Last Post.

May 26th, 2017 by Joe Kristan

As I posted yesterday, Roth & Company is joining Eide Bailly. The move of our practice to the new firm leaves the Tax Update without its historical reason for being, so this will be the last post here. The blog will go dark with the rest of the Roth & Company site ahead of the June 26 effective date of Eide Bailly move.

Since I started blogging here around 2002 , I have had a great time. As we begin a new adventure, I will need to spend extra time working to make our transition successful, so it’s time to bring the Tax Update to a close.

The Eide Bailly people have talked to me about working on their tax communication efforts. I’m excited about the possibilities for the tax pages.

My favorite work here was on the enactment of the misbegotten Iowa Film Tax Credit Program and its collapse in scandal. I have also enjoyed pushing for Iowa tax reform, which may actually happen next year. I’ve made many virtual friends in the tax blogging world. The TaxProf, Paul Caron, is a great resource and a good guy. I have enjoyed Peter Reilly’s kind references and blog conversations.  Caleb Newquist at Going Concern continues to crack me up. Robert D. Flach was posting from the beginning, and he shows no signs of stopping. Kay Bell, Kelly Phillips Erb, Jim Maule, Jason Dinesen, and Russ Fox are among the old blog friends who I will keep reading faithfully.

Thanks to Kathy Morrison, Teresa Boal, and everyone else at Roth & Company for their help and support. There are many others who have been great help, and my apologies for not mentioning you all by name. And thanks especially to all of you who have read the Tax Update over the years.

I learned a lot about taxes, and about more important things. The best lesson I learned came from a post about a man arrested for an especially comical tax-related violation. Two years later I got a call from his wife. She apologetically asked if I could take the post down. Her husband was getting out of prison, and she didn’t want to have this reminder on the net as he tried to put his life back together. I did, of course. I have felt bad ever since for making fun of the man’s troubles, and I have tried to be more kind.

See you down the road.


Roth & Company, PC, to Join Eide Bailly

May 25th, 2017 by Joe Kristan

DES MOINES, Iowa — Public accounting firm Roth & Company, PC, will be joining Eide Bailly LLP, a regional certified public accounting and business advisory firm, on June 26.

Roth & Company will assume the Eide Bailly name and add 22 staff and seven partners to the firm. This will be Eide Bailly’s first office in Des Moines and it’s second in Iowa. Combined with the firm’s existing Dubuque office, the addition of Roth & Company will give Eide Bailly 44 staff and 11 partners in the state of Iowa.

“We’re excited to add Roth & Company to our firm. This addition will help us bring even more solutions and services to Iowa businesses,” said Dave Stende, managing partner/CEO of Eide Bailly. “Roth & Company’s culture and commitment to client service are a perfect match for our firm.”

“Eide Bailly is a top 25 firm in the nation, and this union will bring resources and specialization that will be a great asset for our clients and staff,” said Jay Anderson, managing shareholder of Roth & Company. “Our clients will now have access to a number of specialty services and solutions at their fingertips, while keeping the trusted relationships they have built with our staff,” Anderson said. “In addition, our staff will have access to more training and leadership opportunities that will help them shape their careers.”


Tax Roundup, 5/25/17: Tax Reform “first priority” for new Iowa Governor.

May 25th, 2017 by Joe Kristan

Promising. New Iowa Governor Kim Reynolds put tax policy front and center in her inaugural speech yesterday:

So let’s talk about my first priority: reforming Iowa’s tax structure. There is no doubt that we can do better. Our tax rates are some of the highest in the nation, and our code books are filled with a patchwork of exemptions, deductions and credits. That’s not how it should be.

Our tax code should be simple. It should be fair. And it should inspire – not inhibit – growth. Because the bottom line is this: a simple, more competitive tax code makes it easier for businesses to grow and expand and creates lasting careers for middle-class Iowans.

Fans of Iowa tax reform couldn’t ask for more from the opening speech. The chances look better than they have in a long time for improvements in Iowa’s tax law when the General Assembly meets again next year. Senate Ways and Means Chair has already floated ideas for tax reform. The Tax Foundation has done a lot of the heavy lifting already with its Iowa Tax Reform Options report of revenue-neutral strategies for Iowa’s income tax.

Still, tax reform is hard. Those “exemptions, deductions and credits” are there because somebody had the influence to get them into the tax law in the first place. Those people are still around. If the Governor and the legislative leadership get behind a plan, though, it just might get done.


The Tax Update Quick and Dirty Iowa Tax Reform Plan

New Governor – new tax policy?



Today’s Links:

Peter Reilly,IRS Nixes Student Loan Payoff Charity:

This is great.  You can have your kid take out the maximum amount of loans and pay them off with tax deductible dollars. Too bad it doesn’t work.

If you can direct your contribution to a specific person, that usually kills the deduction.

TaxGrrrl,Court Rules That Religious Freedom Law Is Not A Free Pass for Tax Evasion. “In this case, Tyms-Bey argued that paying state taxes would be a burden on his religious beliefs. Prosecutors responded that the act of paying taxes does not interfere with religious beliefs. They also noted that Tyms-Bey has never identified his religion; documents filed with the court indicate that ‘he is a sovereign citizen.'”

