Posts Tagged ‘cavalcade of risk’

Tax Roundup, 10/15/14: Extended return do or die day – tips on timely filing, and why you should do that.

Wednesday, October 15th, 2014 by Joe Kristan

20130415-1Friends, it’s deadline day. Extended 1040s are due today for U.S. residents. No second extension is available.

What happens if you don’t file?  Nothing good.  A few of the bad things that can happen:

- If you owe money, you can turn a 1/2% per-month late payment penalty into a 5% per month late-filing penalty.

- If you have an election to make that can only be made on a timely-filed return — for example, an election to defer insurance gains, or to carry forward net operating losses – you lose the chance to make that election forever.

- If your return would include a foreign disclosure, such as a Form 8938, Statement of Specified Foreign Financial Assets;  a Form 5471, disclosing an interest in a foreign corporation; or a Form 3520 if you have a foreign trust or a gift from a foreign personlate filing can trigger a $10,000 penalty.

- You don’t start the statute of limitations, so the IRS can come after you indefinitely for the tax year.

- Not filing can cause you to lose refunds. If you don’t file, you lose your ability to get a refund of withheld taxes after two years.

Failure to file is habit forming, and it’s a costly habit. Even if you owe and can’t pay, you still should file; you have options when you owe and can’t pay.

e-file logoWith so much on the line, it’s worth a little effort to make sure your last minute return is treated as timely-filed.  E-filing is the best way to ensure timely filing. There’s no worry about lost mail, and you get quick confirmation from the IRS.

If you must paper file, either out of conviction or because you are filing a form that can only be filed on paper, you should send it Certified mail, return receipt requestedGet down to your friendly post office and get the postmark hand stamped. And get there early; they often aren’t so friendly, or willing to hand-stamp your certified mail postmark, if you show up at closing time. And sometimes they consider that to be approximately “after lunch.”

If you can’t make it to the post office before closingall is not lost. You can go to a FedEx store or a UPS store and use a designated private delivery serviceBe sure to use one of the specified services. For example, “UPS Next Day Air” qualifies, but “UPS Ground” does not.  Get a shipping receipt with today’s date. And remember to use the street address for the IRS service center, as private services can’t deliver to the post-office box addresses.

 

Kay Bell, Tax Day 2014, the sequel: Oct. 15 Filing Extension Panic

Jason Dinesen, My Response to the IRS Saying I Can’t Speak On My Own Behalf

Peter Reilly, UnFair – One Night Stand Tonight – Exposing IRS Or Fair Tax Infomercial?

 

Keith Fogg, Picking the Wrong Collection Due Process Notice to Petition (Procedurally Taxing)

TaxGrrrl, Ireland Declares ‘Double Irish’ Tax Scheme Dead

 

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William McBride, U.S. Companies Continue to Flee Uncompetitive U.S. Tax System (Tax Policy Blog)

Matt Gardner, The Inversion Parade Continues: Steris Announces Pretend Move to Britain (Tax Justice Blog)

Howard Gleckman, The Small, Happy World of Supersized IRAs (TaxVox)

Joseph Thorndike, Forget Privacy — It’s Time to Tax Miles, Not Gas (Tax Analysts blog).  How do I put this politely? No, it’s not.

 

David Brunori, Schooling the Governors (Tax Analysts Blog) “Back when my libertarianism was still in the closet, I wrote critically of the Cato report card. I now regret my harsh critiques of the project because I believe Cato does the nation a great service by analyzing, assessing, and rating state executives.”

 

TaxProf, The IRS Scandal, Day 524

The new Cavalcade of Risk is up at Chatswood ConsultingThe ancient and venerable roundup of insurance and risk management posts has many highlights, including Hank Stern on Ebola and your health coverage.

 

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Tax Roundup, 9/22/14: Lerner speaks, sort of. And: a federal tax amnesty?

Monday, September 22nd, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner gives an interview. The former IRS officer at the center of the Tea Party disclosure scandal won’t testify under oath, but she sat down for a two-hour interview with Politico: Exclusive: Lois Lerner Breaks Silence:

And she’s a savvy lawyer: She studiously avoided answering fundamental questions about her role in the IRS scandal that could land her in deeper trouble with Congress. During her POLITICO interview, flanked by her husband, a partner at a national law firm, and two of her personal attorneys, she opened up about her life as a pariah, joked about horrible news photos and advice that she disguise herself with a blond wig, and cried when expressing gratitude for her legal team’s friendship.

It is, of course, a public-relations play, designed to make her look like a misunderstood victim of a partisan witch hunt. But it isn’t an especially impressive effort. From the Politico piece:

Several Lerner allies said she was so focused on enforcement that she failed to see the sensitivity of bringing cases against incumbents running for reelection.

But Republicans continue to point to emails in which Lerner inquired about Crossroads specifically, asking her colleagues why the group hadn’t been audited and suggesting the group’s application should be denied. And just weeks before the tea party news broke, after she had seen a draft of the damning inspector general report, she asked colleagues if internal IRS instant messages are tracked and could be requested by Congress.

A little history sheds some light on her “non-partisan” background:

– Before she worked at the IRS, she worked at the Federal Elections Commission, she attempted to get an Illinois GOP senate candidate to withdraw from public life as the price for ending an FEC investigation. The allegations were later dismissed.

– The IRS Commissioner, Doug Shulman, repeatedly denied there was any targeting before the report. Either he knew better, or as a subordinate, she didn’t pass the word up the chain.

– She was in the middle of the Tea Party efforts at an early date. When the Treasury Inspector General Report was about to open the scandal, she did a modified limited hangout, using a planted question to spin the story as just a Cincinnati rogue agent problem.

– She had a hang-up about the Citizens United decision, and her emails show that she was trying to use the tax law to accomplish what the Supreme Court had forbidden.

– The numbers are glaring, showing that conservative groups got much more scrutiny, and it took much longer for their applications to be approved than liberal groups:

targetingstats

Ms. Lerner has, of course, invoked the Fifth Amendment to avoid testifying before Congress about her role in the scandal.

Presumably this interview is the start of a P.R. campaign. I don’t think it will work, but it might get her some good press from outlets inclined to dismiss the scandal.

 

TaxProf, The IRS Scandal, Day 500. It features Stonewall Koskinen: The IRS Commissioner Was Supposed to Clean Up the Mess. Instead, He’s Running Interference from Kimberly Strassel of the Wall Street Journal:

 The only thing Mr. Koskinen has seemed remotely interested in turning around is his agency’s ugly story-line. He has yet to even accept his agency did anything wrong, spending a March hearing arguing that the IRS didn’t engage in “targeting” and claiming the Treasury inspector general agreed. This was so misleading the Washington Post gave Mr. Koskinen “three Pinocchios, ” noting the IG had testified to the exact opposite.

He seems intent on de-throning Doug Shulman as the Worst Commissioner Ever.

 

 

get-outRobert D. Flach asks WHAT ABOUT A FEDERAL TAX AMNESTY?

This would be a one-time only offer. The legislation creating the Federal Tax Amnesty Program could so state by forbidding any future Amnesty programs. Or it could state that the federal government would not be able to institute another Amnesty Program during the twenty years after the end of the current amnesty period.

I have my doubts. One Congress can’t bind another, and if it is popular, the pressure for another amnesty will start building as soon as the first one ends. I also worry about the chump effect – people will feel like chumps for complying, and will convince themselves that if they don’t comply, there will be another amnesty anyway. But I might be convinced otherwise, especially if it were combined with tax reforms that would help prevent the need for another one.

 

Russ Fox, “I’ve tried to tell you the truth every time I’ve been here”. “That quote is from IRS Commissioner John Koskinen during his testimony from earlier this week on Capitol Hill. I have a simple question for Commissioner Koskinen: Why doesn’t that quote read, ‘I’ve told you the truth every time I’ve been here?'”

TaxGrrrl, Back To School 2014: Childcare Expenses

Jack Townsend, Trial Management of the Cheek Good Faith Defense.  Or as an old lawyer I know calls it, the “good-faith fraud defense.”

Kay Bell, Getting old sucks. We can’t stop Father Time, but we can prepare physically, emotionally and financially. And it still beats the alternative.

 

David Brunori talks about Nevada’s Tesla giveaway in State Tax Notes ($link):

Nevada is giving $1.3 billion to a company that is essentially owned by a guy worth $12 billion. I don’t begrudge Elon Musk his money. On the contrary, I admire his ability to create and accumulate great wealth. I just don’t see the need to give him public money. Assuming you ascribe to the belief that horizontal equity requires that similarly situated taxpayers bear similar burdens, Nevada is giving away public money…

I know that the politics of incentives are impossible to overcome. And I have had numerous readers tell me to give my constant ranting a rest. But the political inevitability of tax incentives does not make them appropriate or good.

Tax credit corporate welfare doesn’t just hurt the states that “lose” the competition to bribe companies like Tesla. It hurts all of the businesses of the “winning” state that have to pay full-freight while brazen and well-connected companies like Tesla pay nothing.

 

20140922-1William Gale, Income Tax Changes and Economic Growth (TaxVox) “While there is no doubt that tax policy influences economic choices, it is by no means obvious on an ex ante basis that tax rate cuts will ultimately lead to a larger economy.”

Joshua McCaherty,  Senator Schumer’s Retroactive Tax Bill (Tax Policy Blog). Part of the inversion diversion.

Ajay Gupta, Renouncing the Dogma of Surrey’s Infallibility (Tax Analysts Blog). Sounds like something involving the Pope and Henry VIII, but it’s really about transfer pricing.

A new Cavalcade of Risk is up at Workers Comp Resource Center, with posts from around the insurance and risk-management world.

 

News from the Profession. 15 Reasons Why EY’s BuzzFeed Post Is a Bunch of Malarkey (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 8/7/14: Imitation and Flattery edition. And: How to get California to want your $800.

Thursday, August 7th, 2014 by Joe Kristan

20130819-1You might be surprised just how easy it can be to get sucked into tax in another state.  Cara Griffith explains how easy it is to get California to come after you for their $800 minimum return fee in Doing Business in California (Tax Analysts Blog):

The California Franchise Tax Board recently issued Legal Ruling 2014-01, which addresses when a business entity with a membership interest in a limited liability company is required to file a California return and pay applicable taxes. The ruling comes while a case is pending on that very issue.

