The IRS announced this morning the standard mileage rates for 2010. They are:
The details are in Revenue Procedure 2009-54.
Like most tax professionals, I send out a newsletter for my clients. In my most recent newsletter, I included the following:
Under federal law, a business owner (this includes those of you who file a Schedule C — a sole proprietorship) must send a Form 1099-MISC to any non-corporation from which they’ve purchased $600 or more from (excluding merchandise).
The IRS has become quite strict about enforcing the penalties when you fail to send out 1099s when required or when you fail to submit the 1099s and the associated 1096 to the IRS in a timely manner. Here [is an example] in which you must send out a Form 1099-MISC:
– You are a professional gambler, and file a Schedule C for your gambling business. You hire John Doe to coach you and improve your play, paying him a total of $650 during 2009. You must send Mr. Doe a 1099-MISC.
The first email I received was from a poker coach (not my client). He stated that he didn’t want to complete the Form W-9 as he didn’t want anyone to know his social security number. I replied that he can apply online with the IRS at no cost for an Employer Identification Number to use in place of his social security number.
He then replied that he didn’t want to receive the 1099, and that he wouldn’t complete it no matter what. I replied that under the law he’s required to complete the W-9 or he could be fined by the IRS.
I’m certain that the individual likes the idea of being paid under the table, thus avoiding income tax. Unfortunately, he’ll likely be caught sooner or later he’ll likely be caught, through an audit of himself, an audit of one of his clients when the IRS follows-up an unsent 1099-MISC, or through some other method (i.e. a suspicious activity report, a currency transaction report, etc.)
Meanwhile, I received an email from a client letting me know that he didn’t like the idea of sending out 1099-MISCs. He saw no reason to anger his poker coach and didn’t like the idea of completing worthless paperwork.
Whether 1099s are “worthless paperwork” or not, they’re required to be sent when a business pays a non-corporation $600 (or more) for services. Poker coaching is a service. A professional gambler (such as a professional poker player) runs a business. The IRS expects proper business conduct, including the filing of required information returns such as Form 1099-MISCs. Legally, there is no option but to send out 1099s where required.
I’ve represented a few businesses in audits this year. In every case, the IRS Revenue Officer reviewed the 1099s sent by the business. It’s becoming a point of emphasis for the IRS (if it has not already been one).
Most individuals comply with the law. Most poker coaches declare their coaching income on their tax returns, so receiving a Form 1099-MISC isn’t an issue. For those who aren’t claiming all their income, it’s time to start. Sooner or later every transaction will require a 1099; it’s clear that’s the direction Congress is heading.
It’s rare these days to read about any tax rate dropping. County Commissioners in Cook County, Illinois, home of Chicago and some of the metropolis’ suburbs, voted earlier this year to cut the county’s sales tax rate by 0.5%. Cook County Board President Todd Stroger vetoed the rollback. Yesterday, the veto was overridden. On July 1, 2010, the sales tax rate will fall. For Chicago, this means that the sales tax rate will fall from 10.25% to 9.75%.
“Some people will die needlessly for lack of access to the health care our system provides today,” Stroger said to the Chicago Sun-Times.
Two other politicians have clearer heads about the matter. Republican County Commissioner Timothy Schneider called it “…a $195 million rebate to the people of this county.” Democratic County Commissioner Forrest Claypool noted that it was part of a voter revolt. He told the Sun-Times, “What people see … is a county government that is too often a friends and family plan, a jobs machine for the politically connected.”
Politicians everywhere need to realize that there’s no such thing as government’s money. All of the money to fund government comes from the people. Commissioner Claypool noted that there’s no reason why government can’t be run more efficiently. He’s right. When times are tough government needs to cut back. Finally, Mr. Stroger’s comments about lives being lost is fatuous. Union employees will have to make do with either a smaller raise or perhaps the same salaries or even cuts. After all, that’s what we the people are having to do during the recession.
California politicians seem to think that they can raise tax rates higher and higher and higher and businesses won’t react. Bluntly, that’s wrong.
From the Leonard Letter and the South Dakota Department of Tourism and Economic Development comes word of a small firearms manufacturer named Bar-Sto Precision Machine. Located in Twentynine Palms (near Palm Springs), Bar-Sto makes auto-pistol barrels primarily for law enforcement. The company employs about 18 individuals.
