Remembering Robert Bork

Robert Bork died this morning at the age of 85.  He was nominated by Ronald Reagan to serve as a Justice of the US Supreme Court but faced fierce opposition (albeit, unjustified) in the Senate.  He was not confirmed and ultimately resigned as an appellate justice.

After retirement he wrote several books.  Two of which are on my top ten list of favorite books:  Slouching Towards Gomorrah and the Tempting of America.  Despite the unfair attacks he suffered he was reportedly always good-natured and upbeat. 

Gerard Depardieu Fires Back at Critics Attacking His Tax Saving Move to Belgium

Recently, Gerard Depardieu, France's most famous actor, announced that he would be moving from France to Belgium in response to the ever increasing French tax rates on the wealthy.   This announcement was not met kindly and Depardieu was vilified by the French press, with Prime Minister Jean-Marc Ayrault calling Depardieu “pathetic” and “unpatriotic”. 

Depardieu didn't take the attack lying down and fired back a letter to the Prime Minister, returning his French passport and social security card.  “We no longer have the same country. I’m a true European, a citizen of the world,” Depardieu wrote.  The actor said his 2012 tax bill – 85 percent of his revenue – is fully paid.  Depardieu said he’s been working since age 14. In the last 45 years he claims to have paid €145 million ($190 million) in taxes. The letter finished with “I hand over my passport to you and my social security card, which I have never used.”

Should I Really Make a Large Gift Before the End of 2012?

Many estate planners, CPAs and valuation experts are busy right now assisting clients who are making extremely large gifts in an effort to maximize the current $5.12MM gift tax exemption.  For those with large estates, the prospect of the gift/estate tax exemption amount defaulting back to the $1MM level as a result of the fiscal cliff is nausea inducing. 

However, for many estates that are on the margin, serious consideration should be given to NOT making the gift.  The reason why is that when the owner passes away, the value of the property owned will get a full date of death step-up in basis.  So if farm property was bought or even inherited years ago (which means it has a low basis), is gifted now to children, the children would receive this property and will still have this low basis.  That means that if the children turn around and sell the property they will be hit with a significant taxable capital gain. 

Traditionally, it was much better to take the hit on capital gains in order to avoid the estate tax, but if one's estate is around $5MM and there is an intention to liquidate holdings after death, it may be better to only give away part of the property so that the other properties can get a step-up in basis at death.

If Congress keeps the estate/gift tax exemption high (as opposed to reverting back to the $1MM level) then there will be many instances where the 2012 gift giving was unnecessary and resulted in the loss of a step-up basis upon the owner's death.

While hind-sight is always 20/20, a little strategic planning can go a long way.

Income Tax Rates Rise...Revenues Fall: The UK's Vanishing Millionaires

From the WSJ editorial page, Britain's Missing Millionaires: Income tax Rates Rise but Revenues Fall:

A funny thing often happens on the way to soaking the rich: They don't stick around for the bath. Take Britain, where Her Majesty's Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before.

That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown's government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010.

The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%....

Politicians would love to lay the whole burden of their policies on a tiny minority of the rich, but you can't finance the welfare state on the shoulders of the 1%. That's something for the U.S. to remember as President Obama pretends he can fill a $1 trillion budget hole with tax hikes on "millionaires and billionaires."

(Hat Tip: Tax Prof Blog)

Are Tax Hikes The Cure For CA Budget Woes?

One can only wait and see how the Passage of Prop 30 will affect California, but politcal cartoonist Michael Ramirez has his own take.

(Coutesy of National Review)

As Goes San Bernardino, So Goes CA?

There is an absolute must-read article from Reuters that examines San Bernardino's downward spiral in exhaustive detail.

Below are some of the tidbits that were shocking:

Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers. 

Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

...

In bankrupt San Bernardino, a third of the city's 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension.

 ...

San Bernardino's biggest creditor, by far, is Calpers, the public-employee pension fund. The city says it owes Calpers $143 million; using a different calculation, Calpers says the city would have to pay $320 million if it left the plan immediately.
Second on the city's list of creditors are holders of $46 million worth of pension bonds -- money borrowed in 2005 to pay off Calpers. The total pension-related debts are more than double the $92 million owed to the city's next 18 largest creditors combined.
Complicating matters were obscure budgeting procedures that left residents in the dark. The word "pension" doesn't appear once in the most recent 642-page budget, and retiree costs are buried in detailed departmental line items.

Yet even in bankruptcy, reducing pension costs by cutting benefits is not an option - at least according to Calpers.
The pension agency says the benefits are carved in stone, arguing that from the day a worker is hired, the pension plan in place on that day for that person can never be reduced in value under any circumstances, including municipal bankruptcy.
That argument has never been tested in court: When the Bay Area city of Vallejo went bankrupt in 2008, it declined to challenge the pension payments to Calpers, in part because of the daunting legal costs involved.
But the pension-bond insurers who are now on the hook for defaulted bonds in both Stockton and San Bernardino have signaled their intention to do battle with Calpers in bankruptcy court. San Bernardino, in an unprecedented move, has already stopped making payments to Calpers.

Occupy Wall Street Group Buys Consumer Debt--Then Just Forvgives It: a bailout of the 99%

I first read about the movement called Rolling Jubilee the other day and I must admit that I am fascinated by it.

According to its website, the group buys up consumer debt for pennies on the dollar and then just forgives it.  Puff...the debt is gone.  The movement is an offshoot of the Occupy Wall Street movement and considers this action a bailout of the 99%. 

The group claims to have raised over $240,000 of funds and will purchase nearly $5 million in debt--all of it which it will promptly forgive.

The tax consequences of this transaction, however, are subject to debate.  Generally, a debtor whose debt has been cancelled is supposed to recognize as ordinary income the amount of the debt that was cancelled.  However, Rolling Jubilee argues that this debt forgiveness is purely meant to be a "gift" to the debtor, which would not trigger any income tax.

Below is a video from the group that explains the basics. 

To Avoid 21% Sales Tax Theater Sells $16 Carrots--Gives Away Tickets

In what can be considered the most original method of avoiding (or evading) a draconian 21% sales tax, a Spanish theater has actually resorted to "selling" carrots for $16 a piece, and then giving away a theater ticket for free.

