A Companion to Tax Trouble

Posted on March 21, 2010 by Russ

After ranting on health care, it’s time for the lighter side of taxes. That means a visit to that old standby, the escort service, where tax trouble is apparently second nature.

Let’s head to Salt Lake City where companionship appeared to have problems. Jodi Hoskins and her then husband, Roy Hoskins, ran an escort service to help with those issues. Companions was its name, and it did quite well. However, you wouldn’t know it if you looked at the Hoskins’ tax return.

They reported income of just over $70,000 in 2002. Their math skills, though, weren’t as good as their ability to live quite well. It seems that they understated their income by just a bit. The actual gross receipts in 2002 were $1,204,354 higher than what they claimed on their return. A “missed it by that much” moment to be sure. That’s an understatement of $485,443 in tax.

Unfortunately for the Hoskinses, the IRS and the Department of Justice discovered the evasion. Roy Hoskins pleaded guilty earlier this year; he’ll be sentenced on April 15th (how appropriate). Last week, Jodi Hoskins was found guilty of one count of tax evasion. Besides the restitution that will undoubtedly be ordered Ms. Hoskins is likely looking at a visit to ClubFed.

So if you run an escort service, be mindful that the IRS is well aware that it’s a cash business. Just report the cash, pay your tax, and live a somewhat less lavish lifestyle.

Posted in Tax Evasion | Tagged | 1 Comment

Why I’m Against This Health Care Bill

Posted on March 21, 2010 by Russ

Most tax professionals I know want a limited government and limited taxation. The measure that the House will likely approve tonight will be disastrous in so many ways.

First, there are twenty new taxes in the measure. I’ve talked about this before but an essential reality of taxes is that all taxes are passed on to consumers. If a business must pay $10 more for an item, you will be paying at least $10 more for that item.

The only way the measure scared up enough Democratic votes in Congress was using phony accounting. The Congressional Budget Office (CBO) “scored” the measure as a deficit reducer. Well, the CBO scores only the first ten years of the measure. The taxes go into effect in the near future, while the health plan doesn’t go into effect for four years. With ten years of revenues and six years of costs, of course it reduces the deficits.

But for our children and grandchildren, the Obama Administration is mortgaging their future. This measure can’t be paid for, and added to the “Stimulus” legislation that passed last year the disaster is huge. Taxes will continue to go up, probably to confiscatory levels in high-tax states such as California and New York.

Governor Chris Christie (R-NJ) has the right idea. Let’s live within our means. Let’s cut spending, eliminate government programs to what’s necessary (rather than having what’s nice). We need to do this in Washington.

This health care bill spends money, creates bureaucracy (I’ve read that 16,000 new individuals will be needed at the IRS to enforce this) and will hurt American industry. More money will leave our pockets for taxes to fund this bureaucracy–funding that’s not acknowledged in the measure.

Unfortunately, the current Administration has absolutely no desire to limit government spending. There’s an option, though, and it comes as we vote later this year for our Representatives and Senators. Ask yourself if the individuals you are voting for have your fiscal future in mind. A good proxy for this is how they voted on health care (assuming they are in Washington today). In June (for California) and in November (for the country) we’ll have an option to let Congress know what they should be doing by electing individuals who understand what limited government means.

Posted in Legislation | Comments Off on Why I’m Against This Health Care Bill

Unearned Income Tax in New Healthcare Bill Will Impact Gambling

Posted on March 18, 2010 by Russ

The new healthcare legislation contains plenty of taxes. One especially bad one is a new 3.8% tax on unearned income above $200,000. This will have a very bad impact on amateur gamblers.

When I last looked at the bill, the tax was 2.9%. In the “final” version of the bill, it’s up to 3.8%. Let’s take a hypothetical gambler, Joe Student. Mr. Student has $500,000 of winning sessions and $495,000 of losing sessions. After his standard deduction and exemption he owes no tax.

But not in the near future. He’ll owe 3.8% on $300,000 of mostly phantom income, or $11,400. What will Joe Student do? He’ll cheat on his taxes, of course. Pay $6,400 more than what he made on his income—you must be kidding! But that’s exactly what the legislation dictates.

This legislation is bad in many ways, but from a tax standpoint it’s a disaster. Unfortunately, I don’t have the time right now to read the bill and find out what other nuggets are in the legislation; I’m forced to rely on others such as Keith Hennessey. Luckily, Mr. Hennessey and others do have the time to review legislation that remains unpopular, unworkable, and insane.

Posted in Gambling, Legislation | Tagged | 2 Comments

$15 Million in Allegedly Phony Refund Claims

Posted on March 17, 2010 by Russ

I’ve seen returns requesting large tax refunds, but I haven’t personally seen one requesting $2.5 million. However, that’s what Alexander Adams and his son Garrett, of nearby Huntington Beach, requested from the IRS. There’s just a few problems with the request, at least according to a complaint filed against the Adamses and Alexander’s other son, Brandon:

“The defendants prepared federal income tax returns claiming massive fraudulent tax refunds based on fabricated income tax withholdings.” Well, the total of their requests allegedly included Garrett’s of $2.5 million, a customer’s $2.5 million, and Alexander’s $361,000 and, in total, added up to $15 million.

