Taxable Talk

Sometimes when you deal with the government you get the runaround. Agency "A" will tell you need to talk with Agency "B" while Agency "B" says only Agency "A" can handle the problem. It's enough to give you gray hair.

One enterprising (albeit Bozo) attorney had an interesting idea of how to apply this in reverse. He had just filed his mother's estate into probate in King County (Seattle), Washington. He decided to file a Tax Court case on the estate, and tell the Probate Court there was a problem resolving the Tax Court case while telling the Tax Court there was a problem resolving the Probate Court case.

He did this quite successfully for twelve years. Unfortunately, he wasn't so successful in the thirteenth year. The Tax Court caught on to his scheme and has sanctioned the attorney:

Mr. Allison’s education and legal experience, not to mention his admission to the Tax Court bar, underscore the egregiousness of his conduct. The issues in both cases before us are fairly simple and should have been resolved long ago. Instead, the cases before us have dragged on for over eight years, and the probate case has lingered for more than a decade. We therefore find that he used procedures of our Court primarily for delay, and in doing so was repeatedly dishonest. Mr. Allison’s persistence in the face of warnings from both courts thus warrants a penalty under section 6673(a)(2). That section requires a determination of the costs imposed on the Commissioner, and we will order the Commissioner to file evidence of what those costs were.

Because Mr. Allison is an attorney currently admitted to practice before the Tax Court, other sanctions may be appropriate. We will also send this opinion (and the order to show cause dated March 7, 2008) to the King County Superior Court for their consideration in In re Estate of Allison, No. 95-4-03740-0.

I guess the old saying, fool me once, shame on you, fool me twice, shame on me, needs to be lengthened.

Other Coverage: Roth Tax Updates, TaxProf Blog

I've read about all sorts of Bozo tax preparers, but Sunita Buddhu is by far one of the worst I've read about. Luckily for you and I, her days of preparing tax returns have ended.

Ms. Buddhu and her father, Deowraj Buddhu, began preparing tax returns in 2003 as Paradise Consulting Services. The name was later changed to Lotus Consulting. No matter what the name, they used methods that are guaranteed to cause problems: They invented business losses for taxpayers who weren't self-employed. When the IRS looked at returns from 2003 - 2005 they found that most contained such phony losses.

So the IRS began examining lots of returns, and Ms. Buddhu decided on a new strategy. She had her clients' returns amended, and changed the business losses to employee business expenses. And then there's the following, courtesy of the Hartford Courant:

[Judge] Droney said Sunita Buddhu told her clients they had nothing to fear from the IRS because the federal government does not have authorization or jurisdiction to conduct examinations of Connecticut residents' tax returns. Sunita Buddhu also prepared letters for her clients to submit to the IRS making that claim.

Needless to say, the last time I checked Connecticut was part of the United States....And the Buddhus made the same argument in court last week; the judge responded that the argument wasn't worth a response.

So the judge has barred Sunita Buddhu from preparing tax returns, and from promoting tax fraud schemes. Unfortunately, over the last few years they prepared thousands of returns. If you happened to use the Buddhus to prepare your return you will likely find yourself a recipient of a "Dear Valued Taxpayer" letter. At least it does appear that the clients weren't complicit in the fraud.

What happens if you use a payroll service and they don't forward the deposits to the IRS and your state tax department? The payroll company will be in trouble, but the employer is still liable for the deposits. That's why you should only use reputable companies.

Premier Data Solutions doesn't sound like a payroll company, but that's one of the services they offered. The company, located in Kankakee, Illinois, served a variety of employers, including the Kankakee Valley Park District, a local high school, and a pizza parlor. When the IRS notified these companies that their payroll deposits haven't been made, they contacted the Kankakee Police. Currently both local and federal investigators are looking into Premier.

Complicating the matter is that Premier was sold earlier this year and, remarkably, the payroll deposit problems apparently weren't noticed.

Joe Kristan recommended last week that employers should check with the IRS to make sure that their payroll deposits are being received. That's excellent advice. In any case I suspect lots of people are looking into whatever happened with the money Premier received but didn't remit to the government.

News Story: The Daily Journal

Proposition 13, the initiative that limited property tax increases, is blamed by liberals as one of the root causes of California's current budget problems. It's not.

The San Diego Union ran an editorial detailing what has happened to property tax revenues to the state since the passage of Proposition 13:

From fiscal 1980-81 – the year Proposition 13 took effect – through 2005-06, property tax revenue skyrocketed from $6.4 billion to $38.3 billion. That is an increase of more than 500 percent. So much for talk that the measure turned off the property tax spigot.

Remember this when our legislature complains that they don't have enough money, or that they need to increase taxes to balance the budget. They don't. They need to cut spending, and eliminate programs that California neither needs nor should have. The time for smoke and mirror has past; it's time to cut politically expedient and popular programs.