Proposition 82 Soundly Defeated

Posted on June 7, 2006 by Russ

Proposition 82, the mandatory preschool/tax increase/help Las Vegas, Phoenix, and Denver initiative, fell to defeat yesterday. With almost every precinct reporting, 39.1% favored the proposition, but 60.9% opposed it. Californians even defeated a library bond initiative, 53.1% to 46.9%. That’s unusual because most bond measures are easily passed in the Golden State.

But we’re not through dealing with tax increases. In the Democratic primary, Phil “I want to increase your taxes” Angelides defeated Steve Westly and will oppose Governor Schwarzenegger in the November general election.

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Surf’s Down

Posted on June 5, 2006 by Russ

I have a number of clients who receive income from outside of the United States. I’ve advised my clients that the US Tax Code is quite clear—income from all sources, legal or illegal, from within the United States or from outside the United States, is generally taxable. Anyone in a high profile occupation, such as an athlete or a contestant on a game show (eg Richard Hatch) should be aware of this.

Well, at least one surfer perhaps thought that the surfing lifestyle exempted him from paying taxes on winnings earned in Fiji, South Africa, Brazil and other foreign locales. Until the IRS found out. Sonny Garcia, perhaps the best ever Hawaiian surfer (he retired last year), now faces up to three years in jail and a fine of up to $100,000 after pleading guilty today to tax evasion. Garcia, born Vincent Sennan Garcia III, has won numerous surfing titles as this article notes.

The moral? Even if the surf’s up, dude, you gotta pay your taxes.

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What In the World Does the IMF Have to Do with Taxes?

Posted on June 4, 2006 by Russ

No, I’m not talking about the Impossible Missions Force. I’m speaking about…well, to be honest, a lot of nothing. But several charlatans have been promoting an “IMF Decoding Service.” Indeed, if you do a search on Google or some other search engine you’ll find several of these listed.

The Deptartment of Justice and the IRS are not amused. Last week one of the promoters of this scheme found himself in court in Cincinnati, and now has a permanent injunction against promoting the IMF Decoding Service and the FOIA Generator. You don’t need the Freedom of Information Act in order to obtain records from the IRS; you can request a transcript of your tax returns or even photocopies of your old returns just by filling out the appropriate forms.

A sucker is born every day. Hopefully you realize that you must pay your taxes. If you don’t, there are several federal institutions just waiting for you. And for the promoters of these frauds.

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Field Poll Says Prop 82 Now Trailing

Posted on June 4, 2006 by Russ

Proposition 82, the pre-school for all, tax the wealthy, help Las Vegas, Phoenix, and Denver initiative, now trails, according to a Field Poll just released. For those, like me, who are against the initiative, vigilance is still required. Democrats are shown to be in favor of the initiative while Republicans are against it. However, there are no contested raced on the Republican primary ballot on Tuesday while there is a contentious Democratic races for Governor.

As always, you should exercise your right to vote this Tuesday no matter where you stand on this initiative. If you don’t know where your polling place is, you can find your polling place here.

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2005 Tax Offender of the Year Sentenced

Posted on June 3, 2006 by Russ

For those who don’t remember, we had a long list of participants to choose from for the 2005 Tax Offender of the Year. Our lucky winner, Sharon Lee Caulder, formerly of New Orleans, recently of Oakland, and soon to be housed by the Bureau of Prisons, was sentenced on Thursday to 30 months in prison. Ms. Caulder earned $1.7 million (primarily from sales of her book, Mark of Voodoo, while simultaneously filing for bankruptcy. Oops.

Hat Tip: Roth Tax Updates

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Have Californians Wised Up?

Posted on June 2, 2006 by Russ

Proposition 82, the free preschool, tax increase, Help Las Vegas, Phoenix, and Denver Initiative, may now be trailing in polls. While no new polls have been released publicly, Bill Bradley of LA Weekly notes in a recent column that support has fallen below 50%. If you’re a Californian and want to make sure that we don’t have a new bureaucracy to deal with (along with higher taxes and fewer businesses to pay those taxes), make sure you express your opinion on election day next Tuesday.

By the way, both the Orange County Register and the Los Angeles Times have come out in editorials against Proposition 82. This may be the first time in some time that the state’s most conservative paper (the Register) and the state’s most liberal paper (the Times) have agreed on a controversial measure.

