The IRS has announced that the date that taxpayers with itemized deductions, education expenses, or any of the other impacted forms (forms that were not being processed due to the need to reprogram the IRS’ computers) will be able to file. That date is Monday, February 14th.
Yes, the IRS is spreading some love on Valentine’s Day. Given that brokerage 1099s do not have to be issued until February 15th, the delay does not impact many taxpayers.
I guess I’m now beginning to be impacted by jet lag. I see a headline titled, “Fake rabbi admits million-dollar tax fraud,” and just go on. It hits me a few moments later, though, that this is real.
The US Attorney’s Office press release gives the crux of the story in the first sentence: “A former Chicago man who lived in Israel since 2003 pleaded guilty [on Friday] to federal tax fraud conspiracy charges, admitting that he orchestrated a group of family members and others who tried to obtain at least $54 million in fraudulent federal and state income tax refunds using the identities of at least 2,900 prisoners and deceased persons.” The man is Marvin Berkowitz, and he did get at least $4.5 million from the IRS and state tax agencies. Also involved in the scheme was his son David (he earlier pleaded guilty); charges are pending against another son Yair and his son-in-law Eric Berkowitz.
The scheme itself was quite complex:
According to Berkowitz’s plea agreement, between 2003 and August 2009, Berkowitz directed a conspiracy to file thousands of fraudulent state and federal income tax returns, using the names and social security numbers of federal inmates and deceased persons without their or their families’ knowledge or consent. The false returns included various fictitious and false items, including addresses and phone numbers, deductions, business losses and expenses, credits, and W-2 wage and 1099 income statements of earnings from employers. Berkowitz forged the signatures of the purported taxpayers on the returns, and then mailed packages from Israel containing the false returns, together with stamped envelopes, addressed to the IRS and state taxing agencies, to individuals working for him in the United States. Berkowitz instructed those individuals to mail the envelopes from different mailboxes in order to avoid raising suspicion at the IRS and state taxing agencies…
…Berkowitz variously misrepresented to a number of individuals that he worked with that he was a tax preparer, a certified public accountant, a rabbi, an attorney, and/or that he operated a tax preparation business. In some cases, Berkowitz provided these individuals with letters purporting to confirm that Berkowitz was employed by a company managing the tax returns of clients stationed in the Middle East, as well as with documents purporting to be powers of attorney authorizing Berkowitz, or Berkowitz’s co-conspirators, to act on behalf of the taxpayer.
This isn’t Marvin Berkowitz’s first brush with the law. Back in 1984 he received a permanent injunction from acting directly or indirectly as a tax preparer. That obviously didn’t work. The 188 to 235 months he’ll spend at ClubFed will likely make it a lot more difficult for him to act as a tax preparer, though.
If you own a business in California (including a sole proprietorship, an LLC, or a corporation) and you have had $100,000 of gross receipts or more in a year from 2008 through 2010 and do not otherwise have to file a sales tax return, you must file a Use Tax return. Use Tax is the equivalent of sales tax when you purchase a product where sales tax is not charged but it normally would be. For example, if you buy a book from Amazon.com you still owe tax on the purchase even though Amazon won’t charge you sales tax (it’s now Use Tax).
You must register on paper for filing a Use Tax return (and then mail the form to your local BOE office). After your registration is processed, you will then be able to go online and file (and pay) your Use Tax return.
And those returns are due in just two weeks — on January 31st.
No more R&R for me — back to the real world rather than a beach in the Caribbean. And nothing brings you back to reality like a little estimated tax. The fourth quarter 2010 payment is due on January 18th. That’s a postmark deadline, so if you spend the money for certified mail (which I strongly advise), your tax payment doesn’t have to get to the IRS (or your state tax agency) tomorrow.
You can also pay online, though EFTPS (the federal government’s tax system) requires registration (passwords are mailed to you) and it takes a day for payments to post.
Back Home Again in Indiana is the state song of the Hoosier State. For those in the Land of Lincoln, it’s quite likely the Hoosier State will look much nicer; this morning, legislators approved an income tax increase from 3% to 5% and a corporate tax increase from 4.8% to 7%. Though these taxes are supposed to sunset in a few years, do you really think that will happen?
By the way, I’ll have a long post on California and the budget when I return from my vacation.
I felt this important enough to update while relaxing in the Bahamas. (It helps that the sun is gone under a bank of clouds.) Anyway, from Spidell comes word that California is not going to conform to the exclusion of medical insurance premiums for non-dependent adult children. You must impute the cost of such insurance add it to state (California) wages.
However, the FTB has yet to provide guidance on how to do this, and it will likely be at least another week before such guidance is issued. Meanwhile, the deadline for releasing W-2s to employees is in 23 days.
