The big news in the tax world today is the Credit Suisse guilty plea. From the Wall Street Journal:
Credit Suisse Group became the first financial institution in more than a decade to plead guilty to a crime Monday when the Swiss bank admitted it conspired to aid tax evasion and agreed to pay $2.6 billion to settle a long-running probe by the U.S. Justice Department. … The criminal charge filed Monday in federal court outlined a decades-long, concerted attempt by Credit Suisse to “knowingly and willfully” help thousands of U.S. clients open accounts and conceal their “assets and income from the IRS.”
This has to make some folks nervous:
While Credit Suisse isn’t turning over names of account holders as part of the agreement, they are handing over information that Deputy Attorney General James Cole said would lead to specific account holders.
Swiss bank secrecy is dead, and bank secrecy anywhere is pining for the fjords. Proceed accordingly.
The TaxProf rounds up coverage.
I hate it when I have to disagree with somebody I respect, but I have to disagree with this from A. Barton Hinkle, writing about wind energy credits:
A tax credit is just that: a credit against the amount a taxpayer owes. As the IRS explains, a tax credit “reduces the amount of tax for which you are liable.” That is vastly different from a direct grant, in which the government takes money from Jones and gives it to Smith. In the case of a tax credit, none of Jones’ money goes into Smith’s pocket. Rather, Smith gets to keep more of his own money. Smith’s tax credit doesn’t cost Jones a cent.
Let’s assume that Jones and Smith are competitors. Because of the tax credit, Smith can charge less than he otherwise would and still makes more than Jones. Jones finds his margins are squeezed. This tax credit absolutely costs Jones money. A big enough credit to Smith can put Jones out of business. And in a free market, there’s a Jones for every Smith.
Yes, some tax credits are more egregious than others. Refundable credits, like the Iowa research credit, and transferable credits, like the defunct Iowa film credit, are the worst. They are little more than government scrip generated by filing tax returns.
Non-refundable credits are slightly less bad, because they are only available to people who actually pay taxes. Still, they are economically equivalent to special-purpose vouchers issued by governments that can be applied to pay taxes — limited purpose subsidies. If the government issued vouchers that could only be used to, say, buy housing or cell phones, nobody would dispute they are subsidies.
Special purpose deductions are less distortive still. But all special tax favors have a common flaw — they all involve the government allocating investment capital. The 20th Century proved that to be a poor idea. And running the subsidies through a tax return doesn’t make them any less subsidies; they only become easier to hide.
When a sole proprietorship accounts for its net income, it does so by taking gross income minus expenses. Those expenses DO NOT include draws. So, the proprietor is taxed on the net income of the business and gets no deduction for the draws.
You may think that’s obvious, but I’ve had to explain this to clients.
Russ Fox, One Good Crime Deserves Another. “Oft evil will shall evil mar.”
Peter Reilly, TIGTA Alimony Report May Cause Crisis Of Conscience Among Tax Professionals . “I have to tell Terry that the IRS will notice the discrepancy, but the odds are 25 to 1 that they won’t do anything about it.”
Clearly the AICPA is afraid, and rightfully so, that a voluntary RTRP certification would take 1040 business away from its members – because the designation would identify individuals who have proven competence specifically in 1040 preparation. Currently the taxpayer public erroneously thinks that the initials CPA are an indication of a person’s competence in 1040 preparation, which is simply not true.
I can’t speak for the AICPA, but I think they are right to oppose it. In addition to destroying whatever is left of the Enrolled Agent brand, I think the “voluntary” program will be voluntary in the same way that donations to United Way were voluntary at a prior employer. “It’s voluntary, and we always have 100% participation.” And considering how bad the IRS is at what it is supposed to be doing, it really doesn’t need to take on new tasks.
Keith Fogg, Private Debt Collection – An Idea Whose Time Will Never Come (Procedurally Taxing). “My concerns about the proposal fall into four broad categories mentioned above: training, accountability, system impact and proper incentives.”
I would permit private collection in limited circumstances — for undisputed debts that the IRS isn’t bothering to collect. With proper controls, I think it could work. There is nothing magical about having official government employees do it. But the Treasury Employees Union will make sure it never happens.
Jeremy Scott, The Medical Device Excise Tax Derails Extenders (Tax Analysts Bl0g). “Political games involving the medical device excise tax threaten to completely derail the passing of an extenders package in the near future.” Come on, the extenders are just a political game to begin with, using Calvinball rules.
Renu Zaretsky, A Pleading Bank, a Rejected Offer, and Taxing Gas and Pot. The TaxVox headline roundup covers Uruguay’s nurturing a surprising local industry.
TaxProf, The IRS Scandal, Day 376
Alan Cole, When Broad Bases Are Actually Narrow Bases (Tax Policy Blog):
If I rent out my property to you, I pay taxes income used to buy the property, and I pay taxes on the rental income derived from it. In contrast, if I lived in the property myself, I would not have to pay the additional layer of taxes. It’s the same house either way, but because people are eager to “broaden” the base, they end up taxing it twice in some circumstances, and only once in others. A true “broad” base is a tax on personal expenditures – one that ultimately falls on the people who actually consume.
That’s precisely why “preferential” capital gain rates are really just piling on, and why the proper rate for them is probably zero.
Going Concern, The AICPA Has Nuked The CPA2Biz Brand in Favor of CPA.com. Now if they can just do something about that disturbing mascot.