“Take the money and run.”—Steve Miller
There once was a time, believe it or not, when there were no taxes. Back when people lived in caves and ate dirt, the world was tax-free. Alley Oop didn’t pay a cent and neither did Oola. Fred Flintstone never heard of taxes and he got along just fine. Then one day, a terrifying monster appeared on the horizon, a giant larger and more fearsome than the fiercest T-Rex, a titan which would change the course of all who lived. The thing was called Civilization. And Civilization was one hungry critter, always looking for more blood—like Dracula. The blood that Civilization wanted was money. Your money. And it quickly figured out how to get it.
In ancient Egypt, the Pharaohs assigned “scribes” to raise funds in any way possible, including a tax on household cooking oil. The scribes conducted regular audits to insure that oil was not recycled—the first historical record of tax avoidance. The Book of Genesis suggests that a fifth of all crops was delivered to the Pharaohs.
The city states of Greece imposed “eishpora” to pay for wars, which were numerous, but included a stipulation that any post-war surplus must be refunded. Athens imposed a monthly poll tax on foreigners.
Imperial Rome used tribute extracted from colonized peoples to multiply the bounty of empire. Julius Caesar imposed a one percent sales tax. Augustus instituted an inheritance tax to provide retirement funds for the military.
Religious institutions historically rivalled—and sometimes surpassed—political states in their material power. To consolidate this, they imposed their own forms of taxation. For Christians, it was the “tithe,” a tenth of what the faithful produced. The expansion of Islam was accompanied by a levy called the “khums,” about half the Christian tithe. There are direct references to this in the Qu’ran, requiring use of the tax for specific purposes such as relief of the poor. In India, Islamic rulers imposed a tax called “jizya” in the eleventh century. In Latin America, the Aztec, Olmec, Maya and Inca cultures all raised forms of taxation, usually in association with ritual observance. Both Hindus and Buddhists sustained their temples and monasteries with contributions of time, skill and resources from the faithful.
In eleventh century England, taxes were made famous by an Anglo-Saxon woman named Lady Godiva. According to legend, her husband, Leofric, Earl of Mercia, promised to reduce the high taxes he levied on the residents of Coventry when she agreed to ride naked through the streets of the town. A challenging ordeal to be sure, but well worth it when they name expensive chocolates after you.
In colonial America, the colonists were paying taxes under the Molasses Act in 1764, an impost which evolved into the Sugar Act and included duties on foreign molasses, sugar, wine and other commodities. When the Sugar Act did not raise substantial revenues, the Stamp Act was imposed, then the infamous Tea Act in 1773. For the colonists, the Tea Act was the last straw. Citing “taxation without representation,” hundreds of protesters organized the Boston Tea Party, dumping more than 92,000 pounds of tea into Boston Harbor. If measured in today’s terms, the value of the lost tea would be in the neighborhood of one million dollars.
Godzilla Arrives
The origin of the income tax on individuals is generally cited as the passage of the 16th Amendment to the Constitution, passed by the U.S. Congress on July 2, 1909 and ratified February 3, 1913. From 1791 to 1802, the government was supported by taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds and slaves. The War of 1812 brought about the nation’s first sales taxes on gold, silverware, jewelry and watches. In 1817, however, Congress did away with all internal taxes, relying on tariffs on imported goods to provide sufficient funds to run the government.
In 1862, in order to support the Civil War effort, Congress enacted the nation’s first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated or progressive taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3% and those who made more paid taxes at a higher rate. Additional sales and excise taxes were added and a new “inheritance” tax also made its debut. In 1866, internal revenue collections reached their highest point in the nation’s 90-year history—more than $310 million, an amount not reached again until 1911.
The Act of 1862 established the office of Commissioner of Internal Revenue. The Commissioner was given the power to assess, levy and collect taxes and the right to enforce the tax laws through seizure of property and income through prosecution, powers and authority which remain today. In 1868, Congress again focused its taxation efforts on tobacco and distilled spirits and eliminated the income tax in 1872. It had a short revival in 1894 and 1895, at which time the United States Supreme Court decided the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution.
In 1913, the 16th amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. Since that time, it has evolved into a mystifying challenge for all but the most basic taxees, generally requiring the services of professional tax preparers or CPAs to negotiate the labyrinthine maze created by the coven of IRS witches annually responsible for concocting the new puzzles. The Internal Revenue Service has become a universally despised outfit, condemned and threatened with extinction in each new presidential election. A reasonable alternative to the current system would appear to be a tax on goods—or goods and services—which would deliver the greatest tax responsibility to the biggest spenders. One objection to this idea is that the poor would be required to pay more for basic necessities, although this could be alleviated somewhat by removing from taxation basic food items. And no, we are not talking about cheese nachos, pop tarts and Cherry Garcia ice cream.
