Friday, December 18, 2009

Friday’s Tax Quote – December 18, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"In levying taxes and in shearing sheep it is well to stop when you get down to the skin."

- Austin O’Malley

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Tuesday, December 15, 2009

Who Guards the Guard Dog? - Estate Planning for Your Pets.

To write a tax blog, you have to love taxes. The trouble is, the Internal Revenue Code doesn't come running to jump in your lap and lick your face when you get home at night.  You see, the Code doesn't love you back.  But a dog?  A dog loves you unconditionally and is always happy to see you.

Its for this reason that I wanted to post this article about estate planning for family pets.  No. This is not going to tell you that your cat needs a will or that your goldfish needs a healthcare power of attorney.  Rather, it discusses the need for planning what will happen to your pets if something happens to you.  Because estate planning often involves tax considerations, I thought that this would be appropriate on this blog (albeit tangential).

"Who Did You Get to Watch the Dog?"  By Michael Berzowski.

"It goes without saying that pets play an extremely significant role in the lives of many individuals, ranging from companionship or exercise partner to positive health impact such as lower blood pressure, reduced stress, anxiety and depression and acceleration of recovery following hospitalization.

This article addresses the issue of who will take care of your pet if you are unable to do so.  It is often assumed that a family member or close friend will undertake responsibility.  Since this is not true for all pet owners, some planning may be in order to provide for the health and welfare of your pet.  Planning would be particularly desirable if you live alone, have a challenging or multiple pets, your pet requires special care or you simply do not know anyone who would meet your standards.

Some people pursue informal arrangements which amounts to discussing matters resulting in an implied arrangement that the individual will assume responsibility for the pet.  Besides being unenforceable, these arrangements frequently overlook the financial demands to make custody successful.

In order to increase success, you should consider gravitating toward formalized planning.  The first step should be preparation of an animal card to include a photo of the pet, its location and identifying the individual to contact in the event of an emergency.  Related would be the preparation of more detailed instructions for the animal’s immediate care if you die or become incapacitated.  Both cases should address access to the pet.  Finally, you may wish to consider posting signs regarding the pet on the entrances to your dwelling, alerting individuals entering the house that pets are inside.

There are various choices with regard to pet protection.  One technique creates an enforceable lifetime or testamentary trust in favor of a human beneficiary with the trustee required to make distributions to the beneficiary to cover the pet expenses, provided the beneficiary is taking care of the pet.  Another technique would follow the Wisconsin Pet Trust Law, Wis. Stats. 701.11, which allows for the creation of an honorary trust for the benefit of the pet.  The problem is that the trustee cannot be forced to use the property for the pet because honorary trusts are unenforceable.  If the trustee fails to act, then a resulting trust arises in favor of the transferor’s estate and a court is authorized to order the transferee to transfer the property.

There are other choices and issues.  This article merely scratches the surface with regard to the subject with its goal being to trigger a general awareness.  If you decide to do something, you will have ample opportunity to address the nuances and material considerations such as the character of the trustee and the beneficiary, as well as other available courses of action."

Monday, December 14, 2009

The Limits of Limited Liability.

Earlier this year I began writing a column for the Wisconsin Law Journal to address various tax issues that affect other areas of the law. In my most recent column, I discuss a sometimes unexpected result when a business fails to pay its employment or sales taxes.

When anyone that is responsible for making sure that employment or sales taxes are paid fails to do so, that person can be held personally liable for the tax. This is true whether that person is an owner, officer or employee. To learn more you can check out the article. “Limited Liability? Not So Fast

Friday, December 11, 2009

Friday's Tax Quote - December 11, 2009

"I love America, but I can’t spend the whole year here. I can’t afford the taxes."

Mick Jagger

Thursday, December 10, 2009

Wisconsin Tax Appeals Commission Gets Busy

There is no question that the current state of the economy is financially difficult on individuals and businesses. The same is true for the State of Wisconsin. A bad economy means that people are spending less. When people spend less, the government collects less in sales tax. Everyone is looking for more revenue and looking to spend less. As a result, there is an up tick in the amount of cases that are being challenged by taxpayers in the Wisconsin Tax Appeals Commission.

Jane Pribek of the Wisconsin Law Journal recently reported that the Tax Appeals Commission expects the number of cases continue to grow through 2010 (Tax appeals expected to increase, Dec. 7, 2009). Ms. Pribek also notes that the complexity of these cases continues to increase.

The increase in cases tells me that the Wisconsin Department of Revenue is looking to increase revenues by broadening the interpretation of the tax statutes. It also tells me that people are more likely to fight to hang onto their money as their audits move through the system.

The Wisconsin tax system works like this:

(1) a taxpayer is audited,

(2) if the taxpayer is dissatisfied with the result of the audit, he/she can appeal to the Resolution Unit of the Department of Revenue,

(3) if dissatisfied with the result of the appeal, the case can be challenged in the Tax Appeals Commission,

(4) after the Tax Appeals Commission a case can be further contested in the local circuit court, and

(5) after the circuit court, a case can go to the Wisconsin Court of Appeals and then potentially the Wisconsin Supreme Court.

Going through this whole procedure takes years. As a result, I expect that the next thing we’ll is going to be an increase in the number of tax cases jamming up an already crowded circuit court system. Over the next few years we’ll see cases moving through the appellate courts too. Because these cases are more complex, perhaps we can expect to see more and more significant tax caselaw development over the next 5 years.

Why? Because of the bad economy today.

Friday, December 4, 2009

Friday's Tax Quote - December 4, 2009

"Those men would deserve the gratitude of ages, who should discover a mode of government that contained the greatest sum of individual happiness with the least national expense."

- Giacinto Dragonetti

Friday, November 27, 2009

Friday’s Tax Quote – November 27, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"If you are truly serious about preparing your child for the future, don’t teach him to subtract. Teach him to deduct."

