A Little Housekeeping

Posted on May 1, 2014 by Russ

We’re in the process of updating our website and the look of the blog. For now, we’re using the “default” WordPress format. This may change in the next few weeks as we make other (more important) changes.

Posted in Taxable Talk | Comments Off on A Little Housekeeping

It’s Probably Not Good for Your Case When the Court Considers Sanctioning Your Attorney

Posted on April 28, 2014 by Russ

The Tax Court had a routine decision today in a collection matter. The case itself (Best v. Commissioner) isn’t particularly interesting; the Court upheld the IRS’s collection efforts. It’s the last page and a half of the decision that caught my attention.

The petitioners in the case had filed a previous Tax Court case which they settled back in 2009.

We sustained substantial portions of the deficiencies in tax that respondent determined along with additions to tax for both failure to timely file a return and failure to timely pay tax and for failure to pay estimated tax. We entered decision in docket No. 22241-07 on January 2, 2009. Petitioners were represented in that case by their present counsel, Donald W. MacPherson.

The petitioners lost today, and they also were sanctioned $5,000 for frivolous arguments.

The interesting part is at the end of the decision.

Section 6673(a)(2)(A) empowers us to impose on a taxpayer’s counsel who multiplies the proceedings in any case unreasonably and vexatiously the excessive costs reasonably incurred on account of such conduct. We may sua sponte impose such costs. See Edwards v. Commissioner, T.C. Memo. 2002-169, aff’d, 119 Fed. Appx. 293 (D.C. Cir. 2005); Leach v. Commissioner, T.C. Memo. 1993-215.

As to what Judge Halpern saw that led him to this extreme, the opinion notes,

Although we have found petitioners deserving of a section 6673(a)(1) penalty, we believe that Mr. MacPherson’s conduct may be deserving of a sanction for unreasonably and unnecessarily bringing and prolonging these proceedings. Indeed, in his declaration in support of petitioners’ response to respondent’s motion to impose a sanction on petitioners, he acknowledges that, following the earlier deficiency proceeding in this case, petitioners “had a major collection problem and * * * I decided to try the assessment issue believing there is some chance of lack of proper assessment which will result in voiding the assessment and causing the clients to be free of the debt as a result of the statute of limitations”. He concedes, however: “I concluded many years ago that the ’23C issue’ was a ‘dead letter’ in so far as obtaining the 23C.”

The goal of the Tax Court is for the two sides, whenever possible, to settle their cases and to move expeditiously. The only time I can remember an attorney being sanctioned was when an attorney filed a pro se action in his mother’s estate. The Tax Court was not amused by what appeared to be delaying tactics of the probate case in King County (Washington) Superior Court and the Tax Court. In that previous case, the attorney filed a probate action in 1995; he filed a Tax Court action in 2000. Come 2008 and both actions were still ongoing. As I wrote back in 2008, the thirteenth time wasn’t the charm.

In this case, the Court sees an attorney take years on a collection matter, when he (the attorney) admits that his clients have a collection issue, and that the main issue being argued wouldn’t work. I do want to point out that the Court has not sanctioned the attorney today; he is being given an opportunity to show cause as why the Tax Court should not impose a sanction.

Case: Best v. Commissioner, T.C. Memo 2014-72

Posted in Tax Court | 2 Comments

Toyota Living Up to Their Slogan: They’re Going Places (to Texas from California)

Posted on April 28, 2014 by Russ

Toyota’s current slogan is “Let’s go places.” And they are–Toyota is leaving the Bronze Golden State and moving to the Lone Star State. While Toyota isn’t saying anything about why they might move roughly 5,000 employees from Torrance to Dallas, it doesn’t take a genius to know that taxes and regulations are two prime factors.

“The costs of doing business in Southern California are much higher than the costs of doing business in Tennessee,” Nissan Chief Executive Carlos Ghosn said at the time [Nissan announced they were moving their headquarters to Tennessee from Gardena, California]. He cited cheaper real estate and lower business taxes as key reasons for the move.

Fritz Hitchcock, who owns several Toyota dealerships in Southern California, said Toyota’s decision won’t affect local car sales. But he said it represents an “indictment of California’s business climate.”

California ranks at the bottom of almost every comparison of state business climates and taxes. Texas ranks near the top in both categories. Yet I read that the California legislature is considering even more anti-business legislation. (The link goes to an article on a proposal to tie California corporation tax to the differential in pay between a CEO and the average employee.)

