Posts Tagged ‘Cara Griffith’

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:


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).




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?




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!”




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,

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).



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.



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.




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




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).



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, 8/10/15: 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!)




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.




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.



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.




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.”




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.”



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…



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 (

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.



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


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.



Tax Roundup, 6/11/15: Remember the June 15 deadlines. And: The Bernie Sanders bait and switch.

Thursday, June 11th, 2015 by Joe Kristan


20140728-1Programming Note: No tax roundup tomorrow. See you Monday!


Things that are due Monday: 

– Second Quarter estimated tax payments.

– Returns for filers living abroad

The IRS reminds us Taxpayers with Foreign Assets May Have FBAR and FATCA Filing Requirements in June.


Kyle Pomerleau, How Scandinavian Countries Pay for Their Government Spending (Tax Policy Blog).  This post considers avowed Socialist and quixotic presidential candidate Bernie Sander’s affection for Scandinavian tax and spending policies:

Specifically, Sanders wants the United States to adopt a lot of the spending policies that many of the Scandinavian countries (Denmark, Norway, Sweden) are commonly known to have. Policies such as government sponsored college education, paid parental leave, and universal healthcare.

Many of these new government programs would be expensive and necessitate higher taxes. It is instructive to look at how Scandinavian countries structure their tax systems in order to raise revenue for these programs. Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Two charts from the post tell the story:

High top rates…



…that kick in at much lower income levels than here:



In words, somebody making just a little more than the average income in Denmark pays a 60.4% rate on every additional dollar of income, while you have to make 8.5 times the average U.S. income to hit the top U.S. marginal rate of 39.6%.

A high top tax rate sounds great when it’s being paid by some rich guy you don’t know, but when you pay it, it doesn’t soound so good. That’s the bait and switch behind the spending policies of Bernie Sanders and his ideological soulmates. They tell you that somebody else will pay for all of this bountiful government spending, but the rich guy isn’t buying — he can’t.


Leona May, Accounting Firms Need More Career Options If They Want to Retain Talent (Going Concern):

With partner being the only laudable end goal, no wonder the big accounting firms have become essentially an accounting industry training ground. Firms pay to train us, and then we jump ship after a few years if that shinin’ disco light partner standard does not jibe with our long-term career aspirations.

The failure to retain good employees who don’t want equity is an expensive failure for our industry.


Robert D. Flach says SEE YOUR TAX PRO FIRST! “Very, very important – if you are considering entering into a business enterprise visit your tax professional and your accountant (if not the same person or firm) before you visit your attorney.”

Hank Stern, Centennial State HIX Hiccups (InsureBl0g). On the ugly state of Colorado’s ACA exchange.

Robert Wood, IRS Still Isn’t Ready For Obamacare, Says Watchdog

Carl Smith, Is The Tax Court an Agency or a Court for FOIA Purposes? (Procedurally Taxing)

Kay Bell, NYC attorney pleads guilty to amended tax return fraud. If the tax agency asks you why you haven’t filed your tax returns, filing fraudulent ones is an unwise response.

Jack Townsend, The Vatican Signs On To FATCA

Andrew Mitchel, U.S. Government Continues to Pursue Taxpayers Committing Tax Fraud




TaxProf, The IRS Scandal, Day 763. Today’s link puts the Tea Party scandal in its context as part of the larger movement to regulate (and, inevitably, restrict) free speech via campaign finance “reform.”

Renu Zaretsky, “The Waiting Is the Hardest [and Most Constant] Part”  Today’s TaxVox headline roundup covers the IRS funding standoff and the continuing Kansas budget fight, among other things.

Cara Griffith, Are REITs Paying Their Fair Share to States? (Tax Analysts Bl0g)

Carl Davis, Sales-Tax-Free Purchases on Amazon Are a Thing of the Past for Most (Tax Justice Blog). “Effective June 1, Amazon is now collecting sales taxes in fully half the states that are collectively home to over 247 million people, or 77 percent of the country’s population.”


This could catch on a lot better than that Irwin Schiff stuff. Austrian Brothel Offering Free Sex And Drinks In Tax Protest



Tax Roundup, 6/5/15: Iowa adds deductions to 1041s. And: the dangers of unmonitored payroll services.

Friday, June 5th, 2015 by Joe Kristan

20130117-1Federal 706 costs good for Iowa 1041. The Iowa General Assembly yesterday eased restrictions on administrative deductions for fiduciaries. Iowa uses federal taxable income, with modifications, as its tax bases. Both houses passed HF 661, which provides a modification to this tax base:

On the Iowa fiduciary income tax return, subtract the amount of administrative expenses that were not taken or allowed as a deduction in calculating net income for federal fiduciary income tax purposes.

If I understand this correctly, this means fiduciaries can now deduct on Iowa 1041s expenses that executors have opted to deduct on the federal estate tax return; executors get to choose to deduct estate administration costs on either the Federal 706 or the Federal 1041, but not both. This bill makes some sense, as there is no Iowa estate tax; any deductions taken on the federal Form 706 estate return would otherwise provide no Iowa benefit.

It also appears to allow the deduction of any “administrative” expenses that would otherwise be disallowed under the 2% of AGI floor. The explanation to the bill doesn’t add much, so we will have to see if this is how the Department of Revenue reads the bill.

The bill passed both houses unanimously, so it seems likely the Governor will sign it. It is to take effect for “tax years ending on or after July 1, 2015 — so it will apply to the current calendar year.


EFTPSPEO operator gets 12 years after looting client payroll taxes. A Kentucky man will go away for a long time for an ambitious list of crimes that include stealing payroll taxes from clients. Wilbur Huff ran a professional employer organization. Such organizations take over employer payroll tax functions for their clients. PEOs file and pay the payroll taxes under their own tax ID number. This differs from traditional payroll tax services, which remit taxes under client tax ID numbers and provide prepared returns for the clients to submit.

From a Department of Justice Press release (my emphasis):

From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (“PEO”) located in Tampa, Florida.  Like other PEOs, O2HR was paid to manage the payroll, tax, and workers’ compensation insurance obligations of its client companies.  However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS, and instead of paying $5 million to Providence Property and Casualty Insurance Company (“Providence P&C”) – an Oklahoma-based insurance company – for workers’ compensation coverage expenses for O2HR clients, HUFF stole the money that his client companies had paid O2HR for those purposes.  Among other things, HUFF diverted millions of dollars from O2HR to fund his investments in unrelated business ventures, and to pay his family members’ personal expenses.  The expenses included mortgages on HUFF’s homes, rent payments for his children’s apartments, staff and equipment for HUFF’s farm, designer clothing, jewelry, and luxury cars.

Taxpayers using traditional payroll tax services can make sure their payroll taxes are actually paid to the IRS by logging into EFTPS, the Electronic Federal Tax Payment System. This doesn’t work for PEOs. That turned out very badly for Mr. Huff’s clients, who still have to pay the IRS the payroll taxes that went for the fancy cars and clothes.


buzz20140909Robert D. Flach has your Friday Buzz! It’s the place to go whether you Love Lucy or you love reading about tax administration.

Peter Reilly, Structuring Seems Like A Crime You Can Commit By Accident

 Imagine that you go to the bank every four days and deposit $12,000.  The bank will file currency transaction reports that let the Treasury Department know that.  That notion annoys you, so you start going every three days and deposit $9,000. No more currency transaction reports, but before long there will be suspicious activity reports.  If the reason you made the switch was to stop the currency transaction reports, you have committed the crime of structuring, even if there is nothing illegal about the source of the funds or the use of them and you are paying all your taxes.  

The crime of avoiding paperwork.

