Taxable Talk

Back in 2005, I speculated that the IRS would write a regulation requiring withholding from poker tournaments. The IRS will, on Tuesday, announce Revenue Procedure 2007-57, requiring withholding from any winner of a poker tournament who has received more than $5000 in winnings from the tournament.

First, this is a Revenue Procedure; this is the lowest form of IRS regulation. (The Tax Code is statutory law; it's the highest form of regulation. Next are IRS regulations. Those are promulgated under the Tax Code. Then come from Revenue Rulings and then, finally, Revenue Procedures.)

Entities do not have to follow a Revenue Procedure. But Revenue Procedures are written so that entities usually follow them. They include verbiage that reads (this is taken from Revenue Procedure 2007-57), "The IRS will not assert any liability for additional tax or additions to tax for violations of any withholding obligation with respect to amounts paid to winners of poker tournaments under section 3402, provided that the poker tournament sponsor meets all of the requirements for information reporting under section 3402(q) and the regulations thereunder." Of course, this implies the IRS may assert violations to entities that don't follow the Procedure. Effectively, all casinos will likely follow the Procedure.

So what does Revenue Procedure 2007-57 say? In Section 3.01, it classifies poker tournaments as a "wagering pool." It does so by referencing United States v. Berent, 523 F.2d 1360, 1361 (9th Cir. 1975). And IRS regulation §31.3402(q)-1(b)(2) requires withholding on wagers in a wagering pool if the proceeds from the wager exceed $5,000.

Interestingly, the Revenue Procedure states that withholding will be required: "A poker tournament sponsor is required to withhold and report on payments of more than $5,000 made to a winning payee in a taxable year...." Per the regulations, the required withholding rate is 25%.

This has two impacts. First, anyone who wins more than $5,000 will receive 75% of his winnings (unless subject to a higher withholding rate). Second, many casinos will again start issuing W-2Gs to everyone who wins in a poker tournament. Once casinos have to start issuing W-2Gs to a few people, casinos will come to the conclusion it's easier to issue them to everyone.

As to the Revenue Procedure itself, I think it's a poor application of the law. As I reported back in 2005, I don't believe poker tournaments are a wagering pool. Wagering pools are when you wager on something else, such as a horse race. Indeed, the IRS came to that same conclusion as I did in a private letter ruling in 2005. The reality is, though, that I don't think a casino or cardroom is going to challenge the IRS on this. Their attorneys and tax counsels will say that the easiest thing to do is to go along with the IRS Revenue Procedure. Entities that don't will potentially be subject to additional IRS scrutiny, so following the Procedure is the course of least resistance.

What will the impact be to tournament poker? First, there will be additional compliance with the Tax Code. Given that more W-2Gs will be issued, and withholding will occur, the IRS will see additional collections (which is their goal). The other major impact of this ruling is that money will be taken out of the poker economy. Once this Revenue Procedure goes into effect (March 4, 2008), about 25% of the prize pool of major poker tournaments will vanish. Of course, the IRS will correctly note that this money should have been paid in taxes at some point. However, given that gambling losses are deductible against wins, some of the withheld funds would never have been owed in taxes because of gambling losses.

Will this impact the number of players in major poker tournaments? Possibly. Where it may have the biggest effect is in a series of major tournaments. Suppose John Doe wins $10,000 on day 1 of a tournament. Under the new Revenue Procedure, he will only keep $7,500. There's a higher chance of him not entering additional events so that the funds don't reenter the poker economy.

Link to Revenue Procedure 2007-57

Gene Haas, of Camarillo, California, owns Haas Automation, Inc., one of the leading CNC (computer numerical control) machine tool companies. They even have a Nextel Cup racing team. Needless to say, Haas Automation is a successful company.

Back in 2000, Haas Automation settled a patent infringement case. Hurco Companies, Inc., of Indianapolis, accused Haas Automation of violating a patent on interactive CNC programming. Hurco convinced a jury that Haas Automation was in violation, and after the judge warned Gene Haas that he could be looking at a $150 million judgment, the companies settled for something in the tens of millions of dollars, according to this article. A senior executive at Haas told Metalworking Insiders Report that there would be no change in operations because of the judgment.

