The Giants Face the Taxman

Posted on March 7, 2011 by Russ

Football season is over, but the New York Giants are still in a fight. The Giants faced off against East Rutherford, New Jersey in state tax court last week.

The battle is over whether or not the Giants should pay property tax on their practice facility, the Timex Performance Center. According to this story on NorthJersey.com, the issue resolves around the legislation that created the Meadowlands 40 years ago.

Back then, the suspension of property taxes attracted the New York Giants (who used to play at Yankee Stadium in the Bronx, New York) to cross the Hudson River and play in East Rutherford, New Jersey. Now the question is whether or not the law absolves the Giants from paying property tax on ancillary facilities. The news story also notes that it’s possible the Giants could, if the Court rules against them, be forced to pay property taxes on their $1.6 billion replacement to the original Giants Stadium.

In any event, states and localities use taxes to attract businesses. This usually leads to predictable shenanigans, such as the Iowa film credit fiasco. Of course, some states do this in reverse, raising their taxes so that business figure out that the grass is greener on the other side of the fence.

As for the Giants, a loss in state tax court would likely be a loss for their fans as that additional cost would undoubtedly be passed on to their customers in the form of higher ticket prices.

Posted in New Jersey, Property Taxes | Tagged | Comments Off on The Giants Face the Taxman

Wesley Snipes Petitions the Supreme Court

Posted on March 7, 2011 by Russ

Wesley Snipes has submitted his petition for writ of certiorari to the US Supreme Court. Mr. Snipes would like to have his conviction reversed. As best as I can determine, Mr. Snipes is arguing that the case shouldn’t have been heard in Ocala, Florida. I guess I was wrong when I wrote a couple of years ago that Mr. Snipes was happy with the jury in Ocala.

In any case, the Supreme Court doesn’t hear many tax cases and it’s very unlikely they’ll elect to take up Mr. Snipes’ appeal.

Posted in Tax Evasion | Tagged | Comments Off on Wesley Snipes Petitions the Supreme Court

IRS Publishes Annual List of Frivolous Tax Arguments

Posted on March 7, 2011 by Russ

As many times as I say don’t submit a frivolous tax argument to the IRS, some Bozo will do so. For those Bozos who want to try something new, the IRS has kindly published its list of frivolous tax arguments that have already been used.

The IRS included only 72 pages of frivolous arguments. I’m sure the Bozos out there can come up with some new ones so that the IRS’ list next year will reach 77 or maybe even 80 pages!

Seriously, it’s a whole lot easier to just pay your taxes. There is an income tax and frivolous arguments don’t work.

Posted in IRS | Tagged | Comments Off on IRS Publishes Annual List of Frivolous Tax Arguments

Time Was On His Side

Posted on March 2, 2011 by Russ

Sometimes I have to be careful about jumping to conclusions. When I first looked at Charlton v. Commissioner I expected the taxpayer to lose. It wasn’t hard to jump to that conclusion when I read,

Throughout his career, Jeffrey pursued a myriad of income producing opportunities. His desire to earn large amounts of income with minimal effort led him to become involved with Amway, Herbalife, and numerous other multilevel marketing businesses (MLM). These endeavors were unsuccessful.

Next, I read that the petitioner learned about Trusts that magically made income tax disappear. In a footnote, Judge Foley notes,

Representatives of ProTec routinely told potential clients that the Internal Revenue Service had verified that the ProTec plan complied with tax laws. In 2004, certain representatives of ProTec pleaded guilty to a charge of conspiracy to defraud the United States in connection with their activities related to the promotion and marketing of fraudulent trust schemes.

But the petitioner missed out on that entity (whew) as it went out of business before he could invest. Unfortunately, he discovered Aegis. I’ve reported on Aegis in the past; suffice to say many of the principals ended up at ClubFed. With their CPA they attended an Aegis presentation and, “…[they] left the Aegis seminar convinced that the Aegis system was a legitimate tax minimization and asset protection plan.”

From 2002 – 2003 the IRS attempted to obtain records, but the petitioner fought the IRS, even suing employees. Eventually, a District Court ordered the petitioner to comply with an IRS summons (which he did). Finally, in 2007, the IRS issued deficiency notices for tax years 1999 and 2000. The IRS alleged that the petitioner, his partnerships, and his trusts engaged in fraud, so the normal 3-year statute of limitations wouldn’t apply. (In cases of fraud, the tax can be assessed at any time.)

Unlike in most Tax Court cases, the burden of proof is on the IRS in a fraud case. “Respondent must establish by clear and convincing evidence that Jeffrey and Mary filed false or fraudulent returns with the intent to evade tax.”

