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$800 Billion Of Tax Payments Are Automatically Postponed

Taken together, recent separate emergency actions by Treasury and Congress will defer an estimated $800 billion of payroll and income tax payments. These postponements are automatic, and the amounts postponed are unlimited.

These deferrals of tax, approximately equal to 3.5 percent of GDP, are in effect interest-free loans to taxpayers. They will provide much-needed cash flow to businesses with plummeting sales revenue and to individuals with lost wages.

Unlike other federal emergency measures designed to inject liquidity into the economy, there are no borrower qualifications, such as being in a distressed industry, and there are no limitations on uses, such as prohibitions of layoffs, executive pay hikes, or stock buybacks.

Notice 2020-18, 2020-15 IRB 1 (released on March 20), provides “relief for taxpayers affected by the ongoing coronavirus disease 2019 pandemic.”

Specifically, the April 15, 2020, due date for federal income tax payments has been automatically postponed until July 15, 2020. This relief applies without limitation to income taxes paid by individuals and corporations. It applies to estimated payments by individuals and any tax due when filing an annual return.

The relief also applies to installment payments due on April 15, 2020, for section 965 transition tax on untaxed foreign earnings (not included in our estimate). It does not apply to taxes other than income taxes, such as payroll or excise taxes.

According to Treasury data for calendar year 2019, individual tax payments (excluding withholding) for the months of April, May, June, and July were $364 billion.

Also, in 2019 corporate tax payments for the months of April, May, June, and July were $111 billion. (See figures 1 and 2.)

If these payments are assumed to remain unchanged in 2020, Notice 2020-18 will inject a total of $476 million of short-term liquidity into the economy from now until the midsummer, with that entire amount scheduled to be repaid on July 15.

Medium-Term, Payroll Tax Deferral

Under section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), payments by employers and self-employed individuals of the 6.2% tax on wages for Social Security are postponed until after 2020.

Half of these deferred taxes will be due in 2021 and the other half in 2022. (As of this writing, the CARES Act is expected to be signed by the president on March 27.)

As noted, postponed taxes provide critical liquidity for hard-hit employers — such as those in restaurant, entertainment, retail, and passenger transportation businesses.

However, many risk-averse individuals and businesses with strong balance sheets are seeking a safe harbor.

Paying taxes in advance to the government of the United States — yes, you read that right — can be an attractive alternative to investing in Treasury bills. Rates on Treasury bills are close to zero and even negative. (As of this writing, the yield on 10-year Treasury notes was 0.813 percent; the yield on three-month Treasury bills was -0.028 percent.) Some European taxpayers were already prepaying tax before the coronavirus outbreak. And tax administrators were trying to prevent it.

Data from Treasury’s Financial Management Service indicate that in calendar year 2019, the total employer portion of Social Security tax and one-half of the corresponding tax paid by self-employed individuals totaled $465 billion.

Calibrating that figure to correspond to the 9 months of what the statutory text calls the “payroll tax payment period” yields $349 billion of potentially postponed employer payroll taxes under the proposed legislation. Of course, we normally expect payrolls and payroll taxes to grow. These are not normal times.

On March 26 the Department of Labor reported that nationwide unemployment insurance claims for the week ending March 21 were 3.38 million.

These claims alone would increase the national unemployment rate from 3.5 percent to 5.5 percent. Based on Labor Department national occupational employment data for 2018, we tentatively surmise that about 13.6 million Americans work in restaurants, 10.2 million in retail, and another 3 million in travel, entertainment, and other nonessential businesses that require close contact with customers (for example, barbers).

Unfortunately, these figures — which do not include factory or air transport workers — suggest the new and startling unemployment claim figures may be only the beginning of a larger increase in unemployment for at least the next few months.

If, for purposes of conservatively estimating the size of payroll tax deferral, we assume taxable payroll levels for the remainder of 2020 will on average equal 90% of their 2019 levels, total deferred payroll taxes would be $314 billion.

Under the new legislation, $157 billion of that postponed payroll tax would be due without interest or penalty in 2021, and another $157 billion would be due in 2022.

The exact timing of those postponed payments is left up to Treasury. None of this will affect the Social Security Trust Fund because the Treasury general fund will make up the shortfalls.

Looking Ahead

Combining our estimate of $476 billion of short-term income tax relief with our estimated $314 billion of medium-term payroll tax relief yields a total of $790 billion of postponed tax payments.

As of this writing, the Joint Committee on Taxation has not provided an estimate of the payroll tax postponement legislated by Congress. Because it is not prompted by legislation, an official estimate of the effect of Notice 2020-18 is unlikely to surface.

As a delivery mechanism for injecting liquidity into the economy, postponement of tax payments is a mixed bag. The big plus is that instead of sending payments back and forth between the private sector and the federal government, the private sector just keeps cash due to the federal government.

Besides administrative ease, the positive impact on cash flow is rapid.

However, the immediate positive impact is limited. In the case of payroll tax relief, it is spread out over the following 9 months, beyond what we all hope will be the end of the crisis period.

Also, the relief is in many respects haphazardly targeted. Individuals who are self-employed benefit greatly from postponement of an April 15 estimated payment. Employed individuals who withhold gain little. For individuals who overwithheld, there is no benefit at all.

Income tax postponement does not target businesses most in need. Businesses with curtailed sales revenue (like restaurants) will get the least benefit while high-flyers (like businesses providing online services) get the most.

In 1992 President George H.W. Bush reduced income tax withholding to provide a $25 billion temporary stimulus to the economy.

In the current situation, Treasury has sort of done the opposite by leaving withholding unchanged and postponing other income tax payments. Except for that episode, and much smaller-scale relief provided during national disasters, the federal government — to the best of our knowledge — has not modified the timing of tax payments to provide humanitarian relief and fiscal stimulus.

