Archive for the ‘Uncategorized’ Category

Tax Roundup, 3/25/15: Why the casino may not be the place to invest those millions from that Chinese guy.

Wednesday, March 25th, 2015 by Joe Kristan

In the movies, an American who is entrusted with millions from a Chinese shipping magnate, but blows it at casinos, would face unimaginably dire consequences. In real life, he faces the IRS.

20120511-2That’s the story in a weird Tax Court case decided yesterday. The shipping magnate, a Mr Cheung, had fared poorly as an investor. He met a Mr. Sun from Texas and decided that he might be better at investing. He shipped the money to a C corporation and an e-Trade account owned by Mr. Sun, under a handshake deal with fuzzy terms. Judge Paris explains:

The only part of the arrangement that both Mr. Cheung and Mr. Sun consistently agreed on was the general structure of the investment. Mr. Cheung would transfer sums of money through his shipping companies’ bank accounts to Mr. Sun, who would then invest the money in the United States. Mr. Cheung would decide how much money he wished to send, and Mr. Sun had discretion on which investments to pursue with Mr. Cheung’s money.

The remaining terms of the verbal agreement were not memorialized and are unclear. Specifically, Mr. Sun and Mr. Cheung inconsistently described the investment term, the expected return, and enforcement provisions. Mr. Sun believed the term was a minimum of 5 years and did not give a maximum period, whereas Mr. Cheung believed the term was 7 to 10 years. The expected return is also unclear; Mr. Sun believed the return on investment would be a 50-50 split of the net profit with a minimum 10% gain annually, but the return might not be paid annually. Mr. Cheung believed the return would be 10% to 15%, but was uncertain whether that return was annual or total.

Not the sort of investment arrangement Suze Orman or Dave Ramsey would embrace. Nor would they embrace some of the “investments” described in the Tax Court case.

The funds sent to Mr. Sun’s C corporation went into an “officer loan account” for Mr. Sun. And then… well, again from Judge Paris (emphasis mine):

Mr. Sun would either pay his personal expenses directly from the officer loan account or he would remove money and use it at his discretion. For example, in 2008 Minchem paid $135,874.43 for home automation, $158,517.80 for a new Mercedes Benz, and $49,598.81 for personal real estate tax. In total, Minchem’s officer loan account was debited $4,116,414.43 in 2008 and $1,811,127.65 in 2009 for expenses that Mr. Sun identified as personal during his trial testimony.

Some of the personal expenditures included gambling expenses. In 2008 $4,800,100 was transferred to casinos from the officer loan account and $2,394,550 was returned. In 2009 $1 million was transferred to casinos and $1,300,000 was returned. Thus between 2008 and 2009 Mr. Sun transferred $5,800,100 from the officer loan account to casinos and received back $3,694,550; i.e., over the two years in issue Mr. Sun lost $2,105,550 from gambling from the officer loan account.

20120801-2Judge Paris said that the funds never belonged to the C corporation because it was a mere conduit for the cash; that meant the corporation was not taxable on the amounts.

Mr. Sun didn’t get off so easy. Judge Paris said that the funds became income to Mr. Sun when he began spending them for his own purposes (citations omitted):

Whether funds have been misappropriated is a question of fact, but facts beyond “dominion and control” must be considered. More specifically, an individual misappropriates funds when money has been entrusted to the individual for the sole purpose of investing and the individual instead uses the money for personal activities.

Mr. Sun undisputedly treated as his own money held for Mr. Cheung’s benefit and specifically earmarked for investment purposes. For example, Mr. Sun used some of the funds to purchase a personal automobile and a home automation system. Perhaps the most obvious example of Mr. Sun’s misappropriation of the funds is his gambling activities.

The opinion dismissed the idea that the funds were loans because there was no documentation of any sort of loan agreement or terms. The court said that the amounts weren’t gifts because no Form 3520, where U.S.  taxpayers report large foreign gifts, was filed, and because there was no evidence of an intent to make a gift.

While the Tax Court ruled that Mr. Sun misappropriated the money, it ruled that the IRS failed to prove fraud. That meant the penalties were only 25% of the roughly $4.7 million of additional tax, rather than the 75% under the civil fraud rules.

The Moral? Hard to say. Don’t squander millions of dollars entrusted to you for investment at casinos? You didn’t need the Tax Court to tell you that. Maybe it’s a handy reminder to file Form 3520 if you receive large foreign gifts, lest the IRS get the wrong idea (and lest they hit you with a $10,000 penalty for not filing it). And if you have had bad luck with your investments, maybe index funds are a better way to go than a handshake deal with some guy in Texas.

Cite: Minchem International, Inc., et. al., T.C. Memo 2015-56.

 

Kyle Pomerleau, U.S. Taxpayers Face the 6th Highest Top Marginal Capital Gains Tax Rate in the OECD (Tax Policy Blog):

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The United States currently places a heavy tax burden on saving and investment with its capital gains tax. The U.S.’s top marginal tax rate on capital gains, combined with state rates, far exceeds the average rates faced throughout the industrialized world. Increasing taxes on capital income, as suggested in the president’s recent budget proposal, would further the bias against saving, leading to lower levels of investment and slower economic growth. Lowering taxes on capital gains would have the reverse effect, increasing investment and leading to greater economic growth.

But, but, the rich!

 

IMG_1388William Perez covers Various Types of Individual Retirement Accounts.

Paul Neiffer, Tax Court Allows $11 Million Horse Loss to Stand. “Now, though this is a victory for the taxpayer in Tax Court, they are still out over $11 million in losses (or more).  I am not sure if it really is an overall win for the taxpayers.”

TaxGrrrl, Taxes From A To Z (2015): M Is For Municipal Bonds.

Jason Dinesen discusses Recordkeeping Considerations for a Startup Business.

Roger McEowen, USDA Releases Proposed Definition of “Actively Engaged in Farming” That Would Have Little Practical Application. Sounds useful.

Kay Bell, $42 million Montana mansion owner loses property tax fight. Looks like a nice place.

Jim Maule, When Social Security Benefits Aren’t Social Security Benefits: When They Meet Tax. “By reducing social security benefits on account of the state retirement system benefit payments, the Congress causes the portion of the taxpayer’s overall retirement receipts that is treated as taxable pension payments to increase, which in turn not only increases gross income on its own account but generates gross income from a portion of the social security benefits.”

Joni Larson, Proposal to Amend Section 7453 to Provide that the Tax Court Apply the Federal Rules of Evidence (Procedurally Taxing)

 

Tony Nitti, Ted Cruz To Run For President: Why His Plan For A Flat Tax May Doom His Candidacy:

Whether a move to a much more regressive system than the one currently in place is ultimately in the best interest of the economy and country is irrelevant; the Democrats will seize on the shift in the tax burden and continue to paint Republican candidates as seeking only to placate the rich.

I think Hillary Clinton, or whoever the nominee is, will do that to any Republican opponent, regardless of any actual policy positions. The question is whether they will be able to more successfully deal with the issue than Mr. Romney.

