By Robin Respaut, Laila Kearney; New York, Daniel Bases and David Gregorio

SAN FRANCISCO (Reuters) – Tax revenue from recreational marijuana makes up a small percentage of annual general fund revenues in states with the most established retail markets, such as Colorado, Washington and Oregon, Moody’s Investors Service said on Tuesday.

The boost in tax revenues is marginally credit positive in states with a nascent legalized weed industry, the rating agency said, including in larger states like California.

Cities and counties are more likely to see a bigger impact from local marijuana taxes because of their relative size, Moody’s found. Some municipalities have prohibited local retail marijuana sales, in order to avoid the potential strain on law enforcement.

Twenty-nine states nationwide have legalized some form of marijuana. Nine states permit recreational use. Canada is planning to legalize weed later this year.

Colorado and Washington, two states with the most established retail weed industries, offer examples of how tax revenues can quickly ramp up in the years after legalization. Both states now anticipate collecting hundreds of millions of weed-related tax revenues annually. But ultimately that makes up 2 percent or less of the states’ total general fund revenues.

State and local governments collect sales and excise taxes, along with licensing fees. The money has paid for marijuana-related law enforcement programs, substance abuse programs, school construction, and other capital projects.

Some experts and legislators have argued that high taxes and fees on newly legal pot businesses have actually hurt their ability to generate public dollars.

In California, where a law to legalize adult-use recreational cannabis took effect this year, lawmakers have already proposed temporarily reducing state-imposed cannabis taxes to help legitimate pot workers stay competitive.

Adding to the challenges facing the industry’s growers and sellers, there is still no legal way to access banks and other financial markets. Earlier this year, the U.S. Department of Justice withdrew guidelines that limited prosecutions of marijuana sales.

Estimates for the U.S. legal weed market reach $16 billion by 2020, up from $5.4 billion in 2015, according to Euromonitor International.

Sourced from CHECKPOINT NEWSTAND, Reuters


Notice 2018-43, 2018-20 IRB

IRS is requesting recommendations for items that should be included on the 2018-2019 Guidance Priority List. The deadline to submit recommendations for the initial list is June 15, 2018.

Background. IRS uses the Guidance Priority List each year to identify and prioritize the tax issues that should be addressed through regs, revenue rulings, revenue procedures, notices, and other published administrative guidance.

2018-2019 list. The 2018-2019 Guidance Priority List will establish the guidance that IRS intends to issue from July 1, 2018 through June 30, 2019. IRS stated that it recognizes the importance of public input to formulate a Guidance Priority List that focuses resources on guidance items that are most important to taxpayers and tax administration.

IRS noted that since the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017) was signed into law in December 2017, it has focused its efforts on guidance projects necessary to implement the TCJA, and expects to continue to do so. Thus, IRS does not expect to complete several of the guidance projects on the 2017-2018 Priority Guidance Plan, which may be carried over to the 2018-2019 Priority Guidance Plan.

In reviewing recommendations and selecting projects for inclusion on the 2018-2019 Guidance Priority List, IRS said it will consider whether the recommended guidance:

  • Would resolve significant issues relevant to many taxpayers;
  • Would reduce controversy and lessen the burden on taxpayers or IRS;
  • Involves regs or other guidance that is outmoded, unnecessary, ineffective, insufficient, or excessively burdensome, and that should be modified, streamlined, expanded, replaced, or withdrawn;
  • Would be in accordance with Executive Order 13771, Executive Order 13777, or other executive orders;
  • Would promote sound tax administration;
  • Could be administered by IRS on a uniform basis; and
  • Could be drafted in a manner that will enable taxpayers to easily understand and apply it.

How to submit recommendations. Although taxpayers may submit recommendations throughout the year, recommendations should be submitted by June 15, 2018 for possible inclusion on the original 2018-2019 Guidance Priority List. IRS may update the Guidance Priority List periodically to reflect additional guidance that it intends to publish during the plan year. The periodic updates allow IRS to respond to the need for additional guidance that may arise during the plan year, IRS said.

