Why You Use Certified Mail When Mailing Items to Tax Agencies

My mother passed away last year (after a long and fruitful life).  I filed her final tax returns–and money was due to both the IRS and California.  I could not use IRS Direct Pay, nor could I have the funds debited from my bank account; thus, I mailed checks (and vouchers) to the tax agencies.  I sent these on Monday, April 17th using certified mail.

Today, Thursday, April 26th, the IRS payment was received (it has not cleared my bank account yet, but should in the next day or so).  Yes, it took nine days to be received.  Here’s the tracking for it:

As to why it sat around for four days in Cincinnati, you’ve got me.  No matter, because the payment deadline is a postmark deadline I’m fine and my mother’s tax to the IRS for her final return was timely paid.

Meanwhile, Sacramento is a lot closer than Cincinnati; you’d expect the payment to California to have already been processed.  Well, no:

The payment’s been somewhere in Sacramento since April 19th and is still somewhere other than with the Franchise Tax Board (FTB), California’s income tax agency.  Again, I have no answers for the postal service’s ineptitude but sooner or later (perhaps that should be later or later) the payment will make it to the FTB.  Because I mailed it certified mail–and have that proof–even if the payment is lost I’ll be fine.

Each of these envelopes cost $4.78 (total) to mail; that’s $4.15 more than first class mail.  The late payment penalty and interest would be in the hundreds of dollars for each of these payments.  If I had not mailed these certified mail, I could be looking at those penalties. (Yes, the tax agencies are supposed to look at postmarks but I’ve received plenty of mail without postmarks.)

There’s one other issue: The IRS (and other tax agencies) need to lengthen the time period for responding to notices.  These mail delays are typical–and the IRS needs to build in current realities to mailed responses to notices.

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Bozo Tax Tip #1: Everyone Gets the Employee Retention Credit, Right?

“Russ,” a client began, “Don’t I qualify for that Employee Retention Credit (ERC) that I keep hearing about?”  I told him he didn’t–his business grew during the Pandemic and he didn’t meet the requirements.  Yes, it’s not free money for everyone–you had to qualify:

Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

All my client’s business did was grow during the pandemic.  Sure, he retained his employees but he didn’t meet the basic standards.  Indeed, the IRS highlighted this in their “Dirty Dozen” of tax schemes.  As the IRS noted,

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

Yes, not everyone qualifies.  And some of these ERC mills will take your money–lots of it–up front and keep it if you don’t qualify!  As usual, if it sounds too good to be true it probably is.


That does it for the 2023 Tax Season Bozo Tax Tips.  Please, don’t do them.

I’ll be back at the end of April with an update on the first part of the 2023 Tax Season.

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Bozo Tax Tip #2: Cash Isn’t Taxable

I haven’t run this Bozo Tax Tip in a few years, but it reared its head again just a couple of weeks ago (as you read this). A new client came into my office for the preparation of his tax return. Everything went smoothly, and an hour or so later his returns were complete and electronically filed, he had his copies of the returns, and the Bozo festivities (unknowingly to me) were about to begin.

He asked me if I’d take cash. “Sure,” I replied.

The client then handed me an amount exactly 10% less than the amount of the invoice. “This way you don’t have to report it—after all, it’s cash so there won’t be any record.”

“Cash income is just as taxable as any other source,” I replied. “I’m ethical, and I report all my income.”

“Oh, come on,” he replied. “When I was self-employed everyone did that.” Thankfully, my client is currently not self-employed.

“Well, that’s a good way to get in trouble. That’s called tax evasion. I don’t need to get myself involved in that, and neither does anyone else today.” I pointed out to my client the number of business owners who have done what he thought was ‘normal’ who are now residing in ClubFed. It’s amazing how many owners of Gentlemen’s Clubs (which are definitely cash businesses) get in trouble, thinking that they only have to report some of the income.

My client, after some prodding, came up with the other ten percent of the fees, and he ended up (hopefully) a little wiser. You needn’t worry about this: Just report all of your income on your tax return. But if you want to live on the Bozo side of life, skip reporting the cash…until one day you find out that really was a Bozo move.

