Income Tax News

NEW BEDFORD – The national average for federal tax compliance is 83.6% over every type of industry.

In the commercial fishing industry, that compliance rate drops to 65%, said Joleen Simpson, special agent in charge of the IRS Criminal Investigation, Boston Field Office.

“That’s well under the average. So we’re really trying to make sure that we have the industry come under compliance,” Simpson said.

As the nation’s number one commercial fishing port, New Bedford is very much on the radar.

“The statistics we have cover the six New England states but really the fishing industry is significant in Rhode Island, Maine and Massachusetts, with, of course, New Bedford being the most valuable port not only in New England but in the United States,” said IRS Criminal Investigation Supervisory Special Agent Matthew Amsden.

“So we can confidentally say the majority of the commercial fishermen impacted here are out of the New Bedford Port,” Amsden added.

According to data provided by the National Oceanic and Atmospheric Administration, during the four tax years 2018 to 2021, nearly $1 billion in fishing proceeds to New England crewmembers were reported to the Internal Revenue Service.

During this same period almost 35% of commercial fishing crew members (representing $255 million in proceeds) failed to report this income on their federal tax returns, according to the IRS.

Seven New England fishermen indicted, 3 from New Bedford

Seven New England fishermen, including three from New Bedford and one from Fall River, were charged last month with tax evasion and failing to file returns. The other three indicted were from Rhode Island, according to a press release from the IRS Criminal Investigation unit.

Symbiotic relationship:New Bedford’s fishing community is working with Vineyard Wind. Here’s how.

They were indicted by federal grand juries in Boston and Providence. They are presumed innocent until proven guilty beyond a reasonable doubt.

According to the indictments, the commercial fishermen each worked for fishing companies operating primarily out of New Bedford, or Point Judith, R.I.

They were paid as independent contractors with their employers filing 1099 forms with the IRS documenting their income.

They included:

Jorge Cazarin of New Bedford, who was charged with five counts of tax evasion and five counts of willful failure to file tax returns for 2016 through 2020.

According to the indictment, Cazarin worked as a commercial fisherman and deckhand for various companies, primarily out of Point Judith in Narragansett, R.I.

From about 2013 through about 2020, Cazarin attempted to evade income taxes due and owing on approximately $1.2 million in income he received as a commercial fisherman, according to the indictment.

Rodolfo Membreno of Fall River, who was charged with six counts of tax evasion for 2012 and 2017 through 2021 and four counts of willful failure to file tax returns for 2017 through 2019 and 2021.

From about 2013 through 2021, Membreno attempted to evade income taxes due and owing on approximately $1.4 million in income he received as a commercial fisherman, according to the indictment.

John Doe of New Bedford, who was charged with six counts of tax evasion for 2016 through 2021 and three counts of willful failure to file tax returns for 2016 through 2018.

From about 2012 through 2021, Doe attempted to evade income taxes due and owing on approximately $1.9 million in income he received, according to the indictment. Simpson declined to comment as to why an alias was used in the indictment because the case is pending.

According to a U.S. Dept. of Justice press release, “One of the defendants allegedly also used the name and Social Security number of another individual to conduct business as a further effort to hide income.”

Miguel Cruz Rubio of New Bedford, and Elizabethtown, N.C., who was charged with four counts of tax evasion for 2016 through 2019.

From about 2015 through 2020 Cruz Rubio attempted to evade income taxes due and owing on approximately $1 million in income he received as a commercial fisherman between 2010 and 2019, according to the indictment.

If convicted, each defendant faces a maximum sentence of five years in prison for each evasion count and one year in prison for each failure to file a tax return charge.

Priority to investigate high-income, non-filers

Generally speaking, Simpson said, the indicted individuals are considered to be “high-income, non-filers” with some form of affirmative act to avoid detection.

Simpson stated, “Congress has made it a priority to investigate instances of high income, non-filers. That is, individuals with significant taxable income who either fail to file tax returns or fail to report significant portions of that income from their federal tax returns. The New England commercial fishing industry lands squarely within this directive as many of the identified commercial fishermen are earning between $150,000 to $250,000 annually.”

IRS offers ‘voluntary disclosure’ program

She added the IRS does offer a “Voluntary Disclosure Practice.”

“If you have willfully failed to comply with tax or tax-related obligations, submitting a voluntary disclosure may be a means to resolve your non-compliance and limit exposure to criminal prosecution. A voluntary disclosure does not guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended,” according to the IRS.

Simpson said it’s something for people in these situations to consider before it’s too late. “The last thing anybody wants is for one of our agents to come knocking on their door.”

“We’re hoping that with this message compliance goes up, but we will continue to be active in looking for cases that are within our jurisdiction in this industry,” Amsden said.

Asked if more indictments could be on the way, Amsden replied, “I would say our work in this industry is not complete.”

Originally Appeared Here

Caution: This discussion and analysis may contain predictions, estimates and
other forward-looking statements that involve a number of risks and
uncertainties, including those discussed in Part II, Item 1A. Risk Factors. This
outlook represents our current judgment on the future direction of our business.
These statements include those related to our future results of operations and
financial position, Captisol-related revenues and Kyprolis and other product
royalty revenues and milestones under license agreements, product development,
and product regulatory filings and approvals, and the timing thereof. Actual
events or results may differ materially from our expectations. For example,
there can be no assurance that our revenues or expenses will meet any
expectations or follow any trend(s), that we will be able to retain our key
employees or that we will be able to enter into any strategic partnerships or
other transactions. We cannot assure you that we will receive expected Kyprolis,
Captisol and other product revenues to support our ongoing business or that our
internal or partnered pipeline products will progress in their development, gain
marketing approval or achieve success in the market. In addition, ongoing or
future arbitration, litigation or disputes with third parties may have a
material adverse effect on us. Such risks and uncertainties, and others, could
cause actual results to differ materially from any future performance suggested.
We undertake no obligation to make any revisions to these forward-looking
statements to reflect events or circumstances arising after the date of this
quarterly report. This caution is made under the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act.

We use our trademarks, trade names and services marks in this report as well as
trademarks, trade names and service marks that are the property of other
organizations. Solely for convenience, trademarks and trade names referred to in
this report appear without the ® and ™ symbols, but those references are not
intended to indicate, in any way, that we will not assert, to the fullest extent
under applicable law, our rights or that the applicable owner will not assert
its rights, to these trade marks and trade names.

References to “Ligand Pharmaceuticals Incorporated,” “Ligand,” the “Company,”
“we” or “our” include Ligand Pharmaceuticals Incorporated and our wholly-owned
subsidiaries.

Overview

Our business is focused on acquiring or funding programs and technologies that
life science companies use to discover and develop medicines. Our business model
provides a diversified portfolio of biotech and pharmaceutical product revenue
streams that are supported by an efficient and low corporate cost structure. Our
goal is to offer investors an opportunity to participate in the promise of the
biotech industry in a profitable and diversified manner.

Our business model is focused on funding mid to late-stage drug development in
return for economic rights and outlicensing our technology platforms to help
partners discover and develop medicines. We partner with other pharmaceutical
companies to leverage what they do best (late-stage development, regulatory
management and commercialization) ultimately to generate our revenue. Our
Captisol platform technology is a chemically modified cyclodextrin with a
structure designed to optimize the solubility and stability of drugs. Our
Pelican Expression Technology is a validated, cost-effective and scalable
platform for recombinant protein production that is especially well-suited for
complex, large-scale protein production where traditional systems are not. We
have established multiple alliances, licenses and other business relationships
with the world’s leading pharmaceutical companies including Amgen, Merck,
Pfizer, Jazz, Gilead Sciences and Baxter International.

Our revenue consists of three primary elements: royalties from commercialized
products, sales of Captisol material, and contract revenue from license,
milestone and other service payments. We selectively pursue acquisitions and
drug development funding opportunities that address high unmet clinical needs to
bring in new assets, pipelines, and technologies to aid in generating additional
potential new revenue streams.

OmniAb Separation and Spin-Off

On March 23, 2022, we entered into the Merger Agreement, by and among our
company, APAC (which later became New OmniAb), OmniAb and Merger Sub, pursuant
to which New OmniAb combined with OmniAb, our then-antibody discovery business,
in a Reverse Morris Trust transaction. Pursuant to the Separation Agreement, we
transferred the OmniAb Business, including certain of our related subsidiaries,
to OmniAb and, in connection therewith, distributed (the Distribution) to Ligand
stockholders 100% of the common stock of OmniAb. Immediately following the
Distribution on November 1, 2022, in accordance with and subject to the terms
and conditions of the Merger Agreement, Merger Sub merged with and into OmniAb
(the Merger), with OmniAb continuing as the surviving company in the Merger and
as a wholly-owned subsidiary of New OmniAb. After the Distribution, we do not
beneficially own any shares of common stock in OmniAb and no longer consolidate
OmniAb into our financial results for periods ending after October 31, 2022. As
a result, OmniAb’s historical financial results are reflected in our
consolidated financial statements as discontinued operations.

