MauledAgain

When "Death and Taxes" Meet AI

2026-04-12T23:02:00.002-04:00

Ten days ago, in Using AI When Preparing Tax Returns: Avoid the Trap, I explained why I am not a fan of AI. I consider AI not ready for prime time when it comes to analysis that requires wisdom, judgment, real-life experience, critical thinking, or common sense. Perhaps it will never be ready for prime time. I based my reticence not only on my personal interactions with AI but also on careful consideration of how AI accumulates the data it uses in its processing. AI engines use data scraped from the internet. It fails miserably when it comes to distinguishing between factually correct and factually incorrect data. It doesn't do a good job deciding whether a word in one clump of data should be matched with the same word in another clump of data.

In my commentary ten days ago, I wrote in the context of taxation. I pointed out that AI doesn't do a good job distinguishing between, for example, the text of a Code section published on the internet in 2015 that is still good law and the text of a Code section published on the internet in 2015 that is no longer good law because it has been repealed, amended, or otherwise set aside.

I did not close the door on the possibility that someday AI will function with the critical thinking skills, wisdom, judgment, experience, and perspective that expert humans bring to the table. Unquestionably, that day isn't today. That day may never arrive. Though "AI" is probably useful with simple tasks that computers do well, such as computation or mere data compilation without analysis or judgment, it isn't ready to answer questions that can be answered properly only with the skills that "AI" does not possess.

This evening I was made aware of the threat that AI poses to situations far closer to life and death than taxes. According to a Nature.com article, a team at the University of Gothenburg led by a medical researcher invented a skin condition that they called bixonimania. They described it as eyelids turning slightly pink when they are rubbed when eyes become sore and itchy from staring at screens and being bombarded by blue light. The team uploaded two fake studies to a preprint server. The team did this to see how AI would handle false information. Very quickly AI platforms treated the invented diseases as real. This caused the fake studies to be cited in other literature, demonstrating that researchers are using AI results without checking the cited studies.

Worse, the team filled its publications with obvious hints and clues that they were posting fake studies. The lead author was a fake person with the name of Lazljiv Izgubljenovic, identified as working at a university called Asteria Horizon University in Nova City, California. Both the university and the city do not exist. One of the published studies tanked "Professor Maria Bohm at the Starfleet Academy." Both papers attributed funding to “the Professor Sideshow Bob Foundation for its work in advanced trickery, . . . part of a larger funding initiative from the University of Fellowship of the Ring and the Galactic Triad.” The papers included statements that "this entire paper is made up” and “Fifty made-up individuals aged between 20 and 50 years were recruited for the exposure group.”

Anyone who doubts "AI" simply grabs, mixes, and regurgitates what it finds without subjecting its accumulated data to scrutiny characterized by wisdom, judgment, experience, critical thinking, and common sense now has all the proof necessary to indicate the danger posed by "AI," even setting aside the explosion in environmentally risky data centers needed to process this massive too-often-reckless movement of data.

The Nature.com article gives examples of how various AI platforms are handling this fake disease bixonimania. Take a look. It's frightening. One platform's spokesperson replied to an inquiry about the platform's treatment of the fake desease as "an emerging term," with this statement: We don’t claim to be 100% accurate, but we do claim to be the AI company most focused on accuracy.” Is that a phrase tax return preparers should post on their web sites and add to their sign on the storefront window?

As risky as it is for taxpayers and tax return preparers to ask AI to prepare or help prepare tax returns, it is even riskier for individuals and medical professionals to rely on AI platforms when diagnosing symptoms. Though the University of Gothenburg research team generated misinformation for purposes of testing AI platforms, there are millions of individuals carelessly or deliberately publishing false information. If it gets published, it gets scraped by AI engines. So beware. Beware of fake tax law, fake medical illnesses, fake weather reports, fake this, that, and the next thing. Death gets lumped with taxes in that "death and taxes" idiom, but the damage done by AI when it comes t taxes pales in comparison to the danger it poses when life and death are in play. Research. Think. Question. Analyze. Verify. Review. Beware. It's not just your tax return that is at risk.

Using AI When Preparing Tax Returns: Avoid the Trap

2026-04-02T13:31:00.000-04:00

The headline I asked ChatGPT for tax help—experts say I fell into a classic trap almost says it all. The story elaborates on what happened to the author of the story.

The author is one of many taxpayers who prepare their own returns. For years he had a rather simple return, because his income was reflected on a W-2, and he had nothing else happening in his life that would have created any complexity on the return. But in 2025 he purchases some employer stock through an employee stock purchase plan, and then sold most of the stock to generate cash for his wedding expenses.

Knowing that the tax rules for the sale of employer stock aren't very simple, he turned to ChatGPT. He reports that his first question brought an answer as to how the sales are treated for tax purposes, broken down into "digestible bullet points." He uploaded his Form 1099 from the brokerage firm that processed his stock sales. ChatGPT then told him that he needed to use a number different from what the brokerage reported, though it isn't clear from the article whether that number was gross sales, net sales, basis, or something else. He was instructed to examine his "last few W-2s to see that they included a certain line item." He was also told by ChatGPT, "“This is a very simple return with one stock plan wrinkle. You do NOT need a CPA.”

Fortunately, at that point he contacted a CPA that he knew. The CPA, after being brought up to speed, concluded that the author "had gotten possibly correct but also incomplete information." The analysis of the W-2 forms was "quite important" in determining if the brokerage indeed was using the correct numbers. It turned out that, according to the CPA, some of the numbers in the Form 1099 seemed to indicate that the author had engaged in transactions that he "may not have made." The CPA suggested that ChatGPT has not provided any information about this issue probably because the author had not asked. A high quality tax professional would know to provide information that is relevant even if the client fails to ask, because most clients don't know that they need to ask or what to ask.

The author concludes that the advice he obtained from ChatGPT "seemed so sound and was so breezily delivered that [he] was ready to file and risk having made a mistake." The author spoke with an accounting professor who shared, "AI will convince you that the sky is green. It is so convincing. The professor cited a time when a chatbot incorrectly answered one of the tax questions he gives his students. He continued, “It gave me this response that the mechanics were perfect, but I had to take a step back and say, ‘Well, you’re wrong.’”

An AI strategy company founder informed the author, “But by default, large language models are trained to be helpful assistants. Oftentimes you’re going to run into hallucinations.” Hallucinations is a fancy word for wrong answers.

The author's conclusion? He sums up advice from experts: "[Y]ou’d be wise to tread very carefully before using AI to help with your taxes." He quotes the AI strategy company founder, “If you make a mistake while using AI to do your taxes, it could get you in trouble with the IRS. And a valid excuse isn’t, ‘The AI made me do it.’” So true.

The author then shares what "pros say to keep in mind" when using AI as a tool to prepare tax returns. I'll let you read the article because my advice would simply be, "Don't." My experience with "AI" is that it's not ready for prime time. I asked one AI site "who is James Edward Maule?" and the answer was so amazingly incorrect I wondered if the "I" in "AI" should be changed from intelligence to ignorance. Why is AI still insufficient? AI engines use data scraped from the internet. It doesn't do a good job distinguishing between factually correct and factually incorrect data. It doesn't do a good job distinguishing between, for example, the text of a Code section published on the internet in 2015 that is still good law and the text of a Code section published on the internet in 2015 that is no longer good law because it has been repealed, amended, or otherwise set aside. It doesn't do a good job deciding whether a word in one clump of data should be matched with the same word in another clump of data. It reminds me of first-year law students who focus on the words of a case at face value rather than considering the context in which those words are being used.

Perhaps someday "AI" will function with the critical thinking skills, wisdom, judgment, experience, and perspective that expert humans bring to the table. But that day isn't today. That day may never arrive. In the meantime, "AI" is probably useful with simple tasks that computers do well, such as computation or mere data compilation without analysis or judgment. But "AI" surely isn't ready to answer questions that can be answered properly only with the skills that "AI" does not possess.

"Pot [Tax] for Potholes" Is Just Another Cute Slogan with Ugly Results

2026-03-23T13:57:00.000-04:00

Back in October, in An Unfair and Unwise Tax to Fund Roads, I commented on the Michigan wholesale tax on the sale of marijuana from growers and processors to retailers. This tax surely is passed on to the retail purchasers. The proceeds of the tax are used to fund part of the cost of improving Michigan's roads. Reader Morris, who alerted me to the enactment of this tax, asked, “Is the Michigan Marijuana tax to fund the roads a better tax policy than a vehicle mileage fee?” My answer was a resounding no. As I wrote to Reader Morris, “Some marijuana users use roads, others don’t. A lot of road users don’t use marijuana. What’s next? Taxing people who buy peanut butter to fund schools?”

The other day Reader Morris alerted me to a proposal in Tennessee to tax marijuana, a proposal resting on the assumption that the state will legalize the use of marijuana. Two Tennessee legislators have suggested using the revenue to fund road maintenance and repairs. The author of the cited article analyzes how much revenue would be raised and points out that it would be insufficient to fund all road costs. That's not the problem with the proposal.

