I’ve been searching for responses from the tax software companies named in the class action lawsuit filed against Free File Alliance corporate partners (more on the legal action in this earlier blog post). Not surprisingly, there’s nothing official on any of the major company Web sites. It’s a cliche, but I’m sure the truth, that the companies’ lawyers are all poring over the documents and have mostly muzzled spokespeople. However, I did find a few reply reports and, in the interest of fairness, wanted to share them. Tim Hugo, executive director of the Free File Alliance (this link takes you…

A group of taxpayers who didn’t meet Free File income requirements have decided to recoup their e-filing fees by taking the software companies to court. Two Philadelphia law firms have filed a class-action suit in federal court against the companies that make up the Free File Alliance. They estimate that damages could be billions of dollars. The complaint, filed by Feldman, Shepherd, Wohlgelernter, Tanner & Weinstock and Cooley & Handy, alleges that while the agreement the IRS made with the Alliance companies was supposed to provide free e-filing for up to 70 percent of Americans, only 3.8 million taxpayers filed…

A Pennsylvania woman is suing Kmart over a 12-pack of Angel Soft toilet tissue that cost her $3.99. The shelf price isn’t the problem. Rather, says Mary Bach, the Kmart store where she purchased the TP improperly collected 7 percent sales tax on what is a non-taxable item. Her final register tally: $4.27 — or 28 cents too much. So Bach is taking her case to court. A hearing is set for Oct. 31, at which she’ll be asking for $100 in damages, plus court costs, for violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. It’s not just…

The Supreme Court has five tax cases on its docket for the new term, which began Monday. A couple of them strike me as having the potential to affect "average" taxpayers. First, there’s Kentucky Department of Revenue v. Davis, which deals with the issue of a state providing an income tax exemption for bonds it issues, while continuing to tax interest income realized from bonds issued by other states. This is a standard practice in most of the jurisdictions that have a state income tax. State tax collectors pocket a portion of interest paid on out-of-state municipal bonds, but allow…

The last we heard from actor Wesley Snipes, he was corresponding with an Orlando reporter about tax evasion charges filed against the actor. In that e-mail exchange, Snipes, best known for his vampire hunter Blade movie series, complained that he was being "scapegoated" by the U.S. government "because there’s more public interest in ‘celebrities gone bad’ than ‘rich people being taken advantage of.’" In case you forgot, Uncle Sam alleges that Snipes owes $12 million in back taxes. That sum is due to, according to the indictment, conspiracy to defraud the government, making false refund claims and failing to file…

While much of the eastern half of the country bakes in a late-summer heat wave, many folks no doubt are dreaming of cooler places. Frigid climes also have been the subject of tax fantasies, as some taxpayers have sought to use a cold locale as the basis for a tax break. Remember the fellow who worked at McMurdo Station, Ross Island, Antarctica, and who tried to report his earnings there as foreign income (blogged here)? He was hoping to exclude that amount from his U.S. tax filing. The Tax Court said no in that instance, and has again turned a…

Ted Stevens, the longest-serving Republican in the U.S. Senate, is under investigation by the FBI, IRS and Interior Department in connection with a political corruption case. Federal lawmen on Monday raided the 83-year-old Alaskan’s personal home in the ski resort area of Girdwood. Of apparent interest to officials who served the search warrant are Steven’s ties to an Alaska energy services company, Veco. That company’s chief executive has pleaded guilty to a bribery scheme involving state lawmakers. The Washington Post has published a time line of the Steven’s investigation. Last year, Stevens gained recognition beyond Alaska’s borders when he succeeded…

If you’re an e-shopper of a certain age, you probably remember the early days of e-commerce. It was new, it was exciting, and there were lots of items that you just couldn’t find down on Main Street. Even better, in almost every instance, you didn’t have to pay sales tax on your electronic purchases. That didn’t last long. State revenue departments were soon demanding their portions of revenue from online sales. The determining factor was whether a company had an actual physical presence in the state. That means if you’re looking for a particular scented candle and your local Yankee…