He was wrong.

The New York Times detailed the scheme in today's paper. After Mr. Haas and his company lost the patent case, he was angry with the government and with the judge who presided over the case. Court papers indicate that he decided that some tax fraud was a good way to get back at the government.

So, enlisting the help of his then CFO, John Phillips, the business created a phony company in Nevada called "Supermill," and then paid the phony company from phony invoices. Then Mr. Haas and Mr. Phillips got in a business dispute, Mr. Haas sued Mr. Phillips for $27 million (apparently related to the phony transactions), and Mr. Phillips went to the FBI and told them of the scheme. (Mr. Phillips was not indicted.) It's not a good idea when you commit tax fraud to get a co-conspirator angry enough to go to the FBI.

The DOJ, in a press release announcing Haas' indictment, claimed that the tax fraud was upwards of $20 million. Now, with a $5 million fine added in, penalties, and interest, the total judgment is somewhere around $70 million. And Mr. Haas will be receiving two years at ClubFed.

If you find yourself losing a court case, I strongly recommend that you do not follow Mr. Haas' path, and decide that committing tax fraud is a way of getting back at the judge. Kenneth Barish, an attorney for Mr. Haas, in describing the plea deal, noted, "[u]nder the circumstances, it was a good result." When paying $70 million and getting two years at ClubFed is a good result, you wonder what a bad result would be.

Hat Tip: TaxProf Blog

A friend of mine received an email that states, in part:

"I do not agree with your synopsis though that gamblers of the 50 staets have any obligation whatsoever for the withholding of Federal income tax on lottery winnings. Why? Because subtitle A and subtitle C only relates to Government entities, foreigners and foreign corporations."

I'm leaving out the name of the individual (protecting the guilty) who sent this missive.

Every so often, I get an email like this, from someone who says there's no such thing as an income tax, it was never passed, etc. When this happens, I refer them to the Tax Protester FAQ. There, we read:

The claim that “United States citizens and residents are not subject to tax on their wages or other income derived from sources within the United States, as only foreign based income or income received by nonresident aliens and foreign corporations from sources within the United States is taxable, and similar arguments described as frivolous in Rev. Rul. 2004-30, 2004-1 C.B. 622” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

The gentleman appears to make two claims: there is no right to withhold on lottery prizes, and US citizens don't have to pay income tax on gambling.

Withholding rules are regulations, enacted after Congress specifies that withholding will occur in certain situations. One of these areas is certain gambling prizes. Lottery winnings are subject to 25% federal tax withholding if the amount won is $5,000 (or more).

Additionally, all income earned in the United States is subject to the income tax, unless Congress specifically exempted it. Gambling income has not been exempted. If you don't pay the tax, you are violating the law. And if you ignore a W-2G that's issued (and if you've won a substantial prize in a lottery, a W-2G will be issued), the IRS will catch up with you. And if you make that argument in Tax Court, you will find yourself potentially paying a financial penalty (e.g. a $5,000 fine) for making a frivolous argument.

I remember Hawaii Five-O, the long running police show that starred the late Jack Lord. This post looks at four individuals who allegedly created an illegal tax fraud scheme.

The US Department of Justice filed suit against four individuals and two businesses in Hawaii, alleging that they created a series of sham transactions using business insurance and retirement accounts to create phony tax deductions. The suit alleges that the loss to the Treasury is over $2 million.

The alleged transactions first sent the money to offshore accounts and then moved the money back using, among other methods, sham loans and foreign credit cards. The suit alleges that the individuals got to deduct 100% of the money that was moved but received 80% of it back. That's a neat (and if proved, illegal) trick.

The accused businesses are Bright Enterprises, a Lihue, Hawaii accounting firm and Hawaii Financial Specialists, Inc.. The DOJ is asking for an injunction to stop the practice and, undoubtedly, a list of clients who used this scheme. Remember, if you get a business deduction for an expense, you're supposed to have spent 100% of the money, not 20%.

