Marry for Love

April 15 is almost here, and many of you are still scrambling to get your returns ready to file. Here's a collection of fun quotes to help you "sprint to the finish" this tax season:

"Another difference between death and taxes is that death is frequently painless."
Anonymous

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

"A citizen can hardly distinguish between a tax and a fine, except the fine is generally much lighter."
G.K. Chesterton

"Alexander Hamilton started the U.S. Treasury with nothing, and that is the closest our country has ever been to being even."
Will Rogers

"A person doesn't know how much he has to be thankful for until he has to pay taxes on it."
Ann Landers

"The best things in life are free, but sooner or later the government will find a way to tax them."
Anonymous

"The way taxes are, you might as well marry for love."
Joe E. Lewis

"People who complain about taxes can be divided into two classes: men and women."
Anonymous

"Once — just once — I'd like to be fixed up with a guy who earns in a year what I pay in taxes."
Anonymous Female Lawyer

"I'm putting all my money in taxes — it's the only thing sure to go up."
Anonymous

Cracking jokes about taxes is easy. Paying less is usually a little harder. That's why we're here — to give you the plan you need to minimize your bill. So call us when you're ready to get serious about keeping more of what you make!

Help Wanted

On March 8, the Bureau of Labor Statistics announced that the unemployment rate had edged down to 7.7% for February. That's good news compared to the high of 10.1% registered back in October, 2009. But unemployment is still unacceptably high, and surveys show Democrats and Republicans alike are citing jobs as our most pressing problem.

You might think that with jobs still scarce, employers would have their pick of applicants. In fact, the New York Times recently reported that some employers are requiring bachelors degrees for positions like file clerk, dental hygienist, cargo agent, and claims adjustor that don't require college-level skills. Nevertheless, there's one pretty important organization who's having trouble with jobs — and that employer, surprise surprise, is our old friend the IRS. It's a cushy enough gig — air-conditioned offices, great holidays and benefits, no heavy lifting, and flexible schedules that let you hit the road before traffic gets ugly. So, what's the problem?

On January 13, the Treasury Inspector General for Tax Administrations ("TIGTA"), an independent board assigned to oversee IRS operations, issued a riveting report with a can't-miss title: "Improvements Have Been Made to Address Human Capital Issues, but Continued Focus is Needed." (Seriously, if John Grisham could write like this, he'd have a real future.) It turns out the IRS has addressed most of the issues TIGTA identified four years ago in their last "human capital" audit. But there are still real problems, even in today's "seller's market" for jobs:

• Total employment is down 9%, from 107,622 at the end of FY 2010, to 97,717 at the end of FY 2012. Simple common sense says that fewer people processing more tax returns means more problems.
  
• Pending retirements are poised to gut senior staff like a trout. 48% of today's executive managers, 37% of field staff, and 31% of non-executive managers will be eligible for full retirement by the end of next year. This lack of experienced leadership will reverberate throughout the organization.
• It takes the IRS an average of 30 days to approve filing open positions, and 54 days to hire anyone from outside the organization. That's down from 157 days in 2009, but still frustratingly long in today's environment.
• New hires report they aren't getting enough coaching and mentoring. That means the new kids on the block will be even less effective at cutting through the red tape and bureaucracy!

We realize you might think "sequestering" the IRS is a good thing. But the IRS is facing real challenges, and we'll all be in trouble without experienced leadership at the helm. The tax code is getting more complicated. ("Obamacare" alone includes 42 provisions that add to or amend the tax code, including eight that require the IRS to build new processes that don't exist within current tax administration.) And the IRS is under increasing pressure to stop billions of dollars in fraudulent or improper tax refunds due to erroneous claims or identity theft. How can they succeed with their most experienced staffers fleeing like lemmings?

What's the bottom line? "TIGTA made no recommendations in this report; however, key IRS management officials reviewed it prior to issuance." Comforting, right?

Dealing with the IRS is never fun. Fortunately, you've got us here, to fight on your behalf even as the fight gets harder. Let us worry about IRS staffing for you — and remember, we're here for your family, friends, and colleagues, too.

A Rate of Your Own

On January 1, Congress passed a bill to keep the government from leaping off the so-called "fiscal cliff" — a set of tax hikes so devastating that Washington insiders warned they would ricochet through the economy, plunge us back into recession, and possibly even send the earth spinning into the sun. That bill included raising the top marginal rate on taxable income over $400,000 ($450,000 for joint filers) from 35%, where it had stood for the last 12 years, to 39.6%.

39.6% may sound like a lot today. But it's still really quite low, as far as top rates are concerned. Back in 1935, the nation was mired in the depths of the Great Depression. Inflation was 3.71% and unemployment stood at a whopping 21.7%. As for taxes, the top rate reached 79% on income over $5 million (roughly $85,672,000 in today's dollars). But — and this is a pretty big but — according to tax historian Joseph Thorndike, just one person actually paid that rate: billionaire John D. Rockefeller, Jr.

