Tax Roundup, 5/16/17: The perils of do-it-yourself tax prep. Also: State taxes and sports success, more in the links!

May 16th, 2017 by Joe Kristan

Blame the preparer? Wait, that’s me! I’ve tried to do plumbing myself. I have learned that it is cheaper in the not-very-long run to pay a plumber.

An insurance consultant learned a similar lesson about tax preparation in Tax Court last week. His client specialty was accountants. Whether out of thrift or because he didn’t want to be seen playing favorites, he used TurboTax. It went badly in Tax Court.

The taxpayer claimed disallowed deductions for alimony and for a net operating loss. The court determined that he reported too much Alimony, and that he whiffed entirely on the NOL. The deficiency was big enough to bring the 20% “accuracy related” penalty into play. Judge Holmes considers the issue:

The burden then swings to [the taxpayer] to show that his mistakes were reasonable and in good faith. See sec. 6664(c)(1). He cannot. He admitted during trial that he deducted items he shouldn’t have, and that he overstated certain losses. He tried to blame TurboTax for his mistakes, but “[t]ax preparation software is only as good as the information one inputs into it.” Bunney v. Commissioner, 114 T.C. 259, 267 (2000). We therefore find for the Commissioner on this issue.

While the decision doesn’t say what the penalty amount is, it is no less than $1,000, and is probably well over that. That money might have been better invested in an actual accountant who would understand what a net operating loss is.

The Moral? As it ever was, garbage in, garbage out. And cheap tax preparation is often the most expensive kind.

Cite: Bulakites, T.C. Memo. 2017-79

 

 

Today’s Links:

Kristine Tidgren, First-Time Homebuyer Savings Accounts Are Coming to Iowa (Ag Docket):

The benefit of the new law is that account holders may exclude from their Iowa adjusted gross income (AGI) yearly deposits into FTHSAs in amounts up to $2,000 a year. Married taxpayers who file a joint return may exclude up to $4,000 a year if that money is deposited into a joint account. These exclusion amounts will be adjusted yearly for inflation. Yearly interest earned on these accounts is also excluded from Iowa income.  Individual account holders may not exclude from income more than $20,000 in FTHSA deposits during their lives. Although there are limits to the amount of deposits that may be excluded from an account holder’s income, there is no limit to the amount of non-tax-preferred deposits he or she may make to an FTHSA.

Let the games begin.

 

Robert D. Flach has a fresh Buzz roundup!

Russ Fox, Do You Need a License to Sell Bitcoins?. “Do I need a license to sell Bitcoins to a friend? The answer is likely no. But if I go into the business of selling Bitcoins the answer appears to be yes.”

TaxGrrrl, Anonymous Coinbase Users Seek To Intervene In IRS Efforts To Access Bitcoin Info

Jason Dinesen, Glossary: Non-Deductible IRA Contributions

Kay Bell, Tax audit lessons from ‘Mom’ on, of course, Mother’s Day. “You don’t see the connection? Then you missed the season finale last week of the CBS show ‘Mom.'”

Robert Wood,How IRS Audits Can Become Criminal Investigations. “Many big, messy and expensive tax disputes come down to trying to morph personal into business to get a write-off.”

Jack Townsend, New DOJ Charging and Sentencing Recommendation Guidance. “The perceived evils giving rise to the new guidance do not seem present in most tax crimes cases.” But they may apply anyway.

Carl Smith, Taxpayer Who Detrimentally Relied on IRS Erroneous Filing Information Properly Tossed from Tax Court (Procedurally Taxing)

Mike Feehan, Aetna out. Who’s still in? Anyone? Anyone? “It’s not like Aetna hasn’t been warning of doing exactly this, and for pretty much the same reasons, for months – many months, years even.”

TaxProf, Grewal:  Congress Handcuffs The IRS. Quoting the University of Iowa tax law professor: “Nonetheless, the IRS may face hardships, because its funding remains significantly below its 2010 level ($13.6 billion) while its responsibilities have greatly expanded in recent years, especially because of the Affordable Care Act.”

Roberton Williams, Caught Again By The AMT (TaxVox). “I wrote a big check to the IRS last month, but that’s not what bothers me. I don’t like having to calculate my taxes twice with two sets of complex tax rules. And no matter what I do, short of getting a huge raise or quitting my job, I’m stuck on the AMT.”

Roger McEowen announces his Summer Farm Tax/Farm Estate and Business Planning Conference. If you can’t make it to Sheridan, Wyoming, the conference will be webcast.

