Spend the $4.50….

Posted on March 2, 2006 by Russ

When I send out a tax return to a client, and it has to be mailed to a tax agency, I always state, in my letter, “mail, using certified mail, return receipt requested….” Joe Kristan of Roth Tax Updates today reported on a court case that made its way to the Iowa Supreme Court. A taxpayer’s refund was denied because he couldn’t prove it had been mailed in on a timely basis. Apparently, the accountant mailed the return for the taxpayer…but using just first class mail.

Joe Kristan’s advice at the end of his post is the same advice we’ve been giving out for years:

“The Moral? Go to the post office, use certified mail, return receipt requested, and save the postmark receipt and return receipt in a safe place. Better yet, use electronic filing and save the whole runaround.” If you’re going to spend money having a professional prepare your return (and it’s a lot more than $4.50), spend the $4.50 to mail your return!

Hat Tip: Roth Tax Updates

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Another Hobby Loss

Posted on March 1, 2006 by Russ

In a recent unpublished opinion, the Eighth Circuit looked at a hobby loss case, Montagne v. Commissioner. One of the points we continually make is to document, document, document. The Montagnes had a horse-breeding “business,” but the Tax Court ruled that it was a hobby. The Eighth Circuit noted that there was no financial projections or business plan, and that they co-mingled their business and personal expenses (one bank account). So if you’re going to have a business, treat it that way: maintain separate records and a separate bank account.

Case: Montagne v. Commissioner, 04-4137

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Professor Maule Disects Ready Return

Posted on March 1, 2006 by Russ

The Franchise Tax Board is in its second year of the “Ready Return Program.” Under this program, the FTB prepares returns for individuals who have very simple returns — just wage income, single, no dependents. But the program has been quite controversial.

Professor Maule today gives an excellent review of the program. If you’re at all interested in the controversy, read it all.

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Proposition 82

Posted on February 28, 2006 by Russ

Proposition 82 on the June 6th California Primary Election Ballot is titled, “Preschool Education. Tax On Incomes Over $400,000 for Individuals; $800,000 for Couples….” A better name for this misguided statute is the “Preschool Education Bureaucracy. Driving Jobs from California Act.” Because that’s what this initiative would do.

As noted yesterday, California already ranks 40th among the states in business climate. This initiative, if passed, would increase taxes for the wealthy. It sounds great—use the money for mandatory preschool, help our kids, it only impacts the rich, etc.—but if it passes the impact would be felt only slightly among the wealthy. The true impact would be on the lower and middle class.

If you’re a business owner, and you have a choice of hiring one more person in California (which will have an impact on growing your business, increasing your revenues, etc.) or hiring that employee in another state, what would you choose if the tax rate in California is quite high? I’m sure the Nevada Development Authority, Phoenix Development Authority, and the Metro Denver Economic Development Corporation are rooting for passage.

Not only is this initiative bad from a tax standpoint, it’s bad for our children. Does anyone honestly believe that California needs another bureaucracy to run our childrens’ lives? Don’t we, the parents, do a better job of choosing what’s right for our children than the state? For example, parents who want to “home school” preschool would be prohibited from doing so under Proposition 82.

I hadn’t planned on writing about this initiative in late February when the primary ballot won’t be until June 6th. However, two items caused me to pen this entry. First, the Wall Street Journal wrote an editorial today on this measure. Second, the measure’s leading proponent, Rob Reiner, has been in the news. As Hugh Hewitt noted Reiner has taken a leave of absence from First Five, the state agency spending money from a cigarette tax. Maybe you caught the commercials that ran over the holidays, “Preschool is good for our kids.” Hmmm, that’s not a leading message with a ballot initiative upcoming….

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We’re Number 40!

Posted on February 27, 2006 by Russ

The Tax Foundation today released its business climate survey of the 50 states. For the record, here are the top ten states:

  1. Wyoming
  2. South Dakota
  3. Alaska
  4. Florida
  5. Nevada
  6. New Hampshire
  7. Texas
  8. Delaware
  9. Montana
  10. Oregon

California ranks 40th, just missing out from the bottom ten. The bottom five are Vermont, Ohio, Rhode Island, New Jersey, and New York.

The last time the Tax Foundation ran their list (2004), California ranked 45th, so the state has managed to improve. Well, perhaps. Or perhaps some other states have managed to fall below the Golden State. Here’s what the Tax Foundation says about New York: “New York has the worst individual income tax in the country, in addition to the 7th and 3rd worst wealth and unemployment taxes respectively. New York receives its highest score on its business tax, 18th best.” California, for the record, ranks 39th for business tax, 47th for individual income tax, 38th for sales tax, 20th for unemployment insurance tax, and 7th for wealth tax.

The report is quite illuminating, and I recommend perusing it. You can find it here.

Thanks to the TaxProfBlog for pointing this survey out.

Posted in California | 13 Comments

Go Phish.

Posted on February 27, 2006 by Russ

One of my clients called me this morning and asked about an email he received, purportedly from the IRS. I told him that, in general, the IRS doesn’t send out emails. The email he received told him that he had a “small” refund coming, and to click on a hyperlink to enter in some “minor” personal information to get the refund.

It’s a phishing scam. According to snopes, this has been around for a year or so. The Washington Post ran a story on this last week. And the IRS itself has issued its own warning.

So don’t click on the link. Never give out your social security number, bank account information, or other personal information to a website. Because if it sounds too good to be true, it probably is.

Posted in IRS | 1 Comment

People Who Live In Glass Houses…

Posted on February 25, 2006 by Russ

Do you remember when Intuit and H&R Block sued each other? Well, H&R Block now has some egg on their face.

H&R Block admitted that they made some miscalculations on their own tax returns. They were only off by $32 million on their state income tax filings.

Of course, $32 million is a drop in the bucket for H&R Block. But announcing a tax miscalculation when you’re in the tax preparation business in the middle of tax season is too good to pass up (for me).

Posted in Tax Preparation | 1 Comment

Offshore Trusts Shelters Snare Another Victim

Posted on February 25, 2006 by Russ

I keep saying that if it sounds too good to be true, it probably is. Offshore trusts formed just to shelter income tax sound too good. For Michael Diesel of St. Marys, Kansas, they were.

On the advice of Aegis Co., a now discredited Illinois vendor of offshore trusts, he invested in the scheme to avoid taxes. He was convicted of three counts of filing false income tax returns. Diesel faces up to three years in prison and fines of $250,000 on each count when sentenced in May.

Posted in Tax Evasion | 1 Comment

We’ve Heard the Last of Irwin Schiff

Posted on February 25, 2006 by Russ

Irwin Schiff won’t be muttering “There is no income tax” to his gullible victims clients anymore. The 78-year old Schiff was sentenced yesterday to 13 years in prison. He must also make restitution of $4.2 million. Schiff, during his sentencing, still claimed that there is no income tax.

He’ll have the rest of his life to think that one over.

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Happy Birthday

Posted on February 22, 2006 by Russ

George Washington, the father of our country, was born February 22, 1732 (274 years ago) in Westmoreland County, Virginia. Our first President, Washington didn’t have to deal with an Internal Revenue Bureau (or Service).

Unfortunately, our school-age children no longer get to celebrate a holiday dedicated to this leader. Instead, we have the bastardized “Presidents Day,” celebrating both Abraham Lincoln and George Washington. Both men deserve their own day—there can be holidays where schools are open, after all.

Additionally, in February this blog is celebrating its one-year anniversary. While I’d love to say that the tax code is now simplified, and fewer people are evading their taxes, and California has started to decrease regulations and attract businesses, the more things change, the more they stay the same.

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