Posts Tagged ‘Cara Griffith’

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

Thursday, March 10th, 2016 by Joe Kristan

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

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

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

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

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

Iowa is not expected to couple with federal bonus depreciation.

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

Rod Boshart reports at TheGazette.com:

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

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

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

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

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

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

I will update this post today as events warrant.

 

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

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

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

 

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

 

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

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

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

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 1036

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

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

 

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

 

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Tax Roundup, 1/19/16: Thieves holiday! Filing season underway today.

Tuesday, January 19th, 2016 by Joe Kristan

1040 corner 2015It begins. The official start of filing season is today. That means the IRS will begin processing electronic return filings today. That doesn’t mean all that much.

Well, it means something to the people most eager to file 2015 1040s: the identity thieves. They don’t have to wait on real W-2s and other information returns, most of which don’t have to be provided to recipients before February 1. The thieves like to file right away, before the real taxpayers e-file and block them.

It means something to earned income tax credit fraudsters. Claiming a little qualifying income on a phony schedule C is standard operating practice for EITC scams, and you can file in a hurry when you just are making it up.

For most other taxpayers, the opening of filing season is a non-event. They are still waiting on the W-2s, their 1098s for their home mortgage interest, and their 1099s for interest and dividends. Especially dividends, as the big brokerage houses routinely get extensions for issuing their 1099s, and then issue amended ones anyway. And K-1s for partnerships and S corporations often aren’t even ready by the filing deadline.

The information return wait will be longer for many of us this year. This is the first year many businesses are required to issue 1095-Bs and 1095-Cs to report health care coverage to their employees under the Affordable Care Act. These forms are supposed to enable employees to determine their coverage credits and penalties. When it became clear that many employers would be unable to meet the deadline for completing these complex forms, the IRS rolled back their deadlines. The IRS says employees can file their 1040s using “other information” to compute their ACA taxes and credits, but we don’t know yet if people will try.

Don’t be hasty. It is unwise to try to file returns before you have all of your information returns. Especially don’t try to file using your last pay stub instead of your W-2. You’ll probably get it wrong. Worse, if your employer is participating in a new IRS program where W-2s get a unique anti-theft ID number, you’ll delay your refund.

This convicted ID thief likely was a first-day filer.

This convicted ID thief likely was a first-day filer.

It’s better to extend than amend. Whatever benefit you get from filing your return a little sooner, it is lost if you have to file an amended return for a corrected 1099, or for one you didn’t expect that showed up late.

You can file a FAFSA using estimated amounts. One of the biggest causes for taxpayer impatience is the need for tax return information to complete their “Free Application for Federal Student Aid,” which asks for numbers off the 1040. But the FAFSA allows you to use estimates if you haven’t filed your 1040. If you are awaiting a K-1, you’re better off filing your FAFSA based on an estimate than hounding the tax preparer to file a 1040 with incomplete information.

The system should change. Allowing e-filing before any of the information return deadlines almost seems to be a special IRS fraud-filing feature. Given the identity theft epidemic, it’s irresponsible for IRS to be sending billions to grifters before they can cross check returns against third-party information. The third-party filings should have unique identifiers for taxpayers to use to show that they aren’t ID thieves.

The culture should change. Everybody gets excited about a big refund. That just means you gave the government a big interest free loan. Withholding tables should be modified to not generate big refunds, to reduce the pressure for rapid refunds. Penalty thresholds for underpayment should be lowered so that taxpayers accidentally underwithheld aren’t clobbered. People shouldn’t think it’s good to let the Leviathan have their extra cash.

Related: 

TaxGrrrl, Another State Puts Brakes On Tax Refunds, Citing Concerns About Identity Theft;

Accounting Today, IRS Launches Free File for New Season.

Russ Fox, Same as Last Year Doesn’t Work. “Robert Flach has a post today where he notes the information that’s needed to prepare a tax return. I don’t have much to add to his excellent list (though I do need to see your W-2Gs, too).”

 

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Gazette.comGeorgia man linked to 2014 UNI data breach charged with tax fraud:

A Georgia man linked to a University of Northern Iowa data breach in 2014 has been charged with tax fraud in federal court.

Bernard Ogie Oretekor, 45, also known as Emmanuel Libs, was charged last week with theft of government property and aggravated identity theft.

How did a Georgia man from Nigeria get past the IRS? It apparently isn’t too hard:

The California indictment shows Oretekor and his co-defendant sent victim’s “phishing” emails to capture their usernames and account passwords. When victims clicked on the link in the phishing emails it sent them to a fraudulent website and when they logged in their usernames and passwords were captured, which allowed the defendants to access the victims’ accounts.

Be smart. I’ve never seen a real email that requires you to “update your information” for your bank, credit card, etc. Don’t click on links from emails you aren’t expecting, and don’t provide information to them. If you really need to check your information, close the email and go to the actual bank or vendor website directly.

 

Robert D. Flach has a wintry Tuesday Buzz! Bartering, bad taxpayer service, and much more.

William Perez, Can Two Taxpayers Claim Head of Household Status at the Same Address?

Robert Wood, Goldman Sachs’ Historic $5 Billion Settlement Has Silver Lining: Tax Deduction

Kay Bell, Lotteries aren’t budget bonanzas for states

Congratulations to a longtime Iowa Business Blogger. 2016 Brings 10th Anniversary of Rush on Business

 

TaxProf, The IRS Scandal, Day 985

Cara Griffith, Why the Minnesota Tax Court Is Making Me Paranoid:

Here’s my concern: In doing regular research, staff at Tax Analysts realized that the Minnesota Tax Court hadn’t published any new opinions to its website in several months. That is odd, so an inquiry was sent to the court to ask if the location of published opinions had changed or if the court had stopped publishing opinions.

The court responded that its website was under construction and that recent tax court decisions could be found on Westlaw. Eventually it added that a paralegal would attend to the request – next week.

