First Property Tax Payment Due Today

Posted on December 11, 2006 by Russ

Just a reminder that the first installment of property taxes for Californians must be postmarked today. Alternatively, most County Assessor/Treasurer offices will remain open late for you to make payments.

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On the Road Again

Posted on December 10, 2006 by Russ

I’m hitting the road again tomorrow, heading to Valencia and then to Palm Springs. Posting will be light to nonexistent until Thursday.

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The New York Times Mentions Taxing Virtual Worlds

Posted on December 10, 2006 by Russ

This morning’s New York Times has a brief piece on taxing income producing transactions of virtual worlds. The Times notes that a precedent does exist for taxing such activities: barter. Indeed, back in the 1970s the IRS implemented regulations on the taxation of barter (thus, today’s Form 1099-B).

Luckily for participants in the virtual worlds, it will probably take the IRS some time to determine what they’ll do (besides saying, “That’s so weird.”).

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Hatch Appeals

Posted on December 10, 2006 by Russ

Richard Hatch, the Survivor winner who is now a convicted tax offender, has formally appealed his conviction from earlier this year. The Associated Press reports that Hatch caught the producers of Survivor cheating (they allegedly gave food to other contestants); CBS denies the charges.

In any case, Hatch is now at the Morgantown, West Virginia Federal Correctional Institute, serving a four-year term. Hatch’s appeal was filed with the 1st District Court of Appeals in Boston.

Perhaps Hatch is jealous of Wesley Snipes stealing the tax offender spotlight.

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Murphy’s Law

Posted on December 8, 2006 by Russ

The Seventh Circuit Court of Appeals today ruled on the appeal of Glen Murphy, a Wisconsin Chiropractor, who had earlier been convicted of seven counts of filing false tax returns and three counts of not filing tax returns. After being sentenced to 41 months at ClubFed, Mr. Murphy appealed.

Judge Easterbrook gave the unanimous opinion of the Court. Here are some excerpts:

“After being charged, he tried to game the system and drag out the proceeding as long as possible.”

“AAA, from what we can tell, offered no legitimate services; it instead specialized in international-scale tax fraud. Murphy, himself no fan of taxes, turned to AAA in 1997 in an effort to dramatically lower his past and future income tax liability. AAA obliged, helping Murphy set up a sham, zero-income partnership that took on huge, predetermined losses in sums perfectly tailored to eliminate Murphy’s present and past tax liability. AAA also served as a conduit for Murphy to direct money to offshore bank accounts under the guise of advertising expenses. As a grand finale, Murphy did not even file income tax returns from 2001-2003, despite telling his bank that he had done so (and even producing a completed 2001 form) as part of a home refinancing application.”

“During the 10 months leading up to and including his trial, he employed a pattern of delay and misdirection that would make an NFL offensive coordinator jealous.”

“Information not available to the district court at the time, but highly revealing now, is Murphy’s sudden ability to quickly secure paid private counsel within weeks of his convictions.”

If you get the idea that Mr. Murphy lost his appeal, you’re correct. The ruling by Judge Easterbrook is quite revealing of someone who tried to evade justice, but lost.

Hat Tip: Decision of the Day

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Snipes Surrenders

Posted on December 8, 2006 by Russ

Wesley Snipes is a fugitive no longer. According to the Associated Press, Snipes surrendered to federal authorities in Florida today. He was later released on a $1 million bond.

Snipes will be allowed to return to Namibia to finish the film he’s working on. However, he won’t be heading overseas in 2007 (at least until after his trial); he must return to the U.S. by January 10th and will then be restricted to traveling within the continental United States.

Joe Kristan speculates that if Snipes is convicted he’ll be looking at around six years at ClubFed. A pre-trial conference is scheduled for February 22nd.

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Cleaning Up the Tax Code?

Posted on December 7, 2006 by Russ

I really believe that I have lifetime employment. I just can’t see Congress implementing meaningful tax reform in my lifetime (as much as I’d like to see it).

