For Sale: 24,000-26,000 Square Foot Home with an Interesting History

Posted on April 23, 2012 by Russ

The house has 24,414 square feet. At least that much, as it was also measured at 26,828. It has lots of bedrooms: 16, 17, or 18 (depending on who does the counting). And it will soon be for sale, as the home’s original owner is enjoying a very lengthy stay at his new digs, ClubFed.

The home was built for Thomas Parenteau. If that name sounds familiar you may have read about his trial. It could have come out of the pages of a cheap novel:

So far we’ve found out that the mistress, Pamela McCarty, is the mother of Mr. Parenteau’s two daughters; that all three lived in the same mansion; phony jobs and phony paychecks; allegations of $18 million in fraudulent loans…and the trial should last a couple more weeks.

That’s what I wrote in 2010 when the trial was happening. Today that house can be yours. It has plenty of land, and for the Hollywood type who wants to get away from the hustle and bustle, its sits in Norwich Township in the northwest part of Columbus, Ohio. The home appears to be in excellent shape, and it can be yours for somewhere between $4 and $5.5 million.

As for Mr. Parenteau, he won’t be returning to the mansion. The Department of Justice sold the home to a bank; the bank plans on selling the home soon.

Posted in Ohio | Tagged | 1 Comment

Best States for Entrepreneurs: South Dakota, Texas, and Nevada Lead the Way

Posted on April 22, 2012 by Russ

The Small Business & Entrepreneurship Council released last Monday their 2012 Business Tax Index. There aren’t many surprises when you look at the list of best and worst (at least, for regular readers of this blog). The top seven states have no income tax on individuals. Meanwhile, the usual suspects (with one exception) are on the list of the bottom ten.

First, the top ten:
1. South Dakota
2. Texas
3. Nevada
4. Wyoming
5. Washington
6. Florida
7. Alaska
8. Alabama
9. Ohio
10. Colorado

The bottom ten has a lot of the usual high-tax “Blue” states:
42. Connecticut
43. Hawaii
44. Vermont
45. California
46. Maine
47. Iowa
48. New York
49. New Jersey
50. Minnesota
51. District of Columbia

I was surprised to see Minnesota so low on the list. Minnesota has a high capital gains tax rate; that, combined with its relatively high personal income tax rate, inheritance tax, and the state’s AMT, led to it being near the bottom of the list.

I also need to compliment Michigan. I’ve been down on the state–at times, saying it has been worse than California–but the SBEC ranks the Great Lakes State number 12. Under a Republican governor, Michigan has improved its tax policies.

For those wondering why I’m now in Nevada rather than California, this is just another measure of the problems with the Golden State. Governor Brown and Democrats in the state are discussing measures to further increase the state’s taxes. Well, there are six more spots to go before reaching the top (worst) position!

The SBEC has a nice interactive map showing the 50 states (plus DC); you can view the map here.

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He Should Have Known Better

Posted on April 22, 2012 by Russ

It’s one thing if someone makes an honest mistake in preparing his tax returns. It’s another thing if an attorney makes an honest mistake. It’s quite a different thing if the attorney makes dishonest mistakes and obstructs justice. I expect one Ohio attorney to have plenty of time to think over his actions.

From Columbus comes the story of Rick Matsa. Mr. Matsa is not only an attorney but also an architect, real estate broker, and a minister. As the Department of Justice press release notes:

Rick Matsa individually was convicted of one count of a corrupt endeavor to obstruct and impede the IRS, 15 counts of aiding and assisting in the preparation of false and fraudulent tax returns, that related to five different trusts; one count of willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR); one count of conspiracy to obstruct justice, commit perjury, and make false statements; two counts of witness tampering; one count of submitting a false statement; and one count of obstruction of justice.

Mr. Matsa created a phony trust, several nominee entities, phony foreign benificiaries, ignored reporting his foreign bank account that had more than $300,000 in it, but did manage to use the untaxed proceeds of his scheme to buy a 150-acrfe farm and a house.

