On the Money: News and Articles
On the Money is the financial column C-level executives just can’t wait to get their hands on. Published by American Cities Business Journals, On the Money is a refreshingly candid (and sometimes humorous) look at the stuff that makes the world go ’round.
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On the Money From the June 11, 2010 print edition In January, Marquet International Ltd. of Boston – a corporate investigations, due diligence and litigation consulting firm – released its annual Report on Embezzlement. The report, which talks about actions taken against U.S. companies – estimated to be in the nine-figure range – revealed that the average loss was more than $1 million and the median loss was $386,500. More than 60 percent of the incidents involved women. However, male perpetrators embezzled nearly twice as much as females. Nearly 25 percent of all losses occurred in financial institutions, and two-thirds of the incidents were committed by employees who held finance and accounting positions. Embezzlement schemes usually last about four years. Marquet examined 415 major embezzlement cases during 2009. That means there was a major embezzlement case in the news daily. The largest embezzlement case of 2009 happened at Koss Corp., a premier designer of stereophonic headphones, based in Milwaukee. The perpetrator allegedly used interstate wire communications to defraud Koss of more than $4.5 million. The alleged embezzler used an American Express card to buy $3.6 million worth of jewelry, watches, clothing, furs, formal wear and fine home decor. Eventually, payments made to American Express revealed the theft. Embezzlement has ranked as America’s No. 1 financial crime for more than 30 years, and likely will hold that distinction for years to come. There are dozens of embezzlement schemes, often perpetrated by one person against his company. “Lapping” is one classic embezzlement scheme. To lap, an embezzler skims a little bit of the cash that comes in each month, then adjusts the books to hide the skimming. Another classic scheme is through fabricated vendors or consultants. Any employee with authority to approve the payment of invoices can perpetrate this method. In larger organizations, a midlevel employee may be able to approve invoices. The thief creates imaginary vendors and deposits checks written to pay the false invoices into his or her personal bank account. In a recent case involving a large trade association, the CFO is alleged to have embezzled $2.5 million from the organization in 13 years through recurring payments to phony consultants. Theft of cash receipts is the simplest form of embezzlement, usually perpetrated by insiders, simply by pinching incoming cash or highly negotiable instruments. This is particularly true in organizations that deal with a large number of relatively small transactions, such as utility payment processing centers and collection agencies. Payroll fraud and embezzlement is where the embezzler adds the names of relatives or fictitious people to the company payroll, thus enjoying several salary checks each week instead of one. Some other examples, and things to look out for, include: Pocketing cash payments from customers and not posting the charge or payment. Opening a checking account under a false name, then writing a “customer refund check” to that name Handing the busy executive a stack of checks – including an extra one – to sign. Falsely recording past-due accounts as written off or settled, then collecting from the customer. Purposely paying a bill twice, then intercepting and pilfering the resulting refund. Manipulating account balances through online computers, making “adjustments” to accounts, particularly dormant ones. Hiding merchandise, cash, computer data and account information in the trash for later retrieval by an accomplice....read more
On the Money From the April 2, 2010 print edition The R&B singer Billy Preston pined in 1974, “Nothin’ from nothin’ leaves nothin’. You gotta bring me somethin’ if you wanna be with me.” If a person wanted to bring Billy “something,” but had “nothing,” what could they do? Where do any of us turn when we crave “something from nothing”? The answer? Arbitrage. Arbitrage is defined to be the simultaneous purchase and sale of a security (or anything else for that matter) in order to profit from a difference in the price. This usually takes place on separate exchanges or marketplaces. For example, if the price of a stock on the New York Stock Exchange is $10 per share, but is $8 on the Frankfurt exchange, the $2 difference could be an immediate profit requiring zero investment. How it works: The arbitrageur sells on the New York exchange while simultaneously buying on the Frankfurt exchange. Because the transactions theoretically are simultaneous, there’s an immediate gain of $2 per share. Furthermore, since the gain is guaranteed by the disparity in price, there’s no limit on the number shares that could bought and sold. A 100 million-share