Posts Tagged ‘David Brunori’

Tax Roundup, 4/10/14: Still plenty of time for an IRA! And Iowa Tax Freedom Day looms.

Thursday, April 10th, 2014 by Joe Kristan

IRAWhen the tax deadline is looming, taxpayers looking for the Tax Fairy to wish away their tax problems often overlook the old-fashioned IRA.  You can still make 2013 IRA contributions through April 15.  An Individual Retirement Account contribution may be able to score you a 2013 deduction (or even a tax credit) for 2013; even if you don’t qualify for current tax savings, they are a nice and cheap way to build-up tax-sheltered savings.

IRAs come in two flavors: “traditional” and “Roth.”  Traditional IRAs build up their income tax-free, but earnings on them are taxable when they come out.  If you meet certain conditions, your traditional IRAs come with sprinkles: – a tax deduction.  If you don’t get the deduction going in, your principal is tax-free going out.

Roth IRAs never offer a deduction, but they leave a sweeter aftertaste: if you hold them long enough, income on Roth IRA assets is never taxed.  And unlike traditional IRAs, you are never forced to start withdrawing funds from the IRA, so the tax-free build-up can go on indefinitely.

Both traditional and Roth IRAs require you to have wage or self-employment net income.  The limits for contributions are the lesser of your taxable compensation or $5,500 ($6,500 if you were 50 by December 31, 2013).  You can contribute to a traditional IRA at any income level, but deductions phase out at higher income levels if you (or your spouse) are covered by a retirement plan at work.  The availability of Roth IRA contributions phases out at higher income levels regardless of whether you participate in another retirement plan.

One very useful way to use Roth IRAs is for teenagers and young adults.  A parent can fund a Roth IRA for them based on part-time job income — no matter what parent income is.  This starts a tax-free retirement fund for the young earner at a very age, giving the power of compound interest lots of time to do its magic.  And from what I’ve seen, parental Roth funding is much appreciated by the recipients.

While time is short, you can still fund a 2013 IRA if you make your contribution no later than April 15.  You can set one up at your friendly community bank or online with a mutual fund company on you lunch hour.  No, it probably won’t make your 2013 taxes go away, but it can be a nice step towards financial security for you or your kids.

This is the latest of our 2014 Filing Season Tips — a new one every day thorugh April 15!

Russ Fox, Bozo Tax Tip #4: Honey, You Don’t Exist!: “Perhaps it’s something in the water, but this year Aaron and I have seen multiple cases of individuals who have ignored that marriage license and filed as single if married.”

 

Kyle Pomerleau, When is My State’s Tax Freedom Day?  (Tax Policy Bl0g) Iowa’s is this Sunday.

 20140410-1

 

Kristy Maitre, How to Report National Mortgage Settlement Payments

TaxGrrrl, Taxes From A To Z (2014): X Is For XD   

Paul Neiffer, Trusts Can Get You in Trouble

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me, Part 2 

 

Hey, preparers: are you ready to trust the IRS to regulate your livelihood?  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline (Washington Post, via the TaxProf)

Kay Bell, Computer problems for IRS, Canadian tax agency

 

20140401-1Alan Cole, Mainstream Economics Support Low Taxes on Capital Income (Tax Policy Bl0g): “The overwhelming bulk of the evidence is that taxes have a negative effect on economic growth, and that the effect is particularly strong on tax bases that include capital income.”  But, the rich!  Inequality!

Donald Marron, Seven Tax Issues Facing Small Business (TaxVox): “America’s tax system is needlessly complex, economically harmful, and often unfair.”

Cara Griffith, Guidance Today, Gone Tomorrow (Tax Analysts Blog).  “A recent Arkansas court opinion points out what might be a troubling trend in state taxation: the inability of taxpayers to rely on administrative guidance because the state can retract or supersede it on a moment’s notice.”

TaxProf, The IRS Scandal, Day 336.  It was a big day, with evidence that Lois Lerner was working behind the scenes with the ranking Democrat on the Ways and Means Committee to harass the opposition.

Tax Justice Blog, Is the Obama Administration Blocking International Efforts to Address Corporate Tax Avoidance? 

William Perez, Tax Reform Act of 2014, Part 4, Tax Credits

 

Hank Stern, The ObamaTax Domino Effect.  “While we’ve all seen the horrendous rate increases caused by the ObamaTax (including on our 1040′s), thee are other victims.”

“Pro-business” isn’t “pro-market,” a distinction utterly lost on Iowa officials.

David Brunori: I’ll Raise a Glass to Lower Booze Taxes (Tax Analysts Blog) “Jack Daniels is not bourbon, by the way, but Tennessee whiskey. There is apparently a difference, but frankly, after the first glass, I can never tell.”

Next: legislators are terrible at legislating.  GAO Went Undercover to Discover Tax Preparers Are Terrible at Tax Preparing (Going Concern)

 

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Tax Roundup, 3/26/14: Using Bitcoins regularly will get you a really long Form 8949. And: underpants!

Wednesday, March 26th, 2014 by Joe Kristan


Bitcoin
Bitcoins may act like money, but IRS says they aren’t.  
The IRS yesterday announced how that it will treat Bitcoin “virtual currency” as property, rather than currency, for tax purposes.  Notice 2014-21 lays out the IRS treatment of Bitcoin and similar virtual money.  Some key points:

- As property, gains and losses on Bitcoin are normally capital gains and losses, unless the taxpayer is a dealer in Bitcoins.  That means losses are limited to capital gains plus $3,000 for individuals.  This contrasts with currency transactions, which normally generate ordinary income and loss under Section 988.

Transactions in virtual currency will normally generate gains and losses:

If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.

That makes using Bitcoins a hassle for taxpayers who try to follow the law.  Everytime you buy something with Bitcoin, you will have a capital gain or loss, depending on fluctuations in the Bitcoin market.  Imagine if you had to record a little capital gain or loss based on the currency markets anytime you bought anything with cash.  If you use Bitcoins every day you’ll have a horrifying Form 8949 to report all of your gains and losses.

The basis in virtual currency is its value on date of receipt, if you acquire it in a transaction.  That same value is the amount you use to compute income if you are paid in virtual currency

- They point out the obvious:  “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” Also, payments in virtual currency are subject to information reporting, same as cash.

Virtual currency “miners” generate ordinary income.  If they do it as a trade or business, it’s subject to self-employment tax.

The TaxProf has more; Accounting Today also has coverage.  Peter Reilly has Bitcoins Not Tax Fairy Dust – Second Life Still A Tax Haven?, wisely noting that the virtual currency isn’t generated by the Tax Fairy.  And TaxGrrrl weighs in with IRS Says Bitcoin, Other Convertible Virtual Currency To Be Taxed Like Stock .

 

Ashlea Ebeling, Supreme Court Says FICA Tax Due On Severance Pay:

What the Supreme Court decision means for employers is that what had long been the case –severance pay is subject to FICA tax—remains the case. And for employees who are laid off, it means that they will continue to get a little less in “take-home” severance because it’s dinged for their share of FICA tax.

It seemed like a reach to say otherwise, but now it’s not even that.

 

 

A hard-working fictional student.

A hard-working fictional student.

O. Kay Henderson, Legislators ponder tax credit for student loan payments.  A truly awful idea.  This credit doesn’t encourage getting higher education; it encourages borrowing to pay for higher education.  As an unintended but obvious consequence, it discourages saving to pay for college — there’s no tax credit for foregoing current consumption to pay for college later.  It’s stunning that lawmakers actually want to encourage more student debt when many students already are entering a brutal job market with crushing loan obligations.

Joseph Henchman has two posts at Tax Policy Blog that should be read together: Wisconsin Approves Income Tax Reduction, Business Tax Reforms and Who Would Pay a Higher Illinois Income Tax?  Not the folks that move to Wisconsin, for sure.

 

Jason Dinesen, More on the 0.9% Medicare Tax and Iowa Tax Returns

Paul Neiffer, Schedule F Reporting Update:

I got some feedback on my previous post on Tax Reform and low Schedule F reporting of income. Several sources of farm income does not show up on a Schedule F. This includes many common sales of farm assets such as breeding stock and equipment. Most of the expenses associated with this income is deducted on Schedule F, however when these assets are sold, none of the gains appears on Schedule F.  Rather, this income is usually reported on Form 4797.

That still doesn’t change the fact that these simple farmers play the cash method like a violin to achieve tax results other businesses can only dream of.

Tony Nitti, Tax Geek Tuesday: Demystifying The Deduction Rules For Accrued Liabilities   

William Perez, Identity Theft and Your Income Taxes

Kay Bell, IRS gives Colorado flood victims until Oct. 15 to file 2012 or 2013 tax returns claiming disaster losses

Janet Novack, Gotcha! Tax Court Penalizes IRA Rollover That IRS Publication Says Is Allowed   

 

David Brunori, Hang On to Your Wallets (Tax Analysts Blog)

Howard Gleckman, Dave Camp’s Plan for the Expired Tax Provisions: An Almost-Good Idea (TaxVox)

TaxProf, The IRS Scandal, Day 321

Tax Justice Blog, State News Quick Hits: To Cut or Not to Cut?

 

Joseph ThorndikeRaising Taxes on the Rich Won’t Balance the Budget — But It’s Still Important (Tax Analysts Blog):

 The modern American fiscal state is predicated on a bargain. During World War II, lawmakers were forced to expand the personal income tax to help pay for the fighting. Over the course of just a few years, they added millions of middle-class Americans to the tax rolls for the first time, transforming the income tax from a rich man’s burden to a middle-class millstone. In return, however, these same lawmakers offered the middle class an implicit (and sometimes nearly explicit) guarantee — rich people would be asked to pony up, too.

Cool story.  Let’s see how that works nowadays:

Top 1 pays more than bottom 90

Chart by Tax Foundation

So now the “rich” aren’t paying their “fair share,” they’re picking up most of the tab.  How does it work if you break it down further?

20131030-2

So not only do “the rich” pay their share of the freight, they pay a lot more than their share of earnings.  And when you take government benefits into account, the whole “fair share” argument is tough to support:

givers and takers

Chart by Tax Foundation

I don’t buy Joseph’s “social contract” thinking.  The whole emphasis on inequality being peddled by the administration is a diversion, an attempt to change the subject from the manifest failures of Obamacare and foreign policy blundering.  No matter how hard they hit “the rich,” or how bad doing so is for the overall economy, there is never a point where the politicians will say the rich are being hit enough.

To the extent “inequality” persists, it’s clearly not a direct function of the tax code or government spending.  Politicians, though, find it useful to encourage the belief that they can spend on whatever pleases the crowd by just by making the rich pay their “fair share” — as if they weren’t already.  It’s the flip side of the widespread belief that the government can just balance the budget by cutting foreign aid.   It’s just an attempt to fool the gullible long enough to win another election.

 

Going Concern, Thrift Shops Issue Specific Guidance on Deduction Amounts for Used Underpants.  I didn’t know there was a deduction for toxic waste.

 

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Tax Roundup, 3/19/14: Are taxes turning Iowa red? And: Statehouse Update!

Wednesday, March 19th, 2014 by Joe Kristan

Is Iowa really a red state?  According to personal finance site WalletHub, Iowa is a red state.  But didn’t Iowa vote for Obama the last two elections?  Not that kind of red state.  WalletHub’s map has states with the most burdensome taxes as red states, and those with less burdensome taxes as green:

 

WalletHub

From WalletHub:

 WalletHub analyzed how state and local tax rates compare to the national median in the 50 states as well as the District of Columbia.  We compared eight different types of taxation in order to determine:  1) Which states have the highest and lowest tax rates; 2) how those rates compare to the national median; 3) which states offer the most value in terms of low taxation and high cost-of-living adjusted income levels.

WalletHub says Iowans have a tax burden 26% above the national average.  They note, though, that when the rank is adjusted based on our cost of living, Iowa improves 10 places on their rankings.

This is a different measurement than the Tax Foundations well-known Business Tax Climate Indexwhich places Iowa at 11th-worst.  Either way, it’s not a healthy system.  And nothing major is likely to happen to change it anytime soon.  Still, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan shows the way!

 

20130117-1Supplies sales tax exemption advances.  The Iowa General Assembly isn’t entirely idle on the tax front.  Sometimes that’s a good thing, as in the House passage yesterday of HF 2443, exempting supplies used in manufacturing from sales tax.  Business inputs in general should not be subject to sales tax, as they are likely to be taxed again when the finished product is sold.

Other than that, there isn’t a lot else to report on the Iowa tax legislative scene.  The speedway tax break remains alive.  The bill to broaden the Iowa capital gain “ten and ten” exclusion hasn’t cleared the committee level.  Silly legislation continues to be introduced, like a 50% state tax credit for payments of principal and interest on student loans (HSB 673).  Let’s encourage crushing student debt burdens!

But sometimes its best when the legislature does nothing.  It’s hard to complain that HF 2770, the bill to pay doctors at their average charge rates with tax credits for “volunteering,” has languished.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

The TaxProf notes the Death of Former IRS Commissioner Randoph Thrower; Was Fired for Refusing President’s Request to Audit His Enemies, quoting a New York Times story:

The end came in January 1971, after Mr. Thrower requested a meeting with the president, hoping to warn him personally about the pressure White House staff members had been placing on the IRS to audit the tax returns of certain individuals. Beginning with antiwar leaders and civil rights figures, the list had grown to include journalists and members of Congress, among them every Democratic senator up for re-election in 1970, Mr. Thrower told investigators years later. He was certain the president was unaware of this and would agree that “any suggestion of the introduction of political influence into the IRS” could damage his presidency, he said.

Mr. Thrower received two responses. The first was a memo from the president’s appointments secretary saying a meeting would not be possible; the second was a phone call from John D. Ehrlichman, the president’s domestic affairs adviser, telling him he was fired.

I’ll just note here that Doug Shulman, worst commissioner ever, left on his own terms.

 

David Brunori, Hawaii Tax Credit Craziness (Tax Analysts Blog):

According to some excellent reporting in the Honolulu Civil Beat, the Legislature is considering a slew of tax incentives to promote manufacturing in the state. Yes, there are those (particularly established manufacturers) who would like to promote something other than tourism, hosting of naval bases, and pineapple production. The main proposal (SB 3082) would provide tax credits for employee training and some equipment purchases. The goal is to turn Hawaii into 1960s Pittsburgh or Flint Mich., in their heyday. I have my doubts. 

