Posts Tagged ‘Anthony Nitti’

Tax Roundup, 11/25/15: Don’t bother depreciating things up to $2,500. And: Have a great Thanksgiving!

Wednesday, November 25th, 2015 by Joe Kristan

20141226-1$2,500 is the new $500. The IRS yesterday announced (Notice 2015-82) that it was increasing the maximum “safe harbor” expensing amount from $500 per item to $2,500 for taxpayers without an “applicable financial statement” — that is, most taxpayers. Taxpayers with an AFS can elect to expense items up to $5,000. These safe harbors enable taxpayers to not worry about capitalizing and depreciating items up to these amounts.

The new safe harbor takes effect for years starting January 1, 2016 and later.

The safe harbors are authorized by treasury regulations for taxpayers who have in place at the beginning of the tax year “accounting procedures treating as an expense for non-tax purposes” that expense such “per invoice (or per item as substantiated by invoice)” So make sure you write down somewhere that you have a policy of expensing everything up to $2,500 before December 31.

This is a good, if small, step towards allowing taxpayers to expense capital costs. I object to the “applicable financial statement” requirement for the $5,000 amount, as the tax law shouldn’t care whether you have a CPA-certified audit or that you have to report your financials to a government agency, but at least this closes the gap some.   I should be happy, I suppose, that it gives my auditing brethren a small sales tool.

Related: Russ Fox, IRS Increases De Minimis Expense Threshold to $2,500 from $500 for 2016 OnwardTony Nitti, IRS: Taxpayers May Immediately Deduct The Purchase Of Assets Costing Less Than $2,500.




William Perez, Year End Tax Planning Ideas for Self Employed Persons.

Robert Wood, Passports Required For Domestic Travel In 2016, But IRS Can Revoke Passports For Taxes. Giving IRS control over passports is a horrible idea. They make so many errors, and the errors can be so hard to fix.

Robert D. Flach, MORTGAGE INTEREST LIMITATIONS. “But the Court of Appeals ruled that [unmarried] co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.”


Annette Nellen, Sales Tax as a Penalty? “A proposed California initiative may surprise you.  It calls for a 1000% sales tax on ‘political advertisements.'”

Kay Bell, IRS should focus tax audit efforts on richer taxpayers. Willie Sutton might agree. 

Paul Neiffer, FAFSA Reporting Changes. “The Department of Education has issued new rules that make this process be much less of a hassle; however, you have to wait until 2017 to take advantage of it.  Beginning in that year, your required FAFSA income tax return will be a whole year in arrears.” About time.

Jason Dinesen, From the Archives: Home Offices, Principal Place of Business, and Mileage Deductions

Carl Smith, New, Additional Proposed Innocent Spouse Regulations Issued (Part 1), (Part 2) (Procedurally Taxing)

TaxGrrrl, Don’t Try This At Home: Avoid These 10 Money Missteps That Landed Reality TV Stars In Trouble.




TaxProf, The IRS Scandal, Day 930. Today’s link on the “investigation” of the scandal by the Justice Department.


Scott Hodge, The Simple Solution to the Pfizer Deal: Cut the Rate and Move to a Territorial Tax System (Tax Policy Blog). So, you could actually do something like this that makes sense, or you could listen to….

Richard Phillips, Congress Must Act Now to Stop Pfizer and Other Companies from Inverting (Tax Justice Blog). The “continue the beatings until morale improves” approach.

News from the Profession. A Surprising Number of Accountants Think Accountants Are Incredibly Corrupt (Caleb Newquist, Going Concern).


Programming Note: The Tax Update will be taking the rest of the week off to celebrate Thanksgiving. I am thankful for the many fine tax bloggers I get to read when putting the Tax Roundups together, and I am especially thankful for those of you who stop by to read the Tax Update. Enjoy your Thanksgiving, and maybe start with Jim Maule’s holiday musings: Thanks Again! “For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things.”



Tax Roundup, 11/24/15: Another Kansas medical practice ESOP blows up. And: tax credits for everything!

Tuesday, November 24th, 2015 by Joe Kristan

20151124-1When you fund an employee stock ownership plan, be sure you have an employee. Another strange ESOP failure out of Kansas emerged from the Tax Court yesterday. A Wichita doctor, whom we will call Dr. F, funded an ESOP for his practice with over $400,000 in 2004, supposedly rolled over from his IRA. But, according to the tax court, the doctor wasn’t qualified to participate, and there was no evidence of a rollover. From the Tax Court (emphasis added, citations omitted, doctor’s name shortened by me):

Dr. F. received no compensation from, and was not employed by, petitioner in 2004 or 2005. A total of 53.06 shares of petitioner’s stock was allocated to his account in these years. Respondent determined that these contributions exceeded the section 415(c) limitation because Dr. F. received no compensation from petitioner in 2004 or 2005. Petitioner alleges that the amounts in Dr. F.’s accounts were rollover contributions from Dr. F.’s individual retirement account and should not be considered for purposes of section 415(c).

In order for a distribution to be considered a rollover contribution, the entire amount received must be paid into a qualified trust for the distributee’s benefit no later than the 60th day after the day that the distribution is received. Petitioner has not provided evidence that a valid rollover took place. Further, because the ESOP trust did not have a bank or brokerage account from May 13, 2004, through December 31, 2009, it was not possible for the distribution from Dr. F.’s individual retirement account to have been paid into an account held by the ESOP trust.

Details, details. But details are everything. The IRS cited multiple reasons for the ESOP revocation, and as the court notes, “Any one of the reasons cited in the final revocation letter would be sufficient alone to cause the ESOP and the ESOP trust to fail…” The ESOP also failed to get a qualified appraisal.

This is the second physician ESOP out of Kansas to fail this year in Tax Court. Iowa has long been the capital of flaky ESOPs, but Kansas seems ready to challenge our dubious supremacy. In fairness, though, the trustee of both ESOPs appears to operate out of Northeast Iowa, so we’re keeping our hand in the game.

The Moral? ESOPs are useful for limited purposes, primarily as a succession vehicle for a closely-held business, but they are complex and dangerous, requiring meticulous compliance to avoid catastrophe. They are a poor tax shelter for a closely-held business when the owner wants to maintain control.

Cite: Fleming Cardiovascular PA, T.C. Memo. 2015-224


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.

Joseph Thorndike, Tax Credits Are Easy – And a Loser’s Game for Liberals (Tax Analysts Blog):

Hilary Clinton’s presidential campaign is still churning out tax proposals at a furious pace. Over the weekend, she proposed a new credit for caretakers—intended, according to her campaign, to “provide support for the millions of families paying for, coordinating, or providing care for aging or disabled family members.”

That sounds great – just like every other tax break Clinton has suggested in the past several months. After all, caring for family members can be hard, and it’s often expensive. Caretakers could definitely use a hand.

But is the tax system the best way to provide it? Probably not.

Home caregivers are wonderful people. But Mr. Thorndike notes the problems with such feel-good credits:

Using tax incentives as a form of hidden spending merely serves to further erode support for more direct forms of government action. Small-bore tax breaks breed more small-bore tax breaks. But they don’t foster any serious rethinking of the role of government.

Nor do they produce meaningful results, even for the narrow problems they target.

There’s another argument that the tax-credits-for-everything crowd glosses over. Each feel-good credit throws another social program to an IRS that is collapsing under its current workload. They can’t really want IRS agents evaluating at-home care, yet it’s baked into that cake. If you don’t audit a lucrative tax credit, it becomes a fraud magnet. So IRS, meet Grandma.


Howard Gleckman, Clinton’s Caregiver Credit Adds To Her List of Tax Breaks, Sharpens Her Contrast With The GOP. “The likely Democratic presidential nominee, Hillary Clinton, would aggressively use the tax code to achieve social and economic goals, cut taxes on many middle-income people, and raise taxes on high-income households. Every Republican presidential hopeful would eliminate most existing tax subsidies, lower rates, and give big tax cuts to those with high-incomes.”




Robert D. Flach has fresh Tuesday Buzz! Lots of links, and spicy observations on the use of the tax law to run social programs.

Tony Nitti, Tax Geek Tuesday: Reminding You That The Gain On That Sale Of Stock May Be Tax Free. “C corporations are like pit bulls and prostate exams — they carry quite the stigma,  but they’re not nearly as bad as they’re made out to be.”

TaxGrrrl, Guilty On Tax & Conspiracy Counts, Couple Faces New Charges For Revenge. Violating the first rule of holes.

Robert Wood, Al Sharpton’s Charity Hikes His Pay 71%, But Tax Liens, Clinton Imprint Remain.


Farley Katz, Joseph Perera, Katy David, Important New Partnership Audit Rules Change Taxation of Partnerships (Procedurally Taxing)

Not only can the partnership owe income tax, the tax will not be based on the income for the year in question, but instead on one or more prior years’ income. Consequently, the economic burden of the tax could be borne by partners who had no interest in the partnership when the income was generated. Conversely, if a partnership overstated its income in a prior year, the benefit of correcting that overstatement will accrue to the current partners, not those who were partners in the earlier year. Finally, if a partnership elects out of the new provisions (assuming it is eligible), the IRS will no longer be able to conduct a centralized audit controlling each partner’s distributive share, but will instead have to audit each partner individually,

Excellent article. These new rules will change the dynamics of partnership exams a great deal when they take effect for 2017 filings.

Jack Townsend, Fifth Circuit Sustains Convictions Despite Trial Judge’s Refusal to Give Proper Cheek Willfulness Instruction




Tyler Cowen, Against a financial transactions tax. He cites a paper documenting that such taxes are unwise:  “This is consistent with earlier findings on Sweden’s transactions tax, and that proposal continues to be one of the more overrated ideas in American Progressive political discourse.”

TaxProf, The IRS Scandal, Day 929

Peter Reilly, Foundation Of Big GOP Donor Loses Tax Court Case Over Political Ads


Career Corner. Let’s Discuss: Non-Equity Partners in Accounting Firms (Caleb Newquist, Going Concern)



Tax Roundup, 11/20/15: IRS issues workaround for absurdly complex “repair regs.” And: more good ACA news!

Friday, November 20th, 2015 by Joe Kristan

See update below. 

IMG_1218In a tacit admission that the new repair regs are nightmarishly complex, the IRS has issued a new “safe-harbor” procedure for allocating remodeling costs for restraurants and retail buildings between deductible repair costs and capitalized improvement costs.

Rev. Proc 2015-56 is available to most retail buildings and to restaurants.

(UPDATE: Brian Coddington notes correctly in the comments that this procedure only applies to taxpayers with an “applicable financial statement.” These are SEC statements, audited financial statements, or statements supplied to regulators other than the IRS. This seemingly gratuitous requirement greatly reduces the potential usefulness of this procedure. Why the IRS would restrict simplification to just those taxpayers least likely to need it is beyond me. I missed the applicable financial statement requirement in my initial take on the rule. My apologies, and my thanks to Brian for correcting me. Brian’s comment goes beyond this issue and is worth reading in full.)

It excludes vehicle dealers, gas stations, manufactured home dealers and “nonstore retailers.” It applies to business that own their own buildings and to landlords whose buildings hold qualifying businesses.

Under the procedure, 75% of “qualified remodel-refresh costs” are deductible, with the remaining 25% capitalized. The amount capitalized is depreciated over the life otherwise applied to the building. That generally means a 39-year life, but if the building is “qualified restaurant property” or “qualified retail improvement property,” the life can be as short as 15 years.

At first glance, it seems like a much more useful set of rules than the repair regs we were all fretting about this time last year. The biggest potential downside is that Rev. Proc. 2015-56 requires taxpayers to forego “partial disposition” treatment for buildings covered by the safe harbor. The taxpayer also has to elect “general asset account” depreciation for the building covered by the safe harbor.

The election will be made on Form 3115 as “automatic” accounting method change, as newly-designated automatic change number 222. It is available for years begining on or after January 1, 2014. As automatic changes have to normally be made with a timely-filed return, I don’t think we can change already-filed 2014 filings, but I will be digging into the lengthy procedure, and will amend this as needed as I get to understand it better.


The insurance markets aren’t doing what the President told them to do. 

First, Tyler Cowen, Further wounds for Obamacare: “To put it bluntly, I don’t think the mandate part of the bill is working.  These are mostly problems which decay and get worse, not problems which self-correct.”

Next, Megan McArdle, Obamacare Insurers Are Suffering. That Won’t End Well:

What UnitedHealth’s action suggests is that the company is not sure it can make money in this market at any price. Executives seem to be worried about our old enemy, the adverse selection death spiral, where prices go up and healthier customers drop out, which pushes insurers’ costs and customers’ prices up further, until all you’ve got is a handful of very sick people and a huge number of very expensive claims.

She adds:

This was part of a terrible, horrible, no good, very bad news cycle for Obamacare; as ProPublica journalist Charles Ornstein said on Twitter, “Not since 2013 have I seen such a disastrous stream of bad news headlines for Obamacare in one 24-hour stretch.” Stories included not just UnitedHealth’s dire warnings, but also updates in the ongoing saga of higher premiums, higher deductibles and smaller provider networks that have been coming out since open enrollment began.

