With much of the state of Florida declared a federal disaster area, the IRS this morning announced that all residents of Florida have until May 1, 2025 to file their tax returns that are on extension. This impacts not only 2023 tax returns on extension, but the 2024 filing deadline next April. Do note that interest and the late payment penalty continue for 2023 tax returns (because payments were due on April 15, 2024). This extension also means that estimated payments due in January don’t need to be made until May 1, 2025 for Floridians.
Hurricane Milton Relief: Florida Now Has Until May 1, 2025 to File
October 11th, 2024Hurricane Helene IRS Relief for all of Alabama, the Carolinas, Georgia, and Parts of 3 Other States
October 2nd, 2024The damage from Hurricane Helene was horrific in and around western North Carolina, and several states have been declared federal disaster zones. The IRS announced late yesterday that the entire states of Alabama, Georgia, North Carolina, and South Carolina, along with parts of Florida, Virginia, and Tennessee have disaster extensions until May 1, 2025.
This will extend not only individual and corporate tax returns on extension due on October 15th but next year’s March and April tax deadlines (along with a host of other filing deadlines). Any current client in a disaster zone with questions can contact our office for more information.
Disaster Relief Extension Impacts Millions in Illinois; Expect IRS to Give Relief to North Carolina Shortly
October 1st, 2024The IRS announced this morning that tax deadlines have been postponed in several counties in Illinois due to recent severe weather in the Chicagoland area:
The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties in Illinois.
Chicago is in Cook County, and Will county is just south of Chicago; thus, this extension impacts millions. Individuals impacted have until February 3, 2025 to file returns; this extension is automatic.
As of today, I haven’t seen a formal announcement yet about extensions due to Hurricane Helene. However, given the destruction in western North Carolina, and that areas of North Carolina and Florida have been declared a major federal disaster area, I expect the announcement by the IRS in the next day or two, with a similar postponement until at least February.
Don’t Touch the Duct Tape!
September 19th, 2024Yesterday, I had to call the IRS to obtain an address to mail a return to (it had to go to a special address), and discuss collection activities for another client. Unfortunately, the IRS computer system crashed. (It came back up late in the day.) This morning, I went to run some transcripts and, again, the system was down.
The main IRS computer system dates to 1959. That is not a typographical error. It is 65 years old–eligible for Social Security. It uses Fortran (a computer language that is no longer popular). I think you can see that an update is needed (something the IRS readily acknowledges). (I was in the last Computer Science 1 class at Berkeley to use Fortran with punch cards. Berkeley switched to Pascal the following quarter.)
But the IRS is dependent on Congress for budgeting, and a stable IRS budget is absolutely needed. The IRS is an agency where politics should not apply, but over the last fifteen years we’ve seen Adminstrations use the IRS for political goals (such as the Lois Lerner/conservative nonprofits scandal, targeting of reporters who were investigating the Administration, etc.). The Party that has been out of power had one method to act and express displeasure–cutting the IRS’s budget–and they did.
I don’t have an answer here, but if you wonder why the IRS has issues and why things take far longer to resolve with the IRS than they should, you have one of the reasons. At times (especially when the IRS computer is down), I assume the whole thing is held together by duct tape (it can fix everything, right?). We’ll see if by the time I start taking Social Security if the IRS has a modern (or even semi-modern) main computer system.
Creative Math, IRS Style
September 4th, 2024One of our clients made a mistake on his payroll tax deposits: He shorted the IRS $4,590. He realized his mistake, and immediately made a correcting payroll tax deposit (albeit late). There’s a penalty for this, and it’s 10% (based on the number of days his payment was late)–which he paid in advance of an IRS assessment of a penalty.
The IRS assessed a $5,327.46 penalty. That’s a penalty of 116%, quite a bit more than 10%. The IRS sent a penalty notice in late June; my client immediately sent via certified mail a letter questioning the penalty. What did the IRS do? Did they put a hold on collection activities while they investigated? Did they perform the investigation, realize that an error was made, and send a $0 amount due notice? Or did they send an Intent to Levy (CP504B) notice?
The IRS ignored my client’s response and sent the CP504B Intent to Levy notice.
This morning, I called the IRS and tried to get this resolved on the phone. The representative couldn’t–without seeing how the penalty was calculated (which he couldn’t see), he could only note we disputed it and were going to file an Appeal. This afternoon, I submitted that Appeal request online [1].
