Posts Tagged ‘Anthony Nitti’

Tax Roundup, 7/1/15: Trilobite deduction becomes extinct in Tax Court. And: Indiana throwback thrown out.

Wednesday, July 1st, 2015 by Joe Kristan

 

20150701-1The trilobites roamed the oceans for about 270 million yearsbut a charitable donation of fossils of these ancient arthropods failed to survive a single IRS exam. While scientists still ponder what may have caused these rulers of the seas to vanish, there is no doubt about what doomed the charitable deduction.

The fossils were donated by a California veterinarian, a Dr. Isaacs. He donated four fossilized trilobites to the California Academy of Sciences in 2006 and another 8 in 2007, claiming charitable deductions of $136,500 and $109,800.

When you donate appreciated long-term capital gain property to charity, you are allowed to deduct the fair market value of the property without ever including the appreciation in income — an excellent tax result. Because there is obvious abuse potential in this tax break, Congress has imposed strict valuation documentation rules on contributions of assets other than marketable securities if the claimed deduction exceeds $5,000. The Tax Court explains (citations omitted):

First, for all contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the donee…

Second, for noncash contributions in excess of $500, a taxpayer must maintain reliable written records with respect to each donated item.

Third, for noncash contributions of property with a claimed value of $5,000 or more, a taxpayer must — in addition to satisfying both sets of requirements described above — obtain a “qualified appraisal” of the donated item(s) and attach to his tax return a fully completed appraisal summary on Form 8283.  Generally, an appraisal is “qualified” if it (1) is prepared no more than 60 days before the contribution date by a “qualified appraiser”, and (2) incorporates specified information, including a statement that the appraisal was prepared for income tax purposes, a description of the valuation method used to determine the contributed property’s fair market value, and a description of the specific basis for the valuation.

It’s not three strikes and you’re out; failing any of these requirement kills your deduction. Yet our veterinarian whiffed on all three requirements, according to the Tax Court. Regarding the appraisal, the court says:

Both of Dr. Isaacs’ Forms 8283 bear the signature “Jeffrey R. Marshall” in Part III, “Declaration of Appraiser”. Dr. Isaacs called Jeffrey Robert Marshall as a witness at trial. The Court accepted Mr. Marshall as an expert in the valuation of fossils over respondent’s objection.4

Mr. Marshall identified the signature on Dr. Isaacs’ 2006 Form 8283 as his own. He did not, however, recall signing it. He likewise identified his signature on Dr. Isaacs’ 2007 Form 8283 but could not recall signing the form.

Mr. Marshall similarly identified his signature on two letters, dated December 31, 2006 and 2007, that purported to be appraisals of the fossils Dr. Isaacs donated to CAS in 2006 and 2007. But Mr. Marshall did not write or even recognize the letters, and as Dr. Isaacs offered no testimony from any other expert as to the letters’ author, we did not admit them into evidence.

Courtesy the mad LOLscientist under Creative Commons license

Flickr image Courtesy the mad LOLscientist under Creative Commons license

It’s a bad sign when your appraiser denies doing an appraisal. I hope the appraisal fee wasn’t high.

Although he sought to introduce purported appraisals signed by Jeffrey Marshall, whom the Court accepted as an expert in fossil valuation, Mr. Marshall denied that he had written these purported appraisals, and we did not admit them into evidence. We need not decide whether Mr. Marshall was a “qualified appraiser” within the meaning of the regulations because, even if he was, Dr. Isaacs introduced no evidence that Mr. Marshall rendered any appraisals of the donated fossils for him. Dr. Isaacs offered no evidence of any other appraisals of the donated fossils that could satisfy the statutory requirement.

Even if the appraisals had been accepted, the Tax Court said the deduction failed for lack of a contemporaneous acknowledgement meeting tax law requirements (my emphasis):

Jean F. DeMouthe, on behalf of CAS, acknowledged Dr. Isaacs’ contributions in writing, and these letters, each dated for the date on which Dr. Isaacs made the contribution acknowledged therein, were contemporaneous as required by section 170(f)(8)(A) and (C). Under section 170(f)(8)(B)(ii), however, the letters could suffice as contemporaneous written acknowledgments only if they stated whether CAS had provided any goods or services in exchange. Neither letter includes such a statement.

Taxpayer loses.

The Moral? When deducting charitable donations, details matter a lot. If you give cash or property for which you will claim a deduction over $250, make sure the charity acknowledges the gift with the magic words saying no goods or services were received in exchange for the gift. And if you are donating property for a donation over $5,000, get your tax advisor involved early to make sure the paperwork and appraisals are done properly and your deductions don’t go the way of the trilobite.

Cite: IsaacsT.C. Memo 2015-121.

 

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Ben Bristor, Scott Drenkard, Indiana Tackles Throwback Rule and Personal Property Tax (Tax Policy Blog):

While Indiana has one of the lowest corporate tax burdens in the country, the throwback rule very frequently complicates corporate income taxation. In the process of trying to capture nowhere income, multiple states can claim the right to tax the same income, creating more complexity for tax authorities and businesses. By eliminating the rule, Indiana lawmakers have made a major improvement in the state’s tax treatment of corporations.

Good news for taxpayers with Indiana manufacturing operations.

 

David Brunori, Lessons on How Not to Run Your Government (Tax Analysts Blog):

A very knowledgeable person told me that Brownback set efforts to reduce taxes back 10 years. No one wants to be like Kansas. Liberals might celebrate that outcome — but folks who genuinely believe in more limited government and lower tax burdens will rue the Kansas experiment.

Why would you want to give more power to government when it can even screw up a tax cut?

 

Paul Neiffer, It Pays to Follow the Rules. “The bottom line is that sophisticated estate plans require taxpayers to follow the rules and as indicated by the Webber case, most of them fail at this and sometimes it can cost a lot of money (in Mr. Webber’s case the cost was close to $1 million).”

Robert Wood, Offshore Accounts? Choose OVDP Or Streamlined Despite FATCA

Russ Fox, Mr. Hyatt Goes to Washington…Again. “As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims.”

 

 

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Joseph Thorndike, Jeb Bush Takes a Page From Richard Nixon by Disclosing Personal Tax Returns (Tax Analysts Blog). “As Richard Nixon discovered 63 years ago, financial disclosure can be embarrassing but it’s also good politics.”

Richard Phillips, Chris Christie’s Long History of Opposition to Progressive Tax Policy. (Tax Justice Blog). Considering how high and awful taxes are in New Jersey, I would expect the Tax Justice people to like him more.

Tony Nitti, Expiration Of Bush Tax Cuts Cost Jeb Bush $500,000 In 2013

Kay Bell, Which candidate’s tax return do you most want to see?

 

Len Burman, The Uneasy Case for a Financial Transaction Tax (TaxVox). When finance markets are global, these taxes are a great way to run financial businesses out while collecting very little tax. Still, Mr. Burman musters faint praise: “An FTT is far from an ideal tax. But compared with other plausible ways of raising new revenue, it doesn’t look so bad.”

TaxProf, The IRS Scandal, Day 783

 

News from the Profession. Accounting Professor Who Specialized in Ethics Cheated on Lots of His Papers (Caleb Newquist, Going Concern). I wonder if this is the inventor of the take-home ethics exam.

 

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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, 6/24/15: New obscure dumb forms we choose to do together. And: Wine and Taxes!

Wednesday, June 24th, 2015 by Joe Kristan

20150528-1There’s a new stupid form in town. The Commerce Department this year springs a new form on people with interests in foreign businesses. Form BE-10 was originally due May 31, but the system for filing it crashed, leading to a new June 30 deadline.

BE-10 is a survey, not a tax form. The survey is done every five years, and formerly was required only when you were contacted by the Commerce Department. Now everyone with a 10% or more “direct or indirect” interest in a foreign business is supposed to file it. From Accounting Today:

The form is mainly intended for businesses with foreign investments. Originally individuals only had a filing requirement if they were directly contacted by the bureau, but last November, the government amended its regulations to require any U.S. person who had at least a 10 percent direct or indirect interest in a foreign business enterprise at any time during the U.S. person’s fiscal year to file the Form BE-10. A U.S. person includes individuals, trusts, estates, corporations and partnerships.

“With many of our clients fighting the IRS over FBAR penalties, we err on the side of filing whenever the government requests a U.S. person to file an international information report,” said Carolyn Turnbull, international tax services director at Vestal & Wiler CPAs in Orlando, Fla.

Penalties for failure to file the form range from $2,500 to $25,000. Even worse, individuals who willfully fail to file the form can face fines of up to $10,000 or imprisonment for a maximum of one year, or both.

$2,500 to $25,000 for not filling out a stupid survey. Remember, government is simply a word for the things we decide to do together, like clobber each other with big fines for obscure paperwork violations.

Robert Wood has more.

 

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Kay Bell, Uncle Sam demands foreign bank account filing by June 30. The $10,000 threshold — and the whole FBAR regime, in fact — is absurd. Like so many regulations, it ensnares otherwise innocent people for paperwork violations while doing next to nothing to affect criminals, who don’t much care about getting the paperwork right.

Robert Wood, Offshore Banks Reveal Account Data, As IRS Amnesty For Many Involves 50% Penalty. Some amnesty.

Russ Fox, FBAR Due in One Week:

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

Russ performs a valuable public service with this address list.

 

 

Samantha Jordan, Scott Drenkard, How High are Wine Taxes in Your State? (Tax Policy Blog). In Iowa, pretty dang high:
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Considering it’s burgeoning wine industry, it’s surprising that there hasn’t been more effort to bring Iowa’s wine tax down. And some of the new Iowa wine isn’t half bad.

 

Jason Dinesen, Marriage in the Tax Code, Part 11: Meet the “Single Penalty”

Peter Reilly, Chief Counsel Gives Narrow Scope To Partnership Liability Regulations. “Note, here, that the taxpayers were insolvent and the field is being told to look harder for a possibly larger assessment.”

Tony Nitti, Tax Geek Tuesday: Navigating The Multiple Definitions Of Nonrecourse And Recourse Liabilities

 

Carl Smith, Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine or Osteopathy? Part 1.

TaxGrrrl, Nevada Pops New Tax On Burning Man, iHeartRadio, Other Music Festivals

 

David Brunori, Rand Paul’s Tax Ideas Are Worth Serious Consideration (Tax Analysts Blog). 

Sen. Rand Paul, R-Ky., a GOP presidential candidate, released his tax plan last week. As expected, some commentators piled on criticism. Howard Gleckman of the Urban Institute said Paul was trying to use the tax proposal to “fundamentally restructure the federal government as we know it.” Bob McIntyre, the director of Citizens for Tax Justice, said Paul’s plan would cost $15 trillion over 10 years. Other, less informed folks resorted to calling Paul names.

This criticism from liberals is neither unexpected nor irrational. These are folks who like to see more government spending and revenue raising. Paul is a small government Republican. Of course he wants to see less government and taxes. So it’s not surprising that his tax plan would, in a vacuum, lose the government money. The Tax Foundation says the cost would be $3 trillion over 10 years on a static basis. But that assumes Paul will keep spending at current levels. I suspect that if he became president, he’d support spending cuts equal to or greater than the cost of his tax plan.

I certainly would.

 

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Howard Gleckman, CBO Has No Idea What Repeal of the ACA Means for the Economy or the Deficit (TaxVox). No more idea than when they said the ACA wouldn’t increase the deficit back when it was enacted.

 

Ethan Greene, Alaska Ends Film Tax Credit Program (Tax Policy Blog). States are beginning to realize that they are being had by the film industry.

