Cash for Condos

The first-time home buyer tax credit is due to expire next month. Anticipating the death of the credit, first-time buyers rushed to the market and helped to push up September home sales. Of course, commentators anticipate that home sales will collapse as soon as the credit expires (call it the cash-for-clunkers effect). From Bloomberg:

The $8,000 credit for first-time buyers, due to expire Nov. 30, has probably pulled sales and construction forward, signaling housing may cool in coming months. While Congress is considering extending the incentive, lower prices and mortgage rates have also contributed to steadying a market that endured the worst slump since the Great Depression.

“The rush to take advantage of the tax credit is obviously pushing up sales,” said Michael Gregory, a senior economist at Capital Markets in Toronto, who forecast sales would rise to a 5.5 million pace. “Although this is going to be temporary, it does absorb some excess supply and helps bring the market into balance going forward.”

Nearly Half of America Pays No Federal Income Tax (TTT)

Yes, it is true. According to CNN, 47% of Americans will pay no federal income tax this year. Perhaps even more shocking is that:

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

Can a country running a $1.6 trillion deficit really allow so many of its citizens to escape the burden of taxation? Should all citizens be required to remit a portion of their earnings to the treasury as the cost of their citizenship, even if only a token amount?

Whatever your feelings, expect to see that 47% number to drop considerably in the very near future.

The UBS Effect (and TTT)

According to Bloomberg, the UBS prosecution is accomplishing exactly what the IRS intended: massive disclosure. Clients of numerous Swiss banks are disclosing their offshore accounts to the IRS to avoid criminal prosecution. (Hint: If you happen to have an offshore account, declare it before September 23 to avoid the Wesley Snipes treatment).


Further, the IRS is using the disclosed information to chase down other banks and law firms that may be holding out:

The disclosure program and the U.S. lawsuit settled by UBS are helping the U.S. crack down on offshore tax evasion by pursuing financial institutions and intermediaries including law firms, IRS Commissioner Doug Shulman said Aug. 19.

This makes sense.
Advising US taxpayers not to declare their income, from whatever source derived, is a crime. See I.R.C. §§ 7201 et. seq. As a US Citizen or resident, you are subject to tax on your income earned anywhere in the world (This is today's TTT). Thus, if a law firm advises a US Citizen or resident not to report their offshore accounts (or any other income from anywhere in the world) on their annual 1040, both the law firm and the taxpayer face criminal liability.

And that is how they got UBS. UBS was advising clients not to report their Swiss accounts to the IRS. The IRS went after UBS on criminal charges of facilitating tax evasion (Aside: the Swiss distinguish between tax evasion and tax fraud). UBS has substantial assets and clients in the US and opted to cooperate rather than see its US operations shut down.

Now that disclosure has started, expect to see a lot more cooperation by foreign banks, tax attorneys, and high net-worth individuals when it comes to their future dealings with the IRS. Maybe, just maybe, the extra added revenue will reduce the inevitable future tax increases imposed on the rest of us.


UPDATE: The IRS has extended their disclosure deadline to October 15.

Today's Tax Tidbit (TTT)

This is a TTT post. The first of many more if it proves to be popular.

Did you know that the IRS considers any illegal gains to be income? See Treas. Reg. § 1.61-14 (2009).

Make sure you declare your earnings from rum running or pimping to the IRS or risk a nice trip to the pokey (Aside: ACORN offers great advice as to how to maximize your brothel deductions).

UPDATE: No, poor Mr. Snipes did not do anything illegal to earn his money, he simply failed to report and pay tax on his legitimate earnings (well, only if you consider proceeds from the Blade series to be legitimate).