State Financial Health: Alaska, Dakotas on Top, Illinois, New Jersey, Massachusetts and Connecticut on the Bottom

Posted on July 7, 2015 by Russ

The Mercatus Center at George Mason University released a study today ranking the 50 states on their financial health. Here are the top six states:

1. Alaska (8.26)
2. North Dakota (2.97)
3. South Dakota (2.84)
4. Nebraska (2.75)
5. Florida (2.74)
6. Wyoming (2.67)

These six states have “Fiscal Condition Index” scores that are significantly higher than all the other states. Of course, where there’s good there’s also bad; here are the bottom seven states:

50. Illinois (-1.86)
49. New Jersey (-1.86)
48. Massachusetts (-1.84)
47. Connecticut (-1.83)
46. New York (-1.49)
45. Kentucky (-1.42)
44. California (-1.41)

Why are states ranked low?

High deficits and debt obligations in the forms of unfunded pensions and health care benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.

Think unfunded pensions and you have one of the huge issues facing states. Illinois leads the way (which isn’t a good thing for the Land of Lincoln). There’s a reality: Whatever you make, spend less. Some states follow that creed; others give it lip service. California may have a “surplus,” but when you look at unfunded pensions things don’t look so good. Sooner or later, that bill will come due.

It’s an interesting analysis, and well worth your perusal.

Posted in Alaska, California, Connecticut, Illinois, Massachusetts, New Jersey, North Dakota, South Dakota | Comments Off on State Financial Health: Alaska, Dakotas on Top, Illinois, New Jersey, Massachusetts and Connecticut on the Bottom

State Taxes Matter, Lesson #21

Posted on July 5, 2015 by Russ

When does $108 million equal $80 million? When you’re leaving California and heading to Texas.

DeAndre Jordan has been playing center for the Los Angeles Clippers of the National Basketball Association. Mr. Jordan just signed a free agent deal with the Dallas Mavericks for $80 million, $28 million less than what he was offered to stay with the Clippers. It might be that Mr. Jordan believes that the Mavericks have a better chance at winning the 2015-2016 NBA Championship. Perhaps he likes Texas better than California (his hometown is Houston). It also might be that Mr. Jordan likes keeping more of what he makes.

Marc Spears of Yahoo Sports noted to NBA TV, “First of all the taxes are so bad in my home state of California it ends up being about even.” California’s top tax rate is 13.3%, so if all of Mr. Jordan’s contract were subject to the top California tax rate he’d end up at $93.6 million–still a bit more than the $80 million he’ll get with the Mavericks. Because of Jock Taxes some of what Mr. Jordan will earn will still be subject to various state and local taxes (including California’s); the Spurs will play road games in Los Angeles, Oakland, and Sacramento.

Another NBA free agent, LaMarcus Aldridge, signed for $80 million with the San Antonio Spurs; he played for the Portland Trailblazers last year. Mr. Aldridge is leaving Oregon (which has a 9.9% maximum rate) for Texas’ 0% rate. Yes, the Spurs might be a better team than the Blazers and Mr. Aldridge may like the Spurs’ organization more, but I’m also certain he likes that his tax rate just went down.

Posted in California, Oregon, Texas | 1 Comment

Mr. Hyatt Goes to Washington…Again

Posted on June 30, 2015 by Russ

The saga of Gilbert Hyatt and the Franchise Tax Board, California’s income tax agency, continues. As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims. The FTB filed a Petition for Certiorari in March; it was granted today.

From Chris Smith of the Franchise Tax Board I learned that the Supreme Court will look at two issues: “Whether Nevada may refuse to extend to sister States haled into Nevada courts the same immunities Nevada enjoys in those courts.” As Mr. Smith notes, this relates to monetary damages that Mr. Hyatt received. Second, “Whether Nevada v. Hall, 440 U.S. 410 (1979), which permits a sovereign State to be haled into the courts of another State without its consent, should be overruled.”