purchase coupled with a simultaneous 100 million-share sale nets the arbitrageur a quick $200 million. The concept of arbitrage isn’t limited to financial instruments. The procedure could be applied to any situation where there is an immediate opportunity to buy and sell concurrently at different prices. It can happen even on eBay. For example, Wal-Mart is selling the “Barbarella” DVD for $10. However, the last copies of it on eBay have sold for an average of $25. The arbitrageur buys copies of the movie at Wal-Mart, then sells them on eBay for an almost-instant profit of $15. But this won’t continue for long, as one of three things (the application of the “Efficient Market Hypothesis”) should happen: Wal-Mart runs out of “Barbarella.” Wal-Mart raises the price on the remaining copies because of increased demand. The supply of “Barbarella” DVDs skyrockets on eBay, which causes the price to fall. This kind of arbitrage is common. Many eBay sellers will go to flea markets and yard sales, looking for collectibles that the seller doesn’t know the true value of and has priced too low. For instance, buying rare collections of video games for $10, then selling them on eBay for $100. This example isn’t quite pure arbitrage because it requires a small amount of “something” to establish the initial inventory. And as more information enters the marketplace (both at Wal-Mart and eBay), the price difference will close and become equal. This equalization is known as an “efficient” market. In an efficient market, all information is known across all trading places. With a sufficient number of participants buying and selling, prices will equalize, making pure arbitrage impossible. Timing is critical. One of the most alluring and active areas of arbitrage is currency exchange, particularly cross-currency arbitrage. This usually involves complex mathematics, such as matrix algebra, and the ability to execute trades quickly before the disparity is discovered. For example, while traveling in Europe we discover that, given certain circumstances, we can exchange dollars for francs, francs for pounds, pounds for deutsche marks and finally the deutsche marks for the original dollars – spawning a small profit. Using elementary...read more
On the Money From the February 5, 2010 print edition This time of year, it’s hard not to think about the government. It’s tax season, and many of us are contemplating our tax situation and probably bemoaning what we have to pay. Who wouldn’t rather spend money on a new house or car than pay taxes? Those two activities may be more closely related than you think. The same agency that accepts our tax dollars also provides potential bargains on everything from real estate to airplanes. The online auction site eBay is well-known. But far fewer have heard about the Treasury Executive Office of Assets Forfeiture. This is the government office that manages auctions and administers the Treasury Forfeiture Fund (TFF). The TFF was established in 1992 as the successor to the Customs Forfeiture Fund. This fund accepts the proceeds from the sale of assets seized by the IRS, Immigration and Customs Enforcement, Department of Homeland Security, Customs and Border Protection, the Secret Service and the Coast Guard. Internal Revenue Code Section 6335 provides for the sale of property seized by the IRS. The code requires that seized property be sold by public auction or sealed bid auction. Either way, the auction is open to the public, and bidding is conducted by an auctioneer, usually a property and liquidation specialist with the IRS. To find out about property the IRS has for sale, visit www.treasury.gov/auctions. You may be amazed by what you find there. For example, the entire contents of a recreational vehicle-parts supply dealer were offered recently. The items included just about everything one might need for an RV, including water heaters, batteries, mats, rails, step motors, vent covers, propane tanks, carburetor kits, coil kits, grooved magnet kits and diodes. There are three general categories of property: real estate, general property and automobiles. Real property for sale throughout the United States and Puerto Rico includes homes, commercial buildings, vacant land and multifamily residences. These properties have been seized through the IRS’ criminal investigation division, Immigration and Customs Enforcement, and the U.S. Secret Service. The Department of the Treasury has designated Albuquerque-based EG&G Technical Services as the prime contractor responsible for the maintenance and sale of seized and forfeited real property. Property auctions often take place at the property’s location. General property auctions are held in Dayton, N.J.; Miami; or Riverside, Calif. The Feb. 3 auction in Miami included artwork, boats, laptops, computer accessories, electronics, jewelry and sports equipment. General property auctions are scheduled for March 10 in Riverside and April 14 in Dayton. Sales generally are held once a month at one or more of the locations. Atlanta-based