Iowa income tax examiners don’t just deal with state issues. In recent years the Iowa Department of Revenue has been examining hobby loss issues by itself. This is a departure from past practice, where Iowa usually only examined state-specific issues, like residency and allocation of multistate income.
A new protest resolution released last week shows that while the Department may start an examination on hobby loss issues, it doesn’t have to stop there. The department examined a couple’s horse operation and concluded that it wasn’t operated for profit, disallowing the resulting “hobby losses.” That’s not a shocking result, as horse operations are often challenged on hobby loss grounds. But the department wasn’t done (my emphasis):
In regards to the day care business, the Department explained in previous correspondence that the taxpayers cannot take a deduction for the business use of the home, except for real estate taxes and mortgage insurance which are allowable on Schedule A. The taxpayers have already filed amended returns reducing the meal expense claimed on the original returns. The Department accepts the amended meal expenses. The Department also denies several other items because they are not ordinary and necessary business expenses, such as landscaping, auto repair, and picture frames. All items denied are on the enclosed schedule.
The final adjustment is to charitable contributions on Schedule A. The Department denies the “Haiti” contributions for all three years because there is no evidence the contributions were made to a qualified charitable organization. See IRC Sec. 170(c). Contributions made directly to an individual or to groups of individuals are not deductible. Also, the Department denies the contributions to Covenant House on the 2009 return. There is not enough information to confirm that Covenant House is a qualified organization.
If the Department comes for the hobby losses, they just might stay for the whole return.
Peter Reilly, $10,000,000 North Carolina Domicile Case Shows Importance Of Planning If you want to move to low-tax Florida before selling a business, you need to do it early and do it right.
Greg Mankiw, Marginal Tax Rates under Obamacare. He quotes a new paper: “Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform.”
What does that mean? Tyler Cowen quotes the same paper:
The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population.
The Wall Street Journal reports that Finland’s 2011 tax on sugary goods is driving ice cream trucks out of business, and that Mexico is considering implementing its own sugar and sweets tax under the auspices of curbing obesity. In 2014, Finland will add more products, like cookies and jam, to its list of taxed goods. These taxes are particularly notable because Mexico has the second highest per capita soda consumption in the world, while Finland has among the highest rates of ice cream consumption.
Career Advice Department, Social Media Section. In my recent interview, I answered the question “what advice would you offer to the new accountant concerning the role of social media in their profession.” If I were answering the question today, I would just say don’t do this.
Tags: TaxProf, Kay Bell, Russ Fox, greg mankiw, Robert D Flach, Iowa tax administration, TaxGrrrl, Paul Neiffer, Peter Reilly, Roberton Williams, hobby losses, Tyler Cowen, Finland, Lyman Stone, @Vodka_samm, Ronald Coase