-Fran Lebowitz

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, November 20, 2009

Friday's Tax Quote - November 20, 2009

"Neither will it be that a people over-laid with taxes should ever become valiant….No people over-charged with tribute is fit for empire."

- Francis Bacon

Friday, November 13, 2009

Friday's Tax Quote - November 13, 2009

"A fine is a tax for doing something wrong. A tax is a fine for doing something right."

- Anonymous

Friday, November 6, 2009

Friday's Tax Quote - November 6, 2009

"[Tax law jurisprudence is] a field beset with invisible boomerangs."

- Robert H. Jackson

Friday, October 30, 2009

Friday’s Tax Quote – October 30, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"Too bad that all the people who know how to run the country are busy driving taxicabs and cutting hair."

- George Burns

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Monday, October 26, 2009

The Best Tax Advice Ever

Recently, I began writing a regular tax column for the Wisconsin Law Journal (a fine publication). In the most recent article, I explained the two practical practices that I believe have the largest impact on the success of a business and the ability to deal with unexpected tax issues. The article can be found here: The Best Tax Advice

Friday, October 16, 2009

Friday, October 9, 2009

Friday's Tax Quote - October 9, 2009

"Cursed war and racking tax
Have left us scarcely raiment to our backs."

- Sir Walter Scott

Friday, October 2, 2009

Friday's Tax Quote - October 2, 2009

"Taxes send messages, and in several ways. They affect the costs and returns to different kinds of activity, thereby influencing patterns of use of capital and labor. They also make statements about the relative desirability of different types of activity and patters of conduct. Conduct that carries a low tax induces people to emulate that conduct. Conduct that carries a high tax discourages such conduct."

- Edward K. McCaffery and Richard E. Wagner

What is the Voluntary Disclosure Program?

Many taxpayers are coming forward to disclose foreign financial accounts in an effort to avoid the harsh penalties associated with failing to file the FBAR tax form. The IRS is applying a reduced penalty structure to those that make a "Voluntary Disclosure" of these foreign financial accounts by October 15, 2009.

But what exactly is a Voluntary Disclosure? The IRS has provided a number of Q & A's that answer many of the questions that people and business owners may have about the program. Concerning the nature of the program, the IRS says:

Q4. What is the IRS’s Voluntary Disclosure Practice?

A4. The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation of taking timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

[Note: the IRS description focuses on the avoidance of criminal penalties for failing to comply with the tax law. In the context of foreign financial accounts, the Voluntary Disclosure Program also offers a reduced penalty structure.]

What is not made clear in this answer is what it means for a disclosure to be made "truthfully, timely, and completely." Its easy to understand what truthful and complete mean, but what about "timely." When we think about filing a tax return, "timely" means filing by the due date. That is not the case here though. A Voluntary Disclosure is not considered timely just because it is made before the October 15, 2009 deadline.

According to the Internal Revenue Manual Section 9.5.11.9, a disclosure is timely if it is received before:

a. the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;

b. the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;

c. the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or

d. the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).

So, basically, if a person or business owner is already under the IRS microscope, that person will not be able to make a Voluntary Disclosure because their disclosure will not be considered "timely." As a result, the will not be able to reduce their exposure to penalties for having failed to file an FBAR form.

Thursday, October 1, 2009

FBAR Voluntary Disclosure - No Unreported Income

U.S persons having foreign financial accounts are required to report the existence of the account on a Form 90-22.1 (known as an FBAR) if the aggregate value of all such accounts equal or exceed $10,000. The IRS is currently encouraging taxpayers to come forward through its Voluntary Disclosure Program if they have not filed the FBAR forms and have failed to report any taxable income from those accounts.

But what if those foreign accounts have not generated any taxable income? What if any taxable income on those accounts was reported on a tax return?

The answer is that an FBAR form is still required. However, the taxpayer does not have to come forward through the Voluntary Disclosure Program.

Ordinarily the penalties for failing to file an FBAR can be quite severe. The IRS has agreed to waive these penalties in their entirety, however, if the taxpayer has paid all tax due in connection with the foreign accounts but have simply failed to file the FBAR. Moreover, these taxpayers do not need to go through the more elaborate Voluntary Disclosure Program. Instead, they can simply file the past due FBAR forms together with an explanation as to why they were not filed in the first place.

Be careful though, if a taxpayer has not reported all income from the accounts and simply files the FBAR forms without making a truthful, timely and complete disclosure, they can be subjected to the much more severe penalties.

For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, the IRS says that they:

"should file the delinquent FBAR reports according to the instructions (send to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a statement explaining why the reports are filed late. Send copies of the delinquent FBARs, together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit at:

Internal Revenue Service
11501 Roosevelt Blvd.
South Bldg., Room 2002
Philadelphia, PA 19154
Attn: Charlie Judge, Offshore Unit, DP S-611

The IRS will not impose a penalty for the failure to file the FBARs. "


Reporting Foreign Accounts - The Voluntary Disclosure/Amnesty Program

A lot has been said in the news recently about the Internal Revenue Service working with foreign countries (particularly Switzerland) on the disclosure of information concerning U.S. persons owning foreign financial accounts. However, when most people hear these stories, they assume that the government is only interested in those people (or businesses) who have opened foreign accounts in an effort to evade U.S. income taxes.

The fact is, however, that any person or business that has a “foreign financial account” must disclose its existence to the IRS on a Form 90-22.1, commonly known as an FBAR. The FBAR form is due on June 30 of any calendar year and must disclose any foreign accounts if the aggregate balance of all foreign accounts equals $10,000 or more. Even if the person who owns the account reported and paid tax on the income from that account, they must still file the FBAR form.

Failing to file this form can have severe consequences. The failure can result in a $10,000 penalty for each failure to file. Where that failure is considered to be willful, penalties can rise to an amount equal to 50% of the account balances. Therefore, if someone willfully fails to file the form for three years in a row, the penalties can equal an aggregate of 150% of the account balances. Criminal penalties are also possible.

