Washington's Taxes

This morning KUOW compared the tax systems in Washington (no income tax) and Oregon (no sales tax, no business & occupation tax).

And today's installment of The Economics Daily from the Bureau of Labor Statistics shows that Washington State and Oregon have, respectively, very low and very high concentrations of tax preparers.

Map showing concentrations of tax preparers by state, 2015
Source: Bureau of Labor Statistics

Coincidence? I doubt it.

Working at the IRS; Pew on Taxes

Bloomberg News has a long story looking at life inside the IRS: Devin Leonard & Richard Rubin, IRS Workers Are Miserable and Overwhelmed, April 8, 2015. The headline conveys the gist of it, but read the article to learn more about budget cuts, hiring freezes, reorganizations, and other constraints that make the lives of these public servants challenging. 

Think of the Centers for Disease Control and Prevention, NASA, or the Department of Defense: that agency can't do its work unless the folks at the IRS do their work. 

I listed those three agencies because they get very high approval ratings (65-70% favorable) while the IRS got more unfavorable (48%) than favorable (45%) responses. That's from the Bloomberg News article, crediting Pew Research Center. For more on that survey of attitudes toward agencies, see Most View the CDC Favorably: VA's Image Slips, Pew Research Center, Jan. 22, 2015. The complete report is here.

Speaking of reports from Pew, see 

• High-Income Americans Pay Most Income Taxes, But Enough to Be "Fair"? (March 24, 2015)
• 5 Facts on How Americans View Taxes (April 10, 2015)
• The Biggest U.S. Tax Breaks (April 13, 2015)
• Among Developed Nations, Americans' Tax Bills Are Below Average (March 30, 2015)
• Federal Tax System Seen in Need of Overhaul (March 19, 2015)

Cause' I'm the taxman...

Summer just began and you are hopefully basking in your freedom from law school though you should keep in mind that September (and classes) will be upon you before you know it.  Former Reed Smith tax partner, James Kleier is also hopefully soaking in his freedom, since he is expected to begin serving a one year sentence in prison in September.

Kleier's tax law work in big law firms including Preston Gates & Ellis, Reed Smith, and Morrison & Foerster in addition to his work as the American Bar Association Section of Taxation's Chair of the Special Project Task Force of the Administrative Practice Committee and past Chair of the San Francisco Bar Association's Barristers Club Tax Section and including his role as a tax professor at Hastings and Golden Gate make it all the more shocking that Kleier will be facing prison time for federal tax evasion.

Had Kleier heeded the 1966 Beatles song, "Taxman," before he began to neglect reporting earned income between 1999 and 2010, he might not be preparing for a year behind bars:

Now my advice for those who die - Taxman!
Declare the pennies on your eyes - Taxman!
Cause' I'm the Taxman, yeah I'm the Taxman
And you're working for no one but me
Taxman!

There is a laundry list of lessons one can draw from this sad story but perhaps the most obvious are:

1. Pay your taxes, and
2. Be grateful that your plans for September do NOT involve surrendering yourself to the authorities.

Understanding Tax Sources

Newcomers to tax (and some more experienced researchers, too!) are often confused by the myriad sources: there's the Internal Revenue Code, the regulations, temporary regulations, draft regulations, revenue rulings, revenue procedures, and more. Cases can go to the Tax Court, federal district court, or the United States Courtof Federal Claims. Ack!

If you'd some clarity, check out these tutorials from CCH (Wolters Kluwer CCH, a legal publisher): Tax Research: Understanding Sources of Tax Law (Why my IRC beats your Rev Proc!).

 

There are five lessons:

• Overview of Sources of Federal Tax Laws (13:33)
• Federal Statutes and Legislation (16:22)
• Treasury Regulations (14:06)
• Judicial System (12:02)
• IRS Rulings and Pronouncements (21:16)

It's easy to navigate within each lesson to hear about just the subtopic you need. Or you can read the accompanying PDF documents instead of listening to the narrator and watching the slides.

 

By the way, much of the material would be useful even if you aren't studying tax. For instance, most of the material about the federal legislative process is true of any federal law, not just tax laws. (Other laws go through different committees, not the House Ways and Means Committee and the Senate Finance Committee.)

Tax Trivia Time!

Tax Day 2013 is fast approaching. To lighten the mood for this most dour of holidays, we thought it might be nice to take a look at some funny/interesting tax trivia.

