Taxes Impacting the Giants

Posted on February 24, 2015 by Russ

The San Francisco Giants have been one of baseball’s more successful teams; they’re the current world champions. But they haven’t been as freewheeling in spending money as other teams. Their General Manager blames California taxes.

The top tax rate for California is 13.3%, and it kicks in at $1 million of income. As you can imagine, most major league baseball players earn far more than that. In an interview with Hank Schulman of the San Francisco Chronicle, GM Brian Sabean stated:

“To entice a free agent to come to San Francisco, we’re almost in an overpay situation, so why get involved in all those battles where you’re not going to be able to go up the totem pole money-wise?” Sabean said.

When asked to elaborate on why the Giants have to overpay, Sabean said, “You’ve got the state of California taxes.” …Asked if the high California income tax has been a problem for a while, Sabean said, “To a certain extent. Things now are getting more and more about the signing bonus, more and more about your take-home. Exponentially, when you get involved in some of those numbers, it makes a sizable difference to some.”

There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes. Jon Lester, this year’s biggest free agent signee, ended up with the Chicago Cubs. Illinois’ income tax is now down to 3.75%; that’s a lot lower than California. This may be good news for Cubs fans like me.

Posted in California, Illinois | Tagged | 1 Comment

“Ripping Off Your Refunds” In the Miami Herald

Posted on February 22, 2015 by Russ

There is an excellent article in the Miami Herald on the identity theft tax fraud crisis. The epicenter of this is South Florida (as noted in the article). I don’t have much to add to the frustrations of victims with the IRS’s conduct in these cases. One quote:

“The IRS call center person acted as if we were the ones who had done something wrong.”

Posted in Florida, Tax Fraud | Tagged | 1 Comment

Solely a Way to Go to ClubFed

Posted on February 22, 2015 by Russ

Until I became a tax professional I had never heard of a “Corporation Sole.” It’s a legal entity consisting of a single incorporated office, occupied by a single person. It’s a corporate structure used mainly for religions organizations so that office holders can have a successor for their office.

When used for a religious organization, a corporation sole doesn’t pay taxes. It has nothing to do with the corporation sole and everything to do with the fact that a church is a charitable (501(c)(3)) organization that generally doesn’t pay tax. Used properly, a corporation sole is a useful vehicle for churches.

Of course, where you and I wouldn’t go the bozo tax element quickly moves. Even though the IRS has warned about corporation soles since 2004, promoters still tried to sell the snake oil to the gullible. One such entity was Trioid International Group Inc. Trioid, here in nearby Henderson, currently markets itself as a company specializing in being a Nevada registered agent and will help individuals set up a Nevada corporation. That seems like a good, legal business (and it likely is).

However, a visit to the Internet wayback machine gives a very different picture of Trioid. Trioid was actively marketing corporation soles in 2005, and had this description of them:

Common law corporation soles are excluded from filing tax returns of any kind under a mandatory exception in the Internal Revenue Code pursuant United States Code, Title 26 §508(c)(1)(A) and there are no record keeping requirements which may be imposed by any taxing or revenue authority. Corporation soles are not required to make any application for this exclusion or exception and are not required to qualify under §501 (c)(3) as a “church”. In other words, the sole exists due to your natural right to freedom of belief and as such, there is no law respecting its establishment or operation which may impair it, including taxation. To tax the overseer is to tax the sole. The tax Code exception provides the corporation sole with the status of “nontaxpayer” in contradistinction to “taxpayer”. The federal courts have ruled that Congress makes no tax laws that apply to nontaxpayers!

The above paragraph is basically out-and-out tax fraud.

Helpfully to prosecutors, the names of the two individuals behind Trioid were in plain view on the web pages: Gerrit Timmerman and Carol Sing. They were indicted back in 2013 and were convicted on Friday of conspiracy to defraud the United States related to their promotion of a tax fraud scheme. They’ll likely get some time at ClubFed to think about what they did.

As always, the usual warning applies: If it sounds too good to be true, it probably is. If you use a corporation sole as a vehicle to avoid taxes, you’re heading down a road that leads to ClubFed.

Posted in Tax Fraud | Tagged | 1 Comment

Oops Gets Bigger

Posted on February 20, 2015 by Russ

Or, first California, now the United States.

Last week I reported on Cover California’s error impacting an estimated 100,000 individuals who received incorrect Form 1095-A’s. It turns out that was just the tip of the iceberg. As reported by AP:

About 800,000 HealthCare.gov customers got the wrong tax information from the government, the Obama administration said Friday, and officials are asking those affected to delay filing their 2014 returns.

