Tax Roundup, 3/4/15: Big week for trusts. And: Iowa gets its own tax phone scam!

March 4th, 2015 by Joe Kristan

1041Friday is Day 65 of 2015. Though March 6 is just another day to most people, it has always meant something to me (happy birthday, Brother Ed!). It also means something to trustees. The tax law allows trusts to treat distributions made during the first 65 days of the year as having been made in the prior year. This allows complex trusts to control their taxable income with a distribution, because trust distributions carry trust taxable income out of the trust to beneficiary 1040s.

This has become more important since the enactment of the Obamacare 3.8% Net Investment Income Tax. This tax hits trusts with adjusted gross income in excess of $12,150 in 2014. If a trust has beneficiaries below the much-higher NIIT thresholds for individuals, it can make at least some of that tax go away with 65-day rule distributions.

This affects “complex trusts,” which are trusts that are not required to distribute their income annually and which are not otherwise taxed on 1040s. Distributions from such normally carry out ordinary income, but not capital gains. If the trust has income that is not subject to the NIIT, the distribution will be treated as carrying out some of each kind of income, so trustees have to take that into account in their NIIT planning.

Income subject to the NIIT includes interest, dividend, most capital gains, rents, and “passive” income from businesses or K-1s. Retirement plan income received by trusts is normally not subject to the NIIT. A 2014 Tax Court decision makes it easier for trusts to have non-passive income, but trust income is normally passive.

 

20120920-3An Iowacentric tax scamThe Iowa Department of Revenue warns of a scam targeted at Iowans:

The Iowa Department of Revenue has been made aware of a potential scam targeting Iowa taxpayers. The scam begins through an automated phone call, which shows on caller ID as being from 515-281-3114. That phone number is the Department’s general Taxpayer Services number; however, no automated phone calls can originate from that number.

When answering the call, the taxpayer is informed they are eligible for a refund from the Iowa Department of Revenue. The taxpayer is then asked whether the refund should be deposited into the account the Department has on file or if they’d like to donate the refund to an animal charity.

The Iowa Department of Revenue does not make these types of calls. We believe this is an attempt to steal bank account or other personal information. By fraudulently displaying the Department’s phone number on caller ID, the scammer is attempting to convince the taxpayer of the legitimacy of the call.

The Iowa Department of Revenue doesn’t phone you out of the blue. The IRS doesn’t phone you out of the blue — they barely even answer phones anymore. If you get a call from a tax agency, assume it is a scam. It is, unless you have already been in contact with the agency because of a notice you’ve received in the mail

 

Obamacare is again on the dock in the U.S. Supreme CourtThe IRS decision to allow tax credits for policies in the 37 states that did not set up ACA exchanges is up for debate. The law provides for credits only for exchanges “established by a state.”

In a less politically-sensitive context, one could expect a 9-0 or 8-a decision against the IRS. That’s what happened in Gitlitzwhere the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

Those arguing for the IRS interpretation say the chaos will ensue and thousands of people will dieMichael Cannon, a prime architect of the case against the IRS rule, has a more measured discussion of the consequences of a decision against the IRS rule in USA Today. Aside from upholding the rule of law, a decision against the IRS rule could have many benefits.

Related: Megan McArdle, Obamacare Will Not Kill the Supreme Court. For a roundup of posts on the topic, try King v. Burwell — The VC’s Greatest Hits, from the Volokh Conspiracy’s attorney-bloggers.

Update: From Roger McEowen, Would It Really Be That Bad If the U.S. Supreme Court Invalidated the IRS Regulation on the Premium Assistance Tax Credit?

 

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William Perez, Self-employed? SEP IRAs Help Reduce Taxes and Save for Retirement

TaxGrrrl, Taxes From A To Z (2015): A Is For Actual Expense Method

Kay Bell, Some Ohio taxpayers stumped by state’s tax ID theft quiz

Jason Dinesen, Is Chamber of Commerce Membership Worth It?. Our local group functions as an alliance of crony capitalists.

 

TaxProf, The IRS Scandal, Day 664. Today’s edition mentions my high school classmate and junior class president election opponent, Al Salvi, and his outrageous treatment at the hands of Lois Lerner when she was with the Federal Elections Commission. For the record, Lois Lerner had nothing to do with my electoral triumph.

Robert Wood, Warren Buffett To Al Sharpton, The 1% Makes 19% Of All Income, Pays 49% Of All Taxes

Alan Cole, Most Retirement Income Goes To Middle-Class Taxpayers (Tax Policy Blog).

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Clint Stretch wonders whether it is Time to Retire Income Tax Reform? (Tax Analysts Blog). “With income tax reform out of the way, we could focus the conversation on the important issue – the size and scope of government. If eventually we can agree on how much tax we need to collect, we can always ask tax reform to come out of retirement for a little consulting.”

 

Len Burman, Cutting Capital Gains Taxes is a Dead End, Not a Step on the Road to a Consumption Tax. As someone who thinks the proper capital gain rate is zero, I can’t agree.

Career Corner. Starting a CPA Pot Practice Is Your Next Opportunity (Caleb Newquist, Going Concern). “Consider a joint venture, at least.”

 

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Tax Roundup, 3/3/15: ‘Tens of thousands’ of returns delayed by ACA. Also: Feds, Iowa provide partial deadline relief for farmers.

March 3rd, 2015 by Joe Kristan
Taxpayer Advocate Nina Olson

Taxpayer Advocate Nina Olson

Tax season is saved! Tax Analysts reports ($link) that the IRS is sitting on “tens of thousands” of returns affected by the Obamacare advance premium tax credit:

Speaking March 2 in Washington at an American Payroll Association event sponsored by Bloomberg BNA, Olson said the returns have been “held for quite a long time, since the beginning of the filing season,” because the IRS is still waiting for matching data from state health insurance exchanges. The returns are being held in suspense and the IRS has instructed its employees not to inform taxpayers why their return is being suspended when the taxpayer contacts the Service, she said.

According to Olson, the Taxpayer Advocate Service will not follow the IRS’s instructions to remain silent on the issue because taxpayers have the right to be informed under the taxpayer bill of rights.

More of Commissioner Koskinen’s famous committment to transparency and disclosure. But all is well, right?

Olson said her office has received days of training on the ACA so her employees are prepared when these cases come in. “I think this is one of the most complicated provisions that we’ve ever inserted into the Internal Revenue Code” and I’m “astonished at the complexity of it,” she said.

“I’m very concerned about the filing season,” Olson said, adding that the federal exchange has already sent erroneous reporting information to 800,000 taxpayers.

Just yesterday the IRS, on the due date for farmer and fisherman returns where no estimated tax was paid, waived estimated tax penalties for such taxpayers where they are still waiting on 1095-A forms from their healthcare exchange. This follows the universal waiver of late payment penalties for amounts owed on the advance premium credit, the waiver of ACA penalties on health insurance premium reimbursement plans, and the last-minute waiver of Form 3115 requirements for smaller businesses under the repair regs. It’s an overwhelmed IRS desperately patching up a failing tax season with duct tape and wire.

 

binFeds extend 1040 deadline to April 15 for farmers awaiting form 1095-A; Iowa extends deadline to April 15 for all farmersFarmers are eligible for a special deal that lets them not pay estimated taxes, as long as they file and pay the balance due by March 1. The deadline was yesterday because March 1 was on a Sunday this year.  As we reported yesterday, the IRS issued a last-minute waiver of the deadline for farmers still awaiting their Form 1095-A from an ACA exchange.

Yesterday Iowa followed suit. The Iowa Department of Revenue sent this to practitioners on its email list (I can’t find a link on the Department website; the emphasis is mine):

The Iowa Department of Revenue has granted an extension to all farmers and commercial fishers to file 2014 Iowa individual income tax returns without underpayment of estimated tax penalty.

If at least 2/3 of their income is from farming or commercial fishing, taxpayers may avoid penalty for underpayment of 2014 estimated tax in one of the following ways:

(1) Pay the estimated tax in one payment on or before January 15, 2015, and file the Iowa income tax return by April 30, or

(2) File the Iowa income tax return and pay the tax due in full on or before March 2, 2015.

The issuance of corrected premium tax credit forms (Form 1095-A) from the Health Insurance Marketplace may affect the ability of many farmers and fishers to file and pay their taxes by the March 2 deadline.

Therefore, any farmers or fishers who miss the March 2 deadline will not be subject to the underpayment of estimated tax penalty if they file and pay their Iowa taxes by April 15, 2015.

The Iowa relief is not limited to farmers awaiting a 1095-A. The slightly tricky thing: non-farmer Iowa 1040s are due April 30, but the new farmer deadline is April 15. Be careful out there.

Related: Paul Neiffer, IRS Has Impeccable Timing (As Usual)

 

 

W2All is well.  Tax Analysts reports ($link) Additional Medicare Tax Reporting Is Causing Problems. It quotes Paul Carlino, an IRS branch chief:

Carlino explained that reporting amounts in Form W-2 box 6 that do not equal the 1.45 percent tax on wages has caused confusion among taxpayers, some of whom seek refunds believing their employer withheld an incorrect amount of tax.

Carlino said that another problem is taxpayers who are not having the additional Medicare tax withheld. 

The Additional Medicare Tax is unique among federal payroll taxes in that it is computed at separate rates for married and single filers, requiring a reconciliation on the 1040. That can result in underwithholding.

 

Russ Fox, Don’t Call Us:

When I called today I reached the normal recording, but every time I attempted to obtain help for an individual not in collections (that’s one of the options when calling the PPS) all I got was, “Due to extremely high call volumes that option is not available now. Please try your call again later.”

Well, the IRS has other priorities than your silly tax return, peasant.

 

TaxGrrrl, Tax Checks Go Up In Flames After Mail Truck Burns. Sums up this tax season.

Robert Wood, Obama Immigration Fix: 4M Illegals Who Never Paid U.S. Tax, Get 3 Years Of Tax Refunds. Only about 25% of EITC payments are made improperly. What could possibly go wrong?

William Perez, Moving Expenses Can Be Tax-Deductible

Kay Bell, Jeb Bush reportedly won’t sign no-tax pledge

Soon, my precious, soon.

Soon, my precious, soon.

Peter Reilly, Lois Lerner Out From Under Freedom Path Lawsuit For Now

TaxProf, The IRS Scandal, Day 663, quoting James Taranto from the Wall Street Journal: “So the IRS admittedly denied tax-exempt status improperly to at least 176 groups, tried to apply extralegal restrictions to others, and is still delaying approval for those groups that have gone to court in an effort to vindicate their rights.”

