Well, He Did Make At Least One Payroll Tax Payment

Posted on May 3, 2016 by Russ

As an Enrolled Agent, I know that if I have employees and collect payroll tax for the employees, I had better remit it to the IRS (and state tax agencies). When I’ve been the employer, I’ve done that without fail. A CPA in Utah is alleged to do that once in twelve years. He’s also alleged to have not paid his personal income taxes for eight years.

David Bybee of Kaysville, Utah is alleged to have run several businesses. The IRS supposedly wanted him to remit his income taxes for eight years from 2000 – 2009 (2003 and 2004 were paid). The US Department of Justice was called in when the IRS couldn’t get anywhere. Mr. Bybee was indicted; he allegedly “…took steps to conceal and attempt to conceal the nature, extent and location of his assets from the IRS to avoid paying the taxes.”

I’ve repeated numerous times over the4 years that if you want to get in trouble with the IRS the easiest way is to simply not remit payroll taxes. From the DOJ press release:

A second count of attempt to evade and defeat payment of tax relates to efforts the indictment alleges Bybee took to evade paying payroll taxes to the federal government on behalf of the employees of three companies he controlled from about April 30, 2000, to about March 14, 2011. Bybee deducted and collected payroll taxes totaling at least $39,244.49 but did not report the payroll taxes with the exception of one employment tax payment of $899.32 in April 2012. Bybee was determined to be responsible for the payroll taxes and was assessed penalties totaling $47,919.06 for the unpaid taxes. According to the indictment, he has failed to make any payments.

Mr. Bybee is also accused of not remitting all the federal income tax that was withheld to the IRS. In all, a trifecta of trouble for a CPA.

Once again, you may notice that we have an individual who should absolutely know the rules on remitting taxes. And once again you may notice that we have an individual who didn’t follow through on those rules. Licensing tax professional will get rid of the lowest of bad hanging fruit, but it won’t stop bad people from behaving badly.

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Under the Table Worked for a While…

Posted on May 1, 2016 by Russ

Here’s a scheme that has a somewhat better chance of working than the usual employer tax fraud (of not remitting employment taxes, a scheme with a 0% chance of working). Let’s pay employees “under the table” using income to pay for it. I’ll take remittances, cash them at a check cashing location, and then pay my undocumented employees using the cash I generate. The employees won’t complain, so I won’t be caught! And I’ll pay less in income taxes and workers compensation! What can go wrong?

Ignoring the multiple felonies being committed (tax evasion and workers compensation fraud to start), this scheme will likely be discovered in time. Some undocumented employees actually file tax returns, and those taxes won’t match. A 1099 might be issued from a customer, and that income might not make it onto the books of the company. Or the workers compensation company might get suspicious: How are you doing all of your work without that many employees?

A Watertown, Massachusetts business owner executed this plan. He began paying his employees (of a window and gutter cleaning company) under the table in 2008…and it worked! So he continued this plan for 2009, 2010, 2011, and 2012. The Department of Justice press release doesn’t say when someone caught on, but someone did. IRS Criminal Investigations, Homeland Security, and the Massachusetts Insurance Fraud Bureau all investigated. This past week Richard Moxley pleaded guilty to one count of tax evasion and one count of mail fraud. Mr. Moxley will likely be heading to ClubFed.

As usual, the best idea is simply to pay employees “above the table” and pay your taxes…but that rarely occurs to the Bozo mind.

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Neither Rain Nor Sleet Nor Snow…But What About Theft?

Posted on May 1, 2016 by Russ

Rain–which we had here in Las Vegas this past weekend–didn’t stop the postman from delivering bills I have to pay. Sleet and snow don’t stop the US mail, either. However, theft of the mail will stop it. One postal carrier will likely be heading to ClubFed because he stole mail used in an identity theft ring.

Earl Champagne delivered mail in Pennsaucken, New Jersey. From the Department of Justice press release:

Champagne admitted that from March 2014 to July 2014 he stole U.S. Treasury Checks from the mail and gave them to others. He said he was approached by two individuals who asked him to retrieve checks from the mail with the promise that he would be paid. The individuals told Champagne that the checks were IRS checks and that they would mostly be addressed to individuals with “Spanish” names. The individuals expected to either pick up the checks from Champagne or for him to notify them that the checks were in the mailbox so that they could retrieve the checks themselves. For this service, Champagne was paid $50 per check for every check stolen from the mail. Champagne admitted that he stole 72 U.S. checks totaling $442,776.

Theft of mail is a felony–and can be subject to a lengthy term at ClubFed (up to 15 years and a $250,000 fine per offense). This wasn’t a brilliant idea as sooner or later someone would notice the lack of the refund check, and then the IRS would be notified and it would be fairly easy to figure out the issue. For Mr. Champagne, the Bozo aspect of his crime didn’t occur to him…but it likely does now (a bit too late for him).

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What FINCEN Should Do Regarding FBAR Filing Dates and 25 or More Accounts

Posted on April 27, 2016 by Russ

On March 1st, FINCEN issued a press release noting that they requested comment regarding a proposal such that individuals with 25 or more foreign financial accounts would have to report the details on those accounts rather than just noting they have 25 accounts. Buried in the actual Notice of Proposed Rulemaking was the fact that this rulemaking would include complying with the new law that for 2016 FBARs filed in 2017 the due date would be April 15th with a six-month extension available upon request.