Recognizing that many people may have been unaware of the requirement to report foreign financial accounts, or may not have realized that their holdings constitute foreign financial accounts, the IRS is allowing these U.S. persons to participate in its Voluntary Disclosure Program (essentially an amnesty program). The program allows taxpayers to disclosure the foreign accounts, pay any tax related to those accounts and reduce the amount of penalties that will be imposed.

Unfortunately, however, this Voluntary Disclosure Program (i.e. amnesty) is only available with the reduced penalty structure for a limited amount of time. On September 21, 2009, the IRS extended the deadline for participating in the Program until October 15, 2009. By having done so, the IRS hopes to increase the number of taxpayers that come forward through the Voluntary Disclosure Program.

This was certainly good news for taxpayers who were attempting to comply with the Program but were scrambling to get the materials necessary together before the amnesty expires. Perhaps the extended deadline also gives additional taxpayers time to realize that their foreign holdings may constitute foreign accounts that are reportable on the FBAR form. For information on this Voluntary Disclosure Program, you can visit the IRS website by clicking here or return to this blog for future posts discussing the various aspects of the FBAR Voluntary Disclosure Amnesty Program.

Friday, September 25, 2009

Friday’s Tax Quote – September 25, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

-Winston Churchill

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Sunday, September 20, 2009

Hobby Losses: How Does the IRS Decide If Your Business Is a Hobby?

The determination as to whether an activity is a business or a hobby in the eyes of the IRS is ultimately based on the specific facts and circumstances. There is no simple definition to be applied to classify an activity as a hobby. Rather, the Internal Revenue Code and Treasury Regulations serve as guidelines for making the hobby vs. business determination.

Whether or not an activity is a business or hobby is ordinarily determined by analyzing 9 factors found in the Treasury Regulations. Knowing what these factors are in advance can help a business owner plan and take certain steps to overcome any hobby loss question that arises.

The factors are:

1. The manner in which the taxpayer carried on the activity.
2. The expertise of the taxpayer or his or her advisers.
3. The time and effort expended by the taxpayer in carrying on the activity.
4. The expectation that the assets used in the activity may appreciate in value.
5. The success of the taxpayer in carrying on other similar or dissimilar activities.
6. The taxpayer’s history of income or loss with respect to the activity.
7. The amount of occasional profits, if any, which are earned.
8. The financial status of the taxpayer.
9. Elements of personal pleasure or recreation.

It is important to mention that no single factor controls and that other factors may be considered. The mere fact that the number of factors indicating the lack of a profit objective exceeds the number indicating the presence of a profit objective (or vise versa) is not conclusive. That is, it is not a question of just adding up how many factors fall on the hobby or business side of the maths.

Unless the presumption discussed in my last hobby loss post applies, the taxpayer has the burden of proving that these factors establish the activity at issue is engaged in with an actual and honest objective of realizing a profit.

Hobby Losses: Safe Harbor Presumption.

When the IRS seeks to limit deductions for businesses reclassified as hobbies, it will look to nine factors listed in the Treasury Regulations. These factors are used to weigh the facts and circumstances that indicate a profit motive or lack thereof.

Before discussing the factors, it is important to note that the hobby loss rules are subject to a presumption that an activity is a business if certain requirements are met. If an activity turns a profit in 3 of 5 consecutive years, the activity is presumed to be a business. If so, the business is presumed to be allowed to deduct expenses beyond the amount of income from the activity and the losses can offset other income on a tax return. The calculation of the presumptions period begins with the first profitable year of the business.

When dealing with activities related to the breeding, training, showing or racing of horses, the presumption only requires a profit in 2 of 7 consecutive years.

It should be noted that meeting these requirements only creates a presumption. In an audit the IRS can work to rebut the presumption and may still be able to prove that the business should be classified as a hobby. In this analysis, the IRS will consider whether income and expenses have been manipulated to avoid application of the hobby loss rules. For example, the IRS is likely to raise the hobby issue in spite of the presumption if the activity shows only minor profits in 3 of 5 years but substantial losses in the other 2 years if those losses considerably outweigh the profits in the other 3 years.

Friday, September 18, 2009

Friday's Tax Quote - September 18, 2009

"The incidence of taxation depends upon the substance of a transaction."

- Hugo L. Black

Friday, September 4, 2009

Friday's Tax Quote - September 4, 2009

"Of course [the Orthodox Jewish dietary laws] are inconvenient at times, but not nearly as inconvenient as paying the federal income tax."

- Herman Wouk

Wednesday, September 2, 2009

Hobby Losses: What is the IRS Worried About?

Internal Revenue Code Section 183 limits the deductibility of expenses where the activity is determined to be a hobby instead of a business. These limitations prohibit a person from claiming losses from the hobby that exceeds the income from the activity. That is, a hobby cannot generate losses that offset other income on a tax return.

The reason that the hobby loss rules exist is to address the concern that taxpayers with substantial income from other sources will attempt to reduce their taxable income by engaging in an activity simply to generate losses that offset that income. For example, perhaps someone with substantial financial resources enjoys auto racing and spends a lot of money on the activity. The auto racing activity has no realistic possibility of turning a profit. That taxpayer might call the activity a business and attempt to reduce his substantial income (by claiming losses) and pay less tax.

The Treasury Inspector General for Tax Administration wrote in its 2007 report that approximately 1.5 million taxpayers filed a Schedule C with their tax returns showing only losses over the four year period 2002-2005. The report states that by claiming the losses, these taxpayers avoided paying roughly $28 billion in taxes in the year 2005 alone. This would seem to validate the IRS’ concern and likely explains the apparent increase in the number of hobby loss audits.

