In last week’s issue of Spidell’s Tax Season Tribune^®, we asked for your top tax legislation suggestions. Here are some of the responses we received:

1. Every elected state official should have to prepare his or her own tax return using TurboTax or other do-it-yourself tax software. The hope is they will realize how making ridiculously complex tax laws is counterproductive to their constituents. I realize we will never have a “flat tax,” but maybe this law would prevent ridiculous complexity.
2. A bill should be drafted that would mandate sending every tax preparer maple syrup and candies in amends for the serious offense and insult of Victoria Mayer’s bill.
3. For every taxpayer that gets caught understating their income, the tax preparer gets a bonus reward of 25% of the assessment if they can show they did all in their power to practice due diligence obtaining the data and had no knowledge of the understated income the taxpayer hid.
4. A retroactive tax law that automatically entitles each tax preparer to a $100,000 grant from the state for pain and suffering.

Since we inadvertently ended up with a theme to this week’s Tribune, it makes sense to ask: If you could introduce a tax bill into your state’s Legislature, what would it be?

Suggestions from inside Spidell include:

1. If client paperwork is not submitted by February 1, 50% of any refund goes to the preparer.
2. For a 0% unemployment rate and zero wait time, any unemployed individuals are to be hired and trained as state tax agency phone operators.
3. To close the budget shortfall once and for all, California is going to impose a “selfie tax” of one cent per selfie.
4. Anyone flying over the state of California is subject to a 2% sunshine tax (at least on those days when the clouds are not present).

You can reply to your weekly Tribune e-mail with any suggestions.

Chiles are the number one cash crop in New Mexico,¹ so it makes sense that the official state vegetable is the chile, but New Mexico isn’t stopping there. Senate Bill 188 (Soules) proposes adopting an official state aroma, (very) specifically “the aroma of green chile roasting in the fall.”²

Senator Soules got the idea for this designation after visiting a fifth-grade classroom for a discussion of the various state emblems. The bill has already passed one committee and Soules plans on passing out fresh roasted chiles to the legislators when the bill hits the Senate floor. So far, no one is opposing the bill.

New Mexico has yet another chile-related emblem: The official state question is, “Red or green?” referring to which type of chile is preferred when ordering New Mexican cuisine. If you want both, the correct response is “Christmas.”

Here are a few other interesting state emblems:³

• Although “Kansas” and “wine” seemingly may not go hand-in-hand, Kansas is home to 50 vineyards and wineries and has official state red and white wine grapes: Chambourcin and Vignoles, respectively.
• In 2013, Oregon was the first state to name an official state microbe: brewer’s yeast, or Saccharomyces cerevisiae. Since then, two more states have declared official state microbes: New Jersey (Streptomyces griseus) and Illinois (Penicillium rubens).
• In 1962, Maryland designated jousting as its official state sport. It is unknown if the designation included giant turkey legs and steins of beer for all.
• Georgia’s State Beef Barbecue Championship Cook-Off is the Shoot the Bull Barbecue Championship. Do not get this confused with the State Chicken Barbecue Championship Cook-Off or the State Beef Barbecue Semi-Final Cook-Off.
• In 2021, California Assemblyman Eduardo Garcia gutted a bill on funeral expense assistance to name the date shake as the official state milkshake. Date shake fans statewide are still waiting, though, because the bill… died.⁴

In what can only be described as a wacky, tacky tax bill, Connecticut state Senator Patricia Miller introduced a bill that would require tax preparers to file an amended return at no cost to the taxpayer and be liable for any additional tax, penalties, or interest owed if a taxpayer underpaid income tax due to tax preparer error.¹

Just to be clear, this means that if a client fails to tell their tax professional about all their income and signs their income tax return under penalty of perjury (as all taxpayers must do), then the tax professional may be forced into a “he said, she said” argument with the taxpayer of whether all the income was disclosed to the tax professional. And if the tax professional loses, they are on the hook for not only the resulting penalties and interest, but also the additional tax owed?! Tax, I might add, that the taxpayer would be required to pay with or without preparer error.