That’s sad and lame. And, as Ms. Griffith points out, Westlaw is expensive. Here in Iowa, the Department of Revenue hasn’t put new rulings online since November 5, and now their new ruling website appears to have blown up. Here’s how it looks this morning:

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Oops.

 

Renu Zaretsky, All’s fair in debates and taxes…. Today’s TaxVox headline roundup covers how taxpayers will feel the Bern, the attempt to subvert Colorado’s taxpayer protections, and much more.

 

News from the Profession. In 2016, The War Rages On for All the Management Accountants (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/14/16: Branstad budget omits $500,000 Section 179 deduction for Iowa; no 2015 conformity.

Thursday, January 14th, 2016 by Joe Kristan

IMG_1291Priorities. Governor Branstad yesterday told a business group that he is leaving Section 179 conformity out of the new Iowa state budget. That means Iowans will be unable to claim the $500,000 maximum Section 179 deduction for 2015 returns, assuming the legislature doesn’t override this.

The Governor dropped this little bomb after touting a new $15 million incentive tax credit for “bio-renewable chemical production” to members of the Iowa Association of Business and Industry. He said the new credit will be “revenue neutral,” taking its funding from existing incentive credit programs. (Note: I was there, so this is all firsthand). He said that there just isn’t room for it in the budget.

The Governor has inadvertently highlighted the priorities of a tax policy dedicated to directing economic activity using tax credits. My my count, the Governor budgets $277.3 million in fiscal year 2017 to steer economic activity towards favored activities via tax credits:

Iowa credits fy 2017

Presumably the new bio-renewables credit is buried in here somewhere.

By definition, these credits go to a few lucky taxpayers. The largest one, the refundable research credit, goes overwhelmingly to a few big companies — and mostly as cash grants. The Department of Revenue’s calendar 2014 research credit report showed that $42.1 million of the $56.9 million in credits claimed went to 16 taxpayers. About 2/3 of the 2014 credits were “refunds,” meaning that the credit exceeded the taxpayer’s liability for the year, so the state issued a check for the difference.

20120906-1The Section 179 deduction, by contrast, is available to any non-rental business that buys fixed assets and has taxable income. It requires no negotiation with the Department of Economic Development. It’s available regardless of whether your business is bio-chemical, renewable fuels, or whatever else is the economic development flavor of the month. It’s simple to administer – you just use the number you claim on your federal return. But it has one dreadful flaw: it provides no opportunities for politicians to issue press releases or attend ribbon cuttings.

While I don’t have exact numbers for the tax revenue cost to the state for FY 2017, the Legislative Service Bureau estimated an $88.5 million revenue loss in fiscal year 2015 from the last Section 179 conformity bill.

Of course, all Section 179 revenue losses are a matter of timing. By denying Section 179 deductions, the state has a revenue gain in the first year of the asset’s life, but gives it all back through depreciation over the rest of the asset life. By contrast, tax credits are forever. They never turn around.

There is so much disheartening about this development. Failure to conform on the $500,000 Section 179 limit — after doing so for a number of years — suddenly increases the Iowa tax for thousands of Iowans who purchased equipment in 2015. Because Congress made the Section 179 deduction permanent, it signals that Iowa will permanently de-couple and use its own computation — an inherently bad policy. It requires Iowans to maintain a separate Iowa fixed asset schedule for assets that would otherwise have been written off. And, if the legislature tries to reverse the Governor’s decision, it leaves Iowans uncertain of their 2015 tax law until well into the filing season.

But perhaps most disheartening is the stark way that it shows how Iowa’s tax system, with its high rates and special favors for the well-connected, mistreats the regular taxpayers who are just going about their business, hiring people, and paying their taxes. Lots of taxes.

Related: Hide the spoons, hold your wallets. The General Assembly is back.

 

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Robert D. Flach reports that a certain national tax prep outfit has A NEW GIMMICK.

Robert Wood, Powerball Losers Make Lemonade By Selling Losing Lottery Tickets

Paul Neiffer, Planted Vines and Trees Qualify for Bonus Depreciation

Kay Bell, Final 2015 estimated tax payment is due Friday, Jan. 15

 

TaxProf, The IRS Scandal, Day 980

Cara Griffith, Waiting on the Court to Figure Out How to Tax Remote Sales (Tax Analysts Blog)

Jared Walczak, What Percentage of Lottery Winnings Would Be Withheld in Your State?

Howard Gleckman, Clinton and Sanders Face Off Over Who Should Pay for New Social Programs (TaxVox).

 

Career Corner. An Introvert’s Guide to Surviving Team Lunches (Leona May, Going Concern)

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Tax Roundup, 10/30/15: IRS: we didn’t overcharge you, and we won’t do it again. And: Beggars’ Night!

Friday, October 30th, 2015 by Joe Kristan

The IRS yesterday issued rules reducing the fees charged for giving tax preparers for Preparer Tax Identification Numbers, or PTINs. The rules reduce the annual fee from $50 to $33, but raise the fee charged by a third-party vendor that collects the fee from $13 ($14.25 for first time applications) to $17 for all applications.

It’s an interesting move, considering that the IRS is fighting a lawsuit arguing that the IRS has been overcharging preparers for the numbers, which are required for preparers signing tax returns. The IRS claims that the reduction reflects reduced costs for the program.

Dan Alban of the Institute for Justice, the public interest law firm that led the successful fight against the IRS preparer regulations, says that it is an admission that the IRS has been overcharging, and that the IRS cost reduction argument doesn’t hold up. From his Twitter feed:

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The IRS has never been straight with us about either preparer regulation — really, a power grab and a move to assist the big tax prep franchise outfits — or the PTIN fee. I look forward to seeing how the judge hearing the PTIN lawsuit reacts to this news.

Related: PTIN User Fee Will Be Lowered (Sally Schreiber, The Tax Adviser).

