Consumer Confidence in the US Drops in June

Surprising new reports have emerged reporting that consumer confidence has dropped drastically in June of this year, adding more tension to an already shaky economic situation. For those of you not familiar with the term, check out the following definition from Wikipedia.

“Consumer confidence is the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. In essence, if consumer confidence is higher, consumers are making more purchases, boosting the economic expansion. On the other hand, if confidence is lower, consumers tend to save more than they spend, prompting the contraction of the economy."

According to a Yahoo Finance article, “the consumer confidence index fell to 49.3 in June from 54.8 in May,” while economist had predicted “healthier reading of 55.0 for the month.” Not surprisingly, the announcement has had a pretty decent impact on the U.S. stock market. Check out the following article explaining the affect on stocks courtesy of Reuters.

U.S. consumer confidence took an unexpectedly steep slide in June, figures released on Tuesday showed, suggesting the 18-month-long recession had yet to loosen its grip on the economy.

A separate report on April house prices in major cities offered some encouraging signs that the worst of the housing slump may be over, but that was not enough to lift investors' spirits. Another crop of economic data showed business activity in New York City and the Midwest remained weak, while retail chains slogged through a rough June.

Billionaire investor George Soros added to the cautionary tone, saying that rising borrowing costs posed a threat to any eventual economic recovery.

"As markets revive, fear of inflation will drive up interest rates, which will choke off recovery," he said at a breakfast hosted by the Wall Street Journal.

Major stock market indexes fell after the Conference Board's consumer confidence index showed households felt gloomier about their current situation and less optimistic about what the coming months might bring.

Kevin Kruszenski, head of listed trading at Keybanc Capital Markets in Cleveland, said the confidence data "kind of took the wind out of things a little bit."

Personal Bankruptcies Surge in Southern California

It is getting harder to go anywhere in California these days with out seeing signs of economic struggle. Businesses are closing, houses are getting foreclosed upon, and the government began issuing IOU’s for debt payments. However, in addition to the financial struggles of the state government, citizens in California are also struggling. Just this week, the LATimes.com released an article discussing the surge in Southern California bankruptcies over the past year. Check out a snippet of their article below.

In a recession, bankruptcies are common, but as the numbers continue to rise, some financial experts are hoping the word is being spread as to what a bankruptcy is, and how they work. Luckily, the Sacramento Business Journal recently posted an article all about bankruptcies and how to know if one is right for you. Read more below

Hundreds of thousands of American families have declared bankruptcy in the past two years and foreclosures locally remain high. For-sale signs are staying up longer than in any period in recent memory, neighborhoods are half-empty, and we all know people who have moved out of state.

Bankruptcy lawyers are seeing a lot of people with more than $30,000 in debt, and the volume of filings has increased at all levels.

Are you in this situation? If so, how can you tell when to stay the course, or when to cut and run?

Signs that you can’t go it alone any longer include being unable to meet basic living needs, and needing to borrow to pay past-due debt.

So what are your alternatives? You could declare bankruptcy, but that’s a heavy decision. Here are some of the mechanics to help you make up your mind.

Continue reading this story, here.

FICO Scores Show Flaws as U.S. Banks Cut Consumer Credit Lines

The FICO score formula has long been the choice of most US lenders, but some reports show the decline in actual loans may be making these scores somewhat flawed, which is quickly becoming a problem. Earlier today Bloomberg.com posted a great release about a woman experiencing these flaws, and deconstructed some of the reasons why.

“When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That’s not the bank’s problem, she was told. It’s FICO’s.”

After Rey’s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so- called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.

Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.

“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.

An individual’s FICO score is based on factors that aren’t directly related to JPMorgan’s decision to lower a credit limit, said Paul Hartwick, a spokesman for the biggest U.S. bank by market value.

Continue reading this story, here.

Stimulus Benefits Ready To Roll

Although many feel that the recession relief supplied in President Obama’s American Recovery and Reinvestment Act is not coming quickly enough, other financial experts are saying that relief for small business owners is already here. Sacramento Business Journal writer Michael Shaw wrote a great piece on which benefits are ready to roll, and how taxpayers know if they should take advantage of them. Check out part of his article below, or you can read the full text here.

Those are the benefits promised to small-business owners in the 2009 American Recovery and Reinvestment Act, better known as the $787 billion stimulus package passed by Congress and signed by President Obama in February.

“The government is trying to provide a comprehensive approach to helping small businesses by focusing on these three separate areas,” said Barry Goggin, president of the Better Business Bureau’s Northeast California office. Although not a government agency, the Better Business Bureau is actively publicizing the advantages for small businesses under the stimulus plan.

Goggin said the job opportunities have been slow to arrive as funds flow gradually to hundreds of agencies, departments and governments. But the tax benefits and loan programs have been made immediately available.

Jim Leet, a certified specialist in taxation in California for the past 20 years who practices at law firm McDonough Holland & Allen, explains that there are several write-offs, deductions and credits designed to allow businesses to keep more of their profits.

For several years, small businesses have been able to immediately write off the purchase of some fixed assets, such as vehicles used for work, deducting the full amount of a $25,000 truck, for example, as opposed to a smaller amount over many years for the vehicle’s depreciation. But the overall limit has been greatly increased under the stimulus plan, Leet said, from $125,000 to $250,0000.

How Offshore Tax Evasion Affects You

There has been a lot of talk about offshore tax evasion in the news lately. Especially in regards to UBS and new offshore tax evasion enforcement efforts between the U.S. and Switzerland.

Unfortunately, many taxpayers do not pay much attention to these issues, as they do not think that offshore tax issues have anything to do with them personally. However, that is not the case. Offshore tax evasion actually affects nearly every American. And here is how:

National Tax Compliance

The IRS is having a hard time collecting tax debts during the economic crisis. According to recent studies, Federal tax revenue plunged $138 billion—or 34% from last year—which is the biggest drop in almost three decades. A large amount of the lost revenue can be attributed to offshore tax evasion. This leaves the rest of us law-abiding citizens to foot the bill.

While government officials are hoping to generate additional revenue from increased tax compliance, they know that it alone will not cover our expenses. Thus, they anticipate raising taxes on the wealthiest Americans. Plans to raise taxes has left thousands of Americans—rich and poor—disgruntled and willing to protest. In addition to the Tea Parties that were carried out in April, tax protestors are hoping to carry out additional events this July.

Economic Recovery Prevention

Despite lots of effort, the country’s economic recovery is taking some time. As the economy continues to stall, more and more taxpayers are looking for any way possible to reduce their tax liability. A whopping $250 billion of missing revenue from the past decade is said to be missing due to offshore bank accounts. This missing money is essentially preventing the country from making a faster recovery as it prevents the federal government from investing the money into other programs.

President Barack Obama has already taken great strides to recover some of this lost revenue by evoking legal action with popular offshore bank UBS. "Nobody likes to pay taxes, particularly in times of economic stress," Obama said. However a crackdown on "illegal overseas tax evasion" was necessary in order to provide "meaningful relief for hardworking families." He continued to explain that "the way to make American businesses competitive is not to let some individuals and businesses dodge their responsibilities and let ordinary Americans pick up the slack."

State Economies

Not only does offshore banking affect Federal tax revenue, in many instances it drastically affects local and State governments. According to a recent study observed in Montana's Clark Fork Chronicle, "non-residents who have Montana earned income fail to pay income taxes at an astonishing rate of 78%". This statistic seems staggering, but is actually not as uncommon as you would think. Some states do not have very strong tax enforcement agencies, which can quickly lead to millions of dollars in lost revenue. Montana and other States in similar situations cite offshore banking as a large contributor to the problem, claiming that they simply cannot keep track of all of their out-of-state taxpayers so easily, let alone investigate their offshore bank accounts.

Organized Crime Ties

While not all offshore bank accounts are being managed illegally, even the more humble ones can unknowingly foster criminal activity. It is a well-known fact that organized crime uses offshore bank accounts to disguise their criminal activity. Offshore banking protects the "underground economy". The most common of crimes is of course money laundering, which is made all the easier with offshore bank accounts that are highly protected and usually well disguised.

Ailing California Economy Could Prolong Recession

With an economy like California’s, it is no surprise that some experts are coming forward saying the desperate state may hold back the rest of the Country from a recession recovery. A new article by the Sacramento Bee claims that not only does California account for 12% of the countries gross domestic product, but it also has more retail activity then any other state.

Check out the following snippet form the article, or you can find the full post at SacBee.com.

California faces a $24 billion budget shortfall, an eye-popping amount that dwarfs many states' entire annual spending plans.

Beyond California's borders, why should anyone care that the home of Google and the Walt Disney Co. might stop paying its bills this week?

Virtually all states are suffering in the recession, some worse than California. But none has the economic horsepower of the world's eighth-largest economy, home to one in eight Americans.

California accounts for 12 percent of the nation's gross domestic product and the largest share of retail sales of any state. It also sends far more in tax revenue to the federal government than it receives - giving a dollar for every 80 cents it gets back - which means Californians are keeping social programs afloat across the country.

While the deficit only affects the state, California's deepening economic malaise could make it harder for the entire nation's economy to recover.

When the state stumbles, its sheer size - 38.3 million people - creates fallout for businesses from Texas to Michigan.

The article goes on to quote retail consultant Burk Flickinger, saying, “California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly".

The Specter of the 1993 Energy Tax

The New York Times is reporting that after the house passed the energy and climate bill on Friday, some Republicans are referring to the legislation as the ghost of Clinton’s failed ’93 energy tax. However, according to blogger Andrew C. Revkin this is not the case. Please continue to read below.

In an effort to blunt the momentum of the energy and climate bill that the House narrowly passed on Friday, Republicans are raising the specter of the failed effort by President Bill Clinton to craft an energy tax in 1993, according to an article filed by Carl Hulse of our Washington bureau. Mr. Clinton alluded to this setback in an interview in 2008.

There are enormous differences between the two situations and initiatives. The 1993 tax was pursued mainly as a source of revenue to cut the deficit, not a means of reducing American dependence on foreign oil and cutting risks of dangerous climate change. But there is one similarity. Democrats, particularly from coal states, helped set the stage for the failure of the 1993 tax, according to various experts, and according to Mr. Clinton. He touched on this in the interview. Democrats from states that produce or depend on fossil fuels have been slow to buy into the climate bill.

White House Open To New Tax On Health Benefits

From The Associated Press:

The White House is leaving open the possibility that President Barack Obama might agree to pay for a health care overhaul by taxing employer-provided health insurance above a certain level.

White House adviser David Axelrod told the Sunday talk shows that there's a long way to go and a number of formulations to consider before a decision is made.

On the campaign trail, Obama had blasted John McCain's call for taxing health benefits saying it would be the "largest middle-class tax increase in history."

If Obama compromises on the issue, it would reverse his promise not to raise taxes on those earning less than $250,000.

Some Democrats are pushing a plan that would tax health benefits that come to more than $17,240 a year for a family and $6,800 for an individual. They say such a tax would be a way to pay for improvements in heath care without ballooning the federal deficit.

Obama plans to sell his health plan Wednesday at a town-hall-style meeting in suburban Washington.

American Land Title Association Urges Support of $15,000 Tax Credit

As I have posted multiple different times, numerous members of Congress are hoping to increase this year’s new homebuyers tax credit to $15,000. Now, the American Land Title Association has also sent an open letter to congress asking them to support the increase. You can find a clip from a MarketWatch.com article covering the story below.

In a letter sent June 26 to the Senate and House, ALTA asked legislatures to extend the $8,000 first-time home buyer tax credit and remove income and other restrictions on who can qualify for the credit.

The Senate version of the bill, S.B. 1230, was introduced by Sen. Johnny Isakson, R-Ga., and is co-sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn. The companion bill in the House, H.R. 1245, was introduced by Rep Ken Calvert, R-Calif. Both bills are known as the Home Buyer Tax Credit Act of 2009.

The proposals would extend the home buyer credit to multi-family properties used as the borrower's primary residence, eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit. The bill would extend the current credit, which expires Dec. 31, 2009, for one year after enacted.

The idea of expanding the tax credit first surfaced in the federal stimulus bill at the beginning of the year, passed the Senate but was dropped from the final version. The legislation has gained renewed attention since a noticeable uptick in purchase transactions driven by the $8,000 tax credit.

Continue reading this article, here.

Sanford Traveled Had ‘Holiday’ With Mistress on Taxpayer Money

Over the past 24 hours news of South Carolina governor Mark Sanford’s affair with his Argentinean mistress has been discussed on nearly every major news outlet. Perhaps even more shocking than the affair itself is the recent discovery that taxpayer money paid for at least one of his trips to Argentina. It has also been announced that Mississippi governor Haley Barbour will take over Sanford's seat as chairman of the republican governors association.

I’ve included a section of the Law Dork blog entry that discusses the use of taxpayer money in the affair, but you can also check out the LATimes.com round-up of news on the story.

Gov. Mark Sanford ranks in the top 50 [of a list of South Carolina state employees' travel expenses] based on the total amount he spent on trips paid by his office and those paid by the state Commerce Department. Mr. Sanford has traveled to China, Argentina and Brazil through the Commerce Department, which has travel reports showing taxpayers covering $21,488 for those trips.

Mr. Sanford also spent $1,976 in travel through his office.

The Commerce-paid trips benefit the state, Sanford spokesman Joel Sawyer said. For instance, in October, FITESA, a Brazilian fabrics maker, announced it would spend $120 million on a Laurens County facility and create 80 jobs.

CONFIRMATION: Well, from the Governor himself, we have received confirmation that Sanford did see his mistress when in Argentina on state business and the public's dime. From an e-mail obtained by The State, Gov. Sanford wrote to his mistress on July 4, 2008:

Unbeleivably (sic) hard to imagine it has been a week.

Also, he wrote to her on July 8, 2008:

[W]as just going to find the movie the Holiday as we had spoken of it last Thursday. Its music was pleasant and made me think of you — its mood and the notion of a holiday (wrapped up in our case over two days) certainly fit as well … (though our visit in some ways for me was as well less of a holiday than it was uncovering and realization of some things and feelings that again are worth longer conversation)

He also noted in the e-mail that the mistress “opened up a new chapter last week wherein I was happy and content just being.”

According to CNN’s report (see below), Sanford would have been in Buenos Aires on June 26 and 27, 2008. July 4 was one week later. From the July 8 e-mail, he says he had a two-day “holiday” with her, which doesn’t make it sound like he was doing much of the state’s business while there.

At this point, Gov. Sanford obviously needs to explain this.

My Appearance on the Stu Taylor Show

A few weeks ago I made several appearances on Stu Taylor’s radio program to discuss a couple of tax related issues. For those of you who may have missed the segments, I uploaded a couple of videos to my YouTube channel with the audio of just my interviews. You can also download the MP3s of the full show at my web site, and be sure to check back for future clips. I have a feeling that this is the beginning of a long relationship with Mr. Taylor.

U.S. Corporate Tax Audits Down 9 Percent

From Reuters.com:

The percentage of corporate tax returns audited by U.S. collectors fell about 9 percent in 2008 and was down nearly 20 percent from about a decade earlier, an inspector general report released on Monday said.

About 15.3 percent of returns filed by corporations with $10 million or more in assets were examined by the Internal Revenue Service last fiscal year, down from about 16.8 percent in 2007, the Inspector General for Tax Administration for the U.S. Treasury Department said in its annual report.

In 1999, about 19 percent of tax returns for the group were examined by tax collectors. The rate of examination ranged between 15 and 19 percent in the intervening years, with the exception of a 20 percent rate in 2005.

The IRS's enforcement staff has been whittled down in recent years, a response to fervent complaints by some U.S. lawmakers critical of what was characterized as aggressive tax collection.

"After several years of improved results, many collection function activities and results declined during FY 2008," the report said.

The enforcement staff shrank 20 percent to 14,900 at the end of 2008, down from 18,700 in 1999, the report said.

President Barack Obama has proposed doubling the agency's enforcement budget for 2010, including hiring about 800 new staffers just to enforce international tax law. That is part of a wider effort by the administration to crack down on what it calls the abusive use of tax loopholes and outright tax evasion.

Enforcement revenue fell in 2008, though that interrupted a steady rise in the past decade or so, the report said.

The IRS collected $2.75 trillion in fiscal year 2008, a record.

The report did not make any specific recommendations, but noted the enforcement of tax laws is among the key "high-risk" areas consistently cited by the Government Accountability Office.

The tax gap -- the difference between what is owed and what is collected -- was about $345 billion in 2001, the last year it was examined, according to the government.

Prepare for Hurricanes by Safeguarding Tax Records

Earlier in the week the IRS posted this press release recently, urging taxpayers in hurricane areas to prepare for hurricanes by putting their tax records in a safe place. They are warning taxpayers that the 2009 hurricane season is now underway, and have put together a simple list of ways you can prepare.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies home, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

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Tax Friendly Ways to Save for your Children’s Education

Yesterday, the Roni Deutch Tax Center Tax Help Blog posted a new entry discussing the best tax friendly ways to save for your children education. In this economy, it may seem almost impossible to try saving money for the future, but as you will see there are dozens of ways to plan for your child’s future regardless of your income.

Are you already worried about trying to save for your children’s future education related expenses? In today’s economy, millions of taxpayers are struggling to pay their bills let alone save up for future bills. It may seem overwhelming to be thinking about a day when you will have to help your child earn their diploma, but by preparing early you can avoid expensive loans twenty years down the road.

It is a common misconception that only very wealthy families can save for their children’s future. In fact, there are multiple educational savings plans that were made especially for middle-class and low-income households. To help those of you looking to get a head start on the process, please enjoy the following article on tax friendly ways to save for your children's education.

1. Coverdell Education Savings Account

If you are looking for a way to avoid taxes and fees when you withdrawal your child's education money in the future, then a Coverdell Education Savings Account (ESA) is the way to go. It allows you to contribute $2,000 per year until the beneficiary is 18 years of age. Although the contributions are not tax-deductible, the distribution cash will become tax-free when withdrawn in the future. However, the funds must be used only for school expenses. For more information on opening a Coverdell ESA check out this page on IRS.gov.

