I Was #254

Posted on March 14, 2012 by Russ

Investors Business Daily has an article today on the Sick Man of America: California:

In 2011, more businesses (254) quit California than the year before (202), which was a high-water mark over 2009 (51). Last year, roughly five businesses left in any given week, one more than left in each week of 2010 when the average was 3.9.

Well, as one of those 254 businesses that fled the Bronze Golden State, I can say that Nevada has been a wonderful change. California may have a far better meteorological climate but from a business standpoint Nevada is far, far better.

What does California need to do to improve its business climate? Cut regulations, cut taxes, cut the pervasiveness of government. What are Governor Jerry Brown and the Democrats in Sacramento proposing? More taxes, more regulations, more of the same.

I’ll take the over on 254 for 2012.

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When Buying a Business in Texas…

Posted on March 14, 2012 by Russ

…ask for the Certificate of No Tax Due from the Texas Comptroller of Public Accounts. Alan Sherman of the Texas State & Local Tax Law Blog explains why.

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Mailbag Update

Posted on March 13, 2012 by Russ

We get mail:

I got married last June and my wife says we need to file as single because we weren’t married for the whole year. Can you set her straight?

Your marital status on December 31st is your marital status for the year (with a few exceptions). If you are married on the last day of the year, you are married for the entire year. You and your wife need to file a Married Filing Jointly return or a Married Filing Separate return.

The exceptions include spouses who do not live together for the entire year and where a spouse dies during the year.

I won a €20,000 jackpot at a casino while traveling in Europe last year. My accountant told me I have to claim that income. That can’t be right, right?

It’s correct. The US taxes you on your worldwide income, even money won in a casino in Europe. You need to convert the Euros to Dollars and include the gambling income as part of line 21, Other Income. The good news is that you get to deduct your gambling losses (up to the amount of your winnings) as an itemized deduction on Schedule A.

I spent a month working in New York last year for my business. My W-2 has New York withholding along with withholding for my home state, California. It appears that both states taxed the same income and that can’t be right! Or can it?

Well, you were working in New York, so you have New York source income, and New York definitely has the right to tax you for that time (and any other New York source income you might have). You’re a resident of California, so you owe California tax on all of your income.

That said, you do get to take a tax credit for the double-taxed income. In this manner you effectively end up paying the higher of the two states’ income tax rates.

I’m looking for a tax professional in the Philadelphia area familiar with the Adult Entertainment Industry.

That can be read in so many different ways….

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Corporate Tax Deadline is Thursday, March 15th

Posted on March 13, 2012 by Russ

The first big tax filing deadline of the year is upon us: The deadline for calendar year corporations (both C Corporations and S Corporations) to file their tax returns is Thursday, March 15th. What if you have a corporation and just now realize you need to file your return? That’s simple: File an extension.

You can download the extension form here; you can get the instructions here. Just make sure you mail the form using certified mail, return receipt requested. If you use a tax professional, he or she can likely file your extension electronically.

S Corporations generally don’t owe tax. However, C Corporations may owe tax. If you’re filing the extension for a C Corporation, make an estimate of the tax you owe and set it with the extension.

The next deadline, April 17th, is for individuals, partnerships, and fiduciary returns (trusts and estates).

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Confidence…Make that Confidence Man

Posted on March 11, 2012 by Russ

A former IRS employee decided to head to Thailand after bilking investors in a Ponzi scheme. That country wasn’t a great choice, as there is an extradition treaty to the US. Adding to his woes was his general disdain for paying taxes.

Richard Saunders ran a company called Advisors Capital Holdings in St. Louis. He guaranteed good returns for investors, but he apparently stole a page from Mr. Ponzi: He paid his investors using new investors’ money. That works for a while, but sooner or later the scheme will fall apart. He also took plenty of the money for his own use.

Mr. Saunders, who used to work for the IRS, also didn’t like filing tax returns or paying taxes. He filed his 1992 to 1998 returns late, and didn’t bother to pay the amounts due. He lied to the IRS (never a good idea), and then headed off to Thailand in 2008. He was deported back to the US in early 2011 and arrested.

Mr. Saunders pleaded guilty in October, and received his sentence last week: 72 months at ClubFed for wire fraud, and 60 months (to be served concurrently) for tax evasion. He must also make restitution of $6 million to the Ponzi scheme victims and $446,000 to the IRS.

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I Hope You Like Florence, Colorado

Posted on March 5, 2012 by Russ

Kevin Small has had a decidedly interesting career. He has had 30 arrests for all sorts of crimes (including violent crimes). While enjoying Pennsylvania’s state prisons, he decided to commit tax fraud from the IRS. He was “caught” after obtaining over $1 million in phony refunds; it’s unclear if the money was recovered. He received 11 additional years at ClubFed (though it’s unclear if that was to be served consecutively or concurrently with his Pennsylvania sentence).

In January, it appeared that he was free. A judge of the US District Court–apparently the same one who sentenced him to 11 years–ordered him free. He was released.

The document was forged. Oops.

Eventually, the US Marshals Service got wind of his release (on March 1st). Four days later, Mr. Small found himself back behind bars after being arrested in Philadelphia. He now faces a litany of state and federal charges. And when (if) he gets out of the maximum security prison in Pennsylvania, he has Florence, Colorado to look forward to.

News Stories: Here and Here.

