Tax Season Tribune

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Counterfeit ring’s counterfeit rings seized by feds

By Kathryn Zdan, EA

Editorial Director

U.S. Customs and Border Protection in Cincinnati recently seized a shipment containing 90 fake championship rings that, if they had been real, would have been worth $2.71 million.1

The shipment contained 40 2019 Kansas City Chiefs Super Bowl rings, 20 1969 Kansas City Chiefs Super Bowl rings, 15 1985 Kansas City Royals rings, and 15 2022 Kansas Jayhawks championship rings. All of the pieces were made with cheap materials and faux gemstones, and bore the registered trademarks of the NFL, NCAA, and MLB.

The shipment appeared to be a person-to-person transaction, a common counterfeiting technique where the shipment is sent to one person who then mails out smaller prepackaged parcels to U.S. addresses, bypassing scrutiny.

The Cincinnati package was flagged for a physical search after an X-ray examination yielded inconclusive results.

Don’t forget about use tax

However, counterfeiters may not only land in trouble with Customs and Border Protection. In a recent tax appeal in California, a counterfeiter was also slapped with use tax on the street value of the fake goods he was holding.

The taxpayer was in the business of selling counterfeit handbags, belts, wallets, and sunglasses in Los Angeles.2 The taxpayer sold two counterfeit items to an investigator, and based on those purchases, the California Department of Tax and Fee Administration (CDTFA) was able to determine the approximate markdown percentage of the counterfeit items as compared to what the items would have cost if they were legitimate. The two counterfeit items totaled $1,280, but the MSRP if they had not been counterfeit would have been $165,510. This resulted in a markdown percentage of 12,830.47%.

The CDTFA then applied the markdown percentage to the $13,059,470 MSRP of all of the confiscated goods. They determined that the taxpayer could have sold all of those goods for $100,998, and based the use tax owed on this amount.

The taxpayer was convicted of two counts of counterfeiting.3 Therefore, because he is a “convicted purchaser,” his purchases of counterfeit items for resale were subject to use tax because any purchase of counterfeit items he made prior to being convicted constitutes a taxable storage or use of those items.4

California: the anti-red state

By Kathryn Zdan, EA

Editorial Director

Before your blood starts to boil, I’m not talking about Communists, Republicans, or Buckeyes fans. This is something much more pervasive that affects all of us. Red dye #3.

If you’re old enough, you remember the disappearance of the original red M&M, which was discontinued in 1976 when the FDA removed red dye #2 from its safe list. We somehow survived red-M&M-less until 1987 when they returned using red dye #40 (except in Europe, where that dye is banned; this should probably be of some concern to us, but that’s a topic for another day).

However, red candies are again on the chopping block in California, following the passage of AB 418 in 2023,1 which, beginning January 1, 2027, prohibits the sale of any food product containing any of the following: brominated vegetable oil, potassium bromate, propylparaben, and red dye #3.

Candies such as Skittles and Nerds contain red dye #3, as do pink and purple Peeps, certain chocolate milk products, and boxed cake mixes.2 The Environmental Working Group’s Eat Well Guide returns a list of around 3,000 products containing the dye.3 M&Ms do not appear on the list; however, Mars didn’t use red dye #2 in its red M&Ms, either, but discontinued them anyway to avoid consumer confusion.

The future of the red M&M again hangs in the balance. And if it’s discontinued, maybe Mars will just replace it with more blue ones.

Bad tax joke(s) of the week

Thank you to everyone who sent in their tax jokes over the last several weeks. Here are a few final submissions from another Tribune reader, Tom K.:

Why did the accountant get into trouble at culinary school? He was cooking the books.

Why was the mullet being audited? Because he wasn’t up front with his business.

Why did the swimmer throw all his gear into the water? Because his accountant told him to pool all his resources.

We’ll wrap up our joke series on this April Fools’ Day Eve with a trip through the Tribune archives. Check out our 2021 article on a few tax-related pranks from years past.

A few fun facts about this week’s writers:

Kathryn Zdan, EA

Kathryn Zdan, EA, spends her non-Spidell hours on photography and watching horror films (and then sleeping with the light on). She also enjoys hiking, biking, and watching foreign films.

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