Thursday, August 28, 2008

Local Franchisee in Multi Unit Franchise Magazine

The summer edition of Multi Unit Franchise Magazine featured an interesting story on one of my local Roni Deutch Tax Center® franchisees, Heather Spell. You can click here to download a PDF of the article, but my favorite part was the following quote from Heather about what she does for fun in her free time. “Dine out, visit my vacation home in Hawaii, and of course, work! If work isn’t at least a little fun, then you probably shouldn’t be doing it.”

Tax Toilet Paper

One of the attorneys at my law firm showed me the link to purchase a roll of IRS Form 1040 toilet paper, and I figured some of my blog readers would enjoy it as well! If you are interested in buying the toilet paper then you can get it either here, or here or under $7.

Tax Issues in 2008 Democratic Party Platform

With the Democratic National Convention underway the Democrats have released their 2008 Party Platform. You can download a PDF of the full platform by clicking here, but below are the tax-related contents, thanks to Tax Prof.

  • We must reform our tax code. It’s thousands of pages long, a monstrosity that high-priced lobbyists have rigged with page after page of special interest loopholes and tax shelters. We will shut down the corporate loopholes and tax havens and use the money so that we can provide an immediate middle-class tax cut that will offer relief to workers and their families. We’ll eliminate federal income taxes for millions of retirees, because all seniors deserve to live out their lives with dignity and respect. We will not increase taxes on any family earning under $250,000 and we will offer additional tax cuts for middle class families. For families making more than $250,000, we’ll ask them to give back a portion of the Bush tax cuts to invest in health care and other key priorities. We will end the penalty within the current Social Security system for public service that exists in several states. We will expand the Earned Income Tax Credit, and dramatically simplify tax filings so that millions of Americans can do their taxes in less than five minutes..
  • [W]e will eliminate all income taxes for seniors making less than $50,000 per year. Lower and middle income seniors already have to worry about high health care and energy costs; they should not have to worry about tax burdens as well.
  • [W]e will ... increase the Earned Income Tax Credit so that workers can support themselves and their families.
  • We will expand the childcare tax credit....
  • We will invest in women-owned small businesses and remove the capital gains tax on start-up small businesses.
  • We will make college affordable for all Americans by creating a new American Opportunity Tax Credit to ensure that the first $4,000 of a college education is completely free for most Americans. In exchange for the credit, students will be expected to perform community service. ... We will enable families to apply for financial aid simply by checking a box on their tax form.
  • We will ... make the Research and Development Tax Credit permanent.
  • We will invest in American jobs and finally end the tax breaks that ship jobs overseas.
  • We will exempt all start-up companies from capital gains taxes and provide them a tax credit for health insurance. We will provide a new tax credit for small businesses that offer quality health insurance to their employees.
  • We will end tax breaks for companies that ship American jobs overseas, and provide incentives for companies that keep and maintain good jobs here in the U.S.
  • We will not raise taxes on people making less than $250,000, and will eliminate all income taxes for seniors making less than $50,000. We recognize that Social Security is not in crisis and we should do everything we can to strengthen this vital program, including asking those making over $250,000 to pay a bit more.
  • And if you invest in America, America will invest in you: we will ... establish tax incentives for college students who serve, and create scholarships for students who pledge to become teachers.
  • We will support fathers by ... removing tax penalties on married families....

Disgruntled Taxpayer Rams Car into IRS Building


“A 48-year-old resident of Center Point, AL who was apparently upset about his finances, rammed his car into the Birmingham, AL IRS building on Tuesday.

After a phone call with the IRS, in which the man, who has not been named in the press, threatened an IRS agent, the agent called Birmingham police. A Jefferson County sheriff was dispatched to the man's house where he was told by the man's wife that the man had left his house. The wife told authorities that the man was armed.

The wife provided the sheriff with the man's cell phone number. When a dispatcher from the sheriff's office contacted the man on his phone, the man indicated he intended to kill himself.

According to a report in the Birmingham news, the dispatcher tried to calm the man down and asked where he was, but the man said not to worry about where he was. He said he was going to drive himself off a cliff and then everybody would know his location.

The man did not appear to be injured after driving his car into the IRS building, but was taken to Cooper Green Mercy Hospital for evaluation. No one at the IRS office was injured in the crash.

No formal charges have been filed, however Birmingham police spokesman Lt. Henry Irby indicated that the man could face state and federal charges.”

Wednesday, August 27, 2008

The 10 Best Places in the World for Surfing

Anyone who knows me will tell you that my two greatest loves are taxes, and surfing. Although I love riding the waves in Hawaii, surfing is an international hobby and half the fun in the sport is finding new spots to surf at. With thousands of great spots all over the world and more being found all the time, it is hard to know which ones are worth visiting. To help the readers of my blog with their own surfing adventures, I have gathered the following list of the 10 best beaches in the world for surfing.

1. Fuerteventura, Spain

Weather conditions are perfect in Fuerteventura. Of the coast of Morocco, it sits on the same latitude as Florida and Mexico. Known for its year-round good surfing and beautiful surroundings, it is the second largest of the Canary Islands. Because its large size, the island hosts multiple beaches that all make for great surfing.

2. Gold Coast City, Australia

Australia is known across the world for their excellent surfing conditions. With four main breaks and sunny skies, Gold Coast City has been named the “surfers paradise”. It features nearby shopping, entertainment, and tourist attractions that are convenient for surfers looking to have some more fun after hitting the waves.

3. Kandahar, Mexico

Surfers of every level can enjoy the waves of Kandahar. A wide variety of surf breaks allow surfers to advance their skills and have a fun relaxing surf all in one day. The beach is not overly crowded, but is known by surfers for it’s great weather year-round. But if you are looking for 15 feet waves then I suggest visiting Kandahar in either May or June.

4. Jeffery’s Bay, South Africa

Jeffery’s Bay is so popular among surfers that it hosts the annual Billabong Pro World Champion Tour on its beach Supertubes. Jefferey’s Bay is world famous for great surfing and great fun. The surrounding mountains and wildlife will leave you breathless, while the waves will shock you with their sustainability and variety.

5. Half Moon Bay, California

With infamous waves ranging between 25 and 50 feet, Half Moon Bay is a mecca for surfers and ocean lovers alike. Rock formations cause the wave phenomenon from underneath the water, making the spot all the more amazing to visit. Although the waves are not the biggest in the world, they are certainly the biggest in California!

6. Banzai Pipeline, O’ahu

The Pipeline has both some of the best and most dangerous waves in the world. It is definitely no place for a beginner as their waves are so intense that even some pros shy away from. Although it is one of the most coveted and loved surf spots, the danger should not be ignored. More surfers have died surfing at the Pipeline than any other surf spot.

7. “Cloud 9” Siargao Island, Philippines

Well known for its perfect tubes, cloud 9 is a relatively newly discovered hot spot for surfers looking for a fun challenge. It is also the host of the annual Siargao Cup, a domestic and international surfing competition. Although many surfers love Cloud 9, it has recently been referred to as “crowd 9”, as it is has become quite popular over the past few years.