TaxProf, The IRS Scandal, Day 776:

In the continuing saga of the IRS, the Department of Justice, and their efforts to hide evidence and obstruct justice to protect Lois Lerner and the administration’s targeting of its political opposition, the IRS now claims that thousands of emails found on backup tapes Commissioner Koskinen told Congress did not exist are not IRS records, the IRS has no control over them, and they can’t produce them. 

The IRS has done nothing but obstruct and stonewall. If a taxpayer treated an IRS exam the way the IRS has treated this investigation, they’d be inviting the criminal agents in.

 

News from the Profession. Life at Deloitte Includes Slow Days (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/17/15: Revenues: every business should have them! And: tax abuse of accidental Americans.

Wednesday, June 17th, 2015 by Joe Kristan

 

dontwalk4A picture of a bad deduction. Early in my career a practitioner confided to me that every 1040 should have a Schedule C, the 1040 report of business income, so that taxpayers could write-off personal expenses. That’s never been the actual tax law, but too many taxpayers believe otherwise.

The actual tax law is that you can’t deduct as business expenses costs without an intent to actually make money. Iowa has been independently enforcing this rule, known informally as the “hobby loss” rule. A newly-released protest resolution has an example of a Schedule C business that may not have been conducted with adequate vigor:

The Business Activity Questionnaire you completed indicated that you spent 8-10 hours per year on the business. That is less than one hour per month. This hardly seems reasonable to have for a successful business. An average photoshoot can last longer than 1 hour including let up and tear down and then most photographers spend additional time editing or developing the photos.

What made the state suspicious? From the protest response (my emphasis)

There is no evidence that the taxpayer has ever been successful in this business. With the exception of 2014, there is no record indicating that you filed a sales tax return or a schedule C showing any receipts since your permit was issued. 

One of the most important parts of a real business is revenue. You could look it up. If you have none, it may be hard to convince the revenue agent you are serious.

You receive some income from other sources, and the losses you report from this activity does lower your income, in some years enough to make you exempt from tax. 

That can be a clincher. If you have “business losses” that never end, but they save you taxes on other income, that’s a likely sign that your real “business” is reducing your taxes.

Cite: Iowa Document Reference 15201018

 

20140815-2William Perez, People Unaware of Their American Citizenship are Being Fined for Not Filing US Tax Returns:

“[The] typical [client I’m] seeing now,” reveals Virginia LaTorre Jeker, a tax attorney in Dubai, is “someone who [was] either born in the US and left as young child, or who has [an] American parent from whom they have acquired citizenship.

The individual will always have another nationality, typically from a Middle Eastern country which they consider as their true home. Most times, these individuals will never have filed a US tax return since they were unaware they had any US tax obligations.”

If you think this sounds insane, you are right. No other country does anything like this.

Robert Wood, FBARs For Foreign Accounts Are Due June 30. Should You File For The First Time? “You don’t want to ignore a filing obligation now that you know about FBARs. But one should consider where you are going long term with your issues, how quickly you plan to act, and whether you have good and accurate information to file now.”

 

Kay Bell, U.K. pays a record amount for tax cheat tips

Jim Maule, How Does a Politician Fix a Tax Law The Politician Doesn’t Understand? Well, they’re obviously perfectly willing to enact tax laws they don’t understand in the first place. Yet for all the demonstrated incompetence of politicians, Prof. Maule wants to put more things under their control.

TaxGrrrl, Banks Quick To Turn Over ‘Abandoned’ Assets To Revenue-Hungry States:

Originally accounts were typically considered abandoned only if they went untouched for decades. But revenue-hungry states have been dramatically shortening that “dormancy” period to get their hands on this booty. 

Because the state politicians want the money don’t trust the private sector to take care of their customers, and they are looking out for you!

Peter Reilly, Campaigning For Bishopric Not A Valid Exempt Purpose – Kent Hovind Update. It’s not? I guess I can skip my mitre-measuring session.

 

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Robert D. Flach, FOUR REASONS TO REMOVE THE EITC FROM THE TAX CODE: “Probably the most important reason – Tax credits, especially refundable credits, are a magnet for tax fraud.” That’s exactly right.

Rachel Rubenstein, Reflections on the General State of Tax-related Identity Theft (Procedurally Taxing). “From 2004 to 2013, the NTA identified tax-related identity theft as one of the “‘Most Serious Problems” faced by taxpayers in nearly every annual report submitted to Congress here.”

David Brunori, The Revolt of the Corporations (Tax Analysts Blog). “The message is clear: Businesses have options and will move to sunnier tax climates.”

Howard Gleckman, The House GOP’s Internal Battle Over Online Sales Taxes (TaxVox).

Tony Nitti, Donald Trump Announces Bid For Presidency: What Is His Tax Plan? And who cares?

 

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Alan Cole, IGM Panel: Real Income Growth is Understated (Tax Policy Blog):

The IGM Forum, a University of Chicago project that surveys academic economists on issues, last month found that economists broadly agree that real median income numbers understate real growth in standards of living.

I think that has to be true. Don Boudreaux likes to compare items in old Sears catalogs with their modern counterparts to show how much better — and cheaper, in terms of hours of work needed to pay for them — the modern goods are:

The list is long of consumer goods that ordinary Americans today can easily afford but that were unavailable commercially to even the wealthiest Americans in the 1950s. This list includes digital cameras, lightweight waterproof sportswear, high-definition televisions, recorded Hollywood movies to play at home, MP3 players, personal computers, cellphones, soft contact lenses, and GPS devices.

We take for granted everyday things, like the internet, flight, automobiles, paved roads between cities, that the richest men of 200 years ago did without.

 

TaxProf, The IRS Scandal, Day 769

News from the Profession. Counteroffers Rarely Work for Employees Jumping Ship (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/8/15: Hush money edition. And: IRA invests in IRA owner’s business, disaster ensues.

Monday, June 8th, 2015 by Joe Kristan
"Dennis Hastert 109th pictorial photo" by United States Congress - Licensed under Public Domain via Wikimedia Commons

“Dennis Hastert 109th pictorial photo” by United States Congress – Licensed under Public Domain via Wikimedia Commons

The TaxProf and I are cited in a New York Times article on the tax implications of former House Speaker Hastert’s hush money scandal: If Hastert Was Extorted, He Could Deduct Some Losses From His Taxes.

Mr. Hastert has been indicted on charges of “structuring” deposits to avoid reporting rules as part of a plan to pay for silence from “Individual A” for alleged sexual contact pre-Congress. From the article:

While extortion payments would be taxable for Individual A, they would actually be partly deductible for Mr. Hastert, said Paul Caron, a tax law professor at Pepperdine University. It’s right there in I.R.S. Publication 17, Chapter 25: You get to deduct losses because of theft, to the extent those losses exceed 10 percent of your adjusted gross income. Blackmail and extortion count as theft.

But to claim the deduction, Mr. Hastert would have to convince the I.R.S. or a court he had been extorted, which could be difficult.

”Sometimes judges will find a way to disallow deductions for what they find unsavory behavior,” said Joe Kristan, a tax accountant with the Roth C.P.A. firm. He noted a case in which a divided Ninth Circuit panel denied a tax deduction for extortion to a man who said he paid hush money to his mistress.

For the record, I have no personal experience in deducting extortion and hush money payments.

Related: Jack Townsend, Article on Structuring to Avoid Bank Currency Reporting Requirements, on the structuring charges of the Hastert case.

 

No Walnut STTaxpayer’s IRA-owned corporation leads to tax disaster. The Eighth Circuit appeals court has upheld horrendous tax penalties against a taxpayer who had an IRA capitalize his business as an investor.

A Mr. Ellis rolled his 401(k) plan into an IRA, which invested about $310,000 in CST, a C corporation. CST started an auto dealership and employed Mr. Ellis as General Manager. That led to unfortunate tax results. From the court opinion (my emphasis):

The tax court properly found that Mr. Ellis engaged in a prohibited transaction by directing CST to pay him a salary in 2005. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. See 26 U.S.C. § 4975(c)(1)(D), (E); 29 C.F.R. § 2509.75-2(c) (“[I]f a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation . . . will ordinarily be a prohibited transaction if the plan may, by itself, require the corporation . . . to engage in such transaction.”)

While the investment itself wasn’t ruled a prohibited transaction, things got messy once the IRA-owned corporation started paying Mr. Ellis a salary — an “indirect transfer” occurred.

The consequences? The prohibited transaction terminated the IRA. That means the whole value of the IRA became taxable income, with no cash made available to cover the taxes. With penalties, the bill will exceed $160,000.

The Moral? Direct business investments from IRAs are dynamite. If you must use retirement plan funds for a business start-up, it may be wiser to take a taxable withdrawal and use the after-tax funds to make the investment. If there is any way to fund it without retirement plan funds, that would be wiser still.

Cite: Ellis, CA-8, No. 14-1310 

Prior coverage here.

 

20150528-1Margaret Van Houten, Legislature Passes Bill Affecting Iowa Trusts and Estates (Davis Brown Tax Law Blog).  “Beginning on July 1, 2016, a step grandchild will no longer be subject to Iowa Inheritance Tax.  Currently, direct ancestors and descendants, including stepchildren, were exempt from the tax, while step grandchildren were grouped with other individuals, such as siblings, nieces and nephews and unrelated individuals and were subject to the tax.”

TaxGrrrl, The Not So Skinny On National Doughnut Day. That’s every day!

Jason Dinesen, Breakeven Analysis for Small Businesses — Service Providers and Not-for-Profits

Annette Nellen, More on marijuana businesses and tax ethics. “Despite state actions, the production, sale and use of marijuana is a crime under federal law. Thus, for licensed practitioners, there is concern about ethical violations of helping someone commit a crime.”

Kay Bell, H&R Block explores virtual tax preparation.

Peter Reilly, A New York Day Is Like A New York Minute At Least For Taxes:

In the case of John and Janine Zanetti, the New York Supreme Court Appellate Division agreed with the Commissioner of Taxation and Finance that a New York day can be less than 24 hours.  The point of the decision was to determine whether the Zanettis had spent enough time in New York to be considered statutory residents for the year 2006.

Lovely.

Jim Maule asks Is the Federal Income Tax Progressive? He focuses on the “low” federal effective rate on the “Top .001%.” Of course, the reason people get to those rates is normally because of a one-time event, typically the sale of a corporation, that is taxed at long-term capital gain rates. Such taxpayers are normally at that income level only once in their life. Of course, Prof. Maule ignores the built-in double tax hidden in these figures.

Leslie Book, DC Circuit Criticizes Government in Case Alleging an Israel Special Policy for Tax Exemptions (Procedurally Taxing). “As IRS has increased responsibility beyond its paramount mission of collecting revenues, the historical reasons for the discretion IRS has exercised have lessened.”

Robert Wood, Are On Demand Workers Independent Contractors In Name Only?

Tony Nitti, Put It On The Card! Congressman Proposes To Make Credit Card Debt Forgiveness Tax Free

Russ Fox, Another Las Vegas Preparer Gets In Trouble Over the Foreign Earned Income Exclusion. “I’d say it was something in the water but Las Vegas is in a desert.”

 

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TaxProf, The IRS Scandal, Day 758Day 759Day 760. The IRS treatment of the Tea Partiers is compared and contrasted with that of the Clinton Foundation.

 

Arnold Kling, Payroll Taxes in Europe. ” I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.”

David Henderson responds:

I don’t find it hard to reconcile the two. The reason: Germany has had high payroll tax rates for a long time–for decades, actually. So real wages have had a long time to adjust.

I understand this as saying the total employment cost is about the same, but the employee gets less of it.