Source: Fox Broadcasting Company

For example, in the eighteenth and nineteenth century, in the days before the income tax, Britain put in place some bizarre levies as roundabout methods of taxing wealth.  These included:

• A window tax;
• A wallpaper tax;
• A candle tax; 
• A hat tax (which led to some wily hat purveyors referring to their hats by a variety of non-"hat" names)
• And, the ever popular wig powder tax, which contributed to the decline in popularity of powdered wigs (except among members of the judiciary, of course).  

Russia's Peter the Great put a tax on beards in the early eighteenth century (see the "beard token" signifying payment of the tax), in the hope of persuading Russian men to adopt the clean-shaven style popular in western European nations at the time.

Many European countries had in place a soap tax during the Middle Ages, perhaps not the best policy in retrospect given the unhygienic living conditions in cities at the time.  This tax was not repealed in Britain until 1853.

Of course, there are still strange taxes today.  Tennessee and North Carolina, for example, have a special tax on illegal drugs, which the states try to enforce by assuring drug dealers that revenue employees cannot report their activities to law enforcement.  (Although Tennessee's tax was recently ruled unconstitutional.)

Lastly, I thought it would be interesting to take a look at the original 1040 form from 1913 when the income tax was first implemented in the U.S.  To modern eyes, this looks remarkably simple, yet members of the Congress that enacted the income tax needed assistance from the House Sergeant at Arms to be sure they filled out the form correctly.

Happy Tax Day, everyone!

(Source for British tax trivia: British History Online, www.british-history.ac.uk/.)         

Lotteries, Luck, and a Smidgeon of Law

With $640 Million Dollars up for grabs last week, chances are some of our readers caught the Mega Millions lottery fever! Nationwide three winning tickets were sold, one each in Maryland, Illinois, and Kansas. Mirlande Wilson, a 37 year-old Maryland woman, claims to have purchased the winning ticket. But she has a slight problem: a dozen of her coworkers with whom she participated in an office pool for that drawing are irate. 

Perhaps unsurprisingly, this isn’t the first time lottery winners have been accused of cutting out fellow pool players. Litigating lottery “luck” is actually quite popular. Americo Lopes of New Jersey won a sizable jackpot in 2010.  Unfortunately for him, the winning ticket was one he purchased with pooled money from his coworkers. Coworkers who subsequently sued him. Less than a month ago, a jury returned a civil verdict against Mr. Lopes. Lest you find yourself in similar straits, FindLaw has a few good tips for participation in office pools and their legality in your jurisdiction. It is also an excellent resource for lottery-related law, including a database of state lottery laws. If Lady Luck was on your side, and you won more than the money required for a cup o’ joe, keep in mind that you aren't as rich as you think you are and make sure you pay your federal and state taxes. 

For an interesting read on the long sordid history of lotteries, and the legal means used to prohibit and regulate them, check out Law of Lotteries, Frauds, and Obscenity in the Mails, by John Lilburn Thomas (1903).  This title is available electronically at the Gallagher Law Library through HeinOnline's Legal Classics Library.

BNA's Quick Tax Reference App

BNA's Quick Tax Reference Guide app is available for iPhone, BlackBerry, and Android users. This pocket-sized guide includes the following 2009, 2010 and 2011 tax rates:

• Standard Mileage Rates
• Corporate Tax Rate Schedule
• Individual Tax Rate Schedules
• Standard Deductions/Personal Exemptions
• Capital Gains and Dividends Taxed as Net Capital Gain
• Income Tax Rates for Estates
• Trusts/Estate and Gift Taxes
• ERISA
• Tax Code Pension
• Retirement Plan Limits

See BNA's Quick Tax Reference App page for installation information.

Where Do Your Federal Taxes Go?

Due to a holiday in Washington, D.C. this past Friday, April 15, the deadline for filing federal income tax returns is midnight today, April 18. But where does your money go? The Whitehouse has a new website, Taxpayer Receipt, an information source President Obama promised the public in his State of the Union Address. According to the website:

In his State of the Union Address, President Obama promised that this year, for the first time ever, American taxpayers would be able to go online and see exactly how their federal tax dollars are spent. Just enter a few pieces of information about your taxes, and the taxpayer receipt will give you a breakdown of how your tax dollars are spent on priorities like education, veterans benefits, or health care.

You are asked to enter your 2010 payments of social security, Medicare, and income taxes. You then click on the "calculate receipt" button to see the breakdown of the total you paid. Even without entering any information, however, you can see at least the percentage distribution of your income taxes. For instance, over 26% of one's income taxes is used in the broad category of national defense. Most of that 26% is spent on military salaries and benefits, operations and equipment, and research and development. Over 24% is spent on health care and over 7% of your income taxes goes to pay interest.

