Judge Criticized SEC and Rejects Citi’s Mortgage Settlement

Judge Calls SEC on Allowing Settlements that do NOT address liability

— Content from Bloomberg and SEC websites

At question was Citigroup Inc.’s $285 million settlement with the U.S. Securities and Exchange Commission over mortgage-backed securities.  The federal judge rejected on grounds that he does not have enough facts.

U.S. District Judge Jed Rakoff in Manhattan rejected the settlement – he criticized the SEC’s practice of letting financial institutions such as Citigroup settle without admitting or denying liability.

The SEC claimed that Citigroup misled investors in a $1 billion fund that included assets the bank had projected would lose money. At the same time it was selling the fund to investors, Citigroup took a short position in many of the underlying assets, according to the agency.

Citigroup, the third-biggest U.S. lender, agreed last month to settle a claim by the SEC that it misled investors in a $1 billion CDO linked to subprime residential mortgage securities. Investors lost about $700 million, according to the agency. A trial could establish conclusions that investors could use against Citigroup.

“In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth,” Rakoff wrote in the opinion. The proposed settlement is “neither fair, nor reasonable, nor adequate, nor in the public interest,” he said.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment pending a review of the decision. SEC spokesman John Nester declined to comment immediately on the ruling.

Rakoff today consolidated the case with another SEC suit involving former Citigroup employee Brian Stoker and scheduled the combined case for trial on July 16, 2012.

Citigroup doesn’t want to formally admit liability because of the bad publicity that would follow and because an admission would give a powerful tool to investors suing the bank.

Allowing a bank to pay a fine without admitting liability allows the SEC to avoid the uncertainty of a trial and preserves resources that can be used to pursue other securities law violators.

He rejected the SEC argument that he should defer to the agency’s determination that the settlement is fair, particularly as it asked him to issue an order requiring Citigroup not to violate the securities laws in the future.

Calling Citigroup “a recidivist,” Rakoff said the SEC hasn’t tried to enforce such an order against a financial institution in the past 10 years.

Bloomberg News and SEC response at http://www.sec.gov/news/speech/2011/spch112811rk.htm

Edi Alvarez, CFP®


SEC v David Kugel (part of Madoff Ponzi Scheme)


Litigation Release No. 22166 / November 22, 2011

Securities and Exchange Commission v. David Kugel, 11-Civ-8434 (S.D.N.Y.)

SEC CHARGES LONGTIME MADOFF EMPLOYEE FOR HIS ROLE IN THE MADOFF PONZI SCHEME: details – http://www.sec.gov/litigation/litreleases/2011/lr22166.htm

On November 21, 2011, the Securities and Exchange Commission charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme.

The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.

The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements.

The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008.

Edi Alvarez, CFP®


SEC: Facebook & Groupon Scams

SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

Washington, D.C., Nov. 17, 2011 — The Securities and Exchange Commission today filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook before they go public.

The SEC alleges that Florida resident John A. Mattera and several other individuals carried out the scam using a newly-minted hedge fund named The Praetorian Global Fund. They falsely claimed that the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in privately-held companies that were expected to soon hold an initial public offering (IPO) including Facebook, Groupon, and others. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, Mattera and others solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds.

In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his cohorts never owned the promised pre-IPO shares in these companies. The purported escrow service, headed by John R. Arnold of Florida, merely transferred investor funds to personal accounts controlled by Mattera and Arnold. After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme.

“By conjuring up a seemingly prestigious hedge fund and touting the safety of an escrow agent, these men exploited investors’ desire to get an inside track on a wave of hyped future IPOs,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.”

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Mattera, who was arrested earlier today.

The SEC is seeking an emergency court order to freeze the assets of Mattera, Arnold, Joseph Almazon of Hicksville, N.Y., David E. Howard II of New York City, Bradford Van Siclen of Montclair, N.J., and eight different entities also charged in the SEC’s complaint.