News Story: Honolulu Star-Bulletin

If you receive a free meal, can you take a tax deduction for it? That's a simple question, and I'd guess that 99.99% of the public would use common sense to answer the question: No, of course not. How can you take a deduction when you're getting something for free?

However, one inventive tax preparer had a different slant on the question. Martin Kapp, a CPA from El Segundo, California, believed that individuals in the transportation industry could get the "Mariner's Deduction" for meals that were provided by their employers.

I had never heard of the "Mariner's Deduction," so I investigated Mr. Kapp's website. I note that he states, "While retaining travel receipts is always very desirable, the Johnson decision clearly states taxpayers can rely upon the government's written statements that taxpayers may indeed elect to deduct the pre-approved OCONUS and CONUS incidental rates - all without receipts."

The IRS and Justice Department alleged that Mr. Kapp had "...prepared returns for the mariners claiming deductions for the costs of meals they received for free from their employers." The DOJ brought suit in Los Angeles to stop Mr. Kapp.

And that's why I wrote the he had a different slant. Judge George Schiavelli ruled that Kapp must no longer prepare federal tax returns with the "Mariner's Deduction." He must also turn over his client list to the DOJ/IRS. His clients can look forward to receiving a "Dear Soon-To-Be Audited Taxpayer" letter from the IRS.

The judge noted that Kapp "knew or should have known" that the deductions were illegal. And, indeed, this is not the first time the "Mariner's Deduction" has led a tax preparer into hot water. In 2004 - 2005, the DOJ and IRS successfully stopped five Louisiana tax preparers from using this sham deduction.

So remember my rule: If it sounds too good to be true, it probably is. You can deduct legitimate business expenses, including unreimbursed business expenses and meals. But if an expense costs nothing, that's how much you get to deduct—nothing.

The Associated Press is reporting that Barry Bonds' 756th home run ball will be auctioned. Matt Murphy, the man who caught the ball, has consigned the ball to Sotheby's SCP Auctions. The ball is expected to be worth over $500,000.

Mr. Murphy, who is 21, told the AP, "I'm upset by the decision I had to make...I wanted to keep it. I'm young. I don't have the bank account. ... It would have cost me a lot more to keep it."

Mr. Murphy was told by several people that he would owe tax on the $500,000 that the ball is worth even if he kept it. While I personally disagree with that (I think he wouldn't have owed anything until he sold it), it is very clear that he will owe tax on the ball when he sells it. Given federal, New York, and New York City combined taxes (Mr. Murphy is a resident of Queens, New York), I expect that Mr. Murphy will owe about 40% of the net sales price (the gross sales price less the commission the auction house receives).

As for Barry Bonds, his Giants are now playing out the string (they are in last place in the National League's Western Division). There's no new news regarding his possible indictment on tax charges.

If you receive an IRS Determination Letter, and decide to file a petition in Tax Court, make sure you file by the deadline. The Tax Court won't accept your petition if you file late, as another taxpayer discovered today.

Our unlucky taxpayer moved twice between the time the IRS mailed the Notice of Deficiency and the time he received it. Normally, you have 90 days to respond; however, the taxpayer in question had only 75 days (until November 13, 2006). He sent his petition (using FedEx) on November 14th.

The IRS asked the Tax Court to dismiss the taxpayer's suit because it was filed late. The taxpayer argued that he should either get extra time because of the moves or that the IRS notice was inaccurate because of the wrong address.

I've written before that the Tax Court is a stickler for deadlines. This case was no different. The statute says that the taxpayer has 90 days from date of mailing (the taxpayer actually had 91, as the 90th day from the date of mailing was a Sunday), and the Court must obey the plain language of the statute. Additionally, the IRS correctly sent the notice to the (then) right address.

Once again, deadlines count. The taxpayer's case has been dismissed, and he must pay the deficiency. He can file a claim and pursue a case in US District Court or the US Court of Claims, but that's only after he pays the tax.

