Friday, August 10, 2007

IRS and the Rule of Law

What would you do if your "income" increased by half a million dollars this year?

Are you behind in your house payments? You can get caught up! Need a new water heater? Use your "income" to buy a new one! Is the old jalopy leaking oil onto the floor of your garage? With your increased "income" you can buy a new car and hire some teenager to degrease the floor!

Think of all the things you could do with $500,000 in additional "income."

Of course, with all that "income," you'd find yourself in the highest tax bracket for individual income, and you would face a tax rate of about 35 percent, meaning that nearly $200,000 of your "income" would be taxed to kill women and children in Iraq and build bridges to nowhere.

But you would still have lots of "income" to spend.

Now consider the case of Matt Murphy, the 21-year-old Mets fan who caught Barry Bonds' record-breaking home run ball in San Francisco, a ball reportedly worth $600,000. John Barrie, a tax lawyer with Bryan Cave LLP in New York who grew up watching the Giants play at Candlestick Park, says Murphy now owes nearly a quarter of a million dollars in "income" taxes.

He hasn't pre-paid his mortgage, gotten his teeth whitened, enjoyed that "new car smell," or anything else that one might do with lots of "income," but he must now fork over a large amount of dough to the IRS as "income taxes."

At least that's what some tax attorney's are saying. The IRS isn't talking.

The tax is due based on the "fair market value" of the home run ball; what the ball could possibly bring on Ebay, if Murphy decided he wanted to sell it. He's currently leaning toward keeping it for sentimental reasons, but even if he doesn't sell it, even if he doesn't make any "income" as a result of the sale, he still owes "income taxes" on the "fair market value" of the ball.

Suppose the IRS gave you a present and announced it was worth a half a million dollars (based on the consensus of IRS agents at the IRS "My Space" page), even though you don't think it's worth that much. Quel dommage! You now owe taxes on the "fair market value" of the "present," even though you haven't been able to spend a penny.

This same situation was encountered back in 1998 when St. Louis Cardinals slugger Mark McGwire was on the verge of smashing Roger Maris's single-season record of 61 homers. There were some cute public relations ploys by then-IRS commissioner Charles Rossotti, but nobody really learned definitively what the law was, and the IRS doesn't want to play the ogre by telling anyone the truth.

So this is what America is like in the 21st century. In 1776 the British were attempting to tax the colonists at rates that never exceeded 5%. Today the IRS wants 35%. Maybe. Maybe more. Maybe less. We don't know. We giggle nervously. We can be locked up with a psychopath if we don't pay, but we don't know what the law requires us to pay. We are no longer a government of laws, but a government of men, of faceless bureaucrats who won't tell us what they demand.

But we think we are free, and we feel in our hearts that this is "the land of the free and the home of the brave," and our feelings are what really matters.

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