Manheim Auctions Government Services (www.manheimgovservices.com) manages auto auctions. The website provides an up-to-date list of upcoming sales and allows visitors to search the current inventory. In addition to the IRS, Manheim Auctions Government Services also liquidates vehicles from many other public agencies and public utility companies. Some of the other agencies include Bureau of Alcohol, Tobacco and Firearms; Drug Enforcement Agency; and the U.S. Customs Service. Obviously, these agencies provide an amazingly broad range of items of interest. Some things to remember if you’re contemplating participating in government auctions are: The government doesn’t provide any form of financing. All property is offered for sale “where is” and “as is” and without recourse against...read more
On the Money From the December 18, 2009 print edition December is filled with magical holiday events – office parties, family gatherings, concerts, annual correspondence with friends, decorating and festive reminiscences of years gone by. But for those of us focused on money, the most important event is shopping. Buying presents, flying cross-country to visit relatives, having special dinners and parties: Consumers spend more money in the three months before the new year than at any other time of the year. In fact, retailers often make about half of their annual profit during this time, according to the National Retail Federation. Deloitte LLP recently published its 2009 Annual Holiday Survey, which gauges consumers’ expectations about the year-end holidays, the economic climate, and related spending and purchase patterns. A total of $810 billion is expected to be spent this year on holiday-related items. The full report may be found at Deloitte.com The average consumer will spend $1,145 on items associated with the holidays. About $452 of that will go to gifts, $102 to decorations and holiday home furnishings, $243 for socializing away from home, $201 for entertaining at home and $147 for clothing. The U.S. Bureau of Labor Statistics reports average consumer income to be $63,500. Holiday spending is about 2 percent of the average consumer’s annual expenditures. The National Retail Federation also publishes an annual report on holiday retail sales. The report is online at nrf.com. At the risk of feeding festive domestic discussions regarding comparative spending habits, or for possible personal comparison, the NRF is expecting the following expenditure levels in these categories: gifts for family, $387; for friends, $67; for co-workers, $19; other gifts, $35; decorations, $41; greeting cards, $27; candy and food, $90; and flowers, $17. However, it’s not just the amount of money spent that makes for a robust economy; it’s how fast it moves. Or in this case, it’s not just the one-time expenditure made by a single consumer purchasing a fruitcake that fuels the economy; it’s where those dollars go after that transaction that creates the multiplier effect. Re-spending, not simply spending is what propels economic stimulation. As the money moves along the commerce chain, part of it will be retained by the recipient, and part of it will be re-spent by the next person or entity, multiplying the money’s original effect. For example, if there is an 80 percent re-spend rate, of the $27 you pay for a box of greeting cards, the retailer from whom you bought cards will pay $21.60 to the distributor, who will pay $17.28 to the wholesaler, who then sends $13.82 to the printing company, which then pays $11.06 to paper manufacturers, and on and on. Thus a single purchase of a $27 box of greeting cards is “multiplied” into more than $106 of monetary activity. That’s economic stimulus – with one very important caveat. The re-spend rate must be maintained throughout the chain. What can alter the re-spend rate in this series of transactions? Financial intermediaries, which are people or institutions between the producer and consumer that don’t directly provide proportional value. They’re brokers, processing agents, consolidators, re-sellers, arbitrage players, credit-card companies, the private label in front of the credit-card companies, retail lenders, wholesale lenders, pipeline financing structures underneath lenders, insurance companies, etc. If borrowed money is involved, there...read more
