Tax Roundup, 12/18/14: Year-end planning and relatives. And: when will the President sign the extenders?

December 18th, 2014 by Joe Kristan

When will he sign? Now that Congress has finally sent the extender Bill, HR 5771, to the President, the “expired provisions” require only his signature. When will that happen? I have no idea. There is nothing at Whitehouse.gov about it. But everyone says he’ll sign. It would be the practical joke of the year if he didn’t.

 


IMG_1944Beware t
he relative! The tax law generally assumes that when related parties do business together, they’re up to no good somehow. That’s why the law has so many provisions that deny or delay tax benefits when relatives are involved.

For example, Code Section 267 only allows a deduction to a related party “as of the day as of which such amount is includible in the gross income of the person to whom the payment is made.” That’s no problem if the “related party” is on the accrual method, because they will be accruing the income at the same time you accrue the expense. But if the related party is a cash-basis taxpayer, you have to pay this year to get a deduction this year.

But who is related? It’s more complicated than you might think. For purposes of year-end deductions,  owners of more than 50% of C corporation stock, and their families (siblings, spouses, ancestors and descendants) are related.  Families are usually considered as a single owner for the 50% test.

For pass-through entities — partnerships and S corporations — any owner is a related party, along with members of owners families and anybody related to the family members.

 

Seventh Avenue, Des Moines, this morning.William Perez, Tax Increase Prevention Act of 2014. “A quick summary of the tax changes included in the Tax Increase Prevention Act of 2014.”

Kay Bell, Tax filing projections for the 2015 season and beyond

Peter Reilly looks back on his idiosyncratic tax coverage this year. Everything from atheist parsonages to Dr. Dino. Peter covers a lot of stuff that I wish I did, in a lot more depth than I could.

Jason Dinesen, A Brief History of Marriage in the Tax Code: Part 1, In the Beginning

Robert D. Flach, THERE ARE A LOT MORE THAN 20 REALLY STUPID THINGS IN THE US TAX CODE! “The one and only purpose of the federal income tax is to raise the money necessary to run the government. Period.”

Me, Year-end business deductions: the two-minute drill. My new post at IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog. “While you add up the score in April, December is when you run the two-minute drill.”

 

20130419-1Robert Wood, 8 Savvy Tax Tips & Extenders For Year-End

Tim Todd, 5th Cir. Affirms IRS’s Adjustment Outside Limitations Period for Improper Installment Sale of Partnership Interest.

Keith Fogg, Collection Due Process Determination and Decision Letters Redux (Procedurally Taxing)

Jack Townsend, Plea in Corporate Corruption Case with Tax Charge. Kickbacks kick back.

Gavin Ekins, The IRS’s Long Reach Doesn’t Just Apply to Corporations (Tax Policy Blog). The post describes some of the ridiculous hoops Americans abroad have to jump through to comply with the tax law, and observes:

Are Americans alone in this onerous system? Unfortunately, they are. Only one other country taxes its citizens is this manner. Eritrea, the small country on the northern border of Ethiopia, is the only other country which taxes its citizens who live and work abroad, but unlike the U.S., they have a reduced flat rate for those citizens and none of the reporting burden.  

The results range from annoyance to financial disaster for the absurd crime of committing personal finance while abroad.

Renu Zaretsky, They Saved the Must-Pass for Last. The TaxVox headline roundup provides a good summary of the passage of the extender bill; it also talks about state gas tax moves.

 

TaxProf, The IRS Scandal, Day 588

 

20141218-1Cara Griffith, A Champion for Tax Reform (Tax Analysts Blog). ” New York enacted a comprehensive tax reform package designed to improve the competitiveness of the state’s tax code by merging the bank tax into the corporate franchise tax, adopting single-sales-factor apportionment with market-based sourcing, broadening the corporate tax base, and lowering the rate.”

Sebastian Johnson, State Rundown 12/10: The Best Laid Plans (and Reports) (Tax Justice Blog)

 

Daniel Shaviro,  Evaluating the Case for 1986-Style Corporate Tax Reform, (TaxAnalysts, available via the TaxProf)

 

Career Corner. My Firm Holiday Party is a Teaching Moment For What Not to Do at a Firm Holiday Party (Leona May, Going Concern)

 

News from the Profession. Former Stillwater mayor charged with aiding tax fraud (MPRnews.org):

A former mayor of Stillwater was charged in federal court Wednesday with helping two Minnesota brothers keep millions of dollars in taxes from the state and federal governments.

Ken Harycki, a certified public accountant, knowingly prepared false tax forms for twin brothers Thurlee and Roylee Belfrey and their health care companies, according to charges filed in U.S. District Court.

CPAs, you must only use your powers for good.

 

 

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Tax Roundup, 12/17/14: Lazarus rises! For two weeks, anyway. Senate passes extender bill.

December 17th, 2014 by Joe Kristan

The Senate has passed the extender bill and sent it to the President. The Hill reports:

By a 76 to 16 vote, the Senate passed a measure that would extend more than four dozen tax breaks for both businesses and individuals just through 2014.

Republicans and Democrats latched on to the one-year deal after the White House undercut negotiations on a broader bipartisan package, underscoring divisions between Democrats in the wake of this year’s heavy losses at the polls. Senators from both parties said Tuesday that they would have preferred legislation that restored the tax breaks through 2015.

20130113-3The President is expected to sign. That means we now know what the 2014 tax law is with two weeks left in the year. Unfortunately, all of the revived provisions die again on January 1, and Congress will have to go through this whole exercise to raise Lazarus again.

What does this do for year-end planning?

Fixed asset frenzy. Taxpayers who can place fixed assets in service between now and year-end can qualify for the $500,000 Section 179 deduction or 50% bonus depreciation.

The Section 179 rule allows taxpayers to fully deduct the cost of up to $500,000 in assets placed in service during 2014 that would otherwise be capitalized and depreciated over a period of years. It can apply no new or used property. It is normally unavailable for real estate or rental property. It is limited to taxable income, and it phases out dollar-for-dollar as fixed asset acquisitions exceed $500,000.

Bonus depreciation enables taxpayers to deduct 50% of the cost of qualifying property in the year in which it is placed in service. The remaining cost is depreciated under normal depreciation rules. It is only available for new property with a life up to 20 years, but it is not limited by taxable income or amount of assets placed in service, so it can generate net operating losses.

Remember that the tax law applies special limits to both Section 179 and bonus depreciation for vehicles.

S-SidewalkS corporation Built-in gains. The tax law requires S corporations to pay a 35% corporate-level tax on “built-in gains” included in taxable income during the “recognition period” after the convert from C corporation status. “Built-in gains” are income items, including appreciation of asset values, that exist at the time a C corporation becomes an S corporation.

This rule was enacted in 1986 with a ten-year “recognition period.” The tax goes away after the recognition period is over. The bill reduced the recognition period to five years for gains recognized in 2014. That opens tax planning doors. Taxpayers that have been S corporations for more than five years can unload appreciated assets. Taxpayers in their fifth S corporation year can reduce their taxable income to push any gains recognized this year past the recognition period — assuming this provision is extended to 2015.

IRA donations. The extender bill revives the provision allowing IRAs owned by individuals subject to the minimum distribution rules to make direct donations of up to $100,000 to charity. These donations do not show up as income or as itemized deductions on the owner returns.

Other tax breaks revived through the end of 2014 include the research credit, the deduction for state and local sales taxes, the educator expense deduction, charitable donations of conservation easements, and energy production tax credits. The Tax Policy Blog has more coverage, including a complete list of the extended benefits.

Other coverage:

Paul Neiffer, Senate Passes Tax Extender Bill 76-16

Robert D. Flach, FINALLY!

 

 

20130426-1Neil GandalWhy Does Uncle Sam Hate American Expats?  (Wall Street Journal, via the TaxProf):

The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.

But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.

The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back.

Our thumbless Congress, eager to to score cheap political points by cracking down on international “millionaires and billionaires,” has inadvertently, but effectively, made it ridiculously difficult for ordinary Americans working overseas to commit personal finance. They have enacted horrific financial penalties for petty paperwork violations. And the IRS has enforced these penalties under the assumption that everyone with an overseas account is a crook.

 

Tony Nitti, Have You Heard The One About The Tax Credit That You Pay To The IRS? It’s the premium tax credit under ACA that many taxpayers will have to repay with their tax returns in April.

Kay Bell, Noah’s Ark park loses state tax breaks (but Christmas is safe)

 

taxanalystslogoJeremy ScottSlashed Budget Shows IRS’s Failure to Build Political Support (Tax Analysts Blog, my emphasis):

Republicans made it clear that the cuts to the IRS were in response to the agency’s recent actions. The GOP has a long laundry list of complaints: the payment of IRS bonuses, the failure to accurately and timely answer questions about the exempt organization scandal, old training videos, and the cost of Obamacare implementation. With the exception of the last item, the Service has been tone-deaf in its response to Republicans. In fact, one might even call some of its vague and misleading answers outright defiance of the House majority. That’s an odd strategy for an agency crying out for more resources to take.

Regular readers know that this is my view also. I agree with this too:

Those who criticize the GOP’s handling of the various IRS scandals have a point. But lost in their reflexive defense of the Service are valid Republican complaints about the IRS’s lack of transparency and responsiveness. For whatever reason, the Service decided that it wouldn’t cooperate with Republicans over the scandal. Maybe it thought the GOP wouldn’t be reasonable. Maybe it thought giving clear answers and admitting obvious wrongdoing would be more damaging to its prospects than being opaque and evasive. Well, it was wrong — both in hindsight, given the budget passed over the weekend, and at the time, given the agency’s duty to be nonpartisan.

Read Mr. Scott’s whole piece. The result will be bad for taxpayers, but the IRS leadership can look in the mirror for someone to blame.

Howard Gleckman, The War on the IRS. As Jeremy Scott notes, the IRS is its own worst enemy in this war.

 

TaxProf, The IRS Scandal, Day 587. Featuring a contrarian take on the scandal from Peter Reilly.

Robert Wood, 20 Facts About IRS Targeting, Those Emails And The White House

 

News from the Profession. Going Concern Presents: The Worst of Auditing 2014 (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/16/14: Extenders as dessert after the Senate eats its peas.

December 16th, 2014 by Joe Kristan
Flickr image courtesy seriousbri under Creative Commons license.

Flickr image courtesy seriousbri under Creative Commons license.

It appears that the extenders will be served up to the Senate only when the Senators clean their plates. The Hill reports (my emphasis):

Once they are out of the way, Senate aides expect an agreement to confirm Obama’s other pending nominees by midweek.

That would speed up final votes on a package extending a variety of lapsed tax breaks and on the stalled Terrorism Risk Insurance Act.

Senate aides say a one-year extension of expired tax breaks will be one of the last items to move because it has strong support on both sides of the aisle and gives lawmakers incentive to stay in town to complete other work. They predict it will pass quickly once put on the schedule.

So lingering uncertainty about the tax law for taxpayers and advisors is the price we have to pay for the Senate to do its job. Glad to help, guys!

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Joseph Henchman, A Big Year for State Tax Reform, and Congrats to COST! (Tax Policy Blog):

All groups who work on state tax reform should feel proud of the accomplishments of 2014. North Carolina simplified and reduced its whole system, Indiana and Michigan cut investment taxes, New York reformed its entire corporate tax system, and even Rhode Island and the District of Columbia enacted tax reductions. Additionally, voters defeated tax increase proposals in Colorado and Nevada, and in the spring a big tax increase proposal in Illinois failed. Maine raised its sales tax, the only tax increase at the state level in 2014.

