MYTH : Trump's Social Security Tax Holiday Will Help Employers and Their Employees

Well, this is a solid myth, that's for sure.  Smart and ethical CPAs are recommending that their clients not just walk, but sprint away from the Memorandum Deferring Payroll Tax Obligation.  Let me preface this by declaring that I'm not an attorney and that all of this is my opinion.  But I can read and think. 

First, a little background.

The current IRS Commissioner is Trump appointee Charles Rettig, who, during his confirmation hearing, "told lawmakers he would ensure that the agency is 'impartial and non-biased from top to bottom' and follows the law."  

This seems unlikely, given that Rettig's Beverly Hills law firm specialized in defending wealthy clients against taxing authorities.  Since taking over the IRS, Rettig has slashed 4000 employees, including 19% of enforcement and compliance staff.  Like every single other Trump appointee, Rettig was selected for his ability and enthusiasm to vandalize the very agency to which he was appointed.

So Trump's Memorandum Deferring Payroll Tax Obligations allows any employee with bi-weekly pay of less than $4000 to defer paying of their 6.2% share of Social Security tax.  This appeals to two kinds of Trump supporters:  the wealthier ones who hate Social Security and, including this group, the less well-off supporters who hate taxes and government in general, despite all the benefits they enjoy as a result.

The key word here is "deferring".  What could make this tax easier to pay in the future?  Some tax people are rightly claiming that only Congress has the ability to waive such taxes.  But they've already granted that right to the President in the event of a national emergency, which Trump declared in April due to the [fake, according to him] pandemic.  

In fact, it will simply put employers at risk of fees and penalties.  On top of that, I've seen nothing in the regulations that prevents employers from going after former employees for reimbursement. According to our Senator & Senate Finance Committee ranking member Ron Wyden, "Donald Trump's scam is obvious — juice paychecks before the election and sock workers with a massive tax bill early next year when he’ll be out of office or never have to face voters again. While many businesses are unlikely to go along with Donald Trump’s fake tax cut, billions could be drained from the Social Security trust fund. This scheme is designed to give Donald Trump a talking point — it won’t benefit workers in any way.”*

Whether you're an employee or an employer, don't be seduced by this nonsensical campaign trick.

 

*Thanks to Think Advisor for their excellent article on this and choice quotes.

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8 to 10% Is A Reasonable Expected Rate of Return

Reminder:  These Financial Myths Headings are Myths.

No.  8-10% is not a reasonable rate of return, even though national investment "superstars" still claim that it is.
Here in Oregon, that point has been driven home . . . again, unfortunately, by Aequitas Management.  The article that follows is long but instructive.  (Thank you Advanced Regulatory Compliance, Inc.!)
But here are the warning signs:

1. They put almost all of their eggs in one basket: notes on Corinthian College loans.  Investors need to understand where their money is going!
2. They issued their own statements.  Never rely on statements issued by your broker/agent/adviser.  Always insist on third party generated statements.
3. They were high-flying.  Take note of what your adviser himself invests in.  Fancy offices & furnishings?  Expensive cars? Jets?  Expensive client events?  You should wonder how those "investments" improve your financial situation.

So, enjoy the article.  I hope you learn something from it!

The Securities and Exchange Commission yesterday charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.  Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm.  Some money from new investors was allegedly used to pay earlier investors

The SEC’s complaint, filed yesterday in federal district court in Oregon, alleges that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse.  Former CFO and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.

“We allege that Aequitas had severe and persistent cash flow shortages and top executives knew they weren’t using money raised from investors like they said they would.  But they refused to disclose the true financial condition, continued to draw lucrative salaries, and roped even more unknowing investors into a losing venture,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. 

According to the SEC’s complaint:

• From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.
• While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges.  Corinthian defaulted on its recourse obligations to Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.
• The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors.  They used the outings to raise more money from investors.  Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.
• By November 2015, Aequitas could no longer meet scheduled redemptions.  Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer.   

The SEC’s complaint charges violations of the federal securities laws by Aequitas Management, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC as well as Jesenik, Oliver, and Gillis.  The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and monetary penalties from all defendants as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company.

Aequitas and the affiliated entities have agreed to be preliminarily enjoined from raising any additional funds by offering and selling securities, and agreed to the appointment of a receiver to marshal and preserve remaining Aequitas assets for distribution to defrauded investors.  The stipulated orders are subject to court approval.

