Taxes No Longer the Top Reason for Businesses Leaving California

December 24th, 2018

California: Good News! Your taxes, tops in the country, are no longer the top reason businesses are leaving the Bronze Golden State. It’s not that taxes have improved; rather, your laws and regulatory climate have exceeded taxes as the reason businesses are departing. That’s not just my view; it’s the view of one of the nation’s leading business relocation experts, Joseph Vranich.

Mr. Vranich has published his annual report on business relocations from California, titled “It’s Time for Companies to Leave California’s Toxic Business Climate.” Mr. Vranich took his own advice: He moved his business from Irvine, California (the same city I resided in) to Cranberry Township, Pennsylvania. In an article in Western Journal Mr. Vranich notes:

I moved for three reasons — taxes, regulations and quality-of-life. First, I’ll have greater freedom in my business now that I’m free of California’s notorious regulatory environment and threats of frivolous lawsuits that hurt small businesses like mine.

Finally, we are enjoying a superior qualify-of-life here. We bought a house larger than what we had in California for about half the cost. We can afford to engage in more activities because the cost-of-living in Cranberry Township is 44 percent lower than in Irvine.

Mr. Vranich cites an example of California’s regulatory climate: California’s Immigrant Worker Protection Act.

The new Immigrant Worker Protection Act states that an employer that follows Federal immigration law is now violating California law, is committing a crime, and is subject to fines. However, it’s also a crime if employer fails to follow Federal immigration law.

“Think about it. California may penalize someone in business who is a legal citizen operating a legal business that is in compliance with every Federal, state and local law, who pays state and local taxes, and who creates employment – and all that counts for nothing in the state’s eyes,” said Vranich. “Signs are that California politicians’ contempt for business will persist.”

For the record, a federal court would likely enjoin California from prosecuting anyone under this new act based on the Federal Supremacy clause. Still, a business might have to pay a lot in legal fees to deal with this. Alternatively, if you’re not in California you don’t have to worry about this.

Consider: You can stay in California, pay the country’s highest state tax rates and deal with a regulatory hellhole, or you can live in Austin, Reno, Las Vegas, Phoenix, Seattle, or Dallas and pay little or no state income taxes and not deal with California’s toxic business climate. I made the move seven years ago, and am as happy as ever I’ve done so. Sure, the weather isn’t as nice as in Irvine but I don’t deal with California’s toxic business climate and the cost of living is lower.

Or as I’ve said before, California: Helping businesses in other states.

Up In Smoke…Again

December 20th, 2018

Where there’s smoke, there’s fire. Where there’s a marijuana business, there’s Section 280E and the desire to find a means around it. The Tax Court looked at two cases today involving semi-legal marijuana dispensaries (legal on the state level, but decidedly illegal on the federal level). Would inventiveness allow the deduction of general and administrative expenses? Would a dispensary get out of the Section 6662(a) accuracy-related penalties because what they did was reasonable?

In the first case, a marijuana dispensary knew about the problem of Section 280E. That section disallows all deductions except Cost of Goods Sold for a business trafficking in illegal drugs. So what are means around that? Well, you can have a second line of business, but it has to be real and the books have to clearly separate this out. But that wasn’t what this dispensary came up with.

Why not have a management company provide management services to the dispensary? And we’ll be able to deduct all the expenses of the management company (including general and administrative expenses)–that’s a different business. It was a Eureka! moment for the dispensary…until the IRS disallowed all of the expenses of the management company. (The IRS also disallowed the general and administrative expenses of the dispensary, and additional Cost of Goods Sold expenses of the dispensary.) The dispute ended up in Tax Court.

First, Section 280E is very clear about deductions for illegal drugs:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana is a Schedule I drug federally; thus, only Cost of Goods Sold can be deducted. The petitioners’ argument that it’s legal on the state level doesn’t hold up; it’s illegal federally. Out go the G&A expenses of the dispensary.

But what about the management company? The IRS argued that the management company was trafficking in controlled substances; the petitioners said it was simply a managing company:

Petitioners argue that, as a management services company, Wellness did not itself engage in the purchase and sale of marijuana. But the only difference between what Alternative did and what Wellness did (since Alternative acted only through Wellness) is that Alternative had title to the marijuana and Wellness did not. Wellness employees were directly involved in the provision of medical marijuana to the patientmembers of Alternative’s dispensary. While Wellness and Alternative were legally separate, Wellness employees were engaged in the purchase and sale of marijuana (albeit on behalf of Alternative); that was Wellness’ primary business. We do not read the term “trafficking” to require Wellness to have had title to the marijuana its employees were purchasing and selling. Neither that section nor the nontax statute on trafficking limits application to sales on one’s own behalf rather than on behalf of another. Without clear authority, we will not read such a limitation into these provisions…

Petitioners also argue that applying section 280E to both Alternative and Wellness is inequitable because deductions for the same activities would be
disallowed twice. These tax consequences are a direct result of the organizational structure petitioners employed, and petitioners have identified no legal basis for remedy.

