Posts Tagged ‘Anthony Nitti’

Tax Roundup, 2/26/15: Fifth circuit bails out abandonment. And: gas up before Sunday, Iowa!

Thursday, February 26th, 2015 by Joe Kristan

Fill ‘em up Saturday. Iowa’s Governor Branstad signed a 10-cent per gallon gas tax boost into law yesterday. It takes effect Sunday.

Somewhat related: Replacing the Gas Tax with a Mileage-Based Tax (Kyle Pomerleau, Tax Policy Blog).

 

20131212-1Taxpayer wins $20 million bet. Pilgrim’s Pride Corporation had an offer to sell securities for $20 million. It had a $98.6 million cost in the securities, so it wasn’t a great return, but $20 million is still better than nothing. Well, maybe not.

The taxpayer determined to abandon the securities in the belief that the result would be a $98.6 million ordinary loss — generating a tax savings of around $34.5 million. That seemed like a better deal than taking the cash, because the $78.6 million loss would then be a corporate capital loss — deductible only against capital gains, and expiring after five years.

In December 2012 the Tax Court said that Pilgrims Pride made a losing bet, ruling that Section 1234A made the loss a capital loss. Now the Fifth Circuit Court of Appeals has ruled that the taxpayer made the right bet, reversing the Tax Court:

The primary question in this case is whether § 1234A(1) applies to a taxpayer’s abandonment of a capital asset. The answer is no. By its plain terms, § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets). It does not apply to the termination of ownership of the capital asset itself. Applied to the facts of this case, Pilgrim’s Pride abandoned the Securities, not a “right or obligation . . . with respect to” the Securities.

Taxpayers outside the Fifth Circuit still need to be aware that the Tax Court says abandonment doesn’t turn capital losses into ordinary income, but in the right circumstances, it may still be worth a try. In the Fifth Circuit, abandon with, well, abandon.

I find this from the Fifth Circuit opinion interesting, if not necessarily true:

Congress does not legislate in logic puzzles, and we do not “tag Congress with an extravagant preference for the opaque when the use of a clear adjective or noun would have worked nicely.”

Logic puzzles seem to be pretty common in the tax law. Look at the ACA, which provides a $100 per-day, per-employee penalty for Section 105 plans, while Section 105 itself still rewards employees who participate in these plans with a tax benefit. That puzzles me. But I digress.

When the Tax Court first ruled in this case, I wrote:

Presumably the Gold Kist [a company that ended up owning Pilgrim’s Pride] board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

That’s one tax advisor who had an excellent day yesterday.

Cite: Pilgrim’s Pride Corporation, CA-5, No. 14-60295

Other coverage: Fifth Circuit Reverses Tax Court, Allows $98 Million Deduction To Pilgrim’s Pride (Tony Nitti)

 

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Jason Dinesen ponders What to Do with a K-1 with a Fiscal Year End

Russ Fox, Taxes Impacting the Giants. “There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes.”

TaxGrrrl, Looking For Your Refund? Need To Ask A Question? Finding Answers At IRS.

Peter Reilly, IRS Denies 501(c)(3) Exemption To Booster Club Due To Inurement. Quoting the IRS denial letter:

However, the money that they make in your name does not go into your general budget. Rather, you keep an accounting of how much revenue each member brings in and permit each member to apply that revenue to the cost of athletic competitions for their children.

Peter explains why that doesn’t work.

 

Kay Bell, More forgiving IRS to waive some bad 1095-A tax penalties

 

TaxProf, The IRS Scandal, Day 658. Today’s big story is the $129,000 on bonuses paid to Lois Lerner while Tea Party applications for exemption languished. I’m sure there’s no connection.

Alan Cole, Putting the Puzzle Pieces Together on Corporate Integration (Tax Policy Blog):

The reason that the traditional American C corporation is in decline is that it has faces multi-part tax, with two successive rounds of taxation for the owners. In contrast, the pass-through structure faces only one. That is why American businesses, when possible, are choosing this tax structure. It is now the dominant legal structure for businesses in America. In that structure, the owners of the corporation simply pay ordinary income tax on all the corporation’s income.

The path ahead to fundamental tax reform almost necessarily must lead through corporate integration. Fortunately, my colleague Kyle Pomerleau has done the research that ties this all together. He has found out how some other countries – like Australia and Estonia – have gone about tying together their corporate taxes and their shareholder taxes into one neat single layer.

So simple it just might work!

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Matt Gardner asks whether Goldman Sachs is Too Big to Pay Its Fair Share of Taxes? (Tax Justice Blog).

 

Cara Griffith, The Pinnacle of Secret Law (Tax Analysts Blog). ” That the Colorado Court of Appeals would seek to shield from public view most of the opinions it issues is appalling.”

Richard Auxier, GOP Governors Flirt with Tax Hikes but Still Wedded to Income Tax Cuts (TaxVox). Governor Branstad went boldly beyond flirting yesterday. Does signing the gas tax boost make Governor Branstad an unfaithful husband?

