Posts Tagged ‘Anthony Nitti’

Tax Roundup, 3/23/16: “Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.” And more!

Wednesday, March 23rd, 2016 by Joe Kristan

norcal logoNo Scandal here. The IRS has long history of hiding behind taxpayer confidentiality rules to avoid accountability. The Sixth Circuit Court of Appeals called the IRS on this yesterday in a harshly-worded opinion.

The case arose from the Tea Party scandal. NorCal Tea Party Patriots sued the IRS after the scandal emerged. The IRS has used every trick in the book to drag out the case, citing the “confidentiality” of the very taxpayers it abused. From the Sixth Circuit opinion (my emphasis):

The IRS argues that the “names and other identifying information of” organizations that apply for tax-exempt status — along with the applications themselves — are confidential “return information” under 26 U.S.C. § 6103. IRS Petition at 2, 16. The IRS argues further that the district court lacked authority to order disclosure of those names under a statutory provision for disclosure in judicial proceedings where “the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding[.]” 26 U.S.C. § 6103(h)(4)(B). The IRS contends that the district court’s discovery orders threaten to undermine statutory protections for taxpayer privacy, and that a writ of mandamus is therefore appropriate.

A “writ of mandamus” is “an extraordinary remedy reserved to correct only the clearest abuses of power by a district court.” The Sixth Circuit wasn’t buying. They reviewed the IRS foot-dragging:

To that end, the plaintiffs sought discovery in the form of basic information relevant to class certification, including the names of IRS employees who reviewed the groups’ applications for tax-exempt status and the number of applications from similar groups that had been granted, denied, withdrawn, or were still pending. On the record before us here, the IRS’s response has been one of continuous resistance. For example, the IRS asserted that the names of IRS employees who worked on the groups’ applications were taxpayer “return information” protected from disclosure by § 6103. The IRS eventually abandoned that position, but argued instead that § 6103 barred the Department of Justice’s attorneys from even reviewing the groups’ application files to find the names of the IRS employees who worked on them. That was true, the IRS asserted, even though § 6103(h)(2) — entitled “Department of Justice” — expressly allows the Department’s attorneys to review a taxpayer’s return information to the extent the taxpayer “is or may be a party to” a judicial proceeding. See 26 U.S.C. § 6103(h)(2)(A). The IRS further objected — this, in a case where the IRS forced the lead plaintiff to produce 3,000 pages of what the Inspector General called “unnecessary information” — that “it would be unduly burdensome” for the IRS to collect the names of the employees who worked on the groups’ applications. The district court eventually intervened and declared the IRS’s objections meritless. Yet the IRS objected to still other document requests on grounds of “the deliberative process privilege[.]” That privilege, the IRS acknowledged, can be waived in cases involving “government misconduct”; but in the IRS’s reading, the IG’s report “does not include any allegation or finding of misconduct.”

Many taxpayers and preparers wish the IRS would use such a generous definition of “misconduct” when the criminal agents come calling.

The Sixth Circuit rejected all of the IRS arguments:

Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.

Words that should be chiseled over the entrance to IRS headquarters.

Cite: United States v. NorCal Tea Party Patriots et al.; CA-6, No. 15-3793.

More coverage:

TaxProf, IRS Scandal, Day 1049:  6th Circuit Slams IRS Treatment Of Tea Party Group

Russ Fox, A Bad Day for the IRS in Court

 

Scott Drenkard,New Study on Electronic Cigarettes Released Today (Tax Policy Blog):

To some, vapor products are an exciting innovation that offers a new, less harmful alternative to traditional incinerated cigarette use. By contrast, tobacco control groups are concerned about youth use of the products.

Meanwhile, politicians are concerned about losing their sweet tobacco revenues if people stop gassing themselves with the real thing. Hence the moral panic.

This map is in the study:

20160323-1

“Vapor products are generally found to have a much lower risk profile than traditional incinerated cigarettes.”

 

Paul Neiffer, Expanded Cost Basis Reporting is Here! Are you Ready? “The Surface Transportation and Veterans Health Care Improvement Act of 2015 (those two don’t really go together) added new tax laws that require executors to file cost basis information with the IRS.  This is required only when there is a taxable estate.”

Kay Bell, IRS releases Top 10 identity theft, tax fraud cases. 2015 only. 

Jack Townsend, IRS Publicizes Success in Prosecuting Identity Theft Refund Fraud

The IRS’s message from the selected 10 examples is that identify theft is serious and draws serious sentencings, with the principals involved receiving over 70 months (some well in excess of 100 months) incarceration (persons with lesser roles receive lesser, but still significant sentences).

That’s appropriate, but it’s not enough. Even though the thieves highlighted by the IRS report will rot for a long time, the millions they have stolen aren’t coming back. The petty grifters hightlighted in the report are probably not the type of folks who carefully weigh consequences when they can get free money right now. Nor will long sentences aren’t going to bother Russian organized crime networks, who have no intention, and little prospect, of facing U.S. justice.

Improved IRS processes that stop the crimes before they happen are what’s needed.

 

William Perez, How Much Can You Deduct by Contributing to a Traditional IRA? “Updated for 2016 contribution limits.”

Leslie Book, Filing a Day Late Can Be Timely Under Tax Court E-Filing Rules and So is Filing an Income Tax Return Ten Days Later After E-File Rejection. Good to know.

Robert Wood, Does Extending April 15 Deadline Increase Odds Of IRS Audit?. “It is worth saying it again: there is no increased audit risk to going on extension.” But there is definitely an increased risk if you mess up a return by doing it hastily, or by leaving off a late-arriving K-1.

Tony Nitti, Tax Geek Tuesday: Death Or Retirement Of A Partner In A Partnership. “Importantly, when a partner’s interest is to be liquidated by a series of distributions, the interest will not be considered liquidated until the final distribution has been made.”

 

TaxGrrrl, How To Survive Tax Season (Or Any Busy Work Day) In 10 Easy Steps.

Peter Reilly, IRS Bounty Hunters Should Not Waste Time On FBAR Penalties. In too many cases, that’s true of the IRS too.

 

20150326-3

 

Donald Marron, Britain Builds a Better Soda Tax (TaxVox). Better at stupid is still stupid.

Annette Nellen, Taxing Candy and Snacks – That’s a Good Start. At meddling in places where the government has no business.

 

Career CornerAccounting Talent Demanding Everything Shy of the Moon, Your First Born (Caleb Newquist, Going Concern). “If I may speak for myself and many, many other people, I’d be “history” after a few days of being treated like family. The nagging questions, the guilt, the constant phone calls, the passive aggressive suggestions about marriage/kids/life direction/bad habits.”

Share

Tax Roundup, 3/11/16: Iowa Sec. 179 coupling advances in both chambers. And: the cost of not filing timely.