Kristine Tidgren, Iowa Supreme Court Upholds Class Certification in Nuisance Case (Ag Docket). “This case is important to any business that may emit pollutants or odor. Class treatment can transform a manageable disagreement into a tremendous liability.”

Leslie Book, Trump Budget: Perhaps Dead on Arrival But Key Themes Emerge for Tax Administration (Procedurally Taxing). “The theme of reducing errors and saving money through increased compliance will be recurring over the next few years, and that will likely lead to proposals like these that if enacted could mean significant tax administration changes.”

Kay Bell, Could Mar-a-Lago sinkhole reduce Trump property tax bill?

Lew Taishoff, THERE THEY GO AGAIN. “So remember, if the magic moment is 5 p.m., using the self-service kiosk at 5:01 p.m. may not help you. You’ll get the next day’s date on the machine-made postage.”



Stephen Entin, Tax Treatment of Structures Under Expensing (Tax Policy Blog). “A large part of the benefit of expensing, over seventy percent, is due to the inclusion of outlays for structures. Their inclusion in the expensing provision would add significantly to economic growth and job creation, and would return higher revenue to the Treasury in the out-years.”

Mark Mazur, New CBO AHCA Score Confirms What We Already Knew (TaxVox). “The bottom line: CBO estimates confirm the AHCA is largely a tax bill paired up with Medicaid cuts to offset the costs.”

Meg Wiehe, State Rundown 5/24: Several States Scramble to Finalize Budgets (Tax Justice Blog). “This week, Kansas lawmakers continued work on fixing the fiscal mess created by tax cuts in recent years, as legislators in Louisiana, Minnesota, Oklahoma, and West Virginia attempted to wrap up difficult budget negotiations before their sessions come to an end, and Delaware lawmakers advanced a corporate tax increase as one piece of a plan to close that state’s budget shortfall.”

Robert Wood,‘Soup Nazi’ Tax Evasion Case Holds Lessons For Every Business



Tax Roundup, 5/24/17: Branstad era ends today. Links cover trusts, border adjustments, more!

May 24th, 2017 by Joe Kristan

Governor Branstad in 1984. Public domain image via Wikipedia.

It’s been a long time. Terry Branstad, who has spent more time as Iowa’s Governor than anyone has been governor anywhere, steps down today to become the Ambassador to China. He served from 1983 to 1999, and then again since 2011. His tenure included the farm crisis of the 1980s and the ridiculous floods of 1993, and the continuing depopulation of rural counties. Unemployment has fallen from 8.5% when he took office in the Reagan administration to 2.9% He has seen financial services and tech startups begin to eclipse Iowa’s old manufacturing and agricultural mainstays.

While Iowa has changed a lot, Iowa’s income tax would be familiar to a Rip Van Preparer who fell asleep in 1983. While the top individual rate has come down from 13% to 8.98%, the top corporate rate remains 12% (highest in the country) and the structure of the tax system, with its deduction for federal taxes and its unusual two-column married filing separately on a combined return filing status, has changed little. The biggest change in the income tax has been a proliferation of special interest breaks and credits, pegged to cost the state $277 million in 2017.

The biggest tax changes in the Branstad era have been in property taxes and sales taxes. In 2013 he signed a sweeping reform of the state’s property tax system. In 2015 his administration changed the rules for the manufacturing supplies sales tax exemption, leading to legislation that reformed a long-standing piece of bad tax policy.

As he leaves office, the legislature appears ready to finally address income tax reform next year. Whether incoming Governor Kim Reynolds will embrace the tax credit reforms needed to truly bring down Iowa rates remains to be seen.



Today’s Links:

Roger McEowen, Self-Employment Tax On Farming Activity Of Trusts. “An active business conducted through a trust can achieve self-employment tax savings.  But, proper structuring is critical.”

Jason Dinesen, Glossary: Bonus Depreciation. “Bonus depreciation, in tax terms, refers to an accelerated form of depreciation available on certain types of assets.”

Jim Maule, A New Tax, Proposed But Rejected . . . Until? “Last week, a reader asked me if I was aware of a tax proposal in Oregon. I was not. The tax, proposed in Oregon House Bill 2877 would have been imposed on motor vehicles 20 years old or older, at the rate of $1,000 every five years.”

Robert Wood, IRS Amnesty Can Cover Broader Tax Evasion Too. “Admitting your mistakes isn’t easy, but paying taxes, interest and penalties is better than the alternative.”

Keith FoggSubmitting a Tax Court Case Fully Stipulated (Procedurally Taxing). “I do not recall a previous case which the Court remanded due to an incomplete stipulation.”

TaxGrrrl, Former FC Barcelona President Arrested Following Raids In Spain

Lew Taishoff, OVERPAID IS NOT PAID. “As a matter of law amounts paid or deemed paid more than three years before a tax return claiming them is filed cannot reduce or eliminate the additions to tax.”



Kyle Pomerleau, How the Border Adjustment Helps Fix Business Taxation in the United States (Tax Policy Blog).

