California Tax Attorney Blog

Jonathan G. Blattmachr and Georgiana J. Slade at Milbank, Tweed, Hadley & McCloy LLP, and Bridget J. Crawford at Pace University - School of Law, have written an article in the March, 2007 edition of "Estate Planning" magazine, addressing estate planning for those of us with estates under five million dollars. I have posted the full article at the same time as this posting.

Here is an abstract for the article:

"Financial concerns may preclude people of modest wealth (defined for purposes of this article as those having a net worth between $1 million and $5 million) from making significant lifetime transfers to achieve estate planning goals. Yet lifetime transfers are among the most effective ways to reduce estate taxes. Individuals of modest wealth may experience a tension between the desire to take advantage of opportunities to reduce taxes and protect assets from other claims which may arise, on the one hand, and the need to preserve an adequate base of wealth to ensure the maintenance of a current standard of living, on the other.

"The advisor to these individuals carefully should consider what estate planning steps are most appropriate and what level of transfers, if any, the individual reasonably can afford to make.

"This article details and evaluates eleven strategies that may apply to clients in the modest wealth category:

"(1) inter vivos transfers of life insurance and other non-income producing assets;

"(2) estate building and income tax sheltering with life insurance;

"(3) qualified personal residence trusts;

"(4) effective use of annual exclusions;

"(5) self-settled trusts;

"(6) potential use of the gift tax exemption and the GST exemption;

"(7) assessing income tax-free states;

"(8) using a charitable remainder trust to build wealth and generate income;

"(9) medical care and tuition payments;

"(10) limited liability entities for asset protection and tax planning; and

"(11) special care in handling interests in qualified plans, IRAs and other IRD."

To speak with an estate planning attorney in Los Angeles, California, call Mitchell A. Port at 310.559.5259.

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For his willfully failing to file an income tax return, Wesley Snipes was sentenced to three years in federal prison. He was charged with having failed to pay over $15,000,000 in taxes.

A jury acquitted Wesley Snipes of fraud and conspiracy charges and certain other tax charges even though they convicted him for failure to file his 1999, 2000, and 2001 tax returns.
According to the IRS, tax protestors Eddie Ray Kahn and Douglas P. Rosile (who themselves face 10 and 4-1/2 years' incarceration respectively) met Snipes in 1998 who followed their suggestion to (among other things) stop filing tax returns.

He also filed amended returns requesting payments from the government of millions of dollars in refunds from earlier years' filings.

Allegedly, Snipes doctored tax returns, and sent fake checks to the Treasury to evade paying his tax liabilities.

For what was technically a misdemeanor, Snipes was convicted and sentenced to time in prison.

According to Justice Department prosecutors, this represented a "singular opportunity….to deter tax crime nationwide." And "Snipes's long prison sentence should send a loud and crystal clear message to all tax defiers that if they engage in similar tax defier conduct, they face joining him and his co-defendants . . . as inmates in prison."

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In an article this California tax lawyer thinks is worth reading, Marjorie E. Kornhauser (Arizona State) has published A Tax Morale Approach to Compliance: Recommendations for the IRS, 8 Fla. Tax Rev. 599 (2007).

Here is the introduction:

If people hate taxes so much why do they pay them? The common, seemingly obvious, answer—fear of being caught cheating—is only a partial answer. In fact, this “obvious” answer—based on the rational cost/benefit analysis of traditional economic theory— explains so little of tax compliance that the puzzle of tax compliance is why people pay taxes instead of evading them. The key to this puzzle is “tax morale,” the collective name for all the non-rational factors and motivations—such as social norms, personal values and various cognitive processes—that strongly affect an individual’s voluntary compliance with laws. Higher tax morale correlates with higher tax compliance. Although the exact components of tax morale are not yet fully delineated, Congress and the IRS should begin now to shape and administer income tax laws in accordance with tax morale findings. Delay can only increase the chance that voluntary compliance will deteriorate given the interaction of an individual’s tax morale with elements of the external environment, such as other people and institutions. The tax gap, for example, is more than a problem of lost revenue; it is a visible sign of non-compliance that can create a downward spiral. Non-compliance among other taxpayers can decrease an individual’s own tax morale and compliance. Once tax morale dips, it is hard to restore it to prior levels. Ironically, then, the more the tax gap is publicized, the greater this danger becomes. Consequently, Congress and the IRS should act now to narrow the tax gap and to foster compliance generally. This Report offers the IRS several concrete suggestions for improving individual taxpayer compliance based on the tax morale literature.

Part II discusses methodology and the limitations of empirical research.

Part III briefly describes the tax morale literature, focusing on the main findings regarding: 1) cognitive and affective processes; 2) personal and social values/norms, especially procedural justice, legitimacy, reciprocity, and trust; 3) external activation and suppression of tax morale; 4) demographic factors; and 5) a new tax morale model for tax administration.

Part IV contains recommendations for the IRS. It presents three major recommendations and several more specific suggestions for the IRS to improve individual taxpayers’ voluntary compliance. First, the IRS should establish a department devoted solely to exploring tax morale issues and implementing the findings. Second, the IRS should adopt a tax morale approach to tax compliance that incorporates the findings of the research and responds to—and strengthens—taxpayers’ internal motivations to comply. Third, using tax morale research, the IRS should implement ongoing educational (long - and short term) programs and media campaigns. Although sticks as well as carrots are needed to ensure compliance, this Report examines only the carrots.

Part V provides a short conclusion.

Solutions to tax problems and California tax help from a qualified tax attorney is available by calling Mitchell A. Port at (310) 559-5259.

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Income tax owed but unpaid in California may be collected by the Franchise Tax Board (FTB) using any number of collection methods described in California's Collection Procedures Manual. The Manual describes the desired culture and philosophy for the Collection Program.

California's Collection Procedures Manual contains the following topics:

Introduction Section

Responsibility Section

Case Administration Section

Case Processing Section

Debtor Asset Location Section

Voluntary Case Resolution Section

Involuntary Case Resolution Section

Case Servicing Section

Special Processes Section

Glossary

If you have an income tax problem in California or with the IRS, call Mitchell A. Port for tax help at (310) 559.5259.

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