Answering to a Higher Authority

August 10th, 2022

Robert Brockman, the 2020 Tax Offender of the Year, passed away last weekend.  Mr. Brockman was facing a 39-count indictment for tax fraud and related charges; his trial was set for this coming February.  Mr. Brockman’s attorneys argued that he was incompetent to stand trial due to dementia; however, the judge had ruled him competent.  The criminal case is now moot—Mr. Brockman is answering to a higher authority; the civil case will continue against his estate (the IRS attempting to obtain back taxes, penalties, and interest).

My condolences to his family.

Do IRS Employees Know the Postmark Rule?

July 22nd, 2022

So what’s the postmark rule?  The IRS notes this on their website:

Your return is considered filed on time if the envelope is properly addressed, has enough postage, is postmarked, and is deposited in the mail by the due date. If you file electronically, the date and time in your time zone when your return is transmitted controls whether your return is filed timely.

Of course, the IRS website doesn’t govern; the Tax Code and regulations promulgated under the Code do.  And here the IRS website exactly matches the law under IRC Section 7502 and 26 CFR § 301.7502-1.  So why aren’t IRS employees aware of this rule?  Let me first explain why I’m asking.

We normally file business return extensions electronically.  However, every year there are a few that must be paper-filed (mailed to the IRS).  On March 11th we mailed an extension for an S-Corporation (call it Acme).  The IRS had yet to process Acme’s S-Corporation election paperwork; when I attempted to e-file the extension, it failed.  So we mailed it certified mail, return receipt to the IRS on March 11th; it was received at the IRS in Ogden, Utah on March 17th.  This past week, Acme received a letter from the IRS stating we cannot accept your extension because it was filed after the deadline.

The owner of Acme was, of course, upset with me until he saw that I did file the extension timely; eventually the extension will end up being valid.  But (a) I had to waste time on a conversation with the owner of Acme, (b) the IRS wasted time and money in sending out the notice, and (c) will waste additional time removing the penalty and noting the extension was timely filed.

And I’m not alone in having clients impacted by this.  On Twitter, another tax professional noted he’s been receiving a “steady stream” of notices denying extensions for business returns.  Why has this happened?

I can only think of two reasons: either the IRS is separating envelopes from extensions (so that the IRS employee processing the mailed extension has no idea when it was mailed and only knows the receipt date) or the IRS employee processing the extensions aren’t aware of the rule.  Neither of these reasons is acceptable, but it appears that’s the reality today.

What does this mean for taxpayers?  First, you must use certified mail, return receipt requested in sending anything to the IRS (or any other tax agency) by mail.  Yes, my envelope mailed on March 11th from Las Vegas should have made it to Ogden by the 15th (it’s about a 6 1/2 hour drive from my office) but it didn’t.  Because I have proof of the postmark there won’t be any issues (in the long run).  Had I not mailed it certified mail, there would be no proof.  Given current IRS practices, this is essential.  Second, where possible e-file.  With electronic filing, there’s absolute proof of the date and time of filing.

When Bad Recordkeeping Helps You (And Bad News for Some Canadian Professional Poker Players)

July 18th, 2022

As we previously reported, the Canada Revenue Agency (CRA) thought that Jonathan Duhamel, the winner of the Main Event of the World Series of Poker (WSOP) in 2010 was a professional gambler, and that he conducted himself as a professional gambler.  Thus, his gambling winnings should be subject to Canadian income tax.  Mr. Duhamel argued that poker is a game of chance and not subject to tax in Canada, and that even if it were a game of skill Mr. Duhamel did not conduct himself as a professional poker player.  The case was tried in front of the Tax Court of Canada last November, and a decision was released late last month.  (I am indebted to a friend of mine who speaks French for translating the key points of the decision — his translation runs 40 pages.)

The evidence as presented to the court showed that Mr. Duhamel was bad at recordkeeping.  He apparently only kept track of his tournament results, and never tracked cash games (even though he played lots of cash games).  For a Canadian who doesn’t want to be considered a professional gambler, bad recordkeeping appears to be a plus as this was a factor that influenced the court.

(Of course, if you are an American—and this blog caters to Americans—a warning is needed.  Bad recordkeeping is not what you want to do as either an amateur or a professional gambler in the United States.  All gamblers in the United States must pay tax on their winnings, and a gambling log is a must.  But I digress….)