On the Money From the October 2, 2009 print edition The United States doesn’t have a debtors’ prison. But in the midst of a recession, repeated calls and threats from debt collectors may make consumers feel psychologically trapped. The economic downturn caused many consumers last year to fall behind on bills and other obligations. As a result of the poor economy, debt collectors become more aggressive in their tactics. For individuals, this usually means they can’t make their minimum payments on credit cards. In financial circles, monthly payments are called “debt service.” When debt isn’t serviced, creditors are less than thrilled. Here are some tips, insights and suggestions for successfully handling creditors and collectors: Don’t take it personally. Remember that a collection call, no matter how unpleasant, is a business transaction – not an assault on your personal character. However, collectors may attempt to intimidate and scare you. Remember that many collectors are paid based upon what they collect. Therefore, keep all conversations to the point, professional and focused on the debt. Return every phone call. Federal law prohibits collection calls before 8 a.m. and after 9 p.m. Nevertheless, many hard-hitting collectors would like to catch the debtor late in the day or early in the morning, when they may be more susceptible to emotional pressure. Let the answering machine work for you at those times. But, when you’re ready, emotionally detached and prepared to deal with it, return each call – even if it’s just to say, “I have nothing today.” Not responding to phone calls will escalate your account through the collection process, and the situation will get out of control. Remember your rights. In 1996, the Fair Debt Collection Practices Act (FDCPA) was enacted. It specifies that debt collectors can’t “harass” you. Specifically, collectors can’t call your office, call your home at certain hours, address you in an abusive manner, or call family or friends in an attempt to collect the debt. If you have an attorney, the collector may not contact anyone other than your attorney. If you don’t have an attorney, a collector may contact other people, but only to find out where you live and work – but usually, not more than once. In most cases, the collector isn’t permitted to tell anyone other than you and your attorney that you owe money. Furthermore, a debt collector isn’t permitted “to take any action that cannot legally be taken or that is not intended to be taken,” a prohibition that includes false threats of a lawsuit. If there continues to be a problem with collectors contacting other people concerning your debt, or any other FDCPA violation, you can file a complaint with the Federal Trade Commission by calling 1-877-FTCHELP (1-877-382-4357), or online at www.ftc.gov. The FTC received 79,000 complaints about debt collectors in 2008. You already have paid for some conciliation. Without going into an extensive dissertation on interest-rate theory, bear in mind that unless you’re paying about 1.5 percent on your loan, the creditor expects some delinquency. The risk structure of interest rates includes allowances for the creditor’s expected delinquency, liquidity, maturity and default risk. If your loan has an interest rate greater than 9 percent and you have a history of prompt payment, you already have paid for your delinquency. This thought might be helpful...read more
On the Money From the August 7, 2009 print edition The Federal Reserve Board has proposed changes to Regulation Z, which is how the Truth in Lending Act is enforced. Since 1968, Regulation Z and the Truth in Lending Act supposedly have been protecting consumers from deceptive lending practices. The Federal Reserve Board has proposed changes in both the content and timing of what will be required of mortgage lenders. In general, Regulation Z directs that disclosures be made to potential borrowers during the application, underwriting and consummation process. Underlying the regulation’s effectiveness is the assumption that the potential borrower will read, and understand, the implications of the disclosures. Lenders will be required to supply a new one-page Federal Reserve Board publication, titled “Key Questions to Ask About Your Mortgage,” which would explain potentially risky features of a loan. Whether enacted into law or not, the following seven questions contained in the new publication are worth asking the lender: Will my monthly payments reduce my loan balance? Some loans let you pay only the interest on your loan each month. These payments don’t pay down the amount you borrowed. This may seem fundamental and obvious. However, based on a study of defaulted loans, the Fed discovered many borrowers didn’t understand this. Will I have to document my employment, income and assets to get this loan? Sometimes a lender will make a loan without requiring you to show that you’re employed and have the income or assets to repay the loan. These no-documentation (“no-doc”) or low-documentation loans usually are approved because of a large down payment and loan-to-value ratio.By not evaluating income at the time of application, the borrowers may lack the ability to make the monthly payments. Will I owe a balloon payment? Some loans require a very large payment at the end of the loan – sometimes tens of thousands of dollars. Balloon-payment loans presume an ever-increasing house value, giving the borrower the ability to re-finance, make the large payment and begin the cycle again. As recent months have demonstrated, this isn’t always the case. In the past, this feature was used to create arbitrarily low monthly payments. Could I owe a prepayment penalty? Some lenders charge you a hefty fee if you pay off