I’ve written often about the reasons why electronically filing tax returns is an unwise move and I have resisted all attempts by IRS to start using that program for my clients. So far, IRS efforts to make e-filing mandatory have been shelved. However, that hasn’t stopped some State tax agencies from taking a more aggressive approach to what they perceive as a cost saving technique.

Living up to its name as the People’s Republic of California, that state’s rulers have just passed a law requiring any professional tax preparation office that prepares more than 100 individual income tax returns with computer software to file their clients’ tax returns electronically as of January 1, 2004. This requirement has been in the works for several months, with debate over the break point. There is going to be a $50 penalty for every paper return submitted by preparers who should have used e-filing.

What I will find personally interesting is the definition of 100 tax returns. Since leaving the PRC ten years ago, and transferring my 700+ California tax clients to new CPAs, I don’t prepare that many PRC returns any more. My current clientele is spread all over the country, with only about a dozen in the PRC. However, overall, I am preparing tax returns for about 150 individuals each year. The FTB has more info on this new law, but it isn’t clear as to whether or not someone in my circumstances would be covered by this new requirement. I wrote to the FTB asking for clarification.

I did notice a sort of Catch-22 in the FTB rules. In order to sign up for e-filing of PRC tax returns, a preparer has to already be enrolled in the IRS’s e-file program. It’s working out that the rulers of the PRC are doing some of IRS’s dirty work by forcing the use of electronic filing.

I have seen indications that other states are also considering requiring that their taxpayers submit tax returns electronically. I’m sure if it goes smoothly with the PRC, other states will be quick to enact such requirements.

In the meantime, I can’t help but ponder ways for people to avoid undue audit potential by continuing to file paper returns with plenty of explanatory material. Some options that come to mind at this early stage include the following.

This new rule only applies to professional tax preparers; so people could prepare their own tax returns, or have a pro do their 1040 and do the 540 themselves. Another option would be to use a tax preparer who falls under the 100 returns per year limit. Another choice would be to continue filing paper returns and pay your preparer an additional $50 to cover his/her FTB penalty. This last one will probably be my approach, if the FTB considers me to be subject to the new rule.

Having a backup plan would be a wise move when deciding who to leave your estate to.

As I’ve constantly described, using a C corporation is the best way for most people to minimize their tax burden.

Another big benefit of corporations is their ability to give some protection from the ever increasing number of frivolous lawsuits. However, some people think that using a corporation automatically gives them complete immunity from any legal attacks for their actions. That is not the case. Your personal actions will be your personal responsibility with or without a corporation. There are constant stories about doctors who screw up, such as cutting off the wrong leg or removing the wrong kidney. Many doctors are incorporated. It would be a travesty of justice to allow them to hide from the consequences of their actions by forcing the damaged parties to sue their corporations.

What corporations are great at is shielding you and your personally owned assets from the legal consequences of other people and of property. If you have employees or co-owners, using a corporation will allow you to be protected from legal actions caused by their acts. They will be sued, as will the corporation. However, unless you were also personally involved in the activity that caused the injury, your personal assets should be safe.

Likewise, if someone slips and falls on property owned by your corporation, they will have to pursue litigation against the corporation and you should be safe on a personal level.

What brought this issue up is the latest news on the Harrison Abstract collapse. Dian Brown, the owner, who has allegedly admitted improperly taking money out of the company accounts, and her attorneys, are trying to hide behind the corporate shield from litigation. This is ludicrous and will hopefully be laughed out of court. If she stole the money, that is as much a personal action, for which she will have to be personally accountable, as is a botched surgery by an incorporated physician.

As a side note on the investigation into the extent of Dian Brown’s misuse of Harrison Abstract money, this is a text book case for the skills of an independent CPA firm with experience investigating frauds.

Since moving to Arkansas ten years ago, it’s been amusing to see how many people and media outlets are unaware of the postal abbreviation for this state of AR. I have even seen normally accurate outlets, such as the Wall Street Journal, use AK and AZ to signify Arkansas. We were watching some TV show a few weeks ago and one of the guests was shown as being from Little Rock, AK. As far as I know, Alaska doesn’t have a city named Little Rock.

Back in early June, I gave an interview to a reporter from MyBusiness Magazine about my blog. I didn’t think to point out that I am in Arkansas, so she attributed me as being in Harrison, Arizona.

There are fights going on over how much of our private and confidential information financial institutions can share with other parties, and what kind of permission, if any, they have to receive from us, their customers, to do that. Some recent articles on this debate.

Judge limits local privacy protections. Banks may still share financial data with their affiliates

Parts of Laws Upheld That Limit Banks’ Sharing of Personal Data

Tax increase a tough sell in Alabama – The governor is trying to sell the concept of a massive tax increase as everyone’s Christian duty.

Alabama governor calls tax hike Christian duty

The odd tax dodge – Another idiotic tax protestor trying to twist the language of the tax code to nullify the entire income tax system in this country. These tax protestor morons are just like religious fanatics who take one passage from the Bible and establish an entire cult based on those few words, even though the rest of the bible says the complete opposite.

I’ve long believed that ballots for elective office should have an option of NOTA (None Of The Above) so that people don’t have to choose the lesser evil. With the coming free-for-all in the PRC, where the highest vote-getter wins the governorship without needing over 50%, it will be as close to a NOTA opportunity as I can recall. Perhaps someone will add his/her dog’s name to the ballot, as has been the case with some other elections, so that voters who don’t like any of the human candidates can have a real alternative.

Hey, Big Spender. Ted Kennedy wants to give a subsidy to people who’ve already had a tax cut. Seriously. – The Oldsmobile submarine captain has become a walking cliche as the icon of bloated big government.

Man Wins ‘Dream House’ Raffle – A million dollar house for a $300 investment in two raffle tickets. This brings up all sorts of tax issues that I hope he is working on with his tax advisor. He will have to report a million dollars of gambling income for 2003, whether he keeps the house or sells it. However, this opens up the door for him to deduct gambling losses of all kinds up to a million dollars. He should be asking all of his friends to save their losing lottery tickets for him for the rest of the year.

Scam Alert: ATM thief does his work with a smile – We may be seeing some new racial profiling here based on this new scam, called the Lebanese Loop. If your ATM card gets stuck in the machine and their is a Lebanese-looking person standing behind you, calling the cops may be a good idea.

Committee Highlights $200M in Waste, Fraud in Federal Programs – With a multi-trillion dollar annual budget, this is a mere drop in the bucket; but there are easily thousands of government programs where this kind of money is flushed down the crapper. Maybe I’m overly naive in cases like this, but I can’t help considering this to be money that is taken out of our pockets, and not from some big magical pot of gold in the sky, as too many people envision government largesse.

With the similarities between the attacks on tobacco and fast food, this may not be very far from what is heading our way. Nicotine addicts have been forced to pay huge taxes on their drug of choice. Food addicts shouldn’t be surprised to find the same kind of bull’s-eye on their wallets. Recent stories claiming that junk food is as addictive as heroin are too reminiscent of the discussion of nicotine to be anything other than the opening salvo in treating food users in the same manner as tobacco users have been.