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

"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.