The Court noted (as translated) [1]:

Because the evidence shows that chance is a very important element in poker game results, that Mr. Duhamel’s poker game activities do not demonstrate an ability to generate profits, that the probability Mr. Duhamel’s ruin in his poker gambling business is well over 50% (but less than 87%), that Mr. Duhamel does not act like a serious businessman in his poker gaming activities, that Mr. Duhamel has not developed any system for managing or mitigating risks in connection with his poker gaming activities and that the financial results of his tournaments do not show any consistency or progress in the results, the Court concludes, on a balance of probabilities, that Mr. Duhamel’s poker gaming activities are not carried on in a sufficiently commercial manner to constitute a source of business income for the purposes of the Act. Accordingly, the net earnings from Mr. Duhamel’s poker gaming activities should not be included in the calculation of his income under sections 3 and 9 for the 2010, 2011 and 2012 taxation years.

The court looked at the activities of Mr. Duhamel, and found that he acted as an amateur; for Mr. Duhamel, this decision is excellent news.  Mr. Duhamel won in part because he didn’t act like he was in business.

However, there is bad news implicit in this decision for some Canadian professional poker players:  It’s clear that there are Canadian poker players who consistently make their living from poker, and who would likely be considered professional gamblers if the CRA were to look at their activities.  I don’t practice in Canada, but I would advise any Canadian professional poker player to seek advice from a Canadian tax professional who understands gambling activities and this decision.

 

[1] This paragraph in French reads, “Puisqu’il ressort de la preuve que le hasard est un élément très important dans les résultats au jeu de poker, que les activités de jeu de poker de M. Duhamel ne démontrent pas une capacité de générer des profits, que la probabilité de ruine de M. Duhamel dans le cadre de ses activités de jeu de poker est bien supérieure à 50 % (mais inférieure à 87 %), que M. Duhamel n’agit pas comme un homme d’affaires sérieux dans le cadre de ses activités de jeu de poker, que M. Duhamel n’a mis au point aucun système de gestion ou d’atténuation des risques dans le cadre de ses activités de jeu de poker et que les résultats financiers de ses tournois ne démontrent aucune constance ni progression dans les résultats, la Cour conclut, selon la prépondérance des probabilités, que les activités de jeu de poker de M. Duhamel ne sont pas exercées de manière suffisamment commerciale pour constituer une source de revenu d’entreprise aux fins de la Loi. Conséquemment, les gains nets tirés des activités de jeu de poker de M. Duhamel ne doivent pas être inclus dans le calcul de son revenu aux termes des articles 3 et 9 pour les années d’imposition 2010, 2011 et 2012.”

The Real Winners of the 2022 World Series of Poker

July 17th, 2022

Yesterday afternoon, the 2022 Main Event of the World Series of Poker concluded. First, congratulations to Caesars for putting on a mostly great series at the Paris and Bally’s casinos on the Strip. This was the first year the events ran on the Strip (previously, they were held at the Rio Casino about one mile west of the Strip), and the events attracted near-record crowds.

This year, the Main Event had 8,663 entrants, each ponying up $10,000. The prize pool was $80,782,475 (the difference is the funds kept by Caesars for running the event). We focus on the final table of ten, but 1,300 of the 8,663 received winnings from the prize pool; a minimum cash was worth $15,000. The winner received a whopping $10 million…but that’s before taxes.

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Epsen Uhlen Jorstad, a professional poker player and a native of Norway now residing in London. On the final hand, Mr. Jorstad flopped three of a kind (holding Q-2 in his hand, with the flop being 4-2-2). Adrian Attenborough, the second place finisher, flopped top pair (holding J-4); in heads-up play, any pair is usually a good hand. This was definitely not the case this time, with the 8 on the turn changing nothing. The river Queen gave Mr. Jorstad a full house, and when Mr. Attenborough called Mr. Jorstad’s river all-in bet, we had a winner. Mr. Jorstad is a popular poker streamer on Twitch, and he’s also an instructor at the Run It Once poker training site. Mr. Jorstad’s first place prize of $10 million will be his—just his—to enjoy. Had he still resided in Norway, he’d be looking at 39% vanishing in taxes. However, as a resident of the United Kingdom he benefits first from the tax treaty between the United States and the United Kingdom; gambling winnings are exempt. He also benefits from how gambling is taxed in the United Kingdom, or rather, how it’s not taxed. Yes, the U.K. doesn’t tax gambling.

In second place was the aforementioned Mr. Attenborough. A native of Australia, Mr. Attenborough, now resides here in Las Vegas. A professional poker player, Mr. Attenborough will owe US income tax and self-employment tax. Of his $6 million in winnings, I estimate he’ll have to fork over $2,388,875 to the IRS; his actual winnings after taxes are an estimated $3,611,125. State income taxes are a non-issue for Mr. Attenborough: Nevada doesn’t have a state income tax.

