Tax

There may be no surprise that the federal income tax is confusing but a new report done at President Obama's request is detailing just how confusing and contradictory it is.

Unveiled at the White House today and produced by the President's Economic Recovery Advisory Board, an independent group not tied to the Obama administration headed by former Federal Reserve Chairman Paul A. Volcker, the 118-page report outlines area after area where it seems the tax code is as confused as the people who try to follow it.

"What the report makes clear is the enormous complexity of the tax law for the typical taxpayer," said Harvard economist Martin Feldman, who headed the panel of the board that produced the study.

The report said seemingly simple definitions in the tax code go one way in one part of the code and another way in another part, resulting, "in errors and mistakes." The report, while offering no recommendations for detailed fixes, suggested there is a need to simplify the tax code, improve compliance and deal with some problems in corporate taxes.

Among problem areas the report cites:

Just weeks after a federal appeals court upheld Wesley Snipes' 2008 three-year sentence on misdemeanor counts of failing to file tax returns, Snipes is again trying to avoid prison. The "Blade" actor has filed another motion in court, this time alleging judicial misconduct.

Snipes' initial appeal focused on what he considered to be an "unreasonable" sentence. He believed that he should serve, at most, time on probation. A panel of federal court judges disagreed, paving the way for Snipes to serve time in prison as originally ordered.

The most recent legal action has given Snipes a bit more time to enjoy his freedom. He now doesn't have to report to the Bureau of Prisons on September 2, which was the date allegedly given to Snipes by a U.S. marshal.

Procedurally, what's happening isn't so much a continuation of the legal process as a new direction. Snipes' lawyers have filed motion for a new trial, citing evidence that he has been denied his Fifth and Sixth Amendment rights. In case those amendments don't roll off your tongue quite so easily, here's the text of the Fifth Amendment:

Actor Paul Hogan, known in the U.S. for his 1980s role as "Crocodile Dundee" in the movies, has been slapped with a multimillion-dollar tax bill. The actor, who turns 70 later this year, has been under investigation both in his native Australia and in the U.S. amid claims that Hogan was shifting money offshore in an effort to avoid taxation.

Hogan, who claims that he has paid at least $100 million in taxes to Australia and the Australian Taxation Office (ATO), refuses to pay more. That presents a problem, since the ATO claims he still owes millions on undeclared income. As a result, he's now considered a flight risk and has been barred from leaving Australia until he pays up.

California Attorney General Edmund Brown is suing TV's Tax Lady Roni Deutch for $34 million, claiming she duped thousands of consumers who sought her tax advice.

"Tax Lady Roni Deutch is engaged in a heartless scheme that swindled people with tax problems," Brown said in a statement. "She promises to significantly reduce their IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills."

Deutch is a licensed attorney who runs a tax resolution law firm in California. Her claims to fame are her frequent appearances on late-night cable TV, NBC's Today Show, CNN and CNBC.

At least 22 U.S. cities are at risk of slipping back into recession, Moody's Economy.com said in a report this week.

"With chances of a national double-dip recession now estimated at about one in four, several metro areas will probably experience their own downturns in the first half of 2011," said economist Andrew Gledhill, who wrote the report.

Gledhill identified the 22 markets listed below as having the biggest chance of a double-dip recession because their economies are linked to manufacturing or they've lost whatever industry it was that created the city to begin with.

I've lived in a couple of these cities, and I was the editor of the daily newspaper, the Observer-Dispatch in Utica-Rome, N.Y., for several years. During that time -- about 15 years ago -- I got to know the region's problems well. I suspect that they are no different today than they were then, and that they are probably similar to those facing the other 21 cities on this list.

Thurs., Aug. 19 marks this year's "Cost of Government Day." The date, calculated by the Americans for Tax Reform, signals when the average American finishes paying off his or her respective share of federal, state and local taxes, and the cost of implementing government regulations. This year, that means a whopping 231 days -- or almost 2/3 of the year -- are spent paying to keep the country going.

Feel like you've gotten our money's worth yet?

For 2010, the date arrives a full week later than in 2009, when Cost of Government Day fell on Aug. 12. That gives it the dubious honor of a new record, since the 2009 date was almost a full month later than in previous years. According to the Americans for Tax Reform, the date had never fallen later than July 20th over the period from 1977 to 2008.

About half of the total burden is attributable to the federal government. Keeping the government going these days takes a lot of money. But where does it all go?

The relationship between the U.S. federal government and Native Americans has never been a particularly easy one. It is, however, about to get a lot more complicated.

The Miccosukee tribe has advised the IRS that members of the tribe do not owe any taxes received from the tribe's multimillion-dollar gaming and casino operations in Florida. The IRS, as you can imagine, takes a very different position.

Under existing law, tribes with gaming facilities do not pay federal income tax on revenue collected at casinos and other halls. This is in deference to the idea of tribal sovereignty and is key to the Indian Gaming Regulatory Act (IGRA), signed into law by President Reagan in 1988. However, tribes are required to report all distributions to members and to advise members that they may owe federal income taxes on those distributions. The idea was to respect the idea of tribal sovereignty to create gaming halls and casinos which might otherwise not be allowed under state law but give the federal government the power to regulate gaming.

Taxpayers using the federal government's e-file system can get their cash refunds within 10 days, or nearly as quickly as the short-term loans offered by some tax preparers that cost up to 25 percent of the proceeds. So take that, H&R Block and Jackson Hewitt!

