No wonder people cheat on their income tax!


4

46erjoe

Not that they deliberately intend to. I think it's just that
the darn thing is so complicated that people tend to "err"
on the side of their own benefit whenever there is a "fuzzy"
area, not wanting to lose out on what might be rightfully
theirs. The govt. interprets this as cheating, but really I
think it's only people trying to keep their sanity. I don't
think we're as evil as the IRS thinks we are. If the method
were super-simplified, I think that we all would benefit -
both us and the govt would get what is rightfully ours.

Had to get that off my chest as I begin to do my own taxes -
last year I had to submit 34 different forms !! I can
hardly wait to get started.
 
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torgo7

46erjoe said:
Not that they deliberately intend to. I think it's just that
the darn thing is so complicated that people tend to "err"
on the side of their own benefit whenever there is a "fuzzy"
area, not wanting to lose out on what might be rightfully
theirs. The govt. interprets this as cheating, but really I
think it's only people trying to keep their sanity. I don't
think we're as evil as the IRS thinks we are. If the method
were super-simplified, I think that we all would benefit -
both us and the govt would get what is rightfully ours.

Had to get that off my chest as I begin to do my own taxes -
last year I had to submit 34 different forms !! I can
hardly wait to get started.
We are not the ones who are evil. And the tax system is so
unfair and so obviously geared toward the wealthy (who were
the ones who wrote up the laws in the first place to protect
their interests) that our Founding Fathers would be turning
in their graves if they knew what had transpired in the last
century and a half.

Your feelings are shared by many.
 
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S

Shyster1040

"Erring" in your own favor whenever you find a "fuzzy" area
is, not to put too fine a point on it, the epitome of
cheating on your taxes. Upon finding a "fuzzy" area that
cannot be resolved one way or the other, the non-cheater
either errs on the conservative side or splits the
difference down the middle. Just remember, if all else
fails, if you obtained something of economic benefit during
the year, assume that it's gross income until and unless you
can find a good reason (e.g., case, IRS ruling, opinion of
CPA or tax attorney, etc) to treat it otherwise.
 
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G

Gil Faver

We are not the ones who are evil. And the tax system is so
unfair and so obviously geared toward the wealthy (who were
the ones who wrote up the laws in the first place to protect
their interests) that our Founding Fathers would be turning
in their graves if they knew what had transpired in the last
century and a half.

Your feelings are shared by many.
I doubt many of the wealthy feel that the system is "geared
toward the wealthy". When 5% of the taxpayers (not the
population, just the taxpayers) pay 20% of the income taxes,
and 20% pay 55%, you cannot say it is "geared toward the
wealthy" in a manner you should be complaining about. Let
me know when you pay $1.00 per minute, 24/7/365, then we can
commiserate.
 
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D

David Moore

Let me know when you pay $1.00 per minute, 24/7/365, then
we can commiserate.
Well, I pay much more than $1 per minute in federal taxes,
and I absolutely agree that people like me should pay more
than 35% marginal. The lower half of the income range are
sufficiently burdened by social security/medicare/sales
taxes. The needs of the country as we approach a big
demographic shift greatly exceed what can be funded by
current tax levels. I'd prefer to pay more than to risk the
future of my children and grandchildren in a world in which
US Treasuries have become junk bonds in the eyes of those
(in Asia and petrodollar states) whom we ask to finance our
appalling debts.
 
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H

Harlan Lunsford

Let me know when you pay $1.00 per minute, 24/7/365, then
Well, I pay much more than $1 per minute in federal taxes,
and I absolutely agree that people like me should pay more
than 35% marginal.
(rest snipped....)

I just had to do the math and a dollar a minute x 24 x 365
= $525,600. That's a hell of a federal tax. More than I
make in a year or two or three or more.

If you ever need a new accountant, look me up.

ChEAr$,
Harlan Lunsford, EA n LA

Moderator:
If you need an heir, you can adopt me. I send birthday
cards, a New Year calendar card, Get Well cards, etc. and
I don't talk back. Plus my son writes great Thank You
notes.
 
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Seth Breidbart

Shyster1040 said:
"Erring" in your own favor whenever you find a "fuzzy" area
is, not to put too fine a point on it, the epitome of
cheating on your taxes.
Taking an aggressive position is not cheating.
Upon finding a "fuzzy" area that
cannot be resolved one way or the other, the non-cheater
either errs on the conservative side or splits the
difference down the middle.
The Supreme Court has said that there is no obligation to
maximize taxes paid; tax _avoidance_ is perfectly legal.

"splitting the difference" is unjustifiable. The average of
right and wrong isn't right.
Just remember, if all else
fails, if you obtained something of economic benefit during
the year, assume that it's gross income until and unless you
can find a good reason (e.g., case, IRS ruling, opinion of
CPA or tax attorney, etc) to treat it otherwise.
And if you have any sort of good reason, you can use it.

Seth
 
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S

Stuart A. Bronstein

Taking an aggressive position is not cheating.
And if you have any sort of good reason, you can use it.
Sorry, but "any sort" of good reason isn't enough. Unless
you can say truthfully that you had a reasonable belief that
your position would be upheld in court, it's still tax
evasion.

