Tax Roundup, 1/23/2014: Ideas edition. And: why are we taxing pot?

January 23rd, 2014 by Joe Kristan

20130117-1Bad idea.  Refundable tax credits are the favorite kind of credit for tax fraudsters because they generate tax refunds even when there is no tax paid or withheld.  The earned income tax credit is refundable, and that feature has something to do with 20-25% of the credits issued annually being improper.

An intrepid group of Iowa legislators isn’t letting that stop them.  They have introduced HF 2027 to create a new refundable tax credit in Iowa — a piggyback credit equal to 25% of the als0-refundable (and fraud-ridden) American Opportunity Tax Credit.

The AOTC is based on a percentage of tuition paid for the first four years of college.  It phases out at higher income levels.

Politicians can’t resist using the tax law to pass out political favors.  But even the best-intended ones make the tax law more complicated and, by creating a class with something to lose, they make it that much harder to reform.  When there already countless tuition aid programs, not to mention state-funded colleges and universities, it’s unwise to just throw in one more program willy-nilly.

 

Good idea.  Republican Party to vote for repeal of U.S. anti-tax dodging law (Patrick Temple-West).  

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

I hate the headline on the article.  I would have written it “Republican Party to vote to decriminalize personal finance for Americans abroad.”  FATCA makes outrageous demands of non-U.S. institutions that have made Americans unwelcome at many foreign banks.

Related: Republicans Target FATCA As Another Windmill to Attack  (Jack Townsend)

 

haroldWorse idea: film tax credits.

Accounting Web, Film Credits: Your Tax Dollars at Work Making Movies:

Actor/director Ben Affleck told the Los Angeles Times he’s filming part of Live by Night in Georgia, a state that is popular for its film credit availability.

“It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin,” he said.

Understood – but there’s a disconnect here. Affleck and his fellow actor/director, Matt Damon, both advocate and participate in using film credits to reduce taxes so they can make their movies. But both are also on record saying, because they are wealthy, their taxes should be raised.

What’s wrong with this “picture?”

Why is the film business, of all businesses with thin margins, entitled to special breaks?  Because politicians are suckers for celebrities.

Joseph Henchman, The Economist Reviews State Film Tax Credit Programs (Tax Policy Blog):

The report notes that it’s getting tougher to compete with Louisiana’s 30 percent refundable credit or New York’s $420 million annual budget to subsidize film and TV, and that independent analyses find these do little on net for job creation or economic growth.

But you can’t forget the intangibles!  As a Des Moines columnist breathlessly reported at the high point of the Iowa film credit looting spree:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Fortunately, Iowa is sadder but wiser now.

 

20130916-1Russ Fox, More Work for Tax Professionals: Submission IDs for Efiled Returns:

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

And anybody who’s been around a tax prep office during tax season knows there aren’t all that many extra minutes lying around.

 

TaxGrrrl, 11 Questions To Ask When Hiring A Tax Preparer .  A good list.

Leslie Book, The Ban on Claiming the EITC: A Problematic Penalty (Procedurally Taxing).  “We have not addressed the special EITC ban that arises when a taxpayer inappropriately claims the EITC.   The following gives some context, with a focus on the two-year ban for reckless or intentional (but not fraudulent) errors.”

William Perez, Which Tax Form to File?

 

Peter Reilly, Is Tax Court Rebelling Against Supreme Court?  Short answer: no.

Tyler Cowen, Income inequality is not as extreme as many citizens think.

TaxProf, The IRS Scandal, Day 259

Cara Griffith, When State Taxes and Interstate Compacts Collide (Tax Analysts Blog).  “But states can’t have their cake and eat it too; a compact cannot be both binding and offer states significant choices on whether to follow its terms.”

Tax Justice Blog calls the IRS budget cut The Dumbest Spending Cut in the New Budget Deal.  It’s bad policy, but it’s asking a lot of Congressional Republicans to fund an organ of their opposition.

 

20130607-2Because they can.  Why Exactly Are We Taxing Pot? (David Brunori, Tax Analysts Blog):

But I must ask: What is the rationale for imposing special taxes on marijuana? Excise taxes are appropriate to pay for externalities – the costs to society of using the product that are not borne by the market. But it is unclear what, if any, externalities are created by smoking pot.

Economic development in the Doritos aisle?

 

Kay Bell, IRS audit results in $862,000 lawsuit award for taxpayer.  Because he tripped over a phone cord.

 

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