A federal judge today dismissed indictments against 13 former KPMG executives in what has been called the biggest criminal tax case in U.S. history. U.S. District Judge Lewis A. Kaplan issued his ruling (full text here, courtesy of the Wall Street Journal), saying he had no alternative but to dismiss the indictment after determining last year that prosecutors violated the former accounting firm executives’ constitutional rights by putting undue pressure on KPMG not to advance them defense costs. The dismissal is not necessarily bad news for the feds. In fact, federal prosecutors had urged the judge to do just that.…

Last August, a D.C. federal appellate panel ruled that the IRS cannot collect taxes on money awarded as compensation for emotional distress and other intangible injuries.  In the original ruling, Marritta Murphy was awarded damages for emotional distress and loss of reputation after she blew the whistle in 1994 on environmental hazards at a New York Air National Guard base. The three-member D.C. appellate panel said Murphy should get a tax refund of $20,665, plus interest, on her $70,000 judgment from the Department of Labor Administrative Review Board because it was "compensation for the loss of a personal attribute," not…

I try to avoid gender stereotyping, mainly because many of the attributes traditionally assigned to women are not applicable to me. I love most sports. I hate shopping, except for groceries. I’d rather wander the aisles of a Lowe’s or Home Depot than any high-fashion mall. I long ago gave up routinely applying makeup; the choice gives me an extra half hour of sleep in the mornings. On the distaff side, I know that all men aren’t pigs. In fact, I have as many male friends as female ones. That’s why I was so distressed by the creation of the…

That’s what one Georgia lawmaker is suggesting. Glenn Richardson, Speaker of the Georgia House of Representatives, plans during next year’s legislative session to push a bill that would levy the state’s sales tax on attorneys. Actually, the measure would tax all professional-service providers, notes an article on Law.com, from barbers and landscapers to accountants and, yes, lawyers. Since it’s always more fun to consider an attorney in an uncomfortable, and in this case taxing situation, let’s look at what the measure might cost a counselor in Atlanta, where the sales tax is 8 percent. If the lawyer puts in an…

There weren’t any tax charges connected with Paris "I want my mommy" Hilton’s return to L.A. County jail last week, but we start with something that blog and tax aficionados should find pretty cool. Former Atlanta Mayor Bill Campbell was impressed by a blogger’s critique of his sentence for tax evasion. So impressed, that Campbell called the blogging law professor and asked him to argue his appeal.   Douglas A. Berman, a law professor at Ohio State University’s Moritz College of Law and author of the blog, Sentencing Law and Policy, agreed. On Friday, June 8, he argued before Atlanta’s…

For this week’s look at tax cheats, we’re going with just two cases because this weekend has turned out to be just as overloaded as Monday through Friday was. But I think you’ll find each instance ranks quite high in the "you’ve got to be kidding" category. First, we have another big accounting firm involved with bogus tax shelters, a la KPMG and Jenkens & Gilchrist. So what, you say? Here’s what: Federal prosecutors say one of the illegal shelters devised by Ernst & Young employees used the Sept. 11 terrorist attacks as the basis to cheat the government of…

What do a California businessman, a Michigan gambler and a former museum administrator in Massachusetts have in common? They make this week’s list of folks facing tax troubles. Let’s go West to East, meaning we start with Robert Gene Cable of La Crescenta, Calif. The 75-year-old former owner of Enmark Aerospace in Valencia pleaded guilty this week in federal court to conspiracy to "impede, impair, obstruct and defeat the lawful functions of the Internal Revenue Service." Moving on the Michigan, we find a gambler whose luck ran out when he, according to federal charges, filed false reports to avoid paying…

Medical marijuana is not deductible on a federal 1040. But other services provided by a San Francisco-based group that helps folks suffering fatal or debilitating illnesses can be written off. That was the split decision handed down Tuesday in a U.S. Tax Court ruling regarding expenses claimed by Californians Helping to Alleviate Medical Problems, Inc. The group, which in subsequent references we’ll refer to by the acronym CHAMP because that sounds much better than the Tax Court’s "Petitioner" (or P), was organized in December 1996 under California law as a public benefit corporation to help individuals suffering from AIDS and…

