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We have a winner! Greg guessed first that the movie was “Shawshank Redemption.”

Our next tax trivia question is:

In what tax-driven movie did the protagonist say the following?

It’s funny. On the outside, I was an honest man. Straight as an arrow. I had to come to prison to be a crook.

The first correct answer wins a Taxgirl tote bag.

What’s your guess? You must leave your answer in the comments below. 

To see a complete copy of the rules, including eligibility, click here.

As Tax Day – and thus, tax season – ticks away, I suspect many of you are looking forward to a little relaxation. If a cocktail is in the cards, consider the Income Tax Cocktail.

1 1/2 oz. gin
3/4 oz. dry vermouth
3/4 oz. sweet vermouth
1 oz. orange juice
2 dashes Angostura (or Peychaud’s) bitters

Combine ingredients, and shake with ice to chill. Strain into a chilled glass and garnish: I opted for a lemon peel.

You can mix up the proportions a little if you’d like. I know some folks suggest less vermouth, but I’m going to disagree. I would, however, champion using good vermouth (it makes all the difference).

I suspect that it will come as no surprise that the Income Tax Cocktail is a prohibition-era drink. Rumor has it that the bitters represent the “bitterness” of tax season.

Since I’m always willing to go the extra mile for my readers, I tested this one out. It’s easy to drink, with a bit of sweetness. I would call it a satisfying ending to the season.

Today is 4/20, or National Weed Day. A few years ago, the counterculture holiday would have confounded from some and amused others. Now, 4/20, the day which celebrates marijuana, is so mainstream that it’s trending on Twitter (82k tweets already marking “#420day” so far this morning). Marijuana doesn’t have the same taboo as it once did, mostly thanks to legalization efforts.

While there are dozens of theories about how the date came to have such significance, the most widely accepted can be traced to a group of teenagers from San Rafael, California. The group, nicknamed the Waldos for their favorite hangout spot (a wall outside of school), used to meet after school to smoke pot. The timing of their meeting, 4:20 pm, became a kind of greeting in the hallway, and the rest, as they say, is stoner history.

Nearly 50 years later, the use of marijuana has spread from high school age kids taking illegal drags behind walls to a more front and center movement. While still prohibited by federal law (possession can lead to fines and jail time), today, forty-two states and the District of Columbia currently have laws legalizing marijuana for either medical or recreational use. States which allow marijuana for medical use include Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington, and West Virginia – as well as the District of Columbia (some states allow CBD oil use only, including Georgia, Indiana, Iowa, Kentucky, Texas, and Virginia). Eleven states have legalized marijuana for recreational use, including Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington.

If that feels like a lengthy list, it is – and growing. According to a recent Pew poll, a whopping 91% support making medical marijuana legal, and 67% of Americans think marijuana should be legal, full stop. Despite the trend, possession of marijuana remains a federal crime. Under federal law, marijuana is still classed as a Schedule I drug – on par with heroin, LSD and ecstasy – which means that it is not legal in any form. It is against federal law to grow, sell, or use marijuana for any purpose, including medical purposes. 

While the feds have remained steadfast, states that have moved to legalize marijuana for medical reasons have done so for quite logical reasons: legalizing the drug (like nicotine and alcohol) means that it can be regulated. Regulations mean control. And control is directly linked to the almighty dollar.

The drug industry is a very lucrative market. Keeping it illegal, the argument goes, means that the most benefit flows to illegitimate members of society: dealers and cartels. On the other hand, taxpayers and the government bear the burden of the costs (but not the revenue) to stop them. The federal government spends approximately $33 billion a year on drug control, while state and local governments spend nearly the same on criminal justice expenditures related to drug crimes. According to the National Drug Intelligence Service, the war on drugs costs the United States almost $200 billion a year in indirect costs (downloads as a PDF).

Current drug laws target users, peddlers, and hardcore dealers. In 2018, there were 1.65 million arrests for drug violations in the U.S. Roughly 40% of those arrested (663,000) for possession of drugs were arrested for possession of marijuana; more than nine-in-ten of those arrests were for possessing marijuana, rather than selling or manufacturing it. 

What does that mean to you? Tax dollars. In 2015, the total state expenditure – not including federal costs – on prisons among 45 reporting states was around $43 billion.

In 2012, it was estimated that the legalization of marijuana (not just for medical purposes) could take $10 billion away from the cartels and dealers. A 2018 presentation before the Joint Economic Committee in Congress reported that the marijuana economy totaled more than $8 billion in sales in 2017, with sales estimated to reach $11 billion in 2018 and $23 billion by 2022 (downloads as a PDF).

