Tomorrow is the 27th Anniversary of the Internal Revenue Code of 1986. I assume many of you will leave work early today to prepare for the festivities.
Things may not be going well for Obamacare when the Des Moines Register finds itself coping with the concept of unintended consequences, in Few small businesses sign up for tax credits:
The Affordable Care Act offers a tax credit to entice more small businesses to offer health insurance. But few small-business owners have taken advantage of it so far. And the law could have the unintended effect of prompting small businesses to drop coverage, which would make their employees eligible for individual subsidies on the new health insurance exchanges, insurance experts and business owners told The Des Moines Register.
The article gives a surprisingly realistic view of how Obamacare looks to employers, and why the much-touted small employer tax credit doesn’t work for many employers:
Jesse Patton, a West Des Moines insurance broker and president-elect of the Iowa Association of Health Underwriters, said the tax credit’s confusing rules narrow its appeal.
The credit is available for employers that have fewer than 25 employees making an average of less than $50,000.
“But you start to get a reduction in that credit if you’re over 10 employees and over $25,000 income,” he said.
Also, business owners can’t take the credit for any family members, and many small firms include relatives. Patton’s eight employees include himself, his wife, his son and his daughter-in-law.
“That’s typical for a small business,” he said.
And jumping through the hoops isn’t free:
“Unfortunately, when everybody gets through all of that formula, which is complicated, and pay their accountant $600 to do it, they’d be better off to just take the normal tax deduction versus the credit,” Patton said.
When even the Des Moines Register is starting to get the point about the unintended consequences of Obamacare, it’s in trouble.
Megan McArdle has an excellent summary of the current state of the Affordable Care Act in Four Things We Think We Know About Obamacare. It’s worth reading the whole thing, but this tax nugget is important:
The penalty for being uninsured next year is $95. Again, this is partly true. In fact, the penalty for being uninsured next year is $95 or 1 percent of your income, whichever is higher. So if you make $75,000 a year and you decide to go without insurance, the penalty will be $750. There are a number of things you can do to avoid having to pay it, from deliberately getting your utilities shut off to under-withholding taxes from your paycheck so that they don’t have a refund from which to take out the penalty. But that number is what will go on the books at the Internal Revenue Service, not the $95 you’ve probably heard.
If it remains somewhere between difficult and impossible to buy through the exchanges, this poses an obvious problem.
Joseph Henchman, Illinois Supreme Court Strikes Down “Amazon Tax” (Tax Policy Blog):
Most of the legal challenges to these laws have focused on whether the state power exceeds constitutional limits under the Commerce Clause, but the Illinois Supreme Court focused on this disparity between Internet advertisers and traditional advertisers. Ultimately, the court concluded that because the law requires Internet-based performance marketers to collect tax, but does not require that of traditional performance marketers, it is a discriminatory tax on Internet-based commerce in violation of the federal Internet Tax Freedom Act…
Kay Bell, IRS is back and asks for patience as it reopens its doors. Hey, IRS, do unto others…
Jana Luttenegger, IRS Back to Work, What to Expect (Davis Brown Tax Law Blog):
After 16 days of not opening mail, not processing returns, and not answering phone calls, the IRS is expecting it will take some time to get back to “normal” operations. In fact, the IRS issued a statement urging taxpayers with non-urgent matters to wait to call the IRS. I can only imagine what the call traffic will be like after a 16-day shutdown.
Not to mention whether the answers you get when you call will be any more accurate.
Howard Gleckman, One Modest Path to a No-Drama Budget Deal (TaxVox)
Jack Townsend, Swiss Bank Frey to Close
Brian Mahany, FATCA, FBAR and Opt Outs
Leslie Book, Larry Gibbs on Loving v IRS. Shockingly, a former IRS commissioner thinks IRS commissioners should have all the power they want.
One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”
They just want to be able to do it by themselves without any of that messy due process stuff.
Peter Reilly, Was JD Salinger Facing A Major Estate Tax Problem ?
TaxGrrrl, How Twitter Hopes To Reduce Its Tax Bill (In 140 Characters Or Less)
The cobbler’s children always go barefoot. Attorney Who Claimed Tax Expertise Sentenced to 20 Months in Jail for Understating His Income (TaxProf)
The Critical Question: Would You Prepare Your Home For A Disaster If It Were Tax Deductible? (Tony Nitti)
The sacred side of earned income tax credit fraud. A Washington tax preparer found an unusual way to get in touch with the spirit world, reports seattlepi.com. Cleo Reed is scheduled to be sentenced today for preparing fraudulent returns claiming imaginary earned income credits:
Writing the court, Assistant U.S. Attorney Arlen Storm noted Reed had many of his clients claim income for “household help” while claiming to be self-employed. Reed did so for two undercover IRS agents and three fake clients.
During their encounter, Reed explained he pays his recruiters $500 for each young woman with a new child they bring to him, Storm told the court. Agents identified three recruiters who’d brought Reed dozens of clients.
Investigators later determined Reed filed at least 1,305 fraudulent returns in three years, and that the IRS paid out $4.3 million on those claims, Storm continued.
Refundable tax credits are a magnet for fraud, but they are also a path to holiness, it seems:
Writing the court, Reed has denied paying others to recruit clients and claimed he operated in “an ethical manner.” He went on to claim he was only helping his clients “achieve the American dream.”
“I had a spiritual calling to give aid, support, and guidance to the underemployed, disabled, and veterans of this great land,” Reed said in his letter to the court.
Somehow I think this is one religious belief system that the Bureau of Prisons won’t feel compelled to accommodate.
Tags: tax crime, TaxProf, megan mcardle, Kay Bell, Janet Novack, TaxGrrrl, Obamacare, Joseph Henchman, Howard Gleckman, Jack Townsend, Peter Reilly, refundable credits, Anthony Nitti, EITC, Jana Luttenegger, ACA, The Critical Question, Brian Mahany, Leslie Book