When the Spanish government hiked sales tax on theater tickets this past summer, Quim Marcé thought his theater was doomed. With one in four local residents unemployed, Marcé knew that even a modest hike in ticket prices might leave the 300-seat Bescanó municipal theater empty.
"We said, 'This is the end of our theater, and many others.' But then the next morning, I thought, we've got to do something, so that we don't pay this 21 percent, and we pay something more fair," says Marcé in Spanish.
He looked out his window at farmland that surrounds this village, two hours north of Barcelona, and suddenly had an idea: Instead of selling tickets to his shows, he'd sell carrots.
"We sell one carrot, which costs 13 euros [$16] -– very expensive for a carrot. But then we give away admission to our shows for free," he explains in Spanish. "So we end up paying 4 percent tax on the carrot, rather than 21 percent, which is the government's new tax rate for theater tickets."
Classified as a staple, carrots are taxed at a much lower rate and were spared new tax hikes that went into effect here on September 1.

What the Passage of Prop 30 Means for You

Proposition 30 was passed on Tuesday carrying about 54% of the vote.  Here's what it means.

There will be an across the board sales tax increase from a base rate of 7.25% to 7.5% for the next four years.  This will have an impact on all consumers.

In addition, there was a significant increase in marginal rates for those making more than $250,000, which will be retroactive to the beginning of 2012 and last for seven years. 

Under Prop 30 the new brackets for single filers will look as follows:

             In excess of $250,000----10.3% (up from 9.3%)
             In excess of $300,000----11.3% (up from 9.3%)
             In excess of $500,000----12.3% (up from 9.3%)

Proposition 30 will keep California in first place for having the highest state sales tax in the nation and should move California from second (behind Hawaii) to first place in state income tax. 

The biggest question I have, however, is will this seven year "temporary" tax increase be enough or will Governor Brown and his new super-majority legislature push for additional tax increases. Also, is Proposition 13 also soon to be on the chopping block?  Time will only tell. 

Sacramento Man Hit With 17 Year-Old Tax Bill

Bill Elkins, a 66-year-old man from Sacramento was recently hit with a $6,166.39 tax bill from the Franchise Tax Board involving a tax debt from 1995.  The state says he never paid it.  Mr. Elkins claims he did.

Unfortunately for Mr. Elkins, his bank records don't go back that far to prove he ever made that payment and the CPA who prepared the return has passed away.  While the IRS can collect on 10 year-old assessments, the Franchise Tax Board can collect on 20 year-old assessments.  Local news video below. 

Proposition 30 and that $6 Billion in Education Cuts

One of the most prevalent arguments in favor of Proposition 30 is that without it, education spending will be subject to $6 billion in "trigger cuts" that will result in higher college tuition and shorter school years. 

But is this $6 billion really a "cut" in the way you and I would think about it? 

Consider the following example:

Say you're expecting a $100-per-week raise at work.  But then you don't get it, and you tell your friends that you have to cut back by $100 a week. 

Normally, you really wouldn't think of that $100 week not coming in as a cut, since it was never part of your salary in the first place.  However, with respect to these "trigger cuts", the key is that this $6 billion figure stems from the fact that Gov. Brown and the legislature started the budget year by assuming that Proposition 30 would pass.

So Did The Wall Street CEOs Actually Call For Tax Hikes to Fix the Deficit?

On Thursday, the Wall Street Journal published a letter from over 100 major CEOs apparently calling for tax hikes in an effort to reduce the deficit.

Almost immediately, the letter was cited as proof that any position which did not accept the idea of tax increases as a prime vehicle to decrease the debt was indefensible. 

The Wall Street Journal editorial board, has taken a different interpretation in its editorial:  CEOs to the Tax Rescue? Liberals Confuse a Pro-Growth Plea With a Tax-Rate Hike:

Two words: game, change. On Thursday a 100-strong group of major business leaders did a Warren Buffett and endorsed a big tax hike, even if it means they'll have to pay more themselves. The support of this CEO lobby could break the Republican dead-enders who oppose all taxes and finally clear the way for a glorious bargain of tax increases and spending cuts to reduce the deficit. 

If you've seen this news story, don't worry. It's all a fantasy, albeit one that appeals to certain political types, who are reading their own priorities into the latest CEO petition on debt and taxes. The reality is that the chief executives who this week signed on to a "core set of principles" on budget reform are more than anything else scorching President Obama's lack of leadership. ...

The CEOs favor a framework that would "stabilize the debt as a share of the economy, and put it on a downward path." ... The CEOs also want to "reform Medicare and Medicaid" and do more to control national health spending. ... Only then—as a condition of structural entitlement reform, including Social Security—do the CEOs back "comprehensive and pro-growth tax reform, which broadens the base, lowers the rates, raises revenues and reduces the deficit." Note that reference to tax reform and lower rates, not the standard Beltway trade of certain tax increases for the promise of spending cuts that never happen.

The folks who are treating this as an extraordinary political breakthrough have apparently come down with a case of Romnesia, to borrow the President's coinage: Mitt Romney has been running on exactly such a tax reform for nearly a year, using exactly those principles....

What the CEOs we know really want is faster economic growth, the policies to promote it, and a Washington political class that can pass those policies. The politicos claiming that this rather anodyne CEO debt proclamation will make it easier for Mr. Obama to "raise taxes" are the same ones who merely want him to raise taxes.

 Hat Tip (Tax Prof.)

IRS Releases Inflation Adjustments--gift tax exemption increased

The IRS just released various inflation-adjustments for 2013 (Rev. Proc. 2012-41, 2012-45), including:

Gift Tax Exemption: $14,000 (up $1,000 from 2012)

Contribution Limit for 401(k)/403(b)/457 Plans: $17,500 (up $500 from 2012)

Catch-Up Contribution Limit (Age 50+) for 401(k)/403(b)/457 Plans: $5,500 (same as 2012)

Income Limit for Full IRA Deduction: $59,000 single/$95,000 joint (up $1,000/$3,000 from 2012)

Income Limit for Full Roth IRA Contribution: $112,000 single/$178,000 joint (up $2,000/$5,000 from 2012)

Defined Benefit Plan Annual Benefit Limit: $205,000 (up $5,000 from 2012)

Year-End Gift Planning: How Valuation Clauses Can Get Around a Late Appraisal

With the abnormally high gift/estate tax exemption amounts of $5.12 million set to sunset at the end of this year, many attorneys, CPAs and tax-advisors are rushing to help their clients take steps to make significant gifts.  For those who wish to take advantage of this unique opportunity, the clock is winding down.  For the gifts to be effective this year, the transfer must be completed by December 31.

Unfortunately, many planners are now realizing that scheduling appraisals this late in the year means that they will likely not have the appraisal figures back until next year.  Thus, a donor is left to wonder, if I want to make a gift of say, exactly $5.12 million to my children, how do I know how many shares of stock or LLC units to transfer this year if I won't know the value until next year.

Fortunately, due to the availability of defined value clauses and some recent Tax Court cases, the donor (and his/her advisers) can make large gifts with confidence.