IRS.gov's "The Truth About Frivolous Tax Arguments"

IRS.gov has posted information detailing "some of the more common frivolous 'legal' arguments made by individuals and groups who oppose compliance with the federal tax laws." Called "The Truth About Frivolous Tax Arguments," the information is compiled in three sections:

I. Frivolous Tax Arguments in General

II. Frivolous Tax Arguments in Collection Due Process Cases

III. Penalties for Pursuing Frivolous Tax Arguments

One example, "Contention: The IRS must prepare federal tax returns for a person who fails to file" provides the reader with the law as well as supporting case law. In other words, this contention is shown to be false.

The information is also available in PDF printable format.

IRS Data Book 2010

Here they are, all the statistics you've wanted to know about the work of the Internal Revenue Service in 2010. Covering the fiscal year October 1, 2009 through September 2010, the Internal Revenue Service Data Book 2010 includes such fascinating information as:

• the total number of tax returns filed (230 million returns, including individual income, corporation income, and employment income tax returns);

• the amount of money collected ($2.3 trillion);

• the activity at the IRS website, IRS.gov (305 million visits); and
  

• the percentage of individual tax returns filed electronically (of the 141 million individual income tax returns processed, almost 70 percent were filed electronically).

There are over 30 tables that provide such details as a breakdown of the returns filed and refunds issued, numbers and types of taxpayer examinations, collections and criminal investigations, and taxpayer assistance.

If you are interested in tax and think you might like to work for the Chief Counsel's office, you will want to check out Tables 26 and 27 on pages 59-60. Here is a description of what Chief Counsel attorneys do, taken from the introduction to those tables:

Attorneys in the Chief Counsel’s Office serve as lawyers for the IRS. They provide guidance to the IRS and to taxpayers on the correct legal interpretation of Federal tax laws, represent the IRS in litigation, and provide all other legal support the IRS needs to carry out its mission.

What's "IN" the Price of a Gallon of Regular Gasoline

When the price of crude oil rises, as it has been lately, we all see the effects at the gas station. But other costs also affect what we pay. The U.S. Energy Information Agency sponsors a website called Today in Energy. Last week it posted a webpage that shows the part played by the major components of the price of gasoline - crude oil prices, refining costs, distribution and marketing expenses, and taxes. As the site explains:

The portion of the gasoline price each of these components accounts for can vary significantly over time. Crude oil is typically the largest cost component of gasoline, and its share of the price of a gallon of gasoline was significantly higher in 2010 than it was, on average, over the 2000-2009 period.

When you look at the historical data (2000-2010) for crude oil costs, its percentage of the total we pay at the pump has varied from a low of 35% in May, 2001, to a high of 75.8 in July, 2008.

But why is there such variety in prices across the country at any given time? One of the reasons covered by the website is taxes. The federal tax on regular gas is 18.4 cents per gallon. Each state also taxes gasoline, from a low of 7.5 cents per gallon (Georgia) to a high of 37.5 cents here in Washington. That high and low is a bit misleading, however, because those figures include only the rates of "general application." Some states add other taxes, such as Iowa's 1 cent per gallon Environmental Protecton Charge or Virginia's 2% sales tax in areas covered by mass transit. Other states permit "local option taxes," such as Honolulu's 16.5 cents per gallon.

Energy is a major topic in our government and in our lives. Check out Today in Energy to keep abreast of the current issues. Here is a description of the website.

The Today in Energy website:

* Covers key energy issues and topics in a short-article, one-page format
* Includes a visual explanation — a chart (sometimes interactive), map, animation, or photo — to illustrate the point.
* Makes data series behind charts often available for download
* Is written in plain language for a broad audience
* Gives you a way to send feedback to EIA experts and analysts
* Contains archives so you can retrieve a favorite story.
* Enables you to subscribe to our RSS feed or email version so Today in Energy comes to your browser or inbox every weekday

New Faculty Publication: Scott Schumacher on Criminal Tax & Immigration

Scott A. Schumacher, Criminal Tax and Immigration: A Search for Clarity, 129 TAX NOTES 234-39 (2010).

The Oct. 11, 2010 issue of Tax Notes contains Scott's article.

This article discusses the recent case law developments concerning the impact of a criminal conviction on immigration status, focusing on the circuit split regarding whether a conviction for filing a false tax return is an aggravated felony under the immigration laws.

Prof. Schumacher has published several articles in Tax Notes, including:

• Tomko and Sentencing Guidelines in Tax Cases after Booker, 125 Tax Notes 149-53 (2009), available at http://ssrn.com/abstract=1483338.