22
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Business Updates

Travere Therapeutics (Nasdaq: TVTX) received FDA accelerated approval for
FILSPARI™ (sparsentan) for the treatment of IgA nephropathy (IgAN) on February
17, 2023, with commercial availability beginning in the last week of February. A
review decision on sparsentan for the treatment of IgAN in Europe by the EMA is
expected in the second half of 2023. On April 1, 2023, Travere announced
publication in The Lancet of the interim analysis of efficacy and safety data
from the ongoing pivotal, Phase 3 PROTECT Study evaluating sparsentan in adults
with IgAN. The data were simultaneously presented in a late-breaking trials
session at the World Congress of Nephrology 2023. On May 1, 2023, Travere
announced that the pivotal Phase 3 DUPLEX Study evaluating sparsentan in focal
segmental glomerulosclerosis (FSGS) did not achieve the primary efficacy eGFR
slope endpoint over 108 weeks of treatment compared to the active control
irbesartan. Travere reported that secondary and topline exploratory endpoints
trended favorably and a reduction of proteinuria was sustained through 108 weeks
of treatment. Travere plans to engage with regulators to explore a potential
path forward for sparsentan as a treatment for FSGS in the U.S. and Europe.

Viking Therapeutics (Nasdaq: VKTX) completed enrollment in its Phase 2b clinical
trial of VK2809 in patients with biopsy-confirmed non-alcoholic steatohepatitis
(NASH) with topline data on the primary endpoint expected in the first half of
2023. Separately, Ligand sold 3.2 million shares of Viking stock during the
quarter resulting in $43 million of net proceeds following Viking’s announcement
of positive data on their VK2735 obesity program. Ligand does not have any
direct economic interest in VK2735. As of March 31, 2023, Ligand owned 3.6
million shares of VKTX stock.

Novan (Nasdaq: NOVN) submitted an NDA to the U.S. FDA seeking marketing approval
for berdazimer gel, 10.3% (SB206) for the topical treatment of molluscum
contagiosum. The NDA has been accepted and assigned a PDUFA target date of
January 5, 2024.

Palvella Therapeutics (private) announced positive topline results from its
Phase 2 study of QTORIN™ rapamycin in microcystic lymphatic malformations; 100%
of participants were rated by physicians as being “Much Improved” or “Very Much
Improved” as measured on the Clinician Global Impression of Change following
12-weeks of dosing with QTORIN rapamycin. Results showed that QTORIN was
generally well-tolerated with no drug-related severe adverse events. QTORIN
rapamycin has the potential to become the first FDA-approved treatment for this
serious, rare genetic skin disease and has been granted Fast Track and Orphan
Drug Designation from the FDA for this indication. Palvella anticipates
initiation of a pivotal Phase 3 study in the second half of 2023.

Novartis AG (NYSE: NVS) announced that the FDA granted approval for a liquid
form of TAFINLAR® (dabrafenib) + MEKINIST® (trametinib) for the treatment of
pediatric patients one year of age and older with lowgrade glioma (LGG) with a
BRAF V600E mutation and who require systemic therapy. This is the first approval
of an oral Captisol-enabled product.

Sermonix (private) announced the initiation of a registrational Phase 3 clinical
study comparing targeted lasofoxifene in combination with the CDK 4/6 inhibitor
abemaciclib to fulvestrant plus abemaciclib in pre- and post-menopausal subjects
with locally advanced or metastatic ER+/HER2- breast cancer with an ESR1
mutation. Additionally, Sermonix announced that lasofoxifene improved
vaginal/vulvar symptoms relative to fulvestrant in a study of postmenopausal
women with locally advanced or metastatic estrogen receptor-positive ER+/HER2-
breast cancer with an ESR1 mutation.

Anebulo Pharmaceuticals (Nasdaq: ANEB) announced completion of dosing in its
randomized, double-blind, placebo-controlled, Phase 2 clinical trial evaluating
ANEB-001 as a potential treatment for acute cannabinoid intoxication. The
preliminary data showed ANEB-001 reduced effects of a 30 mg dose of THC, and
that delayed dosing of ANEB-001 rapidly reversed pre-existing THC effects.
Anebulo is targeting an End of Phase 2a meeting with FDA in the second quarter
2023.

Results of Operations

Revenue

(Dollars in thousands) Q1 2023 Q1 2022(a)

Change % Change
Royalties $ 17,154 $ 13,432 $ 3,722 28 %
Captisol – Core 10,622 6,226 4,396 71 %
Captisol – COVID – 5,896 (5,896) (100) %
Contract revenue 16,203 10,962 5,241 48 %
Total revenue $ 43,979 $ 36,516 $ 7,463 20 %

(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.

Total revenue increased by $7.5 million, or 20%, to $44.0 million in Q1 2023
compared to $36.5 million in Q1 2022 primarily due to a $5.2 million increase in
contract revenue which was driven by the achievement of milestone tied to FDA
approval of Travere’s FILSPARI. Royalty revenue increased by $3.7 million, or
28%, to $17.2 million in Q1 2023 compared to

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$13.4 million in Q1 2022 primarily due to the increase of Kyprolis sales and
sales of drugs using the Pelican platform. Core Captisol sales increased by $4.4
million, or 71%, to $10.6 million in Q1 2023 primarily due to the timing of
customer orders. There was no Captisol sales related to COVID-19 in Q1 2023,
compared with $5.9 million for the same period in 2022.

Royalty revenue is a function of our partners’ product sales and the applicable
royalty rate. Kyprolis royalty rates are under a tiered royalty rate structure
with the highest tier being 3%. Evomela has a fixed royalty rate of 20%.
Teriparatide injection has a tiered royalty between 25% and 40% on sales that
have been adjusted for certain deductible items as defined in the respective
license agreement. The Rylaze royalty rate is in the low single digits. Contract
revenue includes service revenue, license fees and development, regulatory and
sales based milestone payments.

The following table represents royalty revenue by program (in millions):

Q1 2023 Estimated Q1 2022 Estimated
Partner Product Effective Royalty Q1 2023 Royalty Partner Product Effective Royalty Q1 2022 Royalty
(in millions) Sales Rate Revenue Sales(a) Rate(a) Revenue(a)
Kyprolis $ 378.9 1.6 % $ 6.2 $ 298.6 1.5 % $ 4.6
Evomela 13.0 20.0 % 2.6 13.5 20.0 % 2.7
Teriparatide injection(b) 10.5 33.3 % 3.5 9.7 29.9 % 2.9
Rylaze 83.0 3.1 % 2.6 54.2 3.0 % 1.6
Other 158.9 1.4 % 2.3 76.3 2.1 % 1.6
Total $ 644.3 $ 17.2 $ 452.3 $ 13.4

(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.
(b) Teriparatide injection sales have been adjusted for certain deductible items
as defined in the respective license agreement.

Operating Costs and Expenses

(Dollars in thousands) Q1 2023 % of Revenue Q1 2022(a) % of Revenue
Cost of Captisol $ 3,717 $ 4,699
Amortization of intangibles 8,539 8,580
Research and development 6,663 9,179
General and administrative 10,855 11,925

Total operating costs and expenses $ 29,774 68% $ 34,383 94%

(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.

Total operating costs and expenses decreased by $4.6 million, or 13%, to $29.8
million in Q1 2023 compared to $34.4 million in Q1 2022.

Cost of Captisol decreased by $1.0 million, or (21)%, to $3.7 million in Q1 2023
compared to $4.7 million in Q1 2022, with the decrease primarily due to the
lower Captisol sales this quarter.

Amortization of intangibles remained steady in Q1 2023 compared to the same
period in 2022 as there have been no change to the gross balance of intangible
assets over these periods.

At any one time, we are working on multiple R&D programs. As such, we generally
do not track our R&D expenses on a specific program basis. Research and
development expense was $6.7 million for Q1 2023, compared with $9.2 million for
the same period of 2022, with the decrease primarily due to lower share-based
compensation, employee-related expenses and lab supply expenses.

General and administrative expense was $10.9 million for Q1 2023, compared to
$11.9 million for the same period in 2022, with the decrease primarily due to a
decrease in legal expenses in connection with the OmniAb spin-off.

Other Income (Expense)

(Dollars in thousands) Q1 2023 Q1 2022(a) Change
Gain (loss) from short-term investments $ 39,533 $ (12,877) $ 52,410
Interest income 1,435 134 1,301
Interest expense (240) (789) 549
Other income (expense), net 603 2,255 (1,652)
Total other income (expense), net $ 41,331 $ (11,277) $ 52,608

(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.

