Archive for the ‘Brutal Assault on Reason Watch’ Category

Tax Roundup, 2/1/2016: Caucus day, and other plagues.

Monday, February 1st, 2016 by Joe Kristan

20160131-1Is there such a thing as snow locusts? Today is the last day Iowa will be plagued by presidential candidates and their relentless ads and emails. Tonight, blizzard and winter storm warnings across the state.

Lots of things go into choosing a candidate. We kid ourselves if we think it is all rational. Many voters put as much thought into their political preferences as they do into choosing a favorite sports team. Most voters are much more informed about their sports teams than their votes.

But Tax Update readers are different!  You especially want to know about candidate tax policies. Fortunately, the Tax Foundation has an excellent Comparison of Presidential Tax Plans and Their Economic Effects. I like this chart they provide:

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You’ll notice that only one plan is projected to have positive economic effects while reducing the budget deficit over 10 years. I like that one.

 

Other Caucus-related links:

Tax Policy Center Major candidate tax proposals, a center-left analysis.

TaxProf, Clinton (47%), Sanders (54%) Propose Highest Capital Gain Tax Rates (Now 24%) In History

Tyler Cowen, My favorite things Iowa (Marginal Revolution). “The bottom line: Who would have thought ‘jazz musician’ would be the strongest category here?” Speak for yourself, buddy!

 

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Russ Fox, The Liberty to Commit Tax Fraud:

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

Amen.

William Perez, When Does an 83(b) Election Make Sense? 

Paul Neiffer, Pre-1977 Purchases May Get 100% Step-up or Not! Involving old joint interests in property.

Kay Bell, W-2, 1099 forms delivery deadline is here

Jack Townsend, 60 Minutes Exposé on Money Laundering Into the U.S.

Jason Dinesen, Not All Donations to Charity Are Deductible. Time, for example.

Kristine Tidgren, Des Moines Water Works Lawsuit Gets More Complicated (AgDocket)

Peter Reilly, NorCal Tea Party Patriots V IRS – Grassroots Or Astroturf?

Leslie Book, Migraine Caused by Improper IRS Collection Action During Bankruptcy Stay Triggers Damages for Emotional Distress

Robert Wood, Worst Lottery To Win Is IRS Audit Lottery, So Decrease Your Odds

TaxGrrrl, Understanding Your Tax Forms 2016: 1098-T, Tuition Statement

Tony Nitti, IRS Rules On Whether Trade-In Of Private Jet Qualifies For A Tax-Free Like-Kind Exchange

Happy Blogiversary! to Hank Stern for 10 years of Insureblog.

 

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Matt Gardner, International Speedway Reaps Benefits of Revived “NASCAR Tax Break” (Tax Justice Blog). In which the Tax Justice people sctually make a lot of sense: “In the context of our growing budget deficits, the annual cost of the NASCAR giveaway is a drop in the bucket at less than $20 million, making it a small part of the $680 billion extenders package. But because its benefits are narrowly focused on a few privileged companies, the damaging effects of this tax break go way beyond its fiscal cost.”

Donald Marron, What Should We Do with the Money from Taxing “Bads”? (TaxVox)

TaxProf, The IRS Scandal, Day 996Day 997, Day 998. Day 997 links to  IRS’s New Ethics Chief Once Ordered Records Be Illegally Destroyed. These are the people who think they need to regulate tax preparers to keep us in line.

 

Scott Drenkard, David Bowie: Tax Planning Hero (Tax Policy Blog). “Taxes really matter, especially for an artist like Bowie who had a lot of options for where to reside and earn income.”

Robert D. Flach, THE TWELVE DAYS OF TAX SEASON

 

Finally, in honor of the Iowa Caucuses I quote the great Arnold Kling, who captures my feelings about these proceedings perfectly:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

Only the beginning of a wise and profound post. Read it all.

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Tax Roundup, 10/20/15: Shock! State tax “incentives” favor the big! And: the 1% surprise.

Tuesday, October 20th, 2015 by Joe Kristan

20120906-1Regulation always favors the big. So do state business incentives. Left-side think tank Good Jobs First demonstrates the big-player bias of state “incentive” tax deals in a new report Shortchanging Small Business: How Big Businesses Dominate State Economic Development IncentivesMaria Koklanaris summarizes the report for State Tax Notes ($link):

Using its own databases and other programs, [Good Jobs First] weeded out awards targeting companies of a specific size, focusing only on those purportedly available regardless of company size. Of those “facially neutral” awards, 90 percent of the dollars went to big businesses, the report said.

“The deals, worth more than $3.2 billion, were granted in recent years by programs that on their faces, are equally accessible to small and large companies,” the report said. “Yet big businesses overall were awarded 90 percent of the dollars from the programs analyzed, indicating a profound bias against small businesses.”

While Iowa’s incentives weren’t among those studied, I am confident the exact same thing is true here. It’s the big and well-connected taxpayers who know how to play the system. They can hire the attorneys and accountants to navigate the system, and the lobbyists to make sure the taxpayer money is steered their way. And it’s the big projects — inherently done by big taxpayers — that attract the politicians. You’ve never heard of a Governor calling a press conference for some little business hiring two people.