 

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I’m back from the Santa Monica TIAG conference. TIAG is an international alliance of independent accounting firms that Roth & Company joined last year. There were great sessions on technical and practice management topics, but the best part is to meet and get to know lawyers and accountants around the world. It’s nice to know people in other countries to call when our clients need professional services aboad, and it’s fun to compare notes with our offshore counterparts.

 

Friday – Buzz Day! Robert D. Flach rounds up interesting tax stuff from all over.

William Perez talks about Itemized Tax Deductions..

Annette Nellen, Poor recordkeeping – complexity or too busy. “Every year there are several tax cases where taxpayers think they’ll get a better result in court despite poor records. They almost always lose.”

Kay Bell, Obama and House reach budget, debt ceiling deal

Jack Townsend, Movie Review of Film on Corporate Offshoring

Jim Maule,Where Do the Poor and Middle Class Line Up for This Tax Break Parade? Properly decrying corporate welfare, the good Professor asks and answers:

So could it be time for “if you can’t beat them, join them”? Not for those of us who lack the resources to sign up for the parade, or perhaps what should be called the corporate gravy train.

What the good Professor hasn’t realized is that this is exactly what we can expect when we give the government more and more authority to run and regulate things. Those with the means and the connections win.

 

20151030-3TaxProf, The IRS Scandal, Day 903Day 904. This from the Day 904 link sounds about right to me regarding the idea of impeaching Commissioner Koskinen:

The evidence against Koskinen will be convincing, but Democrats and the media will claim that because it all involves his defiance of congressional directives – and in their opinion Congress shouldn’t have been investigating in the first place – he really didn’t do anything wrong. They used the same argument in defense of Bill Clinton. Sure, he lied under oath and obstructed justice, but there never should have been an investigation in the first place.

I think it’s a poor use of limited time and political capital.

Peter Reilly, IRS Commissioner Koskinen Impeachment Trial Would Be Historic. A long but worthwhile discussion of the history and process of impeachment, and its prospects.

Keith Fogg, Notification of IRS as a Junior Creditor (Procedurally Taxing). “Two recent lien decisions demonstrate the power of the federal tax lien and the specific steps that parties must take when trying to address that lien.”

Robert Wood, Last Chance To Report Offshore Accounts To IRS, Penalties Climb To 50%

TaxGrrrl. 5 Things You Need To Know About Paul Ryan’s Rise To House Speaker & Tax Reform.

Jeremy Scott, Paul Ryan Punts on Tax Reform (Tax Analysts Blog). “Paul Ryan is moving on to become speaker, and tax reform might be in a worse spot than it was when Dave Camp’s H.R. 1 went over like a lead balloon.”

Cara Griffith, Why Do We Still Have Unpublished Opinions? (Tax Analysts Blog). “Now unpublished opinions readily appear in online databases. As a result, unpublished opinions are not unpublished in the sense that no one has access to them, but are simply not published in an official reporter and hold less or no precedential value with courts.”

 

Greg Mankiw, Keep the Cadillac Tax. Better idea — scrap the ACA altogether, give a capped health insurance tax credit for individuals, eliminate interstate barriers to health insurance sales, and let nature take its course.

Career Corner, It’s Time for the Accounting Profession to Get Serious About Mental Illness (Leona May, Going Concern). They aren’t the same thing?

 

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Beggars’ Night! Des Moines and its suburbs don’t trick-or-treat on Halloween. Instead our little goblins go forth on October 30 – “Beggars’ Night.” An explanation: What’s up with Beggars’ Night?:

An article in The Des Moines Register on October 28, 1997, says “Blame World War II.” as well as rowdy youths in the early history of Des Moines. According to this article and other sources, Beggars’ Night was created in 1938 by the Des Moines Playground Commission (later the Parks and Recreation Department) because Halloween night had become a night of vandalism and destructive “tricks” such as setting fires and breaking windows.

Kathryn Krieg, director of recreation for the commission, in 1938 began a campaign to encourage less violent forms of Halloween fun. She declared Beggars’ Night to be October 30 in Des Moines, and further required that children would only receive their treat after earning it by performing a trick or telling a riddle. This too is the opposite of the rest of the country, which traditionally provides the treat in order to avoid being tricked!

So if you need a joke for tonight, you can always rely on the classics, like “What’s the pirate’s favorite restaurant? Arrghhhh-bys!”

 

 

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Tax Roundup, 10/8/15: Your tax preparer has to protect your confidential info. IRS, not so much. And more!

Thursday, October 8th, 2015 by Joe Kristan

TIGTAIRS Basically Plastering Your Social Security Numbers on Billboards Now, Because Why Not? (Peter Suderman, Reason.com):

The IRS continues to recklessly print Social Security Numbers (SSNs) on hundreds of millions of notices and letters, despite warnings that this practice dangerously exposes sensitive personal information, and years of pressure to reduce the use of SSNs on documentation.

In fact, the tax agency doesn’t even have procedures in place to fully track its use of SSNs, according to a report by the Treasury Inspector General for Tax Administration (TIGTA), a tax agency watchdog.

This is a problem because of the identity theft epidemic. Every document from IRS sitting untended in your mailbox that has your Social Security number is an ID theft vulnerability. Private parties have changed their practices to protect ID numbers. One example is the adoption of secure password-protected web portals to send anything with an SSN. Another is the decline of the practice of identifying tax returns on the outside of mailing envelopes. The increased risk of attracting an ID thief outweighs the risk a taxpayer might not bother opening an unmarked envelope.

Yet TIGTA says IRS is behind the curve. From their press release:

TIGTA found that as of January 2015, the IRS estimates that it has removed SSNs from 58 (2 percent) of the 2,749 types of letters and 93 (48 percent) of the 195 types of notices it issues.

“A person’s Social Security Number is the most valuable piece of personal data identity thieves can obtain.” said J. Russell George, Treasury Inspector General for Tax Administration. “The fact that the IRS does not have processes and procedures to accurately identify all correspondence that contain Social Security Numbers remains a concern.”