Years ago I worked with a well-established tax attorney who
advised a client in this way: "If it ends up in court we're
likely to lose, but I think we have a reasonable legal
argument that the deduction is proper."

Based on that advice (which the client took) he was
convicted of tax evasion, and the conviction was upheld in
appeal.

Stu
 
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S

Shyster1040

Taking an aggressive position is not cheating.

Taking an unjustified aggressive position for no reason
other than it favors you is tantamount to cheating.

There are very, very few areas, particularly with respect to
wage-earners, that are so totally devoid of guidance that
some reasonable estimate cannot be made, particularly
against the basic presumption, from Glenshaw Glass, that if
you got some sort of economic benefit from something, that
something is reportable income unless you can find a
specific, reasonable, reason why it's not.
The Supreme Court has said that there is no obligation to
maximize taxes paid; tax_avoidance_ is perfectly legal.
Actually, it was Judge Learned Hand of the Second Circuit,
in Gregory v. Helvering, who stated that one does not have
an obligation to pay more than the amount properly required
under the statute. You should recall, however, that Learned
Hand made that statement in the context of giving birth to
the economic substance doctrine, under which a taxpayer is
not permitted to rely on a narrow, literal interpretation of
the statute if the substance of what the taxpayer did is
inconsistent with the purpose of the statute and Congress'
policies behind enacting it.

As a result, one most definitely has an obligation to make
every effort to determine the tax consequences of the
substance, not the form (unless the substance is the form),
of the taxpayer's transactions, and, by implication, is not
permitted to take an aggressive position without consequence
merely because the area in question has not been reduced to
the level of blackletter hornbook law.

In sum, if you want to be aggressive, you better have a
damned good reason for it, which impliedly means that you
have good reason for believing that the area is not, in
fact, ambiguous, merely underdeveloped.
splitting the difference" is unjustifiable. The average
of right and wrong isn't right.
All depends on the context. For example, the executor of an
estate can quite frequently 'split the difference' in
determining the fair market value of marketable stock
included in the estate by taking the mean between the
highest and lowest quoted selling prices on the valuation
date. See Treas. Reg. 20.2031-2(b)(1).

As the volume of available data drops, the degree of
difference-splitting permitted increases, see, e.g., Treas.
Reg. 20.2031-2(c)(permitting valuation at the mean of the
bona fide bid and asked prices on the nearest trading dates
before and after the valuation date).

Valuation of closely held or nonmarketable interests is more
art than science, and a defensible valuation often comes
down to a judicious splitting of the difference between
competing reasonable valuations.

Thus, in the context of valuation, "splitting the
difference" is quite acceptable and is frequently "right"
when the valuations being split are all "wrong."
And if you have any sort of good reason, you can use it.
Not so. Subjective belief does not count. Larken Rose
certainly thought he had a "good reason," but you see where
that got him. That sort of "good reason" will get you
penalties for taking a frivolous position in addition to the
tax, penalties, and interest that you already owe.

If you realized an economic benefit that can be reasonably
quantified (under the rules relating to accrual accounting
for tax purposes) and which is not subject to a substantial
risk of forfeiture, then your best bet is that you had
"income" upon such realization unless you can come up with a
specific, objectively reasonable, reason for why it's not
"income." Merely having what you subjectively think is a
"good reason" is not sufficient.
 
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S

Shyster1040

We are not the ones who are evil. And the tax system is so
unfair and so obviously geared toward the wealthy (who were
the ones who wrote up the laws in the first place to
protect their interests) that our Founding Fathers would be
turning in their graves if they knew what had transpired
in the last century and a half.""
Now that's a somewhat truer statement about the tax system.
When the income tax was first enacted as a broad-based tax
(rather than as a response to the Civil War) it was intended
to apply principally to the wealthy, not to the average
wage-earner. To get an idea of what "wealthy" connoted back
in the 1890's consider that the exemption amount (i.e.,
amount of income not subject to tax) was $4,000. In other
words, most people in the country didn't earn over $4,000
per year.

Furthermore, while the excessive brackets of the 70s and
early 80s were quite rightly repealed in the 86 tax reform,
the marginal utility of income does strongly suggest that
the brackets should be more progressive than they currently
are. Bill Gates simply does not get the same utility from
his billionth dollar of income that the average wage earner
gets from his 50-thousandth dollar of income. As such, the
tax bite as between Bill and the average wage earner will
only hurt equally when Bill's marginal tax rate is
substantially higher than the average wage earners.

Secondly, the ability to convert what is in reality money
earned through personal exertion into lower taxed capital
gains soley because one's exertions are directed towards
stock trading rather than providing personal services is
another area that should be revamped.

Thirdly, while there is some rationale for the argument that
lower capital gains rates are a necessary albeit implicit
means of indexing those gains for inflation, the mechanism
does not work fairly or equitably, particularly with the
cliff effect of holding property for 1 year plus 1 day. If
there is a real necessity for indexing capital gains for
inflation, then those gains (or, alternatively, the cost
basis) should actually be indexed using some variant of the
CPI. By indexing directly, the gain, as determined based on
indexing, can then be included in the ordinary income tax
base rather than having a separate capital gains tax base -
thereby not only making capital gains treatment more
equitable, but simplifying the tax system as well.
 