Robert Wood, Taxing Stephen King, Taylor Swift And Phil Mickelson

 

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Renu Zaretsky, Tax Struggles and Tax Sneaks. Today’s TaxVox headline roundup has stories about how Orrin Hatch wants tax reform and John Koskinen wants more money.

David Brunori, Louisiana Tax Reform: Some Smart Guys Worth Listening To (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 685.  Today’s post features Media Matters, living proof that the IRS concern over political activity was rather selective.

 

Career Corner. Confirmed: Golf More Difficult Than CPA Exam (Caleb Newquist, Going Concern). But almost as much fun!

 

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Tax Roundup, 3/11/15: The $195 pass-through timely-filing incentive. And: taxing your neighbor may just send him your retailers.

Wednesday, March 11th, 2015 by Joe Kristan

7004 cornerExtend your corporations! The deadline for corporation returns looms. This year it’s March 16, as the usual March 15 deadline is on a Sunday.

The need to file or extend C corporation returns by Monday should be obvious. A failure to file penalty starts 5% of any underpayment, up to 25%, and 100% of the corporate tax is due by March 15 even when you extend.

Failing to meet an S corporation deadline can be even more expensive. How can that be? After all, S corporations don’t usually pay tax. What’s the big deal?

Blame Congress, which has used S corporation late-filing penalties as pay-fors for tax breaks. Congress has now made the penalty $195 per month, Per K-1. So an S corporation return with ten shareholders that is one day late racks up a $1,950 penalty. A S corporations can have up to 100 shareholders — and more when family members own shared – you can see that the numbers can get big in a hurry.

Missing filing deadlines has other bad consequences. You lose the ability to make automatic accounting method changes for the late year, for example; this can be costly, especially if you have lots of depreciable assets. You also lose the ability to 20130415-1make many other elections that can only be made on a timely-filed return. And, of course, you increase the risk of audit. While extended returns don’t increase audit risk, late filings certainly do.

Extensions can be obtained automatically on Form 7004, which can be filed electronically. If you must paper file, go Certified Mail, Return Receipt Requested, to prove timely filing.

 

 

David Brunori is, as usual, wise in his post Local Sales Taxes are Poor Revenue Options (Tax Analysts Blog). “I think the biggest problem with local option sales taxes is that they afford politicians the ability to export tax burdens.”

I think it might be more accurate to say that it deludes politicians into thinking they can export tax burdens. Over time, the effect is to export retail into the next jurisdiction that doesn’t impose the local option tax. Anyone who has observed the outward march of retail to the suburbs over the last century or so, and the death of the first generation of malls that sucked the retail out of down at the hands of newer malls, knows retail can move. But I’m sure that the localities that drive out their retailers with a local sales tax will try to bribe them back with TIF financing.

 

IMG_0603Jack Townsend, TRAC Publishes Statistics on Tax and Tax-Related Prosecutions. “Year after year, April consistently has the greatest number of criminal prosecutions as a result of IRS investigations — two-thirds or more higher than those seen in January.”

I’m pretty sure that’s that’s designed to encourage the rest of us.

 

William Perez, Deducting Health Insurance Premiums When You’re Self-Employed. The nice thing is that when you qualify, this is an “above-the-line” deduction; you don’t have to itemize.

Paul Neiffer, IRS Provides Guidance on Repair Regulations. “Last week, the IRS actually provided some very good practical Q&A guidance on these Regulations that should provide great comfort to many of our tax preparers and farmers.  I wish that this guidance had been provided several months ago, but it is better late than never.”

Peter Reilly, IRS Busts In Las Vegas Tip Case. “I really think the Service would have been better off if they had settled with Mr. Sabolic rather than setting this precedent and encouraging more tipped employees to drop out of the program.”

 

Annette Nellen covers Use Tax Lookup Tables, which are handy for those good citizens who actually pay their use taxes on mail-order purchases.

Jana Luttenegger Weiler talks about Financial Literacy at Tax Time (Davis Brown Tax Law Blog)

Jason Dinesen shares his Tax Season Tunes: 2015. He’s a Gordon Lightfoot fan. I’m more Punch Brothers and, of course, Fleeting Suns.

Jim Maule, Tax Courses and Food. “At the risk of seeming crude, the idea of tax law making someone want to eat strikes me as the opposite of reality.” Something to drink, I can definitely see.

 

Richard Borean, Annual Release of “Facts & Figures: How Does Your State Compare?” (Tax Policy Blog). This is a wonderful resource, putting summary information from all of the states, including rates, per-capita tax burdens, business tax climate rankings, and much other data all in one place.

 

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Robert Wood, Feds Launch Internet Sales Tax Again, So Better Click While You Can. I think he’s against the “Marketplace Fairness” bill.

 

TaxProf, The IRS Scandal, Day 671. This is interesting:

In September 2014, during a House Oversight Committee hearing on the Lerner e-mails, IRS Commissioner John Koskinen said it’s policy not to use personal e-mail.

“One of the things we’re doing is making sure everybody understands that you cannot use your e-mail for IRS business,” he said. “That’s been a policy; we need to reinforce that.”

Say what you will about Lois Lerner, she didn’t set up LoisLerneremail.com.

 

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You don’t say. Improving Deficit Numbers Don’t Make Obama a Deficit Hawk (Jeremy Scott, Tax Analysts Blog) “The CBO’s new baselines will undoubtedly be touted by President Obama as showing that he is keeping his promise to shrink the deficit, but those who think the president is a deficit hawk should note that the smallest deficit projected during this administration ($462 billion in 2017) is still larger than the deficit he inherited ($458 billion in 2008).”

Howard Gleckman, Watch What You Wish For: Dynamic Scoring Creates More Issues for the GOP (TaxVox)

Caleb Newquist, Accounting Programs, Ranked (Going Concern). None of UNI, Iowa State or Iowa are listed in the U.S. News top 10. That makes it obviously wrong.

Kay Bell, Tourists, students to act as tax spies for Greek government. Greece cements its hold on the title of laughingstock of public finance.

 

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Tax Roundup, 3/4/15: Big week for trusts. And: Iowa gets its own tax phone scam!

Wednesday, March 4th, 2015 by Joe Kristan

1041Friday is Day 65 of 2015. Though March 6 is just another day to most people, it has always meant something to me (happy birthday, Brother Ed!). It also means something to trustees. The tax law allows trusts to treat distributions made during the first 65 days of the year as having been made in the prior year. This allows complex trusts to control their taxable income with a distribution, because trust distributions carry trust taxable income out of the trust to beneficiary 1040s.

This has become more important since the enactment of the Obamacare 3.8% Net Investment Income Tax. This tax hits trusts with adjusted gross income in excess of $12,150 in 2014. If a trust has beneficiaries below the much-higher NIIT thresholds for individuals, it can make at least some of that tax go away with 65-day rule distributions.