8. Tavarua, Fiji

Fun because of its “secret” element, Tavarua has 2 world-class breaks, beautiful scenery, and a breathtaking coral reef. Unfortunately, a private surf camp manages this island and only allows visitors by invitation. Fortunately, the island hosts multiple surf competitions each year that can be watched on television or online.

9. Teahupoo, Tahiti

Another site of the annual Billabong World Championship Tour, Teahupoo lets experienced surfers live out their dreams. Their beaches have waves reaching past 10 feet, a heavy current, and perfect barrels. Because of their perfect conditions nearly every professional surfer has been to Teahupoo at least once, and almost every amateur dreams to.

10. Mundaka, Spain

One of the most famous surf spots in Europe and the world, Mundaka offers the waves and speed that every surfer craves. The current is strong, making your ride more smooth and fun but also adding some danger. Only experienced surfers should head to Mundaka, as the tide is so strong it can only be surfed in shallow waters.

IRS loses in case over Prudential, others’ payouts

From Business Today:

“It took seven years, but Charles Ulrich did something many people dream about, but few succeed at: he beat the IRS in a tax dispute.

Not only that, but tax experts say potentially millions of other taxpayers could benefit from his victory. The case potentially involves payouts from a wide range of insurers, including Prudential.

The accountant challenged the method the IRS has used for more than 20 years to tax shares and cash distributed by mutual life insurance firms to their policyholders when they reorganize as public companies.

A federal court recently agreed with his interpretation.

‘There’s a tremendous amount of money at stake,’ said Robert Willens, a New York City-based tax analyst at Robert Willens LLC. “Tens of thousands of people could be in line for a refund.”

Don Alexander, an IRS commissioner in the 1970s and now a tax attorney in Washington, said while it’s not unusual for individuals to take on the agency, ‘most of them lose.’

Alexander called it ‘quite a significant case.’

The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as demutualization.

Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.

All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.

The IRS held that the recipients hadn’t paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.

That didn’t sound right to Ulrich, 72, an accountant for 49 years. He began researching the issue in 2001, when he received shares from two companies, Prudential and Indianapolis Life.

Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.

That could make a significant difference in what a taxpayer owes. If a company distributed shares worth $30 and a recipient subsequently sold them at $32, under the IRS’ view they would pay taxes on all $32. Under Ulrich’s interpretation, they would owe taxes only on the $2 per share gain.

In 2003, Ulrich publicized his views by contacting tax and insurance experts and setting up a Web site.

‘Largely I was regarded as a lunatic,’ he said, who ‘would never prevail against the IRS.’”

IRS Issues Instructions for New Form 990

According to their newest press release, the IRS has “released the revised instructions that tax-exempt organizations will need to fill out the redesigned Form 990, which must be filed starting with tax year 2008 (filed in 2009).

As you may know, most charities must file an annual informational return with the IRS to maintain their tax-exempt status. Information reported on Form 990 is made available to the public. Form 990 had previously not seen major revisions since 1979. The revised instructions and redesigned Form 990 can be found on the IRS website.

“These instructions are the final step in a tremendous effort to bring the Form 990 up to date and to reflect the diversity and complexity of the tax-exempt community,” said IRS Commissioner Doug Shulman. “The revised form will give the IRS and the public a much better view of how exempt organizations operate. The improved transparency provided by these changes will also benefit the tax-exempt community.”

Apparently, input from the tax-exempt community played a major role in how the new instructions were designed.

“We were gratified by the amount of help the IRS received from the tax-exempt community through public comments to redesign the Form 990 and revise its instructions,” said Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division. “This input helped us achieve our goal of improving compliance while minimizing burden. We will now begin working with the tax-exempt sector to help organizations complete the form and prepare for the 2009 filing season.”

Michelle Obama Kicks Off Democratic National Convention

Last night, Michelle Obama delivered the keynote address at the Democratic National Convention. With so much attention on tax issues and the economy, I have covered this presidential election in detail on my blog. Although Michelle Obama did not specifically mention taxes in her speech, the overall tone was about improving life for all Americans. Also, be sure to watch the last few minutes as Obama’s youngest daughter interrupts Sen. Barack Obama by yelling out “I love you daddy.” Awe, how adorable!

Monday, August 25, 2008

Biden Has A Pro-Tax Career

For those of you who do not know, at the end of last week Presumptive Democratic Nominee Sen. Barack Obama announced that Sen. Joe Biden will be his Vice-Presidential running mate. Biden is the current chairman of the Senate’s Foreign Relations Committee and actively worked on military resolutions concerning the former Yugoslavia, Georgia, and Iraq.

Many assume that Biden’s history of dealing with foreign relations and military resolutions will help ease concerns over Obama’s “lack of experience.” However, in addition to his foreign relations background Biden also has an interesting history on tax related issues. has posted this interesting article on Sen. Joe Biden’s tax history, below is a snippet from the article.

“Like most Senate Democrats in 1981, Sen. Joe Biden of Delaware found President Reagan’s tax cut proposal to be an irresistible force and voted for it, after having twice voted for efforts to limit its scope.

Since then, with a few exceptions, Biden usually has supported higher taxes, although he has voted against specific tax increases when they have been advanced by Republican presidents.

In 1981, when President Reagan was pushing for across-the-board-tax cuts, Biden twice voted for bills that would have curtailed the effect of Reagan’s proposal.

First, on July 16, 1981, he voted against a measure that called for indexing the income-tax rates to inflation beginning in 1985. In a July 17, 1981 story, The Washington Post reported that the purpose of the bill was “to offset the tax increases that otherwise occur inexorably each year as incomes rise with inflation, lifting people into higher tax brackets.”

Then, on July 23, 1981, Biden supported an amendment sponsored by Sen. Bill Bradley (D-N.J.) that would have rolled back the tax cuts for anyone making over $50,000 per year. On July 17, 1981, the New York Times explained that the purpose of this amendment was “to limit personal income-tax relief to one round of rate cuts and to tilt the relief toward those who earn less than $50,000 a year.”

Nonetheless, when the full Reagan tax cuts came up for a final vote, Biden voted in favor of them, as did 88 of his Senate colleagues. Only 11 Senators voted against the Reagan bill, including 10 Democrats and 1 Republican.

The next year, Biden cast an ironic vote against a $98.3 billion tax increase supported by President Reagan and pushed through the Senate by Sen. Bob Dole (R-Kan.). The bill passed the Senate 52-47, with 35 other Democrats joining Biden in voting against it.”

The Biden Economy: What Obama’s VP Pick Means for Wall Street

From Heidi N. Moore of the Wall Street Journal:

Sen. Barack Obama picked Delaware Senator Joe Biden as his running mate in a 3 AM pick Saturday that gave a new meaning to the “Friday night news dump.”

Biden’s foreign-policy experience made him Obama’s choice, according to the news reports. But what are Biden’s views on the economy, taxes, deal making and Wall Street? Deal Journal took a look.

Not a fan of hedge funds:

In a Democratic primary debate on This Week last year, Biden blamed hedge funds and private-equity funds for the credit crunch: “We need more transparency, particularly with regard to hedge funds and private equity funds. They are the ones that are causing this thing to go under. And there’s no transparency, no accountability. We don’t know how deep this problem is.”

