Thursday, January 29, 2009

Senate Finance Committee Approves Tax Cuts in 14-9 Vote

From MarketWatch:

A Senate committee approved $342 billion in tax cuts on Tuesday as part of a larger plan to stimulate the economy. The Senate Finance Committee voted 14 to 9 to approve the legislation after amending the original proposal to make sure middle-class taxpayers aren't hit by the alternative minimum tax this year. All Republicans on the committee opposed the package except for Sen. Olympia Snowe, R-Me, according to Dow Jones Newswires. The bill includes a $500 individual tax credit, tax breaks for businesses to hire workers and buy equipment, and tax incentives for energy efficiency.

How About a Payroll Tax Stimulus?

From The Wall Street Journal:

Congress and the Obama administration seem near to deciding the details of an economic stimulus package. Unlike the efforts of President Ronald Reagan and President George W. Bush, who also inherited declining stock markets and shrinking economies, this package is heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates.

Today the Reagan tax cuts are widely viewed as successful. Opinions on the longer-term effects of the Bush tax cuts are more diverse, but the short-term effects of the 2001 and 2003 cuts are generally credited as having been well-timed.

And what of the plan being put forward now? As crafted, it is unlikely to produce the desired results. For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.

By contrast, the stimulus now under consideration would suffer from the usual problems of government spending. The Congressional Budget Office and the Joint Committee on Taxation have calculated that only $170 billion, or about one-fifth of the $816 billion package will be spent in fiscal 2009. An additional $356 billion will be spent in 2010. That leaves $290 billion to be spent when even the most pessimistic forecasters think the economy will be in recovery mode.

Californians Back Higher Taxes, Spending Cap

A new poll by the Public Policy Institute of California found that most Californians are ready to take drastic measures to ensure their State’s financial stability. A snippet of the article accompanying the poll can be found below, but you can read the full study at the SF Chronicle website.

Battered and worried by the onslaught of dire economic news, Californians are much more willing than their legislators to take drastic moves to stop the state's financial tumble, according to a new poll by the Public Policy Institute of California.

Solid majorities of the state's voters - Democrats, Republicans and independents alike - favor tax increases and spending caps that have left the Legislature gridlocked in its effort to close California's $42 billion budget gap over the next 18 months.

"Voters are scared and willing to be more flexible," said Mark Baldassare, head of the institute. "Some of the concerns break along party lines, but there's a surprising level of support for (budget) plans that share the pain."

Concern over the economic slide has skyrocketed in recent months, with 59 percent of Californians convinced the state is in a serious recession, up from 39 percent last October. Only 18 percent, a record low for the survey, think the state is heading in the right direction, while more than three-quarters are convinced tough economic times lie ahead in the next year.

"The worries are across the parties and across the regions," Baldassare said. "In California, no group is immune to the downturn and the worry that it could affect them next."

Two-thirds of Californians now name either jobs and the economy or the state budget as the most important issue for the governor and the Legislature, dwarfing schools (12 percent) and immigration (4 percent). But only 39 percent of California adults - and 35 percent of likely voters - are convinced Schwarzenegger and the legislators will be able to work together to accomplish a lot this year.

Ford Hybrid Owners to Get Tax Credit up to $3,400


Consumers who order or purchase a new 2010 hybrid vehicle from Ford Motor Co. by the end of March are eligible for a tax credit, the company said Wednesday.

Purchases or orders of new Ford Fusion and Mercury Milan hybrids made by March 31 will qualify for a $3,400 credit on their 2009 tax returns.

The company unveiled its hybrid version of the Ford Fusion last November that can go up to 47 miles per hour on battery power alone. The Fusion gets 41 miles per gallon in the city and 36 mpg on the highway.

The Ford Escape and Mercury Mariner hybrids are still eligible for a $3,000 tax credit. The credits vary due to the performance of the vehicle. The Escape and Mariner get 34 mpg in the city, and 31 mpg on highways.

Ford said its Fusion hybrid would be in showrooms by March 31, but did not offer pricing details. Consumers have shied away from the electric-gas combo cars as gas prices have fallen rapidly since last summer, as the cost savings deteriorated.

According to the auto Web site, hybrid sales plunged 43 percent in December and 50 percent in November, surpassing the industry's overall sales decline of 36 percent in December and 37 percent the month before.

Fusion and Milan hybrids purchased between April 1 and Sept. 31 are eligible for a $1,700 credit. The tax credit drops to $850 for purchases between Oct. 1 and March 31, 2010. The credit drops over time because Ford has more than 60,000 hybrid vehicles on the road, and tax regulations state that the credit must be phased out after that threshold is met.

"The whole idea is to encourage early adopters," said Ford spokeswoman Jennifer Moore.

New Ford hybrids purchased on or after April 1, 2010 will not be eligible for a tax credit.

Wednesday, January 28, 2009

10 "Green" Tax Credits and Deductions for '08 and '09

The Roni Deutch Tax Center® recently published a press release titled "Tax Lady" Educates Taxpayers on 10 "Green" Tax Credits and Deductions for '08 and '09 Tax Years, so I wanted to also make sure and share them with the readers of my blog. Check out the top 10 tips below!

  • New Roof: Investing in a new roof can also give you up to $500 in tax credits.
  • Solar Panels: You can receive huge tax breaks for installing a working solar panel system or photovoltaic system. Both receive a deduction for up to 30% of the total cost.
  • Fuel Cells: There is a consumer tax credit for installing fuel cell and micro-turbine systems, as long as they meet the government's qualifications. The credit is for 30% of the total cost, up to $1,500 for each half kilowatt.
  • Bio-Diesel: Similarly to hybrid vehicles, you can receive more federal benefits for having a bio-diesel vehicle than a hybrid, and some states even offer state tax breaks for bio-diesel powered cars.
  • Energy Efficient Appliances: Appliances that meet "efficiency" qualifications can see deductions.
  • Business Credits: You can get business tax credits for providing an eco-friendly work environment, hybrid vehicle company cars, or purchasing energy-saving appliances.
  • Wind Energy: You can receive a 30% tax credit for the cost of a wind energy system once you have installed it.
  • New Windows: Installing energy efficient windows can provide you with a tax credit of up to $200.
  • Plug-in Hybrids: Effective January 1, 2009, there will be a huge new tax incentive for the first 250,000 plug-in hybrid vehicle buyers. Buyers will receive a credit from $2,500 to $7,500 for both cars and trucks following the plug-in hybrid standards.

