I’m Shocked (New Jersey)

Posted on March 21, 2006 by Russ

Remember Captain Renault from Casablanca? He steps into the back room of Rick’s Cafe, and says, “I’m shocked, shocked to find that gambling is going on in here!” A croupier then hands him a pile of money and says, “Your winnings, sir.” That’s how I feel when discussing corruption in New Jersey.

Last week I reported on corruption at the Department of Taxation. Today, courtesy of the TaxProf Blog, we find corruption in the school system. The report shows that administrators are making far more money than what one would expect. The TaxProf Blog then goes on to note that schools in New Jersey are funded by property taxes, and that New Jersey’s property tax rates are among the highest in the nation. The Wall Street Journal has a particularly good critique of this issue in an editorial today.

So what do you suppose New Jersey’s Governor Jon Corzine would do? Promise to stamp out the problem? A fight against corruption? How about a budget full of tax increases? No, he couldn’t have that kind of poor political timing.

Sorry, the cynics win.

“Residents see higher taxes, less relief under Corzine’s $30.9 billion budget” screams AP’s headline in Newsday. The article goes on to detail a $1 billion increase in sales tax (by increasing the tax rate from 6% to 7%), and another $0.8 billion increase in other taxes. To his credit, Corzine also wants to find a few programs to cut ($2 billion in spending on a $31 billion budget). However, while he may be cutting some programs, the budget is, overall, a 9% increase from fiscal 2006’s $28.3 billion.

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All-In Back in Florida

Posted on March 18, 2006 by Russ

Florida has some unusual gambling laws. A court last year ruled that no-limit Texas Hold’em tournaments violated the law. On Friday, an appeals court ruled that the Florida Department of Pari-Mutuel Gaming erred in its decision that no-limit Texas Hold’em was illegal.

Interestingly enough, the original ruling hurt tax revenues. The appellate decision could be appealed, though, to the Florida State Supreme Court.

News Story: Sun-Sentinel

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Las Vegas Gears Up for Prop 82

Posted on March 17, 2006 by Russ

Proposition 82, Rob Reiner’s Preschool/Tax Increase Initiative, is really the “Help Las Vegas, Phoenix, and Denver” Initiative. Las Vegas decided that I am absolutely correct. Today, Las Vegas’ mayor, Oscar Goodman, announced a new initiative to bring more California businesses to Las Vegas. “There is very little we can give them that they don’t get already. We just give them ourselves.”

Goodman noted to Reuters that Las Vegas isn’t offering business incentives. Well, they don’t need to. Even with increased real estate costs in Las Vegas, it’s still less expensive than California. Add in workers compensation, high income taxes, and the potential disaster of Proposition 82, and you have a trifecta. Las Vegas even has a beach (well, I saw one at the Mandalay Bay hotel’s pool….)

News Story: Reuters

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Will the Feds End Up With a Casino?

Posted on March 17, 2006 by Russ

Renato Medina is the principal owner of Lucky Chances, a Bay Area poker club located in Colma. According to the US Department of Justice and the IRS, he allegedly caused Lucky Chance’s to deduct $2.6 million in bogus business expenses, causing the government to lose out on nearly $1 million in tax revenues. Medina was indicted on conspiracy and tax evasion charges. Also indicted were his neice and nephew. All have been released on bond pending the trial.

Medina faces three counts of tax evasion, five counts of making false tax returns, and one count of conspiracy. If convicted on all counts, he could face 35 years in prison and fines of well more than $1 million.

Medina is the principal owner of Lucky Group, the holding company that owns Lucky Chances. The Lucky Group’s website states, “The Lucky Group of Companies is committed to maintaining the highest ethical standards and demonstrating the highest personal standards of integrity at all levels, as well as a commitment to truth and fair dealing and complying with the spirit and letter of all laws and regulations wherever they conduct its businesses.” Mr. Medina’s attorney, Cris Arguedas, told the San Francisco Chronicle, “This is a simple tax case…[and Mr. Medina] asserts his innocence.”

In a related story, two State Senate candidates are returning donations from Medina.

News Story: San Francisco Chronicle

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Shades of Wetsern Tax Service

Posted on March 17, 2006 by Russ

Out of the news and into my email inbox this afternoon comes word that a Bell Buckle, TN woman and a Florida couple have been charged with preparing tax returns with phony deductions, causing unwarrented refunds to taxpayers in the millions of dollars, and thousands of dollars in fees to the alleged perpetrators. If convicted on various counts, the three could be facing five years inprisonment and fines of up to $250,000.

The IRS happen to send out list of frivolous arguments yesterday. The TaxProf Blog has a nice list of them here. Joe Kristan of Roth Tax Updates presents an interesting list of real and phony frivolous arguments here. A more complete list of frivolous arguments can be found here.

Of course, when you have to debate whether a frivolous argument is real or phony (a phony frivolous argument?!?)….

News Story: Shelbyville Times-Gazette

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It’s Not a Frivolous Court

Posted on March 15, 2006 by Russ

…But they were phony arguments.

