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Tax Guru-Ker$tetter Letter
Thursday, May 08, 2008
 
Refugees fleeing...

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Blue Floyd's TaxMan
It's been a few months since I've posted any newly discovered versions of George Harrison's classic TaxMan song.

I recently came across a bit torrent download of a concert from 1/20/02 by Blue Floyd. Instead of their normal set list of Pink Floyd songs, this over three hour long concert was all Beatles music, including TaxMan. The entire download is 1.1 gigabytes. Before listening to the entire show, I was anxious to check out the almost seven minute long TaxMan, which is very good.

As are most bit torrents, the original file is in the lossless FLAC format and is 45 megabytes in size. To make it easier to upload and store on my website, as well as for quicker downloading, I made an MP3 version that is only 6.5 mb. Playing the two versions back to back on my computer, I couldn't tell the difference.

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Wednesday, May 07, 2008
 
Gas Tax Holiday Comcs
This campaign scheme by the candidates has generated enough press that Daryl Cagle has set up a new section for many of the editorial cartoons it has inspired.

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Tuesday, May 06, 2008
 
Opting out of stimulus checks?


Q:



Subject:  Blog related question

Hi Kerry,
Even before your first blog post about the "stimulus checks", I had learned what a misleading routine that whole thing is.
I've been wondering - is there any way to file a 2007 1040 on time (before 10/15/08 w extensions) and still AVOID being issued one of these checks? 
If they issue one, even if a person doesn't cash it - won't they still say you owe that amount when you file for 2008? 

And it seems like it might even be possible that they would charge interest on the amounts issued as stimulus checks now. If so, you would end up paying back even more next year... ?


Thanks for all the info and insights you offer in your blog.


 


A:



I hadn't heard of any way to opt out of the stimulus checks other than to file your 1040 after 10/15/08.  I just spent some more time browsing the IRS website pages related to these payments and couldn't see any mention of how to have them hold the checks if the 1040 is in by 10/15/08.

In another example of how disorganized this program is, I saw one page where they claim that the stimulus checks will not reduce the 2008 refunds or increase the tax due, while another page says exactly the opposite, and that those who don't receive stimulus checks because they file their 2007 1040s after 10/15/08 will receive credit for it on their 2008 1040s.

I have to believe the latter to be more accurate because this whole project is just like a similar one we had a few years back, where IRS sent out advance checks for one of Bush's tax cuts and then we had a mess accounting for it on the 1040s for that year because many clients who didn't have good records couldn't recall whether or not they had received their advance checks.  That resulted in IRS having to change the bottom lines on several 1040s.  I sense that we will be in for similar adjustments with the 2008 1040s.

Giving IRS the benefit of the doubt, I am hoping that if someone were to end up being underpaid for their 2008 taxes, the 2210 penalty on the amount of the stimulus checks would be waived if requested.  They probably won't be as generous with interest charges, given their track record on this matter.

I'm glad you are reading my blogs.  I wish more clients would so that I could avoid having to repeat myself so often.

Kerry


 

Business Plan Pro

 

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Government efficiency...



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Monday, May 05, 2008
 
More Scam IRS Emails
While IRS does offer to deposit refunds directly into taxpayers' bank accounts, they have never had any facility to post refunds to credit card accounts. Anyone claiming that IRS will apply some money to your credit card is a crook who intends to levy a charge against your credit card account.

Likewise, IRS never sends out refund notices via email. NEVER.

I mention these warnings again because I just received the following email from a client.

Subject: Fw: Notice From Department of the Treasury

I just received another one of these e-mails from the IRS.
When I received the last one I guess I deleted it and could not forward it to you, so here it is.

----- Original Message -----
Sent: Monday, May 05, 2008 2:33 PM
Subject: Notice From Department of the Treasury

After the last annual calculations of your fiscal activity
we have determined
that you are eligible to receive
a tax refund under section 501(c) (3) of the
Internal Revenue Code. Tax refund value is $189.60.
Please submit
the tax refund request and allow us 6-9 days
in order to IWP the data received.
If u don't receive your refund within 9 business
days from the original IRS mailing date shown,
you can start a refund trace online.

If you distribute funds to other organization, your records must show wether
they are exempt under section 497 (c) (15). In cases where the recipient org.
is not exempt under section 497 (c) (15), you must have evidence the funds will
be used for section 497 (c) (15) purposes.

If you distribute fund to individuals, you should keep case histories showing
the recipient's name and address; the purpose of the award; the maner of
section; and the realtionship of the recipient to any of your officers, directors,
trustees, members, or major contributors.