Businesses have to be careful with taxpayer information because we could lose business, or be sued, or worse. The IRS doesn’t have that motivation, and it shows.

 

20151008 tax incidenceTaxProf, Who Benefits From State Corporate Tax Cuts? Firm Owners (40%), Workers (35%), Landowners (25%). The Prof links to a study of “tax incidence,” or who “really” bears the burden of the corporation tax. While politicians and activists like to talk about corporations as tax-avoiding fat cats, it’s a fact that corporations ultimately don’t pay any tax; it comes out of the pocket of an actual human somewhere. Economists will endlessly debate whether its owners, customers or workers who bear the burden. Whoever it is, it’s not a free lunch for the tax man.

 

Russ Fox, Tax Relief for South Carolinians. “Note that the relief is automatic; impacted taxpayers need not do anything.”

Robert Wood, Skimming Cash — Even From Yourself — Can Mean Prison For Tax Fraud:

Prosecutors said the Horners owned Topcat Towing and Recovery Inc., a towing business in Georgia. Between 2005 and 2008, they skimmed $1.5 million in cash from the businesses, depositing into their personal bank account without disclosing the income on their corporate or personal tax returns filed with the IRS. They tried to conceal their cash deposits from the government by “structuring,” splitting up cash deposits that exceed $10,000.

Unwise. Banks have great incentive to report “structuring,” and they do.

 

Jason Dinesen, Glossary: Audit (Of Financials)

Leslie Book, Senate Again Takes Aim at Improper Payments in Federal Programs. The government wants to use the IRS inability to stop issuing fraudulent payments as an excuse to regulate preparers.

Jack Townsend, U.S. Senators on Senate Finance Committee Probe the Tax Aspects of the Volkswagen Debacle. “As often in tax-related and other potential criminal settings, the prosecutor has a panoply of provisions to choose from.”

Kay Bell, NHL players’ goal: Play in low or no income tax states

 

Jared Walczak, How Much Does Your State Collect in Taxes Per Capita? (Tax Policy Blog).

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Iowa is #20.

 

Cara Griffith, Why Is It So Hard to Fund Schools? (Tax Analysts Blog). This article actually highlights the dangers when judges meddle in the appropriation process.

Renu Zaretsky, Questions, Subsidies, Deductions, and Profits. Today’s TaxVox headline roundup has stories on whether Volkswagen’s emission test rigging got them clean air tax credits, questions on the need to subsidize wind turbines, and much more.

 

TaxProf, The IRS Scandal, Day 882

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Conclusion. “I fear that the series which serves as a great resource is in danger of having its quality diluted.” I worry that the administration will succeed in running out the clock on the outrageous IRS misconduct.

Tax Justice Blog, New CTJ Report: 358 or 72% of Fortune 500 Companies Used Tax Havens in 2014, Alternate headline: 72% of Fortune 500 Companies try not to squander shareholder value.

 

Finally: Arrieta, Cubs ace Wild Card test vs. Bucs

Not tax related? Oops.

 

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Tax Roundup, 10/2/15: What your Health Savings Account can do that your IRA can’t. And: They don’t stay bought.

Friday, October 2nd, 2015 by Joe Kristan

20150803-1Your IRA isn’t an HSA. Last week I was asked whether there was a penalty for taking money from an Individual Retirement Account to pay for surgery. I said there was no penalty, but that it was taxable income. The person who asked was surprised and confused, thinking that penalty and taxation are the same thing. They aren’t.

The Tax Court faced a similar question yesterday. A 47 year-old taxpayer took money from her IRA to pay medical expenses for her non-dependent son. The IRS noticed, presumably via a computer match, and assessed her a 10% early withdrawal penalty, as well as regular income tax. Judge Guy explains the issue:

Generally, if a taxpayer receives a distribution from a qualified retirement plan before attaining age 59-1/2, section 72(t) imposes an additional tax equal to 10% of the portion of the distribution which is includible in the taxpayer’s gross income. Sec. 72(t)(1) and (2). The additional tax is intended to discourage taxpayers from taking premature distributions from retirement plans — actions that frustrate public policy encouraging saving for retirement…

Section 72(t)(2)(B) provides an exception to the imposition of additional tax to the extent that retirement plan distributions “do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).” Section 213 in turn allows as a deduction “the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent…

The “dependent” part was bad news:

The record reflects that petitioner did not claim her son as a dependent for the year in issue and fails to demonstrate that her son met the definition of a dependent provided in section 152. Consequently, we conclude that petitioner is not eligible for the exception under section 72(t)(2)(B) — even assuming that she used the funds in question to pay her son’s medical expenses.

But even if she did qualify to avoid the 10% tax (she didn’t), the withdrawal would still have been subject to income tax.

Health Savings Accounts look a lot like IRAs — they allow tax-free build-up, and they can be tapped penalty free like IRAs for retirement income. But HSA funds withdrawn for medical expenses are tax-free — not just penalty free. As with the IRA, though, the medical expenses have to be the taxpayers, the spouse’s, or a dependent’s. This extra flexibility makes HSAs a better savings vehicle than an IRA for those who qualify.

Not everybody qualifies. You need a “high deductible” health insurance policy to qualify for an HSA. For 2015 a “high deductible plan” is one with an annual deductible of at least $1,300 for single coverage and $2,600 for family coverage.  Annual out-of-pocket costs can’t exceed $6,450 for single coverage and $12,900 for family coverage. The 2015 contribution limits are $3,350 for single coverage and $6,650 for family coverage.

Unlike employer “flex-plan” arrangments, there is no “use it or lose it” feature in HSAs. You can accumulate contributions and save them for a year with large medical expenses, or for retirement. You don’t have to withdraw the funds in the same year as the medical expenses, either; if you had medical expenses in year 1, you can wait until year 2 to withdraw the amount and still have it tax-free.

