So You Catch Barry Bonds’ 756th Homer…Did You Just Lose $100,000?

Posted on July 25, 2007 by Russ

An interesting article this morning in the Wall Street Journal: What are the tax implications of catching Barry Bonds’ 756th home run? Sometime in the next few weeks some lucky fan will likely catch the ball. (There’s always the chance, albeit slight, that the ball will ricochet back onto the field, say, off a foul pole, and this issue will be moot.)

Tom Herman in today’s Tax Report in the Journal (Note: Pay Link) ponders that question, and gets different answers from different experts. The IRS prefers not to answer the question. Alice Abreu, a professor at Temple University Law School, believes its taxable income the moment its caught. Other unnamed law professors disagree. And Don Korb, Chief Counsel of the IRS (and a baseball fan), told the journal, “Please, whatever you do, don’t ask me that question.”

My view is that a fan, having purchased a ticket, has the right to take with him from the game anything thrown or hit from the field of play (such as a baseball). If he is lucky enough to catch the ball, he’s paid for it by the ticket.

However, if (or should that be “when”) he sells the baseball—and estimates of the worth of Bonds’ 756th home run baseball start at $400,000—that lucky fan will owe tax on the proceeds.

Of course, we’re dealing with the IRS and it wouldn’t shock me for them to interpret this completely differently.

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Why Trust Fund Tax Fraud is Bad

Posted on July 24, 2007 by Russ

We received an email regarding the post we did on Ace Tire & Parts. The owners of Ace are accused of violating federal employment laws and have each pleaded guilty to one count of tax fraud.

In any case, we were asked the following:

“just read your article. where did you get your information for bozo scheme failed? what makes you think these guys are going to club fed? what do you know about pa tax laws with regard to this case? isn’t this a rather common practice among small businessmen across the country? give me your thoughts.”

Well, as to where I got the information, it was published in multiple places, including the Pittsburgh Post-Gazette. I think they’re going to prison because of the nature of their crime. These individuals robbed what are called “Trust Fund” accounts. When I wrote, “And the DOJ and IRS really, really don’t like violators of employment tax laws.” And that’s what they did, to the tune of somewhere between $400,000 and $1,000,000.

As to whether this is a common practice, definitely not. Anyone who thinks that most small business owners steal from employment tax trust fund accounts needs to think that through. Do you really believe that most small business owners are tax cheats? Thankfully, most Americans do pay their taxes, and most business owners correctly forward the employment taxes they collect to the government.

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Barry Bonds: Home Run King…and Tax Evader?

Posted on July 22, 2007 by Russ

Barry Bonds is moving towards career home run #756, which would exceed Hank Aaron’s career mark of 755. Bonds did not play in today’s game at Milwaukee. He currently has 753 homers, and will face Atlanta in San Francisco Monday evening.

Unfortunately for Bonds, the grand jury that has been investigating possible tax evasion and/or perjury charges against the Giants’ slugger has been extended for another six months, according to this story in the New York Daily News. A source told the Daily News, “They seem to feel they [the US Attorney’s Office] have a strong case.” Since the grand jury will not reconvene until September, Bonds will likely break the record long before then. Bonds told the Los Angeles Times, when asked if he was concerned about the possible indictment, “No.”

It should be an interesting September, both at the ballparks and in the corridors of the Federal Courthouse in New York.

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No Budget Yet

Posted on July 22, 2007 by Russ

California is still without a budget, and the battle will not end until Wednesday at the earliest. The State Senate recessed Saturday with Republicans refusing to budge.

California requires a 2/3 vote in each house of its legislature to pass the budget. While Democrats have a sizable majority, they must get some Republican votes in each house. The Assembly approved the budget with a few Republicans crossing over. However, the State Senate has not.

To date, legislative aides and state contractors have felt the biggest sting from the battle in Sacramento. However, it will likely start impacting more as the days go on. A good source for the Republican viewpoint is the Flash Report Blog.

State Senator Bob Dutton (R-San Bernardino) told the Flash Report Blog, “This budget must have a zero-deficit.” Given that the budget has a $5 Billion operational deficit, it looks like when I head on vacation next Saturday there won’t be a budget.

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A Bozo Scheme Fails

Posted on July 20, 2007 by Russ

Please don’t try this yourselves.

You have a successful business (in this case, Ace Tire & Parts of Coraoplis, Pennsylvania). You decide that you don’t have to pay payroll taxes; instead, you’ll make your employees checks payable to “Cash” and as reimbursements for nonexistent expenses. Your controller agrees to this highly illegal scheme. You save on payroll taxes and your employees avoid income taxes.

And then the IRS finds out.

The two owners of Ace Tire & Parts, Richard & John Schwartz, and the controller, Richard Connell, all pleaded guilty to one count of tax fraud. Given that the tax loss to the IRS was between $400,000 and $1 million, the three are looking at about three years at Club Fed and, I assume, restitution to the IRS. And I wouldn’t be shocked if the Commonwealth of Pennsylvania looks at this crime, too.

For the record, this kind of fraud rarely goes undetected. And the DOJ and IRS really, really don’t like violators of employment tax laws.

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A Graduate of Western Tax Service?