That’s a lot of tax, especially when it’s all allegedly phony. The Adamses are a target of a US Department of Justice lawsuit and face possible civil penalties of 20% of the amount of their claims ($3 million) plus being barred from the tax preparation industry. Mr. Adams is accused by the DOJ of promoting his scheme through seminars and web presentations.

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What May Really be Behind the 4¢ Fiasco

Posted on March 17, 2010 by Russ

Last night I listened to a presenter from the IRS at the monthly meeting of the Orange County chapter of the California Society of Enrolled Agents. He knew all about the 4¢ fiasco. It appears that there might be a missing payroll return or deposit from the end of 2009. At this point this is just rumor, and the gentleman from the IRS absolutely agreed that the story made the IRS, at best, look bad.

Because of privacy rules it’s unlikely we’ll ever find out the truth behind this issue. Peter Pappas posted that, “The IRS has reason to believe that the taxpayer is not complying with other tax laws, including, but not limited to, the proper classification of employees and the accurate and timely depositing of payroll taxes.” This may be exactly what happened.

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IRS’ Dirty Dozen Tax Scams

Posted on March 17, 2010 by Russ

The IRS released the dirty dozen tax scams today. Joe Kristan has more, and a dirty dozen of bad tax policies.

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Deadline Day: Corporations and S-Corps

Posted on March 15, 2010 by Russ

We’ve hit the first tax filing deadline for 2009 returns. Today’s the day that calendar year corporation and S-corporation tax returns are due. Since almost all S-Corps are calendar year, that means a whole bunch of returns are due today.

But what can you do if you’re not ready? File an extension. Go to the IRS’ web site and download Form 7004, complete it, and mail it today. (Here’s a link to the instructions, which contains where you mail Form 7004 to.)As always, I strongly urge that you use certified mail, return receipt requested so that you have proof of mailing (and receipt).

California does not require an extension to be filed (it is automatic). However, an extension is an extension of time to file, not to pay. California has a minimum franchise tax for all corporations (except in their first year), so many corporations will need to download Form 3539 and send it to the Franchise Tax Board.

It’s fairly easy to file an extension and avoid penalties. There’s absolutely no reason no to do this if you need to.

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Getting Their 2¢ Worth…Twice

Posted on March 13, 2010 by Russ

Let’s head to Sacramento, where one place to get your car washed is Harv’s Metro Car Wash. The IRS decided that Harv’s needed more publicity. Last Wednesday, two IRS agents drove to Harv’s and demanded that the owner pay up on his back tax debt.

Did Harv’s owe thousands in back taxes? Perhaps they didn’t pay their Trust Fund (Payroll) taxes?

Well, I can’t answer which tax wasn’t paid. Indeed, the owner of Harv’s has a letter from the IRS dated in October 2009 noting that Harv’s didn’t owe anything.

But the IRS would now beg to differ. It seems there’s a 4¢ balance due from 2006, and with penalties and interest it’s now grown to $202.35.

I may bring this up on Tuesday when the IRS will be speaking at OCEA (my local professional society). Needless to say, this does not make the IRS look good.

Posted in IRS | 1 Comment

Spring Ahead…

Posted on March 13, 2010 by Russ

Tonight is not the favorite night for tax professionals: we lose an hour of sleep. Daylight Savings Time begins at 2am; before you head to bed move your clocks up one hour.

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FUBAR Update: The Use Tax Letters Begin to Arrive

Posted on March 10, 2010 by Russ

Yesterday, my first client received his Use Tax Enrollment Letter. At least this client managed to ask me if they had to do anything with it. The letter, dated March 1st, arrived on March 9th. The deadline for filing 2007 and 2008 Use Tax returns as noted in the letter is January 31, 2008 and January 31, 2009. The letter notes that penalties will apply but that you can request a penalty abatement.

I just can’t wait for some of my gambling clients in California to get this letter and tell me about it in March…2011.

Bill Leonard, the former member of the Board of Equalization, was going to ask the BOE for a one month-delay. It does not appear that will be going anywhere. (Mr. Leonard resigned from the BOE yesterday.) Spidell was pushing the Legislature for a six-month delay. With State Senator Calderon noting the legislation is working perfectly (a perfect FUBAR?) there’s no possibility of that happening.

Even better is the fact that businesses who aren’t notified by the BOE still must register with the BOE if they meet the criteria.

I hope no one wonders why California’s tax system is now ranked as the worst in the country.

Posted in California, Sales Tax | Tagged | 2 Comments