The case is Swart Enterprises Inc. v. California Franchise Tax Bd. (Fresno County Superior Court, Case No. 13 CE CG 02171 (July 9, 2013)). Swart operates a farm in Kansas and provides farm labor contractors. The company is incorporated in Iowa, has estimated annual revenues of $280,000, and has three employees.

Swart has no physical presence in California. It doesn’t have employees in California and it doesn’t own real or personal property there. Swart did, however, own a 0.02 percent interest in a California limited liability company that invested and traded in capital equipment. Swart was not the manager of the fund and was not involved in the management or operation of the fund. Yet its status as a member is enough for the FTB to allege that Swart is doing business in California. 

The post explains that California would have let Swart off the hook if they owned in interest in a limited partnership, rather than an LLC.  So if your business sneezes in the general direction of California, make sure you stick an old-fashioned limited partnership in the ownership chain somewhere, or California will shake you down for $800, or maybe a lot more.

This should especially make businesses wary about buying interests in publicly-traded or broker marketed LLCs.  Most of these have at least a little bit of California income, and they might just make a California filer out of your LLC or corporation.  And it’s not just California — wherever the LLC might be, so might you be also.  It can mean increased state taxes, not to mention increased tax return prep fees.

 

TaxGrrrl, Son Of Powerful Congressman Charged With Bank & Tax Fraud.

Howard Gleckman, Does Congress Really Care About the Deficit? Not When It Comes to Vets and Highways (TaxVox).  The answer would have been correct if it stopped after the first two letters.

Annette Nellen, Push for state film credits from Congress.  They don’t care about state solvency either.

 

Peter Reilly, FAIR Tax Abolishes IRS – Then What?

Paul Neiffer, Another Conservation Easement Tax Court Case – Mostly in Taxpayer’s Favor:

When valuing a conservation easement, you must determine the value of the property before the easement and the value after the easement.  The difference in value becomes the charitable deduction amount.  In the case of the Schmidt’s, their apprisal determined the before easement value was $1.6 million and the after easement value was $400,000 for a net contribution deduction of $1.2 million…

The IRS appraiser valued the property at $750,000 for the before easement value and $270,000 for the after easement value for a net deduction of $480,000. 

The deduction came down a little, but the IRS lost its bid for penalties.

Me, Obamacare mandates: What’s a taxpayer to do? (IowaBiz.com, where I discuss what the Halbig decision on tax credits for policies purchased on federal exchanges means now for taxpayers subject to the individual and employer mandates.

TaxProf, The IRS Scandal, Day 455

 

There’s a new Cavalcade of Risk.  This edition of the venerable roundup of insurance and risk-management posts is up at The Population Health Blog. Among the worthy posts is Hank Stern’s Rideshare Tricks – An Update, on the insurance implications of participating in ride-share services like Uber.

 

nra-blue-eagleBut Mr. President, imitation is the sincerest form of flattery!  Accounting Today reports on yesterday’s presidential press conference in Obama Blames Accountants for Inversion Trend:

During a press conference Wednesday following a summit with African leaders, Obama said, “You have accountants going to some big corporations—multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States—and these accountants are saying, you know what, we found a great loophole—if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.”

Wherever would anyone get the idea to do such a thing?  Well, Accounting Today points to a suspect: Obama Aides Let Delphi Avoid Taxes with Tactic President Assails:

 President Barack Obama says U.S. corporations that adopt foreign addresses to avoid taxes are unpatriotic. His own administration helped one $20 billion American company do just that.

As part of the bailout of the auto industry in 2009, Obama’s Treasury Department authorized spending $1.7 billion of government funds to get a bankrupt Michigan parts-maker back on its feet—as a British company. While executives continue to run Delphi Automotive Plc from a Detroit suburb, the paper headquarters in England potentially reduces the company’s U.S. tax bill by as much as $110 million a year.

One might almost get the impression that this whole inversion panic isn’t really a serious policy effort, but instead a desperate diversion by a foundering politician and his partisans.

Kay Bell, Walgreens decides to keep U.S. tax residency

 

The problem might be the tax system, not wobbly patriotism.  Record Numbers of Americans Are Renouncing Their U.S. Citizenship (TaxProf).  Paul Caron links to Andrew Mitchel’s report on the latest quarterly numbers of published expatriates, which includes this chart:

20140807-1

 

Our worldwide tax system makes it difficult, dangerous and expensive to be a U.S. taxpayer abroad.  Rather than impugning their patriotism, the President ought to try to make it affordable.

 

Bob McIntyre of the Tax Justice Blog makes perhaps the worst appeal to authority ever seen in the tax literature: Woody Guthrie on Corporate Tax Inversions.  Woody Guthrie’s economic gurus weren’t exactly cutting-edge .

 

The Iowa State Fair Starts today!  

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If you show up on Saturday, look for me at the Sertoma booth at the Varied Industries Building from 1-5; I will be distributing educational hearing safety info and ear plugs, and you may even be able to get a free hearing screening from a trained audiologist.  And you might want some music to fire you up for a really big show!

 

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Tax Roundup, 7/11/14: Wilderness edition. And: the hazards of doing it yourself.

Friday, July 11th, 2014 by Joe Kristan
Photo courtesy Philmontscoutranch.org

Photo courtesy Philmontscoutranch.org

Programming note.  The Tax Update goes untended for the next two weeks, as I head to Philmont Scout Ranch with my younger son and others for a 10-day backpacking odyssey.  It’s my first visit to New Mexico and my first extended backpacking trip.  Horses, carabiners, and black powder rifles will be encountered.  Whatever remains of me will be back here July 28.  The lovely and talented folks in the blogroll to the right will keep the tax world under control in the meantime.

 

Accounting Today visitors: if you followed the newsletter link here, you probably are looking for this: July 5, 1944.

 

Does the tax law cause people to do work on rental properties that they really should hire out?   That’s one conclusion you could draw from a Tax Court case yesterday, where a landlord says she chose do herself work that, based on the time she says she spent, should have gone to a contractor.

The tax law says real estate losses are normally “passive,” and when adjusted gross income exceeds $150,000, they are only deductible to the extent of other passive income.  A special rule lets “materially participating real estate professionals” out of the “per-se passive” rules; these taxpayers test whether their real estate activity is passive under the rules that apply to other business activities, based on time spent.

There’s a serious catch.  To qualify as a real estate pro, you have to work at least 750 hours in real estate, and more hours than in anything else you do.  If you have a full-time day job, this doesn’t work.

20140325-1But taxpayers attempting to get to 750 hours might be tempted to do work they would otherwise outsource.  That would be the generous interpretation of these facts in the Tax Court (my emphasis):

Petitioner claimed to have spent a total of 772 hours working on her rental properties in 2009. In support of her assertion, petitioner provided activity logs purporting to document the time she spent on her rental activities. Some of the activities included painting, cleaning apartments, shoveling snow, communicating with tenants on various issues, placing rental ads in the local newspaper, picking up mail, and paying bills. Although some log entries reference a specific apartment or property, many log activities do not specifically identify a particular rental unit. In addition, the number of hours noted on petitioner’s logs appears to be significantly inflated. For example, in one instance petitioner claims to have spent 8 to 12 hours per day for 10 days staining the “deck and siding” of what appears to be one apartment at the Pulaski property.

Some people just are perfectionists.

The log also indicates that [petitioner's husband] helped stain the deck and siding on those dates. In that instance, petitioners together spent between 160 to 240 hours staining the deck and siding of one apartment. There are several other instances in 2009 where petitioner claims to have spent many hours staining and painting decks and front porches of the rental properties. Petitioner’s log for July 2009 indicates that she spent approximately 77 hours over an eight-day period to paint a back porch. Petitioner’s log for November 2009 indicates that she spent more than 105 hours over a 12-day period on the flooring for one apartment and that on one specific day she worked 16 hours.

While a misguided attempt to reach 750 hourse might have motivated this sort of effort, the judge decided that something else was going on:

 Although petitioner claims she acted reasonably and in good faith with respect to her position that she was a real estate professional in the years in issue, we have concluded that petitioner’s records are not accurate or reliable and likely inflated the hours she spent in real estate activities. We have also concluded that the logs relating to her activity as an employee and her self-employment were not accurate.

If you want to document time for showing an activity is non-passive, it is wise to track it in a daily contemporaneous calendar.  It is also wise to not push the limits of believability.

Cite: Materano, T.C. Summ. Op. 2014-64

Material participation hours tests can be found here.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 428.  It features  from the Wall Street Journal U.S. Judge Orders IRS to Explain How it Lost Lerner’s Emails:

A federal judge on Thursday ordered the Internal Revenue Service to explain how it lost two years’ worth of a former official’s emails, and tapped a magistrate judge to find out whether the documents can be obtained from other sources.

At a hearing in a conservative group’s lawsuit, U.S. District Judge Emmet Sullivan gave the IRS until Aug. 10 to provide a sworn declaration explaining how the email loss occurred. The IRS previously has said that the emails were lost because the top agency official’s computer crashed in 2011, and backup tapes were routinely reused after six months.

These practices violated federal recordkeeping procedures and, likely, federal law.  In spite of Ms. Lerner’s evident concern about the possibility of  her emails being found, Commissioner Koskinen says it’s silly to think anything more suspicious than a remarkable rash of hard-drive failures is to blame.

 

A new study by the Mercatus Institute says state taxes matter.  A summary says “The study finds that higher state taxes correlate with lower economic performance, even when controlling for various factors.”  It says that higher taxes lower economic growth, affect migration patterns, and reduce business startups. (hat tip: Maria Koklanaris, State Tax Notes ($link‘))

 

Carl O’Donnell, How The $1 Billion Kennedy Family Fortune Defies Death And Taxes.  Most politicians who vote for higher taxes do so assuming they won’t have to pay them. (via the TaxProf)

 

Kyle Pomerleau, Bill to be Introduced that Seeks to Reduce EITC Payment Error (Tax Policy Blog).  Unfortunately, fraud and error are baked into this cake.  You might as well try to take the chocolate out of toll house cookies.

 

20140513-1Jim Maule continues his Tax Myth series with Tips Aren’t Taxed Because They Are Gifts.  “Most people who collect tips are paid very little, rely on the tips to make a living, and are unhappy to learn that tips are included in gross income.”

