Will there be Another Recount in Florida for the next Presidential Election?

October 9, 2012 is the deadline to register to vote for the November 6, 2012 presidential election. As election time draws nearer, so does the voting registration scandals in Florida. It has been alleged that Florida is now experiencing statewide voter registration scandals by the Republican Party. At least seven counties in Florida have informed state prosecutors or state election officials about questionable voter registration forms submitted on behalf of the Republican Party.

In the 2000 presidential election, Florida singlehandedly changed the outcome of the election causing the Republican candidate, George Bush, to become the President of the United States over Democratic candidate Al Gore. With these allegations lurking in Florida, one can only wonder if this upcoming election will also be determined by a recount in Florida.

The Florida Democratic Party has requested that the state revoke the Republican Party’s ability to register voters during the investigation. The Florida Republican Party paid Strategic Allied Consulting over $1.3 million to handle its registration needs. The company alleges that the questionable forms were submitted by an employee who was subsequently terminated.

There are also allegations that the forms submitted by Strategic Allied Consulting contained registration for people who were deceased, and that the company also paid individuals to register voters. The Republican Party of Florida has subsequently filed a complaint against Strategic Allied Consulting with the state election officials, and an investigation is now underway.

If during the 2012 Presidential Election it becomes necessary to have a recount in Florida, no one should be surprised if Mitt Romney becomes elected. However, I would propose that the votes in Florida not count the so-called absentee ballots and only count those made physically at the voting sites.

What are your thoughts America?

Pastors Risk Losing 501(3)(c)Tax Exempt Status by Challenging IRS

Over one thousand pastors will join Alliance Defending Freedom (“ADF”) in an effort to prompt the IRS to enforce its 1954 tax code amendment prohibiting tax-exempt organizations, such as churches, from “directly or indirectly participating in, or intervening in, any political campaign on or behalf of (or in opposition to) any candidate for elective public office.” Any 501(3)(c) organizations found in violation of this tax code risk a denial or revocation of its tax exempt status and certain excise taxes may also be imposed.

ADF is a religious organization whose goal is to protect and defend religious freedom. The organization believes that this IRS tax code is unconstitutional because it violates the First Amendment by prohibiting pastors and other religious organizations from exercising their right to free speech. The organization will hold a “Pulpit Freedom Sunday” on October 7, 2012 where pastors will preach sermons that discuss the current political candidates and then make specific recommendations. The sermons will also be recorded and sent to the IRS in order to incite action by the IRS.

However, some pastors have reported that in the past, the IRS simply sent a letter warning of the violation but closes the case prior to being taken to court. In order for the group to challenge the constitutionality of the amendment, the IRS must first apply the code to a particular church or pastor. ADF is hoping that the IRS will respond by taking action against the bold religious leaders so that it may challenge this amendment in court.

It would be wise for these pastors to evaluate whether the action they are undertaking is worth the risk of losing their organization's tax exemption status. I envision that one argument that will be presented in court on behalf of the IRS is that the granting of tax exemption to charitable organizations is not a “right” it is a “privilege.” As such, the IRS has the right to restrict certain actions, even if it requires giving up a constitutional right. For example, under the US Constitution, citizens have the right to bear arms. With that right to bear arms, there are restrictions such as age, licensing requirements, criminal background check, etc. So for the sake of the organizations that they represent, the pastors involved should seriously evaluate whether participating in Pulpit Freedom Sunday is worth the risk of losing the organization’s exemption status.

 

 

 

Should U.S. Olympians be Exempt from Paying Taxes on Medals and Prize Money?

Senator Marco Rubio from the State of Florida proposed a bill to the United States Senate in favor of exempting U.S. Olympic medalists from paying Federal taxes on their medals and prize money. The current U.S. tax code holds that the value of Olympic medals and prize money must be added to the Olympian’s taxable income. The medals and prize money are then taxed at a rate of 35% by the IRS.

According to Americans for Tax Reform, a gold medal is valued at approximately $675, resulting in a tax of $236. In addition to earning a medal, Olympic medalists also receive cash prizes of $25,000 for earning a gold medal, $15,000 for earning a silver medal, and $10,000 for earning a bronze medal. This would mean that an Olympian who earned the gold medal would pay $8,750 in Federal taxes. An Olympian who earned a silver medal would pay $5,250 in Federal taxes. Lastly, an Olympian who earned a bronze medal would pay $3,500 in Federal taxes.  

