Posts Tagged ‘Anthony Nitti’

Tax Roundup, 1/29/15: Iowans, fill ‘em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.

Related:

Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.

 

Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.

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Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”

 

Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/23/2015: Egg donor compensation taxable payment for services. Meanwhile, kidney donor compensation is a felony.

Friday, January 23rd, 2015 by Joe Kristan
"White-&-Brown-Eggs" by Evan-Amos - Own work. Licensed under Public Domain via Wikimedia Commons

“White-&-Brown-Eggs” by Evan-Amos – Own work. Licensed under Public Domain via Wikimedia Commons

The big news in the tax world today is a Tax Court case ruling that payments to an egg donor were compensation for services. The case turned on the language of the contract of between the egg donor and the agency that procured the eggs. Tax Court Judge Holmes ruled that the payments were not excludible as payments for physical damages because there was no tort claim involved.

There are plenty of places you can read more details on this case, including Russ Fox and Tony Nitti. The TaxProf has a roundup.

So there is an organized and legal market for donor eggs, which, if all goes well, turn into an entire new human. That’s a good thing. But if an agency paid you for one of your kidneys to save the life of an already-born child on the kidney donor list, they would face a $50,000 fine and five years in prison under the Gore-Hatch National Organ Transplant Act of 1984.

The National Kidney Foundation reports that 12 people die daily waiting for a donor kidney, and that 4,453 died waiting for a kidney transplant in 2013.  It’s a felony to save any of those lives by buying a kidney from a healthy, willing and fully-informed seller. Meanwhile, nobody dies waiting for a donated egg.

Cite: Perez, 144 T.C. No. 4

Related: The Case for Paying Organ Donors (Sally Satel)

 

Kyle Pomerleau, Richard Borean, More than Half of all Private Sector Workers are Employed by Pass-through Businesses:

53.7% of Iowans work for pass-through businesses taxed on 1040s.

53.7% of Iowans work for pass-through businesses taxed on 1040s.

“Pass-through” income is income earned by S corporations and partnerships, including LLCs. This income is taxed on 1040s. Those who favor ever-increasing individual taxation of “the rich” by definition favor increasing the tax on employment.

 

buzz20140923Robert D. Flach has your Friday Buzz, including thoughts on avoiding scammers claiming to be from IRS and on Wal-Mart’s cash tax refund program: “My advice – avoid this program.”

Kay Bell, IRS gets $1.3 million for Darryl Strawberry’s Mets annuity

Paul Neiffer, IRS Scammers Net $14 Million from 3,000 Victims. If the e-mail says it’s from the IRS, it’s not. If you aren’t expecting a call from the IRS, the caller isn’t from the IRS.

Jason Dinesen, Ridiculous IRS Situations I’ve Recently Dealt With. A continuing series.

Leslie Book, Tax Court Addresses Verification Requirement in Trust Fund CDP Case (Procedurally Taxing)

Robert Wood, Washington Nationals $210M Pitching Contract For Max Scherzer Is About Taxes. “The Home Rule Act prohibits the District from imposing a commuter tax on non-residents.”

Peter ReillyExclusive – Kent Hovind Claims Congressmen Are Looking Into His Case. All you could possibly want to know about the case of the guy who thinks the Flintstones was actually a documentary series.

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Robert Goulder, Reading the Tea Leaves: China’s Jurisdictional Tax Claims (Tax Analysts Blog). Contrary to some reports, even Communist China doesn’t plan to tax worldwide income of non-resident Chinese. The U.S. stands alone in doing that.

Howard Gleckman, A Look at the Territorial Tax Systems in Four Countries Finds No Magic Bullets (TaxVox). No magic beans, either, I’ll bet.

TaxProf, The IRS Scandal, Day 624

 

Career Corner. Here Are Just a Few Questions You’ll Be Asked in a Big 4 Interview (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/20/2015: What’s with the accounting method changes? And: foot kissing + tax evasion = double trouble.

Tuesday, January 20th, 2015 by Joe Kristan

3115-2009If your business return seems extra thick this year, it could be a result of an “accounting method change” application — Form 3115 — buried in it.

The tax law requires taxpayers to get IRS permission to change a “method of accounting.” Without getting into all of the tedious details, and with great oversimplification, a “method of accounting” occurs when the way you account for something on your tax return affects the timing of income or expense, but not the total amount over time. In other words, it’s temporary vs. permanent differences.

Of course timing is everything in tax planning, and the IRS doesn’t want you to change accounting methods willy-nilly. The IRS doesn’t have the time to consider every accounting method change, though, so it publishes a long list of “automatic” method changes annually. This year’s list is in Rev. Proc. 2015-14.

This year will see more Forms 3115 than usual as a result of the so-called “repair regulations” that are effective for 2014 returns. These rules distinguish between “repair” expenses, which can be deducted, and “improvements,” which have to be capitalized and depreciated.

20140925-2The repair regulations have provisions that let taxpayers treat their building components — HVAC, roofs, elevators, etc — as separate items under these rules. Their effect is to permit deductions for some costs that may have been trapped in the depreciable cost of the building. That makes the automatic method change under these rules (Rev. Proc. 2014-17) a good deal, as it can provide a catch-up deduction for prior capitalized costs. Many returns will also include a method change (Rev. Proc. 2014-16) to reflect updated rules for deducting or capitalizing “materials and supplies.”

Automatic method changes are a good thing; if you have a method change that isn’t automatic, special IRS permission is required, and it doesn’t come cheap. But even an automatic change isn’t free, especially if your preparer has to go through old repair records to determine the catch-up deduction. But if you have significant depreciable real property, it’s probably worth the effort.

 

Russ Fox, Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy. 

An accountant from Stillwater, Minnesota — who happened to also be the Mayor — chose poorly.

 

20121120-2Hank Stern, Counting down the ObamaTax:

Many (most?) folks believe that the tax is a mere $95 this year and, for some people, this may well be the case. But it’s actually just a minimum; the actual rate (this year) is 1% of income:

TurboTax, an online tax service, estimated that the average penalty for lacking health insurance in 2014 will be $301.”

A common misconception.

Robert Wood, Beware Obamacare When Filing Taxes This Year. A roundup of the individual mandate penalty and the net investment income tax.

 

Annette Nellen, Due diligence for preparing 1040s for 2014:

What’s new for due diligence for 2014 individual tax returns?  Virtual currency, Affordable Care Act, FBAR, Airbnb rentals, for sure.  Also, the typical charitable contributions, mortgage interest and 1099-K review.  The biggest new item for 2014 will the new line asking if the individual had health coverage for the year.

More work doesn’t come free. The post lists to a longer article about preparer “due diligence” this tax season.

 

Tim Todd, Tax Court Adopts Functional Test to Define “Bank”. “In sum, the Tax Court held that Moneygram satisfied neither the Staunton functional test nor the § 581 test because it failed to receive deposits, make loans, and was not regarded as a bank by any state or federal regulator. Consequently, Moneygram was not entitled to the reported bad debt deductions of the partial or wholly worthless asset-backed securities.”

Jason Dinesen, A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913.

 

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part 1. “As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.”

TaxGrrrl, Fun With Taxes: Tax Haiku 2015. How about this:

 insure worker health?

Better not reimburse it

That is expensive.

 Kay Bell, Martin Luther King Jr. Day lessons via “Selma” & “Glory”

Mitch Maahs, IRS Announces New Standard Mileage Rates (Davis Brown Tax Law Blog)

 

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Robert D. Flach, BO SOTU PLANS TO INCREASE TAX ON THE “WEALTHY”. ” BO’s tax proposals, both to help the middle class and punish the wealthy, will never pass in the Republican controlled Congress.”

Matt Gardner, President Obama Takes on the Capital Gains Tax Inequity with New Proposals. By making it worse, of course, though not to hear Mr. Gardner tell it.

Renu Zaretsky, To Build a Better Tax Code, You Could Follow the Money.  The TaxVox headline roundup is heavy on the President’s proposals.

TaxProf, The IRS Scandal, Day 621. This edition cites Stephen Moore’s Op-ed: “Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job.”  Unfortunately, the President who hired him thinks he is doing his job, which is to be a partisan scandal goalie.

 

The headline that wins the internet: Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (Jack Townsend)

 

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Tax Roundup, 1/12/15: They’re back! Gas tax boost, maybe; tax reform, not likely as 86th Iowa General Assembly convenes

Monday, January 12th, 2015 by Joe Kristan

20130117-1Same Governor. Same split party control in the legislature. So why would we expect different results? I expect no big tax cuts, tax increases or tax reforms. When you mix the same ingredients and put them in the same oven, expect the same thing to come out of the oven.

They will be legislating for the next few months, so they will talk, and who knows? Something might happen. But that’s not the way to bet.

The Des Moines Register today covers 10 key issues facing Iowa Legislature in 2015. Six of them are tax items. I think only one of them is likely to result in legislation. Let’s go down the list.

ROAD FUNDING/GAS TAX. The state gas tax isn’t inflation adjusted, and the Department of Transportation says it needs more money. As gas taxes are close to a fee on road use, you can make a policy case for an increase. It’s a lot harder to make a political case, which is why the Governor and the legislature are so deferential to one another in this area. The fracking-induced fall in gas prices may give them the legislature the excuse they need to do what they clearly want to do — raise the 10 21-cent per gallon tax. The governor may push it through if he has decided this is his last term. But most likely they’ll be saying “after you” right through adjournment.

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.

INCOME TAX CUTS.  The Register conflates tax cuts with tax reform here. They aren’t necessarily the same thing. Iowa’s income tax could bring in the same amount of revenue without the highest corporation rate in the developed world by eliminating the dozens of special interest tax credits and carveouts and tax credits for the well-connected. As long as Michael Gronstal remains in control of the flow of legislation in the Iowa Senate, anything that cuts rates for “the rich” goes nowhere. In any case, the Governor doesn’t seem to mind a tax credit system that gets him invited to all the cool ribbon cuttings.

That’s too bad. Iowa has a bottom-ten business tax climate that favors those with good lobbyists while making South Dakota look attractive for everyone else. Something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would wipe out the corporate tax, cut individual rates, and get rid of Iowa’s byzantine maze of special breaks, is long overdue.

