Young Buck's Tax Problem

I sent this NPR story to my tax students to both demonstrate that what they are learning has real world relevance and to remind them that they know why Young Buck can't deduct the cost of his watches.

Even though they are quite the watches (many NSFW).


From the story:

"When IRS agents raided the house of rapper Young Buck, they seized all his things: his white leather dining chairs, his watches, his craps table, his tattoo kit. Even his refrigerator. The Nashville artist, who was once part of 50 Cent's G-Unit, owed hundreds of thousands of dollars in back taxes.

... if you're an entertainer, what qualifies as a business expense can seem really murky. Your whole lifestyle is not tax deductible.   Madison has tried to deduct watches, arguing that it's a necessary business expense for his client to have a certain look. The CPAs at his company threw it back."

Ivan Rodriguez retirement, yes, there's a tax angle

I love this website where you can see the tax consequences of baseball player salaries, with and without the expiry of the Bush tax cuts, plus what the player would have paid under Eisenhower.  However it looks like Pudge's bottom line is 0 this year, clearly not the case; judging from last year he should have at least a million or so to work with.  But check out the other Rodriguez.  Without Bush, he would have paid about a million more in taxes; under Eisenhower, more than $16 million more!

Is India not entitled to tax sovereignty?

Apparently not, according to the US business lobbying industry.  They're putting pressur on Tim Geithner to put pressure on India as it contemplates enacting that controversial post-Vodafone legislation.  As the FT reports today:

A coalition of large American trade associations – mainly from the technology and financial services sectors – sent a letter to Mr Geithner asking him to “raise concerns” about the tax bill in talks with Indian officials during the spring meetings of the World Bank and International Monetary Fund this week.

...The US Treasury declined to comment on the letter to Mr Geithner. He is slated to meet Pranab Mukherjee, the Indian finance minister, this week on the sidelines of the IMF and World Bank gatherings. Pressure from the US lobbying groups will raise the odds that he will press the matter. 

...The pressure on Mr Geithner comes after George Osborne, UK chancellor, made a public intervention on the matter earlier this month on a trip to New Delhi, chastising the Indian government for its proposed changes and warning of potentially harmful effects on trade and investment. 

So now we see how "tax sovereignty" actually works out in practice.   I've long argued that there is no theoretical or empirical basis for the claim that taxation is intrinsically associated with sovereign status, and that the "soft law" nature of international taxation--enforced coordination to standards developed by powerful players through modeling and peer pressure--demonstrates that tax sovereignty isn't minded at all in practice.  This latest move against India's assertion of its sovereign taxing power is further proof.  Who is responsible for all this pressure?

• The US Chamber of Commerce, headed by Thomas J. Donohue, a self-described aggressive supporter of tax competition;
• The Financial Services Forum, headed by Lloyd Blankfein and a who's who list of corporate tax dodgers, like Gerald Hassel (BNY) Sergio Ermotti (UBS) and Michael Neal (GE); and
• Information Technology Industry Council, with a similarly heavy representation of tax dodgers with lots of experience lobbying for tax breaks, including Fred Humphris (Microsoft), Cathy Novelli (Apple), and Micheal Timmeny (Cisco).

I don't think these folks want to "raise concerns."  I think they want to stop India's democratically elected government from enacting legislation in accordance with its sovereign status as an independent nation, and I find it amazing that they fully expect the U.S. government to help them do that.

This is because of course if businesses really don't like what India is doing, they have a perfectly viable option, which is to do what they say they are going to do, namely, take their assets and go home.  But they do not want to do that.  They want to be able to continue doing business in India at the lowest possible cost to them, and if the Indian government won't play along and give them the tax system they want, these business leaders would like to turn this into a government-to-government conflict so that it is India against the U.S. instead of India minding its own business, writing its own laws, and opening itself to businesses willing to work within its sovereign territory according to its own rules.

Anyone is free to disagree with India's tax policy direction, and anyone is free to express "concerns" about it.  But India's decision belongs to India's people, and it is shameful to see the U.S. business lobby so brazenly insisting on their right to intervene.

Canada's Mutual Agreement Program

Just like its equivalent in the US, the Canada Revenue Agency seems to have begun to publish annual statistics on its mutual agreement program--the treaty-based diplomatic regime under which the government agrees on revenue allocations with other governments--only after a long information disclosure battle.  In Canada, the credit for transparency in the MAP program goes to David Sherman, who spent six years in the Courts only to eventually pry the most meager amount of information out of the CRA.

But Mr. Sherman's battle seems to have been productive for the rest of us: now we have a series of annual reports being published by the CRA, and generally with more information than that available in the IRS counterpart, which of course we can't even find.  Yes, that's another difference compared to the IRS counterpart: these statistics are actually available online, and not just to big four accounting firms.

However, I've not yet found a place where they are compiled together nicely with links; instead, I've had to google search them.  So, for David Sherman and for all of us benefitting from his hard work on transparency in the tax system, here they are:

First Report--2001-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011 

Notice that the first report was issued in 2005 and covered 2001-2004 only; Mr. Sherman's initial lawsuit sought information for 1995 through 1998, and he made a subsequent request for information from 1999-2004.  The information exists but the CRA just hasn't bothered to compile it.  That's too bad.  But on the other hand the CRA is light years ahead of the IRS on this.