State and local governments are already seeing the financial impact of the legalization of marijuana. Colorado pulled in $302 million in marijuana taxes, licenses, and fee revenues in 2019. Since 2014, that has resulted in $1,286,670,405 in revenue in Colorado alone. 

So with all of that revenue potential, why won’t the feds budge? Why not make it legal and tax it? The answer is simple: taxing it makes it legitimate. Making one drug legitimate would, the argument goes, open the floodgates to increased drug use, eventually moving on to more potent drugs like heroin and cocaine – the “gateway drug” argument. So it remains illegal – and untaxed.

Interestingly, it was the taxation of marijuana in the 1930s, which lead to the criminalization of marijuana in the first place. In the early part of the 20th century, during Prohibition, booze was illegal, but marijuana was not. Under the 1937 Marihuana Tax Act, there was a two-part tax on the sale of marijuana, one which functioned like a sales tax and another which was more akin to an occupational tax for licensed dealers. Violations of the Act resulted in severe consequences.

In 1969, Timothy Leary challenged his arrest for possession of marijuana under the Act; the case of Leary v. United States made it to the Supreme Court. The Court invalidated part of the Act as a violation of the Fifth Amendment (against self-incrimination). The result was a new law, the Controlled Substances Act, passed in 1970, which criminalized the possession or sale of marijuana. It has remained so to this day.

In 2009, the U.S. Department of Justice (DOJ) issued a memo (downloads as a pdf) to “provide clarification and guidance to federal prosecutors in States that have enacted laws authorizing the medical use of marijuana.” That memo announced that federal law enforcement resources should not target “individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” In other words, the feds promised – in so many words – to keep their distance from regulated sales of medical marijuana.

The IRS was mostly silent on the issues until 2011 when the DOJ issued another memo (downloads as a pdf) apparently reversing course. That same year, the IRS played hardball, disallowing expenses for medical marijuana dispensaries. Their justification? Section 280E of the Tax Code which disallows expenses connected with the illegal sale of drugs:

§280E. Expenditures in connection with the illegal sale of drugs. No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

In 2015, however, the IRS released guidance that indicated it might be softening. IRS Memorandum 201504011 (downloads as a pdf), issued on January 23, 2015, revisited the tax deduction question. The memo didn’t reverse course on the issue of the deductions (it is, after all, a law on the books). Still, it did suggest – by looking at another Code section (§263) – that a careful consideration as to the characterization of certain activities might result in legitimate reductions in tax.

Today, only the cost of goods sold is deductible for marijuana businesses. Traditional business costs, like employee payroll and marketing, remain non-deductible. The result is that marijuana businesses can be left with an effective tax rate between 40 and 70 percent.

Of course, Congress could sort all of this out by changing any of many laws from what’s reported on Schedule I to clarifying how marijuana, which is legal for state and local purposes, might be treated for federal tax purposes. Doing so, however, might make them look soft on crime, not a risk that many are willing to take. In particular, the current opiate crisis is proving to be a complication in some states where loosening any restrictions on the accessibility of drugs is considered problematic.

Marijuana remains illegal for federal purposes. The feds seem to understand, however, that aggressively pursuing the criminalization of legal medical marijuana sales won’t make the dollars generated from those sales go away. They’ll likely just go underground – and the revenue which could be generated for states and municipalities along with it.

The Strengthening the Tenth Amendment Through Entrusting States Act, or STATES Act, was introduced in Congress last year and garnered bipartisan support. It would help resolve the differences between the federal government and the states. However, for now, it remains in committee. 

The Internal Revenue Service (IRS) is expanding its social media presence. And while that’s to be expected in a fast-moving, tech-based world, it’s the platform that’s turning heads: TikTok.

TikTok is a Chinese video-sharing social networking service. Dominated mainly by teens and young adults, the fast-growing platform is primarily known for its short (about 15 seconds) dance and lip-sync videos. It’s not exactly what you’d expect from a federal tax agency, but maybe that’s the point.

IRS Commissioner Charles Rettig acknowledged that it was surprising but was quick to point out that times are changing. “I mean, if Secretary Mnuchin can extend federal filing tax deadlines on Twitter, why can’t we issue Regs on TikTok?” He ended his statement with a little robot dance.