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California Doesn’t Conform on Self-Employment Tax Deduction Change

Posted on March 4, 2012 by Russ

Yet another California non-conformity issue has reared its head. Those of us who are self-employed must pay self-employment tax on their self-employment earnings. The self-employed get to deduct 50% of that on line 27 of Form 1040.

In 2011 the self-employment tax changed from 15.3% to 13.3% on the first $106,800. However, the deduction is still based on 15.3% rather than 13.3%. So let’s say I paid $1,000 in self-employment tax; my deduction is $575, not $500. A little extra benefit…except on your California return.

For California purposes, the deduction is $500, not $575–it remains at 50% of the amount paid in self-employment tax. I noticed this with one of my California clients and called the FTB to verify this. The California legislature did not pass conforming legislation. Those of you who are self-employed Californians will see an adjustment on Schedule CA of your Form 540.

This was noted in today’s San Francisco Chronicle. The Chronicle also noted that TurboTax hadn’t updated its software until last Friday. Apparently, the Franchise Tax Board forgot this adjustment until after the tax forms were initially generated.

Those of you who have filed returns with “material” changes will likely get notices noting the adjustment and proposing an additional amount of tax to pay.

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Shockingly, the Nevada Resort Association Is Fighting a Tax Initiative on Nevada Resorts

Posted on March 4, 2012 by Russ

Last Wednesday the Nevada Resort Association filed a lawsuit in Carson City to block a proposed initiative that would increase the highest tier of gambling taxes in Nevada from 6.75% to 9%. The Las Vegas Sun reported that the lawsuit alleges,

It utterly fails to inform voters of the breadth of these changes or the character and nature of existing taxes and fees, much less accurately describe its intended purposes and consequences….

The Nevada Resort Association represents the largest casinos in Nevada–the casinos that would be hit with the increased tax should this initiative pass.

The initiative process in Nevada is quite different from California. First, signatures must be collected (just over 73,000 by November 13th). Then, the initiative is presented to the state legislature during their 2013 session. If the measure fails in the legislature, it would then appear on the November 2014 ballot.

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BOE Updates Top 500 Sales & Use Tax Delinquents in California

Posted on March 4, 2012 by Russ

A few years ago, the California Legislature passed a bill requiring the Board of Equalization (California’s sales tax agency) to publish a list of the top 500 deadbeats each quarter. That list has just been updated. On top of the list is California Target Enterprises Inc. with a debt of $18.4 million; at the bottom of the list is Mega Micro, Inc. with a debt of $404,390.

In scanning the list the one thing that struck me was the number of automobile dealerships on the list. I can’t believe it’s that hard to figure out and remit the sales tax on a new or used car. However, my mother told me about how “honest” used car salesmen are….That said, there are new car dealers on the list, too; a relatively new listing is Auto First Financial Corp. dba Silicon Valley Hummer with a debt of $2.85 million.

To date, the list has caused the BOE to receive $5.3 million in payments, so this is one of the few accomplishments of the California legislature.

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Hiring a Hit Man Isn’t a Good Strategy

Posted on March 2, 2012 by Russ

Last April, Steven Martinez was arrested and charged with 49 counts including mail fraud, identity theft, and filing false tax returns. Here’s what Mr. Martinez was accused of:

The indictment charges Martinez with stealing over $11 million in tax payments that should have been sent to the IRS. According to the indictment, Martinez presented his clients with completed tax returns indicating that they owed a significant amount of tax. The indictment alleges that he then persuaded his clients to write checks payable for the amount of taxes (or estimated tax) due and owing to an alleged client trust account (instead of directly to the IRS or the California Franchise Tax Board). Rather than deposit these checks into an actual client trust account, Martinez deposited them into several bank accounts in the names of fictitious entities. The indictment further alleges that after disguising the nature of the funds in the accounts, he used millions of dollars in tax payments to fuel his extravagant lifestyle which included a multimillion dollar home in Ramona, an airplane, a boat, a motor home, trips to the Super Bowl, and vacations in Mexico. The indictment also alleges that Martinez, in an attempt to conceal his fraud, filed a different set of false tax returns indicating that his clients owed little or no income tax. In this manner, Martinez defrauded the IRS and the California Franchise Tax Board of more $11 million in federal and state taxes due and owing.

Now, that’s allegedly a rather nasty kind of fraud. Still, there are plenty of tax fraud stories and this story probably would have ended there (with perhaps another mention when the trial occurred). Mr. Martinez, a former IRS Revenue Agent, was out on what I believe is $350,000 bail.

The trial was apparently approaching and it was time to find a strategy for the trial. Perhaps a good attorney was in order. Maybe trying to prove the accusations wrong would work. One strategy that would not occur to me is what Mr. Martinez allegedly chose.

From today’s news story, “CPA Accused of Tax Fraud Arrested for Alleged Murder-for-Hire Plot”:

According to a complaint filed in U.S. District Court, Martinez offered an acquaintance $100,000 in cash to kill the prosecution witnesses, provided him with photos of the targeted people along with personal information about them and suggested using a silencer-equipped gun for the slayings.

For the record, Mr. Martinez is apparently not a CPA (there is no listing for him at the California Society of CPAs); rather, he is just a tax preparer (licensed by the California Tax Education Council–CTEC). He is listed on the CTEC website. That means he’s taken the required hours of continuing education. It sure has apparently helped his ethics (well, that’s what Commissioner Shulman would tell us).

Needless to say, hiring hit men is not a good strategy.

Posted in Tax Evasion | Tagged , | 1 Comment