 

Kyle Pomerleau, CRS Outlines Four Important Aspects of the EITC. “The EITC enjoys bipartisan support among lawmakers. This is due to the fact it both reduces poverty among families with children and has a positive impact on the labor force for certain individuals. Yet, the EITC is not without its flaws. It’s benefit phase-out has a negative impact on the labor force and it suffers from high error rate and overpayment.”

Richard Auxier, Choose your tax system: progressive vs. regressive (TaxVox). A critique of the “Fair Tax” and other national sales tax proposals.

 

News from the Profession. Pope Figured The Lord’s Work Could Use a Good Auditor (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 6/3/15: Oh, THAT million-dollar rent payment. And: the IRS data breach is on management, not budget.

Wednesday, June 3rd, 2015 by Joe Kristan

 

Flickr image courtesy John Snape under Creative Commons license

Flickr image courtesy John Snape under Creative Commons license

Pay me now, tax me now. A real estate operator agreed to build and lease a building to a tenant, a plasma collection center. The 10-year lease had a provision allowing the tenant to buy down monthly payments by reimbursing the landlord development costs. In 2008, the tenant chose to pay $1 million to the landlord under this lease clause.

Getting a $1 million payment can complicate your tax planning. Tax Court Judge Ruwe explains the simple approach used by the landlord on the joint return he filed:

Petitioners jointly filed a Form 1040, U.S. Individual Income Tax Return, for 2008. On one of the Schedules E attached to the return petitioners reported rents received of $1,151,493 in connection with the plasma collection center rental. Among the deductions that petitioners claimed on this Schedule E was a $1 million “contribution to construct” expense.

The IRS disagreed, saying that the taxpayer should have reported the amount as rent without the “contribution to construct” deduction.

When it got to Tax Court, the taxpayer dropped the deduction argument and instead argued, first, that the $1 million payment wasn’t income in the first place, but an expense reimbursement. The Tax Court said that the use of the payment to buy down rent payments was fatal to that argument.

The taxpayer then argued that the rental income should be spread over 10 years under the “rent levelling” rules of Section 467. This often-overlooked section was enacted to prevent games like tenants front-loading rent deductions via prepayments to tax-indifferent landlords. Judge Ruwe provides some background (some citations omitted):

Congress enacted section 467 to prevent lessors and lessees from mismatching the reporting of rental income and expenses.  Section 467 provides accrual methods for allocating rents pursuant to a “section 467 rental agreement”. In order to qualify as a section 467 rental agreement, an agreement must have: (1) increasing/decreasing rents or deferred/prepaid rents and (2) aggregate rental payments exceeding $250,000.  Both parties agree that the lease in this case qualifies as a section 467 rental agreement.

The court held that the lease didn’t “allocate” the $1 million payment across the ten-year lease term:

Petitioners argue that they should be permitted to use the constant rental accrual method provided in section 467(b)(2) in order to spread their rental income to other years. However, this method is inapplicable because it was intended to allow the Commissioner to rectify tax avoidance situations, and the regulations provide that this method “may not be used in the absence of a determination by the Commissioner”.

That’s a tool for the IRS, not for you, silly taxpayer!

dimeThe court also held that the rent was not “prepaid rent” that could be deferred over the lease term:

In applying this regulation to the facts of this case we first find that the lease in question does not “specifically allocate” fixed rent to any rental period within the meaning of section 1.467-1(c)(2)(ii)(A), Income Tax Regs. However, the lease does provide for a fixed amount of rent payable during the rental period (i.e., rent payable pursuant to the terms of the lease). Accordingly, in the absence of a “specific” allocation in the rental agreement, the amount of rent payable in 2008 must be allocated to petitioners’ 2008 rental period pursuant to section 1.467-1(c)(2)(ii)(B), Income Tax Regs., which provides that “the amount of fixed rent allocated to a rental period is the amount of fixed rent payable during that rental period.” Therefore, petitioners are required to include as gross income the entire $1 million lump-sum payment made pursuant to the terms of the lease for the year of receipt, 2008.

The Moral? Heads they win, tails you lose, when you aren’t extremely careful drafting a funky lease. Section 467 is obscure and, I suspect, frequently overlooked. It usually doesn’t matter, as most leases don’t get fancy. When they do, though — especially when you see big payment variances — you need to pay attention. The tax results may surprise.

 

TaxProf, TIGTA: IRS Ignored Recommended Security Upgrades That Would Have Prevented Last Week’s Hack Of 100,000 Taxpayer Accounts. Prof. Caron quotes the Washington Post:

A government watchdog told lawmakers Tuesday that the Internal Revenue Service has failed to put in place dozens of security upgrades to fight cyberattacks, improvements he said would have made it “much more difficult” for hackers to gain access to the personal information of 104,000 taxpayers in the spring.

“It would have been much more difficult if they had implemented all of the recommendations we made,” J. Russell George, the Treasury Inspector General for Tax Administration, told the Senate Finance Committee at a hearing on the data breach, which the IRS says was part of an elaborate scheme to claim fraudulent tax refunds.

Identity theft has been a neglected problem at the IRS for years. Billions of dollars have been lost both to petty Florida grifters and to “a worldwide criminal syndicate” taking advantage of IRS laxity. Yet the last two commissioners (and, sadly, the Taxpayer Advocate) have spent more effort trying to set up a preparer regulation scheme that would do nothing to stop fraud — but would increase IRS power and the market share of the big franchise preparers. Priorities.

And it’s not a matter of a pinched budget. Ask Commissioner Koskinen (via Tax Analysts, $link): “Koskinen acknowledged before the Finance Committee that the Get Transcript security breach was not a matter of resources, and thus budget, but of management.”

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Russ Fox, The BEA Responds, or Making IRS Customer Service Look Normal (Bad). Russ reports that BEA has extended the deadline for its mandatory “survey” of foreign business ownership to June 30 for most filers.

Peter Reilly, Failure To File Texas Franchise Tax Form Voids Lawsuit. Sometimes ignoring a state tax filing can bite you in a surprising place.

TaxGrrrl, IRS Changes Position On Identity Theft, Will Provide Copies Of Returns To Victims. “Thanks to an inquiry from Sen. Kelly Ayotte (R-NH), IRS will now provide victims of identity theft with copies of the fraudulent tax returns filed using their personal and financial information.”

Robert Wood, If You Handle Cash, IRS Can Seize First, Ask Questions Later. “Even if your bank/cash efforts come from 100% legal money, the IRS says it still  [c]an seize it.”

IJim Maule, Where’s the Promised Trickle-Over? Another example of the illusory nature of the benefits of publicly-funded pro sports venues.

Keith Fogg, Tax Court Continues to Take the Same “Angle” on Attorney’s Fees When IRS Concedes the Case. “I continue to find this line of cases to contradict the purpose of the statute.  Particularly for those of us representing low-income taxpayers where the amount of tax at issue is low but the amount of time spent to prepare a case for trial not inconsequential, this loophole is swallowing the rule.”

Jack Townsend, Third Circuit Reverses Variance to One Day from Guidelines Range of 63 to 78 Months. Apparently one day isn’t close enough to 63 months.

Tony Nitti, Will Caitlyn Jenner’s Gender Reassignment Costs Be Tax Deductible?

 

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David Brunori, Amazon Does the Right Thing (Tax Analysts Blog):

Shakopee was prepared to provide direct incentives to Amazon. But Amazon told Shakopee it didn’t want them. That’s right — Amazon said no to the tax incentives being offered.

Good. Why?

I would like to think Amazon is being a good corporate citizen, but I really like the idea that it may have backed off because of potential political opposition to the incentives. Only politicians can stop the scourge of incentives. So if political hassles lead to fewer tax incentives, let’s have more political hassles.

Amen.

Megan Scarboro, New Hampshire Considering Cuts to Corporate Tax Rate (Tax Policy Blog):

While New Hampshire generally has a good tax code, a tax cut for businesses could improve the state’s economic climate.

Because the state has no tax on wage income or general sales, New Hampshire is ranks 7th overall in our State Business Tax Climate Index, but a notable weakness is that high corporate rates drive a ranking of 48th in the corporate tax rate component.

In case you are wondering, Iowa is #50.

Jeremy Scott, Republican Support for Brownback’s Tax Plan Begins to Erode (Tax Analysts Blog).

 

Howard Gleckman, What’s Up With the No Climate Tax Pledge?

TaxProf, The IRS Scandal, Day 755

 

Career Corner. Study: Faking Long Hours Is Just As Good As Working Long Hours (Greg Kyte, Going Concern).

 

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Tax Roundup, 6/1/15: Trusts, but verify. And lots more!

Monday, June 1st, 2015 by Joe Kristan

tack shelterTrust not flaky trusts. There’s a sort of folk belief that the rich and the sophisticated skip out of income taxes through clever use of trusts. That’s not true; trust income is taxed either to the trust owners, their beneficiaries, or to the trusts themselves — and at high effective rates. The 39.6% top rate that kicks in for unmarried individuals at $413,200 applies starting at $12,300 for trusts.

Still, this folk belief creates a market of gullible people who want to be like the sophisticated kids that don’t pay taxes. Where there’s a market, someone will attempt to meet the demand. That can go badly.

It went very badly for two westerners last week. From a Department of Justice press release:

Joseph Ruben Hill aka Joe Hill, 56, and Lucille Kathleen Hill aka Kathy Hill, 58, both of Cheyenne, Wyoming, and Gloria Jean Reeder, 68, of Sedona, Arizona, were convicted on charges of conspiracy to defraud the United States and obstructing a grand jury investigation following a three-week trial. In July 2014, Joe Hill, Kathy Hill and Reeder were indicted for conspiring to defraud the United States by promoting and using a sham trust scheme. Joe Hill and Reeder were also indicted for conspiring to obstruct the grand jury investigation in the District of Wyoming by causing individuals to withhold records required to be produced by federal grand jury subpoenas.

What were they selling?

Essentially, the scheme involved assigning income to the trust by using a bank account in the trust’s name that was opened with a false federal tax identification number. The Hills, Reeder, and many other CCG clients who testified during the trial used the CCG trusts to conceal income and assets from the IRS.

All of their customers can count on thorough and painful IRS exams.

 

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Jana Luttenegger Weiler, Did you miss the last holiday in May? Friday was 529 Day (Davis Brown Tax Law Blog). “A recent Forbes article discussing the so-called holiday reported two-thirds of Americans are unfamiliar with 529 Plans.”

Hank Stern, The Flip Side of Halbig/King/Burntwell. “But there’s another side to this, one which has thus far gone unremarked: is there a potential upside to folks whose subsidies go away? (Insureblog)

William Perez, Identity Theft Statistics from the Latest TIGTA Report

Annette Nellen, Should Sales Tax Deduction Be Made Permanent? House Says Yes

Kay Bell, Are we tax sheep? A U.K. collection effort says ‘yes’:

These psychologists, anthropologists and other observers of human nature suggested that a couple of lines be added to tax collection letters:

“The great majority of people in your local area pay their tax on time. Most people with a debt like yours have paid it by now.”

It worked.

I’m sure this approach has its limits, but it contains an important insight: people will pay their taxes if they think other people do. But if they feel other people get away with not paying, they’ll stop. Nobody likes to be a chump.

Jack Townsend, New IRS FBAR Penalty Guidance

Jim Maule, Can Anyone Do Business Without Tax Subsidies? Most of us have to — which is a powerful case against giving special favors to the well-connected and well-lobbied.

Andy GrewalThe Un-Precedented Tax Court: Summary Opinions (Procedurally Taxing). “It’s a bit strange to pretend that a judicial opinion does not exist…”

Peter Reilly, Structuring – First Kent Hovind – Now Dennis Hastert. The IRS has overreached in its structuring seizures, but keeping deposits under $10,000 in order to avoid the reporting rules for large tax transactions is still illegal. Bank personnel are trained to report suspected structuring. If you do it consistently, your chances of getting caught approach 100%.