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The fluctuation in the gain (loss) from short-term investments is primarily
driven by the changes in the fair value of our ownership in Viking common stock
and other equity security investments, which contributed an unrealized gain of
$19.0 million in Q1 2023 as compared to an unrealized loss of $12.6 million in
Q1 2022. In addition, during Q1 2023 we sold 3.2 million shares of Viking
contributing to realized gains of $20.5 million compared to no Viking shares
sold in Q1 2022.

Interest income consists primarily of interest earned on our short-term
investments. The increase over the prior year was due to the increase in
interest rates, partially offset by the decrease in our short-term investment
balance.

Interest expense includes the 0.75% coupon cash interest expense in addition to
the non-cash accretion of discount (including the amortization of debt issuance
cost) on our 2023 Notes in both Q1 2023 and Q1 2022. The decrease in interest
expense was primarily due to the lower average debt outstanding balance in Q1
2023 as compared to Q1 2022. See Note 4, Convertible Senior Notes.

Other income (expense), net, in Q1 2023 decreased by $1.7 million as compared to
Q1 2022, primarily due to no debt extinguishment gain or loss in Q1 2023
compared to a $1.5 million gain on extinguishment of debt during Q1 2022. See
Note 4, Convertible Senior Notes.

Income Tax Benefit (Expense)

(Dollars in thousands) Q1 2023 Q1 2022(a)

Change

Income (loss) before income taxes $ 55,536 $ (9,144)

$ 64,680

Income tax benefit (11,922) (3,785)

(8,137)

Income (loss) from operations $ 43,614 $ (12,929)

$ 56,543

Effective tax rate 21.5 % (41.4) %

(a) Prior period amounts have been retrospectively adjusted to reflect the
effects of the Separation.

We compute our income tax provision by applying the estimated annual effective
tax rate to income from operations and adding the effects of any discrete income
tax items specific to the period. The effective tax rate for the three months
ended March 31, 2023 and 2022 was 21.5% and (41.4)%, respectively. The variance
from the U.S. federal statutory tax rate of 21% for the three months ended
March 31, 2023 was primarily due to Internal Revenue Code Section 162(m)
limitation on deduction for officer compensation, non-deductible incentive stock
option (ISO) related stock compensation expense, which were partially offset by
foreign derived intangible income tax benefit during the period. The variance
from the U.S. federal statutory tax rate of 21% for the three months ended
March 31, 2022 was primarily due to the tax deductions related to foreign
derived intangible income tax benefit as well as the research and development
tax credits, which were partially offset by Section 162(m) limitation during the
period.

Net Loss from Discontinued Operations

Net loss from discontinued operations for Q1 2023 and Q1 2022 was $1.7 million
and $2.5 million, respectively. See additional information in “Item 1. Condensed
Consolidated Financial Statements -Notes to Condensed Consolidated Financial
Statements-Note (2), Spin-off Of OmniAb.”

Liquidity and Capital Resources

As of March 31, 2023, our cash, cash equivalents, and short-term investments
totaled $282.7 million, which increased by $70.8 million from the end of last
year due to factors described in the Cash Flow Summary below. Our primary source
of liquidity, other than our holdings of cash, cash equivalents, and short-term
investments, has been cash flows from operations. Our ability to generate cash
from operations provides us with the financial flexibility we need to meet
operating, investing, and financing needs.

Historically, we have liquidated our short-term investments and/or issued debt
and equity securities to finance our business needs as a supplement to cash
provided by operating activities. Our short-term investments include U.S.
government debt securities, investment-grade corporate debt securities, mutual
funds and certificates of deposit. We have established guidelines relative to
diversification and maturities of our investments in order to provide both
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. Additionally, we own
certain securities which are classified as short-term investments that we
received as a result of a milestone and an upfront license payment as well as
3.6 million shares of common stock in Viking.

In May 2018, we issued an aggregate principal amount of $750.0 million of the
2023 Notes. During the three months ended March 31, 2023, no 2023 Notes were
repurchased. As of March 31, 2023, $76.9 million in principal amount of the 2023
Notes remain outstanding. We plan to use existing cash to pay off the remaining
2023 Notes on the maturity date. Since November 15, 2022, the 2023 Notes have
been convertible without regard to the conditions applicable to conversions
prior to

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such date and will continue to be until the close of business on May 11, 2023
(the second scheduled trading day preceding May 15, 2023, which is the maturity
date). It is our intent and policy to settle conversions through combination
settlement, which essentially involves payment in cash equal to the principal
portion and delivery of shares of common stock for the excess of the conversion
value over the principal portion. See Note 4, Convertible Senior Notes. In
advance of the Distribution of the shares of common stock of OmniAb to Ligand’s
shareholders on November 1, 2022, a notice of convertibility was delivered to
the holders of the 2023 Notes. No holders exercised their right to convert their
2023 Notes during the applicable period for conversion. After we completed the
Separation of the OmniAb Business, on November 15, 2022, the conversion rate was
adjusted to 4.8390 shares of common stock per $1,000 principal amount of the
2023 Notes which represents a conversion price of approximately $206.65 per
share. The maximum conversion rate of the 2023 Notes was adjusted to 6.2907 per
$1,000 principal amount of the 2023 Notes which represents a conversion price of
approximately $158.97. The conversion rate for the 2023 Notes was adjusted in
accordance with the requirements of the Indenture based on calculations
determined with reference to a valuation period of the first 10 consecutive
trading days after, and including, the ex-dividend date of the spin-off (as
determined in the Indenture). The conversion rate and maximum conversion rate
are subject to further adjustment under the circumstances and pursuant to the
terms set forth in the Indenture.

On September 30, 2022, we entered into the Sales Agreement with the Agent, under
which we may, from time to time, sell shares of our common stock having an
aggregate offering price of up to $100.0 million in “at the market” offerings
through the Agent. Sales of the shares of common stock, if any, will be made at
prevailing market prices at the time of sale, or as otherwise agreed with the
Agent. The Agent will receive a commission from the Company of up to 3.0% of the
gross proceeds of any shares of common stock sold under the Sales Agreement. The
shares will be issued pursuant to our shelf registration statement on Form S-3
(File No. 333-267678), including the sales agreement prospectus contained
therein, which automatically became effective upon filing with the SEC on
September 30, 2022.

We believe that our existing funds, cash generated from operations and existing
sources of and access to financing are adequate to fund our need for working
capital, capital expenditures, debt service requirements, continued advancement
of research and development efforts, potential stock repurchases and other
business initiatives we plan to strategically pursue, including acquisitions and
strategic investments.

As of March 31, 2023, we had $2.8 million in fair value of contingent
consideration liabilities associated with prior acquisitions to be settled in
future periods.

Cash Flow Summary
(Dollars in thousands) Q1 2023 Q1 2022

Net cash provided by (used in):

Operating activities $ 33,948 $ 52,011
Investing activities $ 10,549 $ 113,881
Financing activities $ (775) $ (170,421)

During the three months ended March 31, 2023, we generated cash from operations
primarily due to the increase in net income. We generated cash from investing
activities primarily from sale and maturity of short-term investments including
Viking shares. There was no repurchase of 2023 Notes during the three months
ended March 31, 2023.

During the three months ended March 31, 2022, we repurchased $165.8 million in
principal amount of the 2023 Notes for $163.7 million in cash, including accrued
interest of $0.4 million.

Critical Accounting Policies and Estimates

Certain of our policies require the application of management judgment in making
estimates and assumptions that affect the amounts reported in our consolidated
financial statements and the disclosures made in the accompanying notes. Those
estimates and assumptions are based on historical experience and various other
factors deemed applicable and reasonable under the circumstances. The use of
judgment in determining such estimates and assumptions is by nature, subject to
a degree of uncertainty. Accordingly, actual results could differ materially
from the estimates made. There have been no material changes in our critical
accounting policies and estimates as compared to the critical accounting
policies and estimates described in our 2022 Annual Report.

© Edgar Online, source Glimpses

Originally Appeared Here

Two churches in Abilene and one in Merkel have made financial contributions to a pastor running for a hotly contested seat on the Abilene City Council, a clear violation of federal rules prohibiting nonprofits and churches from endorsing candidates, financial disclosure records show.

Fountaingate Merkel Church, Remnant Church and Hope Chapel Foursquare Church donated a combined $800 to the campaign of Scott Beard, senior pastor at Fountaingate Fellowship church, who is running for a seat on the seven-member City Council in Saturday’s election.