By itself, the border adjustment directly addresses two major problems with the corporate income tax. First, it eliminates the ability and incentive for corporations to shift their profits out of the United States. Second, it would greatly simplify business taxation by eliminating the need for complex current-law transfer pricing rules and anti-base erosion provisions. In addition, the border adjustment would raise additional revenue over the next decade, which would help fund the transition to a cash-flow business tax. The components of the cash-flow tax (most notably, expensing) would greatly improve the incentive for companies to invest and would grow the long-run size of the U.S. economy.

So far, the border adjustment seems to be a step too far for Congress.

Sam Brunson, On Marginal and Effective Tax Rates (Surly Subgroup). “First, people have no idea the difference between effective and marginal rates, and will use whichever is most convenient for their point. And second, people vastly overestimate the amount they pay in taxes.”

Howard Gleckman, Trump’s Can Opener Budget. (TaxVox) “You know the old joke: An economist and a seaman are stranded on a desert island with only canned food to eat. But they have no way to open the containers. ‘What do we do,’ asks the sailor. ‘Assume a can opener,’ replies the economist.”

Kay Bell, Trump’s first budget favors defense over domestic programs.


Career Corner: How to Get Ahead: Speak Up When You Want Something to Change (Rachel Andujar, Going Concern).


Tax Roundup, 5/23/17: Two wrongs don’t make an Iowa capital gain deduction. And: FAFSA-Trump hack.

May 23rd, 2017 by Joe Kristan

Shiver me timber. Iowa’s weird capital gain deduction confuses even the Department of Revenue. The Department was confused enough to allow a 2006 capital gain deduction for a land sale that didn’t qualify. But that doesn’t mean it has to allow the deduction for another non-qualifying sale in 2013, according to a protest response released this week.

The taxpayer purchased land from his father’s estate in April 2005. The following year the taxpayer sold five acres of the land, claiming the Iowa capital gain deduction.

Alert readers may have already spotted the problem. To qualify a real estate sale for the Iowa capital gain deduction, you have to meet two tests:

You have to have held the real estate for at least 10 years, and

The real estate has to have been used in a trade or business in which you “materially participated” for the ten years preceding the sale.

If you qualify, Iowa doesn’t tax the capital gain. Of course, many land sales fail to meet one or the other of these two tests.

There is another way to get a capital gain deduction related to real estate. If you sell timber which you have held for one year that qualifies for the federal Sec. 631(a) capital gain tax break, you also qualify. That was the deduction claimed in 2006. The Department of Revenue says oops:

You also indicated that you sold the first five acre lot in 2006. At that time through some misunderstanding the Department allowed a partial capital gain deduction for the sale of timber. The purchaser of the first five acre lot bought the lot to construct a new home to live in. Subsequent to the purchase the new owner has built a new home. The Department should not have granted the partial capital gain deduction on the first sale, as this was simply the sale of land.

As the statute of limitations has expired on the 2006 sale, the Department’s mistake stands. But that doesn’t mean the Department has to make the same mistake again. The taxpayer claimed the deduction for another lot sale in 2013. From the letter:

In the current case the purchaser of the second five acre lot also purchased this land to construct a home. This purchaser has since built a new home on this five acre lot. In the protest you have argued that you feel the Department should extend a similar capital gain deduction that you received from the first sale. In a review of the protest it seems clear that the new owner of the land from the 2013 sale purchased the land to construct a new home. Subsequent to the land sale the new owner has built a new home. Given this information the Department asserts that this is strictly the sale of land, not the sale of timber.

As a sale of land, rather than timber, the ten-year holding period had to be met. As the land was purchased in 2005, this test is failed, and the material participation issue doesn’t even come into play.

The Moral? As Mom said, two wrongs don’t make a right. It’s hard to qualify for the capital gain deduction, and the Department looks at every claim for it.

Cite: Document Reference 17201010



Iowa capital gains deduction flowchart



Today’s Links:

TaxProf, Private Investigator’s Attempt To Obtain Donald Trump’s Tax Return Led IRS To Shut Down FAFSA Data Retrieval Tool; Who Hired Him?. The TaxProf quotes from a story in the Diverse education blog:

The person accused of a 2016 attempt to use a web-based federal student-aid tool to illegally obtain taxpayer information is a Louisiana-based private investigator who used the tool to target then-presidential candidate Donald J. Trump, court records obtained by Diverse show.

The records allege that when Jordan Hamlett, 31, met FBI agents in the atrium of the Embassy Suites in Baton Rouge, he “immediately volunteered that he had committed the crime and he even sounded proud of what he had done.”

The Treasury Inspector General’s report on the hack said:

In September 2016, TIGTA detected an attempted access to the AGI of a prominent individual. When we investigated the attempted access, we determined that the FAFSA application and the DRT were used in this attempt. Since FAFSA is a Department of Education application, we notified the Education OIG and we notified the IRS Privacy, Governmental Liaison and Disclosure (PGLD) program office. We initiated a joint investigation with the Education OIG that included the Cyber Crimes Task Force. The investigation identified the individual responsible for the attempted access and he was arrested. This case is still proceeding through the court system. In November 2016, we noticed another attempted access of the same prominent individual’s AGI through the FAFSA and the DRT, this time, from an entirely different location. 

A prominent individual, indeed.

