Archive for the ‘Uncategorized’ Category

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.

 

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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).

 

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Quotable:

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).

 

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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.”

Robert D. Flach, DEDUCTING MORTGAGE INTEREST:

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:

 

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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.

Interesting.

 

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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.

 

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No roundup today.

Wednesday, May 6th, 2015 by Joe Kristan

Just this.

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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.

 

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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.

 

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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?

 

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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).

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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.”

 

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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.

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No roundup today

Friday, April 24th, 2015 by Joe Kristan

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

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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.

 

IMG_1388

 

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).

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.”

 

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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.

 

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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?”

20141216-1

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)

20141201-1

 

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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