Continue reading this blog entry, here.

U.S. Home Prices Drop Again as Concern Over Appraisals Grows

According to Bloomberg.com home prices this country fell another 6.8 percent across the country last month. As many experts have predicted, the ongoing rise in foreclosures and increasing unemployment rates are stalling the recovery of the U.S. real estate industry.

Measured monthly, the average price fell 0.1 percent from March, the Federal Housing Finance Agency in Washington said today. The number was projected to drop 0.4 percent in April, according to the median forecast of 15 economists in a Bloomberg survey.

The housing slump has reduced the median price of an existing home 26 percent from the July 2006 peak, pushing affordability to near record levels. Prospective buyers are now being constrained by rising mortgage rates, the highest unemployment since 1983 and concern the housing rebound will be anemic.

While U.S. builders increased housing starts by 17 percent in May to an annual rate of 532,000, a May 26 report from S&P/Case-Shiller showed home prices in 20 U.S. metropolitan areas fell 18.7 percent in March from the same month last year.

On a related note, another recent Bloomberg article also reported that home price recovery may be undermined by appraisals.

Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined again.

“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

Appraisal rules that went into effect on May 1 require lenders that sell loans to Fannie Mae or Freddie Mac to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.

The agreement mandates that banks order a second appraisal on 10 percent of the loans they sell to Fannie Mae and Freddie Mac, and warns against accepting the higher of any two valuations. The guidelines have led to more conservative valuations by many appraisers and a “chill” in lending, according to John Brennan, research director at the Appraisal Foundation, a Washington-based trade group. A low appraisal is one that comes in under the price a prospective buyer has agreed to pay for a property.

State Cuts Tax Exemptions For Kids

On nearly any list of tax tips you will see the very popular child tax credit. However, starting this year California parents will be seeing less money from that deduction then they had in the past. In their efforts to reduce the State’s debt, California lawmakers have reduced the deduction by about $210 per dependent. Check out the following article on the change courtesy of SFGate.com.

California parents beware: Those little tax deductions running around the house are now worth less (in a strictly financial sense, of course).

To help balance its budget, California has reduced the state tax credit for dependents.

The change will increase a family's California taxes for 2009 by about $210 per dependent compared with 2008.

A family with one dependent that normally gets a state-tax refund will get back $210 less when they file their 2009 return next year. A family that normally owes money will have to pay $210 more. Multiply that by two or more dependents, and it really adds up.

This may come as a shock to parents who have been too busy shuttling between soccer games and viola lessons to keep up with the state's budget fiasco. The Franchise Tax Board is trying to get the word out, so families can prepare.

The Tax Implications of Foreclosures

After writing this blog entry on the true costs of foreclosures, I came across this great SmartMoney.com article that I thought might be of interest to my readers. The post describes – in detail – the tax implications of foreclosures, and offers helpful advice on how to avoid them.

A foreclosure transaction occurs when a mortgage lender repossesses a borrower’s property and then sells it to pay off the debt. In most cases, however, a foreclosure will only happen when the mortgage debt exceeds the property's fair market value, or FMV. In this situation, the federal income tax rules treat the foreclosure as a sale for the FMV amount.

Therefore, a tax gain will result if the property’s FMV exceeds its tax basis. (The tax basis of a principal residence usually equals the original cost of the property, plus the cost of any improvements.) On the other hand, a tax loss will result if the property’s FMV is less than the tax basis.

If a mortgage lender also forgives some or all of the debt against your property in conjunction with or after the foreclosure transaction, you have cancellation of debt (COD) income. That income is taxable unless an exception applies.

Continue reading this article at SmartMoney.com.

How to Get a Federal Tax Lien Released

Yesterday we published an entry on my law firm’s blog detailing how you can get a federal tax lien released. Check out a few of the options below, or you can find the full list here.

Validate or Appeal

If the IRS has issued a lien against your property, then it is likely due to an IRS back tax liability. Essentially, there is no way to release the lien until the tax debt is resolved. There are a number of ways you can go about doing so, but before you even think about paying the debt, you will want to make absolutely sure that you owe the full amount they are citing you for. If the total amount is incorrect, or the lien was filed improperly, then you can appeal it. To appeal a federal tax lien, you can request a collection due process hearing with the office of appeals. If you lose your appeal, you still have 30 days to have your case reviewed for proper jurisdiction. However, if it turns out that the liability amount is correct, then you are going to need to resolve it to get the lien released.

Pay in Full

If you have the financial ability to pay off your IRS debt, without suffering in other financial aspects of your life, then it can be a great way to quickly and easily release your tax lien. However, determining the exact amount needed to fully pay off your tax debts can often be difficult.

If you received a notice from the IRS and are confused whether they have issued you a tax lien or levy, then you might enjoy reading this entry I posted a few weeks ago titled Lien? Levy? What’s the Difference? You could also visit the IRS Tax Lien section of my law firm’s learning center.

The Best Surfing Video Ever!

Yesterday a friend sent me this amazing surfing video, and it has the single-greatest surfing move I have ever seen! As many of my readers and friends know, I am a huge surfing enthusiast, and often spend my spare time riding waves in Hawaii. If you enjoy surfing too, or just cool surfing videos, then you have to see this!

Tax Credit For Home Purchase Could Rise

A couple of weeks ago, I published an article on the pros and cons of buying a home in 2009, and one of the major pros on the list was the new homebuyers credit. Lately there has been a lot of talk surrounding the possibility of the same homebuyers tax credit being extended form $8,000 to $15,000.

This would come as a pleasant surprise to the many American taxpayers who have taken advantage of the credit, and could potentially provide another nice boost for the struggling real estate market. Will the change actually take effect this year? It is probably still too early to tell, but I certainly think it could be a possibility if the economy continues to struggle. For more information on the issue, check out the following story from USA Today.

Lawmakers and businesses are calling for expansion of a tax credit for first-time home buyers that has helped spark home sales in an otherwise dismal real estate market.

With the tax credit scheduled to expire in fall, some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home.

First-time buyers make up a hefty 40% of home purchases, according to the National Association of Realtors (NAR), which is about 5 percentage points higher than the historical average.

The credit, introduced in July 2008, was expanded in February as part of the economic stimulus package. The proposals may face headwinds amid growing public criticism of government spending to rescue the economy and the widening budget deficit.

Some economists say a tax benefit is vital to spur home buying and help stabilize prices.

Continue reading this story, here.

US-Swiss Tax-Evasion Hearings Set In Fla.

The date of the hearings for the US-Swiss tax evasion cases have been set for this July in Florida. The case is already drawing global publicity, as so many different economies are being affected by off shore tax evasion.

Earlier today the Examiner posted a new article on the topic. Check out a snippet of their story below, and be on the look out for an entry I am working on that will explain how offshore tax evasion affects you!

During the global economic crisis, Switzerland, like other havens for tax evasion, have been increasingly facing scrutiny. Alongside the US, Germany, France and Britain have also been pressuring Switzerland to assist them in closing loopholes for tax evasion. A federal Florida judge has set hearings on July 13 to 15 on the Internal Revenue Service's endeavor to obtain 52,000 names of U.S. account holders of the UBS AG.

Initially, UBS refused to release 52,000 names, since it stated the release would violate the privacy laws of Swiss banking. UBS has already paid $789 mil. in fines and agreed to settle allegations it helped Americans evade taxes. The UBS holds $2 trillion in foreign money and its financial services constitute 12 percent of Switzerland's economic output.

"This Administration is committed to reducing off shore tax evasion to help ensure that all U.S. taxpayers are playing by the same rules," Timothy Geithner, the Secretary of Treasury, said in a Friday press release.

The UBS has proposed to release data on some of its American account-holders----with no names or account numbers attached.

4th of July Tea Parties Planned

According to the official TeaPartyDay.com website, there will be tea party protests in over 1,271 cities on the 4^th of July. The group—whose name stands for “taxed enough already”—gained National attention when thousands attended their April 15^th protests.

Now, the organization is ready for their next event with thousands of additional participants and hundreds of new locations. One of the tea party leaders is even planning on running for a seat in the Senate, according to Politico.

If you are interested in participating in a protest then you should definitely read up on the organization by checking out their website. Alternatively, you can find out if any tea party protests are scheduled in your hometown by visiting their locations page.

While I was looking up stories on the TEA protests, I came across this article from Olympian.com on a local chapter’s plans for their Independence Day protest.

More big protests against the Obama administration are planned at the state Capitol on the next two weekends, but a top state Democrat says he’s not yet worried about the effort to build a backlash movement against the new president.

The protests include a June 27 “TEA party” rally at Heritage Park with popular right-of-center motivational speaker Bob Basso, who dresses up as patriot Tom Paine, and longtime Republican political operative Floyd Brown.

The specific targets for both events include efforts by President Barack Obama’s administration to bail out automakers, rescue banks from insolvency, create a cap-and-trade proposal to deal with greenhouse-gas emissions, and establish universal health care coverage.

“This is definitely aimed at Washington, D.C., and reining in the uncontrolled spending. … We’re concerned about how the Constitution is simply being shredded. Laws are being broken. People who run the government don’t seem to understand what the Constitution says,” said Ken Morse, organizer of Saturday’s rally.

If you are interested in learning more about other tax protests, check the blog entry I posted a few weeks ago on the 5 biggest tax protests in US history.

California’s Solution to $24 Billion Budget Gap Is Going to Bring Some Pain

With a massive debt of $24 billion, there is no doubt California is going to have to make some major cuts in order to break even again. Unfortunately not all of these cuts can be small, and no matter what action the state takes there are going to be people who are affected. The New York Times wrote a great piece examining this issue, and I’ve included a snippet of their article below.

While Democrats struggle to preserve programs for the state’s neediest residents through one-time accounting maneuvers and by passing some of the pain to smokers and oil companies through fees and taxes, Republicans are holding the line on new taxes and trying to force large cuts that will have an effect on policies like health care for children in poor families and the early release of thousands of prisoners.

Lawmakers passed a budget for both 2009 and 2010 in February, but the legislation, which covered 17 months’ worth of spending, was dependent on the passage of several ballot propositions that voters overwhelmingly sank in May. As a result, the state’s budget gap expanded.

In response, Gov. Arnold Schwarzenegger threatened to allow the government to come to a “grinding halt,” rather than authorize more borrowing to cover shortfalls, and proposed $16 billion in cuts. Those cuts would largely be carried out through the state’s programs for the poor: the Healthy Family Program, the health insurance program that covers more than 900,000 children; the main welfare program, known as CalWorks, which provides temporary financial assistance to poor families; and Cal Grants, a college financial aid program.

Continue reading this story at NY Times.com.

Save on Your Taxes with New IRA Rules

With new rules on IRA’s, there are even more ways for you to reduce your tax liability. MainStreet.com published an article on how you can take advantage of these new laws to legally lower your tax bill. I’ve included a section of their post below, but the entire story can be read here.

A change in tax rules, which will allow savers at any income level to take advantage of Roth IRAs, could mean a lower tax bill for you come January.

Currently, retirement savers who make more than $120,000 including certain deductions can't convert their funds to a potentially tax-advantaged Roth IRA. Traditional IRAs and 401(k) funds are taxed on their way out (when you take a distribution), while Roth IRAs are funded on the way in, with after-tax money. The distributions are then tax-free.

As of January 2010, the income cap preventing those with a modified adjusted gross income of more than $120,000 a year (or $176,000 or more if you’re married and filing jointly) from converting their retirement savings to a Roth IRA will be lifted, according to a report in The Wall Street Journal.

More People Qualify for Car-Tax Deduction

There is nothing better than realizing you can save more on taxes than you had originally thought! Well that is exactly what is happening to hundreds of American taxpayers who are beginning to realize that they will benefit from the IRS’ new rules regarding car tax deductions. Check out the following story courtesy of the Wall Street Journal.

Some people who thought they weren't eligible for a new tax break might qualify after all. A law enacted earlier this year allows many taxpayers who buy new cars and other types of motor vehicles during a certain time period this year to deduct the state or local sales taxes, or excise taxes, paid on the purchase. That may sound fairly simple, but it isn't.

For example, what about taxpayers who live in states that don't impose a state sales tax?

The Treasury Department and the Internal Revenue Service recently decided that "purchases made in states without a sales tax -- such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon -- can also qualify for the deduction."

How so? Taxpayers who buy a qualified new motor vehicle in states without sales taxes "are entitled to deduct other fees or taxes imposed by the state or local government," the IRS said. The fees or taxes that qualify "must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per-unit fee."

Continue reading this story here.

K-Fed's Company Dodges Tax Bill

From DET News:

A company owned by Britney Spears' ex-husband Kevin Federline, a ridiculed rapper and former background dancer, owes $14,371 in federal taxes, records show.

Federline's company, Gooseneck Productions Inc., was set up to handle his "artistic" endeavors, which included the much-maligned tune "PopoZao" and the poor-selling 2006 CD "Playing with Fire."

Federline's finances came into focus last year during a custody battle with Spears. Aside from strip club bills and fancy clothes, court records showed his production company spent $841,129 and made only $544,075.

What's owed:

The IRS filed a $14,371 lien against the company on May 18 in the Los Angeles County Recorder of Deeds office.

His side:

Federline's accountant, Laurence Kantor, could not be reached for comment.

Missed the Quarterly Payment Due Date?

Although the estimated quarterly tax system was made to make taxes simpler for business owners and self employed taxpayers, sometimes it seems like they do just the opposite. The economy is making life more difficult on millions of Americans, and it can be very easy to miss an estimated quarterly due date. For those of you who may have missed last week’s June 15 deadline, I’ve put together the following article explaining what you can do.

Do Not Worry

First of all, do not worry. If you miss the quarterly payment by a few days then the IRS probably will not assess any penalties or fees, but you should still get your payment in the mail as soon as possible. The IRS’s main concern is that they get their money, and as long as you get yours to them within a couple of days then you should be fine.

Do Not Wait

Although some people will tell you it’s fine to just include more money in your next quarterly payment, this option can have serious consequences. The IRS wants self-employed taxpayers to make regular quarterly payments, and can enforce heavy fines if you wait. Unless you did not have any profit this quarter then you want to get your payment mailed out ASAP.

Get Professional Help

Calculating your own estimated payments is actually pretty simple—see The Truth About Estimated Quarterly Tax Payments on the RDTC Tax Help Blog—but if you are confused then you might want to seek out professional help. Not all tax preparation offices are open year round, so you might need to find an accountant. Additionally, most Roni Deutch Tax Center franchises are open year round and can help with estimated payments. To find a store close to you, check out the Locations Page on RDTC.com.

If You Need Time

If you cannot afford your entire tax payment right away right away then you can take another route. One common option is to simply pay by credit card. That way you take care of your tax liability with the IRS, and pay off your credit card balance whenever it is most convenient for you. You could also just pay what you can now, and pay the rest over time as you can. If the IRS sees you are making steady payments on the total, they are probably not going to penalize you much, if at all.

Confusing Dates

The name "quarterly payments" has misled more than one taxpayer. Since they are quarterly, it would be correct to assume you need to pay every three months right? Wrong. There is actually only a two month space between the April 15^th, and June 15^th due date. Later in the year you also have a four month quarter to make up for the reduced spring time quarter.

Avoiding Missed Payments

There are several ways you can make sure you do not make this mistake again. Put the due dates (April 15th, June 15th, September 15th, and January 15th) in as many places as you need to in order to remember. This can include your calendar, planner, iCal, a date book, or even a sticky note on your desk. You may even be able to set an alert on your cell telephone months ahead of time.

The Hidden Problems with Forgiven Credit Card Debt

Let’s be honest, the economy is a nightmare. No one’s job is safe, people are losing their homes, and relying on their credit cards to make ends meet. Credit card companies are feeling the pinch too, and are responding by settling delinquent accounts for a fraction of what is owed.

Why would they do this? Simple: collection activities cost credit card company’s money. They have to pay the person calling you to nag about payments, they have to pay for all the letters and notices. And they may never recover all the money you owe. So, when a customer offers a lump sum payment to settle the entire debt, many companies are jumping at the chance. Moreover, whatever balance is not covered by the lump sum, the credit card company just forgives. Which is great for consumers… in the short-term.

Aside from the damage to your credit (though the delinquent payments certainly are not any better), there is a problem laying in wait for you next tax season. If your credit card company forgave your debt, the IRS calls that taxable income, reported to the IRS on a 1099-C. Oh yes, if you settle your $25,000 Visa bill for only $5,000, the “forgiven” twenty grand is now considered income. So, if you are taxed at 15%, your tax bill will increase by $3,000. The increased “income” can even bump you up into a higher tax bracket!

(It is important to note that if your debt is mortgage-related and is forgiven, this may NOT qualify as taxable income, thanks to the Mortgage Debt Forgiveness Act of 2007.)

You get your credit card debt handled, only to find a brand new tax debt waiting for you. What a trade off, eh? Of course there are some ways to get around this. A title 11 bankruptcy can relieve you of the tax debt. Or you can claim insolvency (i.e. your total debts are higher than the fair market value of your assets). Neither option sounds very appealing.

One would hope that the government would see this problem as a major issue, given the large numbers of people currently dealing with overwhelming credit card debts. However, to date, no legislation on par with the Mortgage Debt Forgiveness Act of 2007 has been introduced. And with the inherent inefficiency of Congress, any new legislation would likely be too late to help the millions of struggling Americans with debt today.

The $9.5 Billion Gay Marriage Windfall

So far five states in this country have legalized gay marriages, but the Federal government has yet to make any changes to the definition of marriage – although on a related note Obama did sign an executive order earlier in the weekend extending benefits to domestic partners of Federal employees. Those states have reportedly seen increased revenue from the increase in marriages, and the issue has gotten many experts questioning what type of impact Federal recognition of gay marriages could create.

Miriam Marcus of Forbes.com addressed this question in a new article where he claims, “if same-sex marriage were legalized nationwide, the lackluster wedding industry would perk up fast.”

Howls of protest erupted last month when California's Supreme Court upheld Proposition 8, stripping gay and lesbian couples of their right to marry. Adding to the din: all the disappointed planners, seamstresses, jewelers, travel agents and caterers who comprise the massive yet plodding American wedding industry.