Senator Rubio’s bill proposes to eliminate the tax on Olympic medals and prize money won by athletes representing the United States in the Olympics. However, there is a hint of unfairness to this bill because there are several other tax codes that should also be eliminated or revised if this bill becomes a law. For example, should individuals receiving monetary gifts exceeding $13,000 be taxed on the gift? After all aren’t gifts supposed to be free? And if someone is blessed to have someone leave them a large estate as an inheritance, should they be taxed to receive it? Should athletes be taxed on the endorsement money they receive simply because a company desired to have them be the spokesperson for their product? Should lotto winners and gamblers pay taxes on the money they won as a result of luck? Should U.S. Citizens earning income abroad be taxed on that income?

When one chooses a career path,  one must be willing to accept the tax consequences that follow. For example, a doctor who saves hundreds or perhaps even thousands of lives is not exempt from Federal taxation. A teacher who is responsible for educating our political leaders is not exempt from Federal taxation. An Amateur or a Professional Gambler is not exempt from Federal taxation. Not even the President of the United States who is responsible for running the United States is exempt from Federal taxation.

So what makes Olympic athletes any different? Surely the athletes are not solely interested in representing their country just for the bragging rights, there has to be some financial motivation behind it. And should an athlete come forward and deny the financial motivation behind making the Olympic team and winning a medal, then that athlete should not be distraught by the tax consequences that result from winning a medal.

Now I will agree that the tax on the medal should be removed because even if the Medal is made of real gold, silver, or bronze, it should not be taxable unless sold by the Olympian for cash value. However, the tax on the prize money should not be eliminated because their job is essentially to be an athlete, and any income earned because of their athletic ability should be taxed.

There are men and women who have devoted their lives to representing our country, and the only portion of their income that is exempt is when they are sent to a combat zone. These men and women deserve to have their full income exempt because they are risking their lives to protect the lives of others. However, no amount of money can compensate for the risk associated with working in a combat zone. Although being an athlete in the Olympics is similar to being in a combat zone because of the battle amongst nations to prove whose athletes are the best, the athletes are not risking their lives to protect the lives of others.

I am very proud of our Olympians, but an Olympian winning a medal only incites country pride and the occasional bragging rights. It does not equate and should not be equated to the safety and peace of mind that the men and women in our military provide. As a result, any prize money earned by an athlete, whether it is earned from participating in the Olympics or not, should be taxed. Taxation is the consequence of earning income both in the United States and abroad, and Olympic athletes should not be exempt.

Republican Tax Cut Versus Democratic Tax Cut

The current stimulus established by the Bush Administration is set to expire on January 1, 2013. Under the current stimulus plan, the eligibility threshold was reduced to $3,000 in earned income for the child tax credit. It also increased the earned income credit for families consisting of three or more children. The marriage penalty was reduced through the higher level of earned income credit phase-out for married taxpayers. It also increased the middleclass tax deduction for tuition, and doubled the length of eligibility from two years to four years. Also, the first $1,000 of the tuition credit was refundable in an effort to offset higher education costs. Congress must now determine which proposed plan by either the Republicans or the Democrats concerning tax cuts should be allowed.

The Republican plan proposed by Senator Orrin G. Hatch of Utah, proposes to end the tax cuts established by the Bush Administration. The Republican plan would result in an expiration of tax breaks for 13 million low income taxpayers, while extending tax cuts to approximately 2.7 million of the upper class taxpayers. It would also result in a reduction of refunds for approximately thirteen million families, while some would incur an increase in taxation.

The Democratic plan favors extending the tax cuts established by the Bush Administration to 2013 as it would benefit middle class families. Under the Democratic plan, earnings of over $250,000 would be taxed at about 36 percent and 39.6 percent instead of the current 33 percent and 35 percent established by the Bush Administration. The estate tax rate would also be increased to 55 percent on inheritances over $1 million for individual taxpayers and $2 million for married taxpayers, instead of the 35 percent currently paid by estates valuing over $5 million for individual taxpayers, and $10 million for married taxpayers.

