IRS issues Applicable Federal Rates (AFR) for August 2015

August 1st, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-16) the minimum required interest rates for loans made in August 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.48%

-Mid-Term (loans from 3-9 years): 1.82%

-Long-Term (over 9 years): 2.82%

The Long-term tax-exempt rate for Section 382 ownership changes in August 2015 is 2.82%.

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

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Kiitos, Finland, and Danke, Germany.

July 31st, 2015 by Joe Kristan

20150731-1I’m back in the office today after a terrific vacation trip to Finland and Germany to visit two of our old exchange students. The trip included stops in Sweden, Belgium, Luxembourg, and Austria. Estonia had been on the agenda, but the schedule with our friends there didn’t work, so we took  an extra day in Finland. The trip included a visit to the U.S. military cemetery in Henri-Chappelle, Belgium, to decorate the grave of my dad’s first cousin and childhood partner in crime. That was a great experience, but one I’ll recount in another blog.

I’ll fire up the Tax Roundups on Monday, after I get a chance to clear the vacation debris out. Please indulge me in a few observations from my visits — which I offer knowing that you can’t really “know” a country in a short time.

Finland might be the easiest country other than Canada for U.S. tourists to negotiate. Nearly everyone there speaks fluent English, including grocery store checkers in country towns, and in a way that is easier to understand than the English spoken in Ireland and Scotland. Not just in Helsinki, either. Our hosts took us to their family cottage near Mikkeli, in countryside that is very much like that of Finland, Minnesota, and treated us to the famous Finnish sauna experience (sorry, no pictures). I’m not sure I really “get” the sauna experience, but I certainly enjoyed the anteroom of the heat chamber, where you pour cold water on your outside and cold beer on your inside.

Germany seemed much like Iowa, but with narrower streets, faster freeways, more passenger trains, and harder words. I really want Autobahn speed rules imported to the U.S. Our hosts there were also delightful, feeding us wonderfully and taking us on day trips to the Bavarian Hills, Bodensee, and, unforgettably, Dachau.

As a tax nerd, I had to bring back some tax keepsakes:

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These Finnish receipts show 24% value added national sales tax on groceries (the right-side receipt) and Guinness at bar, and a 14% rate on other items at the bar. No, I can’t explain the different rates. But to an American, these are outrageous sales tax rates. And that’s on top of an income tax that applies its highest marginal rate of 31.75% (2014 rates) at 100,000 Euros — about $110,000. U.S. filers don’t hit that rate until they make over $186,000.

So in Finland, the universal welfare state is paid by universally high taxes. Everyone pays, not some rich guy. And politicians here who promise government benefits paid by somebody else are lying. Maybe they won’t have to pay for it, but you will.

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IRS issues Applicable Federal Rates (AFR) for July 2015

July 8th, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-15) the minimum required interest rates for loans made in July 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.48%

-Mid-Term (loans from 3-9 years): 1.77%

-Long-Term (over 9 years): 2.74%

The Long-term tax-exempt rate for Section 382 ownership changes in July 2015 is 2.74%.

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

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Tax Roundup, 7/6/15: Road-trip edition.

July 6th, 2015 by Joe Kristan

It’s vacation time. The family will be visiting our former exchange students in Finland and Germany, with a day trip to Estonia to visit a long-ago student visitor, and a few days to tromp through ancestral villages and war sites. That makes this the last regular tax roundup until month-end. I may post a few items while in Europe, but other than that, the wonderful Tax Nerds in the blogroll will keep you informed while I am gone.

Samantha Jordan, Scott Drenkard, Map of State Spirits Excise Tax Rates in 2015 (Tax Policy Blog):

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Interesting. Two states with no personal income tax have the lowest distilled spirits rates (zero), while another state with no income tax – Washington – has the highest. Iowa is sixth highest.

 

William Perez, New Rules for Deducting Repairs and ‘Maintenance. “It’s taking me an entire tax season to figure out how these new ‘repair regs’ work in actual practice.”

Russ Fox,  State Taxes Matter, Lesson #21. The math is easy for highly-paid athletes, or at least for their agents.

Tony Nitti, Is California’s State Tax Rate Impacting NBA Free Agency? “While Kobe may well shoulder a portion of the blame, there’s more to the decisions by Jordan, Aldridge, and Love to steer clear of L.A. than Kobe’s attitude and ball dominance; specifically, state income taxes. Even more specifically, California’s 13.3% state income tax, the highest in the nation by a large margin.”

 

TaxGrrl, Taxation Without Representation: Why We Celebrate July 4th.

InsureBlog, Obamacrushed! Ohio Small Employers to See Huge Premium Increases in 2016. Remember, it’s the “Affordable” care act.

Kay Bell, Congress looks to make NASCAR tax break permanent. And who deserves it more than an already prosperous entertainment industry?

Jason Dinesen, Marriage in the Tax Code, Part 12: Meet the Marriage Penalty.

Peter Reilly, Something Borrowed Makes You Blue – Student Debt And Joint Returns. “The collision of student loan debt and joint marital taxation relates to programs that have been designed to help debtors avoid default.”

Robert Wood, 10 Things To Know About Taxes On Legal Settlements. How the complaint and the settlement are drafted can make a big difference at tax time.

 

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TaxProf, The IRS Scandal, Day 785Day 786Day 787Day 788. IRS erases subpoenaed email backups, says there’s “no evidence” of bad intent. It’s either evil or incredibly stupid. I don’t think the “I didn’t mean it” defense works if regular people destroy documents that have been summoned by the courts.

No kidding. Who Benefits the Most from an Across-the-Board Cut in Individual Tax Rates?:

Just about every tax reform plan calls for cutting individual tax rates. But it turns out that a one percentage point across-the-board rate cut would benefit only about six out of 10 households. The biggest beneficiaries:  those with the highest incomes.

Why might that be? Oh, yeah:

Tax foundation Distribution of Federal Taxes in 2014

You would expect across-the-board tax cuts to benefit those who actually pay taxes, and that’s overwhelmingly the right end of the income distribution. Yet Mr. Gleckman considers this breaking news.

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Tax Roundup, 7/2/15: Lives, Fortunes and Sacred Honor Edition. And: why Iowa can’t have nice things.

July 2nd, 2015 by Joe Kristan

 

20150702-1Patriotism can be costly. The founders pledged “our Lives, our Fortunes, and our sacred Honor” when they voted for independence 239 years ago today. But not everyone is down for the “Fortunes” part.

A construction contractor in Florida leaned on patriotism to minimize taxes. The Tax Court takes up the story (citations omitted):

Petitioner became involved with certain organizations and individuals, such as the Patriot Network, We the People, and Richard Cornforth, that advocate tax avoidance and encourage actions to frustrate and delay the IRS’ collection efforts. He paid an annual fee to the Patriot Network for access to its Web site and for assistance with tax problems. Petitioner testified that he became convinced that Federal income taxes were “illegitimate” and that caselaw showed that individuals who had refused to pay taxes were prevailing in court.

That caselaw must be interesting. This sort of tax protest argument never actually works in avoiding taxes, though occasionally tax deniers can convince a jury that they actually believed this stuff enough to not be intentional tax criminals.

The taxpayer tried some legal incantations to help his patriotic cause:

On January 23, 2008, petitioner filed a notarized document entitled “Official Declaration of Domicile” with the Clerk of the Circuit Court, Volusia County, Florida. The document stated that petitioner did not believe himself to be a U.S. citizen but was rather “One of the People”, a “Florida [S]tate Citizen”, a “Sovereign”, and a “Man upon the land”. Petitioner filed this document at the suggestion of one of the tax-avoidance organizations.

20120531-2The “man upon the land” thing is a new one, to me. Unfortunately for our taxpayer, it didn’t work any better than the “One of the People” thing in Tax Court yesterday. He appears to have been a successful contractor, if the amount of taxes he was assessed is an indication, and the IRS probably noticed that there was no income being reported on the 1099s issued to him.

An examination got underway, and it went as well as you might expect, given the patriotic advice he was taking (my emphasis):

Revenue Agent Pritchard sent petitioner a letter dated April 24, 2009, stating that he had submitted Form 12153 prematurely, as no tax had been assessed yet. On May 6, 2009, Revenue Agent Pritchard sent petitioner a letter informing him that his arguments were frivolous and providing Code citations and IRS guidance pertaining to his filing requirements and respondent’s authority to impose and collect income tax. The letter specifically addressed promoters of tax-avoidance activities, stating: “These people base their arguments on legal statements taken out of context and on frivolous arguments that have been repeatedly rejected by [F]ederal courts.”

Nevertheless, at the suggestion of the aforementioned tax-avoidance organizations, petitioner continued to send letters to Revenue Agent Pritchard espousing similar arguments and often accompanied by Forms 12153. For example, with assistance from the Patriot Network, petitioner sent Revenue Agent Pritchard a letter dated May 13, 2009, threatening legal action against her and the United States. Petitioner also sent Revenue Agent Pritchard a letter dated July 14, 2009, “demanding that * * * [she] send * * * [him] a certified assessment of how * * * [she has] now came [sic] up with this alleged amount & the name of the person or persons preparing it”, and a letter dated October 23, 2009, and addressed to “Tax Collector” that requests a section 6320/6330 hearing and is accompanied by an attachment of materials that petitioner received from the Patriot Network

IMG_0216Lacking cooperation from the taxpayer, the IRS did things the hard way, backing into taxable income based on bank deposits and 1099s. The result was over $238,000 in taxes assessed over four years, plus interest and fraud penalties.

At some point after the taxpayer commenced Tax Court proceedings, lucidity overcame him:

Petitioner relied on the Patriot Network Web site during the early stages of this case. For example, petitioner followed the Patriot Network’s advice to file a request for admissions and a motion in limine to exclude from evidence the bank  records that respondent had obtained. However, petitioner testified that he subsequently realized he had made foolish mistakes “in trying to follow other people” and that he was trying to fix those mistakes. He hired an accountant to file late returns for 2008-11, and he testified that he would no longer be paying the annual fee to the Patriot Network.

That probably helped him establish business deductions that the IRS might not have otherwise allowed, but it didn’t undo his prior patriotism:

We commend petitioner for adjusting his behavior during the pendency of this case and for his considerable work in reconstructing largely accurate and very helpful summaries of his business income and expenses for the years at issue. However, we cannot discount months of uncooperative behavior that gives insight into petitioner’s intent in not filing Federal tax returns. Petitioner’s failure to cooperate with respondent is persuasive circumstantial evidence of fraud.

So he kept his life and, perhaps, his honor, but he lost a fortune: $237,976 in fraud penalties on top of $328,000 in taxes and $57,000 in late payment penalties.

The Moral? If you follow the advice of “Patriot” outfits to not pay your taxes, you may be unwittingly pledging your fortune. Unlike the founders, though, you won’t win.

Cite: Porter, T.C. Memo 2015-122.

