November 14th Is Not Before November 13th

Posted on August 23, 2007 by Russ

If you receive an IRS Determination Letter, and decide to file a petition in Tax Court, make sure you file by the deadline. The Tax Court won’t accept your petition if you file late, as another taxpayer discovered today.

Our unlucky taxpayer moved twice between the time the IRS mailed the Notice of Deficiency and the time he received it. Normally, you have 90 days to respond; however, the taxpayer in question had only 75 days (until November 13, 2006). He sent his petition (using FedEx) on November 14th.

The IRS asked the Tax Court to dismiss the taxpayer’s suit because it was filed late. The taxpayer argued that he should either get extra time because of the moves or that the IRS notice was inaccurate because of the wrong address.

I’ve written before that the Tax Court is a stickler for deadlines. This case was no different. The statute says that the taxpayer has 90 days from date of mailing (the taxpayer actually had 91, as the 90th day from the date of mailing was a Sunday), and the Court must obey the plain language of the statute. Additionally, the IRS correctly sent the notice to the (then) right address.

Once again, deadlines count. The taxpayer’s case has been dismissed, and he must pay the deficiency. He can file a claim and pursue a case in US District Court or the US Court of Claims, but that’s only after he pays the tax.

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Phone Taxes

Posted on August 22, 2007 by Russ

Today’s Wall Street Journal has an interesting article about a phone tax battle in Missouri. [Note: $Pay$ Link] Various municipalities have claimed that their city telephone taxes apply to cellular phones; the cellular carriers disagree. On Thursday, a St. Louis County Circuit Judge will rule on whether or not he can rule on the case by summary judgment or whether a full trial will have to be held. No matter how he eventually rules, the case will likely be appealed.

You may remember that I wrote in May about the City of Los Angeles’ cellular telephone tax increase being illegal. One of the arguments that the carriers are making is very similar: a popular vote is required under Missouri law for a new tax to be approved. Cities are arguing that the tax isn’t new. Legislation was passed capping the cell phone tax, but it was ruled unconstitutional by the Missouri Supreme Court.

The carriers could owe as much as $500 million, including interest and penalties. One thing is certain, though. If the tax ends up being owed, the bill will be passed on to consumers. That’s the nature of all taxes.

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California Has a Budget

Posted on August 21, 2007 by Russ

The State Senate finally approved a budget late today. It goes to the Governator for his signature (he has said he will sign it) and for his “blue pencil” (the line item vetoes).

For more details on what this budget really means, go to the Flash Report. You will find State Senator Tom McClintock’s commentary and State Senator Dennis Hollingworth’s commentary. Note in particular what Senator Hollingsworth said: “[The budget] is still one that will result inevitably in a near $5 billion deficit next year…Further, we all need to begin addressing next year’s looming fiscal problem–now, and not wait until we are so far into the budget that our options to balance it become fewer and more difficult.” Those are words to live by, but I don’t expect them to be heeded in Sacramento.

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Father Son Fraud

Posted on August 19, 2007 by Russ

This past February, Roy Albert Lewis, a Danville, California dentist, was sentenced to two years at ClubFed for hiding $300,000 over ten years. This past week, it was his father’s turn.

Leroy Albert Lewis is an oral surgeon, but his medical career likely came to an end last week. He pleaded guilty in May to one count of tax fraud. He was sentenced to two years at ClubFed, plus he must make restitution of $909,527. Leroy Albert Lewis is the father of Roy Albert Lewis.

His attorney said that the elder Mr. Lewis suffered from “hubris and greed.” Both Lewises fell victim to secret offshore bank account scheme operated by Tower Executive Resources, Ltd. Joe Kristan reported on Tower back in 2006; Paul Harris, the promoter of Tower, was sentenced to five years at ClubFed. The scheme made the payments look like they were for consulting services. They weren’t; it was simple tax fraud.

The younger Mr. Lewis is doing his time in ClubFed in Lompoc. It’s quite possible that the elder Mr. Lewis will soon be in a neighboring bunk.

