Taxing Illegal Income

Every so often, I hear someone complain that as much as taxes take out of their income, they would be better off being a criminal. At least then they could keep whatever they earn, right? Well you might not want to quit your day job.

Over the last several years, I have heard increasing reports of the government charging criminals with tax evasion. Ridiculous though it sounds, according to the Internal Revenue Code, income derived from any source, including illegally earned income, is subject to income tax. And often the IRS only becomes aware of the illegal income after an arrest is made.

It is rather strange to think of a criminal diligently reporting the proceeds of their illegal activities, but this is what the IRS requires.

Most people know that infamous mobster, Al Capone, was arrested and imprisoned for tax evasion. You might assume this was an extreme case, and the government just needed a way to take out kingpin. However, charging those arrested and or convicted of crimes with tax evasion is gaining in popularity.

Specifically targeted are:

• Telemarketing Fraud
• Financial Institution Fraud
• Insurance Fraud
• Organized Crime
• Illegal Gaming

Why the emphasis on pursuing illegal income taxes? Well, the IRS is in serious need of funds, and illegal activities produce a lot of cash flow. The IRS states “Tax cases involving legally earned income are and continue to be a priority for IRS Criminal Investigation, followed by money laundering and illegal source income cases.”

You see? No one escapes the federal tax system.

Senators Attack Carbon Tax Proposals On US Imports

Earlier in the week a handful of senior Democratic Senators announced that they would be changing a provision in a bill recently passed by the House of Representatives that imposes carbon taxes on imports. According to FT.com, the original bill contained “tough provisions to impose carbon tariffs, aimed at protecting American companies’ competitiveness against imports from countries without equivalent carbon emission controls.” Both leaders in the Senate, and the Obama administration have warned that such a provision could spark a global trade war, and Chinese officials have already spoken out about it.

Senator John Kerry, who is helping to write the senate’s version of the bill, said in a hearing on the issue on Wednesday: “We have already come to the conclusion in working on the Senate bill that we’re going to try and change that provision . . . we haven’t landed yet completely on where we come out”.

Max Baucus, the Democrat senator who chairs the senate finance committee, said any provisions that “provoke retaliation from our trading partners will only hurt the same industries we’re trying to help”, adding that he was “confident we can craft legislation that strikes the right balance”.

Differences in the two versions of the bill will eventually have to be reconciled before passing into law.

President Barack Obama has warned the House’s carbon tariffs plan could send the wrong signal to trading partners. India called the measures “pernicious” while China said they would violate World Trade Organization principles and amounted to “trade protectionism in the disguise of environmental protection”.

A recent report from the WTO said that such “border tax adjustments” could in theory be made consistent with WTO rules, but trade lawyers stress that crafting such laws is likely to be very difficult in practice.

Continue reading this story at FT.com.

Warren Buffett Says Second Stimulus Might Be Needed

It seems like almost every day there is a new story supporting a second economic stimulus program. Earlier in the week I posted an entry about an Obama advisor who was advocating one, and now financial mogul Warren Buffet has also come out announcing that a second stimulus might be necessary. The billionaire is well known for making money based on his skill to judge the state of the economy, and is often asked for his advice on anything finance related. I’ve included a snippet of a Reuters.com article on the topic but you can find the original post here.

Legendary investor Warren Buffett said in an interview aired on Thursday unemployment could hit 11 percent and a second stimulus package might be needed as the economy struggles to recover from recession.

Buffett, the billionaire founder of Berkshire Hathaway, said Americans suffered "a shock to the system" from the economic difficulties in the final quarter of last year but had started to rebound.

"We're not in a freefall, but we're not in a recovery either," he told ABC's "Good Morning America."

"We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behavior."

Buffett, a supporter of President Barack Obama during last year's election campaign, said a second economic stimulus package might be needed. The Obama administration says it does not see a need for a second stimulus yet.

"I think a second one may well be called for. It is not a panacea. A stimulus is the right thing. You hope it doesn't get watered down," he said.

He likened the first $787 billion stimulus package passed by Congress to "half a tablet of Viagra and then having also a bunch of candy mixed in --- it doesn't have really quite the wallop."

Buffett said unemployment had "a ways to go" and he would not be surprised to see it hit 11 percent before it recovers.

"I'm not predicting it but no that would not surprise me," he said of the 11 percent figure.

"We're going to come out of this better than ever, the best days of America lie ahead but not next week or next month," he said.

How to Survive an IRS Audit

On Monday the Roni Deutch Tax Center – Tax Help Blog posted a very helpful article on how to survive and IRS audit. Over the past 18 years I have heard so many horror stories about audits, and most of this panic is entirely unnecessary. If you stay organized, and were honest on your tax return, then you will most likely not have anything to worry about. However, to help any one preparing for an audit, check out the following list of tips.

Always Be Prepared

Technically, every single taxpayer is eligible for a tax audit. While some audits are selected because the taxpayer’s return flagged the system, many are conducted entirely randomly. This means that as a taxpayer you should be prepared for the possibility of an audit at all times. You should make sure to you keep all financial documents, W-2’s, receipts, etc., in one safe place. That way if you are audited, you can easily find everything you will need to verify your income and deductions. Although there is no way to fully avoid being audited, you can follow some of these tips while preparing your next return to try to reduce the odds.

Read and Respond to Notices

Generally, when the IRS notifies you of an audit you must respond within 30 days. If you do not, then you risk having the IRS review and adjust your total tax liability without getting your input. In addition to responding quickly, you will also want to take a thorough look over the notice. It will give you specific information on what is being examined, so that you can prepare for your audit knowing exactly what is being scrutinized.