I remember when we were told that the ACA would just get more popular over time as we all grew to love its benefits.


No, but they do make it easier to jack up tuition and administrative salaries. $23 Billion In Annual Federal Tax Credits For Higher Education Have No Effect On College Attendance (TaxProf). 




Jana Luttenegger Weiler, Quiet Changes to Social Security Could Have Big Impact (Davis Brown Tax Law Blog):

The file and suspend option was and still is used by couples when one spouse, typically the higher earner, files for benefits but then suspends receiving his or her own benefits. This allows the other spouse to file and receive spousal benefits based on the higher earning spouse’s record for a certain number of years while the higher earning spouse delays benefits and earns delayed retirement credits. The result is larger benefits for the higher-earning spouse at age 70, but still allowing the lower-earning spouse to take benefits. This option has been eliminated — though there may still be time to file and suspend in the next 180 days and be grandfathered in for those who are currently eligible to do so.

Jana expects additional guidance soon.


Gretchen Tegeler, Many Iowa public employees are better off in retirement than working ( In some cases, we’re better off that they’re retired too.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #7: Decoding The Mortgage Interest Limitation, “Cohabitation, of course, is not limited to same-sex couples, and so the Ninth Circuit’s decision to allow each taxpayer who co-owns a house to claim an interest deduction on the full $1,100,000 of debt — provided they are not married filing separately — should be a welcome one for many.”

Russ Fox, Update on the Future of Daily Fantasy Sports:

I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.

A very small number of states realize that fantasy sports aren’t one of the major problems plaguing the republic.

TaxGrrrl, ‘Real Housewives’ Stars Joe & Teresa Giudice Hit With Federal Tax Lien

Robert Wood, More Banks Spill Tax Evasion Secrets To Avoid Criminal Charges, Account Holders Beware. Bank secrecy is pining for the fjords.




Stephen J. Entin, Michael Schuyler, Some Tax Trip-Ups in the Democratic Debate (Tax Policy Blog):

Senator Sanders was asked how high he would raise the top tax rate. He answered, jokingly, that he would boost it a lot, although perhaps not to the 90% top tax rate in the Eisenhower Administration; that he, the Senator, was not as much of a socialist as Eisenhower!  In fact, the top tax rate was 91%…

One result of Ike’s policies was that he presided over three recessions in his eight years in office. Presumably, the Senator would not want to repeat that outcome.

I think Bernie would be willing to take that price to stick it to the man.

William Gale, David John, Two Important New Retirement Savings Initiatives from the Obama Administration (TaxVox) These guys think the MyRA program is important.

TaxProf, The IRS Scandal, Day 925


Peter Reilly, Princeton University Will Have To Prove It Deserves Property Tax Exemption. I’d make them apologize for Woodrow Wilson first.



Tax Roundup, 11/12/15: W-2 trumps uncertain memory. And: more debate reaction.

Thursday, November 12th, 2015 by Joe Kristan

Day 4: Ottumwa! The big first week of The  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools concludes for the Day 1 teaching team of me, Kristy Maitre and Roger McEowen at Indian Hills Community College in Ottumwa, Iowa today. The Day 2 team of Paul Neiffer, Dave Repp and Patty Fulton will finish up in Red Oak this morning.

It’s been some driving this week:


If you missed us, there are still four two-day schools left. We hit Mason City next Monday; Maquoketa November 23; Denison December 7; and Ames December 14. The Ames session is available as a webinar. Register today!


Sure enough. Few of us (generally only tax preparers) double-check the income reported on our W-2s. We take the employer’s word for it. So does the IRS. That’s the lesson a Californian learned this week in Tax Court.

The taxpayer faced some extra hurdles in filing his 2010 tax returns, according to the Tax Court:

Petitioner was arrested the second week of January of 2011 and was incarcerated until June 2012. Petitioner’s motorhome and van were seized, and he lost all of his records after his arrest and incarceration.

Petitioner did not file a timely return for 2010. On April 1, 2013, the Internal Revenue Service (IRS) prepared a substitute for return for 2010 under section 6020(b). The IRS issued a notice of deficiency for 2010 dated July 8, 2013.

Considering the circumstances, you can understand the non-filing, even while realizing he still needed to. But he was nagged by doubts (my emphasis).

As indicated, petitioner conceded all of the income determined in the notice of deficiency with the exception of wage income of $3,767 from Audio Visual Projection Services, Inc., and $404 from Swank Audio Visuals, LLC. These employers issued petitioner 2010 Forms W-2 for the respective amounts. Petitioner explained that because all of his records were lost and his employers often paid him late or not at all, he does not know whether he was paid for all of the work that he performed in 2010.

It’s an interesting defense. He didn’t say he wasn’t paid; he just wasn’t sure. But the court was sure enough (citations omitted, my emphasis):

In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income.  If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. The Forms W-2 from Audio Visual Projection Services, Inc., and from Swank Audio Visuals, LLC, are sufficient evidence to shift the burden of proof to petitioner.

We also note that section 6201(d) provides that in any court proceeding, where a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information concerning the deficiency in addition to the information on the return. The key term in the foregoing sentence is “a reasonable dispute.” This Court has concluded that a taxpayer does not raise a reasonable dispute for purposes of section 6201(d) merely by testifying that he is uncertain, cannot remember, or does not know.

Adding insult to uncertain memory, the Tax Court upheld penalties for late filing; being in jail is apparently no excuse.

Cite: McDougall, T.C. Summ. Op. 2015-65.




TaxGrrrl bravely live-blogged the GOP debate this week. A handy place to check out what they had to say on taxes.

Kyle Pomerleau, Senator Ted Cruz’s Comment About His Border-Adjusted Tax, Explained (Tax Policy Blog).

Jenice Johnson, Candidates Tax Cuts Unequivocally Skew Toward the Wealthy (Tax Justice Blog). It’s just math. The wealthy pay pretty much all of the taxes, so they will “reap” any tax cuts.

Scott Greenberg, Carson Calls for Eliminating the Mortgage Interest and Charitable Deductions (Tax Policy Blog).


Paul Neiffer, When Will We Know Section 179 Amount?. My intrepid tax school colleague ponders the likelihood and timing of the “extender” bill for this year.

Tri-state sales tax webinar! The Iowa Department of Revenue will have a free webinar covering “Sales and Use Tax Basics” for Iowa, South Dakota and Nebraska. It’s easy to get nexus for sales tax. There are plenty of Iowa businesses that need to take care of sales taxes elsewhere.

Ying Sa, My IRS is little ( “Many immigrant-owned small businesses begin with a focus on just selling. The rest, such as an income statement, balance sheet and tax compliance, is sometimes unknown to them.”

Insureblog, Worse Insurance, Higher Cost. “The fact is, your insurance is going to get worse and you are going to pay more for it.”

Robert D. Flach, QUESTIONS ANSWERED. Robert answers a reader question on deducting state property taxes.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015, #8: Tax-Free Parsonage Allowance Gets A Second Life.

Russ Fox, The Real Winners of the World Series of Poker (2015 Edition). Hint: the winner’s first initial is “I.”

Janet Novack, Here’s How Congress Just Cut Social Security For Baby Boomer Couples. The end of “file and suspend.”


TaxProf, The IRS Scandal, Day 917,

Stuart Gibson, The European Predictability Paradox (Tax Analysts Blog). “Paradox will rule the European tax world, in which certainty will become uncertain and the predictability accorded by advance rulings will become entirely unpredictable.”

Renu Zaretsky, To make money you have to spend money…” Today’s TaxVox headline roundup covers the Dell-EMC merger, international tax reform hopes, and lots more.


News from the Profession. CPAs Admit That They’re Not Good Business People (Caleb Newquist, Going Concern).



Tax Roundup, 11/9/15: Waterloo! And Estonia!

Monday, November 9th, 2015 by Joe Kristan

Day 1: Waterloo! The ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools are underway! I am on this morning’s panel in beautiful Waterloo, Iowa, with Roger McEowen and Kristy Maitre. Spaces are available for all of the remaining Iowa sessions, so register today! If you can’t make one of the sessions in person, you can attend the December 14 Ames session via webinar.

The November 9 session of the Farm and Urban Tax School in Waterloo is underway!

The November 9 session of the Farm and Urban Tax School in Waterloo is underway!

The early-rising schedule for the drive up here today requires an abbreviated roundup today, so let’s roll.


Kyle Pomerleau Estonia’s Growth-Oriented Tax Code. (Tax Policy Blog). It excerpts a speech from the Estonian Ambassador to the U.S.:

The main components of the Estonian tax system have been in place since the beginning of the 1990s. After Estonia regained independence in 1991, the country needed a tax system that was compatible both with the limited experience of the taxpayer who came from the Soviet communist controlled society and effective tax administration. It was essential that the tax system should support economic growth, not impede it. Therefore, a tax system was developed with an emphasis on indirect taxes. To keep the system simple, transparent and easy to use, only a few exceptions were allowed, as at the same time, tax rates were kept rather low.

A cornerstone of Estonia’s fiscal policy was corporate and personal income tax reform, which introduced the proportional, or flat tax rate of 26% in 1992, which has been reduced to 20%. Since 1999, reinvested corporate profits are no longer subject to income tax. Today, Estonian income tax system, with its flat rate of 20%, is considered one of the simplest tax regimes in the world

We could do a lot worse than the Estonian system. We certainly do now.


Tony Nitti, Renting Your Home On Airbnb? Be Aware Of The Tax Consequences:

Section 280A of the Internal Revenue Code, which governs the treatment of homes that are used for both personal and rental purposes, is a complicated tangle of definitions, designations, and resulting consequences. But if you’re going to start renting out a property on Airbnb or Craigslist, you’re going to need to know the rules, so let’s take a deep dive into Section 280A and see if we can’t help all of you newly-minted slumlords sort through your tax considerations.

And remember the local lodging tax that may apply.


Still plenty of coffee and juice in Waterloo...

Still plenty of coffee and juice in Waterloo…


Headline of the Day: Colorado county’s pot tax to pay for higher education (Kay Bell). 

Jason Dinesen, What Is Iowa Alternate Tax?

Peter Reilly, Republicans Want IRS To Target Hillary Clinton:

Given the outrage that Republicans have expressed about the “targeting” of the Tea Party by the IRS, you would think that they would be slow to advocate IRS political targeting.  Apparently  it is more a matter of who’s ox is being gored.

That’s why the party in power may regret the way it has politicized the IRS. It isn’t likely to remain in power forever.


Rachel Rubenstein, IRS Announces Procedures for Identity Theft Victims to Request Copies of Fraudulently Filed Tax Returns (Procedurally Taxing).

TaxGrrrl, Austrian Woman Destroys Million Dollar Fortune Rather Than Pay Out Heirs

Robert D. Flach offers A YEAR-END TAX PLANNING TIP on capital gains.


...but the breakfast treats are going fast.

…but the breakfast treats are going fast.


Russ Fox, Chaka Fattah, Jr. Guilty of Tax and Fraud Charges. “Chaka Fattah Jr., son of Democratic Congressman Chaka Fattah Sr. (D-PA), was found guilty on Friday of 22 of 23 tax and fraud charges.”

Jack Townsend, Financial Secrecy in the U.S. – A NonTax Example Illustrating the Law Enforcement Problem:

One of the issues is that opacity of U.S. entity structures.  The beneficial owners of corporations and other entities may simply not be known.  And states permitting such entities to be organized usually do not request any representations of ownership.  So, shady actors can easily fly under the law enforcement — including tax enforcement — radar screen.  Hence, the U.S. may facilitate evasion of other countries’ taxes by offering foreign investors secrecy as to their investments in the U.S.

In the FATCA era, it will be more difficult for us to tell foreign tax collectors that U.S. tax structures are none of their business.


TaxProf, The IRS Scandal, Day 912Day 913Day 914.

Renu Zaretsky, Repeal, Reform, and Maybe Retaliation. Today’s TaxVox headline roundup topics include efforts to repeal the “Cadillac Tax,” the background of the new Ways and Means Chairman, and allegations of retaliatory audits in New Mexico.

Sebastian Johnson, State Rundown 11/6: Election Day Wrap Up (TAx Justice Blog).
Career Corner. More Accounting Firms Should Let Employees Build Their Own Niche Practices (Caleb Newquist, Going Concern).



Tax Roundup, 11/4/15. Taxpayer Advocate: Koskinen demoralizes IRS, IRS breaks law. Koskinen replies: give me more money!

Wednesday, November 4th, 2015 by Joe Kristan
Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

It’s getting bad when the IRS won’t even talk to its own Taxpayer Advocate. Nina Olson, the head of the IRS Taxpayer Advocate office, ripped the state of the IRS and Commissioner Koskinen’s management in a speech to the AICPA annual tax conference yesterday, Tax Analysts reports  (my emphasis, $link):

Olson said that IRS Commissioner John Koskinen’s oft-repeated mantra — that instead of doing more with less in budget-constrained times, the agency was going to do less with less — was demoralizing the IRS workforce and further eroding customer service.

