The Supreme Court denied Wesley Snipes’ appeal today. Wesley Snipes will likely remain in prison until 2013 on his failure to file tax return charges.
The Supreme Court rarely hears tax charges, and there really wasn’t either some novel issue in his case or a split between different Appeals Courts that would have led to the Court hearing the case.
Colorado Governor John Hickenlooper signed a bill authorizing a tax amnesty in Colorado. The amnesty period will be from October 1st to November 15th. It applies to any tax debt owed as of December 31, 2010. Additionally, if the Colorado Department of Revenue has begun collection activities on the tax, that tax is ineligible for the amnesty.
Further details will likely be released the Colorado Department of Revenue as the amnesty period approaches.
Yes, illegal income is just as taxable as legal income. If you embezzle funds you have to report that income as “Other Income” on line 21 of Form 1040. Eugene Ceriello discovered this reality.
Mr. Ceriello ran the back-office operation of a service station in Stamford, Connecticut. Mr. Cierello diverted cash payments from the service station’s account to his own bank account. An audit discovered that funds were missing, and the investigation eventually went to the IRS Criminal Investigation Unit. With $191,000 in cash deposited in his bank account in 2008 but just $52,500 declared on his tax return, the IRS had a pretty open and shut case. The total amount embezzled is apparently $638,000 from 2005 – 2008.
Mr. Cierello pleaded guilty today to tax evasion on the embezzled funds. He is required to pay the back taxes, interest, and penalties, and will also likely need to make restitution to the owner of the service station.
Every so often I report on a frivolous case at the Tax Court. You know, the people who claim that only income earned outside of the US is subject to tax, or that I’m a citizen of California, not the United States, etc. Here’s my helpful hint: Don’t try this at home.
In the years I’ve been writing this blog (six and counting), I can’t recall a full decision of the Tax Court on a frivolous case…until now. Yesterday, the Tax Court looked at Scott Wnuck. At his trial in Columbia, South Carolina, he was hit with a $1,000 penalty for bringing a frivolous case. Mr. Wnuck asked the Court to reconsider, with the grounds being that the Court had not adequately addressed his
arguments. Mr. Wnuck got his wish: The Tax Court did reconsider his case.
Of course, sometimes you have to be careful of what you ask for: The penalty for bringing a frivolous matter to the Tax Court was increased to $5,000. Joe Kristan has more.
Ah, the acronym. In the world of tax preparation there are Enrolled Agents (EAs), Certified Public Accountants (CPAs), Attorneys (the acronym fails me here), and the new Registered Tax Return Preparers (RTRPs).
The IRS regulates tax professionals who practice before the IRS under Circular 230. This mostly involves EAs, CPAs, and attorneys: These groups have full practice rights before the IRS. I’m an Enrolled Agent; I can represent you in any stage of the process from return preparation to appeals.
You will notice that there’s a group that’s missing: the unlicensed tax preparer. The IRS believes that many of these individuals have been doing a poor job; IRS Commissioner Shulman has wanted to expand IRS regulation to cover all tax professionals. (Currently, licenses are required for all tax preparers solely in California and Oregon.)
Last fall a draft of the new Circular 230 was released. Today, the final version was released. (The new regulations do not appear to be available on the IRS website yet. However, you can find them here.)
Here are some highlights:
What does this mean for the public? Beginning in 2013, everyone who legitimately prepares tax returns for a fee will be licensed. Will this get rid of all the bad apples? Of course not. Today, there are CPAs, EAs, and attorneys who get disbarred. This will get rid of the low-hanging fruit, but there will still be individuals who buy a copy of TurboTax and prepare returns for money and just don’t sign the returns. If such returns are paper filed, it’s difficult (if not impossible) to catch those individuals.
I have been neutral on Commissioner Shulman’s power grab (as Joe Kristan has called it). Licensing should do some good but it will expand a bureaucracy (which I don’t like). The one issue within the new Circular 230 I am very pleased about is the elimination of the requirement that every class offered by a continuing education provider had to be pre-approved. That proposal would not have worked and was likely unconstitutional.
The new Circular 230 goes into effect 60 days following its publication in the Federal Register. That likely makes the implementation date around September 1st.
It’s been a while since I’ve reported on the California budget situation, but it seem apropos given that June is right around the corner and with it the constitutional deadline for California to have a balanced budget. Democratic Governor Jerry Brown would really, really like to have four Republican votes to increase taxes; however, all he has found is “no.”
With last year’s change in the California state constitution, a budget only requires a majority vote so Democrats can pass whatever they want…except tax increases. On July 1st, the temporary hike to California’s sales tax (1%) and the income tax (0.25%) expire. Republicans have stated since Brown was elected that they would not vote for any tax increases, and they’ve kept their word.
