Archive for the ‘Brutal Assault on Reason Watch’ Category

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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Tax Roundup, 10/19/2012: How big can small be? Plus: gift tax annual limit goes to $14,000 in 2013.

Friday, October 19th, 2012 by Joe Kristan

I don’t support increasing taxes on small businesses, as long as they stay that way.  Taxes have become an issue in the race for Congress in Iowa’s 4th district.  Sioux City Journal reports:

Officials with Christie Vilsack’s congressional campaign are asking eight Iowa television stations to pull a political action group advertisement that says Vilsack supports raising taxes on small businesses.

Lawyers for Vilsack, a Democrat, have sent a letter Thursday to television station managers arguing the ad makes the unfounded accusation that Vilsack supports raising taxes on small businesses.

It apparently comes down to what the meaning of “small” is.  From Christie Vilsack’s web site:

Christie Vilsack has proposed allowing the Bush Tax Cuts to expire for those making over a million dollars a year, asking them to pay their fair share. According to the nonpartisan Tax Foundation, as of 2010, less than .1 percent of all income tax filers in the state of Iowa reported an annual income over one million dollars.

That would increase the top tax rate to 39.6% for pass-through businesses successful enough to get their owners to over $1 million in taxable income.   There are plenty of Iowans whose closely-held businesses put them over $1 million.  It’s a small portion of returns filed,  but it’s surely a large portion of Iowa form 1040 business income.  Nationwide, 36% of pass-through income is taxed on returns reporting over $1 million, according to the Tax Foundation.

 

Is a business that makes over $1 million “small?”  Obviously it’s bigger than your office Mary Kay reseller’s business, but they are small compared to publicly-traded companies.  Are you only small until you are successful?   As to whether they are paying their “fair share,” millionaires have an 11% share of national income, but pay 26% of income taxes.   Whether that’s “fair,” like whether a business that makes $1 million is “small,” is inherently a matter of opinion.

 

 Brinkmanship at the fiscal cliff.  Tax Analysts reports ($link):

President Obama will veto any bill that comes before him if it includes an extension of the 2001 and 2003 tax cuts for income exceeding $200,000 for individuals or $250,000 for joint filers, White House spokesman Jay Carney confirmed October 18.

Speaking of taxes on small businesses.

 

More inflation adjustments.  In addition to the new limits for 2013 pension contributions and the new FICA base, the IRS has issued other inflation adjustments (Rev. Proc. 2012-41) for next year.  One key number: the annual exclusion for gift taxes rises to $14,000 per donor, per donee, from $13,000.

 

Tax Prof,    2d Circuit: Denial of Estate Tax Marital Deduction to Same-Sex Couple Violates Equal Protection

Linda Beale,  Another Court Strikes Down DOMA

Robert D. Flach,  2013 INFLATION ADJUSTMENTS

 

Brutal Assault on Reason Watch: 

Obama threatens veto of any ‘fiscal cliff’ bill that doesn’t hike taxes on the rich

Patrick Temple-West,   Essential reading: Officials say Obama could veto a bill blocking ‘fiscal cliff’ without tax hike for rich, and more

TaxGrrrl,   More on Romney’s Tax Returns

Howard Gleckman,   The Real Lesson About Capping Itemized Deductions  (TaxVox)

 

Jim Maule ponders Fishing for Deductions

News you can use:  Why the 2013 Tax Season May Give Me Lots More Gray Hair  (Russ Fox)

 

You can’t make this stuff up.  Tax return numbers, that is.  From the Washington Post:

A local make-up manufacturer who sold lipstick, nail polish and blush to retailers around the world pleaded guilty to tax evasion on Thursday in federal court in Maryland.

Bae Soo “Chris” Chon, the former owner of Mirage Cosmetics in Greenbelt, engaged in a scheme to divert at least $1.8 million from overseas cosmetics sales to foreign bank accounts, according to the plea deal.