I don’t think that really plays to Hawaii’s strengths.

 

20120817-1Howard Gleckman, A Terrible Response to the Internet Tax Mess (TaxVox)

Under the plan, the federal government would let retailers collect tax based on the levy where the seller is located, no matter where the purchaser resides. This would apply to all retailers, as long as they had no physical presence in the consumer’s state.

A firm could base its “home jurisdiction” on the state where it has the most employees, the most physical assets, or the state it designates as its principal place of business for federal tax purposes.

Given the nature of online sellers, changing locations to a no-sales-tax state would be fairly easy.

Interesting.  I wonder if a “universal mail order sales tax rate” might ultimately be the answer.  You could set this universal rate at, say, the average national sales tax rate, collect it from all buyers, and remit it to the delivery state through a clearinghouse run by the state revenue agencies.

 

Paul Neiffer, Cash Rents Equals Extra 3.8% on Sale. “However, once you are done farming and are simply renting the ground to other farmers (including relatives), then the rental income will be subject to the tax and even worse, selling the farmland for a large gain will result in extra tax.”

Jana Luttenegger, Filing From Home, and Health Insurance Reporting on W-2s (Davis Brown Tax Law Blog)

TaxGrrrl, Taxes From A To Z (2014): J Is For Jury Duty Pay   

 

Everything is spinning out of control! Suburban Cleveland Councilman Denies Getting in Brawl With Liberty Tax Sign Spinner (Going Concern)

 

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Tax Roundup, 3/12/14: Hundreds of Panthers fear ID-theft. And: more smidgens!

Wednesday, March 12th, 2014 by Joe Kristan

uni-logoID Theft may affect 200 University of Northern Iowa employees.  KWWL.com reports:

In February, when the issue was first discovered, about 50 people had reported issues filing their federal income taxes. Now, University officials say 200 employees have come forward, and but not all of those are fraud. Still, that has psychology department secretary Jan Cornelius concerned. She said her social security number was stolen.

The problem was identified by taxpayers whose returns were rejected because somebody else had already filed under their numbers.  You need to be careful with your Social Security Number, and you should never transmit tax documents as unencrypted email attachments.  Use a secure file transfer portal, like Roth & Company’s Filedrop, to send tax files electronically.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

More Smidgens.  The House Oversight Committee investigating the Tea Party Scandal issued a report yesterday blasting the idea that the IRS stall on right-side 501(c)(4) groups was just a non-political coincidence involving bumblers in Cincinnati.  Using IRS documents and e-mails, the report paints a picture of an effort driven by a highly-political bureaucrat to “do something” through IRS regulation to administratively reverse the Supreme Court’s Citizens United decision.  From the report’s conclusion:

Evidence indicates Lerner and her Exempt Organizations unit took a three pronged approach to “do something about it” to “fix the problem”of nonprofit political speech:

1) Scrutiny of new applicants for tax – exempt status (which began as Tea Party targeting);

2) Plans to scrutinize organizations, like those supported by the “Koch Brothers,” that were already acting as 501(c)(4) organizations; and

3)“[O]ff plan” efforts to write new rules cracking down on political activity to replace those that had been in place since 1959. Even without her full testimony, and despite the fact that the IRS has still not turned over many of her e-mails, a political agenda to crack down on tax-exempt organizations comes into focus. Lerner believed the political participation of tax-exempt organizations harmed Democratic candidates, she believed something needed to be done, and she directed action from her unit at the IRS. Compounding the egregiousness of the inappropriate actions, Lerner’s own e-mails showed recognition that she would need to be “cautious” so it would not be a “per se political project.”

Committee Democrats continue to insist that there is no “political motivation,” and no evidence of White House involvement.  To deny that targeting “Tea Party” and “Koch-funded” organizations is political is to insult our intelligence.  As far as White House involvement, the Chicago Way isn’t for the Boss to pick up the phone and call the Cincinnati service center.  The President’s public in-your-face criticism of the Supreme Court for Citizens United at a State-of-the-Union address gave his supporters in the bureaucracy all the guidance they needed.

The TaxProf has a roundup.

 

roses in the snowWilliam Perez, Deductions for Self-Employed Persons.  “Deductions that go on Schedule C reduce both the self-employment tax and the federal income tax.”

TaxGrrrl, Taxes From A To Z (2014): E Is For EE Bonds   

Russ Fox, The Moral Climate may have Changed but the Law Hasn’t. “Thus, until Congress changes the law a professional gambler cannot deduct gambling losses in excess of wins.”

Kay Bell, Beware tax break bait and switch.  “Yes, gifts to your favorite charity can be deducted, but only if you itemize on Schedule A.”

Paul Neiffer, Permanent Means Permanent:

North Dakota law regarding easements is unique.  It appears to be the only state in the country that limits easements to 99 years by law.  Since the Tax Code requires that the conservation easement be of a permanent nature, the Tax Court ruled in favor of the IRS and disallowed all of the easement charitable donations.

Oops.  Still, I think anything “permanent” should be looked at skeptically.  Nobody knows whether it will seem wise to lock up a parcel 100 years from now.

Tony Nitti, Tax Geek Tuesday: Tackling The Dreaded Section 754 Adjustment   

 

20120906-1David Brunori, Where Is the Outrage? (Tax Analysts Blog):

According to Good Jobs First, there are 514 economic development programs in the 50 states and the District of Columbia. More than 245,000 awards have been granted under those programs. I ask again, where is the outrage? The system is antithetical to the idea of free markets. A quarter of a million times, state governments decided what is best for producers and consumers. That should make us cringe. First, the government is inefficient at providing public goods, and it is terrible at manipulating the markets for private goods. But more importantly, those 514 economic development programs are almost all the result of insidious cronyism. Narrow business interests manipulate government policymakers, and those interests prosper to the detriment of everyone else. Free markets be damned.

And while I’m looking for outrage, where are the liberals? The 965 companies in the report received over $110 billion of public money. Berkshire Hathaway, a company with $485 billion in assets and $20 billion in profits, received over $1 billion of that money. Its chair, William Buffett, is worth about $58 billion. Buffet, by the way, is still a darling of the left. He has some nerve to call for higher taxes. The billion dollars his companies took would pay for a lot of teachers, healthcare, and other public goods. 

They take just a little bit at a time from all of us so we don’t notice, and they give it in big chunks to their well-connected friends, who certainly do notice.   The report David refers to is here.

 

Joseph Henchman, State Sales Tax Jurisdictions Approach 10,000 (Tax Policy Blog).  Small wonder online sellers don’t want to collect everyone’s sales tax.

Elaine Maag, The Many Moving Parts of Camp’s Tax Reform for Low-Income Families (TaxVox)

 

Joseph Thorndike, The Last Time Everyone Gave Up on Tax Reform, It Actually Happened (Tax Analysts Blog).  But not this time:

Ultimately, Reagan agreed to make tax reform a priority. And his support was crucial. No lawmaker, no matter how exalted, well intentioned, or energetic, can move the ball like a president.

Which is one very important reason why 2014 is different from 1984. President Obama has no discernible interest in fundamental tax reform. So conventional wisdom is right: The Camp tax plan is going nowhere fast.

I think that’s right.

 

All it needs is a little pasta and fresh lemon.  Argentina: Authorities investigate tax evasion via garlic exports through shell companies

Career Corner.  It Is Almost Certain You Will One Day Be Replaced by Machines (Going Concern).  

 

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Tax Roundup, 3/10/14: Sioux City $afety Edition. And: rogue dentistry!

Monday, March 10th, 2014 by Joe Kristan

Sioux City Revenue Camera Windfall.  The Des Moines Register today lists the winners from revenue cameras around the state.  Public safety isn’t up there:

Tickets from automatic traffic cameras totaled $19.7 million for nine Iowa cities during the last fiscal year, but more than 34 percent of that money went to out-of-state vendors.

The summary:

20140310-1

Sioux City benefitted richly from Iowa’s status as the only state allowing revenue cameras on interstate highways:

Iowa is the only state in the country that allows speed cameras to be permanently placed on highways and interstates. The data collected by the DOT shows those cameras are the most lucrative: The two placed in a construction zone on Interstate Highway 29 in Sioux City brought in more than $4.5 million for the fiscal year ending in June.

gatsoThe evident failure of the cameras to stop construction zone speeding tells you how much they help public safety.  If they stopped speeding, there wouldn’t be so much revenue.  Of course, Sioux City also has a big incentive to generously define “construction zones” and leave them in place after construction is completed.  I drove through the I-29 zone on a Sunday night (no ticket for me!);  with no no workers around at the time, the only point of the construction zone speed limits when I drove through was camera revenue.

Some good news from the piece: “The number of red-light cameras nationally is dropping, according to a study by the Reason Foundation, a libertarian-leaning think tank.”  That’s because they’re a crock, a corrupt bargain between the operators and the municipalities, and people hate that.

 

William Perez, Need Extra Time to Finish up Your 2013 Tax Return?:

The IRS will grant a person an additional six months to file their tax return. To request this extra time, file an extension with the IRS on or before the deadline.

Filing an extension provides several benefits. Besides extra time to file the tax return, an extension also provides extra time to fund a self-employed retirement plan and to recharacterize IRA contributions.

And, contrary to myth, it doesn’t increase your chances of getting audited.  In contrast, filing an erroneous return to beat the deadline or get a quicker refund definitely increases your audit risk.

TaxGrrrl, Taxes From A To Z (2014): D Is For DRIP   

Kay Bell, Daylight Saving Time + gas taxes = boon for tax collectors, but some money-saving options for added daylight drivers 

Janet Novack, Pensions Create Yet Another Tax Trap For U.S. Expatriates

Russ Fox, False Checks, Trusts, and Ignoring Taxes Lead to Real Prison.  Indeed they do.

 

 Joseph Henchman, State Tax Reforms Are More Than Just Revenue Changes (Tax Policy Blog):

But more to the point, we consider 2013 one of the most successful years for tax reform we’ve seen in a while. We saw North Carolina cut its taxes but, more importantly, massively restructure them to become flatter, simpler, and more competitive. The real improvement in North Carolina wasn’t just the amount of taxes (though they did cut taxes, as noted above), but the structure of the tax code.

Beyond North Carolina’s landmark reform, Indiana under Governor Mike Pence (R) also moved to cut its personal income taxes and abolish its death tax. Wisconsin also made significant income tax cuts accompanied by positive structural changes authored by Representative Dale Kooyenga. Even in states that couldn’t achieve such sweeping reforms, valuable progress was made. Arizona implemented an important simplification of its sales tax code. Governor Martinez of New Mexico worked with her legislature to cut her state’s corporate tax. Texas made some positive reforms to its damaging gross receipts tax, the margin tax.

Notice one state missing there?  Anyone?  Iowa?  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready to go!  How about a 4% top individual rate, repeal of the Iowa corporation tax, and massive simplification — or do you like massive complexity, special favors for special friends, and the nation’s highest stated corporate rate?

 

Eric Todor, Tax Reform’s Quiet Protectionism (TaxVox): “In effect, income from the sale in the United States of goods manufactured overseas by controlled foreign subsidiaries (CFCs) of U.S.-resident multinational companies would be taxed at a higher U.S. rate than other income from the same factory”

 

William Gale, Alan Auerbach, Forgotten but Not Gone: The Long-Term Fiscal Imbalance (TaxVox):

First, ignoring projections for the future, the current debt-GDP ratio is far higher than at any time in U.S. history except for a brief period around World War II. While there is little mystery why the debt-GDP ratio grew substantially over the last six years – largely the recession and, to a smaller extent, countercyclical measures – today’s higher debt-GDP ratio leaves less “fiscal space” for future policy.

Second, while we clearly face no imminent budget crisis, our new projections suggest the 10-year budget outlook remains tenuous and is worse than it was last year, primarily due to changes in economic projections.

And the rich guy can’t pick up the tab.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

George Will, The IRS’s behavior taxes credulity:

Obama breezily says there was nothing more sinister than “boneheaded decisions” by wayward and anonymous IRS underlings. Certainly boneheadedness explains much about this administration. Still, does he consider it interesting that the consequences of IRS boneheadedness were not randomly distributed but thwarted conservatives?

The rules that Obama says befuddled the IRS boneheads — to his benefit — read today exactly as they have read since 1959. For half a century they did not prevent the IRS from processing applications for tax-exempt status in less than three months. Some conservative group should offer $10,000 to anyone who can identify a liberal group that had the experience scores of conservative groups have had — an application delayed more than three years and receipt of an IRS questionnaire containing at least 60 questions.

Believing that there isn’t a “smidgen of corruption” is about as much of an intellectual leap as, say, believing dinosaurs and humans co-existed.

Via Instapundit

TaxProf, The IRS Scandal, Day 305

 

Jack Townsend has a List of 14 Swiss Banks Under Criminal Investigation

Quotable: 

Many smart people think preparers should be regulated. I just don’t agree. There is no market failure. If you don’t like your preparer, find another one. Or better yet, write your representative and ask for a tax system that doesn’t require low-income people to pay preparers.

David Brunori, State Tax Notes ($link)

 

I suspect he won’t need a preparer for awhile now.  From Going Concern:

Xzavier allegedly beat up a tax preparer when he found out the woman he was with wouldn’t be getting her refund in cash. After a security guard intervened, he is accused of whipping out his heat and shooting both the guard and two women. A fourth person was grazed by a bullet but not shot.

I’m sure that really helped her get that refund sooner.

 

Crazy news from Canada: Rogue dentist fined $33,000 for unpaid tax; Tung Sheng Wu practised dentistry illegally in the tri-cities and Burnaby

I’m pretty sure I’ve never seen the phrase “rogue dentist” before.

 

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Tax Roundup, 1/5/14: President proposes $1 million Sec. 1031 cap. And: other doomed stuff!

Wednesday, March 5th, 2014 by Joe Kristan
Economic supergenius

0-99, 0-414

The President trotted out his old petty tax increases in his 2015 budget yesterday, and a few new ones.  The  new taxes would go towards, among other spending increases, an increase in the Earned Income Tax Credit welfare program for childless taxpayers.

If history is a guide, the Obama budget isn’t going to do well in Congress.  His own party leadership in the Senate has already pledged to pass no budget at all.  When his 2013 budget plan came up for a vote in Congress, it was rejected 99 -0 in the Senate and 414-0 in the House.