There are 781,267 same-sex couples living together in the U.S., according to the Census Bureau's 2005-07 American Community Survey. The Williams Institute, a research arm of UCLA's law school, predicts that if gay marriage were legalized nationwide--only Massachusetts, Connecticut, Maine, Vermont, Iowa and (as of earlier this month) New Hampshire allow it now--about half of those couples would tie the knot within three years.

Talk about a stimulus package. While wedding-related revenues--snagged by small shops to giant corporations like Tiffany, Williams-Sonoma and Marriott International --top $160 billion (an average wedding now costs $20,400), the industry has shrunk at an annualized 1.9% rate after inflation since 1999. If half of the same-sex couples got hitched, Forbes estimates that the industry would reap nearly $10 billion in additional revenue.

Check out the rest of the article at Forbes.com, or you might be interested in reading a few earlier entries I’ve posted on LGBT financial issues – Taxes 101 For Domestic Parents & Same-Sex Couples and Taxes 101 For Domestic Parents & Same-Sex Couples.

Confusion Over Canceled Mortgage & Credit Card Debt

As tough economic times continue, more and more consumers are seeking to negotiate reductions to their credit card debts, as the NY Times points out their new article titled Credit Bailout: Issuers Slashing Card Balances.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.

Although it may be getting easier to negotiate with credit card companies, the IRS still considers this canceled debt taxable income. Which is creating some confusion since they changed the tax code to not tax canceled mortgage debt, which occurs when a bank allows some one out their mortgage for less than the original value.

One of my favorite blogs, Don’t Mess With Taxes, examined this issue in a new blog entry. Check it out at trading credit card debt for a tax bill.

Schwarzenegger Says He'll Veto Democrats' Plan For Balancing Budget

California Governor Arnold Schwarzenegger spoke outside of his office earlier today, making a promise to veto the new democratic budget-balancing bill should it reach his desk. The bill includes tax hikes on oil, tobacco, and motorist fees, all of which Schwarzenegger claims are unfair for Californians already rising tax bills.

“The proposal included what the lawmakers said were $11 billion in cuts to programs dear to Democrats -- to education, healthcare and welfare -- along with $10 billion in accounting maneuvers and other financial moves such as selling state assets,” asserts the LA Times.

But it was the levies intended to raise $1.9 billion in new taxes on oil and tobacco, and fees on motorists to fund state parks, that Schwarzenegger said would be unfair to Californians after higher taxes were imposed on them in February.

"None of that will fly with me," the governor said. "It will be irresponsible after the largest tax increase in California's history just four months ago to go back to the people and to say we want to increase your taxes but we want to protect the salaries of state workers."

The Democrat-controlled budget committee Tuesday rejected the governor's proposal to cut state employee salaries by 5% on top of the two unpaid days off per month that they are already required to take. The lawmakers also dispensed with many of his steepest cuts to state programs, which would have eliminated California's welfare system, its health insurance for children and college tuition aid for low-income students.

Continue reading this story at LATimes.com

Embarq, Sprint Sue Government Over Taxes

From the Associated Press:

Embarq Corp. and its former corporate parent, Sprint Nextel Corp., have sued the federal government to recover $31.6 million in income taxes.

The two companies filed the lawsuit Wednesday in Kansas City, Kan., federal court. The complaint claims Sprint paid the taxes by mistake in the 1990 through 1994 tax years.

Sprint said it mistakenly included subsidies its local telephone division received from the Universal Service Fund as taxable income. The fund helps defray the cost of running lines to rural and poor areas.

The Internal Revenue Service denied Sprint's refund requests, which were filed in 2004.

Sprint's local division spun off in 2006 to become Embarq, which would receive any refunds.

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The True Cost of Foreclosures

Foreclosures are running rampant across the country. According to recent studies, an estimated 1 out of every 300 households was forced into foreclosure last month. If you have not witnessed a foreclosure, you may think the only people affected are the homeowners and banks. However, foreclosures actually affect their entire neighboring community, and can drastically impact local tax revenue.

Decreasing Real Estate Values

There are actually several reasons foreclosed homes are bringing down real estate values. Many foreclosures happen quietly and quickly, where residents in the area do not even realize the house was empty until the foreclosure sale sign is in the yard. However, some homes are littered with huge warning signs, or sit on the market unkempt for months. Since there is usually no one in charge of maintaining foreclosed homes, yards grow tall, pools fog up, and the whole home itself begins to look artificially aged. In order to unload these properties the banks will drastically reduce their asking price. This forces regular sellers to lower their prices in order to stay competitive, and results in deflated real estate values for an entire neighborhood.

Devalued Neighborhoods

In addition to forcing sellers to reduce prices, foreclosed homes can also devalue a neighborhood just by sitting there unsold. As I mentioned before, the banks do not assign someone to look over the property, and if several homes on one street go into foreclosure then it can quickly turn the neighborhood into a ghost town. Once the area begins to decline, real estate values will drop quickly, and residents will find it nearly impossible to sell their homes.

Loss of Local Revenue

When a house has been vacated due to foreclosure, it means that there is no one living in the property, and there is no one to pay local property taxes. This can be disastrous to local government agencies that rely on this revenue. For example, the municipality of Greenville, California received over 40% of its revenue from property taxes and in the past year alone home values have decreased by over 15% due to record foreclosure rates. This had led to a budget shortfall and the town is now desperately struggling to get by without the additional funds full occupancy of its homes would bring.

Reassessed Property Tax Rates

Even if a foreclosed property is sold, the local government is going to get less money then it would have if the original homeowner had stayed. This is because property taxes are based on the value of the property, and if a house sells for significantly less then it had five years ago, then its tax rate will be reassessed and taxpayer will only be required to pay the reduced property tax.

Additional Costs to Local Governments

In addition to the lack of property tax revenue, the overall cost of a foreclosed home can be quite large. According to a study from Chicago, the cost of securing and processing a foreclosure can be as high as $5,400 per property. Furthermore if the property is abandoned for more then a few months, local governments will lose out on utility taxes, and may have to pay for water service, and trash removal. The total estimated cost on a foreclosed property could be as high as $20,000.

Local Service Cuts

With out this valuable revenue from property taxes, many cities are being forced to make up the revenue elsewhere. Local governments are being forced to lay off city workers (including firefighters and law enforcement), cut funding for education, increase retail taxes, and even sell precious historical landmarks. There is not a lot taxpayers can do to prevent these rash actions in their hometowns but sit by idly and hope that they do not get hit with a tax increase.

What can YOU do?

One of the best ways to counterbalance your communities’ loss in city revenue is to directly support your local economy. By making a few changes to your spending habits, and encouraging your neighbors to do so as well, you can make a difference. To learn more about how you can help, be sure to check out an entry I posted a few weeks ago titled 10 ways to help your local economy with your tax refund.

Tax Deductions For Car Purchases Now Apply To All States

From the Boston.com:

[T]he American Recovery and Reinvestment Act (ARRA) passed earlier this year, provides a tax deduction for the purchase of a new qualified vehicle. The Treasury announced last week that this incentive now applies to all states – including those that do not impose a sales or excise tax. This includes Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

Purchasers of a new qualified vehicle in the states mentioned above can now take an above-the-line tax deduction for fees and other taxes that are imposed by the state or local government. These fees and other taxes must be based on the vehicle's sales price or as a per unit fee in order to qualify for the deduction.

All of the other provisions of this incentive are the same for all states including:

• New vehicles include cars, light trucks, motor homes, or motorcycles.
• The deduction is only available for purchases made on or after February 17, 2009 and before January 1, 2010.
• The deduction is limited to the sales tax, excise taxes, or fees paid on vehicles with a maximum purchase price of $49,500 dollars.
• If you are married and you file a joint tax return have, the deduction gets phased-out once your modified adjusted gross income (MAGI) reaches $250,000 dollars and is completely gone if your MAGI is more than $260,000 dollars. For all other taxpayers, the phase-out range is a MAGI of $125,000 dollars to $135,000 dollars.
• The deduction is available whether or not you itemize your deduction on your tax return.
• The deduction must be taken on your 2009 tax return (which is filed in 2010).

California Schools' Tough Choices

According to the Wall Street Journal cities across California have been approving parcel taxes to support local education. Schools in lower income areas have been suffering due to the poor economy and have been forced to make cuts left and right. Check out a snippet of the WSJ article discussing the issue below.

Residents of some affluent cities in this broke state are banding together to make up for cuts in public education, opening rifts between rich and poor school districts.

Key to the debate are parcel taxes, flat fees on property that are used by some cities to help fund public schools.

A handful of communities, such as the tony Bay Area enclave of Piedmont, Calif., have passed new parcel taxes to compensate for proposed state cutbacks, and others are considering them. Piedmont said the emergency measures would enable it to lay off only five of its 200 teachers, rather than nine.

"We're very, very fortunate that our community is supportive of our schools," said Ray Gadbois, vice president of Piedmont's school board.

In less-affluent communities where voters are loath to approve parcel taxes, the state's funding cuts are expected to hit harder.

One is Hayward, 15 miles south of Piedmont. At the city's Tyrrell Elementary School, Principal Rosanna Mucetti said she stands to lose nine of 30 teachers.

California requires any local tax increase for a specific purpose be approved by two-thirds of voters. Of the state's 1,042 school districts, only a small number have adopted parcel taxes. Since 1983, at least 245 such levies have been approved, including some that have been renewed, according to data from the lobbying group School Services of California.

Obama Says ‘Robust’ Growth Will Prevent Tax Increases

From Bloomberg.com:

President Barack Obama said he is “confident” that he won’t have to raise taxes on most Americans to close the budget deficit as long as the economy picks up steam.

“One of the biggest variables in this whole thing is economic growth,” the president said in an interview with Bloomberg News at the White House. “If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes.”

Obama has repeatedly said he would keep his campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.

“I’m confident that we don’t have to raise taxes on ordinary working families,” he said.

The U.S. economy shrank at a 5.7 percent annual pace in the first quarter, reflecting declines in housing, inventories and business investment. Growth is expected to turn positive in the second half of the year, accelerating 0.5 percent from July through September and 1.9 percent in the final three months of this year, according to the median estimate in a Bloomberg survey of 62 economists. The median forecast for growth next year is 1.8 percent, according to the survey.

Paper or Plastic? D.C. Taxes on All Disposable Bags

Earlier this week Washington DC council members passed a new tax in the amount of 5 cents on all disposable grocery bags. The decision was unanimous and as the council claimed it would greatly help the environment. Check out an article on the new tax below, courtesy of Wilja.com.

Mike Carter says that's "a good idea, if it's going to help the environment."

The tax impacts both paper and plastic disposable bags.

"I think it's a good thing if people are taxed on their bags," said Raisa Stebbins. "They'll stop using using bags -- better for the environment, better for the people."

The bill prohibits businesses from paying the fee on behalf of customers. Establishments caught not taxing customers face a $100 fine for the first violation, $200 for the second and $500 for the third violation within one calendar year.

"I like the concept of what they are trying to accomplish but as a general rule, I don't like taxes," said Peter Brown.

Four of the 5 cents from the new tax will go to cleaning up the Anacostia River. The other cent will go to businesses to off set the cost of implementing the new tax.

"It's an incentive for people to bring their own bags, so it could have a good effect," added Felicia Sonmez.

And if you do bring your own reusable bag, you won't be hit by the nickel tax.

The Curious Firing of Gerald Walpin Gets … Curiouser

Questions arose immediately when news got out that Sacramento Inspector General Gerald Walpin had been abruptly fired from his position. After a few weeks went by, the story continued to unfold and now even more people are beginning to question the situation.

Walpin was fired in what he says is a direct response to an inspection of Sacramento Governor Kevin Johnsons funding for his St. Hope Academy program. Walpin says that he found a “gross misappropriation” of Americorps funding.

To make matters worse, Kevin Johnson was also a strong donor and supporter of president Barack Obama’s campaign. The former Inspector General is claiming that in releasing him from his position the Obama was directly contradicting a protection act that the President had personally supported back when he was a Senator.

To learn more details about the bubbling situation check out Hotair.com.

California Democrats Seek Tax Boost as Battle Looms

From Bloomberg.com:

Democrats who control California’s Legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that may leave the state short of cash next month.

Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. His proposed reductions would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.

The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself unable to pay all its July bills.

“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office yesterday.

The state’s projected cash shortage absent a fix to next year’s budget led Standard & Poor’s late yesterday to place California’s credit rating, already the lowest among U.S. states, under review for a possible cut.

“Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view,” S&P analysts led by Gabriel Petek in San Francisco said in a news release.

Fitch Ratings on May 29 revised California’s credit-rating outlook to negative, indicating a longer-term likelihood of reduction if lawmakers don’t act quickly to solve the latest budget problems. California’s full faith and credit pledge is rated A by S&P and Fitch and a comparable A2 by Moody’s Investors Service, five steps below the top investment grade.

California taxable 30-year Build America Bonds paying 7.55 percent traded at about 93 cents on the dollar today to yield 8.18 percent, down from 94.7 cents and 8.02 percent yesterday, according to Municipal Securities Rulemaking Board trade data.

The Democrats’ new $15 vehicle registration fee would raise about $300 million a year that would be used to finance the operation of California’s 275 state parks. Anyone driving a vehicle with California license plates would be allowed to enter state parks without paying an entrance fee. Schwarzenegger wants to eliminate all funding for parks.

The latest tax proposal comes after six Republicans broke ranks with their party in February and approved $14 billion in tax increases to end a four-month impasse over how to close what was then a record $42 billion deficit. To fill that gap, lawmakers also agreed to cut $15 billion in spending.

Lawmakers Want IRS To Suspend Tax Shelter Penalty

Lawmakers are asking the IRS to suspend tax shelter penalties, which are hitting some small businesses with fines as much as $300,000, while they work out ways to reduce them. The Associated Press recently published an interesting article on the story, check out a snippet of it below.

Some small businesses are being hit with big fines for not disclosing the use of questionable tax shelters to the IRS, an unintended consequence of a law aimed at corporations that use the shelters to avoid taxes.

The penalties, which can reach $300,000 a year, are automatic under the law. But a bipartisan group of lawmakers asked the IRS Monday to temporarily stop imposing them while they work on legislation to reduce them.

A 2004 law setting up the automatic penalties was designed to stop large corporations from exploiting tax shelters known to be illegal. But the lawmakers said some small businesses have been penalized for using the tax shelters to reap tax savings that are smaller than the penalties.

The lawmakers, led by Sen. Max Baucus, chairman of the Senate Finance Committee, said the penalties are excessive.

"We're asking the IRS to temporarily suspend the collection of certain penalties while we work on legislation," said Baucus, D-Mont. "I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive."

The lawmakers sent a letter Monday to IRS Commissioner Doug Shulman, asking him to temporarily suspend efforts to collect penalties that exceed the tax benefits achieved through the tax shelter.

The letter also was signed by Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee; Rep. John Lewis, D-Ga., chairman of the House Ways and Means Subcommittee on Oversight; and Rep. Charles Boustany of Louisiana, the top Republican on the subcommittee.

"When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent," Grassley said. "The penalty should be commensurate with the transgression."

Internal Revenue Service spokeswoman Michelle Eldridge said the agency was reviewing the lawmakers' request.

Do You Owe the IRS?

For those of you who do not know, I recently became a contributing author to WomenEntrepreneur.com. My first article on how to know if you owe the IRS was published on Friday, and you can check out some of the article below, with the remainder here.

Entrepreneurs have a lot in common: drive, ambition, creativity and--many times--tax debt. Tax laws are complicated for everyone, and doubly so for enterprising business owners. There are countless ways to get in trouble. But don't panic--there are also several ways to get out of trouble and resolve your tax debt.

The longer you wait to resolve a debt, the more interest and penalties the IRS will tack on. So even if you don't have the money to fully pay your tax bill, you need to take action. Call the IRS and find out the full extent of the debt. Don't be afraid to check the math and question the totals. Simple mistakes on a tax return can result in big tax bills.

Once you've verified that your tax debt is legitimate, and you agree on the amount owed, it's time to consider your options. The option you select depends on your financial situation.

1. Fully pay. This may seem obvious, but the easiest way to resolve an IRS debt is simply to pay it in full. Consider selling a rarely used car or recreational vehicle in order to satisfy the IRS. While this is inconvenient and unpleasant, consider the alternative: IRS collections hounding you day and night, putting liens and levies on everything you own. Doing without a luxury item sounds a lot more appealing, don't you think?

2. Offer in compromise. If you can't pay off your entire tax debt, you might qualify for an offer in compromise (resolving the entire debt for less than is owed). Why would the IRS accept less than what is owed? Well, think of it the way a business owner might: Collection activities cost money. If you can get a lump-sum payment for as much as you can ever hope to collect, even if it's less than the total, there is a benefit in cutting your losses. While this is an excellent way to resolve a tax debt without destroying your finances, it is very difficult to qualify.

Raise My Taxes

From the NewYorkTimes.com:

We live in a country where the most visible support for raising taxes on the rich comes from … the rich. So much for the seeming dictates of economic rationality and the logic of class war.

The Wealth for the Common Good Web site features pictures of some of our most economically successful citizens calling for higher taxes on themselves.

Reed Hastings, chief executive of Netflix, published an commentary in this paper calling for an increase in the top federal marginal tax rate to 50 percent on all income over $1 million per year. He insisted it would not reduce his incentive to work.

At the opposite end of the income spectrum, passionate opposition to the estate tax is expressed by men and women who face no risk of ever paying it. The progressive group Citizens for Tax Justice observes that the percentage of households with income under $30,000 complaining that federal income taxes are too high exceeds the percentage even paying federal income taxes.

Such patterns could be explained by false consciousness (a misperception of one’s economic interests) or moral conscience (the fortitude to rise above such interests). Maybe the media just like man-bites-dog stories; maybe powerful political interests distort media coverage. None of these possible explanations is mutually exclusive.