Prior coverage: FAFSA IRS data hack used already stolen info


Paul Neiffer, Are You Taming The Deferred Tax Monster?! “Current deferred taxes is comprised of the estimated taxes owed on deferring crop sales and prepaying farm expenses.” A problem only farmers have because it arises from tax breaks that only farmers get.

Peter Reilly,Housing Industry Panicking About Tax Reform:

The National Apartment Association and the National Multifamily Housing Council are concerned that looming tax reform might have a bad impact on the rental housing industry…

The specific tax issues that are of concern are the treatment of flow-throughs, like-kind exchanges, depreciation, carried interest, the low-income housing tax credit and deductibility of business interest.

This shows how industries work to game the system to keep their own special breaks. Yet somehow I think people would need apartments regardless of what the tax law has to say.


Buzzday Tuesday at Robert D. Flach’s place. Today’s Buzz roundup covers tax season demands, fixing do-it-yourself blunders, bike commuter breaks, and more.

Leslie Book, Legal Practice and Mental Health (Procedurally Taxing). “As someone who has over the years benefitted from confronting mental health issues with the care of professionals, and who lost a dear friend to suicide, I believe that tax professionals and the organizations where they work should have at their disposal resources to help through inevitable tough times that are part of life.”

Jack Townsend, Restitution Permits Double Assessments But Only One Collection. “The problem with which the Court grappled, at bottom, was whether so increasing the deficiency amount to include the amount already assessed would permit the IRS to assess the increased amount if ‘redetermined’ by the Court and thus have two assessments that, in part, are for the same tax liability.”

Lew Taishoff, AN ANSWER IS NOT A MOTION.  “Pre-answer motions are a favorite tactic of defendants. I like them too.”

Russ Fox, WSOP and Taxes: 2017 Update. “The poker world is about to descend on Las Vegas for the World Series of Poker (WSOP) and a score of other tournament series. The tax environment has changed, so I’ve decided to do a thorough update of the tax situation.”

Joseph Henchman, Supreme Court Won’t Hear Retroactive Tax Increase Cases (Tax Policy Blog):

An unfortunate development today from the U.S. Supreme Court, where the justices declined to hear several challenges to a retroactive tax law passed by Michigan. In 2014, Michigan decided that a tax compact it had signed in 1967 was no longer advantageous and repealed it, retroactively to 2008. This harmed a number of business taxpayers who had been counting on tax refunds.

It’s good to be king.

Kay Bell, House, Senate seek to expand tax-free employer educational assistance to paying down workers’ student debt. Congress keeps providing tax breaks to pay for college tuition, and college tuition keeps going up. Funny how that works.

Tax Justice Blog, WE’RE NOW BLOGGING AT “ITEP today is pleased to announce that we’re launching an overhauled website that better reflects the work of our organization and makes our federal and state tax policy research more accessible.”



Tax Roundup, 5/22/17: 2018 HSA max $3,450 self-only, $6,900 family. Links on gig economy reporting, more!

May 22nd, 2017 by Joe Kristan

The IRS has already announced the 2018 maximum contributions for Health Savings Accounts (Rev. Proc. 2017-37). It’s a good excuse to revisit the tax advantages of HSAs:

-You may deduct contributions to HSAs without having to itemize deductions.

-Withdrawals from HSAs are tax-free to the extent of amounts used to pay out-of-pocket qualified medical expenses incurred after the HSA is established – even if you could have taken funds out of your HSA to pay them in an earlier year, but didn’t.

-Earnings on undistributed funds in HSAs accumulate tax-free.

– HSA funds distributed after age 65 for non-medical expenses are taxed like traditional IRA distributions, but without the IRA required minimum distribution rules.

-There is no income phase-out for HSA deductions.

These features make the HSA a good tax savings device for qualified taxpayers. In order to be eligible to make an HSA contribution, you have to be covered under a “high deductible health plan,” and you have no non-permitted coverage. You can’t be enrolled in Medicare, and you can’t be claimed as a dependent on someone else’s return.

For 2018, a high deductible plan is one with an annual deductible of at least $1,350 for self-only coverage and $2,700 for family coverage. Maximum permitted annual out-of-pocket costs can’t exceed $6,650 for self-only coverage and $13,300 for family coverage.

The maximum contribution for taxpayers with self-only coverage is $3,450 for 2018. That compares to $3,400 for 2017. For family coverage, the maximum contribution is $6,900 in 2018, compared to the 2017 max of $6,750.


IRS Publication 969.

2017 HSA contribution Max $3,400 self-only, $6,750 family.



Today’s Links:

Laura Saunders, The Blind Spot in a Sharing Economy: Tax Collection (via the TaxProf):

While some gig workers mean to cheat Uncle Sam, experts say others are bewildered by tax requirements that can be almost as complex for the owner of a microbusiness as for a much larger firm. Many know nothing about Schedule C (for a small business), payroll taxes and quarterly estimated payments. Often they’re unaware of valuable write-offs as well.

Like regulation, complexity favors the big.

Robert D. Flach, DON’T TOUCH THAT 401(K)! “This is a very expensive way to get money.  A loan shark might be cheaper!”