Still, it is worth mentioning some of the tax proposals, just so you are aware of them and their low likelihood of passage anytime soon.  Also, in light of the recent Camp “tax reform” proposal, apparently no tax provision is too dumb to get bipartisan consideration, so some of these might even pass someday.

S corporations: the bill would tax as self-employment income 100% of K-1 income from professional S corporations and partnerships of materially-participating owners.  Businesses covered would include health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, brokerage services, and lobbying.  For some reason, regular compensation would no longer be wages, but would instead be self-employment income.  That would wreak havoc on everybody’s 401(k) and profit-sharing plans.

- Like-kind exchange benefits would be capped at $1 million per taxpayer per year.  That won’t be popular with the real estate industry.

The bill also drags out dozens of the old proposals from his prior budgets, including LIFO repeal, ordinary income treatment for carried interests, capping the value of deductions at 28%, and capping build-ups in retirement plans.  Nothing at all is likely to happen before the next election on these proposals, but as many Obama proposals are also included in some form in the GOP Camp plan, they all have to be considered viable next time a major tax bill shows signs of moving.

The TaxProf has a good link-filled roundup.  The official explanation of the revenue-raisers is here.

Other coverage:

Kay Bell, Obama budget proposes more child care help for younger kids

Leslie Book, President’s Budget Proposes Major Procedural and Administrative Changes (Procedurally Taxing).  “The popular media has generally described the plan overall the way Reuters did in reporting that it ‘stands little or no chance of being approved as is by Congress, where Republicans, who control the House of Representatives, disagree with the president’s policy priorities.’”

 

Des Moines Register, Voters OK increasing franchise fee in Des Moines.  The vote is the result of the city being ordered to repay an illegally-collected utility tax:

The money raised by increasing the franchise fee to 7.5 percent from 5 percent for seven years will be used to pay off about $40 million in bonds issued by the city to pay for the refund and administrative costs.

Among the “administrative costs” is $7 million in legal fees Des Moines was ordered to pay to the winning taxpayer attorneys after a scorched-earth court battle by the city to avoid repaying the illegal tax.  Next time, don’t collect an illegal tax, and pay up if you’re called on it.

 

Alan Cole, True Marginal Tax Rates under Chairman Camp’s Proposal (Tax Policy Blog).  Full of high-income phase-outs, it creates all sorts of goofy marginal rate anomalies:

Marginal Tax Rates Camp Tax Reform

Note the spike in rates at the low-end as a result of the earned-income tax credit phase-out.  That doesn’t even include the effect of the state EITCs that piggyback on the federal credit.  All of this is the opposite of tax reform.  Apparently neither party is ready for reform.

William Gale and Donald Marron, The Macro Effects of Camp’s Tax Reform (TaxVox): “How would Camp’s plan increase growth, and why is the range of estimates so wide?”

 

Paul Neiffer, Additional Tax Reform Items.  “Remember, this is just a proposal and nothing will happen this year.”

Gene Steurle, A Camp-ground for Tax Reformers (TaxVox).

 

20130419-1Russ Fox, Deadlines for Us, but Not for Them:

For practitioners, the current state of the IRS is such that you can expect a lot of delays in responding to notices. Think months instead of weeks. Expect to have to call the IRS to verify that your response was received, and make sure clients are aware that the IRS is moving like molasses rolling uphill. Make sure anything you send is documented: certified mail with proof of receipt if by mail; if faxing, make sure you have the proof of receipt. Given the lengthy delays our clients are going to be in fear for far longer…

For taxpayers, you need to be aware that expediency is not part of today’s IRS. You have to be expedient in responding to notices but don’t expect the IRS to be expedient in getting back to you. Do not worry if it takes a long, long time to resolve something with the IRS. That’s just par for the course today.

Unfortunately, clients generally assume that if the IRS has sent a letter, that means the practitioner screwed up.  Many people, especially old folks, just pay up when they get an IRS notice.

 

William Perez, Tax-Deductible Relocation Expenses

TaxGrrrl, Taxes From A To Z (2014): B Is For Basis   

David Brunori, Taxing Coca Cola while Exempting Broccoli is Bad Policy Even for Native Americans (Tax Analysts Blog):

 In any event, several newspapers reported that one of the sponsors of the proposal was himself obese. He decided to change his life and lost 100 pounds. And he did it without any tax increases or help from the government.

Like so many reformed smokers/overeaters/drinkers, he has become annoying about it.

Tax Justice Blog, State News Quick Hits: State Policy Makers Need a Tax History Lesson

 

TaxProf, The IRS Scandal, Day 300.

 

Cheer up!  Filing Your Tax Return Is Terrible — But It Was Worse 100 Years Ago (Joseph Thorndike, Tax Analysts Blog).

News from the Profession.  The Real Loser at the Oscars This Year Was PwC.  (Going Concern)

20140305-1Jason Dinesen shares his Tax Season Tunes:

Here’s a sampling of other tunes I listen to while working when not getting my Gordon Lightfoot fix:

  • Neil Diamond. Generally not his “famous” songs. I detest — and I mean absolutely revile — “Sweet Caroline,” for example. The original recording is okay, but he’s turned it into a hokey, over-the-top, karaoke show-tune over the last few decades. Blech. I like the more introspective songs like “Shilo,” “If You Know What I Mean,” “Stones,” pretty much anything from his relatively new “12 Songs” and “Home Before Dark” albums,  and a host of other Neil Diamond songs that most people have probably never heard of.

  • An mix of songs that include Billy Joel, pop rock from the 60s and early 70s, Elvis, Willie Nelson, Conway Twitty, AC/DC, Juanes, Bon Jovi, CCR, Johnny Cash and Jimmy Buffett.

In case you were wondering, I believe Jason works alone.

 

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Tax Roundup, 2/26/14: House tax reform plan expands cash basis, boosts 179 limits. And: $133 million employment tax theft.

Wednesday, February 26th, 2014 by Joe Kristan

Cash basis expansion, permanent Section 179 increase highlight Camp tax reform plan.  The GOP House tax leadership has released their tax reform draft, nicely rounded-up by the TaxProf.  The plan would lower top individual and corporate rates to 25%, while making big changes in business taxation.

They have released two alternate plans for small business taxation.  One plan would tweak S corporation and partnership taxation, making elections easier and easing S corporation penalty taxes.  The other draft would do away with the current pass-through regimes and replace them with a single pass-through tax system.

The Camp draft would also greatly expand the availability of cash method accounting:

20140226-1

I’m not sure how I feel about this.  I do like getting rid of the special rules for farmers and letting everybody have the same opportunity.  I less like the rule giving unlimited cash basis for sole proprietorships, as that would encourage people to keep things on their schedule C for tax reasons even if it is a bad structure otherwise.  Do we really need to preserve cash basis for a $100 million schedule C or Schedule F operation?  If something is that big, the “simplicity” argument doesn’t make sense.

I’m all for getting rid of the Section 263A stuff.

While I doubt that anything will happen with tax reform this year, there is a real possibility that things will start moving after the 2014 elections.

William McBride, Four Things to Look for in Chairman Camp’s Tax Reform Plan (Tax Policy Blog)

Renu Zaretsky, McConnell Throws Cold Water on Camp’s Tax Plan (TaxVox)

 

 

EFTPSTexans sentenced in massive PEO employment tax theft.  From Breitbart.com:

Federal prison sentences were recently handed down to three businessmen by Chief District Judge Fred Biery. The three defendants – John Bean, Pat Mire, and Mike Solis – are going to prison for their roles in a $133 million scheme involving numerous co-conspirators. The FBI and IRS conducted the investigations for the case, which is believed to be the largest criminal tax related case ever prosecuted in western Texas.

Bean and Mire both pled guilty to money laundering and mail fraud conspiracy charges. Solis plead guilty only to a mail fraud conspiracy charge.

The defendants admitted that from 2002 to 2008, they stole more than $133 million from clients of several of the Professional Employer Organizations (PEOs) that they owned and operated.

PEOs actually report client employees as their own, issuing W-2s and filing employment tax returns.  The danger of PEOs is that employers have no way to be sure their employment taxes are being deposited.  If the PEO is stealing them, the IRS will come back to the employers to collect.

With a non-PEO payroll service, the payroll tax returns are prepared for employers, who issue and sign them.  More importantly, non-PEO employers can go online using the Electronic Federal Tax Payment System and verify that their payroll taxes are being paid.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProfThe IRS Scandal, Day 293.  Among the items in his daily scandal roundup is a Wall Street Journal editorial, Liberals vs. the IRS: Even the Left Doesn’t Want the Tax Man Regulating Speech:

In the Nation magazine, Nan Aron of the liberal judicial lobby the Alliance for Justice writes that 501(c)(4)s aren’t merely groups like Karl Rove’s Crossroads GPS, but are “made up of over 86,000 mostly small organizations nationwide” that are active participants in civic life.

“They weren’t invented in the last election cycle; they’ve been around for generations. Their purpose isn’t to hide donors, it’s to advance policies,” Ms. Aron adds. “These groups are involved in elections, because it’s often impossible to advance a policy cause without being involved in the political process.”

There’s no principle that would justify suppressing political rights of 501(c)(4) outfits that can’t apply equally to other exempt outfits.  Furthermore, there’s no real reason to impose taxes on political outfits.  The answer to speech you don’t like is more speech of your own, not suppressing what you don’t want to hear.

TaxGrrrl, IRS Proposed Rules For Nonprofits Alarm Conservatives and Liberals Alike   

 

IRS fights ID theft with one hand, helps it out with the other.  From PC World:

This tax season you may have more to worry about than how much you owe. A new study from Identity Finder finds the IRS is not properly protecting social security numbers in some tax returns…

The research revealed an alarming failure to safeguard sensitive data. Identity Finder uncovered an estimated 630,000 Social Security numbers exposed online in form 990 tax returns.

The most affected group were tax preparers–many of which used their personal SSN rather than their PTIN (preparer tax identification number). However, directors, trustees, employees, donors, and scholarship recipients were all impacted as well. 

It’s fair to point out that preparers have some responsibilty — they are often including SSNs unnecessarily, especially their own.  But that doesn’t excuse the IRS.

 

uni-logoSome UNI workers filing taxes finding Social Security numbers have been used (WCFcourier.com):

According to UNI officials, more than 20 employees have received “error” messages when filing their individual tax returns online, and their returns were rejected. Others who have yet to file say they called the Internal Revenue Service and found their Social Security numbers had been used. One person reportedly received a refund check at home from the IRS though they hadn’t filed a return yet.

UNI officials are playing down the possibility of identity theft, but that’s how I’d bet.  Any organization that collects social security numbers needs to be very careful with them, restricting access and shredding documents on disposal.

Jack Townsend, Stolen Identity Refund Fraud in the News

 

William Perez, Reporting Social Security Benefits

Kay Bell, Don’t fall prey to the Dirty Dozen tax scams of 2014

David Brunori, Great Opportunity for Tax and Public Finance Students (Tax Analysts Blog). “We are conducting our first student writing competition. You should encourage students who have written quality papers to submit them to studentpapers@tax.org.”

 

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Tax Roundup, 2/19/14: Irish Democracy on Independence Day Edition.

Wednesday, February 19th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

My Poli-sci professors didn’t teach “Irish Democracy“:

More regimes have been brought, piecemeal, to their knees by what was once called ‘Irish Democracy,’ the silent, dogged resistance, withdrawal, and truculence of millions of ordinary people, than by revolutionary vanguards or rioting mobs.

One regime with buckling knees is Iowa’s 76-year ban on fireworks.  From the Des Moines Register:

On Monday, a subcommittee passed Senate Study Bill 3182, which would allow Iowans to shoot off firecrackers, bottle rockets, Roman candles and similar devices. The measure, which won approval despite objections from medical groups worried about public safety, now goes to the Iowa Senate State Government Committee.

Sen. Jeff Danielson, D-Cedar Falls, a professional firefighter who chairs the Senate panel and is sponsoring the legislation, sees the bill as acknowledging reality. Iowa is one of only four states to ban most fireworks but allow sparklers and novelties, including toy snakes and caps used in cap pistols. Selling or firing anything else is a simple misdemeanor that can result in a fine of $250.

Danielson noted that Iowans already have fireworks in their car trunks and in their basements that are purchased in other states, even if they can’t legally explode them.

In other words, Iowans are ignoring the law.  It’s funny that we celebrate U.S. independence via Irish Democracy.  Of course there’s a tax angle:

Collecting tax revenue from legal sales of fireworks has been the crux of the argument in states where laws have recently changed, said Julie Heckman, executive director of the American Pyrotechnics Association. 

Count on legislators to do what constituents want when they finally see that there’s revenue to be had.

 

In other Iowa legislative news:

A bill has been introduced to repeal Iowa’s inheritance tax.  S.F. 2222 is an excellent idea that was consigned to its doom by being assigned to a subcommittee of Bolkcom, Bertrand and Quirmbach.

A state general fund spending limitation, with savings assigned to reserve funds and a “personal income tax rate reduction fund,” would be created by S.F. 2220.  I love the idea, but until Iowa’s long term pension funding problem is addressed, it’s all window dressing.

20120906-1A new form of corporate welfare for developers is contemplated in H.F. 2305.  It would create a “workforce housing tax incentives program” whose requirements imply that some lobbyist has specific projects in mind:

First, the housing project must consist of a certain type and number of dwelling units. The project must include, at a minimum, four or more single-family dwelling units, one or more multiple dwelling unit buildings that each contain three or more individual dwelling units, or two or more dwelling units located in the upper story of an existing multi-use building…

Second, the housing project must involve a certain type of development in a certain geographic location. The project may involve the rehabilitation, repair, or redevelopment of any dwelling unit if it occurs at a brownfield or grayfield site, as those terms are defined in the bill, or in a distressed workforce housing community. The project may involve the rehabilitation, repair, or redevelopment anywhere in the state of a dilapidated dwelling unit or a dwelling unit located in the upper story of an existing multi-use building. The project may involve the new construction of a dwelling unit if it is in a distressed workforce housing community, but shall not include the new construction of a multi-use building…

Third, the average dwelling unit cost of a housing project must not exceed $200,000 per dwelling unit, or $250,000 per dwelling unit if the project involves the rehabilitation, repair, redevelopment, or preservation of “eligible property”, which means the same as defined for purposes of the historic preservation and cultural and entertainment district tax credit in Code chapter 404A…

The median price of a home sold in Iowa was $132,453 in 2013.  This bill would subsidize construction of much more expensive dwellings than we already have for “workforce housing.”   That means builders of unsubsidized units would lose out to whoever is behind this credit.  Owners of houses already built will have their values reduced by the addition of subsidized units to the market.  But the Economic Development bureaucrats will have more money to give to their friends.

