Accounting for a Detoured Economist

There is so much truth in this joke I couldn’t stop laughing for quite a while

Q: Why did the auditor cross the road?
A: Because he looked in the file and that’s what they did last year.

I have stepped away from taxes and back into the worlkd of audit. On my first job I actually caught someone lying to me and creating documents, that should have been created and signed months ago. If you have ever worked as an auditor then you know the feeling of being lied to but not being able to prove it. Well last week I got that feeling and was able to create an air-tight case using time stamps and other evidence to prove my suspicion, I felt like an audit stud…if such a thing exists. I wish I could write more about the particulars…but as we all know the good war stories can’t be blogged about. DAMN!

In other news I ran across a post in LiveJournal by a guy named Matt T who was attempting to describe the specioes known as auditors. He wrote a pretty good description including gems like

Should the auditor begin to behave aggressively towards you, asking what proportion of your contingent liabilities you consider probable, the best advice is to shout ‘Enron!’ and run very fast in the opposite direction. This will make the auditor in question shrivel up and die.

and…

An audit team typically changes its hunting ground every couple of weeks. Hunting grounds normally take the form of offices, but may also include factories, shops, schools and hyperspace. Any place of work is a potential source of nourishment to the paper-hungry auditor. All audit teams have a leader, who runs ahead of the pack in search of an audit trail. Should he find something suspicious, for example a file that has not been organised in alphabetical order, he will begin baying to attract the attention of the rest of the pack. Once the pack have a sniff of the scent, they are released upon the unsuspecting company, and tear around the offices of the internal accounts department, hunting out similar transgressions. When they find another offending item, they will let out a charecteristic whoop of delight, and fall upon the filing cabinet, tearing the paperwork to shreds with their bare teeth in their eagerness to devour it.

and…

Audit packs have their own dens, known as home offices. The pack visits the office on average once a month, in order to refuel on stationery. Auditors can survive several days and nights without water, sex or sunlight but are liable to fall seriously ill if deprived of paper clips and yellow post-its.

I encourage you to read the whole post here.

Wise Bread has recently posted 20 amazing, outrageous and just plain weird tax deductions that people have attempted to write-off on their taxes (sometimes successfully too). Number 10 reminded me of my recent post on tax-free-interest in which strange places are considered as tax free municipalities. Apparently there are equally confusing laws when it comes to writing off convention visits…England…NO…Honduras…YES!

10 - A Trip to Bermuda

I love this one. I have to find a way to do it. ANY business convention held in Bermuda can be written off without even showing there was a special reason to hold your business meeting in paradise. And it’s not the only place. Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Canada, Mexico and all U.S. possessions also fall into this special tax treatment. But outside the U.S. is a different story. I guess I can’t hold a board meeting in England so I can go see my folks then

Canada made the list…hmmm…hey Krupo and Neil this is just further proof of Canada’s status as a US enclave possession. The only question now is whether the whole territory should be the 51st state, or if we should admit the 10 provinces and 3 territories separately. We’ll leave the trouble-makers in Quebec for the French to conquer.

hehehe…I said the French would conquer another government….funny! You all have heard of the Google-bomb of ‘french military victories’ haven’t you? Unfortunately Google finally eliminated the result…you can find a copy of it here.

Does Raising The Marginal Tax Rate on the Rich Change the Behavior of the Rich? The answer isn’t as obvious as you may think…especially in economic circles. There is an interesting debate going on in the economics blogosphere in regards to the optimal taxation rate.

Robert Frank, from the New York Times recently wrote…

Trickle-down theorists are quick to object that higher taxes would cause top earners to work less and take fewer risks, thereby stifling economic growth. In their familiar rhetorical flourish, they insist that a more progressive tax system would kill the geese that lay the golden eggs. On close examination, however, this claim is supported neither by economic theory nor by empirical evidence.

Dr. Mankiw, who wrote two of my textbooks while in college and still looks younger then I do, responded…

[Robert] is perfectly free to believe whatever he likes and to advocate increasing the top marginal tax rate. But to suggest that there is neither theory nor evidence to support the beneficial effects of lower marginal tax rates on high-income taxpayers indicates a lack of appreciation of the academic literature in public finance.

If you are interested in this type of theory you should read the entire post here and the follow-up found here. Definately a good read.

Mahalanobis has discovered an interesting benefit of the auditors employment act …also known as Sarbanes-Oxley…

Sarbanes-Oxley (aka Sarbox) is a poorly written law created in response to several high-profile accounting frauds: Enron, Tyco, WorldCom. The act is wide ranging, and mandates auditor independence and enhanced financial disclosure, especially of any conflicts of interest.

The latest scandal in financial aid, where low-paid workers who determine which lenders get which loans were paid bribes of $10-$80k to push paper their way, would have been caught under Sarbox.

This just reinforces the notion that good laws can have great unintended consequences and bad laws can have good unintended consequences. I never thought of this angle…too bad government agencies don’t have to go through 404 audits.

[Disclaimer - This post should not, in any way, be confused with tax advice…I am an idiot and studied economics and statistics in college. My next tax law class will be my first tax law class, so be warned]

In California the interest from tax free municipal bonds is tax free if the municipality is from California. So if I buy a San Francisco Municipal Bond the interest earned from that bond will not be taxed on my California income tax return. If I buy a tax free municipal bond from another state (lets say North Carolina) the interest I earn from the bond would be taxable by California.

So tax free doesn’t always equal tax free…but it gets even better. If I buy a bond from Puerto Rico, The US Virgin Islands, or another Territory of the US…the municipal bond interest is considered tax free in California. OK?!? So investing in infrastructure bonds for a state other then California…no tax advantage…invest in a non-state such a Puerto Rico…tax-free money is yours to keep. Guess what happens if you buy a tax free municipal bond from Washington D.C.? You got it…the interest is taxed. Now someone tell me the logic that created these rules? Try explaining to a client why interest on Municipals bonds purchased in the early 1900’s is tax-free while a bond to redevelop New York City or New Orleans after their recent tragedies isn’t tax free and I will bow to the alter dedicated to your greatness.

I know this isn’t the MOST idiotic tax law on the books…but it is the most idiotic tax law I dealt with today. Well…that and the alternative minimum tax…but don’t get me started on that.

Regular blogging will begin soon. Tax season is ending in a little over a week and I will only have a 9 month old toddler, a wife, one accounting class, a full-time auditing job, sleep, the gym, and the TV show Lost to take up my time. Should be plenty of time for blogging. Talk to ya on the 18th.