20120906-1BROADBAND EXPANSION. This is the sort of small-ball legislation that has passed in recent years, and this seems like the most likely to get through, probably as a tax credit. Of course, every new tax credit means a puppy dies Iowa’s tax law is just a little worse and a little harder to fix. Never mind that the real obstacle to broadband expansion is in Washington, not Des Moines.

LOCAL OPTION SALES TAXES. The municipalities want to be able to drive out businesses by increasing sales tax without help from surrounding communities. Same ingredients, same cake.

BANNING TRAFFIC CAMERAS. It’s about the money, and Senator Gronstal will prevent any anti revenue camera legislation from advancing.

SALES TAX INCREASE. This proposal to increase sales taxes for natural resource funding died in the Senate last year. If you can’t get a tax increase out of the Iowa Senate, you sure aren’t getting one out of the GOP House.

Other coverage: Sioux City Journal, Iowa Legislators see limited budget room for tax cuts this session

Related: Tax States of the States: Mixed, Murky and Sometimes Mercurial (Renu Zaretsky, TaxVox)

 

IMG_0923Russ Fox, FTC Sponsors Tax Identity Theft Awareness Week

Tony Nitti, Four Things Sure To Destroy Your Tax Season. Three of them stem from Obamacare.

 

William Perez, What You Need to Know about Reporting Payments Using Form 1099-MISC

Annette Nellen, HR 30 – Defining full-time worker for ACA has costs. A story of unintended consequences.

Peter Reilly, Dressage Riding Physician Convinces IRS On Hobby Loss Audit But Loses To Massachusetts

Keith Fogg, Tenth Circuit Ups the Ante on Late Filed Returns (Procedurally Taxing)

Robert Wood, Bill Gives IRS Power Over Tax Prep, But Should It? No.

Kay Bell, St. Louis says no added taxes for new NFL Rams stadium. But the one they have is 20 years old, darn it!

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Kyle Pomerleau, Government Cost $4.5 Trillion in 2014 and We All Paid Part of It (Tax Policy Blog).

Robert Goulder, China’s Fiscal Roadmap: Tax Like America (Tax Policy Blog). If you are worried about China achieving economic domination, you can rest easy now.

TaxProf, The IRS Scandal, Day 613

News from the Profession. Judging By This List, Accountants Aren’t Marriage Material (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/31/14: Last minute tax moves: losses, gifts, and… weddings? Timing is everything!

Wednesday, December 31st, 2014 by Joe Kristan

20140608_2So.  2014 is down to its last few hours. What can we do today to make April 15, 2015 a little happier? Well, maybe less bad. It’s asking too much of one day to fix a year’s worth of tax problems, but today might still make a difference. A few things you can do yet today:

– Sell stocks at a loss to offset capital gains. It’s the trade date that counts in determining when a loss is incurred (except on a short sale). That means if you have incurred capital gains in 2014, you can sell loss stocks today and reduce your taxable gains for the year. Most individuals can deduct capital losses on a 1040 to the extent of your gains, plus $3,000. To the extent you fail to offset capital gains with the losses sitting in your portfolio, you are paying taxes voluntarilyJust make sure you make the trade in a taxable account and don’t repurchase the losers for 30 days.

– Consider making your state 4th quarter estimated tax payment today (and your federal payment, if you are an Iowan). Don’t do this rashly, as alternative minimum tax can make this a bad move for some taxpayers. Also, time value considerations can make this a bad move. But in the right circumstances, you can save a lot in April by getting your payment in the mail today.

- Make a charitable gift today, if you are so inclined. Gifts (and other deductions) paid with a credit card today are deductible, even if the credit card isn’t paid off until next year. Checks postmarked today are deductible this year. If you don’t know where to make your gifts, I have some suggestions; if you don’t like those, TaxGrrrl has some others.

- And if you are fanatical about tax planning, and someone else, you can change your marital status today. Your marital status on December 31 is your status for the whole year, as far as the IRS is concerned. But if you are seriously considering this, you definitely need to bring someone else into the discussion.

 

20120511-2A Tax Court Case yesterday shows how important year-end timing can beA Minnesota couple paid $2,150.85 of community college tuition for their daughter’s Spring 2011 semester on December 28, 2010. That normally would have qualified for an American Opportunity Tax Credit of about $2,037 — a dollar-for-dollar reduction fo their 2011 taxes. But they were four days too soon.

Tax Court Judge Marvel explains (my emphasis):

Generally, the American opportunity credit is allowed only when payment is made in the same year that the academic period begins. Sec. 1.25A-5(e)(1), Income Tax Regs. For cash method taxpayers, such as petitioners, qualified education expenses are treated as paid in the year in which the expenses are actually paid.

Because the semester didn’t begin until 2011, the 2010 payment didn’t count. Judge Marvel explains that close isn’t close enough:

We realize that the statutory requirements may seem to work a harsh result in a case such as this where a four-day delay in making the December 28, 2010, payment would have engendered a different result. However, the Court must apply the statute as written and follow the accompanying regulations when consistent therewith.

The Moral? When it comes to tax planning, the difference between December 31 and January 1 is one year, not one day. If timing matters, be sure to get on the right side of the line, and be sure you can document your timing. If you are mailing a big check, go Certified mail, return receipt requested, and save that postmark.

Cite: Ferm, T.C. Summ. Op. 2014-115.

 

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 rated 8th worst small business environment. The Small Business & Entrepreneurship Council has ranked the entrepreneurial environment of the 50 states. Iowa does poorly:

Iowa is the nation’s number one producer of corn. Unfortunately, it’s costly policy climate works against production from free enterprise and entrepreneurship in general. Iowa ranks 43rd in terms of its public policy climate for entrepreneurship and small business among the 50 states, according the 2014 “Small Business Policy Index.” While Iowa’s entrepreneurs, businesses, investors and workers benefit from fairly low crime rate and a low level of government debt, there are many negatives, such as high individual capital gains taxes; very high corporate income and capital gains taxes; high unemployment taxes; and a high level of government spending.

While I think overall Iowa is better than 43rd, our awful tax environment hurts. Our system of high rates with dozens of carve-out credits for the well-advised and well-connected works great for insiders, but not so well for the rest of us. Maybe 2015 will be the year Iowa considers serious tax reform, like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Kay Bell, Donating and deducting a car

Jack Townsend, Reasonable Doubt and Jury Nullification

Jason Dinesen lists his Top 5 Blog Posts of 2014. My favorite is his #5, Having a Side Business in Multi-Level Marketing Doesn’t Make Personal Expenses Deductible

Tony Nitti warns us of Five Traps To Avoid When Deducting Mortgage Interest

Robert D Flach shares: MY NEW YEAR’S EVE TRADITIONS: “I type W-2s and 1099s.” Don’t get too wild, Robert!

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

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G. Brint Ryan, Who’s Afraid of the IRS? When Business Fights Back Against Government Overreach and Wins (Procedurally Taxing)

Annette Nellen,State taxes and bitcoin

Robert Wood, No Mickey Mouse Taxes On Jim Harbaugh’s $48M Michigan Deal And 49ers Exit. “Jim Harbaugh’s 49ers contract may be history, but his $48M Michigan deal has tax components that you might not expect.”

 

Howard Gleckman, Taxes, Charitable Gifts, the ACA, and Ineffective Deadlines (TaxVox).  “Scrambling to make a last-minute charitable donation to beat the New Year’s Eve deadline for a 2014 tax deduction? Take a deep breath and ask yourself, ‘Why am I going through this craziness now?'”

TaxProf, The IRS Scandal, Day 601

 

Post-sequester commuting.

Not excited about all the wild New Years Eve hoopla? Maybe you prefer a more low-key celebration, like the one Robert D. Flach relates in MY NEW YEAR’S EVE TRADITIONS:

Every year during the day on New Year’s Eve I do the same thing I do during the day on Christmas Eve – I type W-2s and 1099s.

Live it up, Robert!

 

And Happy New Year to all of you Tax Update readers! This is it for 2014 here.  See you next week, and next year.

 

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Tax Roundup, 12/30/14: Is prepaying taxes a good bet even without AMT? And: CoOportunity failure ripples.

Tuesday, December 30th, 2014 by Joe Kristan

I’ll gladly pay you today for part of a hamburger tomorrow. In our zeal to pile deductions into this year’s return, it’s easy to overdo it. If you aren’t subject to alternative minimum tax, you can get a 2014 tax benefit by mailing your estimated 2014 state balance due by tomorrow. But does it really make sense to pay a dollar of tax now to get a 35-cent benefit on April 15? at the 35% bracket, the answer would be yes, but for lower brackets, the numbers don’t work as well.

The chart below shows compares the time value lost by sending $1,000 to the government early to the present value of the tax benefit received, using a 2% discount rate.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Every situation differs. This table should be used with caution. It does provide some tentative rules of thumb for individuals, assuming you will be in the same bracket in 2014 and 2015, that you itemize, and that AMT does not apply:

– It always makes sense to pay your fourth quarter state estimates in December instead of January.

– If you are an Iowa taxpayer, it makes sense to prepay fourth quarter federal payments at any bracket, but it never makes sense to pay your April 15 balance due in December.

– It only makes sense to prepay your state balance due for April 15 2015 by tomorrow only if you are in at least the 33% bracket, which kicks in for joint filers and $226,850 of taxable income, and for single taxpayers at $$186,350. For Iowa taxes due April 30, it’s about a push, or even a small present value loss.

– It makes sense for taxpayers in the 25% bracket ($73,500 joint, $36,900 single) to prepay their March 1 property tax installments.

– It never makes sense to prepay your September property taxes nine months ahead.

As we discussed yesterday, AMT can make prepayments a much larger blunder, so don’t do anything without running some numbers.

 

cooportunity logoThe failure of Iowa’s federally-funded CoOportunity health care insurance company is drawing national attention. The Wall Street Journal opines in Fannie Med Implodes: “Call it the Solyndra of ObamaCare.”

Meanwhile, Iowans covered by CoOportunity have to deal with the consequences. Des Moines Register, CoOportunity’s crisis could cost members thousands:

Customers who switch out of CoOportunity coverage won’t be able to start their new policies until Feb. 1, because Dec. 15 was the national deadline for obtaining insurance policies that start Jan. 1. In the meantime, many customers would have to start meeting CoOportunity’s annual deductibles and out-of-pocket maximums for 2015. Then, when they switch insurers in February, “they would have to start over, unfortunately,” Commissioner Nick Gerhart said Monday.