Friday, March 11th, 2016 by Joe Kristan

IMG_1291To the floor. Identical bills coupling Iowa’s tax law to federal changes enacted in December cleared the taxwriting committees in each house of the General Assembly yesterday, the day after the bills were introduced. The bills (SSB 3171 and HSB 642) will be eligible for floor vote next week.

The sudden breakthrough clears the way for thousands of Iowans to complete their tax returns with the full $500,000 maximum Section 179 deduction. Thousands more will get to take other benefits, including the $250 above-the-line deduction for educator expenses, deductions for student loan interest, and charitable distributions by IRAs for older taxpayers.

The Governor seems to be on board, reports O. Kay Henderson:

Republican Governor Terry Branstad is praising the breakthrough.

“It certainly is a significant step in the right direction,” Branstad told reporters this morning. “…I always reserve judgment until I see it in its final form, but it appears from what I’ve heard to be something that resolves some big differences of opinion between the two houses and hopefully will make it possible to move forward with our other priorities.”

The coupling process is unfolding as I predicted February 26, after Governor Branstad reversed his anti-coupling stand. It’s too bad we couldn’t have gotten this far much earlier, without disrupting filing season. Better late than never, though. Unfortunately, the coupling is for one year only, so we can look forward to a repeat show next year.

Other Coverage:

Jason Schultz, A Victory for Iowa Taxpayers (Caffeinated Thoughts)

Des Moines RegisterLegislators reach pact on key budget issues

TheGazette.com, Iowa tax coupling to benefit ‘tens of thousands’

Me, Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

Complete Tax Update coverage.

 

20160129-1

File or extend that 1120-S on time! The returns for calendar-year S corporations are due on Tuesday. If you can’t file on time, be sure you extend, because the penalties have gone up. From the IRS online Form 1120-S instructions:

Late filing of return.   A penalty may be charged if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause…  For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. 

You can also get in trouble for filing, but not sending the K-1:

Failure to furnish information timely.   For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $260 penalty is increased to $520 or, if greater, 10% of the aggregate amount of items required to be reported.

Extending your return gives you until September 15 to get that information out. A 10-person S corporation incurs a $1,950 fine for being one day late, and it increases each month. The extension, filed on Form 7004, is automatic, and can be e-filed.

Rant: I despise the use of fines like this as a government funding method. Dinging a one-day timing violation is like the red-light cameras that ding you for not quite stopping before turning right at an empty intersection. No harm, no foul, but pay up, peasant.

 

Big companies get phished: Snapchat, Seagate among companies duped in tax-fraud scam:

The scam, which involved fake emails purportedly sent by top company officials, convinced the companies involved to send out W-2 tax forms that are ideal for identity theft. For instance, W-2 data can easily be used to file bogus tax returns and claim fraudulent refunds.

The embarrassing breakdowns have prompted employers to apologize and offer free credit monitoring to employees. Such measures, however, won’t necessarily shield unwitting victims from the headaches that typically follow identity theft.

Be careful out there, kids.

 

20160129-2

 

William Perez, Tax Planning for Clergy

Kay Bell, Ways & Means chairman promises more Congressional scrutiny of IRS security procedures

Jack Townsend, DOJ Tax Promotes Employment Tax Criminal Prosecutions. Never “borrow” withheld taxes to pay other vendors. It can get very serious in a hurry, even in Iowa.

Keith Fogg, A Different “Angle” on Recovery of Costs and Attorney’s Fees. “As we have discussed before, allowing the government to wait until the time of trial or even after trial to concede a case and thereby avoid attorney’s fees frustrates the purpose of the qualified offer provisions.”

Robert Wood, Guilty Mo’ Money Tax Preparers Could Face 8 Years. Nothing says “professional” like “Mo’ Money.”

TaxGrrrl, Does The IRS Have Your Money? Nearly $1 Billion In Old Tax Refunds Outstanding

Jim Maule, Why Not Sell Losing Lottery Tickets? “The answer is simple. The person buying those tickets and representing that they lost the face value of those tickets would be committing tax fraud.”

Dang. Tax Court Holds That Family Vacations Are Not Deductible As Book-Writing Research (Tony Nitti).

 

Richard Auxier, Is your state’s tax system punching above or below its weight? (TaxVox).

TaxProf, The IRS Scandal, Day 1037

 

News from the Profession. CPA Accused of Jamming Cell Phones Just Wanted to Commute in Peace, YOU MONSTERS (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

Thursday, March 10th, 2016 by Joe Kristan

coupling20160213

Update, 10:23 a.m. The Senate Ways and Means Committee cleared SSB 3171 this morning unanimously, according to the Iowans for Tax Relief Twitter feed. They also report that House Ways and Means is meeting now to discuss HSB 642, which I believe is identical to SSB 3171.

Update, 11:30 a.m. O. Kay Henderson posted Statehouse leaders announce tentative deal on taxes. Looking at the statements, it appears that the deal is between leaders of the two legislative chambers, with Governor Branstad as a bystander. Makes me nervous, but I assume they wouldn’t go to the trouble without having the Governor on board somehow.

A deal, maybe. A bill rumored as the outline of a bi-partisan deal coupling 2015 federal tax changes to the Iowa income tax law was introduced by chief Senate taxwriter Joe Bolkcom yesterday. SSB 3171 would allow taxpayers to deduct up to $500,000 of equipment purchases on their 2015 Iowa returns that would otherwise be capitalized and depreciated over a period of years. This would match up the 2015 Iowa maximum “Section 179” deduction to the amount enact in December for 2015 and beyond in federal law. It would also enact for 2015 Iowa returns a number of other “expired” provisions, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

The matching would only be for one year. The price to get Senate Democrats to go along would be repeal of the sales tax administrative rules for manufacturers set to take effect July 1. They would be replaced by a smaller sales tax break passed by the Iowa House in 2014 that died in the Senate.

Iowa is not expected to couple with federal bonus depreciation.

While rumors say that this is close, with legislative movement likely as early as today, there remains uncertainty. The Governor is said to be unhappy with the deal, and he will go along only grudgingly, if at all, according to people I’ve heard from.

Rod Boshart reports at TheGazette.com:

“We’re ready to move ahead with those three elements: the coupling, rescinding the governor’s rules and picking up the consumable supplies bill that the House passed in 2014. That would be in one package,” Bolkcom said.

Republicans who control the Iowa House and Democrats who hold a majority in the Iowa Senate also were working to resolve a dispute over state funding for schools with negotiators looking at a deal that could boost state aid in fiscal 2017 by 2.25 percent and provide other categorical increases that would bring the overall funding growth closer to 2.5 percent, according to legislators close to the talks.

“There’s no deal yet, but we are meeting with House Republicans on the big issues,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, who declined to discuss specific numbers. “The good news is we are meeting and talking.”

