IRS Rules Bitcoin Property Not Currency.

The IRS ruled that virtual currency, such as Bitcoin (BTC),  is not considered currency, but property for U.S. federal tax purposes. In other words, it does not have legal tender status in any jurisdiction. 

“The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments,it operates like “real” currency-- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. For a more comprehensive description of convertible virtual currencies to date, see Financial Crimes Enforcement Network (FinCEN) Guidance on the Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 18, 2013)

General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Really? Does the IRS really expect everyone who buys a cup of coffee with digital "currency," like BTC, to track capital gains? What a bureaucratic nightmare! However, I'm sure the IRS has no problem creating more administrative bureaus to deal with tracking virtual "currency" transactions. Not to mention, the burden on virtual "currency" users. But as Oscar Wilde said, "The bureaucracy is expanding to meet the needs of the expanding bureaucracy."

Links:

What the IRS Bitcoin Tax Guidelines Mean For You

Are the IRS Capital Asset Rules Realistic for Small Transactions?

Fiat Link - watch the world's currencies flow into BTC in real time.

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The Bill That Will Give IRS Power Over Travel

The majority of Americans do not realize how fast power is concentrated in the executive branch of the government, so they ignore, or make excuses for bills and laws passed by Congress, written in deliberately confusing language, that will limit their freedom. That is, if they're even paying attention, and thanks to our corporate controlled media, paying attention takes time...lots of time that most people do not have to witness the convoluted system of barriers to their personal movement...your rights to property, privacy and freedom. The bottom line is recent legislation has effected the average citizen far more than any so-called "terrorist" lurking in the shadows.

Here is a prime example:  S. 1813: MAP-21 “Moving Ahead for Progress in the 21st Century Act” that passed the Senate by 74 to 22, that will more than likely sail through the House. This is a move to: “reauthorize Federal-aid highway and highway safety construction programs, and for other purposes.” This bill, proposed by Democratic Senator Barbara Boxer, includes an amendment that will stop any American citizen from leaving the country based upon a decision by the IRS. Another violation of due process.

Specifically, section 40304 - written by Senate Majority Leader Harry Reid - states: “Revocation or denial of passport in case of certain unpaid taxes.” This amendment would authorize the State Department to revoke, deny or limit passports for anyone the Internal Revenue Service certifies as having “a seriously delinquent tax debt in an amount in excess of $50,000.”

Well, since the IRS never makes any mistakes, this should contain the elite power brokers, right?   Because, the vast number of Americans do not even earn $50,000, let alone owe $50,000 in taxes.

I wonder if the IRS has ever accused someone of owing $50k who didn't really owe it? Wonder if they would EVER do it in the future? It's a pretty easy thing for such an agency to do.

The Internal Revenue Service (IRS) had assessed a Trust Fund Recovery Penalty (TFRP) against our client for unpaid payroll taxes Our California tax attorneys filed a request for a collection due process hearing and convinced the IRS Appeals Officer that its determination that the client was liable for the TFRP was erroneous in its entirety saving our client almost 1million dollars.

While she was married our client incurred joint income tax liabilities in excess of $1,000,000. We were able to convince the Internal Revenue Service that our client was an innocent spouse pursuant to Internal Revenue Code § 6015, and the IRS wiped out her entire tax bill.

Our clients were the owners of a closely held family company. After an audit the IRS claimed that the compensation paid to them was unreasonable, and therefore disallowed $750,000 per year in deductions over a multi-year period. The case was referred to our firm by a tax attorney who had spent over two years negotiating with the IRS, without achieving a settlement. Our firm negotiated a settlement with the IRS that saved our clients $2.1 million in tax, penalty and interest.

The IRS claimed our client owed almost $2 million dollars in income taxes due to alleged errors on his tax returns. After filing a petition with the United States Tax Court we settled the case for approximately $20,000.

The IRS claimed our clients owed over $35,000 as the result of an audit. Due to technical errors made by the IRS we were able to convince the IRS to abate the full amount of the taxes and to refund amounts previously paid. [under $50K but it could have been any amount.]

The IRS determined that our client owed a tax debt of approximately $61,000 based upon a trust fund recovery penalty imposing personal liability for corporate payroll taxes. After our intervention the IRS Appeals Division conceded that a mistake had been made and that our client didn't owe any portion of the trust fund recovery penalty.

