Charles Krauthammer […] writes that the “most scurrilous” criticism of House Budget Committee Chairman Paul Ryan’s fiscal plan is that it would cut taxes for the rich. This would, he says, be akin to making the same claim against the Ronald Reagan-Bill Bradley 1986 tax reform. Krauthammer goes on to assert that Ryan’s plan is “classic tax reform” that … broadens the base by eliminating loopholes. The facts are otherwise. The Ryan plan, at least what we know of it, would inarguably cut taxes for the rich. It in no way resembles the 1980s tax reforms of either President Reagan or Senator Bill Bradley and Representative Dick Gephardt. And it most assuredly fails to eliminate loopholes. [TaxVox, WaPo]
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Three Important Filing Tips for Luddites
There is an immense body of law governing whether last-minute tax filings are timely. So often a cheap little postmark is all that stands between a taxpayer and tax catastrophe. With the IRS herding preparers and taxpayers towards e-filing, timely-mailed, timely-filed cases may seem like an arcane body of law, like piracy cases, but paper filing still has some proud hard-core holdouts, and sometimes only a paper filing will do. At the Tax Court, for example, where the website says “Initial filings, such as the petition, may be filed only in paper form.”
The tax law says that a tax return is considered timely-filed if it is mailed on the due date, but the shift to e-filing can make things awkward for paper filers. For example, few post offices still offer late April 15 hours for last-minute paper filers. Stepping into the last-minute filer void are authorized private carriers of tax documents, like FedEx and UPS. A proper shipping document by an authorized private carrier can document timely filing. That gives taxpayers new ways to meet disaster, as the Tax Court illustrated this week.
A California couple wanting to take the IRS to Tax Court had a July 20, 2009 deadline for filing their petition. They filed by FedEx, perhaps at a FedEx/Kinkos location. They generated a shipping label on their home computer with a July 20 date. But FedEx spoiled everything, as the Tax Court explains:
The petition, which was sent by FedEx Express (FedEx), was received and filed by the Court on Thursday, July 23, 2009. The envelope containing the petition bore two shipping labels. The first shipping label, which had been placed inside a clear plastic pouch adhered to the envelope, had been electronically generated by the sender using FedEx Ship Manager (customer generated label). The second shipping label, which had been affixed to the outside of the clear plastic pouch, had been electronically generated by FedEx (FedEx-generated label).
Of course the FedEx-generated label had a July 21 date. And that, says the Tax Court, is the date that counts, and our couple was out of luck.
So what does that mean to you?
• File electronically if you can. You get a nice electronic confirmation that you can beat up the IRS with, and you don’t have to worry about your valuable tax forms going awry.
• If you must paper-file, Registered Mail or Certified Mail, Return Receipt Requested, are still the best deal in town. They’ll generally be cheaper than a private carrier, and that hand-stamped certified mail postmark has the same effect on IRS agents as sunlight on Dracula.
• If you find yourself at FedEx/Kinkos late on April 15, make sure the clerk knows that you need them to stamp it before midnight. If you use private delivery, be sure to use the proper street address, as the private carriers can’t deliver to post office boxes.
Otherwise, you might find yourself trying to reach Jiffy Express.
Former BDO Partner Gets Probation For Cheating on His Taxes
Poor BDO, they never get in the news. But hey, they do today!
Former BDO partner George Mark got off easy this week when U.S. District Judge Nora Barry Fischer said he didn’t deserve to go to jail thanks to his “extraordinary” charitable efforts and remorse for his actions. Mark’s tax evasion was uncovered during an investigation into Pennsylvania beverage company Le-Nature’s, who apparently specialized in nepotism, ass water and fraud.
Mark will instead serve two years of probation and pay a fine of $30,000.
A federal jury recently found Le-Nature’s former president Robert B. Lynn guilty of 10 counts of bank fraud, wire fraud and conspiracy. The jury found him not guilty on 10 additional fraud counts and deadlocked on five others, which left Senior U.S. District Judge Alan Bloch Jr. no other choice than to declare a mistrial on the remaining charges. The company’s CEO Gregory Podlucky and other company officers are facing prison for their part of a $37 million fraud.
While investigating Le-Nature’s ugly mess, the IRS found out that Mark declared fake travel expenses on his 2004, 2005 and 2006 tax returns for about $90,000. The IRS determined that Mark was living the gangsta lifestyle out in the Philly ‘burbs, rented an apartment in NYC, traveled a lot and owned a few luxury cars.
The U.S. attorney’s office had hoped the judge would come down with jail time in order to convince would-be tax cheats that this is serious business but the judge felt Mark’s volunteer efforts for Hope International and other charities was sufficient proof that he wasn’t all that bad of a guy, perhaps just a little misguided.
Back in 2008, 74 investors alleged fraud and negligent misrepresentation against Wachovia Capital Markets, Wachovia Securities and two accounting firms, Ernst & Young and BDO Seidman for their respective parts in the Le-Nature’s scam, in which company officers (mostly CEO Podlucky and his kin) would secure loans for business equipment only to turn around and use that money for things like, oh, sapphires and overpriced watches.
E&Y audited Le-Nature’s until BDO took over. “E&Y was aware that Podlucky could single-handedly influence or manipulate the company’s financial results …” charged the lawsuit. The company basically made up $240 million in revenue and BDO auditors declared the company’s financials were free of material misstatements. FAIL.
Anyway, congratulations to the former partner for, uh, being such a model human being. Or something.
What Is the Most Difficult Sentence to Understand in the Tax Code?
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The IRC is probably the last thing many of you want to think about right now but, yes, I’m going there.
David Foster Wallace’s posthumous novel, “The Pale King“, is set in an IRS office in Peoria, Illinois and you’ll be shocked – SHOCKED! – to learn that the protagonist is fighting extreme boredom at his job. Wallace did extensive research prior to writing his final book including taking accounting classes at Illinois State University and carrying on “lively correspondence with tax lawyers and C.P.A.’s, peppering them with questions about the Tax Reform Act of 1986, compliance studies, I.R.S. office furniture, and an exotic tax shelter called ‘the Silver Butterfly,'” the Times reports.
One of the accountants Wallace corresponded with was Stephen Lacy who wrote this about Section 509(a):
“[L]egendary as the most difficult sentence to understand in the tax code,” adding: “I find that although I can never quite understand what it says, after I read it several times and concentrate, I can actually get into a kind of weird Zen-type meditation high! (Then again sometimes it provokes a profound anxiety attack.)”
“Legendary,” not only because its Mr Lacy’s drug of choice, but because Ronald Reagan quoted this passage back in June of 1986 when he set forth on his divine mission of reforming the tax code. A mission he ultimately achieved and thereby canonizing himself in the hearts and minds of many (can’t you picture the shrine in Grover Norquist’s house?). Anyhoo, here it is, in all its glory:
For purposes of Paragraph (3), an organization described in Paragraph (2) shall be deemed to include an organization described in Section 501(c) (4), (5), or (6) which would be described in Paragraph (2) if it were an organization described in Section 509(a)(3)
Not exactly Stieg Larsson is it? Anyway, if any portion of the code is still haunting your dreams and you feel as though it tops 509(a), you’re invited to exorcise it out now and your conscience will finally be clear.