Taxes

Taxes

My youngest son just called me. He is doing his taxes on TurboTax and he had a question about some trust income and a K-1 that he had received that showed some foreign-source income. His question was whether he should include it or not in his return. I gave him my best answer to his questions to the best of my understanding as to how he should present his taxes to the IRS and New York State, but it got me thinking about the whole issue of taxes. When people ask me why I moved to a state like California that is experiencing more emigration than immigration (mostly due to taxes and high-priced real estate), I like to say that I didn’t think I was paying enough in taxes in New York, so I moved out here. It always gets a laugh and since people know how liberal-minded I am, I’m sure some suspect that it’s true. But the reality is that I am not so different from anyone in that I make a reasonable effort to minimize my tax burden even though I do not begrudge the state (writ large) in extracting some portion of my income to provide for the various generic uses to which tax dollars are put. Infrastructure, defense, welfare are all good purposes and while there are always abuses of the system, I am generally a believer in taxation for the purpose of collective management of our population’s well-being.

When I was my son’s age (he will be 26 this year), I too did my own taxes and I didn’t have the help of TurboTax. I can remember collecting a year’s worth of receipts so that I could add up and deduct my sales taxes paid. That was a painful and tedious task, but I used to think it was worth doing since we lived in a consumer economy, in a high sales tax state and city, and as young people starting a family, we spent an inordinate amount of our income on stuff that we thought we needed. In a high inflation economy such as we had in the late 1970’s and early 1980’s, it was not clear that savings were being economically encouraged and that buying tangible goods might be a better use of financial assets than having them sit in some inflation-impacted account somewhere. Like most young people, I relished my tax refund each year since we always tended to over-withhold just so that we wouldn’t get hit by a tax bill in April. April 15th was a day or reckoning that has just recently lost all its importance. It had lost importance to me since every year for several decades I filed an extension that turned April 15th into October 15th. Now it has lost importance as the COVID Pandemic has caused the government to relax the filing dates to July 15th (and then extendable) and again this year by pushing the April 15th date to May 17th.

This year (meaning for tax year 2020) I will be filing as a resident of California for the first time and not filing as a resident of New York for the first time in my adult life. I did move out of New York for two years in 1990 when I was sent to Toronto to run our bank there, but I retained a home in the Hamptons so remained a resident of New York State even though I ceased being a resident of New York City. That was a tough one for New York City to swallow and they did try, feebly, to fight me on it. I was on solid corporate relocation ground and as an expat i was entitled to professional tax services that handled that all for me. NYC grumbled but went away, happy to just have me back in 1992. With all the tax revenues they got from me during the next 27 years, they have very little to complain about. Those were my big earning years and they got their full slice, as did New York State. I figure New York understands that people like me tend to leave when we retire and while I suspect that the City will have a hard time pinning me during the COVID outbreak to any attempts to sneak into and really still be living in the City, it may still be a battle for me in New York State. I have kept my vacation home in Ithaca and even though it is technically owned by the University and merely leased to me, I have been paying the property taxes for 25 years and that much they know I still do. We’ll see where that all takes us.

What has concerned me more in the past year has been this strange circumstance I have had with the IRS. I filed through my new California tax accountants (a well-established and reputable Californios CPA firm). While New York State got my filing and responded with my refund in very timely manner, the IRS was a different story altogether. I filed in early September and had not heard anything from them by November, so I had my accountant launch an inquiry. What she learned was that it was still “in process”. Finally, I heard from them and they said I needed to resubmit certain rudimentary information and verify certain things (things that were all very clearly reported in my initial filing). We did that and they confirmed that the file was now complete and they would get to it when they could. Pages on the calendar continued to come off and the online “Where’s My Refund” website continued to tell me that my return was “in process”. A relative of mine who works for the IRS, but who regulations preclude from making any inquiries for anyone she is not directly involved investigating, told me that something was not right if I had not received my refund. As time went by and we started getting into the 2020 filing season this year, I began to get concerned. There is a certain feeling of helplessness when dealing with the monolithic bureaucracy and omnipotence of something like the IRS. The feeling is that if they want to fuck with you they will simply do so and there is little one can do about it.

Finally, this past week I got a notice from the IRS. They were happy to inform me that they had recalculated my return and determined that I was owed about $5,000 more than I had originally filed for. I sent this letter to my accountant to try to reconcile and haven’t heard anything as of yet. In the meantime I am waiting for a check from them (supposedly 3-4 weeks away at most) since they appear to have lost the direct deposit information that they used for me last year. The whole thing is still surrounded in mystery and I seem to have no recourse other than to believe my accountant that it was all their understaffing and incompetence that caused this. That remains only minimally comforting since like when I had my anti-money laundering problems with Citibank they never bother to tell you why there was a problem but somehow feel that you will settle for the fact that the problem is behind you. On one level I am satisfied with that outcome and yet on another level, I am simply too curious not to wonder what in hell is going on in the dark recesses of the national databanks with regard to my profile. I suspect I will never know.