Know your Rights

Do not let yourself get intimidated by aggressive IRS agents, as a taxpayer you have a set of rights designed to protect you and your money. You have the right to select where the audit takes place, when it takes place, etc. Do not let an auditor intimidate you in to having an audit at your place of business unless that is where you want it. To learn more about your rights during an audit, check out IRS.gov.

Take your Time

Just like you, the IRS makes mistakes and easily could have made one on your case. Take your time compiling your records and be absolutely sure you have everything that you need. Do not let an IRS agent push you into setting a date for your audit. Take as long as you need to gather all of the financial documentation that you need in order to justify the tax return in question.

Mayor’s Office: Jackson Memorial Cost L.A. Taxpayers $1.4M

From CNN.com:

The memorial service for singer Michael Jackson cost the city of Los Angeles $1.4 million, the mayor’s office said Wednesday.

Spokeswoman Sarah Hamilton said the costs included putting extra police on the streets, trash pickup, sanitation, traffic control and more for the Tuesday event.

Three thousand police officers — almost one-third of the Los Angeles police force — were on hand to ensure the Jackson events proceeded smoothly, Los Angeles Assistant Police Chief Jim McDonnell said Tuesday.

The city, which is $530 million in debt, set up a Web page asking Jackson fans to donate money to help with the expenses.

On Tuesday morning, hundreds of donors contributed more than $17,000 through the Web site. But then, the high volume of traffic caused it to crash frequently and for long periods of time, the mayor’s office said.

The city, therefore, was unable to collect contributions for several hours on Tuesday. The site also crashed for 12 hours, beginning at 8 p.m. Tuesday — and again, periodically throughout Wednesday morning, the office said.

The Los Angeles City Attorney Carmen Trutanich does not want taxpayers to pay a penny for the service, his spokesman said Wednesday.

“The city attorney does not want something like this happening again, the city paying (the initial costs) for a private event,” said spokesman John Franklin. “That’s especially in a cash-strapped city, where people have been furloughed or even lost jobs.”

Michael Roth, spokesman for AEG — which own Staples Center and put on the event — could not be reached for comment

Summertime Tax Tips Available on IRS.gov and Via E-Mail

In a their newest press release, the IRS announced that they would once again be giving out free summertime tax tips. This year the tips come with a useful spin though. Not only will the tips be given out 3 at a time once a week throughout the summer, but also taxpayers can now register to have the tips sent directly to their email as they are published. See the release, below.

The Internal Revenue Service is publishing summertime tax tips to provide useful and concise advice on topics that affect taxpayers.

Many people don’t think about their taxes until the start of the filing season in January. That can be a mistake. Steps such as checking your withholding, getting the proper receipts from charities, organizing all the records you will need or setting a personal tax strategy that can save money at tax time are most effective if they are done well before year’s end.

The IRS is publishing three tax tips per week this summer. Topics range from how parents can get credit for sending their kids to day camp to protecting yourself from identity theft.

Now you can receive IRS Tax Tips via e-mail as soon as they are published by signing up through the IRS e-news subscription page, e-News Subscriptions. When subscribing, a confirmation message will be sent via e-mail. Verification must be sent in response in order to confirm a subscription.

For more summertime tax and financial advice, check out these two older entries from my blog: 20 Ways to Save Money this Summer and Top 10 Summertime Tax Tips.

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Taxes and the World Series of Poker Tournament

Yesterday marked the beginning of the World Series of Poker tournament, and according to reports over 800 people were turned away. Although the potential players all had their $10,000 buy in, the tournament’s organizers put a tight cap on the number of people who could participate.

"We are sorry, and I am sorry," claimed the World Series of Poker commissioner Jeffrey Pollack. "The last thing that we ever want to do is deny people entry into our events."

According to the Associated Press there were 6,494 players competing for a part of the $61 million prize pool. The top prize is estimated to be a staggering $8.55 million, but remember that all gambling winnings are technically taxable income.

The IRS’ website claims that all gambling winnings “must be reported on your tax return. You must file Form 1040 (PDF) and include all of your winnings. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income.”

“A payer is required to issue you a Form W-2G (PDF) if you receive certain gambling winnings or if you have any gambling winnings subject to Federal income tax withholding. All gambling winnings must be reported irrespective as to whether any portion thereof is subject to withholding. In addition, you may be required to pay an estimated tax on your gambling winnings. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.”

For more information on taxes and gambling – including how to deduct losses – check out this page on IRS.gov.

California Government Doles Out More IOUs

Another 12,500 IOUs were issued by California on Tuesday, as a way to make up for bills they were unable to pay. This decision brings the total number of California’s IOUs issued to over 72,000, and that number is only expected to rise. Check out the following clip from a new Sacramento Bee article discussing this disastrous situation below.

Last week's decision by state Controller John Chiang to issue "registered warrants" instead of checks to taxpayers owed refunds, vendors and other groups was the most dramatic step a state has taken this year to confront billions of dollars in budget shortfalls. A total of 72,000 IOUs have been written since last week.

Gov. Arnold Schwarzenegger, a Republican, and the Democratic-controlled Legislature have been unable to agree on a package of spending cuts and tax increases to close a massive budget gap.

The result is a standstill — and IOUs that reached a total of $109 million Tuesday.

California issued IOUs in 1992 during a 61-day budget impasse. Some states issued IOUs during the Great Depression. The notes, now worthless, can be bought at antique shops, says Chicago bankruptcy attorney James Spiotto, an expert in government finance. Spiotto says he doesn't know of any state other than California to issue IOUs since the Depression.

Continue reading this article, here.

Will Or Trust? Understanding The Differences

Earlier today I came across this new Associated Press article on the differences between a will and a trust. Candice Choi, the article’s author, points out that after Michael Jackson death, questions about his will have sparked thousands of questions about wills and trusts in general. Choi provide several helpful answers to some of these common questions, and I highly recommend anyone confused about Wills check it out.