Lew Taishoff, LEW. “CSTJ Peter (“Modesty”) Panuthos is stepping down as Boss of the small judges of the small court, effective 9/1/17. He has served for twenty-five (count ‘em, twenty-five) glorious years as Chief, out of a total of thirty-four years on the USTC bench.”

 

 

TaxProf, Higher Taxes Lead To Consistently Worse Results In MLB, NBA, NFL, And NHL. Quoting a study by Erik Hembre, University of Illinois at Chicago:

Results of the analysis [Income Taxes and Team Performance: Do They Matter?] show that higher taxes consistently predict worse performance in every league — not just the N.B.A. but also Major League Baseball, the N.H.L., and the N.F.L. over the past 20 years. The findings do not change if I use championships or finals appearances instead of regular season wins, and no single city, team or year drives the results.

Taxes matter. They aren’t everything, but they are a thing.

Peter Reilly,Mississippi Taxing – Nuclear Power And Accusations Of Racism. “After nearly thirty years, the claims of racial bias still have not gotten a hearing.”

Dylan Grundman, South Carolina’s Gas Tax Deal: Could Have Been Worse, Could Have Been Better (Tax Justice Blog). “South Carolina lawmakers this week raised the state’s gas tax for the first time in 28 years, a time period that tied for the third-longest in the nation.”

Scott Drenkard, Tom VanAntwerp, How Stable is Cigarette Tax Revenue? (Tax Policy Blog). “Across almost all states, tax rate hikes are met with a momentary bump in revenue, followed by a falloff in collections in future years.”

Annette Nellon, 10th Anniversary Blog Post. Congratulations, Annette!

 

Career Corner. What’s Your Job Search Plan?  (Marsha Leest, Going Cconcern)

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Long weekend.

May 15th, 2017 by Joe Kristan

The Tax Update took a long recreational weekend. See you tomorrow, and don’t forget that calendar-year 2016 unextended Forms 990 are due today!

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Mothers Day Weekend Roundup

May 13th, 2017 by Joe Kristan

Mom likes fresh flowers and the Tax Prof’s Weekly Tax Highlight And Roundup of Tax Update links!

 

Have a great weekend!

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Tax Roundup, 5/12/17: Iowa gets 2016 tax law, winds up 2009 film credit scandal. Plus links!

May 12th, 2017 by Joe Kristan

Iowa has a 2016 Tax Law. The Governor yesterday signed HF 608. The bill formally uncouples Iowa’s 2016 tax law from federal 2015 tax law changes, except for sparing the refundable Iowa research credit. Iowa’s filing deadline was only 10 days ago, so it’s quite timely. Prior coverage:

New Iowa Sec. 179 uncoupling guidance hits non-Iowa partnerships.
Iowa’s guidance on 2016 return uncoupling: Section 179 and bonus depreciation.
Second thoughts on Iowa pass-through Sec. 179 guidance?
Superseded version of Iowa pass-through guidance
Iowa updates, changes Sec. 179 pass-through guidance;
Open questions on Iowa Sec. 179 uncoupling
Iowa’s first uncoupling guidance.
Iowa guidance on 2016 return uncoupling: IRA charitable distributions
Iowa guidance on 2016 return uncoupling: S corporation built-in gains and contributions

The End. The last criminal case arising out of the 2009 collapse of the Iowa Film Tax Credit program ended in an acquittal yesterday. The Des Moines Register reports:

The “not guilty” verdict caps a criminal case against Dennis Brouse, who produced and starred in a television show about horse training for public television, that was sent back to a district court twice by judges on the Iowa Court of Appeals for new trials due to issues with evidence and a faulty jury instruction.

Brouse stands cleared of all the charges he once faced and Assistant Iowa Attorney General Rob Sand said that there are no more active investigations focused on the filmmaker. 

One filmmaker was convicted in a jury trial for fraud connected with the program. The former film office director was convicted of felonious misconduct in office, though there was no indication he profited from the program.

The real scandal of the film program, though, wasn’t the crime. It’s what was legal, or at least not criminal. The state auditor’s report on the program remains the key reference document on the disastrous film subsidy initiative.

The report shows that Mr. Brouse’s production company, Changing Horses, was issued tax credit certificates for $4,012,375.50. The report said that only $45,628.38 of the certificates — 1.13% — should have been issued. The credits were “transferable,” so they were resold to taxpayers with Iowa tax liability. In effect, the program allowed beneficiaries to factor state tax receivables at a discount.

