Sources of Income Tax Identity Theft

Compiled by: Larry Walker II ::

In a February 2014 House Oversight Hearing, J. Russell George, Treasury Inspector General for Tax Administration, stated that, “IRS employees are entrusted with the sensitive personal and financial information of taxpayers. Using this information to perpetrate a criminal scheme for personal gain negatively impacts our Nation’s voluntary tax system and it can generate widespread distrust of the IRS. TIGTA aggressively investigates IRS employees involved in identity theft-related tax refund fraud and refers these investigations to the Department of Justice for prosecution. Many of these employees face significant prison sentences as well as the loss of their jobs if convicted.

I can think of several other situations negatively impacting our Nation’s voluntary tax system and generating widespread distrust of the IRS. Former IRS Official Lois Lerner’s use of executive privilege in targeting Barack Obama’s political opponents comes to mind, but I digress. What’s on my mind today are sources of identity theft.

I personally know several people who have been victims of income tax related identity theft. At least two have had to wait more than a year to receive legitimate refunds from the IRS. In one case over $8,000 was delayed over a two-year period. When it comes to the process of having income tax withheld at the source, perhaps it’s better to underpay. Whenever I hear about a case of tax related identity theft, the question I always ask myself is how the thieves were able to obtain the victim’s personal information. The answers I found are shocking.

The major sources of income tax identity theft appear to be healthcare providers, including doctor’s offices, nursing homes and even veterans hospitals, but even more disturbing, from within the IRS itself.

IRS Employee Orchestrated Identity Theft Refund Scheme Using Taxpayer Records (January 13, 2014)

On December 10, 2013, in the Northern District of Georgia, IRS Tax Examining Technician Missy Sledge was indicted for aggravated identity theft and mail fraud.

According to court documents, as part of her official IRS duties, Sledge had access to taxpayers’ personal identifiers, including names, Social Security Numbers (SSN), dates of birth, and addresses, and information about tax professionals. Sledge used this access in furtherance of an identity theft scheme which included the filing of fraudulent tax returns and the subsequent theft of refunds. With information from IRS computer systems, Sledge provided taxpayers’ personal information to her coconspirators.

It was part of the scheme that others would file fraudulent tax returns with the IRS using the stolen identities of various taxpayers. Sledge used her IRS computer to review the fraudulent returns submitted to determine if she could release fraudulent tax refunds from those returns. When identified, Sledge would release the fraudulent refund for payment. Sledge further assisted those involved in the scheme in impersonating either the taxpayers or their authorized representatives so the taxpayers’ addresses of record could be changed to a fictitious address accessible to Sledge or others involved in the scheme. Sledge then caused the IRS to mail refunds in the taxpayers’ names to the fictitious address to be intercepted or stolen.

On May 21, 2013, an individual was arrested in Texas and was found to be in possession of an IRS refund check in the amount of $595,901.97, along with three pages of internal IRS documents containing tax information for one of the identity theft victims. A review of IRS systems revealed Sledge made accesses to this taxpayer’s account, as well as to the taxpayer’s accountant’s information, on seven dates between February 2013 and May 2013. The victim was due a large refund because she had overpaid her estimated taxes. One of the perpetrators used the accountant’s information and Government-issued representative number to impersonate the tax practitioner in telephone communication with the IRS on March 5, 2013, to change the address on record from a North Carolina address to an address in Atlanta, Georgia. Sledge then released the $595,901.97 refund to the fictitious address.

On May 23, 2013, an e-mail was sent from Sledge’s IRS e-mail account containing the personal information for two other taxpayers, a married couple. The e-mail included the taxpayers’ names, SSNs, dates of birth, address, and tax preparer’s information. A subsequent telephonic address change was made, changing the address of record from the taxpayers’ Massachusetts address to a Georgia address, and a refund in the amount of $961,779.33 was paid on or about May 31, 2013. Review of the IRS systems identified accesses to the taxpayers’ accounts by Sledge on May 23, 2013 and again in June 2013.

Multiple communications were identified to and from Sledge’s IRS e-mail account on dates between May 2013 and September 2013, relaying taxpayer information and/or internal IRS documents for up to as many as 56 taxpayers to Sledge’s coconspirators. Text messages containing taxpayer information and discussing the theft of Government funds were also identified. In one message she sent to an individual she was trying to recruit as a coconspirator, Sledge told the recipient she had a business proposition for him and indicated she had a plan to change the addresses so checks would come to him. Sledge offered to split the scheme proceeds three or four ways, depending on the number of people involved. Sledge said she would give him all the information needed to get the address changed without any problems or questions and said, “All of this money is just sitting here for the taking.”