Thus, the management company (which was an S-Corporation) can’t take business expenses and its shareholders have unreported income.

Overall, the first case was quite inventive in trying to find a way around Section 280E. But once again the deductions went up in smoke.

The second case was looking at another dispensary and whether it was subject to an accuracy-related penalty. The Tax Court had previously ruled that the IRS was correct in disallowing deductions for the dispensary when they tried to capitalize those expenses under Section 263A(a)(2)—another inventive attempt to get around Section 280E that failed.

There wasn’t any dispute that the amount of underreporting was significant enough that this dispensary could be liable for the penalty. Rather, the issue was on whether or not the dispensary’s position on its returns was reasonable. As Judge Holmes notes,

In any event, Olive did not become final and unappealable until years after Harborside filed the last of the returns at issue in these cases. And Harborside also points out that, apart from CHAMP and Olive, there was very limited guidance available to marijuana dispensaries. Harborside correctly points out that the IRS has never promulgated regulations for section 280E and didn’t issue any guidance on marijuana businesses’ capitalization of inventory costs until 2015. See Chief Counsel Advice 201504011 (Jan. 23, 2015).

Judge Holmes draws the conclusion I would draw:

This leads us to the conclusion that Harborside’s reporting position was reasonable. Not only had its main argument for the inapplicability of section 280E to its business not yet been the subject of a final unappealable decision, but as discussed at length in Patients Mutual I, the meaning of “consists of” as used in section 280E is subject to more than one reasonable interpretation. Even by 2012–the last of the tax years at issue here–the only addition to this caselaw was our own opinion in Olive, and it too was still years away from a final appellate decision. [citation omitted]

There’s more:

As to Harborside’s good faith: We released Olive shortly after Harborside’s 2012 tax year ended, and Harborside began allocating a percentage of its operating expenses to a “non-deductible” category starting that year and did not even wait for Olive to be affirmed on appeal…We therefore find that Harborside acted with reasonable cause and in good faith when taking its tax positions for the years at issue. Harborside isn’t liable for penalties.

Another point in their favor: They kept excellent records. This is something I cannot overstate: If you’re in business, you are expected to keep good records. If all of your expenses are substantiated, you will be in much better shape than a business that doesn’t have such substantiation.

So what’s the other takeaway from today’s decisions? First, marijuana dispensaries will likely keep trying to find a way around Section 280E. And the Tax Court will continue to slap such schemes down. It will take Congress to pass a law legalizing marijuana on the federal level before marijuana dispensaries can ignore Section 280E.

Cases:
Alternative Health Care Advocates, et. al., v Commissioner, 151 T.C. No. 13
Patients Mutual Assistance Collective Corporation v Commissioner, T.C. Memo. 2018-208

The Freedom of Information Act Doesn’t Allow Access to President Trump’s Tax Returns

December 19th, 2018

Section 6103(a) of the Internal Revenue Code (IRC) mandates that tax returns shall be confidential. The Electronic Privacy Information Center (EPIC) wanted a peak at President Trump’s tax returns; might there be income from Russia? They submitted a Freedom of Information Act request to see his tax returns (from 2010 onwards). The IRS refused. EPIC filed a lawsuit in the District Court of the District of Columbia; that lawsuit was thrown out. EPIC filed an appeal to the Court of Appeals for the DC Circuit.

At first blush, the IRC stands in tension with the Freedom of Information Act (FOIA), which vests the public with a broad right to access government records. 5 U.S.C. § 552(a)(3)(A). One statute demands openness; the other privacy. But as we explain infra, the statutes work well together. Not all records are subject to FOIA requests. An agency need not disclose records “specifically exempted from disclosure by statute.” Id. § 552(b)(3). Because the IRC is such a statute, records that fall within its confidentiality mandate are exempt from FOIA.

