The “Joy” of 1959 Technology

May 13th, 2024

Clients of ours (call them John & Betty) just received their IRS refund.  It was off by $1,250, exactly the amount of an estimated tax payment they made.  They made that payment using IRS Direct Pay (and I saw their transaction receipt), so it wasn’t a question–as it often is–of whether or not the clients made that estimated payment.  Why didn’t the IRS see that estimated payment?

Betty made that estimated payment in early January, noting it was for the 2023 tax year.  She used her social security number, so she did everything correctly.  However, she didn’t reckon with the IRS’s antiquated technology: The main IRS computer system dates to 1959.

You read that correctly.  The main IRS computer system is likely older than most of the readers of this blog.

On John & Betty’s tax return, John’s name is listed first (along with his social security number).  Betty made that estimated tax payment using her name and her social security number.  “But my name is right on the tax return; why can’t the IRS match that payment with the return?”  There is no good answer to that question, but the correct answer is because the main IRS computer system dates to 1959 and cannot handle this.

There was another issue with their refund: they received no explanation of why their refund was short $1,250.  I explained to them that the refund is issued from one IRS office while the explanatory notice comes from a different IRS office; the notice can come four weeks before to four weeks after the refund.

“How do we get that refund?” Betty asked.  The only way is to call the IRS, explain the situation, and the IRS agent can verify that the estimated payment is sitting in Betty’s account and move it.  It will then process, with a second refund being issued (by check) with interest.  John asked, “We’ll really be paid interest on that?” I told them they will–interest works both ways–but that interest is taxable.

I told them to prevent this in the future they should use John’s social security number for making estimated payments.  They’ll do that this year.  But this exposes another issue: What should taxpayers do who sometimes file jointly ans sometimes file separately do?  There’s no good answer today for them (nor is there for taxpayers having marital issues); my current advice is to make estimated payments under each name/social security number but realize a phone call to the IRS will likely be needed after the return is filed and processed.  The long-term solution is for the IRS to have better technology.  That’s coming, but whether it will come soon is quite another question.

Surviving a Residency Audit

May 7th, 2024

A few years ago, one of my clients (call him Bob) moved from California to Nevada.  He then had a very large capital gain (but while a Nevada resident).  At the time, I advised him that a residency examination (audit) from California’s Franchise Tax Board (California’s income tax agency) was likely.  Bob’s audit just concluded with a “no change” letter being issued.  Why did he have a successful result?

1. Bob engaged with me prior to the move.  We discussed what he needed to do, the records he needed to keep, and things not to do after his move.  Bob listened, and (as noted below) kept his records.

2. Bob moved.  Seriously, the most important aspect of not being domiciled in the state you’ve been residing in is to establish a new domicile in another state.  That means actually moving!  Did Bob’s family all move with him, or were his children still attending schools in California?  Did Bob purchase a home (or rent a home)?  Did Bob either put his old home for sale or rent it out long-term?  Was Bob’s new home a real home, and a not a summer cottage?  The Franchise Tax Board has seen all the dodges you can imagine (and probably some you haven’t) in moving without moving.  The key aspect is to really move.  Bob did.

3. Do all the little things.  Bob changed his addresses with his financial institutions, registered to vote in Nevada, obtained new Nevada driver’s licenses and registered his cars as quickly as possible; he and his family divorced themselves from California.

4. Keep your records!  Bob kept all the records that were needed: the contract with his movers, his lease of his new home, the sales contract for his old (California) home, etc.  Digital (electronic) copies are just fine (but they need to be accessible and, depending on the tax agency, you may need to print them all out).

5. Cooperate with the auditor.  The auditor is doing his job, and if you treat them well and send everything as requested, you will likely get a better result than when you don’t cooperate.