The SEC’s continuing investigation is being conducted in the San Francisco office by Brent Smyth, Crystal Boodoo, and Tracy Combs and supervised by Steven Buchholz.  An examination of Aequitas’s registered investment advisory affiliate, and examinations of other registered investment advisers that recommended Aequitas investments to their clients, contributed to the investigation and were conducted by Thomas Dutton, Bradley Cline, Edward Haddad, Matthew O’Toole, Caroline Smith, Bernice You, Marc Valle, and Alice Schulman.  The SEC’s litigation will be led by Sheila O’Callaghan and Wade Rhyne.

Advanced Regulatory Compliance, Inc. (“ARC”) is a national full-service investment advisory compliance consulting firm backed by its association with The Law Offices of Patrick J. Burns, Jr., P.C., a securities law practice. ARC provides practical solutions to complex compliance issues. Our key services include investment adviser registrations, mock audits, annual reviews, due diligence, development of best practices and ongoing compliance support.  If you have any questions or concerns about this newsletter, please contact our firm at (310) 275-7300.

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THE DEVIL IS IN THE DETAILS

This blog heading is colloquially true, especially when it comes to Investment Adviser contracts.  A recent review of compliance violations found- first of all- that 22% of advisers didn't have contracts with their clients.  A contract isn't required unless a fee of some kind is collected from or owed by a client.  So if you are paying a fee of any kind- flat, hourly, percent of assets, performance based -a contract is required.

So what devilish details should you watch for in an advisory contractual relationship?  Here's a short list:

• First and foremost:  The absence of a contract altogether!  Do you really want to work with and pay someone without formalizing rights and expectations on paper?
• Any provision that compensates the adviser based on "a share of capital gains upon, or capital appreciation of, the funds- or any portion of the funds -of the client. (Sec. 205(a)(1) of the Investment Advisers Act).  I see these so-called performance fees in contracts all the time.
• Mandatory arbitration clauses.  These have become so common that the average person doesn't blink an eye signing them.  By doing so, you're giving up- in most cases -the right to sue individually or to be party to a class action against the adviser.  My contract only has a voluntary mediation clause; we agree to sit down and talk about a dispute before consigning our souls to the lawyers.  Never had to use it.
• Be aware of with whom it is you're actually contracting.  Is it the adviser himself or some obscure LLC or other obfuscatory entity that your adviser can hide behind?  My clients contract with me, and only me, directly.

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Seven Steps for Making Identity Protection Routine

Ok, this is NOT a myth.  These steps come verbatum from the ever-helpful IRS.

RS Security Awareness Tax Tip Number 3, December 7, 2015                                Español

The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are seven steps you can make part of your routine to protect your tax and financial information:

1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.)  I would add that it pays to turn on notifications on your credit cards, especially for "credit card absent" charges.
2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked.
3. Review each of your three credit reports at least once a year. Visit annualcreditreport.com to get your free reports.
4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account at www.SSA.gov.  It's also important to check for zero earnings years when you did in fact receive wages.  That means your employer failed to report, and pay, payroll taxes.
5. Read your health insurance statements; look for claims you never filed or care you never received.  And you might also contest charges that you feel are excessive.
6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash.  Check my Event Schedule at www.garyduell.com for our annual Document Shredding and Identity Protection event.  The next one is this coming May.
7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice.  Even though a physical check may feel more secure, it isn't!

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

• IRS Commissioner Koskinen's Statement on the Security Summit Group Public Awareness Campaign 
• Taxpayer Guide to Identity Theft
• Publication 5027, Identity Theft Information for Taxpayers
• www.irs.gov/identitytheft -- Identity Protection: Prevention, Detection and Victim Assistance
• IR-2015-129, IRS, States and Tax Industry Announce New Steps to Help Public to Protect Personal Tax Data  
• Fact Sheet 2015-23, IRS, States and Industry Partners Provide Update on Collaborative Fight Against Tax-Related Identity Theft    
• IRS and Partner Statements on the October 2015 Security Summit Meeting

IRS YouTube Videos:

• Taxes. Security. Together. – English
• IRS Efforts On Identity Theft – English| Spanish| ASL
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish | ASL
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish | ASL

IRS Podcasts:

• IRS Efforts on Identity Theft – English | Spanish
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish\
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish

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RELAX, IRS has eliminated Fraud

Wish this was true, but it's yet another Financial Myth.  You can read the whole article here, or, my abridged version below.
http://www.irs.gov/uac/Newsroom/IRS-Warns-Taxpayers-to-Guard-Against-New-Tricks-by-Scam-Artists

It's good to know the 5 things IRS will not do:

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

If someone attempts to fool you in this manner, immediately turn them in at http://apps.irs.gov/app/scripts/exit.jsp?dest=https://www.treasury.gov/tigta/contact_report_scam.shtml

Best Always,

Gary
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