News Story: San Francisco Chronicle

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Another Strip Club, Another Jail Term

Posted on August 19, 2007 by Russ

Last year, I wrote about James Andrew Yeager. Mr. Yeager operated a strip club in Columbia, Missouri. Strip clubs are a cash business, and Mr. Yeager decided that he needn’t report all the cash as income. He pleaded guilty last year to tax evasion.

Last week, he found out his sentence: 21 months at ClubFed, and restitution of $140,543 plus paying additional back taxes of $36,732.

The strip club, Club Vogue, is still in operation. The news story from last year said he owned the club; this year’s story makes that unclear. If Mr. Yeager is the owner, the US government may soon own a strip club (seizing the assets to pay the back taxes).

So if you are a strip club owner, may I recommend—as I have before—that you pay your taxes. Cash income is taxable….

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Faulty Language or Not, Guilty as Charged

Posted on August 15, 2007 by Russ

Yesterday I wrote about Dr. Frederick Kriemelmeyer, a dentist in LaCrosse, Wisconsin. Dr. Kriemelmeyer was found guilty today of three counts of filing false tax returns. He’ll be sentenced on October 30th. Given that the testimony in the trial ended today, the jury didn’t need much time in deciding the verdicts.

And that appears to be understandable, unlike Dr. Kriemelmeyer’s use of the English language. As I noted yesterday, Dr. Kriemelmeyer believes in David Wynn Miller’s dialect, “In the Truth.” He doesn’t believe that our current American flag is valid. He doesn’t believe that our Tax Code is valid.

Based on federal sentencing guidelines, Dr. Kriemelmeyer is looking at 27-33 months at ClubFed. And no use of language such as this, “FOR THE EDUCATIONAL-CORRECTIONS OF THE MODIFYING-COMMUNICATIONS ARE WITH THESE CLAIMS OF THE FICTIONAL-ADVERB-VERB-USURY WITH THE OPERATIONS/METHODS OF A FICTIONAL-MODIFICATION-LANGUAGE,” will lessen his sentence. (That quote was taken from Mr. Miller’s website.) And if he tries to lecture a judge in using the English language, I won’t be shocked to see him getting the maximum term of 9 years (3 years per count) plus restitution.

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“English Is a Fraudulently Conveyed Language”

Posted on August 14, 2007 by Russ

If you are wondering about the headline, so am I. But it’s a quote out of the trial of one Frederick Kriemelmeyer, a dentist in LaCrosse, Wisconsin. Dr. Kriemelmeyer is accused of four counts of tax evasion.

As the LaCrosse Tribune reported, Dr. Kriemelmeyer is a believer in David Wynn Miller. Miller does not use standard English; instead, he used a dialect he invented called “In the Truth.” It’s got a lot of capital letters, prepositional phrases, and not much in the way of punctuation. You can see samples by going to Mr. Miller’s website.

In any case, Dr. Kriemelmeyer challenged the indictment because it was in English—our English. That didn’t work (the judge let the indictment stand). The dentist challenged the US flag in the courtroom. No, I’m not joking about that. He didn’t win that argument.

David Wynn Miller believes that if you add extra punctuation to a tax return, you will somehow not have to pay taxes. At least, that’s what I think he espouses. Dr. Kriemelmeyer is a follower of Mr. Miller, and is conducting his own defense.

The government plans on having 15 of Dr. Kriemelmeyer’s patients testify as to how much they paid him. The government alleges that if there was an asterisk by a patient’s fees in Dr. Kriemelmeyer’s ledger, the actual payment was much higher. For example, $20* meant that the patient paid $100. If the government proves that, they’ve proved the case. The total tax evasion is alleged to be about $364,000.

The trial will likely last another few days.

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A Tax, A Compact, A Battle

Posted on August 14, 2007 by Russ

Today in San Diego a federal judge will hear arguments in a case between the Rincon Indian tribe and the State of California. The battle is over whether or not California negotiated in good faith over a compact with the Indian tribe for more slot machines for the Rincon Indian’s casino (north of San Diego).