So how difficult will it be? The IRS doesn’t keep musical or FX staff on payroll. But that’s part of the appeal of TikTok: the app allows you to choose sounds, song snippets, special effects, and filters. And you don’t need a full video studio to make it happen since you can use your phone. And, it doesn’t take much time or effort to make videos. That’s a massive plus for the resource-challenged agency.

In preparation for the tax agency’s TikTok debut, many IRS employees have been watching TikTok trending videos in their spare time.

 “I think we got this,” one employee remarked. “It’s just a matter of setting tax guidance to music and throwing in a couple of dance moves like The Worm.”

Another employee enthusiastically recited the opening to section 162 while flossing. “See? Not too hard. And folks will remember it!”

Rettig agreed and demonstrated his plan to remind taxpayers about the new IRS People First Initiative with a little Fortnite hype move at the end.

One common thread on TikTok seems to be celebrity promotions. There’s no IRS budget for that – yet. But Rettig envisions a future where Matthew McConaughey and Beyoncé tout tax compliance. 

“We’ve already come up with some good ideas, like having McConaughey in a Cadillac saying, “Sometimes you got to go back… to actually move forward, and I don’t mean going back to reminisce, or chase ghosts, I mean going back to see where you came from, where you’ve been, how you got here and see where you’re going. You know, clear like in the Tax Code.” 

Or Beyonce turning up with a version of “Lemonade” turned into “Tax Due Date,” where she looks at the camera and whispers, “What are you hiding?” That one was IRS-Criminal Investigation Chief Don Fort’s idea, according to Rettig. 

For now, the IRS is just trying to get the word out, initially experimenting with hashtag #TikTax (some in the agency are still pushing for #TaxTok, but that might be confusing for folks in Boston). A few lip sync videos are up, including a riff on Dua Lipa’s “Don’t Start Now” which has been changed to “Don’t Call Now” and one the IRS is particularly proud of, a version of Tones and I’s “Dance Monkey” that has been repackaged as “Tax Monkey.” The video was remarkably easy to duplicate (the original is here):

And yes, to clarify. That was the original, not the IRS version. The IRS version, packed with some of the most experienced employees, is scheduled to launch on April 1, 2020, April Fool’s Day.

In case it wasn’t quite obvious, this is my April Fool’s Day post: There is no current plan for IRS to launch on TikTok… but the year is still young!

I have fun with my April Fool’s Day posts every year. You can read some of the prior posts by clicking below:

I finished a disappointing fourth place in this year’s Fantasy Football. Even worse: I was beaten by a 13 year-old. That might explain why I’m choosing to keep my money firmly in my wallet on Super Bowl LIV: No gambling for me. Luck is rarely on my side.

But millions of folks are willing to take their chances on Super Bowl Sunday. According to the American Gaming Association, roughly 26 million people – more than four times the population of Missouri – are expected to bet on the Super Bowl. That represents a 15% increase over last year and means that more than one in ten American adults will be betting on the game.

Those 26 million people are expected to wager approximately $6.8 billion on the NFL championship game between the Kansas City Chiefs and San Francisco 49ers. Bets are expected across the board: in gambling establishments, online, and living rooms between friends and family. And not everyone is doing it illegally: fourteen states now offer legal, regulated sports betting.

Most gamblers are choosing Kansas City to take home the Lombardi Trophy. Oddsmakers favor the Kansas City Chiefs by 1.5 points over the San Francisco 49ers. But wagers don’t start and stop with the winning team. Bets have also been placed on who will score first, the result of the first drive of the game, how many interceptions there will be, and how long it will take Demi Lovato to sing the word “brave” in the national anthem.

From friendly wagers to jackpots, gambling winnings are reportable for federal income tax purposes. When the numbers are big enough, those winnings are also reported to the Internal Revenue Service (IRS) using a federal form W-2G, Certain Gambling Winnings (downloads as a PDF). A form W-2G is issued when gambling winnings other than those from bingo, slot machines, keno, and poker tournaments, are $600 or more and at least 300 times the amount of the wager. A form W-2G will also be issued if winnings are subject to withholding, including backup withholding and regular gambling withholding. For 2020, gambling withholding is equal to the cost of backup withholding: a flat 24%.

If you gamble for fun, you include your winnings as income on line 8 on Schedule 1 of your form 1040.

Someone who occasionally wagers, according to IRS (memo downloads as a PDF), is a casual gambler or one “not engaged in the trade or business of gambling.” If you’re wondering about the line between fun and business, the IRS uses a facts and circumstances test, noting “[l]ike any other taxpayer, a gambler has the burden of proving that his activities rise to the level of a trade or business.”

