California is so short of cash, they aren’t just looking under their sofa cushions for spare change. They’re looking under yours, too. Paul Neiffer reports that California is Out of Control!
In Swart Enterprises, Inc. v. Franchise Tax Board, the taxpayer was an Iowa corporation with a farming activities in Kansas and Nebraska. They also had various passive business investments including an .02% interest in a California LLC (Cypress) that acquired, held, leased and disposed of capital equipment in various states. This LLC had 435 members of which 384 members were out-of-state.
The Franchise Tax Board asserted that Swart had enough business activity through their .02% interest in the Cypress LLC to require the filing of a California LLC tax return. Normally LLC’s filed as a partnership do not owe any state tax, however, California charges $800 simply for the privilege of filing a return. In addition, based upon the gross revenue of the LLC an additional fee is owed. Since Swart was a corporation, that particular fee would not apply, but they would owe the $800 filing fee plus interest and penalties plus paying a person to prepare the tax return.
That’s one of the dangers of investing in a partnership. You buy the chance to pay state taxes in any state where the partnership does business. In most states it may not matter because it the tax may round down to zero, but even a whiff of California can cost you $800.
Russ Fox has more at California Goes After Flow-Throughs with Passive Investments in California.
Stephen J. Dunn, Fraudulent Tax Returns?:
The IRS most commonly learns of alleged fraud in a tax return from an insider—a disgruntled former employee, spouse, or romantic interest of the taxpayer. In one case, the taxpayer’s estranged daughter came to the taxpayer and asked him for a job. The taxpayer hired her, and eventually placed her in charge of a business. But the daughter mismanaged the business, and the taxpayer closed it. The prodigal daughter became enraged, and reported her father to the Internal Revenue Service.
Business tax fraud is hard to do without accomplices. Each “helper” is one more chance for the IRS, one more potential informer. Payroll fraud, where you pay employees “in cash,” with no taxes, may be the worst, as it gives every employee an opportunity to snitch.
Is the concept of “deadweight loss” a right-wing conspiracy? “I am sorry, but this is absurd” (Tyler Cowen).
“Deadweight loss” is economic loss from tax, as Megan McArdle explains here. Mr. Cowan says it exists, even if fellow economist Charles Manski doesn’t care for it:
Manski also ignores that a belief in deadweight loss is fully compatible with the view that government spending may bring economic benefits. In fact you often cannot understand the benefits of (some) government spending without first grasping the deadweight loss concept.
If you don’t think taxes have a cost, then there’s no helping you.
Missouri Tax Guy, DOMAs Death, There Are Questions. “It’s been nearly two months since the United States Supreme Court struck down the Defense of Marriage Act, but there are still many things we don’t know when it comes to how this affects the taxes of couples in same-gender marriages.”
Jack Townsend, Simon’s Last Hurrah / Fizzle? “So I am not sure what lessons it teaches except as a variation of the old saying, ‘Bulls make money, bears make money, pigs get slaughtered.’”
Phil Hodgen, Email and Encryption. An interesting discussion of the problem of preserving email confidentiality in a world of hackers and NSA snooping.
Russ Fox, IRS Scandal Update
TaxProf, The IRS Scandal, Day 101
Martin Sullivan, A Dark Cloud Over Silicon Valley (Tax Analysts Blog)
Nobody in Washington D.C. has a wish to make enemies with tech companies that are the crown jewels of the American economy. Nobody is deliberately targeting them. But there is a basic dynamic of corporate tax reform that will be hard even for the tech sector to overcome: those who are the biggest winners under the current system have the most to lose from tax reform.
Alan Cole, The Standard Deduction Undermines Itemized Deductions (Tax Policy Blog):
The standard deduction makes a lot of sense, though, if you believe itemized deductions are arbitrary and confusing. In that case, the standard deduction restores some fairness and reduces paperwork, bringing the tax code more in line with our Principles of Sound Tax Policy – particularly, neutrality and simplicity.
The standard deduction is an interesting half-step towards eliminating itemized deductions, suggesting that America is actually quite ambivalent about them.
There’s something to be said for eliminating itemizing. It adds a lot of complexity, especially with AMT and phaseouts. If a deduction is really needed, move it above the line and make it available to everyone.
Robert D. Flach, WHAT CONGRESS SHOULD DO, BUT PROBABLY WON’T. “I have recommended limiting the mortgage interest deduction to acquisition debt on a principal primary residence.”
Tax Justice Blog, Washington Post Owner Jeff Bezos Does Not Believe in Taxes:
As an organization that follows tax policy, we went looking for the track record on taxes and, as it turns out, Bezos and his company have consistently demonstrated a contempt for taxes and an aggressive interest in avoiding them.
Sounds suspiciously like almost every client ever.