Nobody was thinking about tax postponement a month ago. But it is likely to be a big issue for years to come.

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Source: $800 Billion Of Tax Payments Are Automatically Postponed

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Cut Payroll Taxes? Stimulate Ventilator Companies

Empty airports and restaurants, disrupted supply chains and closed schools will have devastating effects on the economy. Is there a way to counteract the damage? Here are nine stimulus schemes: two in place, six being debated by politicians and one that is not widely discussed but probably should be.

Cut interest rates. The Federal Reserve’s recent half-point reduction in the already low short-term interest rate hasn’t had a visibly positive effect. The stock market is down 12% since the cut was announced. Evidently interest rate changes don’t get people onto cruise ships.

Lend money. The $8.3 billion antivirus legislation signed last week includes authorization for more Small Business Administration loan guarantees. A loan could tide over a retailer or restaurant that might otherwise go under. Unfortunately, SBA benefits are concentrated on the least capable entrepreneurs.

Cut payroll taxes. A reduction in Social Security tax puts money in your pocket—if you haven’t lost your job. It doesn’t open a coffee shop that closed its doors because the offices on that block have employees working from home.

The anti-recession efforts put in place after the 2008-2009 financial crisis included a two-point reduction in payroll taxes. The main effect was to increase the deficit. President Trump favors a full elimination, through the end of the year, of federal payroll taxes. This would have a more powerful effect on the deficit.

Give handouts to restaurants and hotels. That’s what the San Francisco Chamber of Commerce wants its city government to do. On Monday Trump mentioned the possibility of federal aid to hotels.

Send everybody money.This has been done before. President Gerald Ford tried to combat the 1973-1974 recession by having the U.S. Treasury send, in 1975, gifts of $100 to $200 to citizens who had paid taxes the year before. Barack Obama’s stimulus plan had similar gratuities, in the $300 to $600 range.

Give tax breaks to troubled sectors. A tax reduction for airlines and cruise operators is not going to prevent worried customers from cancelling trips. On the other hand, it might not cost much; the travel industry is probably going to wind up with loss carryforwards that will eliminate income taxes for years.

But when Congress expresses a willingness to help one industry, others line up. This is how we get 2,000-page tax bills.

Shoe retailers, for example, now say they are especially deserving of a break. Senators from North Dakota and Oklahoma say that the shale oil industry needs help.

The energy sector is indeed important to the functioning of the economy, and it employs a lot of people. But its plight is only partly attributable to the coronavirus. The immediate problem is that Saudi Arabia and Russia are engaged in a price war.

Pay for sick leave. Millions of workers don’t get paid time off for sickness. That leaves them with diminished motivation to stay home when they are coughing.

One solution, initially favored by Speaker Nancy Pelosi and Senator Charles Schumer, would be legislation mandating that employers pay for sick leave. Another would be to allow sick or quarantined workers to draw from unemployment compensation funds. Yet another is for the federal government to chip in for sick leave.

House Democrats are likely to take up sick leave and unemployment insurance today. The Republican-controlled Senate might have different ideas.

Buy food for kids. Children who rely on subsidized lunches are in trouble when their schools close. That problem could be addressed via changes to existing nutrition programs, now under debate in the House.

Not easily corrected: the permanent loss of productive capacity when the kids’ parents have to stay home.

There’s plenty of talk about those eight methods of stimulating. Now here’s one that doesn’t have much visibility yet.

Pay for ventilators. This would be a very roundabout way to help the economy. By allaying the fear of death, an ample supply of intensive-care equipment could restore people’s willingness to patronize restaurants and theaters.

This fear is not irrational, at least for those over 60. You can get a taste of it by perusing a November 2015 report from a task force reviewing ventilator supplies in New York. During a Spanish-flu-level pandemic, the authors posit, the state would see a peak demand of 18,619. There would be only 2,836 available (including 1,750 now in stockpiles). So doctors would have to come up with some algorithm, perhaps involving dice-throwing, to determine which patients would be permitted to live.

Hospitals, already under financial pressure, are disinclined to buy ventilators whose cost they might never recover. They would need a subsidy to add to their stockpile. They would need a subsidy to undertake, beginning sometime before the dice-throwing starts, emergency training of additional ventilator nurses. If the government wants ICU equipment right away, it would also need to pay manufacturers for incremental production capacity that may become useless six months from now.

A worthwhile investment? Probably more worthwhile than assistance to oil drillers.

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I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979. Email me at williambaldwinfinance — at — gmail — dot — com.

Source: Cut Payroll Taxes? No, Trump Should Stimulate Ventilator Companies

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After the stock market plummeted Monday, President Trump proposed a payroll tax cut through the end of the year and expanding paid leave for workers. » Subscribe to NBC News: http://nbcnews.to/SubscribeToNBC » Watch more NBC video: http://bit.ly/MoreNBCNews NBC News Digital is a collection of innovative and powerful news brands that deliver compelling, diverse and engaging news stories. NBC News Digital features NBCNews.com, MSNBC.com, TODAY.com, Nightly News, Meet the Press, Dateline, and the existing apps and digital extensions of these respective properties. We deliver the best in breaking news, live video coverage, original journalism and segments from your favorite NBC News Shows. Connect with NBC News Online! NBC News App: https://smart.link/5d0cd9df61b80 Breaking News Alerts: https://link.nbcnews.com/join/5cj/bre… Visit NBCNews.Com: http://nbcnews.to/ReadNBC Find NBC News on Facebook: http://nbcnews.to/LikeNBC Follow NBC News on Twitter: http://nbcnews.to/FollowNBC Follow NBC News on Instagram: http://nbcnews.to/InstaNBC Trump Wants Payroll Tax Cut, Other Measures To Offset Coronavirus Economic Damage | NBC Nightly News

Could A Tourist Tax Be The Answer To Norway’s Overtourism Problem?