Taxpayers are not required to submit recommendations for guidance in a particular format. Taxpayers should briefly describe the recommended guidance and explain the need for the guidance. In addition, taxpayers may include an analysis of how the issue should be resolved, said IRS.

Written comments should be sent to: Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2018-43), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044; or hand delivered between 8 a.m. and 4 p.m. to: Courier’s Desk, Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2018-43), 1111 Constitution Avenue, N.W., Washington, D.C. 20224.

Comments may also be submitted via the federal eRulemaking portal at (type “IRS-2018-0010” in the search field on the homepage to find the notice and submit comments). All comments will be made available for public inspection and copying in their entirety.

From Checkpoint Newsstand, Thomson Reuters


International Practice Unit, “Losses Claimed in Excess of Basis”

In an International Practice Unit (IPU), IRS has provided guidance to its auditors addressing whether a shareholder has sufficient basis to claim losses and deductions passed through from the S corporation.

RIA observation: IPUs are not official IRS pronouncements of law or directives and cannot be used, cited, or relied upon as such. Nonetheless, they identify strategic areas of importance to IRS and can provide valuable insight as to how IRS examiners may audit a particular issue or transaction.

Background. An S corporation shareholder takes into account, for the shareholder’s tax year in which the corporation’s tax year ends, his or her pro rata share of the corporation’s items of income, loss, deduction, or credit, as well as the corporation’s non-separately computed income or loss. (Code Sec. 1366(a)(1)) The character of the items passed through is preserved. (Code Sec. 1366(b))

However, the aggregate amount of losses and deductions taken into account by the shareholder is limited to the sum of the adjusted basis of the shareholder’s stock in the S corporation and the shareholder’s adjusted basis of any indebtedness of the S corporation to the shareholder. (Code Sec. 1366(d)(1)) Any losses or deductions disallowed for any tax year are suspended and carried forward indefinitely until the shareholder has adequate stock or debt basis. (Code Sec. 1366(d)(2))

When stock and debt basis is insufficient, and there is more than one type of loss or deduction item that reduces basis, the amounts allowed as losses or deductions are allocated on a pro rata basis. The suspended losses retain their character and are carried forward and treated as incurred in the first succeeding year. If the stock is sold or otherwise disposed of, then the suspended losses are no longer carried forward and are lost forever. (Code Sec. 1366(d), Reg. § 1.1366-2(a))

Stock basis can never be reduced below zero, and even if a loss is claimed in excess of basis, the stock basis at the beginning of the following year is zero. (Code Sec. 1367(a)(2)) IRS’s position is that if a shareholder claims losses in excess of basis in a year closed by statute, then the shareholder must suspend all future tax-free distributions and losses from the S corporation until the excess losses claimed, but not allowed, are recaptured. (PLR 200619021) If a taxpayer claims a loss in excess of basis in a closed statue year, then a suspense account is created, pursuant to Code Sec. 1366(d)(2), to track the excess losses. The balance in the suspense account must be reduced to zero before the taxpayer is allowed to take tax-free non-dividend distributions or report pass-through losses.

IPU guidance. The IPU provides a process for auditors to follow in determining whether a shareholder has sufficient basis to claim losses and deductions passed through from an S corporation.

The process applies when the shareholder:

  1. Is allocated a loss or deduction item on Schedule K-1,
  2. Deducts all or a part of the loss or deduction items on Form 1040 or Form 1041, and
  3. Does not have sufficient basis to deduct the claimed losses or deductions.

To determine if the loss or deduction items exceed basis, auditors are instructed to compare the estimated beginning stock and debt basis of the S corporation with its current year Schedule K losses and deductions. Once the auditor determines that the requisite criteria have been satisfied, the auditor should determine whether to pursue the issue, with the IPU stating that the issue should be pursued if the shareholder claimed “material losses or deductions” on their Forms 1040 or 1041 in excess of the combined estimated basis. (No definition of “material” is provided for this purpose.)