And here’s why that matters. While all gamblers have to report their winnings, casual gamblers may only deduct losses up to the amount of winnings as an itemized deduction on Schedule A at line 16, Other Itemized Deductions.

The deduction for gambling losses remains in place under the Tax Cuts and Jobs Act (TCJA). Miscellaneous deductions that exceed 2% of your adjusted gross income (AGI) were eliminated, but miscellaneous expenses not subject to the 2% threshold, like gambling losses, remain deductible. The amount that you can deduct on this line cannot be more than what you reported as income on line 8 on Schedule 1.

Other TCJA-related changes may affect your ability to claim losses as a casual gambler. Notably, the increase in the standard deduction, combined with changes to home mortgage interest and state and local tax deductions, make it less likely that taxpayers will itemize. That means that most taxpayers will claim the standard deduction. If you opt to claim the standard deduction instead of itemizing your deductions, then any casual gambling loss is necessarily lost.

If you’re not sure how and where to report, consider trying out the IRS’ Interactive Tax Assistant. You’ll need: 

  • Your and your spouse’s filing status;
  • Amount of your gambling winnings and losses; and
  • Your form W-2G

When gambling is your trade or business, gambling-related income and expenses are reported on a Schedule C. You do not have to itemize to claim your losses. However, the TCJA modified the definition of “gambling losses” under section 165(d) of the Tax Code to include any deduction otherwise allowable in carrying on any wagering transaction. What that means is that taxpayers whose business is gambling can no longer deduct non-wagering expenses, such as travel to and from a casino, separately from losses. So, for example, a taxpayer with $10,000 in winnings may deduct up to that amount in combined losses and related expenses. This change applies to professional gamblers for the years 2018 through 2025. That’s a shift: Before the TCJA, professional gamblers could deduct travel and other costs related to gambling without regard to wins and losses (that was the rule previously confirmed by the Tax Court in Mayo v. Commissioner).

But most of us aren’t considered professional gamblers (and in my case, that’s best for everyone). Professional or not, if you plan to gamble—whether on Super Bowl Sunday or in a game of Texas Hold’em next weekend—keep excellent records. Your records should include the date and location where you were gambling, as well as the amounts and type of wager. That’s easy when you’re at the Sugarhouse Casino but a little more difficult when you’re with friends or office workers at your local bar. Consider writing those down in a notebook or capturing them on your cellphone so that you can present your tax pro with proof come tax time. Remember: Whether you’re cheering on the Chiefs in Vegas or fanning over the 49ers in your living room, the gambling and tax rules are the same.

A federal grand jury has indicted reality television stars Todd and Julie Chrisley on multiple counts of conspiracy, bank fraud, wire fraud, and tax evasion. The Chrisleys’ accountant, Peter Tarantino, has also been indicted on tax-related offenses.  

The Chrisleys are the stars of the reality television show Chrisley Knows Best. The show follows the Chrisley family, including adult children and Todd Chrisley’s mother. The show has been very successful, clocking in so far at seven seasons and inspiring a spinoff featuring two of the Chrisley children called Growing Up Chrisley.

The reality star declared his innocence on Instagram, blaming a former employee. In his post, he wrote, about the employee:

“Needless to say, we fired the guy and took him to court — and that’s when the real trouble started. To get revenge, he took a bunch of his phony documents to the U.S. Attorney’s office and told them we had committed all kinds of financial crimes, like tax evasion and bank fraud. That got their attention all right, but once we had a chance to explain who he was and what he’d done to us, they realized it was all a bunch of nonsense and they sent him on his way.”

The U.S. Attorney’s Office also released a statement. U.S. Attorney Byung J. “BJay” Pak said about the indictment, “Todd and Julie Chrisley are charged not only with defrauding a number of banks by fraudulently obtaining millions of dollars in loans, but also with allegedly cheating taxpayers by actively evading paying federal taxes on the money they earned. Celebrities face the same justice that everyone does. These are serious federal charges and they will have their day in court.”

According to Pak, the charges, and other information, Todd and Julie Chrisley allegedly conspired to defraud numerous banks by providing the banks with false information such as personal financial statements containing false information, and fabricated bank statements when applying for and receiving millions of dollars in loans. After fraudulently obtaining these loans, the Chrisleys allegedly used much of the proceeds for their own personal benefit. 

The government also alleges that in 2014, two years after the alleged bank fraud scheme ended, Todd and Julie Chrisley used fabricated bank statements and a fabricated credit report that had been physically cut and taped or glued together when applying for and obtaining a lease for a home in California. 