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The IRS Give Single Member S Corps a Lump of Coal

Posted on May 30, 2006 by Russ

The IRS announced today a “clarification” of the rules for self-employed health insurance deductions for S Corporations. This is bad news overall, and especially bad news for California S Corporations.

The self-employed health insurance deduction allows sole proprietorships, partnerships, LLCs (those treated as partnerships or as disregarded entities) to deduct their health insurance premiums “above the line;” that is, an adjustment to AGI rather than as an itemized deduction subject to a 7.5% limitation on AGI. This is a large tax savings for the self-employed.

The IRS announcement indicates that for S Corporations to be eligible for this deduction, the policy must be in the name of the corporation. But if you do this, the health insurance premiums will be included as compensation on your W-2 (although they are exempt from FICA and medicare).

Additionally, many states, including California, do not allow single-employee corporations of any kind to obtain health insurance. This ruling means that California single-member S Corporations (a single individual is the employee and owner) are generally ineligible for this deduction.

For example, my health insurance premiums run about $5,000 annually. If I were impacted by this ruling and were in the 25% tax bracket, my federal tax bill just went up $1,250.

If you’re impacted by this ruling I urge you to write your Representatives and Senators. I’m certain this is not what Congress intended when they enacted this deduction.

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US: In the Middle

Posted on May 29, 2006 by Russ

Forbes magazine recently presented its annual comparison of taxes in the US to the world. So where does the US rank? More or less, in the middle.

Of course, that depends on what state you reside in. The comparison looked at two US states: New York (a relatively high tax state) and Texas (with no personal state income tax). New York ranks 115.7 on Forbes’ misery index; Texas is at 94.6.

As far as the rest of the world, leading the way in low taxes is the United Arab Emirates at 18.0 (not surprising, given their oil). The worst place for taxes? France, at 166.8.

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The Spanish-American War Officially Ends!

Posted on May 25, 2006 by Russ

And you thought that the Treaty of Paris (signed on December 10, 1898) ended the Spanish-American War. No! It ended today, May 25, 2006, when the Department of the Treasury announced that they will no longer fight for enforcement of the 3% telephone excise tax used to fund the Spanish-American War.

Refunds of tax for long-distance service paid over the past three years will be given as part of your 2006 tax returns filed in 2007. As to what documentation (if any) is required, this has not been announced. (From a tax preparers’ viewpoint, I hope that preparers aren’t the ones who will have to check that individuals requesting refunds meet the requirements….)

Additionally, the press release and the news stories do not reference mobile telephone service (e.g. cellular). However, the IRS notice does, stating,

“These cases [on the telephone excise tax] hold that a telephonic communication for which there is a toll charge that varies with elapsed transmission time and not distance (time-only service) is not taxable toll telephone service as defined in § 4252(b)(1) of the Internal Revenue Code. As a result, amounts paid for time-only service are not subject to the tax imposed by § 4251. Accordingly, the government will no longer litigate this issue and Notice 2005-79, 2005-46 I.R.B. 952, which states otherwise, is revoked.”

So cellular phone service and long-distance service should be free of the excise tax.

Until the IRS and the Department of the Treasury announce the procedure for refunds, keep your old phone bills! The Treasury Department estimates that refunds will total $15 billion.

Links: Reuters News Story, Roth Tax Updates, and TaxProf Blog

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Proposition 82: Be Scared. Be Very Scared.

Posted on May 24, 2006 by Russ

Proposition 82, the Mandatory Preschool/Tax Increase/Help Las Vegas, Phoenix, and Denver Initiative, still leads in the polls. However, the last statewide poll was released over a month ago.

Unfortunately for all Californians, the primary election on June 6th is dominated by the Democratic primary for Governor. With no major draw for Republicans, it’s very likely that this initiative, which would likely continue California’s downward march among states to do business, will pass.

Interestingly enough Dan Weintraub (of the Sacramento Bee) noted that a measure buried in the Governator’s budget would provide preschool to the most needy at a fraction of the cost of Proposition 82. Now, excuse my sarcasm, but do Democrats support a lean program, targeted to those who need it, or a new bureaucracy, with a program to match?

Dan Weintraub’s Column (registration required)
Text of Proposition 82

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