Archive for September 6th, 2012

Dora Benson was a nurse before she cashed in a winning $10,000,000 lottery ticket in April 2000. With a small part of her winnings, she bought a building in downtown Denver to honor her deceased mother.

The building played host to a wide array of activities, from a Christian reading room to an office to reflexology treatments. Benson also used her newfound financial freedom to become a mortgage loan broker, and started providing loan services out the building. Benson, however, failed to broker a single mortgage, nor did she charge for the reflexology treatments she provided.

In 2002, in an attempt to “formalize” her various pursuits, Benson formed an S corporation to house her mortgage lending and reflexology activities. Unfortunately, she never actually filed a corporate return; rather, she simply reported the substantial losses generated from the activity each year on her Schedule C.

The IRS denied Benson’s 2009 loss of $26,000, claiming that Benson’s activities were “hobbies” under the meaning of IRC Section 183. There’s no need to rehash the “hobby loss” rules here, as we’ve discussed them ad nauseam; simply reading this post should give you all the background you need.

As you’ll see, typically the courts examine the nine regulatory factors designed to determine whether an activity is a for-profit business (in which case a loss may be recognized from the activity), or a hobby (in which case expenses can only be deducted to the extent of profits). In Benson, however, the court neglected to examine the factors before concluding that Benson’s activities were not entered into for profit, but rather were hobbies. And why was the Tax Court able to take such a shortcut?

Because they’d seen it all before. Benson had previously been in front of the Tax Court on the exact same issue with regards to her 2002 and 2003 tax years, and the court had concluded then that the activities were hobbies.

Because the only thing that had changed since then was the formal incorporation of the activities — and that formality was negated by Benson’s failure to actually recognize the corporation’s existence by filing a corporate tax return — the court reached the same conclusion with regards to Benson’s 2009 tax year and again denied the deduction.

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From PwC’s Franklin, Tennessee office — and via the accounting blog Going Concern — comes a tale of larceny worthy of the plot of Ocean’s 14 (Ed note: please let there never be an Ocean’s 14):

By now you’ve probably heard that an anonymous group – no, likely not The Anonymous – is claiming they got into PwC’s Franklin, Tennessee office and nabbed Romney’s tax returns, which they will apparently release September 28th unless they’re given $1,000,000 USD (or, alternatively, “one milllllion dollars”) in Bitcoins before that date. If someone desperate to see the returns cares to pay $1,000,000 USD in Bitcoins instead, the alleged thieves claim they are prepared to release the returns sooner should they receive the money. PwC is denying that any breach has occurred.

The story is just starting to spill into the national media, as it appears Bloomberg has a few paragraphs on it this morning. Whether or not the returns were actually stolen is anyones’ guess, but the alleged perpetrators are certainly playing their role to completion, even sending a ransom note to PwC explaining how they pulled off the caper:

Romney’s 1040 tax returns were taken from the PWC office 8/25/2012 by gaining access to the third floor via a gentleman working on the 3rd floor of the building. Once on the 3rd floor, the team moved down the stairs to the 2nd floor and setup shop in an empty office room. During the night, suite 260 was entered, and all available 1040 tax forms for Romney were copied. A package was sent to the PWC on suite 260 with a flash drive containing a copy of the 1040 files, plus copies were sent to the Democratic office in the county and copies were sent to the GOP office in the county at the beginning of the week also containing flash drives with copies of Romney’s tax returns before 2010. A scanned signature image for Mitt Romney from the 1040 forms were scanned and included with the packages, taken from earlier 1040 tax forms gathered and stored on the flash drives.

I can honestly say, I never thought I’d see the day where someone’s tax returns became important enough to the American public to become the target of an intricately planned heist, but here we are. Of course, I’ve already explained that what is found in those returns — short of Romney claiming the entire state of Massachusetts as dependents or making considerable donations to al-Qaeda — should have no bearing on whether you consider him a worthy candidate as the next President of the U.S., but then again, when has logic and reason ever stood in the way of a well-cemented political position?

Notably, rumors abound that a few members of the thieving party were adamant that the grup should steal Ron Paul’s tax return instead, but the other members laughed it off as a completely unrealistic waste of time. HI-YO!!!

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