I Have to Get a Magic Printer of my Own

Posted on February 17, 2012 by Russ

If only we could take a charitable donation made in, say, 2001, and by using a magic printer we could magically change the receipt date to 2011. Imagine all of the donations we could suddenly recycle. Ignoring the illegal nature of this, consider the numerous other applications of such a magical printer outside of tax: No more typographical errors; we could change answers on exams after we got them back; and we’d never have another losing sports bet.

Of course, such a printer doesn’t exist.

So that brings us to a news release from the Department of Justice. Maria Teresita Viray, a tax preparer from Reseda, California (in the San Fernando Valley area of Los Angeles), told her clients that she had such a magical printer. From the Department of Justice press release: “The complaint states that Viray told one customer that she had a special printer that allowed her to change the dates and amounts on charitable contribution receipts.” Added to her problems was allegedly creating phony deductions…and that the IRS discovered this. The Department of Justice was successful in obtaining an injunction prohibiting her from preparing any more tax returns.

If you happened to be one of the “thousands” who used Ms. Viray, you may receive a “Dear Valued Taxpayer” letter informing that your return is being audited; Ms. Viray was ordered to provide a list of her clients to the government.

Finally, this is yet another story of how regulation and mandatory continuing education will prevent such fraud. Well, not really: Ms. Viray appears to have been registered with CTEC (the California agency that regulates non-EAs, non-CPAs, and non-attorney who prepare tax returns). Yet the government lost an estimated $45 million from Ms. Viray’s alleged shenanigans. I leave the obvious conclusion to you….

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A Poll Tax–No, That’s a Pole Tax in Illinois?

Posted on February 16, 2012 by Russ

Leave it to the Land of Lincoln for an inventive way to raise money. Illiniois State Senator Toi Hutchinson (D-Olympia Fields) is sponsoring a $5 per person pole tax. The tax would impact strip clubs. The strip clubs are not amused. The Chicago Tribune reports:

We wouldn’t want that,” said Tiffany Winkler, manager of the Chicago club Pink Monkey.

The Admiral Theatre is “strongly opposed to the proposed pole tax,” said Sam Cecola, the North Side club’s director of operations.

I remember that Texas implemented a similar pole tax; the Texas Supreme Court ruled it constitutional though the case is still being litigated. Expect a similar battle if Illinois moves toward a pole tax.

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The Dirty Dozen

Posted on February 16, 2012 by Russ

It’s time for the Dirty Dozen. No, not the movie; rather, the IRS’ annual listing of the worst tax scams.

On top of the IRS’ list is identity theft. It is a major problem, and the IRS is trying to stop it. The IRS does have a special unit dealing with identity theft.

Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

Second on the IRS list is phishing. The IRS never sends unsolicited emails to taxpayers. As the IRS notes,

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

You can find the rest of the list here. Remember, if it sounds too good to be true it probably is.

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Another California Tax Preparer Ignores Her Continuing Education

Posted on February 15, 2012 by Russ

I say that because of news that comes from the small (California) Central Valley town of Livingston. The Department of Justice announced that Nohemi Villarreal Noriega of Patterson has been arrested on charges of tax evasion and structuring. Ms. Noriega is accused of not paying her own taxes of $167,000 from 2006 – 2008. But there’s more:

In addition, the indictment charges that Noriega structured more than $1 million of withdrawals from her bank accounts in amounts designed to avoid filing Currency Transactions Reports, which might have disclosed her unreported income.

Note that all California tax preparers have to be registered with CTEC (or be a CPA, EA, or attorney). Registration and continuing education didn’t stop Ms. Noriega from allegedly violating two laws nor did it stop Ms. King (a post from earlier this week). Having all tax professionals register with the IRS won’t change things…but it will establish another bureaucracy in Washington.

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Taxes and Gambling Series

Posted on February 15, 2012 by Russ

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.

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Well, She Didn’t Get Charged with Impersonating a CPA…

Posted on February 13, 2012 by Russ

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.

Posted in Scams, Tax Fraud | 1 Comment

Funding the Payroll Tax Cut Extension: Online Poker?

Posted on February 12, 2012 by Russ

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.

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California Tax Revenues $528 Million Under Budget in January

Posted on February 11, 2012 by Russ

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.

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FATCA Regulations Issued

Posted on February 11, 2012 by Russ

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

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Burning Down the House

Posted on February 11, 2012 by Russ

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:

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