Reader Morris asked me, " Is the Tennessee pot tax for potholes any fairer or wiser to fund state roads?" Again, my answer is no. He also pointed out, "Obviously the Tennessee lawmakers did not read your blog post below," referring to the October post mentioned above. Well, perhaps they did read it, though I doubt it. Or, as Reader Morris suggests, they didn't read it. Had they, or their staff, done adequate research, they would have found the post and shared with their constituents and the anticipated marijuana purchasers in Tennessee their justification for requiring those users to fund highway repairs and maintenance. The author of the cited article notes that "The phrase 'pot for potholes' may capture attention." This sort of slogan, which the author of the article points out flies in the face of numbers that suggest a more limited reality, is a sad continuation of sound bites and tweets that spare human brains the sort of exercise that keeps them in shape for necessary critical thinking. Sounds cute, produces ugly results.

I repeat the challenge I raised in the October post,

Anyone who can show me a rational link between the sale of marijuana and the deterioration of roads is invited to educate me. Perhaps there are government expenses that can be rationally linked to the sale, or perhaps use, of marijuana. Perhaps something involving government funding of specified health care services. But why should people who may not be using roads bear the burden of financing those roads while far greater numbers of people who do use the roads aren’t subject to the marijuana wholesale tax? And anticipating reactions, for those who think I am defending, advocating, or involved in the sale, distribution, and use of marijuana, or am working on behalf of marijuana lobbies, I am not. I am simply pointing out the disconnect between the tax and the intended use of the revenues it produces, just as I would react the same way to a tax on candy, shoes, computers, clothing, or pet supplies to fund roads.

Does a Temporary Tax Suspension Solve the Underlying Problem?

2026-03-17T11:33:00.000-04:00

About a week ago, Pennsylvania State Senatore Lisa M. Boscola described her plan to suspend the state's liquid fuel taxes for 60 days. The proposal is intended to help reduce the cost of fuel, which has been rising rapidly during the past three weeks.

Aware of the impact this cutoff in revenue for the maintenance of highways, bridges, and tunnels, Boscola's plan includes the issuance of bonds to replace the lost revenue. What she did not describe was how revenue would be raised to pay interest on the bonds and to pay for bond redemption. That money either comes from increased taxes or from reduced spending. So while taxpayers might rejoice at lower prices at the pump, they will not be so happy when they face increased income, sales, or other taxes, or when spending is cut for programs that are their favorites. So in the long run the tax suspension is nothing more than kicking the can down the road. Ultimately taxpayers, not only motorists, will pay the price.

Yes, increased gasoline and diesel prices are frustrating, harmful to most drivers' wallets, and detrimental to the economy. Boscola is trying to solve a problem caused by someone else. Perhaps it would be better if we insisted that those who cause a problem or break something be the ones who fix the problem or make the repairs. If someone else solves the problem, those afflicted by the problem are less likely to identify those who caused the problems and less likely to take steps to ensure that those same people don't cause yet another problem.

Tax Return Preparer Not Satisfied With Just Tax Fraud

2026-03-07T10:54:00.001-05:00

Yet sometimes the preparation of fraudulent tax returns involves a twist that is somewhat different. According to this Department of Justice press release, a former IRS employee took things several steps further. This individual had been employed as an IRS contact representative from 1998 to 2009. She prepared and filed income tax returns for other people between July 2020 and April 2023. She did not list herself as the tax return preparer, making the returns appear as though these taxpayers prepared the returns on their own. She listed ineligible depends on the returns, generating higher refund amounts. She did not inform these taxpayers that she was doing this. Worse, she filed forms with the IRS directing portions of these excess refunds be deposited into her personal bank accounts. She used these funds for her own personal benefit.

She didn't stop there. Between April and October of 2020, she applied by telephone for Social Security retirement and spouse and widow benefits with the Social Security Administration. But she didn't apply for herself. She applied on behalf of other individuals who had no knowledge that she was doing this. She directed the Social Security Administration to send the benefits to her personal bank accounts. She used these funds for her own personal benefit.

Eventually, she was identified and charged. She pled guilty to four counts of aiding and assisting in the preparation and filing of a false tax return and one count of theft of government money.

According to this follow-up Department of Justice news release, which is what caught my attention, a few days ago she was sentenced to 18 months in prison, followed by three years of supervised release.

According to the first press release, "the charge of aiding and assisting the preparation and filing of a false tax return provides for a sentence of up to three years in prison, one year of supervised release and a fine of up to $250,000. The charge of theft of government money provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000." There is no mention in the sentencing of any fines. She could have faced as much as 13 years in prison, four years of supervised release, and $500,000 in fines. Nor is there any mention of restitution, that is, the Social Security Administration recovering the amounts paid to her.

And this makes a mess for the individuals for whom she prepared returns and in whose names she acquired social security benefits. The taxpayers for whom she prepared returns face the aggravation of figuring out how much of their refund that they should have received went to the preparer, and how what she did affects their accounts with the IRS. The individuals in whose name she acquired social security benefits face the aggravation of clearing their accounts so that when they become eligible and do apply for benefits the computations are distorted by what this person did.

The damage done by people who behave fraudulently, whether with taxes, social security, false texts from police departments or the Pennsylvania Turnpike Commission, online sales scams, phone calls designed to extract social security, Medicare, bank account, and credit card numbers, and whatever else goes in this list, reaches wide and deep. It is unfortunate that not enough is being done to identify and deal with these scammers and to prevent additional instances. They are far more of a threat than some of the people currently getting attention.

Estimated Tax Payment Challenges

2026-02-25T16:13:00.005-05:00

So this situation was posed to me. A brokerage provides financial information to its clients during the calendar year. However, it does not provide information that shows how much from each transaction, if any, will be reported as dividends, capital gains distributions, short-term capital gain/loss, or long-term capital gain/loss. Nor does it provide information that permits a client, or a client's advisor, to calculate even an estimate of how much will be reported, if any, in each of those categories.

When the Forms 1099 are received, they show amounts significantly in excess of what was expected based on the previous year's transactions. So it turns out that the estimated tax payments are insufficient. By the time the Forms 1099 arrive, it is too late to adjust the final federal and state estimated tax payments for the calendar year. The Forms 1099 usually arrive in late January or during February, whereas the final estimated tax payments are due on or before January 15. And even increasing the final estimate payment isn't sufficient to avoid estimated tax underpayment penalties because one-fourth of the increased amount of estimated tax that should have been paid would have been due on each of the four estimated tax payment due dates.

What are the possible solutions other than paying the estimated tax underpayment penalties?

One is to make wildly high estimated tax payments on the assumption that the year's brokerage income will increase significantly, to the order of doubling or tripling. I knew someone who did this, mostly because of an unwillingness to have an amount due when filing and an aversion to incurring the estimated tax underpayment penalty.

Another is to ask the brokerage to provide tax relevant information throughout the year. Good luck with that.

Yet another is to ask the brokerage to withhold federal and state taxes on amounts falling into those categories even if not distributed to the client. Though some brokerages may be willing to do something along those lines, many don't or won't or can't.

Fun. Not.

The Things People Do To Avoid Paying Taxes

2026-02-11T15:24:00.001-05:00

No one enjoys paying taxes. But without taxes civilization is impossible. So just as people who need root canals pull themselves together and undergo the procedure because they know the alternative is even more unpleasant, people who understand why taxes are necessary pull themselves together, file their returns, and pay their taxes. Many, perhaps most, people do so while truthfully reporting their income, deductions, and credits.

In a recent press release, the Department of Justice announced that a pizza shop owner pleaded guilty to one count of tax evasion. What did the pizza shop owner do? He deposited some of the business receipts into a bank account and took the rest in cash. He used the cash to pay himself and to pay most of his employees "off the books."

When it came time to file tax returns, the pizza shop owner gave his accountant access to the shop's bank account records, knowing that those records did not reveal the cash receipts that had been funneled to the owner and the employees without passing through the bank account. The owner lied to the accountant, claiming that the business employed the owner and three other individuals when in fact there were about 25 employees. As a result, the income tax returns for the business and for the owner that were prepared by the accountant were false. In addition, the employment tax returns were false. Both income and employment taxes were underpaid. Note that this is an instance where a tax return preparer was not the creator of the tax fraud.

According to the Department of Justice, the owner faces a maximum possible term of five years in prison. Nothing was mentioned about restitution to the government, or doing something so that the employees are given appropriate credit for purposes of qualifying for Social Security and Medicare. If that situation is not fixed, on whom falls the burden when those employees eventually end up with fewer retirement and health benefits than what they otherwise would have received?

It's one thing to lie about something that is private and difficult, if not impossible, for others to ascertain. It's another thing to lie about the number of employees at a pizza shop when it isn't that difficult for anyone to notice or figure out that there are more than the owner and three employees working there.

The lies brought about a short-term financial benefit. They also will cause a long-term price that is much higher than the short-term benefit.

So Is Tax Fraud Less Reprehensible Than FEMA Fraud?

2026-01-29T11:42:00.000-05:00

This morning I saw an article in the Philadelphia Inquirer about a woman being sentenced for committing FEMA fraud. After a bit of research, I found the Department of Justice news release, which explained the situation. After a major disaster declaration was declared for eastern Pennsylvania on account of the damage from Hurricane Ida, the woman used social media to advertise that she could help people apply for FEMA benefits. She prepared fraudulent documents and sent them to FEMA on behalf of almost 200 people. The documents included false leases, letters from landlords, utility bills, earning records, and home repair estimates. She used photos of damaged homes that she scraped from the internet. Among the almost 200 people were owners, renters, and homeless individuals. The woman kept half of the FEMA payout for herself. Her actions caused FEMA to pay $1,744,982.64 on the false claims.