In the end, my client’s issue should be resolved without him owing additional tax or penalties; the IRS clearly erred. However, my client has to pay me for services that shouldn’t have been needed simply because no one at the IRS did anything with his correspondence. Frankly, the IRS today rarely reads their mail timely or correctly. And that’s a huge issue.
[1] The IRS recently implemented an online upload feature. This allows responding to some notices by upload. I was able to upload all the documents needed for the Appeal (including the Form 9423 Collection Appeals Form) quickly and get an immediate confirmation they were received. This is excellent, and the IRS is to be praised for this. It shouldn’t have been necessary to file this Appeal if the IRS could read mailed correspondence, but at least there are some improvements happening at the IRS.
The Case of the Missing $632,825.18
August 22nd, 2024The story you’re about to read is true. The names (and dollar amounts) have been changed to protect the innocent.
John and Mary Smith, long-time clients, filed an amended return for the 2017 tax year years ago. It took some time, but their claim for an approximate $750,000 refund was approved. Finally, in early 2023 a check was issued for $701,818.85 (the Smiths owed some back tax that the IRS correctly offset, and the IRS added interest per law).
Unfortunately, the check was returned to the IRS; the Smiths had moved and the IRS didn’t update the address. In June 2023 the IRS sent a new check for $632,825.18 (there was some additional tax to offset and the interest changed). That check, too, never arrived; the Smiths completed Form 3911 noting they didn’t receive the check. The IRS followed up a couple of months ago, and the Bureau of the Fiscal Service sent the Smiths a form to complete. It turns out that a business called Acme Auto Inc appears to have cashed the check; indeed, the copy of the check sent by the Fiscal Service shows it was made payable to Acme. Acme appears to be a real business, and the address on the check matches its address as registered with the state’s corporation commission/Secretary of State.
I can only think of three things that could cause this. First, Acme was also due a tax refund for the exact same $632,825.18, and the Fiscal Service erred and sent a copy of the wrong check. The chance of that seems about the same as it snowing today in Las Vegas.
Second, somewhere in the printing/generation of the refund the payees names (and address) got changed to Acme, and Acme deposited the check. Perhaps they were expecting a refund, or perhaps they just look at this as found money. There’s an obvious issue here: depositing money that you’re not due means that you get to pay it back with interest.
Third, the check was made payable to the Smiths and Acme (or its owner(s)) changed the payee to Acme. That’s theft, and quite illegal.
I cannot think of any other explanations for what happened. In any case, the Smiths have sent the form back to the Bureau of the Fiscal Service, and I’m certain that an investigation will determine the cause for this. Eventually (likely in early 2025), the Smiths should receive another check for about $650,000 (they will be due additional interest). As for Acme Auto, I hope that I’m wrong about what happened and the check copy we saw was simply the wrong one. Or that Acme still has that $632,825.18 around as they’ll need to pay it back. If not, they’re likely to receive a visit from law enforcement.
Hurricane Debby Tax Deadline Relief; Deadlines Extended for Impacted Taxpayers to February 3, 2025
August 9th, 2024This year is supposed to be a very active year in the tropics, with over 20 tropical storms (some of which will be hurricanes) predicted. Hurricane Debby made landfall in Florida, and then made a second landfall in the Carolinas with ongoing issues in Pennsylvania and the northeast (much of the area is under flood and or tornado watches).
The IRS announced today relief for impacted taxpayers in Florida, Georgia, and the Carolinas. From the IRS announcement:
Affected taxpayers in South Carolina, North Carolina, Florida and Georgia now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments.
The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this applies to:
- All 46 counties in South Carolina.
- The following 61 counties in Florida: Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia, Walton, Wakulla and Washington.
- The following 55 counties in Georgia: Appling, Atkinson, Bacon, Ben Hill, Berrien, Brantley, Brooks, Bryan, Bulloch, Burke, Camden, Candler, Charlton, Chatham, Clinch, Coffee, Colquitt, Cook, Crisp, Decatur, Dodge, Echols, Effingham, Emanuel, Evans, Glynn, Grady, Irwin, Jeff Davis, Jefferson, Jenkins, Johnson, Lanier, Laurens, Liberty, Long, Lowndes, McIntosh, Mitchell, Montgomery, Pierce, Richmond, Screven, Tattnall, Telfair, Thomas, Tift, Toombs, Treutlen, Turner, Ware, Wayne, Wheeler, Wilcox and Worth.