In short, a donor need not specificy the exact number of LLC units given, all that needs to be specified is that value to be transferred, expressed in a mathematical formula.

A good example of such a formula clause is found in the recent Wandry decision, and reads as follows:

I hereby assign and transfer as gifts, effective as of January 1, 2004, a

sufficient number of my Units as a Member of Norseman Capital,

LLC, a Colorado limited liability company, so that the fair market

value of such Units for federal gift tax purposes shall be as follows:

                   Name                             Gift Amount

                   Kenneth D. Wandry        $261,000

                   Cynthia A. Wandry           261,000

                   Jason K. Wandry              261,000

                   Jared S. Wandry               261,000

                   Grandchild A                     11,000

                   Grandchild B                     11,000

                   Grandchild C                     11,000

                   Grandchild D                     11,000

                   Grandchild E                     11,000

                                                          1,099,000

Although the number of Units gifted is fixed on the date of the gift, that

number is based on the fair market value of the gifted Units, which

cannot be known on the date of the gift but must be determined after

such date based on all relevant information as of that date.

Furthermore, the value determined is subject to challenge by the

Internal Revenue Service (“IRS”). I intend to have a good-faith

determination of such value made by an independent third-party

professional experienced in such matters and appropriately qualified to

make such a determination. Nevertheless, if, after the number of gifted

Units is determined based on such valuation, the IRS challenges such

valuation and a final determination of a different value is made by the

IRS or a court of law, the number of gifted Units shall be adjusted

accordingly so that the value of the number of Units gifted to each

person equals the amount set forth above, in the same manner as a

federal estate tax formula marital deduction amount would be adjusted

for a valuation redetermination by the IRS and/or a court of law.

In short, while it would be preferrable to get the value before making the gift, a formula clause like the above gives the donor, and other professionals some breathing room.

Of course, one big caveat is to ensure that when the gift tax return is filed that the language on the return matches the language on the gift.  If the return just lists the exact number of shares, units, or percentage interest transferred the donor exposes himself to a potential challenge from the IRS alleging that a formula clause was not utilized. 

State "Names and Shames" Top 500 Tax Delinquents

The FTB recently released its list of the state's top individual and corporate tax delinquents. 

In the past, the FTB only released the top 250 names annually but this year the list was expanded to 500 and is to be updated and published bi-annually.  In addition, the state is publishing the names and titles of corporate officers of the listed corporations, publishing professional license information as well as prohibiting state agencies from entering into contracts with anyone on the list.

Of course, every year there is at least one celebrity who has the dubious distinction of being named on the list.  This year's honor goes to none other than Pamela Anderson of "Baywatch" fame who reportedly owes $524,241 in state income taxes.

Debate Fact-Check: Special Tax Break For Shipping Jobs Overseas? Not Really

The accusations and statistics about taxes bandied about by both candidates last light during the first Presidential debate were somewhat astounding.

One particular exchange caught my attention:

Obama: ....But I also want to close those loopholes that are giving incentives for companies that are shipping jobs overseas. I want to provide tax breaks for companies that are investing here in the United States....Right now, you can actually take a deduction for moving a plant overseas. I think most Americans would say that doesn't make sense. And all that raises revenue.

Romney's Response was incredulous:

Romney: ...Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant. . . . But the idea that you get a break for shipping jobs overseas is simply not the case."
As I listened to the exchange I assumed that the President was stating that there was a separate stand-alone provision in the code that had special deductibility rules pertaining to companies that move facilities overseas--which I had never heard of before. Of course, with the Internal Revenue Code consisting of more than 5,000 pages and over 70,000 pages of interpretive regulations, I assumed that the President was right.

In reality, there is no "special" or stand-alone provision that, in the president's words, gives "incentives" to companies to move plants overseas. Any cost of doing business is deductible and so a company can claim a deduction whether it's moving operations to New York or New Delhi.

How Mitt Romney's Use of a "Defective" Trust Saves Him Taxes

A tax and estate planning attorney has a wide array of tools that can be implemented to help individuals and families save when it comes to gift and estate taxes.  Often, these tools come in the form of complex trusts with even more complex sounding acronyms.  For instance, Charitable Lead Annuity Trust ("CLAT"), Grantor Retained Annuity Trust "("GRAT"), Qualified Personal Residence Trust ("QPRT"), and the Irrevocable Life Insurance Trust ("ILIT").

On tool, however, is extremely effective and unique--the Intentionally Defective Grantor Trust ("IDGT").  Despite the use of the term "defective", this trust has a tremendous capacity to allow for the maximization of wealth transfers to younger generations with minimal gift/estate taxes.

Not surprisingly, Mitt Romney (one of many politicians) has benefited greatly from the implementation of an IDGT.

From the San Fransisco Chronicle:

Romney’s vehicle is known as an “intentionally defective grantor trust” or by the acronym IDGT -- hence the nickname: “I Dig It.” Such trusts permit donors to give potentially unlimited amounts to children free of estate and gift taxes.

Here’s how they work: the person setting up the trust, like Romney, contributes assets such as an interest in a fund or shares in a company. If he makes that contribution before those assets appreciate -- particularly when they are privately held and difficult to value -- he can claim the gift tax obligation is low or non-existent since the declared value is low or zero.

If the trust generates any income -- such as by selling stock -- the eventual tax bill is the responsibility of Romney, not the trust. By paying the capital gains tax, which was 20 percent in the late 1990s and is now 15 percent, he can avoid depleting the funds in the trust -- in essence making an additional donation that’s free of gift taxes.

That benefit in particular makes this type of trust “a more powerful driver of wealth transfer in estate planning than almost anything else,” ....

Fresno County Keeps Williamson Act Tax Break...For Now

From the Fresno Bee: 

Fresno County supervisors agreed Tuesday to preserve a longtime tax benefit for farmers, even as the benefit is costing the county millions in lost revenue.
The state's 47-year-old Williamson Act, which provides property tax breaks for landowners who commit to keeping their land in agriculture, has been under scrutiny ever since state reimbursement for the program dried up.
But amid heavy lobbying from the Valley's powerful ag industry, the county Board of Supervisors narrowly voted to continue the tax-relief program and absorb the losses.
The 2-2 vote not to touch the Williamson Act pitted two rural supervisors, who were not in favor of changes, against two members from the county's urban core.
The decision was cheered by the farm community, many of whom turned out for Tuesday's hearing in downtown Fresno to deliver personal accounts of how they couldn't afford a tax hike. ...

The Williamson Act was passed by the Legislature in 1965 as a way to provide incentive for farmland conservation.
Because the state no longer provides reimbursement for the program, counties have the option of partially recouping losses by reducing tax breaks for farmers by 10% -- in exchange for shorter conservation commitments from farmers.

