If the senator wants a say on executive comp, he should get himself on a board

May 17th, 2012 by Joe Kristan

With all the headlines about fabulous mulit-million dollar compansation packages for big-time executives, you’d never notice that the tax law caps deductions for public company executive pay at $1 million (Sec. 162(m).  So how has that worked out?

Not well, obviously.  Now a new study out of the Georgetown University Law Center gets to the obvious with some academic rigor: 

Sixteen years after its enactment, can we say that the $1 million deduction limitation works and that the Code is the best vehicle for Congress’s efforts to control executive pay? Drawing from a wide range of sources, this paper examines the § 162(m) limitation and explore whether the law achieves its intended result. To add context, it surveys other tax laws that restrict compensation deductions, like the § 286G tax deduction limits for “Golden Parachute” payments, the $500,000 deduction limit on compensation paid to executives at companies that received the largest Troubled Asset Relief Program (TARP) bailouts, and the Patient Protection and Affordable Care Act’s (PPACA’s) $500,000 deduction limit on compensation payments… Upon closer examination, it becomes clear that § 162(m) is less effective than letting shareholders have a binding say over how much companies pay their executives.

The study points out the obvious: the exception for “performance based compensation,” like stock options, has channelled the executive pay away from cash and into options and the like.  Options allow the executive to bet with company money.  If things go well, they and shareholders win, but if they don’t, only shareholders lose.  Some companies might have been better off writing executives big checks rather than encouraging them to roll the dice to run up stock value.  In any case, Congress has no business or skill in telling companies how and how much to pay their employees. 

Via the TaxProf.

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Tax Roundup, 5/17/2012: Athletic welfare queen edition

May 17th, 2012 by Joe Kristan

From Minnesota to the Gulf, Corporate welfare for wealthy athletes and wealthier team owners flows like a big muddy river.  The Tax Policy Blog passes on the bad news for the taxpayers who are picking up the tab:

A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.

But, but… the Vikings!

Do corporate welfare queens wear bloody socks? Rhode Island has invested $75 million in a video game company started by Curt Schilling. It’s starting to get ugly. (Hat tip: alert reader Brendan).

David Brunori ponders taxes on “violent” video games:

Do violent video games make people more likely to commit crimes? Supporters pointed to a real-life cop killer who was known to play Grand Theft Auto — in 2003. The real Nazis (not the zombies) committed the most horrific acts known to mankind without once watching a violent video game. Perhaps World War II wouldn’t have occurred if we had taxed Mein Kampf?

Unless the characters somehow emerge from the screen and start shooting up the house, it’s hard to see how something that happens only on a computer screen is “violent.”

TaxProf: Tax Savings From Facebook Co-Founder’s Renunciation of U.S. Citizenship: $67 Million

Jack Townsend: Renunciation of U.S. Citizenship to Save U.S. Tax

What’s your all-in cost of government? The AICPA has posted an online calculator to estimate your total liability for federal, state and local taxes. It’s easy to use, and the results are sobering. 

You negotiated a debt workout? The IRS may be glad to hear that. My newest post at IowaBiz.com, the Des Moines Business Record’s group blog for entrepreneurs.

Kay Bell: Tax record keeping tips and the statute of limitations on IRS audits

Adding insult to fatal injury: Deputies: Jailed murder suspect tries tax fraud with victim’s ID (TBO.com, Tampa)

Anthony Nitti: Bobby From Birmingham Does Little to Further the Cause of the Persecuted CPA

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Avengers cavalcade!

May 17th, 2012 by Joe Kristan

The new Cavalcade of Risk is up at Insurance Claims and Issues!

This roundup of insurance and risk-management blog posts covers vital stuff — for example, Insureblog’s analysis of the insurance industry’s exposure if the scenes in The Avengers actually happened.

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Tax Roundup, 5/16/2012: Mobile workforce act, rich hix tax trix, London whales.