 

Gretchen Tegeler, Why priorities don’t get funded (IowaBiz.com):

One of the most significant “built-in” spending components affecting all state and local governments in Iowa is public pension debt. Our public pension systems guarantee retirees a monthly benefit for life, the size of which depends on how long they worked and at what salary. The system is built upon a financial model that involves a whole series of assumptions. If the assumptions don’t pan out, taxpayers are still on the hook to pay the benefits.

And the assumptions have not panned out.

Public defined benefit pensions are a lie. It is either a lie to the taxpayers about the cost of current services, a lie to the public employees about the size of their pensions, or some of both. A move to a defined contribution model, where benefits are limited to the amount funded, is long overdue.

 

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Kay Bell, Tax record keeping rules and tips. Jeb Bush keeps his tax returns for at least 33 years. Should you?

Jason Dinesen, From the Archives: Issue a 1099-C to a Deadbeat Client or Customer? Um, no.

 

Scott Greenberg, Gavin Ekins, Tax Policy Helped Create Puerto Rico’s Fiscal Crisis (Tax Policy Blog). “While the United States federal tax code helped create the conditions for Puerto Rico’s fiscal crisis, the Puerto Rican tax code played a much more direct role in bringing the crisis to a head.”

Tracy Gordon, Puerto Rico: Not Your Father’s Debt Crisis – or Your Greek Uncle’s (TaxVox). “In a remarkable statement, Governor Alejandro Garcia Padilla announced this week that Puerto Rico’s debts are ‘not payable.’ Nobody was really surprised.”

Cara Griffith, Texas Comptroller Improves Transparency of Administrative Decisions (Tax Analysts Blog)

Patrick J. Smith, The Implications for Tax Litigation of the Supreme Court’s Decision in Michigan v. EPA (Procedurally Taxing) “While it is probably the case that in many challenges to tax regulations, the cost of compliance with the regulation may not be a realistic basis for challenge, there is no principled reason why in appropriate cases, the cost of compliance with a tax regulation might not form part or all of the basis for challenge.”

TaxProf, The IRS Scandal, Day 784

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No Tax Update tomorrow. Our office is closed for Independence Day. Enjoy the fireworks, but spare a thought for those who have fought for independence, including 10 men who never made it back to base from a mission 71 years ago Sunday.

 

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Tax Roundup, 7/1/15: Trilobite deduction becomes extinct in Tax Court. And: Indiana throwback thrown out.

July 1st, 2015 by Joe Kristan

 

20150701-1The trilobites roamed the oceans for about 270 million yearsbut a charitable donation of fossils of these ancient arthropods failed to survive a single IRS exam. While scientists still ponder what may have caused these rulers of the seas to vanish, there is no doubt about what doomed the charitable deduction.

The fossils were donated by a California veterinarian, a Dr. Isaacs. He donated four fossilized trilobites to the California Academy of Sciences in 2006 and another 8 in 2007, claiming charitable deductions of $136,500 and $109,800.

When you donate appreciated long-term capital gain property to charity, you are allowed to deduct the fair market value of the property without ever including the appreciation in income — an excellent tax result. Because there is obvious abuse potential in this tax break, Congress has imposed strict valuation documentation rules on contributions of assets other than marketable securities if the claimed deduction exceeds $5,000. The Tax Court explains (citations omitted):

First, for all contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the donee…

Second, for noncash contributions in excess of $500, a taxpayer must maintain reliable written records with respect to each donated item.

Third, for noncash contributions of property with a claimed value of $5,000 or more, a taxpayer must — in addition to satisfying both sets of requirements described above — obtain a “qualified appraisal” of the donated item(s) and attach to his tax return a fully completed appraisal summary on Form 8283.  Generally, an appraisal is “qualified” if it (1) is prepared no more than 60 days before the contribution date by a “qualified appraiser”, and (2) incorporates specified information, including a statement that the appraisal was prepared for income tax purposes, a description of the valuation method used to determine the contributed property’s fair market value, and a description of the specific basis for the valuation.

It’s not three strikes and you’re out; failing any of these requirement kills your deduction. Yet our veterinarian whiffed on all three requirements, according to the Tax Court. Regarding the appraisal, the court says:

Both of Dr. Isaacs’ Forms 8283 bear the signature “Jeffrey R. Marshall” in Part III, “Declaration of Appraiser”. Dr. Isaacs called Jeffrey Robert Marshall as a witness at trial. The Court accepted Mr. Marshall as an expert in the valuation of fossils over respondent’s objection.4

Mr. Marshall identified the signature on Dr. Isaacs’ 2006 Form 8283 as his own. He did not, however, recall signing it. He likewise identified his signature on Dr. Isaacs’ 2007 Form 8283 but could not recall signing the form.

Mr. Marshall similarly identified his signature on two letters, dated December 31, 2006 and 2007, that purported to be appraisals of the fossils Dr. Isaacs donated to CAS in 2006 and 2007. But Mr. Marshall did not write or even recognize the letters, and as Dr. Isaacs offered no testimony from any other expert as to the letters’ author, we did not admit them into evidence.

Courtesy the mad LOLscientist under Creative Commons license

Flickr image Courtesy the mad LOLscientist under Creative Commons license

It’s a bad sign when your appraiser denies doing an appraisal. I hope the appraisal fee wasn’t high.

Although he sought to introduce purported appraisals signed by Jeffrey Marshall, whom the Court accepted as an expert in fossil valuation, Mr. Marshall denied that he had written these purported appraisals, and we did not admit them into evidence. We need not decide whether Mr. Marshall was a “qualified appraiser” within the meaning of the regulations because, even if he was, Dr. Isaacs introduced no evidence that Mr. Marshall rendered any appraisals of the donated fossils for him. Dr. Isaacs offered no evidence of any other appraisals of the donated fossils that could satisfy the statutory requirement.

Even if the appraisals had been accepted, the Tax Court said the deduction failed for lack of a contemporaneous acknowledgement meeting tax law requirements (my emphasis):

Jean F. DeMouthe, on behalf of CAS, acknowledged Dr. Isaacs’ contributions in writing, and these letters, each dated for the date on which Dr. Isaacs made the contribution acknowledged therein, were contemporaneous as required by section 170(f)(8)(A) and (C). Under section 170(f)(8)(B)(ii), however, the letters could suffice as contemporaneous written acknowledgments only if they stated whether CAS had provided any goods or services in exchange. Neither letter includes such a statement.

Taxpayer loses.

The Moral? When deducting charitable donations, details matter a lot. If you give cash or property for which you will claim a deduction over $250, make sure the charity acknowledges the gift with the magic words saying no goods or services were received in exchange for the gift. And if you are donating property for a donation over $5,000, get your tax advisor involved early to make sure the paperwork and appraisals are done properly and your deductions don’t go the way of the trilobite.

Cite: IsaacsT.C. Memo 2015-121.

 

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Ben Bristor, Scott Drenkard, Indiana Tackles Throwback Rule and Personal Property Tax (Tax Policy Blog):

While Indiana has one of the lowest corporate tax burdens in the country, the throwback rule very frequently complicates corporate income taxation. In the process of trying to capture nowhere income, multiple states can claim the right to tax the same income, creating more complexity for tax authorities and businesses. By eliminating the rule, Indiana lawmakers have made a major improvement in the state’s tax treatment of corporations.

Good news for taxpayers with Indiana manufacturing operations.

 

David Brunori, Lessons on How Not to Run Your Government (Tax Analysts Blog):

A very knowledgeable person told me that Brownback set efforts to reduce taxes back 10 years. No one wants to be like Kansas. Liberals might celebrate that outcome — but folks who genuinely believe in more limited government and lower tax burdens will rue the Kansas experiment.

Why would you want to give more power to government when it can even screw up a tax cut?

 

Paul Neiffer, It Pays to Follow the Rules. “The bottom line is that sophisticated estate plans require taxpayers to follow the rules and as indicated by the Webber case, most of them fail at this and sometimes it can cost a lot of money (in Mr. Webber’s case the cost was close to $1 million).”

Robert Wood, Offshore Accounts? Choose OVDP Or Streamlined Despite FATCA

Russ Fox, Mr. Hyatt Goes to Washington…Again. “As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims.”

 

 

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Joseph Thorndike, Jeb Bush Takes a Page From Richard Nixon by Disclosing Personal Tax Returns (Tax Analysts Blog). “As Richard Nixon discovered 63 years ago, financial disclosure can be embarrassing but it’s also good politics.”

Richard Phillips, Chris Christie’s Long History of Opposition to Progressive Tax Policy. (Tax Justice Blog). Considering how high and awful taxes are in New Jersey, I would expect the Tax Justice people to like him more.

Tony Nitti, Expiration Of Bush Tax Cuts Cost Jeb Bush $500,000 In 2013

Kay Bell, Which candidate’s tax return do you most want to see?

 

Len Burman, The Uneasy Case for a Financial Transaction Tax (TaxVox). When finance markets are global, these taxes are a great way to run financial businesses out while collecting very little tax. Still, Mr. Burman musters faint praise: “An FTT is far from an ideal tax. But compared with other plausible ways of raising new revenue, it doesn’t look so bad.”

TaxProf, The IRS Scandal, Day 783

 

News from the Profession. Accounting Professor Who Specialized in Ethics Cheated on Lots of His Papers (Caleb Newquist, Going Concern). I wonder if this is the inventor of the take-home ethics exam.

 

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Tax Roundup, 6/30/15: It’s FBAR Day! Foreign and gaming account owners, do or die.

June 30th, 2015 by Joe Kristan

 

fincen logoForm 114 or bust. Today is the unextendable deadline to file Form 114, the “FBAR” report of foreign financial accounts. It’s required if you own foreign financial accounts whose value reached $10,000 anytime in 2014. Penalties for failing to file can run to half the value of the account, so if it applies, you want to get it done. The form must be filed electronically.

Foreign financial accounts include bank or brokerage accounts held outside, even in an offshore branch of a U.S. bank. They also include online gaming accounts for sites located outside the U.S. More details on what is included is available at the IRS FBAR page.

You will need the mailing address of the branch where your foreign account is located. Russ Fox has done a great job of finding many street addresses for online gaming sites.

Is the Form 114 filing requirement absurd? Yes. The filing threshold is far too low, and it works to make regulatory violators out of Americans living and working overseas for the crime of committing personal finance abroad. Meanwhile, I would be surprised if any actual criminals are actually caught using Form 114; instead, it’s just used to increase penalties on those whose tax violations are found in other ways. Oh, and to extort money out of people who didn’t realize they were supposed to file the thing. Unfortunately, absurdity is what the IRS is all about.

Speaking of absurd, The Commerce Department BE-10 survey for those owning at least 10% of an offshore business is also due for e-filing today, with penalties into the thousands of dollars for non-filers.

Related: Russ Fox, Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

 

Arnold Kling reports on what seems to me a very unwise idea: State Nullification of the Federal Income Tax?, involving the idea of “nullifying” the federal income tax by providing a state credit for whatever the federal income tax is, funded by state sales taxes. Arnold points out some of the obvious problems: “For example, if this were enacted, then residents would have no incentive to minimize their tax liability. Go ahead and realize all of your capital gains, because when you pay more Federal taxes, your state sends you a credit.”

 

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Forest fires in Canada give Iowa a spooky sky today.