Adding to his woes, he, “…conspired to obstruct the investigation by misleading and concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses, and lying to federal investigators.”

Mr. Matsa faces up to 108 years at ClubFed, and I expect his sentence to be quite lengthy given the numerous severe charges he was convicted of.

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Bozo Tax Tip #1: Get Out of Town, Fast

Posted on April 15, 2012 by Russ

There’s an old saying: When the going gets tough, the tough get going. Well, with Bozos things work differently. “Oh my,” a Bozo thinks. “Tax Day is just a couple of days away. I’m completely unprepared. I know: I’ll go visit Aunt Bertha and Uncle Abner in Ottawa. I’ll catch the hockey, and forget about tax.”

Believe it or not, this strategy actually works (for a while). If you are outside of the United States on the day taxes are due (April 17th this year), you get an extra two months (until June 15th) to file your federal taxes. There are no penalties, just interest.

So suppose you haven’t a prayer of paying your federal taxes and you go to Ottawa to see the Rangers face the Senators on both Monday and Wednesday (and stay all three days). Yes, you have until June 15th to file your taxes.

Now, this strategy doesn’t work for every state, though. Some states do follow the two-month extension (New York and North Carolina, for example); others do not. I’ve had clients stuck in Europe do a volcanic eruption (remember that volcano in Iceland that erupted a couple of years ago), panic, and I told them to relax.

Of course, if you can’t travel abroad, going from the city to the suburbs won’t change the tax deadline. And I must emphasize that this is just a temporary fix. Yet this is the one example of a Bozo maneuver that can really work.

That’s it for our Bozo Tax Tips for the 2011 Tax Filing Season. I hope you’ve enjoyed them. We’ll be back with actual tax posts at the end of the week.

Happy Tax Day!

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Bozo Tax Tip #2: Use a Bozo Accountant

Posted on April 12, 2012 by Russ

Here’s another Bozo Tax Tip that keeps coming around. The problem is, the Bozos don’t change their stripes. In any case, here are some signs your accountant might be a Bozo:

– He’s never met a deduction that doesn’t fit everyone. There’s no reason why a renter can’t take a mortgage interest deduction, right? And everyone’s entitled to $20,000 of employee business expenses…even if their salary is just $40,000 a year. Ask the proprietors of Western Tax Service about that.

– He believes that the income tax is voluntary. After all, we live in a democracy, so we don’t have to pay taxes, right?

– Besides preparing tax returns, he sells courses on why the Income Tax is Unconstitutional or how by filing the magical $2295 papers he sells you will be able to avoid the income tax.

– He wants you to sign over that tax refund to him. After all, he’ll make sure you get your share of it after he takes out his 50% of the refund.

– He believes every return needs at least three dependents, no matter whether you have any children or not.

Come Monday will be our last Bozo Tax Tip of the Year. It’s a brand new tip for this tax season, too, and it’s actually the first Bozo Tax Tip that in some bizarre way actually works (well, for a while).

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Bozo Tax Tip #3: Procrastinate!

Posted on April 11, 2012 by Russ

Today is April 11th. The tax deadline is just four days away. Well, six, actually, since April 15th is a Sunday and April 16th is a holiday in the District of Columbia.

What happens if you wake up and it’s April 17, 2012, 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 (Pennsylvania is one of those), 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 and mail off a payment to your state, too.

But what do you do if you wait until April 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.

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.

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Bozo Tax Tip #4: Foreign Trusts

Posted on April 9, 2012 by Russ

By far 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 ignored.) Survivors’ trusts are another useful vehicle.

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.

Remember: If it sounds too good to be true it probably is.

Posted in IRS | Tagged | 1 Comment

Bozo Tax Tip #5: 300 Million Witnesses Can’t be Right

Posted on April 8, 2012 by Russ

For tax bloggers like myself, Richard Hatch has been a godsend. His antics have been, well, remarkable. While he’s no longer at the top of my Bozo Tax Tips (he’s been strangely silent since his release from prison last December), his story is one that prospective tax offenders should learn.

