An Intuit of a Problem

Posted on October 20, 2011 by Russ

I have more information on the coding issue: The problem lies with my software company, not the IRS. It seems that in a limited number of cases, my software (ProSeries, made by Intuit) returns a code “5” indicating that an electronic payment has been rejected when the actual transmission from the IRS is a code “4” indicating that the payment was accepted.

What is making me upset is that when I called Intuit this morning that they were aware of the problem and were working on it. They apparently do not consider this serious enough to proactively tell their user base about it. I asked for a supervisor to call me back; I have yet to get that call today.

Consider a hypothetical client, John Smith. Mr. Smith owes the IRS at the extension deadline $20,000. He chooses to have the funds electronically debited. His return is filed electronically and accepted, but the electronic funds payment is supposedly rejected. You tell Mr. Smith he needs to mail a check to the IRS for the $20,000 which he dutifully does. However, the payment was really accepted.

The client discovers two days later that the IRS has debited his account. Meanwhile, does he put a stop-payment on the check he sent the IRS (incurring fees from the IRS and his bank)? Or perhaps the check is cashed by the Treasury and now Mr. Smith is out an additional $20,000 for a few weeks. (The IRS will send a refund for the double-payment, but Mr. Smith loses the use of that money for a while.) Or perhaps the check bounces as Mr. Smith only had $30,000 in his bank account. Is Intuit going to cover Mr. Smith’s fees?

As best as I can determine, I had four clients impacted by this. I assume there are hundreds if not thousands impacted nationally. It will be very interesting to see how Intuit responds to this major issue.

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Possible Problem With IRS Coding of Rejected Tax Payments

Posted on October 20, 2011 by Russ

If you are a tax professional and have recently had a client (or clients) whose IRS payment shows as rejected on Form 9325, it is possible that the payment actually went through.

When an individual files his tax return electronically, he can also pay electronically. Sometimes that payment is rejected for various reasons. I have seen multiple clients in the past few days whose payments were “rejected” actually have their payments accepted. I do not know if this is an issue with my software vendor, the IRS, or some combination thereof. I am going to be talking with both the IRS and my software vendor tomorrow.

I will post an update tomorrow (Thursday) with what I discover.

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Recharacterization Deadline for Roth IRAs is October 17th

Posted on October 11, 2011 by Russ

Many individuals converted their traditional IRA to a Roth IRA in 2010. It seemed like a great idea but then the stock market went down. Now, some of these individuals owe tax on money they no longer have.

You can actually get a do-over: You can reverse (recharacterize) your Roth back to a traditional IRA. The Smart Money blog has more.

Hat Tip: Roth Tax Updates

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Sometimes the Light at the End of the Tunnel Is an Oncoming Train

Posted on October 11, 2011 by Russ

September revenue in California came in at a bit more than $300 million under forecast. That brings the fiscal year to somewhere between $700 and $800 million below forecast. (The California Controller’s office and the California Finance Department use slightly different numbers, so the exact shortfall number varies between the departments.)

No matter, if we take $700 million for three months and project that out for twelve months, you get $2.8 billion under forecast. As the Bloomberg article I linked to notes, automatics spending cuts in California are almost certain to happen.

The problems the Bronze Golden State face can be summed up simply in that the state hasn’t found a regulation that they don’t like and a tax they don’t want. Add in a recession nationally (no matter if the pundits haven’t officially called it a recession, the public is acting as if it is a recession) and neither businesses nor individuals want to spend money or do anything else that increases California collections.

California should, of course, cut regulations and make the state more business friendly. Unfortunately, that has as much chance as it snowing in Irvine today.

A good juxtaposition with this is that Governor Jerry Brown signed the so-called “Dream Act” into law. This law will consider illegal immigrants in California state residents and allow them to enter California state colleges and universities and pay resident rates (which are less than non-resident rates). That will, of course, increase the costs to the universities and increase the state’s deficit.

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Former NFL Player Sacked for Evasion

Posted on October 10, 2011 by Russ

Jeffrey Lynn Walker played three seasons in the NFL in the 1980s with the San Diego Chargers and the New Orleans Saints. Mr. Walker was an offensive lineman, so he was trying to make holes for the offense. After his football career ended, he became a businessman.

Let’s fast forward twenty years. Mr. Walker purportedly became involved with a resort in China. He solicited funds from investors. Somehow, those funds went from a bank in Las Vegas to a bank in Mississippi to his own bank account and were used for buying personal items like a Hummer. The funds didn’t make it toward the Chinese resort.

The money did not go toward paying the Internal Revenue Service. That’s a problem because all income is taxable, even illegal income.

Mr. Walker pleaded guilty to wire fraud and tax evasion charges. He could face up to 23 years at ClubFed and a large fine.

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Bad News for Medical Marijuana

Posted on October 7, 2011 by Russ

Yesterday the Associated Press reported that US Attorneys in California have sent letters ordering medical marijuana dispensaries to close. The problem is that while medical marijuana use in California is legal under state law, marijuana remains illegal under federal law.

