Friday’s Tax Quote – December 18, 2009

Today’s quote comes from Bruce the Tax Guy over at the quality tax law blog lrtaxprep.com.

"In levying taxes and in shearing sheep it is well to stop when you get down to the skin."

- Austin O’Malley

Back in November 2008, Bruce compiled an anthology of tax quotes that you can read by clicking here.

Who Guards the Guard Dog? - Estate Planning for Your Pets.

To write a tax blog, you have to love taxes. The trouble is, the Internal Revenue Code doesn't come running to jump in your lap and lick your face when you get home at night.  You see, the Code doesn't love you back.  But a dog?  A dog loves you unconditionally and is always happy to see you.

Its for this reason that I wanted to post this article about estate planning for family pets.  No. This is not going to tell you that your cat needs a will or that your goldfish needs a healthcare power of attorney.  Rather, it discusses the need for planning what will happen to your pets if something happens to you.  Because estate planning often involves tax considerations, I thought that this would be appropriate on this blog (albeit tangential).

"Who Did You Get to Watch the Dog?"  By Michael Berzowski.

"It goes without saying that pets play an extremely significant role in the lives of many individuals, ranging from companionship or exercise partner to positive health impact such as lower blood pressure, reduced stress, anxiety and depression and acceleration of recovery following hospitalization.

This article addresses the issue of who will take care of your pet if you are unable to do so.  It is often assumed that a family member or close friend will undertake responsibility.  Since this is not true for all pet owners, some planning may be in order to provide for the health and welfare of your pet.  Planning would be particularly desirable if you live alone, have a challenging or multiple pets, your pet requires special care or you simply do not know anyone who would meet your standards.

Some people pursue informal arrangements which amounts to discussing matters resulting in an implied arrangement that the individual will assume responsibility for the pet.  Besides being unenforceable, these arrangements frequently overlook the financial demands to make custody successful.

In order to increase success, you should consider gravitating toward formalized planning.  The first step should be preparation of an animal card to include a photo of the pet, its location and identifying the individual to contact in the event of an emergency.  Related would be the preparation of more detailed instructions for the animal’s immediate care if you die or become incapacitated.  Both cases should address access to the pet.  Finally, you may wish to consider posting signs regarding the pet on the entrances to your dwelling, alerting individuals entering the house that pets are inside.

There are various choices with regard to pet protection.  One technique creates an enforceable lifetime or testamentary trust in favor of a human beneficiary with the trustee required to make distributions to the beneficiary to cover the pet expenses, provided the beneficiary is taking care of the pet.  Another technique would follow the Wisconsin Pet Trust Law, Wis. Stats. 701.11, which allows for the creation of an honorary trust for the benefit of the pet.  The problem is that the trustee cannot be forced to use the property for the pet because honorary trusts are unenforceable.  If the trustee fails to act, then a resulting trust arises in favor of the transferor’s estate and a court is authorized to order the transferee to transfer the property.

There are other choices and issues.  This article merely scratches the surface with regard to the subject with its goal being to trigger a general awareness.  If you decide to do something, you will have ample opportunity to address the nuances and material considerations such as the character of the trustee and the beneficiary, as well as other available courses of action."

The Limits of Limited Liability.

Earlier this year I began writing a column for the Wisconsin Law Journal to address various tax issues that affect other areas of the law. In my most recent column, I discuss a sometimes unexpected result when a business fails to pay its employment or sales taxes.

When anyone that is responsible for making sure that employment or sales taxes are paid fails to do so, that person can be held personally liable for the tax. This is true whether that person is an owner, officer or employee. To learn more you can check out the article. “Limited Liability? Not So Fast”

Friday's Tax Quote - December 11, 2009

"I love America, but I can’t spend the whole year here. I can’t afford the taxes."

Mick Jagger

Wisconsin Tax Appeals Commission Gets Busy

There is no question that the current state of the economy is financially difficult on individuals and businesses. The same is true for the State of Wisconsin. A bad economy means that people are spending less. When people spend less, the government collects less in sales tax. Everyone is looking for more revenue and looking to spend less. As a result, there is an up tick in the amount of cases that are being challenged by taxpayers in the Wisconsin Tax Appeals Commission.

Jane Pribek of the Wisconsin Law Journal recently reported that the Tax Appeals Commission expects the number of cases continue to grow through 2010 (Tax appeals expected to increase, Dec. 7, 2009). Ms. Pribek also notes that the complexity of these cases continues to increase.

The increase in cases tells me that the Wisconsin Department of Revenue is looking to increase revenues by broadening the interpretation of the tax statutes. It also tells me that people are more likely to fight to hang onto their money as their audits move through the system.

The Wisconsin tax system works like this:

(1) a taxpayer is audited,

(2) if the taxpayer is dissatisfied with the result of the audit, he/she can appeal to the Resolution Unit of the Department of Revenue,

(3) if dissatisfied with the result of the appeal, the case can be challenged in the Tax Appeals Commission,

(4) after the Tax Appeals Commission a case can be further contested in the local circuit court, and

(5) after the circuit court, a case can go to the Wisconsin Court of Appeals and then potentially the Wisconsin Supreme Court.

Going through this whole procedure takes years. As a result, I expect that the next thing we’ll is going to be an increase in the number of tax cases jamming up an already crowded circuit court system. Over the next few years we’ll see cases moving through the appellate courts too. Because these cases are more complex, perhaps we can expect to see more and more significant tax caselaw development over the next 5 years.

Why? Because of the bad economy today.

Friday's Tax Quote - December 4, 2009

"Those men would deserve the gratitude of ages, who should discover a mode of government that contained the greatest sum of individual happiness with the least national expense."

- Giacinto Dragonetti