Ohio Is Traded…Again

Posted on January 19, 2006 by Russ

Last year residents of Ohio who made estimated payments sent their payments in the second half of the year to San Francisco (the Fresno IRS Service Center). Well, Ohio has been moved (again), now to the Kansas City Service Center. On the bright side, it’s now much more difficult for your returns to fall into the San Francisco Bay.

This is just one of many changes the IRS announced. So check the label on your IRS package. Of course, if you efile this is irrelevant.

Also, don’t forget that it’s possible that the address you send estimated payments to has also changed.

Posted in IRS, Ohio | 1 Comment

H&R Block v. Intuit

Posted on January 17, 2006 by Russ

While driving this past week, I heard a radio commercial for Intuit’s TurboTax, stating that more returns were prepared on TurboTax than by H&R Block. Well, not so fast, says Block. The Kansas City based Block filed a lawsuit against Intuit in Kansas City on Friday.

Not so fast, says Intuit. We sued you first, in California.

H&R Block got a restraining order in Kansas City against Intuit using that advertisement (with Block’s name). Today, arguments were scheduled to be heard in Kansas City on ending the restraining order.

We’re often asked, by the way, about Turbo Tax and H&R Block. Both are fine (in our view) for simple, basic returns. TurboTax is excellent if, for example, you need to file an extension and you want to get an idea of what you owe (so you can make your payment with your estimate). But when you have a complicated return, you get what you pay for.

News Story: Kansas City Business Journal

Hat Tip: TaxProf Blog

Posted in Tax Preparation | 5 Comments

All Rapped Out

Posted on January 17, 2006 by Russ

After taking a few days off for an annual convention, would I return to an in-basket bereft of the usual tax evaders? Hardly.

Joe Kristan of Roth Tax Updates reported on some of the more felonius evaders, including Richard Hatch (now on trial for not reporting his Survivor winnings) and a West Virginia accountant who stole more than $1 million and still owes over $500,000 in taxes.

But there’s more out there (as always). Rapper Mystikal won’t be on tour anytime soon, as he’s added a concurrent one-year sentence for tax evasion to his 2004 six-year sentence for sexual assault. Michael Taylor (aka Mystikal) failed to report $2 million in income to the IRS. Taylor must make restitution, including interest.

Perhaps Mystikal can, when he gets out, re-record “I Fought the Law [and the Law Won].”

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Virtual Profits = Taxes?

Posted on January 10, 2006 by Russ

The TaxProf Blog links to an extremely interesting article by Julian Dibbell on whether virtual profits in online multi-player games are taxable under the Internal Revenue Code. There’s also a link to a second article on CNET titled “The Tax Man Cometh, Online.”

So, let’s assume you exchange your spells for 100 Gold Pieces. Is there any tax due? Well, since it’s in a game, I’d assume not. But if you sell your spells for $100, haven’t you made $100 in income and owe tax? Luckily for online gamers, the IRS’ response was “That’s so wierd.”

I think it would be humorous if every time there were an online transaction in one of these games, a virtual IRS agent appeared and demanded his cut. Actually, this isn’t as far-fetched an idea as you might think.

The people playing these games pay a subscription price to the companies running the games. Aren’t taxes a fair way for the gaming companies to earn their incomes?

Hat Tip: TaxProf Blog

Posted in IRS | Tagged | 1 Comment

Why the Franchise Tax Board Is “Fun” to Deal With

Posted on January 9, 2006 by Russ

Let’s assume you disagree with a decision that the Franchise Tax Board (FTB) makes on your tax return. You go through the FTB appeals process, and get nowhere. California then allows appeals to the Board of Equalization (BOE). Today, let’s look at a recent decision by the BOE in Appeal of Costco Wholesale.

Costco took advantage of California’s Manufacturers’ Investment Credit (MIC) for its in-store bakery and meat departments. Previously, the BOE had rules in Appeal of Save Mart Supermarkets & Subsidiary that supermarkets were eligible for this credit. Costco asked for a refund of taxes paid between 1996 and 2001 because of the MIC. The FTB didn’t like this decision, and elected not to follow it. Costco appealed the FTBs disallowance of the MIC to the BOE. The BOE faced three issues: Whether Costco qualifies for the deduction, whether bakery and meat departments qualify, and whether the BOE has authority to invalidate an FTB regulation.

The easy part of the decision was that Costco is a qualified taxpayer. The BOE followed the Save Mart case and found that Costco’s bakery and meat departments are just as qualified as Save Mart’s to get the MIC. And finally, the BOE believes that the California Legislature has given the BOE the power to invalidate FTB regulations when the BOE determines such regulations are contrary to statutes.

No word yet on whether the FTB will continue to fight such cases.

Coverage: California Enrolled Agent Magazine, January/February 2006 issue (not on the web), CMTA Capitol archive, 10/27/05.

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Nexus, My Nexus, Where Have You Been?

Posted on January 9, 2006 by Russ

There are two concepts that tax accountants have trouble explaining to clients: basis and nexus. And this leads to two recent items that have as their basis nexus.

First, on December 31st, the New Mexico Supreme Court ruled that a corporation with no physical presence in New Mexico can be forced to pay New Mexico income tax. The case dealt with a subsidiary of Michigan based K-Mart. K-Mart put intellectual property into the subsidiary. The subsidiary had no physical presence in New Mexico. New Mexico claimed that the subsidiary was formed just to lower the corporate parent’s tax bill, and served no real business purpose; thus, the subsidiary must pay corporate income tax. (Also argued was whether New Mexico’s gross receipts tax applied to the subsidiary. The New Mexico Supreme Court held unanimously that it doesn’t.)

