Archive for the ‘Uncategorized’ Category

Tax Roundup, 11/23/15: Maquoketa! And, bought and paid-for at year-end insufficient for golf-cart credit.

Monday, November 23rd, 2015 by Joe Kristan
A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

Maquoketa! The Day 1 team of the  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools is in the northeast Iowa town of Maquoketa, known for its cave system and the 61 Drive-in theater, “one of the few remaining outdoor theaters in the United States.” We then get two weeks off before the penultimate session in Denison, on the other side of the state, and our December 14 final session in Ames. Register here for one of the final schools or for the webcast of the Ames session.


“Ordered” doesn’t cut it for year-end asset purchases. Among the many silly tax rules enacted in the panicked response to the 2008 financial crisis was the tax credit for “low-speed electric vehicles,” more conventionally known as golf carts. This led to panic buying of golf carts to claim the lucrative tax spiff. Last week the Tax Court disappointed one buyer who tried to get a tax credit purchase in under the wire. It provides a lesson for all taxpayers looking at year-end purchases to get a Section 179 deduction or bonus depreciation.

The credit was available only for carts “placed in service” in 2009. Judge Paris sets the stage (all emphasis mine, footnotes omitted):

Respondent determined a deficiency of $6,253 in petitioners’ Federal income tax for 2009. The issue before the Court is whether petitioners are eligible for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of $6,253 pursuant to section 30D for 2009. The notice of deficiency did not determine a penalty.

The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26 I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1, 2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of section 30D, which as of the date of the notice allowed a tax credit for qualified plug-in electric vehicles placed in service from January 1 to December 31, 2009. On October 7, 2009, the IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model “meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a Qualified Plug-in Vehicle.

$6,253 off if delivery taken by December 31, 2009!

$6,253 off if delivery taken by December 31, 2009!

So the Spark NEV-48 EX qualified — if it beat the deadline. Back to Judge Paris:

The electric vehicle was delivered to petitioners on June 8, 2010, even though petitioners placed an order for a low-speed electric vehicle reflecting their choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through its Web site on December 21, 2009.

On December 21, 2009, petitioners remitted full payment of $7,786.53 for the vehicle with a credit card and promptly commenced insurance on the vehicle on December 28, 2009.

For charitable contributions and cash-basis business expenses, this would normally be all that is necessary, as a credit card transaction is as good as cash to IRS. But not this time:

Petitioners argue they remitted payment and acquired title to a qualified electric vehicle on December 21, 2009. Petitioners assert that legal title passed to them on the date of purchase and therefore they are entitled to a PEVC for 2009 because the vehicle was acquired before December 31, 2009. However, the statute effective on the date of purchase also required a qualified motor vehicle to be placed in service on or before December 31, 2009. 

Petitioners entered into the transaction for purchase of the vehicle just before the close of the year. As previously discussed, they received a bill of sale, which contained a VIN, and a certificate of origin shortly after they remitted full payment. However, a bill of sale containing a description of the vehicle and a VIN is not sufficient to show the vehicle was ready and available for full operation for its intended use. Petitioners have not offered evidence to show the vehicle was available for their use, much less fully manufactured. In fact, the vehicle was not delivered until June 8, 2010, making it impossible for the vehicle to be available for use until that date. Even if the Court were to assume the vehicle was fully manufactured and operational while awaiting shipment to petitioners, Brown and Noell tell us that the vehicle could not be considered placed in service unless and until the vehicle was readily available to serve its assigned function for petitioners’ personal use on a regular basis. The Court finds that the low-speed electric vehicle was not available for its intended use on a regular basis until it was delivered on June 8, 2010. Consequently, petitioners did not place the vehicle in service in 2009 and are not eligible for a PEVC for that year.

So the taxpayer’s golf cart just went up $6,000 or so in price.

The lesson for year-end tax planning is that the same “placed in service” rule applies to year-end fixed asset purchases by taxpayers wanting Section 179 deductions or bonus depreciation. If your business races to buy a big SUV or a new tractor by year-end, it needs to be in your garage or barn by December 31. A new machine has to be on the shop floor, ready to go.  “Bought and paid-for” isn’t enough.

Cite: Podraza, T.C. Summ. Op. 2015-67.



Peter Reilly, Tax Court Denies Exempt Status To Group Using Trading Card Games To Promote Sobriety. Peter has an in-depth exploration of last week’s Gamehearts Tax Court case. It explains that the organization denied tax exemption in the case was involved in non-casino games, including “Magic: The Gathering and similar games such as Pokemon and World of Warcraft Trading Card Game.” I had assumed that it was more of a gambling thing. I have edited my original post on the case accordingly.

Peter does not agree with the decision:

This is another example to me of the IRS EO group being out of touch with the modern world.  Magic the Gathering has been a thing since 1993.  You will also see IRS giving a hard time to not for profits dedicated to open source software.  It also turned down a sorority that wanted to operate on-line and a group planning to provide free wi-fi.

The whole exempt organization function is in disarray.



Kay Bell, Is Alaska getting closer to enacting a state income tax? The oil bust has clobbered Alaska revenues.