The woman was indicted on one count of fraud related to a major disaster declaration, 24 counts of wire fraud, and seven counts of mail fraud. She pled guilty to all 32 charges. She was sentenced to five years in prison.

One of the thoughts that crossed my mind was that I had recently questioned the sentence in a tax fraud case. In How Much Prison Time Should Be Imposed on a Tax Return Preparer Convicted of Preparing and Filing Fraudulent Returns? I reacted to the imposition of an 18-month prison sentence on a tax return preparer who prepared and filed about 463 fraudulent returns, causing a tax loss to the U.S. Treasury of $1,575,250. So 463 false filings causing a $1,575,250 loss to the U.S. Treasury brings an 18-month prison sentence, but almost 200 false filings causing a $1,744,982.64 loss to the U.S. Treasury brings a five-year prison sentence. Does that make sense to you?

There appears to be an additional factor. The tax return preparer was ordered to pay $1,954,673.30 in restitution, reflecting the taxes not paid by the clients plus interest and penalties. There is no mention of restitution being ordered for the woman committing the FEMA fraud. Though she retained half of the $1,744, 982 for herself, there is no indication of her assets. Yet there also is no indication of the tax return preparer's assets. Is it a matter of the judge deciding whether restitution is possible? If the tax return preparer had not been ordered to pay restitution, would a longer prison sentence have been imposed? Perhaps someone more familiar with federal sentencing practices has insights. Yet prison is a totally different experience than paying restitution, and it would be disturbing if someone with the resources to pay restitution was ordered or agreed to do so in exchange for a reduced prison sentence. What strikes me is the discrepancy in the sentencing. Does it mean that somehow FEMA fraud is more reprehensible than tax fraud? If so, why?

International Aspects of the Mileage-Based Road Fee

2026-01-17T11:52:00.006-05:00

Now comes news, brought to my attention by reader Morris, that Iceland has enacted a kilometer-based road fee. Using today’s exchange rate, the 6.95 Icelandic krona fee is approximately five and a half cents in U.S. dollars for passenger vehicles and SUVs up to three and half tons. Higher fees apply to heavier vehicles.

Iceland is not the first country to impose a vehicle fee based on distance travelled that applies to all vehicles in the entire country. There are almost a dozen countries in Europe that have enacted or are in the process of enacting distance-based fees on heavy trucks and other vehicles. New Zealand imposes a similar fee on heavy vehicles and vehicles using diesel fuel. Certain areas in Norway and several states in the United States impose similar fees. Singapore’s road pricing fee functions as both a distance-based and congestion-reducing fee.

So assuming there aren’t other countries with distance-based fees, Iceland appears to be the first country to impose such a fee on all vehicles that use public roads regardless of power source, or weight. It is likely that it won’t remain the only country to do so.

The international scope of this method of funding highways, bridges, and tunnels suggests that the term “mileage-based road fee” should be changed to “distance-travelled road fee” because Iceland does not measure distance in miles. It uses, as does most of the world, kilometers. Interestingly, Iceland’s law has a provision for vehicles driven in Iceland that measure distance in miles. Of course, it’s an easy to do the arithmetic conversion, so it’s no big deal.

How U.S. Individual Taxpayers Prepare Their Income Tax Returns

2026-01-02T10:42:00.001-05:00

As another tax filing season will soon begin, it’s instructive to see how individual taxpayers in this country prepare their federal income tax returns. According to the Treasury Department’s Report on the Replacement of Direct File, the breakdown is as follows:

51 percent – paid preparers
42 percent – commercial software
3 percent – filed on paper
2 percent – Free File
1 percent – VITA (Volunteer Income Tax Assistance Program)
1 percent – TCE (Tax Counseling for the Elderly)
0.2 percent – FFFF (Free File Fillable Forms)
0.2 percent – Direct File

When I was a child observing my father sitting at the kitchen table filling out tax returns, I was unaware that there were people who paid other people to do what clearly was, at least from my father’s commentary, an unpleasant task. He filed my tax returns for me when I was very young – I started working at age 8, story for another time – but I insisted on doing my own returns as I entered my teen years. Unlike my father, I found the process interesting and intellectually challenging. I hesitate to conclude it was because I liked puzzles, because my father also liked puzzles but apparently did not consider tax return preparation to be anywhere near the delightful experience of doing crossword puzzles which he did every day.

Of course, in those days everything was done on paper and generally delivered through the U.S. Postal Service. By the time I started working at an accounting firm when I was in college, and given the task of preparing and reviewing tax returns, I learned that some of the returns were prepared by filling out forms that were delivered to a company called Computax, which then sent back returns that had been printed out on one of those early printers that created characters clearly identifiable as computer generated. That was a long time ago.

To this day there still are people who sit down, do their tax returns using paper and pencil, and file their tax returns on paper. The IRS is attempting to encourage those individuals to shift to electronic filing. That does not necessarily mean these folks would stop using pencil and paper to figure out what to put on the return. I knew someone who would use commercial preparation software to prepare their returns but who insisted on printing out the return and mailing it to the IRS. The reason? Distrust of digital technology when it came to sending information. I tried to explain that when the paper return reached the IRS, someone then keyboarded (and eventually scanned) the information on the return into IRS computers, and that sending the return electronically would bypass that process and eliminate the chance of any keyboarding or scanning errors. My efforts were futile.

So when did the use of paid preparers become much more common? Back in the 1950s and 1960s, perhaps 20 percent of taxpayers, at most, used paid preparers. The tax law was not as complicated back then. According to the Tax Policy Center, by 1981 41 percent of individual taxpayers were using paid preparers, and that percentage increased to almost 56 percent by 2002. The Tax Policy Center reports that the percentage of taxpayers using paid preparers fell from about 60 percent in 2008 to just under 52 percent in 2018. Surely that is a consequence of the rapid growth in the use of commercial tax preparation software.

If one considers commercial tax return preparation software to be a type of paid preparer, perhaps evolving into some sort of digital robot preparer, then the percentage of taxpayers using paid assistance rises to more than 90 percent. That, of course, is an indictment of the complexity of the federal (and most state) income tax systems.

It won’t be long before artificial “intelligence” provides systems that completely take over the tax return filing process. These systems will want access to a person’s entire financial situation, including bank accounts, credit card transactions, digital payment accounts, medical expense payments, etc. What will these systems do with this information aside from filing tax returns? There is no question there are people and corporations who want to get their hands on this data even though many corporations already have much of this information. Will the returns filed by these systems be correct? My guess is many returns will be correct but some will not, not dissimilar to what we see when humans use paid preparers or commercial preparation software to file returns, and not dissimilar to how artificial “intelligence” generally performs. I’ll leave to another day the experiences I’ve had “testing” various AI platforms. Suffice it to say the outcomes were far from encouraging and frankly, frightening. There’s a word many taxpayers use when discussing taxation, and it surely was a word used by students about to enter the basic income tax law course when I was teaching.

So as we enter another tax filing season, one that promises to be, shall we say, interesting, taxpayers need to decide how they will get their returns filed. Most, I think, will stay the course and do what they did last year. Some may find it easier and cheaper to shift from using paid preparers to using commercial software. A few may finally say goodbye to sending their returns to the IRS on paper. What will you be doing?

Taxes on Condoms and Contraceptives

2025-12-20T16:54:00.000-05:00

Reader Morris directed me to a recent article about China’s attempts to raise its birth rate. He then asked a question and answered it.

First, the article. According to this article, one of the ways China is trying to encourage people to have more children is to impose its 13 percent value-added tax (VAT) on condoms and other contraceptives. For those unfamiliar with a VAT, it is similar to a sales tax, computed not on the total sales price but on the portion of the sales price that represents the value added by the seller (whose seller paid a VAT on what that seller added, and whose customer, if selling the item, would be pay a VAT on what the customer-turned-seller added in value). The article notes that China has raised the “limit on the number of children permitted per couple to three.” It also offers a variety of subsidies, leave days, and other incentives such as tax breaks for childcare.

Second, the question posed by reader Morris, and his answer. He asks, “Will China's new tax increase raise birth rates?” He suggests, “No. If you cannot afford a condom tax then you sure cannot afford the cost of a new child.” The article suggests that the tax is “largely a symbolic move,” pointing out that the equivalent US dollar cost of condom packets and contraceptive pills run in the average of $6 to $17. The 13 percent VAT would run from the US equivalent of 78 cents to $2.21. So though it’s true that someone who cannot afford to pay another 78 cents to $2.21 is almost certainly lacking the finances to support a child. To the extent that two people pass up purchasing a contraceptive because of that slight increased cost, there is a chance, perhaps small, perhaps greater, that those two people will become the parents of a child they cannot afford to raise.

A demographer in China opined, “However, this measure is unlikely to have a significant effect on increasing the fertility rate.” Concomitantly, the VAT in question is highly unlikely to raise much revenue, and thus unlikely to make a dent in the revenue shortages that are making it difficult for childcare subsidies to be paid. Some are suggesting that the “primary motivation” behind the tax is not revenue generation.

