Taxable Talk

This week's tax evasion stories share a common theme: the alleged evaders (and those convicted) should have known better.

Let's start in Sin City, where a personal injury attorney liked cash as a way to conduct his business. There's nothing wrong with that, but when you don't declare the cash income and you purchase assets and hide them in others' names, problems can arise. When the total amount involved is $2 million over six years and there's a sham child support agreement, it's trouble with a capital t. Edmund C. Botha was found guilty last week of one count of tax evasion. Based on federal sentencing guidelines, Mr. Botha is looking at about three years at ClubFed plus probable restitution when he's sentenced in early 2009.

Moving east, Danny Gladden is the former tax collector of Crawford County, Missouri. He was elected in 1991 and soon after discovered a lucrative side job: He embezzled from the county. A state audit discovered the missing funds in 2005, and he was later convicted of theft and sentenced to seven years in state prison. This past week he was convicted of tax evasion. Mr. Gladden forgot that tax must be paid even when the source of your income is stealing. Given that he owed about $82,000 in tax he's looking at about two years at ClubFed based on sentencing guidelines.

Next, let's look at two stories that both feature payroll taxes. First, the US Department of Justice calls this "the largest cash wage scheme in Massachusetts history." Now, there's nothing wrong with paying employees in cash—it's completely legal. But you still must withhold payroll taxes, and you still must report them accurately to the government, and you do have to remit them to the appropriate agencies. What happens when you don't do any of those things? Well, if you get caught, tried, and convicted, and the amount involved is over $43 million, you'll likely find yourself at ClubFed for a long time.

And that's exactly what happened to husband and wife Daniel and Aimee King McElroy. About $43 million in payroll was paid under-the-table, with the loss to the IRS being around $10 million and the loss to workers compensation companies was $7 million. In total the husband and wife were each found guilty of 19 counts. The husband was previously sentenced to 108 months at ClubFed; last week the wife received 78 months. They were also ordered to make restitution of $9.1 million.

Our final story comes from Worcester, Massachusetts. Attorney Christopher Uhl allegedly withheld money from his employees' wages for payroll taxes. That's good. He also allegedly didn't remit that money to the federal government. That's not good. He's been indicted on six counts of tax evasion and six counts of willful failure to pay taxes.

If you have employees make sure you're in compliance with payroll taxes. This is not an area to skimp on. Those taxes are called "trust fund taxes," and the federal government and state governments almost always vigorously go after individuals who withhold but don't remit. Committing this sort of tax evasion is a losing proposition.

It's something about prostitution that somehow leads to tax evasion. While perusing my email this evening in Connecticut I noticed yet another guilty plea by a man who charged personal expenses on his corporate tax return. Somehow the IRS did not find as humorous as I do the idea of deducting visits to prostitutes as "necessary and ordinary" corporate business deductions.

John Kelso of Monroe, North Carolina pleaded guilty to tax fraud. He agreed to make restitution of $18,000 and faces up to three years at ClubFed and a fine of $250,000.

Governor Schwarzenegger said he will sign the revised budget bill passed by the Legislature yesterday. I'll have details on the impact to Californians when I return from Connecticut on Tuesday.

Reports out of Sacramento are that the Big Five (Governor Schwarzenegger and the Republican and Democratic leaders of the Legislature) have reached another budget deal; this deal will include all of Governor Schwarzenegger's budget fixes.

I can't find anything on specifics, so you will probably see these before I will (I'm in Connecticut and it's likely I'll be unable to post again until Tuesday). So we'll see if there's yet another budget done with smoke and mirrors or real reform in Sacramento.

Orange County Billionaire Igor Olenicoff sued UBS, the Swiss Banking Giant, alleging that they conned him into breaking US Tax Laws. Mr. Olenicoff is alleging that when a giant company tells you that they will obey the law everything just has to be kosher. Mr. Olenicoff, as you may remember, received a very light sentence after pleading guilty to tax evasion.

In any case, this should make for some interesting reading in the coming months.

Joe Kristan has an excellent post noting what some of the root causes of the financial mess are. He quotes and links from the Tax Policy Blog; bluntly, a lot of the blame falls on political schemes done in the past. Something I remember from physics: "For every action there is an equal and opposite reaction." All the money and funding that were pushed into housing so that everyone could own a home (which really accelerated during the Clinton Administration) is now seeing the obvious reaction: Not everyone should be a homeowner.

I'll have more next week when I return from Connecticut.

