The IRS just dropped in to see what situation my situation is in. The big tax news today apparently is that some guy from the “Jersey Shore” T.V. show with the nickname “The Situation” is accused of not paying his taxes on $8.9 million of income.
According to the indictment, the feds allege that Mike and his brother, Marc (who is also Mike’s manager) used two companies they controlled, MPS Entertainment, LLC and Situation Nation, Inc., to evade taxation. Both of the companies were set up as S corporations which means that they were passthrough entities: the income and expenses were meant to pass through to the shareholders who were, you guessed it, Mike and Marc. As part of the conspiracy, it’s alleged that the brothers took money out of the companies for personal expenses like “high-end vehicles, purchases of high-end clothing, and personal grooming expenses” but claimed that they were legitimate business expenses. They allegedly also deliberately understated the amount of income received by the companies to their accountants who then passed through the lower income amounts to be reported on individual returns.
To test your care in reading the story, Tony Nitti offers a quiz.
I have never seen “Jersey Shore,” but I get the impression that the indicted guy wasn’t cast to showcase his intellectual achievements. It’s not remarkable if he didn’t pay his taxes; it is remarkable that he made almost $9 million in the first place. Easy come, easy go.
William McBride, New Study Finds Bonus Depreciation Boosts Investment (Tax Policy Blog):
The authors are Eric Zwick, of the University of Chicago, and James Mahon, of Harvard, and they conclude that “bonus depreciation raised eligible investment by 17.3 percent on average between 2001 and 2004 and 29.5 percent between 2008 and 2010.” This is more than double the effect that previous studies have found, which the authors attribute to the fact that previous studies excluded the effects on small and medium-sized firms.
Bonus depreciation — the ability to deduct 50% (formerly 100%) of the cost of new assets that would otherwise have to be depreciated or amortized — expired at the end of 2013. It may be revived retroactively after the elections.
I have my doubts that it makes as much of a difference as the study concludes. Still, when you have bonus depreciation, you give businesses an easy way to control their taxable income at year-end planning time, and in some cases it surely causes purchases that would otherwise be delayed or foregone.
Bonus deprciation has other consequences. By lowering the cost of capital investment it makes it easier to substitute machinery for labor — something minimum wage advocates ignore as they merrily price low-skill people out of the labor market with their good intentions.
Jason Dinesen, Things Tax Preparers Say: S-Corporation Compensation (Again!):
S-corporation owner hasn’t been paying himself a salary despite having large corporate net income, and despite taking large withdrawals of money from the corporation. Those withdrawals had always been called “shareholder distributions.”
On the owner’s personal return, all of the corporate net income was reported as ordinary income. He also makes contributions into an IRA.
There is no happy ending here.
Leslie Book, For Those Keeping Track: Preparers in the Spotlight (Procedurally Taxing):
TIGTA also recently released a report criticizing IRS’s failure to manage the flow of complaints relating to preparer misconduct. The TIGTA report, which did describe some progress IRS has made in its processing and review of potentially misbehaving preparers, also showed that IRS is not fully using the information it has to combat preparer misconduct. Juxtaposing that with the IRS’s efforts to expand its oversight through testing and education does not lead to a pretty picture and opens IRS up to criticism along the lines of the following: IRS has information and powers at its disposal; IRS is failing to use either properly; IRS should at least manage what it has before expanding powers and imposing costs on preparers and taxpayers
Of course, preventing misconduct and incompetence is only a pretext for preparer regulation. The real goal is to increase barriers to entry and the value of the nationwide tax prep chains. After all, they wrote the rules in the first place.
Andrew Mitchel, Payments to Foreign Contractor Entities: Form W-8BEN-E. You might need to be withholding from a vendor who gives you you one of these. You should always get a W-9 from your vendors; if they aren’t a U.S. person, they’ll have to give you a W-8 instead, alerting you to a possible withholding liability.
William Perez, What Is Alternative Minimum Tax?
Janet Novack, Retirement Rich List: 314 Have IRAs Averaging $258 Million Each, GAO Estimates. Naturally, the politicians want some of that.
David Brunori, $1 Billion Is the New Normal in the Incentives World (Tax Analysts Blog) “Nevada is giving $1.3 billion to a company that is essentially owned by a guy worth $12 billion.” And they’re taking it from a lot of Nevadans who aren’t worth $12 billion.
Sebastian Johnson, State Rundown 9/24: Tax Cuts, Tax Cuts and More Tax Cuts (Tax Justice Blog). To The TJB folks, that’s considered bad news.
Cara Griffith, Taxing the Cloud (Tax Analysts Blog). “Interestingly, of nine states that have recently issued administrative guidance on the taxability of cloud computing services, only two have found the services taxable. The remaining seven have determined cloud computing is not taxable.”
TaxProf, The IRS Scandal, Day 504. Today’s scandal roundup features 500 Days After IRS Scandal Broke, Reporter Still Refuses To Pay His Taxes:
500 days later, the IRS still hasn’t produced emails from Lerner and the more than 20 other IRS employees whose computers allegedly crashed, whose Blackberries were thrown away and “upgraded,” and, in Lerner’s case, whose hard drive was “scratched” and destroyed. But we know that Lerner exchanged confidential taxpayer information on conservatives with top White House adviser Jeanne Lambrew during the 2012 election cycle. We know that Lerner and her White House-visiting underling Nikole Flax were involved in a “secret research project” involving conservative donor information that was approved by then-IRS commissioner Steven T. Miller. President Barack Obama first called the whole thing “outrageous.” Then he said there’s “not a smidgen of corruption.”
The reporter who isn’t paying his taxes better be putting the money aside, and then some, as he surely will pay them, with penalties and interest.