Unfortunately, in applying the hobby loss rules, some auditors seem to look past the basic reason for the hobby loss rules. By this I mean that the hobby loss rules are being applied against taxpayers without substantial income from other sources and to those that are not offsetting their taxable income by any meaningful amount. This means that even the proverbial “little guy” is getting caught up in hobby loss audits. Unfortunately, the way that the hobby loss rules are written allows this to happen. Later posts to this blog will discuss the hobby loss rules, an understanding of which can help a business owner dispute a hobby loss audit.

Tuesday, September 1, 2009

The Best Secret To Surviving an IRS Tax Audit


One shortcoming that most of my tax audit clients share is the failure to keep good records. I understand why, recordkeeping can be time consuming and running the day to day operations of a business takes priority. The problem is, if the IRS audits a person or business with bad records, it will likely result in a substantial tax liability because legitimate expenses cannot be proven. Because the burden of proving those expenses is on the business owners, no records = no expense deduction.

So, I preach good recordkeeping. It can be the difference between surviving an audit and going under because of the audit. The IRS agrees and has provided a brief discussion on recordkeeping and useful links on its website. Because the IRS is the group that will want to see your records, it makes sense to keep the kind of records that they will want to see. To learn more, I encourage you to check out the IRS news item "Keeping Good Records Reduces Stress at Tax Time."





Monday, August 31, 2009

Hobby Losses: Background.

As most business owners will tell you, the Internal Revenue Code allows a business to deduct expenses which are incurred in a trade or business or for the production or collection of income. However, for these expenses to be fully deductible the activity must be engaged in with the intention of making a profit. That is, the activity must be a business and not a hobby.

Internal Revenue Code Section 183 contains the general principle of the hobby loss rule. Section 183 limits expense deductions if the business under scrutiny is determined not to be engaged in for profit. An “activity not engaged in for profit” means “any activity, other than one with respect to which expense deductions are normally allowed.” This unhelpful definition does little to tell a business owner what they need to do to avoid being classified as a hobby. One must turn to the related Treasury Regulations to understand how this rule is applied.

Later posts to this blog will shed more light on the factors used in considering the hobby issue. Before discussing the factors, however, it is helpful to know the impact of a business being reclassified as a hobby. In general, if a business is determined to be a hobby, any deductible expenses of the activity will be limited to the amount of income from the activity. This means that the activity cannot generate losses to offset other income shown on a tax return.

As an example, assume that a taxpayer has a day job and a side business. The side business has yet to be successful and has suffered losses for the last 5 years. Those losses were reported on a tax return and reduced the overall taxable income of the taxpayer such that he/she receives a substantial tax refund year after year. If the IRS determines that the side business is really a hobby, all of those losses will be denied. This means that the day job income will no longer be reduced by the losses and the previously offset income will be subject to tax…and penalties…and interest.

Friday, August 28, 2009

Friday’s Tax Quote – August 28, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"Next to being shot at and missed, nothing is quite as satisfying as an income tax refund."

- F. J. Raymond

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Thursday, August 27, 2009

Is Your Business A Hobby? The IRS Might Think So.

This post is the start of a series on what are known as the Hobby Loss Rules. When audited, if the IRS determines that your business is really just a hobby it can result in a substantial tax liability that you and your business simply cannot afford. However, knowing the rules concerning when an activity constitutes a “business” or a “hobby” (called an “activity not engaged in for profit”) can help you structure your business affairs to defend against a hobby loss audit.

The IRS has stepped up its enforcement action in asserting that businesses are hobbies. In fact, earlier this year the IRS released an updated publication for auditors to provide guidance in conducting hobby loss audits. Click here for the audit guide.

In the upcoming weeks, check back on this blog to read more about what the hobby loss rules say and how you can use these rules to defend against a potential audit. To see all the posts discussing hobby losses, click on the “Hobby Losses” link at the bottom of this post.

Tuesday, August 25, 2009

Think the Interest on Unpaid Wisconsin Tax Liabilities is too High?

Many clients with outstanding Wisconsin tax liabilities understand that they owe the tax but ask “is there anything that we can do about the interest?” The reason for this question is that Wisconsin is permitted to charge interest of 18% on delinquent tax liabilities.

The statutory language in Wisconsin Statutes Section 77.60(2) provides the relevant language for sales taxes -- “delinquent sales and use taxes shall bear interest at the rate of 1.5% per month until paid.” Unfortunately, no statute provides for the waiver or abatement of the applicable interest charges, and the courts do not have jurisdiction to review the interest charged on delinquent taxes. Thus, the interest charges included in an assessment are required by statute and there is nothing that can directly be done about the interest on a Wisconsin tax liability.

The way to attack an interest charge is to contest the underlying tax liability. If the tax liability can be reduced, the related statutory interest goes down. But trying to argue for a reduction in interest because there was a reasonable cause for the tax liability having gone unpaid will not be successful. Rather, any argument that there was reasonable cause for the unpaid tax liability is best reserved in an argument for the abatement of penalties or collection fees (which can be done).

Friday, August 21, 2009

Friday's Tax Quote - August 21, 2009

"In my own case the words of such an act as the Income Tax, for example, merely dance before my eyes in a meaningless procession; cross-reference to cross-reference, exception upon exception –couched in abstract terms that offer no handle to seize hold of – leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time."

- Learned Hand

Friday, August 14, 2009

Friday's Tax Quote - August 14, 2009

"Natural rights, so called, are as much subject to taxation as rights of less importance."

- Benjamin N. Cardozo

Friday, August 7, 2009

Friday's Tax Quote - August 7, 2009

"Put not your trust in money, but put your money in trust."

- Oliver Wendell Holmes Sr.

Friday, July 31, 2009

Friday’s Tax Quote – July 31, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"There’s nothing wrong with the younger generation that becoming taxpayers won’t cure."

- Dan Bennett

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, July 24, 2009

Friday's Tax Quote - July 24, 2009

"Crime had to be committed before liability for the imposition [of disputed levy on illegal liquor] arose. Taxes are not so conditioned."