 

Caleb Newquist, Supreme Court Unhooks Fisherman From Conviction Under SOX Anti-Shredding Provision (Going Concern). “Please practice catch and release.”

 

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Tax Roundup, 2/19/15: Health insurance reimbursement relief and other cold-day links.

Thursday, February 19th, 2015 by Joe Kristan

The Tax Update is on a road trip across the frozen prairies. Just a few quick items today.

The big news item is handled in a separate post: Small employers, S corporations get relief from $100 per day premium reimbursement penalty. Other coverage:

20140106-1Kristine Tidgren, IRS Notice 2015-17 Provides Some Limited ACA Penalty Relief to Small Employers

Tony Nitti, In Last Minute Move, IRS Spares Small Employers Big Obamacare Penalties For 2014. “You’ve got to hand it to the IRS. It may improperly target political groups, inexplicably lose critical email evidence, abusively attempt to govern tax preparers in an overreaching manner, and callously refuse to answer the phone when we are in desperate need of assistance, but when the tax industry is struggling with complicated law changes, the Service sure as heck knows how to provide some last minute relief.”

Paul Neiffer, Here We Go Again.

In other news:

Robert Wood, TurboTax, Phishing, E-Filing, And IRS Security

Kay Bell, Tax pros are the latest tax scam phishing targets

William Perez, Tax Planning for Clergy

 

TaxProf, The IRS Scandal, Day 651

Greg Kyte, TurboTax Got Hacked Because of Course They Did (Going Concern)

 

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Tax Roundup, 2/16/15: Titanic saved! Well, except for the iceberg thing. Or, the regs are dead, long live the repair regs!

Monday, February 16th, 2015 by Joe Kristan

20140925-2So is the tax season saved? The IRS gave us a big “never mind” Friday afternoon with the issuance of Rev. Proc. 2015-20, letting taxpayers of the hook for countless Forms 3115 under the “repair regs.”

The main points:

“Small” trades or businesses — those with either average 3-year gross receipts under $10 million or assets under $10 million — can adopt the most common methods under the repair regulations without having to file an accounting method change. In fact, the Rev. Proc. requires no special statement or disclosure to adopt the new methods.

The “Small” tests are based on the size of the “trade or business,” not the size of the taxpayer. This means taxpayers who exceed these limits may still qualify if their component “trades or businesses” qualify.

Taxpayers may pay a price for not filing a 3115. If you skip the 3115 for the common method changes, you aren’t allowed to get the most lucrative one – the “late partial disposition election” for real estate and machinery improvements. This is the one Peter Reilly notes as having the potential to generate “biblical” deductions. That means if you want to claim this biblical deductions for any trade or business, you need to file the most common method changes for all of them, regardless of whether they qualify otherwise under Rev. Proc. 2015-20

For the details of the new rules, I have two dedicated posts:

IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules, and

List of Rev. Proc. 2015-20 method changes.

No Walnut STPeter Reilly says John Koskinen Saves Tax Season With Form 3115 Relief For Small Business. Well sure.  Except maybe for the entirely out-of-control epidemic of identity theft refund fraud, the continuing confusion and almost certain widespread inicidence of the new individual mandate penalty, the sticker shock that millions will face when they recompute their ACA exchange plan tax credits, and the financial disaster looming for small businesses for the horrible crime of reimbursing employee health insurance. But other than that, yes, it’s all hunky-dory.

Other Coverage: 

Russ Fox, IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Tony Nitti, Repair Regulation Relief: What Does It Really Mean? (Not As Much As You Think):

You don’t have to file a Form 3115. But remember, the three safe harbors that we started with 4,000 words ago — the $5,000/$500 de minimus, small building, and routine maintenance exceptions — are annual elections that apply only on a go forward basis. These still must be attached to the returns.

Paul Neiffer, You Don’t Need to File Those Form 3115s After All

 

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William Perez has Your Helpful Guide to Capital Gains Tax Rates and Losses

Jason Dinesen, Handling Franchise Fees on a Tax Return. He gives an example involving a $5,000 franchise fee: “The $5,000 franchise fee is considered an asset. The $5,000 is deducted over 180 months (15 years). This is true even though the franchise agreement is only 5 years long.”

Annette Nellen, Taxable income of a marijuana business. That’s pretty much the same as gross income.

Jana Luttenegger Weiler, Facebook Allows Users to Designate “Legacy Contact”

Kay Bell, 5 things to check when hiring a tax preparer

Stephen Olsen has his newest Summary Opinions, rounding up recent developments in tax procedure (Procedurally Taxing).

"Boris Johnson -opening bell at NASDAQ-14Sept2009-3c cropped" by Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg: *Boris Johnson -opening bell at NASDAQ-14Sept2009.jpg: Think Londonderivative work: Snowmanradio (talk)derivative work: Off2riorob (talk) - Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg. Licensed under CC BY 2.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg#mediaviewer/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg

Via Wikipedia.

Robert Wood, Savvy London Mayor Boris Johnson Paid IRS, Is Now Renouncing U.S. Citizenship. Considering what it costs him, it’s not surprising.

