.   Mr. Martinez is a tax preparer who faced charges of stealing $11 million from clients.  He decided that the best strategy to fight this charge wasn’t hiring a good attorney, nor was it trying to disprove the charges; rather, he decided to hire a hit man to kill four witnesses.  (One reason he didn’t try to disprove the charges is that they were true; Mr. Martinez has admitted he took the $11 million and used it to buy a home in Mexico and other personal expenses.)

The only saving grace about criminals is that their stupid usually undoes their evil.


What happens when a real attorney tries tax protest arguments?

Wednesday, August 1st, 2012 by Joe Kristan

Arguments that you don’t have to really pay federal income taxes never go away despite a long and dismal record of failure.  They are typically advanced by self-educated folks, often claiming to have spent hundreds of hours researching the tax law to prove that it doesn’t exist.  Non-lawyers tend to do poorly in advancing legal arguments.  If a real lawyer tried these arguments, might it go better?


A Maryland Attorney stopped filing tax returns after 2004.  The IRS eventually noticed.  The result was assessment of additional tax and penalties for fraudulent failure to file.  The attorney took the matter to Tax Court, where Judge Goeke sets the scene:

Petitioner testified that during 2006 “without looking for it” he discovered information which led him to conclude that he was not required to file Federal tax returns or pay Federal income taxes. As a result, petitioner has not filed a personal Federal tax return for any year since 2004.6 However, petitioner did make a $2,000 estimated tax payment to the U.S. Treasury for the 2005 tax year and also made a payment to the U.S. Treasury of $45,000 in April 2006, in connection with the filing of a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, for 2005. The $45,000 payment was credited to petitioner’s 2005 income tax account.7 Petitioner did not make any payments with respect to his 2006 tax.

So he discovered the secret to not paying tax but extended his 2005 return anyway?  Old habits are hard to break, I suppose.  The IRS started poking around, subpoenaing his bank records.  He didn’t care for that:

After learning of the subpoenas duces tecum issued to his banks, petitioner filed a motion to dismiss seeking to have his case dismissed without prejudice. Petitioner mailed a letter to M&T Bank in which he stated: “Because I am dismissing this case, the Subpoena issued by the IRS to M&T Bank should no longer be valid, and M&T Bank should not be required to respond by producing copies of my account records.” Shortly after he mailed this letter to M&T Bank, we denied petitioner’s motion to dismiss.

I know attorneys are “officers of the court,” but I don’t think that lets them quash subpeonas.

So how did the arguments fare in Tax Court?  Badly:

Petitioner repeatedly claims his arguments are not frivolous, but we disagree. Regarding petitioner’s constitutional arguments, courts have previously stated that “The constitutionality of our income tax system — including the role played within that system by the Internal Revenue Service and the Tax Court — has long been established.” Crain v. Commissioner, 737 F.2d at 1417-1418; see also Powers v. Commissioner, T.C. Memo. 2009-229; DiCarlo v. Commissioner, T.C. Memo. 1992-280. We therefore hold these constitutional arguments are frivolous.

The judge suggested that there might be more behind the arguments than an accidental discovery of the secret to tax-free lawyering:

Petitioner argues that he stopped filing tax returns only upon discovering information in 2006 which led him to conclude that he was not required to file tax returns or pay taxes. We believe it more likely that petitioner stopped filing tax returns because of his larger tax burden resulting from the increasing profitability of his law practice.

Rather than making the arguments more effective, it seems that being a lawyer made things worse for the taxpayer:

Petitioner is a highly intelligent individual with graduate degrees in both engineering and law. He is an accomplished businessman and attorney, having formed his own successful law practice which he incorporated as an S corporation for tax reasons after an accountant suggested doing so. Although he does not practice in the area of tax, nor did he take any tax courses in law school, petitioner has the intelligence and ability to recognize the frivolous, incorrect, and completely discredited nature of the arguments he has made in support of his failure to pay Federal taxes or file a Federal tax return. We find these facts are further evidence of fraud.

The judge upheld the assessed tax and the fraudulent failure to file penalties. 

The Moral? Crackpot arguments don’t become legal scholarship in the hands of a trained lawyer.  Garbage in, garbage out.

Cite: Worsham, T.C. Memo 2012-219.

UPDATE: The TaxProf has more.


Cracking the Sentencing Guidelines

Thursday, February 9th, 2012 by Joe Kristan

The author of “Cracking the Code,” which argues that he has figured out how to get out of paying income taxes, had his tax conviction upheld yesterday by the Sixth Circuit Court of Appeals. He did, however, get the case sent back for resentencing, as the court said the court improperly imposed an “enhancement” of his sentence for obstruction of justice. So he’s cracked that, anyway.
Related: Cracking the Code, or smoking the crack?
Cite: USA v. Hendrickson, CA-6, 10-1726


Brown standoff with reality continues

Friday, January 20th, 2012 by Joe Kristan

Ed and Elaine Brown yesterday lost the appeal of their long sentences stemming from tax charges, and especially from their long holdout in a fortified New Hampshire compound after their tax convictions.
The Browns probably weren’t helped by their unusual view of the legal system. From the 1st Circuit opinion:

If it could be given a label, Edward’s belief system appears most akin to the so-called sovereign citizen movement whose proponents believe they are not subject to federal or state statutes or proceedings, reject most forms of taxation as illegitimate, and place special significance in commercial law. See Wikipedia, (last visited January 13, 2012). Edward’s comments reflected this philosophy. He repeatedly indicated that he did not recognize the district court or the laws it operated under. He also referred to himself and Elaine as “secured party creditors” and stated that a criminal case is really a “commercial transaction.” He referred to the court as “nothing but a commercial court” and “one of the
biggest businesses in the country.”

“Secured party creditors?” Well, they’re secured, that’s for sure.
Russ Fox has more.
Link: USA v. Ed Brown, CA-1, No-1081
Related: 37 years for Ed Brown


Don’t ask me to fix your teeth…

Friday, January 13th, 2012 by Joe Kristan

…and don’t go to your dentist for tax advice. Jim Maule explains.


At least he knows how his retirement will be funded

Tuesday, December 27th, 2011 by Joe Kristan

Carel Prater first appeared in the Tax Update in 2003, when a federal judge redesigned his business website to look like this:
Despite having been enjoined from selling his quack tax advice — a version of the “Section 861” argument used by Wesley Snipes, among others — Mr. Prater kept at it. This led eventually to a 336 month prison sentence, which will expire when Mr. Prater is 99 years old.
Mr. Prater appealed his sentence, and last week a panel of the Eleventh Circuit Court of Appeals upheld it:

Prater’s misconduct is extensive: his tax avoidance scheme involved over 700 clients; he violated an injunction of a Texas court by continuing to operate his tax avoidance scheme and attempting to conceal his wrongdoing; he attempted to hide assets for himself and others from the Service; Prater asked Osa to lie to and prepare fraudulent statements to submit to the Service; Prater made false statements to a grand jury denying his crimes; Prater solicited Vicario to testify falsely before the grand jury; and Prater during trial defied repeatedly an order that prohibited him from challenging the tax laws. In a telephone call to Vicario from jail, Prater boasted that he was “gonna try to offer things into evidence” knowing that “the Judge is gonna deny it” then “ask the same question and . . . ask to offer it as an exhibit . . . just so the jury can hear me say this 50 times and the Judge say denied.”

Why do people assume prison phones are secure? I suppose if you believe the stuff Mr. Prater was selling, you’ll believe anything.
Cite: United States v. Prater, CA-11, No. 10-12909.
Prior coverage: 71 plus 28 equals a very old ex-inmate