Posts Tagged ‘Daniel Shaviro’

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:

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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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Tax Roundup, 11/8/2012: Denison Day! And some things to look forward to.

Thursday, November 8th, 2012 by Joe Kristan

The Tax Update is on the road in beautiful Denison, Iowa, birthplace of Donna Reed!

 

I’m speaking at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School.  There’s still time to register for the remaining five sessions!

 

“‘There are a lot of sales right now,’ explains Steve Bruere, president of Peoples Co. in West Des Moines.”  From IowaFarmerToday.com:

“I see a drop off (in the number of sales) after the first of the year.”’s one logical response to the looming increase in capital gain rates. 

With potential sellers concerned they may have to pay a 20 percent capital gains tax rate instead of 15 percent, and with many of them questioning what other tax changes may be coming, there has been a push to sell now.

The logic says if you were seriously considering a land sale, you would make sure it happened before the end of the year, Bruere says.

Actually, the rate will probably be 23.8%, including the new Obamacare tax on investment income.

More to look forward to:  “The IRS Small Business/Self-Employed Division plans to increase its audit activity for passthrough entities beginning in 2014, SB/SE Commissioner Faris Fink said November 7,”  reports Tax Analysts ($link).  But if you operate a C corporation, don’t be smug:

SB/SE is planning a one-year National Research Program project to study areas of noncompliance. Under the project, the division will examine 2,500 returns from corporations with assets of less than $250,000, Fink said.

Something to look forward to, like a colonoscopy appointment.

 

The Election is over. Now what?

TaxProf, Boehner Would Accept ‘New Revenue’ Under ’Right Conditions’

Going Concern, Hold the Phone, John Boehner Didn’t Say Anything About Taxes Going Up

 Martin Sullivan,   Wanna-Be Tax Reformers Need a Dose of Reality (Tax.com)

Daniel Shaviro,  Boehner on the possible terms for a fiscal cliff deal

Kay Bell,  Investors sell stock ahead of fiscal cliff, plus locking in 15 percent capital gains

Patrick Temple-West,  How far can Obama push on key issues including tax increases, and more

Anthony  Nitti,  With The Election Over, We Can Finally Do Some Meaningful Tax Planning. Six Year-End Steps To Consider.  #6 is bold planning indeed.

 

In other news… 

Robert D. Flach,  DEDUCTING SANDY

William Perez,  New Jersey Tax Relief for Hurricane Sandy

Linda Beale,  Tax Relief for Victims of Sandy

Richard Morrison,   Chart of the Day: Can Taxing Millionaires Eliminate the Deficit?  (No).

Brian Strahle,  How Virginia Based Companies Can Reduce Their State Income Tax Liability

TaxGrrrl, IRS Commissioner Says Public Goodbye After Election 2012

Jack Townsend,  Commissioner’s Swan Song – Excerpts on Offshore Bank Initiatives

 

Tomorrow is Doug Shulman’s last day as IRS Commissioner.  So how is the fight against tax refund fraud going?

Tampa Police Chief Jane Castor went public with her irritation at the slow pace of the investigation into a piece of the tax fraud scourge spreading among street criminals. Authorities say hundreds of millions of dollars in bogus income tax returns have been processed from the Tampa area alone.

“We have an individual that we know did in the ballpark of $9 million in tax fraud,” Castor said in February. “He was arrested and charged in September. And there’s no reason for us to believe that he’s slowed down at all.”

In March, Tampa Police Detective Sal Augeri testified before a U.S. Senate subcommittee in Washington about tax refund fraud and described the Simmons case without naming him.

“We have no reason to believe he has stopped committing this crime,” Augeri said then.

Russell B. Simmons, the man referred to above, pleaded guilty this week to tax fraud. He has to give up ill-gotten goods, including “… a $60,000 Bentley coupe and diamond jewelry that included a $30,000, 18-karat gold Rolex watch with a diamond dial; a 14-karat gold men’s bracelet with 2,420 diamonds; a 14-karat chain and “RS” pendant with 703 diamonds; and a 14-karat ring with 110 diamonds.

Every day the IRS let the identity thief continue to operate, he created new little nightmares, like those experienced by Jason Dinesen’s client, for the innocent taxpayers whose identities he stole.  Meanwhile, Commissioner Shulman was focusing IRS resources on creating a big, expensive and futile preparer regulation bureaucracy.  A man has to have priorities, after all.

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Tax Roundup, 11/1/2012: IRS walks away from defined-value fight.

Thursday, November 1st, 2012 by Joe Kristan

IRS withdraws appeal of non-charitable defined value gift case.  The IRS hates “defined value” charitable gifts of property.  These gifts specify that a donee will receive a certain amount of property; if the IRS successfully challenges the gifts, the donor agrees to give more property to make up the difference, so the charitable deduction stays the same and the IRS gets nothing for its efforts.  This result has been upheld in three different circuits.

But what if you have a non-charitable donee?  Then you would want to make the donee pay back part of the gift if the IRS challenges the value to avoid an increased gift tax.  The Tax Court upheld the concept in the Wandry case.  Now the IRS has withdrawn its appeal, reports Tax Analysts ($link).  Does this mean you can use a defined-value clause to limit gift tax exposure safely?  The article says it may be premature to think so:

“Practitioners will not be comfortable with the Wandry clause until at least two circuits have approved it, or at least one circuit and the full Tax Court,” said estate planning consultant Howard M. Zaritsky. “I feel that a Petter-style defined value clause, with a charitable residuary gift, is very safe, after the Tax Court and three circuits have approved it. I simply do not have that same degree of comfort about Wandry,” he said.

Stay tuned.

Related:  IRS loses another ‘defined value’ gifting case

 

Who says you can’t make money in your vacation home in the off-season?  A North Carolina couple found a lucrative use for their cottage while the neighbors were away.  From the Asheville Citizen-Times:

A Western North Carolina couple pleaded guilty to an elaborate scheme in which they filed some 1,000 false tax returns, bilking the government out of more than $3.5 million.