The IRS prefers to see your taxable income without the benefit of foundation or blush.

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Tax Roundup, 10/18/2012: Iowa tax reform battle shapes up. Also: shaming the shameless.

Thursday, October 18th, 2012 by Joe Kristan

Battle lines begin to form on Iowa tax reform.  Iowa Governor Branstad appears to be preparing to take advantage of state budget surpluses to push a rate-cutting tax reform.  A story in today’s State Tax Notes ($link) foreshadows how the battle lines are likely to play out:

However, Iowa Policy Project Research Director Peter Fisher countered that to stimulate the economy the state should restore funding to post-secondary education to offset the cuts made during the recent fiscal crisis.

     Fisher also said that lawmakers should consider tax reform proposals that reduce the tax burden on lower-income families that often pay more in state taxes than federal taxes.

     “I think there is an equity issue there that should be addressed,” Fisher said.

Where Governor Branstad will focus on cutting rates, the opposition is likely to focus on spending (“restoring funding”) and on once again pushing for an increase in Iowa’s earned income credit, in spite of its built-in tendency to lock people into low incomes through hidden high tax brackets on the poor.

Peter Fisher is likely to provide the think-tank ammunition for the Governor’s opponents; as we have noted, Mr. Fisher thinks Iowa’s business tax climate is just fine, because it’s ineffective:

Fisher argued that the Tax Foundation’s rankings (State Business Tax Climate Index) misrepresent the state’s tax climate. He said that business tax collections as a share of the economy are actually below the national average.

The State Tax Notes piece has the likely response to Fisher-type arguments:

     Tax Foundation economist Scott Drenkard responded that while Iowa’s business tax burden may fall in the middle of the pack nationally, it has the highest top corporate tax rate in the country at 12 percent.

     The study’s rankings favor tax systems with a broad base and lower rate, Drenkard said. He added that a higher rate with a narrower base creates economic distortions.

Distortions like clobbering in-state suppliers to large manufacturers and in-state C corporations, for example.  Or corrupt boondoggles like the now-defunct film credits.

Related: The Tax Update’s Quick and Dirty Iowa Tax Teform Plan,

 

Howard Gleckman,  What the Joint Tax Committee Really Said About Tax Reform

The JCT plan is very different from other tax reform proposals. For instance, Alan Simpson and Erskine Bowles, the chairs of President Obama’s fiscal commission, designed a reform that could get rates as low as 28 percent, but did it by eliminating nearly all tax preferences (not just deductions) and scaling back the few that survived.

So, it turns out, JCT doesn’t contradict groups like the Rivlin-Domenci Commission or Simpson-Bowles, it  merely uses different assumptions.

Related: Peter Reilly,  Eliminating Tax Expenditures To Cut Rates – Early Results Are Underwhelming

 

Brutal Assault on Reason Watch: 

Roberton Williams,  How Much Revenue Would a Cap on Itemized Deductions Raise?  “Eliminating all itemized deductions would yield about $2 trillion of additional revenue over ten years if we cut all rates” by 20 percent and eliminate the AMT.”

William McBride, Second Debate Marred by Protectionist Rhetoric

Anthony Nitti,  Tax Aspects Of The Obama – Romney Debate, Round 2

Kay Bell, Taxes discussed, sort of, in the second presidential debate

 Jacob Sullum,   Romney Makes His Tax Promises Even Harder to Keep  (Reason.com)

Alan Reynolds, Obama’s ‘Trillion Dollar’ Tax-Cut Fraud  (National Review)

Jonathan Easley,  Sen. Kerry: Romney trying to ‘perpetrate a fraud’ with tax plan (The Hill)

Linda Beale,  Romney’s Tax (Mis)Calculations: if your two and two don’t add to four, pretend the laffer curve gives you more

 

TaxProf,   TIGTA: IRS Unjustifiably Withholds $181 Million in Relief from Tax Penalties from 1.5 Million Taxpayers.