Roger McEowen, Employer-Provided Meals and Lodging. “The IRS, at least in certain parts of the country, appears to have an audit program that examines farm and ranch corporations on the meals and lodging issue.  In light of that, today’s post takes a look at the basic rules and what might cause concern for the IRS.”

TaxGrrrl,7 Things To Do Right Now To Save On Taxes This Year

Jason Dinesen, What I Mean When I Say “Consult an Attorney” “I am shocked at the number of corporations I work with who have never talked to an attorney because ‘it’s a waste of money.'”

Jim Maule, Running Out of Sin Taxes. But sin, we still have plenty of that, including the sin Prof. Maule discusses: using other people’s money to upgrade your professional sports team.

Jack TownsendArticle on Justice Gorsuch’s Approach to Criminal Tax Cases.  “The data set for the article is slim…”

Lew Taishoff, THE FACTS ARE EVERYTHING. “But I suggest we all, bloggers, litigants, attorneys, USTCPs, and even Judges, must ‘with a joyful mind, bear through life like a torch in flame’ the simple rule: The facts are everything.”

Kay Bell, Some sales of beneficial insects could be tax-free. Don’t tell the SLA.



John Buhl, Takeaways from Initial House Ways and Means Tax Reform Hearing (Tax Policy Blog):

To make tax reform permanent under these budget rules, policymakers will need to consider various base-broadening provisions that can offset revenue losses from rate reductions and full expensing. On the corporate tax side, this might mean eliminating the interest deduction and enacting a border adjustment.

As one panelist mentioned, businesses benefit from the interest deduction and might oppose getting rid of that tax break as a stand-alone, but stakeholders will need to look at any tax reform package in its entirety to truly judge its benefits. Limiting interest deductibility “may be necessary as part of a broader solution,” he concluded.

In addition, tax reform represents an opportunity to not only lower the tax burden, but also raise revenue more efficiently. Revenue-neutral tax reform can, in fact, be pro-growth.

The hard part is always to convince enough people of the advantages of lower rates and simplicity to overcome those who are privileged under the current system and will fight hard to keep their special breaks.

Annette Nellen, What’s simple about a postcard size tax return? “Gen Z filers might wonder what a postcard is.”

Leslie Book, Who Needs Netflix? Tax Videos on Demand (Procedurally Taxing). It’s not an advocacy of taxing videos on demand; it links to tax videos you can watch, including the cozy Fireside Chat with Inspectors General, Ombuds, and Advocates.

Richard Phillips, Tax Avoiding Companies Well Represented at Tax Reform Hearing (Tax Justice Blog). I’ll bet there were very few tax-seeking companies represented.


May showers roundup

May 20th, 2017 by Joe Kristan

Unless you are a duck, it’s too wet to go out, so stay inside and enjoy the TaxProf’s Weekly Tax Highlight And Roundup of Tax Update links!


Tax Roundup, 5/19/17: It’s easy to get IRS to cash a check. Pennies on the dollar is harder. Also, Friday links!

May 19th, 2017 by Joe Kristan

But they cashed the check! If you owe a lot of tax, it’s understandable that you would try to get the IRS to settle for partial payment. Unfortunately, the IRS has a say in the matter.

S corporation owners are supposed to pick up the corporate taxable income on their 1040s. A Florida couple owning two S corporations apparently didn’t do so for 2011 and 2012. The IRS noticed and assessed them about $2.9 million in additional tax and another $697,000 in penalties. They had other tax issues too, going back to 2006.

The couple tried to settle, sending the IRS a proposed offer in compromise on Form 656-L — but with a twist. Tax Court Judge Paris explains:

Petitioners substantially modified the terms and conditions of the Form 656-L by crossing out sentences in subsections (b) and (d) and crossing out entirely subsections (k), (l), and (m). Along with their OIC, petitioners tendered a $3 million check as satisfaction of their 2006 through 2012 tax liabilities.

The IRS cashed the check, but a few weeks later told the taxpayers that they were returning the cash and rejecting the offer because of the modifications to the form.  The couple argued that it was too late — the check had been cashed, so the thing was settled.

It doesn’t work that way. Judge Paris:

Petitioners further argue that by cashing their check, the IRS accepted their OIC. This argument is incorrect. The IRS cashing a check does not necessarily mean that the IRS has accepted the offer. 

So the couple tried another argument (citations omitted):

Alternatively, petitioners argue that their OIC was deemed accepted under the UCC because their offer was not rejected within 90 days. The facts surrounding this OIC and the IRS’ response — set forth in petitioners’ response to respondent’s motion for partial summary judgment, see supra note 5 — clearly show the IRS’ timely rejection of their OIC and return of their $3 million deposit. More importantly, the U.S. Government, as the sovereign, is not bound by State statutes such as the UCC.

Nice try, but the decision on this issue went to the IRS.

The Moral? Getting an offer in compromise through the IRS is not easy, despite what you might hear on late night radio shows. It’s a lot easier to get the IRS to cash a check, but it’s not the same thing.

Cite: Whitesell, T.C. Memo. 2017-84

Related: Lew Taishoff, THE LAW OF RETURN. “Go With The Flow, and The Check’s Not the Thing”



Today’s Links:

Iowa Congressman David Young has introduced the “Freedom from the ACA Tax Penalty Act” in reaction to the likely unavailability of ACA exchange policies in Iowa starting in 2018. From his press release: “His legislation would waive this tax penalty and requirement under Obamacare for Iowans, and any American, who has no access to health coverage because of the failing health care law.”

