March 1, 2015

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Colorado is going old-school with paper check refunds

To combat an increase in fraudulent refunds that are paid in the form of direct deposit or prepaid debit cards, the Colorado Department of Revenue is going back to paper refund checks for certain returns.1

One person ruins it for everyone ...

Remember the woman who filed an Oregon return using Turbo Tax™, reporting income of $3.5 million (she really only made $15,000 that year), and got a refund of $2.1 million? That refund was sent to her on a debit card, which she lost ... TWICE. Oregon officials say that if she hadn't claimed a replacement card, she may have never been caught.

She ultimately spent about $150,000, and her purchases, which were not luxurious, included a 1999 Dodge Caravan and a new set of wheels for it for a total of $2,600. She also purchased a dual-basket deep fryer, a queen-size air mattress, and a 9 mm handgun (which was never recovered).

She is serving 5.5 years in prison, and Oregon was able to reclaim $1.9 million of the erroneous refund. The Oregon Attorney General's Office did an investigation and didn't find any evidence of collusion — just really bad practices within the Department of Revenue. No one was even fired. The full story is here: Oregon's $2.1 million tax fraud case

1 Colorado Department of Revenue News Release. Available at:

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The argument clock

Everyone has an opinion on Obamacare. You probably do too: Either it's a great first step toward health care for all, or you resent being the insurance police. But you have neither the time nor the desire to discuss the political aspects with your clients. But your clients do want to wax poetic and make sure you agree with them.

If you are forced to be a part of this unproductive rant, you might as well be paid for it. When I was in practice, I created the "Alarm Clock." When clients would start arguing with me about whether they could deduct the dog as a security system for their business; or that they should be able to file as head of household because they were responsible for the lease, I pulled out my alarm clock.

It was a Mickey Mouse clock with a big face. I would tell them we could continue the discussion, but I would have to charge them a surcharge because we needed to be productive together. This usually made the client laugh, and we could complete the appointment. OK, I lost a client or two who were insulted, but I replaced them with someone who had a better sense of humor.

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What was this taxpayer smoking?

One of our favorite recent cases involves a taxpayer who claimed theft loss deductions of $1 million per year stemming from patent infringements on his smokeless tobacco vaporizer.i This patent followed on the heels of his previous patents for "other mechanisms for heating materials so that they can be vaporized and inhaled through a tube."

Because he had failed to make any profit even though he had filed the patent 10 years prior to "e-cigarettes" becoming popular on the market, he was sure a major conspiracy had been launched to prevent him from enjoying the financial "fruits of his labor." Although after reading the case, it's pretty clear that he was enjoying the fruits of his labor in other ways.

His conspiracy theories ranged from Internet search engines and social media platforms conspiring to demote his product's visibility, the U.S. Postal Service intentionally misspelling his business's name, his computer being continuously hacked, and even Wikipedia plotting against him. For some reason, the song "White Rabbit" (a.k.a. "Go Ask Alice") keeps popping into my head.

But his fantasies didn't stop there. What is truly priceless are his calculations of how much money he had lost as a result of these conspiracies. He estimated that his losses ranged from $282 million to $294 million annually, based on elaborate formulas that took into account his estimates of total market for vaporizers worldwide ($1.8 billion) multiplied by various factors and randomly assigned multipliers.

Unfortunately for the taxpayer, the Tax Court didn't share his hallucinations ... I mean vision.

As we at Spidell keep saying, "We can't make this stuff up."

i Sheridan v. Commissioner, TCM 2015-25

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A few fun facts about this week's writers:

Kathryn Zdan, EAKathryn Zdan, EA, is not only director of the editorial department, she also "rocks the house" as a regular in curling bonspiels around the country.

Lynn Freer, EALynn 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.

Sandy WeinerSandy Weiner, J.D., lives in sunny San Diego and takes full advantage of the perfect weather by pedalling on her bike and paddling on her kayak. Stay out of this iron woman's way!

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