Consider if I submitted a FOIA request to see Senator Chuck Schumer’s tax returns. Do I have any legitimate reason to see them? Well, I’m going to allege Senator Schumer is in the pocket of Ruritania, and the way to discover this is to have a little peak to see if he has any income from Ruritania on the return. Of course, if Senator Schumer were to sign a Tax Information Authorization or an IRS Power of Attorney, I’d be able to access his records. But just because I think something nefarious is going on doesn’t mean I can go fishing.

Indeed, as the Court noted:

The IRS declined to comply with the request for two reasons. First, the requested “documents, to the extent that any exist, [] consist of, or contain the tax returns or return information of a third party,” which “may not be disclosed unless specifically authorized by law.” Second, the IRS’s rules require that a request for a third party’s tax returns include his consent. See 26 C.F.R. § 601.702(c)(5)(iii)(C); see also I.R.C. § 6103(c). In fact, the IRS does not process a FOIA request that violates its rules. Id. § 601.702(c)(4). Because EPIC failed to obtain President Trump’s consent, the IRS did not process the request.

I left the citations in just to illustrate that the IRS had law on their side. But EPIC had another arrow in their quiver; they cited Section 6103(k)(3) of the Tax Code:

The Secretary may, but only following approval by the Joint Committee on Taxation, disclose such return information or any other information with respect to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published or disclosed with respect to such taxpayer’s return or any transaction of the taxpayer with the Internal Revenue Service.

The Court analyzed this section at length. The Court noted that a “Significant Impact” on tax administration is necessary for a request to move forward. Additionally, the provision allows the IRS (not a requestor) to make information public, but only if the Joint Committee on Taxation allows for it. The Court agreed that EPIC couldn’t use this provision to force disclosure of a tax return.

The Court’s conclusion seems right to me:

This case presents the question whether a member of the public—here, a nonprofit organization—can use a FOIA request to obtain an unrelated individual’s tax records without his consent. With certain limited exceptions—all inapplicable here—the answer is no. No one can demand to inspect another’s tax records. And the IRC’s confidentiality protections extend to the ordinary taxpayer and the President alike. Accordingly, we affirm the dismissal of the Electronic Privacy Information Center (EPIC)’s lawsuit seeking President Donald J. Trump’s income tax records.

EPIC can send a request to President Trump, but unless he agrees to release his tax records they won’t be public.

Case: Electronic Privacy Information Center v Internal Revenue Service

Hug Your Tax Professional, or The Upcoming Horrible, Miserable, Rotten, and Delayed Tax Season

December 12th, 2018

A question I’ve been asked many times this month: When will the 2019 Tax Season (for filing 2018 tax returns) open? The answer I’ve given is, “I don’t know.” Normally by now the IRS has released the date. As of today, the IRS’s only comment has been, “It might not be in January [2019].” At a recent continuing education event speakers from the IRS implied that the 2019 Tax Season could be delayed–possibly significantly. My tax software company has no idea; many forms state “Final on January 28th” but that’s just a best guess on their part. Why? Because the IRS still has not released all of the final 2018 forms. For example, the link to Form 1040 takes you to the 2017 form. (You can find the draft of the new 2018 form here.)

There are two major issues and one minor issue delaying the release of the forms. First, the Tax Cuts and Jobs Act (TCJA) changed much of the Tax Code; this required the IRS to redo many of the forms to adapt to the new Code. The second major issue is that the IRS is no longer exempt from having rules and forms reviewed by the Office of Management and Budget (OMB). That review likely adds 30 days to the release date of anything out of the IRS. The minor issue is that the IRS decided to make the new Form 1040 a giant, double-sided postcard size with six subsidiary schedules, meaning there are seven new forms to be reviewed by OMB.

Some of the 2018 forms have been released. For example, you can find Schedule A, Schedule C, and Schedule D. But without a Form 1040, no one is filing.

Adding to the delay is that the IRS is slow in releasing the “Schema” for 2018 returns. This is the coding that tax software companies use to transmit returns to the IRS, so that what’s noted on (say) line 10 of Schedule C goes onto line 10 of Schedule C in the IRS’s records when a return is transmitted. In most years, there’s a 60-day period from the date of announcement of the schema to the date Tax Season opens; this allows the software companies and the IRS to test everything to make sure it all works. This means we could be looking at Tax Season opening on February 10th…if the schema were given to the software companies today. Of course, the IRS could shorten the testing period but it’s looking like the 2019 Tax Season will be compressed (perhaps significantly).