- Pierce Butler

Friday, July 17, 2009

Friday's Tax Quote - July 17, 2009

"When I was young, I was taught the story of Jesus and the taxman. The point was that Jesus was good to everyone; so much so that he would even eat with the taxman. The story tells a lot about being good, but it also tells a lot about historical perceptions of the tax collector."

- Christopher Bergin

Friday, July 10, 2009

Friday's Tax Quote - July 10, 2009

"The marvel of all history is the patience with which men and women submit to burdens unnecessarily laid upon them by their governments."

- William E. Borah

Friday, June 26, 2009

Friday’s Tax Quote – June 26, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"Friends and neighbors complain that taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay, we might the more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly."

-Benjamin Franklin


Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, June 19, 2009

Friday, June 12, 2009

Friday's Tax Quote - June 12, 2009

"Give us day by day our Real Taxed Substantial Money brought Bread; deliver from the Holy Ghost whatever cannot be Taxed; for all its debts & Taxes between Caeser & us & one another."

- William Blake

Friday, June 5, 2009

John Kerry Campaign Has $800,000 Tax Lien

In 2004, Senator John Kerry ran an unsuccessful campaign to become President of the United States. His campaign, John Kerry for President, Inc., had employees and was required to issue Forms W-2 to those employees. However, there appears to be an ongoing dispute between the Kerry campaign and the IRS concerning whether those forms were properly issued and filed. The Washington Times reported (click here to read) that a recordkeeping issue may have resulted in the asserted liability. The IRS and the Kerry campaign, however, disagree on which side has the recordkeeping problem. The disagreement has resulted in the filing of a Notice of Federal Tax Lien against the campaign (copy below).

The tax lien shows a unpaid balance of $819,848.44 for the tax year ending December 31, 2004. The kind of tax referenced is that imposed under Section 6721 of the Internal Revenue Code. Section 6721 of the Code is actually not a tax at all. Rather, it is a penalty for the failure to file correct information returns (in this case Forms W-2). The IRS asserts that the Kerry campaign failed to properly issue the W-2s resulting in the imposition of the substantial penalty. Interestingly, however, the penalty is generally limited to a total amount of $250,000 for all such failures during a calendar year. That the tax lien reflects a liability in excess of $800,000 suggests that the IRS is asserting that the Kerry campaign intentionally disregarded the W-2 filing requirements. In the case of an intentional disregard, the $250,000 limitation does not apply.

Both sides say that they have been trying to resolve the issue. The Kerry campaign explains that they have been in regular contact with the IRS to sort out the problem. The IRS, on the other hand, explains that it has been trying to recover the amount due for well over a year and has yet to receive payment. As such, the IRS filed a federal tax lien.

So what does this all mean? Before anybody is too eager to lump Mr. Kerry into the same category as other recent headlines of government officials with tax problems, we can be certain that it was not John Kerry himself who was responsible for making sure that the W-2s were filed. Arguing that he was directly involved in any such failures by the campaign would simply be silly.

The question is whether the IRS will be able to recover any of the currently asserted liability. The campaign (a corporation) has since been dissolved and has no money. The likely option for the IRS to collect any of the amount due would be to pursue another party on the basis of a transferee liability (i.e. that the campaign transferred monies to somebody else instead of paying the IRS). This transferee liability issue may arise as the Washington Times has reported that at least $200,000 was transferred from the presidential campaign to Mr. Kerry’s senate campaign. Yet, any recovery under a transferee liability theory would likely be limited to the amount that was transferred to the senate campaign.

Below is a copy of the Notice of Federal Tax Lien that was filed. It is important to note that the filing of a federal tax lien is rather routine when a tax liability asserted by the IRS goes unpaid. The requirements for filing a tax lien are relatively nominal. The IRS must make a demand for payment of the liability that it believes to be due and, if that asserted liability is not paid, the IRS has the right to file a tax lien. The interesting part of this story is not so much that a lien was filed but will be whether the IRS pursues any other person or entity (i.e. John Kerry himself or his senate campaign) for recovery of the liability. Otherwise, this liability quite likely go unpaid.


Friday's Tax Quote - June 5, 2009

"Fear is the tax that conscience pays to guilt."

- Howard Aiken

Thursday, June 4, 2009

IRS to Undertake Review of Tax Return Preparers

The IRS has announced that it plans to undertake a review of tax return preparers in an effort to improve compliance with the tax laws and ensure the ethics of tax return preparers. It plans to make recommendations on a new regulatory structure to President Barack Obama and Treasury Secretary Timothy Geithner by the end of 2009. In doing so, the IRS plans to solicit input from the community and tax practitioners (lawyers, CPAs, accountants and enrolled agents), as well as unlicensed tax preparers and software vendors.

There has been a need for revision to the regulatory structure governing practice before the Internal Revenue Service for many years. In its most recent attempt in 2005, the Treasury modified the existing Circular 230 that governs tax practice. Those regulations were met with resistance by the tax practitioner community on the basis that the language was overly broad and could inadvertently drive up the cost of tax representation to the public. The revisions in 2005, by its language, appeared to impose burdensome requirements on even the most straight-forward tax advice. As such, almost all correspondence from tax practitioners began to carry a Circular 230 disclaimer prohibiting clients from relying on the tax advice to avoid penalties. Hopefully, this new initiative by the government will result in better a regulatory scheme for tax practitioners.

Revisions to the 2005 version of Circular 230 are long overdue. However, any professionals that bump up against the tax law should note that the Internal Revenue Service’s definition of tax return preparer is quite broad and can include any person that gives advice that, in some fashion, finds its way onto a tax return. So, any new regulations are likely to be rather broad in the definition of tax return preparer.

The IRS will hold public meetings to solicit information and will announce those dates in the future. Readers can come back to this blog for updates on when those meetings will take place.