The SEC alleges that Mattera, who has been a subject of a prior SEC enforcement action and several state criminal actions, used investor proceeds to compensate Van Siclen and others for their involvement in promoting the fraudulent offerings. Howard, who was separately charged by the SEC earlier this year for his role in a boiler room operation, worked for Mattera as an authorized representative of the Praetorian hedge fund. Mattera, Van Siclen, and Howard were each actively involved in providing false documents and information to broker-dealer representatives in pitching their clients to invest in the Praetorian entities. They raised at least $12 million from investors across the country during the past 15 months. Almazon controls Long Island-based unregistered broker-dealer Spartan Capital Partners, which raised a significant portion of the money in the Praetorian entities.

The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website LinkedIn.com. One advertisement read in part: “[Spartan] can offer the opportunity to buy pre-IPO shares of the following companies: Facebook, Twitter, Zynga, Bloom Energy, Fisker, and Groupon.” Another ad stated: “We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!”

According to the SEC’s complaint, the purported escrow accounts at Arnold’s firm — First American Service Transmittals Inc. (FAST) — played a critical role in the fraudulent scheme. Mattera and Van Siclen told investors verbally and in writing that their investments would be held in escrow with FAST. Arnold, who was charged together with Mattera in a previous SEC enforcement action, falsely held out FAST as an escrow agent for the investments. Almost immediately after receiving investors’ deposits, however, Arnold released the money to himself and entities controlled by Mattera, who misappropriated investors’ funds for private jets, luxury cars, fine art, jewelry, and other personal uses. He also transferred money to his mother Ann Mattera and his wife Lan Phan. They are named as relief defendants in the SEC’s complaint for the purpose of reclaiming investor funds unrightfully in their possession.

The SEC’s complaint charges Mattera, Van Siclen, the Praetorian Fund, Praetorian G Power I LLC, Praetorian G Power II LLC, Praetorian G IV, Praetorian G Power V LLC, and Praetorian G Power VI LLC, Arnold, and First American Service Transmittals Inc. with violations, or aiding and abetting violations of, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. The complaint further charges Mattera, Van Siclen, the Praetorian G entities, Almazon, Spartan Capital Partners, and Howard with violating Sections 5(a) and 5(c) of the Securities Act by engaging in the unregistered offering of securities, and Almazon and Spartan Capital with violations of Section 15(a) of the Exchange Act by acting as unregistered brokers.

The SEC seeks a temporary restraining order as well as preliminary and permanent injunctive relief and financial penalties against the defendants, as well as disgorgement by defendants and relief defendants of their ill-gotten gains plus prejudgment interest.

The SEC’s investigation, which is continuing, has been conducted by Karen Willenken, Michael Osnato, Richard Needham, and Yvette Quinteros of the New York Regional Office. The SEC’s litigation effort will be led by Preethi Krishnamurthy. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York, Internal Revenue Service, and Swiss Financial Market Supervisory Authority for their assistance in this matter.

# # # message reprinted from http://www.sec.gov/news/press/2011/2011-245.htm
For more information about this enforcement action, contact:Andrew M. Calamari
Associate Regional Director, SEC’s New York Regional Office
(212) 336-0042
Michael J. Osnato, Jr.
Assistant Regional Director, SEC’s New York Regional Office
(212) 336-0156

Edi Alvarez, CFP®


Remembrance – Veteran’s Day

Take the time today and remember in your own way.

Here are some of mine:

Pittance of Time
English –
French – http://www.youtube.com/watch?v=XcjnqM6KQsQ&feature=mfu_in_order&list=UL

Remembering by current generation: –

End of World War I

Battle of Vimy Ridge

My two favorite poems for this day:

John McCrae’s poem, In Flanders Field is well known. The poem, however, was not written about the fighting which occurred in Flanders Field and before the biggest battles that occurred there. Lt. Col. John McCrae, M.D., a Canadian physician, wrote it while serving at a medical station in Ypres. On 8 December 1915, the poem was published anonymously in Punch magazine. Colonel McCrae died of pneumonia on 28 January 1918, nine months prior to large-scale fighting in the Flanders area. In 1919, his verses were collected and published under the title In Flanders Field and Other Poems.