TIGTA special agents arrested Sledge in Chamblee, Georgia on November 26, 2013. She entered a not guilty plea at her arraignment, held on December 19, 2013.

Source: U.S. Treasury Inspector General for Tax Administration (January 13, 2014)

Other Sources of Income Tax Identity Fraud

GA: “The returns were filed using the names and personal information of patients from two healthcare facilities in Georgia…”

GA: “According to court documents and evidence introduced at trial, Banks, who is a former certified nursing assistant, obtained the names and Social Security numbers of nursing home patients from her employer and conspired with Mosely…”

GA: “In her plea agreement, Blount admitted that beginning in 2010, she obtained stolen identities of nursing home patients and used that information to file fraudulent income tax returns…”

FL: “Also found in both rooms were medical records that had been stolen from a veterans hospital…”

FL: “Latonya Ware stole patients’ names and social security numbers from a medical office where she worked, and gave the information to Tilus and her cousin, Andrew Ware. Rowe electronically filed fraudulent tax returns utilizing the victims’ names and social security numbers…”

GA: “The defendants obtained their victims’ information from publicly available websites that publicize the names, social security numbers, and other personally identifying information of unsuspecting individuals…”

GA: “Thomas orchestrated a scheme to file over 1,200 false tax returns using the names and Social Security numbers of various victims, many of whom were incarcerated in jails or prisons throughout the country…”

FL: “Lyon worked as a service representative for Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF). As an employee of TIAA-CREF, Lyon had access to the names, addresses, social security numbers, and dates of birth of TIAA-CREF’s clients. In anticipation of a share of the proceeds, Lyon provided Martin with personal identifying information belonging to individual clients of TIAA-CREF for the purpose of filing fraudulent tax returns claiming tax refunds in those clients’ names…”

Source: IRS: Examples of Identity Theft Schemes – Fiscal Year 2014

From now on, I’m going to question anyone who asks for my personal information, and those that don’t really have a need won’t be getting it. For example, Why does my doctor need to know my Social Security number? As long as I’m paying cash, she doesn’t. I pity all the poor souls who recently published all of their personal information on the insecure Obamacare website. We’ll see how that works out.

As far as trusting the IRS, that bridge is already pretty much burned to the ground. One of the greatest opportunities the federal government will ever have in positively impacting our Nation’s voluntary tax system and restoring trust in the IRS is to prosecute Lois Lerner, and if found guilty, lock her up and throw away the key.

Alan Grayson: Lies, Tax Fraud and Deceit

Lies, Tax Fraud and Deceit (Originally Published 11/03/2009)

My theory is that Alan Grayson is a liar, a fraud, and a tax-cheat. Who is this guy? How did he really obtain his wealth? It’s certainly worth further investigation in light of the following.


  1. Roll Call lists Alan Grayson’s largest asset is a claim against Derivium Capital, the now bankrupt Ponzi scheme, in the amount of $34 million.

  2. Central Florida Politics lists Alan Grayson as the Derivium Capital scams most frequent customer.

  3. Roll Call lists Grayson’s net worth at $31.12 million. Grayson’s only other asset is said to be a trust fund worth $5 to $25 million.

  4. Roll Call states that Grayson founded IDT Corp. in 1990. However, states that IDT was founded by Howard Jonas in 1990. An article from January 9, 1992, in the New York Times, entitled, “Hot-Wiring Overseas Telephone Calls”, backs up the fact that the company was founded by Howard Jonas, not Alan Grayson.

  5. Per, the IRS has targeted Derivium Capital’s loan transactions as taxable events.

Questionable Issues:

  1. If Alan Grayson was not the founder of IDT Corp., then how did he obtain $29 million worth of stock between the years 2000 and 2005?

  2. Since Alan Grayson was not the founder of IDT Corp., then why did he lie on his Congressional disclosure?

  3. What was the cost basis of the stock which Alan Grayson sold to Derivium Capital for $26 million?

  4. Did the IRS investigate Alan Grayson, and if so, how much was determined that Grayson owed in back taxes?

  5. Did Alan Grayson voluntarily amend his tax returns to report the sale of stock to Derivium Capital?

  6. What did Alan Grayson know about Derivium Capital at the time of the transaction?

  7. Did Alan Grayson knowingly profit from an illegal Ponzi scheme?


Rep. Alan Grayson (D-Fla.) $31.12 million

The Florida lawmaker’s largest asset stems from an apparent financial mistake. Grayson lists a claim valued at $25 million to $50 million against Derivium Capital. The now-bankrupt firm managed a Ponzi scheme in which investors, including Grayson, could turn over stock to Derivium in exchange for cash loans and redeem the value later if the stock prices increased. A South Carolina court ruled earlier this year that Derivium shareholders were collectively owed about $270 million in lost profits and that Grayson’s share would be about $34 million. In addition to that claim, Grayson, an attorney who founded the telecommunications company IDT Corp. in 1990, lists a trust valued at $5 million to $25 million. The same trust was previously Grayson’s largest asset, with a value of $25 million to $50 million when he filed a candidate disclosure form in November 2008.