 

 

David Henderson, Krugman on Supply-Siders and Incentive Effects of Tax Cuts:

This is an interesting admission on Krugman’s part for two reasons. First, he recognizes, as one must, that the Laffer curve exists. Second, he admits that supply-siders don’t kid themselves that we are in the backward-bending portion, the part where an increase in tax rates reduces government revenues and a decrease in tax rates increases government revenues. I so miss the Paul Krugman of the 1990s.

To be honest, some do kid themselves, just as many of their oppenents deny that taxes have any disincentive effects.

 

Kyle Pomerleau, Andrew Lundeen, Share of U.S. Corporate Income and Taxes by Size (Tax Policy Blog).  “In 2010, U.S. corporations paid about $223 billion in income taxes on slightly more than $1 trillion in taxable income. However, the vast majority of this income and taxes is attributable to the roughly 2,700 corporations with assets above $2.5 billion.”

 

Jason Dinesen, The Iowa Taxpayers Trust Fund Tax Credit   

Joseph Thorndike, Harry Truman Knew the Truth: IRS Budget Cuts Are Very Expensive (Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 286

David Brunori, Blaming Big Corporations Is Not the Answer (Tax Analysts Blog) “Following the law is hardly a corrupt activity.”

 

Tax Justice Blog, Tax Preparers Should Be Regulated.  Nonsense based on the unwarranted assumption that the regulations will actually solve anything.

Kay Bell, Guns & taxes converge again, this time in Connecticut, Florida

 

News from the Profession.  The CPA Exam is Broken Into Parts But These Sentences Not So Much (Going Concern)

 

20130316-1Maybe Irish Democracy is better than voting democracy.  From Arnold Kling:

James Lindgren reports,

in 2012 a majority of Democrats (51.6%) cannot correctly answer both that the earth revolves around the Sun and that this takes a year. Republicans fare a bit better, with only 38.9% failing to get both correct.

I file this under “libertarian thought,” because to me it speaks to the issue of how romantic one should be about democratic voting.

Science!

 

Programming Note: I am airborne much of today.  I am improvising the back end of my travel plans to avoid the blizzard of doom slated for Iowa.  In short, no posting is likely tomorrow.  See you Friday!

 

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Tax Roundup, 2/12/14: Lawless and Unregulated edition. And: Lincoln!

Wednesday, February 12th, 2014 by Joe Kristan

20130121-2As we reported yesterday, the IRS preparer-regulation power grab failed in the D.C. Court of Appeals.  The three-judge panel unanimously ruled that “The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading” of the law.

One grumpy IRS person told us that we would regret it, that Congress will pass a worse IRS-run preparer regulation regime.  While it’s possible, I don’t think Congress is in any mood to give the IRS more power right now (see TaxProf, The IRS Scandal, Day 279).

It’s a victory for taxpayers, for preparers, and for the rule of law.  One hope it is a good omen for future court decisions on the on-the-fly rewrites of the Obamacare effective dates.

My endzone dance is here.  The Tax Prof has a roundup of coverage, as well as a guest op-ed: Johnson: The D.C. Circuit Rejects the IRS’s Regulation of Tax Return Preparerswhich says “At bottom, Loving stands for the proposition that exigency does not excuse illegality.” 

Other tax bloggers weigh in:

Russ Fox, DC Court of Appeals Rules Against IRS: Loving Decision Upheld.  “The real problem is the huge complexity of the Tax Code, and the biggest villain here is Congress. Rather than regulating tax professionals, we need to regulate (gut) the Tax Code itself.”

Leslie Book, Initial Reactions to the Government’s Loss in Loving (Procedurally Taxing):  “The government may seek to get Supreme Court review of the matter, or may work with Congress to get specific legislative authority. I offer no views on the odds of the government seeking cert, but its sound beating in two opinions leaves the possibility of obtaining cert and a victory in the Supreme Court seemingly small.”

Joseph Henchman, Big Win for Taxpayers: IRS Loses Effort to Expand Power Over Tax Preparers (Tax Policy Blog).  “In May 2013, we filed a brief opposing an IRS appeal of a court decision striking down their regulation of small tax preparers.”  That’s the brief I joined, along with fellow tax bloggers Russ Fox and Jason Dinesen.

Trish McIntire, The IRS Lost!  “I don’t know if there can be any more appeals (not a lawyer) but I bet there will be a tax preparer bill in Congress soon.”

 

20130419-1Paul Neiffer, When Farmers Barter.  While bartering is taxable, Paul muses: “Some of these barter transactions are properly reported, however, my educated guess is that much higher percentage is not.”

William Perez, How to Handle Owing the IRS

Tony Nitti, Tax Geek Tuesday: Allocation of Partnership Liabilities “Admit it. Nobody really understands what’s going on in this remote corner of the K-1; typically, most tax preparers just apply the tried-and-true “same as last year” approach to allocating liabilities, and trust that it won’t matter in the end.”  Oh, it does, it does.

Jana Luttenegger, “Extensive Wait Times” Ahead with the IRS (Davis Brown Tax Law Blog).  And it’s not like they were brief before.

Kay Bell, The pros and cons of tax refunds.  While logically you don’t want to let the taxman sit on your money, clients always seem happiest with a fat refund.  That leads many tax advisors to sandbag a bit on payments.

TaxGrrrl, Yes, Olympic Wins Are Taxable (And Should Stay That Way) 

 

Peter Reilly, Pilot To Black Panther To Pastor Calls For Financial Transparency In Churches 

 

Jack Townsend, Corporate Corruption Case Charged With Swiss Bank Accounts to Hide the Loot 

Tax Trials, The Tax Education of Lauryn Hill

Annette Nellen links to the Video of IRS Commissioner Koskinan on the filing season.

 

The Iowa Department of Revenue has a Facebook page!  It’s a good idea, and they actually answer questions, like this:

 20140212-1

It’s great that they are answering disgruntled taxpayers for everyone to see.  Best thing is that it’s available to anybody, not just Facebookers.  You don’t have to bring yourself to “like” the Department of Revenue to read it.

 

David Brunori, Tax Breaks for Lawyers — No Joke (Tax Analysts Blog):

I read recently in the Kansas City Business Journal that Missouri gave a big law firm $2.8 million in tax incentives to move to Kansas City. I thought there must be some kind of mistake. Certainly, no politician would agree to give citizens’ hard-earned money to lawyers. And certainly, they would not give citizen money to big-firm, wealthy lawyers. But once again, reality trumps good tax policy. The Missouri Department of Economic Development gave the nearly $3 million to attract the international law firm Sedgwick LLP to downtown Kansas City. 

Must be a rough neighborhood if that’s considered an improvement.  Or, more likely, Missouri has completely lost its mind.

 

Tax Justice Blog, The States Taking on Real Tax Reform in 2014.  One blog’s “real tax reform” is another blog’s march to madness.

News from the Profession: Big 4 Dude Says Dudes at His Firm Rewarded For Treating Non-Dudes Like Dudes (Going Concern)

 

LincolnToday is Abraham Lincoln’s birthday.  He was born 205 years ago today in Kentucky, before anybody thought of an income tax.  His presidency saw the first U.S. federal income tax, passed to finance the Civil War.  The Revenue Act of 1861, Section 49, imposed a flat 3% levy “upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever” over $800.  It was replaced by a progressive levy in 1862, with a 3% rote on income over $600, with a 5% rate kicking in at $10,000.

The tax expired under its own terms in 1866, after Lincoln’s death.  Lincoln never came back, but the income tax returned to stay in March 1913.

 

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Tax Roundup, 2/5/14: Tax Credits do it all! And: advice from a champion.

Wednesday, February 5th, 2014 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

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

Tax Credits! Is there nothing they can’t do?  Bill offering tax credits to rehab abandoned public buildings advances (Jason Noble, Des Moines Register):

House Study Bill 540 adds abandoned public buildings to the list of properties eligible for tax breaks under the state’s Redevelopment Tax Credits program, meaning businesses or nonprofits could obtain state aid for such projects as they currently can on renovations of industrial or commercial properties.

It’s an idea that Gov. Terry Branstad highlighted in his Condition of the State Address last month, and appears to have bipartisan support.

This is a back-door appropriation to help out school districts and local governments, but running it through tax return hides it from those pesky taxpayers who foot the bill.  As with Congress, the Iowa General Assembly sees the tax law as the Swiss Army Knife of public policy.

 

20121120-2Arnold Kling exposes the vastness of the Right Wing Conspiracy:

The Congressional Budget Office, a Koch-funded organization known to be affiliated with the Tea Party, writes,

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

A conspiracy so vast…

 

James Schneider, guest-posting at Econlog, discusses why we pay our taxes in  The Sucker Tax:

Imagine a state of anarchy (a lack of government not a house full of boys). An evil genius announces that he will impose a sucker tax. Everyone will be taxed ten dollars, and the proceeds will be redistributed back to all the citizens in equal shares without reference to who paid the tax. In a certain sense, this tax maximizes unfairness. It serves no other purpose than to punish people in direct proportion to how much of the tax they paid. To make tax compliers feel even more ridiculous, the evil genius announces that he will make no effort to punish “tax cheats.” A fair outcome of the game requires that there be no suckers. This will occur if everyone evades the tax. However, it will also occur if everyone pays the tax. Under this scenario, you probably wouldn’t pay the tax (even if you believed in fairness) because you would assume that no one else was going to pay the tax.

Now imagine that the evil genius announces that unless everyone pays the tax one person will be punished.

Read the whole thing.  I especially like this: “Compliance does not mean consent.”

 

20121220-3TaxGrrrl, Baby, It’s Cold Outside: Surviving The Winter With Some Tax Help From Uncle Sam

Paul Neiffer considers One Possible Section 179 Strategy. A reader asks Paul, “Should I wait to buy section 179 property until the date 179 property is raised from $25,000 to whatever?”  He has a way for farmers to plan around the uncertainty.

William Perez, Filing Form 1040A May Help Parents Qualify for the Simplified Needs Test.  For college financial aid.

Jason Dinesen asks, Why Doesn’t the IRS Push the EA Designation?:

The IRS already oversees the EA program. There’s no new infrastructure to put in place. No new exams to create. The infrastructure and exams already exist.

Yet throughout the IRS’s ill-fated attempts at creating the “Registered Tax Return Preparer” designation, the IRS rarely mentioned the EA program, except as a side note of “CPAs, EAs and attorneys are exempt from the RTRP testing.”

I think it’s because it would be inconvenient to their efforts to regulate all preparers.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Peter ReillyThe Dog That Did Not Bark – IRS Issues Adverse 501(c)(4) Rulings To Deafening Silence:

An interesting question about the whole scandal narrative is how it would look if it turned out that many of the groups that the IRS “targeted”  were in fact inappropriately claiming 501(c)(4) status.  Tea Party Patriots Inc, for example, spends a lot of energy talking about how all those intrusive questions were harassment, but what if it turns that, in fact, all those phone calls that TPP Inc made telling people that November 2012 was the last chance to stop Obamacare from turning the country into a cradle to grave welfare state could be viewed as political? 

I think Peter is missing the point.  The issue isn’t whether every right-wing group qualified under the standards historically used for 501(c)(4) outfits.  It’s whether the rules were selectively enforced against right-side applicants —  as seems to be the case.   After all, it wouldn’t be OK to examine 1040s of only Republicans even if it turned out some of them were tax cheats.

 

TaxProf, The IRS Scandal, Day 272

 

David Brunori, Casino Taxes for Horses or Children? (Tax Analysts Blog):

Horse racing has been a dying sport since Nathan Detroit bet on a horse named Paul Revere in Guys and Dolls. In Pennsylvania, the schools are broke. So naturally, when governments need money, they turn to a moribund pastime to pay the bills. 

For the children!

 

William McBride, New CBO Projections Understate the Average Corporate Tax Rate. “Particularly, the CBO is using as their corporate tax base measure domestic economic profits from the BEA, which includes both C and S corporations, even though S corporations are pass-through entities not subject to the corporate tax.”  Well, that’s just nuts.

Tax Justice Blog, Gas Tax Remains High on Many States’ Agendas for 2014

 

Joseph Thorndike, Debt Limit Debates Are Good for Theater, Not For Policy Reform. (Tax Analysts Blog)

Jack Townsesnd, TRAC Posts Statistics on Criminal Tax Enforcement Related to IRS Referrals   “[A] surge in IRS criminal investigations referred under Obama has fueled an increase in the number of cases prosecuted.”

 

Answering the Critical Question: What Kids Peeing in the Pool Can Teach Us About Tax Compliance (Leslie Book, Procedurally Taxing)

News from the Profession: McGladrey Interns Are Busy Learning Their Colleagues Are Boring, How to Use an Ice Cream Truck (Going Concern)

 

Nice Work, Champ.  It’s funny how hard it can be for some people to heed their own good advice.  Take this North Carolina man:

Prosecutors said Larry Hill, who coined himself “the people’s champ” for his efforts to keep local children out of trouble, didn’t live by his own message and that his case represented “disturbing hypocrisy.”

In a YouTube clip posted in November 2012, Hill says, “I want all my young people to think before you act. Trouble is too easy to get into, and once you get into trouble, you’ll be all by yourself.”

Federal Judge Earl Britt sentenced Hill to 100 months in prison for conspiracy to defraud the U.S. government and 18 months for filing false tax returns.

If it’s any comfort, Mr. Hill will have plenty of company where he’s going.  But he will have to get used to a more spartan existence:

The judge agreed to the lower sentence of 100 months but said Hill deserved the “most severe punishment to reflect the seriousness of the offense,” pointing out that Hill used much of the money to buy himself expensive jewelry and cars, including a Maserati. The judge also noted that Hill was on supervised release from an insurance fraud prison term when he committed the tax fraud.