If you like your plan…

CoOportunity Health’s troubles could affect whether small Iowa employers can qualify for 2015 tax credits toward workers’ insurance premiums.

Employers with fewer than 25 full-time workers making an average of less than $50,000 are supposed to be eligible for the tax credits, which can amount to 50 percent of the cost of premiums. However, starting in 2015, those credits are to be applied only to policies that are sold on the employer side of the public marketplace, healthcare.gov. In Iowa, CoOportunity was the only carrier selling health policies to Iowa employers on the marketplace. The company has ceased selling new policies because of its financial crunch.

Iowa Insurance Commissioner Nick Gerhart said he’s checking with federal officials to see if there’s another way to let small Iowa employers obtain the tax credit.

The IRS has let taxpayers in some counties without a SHOP provider take the credit. We will see if they grant a similar waiver here.

Related: Hank Stern, SHOP Chop.

 

Robert Wood, 3 Quick Year End Steps Pay Off Big April 15old walnut

Kay Bell, 5 tax-saving moves you can make by Dec. 31

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #1-Obamacare Endures Additional Attacks. Aw, poor thing.

Russ Fox, IRS Announces Tax Season to Start on January 20th

Robert D. Flach, THE YEAR IN TAXES 2014. “Once again the year ended with the idiots in Congress waiting until literally the last minute to pass an extension of all of the expired ‘tax extenders’.”

Melanie Migliaccio, 9th Cir. Rejects IRS’s Transferee Status Recharacterization Argument (Tax Litigation Survey)

 

Iowa Public Radio, Rep. Grimm To Resign After Guilty Plea On Tax Charge.

TaxProf, The IRS Scandal, Day 600

Alan Cole, Au Revoir to the Millionaire’s Tax (Tax Policy Blog). “The French government will quietly allow its millionaire’s tax to expire.”

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If you think I’m unsympathetic to Commissioner Koskinen’s pleas of IRS povertycheck out No Fat to Cut at the IRS? So Take a Chainsaw to the Rest of the Beast. (J.D. Tuccille, Reason.com):

Of course, Koskinen framed it in terms of customer service, and friendly media outlets immediately parroted the message that a $346 million cut, bringing the IRS budget down to $10.9 billion, inevitably means longer wait times on the phone for distraught taxpayers seeking answers for their pressing tax questions.

This is an all-hands-on-deck spin on IRS cuts, with National Taxpayer Advocate Nina Olson (who is theoretically on the victims’ side, despite her government paycheck) recruited to caution that the IRS is “chronically underfunded” with unfortunate implications for taxpayer service and assistance.

Then again, that might not be so horrible an outcome, given that IRS assistance involved giving taxpayers bad advice 22 percent of the time back in 1987, 41 percent of the time in 1989, 22 percent of the time in 2002, and 43 percent of the time in 2003. And no matter the advice dispensed by the tax collectors themselves, taxpayers are on the hook for getting it right.

Via Wikipedia

Via Wikipedia

I can’t help thinking that the cuts to service are an IRS version of the Washington Monument Strategy, where the government responds to budget cuts by closing the most popular and visible tourist attractions. I would find Commissioner Koskinen’s pleas of poverty more convincing if he weren’t spending money on the new “voluntary” preparer program to end-run the Loving decision that shut down the preparer regulation power-grab. It would also be a good signal to put the 200 IRS employees who spend their working days doing union work on the phones instead.

Related: Cromnibus cuts IRS budget, delays extender vote.

 

Career Corner. What If Your Job Title Were Brutally Honest? (Adrienne Gonzalez, Going Concern). I don’t suppose it would be easy to fit “Chronic Blogger Who Does Taxes to Finance It” on a business card.

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Tax Roundup, 12/24/14: Giving season edition! How to give, avoiding traps, and suggestions for the perplexed.

Wednesday, December 24th, 2014 by Joe Kristan

The extender bill was signed while I was away, as you have probably figured out already. While the extenders remain awful policy, at least we go into the year-end knowing what the tax law is. We should be grateful for our presents; even a lump of coal can help keep us warm.

Related: Kristine Tidgren, Tax Increase Prevention Act of 2014 Revives Tax Breaks, But Only for 2014Paul Neiffer, It’s Official.

IMG_2493

 

Tax tips for the giving seasonAs the business week winds down early on Christmas Eve, many taxpayers find themselves feeling generous to charity. Here are some things to keep in mind as you go about your charitable gifting

Gifts of appreciated long-term capital gain property are often the most tax-efficient. Such gifts, done properly, give you a full fair market value deduction without ever taxing you on the appreciation. If you are not gifting publicly-traded securities, however, appraisal requirements for gifts over $5,000, and just the paperwork that may be involved in transferring ownership, may make it impossible to complete such a gift this year.

Even gifts of traded securities can be hard to pull off this late in the year. You have to get the securities into the donee’s brokerage account by the close of business December 31. I’ve seen attempts to get this done fail more than once. It is especially troublesome in dealing with small or unsophisticated charities, who might not even have a brokerage account available to use.

Congress renewed the IRA break in the extender bill, but it needs to happen by December 31, and there are some restrictions. The IRS explains:

  • If you are an IRA owner age 70½ or older you have until Dec. 31 to make a qualified charitable distribution, or QCD.
  • A QCD is direct transfer of part or all of your IRA distributions to an eligible charity. You may transfer up to $100,000 per year.
  • You may exclude the distributed amounts from your income. You can claim this benefit regardless of whether you itemize your deductions. If you do exclude the QCD from your income, you can’t also deduct it as a charitable contribution on Schedule A if you do itemize.
  • You can count your QCDs in determining whether you meet the IRA’s required minimum distribution.
  • The provision had expired at the end of 2013. The new law is retroactive for 2014. This means any eligible QCD in 2014 will qualify.
  • Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

If you want to give cash, the “mailbox rule” applies. The postmark date controls whether a mailed check is deductible this year.  If you don’t care to take chances, a gift by credit card is deductible in the year the credit card is charged, even if the credit card bill isn’t paid until next year.

If you give any charity a gift over of $250 or more, you need to insist on a written receipt declaring that you received no value for your contribution — or disclosing the amount of any value. No receipt, no deduction.

Of course, your gift has to go to an actual charity to be deductible. The IRS list of qualified Section 501(c)(3) organizations can help you make sure your intended donee qualifies.

If you feel generous, but don’t know what to do, I humbly submit for your consideration a few worthy organizations I donate to:

salvation armySalvation ArmyThey take care of many of the most needy and down-and-out with very little leakage to internal bureaucracy.

Institute for JusticeThis organization shut down the IRS preparer regulation power grab, winning a battle all good-thinking people considered hopeless and frivolous. They made the IRS give back the money they stole from the owner of a little restaurant in Arnolds Park, Iowa while forcing a change in their abusive use of their cash account seizure powers. They also support the little guy when the government abuses its eminent domain powers on behalf of the powerful and well-connected.

Tax FoundationThese guys do wonderful work in helping to form better tax policy. While it is difficult to get politicians to make tax policy for everyone, rather than just the well-lobbied, their 2014 successes in North Carolina, Indiana, Michigan and New York show that the good guys win sometimes.

ISU Center for Agricultural Law and TaxationRoger, Kristine, Kristy and Tiffany do great work helping keep the taxpayers and tax preparers of Iowa in compliance and out of trouble. If you use them, like I do, you should help them out.

 

William PerezQualified Charitable Distributions

Peter Reilly, The Wheels On The Easement Void The Deduction

 

 

20131209-1TaxProf, The IRS Scandal, Day 594. This edition covers the new report by the House Oversight Committee on the scandal.

There is a lot to the report, which I hope to spend more time on. The item that jumps out at me is that 2011 IRS assessments of gift taxes on contributions to 501(c)(4) organizations were no accident, but were instead part of the IRS effort to fight conservative 501(c)(4) organizations.  The Wall Street Journal reports:

The then-IRS commissioner, Doug Shulman, denied at the time that the IRS was making a broad effort to assess gift tax on donors to such tax-exempt groups, which are formed under section 501(c)(4) of the tax code. Mr. Shulman said in a May 2011 letter to lawmakers that the audits were initiated by a single IRS employee and were “not part of any broader effort to look at donations” to these organizations.

The new report from GOP lawmakers says that “although the IRS denied any broader attempt to tax gifts to 501(c)(4) groups, “internal documents suggest otherwise.” It notes that in May 2011, an attorney in the IRS chief counsel’s office wrote to his superiors that the “plan is to elevate the issue of asserting gift tax on donors to 501(c)(4) organizations,” and seek a decision from the commissioner and the IRS chief counsel.

It’s clear that Shulman at best didn’t care enough to learn the truth before testifying. At worst he gave false information on purpose. Either answer burnishes his crown as Worst Commissioner Ever.

Related: Can political contributions really be taxable gifts?

 

Grimm tidings. A Congressman pleads guilty to tax fraud involving a restaurant he owned. From the New York Times:

Michael G. Grimm, the Republican representing New York’s 11th Congressional District, who carried the burden of a 20-count federal indictment to a landslide re-election in November, pleaded guilty on Tuesday to a single felony charge of tax fraud.

Representative Grimm said he had no intention of stepping down. “Absolutely not,” he said.

My limited experience with felons is that they are cursed with grossly excessive self-esteem. That certainly seems to be the case here.

 

20141201-1Robert D. Flach brings the Holiday Buzz! Good tax stuff from around the tax blogs just in time for Christmas.

Kay Bell, Christmas tree ‘tax’ delayed again. Effort to end it continues

Jason Dinesen, From the Archives: Tax Court: Vacant House Can Still Qualify as Rental

Robert Goulder, The Vatican Bank, Christmas Cheer, and FATCA (Tax Analysts Blog). “The pontiff is cool with tax transparency.”

Tony Nitti, IRS To Sell The Right To Collect Darryl Strawberry’s Remaining New York Mets Salary.

