Monday, February 28, 2011

U.S. Initial Jobless Claims Fell 22,000 to 391,000

Last week the number of Americans filing first-time claims for unemployment insurance decreased by 22,000 to 391,000. The drop greatly exceeded expectations, as many economists had predicted the claims would total at least 405,000. These numbers push the national average down to the lowest levels since July of 2008. Still not exactly great news, but better than the alternative. reports:

    Companies may begin to ratchet up hiring after reducing firings, which will bring unemployment down further. That would help allay concerns from Federal Reserve policy makers who expressed “disappointment in both the pace and the unevenness of the improvements in labor markets” in the minutes of their Jan. 25-26 meeting released last week.

    “The labor market has been on the upswing,” Millan Mulraine, a senior U.S. strategist at TD Securities Inc. in New York, said before the report. “As the pace of layoffs continues to decline, it is an indication that not only are businesses not firing as fast they used to, but they may in fact begin hiring.”

    Jobless claims estimates in the Bloomberg News survey of 51 economists ranged from 375,000 to 420,000. The Labor Department initially reported the prior week’s figures at 410,000.

    There were no special factors affecting the figures, a Labor Department official said today.

    The four-week moving average, a less volatile measure, fell to 402,000 from 418,500 last week.

    The number of people continuing to collect jobless benefits fell by 145,000 in the week ended Feb. 12 to 3.79 million.

Continue reading at

New Home Sales Tumble 11.2%

From LA

An unexpected drop in new home sales for the month of January, plus a plunge in mortgage applications to the lowest level in nearly 13 years, have renewed fears of another decline in housing prices.

Economists said the 11.2% tumble from December in new home sales -- the third consecutive monthly drop announced by the Commerce Department -- indicates that Congress' extension of a home buyer's tax credit late last year appears to be having little or no effect on consumer sentiment.

Economists surveyed by Bloomberg News had expected January new home sales to climb.

New home sales make up a much smaller share of the buying activity than sales of previously occupied homes. But the data are carefully watched by economists because construction can give a boost to an economy heading out of recession.

Analysts said the January numbers indicated that residential builders were probably in for a tough year as they continue to compete with steeply discounted bank-owned properties and consumers face depleted household incomes and heavy debt loads.

Read more here

IRS Eases Up On Tax Debtors

A couple of days ago the IRS announced five major changes to its tax debt resolution programs, including lien threshold increases, and new rules for IRS payment plans. These changes are a long time coming and will make a big difference for the thousands of people who owe the IRS.

From SF

    Lien threshold raised

    For starters, it generally won't file a tax lien against people who owe less than $10,000 in back taxes, twice the current threshold of $5,000. People who have a history of tax avoidance might not qualify. A tax lien gives the IRS a legal claim to a taxpayer's current and future property for the amount of an unpaid tax debt, but it is not filed until the IRS has made repeated attempts to collect from a taxpayer.

    "Raising the lien threshold keeps pace with inflation and makes sense for the tax system," Shulman said. "These changes mean tens of thousands of people won't be burdened by liens, and this step will take place without significantly increasing the financial risk to the government."

    Tax liens withdrawn

    The IRS will also withdraw a lien once full payment of taxes is made if the taxpayer requests it. That means it will disappear from the taxpayer's credit report, according to Rod Griffin, director of education with the credit reporting firm Experian.

    Today, after a tax debt is paid, the IRS releases a lien. "At that point we no longer have a claim to any asset that the lien is attached to," Shulman said.

    Shulman said that "from our standpoint," a release and a withdrawal are the same thing, but some taxpayers have requested the change because they believe a withdrawal makes it easier to clean up their credit record and get a job.

Continue reading at SF

Saturday, February 26, 2011

AIG Posts First Profit in Three Quarters on Asset Sales

During the fourth quarter AIG (American International Group) posted its first profit in three quarters. The corporation posted $11.2 billion profit, compared with an $8.87 billion loss a year ago. Glad to see they are recovering, now about that bailout money….

Business Week reports:

    Chief Executive Officer Robert Benmosche, 66, raised almost $37 billion last year selling American Life Insurance Co. to MetLife Inc. and divesting a majority stake in AIA Group Ltd. in a public offering. Benmosche is adding to reserves, hiring risk managers, and settling lawsuits and regulatory probes as he prepares the company for private ownership. The U.S. Treasury Department accumulated 92 percent of AIG’s stock and plans to divest its holdings.

    “Some of the transactions resulted in larger gains than expected,” said Jonathan Hatcher, a Jefferies Group Inc. analyst in New York. The gains boosted capital and should make the company “feel a little bit more comfortable with the reserve additions that they needed.”

    Shareholders’ equity, a measure of assets minus liabilities, rose to $85.3 billion from $80.8 billion on Sept. 30. The insurer booked $17.6 billion of gains on asset sales, including AIA and Alico.

Continue reading at

Obama to Business Leaders: Let's Brainstorm Jobs

On Thursday the President called together a team of business and labor leaders to focus on job creation. He apparently also asked the attendees for their opinions about the current state of the economy. I do love collaborative thinking, let’s hope this was actually productive.


    "We want to remove any barriers and impediments that are there, but at the same time we want to put a challenge to America's businesses, to take other steps that have been sitting on the shelf for quite some time," Obama said. "We want to make sure we're putting a little pressure on you guys ... so we make sure the economy is working for everybody."

    The council replaces the president's former economic advisory team, which had been led by former Fed chair Paul Volcker.

    he new jobs council is headed by General Electric Co (GE, Fortune 500). chief executive Jeffrey Immelt and includes a variety of executives, including AOL co-founder Steve Case (AOL) and Intel (INTC, Fortune 500) CEO Paul Otellini.

    During the hour-long discussion, executives talked about what they saw as important building blocks to job creation, including an improved education system, better tax policy and less burdensome regulatory changes.