The number of tourists coming to Norway continues to increase. In 2019, several natural attractions including the trail to the Pulpit Rock and hiking trails in Lofoten received record numbers of international visitors.

Locals are frustrated with congested roads and inconsiderate parking, while small municipalities complain that they can’t afford the necessary improvements to cope with the number of visitors, which more often than not far outnumber local residents. Calls have never been louder for a tourist tax.

A study by Innovation Norway of the highest profile Norwegian destinations found that discontent is high among a clear majority of the local population. These areas include the cities Bergen, Stavanger and Ålesund, along with more remote areas including Geiranger, Lofoten, Aurland and Svalbard. Almost two-thirds of those surveyed supported the introduction of a tourist tax.

According to the European Tourism Association, the concept of a visitor tax is not yet popular in northern Europe. Denmark, Sweden, Estonia and Latvia are among the countries not to have implemented the concept. The most visited countries in Europe—France, Spain and Italy—have all introduced charges.

Tourist tax under discussion by Norway’s MPs

For the second time in two years, the Norwegian Parliament is discussing the concept of a tourist tax. Last time the proposals were voted down, but given the recent changes in the coalition government, things could well be different this time around. Both the Labour party and Center party appear to now be in favor of allowing select municipalities to introduce some kind of local visitor fee.

One person who is hoping for an agreement is Jan Ove Tryggestad, the Mayor of Stranda municipality, which includes the tourist magnet Geiranger. “Today, there are a number of tourist destinations in Norway that are struggling. We cannot take any responsibility for what mass tourism imposes on us,” he told NRK.

Tryggestad also said he believes “tourist tax” is a loaded term and prefers to call the proposal “joint fundraising.” He also proposed alternatives to the typical accommodation-based way tourist taxes are collected at locations across Europe, presumably because so many visitors to Geiranger are day-trippers from cruise ships.

He suggested mobile payments, toll stations or a simple levy on goods and services in the specified zone could all be potential solutions.

How authorities elsewhere in Norway are tackling overtourism

Elsewhere in Norway, other measures are being introduced ahead of what is expected to be another record-breaking summer season.

The Foundation responsible for the facilities at Pulpit Rock are implementing limits on the number of tour buses allowed at the parking lot at any one time. While they are not limiting numbers taking the hike, they hope to better spread those numbers across the day.

City bosses in Bergen have extended the summer ban on passenger vehicles using Bryggen and Torget in the historic center to tourist buses. Such buses will also be banned from Øvregaten, an important access road to Bryggen. While many in the city are pleased with the news, owners of local tourism companies have spoken out against the proposals. There are several hotels in the restricted zone, which could cause problems for those traveling to and from cruise ships.

Finally, the Norwegian government is also considering imposing a size limitation on cruise ships around Svalbard. They are also considering extended the current ban on the use of heavy fuel oil (HFO) to cover the entire archipelago.

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I was born in the U.K. but moved to Norway in 2011 and haven’t looked back. I run a website and podcast for fellow expats, authored the Moon Norway travel guidebook, help Norwegian companies with their English, and spend my free time touring the country to discover more about the people and places of this unique corner of the world. I write for Forbes with an outsider’s inside perspective on Norway & Scandinavia.

Source: Could A Tourist Tax Be The Answer To Norway’s Overtourism Problem?

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Cities and attractions across the globe are experiencing severe overcrowding and other stresses brought on by too many tourists. According to the United Nations’ World Tourism Organization, there were around 70 million international tourist arrivals back in 1960. Today, that number has hit more than 1.4 billion. Erin Florio, travel news director for Conde Nast Traveler, joins “CBS This Morning” to discuss the impact of all that tourist traffic. Watch “CBS This Morning” HERE: http://bit.ly/1T88yAR Download the CBS News app on iOS HERE: https://apple.co/1tRNnUy Download the CBS News app on Android HERE: https://bit.ly/1IcphuX Like “CBS This Morning” on Facebook HERE: http://on.fb.me/1LhtdvI Follow “CBS This Morning” on Twitter HERE: http://bit.ly/1Xj5W3p Follow “CBS This Morning” on Instagram HERE: http://bit.ly/1Q7NGnY Get new episodes of shows you love across devices the next day, stream local news live, and watch full seasons of CBS fan favorites anytime, anywhere with CBS All Access. Try it free! http://bit.ly/1OQA29B Each weekday morning, “CBS This Morning” co-hosts Gayle King, Anthony Mason and Tony Dokoupil deliver two hours of original reporting, breaking news and top-level newsmaker interviews in an engaging and informative format that challenges the norm in network morning news programs. The broadcast has earned a prestigious Peabody Award, a Polk Award, four News & Documentary Emmys, three Daytime Emmys and the 2017 Edward R. Murrow Award for Best Newscast. The broadcast was also honored with an Alfred I. duPont-Columbia Award as part of CBS News division-wide coverage of the shootings at Sandy Hook Elementary School in Newtown, Connecticut. Check local listings for “CBS This Morning” broadcast times.

The Future of Tax & Legal – Embracing Change with Confidence

Businessperson Calculating Invoice

Tax and legal professionals today face increasing complexity, risk, and ambiguity as technology, regulatory and business transformation converge. It’s easy to feel overwhelmed by the change and the infinite number of strategic options. But embracing this change is manageable with the right tools and the right partner.

Deloitte is helping clients navigate this increasingly complex, digital world by leveraging the combined strength of our technology capabilities from our Consulting and Tax & Legal practices, and by placing a continued emphasis on technology investment and skills development to prepare talent to meet the evolving needs of the business.

Harnessing Technology to Adapt to Change

Businesses in all sectors and regions are experiencing the opportunities and challenges that come with the immense changes of the Fourth Industrial Revolution. Even the most traditional business areas, such as tax and legal, are not immune. Technologies are disrupting business as we know it and in response, global tax and legal systems must transform and adapt to keep pace with these new business concepts and models. And organizations need to invest in their tax and legal departments to ensure they can operate confidently and effectively while minimizing risk.

