Don't Mess With Taxes

Wrecking isn't racing

In addition to all of today's more important and meaningful celebrations, July 4th also has a special place in the hearts of racing fans.

It's the weekend when NASCAR runs the Firecracker 400, as it was originally dubbed before we had sporting event naming rights, at Daytona International Speedway. The old-time moniker still fits, especially since the cars now run at night, when any on-track pyrotechnics are even brighter.

And you know there will be some. The July event is one of four restrictor plate races. More often than not, the two plate races at Daytona and the two at Talladega involve "the big one."

Such mangled machinery is the topic of my July racing column for Randall Reilly publications. In "Wrecking Isn't Racing," I have two words for the so-called "fans" who watch NASCAR just to see crunched sheet metal:  Go Away!

OK, I have more than two words on the subject. You can check them all out in the digital version of my Views from the Grandstands column in the July Truckers News magazine.

I also said the same thing as my alter ego Crazy Woman Driver in the publisher's Changing Lanes magazine. I have a copy of my Crazy incarnation in print, but it's not yet posted digitally; when it is, I'll come back and add the link.

You can check out all my racing rants and raves via the links provided in Crazy Woman Driver takes a Sunday Drive.

North Carolina, NASCAR and taxes: Most NASCAR teams are based in North Carolina and one of the sports' premier tracks is Charlotte (OK, Lowe's) Motor Speedway.

So you know things must be tough if the words "NASCAR" and "tax increase" are being uttered by legislators in the same sentence.

Some lawmakers are proposing more than $900 million in new taxes as a way to bridge North Carolina's budget shortfall. Among the suggestions is adding sales tax to 55 services and amusements that right now are not taxed, including bowling, golf and even NASCAR tickets.

Whether that will happen remains to be seen. Although the Tar Heel State's new fiscal year began July 1, lawmakers recessed for the July 4th holiday after passing a stopgap plan to fund state government operations through July 15.

Happy 233rd Birthday America!

On July 4 1776, 56 citizens representing the 13 British colonies officially gave birth to the United States of America.

By affixing their names to a statement that the King of England was abusing the colonies and violating basic principles of human decency, they declared themselves free from the rule of Great Britain.

On this July 4th holiday, take a few minutes to read the eloquent and brave words of our founding fathers/.

Yes, one key component of the U.S. fight for freedom was the right to have some say in how we are taxed. That continues to be a battle -- political, philosophical and exonomic -- we wage today.

But a key difference now is that we do have representation with regard to our taxes. We may not always agree with what our Representatives and Senators are doing with our money, but don't confuse that difference of opinion with no voice in the matter as some modern-day "tea party" demagogues incorrectly assert.

So make your voice heard, on taxation and all issues of critical import to our nation. Tell those in Congress what you want and expect.

And vote! That's why John Hancock and his colleagues singed that momentous piece of parchment 233 years ago.

Other states also delaying tax refunds

Not to be a nag, but an Associated Press report underscores the importance of not overpaying your state taxes.

California is obviously getting the most attention right now because of its issuance of IOUs to taxpayers awaiting refunds.

But the flip side of the tax equation, plummeting tax collections, has prompted other states to delay processing income tax returns, and postponing delivery of refunds, for months so they can make state ends meet, according to the AP.

Such refund-related budget machinations, however, could cost the cash-strapped states more in the long run.

"Some of the tardy states are fast approaching a stiff deadline of their own: The longer they wait, the more likely they'll have to pony up interest from thinning state coffers," says the AP.

Impending deadlines: Georgia and Alabama, for example, are facing a mid-July deadline to send hundreds of thousands of tax refunds or risk racking up millions of dollars in interest.

Kansas, which had its own refund-related problems earlier in the year, also is slow in getting refunds out. Sunflower State tax officials say they are working to send out $31 million in refunds by next week.

And Maryland and Missouri had to use money from special accounts to meet their refund responsibilities.

Some Missouri refunds were issued courtesy of $250 million in federal economic stimulus money the state received.

Maryland, which is still working on several thousand refunds, has dipped into a $366 million reserve fund to get the tax money back to its residents.

All these delays have me wondering how many folks who were counting on that state money instead turned to refund anticipation loans.

Californians, your tax IOUs are in the mail

California's fiscal fiasco has taken a new and unwelcome turn. The state is issuing IOUs.

The state's growing budget gap, compounded by political fights and ballot initiative votes, forced it this week to start paying its bills with "registered warrants."