A stable capital-gains tax:

Biden voted no to cutting the capital-gains tax rate in 2005 and 2006. Obama favors imposing an income-tax regime on investment profits from private-equity firms and hedge funds that are currently taxed as capital gains. In 2003, the capital-gains tax rate was cut to 15%. Biden believes raising taxes on dividends will raise $195 billion a year.

Caution, but not rejection, of sovereign-wealth funds:

Biden led Senate hearings in June on sovereign-wealth funds and urged caution when accepting investments from the investment arms of foreign countries, particularly very large funds such as Saudi Arabia’s planned $900 billion fund and the $200 billion China Investment Corp. Still, he credited SWFs with helping several U.S. banks, including Citigroup, which received a $7.6 billion investment from the Abu Dhabi investment authority: “From the financial perspective, however, these funds could be an important source of capital in our global economy. Wealth Funds can bring benefits to our economy. They have helped keep our banks afloat in the midst of the sub-prime mortgage crisis and ensuing credit crunch. They could offer a fresh infusion of capital, fuel employment and stimulate the U.S. industry.” Biden said greater transparency wouldn’t make sovereign-wealth funds appear less-threatening to U.S. national security interests, but that “punitive defensive regulation could be self-defeating, depriving us of potential benefits out of the fear of potential harm.”

No tax breaks for anyone earning more than $1 million:

Sorry, Wall Street. Those deal makers who are still employed will surely pay higher taxes in an Obama-Biden administration. Biden has said he supports the elimination of tax cuts for anyone earning more than $1 million a year; he expects that to raise $85 billion a year for the government.

Toeing Obama’s line on NAFTA:

In a debate broadcast on National Public Radio in December, Biden said, “the thing I’m most unsure about, is how you rationalize competition and trade policy. I think that’s the single most difficult challenge that I will have as president.” More recently, Biden has supported Obama’s view that the North American Free Trade Agreement – which governs $810 billion in trade – should be renegotiated along more favorable lines for the U.S.

He was saw early on that the credit crunch would get ugly: in that same Democratic primary debate in August 2007, Biden said the then-nascent credit crunch was “almost as deep in terms of dollars, not liability, as the savings-and-loan crisis.”

Successful Women on Surf Boards

As a fellow businesswoman who loves to surf, I was inspired by this well-written article by Nicki Gilmour of New York City, on The Glass Hammer. Below is a quote from the blog entry, but I highly suggest you check out the full version.

“Every summer, the beaches of Long Island are filled with women and girls on surfboards. I am one of them. As far as I’m concerned, if the sun is shining, the ocean is clear and the waves are clean, the best board to be on is a surfboard.

I am sure that there are lots of successful professional women among my fellow surfers. It’s a tough sport – I have the injuries and scars to prove it. It’s thrilling. You need stamina and strength, as well as some talent to keep improving. You also need a desire to conquer yourself, not just the ocean; in other words, all the stuff that you need to make it in the other ‘boardroom’ at the office.

The first time you catch a wave, it will rank as one of the best feelings in the world, like falling in love: the butterflies flit in your stomach, sending a signal to your brain that gives you a euphoric feeling of taking flight. You are flying on top of the wave even though it’s probably just the frothy white water breaking around you and lifting you along with it. Then you get bolder and better, paddling out further and taking many hits as the ocean drags you along the seabed like a spin cycle on a washing machine. A few hours later, you will emerge and you arms will feel like they each weigh 100 lbs. from all the paddling out and paddling in for the wave.

It’s all worth it.”

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Thursday, August 21, 2008

A Theory of Taxing Sovereign Wealth

Victor Fleischer, of the University of Illinois College of Law, recently published an interesting paper titled, “A Theory of Taxing Sovereign Wealth,” on the Social Science Research Network. Below is the abstract, and you can read the full text by clicking here.

“Sovereign wealth funds enjoy an exemption from tax under section 892 of the tax code. This anachronistic provision offers an unconditional tax exemption when a foreign sovereign earns income from non-commercial activities in the United States. The provision, which was first enacted in 1917, reflects an expansive view of the international law doctrine of sovereign immunity that the United States (and other countries) discarded fifty years ago in other contexts. The Treasury regulations accompanying section 892 define non-commercial activity broadly, encompassing both traditional portfolio investing and more aggressive, strategic equity investments. Because section 892 was not written with sovereign wealth funds in mind, the policy rationale for this generous tax treatment has not been closely examined before.

This Article provides a framework for analyzing the taxation of sovereign wealth. I start from a baseline norm of "sovereign tax neutrality," which would treat the investment income of foreign sovereigns no better and no worse than private investors' income. Nor would it favor any specific nation over another. Whether we should depart from this norm depends on several factors, including the external costs and benefits created by sovereign wealth investment, whether tax or other regulatory instruments are superior methods of attracting investment or addressing harms, and which domestic political institutions are best suited to implement foreign policy. I then consider whether we should impose an excise tax that would discourage sovereign wealth fund investments in the equity of U.S. companies. If desired, the tax could be designed to complement non-tax economic and foreign policy goals by discouraging investments by funds that fail to comply with best practices for transparency and accountability.

The case for repealing the existing tax subsidy is strong. We should tax sovereign wealth funds as if they were private foreign corporations; there is no compelling reason to subsidize sovereign wealth. My analysis also shows that imposing a special excise tax may not be the optimal regulatory instrument for managing the special risks posed by sovereign wealth funds, although a carefully-designed tax would be more effective than the status quo.”

McCain and Obama tax plans diverge on wealth


“The sharpening rhetoric between Sen. John McCain and Sen. Barack Obama over their competing plans to overhaul the nation's tax system has underscored one of the most profound differences between them – how they would target America's wealthiest taxpayers.

Under McCain, the rich would see their tax burden ease. Under Obama, their rates would rise dramatically.

For much of the campaign, the two candidates have talked sparingly and obliquely about how they would deal with affluent taxpayers. But a recent volley of acid-edged campaign ads stirred up the tax issue, and a question posed last weekend by Orange County pastor Rick Warren zeroed in on how both men defined ‘rich.’

Obama said the dividing line was an income of $250,000 a year, while McCain responded somewhat flippantly that it was $5 million. McCain aides said later that the senator was joking, but his remark quickly became a campaign flashpoint.

‘I guess if you're making $3 million a year, you're middle class,’ Obama sniped, prompting a McCain aide to fire back: ‘It's not the job of the government to define who is rich.’

Where to draw the line among the nation's wealthiest taxpayers is the central difference between rival tax blueprints that offer starkly differing formulas for reviving a faltering economy.

On Tuesday, new ads from both camps played on the public's rising anxiety about taxes, incomes and the volatile economy. ‘Three Times,’ an Obama television ad airing from Virginia to Colorado, savages McCain for lavishing $200-billion tax "giveaways" on ‘big corporations.’ McCain responded with ‘Millions,’ a radio ad that predicts Obama will ‘raise taxes on your income, your electric bills, even your life savings.’