 

Alan Cole, How to Dismantle an Ugly IRS Worksheet (Tax Policy Blog):

The difficulty of the worksheet is not the fault of the IRS. If anything, the IRS put a very difficult concept into a one-page worksheet. But even with the worksheet’s good design, it’s still 27 lines. That’s because the underlying tax code it deals with is not elegantly designed.

The post goes on to explain how our system of taxing corporation income twice leads to this complexity.

 

Martin Sullivan, High Hopes for Highway Funding: A Bridge to Nowhere (Tax Analysts Blog). “Congress is talking a lot about long-term solutions to our infrastructure funding problem, but will likely only do another short-term patch.”

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Renu Zaretsky asks Can Expectations Be Too Low? In today’s TaxVox headline roundup. (No, by the way.). The post addresses the low IRS audit rate for businesses, the IRS plan to issue retroactive earned income tax credit to beneficiaries of the executive amnesty for illegal immigrants, and the upcoming Supreme Court arguments in King v. Burwell on whether the IRS exceeded its authority in granting ACA credits in states that didn’t set up exchanges under the act. 

 

Career Corner, Here Are Some Coded Phrases You Will Hear During Busy Season (Andrew Argue, Going Concern)

 

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Tax Roundup, 3/2/15: Thawing Iowa’s frosty business tax climate. And: film credit post-production!

March 2nd, 2015 by Joe Kristan
Iowa's business tax climate, illustrated

Iowa’s business tax climate, illustrated

Baby steps towards fixing Iowa’s business tax climate. At IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog, I discuss some easy steps to make Iowa’s tax climate a little less frosty, along with a few slightly harder ones.

The real easy:

– Eliminate the Iowa individual and corporation alternative minimum tax.

– Have Iowa’s tax law automatically conform to federal changes.

– Tie Iowa return due dates to federal due dates for all returns.

The slightly harder:

– Encourage or require “composite” returns or withholding for pass-through non-resident taxpayers.

– Repeal the deductibility of federal taxes by building the tax advantages into lower tax rates.

– Repeal refundable and transferable business tax credits.

None of this takes the place of a real Iowa tax reform along the lines of the Tax Update Quick and Dirty Iowa Tax Reform Plan, but you have to start somewhere. My next IowaBiz piece will attempt to put some more meat on the bones of the Quick and Dirty plan.

 

The Iowa Film Tax Credit Program is dead, but the lawsuits linger. A disappointed filmmaker wanted more taxpayer money, but the Iowa Supreme Court ruled that the Department of Economic Development had the final say over what expenses would qualify. Ghost Player, L.L.C. and CH Investors, L.L.C. vs Iowa (Sup. Ct. Iowa, No. 14-0339)

 

Kristine Tidgren, March 2 Deadline Extended for Farmers Waiting for 1095-A. Farmers that file by March 1 (today this year, because March 1 was on a Sunday) do not have to pay estimated taxes. “In a last-minute announcement, the IRS has declared that farmers waiting for a corrected 1095-A will have until April 15 to file their returns and pay their taxes. If they file Form 2210-F along with their return, the penalty for failure to pay quarterly estimated tax will be waived.”

Russ Fox, It Was the Sisterly Thing To Do. “Three Wisconsin sisters allegedly decided that tax fraud and identity theft should stay in the family. They’ve been accused of filing 2,000 phony returns by the Wisconsin Department of Revenue.

 

 

Jack Townsend, DOJ Tax Tough Talk About the Violating Trust Fund Tax Withholding and Payment Obligations. It seems that the IRS has become more willing to try to jail employers who fail to pay withholding; this post discusses how it can become a criminal issue. You can’t argue with this: “The solid advice is to withhold, account for and pay over to the IRS.”

William Perez explains The Key Benefits of Health Savings Accounts. “Contributions are tax-deductible when going into the HSA. And distributions can be tax-free when coming out the HSA.”

Jason Dinesen, Financing a Small Business, Part 3 of 5: Tell Your Accountant Before You Spend the Money

Kay Bell, Lions, lambs, warning Ides and luck all apply to March taxes. “Are you a tax lion, aggressively hunting down tax breaks? Or are you a tax lamb, cowering before the complicated Internal Revenue Code?”

Leslie Book, US v Clarke Remand: Allegations of Bad Faith Still Face A High Hurdle (Procedurally Taxing). “The case involved allegations of retaliatory summons issuance following a failure to extend (for a third time) the statute of limitations and allegations that the summons was a way to avoid discovery limitations in a Tax Court TEFRA proceeding that was commenced after the summons was issued.”

Bob Vineyard, Solyndra-care (InsureBlog). While Iowa’s ACA co-op, CoOpportunity, was the first one to collapse, it might not be the last.

 

Liz Malm, Richard Borean, How Does Your State Sales Tax See That Blue and Black (or White and Gold) Dress? (Tax Policy Blog):

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Robert Wood, Finally, Suing IRS Over All Those Emails. “IRS attorneys said the back-up system would be too onerous to search. Yet in recent testimony, the Treasury Inspector General for Tax Administration said IRS tech employees told them that IRS management never asked for the tapes.”

TaxProf, The IRS Scandal, Day 660Day 661Day 662. It appears that Commissioner Koskinen is putting the same effort at getting to the bottom of the Tea Party harrassment that Vladimir Putin is putting into finding Boris Nemtsov’s killer.

 

Richard Phillips, Netflix is a Real-Life Frank Underwood When it Comes to Tax Breaks (Tax Justice Blog)

Eric Todor, What if We Funded Public Education Like Affordable Care Act Health Insurance? (TaxVox). “Both seek to promote a form of universal or near-universal coverage – K-12 education for all and mandated health insurance for many. But they go about it in very different ways: one makes government subsidies explicit and the other makes much of them disappear, at least in the budgetary and political sense.”

 

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Peter Reilly, Will Christian Soldiers Be On The Streets Of Pensacola As Kent Hovind Goes To Trial? Peter covers the latest developments in the strange and sad case of the guy who had the “Young Earth Creationist” theme park devoted to the idea that humans and dinosaurs co-existed.

 De gustibus non est disputandum. Form 1040: An Unappreciated Work of Art. (Christopher Bergin, practitioner of dark arts for Tax Analysts).

News from the Profession. Florida Man Drives Porsche on Sidewalk to Make a Point, Gets Arrested. (Caleb Newquist, Going Concern). When Grandma started doing that, we took away her keys.

 

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Tax Roundup, 2/27/15: Bartender beats barrister in Tax Court. And more!

February 27th, 2015 by Joe Kristan

20120511-2Bartender or barrister, you need to keep good records.  A Nevada bartender, arguing his own case against an IRS attorney, defeated the IRS in Tax Court yesterday. He did it by keeping records.

The IRS said the taxpayer understated his tip income, and it used a generic tip model to assess additional tax. The bartender argued that the IRS model didn’t reflect what happened at the casino where he worked, and that he had the records to prove it:

Petitioner testified about how his bar was set up and what a shift was like during the years at issue. He stated that his bar had only six stools and that customers would often sit at the stools playing poker for several hours and receive several comped drinks as a result. He testified that the only time his bar would be busy was when there was a big convention and then most of the drink sales tips would be on company credit cards rather than cash. He described the difficult [*15] economic times that Las Vegas faced during the years at issue and how his business had decreased as a result.

Petitioner also testified about the typical tipping behavior of his patrons. Most of his drinks served were comps, and he testified that customers rarely tipped on comp drinks and that if they did they might “throw [him] a buck or two” after several hours of sitting at his bar receiving the comped drinks. Petitioner additionally testified that college kids and foreigners rarely tipped.

And the records:

Petitioner argues that he has met his burden because he complied with the recordkeeping requirements of section 6001 and section 31.6053-4(a)(1), Employment Tax Regs., having kept detailed, contemporaneous daily logs which are substantially accurate. Petitioner routinely recorded the amounts of his cash and charge tips on slips of paper at the end of each shift. Petitioner kept these logs and produced them to respondent and at trial.

20130903-1The IRS tried to nit-pick the records, but Judge Kerrigan was satisfied:

Respondent argues that petitioner was not tipped in exact dollar amounts. Petitioner testified credibly that when he was tipped with change he would put the change in a glass jar to be mixed in with the other tips. When he would periodically cash out the change jar, he would give the change to the cashiers who cashed him out at the end of the shift. He also testified that when he cashed out daily his charged tips receipt, he would give the cashiers any change that was generated by those tips. We find petitioner’s explanation credible and do not find the logs inadequate merely because the amounts are recorded in whole numbers.

I think the important lesson here is that he generated the records every day, and that he was able to produce them to the judge. Contrast that with a recent decision involving a Mrs. Hall, an attorney deducting travel expenses:

Mrs. Hall did not maintain a contemporaneous mileage log. Mr. Katz testified that he based the number of miles driven on discussions with Mrs. Hall. Mr. Katz claimed that he reviewed documentation in order to determine the number of miles driven. The documentation that Mr. Hall and Mrs. Hall offered into evidence to substantiate the number of miles driven consisted of seven parking receipts, an equipment lease, a help wanted advertisement, a phone message slip, and a few other documents. The evidence they submitted does not demonstrate that Mrs. Hall incurred mileage expenses in amounts greater than those respondent allowed in the notice of deficiency.

Citations:

Sabolic, T.C. Memo 2015-32

Hall, T.C. Memo 2014-171

 

TaxGrrrl, Opting Out Of The Obamacare Tax: What Happens If You Don’t Pay?. Oddly, the IRS can’t use most of its collection tools to collect the individual mandate. The advance premium clawback is a different story.

Russ Fox, 10 = 2500 ?. “On Monday, I mailed a Tax Organizer to a client here in Las Vegas; she’s about ten miles from where I am. I also mailed a completed tax return to a client in South Carolina. Both will be received today.”

Annette Nellen talks about Taxes Around the World.

Kay Bell, Survey says tax refunds going into savings, paying off debt

Jack Townsend covers Key points of Article on ABA Webcast on Offshore Accounts

 

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Robert Wood, New IRS Scandal Hearings Reveal 32,000 More Emails, Possible Criminal Activity:

But in what was the most disturbing revelation, House Member attendees were told that the IRS had not even asked for the backup tapes when the ‘hard drive crash’ excuse was first used. That contradicted the prior testimony of IRS Commissioner John Koskinen. He had testified to the effect that recovery efforts had been thorough, and that the tapes couldn’t be accessed.