 Senita Birt Dill and Ronald Jeremy Knowles used tax preparation software programs and fraudulently obtained personal identification information to obtain refunds, according to a criminal complaint.

They rented a home on a lake surrounded by vacation homes in Polk County and used neighboring addresses on the fraudulent tax returns, then surreptitiously collected government checks from mailboxes.

Sure, we’ll pick up your mail while you’re away!  There must have been a flaw in their cunning plan, as both face potentially long prison terms for tax fraud and identity theft.

 

Just another hard-working public servant.  If you ever think a municipal income tax would be a great idea, this story from the Washington Examiner might give you pause:

An employee at the District’s Office of Tax and Revenue pleaded guilty Wednesday to filing more than a thousand fraudulent tax returns that netted more than $4 million in unwarranted refunds from D.C. and the federal government.

Kimberle Y. Davis, a “control technician” at the OTR, pleaded guilty to conspiracy to defraud the government and first-degree theft through her part-time job at a District-based tax service. She’s at least the third employee in Chief Financial Officer Natwar Gandhi’s 12-year tenure to be caught stealing, prompting Mayor Vincent Gray to press Gandhi for plans to overhaul the tax office.

It is apparently against the rules at OTR to have a tax-prep job.  I can’t imagine why…

Sacrebleu — More French Taxes.  David Brunori notes that the barbarians have crashed the gates in Paris:

 It is bad enough that the French have a 75 percent top marginal tax rate. Now the Socialists in power want to raise the tax on beer.

Because beer is apparently a big problem in France?

 

Brutal Assault on Reason Watch: 

TaxProf, Fleischer: The Winners and Losers Under Romney’s Tax Plan

 

TaxGrrrl,  Helping Out After Hurricane Sandy

Daniel Shaviro,  Post-storm update.  He lives in Manhattan and remains without power.

Trish McIntire,  Sandy Adjustments

Andrew Mitchel,  Expatriates for the Third Quarter of 2012

Robert D. Flach,  A YEAR-END TAX PLANNING RERUN – AVOIDING AN UNDERPAYMENT PENALTY

Kay Bell,  Happy Halloween tax breaks!

RIP: Remembering the DECEASED Iowa Pumpkin Tax (Joseph Henchman, Tax Policy Blog)

Going Concern, Dumb: Iowa Once Tried to Implement a Pumpkin Tax

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Tax Roundup, 10/25/2012: Extra services at the post office. And there’s no such thing as a free sandwich.

Thursday, October 25th, 2012 by Joe Kristan

Opportunities with the postal service.  A mail carrier in Alabama has been accused of picking up more than letters on his route.  A Department of Justice press release says Mr. Harrison, a postman, served as a courier for a tax refund ID-theft ring:

Members of the conspiracy filed false tax returns using stolen identities from various locations including the Northern District of Alabama. The fraudulent tax refunds were directed to debit cards that were mailed to addresses on Harrison’s postal route in Montgomery, Ala. Harrison retrieved the debit cards from the mail and, for a fee, provided them to a co-conspirator.

The moral?  When it absolutely, positively needs to get there, be the top bidder for your mailman.

 

Richard Morrison,  Chart of the Day: The Demographics of Income Inequality (Tax Policy Blog):

Russ Fox,  Nevada Business Tax Initiative Ruled Invalid

My new post at IowaBiz.com:   Payroll taxes: Once is enough

Keep firing.  Hollywood tax incentives come under fire (NBCnews.com)

Patrick Temple-West, Essential reading: For some of the wealthy, a 0 percent tax on capital gains, and more (Tax Break)

Trish McIntire,  Basics of Retirement Tax Planning

 

Brutal Assault on Reason Watch: 

Anthony Nitti,  President Obama Releases Agenda For A Potential Second Term: Dissecting the Tax Aspects

Kay Bell,  We think Congress is doing a better job.  Since they went home, coincidentally.

Daniel Shaviro,  Paul Krugman on the worst case scenario if Romney wins

Linda Beale,  Tax Questions about the Romney-Ryan Ticket–from Romney’s Tax Returns to Ryan’s Vouchercare

 

Attention is great, but links are better.  Amy Hamilton at Tax Analysts quotes my post from yesterday extensively ($link)

 The governor is suggesting “a new tax plan that would exist side-by-side with Iowa’s current complex and loophole-ridden mess,” Kristan said, adding that the plan would require taxpayers to compute their taxes under each system and file whichever return produced the lowest tax.

Thanks!  But two quibbles.  First – no link?  I link to you, you link to me — manners!  Second, you didn’t even mention The Quick and Dirty Iowa Tax Reform plan in a discussion of Iowa Tax Reform.   Isn’t that like talking about the World Series without mentioning the Giants?

 

Expensive free sandwiches.  From Going Concern:

A St. Louis accountant has allegedly been taking the cheap thing just a little too far by scamming unsuspecting restaurateurs in the area for free sandwiches. Yup, you read that right: free sandwiches.

They call him the Scamwich Artist and it seems he’s been making the rounds, complaining about getting bad food in exchange for gift cards and, well, more food.

The story quotes restaurant personnel as saying the accountant was caught red-handed, and the guy’s picture, taken by a restaurant manager with a smart phone, is now all over St. Louis and the Internet.  It will make for interesting conversation at his next client meeting.

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Tax Roundup, 10/17/2012: Zappers!

Wednesday, October 17th, 2012 by Joe Kristan

Flickr image courtsy rust.bucket under Creative Commons license

Zappers rampant?   A representative of a company that works with sales tax collectors says that the use of tax-evading “zapper” software is rampant, according to a Tax Analysts article ($link).  No, frying bugs doesn’t help avoid taxes.  The article describes zappers:

Zappers are sales-tax-skimming software often loaded onto memory sticks, CDs, and memory keys, or downloaded from the Internet. Virtually undetectable, the devices are used to eliminate whole transactions or parts of transactions from cash registers and in turn reduce the amount of sales tax known to be owed.

