Bozo Tax Tip #10: Email Your Social Security Number

Posted on April 1, 2019 by Russ

It’s time for our annual rundown of Bozo Tax Tips, strategies that you really, really, really shouldn’t try. But somewhere, somehow, someone will try these. Don’t say I didn’t warn you!

This is a repeat for the sixth year in a row, but it’s one that bears repeating. Unfortunately, the problem of identity theft has burgeoned, and the IRS’s response has been pitiful. (To be fair, it has improved somewhat over the last two years, but that didn’t take much.)

I have some clients who are incredibly smart. They make me look stupid (and I’m not). Yet a few of these otherwise intelligent individuals persist in Bozo behavior: They consistently send me their tax documents by email.

Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.

We use a web portal for secure loading and unloading of documents and secure communications to our clients. As I tell my clients, email is fast but it’s not secure. It’s fine to email your tax professional things that are not confidential. That said, social security numbers and most income information is quite confidential. Don’t send those through email unless you want to be an identity theft victim or want others to know how much money you make!

If I send an email to my mother, it might go in a straight line to her. It also might go via Anaheim, Azusa, and Cucamonga. At any one of these stops it could be intercepted and looked at by someone else. Would you post your social security number on a billboard in your community? If you wouldn’t, and I assume none of you would, why would you ever email anything with your social security number?

A friend told me, “Well, I’m not emailing my social, I’m just attaching my W-2 to the email.” An attachment is just as likely to be read as an email. Just say no to emailing your social security number.

If you’re not Internet savvy, hand the documents to your tax professional or use the postal service, FedEx, or UPS to deliver the documents, or fax the documents. (If you fax, make sure your tax professional has a secure fax machine.) If you like using the Internet to submit your tax documents, make sure your tax professional offers you a secure means to do so. It might be called a web portal, a file transfer service, or perhaps something else. The name isn’t as important as the concept.

Unfortunately, the IRS’s ability to handle identity theft is, according to the National Taxpayer Advocate, poor. So don’t add to the problem—communicate in a secure fashion to your tax professional.

Posted in IRS | Tagged | Comments Off on Bozo Tax Tip #10: Email Your Social Security Number

Oklahoma Limits Itemized Deductions; Big Hit for Amateur Gamblers

Posted on March 30, 2019 by Russ

Suppose you’re an Oklahoma resident and enjoy gambling one of the many casinos in the Sooner State. You have $100,000 of gambling winnings and $100,000 of gambling losses. You itemize on your federal return anyway (you have mortgage interest, state taxes, and charitable donations), and the wash is just fine. On your Oklahoma return, you’re surprised to find your Oklahoma charitable donations are limited to $17,000 (plus the amount of medical and charitable donations).

Yes, Oklahoma has joined the states that are bad for gamblers. In my hypothetical, an amateur gambler would pay tax on $83,000 of phantom income. This change is the result of a law passed in April 2018.

Posted in Gambling, Oklahoma | Comments Off on Oklahoma Limits Itemized Deductions; Big Hit for Amateur Gamblers

Annual Blog Hiatus

Posted on March 20, 2019 by Russ

It’s time for our annual blog hiatus. We’ll be back after April 15th. Our annual series of Bozo Tax Tips will come out beginning April 1st, and if something truly remarkable happens in the tax world between now and April 15th we will report on it.

Posted in Taxable Talk | Tagged | Comments Off on Annual Blog Hiatus

Can a California or Massachusetts Professional Gambler Take a Business Loss on His or Her State Tax Return?

Posted on March 19, 2019 by Russ

The Tax Cuts and Jobs Act (TCJA) eliminated the ability of a professional gambler to take a loss on his Schedule C based on his business expenses; Congress specifically overrode the Mayo v Commissioner decision. But what about state taxes? Can a professional gambler who had a losing year take a loss on those returns?

First, no professional gambler can take a loss based on his gambling results. Internal Revenue Code Section 165(d) prohibits gambling losses in excess of wins. Every state with a state income tax conforms to this.

But state conformity to the TCJA is decidedly mixed. California does not conform to almost any part of the TCJA. The Franchise Tax Board produced a publication showing each change in law and the impact to California. At the bottom of page 89 is the beginning of the discussion on Section 11050 of the TCJA (which changed the rules for professional gamblers). The FTB publication notes:

California conforms, under the PITL, to the federal rules relating to the deduction for losses from wagering transaction[s] under IRC section 165(d), as of the specified date of January 1, 2015, but does not conform to the federal limitation on the deduction.

