Posts Tagged ‘Christopher Bergin’

Tax Roundup, 12/13/13: Government by Connections edition. And how not to butter up your tax evasion judge.

Friday, December 13th, 2013 by Joe Kristan

20121220-120120906-1A Des Moines Register report on the introduction of the new ownership of the Iowa Speedway in Newton tells us how things work in Iowa:

No one needed super sleuth Sherlock Holmes to figure out one of the first priorities of NASCAR as the new owners of Iowa Speedway introduced themselves Thursday during a press conference.

Three Iowa legislators were parked front and center in a reserved seating area. Multiple times during the news conference, officials thanked Sen. Bill Dotzler and Representatives Dan Kelley and Rob Taylor.

When the event sprinted toward its own finish line, only the trio with desks at the statehouse were publicly asked to jump on stage for a photo with new track president Jimmy Small.

So why do our humble public servants get to hang with big NASCAR celebrities?   Because the ownership group that bought the speedway doesn’t qualify for the special corporate welfare that the legislature enacted just for the speedway a few years ago, and they want it re-enacted:

The law, as it stands, requires Iowa-based ownership. So the spigot that delivers that sales tax benefit, which Dotzler estimates at about $4 million to date, is being shut off as NASCAR grabs the steering wheel.

Dotzler promised to reintroduce the measure when the legislative session roars to life on Jan. 13, adding that he would support extending it beyond the original end date of 2016.

Government by special favor.  And who benefits?  NASCAR is a private company owned by a very wealthy family — one that evidently knows how to play the connections game.    Meanwhile the guy running the pizza joint, the real estate office, the implement dealership, he gets a horribly complicated Iowa tax system with high rates to pay for lots of loopholes for other people.  He gets automatic penalties for every honest mistake made in attempting to comply with this byzantine system.  But hey, NASCAR!

The legislature is just too darn busy to find a way to enact a simple tax system with low rates and low compliance costs for everybody.  But they have plenty of time to go to a press conference to sell a special tax break for a single wealthy out-of-state family.  Priorities.

 

William Perez has been cranking out lots of good stuff lately, including today’s Donating an IRA as a Year-End Tax Strategy.

Margaret Van Houten,  Do your Digital Assets have Value? Are they Important? (Davis Brown Tax Law Blog).  Don’t leave the heirs without the password to your Bitcoin vault.

 

20130419-1Christopher Bergin, Walk the Talk: The IRS Needs a Chief Who Supports Transparency (Tax Analysts Bl0g).  And by that, he means for the IRS, not just for us.

Tax Justice Blog,  New CTJ Report: Congress Should Offset the Cost of the “Tax Extenders,” or Not Enact Them At All.  I like the second alternative best.

Janet Novack,  Congressional Work Undone: Lapse Of Tax Credits Will Hit Job Creators 

Roberton Williams, Where Are Tax Rates Headed? (TaxVox)

 

If you like your kludge, you can keep it.  Obamacare’s Never-Ending Fix-a-Thon (Megan McArdle)

 

TaxProf, The IRS Scandal, Day 218.  “IRS Targeting: Round Two; The First Time Around, Targeting Conservatives Was a Secret. Now, Not So Much

Jack Townsend, Judge Rakoff, the Wegelin judge, Is Interviewed on the U.S. Initiative Against Swiss Banks

Phil HodgenRenunciation trends in Auckland “I received an email yesterday from a contact in New Zealand. Renunciations in the Auckland Consulate are apparently way, way up compared to last year.”

Stephen Olsen, Preparer Knappe(s) on the job: Delinquency Penalties, Advisors, and Reasonable Cause (Part 2 — I Finally Get to my point on Thouron). (Procedurally Taxing)

Get your friday Buzz! from Robert D. Flach!

 

ShockerGAO: IRS Lacks Adequate Internal Controls (TaxProf).  Maybe the $5 billion in annual refund fraud tipped them off.

Woo-hoo!  Tax and other fun at deductible office holiday parties (Kay Bell)

News from the Profession.  Aren’t You GLAD For This McGLADrey Holiday Card? (Going Concern)


OtterThe Otter legal strategy.  A tax protester in Texas decided that his already slim chances in federal court would be helped by a really stupid and futile gesture.  It went as you might expect, reports Courthouse News Service:

It took a federal jury just one hour of deliberation to convict a Texas man of hiring a hit man to try to murder the federal judge presiding over his tax-evasion case.

Phillip Monroe Ballard, 72, of Fort Worth, was convicted Wednesday of attempted murder-for-hire, after a two-day trial. He faces up to 20 years in prison.

It’s not the first time a tax protester has tried to improve his case by going after the judge.  If it worked, though, that would have been a first.

 

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Tax Roundup, 12/5/2013: Branstad floats optional income tax without federal tax deduction. And: is IRS hiding something?

Thursday, December 5th, 2013 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.

Iowa Alternative Maximum Tax proposal revived?  Governor Branstad may push an optional income tax with lower rates and no deduction for federal taxes.  This plan looks like an attempt to improve Iowa’s byzantine income tax without provoking the wrath of Iowans for Tax Relief, the Muscatine-based advocacy group that strongly opposes efforts to do away with the deduction.  KJAN.com reports:

Iowa’s income tax rates higher when compared to most other states because Iowa offers a deduction that’s offered in only five other states. That deduction allows Iowans to subtract their federal income tax liability from their income before calculating their state income taxes.  “We don’t want to erode federal deductability,” Branstad says, “and that’s why we’re saying: ‘Give ‘em the option.’” By giving taxpayers the option to file their income taxes under the current system with that major deduction or under a new system with lower and flatter rates, Branstad might avoid the firestorm he faced from his fellow Republicans in the late 1980s when he proposed doing away with that deduction.

The Governor appears to plan to add a new twist to the plan, reports Kathie Obradovich:

Branstad indicated that he wouldn’t allow Iowans to “game the system” by changing their form every year. That means taxpayers who give up the federal deduction would have to stick with the choice even if the other option would result in lower taxes in a given year.

That means the new system would be a one-way street.  It no longer would be an “alternative maximum tax,” where taxpayers would always compute their tax both with and without the federal deduction and choose the lower amount.  That makes it even worse than the version passed by the Iowa House of Representatives last year, which would have allowed taxpayers to make the choice annually.  Unless the new system provides significantly better results in the great majority of circumstances, most taxpayers would want to retain the option to use the federal deduction.  That would stall the (presumably) desired transition to a simpler system.  Both the Branstad plan and the House plan significantly add to the complexity of the tax law.

While Iowa’s high stated tax rates — individual and corporate — don’t help, the ridiculous complexity of Iowa tax law is the real problem.  Iowa has a bunch of penny-ante credits and deductions that don’t apply for federal purposes.  These are too small to make a significant difference to taxpayers but also too small for the Department of Revenue to police.  There are also dozens of special-interest tax credits and deductions that take dollars from the rest of us on behalf of people with connections at the Statehouse.

It’s not in his nature, but the Governor ought to go bold and embrace the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  It strips the Iowa tax law to a very few deductions and repeals Iowa’s highest-in-the-nation corporation income tax while drastically lowering personal rates.  The Iowa Senate is unlikely to pass the Governor’s half-baked half-measure anyway; why not change the terms of the debate with a plan that actually makes sense?

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

 

taxanalystslogoChristopher BerginTax Analysts v. IRS: What Are They Hiding? (Tax Analysts Blog):

Back in August, I wrote about the lawsuit Tax Analysts had filed against the IRS seeking documents under the Freedom of Information Act. The documents being sought were training materials used to instruct and guide IRS personnel in the IRS exempt organization determinations office in Cincinnati. The big story then, and now, was generated by former EO director in the IRS Tax-Exempt and Government Entities Division Lois Lerner’s admission that the agency had used inappropriate means to determine which organizations qualified for tax-exempt status as social welfare organizations. The organizations singled out for extra scrutiny were mostly, if not entirely, conservative. Tax Analysts felt compelled to seek relief from the courts because we were getting nowhere with the IRS – other than the big stall – even though it had promised expedited treatment on our original request.

Several months later, the big stall continues — to the point that I have to ask myself whether the IRS just made a stupid mistake in targeting those organizations or whether something much worse is going on. 

They are using the “taxpayer confidentiality” excuse for their standard big stall.  Christopher isn’t buying it:

But I’ll say it again: Training materials, really? Why on earth would the IRS try to keep those secret? You’d think the training manuals would all be in a file cabinet somewhere, which hardly would require a search party of 100 lawyers and a scouring for tax return information.

Could it be that this time something is different? Could there be a smoking gun here? I’m not saying there is. I’m just saying it may be time to start asking that question. Because even for the IRS, this is darned peculiar behavior.

Congress should amend the taxpayer confidentiality rules to keep the IRS from using them as an excuse to hide its own dirty laundry.  It shouldn’t require a federal lawsuit to get the IRS to publicize internal non-taxpayer documents.

 

 

20130121-2Whither the Registered Tax Return Preparer Program?  Robert D. Flach argues that the RTRP designation that was part of the nearly-dead IRS preparer regulation power grab should be administered by the IRS on a voluntary basis.  I disagree.

Robert would like a way to distinguish the better class of “unenrolled” preparers from less-professional seasonal preparers.  I can understand that, but I don’t think that the IRS is the agency that should do this.  It would divert already strained IRS resources to do something the preparer industry could do on its own.  I agree with Jason Dinesen that if preparers want a government designation, they should take the Enrolled Agents exam, which is much more difficult than the RTRP literacy test.  The EA designation is sadly underappreciated in the market, and adding a new IRS-run designation would only make that worse.

 

The IRS reminds us that the “savers credit” can help lower-income taxpayers who contribute to a retirement plan.  This is a non-refundable credit of up to 50% of the amount contributed to IRAs or deferred to a 401(k) plan.  For parents, funding a young adult offspring’s retirement plan contribution is a tax-efficient way to help build a nest egg.

 

Don’t try this with your tax deadlines.   TIGTA: IRS Is Seven Years Past Statutory Deadline for Providing Online Account Access to Taxpayers (TaxProf).  From the TIGTA report:

The RRA 98 required the IRS to develop procedures to allow taxpayers filing returns electronically to review their account online by December 31, 2006. The IRS did not meet this requirement, and we determined that the IRS has not made adequate progress in allowing taxpayers to access tax accounts. Currently, taxpayers cannot review account information electronically.

In fact, the IRS is getting worse, having cut back electronic access for tax professionals.  That makes resolving even a simple IRS notice a tedious multi-week snail-mail slog.

 

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax [Updated For Final Regulations] 

amazonCara Griffith It’s a Bird, It’s a Plane…It’s Amazon Prime Air? (Tax Analysts Blog).  Sales tax by drone.

Alan Cole, Report: Obamacare Premium Subsidies Will Need Fraud Protection (Tax Policy Blog).  No kidding.