Scam’s Most Frequent Customer

Between 2000 and 2005, Grayson was the most frequent participant in Derivium’s “90-percent stock-loan” program, transferring about $29 million in stocks to Derivium and promptly receiving 90 percent of it – about $26 million – back in cash as “stock loans,” according to his court filings. In that sense, he lost only about $3 million out of pocket. But Derivium had promised to pay Grayson profits on his stocks, if they appreciated enough over the three-year loan period to cover the amount of his “stock loans” plus interest. And Grayson picked some lucrative stocks. His $34 million in damages is based on the profits he should have received on stocks that rose in value – had Derivium not run out of cash and filed for bankruptcy.

Derivium Loan Update: IRS Targets Derivium Loan Transactions

Introduction: IRS has targeted taxpayers who have engaged in loan transactions through Derivium Capital by sending them Preliminary Notices, in late January, 2007, stating that the Derivium loan transaction may be a “tax avoidance” device. In essence, IRS claims the Derivium loan transaction is really a taxable sale of securities at the time taxpayers received the proceeds, rather than a bona fide loan. IRS has an audit project underway in Sacramento, California, involving Derivium-type loans.

How It Works: In general, Derivium arranged loans for 90% of the value of a stock for an initial 3-year period at a compounded interest rate of approximately 10%. The loan is non-recourse, which means that at the end of the loan term, if the borrower cannot repay both principal and interest, the lender forecloses on the stock in full payment for the loan. The borrower has the option of rolling over the loan at maturity for an additional fee.

Note: Derivium has filed for bankruptcy and its client list has become public, thereby providing IRS with a road map of taxpayers who engaged in the loan transactions. Derivium is no longer in business.

Tax Consequences: IRS challenges the transaction and maintains a sale occurred in the initial year of the transaction on the following grounds:

  1. The taxpayer was obligated to transfer the stock to Derivium, but repayment was optional because the purported loan was non-recourse to the taxpayer.

  2. Taxpayers eliminated the risk of loss.

  3. Principal payments are prohibited during the entire term of the transaction.

  4. Legal title to the stock was transferred to Derivium.

  5. The stock was treated as belonging to Derivium.

  6. Derivium sold the stock to fund the transaction.

When the loan matures and if the borrower does not repay it, the lender forecloses on the security (the stock) and the borrower has a taxable event at that time. The stock is treated as sold for the full amount of principal and interest outstanding. Thus, the borrower has a gain equal to the difference between the sales price (the full amount outstanding on the loan) and the borrower’s basis in the security. The gain will usually meet long-term capital gain requirements under federal law and be taxed at 15%.


U.S. Tax Compliance Costs $44B, not $400B

Tax Foundation’s Runaway Compliance Estimates

By: Larry Walker, Jr. –

“There are three kinds of lies: lies, damned lies and statistics.” ~ Mark Twain –

According to the Tax Foundation, federal income tax compliance costs were projected to reach $392 billion by 2011, and $483 billion by 2015. Now they say it’s probably in the ballpark of $400 billion as of 2011. So in other words, they figure that it costs taxpayers an additional 20 to 40 percent of the amount paid in income taxes just to fill out and file the forms. However, what people echoing these numbers overlook is the fact that these figures are based on Internal Revenue Service estimates made during an era in which tax forms were completed with a tax booklet, pencil and calculator, a methodology that even the IRS discontinued in 2006.

The fact that the Tax Foundation assigned a dollar value to outmoded time estimates, based on a taxpayer’s average hourly earnings, is even more appalling. The real eye opener ought to be that a huge chunk of the dollar cost mentioned is not money that anyone actually spends. It is rather the value placed on the time each taxpayer would spend preparing their income tax return if (1) they actually prepared their own tax return, (2) they prepared their return with a tax instruction booklet, paper forms, a pencil, and calculator, and (3) they were compensated for their time.

To prove just how bogus this figure is, I pored over the Tax Foundation’s 2005 report. The first thought that occurred to me is that the reason the report hasn’t been updated since then is because the IRS stopped estimating the time it takes to manually fill out tax forms in 2006, and without these estimates, the Tax Foundation’s theoretical foundation disintegrated. And why did the IRS stop making these estimates? Well, primarily because since it began accepting electronically filed returns in 1990, and set a goal of achieving – “80% of all tax and information returns filed electronically by Filing Season 2007″, and with the advent of personal computers and cheap software, the amount of time spent and cost of preparing income tax forms has declined dramatically. Thus, the idea of one toiling for 17 to 23 hours, or longer, over a 2 to 3 page tax return is passé.