Kay Bell, Weather claims, estimated taxes and more June tax tasks

Jack Townsend, Two More Banks Obtain NPAs Under DOJ Swiss Bank Program

Robert Wood, Obama’s Immigration Action Means Tax Refunds For Illegals, Says IRS

TaxGrrrl, IRS, TIGTA Talk Tech, Identity Theft & Security At Congressional Hearing.




Cara Griffith, Is the IRS Protecting Taxpayer Information or State Tax Authorities? (Tax Analysts Blog). “Although the IRS indicated it would make changes to improve the oversight of federal taxpayer information, it still seems information is shared between the IRS and state tax authorities as a matter of course and without a true determination (before information is shared) about whether a state tax authority has a secure system in place to protect the information received.”

Scott Drenkard, Why Do So Many Businesses Incorporate in Delaware? (Tax Policy Blog). “Delaware’s attractiveness for incorporation is driven by many things: favorable incorporation regulations, rules limiting corporate liability, and a second-to-none corporate court system (the Court of Chancery) with judges that are corporate law experts.”

Howard Gleckman, How Many Americans Get Government Assistance? All of Us. But some of us pay more than others for it.

Robert Goulder, Global Tax Harmonization and Other Impossible Things (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 757 “The IRS responded to a Republican request for an investigation into the Clinton Foundation’s tax-exempt status with a one-page form letter that starts with ‘Dear Sir or Madam.'”


Career Corner. ICYMI: AICPA Will Squeeze Excel Into the CPA Exam This Decade (Caleb Newquist, Going Concern).  In my day we had pencils — no calculators, no slide rules, no nothing. Spoiled kids won’t get off my lawn.



Tax Roundup, 5/14/15: Snowbird fails to melt Iowa Department of Revenue opposition to gain exclusion. And many links!

Thursday, May 14th, 2015 by Joe Kristan


Programming note: No posting tomorrow. See you Monday!


Iowa's business tax climate, illustrated

Materially-participating in winter

Snowbird loses “material participation” Iowa capital gain exclusion argument. A taxpayer who claimed the unusual Iowa exclusion on very-long-term capital gains failed to convince the Department of Revenue that he “materially participated” in the activity for the minimum of ten years required to qualify for the exclusion.

Iowa allows taxpayers to exclude certain long-term gains from their Iowa taxable income if they meet two requirements:

– They have held the property for ten years, and

– they “materially participated” in the business sold (or in the business holding real property sold) in the ten years preceding the sale.

The “material participation” rule follows the federal “passive activity” material participation definitions. This usually is based on time spent in the activity. Farmers who materially participate in five of the last eight years before they start drawing Social Security payments are considered to materially participate in the farming activity forever. Other taxpayers who retire after working in a business generally are considered to “materially participate” for five years after retirement.

The Iowa ruling letter gives sketchy facts, but it does note (my emphasis):

In determining material participation, only the 10 calendar years immediately prior to the sale are considered and the determination of the participation is limited to that property which is sold.  Both the Department’s rule and the Internal Revenue Code (IRC) require material participation to be regular, continuous, and substantial.  The fact that you wintered in Florida lends serious doubt as to the regular part of that requirement.  Additionally, your daughter was paid for management services.  Rule 701 IAC 40.38(1)(e)(7) states in part, “Management activities of a taxpayer are not considered for purposes of determining if there was material participation if either of the following applies: any person other than the taxpayer is compensated for management services, or any person provides more hours of management services than the taxpayer.”

The letter goes on to say that it’s up to the taxpayer to prove participation, and the taxpayer failed to provide logs, calendars or other evidence that he worked sufficient hours to meet the material participation tests.

The moral? If you want to claim material participation, and you have stepped away from the business, it’s important to keep good records of your participation. The state may not be inclined to take your word for it.

Cite:  Document Reference: 15201008


Material Participation Basics





Kay Bell, Don’t ignore that IRS letter and nine other tax notice tips

Robert Wood, Facts About FATCA, America’s Global Disclosure Law. “If you think money anywhere can escape the IRS, think again.”

Jim Maule, When Do Relationships End for Federal Income Tax Purposes?:

The taxpayer argued that the child remains her foster child because they continued their relationship and hold each other out as parent and child. The Tax Court, however, determined that the taxpayer’s guardianship terminated in 2004 when the child attained majority. At that point, the child no longer could be said to be someone who “is placed” with the taxpayer.




Andrew Mitchel has a new Flowchart – Taxation of Pension Distributions Under UK – US Income Tax Treaty


Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog):

Despite its bad reputation, the property tax has numerous benefits. For local governments, the tax provides a relatively stable source of revenue. Local governments also have a fairly high collection success rate. Many property owners have escrow accounts through their mortgage companies, which collect tax monthly and remit it at the appropriate time. Because of that, and the fact that the property tax is attached to something physical, it is hard to avoid or evade.

It’s hard to beat the property tax for funding local services. When the politically-influential carve themselves out of it with TIFs or special exemptions (e.g., special agricultural assessment rules), those that are left footing the bill are understandably unhappy.


Renu Zaretsky, Wishes, Dreams, and Bittersweet Denials Today’s TaxVox headline roundup covers thoughts on the effect of reduced refunds on this spring’s retail sales, the failure of a proposed soda tax in California, and the need for more IRS authority to fix bad EITC claims.

Alan Cole, NFIB Survey: Taxes a Top Problem for Business (Tax Policy Blog).

Carl Smith, IRS Plays Cat and Mouse With Tax Court on Its Constitutional Status (Procedurally Taxing).


Joseph Thorndike, Even Under a Flat Tax, Learn to Love Those Loopholes, Because They’re Here to Stay (Tax Analysts Blog). “Once you win the battle, you have to keep fighting it over and over again.”

Greg Mankiw, Why I invest in index funds. “For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.”

Hank Stern, Cover Cali sputtering. (InsureBlog). “The Golden State’s health exchange (Covered California) continues to burn through tax-payer dollars at an alarming rate.”


TaxProf, The IRS Scandal, Day 735


Career Corner. Should CPAs Consider an MBA? (Paul Gillis, Going Concern). Not to fix your car, no.



Tax Roundup, 5/11/15: Returned, recovering, and ranting! Sales taxes, tax credits for special friends pondered by Iowa legislature.

Monday, May 11th, 2015 by Joe Kristan


IMG_0983I am back from overseas, and somewhat recovered from a nasty bug that hit me just before it was time to come home. So much to catch up on — if I don’t link your post today, I might get it later this week, as I dig out.

I was saddened to learn that the Iowa legislature is still in session. David Brunori reports ($link) on a proposal to allow Des Moines to vote on increasing its own sales tax without participation of its neighbors:

Iowa Rep. Tom Sands (R), chair of the House Ways and Means Committee, has introduced legislation that would allow greater Des Moines communities to ask voters to approve a 1 percent local option sales tax. I have written about this issue a lot over the years. The reality is that while there are sound reasons for imposing a local option sales tax, the problems far outweigh the benefits.

When Des Moines adopts this tax, the folks who shop in the city will pay. But many of them don’t live within the city limits. It will be people in the surrounding suburbs and rural areas who pay some of the tax. That’s great for Des Moines, but not so good for other jurisdictions. I am unsure why a legislator from a rural area — or even an area without significant retail — would support this measure. Their citizens will pay but won’t see the benefits.

Well, it’s just another example of the delight Des Moines politicians take in picking the pockets of non-voters (Exhibit A: freeway speed cameras). But remembering the result of the last sales tax increase vote in the area — crushed by a 85% “no” vote — I don’t think the municipal highwaymen should count their sales tax loot just yet.


Politicians call for more subsidies for their well-connected friends, from your pockets. Iowa leaders call for biochemical tax credits for ethanol, biodiesel (Sioux City Journal).


Andrew Lundeen, Pass-through Businesses Employ Most of the Private Sector Workforce (Tax Policy Blog).