So, lots of rich guys still had city mansions and country estates, even in the midst of the Depression. Lots of millionaires had yachts, jewels, and priceless art. But only Rockefeller was rich enough to have his own tax rate. And that got us thinking — what would some of today's rich and famous pay if they had their own tax rates?

• Mitt Romney ran for president on the strength of his business record. He took heat from progressives for using the "carried interest" rules to pay around 14% on his multimillion dollar income. But Romney made bigger headlines for a number he thought he was uttering in private — so we say his bespoke tax rate should be 47%.
  
• A year ago, British author E.L. James was just a former TV executive, wife and mom of two from the London suburbs. Since then, she's rocketed to fame with three books that some fans prefer to read on their Kindle (to avoid showing the cover). International tax planning leaves room for plenty of shades of grey, so we suggest she pay 50% on her U.S. income.
• Baltimore quarterback Joe Flacco has had a big year. Last month, he led his underdog team to a Super Bowl victory over the favored San Francisco 49ers. Last week, he signed a $120.6 million contract making him the highest-paid player in NFL history. And it's only March! Flacco wears Number 5 for the Ravens, so we think it's only fair that he pay 5% of his income in tax. (Receiver Anquan Boldin, who wears Number 81, does not like where this discussion is going!)
• Reality "star" Kim Kardashian is back in the news again, this time for carrying rapper Kanye West's baby. Kardashian's previous relationship, a marriage to Brooklyn Nets power forward Kris Humphries, lasted 72 days — so we'll tax Kim at 72%.
• Kiefer Sutherland should pay 24%. Morley Safer should pay 60%. And Nick Lachey should pay 98%. (Not just because his band is named 98 Degrees, but because we should try and tax all "boy bands" out of existence.)

Who do you think should have their own tax rate, and what should they pay? Let us know! In the meantime, remember that you don't have to have your own tax rate to pay less. You just need a plan. That's what we're here for. And we're always here for your family, friends, and colleagues, too

Tax Strategies for Asteroid Impacts

On February 22, 2012, a telescope in Spain discovered an asteroid, 150 feet across, in an orbit that would bring it uncomfortably close to earth. Astronomers reassured us that we would be safe — this time — but that it was "a wake up call for the importance of defending the Earth from future asteroid impacts." Last month, that asteroid, named 2012 DA14, passed within 17,200 miles of earth at a speed of nearly 17,500 miles per hour. That's a hairs breath in cosmological terms — it actually flew under the ring of communications satellites orbiting earth before it headed safely back out into space.

Earth isn't always so lucky. Ironically, on the same day that 2012 DA14 flew by, a meteorite struck outside the remote Russian town of Chelyabinsk with the power of 30 atomic bombs. Amazingly, no one was killed. A century ago, a meteor broke up with similar force over Russia's Tunguska forest, flattening an estimated 80 million trees. Again, amazingly, no one was killed. And just last week, astronomers discovered a comet that could strike Mars next year with an apocalyptic force equal to 25 million times the largest nuclear weapon ever tested on earth.

But what if 2012 DA14 hadn't passed harmlessly by? What if it had struck the earth, with its estimated 3.5 megatons of energy and 200 times the power of the atomic bomb that destroyed Hiroshima? What would our friends at the IRS have done?!?

It probably won't surprise you to learn that the doomsday preppers at the IRS have a well-established disaster plan. Internal Revenue Manual Section 10.2.10 outlines comprehensive continuity planning requirements for all sorts of emergencies, including "natural disasters, accidents, technological failures, workplace violence, and terrorism." The goal, in all cases, is "to ensure the continuation of IRS mission essential functions under all circumstances." And Section 25.16.1, updated just last June, lays out pages of disaster assistance and emergency relief program guidelines

So, what actually happens if a chunk of space rock takes out Washington or another major city? The plan assumes that the IRS will resume assessing and collecting taxes within 30 days of the strike. They might be authorized to make cash grants to survivors, or buy assets destroyed in the disaster (and even pay off any outstanding bank loans or mortgages). IRS employees could be reassigned to any job "regardless of and without any effect on the current positions or grades of the employee."

At one point, the Manual even appeared to give delinquent taxpayers a "Get Out of Jail free" card. "On the premise that the collection of delinquent accounts would be most adversely affected, and in many cases would be impossible in a disaster area, the service will concentrate on the collection of current taxes," it said. Of course, that rule would apply only in the disaster area: "However, in areas where the taxpaying potential is substantially unimpaired, enforced collection of delinquent taxes will be continued." Ouch!

