Questions for the Tax Lady: November 1st, 2010

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: Tax-Related Question: Can I claim my daughter who is 34 and has had no income for 3 years, I have been supporting her and not claimed her before. I was wondering if I could use her for a tax deduction .

Answer: You might be surprised how many people are asking this question these days. With the economy still stalled out and new jobs tough to find, more families are turning toward multi-generational living. Of course, there are tax consequences for every life choice, and helping to support financially your adult daughter is certainly no exception.

Let’s get down to brass tacks. Of course, like all tax questions, before you make a move you are not sure about, you need to speak with a tax professional who is familiar with your specific situation. That being said, you should be able to claim a dependent exemption for your adult daughter under the “Qualifying Relative” rules.

The requirements are:

• The person you are claiming as a dependent cannot be your qualifying child or the qualifying child of any other taxpayer. (Since your daughter is over the age of 24, she is not your qualifying child for tax purposes. Instead she is a qualifying relative see the IRS Publication 501 http://www.irs.gov/publications/p501/ar02.html#en_US_publink1000220868 for more information.)
• The person either (a) must be related to you, or (b) must live with you all year as a member of your household² (and your relationship must not violate local law).
• The person's gross income for the year must be less than $3,650.
• You must provide more than half of the person's total support for the year.

From the information you provided, looks like you will be able to claim a dependent exemption for your daughter, valued at $3,650 of exempted income for 2010. This means you may also be able to claim deductions for certain expenses incurred in supporting her. Check with a tax professional to see what you may claim.

Question: Isn't paying taxes voluntary?. I haven't files a tax return since 2004. I've done research on the Internet on how many cases the IRS has lost because that cant prove in writing or any law that says the government can tax someones labor. Nor can the IRS prove in writing the law that says one MUST file a tax return. I'm thinking of filing a law suit against them and use the precedent regarding the FEDX pilot and others I've seen on the Internet. Can you help me. The IRS levied my bank account on 10/27 and my kids are hungry.

Answer: I’m glad you asked this question.

Every so often I run into someone who is under the misconception that they do not have to pay taxes. Here’s the bottom line: we all have to pay taxes.

But let me clear up some essential facts:

The word "voluntary," as used in IRS publications, refers to our system of allowing taxpayers to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them. According to the IRS:

The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section. (Section 11 imposes a tax on the taxable income of corporations.)

Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

As to fighting in court, regardless of what information you are finding on the internet, let me tell you that IRS Criminal prosecutions boast a conviction rate over 80%. For a prime example of how tax protesters fare in court, look at Irwin Schiff. Mr. Schiff is currently serving 13 years in prison on a number of tax charges resulting from his protesting the legality of income taxes.

While there is nothing stopping you from filing a lawsuit against the government, assuming you can afford to hire an attorney, or even find an attorney willing to take your case, please think again. Honestly, it is highly unlikely that you would win. People with far more resources have tried and failed repeatedly.

Your best course of action is to work with the IRS to find a workable resolution to your tax debts. To file a tax return every year, pay what you owe, and get compliant as soon as possible. As you have stated, the IRS has already levied your bank account, and they have the power to do more, like garnish your wages, or seize your personal property. You write that your “kids are hungry”, so it appears your family is already suffering. I would advise you not to gamble with their well being by pursuing this further..

For more information on tax protester arguments and the legality of income tax, please review the IRS’s positions on each one found here: http://www.irs.gov/taxpros/article/0,,id=159853,00.html

Wireless Group Wants Repeal of Cell Phone Tax Law

Wireless association CTIA is the latest group to support new legislation attempting to repeal the 20 year old cell phone tax. It is supposed to be levied on the personal use of employer provided cell phones, but there is a lot of confusion about how these taxes should be calculated. As such, several groups have spoken out against the law, including the IRS Commissioner.

"The alternatives [to legislation] proposed by the IRS are either incomplete or inadequate solutions that would continue to subject employees and employers to onerous call log requirements," CTIA President Steve Largent said.

CTIA counts among its members the country's largest wireless companies – Verizon Wireless, AT&T Inc., Sprint Nextel Corp., and T-Mobile USA. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone PLC. T-Mobile is a unit of Deutsche Telekom.

The IRS is collecting comments on the cell phone-tax law. In June, IRS Commissioner Doug Shulman asked Congress to repeal it, calling it "obsolete."

Mr. Shulman's statement signaled a quick turnabout for the IRS, which had earlier proposed that employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

Continued at the Wall Street Journal…

T.E.A. Parties

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

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

One Tea Party site states:

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

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

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

The Re Tea Party Website states:

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

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

ENOUGH!

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

What's Coming Up For Future 'Tea Party' Protests?

From the LA Times.com:

Last month's "tea party" protests have come and gone but are not forgotten. New protests are already brewing, some maybe this holiday weekend, others probably for July 4, with text messages and tweets flying back and forth.

The phenomenon in many ways is familiar in American political history -- a kind of eruption, an incoherent lashing out by people angry over taxes and spending and big government and bigger spending. And the uncertainty of their current lives.

Contrary to some cable news channels, we found "tea party" protesters often to be just as angry at Republicans in general and George W. Bush in particular as at the awe-inspiring size of the Obama Democratic administration's spending plans.

Historically, these protests have fizzled without some political personality to coalesce around -- a Gene McCarthy, a John Anderson, a George Wallace. A Ron Paul even.

Our Times colleague Richard Fausset spent a good deal of time recently with "tea party" participants. And we asked him to go through his notes and thoughts and share the experiences with us. Here's what he told us:

The people I talked with had a variety of targets. This doesn’t mean they went easy on Obama, however. One fake campaign sign showed a picture of the president and a certain hirsute German philosopher: It said: “Obama Marx ’08 – BFF.”

