Lies, Deceits, and Nefarious Schemes

Posted on June 28, 2009 by Russ

When President Obama was elected, I noted that everyone should watch their wallets and that tax increases would be on the horizon. Sure, President Obama said that there would be no middle class tax increase. Unfortunately, it appears that every Obama promise comes with an expiration date and this one is no exception.

Senior White House adviser David Axelrod today told George Stephanopoulos that President Obama would not rule out a middle class tax increase as part of a package to pay for health care reform.

I am beginning to wonder if the Democrats’ solution to all problems is to increase taxes.

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No Change In California

Posted on June 28, 2009 by Russ

I’m enjoying the scenery in Las Vegas tonight. I just witnessed a beautiful sunset, with the sun peering out from beneath a high cloud from the mountains on the western edge of the Las Vegas valley.

There’s no joy right now in Sacramento, though. Democrats and Republicans remain divided—probably hopelessly so—and are nowhere near a resolution in the $24 billion budget debacle. Governor Schwarzenegger is threatening to impose a third day each month of mandatory furloughs for government employees if a budget resolution isn’t reached by Wednesday. I return to my office on Wednesday; I’ll be shocked if there’s a resolution anytime in July.

Meanwhile, IOUs will start to be issued by California on Thursday. Thankfully, I don’t do any business with the state. Unfortunately, some of my clients will be receiving tax refunds and they’ll instead get pieces of paper.

Democrats still want to increase taxes. Republicans won’t. Republicans want major budget cuts. Democrats won’t. Both sides must agree, and that just isn’t in the immediate future. My bet is on September.

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Clunker Vouchers Likely Taxable in California

Posted on June 26, 2009 by Russ

President Obama signed the Clunker Voucher program into law. This program will give automobile dealerships that register for it the ability to give out $3500 or $4500 vouchers to individuals for use when they buy a new vehicle that has better fuel efficiency than the vehicle they’re getting rid of.

Spidell is reporting that they believe that the vouchers will be taxable as income under California law unless the legislature decides to conform to federal law. (Under the bill that President Obama signed, the vouchers are not taxable.) The chance of California complying given the current budget fiasco is essentially nil.

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California Dreaming

Posted on June 26, 2009 by Russ

On Wednesday the California legislature rejected a proposed budget with $11 billion of cuts. California faces a $24 billion deficit.

Democrats say they won’t vote for a budget which “cuts the safety net.” Republicans won’t vote for a budget with tax increases. A budget requires a 2/3 vote; a few Republicans must vote for it. Governor Schwarzenegger has said he won’t sign a budget with any tax increases.

Welcome to the unstoppable force meeting the immovable object.

The people of California spoke in May: No more tax increases, no more gimmicks, just give us a budget which lives within our means. California’s controller has said that IOUs will be issued beginning next week unless a compromise is reached. I don’t think one will come quickly.

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Foreign Financial Account Reporting Due

Posted on June 24, 2009 by Russ

If you have a foreign financial account, or have signature authority over such an account, you must file Form TD F 90-22.1. That form is due on June 30th. Unlike every other IRS deadline, this one is a receipt deadline. That means you should put your TD F 90-22.1 in the mail today.

Who needs to file? If you take the sum of the maximum balance of your foreign account(s) and it adds up to $10,000 or more, you must file. Foreign accounts include the obvious (bank accounts, credit cards, etc.) and some less obvious accounts such as online gambling accounts. If you’re an accounts payable clerk and you sign the checks for a corporate foreign bank account, you must file the form.

The penalties are extremely steep for not filing. Non-willful violations start at $10,000; willful violations are the greater of half the balance in the account or $100,000. You can also go to ClubFed for this.

And don’t forget to spend $5.10 at the post office to mail the form using certified mail, return receipt requested. It’s your proof of timely filing.

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On the Other Hand….

Posted on June 21, 2009 by Russ

Earlier today I posted my mixed opinion on regulating tax professionals. Joe Kristan has noted there are plenty of laws already on the books that tax preparers must comply with.

