It’s Time to Start Your 2024 Mileage Log

January 3rd, 2024

I’m going to start the new year with a couple reposts of essential information. Yes, you do need to keep a mileage log:

Yesterday was the first business day of the new year for most. You may have resolved to keep good records this year (at least, we hope you have). Start with keeping an accurate, contemporaneous written mileage log (or use a smart phone app–with periodic sending of the information to yourself to prove that the log is contemporaneous).

Why, you ask? Because if you want to deduct all of your business mileage, you must do this! IRS regulations and Tax Court rulings require this. Written is defined as ink, so that means you need a paper log or must be able to prove your smart phone log is contemporaneous.

The first step is to go out to your car, and note the starting mileage for the new year. So go out to your car, and jot down that number (mine was 133,599). That should be the first entry in your mileage log. I use a small memo book for my mileage log; it conveniently fits in the center console of my car. It’s also a good idea to take a picture of the odometer and email that picture to yourself. This will give you a time-stamp showing you accurately noted your beginning mileage.

Here’s the other things you should do:

On the cover of your log, write “2024 Mileage Log for [Your Name].”

Each time you drive for business, note the date, the starting and ending mileage, where you went, and the business purpose. Let’s say you drive to meet a new client, and meet him at his business. The entry might look like:

1/4 133900-133935 Office-Acme Products (1234 Main St, Las Vegas)-Office, Discuss requirements for preparing tax return, year-end journal entries.

It takes just a few seconds to do this after each trip, and with the standard mileage rate being $0.66/mile, the 35 miles in this hypothetical trip would be worth a deduction of $23. That deduction does add up.

Some gotchas and questions:
1. Why not use a smartphone app? Actually, you can but the current regulations require you to also keep a written mileage log. You can transfer your computer app nightly to paper, and that way you can have the best of both worlds. Unfortunately, current regulations do not guarantee that a phone app will be accepted by the IRS in an audit.

That said, if you backup (or transfer) your phone app on a regular basis, and can then print out those backups, that should work. The regular backups should have identical historical information; the information can then be printed and will function as a written mileage log. I do need to point out that the Tax Court has not specifically looked at mileage logs maintained on a phone. A written mileage log (pen and paper) will be accepted; a phone app with backups should be accepted.

2. I have a second car that I use just for my business. I don’t need a mileage log. Wrong. First, IRS regulations require documentation for your business miles; an auditor will not accept that 100% of the mileage is for business–you must prove it. Second, there will always be non-business miles. When you drive your car in for service, that’s not business miles; when you fill it up with gasoline, that’s not necessarily business miles. I’ve represented taxpayers in examinations without a written mileage log; trust me, it goes far, far easier when you have one.

3. Why do I need to record the starting miles for the year? There are two reasons. First, the IRS requires you to note the total miles driven for the year. The easiest way is to note the mileage at the beginning of the year. Second, if you want to deduct your mileage using actual expenses (rather than the standard mileage deduction), the calculation involves taking a ratio of business miles to actual miles.

4. Can I use actual expenses? Yes. You would need to record all of your expenses for your car: gas, oil, maintenance, repairs, insurance, registration, lease fees (or interest and depreciation), etc., and the deduction is figured by taking the sum of your expenses and multiplying by the percentage use of your car for business (business mileage to total mileage driven). Note that once you start using actual expenses for your car, you generally must continue with actual expenses for the life of the car. Be careful if you (or your family) have multiple vehicles. You will need to separate out your expenses by vehicle.

So start that mileage log today. And yes, your trip to the office supply store to buy a small memo pad is business miles that can be deducted.

Tags:
Posted in IRS | Comments Closed

The 2023 Tax Offender of the Year

December 29th, 2023

So many try every year for my award–The Tax Offender of the Year.  It’s not really something to be proud of; after all, to win this award you need to commit really big tax fraud or a series of Bozo-like actions (ideally, both).  As usual, there are plenty of candidates but there can only be one “winner.”

Just missing out of the top three were Ali Jaafar and Yousef Jaafar of Watertown, Massachusetts.  They came up with the not-so-brilliant idea of unlawfully claiming 14,000 winning Massachusetts lottery tickets, laundering the $20 million in proceeds, and lying on their tax returns.  They each get to spend five years at ClubFed and make restitution of $6,082,578 and must forfeit their profits on the scheme.