The donations represent a new level of brazenness as some churches across Texas and the United States become more active in political campaigns, a prominent expert said. Rules posted on the IRS’ website say campaign contributions from churches and other nonprofits “clearly violate the prohibition against political campaign activity.”

“This is absolutely something every church should know — and probably does know — that they’re not allowed to do,” said Sam Brunson, a law professor specializing in religion and tax exemption at Loyola University Chicago.

ProPublica and The Texas Tribune reported last year that church leaders in Texas and across the country endorsed candidates from the pulpit at least 20 times in apparent violation of the Johnson Amendment, a law passed by Congress in 1954. Three experts on nonprofit law, including Brunson, reviewed the sermons and said they crossed a line.

The IRS can strip violators of their tax-exempt status, but there’s only one publicly known example of it doing so, nearly 30 years ago. Brunson said this lack of enforcement has emboldened bad actors, and he called on Congress to explicitly tell the IRS it can also fine violators.

Beard told ProPublica and the Tribune in a phone interview Thursday that the churches did not know they weren’t allowed to donate to him and that he has sent the checks back.

“Look, we’ve made mistakes,” he said. “Every campaign makes them. I’m just kind of under the microscope because of me being a pastor, honestly.”

Dewey Hall, the pastor of Fountaingate Merkel Church, which is nearly 18 miles west of Abilene and not affiliated with Beard’s church, said Beard told him on Wednesday that his church’s $200 donation was illegal, but he thought Beard would “be a good councilman, and we need to have Christians in politics nowadays.”

A representative of Remnant Church, which Beard reported gave him $400, responded to a question via Facebook Messenger to say that its donation was intended for Fountaingate Fellowship Church, not Beard’s campaign.

“They must have a mistake,” wrote the representative, who did not identify themselves when asked. “We will look into it.”

Beard told ProPublica and the Tribune on Friday that he thought Remnant Church’s check was written to his campaign, but that he would review his records and talk to the pastor of Remnant Church.

Hope Chapel Foursquare Church, which gave $200, did not respond to a voicemail and email seeking comment.

The IRS declined to confirm whether it had received any complaints or was investigating.

Though the donations made by the churches are small, local races are typically lower-dollar affairs than legislative elections or statewide offices. The donations may also violate Texas election law, which prohibits both nonprofit and for-profit corporations from making political contributions to candidates or political committees. Violations are considered third-degree felonies.

The Texas Ethics Commission is charged with investigating such violations and can assess a civil penalty of up to $5,000 or triple the amount at issue, whichever is greater, said J.R. Johnson, the commission’s executive director. Agency commissioners also have the authority to refer violations to local district attorneys for criminal prosecution, he said.

In February, the commission issued a $12,400 civil penalty against a for-profit corporation that it found had made two prohibited donations worth a combined $3,700 to the campaign of a county clerk candidate in South Texas. The company didn’t respond to the commission, which issued a default judgment. A message left for the company was not returned; the president’s voicemail inbox was full.

According to the Texas secretary of state, Fountaingate Merkel Church formed as a nonprofit corporation in 2017 and Remnant did so in 2021. Hope Chapel is part of the California-based International Church of the Foursquare Gospel, which is formed as a nonprofit corporation. (The IRS automatically considers churches to be tax-exempt even if they don’t apply for that status directly.)

The Abilene City Council race has been marked by allegations of Johnson Amendment violations for months. At least five churches have displayed campaign signs for three conservative Christian candidates who have all vowed to protect children by removing what they deemed to be obscene books from the public library and banning family-friendly drag shows from the city.

Two of the candidates are pastors: Beard and Ryan Goodwin, a mayoral candidate, who is both a real estate agent and an associate pastor at Mosaic Church. The third candidate, James Sargent, who is running for a City Council seat, is an Air Force veteran and an auto mechanic who has made his identity as a Christian central to his campaign. Sargent’s campaign motto is “biblically founded | constitutionally grounded.”

All three organized to outlaw abortion in Abilene before the Supreme Court ruling that said it was not a constitutional right and prior to Texas enacting a near-total ban on the procedure.

In interviews with ProPublica and the Tribune, Sargent said the churches he asked to display his campaign signs said yes because they were willing to display all candidates’ campaign signs if asked, which Brunson said was not a defense to a potential Johnson Amendment violation. Goodwin said some churches asked him for his campaign sign, and he’s not concerned they’ll face IRS enforcement.

“What I think we’re seeing is a fiction of the law,” Goodwin said. If the issue were to ever reach the U.S. Supreme Court, he said, “churches would have a voice and wouldn’t have to worry about anything like this.”

Beard said the Texas Ethics Commission has so far notified him of three complaints about his campaign this election.

One complaint stemmed from Beard telling his congregation at the end of a service to pick up his campaign signs in the church foyer.

Michael Bob Starr, the former commander of Dyess Air Force Base in Abilene, filed the most recent ethics complaint about Beard’s campaign, alleging that Beard had not reported the in-kind donations his church had made to his campaign, specifically his church allowing him to use its property for his campaign activities. Starr told ProPublica and the Tribune on Thursday that he will submit another complaint to the commission about Beard accepting donations from the three churches even though Beard sent the checks back.

Starr, who ran unsuccessfully in the Republican primary for Congress in 2016, can’t vote in the City Council election because he doesn’t live within city limits, and he’s upfront about his friendship with Beard’s opponent, Brian Yates. During their time in the Air Force, Starr said, he and Yates traveled to countries run by those who believed they had a mandate from God and those who tried to impose their religion on others. He said that’s why he’s speaking up.

Beard told ProPublica and Tribune on Thursday that he is cooperating with the Texas Ethics Commission regarding Starr’s first complaint.

Beard stands by his belief that the nation was founded as a Christian nation and if it doesn’t turn back to God, it will fall like the Roman Empire and other great civilizations have throughout history.

Originally Appeared Here

House Minority Leader Vincent Candelora during a budget press conference on May 2, 2023 Credit: Hugh McQuaid / CTNewsJunkie

A two-year, $51.9 billion budget package proposed Tuesday by House Republicans accelerates the implementation of income tax cuts proposed by the governor while boosting state spending by 1% to support local schools. 

The tax and spending plan, outlined during a morning press conference in the Legislative Office Building, preserves Gov. Ned Lamont’s proposed reduction of the 5% income tax rate to 4.5% and the 3% to 2%, but makes those cuts retroactive to the beginning of the year. The plan also includes a recapture provision ensuring that top earning taxpayers will not benefit from the cuts.

The proposal comes from one of two Republican minority caucuses. Senate Republicans opted not to participate and issued a statement promising to seek even deeper tax reductions. 

In many ways, the House Republicans’ plan shores up proposals made by Lamont, a fiscally moderate Democrat, in February. Since then, the legislature’s Democratic majority has produced a tax plan that scaled back some of Lamont’s income tax cuts in favor of other relief proposals while employing off-budget accounting techniques deemed “gimmicks” by the governor in an effort to increase municipal aid. 

The GOP plan is the first complete budget package from minority Republicans since 2017, when a more evenly divided legislature adopted the state spending cap, which Lamont has sought to preserve. 

On Tuesday, House Minority Leader Vincent Candelora said those 2017 policies have resulted in historic surpluses, responsible spending, and payments toward the state’s unfunded pension liabilities. 

“So five years later we are here today to renew that call because we all know that when Republicans are in the room and part of the conversation, good things happen,” Candelora said. 

Rep. Tammy Nuccio, R-Tolland, and Rep. Holly Cheeseman, R-East Lyme, the ranking Republicans on the Appropriations and Finance Committees respectively, said their plan avoided any so-called budget “gimmicks.”

The Republican proposal includes provisions that will appeal to many in the legislature.

The recommendations included $290 million to support boosts in Education Cost Sharing grants to towns, $50 million for special education costs and another $20 million to prevent the impact of previously scheduled decreases in state support for towns considered to be over-funded by the state. Nuccio said those increases necessitated spending more money than Lamont had proposed. 

“Education, especially in the elementary and secondary areas are a priority for us,” she said. “It is the pathway out of poverty, it is the pathway to better jobs, it is the pathway to success as an adult.”

Meanwhile, the plan addresses calls from many lawmakers to provide additional support for a network of nonprofits that provide much of the social services once offered by state government. The proposal recommends a 2.5% funding increase in each year of the budget where Lamont had called for level funding and the Appropriations Committee had provided a 1% increase.

In a statement, Gian Carl Casa, president of the CT Community Nonprofit Alliance, said the increase was a good start.

“We are encouraged by the House Republican proposal and we hope the support for nonprofits on both sides of the aisle will result in a bi-partisan budget that provides the 9 and 7 percent increases community nonprofits need,” he said. 

