Posts Tagged ‘Christopher Bergin’

Tax Roundup, 4/23/15: House report rips Koskinen’s war on taxpayer service.

Thursday, April 23rd, 2015 by Joe Kristan

I’ll believe the IRS has a funding crisis when the IRS acts like it has a funding crisis. The House Ways and Means Committee yesterday issued a report ripping Commissioner Koskinen for deliberately cutting customer service to prioritize ACA implementation and to create pressure for a bigger budget. It’s the IRS version of the Washington Monument Strategy — slashing the most visible and popular services first.

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

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

Christopher Bergin of Tax Analysts describes the report:

In 14 pages, the report blisters the IRS for treating taxpayers like dirt (my term, not theirs). It’s a shrewd counterpunch in the mouth. But remember, the commissioner picked this fight.

What’s in the 14 pages? A discussion of items that Mr. Koskinen chose to fund, and resources he neglected, at the expense of taxpayer service. Examples from the report include:

Diversion of user fee money to the general budget. The IRS has jacked up the fees to obtain rulings and non-automatic accounting changes to absurd levels. Rather than using those fees to provide services, the funds have been diverted to the general IRS budget.

Continuing to keep hundreds of full-time union operatives on the agency payroll. From the report.

“…the IRS reported that employees used 521,725 hours for union activity in fiscal year 2013, which accounted for an estimated $23.5 million in salary and benefits expenses. In fiscal year 2014, the IRS recorded 491,948 hours of union time, and another $23.5 million in salary and benefits expenses. In that same fiscal year, there were 36 IRS agents who devoted 50 percent or more of their time at work to union activities instead of performing official duties. For the first quarter of fiscal year 2015, the IRS reported 113,294 hours of union time.

The report says that at 15 minutes per call, these employee slots could have fielded 2.5 million taxpayer inquiries. But then the union would have to pay its own employees, and we can’t have that.

The report also notes that the IRS hasn’t exactly shown it would make good use of additional funds, citing its expensive internal system implementation failures. It also slams the IRS for ending the pilot private collection program, while failing to pursue the collections targeted under the pilot program. Of course, the Treasury Employee Union would rather have the work not done at all than to have it done by non-union help.

I agree with Christopher Bergin in attributing the mess to Mr. Koskinen:

Almost from the first day on the job, his reaction to congressional budget cuts has been to deflect responsibility elsewhere. His appearances before Congress have a “who do you think you are” edge to them. And this tax filing season, he upped the ante.

His new strategy went something like this: “You want to cut my budget, fine — then I’ll show you what it will cost.”

He began cutting back on taxpayer service and tax law enforcement,

Via Wikipedia

Via Wikipedia

claiming that the IRS lacks sufficient funds to do its job. Never mind that its annual budget is about $11 billion. Then Koskinen started telling his employees the country must get used to the IRS doing “less with less.” That language is code for “taxpayers are going to suffer and Congress will get the blame.”

He then doubled down on the rhetoric by labeling budget cuts a “tax cut for tax cheats.” Personally, I think that remark went too far. It resembles a temper tantrum — or worse.

And you know what? The commissioner of the Internal Revenue Service doesn’t get to throw a public temper tantrum. It’s simply not a part of the job description.

As long as the IRS can afford to keep a battalion of union operatives on its payroll, I’ll remain unconvinced that it really needs a bigger budget. I’m convinced that until Mr. Koskinen resigns, there is no hope for the agency.

Somewhat related: Russ Fox, Don’t Call Us Continues. “If anyone thinks the IRS’s budget will be increased for next year, they’re dreaming.”

The TaxProf has a roundup of coverage.

 

What’s “green” about green energy subsidies. An Indiana man pleads guilty to taking part in a conspiracy to scam the biofuel subsidy system. Prosecutors said the scam raked in over $100 million in refundable biodiesel production credits.

Of course, scams are bad, but the real scandal of the biofuel subsidies is what is legal.

 

William Perez, Tax Incentives for Alternative Energy Systems

 

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 2 (Trends I Noticed)

Peter Reilly, Detective’s Vacation And Sick Time Not Excluded From Taxable Income

Robert Wood, What To Do When IRS Agents Call On You. “This may sound paranoid, but the ramifications of getting flustered and running at the mouth can be extreme.”

TaxProf, The IRS Scandal, Day 714.

 

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Iowa rural broadband bill advances. O. Kay Henderson reports:

The Iowa House has passed a bill that would set up a state-run grant program to expand broadband access in Iowa, although no state money is committed and the program will only get going if the state gets federal tax dollars for it. The bill would set up a new, 10-year-long property tax exemption for companies that extend high-speed broadband service in “unserved or underserved areas” of the state.

Of course. How can you do anything without a tax bill? This item in the article strikes me:

Representative Josh Byrnes, a Republican from Osage, said the bill will hopefully address the “inconsistencies” in broadband speeds.

“I live in a part of Mitchell County where I actually get better connectivity to my barn than I get here at the state capitol,” Byrnes said.

Of course, the state capitol is in the most urban part of the state, which is also a rising tech corridor. If you can get better broadband in a Mitchell County barn, I have doubts about how serious the rural broadband problem really is.

 

TaxGrrrl, Accused Murderer Requests Police Escort To Cash Tax Refund. Jails apparently don’t cash refund checks.

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Tax Roundup, 4/10/15: The Iowa tax credit that breaks hearts. And: IRS budget cut crocodile tears!

Friday, April 10th, 2015 by Joe Kristan
Flickr image courtesy Alexander Marie Guillemin under Creative Commons license

Flickr image courtesy Alexander Marie Guillemin under Creative Commons license

Stimulate them young. By my count, Iowa’s tax law has at least 31 tax credits designed to stimulate economic activity in one way or another. There’s another tax credit with stimulative potential that Iowans tend to forget: the tax credit that encourages you to send your high-schooler to the prom.

Any prom parent, or anybody who has gone to one, knows that proms require a flurry of economic activity, from dresses and tuxes to the cost of a nice dinner out. While those items don’t get a tax break, the Iowa tax law at least helps buy the ticket to the great event itself.

Iowa’s “Tuition and Textbook Credit” is a 25% credit on up to $1,000 of qualifying K-12 expenses. Yes, tuition and textbooks count. So do activity costs (my emphasis):

Annual school fees; fees or dues paid for extracurricular activities ; booster club dues (for dependent only); fees for athletics; activity ticket or admission for K-12 school athletic, academic, music, or dramatic events and awards banquets or buffets; fees for a physical education event such as roller skating; advanced placement fees if paid to high school; fees for homecoming, winter formal, prom, or similar events; fees required to park at the school and paid to the school  

Just as many young men today neglect some of the little things that can make a difference on a prom date between happiness and heartbreak, many taxpayers neglect to keep track of the little school fees that can add up to a $250 savings on their Iowa income tax. In addition to prom tickets, instrument rentals, school district drivers education fees, fees for field trips and transportation, band uniform costs and some athletic equipment costs also qualify. Click here for a more complete list.

Related: Prom tickets, rentals qualify for state tax credit (KCCI.com, in which you can see me sort of explain this on actual video).

This is another of our daily 2015 Filing Season Tips running through April 15. Six more to go!

 

"Nile crocodile head" by Leigh Bedford. Via Wikipedia

“Nile crocodile head” by Leigh Bedford

Christopher Bergin, Crocodile Tears for IRS Budget Cuts (Tax Analysts Blog):

Don’t get me wrong — I personally disagree with recent IRS budget cuts. They are not sound tax policy. They also strike me as being politically motivated payback for the Lois Lerner episode. That’s myopic on the part of congressional Republicans. It’s as if they’re demanding their pound of flesh regardless of the adverse consequences to millions of taxpayers.

But I’m equally disappointed with how the IRS has chosen to respond. Rather than rise to the occasion, it has resorted to a blame game. Congress didn’t give us the budget we wanted, so the first things to go are taxpayer service and enforcement. Conflict over agency funding is nothing new in Washington. What’s remarkable here is the blatant manner in which American taxpayers are being held hostage.

Commissioner Koskinen has only himself to blame. His tone-deaf and intransigient response to the Tea Party scandal gave GOP appropriators only more reasons to distrust the agency. Only a new Commissioner can start to repair the damage.

Howard Gleckman, What Will Happen To Voluntary Tax Compliance If a Budget-constrained IRS Is Not Fixed? (TaxVox)

 

20140507-1Russ Fox, Bozo Tax Tip #2: The Eternal Hobby Loss. “If your business loses money year-after-year, and you’re not making any efforts to change it, and you get a lot of personal enjoyment out of the business, beware!”

William Perez, 7 Ways to Pay the IRS

Kay Bell, 10 tax sins of commission that could be quite costly

Sean AkinsDark Matter: When to Seal the Tax Court Record (Procedurally Taxing)

Robert Wood, Best And Worst Tax Excuses To Fix IRS Penalties, “Relying on a professional tax adviser is one of the classic excuses.”

 

Roger McEowen, The Perils of Succession Planning (ISU-CALT). “Most U.S. businesses are family-owned, but statistics show that only about 30 percent of them survive to the next generation and only about 12 percent to the third generation.”

I firmly believe there is no need for a heavy estate tax to break up dynastic wealth. All you need are beneficiaries.

 

Alan Cole offers A Friendly Reminder That Pass Through Businesses Exist (Tax Policy Blog):

Every once in a while we see blog posts from other tax research organizations, or even congressional offices, puzzled over the low collection of corporate taxes relative to GDP or relative to other tax revenues. Today we have another such post, from Citizens for Tax Justice. I believe I can allay that confusion.

It’s not confusion, it’s political mischief.

 

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Tony Nitti, Rand Paul Announces Presidential Bid, Favors Flat Tax. “Flat tax proposals come in many forms, and range from exceedingly simple to nearly as complex as the current law.”

Richard Phillips, Rand Paul’s Record Shows He’s a Champion for Tax Cheats and the Wealthy. (Tax Justice Blog). I’ll translate that: he thinks taxpayers are entitled to keep some of their money, and to a little due process. To the “tax justice” crowd, anything that keeps the government out of your pocket for any reason is cheating.

 

Caleb Newquist, #TBT: The Failed Merger of Ernst & Young and KPMG. I remember the abortive merger between Price Waterhouse and Deloitte Haskins & Sells. Price Sells would have been an awesome firm name.

 

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Tax Roundup, 4/2/15: For gift deductions, it’s not just the thought that counts. It’s the paperwork. And: more!

Thursday, April 2nd, 2015 by Joe Kristan

salvation armyToday’s filing season tip: assemble your contribution documents. For some things, spending the money isn’t enough to put a deduction on your return. You also have to get the paperwork right.

Charitable contributions are very much in this category. And it’s not good enough to find some paperwork when the IRS examiner starts asking questions. You need the documents in hand before you file your return.

For cash contributions of $250 or more, you need to have, in the words of IRS:

…a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. 

