Archive for the ‘Tax Reform’ Category

Tax Roundup, 10/22/14: Remembering tax reform.

Wednesday, October 22nd, 2014 by Joe Kristan

19861022President Reagan signed the Tax Reform Act of 1986 28 years ago today. In hindsight, the tax law that resulted seems like a beacon of simplicity, with its 28% top rates and its lack of a capital gain differential.

Looking hard at the 1986 Act, we can see some warning signs. It enacted a temporary research credit, setting the stage for the semi-annual parade of expiring provisions. It included the current alternative minimum tax, which adds huge complexity to individual compliance. It had some benefits that phased out based on income, such as passive losses for active renters and for some IRA contributors. But at the time those could be seen as flaws to be fixed. Instead, they were weeds that would be cultivated.

I count 47 “major” post-tax reform tax laws in the Tax Policy Center list. Every one of them has done its part to undo tax reform. Most of them are represented on my souvenir bookshelf, which has tax law summaries going back to 1984. The left half of the top shelf takes us from 1984 through the 1986 reforms. The rest of it is tax reform’s undoing.

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While each law did its little damage to the tax law, I look at President Bush’s signing of the 1990 Omnibus Budget Reconciliation Act as the moment when things really began to unravel. OBRA increased in the top rate to 31%, uncoupled the capital gain rate from the ordinary income rate, and enacted the foul phaseouts of itemized deductions and the standard deduction that dishonestly increased the top effective rate over the top stated rate.

Three Presidents and dozens of bills later, we have individual rates over 40%, considering phaseouts and the Obamacare surtaxes. We have dozens of regularly expiring provisions that require lobbyists to pay homage to the taxwriters every year or two. We have unprecedented complexity that forces even smart taxpayers with simple financial lives to pay to get their returns done. And we have land mines all over the tax law, including foreign reporting provisions that can impose $10,000 penalties on taxpayers who have paid all of their taxes.

It’s all a depressing story. Still, 1986 did happen. Top rates came down from 50% to 28%. The base was broadened and rates reduced. It happened once, so maybe it can happen again.

 

The internet ate my first shot at this post, so just a very quick roundup today.

 

20141003-2Tony Nitti, IRS Sheds Light On The Use Of The Recurring Item Exception

 

Mitch Maahs, IRS Revises Offshore Voluntary Compliance Programs (Davis Brown Tax Law Blog)

Kay Bell, NY tax scammers copying fake IRS tax call template

Peter Reilly, IRS Collection Action Can Be Delayed For A Long Time

 

TaxProf, The IRS Scandal, Day 531

David Brunori, Tax Ballot Predictions (Tax Analysts Blog)

Tracy Gordon, Bertha and the French Professor: Lessons for Public Private Partnerships (TaxVox)

Richard Borean, Tax Foundation Awards for Outstanding Achievement in State Tax Reform in 2014 (Tax Policy Blog). No Iowans — no surprise.

 

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Tax Roundup, 3/21/14: Reforming S corporations to a frazzle. And: cleaning up at the laundromat!

Friday, March 21st, 2014 by Joe Kristan

S-SidewalkThe legislative process has been likened to sausage making.  Sausage doesn’t get more appetizing if you keep looking at it closely over a period of weeks, and neither does the Camp “tax reform” plan.  Andrew Lundeen and Kyle Pomerleau at the Tax Policy Blog today highlight some gristly features of the grand effort by the head GOP taxwriter:

The proposal leaves in place high tax rates for many S corporations, subjects them to additional payroll taxes, creates new distortions between types of industries, and produces two tax rate bubbles.

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

Camp’s tax reform package introduces complication with a new 10 percent surtax for non-manufacturing income. To make things more complicated, the additional 10 percent surtax would be calculated on a different income scale: modified adjusted gross income or MAGI. This essentially creates two side by side tax codes, a la the AMT, and individuals and businesses would have to calculate their AGI for one and their MAGI for the other.

As I noted, it doesn’t simplify the code by getting rid of the economically foolish Section 199 production deduction; it just moves it to a different section.

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The Difference between Active and Passive Shareholders

The difference between active and passive shareholders is important for determining the marginal tax rates for S corporations under Chairman Camp’s plan.