Amazon Sales Tax Loophole? When your purchase will NOT have sales tax withheld

On Saturday, September 15th, pursuant to an agreement reached with the Board of Equalization and State politicians, Amazon.com will begin to collect CA sales tax on items it sells to CA residents. 

But, not every item sold through Amazon.com to a CA resident will have sales tax withheld.  From CNET:

...Amazon will continue to not collect taxes on hundreds of thousands of items that it lists for sale on its Web site, stores in its warehouses, and packages for quick shipment to California residents. Those orders -- called "fulfilled" by Amazon -- amount to a tax loophole that has left Sacramento tax collectors a tad unhappy....

A representative of the State Board of Equalization, which collects California sales taxes, told CNET today that whether Amazon can be required to collect taxes on "fulfilled" orders is a tricky question. "It's difficult for us to comment on the way Amazon is set up within its family of companies (and) whether there there would be a consignment relation," the representative said.

Amazon says the law is clearly on its side. Spokesman Scott Stanzel said that for fulfillment sales, "sales tax collection depends on the tax obligations of the seller," not Amazon itself.

Roughly one-fifth to one-quarter of the items that Amazon offers to ship are "fulfilled by" products. It's a staggering selection, including everything from Calphalon non-stick pans, iced tea, stereo speakers, video games, and even the PetZoom Pet Park Indoor Pet Potty. 

  Of course, even if Amazon does not withhold sales tax on the purchase, the CA resident is supposed to pay a "use" tax on the item in CA equal to what the sales tax would have been.  In reality, this use tax is often not reported or paid by CA consumers, which can be a significant sum as tax rate can top out at 9.75%.   

Tax Court Rejects The "TurboTax" Defense

In an argument that reminds me of Tim Geithner's painful Senate hearings, a taxpayer claimed that her failure to account for all of her taxable income was the result of "honest mistakes" resulting from her lack of familiarity with the TurboTax progam.  Unfortunately for her, the Tax Court did not buy it, Bartlett v. Commissioner, T.C. Memo. 2012-254 (Sept. 4, 2012):

Petitioner claims she used the audit portion of the TurboTax program, believing the audit portion would catch any mistakes she otherwise might make. ...It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program. See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). Simply put: garbage in, garbage out.

Hat Tip (Tax Prof Blog)

Brown's Plan to Stem CA Public Pension Costs Not Sufficient

From the LA Times regarding Gov. Jerry Brown's newly released plan to reduce public sector pension costs:

Even by the most ambitious forecasts, the plan Gov. Jerry Brown and fellow Democrats are championing to contain government worker pensions in California could leave state taxpayers awash in debt to public employees.
The governor's plan, announced Tuesday, is unlikely to save cities on the brink of bankruptcy. The relief his proposal would provide to the strained state budget is modest.
Analysts who study the issue say far more aggressive action — including reduction of benefits for hundreds of thousands of current employees left untouched by Brown's proposal — will be needed to get runaway retirement costs under control.
Taxpayers still face the prospect of major bailouts to cover retirement promises made to public employees whether lawmakers pass the plan as expected Friday or not.
...[E]very California household may be on the hook for roughly $23,000 for public retirements over the coming decades. Brown's plan might whittle that tab to $18,000.
"It doesn't solve the problem," said Joe Nation, a former Democratic assemblyman and professor of the practice of public policy at Stanford University. "We still have many, many miles to go."
Brown's negotiations with lawmakers resulted in a more modest plan focused on raising the public retirement age, limiting the annual sums collected by retirees whose jobs paid them six-figure salaries and tinkering with the formulas on which pensions are based.
The leaders' decision not to take any benefits away from workers already on the payroll, however, limited their ability to confront the soaring debt.
"You can't address these problems unless you address the existing liability," said David Crane, who advised former Gov. Arnold Schwarzenegger on pension issues.
"The only way to do that is to go after benefits for existing employees."
An exhaustive study last year by the Little Hoover Commission, an independent oversight agency that reports to the Legislature, warned that pension debt will continue to overwhelm government budgets if benefits for existing workers are not scaled back.
Making changes that affect only new employees, the commission's report said, "will not deliver savings for a generation, while pension costs are swelling now as baby boomers retire.... The promised benefits are unaffordable and leave taxpayers facing all the risk as the bill becomes due."

Draft Form 706 Released--Includes "Check the Box" Feature to Opt Out of Portability

From Bloomberg News:

IRS releases a draft version of the 2012 Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, that for the first time includes a check-the-box feature for executors to opt out of electing portability of a spouse's unused gift and estate tax exclusion amount. The draft includes a portability election section (Part 6) that reminds estate executors that to elect portability, they must simply complete and timely file the Form 706. If they are opting out, they must check a box saying the decedents do not want to pass on their unused estate and gift tax exclusion amount to their surviving spouses.

Homeowners See Jump in Property Taxes--what happened to prop 13?

Many California homeowners, while owning properties worth less than what they paid for, are at least getting some benefit by paying lower property taxes.

While many homeowners are familiar with Proposition 13 (which caps the tax assessed value on properties to a growth rate of no greater than 2%) they are most likely unfamiliar with Proposition 8 (the other one).  When Proposition 13 was passed in 1978, Proposition 8 was also passed. 

When your property declines in value, it is actually Proposition 8 which kicks in and allows you to claim a lower taxed assessed value on your property.  The tricky part is that once the housing market rebounds, the cap on Proposition 13 doesn't kick in until you reach a value essentially equal to your purchase price of the home.  In other words, if values rebound over night, the property's tax assessed value will be allowed to increase at more than the 2% rate until the purchase price value is met.  So surging home values could mean surging property taxes as well. 

While most homeowners are faced with depressed values, there are a few counties where property values are increasing and homeowners are getting assessed additional property taxes. For instance, some 37,000 residents in Santa Clara County received notice that their property taxes were increasing this year as a result of rebounding housing values:

"It's a double-edged sword,'' said Kreshel, a senior manager at eBay. "The value is going up and so are my property taxes, even though it's still below what I had to pay for it,'' she noted with a sigh. "It's part of being a homeowner.''

It is really only a matter of time before home values start to recover state-wide and homeowners realize that the property taxes will increase dramatically as result.

CA School District Borrows $100M, Will Pay Back $1B.

In a transaction that makes a pay day loan look frugal, a California School district borrowed $105 million over 40 years by selling "a bond so unusual that the State of Michigan outlawed it years ago". Taxpayers in the Poway school district will be on the hook for $1 billion--10X the amount originally borrowed.