Do you believe the Commissioner when he says he needs more money?

TaxProf, The IRS Scandal, Day 659.

 

Don Boudreaux links: Dick Carpenter and Larry Salzman, in this new publication from the Institute for Justice, explain how the I.R.S. helps to fuel in the U.S. the uncivilized banana-republic terror that is civil asset forfeiture. (Cafe Hayek)

Jim Maule, Testing Tax Knowledge.

According to a report on a recent NerdWallet survey, “[m]ost American adults get an ‘F’ in understanding income tax basics.”

It would be fun to require members of Congress and candidates for that office to take this survey, or one like it. I cannot imagine the outcome would be any better than that achieved by the 1,015 survey takers.

Nor can I.

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Andrew Lundeen, Corporate Tax Cuts Increase Federal Revenue in the Long Run (Tax Policy Blog):

It’s important to note that this increase in revenue would be in the long run, after the economy has fully adjusted (probably about 10 years in the future). In the early years, federal revenue would fall before investment and growth pick up fully as the economy adjusts to a better tax system.

However, tax policy—all public policy, in fact—should be made with a focus on the long-term.

Unfortunately, politicians buy our votes with our money in the short-term.

 

Joseph Thorndike, Hey, It Could Happen! The Optimist’s Case for Tax Reform (Tax Analysts Blog). ” It will result from a transparent, flexible, and bipartisan bill drafting process; from strategic use of congressional staff to test the waters of controversial proposals; from skillful deployment of transition rules and other minor bill changes to win support from rank-and-file members of Congress; and from streamlined or fast-track debate procedures.”

 

Renu Zaretsky, The Internet, Drug Profits, and Sacrifice. The TaxVox headline roundup covers the uncertain tax effects of the “net neutrality” power grab.

Kristine Tidgren, Iowa Fuel Excise Tax Set to Increase 10 Cents on Sunday (ISU-CALT)

Matt Gardner, Is the Starz Network Series “Spartacus” a Jobs Creator? (Tax Justice Blog). I’m sure it helped create lots of work for film tax credit middlemen and fixers.

 

I bet the judge gave him a stern talking-to. Bow Man Sentenced for Fraud, Tax Evasion.(Concord Patch).

Caleb Newquist, Actually, Everyone Knows That Having Two Monitors Is Super Boss. (Going Concern).

Only two?

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Tax Roundup, 2/26/15: Fifth circuit bails out abandonment. And: gas up before Sunday, Iowa!

February 26th, 2015 by Joe Kristan

Fill ‘em up Saturday. Iowa’s Governor Branstad signed a 10-cent per gallon gas tax boost into law yesterday. It takes effect Sunday.

Somewhat related: Replacing the Gas Tax with a Mileage-Based Tax (Kyle Pomerleau, Tax Policy Blog).

 

20131212-1Taxpayer wins $20 million bet. Pilgrim’s Pride Corporation had an offer to sell securities for $20 million. It had a $98.6 million cost in the securities, so it wasn’t a great return, but $20 million is still better than nothing. Well, maybe not.

The taxpayer determined to abandon the securities in the belief that the result would be a $98.6 million ordinary loss — generating a tax savings of around $34.5 million. That seemed like a better deal than taking the cash, because the $78.6 million loss would then be a corporate capital loss — deductible only against capital gains, and expiring after five years.

In December 2012 the Tax Court said that Pilgrims Pride made a losing bet, ruling that Section 1234A made the loss a capital loss. Now the Fifth Circuit Court of Appeals has ruled that the taxpayer made the right bet, reversing the Tax Court:

The primary question in this case is whether § 1234A(1) applies to a taxpayer’s abandonment of a capital asset. The answer is no. By its plain terms, § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets). It does not apply to the termination of ownership of the capital asset itself. Applied to the facts of this case, Pilgrim’s Pride abandoned the Securities, not a “right or obligation . . . with respect to” the Securities.

Taxpayers outside the Fifth Circuit still need to be aware that the Tax Court says abandonment doesn’t turn capital losses into ordinary income, but in the right circumstances, it may still be worth a try. In the Fifth Circuit, abandon with, well, abandon.

I find this from the Fifth Circuit opinion interesting, if not necessarily true:

Congress does not legislate in logic puzzles, and we do not “tag Congress with an extravagant preference for the opaque when the use of a clear adjective or noun would have worked nicely.”

Logic puzzles seem to be pretty common in the tax law. Look at the ACA, which provides a $100 per-day, per-employee penalty for Section 105 plans, while Section 105 itself still rewards employees who participate in these plans with a tax benefit. That puzzles me. But I digress.

When the Tax Court first ruled in this case, I wrote:

Presumably the Gold Kist [a company that ended up owning Pilgrim’s Pride] board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

That’s one tax advisor who had an excellent day yesterday.

Cite: Pilgrim’s Pride Corporation, CA-5, No. 14-60295

Other coverage: Fifth Circuit Reverses Tax Court, Allows $98 Million Deduction To Pilgrim’s Pride (Tony Nitti)

 

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Jason Dinesen ponders What to Do with a K-1 with a Fiscal Year End

Russ Fox, Taxes Impacting the Giants. “There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes.”

TaxGrrrl, Looking For Your Refund? Need To Ask A Question? Finding Answers At IRS.

Peter Reilly, IRS Denies 501(c)(3) Exemption To Booster Club Due To Inurement. Quoting the IRS denial letter:

However, the money that they make in your name does not go into your general budget. Rather, you keep an accounting of how much revenue each member brings in and permit each member to apply that revenue to the cost of athletic competitions for their children.

Peter explains why that doesn’t work.

 

Kay Bell, More forgiving IRS to waive some bad 1095-A tax penalties

 

TaxProf, The IRS Scandal, Day 658. Today’s big story is the $129,000 on bonuses paid to Lois Lerner while Tea Party applications for exemption languished. I’m sure there’s no connection.

Alan Cole, Putting the Puzzle Pieces Together on Corporate Integration (Tax Policy Blog):

The reason that the traditional American C corporation is in decline is that it has faces multi-part tax, with two successive rounds of taxation for the owners. In contrast, the pass-through structure faces only one. That is why American businesses, when possible, are choosing this tax structure. It is now the dominant legal structure for businesses in America. In that structure, the owners of the corporation simply pay ordinary income tax on all the corporation’s income.

The path ahead to fundamental tax reform almost necessarily must lead through corporate integration. Fortunately, my colleague Kyle Pomerleau has done the research that ties this all together. He has found out how some other countries – like Australia and Estonia – have gone about tying together their corporate taxes and their shareholder taxes into one neat single layer.

So simple it just might work!

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Matt Gardner asks whether Goldman Sachs is Too Big to Pay Its Fair Share of Taxes? (Tax Justice Blog).

 

Cara Griffith, The Pinnacle of Secret Law (Tax Analysts Blog). ” That the Colorado Court of Appeals would seek to shield from public view most of the opinions it issues is appalling.”

Richard Auxier, GOP Governors Flirt with Tax Hikes but Still Wedded to Income Tax Cuts (TaxVox). Governor Branstad went boldly beyond flirting yesterday. Does signing the gas tax boost make Governor Branstad an unfaithful husband?

 

Caleb Newquist, Supreme Court Unhooks Fisherman From Conviction Under SOX Anti-Shredding Provision (Going Concern). “Please practice catch and release.”

 

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Tax Roundup, 2/25/15: Iowa gas tax boost goes to Governor. And: an appointment with Sauron.

February 25th, 2015 by Joe Kristan

IMG_1284Both houses of the Iowa General Assembly approved a 10-cent per gallon gas tax increase yesterday. The Des Moines Register reports:

The fuel tax increase has had strong support from a coalition representing farm groups, business organizations and local government officials. Iowa Farm Bureau members flooded the Capitol last week to lobby legislators to encourage a vote in favor of the gas tax increase. They contended better roads are crucial to the state’s economy and that gas taxes — 20 percent of which are paid by out-of-state motorists — offered the best solution.

The legislation was opposed by Iowans for Tax Relief and Americans for Prosperity, a conservative advocacy group, as well as truck stop operators and convenience store owners who worry retailers on Iowa’s borders will lose business to competitors in neighboring states. Opponents suggested lawmakers needed to better prioritize state spending, and proposed tapping revenues from the state’s general fund to pay for highway projects.

While I think gas taxes are a good way to pay for roads — they put the cost on the users — I am unconvinced that the state uses the funds wisely. By ramming the bill through committee by stacking it with yes votes, the legislature leadership made sure such concerns would not be addressed.

I expect the Governor to sign the bill. The legislature wouldn’t have gone through the trouble if they had any doubt. I have predicted that his approval of a gas tax increase means he won’t run for another term. But I also predicted the gas tax wouldn’t pass.

Somewhat related: Jim Maule, So Who Should Pay for Roads?

 

IMG_0543Why not exempt everyone? Tax Analysts reports ($link) that taxpayers who have filed returns based on incorrect ACA 1095-A forms will not have to pay any additional tax based on the corrected forms:

Tax return filers who purchased health insurance from federal marketplaces set up under the Affordable Care Act and who then filed tax returns based on erroneous information contained in Forms 1095-A will not need to file amended returns with the IRS to stay compliant, the Treasury Department said in a February 24 statement.

“The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected [1095-A] forms,” the Treasury statement said.

It’s yet another example of the IRS making up rules for Obamacare when its flaws become too obvious. I’m not one to complain when the IRS fails to enforce a dumb tax, but does anybody think the IRS would be as understanding for, say, failing to amend based on a corrected K-1?

Related: Robert Wood, Wrong Obamacare Form Tax Filers Get Relief From IRS. “Unfortunately, the 750,000 people who were sent erroneous form but who haven’t yet filed their taxes are being told to wait until the corrected forms arrive in March.”

 

TaxGrrrl, IRS Testing Taxpayer Appointments At Some Taxpayer Assistance Centers. Why appointments?

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Tax season is saved! Majority of Taxpayers with Obamacare Premium Tax Credits Need to Pay Back Portion (Accounting Today). I’m sure that’s popular.

Howard Gleckman, So Far, Affordable Care Act Users Are Managing Tax Filing, Many Uninsured May Use New Enrollment Period (TaxVox)

Jason Dinesen, Is Iowa Filing Status Tied to Federal Filing Status When You’re Married?

