Posts Tagged ‘Daniel Shaviro’

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

Thursday, December 18th, 2014 by Joe Kristan

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

 


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

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

TaxProf, The IRS Scandal, Day 588

 

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

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

 

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

 

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

 

News from the Profession. Former Stillwater mayor charged with aiding tax fraud (MPRnews.org):

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

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

CPAs, you must only use your powers for good.

 

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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Tax Roundup, 8/20/14: Keeping time reports isn’t just for CPAs anymore.

Wednesday, August 20th, 2014 by Joe Kristan

20120511-2Track your hours now, not when you get audited.  Doing time reports is no fun.  If I had a nickel for every CPA who left public accounting and told me how fun it is to not do time reports, I’d have multiple nickels.

Unfortunately, the tax law might make time sheets necessary for people who don’t charge by the hour.  The passive loss rules disallow losses if you don’t spend enough time on a loss activity to “materially participate.”  Obamacare uses the same rules to impose a 3.8% “Net Investment Income Tax” on “passive” income.

It’s up to the taxpayer to prove they spent enough time to “materially participate,” as a Mr. Graham from Arkansas learned yesterday in Tax Court.

The taxpayer wanted to convince Judge Nega that he met the tax law’s stiff tests to be a “real estate professional,” enabling him to deduct real estate rental losses.  If you are not a “professional,” these losses are automatically passive, and therefore deferred until there is passive income.  To be a real estate professional, the taxpayer has to both:

– Work at least 750 hours in real estate trades or businesses, and

– performs more than one-half of all personal services during the year in real property trades or businesses in which the taxpayer materially participates.

That’s a high bar to clear for a taxpayer with a day job.  Mr. Graham gave it a good try, providing a judge with spreadsheets to show that he did that work.  The judge remained unconvinced:

Mr. Graham did not keep a contemporaneous log or appointment calendar tracking his real estate services. His spreadsheets were created later, apparently in connection with the IRS audit. 

There were other problems:

Furthermore, the entries on the spreadsheets were improbable in that they were excessive, unusually duplicative, and counterfactual in some instances. As all petitioners’ rental properties were single-family homes, reporting 7 hours to install locks or 30 hours to place mulch on a single property (amongst other suspect entries) are overstatements at best. Performing maintenance for a tenant that did not pay rent for an entire year with no record of “past due rent” or any attempt to collect rent (as Mr. Graham would note on entries for other rental properties) seems dubious.

The judge ruled that the taxpayer failed to meet the tests.  Worse, the court upheld a 20% penalty: “We conclude that the exaggerated entries in petitioners’ spreadsheets negate their good faith in claiming deductions for rental real estate losses against their earned income.”

The Moral?  Maintain your time records now.  When the IRS comes calling, it’s too late.  And play it straight; the Tax Court didn’t just fall off the turnip truck.

Cite: Graham, T.C. Summ. Op. 2014-79. 

 

20130426-1Russ Fox, FBAR Filing Follies:

Joe Kristan reported last week that you cannot use Adobe Acrobat to file the FBAR; you must use Adobe Reader. In fact, if you have Adobe Acrobat installed on your computer and use Adobe Reader it won’t work either. Well, I have some mild good news about this.

Mild is right.

 

Peter Reilly, Robert Redford’s New York Tax Trouble Provides Lessons For Planners.  “You dodge non-resident state taxes, either on purpose or by accident, at the peril of missing out on a credit against the tax of your home state.”

Jason Dinesen, S-Corporation Compensation Revisited.  “But what should the salary be? And what if the year has ended and the W-2 deadlines have passed, but the corporate tax return still needs filed?”

Keith Fogg, Postponing Assessment and Collection of the IRC 6672 Liability (Procedurally Taxing).  Issues on the “trust fund” penalty imposed for not remitting withholding.

TaxGrrrl, Flipping Through History: Online Retailers Owe Popularity And Tax Treatment To Mail Order Catalogs:

Online shopping is again changing the way that we look at nexus but for now, more or less the same kinds of principles that ruled in the day of mail order catalogs are still good law. The law remains settled that in states that impose a sales tax, retailers that have established nexus must charge sales tax to customers in that state.

