Broker Check

May 31, 1999

Entertaining Your Accountant Can Be Taxing

          Or entertaining any other business related person, for that matter. Summer is a time for barbecues and backyard  get  togethers.  If the person you invite over is business related, then the entire cost of entertaining that person (not their spouse or children or others) is deductible.   The cost includes  you,  but  not your spouse or children. The cost includes each and every papergood purchased and  the value of every drink consumed  from  liquor or  soft drinks  including those  not  specifically purchased for the affair. The regulations are quiet on how you calculate the cost for the two of you, so just use a reasonable method.

          Oh yes,  on the sheet of paper that you calculate  the  amount on,  attach all relevant receipts and write the specific business purpose of the function and a short description of the specific business discussed.   You are not entitled to a deduction for general goodwill and practice development.

          Have a great summer!! Bon Appetit!

Taxation Created Russia

          Russia’s financial  problems today stem in  part from the failure of  its tax collection   process.   This  is  not  the  first  time  the tax collection  process  was important to Russia.  

          When  Genghis Khan  and  his  Golden Horde  swept through Russia,  they reduced its  civilization  to  ashes.   They  farmed  out  tax  collection   to  Moslem merchants  from   Baghdad.    But  the  Russians  rose up   and   slaughtered   the Moslems. Then Khan found a man named Ivan in an obscure town called Moscow who   proposed   an  unusual   method  of  tax  collection.   Instead   of   punishing delinquents, he punished their princes.  The taxes rolled in, and Ivan helped himself to  a princely  share.    The  Khan was so  impressed  that he  made Ivan the tax collector for all of Russia.  With  his huge profits, Ivan began to acquire more  land and hired the best warriors.   Like Augustus in  Rome, he gained control of Russia through its tax system.

          He  built   the  Kremlin  and gradually  loosened  the Mongols’  grip.  His descendant, Ivan  the Terrible, threw the Mongols out, then created a band of tax agents  with  unusual  powers separate from the government.   They were the forerunners of Stalin’s secret police.

          Peter the Great later put a tax on all males. It was higher on  free peasants than  on  serfs, so the ranks of  serfs increased.   Landowners had to accept any peasant who applied, so they demanded more power over their serfs. Like Rome, Russia became a land of serfs and masters.

Fidelity Restricts Frequent Phoners

          In an attempt to cut expenses, the largest mutual fund company has notified 30,000 investors that they  will no  longer be able to reach a human being over the telephone in  order to obtain  fund balances, stock  quotes and  other commonly sought information. Instead,  Fidelity  is  telling these clients, singled out because of their frequent calling,  to  use  its Website or automated telephone system to obtain information.   Fidelity says a call to a phone representative  costs  them  $13  while only $1 to an automated system.

          We  remind  you that  we   have our own  brokerage  operation in   our investment management division and will continue to answer your questions as part of our commitment to old fashioned “service”.

IRS Grants Automatic Filing Extensions For Employee Benefit Tax Returns

          The IRS  has  announced  that,  effective  immediately,  all  applications for extension of time to file employee benefit plan returns on Forms 5500, 5500-C/R, and 5500-EZ will be automatically approved if the request (on Form 5558) is filed on or before the normal due date of the return or report.

          Because the extension  to file  the tax  return   2 1/2    months later  is automatically approved, the IRS will  no longer return approved copies of Form 5558 to the filer to be filed with the tax return. Instead, filers must attach a copy of the completed and signed Form 5558 to the return or report.

Taxpayers With Large Family and No Tax Preferences Are Subject to AMT

          The Tenth Circuit upheld a Tax Court decision holding  that  a  couple  filing jointly with ten children but no tax  preference items  was  properly  liable for  the alternative minimum tax, a tax designed to tax wealthy taxpayers who invest in tax shelters.

          The taxpayers are members of  a  major  church and are opposed to  birth control  and  abortion.   They   claimed  $29,400  in  personal exemptions and dependency deductions.   The Court  rejected the  taxpayers contention that they were not liable for the AMT  because Congress never intended the AMT to apply to taxpayers with  no tax preference items, but who had large families.   The Court said  that while the law may  result  in unintended  consequences, the  taxpayers should   seek relief  from  Congress  and  the AMT did  not violate  their  First Amendment right to free exercise of religion.

This case has to be a great argument for tax simplification!!

          OJ Murders Do Not Result in Casualty Loss A District Court in  California denied a casualty loss deduction to a couple who claimed the  murders  of  Nicole Simpson and Ronald Goldman created permanent buyer resistance to their home.

          The couple claimed a casualty loss on their 1994 tax return on the basis that their Brentwood home fell in value after the double  murder  and the  subsequent public focus on suspect OJ Simpson, whose house was near theirs.

          The Court pointed out that for an individual taxpayer to take a casualty  loss the loss must arise from fire, storm, shipwreck, or other casualty or theft. The court only recognized losses arising from physical damage caused by environmental or other similar casualties.

          If you have any questions about these or any other tax  or financial  issues, please call me.