One of the big mysteries in the chaotic days following Michael Jackson's death was whether he left behind a will.

After initially stating the entertainer likely died without one, the superstar's family reversed course and produced a 7-year-old will this week.

The five-page document filed in court simply transferred Jackson's estate into a family trust, leaving a slew of questions unanswered about the King of Pop's finances.

The setup is common in California and numerous other states, where trusts are used in place of wills partly as a way to avoid court proceedings and keep financial matters private. There are other reasons to set up a trust rather than a will.

A will generally spells out a one-time distribution of assets, while a trust can stipulate that assets are distributed over time. So if you have young children, a trust could see that they get their inheritance in installments upon certain milestones, such as a birthday, graduating college or marriage.

Once the document you pick is drawn up, be sure to let family members or those named in the trust or will know where to find it. Anybody who has possession of your will — often your attorney — is obliged to file it in court upon your death.

It's common to leave copies of trusts with your attorney or designated trustees, said Akers, who is also chairman of the real property, trust and estate law division at the American Bar Association.

Who Is the Small Business Majority?

From the New York Times.com:

The Small Business Majority released a series of state polls today and yesterday that make an astonishing claim: small business owners, by wide majorities, support a mandate that would require that businesses either provide health insurance for their employees or pay a tax to fund government-supported insurance for them. In Iowa, 65 percent support the pay-or-play proposal; in Nebraska, 59 percent favor it. Across 16 states, support for the employer mandate ranges from 59 percent to 72 percent

As far as the Agenda knows, the Small Business Majority research is the only research that has found that small businesses buy in to pay-or-play. All of the other small business advocates claim the opposite, and by greater margins — even the National Small Business Association, whose moderate leanings seem practically radical, at least compared to those of its larger rivals, the U.S. Chamber of Commerce and the National Federation of Independent Business.

The novelty of such a claim raises a whole bunch of questions. We’ll return to the polls themselves another day. But first, let’s take a look at Small Business Majority. The group has gotten a lot of press this spring, first as one of two small business invitees to the White House health care summit in March. Then, last month, it released a study by MIT economist Jonathan Gruber that claimed health care reform proposals that include an employer mandate would save small businesses $855 billion over ten years. Suddenly, the organization is a player. But just what is Small Business Majority, and whom does it really represent?

The group has been around since 2004, founded by a tech entrepreneur named John Arensmeyer. “We really felt there needed to be a more sort of measured, pragmatic voice that was not ideological in the public policy discussions around small business issues,” he says. Chief among its positions is that bearing the cost for effective health care reform is a “shared responsibility” — shared among government, individuals, and employers.

10 Ways the Federal Government May Try to Collect More Money -- From You!

For the first time in history, studies are showing that Federal aid has become the top revenue source for state and local governments. In addition to helping out other government agencies in the country, the Federal government has also spent billions of dollars bailing out banks, insurance companies, and U.S. automakers.

With all of this spending, you would think the government would have enough revenue to support it. However, last year the Federal government reported a huge decrease in tax revenue, which has left lawmakers scrambling to find ways to raise more funds. With recent news that the Obama administration might be considering another expensive stimulus package, I began wondering how much more spending the Federal government can continue to afford? If the administration continues on it’s current path, then odds are us taxpayers are going to have to pay for it through higher taxes. To help all of my readers understand this situation, I have put together the following list of potential sources for federal revenue that you should be on the lookout for.

1. Value Added Tax

Recently the idea of instituting a Value Added Tax (VAT) has been getting a lot of attention in the media. Last month, Democratic Senator Kent Conrad even proposed the idea to the Obama administration. The idea behind a VAT is simple: it is basically a Federal sales tax that is levied on the transfer of nearly all goods and services. Although popular in European countries, the idea of a VAT tax in America has very little public support. As I explained before in an entry titled Is a Value-Added Tax the Answer, this type of tax is regressive by nature. In a time where everyone is tightening his or her personal budget, this type of tax would probably only hurt our economy further.

2. Internet Taxation

From it's humble beginnings, the world wide web has been the scene of a never ending debate as to whether taxes should work the same way online as they do offline. As of today, there are some states that levy sales taxes on Internet purchases, but there are no such taxes on the Federal level. Although creating a new Federal Internet sales tax would be difficult, there are a number of other ways the Feds could try to squeeze some revenue out of the Internet. They could tax Internet access and connections; they could place a tax on Internet providers, or even levy a tax on e-mail usage. Fortunately, the Internet Tax Freedom Act prevents any of the aforementioned taxes, but if the government got desperate enough then they could begin eyeballing Internet taxes.

3. Capital Gains Tax

During his campaign President Obama was adamant about increasing the capital gains tax rate. At the time he claimed that such an increase would be “fair” to the American public, but after winning the election the increase never came to fruition. However, even though doubling the capital gains rate is pretty unlikely, the Obama administration could easily revert back to their original idea of increasing the capital gains rate by a few percentage points.

4. Taxes on the Marriage Industry

As I had mentioned in a previous entry, Miriam Marcus of Forbes magazine has suggested that if the Federal government recognized marriages between same-sex couples then it could stimulate the struggling wedding industry. If the U.S. Supreme Court did decide to extend marriage rights to gay couples, then you can expect that the government will look for a way to get some money from the increase in business that the wedding industry would experience. Some estimates say that the government could see up to $10 billion in additional revenue, which is a pretty sizeable amount of money.

5. By-the-Mile Road Tax

To help generate federal revenue, some experts are beginning to warn that the government might consider shifting to a by-the-mile tax system to replace current fuel charges. In a by-the-mile system a GPS device in taxpayers cars would calculate the total tax due based on miles driven. This would require some serious technological advances, but a federal commission reportedly claimed that the by-the-mile tax was the “best path forward to keep revenues flowing to highway and transportation projects.” However, many Americans would surely not like the idea of the federal government monitoring their vehicle’s location and I would say that this program is quite unlikely to be implemented in the next decade.

