The Financial Crisis Commission has put forth its argument that Wells Fargo & Co’s purchase of Wachovia was with government assistance despite the widely held belief that it was not. The IRS had changed the tax code just after the Federal Deposit Insurance Corporation (FDIC) announced it would provide open-bank assistance to Wachovia. Although the change had allowed Wells Fargo to purchase Wachovia without FDIC help, it still constituted as government assistance. According to the Commission, this has resulted in a significant loss of revenue to the Treasury.

Under the original deal which was announced on September 25, 2008, the FDIC would have backstopped the sale of Wachovia to Citigroup Inc. But a few days after that, the IRS came up with its tax code change that allowed banks to carry forward losses from troubled financial institutions. Shortly after that, Wells Fargo initiated its bid to buy Wachovia without FDIC assistance and was successful.

Bill Thomas, the Vice Chairman of the Financial Crisis Commission and former chairman of the House Ways and Means Committee, reiterated that the government had lost a sizeable portion of income because the deal was not considered a government bailout. He also questioned the timing of the IRS act of changing the tax code. Changing the tax code clearly benefited a certain group of institutions, namely the Federal Deposit Insurance Corporation and the Federal Reserve Board, although both parties denied they enjoyed any benefits.

The IRS made the change to the tax code on September 30 without consulting Congress because of pressure from Treasury officials. Because of their unilateral action, the ultimate losers will be the American taxpayers in the long run because they will have less revenue. Another member of the Commission, Byron Georgiou, agreed with Thomas and explained that the tax change was a “different form of government assistance, perhaps a delayed form of government assistance”.

The tax change was later reversed by Congress but how much Wells Fargo benefited from the change is hard to determine. Even members of the Commission are at variance in calculating the estimates. Wells themselves say that they have yet to recognize the carry forward for tax purposes.

On the other hand, Robert Steel, the former chief executive of Wachovia denied that the IRS deal was a government bailout because it benefited several parties not only Wells and Wachovia. Incidentally, Steel was a former top Treasury official before being appointed CEO at Wachovia.

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Here is the story of two individuals who owe tax money to the government. One or both of the stories may irk you, surprise you, interest you or it might not bother you at all, but both are true. The first has to do with the proposed mosque to be built at ground zero in New York City. Whether you agree with the project or not, you may be interested to know that the builder of the 15 storey Ground Zero Mosque and community center, Sharif El-Gamal owes the IRS back property taxes on the exact property the mosque is supposed to be constructed on.

The amount owed by El-Gamal is $224, 270.77 after his company failed to pay the IRS its taxes in January and July this year. This information is sure to become talk fodder for political talk shows around the country.

The owner of the property on which the mosque is to be built is Con Edison but they have leased half of it to El-Gamal. Therefore, El-Gamal is responsible for the project located two blocks away from where the World Trade Center buildings stood just nine years ago.

According to the lease agreement between El-Gamal and Con Edison, El-Gamal is responsible for paying taxes on the entire property. This means that El-Gamal’s failure to settle his taxes would constitute a breach of the contract. However, El-Gamal’s company, 45 Park Place Partners contends that the taxes have indeed been paid.

The other individual in trouble with the IRS over unpaid taxes is rapper Young Buck. Two days after a recent raid by the IRS on the rapper’s home, Young Buck, whose real name is David Darnell Brown, voluntarily filed for Chapter 13 bankruptcy. According to bankruptcy records, he did this to control how creditors would be paid.

In the raid, the IRS confiscated tens of thousands of dollars worth of personal belongings that included jewelry, furniture, music awards and recording equipment. Filing Chapter 13 might eventually save all the confiscated items because this provision of the bankruptcy law allows debtors to settle their debts over a period of time up to 5 years without interest.

Under the terms of the bankruptcy filing, Brown agrees to have his recording label Cashville Records deduct $12,500 a month for 60 months out of his salary of $19,170 to pay for his outstanding taxes. But the rapper is free to keep his additional earnings including royalty payments.

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The IRS requirement for more filing for businesses had continued to gain resistance from small businesses. Beginning from 2012, all businesses have to file Forms 1099 for payments worth more than $600 a year to every contractor and vendor of goods and services. This represents a massive administrative headache especially to small business owners who do not have much manpower or facilities to comply with the ruling.

The law was passed in March and will only be effective in 2012 but already small businesses have expressed their concerns over the burdens imposed on them. Many feel that the need to fund the health care reform costs falling on the shoulders of small business owners is uncalled for.

Some public office aspirants in the upcoming primary in New Hampshire also feel the same way. John Stephen, the gubernatorial candidate through his spokesman Greg Moore, said, “Small businesses will now have a new requirement to fill out forms and chase down their contract workers. It's a much higher reporting requirement and all this paperwork and bureaucracy increases problems for these folks at a time when we should be making it easier and trying to create a more robust economy”.

