Mr. Tax Law Writing Tax Evader

Posted on September 23, 2009 by Russ

PJTV parodies the very successful Bud Light commercials “Real Men of Genius” with Real Members of Congress featuring Mr. Tax Law Writing Tax Evader. Unfortunately, the story is true….

Hat Tip: Patterico

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We’re Still #3!

Posted on September 23, 2009 by Russ

As I prepare to head to Sacramento for a conference, the Bronze Golden State found that it held fast this past year as the third worst business tax climate in the United States as ranked by the Tax Foundation. That said, you do have to travel to the East Coast to find the two worst climates for businesses: New Jersey and New York.

Here are the top ten business climates (numbers in parentheses are the 2008 rankings):

1. South Dakota (2)
2. Wyoming (1)
3. Alaska (4)
4. Nevada (3)
5. Florida (5)
6. Montana (6)
7. New Hampshire (8)
8. Delaware (10)
9. Washington (12)
10. Utah (11)

Here are the bottom ten:

41. Vermont (43)
42. Wisconsin (38)
43. Minnesota (41)
44. Rhode Island (46)
45. Maryland (45)
46. Iowa (44)
47. Ohio (47)
48. California (48)
49. New York (49)
50. New Jersey (50)

California’s tax system isn’t uniformly bad according to the Tax Foundation. They rank California as having the 13th best property tax system. Of course, that’s due to Proposition 13, which liberals in California still decry. We also have the 14th best Unemployment Tax system. However, that’s almost certain to fall in future years; California’s unemployment insurance fund is broke and has been borrowing from the federal government. Unemployment taxes will either rise or benefits will be cut. There’s no political will in the legislature for the latter so the former is a given sometime in the future.

California’s corporate tax system is ranked as the 34th best in the country—below average, but not horrible. It’s the last two categories where California hurts businesses: sales tax (ranking 48th) and individual income taxes (ranking 48th). California did improve in corporate tax structure from 45 in 2008; this was due to the changes made in corporate taxation as part of the February 2009 budget deal—changes already being decried by liberals in Sacramento.

One excerpt from the full report is particularly telling for California:

States do not enact tax changes (increase or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will affect the state’s national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states.

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FBAR Extension Applies to Late Filers, Too

Posted on September 21, 2009 by Russ

With the IRS announcing the extension for FBAR voluntary disclosure filers, an obvious question is whether the extension also applies to those who are simply late in filing their 2008 Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1, or FBAR). I sent an inquiry to the FBAR group this morning asking that question; their succinct reply was, “Yes.”

So if you haven’t filed your 2008 Form TD F 90-22.1 you have until October 15th. You do need to follow the procedures (detailed here) but you have an extra three weeks to comply with the law.

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Fraud From North and South

Posted on September 21, 2009 by Russ

A couple tax fraud stories piqued my interest this weekend. Both have Northern components even though one is out of Tucson.

Let’s start in Tucson, where Cameron McEwen allegedly received lots of money to mine gold in Wilcox, Arizona. Mr. McEwen, a Canadian citizen and part-time resident of Tucson, supposedly got investors to wire $3.9 million to a bank account in Nevada and an additional $1.4 million to the Bahamas. All would be fine if he filed tax returns.

But you already know where this is going, right? Well, he did file a tax return for 2003 (these investments allegedly took place between 2000 and 2004) but the government claims it’s false. That’s one charge. And he allegedly didn’t file in 2002 and 2004; that’s two more charges. The alleged amount of evasion is $309,000 on $1.1 million of income. If these allegations are proven in court, Mr. McEwen will be spending some time at ClubFed.

Next, let’s head to the last frontier, Alaska. The Summit Telephone and Telegraph Company services areas north of Fairbanks. Roger Shoffstall is allegedly the owner of Summit Telephone. Mr. Shoffstall’s business appears to gross around $500,000 annually per this filing with the Regulatory Commission of Alaska.

Mr. Shoffstall, though, appears to want to operate in a manner to help his profits. He’d like his after-tax profit to be the same as his before-tax profit; at least, that’s what the government alleges. He’s been indicted by a grand jury on tax evasion. He allegedly hasn’t paid his 1996 – 2003 taxes.

Whether you’re in gold mining or telecommunications, remember to pay Uncle Sam. It’s one creditor who can throw the book at you.

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Federal Tax Fraud: The Users Guide, Part 3

Posted on September 21, 2009 by Russ

I’ve reported on Bernard Bagdis and Wayne Bozeman before. Mr. Bagdis decided to write a book called Federal Tax Fraud: The Users Guide. Unlike guides to computer software the reception for this idea was chilly. He used the ideas in the book to help some of his clients evade $5 million in taxes on $24 million of income. He was caught, tried, and convicted in April. He’ll be sentenced in November.