Now, this case is interesting, but it likely will not be the last word. I mean, do corporations really structure transactions to avoid taxes? And do states write their tax codes to force businesses to structure deals in bizarre ways just for tax purposes? Well, I should probably tone down my sarcasm….But really, until a case comes up where a corporation has no physical presence in a state, and that state attempts to force the corporation to file and pay that state’s corporate income tax, will I be worried about the impact on small companies.

Separately, Business Week recently commented about the coming of a uniform sales tax allowing all Internet transactions to be taxed. The Streamlined Sales Tax Project is a group of states working on a means for a uniform sales tax so that states can get around the famous Quill Corp v. North Dakota decision. Business Week believes that the streamlined sales tax will happen really soon.

I believe the reality, at least for Californians, is that we won’t see this for many years. Perhaps other states are working towards a streamlined tax, with few differences in rates. California, though, continues to pass sales tax rate changes for numerous special districts. Consider just Fresno County. Fresno County has one tax rate, while the City of Clovis has another. And both of those rates are different from anywhere else in the state. There are at least two sales tax increases on the June ballot in California. Thus, I don’t see sales tax uniformity coming any time soon to the Golden State.

News Story: Santa Fe New Mexican

Posted in New Mexico | 1 Comment

BOE Flood Relief

Posted on January 6, 2006 by Russ

For taxpayers in Northern California impacted by the recent storms, the Board of Equalization has extended deadlines for filing California sales tax and fees collected by the BOE by one month. Returns (and payments) originally due on January 31st are now due on February 28th for businesses in these counties:

Butte, Del Norte, El Dorado, Humboldt, Lake, Lassen, Marin, Mendocino, Napa, Nevada, Placer, Plumas, Sacramento, San Joaquin, San Mateo, Sierra, Siskiyou, Solano, Sonoma, Sutter, Trinity, Yolo and Yuba.

Impacted businesses must complete BOE Form 468 (Request for Extension) and BOE Form 27 (Penalty and Interest Relief for Disaster Victims). The BOE has indicated that they may allow late filers who do not complete the forms relief if they include a statement signed under penalty of perjury that they were impacted by the storms.

News Story: San Mateo County Times

BOE Notice

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A Brief Note on Business Information Returns/Filings

Posted on January 3, 2006 by Russ

Now that we’re in 2006, it’s time for me to go back to work. First on the agenda will be business information returns/filings, such as W-2s and 1099s. These forms must be distributed by January 31st, but do not have to be sent in to the government until February 28th (if you file the forms electronically, March 31st).

The most common form 1099 sent is the 1099-MISC. This form covers non-employee compensation, rents, payments to attorneys, and royalties. In general, a 1099-MISC must be issued if the payments during 2005 total $600 or more ($10 or more for royalties). Most payments to corporations are exempt from reporting on a 1099.

If you’re in California, you must also report this information to the Franchise Tax Board (FTB). If you file using paper returns to the IRS, the IRS will forward the filings to the FTB and you need not file directly with the FTB. However, if you file electronically, you must also file electronically with the FTB. California has stringent penalties regarding non-filings of information returns (far stricter than the federal penalties). We encourage all of our California clients to require that before any payments are made to a supplier/vendor that a W-9 be obtained.

If you’re one of our clients and want us to prepare your 1099s, please contact our office when you’re ready.

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The TaxProf Blog’s Top 2005 Tax Stories

Posted on January 3, 2006 by Russ

The TaxProf Blog published its top 10 for 2005. Their top ten includes the Kanter/Ballard Tax Court case, the telecommuter tax case, and the federal tax reform initiative. There are other items on the list, of course. I could quibble with some of the items that are left out, but the collective brainpower on the TaxProf blog far exceeds my own (especially at 7:00am).

You can find the list here.

Posted in Taxable Talk | Comments Off on The TaxProf Blog’s Top 2005 Tax Stories

The 2005 Tax Offender of the Year

Posted on December 31, 2005 by Russ

Boy, what a year. And what choices we have in naming our 2005 Offender of the Year. The nominees include,

– Richard Hatch, who had over 300 million witnesses to winning $1 million on Survivor, but didn’t include the winnings on his tax return (among other alleged problems);

– John Ashton Wray, Jr., and Judge Michael Luttig of the 4th Circuit Court of Appeals. Judge Luttig wrote an opinion that says that Wray’s failure to file income tax returns, “is not a serious crime.” (Hat Tip: TaxProf Blog);

– David Guardino, of Caryville, TN (hat tip, Roth Tax Updates). Mr. Guardino is a self-proclaimed psychic accused of tax evasion. Didn’t he know this was coming?

– Willy Witzel (courtesy of Roth Tax Updates). Mr. Witzel’s son, Roy, prepared his tax return. When Roy explained his tax return to Willy, Roy got angry and attacked Willy with a sword. Both were martial arts experts. Roy, in self-defense, had to kill his father. (Read the whole story from the link above.)

– All of the taxpayers who claimed that there is no income tax in front of the Tax Court.

And our winner is…

Sharon Lee Caulder, formerly of Oakland and now from New Orleans, our voodoo priestess who wrote a book and was convicted of tax evasion. She did not include the $1.7 million she earned between 1998 and 2002 (mainly from sales of her book, Mark of Voodoo, on her tax returns. As I wrote when she was convicted, “Voodoo is more profitable than I realized, especially if your net income after taxes is the same as your net income before taxes (until Uncle Sam catches you).” Ms. Caulder will be sentenced in February, and faces up to 15 years in prison and fines of up to $1 million.

Thanks to all of our lucky participants and I’m sure we’ll have just as good a bunch of players in 2006.


Posted in Tax Fraud | Tagged | 1 Comment