Mona Lisa

The world's most famous painting is arguably Leonardo Da Vinci's "Mona Lisa." Though relatively little is known about Lisa Gherardini del Giocondo, the subject of the painting, she is a very classy woman, if only by dint of Da Vinci's painting (and probably was more than a little bit classy in life).

Not so with one of her namesakes. The U.S. Tax Court case of Mona Lisa Herrington v. Commissioner, T.C. Memo. 2011-73, is the tale of a poor excuse for a woman who was abused by a poor excuse for a man, but who prevailed in Tax Court (against a poor excuse for IRS case management) on her contention that the money her abuser expropriated from her business constituted a deductible theft loss.

That this Mona Lisa was in the business of tax return preparation with her H & R Block franchise, and that she had in a separate criminal proceeding pleaded guilty to willfully failing to file her own tax returns, does not alter the situation except to make it more grave.

So read it and enjoy it, and remember that the deadline for filing your tax returns is fast approaching (I received my refund earlier this week, thank you).


The case is Mona Lisa Herrington v. Commissioner, T.C. Memo. 2011-73.

Need Some Sleep

Nothing earth-shattering to blog about.

Most of this past week I have been sleep-deficient, due in no small part to that virus bug I picked up. I believe that I have mostly shaken it, but it seems that my wife is now coming down with something. In any event, I woke up tired at about 10:45 this morning, but was able, for the first time in more than a week, to get in a good workout run.

Yesterday, I did get in a relatively good Shabbat nap. I fell asleep on the couch, and my wife said that I was really, really out of it. Maybe I won't be so sleep-deficient this coming week.

The sleep deficiency and virus wouldn't have been so bad, except that it was the first week of the semester, so I had to go in and teach. Whatever voice I may have brought into the classroom with me was totally shot by the time I got out. Fortunately, my assistant department chair gave me a ride, so I didn't have to drive.

As with any semester, I have already spotted some students who are on the ball, and some students who are totally clueless. So many have no conception of what it means to write a term paper -- those students had better get a clue real quickly or they will take a nosedive in the courses I teach! This is college-level work! In my day, I had a real battleaxe of a junior high school English teacher who taught all of us how to write term papers. Has our elementary and secondary educational system been dumbed down THAT much? [Apparently it has.].

Fortunately, there seem to be students who are well-postured and directed towards success. One of them happens to have an on-campus job as a student assistant in my own department. She approached me as I came in the second day of my classes, so I explained a few things to her. She is a transfer from one of the 2-year community colleges, where the courseload for Business Law is not as intense. She'll have to work hard, but I think that she will give it a go.

I am not a big Stupor Bowl fan. Understand that I have nothing against athletics per se (and in fact pulled a varsity letter while in high school). But the Super Bowl is not about athletic performance; it is about keeping the masses entertained and occupied, and about softening their brains so that they can be controlled by Big Brother! The teams are subsidized with lots of taxpayer money. The best thing that I can do is just not watch it! So I didn't!

The best football game I ever watched was two junior high school squads in an unofficial non-league scrimmage game. Their hearts were really into it, there was no TV audience to please (with the accompanying commercial advertisers), and they all accomplished something. Many of the players from that game have now gone onward to achievement in their respective life fields; they are role models, unlike the vast majority of the big league professional athletes of today. But I digress.

During the Stupor Bowl, I was not sitting in front of the big lobotomy screen. What I did was to begin to get my paperwork in order to do my income tax returns. I am now missing two receipts from charitable donees, so the appropriate reminder faxes and e-mails were sent, and need a few more pieces of documentation. But I knocked off lots of the organizing of papers. I am looking to get my tax returns finished sometime during February or early March.

I hope to get some good quality sleep tonight, because I have some interesting lectures and demonstrations planned for my classes this week.

Taxation and the Second Amendment

Sometimes the visceral impulse is at odds with the intellect.

For example, South Carolina will hold its annual Second Amendment Sales Tax Holiday on Friday 28 November and Saturday 29 November 2008. All handguns, rifles and shotguns (but not ammunition or other firearms paraphernalia) can be purchased in South Carolina, exempt of the state sales tax, during that window of opportunity.

On one hand, I get a nice warm feeling to know that at least one state is taking a stand in favor of the public's Second Amendment rights.

But, on the other hand, I believe that sales tax holidays are poor policy. They are complicated to administer, are tempting opportunities for tax evasion (and the consequent deterioration of respect for the law), encourage unnecessary consumption for consumption's own sake, and present an increased chance for the individual merchant of an encounter with the taxation authority.

On a personal level, this year, tax savings I might realize would be handily outweighed by the costs and hassles of traveling to South Carolina.

But hey, if you will be anywhere in or near the Palmetto State just after Thanksgiving, you can get a little tax break on your Second Amendment purchases.

Two More Slow Learners

Henry and Patricia Langer are slow learners. They have just lost their case in the United States Tax Court because they failed to substantiate the deductions claimed on their 2001 tax return.

