Sales Tax Collections Drop $4.7 Billion in California

Posted on June 19, 2010 by Russ

Well, that’s the amount that California sales tax collections dropped in the 2008-2009 fiscal year according to the Board of Equalization. Readers of Taxable Talk already know that income tax collections have fallen, so this unsurprising news is a double whammy to the Bronze Golden State. The report (the full report is available here) also notes that property values fell by $106.6 billion; that has and will continue to impact local governments in California.

Taxable sales fell 12% ($68.5 billion decrease); the only reason that sales tax collections to California didn’t fall by the same amount is that the sales tax rate was increased in April 2009 by 1% (from 7.75% to 8.75% in Orange County).

Prospects for increased revenue to California are bleak in the near term. California continues to impose numerous regulations and costs to businesses; it’s as if the Democrats in the legislature want businesses to leave. There is no driving force in California for job creation (this is true to a lesser extent nationally). Tax increases that will hit in 2011 are likely to cause even more economic troubles. And it may take a miracle for the legislature to finalize a balanced budget this year–they are running out of gimmicks and mirrors to use to balance the budget.

Yes, I have those pessimism blues on a Saturday morning.

Posted in California, Sales Tax | Comments Off on Sales Tax Collections Drop $4.7 Billion in California

Another Nominee for Tax Offender of the Year!

Posted on June 16, 2010 by Russ

In January I reported on Bozo tax protesters Tony & Micaela Dutson. Back then it was alleged that the Dutsons “tried to obstruct the IRS by filing baseless liens against four IRS workers.” Additionally, the Dutsons allegedly filed a lawsuit that the government characterizes as “frivolous” against one of the IRS investigators and allegedly lied about making payments in the millions to the individuals investigating them. The original indictment claimed that they were allegedly marketing an illegal tax avoidance program. They were barred back in 2006 from selling the program.

Well, we can change alleged to convicted on nine counts. Via the TaxProfBlog:

A married couple was convicted of running an elaborate tax shelter scheme for over a decade in which they marketed tax trusts to clients, filed lawsuits against IRS employees, and prepared a $108 million tax lien against former Treasury Secretary John Snow.

Oregon attorney Micaela Renee Dutson, 48, and her husband Tony Dutson, 53, were convicted of nine counts for various criminal tax violations, defrauding the U.S. government out of approximately $7 million. The couple were convicted of conspiring to defraud the IRS, obstructing the IRS, causing clients to use bogus financial instruments in an attempt to pay their taxes, failing to file tax returns, and aiding and advising a client to file a false tax return.

I also need to mention that the Dutson filed a lien against then Treasury Secretary John Snow for $108 million.

Well, the Dutsons won’t be getting that $108 million or the $1 trillion from IRS employees in California. However, they will likely get a lengthy stay at ClubFed where they’ll earn roughly $1.00 an hour.

Posted in Tax Fraud | 1 Comment

Las Vegas Looks to SoCal…Again

Posted on June 15, 2010 by Russ

The Nevada Development Authority is once again looking to move businesses in Southern California to Las Vegas. A series of new advertisements will feature talking primates; here’s one of the ads:

Personally, I liked the lipstick pig advertisements better. No matter what the ad, though, the case that Las Vegas makes is real. California is high tax, and high regulations. Nevada isn’t. What I’d like to see is the California legislature looking toward small business. Unfortunately, for that we might need one of these:

Posted in Nevada | Comments Off on Las Vegas Looks to SoCal…Again

One Good Fraud Deserves Some Evasion

Posted on June 13, 2010 by Russ

My mother has always told me that for real estate the most important thing is location, location, and location. For the Bozo tax crooks out there, location definitely matters. Of course, when you sell real estate you do need to actually own the property. And that was where our Bozo went wrong…the first time.

Back in 2007, John Greerty found a nice winery in Yountville, California. He decided to sell the winery. He didn’t own the property, but that was just a trivial problem for him. Mr. Greerty changed his name and even got a new driver’s license. He was able to bilk one potential purchaser. However, the second prospective buyer used Google to find out the true owner of the winery and contacted the authorities. Mr. Greerty is serving nine years for that fraud.

Well, he’s facing new charges: state tax evasion. He’s accused of not paying the state income tax on the over $500,000 he earned from committing real estate fraud. Yes, illegal income is just as taxable as legal income. And yes, you can be prosecuted for not paying taxes on illegal income.

In the end, it’s a lot easier to just pay your taxes…but that rarely occurs to the Bozos out there.

Posted in Tax Evasion | Comments Off on One Good Fraud Deserves Some Evasion

Only in Government Can the Lender and Borrower be the Same

Posted on June 13, 2010 by Russ

When I read this, I did a double take. From the New York Times:

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

Of course this makes no sense. And of course it will come back to hurt New York State. For politicians, though, a problem postponed is someone else’s to deal with…and, thus, nothing to be concerned with.

That’s just like Lt. Drebin at the end of the clip (below): There’s nothing to see here (unless you’re a concerned taxpayer).

Posted in New York | Tagged | Comments Off on Only in Government Can the Lender and Borrower be the Same

Mandatory IRS eFiling Is Coming

Posted on June 9, 2010 by Russ

If you’re a tax preparer, get ready to efile. Mandatory efiling is coming to the IRS. For the 2010 tax year (the next tax season, in 2011), if you prepare 100 or more returns you must efile; for the 2011 tax year (tax returns filed in 2012), if you prepare 10 or more tax returns, you must efile. Clients can still opt-out (there should be a form similar to California’s Form 8454) and ineligible returns will, of course, not have to be efiled (for example, returns with over 30 W-2Gs).