Russ Fox, Nominations Due for 2014 Tax Offender of the Year

 

Amy Frantz, How the Grinch Taxed Your Christmas Candy in Iowa (Caffeinated Thoughts)

Howard Gleckman, The Tax Vox Lump of Coal Awards: The 10 Worst Tax Ideas of 2014 (TaxVox). My list would differ, but there are so many worthy ideas from which to choose.

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/17/14: Lazarus rises! For two weeks, anyway. Senate passes extender bill.

Wednesday, December 17th, 2014 by Joe Kristan

The Senate has passed the extender bill and sent it to the President. The Hill reports:

By a 76 to 16 vote, the Senate passed a measure that would extend more than four dozen tax breaks for both businesses and individuals just through 2014.

Republicans and Democrats latched on to the one-year deal after the White House undercut negotiations on a broader bipartisan package, underscoring divisions between Democrats in the wake of this year’s heavy losses at the polls. Senators from both parties said Tuesday that they would have preferred legislation that restored the tax breaks through 2015.

20130113-3The President is expected to sign. That means we now know what the 2014 tax law is with two weeks left in the year. Unfortunately, all of the revived provisions die again on January 1, and Congress will have to go through this whole exercise to raise Lazarus again.

What does this do for year-end planning?

Fixed asset frenzy. Taxpayers who can place fixed assets in service between now and year-end can qualify for the $500,000 Section 179 deduction or 50% bonus depreciation.

The Section 179 rule allows taxpayers to fully deduct the cost of up to $500,000 in assets placed in service during 2014 that would otherwise be capitalized and depreciated over a period of years. It can apply no new or used property. It is normally unavailable for real estate or rental property. It is limited to taxable income, and it phases out dollar-for-dollar as fixed asset acquisitions exceed $500,000.

Bonus depreciation enables taxpayers to deduct 50% of the cost of qualifying property in the year in which it is placed in service. The remaining cost is depreciated under normal depreciation rules. It is only available for new property with a life up to 20 years, but it is not limited by taxable income or amount of assets placed in service, so it can generate net operating losses.

Remember that the tax law applies special limits to both Section 179 and bonus depreciation for vehicles.

S-SidewalkS corporation Built-in gains. The tax law requires S corporations to pay a 35% corporate-level tax on “built-in gains” included in taxable income during the “recognition period” after the convert from C corporation status. “Built-in gains” are income items, including appreciation of asset values, that exist at the time a C corporation becomes an S corporation.

This rule was enacted in 1986 with a ten-year “recognition period.” The tax goes away after the recognition period is over. The bill reduced the recognition period to five years for gains recognized in 2014. That opens tax planning doors. Taxpayers that have been S corporations for more than five years can unload appreciated assets. Taxpayers in their fifth S corporation year can reduce their taxable income to push any gains recognized this year past the recognition period — assuming this provision is extended to 2015.

IRA donations. The extender bill revives the provision allowing IRAs owned by individuals subject to the minimum distribution rules to make direct donations of up to $100,000 to charity. These donations do not show up as income or as itemized deductions on the owner returns.

Other tax breaks revived through the end of 2014 include the research credit, the deduction for state and local sales taxes, the educator expense deduction, charitable donations of conservation easements, and energy production tax credits. The Tax Policy Blog has more coverage, including a complete list of the extended benefits.

Other coverage:

Paul Neiffer, Senate Passes Tax Extender Bill 76-16

Robert D. Flach, FINALLY!

 

 

20130426-1Neil GandalWhy Does Uncle Sam Hate American Expats?  (Wall Street Journal, via the TaxProf):

The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.

But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.

The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back.

Our thumbless Congress, eager to to score cheap political points by cracking down on international “millionaires and billionaires,” has inadvertently, but effectively, made it ridiculously difficult for ordinary Americans working overseas to commit personal finance. They have enacted horrific financial penalties for petty paperwork violations. And the IRS has enforced these penalties under the assumption that everyone with an overseas account is a crook.

 

Tony Nitti, Have You Heard The One About The Tax Credit That You Pay To The IRS? It’s the premium tax credit under ACA that many taxpayers will have to repay with their tax returns in April.

Kay Bell, Noah’s Ark park loses state tax breaks (but Christmas is safe)

 

taxanalystslogoJeremy ScottSlashed Budget Shows IRS’s Failure to Build Political Support (Tax Analysts Blog, my emphasis):

Republicans made it clear that the cuts to the IRS were in response to the agency’s recent actions. The GOP has a long laundry list of complaints: the payment of IRS bonuses, the failure to accurately and timely answer questions about the exempt organization scandal, old training videos, and the cost of Obamacare implementation. With the exception of the last item, the Service has been tone-deaf in its response to Republicans. In fact, one might even call some of its vague and misleading answers outright defiance of the House majority. That’s an odd strategy for an agency crying out for more resources to take.

Regular readers know that this is my view also. I agree with this too:

Those who criticize the GOP’s handling of the various IRS scandals have a point. But lost in their reflexive defense of the Service are valid Republican complaints about the IRS’s lack of transparency and responsiveness. For whatever reason, the Service decided that it wouldn’t cooperate with Republicans over the scandal. Maybe it thought the GOP wouldn’t be reasonable. Maybe it thought giving clear answers and admitting obvious wrongdoing would be more damaging to its prospects than being opaque and evasive. Well, it was wrong — both in hindsight, given the budget passed over the weekend, and at the time, given the agency’s duty to be nonpartisan.

Read Mr. Scott’s whole piece. The result will be bad for taxpayers, but the IRS leadership can look in the mirror for someone to blame.

Howard Gleckman, The War on the IRS. As Jeremy Scott notes, the IRS is its own worst enemy in this war.

 

TaxProf, The IRS Scandal, Day 587. Featuring a contrarian take on the scandal from Peter Reilly.

Robert Wood, 20 Facts About IRS Targeting, Those Emails And The White House

 

News from the Profession. Going Concern Presents: The Worst of Auditing 2014 (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/15/14: Is today the day the expired provisions arise? And: Ames Day!

Monday, December 15th, 2014 by Joe Kristan

Hey, calendar-year corporations and foundations, your fourth quarter estimates are due today.

lazarus risingCromnibus passes. Extenders today? The monstrous $1.1 trillion ($1,100,000,000,000) government funding bill that had been holding up passage of the one-year “extender” bill finally cleared the Senate over the weekend. We might see the Lazarus provisions rise again as early as today. The 55 provisions that expired at the end of 2013, and which HR 5771 would retroactively extend through the end of this month, include the $500,000 Section 179 limit, 50% bonus depreciation, and the research credit. The bill would also extend the five-year built-in gain tax recognition period and the rule allowing IRAs to contribute to charity.

I’ll be following developments and post if the bill clears today.

Update, 10:54: This from The Hill makes it look like nothing happens on the extenders before late tonight.

 

Ames! Today is the final session of this year’s Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. We expect over 300 attendees here at the conference and another 80 webinar attendees.  I always learn a lot from teaching and hearing from the attendees. Thanks to everyone who attended.

 

Kay Bell, Cutting IRS budget is a bad idea for taxpayers, U.S. Treasury.

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Kay is correct. Congress continues to pile more policy into the tax law. The IRS has become a superagency with a portfolio covering everything from industrial policy to historic preservation to running the national health care finance system. Oh, and it’s supposed to collect the revenue to finance the government, too.

Unfortunately, with great power comes great responsibility. The IRS has been abusing the power and scurrying away from the responsibility. The new Commissioner has forfeited any goodwill he had by stonewalling Congressional investigators in the Tea Party scandal. He insisted to Congress that the agency had exhaustively tried to retrieve the missing Lerner e-mails, only to have them turn up on backup tapes.

Also, the IRS undercuts its claims of poverty when it spends on things like the “voluntary” preparer initiative to sneak in the preparer-regulation scheme that the courts have barred.

It’s hardly a surprise that Congress isn’t eager to fund a rogue agency with an untrustworthy leader. Until a new Commissioner can restore trust, IRS will continue to struggle to get funding.

 

20121217-1Robert D. Flach, THE RETURN OF THE GAO UNDERCOVER OPERATION:

In 2006 the Government Accountability Office (GAO) sent undercover operatives to 19 “commercial preparer” branch offices in a major metropolitan area posing as taxpayers looking to have their tax returns prepared. Errors were identified in 19 of the 19 completed federal returns, some “significant”.

As complicated as the tax law has gotten, this is no surprise, and it’s gotten a lot worse since 2006.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #3-Aragona Trust Changes The Way We Look At Real Estate Professionals.   This case is a big deal, and it definitely changes the landscape of trusts under the new 3.8% Net Investment Income Tax.

Robert Wood, IRS Can Audit For Three Years, Six….Or Forever. “Anyone who is hiding income or assets from the taxman should consider how long they need to be looking over their shoulder.

William Perez, What You Need to Know About the Penalty for Not Having Health Insurance

Jason Dinesen, 5 Things You Didn’t Know About EAs, #3: Two Ways to the EA. One requires working for the IRS.

Leslie Book, CDP and Installment Agreements: Sometimes Court Review is Crucial; Other Times Not So Much. “This past week the Tax Court issued an opinion in a collection due process (CDP) case, Hosie v Commissioner. The case is a bad case for those who support CDP.”

Tim Todd, Tax Court Not Limited to Administrative Record in Plan Revocation Action

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TaxProf, The IRS Scandal, Day 585.

Peter Reilly, Did You Hear The One About Lois Lerner Walking Into A Bar?

Elaine Maag, Will Immigrants Get A Tax Windfall From Refundable Credits? (TaxVox)

Alan Cole, The Problem with Free Stuff (Tax Policy Blog):

If you see a promotion for something like 7-Eleven’s Free Slurpee Day, you always end up having to temper your excitement when you realize that you’ll inevitably be waiting in line with the many others who want to enjoy the same treat. This is an unfortunate fact of life, the sort of thing we all reluctantly come to grips with by the time we turn twelve or so.

What puzzles me, then, is why we so often forget that fact of life when we’re sitting in traffic.

Roads are very much like free Slurpees. While roads are certainly not free to construct (much like a Slurpee isn’t free to make) using a road involves relatively little in the way of a user fee.

I’ve driven in Slurpee-like conditions. Good tires are a must.