In the bond deal, taxpayers were told that there would be no tax increases for 40 years.  In fact, there is no interest or principal due for the first 20 years, which means that all the payments will be due on the back end.  On top of that. the bonds are not callable and cannot be paid off early or refinanced.

The "bond costs will go towards new classroom and library computers, state-of-the-art wireless data systems with increased bandwidth, new voice and video alarm systems, green 'recyclable building materials,' and landscaping" as well as "new storm water drainage systems to comply with the Federal Clean Water Act".

Poway has only 34,000 students in its district and school administrator and teacher compensation eats up 85% of its annual budget.

Williamson Act Threatened in Fresno County

The Williamson Act, a unique property tax provision which allows certain farmlands to have a tax assessed value even less than their proposition 13 assessed value, will be cut back, and potentially even dropped in Fresno County.

Under the Williamson Act, farm land values for tax purposes were significantly reduced if the owner/farmers agreed to maintain the land as farmland and not sell out to developers.  In the past, while counties received less in property tax revenues for properties under the Williamson Act, the difference was made up by the the state. 

However, there are no longer state reimbursements which forces counties to either eat the difference or minimize the tax benefits under the act.  As a result, the Fresno County Board of Supervisor's recently announced that they plan to cut the tax benefit by approximately 10%, which means that many Fresno County farmers will see an increase in their property taxes. 

Gift Tax Appraisers--The Potential Bottleneck For Year End Gifts

Currently, federal law provides a lifetime gift tax exemption of $5.12 million, per person.  If Congress takes no action, beginning 2013, the exemption will drop to just $1 million.

Because of this impending change in the gift tax exemption, alot of estate planners are recommending that their clients make significant gifts of assets, real property and business interests to their children and grandchildren. 

However, appraisers, in particular those that specialize in valuation discounts for gifts of business interests, are getting swamped with requests.  Often the turn around time of one to two months is being doubled.  While a gift tax return for a 2012 gift won't be due until April of 2013, it is preferred to know that exact value of the gifted interest to maximize planning opportunities.

CA State Slush Funds Flush With Cash

As California politicians begin begging for increased tax revenues, new reports show that the state's 500-plus obscure special funds are raking in funds:

California now spends nearly $40 billion on special fund programs, more than every state except New York and Texas spends on its entire general fund. The special fund money pays for an amazing array of services, from major priorities such as mental health, hospital construction and highway repairs to obscure things like bingo halls, acupuncture and midwifery.   Fees like the cost to enter a state park or the 5-cent recycling fee on a soda can -- not your taxes -- fuel the state's special funds. Yet more and more, the state is borrowing billions of dollars from these special accounts to balance the general budget used to fund such things as education and prisons.

Usually out of the spotlight, special funds make up one-fourth of all state spending and are now receiving rare scrutiny and will be the focus of  legislative hearings after finance officials found $54 million in funds hidden in two state parks accounts. An analysis by this newspaper showed the state's books for all the special funds were off by $2.3 billion, a discrepancy finance officials are now investigating.

The discoveries could result in political headaches for Gov. Jerry Brown as he tries to convince voters in November that the state needs tax increases to avoid massive cuts to schools and social programs.

What's the FMV of artwork that cannot be sold? IRS says $65 million

From the NY Times:

The object under discussion is "Canyon," a masterwork of 20th-century art created by Robert Rauschenberg that Mrs. Sonnabend’s children inherited when she died in 2007.

Because the work, a sculptural combine, includes a stuffed bald eagle, a bird under federal protection, the heirs would be committing a felony if they ever tried to sell it. So their appraisers have valued the work at zero.  But the Internal Revenue Service takes a different view. It has appraised “Canyon” at $65 million and is demanding that the owners pay $29.2 million in taxes.

...

At the moment, tax experts note that the I.R.S.’s stance puts the heirs in a bind: If they don’t pay, they would be guilty of violating federal tax laws, but if they try to sell “Canyon” to zero-out their bill, they could go to jail for violating eagle protection laws.

Mr. Lerner said that since the children assert the Rauschenberg has no dollar value for estate purposes, they could not claim a charitable deduction by donating “Canyon” to a museum. If the I.R.S. were to prevail in its $65 million valuation, he said the heirs would still have to pay the $40.9 million in taxes and penalties regardless of a donation.

Then, given their income and the limits on deductions, he said, they would be able to deduct only a small part of the work’s value each year. Mr. Lerner estimated that it would take about 75 years for them to absorb the deduction.

“So my clients would have to live to 140 or so,” he said.

Fresno Water Fight--CSA 51 Goes Down

On July 17th,  certain Fresno county island residents voted on CSA 51--which was a proposal to build water pipe lines bringing tap water to some 432 county homeowners in a low-yield water area.  Each of these residents would then be assessed approximately $54,000 in additional property taxes for the construction costs.  If passed, homeowners would be afforded the option to pay up front, or over the course of 30 years.

It is my understanding that the unofficial vote tally is 251 against, 97 in favor.

The vote reminds me of a recent Supreme Court case, Armour v. City of Indianapolis, where Indianapolis constructed a sewer system for a neighborhood and financed it through a tax assessment of around $9,300 per parcel.  Owners could pay it in a single lump sum or over the course of 30 years.  Several years after the assessment, the city decided to issue bonds to cover the costs and the city forgave the unpaid installments, but refused to refund any part of the upfront payments made by some 38 owners.  The Supreme Court ruled that equal protection was not violated by the city's decision to treat these taxpayers unequally.  Why?  Because it was rationally related to the city's legitimate objective of avoiding administrative inconvenience.  

NY Times: Wealthy Turn to Family Limited Partnerships

New York Times:  In an Unusual Tax Year, the Wealthy Turn to Partnerships:

A Family limited partnership was once a rather esoteric way for wealthy families to centralize the management of real estate and various pots of money. But this is not a normal tax year.

The arcane device has suddenly become popular because of the scheduled expiration of the $5.12 million gift tax exemption at the end of this year. ... But wealth advisers cautioned that the rush to set up a partnership in order to use the tax break could lead families to do something that is not right for them.

For some families, a partnership is attractive. It is a way to combine money to reach the higher investment requirements that hedge fund and private equity managers require. But its most alluring feature may be the ability to discount the value of the assets put into the partnerships because the shares distributed from it are less liquid since only another family member can buy them.

A discount of 25% generally does not attract scrutiny from the IRS, and that could allow someone to increase a $5.12 million gift exemption to $7 million. Since the partnerships are not overly expensive to administer, several advisers said they have seen people starting them with as little as $2 million. But affluent families on the lower end of that range also risk running afoul of the IRS by being too aggressive in what they put into a partnership and how much they discount it. As families look for ways to get the most out of this year’s gift tax break, many of the advisers I spoke with said they were worried that less sophisticated families would be misled into thinking that they could put everything they had into a family limited partnership and never worry about taxes.