May 16th, 2012 by Joe Kristan

House Passes Mobile Workforce State Income Tax Simplification Act (H.R. 1864). (AICPA) State tax administrators dislike it, which I count as an endorsement.  It probably won’t go anywhere in the Senate.

More lucrative than the suicide thing:  Feds raid tax fraud suspect’s home with possible 9/11 connection (WTSP.com) 

No bias here! “Firms urge delay in IRS offshore tax dodger rules” (Reuters).  It would be more accurate to say “Firms urge delay in IRS attempt to wreck U.S. firms overseas finance operations.” 

Hak Ghun, will travel: 

A man who skipped town four years ago following allegations he spent millions of Navajo Nation corporate funds for personal use was indicted Tuesday on charges of federal tax evasion.

Hak Ghun, 61, the former chief executive officer of Biochemical Decontamination Systems Manufacturing Inc., a steel and fiberglass fabrication company based in Shiprock, is accused of spending more than $1 million of the company’s funds to pay his personal expenses, U.S. Attorney Kenneth Gonzales said in a prepared release.

Linda Beale brings us “Ten tax tricks (non-rich need not apply)” Much less here than meets the eye. For example:

9. IRS Monte Carlo (converting traditional IRAs to Roth IRAs, especially in sets so that you can take advantage of the 21-month “change your mind” period selectively as it benefits you)

This is a budgeting gimmick from Congress specifically designed to increase taxable income by having people pay tax now in hopes that it will help them avoid paying taxes later. It actually works best for the young and relatively poor, who are probably in lower brackets now than they will be at retirement. In any case, when people use this “trick,” they are making a bet on their future incomes and future tax law. They are also specifically doing what Congress hoped they would do.

American exceptionalism: Phil Hodgen searches in vain for another country that taxes its citizens abroad like we do.

William Perez: Tax Tips for Parents of New Graduates

Because they can?  Why is the IRS so slow to pay tax whistleblower rewards? (Kay Bell)

Anthony Nitti, Tax Court Decides First of its Kind Section 104 Issue.  Divorced spouse assigned ex’s disability payment doesn’t get to exclude it as compensation for personal injury.

The effect of the homebuyer tax credits, explained.  The Failure of Tax Policy Credits: Specific Evidence (Jim Maule)

That’s one way to make everyone rich: “Maryland to Increase Taxes on ‘Rich’ Residents Earning More than $100K Per Year?“ (Peter Pappas)

TaxGrrrl: Viral ‘Tax Loophole’ Video is Misleading: Taxpayer Fraud is a Much Bigger Problem

Robert D. Flach’s Wednesday Buzz is up!

Is there anything they don’t want to tax? Taxing the London Whale (TaxVox)

Longest books ever written:  Is This the Most Embarrassing Thing To Ever Happen to an Accountant at Work? (Going Concern)

You can look it up.  “Enrolled Agents Finally in the Dictionary! ” (Jason Dinesen)

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Reduced Iowa ESOP break sneaks through at end of session

May 15th, 2012 by Joe Kristan

If the Iowa tax law were a car, it would look like this.

When the legislature went home last week, we said that the end of the session inflicted no further damage on Iowa’s tax law.  We were wrong.

The last-day frenzy included a scaled-down version of the Governor’s capital gain exclusion for certain stock sales to ESOPs.  HF 2465, deceptively described as “Relating to state and local finances by making adjusting appropriations, providing for funding of property tax credits and reimbursements and for other matters pertaining to taxation,”  passed the Iowa House May 8, 90-7, and then got through the Iowa Senate the morning of the last day of the session 29-19.

The bill provides a 50% Iowa income tax exclusion of capital gains on the sale of employer stock to employee stock ownership plans, “to the extent not already excluded.”  This apparently means the bill requires taxpayers to choose between the elective federal Section 1042 deferral of gains rolled into publicly-traded securities and the 50% Iowa exclusion.  That makes it even more half-baked than the original proposal which provided a 100% Iowa exclusion.  The original bill would also appropriated public funds to pay ESOP consultants.