O. Kay Henderson, The Branstad record on business, property and gas taxes (Radio Iowa). “Terry Branstad’s tenure as governor appears to be nearing its end and his impact on state tax policy is assessed differently by his supporters and critics.”

Peter Reilly,Motion To Stop IRS From Examining Marijuana Dispensary Up In Smoke. “My own view is that activists and advocates use the Constitution like a drunk uses a lamppost – More for support than illumination – but that’s just me.”

Kay Bell, 3 big tax breaks for Americans who go into home debt

TaxGrrrl,My Mother’s Maiden Name Is Cumberbatch (And Other Lies I Tell For The Sake Of Security). “When information gleaned from social media sites can be matched to other data – say, from a recent hack or breach – it’s incredibly valuable. It can be used not only to access your existing financial accounts but also to open new accounts in your name.”

Leslie Book, 9th Circuit Reverses District Court in Case Involving Exceptions to SOL For Failing to Disclose a Listed Transaction (Procedurally Taxing). “In an opinion that surprised me, in May v US, (an unpublished opinion) the 9th Circuit reversed and held that the taxpayer’s failure to file the form resulted in the application of an extended SOL on assessment even when the IRS admitted that it had knowledge of the information that the form itself would have contained.”

Jim Maule, No Tax Benefit for Being Nice. “One hopes that people would be nice for reasons other than a tax incentive to do so.” To listen to some people, nothing good happens without a tax credit.

Lew Taishoff, THE RIGHT PAPER. “But once again, the power of attorney is useless if it fails to empower the agent to do what is needful.”


Morgan Scarboro, Which Places Pay the Most in Property Taxes? (Tax Policy Blog). The post includes this interactive map:

The above map, prepared by the Tax Foundation, is interactive — hover the mouse over a given county to see the median about of property tax residents there pay. Click here to see a larger version.


TaxProf, Tax Policy In The Trump Administration . A roundup of news on Trump and Congressional tax news.

Mercatus Center, “Fixing” the tax code: Key  principles for successful, sustainable reform. “Successful reform should lower current individual and corporate tax rates.”

Meg Wiehe, State Rundown 5/18: Tax Debate Heat Wave Hitting States (Tax Justice Blog). “Late-session discovered revenue shortfalls, for example, are creating friction in Delaware, New Jersey, and Oklahoma, while special sessions featuring tax debates continue in Louisiana, New Mexico, and West Virginia.”

News from the Profession. Your Technology Disorder Has a Name (Megan Lewczyk, Going Concern)


Tax Roundup, 5/18/17: S corporation owner health insurance continues to baffle. Also, links!

May 18th, 2017 by Joe Kristan

W-2 or bust. It seems like at least one client messes up the treatment of health insurance for employee-owners every year. If an S corporation pays for health insurance for an employee who owns at least 2% of the corporation, it is not a “tax-free fringe benefit,” like it would be for any other employee. Under IRS Notice 2008-1, the corporation is supposed to put the insurance on the employee’s W-2, box 1, but exclude it from Medicare wages. The employee is then supposed to take the deduction for “self-employed health insurance” for the same amount on line 29 of the 1040.

The treatment seems like a long way around to get to the same place. Unfortunately, the IRS position is that there is no other proper way to report such deductions. This rule applies not only to S corporation shareholders, but also to their family members who work for the business.

If the preparer doesn’t find out that the S corporation payroll department made this mistake until the shareholder’s tax information comes in, it poses a problem. The right answer is to amend all four of the prior payroll returns and issue a new W-2, but it often isn’t a practical answer, at least to the client. That makes now a good time to deal with it for 2017 while there is only one payroll tax return in the current year that might be wrong, and no W-2s to fix yet.

Similar rules apply when S corporations fund shareholder-employee health savings accounts.

There is one area where S corporation owners get better treatment for health insurance, though. S corporations can reimburse health insurance costs paid by the employee and qualify the shareholder for the Notice 2008-1 “above the line” deduction. They just have to include the reimbursements in W-2 box 1 income. For anyone else, such reimbursements have to meet the qualifications of the new health reimbursement account (HRA) law passed last year.

These rules are overdue for simplification, but it doesn’t seem imminent.

Further reading:





Today’s Links:

Peter Reilly, IRS Leans On LA Tax Assessors For Land Building Allocation. Peter discusses a real estate owner who apparently allocated no value to the land and depreciated the whole thing:

The IRS looked at it differently and brought in some additional data.  In 2012 the Los Angeles County Office of the Assessor valued the first property at $435,324 ($189,032 improvement $236,292 land), the second at $795,000 ($305,800 improvements $489,200 land) and the third at $532,807 ($163,940 improvements $368,867 land).  That gave improvement percentages on each of the three properties of 44.4%, 38% and 31% respectively cutting the depreciation deduction for he year by more than 50% for a deficiency of $5,297.

A good discussion of the tax issues involved, and the lack of a “rule of thumb” for allocating costs between land and buildings.