Candelora told reporters his caucus’s plan was meant to mirror that of Lamont while acknowledging priorities important to majority Democrats. 

Where many legislative Democrats had sought to establish a permanent version of a one-time $250 child tax credit, which the state offered last year, House Republicans have called for a new deduction allowing parents to reduce their taxable income by up to $2,000 per child. How much benefit families receive as a result of the reduction would depend on their overall income and number of children. 

“I think it recognizes what they have championed and we are trying to bring both the Democrats and the governor to the table with this tax package,” he said. 

The Republican proposal is likely to find opposition in its funding recommendations for higher education institutions, another point of contention in this year’s budget negotiations. Last week, representatives of the Connecticut State Colleges and Universities system argued that proposals from both Lamont and legislative Democrats would force the system to raise tuition and layoff staff. 

They would not receive additional funding under the Republican plan, which generally matches Democratic proposals in the first year. But the funding would come with strings attached in the second year, when the state Office of Policy and Management would withhold one-third of the funding if the schools had not demonstrated certain efficiencies. Candelora said that closures at underperforming campuses could potentially be on the table in some instances. 

“Have they right-sized themselves? Are the administrative costs in line? Are the student-faculty ratios still balanced?” Candelora said. “All of that needs to be looked at because our education systems can’t be running that level of deficits and we can’t just come up with $300 million.”

During the press conference, Republican legislators described the governor as receptive to their ideas and Lamont released a statement, which generally lauded Connecticut’s fiscal position. 

“To continue that momentum, we need to pass an honestly balanced budget that invests in Connecticut’s growth, avoids the gimmicks and mistakes of the past, and adheres to our spending and revenue caps,” Lamont said.

Meanwhile, Democratic legislative leaders lauded House Republicans for producing a complete budget proposal. In a statement, House Speaker Matt Ritter worried the GOP plan relied too heavily on unspecified savings to make the numbers add up. 

“Between the Appropriations and Finance packages, the Governor’s proposal and now the House Republicans’ plan, we are in a stronger position to achieve our goal: a bipartisan budget,” Ritter said.

Senate President Martin Looney questioned whether Senate Republicans would follow the lead of their House counterparts. Looney said Democratic leaders would evaluate the Republican proposals as they had in 2017. 

“Our philosophy then was ‘a good idea is a good idea’ and that remains true today. We Democrats will review the House Republican budget proposal to find areas of potential agreement and points for additional conversation,” Looney said.

Originally Appeared Here

Is $6 Million Enough to Retire at 50?

If you save up $6 million by age 50, you’ll position yourself for a long, comfortable retirement. However, you’ll still need to navigate taxes, income calculations and economic forces, all of which can create financial pressure during your golden years. Here’s how to turn your $6 million into a self-sustaining income powerhouse for your early retirement.

And if you need additional help planning for retirement, consider speaking with a financial advisor.

Can I Retire at 50 With $6 Million?

Detailed preparation is necessary to retire 14 years ahead of the average retirement age. Although a $6 million nest egg seems cushy, it’s crucial to ensure that your savings generate enough income to cover your expenses for 30 years or more. Therefore, retirement requires defining your lifestyle, expenses and investment income.

Moreover, retiring at 50 means you can’t rely on traditional retirement vehicles like IRAs or 401(k)s early on, as these accounts only become accessible at age 59 ½. Instead, you’ll have to look to alternative retirement savings instruments like real estate and brokerage accounts.

Finally, it’s best to use a retirement calculator to assess how your financial situation matches your retirement objectives. By entering your savings rate, Social Security benefit, and the state in which you live, you can determine if retiring at 50 is feasible.

How to Determine How Much You Need to Retire 

Is $6 Million Enough to Retire at 50?

No matter when you retire, you’ll face the same challenges as most retirees during their golden years: paying taxes, living expenses and generating income. The following steps can help you estimate these factors to develop an accurate retirement plan.

If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Calculate Your Costs in Retirement

The cornerstone of realistic retirement planning is understanding your expenses because your cost of living sets the stage for how much income you’ll need to generate.

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First, your spending behavior impacts your monthly expenses. For example, a huge mortgage payment or numerous trips overseas can strain your budget. Additionally, the state you live in impacts your standard of living.

Similarly, taxes modify your retirement expenses, especially when you have multiple income streams. For instance, living in a state with minimal income tax benefits, such as California or Rhode Island, means state taxes are a financial burden, unlike a tax-friendly state like Nevada. Likewise, it’s paramount to consider how assets like real estate or cryptocurrency impact your tax situation. Furthermore, property and sales taxes vary by location and influence your monthly bills.

Make Sure to Include Health Care Costs 

Health care expenses generally become more expensive as you age. As a result, it’s wise to include them while planning out your retirement. For example, data from HealthView Services Financial suggests that a 65-year-old couple in good health spends approximately $683,306 on health care during retirement. Therefore, retiring at 50 means budgeting for about $683,000 plus the 15 years before you become eligible for Medicare. You can estimate this amount by designating 15% of your annual income to medical expenses. That said, chronic health conditions mean you’ll spend more.

Lastly, retiring young can mean having children who haven’t left the nest yet. As a result, it’s essential to factor in dependent costs. Estimates vary but the average annual cost of caring for a child is understood to be approximately $17,000. So, it’s crucial to remember this expense when laying out your budget.

Pinpoint Income Streams

The next piece of your retirement plan is identifying your sources of income. Specifically, you must invest $6 million in assets that provide a high enough return to pay for your expenses. Otherwise, you’ll withdraw the principal to afford retirement, causing your savings to dwindle every month and eventually run out.

For instance, say your $6 million nest egg generates a 4% annualized return. So, your annual income is $240,000. If you’re invested in low-risk assets, you can count on that income to remain stable. Conversely, you can increase your returns through stocks but will incur more risk and possibly lose money. Therefore, it’s best to diversify your assets and split your money among numerous assets because doing so generally mitigates risk and increases income.

In addition, Social Security is part of the conversation about income, even for early retirees. Specifically, you can start receiving Social Security at age 62 but will maximize your benefit if you wait until 70. So, although you’ll wait at least 12 years before collecting this benefit, it can supplement your budget in later years.

Crunch the Numbers

Perhaps you and your spouse plan to retire at 50 with a 14-year-old child in the house. Your life expectancies are 90, so you plan for a 40-year retirement. In addition, you’ll retire in Nevada, so you can avoid state income taxes. Lastly, you’ll be living in a house you own but haven’t paid off yet. Here are your annual expenses:

• $30,000 for housing

• $36,000 for healthcare

• $9,000 for utilities and property taxes

• $7,000 for food

• $10,000 for entertainment, phone, and internet

• $7,500 for auto upkeep and insurance

• $17,000 for raising your child

So, your annual expenses are $116,600 total, or about $9,700 each month.

Next, let’s look at your assets and income streams. You have $2 million in a brokerage account, a $1.5 million annuity, $500,000 worth of real estate, $1 million in certificates of deposit (CDs), and $1 million spread across several savings accounts. Here’s a specific breakdown of your income:

• Brokerage account return is 4.5% per year for a total of $90,000 or $7,500 per month. Your annuity will provide another $7,500 per month, but you won’t start receiving payments until age 59 ½, so that income won’t be available for the first 9 ½ years of retirement.

• Real estate creates $5,000 of monthly rental income.

• CD has a 4% return, giving you another $40,000 per year or $3,333 per month.

• Savings accounts have a 3% return, generating $30,000 per year or $2,500 per month.

So, your total income (not counting the annuity) is $18,333 per month or $219,996 per year. But before you count your cash, taxes take a chunk out of your income.

Filing jointly with your spouse puts you in the 22% federal income tax bracket. This rate applies to your rental income, CDs, and savings accounts. $129,996 of your income is from these sources, so you’ll pay $19,833 in taxes, leaving you with about $110,000 per year or $9,166 monthly.

Account for Capital Gains

Plus, your brokerage account incurs long-term capital gains taxes of 15%. Therefore, your brokerage account income drops to $76,500 annually or $6,375 per month. Combined with your regular income, your total retirement income is $186,500 annually or $15,541 monthly. Remember, this is a simplified example because your brokerage account may produce short-term gains at some point and incur standard income taxes on part of your returns.

In addition, you’ll pay off your mortgage by age 54, and your child will move out the same year, decreasing your expenses by almost $50,000 per year. Furthermore, your income will jump by $7,500 more per month before taxes once you start receiving distributions from your annuity at age 59 ½. Therefore, not only will you be able to afford your annual expenses of $116,600 once you retire, but your budget will become even roomier before you hit 60.

