Tax Roundup, 11/18/14: The ACA and filing season. Be afraid.

November 18th, 2014 by Joe Kristan

20121120-2Megan McArdle, Reality Check on Obamacare Year Two:

Another thing to keep in mind, however: This open enrollment period isn’t the biggest test for Obamacare in the next 12 months.  The biggest test will be what happens on or around April 15th.  That’s the first time all the people who didn’t buy insurance will get hit with the individual mandate penalty, and the ones who thought that it was a nominal $95 fee are in for a nasty shock .  April 15th will also be the first time that people who got too much in subsidies are going to be asked to pay back some of that money.  I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.  Brace for a wave of taxpayers angrily complaining to congressmen and their local newspapers.  

After completing the first six sessions as a panelist in continuing education for tax preparers around Iowa, I completely agree. Preparers learning about the process of computing the individual mandate penalty and the tax credit adjustments are appalled.

The first question we receive is: how are we going to get people to pay for this? The taxpayers who will have the biggest issues here will be the ones who formerly had the simplest returns and who will not be excited about paying for an extra 1-4 hours of preparer time.  A chart prepared by the ISU Center for Agricultural Law and Taxation to guide preparers through the client interview process for ACA return issues looks like this:

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Courtesy Iowa State University Center for Agricultural Law and Taxation. Full-size version available to TaxPlace subscribers.

 

But it’s worse than even Ms. McArdle knows. It’s not just individual taxpayers who look to get clobbered by this. Based on what I’ve seen at our sessions, dozens or hundreds of Iowa small businesses are starting to figure out that they have had non-compliant health insurance plans so far in 2014 as a result of the ACA “market reforms.”  Non-compliance carries a penalty of $100 per day, per employee. At $36,500 per employee per year, it doesn’t take too much of this to bankrupt a small business. And it’s not as though these employers are doing something abusive; they have just continued funding employee insurance the way they always had, but in ways the “Departments” that run Obamacare no longer like. Or they just might have done all the right things, except for properly notifying employees of their coverage options in writing. Trivial violations, crushing penalties.

While there is a provision to have the penalty waived for reasonable cause, that’s not very comforting in a state where the IRS is willing to loot a restaurant’s bank account without any indication of wrongdoing.  In addition to dealing with a parade of irate individuals with sticker shock from their return fees, let alone their new taxes and penalties, preparers also have to tell noncompliant business-owning clients that they suddenly have a potentially devastating tax liability.

If taxpayers are upset after tax season as practitioners are before it, Obamacare will be about as popular as Ebola by April 15.

 

 

Today in Red Oak.Kay Bell, IRS offers tax relief in certain Ebola situations

Robert D. Flach discusses TAX EFFICIENT INVESTING

Leslie Book, Living With Your Decisions: Delinquent Mortgage Debt (Procedurally Taxing). “Courts and IRS put the kibosh on deductions when the new loan comes from the same lender as the old delinquent loan; the theory in those cases is that the taxpayer has not really gone out of pocket and that there is just a shuffling of papers.”

 

Martin Sullivan, Why the Upcoming Battle Over Expiring Tax Provisions Matters — A Lot (Tax Analysts Blog). “Extenders legislation is not just about the fate of a grab bag of miscellaneous tax provisions this year. If Republicans can get expensive expiring provisions permanently extended, the chances for enactment of tax reform will be significantly improved.”

Steve Warnhoff, New CBO Report: Yes, the Rich Are Paying “a Bit” More (Tax Justice Blog). How much more, Steve?  “New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share.” (Via Instapundit):

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Kyle Pomerleau, CBO: Overall Federal Taxing and Spending is Progressive (Tax Policy Blog)

 

Donald Marron, Spin Alert: DOE Loans Are Losing Money, Not Making Profits (TaxVox). Of course they are losing money. If they were profitable, they wouldn’t need the feds to make the loans.

TaxProf, The IRS Scandal, Day 558

 

News from the Profession. You’re Not Really as Busy as You Claim (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/17/14: Sundog weather is shorts weather!

November 17th, 2014 by Joe Kristan

It’s 7F outside here in Mason City, Iowa. Warm enough for shorts, it seems.

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This gentleman was scraping his windows outside North Iowa Area Community College, where I am part of the Day 1 panel of the  Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I wonder what this guy wears in the summer.

It’s cozy and warm here in the conference room, where 165 attendees are beginning two days of the finest continuing education available today in Cerro Gordo County. There are two sessions left after today, in Denison and Ames; the Ames school will be webcast.  Register today!

 

Just links today.

Russ Fox, The Horrible, No Good, Very Bad Upcoming Tax Season:

If you’re a tax professional here’s a warning: The 2015 Tax Season will be one you’re almost certain to remember for all the wrong reasons. If you’re a client of a tax professional be forewarned: Your tax professional will be even more grouchy than usual next year. Why? The upcoming tax season will likely be the worst in 30 years.

There are four reasons for this: tax extenders, budget issues the IRS faces, the Affordable Care Act (aka ObamaCare), and the new property capitalization/repair regulations.

Are we excited yet?

 

Mason City Sundog Morning. It's cold here today.

Mason City Sundog Morning. It’s cold here today.

Robert D. Flach, IT AIN’T FAIR – SELECTIVE INFLATION ADJUSTMENTS. “If it is appropriate to index some tax items for inflation why shouldn’t ALL deductions, credits, thresholds, etc. be indexed for inflation?”

Paul Neiffer, Direct Deposit Limits. “In an effort to combat fraud and identity theft, new IRS procedures effective January 2015 will limit the number of refunds electronically deposited into a single financial account or pre-paid debit card to three.”

Jim Maule, Soda Sales Shifting? “Does anyone seriously think that the soda tax will reduce the number of obese people in Berkeley, or raise enough revenue to make the cost of administering and complying with the tax worthwhile?”

I’ll believe it’s about health when these people tax their own “unhealthy” habits, like double caramel lattes.

Kay Bell, Navajo lawmakers approve 2% sales tax on snacks, sodas

TaxGrrrl, NFL Flagged With Another Challenge To Tax-Exempt Status Because Of Redskins

Annette Nellen, The Election, 114th Congress and Fate of Tax Reform

Keith Fogg, TIGTA Report on ACS Details the Impact of Shrinking Budget on Tax Collection Efforts (Procedurally Taxing)

 

20131112TaxProf, The IRS Scandal, Day 557

Robert Goulder, The Ghost of Captain Renault (Tax Analysts Blog). “What? There’s corporate tax avoidance going on in Luxembourg? You don’t say?”

Sebastian Johnson, State Rundown 11/14: Here Comes the Judge (Tax Justice Blog). Kansas school funding and Maryland’s attempted double-taxation are on the docket.

Stephen Entin, Tax Policy Is Child’s Play (Tax Policy Blog). “The enactment of tax reductions or regulatory changes that make it possible to profitably employ more capital is like landing on a ladder… Enacting adverse policies that force a reduction in the amount of capital that people are willing to maintain is like hitting a chute.”

Renu Zaretsky asks How Quickly Can Lame Ducks Move Before the Holidays?  The Tax Vox headline roundup is heavy on gas tax talk and extenders.

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Tax Roundup, 11/14/14: Teaching biology is one thing, farming is another. And: parsonage allowances live!

November 14th, 2014 by Joe Kristan

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Accounting Today visitors: click here for the story about the pharmacist and the painkillers. 

Cash-rent of farmland not “material participation” for Iowa capital gain exclusion. Iowa has an unusual rule that exempts capital gains of business real estate from Iowa’s income tax if the seller meets two tests:

– Holding the property for at least ten years, and

– materially-participating in the business in which the property was used for at least ten years at the time of the sale.

Iowa defines “material participation” using the federal rules for passive loss material participation. A widow who sold 400 acres she held with her late husband claimed the deduction on her 2006 Iowa 1040.  It didn’t work out.  A recently issued protest denial letter from the Iowa Department of Revenue included these key facts:

– The land was first rented to a tenant, a Mr. Goshorn, in 1966; he cash-rented it until the 2006 sale.

– The taxpayer and her husband got full title to the 400 acres in 1990; it had been held by their family dating back to the 19th century.

– The husband died in 2005.

– The land was sold in 2006.

harvestThe taxpayers certainly met the 10-year holding requirement, but the material participation requirement was a problem, as the Department of Revenue explains (my emphasis):

In the protest you also stated, “the activities of the farmer (tenant) could not have continued were it not for the involvement of the taxpayer.”  No evidence was provided to support this statement.  At the beginning of the period ten years prior to the sale, the tenant had been farming nearly 30 years.  It does not seem reasonable that he would need the landlord to tell him how to farm.  Not only did [late husband] not live in the area, he himself had not farmed for well over 30 years.

 

The taxpayer’s daughter stated, “My parents livelihood depended on the success or failure of the farms.”  One of her parents was a biology teacher and the other an x-ray technician.  The farm was not necessary for their livelihood.  Additionally, her parents had guaranteed income by cash renting the land.  The tenant bears the risks of weather, grain prices, etc.

 

So growing things in petri dishes doesn’t count, then?

In your letter dated June 29, 2012, you stated that “The situation involved risk due to the inexperience of the tenant.”  No explanation was provided as to how or why Mr. Goshorn was inexperienced after thirty or forty years of farming.  Also, your letter dated May 9, 2013 exaggerates the risk of the landlord.  There is always a chance of default by the tenant, but it is negligible.  The landlord has legal recourse against that tenant and could find a new tenant the next year.

Thirty years is “inexperienced?” Wow. That’s strict.

Cash rental of farmland is almost impossible to reconcile with material participation.  If you or your spouse aren’t farming yourself, you probably won’t qualify for a capital gain deduction in Iowa on farmland you own.

 

lizard20140826Permanent Extenders? A report by Tax Analsyts today ($link) raises the possibility that some of the perpetually-expiring provisions up for renewal in the lame-duck Congress might be extended permanently:

Senate Finance Committee Chair Ron Wyden, D-Ore., also suggested that the negotiations over extenders could result in some provisions being made permanent and cited his tax reform proposal as evidence that he supports making the research credit permanent. But he pointed out that the cost of doing so would be nearly double the cost of the entire Senate Finance Committee extenders package.

I love how they reckon “cost” in Congress. They act as if extending the same tax break over and over forever for one or two years at a time is somehow cheaper than just enacting the provision once without an expiration date. If you tried to do something like that on your financial statements, you’d go to jail. In Congress, though, it’s just another day.

Ways and Means member Charles W. Boustany Jr., R-La., also told reporters that Republicans are negotiating for permanency on as many provisions as possible. “We sort of took them in order of importance in some respect,” he said, citing the research credit, section 179 expensing, bonus depreciation, the subpart F active financing exception, and the controlled foreign corporation look-through rule as “the top-level ones in my mind.”

That’s good news for fans of the $500,000 Section 179 deduction, which reverts to $25,000 for 2014 if no extension is enacted.

The article doesn’t say whether the President has softened his prior opposition to permanent extenders.  If he vetoes an extender bill, a tax season that already promises to be awful could get much worse.