6. Taxes on Employer Provided Health Care

As the country struggles to find a solution to our current health care problems, one idea that has been supported by the Obama Administration is the idea of taxing employer provided health care programs. They claim that it could supplement the cost of a government provided health care, but this tax would go directly against Obama’s campaign promise not to raise taxes on any one making under $250,000.

7. Green Energy Advancements

It is no secret that green energy advancements are very popular among the American public. Although some experts suggest that now is not the time for expensive green technology advancements, the majority of American taxpayers seem to support the idea of “clean energy” and are willing to pay more for it. Now that many of the hybrid related tax credits are expiring, you can expect that the government is going to try to assess taxes on “green energy” sources, just like they do with petroleum and diesel.

8. Increased Compliance Enforcement

Every year the tax gap—or difference in what the government should collect in tax revenue and what they actually do collect—gets larger and larger. Last year, the total number of audits performed on businesses and taxpayers with yearly incomes over $1 million decreased drastically. Some government officials are claiming that by revitalizing the Internal Revenue Service with better equipment and more efficient audit strategies, they could collect a few billion dollars extra each year in Federal revenue. However, this comes at a time when some taxpayers are struggling to put food on the table let alone deal with aggressive IRS auditors.

9. More “Sin Taxes”

Taxes levied on certain products, such as cigarettes and alcohol, are frequently referred to as “sin taxes.” Although they are often thought to discourage certain behaviors, they also generate a considerable amount of federal revenue. Estimates say that in 2007 alone the Federal government collected nearly $7 billion from taxes on cigarettes alone. As the economic troubles continue, tobacco and alcohol sales have stayed consistent, and you can bet that the government has taken note. Whole websites, books, multiple blogs, and articles have been dedicated to the idea of preventing any more of these taxes. Many Americans who purchase tobacco products or alcohol feel it is their right to do so with out being forced to pay extra taxes.

Also, there are some rumblings about legalizing some additional “sins” (e.g. marijuana, prostitution, gambling, etc.) to increase the tax base. But so far, these rumblings are only coming from the local or state level. Nevertheless, you can bet that the federal government will make sure to join the party were any state to legalize these products or services.

10. Budget Cuts

This seems like the ultimate no-brainer—if you are looking for ways to save money then reduce the amount you are spending. Unfortunately, the Feds have yet to wholeheartedly embrace cutting spending. So far, only state and local government grants have been cut (by about $18 billion) and several aid programs have been cut or reduced, but this is not enough. To really save money the Federal government needs to make drastic cuts. The state of California has been able to reduce their budget by millions by giving pay cuts to state employees. The Federal government might also benefit from pay reductions, but there are lots of other options. President Obama has proposed implementing a pay-as-you-go system where for every dollar the government spends a dollar is cut somewhere else. However, it is going to take more then just a fancy name to reduce Federal spending.

Obama Adviser Says U.S. Should Consider Second Stimulus

Just days after admitting that they underestimated how bad the countries economic problems were, the Obama administration is supposedly considering another economic stimulus package. According to Laura Tyson, an advisor to Obama, the last stimulus package was “a bit too small.” She continued to claim that a new stimulus plan would have a “positive effect, but the real economy is a sicker patient.”

According to a new Bloomberg story about the stimulus, Tyson claims that the new package would have a more pronounced impact in the third and fourth quarters.

“Tyson’s comments contrast with remarks made two days ago by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said it was premature to discuss crafting another stimulus because the current measures have yet to fully take effect. The government is facing criticism that the first package was rolled out too slowly and failed to stop unemployment from soaring to the highest in almost 26 years.”

“Obama said last month that a second package isn’t needed yet, though he expects the jobless rate will exceed 10 percent this year. When Obama signed the first stimulus bill in February, his chief economic advisers forecast it would help hold the rate below 8 percent.”

“Unemployment increased to 9.5 percent in June, the highest since August 1983. The world’s largest economy has lost about 6.5 million jobs since December 2007.”

“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum. “We probably have already 2.5 million more job losses than anticipated.”

Leadership Advice for Current and Future Executive Women

Earlier today I came across this helpful article on one of my favorite blogs, the Glass Hammer, with leadership advice from various executive women. Being a woman in the business word can be difficult, to say the least. Fortunately, the bloggers at the Glass Hammer have gathered some simple and straightforward advice. Check out a clip of their article below.

Get Really, Really, Really Good at Your Job.
“I didn’t chart my career out,” said Sutton, “but I always had a good view of what I loved doing and what the next career step might be.” Sutton started her career in finance as a clerk with Wachovia and worked her way up through the organization over 35 years, until she left to establish the banking business for Morgan Stanley. She added, “I’ve given advice to people I’ve mentored that if you are too focused on the next step, you are not going to do a very good job in the job you are in. And I’ve seen that over and over again. Get really, really, really good at the job you are in because if you are and you’ve mastered it, you will move from the next role to the next role to the next role, but if you look too far ahead, you probably won’t… People who seem to be really successful are great operators. They get in the business and understand the business.”