6. Realize a residency audit might happen years after your move.  Bob’s residency audit occurred over two years after he filed the tax return noting the move.  That’s typical for California.  (I’ve only dealt with a residency audit from one other state, New York, and that also occurred two years after the return was filed.)  California’s statute of limitations is four years from due date or date of filing (whichever is later).  We recommend you keep your tax records for seven years (from the year in question); if you’re filing a California return, we recommend nine years (California’s extended statute of limitations is eight years; the IRS’s extended statute is six years).

7. A residency audit will take some time to resolve.  Bob’s residency audit ended six months after it began–about what I expected.  Residency audits involve the auditor reviewing records, and the more records you have the longer it will take.  And you want to have all the records.

8. If you’re going to have a large capital gain after moving, try to make sure the gain occurs as far after the move as possible.  Let’s say that today (May 7th) you’re moving from New York to Florida.  You then sell some stock for a $30 million capital gain.  Ideally, you would want that sale to be as late as possible after the move (not the next day).  In Bob’s case, that time period was supposed to be weeks after the move but ended up being just days after.  Bob still survived the audit–because he really did move when he said he did.  The more time between the move and the gain, the less likely a residency audit; the best audits are the ones that don’t happen.

9. Try to stay out of your old state after the move.  Bob kept out of California after his move to Nevada in the tax year in question (except for one trip related to the sale of his old home).  If you’re spending all your time in your new state and not your old state, it reinforces that you have established a new domicile.


If you have a high income and you move from a high-tax state (such as California or New York) to a low-tax state (such as Nevada or Florida), you should expect a residency audit.  If you prepare in advance for it–and you really moved–you can end up with a no change result.

An Identity Protection Unit Saga: Part 6

April 22nd, 2024

When last we left the saga of my client and his tax year 2020 refund, we were waiting for a call from the Taxpayer Advocate Office.  Well, we received the callback and my client’s refund check was issued last Friday.  Post Office willing, it should reach him in Arkansas sometime this week.

As for the Taxpayer Advocate, once I spoke with them they were (as I’ve found in the past) extremely helpful in getting this resolved. Indeed, I don’t think this could have been resolved without their assistance.  It turns out that my client’s return needed two special processes run in order to be processed and the refund issued.  That took about three months (once the Taxpayer Advocate Office was involved).  Unfortunately, all of us (as taxpayers) are paying for this: my client is receiving nearly $5,000 of interest on his refund.

Let’s examine how this could have been prevented:

1. The IRS could have had better instructions on verifying your identity.  When my client verified his identity with ID.me, he thought he had completed the process; after all, he had verified his identity.  My client was not alone in this; the IRS later changed the instructions about verifying your identity to note that you still need to verify your identity with the IRS.

2. Follow-up Letters from the Identity Protection Unit.  The IRS should send out a second letter six months after the first letter to those who have not yet verified their identity.  My client likely would have called or messaged me about this, and I would have let him know that he did have to go through the verification process with the IRS.

3. More IRS employees trained and working at the Identity Protection Unit.  Calling the IRS’s Identity Protection Unit is a saga in itself; too many times you will get the message, “We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time. Goodbye.”

4. Better training of Identity Protection Unit employees. As noted in Part 3, many of these employees seem to regard tax professionals with POAs as non-persons.

5. The IRS should send letters from the Identity Protection Unit to IRS Power of Attorney (and Tax Information Authorization) representatives–especially for those who reside outside the United States.  Mail in the US is generally reliable; mail outside the United States can be hit and miss (or miss and miss).  A client of mine living in Central America recently received an Identity Protection Unit letter; it only took seven months to get to her.  As a reminder to the IRS, the taxpayer in this situation has authorized his or her tax professional to be notified (and, in the case of a Power of Attorney, to act on behalf of the taxpayer).  The IRS’s refusal to copy tax professionals on Identity Protection Unit letters is a major cause of problems.

6. Better IRS computer systems.  This is not something that the IRS can really control, but hopefully the computer improvements that are coming will assist in this area (it certainly can’t hurt).

