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September 2021

First, the good news:  We successfully placed all of our client data on the Cloud.  This included client document copies with the relevant tax returns for additional security.  The processing involved three steps and we have accomplished handling over a million documents for the last four years of both current and non-returning clients.  As you know, all of our tax work has been conducted through Drake Software, which is the biggest on-line Tax Practitioner provider in the country. All of our completed tax returns are available through Drake but we had a garage full of copies including the input documents we had photocopied to process the returns. Drake has fantastic security for the millions of returns they process every year. We eliminated three filing cabinets from my garage in the process and provided about 50 bags of shredded and diced material, now disposed.

Then the bad news:  Some sophisticated people got through to our contacts by way of AOL and sent a stupid HELP message from me.  Fortunately, they did it on September 21st at 10:30 am in the morning and five minutes later we were online to block and halt the further usage.  If you received this silly message just delete it.  Many clients have called us in response. These data thefts are used to solicit other data from clients, so simply delete and ignore. Our entire contact section from our AOL account was missing afterward.  Our contact section generally does not include phone numbers, mailing or physical addresses, or SS numbers.  Just a name and e-mail address.  There simply is no connection to the tax business or Drake files in any way.  It was a real headache, and we changed all passwords and related data immediately afterwards.

WARNING!  These bad people are everywhere, copying letterheads, official computer sites, invoices & statements, everything.  Be aware. Best way is to look for spelling errors or especially the sender’s e-mail address. These are dangerous times as we get more integrated with computer usage and capabilities. Your turn may be next!

Of public interest:  Electric cars will be mandatory in just a few years.  The biggest problem is where to find enough electricity as the existing power plants are systematically being shut down.  Next will be the big car batteries.  I looked into solar panels and Tesla is the cheapest.  Problem is that they work best with a battery during blackouts and after the sun goes down.  Tesla recently repackaged their solar panel + battery deal.  Somehow the battery price went up 20% from six months before.  They must have found that cheap panels are good to find clients and the battery prices at $12,000 are hugely profitable.  Best to buy the panels and wait until someone else makes panels at a reasonable price [they don’t need to be as compact as a car battery].  That is Capitalism.

I have data in front of me which shows the ingredients of electric car batteries required to produce the 75KW of juice for a new car battery.  They will each require a total of 325 pounds of nickel, manganese, cobalt, and copper.  This does not include the lithium, just all the other metallic elements. There will also be huge quantities of rare earths to make the superalloy magnets for the electric motors driving the cars. Where will all of this metal come from?   Has anybody really thought it out in the crusade to eliminate nuclear and carbon-based electric sources?  Is there an end to the game?

Current tax legislation is too complex to quote yet as it is still being brewed in the Democratic House.  I am afraid it will be more like Obamacare when we see the final product.  Remember all the money it was supposed to save and that you could keep your family doctor with the changes?  Also, that the bill was too big and lengthy to discuss on one read before the required signature and that there would be no surprises? What they didn’t tell about was the huge co-pays that emerged from the policies.

            Well, the new bills are supposed to require no new taxes.  The 85,000 new IRS auditors they are hiring are supposed to bring in most of the money to cover the social welfare and union dominated Infrastructure Bill by auditing mostly small businesses. This is exactly a new business tax.  The bigger companion Reconciliation Bill leaks daily rumors which mention a new $1 a pack for cigarettes [because it is a sin and not good for you to smoke], higher capital gains taxes, higher surtaxes, higher death taxes, higher income taxes, additional new highway taxes based on distance traveled-not fuel consumption, higher estate taxes, investment taxes based on appreciation-not sales, dramatic Subchapter S corporate changes, etc...  These are to cover the social giveaways to buy the next vote. Accordingly, I will wait for the bills to pass the House and then we will learn the names and doses of the poisons. Maybe the 11% of the bill actually earmarked for infrastructure [including trains to nowhere] will do some good.

California EDD problems:  There is a pall of silence over the $30 Trillion of Unemployment insurance claims. paid to phony employee claimants but lots of action on the small business front.  Our little business with seasonal 2-3 part-time employees is now subject to a field audit by the regulars of the EDD audit staff.  I guess that they go for the easy marks first because nobody would miss $30,000,000,000 but maybe spending $2,000 to audit and supervise a small household tax preparation business is lucrative for them, especially if it resulted in additional taxes and penalties of only $1,000 three years ago when they first tried it.  Maybe they have also forgotten about the added expense of two appeals to settle.

About Audits:  We had an IRS audit of a Los Angeles County employee who was required to drive his car to various school and County facilities to repair their equipment.  The dedicated employee kept fine records of his trips and mileage.  All he needed to close the IRS audit was a letter from his bureaucratic supervisor to state that it was important for his job to drive to these additional locations to do his work.  He did not get the letter and is now subject to non-deductible expense of travel with additional penalties and interest.  I advised him to retire or get a real job.

 Another audit went to Tax Court: This was the case where the IRS ignored the 125 pages of documentation which was finely referenced and indexed with the cover letter and the IRS request for same.  We are waiting for a response which is slow compared to prior years where there was someone to answer the phone and mail. We are waiting for a trial date and hoping it isn’t another trial by mail like the last one which was a complete faceless fiasco.

I pity the results of 85,000 new auditors in a non-responsive environment as important as the income portal of the U.S. Government.  If this continues, I have the opinion that we might become a third world country sooner or later.

I have scads of things to write about but will close to mention that we have only two weeks left of the extension deadline.  There simply is no further extension possible and a tax return filed on October 16th or later is subject to 25% penalties of the amount owed, interest expense from May 15th, and a non-filing penalty.  From both the Feds and Franchise Tax Board. And they backdate the interest on the penalties to the first filing date without the extension.

            Finally, I invite you to check my author website at

            Facebook link

            Instagram link

            And for our tax website:

Best wishes to all and hope to see you again in a few months.

God Bless America

Phil Chute EA & Staff.

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