Taxable Talk

The second full day of jury deliberations in the trial of Wesley Snipes on tax evasion and conspiracy charges has come and gone. Jurors will return to work Friday morning at 9:00 a.m. in Ocala, Florida.

Today the jury presumably learned what "conspiracy" means. Here's the definition from Law.com: "[W]hen people work together by agreement to commit an illegal act. A conspiracy may exist when the parties use legal means to accomplish an illegal result, or to use illegal means to achieve something that in itself is lawful. To prove a conspiracy those involved must have agreed to the plan before all the actions have been taken, or it is just a series of independent illegal acts...." Yesterday the jury had sent a note to the judge asking for the definition.

The only other trial-related news to come out of Ocala is that the surety company that put up the bond to guarantee Mr. Snipes' appearance while he was filming a movie in Namibia asked to be released from that bond. Given that Mr. Snipes is back in Florida, everyone expects that motion to eventually go through. Of course, the surety company will need to follow the rules: Have the motion signed by a member of the Florida Bar. They didn't today, so the motion was denied. I'd expect that error to be rectified tomorrow.

Mr. Snipes will likely have to post a larger bond (the current bond is $1 million) if he's found guilty to stay free until sentencing. If Mr. Snipes is found guilty sentencing would likely be in about three to four months.

...it usually is. Suppose someone came up to you and told you that you could put your assets in a U.S. trust, then funnel the money into a foreign (offshore) trust, and then have the money return to the U.S. and you would be able to have the taxes magically disappear. Would you believe that scheme?

Well, there's a sucker born every minute and three individuals were there to take them. From Philadelphia comes the conviction of John Michael Crim, David Brownlee and Constance Taylor on charges of conspiring to defraud the IRS of $10 million. One other individual, Michael Crim (son of John Michael Crim) was acquitted. Six other unnamed defendants pleaded guilty earlier; one other individual awaits trial.

There was a lot of evidence in the case--70 boxes of evidence. There was also the testimony of three of the individuals who earlier pleaded guilty.

The one defendant who was acquitted should thank his lucky stars. Claire, a juror from Philadelphia, told the Philadelphia Daily News that Michael Crim was acquitted because he was, "too young to have mastered the business...and he was just a kid." Hopefully the younger Mr. Crim (who is a resident of Orange County, California) will learn from his brush with the law and mend his ways.

As for the three who were found guilty their bail has already been revoked (the judge found them to be flight risks) while they await sentencing scheduled for May. They're looking at lengthy terms at ClubFed.

The fate of Wesley Snipes is now in the hands of a jury in Ocala, Florida. Closing arguments were heard yesterday and it was more of the same. The prosecution noted the facts that Mr. Snipes didn't pay his taxes and that he allegedly worked hand-in-hand with his two co-defendants to not pay the IRS (and the government) the taxes that were owed and even filed a false claim for refund. As Ocala.com reported, "Nobody likes paying taxes. Nobody," Prosecutor M. Scotland Morris said. "But paying taxes is the privilege we pay to live in a civilized society ... That's what this case is about -- three men who believe they are above the law. They're not above the law. Tell them that."

On the other hand, defense attorney Robert Barnes characterized Mr. Snipes as a patriotic American. "It may have been protest. Protest is not criminal. It may have been disagreement. Disagreement is not criminal. It may have been frivolous. Frivolous is not fraud."

But what about not filing tax returns for six years? To this observer that sure looks like tax evasion. However, that's not what Mr. Barnes told the jury. He believed that Mr. Snipes must be acquitted to uphold American freedoms. "The liberty to ask questions ... the liberty to challenge your government. The liberty to engage your government. These liberties are American liberties. The Liberty Bell may be cracked in Philadelphia, but it can still be heard in Ocala."

I believe the most apt comments came from Robert O'Neill, U.S. Attorney for the Middle District of Florida. He told the jury, "We are taught from an early age that we have to pay our taxes. Everybody knows that -- except these three men...Is it not deceitful to file one frivolous claim after another?... Any more obvious attempting of this would be very hard to imagine."

Jury deliberations did not begin until 4:40pm yesterday, and ended at 5:00pm. They are continuing this morning in Ocala. If I were Mr. Snipes, I wouldn't plan on accepting any acting roles for the next few years.

Other Coverage: Roth Tax Updates

Governor Schwarzenegger's health care plan has been defeated in a State Senate Committee. The Governator's plan would have forced most individuals into purchasing health insurance. It would also have introduced three new taxes.

The measure was rejected because even Democrats wondered where the money would come from given California's budget crisis. The state faces a $14.5 billion budget deficit. Proposing large new spending and more taxes in a time of monetary shortfall in an election year doesn't even fly with Democrats.

I was wrong about the trial running another two to three days. The defense rested this morning in Wesley Snipes' tax evasion trial in Ocala, Florida. Daniel Meachum, one of Mr. Snipes' attorneys, made this statement: "We chose not to call witnesses because there was no need to. The government prosecutors have put on a case that simply does not come close to meeting the standard of its burden of proof. It was obvious after we went over the evidence the government presented that we could move on to closing arguments immediately and get a just acquittal for Wesley on all counts listed in the indictment"

Well, let's evaluate where we're at in the trial. Now of course I don't have the benefit of actually listening to the evidence, but it seems clear to me that (a) the prosecution has proved that Mr. Snipes earned around $38 million; (b) that Mr. Snipes never filed a federal tax return for the years in question; (c) that he threatened IRS agents; (d) that he was told by his former accountant and by one of his employees that he had to pay taxes. Maybe I'm missing something, but that to me looks like an open and shut case of tax evasion. Mr. Snipes was supposed to file a return and didn't.

Now, as to proving conspiracy my understanding is that the government must prove (a) that a crime occurred, and (b) that Mr. Snipes was an active part of causing that crime to occur. On this count of the indictment I don't know without a review of the evidence whether or not the charge has been proven. In any case it will be up to the jurors in Ocala to decide.

Closing statements were scheduled for Tuesday morning. I would expect verdicts within a couple of days.

It's not a dumb question. The TaxProf Blog quotes a piece in Tax Analysts that states that the IRS is aware of tax blogs.

"The tax press has played an increasingly important role in the IRS's communications strategy as the number and form of media outlets have proliferated over the last 25 to 35 years, IRS Chief Counsel Donald Korb said at a January 18 session of the American Bar Association Section of Taxation midyear meeting in Lake Las Vegas, Nev....

