FTB’s New MyFTB Impresses; Will the IRS Take Heed?

Posted on January 25, 2016 by Russ

Submitting a Power of Attorney form to the IRS means I must fax the form to the IRS’s Centralized Authorization File (CAF) unit and hope that the POA is entered in timely. A few years ago authorized e-services providers (which I am) could enter the POAs directly in the IRS system but no more.

Meanwhile, California’s Franchise Tax Board (FTB), the state’s income tax agency, has never allowed California POAs to be entered by practitioners. The procedure was to fax or mail them and wait weeks for them to be entered. No more.

The FTB debuted the new MyFTB on January 4th, and it’s a winner. I signed up, and waited for my PIN to be mailed to me (that took the expected 7-10 days). I then input the PIN, and have access. I can see the accounts I’m authorized for, and the new system allows me to enter a POA.

However, the POA does not immediately go into effect. The FTB requires that a pdf of the POA be attached so that the FTB can review it. The FTB states that within two weeks (well, 15 days) the POA will be in their system.

The FTB’s procedure appears to me to allay the issues that the IRS had with rogue professionals entering POAs without authorization. And consider the time savings here. I’ve entered all the information into the FTB’s computer system. An FTB employee can match the pdf I uploaded to the POA I entered. If it matches, the employee can make my POA go live. He or she doesn’t have to retype the information I entered, saving the FTB time (and money). The POA gets into the FTB’s systems faster, making me happy (and my client). It’s a win-win.

There’s a lot more that’s doable with the FTB’s new MyFTB. I can look at account balances, estimated payments amounts (clients get these wrong all the time), 1099 information on the state level (IRS wage and income transcripts don’t have this information), calculate a balance due for a future date, protest an assessment, view images of notices and correspondence, and more.

If you’re a tax professional who deals with California clients or a California taxpayer, I urge you to enroll in MyFTB. I’m very impressed. I may rag on the FTB (especially in the enforcement area) but from my point of view MyFTB is a model to be emulated by the rest of the country.

Such a system, if implemented by the IRS, would also be a win-win. Unfortunately, my expectations on that end aren’t particularly high. Indeed, I’ll be surprised if we see such a system for the IRS in the next five years.

Posted in California, IRS | Tagged , | 1 Comment

An Entity a Day Will Keep the IRS Away, Right?

Posted on January 24, 2016 by Russ

Here’s a scheme that’s sure to work to avoid remitting payroll taxes to the IRS. Every day (or week or month), I’ll form a new business entity that’s collecting the tax. Once the amount due to the IRS gets large, I’ll just use a new entity. The IRS will never catch on, right?

As I’ve said before and will say again, if you want a sure-fire way to get in tax trouble, withhold payroll taxes and don’t remit them to the IRS. I guarantee it will be investigated and you will get in trouble. Agim Zendeli apparently didn’t read my prior posts on this subject.

Mr. Zendeli operated the Ziggies chain of restaurants in Missouri. Mr. Zendeli, liked the good life; for eleven years (from 2004 to 2014), he used the restaurants as a piggy bank for his personal life.

During this period, Zendeli lived a lavish lifestyle, and spent substantial sums on vacations, gambling trips, entertainment and luxury vehicles, including three BMWs, two Cadillac Escalades, two Infiniti QX56s, a 2009 Mercedes, a 2008 Acura and a 2004 Land Rover.

That was done by not remitting the payroll taxes. His scheme was what I noted in my first paragraph.

In order to avoid IRS collection of past due employment taxes, Zendeli repeatedly formed new entities to continue restaurant operations. Once each company accumulated a large tax debt to the IRS, Zendeli ceased operating under that company’s name and opened a new entity, often in the name of a family member, partner, or employee. Zendeli, however, maintained custody and control of the businesses.

Mr. Zendeli also tried to deceive the bankruptcy court; that didn’t work:

In addition, Zendeli attempted to avoid payment of approximately $654,260 in past due federal and state employment taxes by filing bankruptcy on March 26, 2010. Prior to the bankruptcy, Zendeli divorced his wife and transferred the trademarked name “Ziggies®” to his father, for a token payment. (Funds from the 2011 sale of trade name “Ziggies®” were remitted through Zendeli’s bankruptcy proceedings, after the trustee determined a fraudulent transfer of assets had occurred.)

