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Archive for June, 2010
Sunday, June 27th, 2010
 Although most of us don’t take this into consideration, some people choose their citizenship based on tax exposure. They may live in the US because taxes are cheaper here (than elsewhere) or they may move from the US to a location with even cheaper taxes.
In a Forbes.com article entitled “Ten Facts about Tax Expatriation”, Robert W. Wood lists important information that you should know if you are thinking about moving to or from the US in order to modify your tax exposure. I’ll summarize the ten items here but you should read them in greater detail in Wood’s article.
And his ten tax expatriation facts are:
The government taxes all income worldwide. So the money you made elsewhere? The IRS wants some of it.
If you’re going to leave for tax reasons, you need to really leave. You can’t fake it. If you’re here more than 30 days in a year, you are considered a citizen or resident of the US.
There was a loophole that allowed you to get out of some taxes if you left for a reason other than tax avoidance. It comes as no shock to anyone that this loophole was closed.
In 1996, Congress just assumed that anyone with a net worth greater than $500,000 was leaving the US to avoid taxes. Nice!
In 2004, the US decided to stop guessing and just impose a tax on all US-based income for ten years after someone moved away.
There are special rules for long term residents (as if the tax law isn’t already complicated enough).
There’s an exit tax (or, as I like to call it, a “slap in the face” tax) for anyone leaving after June 17, 2008: Essentially everything you own in the world is considered to have been sold at market value and you have to pay a capital gains tax on it…
… unless the income is less than $600,000. So this is a “slap wealthy people in the face” tax. And it shouldn’t surprise you that Woods spends another 2 paragraphs going into detail about the complex calculations surrounding this.
You can defer this tax but it’s complicated.
Woods says it perfectly: “You’ll need professional help.”
Entry and exit is an interesting situation: Various agencies (like Homeland Security and the US Citizenship and Immigration Service) do a thorough job of making sure that it’s not easy to get into the US… and the IRS makes sure it’s not easy to get out of the US.
“Welcome to the USA… now that you’re here, you’ll pay taxes and you won’t be able to leave.”
(Photo credit: ellyjonez)
Tags: expatriate tax law, offshore income tax, Tax Expatriation, taxes for living overseas, us citizen tax liability
Posted in IRS, Tax Evasion, Tax Law | 3 Comments »
Friday, June 25th, 2010
After watching the famous movie Jaws, you might not go near a beach for a while after viewing it. And although you and I might find a great white shark to be a scary villain in Steven Spielberg’s movie, Actor Robert Shaw was scared of another (and far more menacing) foe: The IRS tax collector!
Robert Shaw lived from 1927 to 1978 and starred in such hit films as The Sting, From Russia With Love, The Taking of Pelham One-Two-Three, and (of course), our favorite fish movie, Jaws.
Shaw played Quint, a gruff sea captain who takes Chief Martin Brody (played by Roy Scheider) and Matt Hooper (played by Richard Dreyfuss) out to the ocean to catch and kill the shark (not the government sharks that want to garnish your wages and tax your earnings).
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Tags: government sharks, jaws tax, richard dreyfuss, robert shaw, roy scheider, sterling hayden, steven spielberg, Tax Collection, tax collector
Posted in IRS, Tax Collection, Tax Evasion, Tax Problems | No Comments »
Thursday, June 24th, 2010
 One of the complaints you’ll hear me voice frequently is that the IRS has an overly complicated system of taxation. The result, as I hope I’ve made plain in past blogs (and will continue to shout from the rooftops in future blogs) is this: A complicated system makes is difficult for honest taxpayers to be accurate while at the same time it creates numerous ways through which tax cheaters can defraud the government.
One such fraudster came to light recently: Shawn Clarke stole about $115,000 from the IRS by conspiring with friends and family to fraudulently fill out tax forms. (You can read more about the fraud in detail here but I’ll quickly summarize it below).
Basically, Clarke and his friends and family claimed he was working while he was, in fact, incarcerated. They were able to do this because of the system’s complexity. Just look at how they try to describe what he did: “The inmates and family members filed 1040 EZ forms (the short form) along with the one-page 4852 form, which is a substitute for the W-2 when an employer doesn’t provide one.”