The tax system in this country is pretty complicated, and nobody knows how well people understand their place in it. David Brooks once claimed that 19 percent of Americans thought they were in the top 1 percent of the income distribution in 2000.

A more accurate interpretation of the polling data he was referring to suggests that 19 percent thought they would benefit from tax cuts to the top 1 percent. This is almost equally implausible.

On the other hand, households with an income of $250,000 are sometimes described as having more in common with the poor than with the very rich even though they sit squarely in the top 5 percent of the income distribution.

Misreporting of tax issues is widespread. The watchdog group Media Matters documents a major error on ABC News last March, when commentators mistakenly implied that a proposed increase in marginal tax rates (applying only to income over $250,000) would apply to all income.

The Center on Budget and Policy Priorities points to superficial reporting on Tax Freedom Day, a term copyrighted by the Tax Foundation to describe the day by which the average taxpayer has earned enough money to cover his or her tax liability for the year. About 80 percent of Americans pay less than the average, which is pulled up by a relatively small number of very high payers. As a result Tax Freedom Day comes earlier in the year for most Americans than for the average.

Differences in federal income tax rates are greater in theory than in practice. Warren Buffett famously observed that he paid a lower percentage of his income in federal taxes than his office staff in 2007, largely because income from capital in the form of dividends and capital gains is taxed at a lower rate than income from labor in the form of earnings.

The highly educated as well as the highly rich can probably work the tax system better than others. Justin Wolfers, an economist at the University of Pennsylvania, reported in a Freakonomics post that he also paid proportionately less in taxes than his administrative staff.

Mr. Buffett offered to wager $1 million with anyone on the Forbes’ richest 400 individuals list that the average share of their income paid in taxes was lower than the average share paid by their receptionists and secretaries. He got no takers.

Mr. Buffett has peeved many of his fellow billionaires by giving much of his money away as well as advocating higher taxes for the rich. The man has so much class that he can talk about class war. (He explained, in 2006, that his class was winning).

But our tax system itself confounds class interests by its complexity as well as by taxing income from labor so much more heavily than income from capital. Maybe some rich people recognize a good deal when they see one.

A California Tax On Oil Drilling? Why Not?

Los Angeles Times writer Michael Hiltzik recently posted an interesting article on how taxing California oil drilling could be highly lucrative for the state’s struggling economy. You can find a clip of his story below, or check out the full post here.

The most persistent misconception about Californians is that we hate to raise taxes. The truth is that we adore raising taxes—as long as someone else is paying, that is.

So nonsmokers vote to raise cigarette taxes, teetotalers to raise liquor taxes. The middle and working classes want to hike taxes on the rich, who are happy to return the favor.

Yet this only compounds the mystery of why we're so resistant to raising taxes on perhaps the biggest, fattest target of all: the oil industry.

At least twice since 1981 Californians have considered proposals to impose a so-called severance tax on oil -- a levy on every barrel that drillers take out of the California ground. Both times they went down to defeat -- most recently in a $150-million initiative campaign that set a new standard for obscenity in campaign finance, thanks to Chevron and its fellow oil companies. The 2006 defeat of Proposition 87, which would have steered the tax proceeds to alternative fuel programs, preserved California's status as the only one of the 22 major oil states to give the industry a free ride. And we're the third-biggest producer in the country.

How embarrassing is it for California to be hanging out there alone? That outstanding anti-tax crusader, Alaska Gov. Sarah Palin, in 2007 raised her state’s tax to 25% of the value of extracted oil and gas. Proposition 87 would have capped California's levy at 6%. So even if it had passed, we'd still be suckers.

With the state's fiscal disaster having concentrated the minds of political leaders as never before, the oil severance tax is back on the table in Sacramento. We can expect the oil industry to trot out the same arguments it employed to defeat the tax the last time, so to save time it might be helpful to deflate them now.

At the current world benchmark price of about $70, the 6% tax contemplated by Proposition 87 would have generated more than $1 billion a year from that haul.

Consider some "what if" scenarios: At last year's peak benchmark price of $130 for California crude, the take would be nearly $2 billion. Palin's tax rate of 25% would generate $4 billion at a $70 price and nearly $8 billion at the top.

An important aspect of the severance tax is that we'd better collect it now, while there's still something to tax. California oil production has declined steadily from its 1985 peak of 424 million barrels. Since 2002, according to federal statistics, the state’s known reserves have been depleted to about 3.3 billion barrels from more than 3.6 billion.

The severance tax might be offset by reductions in property and corporate income taxes paid by oil companies. But an analysis of Proposition 87 prepared in 2006 by the nonpartisan Legislative Analyst's Office found that such offsets would amount to a mere fraction of the severance tax, so the state would still come out way ahead.

Let's be candid about the rationale for the severance tax. States levy it because they can: The oil's not going anywhere. Oil companies can't pack it up and move it to a state where rates are lower. It creates wealth -- enormous wealth at times of elevated market prices, like now -- and any jurisdiction in need of funds to cover services it provides to its residents has a perfect constitutional right to claim a piece of it, as it claims a percentage of the value of real estate and income (earned, unearned and inherited).

Swiss Seek U.S. Tax Deal Before UBS Case Continues

From Reuters.com:

A looming court case against Swiss bank UBS AG could prove a stumbling block to the United States and Switzerland clinching a tax agreement this week.

Switzerland, whose private banks manage around $2 trillion of foreign wealth, aims to secure 12 new bilateral tax deals by the end of 2009 which could allow it to be removed from an OECD "grey list" of states which need to improve tax cooperation and avoid possible sanctions from G20 nations.

It has already secured five agreements, with Denmark, Norway, France, Mexico and one other unnamed country, and plans to put the issue to a referendum. Talks between Swiss and U.S. officials restart in Washington on Tuesday.

Swiss President Hans-Rudolf Merz has asked U.S. Treasury Secretary Timothy Geithner to drop a tax evasion case against UBS in return for a new tax accord, which might struggle for ratification in Switzerland if the U.S. Internal Revenue Service (IRS) persists with its pursuit of the bank.

"We believe there has to be some kind of agreement before July 13 when the IRS and UBS are due to take part in a mini-trial," said analyst Teresa Nielsen at Vontobel, adding this could even come in an 11th hour deal on July 12.

The Truth About Estimated Quarterly Tax Payments

The June 15^th deadline for the second quarterly 2009 tax payment is only a few days away. If you are required to make a payment, and are looking to save money this year, then check out this entry from the Roni Deutch Tax Center – Tax Help Blog with details on how you can calculate your own payment.

Who needs to make estimated quarterly tax payments?

According to the IRS, “in most cases, you must make estimated tax payments if you expect

to owe at least $1,000 in tax for 2009 (after subtracting your withholding and credits) and you expect your withholding and credits to be less than the smaller of:

90% of the tax to be shown on your current year’s tax return, or

100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)”

So basically, if you have any income over $1,000 that has not had federal taxes withheld then you will need to make quarterly payments. This applies to any source of revenue, from self-employment earnings to interest and dividend payments.

When are they due?

Some first-time quarterly taxpayers may get a little confused, because the "quarterly" payments are not divided in to exact quarters. While the reason for this is unclear, just be sure to put the exact dates in bold letters on your calendar. That way you can avoid being hit with a late penalty.

For income earned Jan. 1—March 31, due by April 15

For income earned April 1—May 31, due by June 15

For income earned June 1—August 31, due by September 15

For income earned Sept. 1—Dec. 31, due by January 15

These are the due dates for quarterly payments, but do not forget you also have the option of making monthly payments. Some prefer the monthly option because the payments are much smaller and more manageable.

How do I calculate an Estimated Tax Payment?

Although it seems complicated at first glance, estimated quarterly tax payments are not all that difficult to calculate, and the whole process should take no more than an hour or two. To complete the calculations, you will need: last year’s tax return, a calculator, a pen, and piece of paper. There are a couple of ways to calculate how much you owe, and for more details you can download IRS Form 1040-ES, but the details below explain one of the simplest methods.

Discover your average tax rate by pulling out last year’s tax return. To do so, divide your income tax from last year (should be line 43 on an average 1040) by your adjusted gross income from last year (line 37). You then multiply this number by your total income for this quarter. If you are a self-employed individual, you will need to add additional costs for Medicare and social security, usually about 15.5%. For more details on calculating your payment, we highly recommend you seek advice from a professional tax preparer.

How do I make the payments?

Estimated quarterly tax payments, once estimated, are very simple to make. One way is to write a check for the amount and send it to the IRS along with a 1040-ES voucher form. You also have the option to make payments quickly online through the electronic federal payment system. Check out https://www.eftps.gov/eftps/ for more information.

Almost Half of Top Unions Have Underfunded Pension Plans

From the Washington Examiner.com:

Almost half of the nation’s 20 largest unions have pension funds that federal law classifies as “endangered” or in “critical” condition due to being underfunded, an Examiner review of federal actuarial reports shows.

Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those that fall below a 65 percent threshold are classified as “critical” under the Pension Protection Act of 2006.

Unions are required to file 5500 forms that record the financial health of their retirement plans, show that union pension funds have lost their financial footing over the past several years.

Eight of the largest unions have underfunded plans, according to the most recent 5500 reports, including the Service Employees International Union (SEIU), the United Food and Commercial Workers (UFCW), the International Brotherhood of Electrical Workers, the Laborers International Union of Northern America, the International Association of Machinists, the United Brotherhood of Carpenters, the International Union of Operating Engineers, and the National Plumbers Union.

The average union pension has resources to cover only 62 percent of what is owed to participants, according to the Pension Benefit Guarantee Corporation (PBGC). Less than one in every 160 workers is covered by a union pension with required assets.

These figures demonstrate that the liability challenge to the long term of health of union funds is systemic and across the board, said Brett McMahon, vice-president of Miller and Long, a Maryland-based concrete construction company.

Demographics figure prominently in the erosion of pension assets now that a smaller percentage of union workers are available to support an expanded group of retirees, McMahon said. Only 7.6 percent of private sector employees are members of a labor union, according to the Bureau of Labor Statistics.

The growing number of local and national union pensions that lack sufficient resources to cover their obligations could threaten the retirement security not just of union members, but also non-union employees if the proposed Employee Free Choice Act (Card Check) becomes law as currently written, McMahon said.

The Card Check legislation includes provisions both to abolish secret ballots in union representation elections in the workplace and to require a binding arbitration process that greatly favors unions, McMahon said.

“It’s like the Social Security problem on steroids,” McMahon said. “We are talking about a systemic, demographic problem where there are too few people paying in and the plans can’t earn enough returns to make up for the difference.”

McMahon believes “union members are not being told the truth about the condition of their retirement plans. The danger to non-union workers comes in with Card Check because there is nothing in it that prohibits an arbitrator from shoving companies and workers into these underfunded plans.”

Diana Furchtgott-Roth, a senior fellow with the Hudson Institute, is encouraging EFCA critics to focus more attention on the arbitration side of the bill in addition to “card check” for this same reason.

Multi-employer pension plans that are typically negotiated by unions should be of particular concern because they have less federal insurance than single-employer pension funds, McMahon pointed out. The PBGC only guarantees $12,870 in annual payments to a member of the multi-employer plan in contrast to $54,000 for members of a single-employer plan.

If anything, the current 5500 records vastly understate the deteriorating condition of union pensions because they do not include the stock market drop from last year, James Sherk a labor expert with the Heritage Foundation points out. Reports are typically not filed for more than 12 months after the end of a plan year.

“There are a lot of red zone notices going out now for funds that fell under the critical percentage for liabilities with the market meltdown,” he said. “This would not be evident under the most recent 5500s because they only cover through 2007.”

Get The Most Out of Your Homebuying Tax Credit

MSNBC.com recently posted a helpful article on how new homebuyers can get he most out of their home buying tax credit. You can find a segment of their article below, or check out the full story here.

When it comes to the $8,000 tax credit for first-time homebuyers, it seems there's a new program every week to help tap that money today.

The credit can be claimed on 2008 or 2009 tax returns. Homebuyers who get a loan backed by the Federal Housing Administration can use the money to cover closing costs and other fees, and at least 10 states offer ways to use the tax credit faster.

"There are some real neat tax planning strategies you can apply now," said Bob Meighan, vice president of TurboTax.

To be eligible, a buyer cannot have owned a home in the past three years. So if you're ready to buy, here are some tips:

INCOME CONSIDERATIONS: The tax credit, for home purchases made through end of November, comes with income thresholds, $75,000 for individuals and $150,000 for joint filers. After those limits, the credit begins to phase out. If you bought a home this year and expect your 2008 income to be lower than next year's, it makes sense to file for the credit this year using a 2008 amended return.

However, if you think your income will decrease, due to job loss, wage cuts or hour reductions, it makes more sense to file for the tax credit on your 2009 tax returns to get the most out of the credit, Meighan said.

TAX WITHHOLDING: Another benefit to waiting until 2009: You can increase your take-home pay. By taking the credit next year, you can change your tax withholding status with your employer now and get more on a paycheck-to-paycheck basis, Meighan said.

You'll be giving up a "fatter" tax refund next year, but each month you'll have more change in your pocket.

Also, don't forget to reduce your federal and state tax withholding to account for the tax deduction you can take on the mortgage interest and property taxes you pay.

Tax Preparation Licensing

What’s the difference between a hair stylist and a tax preparer? Every state requires hair stylists to be licensed, but most states let anyone call him or herself a tax preparer. Sound a little frightening? You bet it is. Because here’s the bottom line: taxpayers are ultimately responsible for their tax returns, not the person who prepared them.

Now, this is not the case in every state. California and Oregon have strict licensing requirements for anyone charging money for tax preparation. And you know what the IRS found? When people in Oregon are audited, their tax returns require far less adjustments than taxpayers in states without licensing requirements. Meaning, Oregonians’ tax returns are more accurate. The IRS attributes this to higher quality tax preparation.

If you are not 100% sure you can do your taxes correctly, finding a qualified professional is paramount to keeping compliant with tax laws. A simple mistake here and there can cause big trouble since the IRS heavily penalizes many “simple mistakes.” And unlike other service industries, if your tax preparer makes mistakes, or is downright dishonest on your return, they are not held accountable. Instead the taxpayer is on the hook for every penalty, fine, and any interest assessed.

Sounds a little ridiculous, right? Well, I agree. And so does the IRS, evidently. The IRS announced plans to introduce tax preparer regulations to President Obama. And I am thrilled the IRS is finally stepping up to help protect taxpayers from unlicensed preparers. While these new regulations are only in the planning stages right now, I would like to throw my unabashed support behind them.

Filing your taxes is probably the most important financial transaction you make every year. These new regulations would ensure every single taxpayer would receive competent tax preparation.

Apple Announces New iPhone; IRS to Let Your Employer Give You One Tax-Free

Yesterday after I blogged about financial issues early adopters of the new iPhone will encounter, I came across this entry from The Tax Professor Blog on another tax related iPhone issue. Check out the article below.

Apple yesterday announced its new iPhone 3G S. Also yesterday, the IRS announced that it was considering new rules that would allow your employer to give you one on a tax-free basis.

I previously blogged the draconian rule of § 280F that employers must include in an employee's W-2 income the value of employer-provided cell phones unless the employee satisfies onerous substantiation rules. Over the past few years, the IRS has increasingly raised this issue on audit, with the result that many employers, including universities, responded by no longer providing cell phones to employees (including professors).

In Notice 2009-46, the IRS requested comments on three alternative methods to simplify the substantiation rules for employer-provided cell phones:

Minimal Personal Use Method

• The entire amount of an employee’s use of an employer-provided cell phone would be deemed to be for business purposes if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee’s work hours.

• Alternatively, the second proposal would define a specified amount or type of “minimal” personal use that would be disregarded in determining the amount of personal use of an employer-provided cell phone. For example, “minimal” could be defined by reference to a particular number of minutes of use or for certain personal purposes.

Safe Harbor Substantiation Method

The IRS and Treasury Department are considering a safe harbor method under which an employer would treat a certain percentage of each employee’s use of an employer-provided cell phone as business usage. The remaining percentage of use would be deemed to be for personal purposes. For this proposal, the IRS and Treasury Department propose a business use percentage of 75 percent.

Statistical Sampling Method

The IRS and Treasury Department are considering a proposal that would allow employers to use statistical sampling techniques to measure an employee’s personal use of an employer-provided cell phone. In general, an employer could use an approved statistical sampling methodology similar to that provided in Rev. Proc. 2004–29, 2004–1 C.B. 918, to determine the percentage of personal use of employer-provided cell phones. The employer would multiply that percentage times the value of each employee’s total usage to determine the value of personal usage. The remaining portion of the employee’s usage would be deemed to be for business purposes.

As Home Values Fall, Your Property Tax Bill Probably Should Decline, Too

From Boston.com:

Why is it that so few taxpayers try to reduce their property taxes? As many as 60 percent of US homes may be overassessed, according to the National Taxpayers Union, but most homeowners don't know how the process works or that they can appeal.

You are likely to have more success this year, because in most areas there is a large disparity between assessed values from the boom years and depressed current market values.

Most likely your home's assessment is out of date since it is based on an average of local values that may go back three years. Since the height of the boom market, prices have declined by 20 to 50 percent.

Appealing your assessment is something anyone can do, yet it is important to do some preparation work. I have been able to lower or freeze my home's assessed value several times.

There's often little accountability in how assessors value your property. They make mistakes, and assessments may be wildly inconsistent in your community.

Check your home's legal description. Does it match precisely your house and lot characteristics? There may be errors in the records on the number of finished rooms, lot size, and interior square footage.

The second step is to determine whether you are fairly assessed. You will need to work out whether similar houses sold at lower prices than your home's current market value. Are there any local features that will reduce your property's value? Railroads, highways, landfills, easements, and rezonings (to commercial) count.

You can present these details to your assessor before you file a formal appeal, but don't expect him to give you a reduction. Most states have bodies that deal specifically with real-estate tax appeals at higher levels.

If you don't feel comfortable researching and filing your own appeal, you can hire an attorney. They are usually compensated by taking a percentage of your tax savings. Appeal boards tend to respect the opinion of a certified real-estate appraiser more than yours. Spend a few hundred dollars to present a recent certified appraisal.