The sales tax exemption has been a sore point with Senate Democrats since it was proposed by the Department of Revenue. Going with the 2014 house-passed language (HF 2443) reduces the break, giving the Senate Leadership a symbolic victory. Still, the 2014 death of HF 2443 indicates that they really didn’t want to keep any of the rule changes.

I haven’t figured out exactly what parts of the sales tax exemption will be lost under the bill introduced yesterday. The exemptions for items such as jigs, tools, dies, coolants and lubricants would survive.

This issue will be back next session. Even if the compromise passes, the section 179 coupling issue will be up again next year. SF 3171 is only for one year, while the federal legislation makes the federal change permanent. There seems to be no discussion yet of cutting back corporate welfare tax credits to “pay for” the Section 179 deduction used by 25,000 Iowa farmers and small businesses. Maybe next year.

I will update this post today as events warrant.

 

Scott Drenkard, Nicole Kaeding, How High Are Sales Taxes in Your State? (Tax Policy Blog):

20160310-1

Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain.

That’s the tragedy about scaling back Iowa’s manufacturing exemption. Rather than scaling it back, the legislature should be looking to expand it to other business inputs.

 

Paul Neiffer, Two Opportunities for Farm and Estate Tax Education. While Roger McEowen will sadly no longer be part of the Iowa State University Center for Agricultural Law and Taxation, he will continue to teach his summer seminars: this year in Alaska and North Carolina. These are excellent seminars in nice settings, and a nice way to mix continuing education with leisure.

 

Robert Wood, Cayman Companies Plead Guilty To U.S. Tax Evasion, Handing Over American Accounts. Bank secrecy is still dead.

Jason Dinesen, More on Business Proactive Planning in the Real World. “The thing the “experts” miss is, most of us are trying to be proactive … but it’s hard when the client won’t be an active participant in the process.” I find that some clients want you to be pro-active, as long as you don’t charge any time for it.

Tony Nitti, With Summer Olympics Nearing: Should Athletes Pay Tax On Their Winnings?. “Few people realize this, but with an Olympic medal comes a cash payout: $25,000 for a gold, $15,000 for  a silver, and $10,000 for a bronze.” Somehow I doubt that it covers costs for, say, the Modern Pentathlon champions.

Kay Bell, Is Trump ‘poor’ enough to get NY property tax break?:

Crain’s New York Business may have shed some light on why Donald J. Trump doesn’t want us to see his tax returns.

The magazine reports that the billionaire real estate developer got a property tax break designed for New Yorkers making less than $500,000 a year.

People with a lot of wealth in real estate investments can have surprisingly low taxable incomes, after depreciation and interest deductions. Of course, so can people who aren’t really so wealthy.

 

20151118-1

 

Jeremy Scott, Romney Cared About the 47 Percent Because He Cared About Deficits (Tax Analysts Blog). “Unlike 2016’s candidates, Romney was trying to push economic and tax policy that didn’t add too much to the national debt, and made Democrats seem financially irresponsible.”

TaxProf, The IRS Scandal, Day 1036

Cara Griffith, Should Tax Settlement Agreements Be Publicly Available? (Tax Analysts Blog). “Yet if it is conventional wisdom that good cases settle while bad cases go to trial, isn’t there a lot that could be learned if lawsuit settlements were made available for public scrutiny?” The good thing is that it would shine light on “secret” law. The bad news is that it might make deals harder to reach.

Renu Zaretsky, Schemes, Scams and States’ Fights. Today’s TaxVox headline roundup says some big company payroll departments fell victim to ID-theft scam emailers mimicking CEOs asking for employee information. Be careful, people.

 

Career Corner. Most Managers Would Prefer If You Could Just Read Their Minds (Caleb Newquist, Going Concern). We would, you know.

 

Share

Tax Roundup, 3/8/16: Getting robbed, and again. And: IRS allows retroactive WOTC certification for 2015.

Tuesday, March 8th, 2016 by Joe Kristan

walnutstreet20160308It’s not enough to get robbed; you have to time it right. A “pump-and-dump” securities fraud victim claimed a theft loss deduction. The IRS said “yep, you were robbed.” But they also said that they didn’t time their robbery deduction properly, and therefore were out of luck. And, it turns out, they were.

Court of Federal Claims Judge Sweeney explains (my emphasis, citations and footnotes omitted):

There is no dispute that plaintiffs discovered the theft loss in 2002.31 And, neither plaintiffs nor defendant disputes that in 2002, there existed “a claim for reimbursement with respect to which there [was] a reasonable prospect of recovery Plaintiffs filed their arbitration claim against Donald & Co., Mr. Stetson, Mr. Volman, and Mr. Ingrassia in February 2002, and by the end of that year, they had neither sought to adjourn the proceedings nor withdrawn their claim. Accordingly, in light of the ongoing arbitration proceedings, plaintiffs could not claim a theft loss deduction in 2002. Instead, they were required to delay their deduction until the “year in which it [could] be ascertained with reasonable certainty whether or not” they would receive reimbursement of their losses from their arbitration claim. Plaintiffs determined that the proper year to claim their theft loss was 2004, and filed amended federal income tax returns reflecting the deduction. The IRS disallowed plaintiffs’ refund claim, and takes the position in this litigation that 2004 was not the proper year for plaintiffs to claim their theft loss deduction.

The court said the victims didn’t prove that they were entitled to the deduction:

Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovering on their arbitration claim. However, under the factual circumstances presented in this case, the test is not whether plaintiffs had a reasonable prospect of recovering on their arbitration claim in 2004, but is instead whether, in 2004, plaintiffs could have ascertained with reasonable certainty that they would not recover on their arbitration claim. To satisfy their burden under the latter test, plaintiffs were required to produce objective evidence that they abandoned their arbitration claim in 2004. They failed to do so. In the absence of such evidence, plaintiffs are not entitled to a theft loss deduction for the 2004 tax year.

The opinion doesn’t say whether the victims filed protective refund claims for subsequent years to preserve their refund rights. It would be another robbery if they were unable to get their theft loss deduction because they got the year right. The statute in such cases should allow taxpayers to recover in the proper year if the IRS successfully second-guesses the timing of a theft loss.

The Moral? If you are a fraud or theft victim, the timing of the loss deduction is very important. If the IRS disputes the loss on examination, be sure to file protective refund claims for open years to protect your rights.

Cite: Adkins, Ct. Fed. Claims No. 10-851T.

 

Speaking of getting robbed twice: IRS shuts down ID-thief assistance portal. A week after The Tax Foundation pointed out that the IRS IP-PIN online portal made identity theft victims vulnerable to being victimized a second time, the IRS has temporarily shut it down:

As part of its ongoing security review, the Internal Revenue Service temporarily suspended the Identity Protection PIN tool on IRS.gov. The IRS is conducting a further review of the application that allows taxpayers to retrieve their IP PINs online and is looking at further strengthening the security features on the tool.

