Taxable Talk

Al Franken has had an interesting career. He's been a comedian and a screenwriter, and now he's running for the US Senate, hoping to get the nod of the Democrat-Farm Labor Party in Minnesota (and then, of course, in the general election).

However, Mr. Franken (or his accountant) has forgotten about California's rules on corporations. A California corporation must make a minimum franchise/income tax payment of $800 a year, even if the corporation has no income (or lost money, for that matter). Mr. Franken has a California corporation, Alan Franken Inc., which the Secretary of State's website shows as forfeited (it did not pay its state registration fees).

This is apparently becoming big news in Minnesota, as the Minneapolis Star-Tribune is covering this story. Andy Barr, a spokesman for the Franken campaign, is quoted by the Star-Tribune: "Al feels that because his name is at the top of the organization, he takes ultimate responsibility for everything that goes on. But if there's a mistake that's been made, he's pretty insistent that the accountant fix it. He's been pretty vocal with [the accountant] on this point."

We're not talking big bucks here. The tax owed (including penalties) is $5,800 for not making the required minimum payments from 2003 - 2008. The corporation will likely also the Secretary of State's office $25/year plus a $250 penalty for each year that the required registration form wasn't filed. Once all of that paperwork is filed, and the state income tax returns for 2003 - 2008 are filed, Mr. Franken can dissolve his corporation.

So is Mr. Franken the next celebrity tax scofflaw? Only if he allows this mess to percolate for several weeks rather than insisting to his accountant that he prepare the appropriate returns and file them. Otherwise, the DFL in Minnesota will likely have to find a different candidate to run against Republican Senator Norm Coleman.

Joe Kristan has an excellent round-up of tax bloggers' reactions to Wesley Snipes' sentencing. Joe's conclusion is worth noting (especially if you have ideas of following Mr. Snipes' attempts at not paying federal taxes):

Mr. Snipes' acquittal on the felony charges still is important - I estimate that he would have served at least 3 more years had he been convicted. Still, the sentences ought to give some food for thought to the "show me the law" crowd -- especially that given to Eddie Kahn, who refused to recognize the authority of the court. If you don't think there is a law requiring them to pay income tax, but the federal judges, U.S. Marshals, and the Bureau of Prisons think there is such a law, your opinions won't help you avoid prison any more than it helped Eddie Kahn or Wesley Snipes.

Wesley Snipes will be spending three years at ClubFed. Judge William Terrel Hodges sentenced Snipes to the maximum possible sentence on his three misdemeanor charges. The Associated Press noted that Judge Hodges said that Snipes had shown a "history of contempt over a period of time."

During the sentencing hearing Snipes' Attorney Daniel Meachum handed Judge Hodges three envelopes containing $5 million in checks. The judge didn't accept them, nor did Assistant US Attorney Scot Morris. Later, an agent from the IRS did accept the funds. However, Morris later noted, "Your honor, that was a grandstanding move. It's essentially a down payment on his taxes. It is in no way a settlement of his taxes. It will be a fraction of what he owes."

Snipes will also spend one year on supervised release following his prison sentence. Snipes requested, and Judge Hodges will recommend, that he serve his time near his family's home in New Jersey. Snipes will report at a date to be determined by the Bureau of Prisons.

Also sentenced today were Snipes' co-defendants. Eddie Kahn also got the maximum sentence, 10 years at Club Fed, and Douglas Rosile received 4 1/2 years.

After the sentencing, Linda Moreno, another of Snipes' attorneys, told Ocala.com, "We were hoping for a complete acquittal. I have faith in the process, and I have faith in the jury system. We will appeal."

I've been on the phone all morning, but Joe Kristan has been watching Ocala.com. The sentencing hearing has broken for lunch (I suspect since it's 4:09 p.m. as I type this they've reconvened), and Judge William Terrel Hodges remarked:

He noted that the maximum three-year sentence - which is one year on each misdemeanor count - is "squarely in the middle of that sentencing range.

"Why should I go any further than that," Hodges asked.