Jason Dinesen, From the Archives: Issuing 1099s to an Incorporated Veterinarian

Jim Maule, Old Tax Returns Have Value. I keep my tax returns forever; Prof. Maule explains why being a tax hoarder can be useful.

Robert Wood, Your Passport Could Be Cancelled If You Owe IRS. Because Congress apparently feels we need one more poorly-considered bill that will hugely inconvenience honest taxpayers and will be impossible to undo.

Russ Fox, The Turf Monster Striketh. With a caution against sending tax ID numbers via e-mail.

TaxGrrrl, Jay Z Loses On Alvarez-Cotto Boxing Bet As Charity Gets Big Win.

Robert D. Flach, YEAR-END TAX UPDATE WORKSHOPS. With some sound year-end planning reminders.


Me, How your calendar might help you beat the IRS. My newest post at, the Des Moines Business Record’s business professional’s blog, covers the importance of keeping track of your time to document “material participation” to take tax losses and to avoid the 3.8% Obamacare Net Investment Income Tax.


TaxProf, The IRS Scandal, Day 926Day 927Day 928, Day 926 discusses the ties between Lois Lerner and the architect of Wisconsin’s Kafkaeske partisan “John Doe” witchhunt.


Steven Rosenthal, Treasury Pulls its Punches on Earnings Stripping (TaxVox). “Treasury made only small technical changes to the definition of an inversion.  News reports suggested something much larger—namely limits on earnings stripping, which would have made inversions (and other combinations of U.S. firms with foreign corporations) much less profitable.”


Career Corner. Let’s Enjoy Some Intern Reviews of Various Accounting Firms (Caleb Newquist, Going Concern).


Tax Roundup, 10/26/15: No surprise, no Tea Party charges. And: the proposed Iowa graduate tax break.

Monday, October 26th, 2015 by Joe Kristan
Toby Miles, IRS.

Toby Miles, IRS.

You break news on Friday when you want to bury it. And that’s what the Department of Justice did when it told Congress that it would not prosecute Lois Lerner, or anybody else in IRS, as a result of the Tea Party Scandal.

Not that anybody would expect otherwise. The Justice Department continues to act as the Administration’s scandal goalie. The fix was in once the President changed his tune from “this is terrible” to “not even a smidgen of corruption.”

Throughout the investigation, not a single IRS employee reported any allegation, concern, or suspicion that the handling of tax-exempt applications — or any other IRS function — was motivated by political bias, discriminatory intent, or corruption. Among these witnesses were several IRS employees who were critical of Ms. Lerner’s and other officials’ leadership, as well as others who volunteered to us that they are politically conservative. Moreover, both TIGTA and the IRS’s Whistleblower Office confirmed that neither has received internal complaints from IRS employees alleging that officials’ handling of tax-exempt applications was motivated by political or other discriminatory bias.

The Investors Business Daily gets this right:

This is absurd. Lerner was caught red-handed targeting Tea Party and other conservative groups, wrote partisan emails to prove it, then engaged in a massive cover-up effort — with a suspiciously crashed server, an oddly missing BlackBerry and plenty of excuses.

She evaded even more accountability by shielding herself with the Fifth Amendment in Congress.

It was only Tea Party groups that had to wait years for approval. Considering the destroyed emails, “lost” backups, and Ms. Lerner’s peculiar interest in communication methods that could not be traced, there’s too much smoke and ash to believe there was no fire.

TaxProf has more: The IRS Scandal, Day 898Day 899Day 900. The fix is put in, and we’re told that means that there is no scandal.


Robert Wood, Obama Administration Learned From Lois, Dodging IRS Scandal. “Deny, stonewall, deny.”

TaxGrrrl, DOJ Says No Criminal Charges For Lerner, Others In IRS Scandal, Closes Investigation




Jana Luttenegger Weiler, IRS Releases Inflation Adjustments for 2016 (Davis Brown Tax Law Blog).

Kay Bell, Securing taxpayer data is the IRS’ biggest challenge

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Robert D. Flach, WHO MUST FILE A 2016, or 2015, TAX RETURN? “FYI, based on the new inflation adjustments recently announced by the Internal Revenue Service, you do not have to file a 2016 Form 1040, or 1040A, unless your “gross income” is at least…” Visit Robert to find the numbers.


Hank Stern, Easy come, easy go:

“[T]he GAO report found that … at least $1.6 billion [is] unaccounted for.”

That’s out of over $5 billion in “loans” sent to states, most of which went for state-based Exchanges (which, per SCOTUS, don’t actually exist).

That must be the “affordable” part of the Affordable Care Act.”




Joseph Thorndike, Mexico Is Having Second Thoughts About the Soda Tax – And So Should Everyone Else (Tax Analysts Blog). “If a big tax dissuades people from drinking Mountain Dew, maybe they will lose weight. But maybe they will continue to scarf down their Twinkies with a cupful of untaxed water – and keep packing on the pounds.”

