Pass the Popcorn, Please, II

Posted on November 20, 2013 by Russ

As ObamaCare and its troubles dominate the news, lurking in the background is the IRS scandal. The Chief Counsel of the American Center for Law and Justice (ACLJ) wrote an op-ed on FoxNews that noted the lawsuit filed by the ACLJ isn’t going to be dropped. Jay Sekulow, the Chief Counsel, noted five reasons why the IRS scandal won’t go away. I’m going to focus just on his fifth point:

Fifth, the IRS targeting scandal is directly relevant to the mother of all policy disasters, ObamaCare. With the IRS set to function as ObamaCare’s enforcement arm, every story of corruption, incompetence, and malice casts doubt on the IRS’s ability faithfully and lawfully discharge its responsibilities within our health care system. [emphasis in original]

Eliana Johnson of the National Review had two tweets last night that highlight this issue. Here’s the first:

IRS source tells me that “last thing in the world anybody wants right now is IRS connected to that pile of crap at healthcare.gov”

Here’s the second:

IRS source says agency still working to link IRS sys to HHS and CMS. “Our guys can’t move until HHS and CMS get their crap together.”

President Obama promised that the website would be functioning by month-end. It’s apparent to almost everyone that is not going to happen. Meanwhile, individuals need to enroll by December 15th in order to have coverage by January 1st; the back-end payment system has apparently not yet been built! (The key point in the testimony begins at about 3:20):

If health care weren’t such a major issue this would be laughable. Unfortunately, it is a major issue. I have not talked with many individuals at the IRS regarding health care and the IRS’s role in ObamaCare. I notice that in today’s IRSAC report that IRSAC identified as its very first issue the IRS’s funding level. IRSAC rightly noted that, “Reducing the IRS’s budget constrains IRS effectiveness and efficiency, which results in taxpayers’ loss of respect for the agency and our voluntary tax system.”

I identified this issue earlier this month. I’ll repeat what I said then:

For the IRS to function effectively, it needs both a reasonable budget and to be apolitical. It’s vital that the Department of Justice go after individuals who turn the IRS into a political organization from an apolitical one. Yet the current Administration apparently doesn’t see the urgency in this issue. That’s a huge mistake, and one that will definitely come back to haunt them and all Americans. We need a well functioning IRS…and given what the Administration is doing (and not doing), it’s very likely the budget for the IRS will continue to shrink.

The Obama Administration needs to give more than lip service to the investigations of the IRS scandal. Does anyone really believe that the Department of Justice is doing anything in regards to this? The budget of the IRS will not be increased until the scandal is resolved. As Mr. Sekulow noted, the IRS scandal and the troubles of ObamaCare are directly linked.

The individuals I have dealt with at the IRS are normal hard-working people doing jobs. The IRS deserves better than what it’s getting from the Obama Administration. IRSAC’s recommendation is laudable, but Congress’s cutting the IRS’s budget is also reasonable until the scandal is resolved. The onus here lies on the current Administration. I suspect IRSAC will be repeating their recommendation in next year’s report.

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Pass the Popcorn, Please

Posted on November 20, 2013 by Russ

When I last wrote about Instant Tax Service it appeared that the end of that firm was upon us. After all, a judge ordered ITS to close shop because of a myriad of sins. ITS is appealing and is now also attempting to sell the business. (That does bring up the obvious question: Who would want to purchase a business that is, to say the least, facing a death penalty? But I digress….)

Kelly Erb has more on ITS’s current shenanigans.

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It’s How They Earned the $1.46 Million of Tax Refunds that’s the Problem

Posted on November 17, 2013 by Russ

I’d like to convince my clients to start adding gratuities when they pay me. I did have one client just add $10 to his payment (and yes, I’ll be claiming that on my tax return); I appreciated it and told him so. I really don’t expect to receive tips from clients–it’s not the norm for tax preparation. I definitely don’t expect to receive $1,458,905 in such gratuities.

Yet one pair of tax preparers apparently did receive such money. Rigoberto Cabrera and Carlos Perez of Miami had a good thing going…for awhile. They convinced some individuals that they could get taxpayers really big tax refunds. Of course, those refunds were based on phony tax credits and deductions that the taxpayers weren’t entitled to. All they asked in return was part of the refunds back. That’s not much to ask for, right?

