There Is an Income Tax and You Must Pay It

Posted on February 6, 2010 by Russ

When I ran West Coast operations for a telecommunications company, we hired a new employee. As per company policy, before he started work we had him fill out all the company paperwork. That individual handed the customer service manager a W-4 that said he was a citizen of California and not a citizen of the United States and, thus, exempt from income tax. My manager was confused, so asked me what to do. I told the new hire that he had a choice: He could correctly complete the W-4 or we would hire someone else. We hired someone else.

That was my first exposure to frivolous tax arguments (but definitely not my last). The IRS has just come out with an 80-page release titled, The Truth About Frivolous Tax Arguments. The argument that I saw back in the 1990s is debunked on page 21 of the IRS’ release. This new publication joins the Tax Protester FAQ as rebuttals to the trash being peddled by the unscrupulous.

Meanwhile, from the TaxProf Blog we learn that the new budget contains a proposal to increase the penalties on tax protesters.

Any person who willfully fails to file tax returns in any three years within any five consecutive year period, if the aggregated tax liability for such period is at least $50,000, would be subject to a new aggravated failure to file criminal penalty. The proposal would classify such failure as a felony and, upon conviction, impose a fine of not more than $250,000 ($500,000 in the case of a corporation) or imprisonment for not more than five years, or both.

If there was ever a time to start realizing that the tax protesters are peddling snake oil, it’s now.

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“Shhh: The Middle Class Tax Hikes Are Coming”

Posted on February 4, 2010 by Russ

Most of us are in the middle class: That’s a fact. If taxes are going to go up, taxes on the middle class are going to go up. It’s an inconvenient truth that the current Administration would prefer not to acknowledge.

So Reuters publishes a story earlier this week that states that the middle class will see large tax hikes under President Obama’s budget. (You can find the text of the Reuters story here, via the PowerLine Blog.)

The targeted tax provisions were enacted under the Bush administration’s Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;

* The $250 teacher tax credit for classroom supplies;

* The tax deduction for up to $4,000 of college tuition and expenses;

* Individuals who don’t itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;

* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free.

As I’ve said before, when a tax cut is eliminated you have an increase in taxes. I’m not going to play semantics. Bluntly, that’s a tax hike. I doubt that middle-America cares what it’s called; there’s less in their pockets.

Arthur Laffer, the renowned economist and inventor of the Laffer Curve (which showed that decreasing tax rates leads to an increase in tax collections), doesn’t like where this Administration is taking the economy. In an interview with Human Affairs, Dr. Laffer made some pointed remarks:

“Obama is a fine, very impressive person. He really is. Unfortunately, everything that he is doing in economics is exactly wrong. He is a crappy president,” Laffer said.

“Whenever a country is in the throes of spending too much and raising taxes, it’s a fiscal catastrophe in the making and this is what is happening now,” he said.

What will the impact of all this be? Dr. Laffer believes the economy might improve remarkably this year; however, such improvement would be a mirage. Companies may move income into 2010 from 2011 because of the likelihood of higher taxes next year. Dr. Laffer believes that 2011 will be a disastrous year for the economy.

In any case, higher taxes are coming. All those of you who think that only the guys behind the trees will be taxed, well, you’ve got about a 0% chance of being right.

Posted in Federal Budgeting | Tagged | 1 Comment

Radio Russ

Posted on February 2, 2010 by Russ

I am the guest on this week’s Deuce Plays podcast with Bart Hanson. The focus of the podcast is poker and taxes. You can also download it to your computer by clicking on this link.

Posted in Gambling, Taxable Talk | 2 Comments

Taxing the Man Behind the Tree

Posted on February 2, 2010 by Russ

Don’t tax me; don’t tax thee; tax that fellow behind the tree. — Senator Russell Long

It appears that the President’s budget aims to copy California and Oregon in spending our way to bankruptcy. Additionally, the philosophy noted above is ever-present in the budget.

Increasing taxes in a recession—even threatening to do so—will cause business owners to change their actions. “Why should I expand my business when the government will just take more and more of my money?” This will continue the economic slowdown, causing the need for more spending (in the view of the current Administration) and lead to more tax hikes. It’s a never-ending spiral.

The Tax Lawyer Blog has more on the bad budget coming out of Washington.

The big tax increase is the elimination of the Bush Tax Cuts. Let me be blunt: The ending of a tax cut is a tax increase. President Obama can say that he has never raised taxes, but he’s about to. I’ll have more on this as the year moves forward.

Posted in Legislation | Tagged | 2 Comments

Online Gambling Addresses

Posted on February 2, 2010 by Russ

This list has been superseded by the 2011 list. Click here to look at the 2011 list.

The IRS and Department of the Treasury stated in January 2009 that online gambling websites are considered to be foreign financial accounts. If you have $10,000 or more in one or more foreign bank and/or financial accounts, you must report them on Form TD F 90-22.1.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form TD F 90-22.1 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

Note: This list is presented for informational purposes only. It is believed accurate as of January 1, 2010. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions to the list feel free to email them to me.

Posted in Gambling | 3 Comments

IRS Street Addresses

Posted on February 2, 2010 by Russ

A reader emailed me today and said, “Why haven’t you posted your list of IRS street addresses this year?” Well, the answer is that none have changed. Still, it’s time again for the list.

Most taxpayers use the Postal Service to send their returns to the IRS. However, you can use Federal Express or UPS. The problem is the IRS hides the street addresses of their service centers on their website if you need those to use a private delivery service. (They’re listed in the back of Publication 1546.) As a public service, here are the street addresses of the Service Centers.