your loan, refinance it or sell your home within the first few years of the loan. For many borrowers, pre-payment penalties are so counter-intuitive, they forget to ask the question. The wise borrower will negotiate this penalty completely out of their loan. Even if I make my monthly payments, can my loan balance increase?Some loans let you choose to pay even less than the interest owed each month. The unpaid interest is added to the loan balance and increases the total amount owed. Similar to balloon payments, this feature assumes a constantly increasing value in the property. The increase in property value must be greater than the increase in debt principal for this loan attribute to be workable. Can my monthly payment increase? During the height of aggressive lending a few years ago, a low “introductory interest rate” was an attractive, but deceptive, practice, leading to many defaults. That rate, which created payments that didn’t even cover a portion of the principal, spelled disaster for many borrowers. Can my interest rate increase? Adjustable rate mortgages (ARMs) are sensible only in times...read more
On the Money From the June 5, 2009 print edition It’s tough to recall a time with so much overlap between government and private business enterprise. Government monetary and fiscal activities are drawing more attention than ever. Relationships that previously were devoutly separate have begun to merge. For example, auto union workers are being transformed into shareholders, and banks now plead to return money to the government rather than accept it. The terms “public” and “private” are becoming hard to distinguish. Witness the most recent initiative by the U.S. Department of the Treasury – the Public Private Partnership Investment Program (PPPIP). A new word, “privblic,” may enter the financial glossary. As government’s commercial activities become more integral to private business, they reach down into everyone’s daily life to a greater degree than ever. It may not be enough to rely only upon the media to provide a meaningful synthesis of these new and untested activities and relationships. Access to information at its source is critical to finding clarity. Here are some resources that will aid in gathering, evaluating and making objective decisions regarding current government economic activities. – In March, the U.S. Treasury Department launched a new website,http://financialstability.gov. It’s designed to showcase the primary mission of the U.S. Treasury Department and its financial stability plan. The site consolidates news, program announcements, agency publications and research data. It also provides an excellent glossary of rapidly changing and frequently used terms and acronyms. Furthermore, the site groups the major components of the financial stability plan, along with the American Recovery and Reinvestment Act, into these more easily accessible categories: 1) Plan; 2) Programs; 3) Making Homes Affordable; 4) Capital Assistance; 5) Regulatory Reform; 6) Public-Private Investment; 7) Consumer and Business Lending; and 8) Small Business and Community. To find these topics, visi thttp://financialstability.gov/roadtostability/index.html. – Of course, underneath all of this is the national budget. On Oct. 1, the United States enters its 2010 fiscal year. The president will submit a new budget to Congress for approval. The official budget may be found at http://www.whitehouse.gov/omb/budget. The Office of Management and Budget, whose mission is to help the president oversee the preparation of the federal budget and to supervise its administration within the 16 executive branch agencies, creates and maintains the site’s information. The office also ensures that agency reports, rules, testimony and proposed legislation are consistent with the president’s budget and with administration policies. In addition to presenting the current proposed budget, the website also contains analytical and comparative tools, such as: 1) Summary of Terminations, Reductions and Savings; 2) Analytical Perspectives; 3) Summary Tables; 4) Historical Tables; 5) Supplemental Materials; and (6) Other Supplements. Another important information source is the Information & Regulatory Affairs and Statistical Programs & Standards page. – At http://www.whitehouse.gov/omb/inforeg_statpolicy, there’s a wealth of data regarding everything from economic indicators to studies on race and ethnicity. Furthermore, the standards used to create the studies are presented. These standards are intended to ensure integrity and objectivity in analysis. President Barack Obama also accepts email viahttp://www.whitehouse.gov/contact/. – While the above references are partisan, and may contain the creators’ bias, there are two more impartial sources. They are the Federal Reserve Board at https://www.federalreserve.gov, and the Bureau of Economic Analysis of the U.S. Department of Commerce at http://www.bea.gov/index.htm. The Federal Reserve Board site allows access primarily...read more
