Electronic Filing Now Available for FBAR

Posted on July 23, 2011 by Russ

The Financial Crimes Enforcement Network (FINCEN) announced this week that you can now file an FBAR (Form TD F 90-22.1) electronically.

Electronic filing of an FBAR is different than electronic filing for a tax return. You must complete an application, and download a special forms reader (used for transmitting the FBAR). Under FINCEN rules, tax professionals cannot file an FBAR on a client’s behalf.

And it appears that FINCEN is working on linking the FBAR to tax preparation software. Given the pace that government works, this is probably still at least a year away.

Note that you can still paper file your FBARs.

Hat Tip: Taxdood

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Liening the Wrong Way

Posted on July 19, 2011 by Russ

Liens are useful legal devices. They are rightly used when someone owes another party money, so that property or other collateral is attached. Of course, if there’s a right way there’s also a wrong way. Today, we’re going to look at the wrong way.

Imagine you’ve been accused by the US Department of Justice of conspiracy to defraud the IRS. Now, you and I would get the best legal advice we could, but different methods appeal to the Bozo mind. Mark D. Leitner was so accused, and his method could lead himself to an award. First, from today’s DOJ press release:

During that jury trial and after the jury returned the guilty verdict, Leitner publicly filed false maritime liens against the property of the prosecutors, investigators and court personnel involved in the criminal trial. The liens falsely claimed that Leitner was owed $48.489 billion from each individual. On five of the seven false liens, Leitner publicly disclosed individuals’ correct Social Security numbers and other personal identifying information. Leitner also filed and mailed numerous harassing and frivolous documents to the courts and personnel involved in this case.

Mr. Leitner received five years at ClubFed for the conspiracy charge (as noted in the press release, he was found guilty); he’s looking at up to 13 years on these charges — he pleaded guilty to them today. Needless to say, this was an incredibly bozo act. But he did show some chutzpah: At $48.489 billion a piece, he could have made some money if there was a way of collecting….

On the bright side, I am looking for candidates for the Tax Offender of the Year, and I now have at least one entry.

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No Records and Other Issues Lead to a “Pro” Being an Amateur

Posted on July 19, 2011 by Russ

The Tax Court had to decide whether or not another individual was a professional gambler. On his return, he included his gambling winnings on a Schedule C (like a professional gambler). But was he truly a professional or was he an amateur?

Among the items I stress to my clients, first and foremost is keeping good records. (This is true for amateur gamblers, too, of course.) Did the petitioner keep good records? Well, did he keep any records? I think you know where this is going.

There’s a nine-factor test used by the Tax Court (and other courts) in determining whether an individual is a professional or an amateur in any profession. The nine factors are:

  1. Manner in which the taxpayer carries out  the activity.
  2. The expertise of the taxpayer or his advisors.
  3. The time or effort expended by the taxpayer in carrying out the activity.
  4. Expectation that assets used in the activity may appreciate in value.
  5. The success of the taxpayer in carrying out other similar or dissimilar activities.
  6. The taxpayer’s history of income or losses with respect to the activity.
  7. The amount of occasional profits, if any, earned.
  8. The financial status of the taxpayer.
  9. Elements of personal pleasure or recreation.

Today’s petitioner didn’t lose on all the factors; one was held not to apply.  That said, first impressions are meaningful in these ‘hobby loss’ cases.  The petitioner presented no records at the trial.  There were some records from the casinos, but they were deemed unreliable by the Court.  Finally, the petitioner gambled at slot machines, and it’s highly unlikely that any court will find someone who gambles on slots is ever a professional as it’s next to impossible for a player to win against slot machines in the long-run.

The petitioner was ruled to be an amateur gambler.  Taxdood has more.

Case: Moore v. Commissioner, T.C. Memo. 2011-173

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Club Fed Is the Rule for Ja Rule

Posted on July 19, 2011 by Russ

Back in March I reported on rapper Jeffrey Atkins (aka Ja Rule). He decided that it was a good idea if his after tax income was the same as his before tax income. Given that the tax loss to the IRS was $1,137,912, that wasn’t a good idea.

Today, U.S. Magistrate Judge Patty Shwartz sentenced Mr. Atkins to 28 months (to be served with a state weapons count). “Taxpayers do not have the luxury of deciding whether to comply with laws,” Judge Shwartz noted. Well, they do have a choice but they have to face the consequences if they don’t. Mr. Atkins has agreed to make full restitution to the IRS.

Here’s another version of a classic:

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Illinois Increased Taxes But Is Still Broke

Posted on July 18, 2011 by Russ

You are insolvent when the money you owe (your liabilities) are more than the money you have (your assets). Illinois has been in desperate financial trouble for some time; this won’t be news to readers of this blog.

Earlier this year on a party-line vote Democrats forced through a major tax increase: corporate income tax went up from 4.8% to 7% and personal income tax went from 3% to 5%. So would increasing revenue end the problems for Illinois?

No. Illinois pensions remain underfunded in the billions. The optimistic forecast is $54 billion; the pessimistic forecast is $80 billion. I think we can all agree it’s a lot.

This past week Senator Mark Kirk (R-IL) asked Federal Reserve Chairman Ben Bernanke if the Fed was watching Illinois and California; Mr. Bernanke said they are being watched.

Meanwhile, President Obama is demanding higher taxes for a debt ceiling deal. I’ll be as blunt as I can: The cause of the problem is government spending; the solution is cutting government spending. If spending is not cut, there is no long-term solution.