That’s true whether you give cash or property. That means if you don’t have a nice note from your donee for your $250 gift, you need to bug them until they give you one. It also means that if you claim a deduction for dumping a bunch of household goods at Salvation Army, you need to get a note from them with a list of the items donated and the “goods or services” statement.

You need an appraisal if you donated property (other than publicly-traded securities) to charity for deductions starting at $5,000. We will talk about that tomorrow.

For more information, See Topic 506 – Charitable Contributions at www.irs.gov.

Come back every day through April 15 for another 2015 filing season tip!

 

Russ Fox, Bozo Tax Tip #8: Be Frivolous! “Tax Court judges don’t have the same sense of humor that I do about frivolous arguments.”

 

atombombAmanda Athanasiou at Tax Analysts reports ($link), FATCA: Swatting Flies With Atom Bombs:

Possible inflation of the offshore tax evasion problem and the staggering costs of the Foreign Account Tax Compliance Act are causing even the most ardent advocates of information sharing and ending bank secrecy to question the U.S. approach.

“For the U.S. to ask countries around the world to spend billions in implementation costs to deliver less than $1 billion per year is, economically, complete nonsense,” said Martin Naville, CEO of the Swiss-American Chamber of Commerce. He referred to FATCA as the least considered program in history and “mind boggling” in its unilateralism. “The net value of FATCA for the U.S. is probably negative,” said Naville, who added that tax compliance is a must but that there are better ways to achieve it.

But it goes after Fat Cats! Don’t you get our clever pun? And besides, how can we go after international money launderers without making it a crime to commit personal finance abroad?

Related: Wall Street Journal, Checking the IRS Overseas (Via the TaxProf). “Even the Obama Administration says the law would capture only $870 million a year in additional tax revenue, which is probably overstated given changes in behavior by Americans and their overseas employers.”

 

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William Perez, Do Your Home Improvements Qualify for the Residential Energy Tax Credits?

TaxGrrrl, Taxes From A To Z (2015): T Is For TIN (Taxpayer Identification Number)

Peter ReillyZombies Can’t File Tax Court Petitions. Making Tax Court headquarters the go-to place for a Zombie Apocalypse.

Kay Bell, IRS’ Koskinen says tax agency’s troubles are over. No joke. Joke.

Kristine Tidgren, Don’t Be Fooled! “While many artless tactics remain (if you just wire this money to Nigeria by Friday…), the emerging scams come wrapped in a cloak of credibility. It’s often difficult for even the wary to separate fact from fiction in this new age.”

 

TaxProf, The IRS Scandal, Day 693. “The Department of Justice announced yesterday that it will not pursue contempt of Congress charges against Lois Lerner.”  Of course not. That’s not what a scandal goalie does.

Marc Bellemare, Soda taxes don’t seem to work. (via Tyler Cowen)

Renu Zaretsky, A Penny for Your Sugar: Setting a Price on Sin. (TaxVox). “Are we are all aware of our sugar sins?”  Sins? So food nannyism is really a religion.

Not that the current tax law is exactly a shining light.  Ted Cruz and His Dim-Bulb Tax Policy (Joseph Thorndike, Tax Analysts Blog). “Increasingly, Washington is alive with interesting, conservative tax proposals. But none of them are coming from the junior senator from Texas.”

Meg Wiehe, More Than 20 States Considering Detrimental Tax Proposals (Tax Justice Blog). Pretty close to 50, I’d guess.

 

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Christopher Bergin, April Is More Than Just Tax Season (Tax Analysts Blog). “Koskinen announced that so far, the filing season has gone “swimmingly,” which apparently means the IRS answers the phone less than half the time when taxpayers call for help.” 

Today in advanced tax policy debate: How Tax Brackets are Adjusted Explained in Taylor Swift Gifs (Kyle Pomerleau, Dan Carvajal, Tax Policy Blog)

 

News from the Profession. Deloitte Not Taking Any Chances That Someone Might Burn Their Disneyland to the Ground (Caleb Newquist, Going Concern).

 

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Tax Roundup, 3/17/15: St. Patrick didn’t chase the taxes out of Ireland.

Tuesday, March 17th, 2015 by Joe Kristan

20150317-1aTax luck of the Irish. While America celebrates Irish heritage by today by drinking far too much bad dyed beer, we’ll ponder the sober look taken by Kyle Pomerleau at the Irish tax system (my emphasis):

It may be surprising to Americans to hear that Ireland has pretty high taxes. We usually hear about Ireland’s tax system in the context of its corporate income tax rate, which sits a low 12.5 percent, half the average rate of the OECD. We are led to believe that Ireland is a low-tax country in general.

In reality, Ireland’s tax code has some of the highest marginal tax rates, especially on income, in the OECD.

Ireland’s top marginal individual income tax rate is 40 percent on individuals with incomes over 33,800 EUR ($36,236).  On top of that, individuals need to pay payroll taxes of 4 percent on wages and other compensation. Ireland also has “Universal Social Charge,” which tops out at 8 percent (11 percent for self-employed individuals).

Altogether, the top marginal tax rate in Ireland is 52 percent. The average top marginal income tax rate (plus employee-side payroll taxes) is 46 percent in the OECD. Not only is this rate high, it applies at a relatively low level of income ($40,174).

It’s enough to make me glad great-great-great Grandpa took off for North America in the 1840s.*

The tax rate is also high on investment income. Capital gains are taxed at 33 percent, which is significantly higher than the OECD average of about 18.4 percent. Dividends are taxed at ordinary income tax rates of 40 percent plus the 8 percent Universal Social Charge (48 percent).

The US top marginal rate, excluding state taxes, is about 44.588%, considering phase-outs and the Obamacare 3.8% Net Investment Income Tax, but it doesn’t kick in until taxable income reaches $406,750 for single filers and $457,600 on joint returns. Our fully-loaded top capital gain and dividend rate is 19.25%. So if you must drink something, drink to having a less awful top marginal rate than Ireland.

*OK, technically he came from County Tyrone, which is in the U.K., not the Republic of Ireland.

 

daydrinkersMaria Koklanaris reports on a study by the left-side policy shop Good Jobs First (Tax Analysts $link):

There are 11 companies listed in both the top 50 state and local subsidy recipients and the top 50 federal subsidy recipients. They are Boeing, The Dow Chemical Co., Ford Motor Co., General Electric, General Motors, JPMorgan Chase & Co., Lockheed Martin Corp., NRG Energy Inc., Sempra Energy, SolarCity, and United Technologies.

Also, six companies on the top 50 state list are on the list of the top 50 recipients of federal loans, loan guarantees, and bailout assistance — Boeing, Ford Motor, General Electric, General Motors, Goldman Sachs, and JPMorgan Chase. Five companies — Boeing, Ford Motor, General Electric, General Motors, and JPMorgan Chase — are on all three lists.

All companies you just feel good about when you pay extra taxes, so they can pay less. Especially GE and JPMorgan Chase.

 

Christopher Bergin, The IRS Doubles Down on Secrecy (Tax Analysts Blog):

Faced with blistering criticism over how it handled exemption applications, accusations that it wrongly – and, perhaps, even criminally – withheld e-mails from lawmakers and the public, and rising concerns that it is the most secretive government agency we have, what is the Internal Revenue Service’s response?

To become even less transparent. As the saying goes: You can’t make this stuff up.

I think the evidence can lead to only two conclusions about the current IRS commissioner: either he is the most tone-deaf and socially-unskilled administrator in the Federal government, or he wants to make the IRS as unaccountable as possible.

 

TaxProf, The IRS Scandal, Day 677. IRS, fighting transparency tooth and nail.

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Peter Reilly, Don’t Sic IRS On Racist Frat Boys. “Nobody ever suggests that the Equal Employment Opportunity Commission or the Department of Education should pitch in and help collect taxes, but for some reason the IRS is seen as the Swiss army knife of social policy, ready to further shred its tattered reputation addressing issues that stump other institutions.”

 

 

William Perez, Need to File a Year 2011 Tax Return? Deadlines and Resources

Kay Bell, Filing tips for the 2015 tax deadline that’s just a month away

TaxGrrrl, Taxes From A To Z (2015): I Is For Insolvency. And Illinois, but that’s the same thing.

Robert Wood, Of Obamacare’s Many Taxes, What Hurts Most. So many choices.

Stephen Olsen, Summary Opinions for week ending 02/27/15 (Procedurally Taxing). A roundup of developments in the tax procedure world.

Russ Fox begins his last part of tax season hibernation. Take care of yourself and your clients, Russ. I’ve been tempted to hibernate myself, but since now is when people are most interested in this stuff, I keep at it.

 

Picture by Dan Kristan

Picture of Irish countryside by Dan Kristan

 

Richard Auxier, Can Rube Goldberg Save the Highway Trust Fund? (TaxVox). “In principle, the Highway Trust Fund (HTF) is simple. Drivers pay a federal gas tax when they purchase fuel, the revenue goes to the HTF, and the federal government sends the dollars to states and local governments for highway and transit programs. But in practice the system is a mess and a new proposal by a road builder trade group shows just how tangled this web has become.”

News from the Profession. Accountants Share Their Dreams. (Caleb Newquist, Going Concern)

 

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Tax Roundup, 3/9/15: The dark side is very powerful. And: conventional unwisdom, unwise candidacies.

Monday, March 9th, 2015 by Joe Kristan

20130419-1Christopher Bergin asks Has the IRS Truly Moved to the Dark Side?

Anyone who reads my posts knows that I have always given the IRS the benefit of the doubt in its dealing with exemption applications from conservative political organizations (which is what they are in every way but technically). I have not accused the IRS of influencing the political process. I’ve argued that it simply screwed up, albeit in a bad way, noting that stupidity is not a crime.

But now “criminal activity” has been raised. And not in a casual way, but in an official way.

The IRS’s response to this latest accusation came in a lame statement issued February 27 that essentially says it’s the inspector general’s “responsibility” to look into all this. For those of us old enough to remember the TV show Hogan’s Heroes, that is the equivalent of Sergeant Shultz saying, “I know nothing.”

Except it’s not funny.

If you’ve lost Christopher Bergin, you’ve lost Middle Arlington. You’ve also lost the “no scandal here” argument.

 

20150120-1Conventional unwisdomThe Des Moines Register’s Joel Aschbrenner is doing some excellent work on the new convention center hotel that Polk County and the City of Des Moines are helping to fund.

Researchers: Convention hotels rarely fulfill promises: “‘In a great many cases his forecasts have proven to be off, in some cases wildly off,’ Sanders said.”

Who is at risk if hotel under-performs?

The city has offered a $5 million loan guarantee that will come into play three to five years after opening when the hotel refinances its mortgages, Assistant City Manager Matt Anderson said. Hotels often refinance after they build a customer base and stabilize their business, he said.

If the hotel is under-performing due to lower-than-expected occupancy levels or room rates, or if interest rates have spiked up, refinancing would be more expensive and the city would have to cover the difference.