The report tells of how credits were claimed for inflated “in-kind” expenditures:

According to a Kent Feeds representative we spoke with, Mr. Witter [a film credit middleman] initially approached the company to determine if they were interested in purchasing tax credit certificates. When Kent Feeds declined, they were asked if they would be interested in sponsoring a project for Changing Horses. Kent Feeds agreed and a contract was prepared and presented to the company which included a value of $1,000,000.00 for the sponsorship.

According to the Kent Feeds representative, they declined to sign the contract for the first project which included the $1,000,000.00 value. The representative stated he told Mr. Witter the amount was grossly overvalued and they would not sign the contract. After the value was removed, Kent Feeds signed a contract which did not include a value for the sponsorship.

Credits were claimed and issued based on the $1 million value anyway.

The film credit program is long-dead, but dozens of other Iowa economic development tax credits survive. If you think the state should be allocating investment capital through tax credits, the film credit program might cause you to think again.

Prior film tax credit scandal Tax Update coverage: 

BUY THEM A BENZ AND THEY WILL COME!

AUDITOR REPORT: MILLIONS OF REAL TAXPAYER DOLLARS PAID FOR IMAGINARY FILM EXPENSES

 

 

Today’s Links:

Russ Fox, The TurboTax Defense Fails Again. “If your tax return has only W-2 income and, say, mortgage interest and property tax, TurboTax will likely do an excellent job. If you have a divorce settlement with a restatement of the amount of alimony due, interest tracing, and a Net Operating Loss carryforward, it might pay to get some expert help.”

Roger McEowen,  Like-Kind Exchanges, Reverse Exchanges, and the Safe Harbor. “Several years ago, the IRS established a ‘safe harbor’ for such exchanges, but recently the U.S. Tax Court said that a transaction that wasn’t within the confines of the safe harbor still qualified for tax deferral.”

James Comey, call your office. 5 moves — and 7 tax tips! — to make if you’re fired (Kay Bell)

TaxGrrrl,The Vegan Fugitive, Done In By Domino’s Pizza, Takes A Plea. “Sometimes you just want pizza.”

Lew Taishoff, BELT, SUSPENDERS AND CRAZY GLUE. “These might get you into Tax Court, but once you’re there, you’d better have paper as well.”

Jim Maule, Taxes, Strip Clubs, and Creativity. “The club argued that its dancers were providing therapy to its customers, and thus the amounts charged fit within the sales tax exception that applies to amounts paid for massage therapy or sex therapy.”

 

 

Gavin Ekins, Economic Growth and Cutting the Corporate Tax Rate (Tax Policy Blog). “Economic theory from the time of Adam Smith has shown that taxes stifle the incentive for individuals to work, take risks, and buy and sell goods and services. Rather than revisiting whether taxes affect economic behavior, research should focus on quantifying the tax burden on businesses and individuals, and the extent to which each type of tax affects economic incentives.”

TaxProf, Tax Policy In The Trump Administration. A roundup.

Meg Wiehe, State Rundown 5/10: Spring Tax Debates at Different Stages in Different States (Tax Justice Blog). “This week saw a springtime mix of state tax debates in all stages of life. In West Virginia and Louisiana, debates over income tax reductions and comprehensive tax reform are full of vigor.”

Leslie Book, ABA Tax Section Preview: Panels of Interest, Appeals Comments and Olson Wins Distinguished Service Award

 

News from the Profession. Former Deloitte Employee Sentenced for Attempted Murder (Caleb Newquist, Going Concern). “Deloitte fired Fowler in 2015 after discovering that he used his company credit card to ‘pay for family vacations and buy thousands of dollars’ worth of gift cards.'”

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Tax Roundup, 5/11/17: New Iowa break for first-time homebuyer savings accounts. Also: cigs, fleeing jaywalkers!

May 11th, 2017 by Joe Kristan

The opposite of Iowa tax reform. While the leadership of the Iowa General Assembly talked much of tax reform in the recently ended session, they accomplished the opposite. We have discussed the uncoupling of the Iowa’s tax law from 2016 federal changes passed in HF 608. Anything that makes different rules apply in computing Iowa taxable income increases complexity.