“Pass-though” businesses are those taxed on owner 1040s. When you tax high income individuals, there is no escaping that you are reducing funds available for the nations principal employers to hire and expand.


William Perez, Your Guide to the 6 Types of Business for Federal Tax Purposes. “Entrepreneurs can set up their small business as a sole proprietorship, corporation, S-corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability Partnership, and in some states a Professional Limited Liability Company/Partnership.”

Jason Dinesen, Why Make Estimated Tax Payments, Part 1. “People who are new to self-employment are often confused about what estimated tax payments are and why they might need to make these payments.”

Kay Bell, A Mother’s Day tax gift: 10 child care tax credit tips

TaxGrrrl, 11 Things I’ve Learned About Tax From My Mom

Leslie Book, On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

Paul Neiffer, Don’t Get Too Greedy! And however greedy you get, you need to follow the appraisal rules if you want to deduct a property donation.

Jack Townsend discusses a Sentencing for Failure to Pay Over Trust Fund Taxes. If you don’t remit withheld payroll taxes, thinking that you are just “borrowing” it, your “interest” might include prison time.

Peter Reilly, Home Schooling Contingency Does Not Kill Alimony Deduction

Robert D. Flach, WHAT TO EXPECT WHEN WRITING TO THE IRS. Not a speedy resolution.



Andrew Mitchel, The Exodus Continues (2015 1st Quarter Published Expatriates).

We began tracking expatriations in late 2009 because we anticipated that the number of expatriations would increase as a result of changes in U.S. tax laws and due to “saber rattling” by the IRS about the imposition of potential penalties in the wake of the UBS scandal.  Our prediction has been accurate.

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC


Robert Wood, New Un-American Record: Renouncing U.S. Citizenship

Me, An obscure tax deadline that could cost you big. A discussion of the looming FBAR deadline.



Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (ISU-CALT Ag Docket)

Hank Stern at Insureblog notes that May is Disability Insurance Awareness Month. Given the stakes, and the relatively low price, it’s shocking that 57% of working adults have no coverage.

Annette Nellen, Narrow exemptions cause inefficiency, inequity and complexity – HR 867 and S. 1179. But they are such a great way to get lobbyists to come to your summer golf fund-raisers.




TaxProf, The IRS Scandal, Day 732. “Every time we turn around we get more emails.” Two years, and Commissioner Koskinen is still tired of your complaining.

Russ Fox,730:

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

The day Commissioner Koskinen resigns is the first day the IRS might start to figure it out.


Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog)

Howard Gleckman, Congress Has Not Passed A 2016 Budget. It Has Only Begun The Process.


Career Corner. The Monthly Close: White Collar Crime Should Be a Fun and Scary Surprise (Going Concern)



Tax Roundup, 3/12/2015: Tails and legs: Tax Court says that by any name, refundable tax credits are income.

Thursday, March 12th, 2015 by Joe Kristan

20120801-2Yesterday the Tax Court ruled that refundable business incentive tax credits issued by New York generate taxable income. Judge Holmes made the decision entertaining. Well, except maybe for the taxpayer who lost.

Credits works differently from deductions. A $100 tax credit reduces your tax by $100, while a $100 deduction reduces the tax of a taxpayer in the 25% bracket by only $25. When a credit is “refundable,” if it exceeds the tax you would otherwise owe, the government sends you a check for the excess. The federal Earned Income Tax Credit is the most common example. Iowa has several such credits, including its EITC and its research credit for business.

New York also uses refundable credits. Judge Holmes sets the stage (all emphasis is mine):

New York State uses extremely targeted tax credits as an incentive for extremely targeted economic development in extremely targeted locations. Those who receive these credits may be extremely benefited — even if they do not owe any state income tax, New York calls the credits overpayments of income tax and makes them refundable. David and Tami Maines say that none of the credits should be taxable because New York labels them “overpayments” of past state income tax, and they never claimed prior deductions for state income tax. The Commissioner disagrees and argues that these refundable credits are, in substance even if not in name, cash subsidies to private enterprise — and just another form of taxable income.

The taxpayer said that because New York called the refundable amount of the credits “overpayments,” they were like withholding:

So the key question in this case becomes whether a federal court applying federal law has to go along with New York’s definition.

The Maineses understand the importance of this question, and they argue that if New York State tax law calls these payments “overpayments” we have no power to call them something different. They point to cases like Aquilino v. United States, 363 U.S. 509, 513 (1960) (quoting United States v. Bess, 357 U.S. 51, 55 (1958)), where the Supreme Court held that Federal tax law “‘creates no property rights but merely attaches consequences, federally defined, to rights created under state law.”‘

Judge Holmes is unconvinced (my emphasis):

The Commissioner does not challenge these cases. And he also agrees that New York law labels the credits as “income tax credits,” and excesses or surpluses as “overpayments” of state income tax for state-tax purposes. But is a state’s legal label for a state-created right binding on the federal government? Here begins the disagreement. The Maineses contend that New York’s tax-law label of these excess EZ Credits as overpayments is a legal interest that binds the Commissioner and us when we analyze their taxability Lincolnunder federal law. The Commissioner warns that if this were true, a state could undermine federal tax law simply by including certain descriptive language in its statute. To use Lincoln’s famous example, if New York called a tail a leg, we’d have to conclude that a dog has five legs in New York as a matter of federal law. See George W. Julian, “Lincoln and the Proclamation of Emancipation,” in Reminiscences of Abraham Lincoln by Distinguished Men of His Time (Allen Thorndike Rice, ed., Harper & Bros. Publishers 1909), 227, 242 (1885), available at

We have to side with the Commissioner (and Lincoln) on this one: “Calling the tail a leg would not make it a leg.” Id. Our precedents establish that a particular label given to a legal relationship or transaction under state law is not necessarily controlling for federal tax purposes.

The taxpayer advanced a more novel argument:

The Maineses also contend that their credits are excludable from their taxable income as welfare. The Commissioner has long held that certain payments from social-benefit programs that promote the general welfare are not includible in gross income.

I’ve called such credits “Corporate welfare” at least once or twice myself. But calling a tail a leg, or corporate welfare, doesn’t make it welfare for tax exclusion purposes:

Critics of programs like New York’s might call them “corporate welfare.” But that’s just a metaphor — the credits that New York gave to the Maineses were not conditioned on their showing need, which means they do not qualify for exclusion from taxable income under the general-welfare exception. See also, e.g., Rev. Rul. 2005-46 (holding that state grants for expenses incurred by businesses that agree to operate in disaster areas are not excludable under the general-welfare exclusion).

We therefore hold that portions of the excess EZ Investment and Wage Credits that do not just reduce state-tax liability but are actually refundable are taxable income.

New York FlagOne interesting thing about the New York credits at issue is that they can either be refunded, at the cost of a loss of some of the credits, or carried forward in full at the taxpayers option. In a footnote, Judge Holmes says that while the taxpayer has the option of whether to claim the refund, there is no option on when it affects taxable income:

Recall that whether or not the Maineses choose to receive the refundable portion of the credit, they are in constructive receipt of it and therefore must include it in their gross income.

This is a full-dress “reported” Tax Court decision, which means it is meant to guide future litigation in this area. A footnote in the decision says there are 10 other related New York cases pending. It has obvious implications for the Iowa research credit and historical building credits, which are refundable. There are many other such refundable tax credits in other states.  I never doubted that such credits were taxable “accessions to wealth,” and the Tax Court feels the same way.

Cite: Maines, 144 T.C. No. 8.


The Des Moines Register reports Lawmaker proposes end to Iowa taxes on pensions:

Sen. Roby Smith, a Republican, has introduced Senate File 277, which would phase out taxes on retirement income over five years, starting in fiscal year 2017. The measure is co-sponsored by 23 Republican senators. He said that during his re-election campaign last fall, one of the common complaints he heard from older Iowa voters was the need to pay taxes on retirement income.

