The Flow of AGI from One State to Another

Posted on July 20, 2013 by Russ

From watchdog.org comes an interesting interactive map showing how money has flowed from state to state. Back when I moved to Nevada from California, I noted this issue. Here’s yet more verification that this is real.

The five biggest losers were:
1. New York ($68.10 billion in annual Adjusted Gross Income (AGI))
2. California ($45.27 billion in annual AGI)
3. Illinois ($29.27 billion in annual AGI)
4. New Jersey ($20.62 billion in annual AGI)
5. Ohio ($18.39 billion in annual AGI)

The five biggest winners were:
1. Florida ($95.61 billion in annual AGI)
2. Arizona ($28.30 billion in annual AGI)
3. North Carolina ($25.12 billion in annual AGI)
4. Texas ($24.94 billion in annual AGI)
5. Nevada ($18.17 billion in annual AGI)

Sure, some of this is retirees moving from the snow belt to the sun belt. But California is anything but part of the snow belt; it’s clear that successful individuals are fleeing high tax states for low tax states. We here in Nevada are appreciative of the $9.59 billion in annual AGI that has moved from the Bronze Golden State to the Silver State.

Interestingly, the interactive map allows you to look county-by-county. The areas that one would think would show AGI growth are losing AGI. The area around Silicon Valley has lost AGI; so have Los Angeles and Orange County. Sure, some of this is retirees moving to the desert (Riverside County, which includes Palm Springs, showed an increase in AGI). However, there is no chance that this is just caused by retirees.

Taxes matter, and individuals absolutely do relocate because of taxes.

Posted in Arizona, California, Illinois, Nevada, New Jersey, New York, North Carolina, Ohio, Texas | 1 Comment

Waiting for Godot: Full Tilt Poker Remission

Posted on July 19, 2013 by Russ

Back in high school I read Samuel Beckett’s classic play Waiting for Godot. For Americans who are waiting for remission to occur on money they had on deposit at Full Tilt Poker, this could be retitled “Waiting for Remission.”

In Waiting for Godot, Godot never shows up. I do think that eventually the funds will show up. Unfortunately, like everything in dealing with the government, this can accurately be titled “Hurry up and wait (and wait and wait and wait some more).”

CardPlayer Magazine published an article today noting that the Garden City Group [GCG], the entity that will eventually handle the claims (of remission), “…[have not moved] past the first step of parsing a massive amount of player data information.” This process was estimated by an unnamed supervisor to take a year or more.

Where does that put us on the road to remission? Let’s look at the steps required:

1. Government appoints claim administrator [done].
2. Government raises money/finds money [usually an issue, but probably not here given the $150+ million received].
3. Administrator develops plan to return funds.
4. Government approves plan.
5. Announcements, advertising, web sites developed to alert victims.
6. Government allocates two to six months (or longer) for victims to come forward to submit claims.
7. Claims are verified by Administrator.
8. Amount to be paid is tallied. If less than fund, everyone gets 100%; otherwise payments are made on a percentage basis.
9. Claims are paid.

It’s clear we’re on step 3. It’s also clear that for whatever reason the data provided to GCG is taking a lot of time to compile. I would have thought that this would be simple: GCG would have been provided a spreadsheet with users’ screen names, real names (and other personal information), and balances. It may be that each account is being reviewed for phony deposits (something Full Tilt Poker did), transfers or other activity. It may be the data sent to GCG was corrupted in some manner and needs to be “massaged.” Frankly, it could be just about anything. The only way to know is to have an on-the-record talk with GCG, something that’s not going to happen, or with the Department of Justice, and that’s not likely to happen.

Well, let’s work backwards on how long this will take. Paying the claims will likely take two to three months. There could be as many as 1.3 million checks being issued. Verification of claims and tallying the total could also take two to three months. There’s a huge volume of claims to be reviewed. Development of the announcements and advertising (ads will appear in major national newspapers) shouldn’t take long, but this step might take two months if the DOJ has to approve them; it could takes as little as 1 week. Expect the DOJ to take three to six months to approve any plan put forward–the government doesn’t work fast. And we know that we’re looking at 12 to 18 months to develop the plan.

Using these assumptions, the best case scenario is a little over 19 months for payments while the worst case scenario is 32 months. Given that the Garden City Group was appointed in March, that means the best case scenario would have payments made in October 2014; the worst case scenario would drag this out to November 2015. And that’s assuming the assumptions I’ve made are accurate; nothing prevents me from having missed something.