Today's Wall Street Journal has an interesting article about a phone tax battle in Missouri. [Note: $Pay$ Link] Various municipalities have claimed that their city telephone taxes apply to cellular phones; the cellular carriers disagree. On Thursday, a St. Louis County Circuit Judge will rule on whether or not he can rule on the case by summary judgment or whether a full trial will have to be held. No matter how he eventually rules, the case will likely be appealed.

You may remember that I wrote in May about the City of Los Angeles' cellular telephone tax increase being illegal. One of the arguments that the carriers are making is very similar: a popular vote is required under Missouri law for a new tax to be approved. Cities are arguing that the tax isn't new. Legislation was passed capping the cell phone tax, but it was ruled unconstitutional by the Missouri Supreme Court.

The carriers could owe as much as $500 million, including interest and penalties. One thing is certain, though. If the tax ends up being owed, the bill will be passed on to consumers. That's the nature of all taxes.

The State Senate finally approved a budget late today. It goes to the Governator for his signature (he has said he will sign it) and for his "blue pencil" (the line item vetoes).

For more details on what this budget really means, go to the Flash Report. You will find State Senator Tom McClintock's commentary and State Senator Dennis Hollingworth's commentary. Note in particular what Senator Hollingsworth said: "[The budget] is still one that will result inevitably in a near $5 billion deficit next year...Further, we all need to begin addressing next year’s looming fiscal problem--now, and not wait until we are so far into the budget that our options to balance it become fewer and more difficult." Those are words to live by, but I don't expect them to be heeded in Sacramento.

This past February, Roy Albert Lewis, a Danville, California dentist, was sentenced to two years at ClubFed for hiding $300,000 over ten years. This past week, it was his father's turn.

Leroy Albert Lewis is an oral surgeon, but his medical career likely came to an end last week. He pleaded guilty in May to one count of tax fraud. He was sentenced to two years at ClubFed, plus he must make restitution of $909,527. Leroy Albert Lewis is the father of Roy Albert Lewis.

His attorney said that the elder Mr. Lewis suffered from "hubris and greed." Both Lewises fell victim to secret offshore bank account scheme operated by Tower Executive Resources, Ltd. Joe Kristan reported on Tower back in 2006; Paul Harris, the promoter of Tower, was sentenced to five years at ClubFed. The scheme made the payments look like they were for consulting services. They weren't; it was simple tax fraud.

The younger Mr. Lewis is doing his time in ClubFed in Lompoc. It's quite possible that the elder Mr. Lewis will soon be in a neighboring bunk.

News Story: San Francisco Chronicle

Last year, I wrote about James Andrew Yeager. Mr. Yeager operated a strip club in Columbia, Missouri. Strip clubs are a cash business, and Mr. Yeager decided that he needn't report all the cash as income. He pleaded guilty last year to tax evasion.

Last week, he found out his sentence: 21 months at ClubFed, and restitution of $140,543 plus paying additional back taxes of $36,732.

The strip club, Club Vogue, is still in operation. The news story from last year said he owned the club; this year's story makes that unclear. If Mr. Yeager is the owner, the US government may soon own a strip club (seizing the assets to pay the back taxes).

So if you are a strip club owner, may I recommend—as I have before—that you pay your taxes. Cash income is taxable....

Yesterday I wrote about Dr. Frederick Kriemelmeyer, a dentist in LaCrosse, Wisconsin. Dr. Kriemelmeyer was found guilty today of three counts of filing false tax returns. He'll be sentenced on October 30th. Given that the testimony in the trial ended today, the jury didn't need much time in deciding the verdicts.

And that appears to be understandable, unlike Dr. Kriemelmeyer's use of the English language. As I noted yesterday, Dr. Kriemelmeyer believes in David Wynn Miller's dialect, "In the Truth." He doesn't believe that our current American flag is valid. He doesn't believe that our Tax Code is valid.

