Taxable Talk

One of the more vexing problem tax professionals have is preparing returns for individuals who have a partnership interest where the partnership extends the deadline for filing their K-1s. The extension currently is six months, so a partnership can legally mail out the K-1 on October 15th. How are you going to prepare a return on October 15th when the K-1 is in the mail? (The answer is you estimate the income, and then amend the return when the actual K-1 arrives. But this is, obviously, not the ideal solution.)

The IRS is making a change. Effective next year, the extension for partnerships and trusts will only be to September 15th, not October 15th. Joe Kristan has more.

Today is July 1st and Chicago has earned a dubious distinction. The Windy City now has the highest sales tax rate in the country, 10.25%. The old "winner," Memphis, has a 9.25% rate.

The sales tax will likely help suburban retailers of high-end items such as automobiles. Individuals contemplating a $30,000 purchase can save $900, a not insignificant amount, by shopping in DuPage County (7.25% sales tax rate) or $975 by going to Will or Lake County (7.00% sales tax rate).

People who can will vote with their spending dollars. Given the economic climate I'd hope voters in Cook County will remember who approved this increase and take out their anger at the polls. Of course, we're talking about Chicago here....

That's the question that Joe Francis, founder of Girls Gone Wild, must answer. Francis already faces tax charges; he's accused of hiding income through the use of foreign accounts and over $20 million of improper deductions on his corporate tax returns.

So what's another lawsuit? The Wynn Las Vegas Casino accuses Mr. Francis of not repaying $2 million of a $2.8 million loan. Mr. Francis is arguing that he has agreements so that he didn't have to repay the loan.

No trial date has been set.

Last year I wrote about Naftali Tzi Weisz. Mr. Weisz is the Grand Rabbi of Spinka. He'll also be standing trial in September charged with tax fraud. He's accused of soliciting charitable donations but promising to refund most of the money—a scheme that's definitely not kosher.

On Friday two alleged co-conspirators pleaded guilty. Joseph Roth, a Tel Aviv-based banker with United Mizrahi Bank pleaded guilty to conspiracy. And Rabbi Moshe Zigelman will plead guilty on Tuesday. Mr. Roth admitted that he established secret bank accounts overseas and helped repatriate the money to the United States. Rabbi Zigelman's attorney told the Los Angeles Times "his client was 'atoning for his own wrongdoing' and would not testify against the other defendants.

Given the alleged size of the tax fraud—millions of dollars—Grand Rabbi Weisz is looking at a very lengthy term at ClubFed if convicted this Fall.

As I've said before it seems that strip club owners and tax evasion go together hand-and-hand.

Curt D. Kosow owned Bare Elegance, a gentlemen's club in Pittsburgh's "Strip District." (No, I'm not making that up. The Pittsburgh Post-Gazette story uses that name.) He was tried for allegedly distributing cocaine (he was acquitted of that charge) but he was found guilty of failing to pay income taxes. He represented himself after going through 11 attorneys.

Mr. Kosow received some bad news during sentencing. His motion to reduce his sentence for diminished mental capacity was denied but his sentence was extended for obstructing justice during his trial. He'll spend 41 months at ClubFed—but things could have been worse. Mr. Kosow attempted suicide at the end of the trial but survived.

Two more Bozo tax preparers won't be harming consumers any more. Let's just say up front that the methods used weren't wise.

First, we'll head to Union City, Georgia. Majalai Wisdom prepared plenty of tax returns from 2000-2004.Me And her clients got lots of refunds (and gave her back $500 - $1500 in cash from each refund they received). Of course, the fact that Ms. Wisdom made up her own W-2s for clients using nonexistent employers, added phony exemptions and credits, including children who had nothing to do with the taxpayer. Now, perhaps if she used just one of those methods she wouldn't have gotten caught. However, sooner or later the IRS computers would wonder why Joe Taxpayer showed income from Acme but Acme never filed its W-3 with the government. Ms. Wisdom was sentenced to 30 months at ClubFed.

Meanwhile, the proprietor of Melba's Tax Service in Batesville, Arkansas will soon be at ClubFed. Melba Nelia Lopez pleaded guilty to two counts of preparing false tax returns. Ms. Lopez appears to have also added phony items to clients' returns causing the government a loss of about $95,000. She'll be sentenced later this year.

And what will likely happen to users of Ms. Wisdom or Ms. Lopez? Their clients will soon be receiving "Dear Soon to be Audited Taxpayer" letters (if they haven't already received them). Remember, if it sounds too good to be true it probably is.

Last week the House of Representatives passed an AMT patch for 2008. That patch contained offsets (tax increases) which doom it in the Senate. Further, President Bush promises a veto if it somehow manages to make it out of Congress.

Eventually, Congress will pass a patch which doesn't contain offsets. Will it be in September or November? I think we're looking at a replay of 2007 and November is optimistic.