That’s true now, but you’d expect a “reform” plan to get rid of this sort of gratuitous and difficult-to-enforce difference.

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Changes to Self-Employment Taxes: the 70/30 Split Rule for SECA Taxes

Under current law, the IRS requires business owners to pay themselves a reasonable wage in order to prevent people from gaming this income distinction in order to avoid the extra 15.3 percent payroll tax hit.

Camp’s plan would replace the current reasonable wage standard with a 70/30 split, changing the rules for active shareholders. The rule would require that active shareholders of S corporations report 70 percent of their total earning as wage income.

I think it’s just one step on the way to a 100/0 split.

Tax Rate Bubble

Another element of Camp’s tax plan is the creation marginal tax rate bubbles. This occurs when a marginal tax rate, for example, goes from 10 percent to 15 percent and back down to 10 percent. We have a post that discusses the marginal tax rates under Camp’s plan, which you can find here.

When a “reform” plan comes with so many phase-outs and distortions, it’s not actually reforming anything.  I think the Camp plan will come to be seen as a false move and a lost opportunity.

 

TaxGrrrl, Taxes From A To Z (2014): K Is For Keogh Plans   

20140321-3TaxProf, The IRS Scandal, Day 316

William Perez, Average Sales Tax Rates by State: 2014, highlighting a Tax Policy Blog analysis.

Annette Nellen, Revenues versus tax collections.  “A recent blog post on LinkedIn’s Sales and Use Tax Legislative Updates included a comment from B.J. Pritchett suggesting that what governments collect in taxes should not be called “revenues” because it is not from selling goods and services.”

Tax Justice BlogState News Quick Hits: Don’t Expect Much from Congress.  Always a good idea.

Kay Bell, Senate Finance plans tax extenders vote for week of March 31.  She links to an article quoting a Senate Finance spokeswoman as saying “No decisions have been made on the content of the measure or the timing for a committee session and vote.”

Howard Gleckman, Fiscal Reality Check: Will Congress Pay for the Tax Extenders and the Doc Fix?  Extenders themselves are a scam.  Congress passes them over and over a year at a time so they can pretend that they cost less than they do — funky accounting that would get a public company CFO jail time, but standard procedure in Congress.

 

Jack Townsend, U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion 

 

A new Cavalcade of Risk is up at Insurance Regulatory Law.  The Cavalcade is a venerable roundup of insurance and risk-management posts.  Hank Stern’s contribution, an interview with Neal Halder of Principal Financial Group about their “accelerated underwriting” process for life insurance, is a great read.

Jason Dinesen, Fair Warning: More Baseball Posts to Pop Up this Year.  That’s a good thing.

 

20140321-4Think he reported this income?  Man With Deep Pockets Busted Stealing a Lot of Laundry Money (Going Concern):

Just how many loads of laundry could one do with $460,000 in stolen quarters?

That’s probably not the question asked by public works inspector Thomas Rica, who pleaded guilty this week to stealing that much in quarters from the meter collection room of the New Jersey town for which he worked.

At the laundromats I used back in school, that would have been nearly enough quarters to get your clothes dry.

 

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Tax Roundup, 2/27/14: Doomed Tax Reform Frenzy Edition.

Thursday, February 27th, 2014 by Joe Kristan

President Reagan signs PL 99-514, the Tax Reform Act of 1986.
When I think of income tax reform, I think big.  I think of massive elimination of tax deductionPresident Reagan signs PL 99-514, the Tax Reform Act of 1986.s, with great big rate reductions as consolation for taxpayers that lose their breaks.  I look for elimination of alternative ways of tracking income and deductions, with the idea that one way that everyone can understand is better than special breaks for different industries.  I look to eliminate double taxation of income everywhere, including elimination of capital gain taxes and integration of the corporate and individual systems.

By these standards, the tax reform plan put forth by Dave Camp, the chairman of the House Ways and Means Committee, is a disappointment.  While it would make many simplifying changes to the tax law while rates, it would leave behind a system that would still be very recognizable to a Rip Van Taxman who fell asleep in 1993.  It prunes tax complexity, but it doesn’t begin to clear the forest.