This Connecticut Senate bill would only incentivize taxpayers to lie to their tax professional and would drive malpractice insurance costs through the roof. Of course, anyone who gives this bill 30 seconds of thought realizes that the issues I just brought up are only the tip of the iceberg.

Almost as crazy as the bill itself, the Connecticut Senate held a public hearing for the bill on February 22, 2023. Of the 79 publicly available comments and testimony, only one person supported the bill. It begs the question what Victoria Mayer, Director of State Government Relations at H&R Block, is thinking! Judging by her LinkedIn profile and work history, she is clearly a policy wonk, and I’d be shocked if she ever prepared an income tax return in her life.

If you’re curious and want to read the public comments yourself, they can be found here: https://bit.ly/3IP6vCy

Actor Danny Trejo (Machete, Con Air) is filing for bankruptcy in order to reorganize his assets and resolve a $2 million tax debt.¹ The actor also owns Trejo’s Tacos in Los Angeles and Trejo’s Donuts in Las Vegas.

Mr. Trejo hopes the move will mean he’s debt-free by 2024. He reportedly said the debt resulted from “mistakenly” claiming certain deductions for years and pointed out that he now knows that “dog grooming is not a legit expense.” At least, not for a donut shop.

Interestingly, last year, Mr. Trejo appeared in an episode of the YouTube accounting mockumentary “PBC.” The episode was titled “Trejo’s Taxes” and featured the actor menacing clients into taking deductions they were not entitled to.

You can watch the clip here (contains some offensive language… it is Danny Trejo, after all): www.youtube.com/watch?v=EYMFoo22MHQ

According to ezCater, a corporate catering platform, healthy eating goes right out the window as soon as tax season hits.¹ They surveyed 600 tax pros to see how busy season affects their diet and found:

• 96% reported skipping meals they would have normally eaten;
• 81% said they don’t eat as healthy during tax season as they usually do; and
• Gen X tax pros (born between 1965 and 1980) were 86% more likely than Gen Z (born 1997 to 2013) to indulge in comfort food during busy season.

But it’s not all bad news. Office-provided meals can offer a way to take a quick break and recharge before heading back for that 6:00 to midnight shift:

• 82% of those surveyed say meals provided by the office allowed them to take a break from their work;
• 75% noted being able to interact with other employees;
• 72% said office meals allowed them to be able to work extra hours.

Maybe you can have your cake and eat it, too

So a huge order of McDonald’s for the entire office is probably off the table, right? Not so fast. Dinner in the conference room might not have to always be green goddess salads and lettuce wraps.

McDonald’s has partnered with Beyond Meat and began selling the McPlant burger in 2021, which is currently available in Texas and Northern California.² (The burger is permanently on the menu in several countries in Europe.) McDonald’s also just announced the rollout of their next plant-based product: McPlant Nuggets, which are made from peas, corn, and wheat, enrobed in a tempura batter.³ No pink foam in sight.

Chick-fil-A is also expanding its menu to offer plant-based options: After four years of R&E, starting February 13 it released a breaded cauliflower sandwich that is currently available at locations in Denver, Colorado; Charleston, South Carolina; and Greensboro, North Carolina.⁴

There has been a lot of debate in recent years about the IRS’s audit selection methods. Some people claim that the IRS unfairly targets poor people over wealthy people, and we all have read the recent reports about the IRS targeting various political figures. Now it seems that a new criterion could come into play: companies whose CEOs prefer risky sports hobbies.

As it turns out, a study published by the American Accounting Association that was conducted by four highly reputable universities has concluded that CEOs who prefer risky sports hobbies are more likely to take a risky approach to their company’s tax planning.¹

So why should the IRS bother with reading a corporation’s Schedule UTP, Uncertain Tax Position Statement, when it may be just as easy to uncover a corporation’s overly aggressive tax positions by asking whether the CEO likes sky diving? Car racing? Bull riding?

