I Think I’ve Seen This Before

You go on a reality television show, and you manage to win a prize. Along with your check the producers hand you a Form 1099-MISC. Do you:
(a) Report the winnings on your taxes, as the IRS will have those figures;
(b) File a tax return, but leave out the winnings. The IRS will never notice; or
(c) Don’t file a tax return for the year in question. After all, if it’s not written down, it never happened (and who cares about the millions of witnesses).

Richard Hatch tried course (b). It didn’t work particularly well. Actually, for tax bloggers it was wonderful. We got a ton of fun reports out of Mr. Hatch’s misadventures and his trip to ClubFed.

Adam Jasinski tried course (c). He also engaged in buying and selling of narcotics. He’s only facing one year for the tax charge, but he’s looking at 15 years for the drug charge. The TaxGirl, Robert Flach, and Joe Kristan all report on Mr. Jasinki’s attempt to channel the spirit of Richard Hatch.

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“Threatens to Bankrupt [California]”

That line was used by the Orange County Register to describe the California Center for Public Policy’s report on Pensions and Employee Compensation. That’s scary.

Here’s a quote from the Register:

The report says that the state’s tax-paid pensions have made defacto millionaires out of most of California’s employees by the time they reach their late 50s. Meanwhile, public safety and other employees frequently pay less than half or none of their retirement benefits, says the report, “Reforming Public Employee Pensions and Compensation.”

Here’s the conclusion from the Report.

California faces three choices in the coming years to right its government fiscal imbalance at state, school district, county, and city levels–though usually only the first two are considered:
1) reduce services;
2) raise taxes, fees, and charges; or
3) pay public employees fair salaries, benefits, and pensions
The third choice is the preferred alternative to avoid either further and continually diminishing government services, or further and continually increasing taxes, or both. California’s budgetary crises would be resolved with more more public services and lower taxes if public employees were paid fair salaries, benefits, and pensions.

The full report is well worth your time as it succinctly describes the reality not just in California but in most states and locales in the country.

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That Was the Week That Was

A very interesting week has past, featuring PTIN madness, a new California budget that is yet another bad budget, and what not to do if you’re unhappy with your tax refund.

First, Joe Kristan linked to the Bad Lawyer Blog. No, there really are good lawyers (my lawyer and my relatives who are mostly attorneys). But the Bad Lawyer was sentenced to five months at ClubFed for attempted tax evasion. (Although the lawyer first wrote that he was sentenced to home confinement, he received jail time.) Very interesting reading.

Joe also posted on the fallacy of the “less than 98% of small businesses will be impacted by the upcoming tax increases.” In quantity, that’s true; but in economic impact, it’s false.

Today, the TaxProfBlog noted that former Kansas City Chief Joe Bruner received one year in prison for assault. He thought he should have gotten a larger tax refund, so he took it out on his accountant.

Lots of tax bloggers have written about their fun with the PTIN. Besides my two posts (here and here), here are some of the other posts:
Robert Flach’s What a Mucking Fess;
Kerry Kerstetter’s Own PTIN Application and a report from a CPA whose application didn’t go smoothly.
Let’s just say there are bugs in the system, and it’s likely going to be awhile before they’re worked out.

Finally, as I noted California has a budget…maybe. The Orange County Register noted that according to legislators and others who refused to go on the record, the budget contains lots of borrowing, very rosy projections, and gimmicks. While there aren’t any new taxes, there’s no real solution with this budget. Yes, I can make a budget balance if I just say that revenues will be a couple billion higher than everyone knows they’ll be and then borrow the rest. Expect a $20 – $30 billion budget shortfall in 2011 in California.

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Bills Vetoed and Signed

Lots of bills signed and vetoed by Governor Schwarzenegger. Most of these do not have tax implications though a few do. Here goes:

SB 1244 was signed into law. This fixes a major conformity issue between federal and California law regarding LLC payroll (non)conformity. This is a huge win for California LLCs. One note of caution: Conformity under this measure starts on January 1, 2011; the bill is not retroactive.

AB 2418 was vetoed. We’re now into humor: The bill would have removed the apostrophe in the Contractors’ State License Law. Here’s Governor Schwarzenegger’s veto message:

To the Members of the California State Assembly: I am returning AB 2419 without my signature …

-Number of legislative committees that took time hearing this bill: 3

-Number of pages in this bill needed to remove an apostrophe: 184

-Taxpayer dollars used to pass this bill through the Legislature: $ thousands and thousands.

-The outrage the public should have that the Legislature is spending its time “working” on bills like this instead of focusing on California’s real problems: PRICELESS.

The massage industry is thrilled that the Governor vetoed a measure that would have mandated law enforcement members on the California Massage Therapy Council. I have to wonder why there’s a California Massage Therapy Council.

Posted in California | 1 Comment

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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