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We’re barely into January and already, tax news is making headlines. The AMT, Fair Tax and IRS debt collections will likely be the talk of 2008. This, of course, makes you look back on what happened in 2007:

• In September, Barry Bonds’ record-breaking home run ball (756) sold at auction for $752,467, a staggering amount, but less than initial speculation. The fan who caught the ball, 21-year-old Matt Murphy, explained that he sold the ball because he couldn’t afford to keep it. He reportedly said that “several people told him he would be taxed on the souvenir” if he kept it — presumably one of them was a tax attorney. Despite differing opinions by tax professionals, the majority felt that Murphy had an increase in wealth when he caught the ball and thus, the value of the ball was immediately taxable to Murphy.

• One of the wealthiest women in the United States, Leona Helmsley, died at the age of 87. Helmsley was indicted, together with her husband, in 1988 on 188 counts of tax fraud. Leona also faced federal charges of extortion and mail fraud. She was convicted of 33 felony counts of fraud, including mail fraud, tax evasion and filing false tax returns. Initially, she was sentenced to 16 years in prison and fined $7 million. Upon appeal, her sentence was reduced to four years in prison, though she served only a total of 21 months. She was released from prison in 1994 and was sentenced to community service — which, allegedly, her employees performed for her.

Her image as the “queen of mean” was forever cemented in popular culture when, during her trial, a former employee testified that Helmsley said: “We don’t pay taxes. Only the little people pay taxes.” By “we,” she meant not only herself but Harry Helmsley, whom she married in 1972, her fourth marriage. Together, Harry and Leona built a vast empire, making the Helmsleys incredibly wealthy. In 2007, despite fines and lawsuits, her fortune was estimated at $2.5 billion.

• IRS Commissioner Mark Everson left his position to take a job at the Red Cross. Everson had been appointed by President George W. Bush to a five-year term; he served for four years. His term at the Red Cross lasted only six months. The board of the Red Cross asked for, and received, Everson’s resignation after it was revealed that Everson had been romancing a subordinate employee on company time.

Over the past decade, the Red Cross has been unable to find a candidate who will lead the charitable organization on a long-term basis. Elizabeth Dole, now a Republican senator in North Carolina, stepped down in 1999. In the next six years, two more leaders came and went: Bernadine Healy and Marsha J. Evans.

Many thought that Everson would be a force for positive change at the Red Cross, which had been facing increased public scrutiny and criticism following their handling of Sept. 11 and Hurricane Katrina. Everson, as commissioner of the IRS, was seen as a strong leader capable of dealing with the organization’s huge bureaucracy, standing up to its powerful board and reassuring major donors.

• Congress failed to address the federal estate tax in any meaningful way. This isn’t news to most tax practitioners. It’s newsworthy only in that the clock is ticking on the old federal estate tax law, which is scheduled to sunset in a few years — and 2008 is an election year.

• Folks everywhere held their collective breaths hoping to avoid another Waco when tax evaders Ed and Elaine Brown vowed not to go to jail without a fight. Elaine and Ed Brown were found guilty of conspiring to defraud the government, conspiring to conceal large financial transactions and concealing large financial transactions. Elaine Brown was also individually found guilty of 14 additional felonies including tax evasion and failure to pay employment taxes for the staff of her dental practice. Brown failed to report more than $2 million in income to the IRS, filed false tax returns to conceal income and eventually failed to file any tax returns at all.

The Browns argued that they were not required to pay taxes. As “tax protestors” they believe that the federal government does not have jurisdiction to tax money that they earn. In fact, rather than argue that the tax debts were the results of a mistake, Ed Brown took the opportunity during his opening statement to argue his own tax policy, claiming, “We will once and for all show beyond the shadow of a doubt — not reasonable doubt, beyond the shadow of a doubt — that the federal income tax system is a fraud.”

Before the end of the trial, Ed Brown decided not to return to court, charging that the entire procedure was “rigged.” Instead, he returned to his hilltop home to prepare for what he vowed would be a fight. “Most Americans would cower and cringe and raise their hands and surrender like a good little slave. I won’t. Under no circumstances. I do not tolerate cowardliness, oppression, bulliness, and I certainly don’t tolerate a federal agency that has absolutely zero jurisdiction in my state, never mind in my county, in my town.”