Peter has a slight twist on a favorite tax aphorism:

I suspected the couple might have fallen victim to Reilly’s Eleventh Law of Tax Planning – “Pigs get fed.  Hogs get slaughtered.”

I had always thought it was “fat,” not “fed,” but I guess “fed” makes just as much sense.

Roger McEowen, Insights Into Handling IRS Disputes. Gleanings from a day spent by Tax Court Judge Paris at Washburn Law School.

Kristine Tidgren, Regularly Review Those Estate Planning Documents (Ag Docket). “…a poorly drafted “right to purchase” clause and a failure to update the trust upon the exchange of property spawned expensive litigation…litigation from which no one emerged victorious.”

Jason Dinesen, If Newly Self-Employed, Beware of Self-Employment Tax. “Self-employment tax is the bane of existence for many sole proprietors. And it’s often a surprise to people who are new to self-employment — they file their tax return and find out that things often turn out much differently when you’re self-employed.”

Robert Wood, Tax Write-Offs For Government Settlements Could Be Restricted. “In recent years, some of the largest settlements between corporations and federal government agencies included significant tax deductions for the corporation.”

Leslie Book, Court Rules Abusive Tax Shelter Penalty Has No SOL; Laches Also Not A Defense (Procedurally Taxing). “Over the last couple of decades there has been a vast increase in the number of civil penalties in the Code. When Congress gets around to revising the civil penalty regime, it would be well served to look at these non return based penalties and impose some outside limits on when the government can  assess these penalties.”

Jack Townsend, CCA on Application of Refund Statute of Limitations in OVDP

Kay Bell, Rep. Ben Sasse says we’re not helping kids grow up. Do tax breaks contribute to Americans’ extended parenting? “In the book, which is subtitled ‘Our Coming-of-Age Crisis — and How to Rebuild a Culture of Self-Reliance,’ Sasse also points to what he calls misbegotten government programs that have helped stall young people’s participation in traditional coming-of-age rites, such leaving home, starting a family and becoming economically self-reliant.”

Lew Taishoff, “DELEGATI NON POTEST DELEGARE” – PART DEUX. “The improperly-signed SNOD is an old rounder’s gambit, and Leroy Muncy, dodge-flogger and dodger, played it well.”



Scott Greenberg, Permanent Bonus Expensing is a Step in the Right Direction (Tax Policy Blog):

Under the current U.S. tax code, businesses are not generally allowed to deduct the full cost of their capital investments – such as equipment, buildings, inventory, and intangible property – in the year that the investments are made. Instead, companies are required to deduct their investment costs over long periods of time, according to a set of depreciation schedules. Not only is the depreciation system one of the most complicated aspects of the federal tax code, but there is also good reason to believe that requiring businesses to deduct their capital expenditures over such long periods of time discourages them from making investments in the first place.

In recent years, Congress has enacted a temporary provision known as bonus expensing, which allows businesses to immediately deduct 50 percent of the cost of their investments in equipment, machinery, and other short-lived property. This is a significant provision: about 67 percent of all business investment is eligible for bonus expensing, and economists have found strong evidence that the provision has led to higher private investment levels overall.

I doubt this will pass unless part of a bigger tax reform effort. It’s not clear anyone is capable of leading such an effort in Washington right now.


Thomson Reuters Tax & Accounting Blog, Trump Administration’s Principles for Tax Reform. “On the individual side the focus is on expanding the tax base and lowering the tax rates to support the expressed goals of tax simplification and tax relief. These would be accomplished primarily by eliminating deductions currently available and reducing the top tax rate and number of brackets.”

Carl Davis, Investors and Corporations Would Profit from a Federal Private School Voucher Tax Credit (Tax Justice Blog). Left or right, not every problem is a tax problem.

Richard Auxier, A Tale of Two Tax Triggers (TaxVox).  “Triggers can help states provide fiscally responsible tax relief—if designed well. They can also make it easy for lawmakers to pass large tax cuts that imperil future budgets—if executed poorly.” Triggers, which implement rate cuts only if financial goals are met, might help Iowa to pass tax reform without risking a fiscal mess.

Career Corner. Are You Working for a Donald Trump?  (Caleb Newquist, Going Concern). There’s more than one?


Tax Roundup, 5/17/17: LLCs disregarded? Not for Iowa’s vehicle registration tax! Links on digital heirs, ransom deductions, more!

May 17th, 2017 by Joe Kristan

Expensive tidiness.  Iowa imposes a 5% registration tax on the transfer of motor vehicles. There is an exemption for some transfers that we normally think of as tax-free, like partnership and corporation formations. This exemption is narrower than the corresponding income tax exemptions, as an Iowa businessman learned recently.

The Iowa Department of Revenue examined transfers of vehicles among single-member LLCs controlled by Iowa entrepreneur Gerald Kirke. He transferred to his wholly-owned LLC Wild Rose Leasing vehicles owned by two other LLCs he owned: Fratellos, which had run a now-defunct restaurant; and K Properties, a “farming/land management company which cash rents farm land and warehouse space.” They wanted to tidy up their vehicle ownership, with all of the cars in one entity.

