Lowering the Bar

Consumer Advocate Successfully De-Taxes Toilet Paper in Pennsylvania

Not too many tax cases make the cut here, but this one seems important.  On November 29, 2007, Mary Bach struck a blow for all Pennsylvania consumers when a judge agreed with her that, in that state, toilet paper is not taxable.

Bach sued Kmart after the company collected sales tax from her -- twice! -- on the purchase of a 12-roll package of toilet paper.  The packages cost $3.99, so Bach was unlawfully charged a total of 56 cents.  At some point, however, she learned that unlike most paper goods, toilet paper is nontaxable in Pennsylvania.  (Most reports do not say how she learned this, but it was not too hard to discover that she is a fairly well-known consumer advocate who, for example, is currently the chair of an AARP consumer task force.  So it is her business to know such things.)

For future reference, other butt-related items that are not taxable if sold in Pennsylvania include disposable diapers, premoistened wipes, incontinence products, and (possibly, depending on how they are used) newspapers of general circulation and the Pennsylvania state flag.  Also exempt: food, water, coal, caskets, "wearing apparel" (except, strangely, for "clothing"), wrapping supplies if their use is incidental to a delivery, and the residential use of steam.

Pennsylvanians who get taxed on such necessities can now cite Bach v. Kmart as precedent.  She sued under the state's Unfair Trade Practices and Consumer Protection Law -- a kind of law that is often misused (see prior coverage of $65-million-pants case), but as this case shows, sometimes is actually used primarily to benefit consumers.  Ms. Bach apparently did not bring the claim as a class action (which I am pretty sure the PA UTPCPL would allow), hoping to collect millions for herself or her organization based on a 56-cent overcharge.  As a result, she will collect $100 (the statutory penalty) plus court costs.

She also refused to accept an out-of-court settlement offered by Kmart just before the hearing, on the grounds that it would have required a confidentiality agreement.  No way, said Bach.  "I want consumers as they shop during the important holiday to be aware of what is and isn't taxable," she said afterwards.  "I would lose my ability to spread that message if I were gagged."

A Kmart spokesman said that the problem was being corrected.  "We don't want to fight with our customers," she said, although it appears that they did on this issue at least for a while.  "We apologize for the inconvenience and the problem is being corrected."

Kmart said it would not appeal.

Link: MSNBC.com

People You Probably Don't Want to Have Do Your Taxes

This list could probably get a lot longer, but right now I have two.

First, Marva Bilberry, of Belton, Missouri, who runs Bilberry Bookkeeping & Tax Service, at least for now.  On April 11, the Justice Department sued Bilberry, alleging that she has routinely filed fraudulent tax returns for customers in the Kansas City area over the past several years.  The government may be jumping to conclusions here, though -- just because 98 percent of the returns checked by the IRS have turned out to be wrong, and just because on average her customers underpaid by $3,167, does not make her a fraud.  She might just have been wrong 98 percent of the time, and the last time I checked that was not against the law.

Also, tax laws are really complicated.  That was Bilberry's explanation, according to the complaint, which alleges that Bilberry told an IRS investigator that tax laws just "change too much to keep track of."  They sure do.  It's getting so bad you might have to hire someone who claims to be an expert in that area to help you keep things straight.

Second, Uzeegoa Makeba Sayles, of California.  You don't want Sayles doing your taxes because if she is, that probably means you're dead.  The government charged Sayles on April 12 with three counts of filing false claims, alleging that she has filed more than 200 fraudulent tax returns worth more than $1 million using the stolen identities of dead people.  According to prosecutors, the IRS uncovered two critical pieces of information that led them to suspect fraud.  First, it noticed that many tax returns were requesting deposits into a small number of accounts, which it then traced to Sayles.  Second, it noticed that the refunds had all been requested by dead people.  I guess a filing status of "Deceased" doesn't really raise a red flag with the IRS, as long as the decedent is paying.  Once the dead start asking for refunds, though, something's got to be done.

Link: NBC News (reporting on U.S. v. Bilberry)
Link: Yahoo! News (reporting on U.S. v. Sayles)

The $100 Million Cite-Check Mistake

Those of you who think that only dorks do cite-checking are . . . well, you're right, but unfortunately for you this is a dork-heavy profession.  It's part of the job description.  Case in point: whoever forgot to double-check a federal plea agreement with Walter Anderson, leaving the wrong statute cited therein, has potentially cost the government somewhere between $100 million and $175 million in restitution of unpaid taxes.  Seems like a decent reason to proofread.

Anderson is a telecommunications entrepreneur who the government says also put those entrepreneurial skills to good use hiding income from the IRS.  (It's a little humbling to note that this guy was able to hide almost half a billion dollars through a complicated setup of offshore corporations, and I'm still trying to figure out Schedule A.)  Anderson was prosecuted for tax evasion, sentenced to nine years in prison and ordered to repay $23 million to the District of Columbia.

But because the Justice Department listed the wrong statute in the plea documents, District Judge Paul Friedman said he could not order similar restitution to the federal government.  "I've come to the conclusion," he said Tuesday, "very reluctantly, that I have no authority to order restitution.  I hope the government will appeal me."

It probably will, although it seems to have its hands full these days.  A spokesperson did say that the U.S. Attorney's office would bring civil charges against Anderson, using "ample civil remedies available to recoup the money which are, in some respects, more efficient and quicker," though presumably less efficient and slower in other respects.

During his sentencing hearing on Tuesday, Anderson "appeared humbled but not overly apologetic."  He "took responsibility for his actions but said he never intended to defraud the government" just because he didn't file tax returns on more than $450 million in income over five tax years.  Anderson also said in his defense that the extra millions he kept weren't funding an opulent lifestyle.  (Which strikes me as not a very good defense, but I'm not a tax attorney.)  "For every time I ate in a nice restaurant," he said, "I also grabbed a doughnut or a burger in an airport.  I could have wasted millions.  I could have taken a limo everywhere."  He even occasionally flew coach, for Christ's sake.  What more can a man do?

Judge Frieman, unimpressed by Anderson's "could have wasted millions" defense, sentenced him near the top end of the possible range.  With time served he will be out in less than six years.

Link: CNN.com

Least Useful Tip in the Form 1040 Instructions (2005)

"Certain whaling captains may be able to deduct expenses paid in 2005 for Native Alaskan subsistence bowhead whale hunting activities.  See Pub. 526 for details."  2005 Form 1040 Instructions at A-6.

Setting aside the question of why this is in the tax code in the first place -- are there so few voters in Alaska that somebody thought he had to pander to whaling captains, and not even all whaling captains, just certain ones? -- I'd like to know how it actually ended up in the instruction book as a helpful tip specially chosen to be mentioned there.  I suspect an IRS worker with a sense of humor.  There have to be some.

Summary of Chairman's Amendment to the Jobs Creation Act of 2004 (.pdf; item #3)

Witchcraft Class Ruled Tax-Deductible

Dutch tax officials have ruled that a woman can deduct about $2200 that she spent on a witchcraft-training class, on the grounds that she was using the class to "extend her professional knowledge."

Apparently, she was training for her employment as an actress and artist, not specifically for witchery.  But the class featured instruction in the use of crystal balls, spells, and herbs.  Herb use is relatively common in the Netherlands, as I recall, but I can't think of too many non-witch professions where it would be a job requirement.

The course's teacher, Margarita Roland, says that she teaches her apprentices how to become witches so that they can use magic as a force for good.  On her website, she wears a pointy hat.

Reuters via MyWay.com
Roland's Web Site