Don’t Forget to Report your Cash Bribes

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The number one IRS rule that every taxpayer should remember to avoid tax trouble: you must report all your income, whatever the source.  Even illegal sources.

John Guarini, a former Jersey City housing inspector, pleaded guilty to tax evasion on Tuesday. Here’s what he did:

  1. Accepted cash bribes totaling $20,000 from a government informant in exchange for building permits
  2. Accepted cash bribe meant for another government official, but then pocketed the money for himself
  3. Failed to report any of it on his income tax return

Full story here.

These types of criminals are commonly prosecuted on tax fraud grounds, and this particular criminal faces 3 years in prison and fines of up to $250,000.

Huge Tax Fraud Scheme Uncovered in So-Cal

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Just when I said that multiple-filers were a thing of the past, something very similar turns up in the news . . .

Who: Owners and others affiliated with Old Quest Foundation, Inc. and De la Fuente and Ramirez and Associates (55 indicted in all)

Where: Fontana and Rancho Cucamonga (San Bernardino County)

What: Most of the 55 indictments alleged conspiracy to defraud the United States

How: These groups arranged meetings during which they convinced taxpayers to buy into a scheme that involved claiming refunds to which they were supposedly entitled from a “secret government account.” Many of the people who were duped were required to pay fees to participate in the meetings, even bigger fees to sign up in the program, and then also a cut of the amount obtained from the false refund returns.

How Much: $5 million in refund checks were issued in error. The total dollar amount placed on this scheme is $250 million.

Common tax protestor arguments are listed here on the IRS website.

If you would like further guidance on what kinds of arguments are legitimate and what kinds of arguments might land you in prison, feel free to contact Montgomery & Wetenkamp:  https://www.mwattorneys.com

Small Business Health Care Tax Credit

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The IRS recently released a special edition tax tip of interest to small business owners who may be struggling to continue health care coverage for their employees. A special tax credit is available to employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement. To qualify for the credit, the employer must have 25 or fewer workers with average income of $50,000 or less. The maximum credit for eligible small business employers is 35 percent of premiums paid. The credit may be claimed using Form 8941.

Even though many standard filing deadlines have passed for 2010 taxes, the IRS points out that the Small Business Health Care Tax Credit may still be available subject to the following deadlines:

  • businesses affected by certain natural disasters (deadline is October 31)
  • business entities such as sole props, partnerships, and S-corp shareholders who report their income on Form 1040 and who requested an extension (deadline is October 17)
  • tax-exempt organizations that file on a calendar year basis and requested an extension (deadline is November 15)
  • business that have already filed can still go back and claim the credit by filing an amended return

Multiple-filers and the Martinsburg Monster

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Before the IRS went into full automation mode and before the IRS used computers in any meaningful way, there were the “multiple-filers.” This was the illegal practice of filing false returns (with phony names, wages, and social security numbers) claiming refunds — usually several returns claiming modest refunds so as to not draw too much attention. And it worked. Many refunds were paid out in error this way. But the multiple-filers would get caught sometimes too (the IRS would probably say “most of the time”).

The term “multiple-filing” doesn’t appear anywhere on the IRS website. Today it is more commonly referred to as “refund fraud.”

In the early 1960′s the IRS housed its computers in a single location in Martinsburg, West Virginia. That first IRS computer center began busting multiple-filers and other tax cheats with a computer system known as the “Martinsburg Monster.”

Check out the April 12, 1963 Life magazine story discussing several successful multiple-filer busts by IRS Intelligence Division head, H. Alan Long and his agents.

FTB Live Chat

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Starting today the California Franchise Tax Board (FTB) is expanding its Live Chat program to business entity questions. Live Chat is a web-based communication application that was first launched about 6 months ago and is open to both taxpayers and practitioners. It is a quick way to get answers to general state tax questions — quicker, apparently, than waiting on the phone. However, account-specific questions will not be addressed in this manner. If you have questions or issues to address about a specific tax account, you must go through the normal channels.  Live Chat is available 8:00am to 5:00pm Monday – Friday. Check it out here.

