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Presidential candidate tax returns show how tax law has changed

Like almost all presidential candidates trying to be transparent to their voters, Jeb Bush recently released tax returns dating back to 1981 and going through 2013.

I could write the standard blog on how Mr. Bush’s income went from nothing in the 1980’s to topping $1,000,000 for many years in the 90’s, becoming in the low six figures in the 2000’s while he was governor to ballooning to over $2,000,000 for almost every year after 2007. How his income went above $6,000,000 for 2011 & 2013 while he was getting rich from speaking fees and consulting for banks. Or I could write about how his net worth has gone up 14 times since he left the governor’s mansion in Florida in 2007 or question how he got in excess of $1,000,000 consulting for Lehman Bros and over $10,000,000 in speaking fees since 2007.

But as a Reno CPA that wasn’t practicing during the 1980s & 1990s, I found it interesting how much the tax code has changed just from reviewing Mr. Bush’s return. For instance, when Mr. Bush sold his first home in 1981 he wasn’t allowed to exclude from income up to $500,000 from the sale of his primary residence as taxpayers can now. His gain of $34,980 decreased the basis in his new residence he purchased to give him a higher gain and tax in the future when that home was sold.

I also found it interesting how in the 1980s political contributions were allowed to be deducted and up until 1986 charitable contributions were deducted without having to itemize on Schedule A. This was the same in 1983 when employee business expenses were an above the line deduction; today they must be on Schedule A and less than 2% of adjusted gross income. There was also the deduction for married couples that both worked that was present in the tax code in 1982, which Mr. Bush and his wife did not utilize. In the 1980s it was also possible to deduct interest expense on credit cards and car loans as a personal interest expense. With the somewhat new tax regulations associated with the Affordable Care Act and constant bickering and promises by Congress about changing the tax code I’m sure in 20 years the tax code will again be drastically different.


In a recent case, an appeals court upheld the Tax Court’s decision that a bookie’s plea agreement on criminal charges does not bar a civil action for unpaid taxes.

Gary Kaplan operated an illegal sports booking business called BetOnSports. The majority of Kaplan’s booking business was located in the Caribbean islands and Costa Rica for most of the 1990s.

Right before the company went public in July 2004, Kaplan engaged in several transactions and stock transfers that allowed him to set up two trust funds worth $98 million dollars. These trusts were referred to as the “Bird Trusts,” and the money was located somewhere off the coast of France.

Kaplan was the sole grantor of the Bird Trusts. As the grantor of the trusts, Kaplan was responsible for paying income taxes on the earnings of the trusts. Kaplan neglected to pay federal income tax or capital gains tax for the trusts for either 2004 or 2005.

In 2006, Kaplan was indicted by a federal grand jury for operating an illegal bookmaking operation within the United States. Kaplan ended up making a plea deal with the government. In exchange for accepting reduced charges, Kaplan agreed to allow the federal government to take civil action against him regarding the two years at issue.

During a change-of-plea hearing in 2009, Kaplan was questioned about the provision in his original plea agreement that dealt with the right of the government to pursue a civil tax matter against him for the 2004 and 2005 tax years. Kaplan assured the judge that he understood the difference between a civil court matter and a criminal court matter. He insisted that he was aware of the ramifications of the plea deal.

After the change of plea hearing, the court accepted the plea offer and sentenced him to 51 months in jail and ordered him to forfeit $43.65 million to the United States.

Sometime in 2012, the IRS commissioner issued a notice of deficiency for failure to file and pay taxes for 2004 and 2005. Kaplan was also liable for interest and various penalties. The taxes, penalties and interest totaled almost $25.5 million for 2004 and a little over $11 million for 2005.

Kaplan challenged the IRS at the district court level and lost. He brought his appeal to the U.S. Court of Appeals for the 8th Circuit.

Kaplan raised three issues in his appeal:

1. The statute of limitations had run on the commissioner’s ability to assess the unpaid taxes.

2. His 2009 plea agreement barred the claim.

3. Judicial estoppel barred the commissioner’s determination.

The appeals court rejected all three of these issues.