To determine each shareholder’s stock and debt basis, the IPU instructs auditors to:

  1. Verify or recompute the shareholder’s basis. In completing this step, auditors are reminded that S corporation shareholders are required to both maintain adequate books and records to substantiate their basis and adjust that basis each year for the activities of the corporation, and to attach a basis computation to their return when claiming a loss or deduction, as stated in the Instructions for Schedule E (Form 1040) and the Shareholder’s Instructions for Schedule K-1 (Form 1120S). Auditors should review the shareholders’ returns for the required basis computations and request it if not attached, including basis computation for all years since the S election or since the shareholder first acquired the stock. In reviewing the shareholder’s stock and debt basis computation, auditors should:
    1. Verify the shareholder’s initial stock basis and any subsequent contributions, and consider requesting documentation to support contributions, purchases, gifts or bequests of stock;
    2. Obtain prior years Schedules K-1 information and reconcile the increases and decreases to the shareholder’s basis computation;
    3. Inquire about changes in ownership and consider the impact to basis;
    4. Verify that the proper stock and basis ordering rules are followed;
    5. Verify that any loans from a shareholder to the corporation are bona fide; and
    6. Verify that the shareholder had the necessary funds to lend or contribute to the S corporation.

The IPU provides additional steps to estimate initial stock basis for situations where historical records are not available and says that if an estimate “appears to be unreasonable based on the facts and circumstances”, consider using zero.

  1. Ascertain whether any losses were claimed in excess of basis in a closed statute year. For this step, auditors are instructed to review the basis computation schedule and identify any years for which the losses and deductions exceed the shareholder’s basis, compare the basis computation to the shareholder’s return to determine if the losses claimed in closed statute years exceed basis, and establish (or increase) the suspense account accordingly.
  2. Determine whether losses were taken in excess of basis in an open statute year. If the shareholder has a suspense account from step (2), above, then auditors should reduce the shareholder’s basis by the lesser of
    1. The absolute value of the suspense account, or
    2. The basis after the current-year increases.

Auditors are instructed to review the basis computation schedule and identify open statute years for which the losses and deductions exceed the shareholder’s basis, then compare the basis computation to the shareholder’s return to determine if the losses claimed in open statute years exceed basis. Any losses or deductions in excess of basis should be disallowed, after verifying that each loss or deduction item was properly limited on a pro rata basis.

References: For basis limitations on shareholder’s deduction of S corporation losses, see FTC 2d/FIN ¶ D-1775; United States Tax Reporter ¶ 13,664.


Issue of trust fund penalty for private school’s volunteer treasurer required trial

Bibler v. U.S., (DC OH 4/23/2018) 121 AFTR 2d ¶2018-690

A district court has denied summary judgment to IRS on its imposition of the trust fund recovery penalty under Code Sec. 6672 against a volunteer treasurer of a private school. The court found that the taxpayer showed that there was a genuine issue of material fact on whether his conduct met a “reasonable cause” exception. Accordingly, the issue had to be determined at trial.

Background. Under Code Sec. 6672(a), if an employer fails to properly pay over its payroll taxes, IRS can seek to collect a trust fund penalty equal to 100% of the unpaid taxes from a person who:

  1. Is a “responsible person”, i.e., one who is responsible for collecting, accounting for, and paying over payroll taxes; and
  2. Willfully fails to perform this responsibility.

In determining who is a responsible person, the courts generally look at several factors, including:

  1. The duties of the officer as outlined by the corporate by-laws;
  2. The ability of the individual to sign checks for the corporation;
  3. The identity of the officers, directors, and shareholders;
  4. The identity of the individuals who hired and fired employees;
  5. The identity of the individuals who were in control of the financial affairs of the corporation. (Gephart v. U.S., (CA 6 1987) 59 AFTR 2d 87-1099)

Other factors include whether the person had access to the company’s books and records, and whether the individual has made personal loans to the company.