Zappers have received a lot of attention in Canada, where Quebec revenuers required a technical fix, described by CGI representative Bryce Berg as an “ultra-secure” microcomputer that plugs into cash registers:

 Quebec required each of its 18,000 restaurants to install the modules in their 30,000 cash registers, Berg said, adding that in the first year the province saw an additional $160 million in revenue from voluntary sales tax compliance.

It would be surprising if sales tax chiselers in the U.S. were any less creative than those in Canada.

Related: ZAPPED!

 

More refunds for Des Moines?  The City of Des Moines, already reeling from a court order to refund $40 million of illegally-collected utility taxes, now may have to repay a $15 million federal grant used to build the Seventh Street Park-and-ride garage.

 

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Did The Debates Offer Enough ‘Hope and Change’ for the Obama/Biden Ticket?  She also live-blogged last night’s debate.

Linda Beale,  Romney shows he’s a “know-it-all” who has no real ideas at all

Daniel Shaviro, Cynicism and dishonesty in tax reform debate (although, perhaps, what else is new?)

 

Richard Morrison,   Chart of the Day: Millionaire Status is Fleeting  (Tax Policy Blog):


Paul Neiffer,   2013 Social Security Changes:

Remember that the Medicare surtax on earnings in excess of $200/$250,000 per year will apply beginning January 1, 2013.  Therefore, the Medicare tax on earnings in excess of those amounts will be 3.8% (split 50/50 between employee and employer).

Janet Novack,  Social Security Benefits To Rise 1.7%; Workers Face Up To $2425 Payroll Tax Hike

 

TaxProf,  WSJ: Taxpayers Will Lose Twice if Bankruptcy Court Allows Solyndra Insiders to Harvest $975m of NOLs

Kay Bell,   Will popular but costly tax breaks end?

Jason Dinesen,  Would a Name Change Help Enrolled Agents? Part 3

And yes, EAs ourselves bear some responsibility. We need to be less crabby and resentful of CPAs and embrace the uniqueness of our designation.

When I give presentations, I always include a slide at the beginning where I talk about my designation. One of the bullet points on the slide says, in bold words: “I don’t work for the IRS!” This helps break the ice and often draws chuckles from the audience.

Jason never seems crabby.  Robert D. Flach, maybe, but he’s not an enrolled agent.

None of that sounds good.  Do you have any specials today?   Which Do You Prefer: Income Tax, Earned Income Tax, Sales Tax, Property Tax? (Jim Maule)

It’s Wednesday,  so Robert D. Flach is Buzzing!

Tax trouble for Russ Fox!  No, not the tax one.  The fish and chips one.

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Tax Roundup, 10/11/12: Don’t let the door hit you edition.

Thursday, October 11th, 2012 by Joe Kristan

Hey, everybody, those extended 1040s are due Monday!  

Doug Shulman shows how much he cares.

Doug Shulman steps down November 9.   (TaxProf). Meanwhile, his legacy lives on:

Federal authorities Wednesday stepped up their assault on the viral-like crime of identity theft and tax fraud, arresting dozens of South Florida suspects on charges of filing fake returns totaling millions of dollars.

  Three homes were raided Wednesday in an effort to crack down on rampant tax fraud in the Tampa Bay area.

Under Commissioner Shulman’s watch, identity theft tax refund fraud has reached epidemic proportions.  The IRS mails perhaps $5 billion of your hard-earned tax dollars to thieves annually, while creating nightmares for taxpayers whose tax lives are disrupted and refunds held up.

Meanwhile, Commissioner Shulman has spent his time terrifying innocent Americans who have foot-faulted their obscure information reporting responsibilities and imposing a useless but expensive preparer regulation regime.  Way to go, Commissioner.

 

Attorney for West Des Moines payroll service says firm will catch up on unremitted client taxes (West Des Moines Patch)

No. If Europe Adds a Financial Transactions Tax, Will We Follow? (Linda Beale)

Martin Sullivan,  Don’t Count on Dynamic Scoring (Tax.com).  Meanwhile, William McBride, in How Far we are from the Enlightenment (Tax Policy Blog), doesn’t seem to fully agree with Mr. Sullivan.

Patrick Temple-West,  Essential reading: Romney pledges to keep tax deductions for mortgages, and more

Peter Reilly,  Three Candidates And Carried Interest:

I sometimes think that I am the only person who writes about taxes in a non-technical publication, really understands what “carried interest” is all about and does not find it particularly upsetting. 

I guess that makes the Tax Update a technical publication.  I don’t think carried interests — profits interests in partnerships — are bad things, and I think the proffered “cures” are.

Daniel Shaviro,  1986-style tax reform: a good idea whose time has passed

Anthony Nitti,  Tax Court: In Order to Take A Worthless Debt Deduction, the Debt Need Actually Be Worthless

Kay Bell,  5 tax-saving deductions & credits

Ain’t that the truth:  Return Still Not Done (Trish McIntire)

Paul Neiffer,  Is the True US Deficit $76 Trillion Instead of $16 Trillion

Need continuing education?  Registration is open for this year’s fall tax schools at the ISU Center for Agricultural Law and Taxation.  I’m on the Day 1 teaching schedule.  Yes, there’s farm stuff, but there’s plenty for us city folk too.

News you can use: If You Equate Long Hours with Hard Work Then You Aren’t “Committed” But You May Be a Dumbass (Going Concern)

 

This won’t work out well.  From Post-Gazette.com

Joseph E. Gump’s trial for evading taxes from 2003 through 2006 had been set to start Tuesday. But Mr. Gump told the court last week that he would plead guilty, prompting the judge to cancel a call for 50 prospective jurors.
Then Mr. Gump wrote to U.S. Judge Terrence F. McVerry’s staff saying that a guilty plea “would be a lie” and demanding a trial.
Why?
He said he understood that any prison sentence will likely be less if he pleads guilty, but said he did not believe he engaged in any evasion.

