Dead Men Do Tell Tales

Posted on October 30, 2007 by Russ

There are some things it’s just impossible to do. One of those is to sign a tax return when you’re dead. Of course, the Tax Code allows for a deceased individual’s final return. The individual who signs the return is usually the spouse or the Executor/Administrator of the Estate, and that individual signs noting their authority.

But what if you have no authority, and get the not-so-brilliant idea of filing tax refunds for some individuals who won’t complain? After all, if they’re dead they’re not going to call the IRS. Unfortunately, someone else might just prepare that return…like the actual former spouse. Or worse, the taxpayer might have died in a previous year. And even the IRS might wonder why a dead man filed a tax return.

Well, someone actually did just what I described. Candy Atohi, formerly of Linwood, New Jersey, decided to file 28 tax returns claiming refunds for individuals who were dead. She also filed a tax refund for herself that was wrong and another phony refund claim for her sister. All told, she sought over $100,000 in refunds that she wasn’t entitled to.

Ms. Atohi pleaded guilty last week to one count of of making a false claim for a refund and one count of knowingly transferring without legal authority the identity of a deceased individual. She’ll likely spend some time with the people who reside at ClubFed and have to make restitution.

This is one scheme that was truly Bozo, and Ms. Atohi is a likely nominee for our 2007 Tax Offender of the Year.

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Fire Relief

Posted on October 29, 2007 by Russ

Various tax agencies are giving relief to individuals, businesses, and organizations impacted by the brush fires in Southern California.

The IRS announced today that they will extend various deadlines for taxpayers impacted by the disaster:

Taxpayers in the Presidential Disaster Area –– consisting of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties –– will have until Jan. 31, 2008, to file returns, pay taxes and perform other time-sensitive acts.

The extended deadline applies to items due on or after Oct. 21, 2007, when the fires began, and on or before Jan. 31, 2008. This includes the federal withholding tax return, Form 941, normally due Oct. 31, and the estimated tax payment for the fourth quarter, normally due Jan. 15.

In addition, the IRS is waiving the failure to deposit penalty for employment and excise deposits due on or after Oct. 21, 2007, and on or before Nov. 5, 2007, as long as the deposits are made by Nov. 5, 2007.

The Franchise Tax Board is letting impacted taxpayers obtain free copies of their tax returns.

“If taxpayers impacted by the fires need copies of state tax returns to replace lost or damaged ones, they should complete Form FTB 3516, Request for Copy of Tax Return. Print “Southern California Wildfires 2007” in red at the top of the request. Disaster victims receive free copies of tax returns.”

The FTB may issue other relief at a later date.

Any client impacted by the disaster should contact us when they have a chance. You may be eligible for a Casualty Loss deduction. The casualty loss can be taken by either amending your 2006 return or by taking it as part of your 2007 return. Which is right will depend on your tax situation.

And let me end this post with a heartfelt thanks to the firefighters and other emergency personnel who battled the fires. The Santiago fire burned just a few miles north of my home and office. Today, I drove to Foothill Ranch along the 241 Toll Road. The fire burned to the toll road…and even burned a little brush on the south side of the highway. A grove of avocado trees was damaged. The fire burned the hills all around the community of Foothill Ranch. Yet the homes and businesses of Foothill Ranch appeared to have escaped damage.

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Be Afraid. Be Very Afraid. (Part 2)

Posted on October 25, 2007 by Russ

Back in March, I ran a post titled, “Be Afraid. Be Very Afraid.” I asked the question, “Did anyone really believe that with a Congress controlled by Democrats we would be looking at lowered spending and/or a decrease in taxes?”

The answer has been clear from day 1, and it came more into focus today. Representative Charlie Rangel (D-NY), chairman of the House Ways & Means Committee, proposed sweeping tax legislation today. The legislation, which has no chance of being enacted into law in its current form (see below), would:
– Lower the top corporate tax rate from 35.0% to 30.5%;
– Eliminate LIFO (last-in, first-out) accounting for inventory;
– Defer deductions of foreign subsidiaries of corporations until funds are repatriated into the U.S.;
– Eliminate the Alternative Minimum Tax (AMT) after 2007;
– Add a 4% surtax on incomes above $150,000 (single)/$200,000 married filing jointly (MFJ);
– Add an additional 0.6% surtax on incomes above $500,000;
– Increase the Earned Income Credit, and the Child Tax Credit; and
– Have a one-year patch for the AMT.

The devil is in the details, of course, and I haven’t seen them. And since except for the last part of the bill (the one-year patch), this bill will not be signed into law in this legislative term (the term ending in 2008), it just gives a flavor of what might be if we have a Democrat in the White House in 2009.