The Sixth Circuit has held that a responsible person will be found liable under Code Sec. 6672(a) if IRS can demonstrate that he had either

  1. Actual knowledge that the trust fund taxes were not paid and the ability to pay the taxes, or
  2. Recklessly disregarded known risks that the trust fund taxes were not paid.

In other words, for a responsible person to be deemed to have acted willfully under Code Sec. 6672(a), he must have either “had knowledge of the tax delinquency and knowingly failed to rectify it when there were available funds to pay the government” (Gephart, (CA 6 1987) 59 AFTR 2d 87-1099) or “deliberately or recklessly disregarded facts and known risks that the taxes were not being paid”. (Calderone, (CA 6 1986) 58 AFTR 2d 86-5703)

In Byrne v. U.S., (CA 6 2017) 119 AFTR 2d 2017-1824, the Sixth Circuit reiterated its holding in Calderone that a responsible person is reckless and therefore willful under Code Sec. 6672(a) when he disregards obvious or known risks that trust fund taxes are not being paid to IRS and fails to investigate. However, the Court said it had to balance the government’s prerogative to recover that which is owed with limiting liability for that recovery to those who are personally at fault. While noting that Code Sec. 6672(a) did not have a reasonable cause exception, it adopted the Second Circuit’s “reasonable cause” exception to Code Sec. 6672(a) liability: “a responsible person’s failure to cause the withholding taxes to be paid is not willful if he believed that the taxes were in fact being paid, so long as that belief was, in the circumstances, a reasonable one”. (Winter, (CA 2 1999) 84 AFTR 2d 99-6892)

Code Sec. 6672(e) provides that unpaid volunteer board members of tax-exempt organizations who are solely serving in an honorary capacity, aren’t involved in day-to-day financial activities, and don’t know about the penalized failure are exempt from the penalty, unless that results in no one being liable for it. However, in Rev Rul 84–83, 1984-1 CB 264, IRS noted that a volunteer member of a board of trustees can still be deemed liable if he is found to meet the tests of responsibility and willfulness under Code Sec. 6672.

Facts. Excel Academy was an tax exempt private school that served children who were behaviorally and emotionally challenged. David Bibler was appointed to the school’s Board of Directors after the former executive director and founder of the school was indicted for violation of the State’s bingo laws. Mr. Bibler agreed to serve as a volunteer Board member, and the Board elected him Treasurer of the Board of Directors.

No member of the Board, including Mr. Bibler, was responsible for the day-to-day operations of Excel Academy. Those duties fell to the Chief Executive Officer (CEO) and her staff of administrative personnel, teachers, and staff. Neither Mr. Bibler nor any other Board member had the responsibility to determine who to pay or which bills required delayed payment. These decisions fell to the CEO. Payroll was handled by the CEO and her staff. Financial reports were prepared by the CEO and her staff and presented at meetings. However, Mr. Bibler, as Treasurer, signed or co-signed checks that were presented to him by the CEO or her assistant.

The school fell behind in its payment of employee payroll taxes for the quarterly tax period that ended on Dec. 31, 2011. The record indicates that the Board of Directors was made aware that the payroll taxes were owed for the 4th quarter of 2011 at a Board meeting of Oct. 17, 2012. This report was made by the CEO or her assistant. The President of the Board specifically instructed and directed the CEO to pay the tax. Mr. Bibler understood that the CEO was in communication with IRS and was making installments on the 4th quarter 2011 tax liability.

It was not disputed that, after receiving the information that Excel Academy’s payroll taxes were in arrears, Mr. Bibler continued to sign checks as Treasurer making payments to creditors other than IRS. Nor was it in dispute that while he was serving as Treasurer, Excel Academy failed to file its Form 941 (Employer’s Quarterly Federal Tax Return) for the fourth quarter of 2011 that was due Jan. 31, 2012.