Read more here

Ten Things Americans Waste the Most Money On

24/7 Wall Street put together a list of the most wasteful expenses that Americans spend their money on. Topping the list: meals out. I've included a section from their article below, but you can find the full text here. How does your budget compare?

From 24/7 Wall Street:

    10. Apparel Products and Services

    > Annual Amount Spent Per Household: $249

    > % of Total Annual Expenses: 0.5%

    This category includes unnecessary purchases such as clothing rentals and storage, dry cleaning, jewelry, and watch repair. Clothing and shoe repairs, which are also included, are rarely considered a waste, but they account for a relatively modest portion of this category. The average amount spent per household is $249. This is slightly down from the 1989 amount, which was $266.

    9. Tobacco

    > Annual Amount Spent Per Household: $380

    > % of Total Annual Expenses: 0.8%

    The average household spends more than $380 each year on tobacco products and smoking supplies, which includes cigarettes, cigars, pipes, and chewing tobacco. It is worth remembering that this average includes households where no one pays for tobacco products. Despite this fact, tobacco’s portion of the average household’s budget, 0.8%, is larger than what Americans spend on fresh fruit and milk combined. A person who smokes a pack of cigarettes a day in New York state will spend more than $4,000 a year, which is roughly 10% of the average American income before taxes.

    8. Entertainment Equipment and Services, Nonessential

    > Annual Amount Spent Per Household: $400

    > % of Total Annual Expenses: 0.8%

    Products in this category include bicycles, trailers, camping equipment, hunting and fishing equipment, sports equipment, boats, photographic equipment and supplies. The average expenditures dedicated to items in this category among all households is $400. The greatest average amount, $870, occurs among households with a husband, wife, and an eldest child age 6 to 17 years. In households with only one parent and at least one child under 18, the amount drops to $188. In 1989, the average amount for all households was slightly less, at $369.

Continue reading here

Thursday, February 24, 2011

I Survived an IRS Tax Audit

As one taxpayer explains, visiting an IRS building for an audit is pretty much like visiting any other anonymous corporate office buildings. Except that it might result in you writing a fat check to the government.

CNN reports:

    My road to this second-floor office started with a standard white envelope emblazoned with the dreaded words: Internal Revenue Service. When it arrived at my house in December, I found a five-page letter explaining that my 2008 taxes had been selected for audit. I needed to call "WITHIN 10 DAYS to schedule an appointment."


    About 1.6 million people found themselves in this situation last year, according to the IRS. That means 1.1% of all filers drew the short end of the stick -- and about 300,000 of them were selected because of deductions related to a business venture.

    That's why I got called to answer for myself.

    My husband had an art gallery in Denver and the IRS had a few questions about his 2008 Schedule C, the form where you report income and deductions for your business. I'd filed the form for him, along with the rest of our taxes, using TurboTax.

    Thankfully, when that big scary letter arrived in the mail, it told me exactly what expenses were in question -- all $23,000 of them. That was a relief: I always thought I'd have to show up and answer questions about any part of the return, rather than being able to prepare.

    In our case, the IRS wanted to know about the rent and utilities he paid for the building, as well as a line item for "vehicle deductions."

    So I dutifully called Ms. Green, the name at the top of the letter. The problem was, I told her, it was my husband's business. And we're in the middle of a divorce.

Read more here

IRS Holds Saturday Open Houses on 02/26 and 03/26 to Help Taxpayers

Yesterday the IRS announced nearly 100 IRS offices will be open this Saturday, and again on March 26th to provide assistance to taxpayers. Excellent news for taxpayers who desperately need guidance, but strangely enough, work during business hours.


"We are opening our doors on these Saturdays to help taxpayers who may not have a chance to seek assistance during the work week," said IRS Commissioner Doug Shulman. "If taxpayers need help preparing their tax returns or have an account question, we encourage them to visit one of our open houses."

On Saturday, Feb. 26, and Saturday, March 26, the IRS offices will be open from 9 a.m. to 2 p.m. local time. IRS staff will be on site to help taxpayers work through issues. More than 35,000 taxpayers attended similar events last year resolving over 95 percent of their issues.

During the open-house hours, IRS personnel will be available to provide services such as tax return preparation, assist with account questions and help with a variety of other issues. IRS offices in 10 locations will also offer free seminars designed to provide information on new tax laws affecting federal tax returns and detail other services provided by the IRS.

In addition to IRS help, community organizations partner with the IRS. Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less, and Tax Counseling for the Elderly (TCE) programs assist individuals age 60 and over with their 2010 income tax return preparation and electronic filing. Many of these sites have Saturday hours while others offer assistance at various times during the week. Taxpayers can call 800-906-9887 to locate partner sites in their area.

Continue reading at

4 Bankers Charged with Hiding $3 Billion in Assets from IRS

Four bankers who are part of the Zurich-based Credit Suisse Group were indicted yesterday after allegedly helping American taxpayers cheat the IRS out of $3 billion. Warrants were issued for all four (Marco Parenti Adami, Emanuel Agustoni, Michele Bergantino and Roger Schaerer), who are thought to be in Switzerland.

From Huffington

    Prosecutors allege in the indictment that the conspiracy goes back as far as 1953. The indictment alleges that as of late 2008 Credit Suisse was maintaining thousands of secret accounts for U.S. customers with as much as $3 billion in assets.

    The indictment itself – obtained by federal prosecutors in Alexandria, Va. – does not specify the bank as Credit Suisse, but a law enforcement official with knowledge of the case confirmed the bank's identity to The Associated Press. The official insisted on anonymity because he was not authorized to speak publicly on the case.

    Public documents unconnected to the case also identify some of the bankers as Credit Suisse employees.

    Credit Suisse itself is not charged in the indictment. But the indictment states that bank officials "knew and should have known that they were aiding and abetting U.S. customers in evading their U.S. income taxes."

    The indictment claims the bankers discouraged customers from participating in a 2009 amnesty program offered by the Obama administration, in which U.S. taxpayers could avoid criminal prosecution if they came forward with information on their secret accounts and agreed to pay a penalty.