This bill further complicates an already hideous Iowa income tax.  By creating yet another special-interest carve out, it creates another constituency against base-broadening, rate-lowering reform for everyone.  It does nothing to help Iowa’s bottom-tier business tax climate.  It’s duct-tape and Bondo for a tax law that is falling apart.  It’s time to trade it in for a new model. 

Prior coverage: New Iowa ESOP break clears House committee

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Tax Roundup, 5/15/2012

May 15th, 2012 by Joe Kristan

Remember to file or extend your calendar year 990 and 990-PF exempt organization returns today!

Supreme Court holds post-petition taxes in farm bankruptcy not discharged.  Roger McEowen has the background, including a discussion of the new decision.  Kay Bell has more.

He needs his Attorney Bernie: Wirth accountant Murry pleads guilty in tax-evasion case (reference explained here, last verse).

 

Huffington Post tells a story we’ve known about for a long time, but that the government seems strangely unable to move on: Tax Fraud: Thieves Steal Tax Refunds From The Dead Using Identity Theft.  The most infuriating part is they are getting their ID-theft information from official government releases.

HP loses $190 million tax case against IRS (Lynnley Browning, Reuters) (Via Going Concern)

Fear Taxmageddon, says former Treasury Secretary Snow.

AICPA presses for bill to ease compliance for employees working in diffenet states.  The bill, H.R. 1864, is a good start, but its failure to exempt low-salary entertainers, athletes and musicians is hard to justify as a policy matter. (Accountingtoday.com)

Tax Policy Blog: “Bring Jobs Home Act” (H.R. 5542) – Legislation in Search of the Facts

TaxGrrrl: All You Need to Know About IPOs, Going Public and Stock Options

Daniel Shaviro reviews “Progressive Consumption Taxation: The X-Tax Revisited.”, published today.

 David Henderson at Econlog has a counterintuitive view of his tax accountant:

I’m willing to bet–call it a hunch–that most people, if asked to name someone who they think is a humanitarian, would not put a tax accountant who makes a lot of money high on their list. But I’ve gotten to know this one over about 25 years and, with his careful thinking about how to make and keep wealth, thinking that he seems willing to share with those who will listen, my accountant is a true humanitarian.

But he has his reasons, which I of course find convincing, but you might too.

Foiled again!  IRS Attorney Advises Agents Not To Be Intimidated By No Trespassing Signs (Peter J. Reilly)

Don’t give Shulman any ideas: New Greek Bestseller: Serial Killer Murders Rich Tax Cheats (TaxProf)

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Buying you things with your own money

May 14th, 2012 by Joe Kristan

Supporters of the “Buffett Rule” aren’t being honest about U.S. Budget problems.  No matter how much you tax the rich, the rich just don’t have the money to pay for all the spending the politicians are doing.  Here is what an honest Buffett Rule fan would say:

Every nation in the world with the kind of welfare state we want for America pays for it by taxing a large majority of its citizens far more heavily than we do. To pretend we can do otherwise is to invite our countrymen to indulge a fantasy rather than call on them to make a serious commitment. Building the welfare state we need means most Americans are going to have to pay significantly higher taxes. No one likes such taxes, of course, but the reality is that they’ll fund an array of government programs that leave all of us better off than we will be with the rudimentary welfare state we’re forced to live with if we insist on a much lower tax burden.

Warren will never say anything of the sort, but that doesn’t change the math: either we spend less or everybody gets taxed more.  The rich guy isn’t buying.

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Tax Roundup, 5/14/2012

May 14th, 2012 by Joe Kristan

Calendar Year 990s and 990-PFs are due tomorrow.  The penalties for late filing can reach $100 per day ($20 per day for smaller organizations), and three years of non-filing will cost an organization its exempt status.  Three-month extensions are available onf Form 8868.