And just like in the old days, states want to extend their reach no matter how flimsy the nexus.

20140729-1Lyman Stone, New Upshot Tool Provides Historical Look at Migration (Tax Policy Blog):

Prominent changes in the data suggest that taxes may have a role in affecting migration, though certainly taxes are just one of many important variables, and probably not even the biggest factor. As always, talking about migration isn’t simple: migration data is challenging to measure and represent, and even more difficult to interpret.

I will be seeing Mr. Stone speak at the Iowa Association of Business and Industry Tax Committee this morning.  I’m geeking out already.

 

Jim Maule, “Give Us a Tax Break and We’ll Do Nice Things.” Not.  It seems the subsidized Yankees parking garages don’t stop with picking taxpayer pockets.

Kay Bell, Is it time for territorial taxation of businesses and individuals?  “Territorial taxation advocates hope that long local journey has at least now started.”

 

Howard Gleckman, Is Treasury About to Curb Tax Inversions on Its Own? (TaxVox).  If the law is whatever the current administration says it is, I look forward to the $20 million estate tax exclusion next time the GOP takes power.

Daniel Shaviro, The Obama Administration’s move towards greater unilateral executive action.  “And the conclusion might either be that one should tread a bit lightly after all, or that we are in big trouble whether one side unilaterally does so or not, given the accelerating breakdown of norms that, as Chait notes, are no less crucial than our express constitutional and legal structure to ‘secur[ing] our republic.'”

20130422-2The best and the brightest in action.  TIGTA: ObamaCare Medical Device Tax Is Raising 25% Less Revenue Than Expected, IRS Administration of Tax Is Rife With Errors (TaxProf)

 

TaxProf, The IRS Scandal, Day 468

 

News from the Profession.  AICPA Celebrates 400,000th Member Just Because (Caleb Newquist, Going Concern)

I can verify that a Kindle absorbs less coffee than paper.  Do readers absorb less from a Kindle than from paper? (Tyler Cowen)

 

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Tax Roundup, 7/25/2013: Mo’ refundable credits, mo’ fraud. Plus cigarettes and preschoolers!

Thursday, July 25th, 2013 by Joe Kristan

momoneyRefundable tax credits are a magnet fo’ mo’ fraud.  Five from Mo’ Money tax prep office in St. Louis arrested in scheme (St. Louis Post-Dispatch):

Mo’ Money franchise owner Jimi Clark, 57, of Memphis, Tenn., abused the American Opportunity Credit to attract and keep clients, prosecutors said. They filed for the credit on at least 47 returns where the taxpayer had not incurred any educational expenses, and unwisely, claimed the same amount of educational expenses, $3,765, on the “vast majority” of the returns, their indictment says.

In all, the 47 returns claimed more than $50,000 in educational credits.

Maybe 25% of the rundable Earned Income Tax Credit is paid improperly.  Yet legislators ignore how the credits actually work because they like them in theory.

 

Bankrupt state pays people to be friends. Illlinois governor to sign deal to lure fertilizer plant (Sioux City Journal)

Speaking of Bankrupt… Detroit Taxes and the Laffer Curve (Alex Tabarrok):

  • [The] per capita tax burden on City residents is the highest in Michigan. This tax burden is particularly severe because it is imposed on a population that has relatively low levels of per capita income.
  • The City’s income tax… is the highest in Michigan.
  • Detroit residents pay the highest total property tax rates (inclusive of property taxes paid to all overlapping jurisdictions; e.g., the City, the State, Wayne County) of those paid by residents of Michigan cities having a population over 50,000.
  • Detroit is the only city in Michigan that levies an excise tax on utility users (at a rate of 5%).

Sometimes you can’t solve the problem with more taxes.

 

Robert D. Flach, DEDUCTING CAPITAL LOSSES

Tony Nitti, Q&A: How Can An Accrual Basis Business Defer Revenue When It Receives Cash In Advance?

