IRS issues Applicable Federal Rates (AFR) for June 2015

May 22nd, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-14) the minimum required interest rates for loans made in June 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.43%

-Mid-Term (loans from 3-9 years): 1.60%

-Long-Term (over 9 years): 2.50%

The Long-term tax-exempt rate for Section 382 ownership changes in June 2015 is 2.50%.

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

Share

Tax Roundup, 5/22/15: IRS to refund RTRP test fees. And: Memorial Day!

May 22nd, 2015 by Joe Kristan

 

Memorial Day weekend!. As most offices will be deserted by 3 p.m., let’s get started. And while you are getting ready for the long weekend, remember that late this afternoon is a great time to get embarrassing news out, while nobody’s watching. The politicians know this.

20130121-2IRS to refund RTRP test fees. From an IRS announcement:

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

Mighty nice of them. But they have an ominous warning:

The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training.

In other words, they will continue to try to sneak preparer regulation through the back door. When the people who pass the tax laws have to pass a test of minimal competency, come back to me with your time-wasting paperwork, IRS.

 

buzz20140923Robert D. Flach rounds up tax happenings in his Friday Buzz!

Mitch Maahs, Tapping into Beer Tax Reform (Davis Brown Tax Law Blog):

As the craft beer industry continues to boom, the margins of many craft breweries have continued to tighten. Representatives of the industry have taken to Congress to seek tax breaks for these small brewers, but the large, multinational beer giants also want a pour from the tax-break tap.

Currently, all brewers pay a federal excise tax, per 31-gallon barrel (about 248 pints), based on the volume the brewer produces or imports. On its first 60,000 barrels brewed or imported, breweries pay $7.00 per barrel. The tax increases to $18.00 for each additional barrel above 60,000.

Excise taxes should work like user fees, paying for costs generated by the beer consumers. That’s not what this tax does.

Let’s shop! Memorial Day sales tax holidays for Texas, Virginia shoppers (Kay Bell)

William Perez talks about 3 Types of Tax Form 5498 (and Why You Got One): “Essentially, Form 5498 provides independent confirmation to the IRS of the amounts you contributed to IRAs and other tax-preferred savings accounts.”

 

 

20140527-1

 

Jack Townsend, GE Gets Slapped Down Again for its B*****t Tax Shelter.

Peter Reilly, Kent Hovind To Be Free In August – Maybe Sooner. His pet velociraptor will be glad to see him.

Kyle Pomerleau, Bernie Sanders’s Financial Transaction Tax Won’t Raise as Much Revenue as He Thinks (Tax Policy Blog):

In the 1980s, Sweden introduced a financial transactions tax. As expected, the tax reduced trade volume: “when the 2% tax was introduced in 1986, 60% of the trading volume of the 11 most actively traded Swedish share classes migrated to London to avoid taxes.”

Of course, the Sanders response to such failure would be to “crack down.”

 

20150505-2

 

Renu Zaretsky, Robbing Peter to Pay Paul. Today’s TaxVox headline roundup talks about a push to make bike riders pay for their bike trails, as well as the continuing fiscal turmoil in Kansas.

TaxProf, The IRS Scandal, Day 743

News from the Profession. 34-Count Indictment Won’t Stop Accountant from Serving His Clients: Lawyer. (Caleb Newquist, Going Concern). If he’s convicted, though, that just might stop him.

 

Share

Tax Roundup, 5/21/15: Credits targeting what you would do anyway! And: minimum wage, ACA, and lots more.

May 21st, 2015 by Joe Kristan

 

IMG_0603Paying people to do what they would do anyway. Rhode Island is proposing a new credit for “job creators,” reports David Brunori:

It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that’s why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what’s expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

This is true of all “job creation” credits. As David points out: “No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.”

An Illinois representative has proposed a “Patriot Employer Tax Credit Act,” (Tax Analysts, $link) with a tax credit of up to $1,500 for employers who:

-Invest in American Jobs: Does not move its headquarters overseas or reduce the number or percentage of U.S.-based workers in comparison to workers overseas.

-Pay Fair Wages: Pay 90% or more of U.S. workers an hourly wage of at least $15 per hour.

-Provide Quality Health Insurance: Offer ACA-compliant healthcare to employees.

-Prepare Workers for Retirement: Provide 90% of non-highly compensated U.S. employees a defined benefit plan OR a defined contribution plan and contribute at least 5% of worker compensation.

-Support Our Troops and Veterans: Pay the difference between regular salary and military compensation for all National Guard and Reserve employees called for active duty and have a plan in place to recruit veterans.

-Create a Diverse Workforce: Have a plan in place to recruit employees with disabilities.

By claiming the word “patriot,” it wraps bad economics in the flag. Because nothing says “I love my country” like tax credits.

 

20150423-1Jana Luttenegger Weiler, Health Savings Accounts: Beneficiaries and Taxes (Davis Brown Tax Law Blog). “As HSAs become more common, it is important to consider the HSA in various capacities, including in premarital agreements, death, and divorce.”

Tony Nitti, Tax Court: In Order To Convert A Home To A Rental, You Should Probably Rent It

Jason Dinesen, Glossary of Tax Terms: AMT.

TaxGrrrl, Taxpayer’s Call To IRS Accidentally Broadcast On Howard Stern’s Radio Show. I’m just amazed the caller reached an actual IRS agent.

Peter Reilly, Tax Girl Challenges Homeownership And You Should Really Listen To Her. “To many of us homeownership is a necessary step in becoming a full-fledged adult and a house that is rented can never be a home.  This book might help you rethink that attitude.”

Jim Maule, The Dependency Exemption Parental Tie-Breaker Rule. “Under the parental tie breaker rule in section 152(c)(4)(B), if the parents claiming a dependency exemption deduction for a qualifying child do not file a joint return, the child is treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during the taxable year, the child is treated as the qualifying child of the parent with the highest adjusted gross income.”

Paul Neiffer, April 18 (or 19), 2016 is Due Date for 2015 tax returns

Jack Townsend, Remaining Swiss Bank Criminal Investigations Likely to Go Into 2016

Robert Wood, Appalling $187 Million Cancer Charity Fraud Case Settles — When 97% Of Money Isn’t For Charity

Keith Fogg, Argument Over Furlough of National Taxpayer Advocate Set for June 2 Before the Federal Circuit (Procedurally Taxing)

 

 

20140401-1

 

Cara Griffith, Tax Reform Laboratories (Tax Analysts Blog). “Federal lawmakers could learn a lot from an examination of what has worked and what hasn’t across the nation.”

 

Insureblog, Dear HHS, Will You Share My ACA Success Story?:

  So how has this Obamacare thingy helped my small company:-We have seen an overall decrease in benefits since 2010.
-From November 2010 to our current plan year premiums have increased 58.7%.
-If we would have been forced to an Obamacare compliant plan the increase would have been 116.7%

Tom Vander Well, Placing customers on hold without diminishing satisfaction (IowaBiz.com). The suggestions do not endorse the IRS practice of “courtesy disconnects.”

 

Carl Davis, Sweet Sixteen: States Continue to Take On Gas Tax Reform (Tax Justice Blog). To the Tax Justice folks, tax reform = tax increase.

 

Joseph Thorndike, Republicans Should Embrace the Gas Tax – After All, They Invented It (Tax Analysts Blog). Everyone loves being told what they “should” like.

 

Kay Bell, Will Congress OK highway money before it hits the road?

 

Elaine Maag, A Redesigned Earned Income Tax Credit Could Encourage Work by Childless Adults. (TaxVox). Only if they can re-design it so that it doesn’t squander 25% of the cost on improper payments.

 

IMG_1218

 

Megan McArdle, $15 Minimum Wage Will Hurt Workers. A well-explained post explaining what should be obvious:

When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.

These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour.

Most people who insist that minimum wage increases are harmless snicker at those who believe in “intelligent design.” Yet they are themselves trying to impose their own design on an eveolutionary system. At least creationists don’t claim to be designing species.

 

TaxProf, The IRS Scandal, Day 742

 

News from the Profession. Accountants Lack Some Skills (Caleb Newquist, Going Concern). “But it’s foolish to expect accounting graduates to have skills for corporate accounting. They don’t have them because they don’t learn them in school and they don’t learn them in public accounting.”

 

Share

Tax Roundup, 5/20/15: April 15 is on April 18 next year. And: exit > voice.

May 20th, 2015 by Joe Kristan

20140805-3It looks like we’ll be working an extra weekend next April. Thanks to the puzzling rules regarding the observance of Emancipation Day in Washington D.C., the deadline for 1040s next year will be April 18 – even though April 15 falls on a Friday. Residents of Massachusetts and Maine get even one more day. From Rev. Rul. 2015-13:

The District of Columbia observes Emancipation Day on Friday, April 15 when April 16 is a Saturday. This makes Monday, April 18, the ordinary due date for filing income tax returns. However, in this situation, Monday, April 18, is the third Monday in April, the date that Massachusetts and Maine observe Patriots’ Day. Because residents of Massachusetts and Maine may elect to hand carry their income tax returns to their local IRS offices, A (a Massachusetts resident) has until the next succeeding day that is not a Saturday, Sunday, or legal holiday to file A’s income tax return. Thus, A has until Tuesday, April 19, to file A’s income tax return.