This affects “complex trusts,” which are trusts that are not required to distribute their income annually and which are not otherwise taxed on 1040s. Distributions from such normally carry out ordinary income, but not capital gains. If the trust has income that is not subject to the NIIT, the distribution will be treated as carrying out some of each kind of income, so trustees have to take that into account in their NIIT planning.

Income subject to the NIIT includes interest, dividend, most capital gains, rents, and “passive” income from businesses or K-1s. Retirement plan income received by trusts is normally not subject to the NIIT. A 2014 Tax Court decision makes it easier for trusts to have non-passive income, but trust income is normally passive.

 

20120920-3An Iowacentric tax scamThe Iowa Department of Revenue warns of a scam targeted at Iowans:

The Iowa Department of Revenue has been made aware of a potential scam targeting Iowa taxpayers. The scam begins through an automated phone call, which shows on caller ID as being from 515-281-3114. That phone number is the Department’s general Taxpayer Services number; however, no automated phone calls can originate from that number.

When answering the call, the taxpayer is informed they are eligible for a refund from the Iowa Department of Revenue. The taxpayer is then asked whether the refund should be deposited into the account the Department has on file or if they’d like to donate the refund to an animal charity.

The Iowa Department of Revenue does not make these types of calls. We believe this is an attempt to steal bank account or other personal information. By fraudulently displaying the Department’s phone number on caller ID, the scammer is attempting to convince the taxpayer of the legitimacy of the call.

The Iowa Department of Revenue doesn’t phone you out of the blue. The IRS doesn’t phone you out of the blue — they barely even answer phones anymore. If you get a call from a tax agency, assume it is a scam. It is, unless you have already been in contact with the agency because of a notice you’ve received in the mail

 

Obamacare is again on the dock in the U.S. Supreme CourtThe IRS decision to allow tax credits for policies in the 37 states that did not set up ACA exchanges is up for debate. The law provides for credits only for exchanges “established by a state.”

In a less politically-sensitive context, one could expect a 9-0 or 8-a decision against the IRS. That’s what happened in Gitlitzwhere the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

Those arguing for the IRS interpretation say the chaos will ensue and thousands of people will dieMichael Cannon, a prime architect of the case against the IRS rule, has a more measured discussion of the consequences of a decision against the IRS rule in USA Today. Aside from upholding the rule of law, a decision against the IRS rule could have many benefits.

Related: Megan McArdle, Obamacare Will Not Kill the Supreme Court. For a roundup of posts on the topic, try King v. Burwell — The VC’s Greatest Hits, from the Volokh Conspiracy’s attorney-bloggers.

Update: From Roger McEowen, Would It Really Be That Bad If the U.S. Supreme Court Invalidated the IRS Regulation on the Premium Assistance Tax Credit?

 

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William Perez, Self-employed? SEP IRAs Help Reduce Taxes and Save for Retirement

TaxGrrrl, Taxes From A To Z (2015): A Is For Actual Expense Method

Kay Bell, Some Ohio taxpayers stumped by state’s tax ID theft quiz

Jason Dinesen, Is Chamber of Commerce Membership Worth It?. Our local group functions as an alliance of crony capitalists.

 

TaxProf, The IRS Scandal, Day 664. Today’s edition mentions my high school classmate and junior class president election opponent, Al Salvi, and his outrageous treatment at the hands of Lois Lerner when she was with the Federal Elections Commission. For the record, Lois Lerner had nothing to do with my electoral triumph.

Robert Wood, Warren Buffett To Al Sharpton, The 1% Makes 19% Of All Income, Pays 49% Of All Taxes

Alan Cole, Most Retirement Income Goes To Middle-Class Taxpayers (Tax Policy Blog).

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Clint Stretch wonders whether it is Time to Retire Income Tax Reform? (Tax Analysts Blog). “With income tax reform out of the way, we could focus the conversation on the important issue – the size and scope of government. If eventually we can agree on how much tax we need to collect, we can always ask tax reform to come out of retirement for a little consulting.”

 

Len Burman, Cutting Capital Gains Taxes is a Dead End, Not a Step on the Road to a Consumption Tax. As someone who thinks the proper capital gain rate is zero, I can’t agree.

Career Corner. Starting a CPA Pot Practice Is Your Next Opportunity (Caleb Newquist, Going Concern). “Consider a joint venture, at least.”

 

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Small employers, S corporations get relief from $100 per day premium reimbursement penalty

Thursday, February 19th, 2015 by Joe Kristan

The IRS yesterday announced (Notice 2015-17) that it would not impose the $100 per day Obamacare penalty on small employers who reimburse employee-paid health insurance premiums. This relief will cover such arrangements for all of 2014 and through June 30 of 2015.

20121120-2The Notice also says premium reimbursements for S corporation owner-employees will not be subject to the penalty pending further guidance. Until then, the IRS will continue to apply the rules of IRS Notice 2008-1 (discussed here).

Employers covered by Notice 2015-17 will not have to File Form 8928, report the Sec. 4980D excise tax, or request a waiver of the tax.

Notice 2015-17 gives a blanket waiver of the ACA penalty for “small employers,” defined here as those with fewer than 50 full-time-equivalent employees through June 30, 2015, with an “employer payment plan as described in Notice 2013-54.” The description says these occur when:

…an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Code § 106. This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this notice, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage.

Notice 2015-17 does not exempt all Section 105 plans for small employers from the penalty. “This relief does not extend to stand-alone HRAs (health reimbursement arrangements) or other arrangements to reimburse employees for medical expenses other than insurance premiums.”

The notice also provides a way to integrate Medicare premium reimbursement plans with employer group plans.

Other items in Notice 2015-17.

– The notice provides some flexibility for determining the measuring period for employers who might be on the bubble.

– The notice says that employers may give employees a raise to cover the cost of their insurance premiums, as long as the employer “does not condition the payment of the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form, or issuer of health insurance).”

– Simply putting premium reimbursements on the W-2 does not work. That will still be considered a group health plan failing the ACA “market reforms,” subjecting the employer to the penalty tax.

This is a huge (and much needed) relief provision. There are hundreds, maybe thousands, of employers in Iowa alone who will benefit from this provision.

I am baffled by the exclusion of stand-alone Sec. 105 plans. Thousands of farms and small employers have had these plans, and the word of their ACA problems was slow to spread. Some Sec. 105 plan administrators remained in denial in 2014.

Employers not covered by Notice 2015-17 can still claim relief by filing From 8928 and reporting a zero tax under the form instructions. It remains to be seen how lenient the IRS will be in processing these.

W2Many employers may want to amend 2014 W-2s and 941 filings, possibly claiming refunds. There had been some thought that the way to bring non-qualifying reimbursement plans into compliance was to include health reimbursements on the W-2 form. There is no such requirement in Notice 2015-17. Such reimbursements continue to be exempt from employee income, even if the would trigger the employer penalty tax, and exempt from FICA and Medicare payroll taxes.

Related:

DOL nixes many employer health reimbursement setups.

