California's Proposed Fraudulent Gift to the Ultra-Wealthy

Hank Adler | Posted: Feb 04, 2018

If you were worried that the wealthiest California taxpayers were paying too much in Federal taxes, the Democratic dominated California State Senate apparently has been equally concerned and has proposed a "tax" law change that would allow California taxpayers to deduct 85% of their California state taxes as "contributions" in their federal income tax returns.

In short form, the proposal is for California taxpayers to pay an amount equal to their California taxes to a non-profit "charity" that will in turn donate the money to the state. Of course, the California Senate has found a couple of tax professors to bless the plan and apparently the California Senate believes that neither Congress nor the Internal Revenue Service will so much as acknowledge any disagreement with this plan.

Apparently the California Senate has been convinced that Shakespeare is incorrect and that "A Rose By Any Other Name" is no longer a useful expression for analyzing income tax planning ideas. Of course a quick Google search will find literally hundreds of Tax Court cases that have come to other conclusions. With all due respect to the professors who have blessed this legislation, this is the kind of idea that if proposed to me by a prospective client, I would decide that this was a client I could do without. A "cute" idea generally is not viewed favorably in the Tax Court.......To Read More....


My Take - Over the years I knew and heard of people who fell for a tax scheme that claimed no one has to pay federal income tax because the 16th Amendment authorizing income tax wasn't passed legitimately, and there's some evidence to support the idea that neither the 16th or the 17th were passed legitimately - but so what? No court in the land is going to support any such effort when the IRS comes calling - to put you in jail!

And the people who fall for this can't be reasoned with because they are adamant and arrogant in their delusion. At least till the IRS comes after them and the ones who promoted this scheme to them and swore they would defend them against the IRS ends up jail first.  Then they finally receive enlightenment!

One woman I know who did this had penalties, fines and back taxes so high she couldn't retire for years passed her retirement date. She could collect Social Security of course, but how much do you wanna bet every penny of her social security went to the IRS? And if she retired early to be able to make the payments - for the remainder of her life she lost thousands for retiring early.

But to think a state government would come up with a scheme that says the state will decide what's taxable by the federal government is lunacy! With California legislators deciding they're going to ignore, or deliberatly defy federal law regarding taxes and immigration, they're heading for a reckoning. If this goes much further someone in California's political power structure is going to end up in jail.

But let's get this clear - just because someone comes up with a scheme to elude paying taxes on taxable income doesn't mean the IRS is going to accept it. They will recalculate your return and bill you for it - and if it becomes a big deal with a lot of people involved - they will make an example of some or all by prosecuting them for deliberately attempting to defraud the federal govenment.

If you happen to be one of them, and after some reflection while in prison, you can tell your cellmate, Governor Jerry Brown, why you think this wasn't such a good idea.