Mr. Gump was accused in a 2011 indictment of indicating “none” as his taxable income for four years during which he earned a total of $250,333 and owed a total of $49,370. He has argued in court filings that the income tax can only be legally levied on federal lands.

Good luck convincing a jury that files returns every April of that.
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Tax Roundup, 10/8/12: Ottumwa gets a Ponzi scheme. Also: Service, it’s in our name.

Monday, October 8th, 2012 by Joe Kristan

“Inheritance investment?” Are you serious?

Ottumwa man pleads guilty to tax charges in connection with Ponzi scheme.  Known to TV viewers of a certain age as the home of Radar O’Reilly, Ottumwa, Iowa now also has its own Ponzi scam.  CBSNews.com reports:

An Ottumwa, Iowa investment manager is likely heading to prison after pleading guilty to charges of wire fraud and tax evasion stemming from a $1.1 million Ponzi scheme.

John Francis Holtsinger pleaded guilty Friday during a hearing in federal court in Des Moines as part of a plea agreement with prosecutors.

The plea deal says that Mr. Holtsinger told people that he would invest their money, and he instead spent most of it.  On what?  Things that might be sold to recover funds for the investors?  The indictment doesn’t offer much hope for recovery (my emphasis):

Of the $493,000 in funds received from investors, only $155,000 was transferred to an investment account at Interactive Brokers.  The remainder was deposited into accounts controlled by Holtsinger and used by him to further his scheme and for his personal use including, but not limited to, legal expenses, cas withdrawals, payment of living expenses, trips, accessing web-based “dating” sites, and other purposes different than he represented to investors.

Interesting scare quotes around “dating.”  In any case, it’s not an investment likely to produce anything that his victims would want.

The indictment and plea deal together show that there were warnings to his investors.  He wasn’t a registered investment advisor, for starters.  And this from the indictment should have triggered BS detectors:

After conducting trades on behalf of investors for a short period of time, Holtsinger offered and sold investments to the investors in the form of promissory notes.  He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death.  The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.

The “high returns with no risk” fairy is the Tax Fairy’s evil twin sister.   When she shows up, it’s time to back away quickly from whoever brings her into the room.  Other red flags:

- When he couldn’t come up with cash, he came up with excuses, like “informing investors… that their funds had been frozen as a result of actions taken by state or federal authorities.”

- After learning he was being investigated, “…he attempted to convince investors to lie to law enforcement and under oath regarding the purpose of the funds they had given to him.  The defendant instructed these individuals to describe their payments to him as ‘interest-free loans,’ when in reality they were investments.  The defendant also threatened that anyone who cooperated with law enforcement would not be repaid.”

Unfortunately, the not getting repaid part was already true.  The plea deal says that Mr. Holtsinger faces a four-to-seven year sentence.

 

Service: It’s in our name.  Victims of Identity Theft Get Little Help From IRS

Service: It’s in our name (II):  Report Fraud to the IRS? Watchdog Says IRS Flubs Over 100,000 Tips Annually (Robert W. Wood,Forbes).

They can take it, but they can’t dish it out.   Indiana Public Officials Indicted for Tax Fraud and Other Offenses  (FBI press release)

Andrew Mitchel, Form 1099 for Payments to Foreign Contractors for Services?

One question that often comes up is how a domestic U.S. business should treat payments to a foreign contractor for services performed outside the U.S.  Is a Form 1099 required?  Is withholding required?

As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required.

Jason Dinesen,  Connecting Strange Baseball Rules to Taxes   The infield fly rule is involved.

Martin Sullivan,  Ways and Means Chairman To Cut Corporate Interest?

Russ Fox,  Gillette Decision Upheld, But Beware.  Important news for taxpayers with California activity.

Kay Bell,  Pastors’ tax break for housing under renewed fire

TaxGrrrl,  WWJD*? Pulpit Freedom Sunday Likely to Bring Slams Against Obama, Romney

Anthony Nitti,  Crunching Numbers on a Hypothetical Cap on Deductions

William McBride,  More on How to pay for Romney’s Tax Cuts

Trish McIntire,  EFTPS Changes

Daniel Shaviro,  Follow-up on the financial transactions tax

Jim Maule,  Say One Tax-and-Spending Thing, Do Another

Robert D. Flach has a new Buzz tax roundup.

The Tax Update is so awesome, our comment trolls have Pulitzers.

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Tax Roundup, 9/27/2012: Misdirected charity edition. Also: No, Iowa, you don’t have a good tax climate.

Thursday, September 27th, 2012 by Joe Kristan

Peter Fisher

Is the Iowa tax system better for business than its 41st place ranking in the Tax Foundation’s 2012 Business Tax Climate Index would indicate?  Iowa City’s Peter Fisher says so in the Des Moines Register: Iowa View: Why ignore Iowa’s pro-business tax climate?

Complaints about Iowa’s business tax system are puzzling, because businesses get a really good deal here.

First, as the Iowa Fiscal Partnership has shown, Iowa’s overall state and local taxes on business are lower than average. Only nine states take a smaller share of private-sector output in corporate income taxes.

So Iowa’s tax system is good because it’s ineffective.  Noted.  Later Mr. Fisher unwittingly gets to the real problem with Iowa corporate taxes.

We go through this every few years. Business lobbyists complain about Iowa’s corporate tax rates, but ignore the way they are applied. Iowa’s effective tax rate on businesses makes our state highly competitive with our neighbors. It’s Iowa’s great secret.

The problem with Iowa corporate taxes is that there are so many loopholes and special deals made for select companies. Many companies get away with paying no income tax and instead demand subsidy checks for many thousands and even millions of dollars.

With the highest corporation income tax rate in the nation — even after the 50% deduction for federal taxes that he points out — some businesses really get clobbered — particularly Iowa corporations selling primarily to Iowa customers.  The clobbered ones subsidize the ones that “get away with paying no income tax and instead demand subsidy checks for many thousands and even millions of dollars.”  That’s why the net corporate tax is a so small — the state only gets what’s left after it takes cash from the average taxpayer and transfers it to the well-connected ones with the “loopholes and special deals.”  It’s a textbook model of crony capitalism.

