Commentary on estate planning, estate administration, and real estate issues from a Chicago-area attorney.
On the McCain/Palin (or is it Palin/McCain?) side, there's some analysis of income tax returns:
Palin: Wall Street Journal article
McCain: Huffington Post article
On the Obama/Biden side, there's this open letter from prominent economists (including my current professor) who criticize Obama's tax plan. (Of course, there's some evidence, here, that lots of economists support Obama.) On Biden, I got nuthin -- are hair plugs deductible?
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Chartjunk gives us some nice visual representations of the tax proposals of Senators McCain and Obama, here.
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Recently (here) I had a post about the respective tax policies of Senators Obama and McCain. Slate has more on Senator McCain and taxes, here, although as the writer (Timothy Noah) makes clear, it's not easy to tell exactly what the Senator really thinks.
The Wall Street Journal's Daniel Henninger goes even further on the subject of Senator McCain and taxes, here, in an article entitled "Is John McCain Stupid?" An excerpt:
Is John McCain losing it?On Sunday, he said on national television that to solve Social Security "everything's on the table," which of course means raising payroll taxes. On July 7 in Denver he said: "Senator Obama will raise your taxes. I won't."
This isn't a flip-flop. It's a sex-change operation.
Mr. Henninger continues:
What I'm asking is, does John McCain have the mental focus, the intellectual discipline, to avoid being out-slicked by Barack Obama, if he isn't abandoned by his own voters?
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I was hoping to have a new podcast up today, but technical difficulties -- my microphone isn't working -- have prevented that. I'll try to get the problem fixed, but thought I'd address the "taxes" part of my Death & Taxes mandate by discussing EINs.
What does EIN stand for?
Employer Identification Number.
Why might I need an EIN in the estate or trust context?
Because the estate or trust you are handling is a tax-paying entity.
What does the EIN do?
It's like a social security number for entities. In the estate or trust context, you can use an EIN to open a checking account. It's also the number you would use to file income tax returns for (to take a couple of examples) the John Smith Trust or the Estate of John Smith.
Hold on a second. Estates and trusts have to file income tax returns?
In some cases (where they earn a certain amount of income). Think of it this way: if income is being earned, the IRS wants it attributed to someone (or some entity). If John Smith dies on April 15, 2007, what happens to the income earned on John Smith's property AFTER that date?
I have a living trust. Do I need an EIN?
Not so long as you are still acting as the trustee of your own living trust.
Where do I get an EIN?
The easiest place to get one is online, here.
What information will I need to get the EIN online?
What a great question, one that the IRS should address on its site. If you are getting an EIN for an estate or trust that you are handling, you should have the decedent's information (SSN, full name and address). You'll also need to give your SSN, full name and address.
Can my attorney or accountant get the EIN for me?
Yes, but you'll have to give him or her authorization to do so by filling out an SS-4 form.
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Professor Caron over at TaxProf Blog provides an interesting post about Steve Forbes' new book, Flat Tax Revolution, and Michael Kinsley's critique thereof (which I have linked to directly here).
Mr. Kinsley's first argument against Mr. Forbes' plan (which calls for a 17% flat tax) is a good one. When I was a student in Professor Kyle Logue's Income Tax I class, we learned about the tax code in three parts:
1: What is included in income?
2: What are the permitted deductions and credits?
3: Tax rates/calculating your tax
The appeal of a flat tax is to simplify part 3 (and, to a lesser extent, part 2), but as Mr. Kinsley puts it, "... progressive tax rates -- higher taxes on higher incomes -- aren't what make the current system so complicated. It's as easy -- even easier -- to multiply by 40 percent as it is to multiply by 17 percent...." Rather, it's part 1 that's the real problem: "The complications come in defining and calculating income. Some of the complications are unavoidable, because people and companies have complicated affairs."
Mr. Kinsley also attacks the (somewhat counterintuitive) idea that reducing taxes for everyone will actually increase tax revenues because lower taxes will "inspire" people to work harder. I'll let Mr. Kinsley's words speak for themselves, since I find them delightfully catty:
... [L]et's note only that tax rates were higher than they are now when Steve Forbes had the inspiration to be born into a wealthy family, and higher still when his father, Malcolm, first built the family fortune.
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Yesterday Professor Beyer ran this note about www.taxalmanac.org, a new website for tax professionals created by the software maker Intuit (they are the TurboTax people). By coincidence, I received a phone call from someone at Intuit yesterday afternoon, asking if I wanted to help build the website by supplying articles. As Professor Beyer points out, the website is meant to be a "wiki-based" information tool -- if I understand correctly, anyone registered at taxalmanac.org will be able to edit any article on the site.
I told the Intuit representative that I would think about it, but it's fairly unlikely that I will participate.
First there's the issue of free content. Intuit (from this) appears to be a fairly profitable company, with net income over $300 million per year in each of the past three years. I, on the other hand, do not have net income over $300 million per year (I know -- shocking, isn't it?). Intuit hasn't created this website out of the goodness of their hearts -- they think it will lead to even more income for them. That's great (viva capitalism), but why would I want to help Intuit build their business for free?
I'm sure Intuit would tell me that the quid pro quo is my articles in exchange for the wealth of information I can find at taxalmanac.org. And, indeed, there are some good aspects to the site -- it offers up-to-date versions of the Internal Revenue Code and Treasury Regulations. However, I'm simply not sure about the quality of the other information offered on the site, mostly because of its nature. I know that people such as Jeff Jarvis like the idea of wikis, and think that they can serve to democratize the internet. However, when I use the internet for law-related research, my one and only goal is accuracy. My understanding is that the articles at taxalmanac.org are both posted and edited anonymously, which means (a) I don't know the credentials of the person who originally posted an article, and (b) I don't know the credentials of the person or people who edited the article. If that's the case, then how can I rely upon the information in any of the articles I find at the site?
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I meant to post this article last Friday (Tax Day), but got a bit carried away with estate tax repeal issues. The article (by Daniel Gross of Slate) takes an interesting look at the income tax deduction for home mortgage interest.
I think it's an important article both for the specific issues it raises about the deduction, and for its more general points about the messiness of the tax code (and our reactions to it). From time to time, I hear people talk about how we need to simplify the Internal Revenue Code and make it more fair, when those two goals (simplicity and fairness) often seem mutually exclusive. As the article indicates, even when we pinpoint a problem we can solve, the problem may persist simply because of politics (and self-interest).
Mr. Gross cleverly addresses this with his opening paragraph:
"There's a cancer at the heart of our increasingly complex tax code. A special deduction that disproportionately benefits the wealthy and distorts economic activity has grown rapidly in size and could cost taxpayers nearly $100 billion annually by 2009. Eliminating it would allow us to reduce levies on income and rationalize the system. According to Martin Sullivan, a contributing editor of Tax Notes, its existence 'means the economy has less business capital, lower productivity, lower real wages, and a lower standard of living.'"
Many (most?) Americans would support elimination of the deduction described above. But if you instead took a poll asking "Do you support the elimination of your income tax deduction for home mortgage interest," most people would answer "no."
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When it comes to creating a defense to the charge of tax evasion, I don't know which excuse is worse:
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