Proposition 21: State Parks Vehicle License Surcharge

Posted on October 27, 2010 by Russ

Proposition 21 on the California ballot would add an $18 fee (err, tax) to vehicle license renewals to fund state parks. Shockingly, the California State Park Rangers Association is for the measure. The measure would help to fund the park system. As for boosting California’s economy (a claim of proponents), it would take money away from consumers. That’s a tax, and that does anything but help the economy. Well, it would help the economic situation of those employed at state parks….

No matter how you feel about the measure, remember to vote on November 2nd.

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Proposition 20: Congressional Redistricting & Proposition 27

Posted on October 26, 2010 by Russ

Proposition 20 on the California ballot would take redistricting of Congressional districts out of the hands of the state legislature and give it to the Redistricting Commission. That commission was formed as a result of Proposition 11 on the 2008 ballot; Proposition 11 took redistricting of the state legislature away from the state legislature.

Proponents of the measure argue that it will help to create fair districts. Opponents argue that Proposition 27 is the better measure and Proposition 20 would waste money.

Proposition 27 would eliminate the Redistricting Commission; essentially, it would reverse the passage of Proposition 11. That would continue the system used in 2000 that gave California zero competitive districts: Every district was gerrymandered. It’s worked quite well to help our legislature be, well, partisan.

I think you can guess how I’ll be voting on these measures. It’s interesting to see that the Sierra Club is against Proposition 20 while the AARP and the NAACP are for it.

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Proposition 19: Marijuana “Legalization”

Posted on October 26, 2010 by Russ

It’s time to begin our analysis of the ballot propositions that Californians will face in one week. There’s a lot on the ballot, and several of the measures have a direct impact on taxes.

Let’s start with Proposition 19. This measure would legalize marijuana under California law. However, the measure has no impact on federal law…and marijuana use and cultivation would still be illegal under federal law. While proponents argue the measure would cause huge new tax sources, the reality is that unless and until the federal government legalizes marijuana, this ballot measure would have little or no impact. Indeed, it’s become clear that should the measure pass the US Department of Justice would likely sue California to stop the implementation of the law.

This measure does unite Democrats and Republicans; both candidates for state Attorney General, Kamala Harris (D) and Steve Cooley (R), oppose the measure. So does Senator Dianne Feinstein.

No matter where you stand on this measure remember to vote on November 2nd.

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Watching Paint Dry

Posted on October 25, 2010 by Russ

I will have the opportunity over the coming week to watch paint dry…literally. My office is being painted this week, so posting will be limited. I have already written posts on the ballot initiatives on the California ballot (these will start appearing on Monday).

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Shock! Government Agencies in California Forced to Lay Off Employees

Posted on October 25, 2010 by Russ

The Los Angeles Times has a story today on how government agencies in California have been forced to lay off workers. The Times calls the cuts “ravaging.” I’d call them necessary and the tip of the iceberg.

There’s a basic fact of budgeting that I and other small business owners must live with: We can’t spend more than what we take in. If I spend $50,000 more than my revenues, I’m either going to have to use my savings or tap a loan or line of credit. The latter is a short-term solution; the former causes most business owners consternation.

Government agencies have considered themselves “self-perpetuating” organizations. Some politicians talk about the “Government Sector.” The last time I checked, government is supposed to be of the people and for the people, not for the government. While I do feel sorry for the workers who have been laid off some portions of California’s government are starting to learn about basic economics.

California faces an interesting choice in the election on November 2nd. The Republican candidate for governor, Meg Whitman, touts her experience in running eBay and her business acumen. The Democratic candidate, former governor Jerry Brown, says he’s never increased taxes. The negative advertising has been loud and furious (by both candidates, and their surrogates). My mother said it’s one of the worst barrages of political advertising she can remember.

Yet there’s an obvious truth that must be noted. Jerry Brown’s biggest supporters are public employee unions. Public employees (especially their contracts and pensions) are a huge part of the problem in California. If Jerry Brown wins, will he be willing to fight the unions? Like it or not, the next governor will be faced with the choice of drastically raising taxes to pay for public employees’ largess or fighting the unions. Somehow I doubt that Jerry Brown will fight the hand that is feeding him.

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It Was Only $12 Million and You Seized it Five Years Ago, So Now You’re Filing Charges?

Posted on October 18, 2010 by Russ

One of my first ever blog posts (back in 2005) was short and succinct: “Cops Moonlighting as Strip Club Bouncers Charged with Tax Fraud.” Back in April, 2005, Michael Wellek, the owner of an Elk Grove Village (Illinois) strip club called “Heavenly Bodies” and his policemen workers found themselves in trouble.

It all began when $12 million in cash was seized from a warehouse owned by Mr. Wellek in 2003. The government accused Mr. Wellek of owing $11 million in taxes, penalties and interest. The civil case drags on to this day.