IRS assessed Mr. Bibler liability for these taxes under Code Sec. 6672. He paid the tax for one employee for each quarter of liability and filed a refund claim, asserting that he was not a liable person required to collect, account for, and pay over payroll and/or withholding taxes for Excel Academy. Upon denial, he filed suit for a refund in the district court.

Taxpayer’s position. Mr. Bibler produced evidence to show that he signed checks and co-signed checks at the behest of the CEO, and that he had no duty or authority to sign or file tax forms for Excel Academy. He showed that he did not oversee the employees, collect payroll information, compile payroll information, or remit payroll information to the payroll service on behalf of the corporation or to IRS. Further, he did not make decisions as to what bills were to be paid and those bills for which payment might require a delay. These decisions were those of the CEO. In addition, Mr. Bibler stated that the Board directed the CEO to pay the trust fund taxes as soon as the Board learned that the taxes were behind a quarter, and he believed the CEO contacted IRS and was paying the taxes as directed.

Court’s conclusion. The district court, denying IRS summary judgment, found that the question of whether Mr. Bibler was a responsible person liable for the trust fund recovery penalty was an issue to be decided at trial.

Under the exception for voluntary board members of tax-exempt organizations under Code Sec. 6672(e), it appeared that Mr. Bibler had met the first two prongs of the test, in that he provided evidence to show:

  1. That he was serving solely in an honorary capacity, and
  2. That he did not participate in the day-to-day or financial operations of the organization.

However, the court noted that the exception requires a third prong, that the person (3) did not have actual knowledge of the failure on which such penalty was imposed. The Board was told that the tax was not paid, confirming that at that point Mr. Bibler had actual knowledge. For argument’s sake, the court assumed that Mr. Bibler was a responsible person. However, this factor alone was not dispositive: to be penalized for a company’s tax delinquency a responsible person’s failure to pay trust fund taxes must be willful.

The district court concluded that, in view of the Sixth Circuit’s adoption of the “reasonable cause” exception in Byrnes, it had to consider whether Mr. Bibler had produced sufficient evidence to raise a genuine issue of material fact to support a reasonable belief that the taxes were in fact being paid. Mr. Bibler attested that he understood that the CEO, who had been specifically instructed by the President and all of the members of the Board to pay the tax, was in communication with IRS and was making installments on the 4th quarter tax liability in November and December of 2012, within two months of assessment and in 2013.

The evidence in the record did not contradict Mr. Bibler’s stated belief. Considering all of the evidence in the light most favorable to Mr. Bibler, the district court concluded that he had provided evidence sufficient to raise a genuine issue of material fact concerning whether his conduct met the Sixth Circuit’s “reasonable cause” exception. Accordingly, this issue was to be decided by a jury at trial and not by the summary judgment motion.

References: For the willful failure to collect and pay over tax for purposes of the trust fund recovery penalty, see FTC 2d/FIN ¶V-1717; United States Tax Reporter ¶66,724.


EU moves to tackle letter box firms’ tax avoidance, social dumping

By Francesco Guarascio and Elaine Hardcastle

BRUSSELS (Reuters) – The European Commission proposed new rules to clamp down on firms that relocate within the bloc for the purpose of cutting their tax bills or reducing rights of employees, creditors and minority shareholders, setting up mere letter box companies.

Smaller countries in the 28-country single market, like Luxembourg, Ireland, Malta and the Netherlands, have traditionally attracted companies from other member states thanks to lower corporate tax and rights for workers and smaller shareholders.

Under the proposed rules, which need approval from EU states and parliamentarians, countries where companies are originally headquartered would be able to block their relocation to another member state if “the operation constitutes an artificial arrangement” meant exclusively to circumvent tax or workers’ rights.

“In our thriving EU Single Market, companies have the freedom to move and grow. But this needs to happen in a fair way”, The Commission’s Vice President Frans Timmermans said.

In some cases corporate relocation has resulted in the setting up of mere letter box companies which are not engaging in any economic activity but simply avoiding their obligations.