Iowa is painfully absent from this list, and it needs tax reform as much as any place.

 

buzz20140923Robert D. Flach offers your Tuesday Buzz, with links from all over.

William Perez explains How to Make Sure Your Charity Donation Is Tax-Deductible

Jason Dinesen, Changing the Way I Work with Business Clients. “For all entities, I now require some sort of year-round relationship.”

Keith Fogg, Bankruptcy Court Grants IRS Equitable Tolling and Denies Discharge on Late Return (Procedurally Taxing).

Peter Reilly, Tom Coburn Tax Decoder Takes On Clergy Tax Abuse. “Senator Tom Coburn has served as a deacon in a Southern Baptist church but that has not prevented him from taking a blast at a tax break that benefits the Southern Baptist Convention mightily.”

Kay Bell, Congress’ job rating improves! But just by 1 percentage point.

David Henderson, Deadweight Loss from the New California Gas Tax. Rather than using the money for roads, it goes into a big hole high-speed rail.

 

Martin Sullivan, Will Orrin Hatch Lead on Tax Reform? (Tax Analysts Blog). “. If — as Hatch writes in the preface to the report — “reform is vital and necessary to our nation’s economic well-being”– should he not also go beyond publishing reports and principles and write a real bill?”

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TaxProf, The IRS Scandal, Day 586

 

When there are so many worthy nominees, it’s hard to pick only twenty. 20 Really Stupid Things In The U.S. Tax Code (Robert Wood) I still think the Section 409A deferred comp rules and everything Obamacare should head any such list.

News from the Profession. The Office of the Future Looks Kind of Like a Homeless Encampment Under a Bridge (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/15/14: Is today the day the expired provisions arise? And: Ames Day!

December 15th, 2014 by Joe Kristan

Hey, calendar-year corporations and foundations, your fourth quarter estimates are due today.

lazarus risingCromnibus passes. Extenders today? The monstrous $1.1 trillion ($1,100,000,000,000) government funding bill that had been holding up passage of the one-year “extender” bill finally cleared the Senate over the weekend. We might see the Lazarus provisions rise again as early as today. The 55 provisions that expired at the end of 2013, and which HR 5771 would retroactively extend through the end of this month, include the $500,000 Section 179 limit, 50% bonus depreciation, and the research credit. The bill would also extend the five-year built-in gain tax recognition period and the rule allowing IRAs to contribute to charity.

I’ll be following developments and post if the bill clears today.

Update, 10:54: This from The Hill makes it look like nothing happens on the extenders before late tonight.

 

Ames! Today is the final session of this year’s Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. We expect over 300 attendees here at the conference and another 80 webinar attendees.  I always learn a lot from teaching and hearing from the attendees. Thanks to everyone who attended.

 

Kay Bell, Cutting IRS budget is a bad idea for taxpayers, U.S. Treasury.

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Kay is correct. Congress continues to pile more policy into the tax law. The IRS has become a superagency with a portfolio covering everything from industrial policy to historic preservation to running the national health care finance system. Oh, and it’s supposed to collect the revenue to finance the government, too.

Unfortunately, with great power comes great responsibility. The IRS has been abusing the power and scurrying away from the responsibility. The new Commissioner has forfeited any goodwill he had by stonewalling Congressional investigators in the Tea Party scandal. He insisted to Congress that the agency had exhaustively tried to retrieve the missing Lerner e-mails, only to have them turn up on backup tapes.

Also, the IRS undercuts its claims of poverty when it spends on things like the “voluntary” preparer initiative to sneak in the preparer-regulation scheme that the courts have barred.

It’s hardly a surprise that Congress isn’t eager to fund a rogue agency with an untrustworthy leader. Until a new Commissioner can restore trust, IRS will continue to struggle to get funding.

 

20121217-1Robert D. Flach, THE RETURN OF THE GAO UNDERCOVER OPERATION:

In 2006 the Government Accountability Office (GAO) sent undercover operatives to 19 “commercial preparer” branch offices in a major metropolitan area posing as taxpayers looking to have their tax returns prepared. Errors were identified in 19 of the 19 completed federal returns, some “significant”.

As complicated as the tax law has gotten, this is no surprise, and it’s gotten a lot worse since 2006.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #3-Aragona Trust Changes The Way We Look At Real Estate Professionals.   This case is a big deal, and it definitely changes the landscape of trusts under the new 3.8% Net Investment Income Tax.

Robert Wood, IRS Can Audit For Three Years, Six….Or Forever. “Anyone who is hiding income or assets from the taxman should consider how long they need to be looking over their shoulder.

William Perez, What You Need to Know About the Penalty for Not Having Health Insurance

Jason Dinesen, 5 Things You Didn’t Know About EAs, #3: Two Ways to the EA. One requires working for the IRS.

Leslie Book, CDP and Installment Agreements: Sometimes Court Review is Crucial; Other Times Not So Much. “This past week the Tax Court issued an opinion in a collection due process (CDP) case, Hosie v Commissioner. The case is a bad case for those who support CDP.”

Tim Todd, Tax Court Not Limited to Administrative Record in Plan Revocation Action

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TaxProf, The IRS Scandal, Day 585.

Peter Reilly, Did You Hear The One About Lois Lerner Walking Into A Bar?

Elaine Maag, Will Immigrants Get A Tax Windfall From Refundable Credits? (TaxVox)

Alan Cole, The Problem with Free Stuff (Tax Policy Blog):

If you see a promotion for something like 7-Eleven’s Free Slurpee Day, you always end up having to temper your excitement when you realize that you’ll inevitably be waiting in line with the many others who want to enjoy the same treat. This is an unfortunate fact of life, the sort of thing we all reluctantly come to grips with by the time we turn twelve or so.

What puzzles me, then, is why we so often forget that fact of life when we’re sitting in traffic.

Roads are very much like free Slurpees. While roads are certainly not free to construct (much like a Slurpee isn’t free to make) using a road involves relatively little in the way of a user fee.

I’ve driven in Slurpee-like conditions. Good tires are a must.

 

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Tax Roundup, 12/12/14: Extenders by tomorrow? Don’t count on it.

December 12th, 2014 by Joe Kristan

IMG_2491They filed an extension.  Congress avoided a “shutdown” of the government blast night by passing a bill to fund the government for two more days. That presumably gives the Senate time to pass the “Cromnibus” train wreck to fund most of the leviathan for the rest of the fiscal year. Now it looks like they might wrap it up by Monday.

The Hill reports that Outgoing Majority Leader Harry Reid will have the Senate take up the one-year tax extender bill as soon as the spending bill passes:

“We’ll take up the long-term spending bill tomorrow,” Reid said on the floor shortly before 10 pm Thursday. “Senators will want to debate this legislation. We’ll have that opportunity. The Senate will vote on the long-term funding bill as soon as possible.”

The omnibus will have to wait, however, until the Senate casts a final vote on the annual Defense Department authorization bill, which may take place as late as 4:30 p.m. Friday.

Reid hopes to pass the omnibus on Friday or Saturday and then move immediately to a one-year extension of various expired tax provisions.

The expired provisions would be revived by HR 5771. The bill retroactively extends the $500,000 Section 179 deduction, 50% bonus depreciation, the R&D credit, and the 5-year S corporation built-in gain recognition period through the end of this month. It also extends the IRA charitable contribution break and the non-business energy credits, among many other things.

There is a chance this could drag out until Monday, according to The Hill:

Reid will need to get unanimous consent to stick to his plan to finish work by Saturday. If any of his colleagues object to moving the omnibus quickly, a final vote on it could be delayed until Monday. 

Given the strong dislike of the bill from parts of each party, that’s a real possibility.

Related: Paul Neiffer, Tax Extender Bill May Be Punted to WeekendRenu Zaretsky (TaxVox),  Everybody’s Working for the Weekend.

 

Scott Drenkard and Richard Borean offer a map of Corporate Alternative Minimum Taxes by State, as of July 1, 2014 (Tax Policy Blog):

state corp amt map

Iowa has one. It adds a lot of complexity and very little revenue. Sort of like the Iowa corporation income tax itself.

 

William Perez offers some Year End Tax Planning Ideas for Self Employed Persons

Annette Nellen discusses Filing status challenges and developments

Robert D. Flach brings a “meaty” Friday Buzz, including a discussion of which states are the most corrupt. The “winner” may surprise you.

Keith Fogg, Bankruptcy’s Bar to Filing a Tax Court Petition

Peter Reilly, With Amazon Facing $1.5 Billion Income Tax Bill, Bezos Too Busy To Testify.

Jason Dinesen, 5 Things You Didn’t Know About EAs, #3: Two Ways to the EA

Breandan Donahue, Top Six Year-End Estate Planning Tips (ISU-CALT)

TaxProf, The IRS Scandal, Day 582

Richard Phillips, Cutting the IRS Budget is a Lose-Lose for American Taxpayers (Tax Justice Blog)

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Kay Bell, Tax reform bill finally introduced in Congress’ waning days. If its going to pass never, it doesn’t hurt to start it late.

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Tax Roundup, 12/11/14: Cromnibus cuts IRS budget, delays extender vote. And: Mileage goes to 57.5 cents.

December 11th, 2014 by Joe Kristan

The “Cromnibus” train-wreck spending bill process seems to be holding up everything else, including the extender vote. The 55 Lazarus provisions awaiting revival are on hold while Congress struggles to avert a government “shutdown” at midnight tonight.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Outgoing Senate Majority Leader Reid has said that the Senate will finish the Cromnibus before voting on the extender bill, HR 5771. The house-passed bill would extend dozens of tax breaks that expired at the end of 2013 retroactively through the end of this month. Business provisions in the bill include the $500,000 Section 179 deduction, 50% bonus depreciation, the R&D credit, and the 5-year built-in gain period for S corporations. The provision allowing IRA charitable donations is among the individual breaks at stake.

There is no indication that the Senate will fail to eventually pass HR 5771, or that the President will veto it, but politics are uncertain, and I’ll feel better about things when they do pass it. It appears the hope they would finish up today is wishful thinking, though; this Wall Street Journal story says the House is expected to pass a two-day funding bill today to give the Senate extra time to approve the spending bill.

The IRS faces a 3.1% funding cut in the bill. That’s a tribute to the tone-deaf and confrontational attitude of IRS Commissioner Koskinen, who has responded to the Tea Party scandals pretty much by saying “give us more money!” Given the increased responsibilities given the IRS by Congress, cutting their budget seems strange. Yet as long as the Commissioner keeps antagonizing his funders, and keeps finding money to fund his “voluntary” preparer regulation program to get around the Loving decision, he can expect similar appropriation success.

Related: Paul Neiffer, Tax Extender Bill May Be Punted to Weekend

 

Mileage rate goes to 57.5 centsWith gas prices falling, the standard IRS mileage rate is naturally going… up. The IRS yesterday released (Notice 2014-79) the 2015 standard mileage rates:

– 57.5 cents per mile for business miles. This is 56 cents for 2014.

– 14 cents per mile for charity miles, same as in 2014.

– 23 cents per mile for medical and moving miles. This rate is 23.5 cents for 2014.

