Abel Maldonado's Tax Controversy

image via sunnypatton.com

In California, Abel Maldonado is a familiar name.  He’s the former lieutenant governor and he’s currently running for Senate in the new Central Coast district.  Maldonado is also in the news because of his serious tax problems.

As far as the IRS is concerned, one of the worst things a business owner can do is make personal expenditures out of the business funds and try to write them off as legitimate business expenses.  The only reason anyone would attempt this is to make it appear that the income is lower because, if the income is lower, the tax bill is also lower.

This is at the center of the controversy between the Maldonado family farming business (Agro-Jal) and the Internal Revenue Service.  The IRS has billed them for $3.6 million and Maldonado refuses to pay.  These are some of the expenditures that the government contends had no legitimate business purpose:

  1. renovations to Maldonado’s residences
  2. fundraiser for his campaign for Senate
  3. unspecified catering expenses
  4. personal use of company vehicles
  5. golf club memberships
  6. horses

This certainly does not good for Maldonado’s campaign, even if he has legitimate arguments in tax court — it’s the perception that counts.  But maybe the IRS should give them the horses; seems like a farming expense to me!

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TMZ Founder's Death

I often post stories of celebrity tax failures.  I believe the IRS prosecutes high profile and celebrity tax cases to make them an example to the rest of the world and to deter would-be tax crooks.  And I consider it my little good deed, perhaps my civic duty, to pass the news along to others in the blogosphere.  Plus, who doesn’t love a little dirt?

One thing I’ve noticed as I have sought out celebrity tax debt articles is that 99% of these stories are first told by TMZ.  Its almost as if the TMZ people have some special IRS hotline — some privileged connection — with the nation’s tax collector.  I mention this today because I learned of the untimely death of TMZ’s founder, Jim Paratore.  He died of a heart attack yesterday at age 58.

TMZ celebrity tax debt stories are not a good source for in-depth analysis.  And sometimes they even get the technical details wrong (I have seen them confuse the concept of “lien” vs. “levy”).  But TMZ is fast.  I hope they can continue to be first on the scene of these types of cases, even without the founder around.

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Pasties Won’t be Taxed in Britain

Believe me, it’s not what you think.  In the United States pasties are a warm weather clothing(ish) item worn by some women.  But in England it is a popular food eaten by the common folk.  Picture a cross between a pizza pocket and a chicken pot pie; a hand-held pastry filled with meat and vegetables.  Preparing them at home can be tricky and time-consuming.  According to one recipe by our guy Emeril Lagasse, prep time is about 1 hour & 20 minutes.  Many Britons pick them up at the corner shop where they are mass-produced and sold lukewarm.

Britain’s finance minister came under fire lately for suggesting a tax that would increase the price of these goodies.  This could have been perceived as either discriminatory towards the middle-lower class citizens, or simply as proof that the he and other elites in government are out of touch with ordinary Brits.  But the Pasty Tax was never ratified.  Instead an exception was carved out for “hot takeaway food that is cooling down after being cooked.”

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The Ultimate Case of Refund Fraud

I’ve blogged about refund fraud before.  I’ve even blogged about inmates committing refund fraud from their prison cells, as odd as that may sound.  But the story of Jason Whitfield will Blow. Your. Mind.

Whitfield was charged with second degree murder back in November 2011.  He is accused of shooting and killing 26-year-old Michael Massaline on October 26, 2011.  Then, while in prison, Whitfield was caught putting together fraudulent refund returns in hopes of getting free money from the government.  Sometimes these refund fraud types use the identities of people they know, and sometimes inmates even sell their personal information knowing what it will be used for.  Not the case here.  At least one of Whitfield’s victims was definitely not a willing participant because it was the same guy he is accused of murdering!  Talk about adding insult to injury!  I guess once you’ve killed someone your tax problem seems inconsequential, and there isn’t much else you can feel guilty about . . . IF he’s guilty, of course.

It probably won’t surprise you to learn that this is another case out of the (now infamous) tax fraud capital of the nation, Tampa Bay, FL.  If it bothers you that inmates are surfing the internet and maintaining improper contacts with the outside world, you’re not the only one.  Prison guards and officials in Hillsborough County are in over their heads with this “epidemic.”  One deputy estimated that more than half of the inmates there are somehow involved in fraudulent refund schemes.

IRS Closing 43 Offices Across the Nation

image via joyfeldman.com

Yesterday the IRS announced that it would be initiating a massive “office space and rent reduction initiative” that will save taxpayers $17.2 million in rental costs during 2012 and even more the following year.  Employees aren’t being laid off — this isn’t a reduction in staff — it’s all about packing them in tighter by eliminating some offices and consolidating others.