This represents one-fifth of the Form 1095-A’s sent out by the federal exchange. That means there are a lot of people who can’t correctly file taxes until the corrected 1095-A’s are sent out. That should hapen in a couple of weeks but there’s an issue that’s implicit in the AP story: The government isn’t sure how the error happened. If that’s the case there’s an obvious question; how do you know that the ‘corrected’ 1095-A’s are correct?

Given that the majority of Americans would like to see ObamaCare go to the scrap heap, I’m sure these new revelations will inspire more confidence in the law. Given further that it is also quite likely that the majority of those who received subsidies for health care will have to repay some to all of the subsidy on their tax returns, I’m sure even more people will embrace ObamaCare….

Posted in IRS | Tagged | Comments Off on Oops Gets Bigger

Oops

Posted on February 16, 2015 by Russ

This past weekend I saw my first Form 1095-A. That’s the form that individuals covered by health insurance through a plan form an exchange will receive. In California, 800,000 of these were mailed. Unfortunately, 100,000 of these were wrong. Oops.

As reported by the Los Angeles Times, Covered California sent out the wrong forms:

Covered California said it sent incorrect information on some forms because its customer data didn’t match what health plans had on file.

For instance, there may have been a discrepancy for the person’s length of coverage in 2014 and amount of subsidy received.

Amy Palmer, an exchange spokeswoman, said the agency is reconciling that information and sending revised forms to the affected customers by later this month.

There’s another major issue here: No one knows which of the forms are correct until Covered California completes its review of all of the accounts. Heh, there’s only a 12.5% chance that any specific 1095-A is wrong….

And let’s give a huge demerit to Covered California’s webpages. One would think that if there’s a mistake impacting 12.5% of customers you would publicize it. That’s especially the case when this is a mistake that impacts these individuals when they file their tax returns. However, Covered California’s main webpage and its 1095-A page are both silent about this error.

No wonder customer dissatisfaction with ObamaCare remains high, and this is before many individuals discover that they’ll owe money on the advanced credits they received.

Posted in IRS | 2 Comments

IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Posted on February 13, 2015 by Russ

The IRS apparently figured out that under a literal reading of the new property/capitalization/depreciation regulations, every business would have to submit a Form 3115. The IRS determined that being buried under a tsunami of paper wasn’t a great idea. Today, the IRS announced in Revenue Procedure 2015-20 that a business which has under $10 million of average sales (for the last three years) or less than $10 million of assets (as of the beginning of their 2014 tax year) can use a simplified method for complying with the new property regulations.

I’ve done a quick read of the new Revenue Procedure. What I suspect we will have to do is attach a statement stating that the taxpayer is an eligible taxpayer under Revenue Procedure 2015-20, and has elected to follow this Revenue Procedure to come into compliance with the regulations. This will be far easier and far more palatable to most of my clients.

Posted in IRS | Tagged | 3 Comments

A Bipartisan Tax Bill? I’ll Drink to That!

Posted on February 11, 2015 by Russ

There hasn’t been much bipartisanship on Capitol Hill recently. But there is a piece of legislation that is being proposed by both Democrats and Republicans. It’s to end age discrimination against bourbon and whiskey.

You didn’t know that there was such discrimination? Well, it’s not at the liquor store; rather, it’s in the Tax Code. One of the fundamentals of accounting is to match expenses against revenue. The problem for bourbon and whiskey is that it must age, so the expenses must wait until the product is sold. As this article from the Louisville Courier-Journal notes, a bipartisan group of Kentucky and Tennessee Congressmen would like to change that. They would like bourbon and whiskey producers to be able to take their expenses as incurred.

We’ll have to wait and see if this measure gains any traction in Congress. If it does, bourbon producers will certainly be drinking up for the success.

Posted in Kentucky, Legislation, Tennessee | 2 Comments

10

Posted on February 9, 2015 by Russ

Today is the tenth anniversary of this blog. My very first post stated,

After reading Hugh Hewitt’s Blog, starting a blog for Clayton Financial and Tax became a necessity, not a project for “tomorrow” (whenever that is). There are already some excellent blogs covering taxes (see the blogroll on the right–if yours isn’t included, email me a link and I’ll add it on), but only the Leonard Letter looks at taxes from a California perspective. My goal is to focus on taxes and how they impact what we, as citizens and taxpayers, get to keep in our pockets.

Inevitably, this means that I have to look at the politics behind taxes. An example is a proposal currently in front of the city council of Los Angeles which would increase the sales tax from 8.25% to 8.75% (the proposal failed to make it on the ballot by one vote). If this proposal were to pass, then business would increase in nearby cities (e.g. Burbank) because prices would be less expensive than in North Hollywood (part of the City of Los Angeles). That’s a positive for Burbank, but a negative for Los Angeles. Additionally, if prices increase in Los Angeles (they would), then sales will decrease.

