February 22, 2015
We proudly present: The Spidell Awards
In the spirit of awards season, we want to present the Spidell Awards given to the best and worst tax happenings over the last year.
Best performance by a government spokesperson:
Nina Olson, IRS Taxpayer Advocate, who said, "The filing season is probably, in my way of thinking, going to be the worst filing season that I have seen since I've been the national taxpayer advocate." (She was appointed in January 2001.)
Most comedic tax law:
The Donald Sterling bill (AB 877 (Ch. 14-919)), which disallows deductions for fines assessed against sports franchise owners by the league. It's really about California legislators who hate Mark Cuban (of Dallas Mavericks and Shark Tank fame).
Biggest faux pas fixed late by a tax agency:
Undoing Form 3115 and repair regulations requirements for small businesses on Friday the 13th of February.
Most aggressive money grab by a tax agency:
The FTB's position that every LLC that has a California member, every out-of-state business that is a member of a California LLC, or anyone who knows how to spell LLC must file and pay an $800 tax every year.
Best tax case of the year:
The Gilbert Hyatt case — the FTB began a residency audit in 1993. The case continues with many of the original auditors and participants now either retired or deceased. See below for the lurid details.
Best decision by a tax agency:
The FTB's appointment of Susan Maples, CPA, as Taxpayers' Rights Advocate.
Most awesome tax protestor (according to him):
Peymon Mottahedeh, who represents many tax protestors in California, was subject to tax, penalties, and interest on his own unreported income, reconstructed using Bureau of Labor statistics and direct spending estimates.
Best outfit not worn at the Spidell Awards:
Photo courtesy of Lynn Freer — taken at Galeries Lafayette in Paris.
Best tax case ever
In 1993, stemming from a tidbit in a newspaper article, the FTB began a residency audit questioning Gilbert Hyatt's 1991 change of residence and domicile from California to Nevada. The auditor used extremely aggressive tactics, including sending letters to Hyatt's business associates (with his home address and Social Security number contained within the letters), going through the taxpayer's trash, and using other methods of discovering Hyatt's true residence and domicile.
The result was Hyatt filing a lawsuit, alleging fraud, intentional infliction of emotional distress, abuse of process, breach of confidential relationship, and invasions of privacy. Throughout the course of the audit, there have been allegations of anti-Semitism, scandalous allegations of a fired FTB employee, and destroyed documentation.
Most recently,1 the Nevada Supreme Court held that the FTB is immune from $250 million in punitive damages. However, the Court did affirm the $1.08 million fraud judgment against the FTB, and there will be a new trial on damages for intentional infliction of emotional distress. But as time marches on, material witnesses are passing away, and memories are fading fast.
We'll let you know when the made-for-TV-movie is released. In the meantime, you can read the script (aka, the Nevada Supreme Court's decision) at: FTB v. Hyatt
1 FTB v. Hyatt (September 18, 2014) Nevada Supreme Court, Case No. 53264
Penalty relief for employer health insurance reimbursement arrangements
The IRS issued Notice 2015-17, providing limited relief from the draconian $100 per day per participant penalties under IRC §4980D for health insurance reimbursement plans that had been addressed in Notice 2013-54. In particular, the notice provides:
- Transition relief for employers that are not applicable large employers (employers with 50 or more employees). Relief is granted for 2014 and for January 1 through June 30, 2015; and
- Relief for S corporations that pay for or reimburse premiums for individual health insurance coverage for 2% shareholders as addressed in Notice 2008-1. The relief period is indefinite, and the IRS states that taxpayers may continue to rely on Notice 2008-1 "unless and until additional guidance" is provided.
A few fun facts about this week's writers:
Lynn Freer, EA, is struggling to prepare her uncle's trust return — with a foreign beneficiary and withholding. But she really loves to work on her blog.
Diane Fuller is a gourmet cook with a refined taste in all things sweet. From traditional Japanese desserts to the best bacon donut that's ever appeared in our break room, Diane knows how to satisfy her sweet tooth. She also writes children's poetry!
Kathryn Zdan, EA, is not only director of the editorial department, she also "rocks the house" as a regular in curling bonspiels around the country.
Tim Hilger, CPA, is busily preparing taxes today. Tim is a golf nut who has played courses in all 50 states and often reminisces about his younger days shredding on his bass guitar.
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