Archive for the ‘Tax Roundup’ Category

Tax Roundup, 1/30/15: Earned Income Tax Credit Awareness Day Edition! And: judging your golf score

Friday, January 30th, 2015 by Joe Kristan

daydrinkersDid you know that today is “Earned Income Tax Credit Awareness Day“? Most of us don’t get the day off, but as it is Friday, we can celebrate after work into the wee hours.

What are we celebrating? Well, the EITC is a refundable tax credit designed for poor working families with children. A “refundable” credit generates a tax refund if there is no tax to offset, so the EITC works as a welfare payment for poor families with some earned income. It phases out as incomes increase.

Some economists praise the EITC as a useful anti-poverty program that doesn’t kill jobs the way minimum wage laws do. Others look at it as a way to achieve “tax justice” by redistributing taxes to the poor.

Still, if you really want to be fully aware of how the EITC works, you should know about a few things that aren’t on the IRS EITC Awareness Day web page.

For example, you should know that the EITC phase-outs make it a poverty trap. The effect of the phase-out of the credit as income rises is to impose a marginal rate on additional earnings of EITC recipients as high as that imposed on some of the top income earners. The Federal-Iowa combined rate, taking into account phaseouts and payroll taxes, can exceed 50%.

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This is a serious disincentive for EITC recipients to improve their earnings. Combined with the loss of other benefits, it can make self-improvement an unrewarding pastime.

 

Up to 25% of the EITC goes to people who shouldn’t get it, according to TIGTA. Part of it is because taxes are complicated and math is hard. A significant part, running into the billions, goes to fraudsters. Even in a good cause, you have to question the value of a program that misdirects so much money.

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Like all refundable credits, the EITC is a fraud magnet. Any time the government will write a check just for the effort of filling out a form, fraud happens. Just a few random instances:

Waterloo, Iowa preparer get 30 months for earned income tax credit fraud. A preparer invented earnings to get Iowa clients EITC refunds.

Tax Preparer Sentenced For Fraud Scheme. “The fraudulent returns sought refunds of $354,000 based on bogus expense deductions and refundable credits, such as entitlement to the First Time Home Buyers Credit and the Earned Income Tax Credit when the filer had little, if any, taxes withheld from income in that year.”

Tax preparer who bilked IRS out of $4M for poor clients: Fraud a ‘spiritual calling’. “As it turned out, Reed was inflating the incomes of his clients – generally unemployed women with children – so that they could claim an earned income tax credit.”

So as you observe this festive day in your own way, you can ponder whether the guy celebrating at the next table is buying because he just got his fraudulent EITC refund.

 

20140826-1Get your Buzz now! Because Robert D. Flach has posted his final Buzz for this tax season, with a kind shout-out to the Tax Update Blog. Don’t miss his thoughts on choosing a tax pro.

Kay Bell, What would you pay for professional help in filing your taxes?

William Perez, Head of Household Filing Status, Explained

Accounting Today, Obamacare Penalty to Be Owed by as Many as 6 Million Taxpayers. That will make it popular.

Robert Wood, Senators Blast IRS Commissioner Over Waste, Bonuses, Bad Service, More. Well, shooting fish in a barrel can be fun.

TaxProf, The IRS Scandal, Day 631. More government stonewalling. Well, it’s worked so far.

 

William McBride, Federal Government Lost Money from 2013 Tax Increases on Investors (Tax Policy Blog):

As President Obama prepares to roll out another tax increase proposal targeting capital gains and dividends, it’s instructive to look at what happened the last time he did that. Fortunately, the IRS just released preliminary data on tax year 2013, the year the top tax rate on capital gains and dividends went from 15 percent to 23.8 percent. The fiscal cliff deal raised the top rate to 20 percent and the Obamacare investment surtax added 3.8 percentage points.

From the IRS data, we can see that investors didn’t just sit there and pay the higher tax rate. Qualified dividend income dropped 25 percent, from $189 billion in 2012 to $141 billion in 2013. Capital gains dropped 12 percent, from $475 billion to $416 billion. Recall this was in the midst of a historic stock market boom.

Not all tax increases lose money, and not all tax cuts make money. This shows, thought that increases in capital gains rates can backfire. The realization of many capital gains is discretionary, and many taxpayers will discreetly hold on to gains, rather than cash them out, when rates rise.

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Perhaps this might not have been the best way to impress the sentencing judge. The Denver Post reports Convicts in $100 billion tax fraud skipped sentencing to play golf

The three Colorado Springs defendants were arrested Thursday after they failed to appear for sentencing Wednesday. They were escorted into court Thursday afternoon in handcuffs, all wearing street clothes.

“We did go golfing. I shot a 49, which was pretty good for me,” Pawelski told the judge after she emphasized the seriousness of the felony charges he faced.

Judges always understand you skipping a court date if you have a tee time.

Arguello reset sentencing for all three tax fraud convicts for Feb. 10. The judge brought each offender into the courtroom separately. Brokaw and Pawelski each told the judge they are a “natural man.”

“I am a natural man, a legal person, a legal man; something I didn’t know before,” Pawelski said.

Good thing he figured that out. He’ll likely have plenty of time to ponder that starting about February 11.

 

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Tax Roundup, 1/29/15: Iowans, fill ‘em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

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For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.

Related:

Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.

 

Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.

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Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”

 

Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/26/15: Is Iowa 2014 tax season in jeopordy? And: how “trust fund tax” encourages trusts.

Monday, January 26th, 2015 by Joe Kristan

Accounting Today visitors: Here is the accounting method post mentioned by “in the blogs.”

 

20130117-1Uh-oh. Is there a holdup on passing the annual “conformity” bill at the statehouse? This from Republican State Senator Bill Anderson in the Sioux City Journal is a bad sign:

Senate Democrats are playing politics with the issue. The Department of Revenue is recommending accountants tell clients to delay filing their taxes until a decision is made. Senate Democrats’ indecisiveness to pass legislation in a timely manner creates uncertainty for taxpayers and tax professionals, preventing them from filing returns.

I had not heard there was any difficulty here. I hope it’s not serious, but I will be watching it more closely now.

This is another example of why Iowa should have a “floating conformity” rule. I don’t understand why they can’t say they will automatically adopt federal extender changes. If they want to leave out bonus depreciation, that could be done with language excluding that from the automatic conformity. We shouldn’t have to go into February without knowing what the state tax law is for the prior year.

 

Janet Novack, Obama Attack On “Trust Fund Loophole” Could Increase Tax Advantage Of Trusts. “Without step-up, there would, for example, be an even greater tax advantage to putting assets that are likely to explode in value—such as founders’ stock in a hot start-up—into an irrevocable trust for children or grandchildren.”

 

Kay Bell, Capital gains gain in income reporting, but tax hike unlikely

Jack Townsend, Fifth Circuit Rejects Attempt on Direct Appeal to Withdraw Guilty Plea in False Claims Conspiracy Case

Jim Maule, No Agreement? No Alimony Deduction. In divorce, paperwork is everything.

Robert Wood, 10 Crazy Sounding Tax Deductions IRS Says Are Legit. My favorite is “free beer.”

20130607-2Anthony Nitti, IRS Futher Limits Deductions For State-Legal Marijuana Facilities:

Most notably, Section 280E provides that “no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.” Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug.

And it does. Regularly.

I hope nobody really believes this actually prevents any drug crimes. What it does is add a crushing tax debt that helps ensure that anybody who gets involved in drug traffic can never reform and become a productive member of society.

 

Robert Goulder, Should the Mayor of London Pay U.S. Taxes? (Tax Analysts Blog):

True, there are tax treaty protections at play and foreign tax credits available. But the point of the story isn’t double taxation; it’s jurisdictional overreach. Many will argue that a citizenship-based tax regime is unfair and heavy-handed.

The U.S. is the only country that does it. Oh, Eritrea, too.

Stephen Olsen, The Gift that Keeps on Taking–Does Section 6324(b) Limit Gift Tax to the Value of the Gift or Can the IRS Take More? (Procedurally Taxing)

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Alan Cole, The IRS Has Too Many Responsibilities (Tax Policy Blog):

On one hand, the IRS’s basic responsibilities have gotten less onerous over the years. More and more taxpayers file electronically, which means that everything just zips straight into the IRS’s computer system with little need for human oversight. This should mean that the IRS really doesn’t need to grow, and if anything it could stand to shrink.

But on the other hand, the IRS has been overloaded with all sorts of additional responsibilities. It’s acting as an extension of the Department of Health and Human Services in enforcing the Affordable Care Act. It’s acting as an extension of the Federal Election Commission and regulating political speech (an authority it has perhaps not used so well.) It’s acting as an extension of the Department of Energy with its residential energy credits, and it’s acting as an extension of the Department of Education in offering deductions and credits for teachers and students. It has to figure out who has health insurance and who has children and where the children live. It even has to try to get data from foreign banks, due to the complexity of our worldwide system of taxation. The more arbitrary things find their way into the tax code, the more verification systems the IRS has to put in place.

These are only a few of the non-revenue responsibilities dumped on the IRS that uses the tax law as the Swiss Army Knife of public policy. Beyond the bottle opener and the screwdriver, every gadget you add makes it harder to use it as a knife, and now we have a Swiss Army Knife the size of a railcar.

 

20140919-2Gretchen Tegeler, Benefits and Costs of DARTing Forward  (IowaBiz.com), on the troubling financial structure behind Des Moines’ public tansportaiton:

Despite a nearly 20 percent increase in ridership over this period, there has been no associated increase in fare-based revenue.  If more millennials are riding the bus, why aren’t we seeing an increase in operating revenue?  The absence of growth in operating revenue suggests that all of the recent improvements in service and ridership have been funded by non-users, i.e. from increases in property taxes.  Are we okay with this model? How far should we go with it?

