Wednesday, November 18, 2009


The BUZZ is “chock-a-block” today! Perhaps the biggest BUZZ yet.

* Let’s start with a great story that has nothing to do with taxes from Stacie Clifford Kitts of STACIE’S MORE TAX TIPS, “A Small Town and A Diabolical Marketing Strategy that Sucked Me In”, which provides a great warning for travelers driving through small towns.

* TAX CPA Marilyn Lawver’s post “Maybe Next Year” - which observes, “It looks like we won't see any significant reform in the near future. No end in sight to massive AMT, endless credits, and a brand new Schedule L, too! Oh goody” – brought me back to her earlier post “How Does That Work”, which included some excellent comments on our current tax system -

As often happens, I find myself comparing this situation to medicine (which just might have something to do with being married to a doctor). If we only change a code section here, or a regulation there, we're just treating symptoms and not the disease.

Just like when we keep adding new credits and deductions, we keep trying to cure our economic ailments with more and more medication. And from the stories I hear, more medication is not always the best answer! It often makes things worse

* TAX PROF Paul Caron tells us about a court case in which “Tax Court Applies Cohan Rule to Allow Deduction for Portion of Unsubstantiated Charitable Contributions”.

The Cohan rule (for, yes, George M Cohan, the “Yankee Doodle Dandy”) is generally applied to employee business expenses, specifically travel expenses. It is interesting to see it applied to charitable contributions, although there apparently is precedent. However, this ruling applies to a 2005 tax return, before Congress enacted strict documentation rules for charitable contributions.

What is the Cohan rule? Check out my post “In the Courts” for a basic description. Perhaps I will write a post on it next week.

{OOPS! It seems I got ahead of myself and published the post on GMC yesterday (Tuesday)! I hope you didn’t pull your hair out trying to find the reference to the Cohan Rule in last Saturday’s BUZZ.}

* Paul also brings out attention to the report “Judging Tax Expenditures: Spending Programs Buried within the Nation’s Tax Code Need to be Reviewed” by Citizens for Tax Justice in his post “CTJ: Judging Tax Expenditures”.

The report’s summary tells us (highlights are mine) –

Special tax breaks, known as tax expenditures, are generally enacted with goals unrelated to ensuring that the tax system collects revenue efficiently and fairly. Instead, these programs are designed to encourage particular activities or reward specific groups of taxpayers. Because they lack tax policy justification, tax expenditures are often described as spending programs “hidden” within the tax code.

Tax expenditures are exceedingly popular among lawmakers, but not for reasons of good policy. Rather, political attitudes and loose procedural rules are responsible for the excitement surrounding these provisions. This undeserved popularity can and should be reined in, at least in part, by implementing a tax expenditure performance review system. Such a system would impartially judge whether these provisions are fulfilling their stated objectives

I have been saying basically the same thing for some time now.

* The NY TIMES has a good article by Ron Leber on “Financial Decisions to Make as You Divorce”.

Ron correctly points out that it is important to consider tax consequences when dividing assets -

In general, it’s crucial to consider the after-tax value of everything, from retirement accounts to deferred compensation when splitting up assets. Annette Brown, a divorce specialist in San Francisco, also noted that judges sometimes failed to consider which spouse could best benefit when awarding the right to future tax deductions and credits relating to the couple’s children.”

It is important to get a tax professional involved in drafting the divorce document, or at least let one review the document before you sign. A lawyer may be extremely competent and experienced in divorce law but may not know his arse from a hole in the ground when it comes to taxes.

I recently went through a long and tedious situation with the IRS, which I eventually “won”, because a divorce agreement was not properly worded.

Check out my 4-part series on “Till Divorce Does Us Part” – Part I, Part II, Part III, Part IV.

* I like Ron Teuber’s “Friday's Tax Quote - November 13, 2009” at the TAX LAW FORUM blog –

"A fine is a tax for doing something wrong. A tax is a fine for doing something right."
- Anonymous.

That Anonymous guy really said a lot of good stuff!