Still, politics being what it is, trimming the weed sanctuary is probably the best we can expect.  Maybe better than we can expect.

 

Tony Nitti has already posted detailed walk-throughs of the individual and business parts of the proposal, so there’s no point in me repeating his work.  Instead I will list some of the bigger changes proposed, with my commentary.  I don’t expect anything like the Camp plan to be enacted during the current administration, but I think it gives us an idea of the kinds of changes that could happen after 2016, if the stars align.

Individual Rates.  The bill would have a three-bracket tax system: 10%, 25%, and 35%.  The 35% bracket would replace the current 39.6% bracket, and would only apply to income other than “qualifying domestic manufacturing income.”  Lowering rates is fine, but this would retain the stupid difference between manufacturing income and other income embodied in the current Section 199 deduction.  It’s a complex and economically illiterate break for a favored class of income paid for by higher rates on all other income.

Capital gains and dividends would be taxed as ordinary income, but only after a 40% exclusion.  That would be a 21% net rate on 35% taxable income. (Initially I said 14%, math is hard).

Against the forces that have risen on K Street, there is no victory.

Against the power that has risen on K Street, there is no victory.

Deductions would be trimmed back.  The maximum home mortgage interest debt allowed for deductions would be $500,000, instead of the current $1.1 million.  Medical deductions would go away.  Standard deductions would increase to $11,000 for individuals and $22,000 for joint filers.  Many itemized deductions would reduce taxes only at the 25% rate, rather than the 35% top rate.  Charitable deductions would be simplified, but only deductible to the extent they exceed 2% of AGI.  The deduction for state and local taxes would be eliminated.

The increase in the standard deduction is an excellent idea.  I’m fine with reducing the mortgage interest deduction.   The limiting of deductions to the 25% rate is pointless revenue-raising complexity.  The elimination of the medical deduction will be a real burden on people in skilled nursing care; they are the people who generally can take this deduction.  Taxing them while they burn through their assets paying nursing home costs  will only put them into title 19 that much sooner.

While I am sympathetic with the policy reasons for not allowing a deduction for state and local taxes, those reasons don’t apply to taxes arising from pass-through business income.  State taxes are a cost of doing business for those folks, and should be deductible accordingly.

Alternative Minimum Tax would go away.  About time.

Corporate rates.  The proposal replaces the current multi-rate corporate tax with a flat 25% rate.  Excellent idea, as far as it goes, but it is flawed by the 35% individual top rate; it provides a motivation to game income between the individual and corporate system.

The proposal eliminates a number of energy credits while retaining the research credit.  I think that it would be better to get rid of the research credit and lower rates.  I think the IRS is no more capable of identifying and rewarding research than it is of fairly administering political distinctions.  Unfortunately, the credit seems to be a sacred cow among taxwriters.

Incredibly, the Camp corporate system gets rid of the Section 199 deduction while retaining a similar concept for individual rates.  Here it doesn’t get rid of pointless and economically foolish complexity; it just moves it around in the code.

LIFO inventories go away under the proposal.  As this comes up every proposal, it’s going to happen sometime.

Carried interests become taxable as ordinary income.  This is more complexity, apparently a sop to populist rhetoric.

Pass-throughs would be tweaked.  S corporation elections would be easier to make, and could be delayed until return time.  Built-in gains would only be taxable in the first five years after an S corporation election, instead of ten years.  Basis adjustments on partnership interest transactions would be mandatory, instead of elective.

Fixed assets would have mixed treatment.  While the Secti0n 179 deduction would permanently go to $250,000, depreciation would go to a system more like the pre-1986 ACRS system than the current MACRS system.

20120702-2Cash basis accounting would be more widely available, and fully available to Farmers and sole proprietors.  This is a step in the wrong direction.  Advocates of cash accounting say that it provides “simplicity,” implying that poor farmers just can’t handle inventory accounting.  Meanwhile these “poor” bumpkins play this system like a fiddle, manipulating cash method accounting to achieve results that are only available through fraud to the rest of us.  Modern farm operations with GPS, custom planting and nutrient plans, and multi-million dollar asset bases are as able to handle accrual accounting as any other business of similar size.