To read the entire IRS announcement, click here.

Friday, May 29, 2009

Friday’s Tax Quote – May 29, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"The best measure of a man’s honesty isn’t his income tax return. It’s the zero adjust on his bathroom scale."

-Arthur C. Clarke

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, May 22, 2009

Friday's Tax Quote - May 22, 2009

"All taxation, however disguised, is a loss per se…it is the duty, and the sacred duty, of Government to take only from the people what is necessary to the proper discharge of the public service; and that taxation in any other mode is simply in one shape or another, legalized robbery."

- Richard Cartwright

Friday, May 15, 2009

Friday's Tax Quote - May 15, 2009

"All taxation is an evil, but heavy taxes, indiscriminately levied on everything…are one of the greatest curses that can afflict a people."

- Brooks Adams

Friday, May 8, 2009

Friday's Tax Quote - May 8, 2009

"My father always said that there’s no free ride
You’ve got to make a sacrifice
With so many Prophets on the Lord’s side
Even your soul has got a price
But talk is cheap it takes money to buy your freedom
And the tax man’s knockin’ at your door."

- Jimmy Buffett, Roger Guth, and Jay Oliver ("Carnival World")

Friday, May 1, 2009

Wisconsin Lawmakers Propose Beer Tax Increase

As reported in the Journal-Sentinel:

"Madison - The last time Wisconsin's beer tax was raised, Neil Armstrong was walking on the moon. But now's the time for another increase, Rep. Terese Berceau (D-Madison) said Wednesday." (Read full article)


To this, we can only respond:


“When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world…”

-John Hancock. In Congress, July 4, 1776. The unanimous Declaration of the thirteen united States of America. (Read full text)

Attribution of Idea: Janet Marie Tierney

Friday's Tax Quote - May 1, 2009

"I’m proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money."

- Arthur Godfrey

Friday, April 24, 2009

Friday’s Tax Quote – April 24, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"Did you ever notice that when you put the words “The” and “IRS” together, it spells “THEIRS"?"
- Author Unknown

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, April 17, 2009

Friday's Tax Quote - April 17, 2009

"Basic tax, as everyone knows, is the only genuinely funny subject in law school."

- Martin D. Ginsburg

Friday, April 10, 2009

Friday's Tax Quote - April 10, 2009

"It is not the heavily taxed realm which executes great deeds but the moderately tax one."

-Old Asian Proverb

Friday, April 3, 2009

Friday's Tax Quote - April 3, 2009

"Tax issues are fun. Getting to love them may take a bit of effort, but the same is true for Beethoven’s string quartets, and think of how much pleasure they give if one does not make the effort."

- Peter L. Faber

Friday, March 27, 2009

Friday’s Tax Quote – March 27, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"I’m proud to be paying taxes in the United States. The only thing is — I could be just as proud for half the money."

-Arthur Godfrey

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Friday, March 20, 2009

Friday's Tax Quote - March 20, 2009

"Taxation, for example, is eternally lively; it concerns nine-tenths of us more directly than either smallpox or golf, and has just as much drama in it; moreover, it has been mellowed and made gay by as many gaudy, preposterous theories."

- H.L. Mencken

Monday, March 9, 2009

Surviving the IRS Audit

The March 2009 edition of Tax Talk Today (Mar, 10, 2009) will cover the topic of how to prepare for an IRS tax audit. The panelists will discuss what happens before, during and after an audit. You can get more detailed information on the program by clicking here. Register by clicking here.

Surviving the IRS Audit
Tuesday, March 10, 2009
2:00 p.m. - 3:00 p.m. ET

Friday, March 6, 2009

Friday's Tax Quote - March 6, 2009

"The threat of an audit ... looms like the sword of Damocles over the heads of taxpayers."

- William Roth

Tuesday, February 17, 2009

Stimulus Package Becomes Law

Today, President Obama signed the newest stimulus package into law. The result is that we have a host of new tax laws (or at least modifications to the existing tax law). Over the next several weeks I will be discussing some of the provisions of the American Recovery and Reinvestment Tax Act of 2009.

Hopefully, together with the balance of the stimulus package spending, these new tax provisions will help put the economy back on track.

To read the full text of the stimulus bill signed into law click here.

Thursday, February 12, 2009

President Abraham Lincoln.

Not all states officially honor Abraham Lincoln's birthday.  In fact, many people simply lump President Lincoln's birthday together with that of George Washington and President's Day.  I believe, however, that the man who kept our great nation together as one deserves recognition of his own.  Happy Birthday President Lincoln!

Friday, January 23, 2009

Friday's Tax Quote

“Taxes are paid in the sweat of every man who labors. If those taxes are excessive, they are reflected in idle factories, tax-sold farms and in hordes of hungry people, tramping the streets and seeking jobs in vain.”

- Franklin D. Roosevelt

Wednesday, January 21, 2009

IRS Liens, Levies and Collection Due Process Hearings – What Happens in the Hearing

After a taxpayer receives a Notice of Federal Tax Lien or a Final Notice of Intent to Levy, he/she/it has the right to challenge the collection action in a Collection Due Process Hearing (a CDP hearing). In a Collection Due Process hearing, the taxpayer may raise issues such as:

1) The validity of procedural steps leading to the hearing.

2) Issues related to unpaid tax liabilities.

3) Challenges to the proposed collection action (i.e. liens or levies).

4) Alternate collection action.

5) Issues related to the intrusiveness/efficiency of the collection action.

The right to a Collection Due Process hearing only arises after the filing of a Federal Tax Lien, however, the right to the hearing arises before the IRS actually levies on the assets of a taxpayer.

The result of a Collection Due Process hearing may be the avoidance of the forced collection action. However, the result of the hearing can be the IRS’ determination that the collection action (lien or levy) is appropriate and then the IRS will move forward on that action.