But every so often a ray of sunshine is seen. The Captain’s Quarters blog reported today that Senators Ron Wyden (D-OR) and Larry Craig (R-ID) are involved in “Cleanse the Code,” an effort to simplify the Tax Code and the regulations that have been promulgated to implement the Code.

Senator Wyden would like to see a one-page Form 1040, and noted that the last meaningful reform took place during the second term of a Republican President with a Democratic controlled Congress. Senator Craig noted that while his plan is different from Senator Wyden’s, it’s not that different. Additionally, Senator Craig would like to see a flat tax.

Joe Kristan noted today about the creep towards AMT hell for everyone. If Congress does nothing on that score, the voting public will demand meaningful tax reform. Until that day, I suspect we’ll see bandages being applied.

I’m not worried about my job security, unfortunately.

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Taxing the Virtual World, Redux

Posted on December 6, 2006 by Russ

I’ve previously written about taxing the virtual world. Let’s say you’re playing an online game, one of those that have their own worlds, such as EverQuest or SecondLife. I own Russ’ Gold Depot, and you agree to purchase those 100 acres from me for $100 — not 100 gold pieces, but 100 real U.S. Dollars. What’s my income?

The U.S. Tax Code would subject me to tax on the gain. After all, my basis is $0, and now I have $100, right? Luckily, the IRS’ current opinion is “That’s so weird.”

Unfortunately for online enthusiasts, that opinion is unlikely to hold for long. Last Saturday a panel at New York University actually debated this issue. “Tax and Finance at the State of Play/Terra Nova Symposium had several speakers talking about this issue according to a CNet report.

“Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues,” said Dan Miller, a senior economist with the Congress’ Joint Economic Committee told CNet.

Another interesting issue might confront heirs of online real estate magnates. Suppose I own $1 million in virtual land. Does this virtual real estate factor into my estate?

Or what if I trade assets, going from a red paperclip to a house (like Kyle MacDonald of Canada)? Bartering is absolutely taxable, so wouldn’t I owe real tax on my gains?

Unfortunately for virtual world fans, it’s almost a certainty that the IRS and other government agencies will look into this eventually. So if I do sell my gold depot, I’m also likely to come into possession of a slip of paper: a 1099-MISC reporting the transaction to the IRS.

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Hot Air in More Ways than One

Posted on December 6, 2006 by Russ

VaporTech is a Livermore (California) company that uses steam, vapor, and high pressure to clean toxic soils or increase oil production from old wells. Its CEO used to be John Frances Griffin. I say ‘used to be’ because Mr. Griffin, already under indictment for mail fraud, has now been charged with two counts of tax evasion.

A federal grand jury in Oakland indicted Mr. Griffin on tax evasion charges last week. Griffin supposedly didn’t tell his CFO his social security number, and got paid in cash and cashier’s checks to avoid having his income shown. (I will only briefly note that the CFO, who was not identified in the news story, should have his head examined.)

Mr. Griffin is already in a halfway house awaiting trial. He’s likely going to be spending some significant time at ClubFed. Additionally, the government has begun forfeiture proceedings against him, and wishes to obtain a gold tennis racket, televisions, and over $17,000 in clothes from Nieman Marcus.

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Philanthropist, or Tax Evader?

Posted on December 6, 2006 by Russ

Joe Mammana owns the Yardley Egg Farm in Ohio. He’s pledged millions to crack down on criminals. There’s just one little problem, according to the U.S. Attorney’s Office: Mr. Mammana hasn’t paid his own taxes.

The Associated Press reports that Mammana hasn’t paid federal taxes since 2000. He’s accused of earning over $3 million, owning luxury cars and a luxurious home without paying taxes. He’s currently in jail after a search found an unregistered handgun. U.S. Magistrate L. Felipe Restrepo denied bail, calling Mammana a flight risk.

Meanwhile, Mammana is accused by an Ohio crime-fighting group of reneging on his promised reward. The head of that group, Kevin Miles, has sued Mammana after he was attacked with a baseball bat and told during the attack to drop the lawsuit.

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