Don't Mess With Taxes

Swiss banker seeks whistleblower billions; Swiss electorate to vote on tax pacts

For a country that usually likes to stay under the radar, Switzerland continues to get a lot of attention when it comes to its banking laws and international taxes.

Yes, things are still shaking out, with the names of the "most-wanted" account holders at the giant Swiss bank UBS to be handed over to U.S. tax investigators.

Just last week, the Federal Tax Administration in Bern finished reviewing the first 500 files of UBS clients that the IRS suspects of tax fraud. But the Swiss will not turn over the list, per two countries agreement, until the account holders have exhausted the appeals process.

Whisteblower reward on the way? Meanwhile, one of the bankers who helped unravel the secret Swiss accounts now wants to be paid for his part in outing his former U.S. clients.

Bradley C. Birkenfeld, a former private banker with UBS, has been sentenced to 40 months in prison for helping his evasive clients.

But once he gets out, he's hoping he'll be able to rebuild his life with billions of dollars he says he should get as a reward for whistleblowing.

If Birkenfeld and his lawyers (yes, there are always lawyers involved) succeed, it would be the largest reward of its kind. 

And it looks like Birkenfeld's loose tax lips have given him a pretty good shot at a pretty darn good payday.

In court filings, the Justice Department has acknowledged that the information from Birkenfeld, a 44-year-old American who worked at the Swiss bank, was the crucial factor leading to the criminal investigation of UBS.

"Without Mr. Birkenfeld walking into the door of the Department of Justice in summer of 2007, I doubt this massive fraud scheme would have been discovered by the United States government," wrote Justice Department prosecutor Kevin M. Downing in filings in Birkenfeld's case.

Swiss votes on tax treaties: While all this is going on in the U.S., back in Europe the Swiss seem to be taking a page from the U.S. when it comes to tax law changes.

The government's tax agreements with other countries, an effort to make the Alpine tax haven's laws more transparent and get it off an international list of bad tax actors, might be going before the country's electorate.

The Swiss government has asked its parliament to approve five new tax treaties as part of its effort to counter the country's stigma of being an international tax haven and said the deals should be subject to an optional referendum.

Essentially, the new double-taxation agreements will mean Switzerland will cooperate more fully with foreign tax authorities seeking information from hidden offshore accounts. Also, the country will no longer distinguish between tax evasion and tax fraud.

Votes on the treaties certainly would make Swiss who oppose changes to the country's banking secrecy laws happy, but it also could slow efforts to remove the pejorative "tax haven" label.

The Swiss exercise of democracy when it comes to the tax treaties will no doubt slow things down, Gyorg Lütz, project director of Swiss electoral studies at Lausanne's Centre for Electoral Studies, told World Swiss Radio, but he noted that it's unclear whether the government really had a choice politically.

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White House party crashers owe IRS

No wonder Tareq and Michele Salahi, the Virginia couple and "Real Housewives" wannabes that crashed Obama's first state dinner last week, are looking for big bucks to tell their story.

They apparently owe a lot of money to a lot of people.

CNN Politics reports that the Salahis are in debt to everyone from the Montgomery County, Md., traffic court (a $65 parking ticket) to a gasoline giant ($3,000 due Exxon-Mobil) to other credit card companies ($60,000 in unpaid billings), not to mention almost $100,000 allegedly owed attorneys who got involved in various Salahi dealings.

And amidst all those IOUs is an "unknown" amount due the IRS.

The Salahis' alleged financial troubles are detailed, says CNN, in at least 16 different civil suits.

No wonder the pair didn't try to get on official invitation to the White House. The inquiry into the couple's background would have raised too many red flags that their creditors could have easily seen.

For more on the couple's tax, financial and social travails, check out CNN Politics, taxgirl, realfauxhousewives.com, Politico, The Hangover Helper, Politics Daily and The Hollywood Gossip.

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Pot's potential to help pay state bills

I've blogged repeatedly about the dire financial straits most states find themselves in nowadays.

If things don't change, and soon, some state officials might decide to follow Colorado's latest revenue-raising move: taxing medical marijuana.