That doesn’t make his advice any less sound:

He should follow it sometime.  Russ Fox has more on Mr. Hill.

 

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Tax Roundup, 2/3/14: The Fable of the Wife’s Purse and your legislature. And: start with the right name!

Monday, February 3rd, 2014 by Joe Kristan

20120906-1Why do state legislators enact such dumb laws?  After speaking to a group of State Senate Presidents, David Brunori has some thoughts ($link, unfortunately) on why they persist in enacting special incentive breaks for their special friends:

I said that tax incentives are largely unnecessary because business location decisions are mainly determined by labor costs and access to markets (Boeing proved that to some extent). But several senators quickly asked about industries such as filmmaking or high-tech, in which labor costs and market access aren’t nearly as important: Taxes would matter more, yes? I had to fall back on the “government still shouldn’t be picking winners and losers” argument, which I think is a powerful one. But it doesn’t resonate well with those who pick winners and losers all the time — in all aspects of public policy.

My response would be giving tax breaks to one business or industry means screwing all of your other constituents to pay for it.  It’s like taking your wife’s purse to the bar to buy drinks for the girls — yes, there are winners, but somebody loses too, and even the winners don’t respect you.

I like this “destroy the village to save it” argument:

 One senator asked whether widespread use of tax incentives would eventually make the corporate tax so irrelevant that its repeal would be easy. Again, indignantly, I explained all that is wrong with incentives. The senator said he agreed and was merely pointing out that the widespread use of incentives was a sure way to eliminate the corporate tax.

If that were true, I think we’d have seen at least one corporate tax collapse under the weight of its loopholes.  If any state corporation tax were ripe for collapse, it would be Iowa’s.  It has the highest rate in the nation, but its loopholes and credits make it pretty much useless, raising less than 5% of Iowa’s tax revenue.  Yet it still is going strong.

The best explanation for our bad tax policies are found in the “Public Choice” analysis of public policy pioneered by Gordon Tullock and James Buchanan.  They say that public officials, like everyone else, respond to incentives.  The incentives for legislators and their executive-branch enablers are to give money to well-connected constituents who will reward them with campaign cash.  They understand and appreciate the largesse, and the taxpayers whose pockets are being picked don’t notice the little larcenies that make the largesse possible.

Or, in my Fable of the Wife’s Purse, the girls at the bar know who’s buying, but the wife doesn’t, so the incentives are all in favor of the bar girls.

 

taxanalystslogoChristopher Bergin, The State of Our Union: My, My, My (Tax Analysts Blog):

The only thing new about the myRA is that it’s being done by executive fiat, which makes it lamer still. That leads me to a question: Shouldn’t we have the Treasury Department working on reforming our tax code instead of running around placing fig leaves over tough truths, such as the fact that many of us don’t save enough for retirement? A suggested starting point: Treasury should study why the myriad provisions already in the tax code that are designed to provide incentives to save for retirement aren’t working.

Oh, I’m sure the next tax code change will work so much better than all of them so far.

 

20111040logoWilliam Perez, Getting Your Name Right on the Tax Return:

If a person changed their name last year, now is a good time to check their Social Security card. The name shown on a person’s Social Security card is the name the IRS expects to see on the tax return. If a person’s name has changed, the person will first need to update their name with Social Security before using their new name on their tax return.

This problem comes up every year.  If you get married, or divorced, and you change your name, you need to file under the name that Social Security has if you e-file.  Even if you paper-file, using the “wrong” name can delay your refund.

 

Jason Dinesen,Life After DOMA: Gift Tax

Russ Fox, Tax “Professionals” Behaving Badly.  Russ recaps tax pros gone off the rails.

Annette Nellen passes on Tax mistakes to avoid – WSJ article.  I wonder if the WSJ will follow up with “Tax mistakes to seek.”

Kay Bell, Married couples filing joint returns share all tax liability, too.

 

Scott Drenkard, Indiana House and Senate Pass Business Personal Property Tax Reform.  “Taxes on business personal property are more distortive than other means of collecting revenue.”

Ben Harris, Variation in EITC Take-up, County by County:

The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South.

Half?  Wow.

 

nfl logo

TaxGrrrl, Ads Score Big At Super Bowl And At Tax Time, Too   

Peter Reilly, Flap About NFL Tax Exemption Seems Silly.  Not as silly as Denver’s first play from scrimmage yesterday.

Tony Nitti, Super Bowl Tax Tale Of The Tape: Who Ya’ Got?  “When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious ‘busy season’ work week, this one with a bit of a hangover.”

 

TaxProf, The IRS Scandal, Day 270

Jack Townsend, Administration Insists that FATCA Will Not Be Further Delayed.  We must make personal finance a huge hassle for Americans abroad as quickly as possible.

 

On Friday Going Concern wished you a Happy First Day of the Tax Filing Season!

 

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Tax Roundup, 1/30/14: Gas tax increase advances. And: IRS starts to accept 1040s, but not issuing refunds yet.

Thursday, January 30th, 2014 by Joe Kristan

 

Via Wikipedia

Via Wikipedia

They’re still trying to increase Iowa’s gas tax, reports William Petroski of the Des Moines Register:

An Iowa House subcommittee voted 5-0 today to approve a 10-cent increase in the state’s gasoline tax, although the proposal still faces steep odds of winning final approval this session.

The bill, managed by Rep. Josh Byrnes, R-Osage, would raise the fuel tax by three cents the first year, an additional three cents and following year, and four cents the third year. When fully implemented, the tax increase would generate $230 million annually for city, county and state roads.

It’s always hard to increase taxes in an election year.  There is a good argument that gas taxes are the way to pay for roads, and that Iowa’s tax needs updating, but so far Iowa’s road spending is in line with most other states, and the talk of a “crisis” isn’t convincing everyone.

 

Iowa Farmer Today, Little action expected on taxes in Legislature.  It quotes my co-presenter at the Farm and Urban Tax Schools, Roger McEowen:

McEowen, head of the Center for Agricultural Law and Taxation (CALT) at Iowa State University, says it is always possible the state might do something to clean up its tax code, but it appears unlikely this year.

“Frankly, I don’t think anything important is going to happen on taxes, not in this legislative session,” he says.

It is a sentiment echoed by many other legislative observers.

Like me.

 

 

20130419-1TaxGrrrl, IRS Accepting Returns As Part Of Test Program, Not Issuing Refunds Early

Trish McIntire, Yes, You Have to Wait.  If you haven’t received your W-2, you can’t file using your last 2013 pay stub.

Jason Dinesen, Iowa Firefighter/EMS Tax Credit.  A $50 spiff to volunteer firefighters and EMS people. One more feel-good provision that clutters up the tax law but is too small to enforce.

Brian Strahle, SALT PRACTICES: WHAT PEOPLE THINK, BUT DO NOT SAY.  “SALT” is “State And Local Taxes.”

Paul Neiffer looks at the predictably expensive and absurd farm bill: How To Make an Extra $100 Per Acre!  It brings to mind the old joke:  “How did the farmer double his income?  He bought a second mailbox.”

Related: Billionaires Received Millions From Taxpayer Farm Subsidies: Analysis (Huffington Post)

William Perez, Earned Income Credit Recipients by State

 

 

Phil Hodgen, How Many Appointments in Buenos Aires to Expatriate?  The State Department doesn’t always make it easy to shed U.S. citizenship.

Brian Strahle, FATCA and Unintended Consequences.  A story of an American in Switzerland who is losing the ability to commit personal finance because of this anti-”fatcat” legislation.

 

taxanalystslogoDavid Brunori, A Sales Tax Conundrum (Tax Analysts Blog):

The sales tax has been a blessing and a curse. One of its great virtues is that it is collected by the vendor, which then remits it to the state. Neither the taxpayer nor the tax agency has much to do except pay and collect. The vendor does the work. The success of the sales tax for the last 90 years is largely attributable to vendor collection. But if the vendor doesn’t collect and remit the appropriate tax, it is liable for the amounts. The vendor will have to pay the unremitted tax and could face severe penalties and even criminal charges.

So if a vendor is unsure about the status of an item it’s selling, it will collect the tax. Better to collect and remit tax not owed than to face the consequences of a mistake.

David notes that online vendors will have to deal with many states, with very confusing rules, and that over-collection of sales taxes is the inevitable result.  Not that the states mind.

Cara Griffith wonders, Are State Tax Authorities Hiding the Ball? (Tax Analysts Blog).  “I’ve noticed an emerging trend in some state departments of revenue – a move toward secret law. In a time when transparency has become a buzzword, some revenue departments are doing what they can to avoid transparency.”

 

William McBride, State of the Union: Corporations Continue to Flee (Tax Policy Blog)

Tax Justice Blog, Why the Business Tax Reform Proposal in Obama’s SOTU Is Not as Great as It Sounds

Kay Bell, Taxes touched on lightly in State of Union via EITC, MyRA

Joseph Thorndike, The War on Wealth Is Not New.  (Tax Analysts Blog).  True.  And it has always been dishonest, disgraceful, corrupt, and impoverishing.

 

The Critical Question.  What Happens When You Mix a Seedy Strip Club, an Unsophisticated Taxpayer and the Tax Court? (Going Concern).  I’m sure if it was one of those real elegant and distinguished strip clubs, there wouldn’t have been a problem…

 

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Tax Roundup, 1/23/2014: Ideas edition. And: why are we taxing pot?

Thursday, January 23rd, 2014 by Joe Kristan

20130117-1Bad idea.  Refundable tax credits are the favorite kind of credit for tax fraudsters because they generate tax refunds even when there is no tax paid or withheld.  The earned income tax credit is refundable, and that feature has something to do with 20-25% of the credits issued annually being improper.

An intrepid group of Iowa legislators isn’t letting that stop them.  They have introduced HF 2027 to create a new refundable tax credit in Iowa — a piggyback credit equal to 25% of the als0-refundable (and fraud-ridden) American Opportunity Tax Credit.

The AOTC is based on a percentage of tuition paid for the first four years of college.  It phases out at higher income levels.

Politicians can’t resist using the tax law to pass out political favors.  But even the best-intended ones make the tax law more complicated and, by creating a class with something to lose, they make it that much harder to reform.  When there already countless tuition aid programs, not to mention state-funded colleges and universities, it’s unwise to just throw in one more program willy-nilly.

 

Good idea.  Republican Party to vote for repeal of U.S. anti-tax dodging law (Patrick Temple-West).  

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

I hate the headline on the article.  I would have written it “Republican Party to vote to decriminalize personal finance for Americans abroad.”  FATCA makes outrageous demands of non-U.S. institutions that have made Americans unwelcome at many foreign banks.

Related: Republicans Target FATCA As Another Windmill to Attack  (Jack Townsend)

 

haroldWorse idea: film tax credits.

Accounting Web, Film Credits: Your Tax Dollars at Work Making Movies:

Actor/director Ben Affleck told the Los Angeles Times he’s filming part of Live by Night in Georgia, a state that is popular for its film credit availability.

“It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin,” he said.

Understood – but there’s a disconnect here. Affleck and his fellow actor/director, Matt Damon, both advocate and participate in using film credits to reduce taxes so they can make their movies. But both are also on record saying, because they are wealthy, their taxes should be raised.

What’s wrong with this “picture?”

Why is the film business, of all businesses with thin margins, entitled to special breaks?  Because politicians are suckers for celebrities.

Joseph Henchman, The Economist Reviews State Film Tax Credit Programs (Tax Policy Blog):

The report notes that it’s getting tougher to compete with Louisiana’s 30 percent refundable credit or New York’s $420 million annual budget to subsidize film and TV, and that independent analyses find these do little on net for job creation or economic growth.

But you can’t forget the intangibles!  As a Des Moines columnist breathlessly reported at the high point of the Iowa film credit looting spree:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Fortunately, Iowa is sadder but wiser now.

 

20130916-1Russ Fox, More Work for Tax Professionals: Submission IDs for Efiled Returns:

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

And anybody who’s been around a tax prep office during tax season knows there aren’t all that many extra minutes lying around.

 

TaxGrrrl, 11 Questions To Ask When Hiring A Tax Preparer .  A good list.

Leslie Book, The Ban on Claiming the EITC: A Problematic Penalty (Procedurally Taxing).  “We have not addressed the special EITC ban that arises when a taxpayer inappropriately claims the EITC.   The following gives some context, with a focus on the two-year ban for reckless or intentional (but not fraudulent) errors.”

William Perez, Which Tax Form to File?

 

Peter Reilly, Is Tax Court Rebelling Against Supreme Court?  Short answer: no.

Tyler Cowen, Income inequality is not as extreme as many citizens think.

TaxProf, The IRS Scandal, Day 259

Cara Griffith, When State Taxes and Interstate Compacts Collide (Tax Analysts Blog).  “But states can’t have their cake and eat it too; a compact cannot be both binding and offer states significant choices on whether to follow its terms.”

Tax Justice Blog calls the IRS budget cut The Dumbest Spending Cut in the New Budget Deal.  It’s bad policy, but it’s asking a lot of Congressional Republicans to fund an organ of their opposition.

 

20130607-2Because they can.  Why Exactly Are We Taxing Pot? (David Brunori, Tax Analysts Blog):

But I must ask: What is the rationale for imposing special taxes on marijuana? Excise taxes are appropriate to pay for externalities – the costs to society of using the product that are not borne by the market. But it is unclear what, if any, externalities are created by smoking pot.

Economic development in the Doritos aisle?

 

Kay Bell, IRS audit results in $862,000 lawsuit award for taxpayer.  Because he tripped over a phone cord.

 

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Tax Roundup, 1/15/14: Serving society by shooting jaywalkers, sending billionaires to elementary school.

Wednesday, January 15th, 2014 by Joe Kristan

Don’t forget to mail your 1040 first quarter estimated tax payments today!

 

Wikipedia image

Wikipedia image

“Society will be best served by allowing him to continue his good works.”  So said Federal Judge Charles Kocaras in sentencing Beanie Baby Billionaire Ty Warner to two years of probation and 500 hours of community service.  Mr. Warner admitted evading taxes on more than $3.3 million in income through the use of Swiss accounts in a plea deal, but his total unpaid taxes was in the neighborhood of $5.6 million, according to Bloomberg News.

So Mr. Beanie Baby gets to do good works.  It’s remarkable, considering the federal sentencing guidelines for a $5 million tax loss start at a 51-month sentence.