Clarke’s actions are reprehensible and I’m glad he was caught. But this shouldn’t happen at all. While there will always be opportunists who try to work the system, the IRS’ 70,000 pages of tax code makes it easy for people to commit tax fraud. And, the complexity of the system makes it difficult for IRS officers to catch criminals in the act. In fact, you’ll note by reading the article that the only way Clarke was caught was because someone found a note in his prison cell. It wasn’t an eagle-eyed tax auditor.
While tax frauds should be brought to justice for stealing from Americans, it’s ultimately the IRS, and Congress, who are to blame for bringing this on themselves. So what’s the solution? A simpler system! Create a flat tax or a national sales tax and you will eliminate many of these situations. Simplify the tax code, reduce the number of forms to fill out, make it so that we have an easy-to-calculate system and people won’t hate filing taxes nearly as much. And you’ll eliminate the loopholes for opportunists.
(Photo credit:amanderson2)
Tags: complicated taxes, income tax fraud, Tax Crimes, tax forms, tax fraud prision
Posted in Income Tax, Tax Crimes | No Comments »
Tuesday, June 22nd, 2010
 In poker, the term “grinder” refers to a player who spends their days playing poker. Grinders treat poker like a business, sitting down for 8 hours to play, grinding it out like everyone else might grind out their work at a day job.
Michael Mizrachi’s nickname is “The Grinder” and he does exactly that, “working” at poker in a way that others might work at picking up garbage or running a cash register. And, like the rest of us, he has taxes to pay.
Unfortunately for Mr. Mizrachi, the IRS has recently put a lien on his home for $340,000 in unpaid taxes.
Over the course of his poker-playing career, the young Mizrachi has earned a whopping $6.9 million but, though poor money management and accounting practices, he owes $339,711, and he is facing foreclosure.
For many taxpayers, especially younger ones who begin to make a lot of money quickly in business, sports, Hollywood, or poker, taxes come as a nasty shock. People expect to pay taxes but making a lot of money can bump you up into a higher tax bracket very quickly, resulting in taxes owed that are far greater than you expected. It’s even more difficult to estimate the amount of tax you will owe when you don’t make a regular wage but rather earn your money in fits and starts (as a poker player might win a few times a year or a movie star might earn a few checks a year). Lots of my self-employed clients have this problem.
In Mizrachi’s case, it’s not simply a matter of putting in overtime or asking the boss for a raise. If he plans to continue “running his poker business”, he needs to play… And he needs to win… And he must develop the discipline to pay his taxes – on time.
This is a cautionary tale for those who want to play professional poker, professional sports, get into acting, or be a normal self-employed person: With every single paycheck, estimate the amount of taxes you owe and set that money aside (or pay quarterly) to avoid tax problems down the road.
(Read the full article here)
(Photo credit: plutor)
Tags: Income Tax, IRS, michael mizrachi, poker, poker player, Tax Problems, unpaid taxes
Posted in IRS, Income Tax, Tax Problems | 1 Comment »
Sunday, June 20th, 2010
 In a recent blog post I talked about the IRS Whistleblower office and the mysteries surrounding the program.
But today I wanted to provide a counterpoint perspective. I don’t want you to think that I’m against whistleblowing in a case where there is a tax cheat, and I do like that this system provides an incentive for taxpayers to help bring to justice those who would cheat on their taxes. I support it for the same reason I support Crimestoppers and other crime-reporting measures: While approved officials should ultimately be the ones to investigate and protect us from lawbreakers, sometimes the “person on the street” can see laws being broken that others cannot.
I also like that the IRS is theoretically incentivizing whistleblowers. (I say “theoretically” because it doesn’t sound like anyone has been paid yet).
Here’s why I really like this program more than many others: While it is not a perfect system, it is a system designed to help stop tax cheats. Frequently, we see many IRS programs initiated that seem to focus on squeezing more tax dollars out of hard-working, honest taxpayers while completely ignoring those who are working the system and getting a loophole. This program focuses on those who truly should be paying more taxes: the tax cheats!
If you are aware of a situation where someone is cheating on their taxes, you could earn a reward while doing your part for the country. You can earn between 15% and 30% of the proceeds collected by the IRS (as long as the amount owed is above $2 million). There are smaller rewards if the amount is less.
