Bozo Tax Tip #5: The $0.49 Solution

April 9th, 2017

With Tax Day fast approaching it’s time to examine yet another Bozo method of courting disaster. And it doesn’t, on the surface, seem to be a Bozo method. After all, this organization has the motto, Neither rain nor snow nor gloom of night can stay these messengers about their duty.

Well, that’s not really the Postal Service’s motto. It’s just the inscription on the General Post Office in New York (at 8th Avenue and 33rd Street).

So assume you have a lengthy, difficult return. You’ve paid a professional good money to get it done. You go to the Post Office, put proper postage on it, dump it in the slot (on or before April 18th), and you’ve just committed a Bozo act.

If you use the Postal Service to mail your tax returns, spend the extra money for certified mail. For $3.30 you can purchase certified mail. Yes, you will have to stand in a line (or you can use the automated machines in many post offices), but you now have a receipt that verifies that you have mailed your return.

About eleven years ago one of my clients saved $2.42 (I think that was the cost of a certified mail piece then) and sent his return in with a $0.37 stamp. It never made it. He ended up paying nearly $1,000 in penalties and interest…but he did save $2.42.

Don’t be a Bozo. E-File (and you don’t have to worry at all about the Post Office), or spend the $3.30! And you can go all out and get a return receipt, too (though you can now track certified mail online). For another $1.35, you can get the postal service to e-mail the confirmation that the IRS got the return (for the OCD in the crowd). There’s a reason every client letter notes, “using certified mail, return receipt requested.”

Bozo Tax Tips #6: Publicize Your Tax Crimes on Social Media!

April 6th, 2017

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.

Bozo Tax Tip #7: Nevada Corporations

April 5th, 2017

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

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.

Bozo Tax Tip #8: Lie to Your Tax Professional!

April 4th, 2017

Like almost all tax professionals, we use an Engagement Letter. The Engagement Letter has grown from one page to three pages. Some of this relates to items that my attorney wants on the document; some of the growth is from my insurance company. However, most of it is from IRS rules. One item that has been in every one of my Engagement Letters is the following:

You agree that you have provided us with and will provide us with all requested documents, that the information is and will be accurate and truthful, and that you will answer all of our questions fully so that we can properly prepare your returns.

Most tax professionals have similar language in their Engagement Letters. If we are to best prepare your tax returns, we have to know what’s going on. I’ve been told by my physician clients that their patients often don’t tell them the entire story. I can’t imagine doing that; how is my doctor going to do prescribe the best treatment if he only has half the picture? Tax professionals are no different; we can’t properly prepare your returns if we only have half the picture.

But if you want a tax return that’s inaccurate, and doesn’t have all the deductions and/or credits you’re entitled to, go ahead and deceive your tax professional. Don’t say I didn’t warn you!

Bozo Tax Tip #9: Who Needs to Pay Employment Taxes?!?

April 3rd, 2017

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.

Bozo Tax Tip #10: Email Your Social Security Number

April 2nd, 2017

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 fourth year in a row, but it’s one that bears repeating. Unfortunately, the problem of identity theft has burgeoned, and the IRS’s response is pitiful. Indeed, last year the IRS decided that identity theft victims should get hit a second time! Let’s hear it for the IRS’s wonderful view of “service!”

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 mother, it might go in a straight line to her. 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.

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.

Annual Blog Hiatus

March 21st, 2017

It’s time for my annual blog hiatus. The annual Bozo Tax Tips have been written and will start appearing around April 1st. I’ll be back with new blog content about April 21st. (If something truly momentous happens in the tax world while I’m on hiatus, I will post about it.)

Do Not Blindly Pay IRS Notices, Reason ∞

March 20th, 2017

One of my clients angrily sent me a message today. She received an IRS Automated Underreporting Unit (AUR) notice alleging that she did not include $50,000 of W-2Gs on her 2015 tax return. She’s a professional gambler, so I looked at her Schedule C and shockingly (not) there was the $50,000 of W-2Gs included in her gross receipts. Attached to the return was a schedule helpfully breaking this out for the IRS (she also received a 1099-MISC that was included in her gambling gross receipts).

The IRS AUR program is a huge (or should I say “bigly”) money maker for the agency. People blindly pay these notices; after all, if the IRS sends it out it must be right? Well, the last survey I saw showed that two-thirds of IRS notices are wrong in whole or in part. AUR notices are not screened before being sent out. The recipient is literally the first person to have read it.

Do not assume an IRS notice is correct.
Most are not. If you blindly pay it, you have agreed to the tax. Had a human taken two minutes to read the return, they would have seen the income and the breakout schedule and the notice would have never been sent. But that simply doesn’t happen with the AUR program.

Additionally, you have a limited amount of time to respond to the notice (typically 30 days). Make sure you timely respond, and if you mail your response send it certified mail, return receipt requested. You want proof your response got there. Be prepared to wait many weeks for the IRS to send you a reply to what you’ve written; the average IRS time to respond to correspondence is now 14 weeks.

My client now understands this issue, and I provided her a pdf of the Schedule C and supporting documents to show that no tax is owed. If you get an AUR notice, make sure you carefully review it and then respond. While blindly paying an IRS notice did not make my Bozo Tax Tips for this Tax Season, I’m definitely considering it for the future.

The Other March 15th Deadlines

March 15th, 2017

Today’s the deadline for filing partnership and S-Corporation returns. An extension is available by filing Form 7004. Most (but not all) states grant an automatic extension. Do realize that if your state charges a tax for your entity (i.e. New York and Illinois), you need to pay that tax even if you file an extension.

There are two other deadlines today. Form 1042-S (report of withholding of foreign individuals) must be filed today, either electronically using the IRS’s FIRE system or by mail. Also, Form 3520-A (Annual Information Report of Foreign Trusts) is due today. An extension is available for Form 3520-A by mailing in Form 7004 (Part III, Code 27). There are ridiculous penalties for late-filing Form 3520-A, so if this applies to you and you’re not ready mail that extension (certified mail, return receipt requested) today.

Even Minor Celebrities Should Pay their Taxes

March 12th, 2017

I never saw Discovery’s “American Guns” reality show. The former owner of a store called “Gunsmoke” ran into trouble with both gun selling laws and filing tax returns. He’s likely heading to ClubFed.

Richard Wyatt is the former owner of a gun store called Gunsmoke in Wheat Ridge, Colorado. Getting your store on television is a good way to increase sales; he appeared on 26 episodes of American Guns. Of course, you might want to make sure you follow the law. As the Department of Justice press release notes, “On Feb. 17, 2012, Wyatt conspired with others to deal in firearms without a license. In April 2012, the defendant surrendered his Federal Firearms License (FFL) due to his violations of federal laws and regulations.”

That might have been a good time to change careers. According to the DOJ (and later a jury), Mr. Wyatt simply ignored his lack of a federal license and sold guns using someone else’s license (a decidedly illegal thing to do). While gun laws violations don’t really interest me, tax violations do. They also really interest the DOJ.

In addition to the alleged firearms violations, Wyatt failed to pay personal income tax in years 2009, when he made approximately $290,000, in 2010, when he made approximately $123,000, and in 2012, when he made approximately $689,000. Further, in 2010, 2011 and 2012, Wyatt failed to pay corporate taxes. In 2012, Wyatt willfully filed a tax return he knew to be false, stating that he lost money, when in fact he made at least $350,000 that he failed to disclose.

Let’s see, go on television promoting a business that shouldn’t exist. Don’t pay taxes on income at the same time. Those are two real good ways to head to ClubFed.