What’s unknown today is what impact this will have on older tax professionals. Most of the member of OCEA use software–even those preparing just a few returns a year–but there are a few individuals who don’t. Like Robert Flach, they’ve never used software and see no reason to start today. I doubt the IRS is going to make a free e-file system available, so this could cause some preparers to either retire or drastically change their methodology.

The one certainty of mandatory efiling is that combined with requiring every professional to use an ITIN the IRS will be able to keep close tabs on preparers. Say John Doe, a tax professional, runs afoul of the IRS. The IRS can turn off his ITIN and, voila, no efiling and no more returns for Mr. Doe.

I’m not sure if we’re entering a brave new world or not, but the times are a-changin’.

Posted in IRS | 1 Comment

Taxes and Online Gambling: General Presentation on June 15th

Posted on June 8, 2010 by Russ

I’ll be presenting a one-hour continuing education talk on Taxes and Online Gambling at the monthly meeting of the Orange County Chapter of the California Society of Enrolled Agents next Tuesday, June 15th. If you’re near the Phoenix Club (1340 S Sanderson Ave, Anaheim) come out and enjoy an introduction to this issue. I’ll also be inducted as the President of OCEA on Tuesday. Here’s the synopsis of my presentation:

Your client innocently mentions, “My son at college won $100,000 last year playing online poker. What do we do for his tax return?” It seems like a simple question; after all, we know the income is taxable. Yet what’s simple at first glance is anything but straightforward. Dealing with online gambling brings you into issues regarding the legality of online gambling, recordkeeping, constructive receipt, the Kiddie Tax, the Jock Tax, foreign bank account reporting, and many others.

Russell Fox, EA, MBA, brings a unique perspective in looking at these and other related issues. Russ was a professional poker player and is the author of three books on poker. His practice specializes in professional and successful amateur gamblers. He’ll discuss how to handle the client who dabbles in online gambling.

Before forming his own tax and consulting practice in 1999, Russ worked in private industry for 17 years. He held various finance and operation management positions in a diverse spectrum of companies, ranging from California’s largest grower of citrus to the dot-com that invented the pop-up advertisement. Russ is the incoming President of OCEA. He has a B.S. from the University of California, Berkeley, and an M.B.A. from the University of Southern California.

You can register here.

Posted in Gambling, Taxable Talk | Tagged | Comments Off on Taxes and Online Gambling: General Presentation on June 15th

2011 Doesn’t Look Bright

Posted on June 8, 2010 by Russ

Arthur Laffer, the noted economist, penned an op-ed in the Wall Street Journal. An excerpt:

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Dr. Laffer also notes something that I’ve been saying since I began this blog:

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

In any case, the entire article is well worth your perusal; you can find it here.

Posted in IRS, Legislation | Comments Off on 2011 Doesn’t Look Bright

Election Day

Posted on June 8, 2010 by Russ

Today is primary election day in California, Nevada, and Arkansas. While Californians don’t have many tax-related propositions to vote on today, there are numerous individuals running for office in the primary: Every state Assemblyman, half of the State Senate, one US Senator, and the Governor are all on the ballot.

If you’re in Orange County, you can find your precinct here. Elsewhere in California, you can find your polling place here.

No matter what, get out and vote today!

Posted in California | Comments Off on Election Day

The Sky Is Not Falling (Yet)

Posted on June 2, 2010 by Russ

For online gamblers, yesterday was the day that banking regulations relating to the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 went into effect. The legislation itself passed in 2006 (it was attached to the Safe Ports Act). Kay Bell at her excellent blog, Don’t Mess With Taxes, stated, “Attention online gamblers. When you go to ante up today, your bet is likely to be refused.”

Not yet, anyway.

What changed yesterday is that banks are now required to have policies to prevent funds from flowing to purveyors of “unlawful internet gambling.” The law itself did not change what is unlawful internet gambling. Indeed, the UIGEA defines unlawful internet gambling as gambling that’s unlawful according to current state or federal laws. One of the complaints from financial institutions is that the law is vague as to what is or isn’t illegal.

The US Department of Justice considers all internet gambling to be unlawful. However, the courts haven’t agreed. In the only court case on point, the DOJ lost in Re: MasterCard that the Wire Act applies to non-sports betting. (Sports betting is clearly illegal under the Wire Act.) That doesn’t mean that a different US Circuit Court of Appeals won’t rule differently, or that the DOJ won’t attempt to apply some other law.

In any case, the sites offering sports betting are still offering those clearly illegal bets to Americans. For example, you can go to Bodog and make sports bets…and that’s definitely unlawful internet gambling.

Online poker operates in a gray area. Poker is a game of skill (in my opinion), though courts haven’t always agreed. That said, there’s a preponderance of evidence showing this to be the case. So whether or not poker is unlawful internet gambling today is debatable. (It is illegal in Washington state, though, where all online gambling is a Class C felony…the same as rape. The logic of that escapes me, but you’d have to ask Evergreen State politicians what they were thinking when they decided that.)

From a tax standpoint, though, nothing has changed. Illegal income is just as taxable as legal income. All gambling income is taxable, period. If you make money playing online poker you need to send some of that to the IRS and your state tax agency.

There is legislation circulating in Congress to legalize online gambling. The chance of passage this year is minimal as there is still significant opposition. While I do expect eventual legalization and regulation of online gambling, I suspect we are still a few years away from this happening. Until then, do remember to pay your taxes no matter if you operate in the gray or red areas of the law.

Posted in Gambling | Tagged | Comments Off on The Sky Is Not Falling (Yet)