The two camps immediately issued rebuttals, each claiming its position on taxes was being distorted by the opposition. The Obama campaign contended that the overwhelming majority of Americans would not see a tax increase under his plan, only the wealthiest 5% or so. The McCain side retorted that the "$4 billion" in tax breaks for oil companies mentioned in Obama's ad was misleading because McCain is proposing an across-the-board tax cut for all corporations and is not favoring the oil industry.

A close look at their proposals shows that the differences fall neatly along the traditional policy gulf that has long divided Republicans and Democrats: liberating the wealthy with tax cuts to stimulate the nation's prosperity versus raising their rates to redistribute the tax burden and pay for crucial government programs.”

Schwarzenegger Announces Spending Plan

According to MercuryNews, “Gov. Arnold Schwarzenegger on Wednesday unveiled what he called a compromise spending plan that includes a 1 cent sales tax increase.

He implored lawmakers to look past their partisan differences in the interest of the state, but Schwarzenegger had privately broached much of the plan with legislative leaders already, to no avail.

The announcement marked the first time that the Republican governor has publicly acknowledged his proposal for a temporary 1-percentage-point sales tax increase, despite campaigning for office twice on a no-new-tax platform. The budget plan, his third this year, also calls for deeper spending cuts than Democrats want and a larger ‘rainy day’ reserve to head off future budget crises. He also wants to raid funds from redevelopment agencies across the state, an idea that could jeopardize or delay downtown and neighborhood projects in San Jose.

‘Republicans must step out of their ideological corner on the right, and Democrats must step out of their ideological corner on the left,’ Schwarzenegger said at a news conference. ‘We must meet in the middle.’ He called it ‘shameful’ that California, reeling from a $15.2 billion deficit, is still without a budget 51 days into its fiscal year.

Still, much of what the governor described simply made public ideas that he's pitched in closed-door – and thus far unproductive – negotiations. The reaction from legislators did not offer much encouragement that his announcement would yield a breakthrough.

Assembly Minority Leader Mike Villines, R-Fresno, said after the news conference that Republicans would not soften their opposition to higher taxes no matter what the governor says. California requires a two-thirds vote to pass the budget, so Schwarzenegger must win over at least six GOP Assembly members and two GOP senators to move his plan through the Legislature.”

IRS Issues Summer 2008 Statistics Of Income Bulletin

According to their latest news release, “the Internal Revenue Service today released the summer 2008 issue of the Statistics of Income Bulletin, which features tax year 2005 data on the growth in profits and tax liability reported by foreign-controlled domestic corporations.

According to 2005 data, there were 61,820 foreign-controlled domestic corporations (FCDCs), accounting for 1.1 percent of the total of all U.S. corporations. However, FCDCs generated $3.5 trillion of total receipts with $9.2 trillion of total assets, accounting for 13.7 percent of receipts and 13.9 percent of assets reported on all U.S. corporation income tax returns.

Profits, or net income less deficit, reported by FCDCs for tax purposes were $165.2 billion, an 81.9 percent increase from $90.8 billion reported in 2004. The U.S. tax liability for FCDCs, total income tax after credits, was $42.4 billion for 2005, a 41.7 percent increase since 2004.

The Bulletin also features articles on the following:

  • Foreign corporations controlled by U.S. multinational corporations: For tax year 2004, these controlled foreign corporations held $9.2 trillion in assets and reported $3.8 trillion in receipts.
  • Corporations that claimed the foreign tax credit on their U.S. tax returns: For tax year 2004, corporations claimed foreign tax credits worth $56.6 billion, representing an all-time high and a 13.2 percent increase over the previous high amount in 2003. Use of this credit reduced their U.S. tax on worldwide income by 30.2 percent, from $187.5 billion to $130.9 billion.
  • Growth trends in the number of partnership and sole proprietorship returns: While the number of partnership returns filed between 2002 and 2005 increased by 23 percent, the number of sole proprietorship returns increased by 1.9 percent.
  • Federal gift tax returns filed for gifts given in 2005: Americans reported $38.5 billion in cash and other asset transfers. Almost 3 percent of gift tax returns were taxable with $1.7 billion in reported tax liability.
  • Use of business credit for research activities: Corporations claimed almost $6.4 billion in these credits for tax year 2005, and corporations in the manufacturing industries claimed more than 70 percent of this amount.”

Wednesday, August 20, 2008

10 Easy Ways to Increase your Gas Mileage

Although gas prices dropped a little over the past week, they are still high. Luckily, there are dozens of easy ways you can save gas and money by increasing your gas mileage. With just a few adjustments and a little patience you can save yourself hundreds of dollars every year in fuel. In today’s economy, who could not use a little more money?

1. Cruise When Possible
Cruise control works effectively in two ways. First, it keeps the car running smoothly and efficiently without jumps or sudden acceleration. Second, it has been proven to put people in a calmer state of mind, which reduces erratic, gas guzzling, driving habits.

2. Keep It Light
Having heavy objects, or just a lot of junk in your car can put a big toll on your mileage. By simply cleaning out your car, you will not only save fuel, but you will have a nice clean car!

3. Oil Changes
Checking and changing the oil in your car on a regular basis saves you more gas than you would imagine. Having clean oil in your engine helps the whole vehicle run smoother, making your vehicle more fuel-efficient.

4. Plan Ahead
Try planning errands in the same part of town around each other, so that you do not have to make multiple trips. By arranging your errands and appointments around each other will save you hundreds in gasoline every year.

5. Slow Down
The EPA estimates you pay about 20 cents more per gallon for every 5 miles you go over 60 mph. Although going 80 down the highway may get you some where quick, you will be paying much more per mile for the speedy trip.

6. Check Your Wheels
Poorly inflated tires waste a lot of gas. Studies show that keeping your tires at maximum pressure at all times can save you as much as 10 cents per gallon. It is a good idea to gauge your tires for pressure at least once a month.

7. Let Your Car Breathe
The air filter in your car is what lets it breathe, and a clogged filter will add drag to your car and waste gas. Check and maintain your air filter as you would your oil, to prevent this from happening.

8. Close Windows
Even if the weather is nice, having even one window down in your car while driving at highway or freeway seeds causes major drag. Believe it or not, studies show that using your A/C at speeds over 55 mph is actually more fuel-efficient than having your window down.

9. Take Advantage of Cool Weather
Gasoline is denser in cool temperatures, and since it is measured by volume and not density, buying fuel during cooler times of the day will let you get a little more gasoline for your money.

10. No Top-Offs
"Topping off", or overfilling your gas tank almost always wastes money and fuel. To avoid gasoline from splashing and getting wasted, stop adding more fuel after the pump stops the first time.

Problems With Recent Tax Foundation Study

From A Taxing Matter:

“The Tax Foundation is busy again pushing its latest propaganda idea--that the US has such high corporate taxes that it stifles competition and hurts our economy--with a new "" organization.