Phil Hodgen, Nonfilers–voluntary disclosure is not your only choice:

But my opinion is that the official program is fabulous for someone who is in deep trouble and might otherwise face a spot of prison time.  For that person, the “Your money or your life!” demand from the IRS is easy to answer.  Give ‘em your money. 

For almost everyone else, the voluntary disclosure program is stupidly expensive–in tax cost, penalties, interest, and professional fees to give the government all of the paperwork they want.

You gotta shoot the jaywalkers so you can slap the real crooks on the wrist.

Peter Reilly, Not Good For Real Estate Loss When Tax Court Judge Says Purports

Fiduciary Income Tax Blog, Trials and Tribulations of Nongrantor Trusts

 

 

Cara Griffith, Improving Transparency in Pennsylvania (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 77

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

Tax Justice Blog, CTJ Presents the Nuts & Bolts of Corporate Tax Reform

Linda Beale, Senators promised 50 years of secrecy on their tax reform proposals

Daniel Shaviro, What is a “tax expenditure” and when does this matter?

 

TaxGrrrl,  Louisiana To Offer ‘Fresh Start’ Tax Amnesty Program.  I’m sure this time they really mean this is the last one.

Missouri Tax Guy, The Enrolled Agent, EA

Jack Townsend, Fourth Circuit Holds Defendant to His Tax Loss Stipulated in the Plea Agreement

Kay Bell, Summer 2013 sales tax holidays begin this weekend

William Perez, Sales Tax Holidays in 2013

                                                              

Quotable: (my emphasis)

The manufacturing innovation institute, meanwhile, is just another iteration of an idea that’s been around for longer than Barack Obama has. Go to any Rust Belt city and you’ll find research campuses, innovation institutes and similar institutions named after hopeful politicians who promised that a new manufacturing base would coalesce around this exciting agglomeration of creative minds. Unfortunately, in most instances it has turned out that manufacturing bases would rather coalesce around cheap land, low taxes and acres of uncongested freeway.

-Megan McArdle, “Obama’s Speech Is a Confession of Impotence

 

I think one judge will think otherwise. Three South Dakota men say income taxes don’t apply to them (Argus-Leader.com)

Tax Court Judge Holmes has a new opinion out.  Always entertaining and enlightening.

News you can use:  No Such Thing as Free Swag (Austin John, Elizabeth Malm, Tax Policy Blog).  Sorry, ESPY winners.

More harebrained than what they do anyway? U.S. Senators with Harebrained Tax Reform Ideas Offered an Opportunity (Going Concern)

Maybe not where you grew up. Cigarettes and Preschoolers Don’t Go Together (Scott Drenkard, Noah Glyn, Tax Policy Blog)

 

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Tax Roundup, 5/3/2013: Return of the Glaciers edition.

Friday, May 3rd, 2013 by Joe Kristan

Tax Update World Headquarters is just a few hundred yards north of the Raccoon River, where the last glacial advance ended about 14,000 years ago.

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Downtown Des Moines, Locust St., this morning.

 Today’s weather makes me wonder whether mastodons eat tulips.

 

TaxProf,  Small Business Owners Sue IRS Over ObamaCare.  I don’t think you can stop a train wreck with a lawsuit.

 

Looking for wounded jaywalkers.  Blogger and tax defense attorney Jack Townsend is looking for “Readers of this Blog Willing to Share Their Personal Experiences in the OVDP/I Programs“:

A reporter for a nationally prominent publication has contacted me to help him get in touch with people who have gone through one of the OVDI/P programs to discuss their experiences and thoughts about the programs.  If you are interested and/or willing to do that, please contact me at jack@tjtaxlaw.com and I will put you in touch with the reporter.

So maybe it’s a chance for those of you who’ve been put through the ringer for a foot-fault violation to get a little justice.

 

Janet Novack,  Pritzker Family Baggage: Tax Saving Offshore Trusts.   My theory is that many of wealthy people who favor higher taxes assume they’ll never have to pay them anyway.