Be Comfortable With Ambiguity.
Said Smith, who, after 14 years of brand management and executive roles at Kraft Foods, was brought to Avon by Andrea Jung to help her transform the company: “We are all taught that great leaders set the strategy and then set everybody off marching. But, right now, nothing is more important than a general agile leader who is comfortable with ambiguity. Let’s face it - it is going to be a bumpy and fascinating ride. We need people who are nimble and agile in their thinking who are, to some degree, comfortable with figuring it out as they go along. We [at Avon] look for people who can handle change, who can handle the curve balls…understanding that you can’t possibly have it all figured out and being open to that. Also, people that can communicate and inspire. That’s always been important in leadership but now more than ever because you have to communicate and be really transparent and take people along on the journey, to say, ‘This is uncharted territory but this is where we are going.’” Sutton agreed, adding that even her job at Morgan Stanley, which was created for her, changed shortly after she joined the company. “What I was hired to do changed in 6 months and that shifted because the environment changed. [But it was OK because of] the belief I could make a difference.”

Think of Your Career as a Jungle Gym Rather Than a Ladder.
Moderator Pattie Sellers advised the audience of MBA women: “Don’t think of your career as a ladder, think of it as a jungle gym. If you think of it as a ladder, you won’t have the peripheral vision to enable you see the lateral opportunities and especially today when you don’t know what the hot job is going to be tomorrow. You’ve got to keep yourself open and you’ve got to swing to the opportunities that come along.” Smith agreed, “I believe the greatest plans are restrictive instead of instructive. Figure it out as you go along. The only guiding principle I’ve had is to insist that my life and work have passion and purpose. When I think about the pivotal jobs I took [like her move to Kraft’s Callard & Bowser-Suchard to handle the then-unknown Altoids brand for Kraft or the jump from being Group Vice President and President of the U.S. Beverages and Grocery Sectors in Kraft to Brand President for Avon], they really made no sense on paper.” She continued: “Just go into everything saying – I’m going to be inspired and I’m never going to settle and go where that takes you. ” And Sellers added, “I’m struck by women on the Fortune’s Most Powerful who’ve taken lateral moves or even taken downward moves because they wanted to expand their experiences. And that’s what pays off in the long term.”

Apple Wins North Carolina Tax Break For $1 Billion Data Center

According to CNN.com a town in North Carolina has just given the green light to Apple Computers to build a giant data center in their county. The local government has agreed to provide the technology giant with over $46 million worth of tax incentives over the next decade, which undoubtedly led to the agreement.

The decision Monday helped spur Apple's plans to expand its network of data centers, which are warehouse-sized buildings that house vast numbers of giant computers known as servers. Data centers are usually used to manage the flow of Internet traffic. In Apple's case, the Maiden, NC data center could be used to bolster its iTunes music store business.

Apple has already agreed to invest $1 billion in the structure in Maiden, which is about 30 miles northwest of Charlotte, according to the agreement. If Apple invests an additional $1 billion into the data center, the county and town will provide another $20.7 million in incentives over another 10-year period.

"There is no commitment beyond the billion dollars," said Scott Millar, president of the Catawba County Economic Development Corp.

IRS Suspends Penalty Collections Against Some Small Firms

From the Wall Street Journal.com:

The Internal Revenue Service said it will suspend through Sept. 30 efforts to collect penalties assessed against certain small business owners, after key lawmakers said the penalties were more punitive than Congress intended.

Small business owners who bought employee benefit plans that the IRS has condemned as "listed" tax shelters are facing hundreds and thousands in penalties, in some cases more than 10 times any tax benefit derived from the transaction.

IRS Commissioner Doug Shulman said in a letter Monday to lawmakers that the agency will suspend collection activities in cases where the transaction resulted in an annual tax benefit of less than $100,000 to individuals or less than $200,000 for businesses.

"I am dismayed by the feedback that I have received from some of the most seasoned IRS examination professionals that this statutory provision, in certain cases, requires them to assess penalties that are way out of line with penalties for other similar cases of non-compliance," he wrote.

Last month, lawmakers including House Oversight Subcommittee Chairman John Lewis, D-Ga., and Rep. Charles Boustany, R-La., and Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, told Shulman they aim to pass legislation to make penalties in such cases less stringent.

They asked the IRS to cease efforts to collect the penalties until Congress has passed legislation reducing them for small businesses.

At issue is a penalty for failure to report a listed tax shelter transaction, among transactions the IRS considers most egregious. Set up by a 2004 law, the penalties are assessed at $100,000 per individual per year, and $200,000 per business entity per year. Under the law, the IRS has no discretion to reduce the penalty amounts and they cannot be challenged in court.

Who’s to Blame for the Housing Market Crash?

In a new article on the Wall Street Journal the Mortgage Bankers Association suggests that zero money down loans, not subprime loans, led to the recent mortgage meltdown. Their research found that negative equity was the number one cause of foreclosures during the first half of 2008, and that down payments of under 3% were also a significant contributing factor. Check out their chart below.

The article then goes on to claim that the myths about subprime loans are delaying any efforts by the government to improve the dragging economy. I’ve included a clip of their article below, but be sure to check out the full text at WSJ.com.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault -- such as "liar loans," where lenders never attempted to validate a borrower's income or assets.

This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

Vice President Biden Announces “We Misread How Bad the Economy Was”

In an interview that has gotten a lot of people talking, last night on ABC’s “This Week” Vice President Joe Biden admitted that the Obama administration "misread how bad the economy was.” He did go on to say that he stood by their stimulus package and that it would create more jobs as the spending pace picks up. However, with unemployment rates continuing to rise, many people are justly concerned over this admission. Check out the video of the interview below.

According to the Associated Press Biden went on to say “that the $787 billion economic stimulus package was set up to spend the money over 18 months. Major programs will take effect in September, including $7.5 billion for broadband Internet service, plus new money for high-speed rail and the nation's electrical grid.”

Taxes and Independence Day

Over the holiday weekend, I came across this great article by Neil Buchanan via the Tax Professor discussing the connections between Independence Day and taxation. Check out a clip from their post below.