This morning from the Wall Street Journal I learned that Governor Schwarzenegger has delayed his veto of the budget until Friday. It's likely there are the votes needed to override the veto; the Governator promised that if that happened he'd veto just about everything else that crossed his desk.

Republican State Senator Richard Ackerman is quoted in the Journal noting that the Governor could veto the associated spending and tax bills as there aren't enough votes for most of those to survive a veto. So confusion reigns in Sacramento, and I'm guessing I'll find out more this weekend.

I will be traveling over the next several days. Posting will be very limited until next Tuesday, September 23rd. I was hoping to get the next part of my presidential tax series up. Unfortunately, it will be delayed until my return.

My thanks to Joe Kristan for highlighting an interesting and amusing (to me) Tax Court case today: Baisden v. Commissioner. Mr. Baisden is a CPA, and he had a unique way of preparing tax returns:

In an effort to explain his bookkeeping and accounting methods, petitioner explained that since approximately 1998 [Mr. Baisden] had developed for his use and for the use of his clients a novel and insightful tax strategy that may be described generally as follows:

(1) Booked sole proprietorship income would be totally or almost totally offset by the payment by the sole proprietorship of “royalties” to the owner of the business;

(2) the so-called royalties would not be paid directly to the owner but rather would consist of payments by the sole proprietorship of the owner’s personal and family expenses;

(3) the “royalty” payments would be treated as fully deductible by the sole proprietorship, and they would reduce the booked net income of the sole proprietorship
to zero; and

(4) the owner would report “royalties” paid with regard to personal and family expenses as “other income” not subject to employment taxes. The primary savings were apparently intended to be derived from petitioner’s tax strategy through the conversion of sole proprietorship business income subject to self-employment taxes into royalties not subject to self-employment taxes.

I strongly suggest that you never attempt to use the above strategy unless you'd like to find yourself facing fraud penalties.

Mr. Baisden also tried to delay his audit by filing a "spurious complaint" with the Taxpayer's Advocate Office. And I'm only just touching the surface of this case....

On the good side, the Tax Court case was about the IRS assessing fraud penalties and, as you'd suspect, the IRS was upheld. On the better side Mr. Baisden remains under a preliminary injunction to not provide tax advice.

Joe Kristan has more.

And it's a good one, too. I don't know how I've missed adding Robert Flach's The Wandering Tax Pro blog to the blogroll on the right, but that error has been rectified. Robert reports extensively on the tax situation out of the swamplands New Jersey, the Garden State.

In any case, his blog is well worth reading if you're into taxes.

It's now worthy of a soap opera. Republican Governor Arnold Schwarzenegger announced this afternoon that he would veto the budget bill that passed last night. He announced that if the budget veto is overridden that he would veto "hundreds of bills."

The Flash Report is a bit less certain of what the Governator will do. I do know that California has a dysfunctional budget process and that there wasn't real structural reform this year. I don't know how the Governor can mandate 60% of the Legislature to change their world-views. I suspect we're still seeing the unstoppable force meeting the immovable object.

I'll be out of town over the next few days, but I'll try to update the latest chapters of "As The Budget Churns."

Both houses of the Legislature passed a budget late yesterday (possibly early this morning). The $110 billion budget does not include any new general taxes or tax increases (no increase in the sales tax or income tax).

The budget does include some new gimmicks, though. There's borrowing from the state lottery, and a change in how state taxes are collected. The Los Angeles Times reports:

Some businesses and individuals would have to pay their taxes sooner, and some would have to pay more than they owe and would get the extra back later. State taxes withheld at the workplace would jump 10% for everyone.

Here are the tax changes being made:
- Estimated payments will be "front-loaded" (more must be paid earlier in the year);
- Estimated tax payments would be based only on 90% of current years' income (66% for farmers) and on the annualized income method (aka "pay as you go");
- LLCs must prepay the LLC fee rather than paying it the following April;
- There will be a new tax amnesty;
- The Net Operating Loss (NOL) carryforward and Research & Development credits would be temporarily suspended; and
- Beginning in 2010 businesses would be able to stockpile credits and use them (in future years) more liberally.

The devil is in the details, and I haven't seen them yet. I probably won't until next week, but when I do I'll report on them.

There is one other detail: Governor Schwarzenegger is threatening a veto. The budget establishes a rainy day fund, but it's weak in concept. The Governator wants a far stronger rainy day fund where transfers out are rare.

Additionally, the rainy day fund and the borrowing from the state lottery require voter approval. That can't happen in November (the budget passed too late) so we'll likely have another special election next year.