Additionally, there’s nothing that guarantees that players will be paid based on funds on deposit (when Full Tilt Poker stopped serving the US). Remission is discretionary; the DOJ can approve whatever plan they think is best. Full Tilt users were crime victims as far as remission is concerned; in the view of the DOJ, we should be happy with whatever we get.

Well, since this is going to take so long can we take a casualty loss today on our funds? No. The most likely case is that you will get something, just that it may take a long while to get that something. Certainty of a loss is needed to take a casualty loss; given that you will likely receive your money back, no casualty loss can be taken.

This post has probably made most of my clients with funds at Full Tilt unhappy. While I originally felt this would be handled expeditiously, that’s clearly not the case. Unfortunately, the time frame I’m estimating appears realistic.

Posted in Gambling | Tagged , , , | 1 Comment

IRS Scandal Update: Christine O’Donnell & IRS General Counsel

Posted on July 19, 2013 by Russ

Two pieces of news on the IRS scandal this week. First, TIGTA announced that four politicians’ tax returns were improperly accessed though only one of these was done deliberately. That case was referred to the US Department of Justice for prosecution, but the DOJ refused to do so. It appears that case involved former Tea Party candidate for US Senate Christine O’Donnell. Now, am I so cynical to think that the DOJ refused to prosecute whomever looked at the records because O’Donnell is a member of the Tea Party and the current Administration isn’t exactly enamored by the Tea Party? Yes, I am.

Meanwhile, former IRS attorney Carter Hull and two other attorneys said that the orders to hold up approval of Tea Party organizations came from the IRS Chief Counsel’s Office. The head of the IRS Chief Counsel is one of only two political appointees at the IRS. Eliana Johnson’s report on National Review Online is an excellent source on this information.

For those who say this is meaningless, it’s not. This is huge news. It’s been clear from the start that someone ordered this. It was never rogue agents in Cincinnati. It’s almost certainly, given the nature of what happened, someone with a political slant. Sure, it could have been someone high-up at the IRS who didn’t like the Tea Party. It’s far more likely that a political appointee would make this decision. Again, the IRS Chief Counsel is such a person.

Peggy Noonan’s commentary is also must reading. She noted that the trail goes to the Chief Counsel’s office. She also notes the change in how the scandal has been characterized by Democrats:

Rep. Trey Gowdy, a South Carolina Republican, finally woke the proceedings up with what he called “the evolution of the defense” since the scandal began. First, Ms. Lerner planted a question at a conference. Then she said the Cincinnati office did it—a narrative that was advanced by the president’s spokesman, Jay Carney. Then came the suggestion the IRS was too badly managed to pull off a sophisticated conspiracy. Then the charge that liberal groups were targeted too—”we did it against both ends of the political spectrum.” When the inspector general of the IRS said no, it was conservative groups that were targeted, he came under attack. Now the defense is that the White House wasn’t involved, so case closed.

For those who think the IRS scandal has ended, it hasn’t. It’s clearly linked to Washington, not Cincinnati. The only question now is who did the ordering.

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Zappers OK in B.C. but Using Them Isn’t

Posted on July 19, 2013 by Russ

A Richmond, British Columbia firm marketed an interesting computer program. As I noted when I first wrote about this (in 2008):

Bradley Alvarez of the Canada Revenue Agency told The Province that, “Businesses are suspected of having hidden thousands of transactions and millions of dollars in sales across Canada.” The software, from InfoSpec Systems in Richmond, BC, will save an owner taxes. The RCMP noted in its application for a search warrant that an InfoSpec spokesman allegedly said that the software can be used for “deleting cash sales.” Additionally, the software vendor claimed that you can take the cash and “pay kitchen staff.” There’s no reason to stop at one felony when you can commit two, eh?

Well, the software vendor won a victory at the B.C. Court of Appeal. As the Vancouver Sun reported:

Four years after a Richmond computer company was charged and a year after it was convicted of tax fraud, the province’s highest bench has ordered the company acquitted…

“It is noteworthy that the law does not prohibit the making, possession, or sale of a zapper,” Justice Frankel said, even though a number of criminal code provisions target and restrict other instruments of crime used, for instance, in counterfeiting or falsifying credit cards.

“I do not accept the Crown’s submission that InfoSpec ‘engaged in a course of dealings that was by its very nature dishonest.’ InfoSpec participated in commercial transactions involving the sale of a computer program that is not prohibited by law; the restaurants got what they paid for. Whatever reasonable people might think about the propriety of such a sale, I am unable to say they would consider the vendor to have acted dishonestly.”