This latter issue (the due date) is key. I can easily see bureaucrats reading the law and saying, “Well, now the deadline is April 15th regardless of whether or not that falls upon a weekend or holiday in the District of Columbia” rather than taking the common sense approach of aligning the FBAR due date to the tax return due date. It’s pretty clear to me that Congress intended the dates to be aligned. I felt it important to submit a comment on the record to note this.

My comments are available here. If you wish to respond to the proposed rulemaking, the deadline is May 9th.

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The 2016 Tax Season

Posted on April 25, 2016 by Russ

It actually went fairly smooth this year. Some thoughts (in no particular order):

1. The IRS help lines for tax professionals were well staffed. Hold times were way, way down from prior years (especially last year). The average hold time for me was about ten minutes. In the 2015 tax season, hold times were above one hour.

2. Deadlines matter. We set a fairly early deadline this year (March 16th). While we did get to returns received after that (we got to returns through March 30th), some clients were not happy with the deadline. That’s reality: There are only so many hours in the day. We told you back in January what our deadline was.

3. K-1s are coming later and later. Many of my clients had to extend this year because a K-1 from a partnership is missing. I’m definitely seeing more business entities filing extensions, and that leads to more individuals filing extensions.

4. While tax software may be somewhat flawed, it’s essential for any tax professional. A tax return still must always pass the smell test, but it would be impossible for most tax professionals to complete complex returns without it.

5. Next year could be very interesting for my practice because of the FBAR deadline. For 2015 FBARs filed in 2016, the deadline is June 30th. The law will change next year and the deadline will be April 15th. Will this deadline be literally April 15th no matter what day of the week that falls on or will it match tax deadlines? Will FINCEN accept the federal tax extension or will it require its own extension to be filed? I’ll have more on this issue in a post that’s coming tomorrow.

6. Federal refunds appear to be fairly smooth this year. None of my clients have noted any issues with those. The same cannot be said for state tax refunds, though. Many states are drastically slowing refunds and/or requiring additional information prior to the refund being issued.

I cannot complain overall, though. Of course, now that Tax Season is over comes my paperwork season: shredding and invoicing. And more than six hours of sleep each night.

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Bozo Tax Tip #1a: They Shoot Jaywalkers, Don’t They? (Or Ignoring the FBAR!)

Posted on April 15, 2016 by Russ

I have, unfortunately, become quite competent in the Report of Foreign Bank and Financial Accounts. That form is better known as the FBAR. It used to have the form number TD F 90-22.1 (yes, it really did) but now goes by Form 114. The form must be filed online through the bsaefiling center of FINCEN, the Financial Crimes Enforcement Network.

You must file an FBAR if you have $10,000 aggregate at any time during the year. The report for 2015 is due June 30, 2016; there are no extensions.

The form is fairly simple and straightforward: Note every foreign financial account you have with name, address, account number, and maximum balance at any time during the past year. Let’s say you have one foreign account, a bank account at the Royal Bank of Canada. You would take your maximum balance and convert it to US dollars from Canadian dollars (you should use the year-end Treasury Department conversion rates no matter when the high balance was). The form must be electronically filed and is filed separately from your tax return.

The penalties for not filing it are quite high. Willful non-filing has a minimum penalty of $100,000 or half the balance in the account–and that’s per account! There’s also possible jail time.

So what must be reported:
– Foreign Bank accounts;
– Bank accounts outside the US of a US financial institution;
– Foreign financial accounts where all you have is signature authority;
– Foreign securities accounts;
– Foreign mutual funds;
– Foreign life insurance with a cash or annuity value; and
– Online gambling accounts if outside the US.

There are probably others, too.

The IRS does have a chart that lists most things that need reporting on the FBAR and Form 8938. Form 8938 is the “cousin” of the FBAR; this form needs to be filed if you have larger balances in foreign accounts.

Millions of FBARs are filed each year. When I started in tax, filing an FBAR was a huge audit red flag; that’s no longer the case. There are just too many FBARs filed. Do note that if you have an FBAR filing requirement you must note that in question 7 at the bottom of Schedule B.

To end this with some humor, one of my pet peeves in dealing with taxes is that there are three different sets of abbreviations for foreign counties used in tax. The FBAR has one set; question 7 at the bottom of Schedule B has another set, and Form 8938 has a third set. Some countries are noted identically while others are not. On one of of the abbreviations Curacao is “CU” while that means Cuba in another.

In any case, the FBAR is no laughing matter. The IRS’s mantra here is to shoot jaywalkers. Don’t become such a person: If you have an FBAR filing requirement, file it! Again, the FBAR is due June 30th this year and there are no extensions.

Now this is the real end of our Bozo Tax Tips for the 2016 Tax Season. I’ll be back no later than April 25th with new content.

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Bozo Tax Tip #2: Use a Bozo Accountant!