I thought I would take another look at our oft-mentioned and seldom-read Declaration of Independence to see what it has to say about taxes and other issues of import. Herewith, a quick (and admittedly incomplete) summary of the contents:

Obviously, the most important issue addressed in the Declaration was the ongoing violence in the colonies. Among its more memorable descriptions of conditions at the time, the Declaration reminded the world that King George III "has plundered our seas, ravaged our coasts, burnt our towns, and destroyed the lives of our people." The founding fathers were understandably focused primarily on matters of life and death.

Beyond those immediate concerns, though, the bulk of the Declaration expresses, in essence, a thirst for politics. That is, the major non-war-related complaint is that there is no locally elected legislature passing laws for the colonies. Our founders were willing to lay their lives on the line, in other words, to create legislatures.

For those of us who are law professors and lawyers, it is interesting that the Declaration also seems to express (or at least imply) a desire for lawsuits and defense lawyers. The king "has obstructed the Administration of Justice, by refusing his assent to laws for establishing Judiciary powers" and "depriv[ed] us, in many cases, of the benefits of Trial by Jury." (Current readers are likely to split into two camps in their reactions to those statements, with some saying "If they only knew what they were getting us into," and others saying, "Yes, lawyers are an essential ingredient of a stable nation.")

The Declaration also notes that the king had prevented colonists from trading with foreign nations, which was an especially sore point for our resource-rich and young nation. (There is also, I should say, a rarely-quoted—and inflammatory—comment about the American Indians, reminding us that even the Founding Fathers made controversial statements.)

Finally, though, what about taxes? Exactly one statement appears on the subject: The king had assented to Parliament's laws that "impos[e] Taxes on us without our Consent." That's it. For some reason, I always thought that taxes played a bigger part in the Declaration. All it says, though, is that taxes are unacceptable if we do not impose them on ourselves.

Volatile Swings for Price of Oil Hobble Industry

From the NY Times.com:

The extreme volatility that has gripped oil markets for the last 18 months has shown no signs of slowing down, with oil prices more than doubling since the beginning of the year despite an exceptionally weak economy.

The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery. It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month.

A wild run on the oil markets has occurred in the last 12 months. Last summer, prices surged to a record high above $145 a barrel, driving up gasoline prices to well over $4 a gallon. As the global economy faltered, oil tumbled to $33 a barrel in December. But oil has risen 55 percent since the beginning of the year, to $70 a barrel, pushing gas prices up again to $2.60 a gallon, according to AAA, the automobile club.

“To call this extreme volatility might be an understatement,” said Laura Wright, the chief financial officer at Southwest Airlines, a company that has sought to insure itself against volatile prices by buying long-term oil contracts. “Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.”

T.E.A. Parties

The Fourth of July usually means backyard barbecues, a trip to the lake, and watching the night sky explode with fireworks. This year will be a little different. This Independence Day, thousands of protesters will gather across the nation to act out against taxes. These protests deemed TEA Parties, which stands for “Taxed Enough Already,” began on April 15 this year. Over the last few months the movement has gained momentum, now boasting almost 1,700 registered “Tea Parties.”

Several groups claim to be the originators of the “Official TEA Party”, each with a different slant to their protests. Much like the first round of TEA Parties, what is actually being protested is up for debate. The common thread is that people do not like to pay taxes, especially when those taxes increase while government spending is growing. However, many groups have expanded the scope of the TEA parties using these protests for some unrelated purposes.

One Tea Party site states:

Are you fed up with a Congress and a president who:

• vote for a $500 billion tax bill without even reading it?
• are spending trillions of borrowed dollars, leaving a debt our great-grandchildren will be paying?
• consistently give special interest groups billions of dollars in earmarks to help get themselves re-elected?
• want to take your wealth and redistribute it to others?
• punish those who practice responsible financial behavior and reward those who do not?
• admit to using the financial hurt of millions as an opportunity to push their political agenda?
• run up trillions of dollars of debt and then sell that debt to countries such as China?
• want government controlled health care?
• want to take away the right to vote with a secret ballot in union elections?
• refuse to stop the flow of millions of illegal immigrants into our country?
• appoint a defender of child pornography to the Number 2 position in the Justice Department?
• want to force doctors and other medical workers to perform abortions against their will?
• want to impose a carbon tax on your electricity, gas and home heating fuels?
• want to reduce your tax deductibility for charitable gifts?
• take money from your family budget to pay for their federal budget?

If so, help organize and/or participate in a Taxed Enough Already (TEA) party in your community on July 4. You choose the time and the location. Use the registration form to the right.

The Re Tea Party Website states:

The Boston Tea Party was an act of direct protest by American Colonists demanding representation in the British Government. They became known as the original patriots.

America’s Tea Party of 2009 will reinvigorate that American and Patriotic spirit; one that demands respect for individual rights and property. As the bailouts spiral out of control, we are forced to fund failed banks. With foreclosures on the rise, we are made the collateral of reckless spending. And, when the bills come due, the IRS knocks on the door of “self-responsibility”.

ENOUGH!

No matter your take on the current administration and economic situation, I think we can agree that these protests celebrate what has made our country so great. Every one of us has the legally protected right to be ticked off, and to voice our anger in a significant way. And that is a beautiful thing.

Happy 4th of July

Since most people are taking tomorrow off to begin their holiday weekend early, I wanted to make sure to wish all of my readers a happy Independence Day in my posts today. Be sure to be safe, and enjoy the patriotic holiday!

Applications For Home-Buying Tax Credit To Be Cut Off Today

The application deadline for the popular $10,000 California homebuyers tax credit is today. The California Franchise Tax Board had extended the number of applications they would accept, and there are now 75 spots left for California taxpayers who are eligible for the credit. However, according to the Sacramento Bee the California Franchise Tax Board announced this morning that they would no long accept applications past midnight tonight. Check out a clip of Sac Bee’s coverage of the last minute change below.

