Can I Add Some Snake Oil to that Pension Plan, Too?

Posted on August 30, 2010 by Russ

If I were a business owner, wouldn’t I want this wonderful pension plan? Under this plan, I’d (a) be able to turn personal expenses into deductible pension contributions; (b) the pension plan would only cover me (and my family), not those pesky employees; (c) I’d be able to change (through alchemy, perhaps) my salary into a pension plan contribution, and then get this back through a phony loan; and (d) even the down-payment on my condominium could be considered a deductible pension plan contribution.

The only thing missing is the snake oil.

Last week, the US Department of Justice sued a Pasadena (California) man who allegedly promoted this scheme. The DOJ sued William Alexander, and his two businesses, Retirement Plan Services Inc. and Lyons Pensions Inc. The government is asking that they be barred from promoting such pension schemes. The government estimates they’ve lost $30 million in tax revenue from Mr. Alexander’s pension plans.

There are many good choices for retirment plans. However, if someone comes to you and tries to sell you on such a wonderful scheme like Mr. Alexander’s, run (don’t walk) in the other direction.

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Paying Taxes with Phony Money Isn’t a Good Idea

Posted on August 30, 2010 by Russ

If you owe money to the IRS, I recommend you pay with US Dollars. Of course, it’s not only a recommendation; it’s required by law. Still, once the Bozo contingent gets involved, you never know what will happen.

So I’m reading a story about a dentist from Glen Mills, Pennsylvania who allegedly decided to pay his taxes with “bonded promissory notes” (whatever those are). Now, this rings a bell: I recall reading something just like this in the last week. Joe Kristan noted a Tax Court case where an individual rather unsuccessfully tried to pay his taxes with pretend bonds. Not only was the Tax Court unimpressed with that idea, they fined the Bozo $15,000 for a frivolous appeal.

In any case, the dentist, Richard Kaufman, has also been accused of claiming he had $7 million in tax withheld in 2008. Add to this the aforementioned promissory notes (to the tune of $10 million), allegedly moving his house into the names of various nominees to hide it from the IRS, and supposedly not filing an accurate tax return since 1991 and you have a heap-load of problems. Dr. Kaufman is looking at a lengthy term at ClubFed and a fine of up to $1.4 million if found guilty on all charges.

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Unladylike Behavior or Election Year Politics?

Posted on August 26, 2010 by Russ

Earlier this week California Attorney General (and Democratic candidate for Governor) Jerry Brown filed a $34 Million lawsuit against the Roni Deutch Law Firm. Ms. Deutsch (who has a tax blog) and her law firm focus on representing taxpayers in Offers In Compromise. Her firm is one of several that have television infomercials. From the press release of the California Attorney General:

“Tax Lady Roni Deutch is engaged in a heartless scheme that swindled people with tax problems,” Brown said. “She promises to significantly reduce their IRS tax debts, but instead preys on their vulnerability, taking large up-front payments but providing little or no help in lowering their tax bills.”

Deutch manufactures credibility by boasting that her tax resolution law firm, which has annual revenues of at least $25 million, is the largest of its kind in the nation. She spends $3 million a year on advertising, much of it on late-night cable TV, and frequently offers tax advice on NBC’s Today Show, CNN, and CNBC.

Desperate debtors turn to Deutch based on her misleading ads that feature fictional testimonials claiming she secured large reductions in the featured clients’ federal tax debts.

However, Ms. Deutch has a very different view of the lawsuit. Her response appeared on her tax blog today, where she stated:

I believe the California Attorney General’s civil complaint against my law firm and me to simply be election year politics. My law firm has been representing taxpayers before the IRS for almost 20 years. We have saved thousands of people tens of millions of dollars. And I have fully cooperated with the California Attorney General’s Office over the past few months. As a result, I am very disappointed in their decision to file a complaint, but I look forward to a full and fair airing of this matter in a court of law where my law firm and I will aggressively and vigorously defend the claims against us, and I am absolutely confident we will prevail.

For the record, I’ve had clients who have come from firms where they can settle for “pennies on the dollar.” Sure, some truly destitute individuals do get such offers through the IRS bureaucracy; however, most individuals do not. Many of these firms require extremely large up-front payments before they will do any work on your behalf. (I have never had a client come to me from the Deutch firm, and I have no idea if that is the case for them or not.)

Mr. Brown is locked in a very tight battle with Republican Meg Whitman to be the next governor of the Golden State. Time will tell whether this lawsuit had basis in facts or electioneering.

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That DUI Wasn’t a Good Omen

Posted on August 25, 2010 by Russ

A week ago I wrote about former Louisiana State Senator Charles Jones. Just before his retrial on tax evasion, he was cited for driving while under the influence. That apparently wasn’t a good omen for Mr. Jones.

His trial was last week, and the jury began deliberating on Monday. After three hours, they found him guilty of all three counts of tax evasion. The IRS and Department of Justice showed, to the satisfaction of the jury, that Mr. Jones evaded taxes on about $750,000 of legal fees (around $190,000 of taxes). Mr. Jones will be sentenced in December.

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Still Time for NOLs

Posted on August 25, 2010 by Russ

There’s still time to claim your (up to) five-year carryback on a Net Operating Loss (NOL). You have until October 15th to claim this for losses from either 2008 or 2009. Joe Kristan has more.