The tax code gives you plenty of breaks if your own stuff gets taken out from space. You can deduct un-reimbursed damage caused by a meteor strike or other sudden, unexpected, or unusual event. You'll have to reduce the amount of your loss by $100, then by 10% of your adjusted gross income. Then you'll report the remaining amount on Form 4864.

None of us like paying taxes — but you don't have to wait for an asteroid strike to pay less. The real answer, of course, is planning. And if "continuity planning" is the answer for the IRS, tax planning is the answer for us. So call us before disaster strikes, and see how much you can save!

Cruising in Style

Cruising the high seas has become an increasingly popular way to travel, with over 14 million Americans cruising in 2010. Cruise fans love the convenience of unpacking just once and letting a floating resort take them from one glamorous destination to another. Cruise critics cringe at the stereotypical cheesy Vegas-style shows, 'round-the-clock buffets, and abbreviated shore excursions to the same chain retailers they can visit at their local mall. But all of us were thoroughly disgusted by this month's sordid tale of the Carnival Triumph, the mega-ship that lost power in the middle of the Gulf of Mexico. Four-hour waits for onion sandwiches sound bad enough from a ship that prides itself on a reputation for all you can eat. But just imagine 4,200 passengers and crew lining up to use 12 working toilets, and you'll immediately understand why observers dubbed the ship a "floating petri dish."

Carnival's spin masters clearly recognize a PR disaster when they see a towboat dragging it past them at 5 knots. They've agreed to give passengers a full refund for cruise and transportation costs, plus $500 in cash, plus a credit for a free future cruise. (Wonder how many will take them up on that offer?) That didn't stop passengers from suing, however, with the first action filed mere hours after the boat finally docked in Mobile harbor.

But it turns out the Triumph's passengers aren't the only ones who are less-than-delighted with Carnival. Would it surprise you to learn that our friends at the IRS aren't fans either?

Carnival takes a lot of help from the government. As the New York Times reports, "The Carnival Corporation wouldn’t have much of a business without help from various branches of the government. The United States Coast Guard keeps the seas safe for Carnival's cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival's ships dock."

Those government subsidies have helped Carnival become the biggest cruise line in the world, based on passengers carried, annual revenue, and total number of ships. The company's "fun ships" earned $11.3 billion in profit over the last five years. So, how much did the IRS get in exchange for all that government help? Well, Carnival's total "cash taxes paid," including federal, state, local, and even foreign taxes, add up to a miserly 1.1%.

How does Carnival do it? Mainly through "offshoring," a popular strategy for corporations in industries as diverse as technology, pharmaceuticals, and even online advertising. Carnival's executives work out of offices in Miami, and the holding company's stock trades on the New York Stock Exchange. But the operating company is incorporated in Panama, and the actual ships are "flagged" in Panama or the Bahamas.

Offshoring has been so successful that Carnival's founder Ted Arison offshored himself — he renounced his U.S. citizenship and moved back to his native Israel to avoid U.S. estate tax back in 1990. Arison was one of the world's richest men at his death, with an estimated net worth of $5.6 billion. Unfortunately, at least for his heirs, he died nine months before achieving the 10-year absence from the U.S. that was necessary to avoid the tax.

Carnival is hardly the only U.S. corporation to use perfectly legal strategies to cut its tax. The Times reports that over the last five years, Boeing has paid just 4.5% (in part by making out sized contributions to its pension fund and taking advantage of tax breaks for research and development on new planes); Southwest Airlines paid 6.3% (in part through accelerated and bonus depreciation on new plane purchases); and Yahoo paid 7% (in part through net operating losses the company racked up in previous years). But Carnival's planning just seems more shrewd than most.

We can't imagine anything much worse than spending five days in the open sea with no power for lights, air conditioning, or hot water. But paying more tax then you legally have to is no boatload of fun, either. Fortunately, you don't have to spend days adrift at sea to accomplish that. You just need a plan. And we're here to get you shipshape. So call us when you're ready to pay less!

Biggest. Crybabies. Ever

Here in America, we're used to people running to court every time life throws a curve ball. Spill hot coffee in your lap? Sue McDonald's! Get drunk, drive your car into a bay, and drown because you can't open your seat belt underwater? Mom and Dad can still sue Honda and win $65 million! Electrocute yourself trying to rob a bar? There's a lawyer for that!

Earlier this month, though, we saw some satisfying comeuppance in one of those cases that makes us roll our eyes in amazement.

First, a little history. UBS is Switzerland's biggest bank — and, like most Swiss banks, it used strict Swiss secrecy laws to attract depositors. They solicited Americans to open accounts, knowing full well that many of them were using those accounts to cheat the IRS — and in some cases, even advising them how to do it. In 2007, a disgruntled employee blew the whistle (and earned a record $104 million reward in the process). Two years later, UBS paid $780 million and ratted out 4,700 clients to settle charges. The scandal scared 35,000 taxpayers into joining an IRS amnesty program, coughing up over $5 billion in back taxes to dodge criminal charges.