A real Iowa tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, would get rid of all of these breaks for insiders and lower the rates and compliance costs for everyone.

 

New York Times, What Could Raising Taxes on the 1% Do? Surprising Amounts.

Scott Greenberg, No, Raising Taxes on the 1% Will Not Lead to “Surprising Amounts” of Revenue (Tax Policy Blog):

Let’s say, for instance, that Congress decided to raise the effective tax rate of the 1% by increasing the top rate on ordinary income. Currently, the top tax bracket on ordinary income is 39.6%. How high would Congress have to raise this rate, in order to raise the effective tax rate of the 1% to 45 percent?

According to our estimates, Congress would have to raise the top rate on ordinary income to 74 percent, in order to raise the effective rate of the 1% from 33.4 percent to 45 percent. This would be a rate hike of over 34 percentage points, or an 87 percent increase in the top rate.

Oh, I think the amounts of revenue raised would be surprising, to the Times. And disappointing. As I’ve noted many times, the rich guy isn’t picking up the tab, because he can’t.

 

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TaxGrrrl, 11 Things I Wish I Could Tell My Younger Self About Taxes. Plenty of good advice here. It’s all worth reading, but I especially like #7, Planning is important:

Tax planning is important. You should take advantage of tax strategies that can help you lower your tax bill, like seeking out tax credits you might have overlooked or making a contribution to a tax-deferred retirement account. And knowing what’s coming down the pike is also important when it comes to payment: having a good idea of what you might owe and making estimated payments will help you avoid writing a big check at the end (trust me) and possibly being subject to underpayment penalties.

This is true for all taxpayers, but it is especially true for the self-employed, who are much more numerous with the growth of the “gig economy.”

 

buzz20150804Robert D. Flach is up and running with a fresh and pungent Tuesday Buzz roundup. He covers the recent tax season and the right response to callers claiming to be from the IRS demanding payment, among other things.

Jason Dinesen, Choosing a Business Entity: S-Corporation vs. C-Corporation. “The ‘C’ and ‘S’ refer to how that corporation is taxed, not to its legal standing.”

Tony Nitti, Apple To Issue Restricted Stock To Employees: Siri, What Are The Tax Consequences?

Russ Fox, The Future of DFS. “If you watch any sports television, you’ve almost certainly seen commercials for the two leading daily fantasy sports (DFS) sites, DraftKings and FanDuel.”

Robert Wood, Chef Jamie Oliver Calls For Sugar Tax, While Mexico Eyes Soda Tax Cut. We actually already have a pretty high sugar tax.

Keith Fogg, Contesting the Merits of the Underlying Tax in a Collection Due Process Case – A Convoluted Fact Pattern Leads to Wrong Decision (Procedurally Taxing).

Peter Reilly, Massachusetts Hits Staples For $10 Million On Sham Interest Deductions. “This case is a beautiful illustration of my fourth law of tax planning – Execution isn’t everything, but it is a lot.”

 

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TaxProf, The IRS Scandal, Day 894. On how the President signals Justice Department investigators to back off.

Brian Doherty, Irwin Schiff, R.I.P. (Reason.com). “He was indeed a jolly warrior for a cause he obviously very sincerely believed in, even when it became completely obvious that the federal government was not going to be daunted by his arguments and indeed was going to keep arresting him for practicing them and advocating them.”

Kay Bell, Infamous tax protester Irwin Schiff has died. “His anti-tax tactics live on, as do penalties for those who insist on using them.”

 

Howard Gleckman, Presidential Candidates, “Free Stuff,” and Pixie Dust (TaxVox):

Even in its early stages, the 2016 presidential race looks like it will be remembered for two depressing superlatives. The candidates will spend more money than ever before, and they will promise more costly give-aways than any politicians in history.

Once again demonstrating the wisdom of Arnold Kling.

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Tax Roundup, 10/16/14: Tax-free public pensions proposed. And: Goodbye, 2010!

Thursday, October 16th, 2014 by Joe Kristan

And the statute of limitations now closes for extended 2010 1040s. That’s all water under the bridge now.

 

Accounting Today visitors, the corporate tax rate piece you seek from the newsletter is here.

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Brutal Assault on Reason Watch.* As the political campaigns plunge into their dreary final frenzy, we can look forward to silly tax proposals intended to buy a few votes from the gullible. Proposals like this from an Iowa candidate for Governor: Hatch proposes tax exemption for public pensions:

Democratic gubernatorial candidate Jack Hatch on Tuesday proposed to exempt public pensions from state income taxation.

In a speech to the Iowa State Police Association in Ames, Hatch said his Tax-Exempt Public Service Pensions Act would cover Iowa Public Employees Retirement System benefits, police and fire retirement benefits, judicial pensions and other smaller state, county and city pension system recipients.

Why just public pensions?

“I understand the nature of public employee bargaining,” Hatch said. “I know the contracts you negotiate include retirement as part of the bargain. You have foregone wage increases and other benefits to guarantee a strong pension, and I will honor that bargain.

“I know most of you are like a lot of public servants in that you could make a lot more money doing something else,” he added. “I want to make sure we place the proper value on your decision to serve and that we honor the contracts you have made for the long term.”