Related: William Perez, How to Deduct Car and Truck Expenses on Your Taxes

 

20130819-1Peter Reilly, Iowa Corporation Not Liable For California Corporate Tax From Ownership Of LLC Interest. It discusses a California court ruling that mere ownership of a California LLC interest isn’t enough to make the corporate owner subject to California’s $800 minimum franchise tax. If it holds up, it will be good news for many taxpayers dinged by this stupid fee.

Jim Maule, Do-It-Yourself Tax Preparation? Better? Paid preparers didn’t do an impressive job handling the GAO’s secret shoppers.

Kay Bell, Mortgages offer nice tax breaks, but in limited parts of the U.S.

 

The new Cavalcade of Risk is up! at WorkersCompensation.com.  Always good stuff in the venerable roundup of insurance and risk-management blog posts; this edition features Hank Stern’s take on the “creepy” ACA 404Care.gov site.

 

Bryan Caplan, The Inanity of the Welfare State:

While taxes are highly progressive, transfers have an upside-down U-shape.  Households in the middle quintile get the most money.  The richest households actually get more money than the poorest.  Think about how many times you’ve heard about government’s great mission to “help the poor.”  Could there be any clearer evidence that such claims are mythology?

Eye-opening. Read the whole thing.

 

 

Robert Wood, Obama Justice Department Was Involved In IRS Targeting, Lerner Emails Reveal

TaxProf, The IRS Scandal, Day 581

 

EITC error chartAlan Cole, Treasury Report: Improper Payments Remain a Problem in EITC, Child Credit (Tax Policy Blog)

David Brunori, Mississippi’s Very Good Idea to Help its Poor (Tax Analysts Blog). It’s an earned income tax credit. Given the massive EITC fraud and error rate, I’m not convinced.

Tax Justice Blog, Update on the Push for Dynamic Scoring: Will Ryan Purge Congress’s Scorekeepers?

Joseph Thorndike, Wall Street Journal Prefers Ignorance to Expertise (Tax Analysts Blog). It’s about the CBO.

 

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Robert Goulder, Taxing Diverted Profits: The Empire Strikes Back (Tax Analysts Blog).  “The message is this: Once people realize what a functional territorial regime looks like, they suddenly become less enamored with the concept. One of several reasons why U.S. tax reform won’t be easy.”

Chris Sanchirico, A Repatriation Tax Holiday for US Multinationals? Four Contagious Illusions (TaxVox)

 

News from the Profession. The AICPA Can’t Figure Out Why Record Numbers of Accounting Grads Aren’t Taking the CPA Exam (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 12/10/14: Extender bill lives, permanent charitable extender bill doesn’t. And: don’t just buy it; install it!

December 10th, 2014 by Joe Kristan

lizard20140826Whither the extender bill? HR 5771, the bill to extend retroactively through the end of this month the 55 or so tax breaks that expired at the end of 2013, has been “placed on the Senate Legislative Calendar.” That means it appears to be proceeding to a vote, though I find nothing on when that will happen. Tax Analysts reports ($link) that outgoing Senate Majority Leader Reid says he will take up the extender bill ” after finishing work on a defense authorization bill and a government funding measure.”

Meanwhile, the President has threatened to veto a separate attempt to permanently extend three charitable breaks in the extender bill, including the break for IRA contributions. While that’s bad for those breaks, it implies that the White House will not oppose HR 5771’s one-year extension.

 

20130422-2Because it looks as though the “extender” bill will clear the Senate, taxpayers looking to add fixed assets have extra incentive to get it done this year. The bill extends through 2014 — and only through 2014 — the $500,000 limit on Section 179 deductions and 50% bonus depreciation. These breaks allow taxpayers to deduct over half (bonus depreciation) or all (Section 179) of the cost of fixed assets that are otherwise capitalized, with their deductions spread over 3 to 20 years.

Taxpayers should remember that it’s not enough to order or pay for a new asset by the end of 2014 to qualify for these breaks. The asset has to be “placed in service” by year end.

A Tax Court case from last December drives home the point, where a taxpayer lost an $11 million bonus depreciation deduction in 2003 because an asset bought at year-end wasn’t “placed in service” on time.  Judge Holmes takes up the story:

On December 30, 2003, an insurance salesman named Michael Brown1 took ownership of a $22 million plane in Portland, Oregon. He flew from there to Seattle to Chicago — he says for business meetings — and then back to Portland. Brown says these flights put the plane in service in 2003, and entitle him to a giant bonus-depreciation allowance. But a few days later he had the plane flown to a plant in Illinois where it underwent additional modifications that were completed about a month later.

The IRS argued that the need for modifications meant the airplane wasn’t “placed in service” before year end. The taxpayer argued that the airplane was “fully functional” as purchased, and therefore was “placed in service” when acquired and used for its first flight on December 30, 2003. The court agreed with the IRS:

While acknowledging in his briefs that those modifications made the Challenger “more valuable to him” and allowed him to “more comfortably conduct business” as a passenger, he says they have “nothing to do with the Challenger’s assigned function of transporting him for his business.” The problem is that this posttrial framing just doesn’t square with the trial testimony, in which Brown testified that those two modifications were “needed” and “required”. We therefore find that the Challenger simply was not available for its intended use on a regular basis until those modifications were installed in 2004. Brown thus didn’t place the Challenger in service in 2003 and can’t take bonus depreciation on it that year.

A new asset doesn’t actually have to be used during the year to be “placed in service,” but it has to be ready to go. A new machine should be on the floor and hooked up, not just in a crate on the dock, or in a trailer on the way in, if you want to depreciate it. If the new asset is a vehicle, you need to take delivery to get the deduction. If the asset is a farm building, it needs to be assembled and in place, not in boxes on the ground.

Cite: Brown, T.C. Memo 2013-275

 

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The TaxProf reports on a new Treasury Inspector General report, TIGTA: IRS Has 25-30% Error Rate In Refundable Child Tax Credits, Mistakenly Pays $6-7 Billion:

The IRS has continually rated the risk of improper ACTC payments as low. However, TIGTA’s assessment of the potential for ACTC improper payments indicates the ACTC improper payment rate is similar to that of the EITC. Using IRS data, TIGTA estimates the potential ACTC improper payment rate for Fiscal Year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.

So at least 1/4 of the credit is claimed fraudulently or illegally. This is one of the provisions the President insists be made permanent as a price for permanently extending business provisions. He killed the permanent extender compromise when it didn’t also make the child credit permanent.

 

Wind turbineIowa Public Radio reports Grassley Wants Wind Tax Credit to Go Further. He should read Bryan Caplan’s review, The Moral Case for Fossil Fuels: We Owe Civilization to Fossil Fuels. “And despite decades of government favoritism, alternative fuels have yet to deliver.”

 

Peter Reilly, Seventh Circuit Will Not Let Tax Protester Blame His Lawyer For Conviction:

James Stuart thought that Peter Hendrickson had “cracked the code” – the Internal Revenue Code, that is. Joe Kristan would characterize it as finding the tax fairy – that magical sprite who make your taxes go away painlessly while your sucker friends send checks to the tax man.   

It’s always fun to be named-checked by a Forbes blogger.

Jana Luttenegger Weiler, Tax Tips for Gifts to Charity (Davis Brown Tax Law Blog).

Robert D. Flach, DONOR ADVISED FUNDS. For at least 99.99% of taxpayers, these are far better than setting up a private foundation.

Kay Bell, Sen. Tom Coburn’s parting gift: a tax code decoder

Paul Neiffer, Watch Your Crop Insurance Form 1099s This Year

Jason Dinesen, 5 Things You Didn’t Know About EAs, #2: We Don’t Work for the IRS

Brad Ridlehoover, The Grinch That Stole Their Reasonable Cause… (Procedurally Taxing)

Tim Todd, IRS Erred in Making Notice of Tax Lien a Condition to Installment Agreement

 

TaxProf, The IRS Scandal, Day 580. Lois Lerner appears to have been scheming to sic the Justice Department on the Tea Partiers as early as 2010, according to newly-unearthed e-mails.

 

Howard Gleckman asks Why Does Congress Pay For Some Tax Cuts and Not Others? (TaxVox). “It can’t be the merits of the recipients. By now, TaxVox readers know that the expired tax breaks included such worthies as preferences for race horse owners, Puerto Rican rum manufacturers, and TV and film producers.”

Eric Cederwall asks What is the Simplest Tax System? (Tax Policy Blog). “Normative economics aside, a per-person tax is one of the most economically efficient taxes for raising revenue.”  Not happening, though.

 

Adrienne Gonzalez, Kids These Days Trust the IRS More Than Olds Do (Going Concern). Like Santa Claus and the Tooth Fairy, they’ll figure it out eventually.

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Tax Roundup, 12/9/14: Just because your manager steals your payroll taxes doesn’t get you out of them. And: Rashia!

December 9th, 2014 by Joe Kristan

No news on extenders yet. 

 

EFTPSDouble the pain: Idaho business manager steals payroll taxes, but IRS still wants them. An implement dealer in Idaho hired a manager to run day-to-day operations. He learned the hard way that while you can delegate your payroll tax function, you can’t escape it.

The taxpayer, a Mr. Shore, hired Mr. Lewis to run Bear River Equipment, Inc. (BRE), a McCormick Tractors dealership. Mr. Lewis had managed the dealership before Mr. Shore acquired it, so it seemed a sensible hiring decision.

Things started to go wrong quickly. Mr. Lewis failed to remit payroll taxes in his first year running the dealership. Mr. Shore kept up with the business by phone and made quarterly visits, according to a U.S. District Court judge, and he also reviewed financial results. This process enabled him to note unpaid taxes in 2005, the first year of operations, and he had Mr. Lewis get them caught up.  As owner, Mr. Shore had checkbook authority, but he let Mr. Lewis take care of it for him.

The judge explains how things went very wrong (my emphasis):

In August 2007, Shore received notice from an Internal Revenue Service Agent that there were some serious issues with BRE’s employment taxes for 2006 and 2007. This notice was the first time Shore became aware that BRE’s 2006 and 2007 payroll taxes had not been paid. Shore subsequently learned that Lewis had been embezzling from BRE, failing to pay creditors or pay BRE’s taxes, and stealing BRE’s assets. Upon discovering Lewis’ fraud, Shore fired Lewis and took over management of BRE.

Not a good hire, in hindsight. It proved fatal to the business:

Shore ultimately decided to close BRE because he believed he could not pay all of the liabilities and contribute sufficient working capital to keep the company going. Before closing the company, however, Shore allowed more than $120,000 from BRE’s checking accounts to be paid to unsecured creditors other than the United States.

Via Wikimedia Commons

Via Wikimedia Commons

As it turns out, that was a false move. The tax man gets really, really upset when payroll taxes aren’t remitted to the IRS. The business was incorporated, which protects owners from most liabilities incurred inside the corporation. The tax law, though, allows the IRS to collect payroll taxes from “responsible persons,” regardless of the existence of the corporation, if there is a “willful” failure to remit. The court held that Mr. Shore was a “responsible person” even though he didn’t run the business day-to-day:

…despite delegating his authority to Lewis and permitting him to run BRE’s daily affairs, Shore remained a “responsible person” because he had effective control of the corporation and the effective power to direct the corporation’s business choices, including the withholding and payment of trust fund taxes.

