“Girls Gone Wild” founder Joe Francis feels he finally got a break when a federal judge okayed a deal that Francis struck with prosecutors. Under the agreement, Francis was credited with 301 days already served and sentenced to one year of probation.

The plea deal was struck after Francis learned that a key witness, Francis’ former accountant, had withheld information from his defense team at trial. Francis was originally indicted on tax evasion charges in 2007 stemming from a number of income omissions and false deductions. He pleaded guilty to two misdemeanor counts of filing false tax returns and one count of bribing Nevada jail workers.

“I think we won that one,” Francis said after the hearing.

The former bad boy was polite during the hearing, answering questions as asked. It was quite a turn-around from the belligerent persona he had maintained since the charges were first brought against him in 2007.

After the hearing, he kissed his mother.

Apparently he really does kiss his mother with that mouth.

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I’m going all Clairee from Steel Magnolias on you. I’m on the radio!

You can check out my interview with Jeff Horwich on Minnesota Public Radio about “sneaky rich people” here (I’m right after the vaccine report):

None Found

If you’re opposed to extending the first time homebuyer’s credit (I am), you’re probably in the minority. And you’re definitely not in the Senate. The Senate voted unanimously to approve the bill and the House is expected to follow suit (at least the approval bit).

Under the new law, the first time homebuyer’s credit would be extended to April 30, 2010 to sign a contract to buy a home and another sixty days to close. *Whew, just in time for the November elections.*

The bill also extends the credit to homeowners who have lived in their current home for five of the last eight years – those folks get a reduced credit of $6,500 for homes purchased after November 30, 2009 (but before the April deadline).

Additionally, income caps were raised to $125,000 a year for individuals and $225,000 a year for married couples.

Raising the income caps? The only sensible part of the plan.

The new law will cost taxpayers about a billion dollars a month. Yes, a billion.

According to a recent report released by Goldman Sachs economist Alec Phillips, all but about 200,000 of the 1.4 million first-time buyers who claimed the first time homebuyer’s credit in 2009 would have purchased a home even without the incentive. The cost to taxpayers? $8.5 billion. If you do the math, that means that the real “cost” to taxpayers for increasing home sales is about $42,500 per home. Let that sink in for a minute.

Goldman Sachs also estimates that all of that money only resulted in boosting prices by 5% – and that includes the idea that sellers increased their prices in anticipation of the credit, something that I was concerned about (you may recall that I wasn’t a fan of the bill in the first place).

I don’t think anyone will argue that the bill did nothing. It clearly did something – at least 200,000 felt compelled to buy under the plan. But I am concerned about the cost. I don’t think we can fix everything by throwing more money at it (except maybe baseball but that just makes me sound like a bitter Phillies’ fan). I guess I’m oddly more laissez-faire than Congress (who’d have thunk it?) but *gasp* what about the notion of letting the housing market right itself? We’ve had two years of housing credits (yes, there was a stimulus credit in 2008) and now we’re pushing off to 2010. When does it end?Similar Posts:

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If you ask a Mainer about taxes, you’re liable to get an earful: Mainers have one of the highest tax burdens in the nation. Nonetheless, on election day, Maine voters turned down proposals to cut taxes.

In a slow economy, Maine voters were leery of a proposal that would result in cuts in services. The controversial ballot issue, Question 4, asked voters if they wanted to limit future increases in state and local government spending and taxes to the rate of inflation plus population growth. The measure was known as the Taxpayer Bill of Rights campaign, or TABOR. Those opposed to the measure referred to it as “TABOR II” since a similar proposal was turned down in 2006.

Those in support of TABOR claimed that the bill would put more money back in taxpayer’s pockets. Critics wondered what the actual result of would be, as many state and local services were already facing cuts. Public schools are already operating under frozen budgets.

Voters also rejected a proposal to cut excise taxes on some vehicles and exempt hybrid and fuel-efficient vehicles from sales tax. Measures to encourage the purchase of cleaner cars are popular in states like Colorado but critics feared that tax cuts would have to be made up somewhere else. In that way, it wasn’t so much a tax cut as a shift in taxation.

While tax measures on the ballots were overshadowed by publicity over questions about making medical marijuana more available (yes) and gay marriage legal (no), the tax votes may be indicative of the mood of the nation on the eve of a huge election year… Only time will tell.Similar Posts:

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Despite three campaign appearances by President Obama, Governor John Corzine lost his gubernatorial seat in New Jersey to GOP challenger Chris Christie last night. Exit polls showed that the top two concerns for New Jersey voters were the economy and the state’s high property taxes.