Nothing to see here, move along.

 

Work Opportunity Credit guidance updated for retroactive 2015 credits. Congress re-enacted the expired Work Opportunity Tax Credit retroactively for 2015. To claim the credit for hiring certain classes of hard to employ workers, employers have to get the employee eligibility verified within 28 days. As this was impossible for an expired credit, the IRS yesterday gave employers until June 29 of this year to get the certification for 2015 hires (Notice 2016-22)

 

20160308-1

 

Russ Fox, What Part of “Permanent Injunction” Didn’t You Understand? “Mr. Herrera is being held at ClubFed until he closes his business and complies with the injunction.” That should do it.

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-B, Proceeds From Broker & Barter Exchange Transactions

William Perez, How to Mail Tax Returns to the Internal Revenue Service

Keith Fogg, Making Claims and Spending Refunds in Bankruptcy. “The 9th Circuit recently affirmed the district court opinion granting summary judgment to the IRS in a case brought by Mr. Stanley Burrell aka M C Hammer seeking to equitably estop the IRS from collecting on taxes for two years which it failed to include on the proof of claim in his bankruptcy case.”

Jack Townsend, Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals

 

Tony Nitti, Would Hillary Clinton’s Tax Plan Kill The Incentive Stock Option?. Actually, AMT has done that pretty well already.

Robert Wood, President Hillary Won’t Cut Tax Deductions To Charities Like Clinton Foundation. Of course not.

Peter Reilly, Chasm Of Class And Privilege – Clinton Tax Plan Hits Top 1% – Sanders Plan Hits Top 5%. “What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.”

Kay Bell, Trump is last holdout as Kasich releases tax returns

 

Jason Dinesen, 6 Things You Might Not Know About Enrolled Agents. “2. We Don’t Work for the IRS

 

20160308-2

 

Renu Zaretsky, Budget Chaos, Tax Breaks, Loopholes, and Incentives. Today’s TaxVox headline roundup covers EU tax investigations of multinationals, IRS tax investigations of multinationals, and scoundrels “patriotic millionaires” against carried interests.

TaxProf, The IRS Scandal, Day 1034

Stuart Gibson, Competition Policy and Tax Policy in The Twilight Zone (Tax Analysts Blog). “From a tax perspective in the U.S. (and probably Europe), this is simply a garden-variety case of a taxpayer negotiating a good deal with a foreign tax authority. From a European competition perspective, the answer is a bit more complicated.”

 

News from the Profession. Why Accountants Suck at Marketing (Blake Oliver, Going Concern)

 

Share

Tax Roundup, 3/4/16: Discussing tomorrow’s obscure deadline today! And: Iowa think-tanker whiffs on Section 179.

Friday, March 4th, 2016 by Joe Kristan

Accounting Today Newsletter visitors, click here for “One year for you, forever for them.”

20151209-1Today is Day 64. Tomorrow is one of the more obscure deadlines in the tax law. Complex trusts have until tomorrow to make distributions to their beneficiaries that can be considered 2015 distributions under the “65-day rule” of Section 663(b).

“Complex” trusts are those that are taxed as separate entities, and which are not required to distribute all of their income at least annually. That is in contrast with the other two kinds of trusts:

“Simple” trusts, which are treated as separate taxpayers from their beneficiaries but which have to distribute their income at least annually; and

“Grantor” trusts, the earnings of which are taxed directly to the person who funded it, regardless of whether the earnings are distributed. The typical estate planning “living trust” is a grantor trust.

Complex trusts pay their own taxes under a system similar to the individual tax system, but with some important twists:

-The brackets are very compressed. Complex trusts pay the 39.6% top rate starting at $12,300 of taxable income in 2015. Single individuals don’t hit that rate until taxable income reaches $413,200, and joint filers go to $464,850.

-Trusts pay the 3.8% “net investment income tax” on “investment” income to the extent their adjusted gross income exceeds $12,300. The cutoff is $200,000 for single filers and $250,000 for joint filers.

-When complex trusts make a distribution, taxable income follows the distribution. While it’s a little more complicated than this, for this discussion assume that a distribution to a beneficiary of $100 reduces trust taxable income by $100 and increases the recipient beneficiary’s taxable income by the same amount.

Together, this means complex trusts are often highly motivated to distribute their taxable income, at least to the extent that it exceeds $12,300. This is true when beneficiaries are not top bracket taxpayers, and it’s especially true if their AGIs are below the 3.8% NIIT cutoff. Shifting taxable income from the highest trust tax bracket to the lower individual brackets can save taxes overall.

The 65-day rule is a mulligan for complex trusts. It gives them some extra time after the end of the year to distribute some cash — and some of that prior year taxable income — to their beneficiaries.

Of course, some trusts will choose to take the tax hit. Some trusts exist specifically to keep income out of the hands of beneficiaries, perhaps because the person who set up the trust wants the beneficiaries to wait until they are older and wiser before they get the cash. But in many cases, the 65-day rule is a handy after-the-fact trust planning tool.

Related: Overview of Fiduciary Income Taxation (IRS, AICPA)

 

20151209-3

 

WrongIn his post Unspoken budget choices for Iowa, Peter Fisher errs on an important fact about coupling Iowa’s Section 179 limit to the $500,000 federal amount. Mr. Fisher is an Iowa City academic with the leftish think tank Iowa Policy Project.* He says (my emphasis):

On the other hand, the bill would reward decisions already made and give those investors a break they had not expected. It’s not an incentive to do something they would not have done anyway — and it’s very costly.

They certainly did expect it. It was clear from early in 2015 that there was powerful motivation in Congress to extend the $500,000 limit for a year, and possibly permanently; the permanent extension is what happened. The $500,000 limit had been renewed year-by-year since 2009, and Iowa had adopted the $500,000 limit every year since 2010. While past performance is no guarantee of future results with politicians, all indications were for a repeat, both at the federal and state level.

There was no indication that Iowa would do anything different until Governor Branstad came out against coupling in January of this year — surprising taxpayers and practitioners all over Iowa. It is simply wrong to say $500,000 Section 179 coupling wasn’t expected. And it’s indisputable that the alternative $25,000 limit represents a year-to-year tax increase for 2015.

One thing Mr. Fisher does get right: failing to couple does represent an unspoken budget choice. He just wants to choose to spend the money on his favored projects. But failure to couple really represents a choice to favor cronies, big businesses and insiders over small businesses across Iowa who lack lobbyists and clout.

Related: Complete Tax Update coverage of coupling issue.

*Disclosure: I have been disagreeing with the Founding Director of IPP since he was an Economics professor at Cornell College and I was a coffee-guzzling history major. 

 

Tony Nitti, Taxation Of Lawsuit Awards And Settlements: Getting To The Origin Of The Claim. “Thus, when determining whether a taxpayer’s award or settlement payment is excludable under Section 104, you’ve got to get to the bottom of the original claim: what caused the taxpayer to sue in the first place?”