Robert Wood, 20 Year Old Oral Agreement To Split Lottery Winnings Is Upheld. Still, it’s always better to get things in writing.

TaxGrrrl, Man’s Tax Refund Seized For Parking Tickets On Car He Never Owned. This sort of injustice is inevitable when the tax law is drafted into service for non-tax chores.

Russ Fox, I’m Shocked, Shocked! That a Chicago Attorney may have Committed Tax Evasion Related to Corruption. Eddie Vrdolyak may be involved.

 

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Tony Nitti, Rick Santorum Announces A Second Run For President: A Look At His Tax Plan. Mr. Santorum is slightly more likely to be president than I am.

 

TaxProf, The IRS Scandal, Day 753The IRS Scandal, Day 752The IRS Scandal, Day 751. I like this from Day 752: “The job of the IRS should be to collect taxes, fairly and efficiently. Since the income tax was enacted in 1913, however, the IRS has appropriated to itself—sometimes on its own, sometimes with congressional blessing—the right to make political judgments about groups of citizens. That is the central failure revealed by this scandal.”

 

Scott Drenkard, How Tax Reform Could Help Stabilize the Housing System (Tax Policy Blog):

Removing the impediment to saving baked into the tax code, then, has real impacts on real people. It helps people save for down payments on homes, or to put money toward education. Perhaps, if pared with a reduction in policies meant to artificially reduce down payments, tax reform could be an important component to stabilizing the housing market.

No-down-payment means you’re betting someone else’s money.

 

Richard Phillips, Martin O’Malley’s Record on Taxes is Progressive (Tax Policy Blog). That means he likes to raise them.

News from the Profession. Madoff Auditor Better at Cooperating Than Auditing, Won’t Serve Time (Caleb Newquist, Going Concern)

 

There will be no leftovers at the putlucks. Indiana Marijuana Church Granted Tax-Exempt Status, Plans ‘Call To Worship’ When Members Will Light Up (TaxProf).

 

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Tax Roundup, 5/26/15: It’s not always the onions that make you cry. And: beer taxes and other summer fun!

Tuesday, May 26th, 2015 by Joe Kristan

IMG_1589Onions aren’t the only thing that will make you cry. An S corporation brokering onions tried to reduce its tax bill through a “Section 419(f)” arrangement that purported to be a tax-exempt employee benefit plan. In reality, many such plans were actually tax shelters attempting to invest deductible employer contributions in variable life policies and similar financial instruments benefiting the owner.

The IRS got wise to these plans and issued Notice 95-34, ruling that such arrangements are “reportable transactions” subject to special taxpayer disclosure rules. Failure to make such disclosures can trigger severe penalties

A Wisconsin U.S. District Court has ruled the onion broker had such a plan, and is subject to the penalties, to the tune of $40,000:

In short, the trial evidence showed that CJA’s Affiliated Employers Health & Welfare Trust was an aggregation of separate plans maintained for individual employers that were experience-rated with respect to individual employers, that is, they were structured so as to assure each employer that its contributions would benefit only its own employees. The money that participating employers paid into the Plan bought insurance for only their own employees; there was no pooled risk.

The Moral? It’s a cliché, but it’s still valid: when something seems too good to be true, it probably is. The taxpayer presumably lost their deductions on top of the $40,000 penalty.

Cite: Vee’s Marketing, DC-WD-WI No. 3:13-ccv-00481

 

 

With summer here, you may want to know How High Are Beer Taxes in Your State? Scott Drenkard of the Tax Policy Blog provides this map:

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I don’t understand the high rates in the southeast. Whisky protectionism? Temperance movement echoes? Whatever the reasons there, it’s hard to imagine why they would apply to Alaska and Hawaii.

 

Megan McArdle, Sticker Shock for Some Obamacare Customers:

So the proposed 2016 Obamacare rates have been filed in many states, and in many states, the numbers are eye-popping. Market leaders are requesting double-digit increases in a lot of places. Some of the biggest are really double-digit: 51 percent in New Mexico, 36 percent in Tennessee, 30 percent in Maryland, 25 percent in Oregon. The reason? They say that with a full year of claims data under their belt for the first time since Obamacare went into effect, they’re finding the insurance pool was considerably older and sicker than expected.

Obamacare? You mean the “Affordable” Care Act.

 

TaxGrrrl, Civil War Widows, General Logan & Why We Celebrate Memorial Day. Interesting history involving an Illinois politician who made a pretty good Civil War general.

Kay Bell, Memorial Day thanks for the ultimate military sacrifice

Robert D. Flach starts this short work week with fresh Buzz! Robert takes issue with Warren Buffet’s support for the Earned Income Tax Credit: “While federal welfare, which is what the EITC is, may be appropriate, it should not be distributed via the US Tax Code.”

Jason Dinesen, From the Archives: New Preparer Requirements on Earned Income Credit = Higher Fees for Clients

Tony Nitti, Tax Geek Tuesday: When Can A Business Deduct Prepaid Expenses? A surprisingly complex issue.

Russ Fox, Staking and the WSOP: 2015 Update. Having backers can complicate a poker pro’s tax life.

 

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Robert Wood, Florida Says Uber Drivers Are Employees, But FedEx, Other Cases Promise Long Battle

Stephen Olsen, Summary Opinions. The latest roundup by Procedurally Taxing of developments in the tax procedure world.

Jack Townsend, IRS Establishes Cybercrimes Unit to Combat Solen ID Tax Fraud. At least five years too late.

Paul Neiffer tells about this year’s ISU-CALT Summer Seminar Series. I’m not participating this year, probably making it a better program than ever!

 

Renu Zaretsky, Roads, Schools, Sales and Wills. A delay in the federal highway bill, gas tax politics in California, and Amazon pays U.K. tax in today’s TaxVox headline roundup.

TaxProf, The IRS Scandal, Day 744Day 745Day 746Day 747

Career Corner. More Quick and Dirty Tips for Your Insider Trading Scheme (Leona May, Going Concern)

 

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Tax Roundup, 5/21/15: Credits targeting what you would do anyway! And: minimum wage, ACA, and lots more.

Thursday, May 21st, 2015 by Joe Kristan

 

IMG_0603Paying people to do what they would do anyway. Rhode Island is proposing a new credit for “job creators,” reports David Brunori:

It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that’s why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what’s expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

This is true of all “job creation” credits. As David points out: “No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.”

An Illinois representative has proposed a “Patriot Employer Tax Credit Act,” (Tax Analysts, $link) with a tax credit of up to $1,500 for employers who:

-Invest in American Jobs: Does not move its headquarters overseas or reduce the number or percentage of U.S.-based workers in comparison to workers overseas.

-Pay Fair Wages: Pay 90% or more of U.S. workers an hourly wage of at least $15 per hour.

-Provide Quality Health Insurance: Offer ACA-compliant healthcare to employees.

-Prepare Workers for Retirement: Provide 90% of non-highly compensated U.S. employees a defined benefit plan OR a defined contribution plan and contribute at least 5% of worker compensation.

-Support Our Troops and Veterans: Pay the difference between regular salary and military compensation for all National Guard and Reserve employees called for active duty and have a plan in place to recruit veterans.

-Create a Diverse Workforce: Have a plan in place to recruit employees with disabilities.

By claiming the word “patriot,” it wraps bad economics in the flag. Because nothing says “I love my country” like tax credits.

 

20150423-1Jana Luttenegger Weiler, Health Savings Accounts: Beneficiaries and Taxes (Davis Brown Tax Law Blog). “As HSAs become more common, it is important to consider the HSA in various capacities, including in premarital agreements, death, and divorce.”

Tony Nitti, Tax Court: In Order To Convert A Home To A Rental, You Should Probably Rent It

Jason Dinesen, Glossary of Tax Terms: AMT.

TaxGrrrl, Taxpayer’s Call To IRS Accidentally Broadcast On Howard Stern’s Radio Show. I’m just amazed the caller reached an actual IRS agent.

Peter Reilly, Tax Girl Challenges Homeownership And You Should Really Listen To Her. “To many of us homeownership is a necessary step in becoming a full-fledged adult and a house that is rented can never be a home.  This book might help you rethink that attitude.”

Jim Maule, The Dependency Exemption Parental Tie-Breaker Rule. “Under the parental tie breaker rule in section 152(c)(4)(B), if the parents claiming a dependency exemption deduction for a qualifying child do not file a joint return, the child is treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during the taxable year, the child is treated as the qualifying child of the parent with the highest adjusted gross income.”

Paul Neiffer, April 18 (or 19), 2016 is Due Date for 2015 tax returns

Jack Townsend, Remaining Swiss Bank Criminal Investigations Likely to Go Into 2016

Robert Wood, Appalling $187 Million Cancer Charity Fraud Case Settles — When 97% Of Money Isn’t For Charity

Keith Fogg, Argument Over Furlough of National Taxpayer Advocate Set for June 2 Before the Federal Circuit (Procedurally Taxing)

 

 

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Cara Griffith, Tax Reform Laboratories (Tax Analysts Blog). “Federal lawmakers could learn a lot from an examination of what has worked and what hasn’t across the nation.”

 

Insureblog, Dear HHS, Will You Share My ACA Success Story?:

  So how has this Obamacare thingy helped my small company:-We have seen an overall decrease in benefits since 2010.
-From November 2010 to our current plan year premiums have increased 58.7%.
-If we would have been forced to an Obamacare compliant plan the increase would have been 116.7%

Tom Vander Well, Placing customers on hold without diminishing satisfaction (IowaBiz.com). The suggestions do not endorse the IRS practice of “courtesy disconnects.”

 

Carl Davis, Sweet Sixteen: States Continue to Take On Gas Tax Reform (Tax Justice Blog). To the Tax Justice folks, tax reform = tax increase.

 

Joseph Thorndike, Republicans Should Embrace the Gas Tax – After All, They Invented It (Tax Analysts Blog). Everyone loves being told what they “should” like.

 

Kay Bell, Will Congress OK highway money before it hits the road?

 

Elaine Maag, A Redesigned Earned Income Tax Credit Could Encourage Work by Childless Adults. (TaxVox). Only if they can re-design it so that it doesn’t squander 25% of the cost on improper payments.

 

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Megan McArdle, $15 Minimum Wage Will Hurt Workers. A well-explained post explaining what should be obvious:

When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.

These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour.

Most people who insist that minimum wage increases are harmless snicker at those who believe in “intelligent design.” Yet they are themselves trying to impose their own design on an eveolutionary system. At least creationists don’t claim to be designing species.

 

TaxProf, The IRS Scandal, Day 742

 

News from the Profession. Accountants Lack Some Skills (Caleb Newquist, Going Concern). “But it’s foolish to expect accounting graduates to have skills for corporate accounting. They don’t have them because they don’t learn them in school and they don’t learn them in public accounting.”

 

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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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Tax Roundup, 4/21/15: Loans aren’t taxable, until you don’t have to pay them. And: ACA, dope, and lots of other stuff.

Tuesday, April 21st, 2015 by Joe Kristan

20120511-2Pay me now, tax me later. A hospital in a poor county in Central Florida wanted to recruit an OB-GYN. Rural employers often have to do something extra to recruit good help, so the hospital offered him a $260,000 loan. It came with a sweetener: if certain goals were reached, the loan would be forgiven.

It’s well established that loans aren’t taxable income. That can be pretty sweet to have $260,000 to spend with no withholding and no tax bill. But there’s a catch. You either have to repay the loan (out of your after-tax income), or you have to pay tax on the loan amount if the debt is forgiven.