Early Wednesday, the FTB said it has received 11,925 applications for the popular tax credit - 75 short of its 12,000-application limit.

The state tax agency said last month it would take 2,000 extra applications for the credit because many received are duplicates, invalid or incomplete.

The tax credit program launched March 1 to move statewide home builders' excess, unsold inventory, proved more popular than expected. The FTB said it has already issued 4,808 certificates for nearly $45 million worth of credits. Officials expect to process and award all the credits by the end of August.

Home builders have shifted their focus to efforts to add $200 million more to the original $100 million allocation. But that's proved more difficult than expected in a rancorous budget climate. Some economists have criticized further allocations as a stimulus for home building when the state's larger problem, they argue, is an excess of unsold existing homes.

The California Building Industry Association, a trade group for residential builders and suppliers, maintains that each $10,000 tax credit adds $16,000 to state government revenues and $3,000 to a local government because of the economic activity generated.

National Taxpayer Advocate Submits Mid-Year Report to Congress

The IRS posted a new press release recently announcing that the National Taxpayer Advocate Service (TAS) had delivered their mid-year report to congress earlier this week. In the report, the TAS emphasizes the importance of tax preparer oversight, improving taxpayer services, improving access to the offer in compromise program, and improving the IRS’s ability to effectively deliver refundable tax credits. You can read a segment of the release below, but the full text can be read by visiting the IRS’s newsroom.

The report notes that FY 2010 will mark the ten-year anniversary of the Taxpayer Advocate Service, which began operations in March of 2000. “As TAS enters its tenth year, both TAS and the IRS face a difficult environment for achieving what is, in essence, the same mission – ensuring that the IRS treats taxpayers fairly and identifying ways to increase voluntary compliance while addressing noncompliance,” Olson said. She identified the collection of tax revenue at a time when “increasing numbers of taxpayers have difficulty paying their daily living expenses” as a principal challenge.

The Advocate’s report, which is required by law, sets out the objectives of the Office of the Taxpayer Advocate for the upcoming fiscal year and provides substantive analysis of issues and statistical information. Among the areas the report identifies for particular emphasis in FY 2010 are the following:

1. Taxpayer Services. The report notes that the IRS created a five-year strategic plan for taxpayer service (known as the Taxpayer Assistance Blueprint, or “TAB”) in response to a directive from the House and Senate Appropriations Committees in FY 2006. The directive was originally motivated by concern that IRS taxpayer services were often ad hoc and not sufficiently coordinated or research-driven. The Advocate’s report expresses concern that the momentum to implement and refine the TAB recommendations has abated. It recommends that the IRS reinvigorate its efforts to pursue cross-functional, research-driven service improvements.

US Bank Regulators Clash Over Private Equity Rules

From Reuters.com:

U.S. bank regulators on Thursday clashed over stringent proposed guidelines for private equity investments in failed banks, with some officials expressing concern that the tough proposals could scare away needed capital.

The heads of the Office of the Comptroller of the Currency and the Office of Thrift Supervision both aired their concerns at a board meeting of the Federal Deposit Insurance Corp, during which the board proposed the new guidelines.

FDIC Chairman Sheila Bair said the guidelines need to include strong capital requirements and other provisions to ensure the safety and soundness of the banks, but said she is open to comments on the proposal.

The FDIC plans to hold a roundtable discussion on the proposal next week, Bair said.

Congress's Spending on Taxpayer-Funded Trips Rises Tenfold

According to a new analysis from the Wall Street Journal, the amount of money U.S. Senators and members of the House of Representatives has increased drastically over the past decade. The findings have many Americans concerned, wondering why Congress is excessively spending taxpayer money while the rest of the country is struggling to make ends meet. Check out the data supporting the analysis below, courtesy of the Wall Street Journal.

The spending on overseas travel is up almost tenfold since 1995, and has nearly tripled since 2001, according to the Journal analysis of 60,000 travel records. Hundreds of lawmakers traveled overseas in 2008 at a cost of about $13 million. That's a 50% jump since Democrats took control of Congress two years ago.

The cost of so-called congressional delegations, known among lawmakers as "codels," has risen nearly 70% since 2005, when an influence-peddling scandal led to a ban on travel funded by lobbyists, according to the data.

The Journal analysis, based on information published in the Congressional Record, also shows that taxpayer-funded travel is a big and growing perk for lawmakers and their families. Some members of Congress have complained in recent months about chief executives of bailed-out banks, insurance companies and car makers who sponsored corporate trips to resorts or used corporate jets for their own travel.

Although complete travel records aren't yet available for 2009, it appears that such costs continue to rise. The Journal analysis shows that the government has picked up the tab for travel to destinations such as Jamaica, the Virgin Islands and Australia's Great Barrier Reef.

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Refinance Program Expands to Cover Mortgages 25% Under Water

Earlier in week it was announced that the Home Affordable Refinance program would now accept applications from homeowners who are up to 25% under water on their mortgage. Meaning that you can still qualify to refinance your home even if the current value is up to 25% less then what you still owe.

Financial expert Suze Orman took to her blog to explain what this change means to the average American. You can check out a clip from her entry below, or click here to check out the full text and links to more information.

If you have a mortgage that is either backed or held by Fannie Mae or Freddie Mac, and you are still on-time with the payments, you may be able to refinance into a low-rate mortgage to help you stay in the home. When the program was launched in the spring your mortgage could be as much as 105% of the home’s current value (or to put it another way, you could be 5% under water) and still be eligible for the program But the government realizes that it needs to reach more people at risk of losing their home, so it has now expanded the acceptable loan-to-value (LTV) to 125%.

What to Do:

If you have were already turned down for a Home Affordable refinance because your LTV was too high, I want you to go back and try again. Make sure the lender knows about the new rule. Hey, print out this official release and show them.