However, after five years there is an update. This past week Mr. Wellek was indicted on tax charges for not filing tax returns from 1989 to 1999 while maintaining that $12 million in a warehouse. The two-count indictment alleges that Mr. Wellek obstructed the IRS and filed a false tax return in 2000. Mr. Wellek’s attorney told both the Chicago Sun-Times and the Chicago Tribune that he expects Mr. Wellek to plead guilty to both charges this week.

Sometimes the wheels of justice turn very, very slowly.

News Stories: Chicago Sun-Times, Chicago Tribune

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Uh Oh: Instead of My Tax Refund All I Got Was This Piece of Paper…

Posted on October 18, 2010 by Russ

California is short of money, so according to Spidell, all California tax refunds have been suspended. The suspension is due to “cash flow difficulties.” California does have a budget so, in theory, refunds should resume soon. Of course, that depends on how collections go with the October 15th extension deadline…

It would be helpful if the Legislature were to pass a budget whose outflows matched the inflows. That, though, appears to be asking too much.

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You Can Possibly Help Eliminate the Draconian FBAR Penalties

Posted on October 14, 2010 by Russ

Phil Hodgen, a tax attorney in Pasadena, has been approached by a reporter who is working on a story dealing with the draconian nature of FBAR penalties. From Phil’s post:

A certain large American publication is working on a story on the Voluntary Disclosure Program and how the IRS is treating taxpayers. Your input is needed.

If you are willing to tell your story to the reporter working on this story, please contact me directly. I will pass along your information.

If you are a professional, an individual dealing with the direct or indirect consequences of the FBAR (especially an individual residing outside the United States who is a US citizen), this is something that you should respond to. The FBAR rules are draconian, and the IRS (and Department of the Treasury) have been imposing penalties is a very draconian nature.

Read Phil’s post, and if you think you can provide information, let Phil know. Phil says, “The IRS needs to hear the impact of what they are doing on Americans who have offshore bank accounts but decided–for whatever reason–to not participate…I will help you assure your anonymity in this situation as well.” You can email Phil at phil at hodgen dot com. His post even has his cell number.

Like Phil, my clients have been impacted by this; however, most of my clients have non-interest bearing accounts and have not (to date) been targets of the IRS/Treasury witch hunt.

I’ll be back with more posts next week after the October 15th deadline passes.

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Brother, Can You Spare $30 Billion?

Posted on October 11, 2010 by Russ

The analysis is out and California has another Bad Budget™. Let’s see what’s in this “Let’s Defer to Tomorrow What We Don’t Want to Address Today” piece of cheese:

  1. The budget assumes $5.4 billion in federal funds.  That seems fine until you realize that only $1.3 billion is likely to make its way here.  Well, that’s only a $4.1 billion difference.
  2. The budget assumes that tax revenues will be higher than anyone in Sacramento (other than the people writing the budget) have projected.  Think of a rosy forecast, and then think best case of rosiness, then…well, you get the idea.  Let’s add another $2 billion of overage.
  3. There’s cuts to state workers and schools.  Well, that might be good except the way the budget is written these cuts must be paid back.  That’s probably another $5 billion or so.
  4. The budget assumes state workers will agree to major cuts in pensions.  Well, there’s probably no choice in that regard–the cuts pretty much have to happen.  Still, what if they don’t agree?  Contracts are contracts.

And the pension issue is particularly ugly, as Steven Greenhut reported in today’s Register. My educated guess is that the new governor will be facing a $30 billion deficit when he or she takes office. That’s a lot of money.

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Congressman’s Wife to Plead Guilty to Tax Charges

Posted on October 6, 2010 by Russ

For those who don’t watch television, listen to the radio, or get mail, yes, there’s an election in less than a month. And for one Congressman in Massachusetts, there’s some bad news.

Congressman John Tierney represents Salem and surrounding areas in the 6th Congressional District in Massachusetts. Mr. Tierney’s wife, Patrice, will plead guilty today to federal tax charges related to her helping to conceal her brother’s illegal sportsbetting business. The actual charges will be aiding and abetting filing false tax returns.

The charges stem from her brother’s operation of the Sports Offshore sportsbook. Mrs. Tierney allegedly provided incorrect information to the tax professional used by her brother, Robert Eremian. The bank account managed by Mrs. Tierney had something like $7 million, and those funds were “commission” income from “computer consulting” rather than funds from illegal gambling. (The Wire Act clearly prohibits sportsbetting in the United States except for licensed casino in areas such as Nevada.) The Eagle-Tribune notes,

Tierney released a statement yesterday saying that his wife accepts full responsibility for being “willfully blind” to her brother’s action. He said she acknowledges that she “should have done more to personally investigate the true nature of Mr. Eremian’s business activities. …”

That’s definitely the case, especially because it wasn’t Mr. Eremian’s first brush with tax trouble. Mr. Eremian pleaded guilty to tax evasion in 2002 for evading $58,422 in income tax. Today, Mr. Eremian is a fugitive.

As for Mr. Tierney, he is locked in a reelection fight. This is not a good year for Democrats in general, and even some Massachusetts Democrats face difficulties. For Mr. Tierney’s opponent, Bill Hudak, the disclosure today represents a political opportunity.

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