There are major problems with this budget:
1. What happens with the 2009-2010 budget? California's economy likely won't improve for another two years. The budget deficit next year figures to be worse than this year. Additionally, the money that made this budget "balanced" came from the following year's budget.
2. This budget makes California even less of a business-friendly state. This will cause even more businesses to leave the Bronze Golden State resulting in lowered tax revenues.
3. How rosy are the assumptions in this budget? I can't tell, but I suspect they're very rosy. I suspect that next March we'll be talking about a $5 billion budget deficit in the current fiscal year.

Sooner or later California will have to tackle these budget issues head-on. As usual, later appears to have won for now. Eventually, though, real solutions must be found or the train jumps the tracks.

I'm always interested in finding new tax bloggers. I received an email today from Bruce who has "the taxguy" tax blog. He has quite a bit of useful information on his blog, including the first of a series about choosing a tax professional.

I've added his blog to my blogroll, and I welcome him into the world of tax bloggers (though it appears he's been around some time—it's just been my fault for not noticing him).

An interesting week for tax fraud. There's a typical case out of the San Joaquin Valley, a jailed promoter who may have to spend even longer at ClubFed, and an attorney who admitted that he lied under oath to the IRS and that he gave an incorrect legal opinion on a tax shelter.

First, Michael Gordon of Clovis, California (near Fresno) has had his own software company for several years. Between 2001 and 2004 he had his company pay over $339,000 of personal expenses as business expenses. That's not a good idea, and it became a very bad idea when the IRS caught him. He pleaded guilty to tax fraud last week, and has agreed to make restitution of $211,000 and pay all the taxes, penalties, and interest he owes. He's already paid over $570,000 toward his obligations. Note that appears to be far larger than the actual tax he owes which goes to show the impact of penalties and interest. As usual, it's a lot better (and cheaper) to just pay the tax in the first place. Mr. Gordon will be sentenced in November.

Remember Eddie Ray Kahn? He was a co-defendant of Wesley Snipes. Mr. Kahn is already at ClubFed having been sentenced to ten years. Well, he may be spending even more time there. He was indicted this past week along with four others on counts of mail fraud and conspiracy to defraud the United States. What did these individuals do? They allegedly sold worthless "bills of exchange" and other schemes to promote tax fraud.

The indictment alleges that American Rights Litigators/Guiding Light of God Ministries sold more than 4,000 packages to customers in every state. Their "bills of exchange" were supposedly drawn on the US Treasury for payment of taxes. Unfortunately, there's no such thing. Mr. Kahn allegedly was the ringleader of the group. In any case, no trial date has yet been set.

Finally, Peter Cinquegrani was a partner at Arnold & Porter, a law firm. He was instrumental in designing the PICO tax shelter (Personal Investment Corporation). Back in 2003 he testified under oath to the IRS that the shelter had not been designed to avoid taxes.

One of the issues with "tax shelters" is that they must have some economic substance. A basic rule of tax is that transactions that lack an economic substance are ignored for tax purposes. Well, Ernst & Young was looking to develop tax shelters (including the PICO). Mr. Cinquegrani was the primary drafter of opinions stating that the PICO had an economic purpose.

This past week Mr. Cinquegrani pleaded guilty to conspiracy to commit tax fraud, aiding and abetting tax evasion, and aiding in the submission of false and fraudulent documents to the IRS. He admitted that he lied to the IRS back in 2003. He also admitted drafting a phony consulting contract between Ernst & Young and Bricolage Capital. The North Country Gazette gets to the meat of the issue:

He stated that E&Y’s fee for the PICO transaction was calculated as a percentage of the tax loss the client wished to generate, but E&Y’s engagement letter with each client reflected a much smaller flat fee amount in order to conceal that the true fee was a percentage of the targeted tax loss. Cinquegrani admitted that together with individuals at E&Y and Bricolage, he helped arrange for the large balance of E&Y’s true tax shelter fee to be paid by the client to a Bricolage affiliate, and then for the affiliate to pay E&Y.

Mr. Cinquegrani will be sentenced in December. He may also have to make restitution and pay a fine. Arnold & Porter has settled with the IRS and paid a tax promoter penalty.

Remember what I've been saying for years: If it sounds too good to be true it probably is.

There's still no budget in California. However, the Los Angeles Times reported that Senate President Don Perata (D-Oakland) sent an email to fellow Democratic Senators that he would attempt to work with Republicans to write a new budget that has no new taxes and no borrowing. We shall see if there's a real budget or one full of gimmicks and if it actually passes this week.