So somebody who gets a six-figure income as a local school district superintendent would get a tax-free pension, while somebody who took a much smaller salary to run a local private school would have a taxable pension. Because public service.

20130110-2There are many bad assumptions underlying this proposal. While there are many hard-working public employees, a government job implies no special moral credit. Public employees have defined benefit plans, which are nearly extinct in the private sector, and they already artificially increase public sector compensation. In general, public sector workers make more than their private sector counterparts. And the idea that people who work for the government are doing it for the public good, instead of for selfish motives, is difficult to credit.

For tax policy purposes, such carve-outs are awful. They necessarily increase the taxes on those not eligible for the benefit. That increases their motivation to carve out their own special deals, causing higher rates, causing more special deals. You end up with a completely dysfunctional system — one that looks a lot like what Iowa has now, as a matter of fact. Unfortunately, Jack Hatch’s opponent, Governor Branstad, also seems quite comfortable with the system we have.

*Click here for explanation of the “brutal assault on reason” theme.

 

Donnie Johnson, Liz Malm, Same-Sex Couples Gain More Clarity Regarding Their State Taxes (Tax Policy Blog).

William Perez, State Tax Amnesties in 2014

Tim Todd, Affiliated Group Can Use Graduated Tax Rates Even If Personal Service Corp. Is a Member. Mr. Todd is a law professor who runs the Tax Litigation Survey, which he has recently brought to my attention. I look forward to following it for its regular coverage of Tax Court cases and other tax litigation.

Diana Leyden, Not Being in Filing Compliance Can Trip Your Client Up at the CDP Level (Procedurally Taxing). Just one of many problems that arise when you get into the non-filing habit.

 

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Jack Townsend, An Example of the Difference Between Pleading and Not Pleading:

Over 95% of federal criminal cases are resolved by plea agreement.  One of the reasons is that, in the Sentencing Guidelines calculations, defendants who plead will usually qualify by the plea for the acceptance of responsibility two or three level decrease in the Guidelines calculation.  Moreover, by pleading, the defendant may make himself or herself more attractive for a Booker downward variance from the reduced Guidelines range already reduced for acceptance of responsibility.  Conversely, by going to trial, a defendant generally forgoes any realistic hope of an acceptance of responsibility adjustment or any favorable Booker downward adjustment and may behave at trial in a way that will not endear the sentencing judge to the defendant.

He covers a case where a defendant ended up with a 405-month sentence, where a co-defendant was limited to 180 months (15 years) by plea deal. So plea deals are good if you are really guilty, while pressuring the innocent to confess on the threat of spending life in prison.

 

Annette Nellen, States without an income tax – good idea?

TaxProf, The IRS Scandal, Day 525

 

News from the Profession. PwC’s Bob Moritz Thinks Millennials Ask Way Too Many Questions (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 9/26/14: Fact-check Fail Edition. And: it’s Buzz day!

Friday, September 26th, 2014 by Joe Kristan


20121006-1During the continuing brutal assault on reason perpetrated by campaign ads in election season, it would be nice if the press would do competent work to identify misleading and stupid claims by candidates.

Alas.

Erin Jordan at Cedar Rapids’ TheGazette.com took a stab at it in her “fact check” of an ad by Pat Murphy, running in Iowa’s 1st congressional district:

“Blum cheated his workers out of overtime.”

“He moved his business to dodge Iowa taxes.”

“He laid off over 70 workers”

Source of Claim: Iowa Sen. Pat Murphy, a Dubuque Democrat running for U.S. House of Representatives

“Blum” is Rod Blum, a former executive at Eagle Point Software, and Mr. Murphy’s opponent.  This being a tax blog, let’s look at the tax claim discussion (my emphasis):

Claim 2: “Moved his business to dodge Iowa taxes”

Originally incorporated in Iowa in 1983, Eagle Point, under Blum’s leadership, reincorporated in Delaware in 1995, according to SEC filings. The company’s physical location and all employees remained in Dubuque.

Many U.S. companies — including more than half of those in the Fortune 500 — have their legal home in Delaware for beneficial tax laws and courts.

University of Iowa College of Law professor Andy Grewal, who specializes in tax law, said a company’s Delaware presence — even if it’s just a P.O. Box — may charge royalties on income gained in other states. Companies deduct those royalties from the income taxes they are required to pay in, say, Iowa, while Delaware doesn’t tax the royalties.

From the “conclusion”:

Under Blum, Eagle Point reincorporated in Delaware, generally viewed as having more business-friendly tax laws and courts. In these types of cases, the home state can lose out on corporate income taxes…

The claims in Murphy’s ad are mostly true.

20131029-3The “fact checker” has no basis for that statement, at least with the tax information in her story. The idea that companies incorporate in Delaware primarily for tax reasons is flat wrong. Delaware is preferred largely for its well-developed business-friendly corporate law.

While Delaware is tax-friendly, the royalty maneuver casually referred to in the story only works if an intellectual property corporation has been set up in Delaware to own the IP; the IP company collects the royalties in Delaware, and the operating company deducts the payments to lower its income in high-tax states.  There appears to have been no such entity. 