When I moved my business from California to Nevada, taxes and regulations were prime reasons. It’s far easier to uproot a one-person business than it is the marketing arm of Toyota. That said, California is giving business owners plenty of reasons to check out neighboring states. The desert sands of Nevada don’t make the world’s best meteorological climate, but the business climate here is day-and-night better in comparison to California.

Posted in California, Nevada, Texas | Comments Off on Toyota Living Up to Their Slogan: They’re Going Places (to Texas from California)

Your Dependents do have to be Your Dependents…

Posted on April 27, 2014 by Russ

One of my clients is expecting their first child at any moment. Their new baby will be their first dependent for their 2014 tax returns. Mahamadou Daffe of Queens, New York had other ideas about dependents.

Mr. Daffe stole identities of various children and then offered, for $1,000 per tax return he prepared, to “give” those children to his clients. That’s one way to grow a family but it’s highly illegal.

But Mr. Daffe had additional means of making money. He stole other identities (presumably adults) and used those to prepare tax returns with phony W-2s and took the profits. We’re not talking peanuts here; he asked for over $4.5 million over four-plus years (and received more than $1.5 million).

The good news is that the IRS caught on to his scheme, and Mr. Daffe was sentenced to 102 months at ClubFed; he was found guilty earlier this year. As a reminder, you are responsible for what is on your tax return. And you can only claim your dependents, not anyone else’s.

Posted in Tax Fraud | 1 Comment

There Is No Tax Fairy (Yet Again)

Posted on April 27, 2014 by Russ

Joe Kristan has the story of two CPAs who told clients that there is a wonderful Tax Fairy, that mythical creature who turns income into deductions or credits through alchemy and magic. Unfortunately, the Tax Fairy doesn’t exist, and clients who used these CPAs had total tax adjustments (audit changes) of over $3.5 million. This particular scheme revolved around Section 419 (“Voluntary Employee Beneficiary Association” plans). The Tax Fairy worked…until the IRS audited the results.

As usual, if it sounds too good to be true, it probably is.

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Gilbert Hyatt Sues FTB & BOE Over 20+ Year Wait

Posted on April 27, 2014 by Russ

There are delays and there are delays. Gilbert Hyatt has been waiting two years to find out how the Nevada Supreme Court would rule on the (California) Franchise Tax Board’s appeal of his $500 million award. A decision in that case could come at any time (well, on any Thursday since that’s the day of the week that the Nevada Supreme Court releases decisions). But that two year delay is nothing compared to the delay in the original matter.

For those unfamiliar with Mr. Hyatt, he invented items related to microprocessors and semiconductors. (I’m sure my brother could give a much better description of this.) Back in 1991 (yes, this case goes that far back) he moved to Las Vegas; he knew he was soon going to get a large payment and Nevada’s state income tax rate–or better put, the lack thereof–appealed to him. The Franchise Tax Board (California’s income tax agency) said he didn’t move until sometime in 2012, conveniently after he received that payment. The FTB assessed tax and penalties. Mr. Hyatt appealed those.

Mr. Hyatt also argued that he had been subject to torts in Nevada and filed a lawsuit here in Las Vegas against the FTB in 1998. He alleged that the FTB had, among other things, rummaged through his garbage, visited business partners and doctors, and shared his social security number with the media. Bill Leonard (a former member of California’s Board of Equalization) said,

This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.

Mr. Hyatt’s case went up to the US Supreme Court. In 2003, the Supreme Court unanimously ruled that his case could go forward. In 2008, the trial was held and the FTB lost. That’s the appeal that the Nevada Supreme Court heard in 2012.

Meanwhile, Mr. Hyatt’s audit was decided against him in 1996. If you lose at the FTB, you can appeal a case to the Board of Equalization (BOE). That’s what Mr. Hyatt did. In 2008, Mr. Hyatt thought his BOE appeal would be heard within two years. It still hasn’t been heard. So he filed another lawsuit.

He has filed a lawsuit in federal court in Sacramento accusing the FTB and BOE of depriving him of his constitutional rights. As noted in Dan Walters’ column,

“Without this court’s grant of relief that Hyatt seeks,” his suit says, “the FTB’s 20-plus-year vendetta to ‘get’ Hyatt will continue indefinitely and unabated in violation of Hyatt’s equal protection rights.”

It’s been nearly 23 years since Mr. Hyatt did (or didn’t) move out of California. It’s been 18 years since the FTB rules on his appeal and the case has been in the hands of the BOE. Yes, I’m sure California’s tax agencies have been moving with all possible speed….