Annette Nellen explains Bitcoin transaction reporting. If you use Bitcoins regularly, you’ll need a bigger tax return.

Kay Bell, New York city, state lawmakers seek pet adoption tax credit. Not every problem is a tax problem, folks.

Leslie Book, Taxpayer Rights: A Look Back to Congressional Testimony of Michael Saltzman and Nina Olson

Jack Townsend, Cono Namorato to Be DOJ Tax AAG.

 

Enjoying a short Des Moines winter commute.

Snow warning today!

 

Scott Drenkard, Utah Is Eyeing An E-Cigarette Tax, But Its Reasoning Is Faulty (Tax Policy Blog). States have a pretty sweet deal with the tobacco devil, getting a cut of tobacco revenues. They hate the idea of e-cigs cuttting into that.

 

David Brunori, Sorry Folks — Clothes Should Be Taxable (Tax Analysts Blog):

The sales tax should fall on all final personal consumption. Everything you buy, be it tangible personal property or services, should be subject to the tax. Such a broad base minimizes economic distortions, allows for overall lower rates, and makes both administration and compliance easier.

But it minimizes the opportunities for legislators to do favors for friends.

TaxProf, The IRS Scandal, Day 657

 

Caleb Newquist, Accountants vs. Lawyers: A Pointless Debate (Going Concern). “A lawyer and an accountant walk into a bar. Everyone else in the bar doesn’t care.”

 

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Tax Roundup, 2/24/15: Iowa gas tax boost vote may be today. And: are tax credit subsidies on the way out?

February 24th, 2015 by Joe Kristan

It looks like the gas tax increase will come to a vote today, reports the Des Moines Register:

Rep. Josh Byrnes, R-Osage, who chairs the Iowa House Transportation Committee, said Monday he expects a tight vote. He added that talks were continuing among House Republicans.

“I don’t think we’d bring it up for debate if we didn’t think we had the votes,” Byrnes said.

It sounds like a done deal. At least that’s what they want everyone to think.

 

20120906-1Iowa has just announced a big new set of tax breaks for an out-of-state company, in the name of  “economic development.” But are “targeted” tax subsidies on the way out? Ellen Harpel says they might be in Beyond tax credits: creating winning incentive packages (smartincentives.org):

 

Tax credits have become problematic for several reasons:

  • Tax credits are often presented as no-cost incentives. That is, tax credits are not taken (incentives “paid out”) until the company has met certain thresholds and has started paying the taxes against which the credit is taken. However, as this article in the Wall Street Journal points out, the fiscal costs are substantial. It is not clear to us that other taxes expected to be generated by incentivized projects either materialize or are sufficient to fill the budget gap.
  • One reason might be that tax credits are more important to existing businesses than firms new to a location, based on our review of major incentive deals, so an incentivized project may not generate as much new tax revenue as anticipated.
  • Once the tax credits have been granted, states do not know when businesses will choose to take the credit, wreaking havoc on state budgets, possibly for decades depending on the terms of the tax credit arrangement.
  • Some tax credits are refundable (paid back to the company if their tax liability is not high enough to take the credit) or transferable (sold to another taxpaying entity). Film tax breaks often fall into this category, lowering the taxes paid by other taxpayers that are not the direct target of the incentive.

Using tax credits in this manner is not sustainable. To the extent economic development organizations continue to use tax credits, caps and limits will become the norm.

As long as politicians can get media outlets to run headlines like “New $25 million plant will bring 120 jobs to Iowa,” tax credits remain “sustainable” for vote-buying politicians. If they really wanted to help everybody — not just chase smokestacks — they would enact something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Related:

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

WSJ, Tax-Subsidy Programs Fuel Budget Deficits

 

If Iowa’s tax climate is so bad, why do businesses locate here? A hint may be found here: J.D. Tucille, Florida, the Freest State in the Country? “California, New York, and New Jersey always rank near the bottom of these lists as intrusive, red tape-bound hellholes.”

 

Via the John Locke Foundation

Via the John Locke Foundation

Iowa is #13.

The First in Freedom Index actually draws from a lot of the sources that have been cited here before, including the Fraser Institute’s Economic Freedom of North America as well as Mercatus Center’s Freedom in the 50 States, the Tax Foundation’s State Business Tax Climate Index, and measures put together by the Center for Education Reform, among others. To this, the North Carolina group adds its own weight and emphasis. 

Imagine how attractive Iowa could be without a bottom-10 tax climate.

 

Russ Fox, “Ripping Off Your Refunds” In the Miami Herald. “There is an excellent article in the Miami Herald on the identity theft tax fraud crisis. ”

TaxGrrrl, Tax Professionals Targeted In Latest Bogus IRS Email Scam. You can fool all of the people some of the time.

Robert Wood, Can IRS Seize First, Ask Questions Later? ‘Yes We Can’.

Kay Bell, NASCAR Hall of Fame and homeowner tax breaks collide. Another subsidized municipal boondoggle.

Peter Reilly, Estate Intended For Charity Depleted By Litigation And Income Tax. A sad story, and a cautionary tale for estate planning.

 

20121120-2Hank Stern, More Delays on HRAs:

For example, pre-ACA, small employers could fund “standalone” HRAs that allowed employees to pay for privately purchased health insurance (among other things). This encouraged employees to buy the plan best suited to their needs, and employers could control costs because they weren’t beholden to a group carrier’s annual rate in creases.

Sadly, those days are gone.

Everybody must be forced into the exchanges to participate in the ACA’s cross-generational subsidies.

 

William Perez, Problems with Form 1095-A

Jared Walczak, Will Mississippi Eliminate Its Antiquated Franchise Tax? (Tax Policy Blog). It’s a tax that can be a nasty surprise to a business entering that state.

 

Alan Cole ponders The President’s Revenue Problem (Tax Policy Blog):

It’s popular to claim that you’ll fund a big new government program through a tax on investors. The strong ideological priors of the political press tell us that investors are earning huge amounts of money, and that’s where the income is.

But the math tells us otherwise. Here’s what the tax bases for wage income and capital income actually look like in practice, from my recent report on sources of personal income.

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Tax Update regular readers already know that the rich can’t pick up the tab.

 

Jim PagelsNumber of American Corporations Declines for 17th Straight Year (Reason.com):

The report claims that the reduction in the number of incorporated firms is not so much due to inversions, mergers, or bankruptcy, but rather more firms classifying themselves as S Corporations, in which profits pass directly to owners and are taxed as individual income. Individual rates are typically lower than the U.S. corporate tax rate, currently the highest among members of the Organisation for Economic Co-operation and Development at 35 percent federal plus an additional 4.1 percent average rate levied by individual states.

This is why you can’t do a “corporate-only” tax reform.

 

Jeremy Scott, Does the United States Really Need a Tax Revolution? (Tax Analysts Blog): “Those who say that tax reform doesn’t go far enough and that the nation needs a revolutionary change are probably overstating the problem.”

Martin Sullivan, The Tax Reform Supermarket (Tax Analysts Blog). “Slowly but surely, members of Congress are coming to the painful realization that conventional, Reagan-style tax reform is going nowhere.”

 

Howard Gleckman, Better Ways to Link the Affordable Care Act with Tax Filing Season (TaxVox). “But since the ACA insurance is so closely linked to tax filing, it only makes sense to synch that sign-up period with tax season.”  I have a better idea: have health insurance purchases be totally unrelated to tax season, by getting rid of the whole misbegotten ACA.

IMG_1223

 

TaxProf, The IRS Scandal, Day 656, quoting the Washington Times:

The White House told Congress last week it refused to dig into its computers for emails that could shed light on what kinds of private taxpayer information the IRS shares with President Obama’s top aides, assuring Congress that the IRS will address the issue — eventually. The tax agency has already said it doesn’t have the capability to dig out the emails in question, but the White House’s chief counsel, W. Neil Eggleston, insisted in a letter last week to House Committee on Ways and Means Chairman Paul Ryan that the IRS would try again once it finishes with the tea party-targeting scandal.

Just like it couldn’t possibly find the 30,000 emails that TIGTA dug up from the back-up tapes.

 

News from the Profession. The PwC Partner Who (Sorta) Looks Like Matt Damon and Other Public Accounting Doppelgangers (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 2/23/15: 800,000 blown ACA reporting forms; tens of thousands of already-filed returns are wrong. And more!

February 23rd, 2015 by Joe Kristan
The Younkers Building ruins, morning, March 29, 2014.

Be calm. All is well.

Tax Season is Saved! 800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace (Accounting Today):

“About 20 percent of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium cost —about 800,000 (< 1% of total tax filers) —will soon receive an updated Form 1095-A because the original version they were issued listed an incorrect benchmark plan premium amount,” said a blog post on the Web site of the Centers for Medicare and Medicaid Services. “Based upon preliminary estimates, we understand that approximately 90-95% of these tax filers haven’t filed their tax return yet. We are advising them to wait until the first week of March when they receive their new form or go online for correct information before filing. For those who have filed their taxes—approximately 50,000 (< 0.05% of total tax filers) —the Treasury Department will provide additional information soon.”

It says something about how screwed up this tax season is that the IRS can issue:

– A blanket waiver for the $100 per-day penalty for health insurance reimbursement arrangements;

– A small business waiver the Form 3115 filing requirement for “repair reg” accounting method changes;

– A blanket waiver for late payment penalties for advanced Obamacare tax credit clawbacks;

And still have a filing season full of “mayhem.”

Related: 

Caleb Newquist, You Won’t Mind if Your Tax Refund Is a Little Late, Will You? (Going Concern)

Ellen Steele, The Affordable Care Act Tax Filing Season: A View From the Trenches (TaxVox). “Filing is not simple, even for our volunteers who all undergo rigorous training in tax law.”

Paul Neiffer, Perhaps 800,000 or More Form 1095-A Are Wrong

 

Tax Season is saved! Ripping off your refunds: One little number fuels South Florida’s tax-fraud explosion (MiamiHerald.com

Tax Season is saved! Wow! The IRS Will Pay Out This Much in Fraudulent Tax Refunds By 2016 (Motley Fool)


20130104-1
Iowa Public Radio, Administration Grants Tax Time Reprieve For Obamacare Procrastinators:

The Obama administration said Friday it will allow a special enrollment period from March 15 to April 30 for consumers who realize while filling out their taxes that they owe a fee for not signing up for coverage last year.The special enrollment period applies to people in the 37 states covered by the federal marketplace, though some state-run exchanges are also expected to follow suit.People will have to attest that they first became aware of the tax penalty for lack of coverage when they filled out their taxes.