 

Peter Reilly, Clergy Housing Tax Break Withstands Challenge – Atheist Group Lacks Standing:

For my readers who have not been following this drama I should explain, that the Internal Revenue Code provides that cash housing allowances paid to “ministers of the gospel”, that are spent on housing, are excluded from taxable income. Unlike, arguably similar exclusions for the military and people working abroad. there are no dollar limits on “parsonage” allowances.  Housing allowances for pastors of mega churches can run into the hundreds of thousands dollars.

 

I confess to some surprise at the outcome. Designating cash payment as “housing” always has seemed like a too-good-to-be-true tax break, but it lives. Staff-parish relations committees everywhere will be relieved at the outcome.

 

20140826-1Fresh Friday Buzz is on tap at Robert D. Flach’s place! Links to discussions of extenders and same-sex marriage filings issues are part of the fun.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #7-Buy A Building, Get An Immediate Deduction?

Jason Dinesen, My Experiences at the NAEA Leadership Academy. Jason, an Enrolled Agent, keeps up the fight:

Because there are so few of us, some would say (and some have said) to just let the group die. This cannot happen. EAs in Iowa are small in number … but that’s all the more reason for us to stick together! Most of the EAs I know are solo operators such as me, and we tend to exist in isolation in our own little silos. The number-one thing EAs in Iowa have told me they want is networking and a sense of community. Keeping the Iowa Society alive will help provide that.

The IRS attempt to create a new Registered Tax Return Preparer designation for those who take minimal CPE and pass a literacy test is a mortal threat to the Enrolled Agent brand. Enrolled Agents have to pass a rigorous exam and meet higher continuing education standards.

 

TaxProf, The IRS Scandal, Day 554

Howard Gleckman, How Did Medical Device MaHkers Become Poster Children for Obamacare Critics (TaxVox). Maybe because the medical device tax is such an obviously bad idea, though Mr. Gleckman seems oblivious to that issue.

 

Is that a code section? ‘Redskins’ cited as basis to revoke NFL’s tax-exempt status (Kay Bell)

 

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Tax Roundup, 11/13/14: Ottumwa Day! And: Elections and State Tax Policy.

November 13th, 2014 by Joe Kristan

Ottumwa, Iowa: An old Southeast Iowa industrial and railroad town, home of fictional Corporal Radar O’Reilly, and today host of Day 1 of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m helping out on the Day 1 panel for this year’s schools, along with CALT Director Roger McEowen and former IRS Stakeholder Liaison Kristy Maitre.  We’ll spend the morning on the ACA and it’s compliance requirements and penalties. We’ll spend the rest of the day trying to distract everyone.

It’s cozy and warm in our conference room at Indian Hills Community College.  That’s good, as it’s chilly outside.

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We’re in Mason City on Monday, and in Denison and Ames next month. There’s still time to register! And if you can’t make it to Denison, Mason City or Ames, the December 15-16 Ames session will be webcast.

 

David Brunori, What Do the Recent Elections Mean for State Tax Policy? (Tax Analysts Blog):

Taxes mattered more in Kansas than anywhere else. Gov. Sam Brownback (R) won there comfortably. The tax cuts of Republican Govs. Rick Snyder in Michigan, Paul LePage in Maine, and Scott Walker in Wisconsin were the focus of opponents’ campaigns, and those governors survived as well. The GOP challengers in Illinois, Maryland, and Massachusetts promised to either cut taxes or never raise them. They won. The message was clear: Tax cuts sell politically. One need not be Nate Silver to predict that state political leaders seeking to reduce tax burdens will be emboldened by this election.

I don’t think that’s so true here in Iowa. Now safely re-elected to a sixth term, our GOP governor is making noises about increasing the gasoline tax. But maybe he will go bold and convince a split legislature to go big on income tax reform — maybe starting with The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Greg Mankiw, Tax Fact of the Day::

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The big difference is the reliance on other countries on a Value Added Tax, which shows up in the Consumption Taxes bar.

 

Howard Gleckman, Now is the Perfect Time to Raise Gas Taxes (TaxVox).  “Gas prices are at their lowest levels in years and dropping. Consumers would barely notice if they had to pay a bit more now at the pump.”

 

Andrew Lundeen, Kyle Pomerleau, Economic Growth Has Slowed Since 2000 (Tax Policy Blog). “Since 2000, GDP growth in the U.S. has been persistently low, averaging about 2 percent. This is much lower than the economic growth we saw in the past.”

20141113-3Kay Bell, Tax extenders outlook cloudy in the 2014 lame duck session:

Will there still be some insistence by the GOP on longer-term approaches to expired tax laws in this Congressional session’s waning hours?

Just what is the level of Democratic support of permanence vs. temporary laws?

And just how much pressure will lobbyists be able to exert to gain support of their favorite provisions, especially since some of the members making decisions now will not be around next year?

We simply don’t know yet.

There’s a lot of incentive for congresscritters to pass temporary provisions. They get to pretend they are less expensive than they really are, and they force lobbyists to show up and genuflect every year or two.

Russ Fox, London Calling: The Real Winners of the 2014 World Series of Poker. The Royal Exchequer trumps a royal flush.

TaxGrrrl, Internet Tax Ban Ending Soon: Speaker Boehner Hopes To Keep Internet Tax Free

Keith Fogg, Reinhart Part II – Extending the Statute of Limitations on Collection by Virtue of Being Out of Country (Procedurally Taxing)

20140729-1Paul Neiffer, Final FUTA Tax Rates by State

 

A new Cavalcade of Risk is up at Terms and Conditions. This edition of the definitive roundup of insurance and risk-management posts covers a lot of ground, including Hank Stern’s Rubber, Road and Lyft: Insurance Crisis? on ride sharing and insurance.

TaxProf, The IRS Scandal, Day 553

 

The Critical Question. Just What the Hell is Goodwill Anyway? (Adrienne Gonzalez, Going  Concern).

 

 

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Tax Roundup, 11/12/14: IRAs, IRS, and the Liar’s Paradox. And: mass benefit, class tax.

November 12th, 2014 by Joe Kristan
Bluto20140910

You trusted us.

The Liar’s Paradox, IRS Version. If somebody says “I am lying,” can he be telling the truth? It’s a puzzler. So are many tax law rules, like the rules governing IRA rollovers.

The tax law does not subject an IRA withdrawal to tax if it is reinvested in an IRA within 60 days. It can only be done once each year. The IRS publication on such “rollovers” said from 1984 though 2013 that the one year restriction applied to each IRA, so a taxpayer with multiple IRAs could make multiple rollovers.

Alvin Bobrow made multiple IRA rollovers in 2008 consistent with this guidance. On examination, the IRS said the once-a-year rule applied per taxpayer, not per IRA, and assessed him tax and penalties.  The Tax Court upheld the assessment and penalties, in spite of the published IRS position. This is a classic example of the unfair, penalty-happy nature of the IRS examination process, too often abetted by the courts.

While manifestly unfair, the IRS long ago won the right to bait-and-switch via its publications. As the Tax Court said years ago, “well established precedent confirms that taxpayers rely on such publications at their peril.”

Even the IRS apparently is a little embarrassed by this. On Monday it issued Announcement 2014-32, saying it would not enforce the position it took in Bobrow for distributions before 2015. That seems fair to other taxpayers, if not to the Bobrows.

But here is where the liars paradox comes in. Announcement 2014-32 is mere “administrative guidance,” just like an IRS publication, and it has no more legal standing. Technically, nothing but a sense of self-restraint keeps the IRS from saying “fooled you!” on examination, just like they did in Bobrow. Does that make anyone else a little nervous?

 

The Tax Foundation has issued a wonderful new publication, A Visual Guide to Business, Taxes, and the Economy. It is full of wonderfully-illustrated insights on the economy and taxes. I love this illustration:

 

Source: Tax Foundation, "Business in America Illustrated"

Source: Tax Foundation, “Business in America Illustrated”

The chart shows that most business income subject to tax is reported on 1040s, not on corporate returns. That means every increase in taxes on high-income individuals is a tax on businesses and a tax on employers — not just on some guy lighting cigars with $100 bills.

 

20131209-1Paul Neiffer, Sheldon Iowa is Cold. It is indeed, at least this week.

Andrew Mitchel, New Rules for Canadian RRSPs & RRIFs

Kay Bell, A question for Congress on Veterans Day: Will the business tax break for hiring returning military members be renewed?

Jason Dinesen, Same-sex Marriage, Amended Tax Returns and Filing Status. “So if you’re in a same-sex marriage and you’re amending a 2011 or 2012 tax return, you can file that amended return as married or keep your filing status as single.”

Peter Reilly, Tax Court Goes To Webster For Definition Of Construction – And Watch That NAICS Code. The courts have been placing an undeserved significance on the business code you put on your tax return.

TaxGrrrl, 14 Ways To Show Your Thanks To Our Military On Veterans Day. “Here are 14 ways to show your thanks to our vets – and some of them come with a nice tax benefit to boot.”

 

20130121-2Good. IRS Power To Regulate Tax Practitioners Slipping Away (Christopher Rezek, Procedurally Taxing). The author appears to think this is somehow a bad thing.

TaxProf, The IRS Scandal, Day 552

 

Joseph Thorndike, Democrats Getting What They Deserve on Medical Device Tax (Tax Analysts Blog):

If Democrats eventually face a funding crisis for Obamacare, they have only themselves to blame. After all, they should have known better. It was a Democrat, Franklin Roosevelt, who conclusively established that broad spending programs deserve broad taxes.

Precisely. You can’t fund a mass entitlement with a class tax, but that’s exactly what Obamacare tries to do.

 

 

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Tax Roundup, 11/11/14: Veterans Day in Red Oak. And: open season on Iowa Snowbirds.

November 11th, 2014 by Joe Kristan
John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

Red Oak, Iowa seems as good a place to be on Veterans Day as any.  I’m here today as part of the ISU-CALT Farm and Urban Tax School Day 1 team. Red Oak was hit hard early in World War II when the 168th Infantry, recruited in Southwest Iowa, was crushed in the Battle of Kasserine Pass. From Wikipedia:

In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed. At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action. In recognition of Red Oak’s extraordinary sacrifice, the city’s name was given to a “victory ship“. The SS Red Oak Victory has become a floating museum in the shipyard where it was built, in Richmond, California.

It’s hard to imagine going from this little town to the desert, but they’re still doing it — most famously, Iowa’s new senator-elect.

There aren’t many survivors of World War II left. Appreciate them while you can.

Related: 42-78127.blogspot.com, on my Dad’s WWII experience.

 

With the sudden change of weather to bitter cold, Iowa’s snowbirds begin their annual migration south. When they get to Texas or Florida, they often decide that the tax climate sunnier year-round and ponder changing their residency from Iowa. Doing so avoids Iowa tax on all income other than business and rental income sourced to Iowa.

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Today in Red Oak, Iowa.

A recently-released protest response by the Department of Revenue points out some of the pitfalls faced by taxpayers trying to change their residence:

 Once an individual is domiciled in Iowa, that status is retained until such time as the individual takes positive action to become domiciled in another state or country, relinquishes the rights and privileges of residency in Iowa, and meets the criteria set forth in Julson v. Julson, 255 Iowa 301, 122 N.W.2d, 329, 331 (1963).

In reviewing the information you provided to departmental staff and included with your protest, the Review Unit has determined that you are an Iowa resident. This determination is based upon the following facts:

· You have renewed your Iowa driver’s license.