I suppose I will appreciate the extra time when the deadline comes, but I would really just as soon get it over with.

Kay Bell has more.

 

Update on Iowa effects of Wynne decision. The Iowa Department of Revenue public information officer responded to my inquiry about the state’s reaction to Monday’s Supreme Court decision requiring states to allow a credit on resident individual returns for taxes paid in other states: “We are in the process of reviewing the decision.”

Not surprising, as it is a new decision. If you have a refund statute of limitations expiring soon, don’t wait on their guidance to file a protective refund claim for income taxes paid in non-Iowa municipalities.

 

20150504-2Alito on the limits of politicsThe dissent in Wynne said that Maryland resident taxpayers afflicted with a discriminatory double tax on out-of-state income shouldn’t have prevailed becasue they had recourse to the ballot box to protect their interests. Writing for the majority, Justice Alito pointed out that this does little good (my emphasis):

In addition, the notion that the victims of such discrimination have a complete remedy at the polls is fanciful. It is likely that only a distinct minority of a State’s residents earns income out of State. Schemes that discriminate against income earned in other States may be attractive to legislators and a majority of their constituents for precisely this reason. It is even more farfetched to suggest that natural persons with out-of-state income are better able to influence state lawmakers than large corporations headquartered in the State. In short, petitioner’s argument would leave no security where the majority of voters prefer protectionism at the expense of the few who earn income interstate.

This is actually a powerful argument to limit the role of government in the first place. One voter has negligible power to overthrow unfair legislation. In the one-party rule typical of large American cities, political activity for a minority view is futile, Jim Maule notwithstanding.

20140513-1Arnold Kling points out how market institutions, which hold no elections but allow choice, can actually be more empowering for an individual:

Neither my local supermarket nor any of its suppliers has a way for me to exercise voice. They don’t hold elections. They don’t have town-hall meetings where they explain their plans for what will be in the store. By democratic standards, I am powerless in the supermarket.

And yet, I feel much freer in the supermarket than I do with respect to my county, state, or federal government. For each item in the supermarket, I can choose whether to put it into my cart and pay for it or leave it on the shelf. I can walk out of the supermarket at any time and go to a competing grocery.

The exercise of voice, including the right to vote, is not the ultimate expression of freedom. Rather, it is the last refuge of those who suffer under a monopoly.

He argues  that we should be able to choose governing institutions more like we choose other service providers:

In fact, if we had real competitive government, then we would be no more interested in elections and speaking out to government officials than we are in holding elections and town-hall meetings at the supermarket.

He makes this argument more detail in his book Unchecked and Unbalanced). Somehow I don’t think that will go over well with our current officeholders.

 

 

Russ Fox, The Real Impact of the Wynne Decision: “However, many states do not give credits for local taxes. Joe Kristan highlighted Iowa today; Kentucky is another state that does not currently offer such tax credits. Under Wynne I believe they’ll be required to offer such credits.”

Robert D. Flach, DEDUCTING MORTGAGE INTEREST:

Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums ($1 Million for acquisition debt and $100,000 for home equity debt – no limit on grandfathered debt), and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.

I firmly believe that 99.5% of taxpayers do not do this. I do not know of any taxpayer who does.

The clients don’t, but that doesn’t mean preparers shouldn’t watch out for these items. When taxpayers have interest on multiple home loans, or very high home interest deductions, alert preparers have to ask questions to make sure the deductions and AMT are determined correctly.

Annette Nellen, Filing season tax updates

Robert Wood, Floyd Mayweather Gambles, Wins, Pays IRS:

 

20150404-1

 

Another ACA Co-op on the ropes? Hank Stern reports at Insureblog that the Kentucky health care cooperative is insolvent. That means it may go the way of Iowa’s short lived and expensive catastrophe Co-Oportunity.

 

Jeremy Scott, Hawkins Casts Powerful Shadow Over OPR (Tax Analysts Blog):

Hawkins will probably always face at least some criticism because of the overreach of the preparer regime, and some accusations that she was too favorable to the large practitioner groups such as the ABA and the American Institute of Certified Public Accountants. But she should more properly be remembered as the person who brought coherence to IRS Circular 230 enforcement and essentially rebuilt OPR from scratch.

 

In fairness, the preparer regulation overreach was decided above her level.

 

Scott Sumner, A consumption tax is a wealth tax (Econlog). “For any income tax regime, there is a consumption tax regime of equal progressivity. Unfortunately that equally progressive regime will look much less progressive. This is one of the biggest barriers to tax reform.”

Kyle Pomerleau, What are Flat taxes? (Tax Policy Blog):

When most people hear “Flat Tax,” they usually think a tax system with one, flat tax rate on all income. They also imagine a tax system with little or no deductions or credits. While this is a possible way to design a flat tax, it is not what makes a flat tax a flat tax. The key to a flat tax goes beyond its rates. The key is that it is a consumption tax. You would not call a low-rate tax on all transactions in an economy a flat tax, even though it had one, flat rate.

Interesting.

 

20140611-2

 

Howard Gleckman, Are GOP Presidential Candidates Downplaying Tax Cuts Or Hiding The Ball? Referring to Joseph Thorndike, he says: “Joe, who is very much in the watch-what-they-do-not what-they-say (WWTDNWTS) camp, noted that while few GOP presidential hopefuls are talking about tax cuts, many of their proposals are, in fact tax cuts.”

TaxProf, The IRS Scandal, Day 741

 

Caleb Newquist,  “Just Ask the Guy” Not Always a Futile Fraud Detection Method (Going Concern).  Not foolproof, though.

 

Share

Tax Roundup, 5/19/15: Is yesterday’s U.S. Supreme Court decision an Iowa refund opportunity? And AICPA looks for love!

May 19th, 2015 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

Time for Iowans to claim refunds for local income taxes paid out-of-state? The U.S. Supreme Court yesterday ruled that Maryland was required to allow its residents credit for taxes paid in other states.

State tax systems normally tax resident individuals on 100% of their taxable income. They tax non-residents on only the share of income apportioned or allocated to the state. In order to keep their residents from being clobbered by multiple state income taxes, the states typically allow them a “credit for taxes paid in other states.” This is, roughly, the lesser of the tax paid to the other state or the resident state tax computed on the out-of-state income.

Maryland failed to allow a credit for taxes paid in other states for the “county” portion of its individual income tax. The U.S. Supreme court ordered Maryland to issue such a credit to the plaintiffs, who had out-of-state S corporation income.

Iowa allows a credit for taxes paid in other states, but does not allow such a credit for taxes paid in municipalities or counties. These taxes can be significant. Many Iowans pay taxes in New York City, Kansas City, St. Louis, or Washington, D.C., for example. Many Ohio municipalities also impose income taxes. While the Supreme Court decision doesn’t specifically address such taxes, the court’s logic that double-taxes discriminate against interstate commerce would seem to apply here. A Tax Analysts article ($link) on the decision notes (my emphasis):

Local governments filed an amicus brief  saying Wynne may have implications and that there are many states with long-established tax programs like Maryland’s that do not afford dollar-for-dollar credits to residents for all out-of-state income taxes paid.

That brief identified Wisconsin and North Carolina as states that do not allow a credit against local income taxes, as well as a number of local governments that fail to provide a credit for state taxes paid against local taxes, including Philadelphia; Cleveland; Detroit; Indiana’s counties; Kansas City, Missouri; St. Louis; and Wilmington, Delaware.

I have emailed an Iowa Department of Revenue representative asking how they will respond to the case, and will report whatever I may hear back from them. Meanwhile, taxpayers who extended their 2011 Iowa returns and paid municipal taxes elsewhere should consider filing protective refund claims while their statutue of limitations remains open.

The TaxProf has a roundup of coverage.

Cite: COMPTROLLER OF THE TREASURY OF MARYLAND v. WYNNE ET UX. No 13-485.

supreme courtMore coverage:

Joseph Henchman, A Victory for Taxpayers: SCOTUS Strikes down Maryland Tax Law (Tax Policy Blog). “This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another.”

Howard Gleckman, A Divided Supreme Court Rejects Maryland’s Tax On Out-Of-State Income (TaxVox). “But given the closeness of the decision and the wide gulf between the majority and the minority, today’s ruling may not be the last word in the argument over whether, and how, states can tax out-of-state income.”

Russ Fox, A Wynne for the Dormant Commerce Clause. “This case also highlights the difficulties facing a taxpayer without deep pockets.”

TaxGrrrl, In Landmark Case, Supreme Court Finds Maryland’s Tax Scheme Unconstitutional. “In the end, it all came down to this: “the total tax burden on interstate commerce is higher” under Maryland’s current tax scheme. That double taxation scheme, the Court found, is unconstitutional.”

Kay Bell, Supreme Court tax ruling could cost Maryland $200+ million. Wheneer a taxing authority gets caught imposing an illegal tax, they always moan about how terrible it will be to repay their ill-gotten gains. I’ll give them the same sympathy they typically give a taxpayer who loses a fight with them.