    In the fall of 2008, Credit Suisse began exiting the U.S. cross-border banking business, and the bankers advised clients to transfer their accounts to other Swiss banks that did not operate internationally and were therefore not subject to anything but Swiss law.

Read more here

Four Expert Tips on Personal Finance for Executive Women

The Glass Hammer, one of my favorite blogs for women in business, posted a great article last week with tips on personal finance for executive women. It was contributed by Myra Salzer, author of Inheritor’s Sherpa and Living Richly: Seizing the Potential of Inherited Wealth. You can find a snippet below. (Keep the awesome content coming!)

    1. First – secure your “nut.” There is a quick and easy way to calculate whether or not you have inherited enough to have your “nut” secure already. Can you comfortably live on one fortieth of your inheritance? For example, let’s say you inherited $10 million. $10 million divided by 40 equals $250,000. If all your needs and wants would be met on $250,000 per year (after taxes and adjusting for inflation) then your “nut” is secure. All you need to do is invest in a manner that keeps up with inflation and spending. Of course, you’ll miss out on the next hot IPO (initial public offering) and you will never again enjoy cocktail-party bragging rights boasting about your latest venture. But you will be secure.

    2. Then – find an investment management firm whose intractable systematic approach is wealth preservation. (We recommend independent registered investment advisory firms that don’t sell any products and who are not associated with any brokerage houses or broker dealers.) Remember, you don’t need to make a killing in the markets when your “nut” is secure. You need only avoid losses. This isn’t nearly as easy to accomplish as it was for Grandmother, but it is doable. Find someone with a global perspective whose analysis goes beyond the scope of modern portfolio theory and CFA (certified financial analyst) curriculum.

    3. Make sure your investment manager is a fiduciary, a person or firm whose legal obligation is first to you, above all else. If the management firm is, for example, a public company, the managers’ first obligation is to the firm’s shareholders, so they cannot possibly be fiduciaries. Demand that the manager agrees to a fiduciary contract.

More here

Wednesday, February 23, 2011

I Hate Law School the Music Video

I'm sure every lawyer felt this way at some point!

Hat tip: TaxProf Blog

What Triggers the IRS Statute of Limitations?

Typically the IRS has three years after you file your return to perform an audit, and sometimes up to six years. But what exactly triggers this statute of limitations? reports:

    Filing Early. If you file early (say March 1), the statute runs from the due date (April 15).

    What’s Filing? This is pedestrian, but what counts as “filing”? It matters any time you’re talking about the statute of limitations, so it isn’t a silly question. For many these days, filing is hitting send, filing electronically. You should keep a print of everything, including the IRS response.

    If you use the mail–I’m still a fan of mailing paper returns when

    possible–it’s timely mailing. Whether you send via US Mail or by a private courier service like FedEx–keep proof of mailing! See IRC § 7502(f).

    That means certified mail return receipt requested, or a copy of the FedEx waybill and receipt. Private postage meters? You don’t have proof of mailing if you use a private postage meter in your office.

    Lost Returns? What if the IRS never receives your return? The rule that timely mailing is timely filing doesn’t apply if the return never arrives. For that reason, you’ll not only want proof you sent it but proof the IRS received it. See IRC § 7502(c). If the IRS loses it afterword, you’ll be asked to provide a copy and to show that you sent it and the IRS received it.

Read more here

Home Prices Plummet in Most Big US Cities

According to reports, home prices have fallen to their lowest point since the housing bubble burst years ago. Values dropped in most major cities and are expected to fall further. Not great news for homeowners…

From Yahoo Finance:

High unemployment, stricter lending rules and fears that prices will continue to fall are among the reasons why few people are buying homes. A rising number of foreclosures are also weighing down prices. And as more people get stuck in depreciating homes, housing could slow the economy.

Across the country, the housing industry is recovering unevenly. Many of the cities now setting new lows have been struggling with high unemployment, more foreclosures and, in some cases, a delayed response to the housing bust in 2006 and 2007.

Homes in more established areas -- those that had little room to build during the housing boom -- are doing a better job holding their value. Coastal cities in California and Northeast are seeing much smaller price declines. In Washington and San Diego, home prices even rose over the past year.

Still, many people who want to buy can't. Nearly 25 percent of households cannot move because they owe more on their mortgage than their home is worth, according to Capital Economics. An additional 25 percent can't qualify for a new mortgage because selling their homes would leave them with too little money for a down payment.

"We're likely to see new lows hit across most major markets at some point in 2011," said Mark Vitner, a senior economist at Wells Fargo Securities. "We're afraid of all this turning into another vicious cycle."

Housing prices in all but one of the 20 cities tracked by Standard & Poor's/Case Shiller fell in December from November. And the overall index declined for the sixth straight month. Washington was the only metro area where prices rose month to month.

Continue reading at

Should You Pay Off the House?

With the housing market still struggling, more and more consumers are questioning whether or not they should try to pay off their mortgages early.

CNN reports:

    Maybe you're part of a young family, and whittling down your loan balance seems like a sound strategy. Or maybe you're counting down to retirement (perhaps even already kicking back), have only a few years of payments left, and are wondering if you should just knock off the balance.

    But if you're thinking of such a move, you're also well aware that mortgage interest is tax-deductible -- and if history is any guide, putting money into stocks will earn you a higher return over the long haul than putting it into real estate.

    The answers to the questions below can help you determine your best course of action.

    Do you have more pressing financial needs?

    Anyone who has credit card debt or isn't maxing out her 401(k) should make those the priority. You should also have at least six months' worth of living expenses in cash.

    A few years ago you would have been able to pull money out of your home quickly if, say, you lost your job. Now that lenders have tightened up, that's not so easy.

    Retirees and near-retirees contemplating a lump-sum payoff need to ensure they have enough liquid savings to handle emergencies such as unexpected medical expenses, especially because it's hard to tap equity on homes without first mortgages.

