From: John Lott
Sent: 1/26/03 1:44 PM
Subject: Response to Lindgren's "Lott's Tax Arguments"
Response to Lindgren's "Lott's Tax Arguments"
My wife, who took care of our taxes, has a discussion below about how the forms were completed. The main point is that all payments to research assistants if documented by check went into the professional services category. This also includes other expenses that they might have incurred in their work such as their telephone expenses, xeroxing and the like. On the business form, we list out expenses that we directly make ourselves.
As to claims that the "legal and professional services" are likely to include such things as "lawyers, book agents, or brokers," that is hypothetically possible, but not in this case. The only book agent that I have ever used is Glen Hartley at Writers Representatives ((212) 620-0023). I ended up using the University of Chicago Press to publish More Guns, Less Crime. While I talked briefly to Hartley about the book back in 1996, nothing ever came of it and I never had any financial relationship with him back around then. As to brokers, I have checked with Charles Schwab, where we have our accounts, and I can get a statement of all transactions (for $30 per account for 1997). If that is necessary, please let me know. (However, these accounts are not part of my "business," but any brokerage fees incurred when buying or selling would be listed under schedule D, not C.) Finally, over the last decade we have hired a lawyer one time when a tenant left our house without paying rent. That happened after than 1997 and my wife points out that it would be part of "PPR" listed on the front of 1040, anyway, not as a business expense.
If it is necessary to prove that the statements made by my wife below are accurate, I am willing to let someone such as Dan Polsby look at our detailed tax forms for more recent years.
Finally, the students did come by my office and volunteer their services. I had not advertised for any positions. While I no longer have records for what was paid them, it is my recollection that I did pay them something for their work and I did tell Lindgren that I had given them something. In any case, it doesn't matter here because whether it was just telephone bills or something more, both amounts still would have reported the same way.
Earlier Lindgren had written (1/17) that "I had never heard of a professor doing anything of that size with no funding . . ." So I do greatly appreciate Lindgren's statement that the tax forms at least provide "good evidence that Lott is willing to fund his own projects." In any case, as I have pointed out previously, "the $8,750 does include the expenses for other projects."
For these topics, let me hand over the discussion to my rather well-organized wife, Gertrud Fremling:
As to what the $8,750 of "legal and professional services" comprise: There are several points here:
I. a) To the extent that my husband actually did use checks to pay the students who made the phone surveys, I would definitely have put the expense into the legal and professional service category. Looking at Schedule C for 1999, which is the closest in time I have supporting documents for, this is exactly where I put a research assistant payment of $430. (That is out of a total of $871 that year, where the remaining part was $441 paid for indexing a book).
b) I believe that this is also the category that such services should be put. (Possibly one could discuss whether it rather should have been put on line 11 "Commissions and fees"). Lindgren claims that research assistants payments should be under "wages". This however has never been my reading of the IRS tax code. As I understand it, "wages" includes wages, salary and other compensation paid to EMPLOYEES. Whether the person paid falls in a relatively low-paying category (making a survey, typing up an index, etc.) or a high paid lawyer or broker is not relevant. I think it is quite obvious that the temporary research assistants were not "employees".
II. As to phone bills not being listed out specifically, this is not at all surprising. These would logically be part of professional expenses (again, to the extent they were paid by check rather than cash). If, for example (entirely hypothetical), John would have paid a student for 20 hours work at $13/hour and the student had a phone bill of $133.33, then he would have written out a check of the total, $393.33, and this amount would thus have been put into the category of "professional expenses". (It is then up to the student to declare, on his or her income tax forms, the $393.33 as business income and deduct the $133.33 as THEIR business expense.) I believe that this would be precisely the same mehtod as if one were to pay a lawyer, plumber et.c.: they may add to their bill various expenses such as phone, travel, materials etc.. Note that for survey in question, we did not incur any phone bills directly under John's (or my) name. The $422 is almost definitely for telephone bills, phone bills that John incurred himself, not for the SURVEY telephone bills. (It might be a moot issue, but it definitely could not be for "deducting expenses for living in Chicago away from his home" as Lindgren suggests. Since we already had been in Chicago since 1994, it would have been impossible to continue to claim Swarthmore as our home for tax purposes. If Lindgren had checked it, he would have seen that Chicago was our tax home, as listed on the 1040 form.