Let me register my complaint about having to pay taxes on income while I’m working. Can I get an exemption?

IMG_1284This sort of carve-out is a classic example of how the tax law goes bad. High rates make people motivated to carve out breaks for themselves. It works especially well if those seeking the breaks are organized and have time to spare to press their case, like retired folks.

But giving tax breaks just by virtue of age or working status is the wrong way to go. If a retired person is poor, reduce his taxes to take his poverty into account (the tax law already does so in a number of ways). But if he is wealthy and retired, why should he get a better deal than a less-wealthy person who still trudges to work every day? In terms of wealth, the elderly are better off than the not-so-elderly, as a group.

It would be much better for the legislature to cut the rates for everyone, get rid of special carve outs for the politically influential, and help the poor, of whatever age, with a reasonable exemption for low-income taxpayers.


Jason Dinesen asks Why Do Unethical Clients Bother Working With Tax and Accounting Pros?:

I asked one of my peers about this and he said it’s because that type of person likes to feel important. They “have an accountant” and they can brag about it to their friends.

It’s an excellent question. My answer is that they feel they are buying excuses. If they get caught, they will immediately blame the accountant.

Robert Wood, Former NFL Player & 2 Others Get Jail & $35M Restitution For Tax Break Scheme:

The evidence at trial established that through NADN, the defendants promoted and sold a product called Tax Break 2000. Tax Break 2000 purported to be an online shopping website. The defendants falsely and fraudulently told customers that buying the product would allow them to claim legitimate income tax credits and deductions under the Americans with Disabilities Act (ADA) by modifying the website each customer was provided to make it accessible to the disabled.

If the stupidity of the tax scheme were a factor in sentencing, they’d have faced a firing squad.


TaxGrrrl, Taxes From A To Z (2015): Early Distributions

Cara Griffith, Will There Be an Increase in State Transfer Pricing Audits? (Tax Analysts Blog). “States have not, however, been particularly successful in challenging the arm’s-length pricing of intercompany transactions”



Kay Bell, Senate tax writers want public suggestions for tax reform

Stephen Entin, Tax Indexing Turns 30 (Tax Policy Blog)

William Gale, Rubio-Lee Hints at Tax Reform’s Troubling Direction (TaxVox).


TaxProf, The IRS Scandal, Day 672. The state continues its efforts to criminalize opposition.

Tax Analysts ($link), IRS Stops Providing Exemption Letters to Press. Given the stellar performance of the IRS Exempt Organizations division, what’s not to trust?


Adrienne Gonzalez wonders What Are the Accounting Profession’s Darkest Secrets? (Going Concern). Other than the ritual human sacrifice?



Tax Roundup, 3/6/15: Crime Watch Edition. Rashia, still 21.

Friday, March 6th, 2015 by Joe Kristan

It’s the time of the year when exasperated taxpayers and preparers are tempted to say, “bugger all this, I’m going to go for the gusto and cheat on my taxes!” That’s when it’s useful to look in on an old friend of the Tax Update to see how well that’s going.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

Let’s look in on Rashia Wilson, who proclaimed herself (on Facebook!) the “Queen of IRS Tax Fraud.” Her reign was cut short by federal identity theft tax refund charges, resulting in a 21-year sentence. And with federal sentences, you have to serve at least 90% of the time.

Ms. Wilson naturally was unhappy with this judicial lèse-majesté, so she appealed, citing procedural irregularities. The trial judge was ordered to reconsider. On further review, the call on the field stands. 21 years.  Robert Wood has more.

Iowa has tax ID fraud too. While South Florida may be the kingdom of tax refund fraud, it has colonies everywhere. Even in Iowa: Cedar Rapids woman charged with filing false tax returns (

The United States Department of Justice says 33-year-old Gwendolyn Murray is charged with twelve counts of filing false claims for tax refunds, seven counts of theft of government property, and two counts of aggravated identity theft.­ The indictment containing the charges was unsealed on Tuesday.

It is alleged that Murray filed 12 fraudulent tax returns in 2012 and 2013 using other people’s names. She received refunds on seven of those tax returns. The court also alleges that Murray stole the identities of two people.

It’s good to prosecute ID thieves, but it’s far better to keep them from thieving. It’s eye-opening that 7 of the 12 alleged attempts allegedly succeeded. Criminals aren’t known for their impulse control or their ability to anticipate long-term consequences. If they see somebody get a bunch of cash just from keying in some numbers on a computer, they’re going to want some of that bling themselves, and they aren’t going to ponder the likelihood of a prison sentence first.  The IRS is pretty much leaving the door unlocked and the cash register open.


Megan McArdle says the culture of “getting a big refund” is part of the problem in Fewer Tax Refunds, Fewer Scams:

If all returns were submitted at the same time, and refunds were held until they could be cross-checked against the IRS’s copies of W-2s and 1099s, then this sort of fraud wouldn’t work very well; the IRS would know it had two returns and could start the process of figuring out which one was fraudulent before it mailed the check. But we love our early refunds, and people often count on getting that check as early as possible.

She offers wise advice:

However, there’s one thing you personally can do to fight tax fraud, and that’s make sure that you don’t give the government more money than you have to. You should never get excited about a tax refund; all it means is that you gave the government a substantial interest-free loan by withholding too much tax throughout the year. You should aim for your refund to be as small as possible — ideally, zero.

A system that sends $21 billion annually to fraudsters — and that number is rising rapidly — can’t continue forever. Part of this will be a technological fix.  My wife can’t buy a dress at Nordstrom in Chicago without triggering phone calls from two credit card companies.  Meanwhile, the IRS happily wires wads of cash to Rashia. One would hope the IRS could learn something from Visa and Discover.

But the IRS is bad at technology, so part of the fix will have to be slower (and ideally, smaller) refunds. This could include lower penalty thresholds for underpayments so that taxpayers will be more willing to risk owing a bit on April 15 — perhaps combined with withholding tables that leave taxpayers owing a bit, rather than getting refunds.


What else can you do to protect yourself? 

  • Be careful with your tax information. Never divulge your bank account or credit card info to strangers over the phone.
  • Assume any unexpected call from a tax agency is a scam.
  • Don’t send copies of 1099s and W-2s as e-mail attachments to your preparer, and don’t email a pdf of your 1040 to a loan officer. That leaves your information exposed.
  • When you transmit confidential information, use strong encryption, or better yet upload it via a secure file transfer site, like the FileDrop system we use at Roth & Company.



20150105-2Peter Reilly, IRS Grossly Unqualified To Make Determinations About Software Related Exempt Applications. The IRS is grossly unqualified for any number of things that Congress gives it to do. Just a very few that come immediately to mind:

– Determining what is “qualified research” for the research credit.

– Determining the energy properties of “green fuels” for the biofuel subsidies.

– Running the nation’s healthcare insurance finance system.

– Policing political speech by tax-exempt organizations.

An outfit that can’t keep two-bit grifters from cashing in billions in tax refunds annually shouldn’t be looking for new things to do.


Kay Bell, Tax identity thief mistakenly sends fake refund to real filer. The police don’t spend their days chasing geniuses.

Jack Townsend, More on Light Sentencing for Offshore Account Tax Crimes.


Russ Fox provides a valuable service with Online Gambling Addresses Updated for 2015. Taxpayers with offshore online gambling accounts are required to report them on the “FBAR” report of foreign financial accounts (Form 114). The FBAR requires a street address for the account, and these can be hard to find for gambling websites.

William Perez offers advice on how to Communicate Effectively with Your Tax Preparer. We aren’t always the best company this time of year. Come prepared, be efficient, and you can leave our office before we do something bizarre. Other than what we do for a living, of course.

