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.

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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.

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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.

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Well, It Was Only Three Zeroes Off

Posted on February 18, 2011 by Russ

I didn’t know that shoe inserts were a good business, but they are. Randall Pennington, of Houston (and formerly of Branson West, Missouri) was the proprietor of an orthotics business in Missouri. One look at the tax returns of his business and you’d believe that business was poor.

Of course, given that Mr. Pennington only told his tax preparer about two of his seven bank accounts, that might have had something to do with it. Did I mention that he sent some of the money that his business made into another individual’s account? Perhaps I should add in the fact that he adjusted the social security number on some gambling winnings to lower his tax.

However, all was for naught in the end. The IRS got wind of the scheme, and Mr. Pennington was investigated. He pleaded guilty yesterday to one count of filing a false tax return. Given that he paid $1000 in tax in 2002 when he should have paid $318,000 for the five years ending in 2004, I suspect Mr. Pennington will get near the maximum sentence of three years at ClubFed.

As always, it’s a whole lot easier to just pay the tax in the first place but that just never appeals to the bozo tax scofflaws out there.

Posted in Tax Evasion | Comments Off on Well, It Was Only Three Zeroes Off

If Statesboro, Georgia Sent Me a Property Tax Lien

Posted on February 17, 2011 by Russ

Let’s suppose there was a company in Statesboro, Georgia called “Clayton Financial and Tax.” Let’s further suppose that they didn’t pay their property tax bill, and that the business folded. Statesboro tries to find someone to pay the bill, so they put a lien on my business, in spite of my never having been in Statesboro, or having a business address outside of California.

Now, no government entity could be that dumb, right?

Well, Statesboro hasn’t gone after me, but San Joaquin County, California has gone after a Statesboro business. GMP Services, Inc. publishes Statesboro Business and Lifestyle Magazine. Apparently there was another company in Tracy called GMP Services and they didn’t pay their property tax bill. So San Joaquin County has put a tax lien on the Georgia GMP Services, a company that has never been in California. The owner of GMP is not as amused as I was, and is sending a bill to San Joaquin County for the time that he has lost and his costs.

Most likely, this has all been done by computer. The county may be contracting with a collections company; they found a match, and no human looked at the underlying records to see that there were two different GMP Services.

As for the owner of GMP Services, Allen Harkleroad, getting any money, his chances are slim and none (with none the clear favorite). No government agency in California is going to voluntarily pay. Mr. Harkleroad would have to file a lawsuit, and this case would be a tough one.

I do sympathize with Mr. Harkleroad. Tax agencies do far too many computer driven programs, where no human looks at anything until a complaint is received. The problem is that these programs bring in far too much money to go away.

As for San Joaquin County, perhaps they should only look for California entities rather than businesses throughout the country. I certainly hope they’re not going after any Smiths, Joneses, or Foxes.

Posted in California, Property Taxes | Comments Off on If Statesboro, Georgia Sent Me a Property Tax Lien

Making $35,000 While Gambling with $800,000 Doesn’t Compute

Posted on February 15, 2011 by Russ

Even if you lose as a gambler, you’re supposed to report the income. Today, the Tax Court took up the case of a gambler who lost in more ways than one.

Our unlucky gambler spent quite a bit of time at Foxwoods, the big Indian casino in Connecticut. Our gambler didn’t report any gambling income, but somehow he had managed to have Currency Transaction Reports issued to him for over $800,000 in purchases of casino chips during 2004 and 2005.

Now, what do you with casino chips? You might sell one or two, but you gamble with them, of course. His return was selected for examination when he showed gross income of $16,450 and $18,230 in the two years selected for audit. The IRS was naturally curious how someone could buy $800,000 in casino chips while make $35,000.

The petitioner did not cooperate during the audit with the IRS. The IRS sent “several information document requests” to the petitioner because he claimed that other had used his rewards card and obtained casino chips. “Petitioner never provided any of the requested documentation.”

The IRS reconstructed the petitioner’s income, figuring that for every dollar expended in net casino chip purchases there was a dollar of income. He also assumed every dollar of income earned was used for purchasing casino chips. All told, that led to the IRS assuming that there was $372,759 of unreported income in 2004 and $264,375 in 2005.

When the petitioner got that news, his passport suddenly became available; the petitioner was out of the country during some of the purchases so the final number for unreported income was $159,599 for 2004 and $250,975 for 2005.

In his pretrial memorandum petitioner claimed that his casino chip purchases were financed by a loan he obtained from the “Fukkianese community” and that he would testify to this effect. However, petitioner failed to show up for trial.