I keep thinking that I’ll be able to drop this Bozo tax tip one year. Yet every time I think that’s going to happen Richard Hatch makes the news again. One tip I can give any celebrity: Be careful about your taxes. The IRS loves going after Bozo tax celebrities. So here’s the story that refuses to die.

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Here’s what I wrote back in January 2006 when Hatch was convicted:

Mr. Hatch has cemented a place in the Bozo Tax Criminals Hall of Fame (a website I’ll create one day). Let’s look at his stupid not so good actions.

1. Hatch goes to accountant #1, find out that he owes over $300,000 in taxes. He goes to accountant #2, and the tax bill is around $240,000. (At his level of income, some differences in taxes owed is normal.) He then asks accountant #2 what his return would be if he didn’t declare the $1 million in Survivor winnings. Accountant #2 makes Hatch sign a statement that he won’t file that return (it showed Hatch getting a $4300 refund). He filed that return.

2. The IRS amazingly discovers his tax evasion. (With perhaps 300 million witnesses, even the most inept attorney could prove he won $1 million.) He’s offered a plea bargain: pay your taxes, and we’ll let you off fairly easily on the jail time. He accepts the plea initially, then changes his mind.

3. The case goes to trial. Hatch claims that CBS should have withheld taxes. His attorney might want to ask any seasoned accountant about what you should do if taxes aren’t withheld but should have been. (Answer: you pay the taxes.)

4. Hatch’s attorney can’t find the OJ Simpson jury. (Hat tip: Roth Tax Updates)

5. Hatch is found guilty. Roth Tax Updates speculates that his sentence will be around 3 years in jail. Oh, he’ll also have to pay those taxes, and interest and penalties. The maximum possible sentence is 13 years in prison and a fine of $600,000.

Hatch is now serving his prison sentence of 51 months. He recently appealed his conviction, though chances of it being overturned seem slim.

2008 Update: And they were slim. Last February, Hatch’s appeal was denied. As you might expect, 300 million witnesses can’t be wrong.

2009 Update: Richard Hatch continues to look for that needle in the haystack. He’s filed another appeal, though to this non-lawyer it’s more likely that he’ll be released after serving his 51 months at ClubFed than getting a favorable ruling.

2010 Update: Mr. Hatch was released in mid-2009. He then violated the terms of his release and was sent back to ClubFed. Finally, in October, Mr. Hatch was released. He’ll be spending the next couple of years in his home state of Rhode Island.

2011 Update: As part of his sentence, Mr. Hatch was supposed to amend his tax returns and declare the $1 million of income. He neglected to do that. Judge William Smith didn’t neglect to give Mr. Hatch a piece of his mind this past March: He sentenced Mr. Hatch to nine more months at ClubFed. Following his release from ClubFed (in December), Mr. Hatch will have 26 months of supervised release.

2012 Non-Update: Mr. Hatch was released from prison in late December 2011. He has filed a writ of certiorari with the Supreme Court. The chance of the Supreme Court taking his case is about the same as a blizzard in August in Las Vegas.

Judge Smith’s remarks hopefully will finally sink in to Mr. Hatch. “You can continue to proclaim your innocence…You don’t have the option of engaging in this type of game or negotiation with the court. It needs to be a severe punishment. That’s the only thing that will deter you in the future.”

And to think I’d have so little to write about if Mr. Hatch had just paid his $300,000 in tax in the first place.

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California Property Tax Payments Due

Posted on April 8, 2012 by Russ

The second half of California property tax payments are due on Tuesday, April 10th. That’s a postmark deadline (US postmarks only). Your local assessor may also accept online payments, but it is time for you to make those property tax payments.

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Bozo Tax Tip #6: Nevada Corporations

Posted on April 5, 2012 by Russ

A repeat for the fifth year follows, but it’s one again getting a lot of play due to business conditions in California. 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 operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.

Now, if you’re planning on moving to Nevada incorporating 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 corporation is, well, bozo.

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