But the Bozos are out there. Take Georgia Gaines of Lake Worth, Florida. A helpful soul, Ms. Gaines’ clients were aided by over $1.1 million of invented deductions. All was well until the IRS found out.

Unfortunately, the IRS also looked at Ms. Gaines’ own returns. Somehow, $200,000 of income from her 2002-2005 tax preparation work didn’t appear on the return.

Ms. Gaines has now pleaded guilty to five counts of preparing false tax returns and five counts of filing her own false tax returns. Ms. Gaines will be sentenced in August and will have to make restitution and is also likely to find herself at ClubFed for just under three years (based on federal sentencing guidelines).

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No Liberty

Posted on June 21, 2009 by Russ

Liberty Tax Service is America’s third largest tax preparation chain. Back in 2007, Liberty advertised that they could have your refund to you in one day.

Sounds great, but there’s a problem with that: You can’t get refunds that fast. It was really an advertisement for refund anticipation loans (RALs). Those loans have usurious interest rates (they can be as high as 375%). California’s Attorney General, Jerry Brown, sued Liberty over the ads.

The result of the lawsuit was announced this week. Liberty lost, and must make restitution of $136,000 and must pay fines of over $1 million.

I’m very much against RALs. I don’t believe they serve any purpose other than enriching the pockets of those offering them. Hopefully we’ll see fewer RALs being offered in the future.

Posted in Tax Preparation | 1 Comment

Should Tax Preparers be Regulated?

Posted on June 21, 2009 by Russ

A debate is heating up among tax bloggers on whether or not tax preparers should be regulated. Some bloggers, such as Peter Pappas, think they should be. Others, including Joe Kristan, think they shouldn’t be.

I happen to practice in California, a state where all tax preparers are required to be licensed. It hasn’t done anything to improve the quality of work. After all, Western Tax Service was located in California. All California preparers must be either EAs, CPAs, attorneys, or registered with the California Tax Education Council (CTEC)

On the other hand, my professional society, the National Association of Enrolled Agents (NAEA) is very much in support of the idea of all preparers being regulated. Perhaps it might be because that would increase the number of Enrolled Agents. Or perhaps I’m just a bit too cynical about it.

In any case, I’ll wait to see the actual proposal (if and when it’s released by the IRS) before I come out one way or the other. My inclination, though, is that it will just add another bureaucracy with little positive results for taxpayers.

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New Hampshire Gambling Tax Moving Forward

Posted on June 21, 2009 by Russ

It appears likely, but not certain, that New Hampshire will soon have a 10% tax on gambling winnings. The state legislature tentatively approved a new budget that contains the tax. It still must be approved by each house of the legislature and signed into law by the governor.

The tax itself is one of the worst for gamblers. It is a 10% tax on gross receipts, with no deductions allowed. It would impact both professional and amateur gamblers, and would make New Hampshire the worst location for gamblers to reside in the United States.

Key votes in the legislature will occur this week. I’ll keep you advised as I find out more information.

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Are The Democrats Deaf and Blind?

Posted on June 18, 2009 by Russ

See no evil, hear no evil, speak no evil is how one cliche goes. Well, in Sacramento it can be changed to don’t cut programs, increase taxes, and who cares what the voters, the Governor, or the Republicans say.

Democrats in the state legislature have refused to implement the Governor’s plans to cut state workers salaries, and are proposing tax increases. Republicans in the legislature will not support tax increases. And Governor Schwarzenegger said, “I will, without any doubt, veto it. I’m very, very much against any tax increase whatsoever.”

And the Democrats’ budget is more of the usual accounting gimicks according to this article in the San Jose Mercury.

In any case, this budget—which Democrats in the legislature vow to bring to a vote next week—won’t become law. Sometime in late June we’ll find out if Democrats have discovered the fiscal and political reality or if California’s fiscal troubles will turn into the usual political stalemate.

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