This doesn't look good for Mr. Snipes.

I'll have the sentence when it's announced.

Wesley Snipes will be sentenced tomorrow in Ocala, Florida, for his conviction on three misdameaner charges of failure to file a tax return. The prosecution has asked that Snipes get the maximum sentence: three years at ClubFed. Snipes' attorneys are asking for probation.

Linda Moreno, one of Snipes' attorneys, told the Orlando Sentinel, "Mr. Snipes has led an otherwise exemplary life and is deeply sorry for his wrongful conduct. He has retained reputable tax professionals to assist him in resolving his tax liability and will make amends."

Actors Denzel Washington and Woody Harrelson both wrote letters to Judge William Terrel Hodges asking for leniency. Judge Hodges will make his decision tomorrow, and I'll let you know what the sentence is when it's released.

I spent the last couple of days relaxing (along with printing tax returns). Unsurprisingly there's some fraud to report on in just those last few days.

First, I have to look at a Bozo tax preparer. From nearby Rialto, California comes the story of Matthew Carl Berry. Mr. Berry was a partner in a tax preparation business. He definitely wanted his clients to get lots of deductions. In fact, if you used his services you didn't need to own a house to get the mortgage interest deduction. There's only one problem with that, and it's called tax fraud. The IRS audited about 4,500 returns and found an average tax loss of $3,150 per return. That's $14,175,000.

But that wasn't all. Mr. Berry and other members of his firm created false documents for audits and he didn't pay taxes on the income they received out of this scheme. Other members of his family have already been barred from preparing tax returns, too. He and his family are also facing a civil lawsuit from the IRS. Mr. Berry will almost certainly be spending some time at ClubFed.

Suppose you are audited by the IRS, and you lose, and are ordered to pay an additional $238,800 in taxes. Would you (a) pay the bill, (b) file an appeal and, if necessary, take the case to Tax Court, or (c) ignore the notices sent by the IRS to pay the bill and stop filing tax returns? Since I'm writing this it's clear which course Edward Barrier of Wildwood, Missouri took.

Back in 1995 Mr. Barrier was audited for 1987 through 1994. He lost, and the bills started coming. He got his revenge by ignoring those and not filing any more tax returns. He also decided to begin "structuring" his financial transactions. He apparently structured around $700,000 of transactions.

Unfortunately for Mr. Barrier eventually the IRS caught up to him. He had done business in cash, lived with his mother, and not owned assets in his own name. He did have a good job from 2002 - 2005—He was a project manager in high-end real estate in the St. Louis area. He had income of $2.4 million, but didn't pay the nearly $800,000 in taxes he owed.

Last week he pleaded guilty to one count of felony tax evasion in St. Louis. Mr. Barrier will be sentenced July 3rd and is looking at a maximum of five years at ClubFed, a fine of $250,000 and restitution. His bill is at $1.03 million...and that's before interest.

As I usually state, it's a lot easier in the long-run to pay the taxes you owe than to commit Bozo acts.

Back in February California's legislature passed legislation that helped cut $8 billion from the projected $16 billion budget deficit. That's good. Unfortunately, the deficit is growing as the state's revenues aren't. The San Francisco Chronicle has a story on the issue, and they think the deficit might now be as high as $14 billion.

Democrats are pushing for tax hikes while Republicans are now saying they may allow some fee increases. I know I'll be a voice in the wilderness but what California really needs are tax cuts.

Are you nuts, Russ, suggesting tax cuts when California is in dire financial straits? No. California cannot get out of this mess by increasing taxes. The state must fundamentally reform spending, and this will be painful. Cuts will have to be made—significant cuts in programs that many legislators will consider their "pet projects."

But as the Democrats state this might not be enough. So instead of increasing tax rates we should cut them. Cutting tax rates leads to increased tax revenues. This has been shown time and time again (the Laffer curve). California needs to do everything in its power to cause businesses to relocate to the Golden State. If the Democrats in Sacramento had their way every business that could would relocate.

It is time for a change.