“What my local taxpayer advocates are telling me is that they have never seen so much resistance to their own work” from the IRS, Olson said. She recounted the story of a local TAS employee who asked the IRS in October to release a taxpayer’s refund that had been held up since February. “The response that [TAS] got back was . . . ‘We have thousands of these cases; get in line,’” Olson said, adding that it was the first time she’d heard such a response from the IRS in her 15 years at the TAS.

The feeling at the IRS that there are some jobs it won’t do because Congress didn’t provide funding, Olson said, “works its way down to the employees, so that they feel like, ‘Well, I’m going to do just this, and I’ve got so much work that I’m only going to be able to get this done.'”

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Taxpayer Advocate Office is “an independent organization within the IRS” charged with helping taxpayers who can’t resolved their problems within the normal IRS bureaucracy. We only call on them out of desperation, when the IRS just refuses to do its job. It’s a bad sign if even the Taxpayer Advocate can’t get the time of day from the regular IRS.

Ms. Olson says the IRS mistreatment of the TAS office has risen to the level of lawbreaking:

Olson also protested that the IRS is refusing to grant her and her staff access to taxpayers’ administrative files unless they sign agreements barring them from sharing any of the files’ information, even with the taxpayer. Olson noted that she is bound by the same privacy laws as other IRS employees and said she is entitled to access under section 6103.

“My position is that the IRS in those instances has violated the law,” Olson said. “And I do not say that lightly.”

You have problems with the IRS breaking the law? Well, to coin a phrase, get in line.

Commissioner Koskinen responded later in a speech to the same group, in which he did what he always does: ask for more money. “Most of Koskinen’s prepared remarks at the conference were a repeat of his concerns about the IRS’s deteriorating budget position.”

But this Commissioner will never get a budget increase out of this Congress. His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Other Coverage: 

Russ Fox, Where I Agree (In Part) With IRS Commissioner John Koskinen. “Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation.”

Accounting Today, IRS Commissioner Sees Budget Cuts Hurting Practitioners, Warns of Delayed Tax Season. A story that weirdly downplays and buries the Taxpayer Advocate’s withering criticisms deep in the article.


Alan Cole, What Places Benefit Most From the Earned Income Tax Credit? (Tax Policy Blog).


It looks like the deep south and Indian country have the biggest proportion of EITC recipients.


TaxGrrrl, Despite Complaints, Past Failures & Opportunities For Fraud, Congress Pushes Private Tax Collection. I think Kelly is too hard on private tax collection. Plenty of preparers deal safely with confidential tax information every day, and I don’t think there’s something special about IRS employees that makes them automatically trustworthy. I think for uncontested and unpaid tax debts, private collection makes sense, especially when the IRS isn’t even trying to collect.

Robert D. Flach emphatically agrees with Kelly, though: NO! NO! A MILLION TIMES NO!. I guess private tax debt collection is one of those unpopular views I hold, like Waylon > Willie.


Wall Street Journal,  IRS Audits of Individuals Drop to 11-Year Low (via the TaxProf, $link).

Kay Bell, Avoid tax turkeys! Check out November Tax Moves

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #9 Rental Properties Should Probably Be Rented. “Believe it or not, the IRS doesn’t always require that you rent a home in order to establish that you have converted the home to a for-profit rental activity, but it certainly helps.”




Carl SmithGovernment Inconsistent on Whether Unpublished Tax Court Orders Can Be Cited (Procedurally Taxing). “I’m more a believer in ‘what’s good for the goose is good for the gander’.”

Renu Zaretsky, The Case of the Questionable Tax Incentive: Women and Retirement Savings (TaxVox). “But from what I can tell, the surest way to increase a woman’s savings is to give her a nice raise… and introduce her to my sister.”

David Brunori, Impeaching the IRS Commissioner Is the Wrong Thing to Do (Tax Analysts Blog). “Koskinen may be guilty of being combative with Congress. He may be guilty of caginess during his testimony. He may be guilty of being a lousy commissioner. But none of those are reasons for impeachment.”

TaxProf, The IRS Scandal, Day 909. Today’s link is to an editorial, Yes, the IRS Chief Has Earned Impeachment. I agree, but I still think it’s an unwise exercise when it has no chance of success. Still, the editorial is a concise summary of how awful Commissioner Koskinen has been.

Jim Maule, Taking and Giving Back. “The NFL and its teams, as well as the other professional sports leagues and franchises, do not need financial assistance from the public.”


News from the Profession. Socially Inept Accountant Held Responsible (Caleb Newquist, Going Concern). Is there another kind?




Tax Roundup, 10/27/15: IRS list of citizenship renunciations hits new record. And: Santa Monica!

Tuesday, October 27th, 2015 by Joe Kristan

Jaywalkers continue to flee. 2015 Third Quarter Published Expatriates – A Record High (Andrew Mitchel):

Chart by Andrew Mitchel LLC.

Chart by Andrew Mitchel LLC.

Last year, there was a record-setting 3,415 published expatriates.  Only an additional 195 published expatriates in the fourth quarter would be required for a new record to be set. If a new record is set, this would be the third consecutive year with a year over year increase.  For a discussion of how the IRS compiles the data, see this post.

We continue to believe that the IRS is likely missing a significant number of names from its quarterly publication of expatriates.  During the third quarter of 2015, the FBI has added 1,558 individuals who renounced their U.S. citizenship to the NICS index.

U.S. taxation of offshore income and overseas citizens is off the rails. The area is full of compliance traps that can trigger catastrophic penalties for innocent behavior. FATCA is making personal finance a headache for U.S. citizens posted abroad. The whole system should be drastically changed, starting with FATCA repeal, a huge increase in the threshold for reporting offshore accounts, repeal of FBAR reporting for signature only accounts, and a standard program where small taxpayers can come into compliance without penalty if they have not been contacted by IRS.

But the IRS is committed to continuing a policy of shooting jaywalkers.

Related: Robert Wood, Reverse Immigration: Americans Renounce Citizenship In Record Numbers



Buzz! A fresh new roundup of tax news from Robert D. Flach is up!

Jack Townsend,  DOJ Will Not Seek Indictment of Lois Lerner  “But, based on what I know and infer from the letter, while DOJ could likely have obtained an indictment for some crime (the old ham sandwich phenomenon), DOJ would not have been able to convict — certainly, there was not the reasonable likelihood of conviction to meet DOJ standards for  prosecution.”

TaxGrrrl, IRS Joins FBI, DEA & Other Federal Agencies With Access To Cellphone Surveillance Technology

Scott Greenberg, The EITC is Not the Solution to Puerto Rico’s Woes (Tax Policy Blog). You mean there are things that tax credits can’t do?

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed. What tipped them off?

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #10 – Cash For Egg Donation Is Taxable Income


TaxProf, The IRS Scandal, Day 901

Peter Reilly, God May Bless Your Pot Shop – Tax Court Not So Much


Santa Monica Freeway. I arrived in Santa Monica, California last night for a conference with other members of TIAG, the alliance of independent accounting firms. Our firms membership in this organization gives us access to smart tax and accounting people around the country and around the world. As more of the economy crosses borders, this helps us help our clients as they grow. Yes, there are hardships, like beautiful southern California weather, but we shall be stoic about it. If you are a Tax Update reader and a TIAG member, come and say hi to me or my colleague Doug Ross, who is also here.



Tax Roundup, 10/23/15: Tax Court dispenses with pot dispensary deductions. And: IRS scam call, captured on tape!

Friday, October 23rd, 2015 by Joe Kristan

Accounting Today newsletter visitors: click here to go directly to the rental loss story


Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Cannabis leaf image via Wikimedia Commons under Creative Commons license.

Deductions get stoned. Not in a good way. Attitudes towards marijuana have changed a lot in the last 33 years. A recent Gallup Poll shows that 58% of respondents favor weed legalization. But a tax provision enacted in 1982 continues the Reefer War with full vigor, as the operators of a legal California medical marijuana dispensary learned yesterday.

Section 280E, enacted early in the Reagan Administration, is one of the more clear provisions of the income tax. It reads in full:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana remains a Schedule I controlled substance under federal law, despite its growing legalization at the state level. That means the only deduction allowed to state-legal weed dispensaries and dealers is their cost of goods sold — their direct cost of their inventory. No rent, salaries, benefits, security, depreciation, or any of the other obvious costs of doing business can be deducted.

Canna Care, Inc., a California dispensary, claimed about $870,000 in business deductions over a three-year period. The Tax Court explains (my emphasis, ditations omitted):

Petitioner argues that its actions cannot be considered “trafficking” for purposes of section 280E because its activities were not illegal under California law. Petitioner claims that this conclusion is supported by memoranda issued by the Department of Justice (DOJ) on October 19, 2009, and August 29, 2013, and guidance issued by the Financial Crimes Enforcement Network (FinCEN) on February 14, 2014.

We have previously held the sale of medical marijuana pursuant to California law constitutes trafficking within the meaning of section 280E… DOJ memoranda and FinCEN guidance released after the years at issue that represent exercises of prosecutorial discretion do not change the result in this case. Petitioner regularly bought and sold marijuana. This activity constitutes trafficking within the meaning of section 280E even when permitted by State law.

The taxpayer also argued that its business activities weren’t entirely about marijuana, and that at least some of the activities should therefore be deductible. The Tax Court said that the taxpayer’s evidence wasn’t sufficient to make that case:

Aside from the sale of medical marijuana, petitioner’s only other source of income was the sale of books, T-shirts, and other items. On the basis of the evidence presented, we cannot determine what percentage of petitioner’s income was from the sale of medical marijuana and what percentage was from the sale of other items. Because of the parties’ stipulation, we find that the sale of medical marijuana was petitioner’s primary source of income and that the sale of any other item was an activity incident to its business of distributing medical marijuana.

No deductions. Victory for IRS.

The Moral: Sometime in the next few years I suspect weed will either cease to be a controlled substance or Section 280E will be amended to allow legal pot sellers to deduct their expenses. Until then, dealers will need to mark up their product a lot to cover the taxes on phantom income. If they have other business activities, they need keep records sufficient to separately track the non-pot profits.

The other moral: Don’t use the tax law to do anything other than measure income and collect taxes. Special carve-outs, whether punitive or beneficial, linger long after the moral panic surrounding their enactment passes. In addition to Section 280E, we remain stuck with other moral panic tax provisions. These include Section 409A, enacted in the Enron panic but punishing ordinary businesses and non-profits trying to compensate their employees, and FIRPTA, enacted to combat the threat of Japanese buying up our precious golf courses. The Japanese have moved on to other things, but FIRPTA still clobbers U.S. real estate buyers who fail to realize they need to withhold taxes on purchases from non-U.S. sellers.

Cite: Canna Care, Inc., T.C. Memo 2015-206.

Related: Russ Fox, Up In Smoke, Again. For more on taxes in the early ’80s, TaxGrrrl has Back To The Future: Taxes Now & Then.


Ed Brown’s fortress-house sells at auction, reports The winning bid was $205,000, though the story makes it appear that the winning bidder may also need to pay some accumulated property taxes.


buzz 20151023-1

It’s Friday, so celebrate with fresh Buzz from Robert D. Flach. Year-end planning, IRS inflation adjustments, and the S corporation vs. partnership conundrum figure prominently.

William Perez reports on the updated 401(k) Contribution Limits.

Tony Nitti, IRS Redefines ‘Husband’ And ‘Wife’ In Response to Landmark Same-Sex Marriage Decisions.

Caleb Newquist, Company Accused of Being ‘Pharmaceutical Enron’ Doesn’t Appreciate the Sentiment (Going Concern).

Robert Wood, Stock Options 2.0: Twitter CEO Gives His Own Stock To Employees

Peter Reilly, IRS Should Be Asking For Cooperation Not Volunteering. “Audits of non-compliant taxpayers will have them “busted” which is unpleasant, whereas non-compliant taxpayers not being audited make the rest of us feel like chumps.”

Kay Bell, As Ryan gets ready to take on House Speaker role, Ways & Means members jockey for tax-writing chairmanship




TaxProf, The IRS Scandal, Day 897. Administration partisans urge continued political administration of the IRS, as they needed the encouragement.

Alan Cole, This Bill to Repeal Obamacare Taxes Would Grow the Economy (Tax Policy Blog). Just eliminating the ridiculous and costly paperwork of the ACA would be an economic boost.


Ever wonder what it sounds like to get a phone call from a scammer claiming to be from IRS? Well, you are in luck! A scammer was kind enough to leave a message on my phone at home, which I recorded and uploaded to the link in this sentence.  I believe it is typical of the recorded-message version of the scam, telling me that the IRS “is filing a lawsuit against you” and telling me to call a number to “get more information on this case file.”