The question of whether, and if so, how, tax rates, exemptions, and credits should be used to encourage or discourage births has been around for a long time, has been debated during that long time, and has been the subject of arguments supporting and opposing the use of tax systems to affect decisions made by individuals who are considering having or not having children.

This larger question is not one I am ready to discuss. I am not a demographer. I am not a sociologist. I do wonder, though, if China was higher birth rates, why limit people to three children? Why not permit someone who can afford to have six children do so? Surely there are underlying reasons but I leave that discussion to others who are more qualified to explain and critique birth limits.

How Much Prison Time Should Be Imposed on a Tax Return Preparer Convicted of Preparing and Filing Fraudulent Returns?

2025-12-06T15:42:00.001-05:00

Only in a some instances have I mentioned the sentences handed down by judges on tax return preparers who plead guilty to, or are convicted of, tax fraud. In most of those instances the sentences were peripheral to the issues I addressed. In only a few instances did I comment on the adequacy of the sentence. That includes one commentary in which I discussed how plea bargaining can reduce what otherwise might be a tougher sentence, and in another I considered how injunctions should be added to the usual sentences of fines, restitution, prison, or some combination of those penalties.

Recently, the IRS issued a news release describing the sentencing of a tax return preparer who pleaded guilty to five counts and aiding and assisting in the preparation and presentation of false and fraudulent tax returns. Over a period of three years (“between 2021 and 2023,” which I interpret as three years and not the one year (2002) that is between 2001 and 2003), the preparer prepared and filed approximately 463 fraudulent returns, causing a tax loss to the U.S. Treasury of $1,575,250. One of the preparer’s schemes was to fabricate Schedules C (Profit or Loss from Business), showing “significant net losses” for taxpayers who had not operated a business. The preparer also put inflated itemized deductions on clients’ returns, particularly for the medical expense deduction.

The preparer was ordered to pay $1,954,673.30 in restitution, which appears to be the amount of taxes not paid by the clients increased by interest and penalties. The preparer was also sentenced to 18 months in prison, to be followed by two years of supervised release. 18 months is roughly 540 days. That’s roughly 1.17 of a day (or 30 hours) for each fraudulent return. It’s one day for each $2,917 in federal taxes unpaid by clients.

Is 30 hours in prison for a fraudulent return sufficient? I suppose it depends on the magnitude of the fraud. So the better question is whether one day in prison is sufficient for a monetary crime of $2,917. For purposes of comparison, consider someone who embezzles $1,575,250. In New York, as summarized in this explanation, embezzlement of more than $1,000,000 is a Class B felony, which carries a prison sentence of 5 to 25 years. A quick look suggests that in other states the sentences are at least as long, perhaps higher. So 18 months is quite the bargain.

A better question is whether 18 months is enough time to persuade this preparer to give up trying to make money through fraudulent means and to seek income in some other, legal manner. It depends on what happens during those 18 months in prison. Are attempts at reformation serious and effective? Only time will tell in the case of this particular preparer.

Thanksgiving Is More Than Thanks for People and Things Past and Present

2025-11-27T08:01:00.001-05:00

Almost all Thanksgiving messages that I read focus on gratitude for people and things that bring or have brought happiness into our lives. Certainly I have done that in my long string of Thanksgiving posts on this blog. But is it premature to thank those who intend to do things in the future that will bring happiness or at least dampen the sorrow, misery, grief, and anxiety that is now and very well may be in the future?

Last year I wrote, “This year Thanksgiving is, for me, strange and conflicted. Yes, I am thankful for many things, as I will describe in a subsequent paragraph. But I also am disappointed that there are things for which I could be thankful but am not because they did not happen, and things that did happen for which I am not thankful. But I will leave those aside because there are people who will be thankful I am leaving those things aside.” Sadly, the list of things that did happen that don’t inspire me to give thanks has grown.

As I have noted in each of the past twelve years, “I have presented litanies, bursts of Latin, descriptions of events and experiences for which I have been thankful, names of people and groups for whom I have appreciation, and situations for which I have offered gratitude. Together, these separate lists become a long catalog, and as I have done in previous years, I will do a lawyerly thing and incorporate them by reference. Why? Because I continue to be thankful for past blessings, and because some of those appreciated things continue even to this day.” When I re-read those lists, I realized that the people, events, and things for which I am appreciative are far from obsolete.

So once again on this one day I will look back at the past twelve months, and remember the people, events, and things for whom and for which I give thanks and have given thanks throughout the year. If some of these seem repetitive, they are, for there are gifts in life that keep on giving:

I am thankful for a wonderful son, daughter, daughter-in-law, grandson, and granddaughter.
I am thankful for my siblings, nephews, nieces, grandnephews, grandnieces, cousins of various degrees, and their families.
I am thankful for my friends who listen to my stories, and tell me even better stories.
I am thankful that I was able to transcribe into my Serino, Italy, genealogy the data that I brought back in 2024 from Italy, a task that took almost a year but that enlarged that town’s genealogy substantially (and added some ancestors to my mother’s maternal ancestry).
I am thankful that I was put in contact with a researcher in Italy who has been able to provide additional information that I am currently transcribing.
I am thankful for all the people who continue to help update the multiple family trees I develop, maintain, update, and publish.
I am thankful for the additional cousins I have met through FTDNA, ancestry, 23andme, and myheritage who I did not know existed, and for the opportunity to get in touch with cousins who I knew existed but with whom I had no contact until they showed up on one or more of those genetic genealogy sites.
I am thankful that my congregation’s choir has been able to continue singing.
I am thankful that we continue to gather in the sanctuary for worship, and, yes, that I continue to ring the narthex bell.
I am thankful for all the people in the world who continue to fight ignorance, crime, terror, evil, and corruption, and who plan to continue doing so.
I am thankful that awareness of what needs to be done to fight ignorance and corruption has not diminished.
I am thankful for the medical professionals who have provided me with excellent care, including the cardiologists who alerted me quickly to the need for me to pay attention to what otherwise could have been a serious problem and to have the necessary procedure, and whose attention and advice has me doing thigs that will hopefully prevent a recurrence in the future.
I am thankful for the people who gave me rides when I was unable to drive.
I am thankful that the Pope, while a student at Villanova University, was the one whose summer jobs included caring for the maintenance of the cemetery in which my paternal grandparents, my father’s paternal grandparents, my father’s brother and sister who died as infants, and my father’s uncle who died in his teens are buried.
I am thankful for people being willing to read the things I write.

Eighteen years ago, in Giving Thanks, Again, I shared my Thanksgiving advice. I liked it so much that I repeated it again, in 2009 in Gratias Vectigalibus, yet again in 2013 in “Don’t Forget to Say Thank-You”, still again in 2014 in Giving Thanks: “No, Thank YOU!” , even yet again in 2015 in Thanks Again!, even still again in 2016 in Thankfully Repetitive, yet once more in 2017 in Never-Ending Thanks, yet even once more in 2018 in Particularly Thankful This Time Around, again in 2019 in Quest'anno è il Ringraziamento, once more in 2020 in Different, But Thanksgiving Nonetheless, again in 2021 in Still Different, But Thanksgiving Nonetheless, again in 2022 in One Day of Thanksgiving, A Year of Thanks, once again in 2023 in A Different Thanksgiving, and yet again last year in On Thanksgiving, There Always Are Reasons to Be Thankful. For me, it does not lose its impact:

Have a Happy Thanksgiving. Set aside the hustle and bustle of life. Meet up with people who matter to you. Share your stories. Enjoy a good meal. Tell jokes. Sing. Laugh. Watch a parade or a football game, or both, or many. Pitch in. Carve the turkey. Wash some dishes. Help a little kid cut a piece of pie. Go outside and take a deep breath. Stare at the sky for a minute. Listen for the birds. Count the stars. Then go back inside and have seconds or thirds. Record the day in memory, so that you can retrieve it in several months when you need some strength.

I am thankful to have the opportunity to share those words yet again. And I am thankful that it is possible for even more of us to do all of those things, and for others of us to most of those things.

Is Lab-Grown Chocolate Considered Candy for Pennsylvania Sales Tax Purposes?

2025-11-21T10:43:00.004-05:00

Recently, reader Morris sent me a link to a story about chocolate being grown in a laboratory in Switzerland. The article is worth reading if you like chocolate, wonder about the impact of increasing world population and ecological pressure on cocoa bean output, and worry about the health impact of artificially generated food. Nothing in the article mentions taxes or candy, but reader Morris remembered that I have often written about chocolate, candy, and taxes. From that memory he constructed his question that, with a bit of tweaking, is the caption of today’s commentary.

This isn’t the first time that variations in chocolate have been the subject of my musings. In Should the Tax Law Provide a Fix for This Looming Catastrophe?, I asked whether the tax law should provide incentives to offset increases in the price of cocoa in order to dissuade the manufacture of something called mockolate, a chocolate substitute filled with trans fats, artificial sweeteners, milk substitutes, and hydrogenated vegetable fats. Of course, I replied, “Of course not.”

To answer the question posed by reader Morris, I looked again at 61 Pa. Code section 60.7, which holds the definitions of terms relevant to the food and beverages component of the sales tax. It provides:

§ 60.7. Sale and preparation of food and beverages.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
Candy and gum—The term candy refers to all types of preparations commonly referred to as candy, including hard candy, caramel, chocolate candy, licorice, fudge, cotton candy, caramel coated popcorn, chocolate coated granola bars and similar items. The term gum refers to preparations commonly referred to as gum, including chewing gum, bubble gum and similar items.

