Root of Big Government

Just because I don’t believe that the suspicious circumstances surrounding the ratification of the 16th Amendment justify refusing to file income tax returns, doesn’t mean I approve of the amendment. I have long supported that it be formally repealed.

As this article explains, the power it gave to our rulers in DC is directly responsible for the unconstitutional growth in the size, power and cost of our Federal government, all of which are completely at odds with the original intentions of our founding fathers.

KMK

Cooking The Books

I have mentioned several times how hypocritical it is for our rulers to be shocked by the creative accounting tricks coming to light from WorldCom, Enron, Xerox, et al. Here, Walter Williams explains how our rulers in DC are hiding more than $30 trillion of debt in much the same way as Enron was doing. Which scheme do you think affects more people in this country, Enron’s or Congress’s?

KMK

Current Extensions

Most people know that the extensions (Form 4868) they filed for their 2001 1040s expire on August 15, 2002. If you need more time, just send in Form 2688 by 8/15/02 and IRS will give you two more months (until October 15, 2002).

What often sneaks up undetected is the deadline for partnership, LLC, trust & fiduciary tax returns (Forms 1065 & 1041). The first extensions which were filed back before April 15 for these types of returns were only for three months. That means they will expire on July 15, 2002. Not to worry. IRS has forms to allow another three months of time (until October 15). Why the geniuses at IRS don’t make all extensions consistent (four months for the first and two months for the second) is a mystery.

If you need three more months for your 2001 partnership, LLC, or trust tax return, file Form 8800 with IRS by July 15.

If you need three more months for your estate fiduciary tax return (Form 1041), file Form 2758 with IRS by July 15.

2000 Tax Returns

Due to several personal emergencies, as well as computer virus & other problems, I am still behind in finishing off a number of 2000 income tax returns. I am trying my best to get them out ASAP. As I explained earlier, because of the current war, these aren’t officially delinquent until after October 15, 2002.

As always with the IRS, their right hand doesn’t know what their left hand is doing and they have been sending out erroneous late notices for 2000 tax returns. Those can safely be ignored.

KMK

Does Giving Away The Loot Cancel Out The Crime?

If a friend of yours robs a bank and gives you some of the money, are you off the hook if you donate an equal amount to a charity after the police track you down?

Our rulers in DC think that strategy works as they try to distance themselves from the campaign contributions (aka bribes) they received from the corporations that were caught cooking their books.

KMK

Can’t Please Everyone

As happens every time I expose the idiocy of the various tax protestor arguments, I am attacked and labeled as a fan of the IRS by their cult-like followers. It really cracks me up because, for decades, I have been one of the most outspoken critics of the IRS in the country. However, there is a big difference between working within the system, as I have always done, and advocating breaking the laws, as the tax protestors do.

This almost balances out the harsh criticism I receive all the time for being “unpatriotic” because I help people legally reduce their taxes. None of my clients has ever been charged with any criminal tax violations; a claim the tax protestor promoters can’t make since they and their clients are filling plenty of prison cells. Who should you trust?

KMK

Tax Protestors

It’s time again for one of my periodic warnings against following the alluring siren song of tax protestors. There are literally dozens of them, most of them with their own websites. Luckily, this number is finally starting to drop, as IRS stops ignoring them and tosses them in the pokey.

That is why I always make a big distinction between reducing taxes through creative and aggressive interpretation of the tax laws (what I do) and the illegal evasion of the tax laws by such promoters as Irwin Schiff and Bob Schulz (to name just a few). Bob Schulz is currently on a foolhardy campaign to encourage everyone to refuse to file tax returns and employers to refuse to withhold taxes from their employees’ paychecks. Anyone following this stupid advice will deserve their prison stays.

I have written very long analyses of the tax promoter arguments before; so I will just summarize the most popular ones here.

No Conflict of Interest

While some people may think that I am defending the IRS and the current tax system in the USA as a means of job protection for myself and fellow tax practitioners, nothing could be further from the truth. I have always been very vocal in my support for the platform of the Libertarian Party, including the absolute elimination of all income and estate taxes. However, we need to bring about such a change through the normal legislative process. Just refusing to obey the laws that we may disagree with, as the misguided Bob Schulz advocates, will accomplish nothing more than earn Mr. Schulz and his followers room & board in the Federal Grey Bar Hotel.

Taxes Are Voluntary

Irwin Schiff has received a lot of publicity with this idiotic limited reading of the tax return instructions. He and his cohorts read that the US tax system depends on voluntary compliance and interpret it to mean that we have a choice as to whether or not to voluntarily file all of the required tax forms. What they ignore is the rest of the story, as Paul Harvey likes to say. If someone refuses to voluntarily comply with their tax reports, IRS is more than willing to do it for them and take extremely aggressive actions, up to and including deadly force, to get the money they think the US government is owed.

Taxes Are Illegal

Many tax protestors, such as Bob Schulz, Joe Banister and WorldNet Daily, have stuck their lives on the line based on the assumption that the 16th Amendment was not actually properly ratified back in 1913. As I have said before, I have reviewed some of the documentation for this argument and believe that they make a fairly convincing case. However, any argument that the amendment was improper should have been made back around 1913; not 80 to 90 years later. It has been accepted as law for too long by too many people to now claim that it is illegitimate. It has in effect been de facto adopted by the American people long before most of us were born. Again, it would require a new constitutional amendment to repeal the 16th.