The IRS determined that our client owed a tax debt of approximately $155,000 based upon a trust fund recovery penalty imposing personal liability for corporate payroll taxes. We convinced the IRS that our client was not a responsible officer and nothing was owed.

Our client received a statutory notice of deficiency from the IRS after an audit claiming that over $230,000 was owed. After filing a petition with the United States Tax Court a settlement was negotiated for less than $4,600.

An offer in compromise submitted by our client's accountant was rejected when the IRS determined that he could afford to pay the total tax due of over $131,000. We convinced the same IRS specialist in offer in compromise to accept less than $30,000. [there are many examples of substantial amounts owed but negotiated to under $50K]

just a few examples located on the website of a Los Angeles tax lawyer randomly spotted from a Google search. there must be many, many more cases nationwide where the IRS has falsely or incorrectly claimed someone owed substantial amount of taxes of over $50K when that person/entity did not in fact owe that much or in some cases, any taxes at all. Ripe for abuse.

Oh, and let's not forget about the Capitol Controls expected in 2013, which would force Americans to keep their money from going offshore.

The Intergovernmental “FATCA Partner Framework” a joint statement issued by the US Treasury along with the governments of the UK, France, Germany, Italy and Spain.

Foreign Account Tax Compliance Act (FACTA)

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Voluminous Codes Eroding the Delicate Balance Between Liberty and Social Order

Liberty is defined as the freedom from arbitrary or despotic government or control. In other words, liberty does not imply the absence of rules and consequence of breaking those rules, only the absence of arbritrary and/or despotic rule. At the other end of the spectrum is social order, or the absence of anarchy, which one could say is of equal importance. The United States of America, it is said, is one of the first nations in history to create a form of government that, as much as possible, harmoniously balances liberty and social order.

As we emerge from the first decade of the twenty-first century, the rules preserving rights and liberties have increasingly been sacrificed in the name of "national security", primarily by lawmakers who have created an ambiguous, incoherent web of laws, leaving the average citizen in the dark.

Take the income tax, which can be traced back to 1862, when President Lincoln and Congress created the office of Commissioner of Internal Revenue and enacted an income tax to pay war expenses. It was passed as an emergency and temporary war-time tax, and in 1894, the Supreme Court declared it unconstitional. That is until the 16th amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in Pollock v. Farmers' Loan & Trust Co. (1895). And in 1913 the very first IRS 1040 form was created, and since that point, the IRS code has morphed into an exceedingly convoluted, complex and oppressive creature.

One might ask, “Why can’t the tax laws be more simple?” Well, not only because  of government’s insatiable desire for revenue, but also because Congress uses the tax laws for reasons other than that for which they were intended. The same is true for our legal system, in general.  Our constitutional rights, if we really ever had them to begin with, have essentially been eviscerated by code. What can we do about it? On an individual basis, not much.

The real world determination of legal or "lawful" arguments lie with the immune judges, and prosecutors. Not only can they enforce the law, they can do so with impunity.

In 1976, the Supreme Court decided, in a case called Imbler v. Pachtman, that prosecutors have absolute immunity from civil rights lawsuits for their work in the courtroom. The court acknowledged that its ruling “does leave the genuinely wronged defendant without civil redress against a prosecutor whose malicious or dishonest action deprives him of liberty,” but said the alternative was worse: leaving prosecutors to fear a lawsuit, or even bankruptcy, every time they lose a trial..

Insofar as income tax, code section 6011 and code section 6012 require citizens to file.  Constitutional? No, but go ahead and try to fight it.

The IRS can bring any action in the courts of the United States. There is an entire section of the Internal Revenue code that creates jurisdiction for the IRS to bring a lawsuit. For example, a section 7403 action, which allows the IRS to file a lawsuit against any delinquent taxpayer in a situation where the IRS wants to seize the property of that taxpayer. Although, the IRS is not allowed to seize the home of a taxpayer through the administrative process, the IRS can seek an order from a judge who allows the IRS to seize the property

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed? -- James Madison

A Monument of Deficient Wisdom:

The IRS is an agency of the government of the United States; however, it has no respect for the constitution. The courts of the US have enforced the Internal Revenue code to the detriment of the constitution There is nothing morally or constitutionally correct about our current tax law. But, can they as a practical real life matter, enforce it? Yes, they can.