Colorado's Attorney General John Suthers has informed Gov. Bill Ritter that, yes, the state does have the authority to tax medical marijuana. "Medical marijuana is tangible property that is generally subject to state sales tax," Suthers wrote in his Nov. 16 formal opinion.

The legal analysis was in direct response to a query by the governor, and was issued just as Denver was about to impose its own sales tax on medical marijuana. That will happen on Dec. 1, with Denver dispensaries required beginning that day to pay the city's 3.62 percent sales tax.

Denver's new tax source is estimated to generate up to $15 million for the state and up to $45 million in city and community taxes.

Money trumps ideology: Not only is the decision to tax medical marijuana potentially a major revenue raiser, it also marks one of the few times in these politically polarized times that folks on both sides of the aisle have come together.

AG Suthers is a Republican. Governor Ritter is a Democrat. And it doesn't stop there.

State Sen. Chris Romer plans to introduce comprehensive medical marijuana taxation legislation when the Colorado General Assembly reconvenes in January. On the House side, Romer's cosponsor is Rep. Tom Massey, a Republican from rural Colorado.

Is it just me, or is anyone else picturing all these politicians, now united by marijuana taxes, sitting in the Foreman's smoke-filled basement in Point Place, Wisc., and having a grand old time?

Or, as Laura Chapin put it in U.S. News' Thomas Jefferson Street blog, "Conservatives clapped their hands over a new revenue stream. Liberals are happy that people who are sick and need help will get it. And a cash-strapped state may have found a way to relieve a bit of its budget crunch."

Huge revenue potential: If the Colorado marijuana tax plan works, you can bet the other states that allow medical marijuana sales will soon have their own tax rules in place.

Oh wait. California already has done that.

The Golden State began collecting sales tax on medical marijuana after the state Board of Equalization determined that because weed did not meet the legal definition of medicine, it was subject to the tax.

In 2007, California tax officials "urged" medical marijuana retailers to get a seller's permit like other retailers.

Now an estimated $200 million in medical-marijuana sales are subject to the Golden State's sales tax of 8.25 percent, yielding about $16.5 million in revenue annually.

It hasn't stopped there. This summer, Oakland became the first U.S. city to tax proceeds on medical marijuana.

More marijuana tax money to be made? What about the states where there is no provision for medical marijuana? In those cases, lawmakers might want to consider regulating and taxing the nonmedical weed.

As the graphic above (excerpted from a larger display created by Sloshspot and shown in full on Brand X) indicates, that could yield more that $778 billion. The revenue potential is attracting attention.

Again we go to the Left Coast.

When the California Assembly meets in January, it will consider lifting its 96-year-old ban on marijuana, decriminalizing the drug and taxing it like alcohol as a way to help pull the state out of its worst financial crisis since World War II.

The state's Board of Equalization (BoE) has crunched the numbers. In Oct. 28 testimony before the California Assembly Committee on Public Safety as it examined the fiscal and legal implications of legalizing and regulating marijuana, Robert Ingenito, Chief of the BoE's Research and Statistics Section, told lawmakers:

"Under current law, retail sales of marijuana and any other drugs or medicines sold without a prescription are subject to sales tax to the same extent as any other retail sales of goods. We have estimated that the potential state and local sales tax gain could be as high as an additional $392 million, $263 million of which would be General Fund. Thus, the total revenue increase from a hypothetical $50 per ounce tax could be as high as about $1.4 billion."

Whatever one's stance on legalizing marijuana, those dollar amounts are impressive. And they just might be persuasive enough in this tough economy.

"No matter what sort of spin you put on the issue, ignoring the revenue-creating potential of taxing cannabis sales -- which will continue, legally or otherwise -- hardly seems prudent when we live in an era in which local governments can't afford to fix potholes or hire schoolteachers," writes Brand X's Richard Metzger.

Related posts:

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The investment tax is back!

A few months ago, the possibility of a tax on investment transactions was floated.

It didn't go too far then. Treasury Secretary Timothy Geithner even noted that he "hadn't seen a version of the tax that'd make much sense"

 Now, however, with ballooning deficits, war costs to pay and health care financing about to dominate the waning days of this Congressional session, the transaction tax idea has resurfaced.