 (See also Family Limited Partnership Video Presentation)

Gov. Brown Forces His Tax Initiative to Top of Ballot--Courts Uphold

Conventional wisdom holds that ballot initiatives listed at the top of the ballot are more likely to pass than those listed at the bottom (slothful voters get tired of reading or confused and tend to vote no).  Because Gov. Brown's tax initiative was certified late, it would have ended up on the bottom, below Molly Munger's competing tax initiative.

In order to finagle his initiative to the top and increase its chances of success, the legislature recently changed the law on how initiatives are ranked.  Now, initiatives dealing with bond measures and constitutional issues are given priority--which would place the Governor's initiative at the top of the ballot. 

This legal wrangling, which was decried by competing tax measures and anti-tax groups was recently upheld in court. 

Mandate Constitutional--3.8% Investment Tax Now On Its Way

From the WSJ on the implications of the Supreme Court's health care decision:

It really is happening.
Until this week, investors were waiting to see what the Supreme Court would do about the 3.8 percentage-point surtax on investment income, part of President Obama's health-care overhaul. The IRS hasn't yet released guidance on the new tax.
So when the court affirmed the law on Thursday, investors—and tax advisers—started scrambling.
The new tax, which Congress passed in 2010, affects the net investment income of most joint filers with adjusted gross income of more than $250,000 ($200,000 for single filers). Starting on Jan. 1, 2013, the tax rates on long-term capital gains and dividends for these earners will jump from their current historic low of 15% to 18.8%, assuming Congress extends the current law.
If, on the other hand, Congress allows the tax rates set in 2001 and 2003 to expire on Dec. 31—an unlikely scenario, according to many experts—the top rate on capital gains will rise to 23.8% and the top rate on dividends will nearly triple, to 43.4%.
Whatever the fate of the 2001-03 tax rates, advisers are telling clients to start making moves to minimize the new levy. ...
Here are answers to some basic questions about the tax:

• How does the 3.8% tax on investment income work?

• How is "investment income" defined?

• What are some examples of when the tax would and wouldn't apply?

• How would the 3.8% tax apply to the sale of a principal residence?

• What happens if a taxpayer has adjusted gross income above the threshold that is then reduced by a large itemized deduction—such as for medical expenses or a charitable gift?

• Does the 3.8% tax apply to trusts and estates?

• Doesn't the health-care law also have an extra payroll tax for higher earners?

Ann Romney's Tax Deductible Horse Activity--The Tax Code Got This Right

Professor Donald Tobin has a wonderful article giving some insights on the taxability of Ann Romney's participation in dressage (with some nice examples of how the passive loss limitation rules apply):

Ann Romney’s love of horses and Steven Colbert’s infatuation with Rafalca, one of her dressage horses, have created a buzz about horses, money, and taxes. Romney owns a one-third interest in Rafalca, and Rafalca will be competing, with her rider, Jan Ebeling, in the Olympic dressage event.  In the most recent uproar, the Romneys are criticized for deducting $77,731 for the Romney’s share of Rafalca’s expenses. But here is the catch: Because of anti-abuse provisions contained in the Tax Code the Romney’s only actually deducted $49 on their return. Assuming the Romney’s are in the 35% tax bracket, the benefit to the Romneys was about $17. Not much worth working yourself into a lather about.

3 Tax Increase Measures Qualify For November Ballot

Come November, Californians will will have a chance to vote on three different tax proposals.

Governor Brown's proposal would raise state sales tax and raise income taxes for those making more than $250,000.  Funds raised would be used to backfill the state's general funds and to guaratnte funding for local governments and public safety.

A competing initiative, backed by L.A. attorney Molly Munger, would instead raise income taxes accross the board for nearly every California taxpayer as well as increase the Millionaires tax to the highest in the nation--13.3%. These funds are to be used to go directly to publich schools. 

The third proposal would change corporate tax calculations for multi-state corporations--basing the liability on their share of sales in California.

Why the Tobacco Tax Defeat Does Not Bode Well for Gov. Brown

The last time California voters voted in favor of a tax increase was in 2004--the 1% tax increase on millionaires to fund mental health programs.  Since then, every other ballot measure proposing to raise taxes has failed.

Since only 14% of Californians smoke, and public smoking is already banned throughout most of California, you would think that a $1 per pack tax to fund cancer research would not have been a hard sell.  The reason it did fail is not because Californians are against cancer research, but because of a strong distrust of how proceeds would ultimately be used.  So reads the LA Times:

Many voters bought the idea that Proposition 29 was more of a tax than a strategy to reduce smoking and cure disease. ... The money it generated, the tobacco industry said, would go to a financially inept state government that for many years running has had a multibillion-dollar budget deficit.

"Californians are not anti-government," [Jon Coupal, president of the Howard Jarvis Taxpayers Assn.] said. "But they want value for their tax dollars, and they perceive correctly that they are not getting that in Sacramento."

Taxpayers have soured on expensive new ventures that promise economic windfalls and easier daily lives, he said. They remember, he said, approving a $3-billion bond measure for stem-cell research, only to hear that outsized salaries were being collected by executives running the program. He said they remember passing a $9-billion state bond measure in 2008 to build a high-speed rail network, a project that has seen costs and roadblocks multiply.

Of course, the big question is in light of Prop 29s defeat, what chance will Gov. Browns initiative have at the polls as his initiative is much broader--including both a broad based sales tax increase and increased income taxes on those making $250K or more. 

Do My Gifts of Limited Partnership Interests Qualify for the Annual Exlusion?

Under current law, a person has a right to give away $13,000 of assets to as many people as they see fit--free of gift tax.  This is commonly referred to as the "annual exclusion". 

One question that has developed over the years has been whether annual gifts of a family limited partnerships are eligible to qualify for the annual exclusion.  The hiccup was that in order to be considered a gift eligible for the annual exclusion, the gift has to be a gift of a present interest, and not just some future right or benefit. (Reg. 25.2503-3(b).)  The courts have held that in order to qualify as a present interest, the gift must confer a present economic benefit by reason of the use, possession, or enjoyment  i) of property or ii) of income from the property.

The tricky part with gifts of family limited partnership interests is that most of their partnership agreements provide restrictions on transfers--so as to ensure the business interests remain in the family.  The only problem is that the courts view these transfer restrictions as precluding the donees from having the right to use or enjoy the interest in a meaningful way.  Thus, courts are left to consider whether there is income that is of use or benefit to the donee.