Maybe if they had to rely more on farebox revenue, they would spend less on things like the downtown Palace of Transit.

 

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TaxProf, The IRS Scandal, Day 627

Glenn Reynolds, Middle-class Savings Like Blood in the Water. Paying for “free” college and student loan subsidies by taking money out of the pockets of those who save for college sets up a strange incentive structure.

Megan McArdle, Uncle Sam Is Coming After Your Savings. They need it to buy you “free” stuff.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/23/2015: Egg donor compensation taxable payment for services. Meanwhile, kidney donor compensation is a felony.

Friday, January 23rd, 2015 by Joe Kristan
"White-&-Brown-Eggs" by Evan-Amos - Own work. Licensed under Public Domain via Wikimedia Commons

“White-&-Brown-Eggs” by Evan-Amos – Own work. Licensed under Public Domain via Wikimedia Commons

The big news in the tax world today is a Tax Court case ruling that payments to an egg donor were compensation for services. The case turned on the language of the contract of between the egg donor and the agency that procured the eggs. Tax Court Judge Holmes ruled that the payments were not excludible as payments for physical damages because there was no tort claim involved.

There are plenty of places you can read more details on this case, including Russ Fox and Tony Nitti. The TaxProf has a roundup.

So there is an organized and legal market for donor eggs, which, if all goes well, turn into an entire new human. That’s a good thing. But if an agency paid you for one of your kidneys to save the life of an already-born child on the kidney donor list, they would face a $50,000 fine and five years in prison under the Gore-Hatch National Organ Transplant Act of 1984.

The National Kidney Foundation reports that 12 people die daily waiting for a donor kidney, and that 4,453 died waiting for a kidney transplant in 2013.  It’s a felony to save any of those lives by buying a kidney from a healthy, willing and fully-informed seller. Meanwhile, nobody dies waiting for a donated egg.

Cite: Perez, 144 T.C. No. 4

Related: The Case for Paying Organ Donors (Sally Satel)

 

Kyle Pomerleau, Richard Borean, More than Half of all Private Sector Workers are Employed by Pass-through Businesses:

53.7% of Iowans work for pass-through businesses taxed on 1040s.

53.7% of Iowans work for pass-through businesses taxed on 1040s.

“Pass-through” income is income earned by S corporations and partnerships, including LLCs. This income is taxed on 1040s. Those who favor ever-increasing individual taxation of “the rich” by definition favor increasing the tax on employment.

 

buzz20140923Robert D. Flach has your Friday Buzz, including thoughts on avoiding scammers claiming to be from IRS and on Wal-Mart’s cash tax refund program: “My advice – avoid this program.”

Kay Bell, IRS gets $1.3 million for Darryl Strawberry’s Mets annuity

Paul Neiffer, IRS Scammers Net $14 Million from 3,000 Victims. If the e-mail says it’s from the IRS, it’s not. If you aren’t expecting a call from the IRS, the caller isn’t from the IRS.

Jason Dinesen, Ridiculous IRS Situations I’ve Recently Dealt With. A continuing series.

Leslie Book, Tax Court Addresses Verification Requirement in Trust Fund CDP Case (Procedurally Taxing)

Robert Wood, Washington Nationals $210M Pitching Contract For Max Scherzer Is About Taxes. “The Home Rule Act prohibits the District from imposing a commuter tax on non-residents.”

Peter ReillyExclusive – Kent Hovind Claims Congressmen Are Looking Into His Case. All you could possibly want to know about the case of the guy who thinks the Flintstones was actually a documentary series.

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Robert Goulder, Reading the Tea Leaves: China’s Jurisdictional Tax Claims (Tax Analysts Blog). Contrary to some reports, even Communist China doesn’t plan to tax worldwide income of non-resident Chinese. The U.S. stands alone in doing that.

Howard Gleckman, A Look at the Territorial Tax Systems in Four Countries Finds No Magic Bullets (TaxVox). No magic beans, either, I’ll bet.

TaxProf, The IRS Scandal, Day 624

 

Career Corner. Here Are Just a Few Questions You’ll Be Asked in a Big 4 Interview (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/22/15: Business-only tax reform: do-able, or doomed? And: Are Iowa taxes all that bad?

Thursday, January 22nd, 2015 by Joe Kristan
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Paul Ryan

Business-only tax reform? Tax Analysts reports ($link) that the chief taxwriter in the GOP-controlled House is exploring tax reform ideas with the Obama administration:

As Republican taxwriters look for a way to advance tax reform in the face of White House ambivalence, House Ways and Means Committee Chair Paul Ryan, R-Wis., said he would explore a business-only compromise with the Obama administration, as long as it includes passthroughs.

“I’d like to think that there is perhaps an area for common ground there,” Ryan said on Fox News January 20 after President Obama’s State of the Union address. “We’re going to try to explore it and see if we can find something.”

Ryan said Obama’s recent tax proposals, which involve increasing capital gains taxes and implementing a tax on financial institutions to pay for new and expanded middle-income tax incentives, as well as new spending programs, show he is disinterested in comprehensive reform.

I think “as long as it includes passthoughs” is absolutely the right approach. I also think it will be fatal to the reform effort. A majority of businesses and business income is taxed on 1040s as a result of the increased popularity of passthrough structures like S corporations and limited liability companies.

Source: The Tax Foundation

Source: The Tax Foundation

Any tax reform effort worthy of the name would bring down rates in exchange for a broader base. As the President seems firmly committed to ever-higher rates on “the rich,” I don’t see how this can happen.

 

Is Iowa’s business tax climate really that bad? (Me, IowaBiz.com). Is Iowa ready for tax reform? Ready or not, it’s overdue for it:

Even after all of the explaining, the Tax Foundation’s main points remain true. Iowa’s corporation tax rate is the highest in the U.S. (even taking the deduction for federal income taxes into account). In fact, it is the highest in the developed world. Our individual tax rate is high, even considering the federal tax deduction. All of the special breaks make Iowa’s income tax very complex. And while Iowa has many tax credits, they are often narrowly tailored and require consulting and string-pulling to obtain. Many small businesses don’t qualify for the wonderful tax breaks, but they still have to pay their accountants to comply with the resulting complex and confusing tax system.

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.

The post begins an exploration of Iowa tax reform options I will be running at IowaBiz.com, the Des Moines Business Record’s Business Professional’s Blog. While longtime readers know my fondness for massive changes to the Iowa tax system, I will also be exploring changes on the margin that would improve and simplify Iowa’s tax system in its existing structure that might be easier to pass.

 

David Brunori, Bad State Tax Ideas Abound – Nebraska, Virginia, and Missouri (Tax Analysts Blog):

Special taxes — those on narrow bases — should be imposed sparingly and only for good reason. The best reason is to pay for externalities. But unlike, say, cigarettes, 99 percent of gun purchases produce no externalities. So they should not be subject to special taxes — unless you really hate guns, gun owners, and the guys from Duck Dynasty.

Not every problem is a tax problem.

 

Via Wikipedia

Via Wikipedia

TaxGrrrl, Taxpayers Urged To Be On ‘High Alert’ For Fraud During Filing Season:

This week, the Treasury Inspector General for Taxpayer Administration (TIGTA) issued a reminder to taxpayers to beware of scammers making calls claiming to represent the Internal Revenue Service (IRS). The scam, which heated up last year, has continued to plague taxpayers.

If you aren’t expecting a call from the IRS, it’s not the IRS.

 

William Perez, Understanding Form W-2, the Annual Wage and Tax statement

Robert Wood, 10 Surprising Items IRS Says To Report On Your Taxes. As a listicle, it will probably generate traffic to crush Forbes’ servers.

Tax Trials, Fourth Circuit Affirms the Tax Court on Conservation Easement Donation.  “In the end, the Fourth Circuit held that while the conservation purpose of the easement was perpetual, the use restriction on the’ real property is not in perpetuity because the taxpayers could remove land from the defined parcel and replace it with other land.”

Robert D. Flach, ONE WAY RETIREES ARE SCREWED ON THE NJ-1040.

Keith Fogg, How Long Does a CDP Case Toll the Statute of Limitations on Collection? (Procedurally Taxing)

Peter Reilly, Bitter CPA Fight Good For Attorneys And Nobody Else. The U.S. Sixth Circuit picks up the tale of one of the worst accounting firm breakups I’ve come across.

Jack Townsend, USAO SDNY Announces Another Offshore Account Client Plea

 

20141201-1Glenn Hubbard, Obama’s Bad Economic Ideas (Via the TaxProf): “Piling up child tax credits and subsidies for health care over narrow household income ranges, as the president proposes, leads to high rates of taxation on earnings from work as assistance is phased out.” In other words, a poverty trap.

Kay Bell, Obama’s ‘won both’ elections State of the Union quip, Republicans’ many responses to the speech (and gibe)

 

The Tax Policy Blog has lots on the Presidents’ doomed tax proposals:

Kyle Pomerleau, Andrew Lundeen, The Basics of President Obama’s State of the Union Tax Plan

Scott A. Hodge, Michael SchuylerWhat Dynamic Analysis Tells Us About the President’s Tax Hike on Capital Gains and Dividends

Stephen J. Entin, President Obama’s Capital Gains Tax Proposals: Bad for the Economy and the Budget

 

TaxVox is also flooding the SOTU zone:

William Gale, David John, Retirement Security a Priority in the 2015 State of the Union

Gene Steuerle, President Obama’s Middle-Class Tax Message in the State of the Union

William Gale, Adjusting the President’s Capital Gains Proposal

 

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TaxProf, The IRS Scandal, Day 623. Today’s installment features an e-mail where scandal figure Lois Lerner shows she’s well aware her unit was under suspicion, and was desparately discouraging further inquiry.