Devore Campaign Creates Funny New Tax Calculator

The Chuck Devore for US Senate campaign has put together an amusing Obama tax calculator, with a pun on his recent appointment of Timothy Geithner. Check out the link below.

The New Obama Tax Calulator.

Stimulus and your Taxes


What kinds of tax savings will the stimulus plan offer Americans?

Deloitte Tax crunched some numbers to come up with an initial answer.

To be sure, the data is preliminary. Congress is still hashing out the final terms of President Obama's economic recovery package and a full picture won't emerge until the tax lady sings.

Most of the savings are accounted for by the Make Work Pay Credit, which was a centerpiece of Obama's election campaign. It would be worth up to $500 a year for individuals and up to $1,000 for couples.

The full credit would be available for 2009 and 2010, but is limited to those making $75,000 or less ($150,000 or less for workers filing joint returns).

The Make Work Pay Credit also would be refundable, meaning that even tax filers without any income tax liability -- typically very low-income workers -- would receive one.

An amendment to the Senate bill this week would protect middle- and upper middle-income taxpayers from the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. That provision is not in the current House bill, but may make its way to the final bill.

The amount of savings an individual or family receives from the stimulus bill will depend in part on how many children they have. Changes to the Earned Income Tax Credit and the child tax credit will offer big tax savings to very low-income families with three kids or more.

Latest Good Reads

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Tuesday, January 27, 2009

Roni Offers Expertise On Ms. CEO Show

Last Tuesday, I appeared on the Ms. CEO radio show and provided practical advice for businesswomen across the country. I also gave advice on what businesses will likely flourish under the new Obama administration, and even took questions from listeners. Check out the link below to an mp3 of my segment and learn how you leverage Obama's tax policies to work in your favor!

Roni Deutch on the Ms. CEO Show

Senate Panel May Add $69 Billion AMT Plan to Stimulus

From Bloomberg News:

The U.S. Senate’s tax-writing committee might add $69 billion in relief from the alternative- minimum tax to the $825 billion economic stimulus proposal.

The provision benefiting more than 30 million households, primarily with incomes between $100,000 and $500,000, will be considered as an amendment to $272 billion in tax cuts being drafted today by the Senate Finance Committee as part of the broader stimulus plan.

Inclusion of alternative-minimum tax relief would swell the stimulus plan’s tax cuts, which so far are anchored to President Barack Obama’s campaign promise to give workers a tax cut of up to $1,000 by reducing Social Security payroll taxes. The Obama administration urged exclusion of the AMT provision when the House drafted its stimulus bill, House Ways and Means Committee Charles Rangel said last week.

Obama visited the Capitol today to seek support for the legislation from House and Senate Republicans. Before his arrival, House Minority Leader John Boehner and House Minority Whip Eric Cantor urged rank-and-file members at a closed-door meeting to vote against the plan unless more tax relief is added, said a Republican leadership aide.

The AMT amendment is one of as many as 226 under consideration for the tax legislation, which would ease tax burdens on businesses by $128.1 billion this year and next. Another part of the bill would let companies convert losses into tax refunds and provide new relief from taxes due on the value of forgiven corporate debt.

“Today we once again live in times that require action,” Finance Committee Chairman Max Baucus of Montana said as his panel began deliberations. “If we do not act, employment will fall by more than 2 percent in 2009.”

NY Times Deconstructs the US Economic Stimulus Plan

Obama’s new U.S. economic stimulus proposal has been a hot topic in the blogging community lately, and for good reason. New York Times author Lee Teslik recently took a detailed look at the plan and has put together offering great insight. You can find an excerpt of it below, but the full text can be found here.

Obama's plan aims to stimulate employment, certain critical economic sectors, and U.S. consumer spending. It specifies $550 billion in spending on new projects and $275 billion in tax cuts. The initial plan (PDF) includes investments for:

Energy, including $32 billion to transform the U.S. energy grid to make it more efficient; $16 billion to repair public housing and make it more energy efficient; and $6 billion to weatherize low-income homes;

Science and technology, including $10 billion for new scientific facilities and $6 billion to improve broadband Internet access in rural areas;

Infrastructure, including $30 billion for highways; $31 billion to modernize federal buildings and other public infrastructure; $19 billion for clean water, flood control, and other environmental investments; and $10 billion to improve public transit and rail infrastructure;

Education, including $41 billion for local school districts, $79 billion in outlays to states to prevent educational service cutbacks; $15.6 billion to broaden the federal Pell Grant program, which gives need-based grants to fund education; and $6 billion to modernize higher education programs;

Health care, including $87 billion for Medicaid; $20 billion to improve health information technology; and around $4 billion to improve preventative care.

The plan also includes $140 billion directed toward tax cuts of $500 per worker or $1,000 per family over two years; expanded tax credits for working poor with children; and a $2,500 college tuition credit. The House Ways and Means Committee approved the tax portion of the bill on January 22, though it has yet to pass the entire House of Representatives.

Some analysts say the Obama administration's spending on economic stimulus will be broader than what is included in the stimulus spending plan. "You've got to look at the whole picture," said Adam Posen of the Peterson Institute for International Economics in a January 2009 interview (PDF). Posen and several other analysts have noted that stimulus spending could come in many ways beyond what's in the plan, including:

The Treasury's $700 billion in TARP funds, initially aimed at stabilizing the financial sector, seems likely to be used to provide relief to other industries and "for things that look more like stimulus and less like asset purchases," according to Posen;

Wave of Layoffs In U.S., Europe Show Severity of the Recession

From USA Today:

Household names such as Caterpillar, (CAT) Home Depot (HD) and Sprint Nextel (S) said Monday that they are laying off a combined 35,000 workers in moves that stressed the severity of the worldwide recession and kicked off what is likely to be a week of gloomy earnings announcements, further job cuts and dismal data.

The layoffs continued Tuesday as Corning said it is cutting 3,500 jobs, or 13% of its payroll.

The news ratchets up the pressure on the Obama administration and Congress as lawmakers debate an $825 billion stimulus package intended to save or create millions of jobs. Far more job cuts are likely as consumer and business spending tumbles amid what many economists say is the worst recession the USA has seen since the Great Depression.