The recent case of the Estate of George  H. Wimmer, TC Memo 2012-157, recently considered such a question and reiterated that for gifts of limited partnership interest to qualify for the annual exclusion under the argument that the donee received income, they must prove three things:

1. That the partnership would generate income,
2. That some portion of the income would flow steadily to the donees, and
3. That a portion of the income could be readily ascertained. 

Often, partnership agreements contain language granting the general partners full discretion as to whether or not distributions will be made to the partners--which would not appear to satisfy the second requirement.  In Wimmer, the Court noted that the general partners owed fiduciary duties to the donee limited partners, and that because the donee limited partners were actually irrevocable trusts, the only way such trusts would be able to pay their share of income tax would be for the partnership to make a distribution of income.  Based on these unique facts, the court held that the income would in fact flow steadily to the donees.

In short, before deciding whether to make annual gifts of family limited partnerships, the partnership agreement should be read carefully so as to ensure that it contains language that will ensure such gifts will be treated as present interests and eligible for the annual exclusion. 

California Entrepreneur Fills Out Form Himself-- Loses $18.5 Million Charitable Deduction

In what can be considered one of the harshest Tax Court cases of the year, the Tax Court denied a gigantic charitable deduction because admittedly "confusing" IRS forms were not filled out properly.

A prominent Sacramento real estate broker, certified real estate appraiser, and entrepreneur, donated six properties worth at least $18.5 million to a charitable remainder trust in 2003 and 2004, but failed to read and ultimately follow the instructions to Form 8283 (Noncash Charitable Contributions).  Although the Tax Court acknowledged that "the property was quite likely more valuable than the [broker] reported on [his] tax returns," the Tax Court denied the claimed charitable deduction for failure to comply with the substantiation requirements.  Ouch. Mohamed v. Commissioner, T.C. Memo. 2012-152 (May 29, 2012):

We recognize that this result is harsh—a complete denial of charitable deductions to a couple that did not overvalue, and may well have undervalued, their contributions—all reported on forms that even to the Court's eyes seemed likely to mislead someone who didn't read the instructions. But the problems of misvalued property are so great that Congress was quite specific about what the charitably inclined have to do to defend their deductions, and we cannot in a single sympathetic case undermine those rules.

The lesson here is that any time a person seeks a charitable deduction for real estate, a competent adviser should actually prepare the Form 8283 and ensure that any attached appraisal meets IRS requirements. 

(See more from Tax Prof)

Californa 9/11 Funds Raided By Politicians

In a move that is shocking, even by Sacramento standards, the Associated Press has revealed that a special account initially established to help fund scholarships for the California victims of 9/11 and their families has been raided for general government purposes.

After the 2001 terrorists attacked, Sacramento established a specialty memorial license plate emblazoned with the words, "We Will Never Forget."  Fifteen percent of funds raised were to fund scholarships for victims' families and the rest was to help fund anti-terrorism efforts. 

Since 2001, $15 million has been collected--of those funds raised, only $21,381 has reached the children and spouses of the three dozen California residents killed in the 9/11 attacks. 

On closer examination, it has been revealed that these funds are not being used to fund scholarships or anti-terrorism efforts but rather are being used as normal general funds dollars.  For instance, Gov. Schwarzenegger and Gov. Brown borrowed a combined $3 million dollars from the fund in order to fill budget deficits--loans which have yet to be repaid. 

California's Facebook Windfall Falters?

Before Facebook's IPO, many had speculated how the Facebook IPO could bring a tremendous amount of tax revenues to the state.  Gov. Brown even estimated that the IPO would generate between $1.4 billion and $1.9 billion  in income taxes over the next 13 months from sales of Facebook stock. 

This estimate was based on an IPO price of $35 per share.

On Friday when Facebook went public, it opened at $38, and then closed on Tuesday at $31. 

The Legislative Analyst's Office projected tax revenues of around $1.6 billion, but this was estimated at an IPO of $38, followed by a projected growth to $45 after six months. 

Regardless of Facebook's ultimate share price months from now, it is clear that one-time revenue increases or accounting tricks will not suffice to cure California's perennial budget woes. 

Will Smith Discovers France's Top Marginal Tax Rates--Shrieks

The video speaks for itself.

Brown Cites California's "Day of Reckoning" in Support of Temp Tax Hikes

With California's budget deficit now exceeding $16 billion, Governor Brown has released a proposed budget which seeks, in part, to raise revenues through temporary sales and income taxes.

Brown is asking voters to temporarily raise the statewide sales tax, already the highest in the U.S., to 7.5 percent from 7.25 percent and would also increase rates on income starting at $250,000. Millionaires, now taxed at 10.3 percent, would pay 13.3 percent, the highest in the nation.

“California has been living beyond its means,” Brown told reporters in Sacramento yesterday. “The United States of America and its federal government is living beyond its means. A lot of corporations have. A lot of people spend more money than they take in. Well, there has to be a balance and a day of reckoning.”

California Ranks at the Bottom of Tax Friendliness Survey

The Kauffman Foundation has released its United States Small Business Friendliness survey.  California gets an "F" in half the categories measured. Here is the Tax Friendliness map comparing all States:


The highest grades California received were two "C-", in Training Programs and Hiring Costs.  

(Hat Tip: Tax Prof)

$4 Billion in Annual Tax Fraud From Undocumented Workers

This local news report from Indiana is startling and uncovers a growing trend. 

Word has spread amongst the undocumented workers how they can easily claim (albeit improperly) child tax credits for numerous children and relatives in Mexico, with some claiming as many as 12 dependents. 

"One of the workers, who was interviewed at his home in southern Indiana, admitted his address was used this year to file tax returns by four other undocumented workers who don't even live there. Those four workers claimed 20 children live inside the one residence and, as a result, the IRS sent the illegal immigrants tax refunds totaling $29,608."

The U.S. Inspector General is well aware of the abuse and released a new report showing the problem now costs American tax payers more than $4.2 billion a year.

Formula Value Gifts--How to Make a Gift That is Essentially Audit Proof

"I hereby make a gift of a portion of my LLC interests worth $X to my son, BUT, if the IRS audits me and says that this gift is worth much more than $X, than I really gave much less of my LLC interests so that this gift will not incur gift tax."

While the above headline and gifting statement is an oversimplification, a recent Tax Court case, Wandry v. Commissioner, has opened up a realm of possibilities for those interested in making gifts of business interests to their children.  Normally, a person can make a tax free gift of $13,000 annually (for 2012) to as many recipients as they wish.  Thus, a business owner could give away large portions of his business piece-by-piece ($13,000 each year) without suffering any adverse gift tax consequences.  However, the hardest thing to determine when dealing with family businesses is how much of that ownership interest actually equals the tax free gift amount of $13,000.  While appraisals are normally acquired, the IRS can always challenge the appraised value and argue that the gifts of interests you made were really worth much more than $13,000, leaving you with a potential gift tax liability.

