A Budget Deal Is Reached But…

…No one knows what’s in it.

AP and the Sacramento Bee are reporting that a budget deal has been reached.

Assembly Republican Leader Martin Garrick (R-Carlsbad) released a statement stating, “Legislative leaders and the Governor have finally reached an agreement on a no-tax budget that protects California jobs. Staff will be drafting the budget language and bills in the coming days, and we plan to have a public hearing on Wednesday and a vote on Thursday.”

The devil is in the details, of course, so we’ll have to wait until next week to see what’s changing. I’ll keep you updated.

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There’s No Budget like California’s Budget…

Ethel Merman sang about how appealing show business is. She wouldn’t be singing about how good California’s budget situation is. There’s basically nothing to report. In theory, there will be negotiations tomorrow (October 1st), but I remain pessimistic. There’s no reason to think anything will be swell or that anything will come up roses. Governor Schwarzenegger wants pension reform, and that’s attack on Democrats’ core constituency (public employee unions).

Meanwhile, there’s no word about what legislation (if any) Governor Schwarzenegger signed today…the theoretical deadline for him to sign or veto legislation.

On a lighter note, here’s the late Ms. Merman singing her signature song:

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Foreign Corporations, a Doctor, and Alleged Sham Losses: Boy, This Sounds Familiar

You know how some recipes always say to add a pinch of salt or a teaspoon of sugar? It’s the same way when you read stories about foreign trusts and taxes. One quick glance at the headline and I already know the end result: Trouble.

As usual, when you have a recipe you lay out the ingredients:

  • One Successful Doctor in the U.S.
  • Several Foreign Corporations Allegedly Used to Create Phony Tax Losses
  • A Nevada Corporation or two (to add taste to the mixture)
  • A ‘Trusted’ Adviser who actually is an alleged accomplice

You then need to allow the mixture to simmer. In this case, the issues date from 1998 – 2003. That’s enough simmering.

What actually happened? At this point we only have allegations. The Department of Justice and the IRS allege that Dr. Edward Picardi of Rapid City, South Dakota, with the alleged aid of attorney Ira Kritt of Maryland, set up corporations in a variety of European countries (including some tax havens such as the Isle of Man).  Dr. Picardi, a successful surgeon, was allegedly an employee of these businesses.  The government alleges that Dr. Picardi baked up $2.7 million of losses in order to avoid $811,000 of taxes.

Although not noted in the news story I always wonder in cases like this about FBARs. Assuming that the money was really transferred, Form TD F 90-22.1 might have needed to be filed. The penalties are severe for not filing FBARs. But I digress….

Meanwhile, Mr. Kritt is already facing seven counts in a case of an Osteopath in West Virginia. As for Dr. Picardi, he faces five counts of tax evasion and is looking at a stay at ClubFed if found guilty.

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Making Lives Miserable in the Pacific Northwest

I used to reside in Kent, Washington. The Pacific Northwest is (during clear weather) one of the most beautiful places in the country. The combination of the Cascades, the ocean, Puget Sound, and Lake Washington makes the Seattle area a paradise. Unfortunately, paradises can be lost.

There are two threats to Washingtonians. First, on the November ballot is Initiative 1098. This measure would impose an income tax on Washingtonians who are “rich.” Of course, the reality is this measure would hit many in the middle class. It imposes a state income tax on individuals with an Adjusted Gross Income of $200,000 or more ($400,000 if married filing jointly). If this measure passes, Washington loses one of its most attractive features. Additionally, the state legislature could, in future years, increase either the scope of the tax or the rate. Needless to say, I think Washingtonians should reject this measure.

However, there’s another law that passed in 2006 that is now having a major impact on some of my clients. The Washington state legislature passed a law making online gambling a Class C felony. The measure passed without much discussion (it was supported by the Indian gambling interests in Washington state) and signed by the Democratic governor of the Evergreen State, Christine Gregoire.

The law was challenged in state court on grounds that it violated the dormant commerce clause of the US Constitution. The Washington Supreme Court recently upheld the law (though they questioned the idea of the law). Today, the largest online poker site, PokerStars, announced that they would no longer offer online gambling to Washingtonians.

Now, you and I may differ on our views on online gambling. However, most Americans would probably believe that to make online gamblers felons is ridiculous. It’s also ridiculous to consider online gambling equivalent to:

  • Possession of Stolen Property
  • Drug Crimes (Narcotics)
  • Theft
  • Witness Tampering
  • DUI
  • Felonious Driving

Washingtonians, welcome to the Nanny State.

There are several things that Washingtonians who are professional gamblers should do. First, call your state legislators. They may disagree with you, but let them know that your livelihood has just been stopped, and that you now must consider moving; that will directly impact Washington’s economy as the money you would spend locally (helping other businesses and adding to sales tax collections) will instead go elsewhere. Follow up with a letter; this forces legislators (well, their staff) to read and respond.

Second, there’s an election in one month. For the most part, your current legislators got you into this mess. Every two to six years (depending on the office) you have the right to retire those legislators. If you haven’t registered to vote, do so. Exercise your right to vote on November 2nd. There are several races in Washington state that are extremely close; your vote will matter.

For those of you who are gamblers and don’t reside in Washington state, don’t be complacent. What has happened in the Pacific Northwest can happen anywhere in the United States if your legislature doesn’t hear your voice. There is an organization for poker players; it also has a Political Action Committee.