The statute of limitations does not start to run until an income tax return is actually filed by the taxpayer. Because the taxpayer did not file a tax return for 2004 and 2005, the statute of limitations has not run on those tax years. So Gary Kaplan lost on this issue.

The 2009 plea agreement was unambiguous as to the government’s ability to bring a civil action against Gary Kaplan. In addition, during the 2009 change-of-plea hearing, the court referenced answers given by Gary Kaplan that clearly demonstrated that he understood the government had the ability to bring a civil tax proceeding against him.

On the issue of judicial estoppel, Kaplan felt that, because the government did not object to his Presentence Report, it was prevented from bringing a civil tax proceeding against him. In his report, Gary Kaplan did not list any tax liabilities for 2004 and 2005. There were a number of reasons that Kaplan lost this issue, including that the numbers contained in the report were compiled and put together by Kaplan himself, not the IRS. (Gary Kaplan v. Commissioner, U.S. Court of Appeals, Eighth Circuit, 14-2342, July 29, 2015) ■

©2015 CPAmerica International

Under the Affordable Care Act, large employers are required to file information returns with the IRS and provide statements to full-time employees.

You are a large employer if you employed, on average, 50 full-time equivalent employees or more during 2014. You must include employees of other members of any companies under common control.

A full-time employee is someone who works an average of 120 hours per month for purposes of determining large employer status.

If you are a large employer, you need to track the following information in 2015 so you can meet the reporting requirements of early 2016:

1. Whether you offered full-time employees and their dependents minimum essential coverage that meets the minimum value requirements and is affordable.

2. Whether your employees enrolled in the self-insured minimum essential coverage you offered.

It’s necessary to track the above information so you can meet the following reporting requirements mandated by the Affordable Care Act:

  1. Form 1095-C, Employer-Provided Health Insurance Offer and Coverage – Large employers are required to provide this form to all of their full-time employees by Jan. 31, 2016. This form contains basic information about both the employee and the employer. It also provides information about the insurance coverage offered the employee during 2015 and the employee’s share of the premium cost.
  2. Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns and Form 1095-C. Large employers are required to submit a copy of all of the Forms 1095-C issued to all of their full-time employees along with Forms 1094-C. The Form 1094-C is a type of summary sheet for the individual Form 1095-C. The 1094-C also requires some additional information disclosures regarding total number of employees, the full-time employee count and various eligibility information. These forms need to be submitted to the IRS by Feb. 29, 2016, or March 31, 2016, if filed electronically.

To be able to fill out the Forms 1095-C and 1094-C in a timely and efficient manner, large employers need to start tracking their full-time employee and insurance information for 2015 now. ■

©2015 CPAmerica International

When starting a new business, a wise first step is to seek the advice of your CPA.

Some things you might want to consider before starting the business:

  1. Business Structure – Determining the business structure should be the first decision that you make. The basic choices are sole proprietorship, corporation, limited liability company or partnership. There are two different types of corporations: C corporation and S corporation. A limited liability company defaults to being taxed as a partnership – or a sole proprietorship in the case of a single member LLC – but may elect to be taxed as either a C or an S Corporation. The type of entity you select determines what forms you will need to file with the IRS and when you will need to file them.
  2. Business Taxes – The four basic types of business taxes are payroll, income, self-employment and excise. The business structure you choose affects which taxes you will be subject to. The income tax could be either corporate income tax or individual income tax – again depending on the business structure.
  3. Employer Identification Number –You are required to have an employer identification  number if you have payroll or if you choose the corporate or partnership form of business structure. Apply for your EIN through the IRS.
  4. Accounting Method – An accounting method is a set of rules that you use to determine when to report income and expenses. The three methods available are cash, accrual and hybrid. Most taxpayers will choose the cash-basis method of accounting unless they are required to select another method. You are required to use the accrual method when your average gross receipts exceed $5 million computed over a three-year period of time.
  5. Employee Health Care – The Small Business Health Care Tax Credit is available to businesses that employ fewer than 25 employees who work full-time, or a combination of full-time and part-time, and purchase insurance through the Exchange. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least 50 full-time equivalent employees.