Posted on April 14, 2016 by Russ

Here’s another Bozo Tax Tip that keeps coming around. The problem is, the Bozos don’t change their stripes. In any case, here are some signs your accountant might be a Bozo:

– He’s never met a deduction that doesn’t fit everyone. There’s no reason why a renter can’t take a mortgage interest deduction, right? And everyone’s entitled to $20,000 of employee business expenses…even if their salary is just $40,000 a year. Ask the proprietors of Western Tax Service about that.

– He believes that the income tax is voluntary. After all, we live in a democracy, so we don’t have to pay taxes, right?

– Besides preparing tax returns, he sells courses on why the Income Tax is Unconstitutional or how by filing the magical $2,295 papers he sells you will be able to avoid the income tax.

– He wants you to sign over that tax refund to him. After all, he’ll make sure you get your share of it after he takes out his 50% of the refund.

– He believes every return needs at least three dependents, no matter whether you have any children or not.

If your tax professional exhibits any of these behaviors, it’s time to get a new tax professional.

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Bozo Tax Tip #3: Let Your IRS Notice Age Like Fine Wine!

Posted on April 13, 2016 by Russ

My brother is a wine connoisseur. As all my friends know, I’m anything but a wine aficionado. But I have learned one difference between fine wine and a notice from the IRS: Wine can age very well but IRS notices don’t.

Almost all IRS notices come with deadlines. You need to act to stop the IRS. If you ignore the notice, you usually will get a second notice. After that, you may receive a Notice of Deficiency. If that ages the tax is assessed.

Yet most IRS notices are wrong in whole or in part! The last study I saw showed that two-thirds of IRS notices are wrong. That’s a shockingly high percentage. An obvious question is why doesn’t the IRS change its procedures so that the bad notices aren’t issued? The answer is simple: People pay those notices. The IRS’s Automated Underreporting Unit is a huge profit center for the agency.

What does this mean for you? Put simply, if you get an IRS notice read it carefully. Let your tax professional know about it when you receive it, not on the day a response is due. It’s a lot easier (and cheaper) to act earlier in the process than later.

My brother tells me that some of the best wine he’s tasted have been old varietals. I can tell you that I’ve never seen a tax notice get better with age.

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Bozo Tax Tip #4: Honey, You Don’t Exist!

Posted on April 12, 2016 by Russ

Ah, Spring is in the air. And with that come the inevitable wedding invitations. I had an invitation to a wedding on April 9th. No, I didn’t attend.

With weddings comes changes in tax status. Your marital status on December 31st determines your marital status for the year. If you are married, you file as Married Filing Jointly or Married Filing Separately. (In some rare cases, if you’re married you can file as Head of Household.) But you can’t file as single. Likewise, if you’re single you can’t file as married.

Perhaps it’s something in the water, but this year I have seen multiple cases of individuals who have ignored that marriage license and filed as single if married. There’s a good reason for that, of course: They save on taxes. A big issue is rental real estate: If you’re actively involved in rental real estate you get to take losses of up to $25,000. But there’s an income cap (the deduction begins to phase out at an income of $100,000 and completely phases out at $150,000). This particular deduction is neither indexed for inflation nor does it vary if you are single or married.

There’s a problem taking deductions you’re not entitled to: tax evasion. It’s a Bozo act to claim things you’re not entitled to.

Marriage has its ups and downs. Claiming you’re single on your tax return when you’re married will in the long-run cause you nothing but downs.

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Bozo Tax Tip #5: Procrastinate

Posted on April 11, 2016 by Russ

You may have noticed that Bozo Tax Tip #1 appeared last week. Never fear, there’s another #1 Bozo Tax Tip that will appear on Friday. Now on with the countdown:

Today is April 11th. The tax deadline is just seven days away.

What happens if you wake up and it’s April 18, 2016, and you can’t file your tax? File an extension. Download Form 4868, make an estimate of what you owe, pay that, and mail the voucher and check to the address noted for your state. Use certified mail, return receipt, of course. And don’t forget your state income tax. Some states have automatic extensions (California does), some don’t (Pennsylvania is one of those), while others have deadlines that don’t match the federal tax deadline (Hawaii state taxes are due on April 20th, for example). Automatic extensions are of time to file, not pay, so download and mail off a payment to your state, too. If you mail your extension, make sure you mail it certified mail, return receipt requested. (You can do that from most Automated Postal Centers, too.)

By the way, I strongly suggest you electronically file the extension. The IRS will happily take your extension electronically; many (but not all) states will, too.

But what do you do if you wait until April 19th? (If you reside in Maine or Massachusetts, April 19th is your Tax Day this year.) Well, get your paperwork together so you can file as quickly as possible and avoid even more penalties. Penalties escalate, so unless you want 25% penalties, get everything ready and see your tax professional next week. He’ll have time for you, and you can leisurely complete your return and only pay one week of interest, one month of the Failure to Pay penalty (0.5% of the tax due), and one month of the Failure to File Penalty (5% of the tax due).

There is a silver lining in all of this. If you are owed a refund and haven’t filed, you will likely receive interest from the IRS. Yes, interest works both ways: The IRS must pay interest on late-filed returns owed refunds. Just one note about that: the interest is taxable.

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