On the Money From the April 4, 2008 print edition Tax avoidance is the legal utilization of the tax law to one’s own advantage. A person is entitled to reduce their amount of tax by legal means. In Gregory v. Helvering (1935), the U.S. Supreme Court stated that, “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” Tax evasion is when illegal means are used to not pay taxes. Evasion usually involves deliberate misrepresentation, concealing the true state of fiscal condition, and in particular, dishonest tax reporting. To prove that if a scheme is creative or complex enough it must be legal, some have developed elaborate structures called “tax shelters.” When a tax shelter legitimately limits taxation, it’s called avoidance. If the shelter dishonestly pays no tax, it’s called evasion. More specifically, the structure becomes an “abusive tax shelter” or “abusive tax scheme.” These schemes are characterized by the use of trusts. The word “trust,” when used as a noun, is a “fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.” This relationship presumes that the beneficiary “trusts the trust” to look out for their interests. However, there are times when trusting the trust is misguided and could lead to unhappy consequences — namely, going to jail. That can happen when the trust is part of an abusive tax scheme. The IRS has developed a nationally coordinated program to combat these abusive tax schemes, primarily focusing on identifying and investigating their promoters, as well as those who support the process, such as accountants and lawyers. Here are some claims that are warning signs of an untrustworthy trust. Establishing a trust will reduce or eliminate income taxes or self-employment taxes. The taxpayer will retain complete control over their income and assets with the establishment of a trust. Taxpayers may deduct personal expenses paid by the trust on their tax return. Taxpayers can depreciate their personal residence and furnishings, and take them as deductions on their tax return. The IRS has identified five commonly used trust schemes that are regarded as abusive tax schemes: Foreign trust — These often are located in countries that impose little or no tax on trusts and provide financial secrecy. Typically, abusive foreign trust arrangements enable taxable funds to flow through several trusts or entities until the funds are ultimately distributed or made available to the original owner. The trust promoter claims that this distribution is tax-free. In fact, the income from these arrangements is fully taxable. Family residence trust — Taxpayers transfer family residences, including furnishings, to a trust, which sometimes rents the residence back to the taxpayer. The trust deducts depreciation and the expenses of maintaining and operating the residence, including pool service and utilities. These expenses aren’t deductible, and the IRS will disallow them. Charitable trust — Taxpayers transfer assets or income to a trust claiming to be a charitable organization. The trust or organization pays for personal, educational and recreational expenses on behalf of the taxpayer or family member. The trust then claims the payments as charitable deductions...read more
On the Money From the April 3, 2009 print edition As the world economy collapsed last fall, (and some would say it’s premature to use the past-tense of that verb), regulators took aim at activities that have a depressing effect on the financial markets. One of the activities that drew the SEC’s ire was the practice of “abusive naked short selling.” As opposed to “long trading,” which is purchasing a stock for cash and selling it later after the price has increased, “short trading” is the reverse. That is, the short-seller borrows a stock and sells it, and at a later time buys the stock in the market, hopefully at a lower price, and returns the shares that were borrowed. Notice that the first part of a short sale is borrowing the stock, not selling it. That might seem obvious. After all, how can anyone sell something they don’t own? Enter the abusive naked short-seller. In an abusive naked short transaction, the seller doesn’t actually borrow the stock, and fails to deliver it to the buyer. For this reason, naked shorting can allow manipulators to force prices down far lower than would be possible in legitimate short-selling conditions. This generates what’s known as a “failed to deliver.” These “fails to deliver” when left “open” indefinitely are at the heart of abusive naked short selling. The unresolved or “open” failure to deliver creates what are called “phantom shares,” or “vapor-shares” in the market, which weakens the price of the underlying stock and creates artificial dilution by creating a false total shares outstanding. In very plain terms, the naked short-seller makes a deal with a willing and equally unscrupulous participant to borrow shares they both know don’t really exist. As long as the lender “scofflaw” will never have to deliver those shares, the shares remain “vapor.” Therefore, the decision to short-sell