In third place was Michael Duek winning $4 million. Mr. Duek resides in Fort Lauderdale, Florida but is a native of Argentina. Mr. Duek, a professional poker player who focuses on pot-limit Omaha, decided to enter the Main Event (the event plays no-limit hold’em). It was an excellent decision, and of his $4 million third-place prize he’ll end up paying an estimated $1,593,064 in tax to the IRS (like Nevada, Florida doesn’t have state income tax) and keep $2,406,936 of his winnings.

John Eames, of Southport in the United Kingdom, finished fourth for $3 million. Mr. Eames is another professional poker player who benefits from the US-UK tax treaty and the United Kingdom’s 0% rate of taxation on gambling. Yes, Mr. Eames gets to keep all of his $3 million.

Finishing in fifth place for $2,250,000 was Matija Dobric of Slatina, Croatia. Mr. Dobric, a professional poker player who mostly plays online, finished 32nd in the 2021 Main Event and bested that this year. The United States and Croatia have just completed negotiating a tax treaty, but it’s definitely not in place today. That means that 30% of Mr. Dobric’s winnings ($675,000) will be withheld and remitted to the IRS. Croatia does tax gambling, but with a maximum tax rate of 30% it is likely that Mr. Dobric won’t owe anything to Croatia: he should be able to take a tax credit on his Croatian tax return to avoid double-taxation of his income. Thus, he should be able to enjoy his $1,575,000 of after-tax winnings.

The sixth place finisher was the first of two amateur poker players at the final table. Jeffrey Farnes, of Dallas, Oregon (near Oregon’s state capital of Salem) ended in sixth place for $1,750,000. As a non-professional poker player, he avoids self-employment tax. However, as a resident of Oregon he owes state income tax on his worldwide income. I estimate he’ll only get to keep $950,312 of his winnings, with $621,968 going to the IRS and $177,720 to the Oregon Department of Revenue.

The other amateur gambler, Aaron Duczak of Kamloops, Canada (in British Columbia) finished in seventh place for $1,350,000. The US-Canada Tax Treaty specifies that Canadians face 30% withholding on their gambling winnings but can get some of this back based on gambling losses. It appears that based on the recent Tax Court of Canada decision in Duhamel c. La Reine that some professional gamblers in Canada will owe Canadian income tax. (Mr. Duhamel, who won the 2010 Main Event, was held to be an amateur gambler in that decision (decision in French); however, it’s clear from the decision that Quebec law would allow for taxation of some professional poker players.) But Mr. Duczak isn’t a professional gambler, so the only tax he’ll owe is the $405,000 withheld to the IRS (he’ll keep the other $945,000).

In eighth place was Phillipe Souki of London. The French professional also moved to the United Kingdom to avoid French taxation. His eighth place finish was worth $1,075,000 and he gets to keep all of it. Had he stayed in France, he’d owe an estimated 47.5% in tax. That’s about 510,000 reasons to be in London rather than Paris.

The ninth place finisher was Matthew Su. A professional poker player residing in Washington, DC, he didn’t have much luck at the final table when his pair of Queens lost to an opponent’s pair of nines. Finishing ninth earned Mr. Su $850,675. That’s before taxes, and Mr. Su will owe an estimated 47.70% of his winnings to tax: $332,898 to the IRS and $72,856 to the District of Columbia’s Office of Tax and Revenue (leaving Mr. Su with just $444,921).

This year, ten players made the final table rather than the usual nine. Day 7 of the Main Event ran so long that the WSOP stopped play with ten left. Finishing tenth was Asher Conniff of Brooklyn, New York. Mr. Conniff’s final table appearance did not last long. On one of the first hands, he went all-in with a pair of tens versus his opponent’s Ace-King. That’s a classic “flip” (a nearly 50% chance for either player to win), but after the flop of three Kings Mr. Conniff was “drawing dead” (he could not win the hand). A professional poker player, Mr. Conniff’s winnings of $675,000 face the highest marginal tax rate of any of the final ten players: 48.21%. I estimate that Mr. Conniff will only keep $349,598 of his winnings, with $253,733 going to the IRS and $71,669 headed to the New York Department of Taxation and Finance.