 

20140505-1

 

 

Bloomberg, Iowa Spent $50 Million to Lure IBM. Then the Firings Started. That was $50 million paid by other Iowa businesses and their employees, money they could have used to grow businesses that might not have fled.

 

Jason Dinesen, Why Make Estimated Tax Payments, Part 2. “Here’s the reason: if you’re fully self-employed, you don’t draw a paycheck in the traditional sense.

Paul Neiffer, What Runs Through the Estate! “In many cases, the heirs will use the cost basis from grandpa and not pick up the extra cost from mom and dad.”

Robert D. Flach comes through with fresh Tueesday Buzz, including thoughts on the use of the tax law as a welfare program.

William Perez, 10 Emerging Financial Technology Apps with a Tax-Angle

 

20140307-1

 

Peter ReillyFree Kent Hovind Movement Has Big Win. ” Judge Margaret Casey Rodgers has granted Kent Hovind’s motion for a judgment of acquittal on the contempt of court charge that he was convicted of in March.”

Robert Wood, U2’s Bono Sounds Increasingly Like Warren Buffett. That’s OK, pitch correction software can do amazing things.

Andy Grewal, The Un-Precedented Tax Court: Bench Opinions (Procedurally Taxing). “Opinions can’t cause a lot of confusion if no one can find them.”

 

Martin Sullivan, As in Florida, Rubio Pursues ‘Big, Hairy’ Goals in the U.S. Senate (Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 740. Today’s post is a useful corrective to the persistent scandal denialists.

Not that there’s anything wrong with that. AICPA Wants CGMA Love From the C-Suite (Caleb Newquist, Going Concern).

Share

Tax Roundup, 5/18/15: IRS steals business account, tells victim to shut up. And: a vanity plate that fails to impress.

May 18th, 2015 by Joe Kristan

ijlogoYou should thank me, peasant! The IRS has agreed to return all of the $107,000 it stole from a North Carolina in a “structuring” case. Like a similar Iowa case, the IRS seized this taxpayers bank account because he routinely made deposits under $10,000 — even though it never implied that the taxpayer was evading taxes or committing crimes.

And the IRS says the owner should be happy, and shut up:

Even after he recovers his bank account, Lyndon is still out tens of thousands of dollars, thanks to the government’s actions. Lyndon paid a $3,000 retainer to a private attorney before IJ took the case on pro bono, and he also paid approximately $19,000 for an accountant to audit his business and to provide other services to help convince the government he did nothing wrong. The government is refusing to pay those expenses. And the government also is refusing to pay interest on the money. 

It’s especially outrageous in light of the government’s high-handed bullying:

Two months ago, U.S. Attorney Steve West told Lyndon McLellan that any attempt to garner publicity about his civil forfeiture case “doesn’t help. It just ratchets up feelings in the agency. My offer is to return 50% of the money.” 

Oh, the poor feelings of the agency!

Good work by Institute for Justice, the public-interest law firm that got the IRS to give back the money the IRS stole from the Iowa and North Carolina businesses. Consider a donation. And remember, government is just a word for things we do together.

 

 

Andrew Lundeen, FATCA Makes Life Tough for Americans Who Live Abroad. “The results are frustrating for Americans living abroad as they struggle to find foreign banks willing to serve them.”

Whenever I see someone say FATCA is a success, they’re only talking about how hard it has become to evade taxes  offshore — not about how difficult it has made ordinary financial life for Americans abroad. It’s as if you jailed 99 innocent people and called it a success because by golly you got that guilty one too.

 

Russ Fox, Fake Businesses, Phony Dependents: What Could Go Wrong?

From 2008 through 2011 the business earned in $1.9 million in fees, so it was producing a good amount of revenue. And they were probably getting good refunds for their clients. After all, they did the “normal” things for Bozo tax preparers; phony dependents and itemized deductions for personal expenses were the norm (so that taxpayers would qualify for the Earned Income Credit).

When a preparer gets results that nobody else gets, you might want to actually read the return. If they are scamming, it will go badly for their customers.

20140509-2

 

 

William Perez, Tips for Reducing Small Business Taxes by Changing Behaviors.

Kay Bell, Alabama woman charged with $7.5 million tax identity theft

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 2

 

Jim Maule, When Is a Casualty Loss Not (Yet) A Casualty Loss? “In a recent decision, Hyler v. Comr., T.C. Summ. Op. 2015-34, the Tax Court held that a taxpayer’s casualty loss deduction claimed in 2012 was not allowable in that year because during that year, and even as late as 2015, the taxpayer was continuing to pursue reimbursement from those alleged responsible for the loss.”

Peter Reilly, Kent Hovind In Pensacola – Looks Like No Trial On Monday

Robert Wood, Obamacare Cadillac Tax Is A Lemon, And Businesses Are Slashing Coverage To Avoid It

TaxGrrrl, I’m Going Back To The Movies!

I’m going back to the movies! This summer, I’m reviving my popular “Taxgirl Goes To The Movies” feature. I’ll review movies suggested by readers – from Mad Max to Avengers to Tomorrowland – focusing on the tax consequences to the characters in the film. Stay tuned!

So when Bilbo takes the Arkenstone, should that go on Schedule C?

 

Stephen Olsen, Summary Opinions for April 10th through 24th. A roundup of recent developments in the tax procedure world.

Jack Townsend, Finter Bank Zurich AG Obtains NPA Under DOJ Swiss Bank Program

 

 

TaxProf, The IRS Scandal, Day 737The IRS Scandal, Day 738The IRS Scandal, Day 739. Included is a link to an odd Brookings Institute report saying the scandals show why we need more government — because the Treasury Inspector General helped uncover the scandal. Never mind the systematic obstruction of inspectors general under the current administration.

 

Joseph Thorndike, Tax Cuts Are Tax Cuts Even When You Call Them Tax Reform (Tax Analysts Blog)

Renu Zaretsky, Runnin’ on Empty. Today’s TaxVox headline roundup covers a Nebraska gas tax increase and federal highway funding woes.

 

20140506-1

 

Cara Griffith, Could There Finally Be Transparency About Tax Abatements? (Tax Analysts Blog). She writes of a proposed requirement of the Government Accounting Standards Board for disclosures of Corporate welfare tax abatements:

The proposed statement would require governments to disclose general information about their tax abatement agreements, including the tax being abated, the authority for the abatement, eligibility, how the abated taxes will be recaptured, and the types of commitments made by tax abatement recipients. Governments would also be required to disclose the number of tax abatement agreements entered into during the reporting year, the dollar amounts of taxes abated during the reporting period, and other commitments made by the government as part of a tax abatement agreement.

It’s shameful that this disclosure isn’t already required.

 

Sebastian Johnson, Illinois Lawmakers Need to Take Responsibility for Budget Crisis (Tax Justice Blog). You’ll be shocked to hear that the Tax Justice folks think there’s nothing wrong with Illinois’ insane public pensions that higher taxes can’t cure.

 

Caleb Newquist, Who Puts “USGAAP” on Their License Plate? (Going Concern). “On a Porsche, no less.”

Share

Tax Roundup, 5/14/15: Snowbird fails to melt Iowa Department of Revenue opposition to gain exclusion. And many links!

May 14th, 2015 by Joe Kristan

 

Programming note: No posting tomorrow. See you Monday!

 

Iowa's business tax climate, illustrated

Materially-participating in winter

Snowbird loses “material participation” Iowa capital gain exclusion argument. A taxpayer who claimed the unusual Iowa exclusion on very-long-term capital gains failed to convince the Department of Revenue that he “materially participated” in the activity for the minimum of ten years required to qualify for the exclusion.

Iowa allows taxpayers to exclude certain long-term gains from their Iowa taxable income if they meet two requirements:

– They have held the property for ten years, and

– they “materially participated” in the business sold (or in the business holding real property sold) in the ten years preceding the sale.

The “material participation” rule follows the federal “passive activity” material participation definitions. This usually is based on time spent in the activity. Farmers who materially participate in five of the last eight years before they start drawing Social Security payments are considered to materially participate in the farming activity forever. Other taxpayers who retire after working in a business generally are considered to “materially participate” for five years after retirement.

The Iowa ruling letter gives sketchy facts, but it does note (my emphasis):

In determining material participation, only the 10 calendar years immediately prior to the sale are considered and the determination of the participation is limited to that property which is sold.  Both the Department’s rule and the Internal Revenue Code (IRC) require material participation to be regular, continuous, and substantial.  The fact that you wintered in Florida lends serious doubt as to the regular part of that requirement.  Additionally, your daughter was paid for management services.  Rule 701 IAC 40.38(1)(e)(7) states in part, “Management activities of a taxpayer are not considered for purposes of determining if there was material participation if either of the following applies: any person other than the taxpayer is compensated for management services, or any person provides more hours of management services than the taxpayer.”

The letter goes on to say that it’s up to the taxpayer to prove participation, and the taxpayer failed to provide logs, calendars or other evidence that he worked sufficient hours to meet the material participation tests.

The moral? If you want to claim material participation, and you have stepped away from the business, it’s important to keep good records of your participation. The state may not be inclined to take your word for it.