East Village hotel plan loses one floor: “The developer of a hotel and apartment project that will cover an entire East Village block says the hotel is being scaled back in part because of competition from downtown’s proposed convention hotel.”

The City of Des Moines has been pleading poverty. It runs revenue cameras to pick the pockets of random travelers committing the crime of not quite stopping before turning right on red at an empty intersection. It has collected illegal taxes and fought against refunds all the way to the U.S. Supreme Court. Yet it thinks it has the resources to help finance a hotel. That has to be terrific news to all of the other hotels downtown.

This isn’t the first time Des Moines has put money in a private downtown business. That hasn’t gone entirely smoothly.

 

Peter Reilly, 1099-C From Out Of The Blue? Don’t Ignore It! Fight It! Peter reminds us that just because somebody issues a 1o99-C saying there was debt forgiveness income doesn’t make it so.

Russ Fox, You Have to Have an Unreimbursed Loss to Claim a Casualty Loss

TaxGrrrl, Taxes From A To Z (2015): C Is For Commuting Expenses and D Is For Disability Income.

Kay Bell, No day off for tax advice: March’s first weekly tip round-up

Jack Townsend, Certifying Non-Willflness for Streamlined – The Risk. More on the puzzle palace of IRS offshore account enforcement.

Patrick Thomas, Inability to Correctly Calculate CSED – Confusion Leads to Unlawful Results (Procedurally Taxing).

It is a basic concept of law that once a statute of limitation has passed, no action barred by the statute may take place. Yet, as noted in the National Taxpayer Advocate’s 2014 Annual Report, the IRS often engages in forced collection action after the Collection Statute Expiration Date (CSED) has passed.

I’ll just note that the IRS is pretty good about not issuing refunds when the statute has passed.

 

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David Henderson, Rubio-Lee Isn’t Great:

Co-blogger Scott Sumner, over at his TheMoneyIllusion blog, has a post titled “Rubio-Lee is great, so why not make it even greater?”

I don’t agree that Rubio-Lee is great. It has many good features and Scott has listed pretty much all of them, so I won’t repeat them here. It has a feature, that I’ll mention shortly, that is a major negative.

Unfortunately, Scott didn’t mention the worst aspect of Rubio-Lee: the huge tax credits.

 

Tony Nitti, Reviewing The Rubio-Lee Proposal For Tax Reform

 

Hank Stern, Another day, Another CoOp Snafu (Insureblog):

Thanks to a heads’ up from FoIB Josh Archambault, we have this little gem:“The Minuteman Health Inc. Co-op in Massachusetts got more than $156 million and covered only 1,822 people – over $86,000 per enrollee.”But wait, that’s not all!

“HealthyCT Inc. Co-op in Connecticut got more than $128 million and covered only 6,094 people – more than $21,000 per enrollee.”

If that doesn’t give you the warm fuzzies, I have no idea what will.

At least they haven’t gone belly-up, unlike Iowa’s CoOportunity Co-op.
Alan Cole, CRS Report: Medical Device Tax Burden Falls On Consumers (Tax Policy Blog). “Don’t worry, the consumers will ultimately be hit with the tax, and they’ll just have to deal with it because they need their pacemakers!”
Annette Nellen, Obamacare confusion – real and made up. “The current system is too complex, confusing, inequitable, expensive, – and, not providing health care commensurate with the costs.”

Accounting Today, Cover Charge: How the ACA Is Affecting Fees. Spoiler: it’s not lowering them.

 

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Robert Wood, First Win Lottery, Then Defend Suits By Ticket Sellers, Co-Workers, Relatives

Adrienne Gonzalez, To Whom It May Going Concern: My CPA Is Locked Up and They Won’t Let Her Out. (Going Concern). Sometimes imprisonment is a sign to reconsider your choice of preparer.

 

TaxProf, The IRS Scandal, Day 669Day 668Day 667

Former IRS Commissioner Mark Everson is running for president. The Washington Post reports that he is running as a Republican on a platform of “bold tax reform.

After leaving the IRS, he took a job as CEO of The American Red Cross. That went badly: “The president and CEO of The American Red Cross (ARC) is out after less than six months – involved in an inappropriate relationship with a female subordinate.”

It seems like a long shot. Perhaps he looked at the scandals surrounding the presumptive Democratic nominee and her husband and concluded that was the path to an unopposed nomination.

 

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Tax Roundup, 3/2/15: Thawing Iowa’s frosty business tax climate. And: film credit post-production!

Monday, March 2nd, 2015 by Joe Kristan
Iowa's business tax climate, illustrated

Iowa’s business tax climate, illustrated

Baby steps towards fixing Iowa’s business tax climate. At IowaBiz.com, the Des Moines Business Record’s Business Professionals’ Blog, I discuss some easy steps to make Iowa’s tax climate a little less frosty, along with a few slightly harder ones.

The real easy:

– Eliminate the Iowa individual and corporation alternative minimum tax.

– Have Iowa’s tax law automatically conform to federal changes.

– Tie Iowa return due dates to federal due dates for all returns.

The slightly harder:

– Encourage or require “composite” returns or withholding for pass-through non-resident taxpayers.

– Repeal the deductibility of federal taxes by building the tax advantages into lower tax rates.

– Repeal refundable and transferable business tax credits.

None of this takes the place of a real Iowa tax reform along the lines of the Tax Update Quick and Dirty Iowa Tax Reform Plan, but you have to start somewhere. My next IowaBiz piece will attempt to put some more meat on the bones of the Quick and Dirty plan.

 

The Iowa Film Tax Credit Program is dead, but the lawsuits linger. A disappointed filmmaker wanted more taxpayer money, but the Iowa Supreme Court ruled that the Department of Economic Development had the final say over what expenses would qualify. Ghost Player, L.L.C. and CH Investors, L.L.C. vs Iowa (Sup. Ct. Iowa, No. 14-0339)

 

Kristine Tidgren, March 2 Deadline Extended for Farmers Waiting for 1095-A. Farmers that file by March 1 (today this year, because March 1 was on a Sunday) do not have to pay estimated taxes. “In a last-minute announcement, the IRS has declared that farmers waiting for a corrected 1095-A will have until April 15 to file their returns and pay their taxes. If they file Form 2210-F along with their return, the penalty for failure to pay quarterly estimated tax will be waived.”

Russ Fox, It Was the Sisterly Thing To Do. “Three Wisconsin sisters allegedly decided that tax fraud and identity theft should stay in the family. They’ve been accused of filing 2,000 phony returns by the Wisconsin Department of Revenue.

 

 

Jack Townsend, DOJ Tax Tough Talk About the Violating Trust Fund Tax Withholding and Payment Obligations. It seems that the IRS has become more willing to try to jail employers who fail to pay withholding; this post discusses how it can become a criminal issue. You can’t argue with this: “The solid advice is to withhold, account for and pay over to the IRS.”

William Perez explains The Key Benefits of Health Savings Accounts. “Contributions are tax-deductible when going into the HSA. And distributions can be tax-free when coming out the HSA.”

Jason Dinesen, Financing a Small Business, Part 3 of 5: Tell Your Accountant Before You Spend the Money

Kay Bell, Lions, lambs, warning Ides and luck all apply to March taxes. “Are you a tax lion, aggressively hunting down tax breaks? Or are you a tax lamb, cowering before the complicated Internal Revenue Code?”

Leslie Book, US v Clarke Remand: Allegations of Bad Faith Still Face A High Hurdle (Procedurally Taxing). “The case involved allegations of retaliatory summons issuance following a failure to extend (for a third time) the statute of limitations and allegations that the summons was a way to avoid discovery limitations in a Tax Court TEFRA proceeding that was commenced after the summons was issued.”

Bob Vineyard, Solyndra-care (InsureBlog). While Iowa’s ACA co-op, CoOpportunity, was the first one to collapse, it might not be the last.

 

Liz Malm, Richard Borean, How Does Your State Sales Tax See That Blue and Black (or White and Gold) Dress? (Tax Policy Blog):

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Robert Wood, Finally, Suing IRS Over All Those Emails. “IRS attorneys said the back-up system would be too onerous to search. Yet in recent testimony, the Treasury Inspector General for Tax Administration said IRS tech employees told them that IRS management never asked for the tapes.”

TaxProf, The IRS Scandal, Day 660Day 661Day 662. It appears that Commissioner Koskinen is putting the same effort at getting to the bottom of the Tea Party harrassment that Vladimir Putin is putting into finding Boris Nemtsov’s killer.

 

Richard Phillips, Netflix is a Real-Life Frank Underwood When it Comes to Tax Breaks (Tax Justice Blog)

Eric Todor, What if We Funded Public Education Like Affordable Care Act Health Insurance? (TaxVox). “Both seek to promote a form of universal or near-universal coverage – K-12 education for all and mandated health insurance for many. But they go about it in very different ways: one makes government subsidies explicit and the other makes much of them disappear, at least in the budgetary and political sense.”

 

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Peter Reilly, Will Christian Soldiers Be On The Streets Of Pensacola As Kent Hovind Goes To Trial? Peter covers the latest developments in the strange and sad case of the guy who had the “Young Earth Creationist” theme park devoted to the idea that humans and dinosaurs co-existed.

 De gustibus non est disputandum. Form 1040: An Unappreciated Work of Art. (Christopher Bergin, practitioner of dark arts for Tax Analysts).

News from the Profession. Florida Man Drives Porsche on Sidewalk to Make a Point, Gets Arrested. (Caleb Newquist, Going Concern). When Grandma started doing that, we took away her keys.

 

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Tax Roundup, 2/13/15: Gas tax advances, tax system declines.

Friday, February 13th, 2015 by Joe Kristan

Accounting Today visitors: click here for the post on the updated auto depreciation limits.

 

IMG_1284It looks more likely that I was wrong in predicting no gas tax increase. Subcommittees in both the House and Senate Ways and Means committees approved a 10-cent per gallon increase this week, advancing the increase to the full committes. KCRG.com reports:

A group of top lawmakers from both parties and Gov. Terry Branstad have proposed the 10-cent gas tax increase, which is expected to generate more than $200 million annually.

Supporters say the gas tax is the most fair and equitable way to generate funds for road construction.

At least it looks like my backup bet — that a gas tax increase would indicate that Governor Branstad won’t run for another term — is looking better.

 

taxanalystslogoChristopher Bergin, Reform What? (Tax Analysts Blog). It has a great teaser line: “Yes, it sure is fun thinking about tax reform. And doing nothing about it could be fun as well. We might get to watch this colossal structure collapse soon.”

Christopher goes on to explain:

But all this talk has me thinking about other things, too. Which tax system will we reform – or at least start with? Should it be the one most of us are struggling to comply with -– the one that about half of us “regular” taxpayers still have to pay taxes under? You know, the one with deductions for charitable contributions that we’d make anyway — the one that discriminates between people who own a house and rent a house. The one that’s so confusing, many of us just turn our taxes over to a paid preparer or a paid-for program to figure out. Let’s not forget that if you’re doing well under this tax system, you win a prize: the alternative minimum tax (which is sort of a booby prize).