It’s not enough to be “responsible.” The tax law requires “willful” nonpayment of employment taxes to assess them against a responsible person. The $120,000 payment was a bad fact, according to the court:

Here it is undisputed that Shore learned of BRE’s unpaid tax liability in August 2007. It is also undisputed that BRE paid more than $120,000 to unsecured creditors after Shore learned of BRE’s tax liability. Shores’ failure to remedy the payroll tax deficiencies upon learning of their existence in August 2007, while subsequently allowing corporate payments to be made elsewhere, including to unsecured creditors, constitutes “willful” conduct under § 6672.

The Moral? There are a number of lessons to be drawn here. One is basic accounting controls. It appears that the manager had far too much control over the accounting function and bank accounts, enabling him to loot the company, and the payroll tax account, before the owner caught on.

Even with poor accounting controls, though, the owner could have detected the non-payment of payroll taxes. These are supposed to be remitted under the Electronic Federal Tax Payment System (EFTPS). Users of EFTPS can log into their payroll tax account and monitor their payments. Had Mr. Lewis done so, he might have detected the failure to make payments that ultimately ballooned into a million-dollar payroll tax deficiency.

Cite: Shore v. U.S., DC-ID, No 1:13-cv-00220

 

Gas Tax Fever: Branstad Weighs Proposed Gas Tax (CBS2Iowa.com): “On Monday Governor Branstad said he would keep an open mind on raising the tax if a bipartisan plan came to his desk and he’s hopeful lawmakers can come to some agreement this coming year.”

 

Mason City Sundog Morning. It’s cold here today.

Peter Reilly, Chief Counsel Advice Provides Timely Warning About 1099 Filing Requirements. “A recently released memo from the IRS Chief Counsel – CCA 201447025 – drives home for me the point that there is probably a lot of exposure out there from not filing 1099s.”

Robert D. Flach has your Tuesday Buzz, with a typically rich set of tax links, including one to Prof. Maule’s thoughts on being nice to siblings.
 

Jason Dinesen, 5 Things About EAs: We’ve Been Around Since 1884
 

Paul Neiffer, Are We Getting Section 179 Fatigue? “After purchasing a lot of equipment over the last 4 years to take advantage of Section 179, I am not sure how much capital is still available to purchase even more equipment to get the Section 179 deduction.”
 

Kay Bell, Attention older IRA owners, your RMD is due by Dec. 31
 

Michael Schuyler, The Government’s Tax-Transfer System Is Extremely Progressive (Tax Policy Blog):

In November, the Congressional Budget Office (CBO) released the latest annual edition of its report on the distribution of household income and federal taxes, with data for 2011. The CBO study confirms that the federal tax system is progressive. It further shows that government transfers to households are also progressive.

It appears that way:

transfer-tax ratios

Chart from Tax Policy Blog

 

Jeremy Scott, The New GOP Congress and the Congressional Budget Office (Tax Analysts Blog). “If Republicans accept the premise that shaking up congressional staff would make it look like they are rigging the process in favor of their proposals, that undermines the logic behind their priorities to begin with.”

Isabel Sawhill, The Lee-Rubio Family-Friendly Tax Is a Disappointment (TaxVox)

Martin Sullivan, Rand Paul Puts Chokehold on Cigarette Taxes — He’s Got a Point (Tax Analysts Blog).:

But there are still 42 million smokers in the United States. Nicotine is extremely addictive. These folks should elicit our compassion, not our contempt. And if we are going to fine them for their sins, the revenues should not inure to our benefit.

State governments are loathe to give up their nicotine fix.

 

TaxProf, The IRS Scandal, Day 579

 

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

Rashia gets time off. The self-proclaimed “Queen of IRS Tax Fraud” will return from exile a little sooner, thanks to an appeals court decision yesterday. From Tampa Bay Online:

A federal appeals court has thrown out Wilson’s two sentences, ruling that senior U.S. District Judge James S. Moody Jr. made procedural errors that may have increased her total prison term by more than 3 1/2 years.

Her convictions stand and Moody retains discretion. But he must recalculate the formula he used to determine punishment and he must resentence Wilson, now 29, at a future hearing.

Ms. Wilson is unlikely to be coming home right away. She is serving a 21-year sentence on charges related to identity theft refund fraud. She got in trouble after taunting the IRS on her Facebook, which also included photos of her posing with wads of stolen cash.  The article explains the background for the sentencing reduction:

The original sentencing was especially complex because Wilson was indicted twice in 2012. In one case, she pleaded guilty to possessing guns, illegal for a felon. In another, she admitted to netting more than $3 million through aggravated identity theft and wire fraud.

When using social media, sometimes it pays to be discreet.

 

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Tax Roundup, 12/8/14: Denison! And: Do-or-die week for extenders?

December 8th, 2014 by Joe Kristan

donnareedThe Tax Update comes to you today from Denison, Iowa, birthplace of actress Donna Reed. It’s also the fertile ground from which sprang the fertile imagination of Kennedy assassination figure Jim Garrison.

Today Denison hosts the seventh session of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m helping out with the Day 1 panel. The last session is in Ames next Monday (register now!).  If you can’t be there in person, that session will also be webcast.

 

Congress wants to finish up its year Thursday, reports The Hill. This article says the Senate is expected to take up the “extenders” bill before it goes home. This could mean that Majority Leader Reid’s comments last week that he might be too busy to bring up the bill are no longer operative. I hope so.

This post from the Tax Policy Blog lists all of the extenders passed by the House last week in HR 5771. The bill revives these provisions through the end of this month, retroactively to the beginning of 2014. Prominent among them are the $500,000 Section 179 limit, 50% bonus depreciation, the research credit and the five-year limit on built-in gains. The bill also includes individual provisions like the exclusion for IRA donations for charity and the deduction for educator expenses and the non-business energy credit.

Paul Neiffer, Senate to Vote on Tax Extenders on Wednesday?

 

20141208-1

Today in Denison, Iowa.

 

Tax reform on the Iowa legislative agenda? The Des Moines Register reports that legislators are at least thinking about it.

Income tax reform will be high on the agenda when the Legislature convenes in January, although many details have yet to be hammered out, key lawmakers said Friday.

However, Democratic and Republican legislative leaders told the Iowa Taxpayers Association they are welcoming a debate on revising Iowa’s income tax system.

This paragraph from the story is why I don’t expect much to happen this session:

State Rep. Tom Sands, R-Wapello, chairman of the tax-writing House Ways and Means Committee, said his preference would be to examine corporate and individual income taxes while exploring ways to simplify the tax system. Senate Majority Leader Michael Gronstal, D-Council Bluffs, said any tax cuts should be focused on helping middle-class Iowans.

Nor does this bode well:

“If it is only to say really rich people get a break that nobody else can use; no, it doesn’t pass muster,” Gronstal told reporters.

If you have to “explore” ways to simplify Iowa’s byzantine tax system, you haven’t looked very hard. The whole thing about “really rich” taxpayers could guarantee that any reform of Iowa’s high rates and complexity won’t pass muster with Senator Gronstal, which is the same thing as not clearing the Iowa Senate.

If they do want to get serious, though, they could do a lot worse than starting with The Tax Update’s Quick and Dirty Iowa Tax Reform plan, sweeping away vast swaths of deductions and crony credits, eliminating the corporation tax, and slashing rates.

 

Just a few quick links today:

 

20121108-1Russ Fox, Speaking of Efficiency. “Imagine what would happen if every Congresscritter did their own tax returns by hand. The Tax Code would unanimously be shrunk four hours later.”  I think they should have to do it on a live webcast with a running comments feature.

Robert D. Flach, EVERYBODY OUGHT TO HAVE AN IRA

Kay Bell, IRS holding millions of dollars in frozen taxpayer accounts

TaxGrrrl, Whistleblower Alleges Vanguard Cheated On Taxes, Costing Taxpayers More Than $1 Billion

TaxProf, The IRS Scandal, Day 578

 

20141208-2TaxSlayer Bowl! Iowa’s highest-paid state employee will lead the 7-5 Hawkeyes to Jacksonville to compete with 6-6 Tennessee in the TaxSlayer Bowl.  I understand the game will be played under standard college football rules. It would help the educational mission of the schools if they modified the rules to reflect the tax theme. If college football had rules like the tax law, we might see some different rules.

– Throughout the game, referees would audit completed plays, with the option of imposing penalties for infractions in the three prior games, with yardage charged in the current game.

– When the play clock runs down, the quarterback can call for one automatic extension.

– When calling an audible, the quarterback will have to request a change in method from the referee.

– When a penalty is called, the referees could not tell the opposing team what the penalty is for under confidentiality rules.

– Penalties can be imposed on coaches who are “responsible persons” with respect to the infraction.

– If you like your football, you can keep your football.

 

 

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Tax Roundup, 12/5/14: Senate just too busy to pass extenders? And: grumbling about incentive tax credits.

December 5th, 2014 by Joe Kristan

lizard20140826Is the Senate just too darn busy to vote on the House-passed extender bill? Lame Duck Senate Majority Leader Harry Reid says it just might be, says a report in The Hill:

Majority Leader Harry Reid (D-Nev.) said Thursday night that the Senate might not be able to pass the House tax extenders bill before the end of the year.

“Everyone knows we have to do a spending bill. Everyone knows we have to do a defense bill,” Reid said on the Senate floor. “Everyone knows that we’re trying to do some tax extenders. We’re trying to do that but we’ll see.”

I hope he’s not serious. Given the stakes to individual and business taxpayers and to the IRS this filing season, I think Senator Reid coud fit an up-or-down vote into his busy, busy day.

This passive-aggressive foot-dragging could be an attempt to get some concession out of Senate Republicans while Senator Reid still is majority leader. Perhaps it’s a mere gesture to save face after his humiliation at the hands of the President, who shot down a compromise he had negotiated with House GOP taxwriter Dave Camp. Or maybe it’s just a poke at the GOP, which will take over the Senate next month.

The bill  (HR 5771) would extend 55 provisions that lapsed at the end of 2013 through the end of this month retroactively. The Lazarus Provisions include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit and the five-year limit on built-in gains. It also includes individual provisions like the exclusion for IRA donations for charity and the deduction for educator expenses.

I still expect the Senate to pick up the bill soon. Accounting Today reports that the Senate is likely to vote on the House-passed “Extender” bill as soon as next week. Still, it is an unwelcome turn in the extenders melodrama, leaving taxpayers and the IRS hanging just a little longer.

Prior coverage: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Paul Neiffer, House Passes HR 5771 Tax Extender Bill

 

20120906-1Will corporate welfare tax incentives be an issue in the next Iowa legislature? A report by Iowa Public Radio’s Joyce Russell hints that it might be:

State assistance to attract Google, Microsoft, and Facebook to Iowa is under scrutiny by a statehouse committee.

The panel is looking at tax incentives the state hands out to attract industry, including the big datacenters which are making more than three billion dollars in capital investments in the state.

It appears chief Iowa Senate taxwriter Joe Bolkcom is involved:

“We need a better handle on the money being spent and the jobs being created,” says Iowa City Democrat Joe Bolkcom.

Officials with the Department of Revenue say the companies’ tax records are confidential . Lawmakers may sponsor legislation to get around that.

“Taxpayers have a right to know the exact cost,” Bolkcom says.

That’s the wonder of corporate welfare tax credits. Because tax returns are confidential, we can’t know exactly how much taxpayer money is thrown at any company. All we see are the phot0-ops and ribbon cuttings by the politicians who are being generous with other people’s money.