"Tax bloggers have gone a step beyond what traditional media can do and have 'democratized' the way tax news and other information reach people who may not have had access to such information before the Internet age, Korb said. People no longer have to have subscriptions to tax law publications or be in Washington to get that information, he said. Tax blogs such as TaxProf Blog, which is run by Paul Caron, a University of Cincinnati College of Law professor, 'are a great tool to get information out to a particular group,' he said."

The TaxProf Blog is, as Joe Kristan noted, "[the] king of our little tax blogging world." I do know that I have readers at California's Board of Equalization because they've emailed me about some stories I've written in the past. I believe (based on visitor logs) that some individuals at the Franchise Tax Board and the IRS have stopped in and perused Taxable Talk.

The media has definitely changed from even ten years ago. Today there are tax blogs, and tax issues are followed more by the general public. I think that's for the better as problems are discovered far quicker and the public is much better educated about the consequence of tax law.

Hat Tips: TaxProf Blog, Roth Tax Updates

I recently wrote an article for Poker Player Newspaper on taxes for poker players (I'll post a link to the article in about a week when it's up on their website). This morning I received an email that states,

"You said that people must sign their tax returns under perjury (which subjects them to potential criminal liability), but failed to mention the US Constitution's 5th Amendment: ". . . nor shall be compelled in any criminal case to be a witness against himself . . " Since tax return information can be used against a filer in a criminal prosecution, this makes the filing/signing of the tax return voluntary.

...If you can show me in the Infernal Revenue Tax Code where it makes the filing of a tax return mandatory, then I will be glad to recant my objections...."

I'm always happy to help, and for any other tax protesters out there, please read this carefully.

You must file a tax return if your income is above the statutorily determined amount of gross income during the tax year. See either the Tax Protester FAQ or the IRS' page on frivolous tax arguments. As for the Fifth Amendment claim that's implied in the email I received, "It is well settled that the Fifth Amendment general objection [to filing a proper tax return] is not a valid claim of the constitutional privilege." Betz v. United States, 753 F.2d 834, 835 (10th Cir. 1985) The Tax Protester FAQ has plenty more to say about this specious argument.

Every year I get emails like this one. I choose one to respond to on the hopes (probably forlorn hopes) that the one lucky individual will see the light. I know I'm likely wasting my time. Eventually, though, that individual will have an IRS Special Agent or law enforcement officers from his state knocking on his door and telling him, "You have the right to remain silent...." If you want to send me an email like the one I received feel free to do so. I only respond to one a year because, as the Tax Court routinely says, "Their arguments that this income was not taxable are frivolous tax-protester arguments that we need not “refute * * * with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)." [Quoted in Callahan, et. al., v. Commissioner, T.C. Memo 2007-301] So go ahead and waste those electrons!

The trial of Wesley Snipes and his tax advisors continued in Ocala, Florida last week. The prosecution rested its case on Friday; the defenese will begin presenting its evidence on Monday. The last government witness, IRS agent Steward Stich, testified that Mr. Snipes earned over $37,897,053 from 1999 through 2004 but didn't pay a penny in taxes.

Earlier, testimony showed that Mr. Snipes sent a 600 page letter to the IRS. Why? Joe Kristan takes up this part of the story:

If you were indicted on federal tax charges that could put you in prison for years, would you:

a). Pour yourself a stiff drink.
b). Flee the country
c). Call a good lawyer and devote your time to preparing your defense
d). Write a 600-page letter to the IRS telling them not to mess with you.

Wesley Snipes chose option "d," according to testimony in his tax evasion trial as reported at Ocala.com:

After being indicted in 2006, actor Wesley Snipes sent a document to the Internal Revenue Service declaring he was a "nonresident alien" of the United States, refuting his Social Security number and warning that continued prosecution could lead to professional consequences for federal employees.

Among other things, the letter claimed the IRS deceives people to "terrorize, enslave, rape or pillage" taxpayers.

Don't be silly. Terrorize and pillage, sure. Enslave and rape? I haven't seen that out of the IRS.

The IRS does many things, but a picture of a bunch of accountants laying siege on a Dark Ages town is just hard to believe.

The defense did get one ruling to go there way on Friday. Accountant Kenneth Starr was ordered by Judge William Terrell Hodges to provide the information requested of him by the defense or be held in contempt of court. Mr. Starr has ten days to comply.

As to what to expect from the defense, I have no idea. Defense attorney Robert Barnes said there's a chance that Mr. Snipes might testify. There's speculation that testimony will focus on Snipes' advisors providing bad advice (i.e. telling people they didn't have to pay taxes). The problem with that is that if you get bad advice you don't have to take it. Snipes was told by others to pay his taxes; I doubt that line will work. Additionally, we may see celebrity testimony (though Judge Hodges hasn't yet ruled whether that testimony will be allowed).

Meanwhile, Robert Bernhoft, one of Snipes' attorneys said, "It's the weakest conspiracy case I've ever seen in my life, that's all I can say. Were looking forward to defense, were looking forward to closings and we're looking forward to vindication." And the trial likely will conclude next week as the defense now only expects to put on evidence for two to three days.

It should be an interesting week in Ocala.

The end of the week didn't bring an end to tax fraud. There's a lot to report as the fraudsters have been especially active.

First, let's look at two former public servants. From outside of Atlanta comes the indictment of former state Representative Charles "Chuck" Scheid (R-Woodside) on charges of not filing a state tax return in 2005 and evading taxes in 2003. This isn't the first time Mr. Scheid has had tax troubles; he had a tax lien of over $18,000 assessed against him in 2006. Reporters attempting to speak to Mr. Scheid discovered that his phone has been disconnected.

Let's go to Shreveport, Louisiana where former Louisiana state Senator Charles Jones (D-Monroe) has been indicted by a federal grand jury on two counts of filing a false tax return and one count of tax evasion. Mr. Jones is accused of substantially understating his gross income in 2003 and of filing a false amended tax return for 1999. The indictment alleges that Mr. Jones took monies due him for legal fees and converted them to cashier's checks which he used to buy property. It's a great scheme if you can get away with it....

Next, we head to Salt Lake City where three individuals pleaded guilty to tax fraud. The three were part of a scheme that successfully (for awhile) kept $20 million out of the Treasury. Graham Taylor, an attorney from Tiburon, California, and two CPAs, Stephen Peterson, of Coalville, Utah, and Reed Barker, of Littleton, Colorado all pleaded guilty to tax fraud. Also under indictment are six other individuals; their trial is set to begin on Monday in Salt Lake City. The scheme involved a tax shelter called "The Hybrid," and used Cayman Island nominees. The scheme alsoutilized offshore companies, foreign bank accounts, and fraudulent transactions. The six remaining defendants are looking at very lengthy terms at ClubFed if found guilty.