Megan McArdle called it. So once again they bend the ACA rules because following the law as enacted would be unpalatable. It’s as if the entire legislation is optional. Here are other made-up-on-the-fly amendments to ACA decreed by the Administration that I can think of off the top of my head:

– Waiving the $100/day penalty for employer insurance reimbursement arrangements.

– Waiving tax penalties for failure to pay the premium credit clawbacks.

– Rolling back the employer mandate penalty by a whole year — two for smaller employers.

– Allowing premium tax credits in states using federal exchanges when the statute only allows them where there is an exchange “established by a state.”

You almost might conclude that they didn’t really think things through very well when they enacted ACA.

IMG_1282

William Perez, Social Security Benefits are Partially Taxable: How Much Depends on Your Other Income.

Roger McEowen, Primer on the Income Taxation of Trusts and Estates (ISU-CALT)

Peter Reilly, You And Your Shadow Do Not A Partnership Make. “I don’t think it is news that you can’t create a partnership with yourself and a disregarded entity, but it is a point that bears repeating.”

Russ Fox, Solely a Way to Go to ClubFed. “As always, the usual warning applies: If it sounds too good to be true, it probably is. If you use a corporation sole as a vehicle to avoid taxes, you’re heading down a road that leads to ClubFed.”

Jack Townsend, Another UBS Customer Pleads

Rashia says "thanks, Commissioner!"

Someday this may seem quaint.

TaxGrrrl, What If Tax Refund Theft Isn’t Really About Refund Theft?:

In the case of Anthem, the hack was massive. Potentially 80 million customers had their data compromised, prompting the state of Connecticut to warn taxpayers that it might be to their advantage to file their taxes early.

That, security experts say, isn’t the work of a small time hack. It’s not folks working out of a van with stolen laptops or a teenage kid in a basement. It’s bigger. It’s been suggested that the hack could be related to an international crime group or perhaps even an international government. I spoke with experts in tech and security arenas – who, like Jim, wished to remain anonymous – and they’ve suggested that they would not be surprised to find that the hacks were orchestrated by the Chinese government.

Have a nice day.

David Henderson, From 2007 to 2012-13, The Income Share of Top 1% Fell (EconLog).

Andrew Lundeen, A Cut in the Corporate Tax Rate Would Provide a Significant Boost to the Economy (Tax Policy Blog). “The corporate tax rate is, in effect, a tax on corporate investment; a high corporate tax rate discourages investment, whereas a low corporate tax rate encourages investment.”

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David Brunori ($link): 

A California company that makes cans is demanding a 20-year, 100 percent property tax exemption in return for opening a plant in Iowa. The plant will employ 120 people. The company, Silgan Containers, makes metal cans (think the containers that hold vegetables and dog food). I’m sure it’s a great company. But why should it be relieved of paying its just share of taxes? And if its demand is met, what does the Iowa government say to the companies that are already in place and employing 120 or more people? There is nothing good about this.

“Economic development” is pretty much taking money from you and your employees to lure and subsidize your competitors.

 

TaxProf, The IRS Scandal, Day 653The IRS Scandal, Day 654The IRS Scandal, Day 655

Kay Bell, All of 2015’s best picture Oscar nominees got tax break help. We would like to thank all of the chumps, er, taxpayers of the various states that help us buy these $168,000 swag bags. We wouldn’t want to do it without you.

 

 

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IRS issues Applicable Federal Rates (AFR) for March 2015

February 21st, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-04) the minimum required interest rates for loans made in March 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.40%

-Mid-Term (loans from 3-9 years): 1.47%

-Long-Term (over 9 years): 2.19%

The Long-term tax-exempt rate for Section 382 ownership changes in March 2015 is 2.67%.

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

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Tax Roundup, 2/20/15: Sometimes you just need a new voter edition. Also: time travel for a tax credit!

February 20th, 2015 by Joe Kristan

IMG_1291When the votes don’t go your way, replace the voters. The Iowa House Republican leadership seems all-in on the proposed 10-cent gas tax increase. WHOTV.com reports:

A bill that will raise Iowa’s gas tax by ten-cents per gallon, as soon as March 1, took a big step forward at the statehouse Thursday. That’s thanks in large part to a committee membership shuffle by Iowa House Speaker Kraig Paulsen.

Paulsen replaced Jake Highfill, who he says was a ‘no’ vote on raising the gas tax, with Brian Moore, who he says is a “yes” vote, on the committee. Paulsen also removed Zach Nunn from the committee for one day and put himself in Nunn’s place.

That enabled the bill to clear the committee by a 13-12 vote.  So it looks like the powers that be are determined to make the gas tax increase happen.

 

Time travel. Congress reenacted the expired Work Opportunity Credit in December, retroactively to the beginning of the year. The credit provides a tax savings up up to $9,600 for employers who hire people in groups favored by legislation — welfare recipients and veterans, for example. There was a hitch in the retroactive legislation, though. The WOTC requires employers to certify that new hires are eligible within 28 days of their start date. It’s difficult for employers to go back in time to January to comply with legislation enacted in December.

Fortunately, the IRS yesterday issued Notice 2015-13, giving employers until April 30 to obtain employee signatures on Form 8850 and submit them to the local job service to qualify 2014 hires for the credit.

Wages may qualify for the credit if paid to employees who were on public assistance or food stamps in the period before their hire date, certain veterans, or ex-felons. Details can be found on Form 8850 and its instructions.

 

No Walnut STTax Season is Saved! Obamacare Inflicts IRS Paperwork on New Victims (J.D. Tucille, Reason.com). “Perhaps the Affordable Care Act’s most-resented wrong against the American people will be initiating those previously exempt to the dull, often incomprehensible grind of Internal Revenue Service paperwork.”

Tax Season is Saved! State tax refund troubles spreading (Kay Bell).

Tax Season is Saved! IRS Paid $5.8 Billion In Fraudulent Refunds, Identity Theft Efforts Need Work (Robert Wood)

 

Megan McArdle, Will Obamacare Join Tax Season Chaos?:

Apparently, there is a movement afoot to get the Barack Obama administration to line up the Affordable Care Act’s open-enrollment period with tax season. The reason: Many people are going to find out in March or April that they owe a penalty for not having the minimum essential insurance coverage. Those unlucky people, who may decide they’d like to buy health insurance after all to avoid next year’s penalties, will be too late to go through that year’s open enrollment.

Oh, goody.

IMG_1274William Perez, Reconciling Advance Payments of the Premium Tax Credit. Though the results might not be pleasant.

Jason Dinesen, Tips For Financing a Small Business: Part 2 of 5 — Use Your Accountant as a Resource

Peter Reilly, Tom Brady’s MVP Truck Even More On The Tax Implications

Carl Smith, The Empire Strikes Back on Excessive Refundable Credit Claim Penalties (Procedurally Taxing)

TaxGrrrl, Taxpayers Sue Treasury, SSA, Alleging Improper Refund Seizures. “As the stories became more sensational – in part due to reports filed by The Washington Post – SSA was forced to announce that it would stop trying to collect debts that were more than ten years old. But by “stop,” they apparently meant ‘slow down… a little.'”

 

Kyle Pomerleau, Richard Borean, The Dual Tax Burden of S Corporations (Tax Policy Blog):
Top marginal tax rates for active shareholders then vary based on whether the last dollar is profit or wage. The following map shows the top marginal tax rate in each state for an active shareholder, assuming that their last dollar earned was a profit.
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Passive shareholders do not pay any payroll tax on their income since they do not draw a wage from the business. Instead, they are liable for the ACA’s Net Investment Income Tax of 3.8 percent, which only hits income over $200,000 ($250,000 for married filing jointly).

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I think this will motivate some S corporation owners to become surprisingly active in their retirement.

TaxProf, The IRS Scandal, Day 652

 

Kristine Tidgren ponders The Irony of Yesterday’s Limited ACA Penalty Relief (ISU-CALT). She notes that some employees whose employers terminated these plans in the face of the $100 per-day-per employee penalty end up worse off than those whose employers continued the plans and whose penalties were waived by the IRS in Notice 2015-17. “Bottom line, the employee of the compliant employer walks away with only about 60% of the benefit received by the employee of the noncompliant employer.”

And that is true, as far as it goes. The apparent purpose of these rules is to force employers to either sponsor a group health insurance plan under the employer SHOP marketplace (good luck with that in Iowa right now), or to send the employees to the individual exchange. So it wasn’t about whether employees were covered, it was about whether their coverage was done under the right government supervision.

But the Obamacare drafters were careless. While they imposed a $100-per-day, per employee penalty for sponsors of plans that reimburse employee premiums, they also left the tax incentives for such plans under Section 105 in place. So while one code section punished employers for reimbursing individual health premiums, another rewarded employees for receiving the reimbursements. Given the mixed message, no wonder many employers didn’t realize that their long-time employee benefit was suddenly a bad thing.

Of course, absent the waiver, many of the employees receiving a premium reimbursement would be much worse off — their employers would go broke paying a $36,500 non-deductible fine for each employee for the crime of covering their individual premiums. As bad results go, this is a lot worse than the loss of a tax benefit by the compliant employer’s employee.

 

Caleb Newquist, #BusySeasonZen: The Train Snowblower (Going Concern). In case you think you’re having a tough winter.

 

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Tax Roundup, 2/19/15: Health insurance reimbursement relief and other cold-day links.

February 19th, 2015 by Joe Kristan

The Tax Update is on a road trip across the frozen prairies. Just a few quick items today.

The big news item is handled in a separate post: Small employers, S corporations get relief from $100 per day premium reimbursement penalty. Other coverage:

20140106-1Kristine Tidgren, IRS Notice 2015-17 Provides Some Limited ACA Penalty Relief to Small Employers

Tony Nitti, In Last Minute Move, IRS Spares Small Employers Big Obamacare Penalties For 2014. “You’ve got to hand it to the IRS. It may improperly target political groups, inexplicably lose critical email evidence, abusively attempt to govern tax preparers in an overreaching manner, and callously refuse to answer the phone when we are in desperate need of assistance, but when the tax industry is struggling with complicated law changes, the Service sure as heck knows how to provide some last minute relief.”

Paul Neiffer, Here We Go Again.