Matt Gardner, Adobe Products’ Acrobatic Tax-Dodging Skills (Tax Justice Blog). I would read that as “skills in meeting their fiduciary duty towards their shareholders.”

 

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Tax Roundup, 1/21/15: The Peculiar Case of the Trucking Tax Turtle. And more SOTU reaction, oh boy.

Wednesday, January 21st, 2015 by Joe Kristan

tbtTurtles carry their home on their back. So do some taxpayers. The Tax Court yesterday ruled that a truck driver who claimed Minnesota residency was a tax turtle, carrying his tax home on his back.

It matters because you can only deduct meal and lodging expenses for travel “away from home.” When you’re a tax turtle, you’re never away from home — you live on the road.

Judge Holmes takes up the story.

Shalom Jacobs has been a truck driver since 2002. His trips were mainly long haul “over the road” — meaning he spent a significant number of weeks and months on the road and was paid by the mile…

When he wasn’t on the road, Jacobs considered his home to be in Cottage Grove, Minnesota, where he stayed in the guest room of his longtime friend and fellow expat, Shimon Casper. Casper and Jacobs were both born in Israel and reared on kibbutzim. According to Jacobs, the Caspers’ Cottage Grove home was an American-style kibbutz, where Casper, his wife and children, and Jacobs recreated the communal life of their homeland with everyone contributing everything they had and taking only what each needed.

I don’t think the kibbutz  life is the life for me, but if it were, I think I would stay in Israel, where the weather is better. But that doesn’t address our deduction issue. Judge Holmes, again (my emphasis, citations omitted):

Flickr image by USFWS Mountain Prairie under Creative Commons license

Flickr image by USFWS Mountain Prairie under Creative Commons license

The Code is a little peculiar in defining a person’s “home.” Normal people think of their home as the place where they spend their personal and family lives, but a “home” in tax law is usually where a taxpayer has his principal place of employment. Tax law defines a home as the permanent residence at which a taxpayer incurs substantial continuing living expenses only if he doesn’t have a principal place of employment But what if a taxpayer is constantly on the move? Cases decided over many decades give us the answer — a taxpayer who’s constantly in motion is a “tax turtle” — that is, someone with no fixed residence who carries his “home” with him.  Such a taxpayer is not entitled to business deductions for traveling expenses under section 162.  The burden of proof is on the taxpayer if he disagrees with the Commissioner, and that is a high hurdle for a tax turtle to clear.

Turtles aren’t typically seen in hurdle events, and this one failed to clear that high hurdle. Judge Holmes said the taxpayer failed to show that his friend’s home was, in fact, communal, that he actually paid household expenses, or that he used that address for voter registration. This is a good reminder of the importance of documentation in tax controversy; the judge is more likely to take your word if it agrees with a cancelled check.

The Moral: To deduct meals and lodging away from home, you need to leave your home behind. And Tax Turtles will clear a hurdle only if they have a ladder of good records to help them get over it.

Cite:  Jacobs, T.C. Summ. Op. 2015-3

 

buzz20140905Actually, that’s yesterday now. Reminder: Worst Tax Season Ever Starts Today (Adrienne Gonzalez, Going Concern)

Kay Bell, Tax filing season 2015 is here

William Perez, The Penalty for Not Having Health Insurance. “Here are details on how the individual shared responsibility payment is calculated.”

Jason Dinesen, Does Nebraska Recognize Same-Sex Marriages for Taxes?

Robert Wood, Why IRS Form 1099 Is So Dangerous To Your Tax Bill. “Failing to report one is asking for an audit.”

Tuesday Buzz is just as good on Wednesday. A belated Buzz from Robert D. Flach, including coverage of the recent Taxpayer Advocate’s report.

 

Stephen Olsen offers Summary Opinions for 12/19/14 to 1/05/15 at Procedurally Taxing. This rounds up tax procedure happenings.

Paul Neiffer, 2 Senators Work to Eliminate Capital Gains Tax on Chapter 12 Bankruptcies.

The US Supreme Court ruled in 2012 that the capital gains generated by these sales are subject to income tax.  The two senators do not believe this was the original intent of Congress when the wrote the original law during the 1980s farm debt crisis, so this new bill is designed to eliminate the imposition of capital gains or other taxes on the sale of property due to the Chapter 12 bankruptcy.

The two senators are Grassley and Franken.

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TaxGrrrl liveblogged the State of the Union address. I live-slept it

Howard Gleckman, The Tax Reform Gap Between Obama and the GOP is Widening (TaxVox):

But it isn’t hard to see where the two parties are headed. Obama does not want an anodyne debate over tax reform. Rather, he’s using reform rhetoric to support a “middle-class economics”agenda aimed at using the tax code to redistribute some income from the rich to working-class households. For their part, Republicans want to use reform talk as a framework for a business-oriented growth agenda leavened by some targeted breaks for working families. 

That should be “some more income.

Scott Hodge, Will Obama’s New Plan to Help the Middle-Class Succeed When $1.5 Trillion in Redistribution Has Not?. Spoiler: no.

Tony Nitti, Why Republicans Should Embrace A 28% Tax On Capital Gains. I’m not remotely convinced; the correct rate is zero, as that income is already after tax money. But if you can get the ordinary rate down to 28% too, I’ll listen.

 

TaxProf, The IRS Scandal, Day 622

Peter Reilly, Will Kent Hovind Become This Year’s Cliven Bundy? If I knew who Cliven Bundy is, I might have an opinon on that.

 

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Tax Roundup, 1/20/2015: What’s with the accounting method changes? And: foot kissing + tax evasion = double trouble.

Tuesday, January 20th, 2015 by Joe Kristan

3115-2009If your business return seems extra thick this year, it could be a result of an “accounting method change” application — Form 3115 — buried in it.

The tax law requires taxpayers to get IRS permission to change a “method of accounting.” Without getting into all of the tedious details, and with great oversimplification, a “method of accounting” occurs when the way you account for something on your tax return affects the timing of income or expense, but not the total amount over time. In other words, it’s temporary vs. permanent differences.

Of course timing is everything in tax planning, and the IRS doesn’t want you to change accounting methods willy-nilly. The IRS doesn’t have the time to consider every accounting method change, though, so it publishes a long list of “automatic” method changes annually. This year’s list is in Rev. Proc. 2015-14.

This year will see more Forms 3115 than usual as a result of the so-called “repair regulations” that are effective for 2014 returns. These rules distinguish between “repair” expenses, which can be deducted, and “improvements,” which have to be capitalized and depreciated.

20140925-2The repair regulations have provisions that let taxpayers treat their building components — HVAC, roofs, elevators, etc — as separate items under these rules. Their effect is to permit deductions for some costs that may have been trapped in the depreciable cost of the building. That makes the automatic method change under these rules (Rev. Proc. 2014-17) a good deal, as it can provide a catch-up deduction for prior capitalized costs. Many returns will also include a method change (Rev. Proc. 2014-16) to reflect updated rules for deducting or capitalizing “materials and supplies.”

Automatic method changes are a good thing; if you have a method change that isn’t automatic, special IRS permission is required, and it doesn’t come cheap. But even an automatic change isn’t free, especially if your preparer has to go through old repair records to determine the catch-up deduction. But if you have significant depreciable real property, it’s probably worth the effort.

 

Russ Fox, Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy. 

An accountant from Stillwater, Minnesota — who happened to also be the Mayor — chose poorly.

 

20121120-2Hank Stern, Counting down the ObamaTax:

Many (most?) folks believe that the tax is a mere $95 this year and, for some people, this may well be the case. But it’s actually just a minimum; the actual rate (this year) is 1% of income:

TurboTax, an online tax service, estimated that the average penalty for lacking health insurance in 2014 will be $301.”

A common misconception.

Robert Wood, Beware Obamacare When Filing Taxes This Year. A roundup of the individual mandate penalty and the net investment income tax.

 

Annette Nellen, Due diligence for preparing 1040s for 2014:

What’s new for due diligence for 2014 individual tax returns?  Virtual currency, Affordable Care Act, FBAR, Airbnb rentals, for sure.  Also, the typical charitable contributions, mortgage interest and 1099-K review.  The biggest new item for 2014 will the new line asking if the individual had health coverage for the year.

More work doesn’t come free. The post lists to a longer article about preparer “due diligence” this tax season.

 

Tim Todd, Tax Court Adopts Functional Test to Define “Bank”. “In sum, the Tax Court held that Moneygram satisfied neither the Staunton functional test nor the § 581 test because it failed to receive deposits, make loans, and was not regarded as a bank by any state or federal regulator. Consequently, Moneygram was not entitled to the reported bad debt deductions of the partial or wholly worthless asset-backed securities.”

Jason Dinesen, A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913.

 

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part 1. “As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.”

TaxGrrrl, Fun With Taxes: Tax Haiku 2015. How about this:

 insure worker health?

Better not reimburse it

That is expensive.

 Kay Bell, Martin Luther King Jr. Day lessons via “Selma” & “Glory”

Mitch Maahs, IRS Announces New Standard Mileage Rates (Davis Brown Tax Law Blog)

 

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Robert D. Flach, BO SOTU PLANS TO INCREASE TAX ON THE “WEALTHY”. ” BO’s tax proposals, both to help the middle class and punish the wealthy, will never pass in the Republican controlled Congress.”

Matt Gardner, President Obama Takes on the Capital Gains Tax Inequity with New Proposals. By making it worse, of course, though not to hear Mr. Gardner tell it.

Renu Zaretsky, To Build a Better Tax Code, You Could Follow the Money.  The TaxVox headline roundup is heavy on the President’s proposals.