California Controller John Chiang has issued 28,742 of the official IOUs totaling $53.3 million. If state lawmakers fail to reach a budget deal by the end of August, the IOU amount would grow to $4.8 billion. 

The drastic action means that if you're a state vendor, local government or yes, even just a regular individual taxpayer, you'll get a California "registered warrant" instead of a check.

As good as cash, for some: Luckily for Californians, several banks -- Bank of America, Wells Fargo, Chase and Union Bank -- have agreed to cash the warrants.

But you'd better get to your participating branch as soon as you get your IOU. The banks say they'll cash the IOUs from customers only through July 10.

City National also will cash the warrants and it hasn't set a cutoff date … yet.

Many credit unions also have agreed to accept the IOUs from their customers with no time limit, according to the California Credit Union League.

State loans, fed warning: Essentially, the financial institutions are floating California loans, at the state-promised interest rate of 3.75 percent, on the value of the IOUs.

For folks whose banks or credit unions accept the state paper, the warrants are as good as cash. But folks whose banks won't take the IOUs will have to wait for payment until the state has funds available to make good on the notes.

California officials are hoping that will be, at the latest, by October. At this point, though, who really knows.

And just to add another thing to worry about in this mess, we have the Federal Reserve weighing in with a warning that says, in part:

Depositors of these warrants may be subject to returned-deposit fees if their banks attempt to collect these warrants before they are payable. In addition, if customers rely on these funds to make other payments, they may be subject to overdraft or bounced-check fees if the warrants are returned.

Talk about adding injury to insult.

Don't depend on tax refunds: All this chaos in California is yet another reason not to plan on tax refunds at any level.

Now I'm not saying the U.S. is going to get into the same leaky financial boat as California and many other states. But why do you want to depend on Uncle Sam or his state cousins to get you your tax refund money in the first place?

Refunds can be delayed. Remember that Kansas found itself in a similar, but thankfully, very short-term situation earlier this year.

At the federal level, things like stimulus payments overburden operations and cause a slowdown in processing.

And refund checks at all governmental levels can get lost or misdeposited.

So you're much better off paying the IRS and your state tax department only the amount that your owe. An even smarter move is to owe them a small amount.

That way you have your cash in hand year round and you never have to worry about the status of your tax refund.

More on the morass: The California Controller's Web site has posted some frequently asked questions about the state's IOUs.

You also can read more on the California budget crisis in the Los Angeles Times, the Washington Post and the New York Times. Or Google "California IOU" and take your pick of the almost 4,000 articles dissecting the state's budget crisis.

Some of my fellow bloggers with thoughts on the IOU issue are:

• A California IOU at The Scratching Post
• Who's to blame for California's IOU budget crisis, Ahnold or the Dems? at ShortFormBlog
• TARP Banks Begin To Accept California IOU's at Wizbang
• Will Banks Demand Discount on California I.O.U.'s? at DealBook

Even the Governator is getting in on getting out the word. Arnold Schwarzenegger makes his case for how to fix the Golden State's tarnished financial situation in an L.A. Times op-ed piece.

Your next step: As for what you, Jane and John Taxpayer, can do, adjust your state and federal withholding so that it's as close as possible to your eventual tax bill.

Some tips on how to do this can be found in Give yourself a tax-related raise.

The IRS also has an online withholding calculator to help you figure out just the right amount to have taken out of your checks.

The bottom line is that you, not your tax collector, need to take control of your money. This applies to every taxpayer in every state and in connection with both your state and federal tax withholding levels. 

Take care of it now!

Related posts:

• California tax refunds on hold 
• California refunds back on track, too
  
• Kansas holding onto refunds, too
• Kansans, your refunds are released!
• This is why I hate ballot referenda

Taxing the tourists

Are you about to head out for the long 4th of July weekend? Be sure to bring along some extra cash to cover the tourist taxes you'll probably encounter.

That's right. It's not being widely broadcast by state and local convention and visitors bureaus, but out-of-towners are the new hot revenue targets.

Tourist taxes are the latest way for cash-strapped cities and states to bring in some money. Back in May, I talked about some other desperate innovative options in Money-hungry states, cities tax trolling.

Taxing visitors is not a new idea. For years, accommodation taxes have been used to help pay for things such as new convention centers. The thinking is that the folks who will be coming in for the expos at the building should help pay for its construction.

Now, however, tourists are being tapped for more general revenue needs.