Tax departments are tasked with executing flawlessly at a fundamental level: Ensure compliance, know the regulations and their implications, be precise, account for all the data, stay ahead of risk, and predict outcomes. And they are asked to do it all in an environment of exponential increases in data, added responsibility within the business, and new mandates from regulators.

As a result, tax professionals are moving to automate and apply analytics to help account for more data and to achieve greater precision. Technologies such as robotic process automation (RPA), natural language processing (NLP) and artificial intelligence (AI) give tax professionals the ability to work with all the information available in massive data sets.

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To not only see what has happened, but to more confidently predict what will happen. To be insightful and focus on implications and outcomes rather than being consumed by ensuring the accuracy of the numbers and on-time filing. And to do all this while meeting the increased transparency demands of regulators – who themselves are likely to use robotics and AI to collect and analyze companies’ tax data.

Likewise, technology has become a critical tool to help legal departments support rapidly evolving demands from the business and manage regulatory change.

Using Deloitte Tax and Legal professionals as an example, when the European Union’s General Data Protection Regulation (“GDPR”) came into force in 2018 along with the UK Data Protection Act, Deloitte UK’s Tax group engaged Deloitte Legal to assess the scope, and remediate where necessary, approximately 45,000 engagement contracts.

In the past this would have required a very lengthy manual assessment which would have been inefficient and prone to error as contract negotiations are typically buried in emails and hard to track. Instead Deloitte exercised a combined approach using dTrax, a proprietary artificial intelligence-enabled contract lifecycle management technology, with the support of skilled Deloitte Legal resources to simplify, automate, and streamline the contracting process.

The tool allowed Deloitte Tax client relationship owners to provide details about their engagements, which were then assessed by dTrax to determine whether the corresponding engagement contract required remediation. Where remediation was required, dTrax automatically generated a letter varying the Data Protection clause, which was sent directly to the client.

If negotiation of the Data Protection clause wording was required, Deloitte Legal resources were able to negotiate by reference to playbooks built into dTrax. This approach drove consistency while keeping contract negotiations managed and recorded within a single platform.

By combining technology with skilled resources, Deloitte UK’s Tax team was able to alter the business model, allowing for up to a 50 percent reduction in the number of required legal resources, a 40 percent reduction in the delivery turnaround time per variation letter, and an up to 60 percent reduction in the overall costs. Ultimately, the team gained greater visibility and insights into their contract terms and conditions, which increased their overall compliance and reduced risk.

Fueling Talent with Technology

While digital transformation is a tech-enabled shift, it requires a collaborative effort to change mindsets and embrace and advance transformation. A successful digital transformation demands a cultural change with a focus on continuous learning and embedding technology into the way we work.

Tax professionals have traditionally been tied up with compliance and the technical side of tax. Yet in this digital age, a robot can now do the data checking and digital tools can classify line items. So, today’s, and tomorrow’s, tax professional needs to understand the processes behind tax, be able to code, interpret data and make decisions. They have the opportunity to provide far more valuable and strategic input to their organizations, but they must be more adaptable to work with technology to enhance and reinforce their advice.

From the legal perspective, lawyers will need to have a broader range of skills to be ready for the legal landscape of tomorrow. Tomorrow’s digital lawyers will need to think and operate in a different way and they will need significant management, business strategy, technology and consulting capabilities to be able to deliver real value to clients. Adoption of the right tools, such as AI and data analytics, will enable legal teams to maximize efficiencies across multiple functions, standardize and adopt best practices, and help gather insights to support better decision making for the business.

Inspiring Confidence Today and Into Tomorrow with Technology

Deloitte has invested heavily in technology and we are accelerating our efforts in order to help both our own professionals and clients stay ahead. With more than 200 technology solutions in place, including robotics, AI, and machine learning capabilities, Deloitte Tax & Legal is helping clients manage compliance, bridge gaps between countries’ accounting principles, and manage research and development incentives claims. As we navigate the Fourth Industrial Revolution, having a tech-savvy foundation in our people and our processes will help set ourselves and our clients up for success and ensure our ability to work confidently now and far into the future.

Based in London, Philip Mills is the Global Tax & Legal leader at Deloitte. Prior to this, he led the Global Business Tax practice for two years and the UK Business Tax practice for seven years, amongst other roles. Philip also leads the Global Tax & Legal Executive and is a member of the Global Executive Committee. He has a Physics Bachelor of Science degree from Liverpool University, is a member of the Institute of Chartered Accountants in England and Wales and is a member of the Institute of Tax.

For nearly 20 years, Philip focused on M&A tax, particularly on Private Equity, Real Estate and Hedge Funds. He has worked on some of the more significant, large and complex European transactions in recent years as well as supporting the Fund advisers. Most recently, he took on advisory roles to some of Deloitte’s largest multinational corporate clients.

Source: The Future of Tax & Legal – Embracing Change with Confidence

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Man Loses Home After Failing To Pay $8.41 In Property Taxes

$8.41. That was how much 83-year-old Uri Rafaeli, a retired engineer, in Michigan underpaid his property taxes by in 2014. That was all it took for him to lose his house.

Rafaeli bought a 1,500-square-foot Southfield home in 2011. He paid $60,000 for the property, and the deed was recorded by the Oakland County Register of Deeds on January 6, 2012. He put additional money into the home, too, as he intended to use the rental income from the property to fund his retirement.

Rafaeli believed that he was paying his property taxes on time and in full, but in 2012, he received notice that he had underpaid his 2011 tax bill by $496. He paid up in 2013 but made a mistake figuring the interest (interest also accrued while his check was in the mail): He was short by $8.41.

