The Shipment of California Jobs to Texas — What can be Done?

Posted on August 29, 2011 by Russ

Back in April, Herman Bouma, an attorney with Buchanan Ingersoll & Rooney PC in Washington, DC, penned this prediction:

May 2, 2011. This just in: Concerned about the shipment of California jobs to Texas, the California State Legislature today passed legislation imposing current, worldwide income taxation on every corporate group headed by a California corporation, thus subjecting such a group to current taxation on its income earned worldwide, including in Texas. The Governor indicated he will sign the legislation, stating, “It is high time we repeal the tax breaks and loopholes for shipping California jobs to Texas.”

May 2, 2016. This just in: Recently released statistics indicate that the number of corporate groups headed by California corporations has dropped precipitously over the last five years. The statistics also indicate that those California-headed corporate groups still remaining are having a difficult time competing with other corporate groups. Members of the California State Legislature expressed surprise at the findings.

May 2, 2017. This just in: Dazed but undaunted, the California State Legislature today passed legislation imposing current, worldwide taxation on every corporation in the world and instructing the Governor to take over the world in order to ensure compliance. The Governor indicated he will sign the legislation and expressed every confidence in the ability of the California Highway Patrol to carry out its new mission.

This is, of course, false…except that as Phil Hodgen noted, its true about trusts.

Let’s say there exists a trust. The assets are outside of California. All of the beneficiaries live outside of California and have never traveled to California in their lives. The only connection with California is that the trustee is based here.

Result 1: California says the trust must pay California income tax on its income. (Consequently, the beneficiaries end up paying the California income tax even though they don’t live here). This is seen as completely logical in Sacramento–as immutable as the Law of Gravity.

Result 2: California banks and trust companies cannot compete for this business. Instead they open trust companies in Nevada and Delaware. (Consequently, banking and trust company jobs are created in Nevada and Delaware). This produces utter bewilderment in Sacramento.

It’s also true about business entities which are registered to do business in California, especially LLCs. Assume Acme LLC is a Delaware LLC; its managing member, Joe Smith, is a California resident but none of the business of the LLC is conducted in California. All of the business is conducted in Delaware (there are no California employees, offices, or any other ties that would give nexus to California). Tough; just having the managing member be a Californian is enough to give nexus to California for the LLC.

California also passed the “economic nexus” bill last year. Under this law, if 25% of an entity’s sales are to California, there is economic nexus to California and an entity is supposed to file a California tax return even if it has no employees, plant, or materials in California. (Good luck on enforcing this, or on the constitutionality of it, but the law is on the books.)

Mr. Bouma’s prediction was meant in jest about the way California has gone. The trouble is, some of his prediction is already true.

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IRS Extends Offshore Voluntary Disclosure Deadline

Posted on August 26, 2011 by Russ

The IRS announced an extension of the deadline for participating in the 2011 Offshore Voluntary Disclosure Initiative due to potential issues from Hurricane Irene:

Due to the potential impact of Hurricane Irene, the IRS has extended the due date for offshore voluntary disclosure initiative requests until September 9, 2011. For those taxpayers who have not yet submitted their request and any documents, the following actions are necessary by September 9, 2011:

Identifying information must be submitted to the Criminal Investigation office. This includes name, address, date of birth, and social security number and as much of the other information requested in the Offshore Voluntary Disclosures Letter as possible. This information must be sent to:

Offshore Voluntary Disclosure Coordinator
600 Arch Street, Room 6404
Philadelphia, PA 19106.

Send a request for a 90-day extension for submitting the complete voluntary disclosure package of information to the Austin campus. This request must be sent to:

Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: 2011 Offshore Voluntary Disclosure Initiative

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Today Is the Day to Prepare (Hurricane Irene)

Posted on August 25, 2011 by Russ

If you are a resident of New Jersey, New York City/Westchester County/Long Island, Connecticut, Rhode Island, or Massachusetts, you need to drop what you’re doing and get prepared for Hurricane Irene. Now.

Maybe we’ll get lucky and Hurricane Irene will veer out to sea. However, the current forecast track map puts Irene directly over the New York metropolitan area on Sunday. Unfortunately, there is no reason to think that Irene will veer away; the recent forecast maps have moved Irene toward the west rather than the east.