Of course, we’re dealing with Washington, so we’ll see what happens. Since Democrats control Springfield (Illinois), they chose the tax increase route. So far, Illinois remains in deep trouble.

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I Hope You Enjoyed that $2.4 Million

Posted on July 18, 2011 by Russ

I’ve said this before, and I’m certain I’ll say it again: If you want to get in trouble with the IRS, the fastest way to do so is to not remit your federal employment taxes. These are called trust fund taxes, as employers remit money held in trust for the federal government. It’s the government’s money, and they want it.

That lesson has now been learned by Frank Bivings and his wife, Isabelle Blanco. The Washington D.C. residents own the Bivings Group, an Internet communications firm. With 30 employees (according to their web site), they certainly have employment taxes. However, the husband and wife felt that paying themselves larger salaries was more important than remitting those taxes. According to the Department of Justice, $1.8 million of the $2.4 million that wasn’t remitted were federal trust fund taxes. It’s probable the rest were local (District of Columbia) taxes, and that’s nearly as bad: The District is federal land.

Mr. Bivings pleaded guilty to one count of failing to pay employment taxes; Ms. Blanco pleaded guilty to one count of failure to pay a tax. Mr. Bivings’ charge is by far the more serious; he’s looking at a stay in ClubFed of 30 – 37 months. Ms. Blanco is likely to receive probation. The husband and wife have agreed to make restitution of the unpaid employment taxes.

I’ll repeat this again: Make sure that when you collect federal trust fund taxes that you remit them.

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New York $1.2 Million, Indians 0

Posted on July 18, 2011 by Russ

I may be a baseball fan, but this post has nothing to do with the Cleveland Indians. Rather, here’s the latest chapter in New York’s war against Indian tribes selling cigarettes. In June, a New York Appellate Court lifted an injunction that prevented New York from collecting cigarette taxes on cigarettes sold on Indian reservations in the Empire State. The Indian tribes vow an appeal, but unless this ruling is reversed, Indian tribes must collect tax on cigarettes imported onto their reservations.

So the tribes plan on emphasizing their own manufactured cigarettes. Because those are made on Indian lands, they are exempt from New York sales tax.

Meanwhile, New York has begun seizing tobacco products heading to Indian reservations that lack appropriate tax stamps. The total value of tobacco products seized was $1.2 million; this would have resulted in just under $300,000 of tobacco taxes collected by New York.

I doubt we’ve heard the last of this battle.

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IRS Philadelpia Service Center Has Moved

Posted on July 14, 2011 by Russ

In a phone call today with the Taxpayer Advocate in Philadelphia, I learned that the IRS Service Center in Philadelphia moved, with the final personnel moving into the “new” office in January. The new address is:

Internal Revenue Service
2970 Market St.
Philadelphia, PA 19104

Note that this address should be used only for overnight delivery, courier service, etc.; all other mail to the Philadelphia Service Center should go to the normal address (typically specified in the communication from the IRS).

The Philadelphia Service Center does not process returns; however, they do handle numerous “back-office” tasks including correspondence audits, international adjustments, and many others.

Posted in IRS | 2 Comments

Only in California: $440.5 Million in Extra Revenue Is $350 Million Short

Posted on July 13, 2011 by Russ

Here in the Bronze Golden State, the state income numbers for June have just come in. Collections came in better than forecast by $440.5 Million. That seems good, but it’s not quite good enough to meet California’s budget. That budget projected that revenues would exceed the projection by $790.5 Million, so California’s golden revenues in June now look like pyrite.

The problem for California is, there really is no driver for continued revenue growth. The new Amazon Tax will lead to less revenues in future months (it won’t be a huge loss, but it will be a loss) rather than the $200 Million increase that was written into the budget. Unemployment is increasing, and California businesses continue to face regulatory hell. I’m not seeing any improvement in the national economy.

California policymakers are hoping, of course, that I’m wrong. But for business to expand there must be reasons to do so. The administration in Washington is giving no one a reason to expand. Sacramento is following suit. Unless something drastic changes, California is looking at another year of malaise.

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Two Baltimore Bail Bondsmen Found Taxes to be the Least of Their Problems

Posted on July 11, 2011 by Russ

Many businesses require licenses. In Maryland, you need a license to be a bail bondsmen (I suspect you do in most states). One of the rules in Maryland is that you can’t be a convicted felon if you’re a bail bondsmen.

Milton Tillman Jr. and his son, Milton Tillman III, had a problem. The elder Tillman had a felony conviction, and they were the owners of Four Aces Bail Bonds in Baltimore. The business was doing quite well, but the elder Tillman couldn’t legally run the business. Now, you and I probably would have never gone into the business given that issue. Alternatively, we’d sell the business so that we could be in compliance with the law.

The Tillmans decided that one felony deserved another: They decided not to pay income tax on their business. With the business being profitable, that’s another problem…especially when you owe the IRS somewhere between $400,000 and $1 million. Things only got worse when the government listened in on a conversation where the father described how he was going to hide his running of the business, and how he would transfer money out of the business.

Oops.

Both Tillmans pleaded guilty earlier this year. The elder Tillman pleaded guilty to three counts (filing a false tax return, wire fraud, and working as a bail bondsman as a felon); the younger Tillman faced solely a tax charge and will be able to remain in the bail bond business. The elder Tillman will enjoy 51 months at ClubFed. Both Tillmans will need to make restitution to the IRS of the tax due to the government.

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