Finally, on a somewhat lighter note, Robert Sass of Tampa, Florida will spend a year and a day at ClubFed for his conviction on tax evasion. Mr. Sass owned a lingerie modeling business called Sophisticats, Inc. Mr. Sass' business appeared, though, to be more prostitution and less modeling; he charged "room fees" in cash for his models. Somehow those fees didn't make it on to his tax returns. Oops; illegal income is taxable. The judge noted that Mr. Sass' relatively light sentence is due to his declining health (Mr. Sass is 70).

If you use the federal EFTPS system to pay your federal taxes you must update your password. EFTPS now requires passwords to be eight to twelve characters long, containing at least one uppercase letter, one lowercase letter, and one number or special character. You can change your password at the "My Profile Internet Password Management page."

Hat Tip: Roth Tax Updates

It's time to look at the last four propositions on the February 5, 2008 California ballot. Propositions 94 - 97 would allow four tribes to dramatically expand their Indian casinos in California (each proposition is for one of the four compacts involved). The casino expansion would be just for additional slot machines.

California Indian casinos have what is known as "Class 2" gaming. These slot machines (including video poker) all have a predetermined outcome once you pull the lever. And they operate on a "pull tab" basis. If there are 100 possible outcomes, once outcome #2 (say) is pulled, that outcome cannot come up again until all the other outcomes have occurred. The house advantage in these games is huge; as we saw in a Tax Court case decided this past week, it's practically impossible to be a long-term winner on these slot machines. So these additional slot machines will act as a tax on the dumb gambler.

These compacts also have quite a history. They were sent to the Department of the Interior for their approval, but some bureaucrat forgot to review the compacts. So they were automatically approved.

Meanwhile, two tribes that don't want the expansion, unions which want to unionize the workers, and anti-gambling forces got the measures on the ballot. Note that a "yes" vote on each proposition is a vote for the additional slot machines. So the measures are supported by some Democrats, some Republicans, and some tribes and opposed by some Democrats, some Republicans, and some tribes.

There is a certainty about these measures, though. No matter who wins the next stop for these propositions is court.

Today the Tax Court looked at the case of a "pathological gambler." This isn't a problem gambler. As the Court noted,

"A pathological gambling disorder is a type of impulse control disorder and mental illness, not an “addiction”. This disorder is accepted by the scientific community and is in a category with kleptomania (the impulse to steal stemming from emotional disturbance rather than economic need) and trichotillomania (pulling hair). Dr. Pike concluded that Mr. Gagliardi suffered “from the almost delusional belief that if he gambled long enough, he’d win everything back or break even.”"

The IRS claimed that this pathological gambler didn't have any back-up to claim his gambling losses from 1999-2001. The taxpayer disagreed. Which side did the Court believe?

The preferred method of keeping a record of gambling wins and losses is through a gambling log. The gambler in question, Mr. Gagliardi, didn't do that. He had won the lottery in the early 1990s and began, in the late 1990s, to use the proceeds to gamble on slot machines at local Indian casinos. He didn't keep a log; however, he did keep all of his W-2Gs (issued when he won a jackpot of $1200 or more) and his ATM receipts. Mr. Gagliardi testified during the trial Mr. Gagliardi opined that he “could wallpaper my
bathrooms with just the ATM receipts for millions of dollars.” His ex-girlfriend also testified to his gambling.

But this wasn't good enough for the IRS. They didn't believe Mr. Gagliardi, and believed that the only method to substantiate losses was through a gambling log. The Court noted that this isn't the case.

"At trial respondent’s counsel had great difficulty explaining exactly what a “gambling log” is and what petitioner should have recorded in a gambling log. Respondent’s counsel stated that it was not realistic for someone to keep track of every bet and that the revenue procedure does not require taxpayers to keep track of every bet (i.e., the revenue procedure does not require a taxpayer to list how much he/she bet for each slot machine “pull”). Respondent’s counsel contended that to keep a log for slot machine play, per the revenue procedure, a taxpayer must know how much was wagered and how much was lost and record it contemporaneously. But see id.

"We also note that the revenue procedure provides that “Verifiable documentation for gambling transactions includes but is not limited to” Forms W-2G, wagering tickets, canceled checks, credit records, and bank withdrawals--all of which are present here. Id. sec. 3, 1977-2 C.B. at 538. Additionally, the revenue procedure provides a method, keeping a gambling log, that the IRS will consider as acceptable evidence for substantiation of wagering winnings and losses. Id. It does not contain the exclusive method for substantiating gambling losses. Id. sec. 1, 1977-2 C.B. at 538 (“The purpose of this revenue procedure is to provide guidelines to taxpayers concerning the treatment of wagering gains and losses for Federal income tax purposes and the related responsibility for maintaining adequate records in support of winnings and losses.”)."

Mr. Gagliardi also had two expert witnesses who testified on his behalf. Dr. Suzanne Pike (noted above) testified that Mr. Gagliardi was a pathological gambler, and as the Court noted, "Dr. Pike stated that a pathological gambler, such as Mr. Gagliardi, who walks away from a casino with money will, with an extremely high probability, go back to a casino the next day with the money." In fact, the outlook for Mr. Gagliardi is bleak if he continues gambling. The Court stated in a footnote,

"We note that Dr. Pike testified that, unlike recreational and problem gamblers, pathological gamblers take the “gambler’s fallacy” to a delusional level--they believe if they gamble long enough, they will win back all their losses and even more. Dr. Pike also opined that, unless treated for his illness, Mr. Gagliardi will gamble until he dies or loses all his money."

Also testifying for Mr. Gagliardi was Mark Nicely, a casino gaming expert who currently works at International Game Technology, a leading manufacturer of slot machines. Mr. Nicely testified that at the Class 2 machines that Mr. Gagliardi gambled, his chance of breaking even was worse than one in one trillion. At the casinos Mr. Gagliardi gambled the 'payback' on slot machines is probably worse than 90 percent (likely either 83% or 70%).

The IRS had no counter to the testimony which showed fairly conclusively that Mr. Gagliardi gambled and lost. His gambling losses were upheld.

There are two other important points to this case. First, Mr. Gagliardi had to go to Tax Court, hire two attorneys, have expert testimony, and then he won his case. Had he kept a gambling log it's likely he wouldn't have needed to go through the effort. And second, the IRS has a lot of problems dealing with gamblers. Most of the personnel within the IRS doesn't have experience with gambling, and even an IRS attorney had trouble explaining an IRS-suggested procedure on gambling (a gambling log).