There’s plenty more to the plan, but you get the idea.  I find it disappointing that they don’t replace the current system of C and S corporations with a single system with full dividend deductibility.  I find the treatment of preferences and tax credit subsidies half-hearted.  I think there should be fewer deductions, fewer credits, and a much bigger standard deduction.  That’s why I’d never get elected to anything, I suppose.

The TaxProf rounds up coverage of the proposal.  Other coverage:

Peter Reilly, The Only Comment On Camp Tax Proposal You Need To Read – And Some Others

Paul Neiffer, Tax Reform – Part ?????!!!!!  “Since this is a mid-term election year, it has little chance of passing this year, but it is important to note possible changes that Congress is pondering.”

Annette Nellen, Congressman Camp’s Tax Reform Act of 2014 Discussion Draft

Leslie Book, Quick Thoughts on Procedural Aspects of Camp’s Tax Code Overhaul Proposal and the Spate of Important Interest Cases (Procedurally Taxing)

Joseph Thorndike, Democrats and Tax Reform: Can’t Do It With ‘Em, Can’t Do It Without ‘Em (Tax Analysts Blog).  “If you’re a left-leaning populist, what’s not to like?  Well, at least one big thing: The bill doesn’t raise taxes.”

TaxGrrrl, Camp’s Tax Proposal: The First Thing We Do, Let’s Kill All The Lawyers 

Kyle Pomerleau, Andrew Lundeen, The Basics of Chairman Camp’s Tax Reform Plan (Tax Policy Blog).  “We’ll have more analysis on the plan soon – it will take us days to get through the 979 pages of legislative text – but in the meantime, here are the basics.”  They note that the plan uses tax benefit phase-outs based on income — a bad idea that creates hidden tax brackets.

Renu Zaretsky, Tax Reform: one foot in front of the other (TaxVox)

 

Other Things:

William Perez, Last Year’s State Tax Refund Might Be Taxable

Jason Dinesen, Glossary of Tax Terms: Depreciation 

Trish McIntire, Brokerage Statements.  “Actually, my problem is clients who don’t bring in the whole statement.”

 

Jack Townsend, Wow! Ty Warner Is Ty Warner is Not Quite the Innocent Abroad 

Janet Novack, Senate Offshore Tax Cheating Report Skewers Credit Suisse And U.S. Justice Department 

TaxProf, The IRS Scandal, Day 294.  I note that Lois Lerner won’t testify without being immunized from prosecution.  “Not a smidgeon” of wrongdoing, indeed.

 

Finally, Seven People Who Have a Worse Busy Season Than You, from Going Concern.  That’ll cheer you right up.

 

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Tax Roundup, 2/26/14: House tax reform plan expands cash basis, boosts 179 limits. And: $133 million employment tax theft.

Wednesday, February 26th, 2014 by Joe Kristan

Cash basis expansion, permanent Section 179 increase highlight Camp tax reform plan.  The GOP House tax leadership has released their tax reform draft, nicely rounded-up by the TaxProf.  The plan would lower top individual and corporate rates to 25%, while making big changes in business taxation.

They have released two alternate plans for small business taxation.  One plan would tweak S corporation and partnership taxation, making elections easier and easing S corporation penalty taxes.  The other draft would do away with the current pass-through regimes and replace them with a single pass-through tax system.

The Camp draft would also greatly expand the availability of cash method accounting:

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I’m not sure how I feel about this.  I do like getting rid of the special rules for farmers and letting everybody have the same opportunity.  I less like the rule giving unlimited cash basis for sole proprietorships, as that would encourage people to keep things on their schedule C for tax reasons even if it is a bad structure otherwise.  Do we really need to preserve cash basis for a $100 million schedule C or Schedule F operation?  If something is that big, the “simplicity” argument doesn’t make sense.

I’m all for getting rid of the Section 263A stuff.

While I doubt that anything will happen with tax reform this year, there is a real possibility that things will start moving after the 2014 elections.