"Some of the worst job losses are ahead of us, not behind us," says Wells Fargo senior economist Scott Anderson.

STATE UNEMPLOYMENT RATES: Indiana, S. Carolina see largest increases; see rates for all 50 states

He expects 3 million Americans to lose their jobs in 2009 — up from the 2.6 million who were cut last year, which was the most since 1945, the final year of World War II. The layoffs are happening in "all industries in all areas of the world," Anderson says. "This will be one of the worst job markets in the postwar period."

Monday, January 26, 2009

Top 10 Deductions and Credits for Homeowners

From an outsider’s perspective, owning a home may look like it comes with all kinds of expenses. But when you look at all the tax incentives homeownership has to offer, you may see things differently. To help my readers understand the true value of their homes, I have put together the following list of the top 10 deductions and credits for homeowners.

1. Local Real Estate Taxes

Every homeowner pays an annual real estate tax on his or her home based on its value. However, what every homeowner does not know is that this tax is fully deductible. The federal government allows you to deduct the amount you spent on local taxes—this includes local property taxes.

2. Moving for Career

New homeowners who have recently moved to a new area for work purposes are allowed to write off their moving costs. As long as the new job meets certain distance requirements, you can write off moving costs, motor vehicles, household goods, and any other moving associated goods. A few other restrictions do apply, so be sure to check any large moving deductions by a tax professional first.

3. Casualty Losses

If a fire or storm damaged or destroyed your home, you may be able to deduct the associated expenses as casualty losses. However, there are a lot of rules and restrictions, and the actual amount you can deduct will vary upon your location and the amount of damage.

4. Home Office

If you work from home then you may be able to deduct your home office expenses. However, this deduction is a little tricky, and the office needs to have it’s own room in your house.

5. Health-Related Improvements

Home renovations or other home expenses made for medical reasons can be deducted. This includes any expenses made specifically for an ill or disabled person living in the home. Some common examples of this deduction include handicap ramps, special air filters or air conditioners, and swimming pools to help treat illnesses.

6. Mortgage Interest

The IRS allows you can deduct all of the interest you pay on your mortgage for both your first and second home, up to $1.1 million. In fact, the mortgage interest deduction is the largest single tax break in the tax code.

7. Paid Refinanced Loan Points

Refinancing can be a pain, but it does come with its advantages. If you recently refinanced, then you can deduct points you paid for the new loan. However, you cannot deduct all points at one time. You must divide them evenly throughout your loan. For example, if your loan was for 20 years and you have 40 points, you can deduct 2 points a year.

8. Green Credit

There are dozens of credits available for "green" renovations. These credits range from getting solar panels to purchasing more energy efficient kitchen appliances. These types of credits are great to take advantage of because they help you save both money and the planet at the same time!

9. Selling Costs

In addition to deductions and credits for owning a home, there are also benefits if you decide to sell your home. Legal fees, advertising expenses, real estate agent’s commission, title insurance, and any other expenses associated with selling your home are deductible. The IRS will even let you include things like landscaping and painting in your selling costs if you complete them with the intention of making the home more saleable.

10. Vacation Home Incentives

Many homeowners are unfortunately under the misconception that you can only receive tax breaks for one home. However, you can deduct real estate taxes, mortgage interest and points, and personal property taxes spent on a vacation home.

No matter what deductions you consider, always check with an expert before sending in your tax forms. There is nothing worse than thinking you are receiving a huge refund, only to get an audit in the mail instead!

Geithner Wins Treasury Job, Despite Tax Woes

Reuters recently posted an article today about Geithner being confirmed by the Senate despite his tax problems. A segment of the article can be read below, but the full article can be found here.

Senators were expected to set aside their misgivings about Timothy Geithner's past income tax errors and confirm the 47-year-old New York Federal Reserve Bank chief as Treasury secretary on Monday night.

With the economy in full-blown crisis, Geithner's experience in dealing with the past year's rapid-fire rescue efforts of key financial firms will trump the taint from his late payment of $34,000 in self-employment taxes to the Internal Revenue Service that he will command.

Geithner will be President Barack Obama's top economic official for a crisis-management team that is already deeply involved in pushing a big package of spending and tax-cuts through Congress to lift the recession-mired economy.

He also will immediately face the question of whether the new administration should go back to Congress to seek money beyond the Treasury-run $700 billion financial rescue package to sop up bad assets sitting on bank balance sheets, perhaps in a government-run "bad bank."

Retail Tax Drops Affecting Sales Tax Revenue to Cities

From The Mercury News:

What does a $19.95 flowered spring top at the Gap have to do with streetlights and police?

For cities, the answer is a lot. The purchases rung up at the cash register are a major revenue source that pays for critical city services.

As the economy continues to tank, and as consumers tighten their grip on spending, there are fewer and fewer pennies flowing from shopping malls to cities, resulting in dramatic shortfalls in sales tax revenue — "the bread and butter" of general city funds. If a consumer spends a dollar and is charged 8 cents sales tax, cities generally get a penny of that.

For many cities facing budget deficits, that decline is expected to result in cuts residents are likely to notice. In San Jose, in part because of a $4.6 million sales tax revenue shortfall, the city is already bracing for layoffs, its first since the early 1990s. Gilroy has eliminated dozens of full-time positions. Santa Clara has frozen hiring for 30 positions funded out of the city's general revenue fund.

Santa Clara budgeted $43.4 million from sales tax revenue in the 2007-2008 fiscal year. What it actually received was $41.6 million, or $1.8 million less. For the current fiscal year, it is budgeting significantly less from sales tax revenue: $40.2 million.

"We are concerned obviously," said Santa Clara Deputy City Manager Carol McCarthy. "Like anyone else, we're out there, we're brainstorming and getting information."

Arnold Schwarzenegger Wanting to Tax Golf, Auto Repairs

Reports have come in that California Governor Arnold Schwarzenegger would like to tax some additional services in the State of California to create revenue. A snippet of an Associated Press article discussing the issue can be found below, but you can find the full text here.

Golf course owners and some of their customers are teed off at Gov. Arnold Schwarzenegger. So are veterinarians, auto mechanics and amusement park operators.

Their anger is directed at the Republican governor's proposal to extend the state sales tax to cover more services, an idea that has surfaced in other states as they race to plug crippling budget deficits. The Center on Budget and Policy Priorities, a research clearinghouse, predicts such deficits nationwide could reach $350 billion by 2011.