How high are those property taxes? For the year 2008, New Jersey holds the distinction of the state with both the highest property taxes per capita and the worst business tax climate in the nation, according to the Tax Foundation (note: report will download as a pdf). New Jersey residents also ranked highest in the nation last year with respect to state and local taxes as a percentage of income. New Jersey taxpayers paid a whopping 11.8% of income in state and local taxes, more than 2% above the national average.

Of course, this is nothing new for New Jersey. Residents have generally put up with higher taxes because of what they thought it bought them: some of the best schools in the country, for example. But in the midst of a bad economy, that has changed. New Jersey residents increasingly believe that higher taxes buy them very little (ask Robert Flach) except possibly more corruption.

Governor (for now) John Corzine became the first New Jersey governor to lose a re-election bid since 1993, when then Governor Jim Florio lost to an up and coming GOP challenger Christie Todd Whitman. Whitman, who made cutting taxes a priority in her campaign, later bit at an offer by President Bush clearly intended to knock her out of the public eye and into obscurity.

So what does that mean for New Jersey residents? Luckily for them, they can only go down from here.

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tax, New Jersey, Corzine, Christie, property taxes

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What challenges are the IRS facing this year? Apparently not the complexity of the Tax Code.

The Treasury Inspector General for Tax Administration (TIGTA) released its perspective two weeks ago on the most serious management and performance challenges confronting the IRS. The top 10 challenges in order of priority are:

1. Modernization;
2. Security;
3. Tax Compliance Initiatives;
4. Implementing Tax Law Changes;
5. Providing Quality Taxpayer Service Operations;
6. Human Capital;
7. Erroneous and Improper Payments and Credits;
8. Globalization;
9. Taxpayer Protection and Rights; and
10. Leveraging Data to Improve Program Effectiveness and Reduce Costs.

In TIGTA’s twelve page memo (downloadable here as a pdf), the agency offers an assessment of the major IRS management challenge areas for fiscal year 2010.

“Complexity of the Tax Law” did not appear on this year’s list of challenges. TIGTA felt that the IRS had bigger fish to fry.

Not surprisingly, TIGTA found that many of the IRS Modernization Project milestones were “significantly over budget” and “significantly behind schedule.” That would explain why it ranks first on the list of challenges faced by IRS.

Also a top challenge? Taxpayer data security. Identity theft is a growing concern as more and more taxpayer data is stored in IRS computer systems and transmitted online. The IRS has demonstrated, through internal audits, that there are concerns with respect to both accessing private data and the stability of the data at IRS sites. Additionally, phishing and other targeted taxpayer scams are on the rise, which is an area of serious concern.

Another challenge worth noting: taxpayers with international activities. It’s no surprise to see this on the list considering the emphasis that the current administration is putting on offshore accounts. As US revenues shrink, US corporate revenues abroad are growing. In fact, TIGTA reports that US-based corporations more than tripled their foreign profits between 1994 and 2004, from $89 billion to $298 billion. Yet, considerably more than half of those profits were earned in low-tax or no-tax jurisdictions. Tracking that income is a serious concern to the acting Commish.

It’s always interesting to see what shows up on the list as top tax concerns. It often serves as a heads up to targeted enforcement practices and other shifts in policy. However, I have to say, this go around, I still can’t wrap my head around tax complexity not remaining a top issue. It’s a huge issue. Maybe the bigger problem is that we’ve become nearly apathetic to the cause. Perhaps it’s so complex that we don’t even think about it anymore? Kind of how we don’t even blink when we hear the word “billion” nowadays. The Code is not becoming less complex, maybe we’re just getting used to it.Similar Posts:

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And here’s their evidence:

Of course more folks are e-filing. It’s fast, it’s easy. And with more folks than ever with internet and computer access, it’s to be expected.

But.

And you knew there would be a but.

Here’s my cynical take… You’ll note fewer taxpayers filing generally, down a whopping 12 million this year. There’s a bump in 2008 – certainly attributable to the stimulus. Might it be the case – and I’m just saying – that folks have been encouraged to filing electronically in order to get money back a little quicker.

I’d love to see the data for 2009 returns filed in 2010. I’m betting if you back out the homebuyer’s, that percentage will drop a little. And I’m not a betting girl normally. But I have a hunch on this one.Similar Posts:

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The Tax Justice Network has recently released its list of the most secretive financial jurisdictions in the world. And who topped the list? Luxembourg? Switzerland? Hong Kong? Caymans?

Nope, it’s the United States. Yeah, of America.

But don’t get too excited with your finger pointing. It has little to do with most of the US. It’s all about Delaware (you don’t hear that very often).

The Tax Justice Network has identified what they consider “a number of key contributors to global financial secrecy on a jurisdiction-by-jurisdiction basis.” They then map that data and it’s published as the Financial Security Index (FSI).