Scott Greenberg, Reviewing Paul Ryan’s Short Term as Chairman of Ways and Means (Tax Policy Blog). “In the last 10 months, the Ways and Means Committee has brought 52 bills to the House floor, tied for most with the Energy and Commerce Committee. Out of these bills, 15 were passed into law, the most out of any committee.”

Howard Gleckman, Little Difference Between the Cadillac Tax and a Cap on the Tax Exclusion for Employer Health Plans (TaxVox).


Caleb Newquist, Accountant Won’t Be Taking a Walk in the Woods Anytime Soon. “James Hammes, who spent 6 years on the lam walking the Appalachian Trail, pleaded guilty earlier today to wire fraud.”


David Brunori discusses ($link) a tax break proposed by Iowa graduate students for… themselves.

The idea is that if you graduate from any college or university in Iowa and stay in the state, you would get a 50 percent tax break for five years. If you move to a rural part of the state, you get a 75 percent tax reduction. As an Easterner, I learned everything I know about Iowa from Joe Kristan’s blog. But I could have sworn most of the state is rural.

In any event, kids, this is a terrible tax policy idea. It will solve no brain-drain problem — although employers may pay less since these graduates won’t be paying taxes. Here is just one problem: If you’re not paying taxes, someone else is. That someone else is probably a poor guy or gal who didn’t graduate from college and is making a lot less than you. I thought college kids would be more empathetic than that.

While most of the state is rural, but most of the jobs for college graduates aren’t.

David gets the policy exactly right. It’s tough to justify a special deal for a young prosperous couple with accounting or law degrees while the people building their suburban house and watching their kids pay full fare.



IRS: 2016 401(k) max remains $18,000; most other qualified plan limits unchanged.

Wednesday, October 21st, 2015 by Joe Kristan

The IRS has announced the inflation adjustments to retirement plans for 2016.  Some highlights:

-Maximum contributions to 401(k) and 403(b) plans remains $18,000.  Taxpayers who are 50 years old by the end of 2016 will be able to contribute and additional $6,000 (formerly $6,000), for a combined maximum of $24,000.

-The maximum 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 2016.

-The maximum contribution to defined contribution plans remains $53,000.

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

A few retirement plan related amounts did change, including the phase-out range for IRA deductions and Roth IRAs and the maximum AGI for the Savers Credit. Details are available from the IRS press release, IR-2015-118.


FICA Max remains unchanged for 2016 at $118,500.

Tuesday, October 20th, 2015 by Joe Kristan

he Social Security Administration has announced that the maximum earnings subject to the 6.2% FICA tax remains unchanged at $118,500 for 2016.   The same cap applies to the 12.4% retirement portion of self-employment tax.

That means he maximum FICA withholding for 2015 will be again be $7,347.00 for 2016.

There is no maximum for the 1.45% Medicare tax. The . 09 extra Medicare tax on wages is withheld starting at $200,000


Tax Roundup, 10/15/2015: How to do that last-minute filing right. And: C.R. ID thief sentenced, Iowa sales tax rule delayed.

Thursday, October 15th, 2015 by Joe Kristan

certifiedFile! Today is the last, final, immutable deadline for filing an extended 2014 1040.* What are the stakes for getting that return in today?

  • If you owe federal taxes, it’s the difference between a late payment penalty of 3% (1/2% per month since April 15) and a late filing penalty of 25% (5% per month, capped at 25%).
  • It’s the last chance to make a free grouping election of your activities for the ne investment income tax and passive loss rules.
  • If you have an international reporting form on your return — a 5471, 8865, 3520, 8938, or 8891, for example — it’s the only way to avoid an automatic $10,000 late penalty on your filing. These forms may be due if you own an interest in a foreign corporation, partnership or trust; if you received a foreign gift or inheritance; if you have foreign financial assets, like a loan to an overseas person; or if you have an interest in a Canadian retirement plan.

So how to file? If you haven’t started yet (ugh), Russ Fox has some tips. If your return is done and you just need to file, e-file if at all possible. That gives you the assurance that your return has arrived on time and saves you the hassle of a trip to the post office or the UPS or FedEx store. And I feel safer if my return doesn’t have to be touched by an actual IRS employee.

OK, you ask, why can’t I just drop it in the mail or use the office postage meter? After all, the Mailbox Rule says “timely mailed, timely filed.”

Because then you have no proof that you filed on time. If the letter gets lost, or delayed, the IRS can call it “late” and you have no way to prove otherwise. If you have anything at stake with a timely-filing, it’s foolish to rely on the competence of the postal service and the goodwill of someone at the IRS service center.

If you aren’t e-filing, the best thing to do is to go to the post office, spring for Certified Mail, Return Receipt Requested, and get a hand-stamped postmark. Save it and keep it with the return receipt when that comes back. That will ward off late-filing vampires. Filling out the certified mail slip and running it through the office postage meter or using a postmark doesn’t work.

If you can’t make it to the post office before they close, then you can go to the FedEx Store or UPS store and use a “designated private delivery service.” This is trickier. You have to use one of the delivery methods specified by IRS Rev. Proc. . For example, “UPS Ground” doesn’t work, but “UPS 2nd Day Air” does work. Make sure the shipping paperwork shows today’s date. Be sure to use the proper IRS service center street address, because the private services can’t use the IRS post office box addresses.

