September 30, 2015
Back in the Office
Shortly after Labor Day, Melissa returned to the office full-time. The twins are doing great!
Puerto Rico Defaults
Puerto Rico defaulted on 99% of the $58 million due to creditors on August 3, 2015. Puerto Rico Government Development Bank.
Next addition to the municipal problem area is Houston, which is having a hard time funding their employee pension plans.
You might want to seriously reconsider investing in municipal bonds.
Unemployment Drops?
The Federal Reserve has stated that the unemployment rate has declined to 5%, which contemplates a full employment economy. As of July 31, 2015, it was 2.18 million. However, this is 69% above where it was 8 years ago; 1.291 million on July 31, 2007. U.S. Department of Labor.
Does this feel like 2007 to you? And this with 20,000,000 fewer people in the work force!
Selling Marijuana Is Not Good For Tax Health
The news is full of the spread of legalized marijuana sales. In a recent Tax Court case, a Californian corporation learned it should have considered tax-exempt status. It ran a marijuana dispensary where customers could buy the drug for medical use. Although the sale and use of medical marijuana are legal in California, a federal tax statute prohibits businesses that sell marijuana from deducting their expenses. As a result, the Tax Court disallowed all the firm’s deductions. Canna Care Inc. TC Memo 2015-206.
IRA Owned Company Paid Owner A Salary
A person formed a new corporation and had his IRA purchase all of the stock. This was the IRA’s only investment and 100% of the firm’s funding come from the IRA.
That same year, the company paid wages to the IRA owner for managing the firm. The appeals court said this was a prohibited transaction that terminated the IRA. As a result, the IRA owner should be taxed on the full amount in the IRA account. Ellis 8th Circuit.
Homeowner Can Deduct Legal Fees To Sue Condo Association
A consultant who worked from home and used 50% of her condominium for business sued her neighbors and condominium association alleging that her work was disrupted by noise from faulty construction and barking dogs so she deducted her legal fees. IRS disallowed but Tax Court okayed half the write off because 50% of the condo was used for business. McMillan, TC Memo 2015-109.
Same Sex Marriage/Divorce
As I have stated in a previous newsletter, the prospect of legalizing gay marriage to a lawyer means adding to the population of those who can divorce and thereby adding to the pool of potential litigants. June’s Supreme Court ruling has opened the floodgates to those same sex couples who married in a state that allowed the marriage yet lived in a state that did not.
Georgia is one state that did not allow same sex marriage and now couples in Georgia and similar states are lining up to both wed and divorce. Some lawyers say they have clients that have waited for years to divorce. Wall Street Journal 8/15 - 8/16/2015 p. A3.
Pensions Brace For Lower Returns
Public pension funds from California to New York are cutting investment return predictions to their lowest levels since the 1980s, a shift that portends greater hardship for employees and cash-strapped governments as Americans age. New upheavals in global markets and a sustained period of low interest rates (in Europe they are negative!) are forcing officials who manage retirements for nearly 20,000,000 U.S. beneficiaries to abandon a long-held belief that stocks, bonds, and other holdings would earn 8% each year, as well as expectations that those gains would fund hundreds of billions of dollars in liabilities.
More than two-thirds of state retirement systems have trimmed assumptions since 2008 as the financial crisis and an uneven U.S. recovery knocked many below their long-term goals, according to an analysis of 126 plans provided by the National Association of State Retirement Administrators. The current average of 7.68% is the lowest since 1989. The peak was 8.1% in 2001. On September 4, 2015 the third largest plan in the U.S., the New York State Common Retirement Fund said it plans to drop its assumed returns to 7% from 7.5% after cutting a half percentage point 5 years ago.
Realism, said Brain McDonnell, managing director for pension consultant Cambridge Associates is “creeping in.”
Cutting the assumption from 8% is not just an arcane accounting move. It has real-life consequences. Even slight cutbacks in return targets often mean budget-strained governments or workers are asked to contribute more to account for the liabilities that arise due to lengthened lifespans.
In Boulder, Colorado, the city eliminated 100 positions and consolidated programs in order to fund an additional $1.7 million in pension payments. Wall Street Journal 9/5 – 6/15 p. A1.
How do you think this might affect you or your town? Less workers, more taxes or reduced services?
As always, if you have any questions about these or any other matters, do not hesitate to call us.
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