In Flanders fields, the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly,
Scarce heard amid the guns below.
We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
in Flanders fields.
Take up our quarrel with the foe:
To you from failing hands we throw
The torch; Be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
in Flanders fields.

It was due to the poem “In Flanders Field” that Miss Moina Michael originated the Flanders Memorial Poppy which has raised millions of dollars for veterans and their families. Miss Michael became known to millions of World War I veterans as the “Poppy Lady” and on 9 November 1918 she wrote the poem, We Shall Keep the Faith in answer to the In Flanders Field poem.

Oh! You who sleep in “Flanders Fields,”
Sleep sweet – to rise anew!
We caught the Torch you threw
And, holding high we keep the Faith.
With all who died.
We cherish, too, the poppy red
That grows on fields where valor led:
It seems to signal to the skies
That blood of heroes never dies.
But lends a lustre to the red
Of the flower that blooms above the dead
In Flanders Fields.
And now the Torch and Poppy red
We wear in honor of our dead.
Fear not that ye have died for naught;
We’ve learned the lesson that ye taught
In Flanders Fields.

Images are powerful with the poem reading – particularly the words from those who served:


Additional Reading with slides – In Flander’s Field:

Edi Alvarez, CFP®









Fixed Annuities – apply them with care

Fixed Annuities
– A limited but essential role in some retirement plans

Fixed annuities represent a contract between an individual and an insurance company. Annuities provide a contractual way for an individual to guarantee that he or she receives income for life or for a set period of time. Other liquid financial products like equities, can pay dividends that can be used as retirement income the income is not guaranteed. A fixed annuity will guarantee an individual a stream of income as long as he or she lives or for a set number of years.

Sometimes you can start with Deferred Fixed Annuities

Like all annuities, except those that are immediate, deferred fixed annuities have two phases. The first phase is the accumulation phase. During this phase, which can be as short as a few years or as long as several decades, the annuity owner makes regular deposits into the account. These deposits are known as premiums.

All premiums contributed to a deferred annuity grow tax-deferred which means that the growth income received at retirement will be taxed as ordinary income.

When an annuity owner, who is known as the “annuitant”, decides to have distributions start, the annuity is “annuitized”. This is a critical process that converts it to an immediate annuity and you begin receiving payouts. The distributions can be paid monthly, quarterly or annually, depending on the preferences of the annuitant. An annuitant should think about his or her distribution schedule very carefully, because once it starts, it cannot be changed. An insurance company will also typically let the annuitant choose the length of time over which the distributions are paid. Guaranteed payments can be taken for life or for a specific number of years. This selection will affect the amount of each payment.  Life annuities are the only ones that will give the promised guarantee life long income.  Consider that life long income may not support your current lifestyle particularly in high inflationary periods.

Under current federal tax law, an annuity owner cannot begin taking payouts on a tax-deferred annuity prior to age 59 ½ without incurring a 10% penalty. Any tax-deferred annuity must begin in the year in which the annuitant turns age 70 ½.

What are Immediate Fixed Annuities?

An immediate fixed annuity is funded with a single premium. The premium is typically after-tax money paid as one lump sum. You can also set this up from a mandatory distributions taken on a qualified account. The distributions made by the life insurance company begin immediately, typically within 12 months of the start of the contract.

Immediate Fixed Annuities Pros and Cons

The return % paid on fixed annuity is always fixed. It could change year over year, but once it’s set for the year it will not change regardless of stock market fluctuations. This can be of great help to those on a tight retirement budget unless the market rises and therefore inflation rises. The advantage will be that you’ll know exactly the amount of each payment that will be made. While the rate paid on a fixed annuity could vary from year to year, most insurance companies will guarantee a rate of between 3% and 5%. It’s important to note, however, this guaranteed amount might not be enough to offset any cost of living increase. Inflation is a real and significant threat to retirement savings.  It is best to do immediate annuities when interest rates are high.