· You have and are still registering vehicles in Iowa.

· You have returned to Iowa to receive medical care.

· You filed federal income tax returns using an Iowa address.

These factors indicate to the Review Unit that you have not abandoned your Iowa domicile. Consequently, the Review Unit takes the position that you are still a resident of Iowa and all of the income you receive is taxable to the state.

This taxpayer made some pretty basic errors. If you vote in Iowa and keep an Iowa drivers license, you make it pretty easy for Iowa to find you. If you file your returns with an Iowa address, you almost guarantee Iowa will wonder why you aren’t filing an Iowa return. Citing the use of Iowa medical care in Iowa seems like piling on; I don’t think is a decisive factor given the other facts.

The Moral? If you want to move your tax home to another state, you need to act like you mean it. If you continue to use an Iowa address on your return, Iowa will not be easily convinced that you are a Texan at heart.

 

buzz20140909TaxProf, The IRS Scandal, Day 551.

Kristy Maitre, Kristine Tidgren, ACA’s Thorny Impact On More-Than-2% S Corporation Shareholders

William PerezThe Basics of the Medicare Tax

Robert D. Flach comes through with a “meaty” Buzz.  He says:

I continue to worry that the anticipated bi-partisan “cooperation” on tax reform in 2015 will be limited to corporate tax reform – with only some minor token, if any, 1040 tax reform instituted – and not the total rewriting of the entire US Tax Code that is needed.

I think we’ll be lucky to get even the corporate reform.

Stephen Olsen has the latest Summary Opinions at Procedurally Taxing, rounding up recent developments in tax procedure.  He points out a great comments thread in a post about IRS cash seizures by an Institute for Justice attorney.

Jason Dinesen, A Little Bit About Sole Proprietorships, Part 2:

Here are some of the advantages of operating as a sole proprietor:

  • They are easy to get into. There’s no real paperwork to fill out. You just start conducting business.
  • They are simpler to administer and therefore your accounting and legal fees will generally be lower.
  • As your business grows you can always convert to something else. As you go up the ladder from sole proprietor to corporation, it’s easy. But it’s hard to go down the ladder from a corporation to a sole proprietorship.

There are also plenty of disadvantages…

Jack Townsend, IRS on Quiet Filings for Offshore Account Delinquencies or Underreporting

Kay Bell, 2015 inflation adjustments for exemptions, deductions, more!

Annette Nellen, Premium Tax Credit Saga – New Developments and Dilemmas

 

 

roses in the snowKyle Pomerleau, How Corporate Integration Increases Transparency and Eliminates Double-Taxation (Tax Policy Blog).  “Under our current system of double-taxation, a corporation that earns $100 needs to pay the corporate income tax (for this example let’s assume a 25 percent corporate tax rate). The after-tax income ($75) is then passed to shareholders and taxed again. The result is a 46.53% tax burden on corporate income.”

Martin Sullivan, Your Quick Guide to Dynamic Scoring in the Next Congress (Tax Analysts Blog)

Renu Zaretsky, ACA Tax Provisions Still Under Fire. This TaxVox headline roundup covers the latest in ACA battles, including a brief filed by some states (including Iowa’s Attorney General Miller) saying they thought they thought being on a federal exchange wouldn’t threaten tax credits for their residents.

 

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Tax Roundup, 11/10/14: DOL nixes many employer health reimbursement setups. And: Sheldon!

November 10th, 2014 by Joe Kristan

Good morning from beautiful, if frigid, Sheldon, Iowa, where I am on the Day 1 panel of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. A good crowd has braved the brisk north winds and forecasts of snow — so now it’s up to us to make them glad they did.

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Elections are over I. Branstad says Iowa road funding a top priority, raising fuel tax on the table (Omaha.com)

Elections are over II. FAQs about Affordable Care Act Implementation (Part XXII) The Department of Labor has issued new guidance on small-employer plan arrangements. The guidance, issued just after the election, puts strict limits on the ability of employers to bypass group plan rules by reimbursing premiums or using Health Reimbursement Arrangements under Section 105. As plans doing that have been marketed to small employers in Iowa and elsewhere, this could be an expensive development for employers; violating these rules carries a $100 per day penalty for each affected employee.

The FAQ discusses premium reimbursement arrangements: (my emphasis):

My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?

No. If the employer uses an arrangement that provides cash reimbursement for the purchase of an individual market policy, the employer’s payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is group health plan coverage within the meaning of Code section 9832(a), Employee Retirement Income Securi20121120-2ty Act (ERISA) section 733(a) and PHS Act section 2791(a), and is subject to the market reform provisions of the Affordable Care Act applicable to group health plans. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code. Under the Departments’ prior published guidance, the cash arrangement fails to comply with the market reforms because the cash payment cannot be integrated with an individual market policy.(6)

This means that employers cannot have employees submit their insurance bills for reimbursement; doing so is considered a disqualified group insurance plan. The closest the employer can do is give an employee a raise without restriction, giving the employee the option of buying insurance.

The FAQ pretty much embalms Sec. 105 plans as substitutes for group plans.

A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?

No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic for several reasons. First, the arrangements described in this Q3 are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage. The mere fact that the employer does not get involved with an employee’s individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan. DOL guidance indicates that the existence of a group health plan is based on many facts and circumstances, including the employer’s involvement in the overall scheme and the absence of an unfettered right by the employee to receive the employer contributions in cash.(12)

DOL LogoSecond, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54, and the two IRS FAQs addressing employer health care arrangements referenced earlier, such arrangements are subject to the market reform provisions of the Affordable Care Act, including the PHS Act section 2711 prohibition on annual limits and the PHS Act 2713 requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code.

It is difficult to determine the policy reasons behind this. As best I can tell, it seems to be that the DOL wants employees to be covered either under traditional group plans set up under the small business exchanges, or on individual plans purchased through the regular exchanges. Whatever the policy justification, it’s bad news for any employers using such arrangements, as the rules are already in effect for 2014.

Paul Neiffer has more at DOL Plays Hardball (Don’t Shoot the Messenger)!

If you are dealing with any vendor offering Section 105 plans that are attempting to make payment of health insurance premiums for more than one employee deductible by the employer and exempt from payroll taxes, be extremely careful.  As you can see from this Q #3, the DOL takes a dim view of these arrangements.

One last area of concern that was not addressed by the DOL is what happens with S corporation shareholders who have health insurance premiums reimbursed.  Under the self-employed health insurance deduction rules, there is a requirement for reimbursement; under the DOL Q&A, these reimbursements may run afoul of the ACA requirements.  If we get further clarity on this, we will let you know.

I understand this as restricting S corporation 2% owners to group plans, without a reimbursement option, but I suspect clarification is forthcoming.

Additional coverage from ISU-CALT: Updated! Heal.th Reimbursement Plans Not Compliant with ACA Could Mean Exorbitant Penalties.

 

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Sheldon scene, 2013. It’s slightly less cold this year.

William Perez, What You Need to Know about Reporting Payments Using Form 1099-MISC

Kay Bell, IRS taxpayer service outlook, short- and long-term, is bleak

Robert Everett JohnsonIRS Seizure of Assets Using Anti-Structuring Laws (Procedurally Taxing). It is a guest post by an attorney for the heroic Institute for Justice, which is defending the Arnolds Park, Iowa resturaunteur whose cash was stolen by the IRS.

TaxGrrrl, IRS Warns Taxpayers To Be Diligent As Identity Thieves Add New Twist To Phone Scam.

Russ Fox, Since the Dead Vote, Why Can’t They Get Tax Exemptions? “Cook County has begun to make sure that seniors are truly alive when taking the exemption.”

 

TaxProf, The IRS Scandal, Day 550. Todays links hit heavily on the failure of the agency to even look for the missing Lois Lerner e-mails in its servers or backup tapes. Yet Commissioner Koskinen just doesn’t understand why Republican appropriators don’t want to entrust him with a bigger budget.

Career Corner. Gentlemen, If Your Firm Offers Paternity Leave, Take All Of It (Caleb Newquist, Going Concern). Yes, it gives you lots of time to interview for that new job you’ll be needing.

 

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Tax Roundup, 11/7/14: The crime of deducting Cal Ripken’s bat. And more!

November 7th, 2014 by Joe Kristan

bauders

Accounting Today visitors, the godawful link you seek is here.

The principal owner of a local pharmacy has pleaded guilty to two felony counts arising from an investigation of illegal sales of painkillers. Mark Graziano pleaded to one drug conspiracy count and one count of tax evasion. The Des Moines Register story covers all you might want to know about the drug charges. Naturally, we’re more interested in the tax angle.

Surprisingly to me, the tax charge is unrelated to the drug charge.  It involves instead the alteration of business credit card records to conceal purchases of personal non-deductible things.  From the plea deal:

Beginning sometime prior to 2008, and continuing into 2012, Defendant used the business credit card to make purchases which were solely for the personal benefit of the Defendant. Such purchases included airline travel and cruises, jewelry, vehicles, and sports memorabilia and other collectibles.

The pharmacy paid a local accounting firm to write up the business financial statements.

Prior to providing the monthly credit card statements to the accounting firm, Defendant altered the credit card statement by (1) deleting the personal benefit purchases, and (2) increasing the amounts represented as additional inventory from wholesale distributors. Defendant would then provide the altered credit card statements to the bookkeeper, who entered that information…

The deal says that Mr. Graziano was 68% owner of the pharmacy corporation, an S corporation. That means not only was he deducting personal expenses on the business return, but he was also charging 32% of the cost of his toys to his minority owners.

The plea deal says that Mr. Graziano will forfeit sports memorabilia to fund reimbursement of unpaid taxes. It’s an interesting collection. From the indictment:

graziano memorabilia

It seems he was an old-school basketball fan.

The plea deal doesn’t say how he altered the statements, but I would guess he downloaded them and made the chenges on his P.C., to get away with it so long. He might still be doing it if his co-defendant hadn’t unwisely reported a non-paying illegal drug customer to the customer’s parole officer.

Fortunately, the pharmacy will remain open. His sister will acquire his interest, according to the Des Moines Register story. The pharmacy still operates an old-time soda fountain serving delicious homemade ice cream. Des Moines would be a little less without that.

The moral? If the company has a business credit card, the statements should not go to the card user. They should be opened by someone else in the office, someone who might wonder why a pharmacy needs all those ball bats.

 

Home sweet homestead. Illinois County Uncovers $9.4 Million in Fraud Revenue with Analytics (Govtech.com). Using data mining techniques, a contractor helped Cook County identify improper property tax homestead exemption claims.

 

20140826-1Robert D. Flach serves up your Friday morning Buzz! He buzzes about everything from IRAs to muni bond losses.

TaxGrrrl, IRS Warns Taxpayers To Be Diligent As Identity Thieves Add New Twist To Phone Scam. If you aren’t expecting a call from IRS, it’s not the IRS.

Peter Reilly, Technology Officer Denied Capital Gain Treatment On Sale To Google

Kay Bell, Most of 2014’s tax ballot questions approved by voters

Robert Goulder, Apple’s Financial Disclosure: The Lockout Effect at Work (Tax Analysts Blog). “Apple recently disclosed that its stockpile of offshore profits has increased to $137 billion. That’s money the company can’t fully use without suffering massive tax costs. If you’ve ever sought an illustration of the lockout effect run amok, this is it.”