The Wandry case is promising because the Tax Court allowed the use of a formula value clause in a gift agreement which means that if there were ever an audit and the appraised value of the business were increased, then the percentage of ownership interests deemed gifted would be changed to ensure no gift tax would be incurred.  In short, while the IRS could audit you and challenge the value of the gift, there would be no incentive to do so as if the value increased, there would still be no increase in gifts.  Understandably, the IRS has challenged formula value clauses on public policy grounds as it creates a situation where taxpayers can make aggressive low-ball valuations without any fear of audit consequences if those valuations are disregarded.

Prior to Wandry, the best advice was for a family to designate a charity to receive any excess value after audit adjustments--no extra tax would be due but the family would lose some control.  Wandry really opens up possibilities for strategic giving, particularly for those families using FLPs or FLLCs to make gifts to their children.

So CA Legislators Won't Have Their Pay Cut--Prop 25 Rendered Toothless

Anytime a ballot initiative is written and supported by the legislature and proposes to "cut" legislature pay if no balanced budget is reached, be skeptical.

Many of you may remember and likely voted for Proposition 25 back in 2010, which stated that if a balanced budget was not delivered on time, the legislature would not be paid.  Alas, this was the hook to convince the general public to vote for it.  The real meat of the proposition had to do with lowering the requirement to pass a budget from 2/3rds to a simple majority--in essence cutting out the already marginalized republicans.

In a classic case of bait-and-switch, a Superior Court Judge has ruled that it is up to the legislators themselves to determine whether the budget they passed was "balanced" or not.  When the legislature passed a phony budget last year just in time to get paid, state controller John Chiang stepped in and determined that the budget was not balanced and therefore, legislators would not get paid.  Chiang's actions were short-lived and now it appears the legislature can continue to pass unworkable budgets year after year.  Proposition 25 sounded nice, but again, voters were sold a bill of goods.

Family Limited Partnerships Video Presentation

So I've toyed with the idea of creating short videos discussing various estate and tax planning techniques for quite some time.  I'm more of a visual learner myself and so I tried to figure out if I could create a video that would visually convey some key aspects of the various planning opportunities that are available.  My first video discusses how family limited partnerships can be used to transfer value in a business to your children while still retaining control and how to reap some pretty generous gift and estate tax benefits along the way.  The video is below.  I realize the production quality is a little low-grade but considering it's my first in a series, I think it's not too bad.

California's Tax Takers Await Day-by-Day Updates of Tax Proceeds

There's an interesting article in the L.A. Times about the hundreds of workers in Sacramento who are busy during tax season opening and sorting taxpayer checks.  The article had this gem of a paragraph:

Every afternoon for a few weeks in April, as Californians pay their state taxes, a courier ferries them [taxpayer checks] to eight banks to nourish the money-hungry government.  Meanwhile, lobbyists, lawmakers and activists — people whose jobs hinge on this seemingly mundane process — huddle by their computers and wait for the daily tally, which they'll tweet and email like the play-by-play of a championship game. By the end of the month, state accountants will add up the money and hope there's enough to cover expenses.

So far, the legislative analyst's office predicts the state will be about $2 billion short of projected revenues.

The Great California Exodus

Another great article in the weekend edition of the WSJ interviewing Joel Kotkin, who is an acclaimed demographer and self-professed "Truman Democrat".  Mr. Kotkin runs through a litany of California's ills that are driving away its middle class.

Here are just a few snippets:

[The] Golden State's fastest-growing entity is government and its biggest product is red tape. The first thing that comes to many American minds when you mention California isn't Hollywood or tanned girls on a beach, but Greece....

And things will only get worse in the coming years as Democratic Gov. Jerry Brown and his green cadre implement their "smart growth" plans to cram the proletariat into high-density housing. "What I find reprehensible beyond belief is that the people pushing [high-density housing] themselves live in single-family homes and often drive very fancy cars, but want everyone else to live like my grandmother did in Brownsville in Brooklyn in the 1920s," Mr. Kotkin declares....

Another is the cap-and-trade law AB32, which will raise the cost of energy and drive out manufacturing jobs without making even a dent in global carbon emissions. Then there are the renewable portfolio standards, which mandate that a third of the state's energy come from renewable sources like wind and the sun by 2020. California's electricity prices are already 50% higher than the national average.

Meanwhile, taxes are harming the private economy. According to the Tax Foundation, California has the 48th-worst business tax climate. Its income tax is steeply progressive. Millionaires pay a top rate of 10.3%, the third-highest in the country. But middle-class workers—those who earn more than $48,000—pay a top rate of 9.3%, which is higher than what millionaires pay in 47 states.

So what would an artist's depiction of a tax cut look like?

Artist Chad Person has put together a series of collages made from U.S. currency he has entitled "TaxCut".   Of course he deducts as a business expense all the currency he destroys as part of his art.

Interview with John Malos of MeTV Fresno: Tax Day

This morning I was a guest on the show "Connect With Me", which is a new show hosted by John Malos.  He invited me on on tax day, April 17th,  to discuss a whole host of tax related topics.  We even discussed Ron Paul's position to throw out the entire tax code!  John's a great host and is surrounded by a great crew.

So how much did President Obama donate to charity before running for office?

The big news today is that the Whitehouse released Pres. Obama's tax returns for 2011.  Notably, he donated 21.8% of his income to charity last year.

But what did President Obama's charitable contributions look like in prior years?  Below is a chart showing his income and chartable donations since 2000 (courtesy of TaxProf Blog). 



I won't attach Joe Biden's chart as its hard to deviate from a high of 1.45%.

So does an employer have to make sure its employees actually take breaks during break period?

Although not directly related to tax issues, Doug Larsen, my colleague has an excellent post discussing the landmark Brinker case which just came out today and which will affect nearly every California employer.  The case deals with, in part, whether or not an employer is required to provide and ensure compliance with meal and rest periods, or whether the employer is required only to make them available to employees.

How will the "Buffet rule" reduce the deficit?

The "Buffett rule" (a minimum 30% tax on people making over $1 million per year) has been suggested and raised these past few months as a possible cure to national deficits.

The projected revenue increases range from between $30 billion and $40 billion over 10 years.

Below is a chart (courtesy of political math) which demonstrates the impact the "Buffet rule" will have on government finances, in particular, the deficit. Make sure to scroll all the way down to the bottom of the chart to see the impact.