Wrong. Fact is, though our tax laws include statutory rates that are fairly high (35% for corporations earning about $18 million or more annually) but generally in the same ballpark as those of other developed western nations, the actual tax rates paid by US corporations are extraordinarily low, around 6%. Remember the latest GAO report (reported elsewhere on ataxingmatter) that shows that two-thirds of US corporations pay no federal income tax. That's not just the ones that are losing money, but also many corporations that have record high profits (including some Big Oil companies) that end up paying next to nothing in taxes.

That's because the statutory rate of 35% is only on paper. Corporations engage in aggressive tax planning that cheats the system, and they take advantage of a bountiful number of lucrative loopholes built into the system under the four decades of Reagan-style corporate favoritism and deregulation, including items such as accelerated depreciation, various expensing provisions that let corporations deduct before they really have an economic cost, and the lucrative research & development credit that lowers taxes dollar-for-dollar for R&D expenditures that corporations have to do anyway (so they do not serve as an incentive to greater development) and that corporations have often already done prior to the enactment of the one-year "extensions" of the credit that have been taking place as transitions to no-credit for years.

As a result, the US is actually a corporate tax haven, with the lowest effective corporate tax rates of almost all the countries that participate in the OECD. That's a little fact that the Tax Foundation apparently doesn't want the American public to understand, since all its hype is in terms of statutory rates and not in terms of effective tax rates.

Now, the Tax Foundation does put out a figure for the amount of corporate taxes collected--a little more than $300 billion. But it doesn't provide the historical context--the share of federal revenues paid by corporate taxes has decreased substantially, while the share of overall revenues provided by everybody else (including the little guys through payroll taxes, among other means) has increased.

The Tax Foundation does something else it often tends to do in setting out its propaganda: quote one source as a definitive authority, without mentioning conflicting conclusions from other respectable sources. The Tax Foundation wants employees to believe that they are the ones who "really" pay corporate taxes come. But we don't know the incidence of the corporate tax, and there are a number of conflicting studies. Even the studies that exist make a number of assumptions that may bring their conclusions into doubt. Many experts think it is primarily the shareholders (of course, that's also the claim of many of the right-leaning organizations like the Tax Foundation when they are arguing for eliminating corporate taxation because, they claim, it amounts to "double taxation" of the same earnings when shareholders are taxed on their investments). But it may be predominantly consumers, or workers, or creditors, or so diffuse that it isn't borne by any one segment of the economy. What we do know is that many corporations have been making very high profits and paying low taxes, and that the corporate contribution to the fisc is considerably less as a percentage of GDP than it used to be, at the same time that wealthy US taxpayers are paying astoundingly low overall effective tax rates on their income, including very low rates on their income from capital, while they are garnering an ever larger share of the income pie.

Instead of talking about a need to reduce corporate tax rates, the Tax Foundation should be answering the following question: if low corporate taxes are the key to success, how does the Tax Foundation explain that very favorably taxed US corporations--like Big Pharma, Big Oil, and of course Big Banks--that pay among the lowest tax rates in the developed world, still claim they need more government subsidies in order to successfully compete against their international counterparts (or each other, in many cases). Isn't this just another one of those straw-man arguments claiming a "need" to reduce US taxes for the "public" good, when the real goal is to eliminate taxes on corporations and on income from capital, so that wealthy corporate owners and managers can continue to garner a larger and larger share of the nation's income?

What US corporations need is more long-term thinking and less of the mentality that has reigned for decades, that leads to restructuring to build profits into hedge funds and equity joint ventures and managers and shareholders, but not leaving much on the table to build long-term commercial success. It's not a tax cut these corporations need, but cuts to the drivel at the top (executives earning in half a day what their average employees earn in an entire year) and more committed participation in the community and nation that has made their incredible success possible.

I hope Americans are too smart to buy more of this propaganda that is part and parcel of the deceptive marketing of the corporatist state. It's time to recognize the power that corporatism gives to wealthy owners and managers of corporations and set the rules to benefit the public good, rather than the wealthy few.”

CA Lawmakers Still Arguing Over State Budget

According to the Wall Street Journal, California lawmakers have still not yet reached a compromise on the state’s budget. Even the recent emergency Assembly meeting was fruitless, as Democrats and Republicans continue to argue about tax increases. However, if a compromise is not reached soon it could force the state to take high interest loans for day to day costs, and the state could be forced to pay all employees federal minimum wage.

“At issue is the Democrats' proposal to make up for the deficit largely by increasing taxes on California's wealthiest residents -- a plan that Republicans oppose. In a vote Sunday, not a single Assembly Republican voted for the plan to raise $6.7 billion in revenue largely through income-tax increases. Republicans account for 32 of the assembly's 80 seats, but California requires that two-thirds of the legislature approve the budget.

Similar conflicts over how to make up budget deficits in tough economic times could crop up in other states over the next year because of the housing crisis, said Kim Rueben, a fellow with the Public Policy Institute of California who studies state budgets.

Ms. Rueben said California is particularly susceptible to economic changes as it is heavily dependent on income taxes on the rich, thanks largely to limits on property-tax increases as well as a 2004 measure that imposed increased taxes on the wealthy. The Democrats' plan for more income tax increases amounts to ‘exaggerating a tendency that's already one of the state's biggest tax problems,’ she said.

Assembly Speaker Karen Bass, a Democrat, said there is little choice because the state has already cut funding for programs and needs to find more revenue. Both sides have been reluctant to accept Gov. Arnold Schwarzenegger's proposal for a temporary sales-tax increase.

‘I'm very skeptical of any politician claiming they want a temporary tax,’ said Republican Assemblyman Chuck Devore. In the future, he said, legislators will argue that they have ‘grown accustomed to the tax and we need the revenue.’ Democrats said the sales tax places an undue burden on poor and middle-income residents.

Democrats say a sales tax increase would be regressive. That stance could be changing in the wake of Sunday's vote, which was preceded by a debate in which dozens of legislators aired their grievances.

Ms. Bass, in between meetings with Mr. Villines, said both parties are discussing a sales-tax increase with a built-in end date and several measures to close tax loopholes for the wealthy that won't amount to increases in the income-tax rate. For example, she said, Democrats and Republicans agree that a rule exempting out-of-state yacht purchases from state taxes could be changed.

She and Mr. Villines said they expect to reach a compromise sometime this week. The key to the latest talks, she said, was the Sunday debate. ‘Frankly, the catharsis was needed yesterday,’ Ms. Bass said on Monday.”

Beware the $7,500 'tax credit'

“Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.

But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.

‘It's one of those things that are more complicated than it seems at first blush,’ said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. ‘Consumers have to make sure they understand the credit thoroughly.’

The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit.

The Senate Finance Committee estimates that about 1.6 million people will use the credit.

The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time homebuyers represented about 20% of the market for new homes in 2007.

Realtors are also behind the credit. ‘[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity,’ said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.

The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for homebuyers (about $8,200 in today's dollars).

‘Buyers flocked to market and cleared out a then-record inventory of homes,’ said NAHB president Sandy Dunn. But that credit did not have to be repaid.

And the impact should extend beyond first time homebuyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.”