But the continued increases in state taxes along with California’s high regulatory burden have impacted the privately held firm. Irv Stone, the owner of Bar-Sto, had enough. Instead of continuing in business at a lower profit margin he’s taking action. The business will be relocating to Sturgis, South Dakota.
“South Dakota is really a great place to do business,” said Irv Stone, second-generation owner of Bar-Sto. “The differences in the tax climates between California and South Dakota are night and day, and we have been treated real well by the GOED (Governor’s Office of Economic Development) and the Sturgis Area Economic Development.”
If I were to ask any of the Democratic leaders of the California legislature about Bar-Sto, I’m certain their reaction would be something like, “It’s a shame. But it’s not that relevant; after all, it’s only 18 jobs and they make guns!” Unfortunately, that’s the wrong reaction.
Yes, 18 jobs isn’t that many in California. But those 18 individuals support other wage earners through their purchases at local retailers. The loss of these 18 jobs will cascade through the work force in Twentynine Palms.
And it’s not one firm leaving the Bronze Golden State. One of my clients relocated three years ago from Laguna Hills to Jacksonville, Florida. It was just 15 jobs. Yet you need to multiply the 15 jobs lost then by a large number as more and more businesses realize that there’s a better business climate elsewhere.
There’s a solution, but it’s not one that California’s legislative leaders will like to hear. Regulations need to be cut drastically. Tax rates need to come down. Implement these actions and businesses will want to be in California and employment rates will increase. Continue down the current path—this includes such misguided actions as the current state CO2 regulations—and more and more businesses will leave.
South Dakota has a good business climate but a rather poor actual climate (weather). Yet a second generation business owner is willing to uproot his family and move there just to avoid the high taxes and regulatory burden of California. Many other business owners will likely make similar decisions in the future, choosing nearby states with warmer climates like Arizona, Nevada, and Colorado.
While I had a great Thanksgiving, the individuals I’m highlighting below had a bit less to be thankful for. The first story highlights an indirect result of a traffic ticket while the second spotlights recurrent attempts at defrauding the IRS through identity theft.
First, let’s head to Hartford where Willie McKay was apparently speeding along or, in some other manner, violating Connecticut’s traffic laws. He was pulled over for a routine traffic stop. Well, it was routine until the officers checked to see if Mr. McKay had any warrants outstanding. He had thirty: 21 for filing false state tax returns, seven for failing to file state withholding returns for his church (Mr. McKay is a pastor), one for larceny, and one for computer crimes. Mr. McKay is accused of attempting to bilk Connecticut out of $150,000 in phony income tax returns. Clearly, if you’re wanted on thirty felony counts it pays to obey the traffic laws.
Next, from New Jersey comes word of four Nigerians who succeeded in obtaining $3.2 million in tax refunds they allegedly shouldn’t have. Adeyemisi Toyusini, Adebowale Sheba, Taiwo Daisi, and Adedeni Adenni were arrested and charged with conspiracy to defraud the United States. The defendants allegedly used names garnered from identity theft to file tax returns claiming $11.5 million in refunds. They allegedly used 41 addresses they controlled, and had received $3.2 million in refunds (of which, $2.7 million were deposited). Two of the defendants are allegedly in the United States illegally. All of the defendants are being held without bail and are looking at lengthy terms at ClubFed and large fines if found guilty.
If you are a victim of identity theft you should contact the IRS. The IRS has an information page on identity theft, a form (Form 14039), and a telephone hotline (1-800-908-4490; Note: This number is solely for identity theft). Notifying the IRS may not be on top of your list if this happens to you, but it’s important.
Every six months theBoard of Equalization, California’s sales and excise tax agency, publishes its list of the top 250 debtors to the BOE. The list was updated this past week with 28 new entrants.
Unlike the list of the top 250 income tax debtors, this list mainly consists of businesses; indeed, I was struck by how many automobile dealerships and related businesses are on the list. The largest new lien is against Mastermind Group, Inc. dba Bay Auto Brokers, Inc. in Richmond (in the San Francisco Bay Area). That business has a $1,241,847 lien. The largest lien is for $7,976,634 to De Won Motors Group, Inc. in Los Angeles.
The listings have caused some entities to pay their tax. All told, 23 taxpayers owing a total of $25 million have made some payments on their debt with $3.4 million collected to date. Unfortunately, that’s a drop in the bucket; the total owed on the list is a staggering $288 million.