*Unless you are a South Carolina flood victim, a war zone resident, or a non-resident alien.





Five years for Cedar Rapids ID reports an Iowa woman will go away for 61 months after pleading guilty to one count of ID theft. The Government’s sentencing memorandum says Gwendolyn Murray prepared “at least 136 false and fraudulent returns.” Ninety-four of them were processed, netting over $380,000 in refunds.

And that’s the real crime. The IRS has such poor controls that an amateur, probably using an off-the-shelf tax prep software package, could help herself to that much taxpayer money before getting caught. The chances of getting that back are about the same as my chances of a pro baseball career. And yet the IRS says the real problem is that honest preparers don’t have to take a compentency literacy test and submit a fee and paperwork.

Related: TIGTA: 1,300 IRS Computers, 50% Of IRS Servers Are Running Outdated Operating Systems, Putting Taxpayer Data At Risk (TaxProf)


Iowa Sales Tax Rule for Manufacturing Supplies to be delayed six months. It will now take effect July 1, 2016, reports AP.


Gretchen Tegeler, Ask questions about your property taxes (

You may not realize you are supporting not only your city, county and school district, but also Broadlawns Medical Center, Des Moines Area Regional Transit (DART) and the Des Moines Area Community College (DMACC).

For instance, 8.6 percent of the property taxes my husband and I pay on our home are going to Broadlawns. The single largest percentage increase in our property taxes (and this would be the case for most everyone in Polk County) is for DART, a whopping 10.4 percent!  

I’m sure it’s worth every penny…


Roger McEowen, Obamacare; Reimbursement of Health Insurance Premiums; and Limited (and Inconsistent) Transitional Relief (AgDocket). On the incomplete and confusing relief for “Section 105 plans” being clobbered by insane ACA regulations.


Paul Neiffer, What about Partnerships?:

The ACA mandates an $100 per day per employee penalty for providing non-qualified health insurance to more than one employee.  Many of our farm operations operate as S corporations and partnerships.  There is specific IRS guidance that allows shareholders and partners to deduct these health insurance premiums for owners and since this guidance did not line up with the guidance on the imposition of the $100 per day penalty, the IRS issued a notice earlier this year that indicated S corporations could continue to file their returns the same way until the end of this year.

However, this notice appeared to be silent on the treatment for partnerships and partners. 

They had to pass it for us to find out what was in it.


Peter Reilly, Santorum 20/20 Flat Tax Might Be Hard On Many Small Businesses. “I don’t understand why there does not seem to be more excitement about the elimination of business interest deductions.” Maybe because it’s Rick Santorum.

Robert WoodU.S. Tax 35%, Ireland 12.5%, New Irish Tech Rate 6.25%, Any Questions?

Kay Bell, Be like Trump: Pay as little tax as possible




David Brunori, Getting Taxpayers to Rat on Each Other: Uncool (Tax Analysts Blog):

Private citizens should not be in the business of administering or enforcing the tax laws. The most obvious reason is that they do not have the expertise or the context to judge whether taxes are being evaded rather than, say, avoided. It is hard enough for trained tax professionals to ascertain the difference between tax fraud and very aggressive tax planning. That task should be left to the professionals.

Not to mention the free play it gives to bitter ex-lovers or spouses, shakedown artists, and parasites in general.


TaxProf, The IRS Scandal, Day 889


A big thank you to Gretchen Tegeler and the Taxpayers Association of Central Iowa for inviting me to be on a panel last night on small business tax and regulation last night. I wish I could have lingered to chat longer, and enjoy some of that delicious Lucca food, but it being October 14 and all, I couldn’t stick around. It was a good session with lots fo great discussion.



IRS issues Applicable Federal Rates (AFR) for October 2015

Friday, September 18th, 2015 by Joe Kristan

The IRS has issued (Rev. Rul. 2015-21) the minimum required interest rates for loans made in October 2015:

-Short-Term (demand loans and loans with terms of up to 3 years): 0.55%

-Mid-Term (loans from 3-9 years): 1.67%

-Long-Term (over 9 years): 2.58%

The Long-term tax-exempt rate for Section 382 ownership changes in October 2015 is 2.82%.

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


Kiitos, Finland, and Danke, Germany.

Friday, July 31st, 2015 by Joe Kristan

20150731-1I’m back in the office today after a terrific vacation trip to Finland and Germany to visit two of our old exchange students. The trip included stops in Sweden, Belgium, Luxembourg, and Austria. Estonia had been on the agenda, but the schedule with our friends there didn’t work, so we took  an extra day in Finland. The trip included a visit to the U.S. military cemetery in Henri-Chappelle, Belgium, to decorate the grave of my dad’s first cousin and childhood partner in crime. That was a great experience, but one I’ll recount in another blog.

I’ll fire up the Tax Roundups on Monday, after I get a chance to clear the vacation debris out. Please indulge me in a few observations from my visits — which I offer knowing that you can’t really “know” a country in a short time.