The 1999 10-K filing with financial statements for Eagle Point Software would detail related parties and subsidiaries included in the financial statements. Any Delaware IP subsidiary would be included in the consolidated financial information, because while investors like it when their companies reduce state taxes, they don’t like it if it means real cash leaves the company covered by the financial statements.

Eagle Point’s only subsidiary included in the financials is a Wisconsin Corporation, ECOM Associates. As Wisconsin is a high-tax state, nobody would set up an IP holding company there.

The only “related party transaction” shown in the statements is its lease for its facilities. There is no mention of any intellectual property lease.

And there almost certainly would have been no need for Eagle Point Software to go through the trouble.  Corporations apportion their income to Iowa based on the destination of the sale.  As a public company, we can assume over 90% of their sales were to non-Iowa customers.  That means almost all of its income would not be taxed in Iowa to begin with.  And that would have been just as true if the company were incorporated in Iowa, rather than Delaware.

So, apparently without looking at publicly available information on Eagle Point, and with only a general statement by a law-school prof claiming no direct knowledge of the transaction, the Gazette’s “fact checker” called the assertion that the company incorporated in Delaware to dodge Iowa taxes “mostly true.” In fact, there appears to be no royalty agreement to funnel income out of Iowa. And, as most of Eagle Point Software’s sales would have been to non-Iowa customers, there would be little state tax to reduce in the first place.

Conclusion: with respect to the tax claims evaluated by Thegazette.com, I rate their fact-checking effort worthless. I rate the claim by Pat Murphy that Eagle Point incorporated in Delaware to “dodge Iowa taxes” false.

 

buzz20140905It’s Friday, so it’s Buzz Day! Go see Robert D. Flach for the fresh Buzz, including (of course) his pungent thoughts on the Jersey Shore celebrity who is facing tax charges.

TaxGrrrl brings word of ‘Staggering’ Sanctions Slapped On Wyly Brothers In Offshore Case. $190 million, plus interest, will get anyone’s attention.

 

 

Christopher Bergin, The Hobgoblin of Little Minds (Tax Analysts Blog):

This week the Treasury Department got into the act, putting corporate America on notice that it will soon issue regulations that will take “targeted action to reduce the tax benefits of – and when possible, stop – corporate tax inversions.” Treasury said it “will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share.”

I think Treasury will end up regretting this announcement. First, two minor points: So-called loopholes are created by elected officials and include such things as the ability to deduct the interest you pay on the mortgage you got to buy that house you live in. And it’s up to Congress to decide on “fair shares.” The Treasury Department doesn’t get to make law, which is why when it comes to corporate inversions it will ultimately do little more than make a lot of noise and create an initial annoyance.

The point is to score some election season points; if it causes problems down the road, well, they’ll be somebody else’s.

 

Joshua McCaherty, California Triples Film Tax Credit. (Tax Policy Blog)  Because Hollywood needs taxpayer funding.

TaxProf, The IRS Scandal, Day 505

 

Now he’s probably taken a big step towards fulfilling that vow. Mississippi surgeon found guilty of tax evasion after claiming “vow of poverty”

 

News from the Profession. Revealed: The tax accountant who runs brothel from Belfast terrace (Belfast Telegraph).  Think of the cross-selling opportunities! No word on whether that’s where he gets his extra help for busy season.

 

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Tax Roundup, 11/7/2012: Waterloo edition

Wednesday, November 7th, 2012 by Joe Kristan

The Tax Update is participating in the Waterloo session of the ISU Center for Agricultural Law and Taxation tax school today, so the roundup is up late, assembled in pieces as I can during the school.

Iowa legal legend Orville Bloethe at today’s ISU Farm and Urban Tax School in Waterloo.

One more Brutal Assault on Reason Watch.*

Tax Prof, Obama Win Seen Pyrrhic Without Republican Congress Assent on Taxes

 Going Concern, Accounting News Roundup: Well, at Least That’s Over; Tax Reform, Anyone?

TaxGrrrl,   Obama Wins Four More Years, Congress Moves Little and Boehner Claims Victory In The House, Mandate To Not Raise Taxes

Joseph Henchman,   State and Local Ballot Initiative Results

Martin Sullivan,  Tax Reform 1986 Is No Model for 2013 (Tax.com)

Howard Gleckman, Five Challenges for Obama’s Tough Second-Term

 *I explain the title of the Brutal assault on Reason Watch here.

 

 Phil Hodgen,   Yet another FBAR minnow to the guillotineDoug Shulman is gone at the end of the week, but his agency will continue to torture foot-faulting offshore account holders.  An anonymous taxpayer writes to Phil:

Whether stupidly or not, I came forth this last March, because I did not disclose two or three of my [Country] savings accounts (I’ve lived in [Country] for almost 20 years) over my covered years (2003-2010).

I got a letter from the OVDI people in [recent month], to ask me to submit 1040X’s, submitted FBAR’s and their paperwork. The latter is essentially asking me to provide the rope to hang myself.

Tallying the results? I owe [under $200] in aggregate back taxes to the IRS, yet will very likely end up paying the 27.5% FBAR penalty of around $80-$90,000.