 

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Tax Roundup, 12/4/14: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Thursday, December 4th, 2014 by Joe Kristan

Accounting Today visitors: Click here for the Lincoln year-end planning link.

lazarus risingHouse passes extenders; Senate action not yet slated. The House of Representatives yesterday revived the Lazarus provisions of the tax law, passing HR 5771 on a 378-46 vote.

The bill now moves to the Senate, which has not yet scheduled a vote. The Hill reports that Senate Democrats have given up on promoting a competing bill, which probably means they will go along with the House bill. While the President has not said he would sign the House bill, he hasn’t threatened a veto; that probably means he will go along.

The expired tax provisions revived by the bill include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit, and the five-year built-in gain period for S corporations. They also include crony subsidies like energy production credits and accelerated depreciation for racetracks. A compromise plan to extend some of the provisions permanently collapsed when the President threatened to veto it.

The house-passed bill only extends the tax breaks that expired at the end of last year through the end of this month. That means the new Congress will have to do this again in 2015. Let’s hope they get an earlier start than they did this year.

Related:

Wall Street Journal, House Approves Temporary Tax Breaks

Accounting Today, House Passes $42 Billion Plan to Revive U.S. Tax Breaks for 2014

 

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.

Gas Tax Fever! The Greater Des Moines Partnership unveiled its legislative agenda yesterday. While it has a few good ideas, like reviewing Iowa’s pension plans for soundness, its priorities are crony-capitalist items like support for economic development tax credits and “public-private partnerships.” Its weak tax reform plank supports the Alternative Maximum Tax, which would allow individuals to choose an optional low-rate, broad base system. You’ll look in vain for anything specific to improve Iowa’s bottom-ten business tax climate — just a general call for lower rates. That may be because many large corporations have learned to use Iowa’s rats nest of special interest breaks and crony tax credits to their advantage.

The agenda also includes support for an increase in the gas tax to fund road projects.  That plank has some policy logic behind it, but it also is a tough sell. Caffeinated Thoughts reports that Iowans for Tax Relief has already come out against it. ITR opposition makes it hard for many GOP legislators to support the increase. Maybe that’s why the Sioux City Journal is reporting “Iowa legislative leaders murky on gas tax increase

 

Robert D. Flach, IT AIN’T NECESSARILY SO – H&R BLOCK CEO ALLEGEDLY CARES ABOUT EFFICIENT AND EFFECTIVE TAX ADMINISTRATION. “Here is what is a good idea for proper efficient and effective tax administration – remove the Earned Income Credit, and all other government social welfare and other benefit programs, from the Tax Code.” Amen, Brother Robert.

 

Jason Dinesen, who is a pioneer in the taxation of same-sex married couples, offers A Brief History of Marriage in the Tax Code: Introduction

Paul Neiffer, Irrigation Systems – Is that 7 or 15 Years?  Depends on whether it’s buried.

Tony Nitti, Sorry Mr. Ryan, But Corporate-Only Tax Reform Doesn’t Work. Somebody tell the President.

Kay Bell, Spend down your flexible spending account by Dec. 31

Jeff Stimpson, In the Blogs: Start Your Engines (Accounting Today)

 

Mark J. PerryTop 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%:

top 400 bottom 50

 

TaxProf, The IRS Scandal, Day 574.  Yes, there are thousands of e-mails that may show the IRS improperly accessed confidential taxpayer records. Releasing them might violate taxpayer confidentiality, so they stay secret. How convenient.

The return confidentiality rules should be amended so that those abusing them can’t also hide behind them.

20140729-1Alan Cole, Bonus Depreciation is a Step Towards Fair Tax Accounting (Tax Policy Blog).

Elaine Maag, Why the More Generous Child and Earned Income Tax Credits Should Be Made Permanent (TaxVox). Because we like having 20% of it wasted or stolen?

Tax Justice Blog, Dave Camp’s Reform Plan Should Not Be the Starting Point for the Tax Debate.

 

Cara Griffith, Transparency Concerns Linger in Washington State (Tax Analysts Blog) Cockroaches and administrators tend to prefer darkness.

 

Career Corner. Protip for Future CPAs: Forging Signatures on Your Work Experience Form is Dumb (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 12/1/14: Abe Lincoln’s year-end tax wisdom. And: Oh, THOSE e-mails!

Monday, December 1st, 2014 by Joe Kristan

Accounting Today visitors, here is your film tax credit link: Report from the Battle of Scottsdale.

 

Lincoln“If we could first know where we are, and whither we are tending, we could better judge what to do, and how to do it.” Abraham Lincoln’s “House Divided” speech.

I hope you all had a good Thanksgiving. Now it’s December, which means it’s time to begin serious tax planning. President Lincoln’s timeless observation applies very much to year-end tax planning.

To do any tax planning, you have to know where you stand before making any year-end tax planning moves. You need to see where your income, deductions and tax payments are likely to be if you do nothing before year-end — in other words, you need to project your 2014 tax return.  You also need to make your best guess at your 2015 taxes.

If you try to do tax planning tricks without doing a projection, you can actually make things worse. For example, if you prepay state and local taxes in 2014, and you are subject to alternative minimum tax in 2014, you accomplish nothing. If you are also not subject to AMT in 2015, you’ve actually increased your tax bill over the two-year period.

The best way to start your projection is with a copy of your 2013 return. Identify income and expense items that are likely to be different in 2014 and 2015. Then review your pay stub and for income and withholding and see where you are likely to end up for the year on those items.  If you have a business, you need to forecast your income at year end. The you know where you are and whither you are tending, and you and your tax advisor can better judge what to do and how to do it.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

TaxProf, The IRS Scandal, Day 571. It seems the Treasury Inspector General for Tax Administration found Lois Lerner’s missing e-mails on backup tapes that Commissioner Koskinen said didn’t exist. Commissioner Koskinen’s effort to find the missing e-mails rivals O.J. Simpson’s search for the real killer.

Robert W. Wood, In ‘Lost’ Trove Of IRS Emails, 2,500 May Link White House To Confidential Taxpayer Data.

 

TaxGrrrl’s Interview with Commissioner Koskinen: Miserable, Awful & Delayed: Commissioner, Tax Advocate Talk 2015 Tax Season:

Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”

 

But the Commissioner still thinks he has the spare resources for a “voluntary” preparer regulation scheme.

Russ Fox, One Ringy Dingy, Two Ringy Dingies… “Yes, I was on hold for two hours today on the IRS Practitioner Priority Service before my call was picked up.”  Good thing his call was a priority, then.

 

Tony Nitti, The Four Tax Breaks (And Two Senators) That Killed The Tax Extender Deal. The immigration action is also implicated.

Robert D. Flach, OOPS – THEY DID IT AGAIN! “Well, it is December. And the idiots in Congress have not yet dealt with the issue of the ‘tax extenders’.”

Kyle Pomerleau, Why Not Just Get Rid of Them All? (Tax Policy Blog). “While most tax extenders are wasteful, there are a few that are worth keeping and would actually be part of a flat tax.”

 

20140814-1Kristine Tidgren offers A Few Year-End Tax Planning Tips for Farmers.

Alan Perez, Tax Planning for Clergy. The post includes a nice checklist for clergy tax planning.

Jason Dinesen, From the Archives: How to Properly Calculate Taxability of a Federal Refund on Your Iowa Tax Return

Peter Reilly, Motocross Racing With Tax Deductible Dollars Works This Time

Keith Fogg, IRS Makes Novel Use Of Outside Contractors—To Audit Microsoft (Procedurally Taxing):

The IRS has changed the regulation concerning who can participate in an examination to include private contractors.  It has hired a private law firm as an expert.  Microsoft appears to be the first examination using private contractors to become public.  The issue deserves attention in order to determine if this represents a new and better way to examine complex returns or a capitulation of what was previously considered a governmental function.

I’m still waiting for the people who got all upset about the IRS using private collection agencies to say something about this.

 

Jeff Stimpson of Accounting Today has posted his “In the Blogs” roundup for the week. Lots of good tax links.

Annette Nellen discusses Inflation adjustments in the tax law. “Our federal income tax is not consistent regarding the need to prevent bracket creep for all taxpayers.”

Kay Bell, IRS’ positive public perception picking up a bit. It would be hard to make it sink lower.

Jack Townsend notes the WAPO Article on Expatriate Taxation – The Mayor of London.

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Cheap liquor likely to remain a focus for alcoholics. Nonresident Income Taxes Likely to Remain a Focus for State Tax Authorities (Cara Griffith, Tax Analysts Blog). The post discusses states aggressive assessment of non-residents who sneeze near state lines, and the so-far failed push for Congress to provide uniform rules.

Alan Cole, Confusing Income with Taxable Income (Tax Policy Blog): “The rest of America is quite a bit richer, and quite a bit better at earning capital income, than Wonkblog gives it credit for.”

Joseph Thorndike, The Best Hopeless Idea in Washington (Tax Analysts Blog). That would be a carbon tax.

Norton Francis, What Falling Oil Prices Will Mean for State Budgets (TaxVox)

 

No Takers for the Brown house. The IRS can’t seem to unload property seized from Ed and Elaine Brown after their armed tax protest standoff. It seems buyers want some assurance that they won’t be killed by stray booby-traps.

Career Corner, So You Failed the CPA Exam Before the Holidays, Now What? (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/25/14: Administration complicates extender negotiations. And: Instant Tax Service has to stay dead.

Tuesday, November 25th, 2014 by Joe Kristan

Programming note: The Tax Update will be on the road for Thanksgiving starting Wednesday. Have a great weekend, see you Monday. 

 

Economic supergenius

Nice Section 179 deduction you have there. Hate to see something bad happen to it.

Extenders as extortion. The administration yesterday complicated the negotiations on the extension of the perpetually-expiring tax provisions by demanding an extension of the refundable child credit and a permanent expansion of the fraud-ridden earned income tax credit, the New York Times reports.

It’s obnoxious to throw a new welfare program provision into the extender negotiations at this late date, but a lame-duck administration has nothing to lose by trying. While I still think the $500,000 Section 179 deduction will be extended retroactively to January 1, this makes me a lot more nervous.

If anything good comes of this extortion attempt, it’s that it highlights the unwisdom of passing tax provisions temporarily if you don’t really want them to be temporary. Every time you need to re-enact them, you open yourself up to just this sort of shakedown.