    And you shouldn't pull money out of your IRA to pay off your home loan, since the IRA funds will be taxed at ordinary income rates.

Read more here

How Do Sales Taxes Apply to a Groupon?

Tax official says they expect merchants to collect sales tax on face value of all Groupon purchases. News that should scare consumers and merchants alike.


Have you used a Groupon or a Living Social coupon recently?

When you handed over your coupon, did the merchant collect tax from you? Did he calculate the tax based on the full face value of your purchase, or the discounted amount you paid for it? Did he force you to ante up any tax in cash, or did he allow you to apply your coupon towards the full bill, including tax?

These aren’t academic questions–the answers could affect the attractiveness of Internet-based social coupon programs to consumers, merchants, and state tax collectors. Ultimately, the question of how social coupons should be taxed is likely to end up in court, says Veranda Smith, interim executive director of the Federation of Tax Administrators, which represents state tax officials.

In case you’ve missed this latest craze, in a typical deal you might pay $50 with your credit card to Living Social or Groupon over the Internet, and get via email a link to a coupon worth $100 at a local shop. (The social part comes in because in some cases the deal only goes through if a certain number of folks buy it. Plus, there are often incentives for referring your friends.) Neither coupon site collects taxes when you make your purchase and they warn their vouchers can’t be used for sales taxes or tips—unless the merchant allows otherwise. Groupon states in its Merchant Self-Service Agreement that the merchant “shall be responsible for paying all sales and use taxes related to the goods and services described in the offer.”

But just what are those? Spokesmen for tax administrators in three of the nation’s five most populous states—California, Florida and Illinois– told Forbes they expect merchants to collect sales tax on the face value of what you buy. In other words, they want their cut on $100 even though you only paid $50 and the local merchant collected maybe $25. By contrast, if a store printed up its own half-off coupon and allowed you to buy an $100 item for $50, the tax men would only tax the $50 you forked over.

With the sales tax in Chicago and Los Angeles now a stiff 9.75% this distinction is a big deal.

Read more here...

Tuesday, February 22, 2011

Bright Spot for Mortgages: Missed Payments Ease

According to a new report from the Mortgage Bankers Association, the percent of mortgage holders who are at least one payment past due or whose homes have been repossessed fell to the lowest levels in recent years. The rates declined 0.22% to 13.56% at the end of 2010, which is the lowest level since 2008.

CNN reports:

    Loans one payment past due were at 8.22%, down considerably from the 9.13% mark at the end of the third quarter and the lowest rate since the end of 2007, the beginning of the recession, the bankers said.

    That, according to Michael Fratantoni, vice president of research and economics for the MBA, was very welcome news.

    "I think we've turned the corner as concerned with loans 30 days late," he said. "It indicates that the economy has improved."

    A second factor in the improvement is that mortgage underwriting has gotten so much stricter over the past few years, in the wake of the housing market collapse, that many of the loans most likely to fail have already done so.

    The most dangerous years for mortgages are the third and fourth years, when delinquency rates peak, according to Fratantoni. The crop of mortgages entering into those dangerous years should not default as much because borrowers were so well qualified.

Read more here

Federal, State and Local Debt Hits Post-WWII Levels


The daunting tower of national, state and local debt in the United States will reach a level this year unmatched just after World War II and already exceeds the size of the entire economy, according to government estimates.

But any similarity between 1946 and now ends there. The U.S. debt levels tumbled in the years after World War II, but today they are still climbing and even deep cuts in spending won't completely change that for several years.

As President Obama and Republicans squabble over whose programs to cut and which taxes to raise, slow growth and a rising tide of interest payments - largely beyond their control - are making the job of fixing the budget much harder than in the past. Statehouses and governors face similar challenges.

After World War II, the federal debt - including debt purchased by the Social Security Trust Fund - hit nearly 122 percent of gross domestic product. State and municipal debt back then was minimal. By the time Dwight Eisenhower was elected president six years later, the federal government's debt had dipped to about three-fourths of GDP.

The key factor in the rapid drop in government debt, said Harvard University economist Kenneth Rogoff, was fast economic growth. Spurred by a young labor force, world-leading manufacturers, high personal savings rates, a pent-up demand for consumer goods after years of war and the Depression, and a bout of inflation, the economy grew 57 percent in six years. Thanks to sharp postwar cuts in defense outlays, federal government spending also tumbled for a couple of years.

Continued at

Why Investors Can't Get More Cash Out of U.S. Companies

A few weeks ago, I read a report that Microsoft borrowed over $2 billion in unsecured debt, even though the multinational corporation has an estimated $40 billion in cash and short-term securities. Why? Because of interest rates, and the complicated U.S. tax code that provides incentive for companies to keep cash out of the country. That’s some sound tax policy…

The Wall Street Journal reports:

    Microsoft declined to comment on whether its recent borrowing was partly driven by tax considerations. But, like many purportedly cash-rich companies, Microsoft can't bring home much of its cash without writing a fat check to the Internal Revenue Service.

    Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change.

    David Zion, a tax and accounting analyst at Credit Suisse, estimates that the companies in the Standard & Poor's 500-stock index have "north of $1 trillion" in undistributed foreign earnings, or profits that have been parked overseas to avoid U.S. tax. Not all of that is cash; some is in the form of inventories or other assets.

    U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governments—but, since the corporate-tax rate in the U.S. is one of the world's highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.

    That can put firms in the peculiar position of having tons of cash offshore that they might need but can't use at home without taking a tax hit.

    The U.S. is the only major country that taxes foreign earnings of its own companies this way. American investors may not come out ahead either. In a 2007 survey of executives at more than 400 companies, Massachusetts Institute of Technology economist Michelle Hanlon found that the desire to avoid the repatriation tax led to a variety of distortions, most of which end up making companies less efficient.