TaxProf, The IRS Scandal, Day 621. This edition cites Stephen Moore’s Op-ed: “Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job.”  Unfortunately, the President who hired him thinks he is doing his job, which is to be a partisan scandal goalie.

 

The headline that wins the internet: Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (Jack Townsend)

 

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Tax Roundup, 1/19/15: President announces doomed tax proposals. And: Iowa gets 2015 credit for non-SHOP plans.

Monday, January 19th, 2015 by Joe Kristan

 

Economic supergenius

No, he’s not serious. The President has put forth a new set of tax proposals. So much for any ideas that he would spend his lame-duck last two years reaching out to pass bipartisan bills. The President’s “fact sheet” is a tendentious, partisan collection of slogans and half-truths posing as policy.

The first proposal:

Close the trust fund loophole – the single largest capital gains tax loophole – to ensure the wealthiest Americans pay their fair share on inherited assets. Hundreds of billions of dollars escape capital gains taxation each year because of the “stepped-up” basis loophole that lets the wealthy pass appreciated assets onto their heirs tax-free.

This is just partisan class warrior nonsense. First, it has nothing to do with “trust funds.” That’s just content-free name-calling. It would, according to Peter Reilly, treat death as a taxable sale of assets at fair market value.

The “wealthiest” already pay estate tax at rates up to 40% on the value — not just the gains — on their assets at death. But stepped-up basis applies to everyone, not just the wealthiest. The President’s proposal, if it really does call for elimination the basis step-up at death, affects everyone who inherits property, not just the few who pay estate tax. Everyone would get to try to find out how much Mom and Dad paid for that land or that stock in 1967, not just the wealthy.

Raise the top capital gains and dividend rate back to the rate under President Reagan. The President’s plan would increase the total capital gains and dividends rates for high-income households to 28 percent.

Somehow this proposal omits restoring the Reagan-era 28% top ordinary income rate that was key to allowing the 28% capital gain rate. The proper capital gain rate, of course, is zero.

None of this has a remote chance of passing, so there’s no point in me spending a lot of time on it. If you want more coverage, TaxGrrrl and Robert D. Flach dive into the details.

I’ll just point out that this is all dishonest class warrior nonsense about making “the rich” pay their “fair share.” A fair look at the numbers indicates that the rich guy is already picking up more than his share of the tab.

First, the shares of all taxes paid by different income segments:

Tax foundation Distribution of Federal Taxes in 2014

Next, the share of federal taxes by the dreaded “top 1%” vs. the bottom 90% since 1980:

taxfoundation top 1 vs bottom 90 percent

Maybe you think that “the rich” may pay more tax, but they still don’t pay as much as the rest of us as a share of their income. Nope:

tax foundation income share vs tax share

Finally, the taxes (Federal, state and local) paid by different income levels compared to the government benefits received by those income levels:

tax foundation taxes vs benefits 2012

No matter how much “the rich” have to cough up, as far as the President is concerned, it will never be enough.

More coverage:

Paul Neiffer, Do Farmers Take Advantage of “Trust Fund” Loopholes

Peter Reilly, President Obama Would Make Death A Taxable Event. “The President’s proposal would close the stepped-up basis loophole by treating bequests and gifts other than to charitable organizations as realization events, like other cases where assets change hands.”

Len Burman. President Obama Targets the “Angel of Death” Capital Gains Tax Loophole. (TaxVox). So dying is a loophole now.

 

cooportunity logoIn case you missed it, the IRS announced Friday that it will allow taxpayers in 85 Iowa counties to claim the small employer health care tax credit in 2015 now that CoOportunity, the sole provider of “SHOP” policies in those counties, has been taken over by insurance regulators. Details here.

 

TaxProf, The IRS Scandal, Day 620. Today’s installment quotes Friday’s Wall Street Journal:

If the IRS continues to stonewall the political targeting investigation, as Mr. Koskinen has, then the only tool Congress has to express disapproval is the power of the purse. In any case it’s hard to imagine the IRS could offer worse service than it already does.

Please, don’t tempt them.

 

Scott Hodge, Don’t Cry for the IRS, We’re Doing Their Work for Them (Tax Policy Blog)

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On the Martin Luther King holiday, a cautionary tale of politically-motivated tax prosecution from Robert Wood.

Annette Nellen, Due diligence for preparing 1040s for 2014

Kay Bell, Terrorism, not taxes, rank high on policy priorities survey. I’ll bet that changes in about two months.

Christopher Bergin, Frack It, Tax It (Tax Analysts Blog)

 

Career Corner. If Your Accounting Firm Uses Timesheets, For the Love of God, Track Your Time Daily (Caleb Newquist, Going Concern)

 

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Tax Roundup, 1/16/15: Insurance reimbursements may trigger $100/day penalty, but at least they’re not on W-2.

Friday, January 16th, 2015 by Joe Kristan

20121120-2Letter to Congressman says insurance reimbursements that trigger $100/day Obamacare penalty still excludible from W-2. 

Small employers have long used “Section 105″ plans to reimburse employee purchases of individual health insurance, in lieu of setting up an employer group health plan. Such reimbursements were excludible from employee W-2 taxable income.

Under the Administration’s interpretation of the Affordable Care Act, such plans trigger a $100 per-day, per-employee penalty starting in 2014. Many employers are just learning that they had disqualified plans last year and are scrambling to comply; fixing a plan within 30 days of compliance may enable such taxpayers to avoid the $36,500 hit for each employee on “reasonable cause” grounds.

One question that has hung over this is whether the employer has to put the reimbursements that trigger the penalties on employee W-2s as income. A letter to an Illinois Congressman reprinted today in Tax Analysts says they don’t. From the letter  (my emphasis and links):

Prior to the ACA, an employer could reimburse employees for the medical expenses of the employee and the employee’s family and exclude those amounts from the employee’s income and wages under section 105(b) of the Code. The ACA has not changed the tax treatment of the reimbursement for employee medical expenses. However, these arrangements, under the ACA, are considered to be group health plans and must satisfy the market reform rules for them.

The guidance that we provided in Notice 2013-54 did not change the tax results described in Revenue Ruling 61-146. This ruling says that under certain conditions if an employer reimburses an employee’s substantiated premiums for individual health insurance policies, the payments are excluded from the employee’s gross income under section 106 of the Code. This exclusion also applies if the employer pays the premiums directly to the insurance company.

W2Note that the exclusion “applies.” That’s present tense, meaning it’s still alive.

Some employers responded to Notice 2013-54 by treating reimbursements as taxable, but subsequent guidance issued in November last year said that didn’t work to make the $100/day penalty go away.

While they scramble to terminate their now horrifyingly expensive Sec. 105 reimbursement arrangements and figure out how to get out of the penalties, employers still have to issue W-2s this month. Now they know they can at least leave the reimbursements off employee W-2s. Given how widespread the problems seems to be, and how terrible the penalties, the IRS ought to just issue a blanket penalty waiver on this for everyone for 2014 if the non-compliance is disclosed.

Why wasn’t this printed as guidance? This letter went to Congressman Lipinski in September. A similar letter went to Kansas Congressman Goodlatte about the same time. Obviously the IRS knew from the Congressional inquiries that guidance was needed, but until Tax Analysts published this guidance, the IRS had never explained how to handle the W-2s. They still haven’t published guidance telling employers how to  “correct” the erroneous plans, as required on the penalty waiver instructions to the penalty reporting form, Form 8929.

 

IMG_0598Yeah, like he’d admit that. From Tax Analysts ($link):

The IRS is not pursuing a “Washington monument” strategy of discontinuing taxpayer services to protest recent congressional budget cuts, Commissioner John Koskinen told reporters at a press conference on January 15.

The Washington monument strategy refers to claims made by some media outlets during the October 2013 government shutdown that various federal agencies seemed to be closing highly visible public services as a protest against the shutdown.

Koskinen denied that any such calculations entered into the IRS’s decision-making regarding service and enforcement constraints that he said were induced by Congress’s $346 million cut (to $10.9 billion) to the IRS budget for fiscal 2015.

I’ll believe that he’s serious when he closes the “voluntary” preparer registration program and stops paying IRS employees to work full-time for the Treasury Employees Union.

James Taranto at the Wall Street Journal doesn’t deny that the IRS needs more money, but doesn’t have much sympathy anyway (WSJ subscription may be required to access original):

It’s all rather comical—but also galling. The IRS’s abuse of power in its harassment of conservative nonprofits aimed in substantial part at suppressing opposition to ObamaCare. That is, the IRS traduced the free-speech rights of citizens in order to preserve a law expanding IRS power and creating more work for IRS agents.

Now the commissioner complains that the IRS has too much work and not enough resources and threatens to make life even more difficult for taxpayers. It’s like the guy who killed his parents and then pleaded for mercy because he was an orphan.

And an unapologetic one.

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Robert D. Flach has your Friday Buzz, with a warning for users of off-the-shelf software.

William Perez, The Penalty for Not Having Health Insurance. Don’t think it’s just $95.

Robert Wood. 3 Reasons Filing Taxes Sucks? Obamacare, Obamacare & Obamacare. I can think of a lot of others, myself, but these are definitely three of them.

Alan Cole, The Employer Mandate Reduces Hours Worked (Tax Policy Blog). Not by tax preparers, it doesn’t.

 

Kay Bell, IRS Free File opens Friday, Jan. 16, for eligible taxpayers, four days ahead of Jan. 20 full tax season start

Russ Fox, If You Do Government Work, It Pays to Treat the Government Well

TaxProf, The IRS Scandal, Day 617

Howard Gleckman, What To Make of the Senate Finance Committee’s Tax Reform Workgroups 

 

Keith Fogg, Eskimos and the IRS: A Winter’s Tale (Procedurally Taxing) “This post is not about tax procedure issues in the native American population in Alaska but a recent Treasury Inspector General for Tax Administration (TIGTA) report concerning frozen credits at the IRS made me think about the number of ways Eskimos have to say snow.”