Case: Gagliardi v. Commissioner, T.C. Memo 2008-10

The last two days of the Wesley Snipes trial on tax evasion and conspiracy charges has been full of paper. The government has been entering into evidence numerous documents that they claim show proof that Mr. Snipes has evaded taxes.

Today, Ocala.com reports that IRS Agent Cameron Lalli testified, identifying various documents. It's not exciting, but the government is building a paper trail so that the jury can see exactly what happened. Dotting the i's and crossing the t's is necessary for convictions.

Meanwhile, it appears that the trial may last a couple more weeks. Defense attorney Robert Barnes "...proposed introducing several exhibits that went as high as [number] 308." That's a lot of exhibits. The prosecution has objected to all of those exhibits; Judge William Terrell Hodges appears to so far have allowed one of the 308 to be introduced. The defense will have to wait for Judge Hodge's ruling on the other 307 exhibits.

An online betting site has posted odds on whether Wesley Snipes will find his way to ClubFed or not. According to Gambling911.com, BetCris.com has posted these odds on Mr. Snipes:

Will Wesley Snipes be convicted of tax fraud?
Yes 1/10
No 3/1

Wesley Snipes' tax fraud sentence will be...
Convicted 1 - 5 years: 1/3
Convicted 5 - 10 years: 7/4
Convicted 10 - 16 years: 10/1
Not Convicted: 5/1

The best comment is from BetCris' spokesman, Esteban Siles, who told Gambling911, "I don’t understand why people refuse to pay their taxes. If it didn’t work for Al Capone or Tony Montana, then why would tax evasion work for anyone else?"

The IRS released the statistics on the most recent tax season last week. The good: customer satisfaction with the IRS toll-free telephone line (for answering tax questions) has risen to 94%. Do note that there is still a significant chance of the IRS giving you the wrong answer to your question but at least you'll be happy.

The bad: audits are up. These statistics are from the 2006 fiscal year:

- If your income was more than $1 million, your chance of being audited was 9.25%, up from 6.3%. That's an increase of 84%;

- If your income was between $200,000 and $1 million, your chance of being audited was 2.87%, up from 2.57%. That's an increase of 29%;

- If your income was between $100,000 and $200,000, your chance of being audited was 1.77%, up from 1.67%. That's an increase of 14%; and

- If your income was under $100,000, your chance of being audited was 0.93%, up from 0.89%. That's an increase of 5%.

[Note that the percentage increases are based on the total number of audits (which I'm not reproducing here), not the change in the percentage of individuals being audited.]

No matter, your chance of being audited has increased. The IRS (and Congress) have figured out there's money to be made in audits, so don't expect this trend to change any time soon.

Other Coverage: TaxProfBlog, Roth Tax Updates, and Don't Mess with Taxes.

One of my links is to the Bozo Criminal of the Day. During tax season I need all the humor I can get. Today's Bozo Criminal entry is one that I passed on, and involves two Miami gang members who challenged the cops on YouTube to arrest them. They did.

Here's a link to the video, and here's the news story I got it from.

If you believe Robert Barnes, one of the attorneys for Wesley Snipes, the first week of Snipes' trial went well. Mr. Barnes told the Ocala Star-Banner, "I think what they [jurors] saw was that Mr. Snipes openly, honestly engaged the IRS for years ... and never received any meaningful response." That's one way of looking at the first week of the trial.

To this observer who is, though, looking at the trial from 3000 miles away, it doesn't look like Mr. Snipes had a good week. First, Mr. Snipes went to trial in a locale which he has previously described as "racist," Ocala, Florida. An attorney that Mr. Snipes supposedly dismissed showed up as one of his attorneys, too. Second, the prosecution has presented evidence showing that Mr. Snipes' previous accountant, Kenneth Starr, told him that the idea that he didn't have to pay income tax on his millions of dollars of income was laughable.

I don't think things improved on Friday. According to Ocala.com, an ex-employee of Mr. Snipes' film production company, Carmen Baker, had some collaborating evidence of Snipes' behavior. Ms. Baker told the Court after hearing co-defendant Eddie Ray Kahn's theory that Americans don't have to pay taxes, "I was told by Mr. Snipes, Was I not paying attention? Did I not understand what I was just shown? I didn't believe it. I thought it was bogus from the beginning."

Ms. Baker made the wise decision (in my view) to consult another accountant. Mr. Snipes, though, had other ideas about the wisdom of that decision. Ms. Baker told the Court, "I got called into the office, and I was told that I was being a difficult employee and told that I should not have called an accountant. [Mr. Snipes] said, 'If you're not going to play along with the game plan, then you need to find employment elsewhere.'"

Mr. Snipes didn't want her talking to the government even under subpoena. "He said if you do contact them you will have to pay the consequences," Ms. Baker told the Court. Although Ms. Baker was under a non-disclosure/confidentiality agreement, a subpoena overrides such an agreement.

There was more evidence presented on Friday. Mr. Kahn's company prepared 'bills of exchange,' and the government introduced several such bills sent to the IRS by Mr. Snipes. Though Mr. Snipes' attorneys asked for a mistrial after several witnesses described such documents because this was evidence (in Mr. Snipes' attorneys view) solely applicable against Mr. Snipes' co-defendants, the mistrial was granted. Given that Mr. Snipes sent such documents to the IRS they appear to be yet another link in the chain.

At this point the only thing we know about the defense is that they plan on calling character witnesses such as Barbara Walters and Muhammad Ali. I think they're going to need a lot more than that for Mr. Snipes to avoid spending significant time at ClubFed. The trial will resume on Tuesday in Ocala.

There's been plenty of tax fraud activity besides Wesley Snipes over the past few days. Here are some of the more interesting cases.

From Las Vegas comes the case of a truly Bozo plan. Keith Carthon created some phony W-2s, and then sent them to some friends who filed them. Of course, those returns all had refunds....The IRS figured out the scheme, and Mr. Carthon will spend 27 months at ClubFed. His co-defendant, Ramona Brock, will be tried in March for the same crimes.

From Dearborn, Michigan comes the story of someone who accurately reported part of his income. The trouble was that you're supposed to report all of your income. Yousef Safiedine owned a gas station, and leased it to a relative. He reported about 40% of the rental income he received, $134,000 per year from 1999 - 2001. However, he didn't report an additional $160,000 each year. Mr. Safiedine was found guilty of filing a false tax return signed under penalties of perjury. He'll be sentenced in May, and is likely looking at a short stay at ClubFed.

