Snipes Files Notice of Appeal

Posted on May 6, 2008 by Russ

As promised, Wesley Snipes’ attorneys have filed a notice that they intend to appeal Snipes’ conviction and sentencing to the 11th Circuit Court of Appeals. The notice doesn’t specify what arguments they plan on using. The actual appeal will be filed later this year.

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LA Times: Let’s Tax Our Way Out

Posted on May 6, 2008 by Russ

The Los Angeles Times today editorializes that the way for California to escape the budget crisis is to tax services: “Lawmakers cannot act in a fit of panic, but the scope of this year’s challenge should encourage new solutions, including service taxes.”

On the contrary, instead of looking for new taxes California should really look outside of the box and cut or eliminate current taxes. I can just imagine the Times reading this and thinking I’m nuts. I’m not.

California has spent itself into this problem; we’re going to have to drastically cut spending. Some state employees are going to lose their jobs but they really should never have been hired in the first place.

What will happen if the state imposes a service tax? It will cost small employers–more bureaucratic paperwork to deal with. I’ll have to increase my fees to cover the costs. That will lead to fewer sales–if price increases and demand is steady, the quantity sold will drop (basic economics). The amount of money raised by the new service tax will be less than what will be projected.

As of today Republican leaders in the State Legislature are holding firm on no new taxes. It figures to be a long summer of the press and Democrats (and possibly the Governator) asking for new taxes and Republicans shooting those proposals down. At least I hope that’s the scenario that plays out.

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Loss of Income Insurance Leads to Evasion

Posted on May 4, 2008 by Russ

Buddy’s Carpet & Flooring is a Cincinnati-based chain of carpet stores. Its owners in the late 1990s devised a method of saving on their taxes—they purchased eight “loss of income” life insurance policies for $3.6 million. Those policies led to tax savings of around $700,000 in 1998 and 1999.

There’s only one problem: the policies were shams according to the IRS. The then owners were refunded 81% of the premiums. The IRS prosecuted the two owners (Leif Rozen and Burton “Buddy” Kallick) and the company’s in-house counsel (Alan Koehler). Mr. Kallick died in January 2007 before the case came to trial.

Last week a jury agreed with the government’s view that the policies were a sham. Mr. Rozen was found guilty of conspiracy and tax evasion while Mr. Koehler was found guilty of filing a false tax return. Earlier, Milton Liss and Bruce Cohen, who were insurance salesmen, were found guilty of conspiracy to defraud the United States. All are now awaiting sentencing and will likely be spending some time at ClubFed.

News Stories: Cincinnati Enquirer, Business Courier of Cincinnati

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One CA LLC Fee Case Resolved; Two to Go

Posted on May 4, 2008 by Russ

The Franchise Tax Board will now begin to send out some refunds on LLC Fees paid. These fees have been challenged in three court cases. Two of these cases are still in litigation. The one case that’s been resolved is Northwest Energetic Services (NES), LLC v. Franchise Tax Board.

The NES case related specifically to a foreign (out-of-state) LLC that had registered in California with the Secretary of State but had no business in California. If you’ve filed a claim with the FTB and the FTB can determine that the LLC meets the NES criteria, then the refund(s) will be issued.

However, if the FTB can’t determine whether an LLC meets the NES criteria no refund will be issued. So if your LLC or your client’s LLC meets that criteria, then you should send the FTB the following:

* The LLC’s name, address, and the name and phone number of the managing member or designated contact person.
* The LLC’s Secretary of State file number or Franchise Tax Board temporary LLC number (for unregistered entities), and Federal Employer Identification Number.
* Taxable Year(s) involved.
* A statement that the LLC did no business in California for each of the taxable years for which the claim is being filed.

If your client hasn’t filed a claim for refund but wants to, include the above information in a letter along with the statement, “This letter constitutes a claim for refund for (taxpayer’s name) – No income attributable to California,” and the amount of claim per year. Any claim for refund must be signed by a representative with power of attorney (POA) or signed by the LLC’s managing partner.