Bob Schulz & his ilk are living in a fairy tale world. I have never been shy about pointing out examples where our rulers in DC routinely violate the Constitution, especially when it involves tax money. I wish with all of my being that our rulers would take seriously their vow to protect & defend the Constitution. However, we need to be realistic and deal with the real world with the people who are continuously elected and sent to DC to rule our lives. Acting as if the reincarnation of George Washington and Thomas Jefferson were currently in power is just nuts.

I have worked with several cases over the past few decades, trying to untangle the messes misguided tax protestors created for themselves. The ironic thing is that, in every single case, when my staff & I prepared the tax returns, the clients ended up owing much less than the IRS was claiming, and in most of them, would have been due refunds. However, in many of those cases, the IRS double standard kicked in. While an IRS debt lasts forever and beyond, a request for refund must be made within three years or else the overpayment is forfeited to the government. I’ve seen clients lose thousands of dollars because of this.

In Conclusion

While there may be some tax protestor promoters who sincerely believe their arguments will succeed, most of them have been around long enough to see what the results are for anyone following their advice; prison. Why Irwin Schiff has any credibility, after spending so many years in prison for tax evasion, is a mystery to me. Of course, any country that heeds family values advice from the likes of Hillary Clinton obviously can’t expect to come anywhere close to an ability to distinguish between right and wrong.

KMK

Latest Discrimination Victims

One of the never-ending quests Sherry & I have long had is trying to make our forms & paperwork idiot proof. Every time we think we’ve gotten close to accomplishing this goal, along comes a bigger idiot. You don’t know how disheartening it was to read Jonah Goldberg’s latest, on how colleges are dumbing down the SAT so as to not discriminate against stupid people.

KMK

Self Employed Retirement Plans

Here’s a good brief summary of some of the options available to self employed individuals. SEP-IRAs have long been the preference for my clients over Keoghs for a number of reasons. Unlike Keoghs, which require that they are established before the end of the tax year (i.e. 12/31/01 for 2001 1040s), a SEP-IRA can be established & funded as late as the extended due date of the tax returns (i.e. 10/15/02 for 2001 1040s).

SEP-IRAs also have the same high dollar limits as Keoghs, but aren’t required to submit any 5500 forms, as are required each year for Keoghs.

One big word of warning. Most of these plans are based on the same income that is subject to the 15.3% self employment tax. It is often a much wiser move to take steps, such as using a C corp, to reduce or eliminate the SE tax, and invest that tax savings in something that will grow for your retirement years, such as your business or some real estate.

KMK

Intro To Creative Accounting

Here is a good explanation of the way in which companies like WorldCom artificially inflated their net profits. This has actually been very common practice for many companies for several years. Any claim that it is a new concept is completely bogus.

I can recall dozens of stories during the late 1990s dot-com stock hysteria where it was reported that companies such as AOL and Amazon were routinely capitalizing marketing and other operating costs that should have been included in normal expenses. Every few years, in order to clean up their balance sheets and please their outside auditors, they would take an extraordinary charge for a huge amount, as WorldCom & Xerox recently did. The sneaky strategy behind this maneuver was that most investors and stock analysts valued share prices based on “normal” earnings and did not penalize them for extraordinary charges, such as writing down the values of fictitious assets. Some analysts were able to see through this scam and valued the stocks accordingly. Others, who didn’t understand the true nature of extraordinary charges, were fooled.

Here’s a brief accounting lesson for those of you curious as to what an extraordinary charge should be. It is meant to be used only for large expenses that were unusual & unexpected in nature. Losses from catastrophes are properly reported as extraordinary expenses because they are freak events. The write-down of improperly capitalized expenses, as WorldCom and Xerox are doing, does not fit that description by any stretch of the imagination. It was routine and completely expected.

This trick has also long been used by our rulers in DC, which is why they were able to claim that they had balanced the annual budget, yet the overall Federal debt was still climbing. They have been moving more & more types of expenditures out of the normal operating budget and into non-accountable extraordinary expense categories. It is absolutely no different from what WorldCom, Xerox, et al have been doing. That is why I scoff at demands by our esteemed rulers in DC that corporate America clean up its act with its accounting. Hypocrisy of the highest level.

Lou Dobbs has a good look at how our rulers in both parties are trying to exploit the recent creative accounting scandals for their own power grabs.

Income Taxes

This entire issue points out the different goals of financial statements. For lender & investor purposes, we want them to paint a picture of a money making machine. However, when it comes to reporting to IRS, we normally try to expense as many things as quickly as possible in order to appear to be making the least amount of profit. At first blush, the tricks WorldCom, Xerox, et al were playing should have also artificially inflated their income taxes. That would be true if they didn’t keep two sets of books, which is standard practice for large corporations. I can still recall learning how to account for the income taxes on the difference between the two sets of figures in my early accounting classes at Cal State Hayward almost 30 years ago; so this is not a new practice.

Are the corporate executives on the lam?

KMK

New Stamp

I found this at Something Awful.

KMK