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Wednesday
Aug192015

Marijuana Tax: Revenue Windfall or Blood Money? Tax Attorney Rob Wood Discusses State Pot Tax

New Jersey governor and Republican presidential candidate Chris Christie has a solid record as an opponent of new taxes, having vetoed more proposed tax increases than any other governor in modern times. As to marijuana, Christie has said that, not only will there never be marijuana tax revenue in New Jersey, the drug will not be legalized while he is governor.

Christie has referred to marijuana tax revenues as “blood money.” Tax Attorney Rob Wood discusses Christie’s stance and the marijuana tax issue in this report, based on his Forbes article “Chris Christie Doesn't Like Taxes, Especially On Marijuana And Yachts.” [Wood has previously discussed marijuana taxes on LBN.]

Christie has commented on the less-than-expected tax revenues Colorado has received from its marijuana tax. Wood notes that the topic of taxing marijuana—medicinal and recreational—is a huge topic today. Wood says it’s not clear that Colorado’s results are enough to base a decision on, but the issue is a political one for Christie, and his effort is to speak to voters.

In that regard, says Wood, Christie has emerged as a stronger candidate than some thought he would be. “He’s kind of a fighter, and he’s able to pull out quotes from the experience in Colorado” and use them effectively. The thing to remember, Wood points out, is that Colorado made a lot of money on marijuana taxation but was expecting much more than it got. This caused Christie and others to point out that “a lot of the revenues that they expected went into the black market” and failed to surface as tax revenues.

As to a tax structure, Wood says that Colorado, Washington, and Oregon are all following a similar course. They tax medical marijuana at one rate and recreational marijuana at a higher rate. “And that ties into what the federal government has been talking about.” Wood notes that there have been federal efforts—unsuccessful as yet—to legalize marijuana and tax it at rates up to 50%. This is a subject that brings out a lot of controversy, and it will be years before the controversy is resolved.

And speaking of marijuana tax in Colorado, a lawsuit has been filed urging the proposition that requiring marijuana companies to pay taxes violates their Fifth Amendment right against self-incrimination. Wood says that this is a very clever argument. It has not been successful so far, but there may be some merit in it.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Wednesday
Aug052015

IRS Chief Koskinen Should Go, Says Congressman Chaffetz. Rob Wood Discusses the IRS Scandal

The scandal involving the IRS, Lois Lerner, and missing emails has not gone quietly away. IRS Commissioner John Koskinen has recently gotten into very hot water in a lawsuit involving IRS targeting of conservative groups. On July 27, House Oversight and Government Reform Committee Chair Jason Chaffetz called on President Obama to remove Koskinen, who might face impeachment. Tax Attorney Rob Wood discusses the matter in this report, based on his Forbes article “Obama Is Urged To Fire IRS Chief Before Impeachment Looms.”

Wood notes at the outset that it is “not very likely” that the president will remove Koskinen. The political firestorm over the “targeting” of conservative groups by the IRS has raged on for two years at this point. Wood suggests that Koskinen’s handling of the problem and unapologetic stance have won him no friends. However, Wood says that President Obama is unlikely to remove Koskinen and feels that Koskinen is unlikely to resign on his own.

As to the targeting of conservative 501(c)(4) groups, Wood says the issue has become “sort of a he said she said” situation. Wood has no doubt that Lois Lerner had her agency giving close scrutiny to conservative groups. There were Democratic concerns ever since the Citizens United case that conservative groups would develop much more funding. “Something had to be done” was the conventional wisdom, Wood suggests. Conservative groups have not let go of the issue in large part because there has been no suggestion of apology from the IRS. The concern is that the IRS should not be a political tool of any presidential administration (whether or not this has in fact occurred).

When the dust settles, if it does, Wood “is not sure that anyone will be” held accountable for what happened. The hue and cry has passed, and the impetus for holding someone responsible has passed. However, Wood notes, there has not been a final resolution of possible criminal charges as a result of the targeting scandal. Lois Lerner apparently will not be charged. There may be more to come, but Wood notes that attention is now mostly focused on the run-up to the 2016 presidential election. Wood finds it “really distressing that the IRS, which is by and large a very good organization . . ., has been maligned.” For IRS employees, the situation must be demoralizing.

As to previous IRS scandals, Wood says that some political activity on the part of the agency apparently occurred during the administration of Richard Nixon. That is the only real comparison that is being drawn, and it is not a flattering one for the Obama administration.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Friday
Jul242015

The On Demand Economy Catches Hillary Clinton’s Eye. Tax Attorney Rob Wood Explains

Questions about the on demand, or gig, economy are surfacing in the 2016 presidential race. The differences between employees and independent contractors include things like government regulations, workers’ compensation, and health benefits. Tax Attorney Rob Wood discusses the issues, which are also the subject of his Forbes article, “Hillary Clinton Disses Uber And On-Demand Economy.”

Wood says that the on demand economy involves companies like Uber that see themselves as providing connections between customers and independent contractors. [See Wood’s earlier article about Uber on the Tax Law Channel.] Uber is a text company operating all over the world in about 300 cities. While the company has a core staff of employees, but the drivers who pick up passengers, in response to requests through Uber’s app, are independent contractors. The Uber drivers have a fee splitting arrangement with Uber. All payments are electronic.