Cite:  Document Reference: 15201008

Related:

Material Participation Basics

IOWA’S SUPER-LONG TERM CAPITAL GAINS DEDUCTION: IF YOU QUIT, DON’T WAIT TOO LONG TO RETIRE

 

20140508-1

 

Kay Bell, Don’t ignore that IRS letter and nine other tax notice tips

Robert Wood, Facts About FATCA, America’s Global Disclosure Law. “If you think money anywhere can escape the IRS, think again.”

Jim Maule, When Do Relationships End for Federal Income Tax Purposes?:

The taxpayer argued that the child remains her foster child because they continued their relationship and hold each other out as parent and child. The Tax Court, however, determined that the taxpayer’s guardianship terminated in 2004 when the child attained majority. At that point, the child no longer could be said to be someone who “is placed” with the taxpayer.

Interesting.

 

Robert D. Flach, NO INCOME IS TAXED ALONE

Andrew Mitchel has a new Flowchart – Taxation of Pension Distributions Under UK – US Income Tax Treaty

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog):

Despite its bad reputation, the property tax has numerous benefits. For local governments, the tax provides a relatively stable source of revenue. Local governments also have a fairly high collection success rate. Many property owners have escrow accounts through their mortgage companies, which collect tax monthly and remit it at the appropriate time. Because of that, and the fact that the property tax is attached to something physical, it is hard to avoid or evade.

It’s hard to beat the property tax for funding local services. When the politically-influential carve themselves out of it with TIFs or special exemptions (e.g., special agricultural assessment rules), those that are left footing the bill are understandably unhappy.

 

Renu Zaretsky, Wishes, Dreams, and Bittersweet Denials Today’s TaxVox headline roundup covers thoughts on the effect of reduced refunds on this spring’s retail sales, the failure of a proposed soda tax in California, and the need for more IRS authority to fix bad EITC claims.

Alan Cole, NFIB Survey: Taxes a Top Problem for Business (Tax Policy Blog).

Carl Smith, IRS Plays Cat and Mouse With Tax Court on Its Constitutional Status (Procedurally Taxing).

IMG_1513

Joseph Thorndike, Even Under a Flat Tax, Learn to Love Those Loopholes, Because They’re Here to Stay (Tax Analysts Blog). “Once you win the battle, you have to keep fighting it over and over again.”

Greg Mankiw, Why I invest in index funds. “For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.”

Hank Stern, Cover Cali sputtering. (InsureBlog). “The Golden State’s health exchange (Covered California) continues to burn through tax-payer dollars at an alarming rate.”

 

TaxProf, The IRS Scandal, Day 735

 

Career Corner. Should CPAs Consider an MBA? (Paul Gillis, Going Concern). Not to fix your car, no.

 

Share

Tax Roundup, 5/13/15: Des Moines tries to speed through a red light. And: Tax Expert, heal thyself.

May 13th, 2015 by Joe Kristan

DNo Walnut STes Moines plans to sue to keep revenue camera revenue flowing. The Des Moines tax on unwary out-of-town motorists driving past Waveland Golf Course lost another battle yesterday.  The Iowa Department of Transportation turned down the city’s appeal of the Departments order to shut down the city’s freeway speed cameras (Des Moines Register)

As seems to be the practice when it imposes an illegal tax, the City now plans to blow a bunch of money on lawyers rather than obey the law, reports the Register:

Des Moines will appeal the ruling to district court, officials said.

Iowa is the only state in the United States that has permanent speed enforcement cameras on its interstate highways, according to the DOT, which in late 2013 adopted new rules governing the use of the devices on or next to state highways.

A few years ago Des Moines was caught imposing an illegal franchise tax on its residents’ utility bills. Rather than apologizing abjectly and refunding the ill-gotten gains, it appealed all the way to the U.S. Supreme Court, losing every step of the way. In the end it had to repay the tax, the city lawyers, and the taxpayer lawyers for a bunch of pointless litigation. The city still seems to favor that approach.

 

Flickr image by Ano Lobb under Creative Commons license.

Flickr image by Ano Lobb under Creative Commons license.

The cobbler’s children go barefoot. Mr. Hughes, a U.S. Citizen, had a successful career at one of international accounting firm KPMG. Tax Court Judge Wherry tells of an impressive career arc (my emphasis):

During his tenure at KPMG Mr. Hughes rose through the ranks and moved among KPMG’s international offices. Between September 1979 and 1994 he worked in the firm’s international tax group in Houston, Chicago, and Toronto, earning promotions from staff accountant to manager, from manager to senior manager, and finally, in 1986, to partner. During this period his duties shifted from preparing corporate and partnership Federal income tax returns to advising clients, particularly publicly traded corporations. Mr. Hughes also began to specialize in the international aspects of subchapter C of the Code and cross-border transactions, particularly mergers and acquisitions (M&A). He returned to the Chicago office and continued with his transactional work for publicly traded corporations.

A key aspect of M&A work is gain recognition and the basis consequences of transactions.  Transactions like this:

During 1999 KPMG spun off its consulting business to a newly formed corporation, KCI. The firm retained a direct equity stake of approximately 20% of KCI’s outstanding shares, and these shares were specially allocated among KPMG’s partners, including Mr. Hughes (K-1 shares), in January 2000. KPMG caused KCI to issue shares representing the remaining 80% of its equity to KPMG’s partners, including Mr. Hughes, who received 95,467 shares of KCI stock (founders’ shares) on January 31, 2000. Mr. Hughes did not contribute funds to KPMG in connection with KCI’s formation. He took zero bases in the founders’ shares.

So far, so good. Mr. Hughes along the way married a U.K. national and gave shares to his wife. There things begin to get a little foggy. The shares were sold at a time the couple resided in the U.S. , and the taxpayers did not claim full proceeds in income, on the grounds that the recipient spouse received a tax-free step-up in basis when she received the shares in the U.K. After clearing away some fog, the Judge lays out the remaining issues:

The first two are: (1) whether Mr. Hughes transferred ownership of the KCI shares to Mrs. Hughes, and (2) if so, whether Mrs. Hughes took bases greater than zero in the KCI shares. For petitioners to prevail, we must answer both questions affirmatively.

20120511-2When you give shares, or anything else, to a spouse who is a U.S. citizen, Sec. 1041 applies to provide that no gain is recognized and basis carries over. Sec. 1041 doesn’t apply to non-U.S. spouses. The Tax Court explains what happens:

Where, as here, an interspousal property transfer takes the form of a gift, no gain is realized, so regardless of whether section 1041(a) applies, there is no gain to be recognized…

The donee, on the other hand, realizes an economic gain upon receipt of a gift. His or her wealth increases by the value of the gift. But for tax purposes section 102(a) excludes this gain from the donee’s gross income. To preserve the U.S.’ ability to tax any unrecognized gain in property that is the subject of the gift, section 1015(a) sets the donee’s basis in the property equal to the lesser of the donor’s basis (or that of “the last preceding owner by whom it was not acquired by gift”) or if there is unrecognized loss, then for loss purposes, the property’s fair market value.

The taxpayer, who doubtless guided many clients through harrowing cross-border M&A deals unscathed, failed to achieve that on his own return. The court ruled that not only did he owe additional tax, but also a 40% “gross valuation misstatement penalty”:

Given his extensive knowledge of and experience with U.S. tax law, Mr. Hughes should have realized that the conclusion he reached — that the KCI shares’ bases would be stepped up to fair market value, such that the built-in gain in those shares would never be subject to tax in either the United States or the United Kingdom — was too good to be true.

Ouch.

Cite: Hughes, T.C. Memo 2014-89

 

Locust Street, Des Moines

Locust Street, Des Moines

 

Paul Neiffer, “Cost don’t Matter, Except When it Does”

Jason Dinesen, Marriage in the Tax Code, Part 8: 1920s Court Battles

TaxGrrrl, 11 Reasons Why I Never Want To Own A House Again

Calling Baton Rouge. Baton Rouge producer pleads guilty to film tax credit fraud (WAFB.com):

Baton Rouge producer pleads guilty to film tax credit fraud:

“Louisiana’s film tax credit program cannot function as intended when people are constantly defrauding it,” said Louisiana Inspector General Stephen Street. “We are continuing to do everything we can to make sure there are criminal consequences when that happens, and today’s guilty plea is the latest example of that.”

Au contraire, as the Cajuns might say. I think that’s pretty much exactly how these things are intended to function.

Kay Bell, Duck Dynasty’s Louisiana state tax credits could be winged

 

David Brunori, A Flat Income Tax is a Good Thing (Tax Analysts Blog). “Every — and I mean every — tax commission that has ever opined on good tax policy has called for a tax system built on a broad base and low rates.”

 

IMG_1581

 

Howard Gleckman, Is the GOP’s Enthusiasm for Tax Cuts Going the Way of American Idol? A question answered “no” since at least 1981.

Andy Grewal, The Un-Precedented Tax Court: Part I (Procedurally Taxing) ” Although the court purportedly exercises the judicial power (more on that in a later post), most of its work product is not judge-like.  That is, the Tax Court decides most of its cases as an administrative office would, without setting precedent.”

 

TaxProf, The IRS Scandal, Day 734, featuring Peter Reilly’s IRS Not Grossly Negligent In Disclosure Of Exempt Application. High standards, not.