Expressions of concern have reached Washington. US Senator Jeanne Shaheen and other senators have written a letter to IRS Commissioner Doug Shulman that reflected their views. Part of the letter reads, “The new requirements may place a hardship on small businesses by creating an extra paperwork burden. Not only will a 1099 form be necessary for millions of new transactions, the stricter requirements force business owners to collect taxpayer identification information from vendors, contractors and other companies”.

Shulman has moved to pacify the discontent by various quarters. He gave his assurance that the IRS will take all necessary steps to reduce the burden of businesses in complying with the new requirements and avoid duplicate reporting. He also highlighted that transactions made by businesses using credit and debit cards do not have to be reported under the new regulations because they would have been already reported by the card issuers.

However, not all parties have decried the new regulations. Witmer Jones, director of the New Hampshire Small Business Administration, said it is too early to tell if the new requirements would bring about a negative impact on small businesses. On the contrary, Jones is of the opinion that most small businesses will not have much problems complying because they have computerized their operations to a large extent and it would only be those who still administrate their businesses manually that would find the new regulations a problem.

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The Summit Christian School in Palm Beach County is facing a foreclosure on its property by a credit union to who the school owes $9.3 million. Circuit Judge Meenu Sasser will hear the request by the credit union to foreclose the premises on October 5.

If that were not enough, the school has another serious problem. It has not been paying its taxes for the year ended March 31, so the IRS has slapped a $606,000 tax lien on it. Summit school headmaster Sam Skelton has acknowledged that the 38- year old school, situated at Summit Boulevard and Haverhill Road is facing massive challenges.

Two individuals had said they would help bail the school out of its mounting financial problems. The first who promised to raise $2 million to $3 million ended up in the Palm Beach County Jail on charges of fraud. The second who was Jeff Lee, described by headmaster Skelton as a ‘blessing’, turned out to be behind several land deals that resulted in former Palm Beach County Commissioner Tony Masilotti being imprisoned for 5 years.

So the school found itself back in square one. Added to its debt problems, the school’s enrolment numbers was also declining. The school has students from pre-school age to the 12th grade but has seen its student numbers drastically fall from a high of 900 students to 610 last year. This resulted in a loss of about $400,000 in revenue for the school.

Headmaster Skelton, a Liberty University business graduate who took charge of the school in 2004, said the school’s problems were severe but not new. Skelton insisted that the school was already in bad shape when he took over. Nevertheless the steps taken since then to overcome the school’s financial problems were seen as questionable.

In 2006, Jeff Lee bought the school for $7.5 million through a company he owned. At the same time, Lee was behind two land deals that prosecutors say enriched Masilotti by several million dollars. Lee and his brother agreed to cooperate with the prosecutors in investigating Masilotti in exchange for immunity from prosecution.

In 2008, the school obtained a mortgage for $9.3 million from the credit union and bought the land back from Lee for $9 million. Lee insisted that he returned the difference of $1.5 million profit back to the school as a gift. But Summit Christian’s tax returns recorded the $1.5 million as ‘a loss on mortgage refinance’. This resulted in the IRS action against the school.

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It is a proposed revision of a current tax practice that has got executives of large corporations sweating under the collar. Every year, the current practice is for large corporations to detail to the IRS any tax amounts they may have avoided paying due to questionable accounting methods. These corporations even have to set aside a sum of money to pay for a shortfall of their taxes if an audit proves they owe more than they have paid.

However, if the IRS fails to uncover the exact questionable tax position of the corporations within the 3-year statute of limitations period, then whatever taxes that were not paid cannot be collected anymore.

But in a move to further scrutinize large corporations and exact taxes from them, IRS Commissioner Doug Shulman is proposing that large corporations also provide a brief description of their uncertain tax positions and their rationale behind it. This would make the job of tax agents much easier when auditing large corporations. They would already have a basis to start checking the tax positions of these corporations right of the bat.

For accountants and company executives, whose jobs are to save money for the companies, this proposed regulation is a nightmare. Many fear that the information given by the corporations can and will be used against them in an audit. Rather than the tax agents working with the corporations to determine an equitable amount of tax to be paid, they can simply short-circuit the process, find an issue and press for more taxes.

Another possible consequence is that this regulation might have an impact on business and the financial markets because some of the disclosures might be linked to legally privileged information. Therefore, there is a possibility that corporate executives might try to conceal such information from their accountants and auditors.

Many observers already predict that this regulation would result in a fresh round of the cat and mouse game between the IRS and big corporations where now the corporations would seek new methods to reduce the amount of information they have to reveal.

For an idea of the extra taxes involved, just consider some of America’s largest corporations and the amount of uncertain taxes they declared last year – Microsoft’s position was $5.4 billion, Bank of America’s was $5.2 billion, the American International Group reported $4.8 billion and Goldman Sach’s position was $1.9 billion in uncertain taxes. In total, Fortune 500 companies in America had more than $200 billion in uncertain tax positions.

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