TaxProf, The IRS Scandal, Day 210

 

Kay Bell, Tax e-filing continues to grow, hitting 122 million in 2013

TaxGrrrl, Will Congress Drive Up Gas Taxes In 2014?   

 

Um, because most commuters drive?  Why Does the Tax Code Favor Commuters that Drive? (Tax Justice Blog)

Going Concern, IRS’ Improved e-File System Is a Total Success Except For Two Jerks Who Foiled It

 

Don’t trust tax collectors, if you’re a tax collector:

The former tax collector of Plainville, who is also former treasurer of the Connecticut Tax Collectors Association, was arrested Monday morning and charged with first degree larceny, after being under investigation for possible embezzlement since June.

Debra Guerrette, of Bristol, was placed on administrative leave from Plainville’s Revenue office in June after Bristol police informed the town Guerrette was involved in a criminal investigation.

After an analysis of the financial records for the Connecticut Tax Collectors Association, and also Guerrette’s financial records, police said she had “misappropriated funds in excess of $50,000” between 2008 and 2013, into her personal account.

Will there be a special assessment of the collectors to make up the difference?

 

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Tax Roundup, 11/22/13: Baucus proposes end of depreciation as we know it; also targets LIFO, cash-method farming.

Friday, November 22nd, 2013 by Joe Kristan
Max Baucus

Max Baucus

Baucus aims at LIFO, depreciation.  Senator Max Baucus has issued a tax reform proposal that slows depreciation and eliminates LIFO.  While it is a long way from becoming law — and certainly won’t become law in its current form — it will help shape the next round of tax reform.  Some key points:

-Depreciation for non-real estate assets would be computed not asset by assets, but in “pools,” with a set percentage of the amount of assets in each pool deducted during the year.  If the pool goes negative with dispositions, income is recognized.  There would be four “pools” with varying recovery percentages.

- Buildings would be depreciated under current rules, but over 43 years.

- The annual Section 179 limit would be $1 million, but with a phaseout starting at $2 million of assets placed in service.

- Research expenses would be capitalized and amortized over five years.

- LIFO would be repealed.

- Advertising costs would only be half deductible currently with the rest amortized over 5 years.

- Farmers would lose their exemption from accrual-basis accounting.

I think this goes the wrong way, adding complexity and lengthening lives.  I would prefer more immediate expensing.  LIFO repeal, and maybe the farm rule,  are the only proposals that seem to actually simplify anything.  The rest seem like high-toned revenue grabs.  If the revenue all goes to reduce rates, that wouldn’t be so bad, but I doubt that’s the idea.

 

Victor Fleischer, Tax Proposal for an Economy No Longer Rooted in Manufacturing:

The Baucus proposal aims to make the tax system match economic reality, removing the tax distortions from the equation. It would group tangible assets into just four different pools, with a fixed percentage of cost recovery applied to the tax basis of each pool each year, ranging from 38 percent for short-lived assets to 5 percent for certain long-lived assets.

It would be hard to make the case for giving the priority to tangible assets, and yet that is precisely what current law does by allowing rapid depreciation. At a minimum, the tax depreciation system should strive for neutrality and not discourage investment in intangibles and human capital.

That’s true.  Yet it’s hard to see how the Baucus proposal to require R&D costs to be amortized over five years, or the proposal to require 20-year amortization of intangibles instead of the current 15 years, encourages investments in intangibles and human capital.

Via Lynnley Browning’s Twitter feed.

The TaxProf has a roundup of the plan:  Senate Finance Committee Releases Depreciation and Accounting Tax Reform Plan 

William Perez, Draft Tax Reform Proposals from the Senate Finance Committee

Paul Neiffer, MAJOR Farm Tax Law Changes Proposed by Senate

Leslie Book, Senator Baucus Releases Proposals to Reform Administration of Tax Laws (Procedurally Taxing.

 

St. Louis loses another preparer.  From a Department of Justice Press Release:

A federal district judge in St. Louis has permanently barred defendants Joseph Burns, Joseph Thomas and International Tax Service Inc. from preparing federal tax returns for others, the Justice Department announced today…

According to the complaint, the defendants repeatedly fabricated expenses and deductions on customers’ returns and falsely claimed head of household status for customers who were married in order to illegally understate their customers’ federal tax liabilities and to obtain fraudulent tax refunds. The complaint also alleged that the defendants falsely claimed that some of their customers earned income from businesses that the defendants fabricated or increased the amount of business income their customers earned in order to illegally claim the maximum earned income tax credit on customers’ returns.

The IRS has certainly given their clients’ returns a good going over.  That’s the risk of going with a preparer whose results are too good to be true.

 

Scott Hodge, Andrew Lundeen, America Has Become a Nation of Dual-Income Working Couples (Tax Policy Blog)

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Though its a brave man who tells the stay-at-home she’s not “working” after a day spent between taking care of an elderly parent and little kids.

 

Jason Dinesen,  Life After DOMA: What if You Amend One Year But Not the Next?

TaxGrrrl, When Mom and Dad Move In: The ‘Granny-Flat Tax Exemption’ For the Sandwich Generation 

Jana Luttenegger, Electronic Signatures, What’s Next? (Davis Brown Tax Law Blog).  E-filing of wills?

Phil Hodgen, U.S. brokerage accounts after you expatriate

Russ Fox, It’s All Greek to Me. Don’t gamble in Greece, seems to be the point.

 

20121120-2Kay Bell, Ways & Means’ tax plays in GOP anti-Obamacare game plan

Howard Gleckman,  How Washington May Turn June Into Fiscal February (TaxVox).  Yes they’ll be running out of our money again soon.

Christopher Bergin, The End of the Era of Multinationals (Tax Analysts Blog)

Tax Justice Blog, Scott Walker’s Tax Record Will Be on the Wisconsin Ballot Next Year.  Shockingly, TJB doesn’t like Walker.

Tony Nitti, International Tax Reform For Dummies 

Visit Robert D. Flach for fresh Friday Buzz!

 

News from the Profession: New Audit Associate Looking For Prank Ideas, Possibly a New Job in Near Future (Going Concern)

Oh, one more thing: Magnus!

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Tax Roundup, 11/15/2013: Trains, Zeppelins and Fertilizer edition.

Friday, November 15th, 2013 by Joe Kristan

 

20121226-1What, no zeppelin port?   A candidate for Iowa governor proposes a gas tax increase for, well, a bunch of stuff, reports QCTimes.com:

Democratic gubernatorial hopeful state Sen. Jack Hatch is proposing to phase in a 10-cent gas tax increase to pay for overdue road and bridge improvements, build passenger rail links, construct flood protection, reduce the backlog of school construction projects and expand broadband service in rural Iowa.

The increase would amount to less than $50 a year for most Iowans, he said.

Infrastructure, in all of its forms, is one of the most basic parts of state and local government, Hatch said Thursday in announcing his Building a Better Iowa infrastructure plan.

The idea of a continuing “infrastructure crisis” is a standard political assertion, even though it isn’t true.   If it were, though, you’d stop the list of crisis projects after “bridge and road improvements.”   The idea that blowing millions to construct an unneeded and money-losing passenger rail system is an infrastructure priority is laughable.  Local school districts can finance improvements whenever their voters think they’re worth a bond issue.  And rural broadband, supplied by the government?  Because satellites don’t cover rural Iowa?

 

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Using your wife’s money to buy drinks for your new girlfriends.  Sen. Hatch wants to run against Governor Branstad next November, who has some economic issues of his own.  These are spotlighted by the Governor’s selection as “Politician of the Year” by Site Selection Magazine.

Based on its website, Site Selection Magazine seems to be the trade journal of the little industry of fixers and middlemen who harvest taxpayer money for clients choosing to relocate or expand. Governor Branstad was “honored” for giving over $80 million of tax credits to the Orascom fertilizer plant in Southeast Iowa to build a plant they were probably going to put there anyway.  The credits add up to around $500,000 per “permanent” job.

These sorts of giveaways are great for the companies that can play the system to milk the fisc, but they aren’t so great for the rest of us who pay for them.  They are the government equivalent of the guy who takes his wife’s bar to the bar to buy drinks for the girls.  He may think he’s doing great things, but it’s neither impressive to the girls nor helpful to the wife.

Somebody out there is saying, “but what about the jobs?”  Even if you assume that the spending is responsible for the jobs — a stretch — that money wasn’t just conjured up.  It comes from the rest of us, who would have used it to create jobs through spending or investing.  If you think the state can wisely allocate investment capital, I have a nice film credit program to discuss with you.  You shouldn’t talk about the jobs you attract by giving away money without talking about the jobs that you lost.

 

Arnold Kling, It’s Implementation, Stupid:

The problems with implementation are under-rated and always have been. The Obama Administration has spent 3 years bulldozing the individual market in health insurance. Now, they expect the health insurance companies to rebuild it in 30 days.

This will not end well.  But while I expect enormous changes in the ACA law, given its evident failure, I don’t expect repeal of the new 3.8% net investment income tax or .9% additional medicare tax to happen.  Clearing the wreckage will be expensive.

Des Moines Register,  136 Iowans buy private health plans through online marketplace.  Not looking good.

Why not just kill me now?  Why Not Use Tax Preparers as a Portal to Health Exchanges?  (Howard Gleckman, TaxVox)

 

TaxProf, Number of Taxpayers Who Renounced U.S. Citizenship Skyrockets to All-Time Record High.  This doesn’t strike me as a good thing.

 

Kay Bell,  EITC claim issues prompt IRS letters, visits to tax pros.  If you prepare a lot of EITC claims, your documentation needs to be meticulous.

Jack Townsend, IRS Indian Initiative for Persons Outside OVDP; Also on Quiet Disclosures

Linda Beale, IRS will issue summonses for offshore bank account info

William Perez,  How Much Government Do People Get Compared to How Much Taxes They Pay?

 

TaxGrrrl, Braves New World? Taxpayer Funding Remains A Concern As Atlanta Rushes Towards New Stadium.  If I were an Atlanta taxpayer, I’d be concerned.

Tony Nitti, Did The Sale Of Stan Musial’s Memorabilia Give Rise To A Hefty Tax Bill?   

 

Kyle Pomerleau, Don’t Forget the Facts If You Want to Raise Taxes on the Rich (Tax Policy Blog)

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Christopher Bergin, The IRS: A Greek Tragedy (Tax Analysts Blog)  “I mostly also agree with Olson that much of the impairment at the IRS is caused by Congress continuing to force the agency to do more with less.”

TaxProf, The IRS Scandal, Day 190

Robert D. Flach has your Friday Buzz!

News from the Profession:  Perhaps Comparing the CPA Exam to Actual War Isn’t The Best Idea (Going Concern)

 

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Tax Roundup, 11/7/2013: Cold comfort on 3.8% Investment Income Tax guidance. And how big a penalty for not buying unavailable insurance?