Learn the tax basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center. ■

©2015 CPAmerica International

When preparing to start a family, it is important to look at your finances, and assess your current financial situation. You are not always in a situation where you can do this, but if you can plan this ahead of time it could help ease some worry to know you are financially prepared. There is no exact amount you need to have saved when preparing to add a new family member, but it is important to make sure you have the bare essentials covered.

There are many added expenses that come with having a baby. A good way to plan for all of these new expenses will be to assess what is essential and put them at the top of your list to save for. A good way to limit your spending on some of the items needed would be to try to borrow them or buy them used.

Start looking at your financial situation by tracking all of your expenses to see if your income is covering your current expenses and determine if you have additional money left over. It is recommended to do this for at least a month, but this should only be used as a guideline since your monthly spending will vary, and this wouldn’t account for seasonal changes. Once you have listed your expenses, go through them and separate the items you need verse the ones you can go without. This will be helpful to determine the areas that you could limit your spending to help save.

When looking at your monthly income, it is important to factor in the difference in earnings that will occur when you are on maternity leave. Check to see what your company’s policy is for maternity leave. This can make a large difference to your monthly income if your plan is to take time off work and it is either unpaid or a percentage of your income.

Ideally, you should have enough savings to account for the change in your earnings over maternity leave, or if you are planning on changing your work schedules after you have the baby. It is also recommended to have an eight month emergency fund to keep you out of debt if anything unexpected occurs. It is never too early to start saving – the earlier you save the less of a burden it will be to set the money aside and get your finances in order.


As summer winds down, Disneyland begins to get ready to start the transformation for Halloween, Christmas and New Years. If you have never had the chance to see what the park looks like during these special times of the year, I have to say that the transformation is quite spectacular. Growing up in Orange County, CA, I had many opportunities to visit Disneyland during these periods; often owning a season pass to help save me the most money while visiting the park. Season passes save you 15% on dining, 20% on merchandise, 20% on guided tours, 20% off special events, and even saves you money when staying in the Disneyland hotel. The season pass is your best bet if you plan to visit the park more than 4 or 5 times, but this is not possible for all of us. Many of us, as I do now; live too far away from Disneyland to plan multiple trips to the park during the course of just one year. So I am going to give you some other tips on how to save some money while visiting Disneyland that do not involve purchasing an expensive ($779) season pass.

  1. When purchasing your tickets to attend Disneyland Park, do not purchase your tickets when you get to the ticket windows at the park. The lines are incredibly long, and the prices are more at the park than purchasing from authorized sellers of Disneyland tickets. Authorized sellers of tickets include; AAA, Safeway, Costco, as well as many online retailers. Just be sure that you trust the website that you use to purchase your tickets if you do in fact choose to use an online retailer. Do not use eBay, Craigslist or a private party.
  2. With the addition of California Adventure, the park has only gotten more crowded and thus visiting all your favorite rides in one day may not be possible anymore. One way to combat this problem is that you can hold a fast pass (a pass that allows you to avoid the long lines) for one ride in both Disneyland Park and California Adventure at the same time. Thus, if you carefully plan your rides, you are more likely to get on more of your favorites using the two fast pass systems.
  3. Dining in the park can be extremely expensive, often costing upwards of $20 per person at many of the resort restaurants. If you still like to eat out, but do not have to eat inside the park, there are some slightly cheaper options in Downtown Disney, but there is not much of a reprieve there. Your best option for saving money on food is to bring your own food, something that most people think is not allowed, but food is allowed to be brought into the park. Bringing your own food is likely save you the most money, especially if you are like me and eat at least 3 meals a day if not more. It’s great if you plan a multiple day trip to Disneyland.
  4. Merchandise also runs at a very large premium within the Disneyland parks, so if you would like merchandise cheaper; your best bet is to visit Disney stores. These stores generally carry most of what you can find in the park, and you can get these items ahead of time to bring with you into the park if you so choose. My last piece of advice is to download the Mouse wait app in either Apple’s app store or in the android marketplace. This app will tell you ride wait times as well as many different secrets that I have not included here, including the search for the hidden Mickey’s.