William McBride, Four Things to Look for in Chairman Camp’s Tax Reform Plan (Tax Policy Blog)

Renu Zaretsky, McConnell Throws Cold Water on Camp’s Tax Plan (TaxVox)

 

 

EFTPSTexans sentenced in massive PEO employment tax theft.  From Breitbart.com:

Federal prison sentences were recently handed down to three businessmen by Chief District Judge Fred Biery. The three defendants – John Bean, Pat Mire, and Mike Solis – are going to prison for their roles in a $133 million scheme involving numerous co-conspirators. The FBI and IRS conducted the investigations for the case, which is believed to be the largest criminal tax related case ever prosecuted in western Texas.

Bean and Mire both pled guilty to money laundering and mail fraud conspiracy charges. Solis plead guilty only to a mail fraud conspiracy charge.

The defendants admitted that from 2002 to 2008, they stole more than $133 million from clients of several of the Professional Employer Organizations (PEOs) that they owned and operated.

PEOs actually report client employees as their own, issuing W-2s and filing employment tax returns.  The danger of PEOs is that employers have no way to be sure their employment taxes are being deposited.  If the PEO is stealing them, the IRS will come back to the employers to collect.

With a non-PEO payroll service, the payroll tax returns are prepared for employers, who issue and sign them.  More importantly, non-PEO employers can go online using the Electronic Federal Tax Payment System and verify that their payroll taxes are being paid.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProfThe IRS Scandal, Day 293.  Among the items in his daily scandal roundup is a Wall Street Journal editorial, Liberals vs. the IRS: Even the Left Doesn’t Want the Tax Man Regulating Speech:

In the Nation magazine, Nan Aron of the liberal judicial lobby the Alliance for Justice writes that 501(c)(4)s aren’t merely groups like Karl Rove’s Crossroads GPS, but are “made up of over 86,000 mostly small organizations nationwide” that are active participants in civic life.

“They weren’t invented in the last election cycle; they’ve been around for generations. Their purpose isn’t to hide donors, it’s to advance policies,” Ms. Aron adds. “These groups are involved in elections, because it’s often impossible to advance a policy cause without being involved in the political process.”

There’s no principle that would justify suppressing political rights of 501(c)(4) outfits that can’t apply equally to other exempt outfits.  Furthermore, there’s no real reason to impose taxes on political outfits.  The answer to speech you don’t like is more speech of your own, not suppressing what you don’t want to hear.

TaxGrrrl, IRS Proposed Rules For Nonprofits Alarm Conservatives and Liberals Alike   

 

IRS fights ID theft with one hand, helps it out with the other.  From PC World:

This tax season you may have more to worry about than how much you owe. A new study from Identity Finder finds the IRS is not properly protecting social security numbers in some tax returns…

The research revealed an alarming failure to safeguard sensitive data. Identity Finder uncovered an estimated 630,000 Social Security numbers exposed online in form 990 tax returns.

The most affected group were tax preparers–many of which used their personal SSN rather than their PTIN (preparer tax identification number). However, directors, trustees, employees, donors, and scholarship recipients were all impacted as well. 

It’s fair to point out that preparers have some responsibilty — they are often including SSNs unnecessarily, especially their own.  But that doesn’t excuse the IRS.

 

uni-logoSome UNI workers filing taxes finding Social Security numbers have been used (WCFcourier.com):

According to UNI officials, more than 20 employees have received “error” messages when filing their individual tax returns online, and their returns were rejected. Others who have yet to file say they called the Internal Revenue Service and found their Social Security numbers had been used. One person reportedly received a refund check at home from the IRS though they hadn’t filed a return yet.

UNI officials are playing down the possibility of identity theft, but that’s how I’d bet.  Any organization that collects social security numbers needs to be very careful with them, restricting access and shredding documents on disposal.

Jack Townsend, Stolen Identity Refund Fraud in the News

 

William Perez, Reporting Social Security Benefits

Kay Bell, Don’t fall prey to the Dirty Dozen tax scams of 2014

David Brunori, Great Opportunity for Tax and Public Finance Students (Tax Analysts Blog). “We are conducting our first student writing competition. You should encourage students who have written quality papers to submit them to studentpapers@tax.org.”

 

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Tax Roundup, 7/11/2013: Tax reform frenzy edition! And sometimes a life sentence is lenient.