Senator Bolkcom says Iowa’s tax credits have doubled in four years. That’s true, though they are still below the $342 million record set in fiscal year 2007. The most recent Iowa Tax Credits Contingent Liabilities Report shows $248.5 million tax credits were issued in the last fiscal year.  The report attributes the decline to caps imposed on the credits in the wake of the Film Tax Credit Scandal.  That amount is expected to rise to $402 million for 2016. That compares to $428 million collected by the entire Iowa corporation income tax in 2013, according to this report (page 6).

I have an idea for a compromise. Get rid of Iowa’s highest-in-the world corporation income tax and all of the incentive tax credits. Enact The Tax Update’s Quick and Dirty Iowa Tax Reform! That should make everyone happy, right?

 

20140826-1Robert D. Flach has some fresh Friday Buzz. It looks like I won’t have my extended comments on his thoughts on tax preparer civil disobedience until next week. Dang extenders.

Keith Fogg, Litigating the Merits of a Trust Fund Recovery Penalty Case in CDP When the Taxpayer Fails to Receive the Notice (Procedurally Taxing)

Robert Wood, Recovered IRS Emails Can’t Be Revealed Because Of Privacy…That Was Already Breached,

Kay Bell, NYC’s high cigarette tax blamed for Eric Garner’s death.

TaxProf, The IRS Scandal, Day 575 (TaxProf)

 

Career Corner. Ex-Crazy Eddie CFO’s 10 Tips for Advancing Your Accounting Career (Adrienne Gonzalez, Going Concern). Always trust a felon!

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IRS issues Applicable Federal Rates (AFR) for December 2014

December 4th, 2014 by Joe Kristan

The IRS has issued (Rev. Rul. 2014-31) the minimum required interest rates for loans made in December 2014:

Short Term (demand loans and loans with terms of up to 3 years): 0.34%

-Mid-Term (loans from 3-9 years): 1.72%

-Long-Term (over 9 years): 2.74%

The Long-term tax-exempt rate for Section 382 ownership changes in December 2014 is 2.8%.

Historical AFRs may be found here or from prior Tax Update posts.

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Tax Roundup, 12/4/14: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

December 4th, 2014 by Joe Kristan

Accounting Today visitors: Click here for the Lincoln year-end planning link.

lazarus risingHouse passes extenders; Senate action not yet slated. The House of Representatives yesterday revived the Lazarus provisions of the tax law, passing HR 5771 on a 378-46 vote.

The bill now moves to the Senate, which has not yet scheduled a vote. The Hill reports that Senate Democrats have given up on promoting a competing bill, which probably means they will go along with the House bill. While the President has not said he would sign the House bill, he hasn’t threatened a veto; that probably means he will go along.

The expired tax provisions revived by the bill include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit, and the five-year built-in gain period for S corporations. They also include crony subsidies like energy production credits and accelerated depreciation for racetracks. A compromise plan to extend some of the provisions permanently collapsed when the President threatened to veto it.

The house-passed bill only extends the tax breaks that expired at the end of last year through the end of this month. That means the new Congress will have to do this again in 2015. Let’s hope they get an earlier start than they did this year.

Related:

Wall Street Journal, House Approves Temporary Tax Breaks

Accounting Today, House Passes $42 Billion Plan to Revive U.S. Tax Breaks for 2014

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Gas Tax Fever! The Greater Des Moines Partnership unveiled its legislative agenda yesterday. While it has a few good ideas, like reviewing Iowa’s pension plans for soundness, its priorities are crony-capitalist items like support for economic development tax credits and “public-private partnerships.” Its weak tax reform plank supports the Alternative Maximum Tax, which would allow individuals to choose an optional low-rate, broad base system. You’ll look in vain for anything specific to improve Iowa’s bottom-ten business tax climate — just a general call for lower rates. That may be because many large corporations have learned to use Iowa’s rats nest of special interest breaks and crony tax credits to their advantage.

The agenda also includes support for an increase in the gas tax to fund road projects.  That plank has some policy logic behind it, but it also is a tough sell. Caffeinated Thoughts reports that Iowans for Tax Relief has already come out against it. ITR opposition makes it hard for many GOP legislators to support the increase. Maybe that’s why the Sioux City Journal is reporting “Iowa legislative leaders murky on gas tax increase

 

Robert D. Flach, IT AIN’T NECESSARILY SO – H&R BLOCK CEO ALLEGEDLY CARES ABOUT EFFICIENT AND EFFECTIVE TAX ADMINISTRATION. “Here is what is a good idea for proper efficient and effective tax administration – remove the Earned Income Credit, and all other government social welfare and other benefit programs, from the Tax Code.” Amen, Brother Robert.

 

Jason Dinesen, who is a pioneer in the taxation of same-sex married couples, offers A Brief History of Marriage in the Tax Code: Introduction

Paul Neiffer, Irrigation Systems – Is that 7 or 15 Years?  Depends on whether it’s buried.

Tony Nitti, Sorry Mr. Ryan, But Corporate-Only Tax Reform Doesn’t Work. Somebody tell the President.

Kay Bell, Spend down your flexible spending account by Dec. 31

Jeff Stimpson, In the Blogs: Start Your Engines (Accounting Today)

 

Mark J. PerryTop 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%:

top 400 bottom 50

 

TaxProf, The IRS Scandal, Day 574.  Yes, there are thousands of e-mails that may show the IRS improperly accessed confidential taxpayer records. Releasing them might violate taxpayer confidentiality, so they stay secret. How convenient.

The return confidentiality rules should be amended so that those abusing them can’t also hide behind them.

20140729-1Alan Cole, Bonus Depreciation is a Step Towards Fair Tax Accounting (Tax Policy Blog).

Elaine Maag, Why the More Generous Child and Earned Income Tax Credits Should Be Made Permanent (TaxVox). Because we like having 20% of it wasted or stolen?

Tax Justice Blog, Dave Camp’s Reform Plan Should Not Be the Starting Point for the Tax Debate.

 

Cara Griffith, Transparency Concerns Linger in Washington State (Tax Analysts Blog) Cockroaches and administrators tend to prefer darkness.

 

Career Corner. Protip for Future CPAs: Forging Signatures on Your Work Experience Form is Dumb (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/3/14: House voting on extenders today. Are Senate, White House on board?

December 3rd, 2014 by Joe Kristan

20130113-3The House will likely pass one-year extender bill today. Will the Senate and White House go along? Multiple reports say that the House of Representatives is expected to approve HR 5771 today, reviving 55 perennially-resurected tax breaks through 2014. The breaks, which include bonus depreciation, the $500,000 Section 179 deduction, and the research credit, all expired at the end of 2013.

While the fate of the bill in the Senate and the White House are not entirely clear, I expect the House bill to pass, given the lack of alternatives.  The Wall Street Journal reports:

Senate Finance Committee Chairman Ron Wyden (D., Ore.) used a weekly Senate Democratic luncheon Tuesday to push for an alternative that would extend expiring tax breaks through 2015.

But his Republican counterpart on the committee, Utah Sen. Orrin Hatch, brushed that aside, saying time was running out. Mr. Hatch—on whom Mr. Wyden frequently relies when crafting deals—came out in favor of the short-term fix, saying the only alternative he would support at this point was the one worked out between Senate Majority Leader Harry Reid (D., Nev.) and House Ways and Means Committee Chairman Dave Camp (R., Mich.) and drew a White House veto threat last week. If the Senate advanced a new version, “there will be no bill” because “the House is going to leave,” Mr. Hatch said.

The full text of Sen. Hatch’s statements can be found here.

The Hill reports that the White House appears ready to go along with the House bill. Given the way the White House threatened a veto of the House-Senate deal that would have extended some of the breaks permanently, I think the lack of a veto threat means the President is likely to sign this version. While there appears to be some unhappiness with the House bill — Senator Grassley is not a fan of the one-year approach —  I expect the lame-duck Senate to pass it anyway. Unfortunately, it’s not clear when the Senate will act.

Congress has for years passed these provisions for one or two years at a time because Congressional budget rules allow them to pretend they are less expensive than they really are. Unfortunately, that often leaves taxpayers uncertain as to what the tax law is for the year until the year is almost over — or, in 2012, until the year was over. That makes it hard to evaluate the economics of important fixed-asset decisions. The abortive House-Senate deal would have ended this game for several key provisions, but the White House chose scoring cheap political points over an improved business tax environment.

Related:

Paul Neiffer, Is an One-Year Extension of Section 179 all we get?!

Howard Gleckman, How To End the Tax Extender Drama: Stop Calling Them Extenders—And Make Congress Pay For Them

Kay Bell, Tax extenders compromise: OK expired breaks for 2014 only

 

20121108-1Peter Reilly, Repair Regs – A Hellish Tax Season And Refunds Of Biblical Magnitude. Peter discusses the need, or not, for massive filing of useless accounting method changes to implement the new “repair regulations.” He also touches on a potential boon for owners of commercial real estate.

Robert D. Flach, TAKING ADVANTAGE OF THE 0% TAX RATE

William Perez, What You Need to Know about the Premium Assistance Tax Credit

Russ Fox notes A Rare Piece of Efficiency from the IRS

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #4-IRS Rules on Self-Employment Income Of LLC Members.

 

Robert Wood, What IRS Calls ‘Willful’–Even A Smidgen–Can Mean Penalties Or Jail

TaxGrrrl, Feeling Spendy This Year? ’12 Days Of Christmas’ Slightly More Expensive

 

microsoft-appleSound Advice. David Brunori offers Advice for the New Republican Legislative Majorities (Tax Analysts Blog). It’s full of sound advice, but I especially like this:

Republicans should become the party of virtue, courage, and honesty when it comes to taxes. They should fight crony capitalism, as there is nothing more abhorrent to the free market than the government picking winners and losers. Yet state governments do just that all the time. The proliferation of tax incentives represents horrible tax policy. That politicians can decide economic policy through tax incentives is more akin to a Soviet five-year plan than to Adam Smith’s invisible hand. True conservatives should fight attempts to use tax policy to further economic objectives. Broad-based taxes and low rates will always serve the conservative cause better than the existing nonsensical tax laws. Standing on principle to ensure a broad tax base is hard — and neither party has been able to do it. But it is a stand worth taking.

That would be wonderful advice here in Iowa, but our newly re-elected GOP governor has been up to his mustache in crony tax breaks to chase high-profile businesses. Meanwhile Iowa’s home-grown businesses don’t get the big subsidies. They are dragged down by the highest corporation tax rate in the developed world, baroque complexity, and a bottom-ten business tax environment.

A real pro-business tax reform in Iowa might look something like The Tax Update’s Quick and Dirty Iowa Tax Reform.

 

TaxProf, The IRS Scandal, Day 573.

 

lizard20140826Leslie BookH&R Block CEO Asks IRS To Make it Harder to Self-Prepare Tax Returns and Why That is Good for the Tax System.  “Yet, as I explain here, I think the changes he proposes would likely be good for the tax system because they could enhance visibility and accountability, principles the IRS should emphasize with issues that tend to have sticky error rates.”

H&R Block has been trying to pad its income for years on the backs of retail taxpayers. Its former CEO authored the illegal tax preparer regulations system the IRS tried to force on the industry — a system that would have run many of Henry and Robert’s competitors out of the buisness. Now they want to force the lowest-income earners through their doors.

I think the right approach to advice from an outfit that so shamelessly promotes its interests at the expense of taxpayers may be to carefully note it, and to do exactly the opposite.

