Unlikely Duo of Lawsuits Could Impact Illinois

Posted on August 26, 2009 by Russ

Rocky Wirtz is a folk hero among Chicago’s long-suffering hockey fans. After his father, William (Bill) Wirtz, passed away in 2007, he changed the Blackhawks’ philosophy. Suddenly, the laughable losers turned into winners, and the Blackhawks played in the Western Conference Finals last year.

Mr. Wirtz also owns a liquor distributorship in Chicago. It’s not a little business–it’s a $1.5 billion company. And so when Illinois lawmakers decided to balance its budget partially by hiking liquor taxes, he was annoyed. Well, more than annoyed. He’s challenging the liquor tax hike on grounds that it violates the state’s constitution by covering disparate subjects.

Mr. Wirtz is also challenging Illinois’ new video poker law. In theory, come mid-September there should be video poker terminals in bars and taverns throughout Illinois. Hogwash, says Aaron Jaffe, chair of the Illinois Gaming Board. While the state legislature approved the video poker terminals, they didn’t fund any of the needed personnel or the $75 million needed to just implement the program. So if there’s no court order stopping the program it’s likely that video poker is still months away.

But Mr. Wirtz is challenging the gaming expansion, too. He claims that the expansion violates federal gambling law. Mr. Wirtz’s attorney is asking for an immediate injunction.

Meanwhile, the AFSCME has filed a lawsuit to stop Illinois from laying off 2,600 state workers. The union argues that under their collective bargaining agreement, layoffs must be negotiated.

One thing is certain: Expect lots more labor unrest as state budgets shrink. That’s a conclusion that everyone involved can agree with.

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Another Don’t Try This at Home Story

Posted on August 23, 2009 by Russ

Back in July 2007, the IRS demanded that Richard M. Arnold of El Reno, Oklahoma, pay back taxes in the amount of $317,000. This wasn’t his first brush with the IRS; back in 1999 the IRS filed a $300,000 lien on his property.

Most of us, when we have tax problems, will work with the IRS, hire reputable representation, and attempt to resolve the problems. While it’s possible that Mr. Arnold did this (the news story isn’t clear on that), he did one thing that was sure to cause grief if discovered. He used an entity he created in Panama to purchase a $78,000 SUV in Oklahoma.

Let’s see how bad this is. Offshore companies, assets moved offshore, hiding assets from the IRS…well, I think you get the idea. Mr. Arnold pleaded guilty last week to the charge of concealing property upon which levy was authorized for the purpose of evading or defeating the assessment or collection of federal taxes. He’ll be sentenced later this year and could get three years at ClubFed.

If you get into tax trouble realize that taking money you’ve moved offshore and purchasing luxury items is a good way of getting in deep trouble.

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He Fought The IRS, and the IRS Won

Posted on August 23, 2009 by Russ

I really wanted to title this piece He Fought the Law, and the Law Won, but that just wouldn’t be true. Wiley Kuyrkendall doesn’t believe that the IRS can collect income taxes. I’ve gone over such tax protester arguments in the past, but they really don’t bear much thought; they’re as phony as three dollar bills.

But Mr. Kuyrkendall decided to go one step further. He sued the IRS for $1.1 Billion alleging that Congress didn’t have the authority to impose an income tax, and the IRS couldn’t collect a tax. Back in January 2006 his lawsuit was dismissed with prejudice—the judicial equivalent of “You’re not just wrong, you’re dead wrong.”

Mr. Kuyrkendall perhaps should have kept in the shadows. Since he didn’t believe in the income tax he didn’t file tax returns. Did I mention he earned $800,000 from 2002 through 2005? And that once he filed his lawsuit someone at the IRS was bound to look for his non-existent tax returns?

Mr. Kuyrkendall was found guilty in Jackson, Mississippi last week of not filing tax returns. He’ll likely get to visit ClubFed…and have to pay his back taxes.

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Moving Your Cash Receipts to an ATM Won’t Strip Away the Income

Posted on August 21, 2009 by Russ

Unless Congress exempts income, it’s taxable. Cash income is just as taxable as checks or credit cards. As I reported last December, one enterprising Minnesota strip club owner didn’t think that was the case. He was wrong.

As Joe Kristan noted, Larry Kladek stocked the ATM in his club with his cash receipts. All went well until the IRS found out. He pleaded guilty last year to tax evasion; he was just sentenced to 20 months at ClubFed.

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When a Fee Is a Tax

Posted on August 21, 2009 by Russ

San Diego has had budget problems for many years. One step that San Diego used to balance its budget was ruled an illegal tax this pat week by a court.

San Diego charges a collection fee on its business tax. The city says its to cover mailing and handling costs. Fees don’t need approval by voters; taxes do. Two landlords filed a lawsuit claiming the fee was an illegal tax (the fee was never approved by San Diego voters).