Continued at

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Monday, August 18, 2008

New McCain Commercial Attacks Obama’s Tax Proposal

A new commercial from the McCain camp titled “Taxman” recently hit television screens across the country to attach Obama’s new tax plan. Below is an embedded video of the commercial.

Thanks to the Associated Press, below is the script of the commercial as well as analysis from Douglass K. Daniel.

"Celebrity? Yes. Ready to lead? No. Obama's new taxes could break your family budget. The press warns the 'taxman cometh.' Obama's taxes mean 'higher prices at the pump.' Obama's taxes a 'recipe for economic disaster.' Higher taxes. Higher gas prices. Economic disaster. That's the real Obama."

“This terse ad is misleading because it targets a broad audience yet makes a key assertion — ‘Obama's new taxes could break your family budget’ — that at most applies only to a narrow group.

Previous ads from the McCain campaign have straddled and at times crossed the line of accuracy in criticizing Obama's policies. This ad bases most of its charges on newspaper editorials. Thus, by citing their opinions, the spot shifts the burden of accuracy from the McCain campaign to others in an effort to appear more credible.

The new ad contains a major caveat when it says Obama's new taxes ‘could’ break the family budget. That family, under the Obama plan, would have to be earning $250,000 or more a year to see its taxes rise. Nearly all those watching the ad would fall outside that group.

The phrase ‘taxman cometh’ appeared in a July 1 editorial in The Wall Street Journal that decried Obama's tax policies.

As presented in the McCain ad, the charge of higher gasoline prices is ambiguous. Obama hasn't suggested raising the federal tax on gasoline. The McCain campaign attributes the prospect of higher prices at the pump to analyses — the one cited in the ad came from a Washington Post editorial published Aug. 6 — that conclude that the costs of Obama's proposed windfalls profit tax on the record earnings of oil companies would eventually be passed on to consumers.

That Obama's plan is a ‘recipe for disaster’ is the opinion of the Las Vegas Review-Journal, which criticized Obama in an editorial published Sept. 20, 2007. It said he sought to raise the tax rate on the top income bracket from 35 percent to 39.6 percent, nearly double the tax rate on capital gains and dividends, and eliminate all tax breaks for the gas and oil industries and private equity firm managers.

When the editorial appeared last fall it was unclear how much of an increase in the capital gains tax Obama favored. On Thursday, Obama's economic advisers said the tax rate would increase to 20 percent, not to nearly 30 percent, and again only for those earning $250,000 or more. The advisers also said Obama would indeed seek rates for the top two income tax brackets at 36 and 39.6 percent to match the levels of the 1990s. All other brackets would remain at today's rates, they said.

To the charge of ‘economic disaster,’ Obama's advisers would probably point to the relative prosperity of the 1990s, the era whose tax rates they seek to return to. McCain rejects allowing the Bush administration tax cuts to expire on schedule, saying that would result in higher taxes. Obama counters that the Bush tax cuts favored the wealthy to begin with.”

U.S. Corporate Taxes Now 50 Percent Higher than OECD Average

The Tax Foundation recently completed a study on how United States Corporate tax rates compare to other countries around the world. The graph below shows how our tax rate has remained rather constant, while other countries rates have lowered over time. Also below is a quote from the article accompanying the study, you can read the full text here.

“Amid rising concerns about the state of the U.S. economy, new data compiled by economists at the OECD shows that for the 17th consecutive year the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same. As a result, the overall U.S. corporate tax rate is now 50 percent higher than the OECD average.

Combined with another new OECD study that calls the corporate income tax the most harmful type of tax for economic growth, the implications for U.S. policy are clear. The long-term prospects of the U.S. economy are at risk as long as our corporate tax rate remains out of step with the rest of the world.

The U.S. continues to have the second-highest combined federal-state corporate tax rate among industrialized countries at 39.3 percent. Only Japan has a higher overall corporate tax rate at 39.5 percent. By contrast, the average corporate tax rate among OECD countries has fallen a full percentage point in the past year, from 27.6 percent to 26.6 percent. Ireland's 12.5 percent corporate tax rate remains the lowest among OECD nations.

The OECD data shows that nine of the 30 OECD member nations have lower corporate tax rates in 2008 than in 2007, including Canada, Germany, New Zealand, Spain, the United Kingdom, Italy, Switzerland, the Czech Republic and Iceland. Germany made the biggest change, cutting its corporate rate 8.7 percentage points from 38.9 percent to 30.18 percent. Consequently, Germany fell from having the third-highest overall rate to seventh highest. France now imposes the third-highest rate of 34.4 percent.

Italy had the second-largest rate cut, lowering its rate 5.5 percentage points, from 33 percent to 27.5 percent. Consequently, Italy dropped in the rankings from seventh highest to fifteenth highest. Canada, meanwhile, dropped from fourth- to fifth-highest after cutting its overall corporate rate from 36 percent to 33.5 percent.”

IRS Taxes Personal Calls On Work Cell Phones

Almost everyone has a cell phone these days. But if you're among the people who make personal calls on a company mobile phone, the Internal Revenue Service may want to talk with you.

As previously mentioned – and quoted here – in the LA Times, the IRS puts cell phones in the listed property category — right along with company-issued motor vehicles and use of the corporate plane. And they consider little perks like cell phone calls from your work BlackBerry to be taxable as an extension of your compensation package. So either you or your employer is supposed to pay up.

The law for taxing cell phones was written 20 years ago, when the wireless industry was in its infancy and mobile phones were about the size and weight of a brick. Back in the day, if you wanted one of those big Motorolas with the 2-foot antenna (visualize Michael Douglas on the beach in the 1987 movie Wall Street), you — or more likely, your company — would have shelled out about $4,000. So of course, they were reserved for top-level executives.

Fast-forward 20 years, and now everybody has cell phones. They're smaller, lighter and faster. Instead of just calling on them, you can watch the news, listen to music and scan your e-mail. The CEO, the IT guy and the facilities manager each have one. Doctors and reporters would be lost without them. And how else would that real estate agent know whether you've blown her off or you're stuck — again — on the freeway en route to meeting her?

Let's Drill Our Way To Lower Taxes

From the Wall Street Journal:

“As the tide of public opinion seems to shift in favor of House Republicans' demand for a vote on domestic energy exploration, one supporting argument has yet to be discussed: drilling as a way to lower your taxes.

Opening our vast domestic resources, both on and offshore, to responsible oil and gas development would produce an influx of tax revenue from additional lease sales and royalties, as well as from income and excise taxes. These additional collections could be used, for example, to offset the alternative minimum tax (AMT).

The Congressional Research Service recently estimated the potential federal revenue from Arctic National Wildlife Refuge (ANWR) oil development at $191 billion over 30 years -- roughly $18.36 per barrel, based on projections of recoverable reserves. Applying that formula to the 107 billion-plus barrels of recoverable oil that federal agencies estimate is in ANWR, the nearby National Petroleum Reserve and offshore tells us that sensible drilling could yield nearly $2 trillion in overall revenue over 30 years, or an average of about $65.5 billion per year.

