Yet Another Tax Refund Scam

On March 2 the IRS issued a warning of a scam involving the American Opportunity Tax Credit. This credit is available for certain qualified education costs but the scammers falsely assert the credit is available for some, usually seniors, who have not recently enrolled in or paid for college. Full details are available here on the IRS web site.

Be aware that the IRS does not initiate contact with taxpayers by email. Be wary of any tax "idea" that sounds to good to be true.

Personal Financial Planning

Here's a useful, though admittedly just a tiny bit self-serving, post on the AICPA's Insights blog.

A good investment advisor will consider the life goals of his or her clients and present alternatives directed at achieving those goals, even if the advisor's compensation is commissions on the sales made to the client. Sometimes though even an outstanding fee-only and commission based advisor will overlook an important tax factor affecting one or more of the available investment alternatives.

Much of financial planning by individuals or businesses revolves around the tax impact of various alternatives. Is is important to have those alternatives evaluated by a tax professional who does not have a vested interest in the final choice made by the investor. If you are already having your tax returns prepared by a licensed professional (CPA or Enrolled Agent), then discuss your investment plans with him or her BEFORE signing anything. If you don't have a CPA or EA and your thinking about investing what seems to YOU to be a lot of money, then find one. Most of us will provide a free half hour of general discussion of your tax situation.

Chesterfield Public Schools Update Strategic Plan?

A nice article in the Chesterfield Observer describes the ongoing strategic plan process of the CCPS. Perhaps the article is too nice. It remains to be seen whether the new members of the school board can or will bring about an end the long standing behavior of the school board to treat itself as an island, unresponsive and unmindful of the county's broader needs.

School Board member Carrie Coyner and BOS member Dorothy Jaeckle are described as supporting coordination of school renovations with revitalization efforts. Since it seems that a school has be almost falling down around students and teachers before it will be renovated, it will be interesting to see whether Coyner and Jaekle will get their way. (Whether renoviations would be less costly and even less frequent if a rational maintenance program were in place is a topic for another post.)

People will go to where the good schools are. If Chesterfield County is to succeed in revitalization of areas like the Jeff Davis corridor and around the Hopkins Road-Chippenham Parkway interchange, then the school system has to cooperate fully in the process. Whether that happens depends upon the School Board, particularly all of its new members.

Sales Tax Collection Rules Expanding

When people realized that Amazon's new distribution centers in Chesterfield and Dinwiddie would not trigger sales tax collection by Amazon on sales to Virginia residents, the state legislature demonstrated that it is capable of reacting to new situations quickly and effectively. Legislation has been passed that will trigger collections by Amazon and other online retailers that use a controlled subsidiary to operate a distribution center in the Commonwealth.

Bank of America Trys Again

MSNBC, Fox News and the Wall Street Journal all have stories on Bank of America's plan to impose fees on many more account holders. The Fox News and WSJ articles have the same lead paragraph. "Bank of America Corp. is working on sweeping changes that would require many users of basic checking accounts to pay a monthly fee unless they agree to bank online, buy more products or maintain certain balances."

BOA seems really desperate to keep funding those executive bonuses. I expect smaller banks and credit unions will benefit more from this scheme than will BOA shareholders.

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.