Mr. Hyatt is 76. My suspicion is that the litigation between him and California’s tax agencies will last beyond his lifetime.

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The Tanning Tax: Alan Greenspan Gets It Right (Again)

Posted on April 27, 2014 by Russ

Alan Greenspan, the former chairman of the Federal Reserve, has the wonderful quote:

Whatever you tax, you get less of.

It’s something our Congresscritters might take to heart…but I doubt it. Today, let’s look at the tanning tax.

This tax is one of the many ways that Congress had to pay for ObamaCare (aka the Affordable Care Act). Like almost everything else with ObamaCare, it’s not working as expected. The tax was predicted to generate $200 million annually. Instead, it’s took in $91 million in 2012 (the last year there are statistics for).

In this Politico article, Barton Bonn, Head of the American Suntanning Association, notes,

It’s effectively a price increase for our customers…Anybody knows that if you increase the price on a product or service, some people are not going to show up after the price increase, and that’s what occurred.

I’m not sure Mr. Barton is correct; I suspect some in Congress do not understand the law of supply and demand. In any case, it’s just another of the many tax flaws with ObamaCare.

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It’s a Ten-Digit World (Especially in Las Vegas)

Posted on April 26, 2014 by Russ

This post has nothing to do about taxes, but everything to do with phone numbers in Las Vegas. Beginning one week from today, the 702 area code (which covers Clark County, Nevada–primarily the Las Vegas metropolitan area) will be “overlayed” with the 725 area code. That means if you dial a phone number in Las Vegas you must dial ten digits (e.g. 702-555-1212 must all be dialed). Beginning in one month, new phone numbers will be assigned with the 725 area code.

The Nevada Public Utilities Commission has a fact sheet available on the new area code.

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IRS Prematurely Asking for Money

Posted on April 22, 2014 by Russ

A few years ago, the IRS routinely sent notices to taxpayers who filed tax returns prior to April 15th but didn’t pay their taxes until April 15th. After complaints from taxpayers and tax professionals, the IRS supposedly stopped this practice. Unfortunately, they’ve started it up again.

Taxpayers have until April 15th to pay their taxes. That’s a postmark deadline, so the payment can be received days later. I had two clients who received CP14 notices. Both of these individuals paper-filed in March, but paid on April 15th (one using EFTPS and one mailing a check). Both individuals payments cleared (the individual who mailed his check also received his certified mail receipt), so both believed they didn’t owe anything. Telephone calls to the IRS confirmed this.

In the case of my client who paid by EFTPS, there was no reason for the notice at all. The payment was made for April 15th; there was no reason for a notice to be sent. My client who paid by check said his check cleared on April 17th. One would think that the IRS would wait beyond the 17th for generating this notice. When the IRS ended this practice, we were told the IRS would wait a couple of weeks after the deadline to make sure that almost all payments would be matched with returns.

Given that it takes the IRS about two weeks to generate and mail a notice, it’s clear these notices were generated prior to April 15th (even though both notices were dated April 28th). Perhaps the IRS is only issuing these notices for paper-filed returns, thinking that most taxpayers who paper-file include a check with the return. Still, payment of taxes is not due until April 15th; there really is no reason why the IRS can’t wait until the calendar has really turned to April 28th to send out their CP14 notices for 2013 tax returns.

Posted in IRS | 1 Comment

If You Can’t Get the Refund, Why Not File Some Liens?

Posted on April 20, 2014 by Russ

The answer to this is, perhaps it’s against the law. And it is. Let me start at the beginning.

Back in 2008, Francis Chandler filed his 2007 tax return. He claimed he had quite a bit of interest income and even more withholding…$6,222,850 of withholding. He claimed a refund of $3,969,012. He got it, too. There was a problem, though: He should not have gotten the refund; the claim was false. Two years later, Mr. Chandler was indicted and charged with making a false claim against the United States.

Now, you and I would seek legal advice about the case, but Mr. Chandler had a “better” idea. I’ll file a lien against two federal judges, the US Attorney, and an Assistant US Attorney. That wasn’t a bright idea; that’s a false retaliatory lien, and that’s a crime, too. Eventually, Mr. Chandler pleaded guilty to the false claim and filing the lien.

Mr. Chandler was sentenced on Tuesday to 37 months at ClubFed; he must also make restitution of just over $3 million. A helpful hint to anyone who is thinking of emulating Mr. Chandler: Don’t!

Posted in Tax Evasion | 1 Comment