From the political corruption files, we head to Gary, Indiana. Three politicians arranged for the Gary Historical and Cultural Society to take over a closed supermarket. So far, so good. They then arranged for the Historical and Cultural Society to sell the closed supermarket to the Gary Urban and Enterprise Association for $200,000. That doesn't sound good, but the transaction was likely legal. And it sounds worse when the politicians kept $150,000 as a "finder's fee." And it got much worse for them when they didn't report the $150,000 on their tax returns and got caught, tried, and convicted. Will Smith, Jr. received 15 months at ClubFed, Roosevelt Powell got 37 months, and Willie Harris got 55 months.

Hopefully, you won't follow in these individuals' crooked footsteps. For ClubFed isn't much fun.

Remember Richard Hatch, the Survivor winner who decided not to report his $1 million in winnings? Mr. Hatch, who is now residing at ClubFed, went to his accountant and was told he had to pay taxes on his winnings. He asked his accountant what would happen if he didn't include his $1 million prize, and was told he'd get a small refund. He asked his accountant to prepare that return; the accountant did, but stamped "Do Not File" on the return. Mr. Hatch filed the return and the rest is history.

Mr. Snipes appears to have engaged in similar behavior. He called his tax accountant, Kenneth Starr of Starr and Company, and told Mr. Starr that he didn't have to pay taxes. "I said that was ridiculous; that everyone has that obligation. He said he had spoken to some people that said he didn't have to," Mr. Starr told the Ocala, Florida court yesterday.

Mr. Snipes had the not-so-perfect rejoinder, according to Mr. Starr. "He said, 'You always think you're right and you always think you know everything. You're not right about this.'" Mr. Starr then sent a letter to Mr. Snipes terminating their accounting relationship.

Under cross-examination Mr. Starr was asked whether he had sent a written notice to Mr. Snipes that he had to pay taxes. The AP report notes, "Starr said he didn't have to; he told Snipes on the phone and needed nothing further to terminate their tax arrangement."

Joe Kristan has more at Roth Tax Updates.

Even bureaucrats can eventually be persuaded that a stupid idea is stupid. The California Energy Commission announced on Tuesday that they are dropping the requirements for radio-controlled thermostats from the Title 24 regulations.

The public outcry was fairly intense; it was a subject on several Los Angeles talk radio shows. And everyone who called in—Republicans and Democrats and others—all thought the idea was bad. Chairman of the state Assembly Committee on Utilities and Commerce, Lloyd Levine (D-Van Nuys) put it well, telling the San Francisco Chronicle, "While more needs to be done to keep up with the needs of our ever-increasing population, it's not the job of the (state) to go into peoples' homes and control their thermostats."

Opening arguments were heard in Ocala, Florida in the trial of Wesley Snipes. Prosecutors called Snipes a tax evader, and that he didn't pay $35 million in taxes from 1999-2004 according to this Fox News story. Prosecutor Robert O'Neill told the jury, "The defendants Snipes, Kahn and Rosile willfully agreed to defraud the United States of revenue it was due."

But that's not how the defense views it. Robert Bernhoft, one of Snipes' attorneys, said that Snipes was willing to pay his back taxes once he heard from the IRS. Another of Snipes' attorneys, Daniel Meachum, said that Snipes had been duped by bad financial advisers.

Ah yes, Mr. Meachum. He's the attorney that Snipes axed for "poor representation" last year. As Joe Kristan noted, he reappeared on Tuesday:

"So who shows up at his lawyer's table yesterday but Daniel Meachum? From the A.P. report:

"'...Snipes now has two choices: keep Meachum off the case or waive his previous claims of ineffective counsel. Waiving the claim might prove to be a problem if Snipes were convicted, since that could provide fertile ground for a possible appeal.'

"...It makes it look as though the prior 'firing' may have been just a cynical delaying tactic."

I guess the defense chose waiving the claim, as Mr. Meachum was present today. In any case, tomorrow brings the first evidence and testimony in the case. Who knows, maybe Mr. Meachum will be asked to disappear again?

Proposition 93 on California's February 5th ballot would change the current term limits structure. While it would lessen the overall amount of time a politician could stay in office, it would lengthen the amount of time one could spend in either the State Assembly or State Senate. The proposal was orchestrated the current Speaker of the Assembly and the current President Pro Tem of the State Senate.

Guess what—unless this measure passes they'll be termed out of office at year-end. The current dysfunctional nature of Sacramento (and how much the current leadership in Sacramento has caused that to happen) will definitely impact how I will vote on this measure. Make up your own minds and vote on February 5th.

Day 1 of the Wesley Snipes trial has come and gone in Ocala, Florida. Jury selection began but did not conclude today.

The day began for Mr. Snipes in a prayer service. At an Ocala church Mr. Snipes was joined by 22 pastors and 150 friends before the trial began at 9:30 a.m. local time. Mr. Snipes is accused of making a false income tax return and not filing his tax returns for several years.

Then jury selection began. Judge William Terrell Hodges first read off a list of prosecution witnesses: accountants, investigators, and the like. Jurors are always asked if they know a witness (the goal is an unbiased jury). Then the attorneys for Mr. Snipes read off their witness list. Tax experts, they weren't: movie director Spike Lee, actor Woody Harrelson, actress Goldie Hawn, newscasters Tom Brokaw, Barbara Walters, and Diane Sawyer, and former boxer Muhammad Ali.

Though jury selection was supposed to finish on Monday it hadn't when court adjourned for the day. Jury selection will likely conclude on Tuesday; opening arguments will also likely be heard then.

Finally, thesmokinggun has a contribution today. They present a convenient chart showing his income and at what level you have to pay taxes. The second through fourth pages show some sort of legal document Mr. Snipes filed in Orange County, Florida (Orlando). I can't figure it out, and neither could thesmokinggun.

The defense estimates that the trial will last about a month. It should be interesting....

News Stories: AP, Orlando Sentinel

Every year the IRS releases a list of positions that will be considered frivolous under Section 6702 of the Internal Revenue Code. Today, the IRS issued Notice 2008-14. There are some new positions that will be considered frivolous:

• (9)g. The Ninth Amendment exempts those with religious or other objections to military spending from paying taxes to the extent the taxes will be used for military spending.



• (11) Only fiduciaries are taxpayers, or only persons with a fiduciary relationship to the United States are obligated to pay taxes, and the United States or the Service must prove the fiduciary status or relationship.



• (14) A taxpayer who is employed on board a ship that provides meals at no cost to the taxpayer as part of the employment may claim a so-called “Mariner’s Tax Deduction” (or the like) allowing the taxpayer to deduct from gross income the cost of the meals as an employee business expense.