Aside from avoiding U.S. compliance nightmares for the rest of his life, what are the real tax consequences to the Facebook guy for giving up his U.S. Passport? (TaxProf).  Plus a TaxProf roundup!

Phil Hodgen on Why the Facebook dude expatriated.  Also: “Only an elected official would fail to predict such events.”

John Tamney, Forbes: For De-Friending The U.S., Facebook’s Eduardo Saverin Is An American Hero (Via Instapundit)

Matt Welch, Reason: Facebook Co-Founder Eduardo Saverin Becomes Most Famous American to Renounce His Citizenship Probably for IRS-Compliance Reasons

TaxGrrrl: Facebook Co-Founder Won’t Escape All U.S. Taxes By Renouncing Citizenship

In other news, a little lamb has gone missing: Farmville physician pleads guilty to tax charges.  More from the Department of Justice.

Peter Reilly lets Robert D. Flach guest-post: Wandering Tax Pro On The Tax Aspects Of Divorce.  Robert also found time to post his Saturday Buzz collection of tax blog posts.

Roger McEowen rounds up the recently-ended Iowa legislative sesssion.

Kay Bell: More women now paying child support & alimony; take note of the tax implications 

But if you’re still married, Jason Dinesen covers Community Property Allocations for Same-Sex Married Couples

More than a Little Trouble for Michael Little: British Lawyer Charged in Swiss Bank Mess Related to UBS Account (5/11/12) (Jack Townsend)

Jim Maule:

Blaming dishonesty on complexity is totally off the mark. Complexity might enhance the temptation, but it does not create the noncompliant tax evader.

He’s wrong to let complexity entirely off the hook.  While most tax cheats aren’t doing it to avoid complexity (they usually end up making their lives far more complicated, because it’s hard to keep track of your lies), at some point staying in compliance can get so difficult that some taxpayers give up trying. 

 So do lots of thieves in Tampa: LifeLock CEO Offers Identity Theft Service to IRS (Accounting Today)

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The IRS isn’t co-signing that loan

May 11th, 2012 by Joe Kristan

The tax law allows you to take a capital loss deduction for non-business bad debts that become worthless.  There’s a big catch: you have to take the deduction in the year the debt becomes worthless.  If you take the deduction in a later year, the IRS can disallow it; if the statute of limitations for the year of worthlessness has expired, you are out of luck.

That’s exactly what happened to George Saadian.  In 1988 he loaned money to a “distant relative” who was a fellow member of the Persian Jewish Community in California, a Mr. Simantob.  The Tax Court takes up the story:

As it turned out, things did not go as planned. Mr. Simantob did not begin to make monthly payments as required under the promissory note until some point in 1990. From 1990 through 2000 Mr. Simantob made partial interest payments that ranged from $1,750 to $8,000 per year. Petitioner contacted Mr. Simantob for the first time around March 1988 and then several times between 1988 and 2004 to inquire as to why the interest payments were not being made as required by the terms of the note.

The record is unclear as to whether Mr. Simantob made any payments during 2001 and 2002. Mr. Simantob made a $4,100 interest payment to Mrs. Toufer in 2003, which was the last payment made on the promissory note.

Mr. Simantob died in 2004, and efforts to collect from his sons failed.  Mr Simantob deducted the loan as a non-business bad debt on his 2006 1040.  The Tax Court decided 2006 wasn’t the right year (my emphasis):

The note matured in 2000, six years before the year in which petitioner claims the debt to have become worthless. Although there is evidence that petitioner pursued collection of the debt with Mr. Simantob’s heirs after the death of Mr. Simantob, there is no showing that any formal claim against Mr. Simantob’s estate was made or that Mr. Simantob’s sons had any legal obligation to satisfy the debt. If the debt became worthless, it would seem that it did so before the year in issue.

