“Tax Guys” Get Taxing Result

Sometimes you get a better result (tax-wise) if your income is higher. That’s because of refundable credits like the Earned Income Credit. Now, I can’t change a client’s income so that they will qualify for a credit; your income is whatever it is. Unfortunately, not everyone is ethical.

Let’s head to Michigan, where Chad Chertos and Gregory VanDyke had a business called “The Tax Guys” or “Integrity Tax.” The latter name may have been reflective of the legal name of the business but it appears not to reflect how their business was conducted. Back in October the pair was indicted on charges of conspiring to defraud the United States and presenting false claims. Today, Mr. Chertos pleaded guilty to the conspiracy charge. This news story states that Mr. VanDyke was also going to plead guilty.

The method allegedly used by the pair was to inflate income so that they would qualify for tax credits; they allegedly charged a percentage of the refund as their fee. Charging a percentage of a refund is specifically prohibited by Circular 230 (the governing document for the conduct of tax professionals). The Department of Justice stated that the defendants had some clients sign blank tax returns!

In any case, the pair will likely spend some time at ClubFed. They both will need to make restitution of just over $240,000 each.

Posted in Tax Fraud | Comments Off on “Tax Guys” Get Taxing Result

CAF System Maintenance from Christmas to New Years

For tax professionals, be advised that the IRS Centralized Authorization File (CAF) System will be down from Christmas through New Years for routine maintenance. This means that tax professionals will be unable to pull transcripts or other information from 6:00am EST on December 26th until 6:30am EST on January 3rd. Calls to the Practitioner Priority Service will likely require faxing a copy of the authorization on file.

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Fiscal Cliff Deal Near?

CBS News is reporting that a fiscal cliff deal may be reached by mid-week. Here is the report from Major Garrett of CBS:

We shall see. Presumably, an AMT patch is part of the negotiations.

Hat Tip: Hot Air

Posted in Legislation | 1 Comment

What Happens When Cigarette Taxes go Through the Roof?

While Alan Greenspan noted, “Whatever you tax, you get less of,” the New York legislature seems to not understand. In one of the least shocking reports I’ve seen, the New York Association of Convenience Stores (NYACS) noted that the state is losing $1.7 billion of tax revenue each year and 6,700 jobs because of cigarette tax evasion. Why would this be?

New Yorkers who can buy cigarettes elsewhere. The study found that many are buying cigarettes from surrounding states, military bases, Indian reservations, and duty free shops. Add in smuggling from low-tax states (there’s undoubtedly a black market) and you have tax avoidance.

Meanwhile, Cook County, Illinois (Chicago) is conducting cigarette raids to enforce the $2 county cigarette tax. A picture is coming into my mind, that of prohibition, where organized crime prospered when alcohol was banned. I’m sure the similarities are just superficial…or maybe they’re not.

Of course, the NYACS would like New York to begin raids like those in Chicago; after all, convenience stores that are obeying the law stand to sell more cigarettes than most other locations. Still, the unintended consequences of increased taxes are obvious to most of us.

Posted in Illinois, New York | Tagged | 1 Comment

Ref Fouls Out

Last year I reported on the rather brazen scheme of some referees at New York’s Chelsea Piers. Instead of reporting their $40 income per game, they decided to commit identity theft and use false names for reporting their income. This isn’t the identity theft that normally makes the news–fraudsters using someone else’s identity to obtain a tax refund. Rather, this was a scheme to avoid paying taxes on income the referees clearly earned. And this wasn’t a one-time thing: The scheme ran for twelve years.

It was judgment day yesterday in Manhattan
. Peter Iulo was one of the individuals who committed the fouls, er, crimes. Besides his involvement with the referee scandal, he also elected to not file his own tax returns. That didn’t sit well with Judge Barbara Jones: He was sentenced to two years at ClubFed and must make restitution of $80,000. All told, the four individuals involved in the scheme must make restitution totaling $200,000. As always, it’s far, far easier to just pay the tax you owe…but that thought rarely occurs to the Bozo mind.

Posted in New York, Tax Fraud | 1 Comment

What Didn’t They Understand About the Definition of “Uniform?”

California law requires parcel taxes to be uniform for every parcel. That means a parcel of 0.1 acres and a parcel of 10 acres must be charged the same tax. It seems simple, right?

Well, back in 2008 voters in the Alameda Unified School District (near Oakland in the East San Francisco Bay region) approved Measure H. That allowed a parcel tax, of $120 on residential property. However, commercial properties were charged a sliding scale. Smaller properties were charged $120; however, some larger properties owed $9,500 per year.

A property owner filed a lawsuit claiming the tax on larger commercial properties should be limited to the $120 per year. He lost at trial but appealed the decision. The appellate court reversed the decision, so for now uniform is back to its original meaning. Unless the decision is overturned on appeal (I do expect the Alameda Unified School District to appeal to the California Supreme Court), the school district will have to refund most of the $18 million it collected.

Unfortunately, there’s a dark cloud on the horizon. As the court noted,

We are well aware that we are being called on to interpret statutory language enacted in a different economic era and in the wake of two of the most far-reaching tax constraining measures ever passed by the state electorate (Propositions 13 and 62), that the state has since faced crippling economic conditions, and that school districts and other local governmental entities are more dependent than ever on the revenues from special taxes. The courts, however, cannot recalibrate the taxing power statutorily delegated to local entities; any adjustment in that regard must be made by the state Legislature.