Here’s a table summarizing the tax bite:

Amount won at Final Table $30,950,675
Tax to IRS $6,270,538
Tax to Oregon Department of Revenue $177,720
Tax to D.C. Office of Tax and Revenue $72,856
Tax to New York Dept. of Taxation and Finance $71,669
Total Tax $5,512,783

That means 17.81% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Epsen Jorstad $10,000,000 $10,000,000
2. Adrian Attenborough $6,000,000 $3,611,125
4. John Eames $3,000,000 $3,000,000
3. Michael Duek $4,000,000 $2,406,936
5. Matija Dobric $2,250,000 $1,575,000
8. Phillipe Souki $1,075,000 $1,075,000
6. Jeffrey Farnes $1,750,000 $950,312
7. Aaron Duczak $1,350,000 $945,000
9. Matthew Su $850,675 $444,921
10. Asher Conniff $675,000 $349,598
Totals $30,950,675 $24,357,892

Once Again, players residing in the United Kingdom ended up finishing higher than their actual results (based on after-tax winnings). Both Mr. Eames and Mr. Souki get to enjoy more of their winnings based on the favorable tax regime of Britain. Someone recently asked me why don’t American poker professionals all move to the UK? Ignoring immigration law, the problem is that Americans pay tax on their worldwide income even if they reside outside the United States (subject to tax treaties and the foreign tax credit to avoid double taxation). An American residing in the U.K. would still owe tax to the IRS on their gambling winnings.

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in third place (based on pre-tax prizes). With three winners exempt from US taxation, the IRS didn’t rack in its usual haul. Tax agencies are left with “only” $5.5 million of the nearly $31 million awarded at the final table. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

Is It One Penalty of $10,000 or Multiple Penalties of $10,000?

June 21st, 2022

Suppose you are a resident of a foreign country–say, Romania–and you have foreign financial accounts.  You need to file the FBAR (Report of Foreign Bank and Financial Accounts) to tell the Financial Crimes Enforcement Network (FINCEN) what foreign accounts you have.  There is no tax due; however, there are substantial penalties for not filing the FBAR.  The penalty for willfully not filing the form starts at $100,000 per account.  The non-willful penalty is up to $10,000.

But a questions is unanswered regarding the non-willful penalty: Is the penalty per account that is not reported or per form that is not reported?  The Fifth Circuit Court of Appeals has held that it’s per foreign account; the Ninth Circuit Court of Appeals has held it’s per form.  This can make a huge difference (as you might imagine).

Alexandru Bittner failed to file his FBARs.  His violation was held to be non-willful.  He’s in the Fifth Circuit (he resides in Texas); he was assessed a penalty of $2.7 million.  Had Mr. Bittner resided in Nevada, he would have been fined $50,000.  That’s a difference of $2.65 Million, surely a large enough difference to file a petition for certiorari.

The Supreme Court doesn’t take many tax related cases.  Almost all of them relate to circuit conflicts such as this one.  Indeed, one of the primary purposes of the Supreme Court is to make sure that federal law is uniform among the states.  The Supreme Court granted certiorari this morning; the case will likely be heard late this year with a decision probably coming in early 2023.  At that point in time, we’ll know whether the non-willful penalty is based on accounts or forms.

One reminder to everyone: If you have an FBAR filing requirement, just file the form (including all of your accounts) and you avoid all these penalties.  I’d much prefer paying no fine at all then paying $50,000 (or $2.7 million).  The FBAR deadline coincides with the tax filing deadline (with an automatic extension to October 15th).

Case: Bittner v. United States

Standard Mileage Rate Increases Beginning July 1st

June 9th, 2022

The IRS announced today that the standard mileage rate for the second half of 2022 will be $0.625/mile, up from $0.585/mile.  As the IRS notes:

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2022. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. For travel from Jan. 1 through June 30, 2022, taxpayers should use the rates set forth in Notice 2022-03.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Chuck Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

If you use the standard mileage rate, you will need to correctly report your business mileage for each half of the year.  I strongly suggest you take a picture of your odometer at the end of the day on June 30th (or the beginning of the day on July 1st) and email that to yourself so you can prove to the IRS your total mileage for each half of the year.

The official IRS Announcement is here.

Contributing to the IRS’s Paper Backlog

May 20th, 2022

A client of ours has filed Form 2553 three times to elect S-Corporation status.  The first time, his attorney sent the form to the IRS.  The second time, my client mailed the form (right before the pandemic began).  The third time, I faxed the form (now 13 months ago).  As of today, the IRS has not processed the request.  On Twitter, a fellow tax professional noted it took 22 months for his client’s Form 2553 to be processed.