• (25) A taxpayer may claim the section 6421 fuels tax credit, which is limited to gasoline used in an off-highway business use, even though the taxpayer did not purchase and use gasoline during the taxable period for which the credit is claimed for an off-highway business use. Also, if the taxpayer claims an amount of credit that is so disproportionately excessive to any (including zero) business income reported on the taxpayer’s income tax return as to be patently unallowable (e.g., a credit that is 150 percent of business income reported on Form 1040) or facially reflects an impossible quantity of gasoline given the business use, if any, as reported by the taxpayer.

The penalty for filing a frivolous return is $5,000. As a reminder, the IRS notes,

"Returns or submissions that contain positions not listed above, which on their face have no basis for validity in existing law, or which have been deemed frivolous in a published opinion of the United States Tax Court or other court of competent jurisdiction, may be determined to reflect a desire to delay or impede the administration of Federal tax laws and thereby subject to the $5,000 penalty."

There are 43 positions listed in the notice; I only copied the "new" positions for the 2007 tax filing season. As I've said repeatedly, there is an income tax and you must pay it or suffer the consequences.

Wesley Snipes goes on trial today, facing charges of tax evasion, failing to file tax returns, and filing a false claim for an income tax refund. The TaxProf Blog has a post with links to the various media coverage of the trial; Joe Kristan also has a report on Snipes' use of the 861 defense (and its likely failure).

As there are developments I'll continue to post on United States v. Snipes.

There's a typographical error on Schedule CA for Form 540. This is the form used by Californians to adjust their income and deductions from their federal tax returns to California's.

The form mailed to California residents has an incorrect reference on side 2, line 38:

Line 38 currently reads:

38. Federal itemized deductions. Add the amounts on federal Schedule A (Form1040), lines 4, 9, 13, 19, 20, 27, and 28.

Line 38 should read:

38. Federal itemized deductions. Add the amounts on federal Schedule A (Form1040), lines 4, 9, 15, 19, 20, 27, and 28.

The instructions on page 56 of the Resident Booklet for Schedule CA (540) contain the correct line number reference.

Note that the online version of the form is correct (as are all other versions). The software that I use calculates the value on line 38 correctly.

News Story Here

Last week Ronald Lupica was sentenced to 15 months at ClubFed plus restitution for defrauding ARC, a Connecticut trash company, and not reporting the $1.4 million he and a confederate stole on their tax returns. Besides the $1.4 million owed to ARC, another $249,111 (plus interest) must be paid to the IRS. Just a simple case of fraud and tax evasion, right?

Not exactly. The article in the Connecticut Post notes that ARC's owner, James Galante, is under indictment on federal racketeering charges. Mr. Galante allegedly got his funding from the Genovese crime family (aka the Mob).

And this all comes from the most benign of ideas: recycling paper. Sometimes good ideas lead to bad results.

Yesterday, Judge Thomas F. Stansfield dismissed the lawsuit challenging Maryland's $2 billion tax increase. "Although the Court is inclined to agree with the Plaintiffs regarding the reprehensible nature in which the Legislature conducted itself, the remedy they seek in redress is too drastic a notion to accept," the judge said.

The five Republican lawmakers and the Carroll County (MD) businessman who brought the suit will decide today whether or not to appeal the decision.

Dessie Nelson, the ex-GSA official who sent various contracts (illegally) to Michael Holiday (after receiving bribes) pleaded guilty to accepting bribes and tax evasion.

Mr. Holiday and other contractors forwarded over $100,000 in bribes of cash, vacations, and other items to Ms. Nelson. She then recommended Holiday's company for lucrative government contracts.

Ms. Nelson will be sentenced in June. Mr. Holiday will be sentenced on January 23rd.

AP reports that four individuals who promoted an alleged tax evasion program were arrested. The Department of Justice alleges that the four, Joseph Oquendo Saladino, Richard Allen Fuselier, Marcel Roy Bendshadler, and Michael Sean Mungovan (A.K.A. “Cajun Mike”) sold a program that cost the Treasury $7.5 million in tax losses. Their programs were offered through the "Freedom and Privacy Committee."

While the US Attorney's office in Portland, Oregon didn't identify the specific programs (AP noted, "No details about the program were available, but federal prosecutors said it was not computer software."), it's easy to find out. Just go to their still operating website (but probably not for long), and click on "products/services," and you see this page. Here's some of the snake oil products they offered:

- For just $4,595 you can buy "Common Law Court Litigation." As that webpage shows, you get to litigate in a "common law court." Hey, they've gotten stays of actions (but I don't see information as to how permanent and long-lasting those stays were). I wonder if the four arrested individuals will petition to have their cases heard in the "common law court" rather than the US District Court. (Hint: There is no such thing as a "common law court.") Remember, they "...will report more as we continue to litigate and as we complete litigation in the Supreme Court of the United States." I wouldn't hold your breath.

- For just $1,095 you can buy the "Affidavit/Statement Program." As they note on this web page, "United States law, at 26 U.S.C. Section 6011(a)i, allows you to file a Return or a Statement...." They're correct. But you do have to have your forms compliant....At least this page notes, "FPC urges all its members to pay all taxes and to file all returns as required by United States law." Oh, I almost forgot to mention that besides the $1,095 you have to pay them 25% of any refund you receive over $1,000.

I think you get the idea. There's also a church program, an LLC program, and "Criminal Litigation Assistance." I know four individuals who need that right now.

If you're interested in these programs, I wouldn't wait around. They're not likely to be available for much longer. (I assume the US Attorney will ask for the website to be shut down and/or have a large disclaimer posted on it.)

Seriously, it's amazing that "more than 1000 returns" were prepared using the Freedom and Privacy Committee's products. But I guess people will do almost anything to avoid taxes except working with reputable tax preparers. As for the five accused (one is still at large), they're looking at very lengthy stays at ClubFed if convicted of Conspiracy to Defraud the United States.

Yesterday the 11th Circuit Court of Appeals dealt the final blow to Wesley Snipes' wish of a trial in the Big Apple (or anywhere but Ocala, Florida). They dismissed Snipes' motion to move the trial from Ocala and denied his motion to stay the start of the trial.

So Snipes' trial will definitely begin Monday in Ocala. It promises to inject some humor into the tax season for us bloggers but likely little humor for Snipes.

Poor Wesley Snipes. He'll have to spend several weeks in beautiful bucolic Ocala, Florida. Judge William Terrell Hodges denied Snipes' motions for a stay in the trial pending the ruling of the 11th Circuit Court of Appeals on Snipes' appeals of Hodges' earlier rulings. Given that the 11th Circuit hasn't issued an emergency stay of Snipes' trial (which they could have) it's all systems are go and Snipes' trial will almost certainly begin on Monday in Ocala.