Based on federal sentencing guidelines, Dr. Kriemelmeyer is looking at 27-33 months at ClubFed. And no use of language such as this, "FOR THE EDUCATIONAL-CORRECTIONS OF THE MODIFYING-COMMUNICATIONS ARE WITH THESE CLAIMS OF THE FICTIONAL-ADVERB-VERB-USURY WITH THE OPERATIONS/METHODS OF A FICTIONAL-MODIFICATION-LANGUAGE," will lessen his sentence. (That quote was taken from Mr. Miller's website.) And if he tries to lecture a judge in using the English language, I won't be shocked to see him getting the maximum term of 9 years (3 years per count) plus restitution.

If you are wondering about the headline, so am I. But it's a quote out of the trial of one Frederick Kriemelmeyer, a dentist in LaCrosse, Wisconsin. Dr. Kriemelmeyer is accused of four counts of tax evasion.

As the LaCrosse Tribune reported, Dr. Kriemelmeyer is a believer in David Wynn Miller. Miller does not use standard English; instead, he used a dialect he invented called "In the Truth." It's got a lot of capital letters, prepositional phrases, and not much in the way of punctuation. You can see samples by going to Mr. Miller's website.

In any case, Dr. Kriemelmeyer challenged the indictment because it was in English—our English. That didn't work (the judge let the indictment stand). The dentist challenged the US flag in the courtroom. No, I'm not joking about that. He didn't win that argument.

David Wynn Miller believes that if you add extra punctuation to a tax return, you will somehow not have to pay taxes. At least, that's what I think he espouses. Dr. Kriemelmeyer is a follower of Mr. Miller, and is conducting his own defense.

The government plans on having 15 of Dr. Kriemelmeyer's patients testify as to how much they paid him. The government alleges that if there was an asterisk by a patient's fees in Dr. Kriemelmeyer's ledger, the actual payment was much higher. For example, $20* meant that the patient paid $100. If the government proves that, they've proved the case. The total tax evasion is alleged to be about $364,000.

The trial will likely last another few days.

Today in San Diego a federal judge will hear arguments in a case between the Rincon Indian tribe and the State of California. The battle is over whether or not California negotiated in good faith over a compact with the Indian tribe for more slot machines for the Rincon Indian's casino (north of San Diego).

An expert from the state estimated that the 500 additional slot machines proposed for the tribe's casino would bring in just under $40 million a year. The tribe argues that California wanted about $38 million of that as the fee for the allowing the additional slot machines. The tribe argues that the state did not negotiate in good faith, and that the $38 million would be a "tax" rather than a fee.

On the other hand, California argues that they have negotiated in good faith; that they have reached agreements with numerous other tribes, including the neighboring Paula tribe; and that the additional machines would bring in money for the Rincon tribe.

A decision will likely be announced in a few weeks.

News Story: Here.

Later this week I need to bring my car in for service. The auto repair shop I use is on the up-and-up. However, not all of them are. Today, the Tax Court looked at a Colorado muffler shop which apparently decided to use the Cook/Schulz method of tax preparation. The results weren't pretty.

Colorado Mufflers Unlimited, Inc. is exactly what you'd think: a muffler shop in Colorado. Back in 2000, they decided to start paying their employees in cash. That's not necessarily a problem. But they didn't withhold anything from their employees' wages, didn't issue W-2s, didn't file Form 941 (or Form 940), and claimed that their employees weren't employees. The IRS disagreed, and audited the business, found that they were employees, and that the company owed about $100,000 in back employment taxes. The company took the case to Tax Court.

Adding to the company's problems was the fact that they requested a refund of employment taxes for early 2000 (they stopped paying them in the middle of the year) and they received an $88,000 refund in early 2001. The IRS filed a court case to get back the refund (there's nothing in the case that notes how that case went).

The company also lacked good timing; they filed court papers late, and their filings were not allowed. That was their first strike.

Second, the testimony showed that the "employees" were paid by the hour, week, or month—not by the job. In other words, they looked like employees.

Not only that but:

"Petitioner’s behavior during the audit and the pretrial preparation of this case was characterized by a consistent lack of cooperation and by considerable obfuscation designed to prevent respondent from ascertaining the facts regarding petitioner’s business, business payroll, and workers. It appears that petitioner used fictitious names and/or other companies to hide the nature and extent of its business activity from respondent during the years at issue."

That was strike two.