Posted on July 19, 2007 by Russ

The Western Tax Service method of preparing tax returns is different. Customers love the high refunds. Of course, the deductions claimed on Schedule A were almost all either false or overinflated. Did I mention that Western’s proprietor is at ClubFed and will also have to serve time in California?

The Department of Justice is alleging that a Washington, D.C. tax preparer followed the Western Tax Service method. Donald Roberts ran X-Press Refund Tax Service and has been indicted on one count of conspiracy and 22 counts of assisting in the preparation of false tax returns. Mr. Roberts allegedly overstated Schedule A deductions such as charitable contributions and unreimbursed employee business expenses. He’s also accused of using incorrect filing statuses and phony education credits on returns.

Mr. Roberts is looking at an extended stay at ClubFed if he’s found guilty on all charges. By the way, if you happen to have used X-Press Refund Tax Service, you will likely be audited as the IRS will undoubtedly be looking to have the bad returns corrected.

DOJ Press Release

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Typos Count

Posted on July 19, 2007 by Russ

I used to reside in Tulare County, located in California’s Central Valley. It’s prime agricultural land. It’s also one of the poorest counties in California. And the county will need to find $327,000.

The Dinuba Redevelopment Agency is funded through property taxes paid by various businesses in Dinuba. Unfortunately, the Tulare County Assessor misclassified some businesses in 1998. The error was discovered in 2004, and corrected. The Dinuba Redevelopment Agency asked that the error be fixed retroactively (so that the agency would receive $327,000); the county refused.

Dinuba took the case to court, and lost in Tulare County Superior Court. They appealed, and won at the 5th District Court of Appeals. Tulare County then appealed to the California Supreme Court; that court upheld the appeals court decision.

So it is important to check your property tax bills…both for the counties sending them to taxpayers and for taxpayers receiving them.

News Story: Tulare Advance-Register

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It’s July 19th and There’s Still No Budget

Posted on July 19, 2007 by Russ

In nine days I go on vacation. I think it’s even money as to whether or not California has a budget before I leave.

Of course, California is supposed to have a budget signed by June 30th, but that deadline is rarely met. However, it appears that progress is being made…lubricated by wine.

The Sacramento Bee reports that Assembly Speaker Fabian Nunez has used wine to help Democratic and Republican leaders to come to an agreement. Even though the Democrats control both houses of California’s legislature, they must get Republican votes in order to pass a budget—the budget must pass by a 2/3 vote. Republican leaders want an end (or, at a minimum, a drastic cut) to California’s $1.5 billion operating deficit.

Democrats don’t want to forgo cost-of-living increases in social programs. Republicans want a balanced budget and cuts in spending. Something has got to give eventually. Already, staff workers in Sacramento have missed a paycheck.

There’s one other factor that figures into the budget stalemate: California’s revenues are $800 million under projections. The housing slump and the Central Valley freeze (which greatly impacts agriculture) are probably the two biggest culprits here. In any case, this also doesn’t bode well for the future. California will likely face a $5 billion budget shortfall next year.

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A Patently Good Idea

Posted on July 19, 2007 by Russ

Congress is actually doing something smart. According to the TaxProf Blog, the House Judiciary Committee approved a proposal prohibiting patents of tax planning methods.

I’m amazed that Congress is actually doing something intelligent.

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Neteller Settles

Posted on July 18, 2007 by Russ

Somehow it’s fitting on the day that the World Series of Poker champion is crowned that we find out that Neteller, the beleaguered Internet payment processor, has settled with the U.S. Department of Justice. According to the press release that Neteller issued:

  • Neteller will forfeit $136 million to the US (inclusive of $60 million that the US seized from Neteller transactions earlier);
  • US customers will be able to request withdrawals of their funds no later than July 30th;
  • Neteller agrees to cooperate fully with the USAO [U.S. Attorney’s Office/DOJ] in all matters relating to the ongoing investigation;
  • Neteller agrees to fully implement procedures and controls to prevent illegal transactions between internet gambling merchants and persons located in the US; and
  • The DOJ will dismiss a criminal information against Neteller in two years as long as Neteller fully implements this agreement and fully cooperates with the DOJ.

So what does this mean? US gamblers will get their money back, likely in August. Neteller’s founders will get off with a slap on their wrist (a monetary fine). Neteller won’t be operating in the United States any more. And the DOJ gets a big boost in its investigation of online gambling firms because Neteller will cooperate with the DOJ (including testifying in court against online gambling firms).

What’s not in the agreement—but is almost certain to be happening—is any mention of taxes. However, anyone who thinks that the DOJ (and the IRS, by extension) will not be getting records of Neteller transactions should think again. Almost certainly that information will be finding its way to the IRS by year-end.

It’s interesting to compare what happened with what I predicted back in January.

“Indeed, it’s clear what’s likely to happen. Neteller and the DOJ will likely come to an agreement. Neteller will announce that they will no longer do business with Americans, and they may have to pay a fine; the DOJ won’t indict the company, or any of its current stockholders. The DOJ might even accept some sort of plea bargain for the two founders who were arrested. It’s also certain that as part of such a deal Neteller will agree to release details of all transactions between American customers and Neteller.”

And that’s basically exactly what occurred.

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