Meanwhile, an American woman who has lived her adult life in France is terrified that she will be financially ruined if she starts complying with foreign reporting requirements that she had no idea existed.  A Canadian born of an American parent who has never been to the U.S. faces ruinous penalties because he never filed U.S. tax returns or FBAR reports — it never occurred to him that he might have to file U.S. taxes.  A second-generation American who inherited a foreign bank account from her father faces a minimum of $40,000 in penalties after not paying a whopping $100 in income tax on the account, which she didn’t even know existed.

So society is best served by allowing Mr. Beanie Baby to help out in classrooms, while the IRS quietly imposes outrageous penalties on the innocent conduct of non-billionaires for foot-faulting their paperwork?  I think society would be best served by letting people voluntarily come into compliance without facing financial ruin.  I think society would be best served by not imposing insanely severe penalties for failing to report a Canadian bank account on time when no tax was avoided.  I think society would be best served by not terrorizing Americans abroad for committing personal finance.  But I’m not a federal judge, so my idea of what best serves society doesn’t mean much.

Related:

Jack Townsend, The Beanie Baby Man, The Tax Evader Adult Man, Ty Warner, Gets Probation!  “I do ask the question that comes immediately to mind.  What is it about the very rich that seems to resonate with sentencing judges?”

Janet Novack, No Jail Time For Beanie Babies Billionaire Tax Evader Ty Warner   “Even after those payments, he will still, according to an accounting he gave the government, be worth more than $1.8 billion.”

 

Kyle Pomerleau, IRS Data on Income Shifts Shows Progressivity of Federal Individual Income Tax (Tax Policy Blog):

In 1980, the top 1 percent accounted for 8.46 percent of adjusted gross income and 19.06 percent of income taxes paid: a difference of 10.59 percent. By 2011, their share of income increased to 18.7 and their share of all income taxes paid increased to 35.06; the difference increased to 16.35 percent.

Top 1 pays more than bottom 90

 

So increasing taxes on the rich didn’t make things more “equal.”  How about that.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Howard Gleckman, IRS Gets Hammered in the 2014 Budget Agreement (TaxVox):

The Internal Revenue Service is one of the biggest losers in the 2014 budget deal agreed to last night by House and Senate negotiators. Under the agreement, the service would get just $11.3 billion, which is $526 million below its 2013 budget and $1.7 billion less than President Obama requested. 

Congress uses the tax law as the Swiss Army Knife of public policy.  It has a sprawling portfolio that ranges from energy policy to welfare to health care — responsibilities that dwarf many of the cabinet agencies nominally overseeing those areas.  Yet Congress, while increasing the responsibility of the IRS more and more, is cutting its resources.  That won’t end well.

Yet the IRS in a way has itself to blame.  It’s outrageous politicization under Doug Shulman and the resulting Tea Party harassment have had the predictable effect of making the Republicans consider the IRS a political opponent.  Nobody wants to fund the opposition.  And no, I don’t buy Mr. Gleckman’s line that “…the 501(c)(4) mess was caused in part by a lack of resources.”  If you don’t have resources, you don’t spend extra time singling out certain political views for “special” treatment.”

 

David Brunori, Apple and Wal-Mart Are Perfect Together in a World of Bad Tax Policy (Tax Analysts Blog):

In any event, the purveyors of tomorrow’s technology and cheap toiletries recently got together to lobby for a sales tax holiday in Wisconsin. In that regard at least, Apple and Wal-Mart are very much alike. They favor bad tax policy when it helps their bottom line. 

Of course they do.  The real shame is the legislators who make it happen.

microsoft-apple

 

TaxGrrrl, No Criminal Charges Expected In FBI Investigation Into IRS Scandal

William Perez discusses Prices for Professional Tax Preparation Services.

Kay Bell, California has $16 million in undeliverable 2012 tax refunds

Robert D. Flach, THE FUTURE OF THE RTRP DESIGNATION – THE CONVERSATION CONTINUES:  “To be effective the organization that administers the independent voluntary RTRP credential must have the backing, support, and recognition of the entire industry, and not just one component or organization.”

 

TaxProf, The IRS Scandal, Day 251

If the sentence is carried out on April 16, it’s cruel and unusual punishment.  Governor Christie Redeems Himself By Signing “CPA Death Penalty” Legislation in New Jersey (Going Concern)

 

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Tax Roundup, 1/6/2014: Start this year’s year-end planning now! And lots more.

Monday, January 6th, 2014 by Joe Kristan

20140106-1I’m back.  It was good to take a little time off after year-end planning season and before the 2013 return season starts.  But now that it’s 12 below with howling winds, I might as well be at the office.

It was sort of a busman’s holiday, though, as I got an early start on my 2014 year-end tax planning.   While December year-end planning is important, it’s asking a lot of one month to do the work of all 12.  You can do some important tax planning in January that will pay off all year long.  For example:

- You can fund your 2014 Individual Retirement Account right now.  If you are married, you can also fund your spousal IRA.  The maximum contribution is $5,500, or $6,500 if you will reach at least age 50 by December 31, 2014.

- You can fund your 2014 Health Savings Account today too.  The HSA limit for taxpayers with a high-deductible plan and family coverage is $6,550 this year; for a single plan, the limit is $3,300.  You need to have a qualifying high-deductible insurance policy, but if you do, you can deduct your contribution and withdraw funds for tax-deductible expenses tax-free.  If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs.  If you stay too healthy to use the funds on medical care, withdrawals are taxed much like IRA withdrawals.

Using spousal IRAs and an HSA, a 50-year old with family coverage can tuck away a combined $19,550 right now and have it earn interest or dividends tax free right away — 15 1/2 months sooner than if you wait until April 15, 2015, the last day you can make these contributions.  And by saving it now, you won’t be tempted to spend it later in the year.

A few other things that you can do right away to get some of your 2014 year-end planning out of the way:

- If you care about estate planning, nothing keeps you from making the $14,000 maximum 2014 exempt gift to your preferred family donees right now.

- Make sure you’ve maxed out your 2014 401(k) deferral with your HR people — or at the very least, be sure you are deferring as much as you can get your employer to match.

- If you are an Iowan with kids, you can make a 2014 College Savings Iowa contribution that you can deduct on your 2014 Iowa 1040.  The maximum deductible contribution is $3,098 per donor, per beneficiary, so a married couple with two kids can put away $12,392 right now.  The Iowa tax benefit works like an 8.98% bonus to you for putting money in your college savings pocket.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 242: Lois Lerner Is 2013 Tax Person of the Year.  The TaxProf provides access to a Tax Analysts piece that says:

     While many of the Service’s problems were not necessarily its own fault, the exempt organization scandal was an almost entirely self-inflicted wound. No one personifies that scandal more than Lois Lerner.

Lerner ignited a political and media firestorm when she confessed in May that the exempt organizations unit of the IRS Tax-Exempt and Government Entities Division inappropriately handled many Tea Party groups’ exemption applications.

The now former exempt organizations director’s admission and subsequent refusal to testify before Congress contributed to her becoming the public face of the scandal. Although Lerner does not bear sole responsibility for the IRS’s missteps in processing conservative groups’ exemption applications, the publicity of her role in one of the year’s biggest news stories earns her the distinction of being Tax Notes’ 2013 Person of the Year. 

And in spite of much wishful thinking, it is a scandal.

It’s worth noting that Tax Analysts gives an honorable mention to Dan Alban, the Institute for Justice attorney behind the District Court defeat for the IRS preparer regulation power grab.

 

1040 2013William Perez, How Soon Can a Person File Their 2013 Tax Return?: “The Internal Revenue Service plans to begin processing personal tax returns on Friday, January 31, 2014, for the tax year 2013 (IR-2013-100).”  But don’t even try to get it done until you have your W-2s and 1099s all in hand.

Jana Luttenegger, Reinstating Tax-Exempt Organizations  (Davis Brown Tax Law Blog). She explains new IRS procedures for organizations that have lost their exemption by failing to file annual reports with the IRS.

Kay BellSocial Security taxable earnings cap in 2014 is $117,000. Thousands have already hit that tax limit.

Jason Dinesen, Small Business Planning: Got Your Financial Statements and Budget Done Yet?

Paul Neiffer, Remember Your Simplified Home Office Deduction

TaxGrrrl, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More.

Russ Fox, 1099 Time.  A look at who has to issue information returns, and who gets them.

 

Robert D. Flach poses AN ETHICAL, AND PERHAPS LEGAL, DILEMMA:

Beginning with the 2014 Form 1040, am I legally, or ethically, required to assess my client a penalty for not having health insurance coverage?  Or can I, as I do with the penalty for underpayment of estimated tax, ignore the issue and leave it to the IRS to determine if a penalty is appropriate?  Will I face a potential preparer penalty if I ignore the issue?

It’s a good question.  I suspect they plan to make us ask the question, under the same sort of rules that make preparers unpaid social workers for the earned income tax credit.  I don’t expect to ever have to ask the question, though, as I think this dilemma will resolve itself by an indefinite delay, and eventual repeal, of the individual mandate as Obamacare falls apart.

 

David Brunori, State Tax Reform Advice for 2014 – Think About Spending (Tax Analysts Blog). Sometimes I think that’s all they think about.  But hear David out:

But in thinking about tax reform efforts in the past year, I am more convinced than ever that our refusal to rethink the size of government makes fixing problems with the tax code impossible. Here is what we know. Cutting government programs is difficult because each program has a constituency that will fight like a gladiator to protect its access to public money. So when the topic of tax reform comes up, conservatives and liberals vow to find a fix that will neither raise nor decrease spending. But we also know that politicians – the majority anyway – generally hate raising taxes. This reflects the fact that most of their constituents hate the idea of paying more taxes. But the costs of government continue to increase. And that leads to worse tax policy as states look to gimmicks, excises, gambling, and other junk ways of collecting revenue. It also ensures that some horrible tax policies are never fixed.

If the government dialed back spending to population-and-inflation adjusted 1990 numbers, I don’t think mass famines would result.

Scott Hodge, Despite Rising Inequality, Tax Code is at Most Progressive in Decades (Tax Policy Blog). I’m not sure “despite” is the right word here.

Annette Nellen, Continued bonus depreciation or tax reform?

Cara Griffith, Cyclists: The Next Great Source of Tax Revenue? (Tax Analysts Blog):

 While I strongly believe taxes should not be used to encourage or discourage behavior, the effect of requiring cyclists to register their bikes is not the big problem with these types of proposals. The real problem is that they don’t raise any revenue. Dowell’s suggestion that a bike registration fee would raise some $10 million for the city of Chicago is a pipe dream. Almost every cent would be used simply to administer the program.

From the interests of the bureaucrats proposing the program, just funding new patronage jobs is a perfectly acceptable result.

Howard Gleckman, Time To Park The Commuter Tax Subsidy (TaxVox)

Peter Reilly, Are IRS Property Seizures The Stuff Of Reality TV?   Now there’s some grim viewing.

The ISU Center for Agricultural Law and Taxation has a shiny new look at its website.

Tony Nitti, Yes Virginia, There Is A Tax Extender Bill In Congress.

The Critical Question: If You Won the Lottery Tomorrow, Would You Still Go to Work? (Going Concern).  Only to clean out my desk, and laugh.

 

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Tax Roundup, 12/18/2013: Have you made your College Savings Iowa gift? And: la loi, c’est IRS!

Wednesday, December 18th, 2013 by Joe Kristan


csi logo
Year-end is sneaking up on us.
 So it doesn’t catch us completely unawares, the Tax Update will provide a year-end idea each day through December 31.  Today we pass on a reminder that Iowans can deduct contributions to College Savings Iowa, the state’s Section 529 college savings plan, on their Iowa 1040s — but only if they fund their contributions before year-end.  From the State Treasurer:

Contributions to College Savings Iowa must be made by the end of the year to qualify for the 2013 Iowa state tax deduction. Account holders can deduct up to $3,045 for each open account and can contribute online at www.collegesavingsiowa.com.* Contributions sent by mail must postmark checks by December 31, 2013.

College Savings Iowa lets anyone – parents, grandparents, friends and relatives – invest for college on behalf of a child.  Investors do not need to be a state resident and can withdraw their investments tax-free to pay for qualified higher education expenses including tuition, books, supplies and room and board at any eligible college, university, community college or accredited technical training school in the United Sates or abroad.

It’s a great way to help your kids start out in life without a big student loan.

William Perez is doing yeoman’s work on year-end planning at his place; today he has Donating Cash to Charity at Year-End.  

Kay Bell offers Donating appreciated assets to your favorite charity

 

45R credit chartLa Loi, C’est IRS.  It’s not surprising that the IRS would disregard mere vendor rules when it believes it can pass out tax credits to taxpayers who clearly don’t qualify.  That’s exactly what they did yesterday when they announced that it will allow the (ridiculously complex) Sec. 45R small employer health insurance credit in Washington and Wisconsin in 2014, even though those states won’t have the required “Small Business Health Options Program” exchange in place.

The Code clearly requires allows the credit only to employers buying through the exchange starting in 2014, but the IRS has granted “transition relief” waiving that requirement.  Heck, why not just grant the credit to anybody who just has “health” next year.  You know, as a transition rule.

 

No.  Is Obamacare Really an Improvement on the Status Quo?  (Megan McArdle).  “Bob Laszewski, an insurance industry expert who has become the go-to guy for the news media on the rollout of the Patient Protection and Affordable Care Act (because the insurance industry is extremely reluctant to talk), tells the Weekly Standard that he thinks come Jan. 1, more people will have lost private insurance than gained it…”

 

William McBride, Economists Find Eliminating the Corporate Tax Would Raise Welfare (Tax Policy Blog).  That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan does just that.

 

 

TIGTALeft hand, meet right hand.   The Treasury Inspector General for Tax Administration reports “IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt“:

Federal law generally prohibits agencies from contracting with businesses that have unpaid Federal tax liabilities.

TIGTA reviewed the IRS’s controls over the integrity and validity of vendors receiving payments from the IRS, including the vendor’s tax compliance and suspension and debarment status. TIGTA also reviewed controls over the IRS’s Vendor Master File (VMF), which contains information about vendors that enables them to do business with the IRS.

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 IRS vendors (7 percent) had a combined $589 million of Federal tax debt as of July 2012, the most recent data for which information was available at the time TIGTA conducted the review. Few of the vendors had a current tax payment plan.