You could purchase a COLA (cost of living adjustment) rider that adjusts with inflation to retain some of your future purchasing power. The COLA rider is a costly component of  a fixed annuity contract, but it will increase the amount of money that is paid out each year. The amount should be enough to counteract measured inflationary pressures.  If you can afford the COLA you might consider it or consider leaving a portion of your assets in an equity portfolio so that it growth with the economy and provides a real inflation hedge.

For some, another risk factor associated with a fixed annuity is the premature death of the contract owner. If an annuitant dies before he or she has been repaid the amount he or she paid in premiums, the insurance company will keep the balance. To offset this, most insurance companies now give a guarantee of some sort on the premium.  For example, if the annuitant has an annuity worth $300,000 and dies after having only received $50,000 back, the beneficiary will receive the remaining $250,000. Or, the annuitant can choose an option called “period certain”. If he or she chooses a period of 20 years but dies during year 10, the beneficiary will receive payouts for the remaining 10 years.

I only consider premature death an important risk factor if you have beneficiaries or a legacy you want funded.  Even so, there are other ways to cover this risk factor than to purchase this type of rider – particularly if you still qualify for life insurance.

Who Should Buy Fixed Annuities?

Retired investors who need to guarantee income for life or for a set amount of time are often advised to consider a fixed annuity. Retirees who rely on equity dividends for most of their income may also want to consider a fixed immediate annuity. Dividends can provide substantial income but are not guaranteed. They can be cancelled by the company at any time should it need to conserve cash.

A retired investor may also fear that he or she will outlive the money he or she has saved. An immediate fixed annuity will also provide financial security. The payouts will be guaranteed for as long as the annuitant is alive, regardless of the amount of the premium. Even when the amount of the payouts exceeds the premium, the insurance company is obligated to make the payouts. For those in good health with few liquid assets, a fixed annuity could make a difference in their standard of living BUT they are extremely costly and impossible to exit gracefully if your situation changes.

A fixed annuity investor should always make sure he or she has enough cash for emergencies. As outlined earlier, an annuity contract cannot be cancelled except under the extreme circumstances. Once the contract is signed, the only way an investor can receive his or her money is through the payouts.

Consumers are strongly encouraged to purchase annuities only after a thorough analysis by a NON annuity sales financial professional.  This is a major investment that once signed can’t be undone – read the fine print and understand the nuances and their impact on your entire retirement before you sign.

Edi Alvarez, CFP®


Social Security – Have a plan

Maximize your inflation protected pension plan
– Couples must have a Social Security strategy

According to a recent survey (1) married couples nearing retirement do not maximize their social security benefits.  The vast majority of people are unaware of strategies that could increase their lifetime Social Security benefit by $40,000 or more. Only those with high net-worth or higher income appear aware that couples should have a social security implementation strategy.

Seventy-four percent of people with household income exceeding $200,000 expect to receive advice on Social Security benefit options from a financial planner, compared to only 48 percent of those with household incomes less than $50,000.

Most (77 percent) felt that the best advice to maximize their Social Security retirement benefits would be the Social Security Administration. Unfortunately, SSA personnel are not trained to provide more information than monthly benefit amounts at different election ages, and the SSA prohibits its representatives from dispensing advice.

If you are approaching your full retirement age or are planning on enrolling to receive social security make the investment to evaluate your social security implementation strategy with a qualified financial planner.

(1) survey source form socialsecuritytiming.com

Edi Alvarez, CFP®


Where is Labuan?

Financial Success during tough times … Labuan

Most of us probably don’t know Labuan, but amidst the major economic financial centers it is a shining star and part of what makes Malaysia such a power house. In an increasingly competitive and globalized world, international offshore financial centers rarely stop evolving and adapting to new circumstances and economic realities, and perhaps one of the most innovative, but lesser known, jurisdictions of recent times has been the Malaysian island of Labuan, which continues to go from strength to strength, despite the testing global economic conditions.

Labuan, situated a few miles off the northern coast of Borneo in Malaysia and tiny in size, is one of the newer additions to the list of the world’s offshore jurisdictions, but it is already attracting significant interest from businesses.