Be professional and precisely document your case. Appeals boards are swamped right now. Ocean County, N.J., for example, is facing more than 14,000 appeals this year.

Typically, you will have just a few minutes to make your appeal. Keep in mind you have to meet strict filing deadlines. Don't expect an immediate reduction in property taxes. Taxing bodies still have the power to raise levies or float referendums if they need funds. Your taxes may rise - even in this market.

If the deadline for appeal has passed this year, start building your case for next year. Definitely mount a challenge if you are in the highest property-tax states - such as Massachusetts.

Calif. Mayors Urge Schwarzenegger To Spare Cities

According to BusinessWeek.com, California mayors are urging Governor Arnold Schwarzenegger to consider local governments when making plans to close the budget deficit. Check out a portion of their article below.

The mayors of some of California's largest cities on Tuesday asked Gov. Arnold Schwarzenegger to avoid undermining local governments as he and lawmakers seek to close the state's $24.3 billion budget deficit.

Los Angeles Mayor Antonio Villaraigosa led a group of mayors from San Diego, Sacramento and Fresno who came to the Capitol to meet with the governor. They said the state should repay cities if it takes any of their tax revenue.

Schwarzenegger later said nobody is pleased with the state's fiscal condition but that tough decisions have to be made.

In another development Tuesday, the state Senate leader said Democrats were beginning to form their own plan to address the deficit, including fewer cuts than Schwarzenegger has proposed and closing some corporate tax loopholes.

Part of the governor's proposal to eliminate the shortfall calls for the state to borrow $1.9 billion from property tax collections and reduce the local share of the gas tax by $744 million.

The mayors said taking gas-tax money would be worse than borrowing from property taxes because the state would not be obligated to repay it. The state must repay local governments within three years, with interest, if it borrows local property taxes.

"One of our core principles is that any plan that pulls tax revenues from cities must be accompanied by a plan to get that money back into the coffers of local governments," Villaraigosa said during a news conference.

In addition to taking the gas tax from local governments, the Legislature's budget analyst has recommended siphoning even more local money from gasoline sales. It is unclear whether that proposal will be adopted by lawmakers.

San Diego Mayor Jerry Sanders said his city already has cut 18 percent from its $1 billion general fund. The state is threatening to take revenue worth another 7.5 percent.

He said the loss of the gas tax alone would mean 120 fewer police officers and 120 fewer firefighters for San Diego.

"We're here to call on the legislators and to call on the governor to balance the budget without balancing it on the backs of cites, counties and school districts," Sanders said.

Schwarzenegger disputed the claim that public safety would have to be cut if the state reduced gas tax revenue to cities and counties because that money is dedicated for transportation projects.

"One has nothing to do with the other," the governor said.

Michael Cohen, an analyst in the Legislative Analyst's Office, said cities that can defer road maintenance might not be hurt by the state's actions. Others may have to take money away from police or fire services to pay for emergency transportation projects, he said.

Cohen noted that cities still will receive federal money.

Senate Democratic Leader Darrell Steinberg said Tuesday that lawmakers were working on a budget plan that would not require local borrowing.

He said Democrats are working on their own budget plan that closely follows the proposed budget Schwarzenegger introduced earlier this month.

Americans' Net Worth Shrinks $1.33 Trillion In 1Q

From BreitBart.com:

American households lost $1.33 trillion of their wealth in the first three months of the year as the recession took a bite out of stock portfolios and dragged down home prices.

The Federal Reserve reported Thursday that household net worth fell to $50.38 trillion in the January-March quarter, the lowest level since the third quarter of 2004. The first-quarter figure marked a decline of 2.6 percent, or $1.33 trillion, from the final quarter of 2008.

Net worth represents total assets such as homes and checking accounts, minus liabilities like mortgages and credit card debt.

The damage to wealth in the first quarter came from the sinking stock market. The value of Americans' stock holdings dropped 5.8 percent from the final quarter of last year.

Another hit came from falling house prices. The value of household real-estate holdings fell 2.4 percent. Collectively, homeowners had 41.4 percent equity in their homes in the first quarter. That was down from 42.9 percent in the fourth quarter.

The latest snapshot of Americans' balance sheets was contained in the Fed's quarterly report called the flow of funds.

Despite the drop, the speed at which net worth shrunk slowed to start the year. During the recession's deepest point in the October-December period, Americans' net worth fell 8.6 percent, according to revised figures.

With wealth declining and unemployment rising, there are questions about how consumers—the lifeblood of the economy—will behave in the coming months.

If they continue to spend, even at a subdued pace, the recession likely will end this year as predicted by Fed Chairman Ben Bernanke and other economists. However, if consumers hunker down and cut spending again, that could delay any recovery. In the final quarter of last year, Americans slashed spending at an annualized rate of 4.3 percent, the most in 28 years.

Still, there was some encouraging news on consumer spending Thursday.

Retail sales rose 0.5 percent in May, following two straight monthly declines, the Commerce Department reported. Meanwhile, the number of newly laid-off workers filing for unemployment benefits fell last week by 24,000 to 601,000, the lowest level since late January.

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Tax Tips for Recent College Graduates

It’s June again, and that means thousands of students will be graduating college and entering the job market. Now that the stress of school and finals is over, these graduates will now have to take on the stress of real life finances, and taxes. However, with the right information and guidance tax planning can be surprisingly easy. To help any of my readers who have either recently graduated themselves, or know someone who will be soon, I have put together the following list of tax tips for college graduates.

Job Related Relocation

Everyone knows that the job market is not as good as it once was, and this can be frightening for a new graduate entering the workforce. Fortunately, there is a helpful tax deduction that can be very helpful if you are required to relocate to a job 50 miles or more away. However, the rules are somewhat complicated and you might want to speak with a tax professional to make sure your expenses qualify. For example, gasoline and hotel expenses can be claimed, while food cannot.

Avoid Credit Predators

Although this is not technically tax advice, it is a good idea to beware of creditors that prey on recent college graduates. Credit card companies aggressively target college students with on campus promoters, and will continue to do so after graduation. If you avoid opening too many accounts, then you will have extra money to make sure you can pay your full tax liabilities.

Student Loan Interest

If you took out any student loans to help you pay for college then you can now take advantage of the student loan interest deduction. It allows you to subtract the interest paid on your loans, which can be quite a chunk of change for many recent graduates. However this deduction does begin to phase out once your income reaches a yearly total of $65,000. For more information, check out page 28 of this IRS publication.

Standard Deduction vs. Itemizing

Most college graduates will want to take the deduction of $5,450. If you are a married graduate, you can take the joint deduction of $10,900, and a heads of household can claim $8,000. Taking the standard deduction will make preparing your return considerably easier, but you should also consider the benefits of iteming your return. If you think your total number of deductions and credits will exceed your standard deduction, then you might want to itemize for maximum savings. This may seem difficult, but most tax professionals – and even tax preparation programs – can easily tell you if taking the standard deduction would benefit you or not.

Charitable Donations

While any taxpayer can claim this credit, the charitable contributions deduction can be especially useful to many college graduates. If you donated a lot of your old books, or had to downsize to relocate for a new job, then be sure to keep track of all the items you donate. You can deduct the value of all items you donate, as long as you itemize your return and have proof of your donation.

Self-Employment

This year more than ever, college graduates – especially those majoring in a technology related field – are considering self-employment. Luckily for them, there are dozens of tax credits and deductions out there for self-employed individuals. For more information, check out 10 Tax Tips for Self-Employed Individuals on the Roni Deutch Tax Center Tax Help Blog.

A New Federal Tax Reform Panel

From Williams Tax Planning Blog:

Obama has appointed Paul Volcker to head a panel that will make recommendations for reforming our nation's tax laws. Volcker is also the head of the President's Economic Recovery Advisory Board.

The advisory panel will consider ways to simplify the tax code and reduce tax evasion, and will make recommendations to the President by December 4th, 2009, according to a White House briefing.

The last time we had any serious consideration for tax reform was in 2005 when President Bush appointed a panel of advisors to come up with simplified tax systems. Those recommendations were never implemented. There is a strong suspicion that recommendations coming out of this new tax reform panel might not fare any better. Rosanne Altshuler, who worked as the chief economist on the 2005 panel, fears that Paul Volcker and his team might be too constrained,

"President Obama has said that no one making less than $250,000 could pay higher taxes under any new reform. That means ninety-five percent of taxpayers can’t pay additional tax, even if it would result in a more efficient system, decrease inequities, or make their lives much simpler. At a time of monster deficits, that pretty much rules out any sensible reforms."

Ten Banks Allowed To Pay Back TARP

Ten banks have been allowed to pay back their TARP (Toxic Asset Relief Program) funds, reports CNNMoney.com. The decision will return an expected $68 billion of federal money to taxpayers. Check out a segment of their story below.

Ten leading banks won approval to repay money from the government's controversial TARP program, regulators said Tuesday, which could represent approximately $68 billion in bailout funds returned to taxpayers.

The Treasury Department, which has overseen the $700 billion Troubled Asset Relief Program, did not indicate which banks were included in that group, although most lenders confirmed the news separately.

Eight of the nine banks that were found to not need new capital following the government's bank stress tests last month made the list. JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), American Express (AXP, Fortune 500), Bank of New York Mellon (BK, Fortune 500), State Street (STT, Fortune 500) as well as regional banking giants Capital One (COF, Fortune 500), BB&T (BBT, Fortune 500) and U.S. Bancorp (USB, Fortune 500) all said they will pay back TARP funds. (Insurer MetLife also was not required to raise capital but it did not receive any TARP money.)

Investment bank Morgan Stanley (MS, Fortune 500), which was the only financial firm that regulators did ask to raise money after the stress tests, confirmed it also won approval from the Treasury Department to pay back $10 billion.

Chicago-based Northern Trust (NTRS, Fortune 500), which took in $1.576 billion under the program but was not part of the bank stress tests, also announced Tuesday it is paying back TARP funds.

So far, the Treasury Department has allowed nearly two dozen small, mostly community-based lenders to redeem the government's preferred shares, representing nearly $1.9 billion in taxpayer money.

Should the latest banks agree to redeem the company's preferred-shares the government acquired last fall, that would represent approximately another $68 billion in TARP repayments.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

Proceeds received from those 10 banks will be applied to the Treasury Department's general account, the agency said Tuesday, some of which be will used to promote financial stability should the economy take a turn for the worse. A portion of those funds will also be used to reduce Treasury's borrowing and the nation's rapidly rising level of debt.

The banks that buy back the government's stake will also be able to repurchase the warrants, or rights to purchase shares at a future date, the government acquired when it injected capital into many of these banks late last year.

Treasury said those obligations could be purchased at "fair market value", but did not offer details on how that would be determined.

There has been talk that the government may auction those warrants on the open market in order to quell criticism about their pricing. Some have charged that allowing banks to redeem warrants at too cheap of a price would be to the disadvantage of U.S. taxpayers who stand to make significant gains should bank stocks continue to move higher in the months and years ahead.

Large lenders have been working particularly hard to break free from the TARP program for several months. Many have raised billions of dollars in fresh capital in recent weeks and issued debt without government backing.

Obama Tells American Businesses to Drop Dead

From Bloomberg.com:

If there were a power ranking of U.S. companies, like the ones compiled by football writers for National Football League teams, Microsoft would surely be first or second to Google. But last week, Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted.

“It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay?

At issue is Obama’s policy to end the deferral of multinational taxation.

The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.

Tax Burden

U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.

The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.

Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.

Encourage Overseas Sales

Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.

It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.

Understanding The House Democrats’ Health Care Bill

Political blog KeithHennessey.com recently published an in-depth analysis on understanding the House Democrats’ new health care bill. I’ve included a clip from the article below, but be sure to check out his full post here.

Yesterday I posted and described the draft Kennedy-Dodd health care bill. Today I would like to do the same for an outline produced by House Democrats.

Here is a three-page outline of “Key Features of the Tri-Committee Health Reform Draft Proposal in the House of Representatives,” dated yesterday (June 8, 2009).

The three committees are:

The House Ways & Means Committee, chaired by Rep. Charlie Rangel (D-NY). The Health Subcommittee is chaired by Rep. Pete Stark (D-CA).

The House Energy & Commerce Committee, chaired by Rep. Henry Waxman (D-CA). The Health Subcommittee is chaired by Rep. Frank Pallone, Jr. (D-NJ).

The House Committee on Education & Labor, chaired by Rep. George Miller (D-CA). The Health, Employment, Labor and Pensions Subcommittee is chaired by Rep. Robert Andrews (D-NJ).

The document suggests this is a joint product of the three committees and/or their subcommittees. My sense, however, is that it is Speaker Pelosi who is driving the bus. This is in contrast to the Senate, where the committee chairmen (Kennedy/Dodd and Baucus) appear to have the pen, in less well-coordinated efforts.

Kennedy-Dodd and the House bill outline are remarkably similar. Whether this represents House-Senate coordination or parallel thought processes is unclear.

I think the easiest way for me to present the House bill outline is in comparison with the Kennedy-Dodd bill. So here my description from yesterday of the Kennedy-Dodd bill, with today’s comparison to the House bill outline in red. I hope it’s comprehensible and useful this way. If you read yesterday’s post, you can skim the text in black and focus on the new text in blue.

Here are 15 things to know about the draft Kennedy-Dodd health bill and the House bill outline.

1. The Kennedy-Dodd bill would create an individual mandate requiring you to buy a “qualified” health insurance plan, as defined by the government. If you don’t have “qualified” health insurance for a given month, you will pay a new Federal tax. Incredibly, the amount and structure of this new tax is left to the discretion of the Secretaries of Treasury and Health and Human Services (HHS), whose only guidance is “to establish the minimum practicable amount that can accomplish the goal of enhancing participation in qualifying coverage (as so defined).” The new Medical Advisory Council (see #3D) could exempt classes of people from this new tax. To avoid this tax, you would have to report your health insurance information for each month of the prior year to the Secretary of HHS, along with “any such other information as the Secretary may prescribe.”

The House bill also contains an individual mandate. The outline is less specific but parallel: “Once market reforms and affordability credits are in effect to ensure access and affordability, individuals are responsible for having health insurance with an exception in cases of hardship.”

2. The Kennedy-Dodd bill would also create an employer mandate. Employers would have to offer insurance to their employees. Employers would have to pay at least a certain percentage (TBD) of the premium, and at least a certain dollar amount (TBD). Any employer that did not would pay a new tax. Again, the amount and structure of the tax is left to the discretion of the Secretaries of Treasury and HHS. Small employers (TBD) would be exempt.

The House bill outline also contains an employer mandate that appears to parallel that in Kennedy-Dodd: “Employers choose between providing coverage for their workers or contributing funds on behalf of their uncovered workers.”

Continued here…

Some Early iPhone 3G S Adopters Subject To $200 "Apple Tax"

From Cnet.com:

Since last year's announcement of the iPhone 3G, customers have grown accustomed to a price tag heavily subsidized by AT&T. Similarly, the just-announced iPhone 3G S will be offered in a 16GB model for $199 and a 32GB model for $299--but only if you are adding a line to your AT&T service or you are a new AT&T subscriber. Early iPhone 3G adopters seeking to upgrade will face serious sticker shock.

If you purchased an iPhone 3G on or after July 11, 2008, you will not be able to purchase an iPhone 3G S at a reduced price until you reach your one-year anniversary. (We've determined this cutoff by checking a sampling of existing AT&T accounts via AT&T's myWireless Account Web site.) If you want the new iPhone 3G S early, you will have to pay an additional $200 for the hardware, raising the cost of a new iPhone to $399 and $499 respectively. The only alternative to this price increase is to wait for your first iPhone anniversary before buying. On top of the price increase, you will--as expected--have to sign another two-year service agreement.

The pricing history of the iPhone has been tumultuous from the beginning, hitting its pinnacle quickly: $599 for an original 8GB iPhone. Apple and AT&T significantly reduced its price shortly thereafter, angering enough iPhone buyers that Apple gave away $100 rebates to the angry hordes.

Is Apple and AT&T trying to take advantage of loyal customers by releasing the new iPhone 3G S nearly a month before existing customers--many who are loyal and anxious to upgrade--are eligible for reduced pricing?

“Told Ya So,” Says Sarah Palin

From Drudge Report:

Sarah Palin hits FOXNEWS tonight for the big 'Told Ya So' interview, the DRUDGE REPORT has learned. As President Obama vows to spend the 'stimulus' faster, Governor Palin tells host Sean Hannity: 'You gotta quit digging that hole!'

HANNITY: What do you make of – look at the state of the economy now...

PALIN: Well, when you consider that the federal government is about eleven trillion dollars in debt, and we’re borrowing more to spend more… it defies any sensible economic policy that any of us ever learned through college. It defies economy practices and principles that tell ya ‘you gotta quit digging that hole when you are in that financial hole’

Palin continues:

"America is digging a deeper hole and how are we paying for this government largesse. We’re borrowing. We’re borrowing from China and we consider that now we own sixty percent of GENERAL MOTORS – or the U.S. government does… But who is the U.S. government becoming more indebted to? It’s China. So that leads you to have to ask who is really going to own our car industry than in America."

HANNITY: You know but it goes back - It does go back a little to the campaign. I mean, ‘spread the wealth, patriotic duty…’

PALIN: Kind of a ‘we told ya so’.

HANNITY: Well, is that how you feel?

PALIN: That’s how I feel! I feel like… and I think that more and more constituents are going to open their eyes now and open their ears to hear what is really going on and realize ok… Maybe we didn’t have a good way of expressing that, or articulating that message of ‘here is what America could potentially become if we grow government to such a degree that we cannot pay for it and we have to borrow money from other countries, some countries that don’t necessarily like America.

And this many months into the new administration, quite disappointed, quite frustrated with not seeing those actions to rein in spending, slow down the growth of government. Instead Sean it is the complete opposite. It’s expanding at such a large degree that if Americans aren’t paying attention, unfortunately our country could evolve into something that we do not even recognize.

HANNITY: Socialism?