 

Jeremy Scott, Unexpected Tory Victory Has Major Ramifications for Europe (Tax Analysts Blog). “Defying polls, pollsters, and the specter of a hopelessly fractured Parliament, the Conservatives won a resounding victory in the U.K. election last week.” Just note that I arrived in Scotland with Labour leading the Tories 41-1 in Scotland. By the time I landed in Des Moines, the Tories held the same number of Scottish seats as Labour. No wonder I felt so tired.

20150512-1

Graphic from BBC

 

News from the Profession. Grant Thornton Not Gonna Let Some Rich Guy Drag Its Good Name Through the Mud and Get Away With It (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 5/12/15: IRS updates list of permitted private delivery services for timely-mailed, timely-filed rule.

May 12th, 2015 by Joe Kristan

UPS 2nd-dayWhen it absolutely, positively has to be postmarked today. While we live in an electronic age, there are still tax things that can only be submitted the old-fashioned way, on dead tree byproduct. That means the “mailbox rule” — timely-mailed means timely-filed — still means something to those of us facing filing deadlines.

The traditional way to document timely filing has been to use Certified Mail, Return Receipt Requested, at the good old post office. Sometimes it’s hard to get to the post office before they close — or before they stop bothering to process certified mail for the day — so many taxpayers have come to rely on “designated private delivery services” to document their filings.

The IRS last week updated its list of permitted private delivery options in Notice 2015-38. It is the first update of the list since 2004 and reflects changes in the offerings of the large delivery services. The approved services (effective May 6, 2015) are:

 

FedEx:

1. FedEx First Overnight

2. FedEx Priority Overnight

3. FedEx Standard Overnight

4. FedEx 2 Day

5. FedEx International Next Flight Out

6. FedEx International Priority

7. FedEx International First

8. FedEx International Economy

 

UPS:

1. UPS Next Day Air Early AM

2. UPS Next Day Air

3. UPS Next Day Air Saver

4. UPS 2nd Day Air

5. UPS 2nd Day Air A.M.

6. UPS Worldwide Express Plus

7. UPS Worldwide Express.

This means DHL no longer offers approved services. It’s UPS, FedEx, or the USPS. Also note that the popular “UPS Ground” service is not on the list. If you use a non-designated service, the filing date is the date the IRS receives it.

For the thrifty among us, it’s worth noting that for both UPS and FedEx, 2nd-day service works just as well as overnight delivery. In either case, the key is to make sure your shipping documents show a ship date that beats the deadline. Also, make sure you use the proper street address; the private services can’t deliver to IRS service center post office boxes.

Related: Russ Fox, Not All Private Delivery Services Are Equal

 

IMG_1583

 

Just time for a few links today:

 

TaxGrrrl, Tax Deadline Looms For Tax Exempt Organizations

Kay Bell, It’s a bird! It’s a plane! It’s a tax collector!

Robert D. Flach has fresh Tuesday Buzz!

 

David Brunori, The Highest Corporate Tax Rate Should Be Zero (Tax Analysts Blog):

Since 2002 I have been saying that states should repeal their corporate income taxes. I speak practically and am not furthering some ideological agenda. I said then that (1) the corporate income tax did not raise a lot of money; (2) without combined reporting and other safeguards, it would never make a lot of money; (3) it consumed an inordinate amount of resources (planning, litigating, auditing); and (4) it does not matter and we should stop pretending that it does.

Repeal of Iowa’s highest-in-the-developed-world income tax is a key part of the Tax Update Quick And Dirty Iowa Tax Reform Plan.

 

IMG_1557Andrew Lundeen, Let’s Eliminate the Tax Code’s Bias Against Saving with Universal Savings Accounts (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 733, discussing a non Tea Party victim of IRS targeting that took it to court: “Last week a panel of three DC Circuit judges heard the IRS appeal. The hearing did not go well for the IRS. Indeed, it was an exercise in righteous humiliation of the Department of Justice.”

 

News from the Profession. Throwing Money at People Still a Solid Retention Strategy (Going Concern)

 

 

Share

Tax Roundup, 5/11/15: Returned, recovering, and ranting! Sales taxes, tax credits for special friends pondered by Iowa legislature.

May 11th, 2015 by Joe Kristan

 

IMG_0983I am back from overseas, and somewhat recovered from a nasty bug that hit me just before it was time to come home. So much to catch up on — if I don’t link your post today, I might get it later this week, as I dig out.

I was saddened to learn that the Iowa legislature is still in session. David Brunori reports ($link) on a proposal to allow Des Moines to vote on increasing its own sales tax without participation of its neighbors:

Iowa Rep. Tom Sands (R), chair of the House Ways and Means Committee, has introduced legislation that would allow greater Des Moines communities to ask voters to approve a 1 percent local option sales tax. I have written about this issue a lot over the years. The reality is that while there are sound reasons for imposing a local option sales tax, the problems far outweigh the benefits.

When Des Moines adopts this tax, the folks who shop in the city will pay. But many of them don’t live within the city limits. It will be people in the surrounding suburbs and rural areas who pay some of the tax. That’s great for Des Moines, but not so good for other jurisdictions. I am unsure why a legislator from a rural area — or even an area without significant retail — would support this measure. Their citizens will pay but won’t see the benefits.

Well, it’s just another example of the delight Des Moines politicians take in picking the pockets of non-voters (Exhibit A: freeway speed cameras). But remembering the result of the last sales tax increase vote in the area — crushed by a 85% “no” vote — I don’t think the municipal highwaymen should count their sales tax loot just yet.

 

Politicians call for more subsidies for their well-connected friends, from your pockets. Iowa leaders call for biochemical tax credits for ethanol, biodiesel (Sioux City Journal).

 

Andrew Lundeen, Pass-through Businesses Employ Most of the Private Sector Workforce (Tax Policy Blog).

20150511-1

 

“Pass-though” businesses are those taxed on owner 1040s. When you tax high income individuals, there is no escaping that you are reducing funds available for the nations principal employers to hire and expand.

 

William Perez, Your Guide to the 6 Types of Business for Federal Tax Purposes. “Entrepreneurs can set up their small business as a sole proprietorship, corporation, S-corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability Partnership, and in some states a Professional Limited Liability Company/Partnership.”

Jason Dinesen, Why Make Estimated Tax Payments, Part 1. “People who are new to self-employment are often confused about what estimated tax payments are and why they might need to make these payments.”

Kay Bell, A Mother’s Day tax gift: 10 child care tax credit tips

TaxGrrrl, 11 Things I’ve Learned About Tax From My Mom

Leslie Book, On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

Paul Neiffer, Don’t Get Too Greedy! And however greedy you get, you need to follow the appraisal rules if you want to deduct a property donation.

Jack Townsend discusses a Sentencing for Failure to Pay Over Trust Fund Taxes. If you don’t remit withheld payroll taxes, thinking that you are just “borrowing” it, your “interest” might include prison time.

Peter Reilly, Home Schooling Contingency Does Not Kill Alimony Deduction

Robert D. Flach, WHAT TO EXPECT WHEN WRITING TO THE IRS. Not a speedy resolution.

 

 

Andrew Mitchel, The Exodus Continues (2015 1st Quarter Published Expatriates).

We began tracking expatriations in late 2009 because we anticipated that the number of expatriations would increase as a result of changes in U.S. tax laws and due to “saber rattling” by the IRS about the imposition of potential penalties in the wake of the UBS scandal.  Our prediction has been accurate.

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

 

Robert Wood, New Un-American Record: Renouncing U.S. Citizenship

Me, An obscure tax deadline that could cost you big. A discussion of the looming FBAR deadline.

 

 

Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (ISU-CALT Ag Docket)

Hank Stern at Insureblog notes that May is Disability Insurance Awareness Month. Given the stakes, and the relatively low price, it’s shocking that 57% of working adults have no coverage.

Annette Nellen, Narrow exemptions cause inefficiency, inequity and complexity – HR 867 and S. 1179. But they are such a great way to get lobbyists to come to your summer golf fund-raisers.

 

IMG_0991

 

TaxProf, The IRS Scandal, Day 732. “Every time we turn around we get more emails.” Two years, and Commissioner Koskinen is still tired of your complaining.

Russ Fox,730:

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

The day Commissioner Koskinen resigns is the first day the IRS might start to figure it out.

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog)

Howard Gleckman, Congress Has Not Passed A 2016 Budget. It Has Only Begun The Process.

 

Career Corner. The Monthly Close: White Collar Crime Should Be a Fun and Scary Surprise (Going Concern)

 

Share

No roundup today.

May 6th, 2015 by Joe Kristan

Just this.

20150506-1

Share

Tax Roundup, 5/5/15: The rainy day FAIR edition.

May 5th, 2015 by Joe Kristan

It’s a very cozy day to be in my hotel room in Ediburgh.

 

20150505-1

 

Unfortunately, I have to walk about ten minutes to get to today’s TIAG conference. That calls for some bracing thoughts and links.

Fairly puzzling. The “Fair Tax” is coming up in these early stages of the 2016 presidential race. Tax Analysts reports ($link) that Mike Huckabee has stepped up for this national sales tax proposal to replace the income tax. One attraction of the proposal is that by turning administration of the tax system to state tax collecters, the IRS would go away.