Finland might be the easiest country other than Canada for U.S. tourists to negotiate. Nearly everyone there speaks fluent English, including grocery store checkers in country towns, and in a way that is easier to understand than the English spoken in Ireland and Scotland. Not just in Helsinki, either. Our hosts took us to their family cottage near Mikkeli, in countryside that is very much like that of Finland, Minnesota, and treated us to the famous Finnish sauna experience (sorry, no pictures). I’m not sure I really “get” the sauna experience, but I certainly enjoyed the anteroom of the heat chamber, where you pour cold water on your outside and cold beer on your inside.

Germany seemed much like Iowa, but with narrower streets, faster freeways, more passenger trains, and harder words. I really want Autobahn speed rules imported to the U.S. Our hosts there were also delightful, feeding us wonderfully and taking us on day trips to the Bavarian Hills, Bodensee, and, unforgettably, Dachau.

As a tax nerd, I had to bring back some tax keepsakes:


These Finnish receipts show 24% value added national sales tax on groceries (the right-side receipt) and Guinness at bar, and a 14% rate on other items at the bar. No, I can’t explain the different rates. But to an American, these are outrageous sales tax rates. And that’s on top of an income tax that applies its highest marginal rate of 31.75% (2014 rates) at 100,000 Euros — about $110,000. U.S. filers don’t hit that rate until they make over $186,000.

So in Finland, the universal welfare state is paid by universally high taxes. Everyone pays, not some rich guy. And politicians here who promise government benefits paid by somebody else are lying. Maybe they won’t have to pay for it, but you will.


Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And windy subsidies, IRS stonewalling, more.

Monday, June 29th, 2015 by Joe Kristan

Welcome to the marriage penalty. The Supreme Court has spread Iowa marriage law nationwide. That means more same-sex couples will tie the knot and learn about the sometimes surprising tax results of matrimony. In general, if only one member of the couple has income, it’s a good tax deal, but not so much for two-earner couples. The weird complexity of the tax law means there are lots of exceptions.

The Tax Foundation has an excellent summary of these issues, Understanding the Marriage Penalty and Marriage Bonus. It includes this wonderful piece of abstract art illustrating how marriage can help and hurt a couple’s federal income tax liability:

Marriage penalty tax foundation chart


The chart has two axes: the percentage of income earned by each spouse, and the income level. Blue is good, red is bad. If combined income is just short of $100,00, it’s all good, but there is lots of room for tax pain at the top and bottom of the income spectrum for married couples.

Other coverage:

Jason Dinesen, Tax Implications of Friday’s Ruling on Same-Sex Marriage:

This ruling should not have an impact on federal tax returns because couples in same-gender marriages have been able to file as married on their federal tax returns since 2013. This ruling affects state tax returns in states that had bans against same-gender marriage.

Jason, an Iowa enrolled agent, was an early expert in same-sex marriage compliance.


TaxProf Blog Op-Ed By David Herzig: The Tax Implications Of Today’s Supreme Court Same-Sex Marriage Decision (TaxProf) “Same-sex couples will now be able to inherit, file joint state tax returns, possess hospital visitation rights and all other state marriage rights as heterosexual married couples.”

Kay Bell, Marriage equality means tweaks to tax code, tax forms. “Sen. Ron Wyden (D-Ore.), the ranking minority member on the Senate Finance Committee, is already working on getting the new nomenclature on the books.”

TaxGrrrl, SCOTUS Legalizes Same Sex Marriage But Questions Remain For Religious Groups & Tax Exempts


Wind turbineWindy Subsidy Signed. Governor Branstad has signed HF 645, which establishes a tax credit for wind energy. The credit is 50% of the similar federal credit, up to $5,000. It takes effect retroactively to 2014, giving a windfall to people who bought qualifying systems already. It will do nothing for the environment, but it will do wonders for companies selling wind energy systems.




Christopher Bergin, Why We Just Sued the IRS – Again (Tax Analysts Blog):

For more than two years the IRS has played its old game of hide the ball regarding requests to release Lois Lerner’s e-mails — e-mails that would teach us a lot about what actually went on during the exempt organization scandal. Many of those requests came from the United States Congress: the elected officials who control the IRS budget. The IRS’s stalling tactics have run the gamut from eye-rollingly comical to downright disturbing.

Through this and and other worrisome developments, one thing is clear: the IRS is now in desperate trouble. Most of that trouble it created itself. It would be unfair to call them the gang that couldn’t shoot straight, because when it comes to shooting itself in the foot the IRS is an expert marksman. The IRS is an agency whose initial reaction to almost anything is secrecy.

The IRS needs a big culture change, one starting with a new Commissioner.




Associated Press, Ex-Rep. Mel Reynolds indicted on tax charges. Can you believe a Chicago politician who would sleep with a 16-year old campaign worker would also cheat on his taxes?


Russ Fox, A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS:

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

If you outsource your payroll tax, insource regular visits to EFTPS to make sure your payments are made.


Peter Reilly, SpongeBob SquarePants In A Tax Case!