Read more here

Monday, February 21, 2011

Questions for the Tax Lady: February 21st, 2011

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: The IRS is taking $50 per month out of my pay check. They've been doing it for over a year, how can I get them to stop?

Answer: What you are experiencing is an IRS wage garnishment. Just one of the collection methods the IRS uses to collect on unpaid tax debts. There are a couple of ways to get the garnishment removed:

  1. Pay the entire balance of your tax debts in full.
  2. Negotiate an installment agreement with the IRS. This allows you to pay your debt in manageable monthly payments, instead of forced collections.
  3. Show the IRS you have a hardship and cannot afford to repay your debts at all, right now. This involves divulging your finances and bills to the IRS so they can see - in black and white - that you simply cannot afford to pay your debt right now.

If you don’t take some action, the IRS will keep garnishing your wages until your debt, with penalty and interest, is completely paid off. My recommendation: talk to a tax professional and get this handled ASAP!

Question: If I refinance a mortgage on a building and then pay it off, does the depreciation on the building continue?

Answer: The short answer is: YES. I have to assume this is a business-related building, not a personal use, or you wouldn’t be depreciating it, right? The depreciation should continue until you sell the property or take it out of use.

Additionally, the refinance costs may actually add to the amount you can depreciate. If your refinance included non-deductible fees and expenses, talk to your tax professional about how they can be depreciated.

San Francisco Wants to Tax Your Stock Options, All of Them

Although San Francisco authorities haven't enforced it, the local government does have tax provision that requires companies to pay a payroll tax on gains from employee stock options. However, with tax revenues down, many are wondering if the city will take action to collect these funds. Desperate times, right?


    Recently, I heard San Francisco Mayor Ed Lee on our local NPR station talking about how important it was to keep Twitter’s headquarters in San Francisco. To those worried that the recent talks between Twitter and the City were stalling, his words must have been reassuring. But if Lee really wants to keep Twitter– and thousands more tech jobs– in San Francisco he needs to defuse this much bigger ticking tax time-bomb now. This isn’t just about keeping Twitter in San Francisco– this has ramifications for San Francisco’s entire startup ecosystem.

    To be clear, this is not a trend. Even the federal government considers taxing these options off the table, and we haven’t been able to find a single city in the United States with such a far-reaching tax policy. This would create potentially huge costs for startups that they can sidestep simply by moving a few miles to the North, East or South. If enforced, expect an exodus of San Francisco jobs to surrounding areas.

    The provision: Section 902.1 of the San Francisco Business and Tax Code. It was amended in 2004 to include stock options. Here’s the relevant text of the provision (bolding added):

    SEC. 902.1. – PAYROLL EXPENSE.

    (a) The term “Payroll Expense” means the compensation paid to, on behalf of, or for the benefit of an individual, including shareholders of a professional corporation or a Limited Liability Company (“LLC”), including salaries, wages, bonuses, commissions, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of compensation, who during any tax year, perform work or render services, in whole or in part in the City; and if more than one individual or shareholders of a professional corporation or members of an LLC, during any tax year performs work or renders services in whole or in part in the City, the term “Payroll Expense” means the total compensation paid including salaries, wages, bonuses, commissions, property issued or transferred in exchange for the performance of services (including but not limited to stock options), in addition to any compensation for services to owners of pass-through entities, and any other form of compensation for services, to all such individuals and shareholders of a professional corporation or members of an LLC.

Read more here...

IRS and the Health Care Law

A reader asked if reports that the IRS would need over 1,000 new workers to administer Obama's health care reform law. Not surprisingly, the numbers are misleading...

Fact Check reports:

The IRS is actually asking for more new workers than reported in an article by U.S. News and World Report — a story that has generated a lot of Internet buzz after being picked up by news outlets, such as Fox News and The Daily Caller. The IRS budget request for fiscal year 2012 shows that the agency is seeking at least 1,269 full-time equivalent employees (FTEs) at a cost of $473 million to help implement the Patient Protection and Affordable Care Act.

But many of them are needed to deliver new tax credits, not to dun taxpayers. The agency is seeking to add 291 "revenue agents" — most of them (193) to "ensure accurate delivery of tax credits." The agency’s technology staff would see the biggest increase with the addition of 537 IT program analysts and specialists.

Still, Republican Sen. John Barrasso of Wyoming mischaracterized the IRS budget request in an interview on Fox News, falsely suggesting that all of the new hires will be auditing taxpayers.

Barrasso, Feb. 16: We don’t need a thousand new IRS agents who are now going to audit Obamacare.

That’s ridiculous. Yes, the IRS budget request lists 1,054 FTEs under the category of "enforcement initiatives" — which is the number cited by U.S. News. And, yes, the IRS wants 58 agents to enforce the new tanning salon tax, which took effect in 2010. But the 1,054 figure also includes 504 new hires to "ensure accurate delivery of tax credits." The law, among other things, provides tax credits for small businesses to offer coverage to their employees, beginning in April 2010.

Read more here

States Target Cell Phones for Stealth, Burdensome Taxes

In recent years, cell phones have eclipsed landlines, in a big way. States have noticed and are busily taxing mobile with average consumers paying 16% in taxes and fees. According to the Tax Foundation, Nebraska taxpayers face the highest cell phone tax rates:

    The number of U.S. cell phone subscribers has grown significantly in recent years, from 55 million in 1997 to 292 million in 2010.[1] That period has also seen a fall in landline telephones (there are now 50 million), and 2007 marked the first year that Americans spent more on cell phones than on landlines.[2] This trend toward cell phones has not gone unnoticed by state and local governments, which have targeted wireless services for higher taxes.

    The average U.S. wireless consumer pays taxes and fees of 16.26 percent, of which state-local charges average 11.21 percent, according to a newly released study that identifies and calculates wireless taxes and fees.[3] Twenty-three states have average state-local wireless taxes and fees in excess of 10 percent, and taking into account the infamous federal telephone excise tax (dating to the Spanish-American War and partly repealed in 2006), some cell phone subscribers pay more than 20 percent in taxes.