One section of the report states that: “When examined by income level, compliance cost is found to be highly regressive, taking a larger toll on low-income taxpayers as a percentage of income than high-income taxpayers. On the low end, taxpayers with adjusted gross income (AGI) under $20,000 incur a compliance cost equal to 5.9 percent of income while the compliance cost incurred by taxpayers with AGI over $200,000 amounts to just 0.5 percent of income.”

What the Tax Foundation is saying is that a person with $20,000 of adjusted gross income would incur a cost of $1,180, or 5.9% of their income, in preparing their income tax return, and a person making $200,000 would expend $1,000, or 0.5% of their income. Does that match your experience, because it’s complete nonsense from my vantage point? Is this even remotely reasonable? Let’s examine this theory in more detail.

Following the Tax Foundation’s logic, we could assign a cost to virtually everything we do, as a function of our annual income. Never mind the fact that we only get paid for the time we actually work. So in other words, if you make $9.61 per hour on the job, and it takes you 2 hours per week to wash your clothes (on your time off), then according to this theory, the real cost of clothes washing is more than $1,000 per year ($19.22 times 52 weeks; plus washing powder, water, electricity, and depreciation of your washing machine and dryer), or more than 5.0% of your annual income.

Carrying this through to its illogical conclusion, for a person who works 8 hours per day, the cost of sleeping 8 hours per night would be equal to their annual income, right? So one can only ponder the cost of watching television, driving to and from work, mowing the yard, etc… You can see how silly this is. To drive the point home, under this theory, if you work 8 hours per day, and have 16 hours of free-time, then the cost of everything you do outside of work would be twice as much as your annual income. In other words, you’re not actually making $20,000 per year, heck, you’re not even breaking even; you’re going in the hole by $20,000 every year. Well, so much for that theory.

Ask an Accountant

I have had the fortune of preparing income tax returns, both in the early 1980’s, before the advent of personal computers, and in the 21st Century with high speed internet and gigabytes of random-access memory. In the early 1980’s it took literally days to complete a complex income tax return. Information would be gathered and written onto data forms in pencil, then shipped off to a main-frame computer processing center. The printed return would then be mailed back in about 3 business days, although a typographical error would easily double this time-frame. Then the taxpayer(s) had to be summoned to come in and sign the return before it could be postmarked.

The cost of preparing an itemized Form 1040 with Schedule A, plus a state tax return, back then averaged around $150. Most non-itemized returns were completed on the spot, with pen and calculator, for around $85. What some people miss is that since $150 in 1981 had the same buying power as $380 today, annual inflation over this period being 3.16%, and since the average cost is still around $150 today (in the Southeast), the cost of preparing income tax returns has actually declined by around 61%, over the past 30 years. But you won’t hear about this from today’s rubber stamps.

It was in 1990 that IRS e-file became operational nationwide, and that year 4.2 million returns were filed electronically. I was working for the IRS at the time. Later on, when I started my own practice back in the year 2000, after doing other things for a few years, part of my mission statement read, “To assist the Internal Revenue Service in its goal: ‘To have 80% of all tax and information returns filed electronically by Filing Season 2007’”.

By the year 2007, as per the table below, the percentage of electronically filed returns had only reached 57%, however, many practices, such as mine, were already near the 100% mark. As a result, ever since then, that part of my mission statement has read, “To file 99.9% of all income tax and information returns electronically”. Nowadays, a tax preparer, who prepares more than 10 returns per year, is required to file all returns electronically.

From personal experience, these days it takes about an hour to prepare and e-file the same income tax return that used to take 3 days or longer. Like in many other industries, technology has made tax compliance both cheaper and more efficient. While prices have risen dramatically in other sectors, such as Education and Health Care, the cost of professional income tax preparation has plummeted, on an inflation adjusted basis. Most notably, the time it takes to prepare a return has been reduced from days to minutes. Similarly, the time it takes to receive an income tax refund has been reduced from 6 to 8 weeks, down to 7 to 10 days. This is precisely why the IRS no longer publishes obsolete manual computation time-frames.