Also just missing the top three was Las Vegas resident Scott Lawrence.  Mr. Lawrence operated a real estate business that did quite well from 2009 through 2019; he just didn’t want to pay the $1,905,325 in taxes he owed.  He elected to deliberately thwart efforts to levy his bank account and caused his attorney to send a misleading letter to the IRS; he then deliberately paid his taxes using an overdrawn bank account.  He’ll enjoy a year and a day at ClubFed and must make restitution.

Coming in third place was Stephen Schechter, a resident of Monaco.  Mr. Schechter is an investment advisor and is doing quite well.  Back in 2011 he sold an apartment in Monaco for about €14,000,000.  Now, that wasn’t all profit–but quite a bit was.  Unfortunately, that sale didn’t make it onto his 2011 tax return.  Nor were various foreign financial accounts where the money went noted on his FBAR (FinCEN Form 114, the Report of Foreign Bank and Financial Accounts).  Somehow, the interest and dividends from those accounts also didn’t make it onto his returns.  Mr. Schechter pleaded guilty to concealing over $5,130,000 in income from the IRS.

Walter “Terry” Douglas Roberts II, of Flat Rock, North Carolina just missed out on the brass ring.  Mr. Roberts is an appraiser, and he did lots of appraising of conservation easements.  The IRS looks at Syndicated Conservation Easements as part of their “Dirty Dozen” tax scams. Now, not all conservation easements (or syndicated conservation easements) are scams; many are legitimate.  However, when you admit to fraudulently inflating the values of the easements by “…not following normal appraisal methods, making false statements and either personally manipulating or relying on knowingly manipulated data to reach a targeted appraisal value – communicated to him by co-conspirators…,” you’re looking at a problem.  And when those 18 appraisals end up having fraudulent tax deductions totaling $466,961,000 and a tax loss of $129 million, you’re talking big tax fraud.  He has to make restitution of that $129 million plus spend 12 months at ClubFed.

Back in 2004, Congress passed the “American Jobs Creation Act of 2004.” Included within this law was a biodiesel tax credit.  It was extended through various other legislation and allows a tax credit for the production of various biodiesel fuel.  The tax credit $1.00 per gallon of biodiesel and renewable diesel fuel.

Various businesses began throughout the United States to take advantage of this credit and produce environmentally “good” diesel fuel.  One such company was Washakie Renewable Energy, founded by Jacob Kingston.  As noted on their website,

Committed to producing fuel that is sustainable, clean-burning, and domestically accessible, Washakie Renewable Energy (WRE) is the most significant producer of biofuel in the Intermountain West region. By operating the largest seed crush press in the US, and relying on recycled waste materials like used kitchen grease and cooking oil, Washakie Renewable Energy produces over ten million gallons of biodiesel annually.

The biodiesel produced by WRE is the only alternative fuel to complete the EPA’s study under the Clean Air Act regarding emissions and health effects. In comparison to conventional diesel, biodiesel produces only 14% of the greenhouse gases, 33% of the hydrocarbon emissions, and 53% of the particulate matter, while also being quickly biodegradable and less toxic than common table salt.

Washakie Renewable Energy’s commitment to conscientious resource management includes distributing several useful byproducts of its biodiesel operation, including high-quality animal feed and refined glycerin.

That seems great, doesn’t it? A business making money, giving back to the community, and helping the environment.  What could be wrong with that? Let’s just say that you can only sell 100% of something and follow along with what happened.

The conspiracy began in 2010 and continued through 2018 and involved multiple fraudulent schemes. One involved purchasing biodiesel from the East Coast of the United States (which had been produced by others who had already claimed the renewable fuel tax credit) and exporting it to foreign countries, including Panama, then doctoring transport documents to disguise and import the biodiesel as “feedstock.” Washakie used this false paperwork to claim it had produced biodiesel from the feedstock to support its filing of fraudulent claims for IRS biofuel tax credits. Washakie also fraudulently obtained millions of EPA renewable identification numbers that were then sold for approximately $65 million. Later, Dermen and the Kingstons conspired to purchase millions of gallons of biodiesel and rotate it though the U.S. shipping system to create the appearance that qualifying fuel was being produced and sold by Washakie. Washakie applied for and was paid by the IRS over $300 million for its claimed 2013 production and over $164 million for its claimed 2014 production. Evidence at Dermen’s trial showed that, to further create the appearance of legitimate business transactions, Dermen and the Kingstons schemed to cycle their and other co-conspirators’ fraud proceeds in more than $3 billion in financial transactions through multiple bank accounts.