Anthony Nitti,  S Corporation Shareholders: Is it Time to Consider Accelerating Income Into 2012?

Kay Bell,  It’s workplace benefits — including spending accounts — enrollment time

Robert D. Flach is having an OCTOBER HALF PRICE SALE on his worksheet packages.

News you can use: The 10 Most Corrupt Tax Loopholes (Village Voice, via the TaxProf)

Going Concern, PwC Employee Embraces the Cheapskate CPA Stereotype Like No Other.  When I worked for predecessor Price Waterhouse, I was cheap for lack of alternatives.


20090827-2.jpgWill “naming and shaming” intimidate Steven Seagal?  California has posted its list of “Top 500 Delinquent Taxpayers.”  While somebody better at celebrities could surely find more, I spotted a few familiar names:

Dionne Warwick,$2,598,968.65

Joseph Francis, $819,804.11.

Steven Seagal, $347,849.67

Joe Francis has had his share of tax issues, but can you really “shame” a porn magnate?

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Tax Roundup, 10/4/12: IRS destroys taxpayer ID theft fraud reports. Also: the return of the Brutual Assault on Reason Watch!

Thursday, October 4th, 2012 by Joe Kristan

Because they’re too busy terrorizing Americans abroad who have bank accounts:  The IRS is Not Efficiently or Effectively Processing Identity-Theft Referrals, reports the Treasury Inspector General for Tax Administration.   From Tax Analysts (subscriber link):

     The IRS failed to investigate thousands of reported identity theft cases because taxpayers failed to follow inconsistent and confusing instructions for submitting a form to report tax fraud, the Treasury Inspector General for Tax Administration said in a report released October 3.

     The IRS instructs individuals to use Form 3949-A, “Information Referral,” to report suspected cases of tax fraud, but not identity theft. However, thousands of people have used the form to report identity theft cases because the instructions for the form are confusing, TIGTA said. Before May, the IRS did not have procedures in place for processing the Forms 3949-A that had been used to report identity theft, and in 2010 the IRS destroyed some 3,000 of the forms that had been used to report identity theft because there was no way to process them, the report says.

The explosion of identity theft has been the biggest IRS problem under Commissioner Doug Shulman’s watch.   Yet he has neglected and bungled the response to the thievery of up to $5 billion annually from the taxpayers so he could botch the “amnesties” for offshore bank paperwork foot-faults and build a new and useless preparer regulation bureaucracy.  His term ends soon; the next Commissioner has a lot of repair work to do.

Jack Townsend has more:  TIGTA Report on IRS Processing of Tips of Fraud

 

Brutal Assault on Reason watch.  I hate campaign debates and won’t watch them.  I agree with Arnold Kling:

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. 

But others have stronger stomachs:

Howard Gleckman,  What Did We Learn from the Presidential Debate? Not Much.

TaxProf,  Tax Whoppers in Last Night’s Presidential Debate

TaxGrrrl,  First Presidential Debate, 2012 – Live Blog and Romney Promises To Cut Taxpayer Funding For PBS (But Says He Still Loves Big Bird)

Anthony Nitti,  Reactions To Obama Versus Romney; Round 1

 

Bad idea.  The Romney campaign has floated a proposal to cap itemized deductions at $17,000 as a way to reduce tax rates.  That’s a bad idea for many obvious reasons.  If you are going to do that, why even bother?  Just have a $17,000 maximum standard deduction based on income.   By eliminating the deduction for state taxes paid, it would be a big tax increase on pass-through businesses operating in high-tax states.    William McBride at The Tax Policy blog gets it right:

Today Romney proposed to cap itemized deductions at $17,000, as a way to pay for his cut in personal tax rates.  This is not sound tax policy, as it would complicate the code, and likely require a number of exemptions and other loopholes.  For instance, how would legitimate business deductions be dealt with?  Which ones are legitimate? … It would be better to eliminate entirely certain wasteful tax expenditures, while lowering rates.