“Companies should relocate only when there is a genuine reason to do so, not simply as a way of shopping for the lowest tax rate or as a way of circumventing workers’ rights”, Socialist lawmaker Sylvia-Yvonne Kaufmann said, welcoming the commission’s proposal as a “step in the right direction”.

“Employees will in the future have a say on their companies’ cross border operations”, EU justice commissioner Vera Jourova said, stressing that the proposal is also aimed at countering social dumping – where production is moved to countries with lower wages or workers’ rights.

While tackling abuses, the Commission expects at the same time to facilitate firms’ legitimate relocation or division by introducing a new common transfer procedure that would replace the existing patchwork of national rules.

States will be required to offer online procedures for corporate registration which in the 17 EU countries where they are already operational have significantly cut costs for firms, the Commission said.

BusinessEurope, a trade association for EU enterprises, welcomed the plan to simplify cross-border operations but warned against risks of “overburdening check-ups” on firms.

Sven Giegold, an EU lawmaker for the Greens, said the proposal was a “promotional programme for tax and social dumping in Europe”.

“As long as we have very different tax and social systems within the EU, it is harmful to facilitate company relocations in the internal market”, he said.


Is it possible we are following the lead of Soviet Russia? I expect the states to win this case at the Supreme Court. I see two problems with that outcome. (1) States do need to replace the revenue lost as local shopping vanishes. That is a problem. But there are other solutions that are simply not attractive to bureaucrats, I’m not certain this is the best answer, or whether this is just the lowest hanging fruit states can find. (2) This looks like a push towards enforced conformity across all domains.

» Reuters Featured Article of the Day

South Dakota e-commerce sale tax fight reaches U.S. Supreme Court

By Lawrence Hurley and Will Dunham

WASHINGTON (Reuters) – A high-stakes showdown at the U.S. Supreme Court on Tuesday will determine whether states can force out-of-state online retailers to collect sales taxes in a fight between South Dakota and e-commerce businesses.

South Dakota is asking the nine justices to overturn a 1992 Supreme Court precedent that states cannot require retailers to collect state sales taxes on purchases unless the businesses have a “physical presence” in the state.

The state, appealing a lower court decision that favored Wayfair Inc, Inc and Newegg Inc, is being supported by President Donald Trump’s administration.

A ruling favoring South Dakota could help small brick-and-mortar retailers compete with online rivals while funneling up to $18 billion into the coffers of the affected states, according to a 2017 federal report.

The justices will hear arguments in the case on Tuesday against a backdrop of Trump’s harsh criticism of Inc, the dominant player in online retail, on the issue of taxes and other matters. Trump has assailed Amazon CEO Jeff Bezos, who owns the Washington Post, a newspaper that the Republican president also has disparaged. [nL1N1RB0L9]

Amazon, which is not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not collect taxes for items sold on its platform by third-party venders, constituting around half of total sales.

South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax. South Dakota projects its revenue losses because of online sales that do not collect state taxes at around $50 million annually, while its opponents in the case estimate it as less than half that figure.

Major retailers that have brick-and-mortar stores, and therefore already collect taxes, are represented by industry groups that back South Dakota. The National Retail Federation, which supports the state, has a membership list that includes Walmart Inc and Target Corp, as well as Amazon.

Stephanie Martz, the federation’s general counsel, said in an interview the case gives the Supreme Court a chance to adapt the law to new circumstances prompted by the rise of internet shopping.

“Things have changed a lot since 1992. The entire nature of interstate commerce has changed”, Martz said.

E-commerce companies supporting Wayfair, Overstock and Newegg include two that provide online platforms for individuals to sell online: eBay Inc and Etsy Inc.

“Win or lose at the Supreme Court, we will continue to advocate for a legislative solution and a level playing field where all retailers collect and remit sales tax on the same basis”, Wayfair spokeswoman Jane Carpenter said in a statement.

Brian Bieron, eBay’s senior director of government relations, said in an interview the 1992 precedent “provides the many small businesses that use the internet with a very clear and simple and stable legal environment in which to grow their business”.

