Must I Go To the Nearest Library?

Posted on February 21, 2006 by Russ

The Tax Court also looked at whether an attorney must go to the closest law library for research. In the case, the petitioner lived fairly close to Southwestern Law School in Los Angeles. However, he preferred the law library at Chapman University in Orange, about 25 miles further than Southwestern. Did the petitioner go to Chapman because it had better facilities or because it was close to his family?

The Tax Court ruled for the petitioner on this issue. “Upon the basis of the record in this case, we find that the primary purpose for petitioner’s trips to Chapman Law School Library was to conduct legal research for his business clients, and, therefore, said travel is directly connected to petitioner’s business. Petitioner’s visits to his family, if such visits occurred, were a secondary consideration.”

Case: Berge v. Commissioner, T.C. Summary 2006-29

Hat Tip: TaxProf Blog

Posted in Tax Court | 1 Comment

Changed His Address…

Posted on February 21, 2006 by Russ

What happens when you don’t file your tax return, the IRS sends you notices to two different addresses (but you’ve moved), and then the IRS tries to put a lien on you? Today, the Tax Court ruled on such a case.

The petitioner last filed a tax return in 1997. Based on paperwork that the IRS received, the IRS believed that the petitioner owed taxes, mainly from a capital gain. The IRS sent out notices to the petitioner, but he had moved. The IRS then assessed the tax that they thought was owed. After still not being able to reach the petitioner, they put a lien on some of his assets.

The petitioner, in early 1994, finally contacted the IRS. He had never received any of the notices. He requested a hearing with the IRS, and then went to Tax Court. The questions the Tax Court faced were, (1) Since the taxpayer did not notify the IRS of his move, could the taxpayer dispute the tax and lien; (2) If he could, then did the taxpayer owe tax?

The Tax Court ruled that the taxpayer could indeed dispute the lien and tax, because he never received the documents. The taxpayer was also able to prove that he actually had a capital loss rather than a capital gain and did not owe tax.

There’s a caution here, though. It’s much, much easier to file your taxes on time and not go through the hassles that this taxpayer went through. It’s cheaper, too.

Case: Sherer v. Commissioner, T.C. Memo 2006-29

Posted in IRS, Tax Court | 4 Comments

A $399,878,100 Error

Posted on February 20, 2006 by Russ

Budgeting at the local (municipal, county, and township) level usually begins with the treasurer/tax collector telling the board here’s how much money we’re going to receive this year in property taxes based on the property valuation. The board then comes up with a budget. (Yes, I’m simplifying the process; however, this is essentially what is done.)

In Porter County, Indiana, someone made a typographical error on the valuation of a house in Valparaiso. Instead of the $121,900 it’s really worth, that unknown individual typed in $400,000,000. Typos happen all the time; usually there’s a process in place to check for things like that. I would have expected if the assessed valuation increased by $400,000,000 that someone would have looked to see what triggered it. They would have noticed that a house’s value increased just a bit; someone would investigate and the typo would be corrected.

But that didn’t happen. And all the agencies–cities, counties, school districts, etc.–budgeted based on the erroneous figure. The owner of the house decided not to pay taxes based on the $400,000,000 assessed valuation.

Now many, if not all, of the government agencies impacted by this will have to have layoffs. All because of a typographical error that should have been caught if proper budgeting analysis were done, and all of the agencies involved notified of the error.

News Story: CNN

Posted in Property Taxes | Comments Off on A $399,878,100 Error

Chasing Daylight

Posted on February 19, 2006 by Russ

“But in this world nothing can be said to be certain, except death and taxes.” — Benjamin Franklin

As a tax accountant, I know that’s true. For Eugene O’Kelly, that was true in a very sad way. He was the head of KPMG in the US. In May 2005 he went to a neurologist. He was told he had just a few months to live.

Mr. O’Kelly (and his wife) wrote a superb book, Chasing Daylight. Last December, the publisher of this book asked if I would write a review. I said yes, even though I knew the book would arrive during tax season. Boy, am I glad I did.

This is a wonderful book, even given the morbid subject nature. Mr. O’Kelly leads us on his journey, and shows us how he made the most of his very limited time on this world.