Or maybe we should start by reforming the IRS, which has become so broke and inept that it can’t afford to help your grandmother find the line on her Form 1040 for the dependents she can no longer claim. That’s the agency that is also supposed to enforce the law so that none of us “regular” taxpayers are the true suckers in all this. (How’s that working out for you?)

Lots of that sort of cheerful stuff. In some ways the system is already collapsing before our eyes. A system that wires $21 billion annually to thieves — and it’s getting worse quickly — isn’t built to last.

 

Des Moines Register, 16 companies claim 82 percent of Iowa’s R&D tax credits. “In all, 265 companies claimed about $51 million in credits for research and development last year, the report shows. Of that, 16 companies claimed $42.1 million.”

My coverage of the story from yesterday is here: The Federal $21 billion thief subsidy; the Iowa $37 million corporation subsidy.

 

William Perez, If You Drive for Uber, Lyft or Sidecar, These Tax Tips are Just for You

20150105-2Kay Bell, IRS drops some features in latest app upgrade

Jim Maule, Self-Employment Income Not Offset by NOL Carryforward

Carl Smith, The Eight Circuit Gives Both Sides a Hard Time on What is a “Separate Return” for Section 6013(b) Purposes (Procedurally Taxing). ” Does the limit on changing from a “separate return” to an MFJ return after filing a Tax Court petition only apply where a taxpayer initially filed an MFS return (as the taxpayer argues), or does it also apply where a taxpayer initially filed a “single” or HOH return (as the government argues)?”

Robert Wood, Nine Habits of Exceptionally Tax-Averse People. Numbers 5 and 6 are key.

TaxGrrrl, Are You Insured? Obamacare Deadline Quickly Approaching

Tony Nitti, Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell. Tony, gang truces are more common than you’d think.

Jack Townsend, Structuring 20150119-1Forfeitures Again in the News (my emphasis):

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that’s a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution. It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.

I think Jack gives too much credit to the IRS, as if they have only been taking money when there was “intentional” structuring. The news reports have shown there are plenty of reasons to make deposits before you have $10,000 on hand, including insurance policy restrictions and the common sense idea that you don’t leave too much cash sitting around. But IRS didn’t inquire as to whether there was any actual intent to keep deposits low; they just took the money.

While the IRS has plenty to answer for in its seizure policy, I agree that Congress is just as guilty, passing laws allowing asset seizures without barely a nod at due process and without a hearing.

 

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TaxProf, The IRS Scandal, Day 645

Amber Erickson of Tax Justice Blog boldly makes The Case for Keeping the Medical Device Tax,

Health insurance providers, pharmaceutical companies, and the medical device industry are all expected to gain from the ACA by earning greater profits as more people enter the healthcare marketplace. The tax is intended to reciprocate those benefits by tacking on a small flat rate to a firm’s revenue.

But that tax is only on the medical deveisces, not “health insurance providers,” the big winner, and not on pharmaceuticals. It really isn’t on the device industry; it is on the people who need them.

 

Eric Cedarwell, Senator Bernie Sanders’s New Deal for America (Tax Policy Blog).

 Inspired by Roosevelt’s New Deal in many regards, Senator Bernie Sanders (I-VT) recently outlined his vision for America, featuring expansionary government spending policies. A major federal jobs program, a hike in the minimum wage to at least $15, expansion of Social Security, Medicare, Medicaid, increased regulation of Wall Street, and protectionist trade policies are examples of initiatives Sanders emphasized. However, Sen. Sanders provided little information on how he might finance his vision.

In other words, a reprise of the policies that put the “great” in the Great Depression.

Howard Gleckman, Lawmakers Talk Tax Reform But Keep Pushing New Tax Subsidies (TaxVox). Of course they do.

 

Caleb Newquist, When Is the Right Time to Start Your Own Accounting Firm? (Going Concern). December 19, 1990 worked for us. I think it was about 8:30 am.

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Tax Roundup, 1/19/15: President announces doomed tax proposals. And: Iowa gets 2015 credit for non-SHOP plans.

Monday, January 19th, 2015 by Joe Kristan

 

Economic supergenius

No, he’s not serious. The President has put forth a new set of tax proposals. So much for any ideas that he would spend his lame-duck last two years reaching out to pass bipartisan bills. The President’s “fact sheet” is a tendentious, partisan collection of slogans and half-truths posing as policy.

The first proposal:

Close the trust fund loophole – the single largest capital gains tax loophole – to ensure the wealthiest Americans pay their fair share on inherited assets. Hundreds of billions of dollars escape capital gains taxation each year because of the “stepped-up” basis loophole that lets the wealthy pass appreciated assets onto their heirs tax-free.

This is just partisan class warrior nonsense. First, it has nothing to do with “trust funds.” That’s just content-free name-calling. It would, according to Peter Reilly, treat death as a taxable sale of assets at fair market value.

The “wealthiest” already pay estate tax at rates up to 40% on the value — not just the gains — on their assets at death. But stepped-up basis applies to everyone, not just the wealthiest. The President’s proposal, if it really does call for elimination the basis step-up at death, affects everyone who inherits property, not just the few who pay estate tax. Everyone would get to try to find out how much Mom and Dad paid for that land or that stock in 1967, not just the wealthy.

Raise the top capital gains and dividend rate back to the rate under President Reagan. The President’s plan would increase the total capital gains and dividends rates for high-income households to 28 percent.

Somehow this proposal omits restoring the Reagan-era 28% top ordinary income rate that was key to allowing the 28% capital gain rate. The proper capital gain rate, of course, is zero.

None of this has a remote chance of passing, so there’s no point in me spending a lot of time on it. If you want more coverage, TaxGrrrl and Robert D. Flach dive into the details.

I’ll just point out that this is all dishonest class warrior nonsense about making “the rich” pay their “fair share.” A fair look at the numbers indicates that the rich guy is already picking up more than his share of the tab.

First, the shares of all taxes paid by different income segments:

Tax foundation Distribution of Federal Taxes in 2014

Next, the share of federal taxes by the dreaded “top 1%” vs. the bottom 90% since 1980:

taxfoundation top 1 vs bottom 90 percent

Maybe you think that “the rich” may pay more tax, but they still don’t pay as much as the rest of us as a share of their income. Nope:

tax foundation income share vs tax share

Finally, the taxes (Federal, state and local) paid by different income levels compared to the government benefits received by those income levels:

tax foundation taxes vs benefits 2012

No matter how much “the rich” have to cough up, as far as the President is concerned, it will never be enough.

More coverage:

Paul Neiffer, Do Farmers Take Advantage of “Trust Fund” Loopholes

Peter Reilly, President Obama Would Make Death A Taxable Event. “The President’s proposal would close the stepped-up basis loophole by treating bequests and gifts other than to charitable organizations as realization events, like other cases where assets change hands.”

Len Burman. President Obama Targets the “Angel of Death” Capital Gains Tax Loophole. (TaxVox). So dying is a loophole now.

 

cooportunity logoIn case you missed it, the IRS announced Friday that it will allow taxpayers in 85 Iowa counties to claim the small employer health care tax credit in 2015 now that CoOportunity, the sole provider of “SHOP” policies in those counties, has been taken over by insurance regulators. Details here.

 

TaxProf, The IRS Scandal, Day 620. Today’s installment quotes Friday’s Wall Street Journal:

If the IRS continues to stonewall the political targeting investigation, as Mr. Koskinen has, then the only tool Congress has to express disapproval is the power of the purse. In any case it’s hard to imagine the IRS could offer worse service than it already does.

Please, don’t tempt them.

 

Scott Hodge, Don’t Cry for the IRS, We’re Doing Their Work for Them (Tax Policy Blog)

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On the Martin Luther King holiday, a cautionary tale of politically-motivated tax prosecution from Robert Wood.

Annette Nellen, Due diligence for preparing 1040s for 2014

Kay Bell, Terrorism, not taxes, rank high on policy priorities survey. I’ll bet that changes in about two months.

Christopher Bergin, Frack It, Tax It (Tax Analysts Blog)

 

Career Corner. If Your Accounting Firm Uses Timesheets, For the Love of God, Track Your Time Daily (Caleb Newquist, Going Concern)

 

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Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.

 

FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258

 

Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.

 

Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS

 

Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers

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TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.

 

News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)

 

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Tax Roundup, 9/26/14: Fact-check Fail Edition. And: it’s Buzz day!

Friday, September 26th, 2014 by Joe Kristan


20121006-1During the continuing brutal assault on reason perpetrated by campaign ads in election season, it would be nice if the press would do competent work to identify misleading and stupid claims by candidates.

Alas.

Erin Jordan at Cedar Rapids’ TheGazette.com took a stab at it in her “fact check” of an ad by Pat Murphy, running in Iowa’s 1st congressional district:

“Blum cheated his workers out of overtime.”

“He moved his business to dodge Iowa taxes.”

“He laid off over 70 workers”

Source of Claim: Iowa Sen. Pat Murphy, a Dubuque Democrat running for U.S. House of Representatives

“Blum” is Rod Blum, a former executive at Eagle Point Software, and Mr. Murphy’s opponent.  This being a tax blog, let’s look at the tax claim discussion (my emphasis):

Claim 2: “Moved his business to dodge Iowa taxes”

Originally incorporated in Iowa in 1983, Eagle Point, under Blum’s leadership, reincorporated in Delaware in 1995, according to SEC filings. The company’s physical location and all employees remained in Dubuque.

Many U.S. companies — including more than half of those in the Fortune 500 — have their legal home in Delaware for beneficial tax laws and courts.

University of Iowa College of Law professor Andy Grewal, who specializes in tax law, said a company’s Delaware presence — even if it’s just a P.O. Box — may charge royalties on income gained in other states. Companies deduct those royalties from the income taxes they are required to pay in, say, Iowa, while Delaware doesn’t tax the royalties.

From the “conclusion”:

Under Blum, Eagle Point reincorporated in Delaware, generally viewed as having more business-friendly tax laws and courts. In these types of cases, the home state can lose out on corporate income taxes…

The claims in Murphy’s ad are mostly true.

20131029-3The “fact checker” has no basis for that statement, at least with the tax information in her story. The idea that companies incorporate in Delaware primarily for tax reasons is flat wrong. Delaware is preferred largely for its well-developed business-friendly corporate law.

While Delaware is tax-friendly, the royalty maneuver casually referred to in the story only works if an intellectual property corporation has been set up in Delaware to own the IP; the IP company collects the royalties in Delaware, and the operating company deducts the payments to lower its income in high-tax states.  There appears to have been no such entity. 

The 1999 10-K filing with financial statements for Eagle Point Software would detail related parties and subsidiaries included in the financial statements. Any Delaware IP subsidiary would be included in the consolidated financial information, because while investors like it when their companies reduce state taxes, they don’t like it if it means real cash leaves the company covered by the financial statements.