That means the IRS breaks its own rules in dealing with about one out of 15 of its vendors — another instance where the IRS breaks the rules with no consequence.  A “Sauce for the Gander” rule, one that would penalize IRS personnel who break rules just like they do for taxpayers, might help here.

 

Sometimes the IRS gets it right.  IRS Provided Some Good Tips this Morning (Russ Fox)

 

Tony Nitti, Tax Geek Tuesday: Profits Interests, Capital Interests, And Restricted Property:

 

In Crescent Holdings v. Commissioner 141 T.C. 15 (2013), the Tax Court doled out three lessons every tax advisor con learn from:

 

  1. How to differentiate between a profits interest and a capital interest in a partnership.

  2. Section 83 applies to the grant of a capital interest,

  3. If a capital interested in a partnership has not yet vested under the meaning of Section 83, the recipient should not be allocated any undistributed income from the partnership.

  4. The income allocable to an unvested capital interest granted by a partnership must be allocated to the remaining partners of the partnership.

Good stuff.

 

TaxProf, Billionaires’ Use of Zeroed-Out GRATs Blows $100 Billion Hole in Estate Tax.  Paul Caron quotes a Forbes article.

Jack Townsend, Raoul Weil Has First U.S. Court Appearance

TaxGrrrl, 12 Days Of Charitable Giving 2013: Sow Much Good

 

 

Robert D. FlachWOULDN’T IT BE NICE.  He discusses the new IRS Commissioner nominee and asks,  “Wouldn’t it be great to have a person who had actually prepared tax returns for a living in the position?”  What, and have somebody who actually knows something?

20131211-1Robert has a thing about the Tea Party, but I suspect even he would Follow the Tea Party on Stadium Financing Issues (David Brunori, Tax Analysts Blog):

The Atlanta Braves are planning to move their stadium to the suburbs. The Braves blackmailed, threatened, and coerced the backboneless politicians in Cobb County, Ga., to pay for the stadium… As far as I can tell, the only organization to have put up any fight against this insane corporate welfare is the Atlanta Tea Party.”

When the Tea Party movement sticks to the fight for smaller government, there’s a lot to like there.

 

 

Tax Justice Blog, Income Tax Deductions for Sales Taxes: A Step Away from Tax Fairness

Joseph Thorndike, When Is a “Fee” Actually a Tax? When Politicians Say It Isn’t (Tax Analysts Blog)

Peter Reilly,  How To Tax Kody Brown And The Sister Wives And Other Polygamous Families?  He quotes my Twitter feed.  If Peter follows @joebwan, maybe you should too!

 

News From the Profession.  There’s a Hidden Deloitte Auditor in the Airport Cell Phone Crasher Video Making the Rounds (Going Concern)

 

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Tax Roundup, 12/12/13: Take the $20 million edition. And: Grassley says extenders will pass in 2014.

Thursday, December 12th, 2013 by Joe Kristan

 

20131212-1Next time, take the cash.  A corporation decided a tax deduction from walking away from securities it had paid $98.6 million for would be worth more than the $20 million in cash it had been offered for them.  The Tax Court yesterday told them that they made a big mistake.

Gold Kist, Inc. bought the securities issued by Southern States Cooperative, Inc. and Southern States Capital Trust in 1999.  The issuers offered to redeem the securities from Gold Kist in 2004 for $20 million.  (Gold Kist was later acquired by Pilgrims Pride Corp, which inherited Gold Kist’s tax history.)

Gold Kist believed that it would get an ordinary loss deduction if it simply abandoned the securities, vs. a capital loss on the sale.  Ordinary losses are fully deductible, while corporate capital losses are only deductible against capital gains, and they expire after five years.    A $98.6 million ordinary loss would be worth about $34.5 million in tax savings, which would be worth more than $20 million cash and a capital loss, which can only offset capital gains, and only those incurred in the nine-year period beginning in the third tax year before the loss.

Unfortunately, the Tax Court found a flaw in the plan: Sec. 1234A.  It reads:

§ 1234A – Gains or losses from certain terminations
Gain or loss attributable to the cancellation, lapse, expiration, or other termination of—

(1) a right or obligation (other than a securities futures contract, as defined in section 1234B) with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer, or

(2) a section 1256 contract (as defined in section 1256) not described in paragraph (1) which is a capital asset in the hands of the taxpayer,

shall be treated as gain or loss from the sale of a capital asset. The preceding sentence shall not apply to the retirement of any debt instrument (whether or not through a trust or other participation arrangement).

The taxpayer said that Sec. 1234A didn’t apply, according to the court:

Petitioner’s primary position is that the phrase “right or obligation with respect to property” means a contractual and other derivative right or obligation with respect to property and not the inherent property rights and obligations arising from the ownership of the property. We disagree.

The taxpayer said the legislative history of the section supported their argument.  The Tax Court thought otherwise:

In our view Congress extended the application of section 1234A to terminations of all rights and obligations with respect to property that is a capital asset in the hands of the taxpayer or would be if acquired by the taxpayer, including not only derivative contract rights but also property rights arising from the ownership of the property. 

The taxpayer also said that if that’s what Congress meant, the IRS would have revised Rev. Rul. 93-80, which allows an ordinary loss on certain abandonments of partnership interests.  The Tax Court responded:

The ruling makes clear that, if a provision of the Code requires the transaction to be treated as a sale or exchange, such as when there is a deemed distribution attributable to the reduction in the partner’s share of partnership liabilities pursuant to section 752(b), the partner’s loss is capital. Rev. Rul. 93-80, supra, was issued four years before section 1234A was amended in 1997 to apply to all property that is (or would be if acquired) a capital asset in the hands of the taxpayer. As we previously stated, the Commissioner is not required to assert a particular position as soon as the statute authorizes such an interpretation, whether that position is taken in a regulation or in a revenue ruling. 

So it’s a capital loss only for the taxpayer.

Presumably the Gold Kist board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

Cite: Pilgrim’s Pride Corp, 141 TC No. 17.

 

Grassley-090507-18363- 0032Quad City Times reports Grassley predicts tax credits extensions, but not until 2014:

 There won’t be any extension before Christmas, Grassley predicted, but not because of political opposition to the credits. Based on past performance, he said, Congress will return after the New Year and approve four dozen or more tax credits.

“There are a lot of economic interests” represented in the tax credits, he said. Those interest groups collectively “put a lot of pressure on Congress to re-institute the credits.”

The delay, Grassley said, can be attributed to the ongoing discussion about “massive tax reform.”

Senator Grassley has more insight about what will happen than I do, but I can”t share his faith that the lobbyists will overcome Congressional dysfunction.  I had hoped any extenders would be included in the budget deal announced this week, and they weren’t.

Actually, I would prefer that the extenders not be extended at all rather than passed temporarily once again.   The whole process of passing temporary tax breaks is a brazen accounting lie.  Congressional budget rules score temporary provisions as if they will really expire, even when they have been extended every time they expire.  Once again, behavior that would lead to prison in the private sector is just another day in Congress.

 

Roberton Williams, Budget Deal Doesn’t Raise Taxes But Many Will Still Pay More:

The budget deal announced Tuesday wouldn’t raise taxes—members of Congress can vote for it without violating their no-tax pledges. But the plan will collect billions of dollars in new revenue by boosting fees and increasing workers’ contributions to the Federal Employee Retirement System (FERS). To people paying them, those higher fees and payments will feel a lot like tax hikes. 

 

David Brunori, States Should Just Say No to Boeing (Tax Analysts Blog):

Boeing is acting rationally — politicians are willing to give things away, and Boeing is willing to accept those things. But politicians should try saying no once in a while. Maybe we would respect them a little more.

Well, it would be hard to respect them less.

 

 

Source: The Tax Foundation

Source: The Tax Foundation

William McBride, Obama: Cut the Corporate Tax Rate to Help the Poor (Tax Policy Blog):

Indeed, cutting the corporate tax rate is probably the best way to increase hiring and grow wages. The President cited no studies to support this, because it is not really in dispute among economists. So why not cut the corporate rate, period, without any conditions or offsetting corporate tax increases elsewhere?

Corporate rate cuts would be a good thing, but don’t forget that most business income nowadays is reported on individual returns.

 

Joseph Thorndike, Congress Is Making a Bad Deal on the Budget, but One Republican Has a Better Idea (Tax Analysts Blog)

It’s amazing what passes for success in Washington these days. Budget negotiators on Capitol Hill have delivered a non-disaster, cobbling together a pathetic half-measure that pleases no one and accomplishes almost nothing.

True, it allows Democrats and Republicans to avoid abject failure, which is no small thing, given recent history. These days, just keeping the wheels from flying off qualifies as statesmanship.

Considering what happens when Congress “accomplishes” something (Obamacare, anyone?), let us praise them for doing as little as possible.

 

Robert D. Flach has wise counsel for clients:  PUT IT IN WRITING.

So if you have a tax question you want to ask your preparer, instead of picking up the phone submit the question in an email, with all the pertinent facts.  And if you receive a notice from the IRS or your state, mail it to your tax pro immediately.

Yes.

 

William Perez, Donating Appreciated Securities to Charity as a Year-End Tax Strategy

Paul Neiffer, Is it Time for an IC-DISC.  If you produce for export, an IC-DISC can turn some ordinary income into dividend income, taxed at a lower rate.

Tony Nitti, IRS The Latest To Send Manny Pacquiao To The Mat: Boxer Reportedly Owes $18 Million

Kyle Pomerleau, Senator Baucus’s Plan for Cost Recovery Heads in the Wrong Direction

TaxProf, The IRS Scandal, Day 217

Cara Griffith, Improving the Transparency of New York’s Tax Collection Process (Tax Analysts Blog)

Jack Townsend, Are Brady Violations Epidemic?  A federal appeals judge says prosecutors routinely withhold evidence that would help defendants.

 

News from the Profession: The PCAOB Is Grateful To The PCAOB For the PCAOB’s Work (Going Concern)

 

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Tax Roundup, 12/4/2013: Justice Scalia doesn’t believe in the Tax Fairy. And sure, the IRS can run another tax credit!

Wednesday, December 4th, 2013 by Joe Kristan

 

tax fairyThe Supreme Court wrapped a bow around the IRS victories in the turn-of-the-century tax shelter wars by unanimously ruling that the 40% “gross valuation misstatement” penalty applied to a tax understatement caused by the “COBRA” tax shelter.

COBRA relied on contributing long and short currency options to a partnership, but claiming basis for the long position, and ignoring the liability caused by the short position.  The shelter was cooked up in Paul Daugerdas’ tax shelter lab at now-defunct Jenkens & Gilchrist and marketed by Ernst & Young.  The shelter was designed to generate $43.7 million in tax losses for a cash investment of $3.2 million.

COBRA, like so many other shelters of the era,  was ruled a sham and the losses disallowed, but the Fifth Circuit Court of Appeals ruled that the 40% penalty did not apply.  Other circuits ruled that it did, so the Supreme Court took the case to settle the issue.

Writing for a unanimous court, Justice Scalia disposed of the Fifth Circuit’s position (citations omitted, my emphasis):

     In the alternative, Woods argues that any underpayment of tax in this case would be “attributable,” not to the misstatements of outside basis, but rather to the determination that the partnerships were shams — which he describes as an “independent legal ground.”  That is the rationale that the Fifth and Ninth Circuits have adopted for refusing to apply the valuation-misstatement penalty in cases like this, although both courts have voiced doubts about it.

We reject the argument’s premise: The economic substance determination and the basis misstatement are not “independent” of one another. This is not a case where a valuation misstatement is a mere side effect of a sham transaction. Rather, the overstatement of outside basis was the linchpin of the COBRA tax shelter and the mechanism by which Woods and McCombs sought to reduce their taxable income. As Judge Prado observed, in this type of tax shelter, “the basis misstatement and the transaction’s lack of economic substance are inextricably inter twined,” so “attributing the tax underpayment only to the artificiality of the transaction and not to the basis over valuation is making a false distinction.”  In short, the partners underpaid their taxes because they overstated their outside basis, and they overstated their outside basis because the partnerships were shams. We therefore have no difficulty concluding that any underpayment resulting from the COBRA tax shelter is attributable to the partners’ misrepresentation of outside basis (a valuation misstatement). 

tack shelterI see the basis-shifting shelters of the 1990s as elaborate incantations designed to to get the Tax Fairy to magically wish away tax liabilities.  Like any good witch doctor, the shelter designers relied on lots of elaborate hand-waving and dark magic to do their work, and they collected a lot of cash for their work.  But there is no Tax Fairy.  Justice Scalia has let Tax Fairy believers know that pursuing her is not just futile, but potentially very expensive.

 

Cite: United States v. Woods, Sup. Ct. No. 12-562.

The TaxProf has a roundup and an update.  Stephen Olsen weighs in at Procedurally Taxing.

 

 

Blue Book Blues.   One digression by Justice Scalia in Woods is worth a little extra attention.   From the opinion (citations omitted, my emphasis):

Woods contends, however, that a document known as the “Blue Book” compels a different result…Blue Books are prepared by the staff of the Joint Committee on Taxation as commentaries on recently passed tax laws. They are “written after passage of the legislation and therefore d[o] not inform the decisions of the members of Congress who vot[e] in favor of the [law].” While we have relied on similar documents in the past, …our more recent precedents disapprove of that practice. Of course the Blue Book, like a law review article, may be relevant to the extent it is persuasive.

Back in the early national firm days of my career, one of my bosses was a former national firm lobbyist who was exiled to The Field when a merger with another firm left room in Washington for only one lobbyist in the combined firm.  I remember him telling clients that he could get around unpleasantness in the tax code by arranging for helpful language in the Blue Book.  From what Justice Scalia says, he would have done as well by writing a law review article.

Jack Townsend also noticed this.

 

A new tax credit for the IRS to administer.  What could possibly go wrong?  A lot, as the IRS’s experience with the fraud-ridden refundable credits and ID-theft fraud has shown.  Now a new Treasury Inspector General’s report warns that IRS systems aren’t yet prepared to stop premium tax credit fraud under Obamacare, reports Tax Analysts ($link):

EITC error chart     While the IRS has existing practices to address ACA-related fraud, the agency’s approach is not part of an established fraud mitigation strategy for ACA systems, the report says. The IRS has two systems under development to lessen ACA tax refund fraud risk, but until those systems are completed and tested, “TIGTA remains concerned that the IRS’s existing fraud detection system may not be capable of identifying ACA refund fraud or schemes prior to the issuance of tax return refunds,” it says.