Mr. Bozeman was sentenced this past week on charges of evading of $157,000 of tax on $830,000 of income. He received 22 months at ClubFed, a fine of $2,000, and must make restitution of $137,635.

I guess this is one book that won’t be turned into a movie.

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CARB Looking at Greenhouse Gas Tax

Posted on September 21, 2009 by Russ

The California Air Resources Board is looking at Greenhouse Gas Fees for all California businesses. Call them fees, but as I repeatedly state all taxes (and fees) are passed on to consumers. Assuming the report is accurate this will just add to California’s anti-competitive status and will be yet another boon to Las Vegas, Phoenix, and Denver.

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State Tax Commission Looking at Business Receipts Tax

Posted on September 21, 2009 by Russ

The headline basically tells the story. The commission appointed by Governor Schwarzenegger to look at California’s tax structure will apparently propose a Business Net Receipts Tax. The tax would not be based on gross receipts but net receipts: gross income less cost of goods sold. The proposed tax rate is 4.2%. The commission hopes that the tax would lead to the lowering of California’s corporate and personal income tax rates as well as the state’s sales tax rate.

The article I linked to notes that there is a lot of opposition to the tax. As I’ve mentioned before, all taxes and fees to businesses are passed on to consumers. This tax would also hit intellectual property producers hard, as labor is usually a “below the line” cost and wouldn’t be deductible. That’s not good news for Silicon Valley. It would also impact apartment owners and other service businesses.

What I worry about is that the liberals in the legislature will look at this proposed tax not to replace California’s current tax system but as an additional source of revenue. Frankly, I don’t think this tax can pass given that all new taxes require a two-thirds vote; Republicans in California’s legislature have vowed to block any tax increases.

Hopefully, there will be some better nuggets in the commission’s report than this lemon of a tax.

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FBAR: Extension to October 15th?(Confirmed)

Posted on September 21, 2009 by Russ

Bloomberg is reporting that the IRS will delay the September 23rd extended deadline for filing the Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1, or FBAR) until October 15th. The extension (of an extension) was requested by numerous accountants and attorneys who are dealing with large numbers of requests to file under the IRS’ voluntary amnesty program.

Do note that this is, for now, just a report of, “[A] government official familiar with the program,” and is not a confirmed IRS announcement. I would expect confirmation (or a denial) tomorrow.

Update: The IRS confirmed this morning the extension until October 15th. The IRS also stated that there will be no further extensions.

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Sweden Understands; Current Administration Doesn’t

Posted on September 20, 2009 by Russ

>From PowerLine I learned that Sweden is lowering its tax rates to encourage job growth. Yes, a bastion of Scandinavian socialism understands economics enough to know that high tax rates discourage job growth. It’s a pity that our current Administration doesn’t understand this basic tenant of economics.

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Amnesty, FBAR Deadline Less Than A Week Away

Posted on September 17, 2009 by Russ

FBAR. Just four letters, but put together it’s become a very interesting tax story this summer. Well, that story will play out as summer turns to fall next week.

The IRS’ limited amnesty on criminal prosecutions of late filers of Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1, aka FBAR) ends on Wednesday, September 23rd. If you have not reported income from foreign financial accounts—say you had $2 million squirreled away in a bank account in Lichtenstein—you need to see an attorney now.

But there’s a second part to this story. If you have a foreign financial account and haven’t filed your 2008 Form TD F 90-22.1, you have until Wednesday to do so. Lots of people have these accounts and don’t realize it. You have a credit card issued by the Bank of London (U.K.); you have a foreign financial account. Most online gambling accounts are foreign financial accounts.

To determine whether or not you must report these accounts, take your maximum balance of each such account at any time during 2008, sum the totals, and compare the sum to $10,000. If the sum is equal to or exceeds $10,000 you must report all of your accounts, even the accounts that have just $5 in them. If you’re just now filing the TD F 90-22.1 you must also send a copy of your 2008 tax return to an IRS office in Philadelphia. I detailed the procedure here.

Several years ago I wrote that filing an FBAR almost always leads to an audit. That may have been true years ago but is almost certainly not the case today. In 2006, the Department of the Treasury received over 500,000 Form TD F 90-22.1’s. The IRS just doesn’t have the staff to audit everyone who files the form. While it’s likely that filing the FBAR does increase your risk of audit it’s probable it’s no longer a huge risk factor. However, not filing an FBAR when you’re supposed to means you are absolutely taking a giant risk. If it’s an unwillful violation you’re looking at a maximum $10,000 fine; it it’s a willful violation, you’re looking at a minimum $100,000 fine plus a possible visit to ClubFed.

No one knows if the IRS will, after September 23rd, routinely fine those individuals who submit late FBAR filings. But that wouldn’t surprise anyone in the tax professional community. So if you’re impacted by this follow the procedure and file the FBAR now or you may have some very unpleasant consequences in the future.

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