I’ll also be looking at humorous tax events. Tax cheats, tax evaders, and humorous taxes are all fair game. And if I get wind of a politician saying things like Linda Stubbs of Middleton, Ohio, you will hear about it.

Some things have changed: I’ve moved from the perfumed landscape of Orange County, California to the desert wastes of Las Vegas, Nevada. Clayton Financial and Tax has changed: From a one-person business there are now three of us. We have a second office in Bethesda, Maryland. Other things haven’t changed: The focus of this blog remains looking at taxes that impact our clients. That puts the focus on small business owners, professional gamblers, real estate owners, and others. I also try to write in a humorous way; taxes, after all, is about as a dry a subject as there is. (For anyone who has trouble sleeping, just pick up a volume of the Tax Code and start reading. You’ll be out like a light before you know it!) That’s why I write about bozo tax offenders.

I’m aiming to make the second ten years of this blog as fun to write as the first ten.

Posted in Taxable Talk | 1 Comment

Harassing IRS Agents Isn’t a Bright Idea

Posted on February 8, 2015 by Russ

Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime). Scott Bodley of Silver City, New Mexico apparently didn’t care.

Back in 2003 Mr. Bodley threatened to file liens on an IRS agent who was auditing his taxes. (Had he done so, those liens would have been quashed.) He quit his job in 2004 to stop an IRS levy. Then he filed false paperwork with employers so he wouldn’t have taxes withheld, claimed he was a sovereign citizen, and basically tried to avoid paying his taxes. His actions did work for a few years, but his luck ran out on Friday. That’s when he was convicted of 26 charges including harassing IRS agents, filing false tax returns, and tax evasion.

Mr. Bodley will be sentenced in May, and he’ll likely have some time at ClubFed to think about the reality that it’s always easier to just pay your taxes in the first place…but that somehow doesn’t enter the Bozo mind.

Posted in Tax Evasion | 1 Comment

Former NFL Player Alleged to Have Fumbled His Sales Tax Returns

Posted on February 8, 2015 by Russ

I’ve said repeatedly that if you want to get in trouble with the IRS, one of the easiest ways to do so is to collect payroll taxes but not remit them. Less frequently I’ve commented about state tax agencies and mentioned that they don’t like you collecting sales taxes and not remitting them. A former NFL player is accused of that and committing wage theft against his employees.

Sam Adams played in the NFL for 14 years with Seattle, Baltimore, Oakland, Buffalo, Cincinnati, and Denver. A defensive lineman, he has 44 sacks credited to him in his career and made the Pro Bowl three times. He and his CFO, Dana Sargent, now face 21 counts of theft and tax evasion. From the Affidavit of Probable Cause:

Adams and Sargent have not only made multiple attempts to evade tax liabilities resulting in a tax bill, as of January 21, 2015, of over $446,571.38, but have failed to pay employees their deserved wages, failed to pay the medical premiums promised to employees as part of their benefit packages, failed to remit the premiums withheld from employees’ paychecks for medical insurance and failed to pay into unemployment insurance for employees, resulting in liens by the Employee Security Department on each company. During the latter part of 2013 through January 2014, Adams’s and Sargent’s illegal actions have caused employees, through no fault of their own, to have countless insufficient fund checks that they were unable to cash which resulted in employees losing their housing, being unable to pay household bills, being unable to buy Christmas gifts and accruing thousands of dollars in unpaid medical bills for themselves and their families. Numerous wage complaints have been filed against Lincoln Plaza Athletic Club, LLC, West Seattle Athletic Club, LLC, Adams and Sargent. The Department of Labor has been involved in efforts to assist employees in getting their unpaid medical, dental and vision bills paid due to Adams and Sargent either failing to pay the premiums as promised in the employees’ compensation packages and/or deducting premiums from employees’ pay checks and failing to remit them to the insurance company.

There’s plenty more in the affidavit, including West Seattle Athletic Club closing and the next day a “new” business opening (West Seattle Club) opening. That club paid its first three sales tax returns and then decided not to. That’s a good way to get on a tax agency’s naughty list. Mr. Adams operates six athletic clubs in Oregon and Washington. After reading the indictment, I think it’s possible he won’t be operating any soon.

Posted in Sales Tax, Tax Evasion, Washington State | Comments Off on Former NFL Player Alleged to Have Fumbled His Sales Tax Returns