Tax Research

As we all know, the tax systems in this country are a hideous mess.  As is illustrated quite often, you can ask a dozen different tax experts how something should be handled and receive literally dozens of different answers.  These could all be technically correct.  What has always kept this profession interesting for me has been the multitude of options we can use for clients.  In contrast to popular opinion about taxes and accounting, where everything is perceived to be cut and dried, there are almost always several ways to structure and report transactions.

When looking for legal authority that a proposed strategy is proper or legal, it gets even trickier.  It has been well documented that calling IRS is a waste of time.  If you are able to get through, the answers are correct only about a third of the time.  Even official IRS publications are not official representations of tax law; but merely IRS’s opinion of how things should be done.  They are obviously slanted in favor of higher taxes. 

A good summary of valid tax research sources, along with their level of authority can be found here.  The following quote regarding IRS publications is helpful:

IRS Publications are issued to assist taxpayers. Although they may contain useful information, they do not cite to authority and should not be relied upon by researchers. In addition, the information in the Publications is written from the point of view of the government.

From another good recap of tax authorities is the following quote about IRS publications

IRS Publications (“IRS Pubs”). Although IRS Pubs are issued to help taxpayers comply with the tax laws, they are not precedent. Courts have held that IRS isn’t bound by the literal language of these publications, that they neither have the force of law nor create any rights, and that they aren’t an authoritative source of income tax law. Despite these limitations, IRS Pubs are an important resource because they often explain provisions in greater detail than other forms of guidance. Sometimes, they represent the only IRS guidance on a subject until more formal guidance (e.g., a reg or ruling) is issued on it.

What I have always believed to be the ultimate test of tax strategies is how they work in real life.  That is why I have refused to follow the financially lucrative path of many tax writers and speakers who long ago gave up the stressful tasks of working on real life tax returns and instead earn huge amounts by speaking and writing about theoretical application of tax law.  The examples of how theory differs from real life are endless.  What I write and speak about are almost always based on real life usage, including battles with IRS.  I will put my real life experiences up any day against any other tax expert’s ideas of how things “are supposed to be.”  

KMK  

Returning Some Sanity To Stock Values

One of the reasons I counseled against investing in the stock market during the late 1990s dot-com boom was that there was no sane investment reason for the prices people were paying for stocks of companies that were predicted to lose money forever.  It was pure out of control speculation that was a house of cards that couldn’t do anything but collapse. 

I received a lot of very hostile criticism for refusing to jump on that bandwagon and endorse what many supposedly intelligent financial gurus were calling the “new economy” where none of the rules of the “old economy” applied any more.  We all now know that those people were completely full of crap.  As I learned in college, and I said throughout the dot-com stock fiasco, basic fundamentals of business and economics are the same as they have always been and always will be.  A company’s true value is (or should be) based on the amount of real life income it can generate for its investors; not on how much you can get some bigger idiot than you to pay for it (the greater fool concept).  I therefor concur with Larry Kudlow’s prediction that, if the double tax is removed from corporate dividends, it will encourage more corporate earning to be distributed to shareholders and will then provide a much more realistic method for determining a fair value for the stocks. 

Of course, this is based on capitalism, and will not do much good in the class warfare battle the disciples of Karl Marx, the DemonRats, are waging to fight the dividend tax cut because they refuse to give up the unrealistic notion that only evil filthy rich people own corporate stock. 

On a related topic, investors still need to keep their heads screwed on straight and beware of following the advice of pundits who can’t distinguish the difference between percentage and dollar returns.  The misinformation on these points is just as bad with taxes.  I have long cautioned people to focus on the actual dollars they have to pay rather than the abstract and often meaningless tax rates.    

KMK

Postal worker accused of stealing $100,000

This is why we try to keep the Post Office out of the loop as often as possible.  We encourage our clients to pay us by faxing checks to us or by using PayPal.  Since government checks are so easily identified, they have long been targets of mail thieves, including the freelancers who aren’t USPS employees.  If you do have a tax overpayment on your return, and have decided not to apply it to the next tax year, you may want to choose the automatic deposit option by providing your bank info on your tax return.

KMK

I found these on this Fark page with a PhotoShop contest for creative ways for the Feds to raise money. It didn’t say they had to be new ways.

Who Are You Calling Non-Essential?

In their search for more money, State Rulers are starting to broaden the tax base for sales taxes.  Rather than have it apply to just sales of physical items, fees for services are now in the cross-hairs.  Here in Arkansas, they are discussing levying the state sales tax on revenues from non-essential services. 

This will just start the typical fight over what services are non-essential and which are life or death.  This is really a pretty subjective assessment; especially considering that the services mentioned in this article include barbers and accountants.  I could make the argument that without our accounting services, the government wouldn’t be receiving any tax money.  That should make us fairly essential.  Likewise, they also want to consider veterinarians non-essential and not human doctors.  This is blatant discrimination against our animal friends and will probably trigger a protest from PETA.

The bill currently being debated only mentions the State-wide sales tax of  5.125%.  However, if that makes it through, there is no way the local jurisdictions will sit back and not tack on their local taxes.  In some cities around the state, that will add an extra nine percent to the cost of these “non-essential” services.   

This is a perfect illustration of why I have never been afraid of losing work if the income tax system were ever replaced with a national sales tax.  We would have all kinds of fights over proper taxation and there would be plenty of work for creative accountants to help clients minimize their taxes.   

KMK

The president�s pro-growth tax plan is alive and well

Larry Kudlow is still optimistic that we’ll see Bush’s plan become reality.  However, the later into the year this battle goes, the less likely it is to be retroactively effective as of January 1, 2003, as Bush wants.  However, that is just what we need, if a kick-start for the economy is truly the goal of our rulers in DC.

Enlarge Your Tax Refund Naturally!

Satire that’s not too far off from some of the scams out there.

D-I-Y Tax Software

I am in no way endorsing the concept of anyone preparing their own tax returns.  However, some people insist on doing it themselves.  For those folks, this review of the major consumer tax prep software may be useful.  Remember that, no matter how well any software does tax calculations (including the very expensive software I use), it is a simple matter of GIGO (garbage in, garbage out).  You still need to know where and how to enter your data to maximize your tax savings and minimize your audit potential.

KMK

Tax Proposal Estimator

TurboTax rough calculation of taxes to be saved if the Bush tax plan becomes reality.