Felon Forced To Pay Taxes On Money Forfeited To US

Lonnie Hubbard, a pharmacist in Kentucky, was indicted and convicted of crimes related to dealing narcotics. He was sentenced to 3 years in the joint, another three years of supervision, and a criminal monetary penalty.

His property listed in the indictment included an IRA, which was forfeited to the Federal Government as part of the monetary penalty. After he was remanded into custody, T. Rowe Price in accordance with the judgement, made an involuntary distribution of the IRA to the United States in the amount of $427,518.

Part of the distribution process included the investment house sending a year end 1099-R to the last known address of Mr. Hubbard. He didn’t receive it or any of the IRS Notices because he was in the slammer.

When the Service didn’t receive his annual income tax return, they did one for him charging tax interest, and penalty on the early distribution. The penalties included Failure to File (FTF) the return and Failure to Pay (FTP) the taxes.

Mr. Hubbard took the case to tax court stating that he never received the form or any of the IRS notices, that he shouldn’t be forced to pay taxes on money he never received, and that he couldn’t file a return because he was incarcerated.

Constructive Receipt

Gross receipt from the standpoint of income tax law includes “all income from whatever source derived” including any income that was constructively received. On the issue of constructive receipt, the court found that “funds which are subject to a taxpayer’s unfettered command…are constructively received by him whether he sees fit to enjoy them or not.”

Further the court stated that “by forfeiting the funds, the taxpayer has realized the benefits of them and must recognize the funds as gross income to the same extent as if the taxpayer had physically received them”.

Non-Receipt Of Tax Information

As to the allegation that Mr. Hubbard was not required to pay the FTF and FTP Penalties due to his incarceration, the court basically said nay nay. Failure to receive tax documents has never been a reasonable cause for elimination of either of the penalties. Further, the court said that his incarceration was not a reasonable excuse for not paying his taxes.

Please realize that the IRS is primarily a collection agency. It takes our money so that Congress can spend it on whatever notion tickles their fancy.

Whether you get the income that causes the taxable event or not is irrelevant. And whether you get the notices or not because you’re dodging the prison gangs is also irrelevant.

Welcome to America. Now pay taxes.

Let me leave you with this.

We received some economic news last Friday which was disconcerting. Inflation increased again. Core Personal Consumption Expenditures (PCE) which excludes the volatile food and energy prices, rose a bit more than was expected to 2.8% from the year earlier period.

In further economic news, the college job market has officially hit the skids. Graduating seniors are having difficulties finding work.

This year’s unemployment rate for them is 12%, or four times the norm.

It’s obvious that the Fed’s strategy of raising interest rates and restricting monetary supply is cooling down the economy and inflation. But it’s also obvious, given this most recent blip, that it isn’t working quite as well as they’d like.

If you’re one of my longer-term readers, you know that I’ve been cautioning all about this for quite some time. This is just my way of reminding you that we aren’t out of the woods quite yet. Most economists are still split 50/50 on whether or not we’ll have a soft landing or a light recession.

And we need to be prepared for either outcome.

Now is not the time to be planning any major expansions or new products. Instead, horde your cash, to trim the fat, and be conservative in your management style.

No one wants you to get caught in a bad economy while trying to roll out new products or services. The worst thing that will happen is that you’ll need to wait a few more months before we know if the economy will cooperate with us.

If it doesn’t cooperate, the business you save may be your own.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson


Accounting Solutions Ltd.





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