Tax Roundup, 9/21/2012: Area S corp owner knocks on Supreme Court door. And breaking! Businesses aggressively cut costs!

September 21st, 2012 by Joe Kristan

West Des Moines CPA asks Supreme Court to overturn employment tax assessment on S corporation income.  The taxpayer has filed a petition asking the U.S. Supreme Court to overturn the Eighth Circuit decision imposing employment tax on his share of S corporation income.  The taxpayer had around @200,000 of income from his accounting S corporation but only called $24,000 of it compensation, treating the remainder as K-1 income not subject to FICA and Medicare tax.  The courts raised his “salary” to about $90,000.

The petition says that the Eighth Circuit decision (Watson, 668 F.3d 1008 (8th Cir. 2012)) conflicts with a Seventh Circuit decision treating a C-Corporation CPA firm as paying disguised dividends through management companies.  While I know and admire the attorneys on the Watson petition, the Seventh Circuit case (Mulcahy, Puritsch, Salvador & Co) doesn’t really cover the same ground as Watson.

The Supreme Court only hears a small fraction of cases it is asked to hear, so the chances for a Supreme Court decision on this issue are poor.

Related: Eighth Circuit upholds ‘Watson’ decision requiring increased comp for CPA S corporation shareholder; When professional C corporations go bad

Link: Tax Analysts subscriber link to Watson petition.


Janet Novack, Senate Report Details HP & Microsoft Offshore Tax Ploys:

A new report from the Senate Permanent Subcommittee On Investigations asserts Microsoft  Corp. and Hewlett-Packard have used “aggressive” offshore ploys to save or defer billions in U.S. corporate tax.

For any expense other than tax, nobody would question the wisdom, let alone the patriotism, of “aggressive” cost-cutting.  Related: Transfer Pricing and Common Sense, Martin Sullivan,


West Des Moines Patch, Metro Developer Walters Pleads Guilty to One Count of Bank Fraud:

Metro area developer Randal L. Walters pleaded guilty Thursday to one count of bank fraud in connection with a loan to develop a Des Moines area condominium project, announced federal court officials in a news release.

During the plea proceeding in federal court, Walters, 55, of Polk County, admitted to diverting money borrowed from First Bank of West Des Moines for a Des Moines area condominium project know as the Meadow Cove project, the release said.

The story said prosecutors are recommending against prison time.


Jim Maule, Subsidies and Tax Breaks:

When a special interest or specific industry gets a tax break, it causes one or the other, or a combination, of two things to happen. First, if nothing else is adjusted, the reduction in tax revenues causes an increase in the federal deficit, which in turn adversely affects everyone. Second, if revenue is maintained, it means other taxpayers must pay more in taxes to make up for the reduction in taxes for the special interest or specific industry, and that clearly affects everyone.

It’s just as true on the state level.


Jaywalker hunting on the moors: US tax net closes on Americans living in Britain. (Financial Times via Tax Break)

Richard Morrison,Context and Background on the Nonpayers Debate (Tax Policy Blog)

TaxProf, Fleischer: Are Whistleblowers the New IRS Business Model?  Paul Caron links to a New York Times piece by Victor Fleisher on the role of snitches in tax administration.

Anthony Nitti, Is Now a Good Time to Convert Your S Corporation to An LLC?

Jason Dinesen, “Consumer Reports” Highlights Identity Theft

TaxGrrrl, Millions More Taxpayers Subject to Health Care Penalty Tax

Kay Bell, 6 million Americans expected to face Obamacare’s uninsured penalty, er, tax

Jack Townsend, Sentencing Enhancement for Defendant Perjury at Trial

Trish McIntire, e-Services and TIGTA



Have a great weekend!



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