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$100,000 Reward Offered for any Attorney Who Can...

... find a statute that makes the American worker liable for the income tax.

Sounds a little too good to be true, but one organization, Freedom Law School (livefreenow.org), will pay  $100,000 for finding such a law. All you have to do is show them the statute that plainly and clearly imposes liability for the federal income tax on the typical working American.

Operation Rich Rewards

"99.9% of attorneys will instantly tell you that there is a law making working Americans liable for the income tax. They say this not because they have seen such a law, but because they know that it MUST exist in order for the IRS to impose the income tax on all working Americans. If they were to look for that law, however, they would very easily and quickly realize that it does not exist. As attorneys they would also instantly realize that without such a law the IRS is illegally collecting income taxes from millions of hardworking Americans. What will it take, however, to get them to look? What motivates most attorneys?"

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President Obama: Man of the People? Captive of the Ruling Elite? Political Genius? Or All Three?

After President Bush tripled the size of federal government, shredded the Constitution, our civil liberties, our global reputation, and millions of lives, worldwide, Americans finally had enough.

Then, seemingly out of nowhere, Barack Obama, almost a messiah-like figure, emerged on the scene, and surprisingly, without too much trouble from the GOP, won the election. It seemed too good to be true.

On the one hand, the wars continue, the secrecy continues, the lies continue, the torture continues, Wall Street continues to triumph, the rich continue to get richer... and now President Obama gave into the GOP's blatant terror tactics and agreed to extend the Bush-era tax cuts for two more years. Why? In order to prevent the GOP from forcing a tax increase on all income levels and to keep them from preventing the extension of jobless benefits. So, even though the deal still has to be approved by the House and Senate, President Obama gave into the little terrorists despite the fact that 60% of Americans do not want tax cuts extended for those making over $250,000 per year.

However, on the other hand, what if President Obama decided to fight the GOP?  More than likely, he would not have won the concessions from the GOP that are extraordinarily important to the people suffering right now.

As part of the deal, expiring unemployment benefits for millions of Americans will be extended for 13 months. Just as importantly, there is now a real prospect that the Senate will act on repeal of the "Don't Ask, Don't Tell" policy and ratification of the START treaty before this month's lame duck session ends.
[...]
There's also a longer term calculation at work. Note that the deal also includes a reduction in the Social Security payroll tax and an expansion of the earned income tax credit and the college tuition tax credit. This is on top of the extension in unemployment benefits. These measures have one thing in common: They are stimulative in nature. (So, for that matter, is the fact that middle class Americans won't face a tax hike -- something that would have happened had Obama balked at the deal and played a long-term game of chicken with the GOP).

Below Senator Al Franken gives a great speech.  During the speech he said that the IRS published a study analyzing the tax returns of the wealthiest 400 Americans. As their "income rose an average of $81 million -- in a single year", they paid an average effective tax rate of little over 16%.

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When Charity Needs Charity.

The severity and speed of the current economic downturn has left many unable to sleep or eat, consumed with worry that they will be counted amongst the millions facing the possibility of the proverbial "breadline". In addition, the very nature of this "crisis" breeds cynicism, making people cling even more to what's left of their depleted finances.

So, it comes as no surprise that charities, at a time when their help is most needed, have been left incapacitated, either because they too have been victims of the selfishly or callously calculating members - as in the case of Bernie Madoff - of society, who perpetrated much of what is going on today, or lacking contributions, etc.

According to the IRS charitable organizations:

... are classified as either a public charity or a private foundation. Public charities are those that are churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges and universities, that have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations or other public charities receive income from the conduct of activities in furtherance of the organization’s exempt purposes, or actively function in a supporting relationship to one or more existing public charities.

Private foundations, in contrast, typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources) and most have as their primary activity the making of grants to other charitable organizations and to individuals, rather than the direct operation of charitable programs..

One would think, in an age of instant information, that at the very least, we can rest assured, if we do our homework, that our charitable dollars will not line the pockets of swindlers. Charity watchdogs rate and give an accounting of charities all over the world, so we should feel very secure that our money will be put to good use, right? However, what makes things easier for us also makes things easier for the scammers.

Too many fake charities play the, "take names that are very close to those of reputable, established charities" game. They might change the word 'foundation' to the word 'society' for example.