Mr. Fisher’s solution is not to alleviate the suffering, but to spread it around.  There is a better way.

 

When your employer doesn’t offer a “matching gifts” program, you aren’t allowed to start one by yourself.  SFGate.com reports on a man sentenced to five years in prison after stealing from his employer – and not putting the proceeds on his 1040:

U.S. District Judge Richard Young also ordered 54-year-old Richard E. Brown of Mount Vernon to pay a fine of $30,000 and nearly $190,000 in restitution and to serve three years supervised released after his prison term.

Prosecutors say Brown used his position as the office manager of Walker Investments in Evansville to pay his personal expenses with a company credit card and company checks to pay expenses of his church, Oak Hill Christian center in Evansville, where Brown was the bookkeeper.

He needs to re-read that “give unto Caesar” thing.

 

It’s better to give than to receive, but receiving can be lucrative.  From therepublic.com:

The founder of USA Harvest was charged Wednesday with failing to pay taxes on $553,891.67 from 2005 through 2008 — including funds prosecutors say he stole from the charity and personal expenses he billed to the organization.             

In a bill of information, 63-year-old Hugh “Stan” Curtis of Louisville is charged with taking $183,354 in donations from the charity and charging $370,537.67 in personal travel expenses. He faces charges of mail fraud, money laundering and filing false income tax returns.

The story says that the organization takes extra foods from restaurants and other food service providers and delivers it to the hungry.

The group’s efforts have drawn assistance from the Goo Goo Dolls, who used to pick up food in their concerts in benefit of the organization and actress Scarlett Johansson, whose photo is featured on the organization’s web site.

Yes, this picture.

 

 

Per Diem rates updated.  The IRS has updated the “Special Per Diem Rates” for away-from-home expenses for taxpayers in the transportation industry (Notice 2012-63).  Taxpayers can use these rates in lieu of substantiating actual away from home business meal and lodging costs.The notice also provides the new incidentals-only amount ($5 per day) and the rates for “high-cost localities” for taxpayers in all industries.  The Journal of Accountancy has more.  The GSA web site has the rates nationwide.

 

Joseph Henchman,   Taxpayer Wins Against Washington State Shakedown; State Appeals (Tax Policy Blog)

TaxGrrrl, More Bogus IRS Emails Hit Inboxes

Courtey A. Strutt Todd,  How will the Expiration of the Bush Tax Cuts Affect Me? (Davis Brown Tax Law Blog)

Leaving Louisiana.  A New Orleans preparer gets a 92-month sentence for filing 635 returns claiming inflated deductions and credits (theadvocate.com)

Tax Trials,  Tax Court: Gross Receipts Must Include Interest & Investment Income for Research Tax Credit Calculation

Trish McIntire,   Out of Pocket Charity Deduction

Brian Strahle,  Kentucky Tax Amnesty Program begins October 1, 2012!

Jason Dinesen,  IRS E-Services and the TIGTA Report

Daniel Shaviro,  More honest than usual, but still not making sense

Kay Bell,  ‘Obama didn’t raise taxes’ and other Romney comments freaking out the GOP

Anthony Nitti,  Coloradans May Soon Be Able to Get High Without Having To First Pretend They Have Cataracts

News you can use:  WASTING VALUABLE TIME IS APPARENTLY A JOB REQUIREMENT FOR BEING A MEMBER OF CONGRESS (Robert D. Flach)

The Critical Question: Do Swinging Singles Have Any Chance At Making Partner in Public Accounting? (Going Concern).

 

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Tax Roundup, 9/26/12: Romney vs. John Edwards; Also: low taxes, if you don’t count some taxes.

Wednesday, September 26th, 2012 by Joe Kristan

Not every S corporation is a “John Edwards” shelter.  The TaxProf highlights a New York Times piece by Colorado Tax Professor Victor Fleischer, who says that Mitt Romney may be using the “John Edwards Tax Shelter” to avoid Medicare taxes.

The “John Edwards shelter” got its name from the model husband and former Democratic vice-presidential nominee.  He ran his law practice in an S corporation, so much of his multi-million dollar income came to him on the K-1.  Unlike wage income or law partnership K-1 income, S corporation K-1 income is not subject to self-employment, Social Security or Medicare taxes.

Mr. Fleischer says:

Mr. Romney continues to receive cash payments from the companies that manage Bain Capital’s funds. A couple of weeks ago in this column, I described how private equity firms like Bain Capital convert management fees, which would normally generate ordinary income, into investments that yield capital gain.

R. Bradford Malt, the trustee who manages Mr. Romney’s Bain holdings, has stated that Mr. Romney did not participate in the fee conversion program. One might have logically inferred, then, that Mr. Romney’s share of the management fee income would be reported as wage income on Mr. Romney’s tax return.

Not so. Instead, the payments are reported on Schedule E of the return as distributions from S corporations — the largest being $1,961,325 from Bain Capital Inc. The distinction between wage income and an S corporation distribution is meaningless from a business standpoint, but it’s important for tax purposes.

Current law imposes a 2.9% Medicare tax on all wages and self-employment income. To avoid this tax, taxpayers have an incentive to characterize as much labor income as they can as investment income (like carried interest) or as a distribution from an S corporation.

Mr. Fleischer gets this badly wrong.  Wage income and S corporation income can be hugely different from a business standpoint.   For an obvious example, consider a second-generation family business S corporation — say, a farm.  One member of the second generation may continue the business, while the others may go do other things but remain owners.   As S corporation earnings must be allocated straight-up based on share ownership, the only way to compensate the sibling who runs the business is through additional salary.  The working sibling gets the only salary in the family, while all siblings get K-1 income.

While much is uncertain about how much S corporation income should go between K-1 income and W-2 income, it is certain that it usually isn’t all compensation when capital investments are involved.  To the extent that that Bain Capital Inc. owns passive interests in Bain Group investments, it certainly isn’t disguised wages.  As his termination deal largely involved receiving passive investment interests, it’s a stretch to say that this translates into an Edwards Shelter.

