Category: Tax

The IRS Is Making “Thousands” of Visits to CPAs During Tax Season

Apparently the IRS is not one for timing. Earlier this month the Service announced that if you get paid to crank out 1040s, your life as you know it is more or less over. Well, at least a little more inconvenient. Okay, it’s hella-inconvenient.

Back when the new regulations were announced the Service let it be known that since it can’t get these new regulations implemented for 2010, it was still stepping up its efforts for getting all up in tax preparers’ shit.


The first step being to be to send 10,000 letters to paid preparers nationwide letting them know that they need to be on their A-game. The letters were intended for, “preparers…with large volumes of specific tax returns where the IRS typically sees frequent errors,” and that they should be “vigilant” for errors related to “Schedule C income and expenses, Schedule A deductions, the Earned Income Tax Credit and the First Time Homebuyer Credit.”

Well then. That should cover about EVERY TAX PREPARER IN THE COUNTRY.

Anyway, the IRS is following up the 10,000 “Dear Joe Kristan” letters with phone calls to set up sit-downs with “thousands” of preparers. According to William Stromsem, who wrote a piece over at CPA2Biz, these are “urgent” calls:

In at least one case, the IRS called a practitioner at home and spoke with the spouse by name, asking for a response within three hours and then calling back before that time was up. Another practitioner, who was unable to schedule a meeting during a busy time was threatened with having the refusal passed up the line to a supervisor.

The piece goes to tell us that the visits will be performed in the coming weeks and months and may last up to 3 hours. Does anyone see a problem with this yet?

These chats are designed to be friendly reminders of all the pitfalls out there in tax preparer land; not a compliance visit (but they will remind you of the penalties that can be assessed for any malfeasance). Regardless of the pleasant intentions, the timing has irked CPAs to no end and we can’t say that we blame them. Hope no one is expecting an apology. And one more thing, we’d like to know how the Commish’s CPA feels about this whole thing. Just for fun; he should get a letter.

IRS ‘10,000 Letters’ Program Angers CPAs [CPA2Biz]

The IRS Has Gotten Wise to Dead People Seeking Refunds

Pulling off tax fraud is a tough proposition. Hell, even the guys that are good at it get busted.

Plus, despite our low expectations, the IRS has managed to get wise to the filing of tax returns with huge refunds. To try and pull such a stunt will not help your burgeoning criminal career.

Another bad jig (seemingly) would be to attempt filing a tax return seeking a refund for a dead person. Despite what some might consider to be a no-brainer, a couple of guys in California still thought it was worth a shot. Web CPA Reports that Haroon Amin and his partner Ather Ali filed tax returns for 250 dead individuals in 2002 and 2003.

The IRS got wise to some of this but still managed to send out a few checks to addresses controlled by the two men. Mr. Amin pleaded guilty today and faces up to five years in prison where hopefully he can get some help improving his criminal instincts.

Man Pleads Guilty to Filing 250 Tax Returns for Dead People [Web CPA]

Tax Court: “…religious, charitable, scientific…literary, or educational purposes…” Doesn’t Mean “Sex with Kids.”

Private charitable efforts are as American as can be. Toqueville noted our vigorous civil society back in the early days:

Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society.

The tax law recognizes this all-American tendency in Sec. 501(c)(3), which grants a tax exemption for associations with the proper purpose, like those in the headlines.

So along comes Eddie C. Risdal from Iowa. Eddie wanted tax exemption for a cause dear to his heart, “Mysteryboy Incorporation”:

MENBERS SHALL NOT PROMOOT, BUT WILL NOT DENY THE FACT OF PAST & PRESENT HUMAN HISTORY THAT HUMANKIND FROM YOUTH ON-THROUGH ADULTHOOD HAS IN MAJORITY BEEN SEXUAL ACTIVE WHETHER BE IN PROMISIOUS, DEVENTCY, OR EXPERIMENTATION SEXUAL ACTS, AND MENBERS WILL PROMOOT SAFE SEX EDUCATION AND SAY NO TO ILLEGAL DRUGS USES UNTIL THE EVENT THAT THEY BECOME LEGALIZED, MENBERS WILL PROMOOT FEED THE HUNGARY, SUEICIDE PREVENTION AND ANY AMENDED PROGRAMS AS THE INCORPORATION FINDS SUCH A PUBLIC NEED TO ADD SUCH PROGRAMS THAT WILL BENEFIT SOCIETY AT LARGE.