The levy often is referred to as a Tobin Tax after James Tobin, the late American economist and Nobel laureate. In 1972, Tobin was the first to suggest a securities transfer tax as a way to discourage currency speculation and penalize short-term trading. Over the last 37 years, the concept has been gaining support as a way to pay for projects and avoid adding to the federal deficit.

The latest iteration, according to the Capitol Hill newspaper The Hill, is still being drafted, but preliminary word is that it would raise $150 billion each year to pay for new jobs. That's become a political and economic hot potato since the U.S. unemployment rate hit 10.2 percent in October and job losses are expected to rise even as the economy technically is improving.

A quarter percent tax for jobs: Leading the latest Tobin Tax charge, which is being formulated under the working title of Let Wall Street Pay for the Restoration of Main Street Act of 2009, are Democratic Reps. Peter DeFazio of Oregon and Ed Perlmutter of Colorado.

Their bill would tax would add a 0.25 percent tax to the sale and purchase of stocks, options, derivatives and futures. The proposal reportedly would exempt retirement accounts from the tax.

There's no word as to whether an income threshold also might be considered so that middle-income investors wouldn't have to worry about added costs when they bought and sold investments.

The Hill says that half of the projected $150 billion that the transaction tax would raise would go toward reducing the deficit. The other half would be deposited in a "Job Creation Reserve" to support new employment opportunities.

For and against: Among the groups supporting a transaction tax are Americans for Financial Reform, Public Citizen, the Service Employees International Union (SEIU) and the AFL-CIO.

The TaxProf also has compiled a list of folks who have some thoughts on a Tobin Tax.

How would your investments be affected? Are most in retirement accounts that wouldn't face the transaction tax? Or do you have significant non-retirement funds that would cost you when you made any reallocation moves?

Related posts:

• Investment transaction tax on table
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Schwarzenegger hit with $79,000 tax lien

California's Governator is dealing with more tax woes. This time, though, they're federal.

And they're personal.

The IRS filed a tax lien against Gov. Arnold Schwarzenegger for $79,064 in May.

The governor's apparently overdue federal taxes came to light Friday when celebrity news site TMZ.com posted a copy of a lien document reportedly filed with the Los Angeles County recorder's office.

That document shows that Schwarzenegger owes the IRS  $39,047.20 from 2004 and $40,016.80 from 2005.

Ahnold's office blames the unpaid taxes on "a minor paperwork tracking discrepancy."

Apparently, there were problems with information returns, filings that alert the IRS to payments made to employees or vendors (such as W-2s, 1099s), submitted by the governor. The IRS assesses a $50 penalty for each late-filed information return and for the filing of incomplete or incorrect information. The maximum such fine per year is $250,000.

Representatives of the governor say they have contacted the IRS. "The issue is completely unrelated to the payment of taxes," Schwarzenegger spokesman Aaron McLear said in a statement. "The governor is resubmitting certain information to the IRS and we fully expect that the matter will be resolved and the lien expunged without any penalty assessed upon the governor.

The IRS better hope that McLear is correct and that the governor doesn't owe any delinquent federal taxes. Otherwise, Uncle Sam just might get one of those infamous California tax IOUs.

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Streamlining various state sales taxes

It's nearing 10 a.m. on Black Friday. That means that for the last six or so hours all across America, shoppers have piled into stores looking for bargains.

In a couple of states, South Carolina and West Virginia, shoppers will get even better deals as certain purchases -- guns in S.C. and energy-efficient appliances in W.V. -- are free from sales tax.

Many other folks are shopping online today, with a bigger Internet surge of buyers expected on Cyber Monday.

In some cases, those folks purchasing via their PCs also escape sales tax payments. The New York Times says it's time for such tax-free sales to stop.

"Fairness demands sales tax collection by all online retailers — to level the competitive playing field, to ensure that tax law is administered consistently and to distribute the overall tax burden more progressively," argues today's Times editorial Yes, You Owe That Tax.

New York currently is fighting a court battle it hopes will validate once and for all the Empire State's 2008 law that requires Internet retailers to collect taxes on sales to New York customers. Amazon.com challenged the law and lost in a lower court. A state appeals court is expected to rule on the issue soon.