* Kay Bell discusses a truly unique tax subject that has been getting some press lately in “Dissecting Taxation of Human Body Parts” at DON’T MESS WITH TAXES.

Kay quotes from an item by Lisa Milot of the University of Georgia Law School –

"Transfers of human body materials are ubiquitous. From surrogacy arrangements, to sales of eggs, sperm and plasma to clinics, to black markets for kidneys, to pleas for donations of body materials, these transfers are covered and debated daily in popular and academic discourse.

There are no statutory provisions directly on point, Internal Revenue Service guidance is outdated and conflicting, and the small number of judicial decisions in this area are narrowly written to resolve only the tax liability of the particular taxpayer before the court

Kay’s bottom line – “Well, it turns out that a pound of flesh (although usually much less) might one day literally be considered when it comes to taxation.”

My special report on DEDUCTING MEDICAL EXPENSES ON YOUR 2009 FORM 1040 (available for $2.00 sent as a pdf email attachment) tells us that, while the value of the donated egg or embryo are not taken into consideration, you can deduct -

The cost of fertilizing and transferring a donated egg or embryo, as well as expenses to obtain an egg donor that are directly related to and in preparation for receiving the donated eggs or embryo. This includes agency fees, donor fees, the donor’s medical and psychological testing fees, insurance premiums paid for post-procedure assistance, and legal fees for preparing the donor contract.”

* Another Kay Bell item - this time it is not from DON’T MESS WITH TAXES but Kay’s other blog EYE ON THE IRS at I offer the post “'Accidental' Mortgage Interest Deduction”. This post discusses the history of the mortgage interest deduction – which Kay has gone from "accident to birthright."

Kay tells us that -

Many economists believe, however, that the effort to increase homeownership, typically through tax breaks, has played a major role in our current economic crisis.”

And, Kay, thanks for the post on my George M Cohan item!

* Bruce, the MISSOURI TAX GUY, has lots of interesting “stuff” in his weekly “Reads from Last Week” entry. I thank Bruce for the reference to, and thoughts on, my post on a National Sales Tax.

Bruce is always finding new interesting blogs. I especially liked the post he referred to from the OUTBREAK blog, a blog which is also new to me. And, as usual, Bruce links to some good advice from personal finance blogs.

As for “Snoopy music”, I like “Supper Time” from the musical YOU’RE A GOOD MAN, CHARLIE BROWN. And, of course, the tales of Snoopy’s battles with the Red Baron from the 60s.

*Bruce also begins what looks like a series of posts on the dreaded Alternative Minimum Tax with “A Brief Overview of the Alternative Minimum Tax (AMT)”, which details the background and history of the damned thing.

* FYI, JOE TAXPAYER also has a weekly BUZZ-like review of personal finance blog posts which he titles “This Week’s PF Blogger Roundup”. I especially liked the post “5 Dumb Mistakes That Smart People Make” that JT references.

* The OUTBREAK blog that I discovered on Bruce’s post led me to a good “State By State Sales Tax Summary” from Wray Rives, CPA’s self-titled blog. The 9/1/09 post provides details and links for each state that has a sales tax. It is a good post to “favorite” for future reference.

* TIGTA (the Treasury Inspector General for Tax Administration) has issued a report titled “Millions of Taxpayers May Be Negatively Affected by the Reduced Withholding Associated With the Making Work Pay Credit” (now there is a mouthful – say that 5 times fast!). The report discusses a disturbing, but not unexpected, result of the new tax withholding tables instituted to allow taxpayers to take advantage of the MWP credit.

According to the press release (highlights are mine) -

TIGTA found that the implementation of the MWPC creates the possibility that more than 15.4 million taxpayers may be advanced more of the credit (through reduced withholding) than they are entitled to receive. When filing their tax returns for 2009 and 2010, such taxpayers may ultimately owe additional taxes. Some also may be subject to estimated tax penalties.”