Simply put, respondent has failed to meet his burden…To the contrary, Jeffrey did not intend to evade tax but wrongfully believed that the ProTec plan and the Aegis system were legitimate tax avoidance techniques. Indeed, Jeffrey, Timothy, and Mr. Moore [the CPA] all believed that the Aegis system was legitimate and that the returns were accurate.

Mr. Moore, respondent’s primary witness, provided convincing testimony regarding the perceived legitimacy of the techniques and accuracy of the returns. His testimony relating to his advice to Jeffrey and Timothy, however, was inconsistent, incoherent, and at times incomprehensible. Nevertheless, Jeffrey, through his credible testimony, established that Mr. Moore did not express any doubt regarding the legitimacy of the tax planning arrangements. In fact, Mr. Moore was so comfortable with the tax planning arrangements that, after preparing the domestic trusts’ returns relating to the years in issue, he became a trustee of Jeffrey’s domestic trust.

Luckily for the petitioner, there are cases where “reliance upon an accountant to prepare accurate returns may negate fraudulent intent if the accountant was supplied with all the information necessary to prepare the returns.” Mr. Moore may have been “imprudent,” but the petitioner supplied him with all of his records. They may have “believed in and acquiesced to an elaborate scheme designed by con artists,” but the petitioner didn’t intend to commit fraud. Thus, the IRS is time-barred from redress.

Still, this case is a reminder that if it sounds too good to be true, it probably is. There is no magical trust that makes the income tax disappear.

Case: Charlton v. Commissioner, T.C. Memo 2011-51

Posted in Scams, Tax Court | Tagged | Comments Off on Time Was On His Side

Spending More Than You Have Doesn’t Work

Posted on February 28, 2011 by Russ

If you make $100,000, but you’re spending $200,000, you’re either going to use up your savings or go bankrupt. Individuals and families know this; we all live within our budgets.

However, that fiscal discipline seems to be an afterthought for most states and the federal government. The people have had enough of tax increases (even here in California no tax increase passed in the November election), and want government to live within its means. A limited government.

California’s budget deficit is something like $30 billion. The state’s revenues are about $75 billion. The day of reckoning is here. Republicans aren’t going to agree to tax increases. Their constituents are fed up, and want a smaller government.

Meanwhile, California does almost everything it can to drive business out of state. The regulations that a business must comply with in California are lengthy. Every week I see in the Register another business that’s moving out of California.

True, businesses move all the time, and some of this is inevitable even if California were a business-friendly state. But California is making it hard even on entrepreneurs. Why is Texas, a low-tax, low-regulation state prospering? Why is it that the two states which have the most budget issues, Illinois and California, are run by Democrats? I don’t think it’s a coincidence.

Joe Kristan has an interesting post on the issues in Wisconsin. He states,

Tomorrow’s here. Government defined benefit funding deficiencies range from serious (Wisconsin, for example) to catastrophic (Illinois, California). By having some current compensation diverted to fund their retirement plans, Wisconsin employees are finally facing Mr. Johnston’s theoretical trade-off in real life.

In California, government pensions are going to be cut; the alternative is perhaps increasing income tax rates by 50% (and that’s just not going to happen). This may occur next year, or ten years from now, but it’s inevitable. California is bankrupt; we just continue to operate with the facade that all is well.

Not only are pensions going to be cut, but state agencies will be, too. There just isn’t the money to fund every agency. This will likely force a cutback in regulations, as there just won’t be the people to administer every regulation.

One area where I think we’ll see this first is in higher education. There have been several new state universities and schools within universities (both in the University of California and California State University systems) open in the past few years. For example, a friend of mine is attending the new UC Irvine School of Law. Some of these colleges and universities will close. (I don’t necessarily mean the UCI School of Law; just that some of the new schools and colleges are likely going to be victims of budget cuts.)

I’m not a fan of public employee unions. In Irvine, my garbage is picked up by Waste Management (a private contractor). I pay about $36 a quarter for garbage collection. My mother lives within the City of Los Angeles. Her garbage is picked up by the city (by public employees). She pays about $36 a month. I don’t think the difference is a coincidence.

I doubt that the bankrupt cities in California (such as Los Angeles) will voluntarily privatize their public services. Yet it’s far more likely that once a large California city, county, or other public entity (besides the state) declares bankruptcy–and it’s inevitable that this will happen–that we’ll see a flood tide of privatization. It’s pure economics: If Waste Management is willing to pick up garbage for $36/quarter and it costs a city $36/month, so what that unions and union employees lose their jobs. Unfortunately, it will probably take a city such as Los Angeles declaring Chapter 9 Bankruptcy in order for privatization to take hold in California.

