The Estate Tax

Posted on January 12, 2009 by Russ

The Wall Street Journal reported this morning that Democratic leaders in Congress expect to introduce legislation continuing the Estate Tax in 2010. Under current law the Estate Tax is scheduled to disappear in 2010 but reappear in 2011 at the old rate of 55% with a $1 million exemption. In 2009 the Estate Tax is 45% with a $3.5 million exemption. (Note that the exemption mentioned above is the lifetime Estate Tax exemption. Gift Tax returns are figured into this exemption.)

President-Elect Obama pledged to keep the Estate Tax at its current level ($3.5 million exemption with a 45% tax rate). I expect such a measure would pass Congress.

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Selecting a Professional Tax Preparer

Posted on January 12, 2009 by Russ

We all know what assume means. “Do you remember the old episode of tv’s ODD COUPLE when Felix explains to Oscar what happens when you assume? We all must know by now that when you assume you make an ass of u (you) and me!” Robert Flach has this excellent post this morning where he also answers the question of what’s the difference between a return prepared by a CPA and one prepared by him (answer: about $100).

There are several good CPAs that I know who specialize in tax (for example, bloggers Joe Kristan and Kerry Kerstetter are CPAs). I also know several CPAs who won’t prepare a tax return. In fact, I prepare the returns for at least two licensed CPAs. I believe the key to finding a good professional tax preparer is finding someone who fits your needs and, if it’s important, specializes in what you do. Kerry Kerstetter has this post about selecting a tax preparer. I also wrote a guest post for the TaxGuy about what to look for in selecting a professional tax preparer.

If you are considering using a professional the time to conduct your search is now. In about a month successful professional preparers will start to get swamped. This should be a long-term relationship so take the time to do it right.

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A Bad Week for Evaders

Posted on January 11, 2009 by Russ

Lots on the tax evasion front from the last few days. And we have two early entrants into the 2009 Tax Offender of the Year contest.

Larry McClure is one of two owners of Morgan-McClure Motorsports. Morgan-McClure owns a NASCAR team that ran from 1982 through 2007. Mr. McClure was indicted back in October for mail fraud, wire fraud, and tax evasion. Reports are that he will plead guilty this week to filing false tax returns and making false statements to IRS investigators. Mr. McClure may be spending ten years at ClubFed. This all stems from apparently not reporting $325,000 for using cars in the ARCA Re/Max Series.

Anthony Bruno is a disbarred attorney in the Chicagoland area. He either took a wrongful deduction or engaged in deliberate tax fraud. The latter is what he’s been charged with; the former is what his attorney, Jeffrey Steinback, told the Chicago Sun-Times is what really happened. He’s accused of falsely stating a $101,000 loss on his 2006 corporate tax return.

Digna Garrett used to run a nursing temp agency. Her business was quite a bit more profitable than she showed on her tax returns. It helps when you leave off $1.1 million in revenue. However, it can also lead to 18 months at ClubFed. She used the money for trips to Las Vegas and the Philippines instead of paying the IRS.

Finally, two stories from the Bozo taxpayers wing. First, Michael Sabo was a realtor in Las Vegas. He owed just under $100,000 to the IRS. The IRS put three liens on his home in suburban Henderson. So what did Mr. Sabo do? He went to the Clark County Recorder’s office, told the clerk he was an IRS agent, and had the liens removed. That didn’t work out so well as Mr. Sabo was charged with impersonating an officer or employee of the United States and with tax evasion. He pleaded guilty last year and was sentenced last week to a year and a day at ClubFed.

Last June Tony and Micaela Dutson pleaded not guilty to “running an $8 million tax fraud scam.” A new indictment was released last week that alleges that the Dutsons “tried to obstruct the IRS by filing baseless liens against four IRS workers.” Additionally, the Dutsons allegedly filed a lawsuit that the government characterizes as “frivolous” against one of the IRS investigators and allegedly lied about making payments in the millions to the individuals investigating them. The original indictment claimed that they were allegedly marketing an illegal tax avoidance program. They were barred back in 2006 from selling the program.

Well, last year’s Tax Offender of the Year attempted to arrest his judge. That wasn’t much of a success. Today we had stories about impersonating an IRS employee and allegedly filing false liens against IRS employees. The Dutsons were already on notice that their activities were being scrutinized. If they committed these acts (at this point in time it’s only an allegation) they are definitely in the running for the 2009 Tax Offender of the Year crown.