7. Acknowledgments and more realistic time-frames from the Taxpayer Advocate Office. The representative I dealt with is buried; he told me that the four months it took for him to get to my client’s case was “typical.”  The intake individuals at the Advocate need to be aware of this and communicate this to people who are obtaining the Advocate’s services.


Finally, let’s consider Joe and Mary Doe.  As I wrote in part 4,

They desperately need their $20,000 tax refund…and they’re stuck in limbo. If they did exactly what Mr. Smith did, they would have done everything correctly…and be stuck in limbo. If you wonder why there’s frustration with the IRS, and why members of Congress have IRS liaisons, look no further.

I wish I could tell you with certainty that things with the Identity Protection Unit will improve in the future. I think they will, but some of these issues appear systemic; it will take top-down changes at the IRS to cause improvements in this area.  We can always hope.

Previous posts on this:

An Identity Protection Unit Saga: Part 1
An Identity Protection Unit Saga: Part 2
An Identity Protection Unit Saga: Part 3
An Identity Protection Unit Saga: Part 4
An Identity Protection Unit Saga: Part 5

Bozo Tax Tip #1: Use a Bozo Tax Professional!

April 12th, 2024

The IRS recently highlighted that taxpayers should choose tax professionals wisely; I agree.  I’ve had this as a Bozo Tax Tip in the past, but a new client highlighted this issue for me.  In the previous iteration of this “tip,” I noted:

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.

Well, it’s apparent there are some new strategies in this area (well, at least new to me).  Julie (not her name) came to me this year because something struck her wrong about her former tax professional.  She was in the waiting room and overheard the following:

“Yes, we guarantee that every client will get a refund of at least $2,000.”

Bluntly, that’s impossible.  Our job as tax professionals is to make sure your return is complete and accurate, and that your tax is the least that’s legally possible.  For most, a refund means your withholding and/or estimated payments exceeded your tax.  (Various tax credits–the Earned Income Credit and certain energy efficiency credits among them–can also cause tax refunds.)  A refund might not be a great thing; most of the time, it means you’ve given an interest-free loan to the government.  But Julie’s former tax professional wasn’t done.

“My clients never get audited–it’s a near guarantee.”

Julie knew that was wrong because her parents were randomly selected for an IRS research examination (audit).  The IRS conducts 5,000 to 10,000 of these each year; everyone has a chance of being selected.  (Over my 25-year career as a tax professional, I’ve had four clients selected for these kinds of audits.)  The IRS also conducts research audits into various professions; for example, they recently looked at employees in Las Vegas who worked at the clubs located in the major casinos.  (And given that tax professional’s guarantees, I suspect many of his clients will be audited in the future not on a random basis.)

Julie had enough and left–but there was one other thing she didn’t know (until I showed her this on her return from last year): She had used a “ghost” tax professional.  At the bottom of page two of Form 1040 is a place for a tax professional’s information (his or her firm name, address, phone number, Employer Identification Number (EIN), and the tax professional’s PTIN–the Preparer Tax Identification Number); on her return, that information was blank.

Don’t be a bozo.  If you use a tax professional, use an ethical preparer.  You may pay more and get a lesser refund, but you will rest a lot easier.


That’s it for the Bozo Tax Tips for the 2024 Tax Season.  We’ll be back with normal posting soon.

Bozo Tax Tip #2: Withhold, but Don’t Remit, Your Employment Taxes!

April 11th, 2024

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?


The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

Bozo Tax Tip #3: Publicize Your Tax Crimes on Social Media!

April 10th, 2024

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

Bozo Tax Tip #4: The $0.68 Solution

April 9th, 2024

With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.

Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).

So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 15th), and you’ve just committed a Bozo act.

If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $4.40 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.

About fourteen years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.

Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $4.40! And you can go all out and spend $3.65 and get a return receipt, too (though you can now track certified mail online). For another $2.32 you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”

Bozo Tax Tip #5: Procrastinate!