Plan for Inflation 

However, inflation annually raises your cost of living, even without supply chain issues or global conflicts – albeit at a lower rate of 3%. As a result, $116,600 of annual expenses will grow to $156,701 in 10 years. So, it’s best to reinvest the extra income your assets generate to store up for the years to come.

Fortunately, you’ll receive another income stream to help offset inflation when you reach 62: Social Security. According to the Social Security Administration’s 2022 Statistical Supplement, the average 62-year-old’s monthly check is about $2,360. Therefore, a working couple would collect $4,730 ($56,760 annually). Remember, you can delay taking it for a higher distribution. Specifically, you’ll boost your check by 8% for every year you wait.

How to Boost Your Retirement Income

While $6 million can provide over $200,000 per year when you retire at 50, financial challenges can still arise. For example, you or your spouse might develop a medical condition, or one of your investments could tank. You can prepare for rough waters with these tactics:

Delay Social Security Benefits

Again, delaying Social Security eventually increases your income by 8% per year, maxing out at a 32% boost at age 70. So, you can take it whenever you need to supplement your budget, but you won’t benefit by waiting after 70.

Boost Your Interest Rate

If your interest rates on your savings accounts and CDs are lackluster, you’ll have less income from those assets. Because inflation and economic dynamics have raised interest rates, you can shop around to find better returns. Specifically, banks offer rates upwards of 4% on high-yield savings accounts and CDs. Securing a better rate helps you increase your income without sinking money into risky stocks.

Understand Your Tax Ramifications

As seen in the example above, various assets incur different taxes. For instance, your federal income tax bracket of 22% will only increase with more regular income. So, you could transfer cash from your CDs into your brokerage count, which has a 15% capital gains tax rate due to your income level. Doing so will be especially helpful once your annuity kicks in and raises your income by several thousand dollars per month. In other words, knowing how you’re taxed will help you make optimal financial decisions.

How to Make Your Savings Go Further in Retirement

Is $6 Million Enough to Retire at 50?

Aside from boosting your income, you can also get the most out of each dollar you make by doing the following:

Use a Budget

Budgeting is the best way to understand if you’re spending more than you make and how to cut back. Plus, the plethora of budgeting tools and apps has made budgeting easier than ever.

Lower Investment Costs

Be mindful of management fees that can eat into your investment income. Because all assets and funds aren’t equal, shopping around can lower your fees and optimize investment performance. It can pay to research and choose investments with low management costs, such as passively managed funds, to save on fees and maximize your returns.

Protect Your Health

Factoring in health care costs is essential when planning for retirement. Likewise, lowering those expenses can help your nest egg go the distance in retirement. You can do so by being proactive with your health. Your dietary and physical habits can keep you in good shape as you age. Plus, annual wellness visits can head off health complications.

Pay Off Debt

Debt can be deadly for an otherwise healthy budget if it gets out of control. For example, carrying balances month to month on your credit card can incur interest charges of 20% or more. This could be four or five times higher than your investment return, so paying it off is the best investment you can make. Instead of putting money in stocks or bonds, your best annual percentage yield (APY) lies in knocking down your debt. You can use the snowball method, paying off smaller balances first, or the avalanche method, prioritizing debts with the highest interest rates to save on interest.

Bottom Line

A $6 million nest egg can provide a healthy income stream for early retirees. Combining income from diverse assets, such as a brokerage account, CD ladders and real estate can help you generate annual distributions well above your budgetary needs. This is good news, since inflation will raise your cost of living as you age. Plus, you can combat financial challenges with strategies to raise your income and make your money last, such as changing your tax situation and finding lower asset management fees.

Tips for Retiring at 50 with $6 Million

• Investing $6 million can be a challenge. Trying to decide between stocks, bonds, real estate investment trusts (REITs), and a host of other assets can leave you wondering how to make the most of your money. Fortunately, a financial advisor can help you create a solid retirement plan with wise investments. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• If you don’t have $6 million, don’t worry. The size of your nest egg won’t prevent you from investing like a millionaire. SmartAsset’s investment calculator can also show you how your money can grow over time.

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The post Is $6 Million Enough to Retire at 50? appeared first on SmartAsset Blog.

Originally Appeared Here

(Bloomberg) — The US asked a judge to dismiss a lawsuit by hedge fund manager Ken Griffin against the Internal Revenue Service after the billionaire accused the agency of failing to protect his confidential financial information.

Most Read from Bloomberg

The Citadel founder seeks financial damages over a data breach that led to ProPublica’s publication of private data about some of the wealthiest US taxpayers. Griffin accused the IRS of failing to establish appropriate safeguards, saying on “information and belief” that unidentified IRS workers leaked his tax returns and return information to ProPublica between 2019 and March 2022.

In a filing Tuesday in Miami federal court, US lawyers said Griffin filed a “textbook shotgun pleading” that speculates IRS workers leaked his information even though ProPublica said it didn’t know the source of the tax information it published about Griffin and other wealthy Americans.

“Griffin speculates that some unknown individual(s) in an organization of nearly 80,000 employees, using unknown methods and exploiting unspecified security weaknesses, wrongfully obtained his return information,” US lawyers wrote. Griffin infers that someone at the IRS “gave that information to ProPublica, while omitting or discounting all other possibilities or explanations.”

While it’s “certainly understandable” that Griffin would want to know how his return information became public, the section of the Internal Revenue Code dealing with privacy bars release of “the existence or details of any investigations” related to the case, the US said.

Lawyers for Griffin, 54, didn’t immediately respond Wednesday to a request for comment.

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‘Needle in Haystack’

Finding a culprit among the vast IRS workforce requires the US to “search for a needle in a haystack,” the US wrote. “But the needle may not even be in the haystack,” the government said. “ProPublica does not know if the source of the information was the IRS and acknowledges that the source may be a hostile state actor.”

Both Treasury Secretary Janet Yellen and former IRS Commissioner Charles Rettig said they referred publication of Griffin’s return information to the US Treasury Inspector General for Tax Administration.

If events reveal “beyond speculation and conjecture” that his return information violated the Internal Revenue Code, “then Griffin can file suit,” the government said.

In a statement at the time he filed the lawsuit, Griffin said: “IRS employees deliberately stole the confidential tax returns of several hundred successful American business leaders.”

He said it’s “unacceptable that government officials have failed to thoroughly investigate this unlawful theft of confidential and personal information. Americans expect our government to uphold the laws of our nation when it comes to our private and personal information — whether it be tax returns or health care records.”

Read More: Thiel Gets Tax Edge With $5 Billion in Roth IRA, ProPublica Says

Republicans, who control the House of Representatives, have pledged to use their power to investigate the breach and the IRS response.

The ProPublica report said billionaires including Jeff Bezos and Elon Musk had in some years paid minimal or no income tax even as their fortunes soared. It outlined the tax strategies available to the top 0.1%.

Griffin reported an average annual income of almost $1.7 billion between 2013 and 2018 and paid an average federal tax rate of 29.2% during that time, ProPublica reported.

Griffin has a net worth of $34.8 billion, according to the Bloomberg Billionaires Index.

Michael Bloomberg, majority owner of Bloomberg News parent Bloomberg LP, was also among those included in the reporting.

In its filing, the US said that Griffin failed to allege actual damages, which is necessary under the Privacy Act.

The case is Griffin v. Internal Revenue Service, 22-cv-24023, US District Court, Southern District of Florida.

(Updates with details of US filing)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

Originally Appeared Here

As Americans turn the page on another tax season, the Internal Revenue Service may finally be turning the corner on a mountainous backlog of tax returns, delayed refunds and poor customer service that gave people even more reason to groan about the federal agency they love to hate.

Over the past year, the IRS has rebuilt its ranks and has worked through a heap of unprocessed returns that are now down to roughly 2 million from over 12 million, the U.S. Treasury Deported reported this week. Getting help from an agent is easier, too. Taxpayers now face an average wait time of four minutes to get an IRS employee on the phone, down from a soul-sapping 28 minutes last year.

“Tax filing season this year has gone much more smoothly than 2020 and 2021,” Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center, told CBS MoneyWatch. “They did get extra money and were able to hire more people to answer the phone. They dug through a pile of paper returns, which was an unimaginable mess. So even with a small amount of money, things are better.”

Click here to view related media.

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Tax pros concur. Though smaller refunds may be the cause of frustration for some this year, experts say the filing process itself has been free of disaster.

“We’re returning to the way taxes really worked, mostly, before COVID,” said Eric Bronnenkant, head of tax at Betterment.

What went right?

The IRS was able to hire 5,000 customer service agents and install new online systems thanks to additional funding last year as part of the Inflation Reduction Act. Some pundits have touted these results, pointing to the IRS’ improvement as an example of government performing “when you let it work,” as Steven Rattner, a former member of the Obama administration and now CEO of investment firm Willett Advisors said this week on Twitter.