In other news:

Robert Wood, TurboTax, Phishing, E-Filing, And IRS Security

Kay Bell, Tax pros are the latest tax scam phishing targets

William Perez, Tax Planning for Clergy

 

TaxProf, The IRS Scandal, Day 651

Greg Kyte, TurboTax Got Hacked Because of Course They Did (Going Concern)

 

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Small employers, S corporations get relief from $100 per day premium reimbursement penalty

February 19th, 2015 by Joe Kristan

The IRS yesterday announced (Notice 2015-17) that it would not impose the $100 per day Obamacare penalty on small employers who reimburse employee-paid health insurance premiums. This relief will cover such arrangements for all of 2014 and through June 30 of 2015.

20121120-2The Notice also says premium reimbursements for S corporation owner-employees will not be subject to the penalty pending further guidance. Until then, the IRS will continue to apply the rules of IRS Notice 2008-1 (discussed here).

Employers covered by Notice 2015-17 will not have to File Form 8928, report the Sec. 4980D excise tax, or request a waiver of the tax.

Notice 2015-17 gives a blanket waiver of the ACA penalty for “small employers,” defined here as those with fewer than 50 full-time-equivalent employees through June 30, 2015, with an “employer payment plan as described in Notice 2013-54.” The description says these occur when:

…an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Code § 106. This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this notice, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage.

Notice 2015-17 does not exempt all Section 105 plans for small employers from the penalty. “This relief does not extend to stand-alone HRAs (health reimbursement arrangements) or other arrangements to reimburse employees for medical expenses other than insurance premiums.”

The notice also provides a way to integrate Medicare premium reimbursement plans with employer group plans.

Other items in Notice 2015-17.

– The notice provides some flexibility for determining the measuring period for employers who might be on the bubble.

– The notice says that employers may give employees a raise to cover the cost of their insurance premiums, as long as the employer “does not condition the payment of the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form, or issuer of health insurance).”

– Simply putting premium reimbursements on the W-2 does not work. That will still be considered a group health plan failing the ACA “market reforms,” subjecting the employer to the penalty tax.

This is a huge (and much needed) relief provision. There are hundreds, maybe thousands, of employers in Iowa alone who will benefit from this provision.

I am baffled by the exclusion of stand-alone Sec. 105 plans. Thousands of farms and small employers have had these plans, and the word of their ACA problems was slow to spread. Some Sec. 105 plan administrators remained in denial in 2014.

Employers not covered by Notice 2015-17 can still claim relief by filing From 8928 and reporting a zero tax under the form instructions. It remains to be seen how lenient the IRS will be in processing these.

W2Many employers may want to amend 2014 W-2s and 941 filings, possibly claiming refunds. There had been some thought that the way to bring non-qualifying reimbursement plans into compliance was to include health reimbursements on the W-2 form. There is no such requirement in Notice 2015-17. Such reimbursements continue to be exempt from employee income, even if the would trigger the employer penalty tax, and exempt from FICA and Medicare payroll taxes.

Related:

DOL nixes many employer health reimbursement setups.

ACA and filing season pessimism revisited

ANOTHER QUESTION ON S CORPORATION HEALTH INSURANCE

S CORPORATION HEALTH INSURANCE: READER QUESTIONS

MORE ON S CORPORATION HEALTH INSURANCE

IF IT’S NOT ON THE W-2, S CORP SHAREHOLDERS CAN’T DEDUCT HEALTH INSURANCE

Update, from Kristine Tidgren: IRS Notice 2015-17 Provides Some Limited ACA Penalty Relief to Small Employers (ISU-CALT)

 

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Tax Roundup, 2/18/15: Smishing, Stonewalling, and Checking the Chickadees Edition

February 18th, 2015 by Joe Kristan

Just links today, but good links!

 

20150218-1Kay Bell, Look out for smishing tax identity thieves:

Smishing is the text messaging cousin of phishing. It gets its name from the Short Message Service (SMS) systems used for texting; sometimes it’s written as SMiShing.

Like fake phishing emailers, smishers try to get you to reveal personal financial data.

They try to get the info directly by pretending to be someone else, say your bank or tax accountant or even an official tax agent. Or they tell you to click on a URL that will load malware onto your smartphone or tablet with which the crooks can then access the info on your device.

Be careful out there.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Robert Wood, Remember IRS Stonewalling When Filing Your Taxes:

At a hearing Rep. Jim Jordan, R-Ohio, noted a letter that Mr. Koskinen sent the Senate Finance Committee saying the IRS had handed over everything. Curiously, the letter didn’t even mention that the former Exempt Organizations chief Lois Lerner’s emails had been lost. Mr. Koskinen defended his actions: “Absolutely not. We waited six weeks to tell while trying to find as many of the emails as we could. We gave you all of Ms. Lerner’s emails we had. We couldn’t make up Lois Lerner emails we didn’t have.”

Of course, it took the Inspector General to find the emails, proving they weren’t destroyed. Yet there, too, Mr. Koskinen remained defiant. The IRS chief took criticism from Rep. Tim Walberg, R-Mich., about a recent TIGTA report showing that the IRS re-hired poor performing employees. Some were guilty of misconduct, even tax delinquency. Koskinen deflected responsibility and said they were just seasonal or temporary workers.

It is another disappointment in the long and sordid story of the Lerner e-mail information.

And Commissioner Koskinen tells us that there is nothing wrong with his agency that giving him more money won’t fix.

 

20150218-2What, no checkoff to fund the Department of Revenue? Chickadee Checkoff benefits wildlife in Iowa (Radio Iowa) and Iowa fair encourages donations at tax time (Hamburg Reporter) Iowans can voluntarily increase their income tax to three government programs. Wouldn’t it be fun if all government programs worked that way? More here.

 

Jason Dinesen, What to Do When a Management Company Issues a Wrong 1099 to Rental Owner.

TaxGrrrl, Filing Your Tax Return In 2015? You Might Want To Leave Those Medical Receipts At Home. “Hitting 10% of your AGI in medical expenses is a steep hill to climb.”

Janet Novack, American Tax Informant Going To Paris To Sing About Swiss Bank UBS. Road trip for Brad Birkenfeld.

Peter Reilly, Good Execution Protects Sellers From IRS Transferee Liability. “I think this will be Reilly’s Fourth Law.  It goes ‘Execution isn’t everything, but it is a lot’.”

Keith Fogg, Expanding Ex Parte (Procedurally Taxing). “The ex parte rules seek to insulate Appeals from other parts of the IRS that might taint their opinion by providing insights about a taxpayer that the taxpayer has no ability to counter.”

 

TaxProf, The IRS Scandal, Day 650

Clint Stretch, Tax Policy Is Really About Our Grandchildren (Tax Analysts Blog):

Every vendor says that its tool, finish, or accessory is the best. Similarly, every advocate for a tax incentive says it will increase jobs and GDP. Few of the claims in either set are true.

At least a vendor’s claim can be true.

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David Brunori, Goodlatte’s Idea Is No Good (Tax Analysts Blog):

Under Goodlatte’s plan, a vendor in a no-tax state like New Hampshire would either collect tax at a minimum rate and forward it to the clearinghouse or forward details regarding sales to nonresidents to the clearinghouse, which in turn would forward it to the destination state and take steps to collect. Again, New Hampshire decides not to tax sales, but the Goodlatte plan would require its vendors to collect tax for other states.  

I’m sure that would be popular with the no-tax state’s voters.

 

Career Corner. #BusySeasonProblems: Avoiding Scurvy (Adrienne Gonzalez, Going Concern). I hope they add vitamin C to Girl Scout Cookies.

 

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Tax Roundup, 2/17/15: Iowa 2014 code conformity bill set to become final this week. And: tax season saved again!

February 17th, 2015 by Joe Kristan

IMG_1291Iowa Code Conformity Update. The bill updating Iowa’s 2014 tax law to include December’s retroactive “extender” bill, SF 126,  was officially transmitted to the Governor yesterday. He has three days to act; if he doesn’t sign within three days, the bill becomes law automatically. That means it will be official this week, unless the Governor shocks everyone with a veto.

The bill adopts almost all of the “extender” items, including the $500,000 Section 179 deduction, but it does not adopt 50% bonus depreciation for Iowa.

Update, 2:30 pm. The bill is signed.

 

 

The tax season is saved!  Covered California Sends Out Nearly 100,000 Tax Forms Containing Errors, Others Deal With Missing Forms (CBS San Francisco):

Stacy Scoggins gets plenty of mail from Covered California, but the one tax form the agency was required to send her by February 2nd still hasn’t arrived.

“After being on hold for 59 minutes, told me that the 1095-A was never generated,” Scoggins told KPIX 5 ConsumerWatch.

When they finally do get their forms, many of them will find out that they have to repay advanced premium tax credits, as Insureblog’s Bob Vineyard reports in Paybacks are hell, quoting a MoneyCNN report:

Some 53% of Jackson Hewitt clients who received subsidies have to repay part or all of it, with the largest being $12,000, said Mark Steber, chief tax officer. 

Clients love to hear that they owe.

Related: Oops (Russ Fox).

 

Kay Bell serves up 6 ways to get electronic tax help from the IRS

Accounting Today, IRS Eases Repair Regulations for Small Businesses

Josh Ungerman, IRS Expected To Issue Hundreds Of Deficiency Notices TO USVI Residents.

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Tony Nitti, Lance Armstrong Ordered To Repay $10 Million Of Prior Winnings: What Are The Tax Consequences?  They could be ugly.

Kristine Tidgren, Value of Closely Held Corporation Increased in Dissolution Proceeding (ISU Center for Agricultural Law and Taxation).

Robert Wood, Marijuana Tax Up In Smoke? Don’t Worry, Feds Plot 50% Tax.

Peter Reilly, Islamic Teaching On Usury Kills Property Tax Exemption In Tennessee

Jack Townsend, ABA Tax Lawyer Publication Comment on FBAR Willful Penalty

 

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Matt Welch, Record Number of Americans Renounce Citizenship in 2014 (Reason.com). “Terrible tax law produces predicted results”

TaxProf, The IRS Scandal, Day 649

 

Norton Francis, State Revenue Growth Will Remain Sluggish (TaxVox)

Sebastian Johnson, State Rundown 2/13: Snow Way Forward (Tax Justice Blog). Developments in Oklahoma, Arizona, North Carolina, Mississippie and Massachusetts, from a left-side view.

 

Things that are better now. From Don Boudreaux, a reminder of one area where a dollar goes a lot further than it used to:

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I dare you to access taxupdateblog.com from the Olivetti.  More at HumanProgress.org.