In our Engagement Letters for 2018 returns we’re adding the following:

The Tax Cuts and Jobs Act (the Tax Act) passed late in 2017 contains sweeping changes to the Tax Code. Given the magnitude of changes in the Tax Act, as well as some new concepts introduced in the law, additional stated guidance from the IRS, and possibly from Congress in the form of technical corrections, may be forthcoming. We will use our professional judgment and expertise to assist you based on the Tax Act guidance as currently promulgated. Subsequent developments issued by the applicable tax authorities may affect the information we have previously provided, and these effects may be material.

In particular, the Tax Act added a new deduction for Qualified Business Income (the Section 199A deduction). This deduction is generally available for taxpayers who have income generated from business activity, including Sole Proprietors (Schedule C). The calculation for this deduction is based on numerous factors. We may need to conduct an extensive interview with you, receive additional information from you, and/or spend extensive time in calculating this deduction. This may result in an increase in the cost of our services to you.

Beginning with the 2018 tax year, the IRS now requires S-Corporation shareholders who either reported a loss on their K-1, received a distribution (not including a salary or expense reimbursement), disposed of any shares of stock (or the equivalent), or received a loan repayment from the corporation to include a complete basis calculation with their return. We will need this basis calculation for your return (if applicable). If you do not already have this basis calculation, we can prepare it for you at an additional cost. To do this, we would need copies of all K-1s issued to you by the S-Corporation and details of your investments to and distributions from the S-Corporation.

These are just three issues. First, the law may change while we’re in the middle of preparing your return. Second, the new deduction for Qualified Business Income is very complex; this will add cost to many taxpayers’ returns. And third, the new rule on reporting S-Corporation basis will be a surprise for many taxpayers (and tax professionals). We’ve prepared basis schedules for the S-Corporation returns we prepare; however, many tax professionals omit these. These three items are guaranteed to add time and stress to return preparation.

So consider what tax professionals are dealing with:
– A delayed start to Tax Season;
– New tax law with many complexities;
– New tax forms; and
– Many more IRS/state non-conformity issues.

This is a recipe for a very high-stress Tax Season. That’s why I suggest you hug your tax professional; he or she will appreciate it.

Nominations Due for Tax Offender of the Year

December 12th, 2018

In a little less than a month it will be time to reveal this year’s winner of the prestigious “Tax Offender of the Year” award. Remember, To be considered for the Tax Offender of the Year award, the individual (or organization) must do more than cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. Here are the past lucky recipients:

2017: State and Local Pension Crisis

2016: Judge Diane Kroupa
2015: Kenneth Harycki
2014: Mauricio Warner
2013: U.S. Department of Justice
2012: Steven Martinez
2011: United States Congress
2010: Tony and Micaela Dutson
2009: Mark Anderson
2008: Robert Beale
2007: Gene Haas
2005: Sharon Lee Caulder

IRS (and All Federal Agencies) Closed Tomorrow, December 5th

December 4th, 2018

The Internal Revenue Service and all federal agencies will be closed tomorrow, Wednesday, December 5th, for the national day of mourning for President George H.W. Bush. The IRS also announced today that they have granted taxpayers an extra day, until Thursday, December 6th, to file any return or pay any tax originally due on Wednesday, December 5th:

The Internal Revenue Service today granted taxpayers an extra day, until Thursday, Dec. 6, 2018 to file any return or pay any tax originally due on Wednesday, Dec. 5.

The IRS granted the extra time, following the Dec. 1 Executive Order closing all federal agencies on Dec. 5, as a mark of respect for George Herbert Walker Bush, the forty-first President of the United States.

The one-day extension applies to any return, required to be filed with the IRS, on Wednesday, Dec. 5, 2018. It also applies to any required federal tax payment, originally due on that day. In addition, it also applies to any federal income, payroll or excise tax deposit due on Dec. 5, including those required to be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS).

Swart Broadens

November 29th, 2018

California’s Franchise Tax Board believes that any business with even a remote tie to California should pay California tax. Let’s say you own a 0.21% interest in Acme LLC. Acme invests in something in California. You have no authority to manage (or administer) Acme. In the decision in Swart Enterprises, a 0.2% holding for such an LLC was ruled not to be conducting business in California. The FTB noted that similar businesses could file a refund:

Explain why the taxpayer has the same facts as in the Swart Court of Appeal decision (i.e., sole connection to California is a 0.2 percent membership interest, or less; in a manager-managed LLC; and the original members of the LLC delegated to a sole manager full, exclusive, and complete authority to manage and control the LLC). [emphasis added]

And, yes, the FTB has been continuing to challenge businesses with more than a 0.2% interest. But that may stop soon.