Then the Court looked to see whether an employer/employee relationship existed by evaluating seven factors. The Court found that all of the factors favored an employment relationship. Needless to say, the Court concluded, "After reviewing the record and weighing the factors, we conclude that petitioner has failed to prove that respondent’s determination treating the workers as petitioner’s employees was in error." That was strike three, and the case went to the IRS.

And the Court was not amused with the company's obfuscation and use of "frivolous or groundless" tactics. Even though the IRS did not ask for a penalty under §6673(a)(1), the Court imposed one of $3,000.

Case: Colorado Mufflers Unlimited, Inc. v. Commissioner, T.C. Memo 2007-222

Today, the IRS issued its 2007-2008 Priority Guidance Plan. These are the major issues the IRS expects to complete during the year. There are 303 items on the list.

Poker tournaments remain on the IRS' radar screen. Like the previous two Priority Guidance Plans, one of the 303 projects is issuing a revenue procedure regarding the withholding rules for poker tournaments.

Other items on the list that appear interesting include:
- Guidance on the treatment of wrap fees;
- Guidance under section 263A regarding the treatment of post-production costs, such as sales-based royalties;
- Revenue procedure under section 6213 regarding internet and oral change of address requests;
- Guidance under section 6676 regarding the penalty for erroneous claims for refund; and
- Guidance under section 6694, as amended, regarding the penalty for understatements of taxpayer’s liability by tax return preparers.

There's plenty more, especially in technical guidance issues. I'll point out (as I did last year) that many of these 303 items will not be addressed by the IRS during the coming twelve months.

While I've been gone for the last two weeks, I collected many stories about tax fraud. Here are just a few of them (if I included all of them, it would fill many pages of this blog).

Two members of a former Florida advertising agency pleaded guilty to conspiracy in a $1.5 million tax fraud. Michael and Michelle Cragan created bogus invoices, with the money mainly going to a third individual, Douglas Haase. Unfortunately for all concerned, the phony invoices were included on the business' tax return. And with Mr. Haase receiving $1.5 million that wasn't included on his tax return, we're not talking peanuts here. Mr. Haase previously pleaded guilty. All are looking at spending time at ClubFed when sentenced (plus restitution).

From Dickson City, Pennsylvania comes the story of Thomas Winnicki and his company Keystone Employee Benefits, Inc. He was in the employee leasing business. So far, so good. His clients paid him over $1 million for employment taxes that he was supposed to remit to the government. But when the business was going through a downturn, he used the $1 million for personal expenses rather than turning it over to the IRS. He pleaded guilty, and will be spending 18 months at ClubFed, and must make restitution of the over $1 million. The $100 "special assessment" he must also pay is the least of his worries.

A father-daughter team is accused of not paying taxes on $3.1 million of income. From Holmdel, New Jersey comes the tale of Anthony Ambrosia and his daughter, Lisa Derosa. The pair allegedly set up bank accounts in the names of children and other family members, and moved over $3.1 million into these accounts. They're also accused of "structuring," deliberately making deposits under the $10,000 federal currency transaction reporting limit. Mr. Ambrosia allegedly made numerous $9,500 deposits. His bank warned him about this, but he allegedly continued doing this. I suspect that the bank issues a Suspicious Activity Report (this isn't mentioned in the news story but appears to be a reasonable conclusion), and the IRS and DOJ followed-up and discovered the alleged misdoings. If convicted, both Mr. Ambrosia and Ms. Derosa are looking at lengthy terms at ClubFed.

Finally, two tax "gurus" won't be peddling their wares any time soon. I earlier reported about the convictions of Wade and Laura Cook. Wade Cook received 88 months—that's 7 years, 4 months—at ClubFed. As Joe Kristan reported,

"Mr. Cook doesn't seem to expect to appear before Judge Zilly again anytime soon:

Asked afterward to comment on the outcome, Cook remarked, "I'm not going to tell you that this judge is an a**hole. I'm not going to say that."

Good thing he showed so much restraint."