 

William Perez, Tax Implications of Supreme Court’s Same-Sex Marriage Ruling. “Together, [Jason] Dinesen and I came up with a list of all the tax things we should be concerned about as a result of the Supreme Court’s decision in Obergefell v. Hodges (pdf).”

Robert D. Flach brings his Tuesday Buzz, along with the less cheerful news that his Gmail account has been compromised. He ponders whether IRS Commissioner Koskinen is worse than his predecessor, Worst Commissioner Ever Shulman. I still give the prize to Shulman, but Koskinen is making a heck of a case for the honor.

Kay Bell, IRS ‘incompetence’ blamed for lost Lois Lerner emails. That’s certainly plausible, but the incompetence all seems to be on the side of hampering the investigation.

Robert Wood, If Uber, FedEx, Other Workers Are Employees, Who Pays What?

Joni Larson, Failing to Prove the Attorney-Client Privilege Applies (Procedurally Taxing). Some conversations you’d rather not share with the IRS.

Peter Reilly, Mario Biaggi’s Criminal Case Followed By Tax Travails. In some ways the tax decision coming on top of the criminal conviction really makes me think there might have been something to Biaggi’s contention that he was a victim of Giuliani’s ambition.  When you look at the big picture of the transactions, nobody seems to have been getting away with anything from an income tax perspective.”

Jason Dinesen, From the Archives: Are Donations to a 501(c)(4) Deductible?

 

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Elizabeth Malm, A Quick Primer on Personal Income Taxes (with GIFs!) (Tax Policy Blog). They’re nice, but no dancing cats. A great little post for anybody wanting an overview of state income taxes.

Gene Steuerle, Combined Tax Rates and Creating a 21st Century Social Welfare Budget (TaxVox).

Dalton Lane, Obergefell v. Hodges: Supreme Court Upholds Same-Sex Marriage (Tax Policy Blog):

The Supreme Court’s ruling has definitely simplified the tax system. Whether a same-sex marriage, or a opposite-sex marriage, the tax treatment is the same. Furthermore, same-sex couples will no longer have any difference in filing status between their state income taxes and federal income taxes.

It will make Jason Dinesen’s life easier, for sure.

Caleb Newquist, PwC Walks a Fine Line Between Its People and Clients on Same-Sex Marriage (Going Concern).

TaxProf, The IRS Scandal, Day 782

 

TaxGrrrl, 8 Signs That It’s Time To Get A New Tax Professional. They are all good signs, especially number 8.

 

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Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And windy subsidies, IRS stonewalling, more.

June 29th, 2015 by Joe Kristan

Welcome to the marriage penalty. The Supreme Court has spread Iowa marriage law nationwide. That means more same-sex couples will tie the knot and learn about the sometimes surprising tax results of matrimony. In general, if only one member of the couple has income, it’s a good tax deal, but not so much for two-earner couples. The weird complexity of the tax law means there are lots of exceptions.

The Tax Foundation has an excellent summary of these issues, Understanding the Marriage Penalty and Marriage Bonus. It includes this wonderful piece of abstract art illustrating how marriage can help and hurt a couple’s federal income tax liability:

Marriage penalty tax foundation chart

 

The chart has two axes: the percentage of income earned by each spouse, and the income level. Blue is good, red is bad. If combined income is just short of $100,00, it’s all good, but there is lots of room for tax pain at the top and bottom of the income spectrum for married couples.

Other coverage:

Jason Dinesen, Tax Implications of Friday’s Ruling on Same-Sex Marriage:

This ruling should not have an impact on federal tax returns because couples in same-gender marriages have been able to file as married on their federal tax returns since 2013. This ruling affects state tax returns in states that had bans against same-gender marriage.

Jason, an Iowa enrolled agent, was an early expert in same-sex marriage compliance.

 

TaxProf Blog Op-Ed By David Herzig: The Tax Implications Of Today’s Supreme Court Same-Sex Marriage Decision (TaxProf) “Same-sex couples will now be able to inherit, file joint state tax returns, possess hospital visitation rights and all other state marriage rights as heterosexual married couples.”

Kay Bell, Marriage equality means tweaks to tax code, tax forms. “Sen. Ron Wyden (D-Ore.), the ranking minority member on the Senate Finance Committee, is already working on getting the new nomenclature on the books.”

TaxGrrrl, SCOTUS Legalizes Same Sex Marriage But Questions Remain For Religious Groups & Tax Exempts

 

Wind turbineWindy Subsidy Signed. Governor Branstad has signed HF 645, which establishes a tax credit for wind energy. The credit is 50% of the similar federal credit, up to $5,000. It takes effect retroactively to 2014, giving a windfall to people who bought qualifying systems already. It will do nothing for the environment, but it will do wonders for companies selling wind energy systems.

 

 

 

Christopher Bergin, Why We Just Sued the IRS – Again (Tax Analysts Blog):

For more than two years the IRS has played its old game of hide the ball regarding requests to release Lois Lerner’s e-mails — e-mails that would teach us a lot about what actually went on during the exempt organization scandal. Many of those requests came from the United States Congress: the elected officials who control the IRS budget. The IRS’s stalling tactics have run the gamut from eye-rollingly comical to downright disturbing.

Through this and and other worrisome developments, one thing is clear: the IRS is now in desperate trouble. Most of that trouble it created itself. It would be unfair to call them the gang that couldn’t shoot straight, because when it comes to shooting itself in the foot the IRS is an expert marksman. The IRS is an agency whose initial reaction to almost anything is secrecy.

The IRS needs a big culture change, one starting with a new Commissioner.

 

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Associated Press, Ex-Rep. Mel Reynolds indicted on tax charges. Can you believe a Chicago politician who would sleep with a 16-year old campaign worker would also cheat on his taxes?

 

Russ Fox, A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS:

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

If you outsource your payroll tax, insource regular visits to EFTPS to make sure your payments are made.

 

Peter Reilly, SpongeBob SquarePants In A Tax Case!

Tony Nitti, Sloppy Drafting Saves Obamacare – Supreme Court Upholds Tax Subsidies For All. I think it was more sloppy judging than sloppy drafting that did the trick.

Keith Fogg, Aging Offers in Compromise into Acceptance (Procedurally Taxing).

Jack Townsend, Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA. They want both to be declared unconstitutional. Unfortunately, it seems like a anything the IRS wants is constitutional anymore.

TaxProf, The IRS Scandal, Day 779Day 780Day 781. Still trying to shake out the “lost” emails after 781 days. You’d think they were stalling or something. And efforts to impeach Commissioner Koskinen. It’s not going to happen, but if he had any shame, he would have resigned long ago.

Richard Auxier, Michigan, out of ideas, might ask poor to pick up transportation tab (TaxVox).

 

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Quotable:

The pledge, the brainchild of Grover Norquist, president of Americans for Tax Reform, is a terrible idea for several reasons. First, no leader should promise never to raise taxes because, frankly, there are times when it is necessary. Over 50 Kansas legislators and Brownback, who have signed the pledge, found that out last week. I agree with Norquist philosophically; less government is good. But the pledge only leads to more debt at the federal level and gimmicks in state governments.

David Brunori, Tax Analysts ($link)

 

Career Corner. EY Employee Has Eaten So Many Hours, He’s Gone on Hunger Strike (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/26/15: Supreme Court saves ACA subsidies — and taxes.

June 26th, 2015 by Joe Kristan

 

supreme courtThe Supreme Court upholds new punitive taxes on thousands of Iowa employers and uninsured individuals. That’s the flip side of the decision yesterday ruling that tax credits remain available for health insurance purchased on the federal exchanges, despite the language of the Obamacare statute — a ruling characterized by the Des Moines Register as “Obamacare ruling protects 40,000 Iowans’ subsidies.

Here’s what it means to those footing the bill:

– The employer mandates will take effect in all states as scheduled. The “Employer Shared Responsibility provisions” require employers to purchase “adequate” health coverage for employees.  It applied in 2014 to employers with over 100 “full-time equivalent” employees in 2013.  In 2015, it applies to employers who had over 50 full-time equivalent employees in 2014. It applies to government and non-profit employers, as well as to businesses.

Employers who fail to offer coverage to 95% of their FTEs and dependents are subject to a $2,000 penalty, pro-rated for months where coverage is lacking, for non-covered FTEs, with a 30-employee exemption. “Full-time Equivalent” means 30 hours per week.

The penalties kick in only if at least one employee claims the coverage tax credit. Yesterday’s decision ensures the mandate applies in all states — rather than just the 14 with state-run exchanges — because the triggering credits will remain available nationwide.

The individual mandate tax applies fully in all states. The “Individual Shared Responsibility Provision” penalizes individuals who aren’t covered at work and who fail to purchase “adequate” and “affordable” coverage. The penalty for 2015 is the greater of $325 ($162.50 for those under 18) or 2% of “household” income. It is prorated if coverage is obtained for some months and not others.

Yesterday’s decision broadens the reach of the tax because the penalty only applies if available coverage is “affordable.” The tax credits are used in computing “affordability,” so the availability of the credits nationwide broadens the tax to many more taxpayers.

20121120-2The Section 36B tax credit remains available nationwide. This is the refundable credit that was the subject of yesterday’s decision. It is estimated when coverage is obtained and applied against coverage costs for the year. It is “trued up” when the taxpayer files their 1040 for the coverage year — a process that can sometimes mean more credit, but that sometimes triggers a big balance due.  Because the credit phases out in steps, one extra dollar of income can trigger thousands of dollars of additional taxes:

Consider a middle-aged married couple earning $62,040, 400 percent of the FPL for a two-person household ($15,510.) If the second cheapest Silver plan in their area costs $1,200 per month, they would receive a subsidy of $8,506 in order to cap that plan’s price at 9.5 percent of their income. However, if they earned $62,041—only a dollar more—the entire subsidy would evaporate. 

Because the $8,506 would have been applied to health premiums, the household would have to pay it back on April 15.

What do I think of the decision? In March I wrote:

In a less politically-sensitive context, one could expect a 9-0 or 8-1 decision against the IRS. That’s what happened in Gitlitz, where 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.

That means I think the Scalia dissent gets it right, but we don’t get to file tax returns based on the dissent. It should give pause to those who write legislation, though — there’s no telling how the Supremes will read their work if they don’t like what it does.

Other coverage:

William Perez, What You Need to Know about the Premium Assistance Tax Credit

TaxGrrrl, Supreme Court Upholds King, Says Obamacare Tax Credits Apply To All States

Kay Bell, Let the Affordable Care Act repeal efforts begin (again)

Hank Stern, SCOTUScare Fallout. “Obamacare Ruling May Have Just Killed State-Based Exchanges

Andy Grewal, Grewal: King v. Burwell — The IRS Isn’t An Expert? (TaxProf Blog)

Tyler Cowen, King vs. Burwell, and other stuff. “So on net I take this to be good news, although arguably it is bad news that it is good news.”