Russ Fox, Math Is Hard, IRS Addition. I see what you punned there!  “To my clients and anyone else who receives an IRS notice: IRS statistics show that two-thirds of IRS notices are wrong in whole or in part.”

TaxGrrrl, IRS Reports Fewer Tax Returns Received, Higher Average Refund As Tax Season Rolls. “With about six weeks to go in the 2016 tax filing season, more than a third of all taxpayers expecting to file a tax return have already submitted tax returns.”

Jason Dinesen, Do I Have to Pay Self-Employment/FICA Taxes If I Think Social Security Will Go Bankrupt? Three guesses.

 

Nicole Kaeding, State Gasoline Tax Rates in 2016 (Tax Policy Blog):

20160304-1

Iowa is higher than most, but Pennsylvania is the worst.

 

TaxProf, The IRS Scandal, Day 1030 “…what we explore here is more subtle, more pervasive, and hence, more invidious and threatening. It is the way in which the unexamined assumption of tax exceptionalism – the idea that tax is different – has produced a situation in which the tax law and its administrators are viewed by tax professionals, and eventually by the taxpaying public, as interpreting and enforcing tax law in ways that are not understood, are therefore misperceived, and are ultimately judged illegitimate.”

Len Burman, TPC Updates  Analysis of Ted Cruz’s Tax Proposal To Reflect a Change in His EITC Proposal. “Senator Cruz’s plan would increase all phase-in and phase-out rates of the credit by 20 percent.”

Kay Bell, Former IRS chief says Trump should release tax returns

 

Career Corner. Is Our Productivity Obsession Counterproductive? (Megan Lewczyk, Going Concern). What is this “productivity” of which you speak?

Share

Tax Roundup, 2/26/16: Gronstal hints at approach to Section 179 coupling deal. And: Yes he can! (Release his returns)

Friday, February 26th, 2016 by Joe Kristan

couplingInteresting, if true. In opening hostage negotiations over the fate of Section 179 coupling, Iowa Senate Majority Leader Gronstal may have hinted at a “Main Street vs. Walnut Street” approach. From wcfcourier.com:

If the choice is between offering tax relief to a limited number of manufacturers “or taking care of 30,000 farmers, 25,000 small businesses,” Gronstal said he would “gravitate more toward the 50,000 or 60,000 effort to help those folks (rather) than something that is much more narrow in terms of its impact.”

I say “may have” because I think he is hinting at trying to get the Governor to reverse its regulatory change to sales tax rules on manufacturing supplies.

By “Walnut Street,” I refer to downtown Des Moines, where several of the big law/lobbying firms in town have their offices (Nothing against Walnut Street — that’s where Tax Update World Headquarters is located, too).  Whether or not Sen. Gronstal realizes it, the coupling issue is ultimately about whether to benefit a handful of insiders and big companies benefitting from special tax benefits, or whether to further the interests of the rest of the taxpayers who pay for any special deals.

The revenue cost from adopting the $500,000 Section 179 limit for Iowa is estimated around $90 million. Eight taxpayers by themselves claimed $35 million in research credits in 2015, of which around $30 million were paid to the companies in cash because they exceed the claimants income tax bills. Just last week the state promised $15 million to DuPont as a location incentive. The potential loss of Section 179 deduction is making its many beneficiaries suspicious of the multi-million dollar “economic development” tax credits that benefit relatively few insiders with lobbyists.

Walnut Street back in the day.

Walnut Street back in the day.

While Senator Gronstal will insist on concessions for passing the bill, I expect he will reach a deal without insisting on his full pound of flesh. More than anything else, he wants to remain Majority Leader, with control over whether legislation lives or dies. He has only 26-24 control of the Senate. If he is perceived as blocking coupling, it may be just enough to tip a close race or two against his party. I think his reference to the “50,000 or 60,000” shows he’s aware of this. That’s why I think an agreement to couple with the federal limit is now likely in the next two or three weeks. I have no insider information to confirm this guess.

Related: Me, Tax season impasse: why your 2015 Iowa tax return may be on hold. My new post at IowaBiz.com, the Des Moines Business Record Business Professional’s Blog.

Other coverage: Des Moines Register, Gronstal opens door to Iowa tax-coupling deal

 

Yes he can! Trump says he can’t release tax returns because he’s being audited (marketwatch.com). That’s not true, of course. While it’s illegal to release someone else’s returns without their permission, you can make your own returns public any time. The IRS doesn’t make you sign some sort of confidentiality agreement when they audit you.

Like every other silly thing he says, this probably will probably increase his standing in the polls.

Related: TaxGrrrl, Trump Won’t Release Tax Returns, Citing IRS Audit: Is It A Legitimate Excuse? “Trump could absolutely release those returns now – even in the middle of an audit.”

 

20150401-2

 

Tony Nitti, Beachbody Coach? Rodan & Fields Consultant? At Tax Time, Beware The Hobby Loss Rules. “If your Facebook feed is anything like mine, videos of clumsy toddlers and unlikely animal pals have recently given way to a relentless string of friends pushing side businesses.”

Kay Bell, Penalty for late tax filing increases in 2017. “Starting in 2017, if you send in your Form 1040 (and additional forms and schedules) more than two months after the return is due, you’ll be slapped with a penalty of $205 or 100 percent of your due tax, whichever amount is smaller.” Another example of the ugly practice of funding the government through penalties instead of taxes.

Keith Fogg, Discharging the Failure to File Penalty in Bankruptcy (Procedurally Taxing).

Somehow I missed this: WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ – SPECIAL TAX SEASON EDITION (Robert D. Flach). “An unprecedented tax season BUZZ!  Some good stuff that needs to be spread around now – and could not wait until April.”

Andrew Mitchel, Charts of Examples in Rev. Proc. 91-55: Form 5472 & Direct and Ultimate Indirect 25% Shareholders. A big issue when you have foreign owners of a U.S. corporation.

Robert Wood, Kanye West Could Still Get $1 Billion Tax Free. Why?

Jim Maule, Section 280A and the Tree House. “The reader asked, ‘Can a tree house qualify under the Section 280A rules? Can a tree house be depreciated?’ Though there’s no direct authority, careful reading of the applicable statute provides an answer.”

Party on Walnut Street.

Party on Walnut Street.

 

TaxProf, The IRS Scandal, Day 1023

Renu Zaretsky, Times get taxing for candidates… Today’s TaxVox headline roundup covers last night’s debate, candidate tax returns, and the lost credibility of the IRS under Shulman and Koskinen.

 

News from the Profession. Password Inundation: Password Policies We Love to Hate (Megan Lewczyk, Going Concern).

