Debit Cards for Tax Returns

Here at Holland & Brown, we've been receiving offers to set up a debit card option for our clients getting tax refunds. We were offered a cut of our clients' refunds for participating. The idea doesn't pass the smell test so I've been ignoring those offers. Here is an article that shows how the debit card issuer (an insanely greedy one, anyway) makes huge amounts of money on the deal.

Proposed SOX 404(b) Changes Could Add to Investors’ Risks

The AICPA president, Barry C. Melancon, posted his concerns with proposed changes in the Sarbanes-Oxley Act. I share his concerns. Read it here.

Education

"If we don't have a trainable work force, we're not going to be successful in economic development." -- Will Davis, Director of Econcomic Development, Chesterfield County.

That begs the question, what is a trainable work force? What attributes are necessary for a person to be trainable?

Trainable (or trainability) means a person is capable or learning a particular set of skills intended to fit that person for a particular role. Examples: computer programer, nurse's aid, doctor, lawyer, automobile repairman (or woman). [Adapted from the Free Online Dictionary .]

Of the things controllable by society, the most important characteristic of a trainable work force is possession of a quality education. In my opinion, if Virginia continues to short change its public education system from Pre-K through graduate school it will soon lose its status as one of the best places to do business because it will soon fail to create a "trainable work force."

Irsay Junior and Senior

Here's the way I see it going down. Irsay Sr. @##$% the Colt fans in Baltimore. Irsay Jr. is going to @##$% the Colt fans in Indianapolis.

Limit the Turnout

Limit the turnout, at least, of voters who are most likely to lean Democratic.

The campaign to acheive the above goal is moving along in Virginia. See here. At the same time, the campaign of that counter-example of "fair and balanced," (cable) Fox News, to persuade us that fraudulent votes by dead people are rampant in South Carolina has been exposed as dishonest horse manure. See here.

Newt the Progressive

Despite his protests to the contrary, Newt Gringrich's campaign for the Republican nomination for President has a clear anti-big business, anti-capitalist theme. This is, of course, because he and his campaign wonks see this approach as giving him the best chance of defeating Mitt Romney.

Nevertheless, the irony of a Republican running such a campaign is overwhelming. What's next, a "cross of gold" speech?

Hate Speech vs Free Speech

Having rights also means having responsibilities. Paul Woody's column in today's (Jan 27) RTD provides a good example of a person who met his responsibilities while exercising his right to free speech contrasted with examples of (anonymous) people engaging in irresponsible hate speech under the cover of free speech.

Tax Season

Tax season is upon us, some more than others.

If you use a CPA or other professional to do your tax return, do yourself a favor, get your stuff to your tax pro as as soon as you can.

Determination of Primary Candidates

There is something wrong with a process that keeps plausible national candidates off of a major political party's primary ballot. Not fhat I would vote for either one of them (Perry and Gingrich, I mean) but it just not serve the interests of a democracy, in my opinion.

See RTD story.

Holiday Wishes To All

Merry Christmas, Happy Hanukkah, and best wishes for everyone this holiday season and into the new year.

Why is a theft loss better than a capital loss?

In my previous post I described a new IRS position on the treatment of losses in Ponzi schemes that will allow some taxpayer-victims to take theft losses instead of capital losses. I didn't say why that is useful.

The Internal Revenue Code allows an individual with a net capital loss to offset $3,000 of ordinary taxable income each year until that loss is exhausted. So, if a person had, for example, a $51,000 capital loss (and no capital gains), that loss would be deducted over 17 tax years.

On the other hand, a personal theft loss is immediately deductible (1) if the taxpayer itemizes deductions and (2) after taking away $100 and 10% of adjusted gross income. So, a taxpayer with, for example, $100,000 of other taxable income and a $51,000 theft loss, would have a $40,900 deduction in the year of the loss.

So which is better, deducting $3,000 per year for 17 years or deducting $40,900 immediately? That is up to the taxpayer who has been victimized by a Ponzi scheme.

Ponzi Schemes and Income Taxes

Some Ponzi scheme victims may get more tax relief for their losses since the IRS issued Revenue Procedure  (abbrev. Rev Proc) 2011-58 which modifies one issued over two years ago, Rev Proc 2009-20

Ponzi Scheme victims have had the option of treating their losses as theft losses instead of capital losses if the loss in question was qualified. In general, a qualified loss was only incurred if the lead figure of the scheme was the subject of a federal or state criminal complaint or the right sort of civil proceeding. If the lead figure died before the complaint was filed, then the loss wasn't qualified.
 
Rev Proc 2011-58 broadens the definition of a "qualified loss." Now, the limit described in the preceding paragraph has been removed under certain circumstances.

There is a bunch of other technical gobbledygook in the new Rev Proc and the one it modified so don't rely on this post to justify claiming a deduction. However, if you or someone you love was taken advantage of in a Ponzi scheme (also known as pyramid scheme) then it might be worth while to buy an hour or two of time from a qualified tax professional.