The IRS does not call you to tell you they are suing you. They use the old-fashioned U.S. Postal Service, and if they can’t find you, they will use genuine U.S. Marshals to serve you papers. Believe me, if the IRS is after you, you will know you have a problem, and that knowledge won’t come over the phone.



Tax Roundup, 10/20/15: Shock! State tax “incentives” favor the big! And: the 1% surprise.

Tuesday, October 20th, 2015 by Joe Kristan

20120906-1Regulation always favors the big. So do state business incentives. Left-side think tank Good Jobs First demonstrates the big-player bias of state “incentive” tax deals in a new report Shortchanging Small Business: How Big Businesses Dominate State Economic Development IncentivesMaria Koklanaris summarizes the report for State Tax Notes ($link):

Using its own databases and other programs, [Good Jobs First] weeded out awards targeting companies of a specific size, focusing only on those purportedly available regardless of company size. Of those “facially neutral” awards, 90 percent of the dollars went to big businesses, the report said.

“The deals, worth more than $3.2 billion, were granted in recent years by programs that on their faces, are equally accessible to small and large companies,” the report said. “Yet big businesses overall were awarded 90 percent of the dollars from the programs analyzed, indicating a profound bias against small businesses.”

While Iowa’s incentives weren’t among those studied, I am confident the exact same thing is true here. It’s the big and well-connected taxpayers who know how to play the system. They can hire the attorneys and accountants to navigate the system, and the lobbyists to make sure the taxpayer money is steered their way. And it’s the big projects — inherently done by big taxpayers — that attract the politicians. You’ve never heard of a Governor calling a press conference for some little business hiring two people.

A real Iowa tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, would get rid of all of these breaks for insiders and lower the rates and compliance costs for everyone.


New York Times, What Could Raising Taxes on the 1% Do? Surprising Amounts.

Scott Greenberg, No, Raising Taxes on the 1% Will Not Lead to “Surprising Amounts” of Revenue (Tax Policy Blog):

Let’s say, for instance, that Congress decided to raise the effective tax rate of the 1% by increasing the top rate on ordinary income. Currently, the top tax bracket on ordinary income is 39.6%. How high would Congress have to raise this rate, in order to raise the effective tax rate of the 1% to 45 percent?

According to our estimates, Congress would have to raise the top rate on ordinary income to 74 percent, in order to raise the effective rate of the 1% from 33.4 percent to 45 percent. This would be a rate hike of over 34 percentage points, or an 87 percent increase in the top rate.

Oh, I think the amounts of revenue raised would be surprising, to the Times. And disappointing. As I’ve noted many times, the rich guy isn’t picking up the tab, because he can’t.




TaxGrrrl, 11 Things I Wish I Could Tell My Younger Self About Taxes. Plenty of good advice here. It’s all worth reading, but I especially like #7, Planning is important:

Tax planning is important. You should take advantage of tax strategies that can help you lower your tax bill, like seeking out tax credits you might have overlooked or making a contribution to a tax-deferred retirement account. And knowing what’s coming down the pike is also important when it comes to payment: having a good idea of what you might owe and making estimated payments will help you avoid writing a big check at the end (trust me) and possibly being subject to underpayment penalties.

This is true for all taxpayers, but it is especially true for the self-employed, who are much more numerous with the growth of the “gig economy.”


buzz20150804Robert D. Flach is up and running with a fresh and pungent Tuesday Buzz roundup. He covers the recent tax season and the right response to callers claiming to be from the IRS demanding payment, among other things.

Jason Dinesen, Choosing a Business Entity: S-Corporation vs. C-Corporation. “The ‘C’ and ‘S’ refer to how that corporation is taxed, not to its legal standing.”

Tony Nitti, Apple To Issue Restricted Stock To Employees: Siri, What Are The Tax Consequences?

Russ Fox, The Future of DFS. “If you watch any sports television, you’ve almost certainly seen commercials for the two leading daily fantasy sports (DFS) sites, DraftKings and FanDuel.”

Robert Wood, Chef Jamie Oliver Calls For Sugar Tax, While Mexico Eyes Soda Tax Cut. We actually already have a pretty high sugar tax.

Keith Fogg, Contesting the Merits of the Underlying Tax in a Collection Due Process Case – A Convoluted Fact Pattern Leads to Wrong Decision (Procedurally Taxing).

Peter Reilly, Massachusetts Hits Staples For $10 Million On Sham Interest Deductions. “This case is a beautiful illustration of my fourth law of tax planning – Execution isn’t everything, but it is a lot.”




TaxProf, The IRS Scandal, Day 894. On how the President signals Justice Department investigators to back off.

Brian Doherty, Irwin Schiff, R.I.P. ( “He was indeed a jolly warrior for a cause he obviously very sincerely believed in, even when it became completely obvious that the federal government was not going to be daunted by his arguments and indeed was going to keep arresting him for practicing them and advocating them.”

Kay Bell, Infamous tax protester Irwin Schiff has died. “His anti-tax tactics live on, as do penalties for those who insist on using them.”


Howard Gleckman, Presidential Candidates, “Free Stuff,” and Pixie Dust (TaxVox):

Even in its early stages, the 2016 presidential race looks like it will be remembered for two depressing superlatives. The candidates will spend more money than ever before, and they will promise more costly give-aways than any politicians in history.

Once again demonstrating the wisdom of Arnold Kling.


Tax Roundup, 10/14/15: The return’s not joint without that Jane Hancock. And: Iowa supplies rule advances.

Wednesday, October 14th, 2015 by Joe Kristan

1040 signature blockSignatures matter. A Tax Court case yesterday reminds us that even though they seem like an afterthought, the IRS cares whether you sign your paper return.

A busy executive mailed the family’s 2000 1040 near the October 15, 2001 extended due date. Possibly through a miscommunication, his wife failed to sign the return before he took it to the office to mail near the deadline. The Tax Court takes up the story (citations omitted):

Sometime after the Andover Service Center received the original 2000 return, respondent returned it to petitioners. The Internal Revenue Manual (IRM) requires the examining agent to perform certain actions before sending a return back to a taxpayer. The examining agent must attach certain forms explaining to the taxpayer why the return is being sent back, what needs to be done with respect to the tax return, and when is the deadline to comply and resubmit the return.

Petitioners claim they received a date-stamped original 2000 return with some red ink marks on it but did not receive any attached correspondence. The date on the stamp was October 15, 2001.

They never signed or re-submitted the return, and it apparently didn’t occur to the taxpayers to ask their CPA why they got it back:

[The husband] explained that he was not alarmed to have received back the original tax return with some red ink marks on it because he requested copies of his tax returns from time to time for various business reasons.

That doesn’t sound right. They had a tax preparer who would normally keep copies of client tax returns. Why would anyone go through the hassle of getting one from the government when you can call your tax man?

The tax year came up for audit, and the taxpayers tried to get 2000 dismissed on the grounds that the 3-year statute of limitations had expired. The statute only starts to run once a return is filed, and the IRS said that with only one signature, there was never a legitimate joint return. The Tax Court discussed and rejected two taxpayer arguments on why the return should count: the “substantial compliance doctrine” and the “tacit consent” doctrine. The first one was easy: filing with only one signature is not “substantial compliance” when both are required.

The “tacit consent” doctrine is more interesting. Again from the Tax Court:

At the outset of our discussion of the tacit consent doctrine, we note that courts generally apply this doctrine when one spouse signs a joint return for both spouses and it is later shown that the other spouse has tacitly consented to the joint return filing.  Most of the cases that petitioners cite follow this general pattern.

This happens in real life more than I care to think about. But Judge Laro ruled that it didn’t fit here where there is no second signature at all:

Extending the application of the tacit consent doctrine to cases such as the current case has the potential of creating an exception that would swallow the rule. We believe sufficient administrative mechanisms are already in place to deal with such situations. Existing procedures described in the regulations and the IRM provide how to handle documents when one of two required signatures is missing. At the very least, a nonsigning spouse who did not intend to file a joint return may be alerted that something is wrong.

Decision for IRS.

The Moral? It’s always best to get both signatures. Better still to not run to the deadline, where it’s easy to miss one. Best of all is to e-file, so the IRS has no manual signature issues in the first place, and your signed e-file authorization is safely in the hands of your e-file originator.

Cite: Reifler, T.C. Memo. 2015-199




Iowa rule on sales tax of manufacturing supplies passes first test. The legislative rules committee yesterday split 5-5 on a party-line vote on a Democratic objection to the rule. The split vote allows the rule to go forward, and probably means it will become final, according to this report by O. Kay Henderson.

The rule would flesh out the definition of consumable manufacturing supplies that are exempt from Iowa sales tax. This has been a contentious issue for years, one that has been a large portion of disputes at the Iowa Department of Revenue. Good tax policy favors a broad definition, as good sales tax policy doesn’t tax business inputs in the first place. But it turns out that the people who most benefit from tax receipts — state employees — don’t care for things that deprive them of their cash flows. From the report:

“I don’t believe it’s ever been done, to use the rule-making process to cut taxes. That seems like a heck of a precedent,” says AFSCME Council 61 Danny Homan, head of the union that represents the largest share of state workers.

He says all 150 legislators should vote on the proposal and Homan accuses Branstad of abusing executive power to try to cut taxes for corporations.

“After, on July 2, the governor vetoed $55 million in one-time appropriations for schools and vetoed funding for the MHIs in Clarinda and Mount Pleasant,” Homan says. “It seems like he’s got money to reward his friends, but he doesn’t have money for education and he doesn’t have money for folks that are suffering from mental illness.”

There is so much wrong with the idea that all of this money is the Governor’s to give out, and that the only problem is that he isn’t giving it to state employees. It’s a great example of why public employee unions as bargaining units are an awful idea.


William Perez, Do Your Home Improvements Qualify for the Residential Energy Tax Credits? “Homeowners who install solar panels or make other energy-efficient improvements to their home may qualify for a federal tax credit.”

Jason Dinesen, Are Tax Preparers Who Operate on Volume Doomed? It would be a blessing, actually.

Peter Reilly, A Twisted Tale Of New Jersey Use Tax,

TaxGrrrl, Losers Like Me: Fantasy Sports Sites Like FanDuel Attract Billions And Scrutiny As Popularity Grows

Tony Nitti, Tax Geek Tuesday: Daring To Take On The Section 263A Adjustment. A key part of the 1986 tax reform process, it is a monument to the baneful tax policy consequences of the tax revenue scoring process.


Scott Greenberg, NY Times Reporter Casts Doubt on Financial Transactions Taxes (Tax Policy Blog). They are an awful idea.

Howard Gleckman, How A Carbon Tax Could Have Prevented The Volkswagen Diesel Scandal (TaxVox)

TaxProf, The IRS Scandal, Day 888. Today’s link discusses a GAO report on how the IRS has failed to enact safeguards against continued political bias in IRS operations.


And finally: With first Wrigley clinch, Cubs move on to NLCS.



Tax Roundup, 10/7/15: Iowa Dept. of Revenue proposes sound policy, protests erupt. And: skating to a low-tax state.

Wednesday, October 7th, 2015 by Joe Kristan

20150122-1The Iowa Department of Revenue proposes broad definitions for industrial sales tax exemption. The chief Democratic taxwriter in the Iowa Senate is unhappy.

The Des Moines Register reports:

State legislators will consider a proposal next week that would reduce the tax burden for manufacturers by up to $46 million in a move critics say bypasses the legislative process.

In an effort to avoid a “double tax,” current law exempts from taxation some items used during the manufacturing process and instead taxes the final product. The proposal would expand the number of items that qualify for that exemption.

The policy behind the exemption is sound. As David Brunori points out,

Only bad things happen when businesses pay sales tax. First, the businesses paying the tax pass the burden on to their customers in the form of higher prices. But the tax is hidden. People do not know they are paying it. Politicians, and perhaps the New York Times, may like that lack of transparency, but it is awful government policy. Second, the higher priced products purchased by consumers are often subject to tax. This gives rise to a tax on a tax. That is awful tax policy. Finally, taxation of business inputs artificially keeps sales tax rates low. People think the sales tax rate is lower than it actually is. None of this is good.

Whether the Department has overstepped its authority is a separate question from the tax policy. From the Register story:

But state Sen. Joe Bolkcom, D-Iowa City, pointed out the fiscal effects of the legislation on Monday.

“We’ve been told repeatedly by this governor that we can’t afford to educate our kids, and here he goes again with another big tax cut for Iowa’s largest corporations and putting their needs ahead of our kids,” Bolkcom said. “It’s wrong.”

“I don’t remember ever tax policy being made by the rules committee or being made by the executive branch without the consent of the Legislature,” Bolkcom said. “This is a huge tax policy change that (Gov. Branstad) has unilaterally decided.”

Iowa businesses have long complained about the restrictive definition of “equipment” and “property directly and primarily used in processing.” It seems to me that the new definitions are more in line with business reality and the intent of the exemption. Still, I haven’t seen a fight over proposed regulations like this, so I have no idea how this will play out.

