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Tax Bar Bulletin: Volume 37, No. 6

Current Items:                                                             

  1. Tax Fairness
  2. Charitable RMD
  3. Average Deductions
  4. Who’s Your Spouse?
  5. Build America Bonds

1). Uncle Joe woke up one day and turned to Jill and said “You know honey, this tax stuff is not fair.” Jill said, “You know Joe you are right.” The next thing that happened after he walked the dog is the president came upon what he calls “tax fairness.” What does this mean? The president had read that there is a $441 billion revenue loss annually from tax cheating. He was also told the IRS grabs only about $60 billion of that amount through its audits. Turning to Jill once again he said “Gee Whiz that leaves a big number.” Jill said, “Yes dear, its $381 billion.” With a Ed.D she’s no fool and she can add and subtract too. Uncle Joe called the Commissioner of Internal Revenue and asked about these figures. He was told by the IRS head that the number could be closer to $1 trillion per year. The figure was so high because it included virtual currency transactions as well as offshore abuses, slippery exempt organizations and illegal source income. Uncle Joe had to sit down. Jill spoke again. “You know it’s like having a classroom full of 13-year-olds when their teacher is out sick and a substitute teacher is called in. The kids do just about whatever they feel like since no one in authority is watching.” Damn, that is a pretty good analysis of our current tax administration system. We are on the honor system when slews of taxpayers have no honor at all. I’m not talking about your tax return where your contributions are a slight bit higher than what they are in reality. I’m talking about heavy duty tax fraud and invasion. So what to do about the problem? It’s really very simple: throw more money at it. The President figures by giving IRS $80 billion over the next 10 years could bring in $700 billion more tax dollars over the same period. Let the IRS increase its enforcement efforts as everyone seems to know IRS audit rates are a joke and a gamble worth taking especially by high income taxpayers. Jill added: “You know in school report cards are useful as it keeps the kids in line. So why not require more reporting from financial institutions and digital currency exchanges. Make those folks agents of the government and at the same time overhaul outdated technology at the IRS so they can effectively use the information that they mine.” The Prez said, “I like it, all of it.” “And let’s test those tax preparers and keep an eye on their work,” Jill added. So there you have it, the tax fairness proposals. All this before the dog had to be taken out again.

2) I have plugged this in these bulletins before, but I’ll do it again. Should you be over 70 ½ and be sitting on a pile of money in your traditional IRA, take note. You can make qualified charitable distributions which will count as your RMD for a year up to $100,000 yearly from your IRA directly to charity. While you can’t get a charitable tax deduction it’s a good way to benefit your charity with no tax cost. If married and your spouse is so situated with their own pile they too can do the $100,000 hat trick. Nice, everybody wins.

3) My grandkids love when I tell them I can read their minds. I ask them to pick a number between one and a hundred. I then begin guessing wildly. I’m shocked how often I actually pick the number on the first try. Now, it’s your turn. Time to guess: what are the average deductions claimed by taxpayers who have Adjusted Gross Income of $100,000. Bet you guessed wrong. The real numbers from 2019 returns: Charitable deductions amount to approximately $7300, medical expenses of almost $20,000, taxes paid deductions of about $9000, interest expense of about $13,000. Now don’t go claiming these figures on next year’s tax return, but you may want to try this guessing game with your tax preparer and see how they do.

4) The Estate of Grossman, TC memo 2021 – 65 is a curious one. A man and wife number one got a Jewish religious divorce from a rabbinical court in New York. Eventually the man married his third wife in Israel and the couple lived in New York for many years. The man died and left his estate to wife number three and the estate claimed a marital deduction. The IRS, playing Solomon, decided that the surviving spouse was the first wife and not the third candidate. But the Tax Court sitting in New York said decedent’s Israeli marriage was valid under the place of celebration rule and so was the right off. Instead of chasing tax cheats the IRS is worried about this issue? Really?

5) The “Build America Bonds” may be coming back to help pay for the President’s infrastructure price tag of zillions. They were around in 2009 and 2010. This does not constitute legal or financial advice but if they do become a reality, I am told you may want to hock the family jewels and mortgage the dog house and everything else you can get your hands on and buy these things. Don’t feel bad, I had never heard of them either.

 

There will be no Bulletins in July and August from me unless something really juicy happens. Enjoy the summer!