Andover Service Center
310 Lowell St
Andover, MA 01810
[978-474-9701]

Atlanta Service Center
4800 Buford Hwy
Chamblee, GA 30341
[770-936-4500]

Austin Service Center
3651 S IH 35
Austin, TX 78741
[512-460-0176]

Brookhaven Service Center
1040 Waverly Ave
Holtsville, NY 11742
[631-654-6583]

Cincinnati Service Center
201 W. Rivercenter Blvd
Covington, KY 41011-1424
[859-292-5185]

Fresno Service Center
5485 E Butler Ave
Fresno, CA 93727
[559-454-6334]

Kansas City Service Center
333 W Pershing Rd
Kansas City, MO 64108
[816-823-2076]

Memphis Service Center
5333 Getwell Rd
Memphis, TN 38118-7733
[901-546-4115]

Ogden Service Center
1973 N Rulon White Blvd
Ogden, UT 84404
[801-620-4249]

Philadelphia Service Center
11601 Roosevelt Blvd
Philadelphia, PA 19154-2100
[215-516-5994]

Franchise Tax Board
9645 Butterfield Way
Sacramento, CA 95827

It’s very important to note that these addresses should be used only for private delivery services. Regular mail sent to these street addresses may be rejected as sent to a non-deliverable address and returned to the sender! Mail sent to a service center should be sent to the “normal” address of the service center; for example, here is where taxpayers filing their own Form 1040 returns should mail the returns to (look at page 174 of this pdf).

Posted in IRS | Tagged | 2 Comments

The Marshals Get Their Man

Posted on January 31, 2010 by Russ

Stephen Hunter worked for American Right Litigators. If that name rings a bell, it should; ARL was the firm that Wesley Snipe went to that said you could avoid taxes through requesting some sort of rights determination letter. Hint: If someone tries to sell you anything that purports there is no such thing as an income tax, run in the other direction.

Mr. Hunter was arrested in 2008 on charges of mail fraud, conspiracy to commit mail fraud, and conspiracy to defraud the IRS in an alleged $1.1 Billion scheme; he was due in court in November, 2009. He was a no-show for his court date. He apparently fled bucolic Ocala, Florida and headed to his son’s home in Columbus, Georgia. That’s where the US Marshals Service found him.

“He stood in the window and dared us to come get him — and we did,” Daniel Winfield, spokesman for the Marshals told the Associated Press. “He went without a fight.”

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Another Reason Why You Should Check That Your Payroll Tax Deposits Are Being Made

Posted on January 31, 2010 by Russ

Let’s head to North Tonawanda, New York (near Buffalo). Vicnent Mangione allegedly had a nice tax and payroll business. The Department of Justice alleges that Mr. Mangione had a different method of handling payroll taxes than what you and I would expect. Assistant US Attorney Michael DiCiacomo told the Buffalo News,“Unbeknownst to the businesses, Mangione would secure from the businesses the proper amount of quarterly tax due to the IRS and then submit a false tax return on behalf of the business that underreported the amount of tax due,” DiGiacomo said. “According to the indictment, Mangione would then keep the difference for his personal use.” Mr. Mangione, through his attorney, denies any wrongdoing.

No matter if you use a payroll service or not, check to make sure that the government is receiving your payroll tax deposits. You are liable for your trust fund taxes, and the government always comes calling if they don’t receive the funds.

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Politicans in Tax Trouble Heading to ClubFed

Posted on January 31, 2010 by Russ

Nicholas Blase was the mayor of Niles, Illinois for nearly 50 years. Niles is a suburb just northwest of Chicago. Growing up, I was in Niles Township; had my parents remained in the Chicagoland area, I would have attended Niles West High School. And Mr. Blase was the mayor of Niles while I lived in nearby Lincolnwood.

Mr. Blase, “a longtime suburban Democratic Party powerbroker,” according to the Chicago Sun-Times, acting like many Chicago area politicians. He told business owners to pay up or get out. And pay they did to a friend’s business firm. Mr. Blase got 25% as a commission. Somehow, the illegally gotten gains managed to avoid his tax returns.

Mr. Blase was charged in 2006 with mail and tax fraud. He pleaded guilty last year. He was sentenced on Friday to a year and a day at ClubFed.

Meanwhile, another political scandal is ending in Philadelphia. Howard Cain was the top political aide to Democratic State Senator Vincent Fumo. Mr. Fumo was found guilty last year on 137 corruption counts. (The government is currently appealing Mr. Fumo’s 55 month sentence as too lenient.) A key witness in Mr. Fumo’s trial was Mr. Cain. Mr. Cain, though, had his own tax troubles. He admitted that he didn’t report $400,000 in tax (on $1.6 million of income) to the IRS. Mr. Cain was sentenced to ten months at ClubFed. He must also make restitution of $1,021,499.

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Nevada Thanks Oregon

Posted on January 30, 2010 by Russ

The Nevada Development Authority was thrilled this week when Oregon voters passed a pair of “Tax the Rich” initiatives. The two tax increases will raise the personal income tax rate to 11% on individuals making $125,000 or more ($250,000 if married filing jointly). The other tax increase is on businesses: the $10 minimum corporate income tax has been replaced with a $150 minimum tax, or 0.1% of gross revenues in excess of $500,000. The measure was sponsored by public employee unions.

How many businesses will want to expand in Oregon when they can move to Washington (with no individual income tax, though there is a business tax) or Nevada (with no personal or corporate income tax)? How many business owners will see these tax increases and lay off individuals? As the Tax Foundation said, you can’t tax the guy behind the tree. This tax increase will make Oregon less competitive and will cause the state to lose jobs in the middle of a recession.

The Chairman of Nike calls these tax increases a death spiral. He’s dead-on accurate.

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