Jason Dinesen, Marriage in the Tax Code, Part 3: Big Changes in 1917

Jim Maule, The IRS and the Taxpayer: Both Wrong. “The taxpayer argued that because the distribution from the IRA was less than the his investment in the IRA, it should be treated as a return of investment. The IRS argued that the entire distribution should be included in the taxpayer’s gross income. The Tax Court concluded that both the taxpayer and the IRS were wrong.”




Kyle Pomerleau, The Rubio-Lee Plan Would be Good for Everyone, Especially Low Income Earners (Tax Policy Blog):

If you take all the pieces of the Rubio-Lee tax plan together, it actually produces the largest increase in after-tax income for the lowest income earners, not the highest.

According to our analysis, the bottom decile of taxpayers will see an increase in after-tax income of 44.2 percent, a percentage increase in income nearly four times larger than the top 1 percent’s increase in after-tax income. But the plan doesn’t just increase the after-tax income of the top and the bottom. All taxpayers will see higher after-tax incomes due to this plan.

The Rubio-Lee plan, with its elimination of the double corporate tax and its business rate reductions, is the most promising tax reform plan to surface in a long time. But its opponents can never see wisdom in anything that benefits “the rich,” even when it benefits everyone else.


Renu Zaretsky, Expensive Plans, ACA Developments, and Exercises in Futility. Today’s TaxVox roundup has links to folks hating on Rubio-Lee, Spanish film tax credits, and more.

Patrick Smith, Supreme Court’s Direct Marketing Case May Have Great Significance in Anti-Injunction Act Cases (Procedurally Taxing)



Spring will come!



Cara Griffith, The Use of Big Data in Auditing (Tax Analysts Blog). “For state auditors, big data (like other types of data) could be used to better evaluate and select taxpayers for audit.”

TaxProf, The IRS Scandal, 666


Why would he want a job with less power? Former IRS Commissioner Mark Everson To Run For President. Yes, Of The United States (Tony Nitti)

Culture Corner. A Tax Shelter Board Game Is a Thing That Exists (Caleb Newquist, Going Concern).




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

Thursday, February 26th, 2015 by Joe Kristan

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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




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

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

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

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

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

Peter explains why that doesn’t work.


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


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

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

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

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

So simple it just might work!


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


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

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


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



Tax Roundup, 2/5/2015: Conformity bill passes Iowa Senate with Sec. 179, but without Bonus. And: buy Maserati, or pay tax?

Thursday, February 5th, 2015 by Joe Kristan

Iowa Senate passes conformity bill. The Iowa Senate sent the 2015 “code conformity” bill (SF 126) to the House yesterday on a 49-0 vote. The bill, conforms Iowa’s 2014 tax law to reflect December’s “extender” legislation, including the $500,000 “Section 179” deduction, but not including bonus depreciation.

The House could vote on the bill as early as today, though it’s not on this morning’s House debate calendar. Still, with the bill out of the Senate, it seems like a sure thing, even if it has to wait until next week.

ice truck


There may have been a flaw in the planThe former owner of Arrow Trucking Company pleaded guilty yesterday to tax charges connected with the 2010 failure of the company.

The “information” containing the charges outlines an energetic looting of the company that brought in a host of helpers — and potential informants. For example:

In about September 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, that’s one witness right there. And here’s another.

In about December 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, no harm no foul — they had pretty much made sure the IRS would catch up with them, if the information is to be believed. They failed to file the federal Form 941 payroll tax returns for 2009, or to remit the payroll taxes for those quarters. That’s a sure way to attract IRS attention. And once the IRS started sniffing around, they left a lot of clues for the IRS in the alternative uses they made of the withheld taxes. These other things included payment of $20,000 in company funds to an ex-wife. But that didn’t mean the next ex was slighted:

During the year 2009, Arrow Trucking Company funds were used to make payments to The Events Company for a conspirators wedding.

They should have been able to leave the wedding in style:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Bentley automobile for the benefit of a conspirator.

Or maybe, honey, we want something a little sportier:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Maserati automobile for the benefit of a conspirator.

It all seems like fun and games, but that fun led to this:

In December 2009, the carrier left hundreds of its drivers stranded on highways across the United States after a Utah bank voided company fuel cards.

Between halting payroll tax returns, using company funds for lavish toys, and getting employees to lie for them, they pretty much made sure the feds would visit, belt and suspenders. The IRS audit program for businesses is designed to find such things, but it sounds like they left a pretty easy trail to follow.


This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Peter Reilly, Mr. Koskinen’s Last Chance To End The Form 3115 Madness:

Here is the crisis.  Some very smart people with a lot of influence in the tax industry are telling all the rest of us the following story.  You know those new regulations are telling you to change your accounting methods.  Even if you look at what you’ve done over the years and decide that there is no income or expense to be picked up it is still an accounting method change.  Given all the new concepts you could not possibly have been using those methods.  So if your client has any sort of a trade or business, there are one or more Forms 3115 that have to be filed. 

If he was as keen on preserving limited IRS resources as he keeps telling Congress, he would announce that taxpayers could adopt the new accounting methods without a 3115 by attaching an election to their return, if they prefer it that way. That would save forests, and enormous amounts of IRS storage space.  But if he were serious about maximizing agency resources, he also wouldn’t allow 200 IRS employees to collect government checks for union work, and he wouldn’t divert IRS resources into a “voluntary” preparer regulation scheme.


TaxProf, The IRS Scandal, Day 637. This edition links to a Bloomberg piece about the Commissioner’s recent Senate testimony: IRS Chief: I Don’t Want to Be Seen As Influencing 2016. I take that as meaning he wouldn’t mind influencing  the elections; he just doesn’t want to be seen doing so.


Robert Wood, Coming Soon: No Travel Or Passport If You Owe IRS. What could go wrong?


Kay Bell, Seven tax extenders approved by Ways & Means Committee. Similar to the permanent extenders that passed the house and died last year, they can be seen as a counter to the President’s tax proposals in his budget.

Robert Goulder, Smart Tax Reform: Parity for Passthroughs (Tax Analysts Blog):

An obvious difficulty in business-only tax reform is devising a means to level the playing field between corporate and noncorporate entities. The overwhelming majority of commercial enterprises in the United States (roughly 90 percent) are not organized as corporations. They take alternate forms such as S corporations, partnerships, LLCs, or sole proprietorships. The primary difference, of course, is the lack of entity-level taxation for noncorporate businesses.

Unless you hate pass-throughs, as the administration seems to.


Kyle Pomerleau, The President Proposes Changing the International Tax System for Corporations (Tax Policy Blog)




Cara Griffith, Texas Comptroller to Look to Legislature for Guidance on Taxing Aircraft (Tax Analysts Blog)

Tracy Gordon, A Fuller Accounting of How State and Local Governments Fared in the Great Recession (TaxVox).


News from the Profession. Let’s Catch This PwC Partner Up on the Fun Stuff She Missed Over the Last 20 Years (Adrienne Gonzalez, Going Concern)



Tax Roundup, 1/15/15: Taxpayer Advocate rips offshore account enforcement, recommends fixes to Congress.

Thursday, January 15th, 2015 by Joe Kristan

Accounting Today Readershere is the post on the 2015 Iowa legislative session outlook.


Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Still shooting jaywalkers. National Taxpayer Advocate Nina Olson has submitted her Annual Report to Congress, and she rips the IRS offshore compliance program. Among the “most serious problems” noted in the report is “Offshore Voluntary Disclosure Programs Undermined the Law and Violate Taxpayer Rights.”

The report says the IRS routinely stretches the penalties for “willful” violations of foreign reporting requirements to inadvertent violations, interprets its own guidelines whimsically and unfairly, and makes a practice of hammering small violators disproportionately.  The report also criticizes the IRS practice of denying relief for taxpayers who came in from the cold early when it later started applying reduced penalties.