So for Mr. Snipes' benefit, here are some of the attractions he has to look forward to while being on trial in Ocala:

- Ocala is the "Horse Capital of the World" according to their chamber of commerce. Visit a horse farm or the Ocala Carriage Museum.

- Go and see Always ... Patsy Cline at the Ocala Civic Theater (opens January 31st).

- Visit the Ocala National Forest.

- Play a round of golf at any of the 22 nearby golf courses and country clubs.

In any case, Wesley Snipes may wish to enjoy these diversions now as he may be spending a significant amount of time at ClubFed (where there just aren't that many diversions) in the near future.

Proposition 92 is one of seven propositions on the February ballot. (I just received a supplemental voters guide from the Secretary of State and my sample ballot.) Proposition 92 limits fee hikes at community colleges (what used to be called "Junior Colleges"). It also changes how California's education dollars are allocated, increasing the amount that goes toward community colleges.

Surprise, surprise: Community college leaders are for the proposition. Lining up against the proposition are the California Chamber of Commerce, the California Taxpayers' Association, and some K-12 teachers. They claim that Proposition 92 gives a "blank check" to fund community colleges, lack accountability, and California is facing a budget deficit.

Make up your own mind, and remember to vote on February 5th.

The IRS just released a fact sheet on what to look for in a tax preparer. Here's what they say:

• Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
  
• Avoid preparers who base their fee on a percentage of the amount of the refund.
  
• Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
  
• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
  
• Review your return before you sign it and ask questions on entries you don't understand.
  
• No matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
  
• Find out the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
  
• Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
  
• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

Joe Kristan at Roth Tax Updates has added on to this list with some hints of his own. My favorite is, "Find out if the preparer is affiliated with a professional organization that provides its members with lists of countries without extradition and holds them to a code of silence." It's a quite humorous list, well worth reading if you have the time.

If you are seriously deciding about what to look for in a tax preparer, Kerry Kerstetter has a great post well worth reading.

If you are looking for a preparer, he or she will appreciate it if you start your search now rather than waiting until mid-March. Most preparers have a lack of free time as the April 15th deadline approaches.

The last time I checked I lived in a (relatively) free society. But California regulators are about to make this part of the old Soviet Union.

The California Energy Commission has just issued its proposed 2008 regulations for Building Energy Efficiency Standards. While much of this 236 page book of regulations deal with items that are prosaic (e.g. joists) there's a whopper that the Commission has put in.

For new residential construction, "tThermostats. All hHeating systems shall be equipped with thermostats that meet the Programmable Communicating Thermostat (PCT) requirements of Section 112(c)." (Section 151, 9; page 207) What does this mean?

Well, for that you have to go to Section 112(c) on page 63 of the report:

(c) Thermostats. All unitary heating and/or cooling systems including heat pumps that are not controlled by a central energy management control system (EMCS) shall have a Programmable Communicating Thermostat (PCT) that is certified by the manufacturer to the Energy Commission to meet the requirements of Subsections 112(c)(1) and 112(c)(2) below:
1. Setback Capabilities. All PCTs shall have a clock mechanism that allows the building occupant to program the temperature set points for at least four periods within 24 hours. Thermostats for heat pumps shall meet the requirements of Section 112(b).
2. Communicating Capabilities. All PCTs shall be distributed with a non-removable Radio Data System (RDS) communications device that is compatible with the default statewide DR communications system, which can be used by utilities to send price and emergency signals. PCTs shall be capable of receiving and responding to the signals indicating price and emergency events as follows.

So what will happen? You have to go to page 64 to find out:

A. Price Events. The PCT shall be shipped with default price-event offsets of +4°F for cooling and -4°F for heating enabled; however, customers shall be able to change the offsets and thermostat settings at any time during price events. Upon receiving a price-event signal, the PCT shall adjust the thermostat setpoint by the number of degrees indicated in the offset for the duration specified in the signal of the price event. The PCT shall also be equipped with the capability to allow customers to define setpoints for heating and cooling in response to price signals as an alternative to temperature-offsetting response, as described in Reference Joint Appendix JA5.
B. Emergency Events. Upon receiving an emergency signal, the PCT shall respond to commands contained in the emergency signal, including changing the setpoint by any number of degrees or to a specific temperature setpoint. The PCT shall not allow customer changes to thermostat settings during emergency events.

So the bureaucrats will soon control thermostats on all new construction in California.

Now, I realize that California does have current issues with electricity, but central control and planning don't work. Many customers of various power companies voluntarily join a program allowing their air conditioners to be cycled during summer months. That's fine. And increasing prices during an emergency is fine—that's letting the free market work. But this proposal is an abomination.

Of course, most people live in existing construction and aren't impacted by these regulations. But if the bureaucrats have their ways it will only be a matter of time before existing construction will have to comply. I expect that once these regulations are implemented, they'll be required as part of the permitting process when you do major work on your home.

If you're a Californian and think these new regulations make it look like we've just moved to the Soviet Union it's time to let your legislators and the Commission know.

The California Supreme Court ruled last week that registered domestic partners have the same property tax benefits as heterosexual spouses. This means that if registered domestic partners own a home, and one inherits the home from the other, they are entitled to the same protection from a property tax reassessment as a married couple.

Several county assessors fought a decision made by a Sacramento judge in 2005, and appealed first to the appeals court and then to the State Supreme Court. They were unsuccessful.

I haven't posted on the new taxes that citizens in Maryland face. The overwhelmingly Democratic General Assembly passed a huge tax increase last November. One portion of the increase is an increase in the state's sales tax.

But a problem has surfaced: Maryland Republicans have filed a lawsuit to stop the tax increase. According to this report by WJZ, the Maryland Senate took five days off during the special session (called to have the tax increases passed) without permission of the General Assembly. Apparently the Maryland state constitution prohibits such a vacation.

Senator Allan Kittleman told WJZ, "This is actually an attempt to make sure that we have transparent government, that we have integrity in our government and that the rule of law is kept." But Maryland Democrats say the whole thing is a bunch of hot air.

Meanwhile, if you live in Maryland you're paying higher taxes. It's possible you won't be paying as much after a judge rules (likely in the next two weeks) on the lawsuit. Of course, it's only a technicality....

Like the raindrops that have been falling relentlessly here in Orange County, so also have been the charges of corruption in New Jersey. The Mayor of Guttenberg, David Delle Donna, and his wife, Anna, have been indicted on charges of tax fraud.