Yesterday, I called the IRS up to see if the S-Corporation election had been processed (I have a Power of Attorney for the entity).  It has not been.  The IRS agent told me that the 2020 tax return for the client also had not been processed, and it should be resent along with another copy of the Form 2553.

I checked with my client; he timely mailed the 2020 tax return and has proof of receipt (he sent it certified mail, return receipt requested).  We decided not to resend the tax return because it’s currently taking the IRS months to open their mail.  The IRS Agent told me, “If it had been sent in September it would show up in our system by now.”  Based on the testimony of IRS Taxpayer Advocate Erin Collins, that’s simply not the case.  Until the return has been processed, it doesn’t show in the IRS computer system at all.  I decided not to argue with the IRS Agent I spoke to, but he might want to read his own website:

The IRS is opening mail within normal timeframes and all paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review.

As of May 6, 2022, we had 9.8 million unprocessed individual returns which include returns received before 2022, and new tax year 2021 returns. Of these, 2.6 million returns require error correction or other special handling, and 7.2 million are paper returns waiting to be reviewed and processed.  [emphasis added]

This is straight from the IRS’s “Operations Page During Covid-19,” and it was updated on May 17, 2022.  It is extremely likely (if not certain) that my client’s 2020 S-Corporation return is simply sitting in a bin in Ogden, Utah waiting for its turn in the queue.  Sending a second return would only cause other problems.  Given current IRS processing times for paper returns–about one year–if the return hasn’t been processed by late October we’ll check with the IRS and perhaps then send another copy of the return.

In any case, my client will be heading to the Post Office this morning to mail Form 2553 to the IRS.  I’m not holding my breath on it being processed quickly, but miracles do occur.

Depressing

May 5th, 2022

TIGTA (the Treasury Inspector General for Tax Administration) came out this morning with its interim report on the 2022 Tax Filing Season.  I would love to report statistics that make me feel warm and fuzzy; instead, we’re left with more of the same: lots and lots of items sitting around in bins (both virtual and real).

One of the major issues the IRS has faced is hiring.  TIGTA allows us to give numbers to the IRS issues.  On the good side, the IRS has “onboarded” (aka hired) 3,827 Accounts Management employees out of a goal of 5,000 (76.5% of the goal).  However, the IRS hired just 521 Submission Processing employees out of its goal of 5,473 (9.5%).

The backlogs of returns remain.  Here is Figure 3 from the TIGTA report (click on the figure for a larger version):

Work Remaining to be Processed

This is depressing, and I am not changing my estimates of how long paper will take to be processed by the IRS.  If you submit a paper-filed tax return, expect it to take one year to be processed.  If you submit a paper-filed amended return, expect it to take 18 months (1.5 years) to be processed.  If your electronically filed return is unlucky enough to go through Error Resolution, Rejects, or Unpostables (which does not mean you did anything wrong), you’re looking at an average delay of four months.

The report briefly touches on the delays with IRS Account Management functions.  I’m telling clients that when a response is sent to an IRS notice, expect it to take six months to receive the response back from the IRS.  My oldest case is going on three years–it involves a C-Corporation return incorrectly processed as an S-Corporation.  The client owes tax but cannot pay it because it will be sent back to the corporation until the IRS fixes the problem!  (Yes, that has already happened.)  The file has been sent back and forth two times between the IRS offices in Ogden and Cincinnati, and I have no idea when this will be resolved.  We think this case is getting closer–the last two “we need more time” notices have noted the corporation is a C-Corporation (but I’m not holding my breath).  But I digress….

The IRS’s ability to answer telephone calls also remains poor.  The IRS says they answered 19.5% of net calls with a 24 minute average wait.  Recently, the Taxpayer Advocate said that it was about 5% of calls that were answered.  No matter, neither statistic is good, and improvement is desperately needed.

There was one bright spot: The IRS is finding more Identity Theft returns (confirmed fraudulent returns); so far in 2022, they have found 9,626 versus 2,499 found in 2021.  The IRS stopped $807.9 million of fraudulent returns this year versus $12.6 million in 2021.

The conclusions of this report are obvious.  If at all possible, efile your return.  If you do have to mail something to the IRS, bring patience (a whole lot of patience).  And if you’re Commissioner Rettig and you’re stating “everything will be cleared up by year-end,” let’s just say I hope you’re right but I really, really doubt it.

2022 Tax Season: The Tax Season From Hell (Part 2)

May 4th, 2022

In Part 1 of this series we looked at what went wrong with the IRS.  (That post might have been shorter if I had written what went right.)  Today, let’s look at what should be done by Congress and the IRS to fix this mess.

