This Week's State of the Union: A Tax Perspective

A variety of tax proposals were included in President Obama's State of the Union speech. The credit for hiring workers was mentioned by both Tom Ochsenschager (hereafter TO) of the AICPA, who believed that it would allow employers to avoid the employer share of Social Security and Dean Zerbe of alliantgroup, who feared that the ending bill might create enough regulatory promises to counterbalance the tax relief. TO also mentioned the college credit (Hope? Lifetime Learning?) scheduled to end in 2010 and the changes in rate and qualifying income level for the child care credit. Zerbe also believed that Obama's failure to mention the estate tax indicates that legislation on this tax could get very sticky this year. Finally, Lewis Taub of RSM McGladrey noted the extension of immediate write-offs of certain property and equipement and believed that Obama wanted a return to 20% tax rates on capital gains and dividends and a max 39.6% tax rate for high income individuals.

While tax issues clearly were not emphasized in this past week's State of the Union, it is interesting to see what tax issues were mentioned or inferred. While the health care program related taxes are on at least temporary hiatus; I suspect that some (though probably not major) tax law adjustments will come before 2010 Election Day.

Loose Ends

Apologies for the gap since last post:

[1] Make sure to go to Don't Mess with Taxes next Monday for the Carnival of Taxes. Time will tell whether I will be able to submit a post.

[2] The full weight of tax season probably starts to hit practitioner bloggers next week. One in particular who frequently goes on hiatus is Robert Flach, so enjoy this week's posts in The Wandering Tax Pro.

[3] We are in promotion and tenure decision week at APSU. While I can understand how practitioner accountants feel that academic accountants have a "cushy" life: I would not wish P & T week on anyone, from EITHER the tenure-track or the tenured perspective.

[4] Weather forecasters are predicting 3-6 inches of snow for Clarksville tomorrow. While readers in Michigan, Minnesota and Canada may laugh that off as a heavy dusting, many fellow Clarksvillians likely are in near panic and I hope that I do not lose electric power or have to drive tomorrow.

Not So Cagey: Nicholas Cage Plans to Fork Over $14 Million to IRS

Actor Nicholas Cage announced that he soon will pay two liens totaling close to $13-14 million and has sold off mansions and other assets toward that end. The actor is suing former agent/accountant Samuel Levin for failing to assure that the actor's taxes were current.

We congratulate the actor for paying off his tax liabilities. We cannot confirm, however, that the actor has been nominated as Undersecretary of the Treasury; reporting to Tim Geithner.

"Taxes/Math is Too Hard for Me"--This is the IRS Commish, not a Dumb Barbie/Blonde Joke

IRS Commissioner Douglas Shulman acknowledged that he uses a paid tax preparer for his [family's] own taxes. When pressed as to whether this was a good reason to simplify taxes, Shulman countered that tax law was established by Congress; not the IRS.

Although somewhat embarrassing, I have no problem with Commissioner Shulman using a paid preparer; it is, after all, better than making the kind of tax mistakes made by Treasury Secretary Geithner. However, his assertion that the IRS had no part in tax complexity was at best ill-informed and possibly deceptive, a major part of US tax law are the regulations written by the Treasury (IRS parent) and the IRS issues various types of ruling which are viewed as authorative in legal tax cases.

Willie Aames--Financial Planner? Believe It

(Caution: Pun Alert) Former actor ("Eight is Enough", "Paradise") Willie Aames has passed three licensing exams and Waddell and Reed's internal training program and is set to practice as a financial planner within January. Aames will appear at a Waddell and Reed "kickoff" event on January 20. In a recent reality TV show, Aames indicated that he had briefly been homeless after two bankruptcies and the end of his marriage.

Best wishes to Aames--though eight clients probably will not be enough. I don't know if financial planning can provide fiscal paradise, but I hope that he is finished being monetarily zapped.

Where DID the Money Go (and Where IS the Transparency)?!

With little or no explanation, the IRS announced today that collections from delinquent taxpayers was $32 billion or 27% less than previously reported. IRS Taxpayer Nina Olson slammed the change while fellow IRS spokespeople Michelle Eldridge stated that the change in the 2005-07 collections would be explained in next year's (2009) IRS Data Book. Additional criticisms came from Ms. Olson on poor telephone answering performance (as a percentage of calls, Ms. Eldridge indicated that the absolute number of taxpayer assitance calls answered actually increased) and excessive use of liens on small businesses; Taxpayer Union VP Pete Sepp on sloppiness or lack of transparency on the change in the collections number and ranking Senate Finance Committee member Charles Grassley (R-IA) on IRS favortism of big banks oompared to small businesses on application of IRS liens.

The phone performance issue has been around for a while and degree of problem comes down to whether percentage or absolute numbers matters more to you. The change in delinquency collection numbers and corresponding lack of explanation is far more troubling; especially with the proposed health care legislation using the IRS as an enforcement mechanism. Waiting until next year may be necessary for Chicago Cub baseball fans but it is NOT appropriate for this level of taxpayers with this level of change in collections.

New Tax Preparer Regs Proposed by IRS

The Internal Revenue Service announced new regulations for tax preparers in a 55 page report today. Key items: paid tax preparers are required to obtain a preparer tax number; all preparers except attorneys, CPAs and EAs are required to take competency exams (the IRS indicated that it reserves the right to require exams of the first three categories in the future); all tax preparers (not just attorneys, CPAs and EAs) must take continuing education and ethical rules of Treasury Circular 230 will apply to all paid tax preparers, not just attorneys, CPAs and EAs.

In my view, the primary, perhaps only, legitimate complaint about these regulations would be a libertarian (federal government should not be meddling) one. Some may complain that attorneys. CPAs and EAs were cut a break on testing--two comments here: (1) to some degree, the bar, CPA and especially EA exams DO test competency on taxation, (2) there is little doubt that the IRS will remove the exemption if attorneys, CPAs and EAs fail to perform competently on tax returns going forward.

Watch Out for State Unemployment Taxes!

The heavy cost of providing unemployment benefits to millions of workers in 2009 has straining state governments, leading some to borrow from the federal government and many to eye ways of extracting extra tax revenues from employers. The Journal of State Taxation found that 12 states, including Michigan, Virginia and Texas, borrowed funds from the federal government interest-free under temporary rules established by the "Stimulus" legislation earlier this year. Such borrowings must be repaid by the end of 2010 to avoid interest charges on these loans. States seeking to increase unemployment taxes are using differing approaches, for examples: Texas is tripling their rate while Washington State is dramatically increasing the wage base. A likely additional result of the revenue crunch: fewer stable employers will be rewarded with reduced experience rates.

Like the federal government, most states have not done a good job of financial management during relatively healthy financial times (such as the late 1990s or the middle of this decade) and resultingly were ill-prepared for the economic crisis of the last 15 months. The short-term solution may have to involve borrowing; the longer-term solution will need to combine a higher income base ($12000-15000), required investing of excess funds in "good" years (rather than transfer to the general fund for general spending purposes) and possibly stricter requirements to qualify for benefits.