 Update: Victor Fleischer replies in the comments:

Hi Joe.  Thanks for the thoughtful post.  I’ve replied here: http://victorfleischer.com/archives/365

Bain Capital Inc. is the management company, and as far as I can tell receives nothing but fee income.  No passive investments, which are instead held by the GP.  You are right that I overstated the general point about S Corps, but in this particular case it’s hard to see how the S Corp income is related to passive investments or investment income of any kind.

 

Is Romney really paying the “lowest rate”?  From Joseph Thorndike at Tax Analysts (Subscriber link):

     So applying the Romney method to his actual returns, we get an average rate of 14.02 percent in 2010 and 2011. As many commentators have noted, that’s a lot lower than President Obama’s average effective tax rate of 26.45 percent during his presidency. (It’s also lower than the average rate Obama paid in the same two years covered by the Romney release: 23.4 percent.)

     But Romney’s rate isn’t low just by comparison with our current president. It’s also low compared with every president of the last 40 years.

That 14.02% rate is because of several factors.

  • Lots of dividend income, taxed at 15%.
  • Lots of capital gain deductions, taxed at 15%.
  • Huge itemized deductions for charitable gifts and state taxes.

Of course, this also ignores how dividends come from corporations, which pay their own 35% federal tax.  Capital gains are from the sale of corporate stock, which means accumulated and anticipated corporate earnings taxed at 35%.  Romney is only paying the second tax on that income.

Mr. Thorndike acts like Romney has done something shady:

If he wins his race for the White House — and continues to file tax returns that look like the ones released during the campaign — President Romney will have only Richard Nixon to keep him company at the bottom of the rate roster. Generally speaking, Nixon is not a happy point of comparison for presidents, and this is true for taxes as well as break-ins and cover-ups.

Joseph Thorndike, what is Romney supposed to do?  Dump his dividend paying investments and buy bonds so he only earns interest, taxable at the top rate?  Stop earning long-term capital gains?  Stop deducting his charitable contributions?  Oh, wait, he’s already done that.

 

Trish McIntire,  Shorting Deductions

Dear Client – I know what you’re thinking. Since Gov. Romney didn’t claim all his charitable deductions so that he could hit his target tax rate, you’re thinking about not taking all your business (farm) deductions so that you can manipulate your income tax. I’m sorry to break the news to you but you can’t do that. Business deductions are not the same as charitable deductions.

 

Daniel Shaviro,  Should Romney pay a lower tax rate than the rest of us?

Howard Gleckman,  Will Romney Scale Back Rate Cuts If Congress Won’t Curb Tax Breaks? (TaxVox)

TaxGrrrl,  The Most Tax Friendly Country In The World Is…. (Spoiler Alert: It’s Not the U.S.)

Paul Neiffer,  IRS Extends Drought Replacement Period for Ranchers

Joseph Henchman, D.C. Judge Rules Online Travel Companies Must Pay Hotel Tax on Their Services (Tax Policy Blog)

Jim Maule, Biting the Hand that Feeds the Tax Critic.

Peter Reilly weighs in on the Iowan who claimed to be a South Dakotan while sporting Iowa vanity plates:   State Residence For Income Tax – Pay Attention To The Basics

Martin Sullivan,  Capital Gains: The Missing Link toTax Reform?

Dan Meyer,  “Going Concern” Explanatory Does Not Always Mean that the Sky is Falling

Robert D. Flach has posted his Wednesday Buzz.

The Critical Question:  Who — Aside From the Rap Community — Doesn’t Pay Any Income Tax? (Anthony Nitti)

 

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Tax Roundup, 9/20/12: Minnetonkan voted off the island. Also: 6 million health insurance scofflaws.

Wednesday, September 19th, 2012 by Joe Kristan

Twin Cities hotel magnate gets 4 1/2 years accommodation.  From TCBmag.com:

Local real estate developer Jeffrey Wirth was sentenced Wednesday to four-and-a-half years in prison for tax evasion, Minnesota’s U.S. Attorney’s Office said.

In addition, U.S. District Judge Ann D. Montgomery ordered Wirth to pay $6.46 million in restitution to the U.S. Internal Revenue Service (IRS).

Wirth, owner and CEO of Brooklyn Center-based The Wirth Companies, is also the former owner of the Grand Hotel in downtown Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington—as well as nearly 30 other businesses, according the U.S. Attorney’s Office.

Mr. Wirth is known for his purchase of a $2 million island in Minnetonka, where he built a $3 million house that now sits derelict.  How did he get in such trouble?

They often recorded personal expenses as business expenses and claimed false “management fees” in an effort to “reduce the company’s overall taxable income to nearly zero,” the U.S. Attorney’s Office said. Wirth also admitted to understating his own salary to the IRS.

That didn’t go well at all.

Prior coverage here. In unrelated Minnesota news,  Prince Fails to Comply With Tax Summons (TaxGrrrl)

 

$.0113 billion down, 5.1887 billion to go.   Fourteen arrested in U.S. tax fraud, identity theft ring  (Reuters):

“The defendants in this case allegedly tried to steal $65 million using stolen identities to obtain refunds to which they were not entitled,” U.S. Attorney Paul Fishman said in a statement. They succeeded in getting $11.3 million in refunds.

The Treasury Inspector General for Tax Administration says identity theft refund fraud is a $5.2 billion annual problem.  At this rate, it’s going to take a long time to solve.

 

Thanks, Justice Roberts!  ObamaCare “Penalty Tax” Now Estimated to Hit 6 Million Mostly Low- and Middle-Income Americans (William McBride, Tax Policy Blog).

 

 

We didn’t mean to screw it up so badly. Senator Grassley says the wave of firings of low-level bank employees for ancient minor legal problems wasn’t what they had in mind.  From the Des Moines Register:

U.S. Sen. Chuck Grassley, R-Ia., said the way the new rules are being applied goes against legislative intent and undermines the federal government’s credibility with citizens. The low-level firings are even more problematic given the failure of the Obama administration to arrest even a single big bank executive for professional misconduct, he said.