Have a CEO who simply likes to play croquet, bridge, or miniature golf?  Don’t even bother auditing them, they’d never cheat.

But why should only CEOs who like risky sports be targeted?

What about people who:

• Order sushi in the desert?
• Wear plaids and stripes together?
• Eat strange foods … think jellied moose nose (a Canadian delicacy), fried tarantulas (a Cambodian specialty), or the Italian casu martzu (I’m not even going to describe this one https://en.wikipedia.org/wiki/Casu_martzu)?
• Drive solo in the diamond lane? or
• Regularly contradict their in-laws?

I mean, even if the audit selection success rate isn’t quite as accurate, it sure would be far more interesting for tax pros and auditors alike to review the new Schedule ULC, Uncertain Life Choices.

Don’t we all. If you’re connected to Spidell on Facebook and LinkedIn, we post our biweekly “Fraud Friday” blurbs there, which cover assorted fraudulent acts, scams, and schemes. Here are a few past posts:

Fraud, 300 B.C.-style

One of the earliest recorded instances of fraud took place in 300 B.C. Two Greek merchants, Hegestratos and Zenosthemis, took out an insurance policy and borrowed money on a cargo ship that was allegedly going to be filled with corn, but their plan was to sink the boat, keep the money, and sell the corn elsewhere. As Hegestratos was attempting to chop a hole in the hull of the boat with an axe, one of the crew members discovered him. Hegestratos tried to escape by jumping off the boat and swimming to shore, but he drowned at sea; Zenosthemis was tried in an Athenian court.¹

Livin’ la vida Luna

“Tax redirection” is a form of tax rebellion where the individual pays their tax directly to another source rather than the IRS as a form of protest. Julia “Butterfly” Hill, an environmentalist turned proponent of tax redirection, sent about $150,000 in federal taxes directly to schools, arts and culture programs, community gardens, and other recipients, stating in a letter to the IRS, “I’m not refusing to pay my taxes. I’m actually paying them but I’m paying them where they belong because you refuse to do so.” Hill is best known for her tree sit-in the late 1990s, when she lived in a 180-foot-tall Redwood tree named Luna for 738 days to protect it from being cut down by the Pacific Lumber Company.²

Le Fisc goes splish-splash

France is using AI to find undeclared swimming pools, which so far has generated €10 million in tax. In France, a swimming pool can affect tax because housing taxes are calculated based on a property’s rental value. Since the beginning of the pandemic, and with recent heat waves affecting Europe, the number of pools in France has greatly increased. The AI pool-finding project so far has only covered nine of France’s 96 metropolitan areas, but it has already discovered 20,356 undeclared swimming pools. The French tax office DGFiP (aka, Le Fisc) estimates it can bring in an additional €40 million in tax once it’s finished using AI to analyze the rest of metropolitan France.³

¹ www.investopedia.com/articles/financial-theory/09/history-of-fraud.asp

² https://en.wikipedia.org/wiki/Julia_Butterfly_Hill

³ www.theverge.com/2022/8/30/23328442/france-ai-swimming-pool-tax-aerial-photos

Tungnath Chaturvedi, an Indian attorney, has won a legal battle with Indian Railways that spanned 23 years and over 100 hearings.¹ What egregious act could have caused him to relentlessly pursue Big Rail for two decades? He was overcharged 20 rupees when he bought a ticket to Moradabad in 1999. (20 rupees is equal to 25 cents.)

It’s the principle

After complaining twice at the train station and being refused a refund, Mr. Chaturvedi filed a case against Indian Railways on charges of cheating.

Undeterred by the miniscule amount, nor by his family’s urgings for him to give up his case, Mr. Chaturvedi represented himself as the case chugged through the court system, taking it all the way to the supreme court of India after a railway tribunal dismissed the case.