Thursday, November 7th, 2013 by Joe Kristan

20121120-2Well, that’s reassuring.  Tax Analysts reports ($link) that David Kirk, an IRS official involved in drafting the final rules on the 3.8% Obamacare “Net Investment Income Tax” that took effect January 1, says the rules are still “in flux” with filing season only two months away:

     As for additional NII tax guidance, Kirk said the final regs will contain “overflow valves, breakers” that will allow the IRS to issue subregulatory guidance to address problems that arise, given that opening a new regulatory project “is a very painful and long process.”

“We’re just going to have to roll this out. We’re going to see how these rules work . . . and there’s always fine-tuning,” Kirk said. 

They’ve had over three years to do this, and now “we’re going to see how these rules work”?  Sounds like another recent Obamacare roll-out.  It makes me really excited about the upcoming filing season.

 

Roberton Williams,  How Big is the Penalty if You Don’t Get Health Insurance? (TaxVox)

The basic penalty is $95 in 2014—if you’re unmarried with no dependents and your income is less than $19,500. If your income is higher, you’ll owe more: 1 percent of the amount by which your income exceeds the sum of a single person’s personal exemption and standard deduction in the federal income tax. That’s $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI—that number on the last line on page 1 of your tax return) plus any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200.

Still with me? Good, because it is about to get more confusing.

If you like the penalty you have, you can keep the penalty you have.  Until next year, anyway.

 

Christopher BerginACA + IRS = Perfect Storm (Tax Analysts Blog)

And what lies ahead? The perfect storm: The IRS and the ACA brought together by a hapless Congress that tasked the nation’s tax collector with administering portions of our new healthcare system.

I can see a day coming when a taxpayer gets a letter from her insurance provider canceling her healthcare coverage and then a letter from the IRS informing her that she owes additional taxes under the ACA. Apparently our government thinks that two nightmare bureaucracies must be better for us than one.

You think this is about “us,” friend?

 

200px-Isleys-mrbiggs-eternal.jpg

Ron Isley is a lot better at music than he is at taxes.  He has served time on federal tax charges, and yesterday he lost a Tax Court bid to get his back taxes reduced under an “offer of compromise” he agreed to, but which the IRS rejected before it became final.  The ruling turns on a lot of technicalities involving the rules for accepting compromises in criminal tax cases.

The Tax Court decision wasn’t a total loss, in that they are allowing Mr. Isley to argue against tax levies and to pursue a compromise of his 2009 and 2010 taxes.

Cite: Isley, 141 TC No. 11.

Prior coverage here.

 

Jason Dinesen,  Life After DOMA: Watch Your Withholding 

Annette Nellen, Many tax questions on same-sex federal tax filings

William Perez, The Additional Medicare Tax, Part 4

Tony Nitti,  On Eve Of Twitter IPO, Misguided Senators (Again) Attack Tax Deduction For Stock Option Compensation  Exercising stock options convert corporation income taxed at 35% to individual income taxed at 40.5%, plus payroll taxes.  And yet the congresscritters act like this is some kind of loophole.

 

Russ Fox congratulates The Real Winners of the 2013 World Series of Poker.  It’s not the guys with the cards in their hands.

Now there’s a business plan!  BlackBerry Pins Recovery Hopes On Rumored $1 Billion In Tax Refunds  (TaxGrrrl)

 

potleafpotleafpotleaf20090722-2.jpgWouldn’t you? Colorado Voters Reject $1 Billion Income Tax Increase (Elizabeth Malm, Tax Policy Blog).

But other taxes…  Coloradans agree to a high tax to get high (Kay Bell)

Tax Justice Blog,  Tax Policy Roundup for the 2013 Election

 

 

 

Phil Hodgen’s Exit Tax Book, Chapter 8 – Taxation of Nongrantor Trust Interests

 

The Critical Question.  Is There One ‘Right’ Apportionment Formula? (Cara Griffith, Tax Analysts Blog): 

It could almost be a case in which one state adopted it on the grounds that it would create jobs and increase investment in the state. Then other states followed suit, not because single-sales-factor apportionment produced more accurate results, but because it was perceived as making a state’s tax laws more competitive or business friendly. But while single-sales-factor apportionment may benefit some businesses, it is far from being universally beneficial for taxpayers. In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining — or returning to — the three-factor apportionment method and focus on a less burdensome corporate tax system overall.

Iowa was the first state to adopt single-factor apportionment.  It applies to the highest tax rate in the nation, helping make Iowa’s corporation tax both onerous and useless.  A repeal of the corporation income tax would be the best way of making the corporation tax “less burdensome.”

 

Because they may one day make money?  Why Twitter May Have to Pay Income Taxes One Day (Victor Fleisher, via The TaxProf)

 

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Tax Roundup, 10/31/13: A scary Iowa tax proposal, just in time for Halloween!

Thursday, October 31st, 2013 by Joe Kristan

 

hatchJack Hatch’s income tax plan would raise taxes on all but very small businesses.  

It’s all in the spin.  My headline is just as accurate as the headline in the Des Moines Register on the tax plan announced by Senator Jack Hatch, a Democratic candidate for Iowa Governor.  The Register’s article, though, spins the way the candidate would like: “Jack Hatch’s income tax plan would give break to all but most wealthy Iowans.”  From the article:

Hatch’s plan would get rid of federal deductibility, which allows taxpayers to deduct federal taxes from their state return. His plan would also raise filing thresholds. It would raise the per-child tax credit from $40 to $500. Married couples who are both employed would get a new $1,000 a year tax credit.

And Iowa’s eight rates and brackets, which range from 0.36 percent to 8.98 percent, would be reduced to four.

The top rate would fall slightly to 8.8 percent, although the income at which that rate begins would be raised by 26 percent, according to an analysis of Hatch’s plan by the nonpartisan Legislative Services Agency. The lowest rate would be 3 percent.

Taxes would go up for Iowans who make an adjusted gross income above $200,000, the Legislative Services Agency analysis says. The wealthiest taxpayers would see a small drop in the highest marginal tax rate, but their taxes would go up because they’d lose federal deductibility.

There are two things I hate about this plan and the way it is covered.  First, it makes no mention that a tax on “the wealthy” is really a tax on business.  Most business income is now reported on individual returns:

Source: The Tax Foundation

Source: The Tax Foundation

 

And 72% of that is reported by taxpayers with AGI over $200,000:

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Cutting through the soak-the-rich stuff, what he’s really proposing is a great big tax increase on business.  How that helps Iowa’s economy isn’t explained — I suppose because it doesn’t.

The other part I hate is the whole idea that hurting “the rich” on behalf of “the middle class” is presumed to be just fine.   Heck, let’s go shoplifting at Wal-Mart, they have plenty of money — and it’s for the middle class!

 

I suppose I couldn’t expect Sen. Hatch to embrace the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  I suspect it makes too much sense for any politician to embrace it.

 

This would be a good thing for Iowa: The Benefits of Independent Tax Tribunals (Cara Griffith, Tax Analysts Blog):

States are increasingly turning to independent tax tribunals. Most states now have either a judicial-branch tax court or an administrative-level tax tribunal that is independent of the state’s tax authority. Taxpayers and practitioners have pressed states for independent decision-making bodies for several reasons, including that the judges or administrative law judges who write decisions are impartial and knowledgeable in tax issues and that the opinions should more consistently and transparently apply the tax law because they will be published. 

Iowa, unfortunately, has only administrative tribunals and regular courts.  The judges know little about taxes, especially income taxes, and tend to defer to the State, even when it tortures law and logic.

 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

TaxProf, NY Times: The Marginal Tax Rate Mess.  Even the New York Times is noticing the high implicit marginal tax rates on means-tested welfare programs, like the earned income tax credit:

As a result of losing eligibility for means-tested benefits, low-income and middle-income families sometimes experience much higher marginal effective tax rates (sometimes exceeding 90 percent) than those at the top of the income distribution. Phase-outs for any one program may not be large, but participation in several programs creates a cumulative effect. 

They “help the poor,” as long as they stay that way.

 

 

 

 

59pdhyef59pdhyefJoseph Henchman, Remembering the Deceased Iowa Pumpkin Tax You Helped End (Tax Policy Blog).

59pdhyefTaxGrrrl,  Social Security Benefits Will Not Keep Pace With Tax Contributions In 2014 

59pdhyef

Jana Luttenegger, Social Security Benefits to Increase in 2014 (Davis Brown Tax Law Blog)

Robert D. Flach,  HAPPY HALLOWEEN – SOME TREATS FROM THE SOCIAL SECURITY ADMINISTRATION

Phil Hodgen, Chapter 3 – Paperwork for Expatriates and Covered Expatriates

Kay Bell, Colorado taxpayer group files lawsuit to overturn candy tax

Me, IRA is to startup funding as dynamite is to kindling.  My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

Christopher Bergin, What’s a UDITPA? (Tax Analysts Blog)

Andrew Lundeen, Scott Hodge,  The Income Tax Code Is More Progressive than It Was 20 Years Ago (Tax policy Blog).  “The top 1 percent of taxpayers pay a greater share of the income tax burden than the bottom 90 percent combined, which totals more than 120 million taxpayers. In 2010, the top 1 percent of taxpayers—which totals roughly 1.4 million taxpayers—paid about 37 percent of all income taxes.”

Tax Justice Blog, Bruce Bartlett Is Wrong: New Conclusions on the Corporate Income Tax Change Nothing.  Nothing ever changes at TJB!

Government officials defend increased funding for their agencies.  Iowa police chiefs defend traffic cameras (KWWL.com)

 

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Tax Roundup, 10/25/13: No production deduction for direct-mailer. And: the brain-damage excuse.

Friday, October 25th, 2013 by Joe Kristan


199
Direct mail operator fails to qualify for “Domestic Production Activity Deduction.”  
One of the sillier parts of the tax law is the 9% deduction for nothing given to “producers” of manufactured, constructed, raised or mined property.  If all you do is manufacture, you get 9% off the top of your taxable income under Section 199.

In a modern interconnected economy, distinguishing between “manufacturing” and other activities is silly.  The law is made more silly because it has special interest provisions allowing some architects and engineers to take the deduction.  Sure you need them for a construction project, but just try getting a building up without lawyers and accountants, too.

The law’s unwise distinction between “production” activities and other activities encourages taxpayers to try to qualify, and forces the courts to try to draw distinctions.  That happened yesterday when the Tax Court looked at a direct mail operator’s Section 199 deduction.  From the Tax Court opinion:

 During 2005, 2006, and 2007, ADVO distributed direct mail advertising in the United States. Direct mail advertisers such as ADVO distribute advertising material through the U.S. Postal Service (USPS) to residential recipients, who are the targeted potential customers for the products and services sold by ADVO’s clients, the advertisers. The advertising material can be either “solo direct mail” or “cooperative direct mail”. For solo direct mail, the printed advertising material of a single advertiser is delivered in a stand-alone envelope or as a postcard to a residential recipient. For cooperative direct mail, also known as a shared mail package, the printed advertising material for several different advertisers is consolidated into a single delivery mechanism (such as an envelope or sleeve) and delivered as a single unit to residential recipients.

