The folks at The TaxBook have just released a very handy summary of the recently signed tax legislation.  In spite of its actual name, I will continue to refer to it as the 2006 Tax Law. 

This temporary legislation is just another example of the incompetence of our rulers in actually tackling substantive tax reform.  How can we ever expect anything resembling tax simplification from those Bozos in DC, when a law that is passed and signed in 2006, and is effective as of 2006 is given the name 2005? 

Save Money by Researching The Tax Climate Before Moving – And you need to factor in all of the types of taxes.  States with no income tax normally make it up through higher sales and property taxes.

Pensions Still Work Well For Some Businesses – Especially for small businesses with no other employees to cover.

Get a Head Start In Planning a Hand-off – Succession planning for family businesses is always important and one of the many areas that offer plenty of opportunities for tax practitioners to assist their clients.

Religious Groups Seek Faith-Based Profits – They need to be very careful of violating IRS rules that could jeopardize their tax exempt status.

I generally don’t comment on items in the DemonRats’ official propaganda publication, which has less credibility in regard to accuracy than the National Enquirer; but I couldn’t resist this item that Ohio CPA Dana Stahl passed along:

Subject: NYTimes on the new Roth IRS provisions

 

Mr Guru – more of the same BS from the NY(Commie)Times.

DS

My reply:

Dana:

While they are true to their nature in attacking another “Bush bonanza for the evil rich,” it’s based on the ridiculous assumption that the tax free status of Roths will remain intact decades from now.

As I’ve written several times, I have never trusted our imperial rulers in Congress to be able to keep their hands off of that provision long enough to advise clients to pay real taxes today on IRA conversions in anticipation of tax free benefits later down the road.  Congress royally screwed Social Security recipients by breaking this exact same kind of promise, and they will have no qualms about doing the same thing to “evil rich” owners of Roth IRA accounts. 

Since they have already defined “evil rich” to be any single person with more than $25,000 of annual income, or married couple with over $32,000 of annual income, for Social Security purposes, to feel that they won’t nail just about everybody is very naive thinking.

However, the Times couldn’t make their point about Bush only caring about rich folks if they were to mention that these same rich folks are almost certainly going to get screwed over when their tax free income promise is revoked.

Kerry

Dana wrote back:

Mr Guru – amen to that, bro’.  I’ve advised any of my clients who want to convert over to or start a Roth IRA not to trust that the withdrawals will be tax free years down the road, citing Social Security as an example, as you just did, that government promises are, like Lenin once said, “pie crusts made to be broken”.  It seems that most people would be better off to set up a regular IRA and take immediate deduction, so at least they get something out of it.

DS

 

I received the following from a Texas CPA in response to my earlier post on helping a friend (caps were his):

Subject: MONEY LAUNDERING

 

HI KERRY, [RE: BELOW]

 

I USUALLY CONCUR WITH YOUR ANSWERS AT LEAST 90-95%, BUT THIS QUESTIONS CONJURED UP VISIONS OF MONEY-LAUNDERING IN MY MIND.  ESPECIALLY IF THEY WANT TO PAY IN CASH, AND GET BACK A CHECK, OR CREDIT FOR SOME THING THEY WERE GOING TO PAY LATER ANYWAY.  BESIDES, IT JUST SOUNDS TOO GOOD TO BE TRUE. [AND WE KNOW WHAT THAT MEANS].

 

HAVE A GOOD ONE.

My Reply:

You’re correct that this was intended to be a form of money laundering. 

However, I felt what was more important for my client to understand was the real underlying substance and motivation for the transaction his friend was proposing.  That was obviously to mislead the leasing company and obtain cash under false pretenses, which would have implicated my client even though he wasn’t going to be keeping more than a small fraction of the money. 

Luckily, he took my advice and turned this deal down.  He didn’t say how well his friend accepted that decision.

Thanks for writing.

Kerry Kerstetter

 

Welcome to WordPress.com. This is your first post. Edit or delete it and start blogging!

Q:

Subject: Question on lease/credit transaction

 

Kerry,

 

A friend of mine has asked me to run some lease/credit transaction through my company. I’m a bit hesitant as I don’t know if there are any potential issues (tax and/or legal) with it. Could you let me know what you think about it?

 

Here are the details from this friend’s mail:

 

———————-

Basically, our company has a lease credit line of like an additional 90K. We need the cash to pay for current expense as behind a bit on cashflow in expansion. We’ve used the lease credit before for all kinds of product/services purchases.

 So, what I’d like to do is get a software product/services Invoice from you for 80K. The leasing company will pay you 80K. Then you can issue us a credit back of 75K, that will be paid to you company anyway for normal development services over the course of few years. I need to discuss this with you quickly, as it will take a few weeks to get this finished. On your books it will look like 80K income for product/services and a credit or expense of 75K out.

 ———————–

 thanks

A:

From an income tax perspective, there would be no problem with this transaction, as long as you report the full $80,000 received as income and then the $75,000 paid out as an expense.

From the perspective of legality, it sounds like a completely different story.  I’m not an attorney, but there are aspects to this that smell very bad to me.

What could potentially be a problem is with the leasing company.  This sounds suspiciously like a fraud against them.  You should contact that company before submitting an invoice because I am guessing that they are either planning on using the product you are selling as collateral for a loan or as an actual purchase by them to be leased to your friend.  If they were to find out that no such product exists,  they could sue you, or file criminal charges against you, for theft.

It would be like selling someone an item and not delivering it after being paid for it.  It may be possible that future consulting services would be acceptable to the leasing company, but that is not very likely.  I would be amazed if it was acceptable.  They generally prefer to work with tangible assets that could be re-possessed and resold or re-leased.

It’s obviously your call; but unless you can get assurance from the leasing company that there is no problem with your submitting an invoice for future work to be done, I would stay away from this.  Although your friend is instigating this, the leasing company would have very strong grounds for legal and criminal action against you for the full $80,000 because you are the one they are paying that to.  The fact that you are only keeping $5,000 of that money won’t do you a bit of good in this kind of case. 

The final decision is yours; but I hope this helps you make a safe and rational decision.

Good luck.

Kerry