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May 2023



Some good news from the IRS: A client reported that the IRS responded to their distress phone call, and finally got an appointment with a field Revenue Agent in San Diego. Because the auditor was professional and experienced, they got a detailed response from him on how to manage their problems. This indicates that the IRS has some particularly good people. It also indicates that they have no active office auditors available.


The sad news from the IRS: The same client was expecting a large refund check. A year later, they received an IRS notice stating they owed thousands instead. Their complicated returns required paper filing instead of e-filing. The tax return was processed manually, but somehow it suddenly acquired a business schedule with a big profit. The above-mentioned IRS agent advised the client to file an amended 1040X return with the original information and an explanation about the IRS error. We e-filed the forms, which contained the information that was originally rejected a year before. This issue has become common because of poor processing and lack of checking computer input by IRS.


Pension Plan woes: State and municipal pensions have been shifting their investments away from fossil fuels to climate control objectives in recent years. This includes not only divesting energy stocks and bonds but also banning investment managers who do not agree. New York City employees, Teacher, and Education pensions amount to $150 Billion. They all filed suit against the City because the portfolios were losing money big time [$40 Billion] while the energy sector rose 58% in value last year. The essence of the suit is that the fund managers have a fiduciary responsibility to earn money for the employee’s benefit, not to lose it for climate change goals. This is not the only big City to experience these problems.


New York City, despite an annual revenue deficit, has created the Office of Asylum Seeker Operations to allow undocumented migrants community college gratis while their asylum claims are being adjudicated. Being in a Sanctuary City certainly comes with great benefits. This is one way to attract new residents to replace the thousands of residents who have fled the city for other states in the recent past. The request of the Mayor Eric Adams to the Mayor of El Paso to send their migrants to NYC at the Authority Bus Terminal in Manhattan has helped.


Summer air conditioning solutions: An interesting WSJ article appeared last month about window air conditioners. Older houses and apartments lack central air conditioners. If you own an old house, even in southern California where the sun shines all the year, except in the winter, there was always a basement with a huge octopus vented furnace to heat the place during the winter. It traditionally occupied half of the basement and would burn coal or wood until the event of fuel oil and oil tanks replaced the coal bin.


The summer solution was electric window air conditioners which blotted out half of the window to provide noisy expensive air blowing into the room for relief. The article explored recent modern alternatives for more efficient cooling of individual rooms and spaces. The window is still important but the new window conditioners have a big slot down the top and middle of the unit to keep the noise insulated by the window itself, outside the room. The units are engineered more efficiently using a variable-speed inverter compressor to use much less electricity instead of the old ugly model. The only problem with is availability because the manufacturers have had trouble keeping up with the demand.


Tax returns and record retention: Businesses which have depreciable equipment should keep the purchase documents for the term of the asset life. That would be 27 ½ years for real estate escrow closing statement, and up to ten years returns and purchase statements or contracts for most other equipment. If Code Section 179 depreciation or accelerated depreciation is used, the equipment should still be continued on the books for the original term and the equipment sold or disposed. The accumulated values of depreciation are essential for all sales. For corporate businesses, the equipment should be continued on the books as assets until the useful life is expired, even if fully depreciated years before.


Capital losses are limited to offsetting capital gains every year and can only offset up to $3,000 of other taxable income each year. Accordingly, the tax returns and source documentation of large capital losses should be kept available beyond the normal statute of audit limitations.


The normal statute of limitations for audits is three years for most tax returns and back-up documents. For fraud there are no limits although the IRS computers do not search for data after ten years. Refunds are not made available after four years’ filing periods.


When in doubt call us or hang on to the returns or documents just in case.


Man-made Lab-grown diamonds are now fashionable, according to a big article in the WSJ. The one-carat and over diamonds at one time sold for the same as the same price as the ones dug out of the ground. Now they retail for one quarter of naturally mined diamonds. Smaller stones used to be grown only for industrial uses but now, because they are perfect copies, they are more accepted for weddings and bling.


It takes a long time to grow one in a laboratory, about 600 hours after a diamond seed is placed in a sealed chamber to grow one carat under intensely high pressure. Methane gas provides the carbon atoms to bond in a lattice to the seed. That is a month each. Some day they will grow robots instead of manufacturing them.


Accountant profession is overworked: The WSJ reported an accountant shortage because young mathematically inclined students are rejecting the boring but demanding career work of 70-80- hour weeks. My son, Brian, was right when he rejected my option for many years ago. He added that the hourly pay was lousy but only made up for longer working days.


Mark Cuban from the Shark Tank is in the WSJ news: His firm is now offering the biosimilar version of Humira for 10% of the original drug price. Arthritis therapy is now available without the intermediary in the pricing structure now that the original maker has generic drug competition. This is truly a welcome concept for the people who need it the most…eliminating the medical wholesalers.


Homeowner and auto insurance: Most insurers in California are facing increasing policy costs because of the cost of doing business, especially with all the big forest fires these past few years. Major insurers State farm and Allstate quit selling policies to new clients. State regulators have struck down rate increases which have resulted in losses on homeowner policies. WSJ article. As an insurance licensee I was notified by the Calif department of insurance to advise clients to trim the wild bushes near their houses to alleviate the next forest fire.


Other news from California, the gold-colored State, shows the current annual deficit running more than $32 billion.


The Bakersfield to Merced Train to Nowhere has now a proposal for an energy source of 525 acres of solar panels to power the thing. It will never be built to require these impossible energy needs.


Finally, for Washington State, by Washington, DC: Comes a proposal that the lower four dams on the Columbia River should be torn down to protect the spawning salmon and eliminate electricity produced by the dams. Because the Columbia River system is the top wheat export gateway in the nation carrying 80 million bushels annually to the ocean, all this cargo will be forced on the roads and rails. Robert Jackson from Stanford University argued that Americans should be content to live on a quarter of the energy they do now. Living on less would make us healthier and happier, while contributing to a more equitable world. We will soon find out.


For our extension clients: Please move your filing appointments from October 15 to a month or two earlier to help in the slow times and for us to take a break, too.


Be sure to let us know if you need advice or receive federal or state correspondence on your tax matters. We will respond as soon as we get them. As noted above, the IRS is creating their own problems with paper-filed returns.


On another note, we apologize for the inconvenience of calling our office while we transition to a new phone system called “Ring Central” and upgrading our internet service.


Best wishes,


Phillip B Chute, EA

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