In the end, Mr. Zendeli pled guilty to failing to remit $1.3 million in federal payroll tax. He’s agreed to make restitution; he’s also facing up to five years at ClubFed.

As a helpful hint to any business owners who think this scheme will work: It won’t. But I’ve been reporting on these schemes for nearly 11 years, and I suspect if I keep this blog going another 11 years I’ll still be able to note these. It’s so much easier to simply pay your taxes and live a less lavish lifestyle…but that doesn’t occur to the Bozo contingent.

Posted in Tax Evasion | Comments Off on An Entity a Day Will Keep the IRS Away, Right?

Storm Tax Relief for Missouri

Posted on January 24, 2016 by Russ

Possibly lost in the blanket of snow that fell back east was the IRS announcement on Friday granting tax relief for individuals and businesses impacted by the December storms in Missouri. Here is the IRS announcement in full:

IRS Provides Tax Relief to Missouri Storm Victims; Tax Deadline Extended to May 16

WASHINGTON ––Missouri storm victims will have until May 16, 2016 to file their returns and pay any taxes due, the Internal Revenue Service announced today. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

Following this week’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS said that affected taxpayers in Barry, Barton, Camden, Cape Girardeau, Cole, Crawford, Franklin, Gasconade, Greene, Hickory, Jasper, Jefferson, Laclede, Lawrence, Lincoln, Maries, McDonald, Morgan, Newton, Osage, Phelps, Polk, Pulaski, Scott, St. Charles, St. Francois, St. Louis, Ste. Genevieve, Stone, Taney, Texas, Webster and Wright counties will receive this and other special tax relief. Other locations in Missouri and other states may be added in coming days, based on damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Dec. 23, 2015. As a result, affected individuals and businesses will have until May 16, 2016 to file their returns and pay any taxes due. This includes 2015 income tax returns normally due on April 18. It also includes the Jan. 15 and April 18 deadlines for making quarterly estimated tax payments. A variety of business tax deadlines are also affected including the Feb. 1 and May 2 deadlines for quarterly payroll and excise tax returns and the special March 1 deadline for farmers and fishermen who choose to forgo making estimated tax payments.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Dec. 23 and before Jan. 7 if the deposits are made by Jan. 7, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred, or the return for the prior year. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

As of today, the Missouri Department of Revenue has not changed their deadline for state taxes. However, I would expect Missouri to conform to this.

Posted in Missouri | Comments Off on Storm Tax Relief for Missouri

Fail, Caesar! An Update

Posted on January 21, 2016 by Russ

It’s been just over a year since Caesars Entertainment Operating Company (CEOC) declared bankruptcy. If Caesars Management was hoping that the court-appointed examiner would be giving them good news, and that the company would be coming out of bankruptcy unscathed, well, the news of the day is anything but.

Yesterday’s Wall Street Journal noted that a reorganization is not a given. Judge Benjamin Goldgar noted,

It doesn’t have to end with a confirmed plan…A trustee could be appointed, the case could be dismissed or, my favorite, the case could be converted to chapter 7 [liquidation], which would just be a hoot, wouldn’t it?

It’s likely the temperature in Caesars’ boardroom dropped ten degrees when they heard about that. As to why the judge made the remark, it turns out that Caesars doesn’t want the examiner’s report made public. Now why is that, as examiner’s reports (in a bankruptcy) are normally made public? Could it be that there’s damaging information in the report?

If we are to believe a report in the New York Post that’s exactly why. “Court-appointed probe will slam Caesars for fraud,” screams the headline. The first two paragraphs tell the story:

Caesars Entertainment’s court-appointed examiner has told company officials and creditors’ lawyers he believes the company acted improperly when it transferred assets away from the hobbled casino prior to putting it into Chapter 11, The Post has learned.

A report by the examiner, expected to be released next month, is likely to conclude there was a degree of civil fraud connected to the transfer, three sources with direct knowledge of the talks said.

Ouch.

As to what this means, quite a bit, and none of it is good for Caesars’ plan to get out of bankruptcy:

  • The transfers made just before the bankruptcy (allegedly moving Caesars’ best assets out of CEOC prior to the bankruptcy) could be undone, dragging more of Caesars into bankruptcy;
  • There could be personal liability for members of the Board of Directors of Caesars; and
  • Asset sales and a very different exit for Caesars from bankruptcy would become far more likely.