Other coverage:

Robert D. Flach,  LIMITING ITEMIZED DEDUCTIONS?

Martin Sullivan,  Romney’s Intriguing Idea (Tax.com)

Going Concern,  What Are People Saying About Mitt Romney’s Tax Deduction Cap Idea?

Kay Bell,  Romney suggests overall itemized tax deduction limit of $17,000

 

In non-campaign news:

Peter Reilly,  Navajo Nation Member Treated As New Mexico Resident For Income Tax Purposes

 Trish McIntire,  Kansas Taxing Business Losses

Jason Dinesen,  Would a New Name Help Enrolled Agents?  The new IRS “Registered Tax Return Preparer” designation can only be bad news for Enrolled Agents, whose much more stringent standards are little understood outside the professional world.  Many taxpayers have no idea of the distinction between these IRS-awarded titles.

News you can use: How To Make Partner In Five Easy Steps (or Don’t Give Up Now, Many Partners Are Going To Die Soon) (Going Concern)

 

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At least it ends today

Tuesday, November 4th, 2008 by Joe Kristan

The quadrennial Brutal Assault on Reason is about done. Russ Fox has an insightful look at how the tax scene is likely to play out over the next four years.
If you can stand more information at this point, TaxVox and the Tax Policy Blog have good coverage of the candidates tax positions. If you want a reason to stay in bed, the estimable Gordon Tullock explains why you don’t have to feel guilty.
I incline to this view.

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So that’s where the free money comes from?

Thursday, October 16th, 2008 by Joe Kristan

Politicians like to promise to spend money as if they can pull it out of a stash of free cash that doesn’t actually come out of someone’s pockets. Senator Obama seems to think corporations can fill the role of cash pinata for politicians:

Because after eight years of failed policies, he and I both agree that what we’re going to have to do is to re-prioritize, make sure that we’re investing in the American people, give tax cuts not to the wealthiest corporations, but give them to small businesses and give them to individuals who are struggling right now…

The Tax Policy Blog has nonpartisan coverage of the candidate’s tax whoppers. They rightfully note the folly of the assertion that “big corporations can afford to pay more taxes”:

What Sen. Obama doesn’t understand or doesn’t want to tell the American public is that when Exxon Mobil writes that check to Uncle Sam, some PERSON is paying the price for that. In the short-run, that person could be a shareholder, a worker, or a consumer. But the fact that Exxon Mobil has a lower after-tax profit means that some PERSON is worse off. For example, Exxon Mobil would likely reduce its dividend payment, or its share price could fall, and that hurts every PERSON who was invested in Exxon Mobil at the time the tax was enacted.

Only two sets of people can pay corporation taxes: the owners and the employees. When you beat on corporations, you either beat on their employees or you beat on the 401(k) plans that invest in them. I don’t think there are many people whose 401(k) accounts need more beating right now.

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District 60 offers two more reasons to flee Iowa

Friday, October 3rd, 2008 by Joe Kristan

If you have any hope that Iowa will someday foresake absurd targeted tax breaks to pursue a business-friendly low-rate, low-loophole system, it doesn’t come from the Tax Update’s home district for the Iowa House, based on this piece in the Des Moines Register.
The Democrat in the race, Alan Koslow, has an ingenious plan to keep young folks in the state — indentured servitude:

Koslow’s plan is to offer forgivable loans to college students if they stay in Iowa for 10 years after they graduate. He also proposed a three-year income tax holiday for people younger than 25.

Apparently Iowa has this big pile of cash to lend that has escaped our notice. The Republican, Peter Cownie, offers no hope either:

Cownie, 28, said Koslow’s plan would be expensive. Instead, he wants to bring high-tech and better-paying jobs to Iowa by continuing to offer companies financial incentives to build here. Microsoft announced in August that it will build a $500 million data center in West Des Moines after state lawmakers approved about $3 million in tax exemptions for the Redmond, Wash., software giant.
“Does Microsoft need those tax credits? No,” Cownie said. “But it was needed to get those jobs for Iowa.”