I could say a lot more about the book. As an author of a book, with a second book soon to come out, I know how difficult is to write any book. This book rings true, from start to finish. I have a hard time imagining myself writing such a book, and I think we’re blessed that Mr. O’Kelly wrote a text that can show all of us how to enjoy our final days.

Posted in Books | 2 Comments

Mr. Divorce Finally Sentenced

Posted on February 19, 2006 by Russ

Back last July I wrote about Mr. Divorce, Demetrious Eugenios, who went through his own divorce and hid his assets from the IRS. His ex-wife found out, didn’t like it, and told the government. He was convicted last July. Sentencing has been postponed on several occaisions.

Last Wednesday Eugenios found out his fate. According to this article in the Hollister (CA) Free Lance, Eugenios was sentenced to 30 months in prison, and must make restitution of $1.2 million.

Divorce just doesn’t pay. And hiding a Porsche from your ex-wife and the IRS is worse.

Posted in Tax Evasion | 1 Comment

Governator Warms Up to Tax Increase

Posted on February 17, 2006 by Russ

Global warming, that is.

According to this article in the San Francisco Chronicle, Governor Schwarzenegger appears ready to jump on the global warming trail for tax increases.

First, some science. There’s a big debate over whether or not global warming is happening. For example, you’ll hear about the US having a warm winter. Well, Asia and Eastern Europe have had a cold winter. We hear that the icepacks in the Arctic and Antarctic are melting. If so, why haven’t coastal cities had flooding problems?

Additionally, there have been numerous reports that Earth naturally has warm and cold cycles. Indeed, there was a recent report that Earth will soon have a mini-ice age. When I was growing up, I remember reading in Popular Science that the burning of fossil fuels would case an ice age. That was about 1970, btw.

Back to taxes. The Governator apparently will propose increasing taxes on fossil fuel to fund research into alternative fuels. Let’s assume such a measure passes. Here are the impacts:
– California will be at an additional competitive disadvantage to other states;
– California will drive business away from vital industries, such as its ports and manufacturing;
– Tax increases are passed on to consumers. Always. So this will ripple through other areas of the economy.

I could continue in this vain but I think you get the idea. This is a bad plan that deserves to be shelved immediately.

Hat Tip: GOP Bloggers

Posted in California | 2 Comments

Ask Mr. Schiff About That…

Posted on February 17, 2006 by Russ

Yesterday, we blogged about Irwin Schiff, who is going to be spending the rest of his life in an institution because he was convicted of defrauding the IRS by telling and selling clients various methods so they didn’t have to pay the IRS. Here is a link to the Tax Protestor FAQ, which debunks just about every tax protestor argument. Judges especially dislike tax protestor arguments.

In any case, today’s Tacoma News-Tribune has a story about a man who has been accused of tax fraud. Allegedly, he has sold over 400 sham trust packages, costing the IRS over $7 million in uncollected taxes. David Carroll Stephenson believe he’s done nothing wrong. Indeed, he argues that the court has no authority (I’m sure the judge will like that argument), the government has no authority (to collect income tax), and the IRS was never authorized. As an aside, all of these arguments are debunked in the Tax Protestor FAQ.

I’ll be shocked if Mr. Stephenson isn’t found guilty.

Posted in Tax Evasion | Tagged | 2 Comments

When In Doubt, Blame the Computer!

Posted on February 16, 2006 by Russ

You get what you pay for, or so the cliche goes. The Tax Court today looked at a case where a husband and wife had two “businesses” and used tax software to prepare their returns. As Joe Kristan of Roth Tax Updates reported, the businesses were probably just methods of spending their own money. The Tax Court didn’t like that. The Cost of Good Sold that they claimed were for mainly personal expenses. That didn’t sit well either. So they lost their case.

But the IRS also asked for a negligence penalty. As the Tax Court noted, “‘Negligence’ includes any failure to make a reasonable attempt to comply with the provisions…[of the Internal Revenue Code], and the term ‘disregard’ includes any careless, reckless, or intentional disregard.” So the taxpayers blamed the software they used. The negligence penalty stood up.