Eagle Point’s only subsidiary included in the financials is a Wisconsin Corporation, ECOM Associates. As Wisconsin is a high-tax state, nobody would set up an IP holding company there.

The only “related party transaction” shown in the statements is its lease for its facilities. There is no mention of any intellectual property lease.

And there almost certainly would have been no need for Eagle Point Software to go through the trouble.  Corporations apportion their income to Iowa based on the destination of the sale.  As a public company, we can assume over 90% of their sales were to non-Iowa customers.  That means almost all of its income would not be taxed in Iowa to begin with.  And that would have been just as true if the company were incorporated in Iowa, rather than Delaware.

So, apparently without looking at publicly available information on Eagle Point, and with only a general statement by a law-school prof claiming no direct knowledge of the transaction, the Gazette’s “fact checker” called the assertion that the company incorporated in Delaware to dodge Iowa taxes “mostly true.” In fact, there appears to be no royalty agreement to funnel income out of Iowa. And, as most of Eagle Point Software’s sales would have been to non-Iowa customers, there would be little state tax to reduce in the first place.

Conclusion: with respect to the tax claims evaluated by Thegazette.com, I rate their fact-checking effort worthless. I rate the claim by Pat Murphy that Eagle Point incorporated in Delaware to “dodge Iowa taxes” false.

 

buzz20140905It’s Friday, so it’s Buzz Day! Go see Robert D. Flach for the fresh Buzz, including (of course) his pungent thoughts on the Jersey Shore celebrity who is facing tax charges.

TaxGrrrl brings word of ‘Staggering’ Sanctions Slapped On Wyly Brothers In Offshore Case. $190 million, plus interest, will get anyone’s attention.

 

 

Christopher Bergin, The Hobgoblin of Little Minds (Tax Analysts Blog):

This week the Treasury Department got into the act, putting corporate America on notice that it will soon issue regulations that will take “targeted action to reduce the tax benefits of – and when possible, stop – corporate tax inversions.” Treasury said it “will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share.”

I think Treasury will end up regretting this announcement. First, two minor points: So-called loopholes are created by elected officials and include such things as the ability to deduct the interest you pay on the mortgage you got to buy that house you live in. And it’s up to Congress to decide on “fair shares.” The Treasury Department doesn’t get to make law, which is why when it comes to corporate inversions it will ultimately do little more than make a lot of noise and create an initial annoyance.

The point is to score some election season points; if it causes problems down the road, well, they’ll be somebody else’s.

 

Joshua McCaherty, California Triples Film Tax Credit. (Tax Policy Blog)  Because Hollywood needs taxpayer funding.

TaxProf, The IRS Scandal, Day 505

 

Now he’s probably taken a big step towards fulfilling that vow. Mississippi surgeon found guilty of tax evasion after claiming “vow of poverty”

 

News from the Profession. Revealed: The tax accountant who runs brothel from Belfast terrace (Belfast Telegraph).  Think of the cross-selling opportunities! No word on whether that’s where he gets his extra help for busy season.

 

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Tax Roundup, 9/12/14: C Corporation can’t kite checks to owner to wash out income. And: a church of strange idols.

Friday, September 12th, 2014 by Joe Kristan

20120511-2In the misty early days of my tax career, S corporation elections were a big thing. There was a grace period after the passage of the 1986 Tax Reform Act where you could make the election and avoid having to deal with the built-in gain tax.

I remember calling on a prospect C corporation, thinking I could easily sell the merits of escaping the second layer of corporation tax. They were ready for me. They explained that they didn’t need an S corporation election because, as I remember it, they could always W-2 their income to the owner to zero out their taxable income. They then made an entry to record a “loan” or capital contribution for the same amount from the owner to the corporation, so no actual cash changed hands. That’s what they said they always did, and they’d never been audited.

I sputtered, “that doesn’t work,” but it apparently worked fine, as long as the IRS never called. Needless to say, I failed to land the prospect. I went back to the office determined to find a case with the same facts.  I never did find the perfect case — until now.

Yesterday the Tax Court ruled that a version of this trick didn’t work for a Minnesota C corporation architectural practice.  The stakes are higher for “personal service corporations,” including architects, as they don’t get to use the lower C corporation brackets for their taxable income; they pay 35% from dollar one. Many corporations accept that, assuming they can wipe out their taxable income with year-end bonuses to owner-employees; that way they retain a few tax-free fringe benefits unavailable to S corporation shareholders.

The Tax Court explains how the Minnesota taxpayer went about this (my emphasis, footnotes omitted):

In 2008 Vanney Associates paid Mr. Vanney monthly wages totaling $240,000. At the end of each year, it was the Vanneys’ practice to determine Vanney Associates’ remaining profit after paying any outstanding bills and paying bonuses to employees. After determining this amount, Ms. Vanney would prepare a check on behalf of Vanney Associates and pay the remaining profit to Mr. Vanney as a yearend bonus. The Vanneys testified that their intent behind the yearend bonus was only to pay out the remaining profit; it was not to zero out the tax liability of Vanney Associates even if that was the effect.

On December 30, 2008, Vanney Associates paid Mr. Vanney a yearend bonus totaling $815,000. After withholding and paying to the IRS the appropriate Federal income, Social Security, and Medicare taxes, Vanney Associates wrote a check to Mr. Vanney for $464,183. Mr. Vanney signed the check on behalf of Vanney Associates and then endorsed the check in his own name and made it  payable to Vanney Associates. He never attempted to cash the check. Ms. Vanney recorded the payment on the books as a loan from Mr. Vanney, and Vanney Associates repaid Mr. Vanney in March 2009.

Tax Court Judge Buch found that the check was never cashed for good reasons:

Mr. Vanney testified that he “believe[d]” he knew that Vanney Associates did not have the funds necessary to honor the check. However, he maintained that Vanney Associates could have gotten a loan to cover the check.

20131206-1The IRS disallowed the $815,000 bonus expense, and it ended up in Tax Court. The court sided with the IRS:

Mr. Vanney was the sole shareholder of Vanney Associates. Ms. Vanney, as Vanney Associates’ bookkeeper, knew or should have known that Vanney Associates did not have the funds to cover the bonus check to Mr. Vanney, and Mr. Vanney testified to having at least some idea of this as well. Vanney Associates argues that the payment was unconditional and payment occurred when Mr. Vanney took possession of the check. Vanney Associates cites O’Connor v. Commissioner, T.C. Memo. 1954-90, where this Court held that “[t]he essential element is that the control of property distributed by way of a dividend must have passed absolutely and irrevocably”. The Court in O’Connor also relied on the fact that the payee had “unrestricted use” of the money and the “amount was unqualifiedly his, to do with as he wished.” That is not the case before us. If anything, Mr. Vanney had only restricted use of the check. He could not cash it at the bank, use it to pay a debt, or use it to make a loan to someone other than to Vanney Associates. In fact, Mr. Vanney’s only option to make use of the money at that time was to lend it back to Vanney Associates because the check could not be honored. Additionally, we have previously held that although a taxpayer maintains possession of a check, the amount of the check may not be treated as a distribution or may not be included in gross income when the account has insufficient funds to honor the check.

Accordingly, respondent’s disallowance of a portion of the deduction for officer compensation is sustained.

I can’t time travel to the 1980s to show this case to my now-defunct prospect corporation, but I suspect there are plenty of other C corporations that still do this. It only works if the IRS never calls, and if they do, the value of the C corporation fringes is unlikely to cover their additional C corporation taxes.

Cite: Vanney Associates, Inc., T.C. Memo 2014-184.

 

Christopher Bergin, The Church of Corporate Inversions (Tax Analysts Blog): “I never thought I’d miss stories about Lois Lerner. But if we are going to talk about fairness in our tax system and raising enough revenue to support the people’s government, dealing with the increasingly dysfunctional IRS is just one of the problems we face that are far more important than corporate inversions.”

Speaking of worshipping at The Church of Corporate Inversions: New CTJ Report: Congress Should Require Inverting Corporations to Pay Up Taxes They Owe on Profits Held Offshore (Steve Warnhoff, Tax Justice Blog)

 

20140728-1Kay Bell, Tax relief for terrorist attack victims and their families

Paul Neiffer, How Do We Plan For Section 179 in 2014. “Now, we are fairly confident that Section 179 will be increased, but we probably will not know until the last week of the year and we may get 50% bonus depreciation back too.”

Russ Fox, Cash & Carry.  A restaurateur discovers that all receipts are taxable, even if the customer doesn’t use a credit card.

Peter Reilly, Parsonage Supporters Encouraged By Seventh Circuit Oral Arguments

Leslie Book, Technology and Tax Administration: The Appeals Virtual Service Delivery Program (Procedurally Taxing)

 

Amber Athey, House September Agenda Includes Potential Tax Changes (Tax Policy Blog). Mostly extenders, none of which seem to be going anywhere until after the elections.

 

TaxProf, The IRS Scandal, Day 491

 

Donald Marron, Does the Export-Import Bank Make or Lose Money? (TaxVox). Both. It makes money for Boeing, but loses money for those of us not on the corporate welfare rolls.

 

Career Corner. The Obvious Link Between Inadequate Staffing and Stress Explains Why You Hate Your Life (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 8/8/14: Get a Room Edition. And: Koskinen, cronyist.

Friday, August 8th, 2014 by Joe Kristan

Flickr image by Ellenm1 under Creative Commons licenseTax Court: Get a room!  If you spend a lot of time on the road, you may have wondered whether it might make sense to buy a Winnebago instead of hopping between motels.  The Tax Court yesterday weighed in on the side of motels.

A California insurance man with an RV found a market for his wares among his fellow tin-can nomads, as the Judge Wherry explains:

Starting in 2004, petitioners began attending RV rallies not just for pleasure but also for business purposes. At or around the same time, they purchased a 2004 Winnebago RV. We reject petitioners’ contentions that they attended RV rallies solely for business purposes from 2004 but instead find that they had mixed purposes. Petitioners would gather sales leads at every rally. To that end, petitioners had a banner that they attached to their RV advertising Dell Jackson Insurance. Petitioners would set up an information table outside of their RV or outside the clubhouse, if the site had one. If they set up a table by a clubhouse, petitioners moved the banner from the RV to the table. Otherwise, the sign remained on the RV from the time they arrived until the time they left. Petitioners would invite potential customers to come to their RV, and they would sit either outside or inside the RV and discuss the prospective client’s insurance needs. It would often take months, if not years, for a relationship with a potential customer, which could begin with a lead, to develop into an actual sale.