In 2010, Labuan maintained positive growth across all key business sectors, but particularly banking, leasing and insurance, despite the more challenging global environment, and new measures have been implemented recently to improve the flexibility and business-friendliness of its tax and legal framework, becoming effective as of 2009 and beyond.

Labuan has succeeded in not only attracting conventional business interest from all over the globe, it has its greatest potential in catering the growing demand for Islamic finance products.  Good or bad this is what appears to be in the future.

Labuan can now be said to be the new financial force to reckoned with, having built up a favorable reputation with international investors in a short space of time. Even so, they don’t appear content to rest on their laurels, and they’ve targeted several key strategies to advance Labuan as an international business and financial center of choice in the region. “In the pipeline are a number of initiatives under the Malaysian Financial Sector Blueprint, which aims to provide a holistic approach for the development of the Malaysian financial sector for the next 10 years“. Despite the gloomy world economic outlook and ongoing moves to force more regulation on offshore financial centers, with Malaysia’s backing it would seem that the sun is shining on Labuan’s future.

Edi Alvarez, CFP®


Don’t Forget State Estate Taxes

Don’t Forget State Estate Taxes

Don’t forget your state of residence and state estate tax changes when planning your Estate. Many differences between states require that you carefully review your estate and include state rules into your financial plan!  Even when you determine that you are exempt from federal taxes you may still have unexpected significant estate taxes at the state level.  Larger estates are more likely to have both but you’d be surprised that in some states how smaller estates may also qualified.

Nearly half of U.S. states impose an estate or inheritance tax regardless of whether the resident’s estate also owes federal estate taxes. Two states, New Jersey and Maryland, levy both estate and inheritance taxes!

Florida, Nevada, and Alaska are among states generally thought to be attractive place to retire, not only when you are living — because there is no income tax — but also when you die. Neither estate nor inheritance taxes are charged in these states.

Many estates owe taxes to multiple states because the deceased person owned a vacation home or other tangible property such as a boat outside of the state they lived in when they died. Intangible property, such as stocks and money in bank accounts, is taxed in the state the individual legally resided in at death, regardless of where the investments are physically located.

In California, we’ve phased out Estate taxes after 2005 and there is no inheritance tax. Executors of estates of persons who died on or after Jan. 1, 2005, are no longer required to file a California estate tax return.

Imposing just an estate tax, with exemption amounts ranging from $338,333 to $5 million, are Washington, Oregon, Minnesota, Ohio, North Carolina, Hawaii, New York, Delaware, Connecticut, Massachusetts, Vermont, Maine, Rhode Island, Illinois and the District of Columbia. Rates vary from 7% in Ohio to 19% in D.C.

Six states collect just an inheritance tax, which is paid by the heirs and not the estate, and generally increases for beneficiaries the more removed they are from being close family members. Rates range from 9.5% to 20% in Pennsylvania, Tennessee, Kentucky, Indiana, Iowa and Nebraska.

New Jersey begins taxing estates at $675,000 and has a maximum rate of 16%, in addition to a maximum 16% inheritance tax on beneficiaries who are not spouses or parents, or children or other lineal descendants. New York has a $1 million exemption for its estate tax, which also tops out at 16%.

Of course, states are always changing tax rules. So be mindful and consult a tax attorney before filing.

Edi Alvarez, CFP®


Who benefits most from our Tax Code?

Business Corporations and Taxes

Warren E. Buffett and Bill Gates stated clearly that too many wealthy individuals pay unusually low taxes to the federal government. I’d like to share the information gathered so far on  Corporate America so that we might be able to understand our current tax code.

Recently a review showed that 280 of the biggest publicly traded American companies faced federal income tax bills equal to 18.5 percent of their profits during the last three years — just a bit over half the official corporate rate of 35 percent and lower than their competitors in many industrialized countries.

Mr. Buffett, said that the tax code is unfair, he paid just 17% in federal taxes last year, about half the percentage his secretary paid.  I want to know how much his secretary earns to pay 34% in effective federal taxes – this seems a bit high but his point is still valid.  Business owners are not treated the same by the tax code as employees – should they be?