- The following 66 counties in North Carolina: Alamance, Anson, Beaufort, Bertie, Bladen , Brunswick, Camden, Carteret, Caswell, Chatham, Chowan, Columbus, Craven, Cumberland, Currituck, Dare, Davie, Davidson, Duplin, Durham, Edgecombe, Forsyth, Franklin, Gates, Granville, Greene, Guilford, Halifax, Harnett, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person, Pitt, Randolph, Richmond, Robeson, Rockingham, Sampson, Scotland, Stokes, Surry, Tyrrell, Vance, Wake, Warren, Washington, Wayne, Wilson and Yadkin.
Individuals and households that reside or have a business in any one of these localities qualify for tax relief. The same relief will be available to any other counties added later to the disaster area. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.
Given flooding today in Pennsylvania, I expect at least some counties in the Keystone state to become a federal disaster area and be eligible for this relief.
Let’s hope that the prediction for an active hurricane season is wrong and this is the last such storm to impact the United States in 2024.
Why Did the IRS Send Me a $1.87 Refund?
August 1st, 2024In mid-June I received mail from the IRS. That’s not unusual; I receive a lot of mail from the IRS (generally, correspondence for clients). But this was different: it was a check for $1.87. Here’s the check:
Now, I wasn’t expecting a refund (I owed tax, which I paid with the filing). It’s definitely labeled as a tax refund, but no explanation accompanied the check. That’s not unusual; the checks and the notice of explanations are generally sent from different offices. I ran a transcript, and there’s nothing noted on my account for 2023 that gives an explanation (no entry for $1.87). So I waited, figuring that I would receive a notice in the mail within a few weeks.
It’s now August 1st, and I still haven’t received anything. I could call the IRS up and they may see something that I don’t in my account. But it’s $1.87, and it’s just not worth my time figuring this out. Yes, there’s a possibility this refund is erroneous (indeed, I suspect that’s the case) but it’s just $1.87! Yes, we tell clients to not cash refund checks they’re not expecting–indeed, if this was $187 (rather than $1.87) I would be on the phone to the IRS to figure out what’s going on. Yes, if this refund is erroneous I may have to pay it back with interest (so that might be $1.97 in three years).
The IRS is supposed to send a notice and perhaps I’ll get one before year-end. I’m not holding my breath.
This is more humorous than anything else (because it’s $1.87), but it’s typical of the kind of issues we see. I’m currently having to appeal an erroneous late filing penalty for a client who filed his tax return on December 15th (his tax deadline) because the mailing receipt from Australia shows the date as “15/12.” (In most of the world–but not the United States–the day appears before the month.) In my letter asking for the appeal, I really wanted to say, “Does anyone consider there aren’t fifteen months anywhere in the world?” I didn’t–I kept the letter directly on point including the citation to § 7502(a)(1) of the Internal Revenue Code (which governs timely filings).
These are two examples of the IRS’s major issues with correspondence. Unfortunately, I haven’t seen any improvements this year (only regression).
A Phish A Day…
July 26th, 2024Phishing is something tax professionals see daily. We have antivirus and malware protection installed throughout our network and on all workstations, but I still see a phishing email a day. Here’s one:
There are a number of clues that this is a phishing attempt:
- The sender’s name and email address don’t match;
- The email isn’t personalized;
- The grammar is atrocious; and
- The email isn’t signed.
So be careful out there!
The Real Winners of the 2024 World Series of Poker
July 18th, 2024I was not one of the 10,112 entrants (a record field) in the 2024 Main Event of the World Series of Poker. Yesterday saw the winner being crowned. He received a cool $10 Million, but how much of the winnings would he keep? For the record, 1,517 of the entrants (about 15% of the field) received part of the $94,041,600 prize pool with a minimum cash being $15,000.
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 long-time professional poker player Jonathan Tamayo of Humble, Texas (suburban Houston). Mr. Tamayo’s ten days of grinding poker culminated when his eight-three outflopped Jordan Griff’s nine-six on a nine-eight-three flop. The turn and river didn’t change anything, and Mr. Tamayo walked away with a cool $10 million…before taxes. As a resident of Texas he avoids state income tax; however, he does owe both federal income tax and self-employment tax. Overall, he’ll pay an estimated $3,992,302 to the IRS (just under 40% of his winnings).
The second place winner is the aforementioned Jordan Griff. Mr. Griff, a resident of Schaumburg, Illinois (suburban Chicago) and his wife are expecting their first child soon. An amateur gambler, Mr. Griff avoids self-employment tax; however, as a resident of Illinois he will be paying state income tax on his winnings. I estimate he will owe $2,210,808 to the IRS and $297,000 to Illinois (an estimated total of $2,507,808).