Thursday, July 11th, 2013 by Joe Kristan
Phil Gramm

Phil Gramm

There’s a lot to like in a Phil Gramm WSJ piece yesterday.  Like this:

Fourth, business subsidies and credits should be eliminated. Ending subsidies to fund lower tax rates improves the efficiency of capital allocation. The sine qua non of tax reform is a more efficient allocation of investment capital. If the tax breaks that create crony capitalism are allowed to survive, then tax reform failed.

Unfortunately, the piece is titled “A GOP Game Plan for Tax Reform.”  I think it’s good enough for both parties, but probably too good for either.

 

Howard Gleckman, Not All Curbs on Tax Preferences Are Created Equal (TaxVox):

Because politicians seem unwilling to confront specific individual tax preferences, it is likely that any broad-based tax reform will be based on across-the-board curbs on deductions, credits, and exclusions. 

Good.

 

Alan Cole, A Tax Bias toward Mega-Corporations (Tax Policy Blog):

The world would have been a better place if McDonald’s had paid higher dividends instead of buying pizza ovens and advertising time for pizza people didn’t want. The money might then have been put to better use by other corporations – perhaps even one that actually specializes in making pizza.

But if McDonald’s had paid out a dividend, it would have subjected the money to an immediate round of taxation. In this way, the tax code favors projects like McPizza; it encourages companies to hold onto their capital instead of freeing that capital up for other companies to use. In a better world, it would be neutral between the two.

I still hope they’ll consider a corporate tax with a full dividends-paid deduction.  It would solve the “lock-in” problem and make debt and equity financing equally attractive while eliminating the double-tax on corporate income.

 

Robert D. Flach, MY CORRESPONDENCE WITH THE WHITE HOUSE ON TAX REFORM – CONTINUED

 

Megan McArdle, The Employer Mandate: A Necessary Impossibility:

The alternatives are to delay the whole bill, or resign ourselves to hemorrhaging wads of cash.  The IT expert’s instinct to hold things together with some inelegant intermediate kludge won’t work.  All the elements of the law are so tightly coupled that pulling one out makes the whole machine go haywire.

Obviously, the preference of the law’s supporters is to hemorrhage cash.  Just go ahead and hand out subsidies indiscriminately, the better to build political support to block repeal.  But this seems . . . well, I’m struggling for kinder words, but I can’t find any.  It seems wildly irresponsible. Not to mention a fundamental betrayal of the promises that were made to get the law passed in the first place.

Have a nice day.

 

Cara Griffith, Are We Getting Anywhere?  

What appears to be happening is that, depending on the taxpayer, state taxing departments are taking a variety of positions in the hope that they will find the one that works best or results in the most tax dollars.

That certainly describes the Iowa approach.

 

TaxProf, The IRS Scandal, Day 63

Kay Bell,  IRS wants to trade bonuses for furlough days as House appropriations subcommittee cuts IRS’ fiscal 2014 funds

 

Russ Fox, Foreign Gamblers Get Equal Footing

TaxGrrrl, Hot Tips For Safeguarding Business & Tax Records   Scanning and off-site back-ups feature prominently.

Phil Hodgen, Opt out (of the OVDI) and get out (of the USA)

Jack Townsend,  HSBC India Depositor Sentenced

Brian Mahany, Late Filed Income Tax Returns May Not Be Dischargeable

Peter Reilly, Claim Citizens United Attorney Broke Charity Tax Law Doesn’t Hold Up

 

Going Concern, Yes, the House Bill That Bans Auditor Rotation Is Terrible But There May Be an Upside.

He faces a life sentence.  Russian Court Finds Dead Lawyer Guilty of Tax Evasion (RIANovosti)

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Tax Roundup, 4/1/2013. Taxes are due two weeks from today. No fooling. And…Zumba!

Monday, April 1st, 2013 by Joe Kristan
Flickr image courtesy Sean MacEntee under Creative Commons license

Flickr image courtesy Sean MacEntee under Creative Commons license

April Fools day is a challenge for tax bloggers.  No matter how outlandish an idea you have for a joke story, chances are that the legislation has already been proposed.   Today’s challenge:  Real tax headlines are mixed with fake ones from today’s Tax Policy Blog.  Can you pick the real fakes without peeking?