Will California bite the bullet and make expenses match revenues? With Democrats in control of the governorship and the state legislature, the chance is about the same as it snowing in Irvine. Well, it almost snowed in the flatlands of Southern California this past weekend. I suspect that it will almost get resolved…and then there will be yet another smoke and mirrors budget.

Hopefully, I’m wrong and Governor Brown will do the unthinkable (for Democrats): confront the problems that California faces. I’m just very skeptical that this will occur.

Posted in California | Comments Off on Spending More Than You Have Doesn’t Work

Paper, Money, and Chips: How to Cause Problems with Poker Satellites in Florida

Posted on February 25, 2011 by Russ

From the standpoint of taxes, if I you win a poker tournament and I pay you in cash, a check, or casino chips, there’s no difference. All are negotiable (or fungible) monetary instruments. That’s basic. But what happens when you win a satellite tournament?

Satellite tournaments award entries in a larger buy-in tournament. Say that a casino is running a $10,000 buy-in tournament; they may have satellites for $1000+$60 (with $1000 going into the prize pool and $60 going to the casino for running the tournament). When ten players enter the satellite, the tournament begins. The winner of the tournament receives entry into the $10,000 buy-in tournament: He receives a piece of paper allowing him to enter the tournament.

For tax purposes, the normal way of treating this–and this has been done for as long as I’ve been involved in poker–is to treat the winning of a satellite as the first part of a parlay bet. All you’ve won is entry in a tournament (the ability to spend more money, so to speak). No W-2G is issued as you’ve won a piece of paper. This is how satellites are handled everywhere in the United States.

Well, almost everywhere.

One casino is apparently going to take a different path. In late April, the Seminole Hard Rock Casino in Hollywood, Florida will host a $10,000 buy-in World Poker Tour tournament. This afternoon, I received a call and was told that the Seminole is planning on issuing W-2Gs for satellite wins and withholding 30% from non-Americans (presumably, from non-tax treaty countries) who cash in satellites.

As long as the casino isn’t awarding cash (and is just awarding entries into the tournament), there is no need to do this. Nothing fungible is being awarded.

Let’s look at the Revenue Ruling that requires the issuance of W-2Gs for Poker Tournaments, Revenue Ruling 2007-57. Here’s Section 2, Factual Background:

In exchange for the fees, each participant receives a set of poker chips with a nominal face value for use in the specific poker tournament. The poker tournament sponsor pays amounts, which exceed a participant’s fees by $5,000, to a certain number of tournament winner(s), out of a pool comprised of all the participants’ fees.

In a satellite, winners do not receive payments of any prizes; they just receive entry into another tournament. But there’s more in Section 4, Application:

A poker tournament sponsor is required to withhold and report on payments of more than $5,000 made to a winning payee in a taxable year by filing an information return with the IRS as prescribed by section 3402(q).

Winners do not receive cash in a satellite, and, thus, no reporting is required. (I should point out that if the Seminole Hard Rock Casino is offering satellite winners the option of taking cash, then W-2Gs are required along with withholding for non-tax treaty participants.)

The net impact of this is annoyance for professional poker players, but it’s much more for both amateurs and non-Americans. How would you like to be a poker player from, say, Australia, enter a satellite for a $10,000 buy-in seat and find that all you won was 7/10 of the buy-in? I’m sure you might find that you had better use for your money. For amateurs, the tax code will cause some to now have far higher gross income (because amateur gamblers cannot net their wins and losses); this will lead to decreased participation in the tournament.

Hopefully, the people responsible for the tournament in Florida will decide to use some common sense here and the idea of issuing W-2Gs for poker satellite winners will be a thing of the past.

Posted in Gambling | Comments Off on Paper, Money, and Chips: How to Cause Problems with Poker Satellites in Florida

FBARs No Longer Required for Poker Accounts

Posted on February 24, 2011 by Russ

The Financial Crimes Enforcement Network (FINCEN) published revised regulations for the Report of Foreign Bank and Financial Accounts (FBAR) in the Federal Register today. Poker accounts were reportable because they were pooled accounts with the money held in one central account (fund). However, the new rules change the accounts that must be reported:

(c) Types of reportable accounts. For purposes of this section—
(1) Bank account. The term ‘‘bank account’’ means a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking.
(2) Securities account. The term ‘‘securities account’’ means an account with a person engaged in the business of buying, selling, holding or trading stock or other securities.
(3) Other financial account. The term ‘‘other financial account’’ means—
(i) An account with a person that is in the business of accepting deposits as a financial agency;
(ii) An account that is an insurance or annuity policy with a cash value;
(iii) An account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or
(iv) An account with—
(A) Mutual fund or similar pooled fund. A mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions; or
(B) Other investment fund. [Reserved]

Now, poker accounts are pooled accounts but no shares are issued to the public. As I read this, poker accounts will no longer have to be reported as foreign financial accounts. Do note that third party payment services, such as Neteller and Moneybookers, will still need to be reported (as will foreign bank accounts).

