Every year I’ve posted my Bozo Tax Tips. I will not be posting them for the 2020 Tax Season. There are too many serious issues going on, and I think it’s best to focus on the serious issues tax filers face.
You can still search for the past Bozo Tax Tips if you need some levity. And enjoy this picture (among other topics):
For those wondering Ms. Wilson said the cops wouldn’t get her. She’s enjoying 20 years at ClubFed.
Taxes are a personal business, and providing service to our clients is what we’re about. That means face-to-face interactions. But I’m also an employer, and I must look at the health of my employees. Thus, beginning tomorrow we are no longer having any face-to-face meetings. We are happy to use Skype, phone, or any other interaction for any scheduled appointments. We encourage all clients to use our Web Portal (we will email any of you who need that information), fax, or mail.
The Wall Street Journal has a story (pay link) this morning speculating that the Department of the Treasury will push back the April 15th deadline. There are no specifics given in the story, but given that politicians on both sides of the aisle are talking about this, there’s a reasonable chance this will happen.
The reason, of course, is the current coronavirus (Covid-19) outbreak. As the outbreak worsens (which, it appears, it will), there will be disruptions. Consider tax professionals in Seattle, where a large number of individuals have fallen ill. Do you want to meet with someone right now, especially given asymptomatic individuals can spread the disease? And for those who are ill (or are treating family members, or who have to deal witch their children who are now home on an extended ‘break’) they have more important things to deal with.
It’s something I, as a business owner, have to deal with. We wash our hands after seeing someone, but let’s face reality: we operate in close quarters. If one of us gets this, it’s likely that all of us in the office would get this. As for working at home, that’s near impossible for our office given the technology infrastructure we use.
I had initially thought we would see a larger number of extensions (and it’s something I think still could happen). I now suspect we will see this extension–probably something similar to the automatic two-month extension given to individuals outside the United States on April 15th. Whether it will include a waiving of interest is to be determined.
I’ll close with something that’s obvious. This week long-time clients called me and said they had colds, and wished to postpone their appointment. We fit them in in two weeks. If you’re sick, use some common sense (be it a cold, the flu, or anything else): Don’t take actions that will infect others! We have a rule in our office that if you have a fever, you go home, and you cannot come into work until 24 hours after the fever has broke. If all of us use some common sense and good hygiene, we will likely whether this storm with minimal damage.
As a published author I’m biased about my writing ability. But as my mother told me (and, yes, my mother is a published author, too), know your abilities! The best tax blog up until May 2017 was Joe Kristan’s Roth Tax Updates. But in 2017 the firm Joe worked for merged into Eide Bailly; at the time I wrote: “…[P]erhaps there’s an Eide Bailly Tax Updates in the future. (I can always hope.)”
Well, nearly three years later I’m pleased to report there is now an Eide Bailley Tax News & Views Blog. It will be listed momentarily in the blogroll on the right, and it appears to be must-read every morning for those of us in the world of tax.
In a little less than a month it will be time to reveal this year’s winner of the prestigious “Tax Offender of the Year” award. Remember, To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:
2018: California’s Train to Nowhere
2017: State and Local Pension Crisis
2016: Judge Diane Kroupa
2015: Kenneth Harycki
2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder
If you use a tax professional and have not yet provided your paperwork to him or her, it’s time to panic and work on this. In past years, I’ve made this post in early October. But this tax year is different than others, and if you turn your paperwork in after the end of September, it’s quite possible your return will end up being filed after the October 15th extension deadline.
Tax returns are taking longer to prepare this year than last. We’re seeing the average return taking 10% longer than last year. Let’s assume that an average tax professional could prepare ten returns in a day; this year, he or she might only get nine done. That doesn’t sound like much, but most tax returns on extension are difficult ones, with complications.
If you file late, realize it’s as if your extension never happened. Of course, if you’re getting a refund filing late is not the end of the world: The penalties for late filing are based on the tax you owe, so if you don’t owe any tax there are no penalties.
Our official deadline for receiving paperwork was September 17th. Most tax professionals I know had similar deadlines. That means if you haven’t turned in your paperwork you’re on borrowed time. It’s time for the procrastinators out there to stop procrastinating if you don’t want to pay an extra 25% of your tax for late filing.
I appeared on last week’s “Gambling With an Edge” podcast. We discussed the IRS letters sent to cryptocurrency users, does having a large number of W-2Gs increase audit risk, and sending tax returns by regular mail — and many other topics. You can download the podcast at the link (above), or subscribe to “Gambling With an Edge” on iTunes and other podcast services.