Howard Gleckman,  A New Way to Address the International Tax Mess (TaxVox)

 

Peter Reilly,  IRS Troops Will Take To The Street On Seventh Day In May .  I’m guessing that Peter is referring to the 1960’s  “Seven Days in May,” about an attempted military coup in the U.S.  I’m not sure whether the National Treasury Employee’s Union, which will “take to the streets,” can pull off a coup, seeing that they pretty much run things already.

 

Nick Kasprak,  Weekly Map: Inheritance and Estate Tax Rates and Exemption (Tax Policy Blog)

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The opposite of a sales tax holiday:  Retailer Target Jumps The Gun On Sales Tax (TaxGrrrl). A South Carolina Target store probably made few friends when it started charging a higher sales tax rate a month early.

Patrick Temple-West,  State Republicans divided on tax cuts, and more (Going Concern).

Christopher Bergin, Taxes Don’t Matter Until, Well, They Matter  (Tax.com):

 

Roger McEowen, Trusts, S Corporations, The Material Participation Test and the  Medicare Passive Income Surtax

Good news!  Are you a likely tax audit target? Sequester just might save you(Kay Bell).

Paul Neiffer:  Full Season vs. Early Season Corn

Jim Maule,  A Slight Improvement in the Code Length Articulation Problem.  No, the Internal Revenue Code is not 77,000 pages.  It’s no less a monstrosity for that.

Daniel Shaviro,  Tax policy colloquium, week 13: Itai Grinberg’s “Emerging Countries and the Taxation of Offshore Accounts”

Friday Buzz from Robert D. Flach

Me:The REIT way to reduce taxes?  My new post at IowaBiz.com, The Des Moines Business Record group blog for entrepreneurs.

Going Concern,  AICPA Attempts to Tie Expired Payroll Tax Cut to Normal American Behavior.

Are you irritable? Sleeping less? Impatient with your friends? Putting on weight? Thinking about divorce? Yes? Sorry to hear, you must be going through a stressful time.

Oh, wait, are you an American? Yes?! Whew, you’re behaving normally then. If you were to read this AICPA press release, you might be inclined to believe that your take home pay being 2% lower than last year would have been the cause of all those things…

What are these “friends” of which you speak?

 

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Tax Roundup, 4/24/2013: Maxed Out. And: Internet sales tax vote looms.

Wednesday, April 24th, 2013 by Joe Kristan
Max Baucus

Max Baucus

Depart, I say; and let us have done with you. In the name of God, go!  Chief Senate taxwriter Max Baucus won’t run for re-election.  (Dealbook, via Going Concern).

Sen. Baucus has been either chairman or minority leader of the Senate Finance Committee for decades, and along with his partner in crime, Sen. Grassley, he bears great responsibility for the nightmare the tax law has become, including Section 409A, the Net Investment Income Tax, The First Time Homebuyer credit, Section 199… Good-bye, before you wreck any more trains.

Related:

Linda Beale, Baucus Will Not Run in 2014  (yay!)

Kay Bell,  Senate Finance Committee chairman’s coming retirement could shape tax reform

 

Congratulations to Paul Caron, proprietor of the TaxProf Blog, on his move from Cincinnati to Pepperdine in Southern California.

 

Kyle Pomerleau,  No Surprise: The Overly Complex EITC is Plagued with Billions of Dollars in Improper Payments (Tax Policy Blog)

Patrick Temple-West, Obama budget taxes more Americans, and more

Tony Nitti, Quantifying The Recent Tax Increases: What Is A Wealthy Taxpayer’s “Fair Share?”  As far as some people are concerned, it’s always more than they are paying.

 

Daniel Shaviro,  Senate vote on the “Marketplace Fairness Act”

Howard Gleckman,  Five Things You Should Know About the Online Sales Tax Bill (TaxVox).  He thinks it’s just lovely.

Joseph Henchman,  Senate Voting This Week on Expanding State Authority to Collect Internet Sales Taxes (Tax Policy Blog)

Clint Stretch,  Getting It Wrong: Energy Tax Policy (Tax.com):

Winston Churchill said that Americans can be counted on to do the right thing, after we have exhausted all other possibilities.  He might have added that we usually start with the least direct and most complex approach.  So it is with the energy tax policy expressed in President Obama’s FY 2014 budget.