Other coverage from The Hill: White House skeptical of possible deal on tax breaks and Lew: Avoid ‘wrong approach’ on tax breaks

Related:

TaxGrrrl, 10 Expired Tax Provisions That Might Affect You In 2014 and Kay Bell, Congress fighting over which business and individual tax extenders to make permanent

 

"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Appeals court says Instant Tax Service has to stay deadThe Sixth Circuit has upheld the 2013 ruling that put Instant Tax Service out of business. ITS, which had 150 franchise operations in a number of states, primarily in low-income inner-city locations, had shown up frequently in stories alleging shady tax prep practices (like this).

ITS was found to have encouraged its franchisees to prepare “stub returns.” These are returns preparered off of year-end pay stubs, rather than W-2 forms. The injunction also found that the franchisor used deceptive pricing and marketing practices.

ITS and its owner, Fez Ogbazion, argued the injunction was improper and overbroad. The appeals court considered the ITS appeal on the stub return issue:

Defendant Ogbazion agreed during his testimony that “[i]f you prepare a tax return using a pay stub, it’s not always accurate and does not always have all of the information on there,” and “[w]hen using a pay stub to prepare a tax return, the income information can be off for a variety of reasons.” …  And ITS employee Boynton, who had been a tax return preparer before she became a manager, agreed during her testimony that she was “aware that tax returns prepared using pay stubs are inaccurate more often than not,” that “the last paycheck stub varies from a W-2 more often than not,” and that “the income reflected on a return prepared on a pay stub can vary from income reflected on a return prepared based on a W-2.”

The court found that the District Court correctly evaluated the stub return issue:

It is clear from this evidence that pay-stub filing often results in understatement of tax liability, and ITS knew it. It is also clear from this and other evidence that pay-stub filing was common at ITS franchises. The district court’s conclusion that understatement of tax liability “inevitably results” may have gone further than we would go, but it is a plausible account of the evidence in the record as a whole.

The Moral? Wait for your W-2 before filing. Don’t try to file off of your pay stub. And if your preparer offers to prepare a return without waiting for your W-2, find another preparer.

Cite:  United States v. ITS Financial LLC et al (CA-6, Case No. 13-4341)

 

Tax Analysts has published a story covering the film tax credit panel I was on last week: NCSL Task Force Needs More Persuading on Merits of Film Incentives

 

20141125-2We’ve done a little blogroll updating. We’ve cut some blogs that haven’t been updated in months, and added Tax Litigation Survey and Forbes tax blogger Robert W. Wood.

Tony Nitti, The Top Ten Tax Cases (And Rulings) of 2014: #5-Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain?

William Perez, Excluding Foreign Wages from US Taxes

Robert Wood, Jersey Shore’s Mike ‘The Situation’ Sorrentino Tax Evasion Trial Delayed

Stephen Olsen, Summary Opinions for 11/07/14 & 11/14/14 (Procedurally Taxing). A roundup of tax procedure issues, including a report on IRS hiring of a private law firm to help it audit Microsoft.

Peter Reilly, AAA Does Not Revive With New S Election – Explained By Jelly Beans. Another reason not to terminate an S corporation election carelessly.

Jack Townsend, Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)?

Jason Dinesen, From the Archives: Win a Home On TV, Find a Tax Collector in the Attic

 

Andrew Lundeen, Kyle Pomerleau, Pass-through Businesses Earn More Income than Corporations (Tax Policy Blog) “Pass-throughs now earn over 60 percent of all net business income.”  It includes this great chart:

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This means higner income taxes on “the rich” are really higher taxes on business and employment.

 

Eric Toder, Reforming Corporate Taxation (TaxVox) “The U.S. corporate tax system is broken.”
Annette Nellen, EU’s New VAT “MOSS” – Relevance for MFA? “MFA” is the Marketplace Fairness Act, the effort by states to collect taxes on internet commerce.

 

Jeremy Scott, New GOP W&M Members Send a Mixed Signal (Tax Analysts Blog):

The House Ways and Means Committee is undergoing a major transition. Committee Chair Dave Camp is leaving Congress at the end of the year and will be replaced by Rep. Paul Ryan. That means the end of an era and a possible major reshuffling of committee priorities. But Ways and Means is also getting four new Republican faces. The backgrounds of the new members don’t really send a clear signal on what to expect from the House on tax policy next year.

I hope they figure things out fast.

 

The Wall Street Journal has posted an Expat Finance & Tax Guide. It collects in one place WSJ pieces on expat-related topics, including FATCA nighmares and renouncing citizenship.

TaxProf, The IRS Scandal, Day 565.

 

News from the Profession. Why Public Accounting Is Really Just One Long Kegger (Leona May, Going Concern)

 

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Tax Roundup, 11/20/14: ACA and filing season pessimism revisited.

Thursday, November 20th, 2014 by Joe Kristan

Programming note: The Tax Update will take tomorrow off. I will be in Phoenix tomorrow on a panel on state film tax credits sponsored by the National Conference of State Legislators.  The panel will include, among others, Joseph Henchman of the Tax Foundation. Normal programming resumes Monday.

 

guillotineACA frenzy! Thanks to a kind Twitter mention from Megan McArdle (who you really should follow at @asymmetricinfo), my Tuesday post on ACA and filing-season dread made it to a wider audience than usual, including the readers of Real Clear Politics. A cousin who I normally only see at family weddings and funerals saw it and sent me a note (Hi, Bob!), so I know it really got around.

It has also generated questions in the comments and the Twitterverse that are worth addressing. We’ll start with this from Alan in the comments:

In a few months when people receive their W2’s they will get a real shock when all the employer paid share of the company paid share of health care plan is included in their gross pay and now they must pay taxes on all that extra income.

Obamacare is ugly, but it isn’t that ugly. While many (but not all) employers will disclose the cost of coverage on W-2 box 12 (code DD), it will not be included in W-2 Box 1, “taxable wages.” From IRS.gov, Employer-Provided Health Coverage Informational Reporting Requirements: Questions and Answers:

Q1. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?

A. No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.

20121120-2From Ms. McArdle on Twitter:

Any chance it won’t be that bad?

I suppose that depends on what “that bad” means. Blood seeping from the walls, shape-shifting brain-eaters from Planet Zargon, cats and dogs living together– probably not that bad. But there’s still plenty of bad to go around. The things that worry me:

- Many taxpayers will not have the information handy to determine their health insurance status for all 12-months of 2014. Only those who buy insurance on the exchanges will have Form 1095, the information return on insurance status.  Others are supposed to get information from employers, but they are likely to lose track of it, especially this first year.

- Lacking any matching documents, taxpayers will be tempted to claim coverage where there is none, or maybe wasn’t for part of the year, to avoid penalties. There won’t be an easy way to verify this. Preparers will either have to take taxpayers at their word or send them back for proof (or, inadvertently, to another preparer). It’s always bad when taxpayers feel they should lie to preparers. Yet as the IRS will often have no way to detect false claims of coverage, they will feel like chumps for telling the truth.

- Taxpayers with penalties for non-coverage will be irate when they find they get no refund. As Ms. McArdle wisely put it, “I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.” Experience shows that the taxpayer’s first instinct is that the preparer screwed up.

- It will be even worse when we have to tell people to repay advance health-care tax credits paid to insurers to lower consumer out-of-pocket costs. This can happen when actual taxable income exceeds the amounts estimated when coverage was obtained on the exchanges. As the taxpayer never “saw the money” — it was paid to the insurer, not to the taxpayer directly — she may not be easily convinced that she has an excess benefit to repay.

20140521-1- Preparers haven’t had to deal with this before. Any new tax provision has a learning curve, and this is a complicated one that will apply to almost everyone. In many cases, preparers will mess up, being human. Getting it right will take extra time that is hard to come by during tax season.

- This doesn’t even touch the problems that many small employers are going to be dealing with as they realize their Section 105 individual coverage premium reimbursement plans, and their cafeteria plans funding premium payments on individual policies obtained by employees, are considered non-compliant under the ACA “market reforms.” At $100 per employee, per day, the penalties could be ruinous. While taxpayers are encouraged to report the penalties on Form 8928 and zero them out with a “reasonable cause” claim, we don’t know yet how generous the IRS will be in granting reasonable cause relief. Figuring out what to do here will be time-consuming and nerve-wracking for taxpayers and preparers, unless the IRS issues a blanket penalty waiver for 2014 (as it should).

On top of all this, we will probably have another late “extender” bill like we had two seasons ago, which made for an awful tax season by itself. Maybe things will go well this season, but so many things seem likely to go wrong that it’s hard to be optimistic.

 

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #6-The IRS (Finally) Figures Out The Real Estate Professional Rules. It’s an excellent lesson on the tax rules covering “real estate professionals” and passive losses — and by extension, the 3.8% net investment income tax.

TaxGrrrl, Al Sharpton Denounces Claims He Owes Millions In Taxes To IRS, New York.

Jack Townsend, Another UBS/Wegelin Related Indictment in SDNY

Peter Reilly, Kent Hovind And Creation Science Evangelism – How Not To Run A Ministry. When it gets you imprisoned, you may well be doing it wrong.

Kay Bell, Former GOP VP candidate Paul Ryan to head House tax panel

Jason Dinesen, I Don’t Have Time to Write Grant Proposals or Meet with Donors … But Give Me Money Anyway!  OK, then…

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Work proceeds in clearing the ruins of the Younkers department store, which burned in March.

 

TaxProf, The IRS Scandal, Day 560.

Cara Griffith, Bad News for State Public Pension Plans (Tax Analysts Blog). “New research has come out revealing the level at which state public pension plans are underfunded, and it’s not good news.”

The denial of reality in administering public pensions is amazing. Public defined benefit plans are a lie. Either the public is being lied to about how much current public services cost, or current employees are being lied to about their retirement benefits. Maybe both.

 

20140910-1Alan Cole, Extenders and the Opportunity for Tax Reform (Tax Policy Blog):

The Examiner characterizes many of the extenders as “repugnant carve-outs.” This is undeniably true, but it is also the case that some – but not all – of the tax extenders are genuinely good policy. Particularly, Bonus Depreciation and Section 179 are important for moving the tax code towards proper treatment of new investment.

In any case, the current system of pretending tax provisions are “temporary” to hide their true cost is dishonest and should end.

