Tag: Tax

It’s Tax Day – Are You Tempted to Cheat on Your Taxes?

no_irs

The American tax system is a good test case for cheating. We know it’s good to pay taxes because the government does lots of good things for us. At the same time, we have a selfish desire to pay as little in taxes as possible.

Our tax returns are self-reporting for our income and characterization of our deductions. We police ourselves, knowing that there are criminal penalties for not reporting income and the threat of an audit. With increasingly computerized reporting systems, the IRS seems to know lots more about our income.

The IRS has three dimensions of tax compliance: filing, payment, and reporting. Filing compliance refers to whether taxpayers filed required returns in a timely manner, or at all. Payment compliance considers whether taxpayers paid their reported tax liability in full on a timely filed return. Reporting compliance addresses the accuracy with which taxpayers report their tax liability to the IRS.

Math errors increased from 2.98% in 1996 to 7.63% in 2002, while under-reporting decreased from 1.23% to 0.86%

Have you finished your taxes? The compliance numbers show that you need to double-check your math.

See:

Image is from Wikimedia Commons: No IRS.

New York State Bar Position on Carried Interest

Besides the position of Professor Bankman on carried interest, the New York State bar submitted a very detailed report and recommendations to the House Committee on Oversight and Government Reform: New York State Bar Tax Section Report on Carried Interest and Fee Deferral Legislation (.pdf) September, 2008

Joseph Bankman Testimony on Hedge Fund Tax Treatment

The House Committee on Oversight and Government Reform held a hearing on hedge funds and the financial market on November 13, 2008. Among those testifying was Professor Joseph Bankman, the Ralph M. Parsons Professor of Law and Business at Stanford Law School: Testimony of Joseph Bankman.

Professor Bankman points out that the carried interest of a private equity fund sponsor is typically taxed as capital gains (assuming the underlying assets are held long enough). professor Bankman points out his dislike of the tax advantages and proposes a legislative change:

The Alternative Minimum Tax Relief Act of 2008 contained a provision that would have taxed carry at ordinary income rates. That Act passed the House of Representatives in June, 2008, but died in the Senate. Thus, carry remains tax-favored. I recommend that Congress eliminate the tax advantage given to carry by again passing a measure similar to that contained in the Alternative Minimum Tax Relief Act of 2008. I recommend, though, that such a measure be amended to address the concerns expressed in the New York State Bar Association Report on Proposed Carried Interest and Deferred Fee Legislation.

Thanks to the Hedge Fund Law Blog for pointing out this resource: Hedge Fund Taxation – Law School Professor Perspective.

Congress Examining Hedge Funds

On Thursday November 13, 2008, The House Commitee on Oversight and Government Reform held a hearing on hedge funds and the financial market.

The following witnesses testified:

  • Professor David Ruder, Northwestern University School of Law, Former Chairman, U.S. Securities and Exchange Commission
  • Professor Andrew Lo, Director, MIT Laboratory for Financial Engineering, Massachusetts Institute of Technology, Sloan School of Management
  • Professor Joseph Bankman, Stanford University Law School
  • Houman Shadab, Senior Research Fellow, Mercatus Center, George Mason University
  • John Alfred Paulson, President, Paulson & Co., Inc.
  • George Soros, Chairman, Soros Fund Management, LLC
  • James Simons, President, Renaissance Technologies, LLC
  • Philip A. Falcone, Senior Managing Partner, Harbinger Capital Partners
  • Kenneth C. Griffin, Chief Executive Officer and President, Citadel Investment Group, LLC