I can’t say it was all a scam; however, it appears to have mostly been a scam.  Lots of the biodiesel they produced had already been produced and the biodiesel tax credit already taken.  So Washakie had low production costs (after all, they didn’t really produce it), a high profit margin, and lots and lots of refundable renewable fuel tax credits.  Indeed, the individuals involved: Lev Dermen, Jacob Kingston, Isaiah Kingston, Rachel Kingston, and Sally Kingston caused over $1 billion in fraudulent tax credits with $511 million paid to Washakie.

Where did that money end up?  A 150-foot yacht named the Queen Anne (seized in Lebanon and sold for over $10 million in Cyprus), $700,000 of land in Belize that was going to go for a casino, a 2010 Bugatti Veyron (worth $1.8 million), a Lamborghini and Ferrari, and a $3.5 million mansion; investments in other businesses; and, of course, millions sent to friends and family.

The individuals involved attempted to hide their actions by moving money to various countries outside the United States (primarily Turkey and Luxembourg).  Mr. Dermen also made an assurance to Jacob Kingston: “…Dermen falsely assured Jacob Kingston that Kingston and his family would be protected by Dermen’s “umbrella” of corrupt law enforcement and immune from criminal prosecution.” Oops.

Lev Derman (the president of Washakie) was found guilty back in 2020 of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering.  Jacob Kingston pleaded guilty in 2019 to various fraud and tax charges.  Isaiah Kingston and the other members of the Kingston family likewise pleaded guilty in 2019.

Mr. Dermen, who is 56, was sentenced to 40 years (essentially a life sentence), Jacob Kingston received 18 years with other members of the Kingston family receiving between six and 12 years at ClubFed.  Dermen was also ordered to make restitution of $442.6 million and to pay a money judgement of $181 million.  Jacob and Isaiah Kingston were each ordered to pay $511 million in restitution to the IRS. Meanwhile, the Department of Justice is continuing efforts to seize various assets to satisfy the $511 million in restitution.

A helpful hint to all: The Producers is a great play (and movie), but (a) don’t try to sell more than 100% of something and (b) conspicuous consumption while committing fraud usually doesn’t end well.  Lev Derman and the Kingston Family are worthy winners of the 2023 Tax Offender of the Year award.

That’s a wrap on 2023.  I wish all of you and your families a happy, healthy, prosperous and safe New Year!

Tags:
Posted in International, IRS, Tax Fraud | Comments Closed

An IRS Identity Protection Unit Saga: Part 5

December 18th, 2023

When I last updated this saga (on September 22nd), I hadn’t heard a thing from the IRS or my request for the Taxpayer Advocate Office to take a look at the missing refund for my client (call him John Smith).  So in mid-November, I again called the Identity Protection Unit requesting status.  I discovered that this case had been assigned to the Taxpayer Advocate.  However, the IRS Identity Protection Unit couldn’t tell me who at the Taxpayer Advocate was assigned to the case: either they didn’t know or they’re simply not allowed to talk about anything assigned to the Taxpayer Advocate.

I called the Taxpayer Advocate hotline and was told the name of the individual who was assigned to the case.  I then called him, got his voice mail, and left a message with a promised callback coming within two weeks.  It’s been a month, and unsurprisingly (given how this case has gone) there’s been no callback.  I left another message requesting status this morning.  We’ll see if we have a callback by January 2nd (I’m not holding my breath).

Neither my client nor I have ever received any communication from the Taxpayer Advocate Office stating that the case has been assigned to someone.  We haven’t received any communications from anyone, for that matter, since my client successfully verified his identity.  Meanwhile, the interest owed to my client has passed $4,500–something you and I will be paying for.  It’s hard to see my client receiving his refund for at least another month; by the time this saga ends it’s likely interest will exceed $5,000.

Consider individuals who desperately need their tax refunds, and this large refund (approximately $30,000) is needed to pay bills.  Do I need say more? It shouldn’t take nine weeks to have a return processed after identity verification (but it does); my client has been waiting 39 weeks (and counting).

I will update this saga in the New Year.

Previous posts on this:

An Identity Protection Unit Saga: Part 1
An Identity Protection Unit Saga: Part 2
An Identity Protection Unit Saga: Part 3
An Identity Protection Unit Saga: Part 4

Tags: ,
Posted in IRS | Comments Closed

IRS Announces 2024 Standard Mileage Rates

December 14th, 2023

This morning, the IRS announced the 2024 standard mileage rates for automobile usage.  Those rates will be:

  • 67ȼ per mile for business use, up from 65.5ȼ per mile in 2023;
  • 21ȼ per mile for medical purposes, down from 22ȼ per mile in 2023; and
  • 14ȼ per mile for miles driven in service of charitable organizations (set by statute and unchanged for 2024).