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Bozo Tax Tip #3: We Don’t Need No Stinkin’ Basis

If there’s one issue in tax that tax professionals have trouble explaining to clients it’s basis. Your basis in an entity is, generally, the total of your investment in an entity plus income it generated less any distributions from it. If you’re an investor in a business, you can only take losses up to the amount of your basis. Sounds simple, right?

So let’s say you invest in an S-Corp, “Losing Money, Inc.” Unfortunately, it’s name matches what’s happened year after year. You invested $10,000 years ago, and each year your share of the loss has been $3,000. It’s year four of your ownership, and you get the K-1 showing the (as usual) $3,000 loss. Your tax professional tells you, “I’m sorry, but you’re only getting $1,000 of the $3,000 loss–you used up your basis.”

The IRS has been battling this issue for a number of years. Owners of businesses are supposed to keep basis statements. Most reputable tax professionals prepare basis statements for the partnerships and S-Corporations that they prepare returns for. It remains, though, the responsibility of the owner to keep track of the basis.  The IRS wised up a couple of years ago and added Form 7203 (S-Corporation Basis Statement).   As to who must file the form:

Who Must File

Form 7203 is filed by S corporation shareholders who:

  • Are claiming a deduction for their share of an aggregate loss from an S corporation (including an aggregate loss not allowed last year because of basis limitations),
  • Received a non-dividend distribution from an S corporation,
  • Disposed of stock in an S corporation (whether or not gain is recognized), or
  • Received a loan repayment from an S corporation.

That’s pretty clear, right?  And that’s most S-Corporation owners.

We have a new client this year, and she sold the assets of her business the prior year.  She’s taking funds out of the business (it had a small loss), so there was a distribution.  The client’s long-time tax professional (he prepares the S-Corporation returns) told me that Form 7203 wasn’t required.  I noted it is (there’s both a loss and a $150,000 non-dividend distribution).  That’s two of the four reasons you are required to file the form.  We’re still waiting on the basis information (as I write this), and there’s time for her individual return to be timely filed.  However, until I obtain basis information that return is not going to be filed.

Of course, some individuals may simply ignore attaching the basis statement and play ‘audit roulette.’ That’s something else I can never advise. But if you want to enjoy the Bozo side of life, just keep ignoring your basis and take your loss year after year after year.

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Bozo Tax Tip #4: Procrastinate!

Today is April 11th. The tax deadline is just seven days away.

What happens if you wake up and it’s April 18, 2023, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t, while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes are due on April 20th, for example). Automatic extensions are of time to file, not pay, so download the extension form and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.

But what do you do if you wait until May 18th? Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: The interest is taxable.

NOTE: If you reside in a federally declared disaster zone (for example, most of California), you have an automatic extension of time to file and pay; most Californians have until October 16th.

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Bozo Tax Tip #5: Publicize Your Tax Crimes on Social Media!

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

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Bozo Tax Tip #6: The $0.63 Solution

With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.

Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).

So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 18th), and you’ve just committed a Bozo act.

If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $4.15 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.

About fourteen years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.

Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $4.15! And you can go all out and spend $3.35 and get a return receipt, too (though you can now track certified mail online). For another $2.10 you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”

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Bozo Tax Tip #7: Withhold, but Don’t Remit, Your Employment Taxes!

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?


The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

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Bozo Tax Tip #8: Use a Foreign Trust to Avoid Taxes!

One of the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are generally ignored.) Survivors’ trusts are another useful vehicle. Grantor trusts, another asset protection vehicle, are useful. Special Needs Trusts are extremely useful. There are plenty of ‘good’ trusts.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

The foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts. They work great until the IRS finds out about them. Yes, you have to report moving money into them.

But I’m smarter than the IRS, and they’ll never catch my trust set up in Luxembourg, Liechtenstein, or the Isle of Man. Well, you will spend thousands to set up your trust, and if the IRS does catch on–and in these days where governments are exchanging tax information, this can (and does) happen–your foreign trust will have served only one purpose: It will have enriched the promoters who set it up.

Remember: If it sounds too good to be true it probably is. A trust set up to evade taxes is just that.

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Bozo Tax Tip #9: Nevada Corporations or LLCs

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation (or LLC) operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation (or LLC) is a California corporation/LLC, a Delaware corporation/LLC, or a Nevada corporation/LLC.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

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