Friday, August 27, 2010

Taxation Without Something

     Morons.  This world is filled with them.  Some people say that I am a moron because the first two things I do once I get into my hotel room in my new town are turn on The Weather Channel to see what communities show up on their Local Forecast, and then I read the informational community pages in the front of the telephone book.  Yeah, I know, makes me seem like a waterhead but both are great means of getting yourself familiar with there things are relative to where you happen to be standing, and those community pages show you all sorts of stuff about parks, laws, police, etc.  It sounds lame-o but it's called getting familiar with your surroudings.  I do it when I go to a new town, most people don't.  And that's okay.  But I would damn sure do it when I moved to a new country.
     So would you, so would everyone else, right Company?  Not true.  Apparently 20-something year-old immigrant from Spain Marcos Esparza Bofill never thought to do that when he moved to New York City to try his hand at day trading.  He just showed up, got an apartment, and went to town at the NYSE or wherever.  He never bothered, when moving to a country specifically to get rich or to make money working with money and stocks, to investigate the tax laws and rules governing financial transactions in that country, so he never knew how to correctly report his income taxes, and he didn't even know who the Internal Revenue Service was.
     Needless to say then, that he was surprised when they slapped him with a tax bill of $172 million, a tax bill that raised a lot of eyebrows and caught a lot of attention when it was leaked to  They claim that he made over $500 million a year while he was here and they wanted their piece of it.  Strange thing is that while all this was going on, Marcos had moved back to Spain because he lost money while he was here and couldn't afford his rent.  So what is going on here?
     What is exactly going on here?  The IRS claims Marcos made $500 million.  Marcos claims he lost money.  That's a pretty big mixup.  That's a pretty big difference.  That's a pretty big WTF.  Well here is the deal: the IRS is like a lot of entities, they only know what they are told.  So the markets or brokerage houses or whomever Marcos was buying and selling stocks with, reported to the IRS that he had sold $500 million worth of stock over however long a period.  Sounds reasonable, right?  Well, Marcos never bothered to tell the IRS that he has also bought a significant monetary amount of stock during that same time.  Since the IRS knew he made all that money, and no one told them he lost that plus some more, they assumed it was all profit.  And so they taxed him accordingly, which was $172 million.  (We don't have exact numbers, but that comes out to be approximately a 34.4% tax rate by the way)  It makes sense to me.
     But it doesn't make sense to Marco, since he isn't from here and he never bothered to find out what was going on.  I suppose he could have gotten some bad financial advice.  But the bottom line is that he is now in deep shit, and he owes more to Uncle Sam than I will ever make in my lifetime.  It really goes a long way towards showing the power of paperwork, because all he has to do is refile and declare his losses and this will all go away.  And it really goes a long way towards showing that you have to pay attention to what is going on around you, and make sure you know what you are doing.
     What it should not do is make everyone mad at the IRS.  I understand that they are an easy scapegoat, and more people are going to feel hostile towards an entity that is in existence solely to take away their hard earned money.  I understand that.  But the IRS in this case is 100% completely and totally in the right.  And not even in one of those ways where they are right by the book but morally and ethically taking things a little bit too seriously, like when they send a letter demanding 38¢ from an 8 year-old because he sold a pack of baseball cards at his parents rummage for a couple of crisp new dollar bills.  Nope, in this case 100% of the blame falls on Marcos and nowhere else.  He has to tell them what he is doing if he is day trading.
     So get ready Marcos, you have three options.  1.) Sharpen your pencils and fill out the forms to get your ass out of trouble, 2.) fork over $172 million to the IRS, which doesn't worry me because I have a feeling your family over in Spain is pretty rich, although I can almost guarantee not $172 million lying around rich), or 3.) live on in Spain or some other exotic locale and not pay a cent and pray to God every night that they don't storm in and extradite your bitch ass.  There you go.  Pick one and roll with it.  Oh, but make sure you itemize all of your earnings and expenses as you being your dealings with the IRS.  Because I have a feeling that you are going to have a uniquely American experience: the IRS Audit.

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