Apology payments? The Taxpayer Advocate’s office issued a special report yesterday blasting the IRS treatment of 501(c)(4) exemption applications. The report also said the IRS apparently violated the law, and its own internal procedures, by having unpublished secret internal guidance on handling the Tea Party cases.The report raises the idea of allowing the issuance of $1,000 “apology payments” for taxpayers who are mistreated by the IRS.
Not a bad start, but far better would be a “sauce for the gander” approach, where the IRS could be subject to penalties for late processing, delays and unjustified positions on the same basis as taxpayers. If a little charity can be hit with a $100-per-day penalty for not filing a Form 990, the IRS could pay $100 per day for sitting on a 501(c)(4) exemption. If the IRS takes an unsupported position on an examination, it should pay to the taxpayer 20% of the tax it would have collected through its bogus position.
The TaxProf has more.
Joseph Thorndike, So the IRS Hounded Liberals Too – But We’ve Still Got a Problem (Tax Analysts Blog) I still await tales left-side organization applications left to languish for years or subjected to the grilling applied to the Tea Party groups.
Lots of reaction to yesterday’s Supreme Court decision striking down the Defense of Marriage Act.
Jason Dinesen owns this issue. He has an extensive practice in Iowa same-sex married couples, and he posted up a storm yesterday:
It means couples in same-sex marriages no longer have to jump through the following hoops to meet their tax obligations:
Prepare and file separate federal tax returns as two single people and applying tax law as it applies to single people.
Prepare a “mock” federal return employing tax law as it applies to married people, to see what their tax situation would have looked like if the federal government had recognized their marriage.
Use that “mock” return to prepare their state return as a married couple.
IRS Revenue Ruling 58-66 says marital status is determined at the state level and does not change even if you move to a state that doesn’t recognize your marriage… But would this Revenue Ruling from 1958 regarding common-law marriage apply to same-sex couples from states like Missouri or Nebraska who drive to Iowa to get a marriage certificate but who actually live in Missouri or Nebraska, or some other non-recognition state?
The IRS will have to come out with guidance on this and other issues, including:
– A standard procedure for amended returns from same-sex couples who want to obtain joint filing benefits.
– Guidance on the mandatory nature of joint returns for same-sex married couples, and whether it is retroactive. If same-sex married couples get to choose for open years whether to file jointly or single, is it also an equal-protection violation to deny that choice to double-sex couples? I doubt it, but that would be fun.
Jason also offers a DOMA Tax News Roundup today.
The Supreme Court’s ruling is clearly a victory for equality. And from a tax perspective, the decision stands to save meaningful dollars for same-sex couples who will now be defined as married for purposes of the federal estate and gift laws; because the marital deduction will now apply to these couples, spouses will be permitted to transfer assets to each other tax-free during their lifetime or at death.
Len Burman, What Will Supreme Court Decision on DOMA Mean for the IRS? (TaxVox)
Let’s assume that half of the newly recognized couples receive bonuses, which means that roughly 50,000 couples might benefit from filing amended income tax returns for 2012, 2011, and/or 2010. If all 50,000 filed amended returns for an average of 1.5 years out of the three this would yield 75,000 amended returns.
Roberton Williams, DOMA’s Demise and Federal Taxes (TaxVox)
The US Supreme Court ruled today that the federal Defense of Marriage Act (DOMA) was unconstitutional. That makes it appear that same-sex couples should be able to file joint tax returns. There’s only one problem: The IRS computers likely would reject such a return if it were filed today.
Nick Kasprak, Joint Filing in the Tax Code (Tax Policy Blog):
Despite the possibility of a penalty, joint tax returns generally provide tax relief, and they’re probably one of the biggest benefits that gay couples can now take advantage of (along with the estate tax exemption, which was at the center of the Supreme Court case).
Joseph Henchman, Supreme Court Decides Same-Sex Marriage Estate Tax Case (Tax Policy Blog)
Robert D. Flach, THE DEATH OF DOMA
Tax Trials, DOMA Doomed by Estate Tax Refund Claim
In other news:
Jack Townsend, New Taxpayer Advocate Discussion of Problems with IRS OVDI/P Program. Still shooting jaywalkers.
William McBride, Reducing Tax Avoidance by Reducing Economic Activity: New Zealand’s Failed Experiment with Ending Deferral (Tax Policy Blog)
Extortion Watch. Tennessee Man Indicted for Romney Tax Return Fraud and Extortion Scheme (Department of Justice Press Release)
Legal extortion watch. Police investigate damage to red light camera. (Des Moines Register) It’s a tragedy that somebody might have gotten away with not quite coming to a complete stop at an empty intersection.
Tags: Kay Bell, Russ Fox, Robert D Flach, Linda Beale, same-sex marriage, Taxpayer Advocate, TaxGrrrl, Paul Neiffer, Joseph Henchman, Jack Townsend, revenue cameras, William McBride, Jason Dinesen, Anthony Nitti, Tax Trials, Nick Kasprak, IRS disclosure scandal, Len Berman, Rooberton Williams