TaxProf, The IRS Scandal, Day 547

Scott Drenkard, Richard Borean, Corporate Net Operating Loss Carryforward and Carryback Provisions by State (Tax Policy Blog)

Richard Auxier, Voters Hate Gas Tax Hikes—That’s a Problem for States *TaxVox). If Governor Branstad proposes one, that probably means he really plans to retire.

 

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Tax Roundup, 11/6/14: You pretend to complete the form, we’ll pretend to care. And: election mania!

November 6th, 2014 by Joe Kristan

Accounting Today visitorsthe godawful link you seek is here.

 

20120905-1Don’t worry about getting it right, just make it look good. IRS personnel trying to appease angry practitioners at an AICPA Tax Division gathering had some strange and annoying things to say yesterday.

Practitioners are upset at the IRS insistence on Form 3115 accounting method change applications with 2014 returns from everyone moving into compliance with the new rules on repair and capitalization costs.  Tax Analysts reports ($link):

Participants in the tax methods and periods panel at the American Institute of Certified Public Accountants fall Tax Division meeting in Washington said that some taxpayers don’t want to pay the high costs associated with going through years’ worth of records to calculate a precise section 481(a) adjustment required under the final regulations (T.D. 9636). The cost of that level of compliance could be more than the entire cost of preparing their returns, practitioners said, adding that the taxpayers are considering filing their method changes with corresponding section 481(a) adjustments of zero.

The piece cites Scott Dinwiddie, special counsel, IRS Office of Associate Chief Counsel (Income Tax and Accounting):

Taxpayers were taking aggressive positions, so the government didn’t want to provide an across-the-board cutoff in the final regulations, he said. Instead, it required 481(a) adjustments as a way to allow field agents to examine taxpayers’ aggressive positions, he said.

So because some taxpayers were taking positions you didn’t like, you want to require everyone to do a bunch of wasteful and meaningless busy work during our busiest time of the year. Got it.

Dinwiddie said that, barring a situation in which the taxpayer has taken aggressive positions in the past or has in no way applied a proper capitalization method, the IRS is unlikely to have much interest in examining a taxpayer’s section 481(a) adjustment now.

So we pretend to file an accurate Form 3115, and they pretend to care. Well, you have to admit that considering the budget and enforcement restraints on the IRS, this approach is… absolutely insane. Taxpayers have to pay for a bunch of nonsense compliance, and the IRS doesn’t care whether it’s right. The IRS still has to incur processing costs. I’d love to see the IRS cost-benefit worksheets on this one.

 

20120810-1The TaxProf has a roundup of observations on the whether tax reform can happen in the new Congress, including this from William Gale:

It is a good bet that the new Republican Congress will continue to talk about tax reform. That is safe ground for Republicans generally. And, of course, seemingly impossible things do sometimes happen. But I wouldn’t bet on tax reform. 

A wise non-bet.

 

TaxGrrrl, What Matters Most When It Comes To Tax Reform? Hint: It’s Not Control Of Congress:

What is interesting, however, is that most of the significant tax policy changes in the modern era are more closely tied to the length of presidential terms. Every president has a budget – and an agenda – but real shifts in rates and policies tend to happen during a second term (or en route to a second term) no matter which party is in control. 

I don’t expect it to happen this time.

 

Scott Drenkard, What Do the 2014 Midterm Election Results Mean for State Tax Policy? “My prediction is that this means that taxes will be one of the biggest, if not the biggest issue in state policy next legislative session, and that tax reform will become even more of a bipartisan issue.”  I’m afraid that’s not true here in Iowa.

Russ Fox, Nevada Goes Deep Red. “Do you remember 1928? Well, that was the last time Nevada had a Republican governor, a Republican State Assembly, a Republican State Senate, and Republicans holding all major statewide offices.”

Paul Neiffer, A Christmas Present?! “They will meet over the next six weeks or so and around Christmas time we will get the final tax package.”

 

 

20120702-2Arnold Kling’s characteristically wise observation on the election results:

Conventional wisdom is that, relatively speaking, Democrats have a structural advantage in Presidential elections, because those elections attract more turnout. In other words, they do much better among disengaged voters. One could spin this positively for the Democrats, saying that they get support from the weaker segments of society. One could spin this negatively and say that they rely on a segment of the electorate that is poorly informed and easily bamboozled, which I believe is the case. The counter to that would be that Republicans also rely on a segment of the electorate that is poorly informed and easily bamboozled, which I also believe is the case.

While I don’t agree with all of what he says, the whole post is brief and well worth reading. So is this from Don Boudreaux:

I advise freedom-loving and free-market-appreciating Americans (of which I am unashamedly one) to be good Tullockians about the results of yesterday’s landslide wins for the G.O.P.  The Republicans who won those elections are, after all, politicians – and it is the rare politician, of whatever party, who reliably puts principle above personal interest.  As a rule, politicians are untrustworthy, duplicitous, and cowardly; they are people who have an unusually powerful craving for power and fame; and the successful among them typically posses an unusual talent for camouflaging their craving for power and fame as a saintly calling to ‘serve the people.’

Pretty much. But some are less bad than others, enough so that I do bother to vote.

Renu Zaretsky, Don’t Call It a Comeback… Yet.  The TaxVox headline roundup is full of post-election links, including news of Berkeley, California, passing an idiotic soda tax. When they start taxing mocha lattes, I’ll believe they’re such taxes are about public health than moral vanity.

 

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And some folks are actually talking about things other than the election:

Jana Luttenegger, Even Startups Need to Have the Conversation (Davis Brown Tax Law Blog).

Jason Dinesen tells us A Little Bit About Sole Proprietorships, Part 1

William Perez, Dividends: Taxes and Reporting

Robert D. Flach recounts EXPLAINING MORTGAGE INTEREST AND INVESTMENT INTEREST FOR A CLIENT

Jim Maule discusses how Mortgage Loan Modification Can Imperil Interest Deduction

Stephen Olsen at Procedurally Taxing as a new round of Summary Opinions., with links to news from the world of tax procedure.

Jack Townsend, The Honorable Jed Rakoff on Why Innocent People Plead Guilty. He quotes Judge Rakoff: “…the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains.”

Kay Bell, 5 tax record keeping questions … and answers!

TaxProf, The IRS Scandal, Day 546

News from the Profession. McGladrey Reminds Audit Staff to Stay Billable This Busy Season (Caleb Newquist, Going Concern)

 

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Tax Roundup, 11/5/14: Red waves and extenders. And: RIP, Gordon Tullock

November 5th, 2014 by Joe Kristan

20130113-3So what does it mean for bonus depreciation? Sure, there was a turnover of power in the Senate, but we have tax returns to do here, people. What does the new makeup Congress mean for the upcoming filing season?

Well, technically for now, nothing. The same old congresscritters hold their seats until January. These are the same critters who have failed to to pass a bill extending all of the perpetually-expiring provisions that technically died at the beginning of 2014, including $500,000 Section 179 deductions, 50% bonus depreciation, and the research credit.  With the election over, they may finally move these Lazarus provisions. I think they will, considering that failure to do so will make an ugly filing season even worse.

Yet they may not. The Republican House of Representatives has passed a series of bills making some of the extenders permanent. These have been bottled up in the Democrat-controlled Senate. An emboldened GOP may insist on their versions, a stance which at least has fiscal honesty going for it. If so, nothing happens until January. And even then, the President may veto the permanent extenders in the name of “fiscal responsibility,” keeping up the pretense that passing tax breaks every year or two forever is less costly than just passing them once for good.

So we may just all be doomed. But we knew that.

 

20120906-1Meanwhile, nothing changes in IowaGovernor Branstad, avid distributor of economic development tax breaks, cruised to an easy victory over low-income housing credit developer Jack Hatch. The results show that with respect to corporate welfare tax credits, it truly is better to give than to receive.

While the GOP Governor won easily, the Democrats retained their 26-24 margin in the Iowa Senate.  That means no comprehensive Iowa tax reform is likely for at least the next two years. Not that it would be anyway, as Governor Branstad seems to have made his peace with high rates and complexity, given the ribbon cuttings he gets to attend when tax credits are awarded. But if he changes his mind, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, with its elimination of the corporation income tax and all the credits and its 4% top rate, is ready any time he is.

 

In other election-related newsThe lame smear of an Iowa congressional candidate for “moving his corporation to Delaware to dodge Iowa taxes” failed. Entrepreneur Rod Blum won the race for the seat vacated by Bruce Braley, who lost his bid for Iowa’s open U.S. Senate seat. Really, implying that it is somehow improper for a public company to incorporate in Delaware is right up there with accusing someone of being a notorious extrovert in a relationship with an admitted thespian.

And the attempt to get a local option sales tax passed in the Iowa City area failed.

 

train-wreckMeanwhile, we may be headed for a disastrous filing seasonBoth Commissioner Koskinen and Taxpayer Advocate Nina Olson had grim forecasts for the coming tax season, reports Tax Analysts ($link):

“I think it will rival the 1985 filing season,” Olson said. “Those of you who have been in practice that long remember that time when all the returns disappeared, and Philadelphia melted down, and bags were stuffed in the trash full of returns, and we all got nice little calls from the IRS saying, ‘We know your client filed a return, but would you please file it again because we lost it.’ And it took years to undig ourselves from that.”

Oh goody. Of course, the Commissioner used the occasion to try to jack up his budget:

Both Koskinen and Olson said that there is only so much they can do without increased funding from Congress. 

“You really do get what you pay for,” Koskinen said. “And if you’re not paying for it, there’s no way you’re going to get it.”

The IRS will offer no tax return preparation at its walk-in assistance centers and will answer only limited tax law questions over the phone, Olson noted.

Yet with his condescending dismissal of GOP concerns over the Tea Party scandal, and his continuing stonewalling, he has done everything he could to antagonize the folks that set his budget. I’ll believe the IRS needs more money when it stops spending what it has on a “voluntary” preparer regulation regime nobody wants, when it stops using its “scarce” resources to steal cash from small businesses, when it stops giving away millions in cash to ludicrous fraud schemes, and when it stops covering up its harassment of the President’s political opponents. In other words, I’ll believe they are out of money when they don’t have money to spend on dumb things.

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Kay Bell, Tax reform a big factor for mid-term election voters

Peter Reilly, AICPA Wasted Member Dues On IRS Lawsuit. I don’t think it’s wasteful to fight IRS overreach.

Robert D. Flach, FEAR OF CPAs

Keith Fogg, Rare Suspension of Statute of Limitation Due to Continuous Absence from United States (Procedurally Taxing)

David Brunori, Taxing the Internet Is a Bad Idea – As the Hungarians Learned (Tax Analysts Blog)

Howard Gleckman, Will Consumers Come To Love Longevity Annuities? (TaxVox)

TaxProf, The IRS Scandal, Day 545

 

20130110-2RIP, Gordon TullockAn intellectual giant left the scene this week when Gordon Tullock died Monday in Des Moines, where he moved in the past year. It was sadly appropriate that he died just prior to election day, given his aversion to voting.