The 2005 1040 Instruction Book, on page 79, states, for example, that the time and cost of preparing a Form 1040 with Schedule A and other schedules, but no Schedule D, was as follows (see table below, 3rd row from the top):

  • Self prepared without software – 16.7 hours | $18
  • Self prepared with software – 22.7 hours | $51
  • Prepared by Professional – 12.1 hours | $174

In analyzing this, does anyone out there seriously believe that it would take 6 hours longer to self-prepare a tax return with software, than without? Like that makes sense. And what kind of practice would a professional be running, if it took 12.1 hours to complete each itemized 1040 return? At that pace, a professional would only be able to complete around three 1040 returns per week, and since the regular season only lasts about 12 weeks, would only be able to prepare around 40 returns per season, with a seasonal income of around $6,900. If it really took a professional 12.1 hours to prepare each an every itemized Form 1040, we would indeed have a problem. However, since actual facts and figures reveal that tax preparation really takes a fraction of the time it used to, and costs less than half of what it did 30 years ago, perhaps we don’t have a problem after all, at least not a ‘cost of income tax compliance problem’.

According to Nickel, over at the, his research coming from the National Society of Accountants biennial survey, the average tax preparation fee for an itemized Form 1040 with Schedule A, plus a state tax return, was $229 in 2010. And for a Form 1040 and state return without itemized deductions, the average price was $129. But keep in mind that tax preparation fees vary regionally, so the above averages aren’t necessarily applicable depending on where you live. The lowest costs are in the Eastern South Central region (AL, KY, MS, and TN) where a Form 1040 with a Schedule A and state return averages $137. And the most expensive region is the Pacific (AK, CA, HI, OR, and WA) at $292.

He also found that for those with more complex returns, modern day costs average as follows (again, prices will vary by region):

  • $212 for Form 1040 Schedule C (profit or loss from business)
  • $551 for Form 1065 (partnership)
  • $692 for Form 1120 (corporation)
  • $665 for Form 1120S (S corporation)
  • $415 for Form 1041 (fiduciary)
  • $2,044 for Form 706 (estates)
  • $584 for Form 990 (tax exempt)
  • $58 for Form 940 (federal unemployment)

Here in the Southeast, a professionally prepared itemized Form 1040 with Schedule A, plus a state tax return, takes about an hour to prepare, and the fee averages $150. The question of whether a person making over $200,000 will pay more, or less, is actually not based on their income, but rather on how many forms need to be prepared? So if an itemized Form 1040 with Schedule A, plus a state tax return, costs an average of $150 to prepare, that’s generally how much it costs no matter how great one’s income. That’s because the time it takes to prepare such a return would be about the same. If it costs more, it’s most likely due to additional form filing requirements. Thus, the true modern day cost of $150, to prepare such a return, is a far cry from the Tax Foundation’s estimate of $1,000.

At the same time, a basic Form 1040-A, plus a state return, would take around 30 minutes to prepare, with an average fee of $85 ($60 without the state). This is also a major discrepancy from the Tax Foundation’s estimated cost of $1,180, for a person making $20,000 per year. If we were to follow this artificial tack, then we would have to believe that it would take something in the order of 122.7 hours to prepare a basic 2 or 3 page 1040-A return, at a cost of $9.61 per hour (the hourly wage for a person making $20,000 per year). Therefore, the Tax Foundation’s purported $400 billion per year estimate is grossly overstated.

The act of basing an entire tax reform platform on factitious information is called, “fraud”. So who’s been out on the stump quoting these make-believe numbers? Of late, it’s been Mitt Romney, Rick Perry, previously Herman Cain, and a host of others. But it’s time for the public to wake up and realize that the Tax Foundation’s figures are completely bogus.

Sure, some returns take longer than others, some cost more than others, and most businesses require monthly or quarterly accounting and payroll tax services on top of income tax return preparation. But what’s the alternative for a business, to not have any record of whether it is profitable? Can businesses just do away with all record keeping and financial reporting for the sake of skimping on an ordinary and necessary business expense? I don’t think that would be a wise move.

A Gross Overstatement

To conclude, the Tax Foundation’s estimate is a made-up number, based on obsolete data. The true costs of complying with federal income tax laws have declined dramatically over the past 30 years. Thus, anyone floating figures ranging from $400 billion to $500 billion per year must have their head in the sand.

There’s no way you could ever convince me that it takes 122.7 hours, to enter the amounts contained on a W-2 Form into a computer program, or onto a paper form, in order to file a simple 1040-A return. Nor can you persuade me to believe that the cost of preparing such a return could ever reach $1,180. But that’s essentially what the Tax Foundation’s report says.

The correct method of determining any cost is to add up the actual outlay in cash, but since the Tax Foundation has not chosen this method, I must conclude that their estimate is overstated by as much as 88.9%. How did I arrive at this percentage? By sampling.