You can read more about the IRS’ Whistleblower’s Office and find forms and documentation for reporting.
This has the potential to be a good program as long as the IRS doesn’t get bogged down in bureaucracy. And if they really want it to be successful, they should keep a running total of the amount of payouts they’ve made thanks to whisteblowers.
(Photo credit: katerha)
Tags: tax crime, Tax Crimes, Tax Evasion, whistleblower
Posted in Tax Crimes, Tax Evasion | No Comments »
Saturday, June 19th, 2010
 In a recent blog post I highlighted the BusinessWeek article about the IRS asking for businesses to self-identify the areas where the IRS might disagree with them. If this rule change goes through, businesses will need to create a “roadmap” of the line items the IRS should consider auditing. More galling is the fact that businesses will also be required to list the full amount they would owe if the IRS decides against them.
This really frustrates me and I’ve decided to continue blogging about it today. I think this is a disaster just waiting to happen. Here’s why:
It hurts honest people more than dishonest people. This is yet another way for the IRS to go after honest people. After all, if the statistic is true which says that over 16% of Americans evade taxes, those folks are certainly not going to be the ones who will accurately report their numbers. It’s the honest ones who accurately report their numbers who will suffer while tax evaders and tax cheats continue to get away with it.
This heavy-handed “self-audit” program will increase the number of tax cheats. With a confusing and oppressive tax code, it’s not a surprise that cheating on taxes is a temptation for some. With this new rule, even fewer people will feel motivated to tell the truth. Once again, it punishes the honest, or further tempts them to be dishonest.
It’s self-incriminating. Even if someone is filing their income tax honestly, these numbers invite scrutiny which can lead to additional audits. It’s an invitation for oppressive income tax auditors to zero in on a few areas of concern.
As I’ve mentioned before, this assault is focused only on businesses – right now – but if it’s successful (“successful” in the eyes of the IRS, that is), I believe individuals will eventually be forced to perform a similar type of tax filing.
Let’s call it what it is: It’s double tax filing: One is the tax you don’t want to pay but feel is accurate. The other is the higher tax that you don’t want to pay but will have to pay if the IRS decides in their own favor.
And that leads me to another issue: The IRS gets to create these rules and gets to enforce them as well. There are no checks and balances here!
Instead, the IRS should actively pursue tax cheats and tax evaders who are getting away with billions of dollars in unpaid taxes. They should leave honest, hard-working Americans with as much of their hard-earned money as possible.
(Photo credit: John-Morgan)
Tags: irs audits, tax owing, taxes
Posted in IRS, Tax Audits | 1 Comment »
Thursday, June 17th, 2010
 Years ago, it used to be very difficult for people to come forward to report illegal activities if they knew that their jobs (or even their lives) were in danger. Slowly, over the years, the government has put various programs in place to help people feel safer about reporting problems, including the Whistleblower Protection Act of 2007.
While whistleblowing is often thought to protect an employee from retaliation by an employer for whistleblowing, there is also provision for taxpayers to blow the whistle on individual or corporate tax cheats.
Before I talk about it further, let me give a balanced viewpoint: On the positive side of the argument, this is a way to bring to justice people who cheat on their taxes. I’m happy about that because, although I believe we should pay less tax, I believe we should do so fairly and ethically. On the negative side of the argument, though, this can be a retaliatory strike by disgruntled people to try and trigger an audit on those with whom they hold a grudge and I can only hope that those who act on whistleblower’s tips do so with caution and respect.
What initially prompted me to blog about this in the first place was an article I read in South Coast Today in which the reporter interviewed IRS official Stephen Whitlock who is in charge of the IRS’ whistleblower’s office. You can read the full interview here but I will summarize and make some additional comments.
What you’ll find when you read this article is that Whitlock says very little. By law, he’s not allowed to give a lot of detail, which is fine, but what he can say comes across a little offensive. When asked about the motivation that people have to blow the whistle, he attributes it to a desire among people to make sure that everyone pays their fair share of taxes. After that, he admits that there is a retaliatory motivation and a financial motivation.