In addition, there are also no laws requiring that a certain percentage of every donation must go toward the actual cause. Charitable organizations may spend your money on anything from salaries to administrative supplies to festivities and advertising instead of the issue they say they are targeting. Not only that, professional solicitors who raise money for charities are not required to hand over anything but a small percentage of what they raised to the charity itself.

Charities that lend their names to for-profit enterprises are another twist you need to be aware of. The charities figure it's money they wouldn't have gotten otherwise, but donors need to realize that often only a minuscule amount of money makes it to the charity.

All of this adds up to more "homework", more decisions to make, and more time and money that most of us do not think we have, which leaves those who barely have enough to survive, completely stranded. That number is growing exponentially, or will be, soon.

As we are only as strong as our weakest link, funding for low-income and sustainable housing development, infrastructure and social service programs must be top priority.
Our forefathers envisioned a country powered by the diversity and strength of its people. As it is, this country is powered by the uniformity of an elite few.

Our strength lies in the enormous spectrum and interaction of our diverse capabilities. If we lose that and we don't tap into the energy and creativity of the many, innovation will cease to exist.

Guidestar

Charity Navigator

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Do You Qualify for a Stimulus Payment?

Get your 2007 Form 1040, or Form 1040EZ, or Form 1040A available to use the Economic Stimulus Payment Calculator to see if you qualify for the stimulus payment.

According to law, the economic stimulus payment amount that everyone other than married couples filing jointly would otherwise be entitled to receive is $600. That amount is reduced by 5% of the amount that their Tax Year 2007 Adjusted Gross Income exceeds $75,000. If your Adjusted Gross Income exceeds $87,500 that amount is reduced to zero.

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That Time of Year Again

Tax Prof blog is a very comprehensive and informative about anything and everything having to do with tax news and law.
Of course, the IRS is full of information about taxes:

From the Tax Foundation:
Tax Policy Blog

Here are a few more that might be of interest:
TaxBlogger
TaxMama
taxalicious

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Eighth Grade Clarity Committees in Government and Corporate America

After reading Mike Huckabee's Tax Plan is Brilliant in Slate Magazine, I began to ask myself, how do I know if his plan is brilliant? How do I know if any plan is brilliant when I cannot tell you much about our current tax code, most of the contracts I've signed, anything about the irritating little fees on my cell phone, credit card, cable, electric, gas bills etc? Mike Huckabee's plan may sound good now because the article is written so that it is easily understood. However, once it is approved and implemented it will take ten Rhodes Scholars to interpret it.

Before we change anything, why can't "We the People" demand every American has a right to understand what's going on now whether it concerns taxes, law, paying our bills or contracts? Why is it legal that a PhD is required to understand our credit card agreement and sometimes that's not enough?

The answer is fairly obvious. By confusing and frustrating "We the People", government and corporations know that most of us will surrender because we don't have the time nor the patience to analyze that which is designed to be incomprehensible...who does? Why isn't there more outcry against this?

The objective is clearly to make most Americans feel powerless and stupid knowing the most Americans will not advertise that they don't completely understand most of what they pay for, vote for, and depend on a daily basis. No one likes to admit their failure to comprehend the tax code, real estate papers, statutes, executive orders, affidavits, jury instructions, insurance contracts, investment contracts, 16 page credit card agreements (printed on tissue paper in microscopic type, written on the "twenty-seventh" grade reading level) and all consumer-finance contracts and anything and everything written in legalese.

We all know a confused American is very profitable, easy to control and therefore, very desirable to the few at the top who pull the strings. What would happen if every piece of legislation, every contract, credit card agreement, and basically anything legally binding had to pass through the Eighth Grade Clarity Committee (EGCC), made up of a diverse group of eighth graders of average intelligence, as a final test of clarity. If all the eighth graders appointed understand, it passes...if not, must go back for a rewrite until the EGCC grasp whatever it is being tested with little effort.

People like myself will be most appreciative and I think we would see a happier, patient, and most importantly, an informed America evolve.

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We Need a President Who Helps Eligible Investors Avoid Paying U.S. Taxes...

..Like President Bush needs a crash course in "trickle-down" economics.

Matt Romney, the wealthiest candidate running for president, with a personal fortune of up to $250 million, may look Presidential but as we all know appearances can be deceiving.