The 2005 IRS out-of-pocket cost estimates reveal that the most one would pay is charged by tax professionals. Since the fee charged for a simple 1040-A, plus a state tax return, completed by a paid preparer, is actually $85, not $1,180 as they would have us believe, the Tax Foundation’s estimate is off by 92.8% ($85 vs. $1,180). And since the cost of a professionally prepared itemized Form 1040 with Schedule A, plus a state tax return, is actually $150, instead of $1,000, they are off by 85% ($150 vs. $1,000). Averaging these two percentages together results in an overstatement of 88.9%. Thus, I conclude that the Tax Foundation’s estimate, that federal income tax compliance is costing Americans around $400 billion per year, is in reality probably less than $44.4 billion (11.1% of $400 billion).

Frankly, I would be more concerned about real and verifiable IRS statistics, such as the number and amount of refunds being doled out. For example, in 2010, out of the 142,449,000 returns that were filed, 109,376,000 received refunds totaling $328.4 billion, for an average refund of $3,003 per return. Now that’s real money, which, if you think about it, is being summarily piled on to the national debt. So what’s up with that?


Cross posted at: Free Republic

What Does $40 per Week Mean To You?

– Let’s see, to me one thing it means is that the federal government will be adding another $120 billion to the national debt. For my friend Jeff, at Liberty Works, it means – we’ve been bamboozled again. –

By: BoomerJeff | Liberty Works

“… On Thursday Obama ramped up the theatrics and gave us a preview of his New Year strategy for diverting attention away from his manifest failures. He stepped to the microphones to prove he identifies with the struggles of the helpless against those cruel Republican Scrooges (transcript). His tone dripping with pious solicitude, he began:

We’ve been doing everything we can to make sure that 160 million working Americans aren’t hit with a Holiday tax increase on January First…If you’re a family making about $50,000 a year this is a tax cut that amounts to about a thousand dollars a year. That’s about forty bucks out of every paycheck.

So far the President’s math is correct, since most employees are paid either bi-weekly or semi-monthly.

It may be that there are some folks in the House who refuse to vote for this compromise because they don’t think forty bucks is a lot of money. But anyone who knows what it’s like to stretch a budget knows that at the end of the week or the end of the month forty dollars can make all the difference in the world…

So on Tuesday we asked folks to tell us what it would be like to lose forty bucks every week.

Wait a minute! “Every week?” He just changed it from $40 out of every paycheck to $40 every week! But the temporary tax cut is worth only $19 every week to his hypothetical $50,000 per year family.

You’d have to earn $104,000 a year for Obama’s Social Security tax markdown to be worth $40 every week.

Obama then quoted some of the emails from his “folks” about how they would deal with the loss of $40 per week.

Joseph from New Jersey would have to sacrifice the occasional pizza night with his daughters. My 16 year old twins will be out of the house soon – I’ll miss this.

Richard from Rhode Island wrote to tell us that having an extra $40 in his check buys enough heating oil to keep his family warm for three nights. In his words, and I’m quoting, If someone doesn’t think that 12 gallons of heating oil is important invite them to spend three nights in an unheated home.

Pete from Wisconsin told us about driving more than 200 miles each week to keep his father in law company in a nursing home. $40 out of his paycheck would mean that he could only make three trips instead of four.

Dinner out for child who’s home for Christmas, a pair of shoes – these are the things that are at stake for millions of Americans. They matter a lot.

Obviously these emails are absurd. If you earn $104,000 and have to give up $40 per week, are you really going to have to deny your kids a pizza or a pair of shoes? Will you shiver for three nights without heating oil?

Of course, there are some folks to whom $40 every week would be make a real difference:

  • A hotel maid who works full time for $8.50 per hour

  • A construction worker who has been cut back to half time work at $17 per hour

  • A self employed business owner whose customers were hammered by the recession and now barely survives by depleting his savings. He generated only $17,700 profit this year after paying his employees and the employer’s half of the payroll tax which was not reduced by the Obama payroll tax markdown.

To each of these people Obama’s temporary payroll tax cut is worth not $40 but $6.80 per week.

But much of the media have already begun to help Obama plant a false perception in the minds of uninformed voters that Republicans would deny everyone $40 per week. (For example, see the headline here.)

Obama knows that informed voters will figure out the deception. But he doesn’t care about informed voters. They won’t vote for him anyway.”

Derailed by Amtrak: The Money Drain

Train Wreck

40 Years in the Wilderness

– By: Larry Walker, Jr. –

Since 1971, the federal government has invested a total of $32.4 billion into the National Railroad Passenger Corporation (a.k.a. “Amtrak”). In return for this lucrative investment of taxpayer’s dollars, Amtrak has accumulated total net losses of $27.1 billion. If we were to average our investment over the last 40 years, it would equal approximately $810 million per year, yet in 2009 and 2010 U.S. taxpayers have pumped in an additional $1.6 billion and $2.4 billion, respectively. Thus it appears that Amtrak’s drain on our collective pocketbook is increasing. Likewise, if we were to average Amtrak’s losses over the past 40 years they would equal approximately $677 million per year, yet in 2009 and 2010 U.S. taxpayers have incurred losses of $1.5 billion and $1.4 billion, respectively. So it appears that our losses are also accelerating.