Tony Nitti, Sloppy Drafting Saves Obamacare – Supreme Court Upholds Tax Subsidies For All. I think it was more sloppy judging than sloppy drafting that did the trick.

Keith Fogg, Aging Offers in Compromise into Acceptance (Procedurally Taxing).

Jack Townsend, Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA. They want both to be declared unconstitutional. Unfortunately, it seems like a anything the IRS wants is constitutional anymore.

TaxProf, The IRS Scandal, Day 779Day 780Day 781. Still trying to shake out the “lost” emails after 781 days. You’d think they were stalling or something. And efforts to impeach Commissioner Koskinen. It’s not going to happen, but if he had any shame, he would have resigned long ago.

Richard Auxier, Michigan, out of ideas, might ask poor to pick up transportation tab (TaxVox).





The pledge, the brainchild of Grover Norquist, president of Americans for Tax Reform, is a terrible idea for several reasons. First, no leader should promise never to raise taxes because, frankly, there are times when it is necessary. Over 50 Kansas legislators and Brownback, who have signed the pledge, found that out last week. I agree with Norquist philosophically; less government is good. But the pledge only leads to more debt at the federal level and gimmicks in state governments.

David Brunori, Tax Analysts ($link)


Career Corner. EY Employee Has Eaten So Many Hours, He’s Gone on Hunger Strike (Caleb Newquist, Going Concern).



Tax Roundup, 5/20/15: April 15 is on April 18 next year. And: exit > voice.

Wednesday, May 20th, 2015 by Joe Kristan

20140805-3It looks like we’ll be working an extra weekend next April. Thanks to the puzzling rules regarding the observance of Emancipation Day in Washington D.C., the deadline for 1040s next year will be April 18 – even though April 15 falls on a Friday. Residents of Massachusetts and Maine get even one more day. From Rev. Rul. 2015-13:

The District of Columbia observes Emancipation Day on Friday, April 15 when April 16 is a Saturday. This makes Monday, April 18, the ordinary due date for filing income tax returns. However, in this situation, Monday, April 18, is the third Monday in April, the date that Massachusetts and Maine observe Patriots’ Day. Because residents of Massachusetts and Maine may elect to hand carry their income tax returns to their local IRS offices, A (a Massachusetts resident) has until the next succeeding day that is not a Saturday, Sunday, or legal holiday to file A’s income tax return. Thus, A has until Tuesday, April 19, to file A’s income tax return.

I suppose I will appreciate the extra time when the deadline comes, but I would really just as soon get it over with.

Kay Bell has more.


Update on Iowa effects of Wynne decision. The Iowa Department of Revenue public information officer responded to my inquiry about the state’s reaction to Monday’s Supreme Court decision requiring states to allow a credit on resident individual returns for taxes paid in other states: “We are in the process of reviewing the decision.”

Not surprising, as it is a new decision. If you have a refund statute of limitations expiring soon, don’t wait on their guidance to file a protective refund claim for income taxes paid in non-Iowa municipalities.


20150504-2Alito on the limits of politicsThe dissent in Wynne said that Maryland resident taxpayers afflicted with a discriminatory double tax on out-of-state income shouldn’t have prevailed becasue they had recourse to the ballot box to protect their interests. Writing for the majority, Justice Alito pointed out that this does little good (my emphasis):

In addition, the notion that the victims of such discrimination have a complete remedy at the polls is fanciful. It is likely that only a distinct minority of a State’s residents earns income out of State. Schemes that discriminate against income earned in other States may be attractive to legislators and a majority of their constituents for precisely this reason. It is even more farfetched to suggest that natural persons with out-of-state income are better able to influence state lawmakers than large corporations headquartered in the State. In short, petitioner’s argument would leave no security where the majority of voters prefer protectionism at the expense of the few who earn income interstate.

This is actually a powerful argument to limit the role of government in the first place. One voter has negligible power to overthrow unfair legislation. In the one-party rule typical of large American cities, political activity for a minority view is futile, Jim Maule notwithstanding.

20140513-1Arnold Kling points out how market institutions, which hold no elections but allow choice, can actually be more empowering for an individual:

Neither my local supermarket nor any of its suppliers has a way for me to exercise voice. They don’t hold elections. They don’t have town-hall meetings where they explain their plans for what will be in the store. By democratic standards, I am powerless in the supermarket.

And yet, I feel much freer in the supermarket than I do with respect to my county, state, or federal government. For each item in the supermarket, I can choose whether to put it into my cart and pay for it or leave it on the shelf. I can walk out of the supermarket at any time and go to a competing grocery.

The exercise of voice, including the right to vote, is not the ultimate expression of freedom. Rather, it is the last refuge of those who suffer under a monopoly.

He argues  that we should be able to choose governing institutions more like we choose other service providers:

In fact, if we had real competitive government, then we would be no more interested in elections and speaking out to government officials than we are in holding elections and town-hall meetings at the supermarket.

He makes this argument more detail in his book Unchecked and Unbalanced). Somehow I don’t think that will go over well with our current officeholders.



