Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for April, 2009

Posted by taxguru on April 29, 2009

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Posted by taxguru on April 28, 2009

Small Businesses Brace for Tax Battle – Not exactly news; but a good reminder that there will be more need for our services than ever; at least for those of us who are “unpatriotic” according to Joe Biden and believe in helping clients structure things to legally minimize their tax bites.

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Posted by taxguru on April 28, 2009

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Posted by taxguru on April 26, 2009

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Posted by taxguru on April 25, 2009

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Voluntary taxation?

Posted by taxguru on April 24, 2009


Subject: voluntary

so what dose the word voluntary mean in the irs statements? im just trying to understand whats goin on i have done much research and found no law that states we haft to pay taxes please help

Chapter 6200 at 6210 states that… “It is the goal of the Internal Revenue Service to encourage and achieve the highest possible degree of voluntary compliance with the tax laws…”
        Chapter 100 at 110 states that… “The primary mission of the Taxpayer Service is to promote voluntary compliance through education and assistance to taxpayers.”
        In Part VI, under Section 6810-Taxpayer Service, it is stated at (13) 31(1)(f) that… “returns are voluntarily submitted by taxpayers.”

        In Operating Techniques and Reporting Section 6810 at (13) 91(1)(a), the Manual states: “securing a valid voluntary income tax return from the taxpayer…”
        In the Section on IRS Policy Statements at P-4-84, the Manual states: “The purpose of criminal tax investigations is to enforce the tax laws and to encourage voluntary compliance.”

        In the General Section, at 4022.65(3) it is said that… “When a person indicates he/she will voluntarily comply but requests that he/she be served…”

        In the Automated Collection Function Procedures at 5535.4, the Manual states that the IRS may file returns under 6020(b) if the returns are… “not filed voluntarily.”)

        Furthermore, Webster’s Dictionary defines the word voluntary to mean the following:

        Voluntary: brought about by one’s own free choice; given or done of one’s own free will; freely chosen or undertaken; arising in the mind without external constraint; spontaneous; in law, (a) action done without compulsion or persuasion.



Don’t fall into the trap of believing the idiotic argument that paying taxes is completely voluntary.  This bogus claim has long been used by tax protestors, many of who are now in prison for following and encouraging others to use that very tactic.

The IRS language clearly intends for people to voluntarily file tax returns and pay their taxes.  However, that is only half of the story.  If some people do not voluntarily comply, IRS will do it for them and hit those people with severe penalties for noncompliance, including the seizure of all of their possessions and time in prison.

This is no different than how our society handles all crimes.  We are all expected not to drive faster than posted speed limits, not kill other people, not steal things that don’t belong to us, etc, etc.  If we fail to volunteer not to do those things, there are police and a judicial system that will deal with us, with appropriate punishments.

Not filing tax returns and paying everything you owe is considered just as much of a crime as committing murder, and IRS will nail anyone who does not voluntarily comply with those rules.  It is also a fact that accused murderers are allowed more personal rights and protections against improper accusations than are alleged tax cheaters in this country.  IRS is not constrained by any of the constitutional limitations and protections that the police have to deal with. That may not be right, but it is the way things are.

I hope this clears things up for you. The IRS website has a lot of info on this and other similarly ridiculous tax protestor arguments.  Check out Number 6 in this list of IRS’s Dirty Dozen Tax Scams

6. Frivolous Arguments. Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Good luck.

Kerry Kerstetter 



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Gift tax exclusions

Posted by taxguru on April 24, 2009


Subject:  annual exclusion and lifetime exclusion

Dear Mr. Kerstetter,
I found and read you article on lifetime exclusions and annual exclusions dated September 2008. I enjoyed your satire and was wondering if there was a more recent version using the 2009 numbers.
I had a friend tell me his accountant told him his annual exclusions counted toward his lifetime exclusions and you article states otherwise. If you would, I would appreciate it greatly to know where to find the tax code referenced.
Thanks for the article.
Jim Younger


That is very scary; that a professional tax advisor could be so off on such a basic principle of gift and estate taxation.

I updated my page on the Gift Tax  to reflect the new $13,000 annual exemption.  I also added links to download the IRS instructions for the 706 and 709, which should give you more detailed info.

Basically, if you look at the actual 709, you will see that it deals with “Taxable Gifts” when accounting for the lifetime exclusion and how much has already been used up.  Annual gifts of under the exclusion amount are simply not classified as Taxable Gifts and thus do not affect the lifetime exclusion.

Before deciding on any gifting scenario, you need to work with a professional tax advisor who understands these concepts.

Good luck.

Kerry Kerstetter



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Yet another clueless corp owner

Posted by taxguru on April 24, 2009


Hi – Very helpful information on the web. I have one quick question – if my company is a C Corp and has a loss can I deduct that on my 1040? Thanks!!



An S corp can possibly have its losses flow through to your 1040, but a C corp doesn’t work that way.

Setting up a corp without understanding how it works was very foolish and dangerous.  You need to get with a professional tax advisor ASAP to straighten things out before you do any more damage.

Good luck.

Kerry Kerstetter


Its kind of you to respond but there is no need for that demeaning attitude.

My reply:

I’m sorry if I offended you, but I assure you that it is for your own good.

I have long had a reputation for telling it like it is and not sugar-coating the truth.  Anyone writing to me for advice can expect that kind of response.

In your situation, it is obvious that you, as do may other business owners, jumped into setting up a corporation all by yourself without consulting with knowledgeable professionals.  The consequences of this reckless and irresponsible act can be very expensive as you most likely have already violated all kinds of tax and legal requirements.

For your own sake, you need to start working with a qualified tax pro ASAP before you get yourself into more trouble.

Good luck.

Kerry Kerstetter


TaxCoach Software: Are you giving your clients what they really want?


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Pets as deductible dependents?

Posted by taxguru on April 22, 2009

Actor Robert Davi has an interesting piece in the Washington Times, where he tries to make the case for allowing pets to be claimed on tax returns as dependents the same as children.  While this would be great for those of us who have a lot of animal companions and no human kids, anyone can see that it hasn’t a snowball’s chance in hell of becoming reality. 

The definition problems alone would make it impossible to control.  If only dogs and cats are allowed to be claimed, the cries of discrimination from owners of  other kinds of pets would be deafening.  Critters such as birds, fish, snakes, horses, and sheep can all provide the same benefits as Mr. Davi describes.

Another big mess would be the need to assign Social Security or other identification numbers for each dependent animal.  It was a reality that after IRS started requiring SSNs to be shown for dependents, the number of claimed dependents magically dropped dramatically; so that is a necessity.


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Posted by taxguru on April 21, 2009

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