The court had to go through an elaborate analysis of whether ADVO was a “manufacturer.”  Judge Wherry concluded:

After careful review of all of the aforementioned factors in the light of the specific facts and circumstances of this case, we find that ADVO did not have the benefits and burdens of ownership while the advertising material was printed.

This implies ADVO was a “contract manufacturer,” and that its customers might have qualified.  It also implies that if ADVO had structured its paperwork differently, it might have won.  If this deduction is repealed in return for lower rates for everyone, we’ll all win.

Cite: ADVO, Inc. and Subsidiaries, 141 T.C. No. 9

Related: TREASURY ISSUES ‘PRODUCTION DEDUCTION’ PROPOSED REGULATIONS and LINK TO SECTION 199 POWERPOINT SLIDES

 

Iowa announces business property credit applications open.  From a Department of Revenue Press Release:

Applications for credit against 2013 property tax assessments must be received by the county or city assessor by January 15, 2014.  The actual amount of credit each property unit will receive depends in part upon the total value of all property units and the average consolidated rates in each unit.  The credit calculation is designed to spend ninety-eight percent of the amount appropriated by the Legislature to the Business Property Tax Credit Fund.  For the first year of the credit $50 million was appropriated to the Fund.  The Legislative Services Agency has estimated that the maximum first year credit amount will be approximately $523.

It applies to “certain commercial, industrial, and railroad properties.  More information here.

 

Careful fiscal stewardship.  A judge awarded $7 million in attorney fees for the legal team that forced Des Moines to refund $40 million in illegally-collected taxes.  The city fought the refund to the supreme court, so they incurred hefty legal fees on top of those they are paying for the plaintiffs.   Well done, Des Moines!  It could have been worse, as the attorneys requested twice the amount — and some attorneys in the story linked above think they may get it on appeal.

It will be interesting to see whether this is an issue in next month’s city elections.

 

Andrew Lundeen,  Income Taxes Account for the Largest Share of Federal Revenue (Tax Policy Blog):

20131025-1

 

Paul Neiffer, 180 Months Means 180 Months!:

In Estate of Helen Trombetta vs. Commissioner, the Tax Court essentially ruled creating a grantor trust with retained interests having a term of 180 months, you better make sure you live for at least 181 months if you want to save on estate taxes.

Hang in there, in other words.

 

Jason Dinesen, Insolvency and Canceled Debt: Make Sure You Can Prove It!  You really have to be tapped out to exclude debt-cancellation income from taxes.

TaxProf, The IRS Scandal, Day 169

Christopher Bergin, Loving You Is Easy (Is It?) (Tax Analysts Blog).  He unwisely thinks IRS regulation of tax preparers will do more good than harm.

Oh, boy.  New Comprehensive Tax Reform Plan from Citizens for Tax Justice (Tax Justice Blog)

Jana Luttenegger, Estate Planning Awareness Week, Oct 20-26 (Davis Brown Tax Law Blog)

Kay Bell, Obamacare to blame for the 2014 tax filing season delay?

Jack Townsend, Switzerland as Club Fed for Swiss Enablers of U.S. Tax Crimes  Given the alternatives, confinement to Switzerland isn’t the worst thing that could happen.

 

Quotable.  David Henderson:

By preventing insurance companies from pricing for pre-existing conditions, Obama has almost destroyed the market for individual insurance. He has taken one of the few parts of the health care that worked pretty well–the market for individual insurance–and badly wounded it. Unless this part of ObamaCare is repealed, we will still have a mess on our hands.    

Sadly, that magical thinking provision will be the hardest to undo.

 

Catch your Friday Buzz from Robert D. Flach!

 

TaxGrrrl,  Vatican Suspends ‘Bishop Of Bling’ Over $40 Million Home Renovation.  How?  “In Germany, churches are largely funded by taxes – there is no direct prohibition between mixing Church and State as there is in the United States.”

 

News from the Profession: McGladrey Tax Associate Opts for Pedantry in His Farewell Email (Going Concern)

 

20131025-2My brain made me do it.  Former football star says brain injury spurred tax evasion.  WFTV.com reports:

That former football star, Freddie Mitchell, hoped an Orlando federal judge would show him mercy Tuesday.

Mitchell, a retired Philadelphia Eagles wide receiver, was convicted in an elaborate tax fraud scheme in which he cheated the government out of millions of dollars.

AccountingWeb.com reports that Mr. Mitchell pleaded guilty to help recruit an NBA player for whom a co-conspirator claimed false refunds, which Mr. Mitchell claimed a share.  He allegedly claimed over $2 million in other false refunds through an LLC.

So the brain was damaged enough to commit crime, but not so much that it kept him from a drawn-out plan to defraud people and to use an LLC to do it.  It’s funny how nobody ever blames brain injuries for, say, giving their life savings to charity.

 

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Tax Roundup, 10/11/13: Why filing on time matters. And: nope, still closed.

Friday, October 11th, 2013 by Joe Kristan

20130311-1It’s the last weekend of 1040 season!  Some folks think that happened six months ago, but many of us know that extension season is when you are up against it.  Extended 1040s are due on Tuesday, and anything filed after that is late.  Only people out of the country on a long-term basis might have any more time.

So what’s at stake?  Is it really such a big deal to file your 1040 late?  Especially if you have a refund?

Yes.

First, let’s take a look at the penalties for late filing: five percent of any tax owed, up to 25% of the balance due, and interest on the unpaid balances.

But there are other drawbacks.  You never start the statute of limitations if you don’t file.  That means the IRS has pretty much forever to look at the year you haven’t filed for.

It doesn’t work that way if you have refunds coming.  From IRS Publication 17:

Time for filing a claim for refund. Generally, you must file your claim for a credit or refund within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date (even if the due date was a Saturday, Sunday, or legal holiday). These time periods are suspended while you are financially disabled, discussed later.

If the last day for claiming a credit or refund is a Saturday, Sunday, or legal holiday, you can file the claim on the next business day.

If you do not file a claim within this period, you may not be entitled to a credit or a refund.

So if you don’t file, its two years and out for getting that withholding back.  Each year stands on its own.  If you didn’t file for, say, 2007-2009, and you only owed tax in 2009, you still owe it, but you get no benefit for the 2008 and 2007 refunds you didn’t claim.

So file on time.  If you are missing information, file with what you have and amend later if necessary.  Don’t let the perfect be the enemy of the good.  Not filing can quickly become a habit, and it’s often a very expensive one.

Related: Penalties on Late 2012 Tax Payments (William Perez)

 

William McBride,  The Long Goodbye to U.S. Corporations (tax Policy Blog):

If not moving abroad, many U.S. businesses have been moving to the individual tax code, where they are taxed once on profits that are passed-through to owners, rather than twice through the corporate tax and shareholder taxes. The end result is there are now fewer corporations than at any time since the 1970s. The chart below shows standard C corporations peaked in 1986 at 2.6 million, and declined to 1.8 million as of 2008, according to the IRS. Preliminary IRS data indicates the number of C corporations dropped further to 1.6 million as of 2010. The trend shows no sign of slowing down.

20131011-1

 

This has two important implications for tax policy:

1.  Increasing the individual rate means increasing the tax load on business, as more taxes are run through 1040s.

2. While corporate tax reform is important, it misses a lot.

 

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Christopher Bergin, The IRS Is Shut Down – And We Will All Pay (Tax Analysts Blog)

Tax Justice Blog, Paul Ryan’s Latest Idea: Enact the Spending Cuts Proposed by Obama, Ignore His Revenue Proposals.  I’m good with that.

Janet Novack,  As IRS Shutdown Drags On, Some Taxpayers Face Big Problems:

The IRS has said that once the shutdown was “fully complete” it stopped its computers from automatically generating new liens and levies on taxpayers’ property and that it is now seizing taxpayers’ property in only rare cases. But that’s no help to the taxpayers who had their funds frozen immediately before the shutdown or who were hit by notices that had already been printed and were mailed after the shutdown. 

The government needs to use its money to chase people out of public parks, rather than to free your frozen funds.

 

OK, now I’m feeling the crisis.   No new specialty beers during government shutdown (Kay Bell)

 

Peter Reilly,  Are CVS Stores Actually Good 1031 Targets ?   

Detroit is back! Judge Hands Down Very Nearly The Longest Sentence Ever To Public Official For Corruption And Tax Fraud   (TaxGrrrl)

TaxProf, The IRS Scandal, Day 155.  This edition features reports that the IRS exchanged confidential taxpayer information with the White House.  Anybody who doesn’t think this is a real scandal should share somebody’s confidential tax information sometime with your favorite Republican official and see what happens.

Jack Townsend, Article on DOJ’s Swiss Bank Initiative.

Leslie Book, Supreme Court: Woods Oral Argument This Week.  “As many tax procedure buffs know, the case presents an opportunity for the Court to decide whether the 40% gross valuation misstatement penalty applies in a variety of tax shelter transactions when partnerships have sought to concede the underlying liability on grounds that do not directly relate to valuation misstatements, such as the at-risk rules or the economic substance doctrine.”

Jim Maule,  Tax Review Board Strips City’s Lap Dance Tax Attempt.

Robert D. Flach brings your Friday Buzz!

 

The Critical Question:  Should We Eliminate the Extraordinary Measures(Donald Marron):

You’ve probably heard that Treasury will hit the debt limit on October 17 and soon thereafter it won’t be able to pay all of America’s bills. That second part is true: Congress needs to act soon—preferably before the 17th—so Treasury doesn’t miss any payments. But the first part isn’t: Treasury actually hit the debt limit way back on May 19.

So how did Treasury keep paying our bills? Extraordinary measures.

Interesting.  It’s fiscal sleight of hand of the sort that would get you or me jailed.

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Tax Roundup, 10/3/2013: Three-day shutdown retroactively responsible for 8-month ID theft refund delay! And… standards!

Thursday, October 3rd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Never mind the last eight months, it’s the last three days that are the problem.  KCRG.com reports:  Government Shutdown Holding Up Tax Refund for Local Family:

A Cedar Rapids woman and her family have been waiting for a $3,250 tax refund for 8 months now, and with late bills piling up, she doesn’t know how much longer she can hold out.

The problem is that during a government shutdown, there’s no way for her to contact the Internal Revenue Service to find out where her check is.
The troubles began for Autumn Alicea when she filed for her tax return back in February. A while later, she discovered someone in Florida had stolen her identity. Alicea said it took the IRS several weeks to investigate and verify that she was the real Autumn Alicea. “So they said it would take about 8 weeks to process my return now that they knew the one from Iowa was indeed the valid return, and the one from Florida was not.”