Naturally the salesman deducted expenses of his RV in preparing the Schedule C for his insurance business.  The IRS limited his deductions using Section 280A, which limits business deductions for personal residences.  The Court said that the RV was a house, as far as the tax law is concerned (citations and footnotes omitted, emphasis added):

Generally, “a taxpayer uses the dwelling unit during the taxable year as a residence if he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of — (A) 14 days, or (B) 10 percent of the number of days during such year for which such unit is rented at a fair rental.” “Dwelling unit” is also a defined term and “includes a house, apartment, condominium, mobile home, boat, or similar property”. Sec. 280A(f)(1)(A). This Court has previously held that a motor home qualifies as a dwelling unit within the meaning of section 280A(f)(1)(A).  Although we use the more modern term throughout this opinion, an RV and a motor home are one and the same thing. Petitioners and counsel used the two terms interchangeably at trial. Accordingly, petitioners’ RV is a dwelling unit for purposes of section 280A. 

The Tax Court said that while the expenses were otherwise legitimate, the Section 280A disallowance of business expenses when a residence, or part of one, isn’t used “exclusively” for business overrides the deductions:

This result may seem harsh, but it is the operation of the statute, which reflects Congress’ desire to prevent taxpayers from deducting personal expenses as business expenses.

While the court admitted the result was harsh to begin with, that didn’t stop it from piling on, adding over $8,000 in “accuracy-related” penalties to the $42,000 in additional taxes assessed by the IRS — another example of the unfortunate tendency of the IRS — with the blessing of the Tax Court — to penalize everything, even when the taxpayer used an apparently reputable preparer.

The moral: RVs may be great for retirement travel, but they aren’t the best thing for business deductions.  If they had rented hotel rooms, the deductions apparently would have been just fine.

Cite: Jackson, T.C. Memo 2014-160

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

So the IRS Commissioner is just fine with cronyism in tax administration.  John Koskinen Indicates IRS Revolving Door Is A Feature Not A Bug (Peter Reilly).  It will be hard to unseat Doug Shulman as the Worst Commissioner Ever, but John Koskinen is giving it the old college try.

 

Jason Dinesen, From the Archives: Iowa Tuition and Textbook Credit and Back-to-School Shopping

Jack Townsend, It’s So Easy to Say No — The IRS Often Gets to No for Streamlined Transition Relief in OVDP. “The bottom-line is that the IRS is denying the nonwillful certification in far more cases than practitioners thought would be the case.  And, the process of denial is a bit of a black box.”

Leslie Book, Summary Opinions for 7/25/14 (Procedurally Taxing).  A roundup of recent tax procedure happenings.

 

tax fairyKay Bell, FTC sending $16 million to former American Tax Relief clients. Don’t fall for tax relief scams in the first place:

Federal prosecutors first filed charges against ATR in 2010. In August 2012, a federal court entered a partial summary judgment in favor of the FTC, finding that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts.

The court issued a $103.3 million judgment against the company.

Outfits like ATR, J.K. Harris, TaxMasters and Roni Deutsch pulled in lots of revenue from taxpayers desperate to believe in the Tax Fairy.  There is no tax fairy.

 

 

It’s Friday, the Iowa State Fair is underway, and Robert D. Flach is buzzing!  So it’s a good day three ways.

20140808-1

 

TaxGrrrl, normally the soul of restraint, lets loose on the inversion diversion in Obama Joins Blame Game As Companies Flee U.S. For Lower Tax Rates:

But to point fingers at lawyers and accountants as if they are holding all the cards is plain wrong. If we want to talk about responsibility, let’s talk about responsibility.

Let’s talk about a bloated Tax Code that just keeps getting bigger. Let’s talk about a global tax system that encourages companies (and people) to flee. Let’s talk about stalled tax reform efforts.

The tax code is the instruction manual for taxpayers, and their lawyers and accountants, for tax compliance.  And now the politicians don’t like what happens when we read and follow instructions.

 

20120702-2Andrew Lundeen, To Stop Inversions, Fix the Tax Code (Tax Policy Blog).  “But the lack of competitiveness created by the corporate tax isn’t the only issue: at its core, the corporate tax is inherently not neutral. It is highly distortive, opaque, and economically damaging tax.”

Christopher Bergin, Beware the Individual Income Tax Inversion (Tax Analysts Blog)  “The truth is that our tax system is in trouble – all of it: the corporate side, the administration side, and the individual side. And that means the country is in trouble.”

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Illinois Edition (Tax Justice Bl0g).  Political wrangling in a doomed state.

TaxProf, The IRS Scandal, Day 456.  The scandal has been Voxplained. Keep calm, all is well.

 

Art appreciation tip: “Like the folks who believe that the limits on maritime jurisdiction, explained by a talking salamander, holds the key to beating a federal criminal charge, the full tapestry of wacko tax fraud theories is a lovely thing to behold….” (Matt Kaiser, Above The Law).  He covers a “sovereign citizen” from Omaha who learned that filing a phony $19 million lien on a judge is perhaps not the optimal way to handle a tax controversy.

Related: TaxProf, Nebraska ‘Sovereign Citizen’ Convicted of Filing False Liens Against Federal Officials and Federal Tax Crimes

 

Adrienne Gonzalez, California Might Ditch the Attest Requirement for CPA Licensure.  I’m sure I would have been a better person if I had to waste two years observing inventories and otherwise bothering real auditors.

 

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Tax Roundup, 7/28/14: Out of the Wilderness edition.

Monday, July 28th, 2014 by Joe Kristan

Joe K as Ted KI’m back from the Philmont Scout Ranch.  81 rough and hilly miles in 10 days, not counting wrong turns, and all but about 12 with full pack.  The remainder were side trips up mountains.

It was a memorable and wonderful experience, even though I don’t intend to repeat it anytime soon.  I went with a great crew (including my younger son), and a skilled and wise adult “co-advisor,” so mostly I just got to enjoy the scenery and work on my new Unabomber Cowboy look.  I got a bunch of New Mexico mountain flora and fauna photos, many of which will be used as decoration on the Tax Roundups in the coming weeks.

I missed some tax stuff, which I will try to catch up on over the next few days.  I especially need to ponder the implications of the Halbig decision by the D.C. Circuit, striking down tax credits for Obamacare, and, perhaps, the employer and individual mandates for non-exchange state residents.

For the record, I had to clear my spam filter of 50,852 assuredly wonderful comments, and another 128 that got through the spambox for moderation. If you made a non-spam comment that I deleted, I’m sorry.  With so much spam, I have to take the spam filter’s word for it.

Today’s roundup will be abbreviated, as I still have to dig out from the usual post-vacation accumulation of chores.

 

20140728-1Roger McEowen, D.C. Circuit Says IRS Illegally Created Obamacare Tax; Fourth Circuit Sees No Evil.  “The D.C. Circuit’s decision relieves millions of persons from the penalty tax under I.R.C. Sec. 36B that the Congress did not state were subject to the tax.  Most assuredly, the government will ask the full court to hear reconsider the decision.”

TaxGrrrl, Courts Issue Conflicting Rulings On Obamacare Tax Credits: Which One Got It Right?   

William Perez, List of Sales Tax Holidays in 2014.  Iowa’s is this weekend.

Jana Luttenegger, Change in One-Per-Year Rollover Rules on IRA (Davis Brown Tax Law Blog)

Peter Reilly, Pulling IRS Into Your Business Dispute Might Not Be Such A Good Idea.  No kidding.

Robert D. Flach just keeps Buzzing!

 

Christopher Bergin, Inversion Diversion (Tax Analysts Blog):

There’s a lot more wrong with the tax system than corporate inversions. But that’s not the point. With all that’s going on in the world, when President Obama jumps on the anti-inversion bandwagon, it will give the official seal of approval to inversions as this summer’s red herring.  

The talk of corporations making tax moves as “deserters” is repulsive — as if their only duty is to generate revenue for Uncle Sam, without regards to their owners and customers.

Howard Gleckman, The Bring Jobs Home Act Won’t (TaxVox)

Joshua Miller, Richard Borean, Higher Education Tax Credits are a Windfall for Universities.  Of course they are.  You didn’t think they were for students, did you?

Accounting Today,  Former IRS Employee Arrested in Identity Theft Ring.  How do people think IRS regulation of preparers will stop fraud when IRS employment doesn’t.

TaxProf, The IRS Scandal, Day 445

News from the Profession.  This Complete Idiot Cheated on the Open Book Ethics Exam, Ratted Self Out. (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 7/7/14: IRS stands down on imaginary 750-hour rule for real estate pros. And: the real IRS budget problem.

Monday, July 7th, 2014 by Joe Kristan

No Walnut STA newly-released memo indicates that the IRS will no longer hold real estate professionals to an illegal standard in determining passive losses.  

ILM 201427016 addresses how the “750-hour test” of Section 469 applies when you have multiple real estate activities.  Under the passive loss rules of Section 469, rental real estate losses are normally passive; that means the losses are normally deductible only to the extent of other passive income, until the activity is sold.

A special rule allows real estate professionals to apply the normal passive loss rules, which are based on time spent in the activity, to rental real estate losses.  To qualify as a real estate pro, you have to meet two tests:

You have to spend more than 750 hours in the taxable year working in real estate trades or business in which you materially participate, and

You have to spend more time in your real estate activity than in any other kind of activity (this test means that few people with non-real estate day jobs qualify as real estate pros).

In some cases the IRS has applied the 750 test to each activity — making it almost impossible for many taxpayers to qualify, absent an election to treat all rental real estate activities as a single activity under Reg. Sec. 1.469-9(g).  The Tax Court issues a couple opinions that seemed to agree — opinions that I insisted were wrong.

Now the IRS seems to have come around.  From the new IRS memo (my emphasis):

Therefore, whether a taxpayer is a qualifying taxpayer within the meaning of section 469(c)(7)(B) and Treas. Reg. § 1.469-9(b)(6) depends upon the rules for determining a taxpayer’s real property trades or businesses under Treas. Reg. § 1.469-9(d), and is not affected by an election under Treas. Reg. § 1.469-9(g). Instead, the election under Treas. Reg. § 1.469-9(g) is relevant only after the determination of whether the taxpayer is a qualifying taxpayer. However, some court opinions, while reaching the correct result, contain language which may be read to suggest that the election under Treas. Reg. § 1.469-9(g) affects the determination of whether a taxpayer is a qualifying taxpayer. See, for example, Jafarpour v. Comm’r, T.C. Memo. 2012-165, and Hassanipour v. Comm’r, T.C. Memo 2013-88. However, other court opinions recognize that the election under Treas. Reg. § 1.469-9(g) is not relevant to the determination of whether a taxpayer is a qualifying taxpayer. See, for example, Trask v. Comm’r, T.C. Memo 2010-78. 

One hopes the IRS will no longer raise this false issue on examination.

Related: Did the Tax Court just abandon the ‘750 hours for every rental activity’ test?

 

20130426-1Paul Neiffer, IRS Modifies Offshore Voluntary Disclosure Program (OVDP).  “I have personally worked with clients that were involved in the old voluntary disclosure program and I can tell you it is not a pleasant experience.”

Jack Townsend, Rumors on the Workings of Streamlined Programs (Including Transitioning in OVDP).  Reading this, it sounds more like a diabolical bureaucratic torture than a serious attempt to bring the non-compliant into the system.