Fukkianese are Chinese from the Fukien province. And nothing was presented at the trial showing there was any loans from the Fukkianese community or anyone else.

In an audit, it’s important to cooperate fully with the IRS. First, you may be able to get the burden of proof shifted to the IRS (if your audit finds its way to Tax Court). Second, if you cooperate with the IRS your audit will go far smoother; the auditor will be far more willing to compromise on some issues.

Of course, when a case gets to Tax Court its helpful to have proof of what you claim.

Petitioner did not introduce any evidence at trial to demonstrate that the cash purchases at Foxwoods were made with cash from nontaxable sources. Rather, he argues that because respondent has conceded that 11 CTRs were erroneously attributed to him, the remaining CTRs are unreliable and cannot be used as the basis for reconstructing his income. We disagree.

If you are a gambler and have CTRs issued to you, make sure you (1) report your gambling income and losses, (2) have income to justify the purchase of the CTRs, and (3) keep good records proving this. In today’s case, the gambler did none of this. Indeed, the IRS received a log from Foxwoods noting that the petitioner gambled even more extensively; the IRS could have sought an increased deficiency based on this information. (And it’s clear from the decision that the Court would have upheld this.)

As for the petitioner, he was hit with back taxes, penalties (including the accuracy related penalty), and interest. The taxes alone are near $200,000, and that’s just tough to do on an income of $35,000.

Case: Pan v. Commissioner, T.C. Memo 2011-40

Posted in Gambling, Tax Court | 2 Comments

Changes (Welcome, Aaron Lion)

Posted on February 15, 2011 by Russ

This year will be one of change for my business. When I started my business in 1999 I had just some thoughts and dreams. Nearly twelve years later I have a mature and still growing tax practice and I must deal with the reality of change.

The first of these changes is growth in my practice. I’ve known Aaron Lion for a number of years. Last year, we met and discussed the idea of him joining my practice. Aaron took that thought and ran with it; in early January he passed the Special Enrollment Examination (the exam to become an Enrolled Agent). He’s sent in his Form 23 to the IRS and sometime in the near future he’ll be a duly licensed Enrolled Agent. Whether that will be in time to help during the heart of tax season is up to the bureaucracy at the IRS.

Here’s some background on Aaron: He earned his bachelor’s degree in Mathematics of Computation with a minor in Computer Science. He worked as a software engineer for twenty years. Aaron left his last engineering job six years ago as a result of having one impossible task after another and one unhappy customer after another (a result of other people’s decisions).

Aaron then became a professional poker player. After finally getting to the point where he felt he could make a living from poker, he stopped because while being able to do it was important actually doing it was not.

Aaron resides in suburban Washington, DC where he is happy to take care of his top two customers: his wife and daughter. He is looking forward to taking care of more hopefully happy clients in our tax practice.

You’ll see Aaron first here on the blog. He’ll be writing many of the posts, and will also add an East Coast view to tax issues.

Welcome aboard, Aaron.

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$28 Million in Tax Fraud Gets Preprarer 6 Years at ClubFed

Posted on February 14, 2011 by Russ

Lester Morrison had a great business going. His “Tax Prep” (also called “24 Hour Income Tax Refund Service”) was doing a bang-up business in the Bronx and across the river in New Jersey. Their clients were quite pleased with their refunds. Sure, much of the refunds went to the preparers but what’s not to like when you get money you don’t expect.

Mr. Morrison’s clients had children. Sometimes these were children who weren’t clients’ children and who had already died. Yes, Mr. Morrison and his co-conspirators took deceased children of others and put them on tax returns. And that was one of the more mundane things he did.

Some of the other practices detailed in the announcement of his guilty plea (last August) include phony business losses from fictitious businesses, non-existent charitable donations, false education credits, and phony child care tax credits.

We’re not talking peanuts here, either. The scheme netted $28 million from over 7,500 refunds…until it was caught. At his plea last August Mr. Morrison agreed to make restitution. Last week he was sentenced to six years at ClubFed; the restitution totals $17.3 million.

If your tax preparer puts a child you don’t know of on your return, that’s a big hint that something is wrong.

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No Valentine’s Love from the IRS

Posted on February 14, 2011 by Russ

When the IRS announced that they will begin accepting all tax returns for processing on February 14th, I called it a bit of Valentine’s love. No more, though. I received a notification from my software vendor that the IRS will be limiting the number of returns that can be processed each day from each vendor so that there system can handle the load. My vendor noted that returns processed with them on Monday might not reach the IRS until Friday. The notice said that they expect this to last just one week, so tax processing will be truly lovely on President’s Day rather than Valentine’s Day.

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