I’m going to read the Federal Register post again to make sure I’m reading this right, but I believe I am.

UPDATE: I’ve now re-read the regulations in the Federal Registry. In no way can a poker account be considered an account with shares sold to the public, or with regular net asset value determinations. Poker accounts no longer have to be reported as foreign financial accounts.

Posted in Gambling, IRS | Tagged | 9 Comments

Hint: If There’s a Chance You’ll be Arrested, Don’t Change Planes in the U.S.

Posted on February 24, 2011 by Russ

A few years ago, David Carruthers, a citizen of the United Kingdom, needed to get to San Jose, Costa Rica from London. He booked a flight through Dallas-Fort Worth. That was a mistake, as Mr. Carruthers was an executive for an online sportsbook. His two-hour layover ended up being far, far longer as he was arrested on various charges.

There’s another group of individuals who shouldn’t fly to the US: Executives of Swiss banks. Christos Bagios, a former UBS banker who is now with Credit Suisse, has apparently been charged with conspiracy and fraud.

As Phil Hodgen states, “[If you are a Swiss banker,] Do not travel to the United States. Ever…If you are flying to South America from Europe, do not change planes in the United States. Ever.” Phil has more on this here.

Posted in IRS | Tagged | Comments Off on Hint: If There’s a Chance You’ll be Arrested, Don’t Change Planes in the U.S.

Ciavarella Guilty of 12 of 39 Counts

Posted on February 22, 2011 by Russ

Back in 2009, I reported on what I called, “One of the worst cases I’ve read about.” I like putting humor in posts, but that post was just matter of fact. I had not read before of such horrendous corruption by a judge.

At the time, Judge Mark A. Ciavarella had pleaded guilty. However, sometime between then and now he changed his plea. He was tried on 39 counts (including filing a materially false tax return); last week he was found guilty of 12 of those 39 counts.

Interestingly, the US Attorney’s office focused on the financial crimes rather than the stories of juveniles who were, in some cases, wrongly put away. Yes, if you rob a bank you do need to report that income; Mr. Ciavarella appears to have forgotten about Al Capone.

In any event, a man who it appears deserves to head to federal prison will likely soon be doing so.

Posted in Scams, Tax Evasion | Comments Off on Ciavarella Guilty of 12 of 39 Counts

PAIN: Why Your Productivity is Suffering

Posted on February 21, 2011 by Russ

When I was vacationing in the Bahamas earlier this year, I took three books on fitness and nutrition to read. As I sat around in the sun doing next to nothing, I decided when I got back home it would be a good idea to improve my overall wellness; thus, I decided to spend my vacation reading something productive.

The first book was sent to me by the author, Luke Sniewski: PAIN: Why Your Productivity is Suffering. The book is aimed toward accountants (Mr. Sniewski is also a CPA) looking to improve their overall health, and I think it does a pretty good job reaching that goal.

First, the biggest negative about the book is the title. As a tax accountant, I deal with all sorts of acronyms. But I don’t think I’d use PAIN as an acronym in a wellness book.

PAIN stands for Poor posture, Aimless fitness, Improper nutrition, and Neglecting brain function. The recommendations on each of these subjects are, excellent.

For example, in the chapter on (aimless) fitness, Mr. Sniewski argues for using dumbbells and free weights rather than machines, compound exercise movements rather than isolation exercises, and working out on your feet rather than sitting down. These all match what I’ve been told by friends who are fitness trainers.

The area that most accountants get wrong is nutrition. I suffer from a form of arthritis; my doctor suggested I eliminate all wheat from my diet. Robb Wolf in The Paleo Solution suggests that wheat and other grains may be a cause of various autoimmune disorders (I’ll be reviewing Wolf’s book in another post); Mr. Sniewski’s recommendations mirror Wolf’s: eat real food, avoid high fructose corn syrup, sugar, and grains, and drink lots of water. I stopped eating wheat and it has definitely helped me. That’s not scientific, of course, but I haven’t had an arthritis flare-up since I stopped eating wheat.

This book is not a lengthy treatise on wellness. It’s a relatively quick read (146 pages), and you can buy it on Amazon for $12.95. If you’re looking to improve your life, it’s well worth your time to pick up PAIN: Why Your Productivity is Suffering. If you follow the recommendations, you will likely improve your life.

Posted in Books | Comments Off on PAIN: Why Your Productivity is Suffering