Sharpton’s financial dealings exposed in NY Times

The Reverend Al Sharpton is in the news again, but not in a way he would like: The New York Times has a long piece rounding up many of his financial adventures, including more than $4.5 million in current state and federal tax liens against Sharpton and his businesses, both for-profit and non-profit.

Some of the financial details go back more than a decade. There may be agreements in place with the federal and state agencies on payments of back taxes, and explanations for how various debts were accumulated. But if you’re running an organization, you never want to see a sentence like the one in the Times that quotes the accountant for one of Sharpton’s non-profits stating that the group’s existence was as least partially dependent upon “the nonpayment of payroll tax obligations.”

Yipes.

Is that friendly tax pro really an undercover federal agent?

Today’s nominee for Stuff You Just Cannot Make Up: The New York Times reports that officers from more than three dozen agencies have posed as business people, welfare recipients, political protesters and–yes–even tax professionals, as part of undercover investigations.

“At the Internal Revenue Service, dozens of undercover agents chase suspected tax evaders worldwide, by posing as tax preparers or accountants or drug dealers or yacht buyers, court records show,” The Times reports.

I’d like to think that IRS officials are going undercover to help ferret out identity theft, which is becoming a huge issue for taxpayers who find out their Social Security Numbers have been stolen (usually when they try to file their returns), money laundering and other illegal operations. But as with all secret government programs, part of the problem here is that we don’t know what we don’t know.

Will Congress — new or old — do anything about expiring tax breaks?

The election is over, the people in their infinite wisdom have spoken…but here we are in mid-November and we still don’t know for sure what the tax laws are going to be for this year.

The problem is that a bunch of tax breaks and benefits have not been extended to 2014. These include:
–The $4,000 deduction for higher education tuition & fees.
–Deductions for state and local sales taxes.
–The ability to donate up to $100,000 from your IRA to a charity instead of taking a taxable required minimum distribution.
–The $250 deduction for classroom expenses for teachers in grades K-12.
–Credits of up to $500 for energy-efficient home improvements.
–The ability of businesses to write off more than $25,000 in new asset purchases.


The Wall Street Journal summarized
tax breaks it thought Congress should address. A lame-duck session might do something about all of this. Or it might do nothing. But either way, until we know for sure what the tax laws are for 2014, the IRS can’t finish programming its computers, which means that this is likely to be another tax season in which taxpayers will be unable to file their returns in early or even late January.

Watch this space for an update.

Paying for college when you can’t pay for college

Every year I consult with clients who have children applying to college and who don’t have enough saved–or don’t have anything saved–to cover the costs of a higher education.

In The New York Times, Ron Lieber has a good piece guiding parents–savers and non-savers alike–to figuring out how much a school might actually cost you and how you might pay for it.

People wanting to get a handle on both the cost of schools and the financial aid process can get started by going to the College Board and learning how to calculate how much you might be expected to pay for college.

The initial sticker shock guaranteed when you first see the cost for a year of studying and living at one of our finer institutions (I’m looking at you, $61,920-per-year Bennington!) shouldn’t stop you from learning more and having your child apply to schools. As Lynn O’Shaughnessy, a college consultant and friend of JoeTheTaxGuy, points out, the average grant to freshmen receiving aid now tops 50% of the cost of tuition & fees.

Another good site, from the National Center for Educational Statistics, is loaded with information on not just how much schools cost, but also what percentage of their students receive aid. Seeing that more than 85% of students at a school your child likes get at least some aid may help put a slightly rosier frame on this exercise.

A winning tax picture for money-losing artists

You are an artist, or a photographer, or a writer who is trying to make money from your venture but usually don’t succeed. Can you still claim losses on your tax returns?

I’ve often told clients that the answer is yes, if you are conducting yourself in a businesslike manner, attempting to make a profit, and document, document, document your profit-oriented activities. I also warn that an IRS auditor’s skepticism about whether someone has a business tends to rise in direct proportion to the number of years the taxpayer loses money in that venture.

Now, in a case picked up by The New York Times, a Tax Court judge has come down on the side of an artist who lost money in 18 of the past 20 years.

In Tax Court Memo 2014-202, Susan Crile, whose work is in the Metropolitan Museum of Art, the Guggenheim and other museums, successfully defended herself against the IRS’s contention that her work as an artist was a hobby, and also succeeded in showing the court that her work as an artist was a separate activity from her job as a university professor.

While Tax Court Memos cannot be cited as precedent, this is still a big deal for creative professionals and for educators with sideline activities in the same field in which they are experts. The IRS has often gone after those activities as being either hobbies (in which losses cannot be deducted) or un-reimbursed business expenses (in which case the losses that can be taken on a return may be significantly reduced.)

As Peter J. Reilly pointed out on Forbes.com, the court sided with Crile that her art qualifies as a business activity, but she may find herself on the short side of an examination as to what expenses she can actually deduct.

The Tax Court put off to a future date the IRS’s challenge of her expenses. However, it noted that, “Petitioner’s theory for claiming deductions seems to have been that most experiences an artist has may contribute to her art and that most people with whom an artist socializes may become customers or otherwise advance her career. The trial established that a significant number of the deductions she claimed were not, within the meaning of section 162(a), “ordinary and necessary expenses” of conducting her art business but were “personal, living, or family expenses” non-deductible under section 262(a). The latter expenses appear to have included telephone and cable television bills, newspaper and magazine subscriptions, gratuities to doormen in her apartment building, taxicabs to the opera, museums, and social events, restaurant meals with friends and acquaintances, and international travel to gain inspiration from paintings in European museums.”

I’d call that a foreshadowing of bad news coming for Ms. Crile. Watch this space for an update.