 

 

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Tax Roundup, 2/16/15: Titanic saved! Well, except for the iceberg thing. Or, the regs are dead, long live the repair regs!

February 16th, 2015 by Joe Kristan

20140925-2So is the tax season saved? The IRS gave us a big “never mind” Friday afternoon with the issuance of Rev. Proc. 2015-20, letting taxpayers of the hook for countless Forms 3115 under the “repair regs.”

The main points:

“Small” trades or businesses — those with either average 3-year gross receipts under $10 million or assets under $10 million — can adopt the most common methods under the repair regulations without having to file an accounting method change. In fact, the Rev. Proc. requires no special statement or disclosure to adopt the new methods.

The “Small” tests are based on the size of the “trade or business,” not the size of the taxpayer. This means taxpayers who exceed these limits may still qualify if their component “trades or businesses” qualify.

Taxpayers may pay a price for not filing a 3115. If you skip the 3115 for the common method changes, you aren’t allowed to get the most lucrative one – the “late partial disposition election” for real estate and machinery improvements. This is the one Peter Reilly notes as having the potential to generate “biblical” deductions. That means if you want to claim this biblical deductions for any trade or business, you need to file the most common method changes for all of them, regardless of whether they qualify otherwise under Rev. Proc. 2015-20

For the details of the new rules, I have two dedicated posts:

IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules, and

List of Rev. Proc. 2015-20 method changes.

No Walnut STPeter Reilly says John Koskinen Saves Tax Season With Form 3115 Relief For Small Business. Well sure.  Except maybe for the entirely out-of-control epidemic of identity theft refund fraud, the continuing confusion and almost certain widespread inicidence of the new individual mandate penalty, the sticker shock that millions will face when they recompute their ACA exchange plan tax credits, and the financial disaster looming for small businesses for the horrible crime of reimbursing employee health insurance. But other than that, yes, it’s all hunky-dory.

Other Coverage: 

Russ Fox, IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Tony Nitti, Repair Regulation Relief: What Does It Really Mean? (Not As Much As You Think):

You don’t have to file a Form 3115. But remember, the three safe harbors that we started with 4,000 words ago — the $5,000/$500 de minimus, small building, and routine maintenance exceptions — are annual elections that apply only on a go forward basis. These still must be attached to the returns.

Paul Neiffer, You Don’t Need to File Those Form 3115s After All

 

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William Perez has Your Helpful Guide to Capital Gains Tax Rates and Losses

Jason Dinesen, Handling Franchise Fees on a Tax Return. He gives an example involving a $5,000 franchise fee: “The $5,000 franchise fee is considered an asset. The $5,000 is deducted over 180 months (15 years). This is true even though the franchise agreement is only 5 years long.”

Annette Nellen, Taxable income of a marijuana business. That’s pretty much the same as gross income.

Jana Luttenegger Weiler, Facebook Allows Users to Designate “Legacy Contact”

Kay Bell, 5 things to check when hiring a tax preparer

Stephen Olsen has his newest Summary Opinions, rounding up recent developments in tax procedure (Procedurally Taxing).

"Boris Johnson -opening bell at NASDAQ-14Sept2009-3c cropped" by Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg: *Boris Johnson -opening bell at NASDAQ-14Sept2009.jpg: Think Londonderivative work: Snowmanradio (talk)derivative work: Off2riorob (talk) - Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg. Licensed under CC BY 2.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg#mediaviewer/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg

Via Wikipedia.

Robert Wood, Savvy London Mayor Boris Johnson Paid IRS, Is Now Renouncing U.S. Citizenship. Considering what it costs him, it’s not surprising.

TaxGrrrl, Filing As Single Or Married: When ‘It’s Complicated’ Isn’t A Choice On Your Tax Return. As a filing status, that is.

 

TaxProf, The IRS Scandal, Day 648

Renu Zaretsky, No Hitting the Brakes for Tax Breaks… Today’s TaxVox headline roundup covers early movement on extending the “expiring tax provisions.”  Remember, they only got extended through the end of last year. Also links to discussions on Section 529 deductions, tax reform, and the romantic side of spreadsheets.

 

News from the Profession. Nearly Half of Accountants Surveyed Hooked Up With a Colleague (Adrienne Gonzalez, Going Concern)

 

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List of Rev. Proc. 2015-20 method changes

February 14th, 2015 by Joe Kristan

I have put together a list of the Form 3115 method changes that Rev. Proc. 2015-20 has made optional for “small” trades or businesses for 2014 filings, by my reading. I also include the section of Rev. Proc. 2015-14 that authorizes the method changes. The list is derived from Rev. Proc. 2015-20, Section 5.01.

RP 2015-20 changes

Perhaps the most important tangible property regulations change not covered by Rev. Proc. 2015-20 is the “late partial disposition election” (Change 196) for pre-2014 disposals of depreciable assets. Also not covered is Method 195 for deducting holding costs of real property acquired through foreclosure.

Update, 2/15. As alert reader Brian points out in the comments, if a taxpayer uses Rev. Proc. 2015-20 to skip filing Form 3115 for the permitted items above for any trade or business, it forfeits the right to use the advantageous Change 196 for all trades or businesses.

 

This is the kind of list the IRS should have put together to save taxpayers and practitioners the time and effort of wading through the Rev. Proc. 2015-20 and 2015-14 maze of cross-references. I realize the IRS $10 billion budget is pretty darn tight, but I got it done with a Saturday morning, donuts and coffee, so just maybe the IRS could have done so too.

For more discussion of Rev. Proc. 2015-20, see IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules. 

 

 

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IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules. 

February 13th, 2015 by Joe Kristan

20140925-2The IRS today announced (Rev. Proc. 2015-20) that taxpayers with gross receipts under $10 million (averaged over the prior three years) or assets under $10 million can elect to adopt the 2014 changes to the rules on deducting or capitalizing repairs and property additions without filing Form 3115, Application for Change in Accounting Method.

(Update, 2/14/15: I have put together a List of Rev. Proc. 2015-20 method changes, organized by Form 3115 method change number.)

This is welcome relief for many smaller taxpayers, and their preparers, and to trees everywhere. This will eliminate the filing of tens of thousands of useless accounting method change applications under the so-called “Repair Regs.” Unfortunately, it still requires the useless filings in thousands of other cases.

Some taxpayers who are allowed to skip the Form 3115 might want to file one anyway. For example, the regulations allow taxpayers to write off parts of buildings that have had significant replacements, like new roofs, installed in prior years, but this deduction is only available for taxpayers filing a Form 3115. Taxpayers who have sinned by writing off as “repairs” amounts they should have capitalized may also want to file a Form 3115 to keep the IRS from going back and auditing the issue for old years.

We should be thankful for small favors, but this doesn’t eliminate a dumb rule; it just applies it to fewer taxpayers. There is no good reason why the “cut off” approach of Rev. Proc. 2015-20 for post-2013 expenses shouldn’t also be allowed for larger taxpayers.

I may update this post as I have more time to soak up its hideously dense language. One key sentence shows you what I mean:

However, a taxpayer using this option must also use sections 6.37(4)(f) and 6.39(6)(b) of this revenue procedure to calculate a §481(a) adjustment for any change made under section 6.37(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) or section 6.39 of this revenue procedure and must use section 10.11(6)(b)(iii) of this revenue procedure to calculate a §481(a) adjustment for any change made under section 10.11(3)(a) of this revenue procedure.

Got that?

 

Update: John Koskinen Saves Tax Season With Form 3115 Relief For Small Business (Peter Reilly):

I’m hoping that this announcement will help my blogging buddy Joe Kristan warm up to Commissioner Koskinen a bit.  I think Joe tends to be a little hard on the Commish and he will have to grant that he has done us a solid here.

I don’t know, Peter. It’s a little like having an awful boss; he doesn’t become a good boss when he surprises you with a cookie. A dumb policy is still dumb even when the dumbness is applied to fewer victims.

Update, 12/14: Rev. Proc. 2015-20 has an unusually taxpayer-friendly application of its $10 million limits. Rather than applying to the entire taxpayer’s assets or gross receipts, they apply to each “separate and distinct trade or business” of the taxpayer.  See Section 4 of the procedure. They define “separate and distinct trade or business” by reference to Reg. Sec. 1.446-1:

(d) Taxpayer engaged in more than one business.

(1) Where a taxpayer has two or more separate and distinct trades or businesses, a different method of accounting may be used for each trade or business, provided the method used for each trade or business clearly reflects the income of that particular trade or business. For example, a taxpayer may account for the operations of a personal service business on the cash receipts and disbursements method and of a manufacturing business on an accrual method, provided such businesses are separate and distinct and the methods used for each clearly reflect income. The method first used in accounting for business income and deductions in connection with each trade or business, as evidenced in the taxpayer’s income tax return in which such income or deductions are first reported, must be consistently followed thereafter.

(2) No trade or business will be considered separate and distinct for purposes of this paragraph unless a complete and separable set of books and records is kept for such trade or business.

(3) If, by reason of maintaining different methods of accounting, there is a creation or shifting of profits or losses between the trades or businesses of the taxpayer (for example, through inventory adjustments, sales, purchases, or expenses) so that income of the taxpayer is not clearly reflected, the trades or businesses of the taxpayer will not be considered to be separate and distinct.

This means there are no related party rules to apply, and no aggregation of commonly controlled businesses, in determining eligibility. Even if a taxpayer’s gross receipts and assets exceed the $10 million thresholds, some or all of its component businesses may still qualify for this relief. This could be a big benefit, for example, to a real estate operation that keeps separate records for all of its properties, enabling the taxpayer to avoid filing Form 3115s under the tangible property regulations except as they may be useful.

Update, 2/15. After seeing a comment by alert reader Brian, I realize that the IRS is being less generous than I had believed. While the $10 million threshold applies to each trade or business, using the protection for any trade or business denies the taxpayer some of the most beneficial method change opportunities.  If you select the Rev. Proc. 2015-20 treatment for any trade or business, you forego the Change number 196 -the change for prior year  partial dispositions- for all trades or businesses of the taxpayer. So if you want to claim the benefit of the deemed partial disposition of real property if, say, you replace a roof, you have to file a Form 3115 to adopt the other parts of the repair regs.