Finally, the court ruled in his favor and ordered the railways to pay a fine of 15,000 rupees ($182), as well as the outstanding amount plus 12% interest. But Mr. Chaturvedi said it was never about the money, “This was always about a fight for justice and a fight against corruption, so it was worth it.”

In good company

For some tax pros, this case may bring to mind another long-lasting legal battle: Gilbert Hyatt and his fight against the California Franchise Tax Board.

In 1993, the FTB began a residency audit questioning Mr. Hyatt’s 1991 change of residence and domicile from California to Nevada following a microchip patent transaction that netted him $40 million. A Nevada jury awarded him close to $400 million in damages from the extremely aggressive residency audit (FTB auditors dug through Mr. Hyatt’s trash and interrogated his neighbors, among other things). That award was later reduced by the U.S. Supreme Court to $50,000 in damages.² The Nevada Supreme Court then ruled that he will have to pay the FTB for the costs, but not attorney fees.³

In 2017, Mr. Hyatt’s actual appeal of the FTB’s assessment was heard. The ruling was in favor of Mr. Hyatt on the residency issue but held that California could tax the patent income received in 1991 because it was California business income during 1991, but not 1992.⁴

All aboard, next stop is Eternal Litigation: Mr. Hyatt has appealed.⁵

¹ www.theguardian.com/world/2022/aug/12/man-overcharged-20-rupees-for-india-train-ticket-wins-22-year-legal-battle

² FTB v. Hyatt (April 19, 2016) U.S. Supreme Court, Case No. 14-1175

³ Franchise Tax Bd. of California v. Hyatt (2021) 485 P.3d 1247

⁴ Appeal of Hyatt (August 29, 2017) Cal. St. Bd. of Equal., Case Nos. 435770, 447509

⁵ Hyatt v. FTB, Sacramento Superior Ct., Case No. 34-2022-000316913, filed March 16, 2022

Okay, I don’t know Mrs. Harmon. I’m not sure she’s even alive or what the family situation is, but reading a recent article about the Harmon brothers definitely made me think about her.

First, let’s start with her son Larry Harmon. He was the CEO of Helix, a multimillion-dollar company. Sounds impressive, right? Until you find out that Helix is a darknet crypto mixing service company where illegal drugs were sold and that he was fined $60 million by FINCEN and is awaiting a prison sentence for the $311 million money laundering scheme.

Clearly, he’s smart, but not very bright if he thought he was going to get away with it, thought the IRS agents that had seized his bitcoins.

But the IRS soon found out that Larry was not the only one with brains in the Harmon family. It turns out his brother Gary, who had been living on unemployment benefits since the family business was shut down, was sitting in the courtroom during his brother’s bail hearings. He learned that the IRS had been unable to access the bitcoins from Larry’s bitcoin wallet that had been “confiscated” by the IRS.

The IRS may not have been able to uncover the passwords to access the coins, but Gary did. According to one news report, “Authorities watched helplessly [while] Harmon swiped 713 digital tokens valued at about $4.9 million.”¹

Clearly Gary’s bright, right? But not too bright. Turns out Gary was so happy with his feat that he had to celebrate. What do you do with millions of dollars that you stole from under IRS agents’ noses? You fill up a bathtub in a night club with cash (even though you are supposedly living on unemployment checks), plop yourself in the middle of it, and then take pictures on your cell phone.

A few watts short of a lightbulb.

¹ “Voreacos, David and Tillman, Zoe “Ohio Man Seen in Bathtub of Cash Admits Theft of Bitcoin Held by IRS,” Bloomberg (January 6, 2023) available at: www.bloomberg.com/news/articles/2023-01-06/ohio-man-in-bathtub-of-cash-admits-theft-of-bitcoin-held-by-irs

You may have seen a Little Free Library on a neighbor’s front lawn: a small structure housing a collection of books that anyone can borrow. A look inside usually reveals an assortment of fiction and nonfiction and books for both children and adults. However, over the summer of 2022 it was reported¹ that some sick person had left behind a book other than the usual banal fare … an accounting textbook. Specifically, the seventh edition of Managerial Accounting by Ronald W. Hilton.