Until now I had missed another step backwards. Governor Branstad this week signed SF 505, creating a new tax-advantaged “First-Time Homebuyer Savings Account.” The bill allows a $2,000 annual deduction starting in the 2018 tax year for deposits to designated FTHSAs on Iowa 1040s ($4,000 for married filers). Interest will be tax deferred. Withdrawals, including interest, will be tax-free to the extent they are used by a “first-time homebuyer” to buy a house in Iowa.

Weirdly, there is no requirement that somebody actually be a first-time homebuyer to set up such an account. You do need a “designated beneficiary” for such an account who is a “first-time homebuyer,” meaning an Iowa resident who hasn’t owned a house for three years. If you qualify, you can name yourself as a designated beneficiary.

There is a catch. If no home is purchased within 10 years, the account is considered distributed and is taxable to the contributor.

The obvious game. Let’s say I’m a 56 year-old married accountant with an Iowa son who doesn’t own a home. My wife and I can designate him as a qualified beneficiary and deduct $4,000 annually in contributions to a FTHSA account. Preferring apartment life, or maybe non-Iowa life, no Iowa home is purchased. Meanwhile, at age 65, Married Accountant and Spouse retire and move to Florida. At Age 66 the couple are treated as having withdrawn the $40,000 in contributed funds.

At that point the couple’s income is way down. Even if the Iowa is considered Iowa-source (and the interest may not be), it will get a run up the tax brackets for each spouse, and therefore will be taxed at lower rates than the rates at which it was deducted. The couple has been saving hundreds in Iowa taxes every year in the meantime. When people figure this out (Shh! It’s a secret!), it could get surprisingly expensive for the state.

Other problems. Everything has to be Iowa. The beneficiaries have to be Iowa residents, so it’s not useful in luring prodigal Iowans back home. It can only be used to buy an Iowa house, so it’s no use for parents with kids who go elsewhere to find their fortunes. It’s only useful to people who have extra cash, so it will disproportionally benefit high-income taxpayers.

Then there are the obvious compliance problems. How will the bank know that the designated beneficiaries are actually Iowans? What if they move away – how will the bank know? Will the banks be effective in tracking the 10-year date and reporting the required termination? How will the Department of Revenue oversee this with its limited resources?

It’s really an inefficient, and probably ineffective, tax subsidy for the Iowa single-family home industry. And, of course, for 56 year-old accountants with qualifying beneficiaries. Useless or not, it will have defenders when tax reformers try to broaden the tax base and lower rates for everyone else, making tax reform that much harder.

Other coverage:

O. Kay Henderson, New state tax credit created for first-time homebuyers. It’s really a deduction, not a credit. From the article:

The bill easily cleared the legislature, but there was one “no” vote in the Senate. In the House, 11 Democrats voted against it. Representative Mary Mascher, a Democrat from Iowa City, said the state already forgive more than $400 million in taxes this year because of already-existing tax credits.

Good tax policy gets 12 votes out of 150.

 

Today’s Links:

Morgan Scarboro, How High Are Cigarette Taxes in Your State? (Tax Policy Blog)

As the color gradient between states is bigger, expect a bigger smoke smuggling industry.

 

Peter Reilly, Chicago Loses $29 Million Appeal By Expedia And Other Online Travel Companies

Jack Townsend, Government FBAR Willful Penalty Suit Survives Motion to Dismiss. “Apparently in the mix, however, was whether the FBAR willful penalty violated the 8th Amendment’s Excessive Fines prohibition.”

Christie Johnston, 5 Considerations for CPA Firms When Prioritizing Work (Thomson Reuters Tax & Accounting Blog).

Lew Taishoff, CLOSING THE CASE. “Remember Eugenio, a former contestant in the Taishoff no-prize ‘best excuse’ competition?”

 

Andrew Mitchel, 2017 First Quarter Published Expatriates – A Total of 1,313

Image by Andrew Mitchel LLC.

That many fewer jaywalkers to shoot.

 

TaxGrrrl,Buffett Says U.S. ‘Out Of Whack’ On Healthcare More Than On Taxes. Buffett-controlled utilities are big users of wind farm tax credits, so the system works just fine for him.

Leslie Book, District Court Grounds NetJets’ Refund Suit (Procedurally Taxing). “Being right on the merits is not enough.”

TaxProf, Hemel:  How The States Can Make President Trump’s Taxes Public. Trump’s tax returns are this administration’s true birth certificate.

Carl Davis, Gas Taxes Increases Continue to Advance in the States (Tax Justice Blog).