The IRS somehow found this suspicious and asked a few more questions. They came to this conclusion:

The facts of this case show that Mysteryboy Incorporation was organized and operating primarily for influencing a change in the laws concerning sexual exploitation of children.

The Tax Court found that cause a bit too close to Eddie’s heart (my emphasis):

The activities in which petitioner proposes to engage seek to decriminalize the type of behavior (1) for which Mr. Risdal, petitioner’s founder, sole director, sole officer, and executive director, was convicted and incarcerated and (2) which formed the basis for his having been adjudicated a sexually violent predator subject to civil commitment under Iowa Code Ann. ch. 229A (West 2006).10 On the record before us, we find that petitioner has failed to show that those activities will not provide Mr. Risdal with a platform from which he will seek to legitimize the illegal behaviors in which he has engaged, for which he was convicted, and which formed the basis on which he is civilly committed under the laws of the State of Iowa. On that record, we find that petitioner has failed to carry its burden of establishing that its proposed activities will not further the private interests of Mr. Risdal in violation of section 501(c)(3) and the regulations thereunder.

The moral? Civil society ends where civil commitment begins.

Cite: Mysteryboy Incorporation v. Commissioner, T.C. Memo 2010-13.

Joe Kristan is a tax shareholder for Roth & Company, a Des Moines, Iowa CPA firm, where he works with closely-held businesses and their owners. Prior to helping start Roth & Company, he worked for two of what are now the Final Four CPA firms. He writes the Tax Update Blog and is available for seminars, first communions, Bar Mitzvahs, etc. You can see all his posts for GC here.

Cardinals’ Rolle Billed by IRS for $2.2 Million

rolle.jpgFootball is a tough sport. Not the physical demands mind you, it appears to be more of a challenge to stay out of trouble.

Today’s ne’er-do-well is Antrel Rolle of the Arizona Cardinals. The IRS is claiming that the all-pro safety understated his taxable income by 50% in 2005 and 2006 and they sent him a bill for $2.2 million in order to get him back in the Service’s good graces.
Rolle, who does not dispute the claims, does complain that the Service, “violated the Taxpayer Bill of Rights, denied him due process and failed to treat him in a ‘fair, professional and courteous manner.'” Perhaps he was unaware that the IRS is not really known for its good etiquette.


Congeniality aside, it’d be one thing if Rolle had made some mistakes using TurboTax or something (you don’t have to tell Doug Shulman that this shit is complicated) but he seems to have been just ramming onto his Schedule C without prejudice.
Forbes:

Drawing particular IRS attention was Rolle’s report of a Schedule C “sole proprietorship” involving “management and consulting” that he said he operated both years. Over that period he listed $557,000 in revenue and $1.9 million in expenses. The IRS disallowed all but $71,000 of the expenses, which included $254,000 for “advertising” and $372,000 classified as “rent or lease–vehicles.” Rolle said his business was located at an address in Chandler, Ariz., a Phoenix suburb. But “correspondence mailed to that address was returned indicating ‘no such number,’ and electronic research turned up the same result,” the IRS agent wrote.

So you claim over $1 mil in expenses, the IRS takes a look and says that only $71k is actually legit? Hopefully he fired his CPA.
IRS Hits Cardinals’ Antrel Rolle With $2.2 Million Bill [Forbes via TaxProf]

Tax Changes for Haiti Donations Is Bad Legislation. So What?

charlie rangel.jpgNot surprisingly, the House passed H.R. 4462 earlier today in order to accelerate charitable donations made for the relief efforts in Haiti. The bill was sponsored by Charlie Rangel (D-NY) and Dave Camp (R-MI).
We pointed out the thoughts of Howard Gleckman over at Tax Vox this morning and our contributor, Joe Kristan chimed in agreement earlier over at Tax Update Blog:

When something bad happens, politicians reflexively reach for the tax code. They should put it down and back away slowly…As bad as Haiti is, it’s not the first disaster ever, and one more change to the tax law isn’t going to solve that sad country’s problems. Of course, the proposed changes are more about politicians making a show of concern than actually accomplishing anything.