In California, Schwarzenegger wants to help close a nearly $42 billion budget deficit by taxing rounds of golf, auto repairs, veterinary care, amusement park and sporting event admissions and appliance and furniture repairs.

Democratic Gov. David Paterson in New York has proposed levies on MP3 downloads, taxi rides, movies, concerts, sporting events, and personal services such as haircuts, manicures and massages.

Schwarzenegger's fellow Republican in Utah, Gov. Jon Huntsman, has shelved a proposal to tax attorney and accounting services but promises to bring it back next year.

U.S. Tax Case Against UBS Grows Wider; Talks to Settle

From The Wall Street Journal:

UBS AG is under legal pressure as U.S. prosecutors expand their investigation into whether the Swiss bank helped tens of thousands of Americans avoid paying taxes, said several people involved in the case.

U.S. tax investigators believe the number of American clients that UBS helped to avoid taxes could be much higher than the previously disclosed estimate of about 17,000, these people said. The people said investigators are also looking into whether other parts of the bank besides the wealth-management unit were involved in helping clients avoid U.S. taxes.

The bank is in a round of talks with the Justice Department to avert a possible felony indictment by admitting to criminal conduct and paying a penalty in the range of $1.2 billion, these people said.

UBS has publicly denied any wrongdoing, and a bank spokesman said the bank "does not comment on...speculative matters." A Justice Department representative also declined to comment.

New UBS Chairman Peter Kurer has indicated that striking a deal with U.S. prosecutors is a top priority. In a Jan. 15 presentation for investors, he said goals for 2009 include a "DOJ settlement" and a "recovery of UBS's reputation."

UBS became the focus of U.S. criminal and civil probes into alleged offshore tax evasion in 2007, when a former UBS executive told U.S. officials that the bank allegedly began telling American customers in 2002 that it wasn't required to disclose their identities to the Internal Revenue Service.

Prosecutors in Florida have indicted one former high-level UBS executive on charges of helping Americans evade taxes and have detained a second executive as a material witness; Bradley Birkenfeld, the former UBS executive who tipped off U.S. officials, has pleaded guilty to the same charge and is helping the IRS and the Justice Department.

In the civil case, the Justice Department and the Internal Revenue Service are discussing whether to ask a federal judge for a new order to force the bank to turn over the names of its American account holders, people involved in the case said.

The IRS obtained a broad civil summons from the U.S. District Court for the Southern District of Florida in July 2008 to request UBS hand over the names of all of its American clients, but the bank has yet to do so. An IRS spokeswoman declined comment. The bank had no comment.

TurboTax Responds to Treasury Nominee’s Disclosure

From The Washington Wire:

The Senate Finance Committee has taken special interest in recent years in tax-preparation software, trying to encourage taxpayers to file electronically. So perhaps it shouldn’t have been surprising that tax software came up at the confirmation hearing for Timothy Geithner, President Barack Obama’s nominee for Treasury secretary.

Geithner has been mired in controversy over his failure to pay certain taxes earlier this decade during his time as an International Monetary Fund official.

Sen. Chuck Grassley, the Finance Committee’s top Republican, ran through a long list of questions about Geithner’s tax decisions. Geithner said he filed his own taxes in 2001 and 2002.

“Did you use software to prepare your 2001 and 2002 tax returns?” Grassley asked

“I did,” Geithner said.

“Which brand did you use?” Grassley asked.

Geithner, chuckling, appeared resistant at first. “I’ll answer that question, sir, but I want to say these are my responsibility, not the tax software’s responsibility.”

Then he got to the point: “But I used TurboTax to prepare my returns.”

Asked whether the software prompted him to report income and pay self-employment taxes on his IMF income, Geithner said, “Not to my recollection.”

It would’ve been highly unlikely for off-the-shelf tax software to include provisions for IMF workers’ highly unusual tax arrangements. And if Geithner failed to feed the proper information into his software, of course, it wouldn’t provide any warnings.

But the word was out. And TurboTax maker Intuit Inc. was forced to respond.

“Each year, millions of Americans use TurboTax to accurately prepare and file their federal and state tax returns,” Dan Maurer, senior vice president and general manager of TurboTax, said in a statement late this afternoon. “The software helps taxpayers report their income and find the deductions and credits they’re entitled to claim. TurboTax, and all software and in-person tax preparation services, base their calculations on the information users provide when completing their returns. TurboTax also has built-in error-checking tools that routinely catch common taxpayer mistakes. Federal law and our own privacy policy prohibit us from discussing specifics of any customer’s return.”

Intuit shares rose 71 cents today to $23.49, or 3.1% on a day the Nasdaq composite index rose 4.6%. The stock took a noticeable drop after Geithner made his remarks just before 11 a.m., but that move appears to track a dip in the broader market.

Thursday, January 22, 2009

Thom Hartmann Next Tuesday

Next Tuesday, I will once again be a featured guest on The Thom Hartmann Program. In the interview, I am going to discuss tips on preparing your tax returns and how to get the maximum refund available to you this year. This interview will be part of a new monthly, “Tuesdays with the Nation’s Tax Lady” series. So be sure to listen on Tuesday January 27, 2009 at 11 am PST and 2 pm EST.

Treasury Pick Misfiled Using Off-the-Shelf Tax Software


Millions of Americans might be surprised to learn that the man nominated to be the next Treasury secretary -- New York Fed President Timothy F. Geithner -- did his taxes using the same software they do: TurboTax, a fact revealed in his Senate confirmation hearing yesterday.

Geithner's tax returns from 2001 through 2004 have become an embarrassment, if not a stumbling block to his confirmation. A 2006 IRS audit informed Geithner that he had failed to pay self-employment taxes in '03 and '04, when he directed the International Monetary Fund's policy development and review department. While being vetted for Treasury secretary late last year, he was told he made the same errors on his '01 and '02 returns. He calls them "careless mistakes" that he should have caught and has paid $42,702 in back taxes.

It's an unlikely image: The man charged with leading this nation out of recession -- an architect of the $700 billion financial rescue package -- hunched over a computer, surrounded by stacks of paper, trying to figure out his taxes, just like the 18 million other working stiffs who bought TurboTax last year.

But the disclosures raise another issue: When Geithner found he owed back taxes for '03 and '04, and had probably made the same mistakes on his '01 and '02 returns, why did he wait until confronted by Obama's vetters to check?

