The Liar’s Paradox, IRS Version. If somebody says “I am lying,” can he be telling the truth? It’s a puzzler. So are many tax law rules, like the rules governing IRA rollovers.
The tax law does not subject an IRA withdrawal to tax if it is reinvested in an IRA within 60 days. It can only be done once each year. The IRS publication on such “rollovers” said from 1984 though 2013 that the one year restriction applied to each IRA, so a taxpayer with multiple IRAs could make multiple rollovers.
Alvin Bobrow made multiple IRA rollovers in 2008 consistent with this guidance. On examination, the IRS said the once-a-year rule applied per taxpayer, not per IRA, and assessed him tax and penalties. The Tax Court upheld the assessment and penalties, in spite of the published IRS position. This is a classic example of the unfair, penalty-happy nature of the IRS examination process, too often abetted by the courts.
While manifestly unfair, the IRS long ago won the right to bait-and-switch via its publications. As the Tax Court said years ago, “well established precedent confirms that taxpayers rely on such publications at their peril.”
Even the IRS apparently is a little embarrassed by this. On Monday it issued Announcement 2014-32, saying it would not enforce the position it took in Bobrow for distributions before 2015. That seems fair to other taxpayers, if not to the Bobrows.
But here is where the liars paradox comes in. Announcement 2014-32 is mere “administrative guidance,” just like an IRS publication, and it has no more legal standing. Technically, nothing but a sense of self-restraint keeps the IRS from saying “fooled you!” on examination, just like they did in Bobrow. Does that make anyone else a little nervous?
The Tax Foundation has issued a wonderful new publication, A Visual Guide to Business, Taxes, and the Economy. It is full of wonderfully-illustrated insights on the economy and taxes. I love this illustration:
The chart shows that most business income subject to tax is reported on 1040s, not on corporate returns. That means every increase in taxes on high-income individuals is a tax on businesses and a tax on employers — not just on some guy lighting cigars with $100 bills.
Paul Neiffer, Sheldon Iowa is Cold. It is indeed, at least this week.
Andrew Mitchel, New Rules for Canadian RRSPs & RRIFs
Jason Dinesen, Same-sex Marriage, Amended Tax Returns and Filing Status. “So if you’re in a same-sex marriage and you’re amending a 2011 or 2012 tax return, you can file that amended return as married or keep your filing status as single.”
Peter Reilly, Tax Court Goes To Webster For Definition Of Construction – And Watch That NAICS Code. The courts have been placing an undeserved significance on the business code you put on your tax return.
TaxGrrrl, 14 Ways To Show Your Thanks To Our Military On Veterans Day. “Here are 14 ways to show your thanks to our vets – and some of them come with a nice tax benefit to boot.”
Good. IRS Power To Regulate Tax Practitioners Slipping Away (Christopher Rezek, Procedurally Taxing). The author appears to think this is somehow a bad thing.
TaxProf, The IRS Scandal, Day 552
Joseph Thorndike, Democrats Getting What They Deserve on Medical Device Tax (Tax Analysts Blog):
If Democrats eventually face a funding crisis for Obamacare, they have only themselves to blame. After all, they should have known better. It was a Democrat, Franklin Roosevelt, who conclusively established that broad spending programs deserve broad taxes.
Precisely. You can’t fund a mass entitlement with a class tax, but that’s exactly what Obamacare tries to do.