When NBC’s Saturday Night Live looks saner than California’s legislature, there’s a problem.
Today, California’s legislature will look at a new health insurance program, estimated to cost $14 billion. Interestingly enough, California’s budget deficit for this fiscal year is now estimated at $14 billion.
California’s budget crisis keeps getting worse. Reports have surfaced that the Governator will declare a “fiscal emergency” in early January; the deficit for this fiscal year is now forecast as somewhere between $10 and $15 billion. That’s a lot of money, and will require significant monetary machinations.
The Instapundit predicts that the governor will propose a “moderate” tax increase. However, California is one of the few states where all tax increases need a 2/3 vote of both houses of the legislature. The Flash Report stated that Assembly Leader Mike Villines told Michael Der Manouel, Jr., the president of the Lincoln Club, “Tax increases are dead on arrival in the State Assembly, there isn’t a revenue problem.”
So we will likely see the unstoppable force (Democrats love of tax increases) running into the unmovable object (Assembly Republicans rejection of any tax increases). Things will likely be very, very nasty in Sacramento, and at a minimum expect “user fees” to increase dramatically. Add in a possible recession in 2008, and the political scene will be very ugly.
Christopher Kelly, a former adviser to Illinois Governor Rod Blagojevich, has been indicted on federal charges of tax fraud. Mr. Kelly is accused of understating more than $1.3 million on his business and personal income tax returns. If found guilty on all counts Mr. Kelly would be looking at a significant stay at ClubFed. Three other individuals were indicted: Abdelhamid Chaib, P. Nicholas Hurtgen, and Ali Ata. Mr. Chaib and Mr. Ata are accused of fraudulently trying to obtain a $2.6 million loan to buy a chain of pizzerias; Mr. Hurtgen is accused of trying to obtain kickbacks from hospital expansion projects.
But Mr. Kelly is the big target named as part of “Operation Board Games” today. He used to be Governor Blagojevich’s main adviser on gambling issues (Illinois has several casinos). So what did Mr. Kelly allegedly do? The indictment alleges that he placed wagers worth millions with both bookies in Chicago and at Las Vegas casinos and then paid the debts off with corporate funds from his roofing business as business expenses. Governor Blagojevich, according to the Chicago Tribune, selected Mr. Kelly to be his gambling adviser “…because Kelly is an avid gambler and high-roller and he often travels to Las Vegas on weekends.”
While Governor Blagojevich has not been accused of any wrongdoing this is the second major indictment of one of his advisers. Earlier, Antoin “Tony” Rezko was indicted on charges of attempting to extort businesses that were involved with the Illinois Health Facilities Planning Board and the Illinois Teachers’ Retirement System board. His trial will be in February.
No trial date has been set yet for the individuals indicted today.
News Stories: AP and Chicago Tribune
Joe Kristan has the details on an IRS update on the correct procedure for S Corporation’s 2% (or greater) owners’ health insurance:
“This new Notice is a slight liberalization of the rules. The IRS announced in 2006 that only premiums paid directly by the S corporation qualified for the tax break. The new rule expands the line 29 deduction to premiums paid by the shareholder but reimbursed by the corporation.”
Note that there are several ‘gotchas’ that must be followed; Joe details them.
If any clients have questions about this please call me as soon as possible so that we make sure your payroll service does the correct bookkeeping for your health insurance premiums.
Billionaire pays IRS $52 million in back taxes screams the headline in this morning’s Orange County Register. Igor Olenicoff, a member of the Forbes 400 (the 400 wealthiest Americans) and owner of Olen Properties, used offshore bank accounts to hide income and assets from the IRS and other creditors; he accepted a plea agreement and will likely serve a few months at ClubFed. Forbes estimates that Mr. Olenicoff is worth $1.7 Billion.
Mr. Olenicoff’s story was at first a version of the true American dream. He came to the United States as a Russian refugee at age 15; his family had almost no assets. He built Olen Properties into a huge force in commercial and apartment properties; the company owns over 60 commercial properties in Orange County and over 11,000 apartments and many residential communities primarily in Las Vegas and Florida.
