Copying Steven Martinez’s Idea Is Not a Good Choice

October 19th, 2014

I’m on the road this weekend, but a story from the San Francisco Bay Area caught my eye. Charles Waldo was already in jail. He was arrested on a 50-count indictment for insurance fraud, tax evasion, felony vandalism, and a high speed chase through central Costa Contra County. While awaiting trial, Mr. Waldo was in the Martinez, California jail.

When you’re in prison you do have time on your hands to determine your defense. There’s plenty of time to research the law on the charges you’re facing, work on strategy with your defense counsel, and perhaps other means of helping your case. Mr. Waldo allegedly decided to follow the idea of Steven Martinez. Mr. Martinez, for those who don’t remember, won the coveted 2012 Tax Offender of the Year award for hiring a hit man to eliminate the witnesses against him. Yes, Mr. Waldo supposedly did the same thing.

Mr. Waldo was indicted on Friday on nine counts of solicitation to commit murder and one count of conspiracy to commit murder. According to the press release from the Contra Costa County District Attorney’s office,

The indictment alleges that while serving time in custody at the Martinez Detention Facility, the defendant solicited and conspired with other inmates to arrange the killing of nine different witnesses that were set to testify against him at an upcoming trial. These ten new charges will be added to the fifty charges the defendant currently faces.

There is one bright spot for Mr. Waldo if he is found guilty and spends a very lengthy term at a California penal institution: He’s a shoe-in to be nominated for Tax Offender of the Year in a future year.

You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday…

October 12th, 2014

Yes, only three days are left until the extension deadline. If you file on October 16th, it’s as if you never filed that extension (you will owe a 22.5% late filing penalty). So what should you do if you’re just starting on your return now?

First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in. It can’t be a frivolous return: If you file a frivolous return, it’s even worse than not filing–you can get hit with a penalty for filing a frivolous return.

1. Get your documents together. If you have them, wonderful. If not, on Tuesday [2] you can use the IRS’s “Get Transcript” application to hopefully download a Wage & Income Transcript.

2. Include all of your income: Interest, dividends, rental real estate, gambling wins, etc. Just because you don’t receive a 1099 doesn’t mean you get to exclude that income! If you’re using software, carefully enter it where it belongs. Software does a great job putting numbers where you tell it to, but it’s also garbage in, garbage out.

You can download forms off the IRS’s website.

3. After you complete your return, look it over to make sure it’s reasonable.

4. If you live in a state with a state income tax, you have to file that too. And if you have a municipal or school district income tax, that’s also due. Most jurisdictions do have forms online.

5. If you’re filing electronically, keep the proof of filing. If you’re mailing your return, go to the post office or an automated postal center and spend the $5 on certified mail, return receipt requested. If your tax return is postmarked on October 15th, it’s considered timely filed. Certified mail gives you that proof. The automated postal centers can issue certified mail, and the postmark is the local time–even if the mail is picked up the next day (a very useful thing if you’re preparing your return at 11pm on October 15th).

6. If you’re thinking about calling up a tax professional, you need some luck. Most of us are quite busy dealing with our current procrastinating clients; October 13th is just not the time for a new client meeting.

7. Finally, make a vow with yourself that you will get started far sooner next year. While the 2015 Tax Season will likely be very unpleasant [3] and will probably start late [4], you should be able to get your returns started before October 1.


NOTES:

1. A few individuals can file a request for a second extension. If you were outside of the US on April 15th and will be outside of the US on October 15th (and both are for business/employment/residency purposes), you can file a request for a second extension. Phil Hodgen wrote about this last year (the rules haven’t changed).

2. The IRS, in its unending wisdom, has an annual “outage” of all computer systems on Columbus Day Weekend. Yes, all IRS computers are turned off just days prior to the extension tax deadline. If you’re scratching your head about this, well, so am I.

3. Next year features the first year of ObamaCare reporting, extender legislation that will probably pass late (see #4 below), and the IRS’s budget continues to shrink.

4. Congress has done nothing on “Extenders” but almost certainly will following the November election. IRS Commissioner Koskinen warned of issues if legislation passes late. Well, it will pass (in some form) late. Will it pass on January 1, 2015? I hope not, but if the Republicans gain control of the Senate (which wouldn’t occur until 2015; the Democrats will still run the Senate in the “lame duck” session), the Senate might work well or might not work at all. If you’re getting the idea that the 2015 Tax Season won’t be fun, that’s my view.

It’s Not As If Anything Is Happening Right After This…

October 7th, 2014

Of course, after reporting good news from the IRS there must be bad news to balance it out. And there is. For reasons that only the bureaucrats at the IRS can fathom, every year over Columbus Day weekend the IRS shuts down their computer systems. This includes processing of returns and IRS e-services.

As noted on various IRS web pages:

IRS will conduct its annual Columbus Day Power Outage beginning Saturday, October 11, 2014 at 3:00 p.m. and ending on Tuesday, October 14, 2014 at 5:00 a.m. [times Eastern]

Yes, I know the IRS does this every year, but why not break with tradition and choose another weekend — say the weekend of October 18th. It’s not as if there’s a tax deadline right after Columbus Day weekend….

IRS Simplifies Reporting for RRSPs and RRIFs

October 7th, 2014

In a piece of good news, the IRS announced today that US taxpayers will automatically be treated as deferring income from Canadian Registered Retirement Savings Plans (RRSPs) and Canadian Registered Retirement Income Funds (RRIFs). In other words, the treatment will be exactly like 401(k)s are treated for Americans. Such individuals will no longer have to make annual filings of Form 8891 to note their holdings for RRSPs or RRIfs.

