Taxable Talk

It's time for my annual vacation. I'll be back on August 4th. If you need to learn the latest on the California budget mess, I recommend the Flash Report. If you need a tax fix, check out one of the tax bloggers listed in the blogroll on the right.

It was a busy week for bozo taxpayers. There's one less bozo tax preparer to harm my profession, while two under-the-table business owners found out that cash income is just as taxable as checks.

First, we'll head to Dartmouth, Massachusetts. Daniel McElroy owned Daily A. King, a temporary agency that had lots of advantages. Their rates were better than their competitors...but for all the wrong reasons. It seems that Mr. McElroy used two shell companies so that he didn't have to pay the full amount of payroll taxes to the government. He also underreported his payroll to his workers compensation carrier. All told, that's a lot of fraud, and Mr. McElroy was sentenced to nine years at ClubFed.

Let's now head to Camden, New Jersey where Neyembo Mikanda had a thriving tax preparation business, and with good reason. He falsified the tax returns for his clients, and for his own businesses. He was found guilty last week on all 26 counts, and will be sentenced later this year.

Finally, we head to beautiful La Jolla where Marjan Poustan ran a cosmetic surgery business with her husband. She pleaded guilty to attempted tax evasion. Her not so brilliant idea was to, in 2005, go from post office to post office and purchase money orders for just under $3,000 from cash receipts and use those to pay the bills for her business. Since legitimate business expenses are deductions, her scheme really appears to be one of the most bozo we've encountered. More likely, the brief story left out one detail—Ms. Poustan pocketed some of the money orders and was going to not report that income. In any case, she'll be sentenced in October.

Another domino fell in the government's fight against Naftali Tzi Weiss, the Grand Rabbi of Spinka. He's charged with tax fraud. Allegedly he concocted a scheme where individuals could donate funds to his organization as charitable donations but would receive up to 95% of them back.

And now one of those who donated has voluntarily come forward. Uri Mandelbaum has agreed to plead guilty to two tax evasion charges, and will make restitution of about $1.5 million. According to the Los Angeles Times,Mr. Mandelbaum donated $900,000 in 2005 and 2006 but got almost all of the money returned back to him.

The Times story notes that the government is looking for 100 other donators to Spinka. Meanwhile, for Rabbie Weiss things are not looking up. The government has at least one witness who can verify exactly how the scheme worked.

For Californians, there's no sign of a budget compromise. The Democrats are proposing massive tax increases; the Republicans won't consider a penny in new taxes; and Governor Schwarzenegger wants a solution but isn't putting any pressure on anyone.

The latest:

1. The Wall Street Journal ran an op-ed piece that proclaimed California is #1. But it's not number one in a good way; rather, it's leading the country in the tax rate. The Journal noted:

California faces a $15 billion budget deficit and Democrats who rule the state Legislature have proposed closing the gap with a $9.7 billion tax hike on business and "the rich." There's a movie that describes this idea: Clueless...

This latest tax gambit was unveiled, ironically enough, within days of two very large California employers announcing they are saying, in the famous words of Governor Arnold Schwarzenegger, "hasta la vista, baby" to the state. First, the AAA auto club declared it will close its call centers in California, meaning that 900 jobs will move to other states. "It costs more to do business in California," said a AAA press release, in the understatement of the year.

2. The Contra Costa Times published an op-ed piece from the "Proposition 13 Reform Tax Force" that advocates a split-roll property tax scheme. The op-ed doesn't mention that a split-roll has been defeated by the voters of California before. And that relatively low property taxes is about the only favorable tax factor in California.

3. Governor Schwarzenegger on Thursday broached the idea of a sales tax increase to balance the budget.

4. The Los Angeles Times published an article noting that economists are unsure of whether the Democrats' proposed income tax increase would actually bring in the revenue that the Democrats forecast. Patrick Fleenor, chief economist for the Tax Foundation, is quoted as stating, "But what is often missed is the firm that would have popped up in L.A. but is instead popping up outside Las Vegas. People on the cusp of moving to California or leaving California would certainly be affected by this [proposed tax increase]."

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Meanwhile, Democrats in the legislature are stating that there are no cuts to be made in programs and that only revenue increases will be considered. Republicans state the only thing they'll look at are cuts in programs. I'm leaving on vacation tomorrow. I'm very confident that California won't have a budget when I return on August 4th.