ACA and filing season pessimism revisited

ANOTHER QUESTION ON S CORPORATION HEALTH INSURANCE

S CORPORATION HEALTH INSURANCE: READER QUESTIONS

MORE ON S CORPORATION HEALTH INSURANCE

IF IT’S NOT ON THE W-2, S CORP SHAREHOLDERS CAN’T DEDUCT HEALTH INSURANCE

Update, from Kristine Tidgren: IRS Notice 2015-17 Provides Some Limited ACA Penalty Relief to Small Employers (ISU-CALT)

 

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List of Rev. Proc. 2015-20 method changes

Saturday, February 14th, 2015 by Joe Kristan

I have put together a list of the Form 3115 method changes that Rev. Proc. 2015-20 has made optional for “small” trades or businesses for 2014 filings, by my reading. I also include the section of Rev. Proc. 2015-14 that authorizes the method changes. The list is derived from Rev. Proc. 2015-20, Section 5.01.

RP 2015-20 changes

Perhaps the most important tangible property regulations change not covered by Rev. Proc. 2015-20 is the “late partial disposition election” (Change 196) for pre-2014 disposals of depreciable assets. Also not covered is Method 195 for deducting holding costs of real property acquired through foreclosure.

Update, 2/15. As alert reader Brian points out in the comments, if a taxpayer uses Rev. Proc. 2015-20 to skip filing Form 3115 for the permitted items above for any trade or business, it forfeits the right to use the advantageous Change 196 for all trades or businesses.

 

This is the kind of list the IRS should have put together to save taxpayers and practitioners the time and effort of wading through the Rev. Proc. 2015-20 and 2015-14 maze of cross-references. I realize the IRS $10 billion budget is pretty darn tight, but I got it done with a Saturday morning, donuts and coffee, so just maybe the IRS could have done so too.

For more discussion of Rev. Proc. 2015-20, see IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules. 

 

 

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IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules. 

Friday, February 13th, 2015 by Joe Kristan

20140925-2The IRS today announced (Rev. Proc. 2015-20) that taxpayers with gross receipts under $10 million (averaged over the prior three years) or assets under $10 million can elect to adopt the 2014 changes to the rules on deducting or capitalizing repairs and property additions without filing Form 3115, Application for Change in Accounting Method.

(Update, 2/14/15: I have put together a List of Rev. Proc. 2015-20 method changes, organized by Form 3115 method change number.)

This is welcome relief for many smaller taxpayers, and their preparers, and to trees everywhere. This will eliminate the filing of tens of thousands of useless accounting method change applications under the so-called “Repair Regs.” Unfortunately, it still requires the useless filings in thousands of other cases.

Some taxpayers who are allowed to skip the Form 3115 might want to file one anyway. For example, the regulations allow taxpayers to write off parts of buildings that have had significant replacements, like new roofs, installed in prior years, but this deduction is only available for taxpayers filing a Form 3115. Taxpayers who have sinned by writing off as “repairs” amounts they should have capitalized may also want to file a Form 3115 to keep the IRS from going back and auditing the issue for old years.

We should be thankful for small favors, but this doesn’t eliminate a dumb rule; it just applies it to fewer taxpayers. There is no good reason why the “cut off” approach of Rev. Proc. 2015-20 for post-2013 expenses shouldn’t also be allowed for larger taxpayers.

I may update this post as I have more time to soak up its hideously dense language. One key sentence shows you what I mean:

However, a taxpayer using this option must also use sections 6.37(4)(f) and 6.39(6)(b) of this revenue procedure to calculate a §481(a) adjustment for any change made under section 6.37(3)(a)(iv), (a)(v), (a)(vii), or (a)(viii) or section 6.39 of this revenue procedure and must use section 10.11(6)(b)(iii) of this revenue procedure to calculate a §481(a) adjustment for any change made under section 10.11(3)(a) of this revenue procedure.

Got that?

 

Update: John Koskinen Saves Tax Season With Form 3115 Relief For Small Business (Peter Reilly):

I’m hoping that this announcement will help my blogging buddy Joe Kristan warm up to Commissioner Koskinen a bit.  I think Joe tends to be a little hard on the Commish and he will have to grant that he has done us a solid here.

I don’t know, Peter. It’s a little like having an awful boss; he doesn’t become a good boss when he surprises you with a cookie. A dumb policy is still dumb even when the dumbness is applied to fewer victims.

Update, 12/14: Rev. Proc. 2015-20 has an unusually taxpayer-friendly application of its $10 million limits. Rather than applying to the entire taxpayer’s assets or gross receipts, they apply to each “separate and distinct trade or business” of the taxpayer.  See Section 4 of the procedure. They define “separate and distinct trade or business” by reference to Reg. Sec. 1.446-1:

(d) Taxpayer engaged in more than one business.

(1) Where a taxpayer has two or more separate and distinct trades or businesses, a different method of accounting may be used for each trade or business, provided the method used for each trade or business clearly reflects the income of that particular trade or business. For example, a taxpayer may account for the operations of a personal service business on the cash receipts and disbursements method and of a manufacturing business on an accrual method, provided such businesses are separate and distinct and the methods used for each clearly reflect income. The method first used in accounting for business income and deductions in connection with each trade or business, as evidenced in the taxpayer’s income tax return in which such income or deductions are first reported, must be consistently followed thereafter.

(2) No trade or business will be considered separate and distinct for purposes of this paragraph unless a complete and separable set of books and records is kept for such trade or business.

(3) If, by reason of maintaining different methods of accounting, there is a creation or shifting of profits or losses between the trades or businesses of the taxpayer (for example, through inventory adjustments, sales, purchases, or expenses) so that income of the taxpayer is not clearly reflected, the trades or businesses of the taxpayer will not be considered to be separate and distinct.

This means there are no related party rules to apply, and no aggregation of commonly controlled businesses, in determining eligibility. Even if a taxpayer’s gross receipts and assets exceed the $10 million thresholds, some or all of its component businesses may still qualify for this relief. This could be a big benefit, for example, to a real estate operation that keeps separate records for all of its properties, enabling the taxpayer to avoid filing Form 3115s under the tangible property regulations except as they may be useful.

Update, 2/15. After seeing a comment by alert reader Brian, I realize that the IRS is being less generous than I had believed. While the $10 million threshold applies to each trade or business, using the protection for any trade or business denies the taxpayer some of the most beneficial method change opportunities.  If you select the Rev. Proc. 2015-20 treatment for any trade or business, you forego the Change number 196 -the change for prior year  partial dispositions- for all trades or businesses of the taxpayer. So if you want to claim the benefit of the deemed partial disposition of real property if, say, you replace a roof, you have to file a Form 3115 to adopt the other parts of the repair regs.

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

Friday, February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

IMG_1218

 

TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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IRS issues 2015 vehicle depreciation limits, updates 2014 limits for Extension of Bonus depreciation

Saturday, February 7th, 2015 by Joe Kristan

The IRS has updated the limits for depreciation for 2014 automobiles to reflect the extension of the 50% bonus depreciation through 2014 in newly-issued Rev. Proc. 2015-19. The IRS also issued the 2015 limits in the revenue procedure.

