Annual Blog Hiatus

Posted on March 28, 2010 by Russ

With just about 2½ weeks left before Tax Day, it’s time for my annual blog hiatus. I’ve written my annual top ten Bozo Tax Tips (they’ll start appearing in a couple of days), but between now and April 15th my clients are paying me to get their work done. Of course, if anything, really, really big in the world of tax happens I’ll interrupt the hiatus and post about it. Otherwise, to you and my fellow tax bloggers, have a Happy Tax Day!

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Why I’m an Hour South of Los Angeles

Posted on March 25, 2010 by Russ

There was a small blurb on the Internet today: “New LA law cuts Internet business taxes.” Los Angeles has a gross receipts tax. When I was in the telecommunications industry, I relocated a business from Sherman Oaks (part of Los Angeles) to nearby Burbank (a separate city) to avoid this tax. Why pay additional money when there’s no need to?

When I started my business I chose Irvine because it’s a low tax environment (for California) with a strong pro-business climate. If I were in Los Angeles, I’d pay a business gross receipts tax at the highest percentage for Los Angeles. My City of Irvine business license costs $50 a year. I’d pay at least ten times that much in Los Angeles.

When you’re looking at where you locate your business take a look at local taxation. Burbank is less than ten miles from Sherman Oaks, but the taxation is quite different in the two locations.

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Not All Publicity Is Good Publicity

Posted on March 23, 2010 by Russ

There’s an old saying, “All publicity is good publicity.” Sometimes, though, it’s not. Especially if you’re a Bozo.

Take Scott Mitchell, the owner of Central Iowa Amusements. Mr. Mitchell’s company got some good words in the Des Moines Register; his company had $464,676 of revenues from touch screen lottery terminals in Iowa. Unfortunately, Mr. Mitchell neglected to tell his accountant about that income. Even more unfortunately for Mr. Mitchell, the IRS does read the newspaper. Mr. Mitchell is likely heading to ClubFed after being found guilty of tax evasion.

Joe Kristan has more.

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Specifics Trumps General in Gambling Losses for Taxes

Posted on March 22, 2010 by Russ

Congress writes the Tax Code. That leads to many situations where there’s conflicting language between two sections of the Code. Section 162(a) allows for the deduction of necessary and ordinary business expenses. Section 165(d) limits gambling losses to the amount of gambling winnings. Which section wins out for a professional gambler who has a losing year?

The Tax Court today looked at the case of a professional gambler who in 2006 had a losing year. On his tax return, he put his gambling income and expenses on a Schedule C. But he did not limit his gambling losses to the amount of wins; rather, he took all his losses and attempted to have a net operating loss. The IRS examined his return, and adjusted the total so that he was limited to the gambling loss that was the amount of wins. The case made its way to the Tax Court. The Court noted,

Petitioner is not the first taxpayer to seek to use the Groetzinger holding in support of offsetting gambling losses against other income. See, e.g., Lyle v. Commissioner, T.C. Memo. 1999-184, affd. without published opinion 218 F.3d 744 (5th Cir. 2000). In each such instance the result has been the same–the explicit language of section 165(d) trumps the general language of section 162(a) and limits wagering losses to the amount of wagering gains. See, e.g., Valenti v. Commissioner, T.C. Memo. 1994-483.

Petitioner presented no argument that would cause this Court to reconsider its prior holdings. We accordingly hold that petitioner is not entitled to deduct his gambling losses that exceed the amount of his gambling gains.

The petitioner also attempted to deduct $2,400 for promotional expenses. However, he submitted no evidence of those expenses and the Court threw out that deduction.

Remember, gambling is a ‘sin’ in the eyes of Congress and professional gamblers are in one of the few professions where you can’t lose…at least, for taxes.

Case: Crawford v. Commissioner, T.C. Memo 2010-54

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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.

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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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