Link: Proposed new Iowa rules.




TaxGrrrl, Hockey Players Ice High Tax Teams In Favor Of Tax Savings:

With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.

According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes.

Sports free agency is an unusual natural experiment on whether state taxes matter. There are always other factors than taxes in choosing a team.  Winning is worth something. Still, it’s pretty much the same job, just with different taxes. The resulting low-tax preference is what you would predict.


Kay Bell, Fantasy sports: Gambling or just good, clean online fun?  Either way, taxes are due, but deduction options differ.

Jack Townsend, Swiss Asset Manager Settles Up with DOJ Tax. A $295,000 fine. Another example of second prong of the IRS approach to international tax compliance — shoot the jaywalkers so you can slap the big offenders on the wrist.

Tony Nitti, Tax Geek Tuesday: A Buyer’s Best Friend – Understanding The Section 338(h)(10) Election. “What if a buyer could acquire a target’s stock for legal purposes — thereby keeping the target alive and preserving its non-transferable assets — but acquire the target’s assets for tax purposes, giving the buyer the stepped-up basis in the asset it seeks?”


Jim Maule, Putting More Tax Information “Out There” for the Tax Database Thieves:

Until and unless the protection of online data is heightened to a point of 99 percent confidence, the IRS should not create yet another vulnerability, another door through which the robbers can force their way in. In the meantime, why not focus on the problem rather than the symptoms? The underlying cause of some noncompliance is the complexity of the tax laws. Treating the symptoms does not cure the illness.



Stephen Olsen, Summary Opinions for 8/31/15 to 9/11/15. Procedurally Taxing rounds up recent developments in tax procedure, “heavy on estate and gift this week.”




David Brunori, North Carolina Tax Changes — Sort of Good, Kind of Bad (Tax Analysts Blog):

On the good side, the state lowered the personal income tax rate from 5.75 percent to 5.49 percent. Lowering rates is usually good for the economy and for the people paying taxes. I believe that people know how to spend their money in ways that improve the economy much better than the government does. The state also expanded the no-tax exemption to $15,500, providing more relief for low-income taxpayers. In general that is a good thing.

On the super-negative front, the legislature is giving Hollywood moguls $30 million in each of the next two years to make films in North Carolina. I guess they haven’t read any of the studies showing that film credits don’t work. But why let facts stand in the way of policymaking?

It’s probably only a matter of time before they realize the wisdom of Iowa’s enlightened approach to hosting filmmakers.


Joseph Henchman, California Supreme Court Hears Arguments in MTC Case (Tax Policy Blog).

Roberton Williams, New Estimates Of How Many Households Pay No Federal Income Tax (TaxVox). “We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent.”  Mitt Romney, call your office.


TaxProf, The IRS Scandal, Day 881. Quoting Victor David Hanson: “What now constitutes actionable criminal behavior in the scandals at the IRS, EPA, ICE and a host of other alphabet agencies are not treated as per se violations of the law. Rather, they are judged according to whether the offender and his crime were deemed progressive and well-intended—or reactionary and thus prosecutable.”

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Part 1. Sometimes I think the TaxProf has to reach deep to have something to run every day, but his continued focus on the outrageous IRS behavior is a public service. I’m not sure Peter thinks there is a scandal in the first place.


Career Corner. Do PwC Employees Really Like the New Student Loan Perk? (Caleb Newquist, Going Concern). No word on whether the spiff is available in cash for those thrifty students who got by without loans.



Tax Roundup, 9/30/15: Taking from rich doesn’t give to the poor; state incentives favor the big.

Wednesday, September 30th, 2015 by Joe Kristan

Today we have two instances where policy tanks that I usually disagree with make important tax policy points.

TPC logoFirst, The center-left Tax Policy Center, a project of the Brookings Institution (which I castigate below), makes an important observation about the overrated problem of income inequality in their paper, Would a significant increase in the top income tax rate substantially alter income inequality? The summary (my emphasis):

The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

I have zero hope that politicians will heed this. Just because you take from the rich doesn’t mean it goes to the poor. It goes to the well-connected, as in the next item.

Second, the not-so-center-left Good Jobs First takes the side of the angels in the battle against state tax incentives, with a survey of small businesses called In Search of a Level Playing Field:

A national survey of leaders of small business organizations reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. 

I think they have this exactly right. It’s not start-ups that get the big deals from the legislature and the Economic Development bureaucrats. It’s the well-connected and wealthy companies that know how to work the system. The rest of us get to pay for it.




Jason Dinesen, The Iowa School Tuition Organization Tax Credit. “Iowa offers dozens of obscure tax credits. The one I get asked about most is the tax credit available for donations to a ‘school tuition organization’ or STO.”

Kay Bell, Maryland issuing court-ordered county tax credit refunds. If you don’t want to repay illegal taxes, don’t collect illegal taxes.

Russ Fox, How to Wynne Your Money Back in Maryland

Paul Neiffer, IRS Provides List of Counties Eligible For Additional Extension on Livestock Replacement

Jim Maule, Taxation of Prizes, Question Two. He quotes a post from a sweepstakes message board:

 I won concert VIP tickets, there is no value on the tickets, so I can’t sell them. If no value is on them, why am I paying taxes on them? 

Mr. Maule explains that there is a value. If there isn’t, then why didn’t the winner give them away?





InsureBlog, Yes, The New York Obamacare Co-op [squandered*] $340 Million. *The actual headline uses a more colorful term.

Robert Wood, Hillary Backs Cadillac Tax Repeal


TaxProf, The IRS Scandal, Day 874. Today’s edition features IRS agents abusing their power on everyday taxpayers. But we can trust them to regulate their tax preparer adversaries, right?

Arnold Kling, Hypocrisy and Cowardice at Brookings. Arnold addresses the firing by the Brookings Institution of Robert Litan, a scholar accused by Senator Elizabeth Warren of “writing a research paper to benefit his corporate patrons.” He is appalled:

1. Robert Litan is one of the most decent individuals in the whole economics profession.

2. Giving Litan’s scalp (sorry for the pun) to Elizabeth Warren does nothing to bolster the integrity of Brookings. It amounts to speaking cowardice to power.

There’s more. The episode is appalling, and it shows the totalitarian tendencies that are barely beneath the surface of Senator Warren’s populism.




Alan Cole, Donald Trump’s Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances (Tax Policy Blog)

Jeremy Scott, Trump’s Tax Plan Is Pretty Much GOP Orthodoxy (Tax Analysts Blog)

Matt Gardner, How Donald Trump’s Carried Interest Tax Hike Masks a Massive Tax Cut for Wealthy Money Managers (Tax Justice Blog)

Peter Reilly, Trump Tax Plan Would Increase Deficit By Over $10 Trillion

Tony Nitti, Love Trump, Hate Romney, But Their Tax Plans Are One And The Same

Renu Zaretsky, Thirty days, goodbye September, shutdown talks—maybe in December. Today’s TaxVox headline roundup covers shutdown politics, plans to use reconciliation procedures to pass bills repealing pieces of Obamacare, and tax Trumpalism.


See you at Hoyt Sherman Place tonight!



Tax Roundup, 9/28/15. IRS logic: A and B are part of set X. A is part of Set X, so B isn’t. And: Blood Moon!

Monday, September 28th, 2015 by Joe Kristan


Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

On further review, it’s silly. I’ve had a weekend to think about last weeks IRS “Action on Decision” to continue trying to collect self-employment tax on Conservation Reserve Program payments in the Eighth Circuit. It’s a poke in the eye of the court, and one that will probably not help the IRS when it inevitably has to defend itself before the Eighth Circuit Court of Appeals.

The gist of the IRS position is that because legislation was enacted in 2008 that specifically stated that CRP payments are payments for renting real estate, and therefore, not self-employment income, to taxpayers collecting Social Security, they suddenly become self-employment income to everyone else.

The Eighth Circuit majority ruled in Morehouse that CRP payments to non-farmers pre-2007 were real estate rentals. Logically, saying that a subset of those payments are real estate rentals shouldn’t by itself make other payments something else. But that’s what the IRS argues.

Unfortunately, the IRS has now made uncertain a seemingly-settled area of the tax law. They did so by taking a position that, if taken by a taxpayer, might trigger negligence penalties. It really is another example of the need for a “Sauce for the Gander” rule that would make the IRS liable to taxpayers for penalties for faulty IRS positions in the same way taxpayers have to pay penalties for bad positions to the IRS.

Prior Coverage at IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.


Scott Sumner has posted an outstanding set of tax policy observations: Our bizarre system of taxing capital (Econlog). You really should read the whole thing, but I’ll give you a taste:

It’s difficult to think of a more bizarre and foolish policy than the practice of taxing capital. Consider:

1. If it were appropriate to pay taxes on capital gains, why wouldn’t it be appropriate to pay negative taxes on capital losses? Economic theories tend to be symmetrical. And yet capital losses do not result in negative taxes, except in certain limited cases. And why only those cases?

2. Economic theory suggests that two people with essentially identical economic outcomes should pay identical taxes. But consider two people who both bought 1000 shares of Apple stock for $50/share at the beginning of the year. One sold the shares on November 9th at $100 and bought them back 5 minutes later at the same price. Both held 1000 Apple shares at year-end. To an economist those two outcomes are essentially identical. But one person must pay a large tax on capital gains, while the other does not. Why?

A fan of capital gain taxes would say that just means we should tax unrealized capital gains. Mr. Sumner is not such a fan:

A simpler and fairer solution would be to abolish all taxes on capital, and start over.

But because that would help “the rich,” it isn’t happening. Nothing is too stupid or counterproductive to do to them.


"Blod moon" photos by Jose Guerrero, taken in Columbia. Used by permission.

“Blood moon” photos by Jose Guerrero, taken in Colombia. Used by permission.



A client should not take the finished returns from his/her tax professional and just sign and mail without actually looking at them. The client should carefully review all the forms and schedules that make up the returns before signing the return, and ask the preparer if there is something that he/she does not understand.

And that is the problem with clients who wait until the very last minute — I mean October 15, when no further extensions are available — to finish their tax information. They obviously aren’t going to give the return a good review when they have to immediately sign the e-file authorization or run it to the post office. But if there is something seriously wrong, the IRS isn’t going to take “I didn’t have time to review before filing” as an excuse.


Kay Bell, Electric vehicle tax credits favor the wealthy. You don’t see many Teslas, or for that matter Chevy Volts, in poor neighborhoods.

Paul Neiffer, Involuntary Conversion of Livestock. “If a farmer sells livestock because of consequences of a drought, the payment of income tax on the taxable gain from the sale may be postponed.”

Jason Dinesen, How to Calculate an RMD. If you don’t start withdrawing from your IRA when you hit 70 1/2, the penalties pile up.

Jim Maule, Taxation of Prizes, Question One. “So a person wins a prize, tells the company awarding it that the winner cannot accept it because it will be taxed, creating a liquidity problem, and the company spokesperson says, in effect, ‘Not a problem, it’s not in cash, we won’t send a Form 1099.'”

Peter Reilly, A Slick Estate Planning Trick And Intimations Of Mortality. “The Tax Court decision in the case of Jean Steinberg is a great example of planners taking a rule that is meant to prevent taxpayers from getting away with something and using it to, well, get away with something.”

Russ Fox, Neymar Tax Evasion Investigation Continues; Judge Freezes $48 Million of Assets. Considering how impossible Brazil’s tax system is, it would be surprising if somebody there weren’t guilty of a tax crime.


brazil chart 2


Tony Nitti, House Bill Would Give Tax Deduction, Credit In Exchange For Learning Science And Math. The tax law. Is there anything it can’t do?


Jack Townsend, GE Asks the Supreme Court to Screw Up Again to Bless a BS* Tax Shelter. *Expletive deleted.

Leslie Book, Fifth Circuit Tackles Intersection of TAO Rules and Statutes of Limitation (Procedurally Taxing). “Earlier this week in Rothkamm v US, the Fifth Circuit issued an opinion that considered whether a wife’s application for a Taxpayer Assistance Order (TAO) concerning a recovery of funds levied from her bank account to satisfy her husband’s tax debt tolled the nine-month wrongful levy statute of limitations.”




David Brunori on historic preservation credits ($link): “Nothing says boondoggle like giving rich folks tax dollars to fancy up old buildings.”

TaxProf, The IRS Scandal, Day 870Day 871Day 872. Including musings about how the IRS gagged on Tea Party gnats but swallows Clinton Foundation camels.

Scott Greenberg, Senate Democrats’ Bill Would Overhaul the Treatment of Energy in the Tax Code (Tax Policy Blog):

Currently, nearly every source of energy is subsidized to some extent by the federal government. This means that the U.S. economy is more energy-heavy than it would be under normal market conditions, leading to an inefficient allocation of resources. The Senate Democrats’ bill would continue to heavily subsidize energy production in the United States.

In general, tax expenditures, such as energy subsidies, leave the federal government with less revenue, requiring higher tax rates overall on individuals and businesses.