Niklas Astedt of Goteborg, Sweden is widely considered one of the best (if not the best) online poker player in the world. His third place finish showed he’s no slouch at live poker. The US-Sweden tax treaty exempts Mr. Astedt’s winnings from US withholding (and taxation). Sweden does not tax gambling winnings in Sweden (the companies offering poker in Sweden do pay tax, of course). It appears that Mr. Astedt’s US winnings of $4,000,000 will be subject to about 35% taxation in Sweden (or $1,400,000 lost to tax).
Jason Sagle of Sudbury, Ontario was unlucky to finish in fourth place; his pocket jacks were cracked by the Ace-three of Niklas Astedt. Mr. Sagle, a former paramedic and insurance salesman, received $3,000,000 for his finish. Canadians with gambling winnings in the United States face 30% withholding (but can file a tax return to recover part of the withholding based on gambling losses). Professional gamblers in Canada may (in the future) be facing taxation on their winnings (court cases are working their way through the Canadian judicial system on this, with decisions expected late this year). For now, Mr. Sagle gets to enjoy $2,100,000.
Finishing in fifth place for $2,500,000 was Boris Angelov of Sofia, Bulgaria. The professional gambler benefits from the US-Bulgaria tax treaty (there is no withholding on his winnings). Mr. Angelov also benefits from the Bulgarian tax regime; his gambling activity in Bulgaria is not taxed (the online and live cardrooms in Bulgaria do pay taxes). Bulgaria has a flat 10% income tax rate, so he gets to keep 90% of his winnings ($2,250,000).
Andres Gonzalez, a professional poker player from Cartagena, Spain, finished in sixth; he was another victim of Niklas Astedt. Mr. Gonzalez was unlucky when his pocket jacks lost (what poker players call) a race to Mr. Astedt’s Ace-Queen. Like Mr. Angelov and Mr. Astedt, he won’t be paying any US taxes (the US-Spain tax treaty exempts gambling winnings). However, Spain is not a low tax environment; he’s facing an estimated 47% income tax rate on his $2,000,000 of winnings (losing $940,000 to tax).
Noted high-stakes professional player Brian Kim (a regular on the Triton Series) finished in seventh place for $1,500,000. A resident of Las Vegas, Mr. Kim avoids state income tax but does have to pay self-employment tax. He’s estimated to pay 39.41% in tax (about $908,874).
Joe Serock, another professional poker player from Las Vegas, was the eighth place finisher for $1,250,000. Mr. Serock’s Ace-Jack fell to Niklas Astedt’s pcket queens. I estimate that Mr. Serock will lose just over 39% of his winnings to tax ($491,091).
Malo Latinois, a native of France but a resident of the Dallas suburb of Carrollton, was the first player knocked out at the final table of nine when his Ace-King fell to Jordan Griff’s pocket threes. France does not tax its citizens residing outside France (unlike the United States), so Mr. Latinois will only be paying US income tax. He faces an estimated tax bite of just over 39% ($391,057).
Here’s a table summarizing the tax bite:
| Amount won at Final Table | $31,250,000 |
| Tax to IRS | $8,576,384 |
| Tax to Skatteverekt (Sweden) | $1,400,000 |
| Tax to Agencia Tributeria (Spain) | $940,000 |
| Tax to Illinois Department of Revenue | $297,000 |
| Tax to National Revenue Agency of Bulgaria | $250,000 |
| Total Tax | $11,463,384 |
That means 36.68% 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. Jonathan Tamayo | $10,000,000 | $6,007,698 |
| 2. Jordan Griff | $6,000,000 | $3,492,192 |
| 3. Niklas Astedt | $4,000,000 | $2,600,000 |
| 5. Boris Angelov | $2,500,000 | $2,250,000 |
| 4. Jason Sagle | $3,000,000 | $2,100,000 |
| 6. Andres Gonzalez | $2,000,000 | $1,060,000 |
| 7. Brian Kim | $1,500,000 | $908,874 |
| 8. Joe Serock | $1,250,000 | $758,909 |
| 9. Malo Latinois | $1,000,000 | $608,943 |
| Totals | $31,250,000 | $19,786,616 |
Once again, a player ended up placing higher than his actual finish based on after-tax results. This year, Mr. Angelov of Bulgaria effectively finished in fourth place because of Bulgaria’s flat 10% income tax rate.
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 second place (based on pre-tax prizes) with a haul of just $8,576,384. Still, you can’t say that the IRS didn’t do poorly because the house always wins.