Addendum: David Sherman advises me that his lawsuit sought disclosure of CRA to USA requests in connection with the assistance in collection provisions of the tax treaty, and not in connection with taxpayer-initiated competent authority actions; only the latter are disclosed in these MAP reports, and the CRA has refused to disclose collection assistance data on grounds such disclosure could be "injurious" to the CRAs relationship with the USA.   The CRA hasn't said why publishing such data would be injurious.  CRA still doing better with transparency than US but clearly there is plenty of room for improvement.

Why Does E&Y Get Inside Info from the IRS? A Mini-Mystery for Your Consideration.

I do a lot of research on tax treaties, tax treaty information exchange, and especially competent authority negotiations under the mutual agreement procedure (MAP)--i.e., the technical means by which countries allocate tax revenues amongst themselves.   Don't stop reading, this is an interesting story, I promise.

One of the things I study about what the competent authorities are doing under MAP is just how secretive the whole structure is.  It seems like it took a Tax Analysts FOIA battle to get the IRS to start releasing even the most basic of data on its competent authority program, and then it's only done so in aggregate statistical form.  If you want to know why I think its important that we know what it is the competent authorities are doing and why the IRS ought to be telling us at least a little bit about this program, you can read my forthcoming article called How Nations Share, here is a draft.

But this is not about those ideas.  Instead, this is about an annoying occurrence that has now come up two years in a row with respect to IRS information dissemination about the competent authority/MAP Program.  This is what happened:

I was searching around online looking for anything to do with competent authority cases, and came across this little newsletter by Ernst & Young, dated January 21, 2010.  Interesting!  It tells me that the IRS just released the "2009 Competent Authority Statistics Report on 15 January 2010," and then it describes the report, complete with a number of charts, graphs, etc.  This is a fascinating secondary source but of course within two seconds of realizing what it was about, I wanted to see the primary source.  I check the E&Y document but there is, annoyingly, no helpful ink, not even a spelled out URL, nothing but the name of the report and its purported release date.  So I google, and dig around, and google some more, and try everything I can come up with to find this elusive 2009 report.  And where is it?

No where.  No where at all.

Yet E&Y must have it, so how can this be?  I asked my local rock star law librarian for help and she made inquiries to the IRS.  Finally, at least a month later, my librarian comes back to me with an email direct from the IRS, with an attachment--a Word document showing those statistics E&Y used, accompanied by the statement "I believe you requested this information.  Let me know if it is not what you wanted."  it is!  Thank you, IRS!  But...

Huh.

OK, that's odd, I thought.  Why would the IRS go to all the trouble of putting together these statistics, and not release them to the public, like in a press release, such as on the IRS website, for example, at the IRS newsroom?  Further, if this document isn't released to the public, then how come E&Y has it, and has it in time to produce a nice glossy pamphlet (ok, it's an online pdf but my screen makes it look glossy) on the topic within six days of its purported "release"?

I dismissed my thoughts about inner circles, agency capture, conspiracies, and the tax elite, in order to get on with the business of analyzing the data.

Now I am starting to think that the "release" IS the story.

Because here, a year later, is again a very nice E&Y document, dated January 19, 2012, that looks very much like last year's.  E&Y may be going a bit slower--this time the report has been issed almost month after the purported "release" of the latest competent authority statistics, on December 16, 2011.

And again the actual report is nowhere to be found.


Why is this?   I've again asked my librarian to investigate, but what on earth is going on here.  What possible purpose could be served by "releasing" data but only actually furnishing it to E&Y?  Actually, it seems KPMG might have got their hands on it this year, as well, but didn't bother with it too much.

Any thoughts on the elusive competent authority report?   And if you have a copy of the report, can you send it to me?

And while we're on the subject, just exactly how long has the IRS been compiling and not-releasing competent authority statistics?

Addendum: Since at least 1994, by releasing only by "press drops," and it is maddening to say the least to get any kind of complete dataset.  More to come on this subject.

Military spending: USA vs rest of the world

From Stockholm International Peace Research Institute, latest military expenditure data.  But note that the USA isn't even in the top twenty in terms of per capita spending--that honor goes to the Middle East.

Intuit lobbying and the tax prep market

Matt Stoller suspects that Intuit's $9 million lobbying budget is spent in the pursuit of making it harder for people to file their own taxes.  No doubt about it.  He rightfully brings up Ready Return, a program I've mentioned before.

He includes this handy chart of annual lobbying by Intuit:

But even better, he has this from Intuit's annual disclosure:

“Our consumer tax business also faces significant competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers.  These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. For example, during tax season 2010, the federal government introduced a prepaid debit card program to facilitate the refund process. Our consumer and professional tax businesses provide this service as well." 

As we well know, regulation is good for monopolies and lobbying pays off handsomely to everyone involved, but has high social costs.