The report includes one awful example of the IRS treating an apartment owned by the taxpayer as a foreign financial account for purposes of computing the penalty for late reporting:

Example : An IRS employee took the position that a taxpayer’s foreign apartment must be included in the “offshore penalty” base solely because the taxpayer filed returns reporting income from the apartment between two and fifteen months late—after receipt of foreign information reporting documents relating to inherited property. The employee concluded the delay in filing returns meant that the apartment was related to tax noncompliance. Under the 2011 OVDI FAQ 35, “[t]he offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax noncompliance.” FAQ 35 defines tax noncompliance as follows:

“Tax noncompliance includes failure to report income from the assets, as well as failure to pay U.S. tax that was due with respect to the funds used to acquire the asset.”

The taxpayer timely overpaid her taxes and reported the income from the apartment (albeit on late-filed returns), and the apartment was not acquired with untaxed funds. Thus, the IRS employee’s unreviewable determination to include the apartment in the offshore penalty base appears to contradict FAQ 35.

This indicates an IRS practice of shooting jaywalkers so that it can slap real international tax cheats on the wrists. Especially unrepresented jaywalkers:


These penalties – $2,202 average penalty for an average $268 tax understatement for the smallest accounts – are unconscionable. I defy anyone to say otherwise. Well, anyone who doesn’t work for IRS.

It also indicates that taxpayers who oped out of the voluntary disclosure program got better results — which is a harsh indictment of the way the “voluntary” program treats taxpayers.

The report does praise recent changes to IRS practice, but slams the IRS for not applying them retroactively.  The report also recommends that Congress ease up on offshore penalties, including eliminating the penalties when the taxpayer resides in the same country as the foreign account. This would be incredibly useful, eliminating the penalty for committing personal finance while living abroad.

I would go further and make the U.S. tax system territorial for non-residents, to eliminate absurd spectacles like the IRS going after the U.S.-born Mayor of London for capital gains on the sale of his home in London.

Related coverage: 

Robert Wood, National Taxpayer Advocate Slams IRS Offshore Programs & FBAR Penalties, Demands Change

TaxGrrrl, Taxpayer Advocate IDs Most Serious Problems For Taxpayers: Unacceptably Low Levels Of Service Tops List


20150115-2Kay Bell, It’s a new year, but time for final 2014 estimated tax payment

Russ Fox, Waiting for Godot. ” If you’re going to call the IRS, expect very lengthy hold times; yesterday I was on hold for 101 minutes before speaking with an IRS representative. I expect the hold times to get far worse as we head into Tax Season.”

Jason Dinesen, 5 Things You Didn’t Know About EAs, #5: EAs are the Only Pros Required to Take Tax CPE.

Robert D. Flach, WTF IS AN EA?  Wednesday Tax Forum is an EA?

Tim Todd, Unsubordinated Mortgage Prevents Charitable Deduction for Conservation Easement

Iowa Public Radio, Tax Time Gets New Ritual: Proof Of Health Insurance.


Alan Cole, Financial Transactions Are A Very Poor Tax Base (Tax Policy Blog):

Simply put, financial transactions are a very poor tax base. For one thing, it results in “pyramiding:” taxing the same economic activity many times. For another, economists generally think of trades as highly-valuable activity that benefits both parties, given that they both agreed to the deal. Taxing trade itself results in a kind of “lock-in” effect where people hold on to the things they have, whether or not they’re the best people to actually be holding on to them.

He also notes the social value of the ability to easily sell financial assets, one that would be damaged by a transaction tax.

Howard Gleckman, Gale and DeLong Debate: Is the Budget Deficit Even a Problem? (TaxVox).


Cara Griffith, Illinois Lawsuit Challenges Tax Credit Program for Encouraging Job Retention (Tax Analysts Blog). “But the interesting question this lawsuit raises is whether job creation and job retention should be treated as equal for purposes of a tax credit.” Yes, they should all get no tax credits.

Sebastian Johnson, State Rundown 1/12: When Your Mouth Writes a Check Your State Can’t Cash (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 616

Career Corner. The Happiest Lawyers Are Tax Lawyers  (Adrienne Gonzalez, Going Concern)



Tax Roundup, 1/9/15: Senators: preparers aren’t doing a good enough job on the tax law we’ve butchered.

Friday, January 9th, 2015 by Joe Kristan

Senator Wyden

Senators get behind IRS preparer regulation power grab. Accounting Today reports:

Two Democrats on the Senate Finance Committee have introduced legislation to regulate paid tax preparers in response to the federal court decision that found the Internal Revenue Service had exceeded its statutory authority in regulating preparers.

Senate Finance Committee ranking member Ron Wyden, D-Ore., and Senator Ben Cardin, D-Md., unveiled legislation Thursday that provides the Treasury Department and the IRS explicit authority to regulate paid tax return preparers. Wyden chaired the committee until control of the Senate changed after last November’s elections.

They call their yet unnumbered bill the “Taxpayer Protection and Preparer Proficiency Act of 2015.” A better name would be “A Bill to Boost the Revenue of the Major Franchise Tax Preparation Outfits.”

Whatever idealistic motives might be behind this bill (though I don’t give senators the benefit of the doubt for a second), the effect will be to protect and enhance the market share of the national tax prep firms. It was no coincidence that the overturned IRS preparer regulation program was drafted by a former H&R Block executive who came out the other side of the revolving door as a Treasury employee.

Regulation always favors the big. The national firms can spread the costs of compliance over a much bigger base of work, while a sole practitioner has to be her own regulation compliance department. A paperwork hangup or computer burp in the preparer regulation database can wreck a year’s business for a sole practitioner, but wouldn’t stop H&R Block or Liberty Tax for a moment.

It is argued that such regulation is needed to protect us from incompetents by imposing a “competency test.” As the test administered under the abortive IRS regulation program was more a literacy test than a competency test, this is hard to credit.  And anybody who has practiced in a regulated profession like accounting or law knows that while you can make someone pass a test, you can’t make him competent.

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.

The list of bills introduced this week in Congress in today’s Tax Notes shows what the real tax prep problem is: Congresscritters like Senator Wyden. In addition to his preparer bill, the Senator introduced a bill:

To amend the Internal Revenue Code of 1986 to provide a tax incentive to individuals teaching in elementary and secondary schools located in rural or high unemployment areas and to individuals who achieve certification from the National Board for Professional Teaching Standards, and for other purposes. 

This is just one more example of legislators using the tax law as the Swiss Army Knife of public policy. As the knife gets more unwieldy with every new gadget added to it, the tax law gets a little less better at collecting revenue with every new program added to it. Picture a Swiss Army Knife the size of a railcar.


And it’s not like Congress isn’t already doing enough for the national tax prep outfits, as Megan McArdle explains in Latest Tax Season Headache? Obamacare:

There’s been a lot of talk about the “hidden taxes” in the Affordable Care Act, but here’s one I hadn’t thought of before or seen mentioned anywhere: the sudden need for folks with simple tax returns to avail themselves of the services of a paid professional. If you have no income outside a modest salary, and not much in the way of potential deductions such as huge mortgage interest or state tax bills, then there was really no reason to use a tax preparer. Even the mathematically challenged should, with the aid of a calculator, be able to fill out their 1040EZ forms just fine. But Obamacare has introduced a significant level of complexity into the taxes of lower-middle-class wage earners.

That’s true. And a lot of folks who have used preparers will find their costs going up to pay for the extra work that will be required.


Kay Bell, IRS contacts tax preparers about filing mistakes; Thousands warned of Schedule C business income & child tax credit errors. Funny, I thought preparers weren’t regulated at all.