That was the question Sen. Jon Kyl (R-Ariz.) tried to get at yesterday, suggesting that Geithner was hoping to ride out the statute of limitations on audits.

"The question is whether it occurred to you before you were nominated or approached to be nominated that, in point of fact, you didn't have to go beyond 2003 and '04 because of the statute of limitations," Kyl said.

Geithner said: "I did not believe I had the obligation to go back. I had no occasion to think about it, and I might not have thought about it had I not gone through the vetting process."

Video of Geithner Discussing Tax Problems

Embedded below is a video of Timothy Geithner being grilled by the Senate on his tax problems.

US Lawmakers Debating Obama's Energy Tax Breaks

From Reuters:

The U.S. House Ways and Means Committee on Thursday began debating $20 billion in energy tax credits and related financial incentives that are in the Obama administration's plan to revive the American economy.

The legislation's energy tax breaks would benefit the wind and solar energy industries, encourage energy-efficiency improvements to existing homes and help service stations recoup their costs for installing alternative energy pumps.

The economic stimulus package would extend by three years, to the end of 2012, the date that wind facilities would have to be in place to be eligible for the federal renewable energy production tax credit.

Other qualifying facilities that generate electricity from renewable energy sources, such as biomass, geothermal, small irrigation, hydropower, landfill gas and ocean currents, would also have an extra three years through the end of 2013 to be in service to get the same production tax credit.

The long-term extension of the renewable energy production tax credits, which would cost the government $13.1 billion over 10 years, accounts for more than half of the stimulus package's $20 billion in energy tax breaks and financial incentives being considered by the committee.

Because many renewable energy projects are having a difficult time finding financing in current market conditions, the legislation would allow such facilities in place in 2009 and 2010 to temporarily claim a 30 percent investment tax credit instead of the production tax credit that is normally payable over a 10-year period.

Wednesday, January 21, 2009

Geithner Apologizes for Tax Mistakes

From USA Today:

The Senate Finance Committee just opened its confirmation hearing on the nomination of Timothy Geithner to be Treasury secretary.

As we noted earlier, Geithner is sure to face questions about why he failed to pay Medicare and Social Security taxes on some of his income for a few years.

Committee Chairman Max Baucus, D-Mont., just opened the hearing by saying he thinks Geithner made "innocent mistakes," but that he expects to hear an explanation from the nominee.

Republican Jim Bunning of Kentucky told Geithner his failure to pay the taxes fully until just before his selection by Obama was announced was "hard to explain to my constituents who pay these taxes on a regular basis."

Although the tax disclosures provided a bump in Geithner's confirmation process, he appeared to have wide support from both parties, especially given the severity of the downturn and the nominee's past experience in the financial system.

"You will be confirmed," Pat Roberts of Kansas told Geithner. Still, the senator said, his phones were "ringing off the hook" from people in Kansas complaining about the prospects of having a Treasury secretary who was careless in tending to his own tax liabilities.

New Gas Tax Proposed by AutoNation CEO

Mike Jackson, CEO of AutoNation Inc., spoke to at an auto industry conference in Detroit, saying gas taxes were needed to encourage purchase of hybrid and energy efficient vehicles. A snippet of the article from can be found below, but you can read the full text here.

The nation needs to put new tax on gasoline in place to encourage consumers to buy hybrid and electric vehicles, Mike Jackson, CEO of AutoNation Inc. said today at an automotive industry conference in Detroit.


Jackson said that while he recognizes that fixing the economy should take precedence for now, he thinks the nation should adopt a gas tax that would increase the price of a gallon of gas 20 cents per year for five years, eventually adding about $1 to the price of gas. The reason: The automotive industry is investing billions to develop technology to reduce the nation’s dependence on oil, but cannot recoup those costs unless they charge a premium for the vehicles.

“Consumers are not going to pay for fuel efficiency if gas is cheap,” Jackson said after speaking at Automotive News World Congress.

Ft. Lauderdale, Fla.-based AutoNation is the nation’s largest auto dealership group with 313 new vehicle franchises in 15 states.

Jackson also expressed his support for efforts to restructure the automotive industry and the dealership networks as General Motors Corp. and Chrysler restructure so that they can meet the terms of government loans.

Income Taxes: What You Need to Know

From the New York Times:

When it comes to income taxes, there are different types of people.

There are individuals who find pleasure in tackling the 1040 all on their own. At the other end of the spectrum, there are people who make a mad dash for the nearest H&R Block about 9 p.m. on April 15.

But no matter where you fall on that scale, it’s important to master the basics. Most of life’s milestones carry some sort of tax implication, whether it’s having a child, purchasing a home, changing jobs or, yes, even dying. And as you travel through life and your situation evolves, your approach to income taxes needs to be adjusted accordingly.

To complicate matters, the rulebook is constantly changing. So taxpayers must sort through a befuddling mix of new rules, deductions and credits each year. For some people, all of the noise is justification enough to pay an accountant.

Even if you do, there is still a variety of issues you should be aware of that will help you maximize your tax savings. This guide will explain how income taxes work and how to trim your bill, and offer a few approaches to tax preparation.

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Tuesday, January 20, 2009

Tax Policy Advice for Barack Obama

In honor of his inauguration, Tax Prof Blog has collected other tax professors’ expert advice on tax policy for Barack Obama. A small portion of the entry can be read below, but the full version can be found here.

Beau Baez (Charlotte): Enact legislation recognizing the Streamlined Sales Tax Governing Board as a state compact, and eliminate the Quill physical presence requirement for states that are members in good standing in the new state compact.

Bryan Camp (Texas Tech):

1. Enable the IRS to administratively collect non-rebate erroneous refunds as I proposed in my article, The Mysteries of Erroneous Refunds. That article provides a specific legislative proposal to address a very real gap in tax collection policy. Aside from being a no-brainer as a matter of policy, heck, it's a revenue raiser!

2. Repeal judicial review of routine administrative collection decisions. Section 7433 already allows taxpayers to sue for IRS violations of collection statutes and should be retained. However, the judicial review allowed by section 6320 and 6330 for routine collection decisions has proven to be of no benefit to taxpayers, as my Indiana Law Review study of almost 1,000 judicial opinions between 2000 and 2006 demonstrates.