A. Protecting Consumers by Eliminating the Business Deduction for Advertising

B. Could tax breaks keep psychiatrists in Iowa?

C. Proposal would give artists tax credit for fair market value of donated work.

D.President Obama Backs Proposal to Legalize Marijuana, Tax Junk Food

E. Could Taxing Violent Video Games Actually Save Lives?

F.  Senator backs off tax on condoms, contact  lenses

G. Following Cyprus Lead, Senator Proposes Tax on “Everyone Else”

H. Mexico Considers Border Fence to Halt Californians Fleeing High Taxes

I. California politician proposes tax on email

Answers at bottom of post.

 

In fact, the research activities credit is noteworthy for its excessive cost — more than $45 million each of the past three years — and the lack of any demonstration of a public benefit. This giveaway is so loosely managed that companies are not even required to disclose how many jobs are related to the taxpayer cost, let alone demonstrate that the jobs would go away without the subsidy.

Related:  Your tax dollars at work for somebody else.

 

David Brunori gets righteous on the “incentives” industry in today’s Tax Notes (unfortunately for subscribers only):

Incentives are inequitable. They’re unnecessary — and hence a waste of money. They distort markets. They breed cronyism. If the players involved weren’t establishment politicians, household name corporations, and prestigious law and accounting firms, we’d describe them as grifters.

Why wouldn’t we describe  “establishment politicians, household name corporations, and prestigious law and accounting firms” as grifters?  Redundancy?

    Here’s a new one. A Pakistani company, the Fatima Group, would like to open a fertilizer plant in Indiana. The company, which for all I know makes the Cadillac of fertilizer, is seeking both federal and state incentives to build its factory. The twist is that the Fatima Group’s fertilizer has been used in 80 percent of roadside bombs in Afghanistan. That’s awkward.

Right now Iowa seems to lead the world in fertilizing fertilizer companies with tax money.  No doubt explosive growth is just down the road.

 

Lawrence Zelenak, Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax (via the TaxProf).  I’m ready to see if absence might make the heart grow fonder.

Don Beaudreax takes Mr. Zelenak’s thinking to its logical conclusion:

If spending time and effort connecting with tax collectors helpfully “draws our attention to our duties as citizens,” then tax withholding short-circuits that attention.  So why not eliminate withholding and oblige each income earner to pay every cent of his or her tax bill by writing personal checks to the IRS?  Not only would elimination of withholding make us even more attentive to our “duties as citizens,” we would also – as any behavioral economist would point out – gain a truer and more fully felt sense of the price we pay for Uncle Sam’s splendors.

Reading Don Beaudreax Cafe Hayek blog for one week will make you smarter than all of Iowa’s legislators combined.

 

Russ Fox begins his annual countown of bad tax ideas with  Bozo Tax Tip #10: Report Income That You Didn’t Earn

 

William Perez,  April 1st Deadline to Take Required Minimum Distributions for 2012

Kay Bell,  IRS loses latest round in tax preparer regulation lawsuit

Brian Strahle,  New York “Amazon Law” Ruled Constitutional:  But Wait, There’s More

Trish McIntire,  Return Is Done but you Owe.

Peter Reilly,  First Circuit Tells Tax Court To Look Harder For Fraudulent Transfer

TaxGrrrl, Taxes From A To Z (2013): P Is For Passive Activity Rules

David Cay Johnston, Spam and Taxes (Tax.com)

Howard Gleckman,  Is This a Good Time to Reform the Mortgage Interest Deduction? (TaxVox)

 

Zumba instructor finds way to draw men to her studio.  From RegisterCitizen.com:

The dance instructor who used her Zumba fitness  studio as a front for prostitution faces jail time after pleading guilty  in a case that captivated a quiet seaside town known for its beaches  and picturesque homes.

The plea agreement, which calls for a  10-month sentence, spares Alexis Wright from the prospect of a  high-profile trial featuring sex videos, exhibitionism and pornography.  She’s scheduled to be sentenced on May 31.

Wright quietly answered  “guilty” 20 times on Friday when the judge read the counts, which  include engaging in prostitution, promotion of prostitution, conspiracy,  tax evasion and theft by deception.