Gordon Tullock was a father of the “Public Choice” school of economics. The online “Concise Encyclopedia of Economics” explains:

As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns.

A bureaucrat is as human and as selfless, or selfish, as any businessman. This insight helps explain why so many good intentions go awry when they become law.

Dr. Tullock also had important observations on the tendency of powerful interests towards “rent seeking,” whereby the well-connected enrich themselves by to suppressing competitors via regulation and other government intervention.

I met Dr. Tullock once doing tax work for his family, before I understood who he was. He struck me as an absent-minded professor at first, until I realized that he seemed distracted because he was about five steps ahead of me in the discussion. He later sent me an inscribed copy of one of his books, “The Economics of Non-Human Societies.” The inscription said that my profession was described in the chapter beginning on page 47.

The chapter is about termites.

Other Gordon Tullock coverage from Don Boudreaux, Brian Doherty, Bryan Caplan and Tyler CowenFrom Caplan:

While I often disagreed with him, everything he wrote is worth reading.  Start with this excellent compendium.  Unlike many “interdisciplinary” economists, Tullock was a genuine polymath; his knowledge of history was especially impressive.

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Tax Roundup, 11/4/14. Vote. Or don’t. And: Pittsburgh police 1, IRS Agent 0.

November 4th, 2014 by Joe Kristan
Flickr image courtesy Letta Page under Creative Commons license

Flickr image courtesy Letta Page under Creative Commons license

Today is election day. Vote if you think you know what you’re doing.  But ask yourself: do you know, without looking it up, the names of both of your Senators, your congresscritter, your Governor, the President and Vice-President, and can you properly identify their political parties? Can you name the three branches of the Federal government? If not, you should ponder whether you really ought to be doing this.

Jared Walczak, Voters to Consider Tax Ballot Initiatives in Eighteen States Tomorrow. (Tax Policy Blog) That would be today now.

Election days are on Tuesdays, so you can catch a fresh Buzz from Robert D. Flach before you hold your nose and vote. His roundup today includes links to a story about tax initiatives up for a vote around the country, among other good stuff.

 

Peter ReillyWhat If Lois Lerner Was Right About The Tea Party?

 If there is a pretty compelling case that Tea Party Patriots Inc was intended from day 1 to be a political organization, rather than a social welfare organization, would that make any difference in how we view Lois Lerner?

No. “Tea Party Patriots Inc.” was one organization that appropriated the “Tea Party” name, but the Tea Party movement is not any one organization. It was (and is) an amorphous grassroots reaction to the percieved overreach of the Obama administration. Lois Lerner went after a range of groups with “Tea Party” and other words she associated with small government activism– like “constitution.” The IRS held up the applications of those groups, harassing them with improper and ridiculously intrusive questions. Meanwhile, the applications of “progressive” groups flew right on through.

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The issue was never whether Tea Party Patriots Inc. abused tax-exempt status. The issue is whether the IRS discriminated against groups opposed to the Administration. The answer is clearly yes. If you only enforce laws against people you disagree with (and it’s clear she didn’t like the Tea Party), that’s abuse of power.

 

Jason Dinesen, Joe the Window Washer Gets a Reality Check:

For example, here are a few realities Joe will have to face:

  • In Iowa, if Joe cleans windows on commercial property, he has to collect sales tax.

  • He has to file an income tax return.

  • While not necessarily required, it would be good for Joe to talk to an insurance agent about having a business liability policy in case he accidentally damages a customer’s property.

It’s amazing how complicated washing windows can be.

 

Russ Fox, Math Is Hard (Tax Court Edition). When the judge tells you to keep it to 75 pages and you file an 88 page brief, you might as well not file one at all. It saves paper, and you get to the same place.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #8-A Big Break For Home Builders

 

20130426-1Michelle Feit, Failure to File Required International Information Return Suspends Statute of Limitations on Entire Return until the Information Return is Filed (Procedurally Taxing):

Thus, if a taxpayer is required to report on interests in, control over, transfers to, or distributions from foreign accounts, corporations, partnerships, entities or trusts (as provided for in the above-listed sections), the three-year statute of limitations will not start running until the taxpayer submits that foreign information report to the IRS.

And, since March 2010, the extended limitations period generally applies to the entire return applicable to that Taxpayer, not simply to the liabilities associated with the information that was not filed.

It’s not enough to get clobbered with a $10,000 penalty for not filing a return they won’t read. You keep the whole year open indefinitely too.

 

Kay Bell, November tax moves to help you avoid tax turkeys

Jack Townsend, Raoul Weil Found Not Guilty. A high-profile Swiss bank prosecution fails.

 

Jeremy Scott, Is the IRS Office of Professional Responsibility in Decline? (Tax Analysts Blog) “Hawkins’s legacy as OPR chief might end up being defined more for the IRS’s overreach and what she didn’t accomplish than the numerous things she has.”

Mr. Scott’s post does have an error, or at least a badly-worded sentence.  He says:

Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012.

While the Institute for Justice did help the preparers, the implication that it was formed by preparers is incorrect. IJ is a public-interest law firm with a libertarian bent that was around before the preparer case. It continues to do righteous work on behalf of victims of asset forfeiture (including the Arnolds Park  IRS victim) and in battles against regulations that protect existing busiensses from competition.  I support it with my donations, and you can too.

 

Martin Sullivan, Immigration Reform in 2015? We Could Use the Money (Tax Analysts Blog). I don’t think this issue is really about the tax revenue, but if it is, it would be more direct to just sell admission.

 

This will sure attract outside investment. Argentina accuses Procter & Gamble of tax fraud, says suspends operations

TaxProf, The IRS Scandal, Day 544

Revecca Wilkins, New Filing This Week Reveals Apple Continues to Divert Profits to Tax Havens (Tax Justice Blog). In other news, heavy things fall to the floor if you let go of them.

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News from the Profession. Deloitte, Please Stop Trying to Be the Walmart of Professional Services (Adrienne Gonzalez, Caleb Newquist, Going Concern).  I’m not even sure what that would mean. Retired partners offering a friendly greeting at the door?

 

The best and the brightest. Police: Man Arrested For Kicking Heinz Field Barriers, Trying To Bribe Officers (CBS Pittsburgh):

A man was arrested after injuring a woman by kicking a steel barrier at Heinz Field Sunday evening.

According to police, 29-year-old Stephen Sapp was intoxicated at the time of the incident.

According to the criminal complaint, Sapp stated, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”

The officers informed Sapp that he could not attempt to bribe them, but Sapp continued.

“Look, I am an IRS agent and I can help you in other ways if you let me go home and make this go away.”

Was an IRS agent, anyway. (via Instapundit)

 

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Tax Roundup, 11/3/14: Elections tomorrow; good riddance. And: $3,000 unmentionables!

November 3rd, 2014 by Joe Kristan

20121006-1Tomorrow is Election Day. Good Riddance.  Tomorrow ends the current Festival of Democracy. Because I share Arnold Kling’s view of election seasons as “brutal assaults on reason,” I look forward to it ending.

However unreasoning, elections do affect policy. Some of the tax policy issues in play this year:

Is it better to give that to receive? Iowa’s incumbent Governor Branstad is an avid distributor of corporate welfare tax credits. His challenger is an avid recipient. If the polls are to be believed, it is truly better to give than to receive.

What about the extenders? We practitioners just want to have a tax law for Christmas, or sooner, so a tax season that we already expect to be bad won’t be just godawful. It’s not clear whether a Republican takeover of the Senate will affect the timing of the extender bill, but it is possible that it might spur the incumbent Democratic leadership into action to pass bills more to their liking than they would see from their successors.

What about federal tax reform? The 1986 tax reforms were passed by a Congress led by one party and signed by a president of the other party. The possibility of this happening if the Senate goes Republican seems absurdly small.

What about Iowa Tax Reform? Iowa once again is in the bottom 10 in having a bad business tax climate. A Republican takeover of the Iowa Senate would make serious tax reform efforts possible. It wouldn’t make it likely, though, given the Governor’s affinity for giving away tax credits.

Whatever the results, I predict that politicians will continue to give away tax credits to businesses that will proceed to do what they were going to do anyway; the politicians will then claim credit for the jobs they “create.”  Other politicians will say that there is nothing wrong with spending money that taking more from “the rich” won’t cure.

So vote away, if you are so inclined. But don’t count on any big changes as a result.

 

Flickr image courtesy David Goehring under Creative Commons license

Flickr image courtesy David Goehring under Creative Commons license

Jack Townsend, IRS and FinCEN Form 8300 and Geographic Targeting Order: “Recently, FinCEN issued a Geographic Targeting Order, here, imposing additional reporting and recordkeeping requirements on a relatively small (but apparently financially active) area of Los Angeles, California.”

Very strange, to me. The order imposes special rules on accepting cash for a wide variety of businesses in part of L.A. I didn’t know there was such a rule. I wonder how they are letting all of these stores — including “lingerie stores” — know they suddenly have a new reporting obligation if somebody spends $3,000 in cash there.  And I wonder who spends $3,000 on lingerie.

 

 

The Des Moines Register adds to the coverage of the seizure of cash from an Arnolds Park, Iowa restaurant owner.

Robert D. Flach, TO EXTEND, OR NOT TO EXTEND. THAT IS THE QUESTION. “If a tax benefit is appropriate it should be permanent – except in response to serious natural disasters, the idiots in Congress should never enact temporary tax measures.”

Amen, Brother Robert.

 

William Perez, Investing in or Spending Bitcoin? Learn about the Tax Implications

 

harvestPaul Neiffer, IRS Announces Various Inflation Adjusted Items:

Last night I rode in the combine in Northeastern Iowa from about 7 pm to about 2:30 am.  We cut about 10,000 bushels of corn with a John Deere S680 and I must admit there is something therapeutic about seeing corn come into the combine and then get dumped into the grain cart. 

Take 10,000 bushels and call me in the morning.

 

Annette Nellen, Damages: Deductible?

It’s a fact of life that businesses get sued. Even if they win, there are legal and related fees. What if they lose and have to pay compensatory and perhaps also punitive damages? Perhaps also some fines to the government?  What is deductible for tax purposes? A recent case from the First Circuit Court dealt with an action involving the False Claims Act with total damages of just over $486 million!

I don’t think generally one sort of damages should be more tax-beneficial than another. The income tax should base should measure capacity to pay taxes, not moral fiber or good citizenship.

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Jana Luttenegger, More 2015 Tax Numbers Released, Including Tax Brackets (Davis Brown Tax Law Blog)

 

Keith Fogg, Promoting, Not Discouraging, Tax Compliance (Procedurally Taxing). “Don’t we want to introduce our young citizens into a tax system that is rational and just? The current model does precisely the opposite.”

Kay Bell’s “Don’t Mess with Taxes” is sporting a new look. Go read Best states for business tend to have no or low taxes and check it out.

 

TaxProf, The IRS Scandal, Day 543

 

tax fairyRuss Fox, Perhaps She’ll Cover the Guilty Plea in the Second Edition:

Her book, The Prosperity Principles: Secrets to Developing and Maintaining Generational Wealth, notes that business should be run, “…where everything you can do can be deducted from your reportable income as a business expense.”

That’s just another way of saying that there is a Tax Fairy. There is no Tax Fairy.