So the shut down for the last three days is responsible for the late refund?  Not likely.  It can take a lot longer than eight weeks for the IRS to get a stolen refund back in the right hands in the best of times.  It took 121 weeks to for Jason Dinesen’s widowed ID theft client to get hers.

It’s fascinating what the government considers “essential.”  Paying people to keep 90-year old veterans away from an unstaffed open-air memorial and to barricade private businesses is “essential,” but getting money it fairly owes to honest taxpayers after carelessly mailing it to two-bit grifters, well, that’s strictly optional.

 

More shutdown coverage:

William Gale, It’s Groundhog Day Over the Debt Ceiling

Christopher Bergin, ‘Your Voice at the IRS’ Silenced (Tax Analysts Blog).  Like I said, interesting priorities.

Kay Bell,  ‘Essential’ Representatives, Senators get paid during shutdown.  If they paid truly essential politicians, the federal payroll would go to about zero.

 

 

20131003-1Casey Mulligan, How ObamaCare Wrecks the Work Ethic (Wall Street Journal)

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.

Like many other “anti-poverty” programs, it fights poverty by punishing efforts to escape poverty.

(Via Greg Mankiw)

David Brunori, State Taxes and the Poor (Tax Analysts Blog): “As importantly, ITEP highlights the problems with states reducing their earned income tax credits”  I think the high implied marginal tax rate of EITC phaseouts on taxpayers trying to escape poverty is underappreciated.

 

TaxProf, IRS Waives Individual Mandate for Americans Living Abroad.  Finally a portion of the tax law where Americans abroad actually get better treatment than the rest of us.

 

Wikipedia image

Wikipedia image

It’s official.  Beanie Babies Creator Pleads Guilty to Tax Evasion (Wall Street Journal).  The article cites Tax Crimes Blog proprietor Jack Townsend: 

An analysis done earlier this year found U.S. courts have been more lenient in cases tied to the government crackdown on secret offshore accounts. The average sentence in criminal offshore cases has been about half as long as in tax shelter schemes, according to a comparison of Internal Revenue Service statistics and data compiled by Houston attorney Jack Townsend, who publishes the Federal Tax Crimes blog. In many cases, judges are also opting for shorter sentences than recommended under federal guidelines.

He will have to pay $53.6 million in FBAR penalties under the plea agreement.

 

Related: Jack Townsend, Ty Warner, Beanie Babies Creator, Pleads Guilty

Slightly related:  Green card received in 2006? Give it up in 2013 (Phil Hodgen)

 

Me, Creativity fails to protect custom homebuilder from capitalizing costs.  Section 263A snags custom homebuilder.

Andrew Lundeen, Blank Slate Tax Reform Could Damage Economic Growth (Tax Policy Blog)

Why partisan tax law enforcement is always a scandal.   Vietnam dissident Le Quoc Quan jailed over tax evasion (BBC).  I think “dissident” is key to understanding the “jailed” part.

Tax Justice Blog,  State News Quick Hits: Andrew Cuomo Loves Tax Cuts, So Does ADM, and More

Cara Griffith, Floating on a State Tax Revenue Bubble (Tax Analysts Blog):

According to a report by Lucy Dadayan and Donald Boyd of the Rockefeller Institute, the record income tax receipts are a “temporary ‘bubble.’” 

Related: Iowa tax revenue up 4.1 percent past three months (Des Moines Register)

 

 

Robert D. Flach,  STANDARDS? DON’T MAKE ME LAUGH:

I had to laugh at the H+R official referring to “the same standards as we do”.  I am not aware of any evidence of such standards.  In fact the evidence is to the contrary.

They have high standards of placing their people in high places in the IRS, at least.

 

Speaking of high standards:

Cop used his job to commit identity theft, feds say. (sun-sentinel.com)

Ex-W. Pa. deputy faces fed tax evasion sentence (AP)

 

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Tax Roundup, 9/19/2013: Beanie Babies busted. And no mo’ Mo Money.

Thursday, September 19th, 2013 by Joe Kristan


20130919-1
Ty Warner was a big winner in life’s lottery.  He invented the Beanie Baby, a toy craze that made him a very wealthy man.  But then, like many lottery winners, he began to handle finances unwisely.  According to media reports, he will plead guilty to hiding funds in Swiss banks.  From the Wall Street Journal:

The creator of Beanie Babies has agreed to plead guilty to U.S. tax evasion and pay $53.6 million, the largest offshore-account penalty ever reported.

Ty Warner, chief executive of Ty Inc., the maker of stuffed dolls, reached an agreement with the U. S. Attorney for the Northern District of Illinois to plead guilty to a federal tax-evasion charge in connection with undeclared offshore Swiss accounts, according to his lawyer, Gregory Scandaglia, of Scandaglia & Ryan in Chicago.

Mr. Warner also faces a possible prison sentence.

$53.6 million is a lot of beanies.  What I found striking is how little he stood to gain compared to how much he will lose:

The unpaid tax on the account came to $885,300, according to a Justice Department statement.

By my math, there was $60 to lose for every dollar he stood to gain.  That seems like an unwise bet.

Jack Townsend has the definitive coverage, Whopping FBAR Penalty in Criminal Plea; Beanie Baby Creator Gets Beaned With No Free Pass:

But then his reported net worth is $2.6 billion, so in terms of real world punishment, well not much.  He is probably more concerned with the public embarrassment than the cost of his behavior.  It would appear that for real punishment of the mega-wealthy a penalty keyed to the net worth should apply (if higher than the normal FBAR penalty; then, depending upon the amount, there could be some real punishment rather than just a nuisance).  Of course, if he gets some serious incarceration period — which is what the Guidelines will indicate — then there may be some real punishment.  But, the courts have been notoriously lenient in sentencing, at least for persons not so wealthy as Warner (and his earlier colleague among the mega-rich, Olenicoff).

I have only the customary pity for somebody who falls from success to scandal.  It sounds like Mr. Warner knew exactly what he was doing.  I have a lot more sympathy for much smaller taxpayers who face similarly disproportionate penalties relative to unpaid taxes for inadvertent violations.  It’s too bad the IRS has such a hard time telling the difference.  Apparently you have to shoot the jaywalkers so you can slap the real criminals on the wrist.

The TaxProf has more.  So does Jana Luttenegger.

 

20130919-2Mo’ Money no mo’.  The owners of the Mo’ Money tax prep franchise won’t be making any mo’ money doing taxes.  From a Department of Justice press release:

A federal court in Memphis, Tenn., permanently barred the owners of Mo’ Money Taxes, Markey Granberry and Derrick Robinson, as well as a former Mo’ Money manager, Eumora Reese, from preparing tax returns for others and owning or operating a tax return preparation business, the Justice Department announced today.  The civil injunction order, to which Granberry, Robinson and Reese agreed without admitting the allegations against them, was signed by Judge S. Thomas Anderson of the U.S. District Court for the Western District of Tennessee.

The business seemed to have its share of fraud trouble at its franchises   Based on this, it appears the problems may have started at the top.

TaxGrrrl, IRS Gets Big Win In Corporate Tax Holiday Case, Readies For Next Fight

William Perez, Need to Pay Taxes for 2012? Be Aware of Penalties and Interest

Paul Neiffer, Estimated 2014 Inflation Adjusted Tax Items

Kay Bell, 2014 tax brackets preview indicates tax savings for many

TaxProf,  The IRS Scandal, Day 133

 

Cara Griffith, The ‘Tech Tax’ That Wasn’t (Tax Analysts Blog)

Alan Cole,  Obamacare’s “Cadillac Tax” – A Poor Patch for a Hole in the Income Tax (Tax Policy Blog)

Donald Marron,  The Costs of Debt Limit Brinksmanship  (TaxVox)

 

We should all have such funding problems.  There are two posts today bemoaning the lack if IRS funding:

Tax Justice Blog,  An Underfunded IRS Means More Tax Avoiders Get a Pass.

Christopher Bergin, Mind the Gap, and Fund the IRS (Tax Analysts Blog)

Here is a chart of inflation-adjusted IRS funding:

20130821-1

 

You know, it doesn’t look the IRS is doing that badly by historical standards.  If Congress didn’t act like the tax law was the Swiss Army Knife of public policy, giving the IRS duties as varied as industrial policy and running the nation’s healthcare financing, funding would seem more than adequate.

 

The Critical Question:  Is Obamacare the GOP’s White Whale? (Howard Gleckman, TaxVox)

Career Advice:  This Way to CPA Isn’t Too Confident You Can Get By Without Mommy’s Help (Going Concern)

 

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Tax Roundup, 9/13/2013: Good luck and honey traps edition.

Friday, September 13th, 2013 by Joe Kristan

20130415-1It’s Friday the 13th.  Do you know where your extended 1041, 1065, 1120, or 1120-S is? They’re due Monday!  If you have a pass-through return due, late filing penalties start at $195 per K-1.  E-file, or use certified mail, return receipt requested.  It makes for good luck if the IRS says you filed late.

 

 

Christopher Bergin, Tax Avoidance Just Isn’t What It Used To Be:

Setting aside for now the place of moral scruples in a tax rate, some are arguing that corporations have a higher duty to the countries where they do business and the citizens they sell to than simply paying the lowest amount of tax possible. That argument challenges other well-established theories, among them that corporations have a duty to maximize the investment of their shareholders. Well, is it the only duty of a multinational corporation to maximize value for its shareholders?  

Well, it sure isn’t to maximize value for its tax collectors.

 

Jason Dinesen,  Same-Sex Marriage and Minnesota Taxes.  “Effective with 2013 tax returns, same-sex married couples who file Minnesota tax returns will be required to file those returns as married.”

Phil Hodgen,   Electing Resident Alien Status Under Section 7701(b)(4).  “This election is used by nonresident aliens who become residents of the United States after the middle of the year, and do not hold a green card.”

 

csi logoTaxGrrrl,  Back To School: Paying For College With 529 Plans:

For federal income tax purposes, putting money in a 529 plan won’t result in a deduction (as it would with, say, an IRA). However, neither the earnings nor the distributions in 529 plans are taxable for federal income tax purposes.

I like Iowa’s Sec. 529 plan, College Savings Iowa.  You get  a deduction for contributions up to $3,045 per donor, per donee on your Iowa 1040; it works like a 6% negative load, and you get the usual federal Sec. 529 benefits too.

 

Russ Fox,  Bankruptcy Trumps a Deemed Sale.  California’s tax authorities don’t get to decide the tax implications of a bankruptcy by themselves.

Leslie Book,  CDP: When is a Document Establishing Liability Received? (Procedurally Taxing)

 

TaxProf, The IRS Scandal, Day 127

Kay Bell,  IRS investigations are baaaaack!