WalletPop notes that tourist-related taxes, either new or hiked, have shown up in Hawaii (hotel tax increase), Alaska (new per-passenger cruise tax) and South Carolina (higher Myrtle Beach sales tax).

Money vs. hospitality: Will the tax-the-tourist trend work? Perhaps, but probably just in the short term.

I've got to agree with WalletPop's Jason Cochran, who points out that increasing taxation on leisure spending is a stupid idea when leisure spending is down. 

In reality, given how many folks are taking staycations these days, most places might just find themselves treading water with fewer visitors bringing in a bit more via taxes.

And in the long run, the tourist taxes might even hurt.

There are a lot of variables that go into deciding where to spend recreational dollars. If a destination makes visitors feel like they're welcome simply because of their wallets, they might not want to come see you any more.

Jackson estate taxes could be 'Bad'

Attorneys now sorting through the estate of Michael Jackson probably have one of the late entertainer's hits ringing int heir ears: Bad.

Bridget Crawford, writing in the Feminist Law Professors blog, notes that publicity comes into play in California in dealing with estates. Why does that not surprise me?

Under Golden State law, publicity is descendible. "This means that a person may transfer by will the right to exploit his or her name, likeness, image, etc., just as one might transfer, say, an heirloom piece of jewelry," writes Crawford.

For the Jackson estate, the value of his publicity very easily could exceed his estate's liquid assets available to pay taxes, says Crawford.

Yep, that definitely could be more than bad.

Attorney Tamera Bennett, who blogs at Current Trends in Copyright, Trademark and Entertainment Law, also takes a look at what happens next to MJ's estate.

Not a new issue: Paul Caron of the University of Cincinnati College of Law -- you probably know him better for his TaxProf Blog -- also examines the estate planning implications of the valuable descendible rights of publicity.

Caron was well out front on this issue. In a 1995 article for Tax Notes, he writes:

"Proper planning for the publicity-shy celebrity may be to impose restrictions on the right of publicity to accord with his privacy interests without subjecting the heirs to an estate tax burden. In contrast, for the celebrity like Michael Jordan who has aggressively exploited his name during life, it may not make sense to impose any restrictions on the right of publicity. The best approach for such a celebrity may be to maximize the benefits to his heirs through an unfettered right of publicity, at the cost of a 55 percent estate tax bite to be paid for with the fruits of the exploitation."

Jackson's heirs directly affected by his descendible publicity are his three children and his mom.

The late singer-songwriter's will stipulates that his assets be placed in the Michael Jackson Family Trust. Beneficiaries of the trust are Jackson's two sons and daughter and his mother Katherine, whom his will also states he would like to be appointed as guardian of the kids.

Now about those federal taxes: The Economic Growth and Tax Relief Reconciliation Act of 2001 included repeal, incrementally over several years, of the federal estate tax. The phaseout process began for estates of individuals who died between Jan. 1, 2002, and Dec. 31, 2009.

In 2008, the federal estate tax applied to estates in excess of $2 million. In 2009, up to $3.5 million of an estate's value is exempt from the federal estate tax.

And did you note the 55 percent tax rate cited in Caron's 1995 article? The 2001 law changes that, too. While the amount of an estate that escapes federal estate taxation has been increasing, the rate that apples to the taxable excess has been dropping.

In 2002 the amount of an estate greater than $1 million was taxed at 50 percent. Now the tax on estates worth more than $3.5 million is 45 percent.

And next year, the estate tax is scheduled to disappear entirely. It will, however, be back on the tax books in 2011 in its tougher, pre-phaseout incarnation: 55 percent on property in excess of $1 million.

More estate tax changes on the way: That more stringent estate tax, however, won't happen in 2011. In fact, the zeroing out of the tax next year also is unlikely to occur.

Don't worry. It's not going back to 2001 levels either.

Rather, lawmakers are expected this fall to reach a compromise on the estate tax exclusion levels and rates.

Most Washington watchers expect Congress to keep the estate tax at the 2009 level in 2010, rather than letting the law lapse as originally planned. The continuation would keep this year's exemption amount of $3.5 million, along with the current 45 percent rate.

Some on Capitol Hill are pushing for a $5 million exemption and a slight cut to the 45 percent rate. But since the estate tax laws apply to so few taxpayers and we're facing such ginormous deficits, the smart money is on the extension of 2009 law for 2010 estates.

If you've amassed enough to possibly face the estate tax, this calculator can give you an idea of just how big a bite the IRS might get.