Asserting the FBAR penalties when there isn’t tax avoidance involved is outrageous, little more than legal theft.  The vote yesterday probably means current policy continues.

 

TaxProf,  Thimmesch: KFC Corp. Repudiates Quill’s Physical Presence Test.  The TaxProf links an article about last year’s Iowa decision pulling KFC into the Iowa corporation tax:

In that analysis, the KFC court adopted a unique functional-equivalency standard under which it held that KFC’s contacts with Iowa satisfied the demands of the physical-presence test despite KFC having no direct physical connection to the state. This Article evaluates the KFC decision, discusses the apparent source and scope of the court’s rationale, and explains that KFC can only be interpreted as a direct repudiation of the Court’s physical-presence mandate. The Article concludes with a defense of the ongoing validity of that rule despite many calls to the contrary.

 
 
And if you haven’t had enough,  there’s fresh Buzz at Robert D. Flach’s place.
 
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Tax Roundup, 11/6/2012: Election day! And a flawed Plan B.

Tuesday, November 6th, 2012 by Joe Kristan

Brutal Assault on Reason Watch.*  Today is election day, so we’ll run one more rundown of election-related news.  We”ll start with my post from last week at IowaBiz.com, Tax stakes for entrepreneurs next Tuesday.  An excerpt:

Mitt Romney’s tax plan is built around a 20% across-the-board individual tax rate cut, to be paid for by a eliminated deductions and tax breaks. He would also repeal the 3.8% investment income tax. 

These individual rates are important to entrepreneurs because most business are now organized as “pass-throughs” — typically as S corporations or LLCs taxed as partnerships. Income of pass-through businesses is taxed on their owners’ 1040s, so the top individual rate is also the top rate on business income. The Romney approach, with its 28% top rate, takes the tax law in a very different direction than the Obama 44%+ top rate.

 Also:

Kay Bell,  Ways and Means, Senate Finance incumbents should hold tax-writing seats

Robert D. Flach commands, VOTE!

Martin A. Sullivan,  The Post-Election Fiscal Mess (Tax.com)

Joseph Thorndike,  Soda Taxes and the Case for a GOP Majority (Tax.com)

Joseph Henchman,  State and Local Ballot Initiatives to Watch (Tax Policy Blog)

TaxGrrrl,   More Reasons to Vote: Election Day Freebies and Promos

*The “Brutal Assault on Reason Watch” is my roundup of election-related tax posts.  The title comes from Arnold Kling’s description of political campaigns:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

So if your post is listed in the Brutal Assault on Reason Watch, it doesn’t mean your post was a brutal assault on reason (though it happens).  It means that it had something to do with election season.

 

Richard Morrison,  Chart of the Day: High Earners and Business Income

 

Don’t ask if you’re not ready to tell.  If you inquire about participating in the IRS offshore voluntary disclosure program and you let slip who you are, you’d better be prepared to follow through.  From Tax Analysts ($link):

Rebecca Sparkman, CI director (operations policy and support), said that CI checks to ensure that taxpayers who undergo a pre-clearance check for acceptance into the voluntary disclosure programs follow through with disclosure. “Those [taxpayers] are suspect, and we are looking at those who decided not to continue to come through. Will it be Criminal Investigation? I don’t know; it could be a civil audit,” she said at the annual meeting of the California Tax Bar and California Tax Policy Conference in Coronado, Calif.

The IRS is long overdue for a standing simple offshore amnesty, like many states have for business non-filers.  If a taxpayers who have not been contacted by the IRS would file, say, five years of FBARS, asset disclosures and amended returns, and owe less than some generous threshold of tax — maybe $250,000 — then offshore sins would be forgiven and they can get on with their lives.  Maybe next Commissioner.

 

Many talents, but tax compliance wasn’t one of them.  A man with multiple skills will have a restricted arena in which to use them for many years.  An Ohio attorney last week received an 85-month sentence after being convicted of tax offenses, false statements and witness tampering.  From a Department of Justice press release:

According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005.   In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990.   Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary.

At least he wasn’t an accountant.  Plans like this can work great, until the IRS notices them, and then they don’t work at all.  Plan B also went badly:

 The evidence at trial further showed that after learning of the federal grand jury investigation into his business activities in May of 2006, Rick Matsa, together with Loula Matsa and others, conspired to obstruct justice by concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses and lying to federal investigators.  

Rick Matsa’s tenant, P. Maria Galloway, the owner of an art gallery located next door to Matsa’s law firm, also testified after pleading guilty to conspiracy to obstruct justice.   Galloway testified that she signed numerous documents at Rick Matsa’s direction, including federal income tax returns for Matsa’s law firm and a number of his nominee entities, which Matsa used as part of his scheme to obstruct the IRS, and that she made false statements to agents and the grand jury during the investigation.

I bet that stuff wasn’t in her lease.

The Moral?  People who think trusts have magical powers to make your taxable income go away are mistaken.  You might be able to fool the IRS for awhile, but with enough time the IRS is likely to figure it out.  When Plan B involves getting your tenant to sign false papers for you, maybe it’s time to look at a plea deal.