Then, of course, there are the poor old CPAs to consider. These one-time bookkeepers have risen through the social ranks to country-club status, challenging lawyers and plastic surgeons in the cost-per-hour olympiad. What will become of them when there are no more of those complicated income taxes to prepare? Do we care? Well, most of them have one foot into the Financial Planning industry, so there’s that. Another reply is that there is no protection from social evolution. Once there were two or more record stores in every moderate-sized mall in America. Seen any lately? Rented any videos at Blockbuster in the last couple of months? Does anybody even remember the typewriter store? How much did you lose when you bet on Betamax? Head Shops were doing quite nicely until states and municipalities suddenly started passing onerous laws against their existence. There are no guarantees in life. Even the number of golf courses is decreasing. Whoever would have expected that? Maybe the disenfranchised CPAs could get into the rapidly-expanding alternative taxicab industry or obtain one of those ubiquitous Dunkin’ Donut franchises which are popping up inside gas stations, attached to convenience stores and in the back of Asian massage parlors. Or perhaps raise nutria for fun and profit. Opportunity is limited only by imagination. The possibilities, as they say, are endless.
Skullduggery
Now as we all know, when there are large sums of money at stake, shenanigans often enter into the picture. The put-upon taxpayers are never eager to cede their revenues to the government, just ask the Sheriff of Nottingham. Some of the reasons for non-payment are obviously rendered without the assistance of legal advice. Daytime TV host and home guru Martha Stewart failed to pay $220,000 worth of taxes on an estate she owned because she felt she didn’t spend enough time there. Hello? Hotel czar Leona Helmsley was convicted of tax fraud in 1992 for claiming $2.6 million in ineligible business expenses. She couldn’t believe it, telling an associate, “We don’t pay taxes. Only the little people pay taxes!” Comedian Richard Pryor told government investigators he just forgot. Richard Hatch, winner of the first million-dollar Survivor TV jackpot was tossed in prison for neglecting to pay taxes on his prize. After being eventually released, he was sent back for violating the terms of his release. Hatch claimed he was being discriminated against because he is gay.
Then there was the little old lady from Pasadena. She told her CPA that she had offed her husband because she was tired of taking care of him but still wanted to claim him on her tax return. She was certain the well-known accountant-client relationship prevented the man from revealing their private conversations. The CPA ran, not walked, to his nearest police station and turned her in. Sometimes it’s better to just pay your taxes.
Payment Of the Year
In 1997, a taxpayer in Oklahoma was advised that his income tax check was $3407 short of the required amount. He packaged up his “payment” and wrote Internal Revenue this letter:
“Dear IRS: Enclosed is my 1997 tax return and payment. Please take note of the attached article from the USA newspaper. In the article, you will see the Pentagon paid $171.50 for hammers and NASA has paid $600 for a toilet seat. Please find enclosed four toilet seats (value $2400) and six hammers (value $1029). That brings my total payment to $3429. Please note the overpayment of $22 and apply it to the Presidential Election Fund, as noted on my return. Might I suggest you then send the abovementioned fund a 1.5 inch screw (see attached article—HUD paid $22 for a 1.5 inch Phillips Head Screw).
It has been a pleasure to pay my tax bill this year and I look forward to next year. I have just recently read an atricle about the Pentagon and screwdrivers.”
Who Says There’s No Such Thing As Bad Publicity?
Rashia Wilson, who calls herself The First Lady of Tax Fraud, was sentenced in July of 2013 to 21 years in prison. She was prosecuted for identity theft and also ordered to pay $2.2 million. A partner, Maurice J. Larry, got 14.5 years and was fined the same amount. From at least April of 2009 through their arrests in 2012, the pair fraudulently obtained tax refunds by receiving U.S. treasury checks and pre-paid debit cards loaded with proceeds from false tax returns they filed in the names of other people without those folks’ permission or knowledge. Wilson boasted on Facebook that she was untouchable and spent lavishly, including $90,000 for an Audi A8 and $30,000 on her son’s first birthday party. The kid’s second birthday was probably a big disappointment.
Dumbhead Of The Year
Krystle Marie Reyes of Oregon falsely claimed $3 million in income using TurboTax, which issued her a prepaid Visa debit card for $2.1 million after her home state approved her claim. She went on a $200,000 spending spree and was only caught after she reported the debit card lost. No, seriously folks, she really did.
Disa And Data
Cynthia Hess, AKA “Chesty Love” of Indiana was an exotic dancer who tried to deduct $2,088 for her breast implants. The IRS rejected her claim and she sued in U.S. Tax Court. Cynthia won because she was able to prove that the new implants (size 56FF) allowed her to make more money than she otherwise would have. No doubt.