Cite: Ireland, T.C. Summary Opinion 2015-60

Related Links:

IRS publication 969.

Kiplinger, FAQs about Health Savings Accounts.

 

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Maria Koklanaris, ConAgra Foods, Winner of Largest-Ever Nebraska Incentive Package, Moving to Illinois (Tax Analysts, subscriber link):

ConAgra Foods Inc., recipient of the largest tax incentive package ever awarded in Nebraska, announced October 1 that it would move its corporate headquarters from Omaha to Chicago, cutting at least 1,500 jobs in the process.

As I’ve said before, incentive tax credits are like taking your wife’s purse to the bar to buy drinks for the girls. It cheats the person who’s paying, the girls aren’t impressed, and if you leave with one, she’s not the type to be faithful.

 

It’s Friday! It’s Buzz Day for Robert D. Flach. Trumpmania figures prominently.

Jason Dinesen, How to Protect a Deceased Person’s Identity. “Thankfully, Congress has now limited access to the Death Master File, which was the cause of much of the identity theft relating to deceased people.”

Paul Neiffer, Form 1099-G Does Not Always Require Schedule F Reporting. “The key thing to remember is just because USDA or a cooperative issues a Form 1099 does not mean the income has to be fully reported on Schedule F and subject to full self-employment tax.”

Jim Maule, Taxation of Prizes, Question Three. “The question, however, also referred to the local or state sales tax. The awarding of a prize is not a sale, so the sales tax ought not apply.”

Kay Bell, Hurricane Joaquin intensifies, threatens East Coast…maybe. Maybe you should dust off your disaster recovery plan once in awhile.

Leslie Book, Restitution Based Assessment and Tax Return Preparers: An Uneasy Mix (Procedurally Taxing). On the problems the IRS has in getting restitution from crooked preparers.

Robert Wood, Marijuana Goes Native American And Tax Free

 

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David Henderson, via Don Boudreaux:

Herbert Hoover, in the midst of the Great Depression, more than doubled the top [income-tax] rate to 63 percent and increased the bottom rate by more than nine times to 4 percent.  He did this in spite of the fact that raising income tax rates during a depression lengthens the depression.  Franklin Roosevelt carried on Hoover’s policy throughout the 1930s and increased tax rates further.  By 1940, he had raised the top tax rate to 81.1 percent on incomes over $5 million.

Putting the “great” in the Great Depression.

 

Stephen Entin, Expensing: The Right Tax Treatment for All Investment Regardless of Financing Arrangements (Tax Policy Blog)

Howard Gleckman, How Investment Managers (And Maybe You) Would Benefit From Trump’s Tax Plan (TaxVox).

Cara Griffith, Idaho Legislators Shamed Into Good Behavior (Tax Analysts) Politicians, bureaucrats and cockroaches prefer darkness.

Carl Davis, Michigan Becomes the 26th State Where Online Retailers like Amazon Must Collect Sales Tax (Tax Justice Blog).

 

TaxProf, The IRS Scandal, Day 876. Lois Lerner and the Wisconsin witch hunt.

 

The Critical Question. Is Technology Making Accountants Dumb and Lazy? (Chris Hooper, Going Concern).

 

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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 (IowaBiz.com). Disturbing trends on the inability of the Des Moines-area public transportation service to cover its operations through fares:

...it 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:

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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.

 

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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.

 

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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.

 

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Tax Roundup, 8/10/15: 9th Circuit offers divorce bonus for rich homeowners. And: a cunning charity deduction plan!

Monday, August 10th, 2015 by Joe Kristan

 

CA--9 mapThe wages of sin have gone up for west-coast couples who choose to live together without benefit of clergy, and who happen to own expensive west-coast houses. The Ninth Circuit Court of Appeals has ruled that unmarried couples can deduct interest on $2.2 million in home mortgage debt on a shared residence — twice the allowance for a married couple.

The appeals court overruled a Tax Court decision involving an unmarried couple, a Mr. Voss and a Mr. Sophy. The court lays out the basic facts:

Voss and Sophy purchased the Beverly Hills home in 2002. They financed the purchase of the Beverly Hills home with a $2,240,000 mortgage, secured by the Beverly Hills property. About a year later, they refinanced the mortgage by obtaining a new loan in the amount of $2,000,000. Voss and Sophy are jointly and severally liable for the refinanced Beverly Hills mortgage, which, like the original mortgage, is secured by the Beverly Hills property. At the same time as they refinanced the Beverly Hills mortgage, Voss and Sophy also obtained a home equity line of credit of $300,000 for the Beverly Hills home. Voss and Sophy are jointly and severally liable for the home equity line of credit as well.

The total average balance of the two mortgages and the line of credit in 2006 and 2007 (the two taxable years at issue) was about $2.7 million — $2,703,568.05 in 2006 and $2,669,135.57 in 2007. 

Between the two owners, the federal tax benefit at stake for the extra deduction over two years was around $56,000, if I read the Tax Court case correctly. The Tax Court ruled against the couple, saying the tax law

…appears to set out a specific allocation of the limitation amounts that must be used by married couples filing separate tax returns, thus implying that co-owners who are not married to one another may choose to allocate the limitation amounts among themselves in some other manner, such as according to percentage of ownership.

The Ninth Circuit found otherwise:

We hold that 26 U.S.C. § 163(h)(3)’s debt limit provisions apply on a per-taxpayer basis to unmarried co-owners of a qualified residence. We infer this conclusion from the text of the statute: By expressly providing that married individuals filing separate returns are entitled to deduct interest on up to $550,000 of home debt each, Congress implied that unmarried co-owners filing separate returns are entitled to deduct interest on up to $1.1 million of home debt each.

The statute is surprisingly unclear on this. It is hard to believe that Congress wanted to give wealthy unmarried couples a special deal, but legislative incompetence is not surprising at all. I expect that the IRS will continue to enforce the $1.1 million limit outside the Ninth Circuit. Still, any cohabiting taxpayers who have lost deductions because of the limit should file protective refund claims for open years; it may eventually take a Supreme Court decision, or additional legislation, to settle the issue.