Kay Bell, Seattle’s mayor adds diet drinks to beverage tax proposal in response to demographic disparity concerns. Demographic disparity made me do it!

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Tax Roundup, 5/10/17: Another 8th Circuit ESOP debacle. Links: Reynolds tax policy, more!

May 10th, 2017 by Joe Kristan

Still dead. The Eighth Circuit Court of Appeals has seen more than its share of cases involving Employee Stock Ownership Plans. That’s because Iowa is in the Eight Circuit, and Iowa was the home of practitioners whose creative use of ESOPs often led to unfortunate tax results.

The Eighth Circuit yesterday upheld another bad ESOP, in a case involving a Kansas orthopedic surgeon. The ESOP had an Iowa address, so we can add it to the roster of bad Iowa ESOPs.

The Tax Court had disallowed the ESOP on the grounds that it allocated shares to an owner with no compensation – a violation of the plan document – and that it failed to get the required annual appraisals. Either item standing alone is enough to disqualify the ESOP.

The Eighth Circuit opinion is strange in that the ESOP cited documents that were not in the Tax Court record to show that the prohibited allocation to the no-compensation participant was not actually made. The Eighth Circuit ignored them:

In support of these assertions, the ESOP cites documents included in its Appendix that were not part of the parties’ stipulated administrative record in the Tax Court. Therefore, these documents are not part of the record we may consider on appeal to this court.

The ESOP was the party in control of the relevant documents, and it had failed to submit those documents in response to the IRS’s request at the start of its investigation. In these circumstances, the Tax Court did not clearly err in basing its findings of fact on the IRS’s uncontested Explanation of Items. Those facts established that DNA’s 2008 contribution to Dr. Prohaska’s ESOP account substantially exceeded the § 415 contribution limit for that year. Thus, the ESOP was not a § 401(a) qualified plan.

This seems very strange. If you have documents that might save your case, where were they all this time?

Even if the documents would have bailed out the ESOP, there was still the problem of the lack of appraisals. The appeals court didn’t consider that issue because the ESOP was already dead. The briefs did, though, and an Iowa practitioner involved in other disqualified ESOPs makes an appearance. The ESOP’s brief says that “Steven” Thielking actually did do appraisals and that they should be considered qualified. The government brief says that since the appraisals were never provided in Tax Court, they can’t be used in the appeal.

Stephen Thielking was indicted last year on charges of illegally using ESOPs to reduce client taxes. He died before trial and the charges were dismissed. I assume that this is the same person whose name is spelled “Steven” in the briefs.

The Moral? ESOPs are tricky, and one technical violation can blow the whole thing. While useful in the right circumstances, they require an expensive commitment to meticulous plan compliance. Avoid indicted ESOP service providers. And if your ESOP gets examined, don’t wait until you get to the appeals court to produce the documents that save your bacon.

Cite: DNA Pro Ventures Employee Stock Ownership Plan(CA-8, Case No. 16-1168)

 

 

Today’s Links:

Kathie Obradovich, Reynolds could forge new path on taxes, worker training:

On tax reform, Reynolds seems increasingly prepared to stand up to anti-tax organizations that have long protected a popular but counterproductive tax exemption. That’s federal deductibility, or the deduction of taxpayers’ federal tax payments from their state income-tax returns.

“It’s come a long ways from where I started when I was county treasurer, where it was untouchable,” Reynolds said of the federal deduction.

I think the deduction will go away. The real question is whether the new governor will go after the big tax credits and other breaks that stand in the way of fiscally-sound rate reductions.

 

Jared Walczak, North Carolina Set to Post Another Large Budget Surplus (Tax Policy Blog). “North Carolina will post a substantial budget surplus for a third year in a row, at a time when an estimated thirty-one states are grappling with budget shortfalls.”

Opponents of Iowa tax reform efforts cite the Kansas fiscal trainwreck as reason to do nothing. North Carolina shows how to achieve tax reform with good fiscal results.

 

Jason Dinesen, Basics of the Iowa Pension Exclusion, Part 2. “When married taxpayers file separate tax returns, the $12,000 pension exclusion might need to be allocated.”

Kay Bell, A tax break gift for educators on National Teacher Day. But not on Iowa returns.

TaxGrrrl, The EB-5 Visa: United States Citizenship For Sale?

Robert Wood,Contingent Fee Tax Advice: IRS Allows Some, Not All. “In regulations known as Circular 230, the IRS says that a practitioner cannot charge a contingent fee for services rendered in connection with any matter before the IRS, with three exceptions.”