PALIN: Well, that is where we are headed. That is where we have to be blunt enough and candid enough and honest enough with Americans to let them know that if we keep going down these roads… nationalizing many of our services, our projects, our businesses, yes that is where we would head. And that is why Americans have to be paying attention. And we have to have our voices heard. And ultimately it need to be our will, the American people’s will imposed on Washington, instead of the other way around.

The interview is set to air tonight on FOXNEWS, 9 PM ET.

IRS Launches Tax Return Preparer Review

According to their newest press release, the IRS Commissioner Doug Shulman announced “that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.”

Some of the potential recommendations could focus on a new model for the regulation of tax return preparers; service and outreach for return preparers; education and training of return preparers; and enforcement related to return preparer misconduct. The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.

“Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified,” Shulman said. “At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system.”

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities — such as enrolled agents, lawyers and accountants — as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

“We plan to have a transparent and open dialogue about the issues,” Shulman said. “At this early and critical stage of the process, we need to hear from the broadest possible range of stakeholders.”

Later this year, the IRS plans to hold a number of open meetings in Washington and around the country with constituent groups.

More information, including schedules and agendas for public meetings, will be posted on the “Tax Professionals” page on this Web site and will be communicated to stakeholder groups.

Time For State, U.S. To Tax The Internet

From the SFGate.com:

Back in the dial-up days of the Internet, the remarkable new technology seemed certain to change our lives - if only it could grasp a fragile hold on the marketplace. Convinced that they were working for the greater good, politicians of all stripes agreed to maintain the Internet as a "tax-free" space, enabling consumers to grow accustomed to communicating, researching and shopping online.

As an editorial board, we championed this approach for many years. "The current moratorium on Internet taxes is justified," we wrote in 1999. "It gives the fledgling e-commerce industry a chance to develop and encourage innovation on the Internet."

Times have changed.

Ten years later, it's no longer possible for us to argue that anything about the Internet is fledgling. The technology has changed the way we learn, make friends - even find spouses. E-commerce, once a tiny segment of the American retail landscape, has done so well that it's ravaged long-standing brick-and-mortar business models.

It's also ravaged government tax coffers. In 2007, California alone lost about $1.2 billion in state and local taxes to customers using the Internet to make purchases from out-of-state retailers. Though taxpayers are legally bound to pay sales tax on these purchases, the reality is that no one reports it, and the state has no way to collect.

The economic downturn, combined with a genuine concern for struggling local retailers, has politicians all over the country taking a new look at taxing Internet purchases. We agree that the time has come.

There's no more rationale for out-of-state retailers to get a tax subsidy that our own local retailers aren't getting.

The ideal solution would be for Congress to institute a federal law allowing states to force out-of-state retailers to collect sales tax. Unfortunately, the efforts seem to be stalled at the federal level - that's where Internet industry and anti-tax advocates have been able to most effectively block legislation.

Their arguments are thin. They claim it would be too complicated. Sure, it wouldn't be easy. There are 50 states, and each of them has different laws about which items can be taxed and for how much. But so far, 36 states have signed on to the Streamlined Sales Tax Project, which would unify tax rules and definitions across state lines. Once all 50 states sign on, it would be fairly easy for some enterprising software designer to create a program for e-commerce retailers. And all 50 states are likely to sign on quickly if they know that federal legislation is pending.

Increasingly, though, penniless state legislatures are seeking to force Congress' hand. New York was the first state to require out-of-state online companies to collect sales tax on purchases sent to New York addresses - provided that the companies had at least one in-state agent or affiliate. The results of that law have been mixed: Many out-of-state online companies simply dumped their affiliate programs and continued avoiding taxes. But New York has collected more than $70 million in less than two years. And so far, the federal courts have upheld the statute.

Emboldened by New York's semi-success, Assemblywoman Nancy Skinner, D-Berkeley, has authored AB178, which would do the same thing in California. AB178 wouldn't be the full answer to California's sales tax collection problems. Like New York, we'd see some businesses simply dumping their affiliate programs, and they might choose to take the state to court. Both plans are inelegant solutions to a problem that must be dealt with at the federal level. But state legislators should still pass AB178, if for no other reason than it would push Congress to tackle the problem head-on.

"I do think, frankly, that if (AB178) were to pass, Congress would have to take some action on this," said Lenny Goldberg, executive director of the California Tax Reform Association. "Between California and New York, you'd see the discussion taking hold. AB178 would speed up the process."

AB178 is sitting in the Assembly Revenue and Taxation Committee. Recognizing that she has an uphill battle on her hands, Skinner designed it to be a two-year bill. But given California's fiscal disaster, legislators should recognize the urgency of passing a bill that would level the playing field for local retailers and force consumers to pay a tax they should be paying anyway.

Billionaire Tax Felon Says UBS Lied in Pledge to Report to IRS

A billionaire involved in the UBS tax scandals is saying that UBS lied to him by saying they would report his earnings to the IRS. You can read a segment of the Bloomberg article covering the story below, or find the full segment here.

California billionaire Igor Olenicoff had already invested $200 million with UBS AG in 2001 when his Swiss bankers ushered him to an underground vault in Geneva.

Olenicoff, a real estate developer with a taste for yachts and Russian art, saw floor upon floor of safe-deposit boxes. His private banker, Bradley Birkenfeld, and a colleague showed Olenicoff his own space for valuables.

“They said, ‘Whatever you want -- corporate stock, cash, gold, silver -- put it in here,’” says Olenicoff, 66, at the Newport Beach, California, headquarters of Olen Properties Corp., the company he founded in 1973. “It was that aura of legitimacy and secrecy. They say, ‘We’re the world’s largest wealth manager,’ so how do you question?”

Birkenfeld, 44, had spent years wooing Olenicoff, visiting his homes in Laguna Beach, California, and Lighthouse Point, Florida; cruising on his 147-foot (45-meter) yacht to Mayan ruins in Honduras; and flying on his Cessna Citation II jet.

Four years later, both men are admitted felons. Since December 2007, the billionaire and his banker have pleaded guilty to tax crimes.

The court cases open a door on the normally secretive world of dummy companies, offshore havens and phony financial filings that wealthy Americans often use to avoid paying U.S. taxes. President Barack Obama has proposed to end such tax breaks for U.S.-based multinational corporations and individuals within a decade.

‘Obligation of Citizenship’

“Most Americans meet their responsibilities because they understand it’s an obligation of citizenship,” Obama said on May 4. “Yet there are others who are shirking theirs. We shouldn’t let some citizens dodge their responsibilities, while ordinary Americans pick up the slack. Unfortunately, that’s exactly what we’re doing.”

The Olenicoff and Birkenfeld cases come amid a widening U.S. crackdown on offshore firms that cater to wealthy Americans. U.S. Senator Carl Levin, a Michigan Democrat, estimates the cost in unpaid taxes to the U.S. Treasury is $100 billion a year.

With evidence from the Olenicoff case and cooperation from Birkenfeld, U.S. prosecutors have been able to penetrate the veil of financial invisibility that Switzerland guards as a national treasure.

To avoid immediate prosecution, UBS, Switzerland’s second- largest bank by stock market value, behind Credit Suisse Group AG, agreed on Feb. 18 to pay the U.S. $780 million.

It renewed a pledge to stop unlicensed recruiting of customers in the U.S. and agreed to cooperate with investigators during 18 months of probation. The bank admitted in court that it had helped American clients dodge taxes from 2000 to 2007.

52,000 UBS Accounts

The bank turned over information on more than 250 customers -- an unprecedented breach of Switzerland’s bulwark of secrecy. The U.S. Internal Revenue Service is suing UBS in federal court in Miami to get the names of 52,000 American account holders who may have broken U.S. tax laws.

UBS is fighting back. The bank said in April 30 court filings that the U.S. efforts would force bank employees to violate Swiss criminal laws barring disclosure of secret account information. The Swiss government says the U.S. is trampling on its sovereignty.

Senators Introduce Bill Banning Wireless Taxes

From Fierce Wireless.com:

Two senators have introduced legislation that would put a five-year moratorium on wireless and cell phone tax increases.

The Mobile Wireless Tax Fairness Act of 2009, introduced by Sen. Ron Wyden (D-Ore.) and Sen. Olympia Snowe (R-Me.), would prohibit federal, state and local tax increases on wireless services and infrastructure. The bill has drawn support from Sen. John McCain (R-Ariz.), who along with other supporters of the bill, contends that it will help consumers and that wireless companies have been hit unfairly with taxes.

The average tax rate for goods and services is 7.07 percent, but federal, state and local taxes make up 15.9 percent of the average wireless bill, according to figures from Phoenix Business Journal. Between January 2003 and January 2007, the effective tax rate on wireless services increased four times faster than the rate for other taxable goods.

"It is very troubling that wireless consumers have been taxed four times more than other taxable goods and services over an almost four-year period," CTIA President Steve Largent said in a statement. "The Wyden-Snowe bill will protect consumers from new discriminatory taxes and fees while preserving existing revenue for states and localities."

Democrats Weigh Health Mandate as Obama Urges Taxing Wealthy

According to Bloomberg.com the Obama Administration and Democratic leaders in Congress are looking to increase taxes on the wealthy in this country in order to pay for a health care overhaul. Check out the text of their article below.

The Obama administration stepped up efforts to influence health-care legislation today as advisers David Axelrod and Austan Goolsbee appeared on television talk shows to discuss the issue.

The president is trying to avoid broad-based levies such as a Senate proposal to tax some employer-provided health benefits Axelrod said. Instead he is urging lawmakers to reconsider limiting all tax deductions for Americans in the highest tax brackets.

“He made a very strong case for the proposal that he put on the table, which was to cap deductions for high-income Americans, and he urged them to go back and look at that,” Axelrod said on the CNN’s “State of the Union.” Goolsbee, appearing on “Fox News Sunday,” said Obama is “mindful” about how “ordinary Americans are able to foot the bills” and never proposed taxing employee benefits.

House Democrats are weighing a new proposal in response to Obama’s call for legislation to be enacted by August. An outline of the plan obtained by Bloomberg News would require Americans to have insurance with some exceptions.

It would probably exempt those who can prove they can’t find an affordable policy. There could be a tax penalty for those with adequate financial resources who don’t elect to get insurance, according to the outline.

The outline suggests consumers who have individual health insurance policies that they like could keep them. Still, it says that “by and large” the nation’s market for individually purchased health insurance policies would move to a new federally operated exchange. It would permit both individuals and employees of small firms to buy policies at less expensive group rates.

“States will have the option to run a state exchange but the default will be a national exchange,” according to the outline.

Karen Lightfoot, a spokeswoman for House Energy and Commerce Committee Chairman Henry Waxman, a California Democrat whose panel is working on a proposal, said the document that is circulating is not the official work of the committee.

All House Democrats will be briefed June 9 on the details of a single piece of legislation that three House committees will work on, with the House slated to act by the end of July. The proposal is part of a broader push by Democrats in Congress to complete a revamp of the U.S. health-care system by an early fall timetable set by Obama.

Is a Value-Added Tax the Answer?

Let’s be honest, the economy is on shaky ground. All these hopes for financial recovery are slow to manifest themselves, and our nation is sliding quickly into debt. How can we stop this tailspin? The same way you get your own personal finances back on track. You reduce how much you spend, and you try to increase the amount of money you earn, right? When we are talking about our federal government, that means we either reduce the amount of money we spend on services (e.g. military, Medicare, and all those other public services that keep our society functioning) or we increase the amount of money the government takes in, by way of taxes. Neither of these sounds pleasant.

Frankly, with so many people out of work and suffering, cutting funding to all those services that are helping those in need will intensify the economic recession. On the other hand, how much more in taxes can we really afford to pay? What is left to tax?

This is where the discussion of a Value Added Tax (VAT) comes into play. This VAT would essentially be a national sales tax. While discussion of a national sales tax is certainly not new, the conversation has usually revolved around using the VAT as a replacement for our current income tax system. Not this time. Now, the government is talking about applying a VAT on top of our other tax burdens. Here’s why this is such a bad thing.

Any tax that is a flat percentage will always work as a regressive tax. That is, it hurts those with lower incomes much more than it does those with higher incomes. Of course, changes to the tax code could be made providing more deductions and credits for low income earners to offset the increased burden. But even this is imperfect. If someone barely making ends meet suddenly must pay 10% more on everything they buy, but will get some of it back once a year, this person will be running a deficit that will likely not be cured by their tax refund.

Not only that, but with our tax code so wildly confusing as it stands, why on earth would we do anything to make it even more complicated?

Needless to say, our government has a difficult job ahead. Somewhere they must find the funds to keep America moving forward, without taxing us all into the poorhouse.

20 Ways to Save Money this Summer

The summer season brings vacations, birthdays, graduations, and parties, which all cost extra money. However, there are several ways you can save this summer to survive this recession. To help my readers looking to save this summer so they can still enjoy the sunny weather, I have collected the following 20 easy tips to save money.

1. Adjust your Withholdings

The average taxpayer overpays the IRS by over $2,000 per year. It can make for a nice refund come tax season, but by adjusting your withholdings you can get more money each month. This can be especially helpful during the summer season.

2. Make a Summer Budget

Most people plan their summers in advance, so why not take it one step further and plan your entire summer budget as well? Then, try to stick to it as much as you can. You’ll be surprised how much you can save when you plan out a budget in advance.

3. Plan Vacations in Advance

Planning vacations well in advance will allow for you to get the best deals on hotels, air fair, and even tickets to attractions like Disneyland or Sea World. Check out websites like Travelocity.com and Expedia.com to search for early bird specials and bundle packages.

4. Always Ask for a Discount

If you plan to do any traveling this summer with your family, then you should get in the habit of always asking for a discount. Hotels, theme parks, museums, and car rental agencies always run unadvertised sales and specials. By simply inquiring about a discount you could save hundreds of dollars this summer.

5. Investigate Gas Prices

When traveling, a few miles can make a big difference in gas prices. There are a lot of sites – such as GasBuddy.com – that can help you plan your fuel stops on a road trip, so that you can be sure to get the best gas prices possible.

6. Plan Meals

In addition to planning gas stops in advance you could also decide where you are going to stop for meals. You could even try making easy meals in advance that you can eat at a park or rest stop.

7. Vacation with Friends

Vacationing with friends or family members means you can split gas prices, hotel rooms, and entertainment expenses. Which could cut the cost of your vacation in half instantly.

8. Coupon Clipping

Summer savings are infectious, and with the recent economy, there are even more deals out there to take advantage of. You can try clipping coupons from your local newspaper, or purchase a coupon book from a local non-profit group. It may seem silly, but you would be surprised how much money you can save by clipping coupons.

9. Hyper Mile

"Hyper-miling" is the newest gas-saving craze, which involves altering your driving behavior to extend your mileage. CNN.com recently posted an article on the topic that you can check out by clicking here.

10. Cook Outside

Using your oven and stove can heat up your house, and result in excess air conditioning expenses. By cooking more food on the BBQ you can drastically reduce your energy costs, and with energy rates going up this summer any reduction will help.

11. Programmable Thermostats

If you do not have a programmable thermostat for your A/C then you might want to get one. You can use it to schedule your A/C to come on just a few minutes before you get home. That way your house will still be comfortable when you arrive, but you will not have to pay to keep the A/X running all day.

12. Full Laundry Loads

When doing laundry, you should always find a full load to wash. It uses the same amount of water, and can reduce the total amount of loads you will need to wash.

13. Fill in Drafts

Needing to caulk and seal a few drafty areas around the house? Do not hesitate because of the costs… the energy you are loosing through those drafts will cost you more than a container of caulking.

14. Make Expensive Purchases Online

We all have friends of family members with summer birthdays, and if you are buying a pricey gift then you should try to buy it online. You can usually search out pretty good deals, just make sure to make your purchase early enough to account for shipping.

15. Party at Home

Purchasing pricey beverages and snacks that are sold at bars and clubs can add up very quickly. Entertaining at home more often can save you hundreds of dollars throughout the summer.

16. Family Shared Plans

If every one in your family has a cell phone, but they are on separate accounts, then you could be wasting hundreds of dollars per year. Ask your phone provider if they have family plans, and how hard it would be to switch.

17. Pack a Lunch

Estimates show that bringing your own lunch to work even a few times a week can save up to $100 per month. If you do not like cold sandwiches, then you could try bringing leftovers from the previous night’s dinner.

18. Turn the Lights Off

Whenever you have the A/C on you should always have your lights turned off. Most light bulbs emit heat, and on a sunny day you can let light in through the windows.

19. Donate and Deduct

Donating some unwanted winter clothes? Do not forget all clothes donations are deductible on your next tax return. It will not save you any money right now, but it will next April.

20. Unplug on Vacation

If you are going to be away from home for a while for vacation, then you should always unplug major electrical appliances such as computers and televisions. Even when they are off, they still use some electricity, so by unplugging them you can reduce your energy bill.

Photos from the 2nd Annual Roni Deutch Tax Center Franchise Convention

Yesterday I uploaded a new set of pictures to my Flickr Photo Stream with a dozen or so pictures from the 2^nd Annual Roni Deutch Tax Center Franchise Convention. For those of you who do not know, the convention took place last month in Reno, and as you can see from the pictures the theme was “Surfing 2 Success.” I have included a few of the pictures below, but you can view the full set here.

Kerry Says $819,848 Tax Lien Is Clerical Error

From the AssociatedPress.com:

The Internal Revenue Service has filed a $819,848 tax lien against Sen. John Kerry's 2004 presidential campaign, but Kerry on Wednesday blamed IRS clerical error for the claim and said his campaign owes no tax penalties.

The Massachusetts Democrat said the IRS mishandled payroll tax forms that he said were correctly filed by his campaign in 2005.

"This is a clerical matter, nothing more, nothing less," said Kerry spokeswoman Whitney Smith.

IRS spokesman Anthony Burke declined comment Wednesday, adding that IRS employees are precluded by law from commenting on tax cases.

The IRS notified the Kerry campaign in January 2008 that it had failed to file certain payroll tax forms for the 2004 tax year.

Smith said the IRS must have lost the payroll forms since the Kerry campaign had previously filed them in 2005. But the Kerry campaign filed them again in 2008 in response to the IRS request, she said.