If you are a California employer and offer such insurance for your employees, make sure your payroll processing company is aware of this issue and that a recalculation for your W-2s may be necessary.
I now return to my scheduled vacation.
I’m heading on that trip to the Bahamas, so posting will be practically non-existent until January 17th. Enjoy the other tax bloggers listed in the blogroll on the right.
There’s a debate over whether licensing tax professionals will do any good. California requires all tax professionals to have licenses, and we have plenty of Bozo tax preparers.
In any case, out of Edgewood, Maryland comes word that there is one less bozo professional out there. Arnold Wood prepared returns, but he liked to give his clients bonuses. Like Western Tax Service, Mr. Wood didn’t see a deduction or credit that he couldn’t take for his clients. Who needs to actually make charitable contributions to take a deduction for charitable contributions? Certainly not Mr. Wood’s clients!
Though the story doesn’t mention how the IRS discovered the secret of Arnold’s Tax Service, they did. They weren’t as pleased as Mr. Wood’s customers. Well, Mr. Wood’s customers weren’t pleased either when they discovered that they actually had to make charitable contributions to take a deduction for them.
Mr. Wood didn’t stop with others; his own tax returns featured the same combination of phony credits and deductions. While Mr. Wood’s own return featured only $45,000 of phony deductions, the overall scope of the fraud was significant. The phony refunds were between $1.5 million and $1.8 million for 2006 -2008.
Like all good things–and all bad things–Mr. Wood’s business went through a change. Those business cards that said he’d get more for yourself and had pictures of money are now a thing of the past. Mr. Wood pleaded guilty and will serve two years at ClubFed and must make restitution of $45,000. Mr. Wood’s customers are receiving “Dear Soon to be Audited Taxpayer” letters and will, if they haven’t already, be paying the true amount they owe.
As usual, the moral of the story is that if someone tells you that he can always get you a refund run, don’t walk, in the other direction.
Via Joe Kristan this morning comes word that the IRS is spending millions to regulate law-abiding tax professionals, but is doing very little to stop tax fraud by prisoners.
You are forcing practitioners to spend millions of dollars and hours in pointless paperwork on pain of being put out of business. Meanwhile, you let actual criminals — in prison — steal millions by filing fraudulent tax returns
There’s much more, including the results of an audit by TIGTA, and the fact that the IRS is not sending information about prisoners committing tax fraud to prison officials.
Aloha means a lot of different things. Per Wikipedia (and a conversation with a friend who was born in Hawaii) it means affection, love, peace, compassion, mercy, hello, and goodbye. I’ll focus on the latter two tonight.
There is no legal gambling in Hawaii; it’s one of two states with none, not even a lottery (the other, not surprisingly, is Utah). As you may remember, back in 2009 the state legislature passed a law that ended (for a short period) the ability to deduct gambling losses on state tax returns. That law was later reversed. Hawaii went on and then off my bad states for gamblers.
It’s back on the list, but only for professional gamblers.
Hawaii does not have a sales tax. Instead, there is the General Excise Tax:
Hawaii does not have a sales tax; instead, we have the general excise tax, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others.
And it does apply to a professional gambler.
Hawaii is not a low tax state to begin with, so adding an extra 4% makes matters worse. Yes, it’s deductible on income tax returns for a professional, but when one considers the tax and the extra paperwork, maybe no tax Alaska sounds better in the end.
Here’s a complete list of the bad states for gamblers:
Connecticut*
Hawaii#
Illinois*
Indiana*
Massachusetts*
Michigan*
Minnesota#
Mississippi***
New Hampshire&
New York@
Ohio**
West Virginia*
Wisconsin*
Explanations:
* Gambling losses cannot be deducted as an itemized deduction on the state’s tax return.
** Ohio currently doesn’t allow gambling losses as an itemized deduction. Effective 1/1/2013, gambling losses will be allowed as an itemized deduction. Note that this change will likely not impact city and school district tax returns in Ohio.
***Mississippi only allows MS gambling losses as an itemized deduction for gambling losses
# Hawaii now does allow gambling losses as a deduction. However, Hawaii has an excise tax that impacts professional gamblers — 4% on gross receipts.
@ New York has a limitation on itemized deductions; if your AGI is over $500,000, you lose 50% of your itemized deductions. You begin to lose itemized deductions at an AGI of $100,000.
# Minnesota has a state AMT that impacts amateur gamblers, effectively eliminating the gambling loss deduction for amateurs.
& New Hampshire has a 10% tax on gambling. While it is currently not being widely enforced, it could be at any time. A literal reading of the law would make it applicable to all gambling.
Let’s just say that gamblers aren’t treated well by many states. It’s enough to want to escape, so here’s the best theme song from any television show ever:
