Bozo Tax Tip #7: Withhold, but Don’t Remit, Your Employment Taxes!

April 6th, 2023

This Bozo Tax Tip—and do remember, these are things you really, really, really shouldn’t try—is aimed at the business owner who is having troubles. Business owners, unlike the federal government, can’t just print money. So let’s assume our hypothetical business owner has payroll tomorrow but doesn’t have the money for everything. What should he do?

Well, one strategy is to not remit the payroll taxes. Sure, they’re “trust fund” taxes but the government can print money and I can’t, so they’ll just let it slip by. And my state government won’t care either, right?

The above strategy is likely one of two quick and easy ways to get on the road to ClubFed. The IRS doesn’t like it when trust fund taxes don’t make it to the government. The penalties are substantial. The liability goes to the owners (and check signers) of the business. IRS Criminal Investigation will investigate this. Don’t do this!

One of my clients recently was interviewed about such a case. He was paid, but apparently the IRS wasn’t. It’s not hard for the IRS to find out about this: After all, every employee is going to file a tax return claiming withholding but the IRS won’t find it. That’s exactly what happened in this case. I suspect that very soon two nice looking individuals (accountants with badges and guns; now that’s a scary thought) will be knocking on a door and saying, “You have the right to remain silent….”

Business troubles aren’t fun. However, if you don’t pay the IRS your employment taxes you will find your troubles multiplying.

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Posted in Payroll Taxes | Comments Closed

Bozo Tax Tip #8: Use a Foreign Trust to Avoid Taxes!

April 5th, 2023

One of the worst tax schemes in the view of the IRS are offshore (foreign) trusts. In fact, trusts of all sorts—domestic and foreign—are regularly abused.

First, not all trusts are bad. Many trusts serve a legitimate purpose, such as family trusts. (Family trusts are a device to avoid probate, and are used in many states. For tax purposes, these revocable trusts are generally ignored.) Survivors’ trusts are another useful vehicle. Grantor trusts, another asset protection vehicle, are useful. Special Needs Trusts are extremely useful. There are plenty of ‘good’ trusts.

But trusts set up to avoid income tax are abusive, and very much Bozo-like. Individuals and businesses have spent thousands of dollars trying to avoid taxes (in some cases, mid five-figure amounts)…and many times these tax structures have been challenged successfully by the IRS.

And those are the domestic trusts.

The foreign trusts are worse. These are usually organized just to avoid taxes and hide money. If you look at Schedule B on your tax return you’ll see that you are supposed to report your foreign trusts. They work great until the IRS finds out about them. Yes, you have to report moving money into them.

But I’m smarter than the IRS, and they’ll never catch my trust set up in Luxembourg, Liechtenstein, or the Isle of Man. Well, you will spend thousands to set up your trust, and if the IRS does catch on–and in these days where governments are exchanging tax information, this can (and does) happen–your foreign trust will have served only one purpose: It will have enriched the promoters who set it up.

Remember: If it sounds too good to be true it probably is. A trust set up to evade taxes is just that.

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Posted in International | Comments Closed

Bozo Tax Tip #9: Nevada Corporations or LLCs

April 4th, 2023

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation (or LLC) operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation (or LLC) is a California corporation/LLC, a Delaware corporation/LLC, or a Nevada corporation/LLC.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

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Posted in California, Nevada | Comments Closed

Bozo Tax Tip #10: Email Your Social Security Number or EIN!

April 3rd, 2023

It’s time for our annual rundown of Bozo Tax Tips, strategies that you really, really, really shouldn’t try. But somewhere, somehow, someone will try these. Don’t say I didn’t warn you!

This is a repeat for the tenth year in a row, but it’s one that bears repeating. Unfortunately, the problem of identity theft has burgeoned, and while the IRS’s response has improved, that’s just an improvement from awful to mediocre.

I have some clients who are incredibly smart. They make me look stupid (and I’m not). Yet a few of these otherwise intelligent individuals persist in Bozo behavior: They consistently send me their tax documents by email.

Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.

We use a web portal for secure loading and unloading of documents and secure communications to our clients. As I tell my clients, email is fast but it’s not secure. It’s fine to email your tax professional things that are not confidential. That said, social security numbers and most income information is quite confidential. Don’t send those through email unless you want to be an identity theft victim or want others to know how much money you make!

If I send an email to my brother, it might go in a straight line to him. It also might go via Anaheim, Azusa, and Cucamonga. At any one of these stops it could be intercepted and looked at by someone else. Would you post your social security number on a billboard in your community? If you wouldn’t, and I assume none of you would, why would you ever email anything with your social security number?

A friend told me, “Well, I’m not emailing my social, I’m just attaching my W-2 to the email.” An attachment is just as likely to be read as an email. Just say no to emailing your social security number.

The same issue holds for a business’s Employer Identification Number (EIN).  These should be treated like your individual social security number: send them using only a secure method.

If you’re not Internet savvy, hand the documents to your tax professional or use the postal service, FedEx, or UPS to deliver the documents, or fax the documents. (If you fax, make sure your tax professional has a secure fax machine.) If you like using the Internet to submit your tax documents, make sure your tax professional offers you a secure means to do so. It might be called a web portal, a file transfer service, or perhaps something else. The name isn’t as important as the concept.

Unfortunately, the IRS’s ability to handle identity theft is, according to the National Taxpayer Advocate, poor. So don’t add to the problem—communicate in a secure fashion to your tax professional.

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Posted in Tax Preparation | Comments Closed

No Foolin’: New York State Not Conforming to IRS Extension for Blizzard Disaster Zones

April 1st, 2023

The New York State Department of Taxation and Finance decided not to extend taxpayers impacted by the December blizzards to May 15th; impacted taxpayers still must either file their tax returns by April 18th or file a valid extension (meaning paying 90% of the tax due).  In order to file a New York return, you must complete your federal tax return.  Thus, the federal disaster extension is near useless for impacted taxpayers.

I’m quite surprised–but then again, maybe I shouldn’t be.  New York is not a taxpayer-friendly state, and this sure isn’t aiding in changing anyone’s mind.

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Posted in IRS, New York | Comments Closed

Mississippi Counties Impacted by Tornadoes Have Until July 31st to File

March 28th, 2023

The IRS announced this morning that four Mississippi counties impacted by tornadoes have until July 31st to file.  The extension, for Carroll, Humphreys, Monroe, and Sharkey counties, covers all tax forms and estimated tax payments due between now and July 30th for both business and individual returns.  I would expect the Mississippi Department of Revenue to similarly extend their deadlines for impacted taxpayers.

Posted in IRS, Mississippi | Comments Closed

Certain New York Storm Victims Get an Extra Month to File with the IRS

March 24th, 2023

The IRS announced today that individuals (and businesses) in five New York counties have an extra month (to May 15th) to file and pay tax returns; this relates to the winter storm that hit between December 23rd and December 28th.  The five counties are Erie, Genesee, Niagara, St. Lawrence, and Suffolk; the primary areas impacted are Buffalo/Niagara Falls and the east end of Long Island.  This extension is automatic.

This extension includes business tax returns that were due in March and individual tax returns due in April and estimated payments due in April.

As of today, this relief is solely for federal (IRS) taxes.  While I do expect the New York Department of Taxation and Finance to conform to this, they have yet to announce that they are conforming.  UPDATE: New York state is not conforming to this extension!

The IRS announcement is here.

Posted in IRS, New York | Comments Closed

Today Is the Partnership & S-Corporation Deadline

March 15th, 2023

You know what today is, right?  Yes, the Ides of March–and the US tax filing deadline for partnerships and S-Corporations.  If your entity isn’t ready to file, download Form 7004 (the extension request) and mail it using certified mail today.  The deadline is a postmark deadline so it doesn’t matter when your extension is received–but you need to maintain proof of filing.  Better yet, efile your extension and you don’t have to stand in line at the Post Office.  (You can also send your extension via an IRS authorized private delivery service.  Beware, not all offerings are authorized and it does matter.)

Most states piggyback onto the federal extension, but not all of them.  New York, for example, requires a separate extension to be filed.

If you’re in most of California, you have an automatic extension until October 16th and you don’t have to send in an extension.

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Posted in California, IRS | Comments Closed

California (Franchise Tax Board) Conforms to Extension to October 16th

March 3rd, 2023

The Franchise Tax Board announced late yesterday that California is officially conforming to the IRS extension until October 16th for all tax returns due from January 10th through October 15.  Almost all of California is covered by the extension; only Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra counties are not covered.  (The largest cities which still have March, April, June, and September deadlines are Bakersfield, El Centro, and Redding.)

The extension covers:

  • 4th quarter 2022 estimated payments due on January 17th;
  • Partnership and S-Corporation returns due on March 15th;
  • Individual, C-Corporation, and Trust/Estate returns due on April 17th;
  • 1st, 2nd, and 3rd quarter 2023 estimated payments due on April 17th, June 15th, and September 15th; and
  • Almost all other tax forms due before October 16th.

Individuals in the federal disaster area do not need to do anything to obtain an extension: It’s automatic.  However, if you have moved from the area because you were impacted by the flooding or you reside outside of the area and were impacted and need the extension you do need to contact the IRS at 866-562-5227; I would also in such a situation contact the FTB.

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Posted in California, IRS | Comments Closed

FBAR Non-Willful Penalty Is Per Report, Not Per Account

February 28th, 2023

Let’s assume you have a non-willful violation of filing the FBAR (Form 114, the Report of Foreign Bank and Financial Accounts).  Is the maximum penalty ($10,000) per account or per report?  The Circuit Courts of Appeal had split on this question; the Supreme Court decided this issue in Bittner v United States today.

[T]he question before us boils down to this: Does the BSA’s $10,000 penalty for nonwillful violations accrue on a per-report or a per-account basis? Mr. Bittner urges us to agree with the Ninth Circuit and hold that the law authorizes a single $10,000 fine for each untimely or inaccurate report. The government defends the judgment of the Fifth Circuit and asks us to hold that a new $10,000 penalty attaches to each account not timely or accurately disclosed within a report.

That’s the beginning of the Supreme Court opinion in Bittner.  Justice Gorsuch’s majority opinion goes back to the days of Form TD F 90-22.1 (the original form number for the FBAR) and notes,

Instructions included with the FBAR form have cautioned that “[a] person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000.” IRS, Form TD F 90–22.1, p. 8 (Mar. 2011). An IRS “Fact Sheet” has advised that, “[f]or the FBAR, the penalty may be up to $10,000, if the failure to file is non-willful.” IRS, Offshore Income and Filing Information for Taxpayers with Offshore Accounts, FS–2014–7 (June 2014). Ms. Boyd herself received a similarly worded letter alerting her that “‘[f]or the failure to file [the FBAR] . . . the penalty cannot exceed $10,000.’”…The drafting history of the nonwillful penalty provision undermines the government’s theory too…

On the government’s view, too, those who willfully violate the law may face lower penalties than those who violate the law nonwillfully. For example, an individual who holds $1million in a foreign account during the course of a year but withdraws it before the filing deadline and then willfully fails to file an FBAR faces a maximum penalty of $100,000. But a person who errs nonwillfully in listing 20 accounts with an aggregate balance of $50,000 can face a penalty of up to $200,000. Reading the law to apply non-willful penalties per report invites none of these curiosities; the government’s per-account theory invites them all. [citations omitted; emphasis in original]

There is good news: Logic and common sense prevailed, and:

Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.

This means the maximum non-willful FBAR violation is now $10,000 per year rather than per account per year.  Of course, there’s an easy way of avoiding all penalties: Just file the FBAR!

 

 

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Posted in FINCEN, International, IRS, Supreme Court | Comments Closed

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