Arthur Andersen: Not Guilty (Yet)

Posted on June 1, 2005 by Russ

Unless you’ve been hiding out, you’ve almost certainly heard the news that the US Supreme Court yesterday overturned the conviction of Arthur Andersen for destroying documents in the Enron fiasco. You can find news coverage here and here (one-time registration required). The opinion can be found here.

What does this mean? Arthur Andersen (the accounting firm) no longer exists; instead of a Big Five accounting firms we have a Big Four. Will Arthur Andersen rise from the dead? That’s just not going to happen. Will the US retry Andersen? I have no idea, but it’s irrelevant. Andersen is dead.

As the Wall Street Journal points out in an editorial today, going after the partners would have been a better idea. Most of the employees of Andersen had no idea of what was going on. Does anyone really believe that a tax partner in Seattle knew what the partners in Houston were doing? It was guilt by association. At least the US Justice Department has apparently learned from this. In recent white-collar cases, the Justice Department has gone after the principals.

Posted in Tax Evasion | 20 Comments

A Zero in More Ways than One

Posted on June 1, 2005 by Russ

Let’s assume you (erroneously) believe that the US has no write to levy an income tax on you. You are a believer in one of the many frivolous or groundless schemes that say, in short, that the US can’t levy an income tax. (For a good rejoinder on most of these, take a look at the Tax Protester FAQ.)

The Tax Court doesn’t appreciate such arguments. They’ve heard them all (or almost all) and have said,

“…arguments that this Court has repeatedly found to be frivolous and/or groundless, see, e.g., Copeland v. Commissioner, T.C. Memo. 2003-46; Smith v. Commissioner, T.C. Memo. 2003-45, and we find this also to be true in this case. See also Holliday v. Commissioner, T.C. Memo. 2002-67, affd. 57 Fed. Appx. 774 (9th Cir. 2003).”

In this case, the petitioner filed returns with $0 income and $0 tax. The IRS filed substitute returns and then started action to place tax liens on various assets.

The conclusion? The Tax Court put it well,

“Petitioner’s meritless arguments support the conclusion that remanding this matter to respondent’s Appeals Office for recording would be neither necessary nor productive, and we so hold.

“We have considered all of petitioner’s contentions and arguments that we have not discussed, and we find them to be without merit and irrelevant.

“Further, we hold that respondent correctly determined that
collection efforts should proceed.”

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“I Haven’t Done Any Drugs or Alcohol in Eight Months.”

Posted on June 1, 2005 by Russ

Ok, what does that have to do with tax?

That’s what I was thinking when I read this article (one-time registration required). Restaurateur Neil Stein plead guilty yesterday to federal tax fraud charges and will likely receive a term of 12 to 30 months in prison.

Mr. Stein apparently skimmed upwards of $450,000 from his restaurants (including Rouge and Bleu) while reporting just over $100,000 in salary. Unfortunately, spending $65,000 on his daughter’s wedding while earning just over $100,000 made his conspicuous consumption just a bit too visible.

As to the quote, that’s right from the article. While Mr. Stein may now be clean from drugs and alcohol, he’ll apparently have some free time on his hands to contemplate the past.

Posted in Tax Fraud | Comments Off on “I Haven’t Done Any Drugs or Alcohol in Eight Months.”

SB757: Let’s Drive Out Business (Again)

Posted on May 30, 2005 by Russ

Lurching its’ way through the Legislature is SB757, introduced by Christine Kehoe (D-San Diego). The bill has an innocuous title, “The Oil Conservation, Efficiency, and Alternative Fuels Act.” It is an efficient bill—if passed, this analysis indicates that 80,000 jobs would leave California. Luckily, the Governator is likely to veto this legislation.

As the analysis (an article in the San Jose Business Journal) notes, just a few years ago a similar piece of legislation passed the Legislature. The one difference between the two bills is that the prior bill required a study. Both want a 15% reduction in fuel consumption. The study showed that any of the following could cause such a reduction:

– A $0.50/gallon increase in the gasoline tax
– Pay at the pump auto insurance, at $0.48/gallon
– A $0.02/mile driven tax
– A $3500/purchase tax on SUVs, mini-vans, and trucks

The bill is about to reach the Senate floor. If you’re a Californian, tell your State Senator how you feel about the bill. Indeed, a look at the analysis provided by the Office of Senate Floor Analysis, including the list of supporting organizations (8), and the list of organizations in opposition (22), show that the usual suspects (Sierra Club, etc.) support the bill while business, agricultural, and taxpayer groups are against the bill.

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We Make the Journal of Accountancy

Posted on May 29, 2005 by Russ

In the June (2005) issue of the Journal of Accountancy, Eva Lang wrote an article entitled “Would You, Could You, Should You Blog?” The article gives good background if you’re considering starting a blog. Unfortunately, Ms. Lang gets my credential wrong (I’m an EA, not a CPA) but that’s the only blemish in an otherwise excellent article.

Posted in Taxable Talk | 1 Comment

IRS Closing Taxpayer Assistance Offices // Sending Taxes Overseas

Posted on May 27, 2005 by Russ

According to a report in the Tax Analyst, the IRS will close some taxpayer assistance offices. The Wall Street Journal reported that 70 offices will be closed in order to handle a 1% drop in funding for taxpayer assistance. Unfortunately, that will drive more taxpayers to call the IRS where there is a 50% chance you will get a correct answer to your question.

In the same article in the Tax Analysts, IRS Commissioner Mark Everson notes that he’d like to see any firm that sends tax work overseas be required to notify taxpayers of that fact. It is unclear, though, whether the IRS has the power to make such a disclosure regulation.

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A Tale of Two Computers

Posted on May 25, 2005 by Russ

In eWeek Magazine, the Florida Department of Revenue’s (FDOR) computer system, “SUNTAX,” is highlighted. The system is modern, integrated, and allows FDOR agents to quickly access records across the system. By all accounts, a successful project that replaced several antiquated systems. You can find the article here. (Note: Article is on page 34 of the pdf file—the file is the entire May 23rd issue.)

On the other hand, there’s California’s Franchise Tax Board (FTB). Now, some of the systems of the FTB are integrated; however, many are not. As I previously wrote in “Bad Paperwork from the FTB”, I received a notice requiring my company to enroll in California’s electronic payment system because estimated tax payments from my company have exceeded $20,000 or total tax liability exceeded $80,000. There is only one problem: Neither occurred.

So I telephoned the EPS office. They directed me to the payments office. When I finally spoke to someone who could access the cause of the problem, it appears that someone made a tax deposit into “my account” of over $200,000! When I explained that it wasn’t me, they promised to get back to me.

Yesterday, I heard back from EPS. They agree that I probably didn’t make the deposit and that my company need not enroll in EPS. ($200,000 of taxes is quite a bit more than what my company pays in annual California taxes.) But they couldn’t figure out who made the deposit.

The good news is that the two departments within FTB talk to each other. The bad news is that they don’t have access to all the records that they should.

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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.

Posted in Legislation | Comments Off on The End of the AMT?

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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