 

Robert D. Flach, A RANDOM THOUGHT ABOUT THE NEW VOLUNTARY AFSC PROGRAM.  A pithy lesson on the difference between qualifications and credentials.

 

Jason Dinesen, Life After DOMA: A History of Marriage in the Tax Code 

Keith Fogg, When and Where to Make Your Arguments (Procedurally Taxing).  In tax controversies, making the right argument does no good unless you make it at the right time.

 

 

TaxProf, The IRS Scandal, Day 424.   The New York Times thinks the real scandal is that GOP appropriators won’t give the IRS more money to use against them.

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Scott Hodge, The IRS Needs Tax Reform Not a Bigger Budget:

The relentless growth of credits and deduction in the code over the past 20 years had made the IRS a super-agency, engaged in policies ranging from delivering welfare benefits to subsidizing the manufacture of energy efficient refrigerators.

I would argue that were we starting from scratch, these are not the functions we would want a tax collection agency to perform. Tax reform would return the IRS to its core function—simply collecting revenues to fund the basic operations of government.

Amen.  I’ve said much the same thing: “Every year Congress gives the IRS more to do.  It has become a sprawling superagency administering programs from industrial policy (R&D credits, export subsidies, manufacturing subsidies) to historic preservation, housing policy to healthcare.”

If Congress stopped using the tax law as the Swiss Army Knife of public policy, the current IRS budget would be plenty.

 

20120503-1Christopher Bergin, What’s Behind the Brain Drain at the IRS?  (Tax Analsyts Blog):

So what’s going on? Is this an internal war at the tax agency, specifically in LB&I – a power struggle, if you will? Or is it the more predictable result of competent IRS leaders, who could easily make more money in the private sector, deciding to escape an agency that is being treated like a political piñata? Or is this the new IRS commissioner cleaning house? For me, the latter is the least likely.

Yeah, the new Commissioner is more into closing the blinds to the house so we don’t see the mess, rather than cleaning it up.

 

TaxGrrrl, European Commission Broadens Tax Inquiries To Include Amazon: Google, Microsoft & McDonald’s May Follow   

Renu Zaretsky, Congress Is Back with Much To Do and Consider (TaxVox).  Today’s tax headline roundup covers this week’s Congressional agenda, inadequate retirement savings, and the EU’s efforts to crack down on multinationals.

 

Russ Fox, Pop Goes the Tax Fraud  A rapper, a Canadian, and a football player walk into before the bar…

The 70th anniversary of a red letter day for my Dad.  July 5, 1944.

 

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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, 6/23/14: Making no friends edition.

Monday, June 23rd, 2014 by Joe Kristan
Rose Mary Woods checks her e-mail in the Nixon administration.

Rose Mary Woods checks her e-mail in the Nixon administration.

New IRS Commissioner Koskinen isn’t exactly making new friends for the agency in Congress.  His testimony Friday on the implausible rash of hard-drive failures that hit the IRS just as Congress began looking at Tea Party harassment amounted to an insistence that Congress take the IRS at its word, and give it more money.  From Tax Analysts ($link):

     “I don’t think an apology is owed,” Koskinen answered. “Not a single e-mail has been lost since the start of this investigation.”

Regarding the six other IRS employees who have experienced computer failures since the investigation began, Koskinen said technology experts told him that 3 to 5 percent of hard drives can be expected to fail during their warrantied lifetimes. 

It just happened to all the hard drives of the people most involved in beating up on the Tea Party.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen (correctly) points out that the IRS is underfunded for all of the chores (unwisely) given it by Congress.  With Congressional Republicans understandably reluctant to fund an agency it percieves, with justification, as its opposition, Mr. Koskinen ought to be going out of his way to assure them that he is making sure to eliminate political bias in the agency and to fully cooperate with the investigation.  He is doing nothing of the sort, and he may have already irretreivably lost his opportunity to convince GOP appropriators that he can be trusted.

IRS stonewalling isn’t a new thing.  As the many lawsuits filed by Tax Analysts to get the IRS to release its internal documents show, covering up is a way of life in the agency.  Christopher Bergin, in The Coverup Is Usually Worse Than the Crime (Tax Analysts Blog), gives some background:

Maybe it’s just sloppy record-keeping, which would be bad enough. Most of the government’s business is now conducted digitally, and those records need to be properly handled. Or is it worse? Is the IRS deliberately keeping things from the public? Excuse my cynicism, but the IRS’s penchant for secrecy is what led Tax Analysts, using the new Freedom of Information Act, to sue the agency in the 1970s to force it to release private letter rulings. There have been several subsequent lawsuits to pry records that should have been public out of the agency’s hands.

The idea that IRS emails are public records requiring preservation is nothing new, and was well-established at the time Ms. Lerner was busy.  It’s either negligent and outrageous incompetence or criminal destruction of public records, and to say that the IRS owes no apologies is to say that at least one of these unpleasant choices is just fine with him.

 

 

20140623-1TaxProf, The IRS Scandal, Day 410

Megan McArdle, An IRS Conspiracy? Not Likely … Yet.  “To be clear, of course six tragic hard drive failures in a relatively short period of time would make it very hard to believe in a benign explanation.”

Brian Gongol, Backing up your email isn’t hard to do.  “Someone should tell the IRS, which is making excuses for losing administrative emails — excuses that wouldn’t pass muster in an IRS audit

Russ Fox, We Don’t Need No Stinkin’ Backups

 

TaxGrrrl, Raking It In At Summer Yard Sales: Does Uncle Sam Get A Cut?   

Roger McEowen, U.S. Supreme Court Says Inherited IRA’s Not Exempt in Bankruptcy

Jason Dinesen, Bedside Manner is Important for Tax Pros, Too

Peter Reilly, Does Sixth Circuit ABC Decision Give Tenants Incentive To Buy?  “ABC Beverage Corporation is entitled to deduct the premium portion of the price it paid for the real estate as a cost of terminating the lease.”

 

Keith Fogg, D.C. Circuit Upholds the Constitutionality of Presidential Removal Powers of Tax Court Judges (Procedurally Taxing)

I think it’s only half-baked.  Stick a Fork in It: Is the Corporate Income Tax Done? (Joseph Thorndike, Tax Analysts Blog)

It’s not just a problem in Florida.  Seven indicted in Minnesota identity theft ring (TwinCities.com).

 

Wind turbineQuad City Times, Tax credits boost solar power in Iowa

David Henderson, Low-Carbon Alternatives: Solar and Wind Suck (Econlog).  “[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less–nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar.”

 

Roberton Williams, U.S. Taxes Have Changed A Lot Since 1929 (TaxVox)

Steve Wamhoff,  Good and Bad Proposals to Address the Highway Trust Fund Shortfall (Tax Justice Blog).  The TJB has started putting individual author names on their posts, so I’ll do so too.

David Brunori, Tax Policy Is Not the Way to Deal With an Ass (Tax Analsyts Blog).  Not every problem is a tax problem.

Going Concern, IRS Can’t Afford to Upgrade to Windows 7 But Can Afford to Pay Microsoft to Use XP

 

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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.

 

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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, 5/23/14: We’re sorry. Can we have our funding now?

Friday, May 23rd, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The IRS wants its budget back.  The agency has withdrawn the proposed regs that would institutionalize its mistreatment of Tea Party groups.  Accounting Today reports:

The announcement Thursday came in response to the unprecedented number of comments—over 150,000—the IRS received on the proposed rules, which were supposed to govern the types of political activity that would be permissible for groups to maintain tax-exempt status as “social welfare” organizations under Section 501(c)4 of the Tax Code (see Treasury and IRS Issue Guidance for 501(c)4 Tax-Exempt Social Welfare Organizations). The issue has roiled the IRS since last year, when the former director of the IRS’s Exempt Organizations unit, Lois Lerner, admitted that the IRS had used terms such as “Tea Party” and “Patriot” to screen applications from conservative groups applying for tax-exempt status. Those revelations led to the departures of Lerner and a number of other high-ranking officials at the IRS, along with a series of contentious hearings, subpoenas and contempt of Congress charges against Lerner.

The new commissioner, John Koskinen, indicated back in February that the proposed regulations are not likely to be finalized anytime soon and would be subject to heavy revision in response to the thousands of comments the agency received (see IRS Commissioner Koskinen Says Proposed Tax-Exempt Rules Won’t Be Finalized Soon). Republican lawmakers in Congress introduced legislation in February to block the proposed regulations (see Congress Considers Legislation to Block IRS’s Proposed 501(c)4 Regulations).

I suspect it will be a loooong time before they come out with a new set of proposed regulations — comparable to the wait for the final regulations on self-employment taxation of LLC members, which have been “proposed” now since 1997.  This is probably a necessary first step for the IRS to get its full funding restored, given how much it has done lately to demonstrate that it is institutionally opposed to the GOP.  Maybe it would help also to demonstrate some fiscal discipline by dropping its costly pursuit of preparer regulation by “voluntary” means.

 

Related: TaxProf, The IRS Scandal, Day 379

 

Jim Maule, No Deduction If Entitled to Reimbursement.  “It is a long-established principle of federal income tax law that a taxpayer is not permitted to deduct an otherwise deductible expense to the extent that the taxpayer is entitled to reimbursement from the taxpayer’s employer.”

Kay Bell, Summer travel time is prime tax time

Peter Reilly, American Atheists Denied Standing To Challenge Church Tax Breaks.

Robert D. Flach come’s through with the week’s third Buzz!

 

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Christopher Bergin, The Punishment of Credit Suisse Is Not Enough (Tax Analysts Blog). “People need to start going to jail for these types of abuses.”  No, our tax authorities prefer to shoot jaywalkers so we can gently chastise the international money-launderers.

Jack Townsend, Credit Suisse Update – The Aftermath for Credit Suisse #1.  The Federal Tax Crimes blog rounds up coverage of the Credit Suisse plea.

Stephen Olsen, Summary Opinions for 5/16/14 (Procedurally Taxing). The most interesting item to me in this roundup of tax procedure posts is “IRS is doing limited audits on Section 409A plans, and Winston and Straw has some coverage here.”  The horrible Section 409A rules haven’t triggered many audits.  That may be ending, and 20% penalties, plus income taxes, on funds never received will then be on the way as a result of foot-fault violations of the insanely-complex rules governing non-qualified deferred compensation plan distributions.

 

Joseph Henchman, IRS Considering Change in Tax Treatment of Travel Loyalty Points (Tax Policy Blog). What could go wrong?

Len Burman, Why Not Ditch the Medical Device Excise Tax and Boost Cigarette Taxes? You know, if we really wanted to promote public health, we should consider promoting e-cigarettes to get people off the real thing.  Instead, the government wants to tax and restrict them just like real coffin nails.

 

Adam Weinstein, Why Our Political System’s Screwed, in One Very Basic Chart:

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Via Nick Gillespie.