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On the Whole, I’d Rather Not be in Philadelphia

Posted on August 23, 2010 by Russ

Suppose you are a blogger that accepts advertising, and you reside in Philadelphia. You make $10 a year from the small blog advertisements you accept. It’s not much, but it’s something…until you get the bill from the City of Philadelphia for $300.

Philadelphia has a Business Privilege Tax that requires a license. A lifetime license costs $300; you can also buy a license for $50 a year. You will then also have to file the BPT returns each year and pay any tax owed. For the small-time blogger, it probably makes sense to avoid selling advertising as your $10 of profit just became at minimum a $40 loss.

Is Philadelphia within its rights to require a blogger who sells advertising to obtain a business license? Certainly. Overall, does it make sense? Well, that should be obvious.

Of course, Philadelphia is taking this one step further. The City of Brotherly Love requires a BPT license for, “any business…engaged in a for-profit activity in the City of Philadelphia.” So if you are a blogger in Philadelphia and set aside space for advertising on your blog but don’t sell ads, in the view of Philadelphia you need a BPT license. It’s not clear if Philadelphia is enforcing that part of their BPT yet, but they could.

There’s a solution, of course: move. If the City of Philadelphia has a bad tax structure, consider a nearby suburb. Unlike W.C. Fields, you may be far better off not being in Philadelphia.

Posted in Pennsylvania | Tagged | 1 Comment

Alabama Highest in Sales Tax Rates

Posted on August 23, 2010 by Russ

If you don’t want to pay sales tax, go to Delaware, Montana, New Hampshire, or Oregon. On the other hand, if you like high sales taxes, head to Alabama. That’s the crux of a report issued by the Tax Foundation.

The report ranks the 25 largest cities by sales tax. Not surprisingly, Portland, Oregon has the lowest tax rate among cities with populations over 200,000 (0%); however, it’s not one of the 25 largest US cities. For those, you need to head to either Detroit or Baltimore (6%). On the other hand, Los Angeles and Chicago are on top at 9.75%. In cities with populations of 200,000 or more, Irvine ranks 26th at 8.75%. On top at 10% are Birmingham and Montgomery, Alabama.

It’s just a reminder that not only do we pay income tax but we must all pay a host of other taxes. Sales tax is the most obvious, but our government today bombards us with a host of ‘user fees’ that are just disguised taxes.

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Financial Advice from Zsa Zsa Gabor

Posted on August 23, 2010 by Russ

Zsa Zsa Gabor has led a long and interesting life. From the UK Telegraph, here are a couple of her one liners:

I learned in school that money isn’t everything. It’s happiness that counts. So Momma sent me to a different school.

I am a marvelous housekeeper. Every time I leave a man I keep his house.

There’s more in the short article–it’s well worth your perusal.

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The Answer: $64.25

Posted on August 19, 2010 by Russ

As part of the IRS announcement today on the new PTIN regulations, we now what it will cost tax professionals to either re-register their PTINs or to obtain a new PTIN: $64.25.

Compensated tax return preparers would pay a $64.25 user fee the first year for a PTIN based on two underlying costs. The IRS proposes to collect $50 per user to pay for outreach, technology, and compliance efforts associated with the new program. And the third-party vendor will receive $14.25 per user to operate the online system and provide customer support.

As I noted in the previous post, there is opposition to the new regulation, so it may be a month or two before we have to start paying the $64.25.

Additionally, the IRS announced changes to Circular 230, the means that the IRS regulates tax professionals.

The proposed regulations (REG-138637-07) would clarify the definition of practice, establish a new registered tax return preparer designation and the eligibility requirements for becoming a registered tax return preparer, repropose standards with respect to the preparation of tax returns, revise rules regarding continuing education providers, and amend multiple other sections of Circular 230.

Tax professionals and other interested parties have until Oct. 7, 2010, to submit comments regarding the proposed regulations.

I haven’t found the new proposed regulations online (yet); I’ll likely post about them once I read the proposal.

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PTINs and the SEE: Unintended Consequences

Posted on August 19, 2010 by Russ

The IRS announced today that as part of the new PTIN procedure the IRS will temporarily stop issuing new PTINs on Monday, August 23rd. No big deal, right? After all, in a month or two you will be able to apply for a PTIN.

For most individuals, that’s the case. However, if you’re going to take the Special Enrollment Examination (SEE)–the test to become an Enrolled Agent–you need a PTIN. Let’s say you were unaware of this, and you haven’t applied for a PTIN. Let’s further assume next Tuesday you are ready to take Part 1 of the exam, and the testing company tells you of this requirement. Well, if you don’t have a PTIN, you can’t take the exam. Prometrics, the company that administers the exam, can’t issue PTINs. You’re stuck until the IRS resumes issuing PTINs. Given that there is some opposition to the new PTIN regulations (the AICPA has complained about them), it’s possible that it could be November before you can obtain the PTIN. That’s a nice Catch-22.

I strongly recommend anyone who is planning on taking the SEE to apply for a PTIN today. Go online to the IRS’ website and download Form W-7P. Print it out and fax it to the number noted on the application. You’ll receive your PTIN in the mail in a couple of weeks. This is a case where it’s far better to be safe than sorry.

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