Related posts:

• Discussing 'death tax' alternatives
• Day of the Death Tax
• A tax by any other name
  
• Leona loved that dog
  

Tax guidance for Ponzi scheme victims

Bernard Madoff is heading to jail for the rest of his life.

And the victims of the largest-ever Ponzi scheme got some measure of vengeance from the 150-year prison sentence handed down for the faux financier yesterday.

But what about their money?

There's all sorts of wrangling going on over who owes whom what and how to get it. Before all's said and done, this process likely will join the ranks of the longest legal battles.

One of the targets is the Securities and Exchange Commission (SEC).

As Joe Nocera notes in his his New York Times blog Executive Suite, some victims of Madoff’s Ponzi scheme are suing the SEC. Apparently the legal theory, says Nocera, is that the agency's negligence in failing to catch the now-famous crook means that it should be legally liable for the victims' losses.

I have to agree with Nocera when he says no way. Or, as he puts it so well:

"Government agencies make mistakes, treat people unfairly, and do all sorts of things we all wish they wouldn’t. But by law, the federal government cannot be sued when it carries out an unjust prosecution or, for that matter, when it fails to uncover a giant fraud. Government negligence led pretty directly to the recent financial crisis. Does that mean the feds should be reimbursing us for our stock market losses? Of course not. Because it’s not really the S.E.C. that would be paying out the money — it would be the taxpayers."

While I support government involvement in some extreme economic and fiscal situations -- and please, before you fire off your e-mail castigating me for being a tax-and-spend Socialist, note the words "some" and "extreme" and set your flame thrower accordingly -- I definitely understand, and am feeling it a bit myself, the effects of bailout burnout.

Tax help for scheme victims: Plus, Bernie Madoff victims, as well as other folks who've fallen prey to fraudulent schemes, already might be able to get some help from Uncle Sam. I'm talking, of course, specifically about the IRS.

When the magnitude of the Madoff scheme was coming to light earlier this year, the IRS issued a couple of guidance items to help taxpayers who are victims of losses from Ponzi-type investment scams.

The first, Revenue Ruling 2009-09, clarifies the tax law governing the treatment of losses in such schemes.

The second piece of IRS guidance is Revenue Procedure 2009-20  that provides a safe-harbor method of computing and reporting the losses.

"The revenue ruling is important because determining the amount and timing of losses from these schemes is factually difficult and dependent on the prospect of recovering the lost money (which may not become known for several years)," noted IRS Commissioner Doug Shulman at a Senate Finance Committee hearing back in March. "In addition, it clarifies the reach of older guidance on these losses that is somewhat obsolete."

As for the revenue procedure, Shulman noted that it "simplifies compliance for taxpayers (and administration for the IRS) by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss."

Of course, what Shulman considers simple is usually not what you and I think of as easy. So if you've been the victim of a scheme, check with a tax professional as to whether the IRS proclamations affect you and if so, just how and how much the tax guidance might help you. 

And be happy that there's at least the possibility that via your tax filing you might be able to alleviate a bit of your financial loss, if not your anger about being taken in in the first place.

Read more about it: In addition to Nocera's item, The Atlantic (courtesy of Congress Daily information) looks at Capitol Hill interest in a legislative fix for Madoff victims and Andy Ostroy reminds us of The Lesson to be Learned from Bernie Madoff. 

Madoff in Photoshop jail courtesy Huffington Post

Related posts:

• The Ballad of Bernie Madoff
• Madoffs, marriage and tax filing

Supreme Court reverses Sotomayor case

The Supreme Court has ruled that white firefighters in New Haven, Conn., were unfairly denied promotions because of their race.

The case has received special attention because Supreme Court nominee Sonia Sotomayor was part of an appellate panel that issued the ruling that was today overturned.

Legal experts say the 5-to-4 High Court ruling could alter employment practices across the country and make it harder to prove discrimination.

Sotomayor on taxes: Capitol Hill is obviously paying close attention to all of Sotomayor's prior rulings, not just the high-profile ones.

Those in the tax world, however, don't have a lot to examine.

"Sotomayor has not written extensively in the area of taxation," notes the Congressional Research Service (CRS), "and it is not possible to draw conclusions about her judicial philosophy from the tax cases in which she has been involved."

That difficulty notwithstanding, CRS has released Judge Sonia Sotomayor: Analysis of Selected Opinions, which includes a section on her tax-relevant rulings.

I know all you fellow tax geeks will want to examine the CRS analysis carefully at your own pace, so I won't spoil that thrill by repeating its contents here. Enjoy!

