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August, 2011

Message from Nelson & Company, P.S., CPAs

Capital Gains

This may seem like rather a different sort of recommendation, given the current state of the stock market, but you may want to consider selling stocks that have a large capital gain. (Capital gain is the difference between what you paid for a stock and what you sell it for.)

Now through 2012, capital gains will be taxed at 15%. However, if you are in or below the 15% tax bracket, there is no capital gains tax.

EX: You have $30,000 income from a pension, $10,000 in Social Security benefits, and $1,000 in interest income. You are over 65, married filing joint.

Using this example, you could have capital gains of $50,000 and not have to pay one dime in capital gains tax. Because a larger portion of your Social Security income would be taxable, your tax would go from $1,170 to $1,880, or an increase of $710.

In addition, if you do sell stock and then wait 30 days and repurchase the same stock, you would establish a higher cost basis for a future sale.

This tax break may go away after 2012.

David S. Nelson, CPA, CTRS
Certified Public Accountants

IRS Times & Inquirer

Inside This Issue...

US Government Sues a Washington State Promoter of Tax Fraud Scheme
IRS to Soap Star: Where's the Money?
Miami Contractor Imprisoned for Unemployment Tax Fraud

US Government Sues a Washington State Promoter of Tax Fraud Scheme

The United States has sued a Washington man to stop him from promoting an alleged tax fraud scheme. 

The government’s complaint alleges that John Lloyd Kirk promotes the use of fabricated Internal Revenue Service Forms 1099-OID to report fictitious income tax withholding. Kirk’s customers allegedly file federal tax returns claiming huge tax refunds based on the fake withholding.

According to the complaint, Kirk, who resides in Des Moines, WA, promotes the scheme through his business, the Indian Nations Advocate Law Office. Kirk allegedly holds seminars in the western United States and sells DVDs of his seminars to promote the tax scam.

The complaint states that at least 31 of Kirk’s customers have used the scheme to make fraudulent tax refund claims totaling approximately $8 million.

Claiming bogus tax refunds based on false Forms 1099-OID is one of the IRS's “Dirty Dozen” tax scams for 2011. In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of tax fraud promoters and unscrupulous tax return preparers.

IRS to Soap Star: Where's the Money?

The Internal Revenue Service wants to know what happened to $100,000 that soap opera star Jack Scalia raised for military veterans and families of 9/11 victims.

Scalia, whose All My Children character had a relationship Susan Lucci’s on the show, raised the money through two nonprofit organizations, including one called 9-11-01 Lest We Forget.

The IRS pulled 9-11-01 Lest We Forget’s tax-exempt status after the organization did not file any tax returns.

For his part, Scalia has had his own financial problems. He filed for bankruptcy in 2004.

Miami Contractor Imprisoned for Unemployment Tax Fraud

A Miami contractor was sentenced to 18 months in prison for employment tax fraud.
Reynaldo Orozco was also ordered to pay $504,047 in restitution to the United States.
Orozco previously pleaded guilty to one count of filing a false employment tax return on March 22, 2011. According to court documents, from 2004 to 2007, Orozco owned and operated Rock Construction Builders Inc., a construction business located in Miami-Dade County.

Orozco admitted that he issued RCB corporate checks to various other corporations that he said were legitimate subcontractors.

In truth, these corporations did not perform work for RCB. Orozco cashed the checks at local check cashing stores and used the bulk of the cash obtained in this manner to pay RCB employees. Orozco failed to report the cash wages on quarterly employment tax returns and failed to withhold and pay over employment taxes on the wages.

From 2004 to 2007, RCB failed to report approximately $3.3 million in cash wages to the IRS. The United States Treasury suffered an employment tax loss of approximately $504,047.


--Our Policies--

Nelson & Company, P.S., CPAs Since 1979

Circular 230 Disclosure:
To ensure compliance with requirements imposed by the IRS, we inform you that (i) any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.