The moral? For some power couples, matrimony may have a tax cost.

This case also shows that the real beneficiaries of the home mortgage deduction tend to be the very wealthy. As the Tax Foundation explains:

Despite the claims of various industry groups that the home mortgage interest deduction is an important factor promoting broad-based home ownership, IRS data show the bulk of mortgage interest deductions are claimed by a relatively small fraction of Americans with incomes well above average. As a result, it is likely that the deduction primarily encourages larger and more expensive homes among a relatively small share of taxpayers, rather than promoting broad-based home ownership among ordinary Americans.

Better to eliminate the tax break and lower rates for everyone. I won’t hold my breath, because I think the politics are impossible despite the unwisdom of the policy. If there is a national policy argument for subsidizing the purchase of $2 million Hollywood homes for unmarried couples, it must be fabulous.

Cite: Voss, CA-9, Case No. 12-73257.

Update: Additional coverage from TaxProf (Ninth Circuit Gives Unmarried Couples Double The Mortgage Interest Deduction Available To Married Couples.) and Instaupundit (PUNISH THE BOURGEOISIE!)

 

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Robert D. Flach, THE TAX PRACTITIONERS BILL OF RIGHTS. “The National Society of Accountants (the ‘other’ NSA) has developed a ‘Tax Practitioners Bill of Rights’ in response to continued IRS budget cuts and the recent serious decline in IRS ‘customer service’.”

Mitch Maahs, Deadline Days Shuffle for Many Business Tax Returns (Davis Brown Tax Law Blog)

Russ Fox, Criminal Charges Dropped Against Roni Deutch. Ms. Deutch was one of the biggest players in the “pennies on the dollar” industry, as seen on TV! which collapsed in a pile of lawsuits, lost up-front payments, and disappointed tax debtors. “California has dropped the criminal indictments, and instead of paying $34 million she’ll be paying $2.5 million in the civil suit (per her lawyer).”

Kay Bell, Bush brothers’ barbecue and tax banter. “The only thing we Texans take more seriously than our football (high school, college and pro) and politics (equally crazy at local, state and federal levels) is our barbecue.”

Peter Reilly, Bristol Palin At Heart Of IRS Scandal – Who Knew?

TaxProf, The IRS Scandal, Day 821Day 822Day 823.

TaxGrrrl, Our Current Tax v. The Flat Tax v. The Fair Tax: What’s The Difference?

Andrew Lundeen, Six Changes Every Tax Reform Plan Should Include (Tax Policy Blog):

  1. Make the Tax Rates competitive for Businesses
  2. Move to a Territorial Tax System
  3. Correctly Define Business Income with Full Expensing
  4. Integrate the Corporate and Individual Tax Systems
  5. Create Universal Savings Accounts
  6. Repeal the Estate Tax

For my clients, 1, 3 and 4 are the big deals.

 

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Renu Zaretsky, Simple Is as Simple Does. Today’s TaxVox headline roundup talks about taxes in debates. Also: shockingly, New Jersey’s film industry is surviving the loss of the 20% production tax credit.

Cara Griffith, A Look at Information Sharing Agreements Between the IRS and States (Tax Analysts Blog)

 

Wanting a charitable deduction in the worst way. The Des Moines Register relates a state auditor report that a University of Northern Iowa clerk took cash deposits and wrote checks to the University to claim as charitable deductions or business expenses:

She allegedly told the adviser that she intended for the check to appear as if it were a donation for tax purposes, saying that she “had always done it that way,” according to the report.

In one instance, Shannon admitted to auditors that a check she had written in lieu of cash for $1,002 was from a construction business account, and a note was made on the check to indicate a business expense. Cash was split evenly between her husband and his brother as a distribution from the company.

However, the report says she did not explain why the check’s memo line indicated it was a donation.

Needless to say, that doesn’t work. The obvious problem here is that for a check over $250, you don’t get a deduction unless you get a letter from the donee saying you got nothing in exchange for the check. Here, it seems that the “donor” got $1,002 in exchange for the $1,002 “donation.” That isn’t worth much as a deduction, if my math is correct.

 

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Tax Roundup, 8/4/15: Cash-basis farmers score Tax Court win. Plus Buzz, and more!

Tuesday, August 4th, 2015 by Joe Kristan

binStrawberries. An old joke holds that the tax law has a provision that makes it illegal for farmers to pay taxes. Jokes usually express an underlying truth. The ability of most farm enterprises to deduct expenses on a cash basis is a big part of the joke. A fiscally-alert cash-basis farmer can ease the tax pain of a profitable year by buying up to a year’s worth of feed, seed and supplies on December 31, deducting the whole purchase.

The Tax Court last week upheld a broad use of cash-basis deductions by farmers in a case involving a California strawberry grower, Agro-Jal. This cash-basis deduction challenged case differs from what you might see in a typical Iowa crop or livestock operation. The taxpayer packs the strawberries it grows, and it purchased and deducted the packing materials on a cash basis. The IRS said that such supplies are not the sort of feed, seed and materials allowed to farmers as a cash basis deduction.

Judge Holmes looked at the rules and said the IRS got it wrong. The decision largely hinged on a Section that wasn’t directly in play here, Section 464. This section was enacted to fight an early tax shelter based on allowing cash basis farm deductions to off-the-farm investors by preventing “farm syndicates” from using the cash method. Judge Holmes considered the IRS arguments, and then noted (my emphasis, footnotes omitted):

But section 464 does bolster Agro-Jal’s argument indirectly, because the history of section 464 shows that before its enactment anyone in the farming business could immediately deduct prepaid expenses. Seen against this backdrop, section 464 looks like it was aimed at both especially abusive taxpayers — “farming syndicates” — and to certain especially abused expenses — “feed, seed, fertilizer, or other similar farm supplies.”