I didn’t think so, until I read this line in the Department of Justice press release:

Through this scheme, the defendants claimed approximately $1,458,905 in tax refunds from the IRS.

Now, it’s not clear from the press release whether the $1.46 million is the total of refunds (what I assume) or the defendants’ share. No matter, it’s a lot of money. Mr. Perez earlier pleaded guilty to two counts of conspiracy. Mr. Cabrera was found guilty on 29 counts of conspiracy, fraud, making false claims to the IRS, and money laundering. Both are looking at ClubFed in their future; Mr. Cabrera is liking to be spending many, many years there.

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He Only Got 35 Months This Time

Posted on November 17, 2013 by Russ

There are two pieces of good news for Michael Carlow of Pittsburgh. First, he only get 35 months at ClubFed (he served eight years previously). And second, the statute of limitations expired on the IRS on $5 million of the $6.2 million in unpaid taxes, and it can’t be reinstated just because he’s in trouble with the law again.

Let’s go back to the beginning. Back in the 1990s, Mr. Carlow bought some Pittsburgh businesses that made consumer products that are associated with Pittsburgh: Iron City Beer and Clark Bar. He put himself off as a local entrepreneur rescuing local businesses. Instead, he was inflating the value of his businesses by check kiting and other bad checks. He was convicted of bank and tax fraud and spent eight years at ClubFed.

After being released from ClubFed, the DOJ states that Mr. Carlow concealed assets, filed false tax returns, and then didn’t file returns. He was accused of tax fraud; however, in a plea deal he pleaded guilty to obstructing the IRS. He received 35 months at ClubFed.

The good news for Mr. Carlow was on the financial side. The statute of limitations has run out for $5 million of the $6.2 million he owed. That said, he does owe for $1.2 million.

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It Only Took Six Years to Get an Answer….

Posted on November 17, 2013 by Russ

I currently have an audit reconsideration case that’s been on hold for eighteen months. I guess I have nothing to complain about, though. One unlucky attorney waited over six years to get an answer from the Financial Crimes Enforcement Network (FINCEN).

On October 22, 2007, an attorney asked, “…[W]hether a payment mechanism based on payable-through drafts that the Company offers to its commercial customers (the “customers”) makes the Company a money transmitter under the regulations.” On November 13, 2013, FINCEN said yes.

There is a bit more to this case than what’s noted above. FINCEN issued regulations in July 2011 that impacts the specific facts and circumstances of the matter. And I’m not really that concerned with this issue (it has no direct impact on my clients).

What does bother me is that there’s no obvious reason why it took FINCEN six years to respond. Of course, my client waiting for his audit reconsideration is hoping that it won’t be another 54 months for his case to be reviewed.

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Full Tilt Remission Deadline is Today

Posted on November 16, 2013 by Russ

Today, November 16th, is the deadline for making a remission claim from Full Tilt Poker. (There are two exceptions noted below.) If you were not an affiliate of Full Tilt Poker or a Red Pro, you must file your claim today. You can file the claim by going to the Garden City Group’s Full Tilt Poker Claims website and clicking on the “File a Petition for Remission” at the top-left.

If you were identified as an affiliate or a “Red Pro,” you may have longer to file. The GCG stated that they will be sending a second email to such individuals in the coming days (weeks); impacted individuals will have 30 days from receipt of that email to file claims.

If in doubt, file that claim now. There’s an excellent thread on 2+2 with all the details of the remission process.

GCG announced yesterday that they expect to pay petitions where the dollar amount is not in dispute by March 31, 2014.

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Dan Walters with Another Example of California Dreamin’

Posted on November 12, 2013 by Russ

When I resided in California, I always read Dan Walters’ columns in the Sacramento Bee. He knows his California politics very well. Yesterday he expounded on why California’s Senate Bill 30 (SB 30) ended up failing.

SB 30 would have conformed California tax law to federal tax law (mostly) with regards to homeowners with canceled debt income from their primary residences. As part of the massive tax measure that passed Congress on January 1st of this year, the exemption for canceled debt income from a primary residence was extended for 2013. SB 30 would have conformed. And the measure easily passed the California Senate 36-0. So why didn’t it become law? I’ll let Mr. Walters take over:

SB 30 had no opposition and sailed through the Senate 36-0, but only after the Senate’s leadership inserted a “poison pill” into the measure. It declared that SB 30 could take effect only if another measure, Senate Bill 391, was enacted.