Jason Dinesen, Glossary of Tax Terms: Head of Household   

It’s Friday, it’s Buzz Day at Robert D. Flach’s place.

Keith Fogg, Revoking the Release of the Federal Tax Lien and Appointing a Receiver (Procedurally Taxing)

 

TaxGrrrl, Who Should Pay For Schools? Answer Remains Unclear As Cigarette Tax Boost On Hold   Smoke ‘em if you got ‘em.  For the children!

Renu Zaretsky,  Games, Spins, Ignorance and Patience.  Today’s TaxVox headline roundup covers, among other things,  Highway Trust Fund games, corporate inversions.

Steve Warnhoff, House Poised to Throw $276 Billion “Bonus” at Businesses.  (Tax Justice Blog).  He’d rather throw it at the government.

Kay Bell, LeBron ‘King’ James’ return to Cleveland could be a win-win for fans and the so-called Win Tax

 

20140711-2

 

A new Cavalcade of Risk is up!  R.J. Weiss hosts this edition of the blog world’s venerable roundup of insurance and risk management posts, including Hank Stern on Kidnap & Ransom Insurance.

I’ll bet he does.  Beanie Babies creator defends sentence of probation, no prison time, for tax evasion (Brandon Sun)

News from the Profession.  Just How Many CPA Roommates Can You Fit In a Single Apartment? (Leona May, Going Concern)

 

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Tax Roundup, 6/27/14: IRS tries preparer regulation through the back door. And: why was Lerner at IRS?

Friday, June 27th, 2014 by Joe Kristan

20130121-2IRS tries “voluntary” end run around the law.  The IRS yesterday announced that it doesn’t need no stinking law (IR-2014-75):

The Annual Filing Season Program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing education (CE), including a course in basic tax filing issues and updates, ethics and other federal tax law courses.

“This voluntary program will be a step to help protect taxpayers during the 2015 filing season,” said IRS Commissioner John Koskinen. “About 60 percent of tax return preparers operate without any type of oversight or education requirements. Our program will give unenrolled return preparers a way to stay to up-to-date on tax laws and changes, which we believe will improve service to taxpayers.”

Tax return preparers who elect to participate in the program and receive a record of completion from the IRS will be included in a database on IRS.gov that will be available by January 2015 to help taxpayers determine return preparer qualifications.

The database will also contain information about practitioners with recognized credentials and higher levels of qualification and practice rights. These include attorneys, certified public accountants (CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

So the Commissioner is keeping a little list of his friends.  And if you aren’t on his list of friends, you are on his list of not-friends.  It’s obvious what is going on here.  Through PR and subtle or non-so-subtle IRS preference for those on the Friends List, they will make life unpleasant for the non-friends, encouraging them to submit to “voluntary” CPE, testing, and ultimately, IRS control.  The IRS is trying to achieve its preparer regulation, ruled illegal by the courts, through other means.  This eagerness to take on a new program that nobody wants must mean the IRS is adequately funded, and its cries for more resources can safely be ignored.

Other coverage:

IRS Offers Voluntary Tax Preparer Education Program (Accounting Today)

Adrienne Gonzalez, IRS Goes Ahead With Voluntary Tax Preparer Program Despite AICPA Objection (Going Concern)

Leslie Book, IRS Announces Voluntary Education Program For Return Preparers (Procedurally Taxing)

Robert D. Flach, IT’S JUST STUPID  “This program will do little to ‘encourage education and filing season readiness’. ”

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Why did Lois Lerner work at the IRS?

This question came to mind in discussing the Lerner emails with a reader, who noted how a Politico piece about the Grassley email chain revealed this week pointed out this high-level IRS leader’s evident lack of tax skills:

Former ex-IRS tax exempt division chief Marcus Owens said the email chain shows Lerner knew very little about tax law, as there would have been nothing wrong with Grassley and his wife attending such an event, so long as the income was reported.

“It is nothing that rises to the level of referral for examination,” Owens said.

It is a mystery.  Her Wikipedia biography shows that she was a cum laude graduate of Northeastern University and the Western New England College of Law.  She worked as a high-level attorney at the Federal Election Commission, but moved to IRS as “Director Rulings and Agreements” in the exempt organizations branch of the IRS.  She rose to Director of Exempt Organizations in 2006.

Her resume, then, is that of a bureaucrat, rather than a tax practitioner or specialist.  She apparently never practiced tax law before moving into her important policy position — important in the tax world, anyway.

This sort of thing may be common in the federal bureaucracy.  It’s likely that she got a raise for the move, or something.  But it seems that while you could take the girl out of the FEC, you couldn’t take the FEC out of the girl.  She took it upon herself to monitor the electoral process with the tools of the tax law.

Megan McArdle explains why that was a bad idea:

This exchange suggests that Lois Lerner not only didn’t have a good, basic grasp of the tax law she was supposed to be administering, but also viewed her job as an extension of her work at the Federal Election Commission.

That’s not what the IRS is for. The IRS is not given power over nonprofit status in order to root out electoral corruption or the appearance of it. It is given power over nonprofit status in order to make sure that the Treasury gets all the revenue to which it’s entitled

Unfortunately, politicians see the tax law as the Swiss Army Knife of public policy, and it’s unsurprising that an IRS bureaucrat would see it the same way.

Moreover, Lerner’s overbroad instincts also seemed to kick into high gear when Republican politicians were involved. Of course, such reports might well be survivor bias — Republicans are complaining about Lerner, while Democrats who also had run-ins with her may be keeping quiet for fear of fueling the fire. At this point, however, the fire is burning merrily on its own. If Democrats who encountered Lerner’s overzealous use of her powers are out there, they’d do well to come forward and tell their stories to reassure Americans that even if her actions were overbroad, they weren’t broadly partisan.

They would have emerged by now.  The stats, as we noted yesterday, demonstrate one-sided enforcement.

It’s unlikely that Ms. Lerner came to the IRS with the idea of using her position to harass the opposition.  She just happened to be in a position to do so when applications from groups she didn’t like — perhaps that she even saw as dangerous and wrong — came across her desk.  It’s possible that she did it entirely on her own.  And that’s the scariest thing — a bureaucracy that moves on its own to squash ungoodthinkers is much more dangerous than a top-down conspiracy.  It may be hard to replace an administration, but it’s almost impossible to replace a bureaucracy.

 

taxanalystslogoChristopher Bergin, The IRS Has Been Set Up (Tax Analysts Blog):

I don’t know if the IRS has been politicized. Until recently that possibility would have been unthinkable. But the potential of the 501(c)(4) rules to be a setup for the politicization of the IRS is enormous. You simply can’t have the tax collector refereeing the people who provide it with its budget. 

Christopher calls for the repeal of 501(c)(4).

TaxProf, The IRS Scandal, Day 414

Johnnie M. Walters, Ex-IRS Chief, Dies at 94 (New York Times):  “Johnnie M. Walters, a commissioner of the Internal Revenue Service under President Richard M. Nixon who left office after refusing to prosecute people on Nixon’s notorious “enemies list,” died on Tuesday at his home in Greenville, S.C. He was 94.”

Funny how nobody is doing that anymore.

 

Jason Dinesen, I Can’t Do Much to Help You Once the Transaction Is Completed.  “The point is: the time to ask for tax advice about something that will generate a massive tax bill is beforehand, not afterwards.”

Russ Fox, FBAR Deadline Is June 30th, but It’s Not a Midnight Deadline.  “My advice is simple: File the FBAR asap–it at all possible by Saturday.”

TaxGrrrl, Kentucky Fried Hoax: What Happens To The Cash?

Peter Reilly, Kuretski – Was Legal Dream Team Really Trying To Help The Taxpayers?

Jack Townsend, False Statements Crime Element of “Knowingly and Willfully” Requires Proving Knowledge that Making False Statement Is Illegal

Robert D. Flach brings the Friday Buzz!

 

This happened in 2008.  It's raining again.

This happened in 2008. It’s raining again.

 

Lyman Stone, Pennsylvania House of Representatives Passes Suspension of Tax Credits (Tax Policy Blog). “Most of these credits amount to narrow carve-outs for favored industries and firms, and thus their elimination would generally be good tax policy as a way to make the tax code more neutral.”

Richard Phillips, Clinton Family Finances Highlight Issues with Taxation of the Wealthy (Tax Justice Blog).

Scott Eastman, Tax Inversions are a Symptom, Corporate Tax Reform is the Cure (Tax Policy Blog).

Howard Gleckman, CRFB’s New Online Budget Simulator (TaxVox).  “Neither Congress nor the White House seem to care much about the budget deficit these days, but if you do, the Committee for a Responsible Federal Budget has created an updated online budget simulator that lets you try to get a handle on fiscal policy.”

 

The new Cavalcade of Risk is up at Worker’s Comp Insider.  Good stuff always at the blog world’s roundup of insurance and risk management — including Hank Stern on a potential diabetes breakthrough.

Oops. U.K. tax system errors mean 3.5 million unexpectedly owe (Kay Bell)

 

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Tax Roundup, 6/13/14: Extenders advance, estimates loom.

Friday, June 13th, 2014 by Joe Kristan

Remember, second-quarter estimates are due Monday.  If you are a business paying through EFTPS with a payment due Monday, you need to set your payment up today to have it go through on time.

Kay Bell, Second estimated tax payment of 2014 is due June 16

 

S imageS imageS-SidewalkExtenders for Sec. 179, S corporations advance in House.  

The House of Representatives voted yesterday to make permanent $500,000 Section 179 expensing, a five-year built-in gain tax recognition period for S corporations, and the basis adjustment for S corporation contributions of appreciated property.

The President has said he will veto these permanent items, so this is more symbolic.  The Democrats want to keep pretending these are temporary measures to avoid counting their cost in long-term budget computations.   It is interesting, though, that it appears that these items are expected to be extended indefinitely, whether a year at a time or honestly.  They were initially passed in an anti-recession “temporary” measure.  It just shows that there are few things as permanent as a temporary tax break.

Still, until the Senate and the House agree on a bill, none of these provisions are in effect this year, so don’t spend your savings from these provisions just yet.

 

Jason Dinesen, HRAs and the Affordable Care Act:

An insurance agent recently asked me the following question: can a small business that currently offers insurance to its employees drop the insurance and instead form a Health Reimbursement Arrangement (HRA, sometimes called a “Section 105 plan”) to reimburse employees for medical expenses?