The Democratic plan would raise approximately $82 billion more in taxes in 2013 than the Republican plan. However, according to Congress’s Joint Committee on Taxation, a permanent extension of all tax cuts established by the Bush Administration would reduce taxes for households earning more than $1 million annually by approximately $74,500 in 2013, while the Democratic proposal would reduce taxes for those same households by approximately $7,000.

Republicans support ending the tax cuts established by the Bush Administration because it favors the working poor who currently receive approximately $3 in government benefits for every $1 they earn, while the middle 20 percent receives more in government refunds that they actually paid in taxes. Republicans also argue that the working poor have already received increases in government aids such as food stamps and unemployment benefits. As a result, Republicans argue that it makes sense to let this tax cut lapse, as it was not meant to be permanent but was meant to be temporary assistance to help boost the economy.

Which plan would you choose?

The State of our Nation: The Dirty Dozen Tax Scams of 2012

The State of our Nation: The Dirty Dozen Tax Scams of 2012: Every year, the Internal Revenue Service ("IRS") releases the most common tax scams for that tax year. Here are the Dirty Dozen Tax Scams of...

The Dirty Dozen Tax Scams of 2012

Every year, the Internal Revenue Service ("IRS") releases the most common tax scams for that tax year. Here are the Dirty Dozen Tax Scams of 2012 as reported by the IRS: (1) Identity Theft, (2) Phishing, (3) Return Preparer Fraud, (4) Hiding Income Offshore, (5) "Free Money" from the IRS & Tax Scams Involving Social Security, (6) False/Inflated Income and Expenses, (7) False Form 1099 Refund Claims, (7) Frivolous Arguments, (8) Falsely Claiming Zero Wages, (9) Abuse of Charitable Organizations and Deductions, (10) Disguised Corporate Ownership, and (12) Misuse of Trusts.

Identity Theft
     It is no surprise that Identity theft is number one on the list. In identity theft cases, the thief seeks ways to use a legitimate taxpayer's identity and personal information in order to file what appears to be a legitimate income tax return, in order to claim a fraudulent refund. The IRS detects this type of fraud when more than one income tax return was filed on behalf of the same taxpayer, or received wages from an unknown employer. When this event occurs, the IRS will send correspondence to the individual in order to notify them of the potential fraud or identity theft. It has also been found that this type of event occurs commonly for spouses filing separate returns. One spouse may file a joint return without the consent of the other spouse, while the unaware spouse files a separate return that does not include their spouse. If you believe that you have been a victim of identity theft, you may visit the IRS page for identity theft at:  www.IRS.gov/identitytheft.

Phishing
     Phishing is commonly achieved through the use of unsolicited email or a fake website that aims to acquire personal and financial information from individuals. Individuals may also receive fraudulent emails that may appear to be from the IRS or one of its affiliate organizations. It is important to know that the IRS does not communicate with taxpayers via email, text messages, or through social media channels. If you receive any such communication, you may report it to the IRS by sending a report to:  phishing@irs.gov.

Return Preparer Fraud
     Most taxpayers use tax professionals in order to have their income tax return prepared. However, there are some individuals or businesses that prey on unsuspecting taxpayers. Questionable return preparers may skim off their clients' refunds, charge inflated preparation fees, or by promising guaranteed or inflated refunds. It is important to choose carefully when hiring a tax preparer. Here are some ways to determine whether a preparer is likely a fraudulent preparer: (1) The preparer does not sign the return or place their Preparer Tax Identification Number ("PTIN") on the return. The IRS requires that all tax return preparers obtain a PTIN in order to prepare returns. So if this information is missing, you may be a victim of fraud. (2) The preparer does not give you a copy of your income tax return. If someone files a return on your behalf, you are entitled to a copy of the return. Any preparer who refuses to provide you with a copy of your income tax return is likely committing fraud. (3) The preparer promises that you will receive a larger refund than normal. No one can promise or guarantee you a large refund prior to preparing the actual return. If this occurs, it is likely going to be as a result of fraud. (4) The preparer charges a percentage of the refund or requires you to split the refund amount as the preparation fee. Most preparers will charge a flat fee for their service based on the type of income tax return prepared, or charge based on a fixed hourly rate. If a preparer requests to receive a percentage of your refund, you may be the victim of fraud. (5) The preparer adds forms to the return that you have never filed before. It is important that you analyze the return prior to signing the return or the consent form. If any of the forms looks suspicious, you are likely the victim of fraud. (6) The preparer encourages you to place false information on your return. Any preparer that encourages you to falsify information should not be trusted. Your willingness to comply or oversight of the falsified information will cause you to face dire consequences. It is important that you choose your tax preparer wisely in order to avoid becoming a victim of tax fraud.

