Rhode Island Is Now a Bad State for Gamblers

Posted on August 8, 2013 by Russ

Rhode Island Seal

Little Rhody, Rhode Island, changed its tax structure for 2012. Rhode Island eliminated itemized deductions (but did increase the standard deduction). Thus, an amateur gambler with $50,000 of gambling winnings and $30,000 of gambling losses will owe tax on his wins and will not get the benefit of his gambling losses.

Here is the list of bad states for gamblers with the reasons why:

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Kansas [8]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [1] [6]
Rhode Island [1]
Washington [7]
West Virginia [1]
Wisconsin [1]

NOTES:

1. CT, IL, IN, MA, MI, OH, RI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. Because of the rescinding of the law allowing gambling losses as a deduction, Ohioans cannot deduct gambling losses on their state, city, or school district returns.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

8. Beginning in 2014 (2014 tax returns filed in 2015), Kansas will not allow gambling losses as an itemized deduction. See #1 above as to how this will impact amateur gamblers in the Sunflower State.

My thanks to Paul Dion, CPA, for pointing this out. My one Rhode Island client moved elsewhere before 2012 so I haven’t prepared a Rhode Island return this year.

Posted in Gambling, Rhode Island | Comments Off on Rhode Island Is Now a Bad State for Gamblers

IRS Scandal Continues to Percolate

Posted on August 8, 2013 by Russ

Some news this week on the IRS Scandal:

Darrell Issa has expanded the probe of the IRS scandal to the Federal Elections Commission. As CNN’s Jake Tapper stated, “If you thought the IRS targeting–scandal, controversy, whatever you want to call it–was forgotten, think again.”

But there’s more: According to the Washington Examiner:

In a remarkable admission that is likely to rock the Internal Revenue Service again, testimony released Thursday by House Ways and Means Committee Chairman Dave Camp reveals that an agent involved in reviewing tax exempt applications from conservative groups told a committee investigator that the agency is still targeting Tea Party groups, three months after the IRS scandal erupted

If the transcript shown in the Examiner post is correct, there’s likely to be a huge blow-up on this scandal when Congress reconvenes.

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While I Was Out…

Posted on August 8, 2013 by Russ

Ten days off in a row should have been enough…but it wasn’t. In any case, here are some of the posts that the tax blogosphere had that might be of interest:

Jason Dinesen asked, “What’s the upside of preparer regulation for Enrolled Agents?” While at the National Association of Enrolled Agents annual meeting, I asked that question, too. The NAEA officials all swore it was a wonderful thing. The only thing I can deduce is that the RTRP program should lead to more Enrolled Agents. That said, I remain opposed to the RTRP program.

National Public Radio (NPR) noted that statistics show that the IRS targeting was worse for conservative groups than liberal groups. Republicans asked Democrats to bring just one liberal or progressive group to hearings that was impacted. To date, none have been found.

Jason Dinesen’s client who went through a nearly 28-month identity theft nightmare with the IRS finally received her tax refund.

The IRS released a draft of Form 8960. What’s that? It’s the new ObamaCare 3.8% Investment Tax. It does appear that the IRS smartly didn’t link the form to Other Income (as I previously noted, gambling income is not subject to this tax). As Paul Neiffer reported, there are only 33 lines to calculate this tax. As I tell my friends, I have lifetime employment…for all the wrong reasons.

Joe Kristan has a report on an interesting court decision: Can suing be your trade or business? The court held that it could be.

Meanwhile, the Tax Court held that a business owner whose business made a whopping $877 must take a salary of nearly $31,000! Joe Kristan has more on what is a very raw deal for the taxpayer. I do agree with Joe’s conclusion: “When advancing and withdrawing funds from an S corporation, be sure to generate the appropriate prissy paperwork.” If you have a loan, make it look like a loan: Charge interest and record it! It’s possible that with good paperwork the owner wouldn’t have received such a ridiculous result.

Posted in IRS, Tax Court | Tagged , , , | 1 Comment

Kansas Joins Bad States for Gamblers in 2014

Posted on July 30, 2013 by Russ

State Seal of Kansas

Heads-up to residents of the Sunflower State: Your state will join the list of bad states for amateur gamblers beginning in 2014. During this year’s legislative session, your state legislature eliminated the itemized deduction for gambling losses beginning January 1, 2014. Taxdood has more.

Here is the updated list of bad states for gamblers:

Here is the list of bad states for gamblers with the reasons why:

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Kansas [8]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [1] [6]
Washington [7]
West Virginia [1]
Wisconsin [1]

NOTES:

1. CT, IL, IN, MA, MI, OH, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers. Because of the rescinding of the law allowing gambling losses as a deduction, Ohioans cannot deduct gambling losses on their state, city, or school district returns.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

8. Beginning in 2014 (2014 tax returns filed in 2015), Kansas will not allow gambling losses as an itemized deduction. See #1 above as to how this will impact amateur gamblers in the Sunflower State.

Posted in Gambling, Kansas | 3 Comments

Vacation

Posted on July 26, 2013 by Russ

It’s time for my annual vacation. If something earth-shattering in the tax world happens while I’m relaxing, I’ll take time out to post on it. Otherwise, enjoy the fine bloggers listed in the blogroll on the right.

For the latest news on the IRS scandal, I strongly recommend reading Paul Caron’s TaxProfBlog. Every morning he’s had a post on the scandal. Today’s post highlighted the fact that the IRS has only provided 0.02% of the documents that the House requested relating to the scandal. I’m sure there’s a good excuse reason….

In any case, I’ll be back on Thursday, August 8th.

Posted in IRS, Taxable Talk | Comments Off on Vacation

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.

Posted in Canada, Sales Tax | Comments Off on Zappers OK in B.C. but Using Them Isn’t

“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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