Most of us, by the way, will talk about an issue like this at no charge for a half hour or so to filter out at least some of the folks who clearly aren't going to get a useful deduction. Note, however, there are no guarantees. At the end of the freebee 30 minutes the tax pro might not be sure whether the prospective client has a "qualified loss." At that point, the person with the loss may have to decide whether to start paying for the tax pro's time to get a final answer.

Thanksgiving Weekend

It's been a little hectic around here. My wife had full knee replacement surgery on Nov 23, the day before Thanksgiving, and that has pretty much absorbed my time since then.

Fortunately, she's making better than average progress where progress is measured by the angle of the knee joint fully extended - 0º (straight) is the target – and fully flexed – 105º is the target.

All things considered, it was a good Thanksgiving and we have much to be thankful for.

Scams Using IRS as Bait

The Internal Revenue Service and others continue to report on various schemes directed at persuading people to reveal personal information in the mistaken belief that are responding to an IRS request.

Here is a simple fact.

THE INTERNAL REVENUE SERVICE DOES NOT USE EMAIL TO INITIATE CONTACT WITH TAXPAYERS.

If you get an unexpected email from the IRS, forward it to phishing@irs.gov, then delete it.

I have heard is at least one report that con artists are sending phony requests for personal information through the U.S. Postal Service on the pretext of being from the IRS. Be careful.

Note also that the IRS web domain is www.irs.gov. The web address that has .org instead of .gov does NOT belong to the IRS. It is a fraud.

Like A Four Year Old?

Here are some extracts from a pdf document available at Iowa State University.

• dresses self without much help
• walks a straight line
• understands the concepts of tallest, biggest, same, more, on, in, under, and above
• asks and answers who, what, when, why, where questions
• likes to talk and carries on elaborate conversations
• persistently asks why

Of course, I picked favorable characteristics of four year olds. There are others that are more like ... well, like what you would expect from a four year old ... or ... fill in the blank.

Sarbanes-Oxley and Internal Control

The Sarbanes-Oxley Act of 2002 (SOX), among other things, created a requirement that publically traded companies have an adequate system of internal controls in place and that management those companies prepare an annual report on the adequacy of those controls (the infamous Section 404). SOX also requires that an independent auditor examine each covered company's internal controls and express an opinion on the management report.

According to James Doty, chair of the SOX created Public Company Accounting Oversight Board (PCAOB), the outside auditors are not doing an acceptable job of evaluating the assertions made by company managements. A Reuters article is here.

A major motivation that led to SOX being enacted was the need to ensure better detection and prevention of corporate fraud as perpetrated by the management of Enron, Xerox and a number of other companies. A major tool in achieving that goal is to have an effective system of internal control in place. The problem described by Mr. Doty means that tests of internal control are inadequate to detect weaknesses in the system, weaknesses that could be exploited by people inside these publically traded corporations.

Regulations and laws do little good if not enforced. Since the PCAOB is the single most important regulator of both reporting by publically traded companies and auditing of those companies by CPA firms, it will be interesting to see what he and the PCAOB do about this problem.

Chesterfield Location for Science Museum of Virginia

A Chesterfield satellite location of the Children's Museum of Richmond has been funded by a couple long active in the museum.  This RTD story has some additional details.

The story states, "The museum is evaluating locations in the area of Hull Street Road and state Route 288 because of the high concentration of children there." Some zoning classifications allow museums by right but several do not. It is not unlikely that any proposed location will require action by the Chesterfield Planning Commission and the Board of Supervisors. It will be interesting.

A Year With Frog and Toad

A Year With Frog and Toad is a great story of friendship. There is also a lot of singing, dancing and jokes. A few of the jokes will only seem funny to older people who need a longer lifetime's experience to recognize the reference but that's probably a good thing. One ongoing gag gives real meaning to "snail mail."

The publicity blurb suggests ages 4 and up which is probably about right. It was a stretch for one 3 year old earlier today but he managed to enjoy it (and to get just a little bit scared during the thunder storm scene). Be aware, winter doesn't get much play in this production since that's when toads and frogs hibernate.

This Theatre IV production is currently running at the Barksdale Theater at Willow Lawn and will do so through December 31.

Pet Peeve of the Moment: Quick Claim

There is no such thing as a "quick claim," at least not in relationship to real estate ownership. There is a thing called "quitclaim." Definitions are at the links below.

Links:

• http://www.investopedia.com/terms/q/quitclaimdeed.asp#axzz1dPdbvIM1
• http://homebuying.about.com/od/glossaryqr/g/quitclaimdeed.htm
• http://en.wikipedia.org/wiki/Quick_claim

Economy moving upwards

Job and trade data show an improving economy. Both new unemployment claims and the trade deficit fell in most recent federal reports. A Reuters article is here.

For September, American manufacturers reported the most new orders since July 2008. As seems reasonable, stocks of those companies have increased in price. A Bloomberg article is here.