Hurricanes don’t strike New York City often, and I suspect residents of the Big Apple think this might be just another storm. The effects, though, of a direct hurricane strike might be truly horrifying: Flooding the subway system for weeks to months, devastation along the Long Island shore, flooding in lower Manhattan, millions without power, etc.

If you reside in a low-lying flood-prone area in the Northeast threatened by Irene, consider taking action today. The moment that government authorities announce possible evacuations, people will panic. Buy your supplies now. The National Hurricane Center has links to preparedness guides.

Again, I am hopeful I’ll be looked at in a week as a fear-monger. I just remember the last time I saw such a map, and the disaster that occurred (Katrina). I also remember a saying from my mother: Better safe than sorry.

Edit:
Some Resources:
National Hurricane Center (Irene Home Page)
Dr. Jeff Masters’ Blog
Ryan Maue’s Twitter Feed
Brendan Loy’s Blog

And, most importantly, your local office of emergency preparedness.

Hopefully, my writing this post is much ado about nothing. I just don’t like what I’m seeing on the maps.

Posted in Connecticut, Massachusetts, New Jersey, New York, Rhode Island | Comments Off on Today Is the Day to Prepare (Hurricane Irene)

Shake, Rattle, and Irene

Posted on August 24, 2011 by Russ

I live in earthquake country. The notorious San Andreas Fault is about 55 miles away (it runs just to the north and east of San Bernardino); the Newport-Inglewood Fault (which caused the 1933 Long Beach Earthquake) is just ten miles from my house. Scientists think a major quake on the San Andreas Fault will likely come sooner rather than later (the southern-most section has not had a major earthquake in 300 years, and is thought to be far overdue).

But not just Southern California faces natural hazards. Earthquakes can occur in the Midwest (the New Madrid Faultzone), the South (Charleston, SC), and Virginia. That’s not to mention tornadoes and hurricanes.

With Hurricane Irene threatening the East Coast now is a good time to remember some tips for disaster planning. Have a disaster kit, have a plan, including an out-of-area contact (I know the importance of this from living through the Northridge Earthquake), and make sure you backup and store in a secure place your computer data.

For those living in earthquake country, consider earthquake insurance. In California, you must purchase this from the California Earthquake Authority (either directly or indirectly). If you live in an area that can flood, consider flood insurance. Make sure your homeowners/renters insurance coverage is up to date, too.

While there are casualty loss deductions available after the fact, its better to be prepared. Natural disasters will happen, and in this case an ounce of prevention is worth far more than a pound of cure.

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Revenue Canada Says “Just Say No” to the IRS

Posted on August 24, 2011 by Russ

Last Sunday I linked to two well-written articles by Don Cayo of the Vancouver Sun. One question that has interested individuals residing in Canada who are impacted by FBAR (Form TD F 90-22.1) is whether the Canadian tax authorities would collect penalties on behalf of the IRS.

Mr. Cayo corresponded with Revenue Canada (the Canadian equivalent of the IRS) and got the answer: No. You can read his correspondence here, but it boils down to CRA noting that the FBAR provision is not included in the US-Canada Tax Treaty. Additionally, CRA says they will not collect taxes for the IRS for an individual who is a Canadian citizen at the time the liability arose.

This will have even more meaning in the years to come as Congress is forcing foreign banks to collect information on Americans (beginning in 2013). I expect to see significant pushback, and it will be interesting to see how that plays out.

Hat Tip: Phil Hodgen

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A Question of Wirth

Posted on August 22, 2011 by Russ

Jeffrey Wirth was the sole owner of the Wirth Companies, a Minnesota commercial real estate company. Mr. Wirth developed numerous trophy properties in the Twin Cities, including the Grand Hotel in Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark in Bloomington.

The problem is, according to the IRS and the US Attorney’s Office, Mr. Wirth began building a mansion on one of Minnesota’s 10,000 lakes (an island on Lake Minnetonka). There’s nothing wrong with a successful businessman building a mansion, of course. However, there is a major problem with paying for personal expenses (such as a mansion) out of your business and not reporting it on either a corporate or individual return. And that, along with paying personal expenses out of his business, is one of the charges against Mr. Wirth.

Additionally, Mr. Wirth and his ex-wife, Holly Damiani, are accused of understating their wages.

From the indictment: From 2002 through 2006, while they actively managed the business and received substantial distributions from [The Wirth Companies], Wirth and Damiani each claimed wages of $12,000 per year or less…As a result of the understatement of wages reported on their Forms W-2, on the TWC income tax returns, and on the income tax returns for Wirth and Damiani, the amounts of employment taxes paid by TWC, Wirth, and Damiani were far less than should have been paid.