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S

Stuart A. Bronstein

Shyster1040 said:
Now that's a somewhat truer statement about the tax system.
When the income tax was first enacted as a broad-based tax
(rather than as a response to the Civil War) it was intended
to apply principally to the wealthy, not to the average
wage-earner. To get an idea of what "wealthy" connoted back
in the 1890's consider that the exemption amount (i.e.,
amount of income not subject to tax) was $4,000. In other
words, most people in the country didn't earn over $4,000
per year.
According to the Federal Reserve Bank based on the consumer
price index, $4,000 in 1890 is worth nearly $90,000 today.

Even as late as the 1950's the average income for a middle
class family was around $3,000.
Secondly, the ability to convert what is in reality money
earned through personal exertion into lower taxed capital
gains soley because one's exertions are directed towards
stock trading rather than providing personal services is
another area that should be revamped.
The purpose is to encourage investing. Perhaps capital gain
treatment should be limited to those who purchase their
stock directly from the issuing company. Subsequent
purchasers aren't doing a whole lot to help innovation other
than keep the value of stock higher.

Stu
 
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Gil Faver

The purpose is to encourage investing. Perhaps capital gain
treatment should be limited to those who purchase their
stock directly from the issuing company. Subsequent
purchasers aren't doing a whole lot to help innovation other
than keep the value of stock higher.
That is not true. If I buy stock directly from the company
and nobody wants to buy it thereafter - well, why would I
buy it directly from the company in the first place?
 
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K

kyle

Shyster1040 said:
Furthermore, while the excessive brackets of the 70s and
early 80s were quite rightly repealed in the 86 tax reform,
the marginal utility of income does strongly suggest that
the brackets should be more progressive than they currently
are. Bill Gates simply does not get the same utility from
his billionth dollar of income that the average wage earner
gets from his 50-thousandth dollar of income. As such, the
tax bite as between Bill and the average wage earner will
only hurt equally when Bill's marginal tax rate is
substantially higher than the average wage earners.
What I never understood was why anyone under $50K or so has
to pay more than about 10% in fed. taxes. Anyone under that
level of income really needs that few extra hundred dollars
every paycheck. It just makes me sick when thinking about
these huge compensation packages the executives get in
corporations -- anyone making over $500K should have an
additional % tax. I'd like to hear anyone who tries to say
"that will stifle innovation and productivity" -- because
most everyone doing the innovation and being productive
working for the huge corporations make under $500K. Granted
there are the few outliers.
 
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Seth Breidbart

Sorry, but "any sort" of good reason isn't enough. Unless
you can say truthfully that you had a reasonable belief that
your position would be upheld in court, it's still tax
evasion.
Isn't that what a good reason provides? (That was my
intention, anyway.)
Years ago I worked with a well-established tax attorney who
advised a client in this way: "If it ends up in court we're
likely to lose, but I think we have a reasonable legal
argument that the deduction is proper."
I'd consider that a fair reason (on the scale excellent,
good, fair, poor), not a good one.
Based on that advice (which the client took) he was
convicted of tax evasion, and the conviction was upheld in
appeal.
Apparently, so did the court.

Seth
 
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Seth Breidbart

Taking an unjustified aggressive position for no reason
other than it favors you is tantamount to cheating.
Where did "unjustified" come from? Yes, if the reason is
unjustified, that brings it closer to cheating.
There are very, very few areas, particularly with respect to
wage-earners, that are so totally devoid of guidance that
some reasonable estimate cannot be made, particularly
against the basic presumption, from Glenshaw Glass, that if
you got some sort of economic benefit from something, that
something is reportable income unless you can find a
specific, reasonable, reason why it's not.
So in some cases for simple situations, there's no room for
aggressive positions. That isn't relevant; in some cases,
there is.

A doctor owns his practice (as a business), in which people
are fairly high paid. He also owns a McDonalds franchise,
which pays minimum wage. Is he required to consider them
one business for employee benefit purposes?

The law would seem to indicate that, but some years ago
there was a legal decision that two completely unrelated
businesses were separate even though they had a common
owner.
In sum, if you want to be aggressive, you better have a
damned good reason for it, which impliedly means that you
have good reason for believing that the area is not, in
fact, ambiguous, merely underdeveloped.
What if the are is, indeed, ambiguous? (When ERISA was
written, the definition of "highly compensated" that was
clearly stated in the law differed from the one the IRS
wrote into its regulations.)
All depends on the context. For example, the executor of an
estate can quite frequently 'split the difference' in
determining the fair market value of marketable stock
included in the estate by taking the mean between the
highest and lowest quoted selling prices on the valuation
date. See Treas. Reg. 20.2031-2(b)(1).
That isn't a case of "splitting the difference" but a good way of
getting the correct value.
Not so. Subjective belief does not count.
Subjective belief isn't a good reason.

Seth
 
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