I like this sentence: “By their nature, tax credits add complexity to the law and often reward behavior that would occur even without the credits.”

 

Robert D. Flach asks, DIRECT DEPOSIT – IS THERE A PROBLEM?

So far two clients have contacted me to report an issue – one with a 2011 refund andone with a 2012 refund.  In both cases the refund was not directly deposited to the requested account.  Instead it was applied to the subsequent year’s estimated tax.  It was as if the taxpayer, or I, had entered the full amount of the refund on Line 75, although we clearly did not.

This isn’t a problem I have seen.  Robert famously doesn’t e-file his returns.   I wonder if it’s a simple keypunch error at the service center.

Jason Dinesen,  In a Same-Sex Marriage? Watch Your Federal Tax Withholding

Jim Maule, Putting It in Writing Makes Good Tax Sense.  If you use the right words, of course.

Peter Reilly, How To Shatter The Public Accounting Glass Ceiling ?  Sometimes I think it’s that women see the hours and stress involved and wisely say “screw this.”

 

TaxGrrrl, Ready Or Not: Lauryn Hill Sentencing For Tax Evasion Postponed

Tax Trials,  Tax Court: Second FPAA Invalid, Cannot Confer Jurisdiction

Robert D. Flach is buzzing again!

 

I love my hometown: Elvis impersonator engages police in 30-hour standoff in Des Moines (RawStory.com, via The Beanwalker)

Stoned people should not throw glass bongs in houses.  Glass bong breaks two state windows (Jason Clayworth)

 

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Tax Roundup, 3/14/2013: Iowa house passes Alt Max Tax. Also: a jobs tax credit mulligan.

Thursday, March 14th, 2013 by Joe Kristan

 

20130117-1The Iowa House of Representatives approved an Alternative Maximum Tax yesterday.  It won’t get anywhere in the Iowa Senate.  But that’s probably not the point.

The 4.5% tax on AGI, with no credits and no deduction for federal income taxes, would be an alternative to the current multi-rate, high-loophole system.  Taxpayers could choose which way to file.

Of course, taxpayers would compute their taxes both ways and pay the lower amount — making it an Alternative Maximum Tax.  With the Alternative Minimum Tax, taxpayers compute their tax two ways and pay the higher amount.  It would add one more complication to an already complex system.  And, as I have noted, AGI is a flawed measure of taxable income.

The bill has just about no chance in the Iowa Senate, absent some incriminating photos of Democratic senators falling into Republican hands.  Bill opponents made dreary but predictable soak-the-rich arguments against the bill:

Democrats, however, criticized the bill for affecting just a fraction of Iowa taxpayers or for providing far more benefits to high-income earners.

Citing the Department of Revenue data, they noted about 5,000 income earners making more than $500,000 stand to save as much from the flat tax – around $90 million – as the 326,000 earners making less than $90,000 a year.

They aren’t saying that the lower earners don’t benefit.  They are just saying that the high earners benefit too much.  Of course, it means the high income earners pay a lot more tax than the lower earners right now.  It’s a silly argument — even sillier if you consider that state taxes are an awful tool for income redistribution.   My analysis indicates the bill would benefit most filers, not just the “rich.”

I don’t believe the Alt Max Tax was seriously intended to become law.  I think it was designed to try to keep the cause of income tax reform alive in a year that the Governor has no interest in it.  It may also be a trial balloon to see if a proposal that lacks federal tax deductibility would draw fatal fire from the powerful lobbying group Iowans for Tax Relief.  So far, no.  While the bill (formerly HF 3, now HF 478) is flawed, maybe it advances the debate.  Maybe next year, they’ll take up something like The Quick and Dirty Iowa Tax Reform Plan.

 

IRS extends certification rule, making Work Opportunity Credits available for all of 2012.  Congress retroactively extended the Work Opportunity Credit to 2012 at the beginning of 2013.  Unfortunately, one of the qualifications for taking the credit is to certify that an employee qualifies for the credit within 28 days of hiring.  That made the credit useless for most of 2012.