    Cell Taxes and Fees Are Often Hidden, Enabling Excessive Rates

    States favor the taxes because they can raise revenue in a relatively hidden way. Texas even sued Sprint because the company listed a state tax as a line-item in its bill, rather than hiding it from customers.[4] Utah uses a wireless fee to fund its poison control centers-a government service that benefits the general public regardless of cell phone ownership or usage. Six states (Kentucky, Indiana, North Dakota, Pennsylvania, Rhode Island, and South Dakota) impose both sales taxes on wireless customers and gross receipts taxes on wireless service providers, both of which are ultimately borne by customers. Universal Service Fund (USF) charges are modest in most states but particularly excessive in Nebraska and Kansas, where they exceed 4 percent of the wireless bill.

    Because each state and many localities can impose cell phone taxes, and because they can be imposed as a percentage or as a flat rate, there are numerous taxes which vary widely. Researchers have found it difficult to create a database of cell phone taxes, and cell phone companies have encountered similar problems in calculating the taxes. This can be a serious problem for cell phone businesses, because they collect the taxes from subscribers and can be held legally accountable for any mistakes-both over-collection and under-collection.

Continue reading at…

Saturday, February 19, 2011

Surprise! Obama, GOP Agree On These Cuts

Believe it or not, there are actually some programs that both the President and House Republicans want to cut!

CNN reports:

    Amid all the rhetorical denunciations, there are actually a few things the plans have in common. Not enough to make a difference, but a few.

    The proposals involved tap into one small part of the budget -- non-security discretionary spending -- for the biggest spending reductions. That slice of the budget accounts for around 12% of total spending, but is responsible for many popular government activities.

    President Obama's 2012 budget would freeze non-security discretionary spending for five years. And because Obama wants to spend more on certain programs within that portion of the budget, he has to slash funding for hundreds of others.

    The Republican plan would cut at least $61 billion in the final seven months of fiscal year 2011, which is a far steeper reduction than Obama wants in fiscal year 2012.

    Wait. We agree on something?

    Drill down further into the plans, though, and you'll find a smattering of specific programs that both sides want to cut.

    Why U.S. debt matters to you

    President Obama and House Republicans both propose to reduce funding for a program that helps low-income people pay their energy bills during periods of extreme heat or cold.

Read more here

Interest Rates Increase for the Second Quarter of 2011

Over the weekend, the Internal Revenue Service announced that interest rates for new quarter would increase by one percentage point.

    The rates will be:

    • four (4) percent for overpayments (three (3) percent in the case of a corporation);
    • four (4) percent for underpayments;
    • six (6) percent for large corporate underpayments; and
    • one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

    Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

    Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.

    The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. Additionally, the rate for determining the addition to tax for failure to pay estimated tax for the first 15 days in April 2011 is the 4 percent rate that applied to underpayments of tax during the first calendar quarter in 2011.

Read more here

Gov’t Has Borrowed an Additional $29,660 Per Household Since Obama Signed Stimulus

According to reports, the federal government has borrowed an additional $29,660 per household since President Barack Obama signed the economic stimulus, bringing the total national debt to $125,475.18 per household. Ouch.

CNS News reports:

    At the close of business on Feb. 17, 2009, the day Obama signed the $787-billion law, the national debt stood at $10.79 trillion ($10,789,783,760,341.41), according the Bureau of the Public Debt. At the close of business on Feb. 16, 2011, the national debt stood at $14.13 trillion ($14,129,889,690,377.50)—an increase of $3.34 trillion (3,340,105,930,036.09)

    The U.S. Census Bureau estimates that there are a total of 112,611,029 households in the United States, which average about 2.6 people per household. That means that the new debt accumulated in the two years since Feb. 17, 2009, when President Obama signed his economic stimulus law, equals about $29,660.55 per household.

    The current total national debt of $14.13 trillion can be divided into equal portions of $125,475.18 for each of the 112,611,029 households in the country.

Continue reading here

Friday, February 18, 2011

Recent Tax Scams You Should Know About

Scam artists are always on the lookout for ways to get your financial information. Tax season, when we’re all thinking about our W-2s, deductions and tax preparation, provides just another chance to dupe people. To help avoid becoming another identity theft victim, check out these new tax scams everyone should know about.

Free Tax Preparation Emails

Many tax preparation companies advertise free federal filing promotions each tax season. Not surprising is that email scammers have used those promotions to fool people into handing out their personal information. The latest scam involves an email offer for free tax help, and requests taxpayers provide a wealth of personal and financial information. Instead of using that information to prepare a tax return, the scammer steals your information in order to rob you blind. If you are going to file your return online, make sure you are doing so through a trusted and secure site, not one that sends you a scammy email advertisement.

W-2 Scam

Last month the Better Business Bureau issued a warning about a new scam wherein a taxpayer is asked to provide information from their W-2 online. Please remember, the IRS will not contact you via email to ask for personal information. W-2 forms are submitted by employers, not prepared by taxpayers. If the IRS truly has questions about your tax forms, they will send you a letter through the mail.

EFTPS Payment Emails

Another new email scam, that bloggers began noticing towards the end of 2010, is an email claiming to be from the IRS regarding the Electronic Federal Tax Payment System (EFTPS). Although the links did eventually forward you to the EFTPS site, they first went through a redirect that would install spyware on your computer. Of course, with the spyware installed on your computer, as soon as you entered any personal and financial information into the EFTPS, the scammer had everything they needed to steal your identity and your hard earned cash.

Treasury Department Requests

Although this one may seem obvious, you should always ignore emails from senders claiming that you are being awarded a refund or tax inheritance. These emails sometimes claim they are contacting you on behalf of the Treasury Department and need you to provide banking information in order to get the funds. Please remember, that government entities will not make their first contact with you an email.