The updated 2014 numbers:

2015-19 table5

The 2014 limits for trucks and vans:

2015-19 table6

 

The 2015 limits for passenger automobiles:

2015-19 table1

The 2015 limits for trucks and vans:

2015-19 table2

 

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IRS allows non-SHOP plans in 84 Iowa counties to qualify for small employer credit in 2015.

Saturday, January 17th, 2015 by Joe Kristan

cooportunity logoThe version of the small employer health care tax credit that applies starting in 2014 is only available by its terms when the small employer buys a plan on the Healthcare.gov “SHOP” exchange. That became impossible for most Iowa employers when state insurance regulators took control of CoOportunity, which was the only insurance company offering SHOP policies in 85 Iowa counties.

The IRS yesterday reacted by issuing guidance (Notice 2015-08) allowing Iowa employers in those counties to claim the credit on non-SHOP policies. From the Notice:

An eligible small employer with a principal business address in one of the counties listed in section IV below may calculate the credit under section 45R by treating health insurance coverage provided for the 2015 health plan year as qualifying for the section 45R credit, provided that that the coverage would have qualified for a credit under section 45R under the rules applicable before January 1, 2014. This treatment applies with respect to the coverage provided during the 2015 calendar year and during any portion of a health plan year beginning in 2015 that continues into 2016. If the eligible small employer claims the section 45R credit for the 2015 taxable year, then the credit will be calculated at the 50 percent rate (35 percent for tax-exempt eligible small employers) for the entire 2015 taxable year.

The small employer credit provides a credit of 50% of the cost of coverage for up to two years. It has two phase outs: it is reduced as the number of employees goes from 10 to 25, at which point it goes to zero; it also phases out to zero as average wages go from $25,000 per year to $50,000 per year.

The Iowa counties covered by the Notice 2015-08 relief:

(more…)

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IRS issues Applicable Federal Rates (AFR) for January 2015

Tuesday, December 30th, 2014 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-01) the minimum required interest rates for loans made in January 2015:

Short Term (demand loans and loans with terms of up to 3 years): 0.41%

-Mid-Term (loans from 3-9 years): 1.75%

-Long-Term (over 9 years): 2.67%

The Long-term tax-exempt rate for Section 382 ownership changes in January 2015 is 2.8%.

Historical AFRs may be found here or from prior Tax Update posts.

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Tax Roundup, 12/16/14: Extenders as dessert after the Senate eats its peas.

Tuesday, December 16th, 2014 by Joe Kristan
Flickr image courtesy seriousbri under Creative Commons license.

Flickr image courtesy seriousbri under Creative Commons license.

It appears that the extenders will be served up to the Senate only when the Senators clean their plates. The Hill reports (my emphasis):

Once they are out of the way, Senate aides expect an agreement to confirm Obama’s other pending nominees by midweek.

That would speed up final votes on a package extending a variety of lapsed tax breaks and on the stalled Terrorism Risk Insurance Act.

Senate aides say a one-year extension of expired tax breaks will be one of the last items to move because it has strong support on both sides of the aisle and gives lawmakers incentive to stay in town to complete other work. They predict it will pass quickly once put on the schedule.

So lingering uncertainty about the tax law for taxpayers and advisors is the price we have to pay for the Senate to do its job. Glad to help, guys!

 

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.

Joseph Henchman, A Big Year for State Tax Reform, and Congrats to COST! (Tax Policy Blog):

All groups who work on state tax reform should feel proud of the accomplishments of 2014. North Carolina simplified and reduced its whole system, Indiana and Michigan cut investment taxes, New York reformed its entire corporate tax system, and even Rhode Island and the District of Columbia enacted tax reductions. Additionally, voters defeated tax increase proposals in Colorado and Nevada, and in the spring a big tax increase proposal in Illinois failed. Maine raised its sales tax, the only tax increase at the state level in 2014.

Iowa is painfully absent from this list, and it needs tax reform as much as any place.

 

buzz20140923Robert D. Flach offers your Tuesday Buzz, with links from all over.

William Perez explains How to Make Sure Your Charity Donation Is Tax-Deductible

Jason Dinesen, Changing the Way I Work with Business Clients. “For all entities, I now require some sort of year-round relationship.”

Keith Fogg, Bankruptcy Court Grants IRS Equitable Tolling and Denies Discharge on Late Return (Procedurally Taxing).

Peter Reilly, Tom Coburn Tax Decoder Takes On Clergy Tax Abuse. “Senator Tom Coburn has served as a deacon in a Southern Baptist church but that has not prevented him from taking a blast at a tax break that benefits the Southern Baptist Convention mightily.”

Kay Bell, Congress’ job rating improves! But just by 1 percentage point.

David Henderson, Deadweight Loss from the New California Gas Tax. Rather than using the money for roads, it goes into a big hole high-speed rail.

 

Martin Sullivan, Will Orrin Hatch Lead on Tax Reform? (Tax Analysts Blog). “. If — as Hatch writes in the preface to the report — “reform is vital and necessary to our nation’s economic well-being”– should he not also go beyond publishing reports and principles and write a real bill?”

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TaxProf, The IRS Scandal, Day 586

 

When there are so many worthy nominees, it’s hard to pick only twenty. 20 Really Stupid Things In The U.S. Tax Code (Robert Wood) I still think the Section 409A deferred comp rules and everything Obamacare should head any such list.

News from the Profession. The Office of the Future Looks Kind of Like a Homeless Encampment Under a Bridge (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/12/14: Extenders by tomorrow? Don’t count on it.

Friday, December 12th, 2014 by Joe Kristan

IMG_2491They filed an extension.  Congress avoided a “shutdown” of the government blast night by passing a bill to fund the government for two more days. That presumably gives the Senate time to pass the “Cromnibus” train wreck to fund most of the leviathan for the rest of the fiscal year. Now it looks like they might wrap it up by Monday.

The Hill reports that Outgoing Majority Leader Harry Reid will have the Senate take up the one-year tax extender bill as soon as the spending bill passes:

“We’ll take up the long-term spending bill tomorrow,” Reid said on the floor shortly before 10 pm Thursday. “Senators will want to debate this legislation. We’ll have that opportunity. The Senate will vote on the long-term funding bill as soon as possible.”

The omnibus will have to wait, however, until the Senate casts a final vote on the annual Defense Department authorization bill, which may take place as late as 4:30 p.m. Friday.

Reid hopes to pass the omnibus on Friday or Saturday and then move immediately to a one-year extension of various expired tax provisions.

The expired provisions would be revived by HR 5771. The bill retroactively extends the $500,000 Section 179 deduction, 50% bonus depreciation, the R&D credit, and the 5-year S corporation built-in gain recognition period through the end of this month. It also extends the IRA charitable contribution break and the non-business energy credits, among many other things.