Megan McArdle, Subsidies and All, Obamacare Stays

Alan Cole, James Kennedy, King v. Burwell: Supreme Court Upholds Subsidies to Federal Exchanges (Tax Policy Blog)

Roger McEowen,  The U.S. Supreme Court and Statutory Construction – Words Don’t Mean What They Say (AgDocket)

 

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Stuff other than the Supreme Court decision:

Jason Dinesen, Choosing a Business Entity: Sole Proprietor

Joseph Thorndike, Rand Paul’s Tax Plan May Be Radical, But It’s Not Impossible (Tax Analysts Blog) “But radical doesn’t mean impossible. Since proportionality lies at the heart of Paul’s plan, history suggests it might have a shot.”

Ethan Greene, Net Investment Income Tax Handicaps Those Meant to Benefit (Tax Policy Blog). “The irony of the NIIT is it taxes the very demographic it was intended to aid; that is, retirees relying on their savings and investment, and those with disabilities, counting on trust income or estate inheritance to maintain their quality of life.”

Donald Marron, Everything You Should Know about Taxing Carbon. (TaxVox)

TaxProf, The IRS Scandal, Day 778

Caleb Newquist, The Accounting Profession’s Murky Future (Going Concern)

 

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Tax Roundup, 6/25/15: Time-traveling deductions fail fraud test. And: IRS ‘mistake’ defense won’t work for you!

June 25th, 2015 by Joe Kristan

20120511-2Make up your mind! A Georgia investment broker finally got around to filing his 2001 in April 2003. He presented his preparer with an unusual deduction, according to a Tax Court case yesterday (my emphasis):

The return was prepared by a certified public accountant (C.P.A.). On Schedule E, Supplemental Income and Loss, petitioner claimed a flowthrough loss of $516,609 from MCM. Although MCM did not report a loss on its Form 1120S, U.S. Income Tax Return for an S Corporation, petitioner claimed a loss deduction of $554,622 on his own tax return and applied it against the $38,013 of passthrough income he reported from MCM. The deduction was characterized in a statement attached to petitioner’s 2001 return as “General Partner Expenses paid to reimburse”.

Petitioner claimed the deduction for payments he allegedly made to his clients to reimburse them for their losses in the hedge funds. Petitioner did not provide any detailed information or documentation about these payments to the C.P.A. who prepared his return. He simply told the C.P.A. to use the $554,622 expense on his 2001 income tax return.

There’s already a lot wrong here. You can’t pay deductions on behalf of an S corporation you own and deduct them on Schedule E. At best, such payments are miscellaneous itemized deductions, which must exceed 2% of AGI and do no good in computing alternative minimum tax. Only the actual K-1 amounts hit your Schedule E.

The mismatch between the K-1 and the Schedule E would attract IRS attention, even if filing almost a year late didn’t. But the facts made things worse:

Ten days after petitioner filed his 2001 return, he submitted a different version of the return to a bank while applying for a loan. This version omitted the $554,622 deduction petitioner claimed on his filed tax return.

That sort of things is bad for making friends at both the IRS and the bank.

The taxpayer told the Tax Court that the deductions weren’t fraudulent; they were just claimed in the wrong year:

Petitioner concedes that the deduction should not have been claimed for 2001. Instead, on his amended return petitioner claims his income for 2001 was fully offset by a net operating loss carryback from 2002 and 2003.

Unfortunately, the taxpayer failed to convince the tax court that there really were NOLs: “Petitioner has not provided any evidence of a net operating loss for 2002 or 2003, and we have no way of determining from the record whether a net operating loss was available for these years.”  The Tax Court was reluctant to take the broker at his word. This might explain the reluctance:

On November 3, 2006, as litigation with these clients was pending, petitioner voluntarily filed a petition with the U.S. Bankruptcy Court for the Northern District of Florida under 11 U.S.C. chapter 7, No. 06-50298-KKS. During the bankruptcy proceedings petitioner failed to report numerous assets on his bankruptcy schedules, including two boats, a Harley Davidson motorcycle, investment accounts, and $40,000 of artwork.

On October 21, 2008, petitioner was indicted in the U.S. District Court for the Northern District of Florida on 23 counts of criminal misconduct. United States v. Reinhard, No. 4:08-Cr-00049-RH-CAS (N.D. Fla. filed Oct. 21, 2008). On May 13, 2009, petitioner pleaded guilty to seven counts of the indictment, including: (1) making false statements on his 2001 and 2002 income tax returns, in violation of section 7206(1); (2) making false statements on a loan application, [*5] in violation of 18 U.S.C. sec. 1014; and (3) transferring assets and concealing them from the bankruptcy trustee, in violation of 18 U.S.C. sec. 152(7).

lizard20140826The Tax Court upheld the IRS. Worse for the taxpayer, the Tax Court upheld the 75% fraud penalty asserted by the IRS:

Petitioner admitted as part of his plea agreement that he “included as part of his return a fraudulent Schedule E expense of $554,622”. Therefore, petitioner had admitted to fraud and is liable for the civil fraud penalty under section 6663(a) for the 2001 tax year.

When he filed his original 2001 tax return in 2003, petitioner was aware that the payments he reported would have been made in 2002 or 2003, not in 2001. Yet he directed his C.P.A. to claim a deduction for the payments for 2001 without any explanation. Petitioner is an intelligent and well-educated businessman, and we find that he knew that a cash method taxpayer can claim a deduction for an expense only for the year in which it is paid.

The Moral? Aside from the obvious “don’t commit fraud” lesson, we can learn from some simple but egregious mistakes:

– Timing matters. You can only deduct cash-basis deductions in the year of payment.

– If you want to deduct an S corporation expense, have the S corporation make the payment. You can’t pay corporate expenses personally and expect to deduct them as Schedule E expenses.

– If you want to deduct an expense, keep the documentation. The Tax Court never mentioned any settlement or other document showing that the broker had agreed to reimburse losses. If such an agreement existed, showing it to the Tax Court might have helped a great deal.

Cite: Reinhard, T.C. Memo 2015-116.

 

2008 flood 2

 

Jeffrey R. Gottleib, IRS Issues Final Regulations for Estate Tax Portability Elections. “When in doubt — file it!”

TaxGrrrl, Tax Authorities Want Atlanta’s SkyView Ferris Wheel Seized To Pay Taxes.

Kay Bell, Ohio bill to make feminine hygiene products sales tax-free.

Jack Townsend, Julius Baer Reserves $350 Million for U.S. Tax Investigation. Swiss bank secrecy isn’t working out too well.

TaxProf, TIGTA: IRS Violated Federal Law By Awarding Millions In Contracts To Businesses With Unpaid Federal Taxes. Anybody expect that the lawbreakers will face any penalty at all?

Scott Greenberg, Investment Donations and the Charitable Deduction (Tax Policy Blog). “Out of the $42.91 billion of noncash donations reported on Form 8283, $22.07 billion were contributions of corporate stocks, mutual funds, and other investments.”

Gene Steurle, How to Pay Zero Taxes on Income of Millions of Dollars (TaxVox). Roth IRAs are involved.

 

2008 flood 3

 

News from the Profession. KPMG Gives Employees Enough Ice Cream to Last Them a Week (Caleb Newquist, Going Concern)

 

TaxProf, The IRS Scandal, Day 777:

IRS employees erased computer backup tapes a month after officials discovered that thousands of emails related to the tax agency’s tea party scandal had been lost, according to government investigators.

The investigators, however, concluded that employees erased the tapes by mistake, not as part of an attempt to destroy evidence.

Kids, don’t count on the “innocent mistake” excuse if you are thinking of destroying evidence they want.

 

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Tax Roundup, 6/24/15: New obscure dumb forms we choose to do together. And: Wine and Taxes!

June 24th, 2015 by Joe Kristan

20150528-1There’s a new stupid form in town. The Commerce Department this year springs a new form on people with interests in foreign businesses. Form BE-10 was originally due May 31, but the system for filing it crashed, leading to a new June 30 deadline.

BE-10 is a survey, not a tax form. The survey is done every five years, and formerly was required only when you were contacted by the Commerce Department. Now everyone with a 10% or more “direct or indirect” interest in a foreign business is supposed to file it. From Accounting Today:

The form is mainly intended for businesses with foreign investments. Originally individuals only had a filing requirement if they were directly contacted by the bureau, but last November, the government amended its regulations to require any U.S. person who had at least a 10 percent direct or indirect interest in a foreign business enterprise at any time during the U.S. person’s fiscal year to file the Form BE-10. A U.S. person includes individuals, trusts, estates, corporations and partnerships.

“With many of our clients fighting the IRS over FBAR penalties, we err on the side of filing whenever the government requests a U.S. person to file an international information report,” said Carolyn Turnbull, international tax services director at Vestal & Wiler CPAs in Orlando, Fla.

Penalties for failure to file the form range from $2,500 to $25,000. Even worse, individuals who willfully fail to file the form can face fines of up to $10,000 or imprisonment for a maximum of one year, or both.

$2,500 to $25,000 for not filling out a stupid survey. Remember, government is simply a word for the things we decide to do together, like clobber each other with big fines for obscure paperwork violations.

Robert Wood has more.

 

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Kay Bell, Uncle Sam demands foreign bank account filing by June 30. The $10,000 threshold — and the whole FBAR regime, in fact — is absurd. Like so many regulations, it ensnares otherwise innocent people for paperwork violations while doing next to nothing to affect criminals, who don’t much care about getting the paperwork right.

Robert Wood, Offshore Banks Reveal Account Data, As IRS Amnesty For Many Involves 50% Penalty. Some amnesty.

Russ Fox, FBAR Due in One Week:

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

Russ performs a valuable public service with this address list.

 

 

Samantha Jordan, Scott Drenkard, How High are Wine Taxes in Your State? (Tax Policy Blog). In Iowa, pretty dang high:
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Considering it’s burgeoning wine industry, it’s surprising that there hasn’t been more effort to bring Iowa’s wine tax down. And some of the new Iowa wine isn’t half bad.

 

Jason Dinesen, Marriage in the Tax Code, Part 11: Meet the “Single Penalty”

Peter Reilly, Chief Counsel Gives Narrow Scope To Partnership Liability Regulations. “Note, here, that the taxpayers were insolvent and the field is being told to look harder for a possibly larger assessment.”

Tony Nitti, Tax Geek Tuesday: Navigating The Multiple Definitions Of Nonrecourse And Recourse Liabilities

 

Carl Smith, Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine or Osteopathy? Part 1.

TaxGrrrl, Nevada Pops New Tax On Burning Man, iHeartRadio, Other Music Festivals

 

David Brunori, Rand Paul’s Tax Ideas Are Worth Serious Consideration (Tax Analysts Blog). 

Sen. Rand Paul, R-Ky., a GOP presidential candidate, released his tax plan last week. As expected, some commentators piled on criticism. Howard Gleckman of the Urban Institute said Paul was trying to use the tax proposal to “fundamentally restructure the federal government as we know it.” Bob McIntyre, the director of Citizens for Tax Justice, said Paul’s plan would cost $15 trillion over 10 years. Other, less informed folks resorted to calling Paul names.