Peter Reilly,Marijuana Retailer Not Protected From IRS Summons. “Although you might read that Washington and Colorado have ‘legalized’ marijuana, that is not strictly true.”

Chi Chi Wu, FDCPA’s Application to IRS’ New Private Debt Collectors (Procedurally Taxing)

Roger McEowen, The Necessity Defense To Criminal Liability. “Sometimes, however, conduct that would otherwise constitute a crime is not because it is deemed necessary.  That’s an issue that sometimes arises in agriculture.”

Howard Gleckman, Trump Didn’t Disclose His Preferred Tax Brackets. Here’s Why It Matters. (Tax Vox) “And that feature can be enormously important to the cost of those rate cuts and their distribution among households of different incomes.” I believe distributional outcomes get way more attention than they should.

Career Corner. How to Get Ahead: Sorry Not Sorry (Adrienne Gonzalez, Going Concern). “If the goal is to be more confident and less wishy-washy in your communication, I’m not entirely sure asking someone to call you out for no-no words is the way to go about it.”

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Tax Roundup, 5/9/17: No put backs once you’re in Tax Court. Links include Buzz, tax reform, accounting careers!

May 9th, 2017 by Joe Kristan

It’s hard to get to Tax Court in 60 days. The tax law wants people who put money into Individual Retirement Accounts to leave it there until they actually retire. That’s why there is a strict 60-day limit on how long you can have money out of an IRA before re-contributing it; if you go past the 60 days, you create a taxable distribution.

A Rhode Island man made $24,000 in deductible contributions to his IRA over time. In March 2012 he became dissatisfied with an investment made by his IRA broker and withdrew the funds, which had grown to $56,889.95. As the money wasn’t rolled into another IRA in 60 days, the IRA custodian issued him a 1099-R showing a taxable distribution.

The taxpayer didn’t report the income on his 1040, and the IRS computers caught up with him. He made an unusual offer in Tax Court, as Judge Ashford explains (my emphasis):

Petitioner conceded at trial that the $24,000 he contributed to his IRA and included in the 2012 distribution is taxable. Implicitly he acknowledged that his contributions to the account were deducted during the years that they were made, pursuant to section 219(a). However, he questioned the taxability of the balance and indicated he was willing to repay that amount to a new IRA he could open (or to an IRA he had recently opened with Bank of America).

OK, I’ll put the income back now, and will let 2012 bygones be bygones. By the time the taxpayer was in front of the judge, though, more than 60 days had passed since 2012, so that didn’t work.

So the taxpayer tried another route:

Petitioner also testified that after receipt of the funds, he sent some of the funds to his son to pay the balance on a student loan and that some of it remained in a checking account.

And the point is? Or, as the Judge noted:

Subsequent use of the distribution is irrelevant in this case.

Decision for IRS, with penalties.

The moral? By the time your IRS problem has made it all the way to Tax Court, it’s a little late to solve the problem by returning the income.

Cite: Hung-Liang Lynn Lin, T.C. Memo 2017-77

 

 

Today’s Links:

Robert D. Flach serves up fresh Tuesday Buzz, rounding up items he finds worthwhile. Links include analysis of the House-passed AHCA bill and things non-spouse IRA beneficiaries should know.

TaxGrrrl, Tax Deadline Nearing For Many Tax-Exempt Organizations. “Small tax-exempt organizations with average annual receipts of $50,000 or less have the option of filing a form 990-N, or the e-Postcard.”

Robert Wood, Reverse Immigration: How IRS Taxes Giving Up Green Cards. “Giving up a Green Card can involve an unpleasant tax surprise”

Stephen Olsen, New Estate Tax Lien Discharge Procedures — Give the IRS All the Monies (Procedurally Taxing). “The new provisions appear to force prepayment of tax, or at least handing over the funds, in exchange for the discharge of the lien in a broader range of situations, potentially creating a significant hardship for estates.”

Kay Bell, Trump’s continued weekend travel, NYC home security costs raise more tax questions. “The consensus in this case is that, for many reasons, Trump wouldn’t get any tax benefit for picking up the tab for any of his added travel and family security costs.”

Lew Taishoff, FROM COAST TO COAST. “Apparently New Jersey’s real estate tax assessors fall short of the mark in Tax Court, but Los Angeles’ valuations are right on the money.”

