About once a year I get asked, “I won some money gambling, but I didn’t get a W-2G. Do I really have to declare that income?”
The answer is easy: All income is taxable unless Congress exempts it, and gambling income isn’t exempt. Not receiving a tax form doesn’t mean you don’t have to report the income.
Taxdood has written an introduction to taxes for gambling; the second of several posts appeared yesterday. It makes an excellent primer.
Every so often a client asks me to send a mortgage company a letter noting that I prepared their tax returns, and verifying their income for those years. I haven’t been asked to send a letter to a mortgage company where I invent numbers and falsely claim that I prepared someone’s return. (If I were to be so asked, I’d quickly say “no thanks.”) Of course, one always needs to be aware of the Bozo contingent.
From Bakersfield comes the story of Patricia Ann King. She ran The Tax Kings, which did tax preparation work in Bakersfield. From the Department of Justice press release:
King prepared and provided to her co-defendants false and misleading verification letters that purported to verify loan applicants’ self-employment history and income, among other information. King received compensation payments from the co-defendants for providing the verification letters. King knew that the verification letters were to be submitted by the co-defendants to lenders in support of applications for loans for the purchase or refinance of properties and that the lenders would rely on the letters to approve the loans. King admitted that her actions caused lenders to incur losses of approximately $530,000.
She pleaded guilty to aiding and assisting in the preparation of a false tax document and three counts of mail fraud. She also admitted to impersonating a CPA.
I have been coming around to Joe Kristan’s view of the IRS regulating tax professionals. Ms. King had a license from CTEC, the California state body that licenses non-CPAs/EAs/Attorneys who prepare tax returns. (I verified her license–though it expired last November–on the CTEC website.) Her taking the required continuing education courses didn’t stop her from committing four felonies. The IRS being the regulatory body won’t stop bozo individuals from committing bozo actions. But I digress….
In any case, Ms. King will be sentenced in April.
Late last year, Congress extended the 2% cut in the payroll (FICA) tax for just two months. That extension expires in 18 days. Congress and the President appear to want it to be extended, but there’s a catch. The extension needs to be “revenue-neutral.” The two-month extension was linked to an increase in mortgage fees. Given the current housing crisis, I can’t imagine more mortgage fee increases. There’s no chance that a pure tax increase (or a millionaire’s tax increase, for that matter) can pass the Republican-controlled House. Will online poker come to the rescue?
Various sources in the gaming industry have reported over the last week that Senate Majority Leader Harry Reid (D-NV) and Senate Minority Whip Jon Kyl (R-AZ) have agreed to this. Senator Kyl has, in the past, been a fierce opponent of all things gambling-related, so this would be quite a turnaround for him. Senator Kyl admitted late last year that his stand on online poker had “softened.”
That said, it appears that the ten-month additional extension will pass Congress, and some source of revenue must be found in order to balance the books. Millions of Americans like poker, and if there were US-based sites a lot of tax revenues would be raised both from the sites themselves and from the players. This looks like a win-win to me. Still, until the measure is signed into law anything can happen including nothing at all.
In what must be considered to be a complete non-shock to all but officials of the Brown Administration, California’s tax revenues came in $528 million under budget. According to Bloomberg, most of this is from a $525 billion shortfall in income taxes.
While California’s Department of Finance says it’s “too soon” to tell whether April income tax collections will make up for January, I can give them the answer now: They won’t be. When individuals lower their January estimated payments, it’s almost always because they know they made less during the previous year and don’t owe the money. I expect California collections in April to also be below forecast.
Earlier this week the IRS issued proposed regulations to implement the Foreign Account Tax Compliance Act (FATCA). The press release from the Department of the Treasury states,
After many months of intensive discussions with foreign governments, the Treasury Department today also jointly issued a statement with France, Germany, Italy, Spain and the United Kingdom expressing mutual intent to pursue a government-to-government framework for implementing FATCA – an important step toward addressing legal impediments to financial institutions’ ability to comply with the regulations.
The statement does not contemplate an exemption from FATCA for any jurisdiction, but instead offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs to report the necessary information to their respective governments rather than to the IRS. [emphasis added]
Given what some countries have looked at as the US sticking its fingers into local law, it will be interesting to see how this plays out. A good test will be Canada, as our neighbor to the north is not happy with how previous discussions on FATCA have progressed.
Other coverage:
TaxProf Blog
Washington Post
Let’s say you own a fixer-upper of a home. Let’s suppose you find that home in another part of town, so you decide to donate your home to the local fire department so they can burn it down. You get a tax write-off, and the fire department can practice on something that’s an eyesore anyway. Everyone wins, right?
Well, there’s a problem with this strategy from a tax standpoint: What’s the fair market value of a home that’s about to be burned down? About zero, right? Joe Kristan has more on a tax strategy that went up in flames.
Here’s some music that backs that up:
As I noted last week, the problem of entering 1099-K’s for recipients of those forms was deferred until 2012. It turns out that the IRS acquiesced to complaints from tax professional and other groups, including the Retail Industry Leaders Association (RILA). In a letter to the RILA, Steven Miller, Deputy Commissioner of the IRS stated,
This is to confirm what I stated in our recent meeting with your organization and other industry representatives. There will be no reconciliation [of Form 1099-K’s] required on the 2012 form, nor do we intend to require reconciliation in future years. Our intention is that the reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms. No other changes to these forms related to payment card reporting are contemplated.
So which recipients of Form 1099-K’s need to be concerned? Well, you do need to be reporting your credit card receipts on your tax returns. If you’re not, and you’re audited, you can be certain the IRS will look at the 1099-K’s and ask the obvious questions.
Overall, this is great news for everyone. The problems with reconciling accounting systems designed for multiple types of payments to tax forms would have given everyone involved gray hair. This is no longer a problem deferred: It’s one less needless complexity to deal with.
Hat Tip: RILA
Earlier, I published a list of IRS Service Center Addresses. New York State has just published its list of street addresses to be used for FedEx, UPS, and DHL. The New York list is by form, and has 15 different addresses! You can find the list on Publication 55.
This year sees the introduction of Form 1099-K. This form reports merchant and third-party payments you’ve received. We were supposed to note these on separate lines on our tax returns, but not any longer:
For tax year 2011 the IRS has deferred the requirement to separately report the amount of merchant card and third party network payments from Form 1099-K on your tax return. Instead, you should report all gross receipts of your trade or business as usual on the line indicated….
While I took this from a notice regarding Form 1040s, the same holds true for all tax returns. Everyone ignores the 1099-K’s…but the credit card and merchant service companies must continue to send them.
Last year I participated in a roundtable at my professional society regarding the 1099-K. The problems we foresaw were numerous; two of the most obvious were that accounting software normally tracks by product or type of product sold, and not by payment type and the issue of fiscal years (the 1099-K’s will all be on calendar years so the forms will be wrong for fiscal year clients). We found numerous other issues, and it appears the IRS realized that the 1099-K is not yet ready for prime time.
Still, it’s just a problem that’s been deferred until next year.