Realignment of California Prison System

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Beginning in October, some criminals who would have normally been placed in California state prisons will be redirected to their individual county facilities. This is being done in an effort to combat the severe overcrowding problem in state prisons without simply letting inmates go free. But in case you were picturing a mass caravan of inmates on October 1st, none of the inmates who are currently in state prisons will be moved to the counties. Only the new non-violent offenders will go to county jails where it is thought they will be able to rehabilitate more quickly and smoothly.

It’s the largest shift that we’ve ever seen in the state’s history.

~ Barry Krisberg, UC Berkeley

Those who oppose realignment in California doubt that there is sufficient funding and programs in place to handle this major change. Furthermore, many county jails will be hard-pressed to take any more prisoners since they are at capacity also. See full story here.

IRS Audit Issue Going to Supreme Court

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If the IRS is thinking about auditing you, they currently have 3 years from the date your return is filed to decide. It’s called the Assessment Statute Expiration Date (ASED). There is an exception: in cases where the taxpayer omits 25% or more of his gross income, the IRS has 6 years to initiate an audit.

A number of lower courts have ruled one way or another on what constitutes a 25% income omission, and now the US Supreme Court has agreed to review the issue. Of course the IRS would like as much time as they can get, so they argue for a liberal interpretation. They argue that anything having the same effect as a 25% income omission (like an overstated tax basis) should result in a 3 year extension of the statute.

The case that the Supreme Court agreed to hear is Home Concrete & Supply v. U.S.. We need to keep an eye on this one. Currently it is not very common to see tax liabilities going back more than 10 years. The Collection Statute Expiration Date (CSED) on federal tax liabilities is 10 years; after that, the liability drops off the books. But the clock starts to run when the liability is assessed, so if the IRS waits 3 years to conduct an audit and assess the tax on your 2005 return, it would expire (at the very soonest) 13 years later — in 2019. This is assuming the return was filed on time (April 2006) and no other clock-stopping events have occurred in the interim.

If the Supreme Court rules in favor of the IRS, then we could start seeing more 16-year-old liabilities here and there.

A Tax Even the Wealthy Can’t Pay

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Greek parliament approved the new controversial property tax Tuesday evening. The hope is that this will increase the country’s chances of obtaining further bail-out money, precisely 8 billion euros, and keep the country solvent. However, the government has to be willing to exchange solvency for turmoil and unrest. Experts believe this is the wrong approach, and what the people of Greece really need is tax relief and drastic trimming of the public sector.

The property tax will be devastating to normal citizens; many will not be able to pay. However, even more telling is the effect it may have on wealthy government officials. If they can’t pay it, then it’s difficult to tell who can.

I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time. . . . The property I own was purely obtained through inheritance. Personally, I have never bought anything. . . .  I will be obliged to sell some of these properties. There is nothing else I can do.

~ Theodoros Pangalos, Deputy Prime Minister of Greece

See full story here.

The Postage Stamp Controversy

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The United States Postal Service has always honored great men and women by putting their faces on postage stamps. But nobody ever really aspired for that honor because it has also always signified that you were, well . . . dead. In fact, 5 years dead — that was the rule. But not now. The USPS recently announced that it will begin to honor living souls starting in 2012.

And you can vote for your top 5 living candidates on Facebook, Twitter, or through the mail. Then the Postmaster General’s Citizens’ Stamp Advisory Committee (CSAC) will convene to pour over all the nominees and make their selections.

I wonder if this is a good idea. The USPS, in an effort to appear “relevant and contemporary” has definitely stirred up a little controversy.

The 5-year rule just makes sense.The thing about a dead guy is he can’t do anything further to tarnish his reputation and cause anyone to regret honoring him on a stamp. And the 5-year buffer even gives a little more time to uncover any skeletons. Of all the living people who deserve to be recognized on a stamp, how many people are going to vote for their favorite author or philanthropist? They won’t. There are going to be 50,000 votes for Lady Gaga and Brian Wilson. I’m certain that celebrity stamps would be hugely popular, but what happens when these living celebrities do something distasteful or illegal after the stamp has been put into circulation? I don’t know, maybe it wouldn’t matter. The government may not approve, but I doubt the popularity of the stamp would suffer.

Read the entire USPS Press Release here.