There is a chance this could drag out until Monday, according to The Hill:

Reid will need to get unanimous consent to stick to his plan to finish work by Saturday. If any of his colleagues object to moving the omnibus quickly, a final vote on it could be delayed until Monday. 

Given the strong dislike of the bill from parts of each party, that’s a real possibility.

Related: Paul Neiffer, Tax Extender Bill May Be Punted to WeekendRenu Zaretsky (TaxVox),  Everybody’s Working for the Weekend.

 

Scott Drenkard and Richard Borean offer a map of Corporate Alternative Minimum Taxes by State, as of July 1, 2014 (Tax Policy Blog):

state corp amt map

Iowa has one. It adds a lot of complexity and very little revenue. Sort of like the Iowa corporation income tax itself.

 

William Perez offers some Year End Tax Planning Ideas for Self Employed Persons

Annette Nellen discusses Filing status challenges and developments

Robert D. Flach brings a “meaty” Friday Buzz, including a discussion of which states are the most corrupt. The “winner” may surprise you.

Keith Fogg, Bankruptcy’s Bar to Filing a Tax Court Petition

Peter Reilly, With Amazon Facing $1.5 Billion Income Tax Bill, Bezos Too Busy To Testify.

Jason Dinesen, 5 Things You Didn’t Know About EAs, #3: Two Ways to the EA

Breandan Donahue, Top Six Year-End Estate Planning Tips (ISU-CALT)

TaxProf, The IRS Scandal, Day 582

Richard Phillips, Cutting the IRS Budget is a Lose-Lose for American Taxpayers (Tax Justice Blog)

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Kay Bell, Tax reform bill finally introduced in Congress’ waning days. If its going to pass never, it doesn’t hurt to start it late.

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Tax Roundup, 12/5/14: Senate just too busy to pass extenders? And: grumbling about incentive tax credits.

Friday, December 5th, 2014 by Joe Kristan

lizard20140826Is the Senate just too darn busy to vote on the House-passed extender bill? Lame Duck Senate Majority Leader Harry Reid says it just might be, says a report in The Hill:

Majority Leader Harry Reid (D-Nev.) said Thursday night that the Senate might not be able to pass the House tax extenders bill before the end of the year.

“Everyone knows we have to do a spending bill. Everyone knows we have to do a defense bill,” Reid said on the Senate floor. “Everyone knows that we’re trying to do some tax extenders. We’re trying to do that but we’ll see.”

I hope he’s not serious. Given the stakes to individual and business taxpayers and to the IRS this filing season, I think Senator Reid coud fit an up-or-down vote into his busy, busy day.

This passive-aggressive foot-dragging could be an attempt to get some concession out of Senate Republicans while Senator Reid still is majority leader. Perhaps it’s a mere gesture to save face after his humiliation at the hands of the President, who shot down a compromise he had negotiated with House GOP taxwriter Dave Camp. Or maybe it’s just a poke at the GOP, which will take over the Senate next month.

The bill  (HR 5771) would extend 55 provisions that lapsed at the end of 2013 through the end of this month retroactively. The Lazarus Provisions include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit and the five-year limit on built-in gains. It also includes individual provisions like the exclusion for IRA donations for charity and the deduction for educator expenses.

I still expect the Senate to pick up the bill soon. Accounting Today reports that the Senate is likely to vote on the House-passed “Extender” bill as soon as next week. Still, it is an unwelcome turn in the extenders melodrama, leaving taxpayers and the IRS hanging just a little longer.

Prior coverage: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Paul Neiffer, House Passes HR 5771 Tax Extender Bill

 

20120906-1Will corporate welfare tax incentives be an issue in the next Iowa legislature? A report by Iowa Public Radio’s Joyce Russell hints that it might be:

State assistance to attract Google, Microsoft, and Facebook to Iowa is under scrutiny by a statehouse committee.

The panel is looking at tax incentives the state hands out to attract industry, including the big datacenters which are making more than three billion dollars in capital investments in the state.

It appears chief Iowa Senate taxwriter Joe Bolkcom is involved:

“We need a better handle on the money being spent and the jobs being created,” says Iowa City Democrat Joe Bolkcom.

Officials with the Department of Revenue say the companies’ tax records are confidential . Lawmakers may sponsor legislation to get around that.

“Taxpayers have a right to know the exact cost,” Bolkcom says.

That’s the wonder of corporate welfare tax credits. Because tax returns are confidential, we can’t know exactly how much taxpayer money is thrown at any company. All we see are the phot0-ops and ribbon cuttings by the politicians who are being generous with other people’s money.

Senator Bolkcom says Iowa’s tax credits have doubled in four years. That’s true, though they are still below the $342 million record set in fiscal year 2007. The most recent Iowa Tax Credits Contingent Liabilities Report shows $248.5 million tax credits were issued in the last fiscal year.  The report attributes the decline to caps imposed on the credits in the wake of the Film Tax Credit Scandal.  That amount is expected to rise to $402 million for 2016. That compares to $428 million collected by the entire Iowa corporation income tax in 2013, according to this report (page 6).

I have an idea for a compromise. Get rid of Iowa’s highest-in-the world corporation income tax and all of the incentive tax credits. Enact The Tax Update’s Quick and Dirty Iowa Tax Reform! That should make everyone happy, right?

 

20140826-1Robert D. Flach has some fresh Friday Buzz. It looks like I won’t have my extended comments on his thoughts on tax preparer civil disobedience until next week. Dang extenders.

Keith Fogg, Litigating the Merits of a Trust Fund Recovery Penalty Case in CDP When the Taxpayer Fails to Receive the Notice (Procedurally Taxing)

Robert Wood, Recovered IRS Emails Can’t Be Revealed Because Of Privacy…That Was Already Breached,

Kay Bell, NYC’s high cigarette tax blamed for Eric Garner’s death.

TaxProf, The IRS Scandal, Day 575 (TaxProf)

 

Career Corner. Ex-Crazy Eddie CFO’s 10 Tips for Advancing Your Accounting Career (Adrienne Gonzalez, Going Concern). Always trust a felon!

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Tax Roundup, 12/3/14: House voting on extenders today. Are Senate, White House on board?

Wednesday, December 3rd, 2014 by Joe Kristan

20130113-3The House will likely pass one-year extender bill today. Will the Senate and White House go along? Multiple reports say that the House of Representatives is expected to approve HR 5771 today, reviving 55 perennially-resurected tax breaks through 2014. The breaks, which include bonus depreciation, the $500,000 Section 179 deduction, and the research credit, all expired at the end of 2013.

While the fate of the bill in the Senate and the White House are not entirely clear, I expect the House bill to pass, given the lack of alternatives.  The Wall Street Journal reports:

Senate Finance Committee Chairman Ron Wyden (D., Ore.) used a weekly Senate Democratic luncheon Tuesday to push for an alternative that would extend expiring tax breaks through 2015.