 

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IRS releases 2015 401(k) max, other 2015 retirement plan limit adjustments

October 31st, 2014 by Joe Kristan

The IRS has announced the inflation adjustments to retirement plans for 2015.  Some highlights:

– Maximum contributions to 401(k) and 403(b) plans rises to $18,000 (from $17,500).  Taxpayers who are 50 years old by the end of 2015 will be able to contribute and additional $6,000 (formerly $5,500), for a combined maximum of $24,000.

The maximum 2014 IRA contribution limit remains at $5,500, plus the additional $1,000 “catch-up” for taxpayers who are 50 or older by the end of 2015.

The maximum contribution to defined contribution plans increases from $52,000 to $53,000.

The annual defined benefit plan annual benefit limit remains at $210,000.

More details are available from the IRS news release.

 

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Tax Roundup, 10/31/14: Halloween! And: mortgage interest? Put it on the tab.

October 31st, 2014 by Joe Kristan

20140325-1The deduction for home mortgage interest is hugely popular among those with huge home mortgages. Taxpayers get to deduct all of the interest paid on loans used to buy a home, up to $1 million in principal; they also get to deduct interest paid on the first $100,000 in home equity debt.

But there is a technicality: the interest needs to be “paid.” That was a problem for a California couple in Tax Court yesterday.

The couple bought a home in 1991 for $300,000. They refinanced it for $600,000 in 2007. Then 2008 happened, and they got a loan modification in 2010. Tax Court Judge Lauber explains:

The modifications included a reduction of the interest rate, a change in the payment terms, and an increase in the loan balance. Immediately before the modifications, the outstanding loan balance was $579,275; after the modifications, the new balance was $623,953. The difference (equal to $44,678) resulted from adding the following amounts to the loan balance: past due interest of $30,273, servicing expense of $180, and charges for taxes and insurance of $14,225.

The taxpayers added the $30,273 to the $9,253 the bank put on their 1098 mortgage interest statement for 2010. The IRS noticed the difference and disallowed the $30,273.

20121031-2The Tax Court sided with the IRS:

Petitioners are cash basis taxpayers. It is well settled that “[a] cash-basis taxpayer ‘pays’ interest only when he pays cash or its equivalent to his lender.”

 Through the loan modification agreement, the $30,273 in past-due interest on petitioners’ mortgage loan was added to the principal. No money changed hands; petitioners simply promised to pay the past-due interest, along with the rest of the principal, at a later date. Because petitioners did not pay this interest during 2010 in cash or its equivalent, they cannot claim a deduction for it for 2010. They will be entitled to a deduction if and when they actually discharge this portion of their loan obligation in a future year. 

In short, you can’t just add interest to the loan balance and get a deduction. That has obvious implications for “reverse mortgages.”

As the taxpayers make the payments, they will have some additional factors to consider. Their original purchase price was $300,000 for the house. Unless the additional borrowing was used for renovation or expansion of the home, it is “home equity indebtedness.” Interest on only the first $100,000 of equity debt will be deductible — and only for regular tax, not AMT.

Cite: Copeland, T.C. Memo 2014-226.

 

mst3k-lanternWilliam Perez, The Tax Audit Success Story and Tips from Audit Experts

Jason Dinesen, Same-sex Marriage and State Taxes: 2014

Kay Bell, 2015 income tax rates, income brackets

TaxGrrrl, IRS Announces 2015 Tax Brackets, Standard Deduction Amounts And More

Robert D. Flach has A SCARY THOUGHT for Halloween. “What if the 114th Congress turns out to be made up of most of the same idiots as the 113th Congress!”  It will be.

 

Leslie Book, AICPA Suit Against IRS Voluntary Education and Testing Regime Thrown Out of Court (Procedurally Taxing)

Tax Trials, Tax Court Preserves Taxpayer Protections against Arbitrary and Capricious Appeals Rulings

 

Arnold Kling  on “middle class” tax credits:

Brooks endorses the reform conservative Room-to-Grow idea of showering middle-class families with tax credits. I see that as political posturing. If I could be in charge of tax reform, we would get rid of credits and deductions, and we also would move away from taxing income and instead toward taxing consumption. Note, however, that tax reform is not one of my top three priorities.

Except for the last sentence, I agree with it all.

 

6fpw32atDon Boudreax on the Arnolds Park IRS cash seizure:

I challenge anyone to justify, or even to excuse, such an abuse of power.  (HT a dear and wise and passionate friend.)

Words normally do not escape me, but I can find none that adequately convey the anger and sense of injustice that course through me when I read of seizures such as this one.  Best to let the matter speak for itself, which it surely does to anyone this side of Frank Underwood in decency and civility.  Fortunately, the great Institute for Justice is on the case.

Oh, I’m sure that things like that could never happen if the IRS had a bigger budget.

 

Andrew Lundeen, Tens of Thousands Protest Internet Tax in Hungary (Tax Policy Blog) Would-be dictators come up with wacky ideas.

20141027-2Matt Gardner, Obscure Law Allows Wealthy Professional Sports Team Owners to Reap Tax Windfalls (Tax Justice Blog) . He doesn’t care for intangibles amortization.

 

TaxProf, The IRS Scandal, Day 540

 

News from the Profession. Grant Thornton to Have Rat Problem for Foreseeable Future (Adrienne Gonzalez, Going Concern)

Tony Nitti, Want To Do Your Part To Help Fight Ebola? Skip Your Next Vacation. OK, I’m skipping my next vacation to Liberia.

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Tax Roundup, 10/30/14: Maquoketa! And: I was so upset, I only reported the loss items from my K-1.

October 30th, 2014 by Joe Kristan

 

MCSD Cardinal LogoGreetings from Maquoketa, Iowa, home of the Cardinals and the largest cave complex in the state. Today is Day 1 of the second session of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m on the Day 1 panel with Roger McEowen and Kristy Maitre, updating practitioners on 2014 developments and the upcoming ACA reporting nightmares. There is still time to register for the schools in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. Register today!

 

 

Emotional stress can have strange effects. But maybe not that strangeA married couple operated two LLCs as partnerships owned entirely between them. They paid a preparer to put together the 1065s and K-1s. But they apparently figured they could handle things from there, self-preparing the 1040s.

Their son took ill on a foreign trip, and they traveled overseas from October 4, 2011, to November 4. Perhaps as a result, they missed the extended return deadline for 2010 and filed late.  Better late, than never, of course.

There was a small problem with the self-prepared return. The K-1s showed about $129,000 in ordinary losses and $553,000 in long-term capital gains. The losses made it on to the self-prepared 1040s, but the capital gains somehow did not.

The IRS notices that sort of thing, and they assessed the additional tax on the gain, as well as a 20% “accuracy-related penalty” on the underpayment. The case ended up in Tax Court, where the taxpayer pleaded — well, I’m not sure how to describe this. From the Tax Court decision:

Petitioners reported in their 2010 return all of the information reflected in [Husband]’s K-1 and [Wife]’s K-1 except for the information relating to “[n]et long-term capital gain (loss)”. At trial, the Court attempted to focus [Husband] on petitioners’ inconsistent reporting in their 2010 return of the information that MMIT reflected in [Husband]’s K-1 and [Wife]’s K-1 by asking him about [the preparer’s} September 15, 2011 letters. The following exchange between the Court and [Husband] took place:
THE COURT: Now, what does it mean to you when a letter to you and to your wife says, this information reflects the amounts you need to complete your income tax return?

THE WITNESS: To be truthful, I never read it.

THE COURT: You never read it?

THE WITNESS: Yes.

THE WITNESS: Yes.

That sort of blew the “reliance on the preparer” defense. The taxpayer fell back on emotional trauma:

We consider now petitioners’ contention that [Husband] was so emotionally distraught about his son’s health at the time that he prepared petitioners’ 2010 return that he was unable to prepare that return properly. We are sympathetic that petitioners’ son was experiencing certain medical problems around the time petitioners’ 2010 return was due and that petitioners were seriously concerned about their son’s health. Nonetheless, on the record before us, we find that petitioners have failed to carry their burden…

 Indeed, petitioners reported in their 2010 return, which [Husband] prepared, all of the information reflected in [Husband]’s K-1 and [Wife]’s K-1 except for the information relating to “[n]et long-term capital gain (loss)”.

Adding the income lines to the 1040 after having to deal with a seriously ill son overseas would seem like emotional piling-on, but that means nothing to the tax law.

The Moral? As traumatic  as reporting a K-1 capital gain may be, you have to report what’s there. And maybe if your tax situation is complex enough to require hired help to prepare your pass-through returns, you might want to spring to have the preparer handle the 1040 too. The fee surely would have been less than the $12,000 penalty.

Cite: Singhal, T.C. Summ. Op. 2014-102

 

Kyle Pomerleau, Most of the Private Sector Workforce is Employed by Pass-through Businesses (Tax Policy Blog):

In the past three decades, the importance of “pass-through” businesses has grown substantially. The combined net income of sole proprietors, LLCs, Partnerships, and S corporations has increased fivefold and now accounts for more than 50 percent of all business income. C corporations now earn less than half of all business income.

Pass Through Employment by state

It you jack up taxes on “the rich,” you jack up taxes on employers. If you tax something more, you get less of it.

 

Friday is Thursday this week at Robert D. Flach’s place – with an early Buzz covering the AICPA’s loss on its suit against the “voluntary” IRS preparer program and on IRS cash seizures.

Kay Bell, Voters get their say Nov. 4 on myriad ballot initiatives

Peter Reilly, Government Coming Down Harder On Kent Hovind. Bad science isn’t a tax crime.

Joseph Thorndike, Can Jeb Bush Save Conservatism by Compromising It? (Tax Analysts Blog). If recent polls are any indication, having their opponents in power seems to be “saving” conservatism already.

Steve Warnhoff, Senator Rob Portman: Case Study in Radical, Rightwing Arguments for Slashing Corporate Taxes (Tax Justice Blog). Remember, TJB is part of Citizens for Tax Justice, a “non-partisan” exempt organization.

 

taxanalystslogoCara Griffith, Benefit Corporations: The Corporate Entity of the Future? (Tax Analysts Blog):

Those who shop at Patagonia or Etsy are likely aware of a new type of business entity that is growing in popularity. These companies and a thousand more have chosen to organize as either B corporations or benefit corporations…

 Still, the number of benefit corporations is relatively small. The reason for this is – ironically – a lack of benefits. Benefit corporations are not given tax, incentive, or procurement preferences by state or federal lawmakers. While nonprofits receive substantial benefits for their chosen entity type, benefit corporations receive no such benefits. They are taxed like c corporations – at least for now. 

This is new to me. A business structure built around moral vanity seems implausible to me, but I’ve never shopped Etsy.

 

TaxProf, The IRS Scandal, Day 539.

 

News from the Profession. Let’s Talk About Creative Accounting Themed Halloween Costumes (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/29/14: Iowa Business Tax Climate worsens. And: Ex-IRS man does a Reddit AMA.

October 29th, 2014 by Joe Kristan

41st out of 50. Iowa reclaimed its bottom-10 standing among the states in the 2015 Tax Foundation Business Tax Climate Index released yesterday. Iowa’s standing fell one spot from 2014.