 

 

Jeremy Scott, The Clock Is Ticking for Tax Reform (Tax Analysts Blog):

The administration has now put some political capital on the line, and it’s reiterated to Congress the parts of tax reform that are most important to it (the 15 percent corporate rate and the doubled standard deduction, for example). Also, by not endorsing the destination-based cash flow tax, Trump sent a powerful message to House members who have pushed it. He’s given GOP opposition to the cash flow tax even more reason to force House Speaker Paul Ryan and Ways and Means Chair Kevin Brady to abandon the complicated plan in favor of a simpler rate cut.

It’s hard to see how the Ryan border adjustable cash flow tax can go anywhere unless the President signs on.

Joseph Henchman, Ted Olson Misses the Mark on Analysis of DBCFT Constitutionality (Tax Policy Blog). “In The Washington Post, former Solicitor General Theodore Olson argues that a border adjustment would be unconstitutional as a direct tax not apportioned by population and not categorized as an income tax.”

Dianne Ring, Macron and the Potential Future of Tax Leaks (Surly Subgroup). “Apparently, two hours before the debate, documents were anonymously posted on an internet forum that purported to include Macron’s signature and to show that he had a Bahamas bank account.”

 

Megan Randall, Massachusetts gave GE a “mega-deal” to move, but did it matter? (Tax Vox). “Tax incentives are alluring to policymakers because they usually have a higher short-term political return than long-term policies like investments in education or infrastructure. These latter investments and the Boston labor force, however, are likely part of what made Boston an attractive option for GE.”

Aidan Russell Davis, EITC Victories Await in Both Hawaii and Montana (Tax Justice Blog). “In the past two weeks, lawmakers in both Hawaii and Montana passed EITC legislation, which governors in both states are expected to sign.”

 

Career Corner. The State of Accounting Recruitment and Talent Shortages in 2017 (Adrienne Gonzalez, Going Concern). “If I were a high school student right now with a deep desire to feel needed and never run out of job prospects, I’d be seriously considering a career in accounting right now.”

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Tax Roundup, 5/8/17: New Governor – new tax policy? Links on gambling losses, IRS budget, more!

May 8th, 2017 by Joe Kristan

Governor Reynolds and Iowa tax reform. Iowa Governor Branstad is likely to be confirmed as Ambassador to China shortly, so we get a new Governor soon — or, says the Iowa Attorney General, a Lieutenant Governor with a second job.

Whatever her formal status, Lieutenant Governor Kim Reynolds will then get the big office and the veto pen. She told a business group last week that she is ready to push tax reform in next year’s General Assembly session. Rod Boshart reports:

“There’s no doubt that we can do better when it comes to our tax structure,” Reynolds told about 450 Iowa business leaders at the annual Smart Economic Development Conference. “It’s a big piece of the puzzle in the overall cost of doing business calculations that site selectors and business-decision makers use when they’re comparing states.”

As Lieutenant Governor, there has been no evidence of any difference between her views and those of Governor Branstad. The big question is whether that will change once Mr. Branstad is safely packed off to China.

The Branstad administration has always been partial to tax credits. Its economic development arm is big on the refundable research credit. Tax breaks by the millions were used to subsidize a big fertilizer factory in Southeast Iowa. The problem with that is that these credits and “jobs” are paid for by the rest of us. If your business doesn’t happen to be in an industry favored by Iowa’s tax code, you just get the high rates.

I hope the incoming Governor will look to cut special tax favors in favor of a simpler system with lower rates to those without the pull to swing special tax credits. I hope she looks for guidance to the Tax Foundation’s excellent report “Iowa Tax Reform Options,” which lays out a series of revenue-neutral ways to improve Iowa’s business tax system. My favorite, “Option A,” results in a flat individual rate of 5.15% and a 6.5% top corporation rate. That compares to the current 8.98% current top individual rate and the highest-in-the-nation 12% corporation rate.

Related:

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan

IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

Today’s Links:

Roger McEowen, Special Use Valuation and Cash Leasing:

The only major exception to the willing buyer/willing seller test is special use valuation of land used in a farming or ranching business. I.R.C. § 2032A.  Special use valuation allows the executor of an estate to make an election on the estate’s return to elect to value real property devoted to farming or ranching (or other closely-held businesses) at its special use or “use” value rather than its fair market value.  This valuation provision, however, cannot reduce the gross estate by more than $1,120,000 (for 2017). 

But “Cash leasing can cause problems.”