I question how the annual study showed that any automobile expenses are less than in 2023, but the IRS conducts a study and that’s what the results show nationally.  Here in Nevada, costs have definitely risen from 2023 but “it is what it is.”

If you do use a car for business, remember to keep a mileage log (or use an app).

Tags:
Posted in IRS | Comments Closed

What’s $68 Billion and 1.1% Among Friends?

December 11th, 2023

As the late Senator Everett Dirksen said, “A billion here, a billion there, and pretty soon you’re talking real money.”  California is staring at a $68 billion budget deficit.  Ouch.  California depends on personal income tax revenues for 65.9% of the budget–and on the top 1% for 50% of those revenues with the top 0.1% providing 33% of personal income tax revenues to the state.  Meanwhile, the middle class has been leaving California as fast as they can.  As Samuel Johnson said long ago, “Whatever you have, spend less.”

That’s the big issue in California: runaway spending.  What has the state legislature’s response been: Let’s increase tax rates!  Beginning in January, California’s top rate rises to 14.4% (from 13.3%); those in the middle class will see the rate rise from 9.3% to 10.4%.  This doesn’t sound like much, but if a family earns $100,000 a year they can save $1,100 by residing in no-tax Nevada.  The Greater Las Vegas Association of Realtors thanks California for their efforts in helping home sales in the Las Vegas metropolitan area!  And that 1.1% increase could easily increase another 0.4% (to a total of 1.5%).

Now, taxes aren’t everything (of course).  For businesses, regulations matter; California’s regulatory climate is abysmal.  “But Russ, there are a lot of people in California.”  Sure, but businesses that can move will.  I did twelve years ago; others are getting more and more reasons to do so.  The California legislature and Governor Newsom ignore this at their own peril.

Posted in California | Comments Closed

Nominations Due for 2023 Tax Offender of the Year

December 8th, 2023

It’s that time of year–the season of giving.  Unlike gifts for your family and friends (where everyone, hopefully, has been nice), I’m looking for the naughty.  Once again, I’m seeking nominations for this year’s Tax Offender of the Year.  To qualify, the winner has to do more than cheating on his or her taxes; he or she needed to really cheat or have committed a series of Bozo-like actions.  If you have a nominee, please email me at rcfox at claytontax dot com.  Our previous winners:

2022: Kevin Kirton
2021: Oleg Tinkov
2020: Robert Brockman
2019: Lawrence R. Gazdick, Jr.
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 have a nomination, please send it to me by December 22nd.

Tags:
Posted in Tax Evasion, Tax Fraud | Comments Closed

The Upcoming Beneficial Ownership Information Disaster

November 29th, 2023

Is the light on the horizon the end of the long tunnel you’re transiting or the oncoming train?  Unfortunately, I see an oncoming train on the horizon in the new mandatory Beneficial Ownership Information reporting.  If you’re a business owner and don’t know what I’m talking about, read on.

Congress passed a law in 2021 called the Corporate Transparency Act (CTA) requiring most corporations, LLC, LLPs, or any other entity created by the filing of a document with a secretary of state or similar office of any state, district, or Indian tribe to report Beneficial Ownership Information (BOI).  Let’s assume you have an LLC for your rental property–let’s call it Steve’s Rental LLC–properly formed in Nevada.  Steve is the sole owner of this; he is subject to BOI reporting.  Steve must report his legal name, identification number (social security number), address, and include an image of an identifying document (e.g. driver’s license).  Initial reports for entities formed in 2023 or earlier is due by the end of 2024.  FINCEN announced this morning that reports for entities formed in 2024 are due 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports.  The reports must be submitted electronically through FINCEN.  I’d love to show you a draft of that report, but I can’t; nothing has been released.  Generally, a beneficial owner is one who owns 25% or more of the entity.

What if information changes? You have 30 days to file an updated report.  What if you have 20 LLCs, one for each rental you own? You have to file separate reports for each LLC.  There is an FAQ available, and FINCEN has a small entity compliance guide.

Why do I see problems on the horizon? First, many (most?) entity owners are unaware of this new requirement.  Second, accountants might not be able to assist.  While FINCEN said that reporting companies (filers of the BOI reports) can consult with professional service providers such as attorneys or accountants, some state bar associations are stating that filing these reports is the practice of law; thus, it would be unlicensed practice of law (UPL) for me to assist a client in practicing this.  (As of today, the Nevada Bar Association hasn’t come out one way or the other on this.)  UPL is subject to fines and jail time.