 

News from the Profession. Ron Baker: You Can Put Lipstick on Billing by the Hour But Don’t Call It Value Pricing (Adrienne Gonzales, Going Concern).

 

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Tax Roundup, 1/15/15: Taxpayer Advocate rips offshore account enforcement, recommends fixes to Congress.

Thursday, January 15th, 2015 by Joe Kristan

Accounting Today Readershere is the post on the 2015 Iowa legislative session outlook.

 

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Still shooting jaywalkers. National Taxpayer Advocate Nina Olson has submitted her Annual Report to Congress, and she rips the IRS offshore compliance program. Among the “most serious problems” noted in the report is “Offshore Voluntary Disclosure Programs Undermined the Law and Violate Taxpayer Rights.”

The report says the IRS routinely stretches the penalties for “willful” violations of foreign reporting requirements to inadvertent violations, interprets its own guidelines whimsically and unfairly, and makes a practice of hammering small violators disproportionately.  The report also criticizes the IRS practice of denying relief for taxpayers who came in from the cold early when it later started applying reduced penalties.

The report includes one awful example of the IRS treating an apartment owned by the taxpayer as a foreign financial account for purposes of computing the penalty for late reporting:

Example : An IRS employee took the position that a taxpayer’s foreign apartment must be included in the “offshore penalty” base solely because the taxpayer filed returns reporting income from the apartment between two and fifteen months late—after receipt of foreign information reporting documents relating to inherited property. The employee concluded the delay in filing returns meant that the apartment was related to tax noncompliance. Under the 2011 OVDI FAQ 35, “[t]he offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax noncompliance.” FAQ 35 defines tax noncompliance as follows:

“Tax noncompliance includes failure to report income from the assets, as well as failure to pay U.S. tax that was due with respect to the funds used to acquire the asset.”

The taxpayer timely overpaid her taxes and reported the income from the apartment (albeit on late-filed returns), and the apartment was not acquired with untaxed funds. Thus, the IRS employee’s unreviewable determination to include the apartment in the offshore penalty base appears to contradict FAQ 35.

This indicates an IRS practice of shooting jaywalkers so that it can slap real international tax cheats on the wrists. Especially unrepresented jaywalkers:

20150115-1

These penalties – $2,202 average penalty for an average $268 tax understatement for the smallest accounts – are unconscionable. I defy anyone to say otherwise. Well, anyone who doesn’t work for IRS.

It also indicates that taxpayers who oped out of the voluntary disclosure program got better results — which is a harsh indictment of the way the “voluntary” program treats taxpayers.

The report does praise recent changes to IRS practice, but slams the IRS for not applying them retroactively.  The report also recommends that Congress ease up on offshore penalties, including eliminating the penalties when the taxpayer resides in the same country as the foreign account. This would be incredibly useful, eliminating the penalty for committing personal finance while living abroad.

I would go further and make the U.S. tax system territorial for non-residents, to eliminate absurd spectacles like the IRS going after the U.S.-born Mayor of London for capital gains on the sale of his home in London.

Related coverage: 

Robert Wood, National Taxpayer Advocate Slams IRS Offshore Programs & FBAR Penalties, Demands Change

TaxGrrrl, Taxpayer Advocate IDs Most Serious Problems For Taxpayers: Unacceptably Low Levels Of Service Tops List

 

20150115-2Kay Bell, It’s a new year, but time for final 2014 estimated tax payment

Russ Fox, Waiting for Godot. ” If you’re going to call the IRS, expect very lengthy hold times; yesterday I was on hold for 101 minutes before speaking with an IRS representative. I expect the hold times to get far worse as we head into Tax Season.”

Jason Dinesen, 5 Things You Didn’t Know About EAs, #5: EAs are the Only Pros Required to Take Tax CPE.

Robert D. Flach, WTF IS AN EA?  Wednesday Tax Forum is an EA?

Tim Todd, Unsubordinated Mortgage Prevents Charitable Deduction for Conservation Easement

Iowa Public Radio, Tax Time Gets New Ritual: Proof Of Health Insurance.

 

Alan Cole, Financial Transactions Are A Very Poor Tax Base (Tax Policy Blog):

Simply put, financial transactions are a very poor tax base. For one thing, it results in “pyramiding:” taxing the same economic activity many times. For another, economists generally think of trades as highly-valuable activity that benefits both parties, given that they both agreed to the deal. Taxing trade itself results in a kind of “lock-in” effect where people hold on to the things they have, whether or not they’re the best people to actually be holding on to them.

He also notes the social value of the ability to easily sell financial assets, one that would be damaged by a transaction tax.

Howard Gleckman, Gale and DeLong Debate: Is the Budget Deficit Even a Problem? (TaxVox).

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Cara Griffith, Illinois Lawsuit Challenges Tax Credit Program for Encouraging Job Retention (Tax Analysts Blog). “But the interesting question this lawsuit raises is whether job creation and job retention should be treated as equal for purposes of a tax credit.” Yes, they should all get no tax credits.

Sebastian Johnson, State Rundown 1/12: When Your Mouth Writes a Check Your State Can’t Cash (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 616

Career Corner. The Happiest Lawyers Are Tax Lawyers  (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/14/15: Education credits to delay refunds? And: it’s not volunteering when you’re paid.

Wednesday, January 14th, 2015 by Joe Kristan
Kristy Maitre

Kristy Maitre

If your tax refund this year seems to take forever to arrive, education credits might be involved. The invaluable Kristy Maitre, former IRS Stakeholder Liaison and now with the Iowa State University Center for Agricultural Law and Taxation, has leaned that the IRS may delay refunds on returns claiming the “American Opportunity Credit.” From an e-mail she has distributed:

If your client is getting the American Opportunity Credit this year you need to be aware of a possible “refund hold” on the credit to verify attendance at the college. At this time we “assume” only that part of the refund will be held and the other part of refund not related to the American Opportunity Credit will be released.

At this time we are not sure who this will impact, IRS appears to want to keep it a BIG secret. Our concern is that the tax preparer will be blamed for the delay of the refund and overall it would make the preparer look bad as well as having to deal with an upset client due to the issue. I was able to find some criteria in a new IRM, but we need more information from IRS.

Your client should be  informed by IRS of the reason the refund is being held and that once the 1098-T from the accredited institution is verified the refund will be released,  or they will receive a Letter 4800C to inform them if further documentation is required to allow the education credit…

The AOTC is a “refundable” credit; if the credit exceeds the tax computed, the IRS will pay you the excess. Given the high incidence of refund fraud involving refundable credits like the AOTC, it’s understandable that the IRS would want to verify eligibility before issuing a refund.

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Unfortunately, this verification will come from matching 1098-Ts issued by colleges and universities. These forms, which purport to show tuition paid, are notoriously unreliable. The inevitable matching errors will leave some taxpayers trying to get their refunds fixed well into the summer.

This highlights the unwisdom of using the tax law as the Swiss Army Knife of public policy. It’s hard enough to get taxable income right. Congress also assigns IRS education policy, health care, social welfare, industrial policy, campaign finance regulation, you name it. Like with the Swiss Army Knife, you can only add so many functions before you make it bad at being a knife.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen wants us to blame cuts in his budget for tax refund delays. In a memo to IRS employees, he outlines the dire effects of the cuts in his agency budget, including:

Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week — or possibly longer — to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.

It’s foolish of Congress to pile work onto the IRS and then cut its budget. That said, Mr. Koskinen has brought a lot of this on himself with his combative and tone-deaf response to the Tea Party scandal.

Also, there’s a bit of the Washington Monument Strategy in his memo, by making cuts in areas that inflict pain on taxpayers. I would be more convinced that the IRS is really committed to making taxpayer service a priority if his list of budget adjustments included sending to the field, or laying off, the hundreds of full-time IRS employees who do only union work. He would be more convincing if he said the “voluntary” preparer regulation initiative was on ice until funding improves. Instead, the Commissioner puts the National Treasury Employees Union and his own power grab ahead of processing refunds.

 

No Walnut STVolunteering. I don’t think that word means what you think it means. From Governor Branstad’s 2015 Condition of the State address:

 In addition, I am offering legislation creating the Student Debt Reorganization Tax Credit. This tax credit allows individuals to volunteer for worthy causes within Iowa’s communities and in exchange have contributions made toward their student debt.

There is so much wrong with this, beyond the idea that it’s “volunteering” when you get paid for it. It’s one more random addition to an already ridiculous mishmash of distortive and unwise education subsidies. It’s one more incentive for students to take on debt they can’t otherwise afford. And it misplaces human capital from productive for-profit enterprise to the black hole of the government and non-profit sector.

Iowa Form 148 already lists 32 different tax credits. The Governor thinks adding some more is the solution to Iowa’s problems. I think the credits are a big part of the problem, as they help make the Iowa tax law the complex high-rate mess that it is.

 

William Perez, How Soon Can We Begin Filing Tax Returns?

Kay Bell, Reducing your 2014 tax bill using exemptions, deductions

Jason Dinesen, H&R Block Doesn’t Really Have ACA “Specialists” On Staff. A bold charge, but a convincing one.

Peter Reilly, Can Walgreen Stance On Property Tax Hurt Income Tax Position Of 1031 Investors? Thoughts on getting too cute in analyzing the value of a real estate interest.

Leslie Book, Can IRS Change Taxpayers from Procrastinators to Payors By Drafting Letters that Make Taxpayers Feel Bad? (Procedurally Taxing). Usually people feel bad when they get a letter that says “notice of levy,” but that’s not what he’s talking about.