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The Tax Foundation report mentions Iowa’s highest-in-the-nation corporation tax rate, its high individual rates, and its complicated tax system.  Iowa was rated as having the second-worst corporation tax system.

The Tax Foundation explains how the worst states got that way:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Even though Iowa’s complex and dysfunctional income tax is a long-standing embarrassment, it has been a non-issue in the current race for Governor. While he has occasionally said Iowa needs a better tax code, Governor Branstad’s administration has more avid about handing out tax credits to buy ribbon-cuttings than about fixing a tax law that burdens businesses lacking the pull to swing special deals. The tax law as it is seems to suit the Governor’s needs well enough now.

His opponent, Senator Hatch, is a big beneficiary of tax credits in his development business. As he makes a good living out of the tax law, he is an unlikely candidate for tax reform.

The report does hold out hope. North Carolina’s ranking jumped from 44th to 16th as a result of reforms enacted this year. If they can do it, maybe Iowa can too. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would eliminate the corporation tax and drastically reduce individual rates by getting rid of Iowa’s rats nest of politically-convenient deductions and credits, would be a great place to start.

Other coverage:

TaxProf, 2015 Business Tax Climate: Chilliest in Blue States

Russ Fox, The 2015 State Business Tax Climate Index: Not Much Has Changed

 

20120906-1David Brunori, Yes, More Problems with Tax Incentives (Tax Analysts Blog):

People who have studied tax incentives know everything that’s wrong with them: They don’t work (companies choose where to locate for other reasons); they’re unfair (some companies get them, others don’t, and their benefits inure to the haves rather than the have-nots); they’re inefficient (government bureaucrats can’t make decisions better than the market). There are many more.

We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.

Indeed.

 

Iowa saved from giving away $30 million in corporate welfare. Iowa loses $1.4 billion fertilizer plant to Illinois (Des Moines Register) “Previous news reports have said both Iowa and Illinois offered Cronus tax incentives of about $30 million.”

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Robert D. Flach reports on THE SAVER’S CREDIT NUMBERS FOR 2015. This is an underused credit that rewards frugality by lower-income taxpayers.

Jason Dinesen, IRS Oops on E-Services E-mail. “That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.”

Jim Maule, How Not to File a Tax Court Petition “First, stand in line and get that hand-stamped postmark. Second, avoid the need to learn the first lesson by treating the petition as due EIGHTY days after it is mailed. That provides a cushion of time, an allowance for unforeseen circumstances, and contingency insurance.”

Jack Townsend, IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits.

TaxGrrrl, IRS Announces PTIN Renewals, Registration For Voluntary Certification

Peter Reilly, There Is An Accountant Art Expert – Who Knew?

Kay Bell, Desert island bipartisanship, sort of, on new reality TV show. Apparently a reality show left two Senators stranded on a desert island for six days. A good start.

 

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Howard Gleckman, Is There Any Chance Congress Will Pass Business Tax Reform Next Year? (TaxVox). “The chances are not zero. But the odds are very long.”

William McBride, White House Claims U.S. Effective Corporate Tax Rate is Competitive (Tax Policy Blog). Yes, the way the Giants were competitive last night in Kansas City.

 

News from the Profession. Things You Should NOT Say to a Brand New CPA (Leona May, Going Concern).

 

Recently-retired IRS agent Michael Gregory did an “ask me anything” on Reddit. It apparently didn’t impress everyone, if this report is to be believed:

Gregory accused Rep. Darrell Issa (R-CA), who has been leading the investigation of IRS misdoings, of playing politics with IRS funding, which led one Reddit user to offer a “summary” of Gregory’s comments:

From what I’ve seen so far

Lerner did nothing wrong
Darrel Issa is the devil
Throw more money at the IRS
Lack of criminal charges proves everything was just peachy and not politically driven
It’s all congress’ fault
Patriots pay taxes
The flat tax will let evil millionaires kill and eat babies

The IRS couldn’t ask for a better ‘leaker’

Other Reddit users agreed, with one complaining, “[Gregory] might as well have titled this AMA ‘having left the IRS, I am free now to reveal the IRS would be perfect if Congress just paid us more.’ I get that the IRS may be underfunded but this leaker might as well be an IRS lobbyist.”

The IRS seems to have taken the funding issue into its own hands.

 

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Tax Roundup, 10/28/14: Back-to-school edition! And: IRS says it will stop stealing.

October 28th, 2014 by Joe Kristan

The 2014 tour of Iowa begins. I am helping Roger McEowen and Kristy Maitre teach Day 1 of the Farm and Urban Tax School this year, and this morning we are starting the first of eight sessions in Waterloo. We hit Maquoketa Thursday.  Other sessions will be in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. It’s two great days of CPE, and it’s a bargain. Get your details and sign up for a convenient session at the ISU Center for Agricultural Law and Taxation today.  Here is the crowd this morning:

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Looks like fun, no?

f you are a Tax Update reader, come see me (Hi, Kevin!). You qualify for a discount! Well, not really, but I can get you a free postcard from the DNR Chickadee Checkoff booth…

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Have a nice day. We’re All Flies in the IRS’s Widening WebMegan McArdle on the IRS’s sudden turnabout on asset seizures stealing from innocent businesses after the New York Times reported on it:

It’s as if the IRS just noticed that they were grotesquely abusing their power in order to punish people who appear to have done nothing actually wrong. Did this not occur to them when the victims’ lawyers pointed it out? Did none of their thousands of employees wonder aloud whether they really needed to make war on America’s college funds?

I’m sure it was forced on them by budget cuts.

So think about what has happened to our government agencies. We passed a law, to raise taxes, or curb the usage of addicting drugs. That law didn’t work as well as we wanted, because a lot of people were evading it. So we passed new laws, to make it easier to enforce the original one, like requiring banks to report all transactions over $10,000. And then people evaded that, so we made another rule … and now people who had no criminal intent find themselves coughing up tens of thousands of dollars they shouldn’t owe. 

There’s a lot of that in the tax law. FATCA and the FBAR foreign financial account reporting requirements are classic examples of laws nominally aimed at big-time tax evaders that destroy the finances of thousands of innocent foot-faulters.

As in the case of the fly, we were better off leaving the original ailment alone. No, I’m not saying that we shouldn’t try to catch tax evasion. I’m saying we shouldn’t try so hard that we end up criminalizing a lot of innocent behavior. There are worse things than a country with some tax fraud. And one of those things is a government with vast and arbitrary power to punish people who have done no wrong. 

And a willingness to use it carelessly.

Joseph Henchman, IRS Promises to Curtail Property Seizures After Abuses Come to Light (Tax Policy Blog)

Kay Bell, IRS seizes honest taxpayers’ assets under forfeiture program. “Oh my Lord, IRS. What in the hell were you thinking?”

 

buzz20140909Paul Neiffer, IRS Disagrees With Morehouse Ruling (Of Course). It looks like they will continue to assess SE tax on non-farmers with CRP income outside the Eighth Circuit.

Robert D. Flach has fresh Tuesday Buzz!!

Tax Prof, Tax Revolving Door Enriches Former IRS Officials Who Cash in by Navigating Inversions Through Rules They Wrote. And Commissioner Koskinen approves.

 

Leslie Book, A Combo Notice of Deficiency Claim Disallowance Highlights Tax Court Refund Jurisdiction (Procedurally Taxing)

 

Jeremy Scott, Will a Graduated Income Tax Sink Martha Coakley? (Tax Analysts Blog)

Steve Warnhoff, Senators Defend LIFO, a Tax Break that Obama and Camp Want to Repeal (Tax Justice Blog)

 

TaxProf, The IRS Scandal, Day 537. Today’s scandal roundup features Bob Woodward saying “If I were young, I would take Carl Bernstein and move to Cincinnati where that IRS office is and set up headquarters and go talk to everyone.

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Tax Roundup, 10/27/14: IRS visits Arnolds Park restaurant, tips itself.

October 27th, 2014 by Joe Kristan

20120703-2IRS Commissioner Koskinen likes to say there is nothing wrong with the IRS that a bigger budget can’t cure. A story out of Arnolds Park, Iowa might cause one to question that. The New York Times reports:

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

Banks are required to report “suspicious” deposits under $10,000 because they might be done to evade a required IRS filing. As they get in trouble for non-reporting, they are likely to overreport. And in these cases, that’s all the IRS required before stealing the cash. The victims have legal recourse, but it requires them to sue the federal government, owner of the largest law firm in the world; legal bills routinely run into tens of thousands of dollars.

So, without any evidence, or even suspicion, of a crime, the IRS uses some of its allegedly precious and constrained enforcement resources to steal money from a little Iowa restaurant. The story cites other cash seizure nightmares. One involved an Army sergeant saving for his daughters’ education. Others involved legitimate but cash-intensive businesses.

If this is what the IRS accomplishes with insufficient resources, imagine how much they could steal with full funding.

(via Instapundit)

Related:

Tax Justice Blog,  New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs. Where would anybody get that idea?

Dan Mitchell, Another Example of Government Thuggery – and another Reason Why Decent and Moral People Are Libertarians

Russ Fox, SARs Leading to Forfeiture: The IRS Oversteps

 

20141027-2Jason Dinesen, How Non-Residents or Part-Year Residents Report Federal Refunds on Iowa Tax Returns. One more complication from Iowa’s deduction for federal taxes.

Robert D. Flach, DON’T TRY TO BUY A HOUSE OR CONDO WITH ONLY 5% DOWN!. And don’t try to subsidize that either.

William Perez, Self-Employed Retirement Plans, “If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or a solo 401(k) retirement plan.”

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #9-Tax Court Further Muddies The ‘Dealer Versus Investor’ Issue

 

TaxGrrrl, Fundraising Campaign Ends For ‘Ebola Free’ Nurse, Donors Encouraged To Contribute To Charity

Jana Luttenegger, 2015 Retirement Plan Limits Announced (Davis Brown Tax Law Blog)

Paul Neiffer, 2015 Social Security Wage Base Increases to $118,500

Kay Bell, 6 year-end tax tips for small businesses

Stephen Olsen, Summary Opinions (Procedurally Taxing). Recent cases on whistleblowers, interest abatement, and art valuation.

 

 

Andrew Mitchel, 2014 Third Quarter Published Expatriates – Third Highest Ever. FATCA and the IRS holy war on Americans abroad takes its toll.

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TaxProf, The IRS Scandal, Day 536

 

David Brunori on the inherently corrupt nature of corporate welfare tax incentives, like those so popular with Iowa politicians ($link):

I have no doubt there are more instances of companies contributing to politicians and getting economic development payouts. I’m not naïve. Corporations donate money to governors and lawmakers and expect a return on their investment. While the governors cited above were Republican, corporations and business interests don’t discriminate. Indeed, Lockheed Martin donated lots of money to Democratic governors.

We likely won’t find a smoking gun e-mail reading, “Dear Governor, your check is in the mail, please process my multimillion-dollar handout. Your friend, CEO.” Politicians and business leaders are too smart for that. But growing evidence of tax incentives being granted by politicians who receive money should give everyone pause. It’s unlikely to be a coincidence.

But, jobs! For the middlemen, fixers and lobbyists, anyway.