 

Stephen Entin, No Mystery that Investment Slump Hurts Workers, Lowers Productivity and Wages (Tax Policy Blog)

 

News from the Profession. Why Is Everyone in Public Accounting Obsessed with Sports? (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/2/14: Dead provisions to arise for just a few weeks? And: Shocker! IRS Commissioner wants more $$$

December 2nd, 2014 by Joe Kristan

lazarus risingCongress to let the Lazarus provisions make it to the end of 2014? The White House’s threat to veto the Senate’s deal to permanently extend some of the perennially expiring tax provisions has killed that proposal. Now it looks like Congress will take up a bill to extend the provisions, which expired at the end of 2013, through the end of this year. That means we get to do this all over again next year. The Hill reports:

The vote on a short-term extension, expected as soon as this week, would come after a veto threat from President Obama derailed a developing $400 billion deal between Senate Majority Leader Harry Reid (D-Nev.) and House Ways and Means Chairman Dave Camp (R-Mich.) that would have extended some expired tax breaks indefinitely, as well as others for two years.

Republicans on both side of the Capitol suggested the move showed that a one-year deal was the only proposal with a chance of becoming law.

The article says “practically all” of the provisions that expired at the end of 2013 will be included. The Lazarus provisions that will come back to life include, among many others:

– A $500,000 Section 179 deduction for asset purchases that would otherwise be capitalized and depreciated.

– 50% “bonus depreciation”

– The research credit

– The five-year built-in gain period.

– The allowance of tax-free distributions from IRAs to charities.

The full text of the bill is available here: (HR 5771)

So we will get a 2014 tax law just as 2014 comes to an end. Because there is no election, there is hope that we won’t have to wait until December 2015 to know what the tax law is for 2015. Not exactly a shining moment in tax policy.

The bill also includes technical corrections for tax bills going back to 2004.

Related:

How the White House torpedoed Harry Reid’s tax deal (The Hill)

The Politics and Policy of Tax Extenders (Len Burman, TaxVox). “In theory, allowing tax provisions to expire periodically could precipitate a careful reexamination of the effectiveness of each program in light of our fiscal situation and priorities. In practice, the expiration of popular temporary provisions such as the R&E credit creates a vehicle for all sorts of budget-busting mischief.”

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

TaxGrrrl has posted another installment of her interview with IRS Commissioner KoskinenYou may not be astounded to hear that he wants more money:

With spending cuts already taking a toll on taxpayer services, the agency is bracing itself for another tough season. In fact, Koskinen cites funding the IRS as his biggest challenge since taking office last December.

“It’s a serious problem for us,” he says. “I don’t know who got our $500 million but I’ll bet they’re not gonna give you back the $2-3 billion we would have if we had it.”

Given that the Congress has used the tax law as the Swiss Army Knife of public policy, with responsibilities including attempting to run the broken Obamacare machine, it’s not unreasonable to think IRS has increased needs for funds.

That said, the Commissioner has nobody to blame but himself. His tone-deaf and confrontational tone with Republicans investigating the political abuse of the Exempt Organizations function has earned him no friends in the party that controls the purse strings. The sudden appearance of 30,000 Lois Lerner e-mails that he insisted could not be recovered killed any credibility he had left. Only a new commissioner has any hope of turning that around.

The Commissioner also says he has cut spending to the bone:

The agency is already down 3,000 employees last year. Another 2,000-3,000 are on their way out by the end of this year. The current rate of replacement is one new employee for every five employees who leave… 
What gets cut next? The Commissioner is clear that it will be more personnel. That is, he noted, all that’s left.

Well, maybe. I’d be more convinced of that if he decided there just wasn’t enough cash lying around for his “voluntary” tax preparer initiative — a blatant attempt to get around the Loving decision shutting down mandatory preparer regulation.

Related: Robert Wood, Horrible Bosses, IRS EditionPeter Reilly, Restoring Trust In IRS Is A National Imperative

 

buzz20141017Robert D. Flach has posted his fresh Tuesday Buzz, including a link to his post at The Tax Professional on tax preparer civil disobedience in ACA enforcement. I will have more to say about this topic later this week.

William Perez explains Itemized Tax Deductions

Russ Fox, Mundane Tax Fraud Downs Friend of Cicero Town President

Keith Fogg, Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement (Procedurally Taxing)

Jason Dinesen, 5 Things You Didn’t Know About Enrolled Agents

Jack Townsend, More on Willfulness. You can’t break the law if you aren’t trying.

Kay Bell, December to-do list: shopping, family visits and tax tasks

 

TaxProf, The IRS Scandal, Day 572

Andrew Lundeen, Kyle Pomerleau, Less Than One Percent of Businesses Employ Half of the Private Sector Workforce (Tax Policy Blog). “On the other hand, while only 0.4 percent of all firms have over 500 employees, this small group of businesses employs 50.6 percent of the nation’s private sector workforce, with most of those employees working for C corporations.”

News from the Profession. This Timesheet-Addicted Managing Partner Will Make You Grateful Not to Work For Him (Adrienne Gonzalez, Going Concern). A charming threat of dismissal issued the day before Thanksgiving will always make you thankful for an updated resume.

 

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Tax Roundup, 12/1/14: Abe Lincoln’s year-end tax wisdom. And: Oh, THOSE e-mails!

December 1st, 2014 by Joe Kristan

Accounting Today visitors, here is your film tax credit link: Report from the Battle of Scottsdale.

 

Lincoln“If we could first know where we are, and whither we are tending, we could better judge what to do, and how to do it.” Abraham Lincoln’s “House Divided” speech.

I hope you all had a good Thanksgiving. Now it’s December, which means it’s time to begin serious tax planning. President Lincoln’s timeless observation applies very much to year-end tax planning.

To do any tax planning, you have to know where you stand before making any year-end tax planning moves. You need to see where your income, deductions and tax payments are likely to be if you do nothing before year-end — in other words, you need to project your 2014 tax return.  You also need to make your best guess at your 2015 taxes.

If you try to do tax planning tricks without doing a projection, you can actually make things worse. For example, if you prepay state and local taxes in 2014, and you are subject to alternative minimum tax in 2014, you accomplish nothing. If you are also not subject to AMT in 2015, you’ve actually increased your tax bill over the two-year period.

The best way to start your projection is with a copy of your 2013 return. Identify income and expense items that are likely to be different in 2014 and 2015. Then review your pay stub and for income and withholding and see where you are likely to end up for the year on those items.  If you have a business, you need to forecast your income at year end. The you know where you are and whither you are tending, and you and your tax advisor can better judge what to do and how to do it.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

TaxProf, The IRS Scandal, Day 571. It seems the Treasury Inspector General for Tax Administration found Lois Lerner’s missing e-mails on backup tapes that Commissioner Koskinen said didn’t exist. Commissioner Koskinen’s effort to find the missing e-mails rivals O.J. Simpson’s search for the real killer.

Robert W. Wood, In ‘Lost’ Trove Of IRS Emails, 2,500 May Link White House To Confidential Taxpayer Data.

 

TaxGrrrl’s Interview with Commissioner Koskinen: Miserable, Awful & Delayed: Commissioner, Tax Advocate Talk 2015 Tax Season:

Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”

 

But the Commissioner still thinks he has the spare resources for a “voluntary” preparer regulation scheme.

Russ Fox, One Ringy Dingy, Two Ringy Dingies… “Yes, I was on hold for two hours today on the IRS Practitioner Priority Service before my call was picked up.”  Good thing his call was a priority, then.

 

Tony Nitti, The Four Tax Breaks (And Two Senators) That Killed The Tax Extender Deal. The immigration action is also implicated.

Robert D. Flach, OOPS – THEY DID IT AGAIN! “Well, it is December. And the idiots in Congress have not yet dealt with the issue of the ‘tax extenders’.”

Kyle Pomerleau, Why Not Just Get Rid of Them All? (Tax Policy Blog). “While most tax extenders are wasteful, there are a few that are worth keeping and would actually be part of a flat tax.”

 

20140814-1Kristine Tidgren offers A Few Year-End Tax Planning Tips for Farmers.

Alan Perez, Tax Planning for Clergy. The post includes a nice checklist for clergy tax planning.

Jason Dinesen, From the Archives: How to Properly Calculate Taxability of a Federal Refund on Your Iowa Tax Return

Peter Reilly, Motocross Racing With Tax Deductible Dollars Works This Time

Keith Fogg, IRS Makes Novel Use Of Outside Contractors—To Audit Microsoft (Procedurally Taxing):

The IRS has changed the regulation concerning who can participate in an examination to include private contractors.  It has hired a private law firm as an expert.  Microsoft appears to be the first examination using private contractors to become public.  The issue deserves attention in order to determine if this represents a new and better way to examine complex returns or a capitulation of what was previously considered a governmental function.

I’m still waiting for the people who got all upset about the IRS using private collection agencies to say something about this.

 

Jeff Stimpson of Accounting Today has posted his “In the Blogs” roundup for the week. Lots of good tax links.

Annette Nellen discusses Inflation adjustments in the tax law. “Our federal income tax is not consistent regarding the need to prevent bracket creep for all taxpayers.”

Kay Bell, IRS’ positive public perception picking up a bit. It would be hard to make it sink lower.

Jack Townsend notes the WAPO Article on Expatriate Taxation – The Mayor of London.

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Cheap liquor likely to remain a focus for alcoholics. Nonresident Income Taxes Likely to Remain a Focus for State Tax Authorities (Cara Griffith, Tax Analysts Blog). The post discusses states aggressive assessment of non-residents who sneeze near state lines, and the so-far failed push for Congress to provide uniform rules.

Alan Cole, Confusing Income with Taxable Income (Tax Policy Blog): “The rest of America is quite a bit richer, and quite a bit better at earning capital income, than Wonkblog gives it credit for.”

Joseph Thorndike, The Best Hopeless Idea in Washington (Tax Analysts Blog). That would be a carbon tax.

Norton Francis, What Falling Oil Prices Will Mean for State Budgets (TaxVox)

 

No Takers for the Brown house. The IRS can’t seem to unload property seized from Ed and Elaine Brown after their armed tax protest standoff. It seems buyers want some assurance that they won’t be killed by stray booby-traps.

Career Corner, So You Failed the CPA Exam Before the Holidays, Now What? (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/25/14: Administration complicates extender negotiations. And: Instant Tax Service has to stay dead.

November 25th, 2014 by Joe Kristan

Programming note: The Tax Update will be on the road for Thanksgiving starting Wednesday. Have a great weekend, see you Monday. 

 

Economic supergenius

Nice Section 179 deduction you have there. Hate to see something bad happen to it.

Extenders as extortion. The administration yesterday complicated the negotiations on the extension of the perpetually-expiring tax provisions by demanding an extension of the refundable child credit and a permanent expansion of the fraud-ridden earned income tax credit, the New York Times reports.

It’s obnoxious to throw a new welfare program provision into the extender negotiations at this late date, but a lame-duck administration has nothing to lose by trying. While I still think the $500,000 Section 179 deduction will be extended retroactively to January 1, this makes me a lot more nervous.

If anything good comes of this extortion attempt, it’s that it highlights the unwisdom of passing tax provisions temporarily if you don’t really want them to be temporary. Every time you need to re-enact them, you open yourself up to just this sort of shakedown.

