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.

Posted in Tax Evasion | Comments Off on Foreign Corporations, a Doctor, and Alleged Sham Losses: Boy, This Sounds Familiar

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.

Posted in Gambling, Washington State | Comments Off on Making Lives Miserable in the Pacific Northwest

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.

Posted in IRS | Tagged | 1 Comment

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.

Posted in IRS | Tagged | 4 Comments

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.

Posted in California | Tagged | Comments Off on No Budget Yet

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.

Posted in California | Tagged | Comments Off on Budget Framework Reportedly Reached

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.

Posted in California | Tagged | Comments Off on Sacramento Bound

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.

Posted in Legislation | Tagged | Comments Off on Congress, Obama, and Small Business

Bozo Preparer Gets Four Years

When I last reported on this story, I noted that Gayle McIntyre only received 54 years the previous time she committed tax fraud. Luckily for her, that sentence was suspended. She didn’t learn from the past.

In January she was indicted on 23 new counts of tax fraud, identity theft, forgery, and other charges in Albuquerque. She pleaded guilty to 16 of those counts in April. She was sentenced today in Santa Fe to four years in prison, and five more years on probation.

Of course, when she was indicted in January she was on probation for five years. I am hopeful that she will learn from this mistake but I don’t want to set odds on that.

Posted in New Mexico, Tax Fraud | Comments Off on Bozo Preparer Gets Four Years

It Depends on the Meaning of the Word “Is” Is

I’m sure many of you remember this humorous interlude during the presidency of Bill Clinton:

Why do I bring this up? Because it goes to the heart of a question asked by fellow tax blogger Robert Flach.

Mr. Flach, who resides and practices in New Jersey, does not like the new IRS e-file mandate for tax professionals. He believes it does not apply to him. The new mandate requires that tax professionals who prepares more than 100 tax returns for 2010 or more than 10 for 2011. (Note that 2010 here means 2010 tax returns prepared in 2011, and 2011 means 2011 tax returns prepared in 2012.) The question comes down to a portion of the law that states, in part, “if (i) such return is filed by such tax preparer”.

Mr. Flach does not like commercial tax software. He considers software to be “…[P]otentially flawed and expensive….” He does e-file New Jersey returns today; New Jersey offers a free e-file solution on the state’s website. He prepares his returns using pencil and paper; he’s done it this way for decades and sees no reason to change. Today he asked whether his opinion of the law is correct (that is, the law provides an exception because he doesn’t file any returns but his own) or whether he’ll have to become an Electronic Return Originator (ERO) against his will.

There’s an interesting parallel in California. California has its own electronic filing requirement: Tax professionals in the Golden State who prepare 100 or more returns must electronically file all returns (unless the client opts-out or the return is not eligible for electronic filing). I fall under that requirement; there is no exception for hand-prepared returns. I haven’t read the statute, so I can’t tell if there’s any give or not. However, when the law passed I remember quite well the discussion at the Legislature; the intent was to force electronic filing for all returns. That’s the problem that Mr. Flach is going to face. It is quite clear that Congress’ intent was to force all tax professionals to file as many returns as possible electronically.

Mr. Flach will soon be forced to file all of his returns with a PTIN (if he does not do so already). Let’s assume that he files 400 returns in the 2010 season, all noting his PTIN, and that all of those returns are paper-filed. He’ll receive a letter from OPR (the Office of Professional Responsibility, the IRS’ enforcement arm for tax professionals) asking him why he didn’t comply with the law. He’ll respond that he’s exempt, and let’s assume the IRS disagrees. Mr. Flach will then find himself facing an administrative hearing. It’s likely he’ll lose; he’ll appeal and likely lose again. (Trying to win such a fight against the IRS at the administrative level would be difficult if not impossible.) Let’s further assume he then appeals the rulings to the court system.

The issue will boil down to legislative intent. I have not reviewed transcripts of Congress’ discussion of this legislation. It would not surprise me to find out that Congress’ intent was that all returns prepared by tax professionals be filed electronically. If that is the case then Mr. Flach will be facing a difficult fight.

That’s not to say that Mr. Flach can’t win. Technically, he’s likely correct that he does not have to file returns electronically. For him to win that fight would likely cost him tens of thousands of dollars in legal and court costs. Thus, from a practical standpoint it would be a Pyrrhic victory.

Unfortunately for Mr. Flach, this is one case where it’s fairly clear what the meaning of the word “is” is.

Posted in IRS | Tagged | 1 Comment