The short answer to the question is: NO.

This is an issue that came up a lot in our Farm and Urban Tax Schools last fall.

 

Jordan Yahiro, The Obamacare Cadillac Tax and its Mixed Bag of Consequences (Tax Policy Blog):

Roberton Williams, Good And Bad News About The ACA Penalty Tax (TaxVox). “So what’s the bad news? Of the 7 million people who will owe tax, CBO says more than 40 percent won’t pay.”  And of those who do pay, about 60 percent won’t qualify for subsidies.

billofrightsChristopher Bergin, Taxpayer Bill of Rights or Mission Statement? (Tax Analysts Blog):

Is the taxpayer bill of rights a “Bill of Rights”? I don’t think so. If it were, Congress would need to provide remedies. The best thing I can say is that the IRS’s statement this week may be a good start at articulating principles the IRS should plan to follow.

Exactly.  My clients have already received notices since it was issued that violate this “bill of rights” by assessing penalties without offering explanation or appeal — and which are erroneous.  If we could turn around and make IRS pay us penalties when they erroneously assess us, or otherwise violate our supposed rights, it might mean something.

Keith Fogg, The Taxpayer Rights the IRS Says We Have (Procedurally Taxing).  “I am ready to be pleasantly surprised by the results of IRS TBOR and see little downside in this administrative effort to set out its view of the rights and expectations citizens should have of their tax administrators.”

 

Joseph Thorndike, Congress Should Abolish All Tax Breaks for Higher Education (Tax Analysts Blog):

There are at least 12 tax preferences targeting higher education, Guzman notes. Many are complex in their own right. When combined, however, they became a hopeless nightmare of complexity.

And it’s probable that the colleges just hoover up the subsidies with higher tuitions.

 

Cara Griffith, Tax Analysts Files Suit to Demand Transparency in California (Tax Analysts Blog).  Sometimes the bureaucracy likes the dark best.

 

TaxGrrrl,  Seattle Area Biz Tacks ‘Living Wage Surcharge’ Onto Receipts In Response To $15/Hour Minimum Wage.  Price controls always fail, and minimum wages are price controls.

Anthony Kim, Curtis Dubay, FATCA Hurts Law-Abiding Americans Living Abroad.  Sometimes you have to sow chaos and despair on the innocent break a few eggs to score some cheap political points make an omelet.

Tax Justice Blog, Senate Democrats, Joined by Three Republicans, Come Up Short on Buffett Rule, Student Loan Bill.  Too bad, so sad.

 

20140613-1

Looking north on 6th Street.

The new Cavalcade of Risk is up!  This edition of the venerable roundup of insurance and risk-management posts comes from France, but is assembled from U.S.-made parts — like Hank Stern’s post on a Ballsy Insurance Carrier Trick.  Global warming is involved.

Peter Reilly, Will National Grid Try Dumping Its Electrons Into Boston Harbor? 

 

TaxProf, The IRS Scandal, Day 400

Robert D. Flach starts your weekend early with a Friday Buzz!

 

Going Concern, Listen to a Fake IRS Agent Try Telling Ex-Crazy Eddie CFO He’s About to Be Arrested.  It’s hard to scam a scammer.

 

 

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Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

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Tax Roundup, 4/4/14: Your Honor, nobody follows that law! And: extenders advance.

Friday, April 4th, 2014 by Joe Kristan

20120801-2Maybe that wasn’t the best argument, under the circumstances.  Things went badly for a California man yesterday who tried to tell the Tax Court how things work in the real world.

The man had claimed $5,309 in vehicle expenses for his real estate sales business.  Vehicle and travel expenses are subject to the special rules of Section 274, which requires corroborating records of the amount, time, place and business purpose of travel expenses.  The judge found the taxpayer’s evidence wanting (my emphasis):

Petitioner provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009. Petitioner, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents. Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. (While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135″, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.) Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense. Because petitioners failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

The IRS asserted negligence penalties for claiming an undocumented deduction.  The taxpayer tried to tell the judge that nobody does that stuff:

Petitioner did not argue reasonable cause or good faith. Instead, petitioner argued at trial that no one keeps records in accordance with the “IRS code”.

Well, OK, then, screw Section 274!  Well, no:

That argument is unpersuasive, and the section 6662(a) penalty will be sustained.

The IRS is serious about documenting business miles.  If you have them, keep a log, a calendar, or use a smart-phone app to record the time, place, cost and business purposes of your travels as you go.  If “no one keeps records in accordance with the ‘IRS code,'” no one is going to be happy with the results when they get audited.

Cite: Chapin, T.C. Summ Op. 2014-31

 

20130113-3Tax Extenders Legislation Advances in Senate (Accounting today):

 The Senate Finance Committee voted to revive almost all of the 55 tax breaks that expired Dec. 31, providing benefits for wind energy, U.S.-based multinational corporations and motor sports track owners.

Motor sports track owners have lots of friends in high places.

It’s not just motor sports lobbyists who did will in the Finance Committee.  Almost all
“expired” provisions of this lobbyist right-to-work vehicle were renewed, including the renewable fuel credits.  The only expiring provisions that actually expire are the credit for energy-efficient appliances and a provison for oil refinery property, so there remains some lobbying to do.

But wait, there’s more!  Tax Analysts reports ($link) that this Christmas in April bill includes a provision to “expand the research credit to allow passthroughs with no income tax liability to apply the credit, up to $250,000, to their payroll tax liability.”  It also would renew the reduction of the S corporation built-in gain tax “recognition period” at five years through 2015.

While the House still hasn’t acted on any of this, the passage of all of this stuff on a bipartisan basis would seem to indicate that something like this is likely to pass.  Still, Kay Bell thinks the House tax leadership may be reluctant to follow the Senate’s lead.

The reason Congress pretends these provisions are “temporary” is that under their rules, Congress can pretend that they will only cost as much as they will cost before they are renewed again, regardless of the probability that they will be renewed forever.  It’s the kind of accounting that would get us thrown in jail if we tried it with the IRS or SEC, but it’s just another Thursday in Congress.

Link: “Summary of Modified Chairman’s Mark.”

 

20091010-2.JPGKristy Maitre, E-Filed Return Rejected at Deadline? Don’t Panic

Paul Neiffer, Patronage Dividend Notices Can Be Sent by Email or Posted to a Website

Jason Dinesen, Accounting for the Work Opportunity Credit on an Iowa Tax Return 

TaxGrrrl, Taxes From A To Z (2014): T Is For Tip Income   

Leslie Book, ACA and Victims of Domestic Abuse (Procedurally Taxing)

Russ Fox, Yes, Online Poker Players Must Pay Taxes

 

TaxProf, The IRS Scandal, Day 330

William Perez, State and Local Tax Burdens as a Percentage of Income for 2011

Lyman Stone, Missouri Senate Passes Problematic Income Tax Cut Plan (Tax Policy Blog).  “Missouri’s state Senate this week passed a $621 million tax cut including a 0.5 percentage point income tax reduction and a special carveout to deduct up to 25 percent of business income.”

Howard Gleckman, Two Ways to Fix the Corporate Income Tax: Internationalize it or Kill It. (TaxVox).  I vote “kill.”

 

There’s a new Cavalcade of Risk up!  At Insurance Writer. Don’t miss Insureblog’s contribution about how those making health care policy don’t know what they’re talking about.

 

20120906-1Corporate Welfare Watch:

Iowa city prepares to give mystery company millions. (Foxnews.com)  “West Des Moines city officials have cued up $36 million in local and state tax incentives for a company, but won’t tell its citizens who that company is.”

Iowa senator calls BS on attempt to limit tax credits for fertilizer plant (Watchdog.org)

Iowa View: From wind to solar, clean power is good for Iowa (Joe Bolkcom, Mike Breitbach).  Green corporate welfare is still corporate welfare.

 

News from the Profession: Deloitte Declares Weekends Are Not For Working, Unless You Are Working (Going Concern)

 

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Tax Roundup, 3/21/14: Reforming S corporations to a frazzle. And: cleaning up at the laundromat!

Friday, March 21st, 2014 by Joe Kristan

S-SidewalkThe legislative process has been likened to sausage making.  Sausage doesn’t get more appetizing if you keep looking at it closely over a period of weeks, and neither does the Camp “tax reform” plan.  Andrew Lundeen and Kyle Pomerleau at the Tax Policy Blog today highlight some gristly features of the grand effort by the head GOP taxwriter:

The proposal leaves in place high tax rates for many S corporations, subjects them to additional payroll taxes, creates new distortions between types of industries, and produces two tax rate bubbles.

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

Camp’s tax reform package introduces complication with a new 10 percent surtax for non-manufacturing income. To make things more complicated, the additional 10 percent surtax would be calculated on a different income scale: modified adjusted gross income or MAGI. This essentially creates two side by side tax codes, a la the AMT, and individuals and businesses would have to calculate their AGI for one and their MAGI for the other.

As I noted, it doesn’t simplify the code by getting rid of the economically foolish Section 199 production deduction; it just moves it to a different section.

20140321-1

The Difference between Active and Passive Shareholders

The difference between active and passive shareholders is important for determining the marginal tax rates for S corporations under Chairman Camp’s plan.

That’s true now, but you’d expect a “reform” plan to get rid of this sort of gratuitous and difficult-to-enforce difference.

20140321-2

Changes to Self-Employment Taxes: the 70/30 Split Rule for SECA Taxes

Under current law, the IRS requires business owners to pay themselves a reasonable wage in order to prevent people from gaming this income distinction in order to avoid the extra 15.3 percent payroll tax hit.

Camp’s plan would replace the current reasonable wage standard with a 70/30 split, changing the rules for active shareholders. The rule would require that active shareholders of S corporations report 70 percent of their total earning as wage income.

I think it’s just one step on the way to a 100/0 split.

Tax Rate Bubble

Another element of Camp’s tax plan is the creation marginal tax rate bubbles. This occurs when a marginal tax rate, for example, goes from 10 percent to 15 percent and back down to 10 percent. We have a post that discusses the marginal tax rates under Camp’s plan, which you can find here.

When a “reform” plan comes with so many phase-outs and distortions, it’s not actually reforming anything.  I think the Camp plan will come to be seen as a false move and a lost opportunity.