IRS Chief Technology Officer Terence Milholland said in a response included in the report that fraud prevention plans will be put in place as ACA systems are released.

The IRS loses $10 billion annually to Earned Income Tax Credit Fraud alone.  This isn’t reassuring.

 

Paul Neiffer, Losses Can Offset Investment Income:

  1. If you have a net capital loss for the year, the regular tax laws limit this loss to $3,000.  The final regulations allow this up to $3,000 loss to offset other investment income.
  2. If you have a passive loss such as Section 1231 losses, as long as that loss is allowed for regular income tax purposes, you will be allowed to offset that against other investment income.
  3. Finally, if you have a net operating loss carry forward that contains some amount of net investment losses, you will be allowed to use that portion of the NOL to offset other investment income.

A big improvement over the propsed regulations.

 

20120920-3Jason Dinesen,  Same-Sex Marriage, IRAs and After-Tax Basis:

It’s clear that for 2013 and going forward, couples in same-sex marriage will only need to apply “married person” rules to IRAs (and to everything else relating to their taxes).

What’s less clear is what happens with differences between federal and state basis for prior years.

 

Robert D. Flach,  A YEAR END TIP FOR MUTUAL FUND INVESTMENTS.  “If you want to purchase shares in a mutual fund during the fourth quarter of the year, wait until after the capital gain dividend has been issued, and the NAV has dropped, before purchasing the shares.”

 

Janet Novack,  Insurance Agent To Forbes 400 Concedes Understating Taxable Income By $50 Million

David Brunori, Indexing the State Income Tax Brackets Makes Sense (Tax Analysts Blog)

Missouri Rep Paul Curtman (R) wants to index his state’s income tax brackets to inflation. Of all the tax ideas presented this year, this is among the best. Missouri imposes its top rate of 6 percent on all incomes over $9,000. Nine grand was a lot of money in 1931 – and the top tax rate was aimed at the very wealthiest Missourians. But that threshold hasn’t changed since Herbert Hoover was president. 

Or they could just go with one flat rate.

 

TaxProf, The IRS Scandal, Day 209

William McBride, Summary of Baucus Discussion Draft to Reform International Business Taxation (Tax Policy Blog)

Kay Bell, Where do your residential property taxes rank nationally? 

Howard Gleckman,  The Supreme Court Opens The Door to Sales Tax Collections by Online Sellers (TaxVox)

They were too busy fighting the shelter wars to notice.  The Cold War Is Over, but No One Told the IRS  (Joseph Thorndike, Tax Analysts Blog)

Career Corner: A Friendly Reminder to Slobbering Drunks: Be Less Slobbery and Drunk at Your Company Holiday Party (Going Concern)

 

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Tax Roundup, 12/2/2013: Remember the January 15 property tax credit deadline! And: final 3.8% tax regs.

Monday, December 2nd, 2013 by Joe Kristan

20130117-1There’s a new deadline this year for Iowa business owners with real property.   Iowa business owners have a January 15, 2014 deadline to apply for the business property tax credit enacted in this year’s legislative session.  Many have yet to apply, reports gazette.com:

Commercial property owners have been slow to apply for a new property tax credit designed to give a little boost to small businesses.

Most business owners who own the property in which the business operates are eligible for the Iowa Business Property Tax Credit.

A $50 million pool of money is available for the first year of the new tax credit. The state legislature included the credit in an historic property tax relief bill signed into law on June 12.

“It is important they get them in now so we can process them,” said Cedar Rapids City Assessor Scott Labus.

Businesses can find the form online here.  It should be filed with the local county assessor’s office. The gazette.com article says the maximum credit for the coming assessment year is $523.

 

Paul Neiffer,  Final Net Investment Income Regs Have Good News For Farmers:

In Final Regulations issued earlier this week, the IRS changed their interpretation of this rule and have now indicated that any self-rented real estate or rental real estate that has been properly grouped with a material participation entity will not be subject to the tax.  In even better news, any gain from selling this type of property will also be exempt from the tax.

Good news not just for farmers, but for any business where the owners rent property to a corporation they control.

 

Tony Nitti, IRS Issues Final Net Investment Income Tax Regulations: A First Look And More   It was a dirty trick to issue them over Thanksgiving, when I wasn’t watching.   I will be posting on some key issues.

 

20130419-1Illinois storm victims get filing relief (IRS news release):

The President has declared the counties of Champaign, Douglas, Fayette, Grundy, Jasper, La Salle, Massac, Pope, Tazewell, Vermilion, Wabash, Washington, Wayne, Will and Woodford a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Nov. 17, and on or before Feb. 28, 2014, have been postponed to Feb. 28, 2014.

The IRS is also waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Nov. 17, and on or before Dec. 2, as long as the deposits are made by Dec. 2, 2013.

You don’t have to be damaged to qualify, you just have to be located in the affected area.

 

No, that’s not the real threat.  The Muscatine Journal mistakes the painkiller for the ailment:

Tax breaks for wind-power producers are set to expire in a little more than a month, threatening hundreds of manufacturing and energy jobs in the state if nothing is done.

In Iowa, much of the attention has focused on the federal Renewable Fuel Standard in which the federal government guarantees a market for biofuels. But for Iowa’s turbine manufacturers and power companies, it’s the federal production tax credit that takes precedence.

It’s not the loss of the tax credits that threatens these industries.  It’s their inability to survive without subsidies or, in the case of ethanol makers, their inability to sell their product unless people are forced by law to buy it.  The subsidies only dull the recipients awareness of their real ailment.

 

David Brunori, Confusing Tax Cuts with Tax Reform (Tax Analysts Blog):

But increasing or decreasing tax burdens should not be confused with tax reform. Tax reform should mean something. I define tax reform as meaningful changes to the tax system that comport with the general notions of sound tax policy. The goal should be to make the system fairer, neutral, more efficient, and more stable. The changes should also increase economic development and job growth. And they should ensure that the government raises enough revenue to meet the public service demands of the citizenry. Changing the rates or tinkering at the margins is not reform.

Nor is giving tax spiffs to influential or sympathetic constituencies, but that’s been the Iowa way for some time now.

 

20120529-2Lyman Stone, Missouri Considering “Massive” Incentives for Boeing (Tax Policy Blog):

This is bad tax policy in spades. Governor Nixon rejected a flawed, but still broad, tax cut on the grounds that taxes don’t matter much for businesses, but government services do. Now Missouri policymakers may try to attract one specific company with a “massive” and narrowly-targeted tax break, despite lack of evidence that incentives lead to economic growth, and ample evidence that they create problems.

It’s all about directing funds to insiders with good lobbyists.

 

Cara Griffith, A Change of Culture (Tax Analysts Blog).  She talks about the natural tendency of tax authorities to conceal information and make tax practice an insiders’ game.  She notes that North Carolina doesn’t release private rulings and hasn’t updated public corporate directives since April 2012.  Iowa is better, but they haven’t updated their “What’s new” website since August.

 

William Perez, Updated Form W-9.  With the additional rules of FATCA piled on top of existing foreign withholding rules, you should make sure to get a W-9 from your vendors, depositors and ownership groups.

 

Jason Dinesen reminds us of the Iowa Insurance Premium Deduction

Trish McIntire reminds us that Refund Advances are really expensive loans.

Robert D. Flach, TO PER DIEM OR NOT TO PER DIEM – THAT IS THE QUESTION.

 

Kay Bell offers some Tax-saving moves to make by Dec. 31, 2013

Howard Gleckman,  Obama Will Try to Clarify the Role of Tax-Exempt Groups in Politics.  Your new role in furthering public debate?  Shut up!

TaxProf, The IRS Scandal, Day 207

Tax Justice Blog: This Holiday, The Tax Justice Team Is Thankful For…  In other words, watch your wallets, folks.

The Critical Question: Do We Need A Clergy Tax Simplification Act Of 2014?    (Peter Reilly)

Going Concern, 10 Things Accounting Professionals Should Be Thankful For This Year

TaxGrrrl, This Man’s Nuts: Plan To Sell Testicle For New Car Is Taxable   As if there weren’t enough non-tax arguments against this plan.

 

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Tax Roundup, 11/20/13: Are reports of the death of Instant Tax Service premature? And: film credits = bait car?

Wednesday, November 20th, 2013 by Joe Kristan
"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Is Instant Tax Service still dead?  Maybe not, reports TaxGrrrl: In Apparent Defiance Of Court Order, Fourth Largest Tax Biz In Country Preps For Sale :

Within a week of the Order, [founder "Fez"] Ogbazion was said to be engaged in discussions relating to the sale of the company, an activity that would appear to be barred under the injunction. Todd Bryant, General Counsel for ITS Financial, confirmed via email that “[a]n asset sale is being considered.”

It was a puzzle, though, as to who might be interested in purchasing the beleaguered company.

An insider, it turns out.  TaxGrrrl questions whether that will work, given that the court order seems designed to destroy the company and salt the earth so it can never return.  Judge for yourself (my emphasis):

Based on the foregoing, IT IS HEREBY ORDERED pursuant to I.R.C. §§ 7402 and 7408 that Defendants ITS Financial, LLC, TCA Financial, LLC, Tax Tree, LLC, and Fesum Ogbazion, and their representatives, agents, employees, attorneys, and/or any person or entity acting in active concert or participation with them, are PERMANENTLY ENJOINED from directly or indirectly, by use of any means:

A. Operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns; and, accordingly, Defendants ITS Financial, LLC, TCA Financial, LLC, and Tax Tree, LLC shall cease to operate; and Defendant Fesum Ogbazion shall cease operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns;

B. Acting as tax return preparers; and/or acting or operating as a franchisor of businesses relating in any way to preparation of tax returns;

C. Supervising or managing or assisting tax return preparers; and/or owning, operating, or engaging in work or a business relating in any way to preparation of tax returns;

D. Assisting with or directing the preparation or filing of tax returns, amended returns, claims for refund, or other related documents;

E. Representing before the Internal Revenue Service any person or organization whose tax liabilities are under examination or investigation by the IRS;

F. Organizing, promoting, providing, advising or selling any business or work of tax services;

They seem to be looking for a loophole here by selling assets, rather than stock, though the injunction against “selling any business” would seem to cover that.  I suspect the judge will make things clear in the coming days.

Prior coverage: Judge shuts down Instant Tax Service.

 

Instant Tax, meet Mo’ Money.  Owner of St. Louis tax prep franchise gets 20 months for 20130919-2fraud (stltoday.com):

The owner of a Mo’ Money tax preparation franchise in St. Louis was sentenced to 20 months in federal prison on Tuesday after pleading guilty in July to conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns.

Jimi Clark, 57, of Memphis, Tenn., and four employees were arrested and indicted in October 2012 on one felony count each of conspiracy to commit tax fraud. All were accused of falsely claiming educational tax credits on at least 47 tax returns for 2009.

Refundable credits like the American Opportunity Credit and the Earned Income Credit are the fuel for the fraudulent return industry.

 

haroldLyman Stone,  California Film Tax Credit Faces Controversy, Delay (Tax Policy Blog):

 A recent FBI sting in California revealed that state Senator Ron Calderon may have taken up to $60,000 in exchange for pushing to lower eligibility requirements for California’s $100-million-a-year film tax incentive program. This isn’t the first time film incentives have been connected to corruption and scandal. Indeed, a scandal about misallocation of film tax credits ultimately led to the demise of Iowa’s program over the last few years.

Sometimes I think that Iowa’s Film Credit Program was just an elaborate “Bait Car” episode that ultimately didn’t run because the stealing was too easy.

 

Elizabeth MalmMaryland Governor Touts Benefits of Film Tax Credits, Despite Evidence to the Contrary  (Tax Policy Bl0g).  Iowa has stopped giving filmmakers money and is instead giving them time, with no apparent bad economic effects.

Kay Bell, Coast-to-coast concerns about film and TV tax credits

 

David Henderson, Saez You: Income Distribution without Key Components of Income.  It turns out one of the most-cited articles on income inequality leaves out a lot of income, particularly government transfers and welfare benefits.  He notes notes, increased transfers are always advocated as a cure for inequality, and yet by the measuring stick used, it can never “help.”

 

Clint Stretch, Turning Down the Heat on Energy Tax Policy  (Tax Analysts Blog).  He notes the new oil and gas boom, and that “Oil and gas tax incentives are not responsible.”

 

TaxProf, The IRS Scandal, Day 195

Source: The Tax Foundation

Source: The Tax Foundation

Howard Gleckman, Baucus Proposes International Tax Reform But Future Action Remains Uncertain (TaxVox)

According to the plan, passive income from overseas activities would continue to be taxed at U.S. rates. Most income from the sale of goods and services overseas would also be taxed at full U.S. rates. The draft would end the practice of deferral that allows firms to avoid U.S. tax on foreign earnings until they bring those profits home. However, income that is currently parked overseas would be taxed at a 20 percent rate payable over 8 years.

Baucus would move the U.S. closer to a territorial system favored by many multinationals and GOP lawmakers. Under such a system, income is taxed in the jurisdiction where it is earned rather than by the firm’s home country. While the plan does not fix a specific tax rate, staffers say Baucus is aiming to reduce the corporate rate from 35 percent to about 30 percent.

But in the Baucus plan, this shift closer to a territorial tax comes at a price. To limit the ability of multinationals to game the system, the plan would impose a stiff minimum tax on income earned overseas by foreign affiliates of U.S. parent companies.

Reducing the corporate rate is fine, but remember that most business income is taxed on 1040s anymore.

 

Tax Justice Blog,  Statement from CTJ Director Robert McIntyre: Is the Baucus Plan for Multinational Corporations a Prelude to a Middle-Class Tax Increase?

 

Peter Reilly has been playing hooky at the commemoration of yesterday’s 150th anniversary of the Gettysburg Address.  I’m jealous.

The Critical Question: Hasn’t the Government Done Enough to Mess Up Higher Education Finance? (David Brunori, Tax Analysts Blog)  Well, I’m sure they can always mess it up even more.

News from the Profession. Non-Traditional Holiday Celebrations at Accounting Firms, Care To Add Yours?

 

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