Another sign featured a picture of Obama in a Soviet officers’ uniform and the words: “JUST SAY NYET.”

“Hey, is that available as a T-shirt?” a guy asked the sign holder. “It will be soon,” came the reply.

It was somewhat surprising to hear from numerous folks that their beef wasn’t just with Obama’s economic policies. Time and again, people said they'd been just as upset with what they saw as profligate spending under Bush.

Tim Lee was typical. A councilman from suburban Atlanta's Cobb County. “The Republicans,” he said, “were doing just as bad for eight years.”

Lee’s home county, like many municipalities around the country, has been facing its own economic crisis, forced to cut millions from budgets to match anemic tax revenue. As for the national economy, he said the federal government should have “let it crash” instead of offering bailouts to troubled industries and a big stimulus package.

We would have picked ourselves up and moved on,” Lee added. “The pain would have been short-term. Now we’re taking the long- term pain of having to pay all that money back.”

John Pettit, a 48-year-old contractor, hoisted a sign that read “Chains – we can count on.” Pettit said the nation was “headed for bondage” with its reliance on government borrowing. Pettit’s concerns about government policy didn’t start with Obama or the current Congress, he said.

It went all the way back to the New Deal. Although he said the new guys were part of that long, sorry history by spending money that they simply didn’t have. “Hey," Pettit said, "good habits are learned in bad times. And bad habits are learned in good times. Right now, Congress isn’t learning.”

The rallies typically have a temporary stage, a parade of local officials speaking, radio DJs and minor celebrities rallying the crowd.

What emerges in thought later is the lack of a unifying figure around whom the "tea party" folks can rally.

It will be interesting to see if someone emerges as organizers roll out plans for the next round of protests. If it is to be effective in the long term, it seems the movement will need a decider: not just a public figurehead, but someone who can focus and modulate the multifarious blob of themes and emotions that seem to drive this fascinating middle-class revolt.

Someone, in short, who can tap both the thoughtfulness and anger behind the movement, the patriotism and Americans’ natural skepticism of government power … plus the anti-Obamaism, the call for a fair tax, the fear of new controls on carbon emissions. All that and more.

D.C. Tax Protest Is No Tea Party

From the WashingtonPost.com:

First, a truck was to dump a million bags of tea onto tarps in Lafayette Square. But it ran into permit trouble and was turned away.

Then rally organizers showed up outside the Treasury Department. But authorities told them they lacked proper permission and could not set up a stage there.

Then it started to rain.

Next, somebody threw a box of tea over the White House fence, and the police evacuated the park.

Finally, the truck's driver, who had been wandering around town for hours after an overnight drive from Georgia, found a place to unload the cargo: 12 floors up in a downtown advocacy group. Without much of an audience.

The tea party protest of 2009 was a comedy of aggravation, but no matter. Hundreds of demonstrators ignored the missing truck, the dreary weather and the red tape and gathered in Lafayette Square yesterday for a rain-soaked but boisterous rally to protest high taxes, congressional earmarks and government bailouts.

They carried flags and signs bearing such sentiments as "Blackbeard Obama, King of the Tax Pirates" and "Obama Lied, Capitalism Died." In ponchos and under umbrellas, they cheered speakers and gave voice to a sense that the administration has the country on a path to ruin at the expense of the average taxpayer.

"I want my grandson to have as good a life as I've had and have the same opportunities," said JoAnn Abbott of Dale City, one of the rally organizers. "I don't want him stuck with a $12 trillion debt."

"The runaway spending has got to stop," she said. "The people on [Capitol Hill] are our employees. We don't work for them. It's about time our employees [started] working for us. The so-called stimulus bill? . . . The thing oinked, it had so much pork in it."

Tax Day Tea Party Celebrations

Here is a good round-up of Tax Day Tea Parties happening nationwide, via Instapundit. Also, check out:

• Pajamas TV Live Stream
• Via Twitter
• Via Google Maps
• Teabagging the Establishment
• Tax Day Tea Party Open Thread

Finally, here is a good entry by Michelle Malkin describing how the Tea Party phenomenon got started.

California's Anti-Tax Crusaders Talk Revolt

From Reuters.com:

Taking inspiration from a landmark 1970s tax revolt, a determined group of activists say the moment is right for another voter uprising in California, where recession-battered residents have been hit with the highest income and sales tax rates in the nation.

And like Proposition 13, the 1978 ballot measure that transformed the state's political landscape and ignited tax-reform movements nationwide, they see the next backlash coming not from either major political party, but from the people.

If the anti-tax crusaders can galvanize voter discontent, they hope to roll back the latest tax hikes, impose permanent, iron-clad spending caps on Sacramento lawmakers and make the issue central in the 2010 gubernatorial election.

"There's a lot of latent anger boiling to the surface out there," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, a group named after the California anti-tax crusader who spearheaded Prop 13.

An angry mob of thousands converged on an Orange County parking lot in southern California on a recent Saturday morning for an anti-tax protest, stunning even the organizers with the size of the turnout. It was just one in a series of public demonstrations that have cropped up around the state.

Talk of a brewing tax revolt has been largely ignored by the mainstream media, and many political analysts are skeptical, though they concede that the taxpayer mutiny that led to the landmark Prop 13 was similarly dismissed by political professionals.

That referendum passed in a landslide despite furious opposition from the political establishment -- and highlighted the possibilities for grassroots campaigners to enact measures with ballot initiatives and bypass the legislature.