You can fax the information to the FTB at 916.845.9796. You can also mail the information to the FTB to:

ABS 389 MS: F340
Franchise Tax Board
PO Box 942867
Sacramento, CA 94267-8888

If you use FedEx or another private courier, then send it to:

ABS 389 MS: F340
Franchise Tax Board
C/O FTB Notice 2008-2
9465 Butterfield Way
Sacramento, CA 95827

The FTB has issued a notice here.

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The List

Posted on May 4, 2008 by Russ

The Franchise Tax Board has posted its six month revision of its 250 biggest scofflaws. The largest debtors from October are gone, and a new name leads the list: Pinehill Investment of Rye, New York owes the FTB $6.133 million. The largest individual debt is Michael S. Fitzsimmons of New York City; according to the FTB his debt is $4.436 million.

There is still at least one celebrity on that list. Orenthal Simpson probably has more to worry about than his $1.528 million debt.

It took $195,994.96 to make the list. And five taxpayers have paid in full (collecting $604,395.31 to California). Others are obviously on payment plans or in negotiations as the top tax delinquent is no longer on the list. What we don’t know is whether or not these taxpayers were shamed into paying or just happened to get around to it.

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Shaolin Grand Master

Posted on May 1, 2008 by Russ

There are at least two movies called “Grand Master of Shaolin Kung Fu.” I haven’t seen either. But there is a Shaolin Grand Master who is in tax trouble.

Qin Xiping is accused by the Tokyo Regional Taxation Bureau of hiding 130 million yen (about $1.2 million) of income. Qin gave instruction in—what else—martial arts. According to this news report he received tuition of between 50,000 and 400,000 yen per student.

Qin is apparently the 49th grand master of the Shaolin Temple. His excuse for not paying is, “I’m only temporarily in charge of the money, on behalf of the head temple, so it’s not my money.” I know nothing at all about Japanese tax laws, but I have a feeling that the Tokyo Regional Taxation Bureau will let him know what they think of that reason. Luckily for Qin he’s been recalled to the Songshan Temple in Henan Province, China so he may be out of reach of the Japanese tax authorities.

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Franken’s Tax Troubles Continue

Posted on April 29, 2008 by Russ

Al Franken, the likely Democrat-Farm Labor candidate for U.S. Senate in Minnesota, told the Minneapolis Star-Tribune that he has paid over $70,000 in back taxes to 17 states. That’s not just California, but includes Delaware, Kentucky, Massachusetts, Michigan, New York, and Wisconsin.

Among the revelations in the Star-Tribune article are that he did not pay workers’ compensation and disability insurance premiums for New York-based workers between 2002 and 2005, and that a default judgment was entered in New York last year for $25,000.

The Associated Press article states that Franken’s communications director, Andy Barr, told the AP that none of the 17 states attempted to contact Franken or his accountant about the unpaid taxes. That’s likely splitting hairs given that New York did attempt to collect the insurance premiums.

In any case, Republican Senator Norm Coleman (who Franken will likely be running against) made the obvious remark, “Paying taxes is an obligation that I think Minnesotans expect to be adhered to, and that Minnesotans do.”

Do I think this was deliberate evasion by Franken? No; the amounts are too small. Will this be political hay for his opponent? Definitely for now, and depending on how Franken handles this, it could derail his campaign.

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A Bit of Evasion

Posted on April 27, 2008 by Russ

It reached 98 F here in Irvine today. That’s hot. But I have three stories where the individuals involved have faced the heat of tax evasion.