With new Inflation Reduction Act funding, the IRS was able to provide 87% of customer calls this tax season with live support, up from 15% last year. The average time on hold decreased from 27 minutes to just four.

Gov’t works when you let it work. pic.twitter.com/o7Qx6K5DQm

— Steven Rattner (@SteveRattner) April 18, 2023

2022’s budget increase was just a small fraction of the $80 billion injection the IRS expects to receive over the next decade. In addition to restoring its depleted ranks, the agency also plans to update its telephone systems to allow callers to leave messages and receive callbacks — a feature that banks, utilities and airlines have been using for years.

“For years and years you couldn’t leave a message, but now you can,” Gleckman said. He also noted that, while there’s a lot of partisan argument today about the exact portion of phone calls that the IRS is answering — one camp puts it at 87%, while another puts it in the high seventies — “there’s not much debate that they’re better.”

Replacing manual data entry with scanners

Critically, the IRS has been processing paper returns more quickly by scanning them rather than, as was its practice for decades, having staff manually type in people’s information. It’s on track to scan “millions” of returns this year, the agency said, which means faster refunds.

Congress also helped out this year by refraining from its recent habit of changing the tax law just weeks before, or even during, tax season.

What the IRS is actually looking for that could trigger a tax audit

“Late legislation, a relatively new phenomenon 10 years ago, has taken on a life of its own. But this year we didn’t have any of that,” said Mark Steber, chief tax information officer at Jackson Hewitt. “It’s been a very smooth tax season. No glitches, no IRS shutdowns, no computer problems for most people.”

The IRS’ improved performance is only an initial step in a multiyear modernization plan the agency released earlier this month. However, even with the most modern technology and improved staffing, there’s a limit to how good the tax-filing experience can be, Gleckman noted.

“They’re not going to make the tax code any simpler. The IRS can’t do that — that’s Congress’ problem,” he said.

The National Taxpayer Advocate recently ranked the complexity of the tax code No. 2 on its list of the 10 most serious problems at the IRS, noting that the average individual spends 13 hours — one and a half working days — filing a single annual return, while the average small business spends upward of 80 hours and nearly $3,000 on the effort.

“One of the things I fear is people are still going to be mad,” Gleckman said. “They’ll say [of taxes], it’s too complicated! And it’s not the IRS’ problem — that’s Congress.”

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Gov. Ned Lamont

Gov. Ned Lamont had harsh words on Thursday for a two-year revenue plan from the legislature’s tax-writing committee which his administration said moved roughly $400 million out from under the state spending cap. 

“If you don’t like the spending caps, vote ‘em out but don’t play games,” Lamont said during a late morning press conference in his state Capitol office. 

The governor’s comments follow two days of legislative action to advance a counter proposal to the $50.5 billion budget plan he recommended back in February. On Tuesday, the Appropriations Committee moved a roughly $51 billion spending plan to be paid for by a revenue package advanced Wednesday by the Finance, Revenue and Bonding Committee.

In broad strokes, the two plans largely reflect the priorities pushed by the governor’s office, though the General Assembly’s response spends more on legislative priorities while remaining under a statutory spending cap and the finance package slightly scales back a broad-based income tax cut proposed by the governor in favor of other tax relief proposals. 

Lamont and his budget chief, Jeffrey Beckham, said the two legislative plans were not aligned. The appropriations plan outspent the revenue provided by the tax plan by around $240 million over two years, Beckham said.

The administration said many of the details would be ironed out through negotiations with lawmakers in the coming weeks and the exact amount of money the state was working with would be uncertain until consensus revenue estimates are released at the start of May. 

However, the governor drew a hard line on adherence to a set of fiscal guard rails, which limit state spending and require excess revenue to pay down Connecticut’s long-neglected unfunded pension liabilities. Lamont, a fiscally conservative Democrat, has advocated maintaining those guardrails and the legislature voted to continue them for at least five years earlier this session.

Beckham said the finance proposal called for diverting about a total of about $400 million, largely from revenue that exceeds forecasted amounts, so it would not be counted against the state spending cap. The committee has proposed sending most of that money to aid municipalities, Beckham said. 

Lamont said the tactics worried him and pledged to avoid them. 

“When you start moving some muni-aid off budget, when you start siphoning off revenues, all of the sudden your budget is out of whack and you violated your own spending caps,” Lamont said. 

“My pledge to you is that we’re going to get an honestly balanced budget without gimmicks, with significant tax cuts for the middle class and honoring the commitments to folks most in need,” he said.

The governor’s remarks echoed those of Rep. Holly Cheeseman, an East Lyme Republican, who objected to the finance proposals budgeting techniques during Wednesday’s meeting. 

“One may not argue with the intended destination of this money, I have the issue of how it is accomplished and that we are basically bypassing that statutory requirement that we set in place for another five years,” Cheeseman said. “In the belief of my caucus, and I may get some sympathy in the Executive Branch, that this is not the way to go about directing funds where they may very well be needed.”

However, the spending cap has left many legislative Democrats feeling that their proposed budget leaves too many needs unanswered, especially given a projected $3 billion state surplus.

Earlier this week, many members of the Appropriations Committee lamented that their budget plan provided only a 1% increase in funding for a network of nonprofits that provide much of the social services once offered by state government.

Meanwhile, Democratic legislative leaders released a joint statement Wednesday, calling for additional investments in a variety of areas.

“As we move forward, we will be looking at finding ways to bolster funding in a number of critical areas – including nonprofits, public schools, higher education, healthcare and childcare workers, paraprofessionals and group homes – while still protecting the fiscal health of the state and providing residents with historic tax relief,” Senate President Martin Looney and House Speaker Matt Ritter said. 

Lamont suggested he may be open to providing additional funding for nonprofits, if the coming revenue estimates provided the state additional fiscal latitude. 

“If we have a little bit of flexibility, that’d be a priority for me to do a little more help for not-for-profits,” he said. 

Originally Appeared Here

Since 2020, I have repeatedly recommended a legislative change under which Congress would make foreign information return penalties and assessable penalties subject to deficiency procedures for the benefit of both the IRS and taxpayers. This change would provide taxpayers with a more efficient, less costly, and more equitable regime governing the initial imposition of these penalties, as well as the mechanisms by which they can be challenged by taxpayers.

This blog specifically addresses information reporting penalties in Chapter 61, Subchapter A, Part III, Subpart A (hereafter referred to as Chapter 61 for brevity’s sake).

Taxpayers who receive foreign gifts or control certain foreign corporations and partnerships and fail to file required information returns are subject to penalties under IRC §§ 6038 and 6039 (which are in Chapter 61 of the IRC). IRC § 6038 is one of several code sections that require similar filings and provide for similar penalties for taxpayers with various types of foreign corporations, partnerships, assets, and accounts. These Chapter 61 penalties are peculiar in that each section specifically imposes the penalties but provides no authority to assess and collect the penalties. I raised this concern in my 2020 Annual Report to Congress and recommended that the IRS take steps to protect the government fisc and also taxpayer rights by maximizing taxpayers’ access to administrative and judicial review.

Farhy v. Commissioner

The ability of the IRS to assess a Chapter 61 penalty was recently challenged before the U.S. Tax Court in Farhy v. Commissioner and, in a precedential decision, the court held that the IRS lacks statutory authority to assess and collect penalties under IRC § 6038(b).

In Farhy, the taxpayer had a reporting requirement under IRC § 6038(a) to report his ownership interests in two foreign corporations but failed to file required Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, for multiple tax years. The IRS assessed an initial penalty under IRC § 6038(b)(1) for each year and continuation penalties under IRC § 6038(b)(2). The IRS sought to collect the penalties via levy, and the taxpayer timely filed a petition with the Tax Court challenging the IRS’s authority to assess and attempt to collect via levy.

The taxpayer put forth a simple argument: that, unlike many other penalty provisions in the Internal Revenue Code, IRC § 6038 has no language authorizing assessment of the penalty it imposes. Essentially, the taxpayer argued, because this code section falls outside of the sections in Subchapter B of Chapter 68 of Subtitle F, entitled “Assessable Penalties,” and because it has no language linking its penalty provision to any other authorization to assess and collect penalties, the IRS does not have authority to assess and collect this penalty.

The IRS raised several arguments in favor of its contrary position. The primary contention was that the term “assessable penalties” refers to any penalty in the IRC not subject to deficiency procedures and that no code section limits the term “assessable penalties” to those found within Subchapter B of Chapter 68. Otherwise put, because the penalties were not subject to deficiency procedures, then, by definition, they had to be assessable, an argument that, if sustained, would have been decisive. The IRS also contended that the definition of “taxes,” which includes “assessable penalties,” in IRC § 6201 is broad enough to encompass IRC § 6038(b) penalties. The Tax Court, however, was unimpressed by this analysis.