The Moral?  If you have a troubled personal debt, deduct it as worthless sooner rather than later.  If the IRS questions the timing, make sure to file protective refund claims for subsequent years to keep the statute of limitations open.  Also, as Anthony Nitti notes, the Tax Court found the taxpayer’s collection efforts half-hearted, which hurt his case.  If you really want your money back, act like you mean it and sue for collection.

Cite: Saadian, T.C. Summary Opinion 2012-44

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Tax Roundup, 5/11/2012

May 11th, 2012 by Joe Kristan

Vikings defeat taxpayers in 4th quarter (Russ Fox).  It’s heartwarming to see rich team owners get big taxpayer subsidies for their man-toys.

Bye-bye: Two Alabama ID-theft tax fraudsters get over 25 years each in prison.

Assume miracles and Social Security will be fine.  My latest at Going Concern.

Christopher Bergin:

 Our tax code isn’t about collecting revenue. It’s about taking care of political friends and being used as a campaign election issue to divide and conquer the electorate. The point of Washington is to get reelected. And “can-kicking” – which I define as avoiding any difficult tax policy decision — is an Olympic sport in Washington that our politicians excel at. That is why my answer to the question “When do you think we will get tax reform?” is now “Not until something really bad – and I mean really bad – happens.”

Read the whole thing.

David Brunori notices that “Politicians are willing to use a revenue source proven to be regressive and addictive to pay for services.”  He’s talking about gambling here, but he could be talking just as much about cigarette taxes.

Howard Gleckman at TaxVox: Will Obama’s Views on Tax Reform “Evolve” Too?  Not unless his campaign contribution bundlers take an interest in the issue.

TaxProf: The Kauffman Foundation and Thumbtack.com have released United States Small Business Friendliness.

Other states can be as gullible as Iowa: Cape Cod film maker convicted of fraud is sentenced to 2 to 3 years (Boston.com).  More from the LA Times, plus Tax Update film credit coverage here and here.

Hamburger-chomping moron update: Ex-IRS agent, whose case triggered the most epic comment ever seen on the Tax Update, has his tax crime sentence upheld by the 9th Circuit.  A taste of the comment:

The hamburger chomping, malleable morons of your ilk, no doubt, have been licking their fingers from the juicy tidbit you posted about the ‘rogue’ IRS agent, but a simpleton like you would not even deign, or has the mental acumen, to find or print the truth.

May you eat all of your hamburgers with small, dignified nibbles this weekend.

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Iowa General Assembly adjourns without further damage (update – they got some damage in)

May 10th, 2012 by Joe Kristan

It could have been much worse.

The 150 elected supergeniuses at the Iowa legislature weren’t shy about deciding what forms of energy production deserve your tax money, and they also invested tax dollars in a private baseball park in Dyersville.  Still, they at least avoided making taxpayers pay for other peoples “innovative” investments or ESOP consultants.

The legislature failed to pass the Governor’s highest priority, a reform of Iowa’s commercial property taxes, though they did vote to curb some of the worst abuses of TIF districts.

Bills that passed include:

  • TIF Reform. HF 2460, the TIF reform, keeps taxpayers from diverting TIF receipts and requires audits of projects.  It’s a small step against local crony capitalism.
  • Field of Dreams.  The legislature passed and the Governor signed a bill (SF 2329) to let an athletic complex built on the location of the Kevin Costner movie to keep sales taxes it collects.  The movie says “if you build it, they will come.”  The legislation says “If you lobby hard enough, they’ll vote for almost anything.”  Any bill passed for the benefit of a specific taxpayer is by definition bad policy.
  • Tax Credits for green energy.SF 2342 provides “tax credits for the construction and installation of solar energy systems and geothermal heat pumps, modifying sales and use tax provisions related to property purchased for resale, and creating a sales tax exemption for certain items purchased for use in providing vehicle wash and wax services.”  Because the Iowa legislature knows better than you how you should heat your house.