Anybody who thinks Congress will wisely allocate these subsidies to create our optimal energy use mix for the country hasn’t been paying attention in recent decades.

Renu Zaretsky, A Resignation, and… Resignation. Today’s TaxVox headline roundup covers the implications of Speaker Boehner’s resignation, a politician promising more tax credits! and the sublime awfulness of trying to pay business taxes in Brazil.


News from the Professon. Deloitte Dabbles in Orwellian Tracking Devices (Greg Kyte, Going Concern). “The gadget looks and works like what you would expect if an ID badge had sex with an iPhone.”



Tax Roundup, 9/24/15: Small partnership, big late-filing penalties. And: tax tips from the Duke and the Yogi.

Thursday, September 24th, 2015 by Joe Kristan

20150813-1Didn’t file that 1065? The penalties can add up, even for small partnerships. Congress decided a few years ago that late-filed partnership returns could be an IRS profit center. They imposed a penalty of $195 per partner for returns filed even one day late — a penalty repeated for each additional month the return is late. Needless to say, a ten-person partnership can rack up a big bill.

When Congress enacted that penalty, it left in place an escape hatch. Back in 1984, the IRS issued a ruling providing a standard exemption from the late filing penalty for “small partnerships.” Rev. Proc. 84-35 allows partnerships composed only of individuals with straight-up allocations of income and loss to be excused from the late filing penalty. But there’s a catch: the penalties are excused only:

…provided that the partnership, or any of the partners, establishes, if so requested by the Internal Revenue Service, that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.

A Federal Court in South Dakota this week ruled that this catch means a late-filing small partnership is at the mercy of its least responsible partner to avoid penalties. One late-filing partner can cause penalties for the whole partnership.

Battle Flat, LLC filed its 2007 and 2007 Form 1065s over six months late. It requested a penalty waiver based on Rev. Proc. 84-35. Unfortunately, none of the six partners filed a timely 1040 for 2007, and three of them also filed their 2008 returns late — four years late in one case. The IRS denied the penalty relief because the partnership was unable to demonstrate “that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.”

The partnership argued that the requirement for timely-filed partner returns isn’t a requirement that the statute allows. On brief, the partnership argues:

Congress did not impose or even mention an intent to require that each individual partner’s (sic) must timely file his or her individual return in order for the partnership to qualify for a “reasonable cause” forgiveness of a late filing penalty. But, the IRS has engrafted such a requirement in Revenue Procedure 84-35.

20140321-4The IRS disagrees, and so does the Federal Judge (citations and footnotes omitted, emphasis added):

The IRS’ position is persuasive. Although § 6698 does not expressly impose a timeliness requirement by which partners in a “small” partnership must file their personal income tax return in lieu of filing a partnership tax return, this is exactly the type of interpretative question left to the discretion of the IRS in implementing our nation’s tax laws. The IRS’ interpretation that partners in a “small” partnership timely file their personal income tax returns is reasonable and is a highly practical aid in its assessment of the tax consequences of a partnership for a given year and on a year-over-year basis. IRS’ interpretation is consistent with the legislative history of § 9968 in that it strains credulity to characterize a personal income tax return filed years after the reporting deadline as an adequate, full reporting of each partner’s share of the partnership’s income and deductions.

Conversely, Battle Flat’s interpretation that § 9968’s “reasonable cause” exception is satisfied so long as the partners in a “small” partnership file their personal income tax returns at some unspecified future date is unreasonable. The interpretation would result in a system where the tax consequences of a “small” partnership would go unassessed for years at a time. Furthermore, under Battle Flat’s interpretation, the IRS would be required to track the status of each partner’s personal income tax return until every partner’s tax return was received before it could accurately calculate the annual tax consequences of the partnership.

At least one commentator appears to argue that small partnerships are excused from annual 1065 filing requirements. That’s not how the judge ruled in this case. While this case may be appealed, partners should consider this a warning that the IRS and at least one federal judge aren’t on board with a blanket filing exemption for small partnerships. Considering how fast that $195 per partner, per month penalty can add up, filing timely 1065s for small partnerships seems like a prudent bet.

Cite: Battle Flat, LLC (USDC-SD, No. 5:13-5070-JLV)

Related: Roger McEowen, The Small Partnership Exception – A Possible Way to Avoid Failure to File Penalities, but Not Complexity


Liz Malm, Does Your State Levy a Capital Stock Tax? (Tax Policy Blog):


“In broad economic terms, capital stock taxes (referred to as franchise taxes in many states) are destructive because they disincentivize the accumulation of additional wealth, or capital, which distorts the size of firms.”



If you receive a balance due notice from the IRS or a state tax agency DO NOT AUTOMATICALLY PAY THE AMOUNT REQUESTED!

In my 40+ years of preparing tax returns I have found that more often than not (actually in my experience it is more like 75% of the time) a balance due notice from “Sam” or your state is wrong. And, again in my experience, notices from a state tax agency (at least when it comes to NJ and NY) are wrong more than ones from the IRS.

Robert speaks wisely. As scammers are getting more sophisticated — sometimes even mailing authentic-looking “IRS notices” — this advice becomes even more important.


Jason Dinesen, When Do I Have to Take My RMD? If you don’t start withdrawing from your retirement accounts on time, penalties can be ugly.

Tony Nitti, Tax Court: Drop In Property Value Does Not Create Deductible Loss. You usually have to sell out, as a real estate investor  learned the hard way this week in tax court.


TaxGrrrl, Profiting From Star Wars, Michael Jackson & Taylor Swift Memorabilia: There’s A Tax On That

Russ Fox, Are Turf Rebates Taxable?

Robert Wood, Why Churches Are The Gold Standard Of Tax-Exempt Organizations


Stephen Olsen, Summary Opinions for the Week Ending 8/21/15. It’s the Procedurally Taxing roundup of recent developments in the tax procedure world.

Kay Bell, How charitable are you and your neighbors? “Overall, ALEC’s analysis found that for every 1 percent increase in a state’s total tax burden, there is a 1.16 percent decrease in the state’s rate of charitable giving.”

Peter Reilly, Yogi Berra’s Sayings Worked Their Way Into Tax Decisions.



Renu Zaretsky, A lawmaker’s work is never done. Today’s TaxVox headline roundup ranges from Russian tax revenue problems to improper EITC credits, plus much more.

TaxProf, The IRS Scandal, Day 868


He was a quiet guy, but he seemed a little odd. Peculiar Man Indicted for Tax Evasion (Kansas City InfoZine). “Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Peculiar, Missouri, resident has been indicted by a federal grand jury for tax evasion.”



Tax Roundup, 9/22/15: A resounding call to document your mileage. And: preparer regulation, IRS service, lots more!

Tuesday, September 22nd, 2015 by Joe Kristan


No Walnut STYou know you’re having a bad day in Tax Court when:

After concessions, the remaining issue relating to deductions claimed on petitioner’s Schedule A is whether she is entitled to deduct an additional $1,616 of mileage expense that she claimed as part of her unreimbursed employee business expense deduction. The answer is a resounding no.

I’m pretty sure that the Tax Court judges never read their opinions out loud, so I don’t think it was literally resounding. Still, it’s fun to imagine Judge Marvel calling the court into session, calling out a booming “NO!” and then adjourning.

The “no” may hae been resounding because of a little error the Judge detected in the taxpayer’s evidence. The taxpayer claimed mileage deductions for going between work locations. Travel expenses have to meet the special substantiation requirements of Sec. 274(d), where the taxpayer maintains evidence, such as calendars or mileage logs, to prove the deduction. This taxpayer went through a lot of effort generating a log from her work history. However…

Petitioner testified at length regarding how she prepared the reconstructed log. She testified under oath that she had worked for both ATC and MSN throughout 2007 and carefully explained her work assignments for each employer, including her work assignments for ATC from January through September 2007. Unfortunately for petitioner, the document that ATC provided to her summarizing her work history with ATC shows that she did not start her employment at ATC until October 2007. That document demolished any credibility that petitioner’s reconstructed log and her sworn testimony might otherwise have had. [emphasis added]

The Moral? No matter how much effort goes into reconstructing your unreimbursed work mileage, it doesn’t help you if you didn’t actually have the job.

Cite: Spjute, T.C. Summ. Op. 2015-58




Bryan Camp has a long piece in Tax Notes today ($link) arguing that the IRS can and should “cut and paste” its way into a new preparer regulation regime. I won’t argue the legalisms, though I think if the IRS thought it plausible, it would have tried it already.

I will point out that in an article with 101 footnotes, there is no discussion of additional costs to the taxpayers, or whether the benefits exceed those costs. He discusses evidence that “unregulated” preparers make more errors, and he assumes that regulation will fix the problem. That’s not necessarily so. It’s hard to imagine the perfunctory examination and CPE requirements of the old RTRP program would improved preparation. You can make somebody take a test, but you can’t make them competent.

Mr. Camp also ignores the unintended but predictable effects of the inevitably-increased price of preparation on the quality of tax returns received by IRS. If prep price goes up, more taxpayers will do their own returns, almost certainly at a higher error rate than from paid-for preparation. Other taxpayers will drop out of the system rather than pay higher prep costs.

In short, regulation advocates assume regulation will solve the problems of inaccurate returns. That’s unproven but unlikely. It is likely, though, that it will increase taxpayer costs and push customers away from paid preparers, which creates a new set of problems.

Related: Leslie Book, AICPA Defends CPA Turf and Challenges IRS Efforts to Regulate Unenrolled Preparers (Procedurally Taxing)


buzz20140909Robert D. Flach has fresh Buzz today, with links ranging from silly tax proposals to silly home office deductions.

Paul Neiffer, What About Those AFRs? “Periodically I will get a question from a client asking me ‘How much interest they have to charge on a loan to their child or some other related party?’. ”

Kay Bell, Meet Obamacare deadlines or pay the higher tax price. “If you don’t file last year’s return, you won’t be able to claim an advance premium tax credit to help you pay for your 2016 Obamacare coverage.”

William Perez, What Tax Documents to Bring to Your Accountant?


Tony Nitti, Tax Geek Tuesday: Making Sense Of Partnership Book-Ups. A primer on adjusting capital accounts to reflect the price paid when partners enter or leave a partnership.

Russ Fox, We Don’t Need No Stinkin’ Phone Calls.

So let’s translate this into reality. In the 2013 fiscal year, 22,363,345 phone calls were attempted to various IRS toll-free lines; 15,609,615 were answered (69.8%). In the 2015 fiscal year, 22,013,468 phone calls were attempted to various IRS toll-free lines; 8,277,064 were answered (37.6%). As for the time on hold allegedly decreasing to 23.5 minutes, perhaps that’s after excluding all the time some of the 7 million people who called but whose calls were dropped or who hung up spent on the phone.

I think the IRS cuts in customer service are a sort of “Washington Monument Strategy” of cutting the most visible and useful aspects of taxpayer service to pressure Congress into providing more funds. I’ll believe the IRS is serious about its customer service issues when the IRS takes its 200 employees who spend all of their time doing Treasury Employee Union work and puts them on the phones.

Robert Wood, Let’s Tax Churches. I’m sure that won’t be controversial…

Peter Reilly, The Tax Code Explained & Why It Matters In This Presidential Race (No, It’s Not 70K Pages)

Jack Townsend, Wyly Brothers Seek Bankruptcy Relief from Disgorgement Order from Offshore Shenanigans




TaxProf, The IRS Scandal, Day 866

Martin Sullivan, Donald Buffett? (Tax Analysts Blog). Looking for tax wisdom in all the wrong places.

Renu Zaretsky, Inversions, Schools, and Supermarkets. Today’s TaxVox roundup covers the ground from tax increases in Chicago to tax favors for supermarkets in Baltimore.


Sebastian Johnson, Progressive Era Reform Can Be Anything But Progressive (Tax Justice Blog). “Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states.”

The point isn’t the well being of the state; it’s the well-being of the citizens.


News from the Profession. Accountant Hiding on the Appalachian Trail Has the Mugshot to Prove It (Caleb Newquist, Going Concern). “If you were an accountant accused of making off with about $9 million of your employer’s money, I can think of few places better to hide than the wilderness.”



Tax Roundup, 9/10/15: True crime edition; or, how to get the IRS to pay attention.

Thursday, September 10th, 2015 by Joe Kristan

IMG_0603How to make sure the IRS comes looking for your tax fraud. A Minnesota man will have 6 years to ponder mistakes he made diverting employment and excise taxes he owed to finance good times. From

Fifty-seven-year-old Bartolemoea Montanari, formerly of Bayport, was sentenced Wednesday. Montanari was also ordered to pay mandatory restitution of $100,000 and, additionally, to pay more than $1.5 million as a special assessment for the taxes, interest and penalties owed.

According to court documents, from 2009 until January 2012, Montanari willfully evaded the payment of employment and excise taxes owed by him and the three businesses he controlled: St. Croix Development, Emlyn Coal Processing, and Montie’s Resources.

