The End of the AMT?

Posted on May 24, 2005 by Russ

According to published reports, several Senators plan on introducing legislation to repeal the AMT (Alternative Minimum Tax). While every tax preparer I know would jump for joy if this happens, the chances are about the same as it snowing tomorrow here in Irvine. The problem: Eliminating the AMT would cost the US Treasury about $600 Billion.

Oh, it could be made revenue neutral—just increase some other taxes. Oh yeah, that’s really going to happen.

Before I say that it won’t happen, I should point out that the bill does have bi-partisan support. Still, I think the snowballs win here.

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A New (Generally Dumb) Rule, Take Two

Posted on May 20, 2005 by Russ

The Treasury Department revised the new Circular 230 rules yesterday. The changes, detailed here, make some minor clarifications to the new rules. They also correct a problem that would have occurred with text-based emails (the requirement that the font size of the disclaimer be larger than the other text has been eliminated, along with the requirement for bold text).

While the changes are for the better, mothering doesn’t work and I remain generally unhappy with the new rules.

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No Unsettling the Settlement

Posted on May 20, 2005 by Russ

Yesterday, the Tax Court decided Slojewski v. Commissioner. In this case, the respondent (Slojewski) and the IRS settled before a scheduled trial in Tax Court. A hearing to finalize the matter was scheduled a month later. All seems well.

Then Slojewski’s counsel decides that the deal is no longer good, and petitions the court to have it overturned. Once you enter into a settlement, it takes extraordinary events to have it overturned. As the court stated, “[P]etitioner has not shown that there was a lack of formal consent, mistake, fraud, or some similar ground for vacating the stipulation of settlement, nor has he cited any ground or precedent that would support his motion to vacate our order and decision.”

Moral: Once you settle, it’s hard to get out.

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Bad Paperwork from the FTB

Posted on May 17, 2005 by Russ

For those of you in California, a warning. The Franchise Tax Board is having some computer issues, at least based on paperwork that my clients and I have recently received. One client recently received a two page bill from the FTB stating, on page 1, that they did not make certain required payments and owed around $1,500. They then listed, on page two, the total charges: over $80,000. When I called the FTB they couldn’t figure out what was wrong (the $1,500 appears accurate, but why their computer is adding an additional $78,500 was a mystery).

Then I received a notice from the FTB requiring my company (Clayton Financial & Tax) to begin making electronic tax payments because estimated tax payments from my company have exceeded $20,000 or total tax liability exceeded $80,000. There’s only one problem: neither happened. The FTB is investigating and promises to get back to me later this week. (At first glance, it appears someone else made a deposit to the FTB and used my corporation number.)

So what should you do when you get paperwork from the FTB (or the IRS) and it’s wrong? First, let your tax preparer know! We have special phone numbers and usually deal with well trained staff at the tax agencies. My standard procedure is upon phone resolution to send a confirmation letter to the tax agency (using certified mail, return receipt requested). This puts into writing what we discussed on the phone.

But why spend the $4.24? Well, when it’s a choice between $4.24 and $78,500.00, I know which number I’ll choose.

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If at First You Fail…

Posted on May 15, 2005 by Russ

Fail, fail again.

Yes, I know that’s supposed to be “try, try again.” But for this story, “fail, fail again” is so much more appropriate.

>From the Baltimore Sun we have the story of John Baptist Kotmair, Jr. Back in the early 1980’s, Mr. Kotmair served two years for (what else) income tax evasion. One would think he would learn his lesson.

He didn’t.

The Justice Department accused Mr. Kotmair and his foundation, the Save-A-Patriot Fellowship, of selling tax fraud schemes. His home study program only costs $295! What a deal! Your first year of membership in the fellowship is only $700—get it now, it won’t last at this price (or any price, if the DOJ gets an injunction).

Mr. Kotmair, who is 70, probably won’t get a third chance to fail. Luckily for prosecutors, Mr. Kotmair’s son is active in the organization and already has one conviction to his name.

On a serious note, the usual rule applies: If it sounds too good to be true, it usually is.

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A New (Generally Dumb) Rule

Posted on May 14, 2005 by Russ

Here’s some text you will be seeing if you get any emails from your EA or CPA (and will probably be in every tax article you read):

This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

As a professional tax preparer, I’m governed by Circular 230 [link is to the revised rules for Circular 230 that go into effect on June 15th and requires Adobe reader]. New rules, in Sections 10.35-10.37, govern what I must state whenever I send a client a “limited opinion.” According to several attorneys lecturing at the SuperSeminar, an email to a client is considered a limited opinion. Under the new rules, the language (above, in bold) must be used. It must be in bold, and in a font larger than the other text (since I use, in general, text [non-html] email, neither bold nor a larger font is possible).

This is mothering taken to the extreme.

While the intent is good—the IRS naturally wants people to pay their taxes—this will end up like The Boy Who Cried Wolf. It will soon be ignored.

Now, for material opinions, a whole other standard applies. This applies (basically) to the Big 4 accounting firms and some law firms.

Anyway, now you know my feelings about this.

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A SuperSeminar

Posted on May 14, 2005 by Russ

This past week I attended the CSEA’s SuperSeminar in Las Vegas. Normally, continuing education seminars are dreadful events—dates on my calendar that I want to avoid.

This one was very different. I learned a whole bunch of new things (which is good) and met some great people. All-in-all, a wonderful use of my time.

I’ll be posting quite a few items, including the next post which is about a “mothering” rule. Next time, though, I’ll take my laptop so I can post some.

Posted in Taxable Talk | 2 Comments

Not So Brilliant Ideas (Part 2)

Posted on May 7, 2005 by Russ

Maybe it’s something in the water. But somehow we must look again to what is now apparently the hotbed of tax evasion: Cincinnati, Ohio. A federal jury in Cincinnati found “expert” tax preparer Walter Daulton guilty of assisting in the preparation of fraudulent income tax returns, according to this story on etrucker.com.

Mr. Daulton, who specialized in preparing tax returns for the trucking industry, apparently advised his clients to claim expenses for the mundane. Like putting a tarp of over a truck’s trailer. (Now, the cost of the tarp is a valid business expense. However, you can’t deduct the value of your time when you use the tarp.)

According to the US Attorney, the goal of Mr. Daulton was to make the deductions come to a desired result, no matter whether the deductions were actually incurred. Mr. Daulton faces up to three years in prison for each of 18 convictions.

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Not So Brilliant Ideas…

Posted on May 7, 2005 by Russ

A man in Cincinnati, OH came up with a great idea (or so he thought). He decided to sell income tax evasion kits. Somehow the IRS and the Department of Justice didn’t think it was a great idea. Yeah, they’re a bunch of sore losers.

The Department of Justice took the man, Dana Ewell, to civil court (he did avoid criminal court, so he won one battle). According to this story in the Cincinnati Enquirer, a permanent injunction has been entered into. So the world will have to do without the Liberty Pure Trust, the Liberty Action Pack, the Organic Sovereign Freeman Compendium and the Onshore, Offshore, International Investment Opportunity.

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Firemen 1, Police 0

Posted on May 1, 2005 by Russ

Orange County Firefighters won their first court battle over an initiative (assuming no court losses, it will be on the June 2006 ballot) that would distribute about $80 million in taxes to firefighters that currently go to the Orange County Sheriff and the Orange County District Attorney’s office. According to this story in the Orange County Register (one-time registration required), the sheriff’s union will appeal. As an aside, firefighters for the Orange County Fire Authority are some of the best paid in the country. It doesn’t take much thought to figure out why the firefighters want to pass this measure….

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