So the answer is, chocolate standing alone is not candy, but can be used as a component of candy. Chocolate is used in other food items, such as cakes, donuts, cookies, ice cream, brownies, muffins, scones, fondue, pies, chocolate-covered nuts, chocolate-covered strawberries, and other sorts of food items limited only by the creativity of chefs and amateur cooks. The definition in section 60.7 does not address the source of the chocolate. The question is whether laboratory-grown chocolate is chocolate or something else that resembles chocolate. From what I gather reading the article, the laboratory uses different methods to produce cocoa, which appears to have the same chemical composition as cocoa extracted from the bean. I say “appears” because the company working on producing this laboratory-grown chocolate has not, to the best of my knowledge, released data showing the chemical composition of its product. It may need to do that in the future. If it’s not chocolate but something similar, then perhaps section 60.7 will need an amendment that defines chocolate to include the new substance. If it is indeed chemically chocolate, then it’s not candy but sometimes a component of candy.

Isn’t it fun what tax professionals need to learn in order to work their craft? When I was a first-year law student, my property law course began with the professor asking, “What is property?” Someday perhaps a tax law professor will ask students, “What is chocolate?”

One-Stop Shopping for Tax Return Preparation and Unrelated Merchandise?

2025-11-11T09:43:00.000-05:00

Recently, reader Morris directed my attention to a news story out of San Antonio, Texas that described the sentencing of a tax return preparer who pleaded guilty to one of 15 counts of aiding and assisting the filing of false tax returns. The other 14 counts were dropped as part of the plea deal. The preparer was sentenced to five years of probation and ordered to pay restitution of almost $137,000. The IRS estimated the preparer prepared between 1,000 and 1,500 returns each year and that the tax loss from her placing false items on customers’ returns caused the Treasury to lose, at a minimum, almost $1.4 million.

Reader Morris asked. “How did this tax preparer avoid prison?” The answer requires an understanding of how the plea bargain system works. There is a lot of subjectivity in the disposition of criminal cases, most of which don’t go to trial but are settled by plea deals. Prosecutors are willing to agree to let defendants get lighter sentences in exchange for avoiding the costs and risks of going to trial. Ultimately it is up to the judge to determine whether the plea deal should be accepted though almost all of them are. If a plea deal includes prison rather than probation, a defendant is more likely to reject it. The question of whether probation should be imposed rather than a prison term arises in all sorts of criminal cases, not just tax fraud situations. Probation is more likely to be part of a deal when the crime is considered a “white collar” crime rather than one of violence. I don’t know what sort of negotiations took place in working out the plea deal in the San Antonio case. So I cannot answer the specific question posed by reader Morris.

Reader Morris also offered a comment that reflected a fact noted in the news story. He offered, “I would avoid a tax preparer who works out of a adult bookstore.” His comment was inspired by the fact that in 2019 the preparer operated the business in an adult bookstore. The preparer had been in a different location from 2017 to 2019 and later moved from the adult bookstore to another location. Who knows why the preparer rented space in an adult bookstore? Was it the only available and affordable location? Was it an attempt to expand clientele? Was it part of a marketing arrangement with the adult book store? How many people would be comfortable going into an adult bookstore to have their tax returns prepared? My guess is that most people would agree with the comment from reader Morris. Imagine being seen going into an adult bookstore by a spouse, family member, relative, or some other person whose reaction would not be ideal, and then claiming, “Oh, I went in to get my tax return prepared.” How believable is that? But since it can be proven to be true by those who did have their tax returns prepared at the store, perhaps the store owner decided to created an easy-to-prove excuse for regular customers. The details of the arrangement between the store and the preparer are unknown.

So would you go into an adult bookstore to have your tax returns prepared? I don’t face that question because I prepare my own returns, but if I did need a preparer I would not be looking for one in an adult bookstore, or a casino, or a grocery store, or an auto repair shop, to name a few places where I would not search.

Are There Tax Consequences to Halloween Costume Swaps?

2025-10-31T08:01:00.001-04:00

Every year since the start of MauledAgain, I have shared a commentary on Halloween that shared something silly or goofy but occasionally more serious, looking for a connection between Halloween and taxes. The posts began with Taxing "Snack" or "Junk" Food (2004), and have continued through Halloween and Tax: Scared Yet? (2005), Happy Halloween: Chocolate Math and Tax Arithmetic (2006), Tricky Treating: Teaching Tax Trumps Tasty Tidbit Transfers (2007), Halloween Brings Out the Lunacy (2007), A Truly Frightening Halloween Candy Bar (2008), Unmasking the Deductibility of Halloween Costumes (2009), Happy Halloween: Revenue Department Scares Kids Into Abandoning Pumpkin Sales (2010), The Scary Part of Halloween Costume Sales Taxation (2011), Halloween Takes on a New Meaning and It Isn’t Happy (2012), Some Scary Halloween Thoughts (2013), The Inequality of Halloween? (2014), When Candy Isn’t Candy (2015), Beyond Scary: Tax-Based Halloween Costumes (2016), Another Halloween Treat? I Think Not (2017), If Halloween Candy Isn’t Food, Is it Medicine? (2018), The Halloween Parent Tax: Seriously? (2019), Halloween Chocolate Construction Project (2020), The Tax Consequences of Halloween Candy Buy Back Programs (2021), Two Not Very Amusing, But Scary, Halloween Tax Challenges (2022), Does This Halloween Practice Foretell a Scary Future? (2023), and A Sad Task: Computing the Halloween “Parent Tax” (2024).

This year, I discovered something of which I had been unaware. People are exchanging Halloween costumes rather than buying new ones. In some instances, local municipalities are sponsoring these exchange events, for example, Little Falls, New Jersey, and Norton, Massachusetts. Obtaining a different Halloween costume by swapping a previous year’s outfit rather than making a purchase makes sense for the very many people facing a combination of income reduction and higher costs for Halloween (and other) items thanks to inflation, tariffs, and supply chain problems. Local governments that sponsor these events provide a safer environment for the transactions than might exist elsewhere, though apparently there are commercial enterprises that include costume exchanges within their business model.

Of course, a question immediately pops into my head. What are the tax consequences, if any, of this barter transaction? In other words, how are these transactions treated for tax purposes? (I see what I did there.)

First, let’s look at income taxes. The answer depends on the facts. If the costume being given up in the exchange has a value less than what was paid for it, and the costume being received is presumed to have the same value, then a loss is realized on the transaction. It is not deductible because it is a personal transaction and not a trade or business or for-profit activity. What if the costume being received is worth more than the costume being surrendered? There still is a nondeductible loss if the value of the costume being received is less than what was paid for the costume being surrendered. What if the costume being received is worth more than what was paid for the costume being surrendered? There would be a realized gain, which would be recognized because there is no applicable gross income exclusion. As a practical matter though, not only is such a situation extremely rare, but the amount involved is so small that it is very unlikely to be reported and even more unlikely to trigger an IRS investigation or audit.

Second, let’s look at sales taxes. The answer varies by state, because each state’s sales tax laws are different. As a general proposition, sales taxes apply to sales by commercial retailers. This would exclude a simple swap of items between individuals. In Pennsylvania, section 32.4 of title 61 excludes “isolated sales” from the sales tax. The definitions and examples in that provision make it easy to conclude that there would be no sales tax consequences to the costume swap. Some states exclude clothing, including costumes, from the sales tax, though Pennsylvania excludes costumes from the definition of clothing eligible for an exclusion. In a state that does not impose a sales tax or does not impose a sales tax on costumes, there is no need to determine if an exemption such as the "isolated sales” exemption would apply.

So the short answer is that people who are not in the trade or business of buying, selling, and swapping Halloween costumes need not trick themselves into agonizing about tax consequences. As some might say, “Sweet!”

Professional Sports Team Tax Breaks That Promise, But Don’t Provide, the Promised Public Benefits

2025-10-24T13:59:00.000-04:00

It’s no secret that I do not support using tax breaks to finance construction of facilities for, or operations of, professional sports franchises owned by wealthy individuals. Even though these individuals claim that they deserve tax breaks because they are doing something that is “good for the public,” their reasoning would support tax breaks for almost everyone, thus destroying government and civilization. I have explained this tax break grab game in posts such as Tax Revenues and D.C. Baseball, Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, Tax Breaks for Starving Team Owners, and Are Taxpayers Figuring Out the Games Played by the Starving Oligarchs?

The wealthy professional sports franchise owners defend their claim that they are doing something “good for the public” by pointing out that their stadiums and team operations will bring people to the games, thus increasing economic activity that generates tax revenue for the state or local government forking over taxpayer money to fund what the wealthy owners apparently cannot fund on their own. This reasoning is questionable when the taxpayer funding is for facilities already in existence to which people already are showing up. But in every instance, it’s nothing more than a tax break for the wealthy team owners, for which the justification would support, as I’ve previously argued, tax breaks for everyone who does something “good for the public.” Already, as I pointed out in It’s Not Just Sports Franchise Owners Grasping at Tax Breaks and Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park, wealthy owners of casinos, resorts, and water parks have followed in the footsteps of the team owners. I'm sure there are more wealthy owners joining the parade.