Paid In Capital


Comprehensive Loss

According to the latest independent auditors’ report, which was issued on December 16, 2010, “The Company has a history of substantial operating losses and is dependent upon substantial Federal government subsidies to sustain its operations…. Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments.” And that is exactly what needs to happen. Any entity which is run-by, backed-by, or subsidized-by the federal government and not able to sustain itself without reliance on the general fund should be either privatized, or shut down. The following excerpts are from the independent auditors’ report:

1676 International Drive
McLean, VA 22102

Independent Auditors’ Report
The Board of Directors and Stockholders
National Railroad Passenger Corporation:

{….} The Company has a history of substantial operating losses and is dependent upon substantial Federal government subsidies to sustain its operations. The Company is operating under continuing resolutions through December 18, 2010 as discussed in Note 2 to the consolidated financial statements. The Company expects to receive additional interim Federal government funding under continuing resolutions until the fiscal year 2011 funding is approved. There are currently no Federal government subsidies appropriated for the fiscal year ending September 30, 2012 (“fiscal year 2012”). Without such subsidies, Amtrak will not be able to continue to operate in its current form and significant operating changes, restructuring or bankruptcy may occur. Such changes or restructuring would likely result in asset impairments. {….}

December 16, 2010



The National Railroad Passenger Corporation (“Amtrak” or the “Company”) is a passenger railroad. The United States government (the “Federal Government”) through the United States Department of Transportation (the “DOT”) owns all issued and outstanding preferred stock. Amtrak’s principal business is to provide rail passenger transportation service in the major intercity travel markets of the United States. The Company also operates commuter rail operations on behalf of several states and transit agencies, provides equipment and right-of-way maintenance services, and has leasing operations.

Operations and Liquidity

Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a nationwide system of passenger rail transportation. The Company has a history of recurring operating losses and is dependent on subsidies from the Federal Government to operate the national passenger rail system and maintain the underlying infrastructure. These subsidies are usually received through annual appropriations. In recent fiscal years appropriated funds for Amtrak have been provided to the DOT, which through its agency the Federal Railroad Administration (the “FRA”), provides those funds to Amtrak pursuant to operating funds and capital funds grant agreements, respectively. Amtrak’s ability to continue operating in its current form is dependent upon the continued receipt of subsidies from the Federal Government.


Audited Consolidated Financial Statements – Fiscal Year 2010

I love traveling by Amtrak but, to be honest, I have only ridden with them two or three times in the last 40 years. Amtrak, we love you, but you’ve got to go. If Amtrak is not able to make a profit, and thus return money to its investors, namely us, then what good is it? I could have flown to Cleveland for half the price that I paid for a sleeper car, and in a couple of hours versus the twenty-four that it took Amtrak. I literally can’t believe that having paid over $1,500 to ride from Atlanta to Cleveland, and back, that these guys can’t make a profit. I mean come on. Investing more public money into new rails and high speed trains is not the answer. Do you really believe that more people will ride trains if they were just a little bit faster? One can only imagine how much higher the fares (and losses) would be after such nonsense.

Capitalization (click to enlarge)

It’s time to fish, or cut bait. If the private sector can’t make Amtrak profitable, then it can’t be done. Private investors are not dumb enough to continue investing in something month-after-month, year-after-year which has never and will never return a profit, nor are taxpayers. If Amtrak were owned by the private sector, it would be no more. That’s just the way it is in the real-world. At the same time, if there is any hope at all, it lies within the private sector. It’s easy for the government to keep flushing good money down the drain, because it’s not their money. It’s our money, so let us make the choice. No one said it was going to be easy. It’s time to dump Amtrak.

The mandate: Amtrak will make the necessary structural changes to become profitable without additional governmental subsidies, and will return the taxpayers investment to the U.S. Treasury by the end of this fiscal year. If Amtrak continues to incur losses over the current fiscal year, then at close of business on September 30, 2011, its assets shall be sold and all proceeds returned to the Treasury.


Source: Audited Consolidated Financial Statements – Fiscal Year 2010

Postal Service OIG Discovers $75 Billion Overpayment, Again


Will Obamacare Go Up In Flames Too?