While our sentiments are with these two tax gurus, let’s not forget that every single member of the House of Representatives is up for re-election in less than 10 months. No one was going to vote against this bill. The Senate will pass it and the POTUS will sign it.
Noting that the bill is bad policy misses the point. We’ve all gotten used to Congress making the tax law progressively worse, so is it really necessary to mention that two-thirds of taxpayers don’t itemize deductions and thus, won’t see any benefit at all on their 2009 tax returns?
Those two-thirds of taxpayers don’t think about the standard deduction when they donate money to anything. It’s not about solving the problems of the mind job of the IRC, it’s about encouraging people to do what they can to help.
Save the bitching about Congress for [insert anything else].
Haiti Tax Relief [TaxProf Blog]
hr-4462.pdf

SHOCKER: People Make Mistakes Preparing Tax Returns

When the “Government Accountability Office” reported that 68 percent of S corporation returns had errors, a few people who don’t prepare returns for a living were astonished:

By the way, these S Corporation shareholders are mostly comprised of the “small businessmen” that the right-wing anti-tax crowd constantly claims is overtaxed. Hmmmm. Looks like the bigger issue with this group is noncompliance, not overtaxation. We need to increase enforcement efforts, especially focused on the particular items that have tended to be misreported in S corporation returns.

The reaction from tax pros is more like, “you mean 32% of S corporation returns have no activity?”


Breaking news: this stuff is hard. The tax return for an S corporation of any size starts with thousands of transactions that have to be properly recorded – thousands of opportunities for mistakes. Then you start to apply the tax law. You have to find all of the meals and entertainment expenses, and you have to see which ones fail to qualify. Did the S corporation properly include health insurance on the W-2s (probably not)? What about for the owner’s nephew who has a job at the loading dock? Did every fixed asset get capitalized properly? What about the expenses of acquiring it? Can Section 179 apply? Is it new equipment that qualifies for the bonus depreciation rules? Oh, did they apply the Section 263A inventory capitalization rules properly? Did the Section 199 information get properly recorded for all of the shareholders? Interest? Dividends? Are they qualifying dividends? Are there Capital gains? Section 1231 gains – and what about unrecognized Section 1250 gain? Oh, don’t double them up – that Section 1250 number is part of that 1231 number, not an addition to it!

You get the picture. And if you have a multistate return, your fun is just beginning.

Once you think you have taxable income right, then you have to apply it correctly to the K-1 for the shareholders. Then the shareholders have to apply it correctly to their own tax return, even though the IRS-designed K-1 omits crucial information that the taxpayer or his preparer needs – the shareholder’s basis in the tax return, whether the taxpayer is “at-risk” for basis, and the level of the taxpayers involvement in the business.

If 32% of the returns are reported correctly, it’s shocking all right – it’s amazing that so many are
correct. I’d like to see some law professor, or Congresscritter, try do a tough 1120-S perfectly on a deadline and a budget.

Anybody who has prepared returns for very long has had a “doh!” moment along the way – “holy crap, I’ve been doing that wrong!” It’s not because tax preparers or taxpayers are lazy or evil. It’s just hard.

Joe Kristan is a tax shareholder for Roth & Company, a Des Moines, Iowa CPA firm, where he works with closely-held businesses and their owners. Prior to helping start Roth & Company, he worked for two of what are now the Final Four CPA firms. He writes the Tax Update Blog and is available for seminars, first communions, Bar Mitzvahs, etc. You can see his previous posts for GC here.