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Tax Roundup, 11/5/2012: Last week for the commissioner!

Monday, November 5th, 2012 by Joe Kristan

Soon-to-be-former-IRS Commissioner Douglas Shulman

Little disasters every day, courtesy Doug Shulman’s IRS.  We shouldn’t be surprised that the federal government is once again making a hash out of disaster relief.  They can’t even handle one-victim disasters at the IRS.  Jason Dinesen has posted two more installments (9, 10) of the infuriating saga of a client’s struggle with identity theft after her husband died.  From the latest installment:

I then proceeded to point out that it’s been 33 months since Brian died, 18 months since we filed the tax return, and 12+ months since we sent the original Form 14039 to the IRS. Again, can’t they use common sense and wrap this up?

The answer was, no.

Contrast that with the prompt issuance of a tax refund to the identity thief over a year ago.

Jason’s client ID theft problem was almost certainly the result of a glaring problem that has been known in the agency for years involving the use of social security numbers of recently-dead taxpayers published by the government by identity thieves.  The IRS is only now taking steps to fight it, while billions of tax dollars continue to go out to the thieves annually.  Meanwhile, they’ve found time to institute an expensive and futile preparer regulation scheme and power-grab.  They have their priorities, after all.

One thing voters of all parties can look forward to this week is the Friday expiration of the term of Doug Shulman, The Worst IRS Commissioner Ever.

 

Richard Morrison,   Chart of the Day: Trends in Business Income (Tax Policy Blog)

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Election Day Primer: Comparing the Obama and Romney Tax Plans

TaxProf,  Johnson: Tax Reform and the Presidential Election

Kay Bell, Voters get their say Nov. 6 on 30 tax-related state ballot initiatives

Joseph Thorndike,  Muzzling CRS is a Bad Idea — Even for Republicans (Tax.com)

Len Burman,  Which presidents spend the most? You might be surprised. (TaxVox)  For some reason he stops in 2001.

Paul Neiffer,  Get Ready For The New Medicare Tax Increase on Earned Income

Anthony Nitti,  Victims of Superstorm Sandy May Be Able To Exclude Assistance Payments From Taxable Income

Jack Townsend notes an Article on Erosion of Swiss Secrecy

Peter Reilly,  Unfair Tax Court Decisions On Life Insurance Are Tip Of Unclaimed Property Iceberg

Missouri Tax Guy,  Advantages of Filing a Tax Return Extension

Robert D. Flach,  TOP TEN LIST ADDENDUM.  This is so true:

More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

I would love to see an accounting of how much revenue the government steals from taxpayers who write checks because they are afraid of the revenue agencies, or because the amounts are known to be wrong, but the taxpayer doesn’t think they are worth the fight.

 

Bad News you can Use:  Bad News for German Poker Players (Russ Fox)

 

Richman, Dumdum man.  The story you are about to read is true.  Then names have been left the same to protect the humor.  CBSlocal from Chicago reports:

He wasn’t too smart about paying federal income taxes, and now Rimando Dumdum man is going to prison. 

WBBM’s Bernie Tafoya reports the 44-year-old Morton Grove tax preparer, who came to the U.S. from the Philippines in 1989, owned a company called “Richman Tax Solutions.”

Apparently it’s easier for a camel to pass through the eye of a needle than for a Richman to get a tax return right.  But all things are possible:

According to his plea agreement, he helped clients illegally trim an average of $1,400 from their tax bills. In all, between his clients’ returns, and his own tax fraud, Dumdum cheated the federal government out of $232,000 in all.

However, prosecutors said he likely helped clients evade $3.5 million in taxes, citing an audit showing his company falsified 99 percent of the tax returns it filed.

The way he looks out for the 99%, he should be a favorite of the Occupy people.  I wonder if the 1% of his customers who didn’t get phony returns feels cheated somehow.

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Tax Roundup, 11/1/2012: IRS walks away from defined-value fight.

Thursday, November 1st, 2012 by Joe Kristan

IRS withdraws appeal of non-charitable defined value gift case.  The IRS hates “defined value” charitable gifts of property.  These gifts specify that a donee will receive a certain amount of property; if the IRS successfully challenges the gifts, the donor agrees to give more property to make up the difference, so the charitable deduction stays the same and the IRS gets nothing for its efforts.  This result has been upheld in three different circuits.

But what if you have a non-charitable donee?  Then you would want to make the donee pay back part of the gift if the IRS challenges the value to avoid an increased gift tax.  The Tax Court upheld the concept in the Wandry case.  Now the IRS has withdrawn its appeal, reports Tax Analysts ($link).  Does this mean you can use a defined-value clause to limit gift tax exposure safely?  The article says it may be premature to think so:

“Practitioners will not be comfortable with the Wandry clause until at least two circuits have approved it, or at least one circuit and the full Tax Court,” said estate planning consultant Howard M. Zaritsky. “I feel that a Petter-style defined value clause, with a charitable residuary gift, is very safe, after the Tax Court and three circuits have approved it. I simply do not have that same degree of comfort about Wandry,” he said.

Stay tuned.