Back when the new withholding tables were instituted I, and just about every other tax blogger, warned about the unintended consequences. As TIGTA explains -

The MWPC was implemented using new income tax withholding tables. However, the changes to the withholding tables did not take into consideration: dependents who receive wages; single taxpayers with more than one job; and joint filers where one or both spouses have more than one job or both spouses work. Other groups potentially affected include: individuals who file a return with an Individual Taxpayer Identification Number; those who receive pension payments; and Social Security recipients who receive wages.”

* Russ Fox makes a very astute observation in his post “Senator Reid Looking at Increasing Social Security, Medicare Taxes for the Wealthy” at TAXABLE TALK –

Frankly, the current Administration and the current Congressional leadership has little clue about economic development.”

If any!

* Annette Nellen, CPA/Esq discusses the “Need for Penalty Reform at Federal Level” at 21st CENTURY TAXATION. She tells us that “There are about 130 civil penalties in the Internal Revenue Code”.

The post takes you to a very extensive article on the subject by Annette at another “location”.

* Trish McIntire gave us two good posts at OUR TAXING TIMES on Sunday.

The first, “Buyer Education VII”, continues her excellent series with a discussion of “Advice From Non-Preparers”.

Trish correctly says –

I would suggest calling your tax professional if you are tempted to follow tax advice given by your:

• Barber/Hairdresser
• Real Estate Agent
• Car Sales Person
• Home Improvement Guy or Gal
• The Loudmouth at Work
• The Know-it-All Relative
• The Golf Cart Sales Person
• The Fund-raiser
• Anyone who will make money or benefit from you making the tax decision they are suggesting.

I am sure most of these people are good people. Some of them have heard the info they are sharing and are passing it on. The problem is that they may not understand it well enough to share, or didn't get all the restrictions, or they're wrong. Or, they are trying to sell you something and using tax savings/credit to get you interested or push the sale

Hey, I have said for years now that the best tax advice I can give someone is to not accept tax advice from anyone other than a competent tax professional.

Trish then goes on to talk about “Locking the Barn Door”. She tells us –

My concern is with the tax planning that isn't getting done, now or at any time of the year. These are the major, life changing events and it is surprising how many taxpayers don't think of them until it is too late. A few examples:

• Retirement
• Child leaving home (not just to school) or turning 17
• Starting Social Security (with or without retirement)
• Unemployment
• Starting a business
• Divorce
• Marriage

All these life events can cause a change in your taxes and generally not for the good. But, they can be planned for and adjustments made to withholding and estimates

Hey, I have been saying, “Once the ball drops on One Time Square and the New Year is rung in there is little you can do to reduce your tax liability” for decades.

* Over at the INTUIT (Hey, man, I’m not into it) website Terry Myers and Dee DeScherer tell us that “2009 has also seen a number of important new rulings from the IRS and the courts” and that “These new rulings may have a significant impact on the returns of certain clients” in a “Tax Article” titled “New Rulings Impact 2009 Form 1040”, and provides a detailed discussion of some of these rulings.

A tip of the hat to Kerry M. Kerstetter, the TAX GURU.

* Andy talks about “Taxes and Gains I Can Exclude When Selling My Home” in a comprehensive post on the subject at SAVING TO INVE$T.

* The BRAIN DEAD SIMPLE! FINANCIAL ORGANIZING blog has a good post titled “A Tool for Comparing Roth vs Traditional IRAs”.

This subject has been covered extensively by other personal finance bloggers and authors; the purpose of this post is to provide links to articles covering the basic concepts, and a simple tool for comparing taxable, tax-free Roth and tax-deferred traditional IRA and 401 (k) accounts.”

* The TAXES OBSERVED blog, a new one to me, has been running a series on FAQs regarding the new First Time Home Buyer’s Tax Credit.

* Let me end by wishing myself a happy 56th birthday.



Susan Tiner said...

Thanks for the link to my post!

Monica Lawver said...

Thank you for the link and kind words! We've lost another member of our staff, and so my beloved blogosphere wanderings are few and far between. Urgh, I miss it!

Tax Lawyer said...

I saw where the tax court allowed Cohan for charitable deductions. I have never seen this applied before. Great new for the taxpayer!