The IRS has now given employers until April 29, 2013 to file the necessary paperwork with the local Job Service offices.  Notice 2013-14 has the details.  Accounting Today has more.

 

If they can’t keep their own in line, how well would they do at regulating preparers?  Jury convicts former IRS worker of tax fraud (philly.com)

 

Andrew Lundeen, Deficits Per Person Expected to Fall, Then Rise over Budget Window (Tax Policy Blog).  With charts:

20130314-4

 

Cara Griffith, Will Tax Free Shopping Be a Way of the Past in Oregon? (Tax.com)

TaxGrrrl, Ask the taxgirl: Paying For Kindergarten

Phil Hodgen,  Apartment security deposits and Form 8938.  Is a security deposit a foreign financial asset?

Jack Townsend,  Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance

Patrick Temple-West,  Senate Democrats propose new taxes, and more (Tax Break)

Paul Neiffer,  When Congress Says “Simplified” Watch Out!.  “WARNING – THIS IS MY LONGEST POST EVER”

Kay Bell, Cap tax deductions, says former Reagan economic adviser

Daniel Shaviro,  Corporate tax reform?

 

It was the profanity. One of them said “dam.”  Judge puts gag order on attorneys in Beavers case (Chicago Tribune)

Tony Nitti,  District Court Rules That TurboTax Can Continue Making Fun Of H&R Block In Its Commercials (Again)

Going Concern, A CPA’s Guide to a Successful Observance of St. Patrick’s DayI prefer to observe it from a safe distance.

 

When you are running a big criminal tax conspiracy, never hit “reply all”.  From Bloomberg News:

Everybody knows the danger of sending things inadvertently in an e-mail. Beda Singenberger’s case shows you also have to be pretty careful when you mail things the old-fashioned way.

Over an 11-year period, federal prosecutors charge, Swiss financial adviser Singenberger helped 60 people in the U.S. hide $184 million in secret offshore accounts bearing colorful names like Real Cool Investments Ltd. and Wanderlust Foundation.

Then, according to a prosecutor, Singenberger inadvertently mailed a list of his U.S. clients, including their names and incriminating details, which somehow wound up in the hands of federal authorities.

Via the TaxProf.

 

Corporate returns are due tomorrow.  That means you have to queue up your extension or balance due payments on EFTPS today!

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

Thursday, March 7th, 2013 by Joe Kristan

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

From an Iowa Chamber Alliance press release:

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

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

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

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

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

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

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

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

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

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

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

 

Poor legal move.  From Bloomberglaw.com:

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

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

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

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

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

 

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

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

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

Daniel Shaviro,  Skepticism about “fundamental tax reform”

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

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

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

William Perez,  Child Tax Credit for 2012

 

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

 

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

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

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

 

 

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

 

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Tax Roundup, 11/27/2012: Rocking Sheldon! And billionaires and millionaires

Tuesday, November 27th, 2012 by Joe Kristan

The Tax Update is in Sheldon, in the Northwest Iowa, helping out at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School today.

Some of the happy practitioners at today’s Farm and Urban Tax School in Sheldon, Iowa.

Two schools are left: Red Oak and Ames.  Register today!

 

How easy is it for rich folks to avoid higher rates?  Florida Senator and potential presidential candidate Marco Rubio said that tax rate increases would be largely futile.  From Huffington Post:

WASHINGTON — Sen. Marco Rubio (R-Fla.) said Thursday there isn’t much point in raising tax rates on the wealthy, because they also have the money to hire people who will help them get out of paying taxes.

“The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how not to pay those higher rates,” Rubio told National Journal’s Major Garrett at The Atlantic Washington Ideas Forum. “The people that are going to get stuck by that bill are the small businesses, the partnerships, the S corporations, that cannot hire the lawyers to get them out of it.”

Is it really possible for “billionaires and millionaires” to get out of taxes through the best efforts of their lawyers?  To some extent.  Greg Mankiw explains how Warren Buffett does it:

1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings.  So the return on this investment is entirely in the form of capital gains.  By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain.  His unrealized capital gains are untaxed.