Hiding Income Offshore
     Hiding Income Offshore is tax evasion. There are specific guidelines and reporting obligations that follow the maintenance of financial accounts abroad. The IRS has reopened the Offshore Voluntary Disclosure Program which allows taxpayers to pay a reduced penalty for non disclosed offshore accounts. In 2011, the IRS has collected $1 billion from up front payments from the 2011 program, and is expected to increase. 

"Free Money" From the IRS & Tax Scams Involving Social Security
          Fliers and Advertisements that promises "free money" from the IRS is a scam. There is no such thing as "free money," especially if you expect to receive it from the IRS. The scammers prey on low income and elderly individuals. Scams involving Social Security results from promises of Social Security refunds or rebates that do not exist. In some instances where a refund may actually be due, the scammer uses inflated information to complete the return. The penalty for such returns may be as high as $5,000. It is not worth it! Do not become a victim of the "free money" tax scam.

False/Inflated Income and Expenses
     This type of scam involves including income on the tax return that was never earned, or misclassifying income as either wages or self-employment. It also involves the act of claiming expenses that were never paid in order to reduce one's income or to qualify for credits such as the Earned Income Tax Credit or the Fuel Tax Credit. This type of fraud can result in a penalty of $5,000. Do not engage in acts that seek to falsify information.

False Form 1099 Refund Claims
     This type of scam involves the fradulent issuance of a Form 1099 Original Issue Discount (OID), tro justify a false refund claim on a corresponding income tax return. Some indivduals have made refund claims under the false assumption that the government maintains secret accounts for each individual and that taxpayers can gain access to these accounts by issuing 1099-OID forms to the IRS. Do not become deceived by notions that appear to good to be true. Never claim credits or deductions for you are not entitled, or that requires you to falsify information or documentation. This type of fraud may result in financial penalties as well as criminal prosecution.

Frivolous Arguments
     This type of tax scam involves the use of unreasonable claims in order to either avoid paying their taxes, or to obtain funds to which they are not legitimately entitled. The IRS has a list of frivolous tax arguments, and they have not been upheld in Tax Court. Do not rely on fictious arguments to disobey the law.

Falsely Claiming Zero Wages
     The typical zero wages scam involves the filing of a Substitute Form W-2 by filing a Form 4852. Through the use of this form, the taxpayer seek to reduce their taxable income to zero and may also submit a statement or statutory explanation refuting wages and taxes reported by a payer to the IRS. This type of fraud amy result in a $5,000 penalty. So do not seek to falsify your income, it is not worth it.

Abuse of Charitable Organizations and Deductions
     This type of fraud typically involves an attempt by donors to maintain control over assets or income that were allegedly donated to a 501(c)(3) organization. The donations may also be highly overvalued which results in a larger deduction for the donor. The Pension Protection Acto fo 2006 imposed increased penalties for inaccurate appraisals and sets new standards for qualified appraisals. haritable Organizations may also lose their exempt status for engaging in such acts.

Disguised Corporate Ownership
     This type of fraud involves the use of third parties in order to request employer identification numbers and form corporations that seek to hide the identity of the true owners. Common acts commited by this type of fraud involves underreported income, claiming of fictitious deductions, avoidance of filing tax returns, money laundering, and other financial crimes. The IRS is actively working with State Official in order to ensure compliance with the law.

Misuse of Trusts
     This type of scam involves the transer of assets into trust accounts that are highly questionable. Promoters may promise that the transaction will result in a reduction of taxable income, deductions for personal expenses, or a reduction in the estate or gift taxes. These type of scams may also be used to avoid paying income tax liability to the IRS or to hide assets from creditors. However, such trusts rarely deliver the tax benefits promised by the promoter. Taxpayers are encouraged to seek competent advice from trusted and qualified professionals prior to entering into a trust arrangement because the consequences may be more detrimental than the benefit they seek to derive from it.

Reference:

Internal Revenue Service, (2012). IRS Releases the Dirty Dozen Tax Scams for 2012. Retrieved on May 16, 2012 from: http://www.irs.gov/newsroom/article/0,,id=254383,00.html?portlet=107.