Roy Stallard went before the Tax Court before. In Stallard v. Commissioner (T.C. Memo 1992-593), he was fined $8,000 for making frivolous arguments. Fast forward a few years. Mr. Stallard again finds himself in Tax Court. The IRS found that he owed $52,174; he challenged it by filing a petition in Tax Court. But that petition cited numerous Tax Protester arguments, such as:

“4. Because, with respect to a tax imposed on the transfer of property, the person made liable for its payment may be the transferor, transferee or as in the case of the death tax, a third party, due process requires that Congress identify the person made liable for payment of each tax imposed, and so it usually does. The legal personality of each person made liable for the payment every other tax imposed by Congress is described clearly within the IRC, but such is not the case with regard to the purported tax debt here. There is neither an Act of Congress nor a Treasury Regulation which clearly and unequivocally identifies the person made liable for the payment of the purported tax debt.”
[Reproduced literally.]

Needless to say, the Tax Court wasn’t impressed and gave Mr. Stallard a warning:

“…[The] Court also indicated that the petition contains statements, contentions, and arguments that the Court finds to be frivolous and groundless…In the event that petitioner continues to advance frivolous and/or groundless statements, contentions, and arguments, the Court will be inclined to impose a penalty not in excess of $25,000 on petitioner under section 6673(a)(1), I.R.C.”

Surprise of surprises, Mr. Stallard responded with an amended petition that contained a series of frivolous arguments. It starts, “The notice of deficiency is notice in name only and does not meet due process of law requirements for notice….” It makes for interesting reading.

As we’ve said many times, Yes Virginia, there is an income tax and you must pay it. The Tax Court wasn’t as amused as we are in reading his arguments. The Tax Court judges just don’t have much of a sense of humor about court arguments. They warned Mr. Stallard that he could be fined $25,000. He was.

Case: Stallard v. Commissioner (T.C. Memo 2006-42)

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Reiner Digs Hole for Himself; Has He Dug One for Prop 82?

Posted on March 15, 2006 by Russ

Proposition 82, the pre-school/tax increase/help Las Vegas, Phoenix and Denver Initiative, continues to have support at the polls here in the Golden State. Rob Reiner, who wrote the initiative, continues to find himself in a hole.

Yesterday Reiner held a news conference in Sacramento. Reiner is chair of the “First 5” Commission, funded by a tobacco tax. The First 5 Commission spent $23 Million on a series of commercials that ran in December and January promoting pre-school. I doubt it’s a coincidence that Reiner happens to have written an initiative that will be voted on in June that creates a bureaucracy for pre-school.

Meanwhile, every Republican State Senator has called on the Governator to replace Reiner on the First 5 Commission. Both Republicans and Democrats have forced the State Auditor to audit the First 5 Commission. The initiative is now facing opposition from not only groups such as the Howard Jarvis Taxpayers Association, but Democrats. Republican political commentators such as Hugh Hewitt have been taking the Governator, Reiner and the initiative to task.

Still, the $23 Million has had an impact. With no major Republican issues on the June ballot (as of now), and a Democratic primary for Governor, it will be very interesting to see if Proposition 82 passes. If the election were held today, it would (according to polling data). That shows you the sad state of California’s electorate.

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Phish Got to Swim….

Posted on March 14, 2006 by Russ

A couple of weeks ago, I noted that phishers have started targeting people by claiming that you can receive a small tax refund. Just click on their link (to a phony IRS website), give out your information, and we’ll get you $82.58 or some other small sum. In Tuesday’s Wall Street Journal (paid subscription required), there’s yet another article about this scam.

The IRS does not send out emails to taxpayers. The IRS website does have a tool to find where your refund is (you need your social security number, filing status, and the exact amount of your refund).

Remember, if it sounds too good to be true, it probably is.

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Increase Casino Tax Rates Or Increase Casinos?

Posted on March 13, 2006 by Russ

That was the decision Iowa was faced with after the Iowa Supreme Court ruled that tax rates at race track (horse racing) casinos were unconstitutional in 2004. Today, Iowa is in the midst of a casino building boom, with four new casinos opening and many existing casinos undergoing renovations.

Of course, legislators when faced with a tax shortfall (or a tax being declared illegal/unconstitutional) try for some other means of raising the same revenues. Perhaps we can call it a “user fee.” Maybe some video lottery terminals will raise some money. Or let’s just add some casinos. I mean, can we actually consider cutting spending? Of course not.

The beneficiaries of this policy are obvious: the casinos, Indian tribes operating some casinos, the State of Iowa (those tax revenues are still flowing), and in one sense, the gamblers in Iowa. After all, with the renovations and new facilities, it’s easier to gamble and it’s more comfortable (or soon will be).

Of course, it’s hard to win in most gambling, as the odds are with the house. You could try playing poker (several casinos in Iowa offer real poker). I’d advise reading a book first (shameless self promotion: I’m the co-author of a book on no-limit hold’em), as most poker players are losers.

So what’s the moral of the story? In most jurisdictions, government will find a way to make sure those tax revenues keep coming in.


News Story: Des Moines Register

Iowa Supreme Court Decision
Roth Tax Updates Story on Iowa Supreme Court Decision

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Atlanta’s Ex-Mayor Convicted of Tax Evasion, Acquitted of RICO Violation

Posted on March 11, 2006 by Russ

William Campbell, the former mayor of Atlanta, was convicted yesterday of three counts of tax evasion but acquitted on the more serious RICO (Racketeer Influenced and Corrupt Organizations Act) charges.

The trial ended a seven-year investigation of corruption in Atlanta city government. Ten people were convicted through the investigation. Campbell’s attorney noted, “We knew there were some technical violations of the tax code. They’re serious, but we’re going to be O.K.” Campbell faces up to nine years in jail and $300,000 in fines but will likely face jail time of 2-3 years.

News Story: New York Times

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