What I found most interesting about the interview was this: There is supposedly hundreds of millions of dollars that the whistle is being blown on. More than one thousand whistleblowers reported people owning more than $2 million each (some more than $100 million each). And the IRS seems to be very generous with the reward money they pay out, claiming that they will pay between 15% and 30% of the collected money.
But don’t miss this: The IRS hasn’t paid out any money yet (really? In spite of having that many whistleblowers?). Their reasoning is: It takes a long time and they can’t tell anybody about it.
So, that leads me to wonder: Will they pay anything out at all? And how would we know anyway? How could anyone know if they were owed money by the IRS for this? (After all, they can’t even tell whistleblowers what the status of the investigation is). You can only get the 15% to 30% reward if the amount collected is over $2 million. If it’s under, you get a much smaller (unstated) amount and, according to the IRS, you cannot dispute the amount.
It sounds exciting to earn money for being honest… but I wonder if you’ll have a better chance of making money in the lottery.
(Photo credit: stevendepolo)
Tags: IRS whistleblowers, Tax Crimes, Tax Evasion, US government whistleblowers, whistleblower
Posted in Tax Crimes, Tax Evasion | No Comments »
Wednesday, June 16th, 2010
 People are in for a wake-up call: Non-profit organizations (excluding churches) that report less than $25,000 in income in 2010 might discover in 2011 that the donations they received through 2010 were not tax exempt.
Here’s what’s happening: The IRS is requiring non-profit organizations (except for churches) whose reported income is less than $25,000 to fill out an additional form. The due-date for that form was the middle of May but nearly 214,000 non-profits had not filled out the form.
No one will realize their error and they will continue taking donations through the year. Then, when it comes time to issue donation receipts, here’s what will happen:
The organization will discover that it has lost its non-profit status and the generous donations throughout the year will not be tax deductible.
The organization itself will have to report for-profit income, which could be financially devastating to the organization. Meanwhile, the people who have given throughout the year with the full expectation of the tax-deductible benefits of their donation will suddenly discover that they paid money and are receiving no tax deduction in return.
Here is another occasion where the IRS is biting the hand that feeds it. In an attempt to collect every dollar it feels it is owed (and to leave no stone unturned to find more of those “owed” dollars), it will leave in its wake many important organizations that will no longer be able to function, including historical societies, community theater, and community outreach programs. That’s right, the IRS isn’t going after tax cheats, they’re trying to squeeze money from organizations that can barely afford to survive.
You can read more about it in this Associated Press article.
Photo credit: cesarastudillo
Tags: Income Tax, non-profit, tax deadlines, tax owing, taxes
Posted in IRS | No Comments »
Monday, June 14th, 2010
 Rick Mahorn was a basketball player who played for the Detroit Pistons, and sadly has filed bankruptcy as the result of an IRS debt on unpaid taxes.
The Mahorns filed for Chapter 7 bankruptcy following failed investments, a drop in value of a home, and IRS back taxes. Pro athletes make a lot of money, but also need to pay a lot in taxes. The more successful you become, and if you owe back taxes, the larger the target you are for the IRS.
Government tax collectors will always go after individuals with large incomes, as they are the most likely to pay their debts.
Read more about tax problems at the USA Today. Image credit Need4sheed.com
Tags: celebrity tax problems, NBA star tax problems, pro athlete IRS, Rick Mahorn irs, Rick Mahorn tax
Posted in IRS, Tax Problems | No Comments »
Saturday, June 12th, 2010
 Imagine this: Life is moving along at a normal pace; you’re earning an income, which is enough to live on and you’re working hard and hopeful for a normal life.
Then a letter comes in the mail. It’s from the IRS and there’s a great big, hefty number at the bottom of the letter and it’s a number that they say you owe in taxes. Failing to pay federal income taxes could result in garnished wages… or worse.
Who are you going to call?
The IRS Hitman is a new reality TV series following an ex-IRS official who left the IRS to become an advocate for over-taxed taxpayers. Follow him as he travels around the country helping families who are suffering from the burden of tax debt and the heavy hand of the IRS.
(more…)
Tags: IRS hitman, IRS Hitman reality TV, tax reality show, tax tv
Posted in IRS, Tax Problems, Tax Solutions | No Comments »
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