The Internal Revenue Code is notoriously complex, convoluted and confusing. But one key rule in taxation is that the taxpayer must substantiate all claimed deductions. This can be done in various ways. For example, a contemporaneous automotive mileage log can substantiate deductible business miles driven. Accordingly, I maintain a mileage log, with the odometer readings at the various points of my daily itinerary. The log is consistent with my appointment calendar, and also with the gasoline purchase log, and also with the mileage readings when my car is serviced (which are noted by the automobile dealer, a disinterested third party).

The totality of Henry and Patricia's substantiation of items such as entertainment expenses, gifts for Patricia's piano students, business meals and travel was their own self-serving testimony, without any back-up documentation such as mileage logs, et cetera. And much of Henry's oral testimony only dug him in deeper. One of the claimed expenses was "A crystal vase costing $2,635 purchased to cheer Mr. Langer up after the events of September 11, 2001" because he likes fresh cut flowers. Folks, you don't have to spend $100 a seat to see Jackie Mason on Broadway; the comedy is almost as good in the Tax Court, which you can go in and watch for free.

But before you start waxing too empathetic for Henry and Patricia and their misunderstanding of the requirements of the Internal Revenue Code, note that this wasn't their first time in court to dispute their taxes. Patricia's business taxes for 1993 and 1994 were in the U.S. District Court for the District of Minnesota. In 1992, Henry and Patricia had an earlier Tax Court dispute over their 1984, 1985 and 1986 tax returns, in which they also failed to provide substantiation for their verbal assertions. Their 1983 income tax return was the subject of an even earlier Tax Court dispute in 1990, again with unsubstantiated testimony. One would think that by the time they did their 2001 tax return, Henry and Patricia would have learned to keep records.

And if you still feel sorry for Henry and Patricia, and their cluelessness as to the need to keep business records, consider that until at least May 1990, Henry was employed as an IRS Agent.

The best that can be said about the Langers is that they are model slow learners.

The Returns Have Returned

Ah, Taxes!! This former IRS agent is once again posting about taxes.

The Tax History Project has posted some Presidential Tax Returns on one of its webpages. (Caution: They are PDF files, and they are long downloads). In addition to FDR, Nixon, Carter, Bush I and Clinton, they have the current Bush II & VP Dick Cheney. Now, they also have Barack Hussein Obama and Joe Biden, and some of McCain's. Sarah Palin has promised to release her tax returns soon, and Tax Analysts, the sponsors of the Tax History Project, has promised to post Sarah's there when they become available.

This posting will show the statistics in the following format:

Year: Charitable Contributions / Adjusted Gross Income (Charitable contributions as percentage of AGI)


BARACK HUSSEIN OBAMA:

2007: $240,370 / $4,139,965 (5.8%)
2006: $60,307 / $983,826 (6.1%)
2005: $77,315 / $1,655,106 (4.7%)
2004: $2,500 / $207,647 (1.2%)
2003: $3,400 / $238,327 (1.2%)
2002: $1,050 / $259,394 (0.4%)
2001: $1,470 / $272,759 (0.5%)
2000: $2,350 / $240,505 (1.0%)



JOE BIDEN:

2007: $995 * / $319,853 (0.3%)
2006: $380 / $248,459 (0.2%)
2005: $380 / $321,379 (0.1%)
2004: $380 / $244,271 (0.2%)
2003: $260 / $231,375 (0.1%)
2002: $260 / $277,811 (0.1%)
2001: $360 / $220,712 (0.2%)
2000: $360 / $219,953 (0.2%)


* Joe Biden's 2007 charitable contributions consisted of $595 cash + $400 other property.


JOHN MCCAIN:

2007: $105,467 / $386,527 (27.3%)
2006: $96,758 ** / $338,809 (28.6%)


** John McCain's 2006 charitable contributions include a $32,063 carryover from a prior year.

CINDY MCCAIN:

2006: $569,737 / $6,066,431 (9.4%)


My comments on the foregoing statistics (in no particular order):

1. Within the past week alone, I drew more checks to charitable organizations than Joe Biden did in all of 2006 and 2007 combined. Being that this is Rosh HaShanah season, there will, no doubt, be more drawn within the next 2 weeks.

2. Unless Biden is doing some significant charitable works off the books, his charitable giving habits are a disgrace! There are households which are really, really, poor, but which give way more than he does in any given year.

3. Notice the difference in Barack Hussein Obama's charitable giving habits after he became a national idol in 2004. Prior to 2004, his charitable giving habits were rather disgraceful (though a little bit more honorable than Biden's). If this is just Obama getting religion, then I welcome Barack into the camp of the charitable donors. The real test is what kind of charitable donations will he make at such time as he no longer is bucking for the public approval in the voting booth. Given the entitlement attitude of Barack (and, even more so, Michelle), I'm not willing to bet that he will not revert to his pre-2004 charitable giving patterns.

4. For the purposes of this posting, I shall not concern myself with the political or religious or social orientation of the donee organizations which received the various candidates' charitable bounties. The only question is whether and how much they gave. In a certain sense, I can respect BHO's contributions to his spiritual advisor Jeremiah Wright's Church of Hate Whitey & G-ddamn America more than Biden's extreme overprotectiveness of his own funds.