 

Share

Tax Roundup, 2/11/16: C corporation law firm hammered for bonusing all income. And: PTIN class action certified.

Thursday, February 11th, 2016 by Joe Kristan

20150403-3Incorporated professional businesses are darned if they do, darned if they don’t. If they do elect S corporation treatment, the IRS pushes them to treat as much of the business income as possible as salaries, to maximize employment tax receipts. If they don’t, and operate as C corporations, the IRS likes to argue that the salaries are excessive, triggering tax on the “excessive” part at the highest corporation tax rate.

A Tax Court case yesterday reminds us that of these risks, the C corporation has the most to lose. A big Chicago intellectual property firm routinely paid its year-end earnings as bonuses, running its income down to zero. Professional C corporations like to do this because the “personal service corporation” rules deny professional corporations the benefit of the lower corporate tax rates; they pay a flat 35% on dollar one. Any dividends paid are non-deductible and are taxed again at a 20% individual rate.

S corporations typically make the reasonable argument that some of their income is from invested capital and accumulated goodwill, and therefore can properly be treated as corporate distributable earnings – which, incidentally, aren’t subject to FICA or Medicare taxes. The IRS turned this argument against the Chicago firm, arguing that a C corporation law firm with 65 shareholders and 150 attorneys would have such earnings not strictly attributable to the shareholder wage compensation.

The law firm conceded the tax, but argued that it shouldn’t have to pay penalties because it had “substantial authority” for bonusing out all the income. The court found otherwise:

We do not doubt the critical value of the services provided by employees of a professional services firm. Indeed, the employees’ services may be far more important, as a factor of production, than the capital contributed by the firm’s owners. Recognition of those basic economic realities might justify the payment of compensation that constitutes the vast majority of the firm’s profits, after payment of other expenses — as long as the remaining net income still provides an adequate return on invested capital. But petitioner did not have substantial authority for the deduction of amounts paid as compensation that completely eliminated its income and left its shareholder attorneys with no return on their invested capital.

The Moral? Professional corporations should usually be S corporations. The few additional fringe benefits available to C corporations don’t pay for the chance that you will get hit with 35% tax on a big chunk of corporate income.

Cite: Brinks Gilson & Lione A Professional Corporation,  T.C. Memo. 2016-20

 

IRS certifies class action for suit on excessive PTIN fees. Text here. Still pushing back on the IRS preparer regulation power grab.

 

IMG_1285

 

Is there anything they can’t do? Tax credit could spur biochemical revolution (Sen. Rita Hart, Rep. Mary Ann Hanusa, Des Moines Register). Presumably just like they spurred the Iowa film industry revolution. And who better than statehouse politicians to pick  the next great industry? My thoughts here.

 

Tony Nitti, Just Three Years Later, President Seeks To Expand Obamacare Tax On Business Owners. It’s going nowhere for now, but Tony cautions: “As a reminder, Hillary Clinton has not offered much of a tax plan of her own, and has shown a willingness to leverage off of proposals posited by the President. Which means this might not be the last we see of a mulligan on the net investment income tax.”

Jason Dinesen, Can Married Same-Sex Couples Claim Their Spouse as a Dependent?

TaxGrrrl, Understanding Your Tax Forms 2016: Form 1099-C, Cancellation of Debt

Robert Wood, Lawyer Fees Soar To $1,500 An Hour, But Tax Write-Offs Cut It To $900

Kay Bell, Hackers try, but fail, to get into IRS e-filing PIN system

IMG_1277

 

David Brunori, Base-Broadening and Rate-Lowering Remains a Good Idea (Tax Analysts Blog). “Whether you’re a liberal, a conservative, or a Martian, you must admit that net worth taxes are horrible tax policy.”

Scott Greenberg, More Americans than Ever are Renouncing Their Citizenship, and Taxes are to Blame (Tax Policy Blog)

Howard Gleckman, The White House Quietly Rolls Out Its Last Tax and Budget Plan (TaxVox).

TaxProf, The IRS Scandal, Day 1008

 

Career Corner. Reminder: Don’t Let Inside Information Turn Into a Career Limiting Move (Leona May, Going Concern). “Regardless of how you learn the inside information, don’t trade on it. Regardless of whether or not you’ll explicitly benefit, Don’t share the information -– especially not with your greedy brother-in-law.”

Share

Tax Roundup, 2/8/16: When your password is a key for thieves. And: More Tax Credits!

Monday, February 8th, 2016 by Joe Kristan

20150910-2You need more than one password. Another home tax software company reports that its customers may have had their data stolen. Marketwatch.com reports:

In its letter to affected customers, TaxSlayer said it became aware Jan. 13 that hackers had accessed some of its customers’ accounts. The illegal access took place between Oct.10, 2015, and Dec. 21, 2015.

The letter said an “unauthorized third party may have obtained access to any information you included in a tax return or draft tax return saved on TaxSlayer, including your name and address, your Social Security number, the Social Security numbers of your dependents, and other data contained on your 2014 tax return.”

In its statement, TaxSlayer said it doesn’t believe its own systems were breached. Instead, “user credentials, stolen from other sources, were then used to misrepresent our customers and therefore access our program.”

They’re saying that they got passwords from another site and tried them on TaxSlayer, and they worked. That kind of breach is on the user, not the software company.

Reusing passwords is poor data security hygiene. McAfee Software offers some great tips for good passwords. The tips include a list of things people do that make them vulnerable to data theft, including:

Reuse of passwords across multiple sites: Reusing passwords for email, banking, and social media accounts can lead to identity theft. Two recent breaches revealed a password reuse rate of 31% among victims.

If you use different passwords for your different important accounts, one data breach won’t expose your entire financial life.

Related: TaxSlayer data breach is the 3rd tax software-related security issue so far this filing season (Kay Bell)

 

20160208-1

 

Brent Willett, Iowa’s next economic frontier (IowaBiz.com). An unintended but useful followup to my IowaBiz post on Friday on the unwisdom of targeted tax credits, the post boosts a proposed new tax credit that I criticized by name. The post touts a new report promising “Fifty thousand jobs” to Iowa if we just enact a new “Bio-Based Chemicals” tax credit.

The post neatly checks off several items I note in my post:

Might these special favors be better for the economy than some farmer or small business who buys a new tractor or machine? You could make that case, but it would be plausible only if these favors were enacted by a process where the state looked at the vast menu of possible industries to support and carefully evaluated which ones were more persuasive. That never happens. Instead, the credits follow the path of the notorious Iowa film industry credits, where an industry gets some legislators and business boosters excited and builds support — sometimes with “studies” funded by booster groups. There is no evaluation of the opportunity costs, of whether the funds would be better used elsewhere.

No comparison to other industry opportunities? Check. Studies funded by booster groups? Check. Ignoring opportunity costs? Check.