California has economic troubles, but it’s not alone. Another state facing serious economic issues is Michigan. Not only is there the recession, but they also have the problems with the automobile industry. So what should politicians propose to help Michiganders facing economic troubles? Cutting regulations, lowering taxes, and improving the business climate all quickly come to my mind. However, I’m not running for governor of Michigan.
On the other hand, Alma Wheeler Smith (D-Salem Township) plans on running for governor next year. Her platform appears to differ just a bit from my ideas. She proposes:
Luckily for Michiganders, Democrats control only the lower state House and not the state Senate. Republicans in the state Senate don’t like the idea of any tax increases and they do control the state Senate.
If Ms. Smith wins nomination the Democratic nomination for governor next year Michiganders will be faced with a stark choice. Vote for an individual who wants to drive out even more business from Michigan, or vote for Ms. Smith’s opponent. At least you know where Ms. Smith stands on this issue.
Well, I didn’t know that, but one group on individuals made that argument. Joseph Saladino, Marcel Bendshadler, and Michael Mungovan tried that dubious stance. They offered what the Portland Oregonian called a “tax evasion service” as they prepared over 1000 returns where they noted that compensation for personal labor isn’t taxable. One defendant, Richard Ortt, was acquitted; earlier, Richard Fuselier pleaded guilty.
Assistant US Attorney Allan Garten told the Oregonian, “So let’s assume for a moment that you would get a W2 that said $40,000. (The guilty men) would list as income $40,000, and then they would deduct the value of your labor of $40,000 … so that you paid no taxes…That’s illegal.”
Given that the tax fraud involved $9 million, the guilty individuals are looking at lengthy terms at ClubFed. If a tax preparer tries to tell you wages aren’t taxable, run, don’t walk, out of the office.
Suppose you’re disabled, and collecting disability from your insurance company. If your disability is supposedly keeping you from work, appearing on a nationally televised show where you are demonstrating your skills—skills you supposedly can’t do while disabled—could lead to problems.
Ronald Hunt of Sunland, California was an interior designer. He went on disability sometime around 2003. There was only one minor problem: He continued to work. He also decided to help his business by appearing on HGTV, a home improvement and decorating cable television channel.
Mr. Hunt knew that lots of people try to improve their homes, and appearing on television might help sales. But Mr. Hunt forgot that even employees of insurance companies, including his insurance company, watch HGTV. Yes, an employee familiar with his claim saw the supposedly disabled Mr. Hunt show his skills on national television. The California Department of Insurance investigated and found that Mr. Hunt wasn’t as disabled as he said in his claims; he managed to work from 2003 – 2006. Additionally, the investigation disclosed that Mr. Hunt earned $400,500 of income while on disability…income that somehow forgot to be included on his California tax return.
Mr. Hunt pleaded guilty to insurance fraud and state income tax fraud. He must make restitution of $151,000 to his insurance company and $31,000 to the Franchise Tax Board. Sometimes free advertising should be passed up.
Somehow, strip clubs and taxes seem to follow each other. Usually I report on strip club owners who somehow forget that cash income is just as taxable as any other income. Today, however, it’s time to head to Utah and look at the application of taxes on strip clubs and escort services.
Back in 2004 the Utah legislature voted to impose a 10% tax on strip clubs and escort services; the tax would fund sex offender treatment for some incarcerated sex offenders and fund the Utah Attorney General’s task force looking at crimes against children. The tax is imposed on businesses where there’s nudity for more than 30 days, and impact admissions, user fees, food and beverages, and Utah-produced merchandise that is sold in the businesses.
The tax was upheld on the strip clubs:
In this case, the tax is triggered by nudity, which the (U.S.) Supreme Court has specifically declared ‘is not an inherently expressive condition. We find nothing in the record before us — either (in) the tax’s legislative history or in the text of the tax itself — establishing that the tax was enacted with the predominant purpose of suppressing protected expression.
However, the tax was ruled unconstitutional as far as escort services. The statute doesn’t relate escort to nudity, and so it was ruled too broad:
The tax defines an ‘escort’ as anyone who accompanies another for compensated companionship…Therefore, according to the plain terms of the statute, individuals who are paid for providing care for the elderly as well as those who are paid as tour guides would fall within the definition of an ‘escort,’ and any person or business who employs them would be subject to the tax.
So good news for escort services, for now, but bad news for strip clubs. Unless the nudity vanishes—and that would, one assumes, defeat the purpose—Utah’s strip club tax is constitutional.
