The Internal Revenue Code of 1986 celebrates its 27th birthday today.
The authors of the Tax Reform Act of 1986 felt so good about their work amending the Internal Revenue Code of 1954 that they gave it a new name. And it had some wonderful features compared to what we have now:
– Top marginal rate of 28%, with no stupid phase-outs of itemized deductions or exemptions.
– No capital gain-ordinary income rate differential – tolerable with low marginal rates, and a great simplifier of tax planning.
– It eliminated a whole bunch of complexity, including investment tax credits, and it simplified the life of preparers everywhere by making miscellaneous itemized deductions subject to a 2% of AGI floor, saving us the pain of telling clients they can’t deduct the Swimsuit Issue as an investment expense.
Sure, it had more complexity than I’d care for. The complicated passive loss rules came in then, on top of existing complicated at-risk rules. Phase-outs of the passive loss rules imposed hidden marginal tax brackets that helped inspire many awful imitations, like the phase-outs reenacted this year of itemized deductions and personal exemptions. The 1986 Act brought us inventory capitalization rules, and it left in place the alternative minimum tax. But at the time, it looked like a good start at much better tax policy. Now it looks like a high-water mark.
The skeptical accounting profession rarely allows worker training, brand-building, software, and business restructuring to be capitalized, but in so doing it is unwittingly keeping the most important sources of value out of view of managers and stockholders.
Actually, smart managers and investors know about these things, but financial statements aren’t very good at measuring them.
Tax Court leaps back to work, releasing seven new cases on its first day back after the shutdown. They include a Judge Holmes case illustrating how good news on the estate tax return can mean bad news on a later income tax return; that case will get its own post this week.
TaxGrrrl, Losing Your Identity In Five Easy Steps. Step One: Go To The Doctor. “And it can all start out with something as simple as handing out your Social Security number at the doctor’s office”
Jason Dinesen, Incorporate Your Life? Not So Fast “…simply having a business entity DOES NOT make everything in your life tax deductible.”
William Perez, Payment Plan Options. “The IRS will automatically grant a payment plan if your balance owed is under $50,000 and the monthly payments will fully pay the outstanding balance in 72 months or less.”
TaxProf, The IRS Scandal, Day 166
Jack Townsend, Ex Top UBS Banker Arrested; Likely to be Extradited
Not only is it the birthday of The Code, it’s Buzz Day at Robert D. Flach’s place!
The Critical Question (Really): Is Obamacare in a Death Spiral? (Megan McArdle): “Another week has passed, which apparently means that it’s time for another terrifying article from Sharon LaFraniere, Ian Austen and Robert Pear on the federal health-care exchanges.”
Voss said Monday that he tried more than 100 times before finally being able to sign onto healthcare.gov, type in his personal information, compare insurance plans, and purchase a policy.
I wonder if Amazon.com ever tried that?
Speaking of train wrecks, McCoy gives up on train funds (Des Moines Register). An Iowa legislator gives up on spending $310 million to build a money-losing, slower and more expensive competitor to the Megabus. Now he can concentrate on getting that downtown zeppelin port that is so critical to the economic future of Des Moines.
The Cougars of Madison County. No, Francesca Johnson isn’t back on the prowl.
Hey, I said I’m sorry! That you want to put me in jail. A New Mexico man convicted of tax crimes and of collecting fraudulent farm payments maybe should have left well enough alone, if you can think a five-year prison sentence is well-enough. But Billy Melot appealed, with potentially dire consequences. DailyJournal.net reports:
A southern New Mexico farmer and businessman could face more time in prison because a federal appeals court on Monday tossed out his five-year sentence for failing to pay more than $25 million in federal taxes and fraudulently collecting farm subsidies.
However, the court said a federal district court judge erred in calculating Melot’s sentence by concluding that he had accepted responsibility for his crimes. Judges have the discretion of imposing a less severe sentence when they make that determination.
Under federal sentencing guidelines, the court said, Melot had potentially faced more than 20 years in prison.
The appeals court opinion noted that if Mr. Melot accepted responsibility, he had a funny way of showing it:
Since his conviction, Melot has tenaciously opposed the Government’s efforts to collect the restitution he was ordered to pay by the district court, attempting to thwart the collection of more than $18 million in outstanding income tax assessments and more than $6.5 million in outstanding excise tax assessments. In 2012, a federal magistrate judge issued a certification of criminal contempt against him in the ancillary collection proceedings, finding he “actively and intentionally participated in a scheme to fraudulently create a third party interest in his properties with the intention of defrauding the Court, sabotaging the orderly administration of justice and delaying the United States’ lawful efforts to recover the judgment as ordered by the Court.”
Mr. Melot is 61 years old. If his sentence is stretched to 20 years, he won’t have much time to enjoy any money he keeps away from the feds.
Tags: tax policy, tax reform, TaxProf, megan mcardle, tax court, Kay Bell, William Perez, TaxGrrrl, Martin Sullivan, Judge Holmes, Tax Reform Act of 1986, Obamacare, Crazy Train, Jack Townsend, Jason Dinesen, ACA