Most people are probably familiar with the general tax rule about hobbies: You can deduct expenses only to the extent that you have income from the hobby.

This rule applies to individuals, S corporations, partnerships, estates and trusts.

There is a certain pecking order in deducting these expenses:

  1. Deductions a taxpayer can claim whether or not they are incurred with a hobby. Some examples are taxes and interest. These expenses are allowed even if they exceed hobby income.
  2. Deductions not resulting in an adjustment to the property’s basis. These are the hobby’s operating-type expenses. An example is supplies. These expenses are allowed to the extent that the gross income from the hobby exceeds the deductions under No. 1.
  3. Deductions resulting in an adjustment to the basis of property. Depreciation and amortization deductions are allowed but only to the extent that gross income from the hobby exceeds deductions under both No. 1 and No. 2.

The income from the hobby activity is picked up on line 21 on page 1 of the Form 1040 return. This income is not subject to self-employment tax but is subject to federal income tax.

No. 1 deductions are Schedule A-type itemized deductions not subject to the 2-percent-of-adjusted-gross-income limitation. To take advantage of these deductions, you must itemize your deductions.

Nos. 2 and 3 deductions are Schedule A-type itemized deductions, but they are subject to the 2-percent-of-AGI limitation. To take advantage of these deductions, you must itemize your deductions. But even if you itemize your deductions, a portion of the expense deduction is lost because of the 2 percent rule.

Hobbies are considered to be activities engaged in without a profit motive. Whether an activity is engaged in for profit is determined by a facts-and-circumstances test.

Here are a couple of general rules:

© 2015 CPAmerica International


The U.S. Tax Court settled a case in July between a landlord and a tenant who wasn’t paying rent – and the court came down on the side of the tenant.

John E. Burgess owned a piece of land that he rented to Dennis Mineni. The land was used as an overflow parking lot for Mineni’s business, Atwater Flea Market. The two men had a handshake agreement that required Mineni to pay Burgess $2,000 (later reduced to $1,500) a month for the use of the land.

Burgess failed to file income tax returns for the years 1999 through 2007. The IRS assessed taxes for each unfiled year, and the total amount was almost $5 million.

Because of the assessment, Burgess was considered a delinquent taxpayer. This designation allows the IRS to place a levy upon a taxpayer’s property or rights to property.

Burgess brought up tax-protestor-type arguments, claiming that he is not a federal citizen and therefore is not subject to the jurisdiction of any federal institution or law, including but not limited to Congress, the IRS and the Social Security Administration.

Burgess felt that he did not owe any federal income tax and that the levy placed against him was invalid.

Mineni’s business was required by law to report the rent payments made to Burgess on IRS Form 1099. A copy of the Form 1099 was sent to Burgess and another copy was submitted to the IRS as required. The IRS became aware of Burgess’s income through the Form 1099.

The IRS sent a notice of levy to Atwater Flea Market, which was now incorporated and renamed Franklynn Properties, Inc. Through payments made by his business, Mineni honored the notice of levy by paying his monthly rent payment directly to the IRS instead of Burgess.

Over a 21-month period, Franklynn Properties, Inc., paid $31,500 to the IRS.

Under Internal Revenue Code Section 6332, anyone in possession of property, or rights to property, that belongs to a delinquent taxpayer upon whom a levy has been made must surrender to the IRS the property or rights to the property. Failure to honor the levy may result in personal liability.

The person who surrenders the property or rights to the property to the IRS will be discharged from any obligation or liability to the delinquent taxpayer. Immunity under IRC Section 6332 has been interpreted generously to protect people who honor levies.

The U.S. government requested and received summary judgment on the grounds that Mineni is immune from suit for his surrender of rental payments, owed to Burgess, to the IRS under an IRS levy.