– By: Larry Walker, Jr. –

“You’ve got a lot of private companies who do very well competing against the government — UPS and FedEx are doing a lot better than the Post Office.” ~ Barack Obama (Aug. 2009)

According to an article posted on, on June 28, 2010, the United States Postal Service, Office of Inspector General (OIG) discovered that the Postal Service had made a $75 billion overpayment to the Civil Service Retirement System (CSRS). However, the same problem had already been reported by the OIG back in April of 2004. Apparently nothing was done to correct the problem in 2004, and it doesn’t appear that anything has been done about it to date. (If this has since been resolved, please comment below, and point me to your reference.) Following is an excerpt from the aforementioned article:

In what could be the best game of Monopoly™ ever, Postmaster General John Potter may have just drawn a card that reads “Inspector General finds error in your favor. Collect $75 billion dollars.”

The Inspector General for USPS took a closer look at the Civil Service Retirement System and found massive overpayments dating back decades.

Michael Thompson, Director of Capital Investments for the Postal Service Office of Inspector General, explained for Federal News Radio, “the Postal Service, since 1972, has overfunded by $75 billion its share of civil service retirement and the reason for that is because the methodology that’s used is not comparable to the methodologies that’s used for all the other federal retirement funds.”

Thompson said the Office of Personnel Management, in deciding how much the Postal Service should pay into the CSRS, is currently using a different method developed in 1974. They’ve said they aren’t going to change unless Congress tells them to, according to Thomson.

“The money is sitting in the civil service retirement fund. It’s not as though the money is not there. It is there. It’s just that the Postal Service has continually paid more than it should have paid.”

All it would take, according to Thompson, is for either the OPM to make the change or for Congress to legislate it. That might seem simple enough, but with so much money involved, no one’s getting off the dime, literally.

The article mentioned above is in line with a memo issued by the OIG on June 18, 2010 (excerpt below). I’m just wondering if anyone has “gotten off the dime” as of yet? I mean I know it’s only $75 billion, but one has to wonder just how many unresolved $75 billion overpayments are floating around Washington D.C., with its $14 trillion in debt and all. Where was it that the buck was supposed to stop again?

June 18, 2010


SUBJECT: Management Advisory Report – Civil Service Retirement System Overpayment by the Postal Service (Report Number CI-MA-10-001)

This report presents the results of our review of the Civil Service Retirement System (CSRS) Overpayment by the U.S. Postal Service (Project Number 10YO036CI000). This report discusses the $75 billion CSRS overpayment by the Postal Service in fiscal years (FY) 1972 through 2009. The objective of this review was to assess the facts concerning this overpayment and identify any possible solution(s) to correct the overpayment to the benefit of the Postal Service. This review addresses financial risk.

Now if you look back through the records of the OIG, you will discover that a similar memo was issued back in April of 2004 (excerpt below). The 2004 memo stated that the Postal Service was making overpayments to the CSRS, and implied that the problem had been corrected. In fact, the memo states that, “Had the overpayments continued, the Postal Service would have overpaid its obligation by over $100 billion.” Well, apparently the problem wasn’t resolved, because a little over six years later the Postal Service had in fact, overpaid the CSRS by $75 billion. I wonder what happened to the other $25 billion!

April 9, 2004


FROM: /s/ (Scott Wilson for) David C. Williams, Inspector General

SUBJECT: Postal Service’s Funding of the Civil Service Retirement System (Product Number FT-OT-04-002)

This memorandum presents our opinion on the issues surrounding the Postal Service’s funding of the Civil Service Retirement System (CSRS) (Project Number 03XD009FT005). The objective was to analyze the outstanding issues pertaining to the Postal Civil Service Retirement System Funding Reform Act of 2003 (Public Law 108-18) and to provide our perspective on how the legislation affects the Postal Service and its stakeholders. We have included the differing viewpoints and positions that have been generated by affected groups, including the Department of the Treasury (Treasury), the Office of Personnel Management (OPM), the General Accounting Office (GAO), the Postal Rate Commission, the President’s Commission on the United States Postal Service (the President’s Commission), mailers, competitors, and the Postal Service.

GAO discovered that the Postal Service’s amortized payments to OPM for its CSRS liability were too large. Had the overpayments continued, the Postal Service would have overpaid its obligation by over $100 billion.

It looks like the federal government is just bleeding money on all fronts. Where government backed entities, like the Postal Service, should be turning a profit, instead we find, as the Washington Examiner reported in April of 2010, that “without serious reform [the Postal Service] was set to lose $7 billion in 2010 and $238 billion over the next 10 years…” Perhaps it’s time to end the era of government-sponsored, government-owned, and government-backed entities? One has to wonder, at this point, just exactly what they are backed by – an unlimited ability to incur debt? The time to repeal Obamacare is now. The time to cap the debt ceiling is now. Enough is enough.

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Other References: Will Obama create the Post Office of health care?