 

Tax Justice Blog,  State News Quick Hits: Missouri Legislature Fails to Override Governor’s Tax Cut Veto and More

Jack  Townsend, Swiss Bank Rahn & Bodmer Under DOJ Criminal Investigation 

William McBride,  “Red” China Taxes Capital Relatively Lightly (Tax Policy Blog)

Howard Gleckman,  Eight in Ten U.S. Households Pay Social Security and Medicare Taxes.   Yet those two programs are actuarial disasters, so they don’t even cover their benefits.  Mr. Gleckman’s use of this as a defense of exempting them from all income taxes is unconvincing.

Robert D. Flach has your Friday Buzz roundup of tax news!

 

No, it’s about restricting guild membership to keep salaries up.  Getting a PhD in Accounting Isn’t Really About Teaching (Going Concern)

News you can use.  To Enjoy Driverless Cars, First Kill All the Lawyers (Megan McArdle)

 

Sometimes taxes aren’t the most interesting part of the story.  Certainly not in a case reported by the Contra Costa Times about an attorney who apparently will plead guilty to tax charges:

Mary Nolan, 61, of Oakland, was indicted by a grand jury in September 2012 on six counts related to accusations that she failed to report $1.8 million in earnings to the Internal Revenue Service and placed eavesdropping equipment on the cars of her clients’ spouses with disgraced former Concord private investigator Christopher Butler. Court records show that she’s scheduled to enter a guilty plea before Judge Charles Breyer on Sept. 27, although no details as to her plea agreement have been made public.

Illegally bugging cars?

Nolan also is a defendant in two of the half-dozen civil lawsuits pending in state and federal court lodged by the targets of Butler’s “dirty DUI” stings in 2011 and 2012.

Butler’s employees, usually attractive women, would entice the estranged spouses of Butler’s clients to get drunk and drive, at which time Butler would encourage police to arrest the targets for DUI, giving his clients leverage in divorce and child-custody proceedings.

Nolan is accused of helping arrange the arrests of Concord aeronautics engineer Dave Dutcher and Clayton contractor Declan Woods, whose ex-wives, Susan Dutcher and Louise Woods, were represented by Nolan in family law court.

Somewhere a Mr. Dutcher and a Mr. Woods could be excused for enthusiastically toasting this turn of events alone and at home.

 

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

Thursday, August 29th, 2013 by Joe Kristan

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

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

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

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

But all is not lost:

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

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

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

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

Also: Ask The Taxgirl: Taxing Health Care Benefits   

 

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

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

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

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

 

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

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

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

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

 

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

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

 

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

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

 

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

 

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

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

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

 

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

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

 

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

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

 

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

(via Lynnley Browning’s Twitter feed)

 

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Tax Roundup, 8/23/2013: Don’t die here edition. And the Butch and Sundance approach to tax controversies.

Friday, August 23rd, 2013 by Joe Kristan
Via Wall Street Journal

Via Wall Street Journal

Advice I intend to take this year.  The Wall Street Journal editorial page lists Iowa as a place to not die. But Minnesota is even worse:

The grand prize for self-abuse goes to Minnesota, which this year enacted a new 10% gift tax with a $1 million exemption. A gift tax is a levy on money given away while still alive. This tax is in addition to Minnesota’s 16% estate tax. The new law is all the more punitive because it applies the 16% estate tax (6% on top of the earlier 10% gift tax) to any gift within three years of death.

This is essentially a clawback tax, or more taxation without respiration. Democratic Governor Mark Dayton, who signed the law, is the heir to a department store fortune and knows a lot about inheriting wealth but not much about creating it.

I would expect that Mr. Dayton’s family has done a lot of estate planning, making sure that he won’t be hit hard by his new tax.  Many proponents of high taxes, like Warren Buffett, have no intention of paying any themselves.

 

Nick Gillespie,  The Immense and Growing Price of “Tax Expenditures”: (Reason.com)

Tax expenditures tend to be very popular with the people who benefit from them but they also represent a blatant attempt by the government to engineer behaviors ranging from having children to buying homes rather than renting. As the consensus that our current tax code is overly complicated and inefficient (both in terms of economic activity and revenue generation), all tax expenditures should be on the table for reconsideration and elimination.

Some folks consider every tax break a good thing, no matter how unfair it is to those who don’t benefit from it.  But tax breaks for special interests, (e.g., low-income housing developers) or economic sectors (manufacturing) are more or less direct government direction of the economy.  It’s nice to see a libertarian voice pointing that out.   The 20th century was an uncontrolled experiment demonstrating that such government direction is unwise.

 

Mistakes were made.  A Louisiana politician, Girod Jackson III, is in tax trouble, reports NOLA.com:

Several years ago, there were filing errors on my business tax returns and delayed initial filings arising from accounting errors and oversight. Today, I have accepted the consequences of those mistakes.”

As a part of accepting these consequences, regretfully, I have submitted my letter of resignation to the Secretary of State and The Speaker of the Louisiana House of Representatives. 

Makes you wonder just how those “accounting errors” got there.  It almost sounds like he booked an expense to miscellaneous expense instead of office supplies.

Christopher Bergin, It’s a Cover-Up! (Tax Analysts Blog):

The IRS is not a transparent organization; it is a secretive organization — as secretive as it can get away with. That is why, over the years, Tax Analysts has asked the courts to not let it get away with certain secretive things. But was it a “cover-up” that the IRS did not want to make private letter rulings public? Was it a “cover-up” when the IRS tried to hide field service advice or emails to staff that provided legal interpretation? I don’t think so and Tax Analysts sued over all those issues. I guess it depends on your interpretation of “cover-up.” 

But, sadly, this is what the IRS does, and Tax Analysts is quite familiar with its penchant for secrecy.

When your business is taking people’s money, laying low has its attractions.

 

Andrew Lundeen, Do I Have to Pay Taxes on My Interest from My Savings Account?  The short answer is yes.” (Tax Policy Blog).

 

TaxProf, The IRS Scandal, Day 106

TaxGrrrl,  Pennsylvania Mulls First Statewide Plastic Bag Tax In The U.S. As ‘Small Price To Pay’   Maybe they just want to kill Pennsylvanians.

Howard Gleckman, The Center for American Progress Rethinks Retirement Savings:

Today, workers in 401(k) plans bear full investment risk and often struggle with how to allocate their retirement savings and what to do with their assets when they change jobs or retire. With SAFE, those risks would be mitigated. Enrollment would be automatic, savings fully portable, and investment funds pooled and professionally managed. Accounts would be automatically annuitized as in traditional DB plans. 

One of those “Nudge” things.

 

Tax Justice Blog, Max and Dave Do Silicon Valley

James Pethokoukis, Mad Men economics? No, we can’t return to the sky-high tax rates of postwar America

Kay Bell,  It’s time to eliminate many tax-exempt status designations

Robert D. Flach has his Friday Buzz going.  He also has wise advice in this interview:

And learn how to say “no” to a client when they ask you to do something that is “shaky” or “shady.” It is better to lose the client than to gain the potential problems.

So true.

 

The Critical Question: Will Bradley Manning’s Gender Reassignment Be Tax Deductible?  (Tony Nitti).

 

You probably won’t win a paperwork battle with the IRS this wayFrom a Justice Department press release:

 The Justice Department announced today the unsealing of a superseding indictment returned by a federal grand jury in Sacramento, Calif., charging Teresa Marie Marty, Charles Tingler and Victoria Tingler, all of Placerville, Calif., with conspiracy to defraud the United States and filing multi-million dollar liens against government officials.

Marty is charged with filing liens against the property of three Internal Revenue Service (IRS) employees involved in the collection of taxes she owed the IRS.  She also filed liens of at least $84 million against the property of two Justice Department attorneys involved in a lawsuit filed against her in 2009 to enjoin her and her business, Advanced Financial Services (AFS), from preparing tax returns. 

In case you’re wondering, the IRS doesn’t care for people to slap their employees with false liens.  They also don’t like this:

The indictment alleges that as part of the conspiracy, Harris and Marty engaged a commercial collection agency to collect one of the three false liens that Mr. Tingler had filed, one of which was in the amount of $500,000.

These folks were already in trouble on charges of filing false refund claims.  It sounds like they responded by going on the offensive.  It’s the tax controversy equivalent of Butch and Sundance charging the Bolivian Army.

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Tax Roundup, 8/16/2013: Red light cameras, fleeing the country, and suing the IRS.

Friday, August 16th, 2013 by Joe Kristan


gatso
Clive red-light cameras to go live again Monday (Des Moines Register):

The cameras will be turned back on Monday at 12:01 a.m.

In addition to approving the contract the council signed off on language that sets in motion a plan for the program to be dismantled at the end of the current fiscal year, which is June 30, 2014.

After turning them off because they are obnoxious, the Clive city fathers are restarting them with a frank admission that they need the money this year.  So of course it’s about the money, just like in Des Moines, except Clive admits it.

 

TaxProf, IRS Hits Estate of Former Detroit Pistons Owner With $2 Billion Tax Bill.  “The estate tax bill alone — $1.9 billion — would represent more than one-tenth of the $13 billion collected through that tax nationwide in 2010, when taxes on most estates of those who died in 2009, like Davidson, were paid.”

 

passportMatthew Feeney on Renouncing U.S. Citizenship to Escape the IRS (Reason.com):

It’s astonishing that the American government would punish some of the world’s most patriotic people by making them choose between their citizenship and the headache that comes with trying to be compliant with awful laws like FATCA. The requirements imposed by FATCA on foreign financial institutions and the punishments that come with non-compliance mean that sometimes foreign banks don’t let Americans open accounts at all.

It’s only astonishing anymore if you haven’t figured out just how awful our political leadership is.

 

Your web guide to despair.  The IRS has taken live a new web page for Affordable Care Act Tax Provisions for Individuals and Families

 

Peter Reilly,  Charity Begins At Home But Cannot End There.

You have to wonder why more families don’t start exempt organizations.  Well, it may be because, as the PLR explains it does not work – for at least four different reasons…

Peter then provides the reasons, one by one.

Trish McIntire,  Documenting Donations

 

Tony Nitti, IRS (Finally) Consolidates All Late S Election Relief Into One Handy Revenue Procedure 

Kay Bell,  Turning financial failures into tax-saving successes

TaxProf, The IRS Scandal, Day 99

Robert D. Flach is ready with your Friday Buzz!

 

Phil Hodgen, I was in Philmont.  I plan to be there next year.

 

News you can use.   How to Blow a 1031 Exchange (Paul Neiffer):

The taxpayer indicated they had rolled the gain into other real estate costing about a $1 million and wondered how the rollover gain would affect the basis of their new real estate investment.  Many of you probably can guess what my next question was.  “Did you receive the cash and then buy the real estate?” To which, the taxpayer said “Yes, we received the cash, but we bought the real estate within 180 days of selling the land”.  