For the second week, although a day late this time (the inaugural roundup was May 4), I did a search of tax crimes. Here’s the current batch of convicted tax miscreants. We start with a former IRS director, Jesse Ayala Cota, who pleaded guilty in a Kansas City, Kan., court to promoting a tax-fraud scheme through his accounting firm. Cost to the U.S. Treasury: $1.3 million. Cota, according to court documents, pocketed $300,000. Between 1997 and 2002, he prepared bogus tax returns based on “false and misleading representations” to clients. Cota admitted to using his former position with the IRS…

The Senate’s recent look at ways offshore tax havens escape IRS enforcement got me thinking about those scofflaws who do get caught. So I did a little Googling and discovered some recent tax prosecutions. I might just make this a regular Friday afternoon effort. I suspect I’ll find at least a few reports of tax miscreants every week. The cases might not be as sexy or salacious as those reported on The Smoking Gun, but the ramifications for us law-abiding taxpayers are substantial. If you and I are shelling out our fair share, then everyone else needs to do so,…

You’ve heard that old saying, "Virtue is its own reward." Well, a more accurate proverb for some tax evaders is "Patience is the best tax reward." It seems that if you’re engaged in a financial activity that the IRS finds suspicious, like say an offshore account, you and your tax haven money have a pretty good chance of escaping any rebuke (or worse) from the tax agency. The reason is quite simple: Tax examiners just don’t have time to complete these types of investigations. As long as you can wait out Uncle Sam, you’re likely to get away without any…

A Washington state man set up a "bank" in his suburban home for folks who specifically wanted to evade taxes. That’s the charge against Robert Arant, whom IRS investigators say took in at least $28 million from people throughout the United States who wanted accounts they could conceal from the tax agency. Or, as Arant reportedly advertised, his financial services were for those "who would rather not deal directly with the banking system." According to news reports (such as this Associated Press story on the WTOP radio Web site), Arant pooled his customers’ money it in six accounts at Bank…

I hate to give this creep any attention, but at least this time it’s to report that he’s now facing federal tax evasion charges. Joe Francis, who reportedly makes an estimated $29 million a year from the exploitative videos, was indicted last week by a federal grand jury in Reno, Nev., on charges of deducting more than $20 million in false business expenses on his California and Nevada companies’ 2002 and 2003 tax returns. The improper business deductions, according to the indictment, include $3.78 million used to build a residence in Punta Mita, Mexico, $10.4 million in "false consulting services"…

Marc Anthony, singer, actor and husband of Jennifer Lopez, has agreed to pay $2.5 million in back taxes and fines owed by himself and three of his companies. The Manhattan District Attorney’s office said that between 2001 and 2004, Anthony failed  to file New York state and city corporate tax returns on $15.5 million in income. According to New York Department of Taxation officials, the deaprtment’s computer kicked out Anthony’s return because of discrepancies. Anthony was not charged with any criminal tax acts, according to prosecutors, because the salsa singer’s taxes for the years in queston were prepared by a…

At a Senate hearing this morning (previewed here), a convicted felon said that using stolen identities to apply for tax refunds was "an easy way to make money quickly." With a sport coat partially hiding his orange prison jumpsuit and flanked by federal marshals, Evangelos Soukas told the Senate Finance Committee that he was a "criminal already on the run from the FBI" in 2000 when he came across an Internet ad for quick tax refunds. He used his mother’s W-2 form to fashion a legitimate-looking tax return, applied for a refund anticipation loan through a tax preparer and got…

Everybody needs help now and then. That’s especially true at tax time, when millions of us turn to professionals we expect to guide us safely through the tax code. But once in a while, a tax pro becomes more hindrance than help. Most recent case in point: The IRS yesterday shut down 125 Jackson Hewitt branch offices in Detroit, Atlanta, Chicago and Raleigh, N.C. The tax agency alleges that preparers at these sites, cited as locations "in which fraudulent tax return preparation is encouraged and flourishes," filed fake returns to obtain inflated refunds that cheated the federal government out of…