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GOP Lawsuit A Bit Early

Posted on January 11, 2009 by Russ

Republican legislators joined with the Howard Jarvis Taxpayers Association in a lawsuit attempting to stop the “user fee” tax increases. If you remember, Democrats tried a back door method of increasing taxes. Normally, a tax increase in California requires a 2/3 vote. However, by eliminating some taxes, creating new taxes, and adding user fees Democrats engaged in a dubious method of balancing the budget.

However, a judge threw out the lawsuit because the budget was never enacted into law. The Democrats are now on notice that if they try the same thing again it’s certain there will be a legal challenge.

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Three From the FTB and BOE

Posted on January 11, 2009 by Russ

Michelle Steele, a member of the Board of Equalization, in her newsletter reminded everyone that the BOE will be conducting Use Tax audits of small businesses. Use Tax is the equivalent of sales tax on purchases where sales tax is not charged. The Orange County Register recently ran an editorial urging the BOE to stop the “uglier than usual tax shakedown.”

Meanwhile, the Franchise Tax Board has put up an excellent page on their website noting the record-keeping requirements for various expenses. As I tell my clients, document, document, document! Keep those receipts.

The FTB also announced that they will be sending out “pre-suspension” notices to LLCs that have not paid their annual LLC tax and/or fees. Spidell reports that 23,332 noncompliant LLCs will receive the notices. If the fees and/or taxes are not paid within 60 days (generally, after March 2nd) the LLCs will be suspended.

With California essentially broke expect to see more stories regarding California tax agencies seeking to find every crumb of revenue.

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The Great Money Pit

Posted on January 6, 2009 by Russ

Other than noting local elections I haven’t really written much on this blog about local politics. Irvine has a favorable business climate, and the city hasn’t had revenue problems. Unfortunately, I think change is on the horizon, and it’s not going to be good.

First, there’s the Great Park. Lennar Corporation paid the Great Park Corporation $200 million. Over half of that money has been spent. To date the result of that spending is:

– Glossy brochures sent to local residents once a quarter;
– Beautiful architectural plan; and
– A nice balloon.

Yes, there have been some concerts at what was the El Toro Marine Corps Air Station, but the site looks more or less the same as it did ten years ago.

I won’t get into the theoretical “Chinese Wall” between the Great Park Corporation and the City of Irvine. That’s because as best as I can determine it doesn’t exist. And I won’t comment about the free movies with free popcorn. Perhaps the city and Great Park Corporation can send me some of that free money.

That shouldn’t come as a surprise to any local readers. Perhaps you’ve seen the new Irvine “I Shuttle” buses. The shuttle began operation March 31st, and links the Tustin Metrolink station to the Irvine Business Center. The shuttle is free to riders. When the shuttle was first announced rides were going to cost $0.50 to $1 beginning on September 1st but that was never implemented.

I see the shuttle every morning when I head home from the gym, and there are usually a few riders on board. I also see the shuttle when I go out to lunch, and I’ve seen one rider in nine months. I’ve been told that the subsidy per lunchtime rider is $32. The city might as well just order pizza for those riders.

There are many problems here. First, there is already bus service linking the Tustin Metrolink station and the IBC. Sure, the shuttle is more convenient but it’s expensive. I don’t know what the subsidy per rider is during the commute hours (probably on the order of $5 to $10 per rider based on my non-scientific observations), but money doesn’t grow on trees.

The city will see decreasing revenue in the near future. There’s a lot of retail in the city; some of it won’t be surviving the recession. Already, the Mervyn’s store at Barranca and Culver is closing. Others will follow. Funding from Sacramento will go down because of the state budget crisis. Yes, Irvine is better off than many other communities. This is a middle to upper-middle class community and we haven’t been as hard hit as other local areas. Still, funding is going to be tight and those luxuries like the Great Money Pit Park and the I-Shuttle need to break even. If they can’t, it’s time to shut off the money spigot.

At a minimum, the Great Park Corporation should eliminate the glossy brochures. A simple notification through the Irvine World News (which is distributed to every resident of Irvine) and on their website would save money. The I-shuttle should stop lunchtime routes and should consider a complete suspension of service.

Money doesn’t grow on trees, even in Irvine.

Posted in Irvine | 2 Comments

Western Tax Service Rears Its Head…But in a Good Way

Posted on January 6, 2009 by Russ

Every so often I think that the saga of Western Tax Service has come to an end. Western, as you may remember, was the Anaheim-based tax preparation firm that thought that no deduction was too trivial to take for its clients, even if they didn’t qualify for them. They charged a lot, mind you, but the refunds they got for their clients were very good. And very illegal; the proprietors are now at ClubFed and the unlucky customers had to give back the refunds and pay what they really owed.