He was convicted on the three counts of an indictment accusing him of diverting funds to a shell company from his legitimate businesses, and then withdrawing funds from the shell company to finance, well, stuff:

During sentencing, the judge noted Montanari used the money he stole to finance an “incredibly flamboyant lifestyle,” that this was “not a single error of judgment,” and that Montanari had “many chances” to correct his behavior, but did not. 

The indictment says the lifestyle included a $1.4 million home in Tennessee and “numerous personal vehicles.”

The defendant would seem to have made two mistakes to help ensure that the IRS would come snooping. First would be the “incredibly flamboyant lifestyle.” Taxgrrrl notes a Pennsylvania tax investigation apparently started when federal agents noticed a fancy house from the air. If the feds don’t notice themselves, envious or annoyed neighbors or associates might bring their questions about a flamboyant lifestyle to their attention.

More importantly, he failed to pay over employment taxes. His employees certainly  wouldn’t have failed to report their W-2 wages and claim their refunds. Despite its information processing shortcomings, the IRS can and does notice that. The main difference between committing employment tax fraud and confessing to it is the amount of work the IRS has to do before pressing charges.




Speaking of foolproof crimes: Hot Lotto rigger sentenced to 10 years (Des Moines Register). The case involved an alleged inside job by an IT professional at the Multi-State Lottery:

The case has enthralled Iowans and gained national attention since late December 2011, when a New York attorney tried to claim — just hours before it would expire — a Hot Lotto ticket worth $14.3 million on behalf of a trust incorporated in Belize. The identity of the original ticket purchaser was a mystery.

Authorities with the Iowa Division of Criminal Investigation began looking into Tipton after several people identified him as the hooded man in a video showing the ticket being purchased at a Des Moines QuikTrip. At the time, Tipton was the information security director for the Urbandale-based Multi-State Lottery Association that provides games such as Hot Lotto to lotteries nationwide.

[Assistant Attorney General] Sand told jurors at trial that Tipton installed a self-deleting software program, called a rootkit, onto lottery drawing computers to manipulate the outcome of a Dec. 29, 2010, draw. Tipton then filtered the winning ticket he bought through a friend, Robert Clark Rhodes II, from Texas in an attempt to claim the money, Sand said.

There’s a reason lottery workers aren’t allowed to play the lottery. The lawyer and Belize trust didn’t help the whole thing slip by unnoticed.


Tony Nitti, How To Talk About The Yahoo Spin-Off Without embarrassing Yourself. A walk through the mysteries of tax-free corporate separations.

Russ Fox, IRS Removes Social Security Number from Some Notices But…:

The reason for this is the problem of identity theft. And I give kudos to the IRS for this. Unfortunately, the IRS hasn’t executed this that well.

Today I opened an IRS notice that was sent to a client. The good: The social security number in the header had only the last four digits. The bad: Right below the header the IRS put in a bar code–presumably to make processing of the return mail easier. Below the bar code in relatively small print (but easily readable by me, and I wear glasses) was the deciphering of the code. Of course, it contained the social security number.

The IRS, protecting your identity since 1913.

Jason Dinesen, From the Archives: Will Obamacare Tax Your Home Sale?

Paul Neiffer, Don’t Forget Those Fuel Tax Credits. “Most farmers obtain dyed diesel without having to paying federal and in most cases state excise taxes.  However, there can be many other uses on the farm that will allow a farmer to claim a fuel tax credit on Form 4136.”

Kay Bell, Tax diplomas, computer games and soap operas. “Will informing folks about the role of taxes in their countries, especially starting at an early age, help create more tax responsible citizens?”

Jim Maule, It’s a Failure of Some Sort, But It’s Not a Tax Failure. The professor reminds us not to believe everything you read on the internet.






TaxProf, The IRS Scandal, Day 854

Howard Gleckman, Jeb Bush’s Tax Plan: High Marks for Transparency But Key Questions Remain (TaxVox). “At first glance, GOP presidential hopeful Jeb Bush’s tax reform plan is a standard lower-the-rates, broaden-the-base overhaul of the revenue code. But a closer look shows a something-for-everyone stew filled with interesting ingredients—most basic GOP fare but seasoned with a few surprising ideas.”


Well, it’s not my thing, but if it’s for the kids…  Let’s Get High for the Children (David Brunori, Tax Analysts Blog):

Every proposal, like the one in Arizona, calls for dedicating marijuana tax revenue to schools, which is a terrible idea. Perhaps everyone will be stoned and won’t care, but aren’t schools important enough to pay for with real, broad-based taxes on income, sales, or property?

Politicians might look for a way to legalize slavery if they thought it would give them more revenue.

Joseph Henchman, Colorado Suspends Marijuana Tax for One Day on September 16 (Tax Policy Blog).


News from the Profession. Rihanna and 50 Cent Need New Accountants (Going Concern)



Tax Roundup, 9/9/15: Meredith HQ stays in Iowa despite taxes. And: Walter Mitty, Chiropractor — not Ghostbuster.

Wednesday, September 9th, 2015 by Joe Kristan



A part of the Meredith campus in Downtown Des Moines.

Meredith Corporation will keep its headquarters in Des Moines, reports the Des Moines Register. The Des Moines-based media company yesterday announced its acquisition by Media General, a Virginia-based company. From the Register report:

Virginia-based Media General will acquire Meredith in a cash-and-stock sale, forming a new company — Meredith Media General — that will combine Meredith’s list of women-focused magazines and 17 local TV stations with Media General’s 71 TV stations and digital media assets.

“We have our corporate headquarters in Des Moines, my management team … we all live in Des Moines, our staff are in Des Moines. We will continue to be in Des Moines,” Lacy said. He will serve as CEO and president of the new company.

Meredith Media General will be incorporated in Virginia, but have corporate offices in both Richmond, Va., and Des Moines.

It’s an interesting compromise. With the CEO of the combined company already located in Des Moines, it’s unsurprising that he will run things from here, everything else being equal.

Yet not everything is equal. Des Moines is an expensive place tax-wise to run a corporate headquarters, according to the Tax Foundation’s Location Matters report. Iowa is the 4th most expensive state in which to locate a corporate headquarters, while Virginia is the 12th cheapest. 20150901-1

Fortunately for Des Moines, non-tax factors apparently outweighed the tax issues. These might include the in-place infrastructure for Meredith’s publishing arm, including Better Homes and Gardens and Martha Stewart Living. Still, those 900 Des Moines Meredith jobs might be more secure with a better tax environment. Quick and Dirty Iowa Tax Reform Plan, anyone?


Tony Nitti, Child’s Unauthorized Incorporation Of Father’s Business Proves Costly In Tax Court. “Raising kids comes with some well-known hazards: sleepless nights, spit-up stained clothes, and of course, the occasional flailing elbow to the genitalia. What you probably don’t anticipate upon the miracle of childbirth, however, is that one day your kid will take it upon himself to incorporate your business via the internet, costing you tens of thousands in tax deductions.”

Robert D. Flach, THE NATP TAX FORUM AND EXPO IN PHILADELPHIA – PART I. “The one thing that is missing from the NATP Tax Forum offering is the IRS perspective.”

Kay Bell, Tax scam callers now spoofing telephone numbers

TaxGrrrl, IRS To Refuse Checks Greater Than $100 Million Beginning In 2016


Scott Greenberg, The Carried Interest Debate is Mostly Overblown (Tax Policy Blog). Mostly? Almost entirely.

TaxProf, The IRS Scandal, Day 854

Career Corner. 5 Ways Accountants Can Protect Themselves from the Accountapocalypse (Chris Hooper, Going Concern)




Who knew being a Chiropractor could be so exciting? James Thurber created the character Walter Mitty, “… a meek, mild man with a vivid fantasy life: in a few dozen paragraphs he imagines himself a wartime pilot, an emergency-room surgeon, and a devil-may-care killer.”

A Minnesota chiropractor, a Mr. Laudon, seems to have reprised the Mitty role on his tax return. If his Tax Court testimony is to believed, chiropractic practice can be pretty exciting. From the Tax Court:

He said that his patients often called him a psychiatrist, chauffeur, physician, peace officer, or even a pheasant hunter.2 Some of Laudon’s stated reasons for making these trips strain credibility: for example, driving to a “schizophrenic” patient who was — on more than one occasion — “running scared of demons” down a rural Minnesota highway, or driving to a patient’s home in a Minneapolis suburb — expensing 261 miles — because he had received a call from police that she had overdosed on OxyContin prescribed by her physician. Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform.

Laudon contends that the Commissioner failed to classify certain deposits as nontaxable, including insurance payments for damage to several vehicles, one of which was involved in a “high speed police chase” with a man “high on meth and cocaine.”

IMG_1583Note that footnote 2, we’ll get to that in a minute. I never knew that a chiropractor could have such an exciting life. Law enforcement, mental health, high-speed chases — even exorcism, it seems.  Is there anything he couldn’t do? Well, back to footnote 2:

But not a ghostbuster. The Commissioner rhetorically asserted that some of Laudon’s trips might have made more sense if he was claiming to be a ghostbuster. Laudon then disclaimed any employment as a ghostbuster. In his reply brief the Commissioner conceded that Laudon was not “employed or under contract to perform work as a ghostbuster during the tax years at issue in this case.” We therefore need make no finding on the existence of a market for “supernatural elimination” in west-central Minnesota. See “Ghostbusters” (Columbia Pictures 1984).

In case you couldn’t tell, this is a Judge Holmes opinion.

Walter Mitty’s dreams didn’t go well, as his fantasy life had him in front of a fantasy firing squad. Things went badly for our chiropractor too. The court found both his documentation and his credibility lacking, including this about his mileage logs:

Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform. Even his testimony about multiple entries in the logs where he wrote “DUI” was not credible: He claimed that these were not references to being stopped by police while under the influence, or driving while his license was suspended, but instead were his misspellings of a patient named “Dewey” — a supposed patient of his. He testified that he took one business trip to pick up a patient left stranded due to a domestic dispute with his girlfriend. And he even testified about trips he made to test his patients’ urine:

    Absolutely we do * * * [test urine]. It’s part of the — I believe it’s Federal, you know, that they have — we have to abide by that. It’s specific gravity. You’re basically, looking for sugar, let alone height, weight, blood pressure. Make sure they’re not drunk, doing illegal drugs.

We find Laudon not credible in his testimony regarding his business mileage, and this finding affects our views of his testimony’s credibility on every other issue in the case.

The taxpayer reported taxable losses from 2007-2009 ranging from $60,000 to $84,000. That alone is a challenge to credibility. The IRS added $346,000 to his income for the three years, and the Tax Court upheld the IRS with only minor changes. Among the disallowed expenses were “a Microsoft Xbox 360, Nintendo Wii, and numerous pieces of hair-salon equipment.” So, a barber, too.

The Moral? There might be more to that mild-mannered chiropractor than you imagined. But if there is, he needs to keep good records when the IRS comes calling.

Cite: Laudon, T.C. Summ. Op. 2015-54

Russ Fox is also on the case: Ghost Hunter, Pheasant Hunter, or Deduction Hunter: No Matter, He Loses at Tax Court




Tax Roundup, 9/8/15: One Week to the 15th. And: First-world tax payment problems.

Tuesday, September 8th, 2015 by Joe Kristan

20150803-1September 15 is one week away. If you have extended partnership, corporation or trust returns, time is running short. There are many reasons to file on time:

  • Tax elections made on a late return, including automatic accounting method changes, may not count. With all of the “repair regulation” method changes this year, that could be a big deal.
  • If you owe money, late filing turns a 1/2% per month late-payment penalty into a 5% per month (up to 25%) late filing penalty.
  • If you have a pass-through entity, late-filing triggers a $195 per K-1 per month penalty.

Remember to e-file, or to document timely paper filing via Certified Mail, return receipt requested, or with a shipping bill from an authorized private delivery service.


Gretchen TegelerDART: A property tax funded amenity ( Disturbing trends on the inability of the Des Moines-area public transportation service to cover its operations through fares: does appear the service expansions are generating more ridership  However, as was noted last year, property taxes are basically covering the cost of these additional riders. Total operating revenue was 10.1 percent below projections for the year that closed June 30th, 2015; with fixed route operating revenue being 8.65% percent short of budget.

The overall trends have not changed much from a year ago. Total operating revenue is still less than it was four years ago despite substantial service expansions and improvements since that time. Basically, as it weighs future improvements for DART, the community will need to decide if it is willing to continue to raise property taxes to fund them.

The post includes this chart:


That doesn’t include the cost of the recently-completed $18 million Palace of Transit.


TaxGrrrl, Mega-Mansion Attracts Notice By Feds, Results In Criminal Charges:

According to local sources, federal agents flying in and out of Pittsburgh noticed the size and scope of a mansion belonging to Joe Nocito, Sr., and started asking questions. Those questions eventually led to a guilty plea last week from Ann E. Harris, the personal assistant, secretary and bookkeeper for Nocito, in a tax evasion scheme thought to involve as much as $250 million.

