Saturday, July 6, 2013

Not a Tax Loophole: California is Part of the United States

Los-Angeles-based Certified Public Accountant Anthony A. Tiongson discovered a sure-fire tax loophole for his Californian clients:

1. Californian residents earn foreign-source income, based on the fact that California is not part of the United States, and
2. Foreign earned income is not subject to US federal tax.*

While the above argument might have worked in certain parts of Texas, Mr. Tiongson was not able to convince the IRS that (the People's Republic of) California is actually a foreign country.  Accordingly, Mr. Tiongson was "disbarred" in 2013 from ever practicing before the IRS and he can no longer file federal tax returns [pdf].

Mr. Tiongson was popular enough to have filed returns for at least 52 California "foreign residents" from 1998 to 2002, but lately he has not received very good Yelp reviews.

The lesson for taxpayers is that they should only use legitimate tax loopholes as described on this blog, such as the ones for going on a business-related cruise and producing the renewable energy resource that is Indian coal.

*This part is also incorrect.  Foreign income of US citizens and residents are still generally subject to US tax, with some exceptions.

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