That doesn’t work, as Paul explains.

 

taxanalystslogoChristopher Bergin, Tax Analysts v. Internal Revenue Service (Tax Analysts Blog):

Here’s the background: On May 21, Tax Analysts sent a FOIA request to the IRS seeking all materials used since 2009 to train IRS personnel in the IRS exempt organizations determinations office in Cincinnati. I’m guessing that there is probably no one who doesn’t know that the IRS is currently under huge scrutiny for how it handles – or mishandles – applications for tax exempt status. This is not just a big story for Tax Analysts but for a lot of news organizations as well. We asked the IRS to expedite the process and it agreed, telling us that our request had “priority” and that it would “make every effort to respond as quickly as possible.” But on June 25, the IRS invoked a 10-day extension period, which extended the deadline to July 10. But in the same letter, the IRS also told us it wouldn’t be meeting that deadline either, and unilaterally extended the response date to August 9.

If the IRS has nothing to hide, it sure has a funny way of showing it.

Going Concern has more:  The IRS Is Being Difficult.  Caleb really, really wants to believe that nobody cares about IRS harassment of the Tea Party.  Yet stories like this keep coming up. 

 

 

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Tax Roundup, 8/15/2013: Turning on the revenue cameras honestly. And mink cashmere capes!

Thursday, August 15th, 2013 by Joe Kristan


gatso
But I thought it was about safety, not money.  
 The Des Moines Register reports:

The Clive City Council today is likely to reactivate its dormant red-light camera program, but only through June 30, 2014.

In his email, Weaver said it was necessary to reactivate the cameras to ensure the city’s financial health. But tonight’s vote, he wrote, will also set in motion the dismantling next year of the camera contract and of the city ordinance authorizing the use of red-light cameras in Clive.

Give them credit for being honest, at least, rather than insulting our intelligence by saying it’s about safety.

 

Chicago Congressmen’s wife gets 12 months on tax charges.  At the same hearing where her husband, former Congressman Jesse Jackson Jr., received a 30-month prison term for using $750,000 in campaign funds to live the good life, Sandri Jackson received a 12-month sentence on related tax charges.  Huffington Post reports:

Jackson’s wife, Sandra, was also sentenced Wednesday. She will serve one year in prison and was ordered to pay $22,000 in restitution, after pleading guilty to a related charge of filing false tax returns. U.S. District Court Judge Amy Berman Jackson, who is not related to the Jacksons, allowed the couple to stagger their sentences so their children would have at least one parent at all times. Jackson Jr. will go to prison first, followed by Sandra.

Jackson Jr. pleaded guilty in February to using campaign funds to purchase an array of personal items, including Bruce Lee memorabilia, a $43,000 Rolex watch and a mink cashmere cape.

A mink cashmere cape?  Considering that the Congressman was elected as a Democrat in a district that hasn’t elected a Republican since the last mastodons moved out, I suppose he had to do something with the money.  I’m glad he used it to build a modest and dignified wardrobe.

TaxGrrrl has more.

 

Missed your S corporation deadline?  The IRS has issued a new Revenue Procedure that S-Sidewalkcombines in one place relief late or missed elections related to S corporation status.  From Revenue Procedure 2013-30, which takes effect September 30:

This revenue procedure expands and consolidates relief provisions included in prior revenue procedures that provide a simplified method for taxpayers to request relief for late S corporation elections, ESBT elections, QSST elections, QSub elections, and corporate classification elections intended to be effective on the same date as the S corporation election for the entity.

These relief provisions, which require no user fee, are a great friend to the taxpayer and the practitioner.  Still, it unfortunately continues the “reasonable cause” requirement, usually requiring some advisor to take one for the team.  Fortunately the IRS doesn’t seem to look at the reasonable cause disclosures very closely.

 

Speaking of S corporations:  S Election For Cash Basis C Corporation Fraught With Peril  (Peter Reilly).  The accumulated accrual-to-cash benefit is a built-in gain, taxable to the coproration.  From Peter’s post:

The only scenario I have been able to think of that might make it worthwhile to organize a professional practice as a C corporation is a sole practitioner who has the need to make very large out-of-pocket medical payments – a special school for a disabled child for example.  That would make a medical reimbursement plan worthwhile. 

And as Peter’s post illustrates, C corporations can be like lobster traps: easy to get into, difficult to live in, and painful to get out of. (apologies to Bittker and Eustice).

 

#Tax Justice Blog,  ITEP to Legislators: Business Tax Breaks Don’t Live Up to the Hype.  Of course they don’t.  They only exist to allow politicians to call a press conference or cut a ribbon.  From the post:

Among the reasons ITEP urged lawmakers to be skeptical of these special breaks:

  • Tax incentives often reward companies for hiring decisions or investments they would have made anyway. These “windfall” benefits significantly reduce the cost-effectiveness of every tax incentive.
  • State economies are closely interconnected, so the taxpayer dollars given to companies through incentive programs never remain in-state for very long.
  • Tax incentives require picking winners and losers. Incentive-fueled growth at one business usually comes at the expense of losses at other businesses – including businesses located in the same state.
  • Tax incentives must be paid for somehow, and state economies are likely to suffer if that means skimping on public services like education and infrastructure that are fundamental to a strong economy.

Exactly right.  It’s like taking your wife’s purse to the bar for money to pick up girls.  It’s not a great use of the money, the girls aren’t impressed, and any you get that way aren’t likely to be prizes.

Christopher Bergin, 15 Years of IRS Reform (Tax Analysts Blog):

Certainly, the IRS needs reforming, and has done some pretty bad stuff. That reform can come from within the agency or from lawmakers, but it needs to come from another place as well: a good place, a place of positive change not negative political expedience.

It’s hard to elicit “positive” thoughts for the IRS from legislators when it is clear that the agency was harassing their allies.

 

Kay Bell,  Unemployed? You still could face tax issues.  Unemployment comp is still taxable income.

Robert D. Flach,  DEFENDING THE DEDUCTIONS FOR TAXES AND MORTGAGE INTEREST.

David Shakow, The Taxation of Cloud Computing and Digital Content.   (Tax Analysts, via The TaxProf.  The rise of software-as-a-service creates a lot of challenges for the tax man.

TaxProf, The IRS Scandal, Day 98.

Cara Griffith, California’s Aggressive Position on Passive Income (Tax Analysts Blog)

 

Jason Dinesen,  Baseball and “Games Behind in the Loss Column”  For us Cubs fans, it’s an exercise in large numbers.

 

TaxGrrrl,  ‘Real Housewives’ Stars Plead Not Guilty As Bethenny Claims: I Don’t Feel Sorry For Them.   In case that matters.

The Critical Question. What’s Getting a PhD in Accounting Really All About? (Going Concern).  As far as I can tell, it’s about learning statistical techniques and writing things nobody will read over a long-enough time that you will forget any useful information you might have imparted to students from your pre-Ph.D career.  More importantly, it’s about restricting the pool of tenure-eligible candidates to maintain the salaries of the guild members.

News you can use.  E- Filing makes tax fraud easier (Myfoxhouston.com)

 

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Tax Roundup, 7/26/2013: Shank and hook edition.

Friday, July 26th, 2013 by Joe Kristan

IMG_1944Today is the always-to-be-dreaded office golf day.  My suggestion for an all-office chess tournament in its place went nowhere.  I tee off with the first group, so this will be a quick roundup.  At least it will be over early.

 

Tax Analysts has this item today ($link):

President Obama on July 25 signed a law renaming code section 219(c) as the Kay Bailey Hutchison Spousal IRA, the White House said in a statement.

It’s obnoxious how politicians think they’re so awesome that they should be naming things after one another.  But if we are going to start naming popular tax provisions after politicians, why stop there?  Maybe all tax laws should be named after the schmucks responsible for them.  I have some ideas:

  • The Barack Obama individual tax for not buying health insurance you don’t want.
  • The Chuck Grassley Sec. 409A excise tax on deferred compensation foot-faults.
  • The Nancy Pelosi PCORI fee
  • The Max Baucus Net Investment Income Tax.

This could be fun.  Feel free to name your own in the comments.

 

TaxProf, The IRS Scandal,Day 78

Kay Bell, Same-sex marriage widows and widowers to get estate tax refunds from New York

TaxGrrrl, Dolce & Gabbana Say Tax Woes May Force Them To Close

Jim Maule, The Tax Cost of Contract Procrastination

Me, IRS issues Applicable Federal Rates (AFR) for August 2013

Tax Justice Blog, Nike’s Tax Haven Subsidiaries Are Named After Its Shoe Brands

Robert D. Flach has your Friday Buzz!

 

Christopher Bergin, Baucus and Camp: Tax Reformers or Dedicated Dreamers? (Tax Analysts Blog)

Peter Reilly, Why Tax Reform Is Impossible

News from the profession.  Ernst & Young Trusts That Everyone Knows Those ‘Sexy Boys’ Aren’t Building a Better Working World  (Going Concern)

 

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Tax Roundup, 7/18/2013: Cincinnati, D.C. edition. And: the Redflex auto dealer tax.

Thursday, July 18th, 2013 by Joe Kristan

chief counsel shieldI didn’t know the IRS Chief Counsel worked out of Cincinnati.  The “nothing to see here” apologists for the IRS harassment of right-wing exempt organizations have always said that nothing wrong happened, and it was the work of rogue employees in the Cincinnati hinterlands anyway.  Perhaps not.  Tax Analysts reports ($link):

Embattled IRS official Lois Lerner directed a multilayered review of Tea  Party groups’ exemption applications that reached all the way to the IRS chief counsel’s office and led to lengthy delays in processing the applications, according to testimony from an IRS attorney released July 17 by House committees investigating the matter.

Carter Hull, a “Washinton IRS tax law specialist,” says the IRS Chief Counsel’s office was involved:

     Hull testified that at the August 2011 meeting, officials from the chief counsel’s office told him they needed updated information on the applications and suggested that a template letter be developed for future processing of applications. He said he told the officials that a template was impractical given the differences in the various applications.

     Hull told investigators that in his 48 years working at the IRS, he had never been asked to send a case he was working to Lerner’s senior adviser or to the chief counsel’s office before he received the request to elevate the Tea Party cases.

Mr. Hull is scheduled to testify at Congressional hearings today.  Nothing to see here, move along.

Wall Street Journal, The IRS Goes to Washington.

 

It’s OK, she’s a witch anyway.  Failed Republican Senate Candidate Christine O’Donnell may have been one of the candidates for political office whose tax records were breached, based on a Washington Times story.  The report says Ms. O’Donnell has been contacted by the Treasury telling her that a Delaware state official improperly accessed her federal tax records.   During her campaign for Senate, she was hit with a false federal tax lien on the day she announced her candidacy.