To access the form for your tax refund, please click here


This notification has been sent by the Internal Revenue Service,
a bureau of the Department of the Treasury.

Sincerely Yours,
John Stewart
John Stewart
Director, Exempt. Organization
Rulings and Agreements Letter
Internal Revenue Service


I wrote back:

Thanks for sending me a copy of that scam email. It's the same concept, but slightly different from the one I recently discussed on my blog.

Let me know if you receive any more and definitely do not respond to any of them.

Kerry

I was curious to see what the actual scam web page looked like, so I went to it. The URL tells you it is obviously an outright scam; but the crooks have designed it to look quite a bit like an official IRS page.

For those who may not want to risk visiting this site, I snagged a picture of it:



(Click on image for full size)



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Dims to the rescue...



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Sunday, May 04, 2008
 
Calif. Man Accused of Targeting Christians in $25M Nationwide Ponzi Scheme - The classic Ponzi style of scam never goes out of style. And of course, there never seems to be a shortage of fools who fall for what should be obvious con games to anyone looking at them objectively.


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Wesley Snipes in Jail - Freaking News currently has a PhotoShop contest starring the current top billed celebrity tax cheating moron.  Be sure to check back over the next few days, as new entries are posted for us to laugh at this idiot.


 

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Our rulers prove once again why the most common oxymoron is "Government Efficiency."



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Saturday, May 03, 2008
 

Miracle Cars Fraud – Snopes.com looks at an interesting scam that had over 7,000 people paying $1,000 each for non-existent vehicles.  In hindsight, most scams look so obvious; but the fact that these people were suckered in by their own religious leaders who were too naive to recognize con artists, gives this a different twist.


 

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Friday, May 02, 2008
 

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Actual 1040 required for rebate check...


Q:


Subject: gov tax award

Hi Kerry"

Hey just a line, I was wondering if our extension suffices for filing and do we qualify for a stimilus tax award. Thanks

A:

The amounts of the stimulus checks depend on the info on the 2007 1040; so IRS can't start that process until they have actually received the 1040 for 2007. The extensions don't have any of that pertinent info; so IRS can't determine the amount amounts of the checks from those.

As I said in an earlier post on my blog about this very issue, these rebate checks are not free money. Whether you file your 2007 1040 in time (by 10/15/08) to receive a check or not, it will all equal out.

The people who receive these special stimulus checks will end up with smaller refunds when they file their 2008 1040s, or possibly even owe money that they wouldn't have if IRS hadn't sent out these advance checks.

In another typical example of keen government intelligence, many people who receive these stimulus checks in the next several months will just end up having to repay that same money to IRS when they file their 2008 tax returns.

This whole thing is a Mickey Mouse tactic to try to get people to spend their way out of the recession, when the actual result will be that this money won't even cover the increased cost of fuel for their vehicles, which is the real cause of the recession.

I hope this answers your question.

Kerry




A good illustration of why fuel prices are so high, courtesy of Lucianne.com:



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Monday, April 28, 2008
 

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Sunday, April 27, 2008
 

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Saturday, April 26, 2008
 
Amended Clinton Tax Return?



Q:

Subject: hillary clinton tax return blog post

One of my co-workers ran across your blog post about a possible error on Hillary's return.

Note the last 2 pages of the 2004 pdf on the Clinton website, where it has an amended return.


A:


I did see that 1040X. However, the changes it had were not in any way related to the issues raised by my readers and posted on my blog. Those questions have yet to be answered.

Thanks for writing.

Kerry Kerstetter




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Taxes in 2008 vs. 1999

Snopes.com has an interesting look at the Federal income taxes at various income levels under the tax rate structure from the Clintons' 1999 and Bush’s 2008. No surprise which is lower for every income level.


If the Bush tax cuts are allowed to expire, eveyone at all income levels will see their taxes jump by quite a bit.


  

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Friday, April 25, 2008
 

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Deciphering The Code...



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Thursday, April 24, 2008
 
Other tax protestors...


A few weeks ago, I received the following email from someone who obviously wants to follow in Wesley Snipes’ footsteps in regard to taxes.



Subject: Tax Question


Hi My name is Frank


My Friend told me to check out you web page and that you are claiming that YOU MUST FILE at Tax return or else.


So if what you are telling me is true according to your web page then it should be very simple to SHOW ME THE LAW.