You would think that people 'fessing up to a pretty serious felony would just slink back home with their tails between their legs. Right? Well, you would be wrong . . . at least here in America. What do we do here? We sue the bank for not stopping us from cheating!

The three plaintiffs in Thomas V. UBS each hid money with the bank, in amounts ranging from $500,000 to $2 million. They didn't report the existence of the accounts on their tax returns, as the law requires. They didn't report the interest they earned on their accounts. And of course, they didn't pay tax on that interest. When the scandal broke, they scurried to the shelter of the amnesty program, paying taxes, interest, and a 20% penalty.

Then, what did they do? They hauled UBS into court to recover the penalties, interest, and other costs they incurred to come clean. Why? Because UBS profited from the fraud and other wrongful acts they committed when they induced depositors to bank with them in the first place!

Fortunately for those of us on the side of common sense, the case ended up before Appeals Court Judge Richard Posner. Posner is one of the judiciary's most colorful characters, author of nearly 40 books, and not afraid call B.S. when he sees it. His comments dismissing the plaintiffs' complaint are especially scornful — you can almost hear him literally laughing them out of court:

"Our plaintiffs do not argue that they (or other members of the class) received tax advice from UBS. They argue rather that the bank should have prevented them from violating the law. This is like suing one’s parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes and so would not subject himself to penalties. There is in general no common law duty to prevent another person from violating the law.

We needn’t discuss the plaintiffs’ remaining claims—of negligence and malpractice—as they are frivolous squared. This lawsuit, including the appeal, is a travesty. We are surprised that UBS hasn’t asked for the imposition of sanctions on the plaintiffs and class counsel."

The irony here is that none of the plaintiffs who sent their money on alpine vacations had to cheat to pay less tax. They just needed a plan to take advantage of perfectly legal concepts and strategies. We give you that plan to pay less tax, legally. So now you can spend time in Switzerland visiting chocolate factories and cuckoo clocks — not your hidden bank accounts!

Sneaky Sneaker Tax

Today's tight economy is forcing governments at every level to stretch for new revenue, with varying degrees of success. In Washington, the dysfunctional family known as "Congress" just raised the top income tax rate to 39.6%, and there are new taxes on earned income and investment income as well. But when President Obama proposed cutting loopholes to raise even more money as an alternative to the budget sequester, his idea was met mostly with scorn.

Most state governments are in fiscal hot water, too. But Illinois may be worst off of all. Nearly $100 billion in unfunded pension liability is crushing the state budget. Last week, the bond ratings agency Standard & Poor's downgraded the Land of Lincoln's score to last in the nation. Ratings rival Moodys ranks Illinois at the same level as the African nation of Botswana. (Some observers might ask what else you could expect from a state that defines "bipartisanship" as having both Democratic and Republican ex-governors in jail at the same time.)

The cash crunch has left Illinois's discretionary spending programs gasping for funding. So it's no surprise that beleaguered lawmakers are looking for creative ways to protect favored programs. And one representative thinks he's found a solution. State Rep. Will Davis (D-Hazel Crest) has proposed a 25 cent tax on athletic shoes which would raise $3 million per year for Illinois YouthBuild, a nonprofit organization with 16 programs providing job training for disadvantaged youth.

Targeted taxes are nothing new, of course. The federal gasoline tax raises about $25 billion per year, with most of that dedicated to the Highway Trust Fund. Governments are especially fond of so-called "sin taxes" targeting irresponsible or undesirable behavior. That's why we see cigarette tax revenue going towards lung cancer research, soda taxes targeting obesity, and even a new 10% tax on tanning bed revenue.

And a sneaker tax sounds simple enough — especially compared to, say, the rules for Alternative Minimum Tax net operating loss carryforwards. (That's a real thing, by the way, and it's every bit as awful as it sounds.) But as is usually the case with taxes, the devil's in the details. Davis's tax would apply to any "shoe designed primarily for sports or other forms of physical activity." So, does "walking" count? What about hiking boots, ski boots, or snowshoes? Will there be refundable credits for sneaker-buying families earning less than the poverty level?

But the real problem is that Rep. Davis's sneaker tax might open the floodgates to imitators. Just consider what other targeted taxes might be next:
 •A tax on Valentine's Day flowers to support marriage counseling services?
•A tax on snowplows to support research into global climate change?
•A tax on footballs to keep replacement refs off the field?
•A tax on "reality TV" shows to support public broadcasting?
Nobody really wants to see new taxes, of course. But we all know we have to pay something. What sort of new tax could you support, and where would you spend the revenue it raises? Let us know what you think. And remember, no matter what gets taxed, we're here to help you pay less!