“There’s a real disconnect between letting bank executives get away with malfeasance on the criminal front and regulations that lead to the firing of rank-and-file workers over minor infractions from decades ago that had nothing to do with bank fraud,” Grassley said.

That’s wonderful, Senator.  You guys wrote a stupid law, and now that it’s being enforced, you say you didn’t mean to do that.  It’s like if a logger tried his hand at surgery and things went predictably bad; “I didn’t mean to do that” wouldn’t cut it.  Yet you guys routinely take your legislative chainsaw to the economy, with horrific results like Dodd-Frank, and Section 409A.  Oh, you didn’t mean to do that.

 

Math is hard.   Harkin: The ‘47 percent’ pay higher tax rate than Romney.  True? False.

Nick Kasprak,  Some Nonpayers Do Pay Income Tax:

 

Robert D. Flach,  THE FAULT, DEAR READER, IS NOT IN OURSELVES, BUT IN OUR CONGRESS.  Of course, we elect them.

Matchmaker.  About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea (Howard Gleckman, TaxVox)

Dan Shaviro,  Don’t know much about history

 

Jack Townsend, DOJ Tax Budget Request:  Promo Piece with Some Statistics

Linda Beale,  Are lower taxes on “savings” good for the economy?  Heritage, CRS and the “Matthew Effect”

News you can use:  Facing exorbitant higher education costs? Your Uncle Sam might be able to help  (Kay Bell).  Of course our Uncle Sam is a big part of why the costs are so high in the first place.

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Tax Roundup, 9/10/2012: Walter Anderson fights on, fails on. Also: tax credit scams and tax returns as pornography.

Monday, September 10th, 2012 by Joe Kristan

“Biggest Evader” Walter Anderson loses appeal of adverse Tax Court ruling.  The persistence that Walter Anderson showed in building his tech fortune so far hasn’t helped him in his ongoing battle with the IRS.

Mr. Anderson pleaded guilty to evading taxes on investment income earned in overseas corporations for 1998 and 1999; as part of the plea deal, charges for 1995, 1996 and 1997 were dismissed.  The IRS also pursued collection of $184 million of taxes for those hyears, plus $138 million of civil fraud penalties.  Mr. Anderson resisted.  In a tactical maneuver, the IRS conceded the issues for 1995-97.  From the Third Circuit opinion:

In its motion, the IRS explained that nearly 80% of the total deficiency and penalties for the five-year period stemmed from just 1998 and 1999, and that because proving fraud for 1995 through 1997 via trial would needlessly complicate and lengthen the case for a comparatively limited additional monetary recovery, it preferred to abandon its efforts for those years.

The Tax Court didn’t formally dismiss the first three years taxes for some procedural reason, but said its final ruling would reflect the IRS concession.  But Mr. Anderson then said that the IRS concession for those three years also meant the IRS couldn’t pursue collection for the two years for which he pleaded guilty.   The Tax Court thought that was a bit much.

The Third Circuit appeals court upheld the Tax Court:

We hold that Anderson’s conviction for tax evasion in 1998 and 1999 precludes him, by virtue of the doctrine of collateral estoppel, from contesting in subsequent civil fraud proceedings that the income of G & A was taxable to him in those years. We additionally conclude that the IRS’s concession of all deficiency and penalty issues for the years 1995, 1996, and 1997 has no preclusive effect on those issues for 1998 and 1999. For these reasons, we will affirm the Tax Court’s judgment.

Mr. Anderson says his guilty plea was coerced by poor jail conditions while he was awaiting trial.  Unfortunately for him, the law makes it very hard to undo a guilty plea.  Once you plead guilty to evading taxes for a year, the rest is just ugly details.

Cite: Walter C. Anderson v. Commissioner, CA-33, No. 11-1704.  Jack Townsen has more.  Some background here.

 

Paul Neiffer,  Section 179 for 2013:

We have gotten a few emails in the last few weeks asking what the Section 179 deduction will be in 2013.  The current law is a limit of $25,000 for 2013.

However, both the President and Congress have discussed increasing the deduction up to $500,000 with a phase-out starting at $2 million…

My estimate is that Section 179 deduction for 2013 will increase, but who knows by how much and this is always subject to the whims of Congress and the President.

I agree that it will probably not be $25,000, but until the political situation sorts itself out in November, we don’t have much to even guide our guesswork.

 

Joseph Henchman,  Missouri to Look More Closely at Ineffective Tax Credits  (Tax Policy Blog) Iowa has certainly gone in for them whole-hog.  Missouri has reconvened a commission to try to contain tax credits.  David Brunori weighs in:

Governor Jay Nixon has reconvened a commission to study tax credits in the state. That is a good thing, of course. The state spends over $600 million on tax credits alone. Real estate developers receive the bulk of that largesse. There are credits for economic development held sacred by both parties because of the phony claim they create jobs.  There are credits for historic development which turn run down eyesores into commercially viable properties. The people of Missouri actually give developers money to fix up old properties and sell them at a profit. We used to call that welfare. And there are credits for developing low income housing. Liberals love low income housing credits because it makes them feel like they are doing something to help the poor and dispossessed. I think some people love low income housing because it segregates all the poor people in one place away from the “decent” folks. And I know developers love low income housing credits because it allows them to take advantage of a well intentioned but incredibly flawed system.

It’s no coincidence that two of Iowa’s most prominent low-income housing developers are deeply embedded in the state political system.

 

Elevating the level of debate:  Hustler publisher offers $1 million for Mitt Romney’s filing info, tax returns (Kay Bell). It’s a federal offense to leak confidential tax information, so I doubt that the feds would let a snitch keep the million dollars.  Especially if Romney wins.  TaxGrrrl also notes that it’s a crime to accept stolen property.

Christopher Bergin, Where’s the Tax Plan, Man – Uh, Men?