How to Avoid Tax Scams

It is easy to avoid becoming the victim of tax related identity theft if you follow these 3 basic rules:

1. Do not open any attachments in emails from groups claiming to be the IRS, or offering free tax advice. If you are interested in an advertisement that shows up in your inbox, contact the company over the phone.

2. Do not reply to any emails with personal tax or financial information about yourself. The IRS will never request information such as your social security number, or any financial information, through an email. As a general rule avoid doing business with any company asking you to send personal information via email. Even if the company is legitimate, emailing sensitive information poses a serious security risk. A

3. Do not click any links from organizations you do not recognize. Even if the link appears to be from the IRS.

How to Report Questionable Emails

If you get an email that you think might be part of a tax scam, you should send it to the IRS to investigate. Simply forward it to, and delete the message from your inbox.

Here’s wishing you a safe and secure tax season!

MSNBC Calls Out Congressmen Sleeping in his Office

Do you think Lawrence O'Donnell was justified in suggesting the GOP Congressman was a tax criminal? Let me know,

Hat Tip: TaxProf Blog

Thursday, February 17, 2011

Gulf Oil Spill Claim Payments are Taxable

The IRS confirmed yesterday that payments for lost wages, profits, and business income resulting from the oil spill are indeed taxable. Hope all those who were affected by the spill saved some of those payments… reports:

    The IRS said, it's important that people, if possible, budget for the tax liability on their payments from the claims fund.

    Payments made in 2010 are payable from 2010 taxes, which are due April 18. Tax filings are normally due April 15, but because that is a Washington D.C. holiday -- Emancipation Day -- so everyone across the country is being given an extra three days for the tax filing deadline.

    Payments from the Gulf Claim Fund made in 2011 would be paid on 2011 taxes, which are due in April 2012.

    Dee Harris Stepter, spokeswoman for New Orleans IRS office, said the agency is encouraging people to check with their tax preparers in detail about the effect of compensation from the BP oil fund.

    For those struggling with payment and collection issues, she suggested paying as much as possible by the April 18 deadline to minimize penalties and interest. For unpaid balances, Stepter said people can work out payment plans with IRS. People with questions can contact a Gulf oil spill tax assistance line: 1.866.562.5227.

Continue reading at

20 Surprising Facts Most Taxpayers Don't Know

Did you know that in 1913 the federal tax code was only 400 pages? In comparison, today it is over 70,000 pages. Investing Answers has put together a list of surprising facts about the IRS and the American tax system. You can find a few of their facts below, or the full list here.

    According to one count, there are over 3.7 words in the tax code.

    Since the beginning of 2001, there have been over 3,250 changes to the tax code -- an average of more than one a day. More than 500 changes were made in 2008 alone.

    The IRS sends out an average of eight billion pieces of paper every tax season. If each sheet were laid out end-to-end, it would wrap around the earth 28 times.

    In order for the IRS to print all that paper, over 300,000 trees are cut down every year. (Just one more reason to consider filing online.)

    Tax Day is... April 18th? The date when tax returns must be filed with the IRS usually lands on April 15th. However, if the 15th is a weekend or holiday, Tax Day is moved to the next business day. In 2011, Emancipation Day is being held in Washington, D.C. on Friday, April 15, so Tax Day is bumped to the following Monday.

    Every year, U.S. taxpayers and businesses spend roughly 7.6 billion hours preparing their taxes.

Read more here

CA Governor Freezes Hiring, Drops Minimum Wage Suit

Jerry Brown, the governor of my home state of California ordered a hiring freeze earlier this week to help with the state government's $26.6 billion financial crisis. He also dropped a lawsuit filed by former governor Arnold Schwarzenegger regarding the governor’s authority to pay workers minimum wage.

From AP News:

    Brown announced what he said was a comprehensive hiring freeze that applies to vacant, seasonal, full-time and part-time positions. The administration estimates the freeze, along with other cost-cutting efforts like reducing the number of state-issued cell phones, will save $363 million in the fiscal year that begins July 1, about $200 million of which will be in general fund savings.

    "We must do everything possible to save money and make government leaner and more efficient," the Democratic governor said in a statement.

    Brown is allowing for certain exemptions that are critical to public safety, revenue collection and other core functions. An example includes positions that respond to disasters or life-threatening situations. He also will continue to make senior-level appointments to form his new administration.

    According to the state controller's office, California had about 234,000 employees as of Jan. 31.

    Hiring freezes aren't new in California. Schwarzenegger ordered a state hiring freeze and payroll cuts to conserve cash as California struggled with a $42 billion budget deficit back in 2008. He also imposed days off without pay, which became known as "furlough Fridays."

More here

Healthcare Reform Law Requires New IRS Army of 1,054

According to the IRS, it will take an additional 1,054 new auditors and staffers to watch over the implementation of health care reform. A full 81 workers will be needed just to make sure the tanning excise tax is levied correctly. Is this efficient?

US reports:

    "The ACA [Affordable Care Act] will require additional resources to build new IT systems; modify existing tax processing systems; provide taxpayer outreach and assistance services; make enhancements to notices, collections, and case management systems to address and resolve taxpayer issues timely and accurately; and conduct focused examinations to encourage compliance," said the newly released IRS budget.

    In its request, the IRS explained that the tax changes associated with health reform are huge. "Implementation of the Affordable Care Act of 2010 presents a major challenge to the IRS. ACA represents the largest set of tax law changes in more than 20 years, with more than 40 provisions that amend the tax laws."

    Unsaid: The requests are just the beginning, since the new healthcare program is evolving and won't be fully implemented until about 2014.

    The detailed IRS budget documents spell out exactly what most of the new workforce will be doing. For example, some 81 will be tasked just to handle the tax reporting of 25,000 tanning salons. They face a new 10 percent excise tax on indoor tanning services. Another 76 will be assigned to make sure businesses engaged in making and imported drugs pay their new fee which is expected to deliver $2.8 billion to the Treasury in 2012 and 2013. The new healthcare corps will also require new facilities and computers.