-- While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show.

Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney's former company, Bain Capital, and thus boosted profits for Romney and his partners.

Romney has based his White House bid, in part, on the skills he learned as co-founder and chief of Bain Capital, one of the nation's most successful private equity groups. His campaign cites his record while governor of Massachusetts of closing state tax loopholes; his involvement with foreign tax havens had not previously come to light.

In the Cayman Islands, Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies.

Romney still retains an investment in the Cayman fund through a trust. Campaign disclosure forms show the investment paid him more than $1 million last year in dividends, interest and capital gains.

In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital's Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans.

Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer's office in downtown Hamilton, capital of the British island territory.

"It's just a mail drop, essentially," said Marc B. Wolpow, who worked with Romney for nine years at Bain Capital and who set up Sankaty Ltd. in October 1997 without ever visiting Bermuda. "There's no one doing any work down there other than lawyers."

Investing through what's known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls "unrelated business income" from domestic hedge funds that invest in debt, experts say.

Kevin Madden, Romney's campaign spokesman, said there was nothing improper about the Bermuda arrangement, or in Romney's investment in the Cayman fund. In neither case, Madden said, did Romney gain the ability to defer or avoid paying U.S. taxes.

"I would disagree that these could be described as tax loopholes," he said. "These are perfectly normal and perfectly legal arrangements that American companies put together to be successful in the market."

The Cayman fund is registered at P.O. Box 908GT on Grand Cayman Island, corporate records show. Like the Bermuda company, it maintains no office or staff overseas.

Romney first purchased a 3.25% share of the Cayman fund, and was listed as a "general partner (passive)" before his retirement from Bain Capital in late 2001, records show. He put his financial assets into a blind trust in January 2003, when he took office as Massachusetts governor.

Brad Malt, who controls Romney's financial trust, said Bain Capital organized the Cayman fund to attract money from foreign institutional investors.

"This is not Mitt trying to do something strange," he said. "This is Bain trying to raise some number of billions from investors around the world."

The privately held Cayman fund does not disclose its total investment pool. But Securities and Exchange Commission records show it has invested through a Delaware partnership in a California-based network of healthcare centers, a Texas real estate group, a New Jersey phosphate manufacturer and numerous other companies.

Romney is the wealthiest candidate running for president, with a personal fortune of up to $250 million, according to financial disclosure forms he filed in August. His financial trust retains investments in at least 32 Bain and Sankaty equity, hedge and debt funds, among other assets, the documents disclosed.

Under his retirement agreement, Romney retains a share of the profits at Bain Capital, as well as the right to make new investments in Bain funds through his trust, until February 2009.

Malt said he had repeatedly increased Romney's stake in the Cayman fund since 2003. He said he was unaware of the specific figures, but added that he knew he "wrote a lot of checks," and that it paid a return of 20% to 30% a year.

Malt said he was "pretty confident" that he had invested in additional offshore funds for Romney since taking over the trust. "I don't care whether it's the Caymans or Mars, if it's organized in the Netherlands Antilles or the Jersey Islands," he said. "That means nothing to me. All I care about is whether it's a good fund or a bad fund. It doesn't affect his taxes."

Connections with offshore companies became a presidential campaign issue in April, when the Washington Post reported that Democratic candidate John Edwards had worked as a paid advisor to the Fortress Investment Group. Fortress incorporated hedge funds in the Cayman Islands, allowing its partners and foreign investors to avoid or defer paying U.S. taxes. The disclosure embarrassed Edwards, who has called for reducing financial inequalities in America and who had sharply criticized corporations that utilize offshore tax shelters.

Eugene Steuerle, co-director of the Urban-Brookings Tax Policy Center at the Urban Institute, a nonpartisan Washington-based think tank, said he was troubled by the growing use of offshore jurisdictions, even for legitimate purposes.

"There's clearly something wrong when you have to use post office boxes to conduct business," he said. "You ideally want a world where setting up shell corporations wouldn't be necessary."

But offshore companies are now "part and parcel" of America's booming private equity and hedge fund business, said Kurt Schacht, managing director of the Centre for Financial Market Integrity at the CFA Institute, which represents chartered financial accountants, in Charlottesville, Va. He defended the practice.

"I don't think they're loopholes," he said. "It's not like they're trying to break the law. It's just taking advantage of what's available under current tax laws."