Bills that died, mercifully:

It’s unfortunate that the legislature couldn’t agree on a way to improve Iowa’s awful commercial property tax, but maybe we’ll be better off in the long run making it an issue in the upcoming election.  It would be even better if they would take up the issue of tax reform generally.  I suppose an election over the merits of the Quick and Dirty Iowa Tax Reform Plan would be too much to hope for.

The Quad City Times has more coverage of the end of the session.

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Tax Roundup, 5/10/12

May 10th, 2012 by Joe Kristan

I wouldn’t even struggle: Ernst & Young Struggles to Say Nice Things About Film Tax Credits (Tax Policy Blog)

Fortunately, only very small dollars were involved: Tax cheats under microscope (The Australian)

Robert D. Flach wisely counsels taxpayers to “Check your finished return!”

Christopher Bergin on “fairness” in the tax law: “I don’t want to live in a country where all soccer games end in a 2-2 tie. “  You mean they end?

So the President has finally come as far as Dick Cheney on same-sex marriage.  It still could be a false move tax-wise, reports Peter J. Reilly.

Jana Luttenegger reminds us that you have to report all of your income, even if you don’t get a 1099.

 Sound advice: Learn To Say No (Trish McIntire)

Anthony Nitti: “S corporation Payroll Tax ‘Loophole’ lives to see another day.”

Paul Neiffer reminds us that when you want to give property to a trust and have the trust sell it, formalities are everything.

This tax credit proposal is a real dog (Jim Maule).  More from Kay Bell.

Finally, a chart from a new report on the future of Iowa’s transportation system (page 86):

Glad we’re getting so much for our investment in public transportation.

 

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End of session Carnival!

May 10th, 2012 by Joe Kristan

The Iowa General Assembly went home for the year last night.  It’s a beautiful day.  Celebrate at the new edition of Kay Bell’s Carnival of Taxes!

The fun never adjourns at the blog world’s finest gathering of tax-related posts.

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Iowa Property Tax Reform: dead?

May 9th, 2012 by Joe Kristan

The attempts to pass property tax reform and get the Iowa legislature out of town stalled last night when the Iowa Senate failed to pass a reform bill.   The Senate rejected the Republican-supported House bill, but then two Democrats torpedoed their own party’s bill. From the Quad City Times:

Senate Republicans offered the House plan in amendment form during an animated floor debate late Tuesday, but the proposal was turned back by Senate Democrats 21-26. However, Sens. Rob Hogg, D-Cedar Rapids, and Jack Hatch, D-Des Moines, joined the GOP minority in taking down the majority party’s $350 million relief plan by a 24-23 margin, leaving the future of the issue in partisan limbo as the Legislature moved to end the 2012 session as early as today.

“They sunk their own bill,” said Sen. Randy Feenstra, R-Hull, who led the effort to win Senate support of the House-passed bill and criticized Democrats for walking away from an approach that won 71-26 bipartisan support among representatives.

Failure to pass the property tax reform would also doom efforts to increase the Iowa earned income credit. It’s possible that the legislative leaders and the Governor could still throw together a compromise bill, but time is running short, with adjournment possible as soon as today.

Other tax bills also look like they will die before adjournment include:

Good riddance.

Additional coverange of yesterday’s legislative session:

Jason Clayworth (Des Moines Register), Iowa Senate rejects property tax bill; doubts arise that any reform will pass this session

O. Kay Henderson, Democrats’ property tax plan defeated in Iowa Senate

 

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They’re not shooting rich jaywalkers

May 9th, 2012 by Joe Kristan

Bruce Bartlett, the Denethor of small government fans, says that the spike in expatriations isn’t due to rich folks fleeing the country. (via the TaxProf)  That’s certainly true.  Why are they leaving?  His take:

The reality is that taxes are just one factor among many that determine where people choose to live. Factors including climate, proximity to those in similar businesses and the availability of amenities like the arts and cuisine play a much larger role.