 

TaxGrrrl, Taxes From A To Z (2014): K Is For Keogh Plans   

20140321-3TaxProf, The IRS Scandal, Day 316

William Perez, Average Sales Tax Rates by State: 2014, highlighting a Tax Policy Blog analysis.

Annette Nellen, Revenues versus tax collections.  “A recent blog post on LinkedIn’s Sales and Use Tax Legislative Updates included a comment from B.J. Pritchett suggesting that what governments collect in taxes should not be called “revenues” because it is not from selling goods and services.”

Tax Justice BlogState News Quick Hits: Don’t Expect Much from Congress.  Always a good idea.

Kay Bell, Senate Finance plans tax extenders vote for week of March 31.  She links to an article quoting a Senate Finance spokeswoman as saying “No decisions have been made on the content of the measure or the timing for a committee session and vote.”

Howard Gleckman, Fiscal Reality Check: Will Congress Pay for the Tax Extenders and the Doc Fix?  Extenders themselves are a scam.  Congress passes them over and over a year at a time so they can pretend that they cost less than they do — funky accounting that would get a public company CFO jail time, but standard procedure in Congress.

 

Jack Townsend, U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion 

 

A new Cavalcade of Risk is up at Insurance Regulatory Law.  The Cavalcade is a venerable roundup of insurance and risk-management posts.  Hank Stern’s contribution, an interview with Neal Halder of Principal Financial Group about their “accelerated underwriting” process for life insurance, is a great read.

Jason Dinesen, Fair Warning: More Baseball Posts to Pop Up this Year.  That’s a good thing.

 

20140321-4Think he reported this income?  Man With Deep Pockets Busted Stealing a Lot of Laundry Money (Going Concern):

Just how many loads of laundry could one do with $460,000 in stolen quarters?

That’s probably not the question asked by public works inspector Thomas Rica, who pleaded guilty this week to stealing that much in quarters from the meter collection room of the New Jersey town for which he worked.

At the laundromats I used back in school, that would have been nearly enough quarters to get your clothes dry.

 

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Tax Roundup, 1/24/14: Executive stock spiff proposed for Iowa. And: Haiku!

Friday, January 24th, 2014 by Joe Kristan

20130117-1Legislators propose to exempt employer stock gains from employee Iowa income tax.   S.F. 2043 would exclude from taxation capital gains from stock received by an “employee-owner” of a company “on account of employment” with the corporation, and acquired while the taxpayer was still employed..  While it isn’t entirely clear from the legislation, it would appear to include long or short-term gains, and would include stock acquired by exercise of options or stock bonus plans.  It’s not clear that it would apply to gains on ESOP shares, which are generally issued to owners or redeemed on retirement, but I suspect it would.

It’s an astonishingly broad exclusion.  Once elected, it would apply to stock gifted by the employee-owner to spouses and lineal descendants.  It wouldn’t apply to many family owned companies, because it requires five shareholders, at least two unrelated under IRC Section 318 attribution.  Interestingly, the bill misstates Sec. 318, saying:

Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly.

No, that would be Section 267 attribution, and only for pass-throughs.  Section 318 only makes a taxpayer related to:

his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents. 

No siblings, nieces or nephews to be seen.  If they can’t even read the Code, should they really be messing with the state income tax?

If the Iowa income tax is so awful that we need to carve out a special exemption to executive stockholders to get them to come to Iowa, we should fix it for everyone, not just for them.  Does anybody really doubt that Iowa would be more attractive to business with no corporate income tax and a 4% top individual income tax rate than with the current system plus a new executive spiff?  Come on, legislators:  take the Tax Update’s Quick and Dirty Iowa Tax Reform Plan off the shelf!

Related: Iowa House advances one-time stock gain bill, on a similar bill introduced last year.

 

David Henderson, Steve Moore’s Alternative Maximum Tax (Econlog).  Governor Branstad floated a plan to allow taxpayers to choose between Iowa’s current baroque income tax and a simpler one with lower rates, before abandoning it prior to the opening of the legislative session.   I thought I was being clever by calling an alternative maximum tax.  David reports that Steve Moore came up with both the idea and the name for a proposal he made for the federal tax system in the 1990s.

I still don’t care for it.  In practice we would be computing the tax both ways and paying the lesser amount.  By adding another computation to the process, it would actually make things harder.  The only way it would work would be if it resulted in lower taxes for everyone; then in a few years they could repeal the regular income tax without anyone noticing.

 

20120531-1The 200th edition of the Cavalcade of Risk is up!  This milestone edition of the long-lived roundup of insurance and risk management posts is at Rootfin.  Congratulations to Hank Stern, the evil genius behind the Cavalcade; he participates in this edition with Hacktastic!, on the security troubles of Healthcare.gov, and government’s efforts to hush them up:

See, the problem isn’t the wide-open portal, it’s the folks trying to alert the folks who run it that there is, in fact, a problem. I’m reminded of a certain Middle East river.

More alarming still, though, is that that it’s not just the state folks yelling “burn the witch:” now the FBI has warned Mr Hermansen to zip his lips. That’ll sure make the problem go away.

Your healthcare is in the very best of hands.

 

Jim Maule, How Not to Compute a Casualty Loss Deduction:

The taxpayer claimed a $12,020 casualty loss deduction on account of the loss of the vehicle. The taxpayer computed the deduction by subtracting the $48,000 from $60,020, the original value of the vehicle. However, the first step in computing the amount of a casualty loss deduction is to subtract the insurance recovery from the difference between the value of the property immediately before the casualty and the value of the property immediately after the casualty, unless the taxpayer chooses to use cost of repairs as a substitute measure, though that was not relevant in this case.  Because the taxpayer did not provide evidence of those values, and because the Tax Court was unwilling to assume that the vehicle’s value immediately before the accident was the same as its value when it was new, it upheld the determination of the IRS that the taxpayer was not entitled to a casualty loss deduction.

The IRS often examines casualty loss deductions, so you need to do your legwork on getting the valuations documented before you file.

 

Jason Dinesen, Small Businesses — Review Those Benefit Programs  “When was the last time your small business reviewed the benefit programs your business offers?”

William Perez weighs in on Finding the Right Tax Professional.

Kay Bell, Tax season is tax scam, tax identity theft season. “If you get any unexpected communication in any form that is purportedly from the IRS, especially at the start of tax season, be wary.”  And they will never initiate contact by phone or email.

Paul Neiffer, Cash Does Not Equal Gain.  You can’t make taxable gain go away by using it to pay off loans.

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

Kyle Pomerleau, High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season.  Be glad we don’t take it all, serf!  He computes Iowa’s top combined rate at 47.4%.

 

taxanalystslogoChristopher Bergin, Fortress Secrecy – No News Here (Tax Analysts Blog).

Anyone familiar with my writing knows that I have bent over backwards to give the IRS the benefit of the doubt in this black eye some call the “exemption scandal.” I must admit I’m getting a little tired of bending.

Back in the day, as the saying goes, I often referred to the IRS as Fortress Secrecy, a term meant to describe the agency’s obsession with hiding as much of its operations as it can get away with. I am not a casual observer, and I have never seen things this bad. Everything the IRS has done in addressing the exemption scandal leads to just one conclusion: that this agency now believes it is accountable to no one other than itself.

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

Howard Gleckman, Fiscal Magic: Paying for New Highways by Cutting Corporate Taxes (TaxVox)

 

Frank Agostino, Jairo G. Cano, and Crystal Loyer.  Guest posters at Procedurally Taxing, including the prolific Tax Court litigator Frank Agostino, discuss how IRS rules against giving false testimony bolstered an IRS man’s own case, in Section 1203 to Bolster a Taxpayer’s Credibility at Trial.

Jack Townsend, Required Records IRS Summons Enforced Again

 

News from the Profession.  Pulling Back the Curtain on Making Partner in a Big 4 Firm. Just sell, baby!

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

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Tax Roundup, 1/10/2014: Taxpayer advocate rips IRS penalties and foreign account enforcement. Also: the Code still stinks!

Friday, January 10th, 2014 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

The Taxpayer Advocate’s Annual Report directs some well-deserved fire on two of the worst IRS practices: the penalty-happy approach to examinations and the shoot-the-jaywalkers approach to offshore enforcement.

The report says this about penalties:

The IRS’s decision not to abate inapplicable penalties illustrates its resource-driven approach to them. As we have described in prior reports, the IRS too often proposes accuracy-related penalties automatically when they might potentially apply — before performing a careful analysis of the relevant facts and circumstances — and then burdens taxpayers by requiring them to prove the penalties do not apply.

The IRS should identify and abate all of the accuracy-related penalties that should not apply. It should minimize taxpayer burden when administering the IRC § 6676 penalty (e.g., by not proposing it automatically) and work with the Treasury Department to support a reasonable cause exception.

Amen.  The tax law is hard, and when a taxpayer does what a reasonable person — not a reasonable tax lawyer — should do to pay the right amount, there shouldn’t be an automatic 20% mistake penalty.  Too bad the advocate doesn’t seem to have embraced my “sauce for the gander” penalty, which would make the IRS pay taxpayers the same 20% penalty when the IRS makes an unjustified assessment.

Regarding foreign account enforcement, the report faults the IRS shoot-the-jaywalker approach (my emphasis):

In the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly six times the tax on their unreported income. Among unrepresented taxpayers with small accounts it was nearly eight times the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about three times their unreported tax. When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70 percent of the unpaid tax and interest. Given the harsh treatment the IRS applied to benign actors, others have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process. Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.

20121129-1Shooting the jaywalkers so you can slap the bad actors on the wrist.

The IRS should expand the self-correction and settlement options available to benign actors so that they are not pressured to opt out or pay more than they should; do more to educate persons with foreign accounts (e.g., recent immigrants) about the reporting requirements; consolidate and simplify guidance; and reduce duplicative reporting requirements.

The IRS should follow the lead of the states that allow non-resident taxpayers who voluntarily disclose past non-compliance to file and pay five years of prior taxes, with only interest and no penalties — reserving the penalties for those who wait until they are caught.  Tax Analysts quotes one lawyer as saying this would be unfair to the already-wounded jaywalkers:

“It’s very hard to make the program more lenient now without going back and adjusting thousands of [prior] taxpayers’ resolutions since 2009,” he said. That is something the IRS is likely unwilling to do, he added.

Too bad.  That’s exactly what they should do.