I was chatting with the Web’s Tax Mama, Eva Rosenberg, this afternoon and one of our topics was questionable tax tactics. Then I opened up my e-mail box and there was a release from the IRS on a $76 million penalty settlement agreement the IRS has reached with a Texas-based law firm for, quoting the IRS here, its "promotion of abusive and fraudulent tax shelters and violation of the tax law concerning tax shelter registration and maintenance." As Eva had just noted not half an hour earlier, "You don’t ever want an IRS press release with your name on it."…

The IRS, which is always nagging us taxpayers to be careful in filing our returns, needs to talk to its government colleagues in the Justice Department about their paperwork protocols. Poorly written prosecutorial documents just cost Uncle Sam more than $100 million in what was supposed to have been the feds’ biggest tax prosecution ever. Telecommunications entrepreneur Walter Anderson admitted hiding hundreds of millions of dollars from the IRS and District of Columbia tax collectors. Federal prosecutors said Anderson used offshore corporations to disguise his ownership in telecommunications companies that earned more than $450 million between 1995 and 1999. He…

$49,000 in deductions for donated designer clothing is disallowed. No, that extravagant (and errant) tax claim wasn’t on Paris Hilton’s tax return. It was on the 1040, actually the Schedule A accompanying the 1040, of a New York investment banker. There wasn’t any question as to whether the haute couture was donated. The problem was with the dollar assessment of the expensive designer duds. In a written opinion, the special trial judge called the valuation "overly optimistic." True, the items did indeed cost a pretty penny when purchased. But as one consignment shop owner told the Washington Post, everything depreciates,…

Want to end up in a federal jail cell? The IRS has just issued a list of 40 tax claims that'll help you get your wish. The official Internal Revenue Service name for these tax, or rather nontax positions, is "frivolous." That's a nice euphemism. I call them, the arguments and their adherents, crazy. Crazy for thinking these wacky schemes would work. Crazy for thinking you won't get your wrist, or worse, slapped if you use them to avoid paying your tax bill. I know that tax protesters for many years pointed to the lack of prosecution of some of…

Harry Willner, an IRS agent since 1974, has been charged with tax fraud. Federal prosecutors in Manhattan allege that Willner was part of a group that evaded taxes by manufacturing false business deductions for a company Willner operated out of his home. The Fair Lawn, N.J., resident was arrested Monday and subsequently released on his own recognizance. The amount of the alleged fraud: $758,000 claimed as a "bad debt" from 1998 through 2001. The resulting tax evasion on his personal return, prosecutors say, was almost $21,000 over four years. The potential time in jail for Willner: 18 years. Details on…

We’ve all done it. Typed in the wrong URL. Or taken the lazy way and just hit enter after typing in what we thought was the site name to have our browser automatically add the extension. The only problem with that shortcut method is that the automatic extension is dot-com. And that might not be what you’re looking for. Case in point: Not so long ago, anyone wanting to see what the President of the United States was up to and who typed dot-com instead of dot-gov after White House got an entirely different, and decidedly adult, Web page. Whoa…

So maybe the criminals weren’t hardcore Capone clones, but they were breaking the tax law and they now will have to pay. The IRS announced this morning that it had executed search warrants at tax preparation businesses in five states, closing business and seizing computers and documents that federal agents believe will prove the filing of illegal inflated telephone tax refund claims. Earlier, the IRS had reported widespread problems with the new, this-year-only tax break, which is the result of the agency’s decision to stop collecting a 108-year-old long-distance excise tax. Some of the incorrect filings were simply mistakes by…

Whether you just dropped a couple of bucks into the office Super Bowl pool, are in Vegas watching the game line (and your bank account) change all day, handed money over to a bookie or are bouncing between this blog and your online gambling account, the big money you make today when Da Bears beat the odds and win is taxable. The problem for the IRS, as detailed in this story, is that many people don’t realize that Uncle Sam counts gambling winnings as taxable income. And even if they do, they tend to ignore the law. Obviously, it’s a hard…