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

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TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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Tax Roundup, 2/12/15: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

February 12th, 2015 by Joe Kristan

Lincoln

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

Happy Lincoln’s Birthday. President Lincoln signed the first U.S. income tax into law in August, 1861, to cope with costs of the Civil War and the loss of income from customs collections in the rebellious states.  Wikipedia says the tax was initially 3% on income over an $800 exemption. Right away they started tinkering, and adding expiring provisions:

The income tax provision (Sections 49, 50 and 51) was repealed by the Revenue Act of 1862. (See Sec.89, which replaced the flat rate with a progressive scale of 3% on annual incomes beyond $600 ($12,742 in 2009 dollars) and 5% on incomes above $10,000 ($212,369 in 2009 dollars) or those living outside the U.S., and perhaps more significantly it was explicitly temporary, specifying termination of income tax in “the year eighteen hundred and sixty-six“).

The rates were increased again in 1864 to a top rate of 10%, but it actually was allowed to expire after the end of the war.

For some reason, this early version of the income tax isn’t a big topic in history books. Something else must have been going on then.

 

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

April 15, the thieves holiday Tax-refund fraud to hit $21 billion, and there’s little the IRS can do (CNBC):

Tax-refund fraud is expected to soar again this tax season, and hit a whopping $21 billion by 2016, from just $6.5 billion two years ago, according to the Internal Revenue Service.

And the problem—which the agency admits is growing quickly—is compounded by an outdated fraud-detection system that has trouble identifying many attempts to trick it.

$21 billion. The entire tax system of the state of Iowa raises maybe $8 billion, and the IRS issues $21 billion annually to thieves. Not counting earned income credit fraud, of course.

I’m no IT expert, but saying the IRS is helpless sounds like a cop-out. Even with obsolete technology, the IRS has been slow to stop obvious fraud, such as multiple (say, hundreds of) refunds going to a single bank account. The agency allowed this crisis to spin out of control years ago. Practitioners certainly knew about it during Doug Shulman’s execrable term as IRS commissioner, but he spent his efforts trying to regulate practitioners and harass the Tea Party, while grossly failing at the more basic duty of not wiring money to theives. Commissioner Koskinen obviously hasn’t solved the problem. I think it’s fair to conclude that they just haven’t considered it their biggest problem.

This should be the highest IRS priority, certainly more so than the “voluntary” preparer program. It should also be the highest oversight priority of the tax writing committees in Congress, who should be able to find a way to find the necessary funding in a way that keeps the Commissioner from diverting it to pet projects. Of course, the history of IRS technology upgrades isn’t very encouraging.

It’s possible that the solution will also require taxpayers to wait longer for refunds. It takes a lot longer to get a refund when your identity is stolen anyway, so it’s probably worth taking a little more time. But when technology exists to enable the credit card company to call me when my wife is buying an expensive dress in Chicago, the IRS ought to be able to notice someone like Rashia Wilson before she fills her purse with Benjamins.

Related: TurboTax Fraud May Impact Federal Returns Too, FBI Investigating (Robert Wood)

 

Iowa’s $37 million corporate subsidy programNot everybody knows that the State of Iowa mails subsidy checks to business taxpayers, including $11.7 million just to one. Iowa’s research credit is “refundable,” which means once it wipes out your Iowa tax, the state sends you a check for any remaining credit.

The total 2014 Iowa research credits claimed was $56,918,030 for 2014, according to the newly-issued Iowa Research Activities Tax Credit Annual Report for 2014. (Hat tip: Iowa Fiscal Partnership). Sixteen companies claimed $42 million of the credit, according to the report:

RAC2014

I know everybody thinks they have earned whatever cash they have coming from the state, and I’m not shy about claiming refundable credits for my clients. When the state offers you cash, you’d be foolish not to take it. Still, there’s no way this makes any sense from a tax policy perspective.  The money sent to a few taxpayers should be used to lower rates for everyone, or to help eliminate the futile Iowa corporation income tax.

 

William Perez, Last Year’s State Refund Might be Taxed on Your Federal Return

TaxGrrrl, IRS Releases Latest Version Of Its Mobile App – And Something’s Missing. Service!

Russ Fox, A Bipartisan Tax Bill? I’ll Drink to That! “It’s to end age discrimination against bourbon and whiskey.”

Peter Reilly, Lois Lerner’s Old IRS Team Looking Anti-tech. “…now I’m thinking there might be a full blown Luddite cult operating in there.”

Jason Dinesen, Tips For Financing a Small Business: Part 1 of 5 — There’s Going to Be Paperwork, Deal With It

Kay Bell, Got your tax refund yet? IRS issued 7.6 million in January

 

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Principal Park, home of the Iowa Cubs. About 2 months until opening day!

 

Andrew Lundeen, Proposed Tax Changes in President Obama’s Fiscal Year 2016 Budget (Tax Policy Blog). “In total, the plan includes $2.4 trillion in proposed tax increases offset by $713 billion in new credits, deductions, and other offsets, for a total tax increase of nearly $1.7 trillion over the next ten years.”

Cara Griffith, Series LLCs: The Next Generation of Passthrough Entities? (Tax Analysts Blog). I think they will continue to be the wave of the future, as they have been for years now.

TaxProf, The IRS Scandal, Day 644

 

Career Corner. Interruptions at the Office: Good or Bad? (Adrienne Gonzalez, Going Concern). Bad, unless cookies are implicated.

 

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Tax Roundup, 2/11/15: Iowa Code Conformity, America’s more selective appeal, and your tax dollars at work in the $1 DVD bin.

February 11th, 2015 by Joe Kristan

IMG_1284The Iowa Code Conformity bill goes to the Governor. The Iowa House yesterday approved the Senate-passed bill, SF 126, to update Iowa’s 2014 tax law for the federal “Extender” legislation approved in December. Iowa will conform to the federal legislation, including the $500,000 Section 179 limit, but will not adopt the federal bonus depreciation.

The Governor is expected to sign the bill.

 

Our appeal is just getting more selective. 2014 – More Expatriations Than Ever (Andrew Mitchel):

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2014. 

The number of published expatriates for the quarter was 1,062 (second highest quarter ever), bringing the total number of published expatriates in 2014 to 3,415.  The total for the year breaks last year’s record number of 2,999 published expatriates. The number of expatriates for 2014 is a 14% increase over 2013.  

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

Expatriation is often an inconvenient and expensive process. The willingness of so many to go through the hassle is disgraceful evidence of the burden the “shoot the jaywalker” penalties of the foreign account reporting rules and FATCA impose — on top of America’s unique worldwide taxation regime.

Related: Thousands Renounce U.S. Citizenship Hitting New Record, Not Just Over Taxes (Robert Wood)

 

haroldYour tax dollars at work in HollywoodWhen Sony’s emails were hacked, the companies executives were embarrassed by the emails complaining about “spoiled brat” starlets and other insider dish that was exposed. But Tax Analysts’ Brian Bardwell shows that the state legislators who have approved taxpayer funding around the country for filmmakers also have plenty to be embarrassed about. From the subscriber-only story:

While the broader topic of film incentives comes up daily, it appears that top executives — at Sony, at least — are not usually involved in finding credits for individual projects, but when they are, it may be because the film is unlikely to bring in enough money to justify producing it without a government subsidy.

In other words, taxpayers are financing the marginal direct-to-DVD projects for Hollywood. That comes as no surprise to those of us who followed Iowa’s disastrous Film Tax Credit story. In a story line right out of “The Producers,” inflated expense claims allowed awful films to be made without the need to ever get a paying customer — the sale of the resulting transferable tax credits covered the expenses and generated a profit — not counting the attorney fees and jail time, of course.

 

Kay Bell, Tax fraud concerns in Minnesota, Connecticut & now Florida:

“The personally identifiable information apparently hacked at Anthem is exactly what tax fraud thieves use to make false refund claims that appear to be legitimate,” said Department of Revenue Services Commissioner Kevin Sullivan. Sullivan is suggesting that residents beat tax ID thieves to the punch.

Great.

 

Peter Reilly, Breaking – Repair Regs – AICPA Says Help On The Way – Maybe. “The only thing that I find really encouraging about the AICPA announcement is that I can show it to my partners and justify my wait and see approach, which now apparently has the imprimatur of the AICPA.”

TaxGrrrl, UNRETIREMENT. “The Social Security and tax laws hold hidden traps and rewards for the growing army of well-off folks who just keep on working.”

Leslie Book, Congress Considering Procedural Legislation (Procedurally Taxing).

Jack Towensend, Judge Jed Rakoff Reviews Brandon Garrett’s Book on Too Big to Jail: How Prosecutors Compromise with Corporations

 

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David Brunori, It’s Time to End Property Tax Exemptions — for Everyone (Tax Analysts Blog).

City governments are usually looking for payments in lieu of taxes rather than ending exemptions. And the nonprofits — particularly universities and hospitals — tenaciously oppose paying. To be sure, some municipalities and exempt organizations have reached a compromise on payments in lieu of taxes, particularly in Boston. But in the vast majority of the nation, universities, nonprofit hospitals, and property owned by religious organizations are exempt from tax.

I propose we end those exemptions. First, let’s be honest — if you narrow the tax base by exempting some property, everyone else pays more. So in Brunswick, Maine, people and businesses pay more property taxes because Bowdoin College doesn’t. And sometimes they pay a lot more.

Sometimes it can be confusing. Des Moines officials will freely complain about the big hospitals not paying property taxes, but they lacked enthusiasm when the two big non-profit hospitals in town opened new hospitals in the suburbs.

 

Scott Drenkard, Richard Borean, How Many Cigarettes Are Smuggled Into Your State Each Year? (Tax Policy Blog). A lot more since they jacked up the cigarette tax a few years ago.

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The threat of lost cigarette revenue is the real reason state officials are so horrified by the vaporous health risks of e-cigarettes.

 

Renu Zaretsky, Tax Preferences, Investigations, and Settlements. Today’s TaxVox headline roundup covers Senator Hatch on tax reform, financial supergenius Bernie Sanders on Social Security, and more Swiss bank tax troubles.

Sebastian Johnson, State Rundown 2/10: Semi-Encouraging News (Tax Justice Blog)

Joseph Thorndike, When It Comes to Tax Reform, History Tells Us What Might Happen – And Why It Probably Won’t (Tax Analysts Blog). “The 1986 reform happened not because it was wise and prudent and necessary, but because it worked politically. And even then, only barely.”

TaxProf, The IRS Scandal, Day 643

 

News from the Profession. The Annual Close: The Year in Adverse Accounting Jokes (Adrienne Gonzalez, Going Concern).

 

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