However, using the software to evade taxes was and still is a crime in Canada. It is likely that the Canada Revenue Agency will appeal this decision to the Canadian Supreme Court.

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“An Excercise in Bureaucratic Futility”

Posted on July 19, 2013 by Russ

Earlier this week I mentioned to you the ridiculous Patient Centered Outcomes Trust Fund Fee that HRAs must pay. I called it the most ridiculous tax ever. Jason Dinesen posts a real example of what he went through for one client.

While Jason’s example is dead-on accurate (I know, I went through the same thing for a client), I think he misses the most futile portion of the exercise. Consider what the IRS will bring in as revenue from this tax from small businesses. Note that most small businesses use health insurers; the health insurance companies pay based on the total number of individuals covered. The small business owners only pay for the HRA; these usually cover the owner, his or her spouse, and children. That should make the average revenue from small businesses to be about $3. Now, let’s add up the costs that the IRS will face:

– Opening the mail;
– Processing the checks (making sure they are credited to the correct excise tax and correct account);
– Depositing the checks;
– Processing the Form 720 excise tax returns;
– Sending out notices to filers who make mistakes; and
– Cost to respond to replies to notices.

Even with full automation in opening mail (which the IRS has), almost each of these steps will cost more than $3. Taken together, the cost for this tax is far more than what the revenue will bring in.

Now let’s look at this from the standpoint of the client. Let’s assume that the bill to the client is $100. Add in the cost of the tax of $3, administrative costs (I’ll be generous and call this $2), and the total cost to the client is $105. That’s $105 out of a business’s net income for a completely useless exercise in bureaucratic futility.

This tax is Exhibit A in why ObamaCare is unpopular, unworkable, and insane.

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Self-Proclaimed First Lady of Tax Fraud Gets 21 Years at ClubFed

Posted on July 18, 2013 by Russ

Let me give some helpful hints to anyone who is thinking of engaging in a life of crime. First, don’t brag about it to others. Live your life in a nice peaceful way and blend in. Second, if you do brag about it, don’t brag on the Internet. Third, if you do brag about it on the Internet, don’t post pictures like this one:

Rashia Wilson (Image Credit: Tampa Police Department)

Showing pictures of yourself with stacks of bills might make even an unaware police department take interest. (For more such helpful tips, see Kelly Erb’s column.)

In any case, Ms. Wilson, who was indicted last year, was sentenced earlier this week to 21 years at ClubFed. She had pled guilty to charges of wire fraud and aggravated identity theft. Judge James Moody Jr. sentenced Ms. Wilson. Judge Moody stated, “She knew what she was doing was wrong. She reveled in the fact that it was wrong.” Ms. Wilson was also ordered to make restitution of $3.1 million, though it’s doubtful she has all that money.

Yesterday, the Treasury Inspector General for Tax Administration released a report on identity theft detection at the IRS. The reported noted that the IRS stopped $2.2 billion of fraudulent refund checks to be issued. Yet other reports have estimated that $5 billion in identity theft-related refund checks get issued annually. Meanwhile, the IRS continues spending money on a quixotic mission to regulate tax professionals.

Posted in IRS, Tax Fraud | Tagged | 1 Comment

The IRS Is Not Taking July 22nd Off

Posted on July 16, 2013 by Russ

Earlier this year, the IRS announced they would be taking five furlough days due the sequester. The next of these furlough days was supposed to be Monday, July 22nd. The IRS announced today that the July 22nd furlough will not be happening:

“The IRS will be open for taxpayers that day as scheduled, and all employees will be paid for that day. This step follows a lot of hard work across the Service to cut costs,” Danny Werfel, IRS Principal Deputy Commissioner, said in a message to IRS employees.

Meanwhile, the National Treasury Employees Union (NTEU), the union that represents non-management IRS employees, isn’t happy about the cancellation of the $70 million in bonuses to IRS employees. I’m shocked that a union head is upset with pay decreases to union employees. Well, no…

As for those bonuses, they may end up being paid–I’m not a contract or labor attorney so I don’t know what was agreed to (or not agreed to). However, if the employees do get those bonuses they’ll likely regret it for years. Republicans in Congress are not happy with the IRS and have proposed a 24% budget cut. The idea of paying bonuses given the IRS scandal doesn’t sit well with the GOP. I suspect that if bonuses are paid in 2013, the chances of bonuses being paid in the next several years will be about zero.