 There’s a lot more to the report, including a call for a new taxpayers bill of rights (good) and a renewed call for IRS preparer regulation (a waste of IRS and preparer time).

Related: 

Lynnley  Browning, IRS top cop says the agency is too hard on offshore tax dodgers.  I can’t imagine she wrote that headline.  Any lazy headline writers who call an inadvertent FBAR violator a “tax dodger” should have half their bank account balances seized if they ever forget to report a 1099.

TaxGrrrl, Report To Congress: IRS Is Increasingly Unable To Meet Taxpayer Needs

Jack Townsend,New Taxpayer Advocate Report to Congress Addressing, Inter Alia, OVDI/P Concerns

 

TaxProf, IRS Releases FY2013 2006 Enforcement Stats:

The IRS has released Fiscal Year 2013 Enforcement and Service Results, showing among other things:

  • Individual audit rate:  0.96% (lowest since 2005)

  • Large corporation audit rate: 15.8% (lowest since 2009)

  • Revenue from audits:  $9.8 billion (lowest since 2003)

  • Number of IRS agents:  19,531 (lowest since pre-2000)

  • Conviction rate:  93.1% (highest since pre-2000)

It’s hard to see where the IRS has the resources for making compliant preparers waste their time on preparer regulation busywork.

 

William Perez, Fourth Estimated Tax Payment for 2013 Due on January 15

Paul Neiffer, How Low is Too Low For A Rental Arrangement?  “We had a reader ask the following question: ‘Does leasing cropland to a family member for substantially less than fair market value become “gifting” subject to taxes for value above gifting limit?'”

Jason Dinesen,  Review Your Small Business Operations as Part of Year-End/Year-Beginning Planning

Leslie Book, NTA Annual Report Released (Procedurally Taxing)

 

 

Christopher Bergin, The Tax Code in 2014 – It Still Stinks (Tax Analysts Blog):

I’ve always believed in progressive income taxation. This isn’t it. The conservatives have sold us on the notion that tax is a dirty word, and the liberals have sold us on the notion that class envy is a healthy state of mind.

And that, folks, is why the tax code stinks. And it won’t get any better in the new year.   

There’s more to the stink than that, but it’s a good start.

 

Scott Hodge, Millionaire Taxpayers Tend to be Older.  Well, that’s one good thing about aging, I guess.

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Howard Gleckman, Pay to Extend Unemployment Benefits? Why Not Pay to Extend Temporary Tax Breaks Too?  (TaxVox)

Tax Justice Blog,  Reasons Why Congress Should Allow the Deduction for Tuition to Remain Expired

Kay Bell, Marijuana sales, tax collections good for Colorado coffers.

 

The Newest Cavalcade of Risk is up!  Hank Stern participates with an Overseas ObamaTax Conundrum

 

Robert D. Flach brings the Friday Buzz!

Career Corner: This Year, Resolve to Finally Decide What You Want To Be When You Grow Up in Public Accounting (Going Concern)

 

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Tax Roundup, 10/17/2013: They’re baa-aak edition. And getting to know CPA firm decisionmakers.

Thursday, October 17th, 2013 by Joe Kristan
Flickr image courtesy dlofink under Creative Commons license.

Flickr image courtesy dlofink under Creative Commons license.

The shutdown is over!  The Republic is saved!  That means the IRS can resume sending nonsensical notices and attempting to run the small players out of the tax-prep business.  Audits can resume.  Didn’t you miss them?

It’s all good for the Tax Update, as the Tax Court will resume issuing cases and the IRS will issue new guidance — the grist for this mill.  It will be interesting if we see large batches of cases issued today and early next week, or if the Tax Court really stopped altogether.

Howard Gleckman,  The Un-Default: Congress Has Become A Seinfeld Episode.  That explains why the show was cancelled.  (TaxVox)

TaxGrrrl, IRS To Employees: Let’s Get Back To Work! 

Linda Beale,  Senate passes debt increase/shutdown ending bill

 

Paul Neiffer,  Watch Out for Distributions from Coops:

A qualified distribution is treated as a deduction on the cooperative return and the producer picks up the income amount.  On the contrary, the cooperative does not get a tax deduction when a non-qualified distribution is given and the producer does not pay tax on that amount. 

Extending the dividends-paid deduction for co-ops to all dividends from all corporations is an obvious method of tax reform that nobody but me seems to support.

 

Peter Reilly, Lawyers Hosting Event For Judges Does Not Count As Charity

Jack Townsend,  Supreme Court Denies Certiorari in Coplan

 

20121120-2Kyle Pomerleau, Obamacare’s Shaky Funding Sources (Tax Policy Blog)

These include a new 3.8 percent “unearned income Medicare contribution” (UIMC) and a new tax on “Cadillac” health insurance plans. The income thresholds for the UIMC are not indexed for inflation, so under law most workers would eventually be subject to the tax-over 80 percent of workers within 75 years, according to the Medicare trustees.”

Due to the fact that the income threshold for the new Medicare tax on unearned income will remain static and incomes will continue to rise, more and more people will eventually be hit by this tax. It will no longer be a tax just on the rich.

You can’t fund a mass welfare benefit with a class tax.

 

There’s a new Cavalcade of Risk up at Terms + Conditions!  The Cavalcade is a roundup of insurance and risk management posts.  As you might expect, there’s lots of Obamacare there.  Meanwhile Insureblog has been all over this, including Adventures On The Marketplace, on one man’s attempt to enroll.

Oh, boy.  Happy Centennial, Income Tax! (Benjamin J. Gehlhausen, Tax Policy Blog): “There is nothing simple about a work that approaches 74,000 pages and currently requires 6 billion hours of work by professionals to prepare return forms and comply with tax laws.”

 

20131017-2The Critical Question: Are States Addicted to Revenue from Unclaimed Property? (Cara Griffith, Tax Analysts Blog).  “According to the COST score card, revenue from unclaimed property is the state’s third largest revenue source, generating 16 percent of the general revenue fund in fiscal 2013.”  So they have to modify the old joke about the economist explaining why he left a $20 bill on the ground.  The old punchline is “if that really were money, somebody would have already picked it up.”  The new version is “If it really were lost, the State would have it already.”

 

News you can use.  When Liberals Preach Fairness, Hold On to Your Wallet (David Brunori, Tax Analysts Blog) “I am sure those hardworking, middle-class wage earners who will pay more are very happy that the bored liberal billionaires are looking out for them.”

TaxProf, Freakonomics: Is Charitable Giving Affected by the Attractiveness of Tax Preparers?  Come on.  If that were true, all of my clients would have contribution carryforwards.

 

News from the profession.  Accounting Career Conundrums: Aspiring CPA Concerned Background Check Will Uncover Revealing Past (Going Concern).  It’s about a former stripper. I suspect she already knows more CPA firm hiring partners than she realizes.

 

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Tax Roundup, 8/29/2013: Individual mandate regs go final. And: the office velociraptor!

Thursday, August 29th, 2013 by Joe Kristan

20121120-2Avik Roy,  White House Publishes Final Regulations For Obamacare’s Individual Mandate — Seven Things You Need To Know.  Key points:

You pay a fine if your spouse and kids are uninsured.

If you claim dependents on your tax return, you’re responsible for paying the mandate fines if your dependents don’t have health insurance.

This provision takes on special importance because of its interaction with Obamacare’s employer mandate. Under the health law, employers with more than 50 full-time-equivalent workers are required to offer health coverage to their employees and employees’ dependents under the age of 26. Employers are not required to offer coverage to employees’ spouses. Hence, a worker who gets coverage through his job will be forced, under the individual mandate, to purchase coverage on his own for his spouse, if he or she doesn’t have other sources of coverage. A worker who doesn’t get coverage through his job will need to purchase coverage not only for himself, but also his dependents.

But all is not lost:

The IRS can’t go after you if you don’t pay the fine.

Basically, the only thing the IRS can do to make you pay the mandate fine is to withhold it from your tax refund, if you’re due one. So if you carefully calibrate your withholdings, such that you aren’t due a refund at the end of the year, the IRS has no way to collect the mandate fine.

That is, until you overpay some year, or they change the rules.

Related: Health Care Act And The Road To Good Intentions  A guest post by Scott Lovingood at TaxGrrrl’s place.

Also: Ask The Taxgirl: Taxing Health Care Benefits   

 

TaxProf,  Seventh Circuit Joins Majority of Circuits in Upholding Valuation Misstatement Penalties in DAD Tax Shelter.  The “distressed asset debt” shelter would purportedly allow people who needed tax losses to get them by acquiring interests in partnerships with worthless South American consumer debt, using pretend basis from notes.  Judge Posner found it unconvincing:

The intention was simply to create the appearance that the investors’ interest in the partnership had a high enough basis to enable the entire built-in loss that the shelter investors had acquired to be offset against their taxable income. But all this means is that the investors should not have been permitted to deduct their entire built-in loss — yet in fact they shouldn’t have been permitted to deduct any part of it, because the partnership was a sham.

The DADs were among the least plausible of the mass-marketed shelters, and that’s saying something.

Cite: Superior Trading LLC, CA-7, No. 12-3367.

 

Phil Hodgen,  Green card received in 2007? Expatriate in 2013 or else.  Give us your huddled masses.  We’ll fix them!

20130607-2Sometimes the author and the story are made for one another.  Roche: Taxation of Medical Marijuana Businesses (TaxProf).  The story explains why the tax law isn’t kind to these folks:

Section 280E represents a departure from the longstanding practice of generally taxing illegal businesses in the same manner as legal businesses and effectively causes medical marijuana businesses to be taxed on their gross income rather than their net income. Medical marijuana businesses are, however, allowed to reduce their gross revenue by cost of goods sold in arriving at gross income. This puts medical marijuana businesses in the unusual position of wanting to capitalize as many of their otherwise deductible expenses to inventory as possible, unlike most businesses, which would prefer a current deduction.

It would be interesting to see an IRS exam where they want you to capitalize less to inventory.

 

Paul Neiffer, What’s my tax on selling equipment?  If it’s a gain, usually it’s ordinary income.

William Perez,  2012 Corporate Returns Due September 16.  Also, extended 1041s and 1065s.

 

Jack Townsend, Switzerland Reportedly Strikes Deal with U.S. for the “Other” Banks; Implications for U.S. Depositors.