Other coverage from The Hill: White House skeptical of possible deal on tax breaks and Lew: Avoid ‘wrong approach’ on tax breaks

Related:

TaxGrrrl, 10 Expired Tax Provisions That Might Affect You In 2014 and Kay Bell, Congress fighting over which business and individual tax extenders to make permanent

 

"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Appeals court says Instant Tax Service has to stay deadThe Sixth Circuit has upheld the 2013 ruling that put Instant Tax Service out of business. ITS, which had 150 franchise operations in a number of states, primarily in low-income inner-city locations, had shown up frequently in stories alleging shady tax prep practices (like this).

ITS was found to have encouraged its franchisees to prepare “stub returns.” These are returns preparered off of year-end pay stubs, rather than W-2 forms. The injunction also found that the franchisor used deceptive pricing and marketing practices.

ITS and its owner, Fez Ogbazion, argued the injunction was improper and overbroad. The appeals court considered the ITS appeal on the stub return issue:

Defendant Ogbazion agreed during his testimony that “[i]f you prepare a tax return using a pay stub, it’s not always accurate and does not always have all of the information on there,” and “[w]hen using a pay stub to prepare a tax return, the income information can be off for a variety of reasons.” …  And ITS employee Boynton, who had been a tax return preparer before she became a manager, agreed during her testimony that she was “aware that tax returns prepared using pay stubs are inaccurate more often than not,” that “the last paycheck stub varies from a W-2 more often than not,” and that “the income reflected on a return prepared on a pay stub can vary from income reflected on a return prepared based on a W-2.”

The court found that the District Court correctly evaluated the stub return issue:

It is clear from this evidence that pay-stub filing often results in understatement of tax liability, and ITS knew it. It is also clear from this and other evidence that pay-stub filing was common at ITS franchises. The district court’s conclusion that understatement of tax liability “inevitably results” may have gone further than we would go, but it is a plausible account of the evidence in the record as a whole.

The Moral? Wait for your W-2 before filing. Don’t try to file off of your pay stub. And if your preparer offers to prepare a return without waiting for your W-2, find another preparer.

Cite:  United States v. ITS Financial LLC et al (CA-6, Case No. 13-4341)

 

Tax Analysts has published a story covering the film tax credit panel I was on last week: NCSL Task Force Needs More Persuading on Merits of Film Incentives

 

20141125-2We’ve done a little blogroll updating. We’ve cut some blogs that haven’t been updated in months, and added Tax Litigation Survey and Forbes tax blogger Robert W. Wood.

Tony Nitti, The Top Ten Tax Cases (And Rulings) of 2014: #5-Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain?

William Perez, Excluding Foreign Wages from US Taxes

Robert Wood, Jersey Shore’s Mike ‘The Situation’ Sorrentino Tax Evasion Trial Delayed

Stephen Olsen, Summary Opinions for 11/07/14 & 11/14/14 (Procedurally Taxing). A roundup of tax procedure issues, including a report on IRS hiring of a private law firm to help it audit Microsoft.

Peter Reilly, AAA Does Not Revive With New S Election – Explained By Jelly Beans. Another reason not to terminate an S corporation election carelessly.

Jack Townsend, Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)?

Jason Dinesen, From the Archives: Win a Home On TV, Find a Tax Collector in the Attic

 

Andrew Lundeen, Kyle Pomerleau, Pass-through Businesses Earn More Income than Corporations (Tax Policy Blog) “Pass-throughs now earn over 60 percent of all net business income.”  It includes this great chart:

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This means higner income taxes on “the rich” are really higher taxes on business and employment.

 

Eric Toder, Reforming Corporate Taxation (TaxVox) “The U.S. corporate tax system is broken.”
Annette Nellen, EU’s New VAT “MOSS” – Relevance for MFA? “MFA” is the Marketplace Fairness Act, the effort by states to collect taxes on internet commerce.

 

Jeremy Scott, New GOP W&M Members Send a Mixed Signal (Tax Analysts Blog):

The House Ways and Means Committee is undergoing a major transition. Committee Chair Dave Camp is leaving Congress at the end of the year and will be replaced by Rep. Paul Ryan. That means the end of an era and a possible major reshuffling of committee priorities. But Ways and Means is also getting four new Republican faces. The backgrounds of the new members don’t really send a clear signal on what to expect from the House on tax policy next year.

I hope they figure things out fast.

 

The Wall Street Journal has posted an Expat Finance & Tax Guide. It collects in one place WSJ pieces on expat-related topics, including FATCA nighmares and renouncing citizenship.

TaxProf, The IRS Scandal, Day 565.

 

News from the Profession. Why Public Accounting Is Really Just One Long Kegger (Leona May, Going Concern)

 

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Tax Roundup, 11/24/14: Report from the Battle of Scottsdale.

November 24th, 2014 by Joe Kristan

haroldBattle report from a skirmish in the state tax policy wars. I was in Scottsdale Friday to join Joseph Henchman of the Tax Foundation to talk about state film tax incentives. We were on a panel with three advocates for incentives — two from the film industry and one a retired head of a state film office. Our audience was a panel from the National Conference of State Legislators, mostly legislators heading state taxwriting committees.

Joseph did a nice job explaining that all of the studies not financed by the film industry show tax credits for films to at best an inefficient way to create jobs, and at worst job killers when other possible uses for the funds are considered.

The incentive boosters were big on stories, about all the jobs “created” by taxpayer money, all the happy stories of communities getting together to make a movie, and so on.

My role was to tell a different story — the story of Iowa’s embarrassing and disastrous Film Tax Credit program.  I told how the Iowa legislature enacted the program, with two different 25% transferable credits, with little debate and almost no opposition (three “no” votes out of 150 legislators) in 2007. By 2009, film trucks were everywhere and the local paper was running fanzine-like articles gushing over the “sightings” of celebrities.

But trouble was brewing. By spring 2009 the legislature was realizing that they had enacted an open-ended subsidy that threatened their ability to do anything but fund Hollywood. About the same time a tipster sent a letter to the Department of Economic Development saying a filmmaker was bragging around Los Angeles about how she was making money through the “Half-price Filmmaking” program, using pretend expenditures to get tax credit funding well in excess of her cost in making (bad) movies. An audit was commissioned, and soon the program collapsed in disgrace when the audit revealed amazing mismanagement and breathtaking looting of the program. A follow-up audit by the state auditors office showed that 80% of the credits that had been granted were either improper or fraudulent.  Good times.

The Tax Foundation crew was impressive. Joseph and his Tax Foundation colleague Elizabeth Malm seemed to know every legislator. Joseph seemed to be aware of every detail, even correcting my posture as I sat listening to the questions. I think he was a little concerned I might be a loose cannon and go off on the legislators; I can’t deny the temptation, but I knew that wasn’t my place.

The legislators agreed to set up a panel on setting standards for evaluating the cost-effectiveness of tax incentives. That’s a better response than I expected, and I hope something comes of it.

 

Only time for a few quick links today.

 

20140728-1Robert D. Flach starts the short holiday week with a special Monday Buzz!

Russ Fox tackles the important question: Would the Proprietors of “I Married an Idiot” Commit Tax Fraud?

Peter Reilly, Should President Obama Offer Amnesty For Legal Residents Behind On Taxes? I think he should offer a blanket amnesty for Americans abroad enmeshed in the FATCA/FBAR nightmare.

Paul Neiffer, Take Advantage of Low Rates! Low IRS minimum interest rates, that is.

 

Robert Goulder, Magnum Opus: “Paying Taxes 2015: The Global Picture” (Tax Analysts Blog)

Hauqun Li, An Introduction to Forms of Business Organization and Taxation (Tax Policy Blog)

Donald Marron, Bigger, Cleaner, and More Efficient: A Carbon-Corporate Tax Swap

 

TaxGrrrl, Those Not-So-Lost IRS Emails: Up To 30,000 Lerner Emails May Have Been Recovered

Kay Bell, Possible break in hunt for Lois Lerner’s lost IRS emails

TaxProf, The IRS Scandal, Day 564

 

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Tax Roundup, 11/20/14: ACA and filing season pessimism revisited.

November 20th, 2014 by Joe Kristan

Programming note: The Tax Update will take tomorrow off. I will be in Phoenix tomorrow on a panel on state film tax credits sponsored by the National Conference of State Legislators.  The panel will include, among others, Joseph Henchman of the Tax Foundation. Normal programming resumes Monday.

 

guillotineACA frenzy! Thanks to a kind Twitter mention from Megan McArdle (who you really should follow at @asymmetricinfo), my Tuesday post on ACA and filing-season dread made it to a wider audience than usual, including the readers of Real Clear Politics. A cousin who I normally only see at family weddings and funerals saw it and sent me a note (Hi, Bob!), so I know it really got around.

It has also generated questions in the comments and the Twitterverse that are worth addressing. We’ll start with this from Alan in the comments:

In a few months when people receive their W2’s they will get a real shock when all the employer paid share of the company paid share of health care plan is included in their gross pay and now they must pay taxes on all that extra income.

Obamacare is ugly, but it isn’t that ugly. While many (but not all) employers will disclose the cost of coverage on W-2 box 12 (code DD), it will not be included in W-2 Box 1, “taxable wages.” From IRS.gov, Employer-Provided Health Coverage Informational Reporting Requirements: Questions and Answers:

Q1. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?

A. No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.

20121120-2From Ms. McArdle on Twitter:

Any chance it won’t be that bad?

I suppose that depends on what “that bad” means. Blood seeping from the walls, shape-shifting brain-eaters from Planet Zargon, cats and dogs living together– probably not that bad. But there’s still plenty of bad to go around. The things that worry me:

- Many taxpayers will not have the information handy to determine their health insurance status for all 12-months of 2014. Only those who buy insurance on the exchanges will have Form 1095, the information return on insurance status.  Others are supposed to get information from employers, but they are likely to lose track of it, especially this first year.

- Lacking any matching documents, taxpayers will be tempted to claim coverage where there is none, or maybe wasn’t for part of the year, to avoid penalties. There won’t be an easy way to verify this. Preparers will either have to take taxpayers at their word or send them back for proof (or, inadvertently, to another preparer). It’s always bad when taxpayers feel they should lie to preparers. Yet as the IRS will often have no way to detect false claims of coverage, they will feel like chumps for telling the truth.

- Taxpayers with penalties for non-coverage will be irate when they find they get no refund. As Ms. McArdle wisely put it, “I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.” Experience shows that the taxpayer’s first instinct is that the preparer screwed up.

- It will be even worse when we have to tell people to repay advance health-care tax credits paid to insurers to lower consumer out-of-pocket costs. This can happen when actual taxable income exceeds the amounts estimated when coverage was obtained on the exchanges. As the taxpayer never “saw the money” — it was paid to the insurer, not to the taxpayer directly — she may not be easily convinced that she has an excess benefit to repay.

20140521-1- Preparers haven’t had to deal with this before. Any new tax provision has a learning curve, and this is a complicated one that will apply to almost everyone. In many cases, preparers will mess up, being human. Getting it right will take extra time that is hard to come by during tax season.

- This doesn’t even touch the problems that many small employers are going to be dealing with as they realize their Section 105 individual coverage premium reimbursement plans, and their cafeteria plans funding premium payments on individual policies obtained by employees, are considered non-compliant under the ACA “market reforms.” At $100 per employee, per day, the penalties could be ruinous. While taxpayers are encouraged to report the penalties on Form 8928 and zero them out with a “reasonable cause” claim, we don’t know yet how generous the IRS will be in granting reasonable cause relief. Figuring out what to do here will be time-consuming and nerve-wracking for taxpayers and preparers, unless the IRS issues a blanket penalty waiver for 2014 (as it should).