California’s budget situation isn’t as dire as it was earlier this year. April tax revenues to the state came in $6 billion higher than projected, so the state is currently facing a budget deficit somewhere between $9 and $16 billion. What’s truly needed (massive cutting of the statue bureaucracy and regulations) won’t happen–indeed, Governor Brown signed a new contract with the prison guard’s unions that will, in the long-term, just aggravate the state’s problem–so we’re left with what will probably be more phony measures and budgetary gimmicks (even though Governor Brown pledged that there would be none of these).
As for the budget, we’ll have to see; but as for tax increases, it’s very clear. They’re not going to be happening, and plans need to be made for other methods of handling the situation.
Back in 2007, I wrote this post regarding staking and the World Series of Poker. Generally, nothing has changed. Caesar’s (formerly Harrah’s) still runs the WSOP and still refuses to obey IRS rules regarding Form 5754. That means that a US player must collect Form W-9 from his American backers.
However, three new scenarios have been presented to me recently. What happens if an American is backed by an individual from a Tax Treaty country (such as Russia)? Under the US-Russia Tax Treaty, the gambling income of a Russian is not subject to US taxation. Second, what happens if an American is backed by an individual from a non-Tax Treaty country (such as Australia) or from Canada (the US-Canada Tax Treaty mandates withholding)? Finally, what happens if someone from a non-Tax Treaty country or Canada is backed by an American?
For all three scenarios, let’s assume I’m entering the main event of the WSOP (the buy-in is $10,000); my backer is paying $5,000 and is receiving 50% of my winnings. I place in the event and win $20,000, so my backer is owed $10,000 (all numbers before withholding).
Scenario #1: US Player Backed by an Individual from a Tax Treaty Country.
Let’s assume I’m playing and am backed by Ivan from Russia. I receive a W-2G for $10,000 (my net winnings). It would seem all I have to do is just pay Ivan his $10,000 share of my gross profit, right?
Wrong.
Even though Ivan is from a Tax Treaty country, paperwork is required or tax must be withheld. Ivan needs to provide you either a Form W-8BEN or a Form W-8ECI. The Form W-8BEN is used to note the benefits of a Tax Treaty. Ivan would complete the form, including his ITIN and note the Article of the Tax Treaty that specifies that there would be no withholding. As long as you receive the completed Form W-8BEN you can then pay Ivan his share. If you pay by cash or casino chips, make sure you get a signed receipt from Ivan acknowledging his receipt of the money.
What if Ivan doesn’t have an ITIN? Then you must withhold at 30% even though he’s exempt from withholding. You would need to complete Form 1042-S and depending on the amount withheld very quickly remit that money using EFTPS to the IRS. (EFTPS is now the only method available for making withholding deposits to the IRS.) Ivan can get the money back by filing a Form 1040NR following year-end.
If Ivan has a business operating in the US, he would provide Form W-8ECI with either his Employer Identification Number (EIN) or his ITIN. This will allow you not to withhold to Ivan.
Note: Even if no withholding is required a Form 1042-S must be submitted to the IRS. See this post.
We can see that even the easy scenario isn’t necessarily that easy.
Scenario #2: US Player Backed by an Individual from a Non-Tax Treaty Country
This case is relatively straightforward. Let’s say your backer is Jon from Canada or Australia. (Although Canadians can get some to all of their money back by filing Form 1040NR after year-end, you are required to withhold on their income per the US-Canada Tax Treaty.) You must withhold 30% of their winnings. You would pay him all of his $5,000 investment and 70% of his $5,000 winnings ($3,500) for a total of $8,500. You would complete Form 1042-S with his information and note that $1,500 of his $5,000 of income has been withheld. Depending on the amount withheld, there can be very quick deadlines for remitting that withholding to the IRS; that withheld funds must be remitted using EFTPS.
Scenario #3: Non Tax-Treaty Player Backed by an Individual from the US
This is the ugly scenario. Suppose Jon is backed by Russ from the US. Russ isn’t subject to any withholding on his money (he’s a US citizen, after all) and is more than willing to provide a completed Form W-9. Unfortunately, because Caesar’s will not issue multiple W-2Gs/Form 1042-S’s, all of the $10,000 Jon wins will be subject to withholding. So Jon will receive $17,000 (his $10,000 entry plus $7,000 of his $10,000 in winnings).
Jon is left with two bad options. He could pay Russ $3,500 (half of the amount he has won). Russ will rightly be annoyed as he should receive $5,000. Jon has no way of telling the IRS that $1,500 of his tax withheld is for Russ [See Note 1 below].