Paul Caron (Cincinnati): Remove estate planning uncertainty by freezing the estate tax exemption ($3.5 million) and rates (45%) at their 2009 levels.

Bridget Crawford (Pace):

1. Allow same-sex couples to file joint income tax returns (and to gift split, make tax-free wealth transfers, etc.).

2. Create a free, reliable and sophisticated on-line filing system that can accept all types of tax returns (estate, gift, etc.) from taxpayers of all levels of wealth, and reduce the statute of limitations on garden-variety audits from 3 years to 2 years.

3. Change the exclusion under Section 121 to an amount equal to the median home value in the metropolitan area (or another geographically-defined region) where the principal residence is located.

Studies Show, Higher Alcohol Taxes Leads to Less Drinking

From the New York Times:

Higher taxes on alcohol can do more than add cash to ailing government budgets. A new study reports “statistically overwhelming evidence” that raising taxes also reduces the level of drinking.

The lead author, Alexander C. Wagenaar of the University of Florida, said the reduction in drinking had been found throughout the population, among social drinkers and problem drinkers alike. The analysis, in the February issue of the journal Addiction, is a review of more than 110 studies on the subject.

As prices go up, the study found, people become less likely to drink. And when they do drink, they drink less. The findings were true for teenagers as well as adults.

Although studies have found that moderate drinking can have beneficial health effects, other research has shown that reducing overall drinking has a broader social benefit, Dr. Wagenaar said. “Areas that drink more have higher rates of a wide range of problems (e.g., injuries and chronic health problems and deaths),” he wrote in an e-mail message.

He disagreed with critics of alcohol taxes who say they are unfair to people who drink reasonably. Nondrinkers and light drinkers, he said, in effect subsidize heavier drinkers because costs related to alcohol use are reflected in various things, like car insurance and health care.

California May Delay State Refunds for 30 Days

From the Sacramento Union:

California’s controller said Friday he will be forced to impose a 30-day delay on tax refunds and some other payments starting Feb. 1 if lawmakers fail to agree on a plan to erase a nearly $42 billion budget deficit.

Controller John Chiang, who acts as the state’s accountant, said he will have no choice but to delay $3.7 billion in payments next month because the state is running out of cash.

Doing so, he said, would buy the state a few more weeks before its accounts run dry. The state is on the brink of issuing IOUs as it faces a $41.6 billion shortfall over the next year-and-a-half.

“Let me make this perfectly clear: This is a painful decision,” Chiang said during a news conference in Sacramento. “It is an action that is critically necessary. The fallout from issuing IOUs, or for the state going into default, are significant and long-lasting and something to be avoided at nearly all costs.”

A severe drop in revenue from sales, property and capital gains taxes has left the state’s main bank account depleted. The state has not had a positive cash balance since July 12, 2007, Chiang said.

The state had been relying on borrowing from special funds and Wall Street investors, but those options are no longer available. Democratic and Republican legislators and GOP Gov. Arnold Schwarzenegger have been at odds for months over to fix the budget gap.

Chiang said his office must continue $6.6 billion in education and debt payments next month but will defer money for tax refunds, student aid, social services and mental health programs.

Dem. Congress not Impressing Everyone with Estate Tax and Bank Losses

One of my favorite blogs, A Taxing Matter, recently posted a great entry on the new Congress’ dealings so far with estate taxes and bank losses. Below is a quote from the opinion piece, but be sure to check out the full text here.

First, the estate tax.

After eight years of Republicans' tax-cut-and-spend mentality, you'd think that the new Congress would step back, look at the economic mess that has resulted, and reconsider the Republican proposals that started with the 2001 Bush bills and continued on throughout the Bush administration. The Bush administration and Congress enacted tax cuts that paved the way for enormous inequality, as the wealthy became wealthier and the rest barely hung even or lost ground. Don't they get that it has got to be reversed, now? That is, after all, part of the change the American people voted for.

One person who obviously doesn't get it is Earl Pomeroy, Democrat (at least in name) from North Dakota. On Jan. 9, Mr. Pomeroy introduced H.R. 436, a bill that would fulfill Obama's campaign statements about the estate tax by keeping the tax at the ridiculously low levels enacted by the Republicans on their way to complete repeal--$3.5 million as the base exemption amount, at a 45% rate. (The bill currently has no co-sponsors--dare I hope that means that people know this is a foolhardy piece of legislation?) Read more in the Tax Justice Digest, Estate Tax Proposal Would Partially Extend One of Bush's Tax Cuts for the Wealthy, Jan. 16, 2009.

Remember that estate tax repeal is something that has been lobbied for extensively by the very wealthiest families in the country who happen to be the primary targets of the estate tax. See prior ataxingmatter postings about the coalition of 18 families put together by the Wal-Mart heirs to push estate tax repeal. They've resorted to the extensive propaganda tricks that have marred the Bush Administration--choosing representative families that are by no means representative, claiming that the estate tax causes families to lose their family farms (when, in fact, they have not been able to show that there is any such problem), misleading ordinary Americans to think that the estate tax threatens almost everybody's home and heirlooms--in order words, misrepresenting the facts to portray the estate tax as evil when in fact it is an unmitigated good. There is, in short, absolutely no tenable reason for reducing the estate tax to this bare minimum.

Monday, January 19, 2009

Tax Tips for Truckers

Truck-driving is an imperative industry to our economy. Consequently, Congress has designed numerous tax benefits designed specifically for truck drivers. Unfortunately, I noticed there is not nearly enough information available to truck drivers concerning taxes, so I decided to shed some light on the issue here on my blog. To help truckers across the country, I have compiled the following list of tax tips for truckers to give you a better idea of what your taxes should look like.

Keep Immaculate Records
With the tax-filing complications of the trucking industry, dozens of truckers get audits in the mail every year. While an audit is never a "good" thing, as long as you have your financial information organized then you should not have anything to worry about. Throughout the year, keep your receipts and financial records together and safe in a box. When its time to get your taxes done, take the whole box in so that you have all the info you need.

Self-Employed Benefits
If you are a self-employed truck driver (i.e. you own your own truck and work for whatever jobs come along), you will be able to deduct regular business deductions. This can be a great benefit, because on top of all the other tax benefits you receive as a truck driver, you will be able to take advantage of the many benefits and deductions available to self employed individuals.