Renu Zaretsky, “Dead Reform Walking:” On Fairness, Immigration, and Spending. The TaxVox headline roundup covers developments in the Marketplace Fairness Act, extenders and immigration, among other things.

 

News from the Profession. KPMG Gives the Department of Homeland Security a Clean Audit Opinion Because of Course They Did (Adrienne Gonzalez, Going Concern). “I don’t know about you but I feel safer already.”

 

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Tax Roundup, 11/4/14. Vote. Or don’t. And: Pittsburgh police 1, IRS Agent 0.

Tuesday, November 4th, 2014 by Joe Kristan
Flickr image courtesy Letta Page under Creative Commons license

Flickr image courtesy Letta Page under Creative Commons license

Today is election day. Vote if you think you know what you’re doing.  But ask yourself: do you know, without looking it up, the names of both of your Senators, your congresscritter, your Governor, the President and Vice-President, and can you properly identify their political parties? Can you name the three branches of the Federal government? If not, you should ponder whether you really ought to be doing this.

Jared Walczak, Voters to Consider Tax Ballot Initiatives in Eighteen States Tomorrow. (Tax Policy Blog) That would be today now.

Election days are on Tuesdays, so you can catch a fresh Buzz from Robert D. Flach before you hold your nose and vote. His roundup today includes links to a story about tax initiatives up for a vote around the country, among other good stuff.

 

Peter ReillyWhat If Lois Lerner Was Right About The Tea Party?

 If there is a pretty compelling case that Tea Party Patriots Inc was intended from day 1 to be a political organization, rather than a social welfare organization, would that make any difference in how we view Lois Lerner?

No. “Tea Party Patriots Inc.” was one organization that appropriated the “Tea Party” name, but the Tea Party movement is not any one organization. It was (and is) an amorphous grassroots reaction to the percieved overreach of the Obama administration. Lois Lerner went after a range of groups with “Tea Party” and other words she associated with small government activism– like “constitution.” The IRS held up the applications of those groups, harassing them with improper and ridiculously intrusive questions. Meanwhile, the applications of “progressive” groups flew right on through.

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The issue was never whether Tea Party Patriots Inc. abused tax-exempt status. The issue is whether the IRS discriminated against groups opposed to the Administration. The answer is clearly yes. If you only enforce laws against people you disagree with (and it’s clear she didn’t like the Tea Party), that’s abuse of power.

 

Jason Dinesen, Joe the Window Washer Gets a Reality Check:

For example, here are a few realities Joe will have to face:

  • In Iowa, if Joe cleans windows on commercial property, he has to collect sales tax.

  • He has to file an income tax return.

  • While not necessarily required, it would be good for Joe to talk to an insurance agent about having a business liability policy in case he accidentally damages a customer’s property.

It’s amazing how complicated washing windows can be.

 

Russ Fox, Math Is Hard (Tax Court Edition). When the judge tells you to keep it to 75 pages and you file an 88 page brief, you might as well not file one at all. It saves paper, and you get to the same place.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #8-A Big Break For Home Builders

 

20130426-1Michelle Feit, Failure to File Required International Information Return Suspends Statute of Limitations on Entire Return until the Information Return is Filed (Procedurally Taxing):

Thus, if a taxpayer is required to report on interests in, control over, transfers to, or distributions from foreign accounts, corporations, partnerships, entities or trusts (as provided for in the above-listed sections), the three-year statute of limitations will not start running until the taxpayer submits that foreign information report to the IRS.

And, since March 2010, the extended limitations period generally applies to the entire return applicable to that Taxpayer, not simply to the liabilities associated with the information that was not filed.

It’s not enough to get clobbered with a $10,000 penalty for not filing a return they won’t read. You keep the whole year open indefinitely too.

 

Kay Bell, November tax moves to help you avoid tax turkeys

Jack Townsend, Raoul Weil Found Not Guilty. A high-profile Swiss bank prosecution fails.

 

Jeremy Scott, Is the IRS Office of Professional Responsibility in Decline? (Tax Analysts Blog) “Hawkins’s legacy as OPR chief might end up being defined more for the IRS’s overreach and what she didn’t accomplish than the numerous things she has.”

Mr. Scott’s post does have an error, or at least a badly-worded sentence.  He says:

Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012.

While the Institute for Justice did help the preparers, the implication that it was formed by preparers is incorrect. IJ is a public-interest law firm with a libertarian bent that was around before the preparer case. It continues to do righteous work on behalf of victims of asset forfeiture (including the Arnolds Park  IRS victim) and in battles against regulations that protect existing busiensses from competition.  I support it with my donations, and you can too.

 

Martin Sullivan, Immigration Reform in 2015? We Could Use the Money (Tax Analysts Blog). I don’t think this issue is really about the tax revenue, but if it is, it would be more direct to just sell admission.

 

This will sure attract outside investment. Argentina accuses Procter & Gamble of tax fraud, says suspends operations

TaxProf, The IRS Scandal, Day 544

Revecca Wilkins, New Filing This Week Reveals Apple Continues to Divert Profits to Tax Havens (Tax Justice Blog). In other news, heavy things fall to the floor if you let go of them.

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News from the Profession. Deloitte, Please Stop Trying to Be the Walmart of Professional Services (Adrienne Gonzalez, Caleb Newquist, Going Concern).  I’m not even sure what that would mean. Retired partners offering a friendly greeting at the door?

 

The best and the brightest. Police: Man Arrested For Kicking Heinz Field Barriers, Trying To Bribe Officers (CBS Pittsburgh):

A man was arrested after injuring a woman by kicking a steel barrier at Heinz Field Sunday evening.

According to police, 29-year-old Stephen Sapp was intoxicated at the time of the incident.

According to the criminal complaint, Sapp stated, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”

The officers informed Sapp that he could not attempt to bribe them, but Sapp continued.

“Look, I am an IRS agent and I can help you in other ways if you let me go home and make this go away.”

Was an IRS agent, anyway. (via Instapundit)

 

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Tax Roundup, 10/31/14: Halloween! And: mortgage interest? Put it on the tab.

Friday, October 31st, 2014 by Joe Kristan

20140325-1The deduction for home mortgage interest is hugely popular among those with huge home mortgages. Taxpayers get to deduct all of the interest paid on loans used to buy a home, up to $1 million in principal; they also get to deduct interest paid on the first $100,000 in home equity debt.

But there is a technicality: the interest needs to be “paid.” That was a problem for a California couple in Tax Court yesterday.

The couple bought a home in 1991 for $300,000. They refinanced it for $600,000 in 2007. Then 2008 happened, and they got a loan modification in 2010. Tax Court Judge Lauber explains:

The modifications included a reduction of the interest rate, a change in the payment terms, and an increase in the loan balance. Immediately before the modifications, the outstanding loan balance was $579,275; after the modifications, the new balance was $623,953. The difference (equal to $44,678) resulted from adding the following amounts to the loan balance: past due interest of $30,273, servicing expense of $180, and charges for taxes and insurance of $14,225.

The taxpayers added the $30,273 to the $9,253 the bank put on their 1098 mortgage interest statement for 2010. The IRS noticed the difference and disallowed the $30,273.

20121031-2The Tax Court sided with the IRS:

Petitioners are cash basis taxpayers. It is well settled that “[a] cash-basis taxpayer ‘pays’ interest only when he pays cash or its equivalent to his lender.”

 Through the loan modification agreement, the $30,273 in past-due interest on petitioners’ mortgage loan was added to the principal. No money changed hands; petitioners simply promised to pay the past-due interest, along with the rest of the principal, at a later date. Because petitioners did not pay this interest during 2010 in cash or its equivalent, they cannot claim a deduction for it for 2010. They will be entitled to a deduction if and when they actually discharge this portion of their loan obligation in a future year. 

In short, you can’t just add interest to the loan balance and get a deduction. That has obvious implications for “reverse mortgages.”

As the taxpayers make the payments, they will have some additional factors to consider. Their original purchase price was $300,000 for the house. Unless the additional borrowing was used for renovation or expansion of the home, it is “home equity indebtedness.” Interest on only the first $100,000 of equity debt will be deductible — and only for regular tax, not AMT.

Cite: Copeland, T.C. Memo 2014-226.

 

mst3k-lanternWilliam Perez, The Tax Audit Success Story and Tips from Audit Experts

Jason Dinesen, Same-sex Marriage and State Taxes: 2014

Kay Bell, 2015 income tax rates, income brackets

TaxGrrrl, IRS Announces 2015 Tax Brackets, Standard Deduction Amounts And More

Robert D. Flach has A SCARY THOUGHT for Halloween. “What if the 114th Congress turns out to be made up of most of the same idiots as the 113th Congress!”  It will be.

 

Leslie Book, AICPA Suit Against IRS Voluntary Education and Testing Regime Thrown Out of Court (Procedurally Taxing)

Tax Trials, Tax Court Preserves Taxpayer Protections against Arbitrary and Capricious Appeals Rulings

 

Arnold Kling  on “middle class” tax credits:

Brooks endorses the reform conservative Room-to-Grow idea of showering middle-class families with tax credits. I see that as political posturing. If I could be in charge of tax reform, we would get rid of credits and deductions, and we also would move away from taxing income and instead toward taxing consumption. Note, however, that tax reform is not one of my top three priorities.

Except for the last sentence, I agree with it all.

 

6fpw32atDon Boudreax on the Arnolds Park IRS cash seizure:

I challenge anyone to justify, or even to excuse, such an abuse of power.  (HT a dear and wise and passionate friend.)

Words normally do not escape me, but I can find none that adequately convey the anger and sense of injustice that course through me when I read of seizures such as this one.  Best to let the matter speak for itself, which it surely does to anyone this side of Frank Underwood in decency and civility.  Fortunately, the great Institute for Justice is on the case.

Oh, I’m sure that things like that could never happen if the IRS had a bigger budget.

 

Andrew Lundeen, Tens of Thousands Protest Internet Tax in Hungary (Tax Policy Blog) Would-be dictators come up with wacky ideas.

20141027-2Matt Gardner, Obscure Law Allows Wealthy Professional Sports Team Owners to Reap Tax Windfalls (Tax Justice Blog) . He doesn’t care for intangibles amortization.