5. John McCain's situation is somewhat different from Joe Biden's and BHO's because he and Cindy filed separate returns. This is an option which married couples have, and, given the McCains' situation, I think it was well-advised.

6. Cindy McCain's 2006 tax return has been disclosed. Where's her 2007? I do not know about Cindy's personal 2007 tax affairs, but I do know that she, like everyone else, can get an extention to 15 August for the asking, and another one until 15 October if she can show good cause (which is not difficult to do). My guess: She might not have even filed it yet.

7. The McCains have a McCain Family Foundation in their financial picture. The Foundation's returns for 2006 and 2007 have been disclosed and are posted on the website. The Foundation is the recipient of John and Cindy's charitable contributions. The Foundation distributed $182,639 to various charitable causes in 2006, and $78,250 in 2007. I note that neither John nor Cindy (nor anyone else) received any compensation or employee benefits from the Foundation; some private foundations do confer such benefits upon their contributors (or friends and relatives thereof).

8. The McCain Family Foundation had a little problem with the IRS. Seems that it contributed $5,000 to what was initially thought to be a general education fund, but which turned out to be a private fund to pay for the college education of some deceased person's children. The Foundation was charged a 20% excise tax ($1,000) for the transaction. The Foundation's Director requested John and Cindy to reimburse the Foundation the $6,000 in non-charitable distributions related to the transaction. In the general scheme of things, that little error is analogous to receiving a ticket for overtime parking. I do not impute any negativity of character to McCain on account of it.

9. And likewise, Obama's tax returns reflect penalties for not fully paying the estimated tax. I just cannot get upset over it because it is often difficult to predict what your required estimated tax payment should be until after you owe it. This is more a failing of the Internal Revenue Code than of Barack Hussein Obama.

10. Given my criticisms of the various candidates, I shall disclose my own household's charitable habits: Our charitable contributions tend to run just a bit above 7% of our AGI. If you subtract from our AGI the Federal and State income taxes we pay, and the Social Security & Medicare deductions taken from our paychecks, and the union dues which are maced from us by the public employees unions to which my wife and I respectively belong, our deductions come to a bit more than 10% of our take-home income. In fact, we have a second checking account at our bank, and whenever we deposit the paychecks or my legal fees or any other income, we skim off 10% into the second account, from which we write our charitable checks.

And some of our charitable contributions are not claimed (or claimable) as deductions. The small change I deposit into the pushke at whichever shul I go to daven, and, this year, the wad of money (approximately $100 U.S. dollar equivalent) I distributed to various poor people in the Holy City of Jerusalem when we were there.

11. And what of Sarah Palin's tax return? What interesting facts and factoids will it tell us? I do not know, but if her charitable giving habits are anywhere near as paltry as Joe Biden's (or, for that matter, pre-2005 Obama), then she deserves whatever negative criticism she receives. If the government is to encourage a strong charitable sector, then the government leaders must personally set the public example.

Horsing Around with Dr. Nora

Yesterday's Tax Court opinions included the matter of Nora E. Keating & Richard L. Shearer v. Commissioner, T.C. Memorandum Opinion 2007-309. Nora is an emergency room physician who absolutely loves horses. Nora and Richard, husband & wife, filed joint income tax returns for years 1996 - 2002, on which they claimed significant losses totaling in excess of $300,000 from Nora's horse breeding activity.

Among the standard fare of the Tax Court are cases where losses are claimed from hobby-type pastimes which lack a significant business (i.e., profit-making) motive. Where losses from such activities exceed the income derived, no deduction is allowed.

I have neither interest nor expertise in horses, and do not tout myself as an expert in the business. Having said this, certain things about Nora's situation evoke my comment:

A. The Tax Court opinion includes a tabular listing of Nora's 20 horses. Of the 20, 6 are geldings purchased by Nora (including Aw Fames Ovation, purchased for $5,000, her most expensive equine acquisition), and 5 are "home-foaled" geldings, that is, geldings actually bred by Nora. As for the remaining 9 horses, two are ponies who were purchased for the purpose of riding. Only 3 of the horses were specifically purchased for breeding purposes.

It is my understanding that a gelding is a castrated horse. If Nora wishes to breed horses, why is she purchasing geldings, and why is she cutting off the beitzim of the horses she actually breeds? This does not seem to be an efficient use of assets.


B. Of even greater concern: "Throughout the years in issue, petitioner worked approximately 60 hours a week as a physician--typically two 24-hour shifts and one 12-hour shift." Hey, isn't this the Libby Zion case all over again? What of the patients who are being treated by a sleep-deprived doctor?


Never mind the horses!! Never mind the income tax returns!! This doctor presents a danger to her patients, on account of her lack of sleep!!

Clearance Denied

Some good news in the fight against illegal aliens.

A security clearance was denied to an individual who knowingly hired an illegal alien as a babysitter and who failed to pay the Social Security taxes and other obligations in connection with the illegal alien's employment.

Controlling the illegals cannot be done if the illegals alone are targeted. The facilitators of the illegal aliens must also be held accountable. In this case, such seems to have been done.