Business Deductions
If you are self-employed, there are many truck-driving expenses you can look into deducting. The basic rule of thumb with these deductions is that about anything that goes on or in your truck can be deducted as a business expense. This can include decorations for the inside of your cab, the materials you use to clean your truck, and even repair expenses.

Itemizing Tips
While it is not true that itemizing deductions will automatically give you an audit, it does make sense that itemizing can make it more "likely". This is only due to the fact that itemizing uses more paper; therefore the IRS spends more time looking over your return. This is not a bad thing however, just be sure to keep good records and keep all receipts. If you do not receive a receipt for a truck wash or other expense, write down the amount, description and date in a “receipt book”, which the IRS should accept.

Meal Allowances
According to the IRS, you are allowed to deduct up to $52 worth of meal allowances, as long as you are on the road that full day. Keep a logbook with dates and amounts that you eat while on the road or it will be very difficult to come up with an accurate number.

Multiple State Taxes
Perhaps the biggest tax headaches truck drivers face is the taxes they have to pay in every state they are registered to drive their truck in. For some truckers, this is can be as little as 1 or 2 states. However, for truckers driving across the country, this number can quickly add up. Each state will collect vehicle registration fees, and some states will charge other tax fees as well. Make sure your tax preparer is up to date on each state’s tax codes regarding out-of-state truck drivers.

Truck Weight
If you drive a truck with a large gross weight (over 55,000 pounds) you will need to pay the federal highway use tax by August 31st every year. If you have not already purchased a truck with this weight, be aware that if you do, this tax will be due for the first time at the end of the month in which you make your truck purchase. After you have paid it for the first time, you can decide to pay it every year in August, or in quarterly payments to reduce the burden.

Fuel Taxes
Luckily for truckers, most states appreciate your purchase of their fuel and will give you specific tax breaks. Therefore it is imperative that you keep good track of your mileage and fuel purchases.

Hire a Professional
With so many IRS rules and regulations as well as deductions and credits available to truck drivers, you should definitely consider hiring a tax professional to help you sort it all out. You may even find that your tax preparation fees pay for themselves, as a professional will be able to tell you any and all deductions you are eligible for, even the new ones you may or may not know about yet.

Sparks To Flame Radio Show

I recently made an appearance on the “Sparks to Flame” radio show, hosted by Sheryl Parks, and explained to small business owners how to prepare for tax season. I also gave advice on what to do if you get audited. To hear all of my tips, you can listen to an mp3 of the full interview by clicking here.

Numbers Increase on Californians Looking To Change States

As state budget problems continue to get worse, more and more Californians are considering fleeing to a new state. Below is a snippet from a new article on Yahoo News explaining the state's problems, and be sure to check out the full text here.

Since the days of the Gold Rush, California has represented the Promised Land, an image celebrated in the songs of the Beach Boys and embodied by Silicon Valley's instant millionaires and the young men and women who achieve stardom in Hollywood.

But for many California families last year, tomorrow started somewhere else.

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.

California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.

A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.

In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.

Barack Obama May Allow Earmarks Into Stimulus Package

Although he said pledged not to, Barack Obama may be retracting his former statements to not to let earmarks intrude on his massive stimulus package. Below is a quote from an entry on the Reason Blog explaining Obama’s new plan, but the full article can be read here.

“We are going to ban all earmarks—the process by which individual members insert pet projects without review," he explained. "We will create an economic recovery oversight board made up of key administration officials and independent advisors to identify problems early and make sure we are doing all we can to solve it."

Well, forget about it. In these tough times, the last thing you want to do is insist on principles. (And let's leave aside for the moment the question of whether the stimulus package is itself simply a way of pushing massive earmarked spending).

House Democrats Give Shape to Tax-Cut Plans

From the Washington Post:

House Democrats yesterday offered a more detailed analysis of a $275 billion tax-cut plan that gives two-thirds of its benefits to individual taxpayers, part of the $825 billion stimulus package they hope to send to President-elect Barack Obama before President's Day.

After tinkering with Obama's proposals, Democrats on the Ways and Means Committee released a plan that focused relief on individuals, reducing the amount of tax cuts intended for businesses that the incoming administration initially requested. The cuts would be phased out after two years.

The Senate Finance Committee is expected to release its own tax plan, which will be similar in scope but likely to include differing details, soon. The tax cuts could grow to nearly $350 billion if congressional leaders eventually add a provision that keeps upper-middle-class workers from creeping into a tax bracket that was originally designed to ensure the wealthiest families did not shelter too much of their income from the Internal Revenue Service.

The House Democrats' package includes $145 billion worth of income tax cuts for most Americans, $500 per year for individuals and $1,000 per year for families, which would mostly occur by reduced withholdings from paychecks. Another $32 billion in relief comes from increasing the eligibility for child tax credits and a new credit for college tuition. Under the House Ways and Means Committee plan, small businesses would be allowed to write off up to $125,000 in capital expenditures, costing the Treasury an estimated $41 billion -- the largest benefit given to businesses.

The tax package also includes an unusual credit to businesses that hire unemployed veterans or "disconnected youth," a credit for the first 40 percent of $6,000 in their wages. As defined by House Democrats, disconnected youth are those who are 16 to 25 years old, out of school at least six months and not working.

Thursday, January 15, 2009

Obama's Treasury Secretary Owed $26K in Taxes, but it's OK


Uh, it seems that Democrat Barack Obama's secretary of the Treasury-designate owed something like $34,000 in back taxes when he was picked to head the nation's financial system.

Uh, it seems Timothy Geithner owed the back taxes because the would-be member of the president's new Cabinet employed a housekeeper who became an illegal immigrant while working for him. And Geithner did not pay self-employment taxes for several years until the IRS audited him.

It seems the Obama transition team discovered the back taxes while researching the nominee, unlike the federal grand jury investigation of now former would-be secretary of Commerce-designate Bill Richardson.

It seems that such legal problems have derailed would-be Cabinet members in the past -- think Zoe Baird and Kimba Wood for Bill Clinton and Linda Chavez for George W. Bush.

It seems that Obama spokesmen are calling the nonpayment of thousands of dollars in back taxes for years a minor thing. One news report described it as "a speed bump." Sam Stein over at HuffingtonPost calls it an "embarrassing public relations headache" but really a mistake "quite common in nature."