Awaiting federal tax imprimatur: Meanwhile, it looks as if federal legislation that would authorize states to collect taxes on remote sales could be introduced on Capitol Hill before the year is out.

Such legislation would give those states that have complied with the Streamlined Sales and Use Tax Agreement the authority to require out-of-state sellers to collect sales tax on remote sales. 

Essentially, the Streamlined Sales and Use Tax Agreement makes collection of taxes from Internet vendors easier by simplifying rates and requiring businesses to collect taxes when selling goods in remote locations.

To be fully effective, however, the agreement needs the enacting legislation from Uncle Sam. In supporting that final federal step, the National Conference of State Legislatures (NCSL) notes that 23 states have been certified as being compliant with the Streamlined Sales and Use Tax Agreement. The agreement includes participation of more than 1,100 volunteer sellers and accounts for over $360 million in new revenue for states.

According to Tax Analysts, during a meeting last week of the NCSL task force studying the Internet sales tax collection issue, the group's counsel told members that while the legislation is still being finalized, "supporters hope to see the bill introduced before the end of the calendar year."

A key component of the measure will be getting Republican support, but several GOP lawmakers reportedly are interested in the legislation.

States that have signed onto the Streamlined Sales and Use Tax Agreement hope the reports are correct and that soon they'll be able to add  few more dollars to their treasuries via online sales taxes.

You can read more about state support of the legislation in recent editorials in the Greenwood, Miss., Commonwealth and the Grand Rapids, Mich., Press.

States in Agreement: Is your state one of the 23 signed onto the streamlined sales tax collection agreement? 

They are Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

How much would nationwide sales tax collection change your online shopping habits?

Related stories:

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Texas, taxes, close enough

What a difference one little letter makes.

see more Epic Fails

Where's Vanna and her supply of vowels when you really need them?

Texas-sized thanks: On this Thanksgiving, I'm thankful for every chance to laugh, thrilled that I'm back home in Texas and grateful that most of the time I can spell easy words, although the hubby, my unofficial copy editor, still catches plenty of blog uh-ohs, usually before they're posted.

I'm also thankful for friends, both real life and electronic. And on this holiday, two of them, @mxwll and @mbhunter, get big Thanksgiving thanks for tipping me to this great photo.

Here's wishing all y'all a wonderful Texas-sized, non-taxing and fail-free Thanksgiving holiday!

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Giving thanks for tax amnesties

Taxpayers in 18 states and cities have a great reason this year to be thankful. Their revenue offices offered them tax amnesties.

These folks were given a chance to make things right with the tax man.

Even better, the programs typically waive some, if not all, of the penalties and interest that usually are tacked on to late payments.

The reason for the offers? States in dire need of revenue have jumped on the short-term term amnesty bandwagon as a relatively easy way to get people, lured by the promise of leniency, to pay up, writes Arden Dale in the Wall Street Journal.

In addition to the states and cities with amnesties this year, Dale says another 10 or 15 are likely to follow suit in 2010.

The COST of amnesties: The Council on State Taxation (COST), which tracks the amnesties, describes the activity as "a wave that is sweeping the country."

The organization maintains a spreadsheet that details not only the dates of current amnesties and status of proposed programs, but also what taxes are covered and the amount of back taxes the jurisdictions have collected through the programs.

While many of the come-clean offers are over, a few are still taking taxpayers' money.

Folks in Maine better hurry. The Pine Tree State's Tax Receivables Reduction Initiative ends on Nov. 30.

Some delinquent New Orleans taxpayers have until Dec. 4 to make things right with the Big Easy tax collector.

And Virginia is letting overdue Old Dominion taxpayers Get Square through Dec. 5.

More to come: Live elsewhere without an amnesty program? Or did you simply miss your taxing jurisdiction's offer this year? Don't worry. You'll likely get another chance.

"If your state hasn't already had an amnesty program, it's probably going to have one soon," said Joseph R. Crosby, chief operating officer and senior director of policy at COST.