Thus, a California professional gambler can take a loss based on his business expenses on his state tax return.

Massachusetts also doesn’t conform to federal law in this area. However, Massachusetts does not allow losses from any business to be reported on its tax returns. Thus, a Massachusetts professional gambler wasn’t able to take a loss based on his business expenses in the past and cannot today.

State conformity on the provisions of the TCJA will vary among the states. If you reside in or must pay state taxes, this is a key issue that you must discuss with your tax professional.

Posted in California, Gambling, Massachusetts | Comments Off on Can a California or Massachusetts Professional Gambler Take a Business Loss on His or Her State Tax Return?

March 15th Tax Deadlines

Posted on March 14, 2019 by Russ

Tomorrow, March 15th, is the first big tax deadline day. There are three tax deadlines on Friday:

First, partnership and S-Corporation returns are due. If your return isn’t completed, file an extension (Form 7004). If you file by mail, use certified mail, return receipt requested. You always want proof of your extension.

Second, Form 3520-A is due. This is one of the two forms for foreign trusts. Again, if your return isn’t completed there’s a simple solution: file Form 7004. You will almost certainly have to mail the extension for a Form 3520-A; you can find where to mail it in the instructions to Form 7004.

Finally, the Form 1042 series (Form 1042, Form 1042-S) are due. These are the information return series regarding payments to non-Americans. You can file Form 1042-S via the FIRE system (if you’re registered); Form 1042 generally has to be mailed to the IRS.

The deadline is a postmark deadline. If you mail your form via certified mail today or tomorrow and it takes a month to get to the IRS, it’s still considered timely (as long as it’s postmarked on or before March 15th). That’s why you want to use certified mail: You get proof (which is a good thing in dealing with the IRS).

Posted in IRS | Tagged | Comments Off on March 15th Tax Deadlines

Arizona Asks Supreme Court to Stop California From Imposing California Tax on Passive LLC Investments

Posted on March 12, 2019 by Russ

We’ve highlighted this issue before. Suppose you are an Arizona resident, and you form Primary LLC in Arizona. Its main purpose is owning a warehouse in Phoenix. But you have some extra money in the LLC, so you invest in Secondary LLC, a Nevada LLC. Secondary invests in various things, including Tertiary LLC, a California LLC. Would the Franchise Tax Board, California’s income tax agency, allege that Primary LLC is doing business in California? You bet. Would they come after you for California’s minimum $800 a year LLC tax? Absolutely. Would they then assess late filing penalties, filing fees, and interest if you don’t pay, and issue payment demands through banks? Of course they have and will do so.

Arizona’s Attorney General, Mark Brnovich, doesn’t like this. He alleges that California is illegally going after Arizona LLCs, and illegally demanding payments from Arizona banks. Mr. Brnovich is asking the US Supreme Court to allow Arizona to sue California at the Supreme Court, as there’s no other venue for such a lawsuit. The Supreme Court will likely rule on the first issue–whether the lawsuit can proceed–before the end of June. If the Supreme Court allows the lawsuit, it would likely be heard next fall or winter in Washington.

By the way, those entities who have fought the FTB in California courts have won their cases. The problem, though, is it costs just $800 to pay the LLC tax; it costs thousands of dollars to fight the FTB. Mr. Brnovich is absolutely correct that it doesn’t make sense for most companies to fight California.

Posted in Arizona, California, Supreme Court | Comments Off on Arizona Asks Supreme Court to Stop California From Imposing California Tax on Passive LLC Investments

No Man Is an Island

Posted on March 11, 2019 by Russ

On Saturday a superb editorial appeared in the Providence Journal, “When Taxpayers Flee a State.” Here’s an excerpt:

Despite its name, Rhode Island is not an island unto itself. People are free to come and go, including business executives who create jobs and pay high taxes. That is why the state has to be careful that its tax policies do not drive away too many investors or taxpayers…

In high-tax Connecticut next door, billionaires are already escaping. As Chris Edwards of the libertarian Cato Institute notes (“Wealthy Taxpayers are Fleeing These States in Droves,” Daily Caller, Oct. 2), Connecticut in recent years “has lost stock trading entrepreneur Thomas Peterffy (worth $20 billion), executive C. Dean Metropoulos ($2 billion), and hedge fund managers Paul Tudor Jones ($4 billion) and Edward Lampert ($3 billion).”