Rather, the court found the taxpayer’s arguments persuasive, holding that the IRS did not have authority to assess and collect penalties under IRC § 6038. Among other reasons, the court noted that other assessable penalties outside of Subchapter B of Chapter 68 typically contain language authorizing their penalties or cross-referencing the authorizing statute, or else they are explicitly covered by the list of assessable penalties in Chapter 68.

Assessments and Collections

In my opinion, given that Chapter 61 penalties are not currently subject to deficiency proceedings, and given that, under the court’s ruling, the IRS lacks the statutory authority to treat them as assessable penalties, the IRS cannot itself directly assess and collect them. Instead, collection activities would need to be undertaken by the Department of Justice, but that would add to the burden on taxpayers, tax administration, the government, and the court system. This holding impacts a significant number of IRC § 6038 cases open within the IRS.

To illustrate the potential scope of this disruption, one need only glance at data relating to the IRC § 6038 penalties, which are most often imposed systemically at the time of filing a late information return. In these circumstances, collection efforts generally begin before an employee ever reviews the validity of the assessment. Between 2014 and 2022, there were an average of 9,800 IRC § 6038 penalties systemically assessed per year. Of those penalties, the mean abatement rate was 69 percent per year, with a minimum of 58 percent (as of February 2023) and a maximum of 88 percent. These systemic assessments totaled $354 million per year, of which $281 million was abated – an average abatement rate of 80 percent per year by dollars. We note that because of broad penalty relief provided by the IRS with respect to late filing penalties for 2019 and 2020 returns in Notice 2022-36, we cannot differentiate which abatements were due to the broad penalty relief for those tax years, but we believe that the initiative contributed to a higher abatement rate for those years and consequently a higher average abatement rate for the period of 2014-2022. As I discussed in my 2020 Annual Report to Congress, the IRS’s determination over a decade ago to systemically assess foreign information  penalties has caused administrative burdens and unnecessary expenses for taxpayers and the government.

In comparison, penalties assessed manually by an IRS employee during the course of an examination occurred much less often than systemic assessments, and most of these manually assessed penalties affect individuals, not businesses. The number of manual assessments averaged only 685 returns per year from 2014-2022, with an average abatement rate of 23 percent per year. In terms of dollars, the average aggregate manual penalty assessment per year was $36 million, of which 19 percent was abated.

As I explained in my 2020 Annual Report to Congress, this was a real concern for taxpayer rights and tax administration even before the Tax Court’s Farhy ruling. As shown by the data presented above, because the IRS views IRC § 6038(b) penalties as assessable, most of those penalties are asserted systemically without any kind of upfront human review. This systemic approach resulted in far more penalties being assessed than are ultimately sustained.

This approach, which causes headaches to all concerned, has now been ruled legally unsupportable, wastes everyone’s resources, and subjects taxpayers to a range of hardships. Thus, taxpayers, and now particularly the government, are between a rock and a hard place. This situation cries out for a congressional fix.

The best means of resolving this dilemma, as I proposed in my 2020 Annual Report to Congress, is to treat Chapter 61 penalties in the same way as tax deficiencies:

To protect taxpayer rights and reduce taxpayer burden, we strongly recommend that Congress amend the IRC to allow deficiency procedures for all Chapter 61 penalties, including the IRC §§ 6038 and 6038A penalties. As one possibility, these IRC sections could be amended to add a cross-reference directing that the penalties be asserted in the same way as other IRC sections subject to deficiency procedures. This approach would allow taxpayers to contest these penalties before Tax Court judges familiar with tax law in a prepayment judicial forum.

Benefits to Taxpayers and Tax Administration

Making Chapter 61 subject to deficiency procedures would allow taxpayers the ability for an administrative and judicial review before assessment. This puts judicial review of penalties in the hands of the Tax Court, where it belongs. Due to the tax expertise of its judges, the Tax Court is often better equipped to consider tax controversies than other courts.

Under the IRS’s approach to IRC § 6038, taxpayers assessed a $10,000 penalty must pay the penalty, file a claim for refund, and, if necessary, file a refund suit in the appropriate U.S. district court or the U.S. Court of Federal Claims. As a practical matter, taxpayers make a business decision weighing the cost of representation and legal action in the district court or the U.S. Court of Federal Claims against the cost of conceding and paying the penalty. Such a structure is neither efficient nor equitable for taxpayers and violates their fundamental right to pay no more than the correct amount of tax. This approach is not good for tax administration.

The Tax Court is more accessible, especially to less knowledgeable and unrepresented taxpayers, than other courts because it uses informal procedures, particularly in disputes that do not exceed $50,000 (IRC § 7463). Another benefit is that taxpayers may be offered the option of receiving free legal assistance from a Low Income Taxpayer Clinic or other pro bono representatives. Usually, the Tax Court is by far the least expensive and easiest-to-navigate judicial forum for taxpayers, including low-income taxpayers.

Conclusion

Since 2020, I have repeatedly recommended this legislative change to Congress. Such a step would protect the IRS from the future ramifications of the Farhy decision. More importantly, it would provide taxpayers with a more efficient and equitable regime governing the initial imposition of Chapter 61 penalties and the mechanisms by which they can be challenged by taxpayers while also protecting their rights.

Originally Appeared Here

As many Americans who waited until the last minute will likely rediscover this weekend, filing federal taxes is a complicated and frustrating task. No matter how much care is taken, mistakes happen—and fairly often.

During the 2021 tax filing season, for example, the IRS “suspended and reviewed 35 million returns with errors,” according to a new report from the Government Accountability Office (GAO), which annually reviews the IRS’ performance and makes recommendations for improvement.

Those errors can be the result of taxpayers failing to include a necessary form or complete information, though they can also be the results of mistakes by IRS employees, the GAO reported. In either case, they cause long delays in getting refunds to taxpayers and are a costly strain on the IRS itself—during the 2021 filing year, IRS employees worked 10 hours of overtime per week for several months to deal with a backlog of incorrect tax returns.

There was a significant increase in the number of errors found by the IRS in 2021, which the GAO attributed to taxpayers being confused about how to report aid received during the COVID-19 pandemic, but more than 15 million returns have been flagged for errors in other recent years.

This is a persistent issue for the IRS, but the GAO’s audit found that the tax agency “does not have a process to identify and analyze their underlying causes. This limits IRS’s ability to reduce instances of recurring errors and anticipate potential future problems.”

Until the IRS has such a system in place, the GAO warned, “taxpayers will continue to experience delayed returns and refunds,” and the “IRS risks creating a perpetual backlog of work that will be difficult to address before the start of the next filing season.”

The IRS’ response: nah.

In a written response to the GAO, IRS Deputy Commissioner for Services and Enforcement Douglas O’Donnell rejected the recommendation to study frequently occurring tax errors because the agency already has a “robust” system in place to track and identify errors. O’Donnell added that further study of this problem would be redundant.

In its own response, the GAO disputed the notion that the IRS’ current system is robust—and, based on the numbers, it’s also clearly not very effective. The IRS provided no evidence, the GAO concluded, that its existing processes “have contributed to lower error rates for certain errors.”

If only the IRS had just gotten $80 billion in new funding that could be used to better understand why so many taxpayers struggle to file without making mistakes.

Instead, much of that new funding will beef up the agency’s auditing powers. In other words: Rather than helping taxpayers make fewer mistakes when they file, the IRS will have an opportunity to turn innocuous mistakes into much bigger headaches.

“Congress should override the IRS’ disagreement with this key recommendation, and require a multi-year study on the main causes for taxpayer errors while filing,” said Andrew Lautz, director of federal policy for the National Taxpayers Union, a free market group that advocates for lower, fairer taxes. “More importantly, Congress should carefully consider the results of such a study, and then even more carefully consider expanding the agency’s authority to make corrections for certain common errors on a case-by-case basis—so long as taxpayers have reasonable courses to appeal or protest an IRS correction made on their behalf.”

While it’s at it, Congress should also think about reducing the overall complexity of the tax code so that Americans can file their taxes without needing the costly assistance of accountants or services like H&R Block.

Whether any further action is taken or not, the IRS’ refusal to even consider further reviews of common mistakes provides a tidy illustration of a key difference between government and private sector business. If a business’s customers are confused by a poorly designed website or an overly complicated order form, they might spend their money elsewhere. A business has a clear incentive to reduce its clients’ mistakes, which might be costly and time-consuming to fix even if they don’t drive customers away.

The IRS has none of those incentives, and its customer service will always lag because, well, none of us are really customers.

Originally Appeared Here