This criticism from liberals is neither unexpected nor irrational. These are folks who like to see more government spending and revenue raising. Paul is a small government Republican. Of course he wants to see less government and taxes. So it’s not surprising that his tax plan would, in a vacuum, lose the government money. The Tax Foundation says the cost would be $3 trillion over 10 years on a static basis. But that assumes Paul will keep spending at current levels. I suspect that if he became president, he’d support spending cuts equal to or greater than the cost of his tax plan.

I certainly would.

 

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Howard Gleckman, CBO Has No Idea What Repeal of the ACA Means for the Economy or the Deficit (TaxVox). No more idea than when they said the ACA wouldn’t increase the deficit back when it was enacted.

 

Ethan Greene, Alaska Ends Film Tax Credit Program (Tax Policy Blog). States are beginning to realize that they are being had by the film industry.

TaxProf, The IRS Scandal, Day 776:

In the continuing saga of the IRS, the Department of Justice, and their efforts to hide evidence and obstruct justice to protect Lois Lerner and the administration’s targeting of its political opposition, the IRS now claims that thousands of emails found on backup tapes Commissioner Koskinen told Congress did not exist are not IRS records, the IRS has no control over them, and they can’t produce them. 

The IRS has done nothing but obstruct and stonewall. If a taxpayer treated an IRS exam the way the IRS has treated this investigation, they’d be inviting the criminal agents in.

 

News from the Profession. Life at Deloitte Includes Slow Days (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/23/15: A foolproof tax prep scam! And more.

June 23rd, 2015 by Joe Kristan

One week left! To file your FBAR Form 114 reports of foreign financial accounts.

 

ice truckDid a Davenport preparer e-file different returns than he showed his clients? That’s what federal prosecutors allege. They have accused a Davenport man of preparing accurate tax returns for clients, but then e-filing different returns claiming larger refunds, diverting the extra refunds to his own account.

If true, the case is interesting in two ways.

First,It appears to have been based on fraudulent Schedule C sole proprietorship filings. These can be used to create sham losses to create extra refunds, or to create sham earned income to generate earned income tax credit. It was most likely an EITC scam, as fake schedule A deductions work as well for deductions, but not at all for generating refundable EITC.

Second, it was a horrible idea. It’s hard to imagine how he thought he would ever get away with filing returns different from what the client approved. Inevitably there would be a notice or other problem that would bring the scam to light. But the cops don’t spend their days chasing geniuses.

 

Robert Wood, Record 27 Years Prison For Tax Fraud, Beating Tax Fraud Queen’s 21 Years. The guy allegedly collected 7,000 Social Security numbers and scammed $1.8 in stolen refunds. Considering the hassle he created for the rightful holders of those numbers, that sounds about right.

buzz20141017Robert D. Flach has Tuesday Buzz for you, covering the ground from Trump to Kansas.

William Perez, Tax Advice for Cannabis Entrepreneurs. Speaking of buzz.

Hank Stern, CO-OPs: That flushing sound you hear…  It appears that other Obamacare health co-ops may go the way of Iowa’s CoOportunity.

Keith Fogg, Contrasting the Compromise Standards between the Chief Counsel, IRS and the Department of Justice in Litigated Cases (Procedurally Taxing)

Jack Townsend, Two More Swiss Banks Enter DPAs under US DOJ Swiss Bank Program. Swiss bank privacy is over. Taxpayers who have been counting on it need to check in with their attorneys.

 

Jeremy Scott, Supreme Court Could Create $353 Billion Deficit Problem (Tax Analysits Blog):

The wait continues for the Supreme Court’s decision in King v. Burwell — the Court did not release the opinion on June 22. If the Court decides in favor of King — basically making residents of 34 states ineligible for healthcare credits — that will gut President Obama’s healthcare reform effort, essentially leaving lawmakers with the choice to either fix or repeal the Affordable Care Act. Republicans are eager to do the latter, but the Congressional Budget Office may have made that more difficult. The CBO says that outright repeal would cost $353 billion over 10 years based on a static scoring model.

It’s a bit strange to think that it’s the Republicans’ responsibility to fix a law that was incompetently drafted by a Democratic Congress. And the House and Senate don’t seem inclined to follow that path anyway. 

It’s not the Supreme Court that would create the problem. It would be the administration and its Congressional allies that passed an unworkable and incoherent lawwith no support at all from the other party.

Kay Bell, No Supreme Court word yet on Obamacare subsidies,
but another part of the health care law is closer to repeal
. “The House voted on June 18 to get rid of the medical device tax.”

 

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Dita Aisyah, Tax Extenders: Take Them or Leave Them, Part 2 (Tax Policy Blog):

Currently, all 50 or so tax extenders are expired for 2015, but Congress will likely pass them retroactively as they have in the past.

Some tax extenders are genuinely good policy, while some are bad. However, the concept of an extender is silly. They create unnecessary uncertainty for individuals and businesses who need to make important long term financial plans.

This very uncertainty creates the need for lobbyists to make annual pilgrimages to Congress to beg for another year of tax breaks. I suspect that Congress likes it that way.

 

Kyle Pomerleau, Senator Rand Paul’s Payroll Tax Swap. “One striking feature of the tax plan is that it eliminates payroll taxes.”

Bob McIntyre, Detractor Dangles Shiny Objects to Obscure Facts about Rand Paul’s Deficit-Inflating Flat Tax Proposal. (Tax Justice Blog). A left-wing tax site calls the Tax Foundation right-wing.

Steven Rosenthal, The Rich get Richer, with a Little Tax Help (TaxVox).

TaxProf, The IRS Scandal, Day 775. Today’s entry covers a non Tea Party organization whose exemption was stalled because it held views disapproved by the Administration.

 

News from the Profession. There’s a Lack of Talent to Succeed Accounting Firms Because the Talent Doesn’t Exist (Caleb Newquist, Going Concern). “A recent survey of accounting firm partners from the CPA Consultants’ Alliance found that over half of respondents (51.7%) said procrastination or denial was a primary cause for firms’ succession troubles.”

 

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Tax Roundup, 6/22/15: Iowa shovels more economic development fertilizer. And: Paul flat tax fever!

June 22nd, 2015 by Joe Kristan

 

20120906-1It’s getting deep. The giant pile of tax credits for the big Lee County fertilizer plants got a little deeper last week. The Iowa Economic Development Board Friday voted for an additional $21.5 million in tax credits for the project. The Quad City Times compares that appropriation to other state spending:

Iowa’s elected legislators negotiated for five months on Iowa school funding, before reaching a compromise that provided $55 million in one-time money that will only assure the status quo: No one expects improvements.

On Friday, Gov. Terry Branstad’s Iowa Economic Development Board added another $21.5 million in tax credits to the $85 million in state incentives already lavished on a foreign fertilizer company under construction in Lee County.

No legislative vote.

No deliberation by elected officials.

Not even a hint of how this new pile of Iowa taxpayer money will help Iowans. Representatives of the parent firm Orascom, of Egypt, said the $21.5 million in tax credits will add 11 jobs to the 180 expected at the plant.

This latest giveaway brings local, state and federal taxpayer investment to $500 million in the $1.9 billion project. That’s right, taxpayers are covering 25 percent of Orascom’s project.

So almost $2 million per “job.” And that assumes they wouldn’t have completed the project without a little more cash from the state, which is improbable. That’s $21.5 million from those of us without connections at the state to fertilize an already richly-subsidized project. We can be confident that some wee portion of that $21.5 million will go to attorneys and consultants who pulled the strings to make it happen.

The state board also wasted $8 million in tax credits on ribbon cutting opportunities in Sioux City involving a convention center and hotel — which experience nationwide shows will be a fiscal nightmare. Because who better to allocate investment capital than politicians who are spending other people’s money?

Iowa’s cronyist tax credit boondoggle is long overdue for the scrapyard. It lures and subsidizes the influential and the well-lobbied at the expense of their less well-connected competitors and their employees. It’s time for something like the Quick and Dirty Iowa Tax Reform Plan to improve Iowa’s abysmal business tax climate for everyone — not just the cronies.

 

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Russ Fox, Arbitrage Is Legal, But You Better Pay the Taxes. It looks at the tax troubles of a recently-indicted Tennessee politician.

Annette Nellen, Uber, Lyft and others – worker classification in the 21st Century. I used Uber over the weekend visiting my son in Chicago, and it’s pretty slick. It’s also here in Des Moines. A few weekends ago, my other son was playing music in the Court Avenue entertainment district on the street and an Uber driver stopped, got out a guitar, and started jamming with them. That doesn’t sound like an employee to me.

Kay Bell, Tax gift for Father’s Day: help paying for child care

Jason Dinesen, Iowa Adoption Credit and Special-Needs Adoptions

Peter Reilly, Joan Farr Claims IRS Denial Of Exempt Status Is Example Of Persecution Of Christians

 

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Presidential Candidate Rand Paul has proposed a 14.5% flat tax. I haven’t had a chance to study it, but its base-broadening, rate-lowering approach is promising. The Tax Policy Blog looks at the plan in The Economic Effects of Rand Paul’s Tax Reform Plan (Andrew Lundeen, Michael Schuyler) and No, Senator Paul’s Plan Will Not ‘Blow a $15 Trillion Hole in the Federal Budget’ (Kyle Pomerleau). The second one is in response to Bob McIntyre’s post in Tax Justice Blog, Rand Paul’s Tax Plan Would Blow a $15 Trillion Hole in the Federal Budget.

Howard Gleckman, Rand Paul’s Tax Cut Isn’t Quite What It Seems (TaxVox)

 

TaxProf, The IRS Scandal, Day 771Day 772Day 773, Day 774.

News from the Profession. Ex-BDO CEO’s Quest to Get Firm to Pony Up for His Legal Bills Not Going So Well (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 6/18/15: Bill protecting multi-state employees advances. Also: crowdfunding taxes, poker reporting and lots more!

June 18th, 2015 by Joe Kristan

 

Programming Note: No Tax Roundup tomorrow. See you Monday!

 

20140923-1The House Judiciary Committee advanced three bills: The Digital Goods and Services Tax Fairness Act (H.R. 1643), The Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315), and The Business Activity Tax Simplification Act (H.R. 2584).  Joseph Henchman provides some explanation in Activity in Congress on Key State Tax Bills (Tax Policy Blog):

The Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) limits states from imposing or collecting individual income tax on those who are in the state for less than 30 days. Most states technically require such payments when someone is in the state for even a day, and even withholding to be set up in advance, and we’re increasingly hearing horror stories of states trying to collect these sums. Since all states provide a credit for taxes paid to another state, making people fill out 20 or 30 tax returns for a net national wash is lunacy. Most everyone, except New York officials and state tax administrators, support this legislation…

The Digital Goods and Services Tax Fairness Act (H.R. 1643) establishes national standards for when and how states can tax digital goods and services…

The Business Activity Tax Simplification Act (H.R. 2584) limits state power to impose corporate income taxes and gross receipts taxes to businesses with physical presence in the state for at least 14 days. While that is the historical standard, states have begun shifting to an “economic nexus” standard, imposing taxes on businesses with no connection to the state except that they have sales there. This exporting of tax burdens adds complexity, litigation, compliance costs, and uncertainty. We hear lots of horror stories of states suddenly imposing years’ of back taxes on companies who had no expectation of owing taxes in that state because they have no property or employees there.