That model, Wood notes, is considerably different from the traditional employment relationship. If a customer makes a payment to an employee, the employee is merely a collector for an employer, who compensates the employee. The question raised by many, including the State of California, is whether the people who work with and for Uber and similar ventures are really employees who should be entitled to all the benefits and protections that relationship enjoys.

Battles over independent contractor status have been going on for a long time and show no signs of stopping. Wood points out that these battles have gone on for decades and have moved from industry to industry. Both the IRS and the Department of Labor have battled with companies over this issue. In addition to Uber and Lyft, companies like FedEx have litigated this issue. Wood says that the issue is political, to some extent, although there are legitimate reasons (in the case of Uber) to conclude that Uber drivers are very little different from people who drive for taxi companies.

Wood notes that exotic dancers and taxi companies have had contests over the years with the IRS. Wood opines that there may be no simple way to make the on demand model more acceptable politically. So the on demand economy will probably continue to be a target for governments and for politicians.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Tuesday
May262015

Tax Evaders May Be Fair Game For More Than the Three-Year Limit. Tax Attorney Rob Wood Explains

One sure way to get in trouble with the IRS is to engage in tax evasion. Of course, getting away with tax evasion (ignoring the illegality of it, for the moment) is the challenge, and for how long. Tax Attorney Rob Wood discusses the question in this report and in his Forbes article “How Far Back Can IRS Claim Tax Evasion?"

 

Wood points out that tax evasion is not the same as “aggressive tax preparation.” Wood says he doesn’t have a one-line definition, but there is a difference, just as tax avoidance is not the same as tax evasion. The difficulty in drawing the line between what is legal and what is not is a good reason to consult a tax professional. For example, whether a particular expense is deductible will depend on facts that may be unique to one particular taxpayer. All the problems, Wood opines, are reasons why the tax code needs to be rewritten and simplified.

One distinction that stands out is the difference between hiding income and claiming deductions to which one may not be entitled. Not reporting income is almost impossible to justify. The line between what must be reported and what is exempt can be fuzzy. Damage awards from lawsuits illustrate the problem. Damages for physical injuries are clearly exempt from taxation. On the other hand, damages received in an age discrimination action will probably be taxable. On the other hand physical injuries that result from discrimination, as in Parkinson v. Commissioner, may be nontaxable.

Generally, the IRS has a three-year period in which to catch tax evaders. However, the period can be lengthened for several reasons. But if you fail to report twenty-five percent or more of your gross income, the IRS has six years in which to catch you. Omitting information about a foreign account also triggers the six-year limit. And while you may be safe after six years, if your conduct is viewed as a “continuing violation,” the IRS has a longer time yet.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

Tuesday
May262015

The $83 Million Verdict in KC: the IRS Will Get a Lot of It. Tax Attorney Rob Wood Explains

 

A jury in Kansas City recently returned a punitive damages verdict of $83 million against a debt collection company for trying to collect a small debt from the wrong person. Portfolio Recovery Associates LLC, one of the biggest debt buyers in the country, spent fifteen months pursuing Maria Guadalupe Mejia for a debt of about $1,000 that was actually owed by a man with a similar name. After they sued her, a Kansas City law firm filed a counterclaim on the woman’s behalf, alleging malicious prosecution and violation of the Fair Debt Collection Act. Tax Attorney Rob Wood discusses the case in this report and in his Forbes article “Woman Billed $1,000 For Credit Card Error Gets $83 Million Verdict, But IRS Gets Last Laugh.”

 

At the outset, Wood notes that collecting the jury award is not a sure thing. There are questions whether the verdict will stand and whether there will be an appeal. However, Wood’s primary interest is the world of taxation, and he says that “the tax rules . . . are quite strange,” and punitive damages in particular are treated “harshly” by the tax code. Punitive damages are taxable, so the plaintiff who recovers punitive damages will have to pay taxes on them. And there will be attorney’s fees to be paid as well, probably on a contingent fee basis. Wood says that, because alternative minimum tax treatment is possible, a plaintiff could actually end up losing money.

That probably will not be the outcome in this case, but Wood says that the plaintiff will end up with less net damages than most people would expect. Wood’s guess is that she will end up with about $15 million, assuming the damages are actually paid. “That’s . . . better than a poke in the eye,” but much less than the average person would guess.

But it is all income to the plaintiff, even if the lawyer collects it first and deducts the fee before giving the balance to the plaintiff. The plaintiff will have to pay taxes on the portion the lawyer keeps as a fee. Wood’s estimate assumes a one-third contingent fee. If the fee were forty-five percent, for example, the plaintiff’s share is much less. Wood recounts a complicated wrongful death some years ago where there multiple layers, including appellate lawyers’ fees, the total fees came to seventy-two percent. In that case, the plaintiff actually lost money after paying taxes.

And, Wood notes, the attorney’s fee in this case would be income and taxable to the lawyer who receives the fee. So the IRS gets to double dip.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.