A class action suit was filed, and it was settled for $500,000. Clients of Western can apply for a piece of the settlement and receive up to $5000 per year they were a client of Western. The Irvine law firm of Lanza & Goolsby represented the plaintiffs; their website has links to the trial documentation (including the settlement) and to the claim form.

The settlement money comes from $596,010 that the government seized at Western’s offices. So at least some good has come from Western Tax Service. This should remind everyone that if your tax advisor tells you that you can get, for example, a $10,000 charitable deduction without any receipts, make sure to go elsewhere…fast.

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A Cow Tax?

Posted on January 6, 2009 by Russ

My mother wrote a book called Cindy Lou about a cow that gave chocolate milk. It’s now out of print but it’s a wonderful book for children. I will admit my bias.

The book is set on a family farm. That’s something that may be in danger from the Environmental Protection Agency (EPA). The EPA is really contemplating a cow tax. The family farm with a few cows may become a thing of the past.

The Business & Mediate Institute is reporting that the EPA is considering regulating emissions of greenhouse gases, including businesses that emit 100 tons. That could easily include a family farm with 25 cows.

It’s all in the formative stages at this point, and it’s likely that farmers would raise bloody hell on Capitol Hill should the EPA propose such a measure. But dismissing the idea of such regulations is, bluntly, wrong. Already, California’s Air Resources Board announced that they will implement CO2 regulations (though not for a couple of years).

I personally believe the only thing that money should be spent on in this area is further research into whether anthropogenic global warming is real. It’s still a theory. Killing the economy by regulation while the country is an economic downturn is foolish. We’ll have to see if that’s the direction the Obama Administration will take. If it is, that might spell the end of Cindy Lou.

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It’s That Time of the Year

Posted on January 5, 2009 by Russ

I’ve sent out all of my Tax Organizers for the year. If you’re my client and have not received your Organizer let me know.

You do not have to use the Organizer but it is a very useful tool for helping me get the records I’ll need to prepare your return. The Organizer is based on your 2007 tax return (if I prepared your return). The cover page will list documents I have to see such as W-2s, 1099s, and 1098s along with the issuer. If, for example, you changed jobs during the year I will need to see the W-2 from your new employer. Page 1 of the Organizer notes the documents I absolutely will have to see.

ORG3 (which is two pages) is a questionnaire on personal issues. It’s likely that most of these questions will not apply to you but I have had a client who forgot to tell me about getting married on December 31st.

On page 2 of ORG3 is a section on electronic filing. I’ll assume that how you’ve filed in the past is how you will want to file in the future; if this isn’t the case let me know. In this same section will be the banking information (if any) I have on file: bank name, routing number, and the last four digits of the account number. Please let me know if the bank information has changed.

ORG4 is a questionnaire on business and investment issues including real estate questions. Again, it’s likely that most of these questions won’t apply to you but when they do I need to know about them.

ORG6 is the basic taxpayer information. Please complete and correct this information. If you’ve had an addition to your family during the year this is where you note that.

Take the time to look your Organizer over. As I said before most of it won’t apply to you, but it’s designed to let me know when new situations do apply. It will also help you with your recordkeeping.

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The End of the Line for the Tulsa Nine

Posted on January 4, 2009 by Russ

Diana Joubert (aka Diana Brice) of Tulsa, Oklahoma had the not-so-bright idea that submitting phony tax returns would be a good way to make a living. She worked with eight others, including Samuel Willis (owner of Willis Tax & Financial Services) to implement her scheme.

Unfortunately for her, somehow the investigation of an unrelated drug dealer that led to a corruption investigation at the Tulsa Police Department uncovered the scheme. The investigation discovered that Ms. Joubert’s mother, an employee of the Tulsa Police, stole records from the department. That information was apparently used in the tax fraud scheme. And it was a long-standing scheme—the fraud started in 2001.

Ms. Joubert was sentenced last August after being convicted of tax fraud to 37 months at ClubFed and has to make restitution of $133,571. Samuel Willis was also convicted and was also sentenced last August; he received six months of home detention and had to make $47,000 in restitution.

The final two defendants were sentenced last week. Larry Brice was ordered last week to make restitution of $11,551 and will serve five years’ probation after pleading guilty. James Joubert received five months at ClubFed and must make $5,543 in restitution.

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