Monthly Archives: September 2015

VW tax credits cost Uncle Sam millions

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


Volkswagen marketed its diesel-fueled autos as high performance, super clean and environmentally friendly.

Those promises were enough to convince tens of thousands of car buyers. The claims also got a nod of approval from the IRS.

Everybody was duped. And the German automaker’s dishonesty cost the U.S. Treasury millions in tax credits.

Millions wrongly paid

For more than a decade, various tax credits have been offered to buyers of fuel-efficient autos. Diesel vehicles, which are popular in Europe but have yet to hit U.S. roads in large numbers, were on that list for a while.

Buyers of some of the Volkswagen makes and models now in question got a tax credit of up to $1,300.

An analysis by the Los Angeles Times found that the IRS paid out as much as $51 million in alternative fuel vehicle tax credits for these Volkswagen diesel buyers in 2009, the 1st year the company manipulated the vehicles’ emissions software.

Will Uncle Sam ever get that money back?

Payback via EPA fines

Don’t worry, VW diesel drivers. You won’t have to repay the alternative fuel vehicle tax credits you got. Just as with victims of Bernie Madoff’s Ponzi scheme, the government will absorb that loss.

But some argue that Volkswagen should factor the associated tax credits into the Environmental Protection Agency fines it eventually will pay for its Clean Air Act violations.

Each of the affected 482,000 VW cars could be subject to a maximum fine of $37,500. That adds up to just more than $18 billion in total fines.

Don’t expect the feds to collect that much from VW. The EPA likely will take less than the precise fine amount just to be done with the matter quickly and get some money in hand. The German company has set aside around $7.2 billion to pay for its emissions violations.

So even if the tax credits aren’t expressly part of the final fine calculation, Uncle Sam will get back more than enough to cover the ill-paid tax breaks.

Too many tax credits?

The bigger question is: Should fuel-efficient auto and similar tax credits be offered in the first place?

There is a long history of lawmakers at all levels trying to use taxes to shape public behavior. Sin taxes are added or increased to discourage bad habits, such as smoking or eating unhealthy foods. Tax breaks are offered to encourage things that are seen as more positive, such as saving for retirement.

Should Uncle Sam reward or chide you through tax savings or penalties? The answer, like most everything involving taxes, is it depends.

It depends on your personal tax situation. Will you suffer or benefit? It depends on your political perspective. Are you in favor of more or less government involvement in your life?

In this particular case, I’d ax auto tax credits.

Tax breaks can help in the development of products, especially new ones competing with entrenched industries. The research and development tax credit, which is pending renewal as part of the tax extenders legislation, is a good example of how the tax code can help create new products and technologies that offer benefits for the greater good.

But tax credits for buying a specific product — in this case, cars — go too far. It’s not the government’s job to use tax money to do a company’s marketing. Once Uncle Sam has helped you develop your great new product, it’s up to you as the manufacturer to convince consumers of its value.

Federal lawmakers should have learned from the hybrid credit. The primary takers of that tax break were buyers of the Prius, an auto that already was the market leader. The tax break was just a bonus.

The situation is similar now in the electric car arena. The Tesla is the darling of this alternative fuel tax credit. Does Uncle Sam really need to be helping out people who can afford to shell out 6 figures for an auto? No.

Taxpayers shouldn’t be asked to pay for other people’s toys.


Fantasy sports cutting into casino tax revenue

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


Lots of states have gambled on casinos as a way to raise revenue needed to help balance budgets and pay for new projects. For years, that’s been a good bet.

The latest data from the American Gaming Association shows that casinos paid $8.6 billion in taxes to states and local communities in 2012.

But the times are changing, primarily because of these kids today.

Stateline, a publication of The Pew Charitable Trusts, reports that casinos across the nation are suffering from a generation gap as young people turn to electronic games they can play on smartphones.

Entertainment generation gap

Traditional casino options, such as slot machines, are preferred by older gamblers. These types of games also depend largely on luck.

Millennials, however, tend to favor things that require more skill and decision-making, such as fantasy sports. These also are games they can play anywhere on an app.