If you are a tax evader, it’s unwise to flaunt your wealth, especially to the point of attracting attention from passing aircraft. But maybe that would take the fun out of the thing.




Russ Fox, The Family that Commits Tax Evasion Together Goes to ClubFed Together. “This is yet another reminder for everyone who uses a payroll service to join EFTPS and make sure your payroll deposits are being made. Trust but verify is excellent practice in payroll.”

Kay Bell, Labor Day tax tip: Union dues might be tax deductible

Scott Greenberg, This Labor Day, How High is the Tax Burden on American Labor? (Tax Policy Blog). “In 2014, the average wage worker saw his or her labor income decrease by 31.5 percent due to federal, state, and local taxes, according to the OECD.”

Tony Nitti, Tax Geek Tuesday: Excluding Gain On Sale Of Home, And Recognizing Gain On Repossession

Jason Dinesen, From the Archives: Tax Implications of the Unlicensed Daycare Provider

Jim Maule, “Who Knows Taxes Better Than Me?” Professor Maule notes that Donald Trump’s understanding of tax law and economics might not be all that Mr. Trump thinks it is.

Peter Reilly, From Russia With Built In Losses. “There is a certain irony to the whole thing as it seems like financiers were too focused on looting the US treasury with phony shelters to see the probably larger upside of distressed Russian assets.”

Robert D. Flach, DONALD TRUMP FOR PRESIDENT IS A LOT LIKE OBAMACARE, That isn’t meant as a compliment.




Leslie Book, Tax Court Opinion Reaffirming Validity of Regulations Addressing Foreign Earned Income Exclusion Illustrates Chevron Application (Procedurally Taxing)

Robert Wood, IRS Gets Tax Data From India As Black Money Hunt Hits Americans Too

Jack Townsend, IRS and DOJ Tax Conferences Before Indictment. That doesn’t sound like fun at all.

TaxProf, The IRS Scandal, Day 849850851852


Renu Zaretsky, Deals, Dreams, and Data. Today’s TaxVox headline roundup covers the ground from A (Amazon’s sweet Illinois tax credit deal and Apple’s Irish strategy) to Zaretsky.

Cara Griffith, Why Is It So Hard to Find Information on the Sharing of Taxpayer Information? (Tax Analysts Blog). “Taxpayers are expected to blindly provide massive amounts of information to tax authorities, but are then not allowed to know the process through which one state or municipality shares information with another.”


I’ll make sure not to have this problem when I file in April:

Effective January 1, 2016, the IRS will not accept any payment greater than $99,999,999.00. Two or more checks will be required, or we recommend that the taxpayers use Fed Wire to make their payments.

If I did owe more than $100 million, I would be tempted to write one of the checks for $99,999,999.01, just to see if they are serious. Not to give away my income secrets, but I’m pretty sure my 2015 taxable income will spare me the temptation.

Cite: Announcement 2015-23.



Tax Roundup, 8/28/15: Reverse Danegeld. And: stealing a Congressional tax refund!

Friday, August 28th, 2015 by Joe Kristan
Flickr image courtesy stu_spivack under Creative Commons license

Flickr image courtesy stu_spivack under Creative Commons license

May I have another Danish? It’s a lot less fun to be a Dane than it might have been 1,000 years ago. Back then, cowering kings paid a Danegeld, a payment to keep the fearsome Danish Vikings away. From Wikipedia:

The Danegeld (/ˈdn.ɡɛld/;[1] “Danish tax”, literally “Dane tribute”) was a tax raised to pay tribute to the Viking raiders to save a land from being ravaged. 

Now the money is going the other way, it appears, because the Danish tax agency is outdoing the IRS in sending money to thieves, no questions asked. reports Danes stunned by €800mn tax fraud:

Criminals have duped Denmark’s tax authority into incorrectly refunding €830 million in the past three years, by filling out an online form for tax refunds under double taxation agreements.

The fraud was alerted to police on Wednesday (26 August) and appears to be the country’s biggest tax scam ever, with little chance for the state to recover the money.

They apparently made it easy:

With most of Danish taxes administrated online, it was easy for the fraudsters to fill in the one-page, so-called 06.020 form on the tax authority’s homepage and then claim refunds for taxes paid on stock revenues from Danish companies held by foreign companies.

The fraud would have been easily revealed if the tax authority cross-checked the ownership of shares with Danish companies.

Denmark has about 5 million people, so it’s as though the scammers had taken $185 from every Dane. That would translate to about a $55 billion theft loss in the U.S. Actual annual losses from U.S. tax refund fraud are estimated to run in the neighborhood of $5-6 billion annually.

Being better than Denmark doesn’t seem to comfort one congressman very much. Deseret News reports Congressman Jason Chaffetz is victim of tax return scam:

Chaffetz, chairman of the House Oversight Committee, is using the incident to add fuel to his call for the firing of IRS Commissioner John Koskinen.

The congressman asked President Barack Obama last month to remove Koskinen, saying he has obstructed congressional investigations into the treatment of conservative groups. Chaffetz said not only has Koskinen ignored a congressional subpoena but has shown an inability to manage a large organization and protect sensitive data.

“There has to be a better, smarter way to authenticate who somebody is. Social Security numbers are floating out there everywhere,” the congressman said.

While the refund fraud debacle started before Koskinen became IRS Commissioner, he sure hasn’t gotten it under control.


A loss in the Iowa tax policy world: Co-founder of Iowans for Tax Relief dies.

buzz20150827Friday Buzz! from Robert D. Flach, rounding up stories from the tax uses of capital losses to catching up on retirement savings.

Russ Fox, Will the Last One Out Turn the Lights Off? “Nearly four years ago my business–and the one whole employee in the Bronze Golden State (me)–left for Nevada because sometimes silver is better than gold.” And their politicians are primed to make California taxes worse still.

Annette Nellen, Sales tax on short-term rentals? Maybe! “The ease of listing your home, vacation property or a room on Airbnb or similar web platform has turned a lot of individuals into landlords.”

Paul Neiffer, Midwest Cropland Values Continue to Drop

Kay Bell, Still waiting for tax extenders. Is money the holdup?

Jim Maule, Traffic Ticket Fines Based on Income? “So my bottom line is, yes, conceptually it is an interesting idea with some valid arguments in support, and with some valid arguments in opposition. But when I turn to practical reality, a benchmark too often overlooked, the answer for me is clearly, ‘No, it’s not worth it.'”

Keith Fogg, Quiet the Title before You Sell (Procedurally Taxing)

Robert Wood, Under Obamacare, Does Everyone Drive A Cadillac?. That’s nothing. Under President Vermin Supreme, everyone gets a pony.

Me, Who should own the bricks?. My latest at, the Des Moines Business Record’s business professionals’ blog, discusses the problems of structuring ownership of business real estate.




Scott Greenberg, Here’s How Much Taxes on the Rich Rose in 2013 (Tax Policy Blog):

So, in 2012, the wealthy had higher-than-usual levels of capital gains income. Therefore, because capital gains are taxed at a lower rate, overall tax rates on high-income Americans were lower than usual in 2012. In 2013, because high-income Americans had much less income from capital gains, their effective tax rates rose significantly.

But some people, including those in the White House now, never beleive the rates are high enough.


Howard Gleckman, CBO Sees a Big Increase in Individual Income Tax Revenues Over the Next Decade. They’ll always want more.

TaxProf, The IRS Scandal, Day 841


News from the Profession. CohnReznick’s Golf Event Won’t Solve Gender Inequality (Greg Kyte, Going Concern)



Tax Roundup, 8/27/15: Iowa cheap for the factory, costly for the headquarters. And: Instant Tax indictments.

Thursday, August 27th, 2015 by Joe Kristan

All the state taxes. The Tax Foundation has issued its 2015 Location Matters report, “a comparative analysis of state tax costs on business.” It provides a summary of the costs of operating different kinds of business, state by state, with wonderful charts like this one for Iowa:

Source: The Tax Foundation

Source: The Tax Foundation

This chart seems to show that Iowa is relatively easy on manufacturing, but a very expensive place for a service business or a distribution center — with an effective state and local rate of around 40% for distribution facilities. It also shows that the corporation income tax really only clobbers retailers and corporate headquarters.

The charts really get interesting when you compare states. Let’s turn to our neighbors in South Dakota:


Source: The Tax Foundation

While most industries fare much better in South Dakota than in Iowa, capital-intensive manufacturers — especially new ones — do a little worse. This is because South Dakota has a higher sales tax, and, presumably, because of the presence of Iowa’s tax incentives for new manufacturers. Once you settle in, there is little difference.

Here’s what the report says about Iowa (my emphasis):

Despite having the highest top corporate income tax rate in the nation at 12.0 percent, Iowa’s mature capital-intensive manufacturing firm experiences the lowest effective tax burden in the nation at 3.9 percent, due in large part to Iowa’s single sales factor apportionment formula and the lack of a throwback rule, which have the effect of exempting nearly all of a firm’s income from in-state taxation. The operation also experiences a relatively low property tax burden due to the lack of property taxes on equipment and inventory.

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 offers a 50 percent deduction for federal income taxes paid, which helps mitigate the burden of the state’s high corporate and individual income taxes but is also responsible for those high rates.

In addition to its favorable apportionment factors for businesses selling goods out of state, Iowa’s benefits-based sourcing rules work to the advantage of Iowa-based firms selling services out of state. However, effective property tax rates can be exceedingly high for some firms—nearly double the national average for mature distribution centers, for instance—greatly increasing overall tax costs. Qualifying new firms (the manufacturing operations and the distribution center) receive a full abatement of the property tax on improvements for three years, though the abatement does not cover taxes on the value of the land itself.

Manufacturing machinery and research and development (R&D) equipment are exempt from the state sales tax, and the R&D facility receives other incentives as well. Iowa also offers generous investment and job creation tax incentives to new firms, though due to the state’s high tax rates, most new firms continue to experience above-average tax burdens.

This offers some lessons for Iowa’s ongoing tax reform debate:

– The Iowa Corporation Income Tax, where it isn’t futile, is a job killer, making it very expensive to locate a corporate headquarters here.

– Iowa’s vaunted tax incentives benefit the lucky and the well connected, while stifling start ups: “most new firms continue to experience above-average tax burdens.”

– Despite the recently enacted property tax reforms, Iowa’s real estate taxes still are a big cost for Iowa businesses.

The full report can be found here.


Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan




Instant tax unhappinessThe tax prep franchise outfit Instant Tax Service had a colorful history before it was ordered to close by a federal judge. It was notorious for “paystub” returns, prepared to claim refunds for a mostly low-income clientele before they got their W-2s. That’s something preparers aren’t supposed to do.

Yesterday things got worse for the owners of Instant Tax Service with an indictment on tax charges. A Department of Justice Press Release lists some of the allegations (my emphasis):

From about January 2004 through November 2012, Ogbazion and Wade executed a scheme to obstruct the Internal Revenue Service (IRS), wherein numerous ITS franchises filed false federal income tax returns without valid Forms W-2 and without the permission of their taxpayer clients.  The false returns included false and inflated sole proprietorship Schedule C income in an attempt to increase the Earned Income Tax Credit.  Over the course of several years, Ogbazion also instructed an ITS employee to electronically file large volumes of unsigned tax returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations.  In an attempt to obstruct IRS civil compliance audits, ITS maintained and filed false documents with the IRS, including fabricated Forms W-2 created by ITS employees using tax preparation software, and forged client signatures on various false IRS forms.

Earned income tax credit skeptics are often scolded that the 25% rate of improper payments isn’t all due to fraud; it’s because taxes are hard and all. Taxes are hard, but if there isn’t massive fraud, it’s not for lack of trying. Rather than trying to run a welfare system through the tax code, we should be looking at a universal benefit along the lines proposed by Arnold Kling.


Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate., H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

H&R Block’s entire business model is premised on taxes being confusing and hard to file.

Well, that and promoting IRS preparer regulation to put competitors out of business.

Robert Wood, Trump Firing H&R Block Could Actually Help Immigrants




Jason Dinesen, Things a Business Owner Needs to Know Before Hiring Employees


Tony Nitti, 2013 Tax Changes Raised The Tax Bill On The Wealthiest 2 Percent By $60 Billion. “Whether an additional $60 billion in revenue is enough to satisfy the current administration remains to be seen.” No, we already know it won’t.

TaxProf, The IRS Scandal, Day 840. More about Toby Miles. Meanwhile, Commissioner Koskinen dismisses the revelations of Lois Lerner’s canine email address under the “old news” ploy, and tells Tax Analysts ($link) that even though she hates Republicans and Tea Partiers, Lerner’s team was fair and square in dealing with their exemption applications.

Kay Bell, Lois Lerner used her dog’s email to conduct IRS business


Joseph Thorndike, When it Comes to Taxes, Americans Are of Two Minds – or Three, or Five or Eight. “While trying to make sense of Donald Trump’s statements on tax policy, I was struck by their disparate quality; to call them random is to exaggerate their coherence.”