3. He is giving away much of his wealth to charity.  He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

All of these are useful only to people who don’t need their cash right away.  If you want to use your cash, these aren’t very useful.  And many of these items are fraught with danger for taxpayers with less pull than Warren.  For example, a closely-held C corporation that pays no dividends runs the risk of being hit with the Accumulated Earnings Tax.  Many other tax-sheltering opportunities have been shut down through various crackdowns on tax shelters over the years, like the passive loss rules.

The real futility of taxing the rich is that it does so little to address the government’s insolvency.  Letting the tax cuts for “the rich” expire only covers about $80 billion of the $1,200 billion annual budget deficit.  The big attempt to tax “the rich” is just a distraction; the rich guy isn’t buying.

 

Tax Prof Poll: Taxes and the Fiscal Cliff (TaxProf)

Joseph Henchman,   Chambliss, Others Distance Themselves from ATR Tax Pledge (Tax Policy Blog)

Patrick Temple-West,  Consensus on increasing tax revenue, a wide gulf on how to do it, and more (Tax Break)

Daniel Shaviro, Broadening the base versus raising the rate

 

I vote yes:  Can We Kill the Death Master File? (Russ Fox). The publication of dead folk’s Social Security numbers is a boon for identity thieves.

TaxGrrrl,  Tax Breaks For Medical Expenses Under ObamaCare.  Hint: they are fewer and smaller.

Paul Neiffer,  2012 May Be Last Year for Section 179 Flexibility.  “What many farmers do not know about is the ability to go back and amend their tax return to change their Section 179 deduction.”

Trish McIntire,  Document Your Holiday Giving.  If you give over $250, no receipt=no deduction.

William Perez,  Tax Tips for Charitable Giving During the Holidays

Anthony Nitti,  Could Tax Savings Expedite Free Agent Baseball Signings?

Jack Townsend,  Swiss Bank Pictet & Cie On DOJ Tax Radar Screen

Robert D. Flach didn’t let Thanksgiving weekend stop his Buzz!

Howard Gleckman, How Can 98 Percent of Us be Middle-Class? (TaxVox)

Angus Young (Wikipedia image)

Kay Bell, More Cyber Monday shoppers this year are paying state sales taxes

News you can use:  Tax Dodger Alert: Your Friend in the Senate (Robert Goulder, Tax.com)

Jeremy Scott,  Why the Finance Committee Needs Angus King. (Tax.com)  I prefer Angus Young.

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Tax Roundup, 11/15/2012: Austerity: I don’t think that word means what you think that means. Also: Harleys!

Thursday, November 15th, 2012 by Joe Kristan

Scott Hodge, President’s $1.6 Trillion Tax Bid Lowers GDP, Wages, Living Standards (Tax Policy Blog):

According to this morning’s Washington Post, President Obama’s opening tax offer in his negotiations with Congress over the Fiscal Cliff is the $1.6 trillion in new taxes that were the centerpiece of his FY 2013 budget. Recently, Tax Foundation economists used our Tax and Macroeconomic Model to simulate the long-term economic impact of the President’s proposals – specifically, his proposals to increase taxes on high-income taxpayers [full report here].

In short, the model results indicate that the President’s plan would not only lower GDP and capital formation, but it would reduce after-tax incomes for every household – not just families hit by the higher taxes.  

No, we’ll just sink the rich guy’s end of the boat!

 

Linda Beale,   Calling all Americans: we face an “austerity crisis” not a fiscal “cliff”; we need a piecemeal solution, not a “grand bargain”.  Austerity?  Really?

Source: Heritage Foundation

If that’s austerity, I’d hate to see what free spending looks like.

 

We’ll never know, will weWould Mitt Romney Have Wanted to Raise Taxes Too? (Ed Krayewski, Reason.com)

Going Concern,   The Fiscal Cliff: As a CPA, People Expect You to Know this Crap

Anthony Nitti,  More On The Fiscal Cliff.