• The Ninth Circuit Says Aloha to Boulware -- Again, 122 Tax Notes 1631-34 (2009), available at http://ssrn.com/abstract=1479741.


• Unnecessary Harm: IRS Levies on Social Security Benefits, 113 Tax Notes 265-67 (2006).

Read the Big Health Care Act

Is the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (March 23, 2010) on your summer reading list?

Here are some sources:

• plain text from Government Printing Office
• PDF (906 pages) from the Government Printing Office (certified by the Superintendent of Documents as the authentic text)
• print version from CCH, KF6276 .6201 .A22 2010 at Reference Area. Includes
• Patient Protection and Affordable Care Act
• Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152
• Joint Committee on Taxation technical explanation of the two laws
• another print version from CCH, 2010 tax legislation, KF6276.569 .T3 2010 at Reference Area and Classified Stacks.
• Patient Protection and Affordable Care Act
• Health Care Reconciliation Act
• HIRE and other recent tax acts
• CCH editorial staff explanation and analysis
• print version from RIA, KF6276.501 .R53 2010 at Reference Area and Classified Stacks. Includes
• RIA's complete analysis of the tax and benefits provisions of the 2010 Health Care Act as amended by the 2010 Health Care Reconciliation Act
• Code and ERISA sections as amended
• committee reports

Why post this now? Well, in addition to the obvious tie to summer reading, it's because the PDF of the Statutes at Large version only just became available on Friday, according to the Law Library of Congress's Twitter feed.

How to Date a Lawyer

In honor of Valentine's Day, a staffer at Avvo wrote some "half-serious" tips on How to Date a Lawyer. A couple of people who posted comments thought the list was stupid or sexist, but most agreed with me that it was amusing. Hoping that some readers of Gallagher Blogs could use a little amusement, I decided to link to it here.

If you're in no mood for something that's only half serious, take a look at Joint Committee on Taxation, Present Law And Background Data Related To The Individual Income And Social Insurance Taxes As In Effect For 2010 And 2011. That 44-page report should be plenty serious enough for you.

Graphic from University of Oklahoma's Themis clip art, with a little tweaking.

Faculty Publication on the Federal Sentencing Guidelines & Tax Crimes

Scott A. Schumacher, Tomko and Sentencing Guidelines After Booker, 125 Tax Notes 149 (2009).

The federal sentencing guidelines attempt to prevent disparities among sentences imposed for the same crime and apply to tax crimes just as they apply to other federal crimes. Professor Schumacher’s recent article discusses several U.S. Supreme Court and Court of Appeals decisions dealing with interpretation of the guidelines and how the lower courts have attempted to apply those interpretations to specific cases.

The recent flurry of sentencing appeals started after the Supreme Court’s decision in United States v. Booker, 543 U.S. 220 (2005). The Court held that the sentencing guidelines were only advisory. For tax cases, this meant that the former rather rote sentencing, which, under the guidelines, had been based primarily on the amount of tax loss or tax evaded, was opened up to the other considerations outlined in Booker.

Schumacher describes the Third Circuit’s decision in United States v. Tomko, 562 F.3d 558 (3d Cir. 2009), as a struggle “to apply the principles set out by the Supreme Court in determining whether the sentencing judge abused his discretion in imposing a sentence with no term of imprisonment in a tax evasion case.” Had the sentencing guidelines been followed, Tomko’s tax deficiency of $228,557 would have resulted in prison time of 12-18 months. Check out this article to find what the court decided, why, and what this decision might mean for prosecutors and defense lawyers alike.

If you want an even more detailed discussion about how the guidelines impact the tax arena, check out this book co-authored by Professor Schumacher: John A. Townsend et al., Tax Crimes 301-08 (2008). KF6334 .T39 2008 at Classified Stacks

For a copy of the present guidelines, policy statements, and official commentary, all of which are contained in the United States Sentencing Commission Guidelines Manual, visit the United States Sentencing Commission website. That website also links to the proposed amendments the Commission has sent to Congress. You can find the current Manual as well as prior editions in the Gallagher Law Library. KF9685.A15 U55 at Classified Stacks

Comparing Online Tax Research Services

In The Virtual Tax Library: A Comparison of Five Electronic Tax Research Platforms, the authors provide side-by-side comparisons of the primary sources and functions of the tax collections from:

• Bureau of National Affairs (BNA)
• Commerce Clearing House (CCH)
• LexisNexis
• RIA Checkpoint
• Westlaw

UW Law faculty, students, and staff have access to four of these five services (CCH is the exception).