Less than a week ago, I blogged about how to turn in a tax cheat and mentioned a new law enacted to improve the apprehension of scofflaws. What shows up today in my e-mail box? An announcement from the IRS that the agency has just appointed Stephen A. Whitlock as director of the new Whistleblower Office. Part of Whitlock's job will be administering the program that receives information to help uncover tax cheating. And, paraphrasing the Law & Order voice, the separate, yet equally important job of the office will be handing out appropriate rewards to whistleblowers. In making the…

As I’ve mentioned before, I get letters from readers. I love ’em, readers and their questions. However, as I’ve also mentioned before, I can’t answer every question that shows up in my e-mail. Some are technical beyond my knowledge (remember, I’m not an accountant). Others I know I could answer, but they would take time and unfortunately, just like y’all, I tend to run very short of that commodity, especially during tax season when I have a regular writing gig. Others queries, though, where I know the answer off the top of my head or know just where to find…

Just in case you were wondering, Antarctica is not a foreign country. At least not in the eyes of the IRS. And definitely not when it comes to Dave Arnett’s tax return. Arnett of Hayward, Wisc., a state that has its fair share of cold weather, was transferred in 2001 to McMurdo Station, Ross Island, Antarctica. No, he did not royally piss off his boss. Rather, his employer was Raytheon Support Services, which had a contract with a National Science Foundation project at the South Pole site. In filing his 2001 taxes, Arnett excluded the $48,894 he earned while at…

Back in August, a Washington, D.C., federal appeals court judge ruled in Murphy v. The United States that the federal government cannot tax money individuals receive as compensation for emotional distress and other intangible injuries. Now, however, the full federal appeals panel has overturned the ruling. Yep, Murphy’s Law does indeed apply to other, more official laws, too. I’m not a trained legal scholar, but I am glad that this issue will get another look. No, I’m not arguing that Uncle Sam get a piece of every single dollar any of us makes. But this case seemed at best problematic,…

This time he wants more than just your taxes. He wants you to help him collect them. As the year winds down, the IRS is conducting its annual search for employees to help it get through the filing season crunch. Here in Austin, the call’s gone out via ads in the local daily newspaper (shown here) as well as on television, albeit mostly during late-night programs. According to the the print appeal and the stentorian tones of the TV voice-over guy, a job as a G-man or woman is great: retirement plan, paid vacation, stability ("We’re not an up-and-coming employer.…

Twice this year, a tax court has thrown out attempts by filers to blame tax return mistakes — which, of course, produced nice tax results for the filers — on computer software. In the latest ruling, filed last week, the court made it clear that the taxpayer is the one ultimately responsible for submitting a return and making sure such filing is timely and correct. Here are the facts, per the court ruling. Henry Broderick, owner of a small business in New Jersey, filed a corporate return for his company in 2002 showing earnings of just under $3,000 and business…

Wesley Snipes, known for his role as the title character in the vampire-slayer series "Blade," is now facing off against the IRS, an agency that has itself been called bloodsucking. On Tuesday, the U.S. Department of Justice office in Tampa, Fla., unsealed an eight-count indictment that charges Snipes and two Florida men with "conspiracy to defraud the Internal Revenue Service and presenting a fraudulent claim for payment." Snipes also faces six counts of failing to file income tax returns. If convicted, the men could get maximum prison sentences of five years for each of the false claim and conspiracy charges.…

I'm far from a Biblical scholar, but a story in Tuesday's New York Times sent me scripture searching. Even the most religiously lapsed among us knows this one (recounted in the gospels of St. Luke, chapter 20, verses 21-26, and St. Mark, chapter 12, verses 13-17), about how, as the Pharisees were trying to trip up Jesus, they delved specifically into that touchy area where church and state intersect. It's one of my favorites, since the topic of taxes is specifically addressed and is the where JC issues one of his most famous pronouncements: "Render to Caesar the things that…

A Brooklyn tax preparer has been getting big federal refunds for his clients by declaring that New York State is a separate country. Under the preparer’s logic (OK, we’ll use that word, advisedly, for now), wages earned in the state are “foreign” income, qualifying NY filers for the foreign earned income tax exclusion. No surprise that federal officials respectfully disagree with the tax pro, Garry P. Webb-Bey, and have hauled him into court. According the U.S. Justice Department lawsuit, Webb-Bey has frivolously claimed $335,000 in refunds and his clients have received actual IRS checks totaling more than $97,000. You can…