He hasn’t been paying attention.  Tax Update readers and followers of the excellent work of Jack Townsend and Phil Hodgen know that the problem is not high tax rates.  It’s the IRS enforcement approach of shooting jaywalkers.  It’s the severe financial penalties for trivial paperwork violations and the high cost of complying with the ever more severe offshore reporting requirements for citizens abroad.  If you have permanently moved abroad, or if you are an “accidental” citizen — say, a Canadian born in the U.S. while your parents were attending school here — you tire of being treated like a criminal for failing to file paperwork that you had never heard of.

More from Peter Pappas.

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Tax Roundup, 5/9/2012

May 9th, 2012 by Joe Kristan

S corporation tax increase fails, as expected.

And take the Secret Service guys with you: U.S. Millionaires Told Go Away as Tax Evasion Rule Looms  (BloombergBusinessWeek)

Robert D Flach has a new Buzz on.

How can this be?  After all, preparers have to pass an open-book competency test. “Tax Fraud: IRS Could Issue $26 Billion In Tax Refunds To Fraudsters Over Next Five Years ” (Huffington Post)

Because Facebook employees expect $14 billion taxable income from options: “Facebook expects $14 billion tax break from options” (Reuters Tax Break)

Anthony Nitti: Avoiding The Trap on Employer-Owned Life Insurance Contracts.  This can be a huge problem.

Minnesota Vikings Fans Hold Breath As Legislature Determines Team’s Future (TaxGrrrl)  If the Vikes and their fans want a fancy new stadium, they should pay for it with their own money.  The touted economic benefits of publicly-financed sports facilities are wishful thinking.

Paul Nieffer: Maximum Section 179 Deduction Still at $500,000 for Many Farmers

Jack Townsend: Swiss Bank Pictet Turns Over U.S. Client Data If you are counting on offshore bank secrecy, you are playing Russian roulette.

Jason Dinesen: How Long Can Rental Property Sit Vacant and Still Be a Rental?

How about a day for each spammed email?  Michigan Porn Spammer gets six years (Xbiz Newswire, “Adult entertainment industry news for the Media”)

 

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Iowa House votes to increase EITC while chasing Harold Hill out of town

May 8th, 2012 by Joe Kristan

The Iowa General Assembly is in a frenzy of legislation.  Yesterday the Iowa House passed its version of property tax reform (HF 2475).  It differs from the Senate bill in several important ways.  The House bill imposes a limit on tax increases based partly on the Consumer Price Index.  Its increases the Iowa Earned Income Credit to 10% of the federal credit, vs. the 20% proposed by the Senate (SF 2161).  The increase would be retroactive to the beginning of this year.

The House also approved a bill modifying the Iowa trust code and making minor changes in the Iowa inheritance tax, but without the controversial repeal of Iowa’s rule against perpetuities — a repeal supported by Iowa bank trust departments who have been losing trusts to neighboring states with looser rules.

Both houses yesterday approved HF 2337, a bill that among other things formally repeals the Iowa Film Tax Credit.  While the disastrous credit was originally enacted over three dissenting votes, the repeal drew 14 no votes in the Senate and 15 in the house.

Lest we think the repeal of the film credit shows that the legislature finally understands the unwisdom of corporate welfare through the Iowa tax code, the Iowa House signed off on SF 2342.  This bill provides tax credits for 20% of the cost of “geothermal heat pumps” and 50% of the federal tax credit for “solar energy systems.” The House passed the bill 82-14; the Senate version passed over only one dissent.

Related:

Governor to buy property tax reform by doubling earned income credit?