Iowa is among the states aggressively going after out-of-state businesses with very weak ties to the state.

The Digital Goods act seems the least controversial, so the most likely to advance. The Mobile Workforce bill — a long overdue effort to save cross-state workers from expensive annual compliance nightmares — passed 23-4, opposed only by three New Yorkers and a Californian. That’s a sign that it could advance. The Business Activity Simplification Act passed only on a party-line vote, which means it is likely doomed for this session of Congress.

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Jason Dinesen, Same-sex Marriage and Paycheck Withholdings – An Unpleasant Surprise on 2014 Tax Returns. “Some of my clients went from getting a refund of several-thousand dollars in prior years to owing several-thousand dollars on their 2014 tax return.”

TaxGrrrl, Crowdfunding As An Investment Tool: Is Trouble Brewing? If the proceeds are a “gift,” they are non-taxable, but it’s not clear that they qualify.

Robert Wood, Amazingly, IRS Collects 30 Year Old Tax Debt Despite 3 Year Statute Of Limitations. This shows how hard it is to shake off liability for unpaid payroll taxes. It reminds us how unwise it is to “borrow” withheld taxes from the IRS.

Russ Fox, Form 8300 and Poker:  “If you’re a business and you receive a payment of $10,000 or more in cash or like funds (this would include casino chips but would not include a cashier’s check), you have a reporting requirement: You must file Form 8300 with the IRS.”

Kay Bell, IRS looks at $600 slots, bingo & keno reporting threshold

Jack Townsend, On Ignorance – Deliberate or Otherwise. Sometimes, when telling clients that they did something that will cost them taxes, I have gotten the feeling the client wished I was a little more ignorant.

Mitch Maahs, National Society of Accountants Proposes a Tax Practitioners Bill of Rights (Davis Brown Tax Law Blog). “While this Bill of Rights would represent a vast improvement for tax practitioners and their clients, the gravity of these improvements in customer service, combined with the crippling level of IRS budget cuts, may render the Tax Practitioners Bill of Rights an unattainable goal.”

 

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Joseph Thorndike, First They Taxed Soda; Now They’re Coming for Your Water (Tax Analysts Blog). First they tax pop, and now they want to discourage a healthy and convenient alternative to sugary drinks. What they really want is more money and more power over the people foolish enough to keep electing them.

TaxProf, The IRS Scandal, Day 77. E-mail stalling figures prominently.

That can’t be true. It was the “Affordable” Care Act. Five Years Later: ACA’s Branded Prescription Drug Fee May Have Contributed to Rising Drug Prices (Scott Greenberg, Tax Policy Blog).

Renu Zaretsky, On Havens and Stalemates. Today’s TaxVox talks about Wal-Mart’s tax structure, an EU tax haven “blacklist,” and a TIGTA report on how budget cuts are affecting IRS enforcement efforts. Also, a lame employment tax credit plan from Hilary Clinton.

 

Career Corner. Donald Trump’s Accountants Should Quit (Caleb Newquist, Going Concern)

It’s a good day.

 

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Tax Roundup, 6/17/15: Revenues: every business should have them! And: tax abuse of accidental Americans.

June 17th, 2015 by Joe Kristan

 

dontwalk4A picture of a bad deduction. Early in my career a practitioner confided to me that every 1040 should have a Schedule C, the 1040 report of business income, so that taxpayers could write-off personal expenses. That’s never been the actual tax law, but too many taxpayers believe otherwise.

The actual tax law is that you can’t deduct as business expenses costs without an intent to actually make money. Iowa has been independently enforcing this rule, known informally as the “hobby loss” rule. A newly-released protest resolution has an example of a Schedule C business that may not have been conducted with adequate vigor:

The Business Activity Questionnaire you completed indicated that you spent 8-10 hours per year on the business. That is less than one hour per month. This hardly seems reasonable to have for a successful business. An average photoshoot can last longer than 1 hour including let up and tear down and then most photographers spend additional time editing or developing the photos.

What made the state suspicious? From the protest response (my emphasis)

There is no evidence that the taxpayer has ever been successful in this business. With the exception of 2014, there is no record indicating that you filed a sales tax return or a schedule C showing any receipts since your permit was issued. 

One of the most important parts of a real business is revenue. You could look it up. If you have none, it may be hard to convince the revenue agent you are serious.

You receive some income from other sources, and the losses you report from this activity does lower your income, in some years enough to make you exempt from tax. 

That can be a clincher. If you have “business losses” that never end, but they save you taxes on other income, that’s a likely sign that your real “business” is reducing your taxes.

Cite: Iowa Document Reference 15201018

 

20140815-2William Perez, People Unaware of Their American Citizenship are Being Fined for Not Filing US Tax Returns:

“[The] typical [client I’m] seeing now,” reveals Virginia LaTorre Jeker, a tax attorney in Dubai, is “someone who [was] either born in the US and left as young child, or who has [an] American parent from whom they have acquired citizenship.

The individual will always have another nationality, typically from a Middle Eastern country which they consider as their true home. Most times, these individuals will never have filed a US tax return since they were unaware they had any US tax obligations.”

If you think this sounds insane, you are right. No other country does anything like this.

Robert Wood, FBARs For Foreign Accounts Are Due June 30. Should You File For The First Time? “You don’t want to ignore a filing obligation now that you know about FBARs. But one should consider where you are going long term with your issues, how quickly you plan to act, and whether you have good and accurate information to file now.”

 

Kay Bell, U.K. pays a record amount for tax cheat tips

Jim Maule, How Does a Politician Fix a Tax Law The Politician Doesn’t Understand? Well, they’re obviously perfectly willing to enact tax laws they don’t understand in the first place. Yet for all the demonstrated incompetence of politicians, Prof. Maule wants to put more things under their control.

TaxGrrrl, Banks Quick To Turn Over ‘Abandoned’ Assets To Revenue-Hungry States:

Originally accounts were typically considered abandoned only if they went untouched for decades. But revenue-hungry states have been dramatically shortening that “dormancy” period to get their hands on this booty. 

Because the state politicians want the money don’t trust the private sector to take care of their customers, and they are looking out for you!

Peter Reilly, Campaigning For Bishopric Not A Valid Exempt Purpose – Kent Hovind Update. It’s not? I guess I can skip my mitre-measuring session.

 

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Robert D. Flach, FOUR REASONS TO REMOVE THE EITC FROM THE TAX CODE: “Probably the most important reason – Tax credits, especially refundable credits, are a magnet for tax fraud.” That’s exactly right.

Rachel Rubenstein, Reflections on the General State of Tax-related Identity Theft (Procedurally Taxing). “From 2004 to 2013, the NTA identified tax-related identity theft as one of the “‘Most Serious Problems” faced by taxpayers in nearly every annual report submitted to Congress here.”

David Brunori, The Revolt of the Corporations (Tax Analysts Blog). “The message is clear: Businesses have options and will move to sunnier tax climates.”

Howard Gleckman, The House GOP’s Internal Battle Over Online Sales Taxes (TaxVox).

Tony Nitti, Donald Trump Announces Bid For Presidency: What Is His Tax Plan? And who cares?

 

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Alan Cole, IGM Panel: Real Income Growth is Understated (Tax Policy Blog):

The IGM Forum, a University of Chicago project that surveys academic economists on issues, last month found that economists broadly agree that real median income numbers understate real growth in standards of living.

I think that has to be true. Don Boudreaux likes to compare items in old Sears catalogs with their modern counterparts to show how much better — and cheaper, in terms of hours of work needed to pay for them — the modern goods are:

The list is long of consumer goods that ordinary Americans today can easily afford but that were unavailable commercially to even the wealthiest Americans in the 1950s. This list includes digital cameras, lightweight waterproof sportswear, high-definition televisions, recorded Hollywood movies to play at home, MP3 players, personal computers, cellphones, soft contact lenses, and GPS devices.

We take for granted everyday things, like the internet, flight, automobiles, paved roads between cities, that the richest men of 200 years ago did without.

 

TaxProf, The IRS Scandal, Day 769

News from the Profession. Counteroffers Rarely Work for Employees Jumping Ship (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/16/15: Extreme tax preparer business development tactic fails. And: Florida man, meet Tax Whiz.

June 16th, 2015 by Joe Kristan

 

lizard20140826Sadly, there’s plenty of tax work to go around. But not enough for Maria Colvard of Chambersburg, Pennsylvania, it seems. The operator of Tax Max LLC, a tax prep service, Ms. Chambers appears to taken competition to a new level. From a Department of Justice press release (my emphasis):

According to U.S. Attorney Peter Smith, between February and May 2013, Colvard convinced an employee at Tax Max LLC, a tax preparation service owned by Colvard in Chambersburg and Hanover, Pennsylvania, to claim to be a criminal investigator with the Internal Revenue Service to shut down the rival business, known as Christina’s Tax Service, also located in Chambersburg.  The employee, Merarys Paulino, then claimed to be an IRS agent and demanded money from Christina’s Tax Service as well as its client list. Paulino previously entered a guilty plea to impersonating an IRS agent and cooperated in the prosecution of Colvard.

It’s foolproof! What could go wrong? Well, other than that a tax professional would be the least likely person in the world to believe an IRS criminal investigator would just show up without a written notice and demand cash and a client list on the spot. In Pennsylvania, as in Iowa, law enforcement folks don’t spend their days chasing geniuses.

Ms. Colvard was convicted of two counts of extortion and one count of “aiding the impersonation of an employee of the United States” after a four-day trial.

 

Jason Dinesen, Choosing a Business Entity: Basic Terminology

Robert Wood, FedEx Settles Independent Contractor Mislabeling Case For $228 Million

Hank Stern, On “Losing” Subsidies. “The fact of the matter is, should SCOTUS insist that the law be applied as it was written, then folks in states using the 404Care.gov site were never eligible to receive subsidies in the first place.”

Peter Reilly, Exchange Facilitator Does Not Beat Missouri Use Tax On Learjet. “What they learned was that a transaction that qualifies for tax deferral under federal tax principles does not necessarily avoid sales and use tax.”

Kathryn Sedo, Counsel for Ibrahim Explain Last Week’s Important Circuit Court Opinion on Filing Status (Procedurally Taxing). “The question before the 8th Circuit in Isaak Ibrahim v. Commissioner was whether the term ‘separate return’ as used in section 6013(b) is defined as return with the filing status ‘married, filing separately’ or a tax return with any other filing status other than ‘married, filing jointly.'”

Kay Bell, Houston, we could have more flood problems. “OK, how did I wake up today in my Austin house but in South Florida?”

 

2008 flood 1

 

Greg Mankiw, considering arguments made by Export-Import Bank supporters, says:

Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don’t need to import other nations’ bad policies.

Substitute “states” for “countries” and “nations” and it is an accurate summary of the foolishness of the state tax credit “incentive” game played by Iowa economic development officials and politicians.