People can, and will, relocate no matter how nice the climate. I loved living in Irvine, California, but California’s business climate drove me (and I’m not a billionaire) to low-tax, low-regulation Nevada. Rhode Island has lost $1.4 billion of income over the last ten years. The solution for both a small state (Rhode Island) and a large state (California) is identical: low tax rates over a broad swath, rather than very high tax rates in narrow areas. Of course, California now has high taxes over almost everything and a regulatory climate that is the worst in the country.

Posted in California, Connecticut, Nevada, Rhode Island | Comments Off on No Man Is an Island

Tax Help for Gamblers

Posted on February 23, 2019 by Russ

Jean Scott, the proprietor of the website “Frugal Vegas” (she’s also known as the “Queen of Comps”) called me last year and asked if I would be willing to assist her with the fourth edition of her book, Tax Help for Gamblers. I agreed to do so, and if you’re a gambler looking for information on taxes I think you will be pleased with the effort. The book is due out shortly, and you can pre-order it on sale for $15 (including shipping) rather than the retail price of $24.95. The book is available from Huntington Press at this link.

Posted in Books, Gambling | Tagged | Comments Off on Tax Help for Gamblers

No, Manny Machado Can’t Avoid Paying California Tax by Being a Florida Resident

Posted on February 21, 2019 by Russ

Earlier this week Manny Machado reportedly signed a baseball free agent contract to play with the San Diego Padres. He’s being paid $300 million over ten years…but that’s before taxes. An article on a website called “12up” says that Mr. Machado will be able to avoid California income tax through “creative posturing” as a Florida resident. The article is wrong.

Mr. Machado is one of many individuals impacted by the “Jock Tax.” This tax impacts entertainers, athletes, and professional poker players and requires income tax be paid based on the source of the income. Let’s assume Mr. Machado is a Florida resident; he would owe Florida income tax on his worldwide income. Since Florida has no state income tax, he owes nothing, right? Well, he owes nothing to Florida but the Padres play games in many states with a state income tax (including California); he will clearly owe California income tax on some of his income.

The Jock Tax is based on ‘duty days’ (not games played). Let’s assume out of the (approximately) 200 days in a baseball season 100 of those days are in California. He will owe tax on 100/200 of his salary (or half). He will avoid owing tax on all of his income to California, but to say he will completely avoid California taxation is dead wrong. While it’s true that California won’t gain $38 million a year, it’s probable that the state will collect over $20 million a year: Not only will Mr. Machado play half his games in San Diego, the Padres will play many games in Los Angeles and San Francisco–and those games will also cause Mr. Machado to owe California income tax.

Posted in California | Tagged | Comments Off on No, Manny Machado Can’t Avoid Paying California Tax by Being a Florida Resident

Online Gambling and Offshore Cryptocurrency Exchange Mailing Addresses for 2019

Posted on February 5, 2019 by Russ

This list has been superceded by the 2020 list.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.) You also should consider filing an FBAR if you have $10,000 or more in a non-US Cryptocurrency Exchange.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

I have made major updates on this list for 2019. Many, many addresses have changed. We went through the complete database and attempted to find new addresses for each entry.

FINCEN does not want dba’s; however, they’re required for Form 8938. One would think that two different agencies of the Department of the Treasury would speak the same language…but one would be wrong.

You will see the entries do include the dba’s. Let’s say you’re reporting an account on PokerStars. On the FBAR, you would enter the address as follows:

Rational Entertainment Enterprises Limited
Douglas Bay Complex, King Edward Rd
Onchan, IM31DZ Isle of Man

Here’s how you would enter it for Form 8938:

Rational Entertainment Enterprises Limited dba PokerStars
Douglas Bay Complex, King Edward Rd
Onchan, IM3 1DZ Isle of Man

You will also see that on the FBAR spaces in a postal code are removed; they’re entered on Form 8938. You can’t make this stuff up….

Finally, I no longer have an address for Bodog. If anyone has a current mailing address, please leave it in the comments or email me with it.

Note: This list is presented for informational purposes only. It is believed accurate as of February 5, 2019. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions or corrections to the list feel free to email them to me.

Posted in Cryptocurrencies, FINCEN, Gambling | Comments Off on Online Gambling and Offshore Cryptocurrency Exchange Mailing Addresses for 2019