But his Republican counterpart on the committee, Utah Sen. Orrin Hatch, brushed that aside, saying time was running out. Mr. Hatch—on whom Mr. Wyden frequently relies when crafting deals—came out in favor of the short-term fix, saying the only alternative he would support at this point was the one worked out between Senate Majority Leader Harry Reid (D., Nev.) and House Ways and Means Committee Chairman Dave Camp (R., Mich.) and drew a White House veto threat last week. If the Senate advanced a new version, “there will be no bill” because “the House is going to leave,” Mr. Hatch said.

The full text of Sen. Hatch’s statements can be found here.

The Hill reports that the White House appears ready to go along with the House bill. Given the way the White House threatened a veto of the House-Senate deal that would have extended some of the breaks permanently, I think the lack of a veto threat means the President is likely to sign this version. While there appears to be some unhappiness with the House bill — Senator Grassley is not a fan of the one-year approach —  I expect the lame-duck Senate to pass it anyway. Unfortunately, it’s not clear when the Senate will act.

Congress has for years passed these provisions for one or two years at a time because Congressional budget rules allow them to pretend they are less expensive than they really are. Unfortunately, that often leaves taxpayers uncertain as to what the tax law is for the year until the year is almost over — or, in 2012, until the year was over. That makes it hard to evaluate the economics of important fixed-asset decisions. The abortive House-Senate deal would have ended this game for several key provisions, but the White House chose scoring cheap political points over an improved business tax environment.

Related:

Paul Neiffer, Is an One-Year Extension of Section 179 all we get?!

Howard Gleckman, How To End the Tax Extender Drama: Stop Calling Them Extenders—And Make Congress Pay For Them

Kay Bell, Tax extenders compromise: OK expired breaks for 2014 only

 

20121108-1Peter Reilly, Repair Regs – A Hellish Tax Season And Refunds Of Biblical Magnitude. Peter discusses the need, or not, for massive filing of useless accounting method changes to implement the new “repair regulations.” He also touches on a potential boon for owners of commercial real estate.

Robert D. Flach, TAKING ADVANTAGE OF THE 0% TAX RATE

William Perez, What You Need to Know about the Premium Assistance Tax Credit

Russ Fox notes A Rare Piece of Efficiency from the IRS

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #4-IRS Rules on Self-Employment Income Of LLC Members.

 

Robert Wood, What IRS Calls ‘Willful’–Even A Smidgen–Can Mean Penalties Or Jail

TaxGrrrl, Feeling Spendy This Year? ’12 Days Of Christmas’ Slightly More Expensive

 

microsoft-appleSound Advice. David Brunori offers Advice for the New Republican Legislative Majorities (Tax Analysts Blog). It’s full of sound advice, but I especially like this:

Republicans should become the party of virtue, courage, and honesty when it comes to taxes. They should fight crony capitalism, as there is nothing more abhorrent to the free market than the government picking winners and losers. Yet state governments do just that all the time. The proliferation of tax incentives represents horrible tax policy. That politicians can decide economic policy through tax incentives is more akin to a Soviet five-year plan than to Adam Smith’s invisible hand. True conservatives should fight attempts to use tax policy to further economic objectives. Broad-based taxes and low rates will always serve the conservative cause better than the existing nonsensical tax laws. Standing on principle to ensure a broad tax base is hard — and neither party has been able to do it. But it is a stand worth taking.

That would be wonderful advice here in Iowa, but our newly re-elected GOP governor has been up to his mustache in crony tax breaks to chase high-profile businesses. Meanwhile Iowa’s home-grown businesses don’t get the big subsidies. They are dragged down by the highest corporation tax rate in the developed world, baroque complexity, and a bottom-ten business tax environment.

A real pro-business tax reform in Iowa might look something like The Tax Update’s Quick and Dirty Iowa Tax Reform.

 

TaxProf, The IRS Scandal, Day 573.

 

lizard20140826Leslie BookH&R Block CEO Asks IRS To Make it Harder to Self-Prepare Tax Returns and Why That is Good for the Tax System.  “Yet, as I explain here, I think the changes he proposes would likely be good for the tax system because they could enhance visibility and accountability, principles the IRS should emphasize with issues that tend to have sticky error rates.”

H&R Block has been trying to pad its income for years on the backs of retail taxpayers. Its former CEO authored the illegal tax preparer regulations system the IRS tried to force on the industry — a system that would have run many of Henry and Robert’s competitors out of the buisness. Now they want to force the lowest-income earners through their doors.

I think the right approach to advice from an outfit that so shamelessly promotes its interests at the expense of taxpayers may be to carefully note it, and to do exactly the opposite.

 

Stephen Entin, No Mystery that Investment Slump Hurts Workers, Lowers Productivity and Wages (Tax Policy Blog)

 

News from the Profession. Why Is Everyone in Public Accounting Obsessed with Sports? (Adrienne Gonzalez, Going Concern)

 

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

Friday, October 31st, 2014 by Joe Kristan

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

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

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

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

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

More details are available from the IRS news release.

 

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

Friday, October 24th, 2014 by Joe Kristan

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

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

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

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

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

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

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

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

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

 

 

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

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

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

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

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

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

TaxProf, The IRS Scandal, Day 533

 

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

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

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

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Source: Tax Foundation

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

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

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

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

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

 

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

Thursday, October 23rd, 2014 by Joe Kristan

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

Via Wikipedia

Via Wikipedia

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

 

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

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

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

Cite: Sanchez, T.C. Memo 2014-223.

 

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

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

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

And hardly anybody noticed.

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

 

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

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

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

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

 

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

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

 

TaxProf, The IRS Scandal, Day 532

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

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

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FICA Max increases to $118,500 for 2015

Thursday, October 23rd, 2014 by Joe Kristan

The Social Security Administration has announced that the maximum earnings subject to the 6.2% FICA tax rises to $118,500 for 2015.  It has been $117,000 for 2014.   That same cap applies to the 12.4% retirement portion of self-employment tax.

The maximum FICA withholding for 2015 will be $7,347.00 for 2014, up from the 2014 maximum of $7254.00.

The 2.9% medicare tax, split between employees and employers, has no wage or self-employment income cap.  There is also no maximum for the .9% additional medicare tax under Obamacare that applies when adjusted gross income exceeds $250,000 for joint filers, $200,000 for single filers, or $125,000 on married-filing-separate returns

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Tax Roundup, 9/23/14: Lois Lerner interview goes over… not well. And: Inversion action!

Monday, September 22nd, 2014 by Joe Kristan

man-wichLois Lerner’s interview with Politico published yesterday got some reaction. The Tax Prof has a great roundup in The IRS Scandal, Day 502, including these wonderful headlines:

American Thinker:  Politico Does Weepy Story About Poor Lois Lerner

PJ Media:  Politico Disguises A Slobbering Love Letter To Lois Lerner As An Interview

Breitbart:  News Site Seeks Mutually Beneficial Exclusive with Former IRS Exec (Must Love Dogs)

And my favorite:

Daily Caller:  Lois Lerner Compares Herself To Jeffrey Dahmer

So Tea Party-friendly web sites were not won over, apparently.  Some other reaction:

 

Instapundit:

LOIS LERNER TOOK THE FIFTH, but now she’s telling Politico that she did nothing wrong, and that she’s the real victim here. And note the prominent play Politico gives to alleged anti-semitic epithets, and to Lerner’s brownie-baking. So why the media-rehab operation — and that’s what this is — and why now?