William Halby, a lawyer from New York recently lost a tax deduction case in Tax Court. He had tried to deduct $100,000 in expenses for prostitutes and pornography which he had spent from 2004 to 2005. In an appeal, he argued that his deductions were for medical expenses and were justified as part of “sex therapy” due to his being depressed and alone. This time, the court ruled in his favor. William is currently thinking of expanding his therapy.
Aaron Zeff, the owner of Harv’s Metro Car Wash in Sacramento, California, was surprised when two IRS agents showed up at his place of business recently looking for payment for back taxes. Aaron had previously received no notification of the deficit. He was even more surprised when they told him the business had owed four cents since 2006. Penalties and interest had driven the bill up to a grand total of $202.35, necessitating the dispatch of these collection agents. I’m just guessing but it seems like there’s not a lot to do at the IRS offices in Sacramento. Could someone fetch these boys a Foosball table?
Nyquist leads the field down the stretch in the Florida Derby.
Clash Of The Titans
This is a race that almost never happens, Traditionally, the best three-year-old thoroughbred horses on the east and west coasts, like any bride and groom, never meet until the wedding—in this case, the fabled Kentucky Derby, always scheduled for the First Saturday in May. But here was undefeated Nyquist, the 2015 Breeders’ Cup Champion and Hope Of The West flying into Hallandale, Florida’s Gulfstream Park to meet homestanding Mohaymen, King Of the East in a knockdown dragout Florida Derby for the role of Louisville favorite. What’s going on here?
It’s simple, really. Nyquist was sold in the 2015 Fasig-Tipton sale of two-year-olds in training in Florida, making him eligible for the one million dollar bonus any sale graduate gets for winning the Florida Derby. If there’s one thing that will spur an owner to leave his cozy nest at Santa Anita, it’s the promise of a cool million in addition to the winner’s share of $600,000 in the Florida Derby. As they say in the business, that’s not soggy gingerbread.
Owner Paul Reddam, who has reached these climes before with Kentucky Derby winner I’ll Have Another, was properly sanguine about his prospects. “Anyone would have reservations about facing Mohaymen in his own backyard,” he said. “But my feeling was, if you’re afraid to go run against someone now, how do you really think you have a Derby horse? We just stuck to the plan. If we get beat, we get beat. You can’t be afraid. If you’re afraid in this business, you’re not going anywhere.”
Nyquist broke sharply from the starting gate and led to the first turn under a firm hold by Mario Gutierrez. It was the California horse’s second start of the year. “It was always part of the plan to go to the front,” Gutierrez said. “Everything depends on the break, how the other horses are going to be acting. Coming out of the gate, I broke so clean and so fast I just had to take the lead.”
Nyquist rated on the lead along the backstretch and had most of the longshots put away by the far turn. He was joined on his outside by Mohaymen leaving the turn and heading into the homestretch. Both horses rounded the turn extremely wide, a factor of the “good” but not “fast” racetrack being quicker outside. Majesto, a 21-1 shot ridden by the wily Javier Castellano, cut the corner and moved up along the rail to contest the battle. “I saw Mohaymen coming to my side,” said Gutierrez, “I’m riding the race and I didn’t want to be overconfident but if he was going to pass me he was going to have to do it running wide.”
Just when it looked like the Battle Royale was about to commence, Mohaymen began to falter. “He was pretty wide throughout, but the track is wet and we wanted to stay out in the clear,” said the big grey’s trainer, Kiaran McLaughlin, who had saddled his charge to Gulfstream wins in the Holy Bull Stakes and the Fountain of Youth. Mohaymen faded to fourth, losing for the first time in his life. His rider, Junior Alvarado, later said, “I’m not a person to blame the racetrack all the time but I can only say that today the horse never took me. He’s a horse that all the time drags me and jumps in the bridle right away. This time, he wasn’t pulling me. It got me a little worried. By the eighth pole, I saw Nyquist getting along well and I had to move my horse, this time I’m the one asking him. The track could be one little reason but there’s nothing else I can really say.”
In addition to Nyquist, Majesto, who hung on for second and the well-closing Fellowship earned sufficient qualifying points for the Derby. Mohaymen was already eligible. It was Majesto’s first race since breaking his maiden on February 27. Castellano commented, “I think he’s going to be good going to the Derby. He has the points and he’s late-developing. He’s going to start getting really good. I’m looking forward to it.”
The mystery for the day remains Mohaymen. Off race track? Past his peak? Got up on the wrong side of the stall? Hard to count out off one less than stellar performance. All grist for the bettor’s mill as the Race of the Year ranges up in the rear-view mirror, a mere month away. Giddyap!
That’s all, folks….