I encourage your to read the Willett post and ponder why a government subsidy is needed if the industry is such a slam-dunk.  Also, consider whether you would get the same article by substituting other industries for bio-chemicals in the post.

 

 

Andrew Mitchel: New Expatriate Record for 2015 – Nearly 4,300 Expatriations:

2015 expatriations

“The escalation of offshore penalties over the last 20 years is likely contributing to the increased incidence of expatriation.”

Related: Record Numbers Renounce Their U.S. Citizenship (Robert Wood)

 

Jason Dinesen, Lots and Lots of Scam E-mails this Year. Jason posts many helpful examples. Be very skeptical of emails you don’t expect, and delete any purporting to come from IRS.

Annette Nellen, Ideas for Retirement Savings Reform. “One overall reform Irecommend is to change the focus of retirement plans from the employer to the employee, making them truly portable from job to job and if in employee or contractor status or both.”

Jim Maule, The Biggest Tax Refund?. Overwithholding will do the trick.

Leslie Book, The Limits of the “One Inspection” of Taxpayers’ Books and Records Rule (Procedurally Taxing). “One limitation on IRS powers is the Code itself, as Section 7605(b) provides that ‘only one inspection of a taxpayer’s books of account shall be made for each taxable year unless ․ the [Treasury] Secretary ․ notifies the taxpayer in writing that an additional inspection is necessary.'”

Robert D. Flach, TAX GUIDE FOR NEW HOMEOWNERS

Russ Fox, It Was Only a 13.33% Kickback. A police chief breaks the tax law.

TaxGrrrl, So About Those Cam Newton ‘Sunday Giveaway’ Game Balls…

 

Only the form of your destructor. What Would Be At Stake In A Trump v. Sanders Election? How About $24 Trillion in Tax Revenue (Tony Nitti).

 

20111109-1

 

TaxProf, The IRS Scandal, Day 1003Day 1004Day 1005

Scott Greenberg, White House Calls for Targeting the Cadillac Tax by Location:

Why would the White House propose changes that would weaken the Cadillac Tax – a central part of the administration’s most significant policy achievement? In fact, these changes might be necessary to secure the continued existence of the tax. The White House has been fighting a losing battle to defend the Cadillac Tax, and these proposed changes may placate some of the tax’s opponents, particularly employers in states with high healthcare costs.

We must destroy the Cadillac Tax to save the Cadillac Tax!

Renu Zaretsky, Budget Hearings, Saving, and Entertaining (TaxVox). “There is almost always something perfunctory about the last budget of an outgoing president, but this year’s will generate even less interest than usual. In the ultimate insult, the GOP-run congressional budget committees won’t even invite White House officials to describe their fiscal plan.” And lots more in today’s TaxVox headline roundup.

I reject this false choice. Kentucky Can Attract Tourists Who Like Bible More Than Bourbon Without Violating First Amendment  (Peter Reilly)

 

Share

Tax Roundup, 2/1/2016: Caucus day, and other plagues.

Monday, February 1st, 2016 by Joe Kristan

20160131-1Is there such a thing as snow locusts? Today is the last day Iowa will be plagued by presidential candidates and their relentless ads and emails. Tonight, blizzard and winter storm warnings across the state.

Lots of things go into choosing a candidate. We kid ourselves if we think it is all rational. Many voters put as much thought into their political preferences as they do into choosing a favorite sports team. Most voters are much more informed about their sports teams than their votes.

But Tax Update readers are different!  You especially want to know about candidate tax policies. Fortunately, the Tax Foundation has an excellent Comparison of Presidential Tax Plans and Their Economic Effects. I like this chart they provide:

taxplanchart

You’ll notice that only one plan is projected to have positive economic effects while reducing the budget deficit over 10 years. I like that one.

 

Other Caucus-related links:

Tax Policy Center Major candidate tax proposals, a center-left analysis.

TaxProf, Clinton (47%), Sanders (54%) Propose Highest Capital Gain Tax Rates (Now 24%) In History

Tyler Cowen, My favorite things Iowa (Marginal Revolution). “The bottom line: Who would have thought ‘jazz musician’ would be the strongest category here?” Speak for yourself, buddy!

 

20160201

 

Russ Fox, The Liberty to Commit Tax Fraud:

This story does show two things. First, requiring every tax professional to obtain a license won’t stop tax fraud. The alleged fraud here was started by an individual with a PTIN, someone who assuredly could obtain the former RTRP designation or the current AFSP “seal of approval.” Second, the Department of Justice news release notes, “In the past decade, the Tax Division has obtained injunctions against hundreds of unscrupulous tax preparers.” This is absolutely true, and the DOJ should be commended for their work. It also shows that licensing every tax professional isn’t needed to get rid of unscrupulous ones.

Amen.

William Perez, When Does an 83(b) Election Make Sense? 

Paul Neiffer, Pre-1977 Purchases May Get 100% Step-up or Not! Involving old joint interests in property.

Kay Bell, W-2, 1099 forms delivery deadline is here

Jack Townsend, 60 Minutes Exposé on Money Laundering Into the U.S.

Jason Dinesen, Not All Donations to Charity Are Deductible. Time, for example.

Kristine Tidgren, Des Moines Water Works Lawsuit Gets More Complicated (AgDocket)

Peter Reilly, NorCal Tea Party Patriots V IRS – Grassroots Or Astroturf?

Leslie Book, Migraine Caused by Improper IRS Collection Action During Bankruptcy Stay Triggers Damages for Emotional Distress

Robert Wood, Worst Lottery To Win Is IRS Audit Lottery, So Decrease Your Odds

TaxGrrrl, Understanding Your Tax Forms 2016: 1098-T, Tuition Statement

Tony Nitti, IRS Rules On Whether Trade-In Of Private Jet Qualifies For A Tax-Free Like-Kind Exchange

Happy Blogiversary! to Hank Stern for 10 years of Insureblog.

 

20160131-2

 

Matt Gardner, International Speedway Reaps Benefits of Revived “NASCAR Tax Break” (Tax Justice Blog). In which the Tax Justice people sctually make a lot of sense: “In the context of our growing budget deficits, the annual cost of the NASCAR giveaway is a drop in the bucket at less than $20 million, making it a small part of the $680 billion extenders package. But because its benefits are narrowly focused on a few privileged companies, the damaging effects of this tax break go way beyond its fiscal cost.”

Donald Marron, What Should We Do with the Money from Taxing “Bads”? (TaxVox)

TaxProf, The IRS Scandal, Day 996Day 997, Day 998. Day 997 links to  IRS’s New Ethics Chief Once Ordered Records Be Illegally Destroyed. These are the people who think they need to regulate tax preparers to keep us in line.

 

Scott Drenkard, David Bowie: Tax Planning Hero (Tax Policy Blog). “Taxes really matter, especially for an artist like Bowie who had a lot of options for where to reside and earn income.”