Anyone with an adjusted gross income of $57,000 or less can use the FREE online tax preparation site maintained by the Internal Revenue Service. That's about 70 percent of all U.S. filers, according to the IRS.

The agency can process a return and issue a refund within 10 days, Commissioner Doug Shulman says. That's down from as long as 8 weeks in prior years.

"Refund Anticipation Loans are often targeted at lower-income taxpayers," Shulman said. "With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash."

So next time tax season rolls around, use the IRS website to file and get some cold, hard cash delivered quickly to your bank account without paying high fees for a short-term loan.

Is there a value-added tax, or VAT, in our near future? According to a story by Shawn Tully in Fortune, this new tax scheme is not only possible, but perhaps inevitable, given the danger to the U.S. economy posed by our enormous and growing national debt.

The article cites a recent sobering report from the Congressional Budget Office about the ramifications of our growing national debt. In comparison to our gross national product, our current deficit is the highest since WW II. The CBO did one projection assuming that the Bush tax cuts were extended, the alternative minimum tax was indexed to inflation, and income tax revenue yielded 19% of GDP. The results? By 2020, our debt would equal 90% of our GDP; by 2035, 180%.

A number of U.S. states hope to balance their budgets by allowing gambling, then taxing it. But that's a gamble in its own right; in light of new industry reports, these states could be in for a big disappointment -- as the gaming industry has been hard hit by the recession.

States such as Ohio, New York, and Massachusetts are adding casinos and "racinos" (horse race tracks with slot machines, and, in some states, table games such as poker). These will join an existing 443 commercial casinos, 456 Native American ones, 44 racinos, 588 card rooms and 11,215 electronic gaming devices sites. Overall, in the U.S. about 833,000 slot machines operate today.

For many people, summer's end marks the beginning of the back-to-school shopping season. It also sparks a season of sales tax holidays across the country -- limited stretches of time where the sales tax is dropped on selected items. For those ready to shop, you'll have to act soon: many of the states' tax holidays are this weekend (see our list below to see if and when your state is offering this generous break).

If your state isn't offering a sales tax holiday, don't despair. Many major retailers including Staples, Best Buy, Walmart and Target all want to help you spend money by offering back-to-school deals. Staples is offering sales on school items and other discounts store wide, as well as free shipping for online orders of more than $50. Walmart is promoting sales on school items and free shipping on some online orders. Target is offering 10% off when you spend at least $100, as well as free shipping for online orders of $50 or more. A current promotion of Best Buy offers no interest payments for 18 months on purchases of $249 or more when using the store credit card. So if you live in one of the states that doesn't have a sales tax -- Alaska, Delaware, Montana, New Hampshire or Oregon -- enjoy the sales.

Most of the time, the tax holidays are tied to heading back to school, but some states, like West Virginia use the holiday to encourage shoppers to buy energy-saving appliances. Be a careful consumer and check your state's site before heading out to shop -- some states, like Missouri are allowing towns and counties to opt out of participating.

The Consumer Federation of America and the National Consumer Law Center applauded today's announcement by the Internal Revenue Service that it will no longer help banks make refund anticipation loans to the working poor.

The one- to two-week loans are made by banks and facilitated by commercial tax preparers, secured by the taxpayer's refund. In 2008, the groups say, the loans skimmed $738 million from the refunds of 8.4 million American taxpayers. Interest charges can be exorbitant, with some lenders levying fees that amount to annual percentage rates from 50% to nearly 500%.

The IRS has been facilitating these loans with a service called the "debt indicator" which helps banks that partner with tax preparers to make loans based on the borrower's expected tax refund. The "debt indicator" acts as a form of credit check, telling tax preparers whether a taxpayer's refund will be paid or will be intercepted for government debts.

"We are pleased that IRS has decided to stop aiding and abetting high-cost RALs that siphon off hundreds of millions in taxpayers' hard-earned money and federal benefits meant to lift the working poor out of poverty," said Chi Chi Wu, the consumer law center's staff attorney, in a statement.

When the recession threatens our peace of mind, many of us turn to alcohol for relief. However, that beer, glass of wine or mixed drink can vary in cost a great deal, based on what state you live in and its alcohol tax rate. An advocacy group in Maryland now is proposing a dime per drink tax on alcohol sales in that state as a way to fund programs for the poor and disabled.

The group, Maryland Citizens' Health Initiative, started lobbying state legislators a few weeks ago. Such a tax has been shot down as recently as 2008, and the tax rate on alcohol in the state has not changed in almost 30 years. The group hopes this tax will raise almost a quarter of a billion dollars that could be used to fund programs to help alcohol and drug addicts as well as others dependent on state health programs.

Congress, which is trying to find money by looking under the sofa cushions, has resurrected a plan to require Internet shoppers to pay state and local sales taxes.

The bill, dubbed the Main Street Fairness Act, was explained thoroughly earlier this month by Walletpop Blogger Josh Smith. In short, the measure was introduced by Rep. Bill Delahunt, a Taxachusetts Democrat, who argues that it is unfair to local businesses that online businesses escape paying sales tax.

The history of the battle over taxes goes back to a court ruling in 1992 when the Supreme Court confirmed that it was indeed too onerous and costly for businesses to calculate state and local taxes because they vary so much from state to state.