For a secretary of the Treasury? A Federal Reserve president? Somebody who, now that Bill Richardson is stuck in Santa Fe, is gonna mastermind the economic recovery?

Oh, and for someone whose department includes the Internal Revenue Service?

It seems that the Obama team's talking points focus on the words "honest mistakes."

Incoming White House press secretary Robert Gibbs says of Geithner, "He's dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."

So you're a bank president walking out of the store with a $34,000 candy bar you did not pay for. A large person with a gun points that out. So you pay the $34 Gs. And that makes it obviously unintentional and an "honest mistake"?

The Case for Overhauling a U.S. Tax System

Sam Dealey of recently authored an opinion piece on the need to overhaul the United States tax code. Below is a snippet from the article but you can read the full text here.

"The monopoly on good ideas does not belong to a single party," President-elect Obama reportedly told congressional leaders Monday during a private meeting about an economic stimulus package. "If it's a good idea, we will consider it."

When it comes to taxpayer money—raising, spending, and occasionally deigning to return it—neither party in Congress has demonstrated particularly good ideas lately. The majority of lawmakers seem to believe that stimulating the economy means expanding recurring welfare programs, plowing money into pet projects of only limited or short-term use, and bestowing inadequate, selective tax cuts.

But if Obama is looking for ideas, he might consult with Nina Olson, the national taxpayer advocate at the IRS. In her annual report to Congress, released yesterday, Olson makes a persuasive case for overhauling the U.S. tax system.

"The largest source of compliance burdens for taxpayers, and the IRS, is the overwhelming complexity of the tax code," Olson writes. "The only meaningful way to reduce these burdens is to simplify the tax code enormously."

It's common sense and worth a read, but a few figures stand out:

  • Americans spend 7.6 billion hours annually trying to figure out their federal taxes. Working eight-hour days, five days a week, 50 weeks a year, that's the equivalent of 3.8 million full-time workers.
  • At the average hourly wage of $27.54, that tax-preparation time amounts to $193 billion, or 14 percent of aggregate income tax receipts.
  • A staggering 60 percent of individual taxpayers are so bewildered by the tax code that they hire outside preparers. An additional 22 percent buy computer software.

CA may Issue IOUs for Tax Refunds


With the state budget crisis ongoing, the state's Controller says California may be forced to send out IOUs instead of refunds.

Hoping to get her state income tax refund as soon as possible, Akisha Marshall is getting a jump-start on her filing.

ABC7 asked her, "How much do you depend on your refund?"

"A lot. It's just like a job check," she said laughingly.

Last year 2.7 million people got their state refund in February totaling $2 billion. But, this single mom and other Californians may have to wait for their refund this year.

It is Day 61 of the state's budget stalemate and the state will run out of cash next month. It is at the point where the Controller will have to issue IOUs to pay the bills, including state tax refunds.

"An IOU is a registered warrant issued on behalf of the state's treasury that lets the individual receiving the IOU know that they will receive their funds at a later date," explained Jacob Roper with the State Controller's Office.

When asked, "How much later?" Roper replied, "We don't know."

State lawmakers just came back from a long holiday break to continue budget negotiations. Republicans still do not want to raise taxes and Democrats do not want deeper cuts to social programs.

Economy to Affect Pension Funds & Retirement Plans in Near Future

Jon Entine, a columnist for Ethical Corporation, posted an article on Reason Online discussing the pending dangers to retirement funds and the pensions of millions of Americans if the economy does not turn around. Below is a quote from the essay, but check out The Next Catastrophe: Think Fannie Mae and Freddie Mac were a politicized financial disaster? Just wait until pension funds implode.

Funds worth trillions of dollars start to plummet in value. Political pressure to be “socially responsible” distorts the market decisions of government-related enterprises, leading to risky investments. Investors who once considered their retirements safely protected wake up to a sinking feeling of uncertainty and gloom.

Sound like the great mortgage-fueled financial crisis of 2008? Sure. But it also describes a calamity likely to hit as soon as 2009. State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.

From January to October 2008, defined benefit funds—those promising a predetermined amount of retirement money to the payee—averaged losses of 26 percent, according to Northern Trust Investment Risk and Analytical Services, making it the worst year on record for corporate and public pension funds. The largest public pension fund in the United States, the California Public Employees Retirement Security System (CalPERS), lost a staggering 20 percent of its value in just three months last year. In May 2008, Vallejo, California, became the largest city in the state ever to file for Chapter 9 bankruptcy, thanks largely to unmanageable pension obligations. The situation in San Diego looks worryingly similar. And corporations with defined benefit plans are seeking relief in Washington as part of a bailout season that shows no sign of slowing down.

If the stock market remains in a funk for even a few more months, corporations that oversee union pension funds and state and municipal leaders responsible for public retirement pools may be faced with difficult choices. First on the docket might be postponing cost-of-living increases and reducing health care coverage for retirees. Over the longer term, benefits for new employees will have to be shaved and everyone is likely to see an increase in personal payroll contributions. Corporations will have to resort to more cost cutting and layoffs of their own just to guarantee the solvency of their pension funds. And things could go from bad to terrible if the managers of those funds do not quickly revise their investment practices.

Wednesday, January 14, 2009

The IRS Considers Pressing Schools to Further Reveal Their Business Activities


The Internal Revenue Service is considering expanding its scrutiny of colleges and universities to focus on billions of dollars associated with academic research, federal financing and intellectual property, a senior agency official said on Tuesday.

The expansion of an investigation would put pressure on the schools to further disclose their inner financial workings as the IRS undertakes a major effort to learn more about whether academic institutions are improperly using their nonprofit status to avoid paying certain taxes.

The expansion, while not yet certain, “is on the table,” Lois G. Lerner, the IRS’s director of exempt organizations, said in a brief interview.

As part of its current investigation, which began last October, the IRS sent unusually detailed questionnaires to 400 private and public universities and colleges about their executive compensation policies and their business activities.

While the institutions are not obligated to respond, not doing so can potentially lead to an audit.

The investigation is modeled upon similar scrutiny of hospitals that began in 2006 and has prompted audits, legislative hearings and stricter tax-filing requirements. The idea is to give the IRS a clear view of how the business of academia operates in the 21st century. “Universities are really part of a rapidly evolving sector, and as sectors evolve and the economy evolves, we’re going to periodically take a hard look,” Douglas H. Shulman, the IRS commissioner, said.

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