Fundmastery Blog

Kurt Brouwer August 27th, 2009

Tax Court Rejects Taxpayer’s Attempt to Use Geithner’s Turbo Tax Defense (TaxProfBlog, August 26, 2020, Paul L. Caron)

The Tax Court yesterday rejected a taxpayer’s attempt to use the TurboTax defense successfully employed by Treasury Secretary Timothy Geithner.  Hopson v. Commissioner, T.C. Summ. Op. 2009-130 (Aug. 25, 2009) (citations omitted):

Petitioners have not met their burden of persuasion with respect to reasonable cause and good faith. Mr. Hopson admitted that he received both Forms 1099-R for the distributions and that he knew they constituted income. After using tax return preparation software for nearly 20 years, he simply filed the return that was generated by the software without reviewing it. The omission of the distributions resulted in the failure to report over 40 percent of petitioners’ total income for the year. Granted this was a one-time event, but petitioners nevertheless had a duty to review their return to ensure that all income items were included. Petitioners were not permitted to bury their heads in the sand and ignore their obligation to ensure that their tax return accurately reflected their income for 2006. In the end, reliance on tax return preparation software does not excuse petitioners’ failure to review their 2006 tax return.

By way of background, during his confirmation hearings in January, Secretary Geithner disclosed that he failed to pay all of his income taxes and self-employment taxes for a number of years.  He blamed the failure to pay on the use of tax preparation software — TurboTax.

• Money , Personal Finance , Uncategorized , income taxes
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Kurt Brouwer June 10th, 2009

Subject: Top 12 Indicators That Economy is Bad

12. CEO’s are now playing miniature golf.

11. I got a pre-declined credit card in the mail.

10. I went to buy a toaster oven and they gave me a bank.

9. Hot wheels and Matchbox car companies are now trading higher than GM in the stock market.

8. Obama met with small businesses - GE, Pfizer, Chrysler, Citigroup and GM, to discuss the Stimulus Package.

7. McDonalds is selling the 1/4 ouncer.

6 People in Beverly Hills fired their nannies and are learning their children’s names.

5. The most highly-paid job is now jury duty.

4. People in Africa are donating money to Americans.

3. Motel Six won’t leave the lights on.

2. The Mafia is laying off judges.

1. If the bank returns your check marked as “insufficient funds,” you have to call them and ask if they meant you or them.

This list has been bouncing around the blogosphere without attribution.  I would be happy to give credit to the folks who actually developed it.

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Kurt Brouwer January 21st, 2009

Unlike most investments in 2009, tax-exempt municipal bond funds have had a pretty nice rally. In fact, for the first time in months, investors put more in to muni bond funds than they took out. And, cash was still pouring in as recently as last week as pointed out in this piece from the public finance paper, The Bond Buyer:

…Muni funds that post weekly numbers reported inflows of $737 million for the week ended Jan. 14, the most since the final week of May, AMG Data Services reported last week…

However, my friend Tom Petruno, financial columnist at the Los Angeles Times and blogger at the LAT Money & Co. Blog, points out that the rally may be taking a breather:

Rebound in tax-free muni bonds may be running out of gas (Los Angeles Times, January 21, 2020, Tom Petruno)

The tax-free municipal bond market has had the wind at its back for the last five weeks, driving yields down — and bond prices higher. But that may be changing.

Selling in the muni market has picked up since Friday. Some investors are balking as bond yields have dropped.

In the California muni market, “It’s certainly a lot harder to find a bargain now, that’s for sure,” said George Strickland, a muni bond fund manager at Thornburg Investment Management in Santa Fe, N.M…

The share price of the Vanguard California Long-Term Tax-Exempt Bond Fund plummeted from $11.24 on Sept. 11 to a low of $9.77 on Dec. 16, a drop of 13%. For munis, that’s a big loss in a short period.

From the December low, however, the fund’s share price rallied back to $10.74 by last Thursday, a 10% rebound. On Tuesday the fund fell 0.8% to $10.63, the biggest one-day drop since Dec. 8.

As for interest rates, the Vanguard fund’s estimated annualized dividend yield was about 5.1% at the share price low in mid-December. Now the yield is about 4.7%.

That’s still a good tax-free return, particularly compared with yields on U.S. Treasury securities. But analysts note that one of the factors that triggered selling of munis in early December — worries about the deteriorating finances of many states and municipalities as the economy worsens — hasn’t gone away, even as yields have dropped. . .

I’m not sure I would buy a long-term muni fund, such as the one mentioned above, right now, but I definitely agree that tax-exempt bond fund yields are attractive.

For example, the Vanguard California Tax-Exempt Money Market Fund has a yield that is well below 1% (the latest information on Vanguard’s web site shows its SEC yield at 0.44%). With money markets funds and other liquid investments offering skimpy returns, a tax-free yield of 3% or 4% from a bond fund is a nice alternative for any investor with a longer time horizon.

If buying a California (or New York or any other state) fund seems too risky, then a national tax-exempt bond fund such as the Vanguard Intermediate Term Tax-Exempt Fund would be a logical alternative with a yield of approximately 3.50%.

See also Are California’s Muni Bonds Golden? and Bill Gross & Pimco Like Munis Too.

 

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Kurt Brouwer December 16th, 2008

Given the big drop in energy prices, it is not surprising that the cost of living fell in November.  However, the size of the decrease in the Consumer Price Index (CPI) was a bit startling as this release from the Bureau of Labor Statistics indicates [emphasis added]:

Consumer Price Index — November 2008 (Bureau of Labor Statistics, December 16, 2020)

On a seasonally adjusted basis, the CPI-U [CPI for all urban residents] decreased 1.7 percent in November, the second consecutive record decrease. For the 12 month period ending in November the CPI was up 1.1 percent, compared to 5.6 percent for the twelve months ending July of this year. Falling energy prices, particularly gasoline, drove the decline in the overall index…

…Excluding food and energy, the CPI was virtually unchanged in November and is up 2.0 percent since November 2007. Continuing declines in the indexes for new and used motor vehicles, lodging away from home, airline fares and some technology-related commodities offset small increases in a variety of other service and commodity items…

In a year of many surprises — mostly unwelcome surprises — this is a mixed blessing.  I’m happy that inflation is falling.  However, the underlying cause is not that we have our financial house in order.  In fact, it’s quite the opposite.  The circumstances are that the economy is suffering and falling prices are symptom of the economic malaise.  It does show how quickly things can turn around though.  As of July, 2008, year-over-year inflation was up 5.6%.  Fast forward to November, 2008 and year-over-year inflation is up only 1.1%.  Wow.

See also Inflation versus Deflation.

For much more on inflation, I recommend our series:

Part One:  Does the Government Understate Inflation?

Part Two: Does the Government Understate Inflation? — Bill Gross Says Yes

Part Three: Does the Government Understate Inflation? — Don Boudroux & Russell Roberts Say No

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Kurt Brouwer September 29th, 2008

Source: Carpe Diem

As this financial panic has been labelled the worst crisis since the Great Depression, I thought I would post something that would take us back to those days.  This chart, from University of Michigan economist Mark Perry, is very interesting.  It shows that, during the Great Depression, the cost of food, clothing and housing took up as much as 60% of Americans’ spending.  Now, it’s about 34%.

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