There has been no prosecution for the illegal access:

Treasury officials have refused to give Mr. Grassley any specifics on the cases or to describe the disposition of Ms. O’Donnell’s case, claiming even people who improperly access tax records have an assumption of privacy under federal tax laws.

That will be news to Dennis Lerner, a former IRS agent who this week received a three-year probation sentence for improperly disclosing confidential tax information.

Instapundit has more.

Christopher Bergin, IRS: Victim, Football, Both? (Tax Analysts Blog)


 

gatsoClive reconsidering its revenue camera auto-dealer tax.  The Des Moines Register reports that the future of the Des Moines suburb’s contract with red-light camera operator Redflex is in doubt, now that City Councilman Michael McCoy has joined another member of the five-person council in opposing the cameras.

Most of the cameras are along a strip of Hickman Road that has some car dealerships.  Guess what happens?

McCoy said businesses have raised concerns about the program to him. He said car dealerships are incurring fees when customers test drive their vehicles — the program mails tickets based on license plates. “That doesn’t seem like a way to be business friendly and invite new business into our community,” McCoy said.

But what good are customers if the local municipality can’t pick their pockets?

 

Tax Justice Blog, Are Special Tax Breaks Worthwhile? Rhode Island Intends to Find Out:

Rhode Island is about to put seventeen of its “economic development” tax breaks under the microscope, thanks to a new law (PDF) signed by Governor Chafee last week.  This reform is a welcome step forward in a national landscape where states often do nothing at all to figure out whether narrow tax breaks are really helping their economies.

After Iowa’s film tax program collapsed in disgrace and scandal, a blue ribbon commission was unable to identify any definite benefit to Iowa’s dozens of targeted corporate welfare tax breaks.  Yet Iowa continues to pass them out like Tootsie Rolls at a parade.

 

Cara Griffith, Break Out the Champagne (Tax Analysts Blog).  State revenues are up.

Jack Townsend, Interview of Swiss Bank Whistleblower

Kay Bell, Werfel does his own tax returns, Lerner still under fire and other tidbits from House hearing on IRS small business audits

Me: Long live the Queen! 21 years for the “Queen of IRS Tax Fraud”

 

Mitch Maahs, Deducting Job Search Expenses (Davis Brown Tax Law Blog)

William Perez, Same-Sex Spouses and Small Business: What’s Changed?

 

‘Merica!  U.S. Tax System Ranks 94th in the World (Andrew Lundeen, Tax Policy Blog)

Career Corner.  If All Else Fails, You Can Still Become an Internal Auditor (Going Concern)

News you can use.  Get Ready To Shop: State Sales Tax Holidays Are Back! (TaxGrrrl)

Reports: he’s not happy any more. Reports: Happy’s Pizza founder, others indicted for fraud, tax evasion (theoaklandpress.com)

 

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

Friday, July 12th, 2013 by Joe Kristan

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

20130712-1

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

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

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

 

TaxProf, The IRS Scandal, Day 64

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

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

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

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

 

Christopher Bergin, Jaws (Tax Analysts Blog):

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

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

 

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

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

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

 

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

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

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

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

 

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

Via Wikipedia

Via Wikipedia

Robert D. Flach has your Friday Buzz ready!

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

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

 

 

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

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

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

 

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Tax Roundup, 7/5/2013: Iowa preparer meets her Waterloo. And a sixty-nine year anniversary.

Friday, July 5th, 2013 by Joe Kristan

20130705-3Waterloo preparer to plead to preparing return with bad deductions.  From the Waterloo-Cedar Falls Courier:

The U.S. Attorney’s Office for the Northern District of Iowa filed a criminal complaint against Victoria A. Jones, age unavailable, in U.S. District Court in Cedar Rapids on Tuesday.

She is charged with one count of aiding in the preparation of a fraudulent return. An arraignment has been scheduled for July 9 in Cedar Rapids.

Authorities allege Jones helped a couple identified only by the initials R.D. and L.D. submit a false tax return to the IRS for 2008. The return claimed the filers had $67,211 in itemized deductions when they had significantly less.

Court document says that she intends to plead guilty, but provides no additional information as to the nature of the false deductions.

 

Iowans Can Now Pay Taxes With Their Phones, Online (The Dwolla Blog).  Only property taxes for now, and only in some counties.  It would be nice if they added income taxes.

 

He shall take Care that the Laws be faithfully executed.  Executive Nullification, Once Again (Arnold Kling)

 

Make everyone poorer, to put the 1% in their place.   From a paper by Karel Mertens (via Tyler Cowen):

A hypothetical tax reform cutting marginal rates only for the top 1% leads to sizeable increases in top 1\% incomes and has a positive effect on real GDP. There are also spillover effects to incomes outside of the top 1%, but top marginal rate cuts lead to greater inequality in pre-tax incomes. 

So cutting top tax rates makes everyone better off.  Yet because it helps the “top 1%” the most, politicians like the President will tell us it’s a bad idea.

 

Ex-Bear Zorich way behind.  The Chicago Tribune reports that former football player Chris Zorich is financially underwater as he faces a July 12 sentencing date on tax charges.

TaxProf, The IRS Scandal, Day 57

Because it would never pass?  Why is the Carbon Tax Missing from the Climate Change Debate? (Tax Justice Blog)

Gene Steuerle, The Baucus-Hatch “Blank Slate” Approach to Tax Reform Could Be Revolutionary:

 

Kay Bell has posted Tax Carnival #118: July 4th Tax Fireworks!

Christopher Bergin, Gratitude on the Fourth of July (Tax Analysts Blog)

TaxGrrrl, Taxes & Independence: Happy Fourth Of July.   Kelly freely quotes the Declaration of Independence, including this:

 He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.

Good thing that couldn’t happen today…

 

Why Exactly Do You  Want An Offshore Account?

Jack Townsend, Information on Filing Delinquent FBARs

 

Economic development for Iowa!  Minnesota: Higher Income and Cigarette Tax Making It the Land of 10,000 Taxes? Philip Hammersley, Tax Policy Blog:

Minnesota Governor Mark Dayton (DFL) recently signed  legislation increasing income and cigarette taxes in the Gopher State. The legislature hopes to raise nearly $2.1 billion in revenue from the tax hikes in order to close the budget deficits and fund new spending projects. The average Minnesota taxpayer currently pays 10.79 percent of his income in state and local taxes. This tax burden makes Minnesota the 7th highest taxed state in the nation.

Iowa’s tax system has more than its share of flaws, but it sure could be worse.

 

Cara Griffith, Taxes and Whistleblower Suits (Tax Analysts Blog).  Should whistleblowers be able to file tax suits against corporations?

Holiday or no, Robert D. Flach has fresh Buzz!  He reminds us that the IRS is closed today.

 

Peter Reilly, Gettysburg Interlude – Understanding Historiography

 

Sixty-nine years ago today, my Dad’s participation in the war ended.  The third stage of the Tour de France went by the place where it happened earlier this week.

The final mission of B-24 42-78127, over the target in Toulon, France.  John Kristan was top turret gunner in one of the planes - likely the one at the bottom of the picture.

The final mission of B-24 42-78127, over the target in Toulon, France. John Kristan was top turret gunner in one of the planes – likely the one at the bottom of the picture.

So my job doesn’t seem so hard today.

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Tax Roundup, 6/28/2013: Not dead yet edition

Friday, June 28th, 2013 by Joe Kristan

20120928-2Thought the IRS scandal was dead? IRS Inspector Firm on One-Sided Targeting; Small Number Faced Extra Scrutiny, While All Tea-Party Applications Were Reviewed (Wall Street Journal):

Internal Revenue Service employees flagged for extra scrutiny fewer than a third of progressive groups applying for tax exemptions from mid-2010 through mid-2012, compared with 100% of conservative applicants, an IRS inspector general said.

The new data, released in a letter to Democratic lawmakers that was dated Wednesday, appear to support Republicans’ contention that conservative groups were subjected to more IRS scrutiny, and undercut Democrats’ case that the IRS treated left-leaning and right-leaning groups similarly.

Just saying it’s over doesn’t make it so.

TaxProf, The IRS Scandal, Day 50

Christopher Bergin, Get to the Bottom of It  (Tax Analysts Blog)

Clearly, there is a problem at the IRS, a serious one. And that does not just apply to exempt organizations, which, frankly, have always been the third rail of national tax administration. What’s going on is not funny or entertaining. What’s going on means the country is in trouble.

While I am more easily entertained then Christopher, I agree with his conclusion.

David Cay Johnston, Revelations Show Lois Lerner Blew It  (Tax Analysts Blog)

 

Linda Beale isn’t on board with the IRS “apology payment” plan floated by the Taxpayer Advocate:

This seems to me to be a very very bad idea.  Creating payments for jobs not perfectly done implies a perfection that simply isn’t achievable in large institutions with multi-faceted functions.

OK, fine — but if it’s not achievable for a giant institution with enormous resources and all the time in the world, maybe it’s not achievable for small institutions with with “multi-faceted functions” and far fewer resources under severe time constraints — like your average business or your local Tea Party run by activists in their free time.  Maybe the IRS shouldn’t so routinely assert penalties on audit deficiencies.  Until they stop, though, I say sauce for the goose, sauce for the gander.

 

Remember when the state-run Iowa Cable Network was going to make Iowa the cutting edge tech state?  Iowa tries to sell ICN, but gets bids from only one prospect (Thegazette.com, via Gongol)

 

More DOMA demise fallout

William Perez, Tax Issues of the Supreme Court Ruling that DOMA is Unconstitutional

Margaret Van Houten, Tax Implications of DOMA Ruling   (Davis Brown Tax Law Blog)

Peter Reilly, DOMA Decision May Affect Civil Unions

Tax Justice Blog, What Are the Tax Implications of the Supreme Court Ruling on Marriage Equality?

 

In other news…

Trish McIntire, Amortizing Your Life:

I get asked occasionally if a client can take the value of their time as a deduction. They’ve done the repairs on a rental house themselves and they want to deduct what they would have paid someone else to do it or they have worked for a charity and would like to use their time as a charitable deduction. Of course, the value of one’s time is not deductible. 

Philip Hammersley, Elizabeth Malm, Pennsylvania’s Family Business Death Tax on Life Support (Tax Policy Blog)

Howard Gleckman,  Can The Baucus-Hatch Blank Slate Plan Jump Start Tax Reform?  (TaxVox)

TaxGrrrl, What Back Taxes? Senate Passes Immigration Reform Bill, Goes Easy On Tax Repayment

Robert D. Flach is ready with your Friday Buzz!

 

Going Concern, Oregon Department of Revenue Sensitive to the Fact That Some Religious Groups Think Filing Tax Forms Electronically Is of the Devil.  There are days when I think that’s right if you leave the word “Electronically” out.

 

It looks like I have to update my blogroll for Megan McArdle for what — the fifth time?  But Megan was one of the first economics bloggers, and she’s well worth following to her new blog home.

 

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