More importantly, many insurance companies for tax professionals have told their clients that preparing BOI reporting will not be covered under Errors & Omissions (E&O) insurance.  (E&O insurance covers errors and omissions a tax professional might make in servicing a client; it’s basically malpractice insurance for tax professionals.)  My insurance carrier has told me not to prepare BOI reports; I’ve heard from colleagues that other (again, most?) carriers are saying the same thing.  (I’ll have a post soon about “Comfort Letters;” those are vanishing because of pressure from E&O carriers.)

Tax professionals will likely tell their clients to talk to their attorneys or review the information on the FINCEN website.  Our draft Engagement Letters for the upcoming Tax Season state:

Beginning January 1, 2024, most US companies must by January 1, 2025 comply with certain disclosure requirements under the Corporate Transparency Act (“CTA”), including beneficial ownership information (“BOI”) reporting.  This engagement does not include assisting you with any CTA reporting requirements.  You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. We shall have no liability resulting from your failure to comply with the CTA. Information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi. We are not permitted to give you legal advice and recommend that you consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection and reporting of relevant ownership information.  [Emphasis in Original]

I’d like to provide this service for a couple of reasons.  First, I would be assisting clients and that’s the business I’m in.  Additionally, I can see this being an income generator for my business.  However, as of today I strongly suspect most tax professionals will be referring their clients to their attorneys to comply with BOI reporting.

Tags: , ,
Posted in FINCEN | Comments Closed

IRS Announces One-Year Delay in $600 1099-K Requirement

November 21st, 2023

The IRS announced today a one-year delay in the $600 1099-K threshold.  Additionally, the IRS announced that they will phase-in the requirements with a $5,000 threshold for the 2024 tax year.  While the IRS phrased the announcement as resulting from “…feedback from taxpayers, tax professionals and payment processors…,” I strongly believe that the IRS isn’t ready for the tsunami of 1099-K’s that are coming.

In any case, we have a delay for one year, with a $5,000 threshold for next year (2024 1099-K’s filed in 2025) and a $600 threshold for the 2025 tax year (1099-K’s filed in 2026).

Tags:
Posted in IRS | Comments Closed

The Almost-End of the 2023 Tax Season

November 16th, 2023

It’s been a while since I posted: family issues, tax deadlines, and paper in every direction has made me concentrate on serving my clients, and not the blog.  I’ll have a recap of the 2023 Tax Season soon, but today is a celebratory day: Today is the almost-end of the 2023 Tax Season.  Thursday, November 16th is the filing deadline for California taxpayers (except for four counties in the northeast portion of the state).  I believe we have one signature document outstanding, but otherwise our outstanding California returns were filed.

It’s not the end of the 2023 Tax Season, though: taxpayers impacted by hurricanes in Florida (most of the state except for the Miami-Palm Beach area), South Carolina, Maine, and Massachusetts have until Thursday, February 15, 2024 to file their extended 2022 tax returns.  We have four such clients.

The IRS will be turning off electronic filing of individual returns this weekend until sometime in January.  The ancient IRS computer system (it dates to 1959) takes two months or so to be reprogrammed for the following year taxes.  If you need to electronically file a 2020 tax return (or a 2020 amended return), now is a great time to do so because after Friday you won’t be able to.

I’ll also soon have a preview of the upcoming paperwork tsunami disaster and what it means for both the 2024 Tax Season and Automated Underreporting Unit notices in 2025.

Tags:
Posted in California, Florida, IRS, Maine, Massachusetts, South Carolina | Comments Closed

Maine & Massachusetts Conform to IRS Hurricane Extension

October 4th, 2023

In the US we have a dual system of taxation: federal and state taxes.  Of course, you can be a resident of a state without state income tax like me and not have to deal with state income taxes, but most Americans file two returns. On September 26th the IRS announced they were extending tax filing deadlines for all taxpayers residing in Maine and Massachusetts because of Hurricane Lee. But states do not have to follow federal extensions (New York, for example, recently did not conform to a federal disaster declaration).

I called both the Massachusetts Department of Revenue and the Maine Department of Revenue Services.  Both states are conforming to the federal extension.  There is one additional step needed for taxpayers in Massachusetts: You need to write “STORM” at the top of your Massachusetts return.

This is good news for those impacted by the hurricane.  Do note this is just an extension of time to file, not pay.

Tags:
Posted in IRS, Maine, Massachusetts | Comments Closed

« Older Entries
Newer Entries »