If you hadn’t bothered to try and refinance because you knew your mortgage was over the old 105% limit, well, now’s your chance.

States Work to Stave Off Government Shutdowns

Since today – July 1st – marks the beginning of the new fiscal year for most states, legislators needed to have budgets prepared by yesterday evening. However, California is not the only state government that is facing budget problems. According to a new Associated Press article, “Legislators in more than a half-dozen states, their revenues evaporating in the recession, frantically worked to stave off government shutdowns and devastating service cuts.”

Across the country, lawmakers are feeling the heat as their legislatures began the new fiscal year without a budget in place.

In Illinois, the sputtering drive to come up with a state budget broke down completely Tuesday, leaving the state without any plan for paying its employees or delivering government services. The session ended without any firm plans to return or even for Gov. Pat Quinn and legislative leaders to resume negotiations.

In Pennsylvania, Gov. Ed Rendell said Tuesday night he didn't think an agreement with lawmakers would come soon. The state faces the prospect of not being able to pay state employees if they cannot resolve an impasse.

Although other states in the country are experiencing ongoing budget problems, none of them are expected to have as serious of an affect on the rest of the country as California. They other day I posted an entry explaining how the Golden State’s poor economy could prolong the recession, and this new AP article reiterates that message.

“Fallout from California's budget mess threatened to spread nationwide because of the sheer size of the state's economy. The Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted before Wednesday”

State Taxation of Professional Athletes

Earlier today, I saw this interesting entry on the Tax Professor Blog that immediately caught my attention. The article by Alan Pogroszewski takes an in-depth look at the tax issues professional athletes face in different states. I’ve included a quote from the introduction below, but you can find the full article including a helpful graph, at Tax Prof Blog.

“This article will begin with a historical look at the states’ ability to tax both their resident and those nonresidents who earn income within their borders by reviewing the Supreme Court’s interpretation whether this is within the state’s constitutional power. This will be followed by an examination on how individual states came to determine the apportionment of income of a nonresident. This section reviews the individual state court decisions that define the tax implications to off season training, spring training the post season, and the allocation of athletes playing and signing bonus for a nonresident athlete. The article then examines the practical application of this tax in whether or not states increase their overall income tax revenue by this practice. Research in this section indicates that they in fact do. The article then concludes with the practical consequences on how these laws affect individual athletes. This Article concludes with the fact that there may be at least one reason why you may want to sign a free agent client with the Tampa Bay Rays rather than with the San Diego Padres.”

To learn more about athletes who have had tax issues, check out this entry I posted to my blog a few months titled “10 Professional Athletes that had IRS Tax Problems.”

After Call From Senator's Office, Small Hawaii Bank Got U.S. Aid

Although numerous financial institutions have already begun repaying money they were loaned by the federal government, a new report has surfaced questioning the aid that was provided to a small Hawaiian bank. Check out the following article on the developing story via the Washington Post.

Sen. Daniel K. Inouye's staff contacted federal regulators last fall to ask about the bailout application of an ailing Hawaii bank that he had helped to establish and where he has invested the bulk of his personal wealth.

The bank, Central Pacific Financial, was an unlikely candidate for a program designed by the Treasury Department to bolster healthy banks. The firm's losses were depleting its capital reserves. Its primary regulator, the Federal Deposit Insurance Corp., already had decided that it didn't meet the criteria for receiving a favorable recommendation and had forwarded the application to a council that reviewed marginal cases, according to agency documents.

Two weeks after the inquiry from Inouye's office, Central Pacific announced that the Treasury would inject $135 million.

Many lawmakers have worked to help home-state banks get federal money since the Treasury announced in October that it would invest up to $250 billion in healthy financial firms. But the Inouye inquiry stands apart because of the senator's ties to Central Pacific. While at least 33 senators own shares in banks that got federal aid, a review of financial disclosures and records obtained from regulatory agencies shows no other instance of the office of a senator intervening on behalf of a bank in which he owned shares.

Inouye (D-Hawaii) declined a request for an interview but acknowledged in a statement that an aide had called the FDIC to ask about Central Pacific's application. Inouye said he was not attempting to influence the outcome. The statement did not address Inouye's personal role in the inquiry, including whether he directed the aide to make the call or knew at the time that it had been made.

Even if Inouye were directly involved, it would not violate the rules the Senate sets for itself, experts said.

Continue reading here.

Amazon and Blue Nile Cut Off Affiliates in More States Over Taxes

From Internet Retailer.com:

Jewelry e-retailer Blue Nile Inc. today joined Amazon.com Inc. in severing its referrals from Rhode Island online affiliates because of legislation that would require the collection of sales tax. The two retailers recently took similar action in North Carolina and Amazon today cut off its affiliates in Hawaii.

“This is a result of the tax collection legislation passed by the Rhode Island state legislature, and expected to become law,” Blue Nile said in a letter sent today to its Rhode Island affiliates. “Blue Nile regrets the need to take this action. As the U.S. Supreme Court’s 1992 Quill decision makes clear, the proposed bill is unconstitutional as it requires sellers with no physical presence in the state to collect sales tax on sales to buyers in that state.”

Blue Nile made a similar announcement to its online affiliates in North Carolina on Saturday, June 27.

Amazon also sent similar messages to its Rhode Island affiliates yesterday, to its North Carolina affiliates on Friday and to its Hawaii affiliates today. “This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority,” Amazon said in the message yesterday. “As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 29. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date. The governor could sign the bill—or have his veto overridden—any day now.”

Both Blue Nile and Amazon said they would pay their affiliates for all referral fees earned until the recent terminations. Amazon notes that its referral fees can run as high as 15% of the value of a sale transaction, and that it will make final payments to affiliates by Sept. 1.