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As we begin this New Year, we would like to take a moment to thank our clients for supporting us during a very difficult 2020. Together, we all succeeded in confronting a myriad of challenges. We are thankful to have you as clients and please rest assured that we will continue to support each of you in your financial and estate planning endeavors.
We wish you all a VERY HAPPY AND PROSPEROUS NEW YEAR. May you experience happiness and peace in 2021.
From The First National Bank of Mount Dora Trust Department Family
The IRS Whistleblower Office rewards people who “blow the whistle” on persons who fail to pay the tax that they owe. The bounty can be up to 30 percent of the additional tax, penalty and other amounts collected by the IRS.
In fiscal 2019, the office collected $616.8 million in additional proceeds based upon 181 tips. The tipsters were paid more than $120 million for their services, for a net gain of just under $500 million. Roughly half of the claims for whistleblowing in 2019 were rejected as lacking specificity or credibility, or for being too speculative.
The 2019 collection was way down from the $1.6 billion haul in 2018, but that year was an anomaly, according to Dean Zerbe, senior policy adviser to the National Whistleblower Center. There were a couple of “big fish” that skewed the number higher. The better point of comparison is 2017, when $34 million was paid to whistleblowers from an additional $190.5 million in collections based on their tips.
How does one improve the chances of a tip being taken seriously? Zerbe said: “You need good, credible information, preferably from an insider. The IRS folks are busy; they don’t have time to go through a shoebox of papers. . . . You have to make it simple for them.”
$500 million sounds like a big number, until one puts it into context. Last fiscal year the IRS collected $3.6 trillion in gross taxes, so the whistleblower program added 0.014% to the collections. Collections through enforcement actions (audits and lawsuits) came to $57.5 billion, which was just 1.6% of the total. The whistleblower program was 0.8% of that. When more than 98% of tax collection happens without government prodding, we may be said to have a voluntary tax system.
Reminder: Tax returns this year are due on Thursday, April 15—there are no local holidays extending the time, as happens some years. The IRS expects to process more than 150 million individual tax returns. The filing season begins on January 25.
As we open 2021, we would like to reflect on some of the highlights of 2020, and the key issues facing the economy and markets for the coming year.
First and foremost, we have been through, indeed still are experiencing one of the most significant crises of the public health in our history. We began 2020 with a very strong outlook on both the economy and markets, but those outlooks were quickly dashed in February when it became apparent that governments, including our own, would institute widespread shutdowns of whole economies. This led to the first recession since 2009, when we emerged from the recession accompanying the financial crisis in 2008.
2020 has changed the way we do business in many ways, and it appears that these changes will persist even long after COVID has been brought under control. The most notable of these are working from home, communicating via video conferencing instead of traveling for business, new movie releases going direct to digital channels, online shopping, and many others.
A new President will be sworn in in a few weeks, and in conjunction with changes to the composition of the Senate, we can expect some significant changes to the business landscape. It remains to be seen how deeply the political cycle will influence the economic cycle, but we can expect increased allocation to social programs and taxes for those in the upper income brackets.
The key themes of the year ahead appear to be:
1. The ongoing COVID health crisis and the effort to vaccinate the population that is being carried out on a global scale. This has both positive and negative implications for markets. On the one hand, the number of cases and hospitalizations has been rising alarmingly fast. If that continues, we can expect economic slowdown and potential downward pressure in markets. On the other, rapid progress in vaccination could lead to faster relief than expected, which could become the catalyst for a move higher in markets.
2. Potential for more mandated shutdowns in areas of the country if hospital systems be come overwhelmed.
3. A chance of a double dip recession, due mostly to the possible reinstitution of those lockdowns and the continued struggles in the travel and leisure industries.
4. Geopolitical issues with China, Russia, Iran, and potentially North Korea.
Despite the recession and widespread hardships of 2020, the S&P 500 closed up 16.26% for the year and has spent the first week of 2021 consolidating at all-time highs. We have seen a rally off the lows of March last year continue, although the rally is no longer dominated by the technology sector. We are now seeing broad-based participation from Industrials, Financials, Materials, and Consumer Discretionary sectors, which augur an upward bias in stock prices. Interest rates remain low, and are likely to remain that way for some time.
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