Harold Hill gulls the House

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Tax Roundup, 5/8/2012

May 8th, 2012 by Joe Kristan

Logo via PJ Media

Well, you don’t expect welfare recipients to pay much tax.  Tax Free: G.M Hasn’t Paid Federal U.S. Income Tax Since Bankruptcy (Motor Trend)

But they’re doing a bang-up job with their preparer competency tests: IRS falls down in fight on tax return fraud (Tampa Bay Times)

Going Concern: Memo to The New York Times: The Tax Shaming Has Gotten Old

It still is a bad idea that will never pass: The White House endorses the lame bills to increase taxes on some professional S corporations (Linda Beale)

Weaving a tangled web: “According to the indictment, Barbara Murry owned and operated B&B Weaving Shop, which was in the same building as B&B Tax Service.”  Ms. Murry and nine family members face federal charges of tax fraud and ID theft in Alabama.  Maybe hair weavers don’t make the best return preparers. (Montgomery Advertiser)  Russ Fox has more.

Not ready for Prime Time: Operator of “Prime Time Tax Services” in East St. Louis gets four years.  The Bellevue News-Democrat reports:

 From 2009 to April 2011, Herron and Delaun M. Lelore, of Belleville, engaged in the scheme while operating Prime Time Tax Services in Shiloh and East St. Louis. They helped clients receive inflated federal tax refunds by providing false Schedule C self-employment information, court documents state. In return, clients paid an extra fee, usually $500, to a Prime Time employee who would escort clients to a check cashing business after they received their refund.

If I were going to a check-cashing service in East St. Louis, I’d want an escort too.

No 1099, no tax due?  Not necessarily, explains Robert D. Flach.

It looks like the tax scam that thinks we all have big accounts on deposit with the U.S. Treasury for the asking has hit Iowa.  “Iowan convicted of lying on tax returns” (KCCI.com, via Jason Dinesen’s Twitter feed)

He still thinks she’s hot even after she copped a plea to testify against him?  “Damiani Turns on Wirth” (Russ Fox)

And get off my lawn!  “Message to 99 Percenters: Stop Watching TV and Playing Video Games” (Peter Pappas)

 News you can use: “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers” (Peter Reilly)

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Back at it!

May 8th, 2012 by Joe Kristan

Sorry for the lack of posts yesterday.  Check in later this morning for a big Tax Roundup and coverage of yesterday’s frenzy at the Iowa Capitol.

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Governor to buy property tax reform by doubling earned income credit?

May 4th, 2012 by Joe Kristan

Tax Update computation, using proposed 15% Iowa EITC

Iowa Senate Democrats yesterday released draft legislation (SSB 3205) that they say is a “framework” for a compromise they have reached with Governor Branstad to reduce business property taxes.  The bill cuts commercial property taxes over five years by 25%, while more than doubling the Iowa Earned Income Tax Credit.  The Iowa EITC is currently 7% of the federal credit.  The bill would increase that to 15% of the federal credit.

Iowa’s high commercial property taxes have long been perceived as a problem for attracting and growing Iowa businesses, and reforming them has been the Governor’s top legislative priority.  Senate Democrats have been insisting that the price would be an increase in the Iowa earned income tax credit.  The Governor vetoed an increase in the credit last year.

While often described as a “tax break for the working poor,” the EITC is best understood as a welfare program.  The credit is computed based on the wage or self-employment income of taxpayers, and is lost if they have too much investment income.  It is “refundable,” meaning that if it exceeds income taxes — and it often does — the government writes a check for the difference.  That makes it a welfare  program, rather than just a tax break.

The refundable aspect makes it a fraud magnet.  Government reports indicate that as much as 25% of the EITC claimed is fraudulent or improper.  Until the recent ID-theft fraud binge, EITC theft was probably the most common low-end tax fraud scheme.

The EITC is phased out as income rises.   The phase-out creates a high hidden marginal tax rate.  Over a large income range, the combination of increased taxes and lost EITC costs earners more than 50 cents out of each additional dollar of income.  This has the perverse effect of punishing EITC recipients for getting raises.

House Republicans have balked at the bill, but not because of the EITC provision (they passed the EITC increase vetoed last year, after all).  They want to also add residential property tax relief to the bill.

Update: House proposal offers 10% Iowa EITC.

 

More coverage from Radio Iowa

Prior Tax Update coverage: Incentives to stay poor

 

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