Meanwhile, the Wall Street Journal noted in an editorial that California and New York, the states with the highest tax rates, are losing taxpayers. The Journal speculates that individuals who pay a lot of tax and can move do so. I don't have to speculate about that—I know the Journal is correct. I've had corporate clients relocate from Southern California to low-tax states and their businesses suddenly became profitable.

The Laffer Curve dictates that decreasing tax rates can lead to increased tax collections. It also leads to businesses making more money which can lead to increased employment and a better economy. Do you think the politicians in Sacramento will realize this? I doubt it....

The IRS announced late this afternoon that filing deadlines for corporate taxes and estimated taxes due September 15th have been extended at least one week in impacted areas. The IRS announcement notes, "Affected taxpayers can mark paper tax returns with the words “Hurricane Ike.” Taxpayers who e-file their returns can use their software’s “disaster” feature, if available." Although not specifically mentioned in the IRS notice, I assume this covers taxpayers in the Gulf Coast sections of Texas and Western Louisiana.

If you want to get on the bad side of a judge a very good way to do so is to file fake warrants and fraudulent leans and attempt to "arrest" the judge. It's an especially Bozo thing to do when you're going to be sentenced by that judge.

Never underestimate the stupidity of some of the tax protesters. Indeed, Robert Beale did all of those things as I wrote earlier. Today, when he was sentenced by Judge Ann Montgomery, he told the Court, "I do not consent to incarceration, fine or supervised release...," he said. "I have not committed a crime." Unfortunately for Mr. Beale, the judge and jury felt quite differently. And his remarks probably reinforced Judge Montgomery's bad impression of him. He'll have 11 years at ClubFed of nonconsensual incarceration. Additionally, he's still facing charges over his attempt to sentence Judge Montgomery.

Joe Kristan has more.

With a very competitive election race between Democrat Barack Obama and Republican John McCain, the innuendo, charges, and rhetoric have flown back and forth. Senators McCain and Obama hold different views on many issues. Since I write a tax blog I'm going to examine the differences on tax issues between the two Senators. I hope that this series will enlighten you on the candidates and this important issue as we head towards November and Election Day.

First, though, I'm going to give a general overview on taxes, the economy, and how legislation is (and isn't) enacted.

Taxes

A man condemning the income tax because of the annoyance it gives him or the expense it puts him to is merely a dog baring its teeth, and he forfeits the privileges of civilized discourse. But it is permissible to criticize it on other and impersonal grounds. A government, like an individual, spends money for any or all of three reasons: because it needs to, because it wants to, or simply because it has it to spend. The last is much the shabbiest. It is arguable, if not manifest, that a substantial proportion of this great spring flood of billions pouring into the Treasury will in effect get spent for that last shabby reason. — Rex Stout (And Be A Villain, 1948)

Rex Stout's words, penned sixty years ago, match my views on taxation. (If you'd like to read an excellent overview on taxes, I strongly recommend Charles Adams' For Good and Evil.) There has been a lot of discussion on earmarks and taxes during the current election cycle. Let's first examine what taxes exist, and how they are enacted into law.

The primary tax in the United States is the income tax, authorized by the 16th Amendment. But it is not the only tax that the federal government collects. There are excise taxes (primarily on fuel, trucks, and wagering), payroll taxes, and an estate tax. There are taxes on individuals and on businesses.

All taxes add a cost to the price of a good. If the cost of a good increases, and the supply of the good remains constant, fewer of the good is sold—that's the law of supply and demand. Taxes always decrease overall economic performance.

Yet the government must have revenue in order to operate; some amount of taxation must occur. Well, why don't we just tax businesses? Assume that the only tax was an income tax on businesses. We would still be paying the tax. Again, this is a result of basic economics. If a business is taxed, it will raise its prices in order for it to continue to make a normal profit. All taxes on businesses are passed on to customers. When laws have been passed "banning" businesses from passing on taxes most businesses respond by cutting production, which hurts consumers because not enough of a good is produced.

Consider, also, regulations. Economics teaches that businesses pass on their costs to their customers. The cost of complying with regulations is passed on to consumers. Of course, many regulations are necessary but it is important to remember who ultimately pays for regulations—you and I.

Tax Legislation

The Constitution requires that tax legislation be first introduced in the House of Representatives. Tax legislation normally is first heard by the Ways and Means Committee. Once legislation passes out of committee it is then heard by the full House. The Speaker of the House has tremendous control over what legislation is heard by the entire body. With the Democrats in control of the House, this means that Nancy Pelosi (D-CA) can in most circumstances determine what is and isn't considered.