Russ Fox, No, The Law Hasn’t Changed: Professional Gamblers Cannot Deduct Gambling Losses in Excess of Wins. “Is it fair that a professional gambler is held to a different standard than anyone in a different profession? Definitely not. However, it’s the law; until Congress changes it I can take a Net Operating Loss if my business loses money but a professional gambler cannot.”

Jason Dinesen, Basics of the Iowa Pension Exclusion, Part 1. “Tax law in Iowa allows some people who are receiving retirement benefits to avoid taxation on some or all of those benefits.”

Peter Reilly,Spotlight On Charitable Foundation Abuse. “I was thinking of adding that to Reilly Laws Of Tax Planning, but it think it is probably covered well enough by the Thirteenth Law (When an idea makes you think of a Seinfeld episode, it is not going to end well).”

TaxGrrrl,Taxes, Not Tequila: What You Should Know About Cinco De Mayo

Kay Bell, How does your state and local tax deduction compare? “If you’re like me, you’re probably spending your Sunday perusing the possibilities for tax code change under the Trump Administration’s recently announced plan.” Boy, am I ever not like Kay.

Jack TownsendLawyer, Alleged Offshore Account Enabler, Loses Motion to Dismiss Indictment. “I have previously written about Michael Little, a British and U.S. lawyer and U.S. permanent resident, who was indicted for enabling offshore evasion for U.S. taxpayers.”

Jim Maule, Judge Judy Tells Litigant to Contact the IRS.

Lew Taishoff, NO GOOD DEED. “Remain vigilant. Especially when trying to do a good deed.”

 

 

Joseph Henchman, Budget Deal Includes IRS Changes (Tax Policy Blog):

Section 103 addresses an ongoing challenge for the IRS. After flimsy IRS website security allowed thieves to steal the identities and tax refunds of 100,000 taxpayers, they swung to the other extreme and slow-walked 1.8 million returns last year until identities were verified manually. The National Taxpayer Advocate praised the identity theft team for finally tackling the problem but suggested they be able to make suggestions beyond digital infrastructure, and that taxpayers flagged for further verification be assigned one case manager to work with (rather than getting someone new every time they call).

The ID theft problem was diminished this year. I’d rather my refund be “slow-walked” then stolen, with all of the paperwork nightmares that entails.  That’s why I don’t mind this year’s Iowa refund delays. It will help more when we get past the idea that a big refund is a good thing, and when the tax law is less inclined to penalize taxpayers with a balance due.

Leslie Book, Ways and Means Committee Hearing on 2017 Tax Season Highlights Progress and Challenges (Procedurally Taxing). “The GAO testimony, while also noting many of the IRS successes such as reduced telephone wait time, looked to the challenges, including the somewhat surprising statement that even with the PATH acceleration of W-2 filing deadlines, IRS did not verify the wage information on about 2/3 of the EITC returns it received.”

Steven M. Rosenthal, Is Tax Parity for Pass-through and Corporate Businesses Main Street Fairness? (TaxVox).  “Could we limit the lower rate to actual Main Street businesses, like grocers, barbers, car dealers, and restauranteurs, and exclude large businesses, real estate developers, investment managers, lawyers, and lobbyists?  Not really. There is no principled or practical way to separate ‘main street’ businesses from others.”

Sam Brunson, About the ACLU’s [Update: FFRF’s] Challenge to the Promoting Free Speech and Religious Liberty EO (Procedurally Taxing). “Leaving aside the question of whether this EO actually does anything substantive, it’s worth remembering that any judicial challenge to the executive order faces two significant hurdles: standing and administrative discretion.”

Tax Justice Blog, Key Resources for Digging into the Trump and GOP Tax Reform Agenda. A left-side roundup.

Because it doesn’t pay well? Why Don’t White Supremacists Pay Taxes? (TaxProf).

 

News from the Profession. Cyber Espionage Is a Thing You Should Start Worrying About (Megan Lewczyk, Going Concern)

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Get outside roundup!

May 6th, 2017 by Joe Kristan

Finally, a nice weekend! Cycle down to your favorite coffee spot and enjoy the TaxProf’s Weekly Tax Highlight And Roundup of Tax Update links for the past week.

 

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Early weekend

May 5th, 2017 by Joe Kristan

The Tax Update is taking today off.

Check in tomorrow for the TaxProf’s weekly roundup of Tax Update links before heading  to the first Downtown Farmers Market of the season. Have a great weekend!

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