First, yet another Bozo tax preparer. Well, she really wasn’t a tax preparer but she did prepare returns. From Greenville, South Carolina comes a truly Bozo scheme. A mother, Martha Vernon, stole social security numbers and names from her job, and then filed tax returns with phony W-2s where the refunds were direct deposited into her bank account and that of her daughter, Tiffany Dunbar. All told they received $188,931 in refunds out of the $396,573 they looked to get. Why was this scheme truly Bozo? First, it’s inevitable that the actual individuals would file their own tax returns, so the crime was destined to be discovered. Second, the mother and daughter had the money sent into their own bank accounts making it quite easy to figure out who was behind the crime. They pleaded guilty to tax evasion charges last week in Greenville; a sentencing date hasn’t been announced.

Next, we head to Long Island, New York where Jay Kuhn was sentenced to six months at a halfway house, three years of supervised release, and restitution of $400,000. Mr. Kuhn employed illegal aliens in construction on Long Island and he paid them off the books. He didn’t remit the income and payroll taxes owed, and that’s tax evasion. He pleaded guilty and is cooperating in an investigation of building trades in the New York metro area.

Finally, we have a case of a slight difference of opinion. Perry Lee Rempas ran Norfolk Airport Express, presumably taking customers to and from Norfolk’s airport. He told the IRS that his business was defunct in 2000 and 2001, but he had $1 million in gross receipts. Indeed, the business had the contract for ground transportation at Norfolk International Airport from 2003 through 2006 until it was canceled when the business didn’t pay the airport. Mr. Rempas pleaded guilty to tax evasion and will have to make restitution of $79,000 and will spend five months at ClubFed. He also, according to this article in the Norfolk Pilot, faces a state court judgment of $86,987 for his failure to pay the airport authority.

It remains a lot cheaper to pay your taxes up front then to commit tax evasion, especially if you elect a truly Bozo method of evasion.

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The True Crimes of Wesley Snipes

Posted on April 27, 2008 by Russ

That’s the headline of an article in Canada’s National Post. The article looks at some notable (for all the wrong reasons) films that Wesley Snipes made. My favorite from the article:

Crime: Blade: Trinity (2004)

Verdict: The film that ruined Snipes’ career; just look at the movies he made after this: 7 Seconds; The Marksman; Chaos; The Detonator; Hard Luck; The Detonator. Have you heard of a single one? How they messed this up after the awesomeness that is Blade 2 is a mystery to film geeks everywhere.

Sentence: Garlic and sunlight.

Read the entire article and I hope you’re not sentence to three years of airline food.

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Is Al Franken the Next Celebrity Tax Scofflaw?

Posted on April 25, 2008 by Russ

Al Franken has had an interesting career. He’s been a comedian and a screenwriter, and now he’s running for the US Senate, hoping to get the nod of the Democrat-Farm Labor Party in Minnesota (and then, of course, in the general election).

However, Mr. Franken (or his accountant) has forgotten about California’s rules on corporations. A California corporation must make a minimum franchise/income tax payment of $800 a year, even if the corporation has no income (or lost money, for that matter). Mr. Franken has a California corporation, Alan Franken Inc., which the Secretary of State’s website shows as forfeited (it did not pay its state registration fees).

This is apparently becoming big news in Minnesota, as the Minneapolis Star-Tribune is covering this story. Andy Barr, a spokesman for the Franken campaign, is quoted by the Star-Tribune: “Al feels that because his name is at the top of the organization, he takes ultimate responsibility for everything that goes on. But if there’s a mistake that’s been made, he’s pretty insistent that the accountant fix it. He’s been pretty vocal with [the accountant] on this point.”

We’re not talking big bucks here. The tax owed (including penalties) is $5,800 for not making the required minimum payments from 2003 – 2008. The corporation will likely also the Secretary of State’s office $25/year plus a $250 penalty for each year that the required registration form wasn’t filed. Once all of that paperwork is filed, and the state income tax returns for 2003 – 2008 are filed, Mr. Franken can dissolve his corporation.

So is Mr. Franken the next celebrity tax scofflaw? Only if he allows this mess to percolate for several weeks rather than insisting to his accountant that he prepare the appropriate returns and file them. Otherwise, the DFL in Minnesota will likely have to find a different candidate to run against Republican Senator Norm Coleman.

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