It’s natural to try to want to have your cake and eat it too — to not pay the loan, and not pay the taxes. That is the very trick behind the leveraged ESOP. But for the rest of us, it’s an elusive goal. It eluded the doctor in Tax Court yesterday.

The doctor met his goals, and $260,000 of debt was cancelled over four years. The doctor didn’t report the income, so the IRS assessed additional tax. The doctor objected. From the Tax Court opinion:

Although the amount that petitioner received from the hospital pursuant to the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not personally liable for its repayment, and that, as a consequence, he did not receive income when the loan was forgiven and canceled by the hospital. The Court disagrees with the premise of petitioner’s argument.

The court pointed out that the terms of the note did make the doctor liable, and added:

Further, although the Court does not accept the premise of petitioner’s contention regarding the nature of the loan, it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income…

Under these circumstances, forgiveness and cancellation of the loan gave rise to income.

The Court added in a footnote:

…petitioner argues that when debt is canceled, the creditor should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC. Although this may be so, the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt.

Apparently the hospital knew that there was income, but issued the wrong kind of 1099. But the 1099 doesn’t change the nature of the income.

The moral? Forgivable loans are nice — cash now, tax later. But later happens.

Cite: Wyatt, T.C. Summ. Op. 2015-31.

 

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Megan McArdle, Obamacare’s Tax Day Mystery:

Meanwhile, Louise Radnofsky of the Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her.

Complex systems have unintended consequences.

Hank Stern, The 4% Solution (Insureblog). “Only 4% of people who signed up for ObamaCare got the correct subsidy”

Christine Speidel, Penalty Relief and Premium Tax Credit Reconciliation (Procedurally Taxing). “This post will describe the penalty relief available under Notice 2015-09 and some of the barriers that may prevent low-income taxpayers from accessing the relief.

 

William Perez, Taxes When Hiring Household Help

Tony Nitti, IRS Seeks Record $2 Billion In Back Taxes From Prominent Businessman And Philanthropist Sam Wyly. Offshore trusts are involved.

Peter Reilly, Superior Point Of Sale Software Does Not Mix Well With Skimming

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 1

Kay Bell, IRS telephone tax help was a dismal 38.5% this filing season. Part of your Commissioner’s “Washington Monument Strategy” of making taxpayers suffer to boost his budget.

 

20130607-2TaxGrrrl, 4/20: The Blunt Truth About Marijuana & Taxes

James Kennedy, Marijuana Dispensary Settles Case after IRS Suggests It Engage in Money Laundering (Tax Policy Blog):

Imagine running a small business and being assessed a penalty by the IRS. Then imagine being told by the IRS that the only way to avoid the penalty is to commit a serious felony, laundering money. This Kafkaesque nightmare actually became reality for a Colorado marijuana dispensary called Allgreens when it tried to pay its federal payroll taxes.

At some point this decade or next, marijuana will become more or less legal. I wonder if the tax law will be the last bastion of prohibition.

 

TaxProf, The IRS Scandal, Day 712. “The IRS Assures an Atheist Group It Will Monitor Churches.” What could go wrong?

Robert Wood, Before IRS Targeting, Lois Lerner Targeted At Federal Election Commission

 

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Paul Neiffer, Senator Wyden Indicates Tax Reform Must Include Flow Through Entities

Joseph Thorndike, Republicans Want to Repeal the Estate Tax Because Too Much Is Never Enough (Tax Analysts Blog).

For my money – and admittedly, it’s not my money, since I don’t expect the tax to be an issue for my heirs – repeal is a bad idea under any circumstances. But it’s an especially bad idea when paired with a continuation of stepped-up basis.

If there is a good argument for the estate tax, it’s to allow basis step up. The “breaking up dynasties” thing is silly. From what I’ve seen in practice, all you need to break up inherited wealth is a second generation.

Eric Toder, Corporate Tax Reform and Small Business (TaxVox).

Sebastian Johnson, State Rundown 4/20: State Houses Consider Cuts (Tax Justice Blog).

 

Career Corner. The Non-Golfing Accountant’s Guide To Hitting the Links (Leona May, Going Concern)

 

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Tax Roundup, 4/20/15: Cheer up, it could have been even worse!

Monday, April 20th, 2015 by Joe Kristan

20140929-1Tax Season is over. For me, the end is officially the moment I transmit my e-file extension to the IRS. Now it’s time to pick up the threads of the life and tax practice that are put aside in the final three-week frantic trudge.

Tax Season has become, for me, all about the last three weeks. That’s when everybody finally has their corrected 1099s, most of the public partnership K-1s are in, and the pass-through closely-held businesses are mostly done. No matter how well I keep up until then, suddenly I am a week behind and working frantically to catch up. Inevitably something unexpected snarls the works — maybe an unexpected client crisis, or a business transaction unhappily timed to coincide with filing season. As the tax law gets more complex every year, it compresses the filing season for many clients to a narrower period beginning closer to April 15 every year.

Robert D. Flach has posted his paper-filed thoughts on the recent filing season: “It certainly wasn’t the worst, or the best, in my 44 years.”

It wasn’t the worst I’ve seen. That was the one two years ago, when a January 1, 2013 tax law changed the rules for 2012, and Iowa dawdled in updating its code references to incorporate the federal changes — leading to filing season chaos.

Our worst fears of tax season weren’t realized, thanks to last-minute filing relief for ACA victims participants owing money, a one-year waiver of the deadly penalties for ACA non-compliance by small-employer insurance reimbursement arrangements, and an 11th-hour waiver of the “repair regs” accounting method change filing for smaller businesses.

Still, it was pretty bad. Probably the worst part of this season was the exponential increase in identity theft. The continuing failure of the IRS to deal with this problem is disgraceful. The failure of Congress to address it is nearly as bad.

No, the solution isn’t to give Commissioner Koskinen all the money he wants. It’s a systems and controls problem, and the last time the IRS got a blank check for systems upgrades, they boggled it entirely. And nothing Mr. Koskinen has done gives any confidence that he can be trusted with it.

20140910-1The solution starts with a new commissioner. It will include slower refunds. It will include system upgrades that will, for example, reject e-filings claiming earned-income credits for somebody who habitually files returns with adjusted gross income in the millions (We had multiple ID thefts of six and seven-figure filers this year). It will include a long-term system upgrade, with long-term funding to be released only in steps as progress is made. And maybe the solution includes changing the culture that thinks tax refunds are a good thing.

Related: Fix The Tax Code Friday: Delaying Tax Refunds To Stop Fraud (TaxGrrrl). “Would you be willing to wait a few more weeks for your refund to allow for forms matching if it slowed down the incidents of tax fraud?”

 

Tony Nitti, How (Not) To Spend Your Tax Refund. “The goal with sound tax planning should never be to generate the largest refund; after all, the bigger the refund, the more of your hard-earned money you loaned, interest-free, to the IRS for a period of months.”

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 1

William Perez, What To Do if You Missed the Tax Deadline. “There were the usual issues here and there with getting info from clients, and a few clients were surly or price-sensitive. But it wasn’t too bad overall.”

Kay Bell, Missed April 15 tax deadline? Got an extension? Now what?

Robert Wood, You Just Filed Your Taxes, Is It Too Early To Amend?

Peter Reilly, Heir Of Honduran Timber Fortune Wins Large Refund In Tax Court. “Using the IRS as a weapon in a business dispute is, well, not good business.”

 

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While I took a break, the IRS Tea Party Scandal rolled on. The TaxProf continued his IRS Scandal Series: The IRS Scandal, Day 711Day 710Day 709Day 708Day 707.

 

David Brunori, The Arrogant and the Greedy Team Up to Take Your Money (Tax Analysts Blog). David explains (my emphasis)  the real reason why certain people have their dresses over their heads about the menace of e-cigarettes:

E-cigarette taxation best illustrates the confluence of arrogance and avarice. Those who cannot keep themselves from playing nanny have already begun to bar e-cigarettes from public places (to prevent the dreaded secondhand water vapor). And of course we have the obligatory restrictions on their use by kids. But the tobacco abolitionists would like to tax e-cigarettes with the knowledge that if you tax something, you get less of it. Don’t be fooled. These people do not care about your health. They care about lording over you.

But there are others (like Bowser) who cast a covetous eye on electronic smokes. Two factors drive that thinking. If people smoke real cigarettes less, the states will lose tens of millions of dollars. E-cigarettes need to be taxed to replace that revenue (because it really isn’t about your health). Since a lot of tobacco tax revenue is earmarked for schools, taxing e-cigarettes is all about the kids. Raising real taxes to pay for public services is hard. Teaming up with the prohibitionists is much easier.

It’s Baptists and bootleggers all the way down.

 

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Gretchen Tegeler, There’s more to the story than tax rates (IowaBiz.com). “Property taxes are a combination of the property tax rate, applied to the portion of a property’s assessed value that is taxable. Even if a city keeps a constant rate, it may be collecting a lot more property tax revenue (with property owners paying a lot more, too), if there’s more valuation to tax.”

Career Corner. What Did You Learn This Busy Season? (Caleb Newquist, Going Concern).

 

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Tax Roundup, 4/14/15: Some things extend, some things don’t. And: IRS offers crummy service, blames preparers.

Tuesday, April 14th, 2015 by Joe Kristan

Yes, extensions are your friend. But not everything extends.

No Walnut STApril 15 is do-or-die day for these things:

– Paying at least 90% of your 2014 tax, to avoid the 1/2% (+ 1/2% per each additional month) underpayment penalty.

– Funding a 2014 IRA contribution.

– Funding a 2014 Health Savings Account contribution.

– Paying a first-quarter 2015 federal estimated tax payment.

– Making a “mark-to-market” election for 2015 trading gains and losses.

– Claiming a refund for taxes paid on an unextended timely-filed 2011 1040.

 

Still, many important things are extended with a timely extensionForm 4868 for 1040s, Form 7004 for partnerships, trusts and most other things. Among them:

– The 1040 itself, enabling you to avoid the 5% failure to file penalty — plus an additional 5% per month until filing, up to a maximum 25%.

– Form 1041 for trusts and Form 1065 for partnerships — avoiding a $195 per K-1, per month late return penalty.

– Funding a 2014 Keogh or SEP retirement plan.

– Withdrawing excess 2014 IRA contributions.

– Filing a Form 3115 for an automatic accounting method change, including the “late partial disposition election” allowing “biblical” deductions for prior-year real-estate expenditures.

– Getting a qualified appraisal for a 2014 non-cash charitable contribution)

– Closing 2014 like-kind exchanges entered into after October 18 (to up to 180 days from the day you gave up the property you are exchanging).

– Many tax return elections are extended when the return is extended, including Section 754 elections to step up partnership basis (yes, partnership returns are also due on April 15).

So extend your return by all means. Just don’t miss a deadline you can’t extend.

Tomorrow is the last day of 2015 filing season; return for our last 2015 Filing Season Tip!

 

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Kay Bell, 5 last-minute tax filing tips

TaxGrrrl, 5 Ways To Pay Your Tax Bill Now

William Perez, What to Do if You Owe the IRS

Paul Neiffer, Watch Out for Employment Tax Fraud. “To prevent this type of fraud, it is extremely important to either completely control the process of remitting these funds to the IRS (i.e. do it yourself) or make sure you are dealing with a reputable firm.  The Treasury Department just issued a report indicating the safeguards that the IRS and employers should implement.”

 

TaxProf, The IRS Scandal, Day 705

Robert Wood, Lois Lerner Emails Defend Targeting, Warn IRS Employees Emails Can Be Seen By Congress. No scandal here, though!