As a presidential candidate, Romney regularly touts his successful business background. But he rarely describes his unusual experience in the rarefied world of international high finance.

After starting as a management consultant, Romney helped found Bain Capital in 1984. Initially launched as a venture capital fund to provide seed money to start-up companies, Bain Capital quickly evolved into a leveraged-buyout shop. Romney and his partners borrowed money to buy dozens of troubled companies, and then charged high fees to revamp management, consolidate operations and, in some cases, lay off workers. To cash out and pay the underlying debt, they resold the companies or took them public as quickly as possible.

Romney took a leave of absence from Bain Capital in February 1999 to take over the scandal-marred 2002 Salt Lake City Winter Olympics. By then, Bain Capital already had opened its first offshore entities.

According to a report by Fitch IBCA, a major credit-rating service, Bain Capital managed more than $5.5 billion in assets by mid-1999. The total included $2 billion managed by Sankaty Advisors, which included at least two Bermuda-based subsidiaries set up during Romney's tenure.

Public documents do not disclose how much of the $2 billion was channeled through Bermuda. The Sankaty funds are named for a red-and-white lighthouse on the Massachusetts island of Nantucket.

Romney legally remained the top executive at Bain Capital during his leave of absence. On Feb. 20, 2001, a Bain filing to the SEC described Romney as "sole shareholder, a director and president of Sankaty Ltd. and thus . . . the controlling person of Sankaty Ltd." The company, it added, was organized "under the laws of Bermuda."

Today, Bain Capital manages $60 billion in assets, according to a spokesman. The total includes $23 billion in Sankaty debt and credit funds. Half a dozen Sankaty affiliates now are active in Bermuda, corporate registry records show.

The Sankaty debt hedge funds are organized as partnerships in Delaware that produce taxable business income by investing in fixed-income bonds and other debt instruments. Under tax law, even tax-exempt U.S. institutions may face a 35% tax if they invest directly in such hedge funds. By investing instead through a Bermuda corporation, the taxes are legally blocked, experts say.

In Congress, both the House Ways and Means Committee and the Senate Finance Committee held hearings in September that examined whether the use of such offshore blocker corporations allowed tax-exempt U.S. organizations to improperly engage in business.

"A lot of people are looking at this," said a Senate investigator, who asked not to be identified because he was not authorized to deal with the media. "It grates that these people are only using these offshore arrangements to avoid paying taxes."

Janne Gallagher, vice president and general counsel of the Council on Foundations, a nonprofit membership group of 2,100 charities and grant-making foundations, said the practice was "pretty prevalent" in her field as portfolio managers sought to spread risk through hedge funds.

"It's a substantial tax, and that's what generally has led people to invest in these offshore blockers," she said. "I think everyone would prefer not to if they could avoid the consequence."

Rep. Sander M. Levin (D-Mich.) introduced legislation that would allow tax-exempt institutions to make such investments without going offshore. The bill passed the House but has drawn little support in the Senate.

As governor, Romney helped raise at least $300 million in much-needed state revenue by closing what he called tax loopholes. Critics called the strategy a backdoor way to raise taxes, and Romney failed in an effort to give state officials the authority to penalize corporations that lowered their tax bills by moving their profits out of state.

As a presidential candidate, Romney calls for lowering the corporate tax rate, lowering income taxes and eliminating taxes on interest, dividends and capital gains for those earning less than $200,000. He does not discuss the use of offshore tax havens on his campaign website.

We can't forget about Cofer Black, Romney's personal advisor. Romney made a point of saying that on matters of interrogation and torture techniques he defers to his campaign's counterterrorism czar, Cofer Black

"Blackwater appears to have its own presidential candidate [Romney] . . . one whose presidency could make the company's profitable business under Bush look like a church bake sale." -- Jeremy Scahill

Gosh, this guy makes George Bush and Rudy Giuliani look like Bert and Ernie.

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Congress Freezes the Alternative Minimum Tax

Congress has voted to freeze the alternative minimum tax (AMT) for one year without replacing the $50 billion that would be lost. The AMT was created in 1969 to keep the wealthy from avoiding taxes, however the tax has never been indexed or adjusted for inflation. Four million taxpayers paid the AMT last year and an expected 25 million people would have paid it this year if not for the freeze.