For my poker-playing readers, it’s still unlikely that this will have a direct impact on this year’s World Series of Poker. It’s in everyone’s interest that the WSOP operate as planned because it’s profitable. That said, I would not be surprised to find assets such as the WSOP owned by someone besides Caesars by the end of the year.

Posted in Gambling | Tagged | Comments Off on Fail, Caesar! An Update

Texas Attorney General: DFS Illegal in Texas

Posted on January 19, 2016 by Russ

Texas’s Attorney General, Ken Paxton, issued an opinion today that says that daily fantasy sports (DFS) is illegal under Texas law. The crux of Mr. Paxton’s argument is,

Under section 47.02 of the Penal Code, a person commits an offense if he or she makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest. Because the outcome of games in daily fantasy sports leagues depends partially on chance, an individual’s payment of a fee to participate in such activities is a bet. Accordingly, a court would likely determine that participation in daily fantasy sports leagues is illegal gambling ‘under section 47.02 of the Penal Code.

Texas is one of several states where any element of chance is enough to make something gambling.

The reactions were predictable. DraftKings and FanDuel stated that Mr. Paxton got the law wrong. “The Attorney General’s prediction is predicated on a fundamental misunderstanding of DFS. We intend to continue to operate openly and transparently in Texas, so that the millions of Texans who are fantasy sports fans can continue to enjoy the contests they love.” FanDuel’s response was similar.

Unfortunately, I suspect that Attorney General Paxton got this right. Raffi Melkonian, an appellate lawyer in Houston who specializes in Fifth Circuit and Texas appellate practice, stated (via Twitter):

I trust his legal view far more than what has been stated by DraftKings and FanDuel.

Of course, none of this should have been a surprise to anyone. As I said almost two years ago,

Unfortunately, many states look at just an element of chance to determine if something is gambling. And there’s no doubt that daily fantasy sports have such an element.

Another state where DFS is of dubious legality is Florida. An Assistant Attorney General in Vermont, John Treadwell, stated that “Daily fantasy sports violate Vermont’s gambling laws.” Adding in Illinois and New York and the picture of DFS in the US is mostly cloudy with a chance of rain.

Posted in Gambling | Tagged | Comments Off on Texas Attorney General: DFS Illegal in Texas

Efiling Opens, But…

Posted on January 19, 2016 by Russ

…It’s likely you can’t file yet.

Today the IRS sent out a “QuickAlert for Tax Professionals.” They stated, “Authorized IRS e-file Providers must not submit electronic returns to the IRS prior to the receipt of all Forms W-2, W-2G, and 1099-R from the taxpayers.” Additionally, most brokerage 1099s are not distributed until mid-February. Those of us who have interests in partnerships or S-Corporations may not receive that paperwork for months.

Tax professionals need all the paperwork: It’s far better to extend than amend. That means we’re in hurry up and wait mode; for many taxpayers it will be weeks to months before we can file.

Posted in Taxable Talk | Tagged | Comments Off on Efiling Opens, But…

Same as Last Year Doesn’t Work

Posted on January 18, 2016 by Russ

Robert Flach has a post today where he notes the information that’s needed to prepare a tax return. I don’t have much to add to his excellent list (though I do need to see your W-2Gs, too).

If you’re one of our clients you should have received your Tax Organizer (which asks for all the information Robert asked for) in the web portal and your Engagement Letter and Privacy Policy via email. We will need you to sign and return your Engagement Letter prior to our working on your return.

If you need to file an FBAR (Form 114, Report of Foreign Bank and Financial Accounts) we will need you to complete Form 114a prior to the filing of the FBAR.

Finally, I wanted to emphasize one thing that Robert wrote.

When I say “I only need numbers” I mean specific numbers for deductions you are claiming. “Claim the maximum” or “Whatever I am allowed” or “Same as last year” is not appropriate. The maximum is what you actually paid – and you are allowed what you actually paid! I need you to tell me “$1023.50” or “$20.00 per week for 50 weeks” or “4638 miles”!

There is no such thing as a maximum—tax professionals need to know what you did. You need to provide the data. So when you say, “Do what I did for last year” and I respond “I can’t do that,” please understand.