Why am I harping on this? Because of what’s not mentioned in this legislation. Many of the Bush tax cuts will expire (beginning in 2009). Ask your legislators whether they will vote to extend them. The legislation introduced today implies that they’re dead (at least in the view of Congressman Rangel). We’re looking at a $200 Billion stealth tax increase!

Much of this legislation seems good to me. For example, I’m all for simplifying the Tax Code. However, a major issue—one which Democrats seem to ignore—is that if you increase the tax rate, the tax collected tends to decrease (the Laffer curve). This is definitely the case when this occurs on the wealthy. Indeed, because of the prevalence of S-Corporations and LLCs, much of the income of the “wealthy” is actually business income. If taxes increase on business income, business owners have far less incentive to innovate and provide additional jobs.

One day the American people will realize that a simple flat tax system is the way to go. Until then, be afraid.

Link to New York Times article here

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The Washington Generals Might Hire Him

Posted on October 24, 2007 by Russ

If you ever go and see the Harlem Globetrotters, you’ll be treated to a great show. And, of course, there’s a basketball game, where the Globetrotters beat the Washington Generals (or today, the New York Nationals).

Meanwhile, attorney Larry D. Harvey has represented quite a few taxpayers—48 by my count—alleging that Antarctica is a separate country and that the taxpayers can exclude income earned their (using the foreign earned income exclusion). Unfortunately, he’s 0 for 48. Today the Tax Court handed down the 48th defeat.

Joe Kristan compares Mr. Harvey to Wile E. Coyote and the government attorney, Randall Preheim, to the Roadrunner. No matter, use your own comparisons (for me, the Generals or the old Washington Senators come to mind). Well, there’s always hope that the 49th time will be the charm….

Case: Grant v. Commissioner, T.C. Memo 2007-318

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A Not So Lucky Chance

Posted on October 22, 2007 by Russ

In March 2006, I wrote about Renato Medina, the principal owner of Lucky Chance’s. Lucky Chance’s is a cardroom located in Colma, just south of San Francisco. Mr. Medina and his niece and nephew were accused of tax evasion and conspiracy. At the time, they all stated their innocence. Mr. Medina’s attorney (then) said, “This is a simple tax case…[and Mr. Medina] asserts his innocence.”

Not anymore. As part of a plea agreement, Mr. Medina pleaded guilty to three counts of tax evasion (the remaining charges were dropped). He agreed to pay back the back taxes, penalties, and interest, which will likely total about $1 million.

Mr. Medina’s arrest and the charges stem from a corruption probe of the small town of Colma. The first victims were two former mayors of Colma, Philip Lum and Ronald Maldonado. Both were accused of accepting free airline trips to the Philippines from Mr. Medina but not disclosing the gifts on required disclosure forms.

Mr. Medina has also agreed, as part of his plea deal, to serve between 15 and 21 months at ClubFed. Additionally, under California law he must give up his 100% ownership of Lucky Chance’s. That had already been in the works, ostensibly for estate planning reasons, with the ownership transfer to his sons approved by both Colma and the California Gambling Control Commission.

Finally, Mr. Medina asked the government to drop the charges against his niece and nephew. The Department of Justice has yet to decide whether or not to do so.

News Story Here

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We Take Requests

Posted on October 21, 2007 by Russ

Dan Meyer of the TickMarks blog made a request of me: “Present or past entertainers O. J. Simpson, Sinbad (Adkins) and Dionne Warwick are part of California’s Delinquent Taxpayers List. Each owes over $1,000,000 in income taxes and each have had tax liens initiated prior to 2000…Meanwhile, Russ Fox of Taxable Tax is likely to have more on this story.”

We covered this list a week ago, but we didn’t highlight all the names. So here are some more famous names:

Dionne Warwick, S. Orange, NJ; $2.655 million
Sinbad Adkins, Oak Park, IL; $2.139 million
Orenthal Simpson, Miami, FL; $1.435 million
Brian Holland, Las Vegas, NV; $984,000

It’s difficult for the FTB to impose judgments against out-of-state taxpayers. True, the rulings are on the books, and interest (and penalties) can continue to accrue. Dionne Warwick, though, lives in New Jersey. If she doesn’t set foot in California, the FTB would have to fight in New Jersey courts to get any money. Luckily for the FTB, Dionne Warwick is “working with the FTB to resolve her tax problems,” according to this article. She blames the problems on negligent business managers.

Similar situations exist for entertainer Sinbad, and composer Brian Holland. Nevada is an especially tough jurisdiction for California–because of various actions of the FTB, including the Hyatt case.