Given that Democrats now have a super-majority in the California legislature, I expect uniform to be a thing of the past in the near future.

News Story: San Francisco Chronicle
Hat Tip: Tax Foundation

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California Revenues Below Expectations

California Governor Jerry Brown promised that the new taxes that have gone into effect will balance the budget. Well, in November California revenues were $842 million below expectations, and California is $802 million under budget for the fiscal year (which began in July).

The problem for California is simple: Raising taxes causes people to change behaviors. That will be somewhat difficult initially (the income tax increase is retroactive for the entire 2012 tax year); however, 2013 is another story. While I do expect California’s April tax revenues to meet expectations, I doubt that many other months will do so. Also hovering in the background is the possibility of a $500 million bill to Gilbert Hyatt (the Nevada Supreme Court will decide that in the coming weeks).

Posted in California | 1 Comment

Why Rob Banks?

Question: “Why do you rob banks, Mr. Sutton?”

Answer: “Because that’s where the money is.”

It’s debatable whether or not legendary bank robber Willie Sutton ever said that. However, the idea of only robbing something that has money is a good one (for the robber). Today, the question might be asked, “Why do you commit identity theft?”

Another gang of identity thieves was caught yesterday. From Long Beach, California comes word that eleven gang members were arrested. The investigation began as the result of a shooting. Investigators discovered that gang members had switched from violent crime to nonviolent identity theft and filing false tax returns. The reason is obvious to me: It’s an easy way of making an illegal income.

A large list of agencies was involved in yesterday’s arrests, including the Secret Service and the US Postal Inspectors. Noticeably absent from that list was the IRS Criminal Investigation unit. Clearly, tax fraud was committed but it took outside agencies (that is, outside of the IRS) to discover and prosecute the crimes.

True, those arrested may face federal charges (they were booked on state charges only yesterday), and those eleven alleged identity thieves are unlikely to be committing any more identity thefts anytime soon. However, until the IRS implements better procedures (such as the suggestions I made earlier this year), more and more criminals will attempt to commit this crime. That’s because there’s lots of money to be made here.

Posted in IRS, Tax Fraud | Tagged | 2 Comments

One Year In

Nevada Flag

One year ago, I announced my move from, as Joe Kristan put it, “the perfumed air and divine weather of Orange County to the desert wastes of Nevada.” A friend asked me to expound on my move, both the good and the bad.

There isn’t much that’s bad for me to report on. My electric bill is painful in the summer; my July bill went up over 4000% [1]. I don’t have grass in my front lawn (but even in Irvine that was an issue). There’s nothing particularly old or historic to see in Las Vegas. When the historic relics are the old casinos such as the Golden Gate [2], historic items are few and far between.

There’s a lot, though, to love. I was told that I wouldn’t know my neighbors, that people aren’t friendly, and that it’s a transient community. I know my neighbors (who are very nice people), people went out of their way to introduce themselves, and while there are definitely transient neighborhoods (especially areas very hard hit by the housing bust), I live in a typical suburban neighborhood. I have a lot more house than I did in Irvine at a lot less cost. The cost of living here is less, and my state income tax bill is almost zero [3]. I’m reconnecting with friends who moved here, and I’m having fun.

The biggest surprise to me is that I’m doing far less driving than I used to. Las Vegas, like Orange County, is full of strip malls. Indeed, the area I live in (Summerlin) is modeled after Irvine. The Las Vegas valley is smaller, and the distances less. This ends up being a big saving. This is especially true when you add in the cost of gasoline; it’s $0.20 a gallon cheaper here than in California [4].

Knowing what I do now, would I have made the move? Absolutely–and maybe faster.

Notes:
[1] In Irvine, I rarely needed to run the air conditioning (I lived near the ocean which provided free air conditioning). I signed up for Southern California Edison’s air conditioning cycling program. That caused my summer electricity bills to fall by almost 90%. Here in Las Vegas, I have a larger home that must be air conditioned. In the summer, the air conditioning runs at all hours. I knew that I would have large bills…and it wasn’t a surprise.

[2] The Golden Gate Casino, originally the Sal Sagev, is Las Vegas’ first casino. It’s downtown at 1 Fremont Street. They have a great shrimp cocktail special ($1.99, though you must join their slot club for this price).

[3] Nevada has no state income tax. I will have to pay a small amount of Maryland income tax this year because of our Maryland office; it’s likely under $100.

[4] All gasoline is imported from other states into Nevada (there are no oil refineries in Nevada). Yet even including shipping costs you pay less for gasoline here than in California. The obvious (and true) conclusion is that state taxes drive up the cost of gasoline in California.

Posted in California, Las Vegas, Nevada, Taxable Talk | Comments Off on One Year In

Nominations Due for 2012 Tax Offender of the Year

With just under a month to go before 2012 is complete, it’s time again for anyone to submit a nominee for the Tax Offender of the Year. To be considered for the Tax Offender of the Year award, the individual must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

Nominations are due by next Thursday night, December 29th.

Posted in Taxable Talk | 2 Comments