The latter will be the key issue for me. In the Nevada trial, the FTB was found to have committed fraud. If Mr. Hyatt had resided in California (instead of Nevada), he would have been powerless to sue the FTB for damages (California law does not allow this). Consider if the FTB were to repeat the same actions against you where you reside; wouldn’t you like to have some recourse against them? Remember what Bill Leonard wrote about this case:

Tax agents rummaged through his trash without warrants, visited business partners and doctors, and shared his Social Security Number and other personal information with the media. This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.

Remember, those actions occurred not in California but in Nevada.

This is the second time that the Hyatt case has been to the US Supreme Court. Back in 2003, the Supreme Court ruled 9-0 that Mr. Hyatt could sue, and that Nevada v. Hall should not be overturned. It will be interesting to see what happens this time. The case will likely be heard this Fall with a decision probably coming in early 2016.

Posted in California, Supreme Court | Tagged | 1 Comment

Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

Posted on June 29, 2015 by Russ

With the FBAR deadline upon us, an interesting question arose: Does a spouse covered by the §1.6013-6 regulation allowing a nonresident alien individual to be treated as a resident need to file an FBAR? Logic says no; the FBAR comes out of the Bank Secrecy Act, not the Tax Code. And the IRS agrees with logic: “If the wife is non us person for FBAR therefore she does not have a filing requirement.” (That quote comes from a question I submitted to the FBAR group at the IRS.)

But beware, if the taxpayers have a Form 8938 filing requirement the wife’s accounts will need to be reported on that form. That’s a tax form, so the accounts would need to be included.

Posted in FINCEN, International | Tagged | 1 Comment

A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS

Posted on June 28, 2015 by Russ

Barry Ginsberg operated a payroll tax service in Peabody, Massachusetts (near Boston). He endorsed escrow accounts for his clients; they would send him the money for the payroll taxes and he, in turn, would pay them. Since I’m writing about this, you’ve already figured out where the money didn’t go: to the IRS and the Massachusetts Department of Revenue. Mr. Ginsberg, who was indicted back in 2013, pleaded guilty to multiple tax fraud charges on Friday.

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

Mr. Ginsberg will likely be spending years at ClubFed. Unfortunately, the business owners who trusted him may be spending years getting out of debt with the IRS and Massachusetts.

Posted in Payroll Taxes, Tax Fraud | 1 Comment

You Can Pay Employees in Cash, But…

Posted on June 28, 2015 by Russ

…you’d better withhold payroll taxes. One Milwaukee restaurant owner is alleged to have forgotten that minor detail. He also allegedly didn’t include all of his cash receipts on his tax returns.

Paul Bouraxis operates three Milwaukee-area restaurants. Judging from his tax returns, the restaurants weren’t doing that well. The Department of Justice believes that a better way of judging is the $3.7 million in cash and silver in banks in the United States and Greece. ($1.7 million in gold, silver, and cash was seized.) Mr. Bouraxis, his wife, son, and son-in-law are all alleged to have skimmed cash from the business, filed phony tax returns (both personal and payroll taxes). A part-owner of one of the restaurants, Gus Koutromanos, also allegedly participated in the scheme.

The DOJ found that the accountant for the businesses participated in the scheme, too. Scott Sherman of Sheboygan will plead guilty to one count of filing a false tax return; he’ll likely testify (if need be) against the Bouraxis family if the case goes to trial.

The family is all facing extended stays at ClubFed if found guilty.

Posted in Tax Evasion, Wisconsin | Comments Off on You Can Pay Employees in Cash, But…

BEA-10 Due on June 30th

Posted on June 24, 2015 by Russ

Just a reminder this morning that the BEA-10 mandatory survey of foreign investment by Americans is due on June 30th. If you own 10% or more of a foreign entity, you will need to file this form. New filers must mail the forms in.

There are significant penalties if you don’t file this, so it’s definitely something to take care of (if it applies to you).