The couple were already facing charges of mail fraud and extortion. They are alleged to have accepted bribes to pay for Mrs. Delle Donna's cosmetic surgery. Federal authorities also allege that they accepted bribes in the form of gambling trips to Atlantic City, liquor, and a dog...a dog that cost more than $1,000.

Mr. Delle Donna won't be stepping down voluntarily from his mayoral position. The couple's attorney says that, "They look forward to their vindication in the court of law." If they're not vindicated they may be looking at an extensive stay at ClubFed; if convicted on all counts they face more than 20 years and significant fines.

Wesley Snipes attorneys appealed Judge William Hodge's rulings that the trial will take place in Ocala, Florida and that it would start on January 14th. The appeal was filed at the 11th Circuit Court of Appeals in Atlanta, according to Ocala.com. Robert Barnes, Snipes' attorney, also asked the Appeals Court to postpone the start of the trial until after the Appeals Court rules on their motions.

If the Appeals Court doesn't issue a stay in the proceedings it would start on schedule in just over a week, and would likely make Snipes' motions moot. We should know the results of these rulings in the next few days.

I've been asked about illegal income several times. Yes, you must report your illegal income on your tax return. If you don't, you're guilty of tax evasion.

Todd Olynciw seemed to be a model employee of the Hartford, the big insurance and financial services concern. He earned a company award after helping the company reestablish its New York office after the September 11th terrorist attacks. Mr. Olynciw was responsible for ordering and installing furniture and flooring for the Hartford.

Mr. Olynciw had a sideline business: he and other conspirators defrauded the Hartford. Given that the fraud amounted to $876,437, we're talking a lot of furniture. Court documents show that some of the purloined furniture was sent to his brother-in-law for free. Some contracts were awarded to firms who performed work at Mr. Olynciw's home according to this story in the Hartford Courant. And I should mention that Mr. Olynciw also received $395,720 in kickbacks.

Mr. Olynciw pleaded guilty to one charge each of mail fraud and tax evasion; he neglected to report the kickbacks on his tax return. He's looking at up to 25 years at ClubFed plus restitution to the Hartford and the IRS.

If you ask a financial institution for a loan for your business, the bank will likely want to see your tax returns and/or financial statements. One sure way to get in trouble is to tell the bank all about your positive earnings but tell Uncle Sam that your business was a loser.

That's a new definition for variable income—it depends on whom you're talking to. Unfortunately, when you deceive the IRS it's also called tax evasion. Sabi Atteyih owned a popular Madison, Wisconsin restaurant called Casbah. He did exactly what I described above and on Wednesday he pleaded guilty to tax evasion. Based on federal sentencing guidelines Mr. Atteyih is looking at somewhere under two years at ClubFed.

So if you're going to ask a bank for a loan, you should tell the truth (doing otherwise is fraud). And tell the truth to the IRS or you could see tax evasion in your future.

Most taxpayers use the Postal Service to send their returns to the IRS. However, you can use Federal Express, UPS, or DHL. The problem is the IRS hides the street addresses of their service centers on their website if you need those to use a private delivery service. (They're listed in the back of Publication 1546.) As a public service, here are the street addresses of the Service Centers. (Note that the addresses of the Kansas City and Ogden service centers have changed during the past two years.)

Andover Service Center
310 Lowell St
Andover, MA 01810
[978-474-9701]

Atlanta Service Center
4800 Buford Hwy
Chamblee, GA 30341
[770-530-6392]

Austin Service Center
3651 S IH 35
Austin, TX 78741
[512-460-0176]

Brookhaven Service Center
1040 Waverly Ave
Holtsville, NY 11742
[631-654-6583]

Cincinnati Service Center
201 W. Rivercenter Blvd
Covington, KY 41011-1424
[859-292-5185]

Fresno Service Center
5485 E Butler Ave
Fresno, CA 93727
[559-454-6334]

Kansas City Service Center
333 W Pershing Rd
Kansas City, MO 64108
[816-823-2076]

Memphis Service Center
5333 Getwell Rd
Memphis, TN 38118-7733
[901-546-4115]

Ogden Service Center
1973 N Rulon White Blvd
Ogden, UT 84404
[801-620-4249]

Philadelphia Service Center
11601 Roosevelt Blvd
Philadelphia, PA 19154-2100
[215-516-5994]

Franchise Tax Board
9645 Butterfield Way
Sacramento, CA 95827

---

It's very important to note that these addresses should be used only for private delivery services. Regular mail sent to these street addresses may be rejected as sent to a non-deliverable address and returned to the sender! Mail sent to a service center should be sent to the "normal" address of the service center; for example, here is where taxpayers filing their own Form 1040 returns should mail the returns to (look at page 90 of this pdf).

With the Iowa caucuses tomorrow, it's time to remember that Californians will vote three times this year. We have our presidential primary on Tuesday, February 7th, our "normal" June primary on Tuesday, June 3rd, and Election Day on Tuesday, November 4th. Remember to vote each time (but unlike Chicagoans, one vote per person per election is enough).

I'll be reviewing the three propositions on the February ballot. And let's start with the easiest proposition ever to review: Proposition 91.

Proposition 91 duplicates the work of Proposition 1A (which passed in November 2006). Supporters of Proposition 91 urge a no vote. Given that its supporters want you to vote no, there's no reason to go further with analyzing this proposition.

I'll be returning to this ballot over the next two weeks as Propositions 92 and 93 aren't as easy to analyze.

California is not the only state with a budget crisis. The swamplands, aka New Jersey, face a projected $3 billion deficit for the next fiscal year according to this story.

Governor Jim Corzine (D) has asked his administration to find $3 billion to cut. Interestingly, New Jersey instituted one of the largest state tax increases ever in 2006. New Jersey is considered by the Tax Foundation to have the third worst tax climate for business (even surpassing California).

Governor Corzine has complained about debt (presumably bond interest) that costs New Jersey about $3 billion annually. But who has proposed that debt, and signed the laws allowing that debt to be borrowed? New Jersey's legislature is controlled by Democrats, and its governor is a Democrat.

This summer is going to be very interesting for state budgets throughout the United States. Special interest groups will say, 'Cut them, not us.' The problem is that today almost everyone considers themselves a special interest group. Will governors actually cut programs? Will they increase taxes? Or will they try to balance their budgets with smoke and mirrors?

If you're a New Jersey resident, make your views known with your local representatives. It's an election year, and they ought to listen.

As to what will happen, given New Jersey's past I suspect smoke and mirrors will win out.