A Quick Word About the Wyclef Jean Foundation Controversy

alg_singer_wyclef-jean.jpgThere has been lots of donations made to several organizations since last week’s earthquake in Haiti and Wyclef Jean’s Foundation, Yele Haiti was one of the most prevalent charities raising funds.
As you may or may not be aware, there has been a good deal of coverage of the foundation’s financial problems and this has caused many to think twice about which charity they donate to.
After all the criticism, Gawker now has video of Wyclef Jean admitting that his charity, Yele Haiti, has made “mistakes”. These mistakes range from late filing of its tax returns to the foundation paying expenses on behalf of Jean’s production company (go to The Smoking Gun for more details including the 2006 Form 990).
From a tax standpoint, if you donate and you itemize, you can take the deduction (AGI limits apply and you best keep those receipts), however, as some have pointed out, choose wisely. It is natural to want to donate in times of crisis and if you want that money to go to its best use, then be do some research and make sure you know how the money will be spent.
Wyclef Jean Charity’s Funny Money [The Smoking Gun]

Nicolas Cage’s Catastrophic Financial Situation May be Coming to End

God willing friends, this may mark the end of the financial tragedy that has plagued our hero for we’renotsurehowlong.

It only took putting homes from every continent, both poles, and a bungalow on the moon all on the market. He got sued by his ex-girlfiend, his former business manager and had more liens slapped on his ass than MC Hammer.

But NC is going to pay $14 million to the Service and he’s free and clear. Done. No more troubles. He’s confident this time. You know why? Because he told People about it:

While the government recently placed a tax lien on his real-estate holdings, including an additional $6.7 million from 2008, “over the course of my career I have paid at least $70 million in taxes, unfortunately, due to a recent legal situation, another approximate $14 million is owed to the IRS,” Cage tells PEOPLE in an exclusive statement. “However, I am under new business management and am happy to say that I am current for 2009, all taxes will be paid including any to be determined state taxes.”

$84 million is all it took friends and now that’s he’s got new business management, nothing like this will ever happen again. Plus, the next edition of the National Treasure franchise appears unstoppable. BACK. IN. THE. GAME.
[via the TaxProf]

You Don’t Like the Way I Prepared Your Return? Take Two Tylenol and Call Me in the Morning.

TYLENOL325.jpgEditor’s note: Joe Kristan is a tax shareholder for Roth & Company, a Des Moines, Iowa CPA firm, where he works with closely-held businesses and their owners. Prior to helping start Roth & Company, he worked for two of what are now the Final Four CPA firms. He writes the Tax Update Blog and is available for seminars, first communions, Bar Mitzvahs, etc. You can see his previous posts for GC here.
While the IRS is cracking down on tax preparers and proposing new rules to herd them into submission compliance, problem preparers aren’t a new problem.
Back in 1982, when the 1986 Code was just a gleam in Dan Rostenkowski’s eye, the nation’s headaches went untreated when people started dying from cyanide-tainted Tylenol. We still live with the hard-to-open containers for almost everything as a legacy of the murder spree. The killer has never been nabbed, but the tax world has supplied one suspect. The Chicago Tribune reports:

James William Lewis, a longtime suspect in the 1982 Tylenol murders, made a rare public appearance on public access television near Boston on Sunday night, hoping to promote his new self-published novel, “Poison! The Doctor’s Dilemma.”


Instead, Lewis was met with a barrage of questions from the show’s host and callers about whether he had a role in the unsolved cyanide poisonings that left seven Chicago-area residents dead, and if his novel had anything to do with the killings.

Why the suspicion?

Lewis said during the 48-minute interview that he regretted having written Tylenol’s manufacturer after the deaths, demanding $1 million to “stop the killing,” for which he was convicted of extortion.

A mistake anybody could make, especially after things have gone bad in your tax practice:

After his extortion conviction in 1983, Lewis served more than 12 years in prison. In the 1970s, Lewis was accused in Kansas City, Mo., of killing and dismembering a client of his tax-preparation business. Charges were dropped after a judge threw out most of the evidence.

That just shows how the new preparer regulations are long overdue. We can be confident that IRS Commissioner Shulman’s new preparer registration and CPE requirements — especially the two annual “ethics” hours — will keep anything like that from ever happening to a preparer today.