Joe also told the story of "We The People." Robert Schulz had been enjoined from providing a tax scheme that caused employees and employers to not withhold from wages. Additionally, the "We The People" webpage must display the injunction. As of now, it doesn't. Of course, expecting a member of the tax protester movement to comply with a ruling that would put him out of business (it's hard to sell a product when the first thing potential clients would see on your webpage is an injunction against selling that product) isn't a good bet. One last point: If you happened to be a customer of "We The People," expect a visit from the IRS in your future. "We The People" is required to turn over its customer list to the government.

So it was not a good week to be a fraudster. And it was an especially bad week for tax protesters, as two of their champions discovered that there is an income tax, and you must pay it.

There are good tax preparers, bad tax preparers, and bozo tax preparers. There have been two recent stories about the latter group—tax preparers, please don't copy their methods.

From San Jose, California, comes the story of Melinda Newens. The former Jackson-Hewitt employee had a neat method of making sure she had a profitable year: she increased the deductions on her clients' tax returns, adding phony deductions. She did this to increase her fees, as she took fees from the refunds (that's a violation of ethics rules). In any case, her scheme collapsed when the IRS found out about it. The loss to the Treasury was over $1 million. Ms. Newens received two years at ClubFed, and has been barred from being a tax professional in the future.

Harold Hunter used to be a tax preparer in Stanton, Mississippi. He'll soon be a ClubFed resident (for ten months). Mr. Hunter was kind to his clients; he, too, invented fraudulent deductions for his clients' returns. He pleaded guilty last year and was just sentenced. As part of his plea agreement, he will also no longer be a professional tax preparer.

I've been gone for two weeks (one week on vacation, one week in Florida on business), and California's budget situation is unchanged. The GOP wants a balanced budget, an agreement that Attorney General Jerry Brown won't sue developers over global warming issues. Democrats aren't budging, hoping that they can convince two GOP State Senators to change their positions. Otherwise, the budget is anything but balanced.

Meanwhile, the Los Angeles Times proclaims in an editorial, "You've Already Won, GOP." The Times states that the budget approved by the Assembly is a win for the GOP. It is, when compared with the original Democratic proposal.

But overall, wouldn't it be in California's best interest to have an actual balanced budget, and an Attorney General who helped California's economy grow rather than to use resources on wasteful lawsuits? California, in my opinion, needs a budget that's good for all of the state's residents, including our children (and grandchildren); they are the ones who will be paying back the debt we have been racking up over the past decade. It's time for California to bite the bullet and balance the budget.

For those of you who wish to hear more on this, the Exchange Club of Irvine will be hosting State Senator Tom Harmon (R-Huntington Beach) this Tuesday. Join us at noon at the Irvine Marriott (19000 Von Karman, just south of the 405 Freeway); I'm sure the budget impasse will be front and center in Senator Harmon's talk. If you are coming, please send me an email so that we can have enough seats for our visitors.

The passage of AB361 in California has modified California's Probate Code (§902). Beginning July 1, 2008, estate representatives must notify the Franchise Tax Board when an estate is opened for probate. Current law requires notification within 90 days by an estate's representative only if a claim from the FTB is deemed "likely."

The change in the law does not change the FTB's ability to file claims against an estate.

I'm heading to Florida tomorrow, so posting will be light to non-existent until the weekend. Until then, here's yet another story of someone who got into tax trouble from a strip club. And, yes, the name of the individual did grab my attention.

Matthew Fox (no relation) was a bouncer at an Atlantic City, New Jersey strip club beginning in 1998. Later he was the manager of the club. Last week a jury convicted him of five counts of tax evasion for not reporting the approximately $400,000 he earned from the club (and evading about $110,000 in taxes according to this story). Mr. Fox and his wife were acquitted on a count of criminal conspiracy.

The indictment alleged that Mr. Fox was paid in cash for his work, but didn't report the cash as income on his tax returns. Whether you are paid in cash, checks, or casino chips is irrelevant—in general, all wage income is taxable.

So if you do end up working at a strip club, do yourself a favor and report your income. It's a lot easier and cheaper to pay the taxes now then it is to find yourself in court on trial for tax evasion.