Enquiring Minds Want to Know

According to the Cincinnati Enquirer, a tax examiner with the IRS has been arrested for illegally accessing personal information of 197 celebrities and professional athletes.

Examiner John Snyder was caught when authorities audited who was accessing personal and tax information stored on a federal database. Snyder had access to the database but had no legitimate reason to view individual taxpayer accounts.

If convicted of improperly accessing IRS data, Snyder could serve up to a year in prison and a $250,000.

Some of the celebrities named as victims include: Kevin Bacon, Alec Baldwin, Sally Field, Vanna White, Cincinnati Reds and Chicago Cubs players, Marvin Lewis, Penny Marshall, Randy Quaid, Tara Reid and Chevy Chase.

All the legal aspects of this dispatch make sense. What confuses me, though, is the mention of Chevy Chase. Is he still considered a celebrity?

What's 2+2?....What do you want it to be?

A recent survey by the Ethics Resource Center found that rates of misconduct are increasing and management awareness is declining in Corporate America. It also found that compliance programs are beginning to deteriorate.

At the same time, another survey has more intriguing results. Junior Achievement found that 41 percent of teens believe one must act unethically in order to get ahead. Only 22 percent of teens expressed that view in 2005

What does this all mean? Hopefully, not much. However, with rising fuel costs, intense competition and early signs of inflation, and watchdog groups beginning to look elsewhere, this may be the beginning of a perfect storm for corporate failings of an Enron or WorldCom magnitude.

We're Number 2!

According to The Tax Foundation, the United States now has the second highest corporate tax rate in the world, behind Japan.

The top ten:

Japan 39.5%
United States 39.3%
Italy 37.3%
Canada 36.1%
France 34.4%
Belgium 34.0%
New Zealand 33.0%
Spain 32.5%
Luxembourg 30.4%
Germany 30.0%

Unfortunately, the only talk I hear in this election year about corporate tax rates is how corporations aren't paying nearly enough. We'll see if the trend among European Union nations makes its way across the Atlantic.

Book Review: Vultures in Eagle’s Clothing: Lawfully Breaking Free From Ignorance Related Slavery

Actually, I’m not going to review this pile of garbage as much as I’m going to allow the plight of James Ellett speak to the usefulness of this book. The book written by Lynne Meredith claims to instruct readers how to ‘lawfully stop paying income taxes’. In 1994, Mr. Ellett read the book and in the ten years that followed read it at least one hundred times. He also spent hours researching taxes in a law library.

Upon formulating a tax strategy, Mr. Ellett filed ‘In Lieu of Form W-4’ forms from May 1996 through 2004. These forms directed his employer to withhold zero dollars from his income. So even though he earned between $64,000 and $102,000 each year from the year 2000-2003, his federal withholding was zero.

In the middle of 2004, the IRS instructed his employer to begin withholding taxes from his wages. This resulted in $8,251 being withheld on income of $73,376 for 2004. Ellett did not file federal income tax returns for the 2000 through 2004 tax years. In total, he failed to pay $64,000 in income taxes for that period.

This brings to Mr. Ellett’s most recent court decision. He was indicted on September 14, 2006 for three counts of income tax evasion for years 2000-2002. On February 2, 2007, two additional counts were added: tax evasion for tax year 2003 and misdemeanor failure to file for tax year 2004. So all told Mr. Ellett is now on the hook for five tax years.

From this point forward there is not much excitement in this case. Mr. Ellett’s main defense for not filing is that as a native of one of the 50 states who worked for a private employer, he sincerely believed that he was exercising a ‘nontaxable right’ to engage in labor. Most reasonable people would conclude that this is pure nonsense. Even Mr. Ellett conceded under cross examination that this was ridiculous as any tax professional would have disagreed with him which is why he never consulted one and that the Supreme Court has upheld the constitutionality of the federal income tax.

However, there is one point that may be worth making. After the jury found him guilty on all counts, Mr. Ellett sought a new trial on the grounds that due process required that he be given the opportunity to litigate his tax position civilly or administratively before being prosecuted for tax evasion. Essentially, Ellet was arguing that since he was never audited, he could not be prosecuted. This is where Mr. Ellett and possibly many other non-filers misunderstand the tax deficiency element of tax evasion.

A tax deficiency arises when a tax return is due but not filed. The Internal Revenue Service is not required to make a formal demand or assessment. Therefore the government is not required to obtain a civil or administrative determination prior to establishing the existence of a tax deficiency.

So any non filers or tax protesters who are reading this should do themselves a favor and file any past due returns. Otherwise, you may have the same fate as Mr. Ellett; 18 months imprisonment.