On top of all this, we will probably have another late “extender” bill like we had two seasons ago, which made for an awful tax season by itself. Maybe things will go well this season, but so many things seem likely to go wrong that it’s hard to be optimistic.

 

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #6-The IRS (Finally) Figures Out The Real Estate Professional Rules. It’s an excellent lesson on the tax rules covering “real estate professionals” and passive losses — and by extension, the 3.8% net investment income tax.

TaxGrrrl, Al Sharpton Denounces Claims He Owes Millions In Taxes To IRS, New York.

Jack Townsend, Another UBS/Wegelin Related Indictment in SDNY

Peter Reilly, Kent Hovind And Creation Science Evangelism – How Not To Run A Ministry. When it gets you imprisoned, you may well be doing it wrong.

Kay Bell, Former GOP VP candidate Paul Ryan to head House tax panel

Jason Dinesen, I Don’t Have Time to Write Grant Proposals or Meet with Donors … But Give Me Money Anyway!  OK, then…

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Work proceeds in clearing the ruins of the Younkers department store, which burned in March.

 

TaxProf, The IRS Scandal, Day 560.

Cara Griffith, Bad News for State Public Pension Plans (Tax Analysts Blog). “New research has come out revealing the level at which state public pension plans are underfunded, and it’s not good news.”

The denial of reality in administering public pensions is amazing. Public defined benefit plans are a lie. Either the public is being lied to about how much current public services cost, or current employees are being lied to about their retirement benefits. Maybe both.

 

20140910-1Alan Cole, Extenders and the Opportunity for Tax Reform (Tax Policy Blog):

The Examiner characterizes many of the extenders as “repugnant carve-outs.” This is undeniably true, but it is also the case that some – but not all – of the tax extenders are genuinely good policy. Particularly, Bonus Depreciation and Section 179 are important for moving the tax code towards proper treatment of new investment.

In any case, the current system of pretending tax provisions are “temporary” to hide their true cost is dishonest and should end.

Renu Zaretsky, “Dead Reform Walking:” On Fairness, Immigration, and Spending. The TaxVox headline roundup covers developments in the Marketplace Fairness Act, extenders and immigration, among other things.

 

News from the Profession. KPMG Gives the Department of Homeland Security a Clean Audit Opinion Because of Course They Did (Adrienne Gonzalez, Going Concern). “I don’t know about you but I feel safer already.”

 

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Tax Roundup, 11/19/14: Mayor of London, U.S. tax delinquent. And: sticks, stones, and IRS.

November 19th, 2014 by Joe Kristan
Boris Johnaon and an unidentified IRS agent.

Boris Johnson and an unidentified IRS agent.

I thought the Revolution was fought to get away from the English, not to tax them. From Robert W. Wood comes a story that says volumes about how absurd America’s system of worldwide taxation is:

London’s Mayor Boris Johnson is English, but being born in New York means he’s American too. Turns out he never gave up his U.S. citizenship, as the BBC confirmed. Sure, he threatened to renounce in a column for the Spectator, but he renewed his U.S. passport instead.

And on his recent book tour, in a Diane Rehm Show Interview, November 13, 2014, Mr. Johnson even said a thing or two about the American global tax regime. He thinks it is outrageous to tax U.S. citizens everywhere no matter what. He hasn’t lived in the U.S. since he was 5 years old, he notes. Still, the IRS wants money.

Only the U.S. tax law is stupid enough to consider Boris Johnson an American taxpayer. Of course, the U.S. tax law says he’s taxable on his worldwide income as a U.S. Citizen, and that means he’s delinquent on U.S. tax on everything he’s ever earned. Of course, the IRS also claims FBAR penalties on “foreign” financial accounts that would render the Mayor of London a pauper.  He could renounce his U.S. citizenship, but Mr. Wood notes that “When you exit you must certify five years of U.S. tax compliance to the IRS. And any tax for the current or prior years must be paid.”

Boris Johnson is only the most prominent victim of a system supposedly designed to catch international financial fraud, but that works much better in making financial criminals and paupers out of ordinary people for committing personal finance while abroad. And yet there seems to be no movement at all to fix this horrible system. Because Swiss banks, or something.

 

20140106-1William Perez, Excluding Foreign Wages from US Taxes

Paul Neiffer, Another Section 179 Update:

Whenever, I indicate that we should know what the final number should be around Christmas or even New Years, I get emails back saying doesn’t Congress know that taxpayers really can’t make informed equipment decisions without knowing what Section 179 is.

The quick answer is that “Congress does not care!”

So true.

 

Russ Fox, IRS Clarifies Electronic Signature Requirements:

The IRS released a new version of Publication 1345 today (html version only is available for now). Included in it is the following:

Note: An electronic signature via remote transaction does not include handwritten signatures on Forms 8878 or 8879 sent to the ERO by hand delivery, U.S. mail, private delivery service, fax, email or an Internet website.

Thus, if a client signs a signature document in ink, hands it to me, mails it to me, faxes it to me, or uploads it to me via our web portal (or even if he emails it to me), it’s not an electronic signature and I don’t have to check id, etc. (So, mom, I don’t need to see your ID.)   

That’s good news.

 

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Kay Bell, States continue efforts to tax e-cigarettes as vaping grows. E-cigs threaten the states’ tobacco settlement gravy train. That’s why politicians hate them. All of the vaporous public health claims used against E-cigarettes is just blowing smoke.

 Peter Reilly, What’s In A Name? Should Naming Rights Reduce Charitable Deductions?

TaxGrrrl, Top Ten Area Codes Making Spam Calls: Are They Dialing You Up? If you aren’t expecting a call from the IRS, it’s not the IRS.

Robert D. Flach, DON’T BE A NON-FILER! “It is much “more better” to submit a balance due return with no payment than to submit nothing at all.”

Jack Townsend, IRS Documents On OVDI/P From FOIA Request.

 

TaxProf, The IRS Scandal, Day 559

Alan Cole, Obamacare’s Contradictory Tax Incentives (Tax Policy Blog):

All too often, the motives behind Obamacare’s taxes are incoherent. We don’t like the distortion towards employer-provided health insurance, so we levy taxes on it. But we also do like the distortion towards employer-provided health insurance, so much so that we will actually mandate it!

The real motivation was to pass something and let IRS work out the details.

Howard Gleckman, Will Obama’s Executive Action on Immigration Kill Tax Reform? Hint: You Can’t Kill Something That’s Already Dead (TaxVox)

 

Hello, IRS readers! Apparently the IRS reads the blogs. Legal Insurrection reports that the IRS is trying to avoid disclosing names of their personnel in a lawsuit because of things said about Lois Lerner in that blog’s comments:

In a federal FOIA lawsuit by Judicial Watch seeking records of Lerner emails and IRS efforts to retrieve the emails, the IRS used two of the comments to the Legal Insurrection Reader Poll post to justify the IRS no longer disclosing the identities of IRS personnel.

Here are the awful comments:

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Juvenile? Sure, but pretty tame stuff for political blogs. Go hang out at Daily Kos if you think otherwise. By the standard the IRS is using here, you would have to conceal the names of just about anybody remotely connected with the government or politics. I’ve been called a “hamburger chomping, malleable moron in the comments,” with no ill consequences other than now I’m self-conscious at McDonalds.

But all the same, be nice in the comments here.

 

Career Corner. Your Open Office May Be Making You a Crappy Worker (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 11/18/14: The ACA and filing season. Be afraid.

November 18th, 2014 by Joe Kristan

20121120-2Megan McArdle, Reality Check on Obamacare Year Two:

Another thing to keep in mind, however: This open enrollment period isn’t the biggest test for Obamacare in the next 12 months.  The biggest test will be what happens on or around April 15th.  That’s the first time all the people who didn’t buy insurance will get hit with the individual mandate penalty, and the ones who thought that it was a nominal $95 fee are in for a nasty shock .  April 15th will also be the first time that people who got too much in subsidies are going to be asked to pay back some of that money.  I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.  Brace for a wave of taxpayers angrily complaining to congressmen and their local newspapers.  

After completing the first six sessions as a panelist in continuing education for tax preparers around Iowa, I completely agree. Preparers learning about the process of computing the individual mandate penalty and the tax credit adjustments are appalled.

The first question we receive is: how are we going to get people to pay for this? The taxpayers who will have the biggest issues here will be the ones who formerly had the simplest returns and who will not be excited about paying for an extra 1-4 hours of preparer time.  A chart prepared by the ISU Center for Agricultural Law and Taxation to guide preparers through the client interview process for ACA return issues looks like this:

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Courtesy Iowa State University Center for Agricultural Law and Taxation. Full-size version available to TaxPlace subscribers.

 

But it’s worse than even Ms. McArdle knows. It’s not just individual taxpayers who look to get clobbered by this. Based on what I’ve seen at our sessions, dozens or hundreds of Iowa small businesses are starting to figure out that they have had non-compliant health insurance plans so far in 2014 as a result of the ACA “market reforms.”  Non-compliance carries a penalty of $100 per day, per employee. At $36,500 per employee per year, it doesn’t take too much of this to bankrupt a small business. And it’s not as though these employers are doing something abusive; they have just continued funding employee insurance the way they always had, but in ways the “Departments” that run Obamacare no longer like. Or they just might have done all the right things, except for properly notifying employees of their coverage options in writing. Trivial violations, crushing penalties.

While there is a provision to have the penalty waived for reasonable cause, that’s not very comforting in a state where the IRS is willing to loot a restaurant’s bank account without any indication of wrongdoing.  In addition to dealing with a parade of irate individuals with sticker shock from their return fees, let alone their new taxes and penalties, preparers also have to tell noncompliant business-owning clients that they suddenly have a potentially devastating tax liability.

If taxpayers are upset after tax season as practitioners are before it, Obamacare will be about as popular as Ebola by April 15.

 

 

Today in Red Oak.Kay Bell, IRS offers tax relief in certain Ebola situations

Robert D. Flach discusses TAX EFFICIENT INVESTING

Leslie Book, Living With Your Decisions: Delinquent Mortgage Debt (Procedurally Taxing). “Courts and IRS put the kibosh on deductions when the new loan comes from the same lender as the old delinquent loan; the theory in those cases is that the taxpayer has not really gone out of pocket and that there is just a shuffling of papers.”

 

Martin Sullivan, Why the Upcoming Battle Over Expiring Tax Provisions Matters — A Lot (Tax Analysts Blog). “Extenders legislation is not just about the fate of a grab bag of miscellaneous tax provisions this year. If Republicans can get expensive expiring provisions permanently extended, the chances for enactment of tax reform will be significantly improved.”

Steve Warnhoff, New CBO Report: Yes, the Rich Are Paying “a Bit” More (Tax Justice Blog). How much more, Steve?  “New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share.” (Via Instapundit):

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Kyle Pomerleau, CBO: Overall Federal Taxing and Spending is Progressive (Tax Policy Blog)

 

Donald Marron, Spin Alert: DOE Loans Are Losing Money, Not Making Profits (TaxVox). Of course they are losing money. If they were profitable, they wouldn’t need the feds to make the loans.

TaxProf, The IRS Scandal, Day 558

 

News from the Profession. You’re Not Really as Busy as You Claim (Adrienne Gonzalez, Going Concern)

 

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