Adding to the trouble is the results of an audit of a medical marijuana dispensary called Harborside in San Francisco. I’ve reported on the case before (most recently in March). It appears that Harborside received the results of its audit of 2007 and 2008 at the hands of the IRS: Send us $2.4 million and, oh yes, we’re auditing 2009 and 2010, too.

Under tax law, anyone who sells a Class I controlled substance cannot deduct business expenses. Effectively, you have a gross receipts income tax. And the law is on the IRS’s side here.

Harborside is appealing the results of the audit, and that appeal will likely not be heard until the end of this year or early next year. I expect the appeal to lose and the case to eventually go to Tax Court. Unfortunately for proponents of medical marijuana, the law is on the side of the IRS as are precedents.

Of course, one must wonder about the Obama Administration here. This is the same administration that publicly pronounced in its first year in office that they would not go after medical marijuana. Yeah, right.

Hat Tip: Taxdood

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Four Weeks of Freedom Could Cost Ten Years at ClubFed

Posted on October 3, 2011 by Russ

I’ve reported on Tony and Micaela Dutson before. The couple, who were nominated for my prestigious Tax Offender of the Year award (but did not win in 2010), apparently wanted to try again in 2011. Back In June 2010 I reported on their convictions for tax evasion. Well, the Dutsons apparently didn’t like it when their crimes were called, “the epitome of disrespect of the law.” So they decided not to report to the Bureau of Prisons after sentencing; they were supposed to report on May 23rd of this year. Each of them removed the electronic monitoring devices that they wore.

The couple then fled from Elgin, Oregon to Phoenix. It only took a few weeks for the Marshals to pick them up.

They were found guilty this past week of failing to surrender to serve their original sentences. They’re truly most recent Bozo behavior could add ten additional years to their original ten-year sentence.

I hope those four weeks in Phoenix are worth the potential ten additional years at ClubFed.

Posted in Tax Evasion | Tagged | 2 Comments

It Turns Out They Weren’t Brothers from Another Planet

Posted on October 3, 2011 by Russ

It may be the High Holy Days for Jews around the world, but it appears that every day is a holy day for the Office of the Patriarch of the Gathering of the House of Israel. You never heard of that sect before? Strange, neither had I. But two Texans may be ruing the day they decided to invent it.

Timothy Patton and his wife Dawn didn’t like the federal income tax. (They’re Texans, so they missed out on state income tax.) They told their employer (a) they were single, and (b) they were exempt from income tax, and (c) to make their checks out to that sect. The Employer Identification of the sect was invalid, of course. Beginning in 2000, they stopped filing tax returns.

They were tried back in July and found guilty. During the trial they also insisted they be called “Brother T” and “Mimi” and weren’t the people named in the indictment. They asked for a new trial, and then “specifically stated that they had not filed a motion for [a] new trial.” It appears the rest of their motions were specious, and/or frivolous.

Well, Brother T and Mimi were sentenced last week: Timothy received 40 months at ClubFed and his wife got 36 months. They also must make restitution of $571,734.

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News Report: Full Tilt Sold

Posted on September 30, 2011 by Russ

PokerFuse is reporting that Full Tilt Poker has been sold to Group Bernard Tapie. The deal is conditional on factors including a favorable resolution with the US Department of Justice. PokerFuse reports that the deal calls for repayment of all players…eventually.

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Draft Instructions Released for Son of FBAR; Gambling Accounts Will Not be Reportable

Posted on September 30, 2011 by Russ

The draft instructions for the new Son of FBAR (Form 8938) were released today. (Here is a link to my discussion of the form itself.) Here are some highlights from a first skimming of the instructions:

  • For unmarried taxpayers living in the United States, the new form must be completed if you have either more than $50,000 in foreign financial accounts on the last day of your tax year (usually December 31st) or if you had more than $100,000 at any time during the tax year.  If you are married filing jointly, the amounts double (to $100,000/$200,000).
  • For unmarried taxpayers living outside of the United States who are either bona fide residents of a foreign country(ies) or passes the Physical Presence Test (Form 2555, the Foreign Earned Income Exclusion), you must file the form if you have more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year.  If you are married filing jointly, the numbers increase to $400,000/$600,000.

As for the types of accounts and assets that are reportable:

  • Any financial account maintained by a foreign financial institution;
  • Other foreign financial assets, held for investment but not maintained by a financial institution, including stocks not issued by a US person, interests in foreign entities, and various financial instruments issued by non-US persons.
  • A foreign financial institution is a non-US financial institution that is a bank (or similar entity), hold financial assets for others, and is engaged in investing, holding partnership interests, or other financial roles.
  • Foreign mutual funds, foreign hedge funds, and foreign private equity funds are covered.
  • Online gambling accounts do not appear to be covered.

There is a transitional rule available for taxpayers who would have had to file this form in 2011 (generally, business entities filing on a fiscal year); they can file in 2012 without penalty.

The instructions are 11 pages long, and I don’t have time to delve into all of them at this point. Suffice to say that if you are covered by the new Son of FBAR, your tax return just became far more complicated and you will need to talk to your tax professional about this issue.

Posted in International, IRS | Tagged , | 2 Comments