Jason Dinesen, The IRS’s Preparer Directory Will Be Bad News for Enrolled Agents. EAs have less lobbying clout than CPAs or the national tax prep outfits, and it shows.


Paul Neiffer, Should I File By March 1? “Therefore, if your tax for 2013 was very low and your tax for this year will be very high, talk this over with your tax advisor to see if it makes sense to pay an estimated tax payment on January 15 and wait until April 15 to make the final payment.”

Remember, only farmers get this break, and many are finding that the need to wait on K-1s from other investments makes filing a correct March 1 return impossible.

William Perez, Tips for a Tax-Efficient Divorce, Plus a List of What to Do First. From what I’ve seen, it’s even more tax-efficient to stay married.

In spite of the cold, we can count on Robert D. Flach for a fresh Friday Buzz roundup of news from around the tax blog world.


20130130-4Tim Worstall, Tax Avoidance And Tax Evasion Are To The Benefit Of Us All, picking up on David Henderson’s post that we mentioned earlier this week:

The crucial point is really how one views the activities of government. And there’s two views that seem to be held. One that I regard as hopelessly naive and simplistic, the second something very much closer to reality. That first is that all of the things that government does for us are beneficial to us and that limiting what it does do harms us all. The second is that some parts of what government does are things which both must be done and can only be done by government, but that a rather large part of what it attempts to do shouldn’t be done at all, whether by government or not.

I think this point is correct, though I’m sure Jim Maule would disagree with vigor. I also agree with this point that he quotes: “Government maximizes revenues; it does not levy revenues only to produce genuine public goods.” I also believe tax avoidance and evasion can serve as a check on overreach, but I suspect it only works in pretty bad situations.

TaxProf, The IRS Scandal, Day 610

Renu Zaretsky, Taxes: To Be Considered, Rejected, or Collected. Today’s TaxVox headline roundup covers the upcoming federal budget proposal, Cadillac taxes on health plans, and an “impossible dream” bill that purports to both abolish the imcome tax and balance the budget.


IMG_2535Cara Griffith, Mississippi Needs a Dose of Transparency (Tax Analysts Blog). “The Mississippi Department of Revenue does not publish opinions and decisions resulting from its audit appeals process, even though it may use those opinions and decisions as precedent.”

I notice Iowa hasn’t published any new rulings in two months now.

Liz Malm, Taxplainer: The State and Local Tax Impact of the Keystone Pipeline. “According to the analysis, property taxes collected during construction would amount to just under $4 million and would be spread out over seven counties in the three impacted states. ”

Sebastian Johnson, State Rundown 1/8: All Eyes on the Governors (Tax Justice Blog)


Career Corner. Make the Best of Busy Season, You Big Babies (Amber Setter, Going Concern)



Tax Roundup, 12/29/14: Why AMT matters in year-end planning. And: Laffering it up.

Monday, December 29th, 2014 by Joe Kristan

Accounting Today visitors! Click here to find the capital gains planning item from “In the Blogs.”

IMG_1944How AMT can make prepaying state and local taxes a false move. Prepaying state and local taxes is a venerable year-end tax planning move. It can also be a costly one, thanks to the Alternative Minimum Tax. If you are in AMT this year — perhaps thanks to a big non-recurring capital gain — but you won’t be next year, prepaying your state and local taxes might result in your taxes actually being much higher over the two-year period.

An example involving a fictional Iowa married couple shows how this works. The couple has one earner with $150,000 in self-employment earnings in 2014 and 2015. In 2014 the couple generates $300,000 in a one-time capital gain.

If the couple prepays their 2014 state tax on the capital gain, they get a federal tax benefit of precisely zero in 2014; the capital gain causes them to be in AMT whatever they do because the capital gain rates are the same for AMT and regular tax.

In 2015, the couple has no AMT on their $150,000 of self-employment income. Nor do they have AMT even after paying both their 2014 Iowa balance due and their 2015 Iowa estimates. My projection software comes up with these numbers (yes, oversimplified, but the concepts hold):


This shows that prepaying the taxes would be a $6,043 mistake for the couple.

There are cases where prepaying state taxes makes sense. There are also cases where AMT makes doing so a blunder. Make sure you run the numbers before you mail that check.


In case you missed it over the holidays, central Iowa’s only SHOP marketplace insurance provider was taken over by Iowa’s insurance regulators last week.  Read about it here.


Younkers ruins 20140610William Perez offers A First Look at ABLE Savings Accounts. These accounts, included in this month’s “extender” bill, allow Section 529-like benefits for accounts set up to pay disability costs.

Robert D. Flach, THE CLOCK IS TICKING. For 2014 Qualified Charitable Distributions from IRAs.

Mitch Maahs, Summary of the Tax Extenders in the Tax Increase Prevention Act (Davis Brown Tax Law Blog)

Kay Bell, Look out for phishing scam from fake Treasury Secretary

Jack Townsend, Tax Return Preparers Convicted of Conspiracy and Failure to File FBARs. They chose badly.

Cara Griffith, Crowdfunding and State Taxation (Tax Analysts Blog). Is Kickstarter funding taxable income or taxable sales?

Tim Todd, 4th Cir. Rejects Conservation Easement with Substitution Provision

Peter Reilly, Phantom Mares And Real Trucks Don’t Make For A Winning Horse Loss Tax Case. Plus, it’s really hard to find good phantom breeding studs.


Renu Zaretsky, Will Tax Reforming Be Forgot and Never Brought to Mind? This TaxVox headline roundup covers the Kansas struggles with careless tax reform, among other things.

TaxProf, The IRS Scandal, Day 599


Stephen MooreThe Laffer Curve turns 40: the legacy of a controversial idea:

To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve”…

Laffer Curve, via Wikipedia

Laffer Curve, via Wikipedia

The idea that tax rates can become so high that they actually reduce net revenue shouldn’t be controversial. If you have a 100% tax rate on an activity, you will avoid that activity, or at least letting the government know about it. Of course, a zero rate will also generate no tax revenue. The revenue-maximizing rate is somewhere in between.

Unfortunately, some people on the right have taken this point and jumped to the conclusion that tax cuts will always cause such increased taxable activity that tax revenues will increase. That’s as much a fallacy as left-side assumptions that increasing taxes can never be economically-harmful or revenue-reducing.

The real issues should be identifying the point at which the harms to economic activity and to revenues occur. It seems likely that the economically-damaging rate is lower than the revenue-maximizing rate, as Megan McArdle discusses here. These points have to differ for different kinds of tax. A 30% income tax rate might not be very destructive to economic activity, but a 30% sales tax would hurt, and a 30% gross receipts tax would be ruinous. The results also differ for state and federal taxes, given how much easier it is for activity to to move between states than between countries.

All this, of course, ignores the obvious question of how much revenue the government needs in the first place. I would argue that a well-run government limited to its proper sphere wouldn’t have to ask these questions all the time.



Tax Roundup, 12/18/14: Year-end planning and relatives. And: when will the President sign the extenders?

Thursday, December 18th, 2014 by Joe Kristan

When will he sign? Now that Congress has finally sent the extender Bill, HR 5771, to the President, the “expired provisions” require only his signature. When will that happen? I have no idea. There is nothing at about it. But everyone says he’ll sign. It would be the practical joke of the year if he didn’t.


IMG_1944Beware t
he relative! The tax law generally assumes that when related parties do business together, they’re up to no good somehow. That’s why the law has so many provisions that deny or delay tax benefits when relatives are involved.

For example, Code Section 267 only allows a deduction to a related party “as of the day as of which such amount is includible in the gross income of the person to whom the payment is made.” That’s no problem if the “related party” is on the accrual method, because they will be accruing the income at the same time you accrue the expense. But if the related party is a cash-basis taxpayer, you have to pay this year to get a deduction this year.

