Warren Buffet is feeling the sunburn
Get this man some aloe vera!
Like an ant under a magnifying glass, a California solar company got burned for engaging in a $1 billion Ponzi scheme that fooled investors like Berkshire Hathaway and Sherwin-Williams.1
DC Solar was started around 2008 by a former auto mechanic and his wife, the Carpoffs. The company built mobile solar generators, which investors purchased at a reduced cost. DC Solar would then lease the generators to end-users to pay down the remainder, and any profit would go to the investors. Except it didn't.
Instead, the generators weren't leased, investors were paid from money coming in from new investors, and the Carpoffs acquired a baseball team, the ubiquitous stable of classic cars, and threw a holiday party headlined by Pitbull.
A former employee tipped off federal authorities that DC Solar was lying about the number of leased units it had. The feds have since hauled away the Bentleys and Challengers and Mustang Super Snakes, but questions remain about how a small solar start-up blinded some of the biggest investors as they sank millions of dollars into a scam.
A ray of sunshine
Although the TCJA provides that personal casualty and theft losses are not deductible for the 2018–2025 tax years, Ponzi-type theft losses are still deductible if they are incurred in a trade or business or any transaction entered into for profit though not connected to a trade or business.2
Victims of such schemes can take a theft loss, not subject to the usual $100 per occurrence and 10% of AGI limitations. Instead, the losses are treated as miscellaneous itemized deductions not subject to the 2% of AGI threshold.3
2 IRC §165(c)(1) and (2)
3 Rev. Rul. 2009-09; Rev. Proc. 2009-20
Software glitch packs a punch
Unless it pertains to a refund, for most taxpayers, opening a letter from the IRS or a state taxing agency can be worrisome. Imagine being a thrift store worker making $10 per hour and receiving a tax bill from Colorado's Department of Revenue for $216,399,508. This happened to Donna Smith from Aurora, Colorado, who received the bill for the 2018 tax year.1 The multimillion dollar amount is about one-quarter of the city of Aurora's entire annual budget.
Smith's mother prepared her tax return using TurboTax and rechecked it to ensure the mistake wasn't on her end. As it turns out, TurboTax's software experienced a glitch between June 13–16 of 2019, causing certain fields on tax returns to be inaccurately transmitted when e-filed.
Colorado's Department of Revenue determined that 44 taxpayers were affected, although not everyone received such a staggering tax bill. From the department's end, they just see it as data in, data out; they'll process what they receive. Smith and the other affected taxpayers were directed by the department to resubmit a copy of their original return or to file an amended return if they didn't keep a copy.
Bottom line from Colorado's DOR: Never ignore the problem; it won't go away on its own.
AB 5: The legislative floodgates are open
AB 5 was enacted quickly with many questions and potential problems. In the past few months, we have seen lawsuits filed, and the flurry of bills being introduced is only the beginning. Here are the latest bills that address AB 5:
- AB 1850 (Gonzalez) is a "spot bill" that could adopt a variety of changes to AB 5;
- AB 1925 (Obernolte) would expand the list of exemptions from the ABC test to include small businesses;
- AB 1928 (Obernolte) and ACA 19 (Kiley and Melendez) would repeal AB 5's ABC test and mandate the use of the Borello right-to-control test for purposes of determining whether a worker is an employee;
- SB 867 (Bates) would extend the existing exemption for newspaper distributors/carriers indefinitely;
- SB 868 (Bates) would exempt freelance journalists from the ABC test without regard to the number of content submissions per year;
- SB 875 (Grove and Jones) would provide an exemption for interpreters (including registered court interpreters) and translators; and
- SB 881 (Jones) would exempt musicians and music industry professionals.
At this stage, the fate of any of these bills is unknown. However, we believe any that would repeal AB 5 have little to no chance of passing.
If you need more information on Dynamex and AB 5, attend Spidell's upcoming live webinar "AB 5: Who is an Independent Contractor?" on February 14. An on-demand version is also available. Click here for more information and registration details.
A few fun facts about this week's writers:
Kathryn Zdan, EA, is obsessed with true crime documentaries and photography. On weekends, you can find her around Wilmington photographing the refineries and eating at The Chowder Barge.
Diane Fuller loves to read, cook, and go to Ketchum/Sun Valley, Idaho, as many times as possible during the year with her family including grandkids and dogs.
Lynn Freer, EA, is a French literature major, so of course her favorite vacation destination is France. Here she is dining on mussels and fish stew near Nice.
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