Patrick Temple-West,   Essential reading: Senate Finance chair sees flexibility on Bush tax cuts, and more (Tax Break)

Paul Neiffer,   No AMT Extender May Prevent Farmers From Filing on March 1

Daniel Shaviro,   Obama’s reply to the Republicans on closing income tax “loopholes”

Andrew Mitchel,   I.R.S. Rules that Mexican Fideicomiso is Not a Trust.

This ruling has broad implications for many taxpayers owning real estate in Mexico.  Taxpayers for years have had questions about whether Mexican fideicomisos are trusts.  Some if these taxpayers may have even entered into voluntary disclosure programs and paid significant penalties over the fear that they may be subject to various penalties.  However, if a Mexican fideicomiso is not a trust, then it is not a foreign trust, and no Form 3520 or Form 3520-A would be required to be filed.

Of course, private letter rulings are directed only to the taxpayer requesting it and they may not be used or cited as precedent. However, Rev. Rul. 92-105 is a ruling on which taxpayers can rely and can cite as precedent.  Because there can be huge penalties for failing to file Forms 3520 and 3520-A and because the terms of each fideicomiso will vary, taxpayers should be cautious in determining whether they need to file Forms 3520 and 3520-A for Mexican fideicomisos.   

Let’s hope the IRS provides more guidance so we can know what needs to be filed.

 

When “thank you” doesn’t cut it:

When a charity receives a gift, it needs to say more than a simple thank you.

The Internal Revenue Service requires that a donor produce a record from the charity to show a gift over $250 had no strings attached. A thank you note can be a good enough record, as long as it includes the magic words: “No goods or services were received in exchange for the contribution.”

Without the magic words, you get no deduction, even with a cancelled check.  Arden Dale explains in the Wall Street Journal (Via Tax Break)

 

Robert D. Flach,  LOCK IN 2012 MEDICAL DEDUCTIONS.  “… did you know that beginning with tax year 2013 the AGI exclusion increases to 10% for taxpayers under age 65?”

Kay Bell,   Zero capital gains tax rate set to disappear on Jan. 1, 2013

Russ Fox,  FTB Appeals Gillette Decision.  This is a big deal to any multistate business with California taxes.

TaxGrrrl,  Janeane Garofalo Finds Out She’s Been Married… For 20 Years.  Tax hilarity ensues.

 

IRS, vintage Harley Dealer. The IRS will be auctioning a bunch of antique motorcycles in Elkmont, Alabama on December 1, including this “1946 Flathead”:

 

Details here.

 

Isn’t it immoral to send money to the tax man that should be going to the shareholders?  United Kingdom M.P., Margaret Hodge, has an odd moral code.  She thinks that it is immoral to — I don’t know?  Not leave a tip after you compute your tax bill?   She thinks that Starbucks should give the State more of their cash. From Rachel Moran at Reason.com:

In the past three years Starbucks has paid no corporation tax in the UK. Amazon has paid £1.8m, despite bringing a total revenue of £200m in the UK in 2011. Starbucks global chief financial officer Troy Alstead insists the company remains “an extremely high tax payer globally” but, as UK profits have been far from substantial, claims, “respectfully, I can assure you there is no tax avoidance here.” Similarly, Matt Brittin, the head of Google’s northern European operation, defends the company’s practices. “Like any company you play by the rules [and] manage costs efficiently to offer fair value to share holders.”

Google‘s Brittin told the committee that “we comply with the law in the U.K.” and “it would be very hard for us to pay more tax here based on the way we are required to structure by the system.” ABC News reports that Hodge responded by saying that the committee was “not accusing you of being illegal, we are accusing you of being immoral.”

If we are going to start talking about morality, let’s start with the morality of forcing people to hand over their money to politicians so they can buy votes with it.  If I ever have an IRS exam where the agent offers no change to the return but says I’m a bad person, my client won’t be too upset.

 

Not just any Tom, Dick or Terry.  “In a story Nov. 14 about a wind energy tax credit, The Associated Press misidentified Iowa’s governor. He is Terry Branstad, not Tom Branstad.”  (Associated Press story).

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