After all there has to be a Law, Right? If there is a law then I will send you an apology an I will also get a group that will actually PAY YOU MONEY should you find this LAW.


You are stating SCAM so if this is true then it won't be any problem for you to prove your point right?


Please refrain from double speak or dancing around the issue and show me the law, because after all that is what we base our constitution on isn't it? Unfortunatly I did NOT see where you were specific about the LAW on this issue.


Thanks


Frank




My Reply:



Frank:

It's been a while since I've received an email like yours, espousing the idiotic tax protestor arguments against the tax system. I used to receive several every day before the IRS started directly addressing these ridiculous claims on their own.

As many of your compatriots have done in the past, you have obviously mistaken me for someone else.  I am a private citizen and have no responsibility for the administration of the tax law. I have no requirement to answer any of your stupid questions or waste any more of my time debunking your moronic theories about how the tax system works in this country.

I actually couldn't care less if you want to pretend that there is no law requiring you to file tax returns and spend the rest of your life fighting for your life in court and prison. In fact, the more time the IRS spends dealing with idiots like you and your cohorts, the less time they will have available to harass those of us who obey the laws.

You need to address your concerns to the governmental agency that handles tax matters, the IRS.

To save you time, they have a special web page dealing with the frivolous arguments that you are trying to use. You should start there if you truly care about the truth. 

Good luck.

Kerry Kerstetter


 


 

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Wesley Snipes Verdict In

Judge sentences Snipes to 3 years for tax convictions

 
Wesley Snipes Sentenced to Three Years in Jail


 

Action Star Wesley Snipes Sentenced to 3 Years in Jail for Tax Fraud

 

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Some interesting articles by Terry Myers & Dee DeScherer in the latest Intuit ProConnection:



Help Your Clients Navigate a Troubled Stock Market – Includes a downloadable doc file to explain to clients about taxes on capital gains and losses.


 



New Tax Return Disclosure Regulations Hit Client Communications 


 


Wednesday, April 23, 2008
 
Documenting vehicle weight...


Q:


Subject: Section 179 & Toyota Highlanda Hybrid, GVWR 6150 lbs

Tax Guru,

I've come across an interesting situation. The 2008 Toyota Highlander Hybrid has a sticker/plate inside the drivers side door that states the GVWR as 6150 lbs. However, all the marketing brochures and even Toyota's web site lists the GVWR as 6000lbs. We're thinking of buying this SUV for our small business and want to understand if it qualifies under Section 179.
The plate on the SUV would seem to indicate it does but all other posted information seems to indicate it doesn't.

Any advice?

Thanks.


A:



You really need to be discussing this with your own personal professional tax advisor. However, I am willing to explain how I would address this if it were with one of my clients.

I am guessing that the discrepancy in the listed weights may have something to do with some optional equipment that was installed on the vehicle with that ID plate. The promotional literature from Toyota most likely deals with the standard vehicle before the addition of any optional equipment.

I've mentioned on several occasions how some auto dealers actually offer "tax deductibility" add-on packages of options that take an under 6,000 vehicle into the over 6,000 pound qualifying area. This is why feeling limited to the weights shown on promotional literature is not appropriate.

If, as it seems, you are nervous about IRS possibly disallowing your larger Section 179 deduction for a vehicle over 6,000 pounds, I would go the extra mile in documenting the legitimacy up front. As I've mentioned on numerous occasions, one of the main reasons I am opposed to electronic tax returns is the inability to include additional documentation of potentially questionable items. This is a perfect example.

In your case here, I would take a photograph of the ID plate indicating the GVW of 6,150 pounds and attach it to the tax return where you are claiming that Section 179 deduction. I can't imagine any IRS auditor wanting to quibble over that being wrong. If anything, you may be questioned about your business usage of the SUV; but I can't see the weight being an issue of contention if you have that photo attached.

Again, you should run this by your own professional tax advisor.

Good luck.

Kerry Kerstetter


TaxCoach Software: Are you giving your clients what they really want?

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Reduced tax free gain on home sale...


Q:



I came across your information on the web and was wondering if you could clarify what the pro-rated capital gains exclusion (amount) is for selling your primary residence less then 2 years. Is this $342.47 per day, per person for the length of time that you lived in the house before selling?

I would be happy to compensate you for your advice.

Thanks


 


A:



The tax free gain does work out be $342.46 per day that you both owned and lived in the home as your primary residence.  This is $250,000 divided by 730 days.

IRS has a worksheet for calculating the reduced excludable gain in Publication 523 on their website.   