Albert Einstein once said that the hardest thing in the world to understand is the income tax. Now some tax scholars say a ruling on what is — or more precisely, isn’t — taxable as income in legal awards is equally incomprehensible. On Aug. 22, a Washington, D.C., federal appeals court judge ruled that the U.S. government cannot tax money individuals receive as compensation for emotional distress and other intangible injuries. Some brief background: In 1994, Marrita Murphy filed a complaint with the Department of Labor claiming that her former employer, New York Air National Guard, had blacklisted her because…

NASA did its part for America’s 230th birthday celebration today, launching the Space Shuttle Discovery and its crew of seven from Cape Canaveral. It was the first ever July 4 launch of a manned spacecraft. One of my earliest dreams was to be an astronaut. I had to abandon that dream when I realized that it would involve proficiency in math; yes, much more mathematical prowess than it takes to compute taxes! But I never gave up my love of our space program. So many of my childhood memories are of NASA accomplishments. I was very young, but I remember…

This day has always been special to me and my family. It was my late brother’s birthday. When he was a small child, he thought the flags were put out for him. We let him keep thinking that. They are still out there for you today, little Bro. Later, when the hubby and I lived in the National Capital area, we’d regularly head up the Baltimore-Washington Parkway and visit Charm City. One of Balmer’s many charms is Fort McHenry (which I mentioned in this earlier post), where Francis Scott Key penned his joy at seeing Old Glory still waving after…

Call it the IRS version of Crime Stoppers. You know, the program in almost every community where law enforcement solicits the public’s help in nabbing bad guys. Now the federal tax collector wants to hear from people who’ve received fake IRS e-mails purporting to send you a refund in exchange for a little bit of your personal financial information. I got one just this last weekend. If you’ve been lucky enough to avoid this garbage, you can see what it looks like here. The IRS has set up phishing@irs.gov, a special e-mail box, and wants recipients of these bogus refund…

"Big Love" is getting a lot of attention. Naturally, TV critics are always looking for the next HBO breakout show to fill the void that will exist when the "Sopranos" are all whacked out. But the prurience potential of a show about a fictional polygamous family in present-day Utah is also getting a lot of mainstream coverage and prompting related "news" stories. The latest example: On this Sunday's Weekend Today Show, Lester Holt interviewed a real-life husband and wife and wife. I'm sitting there in bed waiting to see what Holt, an affable TV personality, might offer on this subject…

Baseball has been very, very good to Barry Bonds, but it seems that wasn’t quite good enough for the San Francisco slugger. Bonds, along with baseball fans and non-fans alike, watched raptly in 1998 as the friendly battle between Mark McGwire and Sammy Sosa played out en route to the new single-season home-run record. McGwire’s 70 gave him the record. He and Sammy hugged. The world and Major League Baseball, which sorely needed some positive press, smiled. And Bonds seethed, deciding that he, too, wanted some of that attention, adoration and acclaim. So he turned to steroids for the added…

It’s Friday the 13th. I can hear Count Floyd now: “Oooohhhh. Scary.” It certainly is scary for some celebrities who are facing some potentially costly tax issues. Jury selection began this week for Richard Hatch, the first winner of CBS’s “Survivor.” The IRS contends that he didn’t pay taxes on his $1 million winnings from the popular show. But that’s not the only charge. The jury also will hear government evidence that Hatch spent money designated for a charity he created, filed false tax returns and committed bank, wire and mail fraud. What was he thinking? We first asked that…

Ran across an article over breakfast and I can’t resist commenting. The New York Times reports that House Speaker Dennis Hastert, apparently concerned about Capitol Hill’s (and his GOP’s) image in the  wake of several investigations into and indictments of Members and associates, has broached the subject of new ethics training for lawmakers. He wants to make sure they understand the “nuances of House rules.” Nuances? Let’s see. Bribery = Wrong! Money laundering = Wrong! Creating tax breaks for generous PAC contributors = Wr… Standard operating procedure.