The couple is also charged with conspiring with their Roswell, Georgia-based accountant, Peter Tarantino, to defraud the IRS. According to the Department of Justice, in February 2017, Todd Chrisley claimed on a national radio program that “obviously the federal government likes my tax returns because I pay 750,000 to 1 million dollars just about every year so the federal government doesn’t have a problem with my taxes.” However, the Chrisleys allegedly did not timely file income tax returns for the 2013, 2014, 2015, and 2016 tax years or timely pay federal income taxes for any of those years. 

(The full interview, which was broadcast on the Domenick Nati show is below. You can catch the comment at 4:47.)

If that sounds vaguely familiar, it’s similar to what reality stars Teresa and Giuseppe “Joe” Giudice had been accused of doing. In 2013, Joe and Teresa were indicted on 39 counts of conspiracy to commit mail and wire fraud, bank fraud, making false statements on loan applications and bankruptcy fraud. The charges also include separate charges for Joe for failure to file federal income tax returns for tax years 2004 through 2008. According to the indictment against the Giudices, the couple reportedly submitted fraudulent mortgage and other loan applications and supporting documents to lenders in order to obtain mortgages and other loans. As part of the scheme, Teresa Giudice allegedly submitted fake federal forms W-2 and fake pay stubs to lenders.

The Giudices, who starred in the Bravo reality television show, The Real Housewives of New Jersey, eventually pleaded guilty to a host of charges, including failure to file federal income tax returns. The couple had originally pleaded not guilty to the charges, claiming that they were unfairly targeted for prosecution because of their celebrity. After their plea, Joe Giudice was sentenced to 41 months in federal prison for financial and tax fraud; his wife, Teresa, was sentenced to 15 months. The Giudices have since been released from prison, though Joe is still awaiting a decision regarding his potential deportation related to the charges.

(Updated: Joe returned home to Italy on October 11, 2019, after being released from Immigration and Customs Enforcement (ICE) custody. He is still appealing his deportation.)

In this case, the Chrisleys and their accountant, Tarantino, are also accused of taking steps to obstruct IRS collection efforts, which included hiding income, lying to third parties about their tax returns. Tarantino is also accused of lying to the Federal Bureau of Investigation (FBI) and Internal Revenue Service – Criminal Investigation (IRS-CI) Special Agents. 

While the Chrisleys now live near Nashville, Tennessee, the indictment focuses on behavior that allegedly occurred while the family lived in the suburbs of Atlanta, Georgia. That’s why the case was investigated by the FBI-Atlanta and the IRS-CI Atlanta Field Office. 

“The reality of this indictment is that the FBI takes allegations of bank fraud and wire fraud very seriously and devotes many resources to protecting the institutions and citizens affected by those crimes,” said Chris Hacker, Special Agent in Charge of FBI-Atlanta. “The Chrisleys’ will now have their day in court, but anyone else considering this type of alleged activity should take notice.”

“The tax charges in this indictment serves notice that the Internal Revenue Service has zero tolerance for individuals who attempt to shirk their tax responsibilities. This action is also part of a much larger and coordinated effort by the IRS and Department of Justice to aggressively find and crack down on individuals who try to conspire with others to hide their income and then lie to federal agents when confronted. Honest and law abiding taxpayers are fed up with the likes of those who use deceit and fraud to line their pockets at their expense,” said Thomas J. Holloman, III, IRS-CI Special Agent in Charge of the Atlanta Field Office.

Notwithstanding Chrisley’s claims that this is a set-up, it’s not the first time that the Chrisleys have encountered tax troubles. A bankruptcy petition from 2012 shows a number of local tax collectors listed as debtors. And in 2017, a local TV station (Nashville’s WSB-TV) reported that the Chrisleys were slapped with nearly $800,000 in liens by the Georgia Department of Revenue. 

(Updated: The State of Georgia dropped tax evasion charges which had been filed against the Chrisleys.)

A court date for the federal charges is expected to take place in April 2020.

Once again, the most popular names for babies born in the United States are Liam and Emma. Those are the findings as determined by Social Security Administration (SSA) data, based on over 3.7 million babies born in the United States for 2018 – the lowest number of births since 1986.

Which names missed the top ten? Former favorites, Jacob and Abigail, fell out of the top 10 for the first time since 1992 and 2000.

Which names were recent additions? Lucas made the top 10 for the first time for boys and Harper rejoined the top 10 for girls.