April 8th, 2024

Today is April 8th. The tax deadline is just seven days away.

What happens if you wake up and it’s April 15, 2024, 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, 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 the extension form 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 May 18th? 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.

NOTE: If you reside in a federally declared disaster zone, you have an automatic extension of time to file and pay. If you reside in Maine or Massachusetts, your tax deadline is Wednesday, April 17th.

Bozo Tax Tip #6: My Business Is Online So I Don’t Have to File State Taxes!

April 5th, 2024

Ralph (not his real name) formed a virtual business–a quite common activity these days.  Perhaps he sells products (using Amazon or another large fulfillment company to do the actual movement of goods), or maybe he has a consulting practice or other service without a “real” office.  Ralph resides in Denver, Colorado.   His business is a Limited Liability Company formed in Colorado.

Ralph was not pleased to find that his LLC needed to file Colorado returns.  He has employees–one in New York, one in Fresno–so he has to file New York and California tax returns, too, for the LLC; many states have a rule that if you have one employee you’re doing business in that state.  Ralph’s doing a lot of business, too; he may have sales tax filing requirements in many states.  You ignore state taxes at your own peril.

Now, it is possible to not have a state tax filing requirement for a business.  My business (which is an LLC) is 100% in Nevada, a state with no state income tax.  We do file payroll tax returns with the Nevada Department of Taxation, and we also are required to file a Use Tax return, but Nevada has chosen not to have many taxes that other states do have.  That’s a legal way around state taxation at the business level.

Ralph didn’t like what I told him, and he’s not a client.  He will find out sooner or later that ignoring state tax filing requirements is definitely a Bozo choice.

Bozo Tax Tip #7: Anger Your Tax Professional!

April 4th, 2024

If you are a tax professional living in Las Vegas, and you’re interested in working for me for the 2025 Tax Season (2024 tax returns filed in 2025)–or you are in Las Vegas and you’re interested in becoming a tax professional–we may have an opening for you.  So why am I starting a post in regards to Bozo Tax Tips with my possibly expanding my staff for 2025?

The reason is the “Great Resignation.”  The tax professional community skews older in age: I saw a statistic that the average age of a tax professional is 57 1/2.  Finding good tax professionals is not easy (indeed, hiring in any profession isn’t easy), and I’m blessed to have the staff that I do.

From February 1st through the date this post is being written (March 10th), I have been averaging over an inquiry a day into using our services.  Indeed, my next available appointments are in May!  From talks with my friends in the business, they’re seeing the same things: not enough staff, and demand through the roof.

This equates to a seller’s market.  Our rates have increased over the last few years (and will likely increase for next year).  The law of supply and demand holds in every industry: if supply decreases and demand increases, prices go up.  Yes, you’re going to pay more.

So let’s get back to the title of this post: angering your tax professional.  Those who have met me know my salt and pepper hair is now mostly salt.  I enjoy what I do, but I do not enjoy (and have never enjoyed) dealing with misanthropes.  Given the high demand, your tax professional almost certainly feels the same way.  Every year, tax professionals send letters to clients who are about to become former clients because they’re either no longer a fit for them or the tax professional cannot make a profit from them (because they require too much time or will not pay what the tax professional believes to be a fair price).  I’ve sent these in the past, but I never enjoy doing that.  I’m vowing to send some at year-end unless conditions radically change.

The average tax professional is very stressed out.  Dealing with the IRS has been a disaster for the last few years.  The pandemic hasn’t helped in any way.  Congress (and the IRS) have added new regulations and forms (e.g. Schedules K-2/K-3) that add tremendous busy work with little gain.  My Office Manager recently saw me blow up (and I rarely do that).  I have marked a client that he is getting a “Dear Former Valued Client” at year-end because of what he put me through.  (I’d like to send one to Congress, too, but I can’t do that.)

So do not anger your tax professional…unless you want to find a new one.