 

Andrew Lundeen, Tax Complexity Is Expensive for Small Businesses (Tax Policy Blog). “Nearly a quarter of small business owners in the United States spend over 120 hours each year dealing with their federal taxes, according to the most recent survey by the National Small Business Association.”

Tony Nitti, What Hillary Clinton’s Voting Record Reveals About Her Tax Plan

 

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Well, IRS, you’re not exactly saving the world yourself. IRS to Tax Pros: You’re Not Helping (Caleb Newquist, Going Concern):

“Each filing season, the e-help desk receives phone calls from taxpayers because their tax preparer referred them for assistance resolving rejected returns, tax law and tax account matters,” said the IRS in an email to tax professionals Monday. “This increases the taxpayer’s burden and causes lengthier delays for everyone. The e-help desk cannot help these callers and must direct them to other sources for assistance—typically IRS.gov including Publication 5136, IRS Services Guide.”

You know why we have taxpayers call you? Because you won’t talk to us without a power of attorney, which we can’t always get from them in a hurry. If you would let preparers resolve routine issues for taxpayers, maybe we wouldn’t have to ask taxpayers to ask you to do your job quite so much.

 

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Tax Roundup, 4/13/15: Tips for those caught cash-short for April 15. And: bad tax policy, the busybody’s friend!

Monday, April 13th, 2015 by Joe Kristan

dimeI owe how much? As April 15 approaches, more taxpayers than usual are finding that not only is no refund on its way, but they are supposed to send the IRS more money. For many, it’s because they are required to repay the advance premium credit on their Obamacare policies. For others, they just didn’t have enough withheld from their taxes. Whatever the cause, it’s a cash problem they can’t solve over the next three days. What to do?

First, make sure you either file or extend by Wednesday. The problem of owing the IRS money doesn’t go away by ignoring it. In fact, it can get a lot worse.

If you file a return (or extension) and don’t pay at least 90% of the tax owing, the penalty is 1/2% per month, plus interest, on the amount due — the “failure to pay” penalty. But if you don’t file or extend, then you get the 5% per month “failure to file” penalty, plus interest, on the underpayment, maxing out at 25%. That can make a big difference.

Also, if your underpayment is solely the result of repayment of the premium tax credit, the IRS is waiving the failure to pay penalty, as long as you file or extend timely.

Pay what you can. If you can pay 90% of what you owe, then you only pay interest on the balance at the IRS underpayment rate, currently 3% annually. That’s significantly better than the approximately 8% combined interest rate and underpayment penalty.

Consider borrowing. If you have a home equity line, that can be a good deal. The rates will likely be competitive with the IRS rates, especially taking penalties into account — and unlike IRS debt, you can deduct interest on most home equity loan payments.

Watch your rates. While you want to pay the IRS down, there are worse creditors. You don’t want to take a credit card cash advance or car title loan at 18% to pay off the IRS at 3-8%. But if that is competitive with what your credit card charges, use the card. Credit card companies are easier to deal with than IRS collections. The can be reached by phone, for one thing.

20140321-4Take advantage of a 120-day grace period the IRS offers. There is a toll-free number (800-829-1040), but you are likely to have better luck using the IRS Online Payment Agreement Application.

Consider an IRS “installment agreement.” If you owe under $50,000, you can fill out the request online and get a monthly payment plan going. There is a $120 user fee. Once you get on the plan, be prepared to stick with it, as they can get unpleasant if you default. If you owe more than $50,000, you probably need a tax pro. You don’t think you need one? Come on, you owe more than $50,000, that should tell you that you aren’t doing a great job of tax planning on your own.

Fix the problem for 2015. Many two-earner couples chronically under-withhold. If you and your spouse each have six figure incomes and you are both withholding at 15% or less, you shouldn’t be surprised that you are paying on April 15.

IRS resources:

Tips for Taxpayers Who Can’t Pay Their Taxes on Time.

Ways to Pay Your Federal Income Tax

Three days left – that means after today there are only two more Tax Update . Don’t miss a one!

 

 

20140321-3Russ Fox, Bozo Tax Tip #1: Let Your IRS Notice Age Like Fine Wine!. Like I said, ignoring them won’t make them go away.

William Perez, 8 Reasons to Ask the IRS for a Tax Extension. Good reasons.

TaxGrrrl, 5 Things Taxpayers Are Irrationally Afraid Of – And Shouldn’t Be

Tony Nitti, IRS To Waive Penalties For Taxpayers With Delayed Or Inaccurate Obamacare Insurance Information. Again, this releif is only available if you file or extend on time.

 

Kay Bell, Obamacare, NYPD donations offer new tax considerations

Annette Nellen, Challenges of taxing gambling winnings. Winnings above the line, losses are itemized deductions. What’s wrong with this picture?

Jason Dinesen offers Tips for Choosing Bookkeeping Software

Peter Reilly, Tax Court Allows Multimillion Multiyear Arabian Horse Losses

Robert Wood, 10 Notorious Tax Cheats: Real Housewives Stars Teresa And Joe Giudice Faced A Staggering 50 Years

 

Jack Townsend, Taxpayer Right to Be Present at Interview of Federally Authorized Practitioner. “Therefore, the Court concludes that a taxpayer does not have an absolute right to be present at a third party IRS summons proceeding concerning the taxpayer’s liabilities.”

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TaxProf, The IRS Scandal, Day 702Day 703Day 704. From Day 704: “Lois Lerner, former director of the Exempt Organizations Unit at the Internal Revenue Service (IRS), warned other IRS officials that lower-level employees ‘are not as sensitive as we are to the fact that anything we write can be public–or at least be seen by Congress,’ according to documents obtained by Judicial Watch and released on Thursday.” Because she had nothing to hide, of course.

 

Alan Cole, Taxes Are Not Handouts (Tax Policy Blog):

At times I really struggle to understand the way taxes are covered on Wonkblog, but a post yesterday, listing government handouts for the rich, reached a new level.

Some of the items listed seem like poor examples. (Do rich people really take lots of deductions for their gambling losses?) But the one that really threw me for a loop was the estate tax, a tax levied on only the most valuable estates. It is literally the opposite of a handout for the rich.

When start from the premise that everything is a handout for the rich, then you can believe just about anything. Like this next guy:

Richard Phillips, What We Know About Hillary Clinton’s Positions on Tax Issues (Tax Justice Blog) “Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.” Of course, the the “tax justice” crowd, “fairness” is just another word for taking your money.

 

David Wessel, How much does the tax code reduce inequality? (TaxVox). “n other words, the U.S. tax system does reduce inequality, but there’s still a lot of it left after taxes.”

Poverty is a problem. Inequality isn’t the same thing, and if you are more worried about inequality, your priorities are misplaced.

 

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David Brunori is my favorite tax policy commentator ($link):

There is a theory that says the tax laws should be used to do one thing — raise revenue to pay for public services. Taxes should not be used to engineer society, promote social agendas, foster economic development, or help anyone in particular. This theory has merit. Adherence would lead to less cronyism, fewer economic distortions, and less regulation through the tax code. State governments, of course, violate these principles all the time.

Who are the perpetrators? Those striving for bad tax policy represent an odd coalition of people who want to run your life, and people who simply want your money.

Extra points to David for correctly distinguishing a “blog” from a “blog post.” A blog contains posts, and a single post isn’t a “blog.” Now get off my lawn.

 

Career Corner. Long Hours Are the Root of All Your Busy Season Problems (Caleb Newquist, Going Concern). If you think you have a problem working long hours, try getting these things done without working long hours.

 

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Tax Roundup, 4/6/15: I don’t have my K-1 yet. Is that illegal? Or, why K-1s are slower.

Monday, April 6th, 2015 by Joe Kristan

k1corner2014I have my W-2. Why don’t I have my K-1? Tax practitioners hear some version of this every year. The short answer is that employers are required to provide W-2s by the end of January, but most K-1 issuers can legally wait until September 15.

The long answer is that K-1s can be much harder to prepare. For a W-2, you only need to have the wage, withholding and benefit information for the employee — not always super-simple, but usually easy enough with a good payroll system.

To issue a K-1, in contrast, a business has to determine its taxable income, and then it has to determine how to allocate it among its owners. Most businesses don’t even have a clean close on their books until well into January. Many then have their auditors in to opine on the financial statements, sometimes with adjustments that change the results. Then the tax preparers show up.

The tax preparers have to determine where the financial statement books have to be changed to get to taxable income. They have to evaluate elections as to the timing of assets and present them to the business, which then has to make a decision. They may have to prepare accounting method changes that require a review of years of fixed asset additions and disposals. If ownership has changed, they have to determine how the income is to be allocated based on the differing ownership during the year. If property has been contributed, they may have to allocate income and deductions for that property differently than for everything else in the business.

20140321-3Then it’s time for state returns. Every state tax system has its own quirks, and the preparer has to determine whether a business needs to file in a state, how to allocate or apportion the business income to the state, and then to identify where the state computes income differently from federal income.

Oh, and they have to do this for more clients than just the one that issues your K-1.

So it’s not a crime for you to not have your K-1 yet. There are a lot of good reasons, from the complexity to the tax law to the rules that require most K-1 issuers to have their work done at the same time, that delay K-1s. If you are missing a K-1 and April 15 is looming, an extension is likely to be your best option. There’s no evidence that the IRS pays special attention to extended returns, but they definitely notice if you file a return that leaves out a K-1. And you’d much rather file an extended return with a correct K-1 than to amend a return because a K-1 prepared in haste was wrong.

Tomorrow we start to talk about what to do with your K-1 when it does show up as part of our series of , one a day through April 15. Don’t miss a one!

 

Russ Fox, Bozo Tax Tip #6: Nevada Corporations. “If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.”

TaxGrrrl, Taxes From A To Z (2015): W Is For Withholding From Wages

 

William Perez, The Penalty for Not Having Health Insurance

Robert Wood, Know IRS Audit Risks Before Filing Your Taxes. Your audit risk is a lot less if you don’t make a prep mistake. If extending helps you avoid mistakes, extend.

Jack Townsend, Court Approves FBAR NonWillful Penalty Merits But Wants Further Development of APA Issues. ” The IRS disregarded its own promise and assessed the penalty before Mr. Moore could request an ‘appeal.'”

 

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David Brunori has thoughts on state tax incentives ($link):

To the extent blame is to be assigned, it rests solely on our political leaders. Governors, and to a larger extent legislators, have the power to grant or deny incentives. If they adhered to the principles of sound tax policy, they would build tax systems on a broad base with low rates. There would be little, if any, special treatment. But they don’t, because they are driven by two human conditions — greed and fear. They want a big corporation with thousands of employees to move to their state. They believe, incorrectly, that the way to achieve that is to give tax breaks that are unavailable to the rest of us. Conversely, they fear that a company might leave and take the jobs with it. They believe the only way to do that is through the tax code. I have said that politicians are unimaginative cowards when it comes to incentives. I don’t think that is too strong a statement. Of course, we put them in power. So perhaps the real blame lies with us.

The other reason is that nobody shows up at your golf fund-raiser to lobby for broad bases and low rates, but they do when they want a special deal.

 

TaxProf, The IRS Scandal, Day 697Day 696Day 695. Thoughts on how this scandal would have been viewed if it occurred under a President Bush, and a victory for a group suing for a complete list of entities targeted by IRS for their politics.

Jared Walczak, Legislators Take on the Taxing Logic of Nevada’s Live Entertainment Tax (Tax Policy Blog). How Nevada puts musicians out of work.

Annette Nellen, Designing sales tax exemptions – what is necessary?