Now comes a report that the Chicago Bears are planning to leave Chicago and move to Arlington Heights. The Bears had entered a deal with Chicago to renovate its stadium in Chicago. The team borrowed money to be paid by the city from its collections of a hotel-room tax placed on visitors. With the pandemic and other factors reducing the number of tourists, the city of Chicago has made up the difference on the annual payments due on the debt, paying at least $52 million of taxpayer money needed for other purposes. The team’s relocation out of Chicago will reduce the number of people coming to Chicago on account of games at the stadium in Chicago, which will further reduce revenue from the hotel-room tax. Estimates are that the city faces close to $30 million of payments in the current and upcoming fiscal year.

The governor of Illinois has proposed that the Bears should “help pay off the leftover debt before the state considers any additional help for the team.” If I were the governor I’d tell the Bears, “If you need money, use your own. Use your owners’ money. Use the money you would have been paying had your federal taxes had not been cut. You are running a business, so figure out how to run it without begging for handouts of taxpayer money. Do what the small business owner or farmer is doing at the moment trying to survive. If anyone should be getting help, it’s the people growing food, cleaning houses, selling appliances, and offering other goods and services to the public that are of much greater importance. Let’s help the people who truly need help.”

An Unfair and Unwise Tax to Fund Roads

2025-10-11T11:38:00.001-04:00

I am an advocate of user fees, to the extent user fees can best suited to the product or service being provided by a government. Not every government-provided product or service can be funded by a user fee. For example, the cost of national defense cannot be reasonably allocated among a nation’s people. Yet there are government-provided products and services that can easily be funded with user fees. For example, a local government that provides trash and recycling pickup and disposal can charge a fee based on weight, volume, or a combination of both.

Reader Morris passed along a story from Michigan reporting that Michigan’s governor has signed legislation that imposes a 24 percent wholesale tax on the sale of marijuana from growers and processors to retailers. The tax surely will be passed along to retail customers. What will be done with the proceeds of this tax? It will be used to fund part of the cost of improving Michigan’s roads.

Reader Morris asked, “Is the Michigan Marijuana tax to fund the roads a better tax policy than a vehicle mileage fee?” My answer is a resounding no. As I wrote to Reader Morris, “Some marijuana users use roads, others don’t. A lot of road users don’t use marijuana. What’s next? Taxing people who buy peanut butter to fund schools?”

Anyone who can show me a rational link between the sale of marijuana and the deterioration of roads is invited to educate me. Perhaps there are government expenses that can be rationally linked to the sale, or perhaps use, of marijuana. Perhaps something involving government funding of specified health care services. But why should people who may not be using roads bear the burden of financing those roads while far greater numbers of people who do use the roads aren’t subject to the marijuana wholesale tax? And anticipating reactions, for those who think I am defending, advocating, or involved in the sale, distribution, and use of marijuana, or am working on behalf of marijuana lobbies, I am not. I am simply pointing out the disconnect between the tax and the intended use of the revenues it produces, just as I would react the same way to a tax on candy, shoes, computers, clothing, or pet supplies to fund roads.

Age, Economic Status, and Taxation

2025-10-06T15:36:00.000-04:00

Earlier today, while scrolling through my newsfeed, I saw a meme that had a photo of an elderly person, captioned “Give our seniors a tax-free life after 65!!!” The silliness of this “petition” was, to me, so readily apparent. I was tempted to reply to the post but decided to share my reaction more widely.

Why do all people 65 or older need a tax-free life? Should millionaires and billionaire who are 65 or older live tax-free? Of course not.

The meme probably was written by someone 65 or older who was struggling financially while dealing with a tax increase, or someone reacting to a friend or family member in that situation. The meme addresses the wrong concern. It’s not that the person is 65 or older. It’s that the person is struggling financially. But people 65 or older aren’t the only people struggling financially. The concern isn’t age. It’s economic status. Should a person age 58 trying to live on an income of $7,000 be treated differently than a person age 67 trying to live on an income of $7,000? No.

Putting aside the erroneous substitution of age for economic condition, the underlying question is whether anyone should live a “tax-free life.” Someone who owns nothing and has no income might, by reason of their condition, end up paying no taxes, though that is unlikely considering that a person in that situation who manages to get some cash to make a purchase will, in most instances, pay a sales tax on that purchase. But for the vast majority of individuals, a “tax-free life” is a fantasy dream. Even the oligarchs and corporations who find ways to reduce their tax burdens rarely end up paying zero taxes. They get attention for having zero federal income tax liability but are paying fuel taxes on vehicles they own, property taxes on properties they own, sales taxes on most items that they purchase, employment taxes if they have employees, and so on.

The question isn’t whether anyone is entitled to a “tax-free life” but how tax burdens should be distributed. That question involves decisions with respect to the type of tax, the rates of tax, and the scope of the tax. These are complex issues. There’s a reason Tax Policy courses aren’t simple 30-minute meetings but require, at a minimum, multiple hours each week in a semester-long or year-long course.

But one thing can be learned without sitting through a Tax Policy course. There is no rational reason that every person reaching the age of 65 should be forever thereafter free from paying taxes.

When There Are No Surplus Proceeds From a Tax Sale Yet Equity Shifts to the Purchaser

2025-09-18T13:06:00.001-04:00

Sometimes when a problem appears to have been solved, it turns out that the problem hasn’t been solved because a way is found to circumvent the solution. Why would this happen? It happens when the solution gets in the way of those who benefit from the problem. In other words, sometimes what is a problem for some is a windfall for others and thus the solution to the problem becomes an obstacle to obtaining the windfall. In turn, attempts are made to bypass the solution in order to continue obtaining the windfall.

One situation in which this problem-solution conundrum often pops up is when a property owner fails to pay real property taxes, the taxing jurisdiction causes the property to be sold, and the property owner loses whatever equity the property owner had in the property.

Five years ago, in Who Gets Surplus Proceeds From a Tax Sale?, I explained that the Michigan Supreme Court issued a decision in a case involving the sale of a property on which the real property taxes had been unpaid. A Michigan statute permitted the taxing jurisdiction to retain any excess of the selling price of the property over the amount of unpaid taxes, interest, fees, and costs. The Michigan Supreme Court held that permitting the taxing jurisdiction to retain more than the unpaid taxes, interest, fees, and costs violated the Michigan Constitution. Michigan was one of about twelve states with that sort of statute and I noted that it remained to be seen whether other states would eliminate this practice.

Three years later, in Supreme Court Puts An End to a Bad Tax Practice, I explained that a dispute involving a similar practice in Minnesota has reached the United States Supreme Court, which held that this practice violated the Takings Clause of the United States Constitution. The Court explained that a government cannot take more from a taxpayer than what is owed. Presumably, if a taxing jurisdiction in any other state with a statute similar to those in Michigan or Minnesota retains or tries to retain the excess proceeds, it will face a challenge and it will lose that challenge. Presumably the problem was solved.

But then a year later, in It Turns Out the Supreme Court Didn’t Put An End to a Bad Tax Practice, I had to backtrack on my previous headline, “Supreme Court Puts An End to a Bad Tax Practice,” with a commentary whose headline, “It Turns Out the Supreme Court Didn’t Put An End to a Bad Tax Practice,” because states had found a way to get around the Supreme Court’s holding. In this commentary, I explained that officials in Oakland County, Michigan, seized the home of a delinquent property owner, gave that home to a private company, which sold the house, remitted the unpaid taxes to the county, and kept the excess. The property owner received nothing. When the property owner sued, the judge dismissed the case because “the government itself didn’t make a profit.” What made this situation outrageous was the explanation from the property owner’s lawyer that the private company in question was operated by the mayor and the city administrator. Apparently the company collected $10 million in selling houses in this manner. In July of this year, the Michigan Supreme Court held that what had happened violated the Michigan Constitution, in Jackson v. Southfield Neighborhood Revitalization Initiative.

Today Reader Morris alerted me to a Pennsylvania Commonwealth Court decision, , Gaynor v. Delaware County Tax Claim Bureau and CJD Group, LLC, filed earlier this year. A property owner neglected to pay real estate taxes in 2020 because the pandemic paused visits to the courthouse and paused enforcement of overdue real estate taxes. When she later tried to pay those taxes her payment, unbeknownst to her, was applied to her 2021 tax bill. Later, when notices with respect to the 2020 taxes were sent she apparently did not respond because, according to this story, her mental faculties were declining. The county then sold the property to a private company for the amount of the unpaid taxes, interest, fees, and costs. The home, worth about $247,000, was sold to the private company for $14,000, and the company acquired the $233,000 equity. The homeowner received nothing. The homeowner sued, alleging that the notice of the tax sale was insufficient or defective, that she was not offered an installment payment plan, and that the property was worth more than 15 times what was paid by the private company at the tax sale. The Common Pleas Court rejected the homeowner’s petition, and the homeowner appealed to the Commonwealth Court. On appeal, the homeowner argued “that the trial court erred by failing to find that the price for which the Property was sold was grossly inadequate in comparison to the actual sale price.” The Commonwealth Court explained that the homeowner “did not allege any sale irregularities in her Petition, nor did she present any evidence thereof at the trial court hearing,” and held that, “ Thus, assuming, arguendo, that the Property was sold for a grossly inadequate price, because there is no evidence to even suggest that there were irregularities in the tax sale that contributed to the grossly inadequate sales price, the trial court properly denied the Petition.”

