Tax Lawyer's Blog

 “I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion, and the international Communist conspiracy to sap and impurify all of our precious bodily fluids.”

- Jack D. Ripper -

The Doctor found dozens of excellent blog posts this month.

And, of course, we got the usual great quality from Kay Bell, Joe Kristan, Kelly Phillips Erb, Linda Beale, Bruce the TaxGuy, Robert Flach, Paul Caron and Dan Meyer.

I couldn’t include all of the excellent posts so here are my top 3:

BLOG POST NUMBER ONE

Did the Capital Gains Tax Break on Home Sales Help Inflate the Housing Bubble?- Len Burman, Tax Vox Blog

Tax policy guru, Len Burman, disagrees with the conclusions reached by economist Hui Shan and published (rather enthusiastically by the New York Times.

Shan’s study found that a 1997 tax change allowing capital-gains-tax-free sales of homes (up to $500,000 of gains for couples and $250,000 for singles) increased housing sales. The Times concluded that this change might have contributed to the housing bubble by increasing the demand for owner-occupied housing. They tell the story of an investor who repeatedly bought homes, lived in them for the required two years, and then sold them at a tax-free profit, and inferred from this anecdote that this was a significant part of the bubble. 

Burman deftly analyzes the pre-1997 law which allowed people to avoid capital gains on the sale of their residences as long as they reinvested the proceeds in a more expensive residence and allowed people over the age of 55 to exclude capital gains up to $125,000.00 without a reinvestment requirement.

Burman concluded:

So the old law discouraged down-sizing or renting, especially for those under age 55. That is, they consumed too much housing. How does eliminating that distortion inflate housing prices? 

As the NY Times article notes, there are flaws in the implementation of the 1997 law. It shouldn’t apply to people who flip homes every two years. But, on balance, eliminating a tax that encouraged people to consume too much housing while raising virtually no revenue was a good thing. And it certainly is not a significant factor in the housing bubble.

Related Post

Did the Home Ownership Tax Break Cause the Housing Bubble

BLOG POST NUMBER TWO

Bozo Preparers Running Rampant in New York – Russ Fox, Taxable Talk 

Russ Fox, an IRS Enrolled Agent, alerts us to the astonishing pervasiveness of preparer fraud in Gotham:

The New York Department of Taxation and Finance sent some undercover inspectors to various tax professionals in New York. What they found, as reported in the Wall Street Journal, is enough to make me cringe.

One Queens, New York tax preparer allegedly told an undercover investigator, “I did not declare your full gross income from your business because you will pay a lot of taxes.”

Another reported one-tenth of the [his client's] taxable income: $13,188 versus $131,884. The Journal didn’t report what excuse was used for that case.

And multiple preparers told investigators to shred certain documents so that they wouldn’t have to include it on their tax returns.

But it get’s worse:

In one case, a preparer told an undercover agent to step outside his office and return with a different set of records. When he returned, the preparer told him: “You know why I asked you to do that? Because if I have to swear it, I can say I swear to God that these are the papers you brought to me.” 

Fox notes that New York found “evidence of fraud” in 40% of the 85 preparers it visited.

Author’s Note: Remember, the Housing and Economic Recovery Act passed into law in July contains provisions that will allow the IRS to use undercover agents to catch unscrupulous tax preparers. Assume every potential client is an IRS agent and govern yourself accordingly. Also, I recommend you give your clients and potential clients a declaration that states that you are bound to follow the law and IRS Circular 230 and fully intend to do so.

BLOG POST NUMBER THREE

Is Tax the Best Way to Deal with Greed and Financial Foolishness- James Edward Maule. Mauled Again

Maule is obviously to the left of the political spectrum when it comes to fiscal matters and, to his credit, he doesn’t try to camoflauge it. He has, for instance, in a recent article, proposed a Greed Tax that “would apply when a person’s or entity’s attempt to accumulate wealth, rather than ‘trickling down’ benefits to society generally, harms society.”

His posts are always provocative and always well presented.

Here is what he says about greed:

Greed is not the desire to increase one’s economic status, particularly because most people on the planet who have that desire pursue their dreams because they are trying to accumulate enough economic assets in order to survive. Greed is the desire to hold far more economic wealth than is necessary for survival, comfort, and even luxurious lifestyles. It is the desire to hold so much wealth that the wealth becomes an instrument of power more effective than the decisions of elected officials, and thus becomes a threat to democracy. Greed is exacerbated when it is coupled with impatience, much like the demand, “I want it all, and I want it now.”

Author’s Questions: Accepting Maule’s definition of greed would require us, as a civilized society, to do something about it. 

Wouldn’t the curtailment of “greed”, then, require an overt redistribution of wealth. And wouldn’t that mean more socialism? 

In other words, at what price are we willing to curtail or eliminate greed?

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