Linda Beale, Swiss and US Apparently Reach Deal on Bank Disclosures related to Tax Evasion

 

Bounty hunting in Pennsylvania?  Philadelphia’s Use of Contingent Fee Auditors (Cara Griffith, Tax Analysts Blog)

 

I’m late to the new Cavalcade of Risk at My Personal Finance Journey.  Lots of good risk management items, including Hank Stern’s The Down Syndrome Conundrum.

What this country needs… What We Need Is a Godless Tax Code! (Christopher Bergin, Tax Analysts Blog)  Doesn’t Satanic count?

Kay Bell, State taxes, assorted fuel fees, drive up cost of a gallon of gas

 

Peter Reilly,   Tea Party Patriots Inc And IRS – Who Is Being Unreasonable ?  Peter seems to think that the IRS wasn’t clearly unreasonable in holding up Tea Party applications.  I think he misses the point — the whole process was one-sided.  Only right-side groups got the IRS slow-walk, while “progressive” applications skated through;

7-30-13-irs-targeting-statistics-of-files-produced-by-irs-through-july-29-2-Peter is right, though, when he says “We Really Should Not Have Accountants Trying To Figure This Stuff Out.”  John Kass explains how this stuff works in IRS scandal a reminder of how I learned about The Chicago Way

 

Career Advice: Would I Recommend the Tax Prep Industry to a Young Person? Probably Not  (Jason Dinesen:

Going Concern, Let’s Play Another Round of Accountant/Not an Accountant!  I found the first one too frightening to continue.

 

Finally – if you think you’ve had a bad day at the office, it could have been worse:

(via Lynnley Browning’s Twitter feed)

 

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Tax Roundup, 7/24/2013: Iowa corporate tax cuts? And a Carbondale caper.

Wednesday, July 24th, 2013 by Joe Kristan

20130117-1Todd Dorman, Another view on corporate income tax cuts:

I wrote yesterday about Gov. Terry Branstad’s call for corporate income taxes, and how I’d be OK with a deal that cuts rates but also eliminates credits/loopholes.

Mike Owen, executive director of the Iowa Policy Project (congrats on the recent promotion) took some issue with my conclusions in an email…

You might not be surprised that the Iowa Policy Project thinks there’s a perfectly reasonable explanation for Iowa’s highest-in-the-nation corporation tax rate, and that taxes should be higher.  You may also know how I feel about that.

 

Kyle Pomerleau, Another Understatement of the Corporate Tax Rate:

The U.S. News and World Report published an article today titled “The Global Race to the Bottom in Corporate Taxes.” …

It also outlines the vast complexity of the tax system. According to one tax advisory cited in the article, his firm’s clients are “horrified by complexity and cost of filing their taxes in the U.S.”

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Welcome to the U.S.

 

Joseph Thorndike, Wealth Taxes to Cure Inequality? How About Tax Reform Instead.  (Tax Analysts Blog).  How about questioning whether inequality is something that needs a “cure,” or even can be cured?  Then ask whether the tax law is safe and effective medicine.  I’d argue no.

TaxProf,  The IRS Scandal, Day 76

David Brunori, Don’t Cheat the Tax Man (wink, wink) ITax Analysts Blog):

What the nanny staters in Washington don’t understand is that prohibition, whether direct or indirect through the tax laws, doesn’t work. It did not work for alcohol. It did not work for marijuana. It will not work for cigarettes. Prohibition does not work because free men and women want to make their own decision about what they drink, smoke, eat, etc.  And they act rationally.

If only legislation did so.

 

Jason Dinesen, When Do Dependents Have to File a Tax Return?

Robert D. Flach, THE BIGGEST LOSER, on the tax laws mistreatment of gambling income.

The new Cavalcade of Risk is up!  For your insurance and risk-management reading pleasure.  Don’t miss Hank Stern’s Scamster Tricks.

Jack Townsend, Taxpayer’s Counsel Attending IRS CI Interviews of Third Party Witness

Howard Gleckman, The OECD’s International Tax Plan: The First Step on a Long Road (TaxVox)

Tax Justice Blog, New CTJ Report: Reforming Individual Income Tax Expenditures

TaxGrrrl, Remembering The ‘Hot Dog Tax’ On National Hot Dog Day

Me, Man who supported someone else’s kid gets attaboy, but no tax credit.

 

They really don’t want this guy to set up shop again.  A July 23 press release from the Department of Justice says:

The Justice Department announced today that it has asked a federal court to bar Ronald Manis of Carbondale, Ill., from preparing tax returns for others.  The civil injunction suit, filed in the U.S. District Court for the Southern District of Illinois, alleges that Manis routinely prepares federal tax returns for individuals and corporations improperly claiming deductions that result in his customers understating their federal tax liabilities.

Nothing extraordinary there, other than that there would be anything untowards happening in Carbondale.  But further down in the press release there’s this (my emphasis):

In September 2011, Manis pleaded guilty to willfully failing to file his own federal income tax returns for 2003, 2004, 2005 and 2006, and was sentenced to three months in prison. According to the government complaint, Manis was released from federal prison on July 20, 2013.

They don’t seem to want to let him participate in the upcoming tax season at all.

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Tax Roundup, 7/12/13: We get scam email. And flappers!

Friday, July 12th, 2013 by Joe Kristan

Don’t be stupid.  Yes, you hardly need to consult your CPA for that advice, but I think of it every time I get spam email like this:

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Somewhere I read that email scammers make their pitches stupid on purpose to identify the dumbest marks, as they are easiest to fleece.  This one certainly does so.  Some signs of stupid:

  • The email address: smoggiest@HELP.STATE.TX.US.GOV.    Come on.
  • The salutation:  “Dear Accountant Officer.”  It sounds like it’s addressing somebody who issues parking tickets to CPAs.
  • The English of someone not brought up speaking English: “Hereby you are notified…”
  • The use of “please” by a revenue agency.  Please…

Folks, the IRS and state taxing agencies don’t send notices like this via email.  When you get one, delete it — and never click the links.

 

TaxProf, The IRS Scandal, Day 64

Janet Novack, 4 Steps To Take Now That Stretch IRAs Are Endangered:

But the new stretch IRA limits, which Finance Committee Chairman Max Baucus (D-Mont.)  first floated in the Senate last year, would require most retirement accounts inherited by anyone other than a spouse to be distributed (and in the case of non-Roth accounts taxed) within five years of the owner’s death…

The limit on stretch IRAs, which also appeared in President Obama’s most recent budget proposals, would raise $4.6 billion over 10 years, Congress’ Joint Committee on Taxation estimates.  

Janet explains how this possibility can affect your thinking about beneficiary designations and Roth conversions, among other things.

 

Christopher Bergin, Jaws (Tax Analysts Blog):

Clearly, the IRS did some inappropriate things in handling the applications for exemption for tea-party groups and others. But I would prefer to have congressional committees working on making sure our tax agency operates fairly and efficiently rather than going on witch-hunts.

Christopher is right, and as a practitioner I don’t want to see tax adminstration get any worse.   Still, you can’t ignore the long-term benefit for punishing bureaucratic misbehavior.  It would require a suicidal level of tolerance for GOP legislators to let bygones be bygones after the outrageous behavior of the IRS in the Tea Party scandal.  Maybe some budget haircut is needed to make the IRS less eager to take sides next election.

 

Howard Gleckman,  How Not to Fix the IRS:
Forgive me, but let’s try to apply a dash of common sense to the agency’s problems. After months of looking, the IRS’ most vocal critics have found no evidence that its poor processing of requests by political organizations seeking tax-exempt status was politically-motivated.
It was, however, real. And its cause seems to be a staff that suffered from low skills, poor training, low morale, a shortage of resources, and bad management. It is hard to see how cutting an organization’s budget by one-third will fix any of these problems.

Saying that it wasn’t politically-motivated over and over doesn’t make it so.  As the Treasury Inspector General has reaffirmed, the IRS treated right-side outfits far worse than left-side outfits.  That doesn’t just happen — the thing speaks for itself.   And considering Lois Lerner’s partisan past with the Federal Election Commission, the circumstantial evidence of bias is overwhelming.  The “overworked and underfunded” defense of IRS behavior doesn’t fit these facts.

Still, it would be nice if Congress would use its funding power carefully to punish bad behavior, rather than as a meataxe that will harm innocent taxpayers as much as guilty bureaucrats.

 

Kay Bell, States could get more money by modernizing sales tax laws

Brian Mahany, TICs and REITS – “Accidents Waiting To Happen”  Many REITs are perfectly good investments.  I like them myself.  But illiquid ones can lock up your money while generating big liquid fees to a broker.

Tax Justice Blog, Undocumented Immigrants Pay Taxes, and Will Pay More Under Immigration

TaxGrrrl, Parents Sue School For Art Auction Gone Bad.  Some parents apparently shouldn’t be allowed to run around loose.

 

There’s a new Cavalcade of Risk up at Workerscompensation.com! Don’t miss Hank Stern’s Hunger Games and the MVNHS©, about ingenious health care cost savings innovations across the pond.

Via Wikipedia

Via Wikipedia

Robert D. Flach has your Friday Buzz ready!

Great Grandpa knew this.  Not all flappers are created equal (Rob Smith, IowaBiz.com)

The Critical Question: Is Diet Soda Worse than Regular Soda? (Scott Drenkard, Tax Policy Blog)

 

 

Friday workplace fun.  Let’s Discuss: Big 4 Bullies (Going Concern):

Probably the most irritating thing, according to this study, is that these people get ahead. We’ve all seen it.

That’s about how I remember it.  They rarely get the comeuppance they deserve, but when they do, it’s awesome.

 

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Tax Roundup, 3/7/2013: Consultant says Iowa should do more of what he consults about. Also: how not to file a lawyer’s tax return.

Thursday, March 7th, 2013 by Joe Kristan

http://www.rothcpa.com/misc/20090604-1.JPGAnswering the wrong questions.  The Iowa Chamber Alliance asked a consulting firm that makes money playing the corporate location incentives game whether Iowa should sweeten its corporate location incentives.  Guess how they answered it.

From an Iowa Chamber Alliance press release:

“Iowa has a solid base of state – level economic development incentives tools upon which to build. However, to become more competitive, Iowa may wish to increase the funding level and flexibility of some of the State’s key incentive programs” states Darin Buelow, a Principal with Deloitte Consulting LLP.

