Auditing The Simpsons

  As far as I can remember, I have always been a big fan of The Simpsons -yes, new generations of tax advisors are kicking in- and I specially enjoy watching how an American middle-class family of the 90s is depicted through the lens of satire. Of course, as the important part of life they represent, taxes are often mentioned, generally from a critical point of view.

  Obviously, due to the necessary informal tone of the show, legal terms and actual legal procedures are usually incorrectly depicted, if not ignored.

   But, how would it be a tax advisor-tailored episode? It is also a good excuse to point out some differences and similarities between the Spanish and American system.

   To sum up, Krusty the Clown, a well-known celebrity, is audited by the IRS to find he is one of the biggest tax cheats in American history, as he had secret bank accounts in the Cayman Islands.

 Even though the episode was first aired on February 11, 1996, cases are examined in the light of current legislation.

CASE ONE

 A bank clerk finds out that Krusty is storing his wealth in the Cayman Islands. He immediately communicates the IRS, and Krusty is arrested.

Comments:

  Cayman Islands are currently a tax haven in Spain, but exchange information treaties are being processed. Spanish taxpayers must declare their global income; in case their debts with the Tax Agency exceed 120.000.-€, they could face up to 4 years in prison.

  In the USA, if you talk about tax evasion and tax havens, there is one word that comes to mind straightaway: FATCA. This act, passed in 2010, requires American citizens -regardless of residency- to report their bank accounts from outside the USA. It also requires foreign financial institutions to provide the IRS with information about their US customers. Having failed to do such thing, Krusty could be heavily fined and imprisoned a maximum of 5 years.

  One more thing about this: the Whistleblower Office, that pays money to people who blow the whistle on persons who fail to pay the tax that they owe. So, by making a claim using IRS form 211, the bank clerk could be awarded with a maximum of the 30% collected.

CASE TWO

(During the IRS audit)

Krusty: I can't go to jail, I'm used to the best.

Taxman 1: Krusty, this is America.  We don't send our celebrities to

jail.  We're just going to garnish your salary.

Taxman 2: It simply means we'll be taking a small portion of your salary until your debt is repaid.  Say, 75% for 40 years.

Krusty: But I don't plan to live that long.

Taxman 1: All right.  Better make it 95%.

Krusty: Ah!  Oh!  Oy...

Comments:

  Wage garnishment is a common economic resource for Tax Agencies. Under Spanish Law, it is framed in an enforcement procedure which must be adequately notified. Previously to this, guarantees provided by the taxpayer should be executed, in most cases. Cash or bank accounts, and credits, stocks, shares and rights which can be disposed of at the time or in the short term are preferred to wage garnishment.

  Also, Spanish Law sets a different garnishment percentage. Being the minimum wage (SMI) 645,30.-€ per month (year 2014):

1º SMI: cannot be garnished

2º SMI: 30%

3º SMI: 50%

4º SMI: 60%

5º SMI: 75%

6º SMI and higher: 90%

According to what the Taxman says, Krusty the Clown earns around 25.000-€ net, monthly. Although the 95% is represented to sound exaggerated, it is not far from the 90% that would be applied to revenues that exceed 3.871,8.-€

 Although it is not very clear in which state The Simpsons live, it has been always said that they are from Oregon, so in this case we will apply the Beaver State Law.

 Federal law places limits on wage garnishment amounts. While states are free to impose stricter limits, Oregon has not done so. Oregon’s limits are almost identical to the federal wage garnishment limits. Here are the rules:

Creditors are allowed to garnish the lesser of:

·         25% of your disposable earnings (wage after deductions), or

·         the amount by which your disposable earnings exceed $218 per week, $435 per two-week period, $468 per half-month period, and $936 per month.(source: nolo.com)

   E.g., if an individual earns 2000.-$ per month (net), the garnished amount in Spain would be 554,7.-$, whereas in the US it would be 600.-$

CASE 3

  After completing the winding up of his assets, the IRS manages the fast food chain owned by Krusty and his TV show, his two main assets. They change their commercial, well-known and profitable registered trade names for new IRS-related names, and they are managed badly.

Comments:

 Concerning seized companies, Spanish Law states that if the continuity of the director/s could affect the taxpayer’s solvency, the Tax Agency may appoint a new director to monitor the company’s operations. However, in any case, they are interested in collecting, so profitability of companies is a key point. In this situation, the Tax Agency may apply some of the principles contained in the Bankruptcy Law, in terms of keeping the company running and authorizing the necessary acts for its day-to-day activity. Having said that, it would have been more adequate to keep the original trade name and know-how.

  In the USA, the Fourth Amendment protects two fundamental liberty interests: the right to privacy and the right to freedom from arbitrary invasion, drawing a red line to “search and seize” procedures. Officers must obtain a valid search warrant from a Judge, a document that describes in detail the place they will search and the items they will seize.

  Here is a link to Fiscal Year 2013 Review of Compliance With Legal Guidelines When Conducting Seizures  of Taxpayers’ Property

CASE 4

(At the Burger Restaurant)

Homer: Let me see, I'll have four tax burgers, one IRS-wich, withhold    the lettuce, four dependent-sized sodas, and a FICA-ccino.

Waiter: Fill out schedule B.  You should receive your burgers in six to eight weeks.

Comments:

  Ok, no problems here, I just found this hilarious.

CASE 5

  At the IRS auction, a leather suitcase is sold for 40 dollar cents, twelve boxes of old magazines for 12 dollar cents, and Krusty’s bed for 50 cents.

Comments:

 In the light of Spanish Law, assets and rights which bid price is under the cost of execution, will not be seized. Furthermore, it would be against the Law to seize the bed, and possibly the suitcase, since they are considered household items.

 In both jurisdictions, non-seizable assets are basically the same: the portion of salary necessary to cover family needs, furniture, clothing, dishes and goods required to exercise a profession, as long as they do not have an extraordinary value (i.e., a cutlery made of gold). Spanish Law specifically mentions sacred and cult-related items.