Robert Goulder, Stateless Income Revisited: Kleinbard, Herzfeld, and BEPS (Tax Analysts Blog)

Richard Phillips, Will this Tax Day be the First and Last Including Premium Tax Subsidies for Millions of Americans? (Tax Justice Blog).

 

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Kay Bell, Mad Men’s Pete Campbell complains about 1970’s tax rates. “In 1970, when the midseason premiere is set, the top tax rate was 70 percent on, for a single filer like Pete, income of more than $100,000.”

Career Corner. Ten Days Until Tax Day: How To Tell Inconsiderate Clients You’ll Be Extending Their Returns (Tony Nitti). “Yet, despite presumably possessing the ability to comprehend the standard Gregorian calendar, here you are, dropping off all of your information mere days before the deadline — just as you did last year, and the year before that — and leaving me a Post-It note thanking me for ‘squeezing you in.'”

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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, 3/19/15: Iowa Alternative Maximum Tax advances to its doom. And: The Tax Foundation doesn’t want your 1040!

Thursday, March 19th, 2015 by Joe Kristan
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.

Iowa House Ways and Means advances Alternative Maximum Tax. The committee voted to send HSB 215 to the House Floor yesterday.  The bill would let taxpayers choose between the current Iowa income tax and a simpler version with a broader base, lower rates, and no deduction for federal taxes.

The ideas in the alternative bill are all good policy. But just adding this to the current awful income tax is like spray painting a car that’s half rusted-through. It’s extra work that does no good.

In the real world, taxpayers would compute both taxes and pay the lower one. This is the opposite of the current alternative minimum tax, where you pay the higher of the regular or alternative tax base. That’s why I call it an Alternative Maximum Tax.

If you want to simplify taxes, simplify the tax system; don’t just tack a simplification module on the existing code.

Really, though, this proposal is just for show, as they know Senator Gronstal will never let it move in the Iowa Senate. If it reinforces the idea that you can lower rates with a broader base and by taking out the deduction for federal taxes, it could even do some good. It might even get them thinking about the  Tax Update Quick and Dirty Iowa Tax Reform Plan.

 

Filing season tip: Please Don’t Mail Your Tax Returns to the Tax Foundation (Joseph Henchman, Tax Policy Blog):

Someone mailed us their tax returns and documents today. We quickly sent it back to that individual, as we neither process tax returns nor assist individuals with tax planning or preparation. Tax documents contain a lot of private information and everyone should be very careful about to whom they send this information.

We are here for taxpayers but we are unable to assist individuals with tax planning or preparation. Our staff includes scholars who study tax policy and data, not tax preparation professionals.  

Another inadvertent argument for e-filing: those returns are pretty sure to end up in the right place.

 

TPC logoRoberton Williams, Who’s Afraid of Income Taxes? New Interactive TPC Tools To Help You Understand the 1040. A cool new feature at TaxVox:

In bite-sized pieces, Who’s Afraid of the Form 1040? discusses the main tax form, explaining the different filing statuses, who counts as a dependent, and what income is taxed (and what income isn’t). How do deductions and credits cut your tax bill and how does the AMT boost it? And how does the income tax help you pay for college, health care, and retirement?

With tax trivia (we used to file our returns on the Ides of March) and facts (just 2.9 percent of taxpayers will owe AMT for 2014 but they’ll pay an average of $6,500), the new feature explains many aspects of the income tax. It won’t make it easier to file your taxes but it might make the process a bit more interesting.

We have also updated our Interactive 1040. Inaugurated last year, this web tool allows users to examine each individual line of the 1040 and Schedule A (itemized deductions). Pop-up boxes contain brief explanations and links to distributional tables and other TPC resources on each topic.

It might be a good way to help you understand why that refund you thought you had coming didn’t.

 

IMG_1322TaxGrrrl, It’s Not A Scam: IRS Is Really Sending Out Identity Verification Letters. Letters, people, not phone calls, not emails. They don’t call without sending a letter first.

Kay Bell, What should be on the IRS’ taxpayer service to-do list? I would start with not sending billions of dollars to ID-fraud scammers.

Me, IRS issues Applicable Federal Rates (AFR) for April 2015.

TaxProf, The IRS Scandal, Day 679.

 

David Brunori, A Very Good Tax Reform Idea in Louisiana (Tax Analysts Blog).

Louisiana Gov. Bobby Jindal (R) has a tax plan that should be creating buzz all around the country. He wants to convert some of the state’s individual and business tax credits from refundable to nonrefundable. Let’s be clear: Refundable tax credits are government transfers. They are welfare. They merely use the tax code as a vehicle to take money from some people and give it to others. And apart from the earned income tax credit, no refundable credits represent sound policy.

Given that over 25% of the EITC ends up in the wrong hands, I’m not sold on that one either. David is absolutely correct on the unwisdom of refundable credits, and transferable credits are just as bad.

 

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Tony Nitti, AICPA Sends 34 Tax Proposals To Congress

Annette Nellen posts on Need for greater tax literacy and regulation of preparers. Tax literacy, sure. Preparer regulation? Not so much. Massive simplification? Definitely.

Joseph Thorndike, Mike Lee’s Tax Plan Was Promising. Until It Wasn’t. (Tax Analysts Blog). “Are the reformicons done for?”

Matt Gardner, GOP Budget Proposal Once Again Punts Tough Questions (Tax Justice Blog)

Career Corner. Busy Season Zen: The Swish Montage (Caleb Newquist, Going Concern). Ommmm.

 

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Tax Roundup, 3/13/15: Making the ultimate sacrifice to tax administration. And: Tax Sadist Tourism!

Friday, March 13th, 2015 by Joe Kristan
http://commons.wikimedia.org/wiki/File:SPA51928.JPG#/media/File:SPA51928.JPG

“SPA51928″ by Jan Leineberg – Own work. Licensed under Public Domain via Wikimedia Commons –

Maybe I should leave my office door open. A tax office official in Finland who died at his desk was not found by his colleagues for two days (BBC, via the TaxProf):

The man in his 60s died last Tuesday while checking tax returns, but no-one realised he was dead until Thursday.

The head of personnel at the office in the Finnish capital, Helsinki, said the man’s closest colleagues had been out at meetings when he died.

He said everyone at the tax office was feeling dreadful – and procedures would have to be reviewed.

Procedures? Like what? I can see the memo now:

To: All Employees

From: Pekka Raanta, HR director

Re: New Procedures

The recent unfortunate incident involving our dear colleague highlights a need for new procedures for preventing a recurrence of the incident. The presence of unauthorized dead in the office poses both safety and administrative issues.

To ensure early deduction of deaths among our colleagues, we will initiate the following MANDATORY daily procedures.

1. The office manager is to begin each day by kicking all employees. The receptionist will kick the office manager. Should they not respond, please complete form HR-6-MORT.

2. At 10 am and 2 pm each day, we will have a roll call. THIS IS IMPORTANT. Please do not answer the roll for an absent colleague, as this could inadvertenly conceal a death.

3. Buddy system. You will be assigned a “death buddy” by the H.R. Department. You and your death buddy will be responsible for continuous respiration monitoring. Should you go on break or to the restroom, IT IS YOUR RESPONSIBILITY TO SECURE A SUBSTITUTE. You are also responsible for making mutually satisfactory arrangements to vacation together.

4. ALL EMPLOYEES are required to attend training to enable you to identify dead colleagues. Warning signs such as unusually low productivity and wearing the same outfit for consecutive days will be covered. We realize that it can be difficult to distiguish between the productivity of the dead and the normally-functioning, but there are important signs to look for.

Pihla will complete our colleague’s final time report. Please charge the final two days to “diversity training.” 

I wonder if there is a Purple Heart for tax officials who die at their desks. TaxGrrrl has more on this important story.

 

Foggy Friday at Principal Park. Opening day looms in the fog, April 17!

Foggy Friday at Principal Park. Opening day looms in the fog, April 17!

Russ Fox reminds us that Corporate Tax Deadline is Monday, March 16th and Form 1042 Filing Deadline is Monday, March 16th. Form 1042 reports most foreign withholding, except for partner withholding.

 

Jack Townsend, Judge Posner Confronts a Crackpot in a Tax Crimes Case. “The point is, Judge Posner entertains.”

Jim Maule, Moving? Let the IRS Know. “The lesson is undeniable. Taxpayers who move need to send a change of address notice to the IRS.”

Peter Lowy covers the same case as Prof. Maule in Gyorgy v Comm’r Tees Up Important Procedural issues at Procedurally Taxing.

 

Via Wikipedia

Via Wikipedia

Robert Wood, Fake IRS Agent Scam Targets Public, Even Feds, While Identity Theft Tax Fraud Is Rampant. “Senate testimony shows just how serious fraudsters are at tax time, and just how easy it is for them to get your tax refund.”

Tom Giovanetti,, Blame the IRS and Congress, not software, for tax fraud (The Hill)

Responsibility falls squarely at the feet of the IRS to enforce existing law but ultimately to Congress, as it’s within Congress’s power to reform and simplify programs and restructure administrator incentives to identify and prosecute fraud.

That’s why it’s shameful to see Congress pass the buck and attempt to pin the blame for tax fraud on . . . tax preparation software. That’s right—according to some in Congress, apparently TurboTax is to blame.

Blaming TurboTax for the way the IRS sends billions to thieves every year is like blaming GM for a bank robbery when a Chevy was used as the getaway car.

 

Peter Reilly, Jury Finds Kent Hovind Guilty Of Contempt Of Court No Verdict On Fraud Charges. More on the sago of the founder of the young earth creationist theme park.

 

20130316-1Kyle Pomerleau, Irish Business Leader Calls for Income Tax Reform:

It may be surprising to Americans to hear that Ireland has pretty high taxes. We usually hear about Ireland’s tax system in the context of its corporate income tax rate, which sits a low 12.5 percent, half the average rate of the OECD. We are led to believe that Ireland is a low-tax country in general.

In reality, Ireland’s tax code has some of the highest marginal tax rates, especially on income, in the OECD.

I did not know that.

 

Robert Goulder, Reading Between the Lines (Tax Analysts Blog). “Reading between the lines, we can surmise that conservatives in Congress are now trying to decide which is worse: Camp’s revenue raisers or a federal consumption tax.”

Kay Bell, Old online sales tax bill resurrected in new Senate

TaxProf, The IRS Scandal, Day 673. My high school classmate got pushed around by Lois Lerner in her FEC days, and Politico can’t be bothered to care.

Carl Davis, Nine States and Counting Have Raised the Gas Tax Since 2013 (Tax Justice Blog)

G. William Hoagland, Dynamic Scoring Forum: Overblown Concerns? (TaxVox)

 

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Tony Nitti, House Bill Would Provide Tax Deduction For Gym Membership; Shake Weight. I wonder how long it would take to start qualifying gyms specializing in 12-ounce curls to tap into this?

Alberto Mingardi, Greece and tax sadist tourism (EconLog):

The Greek government apparently announced that it wants to hire part timers as “undercover agents to grab out tax evaders”. Tourists, students and housewives could work armed with wireless devices to catch shopkeepers and service providers who do not issue receipts when they sell goods and services.

The application of the concept to tourists potentially opens up a new whole kind of business: sadistic tourism. Syriza regularly portrays Germans as evil people that want to make the poor Greek suffer: why not turning that into a profitable line of activity for the government? Come to Greece. Ouzo, great sea, beautiful landscapes, moussaka, and you’ll have the pleasure to force dirty little shopkeepers to pay their dues to the government!

If the Treasury Employees Union has a travel office, this could be a popular offering.

 

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Tax Roundup, 3/10/15: Deductions by the bag. And: tax credits put the “green” in green energy!

