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Tax Bar Bulletin: November 2020 – Volumer 36, No. 11

Current Items:

  1. The Tax “System”
  2. IRS is Back
  3. “Pot” Luck
  4. Social Security Up
  5. Inflation Adjustments

1). Watching the American political system is great fun. This is especially true in recent weeks when the weather here has not been cooperating and the candidates have been at each other’s throats. I enjoy most the constant name calling. But even more than that is the way both candidates talk about the tax system as if they actually know something about it. Let me let you in on a dirty little secret. Most politicians as well as taxpayers have no clue about how our tax system works. Now I will go out on a limb and say that most of my readers, lawyers though many are in fact, have as little information as the politicians. That is the beauty of our system. Everybody thinks they understand how they are in fact taxed and where the money goes. The reality is they don’t. I want to say that I am not above the crowd here even though I have spent 46 years as a tax lawyer. In my defense I spent most of those years defending “honest” taxpayers who were caught up in the grips of the IRS beast. My clients to be sure being merely misguided or poorly informed of their duties as tax payers. How were they to understand what the entire US population could not? Okay, here comes the punchline: there is no tax system. The tax law is whatever Congress decides to say it is. It is not like gravity that can be studied and understood as a force to be reckoned with. Apples have been falling from trees for perhaps 1000 years and will continue to fall 1000 years from now. But the tax law only heaven knows what it will be. But politicians talk about the system as if there is something to understand. All of them make promises which tickle the fancy of voters. Promising to tax someone other than you is always a safe bet. That is true whether it is corporations and wealthy individuals or simply the guy next door. None of this makes sense nor will it ever. Our politicians from both sides of the isle are bought and paid for by lobbyists who seek legislation on behalf of their constituents. If you should be lucky enough to be one of those constituents the tax law as to you can be quite favorable. If not, like the cat pressing his nose against the window of the fish store, there is not much for you. Most wage earners are in that group never even getting a chance to spin the wheel of fortune and risk detection by the IRS. You should know the last tax bill was over 1000 pages which no one in Congress read. It was passed in a rush before anyone had an opportunity to really analyze its impact. Perfect. Just the way it’s supposed to be. Future tax bills in our system no matter who gets elected will be the same. At best a system of smoke and mirrors convincing the ordinary taxpayer that it actually exists, and better yet, that it is fair.

2) Recently the IRS collection department has been out of business. Deluged by mountains of unopened mail someone at IRS thought that it would make sense to hold off sending collection notices to taxpayers because those very same taxpayers could have sent their back payment dollars to the IRS but the envelopes due to staffing problems from the virus were sitting untouched in piles at IRS service centers.. Seems like a reasonable approach to win the favor of taxpayers generally. Needless to say it was nonsense. But it matters not at this point as IRS has announced that it is in fact back in business of  sending those nasty notices to taxpayers threatening to take their house, cars and firstborn if they do not in fact pay up shortly. These notices in the “500” series (501 to 504) explain to taxpayers their rights to challenge any underlying issues before IRS, but generally do produce millions of dollars of revenue with but a push of an IRS button. It’s that smoke and mirrors approach again. Honest taxpayers pay attention to such things. The rest throw the notices in the trash and take their chances.

3) Someone once said that what this country needs is a good five cent cigar. Maybe things would feel better if that cigar was filled with marijuana. But no matter, the marijuana industry is still at odds with the tax system. Even in those states who have seen the “light” and made recreational use of marijuana a viable alternative to watching the nightly news, federal laws still make such activity subject to special tax rules. For those businesses, like dispensaries, they are only permitted to deduct from their revenue the cost of goods sold. All of the other delicious deductions available to businesses are denied. This would seem like some type of unconstitutional discrimination, but with the recent appointment of Justice Barrett, who it appears neither smokes, drinks or has any bad habits and is in line for sainthood one day, any change seems to have gone up in smoke.

4) The good news for Social Security recipients is that their payments will go up 1.3%. That will make them happy. Working taxpayers who are funding the Social Security system will not be happy to learn that the Social Security tax base will rise to $142,800 next year. Unless more jobs are created with taxpayers who are willing to pay this tax, the Social Security Ponzi scheme will be in even worse condition than it is already.

5) BTW, if you are keeping track of such things I note the following: the standard deduction for tax year 2020 will increase to $25,100 for married and 12,550 for single taxpayers or those filing separately. The personal exemption of course remains zero thanks to the last tax bill. The federal estate tax exclusion will be $11,700,000 and the annual gift tax exclusion is $15,000.