Jeremy Scott, Can the United States Kill BEPS? (Tax Analysts Blog). ” The United States will probably never go along with BEPS the way the rest of the world has gone along with FATCA, but in the end that probably won’t matter. The EU, India, and China will be perfectly happy to find a way to preserve their tax base without U.S. help.”  “BEPS,” by the way, stands for “Base erosion and profit shifting,” the predictable and natural response of taxpayers to pocket-picking tax authorities.

Kayla Kitson, Four Reasons to Expand and Reform the Earned Income Tax Credit (Tax Justice Blog). I don’t buy it. With 25% of its cost going to ineligible people — and no small part of that to thieves — it is at best very inefficient. The post doesn’t even mention the poverty trap created by the way the credit phases out as incomes rise.

TaxProf, The IRS Scandal, Day 768. “The court filing, provided to The Daily Caller, claims the IRS received new Lerner emails from the Treasury Department’s inspector general (TIGTA) but can’t fork over the emails to Judicial Watch, a nonprofit group suing to get the emails. Why? Because the IRS is busy making sure that none of the emails are duplicates  – you know, so as not to waste anyone’s time.”

Renu Zaretsky, Raising or Cutting Taxes: Go Big or Go Home. Today’s TaxVox headline roundup covers presidential candidate tax pledges, as well as tax developments in Kansas, Texas, Florida, New Mexico and Massachusetts.

 

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Florida man meets Tax Whiz. A Florida man filed a tax return prepared by the “Tax Whiz” claiming the American Opportunity Tax Credit. The result was a $1,853 overpayment that the IRS applied to outstanding child support liabilities. The IRS later determined that he didn’t qualify for the credit because he had no qualifying educational expenses. The IRS wanted its $1,843 back.

The man argued that Tax Whiz claimed the credit unbeknownst to him, so he shouldn’t have to pay it back. The Tax Court wasn’t buying:

By his own admission petitioner did not review the return in question. Reliance on a tax return preparer cannot absolve a taxpayer from the responsibility to file an accurate return. See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987) (“As a general rule, the duty of filing accurate returns cannot be avoided by placing responsibility on a tax return preparer.”). Even if Tax Whiz may have claimed the credit without his knowledge, petitioner is still responsible for the resulting deficiency.

The moral? Not a surprising result.  You are responsible for what goes on your return, no matter how much, or how little, you pay your preparer. More surprising is that the taxpayer’s first and middle name is listed as “William Billy.”  I’ve never seen that one.

Cite: Devy, T.C. Memo 2015-110.

 

 

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Tax Roundup, 6/15/15: IRS declines to make estate tax easy for surviving spouses. And: New ID theft measures!

June 15th, 2015 by Joe Kristan

Due Today: Second Quarter estimated tax payments; returns for U.S. citizens living abroad.

 

Funeral home signIRS declines to make the estate tax portability election easy. There’s no such thing as a joint estate tax return. That means if one spouse has all of the assets, the other spouse’s lifetime estate tax exemption — $5,430,000 for 2015 deaths — can be lost.

Congress changed the tax law to allow a surviving spouse to inherit the deceased spouse’s unused estate tax exemption, for use on when the surviving spouse files an estate tax return. unfortunately, this treatment is not automatic. It is only available if a Form 706 estate tax return is filed for the first spouse to die. The IRS on Friday issued final regulations rejecting any short-cuts in this process.

There are many problems with this approach. The most obvious is the lottery winner problem. A couple might be living in a trailer, and when the first spouse dies, there seems to be no point in filing an estate tax return when their combined assets are a small fraction of the amount triggering estate tax. Then the surviving spouse wins the Powerball, and suddenly the first spouse’s estate tax exemption becomes very valuable — but it’s lost, because no return was filed.

The IRS rejected allowing any pro-forma or short-cut estate tax returns for such situations:

The Treasury Department and the IRS have concluded that, on balance, a timely filed, complete, and properly prepared estate tax return affords the most efficient and administrable method of obtaining the information necessary to compute and verify the DSUE amount, and the alleged benefits to taxpayers from an abbreviated form is far outweighed by the anticipated administrative difficulties in administering the estate tax. In

The IRS did say it would be generous in allowing “Section 9100” late-filing relief for taxpayers who die with assets below the exclusion amount, but they did not provide any sort of automatic election. The result is a trap for the unwary executors of small estates.

Cite: TD 9725

 

20130419-1IRS announces ID-theft refund fraud measuresThe IRS last week announced (IR-2015-87) steps it promised in March to fight refund fraud in cooperation with tax preparers and software makers:

The agreement — reached after the project was originally announced March 19 — includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. And there will be continued collaborative efforts going forward.

The most promising of the steps:

Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:

-Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.

-Reviewing computer device identification data tied to the return’s origin.

-Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.

-Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

These are important because they might actually prevent fraudulent refunds from being issued. Measures to help identify fraud after it happens don’t do much, especially when the fraud occurs abroad. Catching the fraudulent returns before the refunds are issued is the only way to really deal with the problem, and the only way to keep innocent taxpayers whose identification has been stolen from having to go through the annoying and sometimes lengthy process of recovering their overpayments.

The sad thing – I see nothing here that couldn’t have been done five years ago, when ID theft refund fraud was already becoming a problem. But the Worst Commissioner Ever was too busy trying to impose preparer regulations on behalf of the big franchise tax prep outfits to pay attention. Priorities.

 

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Bob Vineyard, Best Kept Secrets About Obamacare (Insureblog). “About half of those living in Kentucky and classified as poor were not aware of the basics of Obamacare.”

TaxGrrrl, Spain’s King Felipe Strips Sister Of Royal Title As Tax Evasion Charges Proceed. What good is being regal if things like this happen?

Annette Nellen, Tax reform for 2015? Seems unlikely

Kay Bell, Lessons learned from being tax Peeping Toms

Jason Dinesen, Marriage in the Tax Code, Part 10: Filing Statuses Arrive in 1948

Peter Reilly, Why Is Multi-State Tax Compliance So Hard? “Don’t get me wrong.  I believe that the prudent thing is to try to be in pretty good, if not perfect, compliance.  Just don’t expect anybody to make it really easy any time soon.”

Robert Wood, Beware Tax Cops At Farmers’ Markets

 

20120816-1Joseph Henchman, State of the States: Special Session Edition and Kansas Approves Tax Increase Package, Likely Will Be Back for More (Tax Policy Blog). Mr. Henchman rounds up end-of-session tax moves from around the country. Kansas may have made the biggest changes, including a small retreat from its exemption of pass-throughs from the income tax:

Kansas in 2012 completely exempted the income from such individuals, who now total over 330,000 exempt entities. Efforts to repeal this unusual and non-neutral total exclusion of pass-through income earned a veto threat from Governor Brownback. The guaranteed payments provision is estimated to generate approximately $20 million per year.

Taxing guaranteed payments will hardly plug the fiscal hole created by the blanket pass-through exemption. Joseph concludes: “But overall, it is a grab bag of ideas that does little to address the problems underlying Kansas’s tax and budgetary instability. Absent more fundamental changes, legislators will likely have to return in coming years to address budget gaps.”

 

Norton Francis, How Would the Kansas Senate Close the State’s Budget Gap? Mostly by Taxing Poor People (TaxVox)

 

TaxProf, The IRS Scandal, Day 765The IRS Scandal, Day 766The IRS Scandal, Day 767

 

Career Corner. Reminder: Parents Meddling in Your Careers Will Not Help You (Caleb Newquist, Going Concern)

 

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Tax Roundup, 6/11/15: Remember the June 15 deadlines. And: The Bernie Sanders bait and switch.

June 11th, 2015 by Joe Kristan

 

20140728-1Programming Note: No tax roundup tomorrow. See you Monday!

 

Things that are due Monday: 

– Second Quarter estimated tax payments.

– Returns for filers living abroad

The IRS reminds us Taxpayers with Foreign Assets May Have FBAR and FATCA Filing Requirements in June.

 

Kyle Pomerleau, How Scandinavian Countries Pay for Their Government Spending (Tax Policy Blog).  This post considers avowed Socialist and quixotic presidential candidate Bernie Sander’s affection for Scandinavian tax and spending policies:

Specifically, Sanders wants the United States to adopt a lot of the spending policies that many of the Scandinavian countries (Denmark, Norway, Sweden) are commonly known to have. Policies such as government sponsored college education, paid parental leave, and universal healthcare.

Many of these new government programs would be expensive and necessitate higher taxes. It is instructive to look at how Scandinavian countries structure their tax systems in order to raise revenue for these programs. Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Two charts from the post tell the story:

High top rates…

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…that kick in at much lower income levels than here:

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In words, somebody making just a little more than the average income in Denmark pays a 60.4% rate on every additional dollar of income, while you have to make 8.5 times the average U.S. income to hit the top U.S. marginal rate of 39.6%.

A high top tax rate sounds great when it’s being paid by some rich guy you don’t know, but when you pay it, it doesn’t soound so good. That’s the bait and switch behind the spending policies of Bernie Sanders and his ideological soulmates. They tell you that somebody else will pay for all of this bountiful government spending, but the rich guy isn’t buying — he can’t.

 

Leona May, Accounting Firms Need More Career Options If They Want to Retain Talent (Going Concern):

With partner being the only laudable end goal, no wonder the big accounting firms have become essentially an accounting industry training ground. Firms pay to train us, and then we jump ship after a few years if that shinin’ disco light partner standard does not jibe with our long-term career aspirations.

The failure to retain good employees who don’t want equity is an expensive failure for our industry.

 

Robert D. Flach says SEE YOUR TAX PRO FIRST! “Very, very important – if you are considering entering into a business enterprise visit your tax professional and your accountant (if not the same person or firm) before you visit your attorney.”

Hank Stern, Centennial State HIX Hiccups (InsureBl0g). On the ugly state of Colorado’s ACA exchange.

Robert Wood, IRS Still Isn’t Ready For Obamacare, Says Watchdog

Carl Smith, Is The Tax Court an Agency or a Court for FOIA Purposes? (Procedurally Taxing)

Kay Bell, NYC attorney pleads guilty to amended tax return fraud. If the tax agency asks you why you haven’t filed your tax returns, filing fraudulent ones is an unwise response.

Jack Townsend, The Vatican Signs On To FATCA

Andrew Mitchel, U.S. Government Continues to Pursue Taxpayers Committing Tax Fraud

 

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TaxProf, The IRS Scandal, Day 763. Today’s link puts the Tea Party scandal in its context as part of the larger movement to regulate (and, inevitably, restrict) free speech via campaign finance “reform.”

Renu Zaretsky, “The Waiting Is the Hardest [and Most Constant] Part”  Today’s TaxVox headline roundup covers the IRS funding standoff and the continuing Kansas budget fight, among other things.

Cara Griffith, Are REITs Paying Their Fair Share to States? (Tax Analysts Bl0g)

Carl Davis, Sales-Tax-Free Purchases on Amazon Are a Thing of the Past for Most (Tax Justice Blog). “Effective June 1, Amazon is now collecting sales taxes in fully half the states that are collectively home to over 247 million people, or 77 percent of the country’s population.”