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The Most Ridiculous Tax Ever

Posted on July 15, 2013 by Russ

Suppose you have a Section 105 Health Reimbursement Arrangement. Do you know that you have a tax deadline approaching in just 16 days? Jason Dinesen has an excellent post on this.

A Health Reimbursement Arrangement (HRA) is a common method for a sole proprietor to provide health insurance to himself and his spouse. He hires his spouse, and then (in many states) qualifies for health insurance. This allows for what is called the HRA to be put in force.

Under ObamaCare, every self-insured health plan must pay a $1 per covered individual “Patient Centered Outcomes Trust Fund Fee.” There is no exemption for small plans. Thus, if you have an HRA, you must file Form 720 and pay $1 per person covered–probably an average tax collected of $2. This is due with the second quarter excise tax filings (July 31st) on an annual basis. I have a couple of clients who use this; they must complete Form 720 and pay…$2 each.

How much will it cost the IRS to administer this for the HRAs? It doesn’t take a brain surgeon to know that it’s a lot more than the average $2 tax paid. The form must be processed. Just cashing the check will cost the government more than $2.

It’s yet another way that ObamaCare is unpopular, unworkable, and insane.

Posted in IRS | Tagged , , | 1 Comment

I’m Shocked to Find Another Enrolled Preparer Committed Tax Fraud

Posted on July 14, 2013 by Russ

Not really.

The IRS would like the public and Congress to believe that if every preparer were regulated by the IRS that preparer tax fraud would magically vanish. The reality is that as long as money is involved in an industry–and there’s always money involved with tax preparation–some preparers will be tempted to commit tax crimes. The fact that they are an attorney, CPA, EA, or RTRP won’t change the reality that money always tempts criminal activity.

Take William Zweifel. Mr. Zweifel was doubly an enrolled preparer: He was both an attorney and a CPA. That didn’t stop him from preparing false tax returns. He’s heading to ClubFed for 37 months and is voluntarily giving up his law and CPA licenses. (Had he not given them up voluntarily, he would likely have been disbarred.)

What did Mr. Zweifel do? From the DOJ release:

The method he used to create a false income tax refund was to offset a taxpayer’s income with an alleged loss from either a partnership in which the taxpayer had no partnership interest or from an S corporation which reported no loss for the taxpayer to claim. Zweifel stipulated in the plea agreement that the tax losses to the United States from the false claims on the two income tax returns listed in the criminal information were approximately $61,000 and approximately $42,000, respectively. Zweifel further admitted that for purposes of determining relevant conduct under the U.S. Sentencing Guidelines, the tax loss to the United States in this case is approximately $2.2 million.

Of course, most tax professionals (both enrolled and unenrolled) are ethical and would never consider behavior like Mr. Zweifel’s. Yet money is always a temptation; the IRS is burying its head in the sand if they think that by taking an open book exam an unethical tax preparer will magically become ethical. Indeed, that would make the situation worse: An unethical preparer would have an IRS stamp of approval.

The reality is that 100 years from now there will be tax professionals who commit crime. They’ll dream up schemes that, in their view, couldn’t be caught…and they’ll be caught.

The IRS has methods today to stop unethical preparers. The IRS can impose fines, seek injunctions to prohibit a preparer from practicing, and in especially egregious cases (such as Mr. Zweifel’s), seek criminal charges. The IRS’s policy reminds me of Captain Louis Renault:

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Microsafted to ClubFed

Posted on July 14, 2013 by Russ

Matthew Taylor is heading to ClubFed for a 7 1/2 year of vacation from his previous job as an art thief and tax evader. It’s what he did to try to hide his crime that makes this case interesting.

First, Mr. Taylor stole paintings from the Los Angeles Fine Art Gallery including a Granville Redmond work titled “Seascape at Twilight.” He then sold the painting to a different gallery. He didn’t pay tax on his income; remember, illegal income is just as taxable as legal income.

What did he do to hide his income? He used false social security numbers to hide money in bank accounts, he used multiple post office boxes to open other post office boxes, and he sent money to an offshore account. Those are typical strategies.

It’s a couple of other things he did that grabbed my attention. He set up phony companies with names similar to other companies (Microsaft, anyone?). He blamed his mother for all his bank accounts and tax troubles…even though she was in failing health.

None of these strategies were successful, as time ran out on Mr. Taylor. He’ll get to enjoy life on the inside, and he must also make restitution of $1.2 million.

Department of Justice Press Release

Posted in Tax Evasion | Tagged , | 1 Comment