Here’s the top 10 list for boys:

  1. Liam
  2. Noah
  3. William
  4. James
  5. Oliver
  6. Benjamin
  7. Elijah
  8. Lucas
  9. Mason
  10. Logan

And here’s the top 10 list for girls:

  1. Emma
  2. Olivia
  3. Ava
  4. Isabella
  5. Sophia
  6. Charlotte
  7. Mia
  8. Amelia
  9. Harper
  10. Evelyn

For purposes of the list, variations and alternate spellings are treated as different names. That’s why Liam (1) made the list as well as William (3). Ditto for Mia (7) and Amelia (8) – The Princess Diaries, anyone? That also explains why you’ll see Sophia (5) in the top ten list for girls and see Sofia (17) a little further down.

Outside of the movies, a real-life royal, Meghan Markle (now the Duchess of Sussex), might have influenced the choice of baby names in 2018. The biggest jump in girls’ names was Meghan, jumping from 1,404 to 703. The Duchess might have even more influence on the list next year: in 2018, Archie made an appearance in the top 1,000 for the first time in thirty years and is expected to rise in popularity following the birth of Harry and Meghan’s son, Archie Harrison Mountbatten-Windsor.

Pop culture played a part in baby names in 2018, too. Yara shot from 986 to 672 in 2018: Yara Greyjoy is a character on the HBO hit, Game of Thrones. And Dani, a variation on Dany (from Daenerys), was also on the move, rising 103 spots to 945; Khaleesi also moved up, landing at 549. The actress who plays Daenerys, Emilia Clarke, also likely influenced parents-to-be, as her name moved up 17 spots to 58.

Genesis made the most significant leap for boys in 2018, moving 608 spots to 984. The name may have seen a boost as a result of the choices of some high-profile stars a few years ago. Grammy-winning performer Alicia Keys named her son Genesis in 2014, while actress Viola Davis named her son Genesis in 2011. Saint made the second biggest climb, heading 438 spots up to 859. Kim Kardashian and Kanye West named their son Saint in 2015.

If you’re curious about the popularity of a particular name, you can find out more on the SSA website. The Social Security Administration has released baby name data since 1997 although if you head over to the site, you can find data ranging well before that: Names in the database range as far back as 1880. (Be prepared – it’s addictive.)

The lists are compiled from names on Social Security card applications. Nowadays, the process of getting a Social Security number at birth is so streamlined that the application typically happens when you submit information for the birth certificate.

If you decline to get a Social Security number for your child when you submit information for the birth certificate, you can always apply later – but that’s a little more complicated and time-consuming. You’ll have to appear at the SSA office with a form SS-5 (downloads as a PDF) and your child’s original birth certificate. If your child is over the age of 12 when you make the application, the child has to come along with you even if you’re the person signing the application on that person’s behalf. For more on how to get a Social Security number, you can check out this pamphlet from SSA (downloads as a PDF). Note that there is no charge to get a Social Security number and card for your child – but there are limits (more on that here).

Of course, unless you have a Gerber baby, the chances are slim that your little one will be headed to work immediately. So why get a Social Security number at birth? Taxes. Your child must have a Social Security number for you to claim your child as a dependent on your income tax return (but remember that there are no personal exemption amounts from 2018 through 2025). If you can’t claim your child as a dependent, you can’t claim certain tax breaks, including the earned income tax credit (EITC) and the newly expanded child tax credit. Additionally, without a Social Security number for your child, you can’t file as head of household (HOH) or qualifying widow(er) with dependent child (more on filing status here).

If you don’t want a Social Security number for your child, you don’t have to get one. Some folks may object to having a Social Security number assigned for religious reasons. You can request an exemption/waiver on this basis but, ironically, you have to get a Social Security number to do so. What happens, practically speaking, is that you must obtain a number solely to fill out form 4029 (downloads as a PDF) for the waiver. Assuming you qualify for the exemption/waiver, you must notify the Social Security Administration that this is your intention and that you do not want a Social Security card created or mailed.

Most Americans do get a Social Security number. More than 450 million taxpayers have received Social Security numbers since the first number was issued on December 2, 1936. That first number, SSN 055-09-0001, belonged to John D. Sweeney, Jr. of New Rochelle, New York (fun fact: Sweeney never received Social Security benefits).

Social Security numbers are widely used today for a variety of purposes although there are only about 40 official uses approved by Congress. That said, the Social Security Act also allows state and local governments to require a Social Security number for tax and other reasons. Having the number now will make things a lot easier for little Liam or little Emma later.