"The IRS contacted us last year about data they lost from the 2004 campaign," Smith said. "We gladly resubmitted all the forms needed to fill in the gaps, end of story."

Smith said the Kerry camp was surprised to learn the IRS had filed a tax lien based on the disputed W-2 payroll forms.

The IRS filed the lien earlier this year in the District of Columbia, saying it had tried to collect the money previously from the Kerry campaign.

"We have made a demand for payment of this liability, but it remains unpaid," according to the IRS tax lien.

Smith said the Kerry camp has been willing to provide the IRS additional documentation to resolve the matter. Kerry officials have been checking monthly with the IRS asking why the matter has yet to be resolved, but have not gotten an answer, she said.

The Washington Times first reported the tax lien against Kerry's campaign on Wednesday.

Kerry lost to former President George W. Bush in the 2004 race. Paperwork was filed last year with the Federal Election Commission closing down Kerry's 2004 campaign account.

How To Avoid The 'Death Tax'

Earlier today CNNMoney.com posted a helpful tips list on how to avoid the death tax. The article aims to help taxpayers understand how to pass on the most possible to their future heirs. You can read a clip of the story below, or read the full post here.

If 84-year-old Bob Sievers of Pacific Palisades, Calif., had his way, Congress would scrap the estate tax altogether when it considers an Obama administration proposal on the future of the controversial tax. As co-owner of a lumber business for 40 years, Sievers built his wealth from scratch and paid taxes on his earnings every step of the way.

"What we have, we earned, and we paid tax on everything we earned, and we don't want to be taxed again when we die," says Sievers emphatically. Sievers, along with his wife, Carol, first set up an estate plan in 1982, and they have updated it numerous times over the years to reflect changes in the value of their nest egg and the expansion of their family, which now includes five children, 11 grandchildren, and four great-grandchildren. They quickly discovered they would need to establish an intricate network of trusts and other tools if they hoped to pass along the bulk of their hard-earned assets to their children without Uncle Sam taking a sizable chunk in taxes.

The estate tax - known as the "death tax" among its detractors - will be a hot topic in coming months. The tax-cut package enacted in 2001 called for it to be phased out over 10 years. This year, for example, only the portion of estates that exceeds $3.5 million for an individual and $7 million for a couple is subject to tax; the rate is 45%. This exemption is far bigger than in 2008, when the tax applied to estates valued above $2 million. But the 2001 tax cuts expire after next year. If Congress doesn't act, the estate tax will disappear in 2010 but will return in 2011 at the pre-2001 level of $1 million with a tax rate of 55%.

President Obama has said that he wants to keep the estate tax where it is today: at 45% on amounts above $7 million (for couples). Estate-planning experts speculate Congress will pass a new law before year's end to prevent 2010 from being a tax-free year. "They can't suffer the revenue loss" from removing the tax for a year, says Jay Adkisson, an attorney and founding partner at Riser Adkisson LLP. (One thing that's not expected to change: A spouse can inherit an unlimited amount tax-free through the marital deduction.)

Regardless of what happens in Washington, creating an estate plan and keeping it updated is critical. A smart plan uses tools, ranging from life insurance to trusts, to lower or even eliminate the estate tax and to prevent strife and bitter feuds among beneficiaries after a death. "Poor planning can destroy a family," says Les Kotzer, an attorney who is the author of "Where There's an Inheritance - Stories From Inside the World of Two Wills Lawyers." If no plan is in place or if terms are not explicitly spelled out, chaos can ensue, he says. Kotzer recalls a man who made a handwritten will leaving "all his personal stuff" to a son. A bitter court battle erupted as a daughter claimed "stuff" meant his power tools and personal possessions, not gold and diamond rings that their mother had owned. The son vowed to fight her to the gritty end, claiming he hoped his sister's legal fees would cost more than the jewelry was worth. Here are some tools you and your lawyer or estate planner can use to avoid such disasters.

The joy of giving. Let's start with a couple of simple techniques. For example, giving away money during your lifetime can reduce the value of your taxable estate. Here are the basics: You can give any number of individuals up to $13,000 each year without any tax consequences. Amounts above $13,000 are subject to the gift tax, but you also have a tax credit that allows you to give up to $1 million during your lifetime without incurring taxes. In addition, there is no limit on how much you can give tax-free when you pay someone's higher education or medical expenses directly.

As far as how you make those gifts, you can simply hand the money over to the recipient, but you have other choices. One popular method is a so-called Crummey trust, often used for a child, which allows you to impose conditions on how and when the beneficiary can get access to the money.

Life insurance. If you're planning to leave property, a business, or other non-cash assets to your heirs, life insurance can be a lifesaver. If you purchase a policy that will cover the taxes on your estate, your heirs won't be faced with having to sell assets to pay the taxes. "Mom and Dad give money to the kids to take insurance out on their lives," says attorney Jeffrey Condon, author of "The Living Trust Advisor." "When they die, the insurance company will write a check tax-free to the kids." You can also set up a life-insurance trust to be the beneficiary of the policy: That way, the death benefits won't be taxed as part of the estate.

Geoffrey VanderPal, of Elite Financial Planning Group of America in Las Vegas, recalls one client who had a $40 million financial services business that he wanted to pass on to his son. The client ignored suggestions that he set up an estate plan with a life insurance trust to cover the taxes on the estate. When the client died, the son couldn't afford the $18 million in taxes and had to liquidate the business.

Guilty Plea in Tax Shelter Fraud

From the New York Times.com:

A former vice chairman of the accounting firm BDO Seidman pleaded guilty on Wednesday to federal charges that he helped clients evade more than $200 million in taxes through illegal tax shelters.

The executive, Charles W. Bee Jr., and another executive, working with the law firm Jenkens & Gilchrist, sold illegal shelters to wealthy clients, said Lev Dassin, acting United States attorney.

Mr. Dassin said Mr. Bee knew that the transactions would be disallowed by the Internal Revenue Service.

Adam Abensohn, a lawyer for Mr. Bee, declined to comment. Mr. Bee, 63, agreed to forfeit $20 million and two homes. He faces up to 15 years in prison on three fraud counts, prosecutors said.

BDO Seidman said in a statement that the tax shelter group was dissolved several years ago.

Obama Willing to Consider Tax on Employer-Paid Health Benefits

President Barack Obama, who has been looking for good ways to help fund an expansion in health care, said he would consider taxing employer-paid benefits. Check out the following article on the story courtesy of the Washington Post.

President Obama, in a pivot from some of his harshest campaign rhetoric, told Democratic senators yesterday that he is willing to consider taxing employer-sponsored health benefits to help pay for a broad expansion of coverage.

Senate Finance Committee Chairman Max Baucus (D-Mont.) said Obama expressed a willingness to consider changing the existing tax exclusion. The decision would probably anger liberal supporters such as labor unions, but such a tax change would raise enormous sums of money as Congress and the White House are struggling to find the estimated $1.2 trillion needed to pay for health-care reform over the next decade.

"Yeah, it's something that he might consider," Baucus told reporters after the meeting between Obama and Democratic lawmakers. "That was discussed. It's on the table." Obama had summoned about two dozen senators to the White House to keep up the pressure to enact a comprehensive health-care overhaul this year.

White House officials moved quickly to clarify that taxing the health insurance provided by businesses is not Obama's first choice, but aides refused to rule out the possibility.

"The president made it clear during the campaign that he has serious concerns about taxing health-care benefits, and he has introduced his own revenue proposal, which he reiterated in today's meeting," spokesman Reid Cherlin said.

Obama instead urged senators to reconsider his proposal, which would raise federal revenue by reducing itemized deductions such as charitable contributions and mortgage payments for the wealthiest Americans, according to one adviser in the meeting. Obama included that idea in his budget, reporting that it would raise $317 billion over 10 years, a sizable "down payment" on the cost of health-care reform. But Congress immediately labeled the proposal a non-starter.

Private-sector businesses spend about $518 billion a year on their workers' health insurance, benefits that are not taxed. If workers had to pay taxes on their health coverage, it would raise $246 billion in revenue each year, according to the congressional Joint Committee on Taxation.

Tax treatment of employer-sponsored health care cuts across party lines: Prominent Republicans such as Sen. Judd Gregg (N.H.) support imposing a tax on certain health plans, while Democrats such as Sen. Sherrod Brown (Ohio) say that a tax would unfairly hurt middle-class workers with good benefits.

Health analysts from across the political spectrum have pressed for changing the tax treatment, arguing in part that the exclusion provides the greatest tax relief to high-salaried workers with generous insurance plans.

NC Legislature Approves Tax Law Change For Apple

From BusinessWeek.com:

The General Assembly on Monday approved changing the state's tax law with hopes it will result in Apple Inc. announcing a $1 billion investment within days.

The Senate voted 40-8 to go along with conditions including that the company invest in a rural area. The final round of debate lasted less than a minute.

Sen. Tom Apodaca, R-Henderson, urged rejection. He had previously lambasted business recruiters and lawmakers for focusing on high profile, big companies and ignoring small businesses. Sen. David Hoyle, R-Gaston, said small companies near the site of a promised data center would benefit by providing services.

"There is a lot in this for small businesses," Hoyle said.

The legislation was sent to Gov. Beverly Perdue, who was expected to sign the bill into law quickly.

An Apple spokeswoman said the company had no comment.

The bill would give the qualifying company a break on state corporate income taxes. The tax break could be worth about $46 million in the next decade, assuming the lone, unnamed company projected to qualify reaches its $1 billion investment target within nine years of starting, according to a memo by legislative fiscal staffers.

The Associated Press reported last month that the unidentified company being targeted by the tax break is Apple, which is seeking a site for its East Coast data warehouse. These facilities, also called server farms, are huge, climate-controlled computer warehouses that can process vast flows of data needed as business functions and everyday life increasingly depend on Internet traffic.

Data centers are heavy users of power and water and are usually spread over large spaces. Google Inc. opened one last year near Lenoir in the western North Carolina foothills. In 2007, state and local governments offered Google an incentives package worth up to $260 million over 30 years, one of the largest in state history, to land the $600 million data complex.

If the Apple project also remained active for 30 years, its server farm could save more than $300 million on its corporate taxes, based on legislative staffers' estimates.

Sites in western North Carolina also are under consideration for the Apple facility, including in Catawba and Cleveland counties. Both counties posted April unemployment rates of about 15 percent.

Construction of the Apple site would be expected to employ hundreds of workers for more than a year, but the initial full-time work force of the data center would total fewer than 100, lawmakers said last week.

If ultimately approved by the General Assembly, the change would mean a significant tax break only to the rare company that meets all the conditions. The conditions are a sign the Legislature remembers a bad decision 21 years ago when the formula for calculating corporate income tax was changed to attract a single big company.

Qualifying companies would have to invest $1 billion within nine years, locate in one of North Carolina's poorest counties, provide health insurance, meet a wage standard, and forego other state grants or tax breaks. If a company met those criteria, it would benefit from the change if it had a relatively large share of its nationwide property and payroll in the North Carolina, but a small share of U.S. sales in the state.

The last time North Carolina changed how it calculates corporate income taxes was in 1988, and it was done to satisfy RJR Nabisco's plans to build a large cookie plant in Wake County and create 600 high-paying factory jobs.

Nabisco never built the plant. But the revised calculation meant a tax break that wasn't targeted, but primarily helped manufacturers, said Greg Radford, director of the state Revenue Department's corporate tax division. He said he could not estimate how much companies have saved as a result of the 1988 revision, which remains in effect.

States Give Hollywood A Fortune In Tax Breaks

Earlier today, I came across this interesting Associate Press article discusses how some States – who are hiking taxes elsewhere – are offering huge tax incentives to the entertainment industry, primarily for movie and television. This has gotten taxpayers concerned, as they are wondering if they are going to benefit from the Hollywood tax incentives.

An Associated Press survey found that states competing for projects handed out $1.8 billion in tax breaks and other advantages to the entertainment industry from 2006 through 2008.

Several states have even sweetened their incentives recently or are considering doing so, for fear that if they don't land the next major motion picture, someone else will.

"The industry has been able to play off North Carolina against South Carolina against Louisiana against Georgia. Louisiana raises its incentives, and it puts pressure on South Carolina, North Carolina and other states to do likewise," said Bob Orr, a former North Carolina Supreme Court justice who heads an anti-incentives group called the North Carolina Institute for Constitutional Law.

Some states argue that the tax breaks pay for themselves in revenue. Many others contend that even if tax revenue takes a hit, the film industry boosts their economies with an infusion of cash and jobs.

Production companies spend money on sets, props, caterers, and salaries for actors, extras and crew members. Movie crews eat at restaurants and stay in hotels while in town.

Movie shoots can also give a place a little Hollywood glamour, which can, in turn, boost tourism — something that has happened in Durham, N.C., where the 1988 Kevin Costner comedy "Bull Durham" was shot, and in Savannah, Ga., the setting of the 1997 film "Midnight in the Garden of Good and Evil."

"I relate this to creating jobs similar to the way you would turn on a light," said Republican state Rep. Stephen L. Precourt of Florida, who is pressing to increase the state's incentives. "Within days, people could be working here under this incentive program."

Continued on Google News.

A Healthy Tax

From the NewYorkTimes.com:

The problem with obesity has become so overpowering in America that no single remedy guarantees a solution. But a proposal now being considered by some in Congress to tax drinks loaded with sugar would certainly help. The idea is that taxes worked to lower tobacco use — a habit far harder to break — so they should help young people limit their intake of soda or other forms of “liquid candy.”

Michael Jacobson, the executive director of the Center for Science in the Public Interest, a health advocacy group, has estimated that for every penny of tax added to a 12-ounce bottle or can of these drinks, consumption of all those empty calories would drop by 1 percent.

Those taxes also could raise money for health care, either to help finance the reform plan now being considered in Congress or to help fight the obesity epidemic. Americans spend about $50 billion a year on non-diet sodas — even more when counting sugared teas and sports drinks — so even a small tax would add up.

The beverage industry is gearing up to fight, and a recent win in New York State offers clues about its strategy. To fill huge budget gaps, Gov. David Paterson proposed an 18 percent tax on sugary drinks but scrapped the idea after lobbyists charged that a tax would land unfairly on lower-income families. That was enough for many politicians, who ignored the fact that too many of these same families suffer from obesity and its related problems, while lacking adequate access to health care.

Bigger fixes are needed, of course, starting with decent health care. The young need more exercise, healthier lunches and better education on nutrition. All consumers — not just those lucky enough to live near farms or large grocery stores — should be able to buy fresh fruits and vegetables at affordable prices. While we wait, Congress could impose an excise tax on sugary drinks — one of the main culprits in the obesity epidemic.

U.S. Debt $668,621 Per Household

Yesterday I posted an entry titled Leap in U.S. Debt hits Taxpayers with 12% More Red Ink regarding a USA Today article on the federal government’s rising debt. Shortly after posting it, I came across this interesting article on the Atlantic with more details on how the numbers were calculated. I’ve included a portion of their article below, but you can find the full text at The Atlantic.com.

I wish I could include the interactive chart it shows, but it breaks down the $668,621 by various components of federal government debt ($546,668) and personal debt ($121,953). Presumably that means this astronomical figure does not even include state and local government debt. I thought it might be fun to put this number into perspective.

Because it's pretty hard to identify what the weighted-average interest rate is for this debt, I show a few different scenarios. That way you can decide for yourself which scenario you find most plausible. The interest rate is shown, along with two different time horizons for each scenario. I then provide the amount of money that would be needed to pay off the debt per household, per year.

Scenario #1: 5%

30 years: $43,469

50 years: $36,603

Scenario #2: 3%

30 years: $34,092

50 years: $25,971

Scenario #3: 0%

30 years: $22,274

50 years: $13,364

So in the hopelessly optimistic best case scenario, each American household would have to pay $13,364 per year for 50 years. That is, of course, assuming that the federal government closes the deficit (fat chance), and each household does not incur additional debt (doubtful). And recall: it does not include state and local debt. According to U.S. Census Bureau data, the 2007 median household income was $50,233 -- before taxes. So you can kind of imagine how impossible even the best case scenario of $13,364 per household, per year would be anyway.

I admit this is a gross oversimplification. It does not consider inflation, which is sure to happen, and which will help a bit. But if you assume the above interest rates are real interest rates (nominal interest rate minus inflation), then this might make the 0% scenario a little more likely -- but probably not for 30 or 50 years, I hope. My scenarios also do not consider U.S. population growth, which there undoubtedly will be.

Despite its simplicity, I think this analysis shows just how dire a situation the nation's debt poses. I know there's a popular argument that we've always been in debt, so it's nothing to worry about. As these numbers continue to grow, however, I think the plausibility of that argument wanes.

Time Warner's Well-Timed Tax Break

From the WashingtonPost.com:

You don't often get to use "Time Warner" and "hot stock" in the same sentence, given the company's horrible investment performance over the years.

But Time Warner's pending deal to unburden itself of AOL by dumping the ailing firm onto its shareholders is one of those times, thanks to an insight I got from tax guru Bob Willens of Robert Willens LLC. Willens, who lives and breathes (and probably dreams about) the tax code, says that Time Warner's plan to distribute AOL stock to its shareholders in a tax-free transaction is benefiting from a little-noticed change last year in the rules governing "hot stocks."

In this case, "hot stock" doesn't mean shares with a rapidly rising price; it means shares that can trigger a tax liability.

The "hot stock" here would be Google's 5 percent stake in AOL. Time Warner sold those shares to Google in 2005, and plans to buy them back by the end of this year, then distribute them (along with the other 95 percent of AOL) to Time Warner shareholders in a tax-free deal.

Without last year's change, Willens says, the Google stake in AOL would have been a "hot stock" to both Time Warner and its shareholders because Time Warner would have been distributing the stock to its holders within five years after buying it from Google.

How much in tax savings are we talking about? Call it $200 million or so. The exact amount depends on the market value of AOL stock when Time Warner distributes it. Should AOL be valued at $5.5 billion, the value that Google placed on AOL in February, the "hot stock" rule change would save Time Warner and its shareholders from having to report $275 million each in taxable income. (I'm assuming that Time Warner's cost of AOL for tax purposes is close to zero.) At federal, state and local tax rates totaling 40 percent, Time Warner and its shareholders each save about $110 million.