Tax Analysts explains the basic idea:

In its basic form, as offered by a core group of House and Senate conservatives, it calls for a 23 percent sales tax on all purchases, no exceptions. But the federal government would send a monthly check — called a “prebate” — to all legal households so that purchases of essentials up to the poverty level would essentially be tax free. The Department of Health and Human Services would administer the prebates, calculating them based on federal poverty levels for different-size families. Meanwhile, all income and payroll taxes would be eliminated, with funding for Social Security and Medicare coming from general revenue instead.

It combines a national basic income program, provided by the government, with a very high sales tax rate. And Tax Analysts notes how the 23% rate isn’t honest. When we buy a $1 item and a 6% sales tax, we expect to pay $1.06. But the Fair Tax rate includes the sales tax. That means your $1 item would cost you about $1.30. So how is this 23% 30 cents is about 23% of $1.30.

So by the way we normally calculate sales taxes, it’s a 30% rate. That would fall on top of the existing state sales tax rates — which would rise themselves, because states would be hard pressed to have income taxes without the federal income tax to piggyback on. We end up with 40% or higher combined sales tax burden, combined with an enormous federal transfer payment program. A sales tax rate that high would almost certainly fail. No sales tax rate near that rate has survived in the wild, as far as I know.

The IRS is awful, so the attraction of a plan to make it go away is undeniable. Still, the Fair Tax just isn’t plausible. If the income tax goes away, it will be through some other consumption tax, such as a Value Added Tax or something like the Bradford X-Tax proposal. If someone offers an idea like that, or a major overhaul of the income tax, they might be serious. If all a candidate has to offer is the Fair Tax, you might want to shop elsewhere for a tax reformer.

 

Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (Ag Docket)

Kay Bell, May the tax force be with you. Tax moves for May.

 

20150505-2

 

Robert Wood, Hillary’s Excellent Clinton Foundation Reporting Adventure 

Peter Reilly, IRS Denies Exempt Status To Historical Interpreters. Maybe they should try taking millions from offshore donors and botching their IRS filings.

Russ Fox, Honesty Is Usually a Good Policy. A lesson an L.A. public official seems not to have absorbed.

Scott Drenkard, What Can Adam Smith Teach Us About Modern Transportation Policy?. (Tax Policy Blog).  “Real reform would align the costs of these services with the people who use them most.”

Being in Edinburgh, his adopted hometown, I wish Adam Smith had left an umbrella in my hotel room.

Jeremy Scott, What’s at Stake in the U.K. Election (Tax Analysts Blog) “Although the U.K. election is not exciting much interest in the United States, the results could dramatically affect both the U.K. economy and how it approaches tax and fiscal policy over the next five years.”

 

 

Share

Tax Roundup, 5/4/15: Dateline, Edinburgh.

May 4th, 2015 by Joe Kristan

 

I am successfully established in my hotel in Edinburgh, Scotland, UK, after three enjoyable days driving around Northern Ireland and Scotland and one rainy day holed up in my room finally sleeping off my jet lag.

Today the meetings of the independent accounting firm alliance TIAG get underway in earnest. Roth & Company jointed this alliance early this year to better serve our clients with multistate and offshore needs. I met a lot of nice people from around the U.S. and the world a welcoming reception and I look forward to getting to know them better.

 

20150404-1

It doesn’t appear I’ve missed any earth shattering tax news on the road, so let’s do some links.

 

William Perez, Did You Have Gambling Winnings This Weekend? Winnings are Taxable, and Losses Can be Deducted

Paul Neiffer, NFL Gives Up Tax Exempt Status. A big nothing.

Jason Dinesen, Glossary: Capital Gain/Capital Loss

Robert D. Flach brings the Buzz.

 

Howard Gleckman, ACA Tax Filing Was Surprisingly Painless, But Not For All. They punted the worst parts, again.

Alan Cole, Cleveland’s Taxes on NFL Players Ruled Unconstitutional (Tax Policy Blog). This was an especilly abusive tax, based strictly on the the number of games played in Cleveland vs. elsewhere, and taking no account of all of the practice time spent out of state by the players in camps and in their home cities.

Kay Bell, Congress close to expanding tax help for college costs. Read that as “Congress close to increasing tuition again.”

TaxGrrrl, George Soros May Owe Billions in Taxes. Rich people who advocate for high taxes don’t mean it for themselves.

Peter Reilly, IRS Partnership Adjustments In Millions May Produce No Tax

TaxProf, The IRS Scandal, Day 724. More emails found by TIGTA that IRS said were lost forever. It’s amazing what turns up if you actually look at the backup tapes.

 

20150504-2

Joseph Thorndike, Abolish the IRS? Good Luck With That (Tax Analysts Blog). “For opinion writers, it takes a special sort of gumption to deliberately antagonize your most loyal readers. In that spirit, this week’s Profile in Editorial Courage award goes to Patrick Brennan of The National Review, who recently dared to defend the existence of the IRS.”

The “Fair Tax” isn’t happening. There will always be a federal tax collection agency, and the only way they will ever “abolish” the IRS will be to call it something else. Even if it’s named the Ministry of Magic, it’s ability to commit evil will be based on the tasks and powers assigned it by Congress.

Joseph Henchman, Kansas May Drop Pass-Through Exclusion After Revenue Projections Miss Mark Again (Tax Policy Blog). I don’t think Kansas thought that through very well.

David Brunori, Immigrants Are Good for Us (Tax Analysts Blog).

Jeremy Scott, Rubio Would Be Another Obama on Tax Lawmaking (Tax Analysts Blog). “The danger is that Rubio, like Obama, would almost certainly defer to his congressional caucus in the drafting of a tax reform proposal.”

News from the Profession. SOX 404 Not Helping: Study (Caleb Newquist, Going Concern). Silly report. It helped big firm revenues immensely. What do you think it was supposed to do?

 

Share

Tax Roundup, 4/28/15: Iowa flunks another business tax study. And: on to Belfast and Edinburgh.

April 28th, 2015 by Joe Kristan

20121226-1Programming note. I will be riding the magic flying chair across the ocean tomorrow on my way to the TIAG Spring Conference in Edinburgh, U.K. It will be the first conference since Roth & Company became a member of the TIAG worldwide alliance of independent accounting firms, and I am excited to meet representatives of our sister firms from Canada, China, the U.K. and elsewhere.

I will first stop off in Belfast to attempt to extend the family tree by a branch or two, and to do some sightseeing in County Tyrone, where my mom’s ancestors lived before heading to Ontario, and then to Illinois, in the mid 19th century. Any tips for using the facilities of the Public Records Office of Northern Ireland are welcome and appreciated.

With the travel, posting here will be variable based on time, internet connections, computer functionality, and jet lag. But there will be posts, and there will be pictures, so stop by. Full posting should resume May 8 or so.

 

20130117-1Iowa does it again! Our fair land between the rivers shows up near the bottom of another survey of state business tax systems — this time in 45th place in the Small Business & Entrepreneurship Council Best to Worst State Tax Systems for Entrepreneurship and Small Business. Iowa scores especially poorly for its high corporation tax rate and corporate capital gain rates.

Worse, neighboring South Dakota ranks #1. They have no corporation income tax at all. Repeal of the corporation income tax is a key part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan. Right now Iowa relies on the highest corporation tax rate in the country, along with 31 (and counting) special interest tax credits, to grow businesses. I think South Dakota’s idea makes more sense.

Related: What an Iowa income tax might look like with a fresh start.

Liz Malm, North Dakota Cuts Income Taxes Again (Tax Policy Blog). They were 15th on the SBE survey before this.

 

Meanwhile, Iowa’s General Assembly ponders a sales tax increase, reports the Des Moines Register:

A late-session bid to raise Iowa’s sales tax by three-eighths of 1 percent to generate $150 million annually for natural resources and outdoor recreation programs has gained some traction in the Iowa Legislature, but it remains a long shot.

Cash is fungible, and like highway “trust fund” dollars, the politicians will divert “targeted” revenues to their pet projects sooner or later.

IMG_1589

Roger McEowen, It Ain’t Over Until the FBAR Report is Filed (ISU-Calt Ag Docket): “You trigger a filing requirement whenever you have a an interest in or signatory authority over a foreign financial account with a value over $10,000 at any time during the calendar year.”

William Perez, How to Get Your Tax Withholding Just Right

Kay Bell, Wrong tax refund amount? What now?

Andrew Mitchel, Recognition of Losses on Dispositions of PFICs

 

20140826-1The Buzz is Back! The Wandering Tax Pro, Robert D. Flach, comes back from another tax season with a fresh roundup of tax blog posts presented with his hand-crafted perspective.

‘Moose’ declined comment. ‘Squirrel’ Threatens To Bomb IRS Building (TaxGrrrl)

Robert Wood, Ten Facts About Fighting IRS Tax Bills.

Peter Reilly, Is IRS Targeting Drunkards? Well, somebody has to work there.