The first line of the reporting article asked: “What kind of monster does this?!”

I looked up managerial accounting and fell asleep halfway through the second sentence of the Wikipedia page devoted to the subject.² Therefore, I have deduced that 1) whoever added this book to the Little Free Library did so as a service to anyone having trouble sleeping, and 2) there should be more nighttime accounting books in Little Free Libraries. Titles could include:

• Goodnight, Mortgage Insurance Premium Deduction
• Dream Tax Software: A Bedtime Journey
• Don’t Let the Commissioner Stay Up Late
• Where Do IRS Transcript Codes Sleep at Night?

¹ www.goingconcern.com/accounting-textbooks-little-free-library/

² https://en.wikipedia.org/wiki/Management_accounting

If you have not yet bought tickets to Taylor Swift’s upcoming Eras tour, be prepared to lay out some serious cash. Reportedly, fans attempting to buy tickets through Ticketmaster crashed the website last November. The alternative was to buy tickets through resale sites — for thousands of dollars. One floor seat ticket for Swift’s East Rutherford, New Jersey, show was selling for $31,500 on StubHub.¹ Other tickets were listed for at least $12,000 on Gametime. For her part, Swift said that it was “excruciating” to watch the Ticketmaster meltdown (cue Swift singing “Teardrops on My Guitar”).

Resellers of these concert tickets may not realize that the money they make from the resale is subject to federal tax, and they may fail to report it (cue Swift’s “I Did Something Bad”). With such high ticket sale prices, it will be easy to exceed the threshold for the 1099-K reporting requirements for third-party settlement organizations like StubHub. Under the American Rescue Plan Act, the $20,000 per payee or 200 transaction thresholds for filing 1099-Ks has been replaced by the considerably lower $600 per-payee threshold (but the implementation of this has been delayed for now). So the resale of just one Taylor Swift ticket will potentially soar through the threshold once it is implemented.

Obviously many more people will be receiving 1099-Ks once the new threshold goes into effect. The amount must be reported and will be taxed as ordinary income (cue Swift’s “Don’t Blame Me”).

¹ https://www.accountingtoday.com/articles/reselling-taylor-swift-tickets-youre-going-to-have-to-pay-taxes

It’s tax time again, which means pressing pause on Spidell’s podcasts and turning things over to the Tax Season Tribune. And what does our Tribune staff love more than writing about food? Not much! In past years, we’ve covered whether a burrito is a sandwich, how long it takes to eat 30,000 Big Macs, and ordering pizza from Domino’s (that last one is sprinkled with plenty of puns).

First up this year is a lawsuit that made news late last year, where a food manufacturer is accused of selling mozzarella sticks that don’t actually contain any mozzarella.¹ You can’t make this stuff up — or you can, apparently, if you use cheddar cheese instead.

That’s exactly what plaintiff Amy Joseph has accused Inventure Foods, Inc. of doing with its “TGI Fridays Mozzarella Sticks.” The ingredients listed on the packaging include cheddar cheese, but there’s no mention of mozzarella.

In a court ruling,² U.S. District Judge Robert M. Dow, Jr., wrote, “Defendants argue that [the product] bears no resemblance to the hot appetizer mozzarella cheese sticks and therefore, does not necessarily contain mozzarella cheese.”

Dow continued, “[A]nother reasonable interpretation is that a product labelled “Mozzarella Stick Snacks” with an image of mozzarella sticks would bear some resemblance to mozzarella sticks, which presumably contain some mozzarella cheese.”

Inventure Foods has sold products under the TGI Fridays name for more than 20 years and the lawsuit names both companies, but Dow’s December ruling ordered the restaurant chain be dropped from the lawsuit before it proceeds as a class action. What a happy hour for TGIF!