Russ Fox, The Real Impact of the Wynne Decision: “However, many states do not give credits for local taxes. Joe Kristan highlighted Iowa today; Kentucky is another state that does not currently offer such tax credits. Under Wynne I believe they’ll be required to offer such credits.”


Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums ($1 Million for acquisition debt and $100,000 for home equity debt – no limit on grandfathered debt), and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.

I firmly believe that 99.5% of taxpayers do not do this. I do not know of any taxpayer who does.

The clients don’t, but that doesn’t mean preparers shouldn’t watch out for these items. When taxpayers have interest on multiple home loans, or very high home interest deductions, alert preparers have to ask questions to make sure the deductions and AMT are determined correctly.

Annette Nellen, Filing season tax updates

Robert Wood, Floyd Mayweather Gambles, Wins, Pays IRS:




Another ACA Co-op on the ropes? Hank Stern reports at Insureblog that the Kentucky health care cooperative is insolvent. That means it may go the way of Iowa’s short lived and expensive catastrophe Co-Oportunity.


Jeremy Scott, Hawkins Casts Powerful Shadow Over OPR (Tax Analysts Blog):

Hawkins will probably always face at least some criticism because of the overreach of the preparer regime, and some accusations that she was too favorable to the large practitioner groups such as the ABA and the American Institute of Certified Public Accountants. But she should more properly be remembered as the person who brought coherence to IRS Circular 230 enforcement and essentially rebuilt OPR from scratch.


In fairness, the preparer regulation overreach was decided above her level.


Scott Sumner, A consumption tax is a wealth tax (Econlog). “For any income tax regime, there is a consumption tax regime of equal progressivity. Unfortunately that equally progressive regime will look much less progressive. This is one of the biggest barriers to tax reform.”

Kyle Pomerleau, What are Flat taxes? (Tax Policy Blog):

When most people hear “Flat Tax,” they usually think a tax system with one, flat tax rate on all income. They also imagine a tax system with little or no deductions or credits. While this is a possible way to design a flat tax, it is not what makes a flat tax a flat tax. The key to a flat tax goes beyond its rates. The key is that it is a consumption tax. You would not call a low-rate tax on all transactions in an economy a flat tax, even though it had one, flat rate.





Howard Gleckman, Are GOP Presidential Candidates Downplaying Tax Cuts Or Hiding The Ball? Referring to Joseph Thorndike, he says: “Joe, who is very much in the watch-what-they-do-not what-they-say (WWTDNWTS) camp, noted that while few GOP presidential hopefuls are talking about tax cuts, many of their proposals are, in fact tax cuts.”

TaxProf, The IRS Scandal, Day 741


Caleb Newquist,  “Just Ask the Guy” Not Always a Futile Fraud Detection Method (Going Concern).  Not foolproof, though.



No roundup today.

Wednesday, May 6th, 2015 by Joe Kristan

Just this.



Tax Roundup, 5/4/15: Dateline, Edinburgh.

Monday, May 4th, 2015 by Joe Kristan


I am successfully established in my hotel in Edinburgh, Scotland, UK, after three enjoyable days driving around Northern Ireland and Scotland and one rainy day holed up in my room finally sleeping off my jet lag.

Today the meetings of the independent accounting firm alliance TIAG get underway in earnest. Roth & Company jointed this alliance early this year to better serve our clients with multistate and offshore needs. I met a lot of nice people from around the U.S. and the world a welcoming reception and I look forward to getting to know them better.



It doesn’t appear I’ve missed any earth shattering tax news on the road, so let’s do some links.


William Perez, Did You Have Gambling Winnings This Weekend? Winnings are Taxable, and Losses Can be Deducted

Paul Neiffer, NFL Gives Up Tax Exempt Status. A big nothing.

Jason Dinesen, Glossary: Capital Gain/Capital Loss

Robert D. Flach brings the Buzz.


Howard Gleckman, ACA Tax Filing Was Surprisingly Painless, But Not For All. They punted the worst parts, again.

Alan Cole, Cleveland’s Taxes on NFL Players Ruled Unconstitutional (Tax Policy Blog). This was an especilly abusive tax, based strictly on the the number of games played in Cleveland vs. elsewhere, and taking no account of all of the practice time spent out of state by the players in camps and in their home cities.

Kay Bell, Congress close to expanding tax help for college costs. Read that as “Congress close to increasing tuition again.”

TaxGrrrl, George Soros May Owe Billions in Taxes. Rich people who advocate for high taxes don’t mean it for themselves.

Peter Reilly, IRS Partnership Adjustments In Millions May Produce No Tax

TaxProf, The IRS Scandal, Day 724. More emails found by TIGTA that IRS said were lost forever. It’s amazing what turns up if you actually look at the backup tapes.



Joseph Thorndike, Abolish the IRS? Good Luck With That (Tax Analysts Blog). “For opinion writers, it takes a special sort of gumption to deliberately antagonize your most loyal readers. In that spirit, this week’s Profile in Editorial Courage award goes to Patrick Brennan of The National Review, who recently dared to defend the existence of the IRS.”