Delaware’s status as the “incorporation haven of the USA” and its, well, *favorable* tax laws, have contributed to its ranking. The TJN noted, for example, that “the growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.”

Banking crisis in the US? What banking crisis?

The TJN considered the data substantial enough to place Delaware ahead of Luxembourg (2nd), Switzerland (3rd), the Cayman Islands (4th) and the United Kingdom (5th).

Of course, anyone familiar with Delaware already knows about its favorable laws. Many of our international clients approach us about a Delaware incorporation and often, they have already been advised by their local counsel abroad to incorporate in Delaware to avoid certain state and local taxes. Of course, what they’re often not advised is that merely being incorporated in one state doesn’t offset physical presence tests in other states that might eventually drag them into other states for tax purposes. The classic example is a manufacturing company which is advised to incorporate in Delaware even though they may be, say, building a facility in New Jersey. The presence of the building in NJ will subject them to NJ state tax, irrespective of their Delaware “tax home.”

Delaware also has laws and courts which promote asset protection and dynasty trusts inside the state. I should know since I used to work for a trust company in Delaware. I reviewed and helped administer many high dollar trusts, including a number of family trusts for names that definitely rang a bell. Again, sticking a trust inside Delaware is much like incorporating inside of Delaware – you have to know what you’re doing to take advantage of the tax laws. You can’t just throw money in a trust and yell, “Ha!”

What does this mean for the US and its reputation as it attempts to foil banking secrecy laws in other jurisdictions? Absolutely nothing. Zero.

It makes for a bunch of fun headlines but I don’t think it changes the US’ standing in the world in terms of financial secrecy. Truth be told, the TJN arranges its data as it sees fit but there’s just no comparing the secrecy of incorporation records (which can be public anyway) to the strict, no holds barred secrecy of Luxembourg and Swiss banking laws. It’s just not the same thing.

I also think the TJN has a way to go in terms of making its data mean something to those outside of its network. A relatively young organization, it was formed in March 2003. According to its website, “[i]t is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. We work to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens.”

As a tax geek, I have to say that I enjoy the research and data. I just think you have to make it mean something beyond a sound byte.Similar Posts:

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Jeffrey Chernick, a toy salesman out of New York, was sentenced on Friday to three months in prison for hiding millions of dollars from the IRS. Upon his release, Chernick will serve six months’ house arrest and six months’ probation. The judge did not impose an additional fine as Chernick is already subject to more than $4.5 million in civil penalties for filing a false tax return.

Chernick becomes the second UBS client to be sentenced in the scandal. Earlier in the week, Steven Michael Rubinstein was sentenced to three years’ probation, one year of house arrest and a$40,000 fine.

I noted at the Rubinstein sentencing that I felt that the punishment was light. US District Judge James Cohn apparently felt similarly, noting with respect to these specific cases, “The concept that tax evaders can get probation sends the wrong message… Some amount of incarceration is warranted.”

Chernick cooperated with authorities, which may have lessened his sentence: he had faced up to three years in prison. But even prosecutors sought leniency for Chernick, suggesting that his cooperation played a “significant and early step” in the UBS investigations, offering information about other taxpayers and banks.

In addition to pleading guilty to tax evasion, Chernick also admitted to paying a bribe, arranged by attorney Matthias Rickenbach and Swiss banker Hansruedi Schumacher, to a Swiss government official for information about which UBS accounts would be given to US authorities. That investigation is ongoing and it will be interesting to see the reach of the bribery scheme.

Chernick began setting up offshore accounts as early as 1981 in order to hide commissions on toy sales from the IRS. Over the years, he moved money from account to account and otherwise attempted to conceal his assets.

Interestingly, Chernick made an effort to sign up for the IRS’ voluntary disclosure program but did not qualify. Taxpayers who were under investigation or already facing charges did not qualify for the program.

Expect more high profile disclosures over the next few weeks. Clearly, the IRS hopes to send a message. The real question is: who’s getting it?

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IRS, Jeffrey Chernick, Matthias Rickenbach, tax evasion, Steven Michael Rubinstein

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It looks like 2010 likely won’t be all that different from 2009 – at least when it comes to taxes.

Each year, by law, the dollar amounts for certain tax provisions are indexed for inflation. But inflation hasn’t budged all that much (that’s good, right?) which means that a lot of nothing is happening. Here’s an update on next year’s numbers released by the IRS earlier this month:

• Personal and dependency exemptions remain at $3,650.
• The standard deduction for married filing jointly remains at $11,400.
• The standard deduction for single taxpayers and married filing separately remains at $5,700.
• The standard deduction for head of household increases by $50 to $8,400.
• The annual gift tax exclusion remains unchanged at $13,000.

The big kicker, of course, is what the heck is going on with the estate tax? As of now, nobody knows for sure.

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