Overturning the ruling while not replacing it with a new national framework “is really going to be a negative move in terms of e-commerce”, Bieron added.

A 2016 South Dakota law requires out-of-state online retailers to collect sales tax if they clear $100,000 in sales or 200 separate transactions. State legislators knew the measure was unlawful under the 1992 precedent.

The state sued a group of online retailers after the law was enacted to force them to collect the state sale taxes, with the aim of overturning the precedent. 


Does your Tax Accountant save you taxes?

Most CEOs & business owners believe their tax preparer is helping them pay as little tax as possible.

But that’s not true.

Your tax preparer simply prepares your tax return.

It’s impossible for them to do more than that unless they understand what the hell is going on with all those numbers? What do they say about your business? They actually have to understand how business works. If they’ve never run a business, they will never understand.

Second, to deliver value, your accountant has to create a service that actually makes a tangible difference to your business. (You can get tax prep from H&R Block.)

What tangible difference does your accountant make?

Do you make more in sales from working with them?
Do you make more in profits?
Do they help you enlarge your margins?
Do they help you understand how you can reduce costs?
Do they save money on taxes? (Easily measured concrete savings?)
Do they pull the same tax-planning rabbits out of their hats every year?
Do they create long term tax strategies?
Do they reconfigure your business for tax purposes?
Do they spinoff new entities for tax purposes?
Do they suggest techniques to avoid audit?

Wanna talk?
We’d love to talk.

Best regards.
Robert Ellis
(888) 241-5040


Identity Theft: How To Immediately Prevent Further Damage

Yesterday a client asked how to protect themselves from identity theft. Lifelock may be a better solution than what I am going to lay out here.  But I do have things that I do to protect myself.

 I got caught in the mass Target theft of identity theft, and I don’t want that to happen again. Recently Yahoo suffered the largest theft of personal information to date. I believe SONY suffered an embarrassing theft, as did the DNC. I don’t know that this is the secret, but here is what I do. Obviously, this won’t protect you from Wikileaks, but it appears effective for protecting your money & credit. (Famous last words?) Perhaps with Lifelock as a backup. This is what I do.

Protecting my banking information

First of all, I live in the digital world. I don’t use either cash or paper checks. I carry about $20 of cash in my billfold to pay a guy who doesn’t take digital for washing my cat. I make all my transactions from a small personal bank account which typically has less than $100 in it. Every time I decide to make a purchase, whether I am in a checkout line or a sitting on amazon, I put everything on hold long enough to check my balance ensure the transaction will clear. Every bank in the world has an app that works great for that. It takes less time than the vaunted chip reader and seldom delays the progress of the entire line. However, my primary concern is my bank account, not whether someone is inconvenienced. But I do everything in my power to ensure no one is inconvenienced. If my bank account is deficient, I transfer the money from another account that I have in the same bank. I do this under the theory that a crook who may steal my identity can’t access a bank account he knows nothing about.

Protecting my credit information

I freeze credit reporting at the big three credit rating agencies. If someone wants to take out a mortgage in my name, they can’t because no one can check my credit. I am certain of this because every time I do something that requires checking my credit, they call me and ask me to lift the freeze. Nobody is going to take out a mortgage in my name without getting my credit worthiness assured.

I believe all three agencies have a procedure for lifting the freeze for three days so someone can check your credit. Two of them do for certain. I have seldom had to lift all three freezes at the same time. Some banks, for instance, rely on only one credit reporting agency.

Here are links to freeze your reporting.






What Is The Trump Tax Plan?

 There has been some inaccurate reporting on this in the media.  Here it is from the horse’s mouth.

  • 15% top rate on business income
  • 15% top rate on capital gains & dividends
  • 25% top rate on other income

Add in some ubiquitous simplification, and that’s the basic Trump tax plan. Significant cuts. Hooray. But don’t start celebrating yet. 