Related:  IRS loses another ‘defined value’ gifting case

 

Who says you can’t make money in your vacation home in the off-season?  A North Carolina couple found a lucrative use for their cottage while the neighbors were away.  From the Asheville Citizen-Times:

A Western North Carolina couple pleaded guilty to an elaborate scheme in which they filed some 1,000 false tax returns, bilking the government out of more than $3.5 million.

 Senita Birt Dill and Ronald Jeremy Knowles used tax preparation software programs and fraudulently obtained personal identification information to obtain refunds, according to a criminal complaint.

They rented a home on a lake surrounded by vacation homes in Polk County and used neighboring addresses on the fraudulent tax returns, then surreptitiously collected government checks from mailboxes.

Sure, we’ll pick up your mail while you’re away!  There must have been a flaw in their cunning plan, as both face potentially long prison terms for tax fraud and identity theft.

 

Just another hard-working public servant.  If you ever think a municipal income tax would be a great idea, this story from the Washington Examiner might give you pause:

An employee at the District’s Office of Tax and Revenue pleaded guilty Wednesday to filing more than a thousand fraudulent tax returns that netted more than $4 million in unwarranted refunds from D.C. and the federal government.

Kimberle Y. Davis, a “control technician” at the OTR, pleaded guilty to conspiracy to defraud the government and first-degree theft through her part-time job at a District-based tax service. She’s at least the third employee in Chief Financial Officer Natwar Gandhi’s 12-year tenure to be caught stealing, prompting Mayor Vincent Gray to press Gandhi for plans to overhaul the tax office.

It is apparently against the rules at OTR to have a tax-prep job.  I can’t imagine why…

Sacrebleu — More French Taxes.  David Brunori notes that the barbarians have crashed the gates in Paris:

 It is bad enough that the French have a 75 percent top marginal tax rate. Now the Socialists in power want to raise the tax on beer.

Because beer is apparently a big problem in France?

 

Brutal Assault on Reason Watch: 

TaxProf, Fleischer: The Winners and Losers Under Romney’s Tax Plan

 

TaxGrrrl,  Helping Out After Hurricane Sandy

Daniel Shaviro,  Post-storm update.  He lives in Manhattan and remains without power.

Trish McIntire,  Sandy Adjustments

Andrew Mitchel,  Expatriates for the Third Quarter of 2012

Robert D. Flach,  A YEAR-END TAX PLANNING RERUN – AVOIDING AN UNDERPAYMENT PENALTY

Kay Bell,  Happy Halloween tax breaks!

RIP: Remembering the DECEASED Iowa Pumpkin Tax (Joseph Henchman, Tax Policy Blog)

Going Concern, Dumb: Iowa Once Tried to Implement a Pumpkin Tax

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Tax Roundup, 10/31/2012: Sandy washes away the tax news. Happy Halloween…

Wednesday, October 31st, 2012 by Joe Kristan

The IRS sends $5 billion in fraudulent refunds to ID thieves annually.  Surely they have figured out how to help out those whose ID’s have been stolen?  No.  Jason Dinesen updates the saga of his widowed client whose deceased husband’s identity was stolen:

The good news is, the IRS has finally gotten its systems coded correctly to show that Wendy did file a 2010 tax return. They won’t be sending any more “collection” notices to her, and I don’t have to call the collections department every 60 days.

The bad news is, I now have to figure out how to deal with the IRS Identity Theft Unit.

They wouldn’t talk to Jason, even though he has power of attorney.  So the IRS, rather than going out of its way to help identity theft victims whose tax lives are in turmoil, jerks them around.  After promptly issuing the fraudulent refunds to the thieves, of course.  But at least Doug Shulman’s IRS is doing a bang-up job of selling confidential preparer identification number information.

 

There isn’t much tax news today thanks to the Hurricane Sandy disaster.  Some appropriate coverage:

Kay Bell,  Hurricane Sandy major disaster declarations could mean federal tax help

Trish McIntire,  Isaac to Sandy

 

In other news…

 

Richard Morrison, Chart of the Day: Income Levels vs. Education Levels (Tax Policy Blog)

 

 

Brutal Assault on Reason Watch: 

TaxProf,  Bartlett: Romney’s Tax Plan Won’t Work Like Reagan’s Did

TaxGrrrl,  Why Romney’s ‘Tax Avoidance’ Strategies Don’t Deserve Criticism.  Making the important point that tax planning isn’t somehow unsavory.

Patrick Temple-West,  Essential reading: Fiscal cliff forces all sides to jockey, and more (Tax Break)

 

So government never fails?   When Privatization Fails: Yet Another Example (Jim Maule).  The difference is that when a business fails, it goes away and the assets are redeployed.  When a government program fails, it just goes on and on.

Greg Mankiw,  Tax Expenditure Fact of the Day

Sara Palovick,   Avoiding the Self-Rental Trap (Double Taxation)

Paul Neiffer,   Fiscal Cliff Example # 2

Dan Meyer,  IRA Holding Allocations: Do Demographics Matter?

And a Halloween Buzz from Robert D. Flach!

 

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Tax Roundup, 10/23/2012. News of the obvious edition. And…look! Dead squirrels!