If you are not a gambler and you reside in Washington state you may think this is irrelevant. It’s not. Your economy will be negatively impacted by these measures, to the detriment of all Washingtonians. Sure, it won’t be a huge hit–it’s not equivalent to, say, Microsoft moving from Redmond to Atlanta–but do you think that given how weak the economy is that the Evergreen State needs any hits to the economy?

When I went to school, I was taught that silence equals acquiescence. If you’re a Washingtonian, this isn’t the time to be silent.

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Russ’ PTIN Adventure, Part 2

This morning, I attempted again to re-register my PTIN. I used an email address that didn’t go through my server and, voila, success. I was able to re-enter all my information (except for my PTIN) on the IRS PTIN registration page, the IRS system found my existing PTIN, and for $64.25 I am now re-registered through 2011.

My IRS liaison told me that others were having problems with the emails yesterday, so it could have been my server or it could have been an IRS issue.

As for getting $50 of value from this process, that remains to be seen.

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Online PTIN Application Now Available, But…

The IRS released the final regulations for the new PTIN process for tax professionals. There’s an FAQ available, too.

The first step of the process is too sign up for an account with the PTIN system. If my experience is typical, there are bugs to be worked out of the system. I signed up, and waited for the confirming email.

And I waited.

And I waited.

Maybe I entered my email address wrong, so I did it again (using a different email address).

And I waited.

And I waited.

Needless to say, I advise you wait, too, before applying for the new PTIN. My IRS Liaison has forwarded my issue on, but it may be a day (or two or three) before I move forward. There’s no rush; after all, I have to spend $64.25 for this. The deadline is year-end.

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No Budget Yet

There’s no budget, but negotiations are scheduled to continue tomorrow. This story in the San Jose Mercury leads me to believe we’re still a couple of days away from an agreement, and likely at least a week from a vote.

This poses a dilemma for Governor Schwarzenegger: what to do with all the bills the legislature approved this year. Will he sign anything on or before September 30th (Thursday), or will he veto everything if there’s no budget? Governor Schwarzenegger isn’t commenting at all, but suspicions among individuals attending the CSEA Board meeting this past weekend is that one reason for the movement this past week was a likely veiled threat from Governor Schwarzenegger: Give me a budget that I like or all of your bills will be vetoed.

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Budget Framework Reportedly Reached

News reports state that a “framework for a budget deal has been reached” and that the Big Five (Governor Schwarzenegger and the Democratic and Republican legislative leaders) plan on working through the weekend to hammer out the details. The goal is to announce the budget on Monday with votes on the budget happening in early to mid-October.

No specifics were released, and while I hope a budget will be hammered out I’m less hopeful than others. The devil is always in the details…and those details don’t yet exist.

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Sacramento Bound

California doesn’t have a budget. When I return home from Sacramento on Sunday, California will not have a budget. It’s probable that when we vote in the mid-term elections in 40 days that California will not have a budget. Why is that?

Democrats complain that the reason is that Republicans are being intransigent; they are demanding cut, cut, cut to programs that can’t be cut any more; the only solution is that “some” taxes must go up (along with a whole lot of smoke and mirrors and a little bit of budget cutting).

Republicans say enough. Spending in California has grown massively; regulations have grown immensely; the only solution is cutting spending. Republicans say they won’t vote for one penny of new taxes. As I’ve said before it’s the unstoppable force meeting the immovable object.

However, there’s a hidden reality that’s known to both sides: The people–you know, those pesky voters like us–have said no to new taxes three times over the last two years. It’s quite apparent given the mood in the country that they’d say no again if asked. The Democrats are well aware that they will have to enact cuts.

The problem is that these cuts will now hit the Democrats’ core constituency: unions, especially public employee unions. Salaries, pensions, and the number of employees will be going down. Democrats don’t dare enact a new budget (that is, one that can pass the legislature) before Election Day; that would anger their constituents. Who cares that it’s costing California $50 million a day? If Democrats vote for what their constituents don’t like, they might be out of a job.

Supposedly, legislative leaders will be meeting with Governor Schwarzenegger tomorrow, but don’t hold your breath. My guess is that the budget will not be signed into law until November.

Why am I heading to Sacramento? The annual liaison meeting between California’s tax agencies (BOE, EDD, and FTB) and the California Society of Enrolled Agents (CSEA) and the quarterly Board of Directors meeting of CSEA.

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Congress, Obama, and Small Business

I’m a small business owner. I’m now reasonably successful, but I look warily at what’s coming down the pipeline in Washington (and Sacramento, for that matter) and don’t like what I see.

Today, I read a great post on the TaxGirl and see:

Get the picture? Small businesses are very often about family. Interestingly, families are the very entities that Congress has deliberately exempted from many of the breaks offered to small businesses. I’m not sure how that’s supposed to make sense.

A few minutes later I read on the TaxProfBlog the impact if the Estate Tax comes back in full (55% tax on all estates greater than $1 million). Professor Caron has linked to a study by the American Family business Foundation which purports that the reinstatement of this tax could cost over 1.3 million jobs.

Last week, I read on RothTaxUpdates how the goal of letting the Bush Tax Cuts expire is to hurt small business. Joe Kristan links to the Tax Policy Blog and notes how the huge upcoming tax increase on pass-through entities is apparently the goal. Surprise, surprise: Most small businesses and most family businesses are organized as pass-through entities.

Let me ask you, what has Congress done in the past two years that has helped small businesses? The singular accomplishments are the Stimulus Plan, Cash for Clunkers, ObamaCare, and more regulations and taxes. If anyone wonders why incumbents are feeling the heat, they don’t have to go any further.

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