For federal tax purposes, these LLCs are all “disregarded entities.” Their activities are taxed to their owner, and transactions between them are considered no more taxable than taking money out of your wallet and putting it in your pocket.

The vehicle registration tax exclusion as read by the Department of Revenue is narrower. From the Iowa letter:

The “continuing the business” provision caused problems here. Fratellos had closed, so there was no business to continue. Wild Rose Leasing didn’t continue the other K Properties businesses; they continued in their old entity. That was enough to trigger the 5% registration tax, according to the Department of Revenue.

The Moral? Just because federal tax law ignores the existence of an LLC doesn’t require a state to do so. When you have a transaction that is tax-free under federal law, it still can trigger state sales and registration taxes. It might seem whimsical and unfair, but it takes more than that to stop a determined state revenue department.

Cite: Document Reference 17300008



Today’s Links:

David Brunori, Cynically Ignoring the People (Thomson Reuters Tax & Accounting Blog):

Do you want to know why people hate politics? Politicians? Just look to Oregon. Just last November, voters in Oregon rejected the creation of a gross receipts tax by a 59 to 41% margin. That is a landslide…

You would think that after a crushing defeat, pro gross receipts people would give it a rest. But six months later, they are back at it – legislatively. The people who want to adopt a gross receipts tax are taking their case to the legislature. That is right. After the citizens soundly rejected the idea, the pro taxers are asking the legislature to ignore them. I am not sure why that happens. It seems downright insulting to me.

Gross receipts taxes are an awful idea that seems to be gaining favor in the states in spite of the awfulness.

Margaret Van Houten, Digital Assets Bill Signed by Governor Branstad (Davis Brown Tax Law Blog): “This Act allows individuals to give their fiduciaries the authority to gain access to their digital assets including accounts, information, media, and electronically stored documents, whether on a personal computer, tablet, cell phone, or in the cloud.  It also provides a legal means to pass them along to their heirs in accordance with their wishes.”

Robert Wood,If You Pay Ransom, Write It Off On Your Taxes. “If you pay hackers ransom to keep your business operating, is it tax deductible?”

Robert D. Flach, DEAR GRADUATE. “As it is college graduation time I thought I would reprint some advice to recent graduates that I had given in a post from a couple of years back.”

Andrew Mitchel has 5 New Tax Charts. These are great helps in navigating branch transactions.

Liz Cuthbertson, UK Property – still the real deal? (Tax Plus Blog, U.K.). “Further tax complexity for real estate purchases has not cooled down and, from 6 April 2017, all UK residential property is in the scope of UK inheritance tax, regardless of the vehicle it is held in.”

Jack Townsend, District Court Denies Sufficiency Motion for Tax Evasion and Tax Obstruction. ” During the pretrial proceedings, Pflum thrashed around in various ways, including representing himself pro se at times. The jury convicted.”

TaxGrrrl,All Parties Claim Victory In Russian Money Laundering Case. It seems dangerous to be in the vicinity of upper-story windows in Russia.

Jim Maule, Me, My Big Mouth (or Is It Irrepressible Keyboard?), and Taxes.

Lew Taishoff, WENT FOR THE GOLD, GOT SILVER. “Whatever the fate of the Patient Protection and Affordable Health Care Act, I look forward to plenty of good blogfodder therefrom.”



Howard Gleckman, Who Would Benefit From A Tax Cut on Partnerships And Other Pass-Throughs? (TaxVox):

There are a couple of reasons why the benefits are so skewed to upper-income households. First, nearly two-thirds of those with pass-through income are already in the 15 percent bracket or below. Thus, they wouldn’t benefit at all from cutting the pass-through rate to 15 percent. They are already there.

Second, while most pass-through filers are low- or middle-income people, most pass-through income is made by a relative handful of business owners. They may be doctors, lawyers, partners in investment firms, or even owners of large non-publicly traded businesses. TPC estimates that this year, nearly 90 percent of pass-through income will go to the top 20 percent of households and half to the top one percent.  And the benefits of the rate cuts follow the money.

While I think individual rates are too high, a pass-through cut is the wrong answer. People will game the system, and the tax law will become even more complicated as patches are enacted to fight the gaming. Better to make individual and corporate top rates the same, with integration so that corporation income isn’t taxed twice. A dividends-paid deduction with an excise on dividends paid to tax-exempts might be the way to go.

Kay Bell, Oklahoma freezes standard tax deduction amounts. “Federal tax reform is still a ways off, but the prospect of an Internal Revenue Code rewrite already has prompted Oklahoma to change one of its tax laws.”

Leslie Book, Oral Argument This Week on State Qui Tam Action Involving Citigroup (Procedurally Taxing). “Readers may recall from fall of 2015 a post by Professor Eric Rasmusen discussing a New York State False Claim complaint he filed in connection with allegations that the government’s purchase of Citigroup stock should have triggered Section 382 to apply to limit the bank’s net operating losses.”

News from the Profession. One Accountant’s Obsession with BMWs Cost Him His Family, His Freedom, and His CPA License (NYSSPA). “I need to tell you both something. My wife left me. My kids won’t talk to me. I lost my job. I embezzled almost a half a million dollars because I’m addicted to BMWs, and have been hiding them all over the state. I’ll probably be going to prison soon.”