But who is related? It’s more complicated than you might think. For purposes of year-end deductions,  owners of more than 50% of C corporation stock, and their families (siblings, spouses, ancestors and descendants) are related.  Families are usually considered as a single owner for the 50% test.

For pass-through entities — partnerships and S corporations — any owner is a related party, along with members of owners families and anybody related to the family members.


Seventh Avenue, Des Moines, this morning.William Perez, Tax Increase Prevention Act of 2014. “A quick summary of the tax changes included in the Tax Increase Prevention Act of 2014.”

Kay Bell, Tax filing projections for the 2015 season and beyond

Peter Reilly looks back on his idiosyncratic tax coverage this year. Everything from atheist parsonages to Dr. Dino. Peter covers a lot of stuff that I wish I did, in a lot more depth than I could.

Jason Dinesen, A Brief History of Marriage in the Tax Code: Part 1, In the Beginning

Robert D. Flach, THERE ARE A LOT MORE THAN 20 REALLY STUPID THINGS IN THE US TAX CODE! “The one and only purpose of the federal income tax is to raise the money necessary to run the government. Period.”

Me, Year-end business deductions: the two-minute drill. My new post at, the Des Moines Business Record’s Business Professionals’ Blog. “While you add up the score in April, December is when you run the two-minute drill.”


20130419-1Robert Wood, 8 Savvy Tax Tips & Extenders For Year-End

Tim Todd, 5th Cir. Affirms IRS’s Adjustment Outside Limitations Period for Improper Installment Sale of Partnership Interest.

Keith Fogg, Collection Due Process Determination and Decision Letters Redux (Procedurally Taxing)

Jack Townsend, Plea in Corporate Corruption Case with Tax Charge. Kickbacks kick back.

Gavin Ekins, The IRS’s Long Reach Doesn’t Just Apply to Corporations (Tax Policy Blog). The post describes some of the ridiculous hoops Americans abroad have to jump through to comply with the tax law, and observes:

Are Americans alone in this onerous system? Unfortunately, they are. Only one other country taxes its citizens is this manner. Eritrea, the small country on the northern border of Ethiopia, is the only other country which taxes its citizens who live and work abroad, but unlike the U.S., they have a reduced flat rate for those citizens and none of the reporting burden.  

The results range from annoyance to financial disaster for the absurd crime of committing personal finance while abroad.

Renu Zaretsky, They Saved the Must-Pass for Last. The TaxVox headline roundup provides a good summary of the passage of the extender bill; it also talks about state gas tax moves.


TaxProf, The IRS Scandal, Day 588


20141218-1Cara Griffith, A Champion for Tax Reform (Tax Analysts Blog). “New York enacted a comprehensive tax reform package designed to improve the competitiveness of the state’s tax code by merging the bank tax into the corporate franchise tax, adopting single-sales-factor apportionment with market-based sourcing, broadening the corporate tax base, and lowering the rate.”

Sebastian Johnson, State Rundown 12/10: The Best Laid Plans (and Reports) (Tax Justice Blog)


Daniel Shaviro,  Evaluating the Case for 1986-Style Corporate Tax Reform, (TaxAnalysts, available via the TaxProf)


Career Corner. My Firm Holiday Party is a Teaching Moment For What Not to Do at a Firm Holiday Party (Leona May, Going Concern)


News from the Profession. Former Stillwater mayor charged with aiding tax fraud (

A former mayor of Stillwater was charged in federal court Wednesday with helping two Minnesota brothers keep millions of dollars in taxes from the state and federal governments.

Ken Harycki, a certified public accountant, knowingly prepared false tax forms for twin brothers Thurlee and Roylee Belfrey and their health care companies, according to charges filed in U.S. District Court.

CPAs, you must only use your powers for good.




Tax Roundup, 12/4/14: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Thursday, December 4th, 2014 by Joe Kristan

Accounting Today visitors: Click here for the Lincoln year-end planning link.

lazarus risingHouse passes extenders; Senate action not yet slated. The House of Representatives yesterday revived the Lazarus provisions of the tax law, passing HR 5771 on a 378-46 vote.

The bill now moves to the Senate, which has not yet scheduled a vote. The Hill reports that Senate Democrats have given up on promoting a competing bill, which probably means they will go along with the House bill. While the President has not said he would sign the House bill, he hasn’t threatened a veto; that probably means he will go along.

The expired tax provisions revived by the bill include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit, and the five-year built-in gain period for S corporations. They also include crony subsidies like energy production credits and accelerated depreciation for racetracks. A compromise plan to extend some of the provisions permanently collapsed when the President threatened to veto it.

The house-passed bill only extends the tax breaks that expired at the end of last year through the end of this month. That means the new Congress will have to do this again in 2015. Let’s hope they get an earlier start than they did this year.


Wall Street Journal, House Approves Temporary Tax Breaks

Accounting Today, House Passes $42 Billion Plan to Revive U.S. Tax Breaks for 2014


If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Gas Tax Fever! The Greater Des Moines Partnership unveiled its legislative agenda yesterday. While it has a few good ideas, like reviewing Iowa’s pension plans for soundness, its priorities are crony-capitalist items like support for economic development tax credits and “public-private partnerships.” Its weak tax reform plank supports the Alternative Maximum Tax, which would allow individuals to choose an optional low-rate, broad base system. You’ll look in vain for anything specific to improve Iowa’s bottom-ten business tax climate — just a general call for lower rates. That may be because many large corporations have learned to use Iowa’s rats nest of special interest breaks and crony tax credits to their advantage.

The agenda also includes support for an increase in the gas tax to fund road projects.  That plank has some policy logic behind it, but it also is a tough sell. Caffeinated Thoughts reports that Iowans for Tax Relief has already come out against it. ITR opposition makes it hard for many GOP legislators to support the increase. Maybe that’s why the Sioux City Journal is reporting “Iowa legislative leaders murky on gas tax increase


Robert D. Flach, IT AIN’T NECESSARILY SO – H&R BLOCK CEO ALLEGEDLY CARES ABOUT EFFICIENT AND EFFECTIVE TAX ADMINISTRATION. “Here is what is a good idea for proper efficient and effective tax administration – remove the Earned Income Credit, and all other government social welfare and other benefit programs, from the Tax Code.” Amen, Brother Robert.


Jason Dinesen, who is a pioneer in the taxation of same-sex married couples, offers A Brief History of Marriage in the Tax Code: Introduction

Paul Neiffer, Irrigation Systems – Is that 7 or 15 Years?  Depends on whether it’s buried.

Tony Nitti, Sorry Mr. Ryan, But Corporate-Only Tax Reform Doesn’t Work. Somebody tell the President.

Kay Bell, Spend down your flexible spending account by Dec. 31

Jeff Stimpson, In the Blogs: Start Your Engines (Accounting Today)


Mark J. PerryTop 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%:

top 400 bottom 50


TaxProf, The IRS Scandal, Day 574.  Yes, there are thousands of e-mails that may show the IRS improperly accessed confidential taxpayer records. Releasing them might violate taxpayer confidentiality, so they stay secret. How convenient.

The return confidentiality rules should be amended so that those abusing them can’t also hide behind them.

20140729-1Alan Cole, Bonus Depreciation is a Step Towards Fair Tax Accounting (Tax Policy Blog).

Elaine Maag, Why the More Generous Child and Earned Income Tax Credits Should Be Made Permanent (TaxVox). Because we like having 20% of it wasted or stolen?

Tax Justice Blog, Dave Camp’s Reform Plan Should Not Be the Starting Point for the Tax Debate.


Cara Griffith, Transparency Concerns Linger in Washington State (Tax Analysts Blog) Cockroaches and administrators tend to prefer darkness.


Career Corner. Protip for Future CPAs: Forging Signatures on Your Work Experience Form is Dumb (Adrienne Gonzalez, Going Concern)