Jack Townsend, The Stored Communications Act and Emails: An Overview

 

IMG_1583

 

TaxProf, The IRS Scandal, Day 719 “IRS Attacks Conservative Groups But Silent on Clinton Foundation.” And Media Matters, and…

Howard Gleckman, A Small But Important Change in Retirement Savings Rules (TaxVox). “The proposal would exempt those who have $100,000 or less in retirement savings from having to take required taxable distributions from 401(k)s, IRAs, and the like starting at age 70 ½.”

 

Government is just the name for things we do together. IRS Seeks To Tax $50k Raised From GoFundMe For Cancer Treatment For Car Crash Victim (TaxProf).

 

 

Share

Tax Roundup, 4/27/15: Iowa’s corporate rate highest, even after you do the math. And more!

April 27th, 2015 by Joe Kristan

The Highest. How High Are Corporate Income Tax Rates in Your State? (Jared Walczak, Richard Borean, Tax Policy Blog):

Corporate income taxes vary widely, with Iowa taxing corporate income at a top rate of 12.0 percent (though the state offers deductibility of federal taxes paid), followed by Pennsylvania (9.99 percent), Minnesota (9.8 percent), Alaska (9.4 percent), the District of Columbia (9.4) and Connecticut and New Jersey (9.0 percent each). At the other end of the spectrum, North Dakota taxes corporate income at a top rate of 4.53 percent, followed by Colorado (4.63 percent), and Mississippi, North Carolina, South Carolina, and Utah (5.0 percent each).

20150427-1

 

So how much does that federal deductibility lower Iowa’s top rate? If you compute the top rates taking into account the deduction, Iowa still has a top marginal rate of 10.11% — still highest in the nation.

The high rate doesn’t result in high revenue receipts for the state. For example, Calendar 2013 corporation tax revenue for Iowa accounts for less than 6% of the state’s tax receipts. With single-factor apportionment and a tax base hollowed out by special interest carveouts, it hits hardest unlucky taxpayers without pull at the statehouse. Yet, as the U.S. has the highest national corporation tax rate in the OECD, it secures Iowa the dubious honor of having the highest corporation tax rate in the developed world.

 

William Perez, Tax Incentives for Alternative Energy Systems

Annette Nellen, Revenue magic (that should be avoided)

Kay Bell, Virginia dumps tax refund debit cards for paper checks. Fraud is part of the reason.

Paul Neiffer, Think You Are Too Small to Be a Target of Cyber Crime? Think Again. “30% of all targeted cyber-attacks are directed against businesses with less than 250 employees.”

Jason Dinesen, Marriage in the Tax Code, Part 7: 1920s Court Battles

Keith Fogg, Last Known Address for Incarcerated Persons (Procedurally Taxing). Funny that the government can insist that a taxpayer partake of its hospitality, but then take no responsiblity to see that he gets his tax notices.

Robert Wood, IRS Paid $3 Billion In Tax Credit Mistakes Plus $5.8 Billion In Erroneous Refunds. That doesn’t count erroneous earned income tax credits — only corporate returns.

Russ Fox, No Discount for her Sentence. “Well, Ms. Morin operated Discount Tax Service. Her clients were very happy with her methods, as they received tax credits and itemized deductions on their returns whether or not they qualified for them.”

Tony Nitti, Tax Savings To Clear Path For Josh Hamilton’s Return To Texas Rangers. But people keep telling me that state taxes don’t affect business decisions.

Robert D. Flach, YOU CAN’T MAKE THIS STUFF UP. “The IRS was writing to the taxpayer to tell him that he is dead and so they were not going to process his refund.”

 

20150423-1

 

Me, IRS releases Applicable Federal Rates (AFR) for May 2015

 

Peter Reilly, IRS Forced To Release Names Of Targeted Groups. The IRS likes to hide its misdeeds behind the taxpayer confidentiality rules. Not this time.

TaxProf, The IRS Scandal, Day 718The IRS Scandal, Day 717The IRS Scandal, Day 716The IRS Scandal, Day 715.

Howard Gleckman, Could a Carbon Tax Finance Corporate Rate Cuts?

Robert Goulder, Bernie Sanders: Swimming Against the Tide (Tax Analysts Blog). We can only hope so.

Because he would lose? Bush Nomination Would Be Bad News for Tax Reformers (Martin Sullivan, Tax Policy Blog).

 

Career Corner. Dealing with chatty colleagues (Caleb Newquist, Going Concern). When feigning death isn’t enough.

Share

No roundup today

April 24th, 2015 by Joe Kristan

The Tax Update is taking April 24 off. See you Monday!

IMG_0983

Share

IRS releases Applicable Federal Rates (AFR) for May 2015

April 24th, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-08) the minimum required interest rates for loans made in May 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.43%

-Mid-Term (loans from 3-9 years): 1.53%

-Long-Term (over 9 years): 2.30%

The Long-term tax-exempt rate for Section 382 ownership changes in May 2015 is 2.47%.

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

Share

Tax Roundup, 4/23/15: House report rips Koskinen’s war on taxpayer service.

April 23rd, 2015 by Joe Kristan

I’ll believe the IRS has a funding crisis when the IRS acts like it has a funding crisis. The House Ways and Means Committee yesterday issued a report ripping Commissioner Koskinen for deliberately cutting customer service to prioritize ACA implementation and to create pressure for a bigger budget. It’s the IRS version of the Washington Monument Strategy — slashing the most visible and popular services first.

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

Christopher Bergin of Tax Analysts describes the report:

In 14 pages, the report blisters the IRS for treating taxpayers like dirt (my term, not theirs). It’s a shrewd counterpunch in the mouth. But remember, the commissioner picked this fight.

What’s in the 14 pages? A discussion of items that Mr. Koskinen chose to fund, and resources he neglected, at the expense of taxpayer service. Examples from the report include:

Diversion of user fee money to the general budget. The IRS has jacked up the fees to obtain rulings and non-automatic accounting changes to absurd levels. Rather than using those fees to provide services, the funds have been diverted to the general IRS budget.

Continuing to keep hundreds of full-time union operatives on the agency payroll. From the report.

“…the IRS reported that employees used 521,725 hours for union activity in fiscal year 2013, which accounted for an estimated $23.5 million in salary and benefits expenses. In fiscal year 2014, the IRS recorded 491,948 hours of union time, and another $23.5 million in salary and benefits expenses. In that same fiscal year, there were 36 IRS agents who devoted 50 percent or more of their time at work to union activities instead of performing official duties. For the first quarter of fiscal year 2015, the IRS reported 113,294 hours of union time.

The report says that at 15 minutes per call, these employee slots could have fielded 2.5 million taxpayer inquiries. But then the union would have to pay its own employees, and we can’t have that.

The report also notes that the IRS hasn’t exactly shown it would make good use of additional funds, citing its expensive internal system implementation failures. It also slams the IRS for ending the pilot private collection program, while failing to pursue the collections targeted under the pilot program. Of course, the Treasury Employee Union would rather have the work not done at all than to have it done by non-union help.

I agree with Christopher Bergin in attributing the mess to Mr. Koskinen:

Almost from the first day on the job, his reaction to congressional budget cuts has been to deflect responsibility elsewhere. His appearances before Congress have a “who do you think you are” edge to them. And this tax filing season, he upped the ante.

His new strategy went something like this: “You want to cut my budget, fine — then I’ll show you what it will cost.”

He began cutting back on taxpayer service and tax law enforcement,

Via Wikipedia

Via Wikipedia

claiming that the IRS lacks sufficient funds to do its job. Never mind that its annual budget is about $11 billion. Then Koskinen started telling his employees the country must get used to the IRS doing “less with less.” That language is code for “taxpayers are going to suffer and Congress will get the blame.”

He then doubled down on the rhetoric by labeling budget cuts a “tax cut for tax cheats.” Personally, I think that remark went too far. It resembles a temper tantrum — or worse.

And you know what? The commissioner of the Internal Revenue Service doesn’t get to throw a public temper tantrum. It’s simply not a part of the job description.

As long as the IRS can afford to keep a battalion of union operatives on its payroll, I’ll remain unconvinced that it really needs a bigger budget. I’m convinced that until Mr. Koskinen resigns, there is no hope for the agency.

Somewhat related: Russ Fox, Don’t Call Us Continues. “If anyone thinks the IRS’s budget will be increased for next year, they’re dreaming.”

The TaxProf has a roundup of coverage.

 

What’s “green” about green energy subsidies. An Indiana man pleads guilty to taking part in a conspiracy to scam the biofuel subsidy system. Prosecutors said the scam raked in over $100 million in refundable biodiesel production credits.

Of course, scams are bad, but the real scandal of the biofuel subsidies is what is legal.

 

William Perez, Tax Incentives for Alternative Energy Systems

 

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 2 (Trends I Noticed)

Peter Reilly, Detective’s Vacation And Sick Time Not Excluded From Taxable Income

Robert Wood, What To Do When IRS Agents Call On You. “This may sound paranoid, but the ramifications of getting flustered and running at the mouth can be extreme.”

TaxProf, The IRS Scandal, Day 714.

 

20150423-1

 

Iowa rural broadband bill advances. O. Kay Henderson reports:

The Iowa House has passed a bill that would set up a state-run grant program to expand broadband access in Iowa, although no state money is committed and the program will only get going if the state gets federal tax dollars for it. The bill would set up a new, 10-year-long property tax exemption for companies that extend high-speed broadband service in “unserved or underserved areas” of the state.