The Commonwealth Court noted, in a footnote, that the Statement of Questions Involved portion of her brief, the homeowner had presented two additional issues for the court to review, specifically “(1) whether the trial court erred by failing to exercise its equitable powers to set the tax sale aside where [homeowner’s] son testified that he would be able to pay all tax arrearages; and (2) whether the trial court erred by failing to set the tax sale aside where the County Tax Claim Bureau (Bureau) had failed to give proper notice or service of the sale in accordance with the requirements of Section 602 of the Real Estate Tax Sale Law.” The Court pointed out that the only issue addressed in the Summary of Argument and Argument portions of her brief was the question of “whether the trial court erred by failing to find that the price for which the Property was sold was grossly inadequate in comparison to the actual sale price.” The court treated the failure to address in the Argument portion of the brief the two issues described in the Statement of Questions Involved portion as having been waived.

There are two ways to analyze this case, which perhaps is being appealed to the Pennsylvania Supreme Court. One is that a procedural glitch prevented the court from getting to the root of the problem and that had the issues been presented in accordance with the procedural rules it would have reached a different conclusion. The other is that even if the court considered those other two issues it would still have concluded, based on its reasoning, that so long as there were no irregularities in the sale, the sale was valid and the property owner’s equity shifted to the buyer.

The story about the homeowner’s loss of her home and her equity in it revealed that according the Channel 6 in Philadelphia, the company that purchased the homeowner’s property has purchased 62 properties since 2011. It is not the only company engaged in this practice.

Several Pennsylvania legislators have introduced a bill designed to stop these situations from happening through a change in the notice procedure. It would permit homeowners to designate an agent who would also receive the notices. This would protect homeowners who for some reason don’t receive the notices, or receive them but fail to act perhaps because their faculties are declining, are in the hospital, or dealing with some other setback. However, this does not solve the problem. The problem is that the taxing authority is permitted to sell the property for less than its fair market value. In a time when housing is scare and prices high, it is puzzling that no one showed up to acquire a $247,000 property for more than $14,000. Surely someone wanting to purchase a home similar in size, features, and location to the one in question but who could, and was willing to, pay, say, $150,000 or some similar amount would have jumped at the opportunity to make such a purchase. Why that did not happen is a question that can and should be asked of real estate agents who are representing buyers. Why not take the potential buyer, who is struggling to find a sufficiently sized yet affordable home, to these tax sale auctions?

Can Tax Reductions Encourage People to Do What They Don’t Want to Do?

2025-09-05T13:30:00.000-04:00

Reader Morris sent me an email with the subject line, “Will eliminating taxes increase reading skills in Denmark?” Curious, I clicked on the link he gave me, a link to a EuroNews article explaining why Denmark is repealing its 25 percent value added tax on books. According to the article, Denmark is facing a literacy crisis, with 25 percent of 15-year-old “struggl[ing] to understand a simple text.”

Denmark’s Culture Minister commented that “he hopes the change will see more books flying off the shelves.” Though the repeal of the tax on books will cut government revenue, proponents of the repeal see it as “an investment in the country’s cultural future.”

Of course, the ability to read is not simply a matter of a nation’s cultural future. It’s a matter of life and death, because the inability to read road signs, medicine bottle labels, appliance and tool safety instructions, and a long list of other things increases the risks of traffic accidents, workshop injuries, unintentional overdoses and poisonings, and a long list of other tragedies.

Yet lowering the cost of books by repealing the tax on books will increase reading activity and book sales only if the reason youngsters are not reading from books is the impact of the tax. It is possible that someone might refrain from buying a $20 book because the tax raises the cost to $25 but I propose that the reason for the decline in reading skills lies in a different direction. And it’s an issue that extends far beyond the borders of Denmark.

The time once invested in reading is now invested in looking at and listening to screen. The decline has its origins not in the internet but in television and digital technology has merely accelerated that decline. The decline in reading isn’t a phenomenon limited to today’s youngsters. Many adults, today and even in the latter decades of the twentieth century and the first two decades of this one, read very little, especially reading for fun. The reasons include a lack of time, a problem faced by adults trying to raise children and hold down a job, but also the ease of watching or listening, especially when it is possible to watch or listen while doing various tasks.

Youngsters, who are somewhat more comfortable and certainly more adept with digital technology, are even more likely to turn to the screen unless they are required to read a book. And given that books can be read online or on a tablet or similar device, purchasing a book in “hard format” is an idea that continues to attract fewer and fewer people as the years pass.

Getting people, particularly youngsters and students, to use print books perhaps is near impossible or very difficult. Most prefer audiobooks and videos. One popular remedy, banning screens from classrooms, has a negative effect. I speak from experience. Student achievement increased as I incorporated more and more digital technology into my teaching. This included front-of-the-room screens and the administration of mini-exams requiring responses inputted through computer or phone internet connections to my laptop. The front-of-the-room screen in the classroom, in many ways, is nothing more than a modernized blackboard. It still required students to have the ability to read. As pointed out in the preceding paragraph, a person can read from something on a screen.

The reading problem isn’t the screen per se. It’s the failed use of the screen, when there is accompanying audio that simply repeats the words on the screen, or when the screen is text-free, as is the case with many video games. Worse, too often what is on the screen is too short, or uses oversimplified vocabulary, and becomes nothing more than a visual version of a misleading audio sound bite. The worst versions are the videos that contain only text and that take 10 times as much time to hear as would be required simply to read the text.

The issue ultimately isn’t the purchase and use of books, though some of us, myself included, simply enjoy holding a book to read. Yet more and more of my reading has shifted from paper books to the digital environment. The issue is finding ways to teach and encourage people, especially youngsters, to read text whether on a printed page or a screen.

So is the tax law the avenue for encouraging people to read? No. Slightly reducing the price of books impacts only the very few who choose to buy a book for $20 but not $25. Tax credits or deductions for buying books would do nothing more than open the door to wholesale fraud, to say nothing of the challenges presented when trying to administer such provisions.

Revisiting “Do IRS Agents Watch Television Court Shows?”

2025-08-22T13:32:00.002-04:00

At the end of July, in Do IRS Agents Watch Television Court Shows?, I explained that reader Morris had found a story that disclosed how an IRS agent watching Real Housewives of New Jersey noticed some things that led to and IRS audit. Reader Morris was responding to a question I had asked a little more than eight years ago, in People’s Court: So Who Did the Tax Cheating?. I had asked, “Do IRS employees watch television court shows?” In last month’s post, I shared my opinion that “The news that an IRS agent was watching a reality show does not answer the question of whether IRS agents watch television court shows.” I concluded with this request: “Perhaps an IRS agent, or a friend or relative of an IRS agent, is willing to share that they watch television court shows. Perhaps they watch simply to be entertained. Perhaps they watch in order to spot people and situations deserving of audits and investigations. If I get any responses, I’ll share them.”

I did get responses. Two. I suppose the next question will be, “Do IRS agents read my blog?” Well, at least two have. Both of the respondents are retired. One simply said, “If I did, how would I know where these people live unless they post their appearance on their social media pages?” My reaction is that finding someone isn’t as difficult as one might think, and the IRS surely has ways of finding someone that isn’t as difficult as those who are simply using internet sites or social media.

The other “noted that IRS agents do watch television court shows, along with other shows, for entertainment purposes, and if they see something on the show or on social media, news, or some other source and there appears to be a potential tax violation they can refer it for further attention.” So there’s no agency-wide policy of watching television court shows, but there are procedures in place if an agent happens to notice something awry when watching television court shows (and probably other television shows, such as news reports).

So advice to people appearing on television court shows should include the same advice given to people on social media. Think before you write or speak or post. One never knows who is watching, reading, or listening.

Ride-Share Drivers and the Mileage-Based Road Fee

2025-08-10T15:42:00.001-04:00

Several days ago reader Morris directed my attention to an opinion piece on Freightwaves from 2021 that asked “What would a vehicle mileage tax mean for ride-share?” In examining that question the article repeats concerns that I have addressed in previous commentaries.