The IRS is quick to point out that this initiative will not result in a decrease in customer service because none of the actual walk-in taxpayer assistance centers are going to be closed.  The IRS anticipates “minimal taxpayer impact.”  Ok, everyone recognizes that “minimal” does not mean “none.”  These press releases are carefully worded, and I think The Commish chose to hedge a little here because of course there is going to be at least some impact on taxpayers and their access to tax relief.

The truth is a vast majority of taxpayers contact the IRS by phone, not via the walk-in offices.  And what happens when you pack employees in like sardines?  Best case scenario is they get a little grumpy.  Interestingly, this office space reduction announcement came just one day after the IRS publicized a slackening of the rules related to the Offer in Compromise program (which will likely result in a moderate to severe increase in OIC filings).  I can’t imagine either of these changes were too popular among IRS personnel (“What!  More work AND less space?!”).  I support the office space consolidation initiative 100%, I’m just skeptical about The Commish and his “minimal taxpayer impact” line.

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IRS Makes Potentially Huge Changes to OIC Program

The IRS recently announced some historic modifications to the Offer in Compromise (OIC) program which could result in drastic increases in accepted offers.  I say it “could” have this result because the IRS is notorious for not training its personnel to understand their own rules.  Changes such as these take quite a while to trickle down to the rank-and-file IRS employees who handle most collections case.  And sometimes parts are lost or misinterpreted during the trickling process.

By far the most significant change that was announced has to do with the way the IRS calculates a taxpayer’s reasonable collection potential.  Previously this would have included the combined equity in all assets and the future earning capacity projected over 4-5 years following the offer’s acceptance.  It will still include all the equity in assets but now the future income calculation should be multiplied across only 1-2 years.

Some taxpayers have no available income (after paying allowable expenses), and this change will have no impact at all on them.  However, for everyone else, this change may mean the difference between an accepted or a rejected OIC.  If the IRS is serious about implementing these changes, then I think more people will obtain tax relief because more people will meet the criteria for the Offer in Compromise program.  And if other practitioners think like I do, then we should see a big increase in OIC filings, which will mean a backlog of OIC cases and longer delays.  So we’ll have to take the good with the bad on this one.

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Ivy League Audits

image via educarelab.com

In this down economy the IRS is doing all it can to improve collection results, which is why it is targeting wealthy individuals, banks, corporations, . . . even universities.

Top Ivy League colleges are in the IRS crosshairs because they raise a lot of money, and not just in tuition & donations.  If you attend Harvard or if you dine there as a visitor, you probably expect more than tacos and fries, and brain food is expensive.  Harvard University Dining Services consists of 13 undergrad dining halls, a kosher kitchen, and 14 retail locations which offer an “unparalleled dining experience.”  And Harvard sports are very popular.  Wealthy Harvard alumni are often happy to pay for season tickets, whatever the price.

Even though nonprofit universities are tax-exempt, they must still pay taxes on any collateral income that is generated — any income that is unrelated to their academic objectives.  According to a recent Bloomberg article, both Cornell and Harvard Universities have been audited by the IRS to make sure they are paying taxes on revenue generated by university bookstores, restaurants, and sports arenas.  Cornell has “passed” its audit, but for Harvard, the jury is still out.

 

 

FATCA Marching on Despite Opposition

The Foreign Account Tax Compliance Act (FATCA) is one of the ways the US plans on ramping up collection of taxes so everyone pays his/her fair share.  The IRS sees it as an important tool in combating tax evasion, but many financial firms and individuals see it as little more than a gateway to further tax problemsand complications.

Under the proposed rules, there are requirements for individuals and requirements for foreign banks.  US taxpayers with more than $50,000 in a foreign bank would be required to report certain information on a form (Form 8938) that must be attached to the annual Form 1040.  Foreign banks would be required to, among other things, report certain information about account holders directly to the IRS.  See the IRS website for additional information.

Most of the requirements will not kick in until next year, but many businesses are expressing strong opposition to FATCA and the burdens it would create.  If they are not successful in repealing it or amending it to make it more lenient, then they at least hope for some kind of postponement to give financial institutions time to prepare.

On the Eve of the Facebook IPO

The state of California anticipates generating billions in tax revenues from the Facebook IPO which is supposed to take place this Friday morning.

The Legislative Analyst’s Office predicts the state will receive some $2.1 billion over the next year from the public offering as employees cash in their stock options. This would result in revenue approximating one-fifth of California’s total economic growth during that same time frame.

Of course, these predictions are based on a number of assumptions:

  • The Facebook IPO will go down this Friday as expected
  • Shares will be priced at $38 and then trade at $45 six months from now
  • Voters will pass Governor Brown’s tax increase affecting the IPO transactions

California expects to rake $195 million on day one when Facebook CEO, Mark Zuckerberg, exercises options to buy 60 million shares at 6 cents each.  The difference between Zuckerberg’s price and the market price is considered income, and the one thing we know about income is that it’s taxable.