The “Fair Tax” isn’t happening. There will always be a federal tax collection agency, and the only way they will ever “abolish” the IRS will be to call it something else. Even if it’s named the Ministry of Magic, it’s ability to commit evil will be based on the tasks and powers assigned it by Congress.

Joseph Henchman, Kansas May Drop Pass-Through Exclusion After Revenue Projections Miss Mark Again (Tax Policy Blog). I don’t think Kansas thought that through very well.

David Brunori, Immigrants Are Good for Us (Tax Analysts Blog).

Jeremy Scott, Rubio Would Be Another Obama on Tax Lawmaking (Tax Analysts Blog). “The danger is that Rubio, like Obama, would almost certainly defer to his congressional caucus in the drafting of a tax reform proposal.”

News from the Profession. SOX 404 Not Helping: Study (Caleb Newquist, Going Concern). Silly report. It helped big firm revenues immensely. What do you think it was supposed to do?



Tax Roundup, 4/27/15: Iowa’s corporate rate highest, even after you do the math. And more!

Monday, April 27th, 2015 by Joe Kristan

The Highest. How High Are Corporate Income Tax Rates in Your State? (Jared Walczak, Richard Borean, Tax Policy Blog):

Corporate income taxes vary widely, with Iowa taxing corporate income at a top rate of 12.0 percent (though the state offers deductibility of federal taxes paid), followed by Pennsylvania (9.99 percent), Minnesota (9.8 percent), Alaska (9.4 percent), the District of Columbia (9.4) and Connecticut and New Jersey (9.0 percent each). At the other end of the spectrum, North Dakota taxes corporate income at a top rate of 4.53 percent, followed by Colorado (4.63 percent), and Mississippi, North Carolina, South Carolina, and Utah (5.0 percent each).



So how much does that federal deductibility lower Iowa’s top rate? If you compute the top rates taking into account the deduction, Iowa still has a top marginal rate of 10.11% — still highest in the nation.

The high rate doesn’t result in high revenue receipts for the state. For example, Calendar 2013 corporation tax revenue for Iowa accounts for less than 6% of the state’s tax receipts. With single-factor apportionment and a tax base hollowed out by special interest carveouts, it hits hardest unlucky taxpayers without pull at the statehouse. Yet, as the U.S. has the highest national corporation tax rate in the OECD, it secures Iowa the dubious honor of having the highest corporation tax rate in the developed world.


William Perez, Tax Incentives for Alternative Energy Systems

Annette Nellen, Revenue magic (that should be avoided)

Kay Bell, Virginia dumps tax refund debit cards for paper checks. Fraud is part of the reason.

Paul Neiffer, Think You Are Too Small to Be a Target of Cyber Crime? Think Again. “30% of all targeted cyber-attacks are directed against businesses with less than 250 employees.”

Jason Dinesen, Marriage in the Tax Code, Part 7: 1920s Court Battles

Keith Fogg, Last Known Address for Incarcerated Persons (Procedurally Taxing). Funny that the government can insist that a taxpayer partake of its hospitality, but then take no responsiblity to see that he gets his tax notices.

Robert Wood, IRS Paid $3 Billion In Tax Credit Mistakes Plus $5.8 Billion In Erroneous Refunds. That doesn’t count erroneous earned income tax credits — only corporate returns.

Russ Fox, No Discount for her Sentence. “Well, Ms. Morin operated Discount Tax Service. Her clients were very happy with her methods, as they received tax credits and itemized deductions on their returns whether or not they qualified for them.”

Tony Nitti, Tax Savings To Clear Path For Josh Hamilton’s Return To Texas Rangers. But people keep telling me that state taxes don’t affect business decisions.

Robert D. Flach, YOU CAN’T MAKE THIS STUFF UP. “The IRS was writing to the taxpayer to tell him that he is dead and so they were not going to process his refund.”




Me, IRS releases Applicable Federal Rates (AFR) for May 2015


Peter Reilly, IRS Forced To Release Names Of Targeted Groups. The IRS likes to hide its misdeeds behind the taxpayer confidentiality rules. Not this time.

TaxProf, The IRS Scandal, Day 718The IRS Scandal, Day 717The IRS Scandal, Day 716The IRS Scandal, Day 715.

Howard Gleckman, Could a Carbon Tax Finance Corporate Rate Cuts?

Robert Goulder, Bernie Sanders: Swimming Against the Tide (Tax Analysts Blog). We can only hope so.

Because he would lose? Bush Nomination Would Be Bad News for Tax Reformers (Martin Sullivan, Tax Policy Blog).


Career Corner. Dealing with chatty colleagues (Caleb Newquist, Going Concern). When feigning death isn’t enough.


No roundup today

Friday, April 24th, 2015 by Joe Kristan

The Tax Update is taking April 24 off. See you Monday!



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):



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




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!



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.




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




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.



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?




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).

Distribution of Pension Income-02

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.”



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.


DOL nixes many employer health reimbursement setups.

ACA and filing season pessimism revisited





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



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. 




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.


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. 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.




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.