 

Joseph Henchman, Michigan Senate Advances Film Tax Credit Extension Bill (Tax Policy Blog). Because Detroit has no greater need than to give money to Hollywood.

 

News from the Profession. Meet the Guy Who Prefers Falafel Over PwC (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/24/14: IRS attorney says revolving door spins away billions. And: pass-through isn’t always small.

October 24th, 2014 by Joe Kristan

20130129-1Taxes are for the little people without connections. A sensational open letter to the top Treasury tax brass from an IRS attorney alleges that the agency routinely shuts off promising examinations of big well-connected taxpayers. From Raw Story (via the TaxProf):

In a letter to Treasury Secretary Jacob Lew, IRS commissioner John A. Koskinen, and IRS chief counsel William Wilkins, Jane J. Kim, an attorney in the IRS Office of the Chief Counsel in New York, accused IRS executives of “deliberately” facilitating multi-billion dollar tax giveaways. The letter, dated October 19, will add further pressure on the agency, which is under fire for allegedly targeting conservative and Tea Party groups.

The letter describes three cases where Ms. Kim says the IRS walked away from large well-founded assessments of big corporate taxpayers raised by whistleblowers. The story implicates the revolving door between big law and accounting firms and the top levels of the IRS as a key to the strange taxpayer friendliness.

Bill Henck, who has worked for over 26 years in the IRS Office of the Chief Counsel, agreed. “The senior executives drive the train on all this and pal around with lobbyists,” he said. “Treasury was involved with both the Elmer’s Glue scam and the black liquor taxability issue. IRS executives look out for themselves, which usually means protecting corporate interests, since they hire lobbyists and are close to politicians.”

Backing up Henck’s concerns, the private sector lawyer and ex-IRS attorney explained that since 1998, IRS restructuring has focused on bringing in “outside people.” This led to the employment of an extra layer of executives who were previously “partners from big accounting firms.” Citing active IRS criminal agents, the ex-IRS attorney said: “Almost every large firm or corporation has a person inside the IRS. It’s a revolving door, with the top two or three management layers all from big accounting and law firms, and this is why they won’t work big billion-dollar cases criminally. Private bar attorneys are, in effect, controlling the IRS. It’s a type of corruption – that’s the word used by one IRS agent I’m in touch with whose case was shut down by higher ups without cause.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

That brings to mind Commissioner Koskinen’s view of the revolving door:

So I’ve always said the best testimonial to a good place to work is people are forever coming in and trying to steal your people. And so I would be delighted to have young people come here for two or three years and some of them get recruited away because they were so good and the training is so good, because the more of that that happens, the more people are going to stand in line to get here. And as I say, the experience is, because it would be a great place to work, is the capture rate would be terrific.

So the Commissioner thinks the revolving door is a good thing. That probably means Ms. Kim’s letter isn’t exactly going to trigger reforming zeal from Mr. Koskinen. And don’t expect that you can skip out on taxes without your own mole in the IRS, chump.

 

 

Robert D. Flach has your fresh Friday Buzz! Including depressing news that Congresscritters are going to wait until January 2015 to enact the tax laws for 2014.

Kay Bell, Some retirement plan contribution, AGI limits go up in 2015

Brett Bloom, Dismantling a Partnership: The IRS’s Toolbox (Tax Litigation Survey)

William Perez, How to Plan for, Minimize, and Report the Self-Employment Tax

TaxGrrrl, IRS Gets Big Win In Court As Judge Dismisses Tea Party Targeting Cases

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

TaxProf, The IRS Scandal, Day 533

 

Kyle PomerleauPass-Through Businesses are not Always Small Businesses (Tax Policy Blog). This article is a good read for anyone who thinks increases in top rates don’t hurt business because most pass-throughs are small. While that may be true, there a lots of large ones:

Compared to c corporations, pass-through businesses are still much smaller on average. The same Census data shows that 1.6 percent of corporate businesses employ 100 or more employees and 0.36 percent employ 500 or more employees. 44 percent employ between 1 and 100 employees.

However, in absolute terms, there are about as many pass-through businesses with 500 or more employees than there are traditional c corporations. According to the Census, there are approximately 9573 pass-through businesses with 500 or more employees and 9434 c corporations with 500 or more employees.

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Source: Tax Foundation

So when you increase taxes on high-income individuals, you are also increasing taxes on employers, which isn’t likely to do good things for employment.

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Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog) Other countries just might want to poke into foreign accounts the way we do.

Howard Gleckman, Why Tax Lawyers and Tax Economists Can’t Communicate (TaxVox)

 Megan McArdle,  Can’t Afford a House? Don’t Buy One. Wise advice, but politicians think we should have a program to buy a pony for everyone.

Tax Justice Blog asks What Horrors Await Us in Congress after the Election?  And will they be better or worse horrors than the current bunch of congresscritters?

 

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Tax Roundup, 10/23/14: Iowa Tax Crime Edition. And: USPS > Stamps.com, in Tax Court.

October 23rd, 2014 by Joe Kristan

Tax crime happens in Iowa too. While Iowa doesn’t seem to get the same attention from tax prosecutors as some other places, tax evasion can get Iowans the same prison time as anyone else. Two Iowa entrepreneurs are learning that lesson now.

Via Wikipedia

Via Wikipedia

The operator of a venerable Des Moines pharmacy and soda fountain apparently will plead guilty to tax evasion on charges arising out of back-door sales of hydrocodone pills, according to reports.  The Des Moines Register article on the plea deal provides insight on how the charges against pharmacist Mark Graziano came about, and on the inherent dangers of tax crime:

The allegations came to light after admitted drug user Kirby Small called state regulators in 2011 and told them Graziano and Enloe were selling wholesale quantities of hydrocodone pills out of Bauder’s back door. State agents raided the business in 2012, and the Iowa Board of Pharmacy filed administrative charges against Graziano and the pharmacy. Federal officials filed criminal charges last spring.

Small, in an interview Tuesday, said that he called the pharmacy board because he was angry at Enloe, who had been a longtime friend. Enloe and Graziano had been selling Small pills, but cut him off over money issues, Small said. Then Enloe called Small’s probation officer and said that Small had been taking drugs, Small said. So Small decided to get back at them.

“You call the cops on an east-sider, what do you expect?” he said, chuckling.

The pharmacy is on the west side, for the record.

Tax crimes by businesses are almost impossible to commit without somebody besides the perpetrator finding out. Those who pay employees in cash to avoid payroll taxes create a potential informant with every new hire. Those who ask for cash payment for sales, as illegal drug sellers normally do, create a potential informant with every new customer. And if the customer falls behind on payments, it is unwise for someone committing crimes to summon the authorities.

The reports say Mr. Graziano is likely to receive a 24-37 month sentence.

 

20141023-1Stripped-down gross incomeA Northwest Iowa entrepreneur will go to prison for 33 months on charges of evading over $214,000 in taxes, reports the Sioux Falls Argus Leader:

Veronica Fairchild, 42, collected $1.1 million between 2005 and 2008, mostly from a wealthy client named David Karlen.

She declared only 45 percent of that money as income on her tax returns for those years, which she didn’t file until 2010. The remaining $643,648 was declared as a gift.

At her trial in June, Karlen testified that he’d paid Fairchild to dance, and later for sex. He claimed to have paid between $1,000 and $5,000 for a variety of sexual acts.

Ms. Fairchild, who reportedly owns a strip club in Okoboji, Iowa, denies sleeping with Mr. Karlen:

She said Karlen invented the stories about sexual encounters to cover for his failure to pay taxes on the monetary gifts.

The jury apparently concluded that that payments were for something other than disinterested generousity.

 

On the lighter sidethe usual suspects showed up at a Des Moines Burger King to protest the Kingdom’s proposed merger with Canadian donut empire Tim Hortons. The Des Moines Register reports:

About 15 Iowans rallied outside of a Des Moines Burger King Tuesday to protest the company’s plans to move its headquarters to Canada.

“About” 15? For a crowd that size, I think greater precision is possible. It would have been about 16 if Ed Fallon weren’t traveling. If you missed the rally, you can show your support by asking for large fries with your next Whopper.

 

20130415-1USPS > Stamps.comThe Tax Court ruled against a man who used Stamps.com on March 3 to buy postage to mail his Tax Court Petition on the March 3 filing deadline. The postal service postmark was March 4, and the court said that was the controlling date.  From the case:

In support of his argument petitioner provided a statement by the third party who prepared the petition for mailing and then delivered it to the post office. In her statement the third party describes how on Monday, March 3, 2014, after being “given documents to mail”, she printed postage using Stamps.com software, added extra postage for certified mail, and then took the petition to the U.S. Post Office in Bountiful, Utah, for deposit into the mail. The third party candidly states that in order to “avoid[ ] the long lines” at the post office, she dropped the petition off without having a certified mail receipt stamped by a Postal Service employee and that as a consequence “the sender has no documentation showing * * * [the post office] received the certified package” on March 3, 2014.

The moral? When your down to a mailing deadline, take no shortcuts. Go Certified Mail, Return Receipt Requested, and get the hand-stampted postmark — even if you have to wait in line.  If the line is really too long, use a Designated Private Delivery Service and get a timely shipping receipt. I bet the “third party” wishes she had done so.

Cite: Sanchez, T.C. Memo 2014-223.

 

Joseph Thorndike, What if Congress Raised Taxes and Nobody Cared – Or Even Noticed? (Tax Analysts Blog). I think Joseph is operating from a false premise:

In 2011 and 2012, Congress cut the Social Security payroll tax by two points. More specifically, lawmakers reduced the portion of the tax levied on employees from 6.2 percent of taxable wages to 4.2 percent. (The portion paid by employers remained at 6.2 percent; most economists believe that this other half of the tax is also ultimately borne by workers in the form of lower wages.)

The payroll tax cut was explicitly designed to be temporary – a one-year shot in the arm for the struggling economy. After a year, lawmakers agreed to extend the cut for another 12 months. But on January 1, 2013, the payroll cut expired, and workers began paying the full 6.2 percent again.

And hardly anybody noticed.

Trust me, people noticed. I got the phone calls.

 

20141023-2Robert D. Flach, THIS JUST IN – SOCIAL SECURITY COLA INCREASE FOR 2015

Me, FICA Max increases to $118,500 for 2015

Jason Dinesen, Meet Joe the Window Washer. Joe will be used for life lessons in small business tax compliance.

Jack Townsend, Blog on the Disqualification of Some Canadian “Snowbirds” from Streamlined Treatment

 

Cara Griffith, Drop Shipping Is Popular With Retailers, but Can Create Tax Challenges (Tax Analysts Blog). “From a sales and use tax perspective, if the retailer has nexus with a particular state or is voluntarily registered in the state where the sale took place, the retailer is required to collect sales tax on the transaction with the customer. Conversely, if neither the retailer nor the shipper has nexus with the state in which the sale took place, neither can be required to collect sales tax.”

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

 

TaxProf, The IRS Scandal, Day 532

Richard Phillips, New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs (Tax Justice Blog) Not to defend the movie (which Peter Reilly watched so I don’t have to), but it’s not always easy to portray the IRS as, say, unicorn nurses.

Career Corner. Let’s End the Big 4 or Bust Myth Once and For All (Tony Nitti, Going Concern)

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