I suspect that the Wirth Companies were organized as an S-Corporation, and this charge in the indictment relates to not paying a reasonable salary. The understatement of wages is part of a conspiracy charge against the defendants (which also include Michael Murry, the tax preparer for Mr. Wirth and TWC). Mr. Wirth also allegedly filed false corporate tax returns for 2004 and 2005.

The three individuals face one count of conspiracy to defraud the United States. Mr. Wirth was charged with two additional counts of filing a false individual tax return and two counts of filing a false corporate tax return. Ms. Damiani was charged with two counts of filing a false individual tax return. Mr. Murry was charged with two counts of procuring a false individual tax return and two counts of filing a false corporate tax return.

Speaking of Mr. Wirth’s mansion, it’s for sale. The home has four bedrooms, six bathrooms, a 15-car garage with a total of 18,000 square feet, and is the largest in the Minneapolis suburb of Greenwood. It is, though a fixer-upper: It’s unfinished.

Posted in Minnesota, Tax Evasion | 1 Comment

Catching Minnows Instead of Whales

Posted on August 22, 2011 by Russ

I like Joe Kristan’s terminology for the IRS’ efforts going after anyone who hasn’t filed an FBAR…even if they don’t really owe any additional tax: Using a shotgun to get jaywalkers. Of course, that’s all part of the kindler, gentler IRS….

Well, the FBAR and current Offshore Voluntary Disclosure program are getting attention north of the border. Don Cayo of the Vancouver Sun has written two excellent article on the situation: “Americans living in Canada risk facing massive tax penalties” and Ordinary citizens or big banks: the IRS threatens them all.

Posted in International | Tagged , | 1 Comment

You Didn’t Hear About the Woman Who Gave Birth to Nondecuplets?

Posted on August 22, 2011 by Russ

Well, back in December of 2002 a woman named Norma Coronel allegedly gave birth to nineteen children. I never heard of this, and with the birth supposedly happening in nearby Los Angeles, I’m certain that a woman giving birth to 19 children would have made the news. (Yes, nondecuplets would be having 19 children at once.)

Ms. Coronel allegedly put down all 19 of her “children” on her tax return. The IRS was skeptical. Perhaps it’s the fact that the largest number of live births at once (with all the children surviving) is eight. Perhaps it was the 18 supposedly phony social security numbers. (Ms. Coronel did give birth to a son in December of 2002.)

No matter, the IRS and Social Security Administration investigated, and Ms. Coronel has been arrested and charged with 35 counts of filing false tax returns, using Social Security numbers fraudulently, and theft. She faces a maximum of 143 years in prison and fines of up to $5.6 million.

This is perhaps one of the most Bozo tax fraud cases I’ve ever read.

Posted in Tax Fraud | 1 Comment

There’s Good and Bad Creativity

Posted on August 22, 2011 by Russ

There’s being aggressive, and there’s being stupid. A. Blair Stover was the latter. As the 8th Circuit Court of Appeals noted,

[The IRS]…found that even the most conservative estimate of the tax loss to the government caused by Stover’s schemes was $100 million, and potentially as high as $800 million. Agent Janice Mallon testified that a “reasonable estimation” of the government’s tax loss was $300 million. Apart from those costs, most of Stover’s clients had to pay other professionals to “undo” the structures Stover promoted, organized, and sold. Many had to pay penalties to the government.

Joe Kristan has more.

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Just Make a Check Out to “Bureau of Public Debt”

Posted on August 16, 2011 by Russ

Warren Buffet penned an op-ed piece where he said the wealthy should pay more tax. The Tax Foundation, imho, opinion gets it right where Mr. Buffet gets it wrong.

Rather than repeat what the Tax Foundation wrote, I’d like to emphasize that if there comes a point where my earning more gross revenue will not cause me to make significantly more net revenue, I won’t earn more gross revenue. Back in the 1930s – 1950s, the top marginal tax rate was at least 70% (and that’s before state income tax). If I got to that level, I would turn away business: Why work for more revenue when I wouldn’t get to keep it?

And the final point that I’d like to emphasize is that nothing prevents Mr. Buffet (or anyone else) from sending more money to the federal government. You can send a check to the “Bureau of Public Debt” or pay online.

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