Wow, Tough One on Jeopardy!

Contestants on Jeopardy! must be prepared to respond to all kinds of clues, occasionally even on the subject of taxes. On May 25 they faced this highly technical clue in the category Numerical Words and Phrases:

It's the basic form most taxpayers use to report income & file their return

One contestant hit his buzzer and blurted, “What is W-2?” That wrong answer gave another contestant the chance to blunder, “What is W-4?” The third contestant, whose occupation was listed as accounting director —yes, accounting director — stood in dazed confusion until time ran out and the answer, Form 1040, was revealed. Let’s hope they remember that answer when the time comes to report their Jeopardy! earnings to the IRS next year.

Jeopardy! fans may recall that Ken Jennings’ record-breaking 2004 run on the show ended on a tax-related question. In the category Business & Industry, the clue was:

Most of this firm's 70,000 seasonal white-collar employees work only 4 months a year

Jennings’ streak would have continued if he identified the firm as H&R Block, many of whose employees work only during tax season. Afterward Jennings said he could have thought about that one all day and not come up with the right answer. (He guessed FedEx, which presumably doesn’t have a large number of seasonal white collar employees.)

Scroll forward to 2021. Jennings was acting as host of Jeopardy!, and one contestant was stumped by a Final Jeopardy question about travel. He couldn’t even come up with a reasonable guess, so he decided to have some fun. His question: “What is H&R Block?” The good-natured host replied with a smile, “I know from experience, H&R Block is sometimes the right answer, but not today I’m afraid.”

Some TurboTax Users Receiving Checks

Many of us do so little through the mail these days that there’s rarely anything that merits our attention. If you used TurboTax to prepare your tax return for 2016, 2017 or 2018, you may want to keep an eye out for a check.

During those years, the maker of TurboTax participated in the IRS Free File program. According to a complaint filed by attorneys general in a number of states, the company took steps to make it difficult for its customers to learn they could use its services without charge. Without admitting wrongdoing, the company agreed to send checks to eligible customers. We recently learned that these checks are being sent throughout the month of May. There is no need to apply. If you’re eligible, a check will be sent to the address on your tax return.

details: Settlement website

A Gem from Warren Buffett

At Berkshire Hathaway’s annual meeting, an audience member asked how investors will find opportunities in a landscape changed by emerging technologies. “New things coming along don’t take away the opportunities,” Warren Buffett replied. “What gives you opportunities is other people doing dumb things. I would say that in the 58 years we’ve been running Berkshire, there’s been a great increase in the number of people doing dumb things.”

Crypto Still Not Foreign

U.S. tax law has special provisions for transactions in foreign currencies. Nine years ago, when crypto was in its infancy, the IRS stated that foreign currency rules would not apply to cryptocurrencies. Instead, crypto would simply be treated as property.

In making that ruling, the IRS observed that virtual currency did not have the status of legal tender in any jurisdiction. Since then, however, two countries, El Salvador and Central African Republic, have adopted bitcoin as legal tender.

Some taxpayers may have wished to exploit this development by applying the foreign currency rules to bitcoin transactions. The IRS has now published Notice 2023-34, clarifying that although bitcoin has been adopted as legal tender in some countries, virtual currencies will continue to be treated as property, not currency, for U.S. federal tax purposes. The special rules for foreign currency transactions will not apply.

From Fraud to Failure

A recent tax case involved a psychiatrist who had been charged with healthcare fraud. His plea deal required him to make some $2 million in reimbursements to Medicare and other insurers. Seeking to ease the pain, he filed for an income tax refund of over $800,000. He argued that he should be allowed to recover the tax he paid on the $2 million he didn’t get to keep.

He was hoping to recover under a section of the Internal Revenue Code dealing with a concept called claim of right. This rule may apply in a situation where you paid tax on an item of income in an earlier year, believing you had a right to that income, but later had to repay the money. The rule can prevent unfairness in a situation where you pay tax on income you don’t get to keep.

The dishonest doctor had a problem, though. One of the requirements of this rule is that you had an unrestricted right to the income in the year you paid the tax. The court observed that this taxpayer never had a right to this money at all, as he obtained it through fraud. Refund denied.

The poor guy paid tax on the money, didn’t get to keep it, and couldn’t recover the tax. We could almost feel sorry for him if it weren’t for that detail about how he got into this mess.