SB 391 did have opposition, principally from the California Association of Realtors. It would impose fees on real estate transactions to raise money for low-income housing…

Ultimately, playing political games was more important than doing the right thing by families that had lost their homes, and that’s shameful.

If a Californian has a short sale or foreclosure in 2013 on his principal residence, it’s likely he won’t owe federal income tax. However, he likely will owe California income tax (unless he is insolvent or bankrupt). This will definitely come as a surprise for many Californians (and tax professionals).

California (rightly) has a miserable reputation for the business climate. While this issue has no impact on the business climate, it does show yet another reason why the Golden State has become, imho, the Bronze State.

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Dear Mr. IRS

Posted on November 10, 2013 by Russ

I must commend CPA Tony Nitti on his “Request for Urgent Business Relationship.” It’s hilarious…but horribly sad.

Why? TIGTA–the Treasury Inspector General for Tax Administration–came out with what is (for me) a scathing report on identity theft and phony tax refunds. Somehow, 655 tax refunds went to a single address in Kaunas, Lithuania. Don’t feel left out if you live in Orlando: 871 went to two separate addresses in that Florida city. There’s a preparer who is apparently responsible for 5,506 bad returns with a social security number and 1,590 with an ITIN (I’m hopeful that TIGTA forwarded information about that preparer to IRS criminal investigation) .

Yet I came up with a simple proposal on identity theft in September 2012 that would, if implemented, stop a lot of identity theft. (Yes, I forwarded my idea to the IRS.) Supposedly the IRS will have some new measures on identity theft for 2013 returns. We shall see….

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Another Film Tax Credit Scandal

Posted on November 10, 2013 by Russ

There have been plenty of scandals regarding tax credits for the film industry in recent years (see, for example, Iowa). A new one has just arisen, this time in California.

The Los Angeles Times reported back on Halloween that State Senator Ron Calderon (D-Montebello) has been accused of bribery in relation to California’s film credits:

The [state] Capitol was roiling over comments attributed to Calderon in a report by the Al Jazeera cable network, based on what it identified as a sealed FBI affidavit, that he had enlisted other lawmakers to help him influence policy. In exchange, the affidavit alleges, the senator accepted $88,000.

State Senator Calderon has not been charged. Meanwhile, the FBI is investigating the leak of the affidavit to Al Jazeera.

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No Instant Replay Here

Posted on November 10, 2013 by Russ

There’s an etiquette involved in sending emails: You don’t use all capital letters in most cases. The same is true when you write; it’s poor form. Yet when Judge Timothy Black wrote about ITS Financial, LLC (aka Instant Tax Service) he began his decision to permanently enjoin ITS from operating or being involved in tax preparation in any way with a paragraph in all caps…and in bold. Less you think he didn’t have reason to do so, well:

The evidence at trial established that Ogbazion and his Defendant companies:

Clandestinely trained and encouraged ITS franchisees to prepare and file tax returns prematurely with paycheck stubs that omitted and understated income, and inevitably resulted in the submission of false federal tax returns;

Defrauded ITS customers, who are largely low-income, by marketing false and fraudulent loan products to lure customers into franchisees’ tax preparation offices;

Defrauded ITS customers by requiring franchisees to charge phony fees, as well as exorbitant fees, of which Defendants kept an average of 18%;

Forged customers’ signatures on loan checks and used those forged checks to operate Defendants’ businesses;

Willfully failed to pay their own employment taxes, and then lied about assets in connection with the collection of those taxes, hiding money in a secret bank account, defrauding the United States and third party creditors;

Lied on government forms, and encouraged franchisees to lie on government forms, including lying on IRS applications for EFINs and on IRS Forms 8879;

Obstructed government agents and materially assisted franchisees in circumventing IRS law enforcement efforts involving the suspension of EFINs;

Told franchisees to lie to government agents in connection with IRS compliance visits; and

Violated the terms of the Order of Preliminary Injunction issued by this Court.

Joe Kristan has more on why we’ve likely seen the end of Instant Tax Service.

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