Once legislation passes the House, it is then heard by the Senate. Tax legislation is usually first reviewed by the Senate Finance Committee and is then considered by the full Senate. Before legislation is considered by the Senate, cloture must be achieved; it takes 60 votes for cloture. (A bill needs a majority, 51, to pass. If the vote is tied the Vice President, who serves as president of the Senate, can cast a tie-breaking vote.) If a measure is amended in the Senate a Conference Committee is appointed to mesh out the differences. Then the legislation must again pass the House and Senate. Then the bill is sent to the President who can sign the bill or veto it. If a measure is vetoed, Congress can override the veto by getting a two-thirds vote in both the House and Senate in favor of the measure.

Why did I bring up how the legislative process works for taxes? Because it is of vital importance when considering the impact of a President. When Congress is controlled by one party and the President is a member of the other party usually few measures will actually be enacted into law. That's certainly been the case with the 110th Congress. But this isn't just President Bush using his veto power. This particular Congress just hasn't been able to agree on much of anything. Whether that's good or bad I'll leave for you to decide.

Part 1 Conclusion

It is important to understand how the legislative process works in order to evaluate what a President can and cannot do. Of course, if voters demand that a piece of legislation be passed Congress usually responds. However, America is divided, and there have been few times in recent years where the public has demanded a certain piece of tax legislation be passed. One example of legislation that is passed because of what the public would do is the annual AMT patch. The public would yell bloody murder if an AMT patch were not passed; Congress knows this and, thus, passes the patch annually.

In Part 2 I will examine the proposals of Senator Obama (D-Illinois). I will look at the totality of the legislation he proposes—not only tax legislation but spending legislation because if a new program is passed the money to fund it must come from somewhere. I'll also look at earmarks and how this does or does not impact Senator Obama's proposals.

There was quite a bit of tax fraud at week's end. Indeed, I had to liberally weed out the stories so the ones below are the cream of the crop, so to speak.

First, we have another alleged Bozo tax preparer. Julius Nyamweya Kiage says he's a certified public accountant. Mr. Kiage has had an accounting practice called J.K. Accounting & Co. PLLC in Brooklyn Park, Minnesota. Yet Mr. Kiage is not listed as a CPA in Minnesota, Iowa, or Wisconsin.

While the IRS is accusing Mr. Kiage of false advertising that's not their biggest beef. Rather, the IRS noticed that the returns prepared by Mr. Kiage have "exaggerated or fraudulent claims related to education credits, individual retirement account deductions, education credits and charitable contributions." Mr. Kiage has not been charged; the IRS at this point is investigating and has seized computer records and files from Mr. Kiage's office. The IRS told a court (to obtain a subpoena) that Mr. Kiage prepared 1,843 returns over the last two years that resulted in refunds of $4.7 million. The investigation began as a result of a tip.

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Robert P. Peebles of St. Helena, California had a problem that most of us would like to have. He was trustee of his 96-year old aunt's $5 million trust. He allegedly decided to set up his own $4 million trust funded from his aunt's trust, to be repaid with annual payments.

His attorney allegedly told him that he would have to report his trust to the IRS and Connecticut (his aunt was a Connecticut resident) on estate tax returns. So he fired his attorney.

He then hired two accountants to prepare the estate tax returns. But somehow he failed to tell the accountants about his trust (the IRS alleges it was deliberate; Mr. Peebles claims it was an oversight and the accountants didn't ask about it).

The IRS accuses Mr. Peebles of lying to IRS investigators under oath, various tax laws, and mail fraud. He was arraigned in Connecticut and has been released on bail.

And yes, if you do transfer $4 million into your own trust from that of your late aunt you do need to report it on the estate tax returns.

One of the questions that comes up from time to time is whether you have to pay tax on illegal income. After all, do thieves really report their thefts to the IRS? I usually remind those questioning this that Al Capone went to prison for tax evasion, not for the murders he committed.

What brought this up is a story from Rogers, Arkansas. Douglas Haase was an employee of Kraft/Nabisco. He thought up an almost perfect plan. He would submit fake expense reports to two conspirators in Florida, and they in turn would send checks through a sports management firm so that he could pay off his personal credit cards. And this wasn't a small amount of money—Mr. Haase apparently received $1.5 million from this scheme. Mr. Haase will have three years to think about this while at ClubFed. He also has to pay a $150,000 fine.