And we'll have to wait and see if any tax-related questions come up during Sotomayor's confirmation hearings later this summer.

Poor little Switzerland

"You mean old U.S. and U.K. bullies, quit picking on us!"

That's essentially what one Swiss banker is saying about efforts by the United States, the United Kingdom and other countries to close down, or at least more tightly control, Swiss and other European countries' uber-private financial operations.

Yves Mirabaud, a managing partner at the Swiss private bank that bears his name, told the Financial Times that such efforts are "more than simply fighting against tax havens. Switzerland is a small country. It is not powerful."

It depends, Mr. Mirabaud, on just how you define power.

The Swiss banker also portrayed the global tax haven issue as an "economic war" and shot back at the tax practices of those who accuse Switzerland and other Alpine nations of tax evasion.

"There is nothing easier than doing tax evasion in the U.S. Look at Delaware companies or trusts in the Channel Islands," said Mirabaud.

Now about those UBS accounts: But Mirabaud did at least acknowledge that UBS had "behaved poorly" and had not "helped the Swiss financial centre."

UBS, Switzerland's largest bank, came under fire for helping wealthy Americans hide nearly $20 billion from the IRS. The financial institution was back in the news last week when the first UBS client named in connection with U.S. tax evasion charges pleaded guilty.

Steven Michael Rubinstein, a Boca Raton accountant, admitted to filing a false 2004 tax return by failing to disclose the existence of a Swiss bank account maintained by UBS.

According to the court documents, Rubinstein was the beneficial owner of the account and he failed to report any income earned on the account.

The Department of Justice announcement of the plea noted that:

From 2001 through 2008, Rubinstein communicated with bankers at UBS via email, telephone and in person about the purchase and sale of securities worth more than 4.5 million Swiss Francs, the conversion of investments from U.S. dollars to British Pounds, the deposit and transfer of funds into and out of the UBS Swiss accounts, and the repatriation of approximately $7 million into the United States to purchase property and build his personal residence in Boca Raton.

Additionally, Rubinstein deposited and sold more than $2 million in South African Krugerrands through his UBS accounts.

Rubinstein was released on $12 million bond. He will be sentenced on Sept. 30.

Legal wrangling continues: Rubinstein's name was one of 285 that UBS turned over to federal prosecutors In February. That move was part of a deferred prosecution agreement the bank reached with U.S. prosecutors. It also forked over $780 million.

Despite the agreement and the first plea resulting from it, culture clashes and concerns over customer bank privacy have led to the inevitable lawsuits.

Last week, reports surfaced that the U.S. might drop its lawsuit to get the names of around 52,000 more UBS clients. The Department of Justice denied any such possibility.

Swiss officials, however, say that UBS and American authorities are trying to reach a settlement.

Who will win this tax haven, tax privacy battle? I suppose it will be which side has the biggest guns in the Mirabaud-described economic war.

Related posts:

• What's wrong with tax evasion?
• Possible international tax back scratching
• So after G-20, what's up with tax havens?
• Delaware, the great U.S. tax haven
• Suing for bank, and tax, secrecy
• Tax secrets are out ... maybe

Time for some tasty financial tidbits

The personal finance blog WiseBread has pulled together a nice little cornucopia (is "little cornucopia" an oxymoronic phrase?) of recent fiscal bloggings.

I am pleased to report that my eight divorce tax tips, prompted by Jon and Kate's beakup, was included.

As a cyber amuse-bouche, let me note that the Best of Personal Finance: Summer's Bounty Edition also has bloggings on car salesmen tricks, tips on talking money with your better half and something called a "side hustle."

And no, the spousal conversation and side hustle items do not automatically mean couples will need to read my divorce tips.

Those are just a few of the offerings. Head over to WiseBread and check out all of the bountiful bloggings.

Tax Carnival coming up: Speaking of collected blog works, mark two upcoming dates on your calendars.

The 55th Carnival of Taxes will be posted on July 6. Yep, I know that's the Monday after the July Fourth weekend, so you might want to get your item (one per blogger and/or blog, please, and on taxes specifically) in before you take time off to celebrate.

You can, however, push the entry deadline if you want. I'll be taking Tax Carnival blog item suggestions until 11 p.m. Saturday, July 4. I'll admit right now, however, that I'm not likely to review the submissions until Sunday afternoon.

So check out the Tax Carnival's guidelines, then head over to our Blog Carnival submission page to send in your tax-related post for inclusion in Tax Carnival #55.