Related posts:

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Pieces of the health care financing pies

In conjunction with the impending Thanksgiving holiday, specifically the dessert portion of the day, a blog item containing pie charts seemed fitting.

And since Turkey Day-related overeating or reckless wielding of a carving knife or straining your voice yelling for (or at) your favorite football team could result in a trip to the doctor, it's even more appropriate that we've found some pie charts dealing with health care reform.

All of us tax geeks and political wonks can be very thankful that instead of forcing us to squint at rows and rows of tiny numerals, the Tax Foundation (and its Tax Policy Blog) prepared colorful pie charts to demonstrate how the House and Senate propose to pay for their respective proposals.

The $848 billion health care reform legislation unveiled by Senate Majority Leader Harry Reid last week is financed primarily through cuts to Medicare provider payments (which would save $330.6 billion, or 34 percent of the bill's 10-year cost) and a 40 percent excise tax on high-value "Cadillac" health plans (which would generate $149.1 billion, or 15 percent of the bill's cost), according to the Tax Foundation's review of the Congressional Budget Office's analysis.

 

Click image for larger view

Across Capitol Hill, House Speaker Nancy Pelosi's more-costly bill -- more than $1 trillion -- also includes cuts to Medicare spending, but most of the money in that overhaul plan would come from a surtax on wealthier taxpayers.

Click image for larger view

How will these pieces of revenue pie finally be sliced? Put on your budget apron and stay tuned.

Speaking of pies: Thanksgiving is tomorrow, which means family, friends, football and food, including pies. Here's hoping your holiday is a good one. And go ahead and have that extra piece of pumpkin pie. It is a holiday, after all.

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'Pay as you fight' war surtax introduced

"Obamacare" has been replaced as the current political catch phrase, at least momentarily, by "Pay as you fight."

That's the headline grabbing name (yeah, I went there, too) given to a proposal to impose a surtax on taxpayers to help fund the ever-growing Afghan war costs.

Officially dubbed the Share the Sacrifice Act by its sponsors, the would impose a surtax on most taxpayers. The levy would increase with the amount of income earned, reaching 5 percent on those in the highest tax bracket.

The legislation exempts anyone who has served in Iraq or Afghanistan since the 2001 terrorist attacks, as well as families who have lost an immediate relative in the fighting.

The bill, H.R. 4130, is sponsored by House Appropriations Committee Chair David R. Obey, (D-Wisc.) and has 10 cosponsors, including several members of the tax-writing Ways and Means Committee.

Obey and his colleagues would like the tax to kick in for 2011. However, the bill notes that "if the President determines that the United States economy is too weak to absorb the tax imposed under this section, the President may delay the implementation of such tax for up to 1 year."

Guns and butter 2009-style: This is not the first time Obey has proposed a war surtax. He introduced similar legislation in 2007, but it went nowhere.

Now, however, the deficit keeps growing and U.S. military spending in Afghanistan reached $3.6 billion a month this summer. That comes to more than $43 billion a year, according to  Congressional Research Service estimates. And if Obama sends more troops to Afghanistan, the price will go up, by some calculations, a $1 billion a year for every 1,000 troops deployed there.

"For the last year, as we've struggled to pass health care reform, we've been told that we have to pay for the bill," said Obey in a statement announcing introduction of the bill. "Now the President is being asked to consider an enlarged counterinsurgency effort in Afghanistan, which proponents tell us will take at least a decade and would also cost about a trillion dollars. But unlike the health care bill, that would not be paid for. We believe that's wrong."

"Regardless of whether one favors the war or not, if it is to be fought, it ought to be paid for," said Obey. "We believe that if this war is to be fought, it's only fair that everyone share the burden. That's why we are offering legislation to impose a graduated surtax so that the cost of the war is not borrowed."

No official word from Obama: When asked about the war surtax at Monday's daily White House press briefing, Administration spokesman Robert Gibbs told reporters, "That is not a specific proposal that has been talked about in a meeting that I've been at."

However, reports Tax Analysts, Gibbs did not rule out the administration's being open to such an idea.

Additional coverage: You can read more about the war surtax proposal in the Wall Street Journal, SFGate's Politics Blog, FoxNews.com, Politico and The Hill.

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