Our offices are moving (conveniently while we’re on vacation). Our new address is:
Clayton Financial and Tax
222 S Rainbow Blvd, Ste 205
Las Vegas, NV 89145-5356
And we’re going to enjoy a vacation. If something earth-shattering in the tax world happens while I’m relaxing, I’ll take time out to post on it. Otherwise, enjoy the fine bloggers listed in the blogroll on the right.
I’ll be back on Tuesday, August 6th.
It’s time for our annual blog hiatus. We’ll be back after April 15th. Our annual series of Bozo Tax Tips will come out beginning April 1st, and if something truly remarkable happens in the tax world between now and April 15th we will report on it.
Another year has gone by. And that means it’s once again time for that most prestigious of prestigious awards, the Tax Offender of the Year. As usual, there’s a plethora of nominees. As usual, I wish there weren’t any deserving winners.
The Tax Cuts and Jobs Act (TCJA) received a nomination. “This isn’t tax simplification, and few have received benefits,” a correspondent told me. The first part of the statement is absolutely true. The TCJA is anything but simplification. As for few receiving benefits, almost all the provisions of the TCJA impact 2018 taxes (and onward). We’ll have a much better idea of what this law will (or won’t) due to taxpayers in a few months. I’m holding this nomination in abeyance until next year.
The Miccosukee tribe of Indians received another nomination. The tribe has been fighting a losing battle over the taxation of profits from their casino in southern Florida. The tribe itself is exempt from taxation (it’s a sovereign nation); however, members of the tribe are not exempt based on distributions of those profits. This issue has been percolating up and down the Tax Court, District Courts, and the 11th Circuit Court of Appeals for a few years. On June 4th the 11th Circuit ruled in United States v Jim:
When an Indian tribe decides to distribute the revenue from gaming activities, however, the distributions are subject to federal taxation. Id. § 2710(b)(3)(D). The Indian tribe, as a consequence, must report the distributions, notify its members of their tax liability, and withhold the taxes due on them. Id. § 2710(b)(3)(D); 26 U.S.C. §§ 3402(r)(1), 6041(a).
In the case before us, an Indian tribe engaged in gaming activities. Each quarter, the tribe used the revenue of the gaming activities to fund per capita distributions to its members. But the tribe disregarded its tax obligations on these distributions. It neither reported the distributions nor withheld taxes on them…
In this appeal, the member and the tribe contend that the District Court erred in concluding that the exemption for Indian general welfare benefits did not apply to the distributions. The tribe alone asserts that the District Court erroneously upheld tax penalties against the member and incorrectly attributed to the member the distributions of her husband and daughters. Lastly, the tribe argues that the District Court erred by entering judgment against it as an intervenor.
We affirm the ruling of the District Court in each of these matters. The distribution payments cannot qualify as Indian general welfare benefits under [the Tribal General Welfare Exclusion Act] because Congress specifically subjected such distributions to federal taxation in [the Indian Gaming Regulatory Act]. The member has waived any arguments as to penalties or the amount assessed against her, and the tribe lacks a legal interest in those issues. The District Court did not err in entering judgment against the tribe because the tribe intervened as of right and the Government sought to establish its obligation to withhold taxes on the distributions. [footnote omitted]
This taxpayer owes $278,758.83 as of April 9, 2015; the tribe and its members could owe more than $1 billion in personal income taxes. Yet that sum pales in comparison to our ‘winner.’
As most of you know, I grew up just outside of Chicago. I have fond memories of riding the El and of taking the train up to Milwaukee. Subways and other forms of mass transit work well in dense cities such as Chicago, New York, and Boston.
Amtrak, however, has been a money loser. Running passenger trains through the northeast corridor ekes out a profit, but the rest of the service doesn’t make money. Put simply, you need a dense corridor to make trains a winner.
In November 2008, California voters passed Proposition 1A. As noted in the ballot summary, “Provides for a bond issue of $9.95 billion to establish high-speed train service linking Southern California counties, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area.” The argument in favor stated:
Proposition 1A is a $9.95 billion bond measure for an 800-mile High-Speed Train network that will relieve 70 million passenger trips a year that now clog California’s highways and airports—WITHOUT RAISING TAXES…
Proposition 1A will save time and money. Travel from Los Angeles to San Francisco in about 2½ hours for about $50 a person. With gasoline prices today, a driver of a 20-miles-per-gallon car would spend about $87 and six hours on such a trip.
The rebuttal to the argument stated:
Prop. 1A is a boondoggle that will cost taxpayers at least $20 billion in principal and interest. The whole project could cost $90 billion—the most expensive railroad in history. No one really knows how much this will ultimately cost.