Alternatively, Jon can pay Russ $5,000 and now he only has $2,000 of his winnings (rather than the $3,500 he should have). That method probably doesn’t appeal to Jon at all.
Unfortunately, neither option is palatable to both individuals and these are the only two options available. There is a solution: Americans should not back individuals from non-Tax Treaty countries. (The better solution, Caesar’s issuing multiple W-2Gs/1042-S’s, will have to wait until the IRS goes after Caesar’s on their policy.)
There are some other things that need to be pointed out. The participant will likely have to issue 1099-MISC’s or 1042-S’s to individuals. You probably don’t want everyone to know your social security number. If you’re a professional gambler, there’s a solution: Apply for an EIN. You can do this at no charge online at the IRS website. You must have an EIN if you are going to have to withhold funds.
Next, if there’s a possibility you are going to be a withholding agent, you must have both an EIN and an EFTPS account. After you get the EIN, immediately enroll in EFTPS. Your passwords are mailed to you; this takes about 10-14 days from the date you enroll, so get this going now if you are going to be playing in the 2011 WSOP and this applies to you.
Third, you can give Caesar’s a piece of your mind (nicely, though) and let them know about the ridiculousness of their policy. That’s especially true if you’re from Australia and you would like to be backed by an American (or someone from a country with a favorable Tax Treaty with the US).
The only good news with all of this is that I don’t see me being unemployed any time soon….
[Note 1]: It is likely the IRS would reject a Form 1040NR filed by Jon noting his extra withholding. The IRS won’t understand the issue given that there is no tax treaty issue (say, Jon is from Australia) and say, “Take it up with Caesar’s.” It’s a classic Catch-22.
This post has nothing to do with taxes, but everything to do with customer mis-service. You’re forewarned.
On Tuesday, May 10th, I logged on to my blog and attempted to write a post. I was unable to save the post — the “Publish” button didn’t appear. I couldn’t figure out a reason, so I called technical support. They didn’t know of anything (it was clearly a call to India), but did let me know that my hosting company, 1&1 Internet, had done an upgrade. They suggested it might be a billing issue.
So I called billing, and discovered that the problem was that I had exceeded my space limitation. I was guilty as charged, but when I went with 1&1 (after my then hosting company announced they were going out of business) I was told that I could upgrade my space quickly. So I told the individual I spoke with I was more than willing to do that.
Before we get into the adventure that’s about to follow, I need to point out that I had exceeded my space limitation for several months. However, 1&1 never told me or I would have immediately taken care of it.
In any case, I was transferred back to India, where the helpful tech person put through the order to increase my space allocation. I was told that the order would take 24-36 hours to process, and then the blog would need to be transferred (they’d walk me through that on the phone).
On Thursday, the order still hadn’t processed. I called technical support and they admitted that the order had failed due to a problem on their end. The tech support person I spoke with told me that they had “escalated the problem so that it would be resolved.” I should hear back within 24 hours.
Well, I didn’t hear anything, so I called back on Monday, May 16th. I asked what the status was, and I was told that nothing had been done; that there was still a problem on their end. I asked to speak with a supervisor, and I was told the supervisor was unavailable. I told the individual I spoke with (again, from India) that I needed this problem resolved, and I expected to be contacted by a supervisor by the end of the day. He said he’d pass on what I said.
I never heard back from anyone at 1&1.
My partner, who is far more tech savvy than I am, took the lead in finding a new hosting company (we began looking on Tuesday, May 17th). On Wednesday, May 18th we signed up with them; on Thursday, May 19th, we began the process of moving the blog. With the aid of Brian Cribb (who has helped me in the past with WordPress issues), we moved the blog by yesterday. We then updated the dns servers and tonight everything is back to normal (other than the two weeks off).
As for 1&1, I shouldn’t say I haven’t received anything from them as that’s not completely accurate. I have received two emails. The first even had the name of their General Manager, Frederick Iwans, listed at the bottom. Mr. Iwans wished me “best regards” as I could win $25,000 by telling 1&1 in 300 words or less where .com will take my business. Here’s my entry:
With 1&1 Internet, https://taxabletalk.com would be taken out of business.
I suspect I won’t be winning one of the prizes.
Today 1&1 noticed that we’ve moved taxabletalk.com off their servers. They note that I can contact their support team for assistance. Hmmm, I think waiting for Godot might have a better chance.
If you can see this post, you’re seeing Taxable Talk hosted by my new hosting company. New posts are coming tomorrow (Thursday), along with a rather scathing review of a certain hosting company. That post could be titled, “Indian Customer Service Unserves You.” It’s also very apparent to me that they don’t care.
Anyway, all is almost back to normal, and tomorrow is just a day away.