The freeze will require last minute changes to IRS computers and tax forms which will cause a delay at the taxpayer's expense. Considering I had to pay the AMT last year I will not be among those protesting the complications that are sure to follow.

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Donating Cars to Charity

If you are donating an old car to charity make sure you donate it to a charity that, in turn donates it to someone else in need. Under new IRS rules, in an organization auctions off a used vehicle, the former owner can only claim the amount the group gets for the sale, which could be well below market value.

BUT donations to charities that supply cars to needy people can be taken at full value.
Check out 1-800-CHARITY CARS, the first and only national charity of its kind that
provides donated vehicles free of charge to struggling families willing to work and become self-sufficient, tax-paying members of the community.

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But what about 'money' that's virtual?

NEW YORK (CNNMoney.com) -- In case you haven't noticed, Second Life is booming, and its economy has boomed too - putting the virtual reality world in the crosshairs of tax authorities, experts say.

Entrepreneurs have flocked to Second Life - a computer-based 3-D virtual world where users create their own, well, second lives - in pursuit of making real money. So-called residents can buy and sell goods for Linden dollars, an in-world currency that can be converted into real U.S. dollars.

Second Life is a virtual world that anyone with a broadband Internet connection can enter. Users download software and create an avatar - a cartoon-like character that they control with their mouse and keyboard that represents them in the digital world.
When users login to Second Life, they begin the in-world experience. Using the software's tools, they can create objects and communicate with other virtual residents via instant messaging and voice services.

At least one user claims the virtual world has minted her a millionaire - and economic activity is humming along. Users of the virtual world injected about $1.6 million into Second Life in the last 24 hours alone, according to Linden Lab, the creator of Second Life.

Under current tax law, it's clear that earnings in real U.S. dollars generated within virtual realities are reportable to the IRS. If a Second Life real estate mogul cashes out of her in-world property portfolio, she's liable to pay income tax on any profit that's been exchanged into real greenbacks - just as an eBay (Charts) seller is responsible for reporting income generated from an online sale.

Tax law is murky, however, when it comes to dealings that occur solely within Second Life or other computer-simulated environments. For instance, is a transaction that occurs only in Linden dollars and doesn't involve any real-world, dollar exchange taxable?

Questions like that have the tax community buzzing about the issue, said Paul Caron, a professor at the University of Cincinnati who edits the TaxProf Blog.

The issue has also attracted the interest of the Joint Economic Committee of Congress, which said last fall that it was studying issues related to the economies of virtual realities like Second Life and World of Warcraft, an online role-playing game.

Results of the study - due to be released before the end of the month - suggest that "as long as virtual activity stays within the virtual economy, it shouldn't be taxable," said Christopher Frenze, executive director of the JEC, which conducts policy research on economic issues facing Congress

But there is a valid argument that even profits that come from, and stay in, the virtual world are taxable, according to Bryan Camp, a professor at Texas Tech University School of Law. "As soon as you start looking at what's going on in these worlds, they look a lot like real economic transactions," he said.

Even if profit isn't realized in real dollars, there's still an exchange of items of economic value. In the real world, if someone trades goods or services without the exchange of real money - also known as bartering - that's a taxable event, Camp noted.

Given all the attention paid to the topic, the IRS eventually will have to respond to the situation, said Caron. "I think it's on the IRS's radar screen in a way it was not six months ago," he said.

When asked about the agency's position on collecting taxes from virtual economies like Second Life, an IRS spokesman offered the following comment via e-mail: "Any time someone wins a tangible prize or award, the value is reportable as taxable income. An accumulation of 'points' would not result in tax consequences, but redeeming or selling them for money, goods, or services would."

Edward Castronova, a professor at Indiana University who heads the Synthetic Worlds Initiative, a research center focused on online communities like Second Life and World of Warcraft, doesn't see taxes on virtual-only transactions coming anytime soon.

But "in the next three or four years, we'll likely see it. In the next 10 years, there's no question about it," he said. "If you look at these transactions, they're huge."

For its part, Second Life operator Linden Lab isn't concerned about looming tax regulations on virtual economies, at least not yet.

"Given the reassuring statements from the JEC, it's pretty clear this is a moot point," a spokesman for San Francisco-based Linden said. "Linden is focused on what it does best - scaling technology and building Second Life's platform."

Stay tuned.

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