Corporate welfare. How innovative. Repeat after me: you can’t grow your economy by taxing your existing businesses to lure and subsidize their competitors. At $500,000 per job, we’ll all be bankrupt by the time we achieve full employment. Or does this corporate welfare come out of the same pile of free money that Mr. Koslow wants to use to hold the youngsters hostage?
Will we ever have somebody who will campaign on raising Iowa’s business tax climate ranking from 45th out of 50 states?
By the way, Roth & Company has created 35 jobs, with exactly $0 state subsidies; we’re still waiting for our $28 million.
If you want tax silliness on a national scale, the TaxProf has the scoop for you.
UPDATE: I goofed. I actually miss being in District 60 by a few blocks. I regret the error, if not the district boundaries.

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MRS. O’LEARY FOR FIRE MARSHAL

Monday, September 22nd, 2008 by Joe Kristan

Senator McCain last week said he would fire SEC Commissioner Christopher Cox. Over the weekend he said he might replace him with Andrew Coumo. This Andrew Coumo:

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that

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BIDEN ATTACKS PATRIOTISM OF NON-WEALTHY

Friday, September 19th, 2008 by Joe Kristan

Joe Biden says the wealthiest 1% of the taxpayers are the most patriotic Americans. Really:

Biden was asked by ABC News’ Kate Snow in an interview aired Thursday morning on “Good Morning America” if people earning more than $250,000 a year would have to pay more taxes under an Obama-Biden administration.
“You got it,” Biden replied. “It’s time to be patriotic, Kate. Time to jump in, time to be part of the deal, time to help America out of the rut, and the way to do that is they’re still gonna pay less taxes than they did under Reagan.”

If paying taxes is patriotic, those earning more than $250,000 are the most patriotic:

… both the tax share and AGI share of the top 1 percent reached all-time highs in 2005. In 2005, the top 1 percent of tax returns earned 21.2 percent of adjusted gross income and paid 39.4 percent of the nation’s federal individual income taxes. This indicates that the federal individual income tax is highly progressive as under a purely proportional system, the two shares would be identical.
Furthermore, in 2005, the top 1 percent of tax returns paid nearly the same amount in federal individual income taxes as the bottom 95 percent of tax returns, a group which was responsible for 40.4 percent of the federal individual income taxes paid.

So by linking paying taxes to patriotism, Senator Biden is impugning the patriotism of everybody who makes less than $153,542 – the bottom 95% of taxpayers. Is that a wise electoral strategy?

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NEW FEATURE: BRUTAL ASSAULT ON REASON WATCH

Friday, September 19th, 2008 by Joe Kristan

This week’s headlines have provided constant reminders of Arnold Kling’s cri de coeur:

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.

Today we launch “Brutal Assault on Reason Watch,” where we will highlight statements by politicians that in a just world would require them to be bound, gagged and banished to a remedial economics course for the rest of their natural lives. So we begin.
First, John McCain:

But first McCain went after SEC Chairman Christopher Cox, a former Republican congressman. McCain said the SEC under Cox was “asleep at the switch” and “kept in place trading rules that let speculators and hedge funds turn our markets into a casino.”
“The chairman of the SEC serves at the appointment of the president and in my view has betrayed the public’s trust. If I were president today, I would fire him,” McCain added, prompting loud cheers.

So it’s Christopher Cox’s fault that he couldn’t prevent Fannie and Freddie – two agencies that he doesn’t regulate – from bankrupting themselves? It’s his fault that the SEC – which doesn’t regulate the insurance industry – couldn’t prevent AIG from writing bad credit default insurance? And he was supposed to stop this… how?
Now to the other side:

This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary. It

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