 

TaxProf, The IRS Scandal, Day 540

 

News from the Profession. Grant Thornton to Have Rat Problem for Foreseeable Future (Adrienne Gonzalez, Going Concern)

Tony Nitti, Want To Do Your Part To Help Fight Ebola? Skip Your Next Vacation. OK, I’m skipping my next vacation to Liberia.

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Tax Roundup, 10/27/14: IRS visits Arnolds Park restaurant, tips itself.

Monday, October 27th, 2014 by Joe Kristan

20120703-2IRS Commissioner Koskinen likes to say there is nothing wrong with the IRS that a bigger budget can’t cure. A story out of Arnolds Park, Iowa might cause one to question that. The New York Times reports:

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

Banks are required to report “suspicious” deposits under $10,000 because they might be done to evade a required IRS filing. As they get in trouble for non-reporting, they are likely to overreport. And in these cases, that’s all the IRS required before stealing the cash. The victims have legal recourse, but it requires them to sue the federal government, owner of the largest law firm in the world; legal bills routinely run into tens of thousands of dollars.

So, without any evidence, or even suspicion, of a crime, the IRS uses some of its allegedly precious and constrained enforcement resources to steal money from a little Iowa restaurant. The story cites other cash seizure nightmares. One involved an Army sergeant saving for his daughters’ education. Others involved legitimate but cash-intensive businesses.

If this is what the IRS accomplishes with insufficient resources, imagine how much they could steal with full funding.

(via Instapundit)

Related:

Tax Justice Blog,  New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs. Where would anybody get that idea?

Dan Mitchell, Another Example of Government Thuggery – and another Reason Why Decent and Moral People Are Libertarians

Russ Fox, SARs Leading to Forfeiture: The IRS Oversteps

 

20141027-2Jason Dinesen, How Non-Residents or Part-Year Residents Report Federal Refunds on Iowa Tax Returns. One more complication from Iowa’s deduction for federal taxes.

Robert D. Flach, DON’T TRY TO BUY A HOUSE OR CONDO WITH ONLY 5% DOWN!. And don’t try to subsidize that either.

William Perez, Self-Employed Retirement Plans, “If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or a solo 401(k) retirement plan.”

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #9-Tax Court Further Muddies The ‘Dealer Versus Investor’ Issue

 

TaxGrrrl, Fundraising Campaign Ends For ‘Ebola Free’ Nurse, Donors Encouraged To Contribute To Charity

Jana Luttenegger, 2015 Retirement Plan Limits Announced (Davis Brown Tax Law Blog)

Paul Neiffer, 2015 Social Security Wage Base Increases to $118,500

Kay Bell, 6 year-end tax tips for small businesses

Stephen Olsen, Summary Opinions (Procedurally Taxing). Recent cases on whistleblowers, interest abatement, and art valuation.

 

 

Andrew Mitchel, 2014 Third Quarter Published Expatriates – Third Highest Ever. FATCA and the IRS holy war on Americans abroad takes its toll.

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TaxProf, The IRS Scandal, Day 536

 

David Brunori on the inherently corrupt nature of corporate welfare tax incentives, like those so popular with Iowa politicians ($link):

I have no doubt there are more instances of companies contributing to politicians and getting economic development payouts. I’m not naïve. Corporations donate money to governors and lawmakers and expect a return on their investment. While the governors cited above were Republican, corporations and business interests don’t discriminate. Indeed, Lockheed Martin donated lots of money to Democratic governors.

We likely won’t find a smoking gun e-mail reading, “Dear Governor, your check is in the mail, please process my multimillion-dollar handout. Your friend, CEO.” Politicians and business leaders are too smart for that. But growing evidence of tax incentives being granted by politicians who receive money should give everyone pause. It’s unlikely to be a coincidence.

But, jobs! For the middlemen, fixers and lobbyists, anyway.

 

Joseph Henchman, Michigan Senate Advances Film Tax Credit Extension Bill (Tax Policy Blog). Because Detroit has no greater need than to give money to Hollywood.

 

News from the Profession. Meet the Guy Who Prefers Falafel Over PwC (Adrienne Gonzalez, Going Concern)

 

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

Thursday, October 23rd, 2014 by Joe Kristan

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

Via Wikipedia

Via Wikipedia

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

 

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

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

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

Cite: Sanchez, T.C. Memo 2014-223.

 

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

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

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

And hardly anybody noticed.

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

 

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

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

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

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

 

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

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

 

TaxProf, The IRS Scandal, Day 532

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

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

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Tax Roundup, 10/21/14: Gander gets sauced! And: IRS Commissioner’s prophecy of tax season doom.

Tuesday, October 21st, 2014 by Joe Kristan
Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

Gander, Meet Sauce. An alert reader points out something wonderful I had missed — a ruling awarding attorney fees and costs of $257,885 to the return preparers who successfully challenged the IRS preparer regulations. It’s a rare and welcome example of the IRS being held accountable for being unreasonable with taxpayers. And the court said the IRS was being unreasonable (all emphasis mine; some citations omitted):

In the present case, the reasonableness of the government’s position can be measured by the familiar guideposts of statutory interpretation: text, legislative history, statutory context, and congressional intent. In each of those dimensions, the interpretation of § 331(a)(1) advocated by the government was deficient. Indeed, on several key points, such as the proper meaning of the word “representatives,” the IRS offered no support whatever for its interpretation. The Court therefore finds that the government’s position was not substantially justified.

Losing the battle over whether its position was justified, the IRS dipped into its seemingly bottomless supply of chutzpah to challenge the amount:

As an initial salvo, the IRS argues that it was unreasonable and excessive for Plaintiffs to request compensation for over 1,700 hours spent advocating an interpretation of the statute that Plaintiffs themselves contend is obvious.

Our position was reasonable! OK, it was so unreasonable that even a cave man could litigate against it!

The Court declines the IRS’s request for across-the-board cuts to Plaintiffs’ award. The choice of a hatchet is particularly inappropriate here for several reasons. First and foremost, Plaintiffs prevailed at every stage of this litigation and achieved the entirety of their requested relief. Degree of success is “the most critical factor” in evaluating the reasonableness of a fee award.  Second, the IRS understates the complexity of this case. To be sure, this Court and the D.C. Circuit both concluded that Plaintiffs’ was the only reasonable interpretation of 31 U.S.C. § 330(a)(1). That conclusion, however, was apparent largely as a result of Plaintiffs’ thorough research and well-reasoned briefs.

Hah.

The only thing that would make it better would be if the IRS were assessed a penalty for taking a frivolous or negligent position. Maybe someday. But congratulations to the plaintiffs and the Institute for Justice for pulling off a legal end-zone dance.

 


Cite: Loving, Civil Action No. 12-385 (DC-District of Columbia)

And if you think that preparers can now do whatever they please, read Tax preparation business owner sentenced for tax fraud:

Charles Lee Harrison has been ordered to federal prison following his conviction of willfully aiding and assisting in the preparation and presentation of a false tax return, announced United States Attorney Kenneth Magidson along with Lucy Cruz, special agent in charge of Internal Revenue Service – Criminal Investigation (IRS-CI). Harrison, the owner of a tax preparation business in Houston and Navasota, pleaded guilty June 16, 2014.

Today, U.S. District Judge Lynn N. Hughes, who accepted the guilty plea, handed Harrison a 36-month sentence to be immediately followed by one year of supervised release. He was further ordered to pay $396,057 in restitution.

I’m confident Mr. Harrison feels quite regulated at the moment.

 

Oh, Goody. “So we have right now probably the most complicated filing season before us that we’ve had in a long time, if ever. ”

-IRS Commissioner John Koskinen in an interview with Tax Analysts October 17 ($link)

The Commissioner also had an interesting idea for large partnerships ($link):

Our position is the most significant thing we can do to break that bottleneck — and I think it’s supported by a lot of people in the private sector — would be to say we need to amend [the 1982 Tax Equity and Fiscal Responsibility Act] and say we can audit a partnership,” Koskinen said. “And when we make an adjustment to the tax quantities, the partnership will absorb that that year,” he said, adding that the reporting would take place on the partnership’s Schedule K-1 for that year and the adjustment would automatically flow through to the partners.

Koskinen added that even though that statutory change would effectively shift the tax liability from those who were partners in the year under audit (and who benefited from the improper tax position) to the current partners, “that happens with mutual funds all the time. . . . People are used to buying and selling investments, recognizing whatever the tax and investment situation is.

Maybe that makes some sense for large partnerships, but it would be horrible for small ones, as anybody buying a partnership interest would also be buying three open years of audit exposure.

 

buzz20140923It’s Tuesday. That means Robert D. Flach is Buzzing with links from around the tax world!

Jason Dinesen, Iowa Tax Filing Deadline is October 31: Claim Your $54 Credit Before Then

Paul Neiffer, Will ACA Require You To Include Health Insurance as Wages. Spoiler: no.

Matt McKinney, Can I force my Iowa corporation to buy my stock? (IowaBiz.com). A common question from minority owners of closely-held corporations.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #10 – IRA and Qualified Plan Rollovers Are More Treacherous Than You Realize.

TaxGrrrl, Suspected Nazi War Criminals Collected Millions In Social Security Benefits After Fleeing The U.S.

William Perez, Payroll Taxes: A Primer for Employers

Peter Reilly, Taxpayer Barred From Communicating With CPA Still Hit With Late File Penalty. Weird and unjust.

Kay Bell, Jury doesn’t buy ‘vow of poverty’ as excuse for not filing taxes. Well, this tax evasion conviction will help the defendant fulfill the vow.

 

 

20141021-1Martin Sullivan, A Double Bias Against Infrastructure (Tax Analysts Blog)  He doesn’t mention the biggest problem: When most of government spending is just transfers from some taxpayers to others, it squeezes out everything else.

Donald Marron, A “Normal” Budget Isn’t Really Normal (TaxVox): “From 1975 to today, the federal debt swelled from less than 25 percent of GDP to more than 70 percent. I don’t think many people would view that as normal. Or maybe it is normal, but not in a good way.”

TaxProf, The IRS Scandal, Day 530

 

News from the Profession. AICPA Seeks to Better Weed Out Losers, Misfits with Evolved CPA Exam (Adrienne Gonzalez, Going Concern). Good thing I passed the exam before this development.

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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