Meanwhile, the ‘cost’ in lost tax collections of protecting 22 million families from the AMT this year stands at about $62 billion. That figure is sure to balloon in the future as more and more Americans are ensnared by the complex system. Tax-hungry politicians defend the AMT by pointing to all the federal revenue that would be lost by ending it. (Never mind the fact that AMT revenue is ill-gotten in the first place, or that the estimated ‘costs’ of its repeal to the federal budget ignore the benefits to economic growth and resulting additional revenues.) While oil and gas development won't fill government's coffers overnight, it will provide a down payment in the near-term, and big windfalls in the out-years that can help deal with some of the most intractable tax problems we face.

We helped create our energy supply problem by putting resources off-limits. Let's develop those resources and use the revenue to help alleviate tax burdens in this difficult economy. More supply, lower gas prices, greater energy security, and lower taxes. What are we waiting for?”

Redefining What It Means to be Charitable: Raising the Bar with a Public Benefit Requirement

Tiffany Keb, of the University of Oregon, has published this interesting research paper on charitable contributions in the United States. Below is a snippet from the introduction, but you can download a PDF of the full paper by clicking here.

“This Comment seeks to explain how a public benefit requirement will improve the charitable sector in America. Part I explains what it means to be “charitable” in American tax law, and provides a general idea of what an organization must do to be exempt from federal taxes under § 501(c)(3). Part II describes the substantial benefits of being classified as a § 501(c)(3) organization. Additionally, possible rationales for preferential treatment of charitable organizations in the tax code are explored. Part III illustrates the need to reform current charity law, and explores what that restructuring might look like by examining reform occurring at the state level. It also examines charity reform recently passed in England and Wales in the Charities Act, which potentially offers a creative solution to reforming the American charitable sector. Part IV explores some of the concerns of government officials at the federal level regarding the charitable sector by summarizing a recent hearing before the House Committee on Ways and Means. Finally, Part V argues for the adoption of a public benefit requirement similar to the one in the Charities Act. Essentially, a public benefit requirement has already been adopted in several states, at least regarding the regulation of nonprofit hospitals. The success of these states in formulating public benefit requirements is evidence that doing the same at the federal level will not be unduly burdensome.”

Friday, August 15, 2008

Obama Announces Revised Tax Plan

Presidential hopeful, Sen. Barack Obama released a new version of his tax plan. Possibly due to negative media attention, Obama has decreased his ambitions for a large capital gains tax increase. Instead of doubling the capital gains and dividends tax rate, his new plan seeks to only raise it to 20% for families making over $250,000. Below is the summary of his new plan, but you can download the full version at

“Barack Obama’s tax plan delivers broad-based tax relief to middle class families and cuts taxes for small businesses and companies that create jobs in America, while restoring fairness to our tax code and returning to fiscal responsibility. Coupled with Obama’s commitment to invest in key areas like health, clean energy, innovation and education, his tax plan will help restore bottom-up economic growth that helps create good jobs in America and empowers all families achieve the American dream.

Obama’s Comprehensive Tax Policy Plan for America will:
  • Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.
  • Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.
  • Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of healthcare and to reward investments in innovation.
  • Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.
Under the Obama Plan:

Middle class families will see their taxes cut and no family making less than $250,000 will see their taxes increase. The typical middle class family will receive well over $1,000 in tax relief under the Obama plan, and will pay tax rates that are 20% lower than they faced under President Reagan. According to the Tax Policy Center, the Obama plan provides three times as much tax relief for middle class families as Sen. John McCain’s plan.

Families making more than $250,000 will pay either the same or lower tax rates than they paid in the 1990s. Obama will ask the wealthiest 2% of families to give back a portion of the tax cuts they have received over the past eight years to ensure we are restoring fairness and returning to fiscal responsibility. But no family will pay higher tax rates than they would have paid in the 1990s. In fact, dividend rates would be 39 percent lower than what President Bush proposed in his 2001 tax cut.

Obama’s plan will cut taxes overall, reducing revenues to below the levels that prevailed under Ronald Reagan (less than 18.2 percent of GDP). The Obama tax plan is a net tax cut – his tax relief for middle class families is larger than the revenue raised by his tax changes for families over $250,000. Coupled with his commitment to cut unnecessary spending, Obama will pay for this tax relief while bringing down the budget deficit.”

Obama’s War on Women?

From the New York Sun Editorial:

“The Obama campaign has at long last lifted the veil of mystery that has surrounded the Democratic presidential candidate's tax increase plans. Mr. Obama's two economic advisers, Jason Furman and Austan Goolsbee, have an op-ed piece in today's Wall Street Journal, and it isn't pretty. To begin with, they propose bringing back the 39.6% top income tax bracket, an increase from the 35% current top rate. On top of that, he'd impose a new payroll tax on those top earners of 2% to 4%, bringing their marginal tax rate to as high as 43.6%. Add to that the top New York City income tax rate of 3.648% and the top New York State income tax rate of 6.85%, and the nominal marginal income tax rate mounts to a staggering 54%. Because Mr. Obama proposes to put the capital gains and dividend tax rate at 20% even for the ‘rich’ — a mere 33% increase over the current 15% rate — expect to see plenty of high earners scurrying to find creative ways of structuring their income as capital gains or dividends rather than as earned income.

Meanwhile, the most astonishing sentence in the op-ed is this one: ‘His plan would not raise any taxes on couples making less than $250,000 a year, nor on any single person with income under $200,000.’ It amounts to a declaration of war on two-income families, a marriage penalty of punitive proportions. If those two single persons, with income just under $200,000 get married, Mr. Obama is going to hammer them with a huge tax increase. If the second earner, who in many cases is the woman, is going to have to give 54% of what she earns to the government, she might as well stay home with the children. Mr. Obama may be able to get away with symbolic slights to women, such as not picking Senator Clinton as vice president. But punishing them with confiscatory taxes for participating in the workforce at a high income level moves the slight into the realm of substance.”

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IRS Revises Voluntary Correction Program for Retirement Plans

According to the IRS’ latest news release, they have “updated guidance on the voluntary correction program for employee retirement plans – the Employee Plans Compliance Resolution System (EPCRS).

‘Employers and plan administrators want to comply with the tax laws and regulations to protect plan participants,’ said Michael Julianelle, director of the IRS’s Employee Plans division. ‘EPCRS helps employers and plan administrators take a proactive role in identifying and fixing mistakes. It also encourages implementation of practices and procedures that ensure retirement plans comply with laws and regulations.’

Under EPCRS, plan sponsors and plan professionals can correct certain errors in employee retirement plans, in some cases without having to notify the IRS. Correcting plans in this way allows participants to continue receiving tax-favored retirement benefits and protects the retirement benefits of employees and retirees.”

To read more on the IRS’ updates to the Employee Plans Compliance Resolution System click here.

Wednesday, August 13, 2008

Taxpayers with 25 or More Heavy Vehicles Now Must File Excise Tax Forms Electronically

From the latest IRS news release: “individuals and organizations with 25 or more trucks, tractors or other heavy vehicles used on highways now are required to make their excise tax filings with the Internal Revenue Service electronically, rather than by paper.