I understand this to mean that absent some other provision, farmers can, or could, deduct all prepaid expenses. Judge Holmes went on to consider the tax regulation on deductions of materials and supplies, and concluded that the IRS reading was not supported.

There is another wrinkle. The IRS has re-issued the “materials and supplies” regulation as part of its “repair regs” project, and it has changed the language relied on by the taxpayer. Tax Analysts discusses that change ($link):

Sharon Kay of Grant Thornton LLP said that the reference to the old version of the regs may not help other cash method farm taxpayers understand how to apply the new final tangible property regulations on materials and supplies. “That’s the big question,” she said. “What does this case mean, not just looking back, but actually looking forward under the new tangible property regulations?”

Kay noted that throughout the revisions to the tangible property regs, the IRS had made statements, primarily in the various preambles, that it did not intend for the revisions to substantially change the “determination of the treatment of materials and supplies as either non-incidental or incidental.” She said that the holding in Agro-Jal reflects farm taxpayers’ understanding of the law and general practices.

This may mean the IRS could continue to challenge deductions under the new regulations, hoping for a different result. But for Iowa livestock and crop farmers, whose big prepaid deductions are mostly for advance purchases of feed, seed and fertilizer, cash accounting does not seem to be under immediate threat. And it probably wouldn’t have been even if the IRS had won this case.

Paul Neiffer has more: Cash Basis Farmers Allowed to Deduct All Costs!

Cite: Agro-Jal Farming Enterprises, Inc., 145 T.C. No. 5.

 

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It’s summer. The bees are buzzing, and so is Robert D. Flach with a fresh Buzz roundup, including coverage of the new due-date rules.

Robert Wood, Charging $476K For Strippers On Company Card? No Tax Deduction, Jail Instead. That’s a lot of $1 bills.

Peter Reilly, Review Of Julian Block’s Home Seller’s Tax Guide. “The book packs a lot of important information into less than 100 pages.  I think that if I had a real estate office, I would be negotiating with Julian to buy copies in bulk to hand to potential clients as a marketing tool.”

Jim Maule, Another Problem with Targeted Tax Credits. “Once tax credits are handed out, everyone wants in on the gravy train.”

Kay Bell, Cool tax moves to make during August’s hot Dog Days

Jack Townsend, New Legislation Affecting FBAR and Tax Matters (8/1/15).

Mike Feehan, Urban Legends, Insurance File No. XXIV (Insureblog). “My opinion?  Most claims submitted are valid claims.  And systematic denial of valid claims is an urban legend.”

 

Cara Griffith, New York Attempts to Tax Income From Nonresident Lawyer Based on Bar License (Tax Analysts Blog):

“Thankfully, an administrative law judge for the DTA set the division straight. The ALJ concluded that the division’s argument is meritless, inconsistent with the state tax regulations, and inconsistent with New York judiciary laws. “The Division cannot,” the ALJ said, “assert tax merely based on a New York license.”

This is a case where my “sauce for the gander” proposal would allow taxpayers to collect penalties from the state for making a frivolous argument.

Richard Auxier, Recovery cannot save state budgets from politics (TaxVox). “Since then the economy has improved, state tax revenue are growing, and legislatures have more room to maneuver during budget season. Yet havoc still reigns in many statehouses. In fact, it might be getting worse.”

 

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TaxProf, The IRS Scandal, Day 817

Matt Gardner, Innovation Boxes and Patent Boxes: Congress Is Focusing on Corporate Tax Giveaways, Not Corporate Tax Reform. (Tax Justice Blog). The “patent box” would give preferential rates for intellectual property income, which would create a new industry of consultants devoted to making all income I.P. income. Far better to broaden the base and lower rates for everyone.

Kyle Pomerleau, Ways and Means Committee Introduces “Innovation Box” Discussion Draft (Tax Policy Blog). “Simply put, a patent box provides a lower tax rate on income related to intellectual property.”

 

Quotable: 

Most economists, on the other hand, believe that targeted tax incentives may work, but only in the sense that companies get extra cash and say the right things at press conferences. However, the tax breaks often don’t work in the sense of actually boosting state and local economies in any appreciable way. One large high-tech warehouse on the edge of town with 40 workers won’t transform anything. Neither will a dozen.

Billy Hamilton, Tax Analysts ($link)

 

News from the Profession. Accountant Posts Big Game Hunting Photos, Internet Flips Out (Caleb Newquist, Going Concern). I hope my big game trophy shots never make the internet. Oh, wait…

 

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Tax Roundup, 7/2/15: Lives, Fortunes and Sacred Honor Edition. And: why Iowa can’t have nice things.

Thursday, July 2nd, 2015 by Joe Kristan

 

20150702-1Patriotism can be costly. The founders pledged “our Lives, our Fortunes, and our sacred Honor” when they voted for independence 239 years ago today. But not everyone is down for the “Fortunes” part.

A construction contractor in Florida leaned on patriotism to minimize taxes. The Tax Court takes up the story (citations omitted):

Petitioner became involved with certain organizations and individuals, such as the Patriot Network, We the People, and Richard Cornforth, that advocate tax avoidance and encourage actions to frustrate and delay the IRS’ collection efforts. He paid an annual fee to the Patriot Network for access to its Web site and for assistance with tax problems. Petitioner testified that he became convinced that Federal income taxes were “illegitimate” and that caselaw showed that individuals who had refused to pay taxes were prevailing in court.

That caselaw must be interesting. This sort of tax protest argument never actually works in avoiding taxes, though occasionally tax deniers can convince a jury that they actually believed this stuff enough to not be intentional tax criminals.