1. Simplify the Tax Code.  Our Tax Code is a mess.  It is far, far too complex.  Most tax professionals now prepare returns for the proverbial husband, wife, 2.2 children living a relatively simple, straightforward life because they cannot do their own taxes due to the complexity!  Congress should (a) pass simplification, not complexity and (b) stop making the IRS a benefits agency (which it isn’t).  Unfortunately, there is no chance of anything like this coming from this Administration.

2. IRS Needs to Stop Stupid Make-Work.  As I noted in Part 1, the Schedule K-2/K-3 regulations on purely domestic partnerships with no foreign operations are a perfect example of this.  There’s no reason for this.  Unfortunately, I have seen no signs of the IRS understanding tax professionals’ needs over the past few years and I have significant doubts of anything like this happening in the near future.

3. Get IRS Employees Back in the Office. One of the things that has led to the massive amounts of paperwork sitting in bins is that IRS employees are still not fully back at their offices.  The IRS announced that all employees will be back in their offices by June 30th.  Here, it’s time for me to give kudos to the IRS for resolving one of the factors that has led to issues.

4. Hire More IRS Employees.  To the IRS’s credit, they are trying to hire more employees but the current environment and the federal government’s pay scale makes this difficult.  I do expect this to resolve over time.

5. Congress Needs to Increase the IRS’s Budget to Allow Multi-Year IT Projects.  Congress did increase the IRS’s budget for the current year, but IRS management has (rightly) complained about the budgetary process.  The main IRS computer system is older than I am (it dates to 1959).  Do you, in your office, use 63-year old computers?  To be fair to Congress, one of the reasons the IRS’s budget got cut was the Lois Lerner/IRS nonprofit scandal from a few years ago: The only tool Republicans had to protest was cutting the IRS’s budget.  While I see the IRS’s budget being increased, I think Congress will do it incrementally rather than significantly because Republicans still don’t trust the IRS.  A factor that impacts this is the ProPublica release of taxpayer information–which the current Administration appears to be ignoring.

6. Change the Tax Filing Deadline to May or June 15th.  I hated writing this, but the reality is that Tax Season is far too compressed and tax returns have gotten more complicated with more busy work.  It’s just impossible for most tax professionals to set a mid-March deadline and get all the returns filed.  (Indeed, as I’ll mention in Part 4 we plan on changing our deadline for receiving paperwork.)  Many of our clients didn’t receive their brokerage 1099s until late March.  Many of our clients still haven’t received their K-1s.

7. Go to the California System Where Extensions Are Automatic (But You Need to Pay the Tax).  I’m not a fan of how California taxes residents, but the California system where extensions are automatic as long as you pay 90% of the tax due is an excellent one.  Filing extensions is more make-work.  This would also cause more individuals to make estimated payments–an added benefit to our tax system.  Unfortunately, this change likely requires legislation, and getting this through Congress is unlikely.

I would love to be an optimist and see these seven solutions implemented.  The reality is that other than seeing IRS employees in their offices, only small incremental change at the IRS is likely.  Who suffers from this?  All of us: taxpayers, tax professionals, and the IRS.  But I promised to be realistic in this series, and we have to deal with the world as it is, not as we want it to be.

In Part 3 of this series (next week) we’ll look at the failures of my business.

We’re Under Attack!

April 26th, 2022

This afternoon, I was answering email and I accidentally clicked on Outlook’s “File Information.”  I happen to notice that the last login was from Buffalo, New York.  I’m just 3,000 miles away in Las Vegas, so I immediately sent a message to my IT person.  He both reassured me and made me worry–a lot.

No, no one from Buffalo had logged in.  However, someone was trying to log in, and per the IT logs someone was actively trying to break into our email server using a brute force technique from somewhere in Asia (spoofing various US cities).  I suspect they think that from the email server they can then get into our regular network (they can’t; they’re completely separate).  Still, my IT person wanted to immediately implement a couple of new security procedures for our email and I gave my go-ahead.  I’m not going to detail them (sorry, hackers), but they should make it far, far more difficult to even try to break-in.

The reason I bring this up is that tax professionals are targets.  We have a ton of wonderful information that hackers want (lots and lots of personal information), and I’d prefer not to have to use my cyber insurance.  If your IT person/department is not periodically checking your logs to see if you’re being targeted, you need to rectify that immediately.  I didn’t know that hackers were targeting email servers, but they are.  So be vigilant tax professionals: We’re under attack.