So if you decide to go into a life of crime, just remember to set aside some of your ill-gotten gains to pay your taxes.

Three CPAs will be joining attorney Dennis Evanson at ClubFed. Reed Barker of Littleton, Colorado got 18 months, Brent Metcalf of Cottonwood Heights, Utah, received 24 months, while Stephen Peterson of Coalville, Utah received 35 months. Additionally, Barker must make restitution of $167,608 while Peterson was ordered to forfeit $1,166,884.

All were convicted of various tax related charges in a scheme to help businesses and individuals evade about $20 million in taxes. Earlier, Evanson received ten years at ClubFed.

Frankly, the headline is all you need to know about the situation in Sacramento. Republicans announced a budget plan that had no new taxes; their plan was condemned by Democrats. Yet Democrats haven't proposed anything acceptable to Republicans. So the stalemate continues, and eventually the two sides will talk to each other. But not yet....

This past week wasn't a good one for tax protesters. Irwin Schiff, who is 80-years old, is spending 13 years at ClubFed in Terre Haute, Indiana. Well, make that 13 years and 11 months—those additional 11 months a result of his sentence for 15 contempt charges he received during his trial.

Meanwhile, Wade Cook was taken into custody to begin serving his seven-year sentence for tax fraud charges. His wife is still serving her sentence for obstruction but is due to be released in January.

I've said this before but it bears repeating—especially on Labor Day. If you want to get in trouble with the IRS either withhold payroll taxes and don't remit them to the IRS or pay your employees under the table (thus not being in compliance with trust fund taxes). Either method starts you quickly on the road to ClubFed.

Thomas Carbo of Wayne, Pennsylvania did the latter. He decided to improve his business' profitability by paying his employees under the table. He did temporarily save on his payroll tax expense...until he was caught. He ended up defrauding the government out of $168,000.

He was apparently caught as a result of a kickback scheme in nearby Norristown. His business appears to have been a Norristown vendor. The government subpoenaed his records but he didn't comply with the subpoena; he's accused of destroying the records instead. The government then investigated, looked at his bank records, and then discovered the tax fraud.

Mr. Carbo has pleaded guilty to one count of conspiracy to defraud and 17 counts of failing to collect and submit the payroll taxes. While he faces up to 90 years in prison and a fine of up to $4.5 million, federal sentencing guidelines suggest he'll receive a little over two years at ClubFed.

Earlier this year officials at the nearby University of California, Irvine announced that about 1,100 student identities were stolen by Texas-based United Healthcare. Now several individuals have been indicted for filing phony tax returns using these students identities (and others).

The indictments were handed down by a federal grand jury in Sherman, Texas. Those indicted, Christopher Chiota of Dallas, Kennedy Mpezini of McKinney, Gilbert Gotoro of Irving, Tendeka Daniel Parirenyatwa of Richardson, Michael Thomas Jr., of Irving, and Kudzai Mangoma all face charges of fraud and identity theft. The indicted allegedly filed returns for 163 UCI students after starting a phony tax preparation business and setting up relationships with several banks.

The problem for the individuals who filed returns for the UCI students was that sooner or later some of the students would file their own returns. Once that happened the scheme was certain to be investigated. UCI police along with criminal investigators from the IRS, Department of Justice and Texas law authorities are still investigating and it's likely that further charges are forthcoming.

While interest on underpayments to the IRS will increase to 6% from 5% in the third quarter, interest on underpayments to California will fall from 7% to 5% as of January 1st. Corporate underpayment interest in California will fall from 3% to 2% as of January 1st.

Another week and there's absolutely no progress on the California budget front. Republicans won't vote for anything with a tax increase and Democrats won't vote for anything without a tax increase. The latest Republican proposal (which has major budget cuts and some borrowing from the state lottery) was derided by Assembly Speaker Karen Bass (D-Los Angeles) as a "...blueprint for economic disaster."

Needless to say, I don't expect any progress in the near future. Meanwhile, payments to state vendors will likely stop sometime in late September.

The IRS announced last week that they would suspend collection of the Alternative Minimum Tax (AMT) on incentive stock options (ISOs) through September 30th. Senator Charles Grassley (R-IA) believes that legislation will clear Congress by month-end to reduce the tax burden on Americans impacted by the ISO AMT.

Personally, I remain very skeptical about any meaningful legislation getting through Congress. However, I sure hope it does pass as the ISO AMT is an insidious tax.

Hat Tip: TaxProf Blog