Robert D. Flach, THE TWELVE DAYS OF TAX SEASON

 

Finally, in honor of the Iowa Caucuses I quote the great Arnold Kling, who captures my feelings about these proceedings perfectly:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

Only the beginning of a wise and profound post. Read it all.

Share

Tax Roundup, 1/21/16: Defying Governor, House conformity bill includes $500,000 Section 179 limit.

Thursday, January 21st, 2016 by Joe Kristan

20151118-1Reason to hope, reasons to despair. The Iowa House Ways and Means Chairman introduced a “code conformity” bill yesterday (HSB 535) that includes the federal $500,000 Section 179 limit. This defies the wishes of Governor Branstad, who says the state can’t afford the expanded deduction. He would only allow a $25,000 deduction for asset purchases that would otherwise have to be capitalized and depreciated.

The bill, as expected, does not adopt bonus depreciation for Iowa.

The Section 179 conformity proposal is is good news. It appears that Ways and Means Republicans sense that their business and farm constituents won’t appreciate a big tax increase, especially in a year that looks like it will be a down year around the state. Now attention will turn to the Senate, where Democratic Majority Leader Gronstal controls what legislation reaches the floor. If he supports the legislation, it is likely to pass. The Governor would probably be able to kill it with a veto, but would he?

That brings up my first reason to despair. Unless the Governor backs down or some compromise is reached, the conformity bill is likely to be delayed. Affected taxpayers will have to wait to file their 2015 Iowa returns until they know what the tax law is; if they guess wrong, they will incur the expense of amending their returns. It compresses the filing season into an ever-narrower window and delays refunds.

The biggest issue is likely to be the budget impact. While I haven’t seen a current figure, last year’s Section 179 conformity bill was estimated to reduce state revenues by $88.5 million.

capitol burning 10904I certainly have a list of possible pay-fors, starting with the newest proposed credit, a $10 million  “renewable biochemical tax credit” (SSB 3001). It is refundable, meaning it isn’t just a tax reduction, but an actual cash subsidy to taxpayers whose credit exceeds their Iowa tax. That easily could happen, as it is based on pounds of qualifying stuff produced. It will only go to taxpayers who “enter into an agreement” with the economic development administration. In other words, for insiders who know where to pull strings.

And here is another reason to despair. It appears this new boondoggle is going to slide right on through. From the Des Moines Register (my emphasis):

More than a dozen lobbyists representing businesses, farm organizations, economic development groups and other expressed support, and there was no opposition. Gov. Terry Branstad has listed renewable chemical manufacturing tax credits as a key item in his 2016 legislative agenda.

Under the bill, the maximum amount of state tax credits available annually to any one business for the production of renewable chemicals would be either $1 million or $500,000, depending how long the company has operated in Iowa.

Even Mark Chelgren (R-Ottumwa), who has in the past voted against corporate welfare tax credits, is on board with this one.

It will be very difficult to get the Governor to go along with the higher Section 179 limits without spending or tax credit cuts to offset the revenue loss. The Governor seems dead set against cutting cronyist tax credits. If the legislature agrees with him, Section 179 has a very difficult fight this session. Failure to adopt the federal Section 179 limit would represent a triumph of a handful of insiders over the businesses and farms in every county that would have their taxes increased to pay for subsidies.

 

20160121-1

 

Iowa increases security to prevent tax fraud (thegazette.com):

The Iowa Department of Revenue has upped its security game after seeing more than 10,000 fraudulent tax returns last year.

This tax season, the agency will use technology to better track fraudsters, validate bank accounts before making direct deposits and share information with the IRS, other states, software providers and banks.

The story says Iowa stopped $11.6 million in fake refund claims last year on 10,600 fraudulent returns.

 

Hank Stern, O’Care in Real Life (InsureBlog):

So, one of my small group clients just lost the last person on his group plan. It had gotten so expensive that no one could really afford to stay on it. Shopping around didn’t help: everything we looked at was at least as expensive for comparable benefits. And the plan was pretty much bare-bones, not a lot of fat to trim.

Tom has been a client – and friend – for almost 30 years. A small business owner, he was proud to be able to offer his employees coverage. Now that’s gone.

He said “If you like your plan, you can keep your plan.” He didn’t say you could afford it.

Kristine Tidgren, Farm Lease Questions Often Arise This Time of Year (Ag Docket)

Robert D. Flach, A VERY IMPORTANT REMINDER. “Don’t listen to a broker, a banker, an insurance salesman, or your Uncle Charlie!   You wouldn’t ask your butcher for a medical opinion, so why would you accept tax advice from your MD?”

Keith Fogg, Public Policy Cases Accepted by the Taxpayer Advocate Service (Procedurally Taxing). “If you have an issue that raises policy issues for a group of taxpayers, you can bring this to the attention of the NTA in hopes that it will make the policy list and open the doors to TAS assistance.”

Paul Neiffer, Top 10 Reasons You Might Need Accrual Accounting. “Although this list is designed to be humorous, the reality is that all farmers should consider using accrual accounting to manage their farm operation.”

Kay Bell, Smooth tax season start? Not for some TaxAct users. “Just a few days before the filing season and Free File opened for business, the tax software manufacturer sent a letter to about 450 customers, notifying them of a data breach.”

Jack Townsend, Should Proof of No Tax Evaded Be Admissible as Defense in Crime Not Requiring Tax Evaded as an Element

 

Tony Nitti, An Ode To Tax Season: How To Bid Farewell To Your Family.

Tax season is here. Tax season is the worst. But don’t just abandon your family for the next three months with no explanation; make them aware of the series of mistakes that were set into motion long ago that led you to this self-imposed hell. And tell them with rhymes! 

That may be why my grown kid is a musician, and the high schooler wants to be one.

 

20160121-2

 

David Brunori, Good Government Developments in the Tax World (Tax Analysts Blog). No Iowa items make the list.

David Henderson, The Economics of the Cadillac Health Care Tax, Part IPart II. “But now that I have done a more careful analysis with some plausible numbers, I am seriously undecided.”

Kyle Pomerleau, Senator Hatch To Introduce Corporate Integration Plan (Tax Policy Blog). “Not only does the double tax on equity investment increase the cost of capital, it creates economic distortions. The most obvious one is the distortion towards debt-financed investments.”

Renu Zaretsky, Market Woes and the Price of Breaks. Today’s TaxVox headline roundup covers stupid things from proposed financial transaction taxes to the ongoing Kansas budget and tax policy disaster.

 

Robert Wood, IRS Wipes Another Hard Drive Defying Court Order…But You Must Keep Tax Records. Darn right, peasant!

 

TaxProf, The IRS Scandal, Day 987.

 

Career Corner. Stop Doing Other People’s Work Because It Saves Time (Leona May, Going Concern). A classic symptom of Senior Accountant’s Disease.

 

Share