Most professional tax software has the capability to calculate this based on the number of qualifying days; so be sure to give that figure to your personal professional tax preparer.

Good luck.

Kerry Kerstetter


 

Go Daddy Domain Names

 

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Working with cash...


Q:



Subject: Cash Tags


Kerry

Cash tags, does cash have to be taken out of your business to be spent on expenses as cash. Or is all cash spent on expenses regardless of its source deductible as long as you have your receipts saved. Money from savings an example.

Do you have to divulge the source of the cash to use the deduction?

 


A:



If you are posting cash expenditures made for business related expenses, it doesn't matter where the cash came from, as long as it wasn't from unreported taxable cash income. It could be from personal or business accounts.

Depending on the overall size of the cash expenditures for the year, the level of documentation should coincide.  Small amounts shouldn't be anything to worry about.

However, if you're getting into thousands of dollars, you need to be prepared to defend the original source of the cash in case IRS were to ever inquire about it.  They actually have audit teams that examine people in businesses that deal primarily in cash to ensure that every penny is accounted for.  Many of those people actually cut their own throats by reporting thousand of dollars more in personal and business expenses than the level of income they are reporting. There are plenty of classic cases of tax fraud where people are living very high on the hog, while reporting very small amounts of income on their tax returns.

IRS auditors are trained to start off from the premise that all money received is taxable income unless the person can prove otherwise.  So if you do come into a large amount of cash that was a gift, inheritance or one of the few tax free sources, you need to be diligent in documenting this fact.

One of the best ways to document cash is with QuickBooks.  Set up a bank account called Cash and show money going in and out just as you do with a normal bank account.  Doing it that way would protect you from IRS accusations of having unreported income.

Good luck.  I hope this helps.

Kerry


 

Business Plan Pro

 

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Is double taxation good?


Q:



Subject:  Double taxation?


Kerry,

Thanks very much for your informative and enjoyable blog.

I often hear the line that C corporations are a bad choice because of the double taxation issue. I know you have explained before that there are many ways to avoid double taxation.  But I have tried to figure out why "double taxation" is really worse than the alternative.

Let me explain my thinking. As I understand it, the first $50,000 in income for a C corporation is taxed at 15%, and any dividend that would be paid to shareholders is also taxed at 15% (maximum). Combined, that is a 30% tax rate.  This seems like a bargain compared to the corporation paying a salary:  The individual would likely pay a 28% tax rate on the salary (assuming the individual has already reached the 28% bracket from other income), and then would pay an additional 15.3% FICA tax (half paid by the corporation), for a total federal tax rate of 43.3%.  Since 43.3% is more than 30%, isn't "double taxation" actually the preferred outcome here, at least for $50,000 worth of corporate income?

Thanks,



A:



I'm too busy right now to go into too much detail.

However, you may have missed the point that I am not a fan of using payroll as a means of shifting income from the corp to the 1040 because of the payroll taxes.  We use unearned income, such as interest, rents and royalties, which have no payroll taxes associated with them; just normal income tax.

By properly shifting income back and forth, we have been able to very easily achieve a maximum Federal income tax of just 15% overall; not the 30% under your double taxed scenario.

A good tax advisor, along with accurate up to date QuickBooks data, should be able to help you achieve this.

Good luck.

Kerry Kerstetter


 


 

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Phony IRS Emails

I received the following from a client about a week after another client faxed me a copy of  similar email she had received:



Subject: Is this a scam?-->> Tax refund - Online form


Kerry

I got the below notice – supposedly from the IRS.  There is a link to push – but I see the words –redirect- and I think this is some kind of scam to get my ss# or who knows what.  

Do you think that this is legit or scam?


------ Forwarded Message
From: Internal Revenue Service <taxrefund@service.irs.gov>
Reply-To: <taxrefund@service.irs.gov>
Date: Tue, 15 Apr 2008 13:09:37 -0700
Subject: Tax refund - Online form


After the last annual calculations of your fiscal activity we have determined that
 you are eligible to receive a tax refund of $620.50.
Please submit the tax refund request and allow us 3-6 days in order to
 process it.

A refund can be delayed for a variety of reasons.
For example submitting invalid records or applying after the deadline.

 To access the form for your tax refund, please click here

Note: For security reasons, we will record your ip-address, the date and time.
Deliberate wrong inputs are criminally pursued and indicated.


 
Regards,
 Internal Revenue Service


Copyright 2008, Internal Revenue Service U.S.A. All rights reserved.