The noncompliance with this provision was legion, so the new Revenue Procedure 2014-55 is good news. Individuals who were not in compliance had to file a request for a Private Letter Ruling in order to “get out of jail free” (so to speak). The Revenue Procedure includes retroactive relief.

However, such individuals will still need to note these accounts on their FBARs (Report of Foreign Bank and Financial Accounts, Form 114). Note also that at least one state (California) does not recognize deferral or RRSP income, so holders of RRSPs who are required to file California tax returns must report their income on their state tax returns.

Legaspi Gets 21 Months

October 5th, 2014

Francisco Legaspi didn’t want to go to jail. Back in November 1992, he pleaded guilty to tax evasion. Instead of showing up for his sentencing in January 1993, he headed to Mexico and then Canada to avoid prison. That worked for 20 years. In 2012, the State Department found him when the Bureau of Diplomatic Security found his Facebook page. (A helpful hint to any fugitives out there: Avoid posting anything on the Internet. Law enforcement reads the Internet, too.) They forwarded his information to the Royal Canadian Mounted Police who arrested him; the Mounties always get their man.

It was justice delayed last week as Mr. Legaspi received 21 months at ClubFed. He also received one year of supervised release following his term at ClubFed.

One Good Erasure Deserves Another

October 1st, 2014

I wonder if this sounds familiar to anyone: An organization is looking for key information stored on IRS computers. A lawsuit ensues, and the hard drives were allegedly wiped clean.

No, I’m not talking about the IRS Scandal, Lois Lerner, and the Freedom of Information Act lawsuits. Rather, I’m talking about a tax fight between NetJets and the IRS. NetJets sued the IRS for $643 million alleging, according to the Columbus Dispatch, that a ticket tax was misapplied. The IRS countersued for $366 million, alleging that NetJets hasn’t paid all their taxes. Both sides have petitioned for summary judgement.

I’ll let the first two paragraphs of the Dispatch story state what’s going on:

In the midst of a lawsuit with the federal government over tax payments, NetJets claims that the Internal Revenue Service destroyed documents important to the case.

The Columbus-based private-jet company, in a motion filed with U.S. District Judge Edmund A. Sargus Jr., said the IRS “wiped clean a number of computer hard drives containing emails and other electronic documents that the Government was required to produce.”

Most of the time, I wouldn’t believe that the IRS would do this. As of 18 months ago, I wouldn’t believe that the IRS would lie to Congress, would target conservative applicants for nonprofit status, and that the hard drive of any computer (or other electronic device) touched by Lois Lerner would be magically erased.

On a serious note, the fact that the IRS has done these things (even if it’s just a coincidence that the hard drive of any computer Ms. Lerner touched died) will make judges highly skeptical of the IRS. I have no idea who is right on the NetJets vs. IRS fight. I do know that the IRS’s position sure sounds fishy to me.

James Traficant Dies

September 27th, 2014

James Traficant, the colorful ex-Congressman from Youngstown, Ohio, died today at age 73. He had been injured on Tuesday when a tractor flipped on to him at his farm near Youngstown.

Mr. Traficant spent eight years at ClubFed following his conviction on charges of tax evasion, bribery, racketeering, and obstruction of justice. After his release in 2009, he ran for Congress as an independent but lost. As a Congressman, Mr. Traficant was known for his bombastic style and his trademark saying of “Beam me up.”

My condolences to his family.

California Mandates E-Filing of Business Returns

September 27th, 2014

The California legislature passed a law mandating e-filing of most business returns beginning with 2014 returns filed in 2015. This legislation was signed into law. Exemptions are available but must be requested from the Franchise Tax Board. Although not mentioned in the law, presumably a return that fails in e-filing (is rejected by the FTB) would also be allowed to be paper filed.

The exemptions that are available are for technology issues and other items that constitute “reasonable cause and not willful neglect.” A penalty of $100 for an initial failure is in the law, with repeated violations being charged $500. The requirement applies to C-Corporations, S-Corporations, partnerships, LLCs, and exempt organizations.

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

They Both Begin With “E”

September 21st, 2014

Here’s a good way to make some money (for a while). You create a phony vendor, and send invoices to your company for that vendor for work that was, of course, never preformed. The money from the phony vendor isn’t reported on your tax return–it’s always good when your after-tax income is the same as your before-tax income.

Now, there are some potential drawbacks to this scheme. You would be embezzling from your company. Depending on how you do that, it will be some sort of felony. Not reporting the illegal income on your tax return is tax evasion, another felony. And if you do this scheme over multiple years, that’s multiple felonies.

If your business were audited, it’s possible that the IRS might discover this (or a state tax agency). That would be problematic.

Now, you might think that no one would do this–especially that no one would do this and steal money from his own company. You would be wrong.

Michael Stover of Plymouth, Michigan did this exact scheme. Mr. Stover was president of Omni Facility Service and did this scheme with his invented subcontractor from 2004 through 2010. And we’re talking big dollars here: Per the Department of Justice press release, “Stover embezzled approximately $2,178,423 from Omni.” He also didn’t report this income on his tax returns.

Mr. Stover is looking at spending some time at ClubFed, a possible fine, and restitution. He’ll be sentenced in January.

“I’ve tried to tell you the truth every time I’ve been here”

September 21st, 2014

That quote is from IRS Commissioner John Koskinen during his testimony from earlier this week on Capitol Hill. I have a simple question for Commissioner Koskinen: Why doesn’t that quote read, “I’ve told you the truth every time I’ve been here”?

The obfuscation coming from the IRS hurts the entire US population. The IRS’s budget has been (rightfully) cut: Republicans are not willing to fund what appears to be a partisan office being used against the GOP.