Imagine this: Your ex-spouse insists on claiming your child as a dependent without your consent. What do you do? A Princeville, Illinois, mom responded to this tax “emergency” by calling the police. 

According to the Journal Star, the woman called the Peoria County Sheriff’s Office on February 6 to report “possible tax fraud.” The woman claimed that she had the right to claim her teenaged son who lives with her as a dependent on her federal income tax return. However, when her return was bounced by the Internal Revenue Service (IRS) because the son had been claimed on another tax return, she assumed that her ex-husband must have claimed her son on his return. The ex-husband “had no right” to claim the child, she told the police.

The deputy tried to reach the woman’s ex-husband but was not able to do so. The deputy advised the woman to report the matter to the IRS.

While the deputy was clearly trying to smooth things over, calling the police to report a tax problem isn’t appropriate even if you think that you have an actual “tax emergency.” It’s a civil issue—not a criminal one—and the best way to resolve a tax issue is through the IRS, potentially using the services of a tax professional. When it comes to divorce and support-related tax issues, you may also want to call your divorce attorney since tax and dependent issues are generally included in divorce and custody settlements. 

For federal income tax purposes, a dependent is either a qualifying child or a qualifying relative. Generally, a dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; have a valid tax ID number; and be either your qualifying child or your qualifying relative.

Your child isn’t necessarily a qualifying child. A person is your qualifying child if that person meets all of these tests:

  • Relationship test. The child must be your child, stepchild, adopted child, foster child, brother or sister, or a descendant of one of these.
  • Residence test. The child must have the same residence as you for at least half of the tax year.
  • Age test. The child must be under age 19 at the end of the tax year; under age 24 and a full-time student for at least five months out of the year; or totally and permanently disabled.
  • Support test. The child must not have provided more than half of his or her own support during the tax year.
  • Return test. The child, if married, must not have filed a joint return with his or her spouse.

(If you take care of someone who is not your qualifying child, you still may be able to claim that person as a dependent if he or she is a qualifying relative. You can read more about who is a qualifying relative for the new $500 credit for dependents here.)

So why does dependency matter for federal income tax purposes? Before 2018, you could deduct a personal exemption amount of about $4,000 for each dependent on your federal income tax return. That exemption amount reduced taxable income: the more dependents, the larger the potential deduction (it was really an exemption, but it acted like a deduction). 

The Tax Cuts and Jobs Act (TCJA) reduced the personal exemption amount to zero. Claiming a dependent may still carry tax benefits on your tax return, however, including the ability to claim the child tax credit. You can read more about the expanded child tax credit for 2018 here.

For child tax credit purposes, a child of divorced or separated parents will typically be a qualifying child of the custodial parent. However, you can alter that rule by agreement. Specifically, if you sign a form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent (downloads as a PDF), you can agree to allow the noncustodial parent to claim the dependency exemption. That means that you won’t be entitled to the child tax credit; the noncustodial ex-spouse will get to claim the credit. To get the credit back, you’ll need to revoke the form (you can do this for future years directly on the form at Part III).

(Some additional caveats and exceptions apply. Since divorce and custody situations can be tricky and very family-specific, I recommend checking with your divorce attorney if you have questions.)

Parents may also want to claim a child as a dependent for purposes of the Earned Income Tax Credit (EITC). The EITC can result in a hefty tax refund, even if you have no tax liability, but only one person can claim the same child. If more than one person claims the same child, the IRS will apply the so-called tiebreaker rules (you can read them here).

Confused? You’re not alone. The rules for dependents are not always easy to understand, especially in divorce and custody situations. Even parents with the best of intentions can get them mixed up. And parents who don’t have the best of intentions? The result can be frustrating enough to make you want to call 911. But don’t. If you’re tempted to reach for the phone to resolve a tax problem, try 1.800.829.1040 (that’s the IRS).

The Queen of Soul, Aretha Franklin, died of pancreatic cancer on August 16, 2018. She left behind a musical legacy, an estate worth $80 million, and, according to court filings, millions of dollars in unpaid taxes.

Franklin, who died without a will, already had a messy estate: her four sons filed documents in the Oakland County Probate Court listing themselves as interested parties in her estate. According to court documents, the Internal Revenue Service (IRS) is also named as an interested party (number 6) in the proceedings.

The probate court did not make the pleadings accessible online. However, documents obtained by the gossip site TMZ.com indicate that the IRS is seeking more than $6.3 million in unpaid income taxes for the tax years 2012 through 2018.