But it’s nice to hear that even the Washington revolving-door apparat finds her “untouchable.” Perhaps that’s because nothing much in this story suggests that she didn’t target Tea Party groups for partisan political reasons.

 

David Hirsanyi, Sorry, Politico, But Lois Lerner Is Not A Victim:

 She has already admitted and apologized for the practice of targeting conservatives groups with terms like “Tea Party” or “patriots” in their titles. She claims that it was done in an effort to deal with the surge in applications for tax-exempt status asking for permission to participate in the political process. Yet, she didn’t aim at groups with the “climate change” or “fairness” in their names to mitigate this alleged crush of work she was facing.

Peter Suderman, Unapologetic Lois Lerner Insists She’s Done Nothing Wrong (Reason.com):

Lerner thinks she did nothing wrong, and she won’t apologize. “Regardless of whatever else happens, I know I did the best I could under the circumstances and am not sorry for anything I did,” she said in an interview with the paper.

That’s basically all she says about her role in the scandal. Lerner, who, after reading a statement, exercised her Fifth Amendment right to avoid self-incrimination when called to testify before Congress last year, doesn’t really add anything to her defense with the statements in her piece. She declares that she stands by her work—and that’s it.

And James Taranto reports “Politico landed an exclusive interview with Lois Lerner, the former IRS official at the center of the still-unresolved scandal, and to call it a whitewash would be an insult to lime.”

I think we can safely say of this PR stunt, so far, not so good.

Prior Tax Update coverage: Lerner speaks, sort of. And: a federal tax amnesty?

 

No Walnut STTreasury “does something” about inversions.  The moral panic over inversion transactions took its next logical step when the Treasury announced it would issue regulations out of nowhere to “crack down” on corporations trying to escape our awful U.S. corporation income tax. Notice 2014-52 has the technical details.

The Treasury has previously issued such notices, generally describing future regulations, when it is in a hurry to stop some kind of transaction and doesn’t want to wait for the usual regulation comment period to “do something.”

The Wall Street Journal explains the rules in general terms:

The Treasury rules will make it harder for companies that invert to use cash accumulating abroad—a big draw in recent deals. In addition, the government has made it more difficult to complete these overseas mergers.

The tax changes took effect immediately, officials said, and applied to all deals that hadn’t closed by Monday.

The article addresses how the deal might affect pending deals: (I removed the WSJ’s obligatory stock price info):

The new guidelines could impact a number of pending mergers and acquisitions, including Medtronic Inc. s proposed acquisition of Irish medical-device maker Covidien PLC; Salix Pharmaceuticals Ltd.’s acquisition of a division of Italy’s Cosmo Pharmaceuticals SpA; and Mylan Inc.’s  pending deal for Abbott Laboratories overseas generics business. It could also interfere with the merger of fruit grower Chiquita Brands International Inc. and Fyffes PLC.

Less clear is how it would impact Burger King Worldwide Inc. BKW -0.48% ‘s proposed acquisition of Canadian coffee-and-doughnut chain Tim Hortons Inc., THI.T +1.92% a deal that was designed to move the new corporate headquarters to Canada. 

That deal is structured somewhat differently, and experts disagree whether it would be affected by the new government rules. Most agree the rule changes aren’t likely to end inversions altogether.

Of course it won’t. As long as the U.S. has an uncompetitive business tax climate — better only than France and Portugal in the developed world — corporations will be forced to seek self-help, like inversion deals.

Tax Analysts has a story about how the last round of inversion rules created dangers for corporations who aren’t even inverting ($link): “The existing anti-inversion rules under section 7874 create several traps for foreign companies and individuals that could cause transactions to be treated as inversions when no inversion has taken place.”

Unintended consequences result, traps are created for the unwary, and the awful U.S. corporation income tax gets a little worse. Well done, Jack Lew!

The TaxProf has a roundup.  Howard Gleckman asks Does Treasury Have the Legal Authority To Curb Tax Inversions? (TaxVox): “This issue is the subject of heated debate among tax lawyers.”

 

 

buzz20140923Robert D. Flach brings the Tuesday Buzz, including links to posts covering ground from tax holidays to How Does a Sole Proprietor Get Paid?

TaxGrrrl, Back To School 2014: Moving Expenses

Tony Nitti, Tax Court: Anxiety, Depression Are Not Physical Injuries

Russ Fox, They Both Begin With “E”. Embezzlement, evasion. Add another: eventually detected.

Kay Bell, Identity theft tax refund fraud is increasing, but ways to prevent the crime are not likely to be popular

Jason Dinesen, Entrepreneurial Maturity. “In other words, a business owner who has entrepreneurial maturity knows what they don’t know.”

Annette Nellen, Points from your bank. On the “frequent flyer miles” Tax Court case.

Steven Olsen, Summary Opinions for 9/12/14 (Procedurally Taxing). Rounding up recent developments in tax procedure.

Jack Townsend has some Comments on the Warner Sentencing Oral Argument: “The panel was also concerned that, if Warner’s conduct were so bad, why did the Government argue at sentencing for only a sentence of 1 year and 1 day when the Guidelines range was significantly higher.”

 

20140923-1Alan Cole, The U.S. Tax Code is its Worst Competitive Weakness (Tax Policy Blog). “Simply put, while assessments of the U.S. tax code – both at Tax Foundation and elsewhere – are bleak, there is much to be optimistic about in America.”

Martin Sullivan, Should We Give Up On Reagan Style Tax Reform? (Tax Analysts Blog) “The landmark 1986 Tax Reform Act is an inspiration to all would-be tax reformers. But reforms following that basic framework have gotten nowhere in Congress.”

Steve Warnhoff, The Estate Tax Is Not Doing Enough to Mitigate Inequality: State-by-State Figures (Tax Justice Blog). It’s not working, so lets do it more, harder!

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Great moments in urban planning

Friday, September 19th, 2014 by Joe Kristan

A city planner who claimed to be responsible for the selection of the site of the new Des Moines Palace of Transit said he chose the location so it would be convenient to passenger rail; he spoke at a luncheon I attended a few years ago.

Because it is located between two one-way streets, all buses on north-side routes have to cross the tracks twice.  As I look out my window, I can see how that works with a freight train having stopped for about 1/2 hour (accident, maybe?) across both the one-way streets.  You can spot nine stranded buses in this picture (The bus palace is the white-roofed structure in the left-center):

20140919-2

By the way, Des Moines hasn’t had passenger rail since 1970, and there is no realistic expectation of passenger train service resuming.

Related: But where will they put the zeppelin port?

 

 

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