 

News from the Profession: Ex-KPMG Partner Who Gave Insider Tips to His Former Golf Buddy Is Going to Talk About Ethics Before He Goes to Prison (Going Concern)

 

Have a great Memorial Day Weekend!

 

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Tax Roundup, 5/16/14: Iowa Alt Max Tax resurfaces. And: Alimony madness.

Friday, May 16th, 2014 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

The Iowa Alternative Maximum Tax Trial Balloon rises again.  From O. Kay Henderson, ‘Flat tax’ likely on GOP legislators’ agenda in 2015:

The top Republican in the Iowa House says if Republicans win statehouse majorities in the House and the Senate this November, one item on his wish list for 2015 is a “flat” state income tax. House Speaker Kraig Paulsen, a Republican from Hiawatha, spoke early this morning at a breakfast meeting of central Iowa Republicans.

Paulsen and his fellow House Republicans endorsed a “flat” tax proposal last year, but it was not considered in the Democratically-led Iowa Senate. The proposal would have allowed Iowans to continue filing their income taxes under the current system or choose the alternative of a 4.5 percent flat tax on their income, with no deductions.

I call this an “alternative maximum tax” because taxpayers will compute the tax both ways and pay the smaller number.  That contrasts with the alternative minimum tax, where you compute taxes two ways and pay the higher amount.  It has the obvious drawback of adding a new layer of complexity to the current baroque Iowa income tax.

20120906-1The proposal is likely an attempt to enact a lower rate system in a way that doesn’t upset fans of Iowa’s deduction for federal income taxes — particularly the influential Iowans for Tax Relief.  Because the deduction would rarely provide a better result than the alt max tax, support for the old system would wither away, maybe.

I’m probably too much of a tax geek to read the politics correctly, but I’m not convinced adding a new computation to the Iowa 1040 will fire up the electorate.  I think something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be easier to run on.  Eliminate all the crony tax credits and well-intended but futile tax breaks.  Get rid of the job-killing, worst-in-the-nation Iowa corporation income tax.   Drastically lower rates, increase the standard deduction, and limit the role of the income tax to funding the government.   This would get my vote anyway, and it would at least be awkward to argue instead for the current system that sends millions to some of Iowa’s biggest corporations as subsidies on the backs of you, me and small businesses.

Related: The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

I always thought enforcing the tax rules for alimony would be about the easiest job the IRS could have.  When you pay alimony, you get an above-the-line deduction, but only if you list the name and social security number of the recipient ex-spouse.  Just match the deduction with the income and generate notices when they don’t match.

This information systems problem is apparently too much for the IRS.  Peter Reilly reports:

According to the TIGTA report there were 567,887 Forms 1040 for 2010 that had alimony deductions.  The total claimed was $10 Billion.  When they compared the corresponding returns that should have recorded the income, there were discrepancies on 266,190 returns including 122,870 returns that had no alimony income at all reported.  There were nearly 25,000 returns where the income recognized was greater than the deduction claimed which produced a bit of an offset ($75 million).  On net, deductions exceeded income by $2.3 billion.  In her piece “Alimony Tax Gap is $1.7 BillionAshlea Ebeling goes into more details on the report, so I’m going to get a little more into what I see as the big picture here.

While I’ve never been a huge fan of the IRS, over my career I had developed a grudging respect for the organization’s competence and professionalism.  That’s been mostly drawn down over the last few years.

 

taxanalystslogoChristopher Bergin, A Warning About the IRS That We Should Heed (Tax Analysts Blog):

As I wrote almost a year ago, the IRS is in trouble. Punishing it will do no more good than ignoring what has happened over the last year. The former seems to be the plan of House Republicans; the latter appears to be the White House plan. We need to fix it, and that is harder than either of the above two approaches.

This is correct.  Unfortunately, the IRS became a partisan organization in the Tea Party scandal, and it’s proposed 501(c)(4) regulations only make that official.  The impasse won’t be broken until the IRS does something to reassure Republican congresscritters.  Withdrawing the proposed rules is probably a necessary start.

 

Kay Bell, Johnny Football’s Texas residency can cut his NFL income tax.

Lyman Stone, The Facts on Interstate Migration: Part Five (Tax Policy Blog):

On the whole, these high-inward migration states tend to have lower tax burdens. North Carolina and Idaho have periodically had higher than average tax burdens, but most, like Tennessee and Nevada, have consistently low tax burdens. Again, this doesn’t conclusively prove that taxes drive migration, as no doubt other living costs are lower in these states too: but it does suggest that taxes cannot be discounted out of hand.

 

Jason Dinesen, Glossary of Tax Terms: Asset

TaxGrrrl, Tesla Continues To Roll Out Tax Strategies For Consumers .  An auto company with a marketing pitch built around tax credits seems like a bad thing to me.

Stop by Robert D. Flach’s Place for a solid Friday morning Buzz!

 

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Howard Gleckman, Are Multinationals Getting Tired of Waiting for Corporate Tax Reform? (TaxVox).  They seem to be taking a do-it-yourself approach more and more.

Tax Justice Blog, States Can Make Tax Systems Fairer By Expanding or Enacting EITC.  I think this is wrong, at least the way the earned income tax credit works now.  Arnold Kling has a much-more promising proposal that would replace the EITC and other means-tested welfare programs.

Kyle Pomerleau, Flawed Buffett Rule Reintroduced in Senate (Tax Justice Blog).  Of course, that’s the only kind.

 

Cara Griffith, In Search of a Little Guidance (Tax Analysts Blog). “If informal guidance is the only guidance available to practitioners and taxpayers, can they rely on it?”

TaxProf, The IRS Scandal, Day 372.  Guess what?  It wasn’t just a few rogues in Cincinnati.

 

News from the Profession.  Alleged “Touch It For a Buck” Creeper CPA Got His License Revoked For Felony Creepiness (Going Concern).

 

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Tax Roundup, 4/25/14: Why the move to tax return selfies? And: Iowa’s unhappy high ranking.

Friday, April 25th, 2014 by Joe Kristan


Supply and demand curves

Supply and demand curves

IRS stats show more people are preparing their own returns, reports Tax Analysts ($link):

The IRS’s latest data, released April 11, show electronic filing from paid tax professionals fell 0.3 percent from the same time last year. That follows a 1.8 percent drop in April 2013, and a 1.7 percent drop in April 2012. By contrast, the IRS said, self-prepared e-filing of returns rose 4.5 percent through April 11 compared with last year, 3.1 percent in April 2013, and 5 percent in April 2012.

It seems like an odd trend.  It’s not like the tax law is getting any easier.  One possibility raised in the story is that it’s those wacky youngsters:

 Self-preparation may be a response to a younger generation’s ease with computers and software, said [retired Enrolled Agent Sandra] Martin. “That’s more of a permanent reason why people aren’t using preparers,” she said.

She also raises a much less logical possibility:

Martin said the IRS’s inability to regulate return preparers makes matters worse. Taxpayers are not only uncertain about the qualifications of their preparers, she said; some are afraid, haunted by stories of fraudulent preparers ripping off return filers and deciding the do-it-yourself path may be safest.

I think the failed IRS preparer regulation power grab is a big part of the cause, but not for the reasons cited by Ms. Martin.  As Dan Alban, slayer of the preparer regulations, testified before the U.S. Senate taxwriting committee:

In fact, IRS data released last summer shows a dramatic drop in the number of tax preparers in recent years — a sudden loss of more than 200,000 preparers from 2010 to 2012 — following the recent imposition of a series of burdensome IRS regulations on preparers (the e – file mandate and the Return Preparer Initiative, which included both the PTIN registration requirement and RTRP licensing)

If your preparer gets out of the business, maybe you will stop using a preparer.  With fewer preparers, the law of supply and demand predicts that costs will rise.  As costs rise, consumers seek substitutes.  It’s what I predicted back in 2010:

Rather than pay the increased costs, some taxpayers will stop getting help on their returns altogether and either self-prepare or drop out of the system. These dropouts certainly won’t see improved service, though the regulators will never admit responsibility for that.

Supply and demand: it’s not just a good idea, it’s the law!

 

Supply and Demand

Lyman Stone, Joseph Henchman, Richard BoreanTop State Income Tax Rates in 2014 (Tax Policy Blog):

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The colors on the map get darker as the rates get higher.  You’ll notice that Iowa’s 8.98% top rate gives it quite the purple tan.  It’s misleading, in that the effective rate is closer to 6% taking deductiblility of federal taxes into account; that would give Iowa a more lovely lavender tint, like Missouri and Louisiana.  Yet Iowa refuses to build the federal deductibility into lower rates.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would address that.

 

Christopher BerginThe IRS and the Tax System: Integrity and Fairness for Whom? (Tax Analysts Blog):

The IRS’s mission statement couldn’t be clearer:

    Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

If some of the tax cops aren’t playing by the rules – and getting bonuses for it – how does that provide us taxpayers “top quality service” and help us understand and meet our tax responsibilities? The two most important words in this mission statement are “integrity” and “fairness.” The one thing largely missing from our tax code is fairness. And the one thing now beginning to disappear from the agency charged with administering that tax code is integrity.   

Nah.  Compliance is for the peons, not the overlords.

 

Howard GleckmanLen Burman’s Brief for a Health Care VAT:

Len, the director of Tax Policy Center (and, thus, my boss), argues that a dedicated—and fully transparent–health care VAT would increase public support for efforts to slow the growth of medical costs. That’s because the VAT would rise, for all to see, with increases in government health spending.

I have another idea: let’s sever the link between employment and healthcare, authorize interstate sales of high-deductible health insurance, and have people pay for routine care out-of-pocket.  We don’t have to resort to a VAT to keep prices down for, say, beer and groceries — or for non-covered health costs, like LASIX procedures.  Removing the layers between consumer and payment just might work for other health costs too.  Seeing increase in your spending from your own pocketbook is a lot better motivator to reduce costs than watching government budget numbers.

 

Gene Steurle, Dave Camp’s Tax Reform Could Kill Community Foundations:

The proposal would effectively eliminate most donor advised funds (DAFs), the major source of revenues to community foundations, so they could no longer provide long-term support for local and regional charitable activities. Instead, those funds would need to pay out all their assets over a period of five years.

Iowa has a special tax credit for gifts to community foundations, which is often oversubscribed.

 

 

20140411-1Kay Bell, Doctors are target of an income tax fraud scheme; the rest of us need to watch out for a new e-file phishing attempt

TaxGrrrl, Payback Is Forever: Tax Refund Offset Law Remains On The Books 

Or anybody else.  Piketty’s Tax Hikes Won’t Help the Middle Class (Megan McArdle)

Tax Justice Blog, Trend Toward Higher Gas Taxes Continues in the States

TaxProf, The IRS Scandal, Day 351

Robert D. Flach brings the Friday Buzz!

 

Going Concern, Now We’re Creatively Interpreting Sarbanes-Oxley to Include Fish.  Well, the whole thing has always been fishy.

Keith Fogg, Collection of Restitution Payments by the IRS (Procedurally Taxing)

 

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