securities naked brings destruction, fueled by the specious lending activities underneath. Has the abusive naked short-seller actually borrowed the shares? No. Legitimately borrowing the shares slows down the naked short-seller, who must locate the shares, make arrangements for a share loan, and pay fees to the share lender and often an intermediary. In September, SEC Chairman Christopher Cox said, “…the SEC has zero tolerance for abusive naked short selling.” To put action behind the words, the commission adopted Rule 10b-21, which expressly targets fraudulent short-selling transactions. The SEC chose to adopt the rule under the 10(b) fraudulent transaction provisions of the Securities Exchange Act of 1934 to emphasize the gravity of abusive naked short selling; it is fraud. The new rule covers short-sellers who deceive broker-dealers or any other market participants. Specifically, the new rule makes clear that those who lie about their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver. This rule became effective Oct. 17, 2008. Rule 10b-21 specifically provides that it is a “manipulative or deceptive device or contrivance” (as used in Section 10(b) of the Exchange Act) for any person to submit an order to sell an equity security if such person deceives a broker or dealer, a registered clearing agency participant or a purchaser about the person’s intention or ability to deliver the security on or before the settlement date, and such person fails to deliver...read more
On the Money From the February 6, 2009 print edition Form 1040, one of the most foreboding phrases in the English language, had its origin a scant 96 years ago with the passage of the 16th Amendment to the Constitution. In 1913, electricity itself was still rare, let alone electronic appliances. Today, most of what we do is electronic – even replacing paper books and newspapers with eBooks. Much of the financial system runs on electronics including banking, bill paying, trading stocks and now an expanded ability to contribute to the fiscal well-being of the country by filing Form 1040 from the comfort of your own computer. On Jan. 16, the IRS announced its expanded e-File program. According to the IRS, the new e-file program includes improvements to the Free File program that will allow virtually all taxpayers to e-file — free. Filing electronically with direct deposit can produce a refund to the taxpayer in as few as 10 days. To receive a refund in 10 days, the taxpayer should use Free File, an Internet-based computer application developed jointly by the IRS and Free File Alliance LLC, a group of private-sector tax software companies. The Free File Alliance offers the most commonly filed forms and schedules for taxpayers, 24 in total. For those with taxable incomes greater than $56,000, the IRS offers “Free File Fillable Forms.” This feature is the major new component of this year’s e-filing system. With the addition of Free File Fillable Forms, potentially everyone may file electronically. For taxpayers with Adjusted Gross Income (AGI) of $56,000 or less in 2008, there are 20 software options that will assist with the process. The taxpayer may choose from a list of software options (click the “help me find a company” button), including well-known products such as TurboTax and H&R Block’s TaxCut. In addition to working directly through the IRS website, there are a variety of commercially available tax software products that offer e-file, and many will be offering free e-filing for the first time this year. The IRS e-file system also allows the filing of Colorado state tax returns. Free File may be found at http://www.irs.gov/efile/. For 2007, more than 70 percent of tax returns were filed electronically. The IRS hopes that with the improvements to the e-File program, virtually all returns can be submitted without paper. To explore free electronic filing further, visit the following Internet sites: 1040 Central: http://www.irs.gov/individuals/article/0,,id=118506,00.html IRS e-File for Individuals: http://www.irs.gov/efile/article/0,,id=118508,00.html Free File Home: http://www.irs.gov/efile/article/0,,id=118986,00.html In addition to improvements in the mechanism for filing tax returns, there are a few tax-law changes for 2008 that are worth highlighting regardless of the method used to file the return, especially if income is less for 2008. Of the 24 changes for 2008 (http://www.irs.gov/publications/p553/ch01.html#d0e1203), here are a few of the most important. Mortgage workouts and foreclosures: If the balance of the loan was less than $2 million, eligible homeowners can exclude debt forgiven on their principal residence. In the past, forgiven debt would have been treated as taxable income. The taxpayer will receive a 1099-C with the “Amount of debt canceled” in box 2. First-time homebuyer credit: This is an exceptional credit of up to $7,500 that is much like a 15-year interest-free loan.The credit is also available if the taxpayer has not purchased a home in the past three years....read more