However, his plea agreement notes that he moved $346 million to overseas accounts from 1998 to 2004. (He will repatriate all those funds as part of his plea agreement.) Mr. Olenicoff had told Forbes that “…was actually owned by offshore companies in which he had no interest.”
Mr. Olenicoff pleaded guilty to one county of filing a false tax return. While he could receive up to three years at ClubFed based on his plea agreement he will likely spend just a short stay there.
However, Mr. Olenicoff’s tax troubles may continue. As Forbes notes, California is next in line. During his plea hearing, Mr. Olenicoff stated that he was a resident of California in 2002. The Franchise Tax Board will likely soon be knocking on Mr. Olenicoff’s door.
News Stories: Forbes, Orange County Register
I recently received notice that if you attempted to access this site by going to https://taxabletalk.com you’d get an error. I’ve fixed that through the help of a friend who showed me “A” records and the like. You should be able to read this blog through either https://taxabletalk.com or https://taxabletalk.com
I used to work in Stockton. And I know that I have at least one reader who resides there (a former co-worker). He is probably already aware of the problems that the Sang family faces.
Richard Sang, his wife Amber Lao, and their sons Brooke Sang and Richie Sang own several restaurants: Mallards in Stockton and Modesto, the Cedar Creek Inn in Palm Springs, and the Fish Market and Grill on the Lake in nearby Mission Viejo. The Stockton Mallards closed in October; the Modesto Mallards closed in November. Many restaurants fail (it’s a very tough business). However, both Mallards failed in spite of the owners allegedly pocketing payroll taxes withheld for the state.
San Joaquin County Deputy District Attorney Sudha Rajender told the Stockton Record that “[The owners] were withholding [the taxes], but they were pocketing it.” In total, the four are facing 36 counts of fraud and tax evasion. The elder Sang has been through charges like these before; he was convicted on federal charges in Washington state in 1991.
Meanwhile, California’s Employment Development Department (EDD) has already fined the owners $100,000 for not having workers compensation insurance at the Modesto Mallards. And the owners are facing a $1.6 million lawsuit over defaulted loans and owe $10,000 to Stanislaus County for unpaid property taxes.
Currently, the Mission Viejo restaurant remains open. I hope that continues (at least for the short-term); I am part of a group that has a breakfast meeting there every Friday morning. Given that Mr. Rajender told the Marin Independent Journal, “I’ve never seen a case like this before. These guys have gotten away with this for some time, and nobody has been interested in prosecuting them before. It’s very complicated.” I suspect we may soon be looking for a new location to meet.
Joe Kristan has a post describing the efforts of Frank Black of North Carolina. As Joe notes,
“- When he wrote checks to his college-age daughter, he deducted the amounts as ‘supplies’ and equipment purchases.
– He told the Tax Court that his six and eight-year old children worked 1,000 hours per year in his business.”
Those are just two of the examples that led to over $70,000 of civil fraud penalties. You can read more here. As Joe said, “Don’t do that stuff.”
If you own property in California, Monday is the deadline to pay your first property tax bill. The bill must either be paid in person at your county’s tax-collector’s office or it must be postmarked by Monday. Your tax-collector may offer payments by credit card or over the Internet; you can check this by calling or looking at your county’s web site.
The second payment is due on April 10th.
There’s a sure-fire method to get the IRS upset with you. Just withhold trust fund taxes from your employees (FICA and income tax) and don’t send them to the IRS. I can almost guarantee you that bad things will happen to you.
And if at the same time you don’t file your annual FUTA (federal unemployment tax) returns and your personal income tax returns, the IRS may want to send you to ClubFed.
Just to make sure you get some attention you can also be accused of defrauding some of your customers. And as long as you’re going this route, you might as well allegedly defraud your investors.
That’s what Marengo, Illinois contractor John M. Volpentesta is accused of. He faces 23 counts of mail fraud, wire fraud, and tax fraud. He allegedly defrauded customers investors out of over $1 million and didn’t remit federal trust fund taxes of $164,999. And, yes, it’s alleged that he didn’t file the FUTA tax returns from 2003 – 2005 and that he and his wife didn’t file three years of personal tax returns. If found guilty, Mr. Volpentesta is looking at a lengthy stay at ClubFed.
Trial will probably be next summer in Rockford, Illinois.