Willens says the "hot stock" rule was changed last December when the Treasury tweaked the appropriate regulations. A Time Warner spokesman said the company played no role in the change. Spokesmen for the Treasury and Google declined to comment.

Under the previous rules, there would have been a "hot stock" liability because Google decided to invoke its right under the AOL stock-purchase agreement to sell back its AOL stake to Time Warner. The price is currently being negotiated.

I suspect that taxes play a big role in Google's decision to sell. If Google, which paid $1 billion for its AOL stake, sells the stake for the $274 million at which it's now carried on its books, it gets a $726 million tax loss. That would reduce its income-tax bill by about $290 million.

Time Warner and its shareholders avoid taxes, perfectly legally, and Google gets to save some taxes, also perfectly legally. All other taxpayers, in effect, pick up the tab for those savings.

'Twas ever thus, when it comes to big-time dealmaking. And 'twill always be thus.

(Full disclosure: many of my Fortune colleagues have stakes in the stock price of Time Warner, our employer. I joined Fortune in 2007 and have a minor, indirect stake in Time Warner's stock price.)

States Feel The Pain On Auto Dealer Row

From CNNMoney.com:

Loss of dealerships, coupled with declining car sales, is hammering state and local budgets already thinned by the recession.

The downfall of the American auto industry is wreaking havoc on state and local budgets from coast to coast.

The decline in auto dealerships, coupled with the drop in car sales, is costing states and municipalities millions of dollars in lost sales taxes, not to mention lost income and property taxes and other fees.

Though exact numbers aren't available, car purchases account for about 12% to 15% of sales tax revenues in many states, estimates the Center on Budget and Policy Priorities. And sales taxes usually account for about one-third of a state's revenue.

As the recession deepens, state tax revenues have fallen off a cliff. This has opened up yawning gaps, forcing officials to scramble anew to balance their budgets.

The drop in sales taxes are the worst since World War II, and the plunge in car sales are a major reason for it, said Donald Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government, a public policy group.

"The declines have been devastating," he said. "It comes at a time when the states can't afford it."

Take California, which has seen new car sales plunge 43% in the first quarter and 186 dealerships disappear since the start of 2008. The Golden State, which is struggling to close a $21.3 billion budget gap, is slated to lose 32 Chrysler dealerships and possibly 100 GM dealerships as part of the automakers' restructuring.

New car sales are the single largest component of the sales tax base, accounting for 10.6% in 2006, the latest year available, according to the state's Department of Finance. Municipalities also depend on the sales taxes, as well as other revenues such as property tax, to fund their operations.

"Many communities are having to let go firefighters and police because the sales tax revenues are down," said Peter Welch, president of the California New Car Dealers Association.

Fewer sales, deeper budget cuts

Indiana, which is wrestling with a $1 billion budget gap, saw auto sales taxes fall by 23% in the second quarter, said Chris Ruhl, the state's budget director. Car purchases are the third largest source of sales tax revenue, until recently accounting for about $550 million a year.

The state is now tightening its belt, Ruhl said, to deal with the lower revenues. On Monday evening, Gov. Mitch Daniels recommended cutting spending by 2.5% across-the-board and tapping into the state's $1 billion-plus rainy day fund to balance its budget.

New Jersey, meanwhile, is also feeling the effects of the auto industry meltdown. The Garden State has lost 170 dealerships since the start of 2007 and could lose 90 more in the cutbacks by Chrysler and General Motors (GMGMQ), which filed for bankruptcy on Monday. New car sales are down 33% for the first four months of the year.

This plunge has a drastic effect on state revenues, said James Appleton, president of the New Jersey Coalition of Automotive Retailers. He estimates that the state loses $10 million in revenue for every 1% drop in car sales. Incomes taxes also suffer when dealers close since each employs about 65 people.

State officials are now scrambling to close a $4.4 billion budget gap, exacerbated by an unprecedented decline in sales taxes.

"Until these markets come back, the state will continue to suffer," Appleton said.

Administration: Highway Fund To Go Broke In August

The Obama administration announced to lawmakers that the highway fund for ongoing projects will be empty by August, and an additional $5 to $7 billion will be needed to continue. You can find a snippet of an Associated Press article discussing the issue below, or find the full story here.

Sen. Barbara Boxer, chairman of the Senate Environment and Public Works Committee, said at a hearing the administration has told senators the Federal Highway Trust Fund will need an estimated $5 billion to $7 billion to keep current construction projects going.

The California Democrat said another $8 billion to $10 billion will be needed to keep the fund solvent through the year ending Sept. 30, 2010.

Transportation Department spokeswoman Jill Zuckman confirmed those figures.

"The administration is working closely with Congress to solve this difficult problem and ensure that states have the resources they need to maintain our roads and highways," Zuckman said.

A decline in driving that began in late 2007 has reduced federal gas tax revenue, the primary source of trust fund dollars.

The trust fund is separate from the $48 billion in transportation projects included in the economic recovery law enacted by Congress and signed by President Barack Obama earlier this year.

Congress approved an emergency transfer of $8 billion in general treasury dollars last fall to make up a projected shortfall — the first time in the history of the program that had happened. The fund dates back to creation of the federal interstate highway program in 1956.

Sen. George Voinovich, R-Ohio, said it's clear that Congress must raise the federal gas tax, which is now 18.4 cents per gallon.

"I know that doesn't go down so well with some folks," but it's "the reality of the situation," Voinovich said at the hearing, which was on Obama's nomination of former Arizona highways director Victor Mendez to head the Federal Highway Administration.

"That will be one of my highest priorities, to get on that very quickly," Mendez said of the trust fund.

The law that authorizes federal highway programs is due to expire at the end of September, but the issue hasn't been on Congress' frontburner. There is a consensus among transportation experts and lawmakers that there will have to be some form of a tax increase — always unpopular, but especially so in a recession — to make up for the lower gas tax revenues and to address a backlog of crumbling and congested highways, bridges and public transit systems.

Everything you Need to Know About Taxes After Death

I am sure you have heard the famous Benjamin Franklin quote "nothing can be said to be certain except death and taxes". For some Americans, the two become truly intertwined as spouses and beneficiaries struggle to make sense of taxes after the death of a loved one. To educate my readers on the subject I have composed the following article explaining everything you will need to know about taxes after death.

The Taxpayer’s Estate

When a taxpayer passes away, a new entity known as the taxpayer’s estate is created to assure no taxes go unpaid. The taxpayer’s income will need to be included on their final tax return, which must be filed. If there is a beneficiary, then he or she may be able to pay the deceased’s income taxes on their own tax return. However, if the estate has a value of more then $600, then a tax return must be filed for the recently deceased taxpayer.

The Final Tax Return

The final tax return filing could fall in to the hands of several different persons, depending on your unique situation. If the estate had an executor or administrator, then they are typically responsible for making sure the return is filed. However, if there is none, then the closest surviving relatives must take care of it. There are no special forms that need to be filed for a taxpayer who has dies. Instead, the word "deceased" needs to be written after the person’s name on their standard return.

Due Dates

Many taxpayers trying to take care of recently deceased family member’s tax return might not think that the April 15^th deadline matters. However, this is a big mistake. Even with a deceased persons tax return, the IRS deadline is still April 15th. Remember though, if you are running behind then you can always request an automatic extension.

Deductions

After death, the rules regarding deductions are a little different. Any expenses that were paid before death in the tax year can as usual be deducted on the final return. Additionally, deductible medical bills that may have incurred in the final months can also be deducted, even if they were not paid until after death.

Property

If the property of the late taxpayer is to be inherited, a few things will change on it's value and taxes as well. After the death of the taxpayer, the value of their property will be adjusted to it current market price. This is helpful for the person who inherits the property, because if they decide to sell they would only owe tax on any appreciation of the property after the death. Therefore you need to validate the date of death value as soon as possible, which can make the process even more difficult.

Savings Bonds

United States savings bonds have their own set of special rules after the holders pass. When the bonds are passed on to a benefactor, the amounted interest will need to be treated as income by the person who inherited them. They would then become responsible for paying taxes on the bonds, which would usually not be due until said bonds were cashed out. Alternatively, you could report the accrued interest on the late taxpayers final tax return. However, if this option is chosen then the person who inherits the bonds will need to pay taxes on the amount of interest at that time.

IRAs and Retirement

A big misconception about inheritance taxes is that IRAs and retirement accounts are not subject to them. Unfortunately, this is not true. With IRA inheritance, you can choose to re-title it as an “inheritance account,” roll it over into your own IRA, or have it as your own separate account. The rules may be slightly different depending on your relationship to the recently deceased taxpayer. In most cases, taxes will still need to be paid on any distributions paid out of the IRA. However, it can get very complicated and I highly recommend speaking with a qualified attorney to make sure you are fully compliant with both federal and state tax laws.

The Tax Lady’s Guide to Beating the IRS, featured on WomenEntrepreneur.com

WomenEntrepreneur.com is publishing one of the chapters from my book, The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes. How exciting! They are publishing Chapter 6, The New American Dream—Tax Tips for the Self Employed, in three parts. Below, please find the first two parts of the series. Be sure to click through the links below to read the full text, including charts and graphs!

Tax Tips for the Self-Employed

If you know what you're doing, you can avoid the pitfalls and leverage as many credits and deductions as possible.

Set Up a Tax-Friendly Business

Set your business up to take full advantage of the opportunities for tax avoidance--but beware of tax evasion.

With Bankruptcy Looming, a New GM Begins to Emerge

From the Associated Press:

With an almost certain bankruptcy filing days away, General Motors is beginning its reinvention, planning to retool one factory to make its smallest vehicles ever in the U.S. and rid itself of the biggest.

As GM's board began two days of meetings Friday to make a final decision on the company's fate, GM was also closing in on a sale of its European Opel unit, and its main union overwhelmingly approved dramatic labor cost cuts. A deal to sell its rugged but inefficient Hummer brand also appeared on the horizon.

The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of a leaner GM, with a total government commitment of nearly $50 billion.

GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.

With the government's backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.

"It's been coming to a head for a very long time," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "But in just the past few months we've really seen steps being taken to completely and dramatically change the face of American auto manufacturing."

GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year.

GM's stock tumbled to the lowest price in the company's 100-year history, closing at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.

The United Auto Workers' reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.

The changes, plus others that will be worked out in court, will shrink GM and position it to be among the world's most competitive automakers if it can emerge from bankruptcy protection and survive the global auto sales slump, Bragman said.

Romney Balks at Government Ownership of GM

With dozens of headlines surrounding General Motors and their bankruptcy filing, Republican leader Mitt Romney spoke to the Detroit News on how the government should handle the auto marker’s restructuring. Check out the article below.

The Obama administration and the United Auto Workers should immediately distribute their stock in a restructured GM to American taxpayers, former Republican presidential candidate Mitt Romney said Sunday.

"We don't want a president and the head of the UAW running General Motors," Romney, a Michigan native and son of former Gov. George Romney, said in an appearance on "Fox News Sunday."

Romney suggested that the roughly 70 percent of GM that the government could own after it emerges from bankruptcy should be immediately distributed to taxpayers, and the 17.5 percent that will go to a UAW trust fund for retiree healthcare should be handed out to UAW members.

Such a scheme is highly unlikely. The Obama administration has signaled that it wants to sell its stake as soon as possible, but wants to ensure that it recoups as much as possible of the billions of taxpayer dollars already pumped into the company. The UAW is likely to try to maximize the return it receives on its shares to boost its ability to pay for healthcare for retirees.

Romney repeated his criticism of the auto policies followed by both the Bush and Obama administrations, saying GM and Chrysler should have been pushed into a restructuring, either in or out of bankruptcy court, months ago.

Quicker Access to First-Time Buyer Tax Credit

From Suze Orman.com:

As you have heard me tell you, there’s a terrific tax break available to first time homebuyers this year. And just so you know, the federal government defines anyone who hasn’t owned a principal residence for three years as a first timer. Individuals with modified adjusted gross income (MAGI) below $75,000 and married couples filing a joint tax return with income below $150,000 are eligible for the maximum $8,000 credit in 2009. (You may be eligible for a reduced credit if you are single with income between $75,000 and $95,000 and joint filers with income between $150,000-$170,000. Above those amounts you are not eligible for any credit.) To grab the credit this year you must close on a home purchase before Dec. 1.

Now here’s where it gets interesting. Typically you get a tax credit “back” when you file your tax return. The credit either reduces the amount of tax you owe, or if you owe no additional tax then you are sent a refund check for the amount of the credit. And I want to remind you how valuable a tax credit is: It is a dollar for dollar deal. For every dollar of credit your tax liability is reduced by one dollar. That’s seriously better than a tax deduction, where the value of the break depends on your income tax bracket. For instance an $8,000 tax credit reduces your tax liability by $8,000. An $8,000 tax deduction for someone in the 15% tax bracket reduces his or her tax bill by $1,200 ($8,000 x. 15).

But one obvious issue is that if you are buying a house in 2009, you won’t get your tax credit until you file your 2009 tax return in early 2010. That doesn’t really help you make the purchase right now.

Instant Access to Tax Credit for FHA-insured Loans

So the Dept. of Housing and Urban Development made a change in how the credit works: If you take out an FHA-insured loan and you qualify for the first-time buyer tax credit your lender can essentially get you access to the money today so it can help you pay for certain loan costs. The new rule allows you to get an “advance” on the value of your tax credit, rather than having to wait until you file your ’09 return.

There are some rules you need to understand, so read this carefully: The tax credit can not be used to finance the minimum 3.5% down payment required on all FHA loans; you still need to come up with that yourself. That’s good news as far as I am concerned; if you can’t afford to put some money down that is a sign you are not ready to own a home. But the credit can be used to increase your down payment; the bigger your down payment, the lower your monthly housing costs. Or you can use the credit to “buy down” the interest rate; typically paying 1 point (1% of your mortgage value) will reduce your interest rate by 0.25% or so. The credit can also be used to cover closing costs.

Now I want to stress that this advance is typically only good for FHA-insured loans, so you want to work with a lender who specializes in the FHA program. (A few states, including Colorado, Idaho, Missouri, New Jersey and Ohio have programs in place to advance the credit for other types of mortgages.) And please know that the 2009 loan limits for FHA-backed mortgage have been raised significantly. The limit is based on where you live. You can find your region’s loan limit here. (Note: You only need to input your State and then hit “Send” to get a list of limits for your state.) You can learn more about the “advance” of the First Time Homebuyer tax credit at the FHA website.

A Shelter That Could Start a Stampede

Earlier today I came across this interesting article from NY Times author Gretchen Morgenson explaining how the federal government can increase tax revenue by targeting one specific type of tax avoidance. Check out the text below.

Financial engineering — funky mortgages, off-balance-sheet vehicles and complex derivatives — contributed mightily to our current crisis. And the meltdown’s resolution, by no means complete, has already required hundreds of billions in taxpayer commitments.

If the Treasury is ever to replenish its coffers, increased tax receipts will be sorely needed. But these inflows could be reduced if an unusual tax-avoidance transaction — set up to allow losses at one company to offset profits at another — gains acceptance throughout corporate America.

Given the potential tax benefits associated with the strategy (and given the enormous losses that have been generated across industries in recent years), the popularity of the maneuver is almost certain. At least that’s the view of Robert Willens, an authority on taxes and accounting, who spent decades at Lehman Brothers and now runs his own shop in New York.

In an article that was published last week in Tax Notes, a well-regarded publication devoted to tax policy and analysis, Mr. Willens examined a deal that Bank of America completed for a unit of Fairfax Financial Holdings, a Canadian insurance company, and the Odyssey Re Holdings Corporation, a writer of property and casualty reinsurance that had been spun out of Fairfax in 2001.

The complex structure allowed Odyssey to avoid paying taxes on some of its profits by shifting those earnings onto Fairfax’s books. Fairfax had weathered nearly $1 billion in losses accumulated during a previous downturn in the insurance market. So it had losses it could use to offset the Odyssey profits coming onto its books. And the shift saved Odyssey an estimated $400 million in taxes.

The debate over the tax structure is contentious. Fairfax says that the Internal Revenue Service signed off on it and that the company has done nothing untoward. It also disputes Mr. Willens’s impartiality in questioning the transaction, citing his work as a paid consultant for a hedge fund that has targeted Fairfax.

Under tax rules, offsetting losses against gains can occur only among companies operating within the same parent corporation and filing a consolidated income tax return. Therefore, a company hoping to shelter another’s earnings with its own losses must acquire at least 80 percent of the shares in that profitable enterprise. From a tax standpoint, a stake below 80 percent would mean the companies wouldn’t be affiliates.

THE particulars of the Fairfax deal are as follows: Before the Fairfax-Odyssey transaction, which was created in March 2003 and unwound in August 2006, Fairfax held 73.8 percent of Odyssey’s shares. To meet the consolidation threshold, Fairfax had to buy 4.3 million additional Odyssey shares. At the time, that required an investment by Fairfax of around $78 million.

But instead of paying cash for the shares, Fairfax struck a deal with Bank of America, its longtime banker, and issued debt to the bank in exchange for the stock. Fairfax issued two notes to an offshore affiliate of the bank in the amount of $78 million. The notes matured in 2010 and carried an interest rate of 3.15 percent, well below the rate Fairfax would have had to pay if it had issued debt publicly.

Through the affiliate, Bank of America agreed to borrow Odyssey shares from other investors and transfer them to Fairfax. Even though the Bank of America affiliate was short the shares it transferred to Fairfax, it retained several significant attributes of ownership in those shares, Mr. Willens says.

The Internal Revenue Service did not dispute the Fairfax-Odyssey consolidation for 2003 and 2004. Since the I.R.S. declines to discuss specific cases, it is unclear why it has not yet closed the books on 2005 and 2006 when the earlier consolidation was already in place and approved.

Leap in U.S. Debt hits Taxpayers with 12% More Red Ink

From USA Today.com:

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.

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