Form 2290, Heavy Highway Vehicle Use Tax Return, is used to report and pay highway-use excise taxes. Last year truckers and others filed over 700,000 Forms 2290 and paid over $1 billion in federal highway use taxes. E-filing of Form 2290 began in August 2007.

Electronic filing streamlines the processing of the Form 2290, is more safe and reliable than paper filing and reduces preparation and processing errors. Although electronically filing Form 2290 is not required for taxpayers reporting fewer than 25 vehicles, all taxpayers are encouraged to file their forms electronically. Most Forms 2290 are due by August 31.

Another advantage of e-filing Form 2290 is that taxpayers don’t have to wait for a stamped version of the Schedule 1, Schedule of Heavy Highway Vehicles, to be returned by mail because they will almost instantly receive the equivalent of a stamped version electronically. This means truckers won't have to wait to register their vehicles with the appropriate state authority when obtaining the proper license tags.”

McCain Ignores Calls to Cancel Controversial Fundraiser

“Republican presidential candidate John McCain so far is ignoring calls from several watchdog groups to cancel an Atlanta fundraiser promoted by Ralph Reed, a longtime friend and business partner of imprisoned lobbyist Jack Abramoff.

Public Citizen, Citizens for Responsibility and Ethics in Washington (CREW), and Campaign Money Watch are urging the Arizona senator to cancel plans for the Aug. 18 fundraiser at the Marriott Marquis in downtown Atlanta and remove Reed from McCain’s Victory 2008 Team.

Reed lost his 2006 campaign for Georgia lieutenant governor in large part because of details about his relationship with Abramoff — much of the information uncovered by McCain’s Indian Affairs Committee investigation into the wide-ranging lobbying corruption scandal.

The Senate probe discovered $4 million in payments Reed accepted to run a bogus anti-casino campaign aimed at reducing gambling competition. An Indian tribe with a competing casino made payments to Reed, which according to the Senate investigation’s final report, were “passed through” Abramoff’s firm, Preston, Gates, Ellis & Rouvelas Meeds, and another organization, Grover Norquist’s Americans for Tax Reform.”

Continued here…

Obama’s Senior Citizen Tax Plan Draws Criticism

Although Presidential hopeful Barack Obama deserves to be commended for thinking outside the box with his tax proposals (high capital gains increases, energy tax credits, etc.), many of his aspirations are getting heavily criticized by tax professionals around the country. Below is a quote from another article from the Associated Press on how one proposals of his in particular is getting a lot of negative attention. You can read the full text at Obama's 'no income taxes on seniors' draws critics.

“If you're a senior citizen and earn less than $50,000 a year, Barack Obama has a deal for you: a life free of federal income tax.

Sounds appealing, right? Maybe to many seniors. But tax policy experts in Washington are giving it bad reviews. They see it as another subsidy for senior citizens, who already get federal help through Social Security and Medicare and often have economic advantages over other demographic groups.

Seniors typically have paid off their mortgages, many have investments and usually don't pay taxes on their Social Security benefits. The kids are usually grown, so they're not saddled with day care or college costs.

‘The odds are the retired folks - they're getting pensions, they're getting Social Security, they have investment assets, they own a house - so ... they're better off than somebody who is 30 or 40 years younger who's trying to buy a house (and) trying to start saving,’ said Clint Stretch, managing principal of tax policy for Deloitte Tax.

The Obama campaign says the idea would give tax cuts averaging about $1,400 to 7 million seniors who are battling inflation with mostly fixed incomes. The campaign also says the plan would relieve millions of older people from having to file complicated tax returns.”

Report Shows Most Companies Avoid Federal Taxes

From the Associated Press:

“Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.

The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.

‘It's shameful that so many corporations make big profits and pay nothing to support our country,’ said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called ‘S’ corporations pay taxes under individual tax codes.

‘Half of all business income in the United States now ends up going through the individual tax code,’ Edwards said.

The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.

Dorgan and Levin have complained about companies abusing transfer prices - amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities. The GAO did not suggest which companies might be doing this.

‘It's time for the big corporations to pay their fair share,’ Dorgan said.

Top 10 Factors that Influence Fuel Prices

It does not take an expert to notice that gas prices have risen sharply over the past year. Although the average person probably understands that demand influences gasoline prices, you might be surprised to learn that there are actually dozens of different factors that can increase or decrease the price you pay at the pump. To help the readers of my blog understand how complex the prices of petroleum really are, I have gathered the following list of the top 10 factors that influence fuel prices.

1. High Demand

Demand is high for gasoline in not only the United States, but around the whole world. With more and more cars on the road every year, and a second baby boomer generation, the demand for gasoline is higher in this country than ever. Although increased gas prices have cause the average American to drive less in general, the population and number new drivers continues to increase.

2. Limited Resources

Pricing of petroleum is controlled by the OPEC countries, which own about 2/3 of the worlds oil reserves. Some feel OPEC countries control and change the price of oil at their will, but it is becoming obvious that the reserves themselves are beginning to run low. The supply of crude oil as a whole is dwindling. “Our demand has skyrocketed, but our ability to supply that demand has stagnated,” notes Stephen Schork of the industry newsletter, the Schork Report.

3. Weather

Disasters like hurricane Katrina and now the Iowa floods are contributing to the gas spike too. The flood contributed to the loss of over a billion bushels of corn, which causes significant harm to the ethanol industry.

4. Summertime Travel

In the summer, there are more RVs on the road, more vacations, and more overall gas usage. Due to the increase, gas prices go up every summer to deal with the higher demand. However, prices fluctuate frequently during summer months due to this occurrence.

5. Future Planning

Recent studies and investigations have found that gas prices are being raised not necessarily by immediate need, but by predictions of future consumption. Many consumers who find this fact are upset by the fact that they are being overcharged for future reserves.

6. Corn Crop Loss

Due to afore mentioned weather problems, ethanol made from corn crops is in short supply. With the shortage in ethanol, ethanol prices have shot up and fewer people are using it to power their vehicles. Therefore there is even more demand for fossil duels which causes prices increases.

7. Tax Rates

In addition to already high fuel costs, both the federal government and most states levy some sort of excise tax on consumers who purchase gasoline. The federal fuel tax hovers a little under 20 cents a gallon, while most state taxes are slightly about 20 cents.

8. Geographic Location

Where your buying gas makes a huge difference. Getting gasoline a few miles outside of a major city like San Francisco or Seattle can drastically reduce the price you pay per gallon. Additionally, some smaller cities across the country have higher gas prices to meet with their local economy and gasoline demand.

9. Competition

It is hard not to notice the competition when you see a gas station on each corner of almost every major intersection. When a larger city with more drivers calls for more gas stations, competition can raise and lower your local prices on a daily basis. With the allover raise in fuel prices, many consumers try to choose the station with the lowest price, forcing close competitors to watch and mimic each other constantly.

10. Other Petroleum Products

Although the demand for crayons cannot to be compared to the demand for gasoline, there are examples of another petroleum product that can take up resources as well. Bubble gum, record, tires, asphalt, propane, ammonia, and deodorant are all common products that require petroleum for production.

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