The largest debt alleged for any single year is more than $2.1 million in unpaid federal income taxes owed for 2015; that amount, however, is considered an estimate. Tax liens have been filed for the tax years 2016 and 2017; those amounts are not estimates and total nearly a half-million dollars, including penalty and interest. Penalty and interest have not yet been assessed for the other years since the amounts due have not been finalized.

The IRS filed an additional Proof of Claim for more than $1.5 million for tax years dating back as far as 2010 for 945 taxes and related penalties. Forms 945 are a bit of a catch-all annual return but are typically used to report tax withholdings from freelancers and independent contractors.

Both Proofs of Claim, as filed by the IRS, notes that “[n]o part of this debt has been paid, and it is now due and payable to the United States Treasury at the Office of the Internal Revenue Service.” They were filed this month. However, David Bennett, an attorney for Franklin’s estate, told The Associated Press that the estate had paid at least $3 million in back taxes. “All of her returns have been filed,” Bennett said, noting that the estate disputes the amount owed. “We claim its double-dipping income because they don’t understand how the business works.”

An email sent to Mr. Bennett seeking further comment was not immediately returned.

A battle over Franklin’s assets, including from creditors like the IRS, could last for years. A court hearing on probate matters is scheduled for 10:00 a.m. on January 16, 2019.

For the past few years, the Spanish government has been accused of targeting footballers for tax evasion, racking up allegations against such superstars like Lionel MessiCristiano Ronaldo, and Javier Mascherano. This week, things took a slightly different turn when Spanish tax authorities set their sights on the partner of FC Barcelona footballer Gerard Piqué. Granted, this isn’t just any WAG: Piqué’s partner is international pop singer Shakira. Spanish tax authorities have charged Shakira with tax evasion for the years 2012, 2013 and 2014.

Shakira, whose full name is Shakira Isabel Mebarak Ripoll, was born in Colombia in 1977. Her debut album, Magia, hit the charts in 1990 when she was just 13 years old. Within a decade she had sold millions of albums and become a household name.

In 2010, Shakira recorded the catchy “Waka Waka (This Time for Africa),” which was the official song of the 2010 FIFA World Cup. She met Piqué while filming the video for the song. The video has more than 2 billion views on YouTube. You can see it here:

(Fun fact: Piqué also made an appearance in Shakira’s follow-up World Cup 2014 song, “La La La (Brazil).”)

Within a few years, the pair were officially an item. Shakira gave birth to the couple’s first son in Barcelona in 2013. At the time, news agencies reported that the baby “was born in Barcelona, Spain where Shakira and soccer star Gerard Piqué currently reside.”

Shakira’s residence is precisely what’s causing her current tax headache. Shakira had previously resided in the tax-friendly Bahamas. According to Spanish authorities, she continued to claim Bahamian residency for tax purposes until 2015, when she changed her official residency to Spain.
Spanish tax authorities, however, claim that she was a resident of Spain, not the Bahamas, from 2011 through 2014. Earlier, Shakira paid more than 20 million euros ($22.6 million U.S.) to settle part of her alleged tax debt, while not admitting that she owed tax. If that sounds familiar, Lionel Messi did something similar, making what he called a “corrective payment” of 5 million euros (then $6.6 million U.S.) to Spanish authorities as a “corrective payment.” Messi was subsequently criminally charged and convicted of tax evasion.

Spanish tax authorities now argue that Shakira owes more than 14.5 million euros ($16.4 million U.S.) in unpaid taxes. They are seeking to hold her criminally responsible for the years 2012 through 2014, alleging that she took steps to conceal her residency during those years for tax purposes (2011 is excluded due to the statute of limitations).

Under Spanish law, if an individual spends at least half of the year plus one day in Spain, the individual is considered a Spanish tax resident and is subject to tax on worldwide income. Allegedly, investigators were not able to prove with certainty that Shakira lived in the country for at least 183 days in any of 2012, 2013 or 2014. However, tax authorities claim that absences during those years were sporadic and that between 2012 and 2014, Shakira “had no physical presence for a single day” in the Bahamas.

The investigation has been ongoing for more than a year. As part of their efforts to establish residency, tax investigators followed the singer to places she frequented, like her hairdresser. They also tracked Shakira’s activity on social networks like Instagram, where the singer has more than 55 million followers.

The matter will now move to court where a judge will decide whether to accept the criminal complaint brought by prosecutors. Shakira has, through her representatives, denied the allegations.