The taxpayer tried some legal incantations to help his patriotic cause:

On January 23, 2008, petitioner filed a notarized document entitled “Official Declaration of Domicile” with the Clerk of the Circuit Court, Volusia County, Florida. The document stated that petitioner did not believe himself to be a U.S. citizen but was rather “One of the People”, a “Florida [S]tate Citizen”, a “Sovereign”, and a “Man upon the land”. Petitioner filed this document at the suggestion of one of the tax-avoidance organizations.

20120531-2The “man upon the land” thing is a new one, to me. Unfortunately for our taxpayer, it didn’t work any better than the “One of the People” thing in Tax Court yesterday. He appears to have been a successful contractor, if the amount of taxes he was assessed is an indication, and the IRS probably noticed that there was no income being reported on the 1099s issued to him.

An examination got underway, and it went as well as you might expect, given the patriotic advice he was taking (my emphasis):

Revenue Agent Pritchard sent petitioner a letter dated April 24, 2009, stating that he had submitted Form 12153 prematurely, as no tax had been assessed yet. On May 6, 2009, Revenue Agent Pritchard sent petitioner a letter informing him that his arguments were frivolous and providing Code citations and IRS guidance pertaining to his filing requirements and respondent’s authority to impose and collect income tax. The letter specifically addressed promoters of tax-avoidance activities, stating: “These people base their arguments on legal statements taken out of context and on frivolous arguments that have been repeatedly rejected by [F]ederal courts.”

Nevertheless, at the suggestion of the aforementioned tax-avoidance organizations, petitioner continued to send letters to Revenue Agent Pritchard espousing similar arguments and often accompanied by Forms 12153. For example, with assistance from the Patriot Network, petitioner sent Revenue Agent Pritchard a letter dated May 13, 2009, threatening legal action against her and the United States. Petitioner also sent Revenue Agent Pritchard a letter dated July 14, 2009, “demanding that * * * [she] send * * * [him] a certified assessment of how * * * [she has] now came [sic] up with this alleged amount & the name of the person or persons preparing it”, and a letter dated October 23, 2009, and addressed to “Tax Collector” that requests a section 6320/6330 hearing and is accompanied by an attachment of materials that petitioner received from the Patriot Network

IMG_0216Lacking cooperation from the taxpayer, the IRS did things the hard way, backing into taxable income based on bank deposits and 1099s. The result was over $238,000 in taxes assessed over four years, plus interest and fraud penalties.

At some point after the taxpayer commenced Tax Court proceedings, lucidity overcame him:

Petitioner relied on the Patriot Network Web site during the early stages of this case. For example, petitioner followed the Patriot Network’s advice to file a request for admissions and a motion in limine to exclude from evidence the bank  records that respondent had obtained. However, petitioner testified that he subsequently realized he had made foolish mistakes “in trying to follow other people” and that he was trying to fix those mistakes. He hired an accountant to file late returns for 2008-11, and he testified that he would no longer be paying the annual fee to the Patriot Network.

That probably helped him establish business deductions that the IRS might not have otherwise allowed, but it didn’t undo his prior patriotism:

We commend petitioner for adjusting his behavior during the pendency of this case and for his considerable work in reconstructing largely accurate and very helpful summaries of his business income and expenses for the years at issue. However, we cannot discount months of uncooperative behavior that gives insight into petitioner’s intent in not filing Federal tax returns. Petitioner’s failure to cooperate with respondent is persuasive circumstantial evidence of fraud.

So he kept his life and, perhaps, his honor, but he lost a fortune: $237,976 in fraud penalties on top of $328,000 in taxes and $57,000 in late payment penalties.

The Moral? If you follow the advice of “Patriot” outfits to not pay your taxes, you may be unwittingly pledging your fortune. Unlike the founders, though, you won’t win.

Cite: Porter, T.C. Memo 2015-122.

 

Gretchen Tegeler, Why priorities don’t get funded (IowaBiz.com):

One of the most significant “built-in” spending components affecting all state and local governments in Iowa is public pension debt. Our public pension systems guarantee retirees a monthly benefit for life, the size of which depends on how long they worked and at what salary. The system is built upon a financial model that involves a whole series of assumptions. If the assumptions don’t pan out, taxpayers are still on the hook to pay the benefits.

And the assumptions have not panned out.

Public defined benefit pensions are a lie. It is either a lie to the taxpayers about the cost of current services, a lie to the public employees about the size of their pensions, or some of both. A move to a defined contribution model, where benefits are limited to the amount funded, is long overdue.

 

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Kay Bell, Tax record keeping rules and tips. Jeb Bush keeps his tax returns for at least 33 years. Should you?

Jason Dinesen, From the Archives: Issue a 1099-C to a Deadbeat Client or Customer? Um, no.

 

Scott Greenberg, Gavin Ekins, Tax Policy Helped Create Puerto Rico’s Fiscal Crisis (Tax Policy Blog). “While the United States federal tax code helped create the conditions for Puerto Rico’s fiscal crisis, the Puerto Rican tax code played a much more direct role in bringing the crisis to a head.”

Tracy Gordon, Puerto Rico: Not Your Father’s Debt Crisis – or Your Greek Uncle’s (TaxVox). “In a remarkable statement, Governor Alejandro Garcia Padilla announced this week that Puerto Rico’s debts are ‘not payable.’ Nobody was really surprised.”

Cara Griffith, Texas Comptroller Improves Transparency of Administrative Decisions (Tax Analysts Blog)

Patrick J. Smith, The Implications for Tax Litigation of the Supreme Court’s Decision in Michigan v. EPA (Procedurally Taxing) “While it is probably the case that in many challenges to tax regulations, the cost of compliance with the regulation may not be a realistic basis for challenge, there is no principled reason why in appropriate cases, the cost of compliance with a tax regulation might not form part or all of the basis for challenge.”

TaxProf, The IRS Scandal, Day 784

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No Tax Update tomorrow. Our office is closed for Independence Day. Enjoy the fireworks, but spare a thought for those who have fought for independence, including 10 men who never made it back to base from a mission 71 years ago Sunday.

 

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