In response, Oakland County seized his property and put it up for sale. The home netted just $24,500 at auction; according to Zillow, the property is now estimated to be worth nearly $130,000.

The County kept the overage from the auction: $24,215 in profits, or 8,496% of the actual tax, penalties, and interest due (the debt had grown to $285 with penalties, interest, and fees).

It was all legal.

Under Act 123 of 1999, Michigan allows its county treasurers a great deal of authority to handle unpaid taxes, including rushing the tax foreclosure process. Under the Act, the property is considered delinquent if taxes aren’t paid in the previous year. If the outstanding taxes, fees and penalties remain unpaid after two years, the County can foreclose on the property; that’s much more quickly than before, when the average timeframe to move a foreclosure was five to seven years. Shortly after foreclosure, the former owner loses the right to buy back the property, and the County becomes the owner. At sale, the funds belong to the County. There’s no requirement to refund any of the proceeds to the owner even if the overage far exceeds the amount owed.

Rafaeli—and his lawyers—think that’s wrong. They took the matter to the U.S. District Court for the Eastern District of Michigan. The court found that Rafaeli—and a similarly situated plaintiff—suffered “a manifest injustice that should find redress under the law” but dismissed the claim for lack of jurisdiction.

Rafaeli tried again. He didn’t argue that he didn’t owe tax, penalties, interest and fees. But he did object to the County taking the excess. The County argued that Rafaeli had no rights to the equity because the General Property Tax Act does not expressly protect it. And that’s the reason that Rafaeli keeps losing: The courts have sympathy for his plight but have found that the law does not prevent the County from keeping it.

He’s not alone. Tens of thousands of properties in Detroit have been subject to the same kind of treatment. Many of those who owe taxes understand that they have a debt, but they don’t necessarily understand how to navigate the process or what the failure to pay on time can mean. As with Rafaeli, even something as simple as miscalculating the interest due, can have serious consequences.

Today, Rafaeli is represented by the Pacific Legal Foundation (PLF). PLF was founded in 1973 by members of then-governor Ronald Reagan’s staff as the first public interest law firm dedicated to the principles of individual rights and limited government. PLF is taking the case to the Michigan Supreme Court, arguing that keeping the funds is an unjust taking. If he wins, Rafaeli—and other landowners in similar situations—may be entitled to compensation.

According to PLF, the entire process, as it is happening now, is nothing more than government-sanctioned theft. “Predatory government foreclosure particularly threatens the elderly, sick, and people in economic distress,” PLF argued on its website. “It could happen to your grandparents. It could happen to you.”

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Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: Man Loses Home After Failing To Pay $8.41 In Property Taxes

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A short video explaining your property taxes and the role of the Assessor’s Office.

IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

Are you wondering about those updated per diem rates? The new per-diem numbers are now out, effective October 1, 2019. These numbers are to be used for per-diem allowances paid to any employee on or after October 1, 2019, for travel away from home. The new rates include those for the transportation industry; the rate for the incidental expenses; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

I know, that sounds complicated. But it’s intended to keep things simple. The Internal Revenue Service (IRS) allows the use of per diem (that’s Latin meaning “for each day” – remember, lawyers love Latin) rates to make reimbursements easier for employers and employees. Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business rather than using actual expenses.

Here’s how it typically works: A per diem rate can be used by an employer to reimburse employees for combined lodging and meal costs, or meal costs alone. Per diem payments are not considered part of the employee’s wages for tax purposes so long as the payments are equal to, or less than the federal per diem rate, and the employee provides an expense report. If the employee doesn’t provide a complete expense report, the payments will be taxable to the employee. Similarly, any payments which are more than the per diem rate will also be taxable.

Today In: Money

The reimbursement piece is essential. Remember that for the 2019 tax year, unreimbursed job expenses are not deductible. The Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed job expenses and miscellaneous itemized deductions subject to the 2% floor for the tax years 2018 through 2025. Those expenses include unreimbursed travel and mileage.

That also means that the business standard mileage rate (you’ll find the 2019 rate here) cannot be used to deduct unreimbursed employee travel expenses for the 2018 through 2025 tax years. The IRS has clarified, however, that members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists may still deduct unreimbursed employee travel expenses as an adjustment to income on the front page of the 1040; in other words, those folks can continue to use the business standard mileage rate. For details, you can check out Notice 2018-42 (downloads as a PDF).

What about self-employed taxpayers? The good news is that they can still deduct business-related expenses. However, the per diem rates aren’t as useful for self-employed taxpayers because they can only use the per diem rates for meal costs. Realistically, that means that self-employed taxpayers must continue to keep excellent records and use exact numbers.

As of October 1, 2019, the special meals and incidental expenses (M&IE) per diem rates for taxpayers in the transportation industry are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States; those rates are slightly more than they were last year. The per diem rate for meals & incidental expenses (M&IE) includes all meals, room service, laundry, dry cleaning, and pressing of clothing, and fees and tips for persons who provide services, such as food servers and luggage handlers.

The rate for incidental expenses only is $5 per day, no matter the location. Incidental expenses include fees and tips paid at lodging, including porters and hotel staff. It’s worth noting that transportation between where you sleep or work and where you eat, as well as the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses. If you want to snag a break for those, and you use the per diem rates, you may request that your employer reimburse you.

That’s good advice across the board: If you previously deducted those unreimbursed job expenses and can no longer do so under the TCJA, ask your employer about potential reimbursements. Companies might not have considered the need for specific reimbursement policies before the new tax law, but would likely not want to lose a good employee over a few dollars – especially when those dollars are important to the employee.

Of course, since the cost of travel can vary depending on where – and when – you’re going, there are special rates for certain destinations. For purposes of the high-low substantiation method, the per diem rates are $297 for travel to any high-cost locality and $200 for travel to any other locality within the continental United States. The meals & incidental expenses only per diem for travel to those destinations is $71 for travel to a high-cost locality and $60 for travel to any other locality within the continental United States.