Robert Wood, Citizenship Renunciation Fee Hiked 422%, And You Can’t Come Back

Jack Townsend, Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation

 

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David Brunori, Using the Poor for Fixing the Roads (Tax Analysts Blog):

The Michigan Legislature passed a bill that would significantly increase the state’s earned income tax credit. Some 800,000 Michigan families will see tax relief. I think that is a good thing. But the change won’t go into effect unless voters approve a sales tax increase from 6 percent to 7 percent.

I don’t share David’s enthusiasm for the EITC, but I do appreciate the absurdity of the sales tax link.

Kyle Pomerleau, Representative Van Hollen Releases New $1.2 Trillion Tax Plan.  “Unfortunately, most of Representative Van Hollen’s tax plan would move the U.S. further away from having a competitive, modern tax code.”

TaxProf, The IRS Scandal, Day 615. This installment covers a Tea Party group that has been waiting five years for Lois Lerner’s old office to approve their exemption application.

 

Career Corner. Age and accounting as a second career (Caleb Newquist, Going Concern)

 

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Tax Roundup, 1/13/15: Another bad day for Mr. Banister in Tax Court.

Tuesday, January 13th, 2015 by Joe Kristan

Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.

lizard20140826“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.

In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.

This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):

During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.

The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.

It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.

Mr. Banister tried to use his own medicine to fight the IRS:20120511-2

During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.

It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.

Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly  to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.

The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.

I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.

Cite: Banister, T.C. Memo 2015-10

Russ Fox has more: The Second Time Wasn’t the Charm

 

20120620-1Busy day, so just some quick links.

Robert D. Flach has fresh Tuesday Buzz,  with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.

Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.

 

Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).

Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:

Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.

Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.

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Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):

TaxProf, The IRS Scandal, Day 614

 

Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/12/15: They’re back! Gas tax boost, maybe; tax reform, not likely as 86th Iowa General Assembly convenes

Monday, January 12th, 2015 by Joe Kristan

20130117-1Same Governor. Same split party control in the legislature. So why would we expect different results? I expect no big tax cuts, tax increases or tax reforms. When you mix the same ingredients and put them in the same oven, expect the same thing to come out of the oven.

They will be legislating for the next few months, so they will talk, and who knows? Something might happen. But that’s not the way to bet.

The Des Moines Register today covers 10 key issues facing Iowa Legislature in 2015. Six of them are tax items. I think only one of them is likely to result in legislation. Let’s go down the list.

ROAD FUNDING/GAS TAX. The state gas tax isn’t inflation adjusted, and the Department of Transportation says it needs more money. As gas taxes are close to a fee on road use, you can make a policy case for an increase. It’s a lot harder to make a political case, which is why the Governor and the legislature are so deferential to one another in this area. The fracking-induced fall in gas prices may give them the legislature the excuse they need to do what they clearly want to do — raise the 10 21-cent per gallon tax. The governor may push it through if he has decided this is his last term. But most likely they’ll be saying “after you” right through adjournment.

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.

INCOME TAX CUTS.  The Register conflates tax cuts with tax reform here. They aren’t necessarily the same thing. Iowa’s income tax could bring in the same amount of revenue without the highest corporation rate in the developed world by eliminating the dozens of special interest tax credits and carveouts and tax credits for the well-connected. As long as Michael Gronstal remains in control of the flow of legislation in the Iowa Senate, anything that cuts rates for “the rich” goes nowhere. In any case, the Governor doesn’t seem to mind a tax credit system that gets him invited to all the cool ribbon cuttings.

That’s too bad. Iowa has a bottom-ten business tax climate that favors those with good lobbyists while making South Dakota look attractive for everyone else. Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would wipe out the corporate tax, cut individual rates, and get rid of Iowa’s byzantine maze of special breaks, is long overdue.

20120906-1BROADBAND EXPANSION. This is the sort of small-ball legislation that has passed in recent years, and this seems like the most likely to get through, probably as a tax credit. Of course, every new tax credit means a puppy dies Iowa’s tax law is just a little worse and a little harder to fix. Never mind that the real obstacle to broadband expansion is in Washington, not Des Moines.

LOCAL OPTION SALES TAXES. The municipalities want to be able to drive out businesses by increasing sales tax without help from surrounding communities. Same ingredients, same cake.

BANNING TRAFFIC CAMERAS. It’s about the money, and Senator Gronstal will prevent any anti revenue camera legislation from advancing.

SALES TAX INCREASE. This proposal to increase sales taxes for natural resource funding died in the Senate last year. If you can’t get a tax increase out of the Iowa Senate, you sure aren’t getting one out of the GOP House.

Other coverage: Sioux City Journal, Iowa Legislators see limited budget room for tax cuts this session

Related: Tax States of the States: Mixed, Murky and Sometimes Mercurial (Renu Zaretsky, TaxVox)

 

IMG_0923Russ Fox, FTC Sponsors Tax Identity Theft Awareness Week

Tony Nitti, Four Things Sure To Destroy Your Tax Season. Three of them stem from Obamacare.

 

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

Annette Nellen, HR 30 – Defining full-time worker for ACA has costs. A story of unintended consequences.

Peter Reilly, Dressage Riding Physician Convinces IRS On Hobby Loss Audit But Loses To Massachusetts

Keith Fogg, Tenth Circuit Ups the Ante on Late Filed Returns (Procedurally Taxing)

Robert Wood, Bill Gives IRS Power Over Tax Prep, But Should It? No.

Kay Bell, St. Louis says no added taxes for new NFL Rams stadium. But the one they have is 20 years old, darn it!

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Kyle Pomerleau, Government Cost $4.5 Trillion in 2014 and We All Paid Part of It (Tax Policy Blog).

Robert Goulder, China’s Fiscal Roadmap: Tax Like America (Tax Policy Blog). If you are worried about China achieving economic domination, you can rest easy now.

TaxProf, The IRS Scandal, Day 613

News from the Profession. Judging By This List, Accountants Aren’t Marriage Material (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/9/15: Senators: preparers aren’t doing a good enough job on the tax law we’ve butchered.

Friday, January 9th, 2015 by Joe Kristan
wyden

Senator Wyden

Senators get behind IRS preparer regulation power grab. Accounting Today reports:

Two Democrats on the Senate Finance Committee have introduced legislation to regulate paid tax preparers in response to the federal court decision that found the Internal Revenue Service had exceeded its statutory authority in regulating preparers.

Senate Finance Committee ranking member Ron Wyden, D-Ore., and Senator Ben Cardin, D-Md., unveiled legislation Thursday that provides the Treasury Department and the IRS explicit authority to regulate paid tax return preparers. Wyden chaired the committee until control of the Senate changed after last November’s elections.

They call their yet unnumbered bill the “Taxpayer Protection and Preparer Proficiency Act of 2015.” A better name would be “A Bill to Boost the Revenue of the Major Franchise Tax Preparation Outfits.”

Whatever idealistic motives might be behind this bill (though I don’t give senators the benefit of the doubt for a second), the effect will be to protect and enhance the market share of the national tax prep firms. It was no coincidence that the overturned IRS preparer regulation program was drafted by a former H&R Block executive who came out the other side of the revolving door as a Treasury employee.

Regulation always favors the big. The national firms can spread the costs of compliance over a much bigger base of work, while a sole practitioner has to be her own regulation compliance department. A paperwork hangup or computer burp in the preparer regulation database can wreck a year’s business for a sole practitioner, but wouldn’t stop H&R Block or Liberty Tax for a moment.

It is argued that such regulation is needed to protect us from incompetents by imposing a “competency test.” As the test administered under the abortive IRS regulation program was more a literacy test than a competency test, this is hard to credit.  And anybody who has practiced in a regulated profession like accounting or law knows that while you can make someone pass a test, you can’t make him competent.

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

The list of bills introduced this week in Congress in today’s Tax Notes shows what the real tax prep problem is: Congresscritters like Senator Wyden. In addition to his preparer bill, the Senator introduced a bill:

To amend the Internal Revenue Code of 1986 to provide a tax incentive to individuals teaching in elementary and secondary schools located in rural or high unemployment areas and to individuals who achieve certification from the National Board for Professional Teaching Standards, and for other purposes. 

This is just one more example of legislators using the tax law as the Swiss Army Knife of public policy. As the knife gets more unwieldy with every new gadget added to it, the tax law gets a little less better at collecting revenue with every new program added to it. Picture a Swiss Army Knife the size of a railcar.

 

And it’s not like Congress isn’t already doing enough for the national tax prep outfits, as Megan McArdle explains in Latest Tax Season Headache? Obamacare:

There’s been a lot of talk about the “hidden taxes” in the Affordable Care Act, but here’s one I hadn’t thought of before or seen mentioned anywhere: the sudden need for folks with simple tax returns to avail themselves of the services of a paid professional. If you have no income outside a modest salary, and not much in the way of potential deductions such as huge mortgage interest or state tax bills, then there was really no reason to use a tax preparer. Even the mathematically challenged should, with the aid of a calculator, be able to fill out their 1040EZ forms just fine. But Obamacare has introduced a significant level of complexity into the taxes of lower-middle-class wage earners.

That’s true. And a lot of folks who have used preparers will find their costs going up to pay for the extra work that will be required.

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Kay Bell, IRS contacts tax preparers about filing mistakes; Thousands warned of Schedule C business income & child tax credit errors. Funny, I thought preparers weren’t regulated at all.

Jason Dinesen, The IRS’s Preparer Directory Will Be Bad News for Enrolled Agents. EAs have less lobbying clout than CPAs or the national tax prep outfits, and it shows.