Appeals of FTB decisions now go to the Department of Taxation and Fee Administration. Satview Broadband, Ltd. fell astray in filing California tax returns. Satview is a Nevada LLC that owned a 25% interest in Escape Broadband, LLC. Satview was a limited partner (member) of Escape, and like in Swart, was a passive investor.

Satview paid back taxes and then filed a claim for refund. The FTB denied the claim. One of the issues was the doing business question: Was Satview doing business in California solely by owning a 25% stake in another LLC as a nonmanaging member of that other LLC? After the FTB denied the claim for refund, Satview appealed to the Department of Taxation Fee Administration.

The only conceivable basis in the record before us upon which it could be contended that appellant was actively engaging in transactions for profit in California is the fact that appellant held a non-managing minority member interest in Escape, an LLC that admittedly was doing business in California. However, the doing-business status of a pass-through entity – here an LLC taxable as a partnership – is not automatically attributed to its non-managing minority members where, as here, there is no indication that the non-managing minority member had any power or authority, directly or indirectly, to participate in the LLC’s management or operations.

In Swart, the taxpayer had a 0.2% interest; here, it’s a 25% interest. The FTB is holding that if you exceed 0.2% you need to file in California.

The court in Swart rejected FTB’s position that Swart’s passive holding a minority non-managing interest in Cypress established that Swart was “actively engaging in any transaction for financial or pecuniary gain or profit” during the year at issue. It found that the leading authority, Golden State Theatre & Realty Corp. v. Johnson (1943) 21 Cal.2d 493, could not be interpreted so broadly as to warrant characterizing Swart’s investment activity as “doing business” in the state. (Swart, supra, 7 Cal.App.5th, at pp. 503-505.) We draw the same conclusion under the instant facts. To hold otherwise would ignore the important distinction between actively and passively (or inactively) engaging in business transactions. (Ibid.)…

FTB makes no argument that the operative facts of this appeal are materially different from those at issue in Swart. Although appellant’s percentage interest in the in-state pass- through entity at issue here is significantly greater than the percentage interest in Swart (25 percent as opposed to 0.2 percent), both are minority interests. Without any allegation – much less any showing – that appellant had any ability or authority, directly or indirectly, to influence or participate in the management or operation of Escape’s business, we cannot uphold FTB’s position that Escape’s doing-business status may be attributable to (i.e., flow through to) appellant. Merely pointing to the fact that appellant held a non-managing minority interest in an LLC that was doing business in this state does not, standing alone, satisfy the requirement that FTB show a rational basis for its determination. Consequently, we conclude that appellant is not liable for the 2011 and 2012 NQSF penalties.

It will be interesting to see if the FTB will continue to state that businesses with solely passive interests in other entities that invest in California are doing business in the state. Unfortunately, this opinion is not precedential so my suspicion is that the FTB will continue to force companies to fight it. I also doubt that the FTB will appeal this decision to the court system. Doing so would turn this non-precedential decision into a precedential decision.

Still, this is overall good news. The administrative judges at the Department of Taxation and Fee Administration appear to have a grounding in reality. Sooner or later there will be a precedential decision on this issue, and the FTB will be forced to realize that not everyone is doing business in California.

Bobble Away

November 27th, 2018

Are bobbleheads promotional items that are subject to Use Tax? The Cincinnati Reds fought the Ohio Department of Taxation’s ruling that bobbleheads were subject to Use Tax all the way to the Ohio Supreme Court.

In this case, we are asked to consider how state tax law applies to the purchase of those promotional items by appellant, Cincinnati Reds, L.L.C. (“the Reds”). More specifically, the question before us is whether the sale-for-resale exemption of R.C. 5739.01(E) precludes the Reds from having to pay use tax on those promotional items. For the reasons explained below, we conclude that the exemption applies in this case. Thus, in the familiar words of Marty Brennaman, longtime Reds radio announcer and recipient of the National Baseball Hall of Fame’s Ford C. Frick Award, we determine that “this one belongs to the Reds.” We accordingly reverse the decision of the Board of Tax Appeals (“BTA”).

Now that I’ve spoiled the decision, we need to look at the law. When you purchase items for resale, they’re generally exempt from sales tax. When you sell them to the end-customer, they pay the sales tax. If you end up not reselling the items you purchase for resale, you owe Use Tax on those items.

Consideration, in the contract-law sense, is important here: the question whether the Reds purchased promotional items for resale entails asking whether fans furnished consideration for the Reds’ promise to hand out the promotional items at the games.

