Archive | Tax Planning Strategies

Sex and the IRS: making “friends” with your IRS auditor, extreme version

By on February 8, 2013 in Creative, Internal Revenue Service, Tax Advice, Tax Planning Strategies

Dear IRS: I’ve Read About This In Your Manuals, But I Never Thought It Would Happen To Me…

Sometimes I sort through tedious tax court cases looking for some mildly interesting nugget to share, and sometimes a thing of sheer weirdness lands in my lap.

An Oregon man has filed a lawsuit claiming that an IRS agent intimidated and coerced him into having sex with her.

You cannot make up stuff like this.

The Register-Guard in Eugene, Oregon, has all the details of Vincent Burroughs’ accusation that IRS agent Dora Abrahamson used her position to both threaten him with tax penalties and lure him into having sex with her, after coming to his home “provocatively attired.” (She also sent him a photo of herself in her lingerie.)

This poses so very many questions:

–Have you ever before seen “IRS agent,” “intimidated” and “sex” in the same sentence?

–Threats of tax penalties if you don’t put out: Turn-On or Turn-Off?

–IRS agents actually own “provocative attire”?

Robert W. Wood at Forbes tries to be halfway serious by using this story as a jumping-off point for discussing legitimate ways of getting out of tax penalties . Good for him. Me, I’m just looking forward to seeing what the late-night comics do with this.

Gay marriage at the Supreme Court: Taxes, as usual, are the key to everything

By on December 12, 2012 in Gay marriage, Internal Revenue Service, Tax Advice, Tax Planning Strategies

Edith Windsor saw the federal government claim more than $360,000 in taxes on the assets she inherited from her spouse’s estate when her spouse died in 2009. How could that be, when you are allowed to inherit an unlimited amount from a spouse free of estate tax?

Edith’s spouse was a woman. She and Thea Spyer had been together for more than 40 years, and got married in Canada in 2007.

Gay marriages, registered domestic partnerships, and other same-sex unions do not get equal tax treatment when compared to heterosexual marriages. The contortions of tax preparation caused by the fact that same-sex couples are treated differently for federal and state tax purposes are phenomenal. As the Windsor case shows, the differences can also be remarkably expensive.

The 83-year-old Ms Windsor is going to get her day in court–the Supreme Court–early next year. The Court is going to hear her federal suit challenging the Defense of Marriage Act. The Second Circuit Court of Appeals has said the law is unconstitutional.

“I think we’ll win if there’s justice, meaning they read the briefs and pay attention to the content,” Windsor told The New York Times. “But if it doesn’t happen this time, it will happen next time or the next. But it will happen.”

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Morningstar says, “Go west — or east — for college savings plans.”

By on November 8, 2012 in Financial planning, Tax Planning Strategies

Morningstar, the mutual fund reviewer and financial advisory firm, has come out with its ratings of Section 529 college savings plans, with top ratings going to plans in Alaska, Utah, Nevada and Maryland.

Morningstar’s top-rated plans: Alaska’s T. Rowe Price College Savings Plan (managed by T. Rowe Price Associates, Inc.), Maryland’s College Investment Plan (T. Rowe Price), Utah’s Educational Savings Plan, and Nevada’s Vanguard 529 College Savings Plan (Upromise Investments, Inc.), all of which got “Gold” ratings.

Following them with “Silver” were four other plans: Arkansas’ iShares 529 Plan (Upromise Investments, Inc.), Michigan’s Education Savings Program (TIAA Tuition Financing, Inc.) Ohio’s CollegeAdvantage 529 Savings (Ohio Tuition Trust Authority) and Virginia’s CollegeAmerica (American Funds)

Note: Different plans in the same state may have different ratings. For example, Alaska’s John Hancock Freedom 529 (T. Rowe Price) got a “neutral” rating, putting it behind more than two dozen other plans. Oregon’s MFS 529 Savings Plan received a “Bronze,” putting it in with a group of 18 other states that are behind the top-eight-rated,
but the state’s College Savings Plan managed by TIAA Tuition Financing, Inc., received only a “neutral” rating.

Here are all the Morningstar Ratings of 529 Plans.

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A sledgehammer for foreign bank accounts

By on January 12, 2012 in Tax Advice, Tax Evasion, Tax Planning Strategies

A new law requiring financial institutions to register with and provide data to the Internal Revenue Service is getting a lot of attention in the business community because of the additional burden it is going to put on foreign corporations. But it’s also going to complicate income tax filings for lots of Americans who have accounts outside the U.S.

The Foreign Account Tax Compliance Act (FATCA) has on its surface a laudable goal—preventing people from using foreign trusts and other accounts to evade income taxes. The Act not only imposes new reporting requirements on taxpayers, but also requires foreign institutions to provide information that could help the IRS in tracking down tax cheats.

“Congress came in with a sledgehammer,” H. David Rosenbloom, a lawyer at Caplin and Drysdale in Washington and a former international tax policy adviser for the Treasury Department, told The New York Times. “The Fatca story is really kind of insane.”

You could have to file the new Form 8938 (here’s a link to the 10 pages of instructions for the form , which the IRS says can be completed in one hour & five minutes) if you have as little as $50,000 in total in the right—or wrong—types of foreign accounts and assets.

While, as Robert W. Wood explains in Forbes, the limit can be as high as $600,000 for married couples living abroad, just figuring out whether or not you’re subject to this new law is bound to be time-consuming. And failing to file the form can cost you $10,000 or more in penalties.

Taxpayers who have foreign accounts—by the way, that includes accounts in Canada or Mexico—already know they have to send something called Form TDF 90-22.1 to a Detroit office of the Treasury Department if they have as little as $10,001 aggregate in those accounts at any time during the year. The new additional reporting doesn’t get people out of having to continue filing this form. Talk about piling on.

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A potentially costly catch

By on July 12, 2011 in Tax Planning Strategies

Derek Jeter’s slog to 3,000 hits mercifully ends, and with a home run no less. A fan, Christian Lopez, is in the stands for his 23rd birthday and catches the ball. Fan agrees to give the ball back to Jeter. Yankee management buries fan in a pile of swag, including signed jerseys, bats, and premium seats for the rest of the Yankee’s home games this year, including any postseason games.

Just a sweet feel-good story all the way around, right?

derek jeter 150x150 A potentially costly catchHa! As Kay Bell pointed out on her blogsite, Don’t Mess with Taxes, Lopez may owe taxes on the value of everything he received in exchange for the ball.

Paul Caron, a tax professor at the University of Cincinnati’s Law School, told The New York Times, “Pretty clearly he’s going to have to report as income the value of all the stuff he got for the ball.”

Three thoughts on this:

1. Mr. Lopez sounds like a heck of a nice guy to be willing to give the ball to Jeter instead of auctioning it off.

2. Mr. Lopez also has $100,000 in student loans. Derek Jeter makes $17 million annually playing baseball. The New York Yankees are worth more than $1 billion. Are the Yankees really going to leave this kid with a potential five-figure tax bill for the stuff they gave him?

3. Do you have any idea how hard it is going to be for me to feel bad for anyone who’s a Yankees fan?

More on this later this week.