IRS Commish Finds the Tax Code Complex, Doesn’t Do His Own Taxes

[caption id="attachment_23858" align="alignright" width="260" caption="Dude. Code is this thick."][/caption]Just because you’re in charge of the IRS doesn’t mean you know anything everything. Doug Shulman was on C-SPAN over the weekend (we’re sure you saw it) and admitted that he uses a tax preparer.

His rationale is, “Look, I’m a busy dude, I don’t have time to do my own taxes. Besides, have you seen the size of the tax code? It’s a flippin’ mind job.”

Or in his own words:

“I’ve used one for years. I find it convenient. I find the tax code complex so I use a preparer,” Shulman said.
Pressed on how he would make the tax code simpler, Shulman responded, “I don’t write the tax laws. Congress writes the tax laws so that’s a whole different discussion.”

Unapologetic as usual, Dougie. We’ll give him credit though – admitting that the tax code that you’re in charge of enforcing is too complex is admirable (although not a news flash).

Plus, he goes so far to say that he’s powerless to do anything about it. Now that’s transparent government!

IRS commissioner doesn’t file his own taxes [The Hill]

The Lapsed Estate Tax’s First Victim

And by that we mean, he was only 13 hours away from 2010, when the estate tax expired.
Fritz Lohman of New York died at 11 am on December 31, just barely missing the opportunity to save his heir millions in taxes:

Lohman, 87, a SoHo real-estate magnate who pioneered the exhibition of gay art, died at home at about 11 a.m. on New Year’s Eve after a long illness. If he had instead passed away after midnight Jan.1, his partner of 48 years could have avoided paying at least $3 million in estate taxes — thanks to Congress letting that levy lapse for 2010.

For you populists out there, you could probably give a rat’s ass about but jesus, that just sucks. Thirteen hours. That’s shorter than some Law & Order marathons.
Dying 13 hrs. too soon cost $3 mil in taxes [NYP]

Glenn Beck, Who Doesn’t Hesitate to Point Out Other People’s Tax Problems, Had Some of His Own

glenn-beck.jpgSince he’s such a passionate guy, Glenn Beck will not hesitate to call someone out if he feels that they are cheating the American people. He’s a crusader for justice, after all.
For example, Tim Geithner, Health and Human Services Secretary Kathleen Sebelius, Tom Daschle, Labor Secretary Hilda Solis and others were all called “tax cheats” by GB early last year and he also mentioned that he wouldn’t entrust his children to them (nice touch).
So it’s more than a little awkward for Becks when Politico reports that Mercury Radio Arts, his production company, has had some of its own tax troubles:

Mercury, a private corporation that lists Beck as chief executive officer and his wife, Tania Beck, alternately as vice president or secretary, since 2007 has fallen behind on its New York City business income taxes and has been cited for filing errors related to its obligations under Texas franchise tax and New York state workers’ compensation insurance rules.

Politico reports that the company owed just over $25k in back taxes and penalties but since everything has been cleared up it’s NBD. However, we do seem to have a little bit of a pot and kettle situation. What’s even more stupid is that everyone is all bent out of shape over these people screwing up their taxes even though no one was willfully trying to dodge the tax law:

Dean Zerbe, national managing director for a company called alliantgroup that provides specialty tax services to accounting firms, said Beck’s situation “has the look and feel of somebody who is confronting an extraordinarily complicated tax situation — or at least the people he’s hired to do these things are — and is trying to comply but isn’t doing everything perfectly.”
The same, however, could be said of most of the Obama nominees Beck has blasted for tax problems, said Zerbe, who called them “people who were trying to comply with the spirit and the intent of the law.”

As it has been mentioned, our tax system is complicated and that’s putting it lightly. The fact that all these people made mistakes doesn’t go so much to anything about them as Americans as it does the tax system being a giant shitshow. So if that is indeed the case, does this mean that all this name calling and finger pointing is politically motivated? GET THE HELL OUT OF HERE.
What if it’s Beck with a tax ‘accident’? [Politico]