There’s a lesson here. Tax software does a great job putting what you enter on the correct lines. If you have a simple tax return, say just a W-2, a 1099-INT from your bank, and no other deductions, software will do a great job.

But software doesn’t do some things. It doesn’t ask you if the deductions you’re entering in are reasonable. It doesn’t ask you if that medical insurance premium you’re entering in as an Insurance expense for your S-Corporation should be entered in on that line. It probably won’t tell you where the best place is (on your return) to take a certain deduction, or why it might be better not to take that deduction. As Roth Tax Updates said, garbage in, garbage out.

Case: Maxfield v. Commissioner, T.C. Summary 2006-27

Posted in Tax Court | 2 Comments

Schiff Mentally Ill?

Posted on February 16, 2006 by Russ

ABC News is reporting that Irwin Schiff, convicted of numerous charges in Las Vegas and facing 43 years in prison and fines of over $3 million for telling clients that there is no such thing as an income tax, is mentally ill. That’s according to court documents. Psychiatrists apparently believe that mental illness—suicidal depression, bipolar mental disorder, paranoia and delusions—made him tell people that you didn’t have to pay income tax. Schiff is currently 77 years of age.

Of course, if the Court or the prosecution (the United States) looks at his website, they may get other ideas. For someone convicted to continue to say

“Since the income tax was repealed in 1954 when Congress adopted the 1954 Code, it is clear that for 50 years federal judges in conspiracy with U. S. Department of Injustice prosecutors have been illegally and criminally prosecuting people for crimes that do not exist in connection with a tax that nobody owes.”

And you can see what his website says about himself here.

Mentally ill or not, it’s likely we’ve heard the last from Mr. Schiff. He’s likely to spend the rest of his days in either a psychiatric hospital or the geriatric wing of a federal institution.

Coverage When Schiff Was Convicted: Here (Roth Tax Updates)

Posted in Tax Evasion | Tagged | 1 Comment

An Interesting Gambling Tax Court Case

Posted on February 13, 2006 by Russ

The Tax Court today decided Castagnetta v. Commissioner (T.C. Summary 2006-24). The petitioner claimed that while working as a part-time truck driver that he was also a professional gambler, gambling on horse races in New York. The IRS challenged that, and the case ended up in Tax Court.

The IRS does not like the idea of professional gamblers, and has consistently challenged individuals who claim that they are in that profession. Mr. Castagnetta, though, avoided many of the traps. He kept a detailed log of his bets. He kept detailed back-up information (“speed figures”) on horses. He made 4% on his bets (versus the “average” horse racing bettor losing 17% on his bets).

The interesting items that were in the case are:

– The Tax Court states, in a footnote, that not only can a non-professional gambler deduct gambling losses against winnings, he can deduct “other expenses incurred in connection with gambling transactions” (up to the amount of winnings). The Tax Court states that these expenses may include items such as transportation, meals, lodging, admission fees, office supplies, and ATM fees.

– The IRS has, in various appeals cases, stated that a professional gambler must “solely” be engaged in that as a profession. The Tax Court did not come to that conclusion. It noted, “It is clear that in a single taxable year, a taxpayer may be in engaged in more than one trade or business. Curphey v. Commissioner, 73 T.C. 766 (1980); Barrish v. Commissioner, T.C. Memo. 1984-602.” But the gambling must be engaged in as “the intended livelihood source” and “for income or profit.” Intended livelihood source means the activity that you use to support yourself.

Unfortunately, the case is a summary opinion and cannot be used as a precedent for other cases. But it does give an idea of how the Tax Court feels about gamblers, and is much more positive for gamblers, both professional and amateur, than the IRS’ viewpoint. Oh yes, Mr. Castagnetta won and he’s considered a professional for the year in question (see Joe Kristan’s analysis for more details on that).

Thanks to Joe Kristan and Roth Tax Updates for their plug of our site. Apparently, we both read the decision and posted about it at roughly the same time.

Case: Castagnetta v. Commissioner, T.C. Summary 2006-24

Posted in Gambling | 6 Comments