TaxGrrrl, Filing As Single Or Married: When ‘It’s Complicated’ Isn’t A Choice On Your Tax Return. As a filing status, that is.

 

TaxProf, The IRS Scandal, Day 648

Renu Zaretsky, No Hitting the Brakes for Tax Breaks… Today’s TaxVox headline roundup covers early movement on extending the “expiring tax provisions.”  Remember, they only got extended through the end of last year. Also links to discussions on Section 529 deductions, tax reform, and the romantic side of spreadsheets.

 

News from the Profession. Nearly Half of Accountants Surveyed Hooked Up With a Colleague (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

Friday, February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

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TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

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Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382″ restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

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Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

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Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

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Tax Roundup, 2/3/15: President announces fresh new hopeless tax proposals!

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

160 tax proposals. Close to 160 doomed tax proposals. The President released the details of the tax proposals for his 2015 budget yesterday. Tax Analysts Reports ($link):

The added details on international reforms the administration is seeking serve as “a significant step forward” to flesh out its business tax reform framework and see if there is an “opportunity for movement” on business reform with Congress, a senior Treasury official told reporters at a February 2 briefing on the release of the Treasury’s green book explanation of the revenue proposals in the budget.

Overall, the fiscal 2016 budget includes roughly 160 tax proposals, of which about 30 are new, 45 are modifications or combinations of old proposals, and 85 are the same or similar to the administration’s fiscal 2015 budget, the Treasury official said.

Almost all of these proposals are doomed for this Congress. As most of these couldn’t pass when Democrats controlled the Senate, they’re hardly likely to pass now that they don’t. A GOP Congress is also not about to pass some of the more publicized class warfare proposals, like the increase in the capital gain rate, the taxation of capital gains at death, increase the estate tax rate to 45% (from 40$) and lowering the estate and gift tax lifetime exclusion to $1 million (from $5+ million).

No Walnut STA few proposals might get a sympathetic hearing on their own from GOP taxwriters. These include:

– Cash basis accounting and repeal of Section 263A inventory capitalization for companies with up to $25 million in gross receipts.

– Permanent extension of the Section 1202 exclusion for qualifying small C corporation stock gains.

– Permanent extension of the refundable Child Tax Credit.

– Increasing the maximum Section 179 deduction from $500,000 to $1 million.

A few other corporate welfare gimmicks that might get a hearing include permanent research credits and permanent New Markets Tax Credits.

While there are a few items that might attract GOP support, overall this batch of proposals is more extreme than the ones that went nowhere before. The President probably won’t let Congress just pick out the tasty bits from his proposals, so I expect little to none of this to actually pass.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

Jeremy Scott, Obama’s Foreign Earnings Tax: 19 Percent Minimum DOA but Deemed Repatriations Key (Tax Analysts Blog)

Kyle Pomerleau, The President’s Tax on Offshore Earnings Represents the Worst of Retroactive Policy (Tax Policy Blog)

Len Burman, Are Accrued Capital Gains Income in the Year You Die? (TaxVox). “But reclassifying exceptionally thrifty middle-class families to the top of the income distribution by counting a lifetime of unrealized gains in income when they die clearly overstates their well-being.”

Tony Nitti, Tax Aspects Of The President’s FY2016 Budget

TaxGrrrl, Obama Budget Proposal Tackles Small Business, Changes To IRS

Kay Bell, Tax highlights in Obama’s FY2016 budget proposal

Annette Nellen, President Obama’s 2015 Tax Proposals

 

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Megan McArdle, Government Blinks Again on Obamacare, a discussion of the IRS announcement that it won’t impose the failure-to-pay penalty on exchange policy purchasers who have to repay some subsidy:

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Affordable Care Act is a lot less strong than the will to distribute the benefits.

It also telegraphs that the IRS expects that a lot of taxpayers who are anticipating a refund will be instead writing a check on April 15.

 

20140925-2Peter Reilly, Repair Regs And Tax Pros Are Like Headlights And Deer:

For the most part, the people who have been really looking at these regulations have had a large firm perspective.  To be a just a little cynical, they actually kind of like all this complexity, since they can make a case for sending out big bills to entities that can afford to pay them.  My brief time at the national level, not Big 4, but with many former Big 4 people made me realize there is a radically different perspective at that level.  They are used to having a very small number of competitors for any client who more or less sing from the same hymn book.  The client people that they deal with are quite likely fellow members of the Big 4 cult rather than tight fisted entrepreneurs who resent every penny they spend on professionals.

Regulation always favors the big, and the “repair regulations” are no exception.

 

Russ Fox, Fake Interest Income, Fake Withholding, Real Fraud at the Tax Court. “What is amazing to me is that the petitioner has not, as far as I can tell, been criminally indicted.”

Robert Wood, The Truth About Lying On Your Tax Return.  “…as with your resume, making up something on your tax return is a terrible idea.”

Martin Sullivan, JCT Report Provides New Insight on Competitiveness (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 635

 

News from the Profession: How Internal Controls Will Keep You Safe From Velociraptors (Leona May, Going Concern).

 

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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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