The Ohio Board of Tax Appeals ruled that the Reds were giving away the promotional items rather than selling them. The Reds argue that they resell the promotional items by distributing them (or promising to do that). “The Reds argue that this promise creates a contractual expectation on the part of the fans, who purchase tickets and attend the games as consideration for receiving the unique promotional items.”

The Cincinnati Reds’ CFO, Dan Healy, testified at the original hearing. He noted that the Reds distribute promotional items at less desirable games (from an attendance standpoint). That makes complete sense if you think about baseball. The Reds have 81 home dates, and some of those games will be against teams that aren’t very good (not that the Reds have been particularly good) who don’t draw well in Cincinnati–say, the San Diego Padres. Mr. Healy’s testimony is logical and sensible.

In determining that no consideration was given by fans in exchange for the promotional items, the tax commissioner and BTA focused on their findings that fans pay the same price to attend a game regardless of whether a promotional item is offered and that the cost of the promotional item is not included in the ticket price. But Healy specifically testified that the costs of promotional items are included in ticket prices when they are set before the start of a season and that promotional items are distributed at less desirable games for which tickets are not expected to be sold out. Thus, rather than offering discounted ticket prices to these less desirable games, it stands to reason that by including the cost of the promotional item in the ticket price, one portion of the ticket price accounts for the right to attend the less desirable game and a separate portion of the ticket price accounts for the right to receive the promotional item. Based on this record, we accordingly conclude that the promotional items constituted things of value in exchange for which fans paid money that was included in the ticket prices.

So the Reds didn’t strike out here (they did plenty of that during the 2018 season), and that portion of the Board of Tax Appeals decision charging the Reds with Use Tax on promotional items was thrown out at home plate.

Nothing for Something

November 21st, 2018

Have I got a deal for you! (It is, after all, the Holiday Season where we’re all looking for deals, right?) I can take your assets and hide them from anyone and everyone! Simply form one of my special Nevada Corporations, and, well:

Camouflaging your assets is the first step in implementing any asset protection plan. Remember, if a federal judge can find an asset, he can seize it. Conversely what he can’t find, or doesn’t know about, he can’t touch. Although I enjoy advertising bulletproof asset protection, the prescription for making an asset bulletproof is first to make it invisible.

And I also offer a hidden bank account program! With my new vanishing bank accounts, you have access to your money but nobody else does! No more worries from the government, or anyone else. The whole program retails for just under $10,000, and there are multi-level marketing opportunities, too! Who can refuse?


All of the above is what one Las Vegas man, Richard Neiswonger, offered through his Asset Protection Group, Inc. Back in 2011 he was indicted on various tax fraud charges. He was sentenced last week to 22 months at ClubFed and must make restitution to the IRS of $3,212,078.

This wasn’t Mr. Neiswonger’s first brush with the US government. The FTC had obtained an injunction against Asset Protection Group, but that didn’t stop them. The US Attorney’s office had requested another injunction in 2007. The sentencing press release details Mr. Neiswonger’s activities:

From 1999 to mid-2006, Neiswonger, who was imprisoned, and his business partner, formed Asset Protection Group, Inc. (APG) in Nevada in late 1998. Neiswonger, along with his business partner and a certified public accountant, conspired to promote false and misleading business information. Consumers would purchase the APG “asset protection” program for typically $9,800 and become APG “consultants,” who would sell “asset protection” services to clients who wished to conceal assets from potential litigants and creditors, as well as government agencies. The service allowed clients to place funds in bank accounts in the name of nominee entities that could never be traced back to the clients themselves. In turn, APG “consultants” received a portion of the client’s fees. These nominee entity accounts and other fraudulent conveyances, such as so called “friendly liens,” were used to divert and hide income from the IRS. Over 70 APG clients using the APG system had collective IRS liabilities totaling approximately $14 million.

Mr. Neiswonger not only hid others from the IRS, he hid $1 million through his attorney from the IRS.

A helpful hint to those reading this: It’s far, far simpler and easier to simply pay what you owe to the IRS. The scheme that Asset Protection Group offered was just that: an illegal scheme. Mr. Neiswonger did enjoy the fruits of his labors for a few years, but in the end he has to disgorge what he made and gets an almost two-year trip to ClubFed.

A helpful hint to those reading this: Don’t do this!

Gambling With an Edge Podcast

November 13th, 2018

I appear on this week’s episode of Gambling With an Edge. We discuss the new tax law, and tax topics of interest to gamblers, including how the new higher standard deduction will negatively impact gamblers.