So Mineni was not required to reimburse Burgess for the rent payments that were sent to the IRS. In fact, he is to continue making the rent payments directly to the IRS until such time as the levy is found invalid or stopped (John E. Burgess, Plaintiff, v. Dennis Mineni, Defendant/Dennis Mineni, Counterclaim-Plaintiff, v. John E. Burgess, United States of America, Counterclaim-Defendants, U.S. District Court, Eastern District of California, 2015-2 U.S.T.C., July 20, 2015).

©2015 CPAmerica International


The U.S. Tax Court recently upheld the IRS’s frivolous return position, costing a taxpayer $10,000 in fines.

Mark A. Lovely failed to file tax returns for 2005, even though he admitted that he had received compensation from Tradewinds Airline, Inc., and Triad International Maintenance Corp. He claimed the compensation did not constitute “wages” and therefore it was not taxable income.

Each of Lovely’s employers issued to him a Form W-2 Wage and Tax Statement. Because the IRS receives a copy of every W-2, the agency knew that Lovely had earned income and a requirement to file a tax return.

Using this information, the IRS prepared a substitute return for Lovely and assessed income tax, penalties and additions to tax.

In July 2009, Lovely prepared a Form 1040X, Amended U.S. Individual Income Tax Return. He claimed that he had no income for the tax year at issue, which was 2005. He in fact had $29,500 worth of taxable compensation for that year. He requested that the federal income tax amount of $1,475.37, which had been withheld from his wages, be refunded to him.

In September 2012, Lovely followed a similar procedure. This time he filed a 1040X requesting a refund of $781.51.

The IRS determined that both Forms 1040X submitted by Lovely had constituted frivolous returns and assessed a $5,000 fine for each one submitted.

In a collection due process hearing with the IRS, Lovely contested the $10,000 in fines assessed by the IRS for his having submitted frivolous returns. He claimed he did not receive a statutory notice of deficiency and did not have a proper opportunity to dispute the fines.

Both of the issues raised by Lovely are defenses to the existence of the amount of the tax liability according to the Internal Revenue Code. The tax liability in this case was the $10,000 in fines.

The IRS brought up some prior court cases that supported the position that issuing a statutory notice of deficiency and allowing the taxpayer an opportunity to dispute the tax are not required when the taxpayer’s original position on the 1040X is frivolous.

Lovely agreed that he had received compensation for his services but contended that it was not taxable income because he didn’t work for the federal government. The court ruled that his tax-protestor-type arguments in support of his position were frivolous.

Taking all of the facts and circumstances of the case into account, the Tax Court ruled in favor of the IRS and upheld the $10,000 in fines (Mark A. Lovely v. Commissioner, T.C. Memo 2015-135, July 27, 2015). ■

©2015 CPAmerica International


Qualified education expenses under the American Opportunity Tax Credit are basically tuition, fees and course materials.

The tuition must be paid to an eligible educational institution. An “eligible educational institution” is generally any accredited public, nonprofit or proprietary (private) college, university, vocational school or other postsecondary institution.

Student activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Student health fees are not included as part of this expense. They are considered a medical expense.

Course materials include books, equipment and supplies. You do not have to purchase these items directly from the school to include them. Books included in the credit are the textbooks needed for the course. Supplies include highlighters, pens, pencils, etc. An example of equipment is a laptop computer.

If you do not purchase your course materials from the university bookstore, those qualified education expense items will not be included on the Form 1098-T that you receive from the university. You will need to enter these expenses – in addition to the expenses listed on the Form 1098-T – when preparing your income tax returns.

Qualified education expenses never include personal expenses. Room and board, insurance, medical expenses, transportation and similar personal, living or family expenses are examples of personal expenses.

The amount of qualified education expenses is reduced by the amount of a qualified scholarship, which is excluded from gross income, as well as tax-free fellowship grants, the tax-free part of employer education assistance and veterans’ educational assistance. The amount of the scholarship will be provided to you on Form 1098-T. ■

©2015 CPAmerica International

from the IRS


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