This corporate review, examined the regulatory filings of these companies to compute each year’s current federal taxes. The study does understate tax payments because it omits deferred taxes that they may pay in future years. Since it did not analyze actual tax returns but used publicly available corporate regulatory filings many companies dispute it.

If 17-8% is the going Corporate average rate then we must look more closely at the 70 companies (a quarter of the 280 corporations) which owed less than 10 percent of profits in federal income taxes and the 30 companies that had no federal tax liability for the entire three-year period.

Why is this currently important?The Congressional super-committee will report on November 23rd how we’ll cut the budget deficit and is considering revamping our tax system.  The goal would be to simplify corporate structure and reduce corporate taxes. Corporations claim that the current system puts American companies at a disadvantage with competitors abroad and encourages them to shift jobs and investments overseas.  Is this real or a bargaining chip?

My view is that the current tax system rewards companies that aggressively avoid taxes. A quarter of the companies in the study had a federal tax bill of 35 percent of their profits, while a similar number had an effective rate of less than 10 percent.  Therefore not all corporations are equally sharing in the tax burden.  Maybe the solution is to close the loopholes & force a  minimum tax burden on profits for all corporations instead of lowering the rate.

Among the companies that the study said escaped a liability for all three years were Boeing and Ryder System, which benefited from the additional depreciation intended to stimulate the economy. Boeing officials countered that they had paid some federal taxes, but would not say how much. They said that their lower rate was from tax breaks intended to encourage hiring. Boeing claims to have hired 9,000 workers this year as a result of their tax credits.

Other companies include General Electric and Wells Fargo who claim respectively that new job creation and the Wachovia right downs where their reasons for reduced tax liability.

The fact is that corporations are paying a smaller share of taxes than in previous decades. According to the IRS they paid a total of $191 billion in federal income taxes in 2010, which is about 1.3 percent of the nation’s gross domestic product (GDP). That is down from about 6 percent during the 1950s.

Despite this decline the Americans for Tax Reform, said that the United States system was not competitive because it taxed income earned around the world, instead of just in this country. On the other hand Citizens for Tax Justice countered that about two-thirds of  the American companies with significant profits overseas actually paid more in taxes to foreign governments than they did in the United States.

But should we not consider the total tax?  The bottom line for a company is not how much they pay one country but how much they pay overall.

On the other hand, I can agree with the Citizens for Tax Justice’s request that the federal government end the subsidies and shelters that favor companies that game the system.

How can the supper-committee come up with real budget saving unless the loopholes are closed?

What do you think?

Edi Alvarez, CFP®


IRS: Banking transactions reported early 2012

Banking Expenses are Going Up
Expect our fees to follow

The Internal Revenue Service just released this FAQ – that they are providing special transitional relief to banks and other payment settlement entities required to begin reporting payment card and third-party network transactions to the IRS on new Form 1099-K.  These are the fees that banks are trying to find a way to pass on to us, the consumer.

By law, reporting is scheduled to begin in early 2012 for payment card and third-party network transactions that occurred in 2011.

See details at:

What is a third-party settlement organization?
A third-party settlement organization is a central organization that has the contractual obligation to make payments to participating payees (generally, a merchant) in a third party payment network. Characteristics of a third party payment network include: (i) the existence of a central organization with whom providers of goods and services have established accounts, (ii) an agreement between the central organization and providers to settle transactions between the providers of goods and services and purchasers, (iii) the establishment of standards and mechanisms for settling such transactions and (iv) the guarantee of payment in settlement of such transactions. The most common example of a third-party settlement organization is an online auction-payment facilitator, which operates merely as an intermediary between buyer and seller by transferring funds between accounts in settlement of an auction/purchase. Third-party settlement organizations charge sellers a fee for facilitating the transaction. Under the reporting requirements, these entities must report the gross reportable transactions of the businesses to which they make payments provided the payee satisfies certain transaction volume and dollar thresholds.

Edi Alvarez, CFP®