The Court agreed with the landlords, noting:

Whereas before the enactment of the Resolution a portion of the Business Tax proceeds were necessarily expended on the cost of administering the Business Tax program and collecting the tax, the imposition of the levy raised funds to pay for those costs, thereby permitting all of the Business Tax proceeds to be deposited in the general fund for expenditure on any and all governmental purposes. Thus, in practical effect, the levy is an increase in the Business Tax and therefore an increase in a general tax.

The Tax Foundation filed an amicus curiae brief on the case, and they were pleased with the ruling.

“San Diego wanted more revenue. Rather than just going to voters, they chose to play this definitions game,” said Joseph Henchman, tax counsel for the Tax Foundation in Washington, D.C., which filed a brief in support of getting rid of the fee. “To us, it’s such an obvious issue of trying to mislabel something that is clearly a tax.”

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Perhaps It Was The 300 Million Witnesses….

Posted on August 21, 2009 by Russ

Joe Kristan (Roth Tax Updates) brought news of my favorite tax evader, Richard Hatch, to my attention. It seems that Mr. Hatch believes the only reason he was imprisoned was that he was gay.

Well, I beg to differ. When 300 million witnesses get to see you win $1 million and you decide not to pay taxes on it, bad things will happen. Add in evading tax on $300,000 of income from a radio broadcast, and you have a recipe for ClubFed. And to top that off, at trial evidence comes out that he filed a tax return that his accountant told him not to file.

Even Perry Mason couldn’t have gotten Hatch off.

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The Next California Bomb: Pensions

Posted on August 20, 2009 by Russ

From Mish comes a report of problems with pensions in California. This isn’t a surprise; our liberal state legislature increased pension benefits when times were good. Unfortunately, things aren’t so good today.

“I don’t want to sugarcoat anything,” Ron Seeling, the CalPERS chief actuary said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”

There’s really no choice: Benefits will need to decline in some manner or every government body will be declaring bankruptcy. This is a disaster that’s definitely going to rear its ugly head in coming years.

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Getting a Bang for the Buck

Posted on August 17, 2009 by Russ

I’m not a fan of earmarks, but it’s how Washington works (unfortunately). Taxpayers for Common Sense and opensecrets.org have provided a list of earmarks out of this Congress.

For those who lobby, some got lots for their bucks. The University of Alabama spent $360,000 but received $40.55 million. That money will be used for two projects: $30 million for an interdisciplinary science and engineering teaching and research corridor and $10.55 million for weather research in the Gulf of Mexico.

Mississippi State University, the University of Mississippi, and the University of Mississippi Medical Center cleaned up. Together, they spent $440,000 in lobbying but they got back nearly $36 million.

Loma Linda University Medical Center was the biggest California winner. They spent $255,000 but did get back $2.8 million to be used in their space radiation health research program.

There were some losers. Texas A&M University spent a whopping $770,000 but only got back $500,000 in earmarks; Texas Tech spent $565,000 but they too received only $500,000 in earmarks. The Nature Conservancy, though, was the biggest loser. The non-profit spent $1.31 million but only received $445,000 in earmarks.

One day, hopefully in the near future, we will see all earmarks vanish. I can always dream.

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Death of Global Prosperity

Posted on August 16, 2009 by Russ

No, I’m not implying by the title of this post that we won’t return to good economic times. Rather, I’m commenting on the death of an outrageous tax fraud scheme.

Back in November 2007 I wrote about the conviction of Global Prosperity co-founder David Struckman. The Global Prosperity scheme was simple. Just return your social security cards to the government, and you won’t have to pay taxes; the 16th Amendment was never ratified; and the IRS can’t collect taxes in any of the fifty states (only in U.S. territories and possessions). Amazingly, 44,000 individuals fell for this bunch of hogwash.

All of the above is, of course, as phony as a $3 bill. If you are ever told any of these “truths” turn the other way—fast. Dan Evans’ Tax Protester FAQ is an excellent source on these bogus arguments.

In any case, another co-founder of Global Prosperity, Daniel Andersen, is nearing the completion of his two-year term at ClubFed. The Justice Department asked and received an injunction against Mr. Andersen from promoting any fraudulent tax schemes.

As usual, if it sounds too good to be true it probably is. Global Prosperity’s schemes were just that.

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Fake Employers Leads to Real Prison

Posted on August 16, 2009 by Russ

I try to save my clients money on their tax returns by finding legitimate deductions that they’re entitled to. Unfortunately, not everyone in my profession cares about legitimate.

I wrote about Anthony Pendleton last February. Mr. Pendleton’s clients did get refunds. However, Mr. Pendleton’s methods were out of the Bozo tax professional’s guide: imaginary employers, phony W-2s, and fake educational expenses. Mr. Pendleton, who was a former IRS employee, should have realized his scheme was doomed from the start.

Mr. Pendleton was tried in Los Angeles and he was found guilty of conspiracy to defraud the United States through the filing of the false tax returns. He’ll almost certainly find his way to a real ClubFed facility when he’s sentenced in November.

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