You can find the list of high-cost localities for all or part of the calendar year – including the applicable rates – in the most recent IRS notice. As you can imagine, high cost of living areas like San Francisco, Boston, New York City, and the District of Columbia continue to make the list. There are, however, a few noteworthy changes, including:

  • The following localities have been added to the list of high-cost localities: Mill Valley/San Rafael/Novato, California; Crested Butte/Gunnison, Colorado; Petoskey, Michigan; Big Sky/West Yellowstone/Gardiner, Montana; Carlsbad, New Mexico; Nashville, Tennessee; and Midland/Odessa, Texas.
  • The following localities have been removed from the list of high-cost localities: Los Angeles, California; San Diego, California; Duluth, Minnesota; Moab, Utah; and Virginia Beach, Virginia.
  • The following localities have changed the portion of the year in which they are high-cost localities (meaning that seasonal rates apply): Napa, California; Santa Barbara, California; Denver, Colorado; Vail, Colorado; Washington D.C., District of Columbia; Key West, Florida; Jekyll Island/Brunswick, Georgia; New York City, New York; Portland, Oregon; Philadelphia, Pennsylvania; Pecos, Texas; Vancouver, Washington; and Jackson/Pinedale, Wyoming.

You can find the entire high-cost localities list, together with other per diem information, in Notice 2019-55 (downloads as a PDF). To find the federal government per diem rates by locality name or zip code, head over to the General Services Administration (GSA) website.

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Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

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Per Diem is one of the largest tax deductions available to owner-operator truck drivers. Effective October 1, 2018, the daily rate was increased. In this video, we discuss Per Diem and how it will affect owner-operators.

TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

Nobody likes getting a tax bill in the mail. It’s especially concerning when your tax bill is a bit higher than you anticipated. But what happens when it’s hundreds of millions of dollars more than you were expecting? Just ask Donna Smith from Aurora, Colorado. Smith, a part-time worker at a local thrift store, got quite the surprise when she opened a tax bill from the Colorado Department of Revenue to find that the state claimed she owed $216,399,508 in taxes.

Smith, who makes about $10 an hour, couldn’t understand the tax bill. To put the amount in perspective, it’s nearly a quarter of the City of Aurora’s entire budget for the year (report downloads as a PDF).

Smith’s returns are self-prepared, of sorts. Her mother, Diana Valencia, prepared Smith’s tax return for 2018 and couldn’t understand what happened. She told 9News that she went back to check the return, saying, “I mean, I thought, ‘Wow, was that an error on my part?’”

Today In: Money

It was an error – but not on Valencia’s part. Valencia used TurboTax to prepare the return. According to the Colorado Department of Revenue (DOR), the TurboTax software made an error tied to Smith’s federal taxable income.

A spokesperson from TurboTax confirmed the error, saying, “For a small number of TurboTax online customers that filed their taxes between June 13-16, there was an issue that caused select fields on their tax return to be incorrectly transmitted during e-file. The issue was quickly fixed and we have been working directly with affected Colorado taxpayers and the Colorado State DOR to help resolve.” If you were affected by the billing error and aren’t currently working to resolve the matter, you should contact the Department of Revenue at (303) 866-4622 to reach a citizen’s advocate.

The Colorado DOR pegged the number of affected taxpayers at 44. That doesn’t mean, however, that a few dozen taxpayers received multi-million dollar tax bills. According to Daniel Carr, Taxation Communications Manager at the Colorado DOR, that number represents taxpayers who encountered the same glitch using TurboTax software during a three-day window in June of this year. “What the taxpayer entered into TurboTax was correct,” Carr said, explaining that “an error in the TurboTax transfer reported incorrect amounts to the State of Colorado.”

The bills went out, explains the DOR, because “[o]n our end it was simply data in data out and we could only process what we were given by TurboTax. We cannot determine the accurate amounts based on the information provided.”

Once the errors were discovered, however, the DOR worked with affected taxpayers. “We have reached out to all of the taxpayers affected and are helping them resolve this issue,” says Carr.

That doesn’t mean that the taxpayers don’t have work to do. According to Carr, “Taxpayers, in this case, who kept a copy of what they submitted are able to send us that copy and we will correct the error. Otherwise, they would have to amend their return.”

(For more information on how to file an amended federal income tax return, click here.)

Mistakes happen all of the time – just maybe not quite this big. No matter the size of the return, taxpayers can protect themselves, Carr advises, by always keeping a copy of filed returns. And if the bill seems out of place? “Contact the Department of Revenue immediately to have it resolved.”

Don’t ignore the problem. That’s good advice for all taxpayers, no matter whether the bill is federal, state or local. In most cases – even when the bill is hundreds of millions of dollars – errors are totally fixable. But don’t wait and hope that it goes away: it’s important to reach out to the respective tax authorities to clear up any problems as soon as possible.

(For more on how to fix a mistake on your return, click here.)

Follow me on Twitter or LinkedIn. Check out my website.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

I just finished reviewing TurboTax 2018-2019, and I’m excited about how easy it is to use. 💵But, if you don’t qualify for free file (and it’s limited), they are one of the most expensive options for filing your taxes this year. Check out the full article with all the links here: https://thecollegeinvestor.com/20778/… Here’s what we’re going to talk about in this video: ▶︎ Look at the pricing of TurboTax Online 2018 – 2019 ▶︎ See how easy it is to file your taxes and why I like it so much ▶︎ The limitations of TurboTax Free Edition ▶︎ What upsells to avoid and what upsells you should consider Be sure to subscribe: http://www.youtube.com/subscription_c… ★☆★Resources Mentioned in this video:★☆★ 💵TurboTax 2018 – 2019: http://go.thecollegeinvestor.com/Turb… 💵TurboTax Amazon Deal: https://amzn.to/2EctYxn 💵H&R Block Online: http://go.thecollegeinvestor.com/HRBlock ★☆★ Want More From The College Investor? ★☆★ 💻 Check out my blog here: https://thecollegeinvestor.com/ Connect with me on Instagram: https://www.instagram.com/thecollegei…

How IRS Taxes Fire Victims

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Do wildfire victims worry about their taxes? You bet. How fire victims are taxed depends on what they collect, what they claim on their taxes, if they are rebuilding their property, their insurance and more. Another big variable is whether they sue PG&E. It can build out a complex tax picture, especially now that there is a new tax on litigation settlements, as many legal fees can no longer be deducted.