Remember, just because they pay in cash doesn’t make it tax-free.  

 

News you can use.  “Just Go Rob the H&R Block Instead, Their Computers Are Nicer” (Going Concern)

 

Fakes: A, D, G, H.

 

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Shaking up S corporation and partnership tax.

Wednesday, March 13th, 2013 by Joe Kristan

S-SidewalkWays and Means Chairman proposes pass-through reforms.  Dave Camp, the Republican Chairman of the House Ways and Means Committee, yesterday proposed to merge the rules for S corporations and partnerships in a single pass-through tax system.  But in case that’s too much change for Congress to take, he also proposed more modest changes to Subchapter S and Subchapter K.

The big plan would combine the rules for partnerships and S corporations.  Among the many new rules would be restrictions on the ability to specially allocate partnership items.  It would automatically adjust the “inside” basis of property when a partnership interest is transferred to match the “outside” basis, and it would require partnerships to recognize gain on distributions of appreciated property – like corporations must do now.   The gain recognition rule would strip partnerships of one of their most attractive tax features.

The small plan would merely tweak the existing partnership and S corporation rules.  Changes would include making permanent the five-year built-in gain period for S corporations, setting the Section 179 limit permanently at $250,000, and changing the due dates of partnership and S corporation returns to March 15 and March 31.  It would also make mandatory basis adjustments on transfers of partnership interests.

It’s very early in the process, and I have no idea whether these ideas will ever become law.  It is interesting, though, that Rep. Camp is investing the time in putting out these proposals.  I doubt he would do so if he thought there was no opportunity to advance them in the next few years.

The TaxProf has a roundup.

Links:

 

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Tax Roundup, 5/1/2012

Tuesday, May 1st, 2012 by Joe Kristan

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Happy May Day!  I hope you get lots of May baskets.  Spare a thought for those still stuck in places where May Day means something else.

Don’t double my rate!  “Cruse admitted that beginning in December 2003 and continuing through 2007, she applied for more than 90 student loans in her name or in the names of individuals – including family members – whose names, Social Security numbers and dates of birth she used without permission. Of the $1.7 million she sought, Cruse successfully obtained 17 student loans and received more than $192,000, according to a news release from U.S. Attorney Paul J. Fishman. “ (Trentonian.com)

Scott Hodge: How Might Berkshire Benefit from the Buffett Rule? (Tax Policy Blog)

This could make a very long book: The Disadvantages of Tax Incentives (Jim Maule)

Another Amazon law fail:Illinois Circuit Court Judge Finds State Affiliate Nexus Law Unconstitutional”  (Hat tip: Roger McEowen).

Another triumph for Commissioner Shulman: 460 citizenship renunciations in the first quarter of 2012 (Andrew Mitchel)

Spring cleaning time: How long to keep tax returns?  (William Perez)

May all your problems at work be this severe:  “The New Guy Needs Help Dealing With The Alleged Office Tramp” (Going Concern)

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Iowa leads the world!

Tuesday, April 10th, 2012 by Joe Kristan

The Tax Policy Blog maps the nation’s state corporation tax rates.  Iowa is number 1, at 12%.

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Now that the U.S. has the highest corporation tax rate in the world, that means Iowa’s tax is the highest of the highest!

Oddly, having the highest rate raises only a pittance, as the Iowa tax law is so shot full of loopholes and special interest subsidies that only the unlucky and the unlobbied pay the full rate.  It’s time for the Quick and Dirty Iowa Tax Reform Plan already.

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Iowa: the highest of the highest!

Monday, April 2nd, 2012 by Joe Kristan

Effective yesterday, a corporate rate cut in Japan left the US with the highest corporate tax rate in the developed world.  The Tax Foundation observes the occasion with a video.

 

Iowa has the highest state corporate tax rate in the U.S., so that means for those who haven’t gotten their Iowa taxes eliminated with help from their lobbyists, Iowa has the highest corporation tax in the developed world! 

It doesn’t have to be this way.  The Iowa legislature seems to be at an impasse; they could break it and bring our tax system into the developed world with The Quick and Dirty Iowa Tax Reform Plan!

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