Jim Maule,  Do-It Yourself Lawyering Brings Tax Unhappiness.  Yes, the thrifty ex-husband is still divorced, but he botched the alimony language, meaning he couldn’t deduct the payments.  But look on the bright side: she doesn’t have to pick it up as income!  He may not find that consoling.

Bruce the Missouri Tax Guy looks at Tax Apps for your phone.

Peter Reilly, tax maven, shows his Civil War cred: Next Monday September 17 Remember America’s Bloodiest Day.  And not just because corporate extensions are due.

Dang.  Summer is gone (Daniel Shaviro)

News you can use: Politicians Lie. In Other News, Water is Wet (Anthony Nitti)

Trick question. They’re all Azkaban.  Let’s Compare the Big Four Accounting Firms to the Four Houses in Harry Potter (Going Concern)

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Tax Roundup, 8/29/2012: Envision an IRS exam. Also, weathering storms, and more!

Wednesday, August 29th, 2012 by Joe Kristan

Sometimes a “visionary” is just seeing things.  The Department of Justice yesterday announced that a “visionary” tax advisor has been enjoined from giving any more tax advice.  From the Department of Justice press release:

The civil injunction order against Scott A. Waage, of San Diego, was signed by Judge William Q. Hayes of the U.S. District Court for the Southern District of California. Waage agreed to the injunction without admitting the allegations against him. 

The government  complaint  in the case alleged that Waage, a self-proclaimed “visionary tax attorney,” promoted tax fraud schemes that helped customers evade income taxes through a concept he called “Strategic Integrated Planning.” According to the complaint, one of Waage’s schemes involved creating and using sham consulting corporations (purportedly headquartered in customers’ homes) that did not perform consulting services. Customers funneled funds to the sham companies to pay for and improperly deduct the customers’ personal expenses, the complaint alleged.  

They must have lowered the bar for what is “visionary.”  Using phony businesses to try to deduct personal expenses isn’t exactly the cutting edge of tax chiseling.

The injunction order requires Waage to give the government a list of all clients who used his tax planning or tax preparation services since 2001. Waage also must send his former clients notice of the injunction order.

That’s the problem when you use a “visionary” tax preparer who is willing to take “aggressive” positions that your everyday namby-pamby practitioner like me won’t touch.  When the preparer gets in trouble because he confuses “aggressive” with “absurd,” his clients can expect the IRS to take a close look at everyone on the client list.

 

“When the Storm is Over,” by Newgrass Revival

Kay Bell, When the storm’s over, don’t forget to claim possible tax help for your losses

Trish McIntire, Disaster Preparedness and Response

Jim Maule, More on Income Averaging:

 The special income averaging for farm and fishing income is available regardless of the economic status of the taxpayer. In the meantime, the taxpayer in Francis v. Comr., T.C. Summ. Op. 2012-7, a member of the Armed Forces not counted among the ranks of the wealthy, is stuck with a disappointing tax outcome caused by circumstances beyond his control. Why the better tax treatment for farming and fishing income and not for military back pay? Something about this nation’s tax priorities isn’t right, but those who pay attention have known that for a long time.

But weep for the farmers.  2012 US Net Farm Income At a New Record Even With The Drought! (Paul Neiffer)

Why You Need a Will (Missouri Tax Guy)

Tax headaches if money-market funds are allowed to break the buck? Floating NAVs could prove taxing (Robert N. Gordon)

Linda Beale,  Tax Extenders:  where the Senate stands.

Howard Gleckman,  Should Congress Curb Tax-Exempt Municipal Bonds?  (TaxVox)

Shock! Media Leaves Out Key Things in Covering Poll Showing Support for Taxing Rich (Joseph Henchman).  “Support for increasing taxes on the rich has been dropping over time, not increasing.”

Daniel Shaviro,  Why didn’t the IRS and Treasury do more about aggressive tax planning techniques of the sort that Romney appears to have used extensively?  Because they were legal, maybe?

It’s Wednesday, so it’s a Buzz Day for Robert D. Flach.

Anthony Nitti,  Blog Author Makes Appearance in Taxes Magazine; Though Regrettably, Not the Swimsuit Issue.  No disrespect, but I don’t regret for a moment that “Taxes” lacks a swimsuit issue.  There are vanishingly few practitioners you’d want to see that way.

News you can use: Look, It’s Okay, The Big 4 Doesn’t Want You (Going Concern)

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Why not a dividends-paid deduction?

Friday, October 7th, 2011 by Joe Kristan

Tax life would be so much easier if corporations could deduct their dividends. It would at one stroke eliminate the double tax on corporate income, greatly simplify tax planning, and eliminate the bias for debt over equity in capitalizing a business. It’s good to see that policy wonks like Daniel Shaviro are starting to take the idea seriously, even if not necessarily embracing it.
Mr. Shaviro is focused, I think wrongly, on the accounting aspects:

Reuven argues that dividend deduction would be more effective than imputation in encouraging the managers to pay dividends, on the ground they often don’t especially care about shareholder taxes but love to get company-level deductions. Thus, even if the two methods of dividend deduction and imputation are in fact economically equivalent, the former will in fact induce greater payouts.
One could certainly challenge this view on multiple grounds, but the one I emphasized, in particular because I thought it was more of a new point, reflects accepting the basic premise (at least arguendo) but then asking what the managers really care about. A common answer, with considerable real world empirical support, would be that they appear to care more about financial accounting income than about income tax liability. So the entity-level tax benefit of dividend deductibility won’t affect their behavior as strongly as Reuven anticipates unless there is an accounting benefit. But would there be?

In my world, the land of non-public, non-banking companies, nobody much cares about financial statements. They do care about being able to get cash out of the business. We go to great efforts to enable businesses to distribute profits or appreciated property without paying the normal two levels of corporate tax. In my world, a dividends paid deduction would almost certainly have a huge affect on capital structures, management incentives (management in my world is usually the owners), and willingness to pay dividends.

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