 

Paul Neiffer, Should I File By March 1? “Therefore, if your tax for 2013 was very low and your tax for this year will be very high, talk this over with your tax advisor to see if it makes sense to pay an estimated tax payment on January 15 and wait until April 15 to make the final payment.”

Remember, only farmers get this break, and many are finding that the need to wait on K-1s from other investments makes filing a correct March 1 return impossible.

William Perez, Tips for a Tax-Efficient Divorce, Plus a List of What to Do First. From what I’ve seen, it’s even more tax-efficient to stay married.

In spite of the cold, we can count on Robert D. Flach for a fresh Friday Buzz roundup of news from around the tax blog world.

 

20130130-4Tim Worstall, Tax Avoidance And Tax Evasion Are To The Benefit Of Us All, picking up on David Henderson’s post that we mentioned earlier this week:

The crucial point is really how one views the activities of government. And there’s two views that seem to be held. One that I regard as hopelessly naive and simplistic, the second something very much closer to reality. That first is that all of the things that government does for us are beneficial to us and that limiting what it does do harms us all. The second is that some parts of what government does are things which both must be done and can only be done by government, but that a rather large part of what it attempts to do shouldn’t be done at all, whether by government or not.

I think this point is correct, though I’m sure Jim Maule would disagree with vigor. I also agree with this point that he quotes: “Government maximizes revenues; it does not levy revenues only to produce genuine public goods.” I also believe tax avoidance and evasion can serve as a check on overreach, but I suspect it only works in pretty bad situations.

TaxProf, The IRS Scandal, Day 610

Renu Zaretsky, Taxes: To Be Considered, Rejected, or Collected. Today’s TaxVox headline roundup covers the upcoming federal budget proposal, Cadillac taxes on health plans, and an “impossible dream” bill that purports to both abolish the imcome tax and balance the budget.

 

IMG_2535Cara Griffith, Mississippi Needs a Dose of Transparency (Tax Analysts Blog). “The Mississippi Department of Revenue does not publish opinions and decisions resulting from its audit appeals process, even though it may use those opinions and decisions as precedent.”

I notice Iowa hasn’t published any new rulings in two months now.

Liz Malm, Taxplainer: The State and Local Tax Impact of the Keystone Pipeline. “According to the analysis, property taxes collected during construction would amount to just under $4 million and would be spread out over seven counties in the three impacted states. ”

Sebastian Johnson, State Rundown 1/8: All Eyes on the Governors (Tax Justice Blog)

 

Career Corner. Make the Best of Busy Season, You Big Babies (Amber Setter, Going Concern)

 

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Tax Roundup, 1/8/15: Tax shelter turned upside down: S Corp – ESOP structure produces pretend income. And: you are the 1%!

Thursday, January 8th, 2015 by Joe Kristan

tack shelterFlaky tax shelters are supposed to generate pretend losses. You know a shelter has gone very bad when it generates pretend income instead. Yet that’s how it worked out for an “S corporation ESOP management company” plan considered by the Tax Court yesterday.

The plan involved a partnership, a C corporation, an S corporation, and an Employee Stock Ownership Plan. The ESOP owned 100% of the S corporation. S corporation income is taxed to its owners. As a tax-exempt entity receiving special treatment from the tax law, ESOP-owned S corporations can achieve Tax Fairy-like results. The ESOP’s can earn non-taxed business income passing through from the S corporation (though this gets very tricky and dangerous when there are few ESOP beneficiaries).

The plan was hatched by A. Blair Stover, who has shown up in these pixels before. Mr. Stover started his tax career with a national firm in Nebraska, moving on from there to Kansas City and then to California, leaving questionable tax shelters in his wake. He was barred from promoting shelters like the one in this case in an injunction affirmed by the Eighth Circuit in 2011.

This plan involved the payment of “management fees” and other purported expenses by a partnership owned by the taxpayer and his spouse that ended up in his ESOP-owned S corporation. The partnership appears to have had no other purpose than to gin up deductions by paying pretend management fees and other expenses. The taxpayers deducted the “expenses” on their 1040, with the idea that they would avoid tax because they flowed through the S corporation to the ESOP.

tax fairyWhen the IRS went after Mr. Stover’s shelters, his clients received unpleasant IRS attention. In yesterday’s Tax Court case, the taxpayers signed a settlement agreeing to include in income on their 1040 the purported management fees paid to the ESOP.

So far, so good. But the agreement didn’t address the other side of the deal – the deduction for the payment of the purported fees by the partnership. The taxpayers claimed that if they had to pick up the pretend fees in income, they should get to deduct them too. Fair’s fair.

But if you want fairness, the tax law might not be the place to seek it.  The court held that while they agreed to pick up the extra income, their settlement said nothing about a deduction, and they were stuck with the results (my emphasis, citations omitted):

Generally, recognition of income does not inexorably prove a corresponding deductible expense. For example, payments to a promoter in furtherance of a tax avoidance scheme constitute income to the promoter, but they are not deductible under section 162 by the payor.  Furthermore, that petitioners might otherwise be obliged to recognize phantom income does not relieve them of their obligation to identify some legal authority for the deduction, nor does it permit the Court to manufacture such authority from whole cloth.

Petitioners’ phantom income argument amounts, in essence, to a plea for fairness. This Court strives to avoid unjust results, but “we are not a court of equity and cannot ignore the law to achieve an equitable end.” Moreover, the parties’ recent stipulation assuages our fairness concerns. In our order of July 1, 2014, we directed the parties to stipulate if possible, or to otherwise brief, the source of and factual and/or legal basis for the income inclusions required by the SOSI. The parties stipulated that the required income inclusions represent “the amount of taxable income petitioners avoided reporting” for tax years 2001 through 2003 because of their use of the management S corporation/ESOP structure. Taxable income is a term that is defined in the Code. Section 63 generally defines taxable income as gross income less allowable deductions. The parties’ chosen language thus implies that the $84,837 of income petitioners must include for 2003 pursuant to the SOSI represents not “phantom income” but bona fide, net taxable income that petitioners received and should have reported. So interpreted, the stipulation is difficult, if not impossible, to reconcile with petitioners’ theory for deducting the administration fee.

The result: a reverse tax shelter, generating only phantom income.

I’m not sure this too-bad-to-be-true result would hold up on appeal, but it does serve a warning. The Tax Fairy is a fickle sprite, and she can magically generate income for those seeking magical deductions. And if you agree to include phantom income when the IRS comes after you, make sure they allow the offsetting phantom deduction in writing.

Cite: Wakefield, T.C. Memo 2015-4.

 

IMG_0598Leslie Book, Bank of America on Hot Seat For Issuing Allegedly Incorrect 1099C to Disabled Veteran (Procedurally Taxing)

Robert D Flach explains WHAT’S NEW FOR THE 2014 FORM 1040?

Kay Bell, Daily Tax Tip #2: A tax quiz!

Robert Wood, The 1031 Exchange That Ate New York City. A lesson on the scalability of swaps.

TaxProf, The IRS Scandal, Day 609. The Worst Commissioner Ever comes out the other side of the revolving door.

 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

Scott Sumner on low-income use of untraceable cash at Econlog:

College professors who advocate the elimination of currency are often unaware of how important currency is for those with low incomes, many of who lack bank accounts. For instance, consider someone getting government benefits that are conditional on income (food stamps, EITC, disability, welfare, Medicaid, etc.) This group often faces relatively high implicit marginal tax rates. However currency allows them to supplement their meager benefits with additional earned income, perhaps doing home repair for neighbors, or working as a nanny. Lots of those jobs are paid in cash. If we eliminate physical cash then all transactions will be easily traceable by the government… That’s bad for two reasons; low-income people would see reduced incomes (increasing inequality), and the rest of us will be denied the services that they might have produced in the underground economy. Economists who advocate the elimination of currency need to consider those side effects.

This highlights one of the dangers of the earned income tax credit: its phase-outs serve as a hidden high tax rate on low incomes, resulting in a poverty trap on those earning their way out of poverty.

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Russ Fox, The Tax Court Looks for $1,410 in Dividends. Sometimes you can fight a small injustice and win.

 

We are the 1% Admit It: You’re Rich (Megan McArdle):

The cutoff for the global 1 percent starts quite a bit lower than the parochial American version preferred by pundits. I’m on it. So is David Sirota. And if your personal income is higher than $32,500, so are you.  

It’s all a matter of perspective.

 

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Tax Roundup, 1/7/15: Resolve to monitor your payroll taxes this year. And: searching for gray.

Wednesday, January 7th, 2015 by Joe Kristan

EFTPSIf you’re an employer, here’s a new year’s resolution: “I will verify that my tax payments have been made on time every payroll by logging into EFTPS.”

The customers of Riverside, California payroll service Paycare are wishing they had made and kept that resolution. From The Press Enterprise:

The co-owner of a Riverside-based payroll service, Paycare, Inc., pleaded guilty Monday to failure to pay federal payroll taxes and embezzlement from a federally-funded program, the Internal Revenue Service reported.

Scott Willsea, 56, entered the guilty plea in federal court before U.S. District Judge Manuel L. Real, according to a press release from IRS spokeswoman Linda Lowery.

Willsea allegedly prepared quarterly payroll taxes for 15 different client companies in the 2009 and 2010 tax years, including All Mission Indian Housing Authority and Of One Mind, LLC, and failed to account for or pay the full amount of tax owed to the IRS by each company.

The IRS and the states want those payroll taxes; after all, they issue refunds to the employees based on the reported withholdings, paid or not. If your payroll provider steals your payroll taxes, you have to pay them again. That can ruin a struggling business,and cripple a strong one.

That’s why employers who use a payroll service should still log onto their accounts with the Electronic Federal Tax Payroll System to verify that the payments have been made. If you do payroll taxes in-house, it’s good financial hygiene to do the same thing.

