There was a little disruption around the Tax Update neighborhood over the weekend. The 115 year-old Younkers Building, kitty-corner from our quarters in The Financial Center, burned over the weekend. It was being renovated into apartments and shops when it caught fire early Saturday morning. Here’s how it looked yesterday from one of our conference rooms:
While our neighbors in Hub Tower and the EMC Building are closed today, Roth & Company is open for business. If you need to visit us, you have to enter on the Mulberry Street side; the Walnut side is closed by police order. You can still reach the parking garage, but you have to come from Mulberry and turn north onto the little stub of Seventh Street left open to allow garage access (it’s normally one-way, Southbound, but it’s one-way northbound until they can re-open Seventh Street, and that doesn’t seem likely for awhile). We are cut off from the skywalk system, for now. (Update, 8:54: we have Skywalks! Both to Hub Tower and the EMC building).
Other Tax Update coverage:
And some sound advice from Brian Gongol: “Make sure you have an offsite, offline backup of your critical work and personal files. You never know when a catastrophe will strike.”
Roger McEowen, U.S. Tax Court Deals Blow to IRS on Application of Passive Loss Rules to Trusts: “The case represents a complete rejection of the IRS position that trust aren’t “individuals” for passive loss purposes and the notion that only the trustee acting in the capacity of trustee can satisfy the test.”
Individuals who reached age 70 and a half years old in 2013 are required to begin withdrawing funds from their tax-deferred retirement plans no later than April 1, 2014. This applies to traditional individual retirement accounts (IRAs) and employer-based retirement accounts, such as a section 401(k), 403(b) or 457 plan.
You can get hit with a 50% excise tax on the required distribution amount if you fail to take it.
Jana Luttenegger, FICA Taxes on Severance Payments (Davis Brown Tax Law Blog)
Kay Bell, Selfies used as tax claim documentation, audit defense. Not a bad idea.
Arden Dale, A New Reason to Hoard Assets (WSJ):
In particular, taxpayers are taking advantage of a tax break known as the “step-up in basis,” in which the cost basis of a house, stock or other asset is determined by its current market price rather than when the deceased person acquired it.
Heirs get the step-up when they inherit the asset, and it can save them a lot in capital-gains taxes when they sell.
Gift recipients get only the donor’s basis, while the basis of inherited property is the value at the date of death. Now that couples can die with over $10 million without incurring estate tax, it often makes tax sense to hold low-basis assets until death so heirs can dispose of them without incurring capital gains taxes.
Greg Mankiw, The Growth of Pass-Through Entities:
Over the past few decades, there has been an amazing shift in how businesses are taxed. See the figure below, which is from CBO. Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns. (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)
This phenomenon complicates the interpretation of tax return data. For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don’t know how much. If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.
This is clearly true. While I can’t quantify the effect on inequality statistics, it has to make a difference, now that a majority of business income is reported on 1040s:
In 1980, corporate returns reported about 2/3 of all business income; by 2010, the Form 1120-share of business income was down to about 43%.
Lyman Stone, Maryland Threatens to Confiscate “House of Cards” Set (Tax Policy Blog). “High taxes and big incentives don’t seem to be working very well in Maryland right now.” They should follow Iowa’s example and limit filmmaker subsidies to three hots and a cot.
Megan McArdle, The IRS Takes a Bite Out of Bitcoin
Annette Nellen, Guidance on taxation of virtual currency
TaxProf, The IRS Scandal, Day 326
Tax Justice Blog, Grover Norquist cares a lot about Tennessee taxes. You should too.
Renu Zaretsky, Tax Reform, Tax Expenditures, and Kevin Spacey (TaxVox). A roundup of tax headlines.
I oppose regulation of tax preparers. But yet, I will tout my own licensing at the expense of an unlicensed preparer if the situation presents itself.
But nobody makes Jason do this, and if somebody wants to pay less for an unlicensed preparer, Jason isn’t preventing that. If he replaced “but yet, I will” with “I prefer to,” it would be correct.
News from the Profession. Per Criminal, PwC is Preferred Audit Firm for Criminals (Going Concern)