The IRS (and California’s notoriously tough Franchise Tax Board) require annual tax filings, so several years may be peppered with fire items. Say you lose a $1M home, but collect $1M from your insurance company or PG&E. There’s no tax, right? Not so fast. You need to know about the tax basis of the property, usually purchase price, plus improvements. Your property might be worth $1M when it was destroyed, but if the original purchase price plus improvements was only $100K, there is a $900K gain.

Does that mean a fire victim must pay tax on $900K? Not necessarily. If you qualify and replace your home, you can apply your old $100K tax basis to a replacement. That means you should not need to pay tax on that $900K gain until you eventually sell the replacement home. The replacement must generally be purchased within two years after the close of the first year in which any part of the casualty gain is realized. For Federal Declared Disasters, you get four years. However, if your insurance company has paid you enough to create even $1 of gain on your destroyed property, the clock for acquiring replacement property may already have started.

Another big issue is claiming a casualty loss. Up until 2018, many taxpayers could claim casualty losses on their tax returns. For 2018 through 2025, casualty losses are allowed only if your loss was the result of a Federal Declared Disaster. Most major California wildfires are a Federal Declared Disaster, but determining whether claiming a loss is a good move can be complex.

How to handle expenses for temporary housing and similar expenses can also be tricky. If your primary residence is damaged or destroyed, insurance proceeds intended to compensate you for living expenses like housing and food may be partially tax-free. However, if the insurance proceeds pay you for living expenses you would have normally incurred if your home had not been damaged, say your mortgage payment or your typical food expenses, that portion may be taxable income to you. If the insurance proceeds exceed the actual amount you spend on temporary housing, food, and other living expenses, that surplus can be taxable.

For victims who eventually get a legal settlement, how will it be taxed? Health problems from smoke inhalation or from the exacerbation of pre-existing medical problems can be enough for tax-free damages. Section 104 of the tax code excludes damages for personal physical injuries or physical sickness. But the damages must be physical, not merely emotional, and that can be a chicken or egg issue.

Most money in fire cases is fully taxable, and if you do not reinvest in time, you may have a big capital gain. However, up to $500K from a primary residence may be tax free for a married couple filing jointly. It isn’t only the IRS that collects tax. States do too, notably California, where all income is taxed at up to 13.3%, even capital gain.

Many fire victim plaintiffs use contingent fee lawyers. Up until 2018, it was clear that legal fees were virtually always tax deductible. Now, however, many legal fees are no longer deductible. Thus, some plaintiffs may have to pay taxes on their gross recoveries, even though 40% or more is paid to their lawyer, who also must pay tax on the same fees. The tax treatment of the legal fees has become a major tax problem associated with many types of litigation. Fortunately, if the money can be treated as capital gain, the legal fees can often be treated as additional basis or as a selling expense. In effect, it can mean paying tax only on the net recovery.

Understandably, most fire victims hope not to face any tax hit at all. That is possible in some cases, but it can involve scrupulous attention to timing and details. When it comes to taxes or fire, be careful out there.

This is not legal advice. For tax alerts or tax advice, email me at Wood@WoodLLP.com.

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I handle tax matters across the U.S. and abroad (www.WoodLLP.com), addressing tax problems, tax disputes, writing tax opinions, tax advice on legal settlements

 

Source: How IRS Taxes Fire Victims

U.S. Bank Regulatory Easing Is Negative For Investors And Taxpayers

Storm clouds behind the exterior of the Federal Reserve building in Washington, DC

Storm clouds behind the exterior of the Federal Reserve building in Washington, DC

In a disappointing decision, the Federal Reserve Board announced yesterday that effective this year, it will limit its use of the “qualitative objection” in Dodd-Frank’s Comprehensive Capital Analysis and Review (CCAR). Under Dodd-Frank’s Title I, banks that are designated as systemically important are required banks to design a model using stress scenarios from the Federal Reserve. In order to pass the stress test, banks need to demonstrate that they would be able to meet Basel III capital and leverage requirements even in a period of stress.  It is in the qualitative portion of CCAR, that the Federal Reserve can identify and communicate to the market if a bank is having problems with its internal controls, model risk management, information technology, risk data aggregation, and whether a bank has the ability to identify, measure, control, and monitor credit, market, liquidity and operational risks even during periods of stress.  Easing this requirement, in combination with all the changes to Dodd-Frank that have been taking place since last year, is dangerous to investors, not to mention taxpayers, especially so late in the credit cycle.

Parts of the test that each firm is subject to this year in addition to the hypothetical scenario.

Parts of the test that each firm is subject to this year in addition to the hypothetical scenario.

*All firms subject to the qualitative objection, except TD Group, will have their fourth year in the 2020 cycle. TD Group’s fourth year will be the 2019 cycle.

According to the Federal Reserve’s press release “The changes eliminate the qualitative objection for most firms due to the improvements in capital planning made by the largest firms.”  Yes, there have been improvements in capital planning precisely, because there were consequences to banks which failed the qualitative portion of CCAR. Banks were prohibited from making capital distributions until they could rectify the problems the Federal Reserve found in the CCAR exercise.  This decision essentially defangs the CCAR qualitative review of banks’ capital planning process.