Of course. How can you do anything without a tax bill? This item in the article strikes me:

Representative Josh Byrnes, a Republican from Osage, said the bill will hopefully address the “inconsistencies” in broadband speeds.

“I live in a part of Mitchell County where I actually get better connectivity to my barn than I get here at the state capitol,” Byrnes said.

Of course, the state capitol is in the most urban part of the state, which is also a rising tech corridor. If you can get better broadband in a Mitchell County barn, I have doubts about how serious the rural broadband problem really is.

 

TaxGrrrl, Accused Murderer Requests Police Escort To Cash Tax Refund. Jails apparently don’t cash refund checks.

Share

Tax Roundup, 4/22/15: Mileage logs don’t have to be perfect, but they have to be there. And: taxes and the rich guy.

April 22nd, 2015 by Joe Kristan

20150422-1Keep that logbook. It’s not always enough to incur a deductible expense to earn a documentation. For travel, meals and entertainment, you have to be able to prove it under strict standards. If you fail to properly document the amount, time and place, and business purpose of travel expense, your deduction is lost.

A Minnesota man whose job managing construction projects required substantial travel claimed employee business expense deductions. The IRS disallowed the deductions, and the Tax Court got involved. Judge Marvel explains (my emphasis, citations omitted):

Substantiation by adequate records requires the taxpayer to maintain an account book, a diary, a log, a statement of expense, trip sheets, or a similar record prepared contemporaneously with the use or expenditure and documentary evidence (e.g., receipts or bills) of certain expenditures.  A log that is kept on a weekly basis is considered contemporaneous for this purpose. 

The taxpayer, A Mr. Ressen, recorded business miles and kept a calendar showing his trips, and that carried the day:

With respect to the portion of the disallowed deduction attributable to their claimed use of the 2007 and 2008 Chevys, petitioners introduced copies of the calendar in which Mr. Ressen contemporaneously recorded his weekly mileage as an employee of ICS as well as some information regarding where he was working at various times. Petitioners also introduced copies of the pages in the logbook on which he contemporaneously recorded the beginning and ending miles for the 2007 and 2008 Chevys. Considering the facts and circumstances of Mr. Ressen’s employment arrangement with ICS and his business use of the 2007 and 2008 Chevys we conclude that the calendar is a credible, adequate record of the amount of the business use of the property, the dates of such use, and the business purpose of such use, and the logbook pages are an adequate record of the total use of the property.

It’s odd that the IRS disallowed the deduction and then litigated it. They apparently were trying to hold the taxpayer to some platonic ideal of a log book. The Tax Court was willing to combine the log book with the calendar to determine the time, place and business purpose of the trips — a sensible result.

The moral: Keep that mileage log, or use one of the smart-phone apps created for this purpose, and document your business purpose. Keep that calendar, too. It made the difference for our Minnesotan.

Cite: Ressen, T.C. Summ. Op. 2015-32.

 

20150422-2

 

William Perez, Taxes When Hiring Household Help.

Robert Wood, What To Do When IRS Agents Call On You. “Talking to the IRS without a representative is often a mistake.”

Russ Fox, Of Deadlines and Taxes:

This definitely wasn’t the worst Tax Season I’ve gone through, but it was far from the best. For taxpayers, this likely was one of the worst. Unfortunately, I don’t see any improvements on the horizon. The light I see is the oncoming train not the end of the tunnel.

Agreed.

 

TaxProf, The IRS Scandal, Day 713

 

Greg Mankiw, Why I favor estate tax repeal. “The estate tax unfairly punishes frugality, undermines economic growth, reduces real wages, and raises little, if any, federal revenue. There are no principles of good tax policy that support this tax…”

 

Martin Sullivan, As Governor, Jeb Bush Catered Tax Cuts to the Wealthy (Tax Analysts Blog). The formulation “tax cuts for the wealthy” should disappear. The loot and pillage community can call almost any tax cut a “tax cut for the wealthy” simply because the wealthy pay almost all the taxes.

20120802-2

Chart by Tax Foundation

 

 

When you consider government benefits, the rich guy pretty much covers the whole thing:

distribution tax spending all taxes

Chart by the Tax Foundation

 

For your penance, say three “Our Commissioners” and three “Hail Lois.” Santa Clara Co. Priest Indicted on Bank Fraud, Tax Evasion.

 

 

Share

Tax Roundup, 4/21/15: Loans aren’t taxable, until you don’t have to pay them. And: ACA, dope, and lots of other stuff.

April 21st, 2015 by Joe Kristan

20120511-2Pay me now, tax me later. A hospital in a poor county in Central Florida wanted to recruit an OB-GYN. Rural employers often have to do something extra to recruit good help, so the hospital offered him a $260,000 loan. It came with a sweetener: if certain goals were reached, the loan would be forgiven.

It’s well established that loans aren’t taxable income. That can be pretty sweet to have $260,000 to spend with no withholding and no tax bill. But there’s a catch. You either have to repay the loan (out of your after-tax income), or you have to pay tax on the loan amount if the debt is forgiven.

It’s natural to try to want to have your cake and eat it too — to not pay the loan, and not pay the taxes. That is the very trick behind the leveraged ESOP. But for the rest of us, it’s an elusive goal. It eluded the doctor in Tax Court yesterday.

The doctor met his goals, and $260,000 of debt was cancelled over four years. The doctor didn’t report the income, so the IRS assessed additional tax. The doctor objected. From the Tax Court opinion:

Although the amount that petitioner received from the hospital pursuant to the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not personally liable for its repayment, and that, as a consequence, he did not receive income when the loan was forgiven and canceled by the hospital. The Court disagrees with the premise of petitioner’s argument.

The court pointed out that the terms of the note did make the doctor liable, and added:

Further, although the Court does not accept the premise of petitioner’s contention regarding the nature of the loan, it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income…

Under these circumstances, forgiveness and cancellation of the loan gave rise to income.

The Court added in a footnote:

…petitioner argues that when debt is canceled, the creditor should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC. Although this may be so, the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt.

Apparently the hospital knew that there was income, but issued the wrong kind of 1099. But the 1099 doesn’t change the nature of the income.

The moral? Forgivable loans are nice — cash now, tax later. But later happens.

Cite: Wyatt, T.C. Summ. Op. 2015-31.

 

20140729-2

 

Megan McArdle, Obamacare’s Tax Day Mystery:

Meanwhile, Louise Radnofsky of the Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her.

Complex systems have unintended consequences.

Hank Stern, The 4% Solution (Insureblog). “Only 4% of people who signed up for ObamaCare got the correct subsidy”

Christine Speidel, Penalty Relief and Premium Tax Credit Reconciliation (Procedurally Taxing). “This post will describe the penalty relief available under Notice 2015-09 and some of the barriers that may prevent low-income taxpayers from accessing the relief.

 

William Perez, Taxes When Hiring Household Help

Tony Nitti, IRS Seeks Record $2 Billion In Back Taxes From Prominent Businessman And Philanthropist Sam Wyly. Offshore trusts are involved.

Peter Reilly, Superior Point Of Sale Software Does Not Mix Well With Skimming

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 1

Kay Bell, IRS telephone tax help was a dismal 38.5% this filing season. Part of your Commissioner’s “Washington Monument Strategy” of making taxpayers suffer to boost his budget.

 

20130607-2TaxGrrrl, 4/20: The Blunt Truth About Marijuana & Taxes

James Kennedy, Marijuana Dispensary Settles Case after IRS Suggests It Engage in Money Laundering (Tax Policy Blog):

Imagine running a small business and being assessed a penalty by the IRS. Then imagine being told by the IRS that the only way to avoid the penalty is to commit a serious felony, laundering money. This Kafkaesque nightmare actually became reality for a Colorado marijuana dispensary called Allgreens when it tried to pay its federal payroll taxes.

At some point this decade or next, marijuana will become more or less legal. I wonder if the tax law will be the last bastion of prohibition.

 

TaxProf, The IRS Scandal, Day 712. “The IRS Assures an Atheist Group It Will Monitor Churches.” What could go wrong?

Robert Wood, Before IRS Targeting, Lois Lerner Targeted At Federal Election Commission

 

20150421-1

Paul Neiffer, Senator Wyden Indicates Tax Reform Must Include Flow Through Entities

Joseph Thorndike, Republicans Want to Repeal the Estate Tax Because Too Much Is Never Enough (Tax Analysts Blog).

For my money – and admittedly, it’s not my money, since I don’t expect the tax to be an issue for my heirs – repeal is a bad idea under any circumstances. But it’s an especially bad idea when paired with a continuation of stepped-up basis.

If there is a good argument for the estate tax, it’s to allow basis step up. The “breaking up dynasties” thing is silly. From what I’ve seen in practice, all you need to break up inherited wealth is a second generation.

Eric Toder, Corporate Tax Reform and Small Business (TaxVox).

Sebastian Johnson, State Rundown 4/20: State Houses Consider Cuts (Tax Justice Blog).

 

Career Corner. The Non-Golfing Accountant’s Guide To Hitting the Links (Leona May, Going Concern)

 

Share