Tuesday, October 23rd, 2012 by Joe Kristan

Refundable credits are vulnerable to fraud, and IRS can’t recover the fraudulent payments.  The Treasury Inspector General for Tax Administration discovers the obvious,  reports Accounting Today (my emphasis):

A new report released Monday by the Treasury Inspector General for Tax Administration on refundable tax credits found that they are highly vulnerable to fraud. Refundable tax credits such as the EITC, the Additional Child Tax Credit, the First-Time Homebuyer Credit, and the American Opportunity Tax Credit for education also provide valuable tax breaks for low-income taxpayers and the middle class.

I call foul.  To say the “First-Time Homebuyer Credit” provides “valuable benefits for low-income taxpayers and the middle class” is lazy and dishonest propaganda.  That’s just the Accounting Today reporter’s assertion, and it appears nowhere in the TIGTA report.   The credit poured money into a declining housing market with little effect, other than blowing $30 billion.  The policy behind the other credits is at best arguable, and the benefits aren’t clearly “valuable” to taxpayers as a whole.

TIGTA initiated its audit to determine the effectiveness of efforts by the IRS to recover refundable credits disallowed during post-refund examinations and to consider options the IRS could implement to decrease the issuance of erroneous refundable credits. 

“Because of the susceptibility of these credits to fraud, and the low success rates in recovering erroneous credits once refunds have been issued, the IRS should take every reasonable step possible to identify potentially questionable credits and validate those credits before associated refunds are issued,” said TIGTA Inspector General J. Russell George in a statement.

So Doug Shulman’s IRS isn’t taking every reasonable step to keep from sending cash to thieves?  He’s been too busy terrorizing innocents abroad and setting up a vast, expensive and useless preparer regulation bureaucracy, apparently.

 

Attorney: West Des Moines firm’s outstanding liabilities to be paid soon (Des Moines Register).  The payroll service provider facing large bills for not remitting client payroll taxes timely says they will make good on them:

A West Des Moines human resources provider has paid its 2012 tax liabilities and has the funds necessary to pay off more than $4.8 million liabilities within the next three months, an attorney for the businessman said today

The Internal Revenue Service since 2006 has issued at least 15 tax liens against John Vratsinas and his collection of companies, InFocus Partners, Iowa Construction Logistics and ICL Staffing, according to court documents.

That’s good news for clients who might otherwise have to pay their payroll taxes twice, first to the payroll company and then to the IRS.  The taxman wants its payroll taxes, even when the payroll company already has received them.   Of course payroll providers shouldn’t fall behind on payroll taxes in the first place.  A wise employer will enroll in EFTPS and go online to monitor that the taxes are being paid, even when they outsource the job.

Also from the West Des Moines Patch: Attorney for West Des Moines Payroll Outsourcer Says 2012 Taxes Paid

Related Tax Update coverage here.

 

The TaxProf mentions an academic paper “Ranking State Tax Systems: Progressivity, Adequacy, Efficiency.”  From the abstract:

A good tax system must raise sufficient revenue – and do so fairly, efficiently, transparently, and coherently. How do the tax systems of the states stack up in terms of fairness, adequacy, and neutrality? To answer this question, we assess each state’s relative performance in terms of progressivity, growth, and administrative and economic efficiency.

Iowa rates 32nd by their measure. I think “progressivity” is a poor tool for measuring state tax systems.”Progressivity” is just a weasel-way of saying “high rates,” which create distortions and inefficiency, like in Iowa, while punishing pass-through businesses.  Any measure that rates the horrendous New York tax system as #1 is absurd.

 

Russ Fox, Bad States for Gamblers

Patrick Temple-West,  Essential reading: Democrats threaten payroll tax cut consensus, and more (Tax Break)

Trish McIntire,  Tax Backup.  Maintain your records.

Kay Bell,  Kiddie tax, gifts and other tax-related items do get 2013 inflation adjustments

William Perez,  IRA Contribution Limits for 2013

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Final Presidential Debate – Live Blog

Janet Novack,  10 Reasons Reagan Could Cut The Top Tax Rate To 28%, But Romney Can’t

Peter Reilly,  Debate Proceeds Despite Green Party Lawsuit – Hear Jill Stein On Defense Here

Anthony Nitti,  Clearing Up Confusion Created By The Debates: President Obama’s Tax Proposal And The Fate Of The Small Business Owner.  Anthony unfortunately repeats the pointless fact that increasing the Obama plan only affects “2.5 of small business owners.” That’s true when you rate your Shacklee-selling neighbor the same as a business with dozens or even hundreds of employees.

As the Tax Foundation notes, the Obama plan affects a much higher percentage of pass-through income, a more important measure than the number of Schedule C 1040s.  Anthony dismisses this as just a concern of hedge-funds and private equity millionaires.  My pass-through clients would disagree.

 

The Critical Question:  So Jason … How’s that Guidebook About Same-Sex Marriage and Taxes Coming?  (Jason Dinesen)

Stretch your coffee break:  How to Weaponize Office Supplies (Bloomberg Business Week, via Instapundit)

So the dog can do this, but I can’t?  Man cited for backyard squirrel hunt (KCCI.com)

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