Posted in Tax Preparation | Tagged | 2 Comments

Those “Extra Services” Were Great for Business

Posted on January 17, 2016 by Russ

Tips are one of those things that are done for many services. When we go out to eat, we normally leave a tip for the servers. I tip when I get my hair cut. A Denver massage parlor owner had a different idea about tips, and it likely led to an investigation that will probably lead her to ClubFed.

Jung Yoon Choi owned and operated three massage parlors in the Denver area from 2009 to 2010. Each location had a manager and workers who gave massages. Absolutely nothing out of the ordinary for a massage parlor. “Each of the spas typically had a fee schedule according to which customers paid a door fee ordinarily ranging from $40 to $50, depending on the amount of time requested (30 to 60 minutes were the norm).” That seems normal, too. It was the extra services that were an issue:

In addition, customers at the various spas often paid an additional fee which was characterized as a “tip” in many instances for “extra services” provided by Choi’s workers. At times, the “extra services” consisted of prostitution services in violation of Colorado Revised Statute, 18-7-201. Specifically, the workers would engage in sexual acts with customers in exchange for money. Choi was aware that such illicit activity was occurring at times in each of her spas and that business income was being generated from such activity.

That’s a different kind of tipping. Most likely, the FBI started to investigate and naturally wanted to look at the tax returns for the business. There was just one problem with that: No tax returns had been filed for the business or herself.

In addition to not filing tax returns and not paying taxes, Choi further impeded the IRS’s collection of taxes by several means, including: using nominees on bank accounts so as to conceal her business income; conducting cash and business transactions using nominees; conducting financial transactions in amounts that were less than $10,000 so as not to trigger the filing of currency transaction reports; and hiding and storing income in the form of cash hoards at various locations.

That brought in IRS Criminal Investigation, and not only did they discover all of this, they found $118,575 of cash in a storage locker. That’s now been forfeited. Additionally, Ms. Choi has pleaded guilty to one county of obstructing and impairing the laws of the IRS. She’ll be sentenced in April.

Posted in Tax Evasion | Tagged | Comments Off on Those “Extra Services” Were Great for Business

Lawsuit Filed Over BOE’s Fixer-Upper

Posted on January 17, 2016 by Russ

I’ve reported on California’s Board of Equalization headquarters building in Sacramento on two occasions. It seems some employees of the BOE aren’t happy at all, and have filed a lawsuit against the BOE alleging that the agency has known for years that the building is a health hazard.

While the BOE has publicly stated that the building is safe, there have been a few “minor” problems. Like glass windows randomly falling to the ground. Given the building is 24 stories tall, you may want to walk on the other side of the street if you’re ever near it. There’s also a few pipes that have corroded; back in 2012 that was only in the waste lines. The elevator doors have this tendency to stay closed when you want to exit the elevators. There was also that infestation of bats.

But the big issue for the lawsuit is toxic mold. Those windows that randomly pop out have done so supposedly because of bad seals. That leads also to water entering the building. Sacramento’s summers are very warm, so that water leads to mold. The lawsuit alleges that the BOE knew back in 1995 (two years after the building opened) that mold was an issue leading to all sorts of illnesses.

It will likely be years before the lawsuit makes its way to trial.

Posted in California | Tagged | Comments Off on Lawsuit Filed Over BOE’s Fixer-Upper

Wasting Away in HPVille

Posted on January 11, 2016 by Russ

Today was the day my new computer was to have been encrypted. But some things aren’t meant to be:

So what happened? When my IT person started the encryption process using HP software, my computer decided to take a siesta — the operating system crashed. When he called HP support, he discovered that the problem was known, impacting a “minority” of computers. My IT person had tested the encryption on a test computer but all worked well.

Little did we know that the HP encyrption software fails on that “minority” of computers. Well, at worst it’s a failure rate of 50%: it failed on mine and worked on his.

I lost half a day, but no data. A key lesson I had learned years ago (and that my IT person had learned) is to have backups. We made three backups prior to the process, and they were useful in getting me back up and running.

So I’m back on my old computer while my IT person will get my new computer up and running…again. We’re going to use different encryption software—software that does not destroy the operating system.

Right now you could not pay me to buy a product manufactured by Hewlett-Packard. I’m that annoyed with them.

Posted in Taxable Talk | Tagged | Comments Off on Wasting Away in HPVille