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.

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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.

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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.

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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.

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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.

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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.

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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.

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Fraudster Tries Alchemy; Will Have 20 Years to Think That Over

Posted on January 10, 2016 by Russ

I have a degree in chemical engineering. As an undergraduate, I did research into the catalyzed production of methane (CH4) from graphite (Carbon, C) and Hydrogen (H2) using potassium hydroxide (KOH) as a catalyst. That was real chemistry.

Alchemy is a bit different. An alchemist tries to turn lead into gold. With the exception of radioactive elements, chemical elements don’t change. If you have lead, it stays lead and doesn’t change into gold.

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

From 2007 through 2012, Indiana-based E biofuels owned a biodiesel manufacturing plant in Middletown, Indiana. Biodiesel is a fuel that can be used in diesel engines and that is made from renewable resources, including soybean oil and waste grease from restaurants. Under the Energy Independence and Security Act, properly manufactured biodiesel was eligible for a dollar per gallon tax credit as well as another valuable credit, called a Renewable Identification Number (RIN) that petroleum refiners and importers could use to demonstrate compliance with federal renewable fuel obligations. These incentives can be claimed once and only once for any given volume of biodiesel.

Furando admitted that sometime in late 2009, he and his companies, New Jersey-based defendants Caravan Trading Company and CIMA Green, began supplying E biofuels with biodiesel that was actually made by other companies and had already been used to claim tax credits and RINs. Because these incentives had already been claimed, Furando could purchase the biodiesel at much lower prices, sometimes for more than two dollars per gallon less than biodiesel that was still eligible for the credits. The conspiracy functioned as follows: Furando supplied the product to E biofuels and his co-conspirators would claim that E-biofuels made the fuel and then they would illegally re-certify the fuel and sell it at the much higher market price for incentivized biodiesel, known as B100 with RINs. Within the circle of those he trusted, Furando referred to this fraud scheme as “Alchemy.”

In two years, that was a profit—albeit an illegal profit—of $145.5 million. It appears that $56 million of this represented fraud, as that is how much restitution Mr. Furando must make. He was also sentenced to 20 years at ClubFed, and must forfeit his Ferrari and other cars, his “million-dollar home,” and other possessions.

I’ll point out (again) that tax credits attract fraudsters like moths to flames. One day, perhaps, Congress will decide that these programs should go in the dustbin of history. Well, there’s always hoping.

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1099 Time for 2016

Posted on January 10, 2016 by Russ

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

  • Corporations (except attorneys)
  • Entities you purchased tangible goods from
  • Entities you purchased less than $600 from (except royalties; the limit there is $10)
  • Where you would normally have to send a 1099 but you made payment by a credit or debit card

Otherwise, you need to send a Form 1099-MISC to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-MISC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement.

Finally, there are strict deadlines with information returns. Here are the deadlines for 2014 information returns:

  • Monday, February 1st: Deadline for mailing most 1099s to recipients;
  • Monday, February 29th: Deadline for filing paper 1099s with the IRS (postmark deadline); and
  • Thursday, March 31st: Deadline for filing 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

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