Nomi Prins

Nomi Prins

Dean Zatkowsky

“It is absolutely reckless of the Fed to relinquish its regulatory authority in such a manner, rather than retain the option of qualitative oversight, which has turned up red flags in the past,” said Nomi Prins former international investment banker. “We are after all, talking about what the banks deem a reporting burden versus necessary oversight that could detect signs of a coming credit or other form of banking related crisis from a capital or internal risk management perspective. Why take that risk on behalf of the rest of our country or the world?”

In writing about the Federal Reserve’s decision, the Wall Street Journal wrote that “Regulators dialed back a practice of publicly shaming the nation’s biggest banks through “stress test” exams, taking one of the biggest steps yet to ease scrutiny put in place after the 2008 crisis.” It is not public shaming. It is called regulators doing their job, that is, providing transparency to markets about what challenges banks may be having. Without transparency, the bank share and bond investors cannot discipline banks.

Just last month, the Federal Reserve Board announced that it would be “providing relief to less-complex firms from stress testing requirements and CCAR by effectively moving the firms to an extended stress test cycle for this year. The relief applies to firms generally with total consolidated assets between $100 billion and $250 billion.”

Christopher Wolfe

Christopher Wolfe

Fitch Ratings

Investors in bank bonds, especially, should be concerned about recent easing of bank regulations. Immediately after the Federal Reserve decision was announced yesterday, Christopher Wolfe, Head of North American Banks and Managing Director at Fitch Ratings stated that “Taken together, these regulatory announcements raising the bar for systemic risk designation and relaxed standard for qualitative objection on the CCAR stress test reinforce our view that the regulatory environment is easing, which is a negative for bank creditors.”  Fitch Rating analysts have written several reports about the easing bank regulatory environment being credit negative for investors in bank bonds and to  counterparties of banks in a wide array of financial transactions.

Dennis Kelleher

Dennis Kelleher

Better Markets

Also, a month ago, the Federal Reserve announced that it will give more information to banks about how it uses banks’ data in its model to determine whether banks are adequately capitalized in a period of stress.  In commenting on the Federal Recent decisions, Better Markets President and CEO Dennis Kelleher stated that “Stress tests and their fulsome disclosure have been one of the key mechanisms used to restore trust in those banks and regulators.  By providing more transparency to the banks in response to their complaints while reducing the transparency to the public risks snatching defeat from the jaws of victory in the Fed’s stress test regime.”

Gregg Gelzinis

Gregg Gelzinis

Center for American Progress

Gregg Gelznis, Policy Analyst at the Center for American Progress also expressed his concern about the Federal Reserve’s recent changes to the CCAR stress tests.  “While Federal Reserve Chairman Jay Powell and Vice Chairman for Supervision Randal Quarles have spoken at length about the need for increased stress testing transparency, this transparency only cuts in one direction.” He elaborated that the Federal Reserve’s decision “benefits Wall Street at the expense of the public. The Fed has advanced rules that would provide banks with more information on the stress testing scenarios and models. At the same time, they have now made the stress testing regime less transparent for the public by removing the qualitative objection—instead evaluating capital planning controls and risk management privately in the supervisory process.”

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I have been dedicated to providing clients high quality financial consulting, research, and training services on Basel III, risk management, risk-based supervision

Source: U.S. Bank Regulatory Easing Is Negative For Investors And Taxpayers

IRS Will Offer Free Help For Those Struggling With Withholding Taxes

Businessman opening envelope with paycheck

If the changes to tax rates and withholding over the past year have you scratching your head, help is on the way. The Internal Revenue Service (IRS) is offering a free online information session on how to do a Paycheck Checkup.

Here’s why many taxpayers are confused. The Tax Cuts and Jobs Act (TCJA) introduced many changes beginning in 2018, including caps on state and local tax deductions, a zeroed-out personal exemption amount, and the elimination of reimbursed job expenses. Additionally, new withholding tables were not available to employers until mid-January 2018, and some employees didn’t see a switch in withholding until mid-February 2018.

(You can find out more about updating your form W-4 here.)

The combination of new rules, new withholding tables, and even new tax forms meant that many taxpayers didn’t withhold properly. In January of 2019, the IRS advised that they will waive underpayment penalties so long as withholding and estimated tax payments total at least 85% of the tax shown on the return for the 2018 taxable year. Just a few days ago, the IRS expanded the relief to those whose withholding and estimated tax payments total at least 80% of the tax shown on the return for the 2018 tax year.

To avoid the same kinds of problems next year, the IRS is encouraging taxpayers to plan ahead. By plugging your current tax data into the withholding calculator on the IRS website, you can do a paycheck checkup and avoid any nasty surprises at year end. You should consider a checkup even if you did one in 2018: another review can help make sure you’re withholding the right amount for 2019.

The IRS webinar will walk you through how to use the online IRS Withholding Calculator (you can find out more about the withholding calculator here). Folks who might need a checkup include those taxpayers who had a large tax refund or tax bill for 2018 when they filed their tax return this year, or had a major life change (like a wedding, birth of a child or bought a house) in 2019. Other taxpayers who might need a checkup include two-income families or those taxpayers who have two or more jobs at the same time, or those who claimed refundable tax credits like the Child Tax Credit or Earned Income Tax Credit.

The seminar, scheduled for Thursday, March 28, 2019, will be offered twice: once in English (at 2 p.m. Eastern) and once in Spanish (at 11 a.m. Eastern). There will also be a special Q&A session. To register for the English version, click here. Para inscribirse en la versión en español, haga clic aquí. Closed captioning will also be available.

Want more taxgirl goodness? Pick your poison: follow me on twitter, hang out on Facebook and Google, play on Pinterest or check out my YouTube channel. 

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anythin…

Source: IRS Will Offer Free Help For Those Struggling With Withholding Taxes

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