And then there’s O.J. Yes, Mr. Simpson, who has his own current legal problems, probably doesn’t care too much about the FTB. In any case, if he ever raises money–or finds the real killer–that money will be heading to the Goldman family.

I do think that listing these names is a good strategy. Some people will pay because they will be ‘shamed’ into it. Some, perhaps like Dionne Warwick, are shielded and had no idea that they owe money. Of course, some are scofflaws and no amount of posting names will have an impact. In a few months, I’ll inquire with the FTB and see how much of an impact this listing has made.

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Great News for Poker Tournaments!

Posted on October 19, 2007 by Russ

As I reported earlier, the IRS has revisited Revenue Procedure 2007-57, which would have required withholding on all poker tournament payouts of more than $5,000. I had been told by someone at the IRS that the IRS was going to try to put into place the Binion’s closing agreement ($600), which would have sent lots of paper to the IRS.

Apparently, the American Gaming Association has some good negotiators. This IRS Press Release states that reporting will be required on, “…tournament winnings of more than $5,000, usually on an IRS Form W-2G.”

So instead of more reporting and withholding, there will actually be no change in withholding and less reporting of winnings! Casinos that currently follow the Binion’s Closing Agreement will now only have to issue W-2Gs if a poker tournament winner receives more than $5,000 rather than $600.

The only caveat I’ll place on all this is that the IRS still must re-release the Revenue Procedure. But it really appears that this is very good news for both poker tournament organizers and for poker players.

News Story: Reuters

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The Last Western Tax Service Post…I Hope

Posted on October 17, 2007 by Russ

Every time I think I can finally put to bed Western Tax Service I see yet another story on them. Yesterday, the only two individuals who went to trial as part of the Western Tax Service saga found out their fate. Kelly Agbonmoba David (aka David Kelly) and Anthony Stefani each received terms at ClubFed. Mr. David will spend 46 months while Mr. Stefani received 27 months.

Both individuals were tax preparers at Western Tax Service. Western, as I’ve written about before, was very successful. Indeed, they prepared 1146 returns in 1998 and 8645 returns in 2001. Of course, their methods—phony and false deductions—weren’t legal. And their fee structure was unique, too. The larger your refund, the larger their fee. Preparers at Western shared in the bounty; they received 15% commission on each return.

No matter who prepares your tax returns, remember that you are responsible for them. Always review your returns in case you find yourself in front of a bozo tax preparer. Luckily, these bozos won’t be preparing returns any time soon.

Press Release Here

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Midweek Fraud

Posted on October 17, 2007 by Russ

Having returned from a trip to Connecticut, I needn’t have worried that the tax fraud artists would be missing. They’re out in force this morning.

First, from Clarksville, Tennessee comes a woman who had a bookkeeping business. She named it “Nunya Business.” I’m not sure that’s a great name, and it became less of a good name when she decided to try a new career as an embezzler. She managed to get $63,000 from her clients. She decided that one good crime deserved another, so she failed to report that income on her tax return. And she left off another $160,000 for good measure. She agreed to plead guilty, and she’ll likely be spending 30 months at ClubFed.

Meanwhile, the City of Brotherly Love has had its own corruption problems. Joseph Moderski, a Bryn Mawr, Pennsylvania business consultant, will be spending 37 months at ClubFed. He got ensnared in a city hall corruption investigation. Earlier this year, he got 14 months for a “pay to play” scheme at Philadelphia’s airport. He pleaded guilty in July to defrauding the city and his ex-employer…and not paying $764,000 in taxes. Besides the jail time, he must make restitution of $1.3 million to the IRS.

Finally, in Florence, South Carolina, a doctor has probably learned that if you make up phony deductions and get caught, the jail you’re sentenced to is very real. Dr. Erik Dehlinger worked in an emergency room in Florence. He heard about Anderson’s Ark & Associates. They promised to make his tax liabilities disappear through phony expenses and false loan deductions. Instead of disappearing, his tax liabilities still exist, along with interest and penalties…and a probable fine and a short stay at ClubFed. Joe Kristan wrote in 2002, “If it sounds too good to be true, it almost always is.” I agree completely.

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Internet Tax Ban Passes House

Posted on October 17, 2007 by Russ

The House of Representatives passed legislation yesterday that would extend the current ban on taxes on the Internet for another four years. The vote was nearly unanimous–405 to 2. The legislation now heads to the Senate, where it likely will pass before year-end.

This legislation will inhibit local government from adding connection taxes for Internet use. For example, you likely pay a city tax for your telephone and cellphone but you don’t for your cable modem. Nine states that had taxes in place before 1998 can continue their taxes under this legislation.

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