Casinos are scrambling to come up with new ways to satisfy the younger generation’s entertainment preferences and keep the tax money flowing. They’re betting on hybrid games that combine traditional gambling games of chance with the skills associated with younger players’ online favorites.

Fantasy games, real taxes

Meanwhile, as fantasy sports participation grows, tax collectors must make sure they collect the very real taxes due on the money paid out by the games’ organizers.

There are nearly 57 million fantasy sports players in the United States and Canada, according to the Fantasy Sports Trade Association.

One of the reasons that fantasy sports has exploded is that it can be quite lucrative, at least according to the commercials the companies run continually during real televised sporting events.

Those fantasy payouts also have very real tax implications.

Hobby, not gambling, income

No, they are not gambling winnings. A provision in the Unlawful Internet Gambling and Enforcement Act of 2006 notes that fantasy sports are considered games of skill, not chance, thereby making them legal to play online.

Rather, the IRS typically considers money received from fantasy sports as hobby income that should be reported, along with all other earnings on the players’ annual tax returns.

But unless a player gets a fantasy league check of $600 or more, there’s no way for the IRS to know of the earnings. Payouts of less than that don’t require the issuance of a 1099-MISC form, meaning the tax collector must rely on the honesty of the player to report the money.

So the IRS wishes you much success in your fantasy league play, enough so that it will get word on all your big, taxable winnings.

Do you play fantasy sports? Do you report all your game income to the IRS?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.



Federal workers, retirees owe $3.5B in taxes

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate



The federal tax watchdog has a message for the IRS: Focus on your own people.

An audit by the Treasury Inspector General for Tax Administration, or TIGTA, found that at the end of the 2014 fiscal year, more than 300,000 federal workers and retirees owed around $3.5 billion in taxes.

From a raw number perspective, that’s not that many tax scofflaws. The IRS collects taxes from more than 143 million people each year. And TIGTA acknowledged in its report released Sept. 9 that federal employees and retirees have a lower rate of tax delinquency than the general taxpayer population.

On average from fiscal years 2010 to 2014, just 3.1% of federal employees and retirees were tax delinquent, compared with 8.4% of all U.S. taxpayers.

The dollar amount isn’t that much either, relatively speaking. The U.S. Treasury’s latest complete monthly report shows that through July, more than $2.67 trillion in taxes was collected.

Uncle Sam’s tax PR problem

But federal workers and retirees who don’t pay their taxes definitely make for bad public relations for Uncle Sam.

It’s difficult enough to get folks to file. The task gets even harder when taxpayers can point to individuals who are being paid with tax dollars, but who are not paying their share of taxes.

“Like all taxpayers, federal employees and retirees have a legal obligation to pay their taxes,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, federal employees and retirees are held to a higher ethical standard for a number of reasons, including that they draw their compensation from federal taxes.”

Plus, says TIGTA, the number of federal workers and retirees who are delinquent on their tax payments is growing.

The number of federal employees and retirees who owe past-due taxes has grown by 14% from fiscal years 2010 to 2014, an increase of 25,284 overdue taxpayers.

The amount of unpaid taxes also has increased $119 million in that same period, a 3% jump.

Automation and more tax levies

TIGTA did have a modicum of praise for the IRS regarding its collection efforts.

Generally, the IRS is successful at closing overdue tax cases involving federal employees and retirees through a system it established in 1993, noted the report. The tax agency typically gets the money through full payment of the delinquent tax bills or from installment payment agreements with workers and retirees.

To supplement these efforts, TIGTA recommends that the IRS expand its existing levy program to more federal cases. TIGTA estimates this could bring in as much as $18.3 million over the next 5 years.

TIGTA also suggests the IRS move overdue federal employee and retiree tax cases to its Automated Collection System when its regular, manually administered federal worker collection process fails. Putting the cases into the automatic system, says TIGTA, could produce faster case resolutions.

The IRS agrees with expanding the levy actions, and says it will work with the appropriate defense finance agencies to implement it.

However, when it comes to the automatic processing recommendation, the IRS says it will stick with manually handling cases of delinquent taxes by federal employees and retirees. The tax agency believes the majority of those cases will eventually end up, if necessary, in the levy system, where they will be resolved.

Do you think federal employees should get special treatment from the IRS?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.


Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.