 

This could catch on a lot better than that Irwin Schiff stuff. Austrian Brothel Offering Free Sex And Drinks In Tax Protest

 

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Tax Roundup, 6/10/15: Canada finds tax freedom today. And: limits to states tax reach.

June 10th, 2015 by Joe Kristan

canada flagOh, Canada. The Tax Foundation determined that the U.S. “Tax Freedom Day” was April 24 this year. Our neighbor to the north has had to wait until today, reports the Fraser Institute:

Tax Freedom Day measures the total yearly tax burden imposed on Canadian families by the federal, provincial and local governments.

“Without our Tax Freedom Day calculations, it’s nearly impossible for Canadian families to know all the taxes they pay each year because federal, provincial and local governments levy such a wide range of taxes,” said Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of Canadians Celebrate Tax Freedom Day on June 10, 2015.

The list of taxes includes income taxes, payroll taxes, health taxes, sales taxes, property taxes, fuel taxes, vehicle taxes, profit taxes, import taxes, “sin” taxes and more.

In 2015, the average Canadian family (with two or more people) will pay $44,980 in total taxes or 43.7 per cent of its annual income.

The lateness of the date may surprise some U.S. tax practitioners who are familiar with Canada’s low 15% top corporation tax rate — less than half the U.S. 35% top rate. But Canada more than makes up for it with high provincial taxes and a national sales tax.

 

iowa-illustrated_Page_01Fencing in state tax collectors. A proposed “Business Activity Tax Simplification Act of 2015” (H.R. 2584) would update the rules restricting the ability of states to tax interstate activity:

Business Activity Tax Simplification Act of 2015 Expands the federal prohibition against state taxation of interstate commerce to:


(1) include taxation of out-of-state transactions involving all forms of property, including intangible personal property and services (currently, only sales of tangible personal property are protected); and
(2) prohibit state taxation of an out-of-state entity unless such entity has a physical presence in the taxing state. Sets forth criteria for:
(1) determining that a person has a physical presence in a state, and
(2) the computation of the tax liability of affiliated businesses operating in a state.

Congress last addressed these rules in 1959. The world of multistate commerce today would hardly be recognizable to an Eisenhower-era tax planner. States constantly try to expand their reach to non-voters in other states. State taxes are becoming the largest portion of the tax compliance bill to more and more small businesses. Simplification is way overdue. Unfortunately, this bill will probably go nowhere.

 

Gretchen Tegeler, Public sector health plans are costly for taxpayers (IowaBiz.com):

Health exchange plans try to encourage members to be conscious of the cost of services.  They require subscribers to pay 100 percent of the cost of nearly everything, up to the deductible. The deductibles are set deliberately high — $3,750 for a single plan and $7,500 for a family plan in our example. Public employee plans, on the other hand, which already cost employees very little in premiums, tend to have extremely low co-pays and deductibles. So employees have minimal exposure to the actual cost of services, and minimal incentive to stay healthy.

When you don’t have to compete to stay in business, this is what happens.

 

Another ACA Success Story. The Treasury Inspector General for Tax Administration reports that delays in getting information from insurance exchanges will make it impossible for the IRS to verify all health insurance subsidy claims.

Hank Stern, Yeah, about that promise… (InsureBlog).

 

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Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 3

Timothy Todd, Ninth Circuit Vacates Tax Court Decision On Transferee Liability. The case involves a “Midco” transaction involving the use of a loss company to give a buyer an asset deal and a seller a stock deal in the sale of a C corporation.

TaxGrrrl, Footballer Lionel Messi To Face Trial On Tax Fraud Charges. That’s a soccer player, in case you are trying to remember what NFL team he’s on.

Robert Wood, Hastert Pleads Not Guilty, But Can Write Off Blackmail On His Taxes

Caleb Newquist, Who Wants to Work at a Small Accounting Firm? (Going Concern). If it’s you, let me know.

Jim Maule, The Return of the Lap Dance Tax Challenge. “Despite having a fairly good grasp of tax law generally, and a passable understanding of sales taxation, I would have struggled with this case because, as others can attest, I don’t quite understand art.”

 

20120816-1David Brunori, Brownback Can’t Catch a Break (Tax Analysts Blog).

I think Brownback had the right idea and the wrong approach. He wanted to reduce tax burdens on Kansas citizens. That is laudable for two reasons. First, in the long run, lower taxes will lead to greater economic growth. Second, the money belongs to Kansans. Politicians don’t have an inherent right to people’s property. And it doesn’t matter whether lawmakers’ motivations are noble or venal — it’s not their money.

But I think Brownback made a terrible error when he exempted from tax all income from passthrough entities.

That approach is exactly backwards. You should broaden the base when you lower the rates. And while you should make sure you don’t tax income twice, you want to catch it once.

Kay Bell, Louisiana lawmakers ask D.C. lobbyist for tax hike permission. “Spoiler alert: Americans for Tax Reform’s Grover Norquist says ‘no'”

 

Scott Greenberg, Progressive Policy Institute Calls for Cutting Corporate Tax Rates (Tax Policy Blog). “Right now, companies can take advantage of lower tax rates in Europe by relocating their legal location through an inversion. But, if new international tax rules force companies to actually move jobs overseas to take advantage of Europe’s lower tax rates, companies would likely shift jobs away from the U.S. as well.”

TaxProf, The IRS Scandal, Day 762. He links to a piece arguing “First, the IRS, while effective at collecting taxes, is a poor agency to task with regulating advocacy organizations, especially those, such as the advocacy groups covered under 501(c)(4), that cannot offer donors a tax deduction.” Actually, every non-revenue task assumed by the IRS weakens their effectiveness in collecting taxes.

Playing hard to get. Does Saying “No Chance” Increase the Chances of Reform? Renu Zaretsky’s TaxVox headline roundup covers tax reform, internet taxes, and patent boxes today.

 

News from the Profession. The Greatest Reality TV Accountants, Awarded and Ranked (Leona May, Going Concern). I’d love to see Robert D. Flach do this.

 

 

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Tax Roundup, 6/9/15: A Cedar Rapids ID thief pleads guilty. And: Packing the patent box.

June 9th, 2015 by Joe Kristan

lizard20140826What are the chances of the government recovering any of the fraudulent refunds? WQAD reports on an Iowan who jumped on the ID theft refund fraud gravy train:

A 35-year-old Iowa woman was convicted after she used another person’s identity to file a phony tax return and then cash the $6,000 refund check issued by the IRS.

Gwendolyn Murray, of Cedar Rapids, was initially charged March 3, 2015, with 12 counts of filing false claims for tax refunds, seven counts of theft of government property and two counts of aggravated identity theft. She was accused of preparing fraudulent tax returns between 2008 and 2013, from which she received seven refund checks, according to court documents.

The total amount allegedly stolen is unavailable in public records, and the defendant pleaded guilty to only one count. Whatever the amount, the defendant’s need for a public defender doesn’t make recovery of the stolen funds seem likely.

 

Image by Theroadislong under Creative Commons license, via Wikipedia.

Image by Theroadislong under Creative Commons license, via Wikipedia.

Martin Sullivan, Patent Box: Good Intentions Gone Bad (Tax Analysts Blog):

Now several prominent members of Congress want to provide another tax break for research. At first glance, this seems like a very good idea since the usual objections to tax breaks don’t apply. And most regular people understand that the competitiveness of our nation — or in politics-speak, the availability of high-paying jobs — depends on technology.

The new tax break is called a patent box. (The “box” referred to here is the box checked on tax forms in Europe where this idea originated.) The general idea is that income from technology pays tax at a substantially lower rate than other income. So if under tax reform we could get the corporate rate down to 28 percent, patent box income would be taxed at a 14 percent rate.

The problem with this approach is that no one knows even a halfway good way of identifying “income from technology.”

It’s a ridiculous idea. In a real sense every bit of income is “income from technology.” The technology of animal husbandry and plant cultivation has been around for awhile, but it was a big step up from the Acheulean Hand Axe, which was cutting edge technology (literally) in its day.

The patent box is as arbitrary and nonsensical as the Section 199 deduction for “domestic production income.” Yet Section 199 became and remains part of the tax law, so being absurd won’t necessarily stop it.

 

Hank Stern, Obama Tax Breakage:

And second, why is it a given that “employer sponsored” health plans are the bee’s knees? As we’ve previously blogged, employers don’t tell us what groceries or house to buy: they pay us our wages and we’re free to make our own choices. Why should health insurance be any different?

The historical accidents that led to employer health as a tax-advantaged fringe benefit are reasonably well-known, but it’s a lot harder to answer why it should be that way.

 

buzz20141017It’s Tuesday, so it’s Buzz Day! At Robert D. Flach’s, you can rummage through the tax implications of garage sales and see just how much Robert likes “reality TV.”

TaxGrrrl, Hastert, Hovind & FIFA Matters Shed Light On Dangers Of Structuring

Russ Fox, Neymar Wins Championship but Faces Tax Evasion Investigation. Soccer just isn’t getting great press off the field the last week or so.

Robert Wood, Moving To Avoid California Taxes? Be Careful. “Don’t just get a post office box in Nevada. That doesn’t work and you will end up with bills for taxes, interest and penalties or worse.”

Keith Fogg, Update on Dischargeability of Late Filed Tax Returns. It can be hard to get bankruptcy discharge on tax debts if you don’t stay current with your filings.

Kay Bell, The tax costs of maintaining private coastal properties. “It’s time that we faced the reality that we can’t beat Mother Nature, at least not along the coastline. And we need to stop using our tax dollars to subsidize this destined-to-fail effort.”

William Perez, 4 Tips for the 1st Estimated Tax Payment of 2015. The second payment is due June 15.

 

TaxProf, The IRS Scandal, Day 761. “Judicial Watch announced that Judge Emmet Sullivan of the U.S. District Court for the District of Columbia granted a Judicial Watch request to issue an order requiring the IRS to provide answers by June 12, 2015, on the status of the Lois Lerner emails the IRS had previously declared lost.”

 

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Joseph Thorndike, Carly Fiorina Answers the $59 M Question: Why Should Candidates Release Their Tax Returns? (Tax Analysts Blog). “For many, that disclosure will be unpleasant. But I suspect most candidates have learned a lesson from the Romney debacle: Tax disclosure can hurt, but nondisclosure can be deadly.”

Howard Gleckman, Obama-Era Tax Reform: RIP: “Many Democrats, who have embraced income inequality as their 2016 campaign theme, are likely to back more targeted middle-income tax breaks, not fewer. Their agenda will be tax deform, not tax reform.”

 

Cameron Williamson, Connecticut Legislature Sends Corporate Tax Hike to Governor. (Tax Policy Blog). This is a step backwards for Connecticut tax policy.

Jared Walczak, Nevada Approves New Tax on Business Gross Receipts (Tax Foundation). A big step backwards for Nevada tax policy. At least it’s paired with a giant step forwards in education policy.

 

Peter Reilly dives deep into the case of the creationist theme park operator and his seemingly miraculous impending release from prison: The Juror Who Freed Kent Hovind Steps Forward

 

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