    The document gives the GOP a bright target to hit if they plan to make good on promises to defund the president's healthcare plan.

Read more here

Wednesday, February 16, 2011

5,100 More IRS Agents

Ah, just what the average taxpayer was hoping for: more IRS agents.


    President Obama's fiscal 2012 budget doesn't cut much of anything (see above), and certainly not the Internal Revenue Service. The White House is requesting that the most beloved of all government agencies get an additional 5,100 agents next year, no doubt to wring further tax revenue from Americans. The White House wants to give the IRS a 9.4% raise in fiscal 2012, to $13.28 billion. Reuters reports this would allow for a roughly 5% increase in agency manpower to 100,537, including $460 million more for tax enforcement than in 2010.

    We doubt this is the kind of fiscal discipline that voters had in mind in November, but it does reflect the mentality of an Administration that assumes it could go a long way to balancing the budget if only fewer Americans shirked their tax bills. The 5,100 extra IRS gumshoes are supposed to chase the $300 billion "tax gap," the Beltway's version of the Loch Ness monster that is the difference between what the IRS collects and what Congress thinks Americans owe. It's about as real as Nessie, though at least with the monster some Scots claim photographic evidence.

    This is the same mentality that gave us the IRS Form 1099 small business harassment as part of ObamaCare, a provision that 81 Senators voted last week to repeal. Federal revenues are still below normal, although individual tax receipts are up 23% through January as the recovery gains steam. Revenues will rise as growth does, no thanks to the IRS.

Continue reading at

IRS Begins Processing Tax Forms Affected by Late Tax Changes

According to their latest press release, the IRS has finally begun processing individual tax returns affected by legislation enacted in December. The agency is also reminding taxpayers that they can e-file immediately. And I would like to remind you to get on top of your taxes, procrastination does not pay! reports:

    On Monday, IRS systems began to accept and process both e-file and paper tax returns claiming itemized deductions on Form 1040, Schedule A, as well as deductions for state and local sales tax, higher education tuition and fees and educator expenses.

    “The IRS is now accepting all the 1040 forms,” IRS Commissioner Doug Shulman said. “We worked hard to update our systems and get the changes in place as quickly as possible. We appreciate the patience of those impacted by the delay. We urge taxpayers to use e-file with direct deposit, and they can get their refunds within days.”

    In late December 2010, the IRS announced it would delay processing of some tax returns in order to update processing systems to accommodate the late tax law changes. These tax law provisions were extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which became law on Dec. 17.

    For the vast majority of taxpayers, the filing season this year began on time in January. Most taxpayers claiming itemized deductions and the other delayed forms file later in the year.

    The IRS urged taxpayers who haven’t filed yet to use e-file instead of paper tax forms to ensure accuracy and to get refunds fast. Taxpayers can do their taxes for free through Free File, which is brand-name software or online fillable forms. Free File is available exclusively at Anyone who makes $58,000 or less can use Free File software. There are no income limits to online fillable forms. Both Free File software and Free File Fillable Forms allow taxpayers to prepare and e-file their federal returns for free.

    The IRS worked closely with the tax software industry and the tax professional community during the reprogramming process to minimize disruptions for taxpayers and ensure a smooth tax season.

Read more here

K-Fed Owes Nearly $20k in Back Taxes

TMZ is claiming that Kevin Federline (ex husband of pop mega star Britney Spears) owes Uncle Sam. Kevin reportedly owes nearly $20,000 in back taxes. Let’s hope those spousal support payments will cover this new bill….

    According to documents filed last week with the L.A. County Recorder's Office and obtained by TMZ, K-Fed has been slapped with a federal tax lien to the tune of $17,969.81. It's for the period ending in December 2008, just a few months after his divorce from Britney Spears was finalized.

Read more here

Uncle Sam Wants You... to Repay the Home Tax Credit

If you bought a house in 2008, and took advantage of the $7,500 credit, your timing was not so good. Those who bought in 08 will need to repay that money to the IRS.

MSNBC’s Allison Linn explains:

    Uncle Sam has a reminder for some people who took advantage of the first-time homebuyer tax credit three years ago: He wants his money back.

    Americans who bought homes in 2008 using the government’s tax credit will be required to start repaying the credit beginning with their 2010 tax return, according to the Internal Revenue Service.

    In an odd twist, those who took advantage of a nearly identical tax credit in 2009 or 2010 will not be required to pay it back.

    Under the terms of the 2008 tax credit, the credit must be paid back over a 15-year period, beginning with this year’s return.

    That means anyone who took the maximum $7,500 credit will have to add $500 to their income tax liability for 15 years. If you sell your house before the 15 years are up, the entire tax credit bill will be due the year the house is sold.

    The Internal Revenue Service describes the 2008 program as “like an interest-free loan.”

Read more here

(Thanks to Marty Wolk for the heads up!)

Tuesday, February 15, 2011

Tax-Time Tidbits You Need to Know

The Everett Washington Herald has put together a useful article with 6 things everyone should know for tax season. You can find a portion of their list below, or the full text at

    Three more days: Federal taxpayers have until April 18 rather than the normal April 15 to file returns this year.

    File for free: The IRS "Free File" program is up and running. It is a chance to prepare and file your federal return for free. Go to if your adjusted gross income is $58,000 or less.

    No account? No problem: If you do not have a bank account, keep an eye out for a pilot program that offers a low-cost way to speed tax refunds.

    The Department of Treasury recently mailed out letters to 600,000 low- and moderate-income individuals nationwide who have limited or no access to a traditional bank account.

    Taxpayers who receive the letters can consider activating a MyAccountCard Visa Prepaid Debit Card in time to have their 2010 federal income tax refunds directly deposited onto those cards.

    Such cards sure beat the high cost of a refund anticipation loan.

    Download paperwork: Tackle the tax season one piece of paperwork at a time.

    Start finding the current 1099 forms for the bank accounts, CDs, etc., that you had on the 2009 return.

More here

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