Take note, however, that if a taxpayer plans to challenge collection in a Collection Due Process hearing, he/she/it must have a non frivolous reason for doing so. Additionally, a hearing cannot be requested if it is simply a means to delay collection of the tax. Using a Collection Due Process hearing to make a frivolous argument or as a delay tactic can result in monetary penalties.

Monday, January 19, 2009

IRS Liens, Levies and Collection Due Process Hearings.

When a business or individual owes unpaid taxes, the IRS will eventually seek to collect the tax through forced means. The first step is usually contacting the taxpayer to encourage payment, the second step is to file a lien on the taxpayer’s property and the third step is to levy on bank accounts, garnish wages or seize assets (all known as a levy).

When the IRS issues a Notice of Federal Tax Lien or a Final Notice of Intent to Levy, the taxpayer has the right to challenge the collection action in a Collection Due Process hearing (also known as a CDP hearing). Note: while it is called a hearing, there is no court proceeding or formalized hearing. Rather, a Collection Due Process hearing is simply a meeting or a phone conference in which the issues are discussed.

Friday, January 16, 2009

Friday's Tax Quote

“The taxpayer – that’s someone who works for the federal government but doesn’t have to take a civil service examination.”

-Ronald Reagan

Thursday, January 15, 2009

SHOULD GEITHNER BE CONFIRMED AS TREASURY SECRETARY?

It is now all over the news. President-Elect Barrack Obama’s pick for the Treasury Secretary, Timothy Geithner, failed to pay more than $34,000 in taxes over the 2001 through 2004 tax years. The brewing controversy has apparently postponed his confirmation hearing until next Wednesday, one day after Obama’s inauguration.

Background

The issue first arose for Geithner in 2006 when the IRS audited his 2003 and 2004 tax returns. The audit revealed that he failed to pay Social Security and Medicare taxes while working for the International Monetary Fund. The same issue existed for the years 2001 and 2002, however, Geithner did not correct those errors at the time of the audit. Eventually, after he was chosen by Obama to serve as the Treasury Secretary, Mr. Geithner paid the additional tax that should have been paid in 2001 and 2002.

Did Geithner Do Something Wrong?

In deciding whether to fault Geithner for the late payment of the 2001 and 2002 taxes, the Statute of Limitations on the assessment of additional tax should be considered. Depending on the circumstances, the Statute of Limitations may have expired on the 2001 and 2002 tax years by the time the IRS audited his 2003 and 2004 tax returns (in 2006). [Generally, the Statute of Limitations on assessment of additional tax is ordinarily 3 years from the date the return is filed. The limitations period increases to 6 years where a return omits from gross income more than 25% of the gross income.] If the Statute of Limitations had expired, the IRS would have been prohibited by law from increasing Geithner’s taxes for these earlier years. This assumes, of course, that Geithner did not fraudulently understate the tax he owed. When fraud is present, the Statute of Limitations is unlimited. (Note, I am not saying fraud…I’m just saying “if”.)

If Geithner is determined to have deliberately underpaid the tax, then he should not be confirmed as Treasury Secretary. Obviously, that would send a terrible message to the taxpaying public. The news reports tell us that the error on Geithner’s return is somewhat common for employees of international bodies. The news also tells us that the IMF repeatedly wrote to Geithner telling him that he would owe Social Security and Medicare tax. Yet, as I understand it, the IRS waived any penalties due on his underpayments. This means that the IRS has already, in some sense, exonerated him from any deliberate wrongdoing.

If, as Geithner claims, the underpayment was a mistake, then it would not be unusual for someone to leave the earlier tax years alone. If the Statute of Limitations on assessing additional tax for 2001 and 2002 had expired, (which is probably the case), he could no longer be legally compelled to pay the missed tax. I do not believe that anyone in his situation would have done differently. I leave it up to the readers to decide if he should be given any “moral credit” for eventually paying the 2001 and 2002 taxes that he should have paid but could no longer be forced to pay.

Was it a mistake? Possibly. Apparently, Mr. Geithner had hired an accountant to prepare his 2004 tax return. Allegedly that accountant told him that he did not owe employment taxes. On the other hand, Geithner is reported to have prepared his own returns for the years 2001 and 2002. If Mr. Geithner truly missed the fact that additional tax was due, the error could serve as strong evidence that the tax laws are much too complicated. After all, if a man qualified to serve as the Treasury Secretary can’t get it right, how can we expect anyone else to?

So Now What?

When all is said and done, whether Geithner made a mistake or tried to get away with something, may be immaterial. It is the perception that the prospective Treasury Secretary didn’t pay his taxes that creates the problem. It is easy to imagine in the homes of many Americans on April 14, people will be preparing their tax returns and thinking “if the Treasury Secretary didn’t pay his fair share, why should I?” Obviously, this is a terrible perspective (and an illegal perspective) but should we really allow for a situation where the Treasury Secretary’s confirmation raises the question?

Wednesday, January 14, 2009

IRS Appeals – Settlement of Cases In Appeals After a 90-Day Letter.

I have written a number of posts that discuss 30-Day Letters and 90-Day Letters (Statutory Notices of Deficiency) an how they may be appealed to the IRS Appeals Division. This post discusses what happens at the end of an appeal of a 90-Day Letter.

When a taxpayer receives a 90-Day Letter and Petitions the Tax Court for a reconsideration of the asserted deficiency, the IRS Counsel’s Office will first prepare an Answer in the Tax Court case denying most or all of the positions the taxpayer takes in the Petition.

Following the filing of the Answer to the Petition (and any necessary Reply), if the case has not already been to Appeals via 30-Day Letter, the IRS Attorney will refer the case to Appeals for settlement. Currently, when a case is referred to the Appeals Division, an Appeals Officer will have jurisdiction over the case for 4 months beginning at the time Appeals receives the case.