Now that we’re ten years after passage, we can determine that both sides were wrong. The last official analysis showed a price tag of $77 billion. The New York Times, in an article this past July, upped the price to $100 billion. So both sides were wrong about the cost, but the opponents had the right idea. And with this project years from completion and the cost having risen every time there’s been a new analysis, I’ll take the over on $100 billion. That’s why California’s high speed rail project (aka “The Train to Nowhere”) is this year’s Tax Offender of the Year.
So where will the money come from to build the train? It’s not coming from this Congress; President Trump and Republicans in Congress vociferously oppose the project. Proposition 1A says that the train must be self-supporting; less than 3% of high-speed train networks in the world are self-supporting. Authority Spokeswoman Lisa Marie Alley told the Sacramento Bee “We haven’t been shy about the fact that this project was never fully funded.” The hope is that once the system begins to operate that it will show private industry its usefulness and that they would be willing to invest in the project.
Consider that the first segment will run from Shafter, just north of Bakersfield, to Madera, a bit south of Merced. It does go through the San Joaquin Valley’s largest city, Fresno, but it does not run through Visalia; instead, it runs near Hanford. I’ll be blunt: There’s no chance that the first segment will be self-supporting. There aren’t enough riders wanting to commute between these cities to make the line profitable. Additionally, state route 99 runs between all these cities. Yes, it will take longer in a car but you have your own transportation when you get to your destination, and you don’t have to wait for the train.
Where high speed rail works is in dense corridors. For example, the Japanese bullet trains run between such cities as Tokyo (population 38 million for the metropolitan area), Osaka (19 million), and Nagoya (9 million). The California bullet trains will initially run between Shafter (population 19,608) and Madera (population 65,508). If we use Bakersfield (840,000 for the metropolitan area) and Fresno (972,000) we get something a little better. Still, how many people really commute between these cities? Having lived in Visalia for years, I can state unequivocally it’s not a lot.
Proponents argue that once the train reaches the Bay Area and Southern California, ridership will pick up; both metropolitan areas have millions of residents. But there’s a huge difference between Tokyo and either California metropolitan area. The Tokyo metropolitan area is 5,240 square miles with a population of 38 million. The Los Angeles metropolitan area is 33,954 square miles with a population of 18.7 million. The Bay Area is 10,191 square miles with a population of 7.77 million. Put simply, Japan is densely populated so train travel works very well.
Additionally, there are several airports serving both the Los Angeles metropolitan area (Los Angeles International, Burbank, Ontario, Long Beach, and Orange County) and the Bay Area (San Francisco, San Jose, and Oakland). There are numerous flights between each of the Southern and Northern California airports. These flights take about one hour and cost about $100. High speed rail is going to have to beat that in some way in order to attract paying customers. Frankly, I doubt either will happen.
If the system is built, I do think that it will attract riders going to and from the Central Valley. There aren’t many flights to Fresno from the Bay Area (or from Los Angeles). There’s also the issue of demand; there really isn’t that much into the Valley. But the service can certainly attract riders there. However, it’s not going to be near enough riders for the project to pay for itself.
The problem for California taxpayers is that they are liable for the project. Those bonds will need to be paid back. There’s a need for at least another $70 billion to finish the line. The best estimate for the annual subsidy is $100 million. Yes, I know that Proposition 1A specified that there can’t be a subsidy. Does anyone really believe that California’s politicians will follow the law on this? (Hint: I don’t.)
But Russ, this is a state project. Its impact is limited to California. If California wants to shoot itself in the foot, we should let it. The problem with that argument is that the next time the California economy suffers a downturn, California will run to Congress for a bail-out. Today, the Trump Administration is likely to tell California, “No.” However, I have my doubts that a future Democratic administration won’t go for a bail-out on this project, leaving non-Californians liable for this boondoggle. There’s a need for $70 billion. The sooner that this project is put out of its misery the better for both California and the country.
Quentin Kopp, a former Supervisor in San Francisco, was the man who introduced the project and was a proponent. He told reason.com
It is foolish, and it is almost a crime to sell bonds and encumber the taxpayers of California at a time when this is no longer high-speed rail. And the litigation, which is pending, will result, I am confident, in the termination of the High-Speed Rail Authority’s deceiving plan…
[The selling of bonds is] deceit. That’s not a milestone, it’s desperation, because High-Speed Rail Authority is out of money.
California High Speed Rail is a worthy winner of the 2018 Tax Offender of the Year award.
That’s a wrap on 2018. I wish you and yours a happy, healthy, and prosperous New Year!