Highlights of Obama's State of the Union Address

President Obama is quite a speaker and I enjoyed his State of the Union Address. There are several topics that he discussed that sparked my interest and should be expounded upon. First, he discussed the Tax Code and made and appeal for reform. Second, he discussed Student Loans and what should be done about the expected increase of interest rates. Third, he discussed the creation of jobs in the United States. Lastly, he made an appeal to reform the various branches of government.

Reformation of the US Tax Code

     Many Americans if not all, believes that our Tax Codes are outdated, and are far too complex to even be comprehended. This notion is not far from the truth. The Tax Codes entails various loopholes and credits that seem to benefit one class over the other, and this was addressed by President Obama by using the example of Warren Buffet who pays less taxes than his secretary. His comments about taxing the rich has often been regarded as "class warfare," however, asking everyone to pay their fair share of taxes is not a "class warfare," it is "fair." In implementing the tax bracket system, our government was designed so that those who earned more, would pay more in taxes. It is not a system developed with a goal to prevent wealth, but a system that recognizes the principle of "to whom much is given, much is required," or in this case, to he who earns more, more will be required. As a Tax Attorney, I see the need to reform the Tax Codes, starting with eliminating the loopholes, and simplifying the system so that everyone pays taxes according to his earnings. Using Christianity as an example, God made it mandatory that everyone pays ten percent of his first fruits, or earnings. For the poor, ten percent will be less than that of the rich. In the end, they all pay their fair share based on their earnings. It is not class warfare to ask everyone to do this.

The issues that I see with reforming the Tax Codes is in the application of those codes. In negotiating with the Internal Revenue Service ("IRS") on behalf of my clients, I have discovered that there is a lack of uniformity in how the codes are applied, and the in the application of the Internal Revenue Manual ("IRM") which guides the operations of Revenue Officers and IRS personnel. I find that I spend a lot of time having to debate what the IRM says, and how it should be applied. Sometimes, even in showing individuals what the IRM says, I am informed that internally, their manager does not apply the law that way, or does things differently. If Revenue Officers lack uniformity in their application of the Tax Codes, we cannot expect that reforming these codes would make things easier. Not only would the Tax Codes require reformation, but the individuals charged with enforcing those codes would all need to be trained to apply the law universally throughout the various locations. The system of checks and balances within the IRS needs to be reformed.

Student Loans

The President discussed that the interest rates on student loans were expected to increase. If increased to a higher interest rate, we can expect that there will be less Americans going to college, and more default in payments. The government should seek ways to minimize the debt of Americans seeking to earn a college degree in order to obtain better paying jobs, and in order to obtain those jobs that he claims are on demand. I was impressed by the idea that companies would pay for the education of Americans for an area of study that is on demand within the company, so that the position can be filled by an American. This idea has merit. However, we cannot expect private companies to all do this, when there are foreigners competing for these positions who already possess the degree and skills required for those positions. The problem is that obtaining a degree in engineering or various science degrees are often the most expensive here in the United States. If Americans are expected to compete with foreigners for these positions, both the federal and state government needs to find ways to make education less costly for Americans. I would like to see a statute of limitations on the number of years the Federal Government has to collect student loan debt once the individual graduates from college, similar to the IRS Collection Statute Expiration Date of ten years, where if the debt is not collected, it is extinguished. This would help a lot of students who are currently in debt with the hopes of finding gainful employment that they either do not qualify for, or just does not exist.

Creation of Jobs in the United States

The President presented a valid point that we should not allow tax breaks for companies who take the jobs overseas. That this is even a possibility is absurd. This should be a wake up call to the government that its payroll taxes are so extreme that even American Companies refuse to hire Americans. I am sure that they would love to keep the jobs within this country, however, the high payroll taxes makes it an unfavorable option. Not only do employers have to comply with Federal payroll taxes, but some states also require payroll taxes. This is double taxation, and it needs to be revised, otherwise, we cannot expect to see an increase in job availability. We would expect to see continuity in companies relocating overseas. It is time the government start looking at China and figure out what it is that they are offering to companies in that country that we are not offering. Then maybe we can begin to reform our system in such a way that it attracts foreign companies to transfer to our country.

Reformation of the Branches of Government