It’s hard to imagine the study coming to a different conclusion considering what they were looking for:

At the request of the Iowa Chamber Alliance (ICA), Deloitte Consulting (Deloitte) benchmarked incentives programs in Iowa and in five alternate states, focusing on a high-level analysis of state-level incentive programs, their value, and overall effectiveness in attracting investors.

In other words, they were to look at whether Iowa has more and better giveaways than its neighbors.

I looked for the study in vain for any analysis of the value of Iowa’s tax credits to the economy vs. alternative uses for the funds — like lowering the tax rates of the rest of us who pay for them.  There is no mention of opportunity cost.”  In looking at the “value” of the programs, it makes unsupported conclusions like this one about the “High Quality Jobs Program:”

Considered effective and competitive in providing benefits to mitigate corporate income tax, refunding sales tax for construction and providing a supplemental refundable research credit.

Considered effective by whom?  On what basis?  It doesn’t say.

The study says Iowa should enrich its data center corporate welfare — where the rest of us subsidize the infrastructure of Microsoft and Apple.  They also recomment Iowa “consider allowing sale, refund or transfer” of tax credits.

A few years ago, after the film tax credit disaster, Governor Culver tasked a panel with reviewing the effectiveness of Iowa’s dozens of tax credits.  Their report failed to come up with a clear benefit for any of Iowa’s tax credits.  The panel also had this to say about transferable tax credits: (my emphasis)

Transferability of tax credits complicates the projection of revenues and the tracking of credits, creates uncertainty about when credits will be claimed because the purchasing entity may utilize a different fiscal year than the entity awarded the credit, and siphons resources from awarded entities through brokerage fees… Once tax credits are transferred, it creates limited recourse for the State to recover funds claimed in instances where the business awarded the original credit does not fulfill the contracted obligations or if the credit was awarded in error.  Additionally, transferability has also resulted in abuses in some tax credit programs.

It would be better Iowa to not “compete” in taxing its current taxpayers to lure and subsidize their competitors.  Instead Iowa should enact a tax system good enough that we don’t have to pay people to be our friends.   The Quick and Dirty Iowa Tax Reform Plan would be better for Iowa businesses than any number of pocket-picking tax credits.

 

Poor legal move.  From Bloomberglaw.com:

Former Kirkland & Ellis LP senior partner Theodore Freedman pleaded guilty to fraud in connection with the filing of false tax forms.

Freedman changed his plea yesterday from not guilty to guilty of four counts of tax fraud. U.S. District Judge Deborah Batts in Manhattan accepted the plea and set sentencing for Sept. 17. Freedman’s lawyers reached a plea agreement with U.S. attorneys.

Indicted in July 2011, Freedman misrepresented his income as a partner at the law firm by about $2 million, the U.S. said. He also claimed more than $500,000 in expenses for a sole proprietorship that didn’t exist, the government said.

It’s hard to imagine how he thought this would work.  K-1s get matched against tax returns, at least occasionally.  The IRS matching system is cumbersome and inefficient, but it works well enough that you can’t habitually ignore K-1s with six-figure income.  Furthermore, claiming big bogus Schedule C losses like that is practically an engraved invitation for the IRS to visit your return.

Related:  Former Kirkland & Ellis Partner Pleads to Tax Crimes (Jack Townsend)

 

The Colonel knows why your business might have to file returns in other states.  My new post at IowaBiz.com, The Des Moines Business Record blog for entrepreneurs.

William McBride, The Carried Interest Debate: Funding Government for 3.1 Hours (Tax Policy Blog).

Patrick Temple-West,  Cadbury gets tax bill in India, and more (Tax Break).

Daniel Shaviro,  Skepticism about “fundamental tax reform”

Angie Picardo,  Grads – Filing for First the Time (Missouri Tax Guy guest-post)

Brian Strahle,  D.C. Combined Reporting – Transition Rules for 3/15 and 4/15!

Janet Novack,  New IRS Data: Rich Got Richer, But Paid Lower Tax Rate As Stocks Gained

William Perez,  Child Tax Credit for 2012

 

There’s a new Cavalcade of Risk up at Health Business BlogIt’s always worth the ride at the blog world’s roundup of insurance and risk management!

 

Is that an argument for or against intelligent design?  The Sequester: ‘Designed to be Stupid’ (Cara Griffith, Tax.com).

Because they aren’t in a position to speak for themselves: Ellen DeGeneres Speaks Out For Spanish-American War Widowers (Peter Reilly). 

The Critical Question: Why Is Amy Poehler Going To Hell? And What Does Taylor Swift Have To Do With It? (TaxGrrrl)

 

 

Programming note: This site was pretty much shut down part of yesterday afternoon.  Our valiant hosting service says it was a comment spam attack on the pre-2012 archived posts.  Sorry about that.

 

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Tax Roundup, 2/21/2013: Late start edition.

Thursday, February 21st, 2013 by Joe Kristan

I arrived from out-of-town late, so I’m off to a late start this morning, so the roundup is abbreviated today.

Russ Roberts, Why so many Americans pay no income tax.  “I still think we should get rid of the payroll tax and raise income tax rates.”

TaxProf, Supreme Court Hears Oral Argument in PPL Corp. v. Commissioner, involving a foreign tax credit shelter.

Kay Bell, Travel tracking apps, website can help at tax time.  Nothing says auto business logs have to be on paper.

Christopher Bergin, Leaving the IRS: A True Tax Pro (Tax.com)  On the retirement of Deborah Butler.

Jim Maule, Tax Commercial’s False Facts Perpetuates Falsehood.  If the ad’s error on the length of the Internal Revenue Code is the only thing wrong, that may actually be progress, sadly.

TaxGrrrl, Five Ways To Pay Your Taxes When You Don’t Have The Cash

Trish McIntire,  OIC Calculator.  When you absolutely, positively can’t pay.

William McBride, Bowles Simpson Call for More Taxes, More Growth

Patrick Temple-West, Sequester talks grow harsh, and more (Tax Break)

Sure the murder charges are serious, but don’t let them find out about the offshore bank accounts!  Pistorius’ Brother and Lawyer Allegedly Removed Documents from the Crime Scene Related to Offshore Bank Accounts (Jack Townsend).

Paul Neiffer,  Good News for Blackberry, Raspberry and Papaya Farmers.  You know who you are.

A new Cavalcade of Risk is up at Nerd Wallet.

Today’s career tip: Bad Spelling Can Derail an Otherwise Promising Career in Fraud (Going Concern)

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Tax Roundup, 1/29/2013: The best tax proposal ever. Also: tax season delayed for students and parents.

Tuesday, January 29th, 2013 by Joe Kristan
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Flickr image courtesy Pasa47 under Creative Commons license

A Tax I can support!  Tax the Revolving Door (Glenn Reynolds)

In short, I propose putting a 50% surtax — or maybe it should be 75%, I’m open to discussion — on the post-government earnings of government officials. So if you work at a cabinet level job and make $196,700 a year, and you leave for a job that pays a million a year, you’ll pay 50% of the difference — just over $400,000 — to the Treasury right off the top. So as not to be greedy, we’ll limit it to your first five years of post-government earnings; after that, you’ll just pay whatever standard income tax applies.

Plus make them wear clown clothes to work.  (Via the TaxProf)

 

Allysia Finley,  Mickelson and the Sports Star Tax Migration (Wall Street Journal):

About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?

It would be surprising if they didn’t.

 

Kyle Pomerleau and William McBride:  EITC Awareness Day (Tax Policy Blog)

Research has shown that the EITC is associated with higher workforce participation among certain populations.  However, Casey Mulligan’s research shows there is no free lunch here, since the EITC creates disincentives to work over the income range in which it phases out (roughly $20,000 to $50,000).  And because the EITC is one of many overlapping anti-poverty programs, such as unemployment insurance, they all add up to huge disincentives to work among the poor.

And some Iowa politicians want to increase the Iowa EITC, making it a bigger poverty trap.

 

Steven Rosenthal,  Chairman Camp Agrees: Too Many Choices Burden our Tax System (TaxVox)

Jeremy Scott, Huffington Post Draws Tenuous Link Between Camp Plan, Fix the Debt Group (Tax.com)

Robert D. Flach,  GUIDELINES FOR TAX REFORM:

Recognize and acknowledge that the purpose of the federal income tax is to raise the money necessary for the administration of the government and government sponsored programs.  It is not to be used to “redistribute income” or as a method for delivery of social welfare and other government benefits.

If that principal were vigorously applied to the tax law, the 1040 would fit on a postcard.

 

Climb in the Cavalcade!  Worker’s Comp Insider hosts the latest Cavalcade of Risk roundup of insurance and risk-management posts, including Insureblog on the Curly Bulb Menace.

Russ Fox,  Form 8863 Added to Returns that the IRS Won’t Accept Just Yet.  The form for tuition credits.

William Perez,  When Can You Begin Filing Your 2012 Federal Tax Return?

Jason Dinesen,  Taxpayer Identity Theft, Part 11.  In which the IRS ignores the change-of-address filing and mails a long-delayed refund to the wrong address.

Martin Sullivan, Taxing Financial PollutionOn the futility of a financial transactions tax. (Tax.com)

Missouri Tax Guy,  What you’ll Need.  A guide to gathering your tax return information.

TaxGrrrl,  Tax Season Kicks Off January 30th: Here’s What’s On Tap

Jack Townsend,  IRS Issues John Doe Summons to UBS (All Over Again)

Kay Bell,  Deducting sales tax on your new car … or boat or airplane or home

What does his politics have to do with anything?  Liberal man sentenced to federal prison for tax evasion (Topeka Capital Journal Online)

What does his species have to do with anything?  Beaver County sheriff’s deputy convicted of tax evasion (Pittsburgh Post-Gazette.com)
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Foggy day Cavalcade!

Friday, January 11th, 2013 by Joe Kristan

The new Cavalcade of Risk, a roundup of insurance and risk-management blog posts, is up at Insurance Coverage Law in Massachussetts.

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Head on over there, but drive carefully in the fog!

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High Bridge Cavalcade

Thursday, October 4th, 2012 by Joe Kristan

It’s getting chilly, so climb on the bike before it gets too cold and join the Cavalcade of Risk!

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The newest edition of the blog world’s roundup of insurance and risk management is up at Chatswood Consulting’s Moneyblog.  Hank Stern’s “social networking insurance” post is worth the trip by itself.

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