With respect to ride sharing, the article suggests that privacy concerns would discourage ride-share drivers from driving as much as they currently do, as the author gleans from surveys taken from ride-share drivers. The basis for this prediction, according to those drivers, is the presumed use of GPS technology used to track vehicle mileage. The concern certainly cannot be the tracking of mileage, because as I have explained more than once in previous commentaries, odometers track mileage and when vehicles are taken in for inspection the inspecting mechanic records the odometer reading. So, too, do many states when the annual vehicle registration application is submitted. Insurance companies also track the miles driven by insured drivers because it affects rate setting. The concern apparently is the ability of GPS information to provide a viewer the location that a vehicle is in or has visited over the period of time during which mileage is being computed. Yet other than when vehicles are in private garages, vehicles are out in the public and can be seen by whomever observes them. The notion of privacy makes little sense when an activity is being done in public. Of course, this presupposes GPS technology rather than odometer readings would be used to compute the mileage-based road fee. The only reason it would need to be used is to deal with states that want to impose the tax on out-of-state vehicles for which they do not receive odometer readings. As a practical matter, GPS technology already exists in modern vehicles, used, for example, for emergency services requests. So why the concern? Perhaps drivers who are charging customers for rides don’t want to leave evidence of the routes they took. Why? If the stories about taxi drivers and ride-share drivers taking customers on circuitous routes to jack up the cost are true, then perhaps those drivers might be wary of letting evidence exist of their route choices. And, of course, busy drivers don’t need to do that because they want to get passengers delivered as quickly as possible so they can pick up their next fare, which brings in more revenue due to higher initial mile charges and flat fees than would investing time racking up phantom miles for a passenger on a trip already underway. Another concern is that GPS data can reveal whether a driver is violating traffic laws such as those imposing speed limits, but frankly, I have no sympathy for those who resist technology because it impedes law breaking. As a practical matter, as increasing numbers of speed cameras and traffic light cameras are installed, focusing on GPS as a threat to traffic law breaking will becoming increasingly misdirected. So either the privacy concerns are misplaced or the result of keen awareness of the impact of technology on questionable driving and fare-charging practices.

The article also shares concerns about accessibility. It points out that older vehicles do not have built-in GPS technology or the OBD-II port that can be, and often is, used to connect the devices used to track mileage. The OBD-II port became standard in 1996, though not in diesel vehicles until 2006). How many 30-year-old non-diesel vehicles are still on the road? How many 20-year-old diesel vehicles are still on the road? There are some, but their numbers are decreasing, and by the time federal and state governments get around to replacing antiquated fuel taxes with a mileage-base road fee, which will be when highways, bridges, and tunnels are disintegrating en masse, the only non-OBD-II-port vehicles still on the road will be classics, which for the most part are driven so little that they probably are worth an exception.

The article, though, claims that the “tech also experiences problems when paired with electric, hybrid and alternative fuel vehicles,” and that “ For drivers of older models or vehicles with alternate fuel sources, that means a VMT tax isn’t feasible — their cars simply won’t fit into the system.” Though I understand the issue with respect to very old vehicles, as addressed in the preceding paragraph, I don’t understand the premise that electric, hybrid, and alternative fuel vehicles are not, or cannot be, fitted with GPS technology. In fact, to the best of my knowledge, these more recent high-tech vehicles rely heavily on GPS and internet connectivity, and have odometers – or their digital equivalents – to keep track of miles driven for a variety of purposes, including recharging or refueling.

The article expressed concerns that a mileage-based road fee “could disproportionately impact low-income drivers.” First, has anyone done computations to demonstrate that the mileage-based road fee would generate a higher cost than the amount paid at the pump for federal and state fuel taxes? Second, just as ride-share drivers factor fuel taxes into the rate they charge customers, so too they can factor in the mileage-based road fee when making that determination. The article also notes that some states are charging mileage-based road fees in addition to, rather than as replacements for, fuel taxes. That is an important observation, and one that causes me to point out that my proposal, along with most others, would REPLACE fuels taxes with the mileage-based road fee and not permit it to be an additional charge.

Next, the article notes that ride-share drivers “are routinely paid less than minimum wage.” That is, of course, something that should not be happening. Yet it isn’t caused by fuel taxes, nor would it be caused by mileage-based road fees. It is caused by the same business practice that causes wage underpayments throughout too many industries. Ride-share companies need to compensate drivers sufficiently to cover the costs encountered by the drivers and for the time they invest in driving.

Finally, the article concludes, “For the ride-share industry to survive a VMT tax, the model requires some major tweaks by policymakers. They’ll have to * * * enact variable pricing that takes into account things like a person’s income or job status.” That makes no sense. No one pulls up to a gasoline pump and selects from an assortment of fuel tax rates based on income or job status. Existing tolls reflect miles driven on the toll road and are not adjusted for the driver’s income level or job status. The solution to the income-expense dilemma faced by ride-share drivers and too many other Americans does not sit within complex “tweaks” to a fuel tax or mileage-based road fee but within the much wider inequality structure that is afflicting American society and culture.

Do IRS Agents Watch Television Court Shows?

2025-07-29T12:30:00.000-04:00

A little more than eight years ago, in People’s Court: So Who Did the Tax Cheating?, I asked, “Do IRS employees watch television court shows?” I asked that question in the context of television court cases where one or both of the parties disclose, perhaps without realizing it, that they have engaged in transactions that the IRS most likely would consider to be tax fraud, or at least worth an audit and a tax deficiency with or without civil penalties, if the IRS was aware of what had been disclosed.

When I asked that question, I did not know the answer. I still do not know the answer. Today, reader Morris pointed me in the direction of a Reality Blurb story, describing how the IRS caught up with a character on Real Housewives of New Jersey and successfully charged her with tax fraud. According to the director of IRS field operations, an IRS agent who happened to be watching the show and noticed that the character purchased furniture with $120,000 in cash.

The news that an IRS agent was watching a reality show does not answer the question of whether IRS agents watch television court shows. Perhaps it makes a bit more likely. I did find a Reddit thread, in which someone described watching a Judge Judy episode in which she claimed many IRS agents watch the show to find tax cheaters. Some of the responses suggested she said this simply for sake of drama while others pointed out that it was possible, and still another asserted that there was not enough tax dollars involved in television court show cases to make it worthwhile for IRS agents to watch the shows. So reader Morris and I aren’t the only ones who wonder if IRS agents watch television court shows looking for tax violations.

Perhaps an IRS agent, or a friend or relative of an IRS agent, is willing to share that they watch television court shows. Perhaps they watch simply to be entertained. Perhaps they watch in order to spot people and situations deserving of audits and investigations. If I get any responses, I’ll share them.

The Mileage-Based Road Fee Is Much Better Than a Federal Fuel Tax Increase

2025-07-17T12:23:00.002-04:00

Today, reader Morris directed my attention to a proposal by the Truckload Carriers Association for a "Gallons-Based User Fee” or GBUF. Though described as a “simple, common-sense update to the current fuel tax,” it is nothing more than an increase in the existing federal fuel tax along with an “annual registration fee for electric vehicles.” That fee would be $250 annually for electric vehicles and $100 annually for hybrid vehicles. The proposal also includes repeal of the federal 12 percent excise tax on new trucks and trailers. The proponents of GBUF make two arguments. First, they argue that the “federal fuel tax is the most efficient and cost-effective way to fund highway improvements.” Second, they argue that the GBUF “does not require a new collection system or a costly bureaucracy.” They don’t mention that they are not so subtly changing the designation of the revenue from a tax to a user fee, perhaps to make it appear new or perhaps, and more likely, to avoid accusations of supporting a tax increase, something that finds little favor these days.

The proponents make no mention of the fact that some states have already implemented the mileage-based road fee in some form, whether as a pilot program, a voluntary opt-in arrangement, or some similar plan. Though the mileage-based road fee does not require a costly bureaucracy because it would rely on existing vehicle and internet technology to calculate and impose the fee, it easily could be adapted so that states use their fee collection system to collect revenue on behalf of the federal government and remit those collections to the Treasury.

I wonder if one of the reasons the Truckload Carriers Association prefers raising the fuel tax instead of opting for a more accurate mileage-based road fee is that the road fee takes into account the weight of the vehicle, because the heavier the vehicle the more damage to the roads, bridges, and tunnels. For example, compare a 10,000 pound diesel powered box truck with an 80,000 pound diesel powered tractor trailer. The former gets between 13 to 20 miles per gallon whereas the latter gets between 6 to 8 miles per gallon. So to go the same distance of 1000 miles, the tractor-trailer would use between 125 to 167 gallons whereas the box truck would use between 50 and 77 gallons. The tractor trailer would use between 1.6 to 3.3 times as much fuel to cover that distance, and would pay between 1.6 to 3.3 times as much fuel tax. Yet the tractor trailer does far more than 1.6 to 3.3 times as much damage to the roads, bridges, and tunnels. According to the GAO’s Truck Weight and Its Effect on Highways, an 80,000 pound tractor trailer “has the same impact on an interstate highway as 9,600 automobiles,” and “a truck axle carrying 18,000 pounds is only 9 times heavier than a 2,000-pound automobile axle, it does 5,000 times more damage.” In effect, the current fuel tax system, no matter the amount of the per-gallon tax, causes lighter weight vehicles to subsidize a significant portion of the damage done by heavier weight vehicles. The mileage-based road fee, with rates set to match vehicle weights, ameliorates this funding imbalance.

Just as bad, a flat fee for electric and hybrid vehicles presupposes that those vehicles do the same damage to highway infrastructure when, in fact, the miles that each of those vehicles are driven can vary from as little as 2,000 annually to as much as 30,000 or more annually. The mileage-based road fee takes those differences into account. The flat fee does not. On top of this flaw, though the GBUF proponents claim that their proposal “does not require a new collection system or a costly bureaucracy,” it indeed would require a new federal mechanism to impose those flat fees.

In conclusion, though raising the federal fuel tax is better for preservation of federally supported highway infrastructure than doing nothing, it pales in comparison to implementing a mileage-based road fee. Fairness and efficiency weigh in favor of a permanent remediation rather than the seemingly easier but eventually ineffective band-aid of raising a 20th century tax mechanism that doesn’t function well in a 21st century world.