Right now it’s hard to read whether it will get through  Congress. Donald Trump was endorsed by only a single Republican Senator and a handful of Congressmen. He was certainly not the darling of establishment Republicans. Plus, his ‘Drain The Swamp’ rhetoric was aimed at Incumbents of both parties. They generally think pretty highly of themselves and will not take those insults lightly. It is not inconceivable that a block of dissident Republicans could vote with the Democrats to thwart implementation of Trump’s tax plan.  Or any other plan he may propose.

That would almost certainly be career suicide, but given the philosophical differences, who knows? Time will tell. Trump is apparently aware of that because he appears to be making appointments designed to appease dissidents in his own party.  But it is almost certain we won’t recognize any tax bill that makes its way all the way through Congress. There’s still a long row to hoe.  

I am starting on the high optimistic end. Right my odds on getting Trump’s Tax Plan through Congress basically intact  … 75%.  However, my crystal ball is still malfunctioning, so don’t bet these odds.

Updates forthcoming as events unfold.


Tax Strategy: Does it cost more than it saves?


Cutting tax is a tool. But it’s never a goal. You can go too far cutting taxes until it starts increasing your taxes. Sounds crazy but it’s true

Here’s the whole story that never gets told.

In every case, there is a sweet spot where the money left over hits its high point. If you don’t go far enough, you pay more tax than the law requires. If you go too far, your tax strategy actually starts eating into the money-left-over-after-paying-taxes.

Here’s an example:

Retirement vehicles (IRA’s, SEP’s & 401(k)’s) all produce temporary tax deductions when you invest. But they also produce taxable income when you liquidate the investment. So any temporary tax benefit is wiped out when you take the money out. Plus they also have the nasty effect of converting long term capital gains (20%) into ordinary income (39.6%). Plus, if your heirs inherit one of these from you, they pay tax. Retirement vehicles may be good life planning, but they are not tax shelters.

The platinum standard of tax strategy: 99% of business owners are paying more tax than the law requires, because they are not taking advantage of all the tax preference and tax saving devices embedded in the tax code by the U.S. Congress to benefit small businesses. You aren’t eligible for all of them, but you are eligible for some of them. A great tax professional will ask you for some information about your lifestyle and spending habits we needed to determine which tax preferences would benefit you the most. Then develop a tax strategy designed specifically for you in your present circumstances. Finally, tax professionals advise you on what you needed to do to utilize these tax preferences. The result is your tax strategy. Over the years as your circumstances change, we adjust your tax strategy and make the necessary recommendations to you. We never recommend anything that won’t save you more than it costs.

A tax strategy has the following benefits:
(1) It doesn’t require any extra spending.
(2) It saves more than it costs.
(3) You live your preferred lifestyle.
(4) No additional spending required.
(5) We take the money you spend and find legitimate ways to deduct it.
(6) Think of this as ‘deducting your lifestyle’.
(7) That’s our specialty.

Cutting tax using this method costs zero dollars. Cutting tax any other way costs 100% to save 39.6%. (You may save only 15% or 20%.)

At EllisCPA, all our tax strategies are designed for owners of closely held businesses. They are original, proprietary & innovative. They will save you money in every circumstance.

Original: Everyone’s circumstances are unique. So are the solutions. Your tax strategy is designed to fit your exact circumstances. This is not a one size fits everyone business.

Proprietary: These are Ellis’ creation. As far as we know, no other firm in the world offers anything like the tax strategies we use. Top Manhattan firms have versions for publicly traded companies, but they aim at company taxes. We aim at the owner’s tax. Totally different. Apples & oranges.

Innovative: the magic happens when a creative innovator with four decades of deep tax knowledge meets a business owner with a unique predicament.

We are prepared and ready to defend all our tax strategies before the IRS. But we’ve never been challenged and we don’t expect any of our strategies will ever be challenged. To the outside world, they don’t look like tax strategies, they look like business strategies that happen to kick off tax savings. Because that’s what they are. None of them are so cute they will run afoul of the smell test.

Remember … Buying tax deductions costs 100% to save 39.6%.

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