 


My Reply:



That URL appears to be in Japan.

That is one of the scams that IRS has been warning people about.

Snopes.com covered this specific scam on their site.   

Kerry


 


 


 

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Tuesday, April 22, 2008
 
Estate Tax Hypocrisy
The Kennedy Klan has been promoted to a status of as close to royalty as can be attained in this country, in spite of the fact that their fortune was amassed by Joe Kennedy through illegal bootlegging and stock fraud activities. To top it off, they have long used trusts to avoid having to pay the kinds of estate taxes that they want everyone else to pay.

This is an interesting video of Teddy explaining how they pay their fair share.



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Fairness, DemonRat style...



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Tax Freedom Day
The Tax Foundation has calculated that this year's Tax Freedom Day is tomorrow, April 23. They've produced an entertaining and informative video on what this means.


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Gifting ceases with death


Q:



Subject:  Gift tax question


Hello:  I read your blog, but could not figure out how to ask you a question.  My 90 year old mother died in 9/2007.  Prior to her death she had been gifting $12,000 per person and paying tuition directly to institutions.  The estate has not yet settled because the executor asked for an extension.  I just received my tuition bill for $11,000.   1) Do the $12,000 per person gifts continue after death, and 2) do the tuition payments continue after death?  When you answer, could you point me to the appropriate IRS literature?  Thank you,



A:



This isn't really a tax issue that you are dealing with.  It is more of an estate settlement issue that you need to work out with the attorney and executor who are handling the disposition of your mother's estate. Some of the exact answers will depend on the rules for your mother's particular state of residence when she passed away.

Basically, when a person passes away, her ability to make gifts terminates at the same time.  So, the annual gifts your mother was giving you can't continue.

however, this is when her will or living trust kicks in.  She may have left you a lump sum of money to use to continue your education or she may have designated that a trust be established for your benefit, out of which your tuition will continue to be paid.  Both of these, as well as other variations and combinations, are common estate planning scenarios.

Again, you need to consult with the attorney and executor to see how you will be affected.

Good luck.

Kerry Kerstetter



Follow-Up:



Kerry: Thank you so much for your response!  I thought that her ability to gift died with her, but I could not find anything that actually said it.  Sincerely,


 


 

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Monday, April 21, 2008
 

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Every profession has its stereotypes...





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Sunday, April 20, 2008
 
Taking a piece of the action...


From the recent Freaking News PhotoShop contest with examples of how it would look if taxes were extracted in other, non-monetary, ways.



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Saturday, April 19, 2008
 

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The time to be bitter...



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Friday, April 18, 2008
 

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Our rulers love April 15



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Thursday, April 17, 2008
 
Deal or...

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Explaining audits...



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Letterman's annual tax preparer top ten as delivered by ten tax pros:


Top Ten Reasons I Like Being An Accountant

10 "My exciting lifestyle is the envy of all my claims adjuster colleagues" (Arthur Drucker)

9 "I made ten grand doing taxes for Leona Helmsley's dog" (Richard Koenigsberg)

8 "Numbers are my only friends" (Andrew Rubin)

7 "What other job allows you to show up for work in just a suit and tie?" (Lou DeFalco)

6 "Mild-mannered day job protects my true identity: Batman" (William Bregman)

5 "I'm always the first to hear about all the latest calculator innovations" (Steven Goldsteen)

4 "I was a finalist on last season's "Accounting With The Stars"" (Vicki Penino)

3 "When some idiot asks me about a form 8038-G information return for tax-exempt governmental obligation, when they really mean a form 1038-R recovery of overpayment under arbitrage rebate provisions -- that s***'s hilarious!" (Andrew Ross)

2 "If I screw up something, you go to jail, not me!" (Sandra Busell)

1 "I get more tail than George Clooney" (Richard Cohen)


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From Craig Ferguson via NewsMax:



It’s tax day! Or as Wesley Snipes calls it, Tuesday.


 


From Jimmy Kimmel via NewsMax:



Taxes were due today. I don’t like writing the check. I thought we were supposed to be passing the irresponsible spending onto our grandchildren. What happened to that?


 


 

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Wednesday, April 16, 2008
 
Tax Calendar...



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Tax Sanctuary?
Most of our tax loving rulers make the big mistake in assuming that changes in the taxes will have no effect on the behavior of people. For example, if state rulers set their sin taxes too high, the targets of those taxes will just go and do their sinning somewhere else or use other means to avoid those taxes, such as smuggling and internet purchasing.




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