An Appeals conference should be arranged within 45 days of receipt of the case. If a settlement is reached, Appeals will forward the stipulations and computations back to IRS attorneys who will prepare the settlement documents for filing in the Tax Court. The stipulated settlement will become part of the Tax Court proceeding and then become a judgment in the case.

If at the expiration of the 4 months during which Appeals has jurisdiction over the case a settlement is substantially likely, the IRS attorneys may extend the Appeals Division’s jurisdiction for a period of 60 days (subject to the placement of the case on the Tax Court trial calendar).

[Proposed regulations would extend this authority for such time as there is a reasonable likelihood of settlement but not beyond the date that the case appears on the trial calendar]

If no settlement is reached, the case will be sent to IRS attorneys and formal preparation for a Tax Court trial will begin. Once the case is with IRS attorneys, there is still the possibility of settlement, however, it will be amidst the trial preparation process (i.e. discovery requests, stipulations of fact, preparation of expert reports, etc.).

Friday, January 9, 2009

Friday's Tax Quote

“Collecting more taxes than is absolutely necessary is legalized robbery.”

- Calvin Coolidge

Wednesday, January 7, 2009

IRS Appeals – Settlement of Cases In Appeals After a 30-Day Letter.

I have written a number of posts that discuss 30-Day Letters and 90-Day Letters (Statutory Notices of Deficiency) and how they may be appealed to the IRS Appeals Division. This post discusses what happens at the end of an appeal of a 30-Day Letter.

Where 30-Day Letter cases are settled in appeals, the settlement will be documented and the Appeals Officer will ask the taxpayer to waive restrictions on assessment and the collection of any deficiency. That is, the taxpayer will be asked to agree to the immediate “assessment” (a term of art in tax practice) so that the IRS may quickly move forward on the collection of the agreed tax, penalty and interest.

Where no agreement, or only a partial agreement, is reached, a 90-Day Letter (Statutory Notice of Deficiency) will be issued with respect to the disagreed issues. This gives the taxpayer the right to continue a challenge of the disagreed issues in the Tax Court.

Tuesday, January 6, 2009

IRS To Show Leniency On Past Due Taxes.

In a move that recognizes that a down economy is making it more difficult for taxpayers to pay their taxes, the IRS says they will be showing leniency in the collection of past due taxes. The IRS announced today that it is taking steps to help those with outstanding tax obligations. In the announcement, IRS Commissioner Doug Shulman explained:

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today … We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

The full announcement can be found here.

Some of the programs in which leniency will be shown are outlined below. It will be interesting to find out what other programs will develop. However, the trick will be in communicating the leniency programs to the public. Those with unpaid taxes should note that we can only expect leniency for those who are actively engaged in sorting out their debts. We shouldn’t expect to see much leniency for those that ignore IRS contact.

Announced programs:

Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement. Taxpayers in a difficult financial situation should contact the IRS.

Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

Monday, January 5, 2009

Sales Tax on Legal Services?

In its December 29, 2003 edition, the Wisconsin Law Journal included an article on a discussion that has come up more than once recently. The article addresses a potential movement by the Wisconsin legislature to do away with the sales tax exemption on legal services. Frankly, this is a terrible idea. I’m not saying this as a Wisconsin lawyer, but rather, based on an analysis of tax policy. The only way that a sales tax on legal services would likely bother me is if I needed to hire a lawyer myself.

In Wisconsin, the sale of tangible personal property is subject to the sales tax. Services are not subject to the sales tax unless the specific service is directly identified in the Wisconsin Statutes. So, to be clear, there is no special exemption from the sales tax for legal services. Rather, legal services are treated just like any other service in the state.

Interestingly, it is possible that the movement to tax legal services could gain momentum based on the often negative perception that people seem to have of lawyers. After all, lawyers make lots of money right? So why not tax legal services? This argument is what us lawyer types call a "non-sequitur." Meaning, the conclusion (to tax legal services) has nothing to do with the argument (that lawyers make lots of money). Here is why: a tax on legal services would be paid by the clients, not the lawyers. The only role for the lawyers here would be to collect the sales tax from the client and send it to the state.

If Wisconsin were to tax legal services, it would only hurt those in need of those legal services. Lawyers are not inexpensive and to add another 5+ percent on top of that cost could make legal representation unaffordable. To tax legal services would be nothing more than a tax increase on a segment of society that is already facing some sort of trouble. Regardless or whether the legal trouble is deserved, adding a sales tax to the mix flies in the face of making representation available.

With a sense of irony, the Milwaukee Business Journal reported on December 26th, that more and more law firms are accepting credit card payments from their clients because those clients are otherwise unable to pay for legal representation. If there is to be a sales tax on legal fees, the current economic turmoil dictates that now is not the time.

Friday, January 2, 2009

Happy Birthday Tax Law Forum!

On the heels of the New Year comes the Tax Law Forum's first birthday.  Yep, its been a year.  Happy Birthday. 

During this time, we have discussed a host of Federal tax law issues including, audits, appeals, collections, the United States Tax Court and current events.  (I've had particular fun with the number of articles about celebrities with tax trouble.) 

As a Wisconsin tax lawyer, I have also spent a reasonable amount of time discussing Wisconsin sales tax, income tax and employment taxes. The point of doing so, is to provide a forum in which these issues can be discussed.  Others, hopefully, will be able to turn to The Tax Law Forum as a source of information to reduce the fear that comes along with tax troubles.

I hope you have enjoyed and found useful most, if not all, of these posts.  I look forward to continuing these discussions through 2009.  

Thursday, January 1, 2009

Happy New Year.

Welcome to 2009!  As I look forward to the new year, I think of the many people gathering this morning to start the year with a brisk dip into the great lakes.  Whether a new member to the Polar Bear Club or a returning veteran, I hope it brings a fresh start to the new year; enjoy your morning.  To everyone, enjoy your year.