An expert from the state estimated that the 500 additional slot machines proposed for the tribe’s casino would bring in just under $40 million a year. The tribe argues that California wanted about $38 million of that as the fee for the allowing the additional slot machines. The tribe argues that the state did not negotiate in good faith, and that the $38 million would be a “tax” rather than a fee.

On the other hand, California argues that they have negotiated in good faith; that they have reached agreements with numerous other tribes, including the neighboring Paula tribe; and that the additional machines would bring in money for the Rincon tribe.

A decision will likely be announced in a few weeks.

News Story: Here.

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Muffled

Posted on August 13, 2007 by Russ

Later this week I need to bring my car in for service. The auto repair shop I use is on the up-and-up. However, not all of them are. Today, the Tax Court looked at a Colorado muffler shop which apparently decided to use the Cook/Schulz method of tax preparation. The results weren’t pretty.

Colorado Mufflers Unlimited, Inc. is exactly what you’d think: a muffler shop in Colorado. Back in 2000, they decided to start paying their employees in cash. That’s not necessarily a problem. But they didn’t withhold anything from their employees’ wages, didn’t issue W-2s, didn’t file Form 941 (or Form 940), and claimed that their employees weren’t employees. The IRS disagreed, and audited the business, found that they were employees, and that the company owed about $100,000 in back employment taxes. The company took the case to Tax Court.

Adding to the company’s problems was the fact that they requested a refund of employment taxes for early 2000 (they stopped paying them in the middle of the year) and they received an $88,000 refund in early 2001. The IRS filed a court case to get back the refund (there’s nothing in the case that notes how that case went).

The company also lacked good timing; they filed court papers late, and their filings were not allowed. That was their first strike.

Second, the testimony showed that the “employees” were paid by the hour, week, or month—not by the job. In other words, they looked like employees.

Not only that but:

“Petitioner’s behavior during the audit and the pretrial preparation of this case was characterized by a consistent lack of cooperation and by considerable obfuscation designed to prevent respondent from ascertaining the facts regarding petitioner’s business, business payroll, and workers. It appears that petitioner used fictitious names and/or other companies to hide the nature and extent of its business activity from respondent during the years at issue.”

That was strike two.

Then the Court looked to see whether an employer/employee relationship existed by evaluating seven factors. The Court found that all of the factors favored an employment relationship. Needless to say, the Court concluded, “After reviewing the record and weighing the factors, we conclude that petitioner has failed to prove that respondent’s determination treating the workers as petitioner’s employees was in error.” That was strike three, and the case went to the IRS.

And the Court was not amused with the company’s obfuscation and use of “frivolous or groundless” tactics. Even though the IRS did not ask for a penalty under §6673(a)(1), the Court imposed one of $3,000.

Case: Colorado Mufflers Unlimited, Inc. v. Commissioner, T.C. Memo 2007-222

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2007-2008 IRS Priority Guidance Issued; Poker Still on the List

Posted on August 13, 2007 by Russ

Today, the IRS issued its 2007-2008 Priority Guidance Plan. These are the major issues the IRS expects to complete during the year. There are 303 items on the list.

Poker tournaments remain on the IRS’ radar screen. Like the previous two Priority Guidance Plans, one of the 303 projects is issuing a revenue procedure regarding the withholding rules for poker tournaments.

Other items on the list that appear interesting include:
– Guidance on the treatment of wrap fees;
– Guidance under section 263A regarding the treatment of post-production costs, such as sales-based royalties;
– Revenue procedure under section 6213 regarding internet and oral change of address requests;
– Guidance under section 6676 regarding the penalty for erroneous claims for refund; and
– Guidance under section 6694, as amended, regarding the penalty for understatements of taxpayer’s liability by tax return preparers.

There’s plenty more, especially in technical guidance issues. I’ll point out (as I did last year) that many of these 303 items will not be addressed by the IRS during the coming twelve months.

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