Tax Roundup, 6/9/14: The great Illinois privatized tax shakedown. And lots more!

June 9th, 2014 by Joe Kristan

The wedding was beautiful, and great fun.  Introducing the new married couple.

 

Illinois sealGreat moments in state taxation.  Tax Analysts has a disturbing story ($link) about how an Illinois law firm is using the “qui tam” recovery procedures of the state’s False Claims Act against out-of-state taxpayers.  In a “qui tam” proceeding, an outside party, known as a “relator,” can file a lawsuit alleging fraud against the state and then share in the recovery — up to 25%, according to the story.

And they actually may be hurting state tax collection efforts, according to the story:

“The cases have clearly interfered with the administration and enforcement of tax law and may have even ultimately cost the state money, though it’s impossible to quantify how much,” said Mark Dyckman, the Illinois Department of Revenue’s deputy general counsel for sales tax litigation.

The story says the firm involved “is responsible for 99 percent of the qui tam tax litigation in Illinois.”

The story says Illinois may encouraged the suits initially, apparently thinking it could get some easy money out of the deal.  In other states where the firm tried the same thing, state Attorneys General won dismissals of the initial suits, discouraging further efforts.  The firm is also incentivized by the ability of a relator to share in outsized false claim penalties:

Second, while the treble damages for back taxes under false claims acts naturally attract the most attention, [taxpayer attorney Jordan] Goodman said the civil penalty — generally $5,000 to $10,000 per false claim under the federal law and $5,500 to $11,000 per false claim under the Illinois statute — can be just as oppressive, depending on what counts as a false claim. If each monthly sales tax return is a false claim carrying a $10,000 penalty, and 12 returns are filed in one year, that’s a $120,000 penalty. If every failure to collect taxes on shipping and handling is a false claim, and the business averages 10 sales into the state per month for 120 false claims, that’s a $1.2 million penalty for the year, which can turn into $12 million for the 10-year period covered by the false claims act.

Wikipedia image of Tams

Wikipedia image of Tams

The story says that one tactic used by the Illinois law firm is to make out-of-state purchases over the internet, and then to file suits if no sales tax is collected.  As the law covering remote sales remains unclear, it’s difficult to consider these items “false claims.”  That’s especially true in suits in which the taxpayer either was following published guidance or an audit settlement with Illinois.

These cases have apparently been going on since 2002, and the legislature and the state have yet to stop what would appear to be a purely abusive and parasitic practice.  If there ever was a case for universal application of a “sauce for the gander” rule, in which a losing plaintiff had to pay the same amount of penalties asserted against the winning defendant, this would be it.

 

Alligator bait.  The New Orleans Advocate reports on a Film tax credit promoter sentenced to 70 months.  It’s remarkable what high quality entrepreneurs these state tax giveaways attract.

 

20130114-1The ISU Center for Agricultural Law and Education is setting up a “Tax Place” feature on its website.  They seek your input.

Paul Neiffer reminds us that FBAR Filing Deadline is Near

Peter Reilly, CPA Faces Prison For Letting Client Deduct Personal Expenses.  It makes you want to carefully consider the work you want to take on.

Russ Fox, Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts.  More incomprehensible foreign tax enforcement.

 

Cara Griffith, Protecting Confidentiality When Information Is Exchanged Between Tax Authorities  (Tax Analysts Blog)

TaxGrrrl, As NBA Finals Continue, Tax Incentives Lure 76ers Into New Jersey   

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

Kyle Pomerleau, CTJ and U.S. PIRG Mislead with New Report on Corporate Taxes (Tax Policy Blog):  “USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.

Tax Justice Blog, Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors.  Never let the facts get in the way of what is “widely known.”

 

Howard Gleckman, Are Domestic Partnerships A Way For Heterosexual Couples To Avoid The Marriage Tax Penalty?   (TaxVox) This sort of thing makes makes me question the usefulness of “nudge” strategies to use the tax code to encourage behavior.  There are always perverse unintended consequences.

 

News from the Profession.  Public Accounting Firms, Ranked by CEO Hotness (Going Concern).  A tallest midget competition.

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