Tuesday, March 10th, 2015 by Joe Kristan
Flickr image courtesy Jen Waller under Creative Commons license.

Flickr image courtesy Jen Waller under Creative Commons license.

Bags and bags of deductions. To many taxpayers, the deduction for donations of household goods is sort of an extra standard deduction. If the value of non-cash charitable deductions claimed on 1040s were really as high as the deductions claimed, Salvation Army and Goodwill could be in the Fortune 500.

But the tax law doesn’t really have a freebie deduction for contributions of household goods. The IRS explains (item 7):

To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

A Maryland woman failed to meet this test in Tax Court yesterday. Special Trial Judge Carluzzo takes up the story:

Petitioner claimed a $31,037 charitable contribution deduction on her 2008 return, consisting of $15,340 in cash contributions and $15,697 in noncash contributions. Petitioner claimed a $10,357 charitable contribution deduction on her 2009 return, consisting of $6,490 in cash contributions and $3,867 in noncash contributions.

The cash contribution substantiation was inadequate. The documentation for the non-cash portion wasn’t any better (my emphasis):

With respect to the noncash charitable contributions, petitioner attached a Form 8283 to her 2008 and 2009 return, showing several contributions of property for each year, with each contribution of property valued over $250. To substantiate the contributions, petitioner submitted donation receipts from the Purple Heart, the National Children’s Center, the Lupus Foundation of America, Inc., and the Vietnam Veterans of America. Each of the donation receipts is deficient in one way or another, lacking either a date of contribution or a description of the property contributed, or both. Furthermore, the donation receipts neither reconcile with petitioner’s Form 8283 nor provide anything more than vague descriptions of the items donated.

Every practitioner who has been doing 1040 work for very long has seen things like this — say a round “$2,000″ for, say, “10 bags, clothes — Goodwill.”  Or, sometimes, $7,000 (that never works; good luck finding a “qualified appraiser” for your old laundry). No receipts, or maybe an unsigned slip of paper that says “10 bags” from the donee. That doesn’t meet the requirements for a “statement” showing a “description of any property given.” The outcome:

Accordingly, we find that for each year in issue, petitioner has failed to establish entitlement to a charitable contribution deduction for donations of property in greater amounts than those now allowed by respondent.

The Moral? The deduction for household goods is not a freebie. If you are claiming it for over $250, you have to meet documentation requirements similar to those for cash donations. Even if you took pictures of the items before donating them, you lose without the statement from the donee.

Cite: Jalloh, T.C. Summ. Op. 2015-18.

 

Wind turbinePutting the green in renewable energy tax creditsTax Analysts’ Brian Bardwell tells us ($link) how green energy credits worked in Oregon:

The Oregonian reported at the end of February that the Oregon University System had claimed credits under that later deadline, saying that it had already begun work on a $27 million installation of solar arrays across its seven main campuses. And although then-Gov. John Kitzhaber used a golden shovel in a 2011 groundbreaking ceremony, contractor Renewable Energy Development Corp. — known as Redco — had not yet obtained building permits for the project or even finished its design plans, the paper reported.

But the DOE approved credits for the program, apparently relying on invoices from a nonexistent company indicating that it had already begun installing the foundations for solar racks at each of the campuses.

Following the reports, DOE Director Michael Kaplan called on the Oregon Department of Justice to investigate the case.

The program had some things in common with Iowa’s film credit program:

Relatively modest to start, the program grew quickly, with lawmakers approving an ever-growing list of eligible projects, increasing the maximum credit from $2 million to $20 million, removing the overall program cap, and allowing some claimants to transfer their credits.

As the program became more unwieldy and the DOE struggled to administer it, the legislature began winding it down…

This is related to the scandal that forced Governor Kitzhaber to resign. Special industry incentives are inherently corrupt, even if nobody in government is on the take, because they reward insiders at the expense of the body of taxpayers, known genericly as “chumps.” (for you Illinois readers, that’s the same as chumbolones).

More coverage at oregonlive.com: Oregon’s signature solar energy project built on foundation of false hopes and falsehoods

 

TaxGrrrl, Heart Surgery & Hospital Stays: Deducting Medical Expenses On Your Tax Return. An intrepid tax blogger finds a tax angle in her father’s heart surgery. We wish him a speedy recovery.

William Perez has Concise Guide to Schedule C for all you self-employeds.

Robert Wood, Wesley Snipes Lands NBC Show Endgame. Why His IRS Endgame Failed. “Stay away from crazy arguments.”

 

Alan Cole, Tom VanAntwerp, Richard Borean, Where Do Americans Take Their Retirement Income? (Tax Policy Blog).

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Warm places and lake country, it looks like.

 

TaxProf, The IRS Scandal, Day 670. This missing email stuff seems to be a pattern.

So what? The Rich Get (Much) Richer Under The Rubio-Lee Tax Plan (Tony Nitti). If it helps everyone else more than any other plan, why is that a problem?

Kay Bell, Tax simplification is focus of yet another Capitol Hill hearing.

Peter Reilly,  Pensacola Shows Little Interest In Kent Hovind Trial

Simon Johnson, Dynamic Scoring Forum: The Dangers of Dynamic Scoring (TaxVox)

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Martin Sullivan, “Beep, Beep” — Korean Singer YoonA Wins Model Taxpayer Award (Tax Analysts Blog):

She is one of eight members of the wildly popular band Girls Generation which has recorded such hits as Beep-Beep and Do the Catwalk. And now . . . she is the recipient of a presidential award from the South Korean government for being a dutiful and honest taxpayer who has made a significant financial contribution to her country.

We don’t expect an award, but it would be nice if the IRS would at least send a thank-you note.

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Tax Roundup, 3/9/15: The dark side is very powerful. And: conventional unwisdom, unwise candidacies.

Monday, March 9th, 2015 by Joe Kristan

20130419-1Christopher Bergin asks Has the IRS Truly Moved to the Dark Side?

Anyone who reads my posts knows that I have always given the IRS the benefit of the doubt in its dealing with exemption applications from conservative political organizations (which is what they are in every way but technically). I have not accused the IRS of influencing the political process. I’ve argued that it simply screwed up, albeit in a bad way, noting that stupidity is not a crime.

But now “criminal activity” has been raised. And not in a casual way, but in an official way.

The IRS’s response to this latest accusation came in a lame statement issued February 27 that essentially says it’s the inspector general’s “responsibility” to look into all this. For those of us old enough to remember the TV show Hogan’s Heroes, that is the equivalent of Sergeant Shultz saying, “I know nothing.”

Except it’s not funny.

If you’ve lost Christopher Bergin, you’ve lost Middle Arlington. You’ve also lost the “no scandal here” argument.

 

20150120-1Conventional unwisdomThe Des Moines Register’s Joel Aschbrenner is doing some excellent work on the new convention center hotel that Polk County and the City of Des Moines are helping to fund.

Researchers: Convention hotels rarely fulfill promises: “‘In a great many cases his forecasts have proven to be off, in some cases wildly off,’ Sanders said.”

Who is at risk if hotel under-performs?

The city has offered a $5 million loan guarantee that will come into play three to five years after opening when the hotel refinances its mortgages, Assistant City Manager Matt Anderson said. Hotels often refinance after they build a customer base and stabilize their business, he said.

If the hotel is under-performing due to lower-than-expected occupancy levels or room rates, or if interest rates have spiked up, refinancing would be more expensive and the city would have to cover the difference.

East Village hotel plan loses one floor: “The developer of a hotel and apartment project that will cover an entire East Village block says the hotel is being scaled back in part because of competition from downtown’s proposed convention hotel.”

The City of Des Moines has been pleading poverty. It runs revenue cameras to pick the pockets of random travelers committing the crime of not quite stopping before turning right on red at an empty intersection. It has collected illegal taxes and fought against refunds all the way to the U.S. Supreme Court. Yet it thinks it has the resources to help finance a hotel. That has to be terrific news to all of the other hotels downtown.

This isn’t the first time Des Moines has put money in a private downtown business. That hasn’t gone entirely smoothly.

 

Peter Reilly, 1099-C From Out Of The Blue? Don’t Ignore It! Fight It! Peter reminds us that just because somebody issues a 1o99-C saying there was debt forgiveness income doesn’t make it so.

Russ Fox, You Have to Have an Unreimbursed Loss to Claim a Casualty Loss

TaxGrrrl, Taxes From A To Z (2015): C Is For Commuting Expenses and D Is For Disability Income.

Kay Bell, No day off for tax advice: March’s first weekly tip round-up

Jack Townsend, Certifying Non-Willflness for Streamlined – The Risk. More on the puzzle palace of IRS offshore account enforcement.

Patrick Thomas, Inability to Correctly Calculate CSED – Confusion Leads to Unlawful Results (Procedurally Taxing).

It is a basic concept of law that once a statute of limitation has passed, no action barred by the statute may take place. Yet, as noted in the National Taxpayer Advocate’s 2014 Annual Report, the IRS often engages in forced collection action after the Collection Statute Expiration Date (CSED) has passed.

I’ll just note that the IRS is pretty good about not issuing refunds when the statute has passed.

 

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David Henderson, Rubio-Lee Isn’t Great:

Co-blogger Scott Sumner, over at his TheMoneyIllusion blog, has a post titled “Rubio-Lee is great, so why not make it even greater?”

I don’t agree that Rubio-Lee is great. It has many good features and Scott has listed pretty much all of them, so I won’t repeat them here. It has a feature, that I’ll mention shortly, that is a major negative.

Unfortunately, Scott didn’t mention the worst aspect of Rubio-Lee: the huge tax credits.

 

Tony Nitti, Reviewing The Rubio-Lee Proposal For Tax Reform

 

Hank Stern, Another day, Another CoOp Snafu (Insureblog):

Thanks to a heads’ up from FoIB Josh Archambault, we have this little gem:“The Minuteman Health Inc. Co-op in Massachusetts got more than $156 million and covered only 1,822 people – over $86,000 per enrollee.”But wait, that’s not all!

“HealthyCT Inc. Co-op in Connecticut got more than $128 million and covered only 6,094 people – more than $21,000 per enrollee.”

If that doesn’t give you the warm fuzzies, I have no idea what will.

At least they haven’t gone belly-up, unlike Iowa’s CoOportunity Co-op.
Alan Cole, CRS Report: Medical Device Tax Burden Falls On Consumers (Tax Policy Blog). “Don’t worry, the consumers will ultimately be hit with the tax, and they’ll just have to deal with it because they need their pacemakers!”
Annette Nellen, Obamacare confusion – real and made up. “The current system is too complex, confusing, inequitable, expensive, – and, not providing health care commensurate with the costs.”

Accounting Today, Cover Charge: How the ACA Is Affecting Fees. Spoiler: it’s not lowering them.

 

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Robert Wood, First Win Lottery, Then Defend Suits By Ticket Sellers, Co-Workers, Relatives

Adrienne Gonzalez, To Whom It May Going Concern: My CPA Is Locked Up and They Won’t Let Her Out. (Going Concern). Sometimes imprisonment is a sign to reconsider your choice of preparer.

 

TaxProf, The IRS Scandal, Day 669Day 668Day 667

Former IRS Commissioner Mark Everson is running for president. The Washington Post reports that he is running as a Republican on a platform of “bold tax reform.

After leaving the IRS, he took a job as CEO of The American Red Cross. That went badly: “The president and CEO of The American Red Cross (ARC) is out after less than six months – involved in an inappropriate relationship with a female subordinate.”

It seems like a long shot. Perhaps he looked at the scandals surrounding the presumptive Democratic nominee and her husband and concluded that was the path to an unopposed nomination.

 

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