The two lived in their fortress-like home for months before being arrested peacefully in October. Following the arrests, the feds found numerous weapons, ammunition and explosive devices at their home. The property was also booby-trapped. The Browns will likely face additional charges related to those weapons.

• Wesley Snipes, who was arrested for tax evasion in 2006, continued to make headlines in 2007. Among other things, Snipes claimed that he can’t get a fair trial in Ocala, Fla., due to racism. His attorney filed a motion to have the trial moved to New York because he claims “the government chose the most racially discriminatory venue available, with the best possibility of an all-white Southern jury.” The motion went on to claim “substantial pockets of prejudice persist in Ocala. The Ocala area … is a hotbed of Klan activity.” Attached to the motion was a survey that Snipes hired the University of North Florida to do which Snipes’ attorney claims proves there’s a greater level of racism in Ocala than in New York City. The motion was denied.

His defense strategy appears to be a claim that he did file returns requesting false refunds but he didn’t actually get the money — you know, the yes-I-held-up-the-bank-but-they-never-turned-over-the-cash defense. His trial will take place early this year.

• Stretching his 15 minutes even further, Richard Hatch of CBS’ Survivor went before a federal appeals court to argue against his conviction on tax-evasion charges. Hatch was convicted of failing to pay taxes when he took home the $1 million prize on Survivor. He was sentenced to more than four years in prison.

Defense lawyer Michael Minns argued on appeal that U.S. District Judge Ernest Torres improperly prevented him from pursuing a line of questioning regarding Hatch’s allegations that CBS promised to the pay taxes on the prize (CBS has denied those allegations). Federal prosecutors disagreed in their pleading, stating that Torres told Minns that he could present the evidence and that Minns chose not to do so.

• Congress promises to fix the AMT problem. And promises. And promises. And then they sort of do — on the very last day of their work year, they implement a temporary patch.

• The tax-exempt status of college sports came under the microscope again and Congress predictably did nothing. Meanwhile, Penn State University is forced by court order to reveal one of the greatest mysteries of college football: Joe Paterno’s salary. The amount shocks the football community when, in a field of multimillion-dollar contracts, Paterno pulls in an annual salary of just $512,664.

• KPMG partners are charged with what is termed “the biggest tax fraud ever.” Initially, eight former KPMG execs were charged with conspiracy to sell fraudulent tax shelters. As a penalty, the company agreed pay at least $456 million.

Judge Lewis A. Kaplan, of Federal District Court in Manhattan, then dismissed the charges against a majority of the defendants because of alleged constitutional violations by prosecutors. Attorneys for the defendants charge that prosecutors overstepped their roles by pressuring KPMG not to pay legal fees for the accused.

The most damaging evidence came in the form of a voicemail from then-KPMG Chief Executive Officer Gene O’Kelly who said any “present or former members of the firm asked to appear will be represented by competent counsel at the firm’s expense.” Later, the firm bowed to pressure from the government to stop paying legal costs for the defendants in the criminal matter; KPMG continued to pay the legal fees for many of the same defendants in civil matters. This, the judge ruled, was a violation of substantive due process even if the government did not intentionally set out to do harm.

Charges against three defendants still stand since those employees could not prove that KPMG would have paid their legal fees in the first place.

The government plans to appeal. In a statement, Southern District U.S. Attorney Michael Garcia said that the government “respectfully disagrees with Judge Kaplan as to whether there was any constitutional violation in this case. … We will continue to pursue appellate review.”

Kelly Phillips Erb is a founding shareholder of the Erb Law Firm. She is a member of the bars of New Jersey and Pennsylvania and Tax Supper Club of Philadelphia. Phillips Erb presents regularly on a wide range of topics before local and national organizations. She was interviewed for an article on estate planning for the “Investment Guide 2003″ edition of Forbes magazine related to estate planning; an upcoming interview with Forbes will appear in 2008. She is also the author of the tax blog http://www.taxgirl.com.

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