It’s also a reason for extra due diligence if you consider a “professional employer organization” to meet your payroll needs. These outfits pay your payroll taxes under their own account, and you can’t use EFTPS to monitor your payments. That can work out badly.

 

FranceflagAndrew Mitchel, A Reminder for Green Card Holders Living Outside the U.S.:

U.S. lawful permanent residents (“green card holders”) who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. 

Sad and true.

 

Jason Dinesen, Sorry, But There Really Isn’t a “Gray Area” for Most Taxpayers to Push:

NEWSFLASH: for the vast majority of taxpayers, there is no gray area to be pushed.

Your income is whatever your W-2 says it is.

Your deductions are whatever they are. Mortgage, property taxes, charitable, car registration. I suppose there could be a gray area if someone is claiming employee business expenses. But even then, those expenses are not likely to end up being deductible anyway.

No matter what the H & R Block commercials say, there is no magic wand that a tax preparer can wave to make a bigger tax refund appear.

Absolutely true. And if a preparer boasts otherwise, it’s likely that there is a perfectly bad explanation.

 

20141231-1Tim Todd, Late Tax Return Precludes Bankruptcy Discharge. One more reason to file timely.

Russ Fox, Varagiannis Gets 15 Months for Tax Evasion. In Nevada, pimping is OK, but only if you pay your income taxes.

Robert D. Flach has word of ANOTHER UNTRUE TAX EMAIL making the rounds. You mean we can’t trust spam emails? Next thing you’ll tell me that people post things on Facebook that aren’t precisely true.

 

Joseph Thorndike, Planned Disasters Are Here to Stay – and Probably the Only Hope for Tax Reform (Tax Analysts Blog).

All in all, it seems likely that the new GOP majority will need to gin up some potent crises if they hope to get anything done over the next two years.

I would think we have plenty of crises to go around already.

 

Kay Bell, Tax reform is part of new GOP Congress’ agenda

 

David Brunori is full of wisdom today in Want Bad Tax Policy? Here’s a Blueprint (Tax Analysts Bl0g):

Washington Gov. Jay Inslee recently released his proposed budget. It illustrates a lot of what is wrong with tax policy in the states. The governor wants to raise taxes by $1.4 billion over the next two years. Conservatives may think this is terrible — and it is. But the problem is how Inslee wants to raise the new revenue. He wants to impose a 7 percent capital gains tax on a narrow band of Washington residents. Specifically, he wants to impose the tax on the earnings sales of stocks, bonds, and other assets above $25,000 for individuals and $50,000 for those filing jointly. It would affect “only” an estimated 32,000 people who live in Washington.

Keep in mind that this is a state without an income tax. Certainly not a way to encourage their population of tech millionaires to stick around.

Also:

Inslee is also proposing a new excise tax on e-cigarettes and vapor products at 95 percent of the taxable sales price. Yes, 95 percent of the taxable sales price. If the government cared about the health of the poor, it would be subsidizing e-cigarettes.

States hate the idea of losing their tobacco revenue stream.

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Andrew Lundeen, Kansas Would Have Benefited from Dynamic Scoring (Tax Policy Blog):

The tax cuts didn’t pay for themselves. Instead, they left Kansas was left with a hole in the budget. (You can read about what Kansas could have done better here and here.)

This isn’t because individual tax cuts are bad for the economy; they’re just expensive. If the governor had used dynamic scoring, he would have known this.

Iowa has a lot of room to improve its tax system, but they could always screw it up even worse.

 

Howard Gleckman offers Nine Tax Stories to Watch in 2015 (TaxVox), including this:

Tax extenders: They are, after a resurrection of two weeks, once again expired. This is tiresome to even write about, but the best bet is Congress will once again delay action on these 50-plus tax breaks until at least next fall, when the budget wars are likely to come to a head. After that, well, don’t ever bet against another short-term extension.

Yuk.

 

TaxProf, The IRS Scandal, Day 608Peter Reilly is featured.

 

Robert Wood, Taxman Is Funny In UK, Why Not IRS? Must not be in the budget.

Career Corner. Skip the Shout Outs and Other Helpful Farewell Email Advice (Adrienne Gonzalez, Going Concern). “Quitting your job is a part of life in public accounting. Unless you’re one of those sick, carrot-chasing freaks sticking around until partner, that is.”

 

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Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.

 

FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258

 

Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.

 

Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS

 

Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers

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TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.

 

News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)

 

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Tax Roundup, 1/5/15: Early year-end planning edition. And: too cold for a film credit trial?

Monday, January 5th, 2015 by Joe Kristan

Accounting Today “In the Blogs” visitors: the tax and AMT article is here. You may also be interested in these thoughts on when prepaying tax is unwise, even without AMT.

 

20150105-1Now that you’re done with 2014 year-end tax planning, let’s get started on 2015. Procrastination is as human as liking sugar and shiny things. It’s natural to get serious about anything right at the deadline, whether it’s homework or tax planning.

But it’s often wiser to get started early. That’s especially true when looking at contributions to tax-advantaged savings accounts. You should look to fund these as soon as you can, rather than putting them off to the last minute. The sooner you fund your 2015 IRA, your Health Savings Account, or your Section 529 education savings account, the sooner your funds are earning their return tax-free.

So if you have the funds on hand, here’s a new year’s resolution to keep today — fully fund your tax-advantaged savings accounts. Your limits for 2015:

Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.

Taxpayers filing in Iowa can deduct their contributions to the College Savings Iowa Section 529 plan up to $3,163 per beneficiary, per donor on their Iowa income tax return. A married couple funding plans for their two children can therefore deduct up to $12,652 in 2015 CSI contributions.

 

Enjoying a short Des Moines winter commute.

Too cold for a film tax credit trial? A strange development in the Iowa Film Credit scandal, reported by the Des Moines Register:

A new fraud trial for a Nebraska filmmaker accused of using a fake purchase agreement to get tax credits should be delayed because two elderly witnesses have left Iowa for the winter, according to a prosecutor handling the case.

Yes, it’s cold here. We’re supposed to get a snowstorm today, and it’s supposed to be 1 on Wednesday. For a high temperature. And I can’t say I have a great deal of sympathy for somebody who got millions in tax credit money.

But a criminal trial is serious business, and the film scandal has been going since 2009. The prosecution says the witness is worried that he might fall. I think arrangements can be made to get him safely from the car.

What’s the case about?

Dennis Brouse, 64, has been waiting for a second trial after judges on the Iowa Court of Appeals overturned a felony fraud conviction against him in April. Brouse’s company, Changing Horses Productions, received $9 million in tax credits from Iowa’s scandal-ridden film tax credit program.

Brouse faces a single fraud charge and potentially a prison sentence, stemming from the purchase of a 38-foot camper trailer he bought from Prole couple Wayne and Shirley Weese. Prosecutors say Brouse paid the couple $10,500 in cash for the trailer, but he claimed it cost twice that amount in a statement for tax credits given to the Iowa Film Office.

The state auditor’s report on the Iowa Film Office showed a lot of creative accounting for Changing Horses, including the claim of a $1 million expense for non-cash “sponsorship” considerations. I am guessing that they are going after the trailer case because there are e-mails from the Iowa Department of Revenue blessing the “in-kind” expense concept. I’m pretty sure that there is no such endorsement of doubling expenditures.

 

Roger McEowen, Top 10 Agricultural Law and Taxation Developments of 2014 (ISU-CALT). The impact of Obamacare is #1.

20121120-2Alan Cole rings in the new year with New Year, New Individual Mandate Penalty and New Year, New Employer Mandate (Tax Policy Blog). What new individual mandate penalty?

However, it’s also worth remembering that the penalty will be doubled (or more than doubled) for 2015. 2014’s penalty is $95 or 1% of your household income, whichever is higher. 2015’s penalty is $325 or 2% of your household income, whichever comes higher.

And the employer mandate? It’s the penalty on taxpayers with 100 or more “full-time equivalent” employees. A blog post can’t really do it justice:

The IRS has issued a truly epic 56-question FAQ to help explain the even-more-epic final regulations for the employer shared responsibility provision. In case you are wondering, those final regulations total to over seventy thousand words – similar in size to the novel Harry Potter and the Sorcerer’s Stone.

It will get more epic if the Supreme Court rules that the individual tax credit only applies in the 14 states that have established their own ACA exchanges. The employer mandate only applies if an employee has qualified for the credit, and the individual mandate penalty will not apply to taxpayers whose insurance becomes “unaffordable” if the credits go away.

 

Robert Wood, Think Filing Taxes Was Tough Before Obamacare? Just Wait. “This year for the first time, the Affordable Care Act has created a trickier tax season. It is more expensive too, as virtually all Americans filing tax returns will have to consider the law’s impact on them and their taxes.”

Annette Nellen, ACA – Affordability of health insurance and age

William Perez, Directory of tax extensions for each state

Russ Fox, 1099 Time (2015 Version). “It’s time for businesses to send out their annual information returns.”

 

Kay Bell, Cigarettes are a bigger state tax target than booze. I think that explains the hostility of state governments to e-cigs.

Jason Dinesen, 5 Things You Didn’t Know About EAs, #4: The SEE Isn’t a Tax Prep Exam

Peter Reilly, IRS Revokes Exempt Status Of Faux Veterans Groups

 

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Renu Zaretsky, Cap and Trade Plans, Tax Deadlines, and Rate Drops. The TaxVox headline roundup covers gas taxes, dynamic scoring, and an insane plan in Washington state for a state-only “cap and trade” carbon program.

TaxProf, The IRS Scandal, Day 606

News from the Profession: Celebrate the New Year with Accounting Salaries Charted by Company Type, Role, Service Line and More (Adrienne Gonzalez, Going Concern)

 

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