Posted in BEA, International | Comments Off on BEA-10 Due on June 30th

FBAR Due in One Week

Posted on June 23, 2015 by Russ

The Report of Foreign Bank and Financial Accounts (Form 114, the FBAR) is due on June 30th. The form must be electronically filed with FINCEN. Your tax professional may be able to do it through his software (we can) or you can do it yourself using the BSA EFile system. There is now an online form you can use (besides Adobe reader) that may work better (it certainly can’t work worse).

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

There are ridiculous penalties if you willfully fail to file an FBAR (half the balance in the account or $100,000 (per account), whichever is greater). Thus, as I said last year, just file the FBAR…timely.

Posted in Gambling, International | Tagged | 1 Comment

Arbitrage Is Legal, But You Better Pay the Taxes

Posted on June 21, 2015 by Russ

Let’s say you are 100% certain that the price of a certain article will increase from $0.20 to $0.62 in a few weeks. Can you purchase a stock of that at $0.20 each and then sell them later at $0.62? If there are no laws against it, certainly. Of course, the $0.42 profit is taxable. That last line allegedly was forgotten by a Tennessee legislator.

Joseph (Joe) Armstrong is a member of the Tennessee legislature. He wanted to increase the state’s tobacco tax from $0.20 to $0.60 (per pack of cigarettes). Was he interested in the health of the residents of the Volunteer State? Perhaps. According to the indictment handed down last week, he was really interested in the health of his bank balance.

The Justice Department alleges that he entered into a conspiracy to profit from the increase in the cost of a tobacco stamp. Buy low, sell high is great, but as a legislator you’re not supposed to profit off of it. (Though Mr. Armstrong wanted a tripling of the price, the tax increase ended up being $0.42 per pack to a tax of $0.62.) Mr. Armstrong got a loan, bought lots of tax stamps at the old rate, and then sold them at the high rate. He used a nominee business (through his accountant) to hide the profits. His accountant got 15% of the profits.

(The accountant made a plea deal in July 2014 that was unsealed earlier this year. Charles Stivers, a CPA, was Mr. Armstrong’s accountant. As a reminder to the IRS, a license doesn’t make a person immune to deficiencies in ethics.)

The Justice Department alleges that Mr. Armstrong wanted to both have his after-tax income equal his pre-tax income from the scheme (always a good, albeit, illegal option) and he wanted to hide this from his wife. He is also being charged with lying to the IRS about his activities.

Mr. Armstrong pleaded not guilty to all charges on Friday. If found guilty, Mr. Armstrong will likely be residing at ClubFed.

Posted in Tax Evasion, Tennessee | 1 Comment

Form 8300 and Poker

Posted on June 17, 2015 by Russ

I’ve posted before on staking, but someone asked me the following question:

I’m a professional [poker player] and am going to be staked for the High Roller One Drop Tournament [a $111,111 buy-in tournament]. I’m going to be handed the cash to enter the tournament. What do I need to do?

Besides the normal staking issues (see these articles), there’s another issue: cash reporting. If you’re a business and you receive a payment of $10,000 or more in cash or like funds (this would include casino chips but would not include a cashier’s check), you have a reporting requirement: You must file Form 8300 with the IRS.

A professional poker player is operating a business and is required to comply with the laws impacting businesses. This includes cash reporting requirements. You have 15 days from the date of the cash transaction to report it. This is done by either mailing Form 8300 to the IRS or by filing it electronically through the BSA efile website. Note that if you use the BSA efile system you will have to register (required for Form 8300 efiling).

Like most penalties related to the Bank Secrecy Act, the penalties are on the ridiculous side. While the Failure to File penalty is just $100, the Intentional Failure to File penalty is the greater of $25,000 or the amount of the cash transaction (to a maximum of $100,000).

The IRS does take questions regarding Form 8300. You can call the IRS at 866-270-0733 or email questions to 8300questions@irs.gov

Posted in Gambling, IRS | 1 Comment