Today is probably the last post until June 24 as I take a summer hiatus. It is also the last day of our Traverse City, Michigan seminar. It’s been a great time, and Traverse City is a beautiful resort town.
Will 2014 be the Iowa’s Income Tax Reform Year? Now that he has signed the property tax reform bill, Governor Branstad signals a shift to income tax reform. Radio Iowareports:
“I think it’s very likely we’ll be looking at reducing the income tax further,” Branstad says. “When I became governor, the income tax rate in Iowa was 13 percent. We now have it down to 8.98 percent, plus we have full federal deductability…Remember, the top federal tax is 38.5 percent, so the effective rate in Iowa is only about 5.5 percent. We’d like to see that go lower.”
The top federal rate is actually 39.6%, not including deduction phase-outs, or 43.4% considering the Obamacare Net Investment Income Tax. That leads to an effective top Iowa rate of somewhere between 5.2% and 5.6%.
The way to income tax reform would be to repeal Iowa’s corporate income tax, its rat’s nest of corporate welfare deductions, and its mess of well-intended but ineffective social welfare tax incentives. You could get a 0% corporate rate and a 4% individual rate, and an Iowa 1040 that fits on a postcard. You could get the Quick and Dirty Iowa Tax Reform Plan, in other words.
That would require the Governor to swear off the corporate welfare giveaways so beloved by the Iowa “economic development” bureaucracy, and the associated fertilizer plant ribbon cuttings. Yet I think 4% individual rate and 0% corporate rate would do a lot more for Iowa’s economy than the dozens of “targeted” economic development tax credits and deductions — though not so much for Iowa’s middlemen, fixers and economic development officials.
However, the large reduction in property taxes coupled with a smaller reduction in income taxes will shift the burden of taxation more heavily onto income: a less stable and more distortionary tax. Furthermore, SF 295 creates or expands several new credits, funds, and preferential treatments in the tax code, exacerbating the problem of non-neutrality, and its distortionary effects.
Michael Giberson looks at Iowa’s (misguided) disaster “price gouging” policies:
Portable toilet price gouging gets mentioned in several Attorney General news releases. It may be the case that the Iowa law is the only one that specifically lists “sanitation supplies” among the good covered.
The same newspaper story mentioned, “soybean price futures have jumped 25 percent and corn futures 10 percent over the past month as crop losses have spread across Illinois, Iowa and Missouri. That means farmers outside the flood zone will get far more for their crops than normal….” The state didn’t have a price gouging law until later that year. But if the price increase happened this year, would farmers in the affected counties be in violation of state law?
Higher prices are nature’s way of directing resources to their most important uses, and restricting their use when supplies are tight. Price gouging laws mess with Mother Nature.
The IRS spent $4.1 million on a single internal conference in Anaheim, reports the Treasury Inspector General for Tax Administration. Sure, it’s easy to mock the IRS for conferences, or for silly dance videos, though I find it reassuring to see that there are people in the IRS who have a sense of humor.
What bothers me is the priorities it shows. For tax pros in Iowa, the best thing the IRS does is its Practitioner Liaison program. Not only does our liaison do an excellent job of alerting us to processing problems during filing season and cutting through red tape, but she puts on well-attended and popular conferences that have to help the IRS get better-prepared filings.
Yet the Practitioner Liaison office is continually nickled and dimed. There is always pressure to limit travel to outlying towns. Our liaison has had to fill in for other states when their positions have been left vacant. It just seems wrong that the IRS can find $135,000 for speakers to inspire agents in Anaheim, but not to fill the gas tank of someone in the field in Iowa doing useful and popular work.
It also doesn’t help the argument that the IRS just can’t afford to answer its phones or process exempt organization applications.
This practice made news in the state when a local news crew focused on two strip clubs, Deja Vu Showgirls of Rancho Cordova and Gold Club Centerfolds, found to have received thousands of dollars in tax breaks – without doing anything different from before. Those clubs benefited from their existing locations and were not lured to the area by the promise of tax incentives; additionally, their hiring practices weren’t influenced at all by the tax breaks. That isn’t the point of the credit, according to Sen. Hill and his supporters.
No, the point of the tax credit is to enable politicians to take credit for “creating jobs” by taking your money and giving it to somebody else.
Longtime readers know that The Tax Update has no use for any “economic development” tax credits. These credits are generally paying companies to do what they would have done anyway — in this case, to disrobe. At least these credits went for something people want, and there’s no questioning the stimulative effect.
But I think Proposition 13 was a horrible policy choice. It devastated local government autonomy. Local governments in the United States have been the most efficient, effective, and democratically responsive means of providing public services. But that effectiveness is contingent on having an independent source of revenue. When the state finances local government services, it is almost assured that those services will not be provided at levels demanded by citizens.
An ideal tax system is based on a broad base and low rates. At least that is what the thinking folks believe. An ideal tax system also treats similarly situated people and organizations the same. People concerned about fairness have always thought that. And an ideal tax system minimizes economic distortions. Now politicians of every stripe violate that ideal every day. Personally, I think politicians violate this idea because 1) they arrogantly want to dictate their views on the rest of us, or 2) they want to enrich their friends.
Now the Governor of New York wants to create tax-free zones:
Not everything, everyone, or everywhere in New York will be tax-free. The tax-free communities will be all of the state universities (and curiously a number of private universities) outside New York City. Companies that open shop in these communities will be exempt from sales, income, and property taxes. That’s better than living in New Hampshire. Better still, employees who work for businesses in the new tax free communities will be exempt from paying state income taxes. So if you are in the community you don’t pay tax. If you are outside, even by six inches, you do.
I agree that this is a terrible idea, as is. But if Governor Coumo is willing to go further and create libertarian free cities in his state, that would be pretty cool. Galt’s Gulch, NY could give the Free State Project in neighboring New Hampshire a run for its money.
Why did the IRS scrutinize “conservative” and “tea party” applications? It’s clear the orders came from Washington. Who ordered it? The IRS employees in Cincinnati were most likely just following the orders from Washington. Someone came up with the idea to have this scrutiny.
Ed Driscoll, The Ohio Players. A reminder that the IRS scandal includes the illegal disclosure of confidential applications for exempt status by right-side organizations to a left-side 501(c)(3).
Linda Beale, The real IRS scandal. To her, the real scandal is that anybody is paying attention.
Clearly there is value in keeping that Greek Revival facade, but there is no way that the owner of the property can reap that value. If there is a CVS there, I will go in and buy a bottle of Mountain Dew or get a prescription filled which will help pay the rent that the highest and best use yields the property owner. Having me look at the facade and imagine the men and women who thought that there was an ancient precedent for the new form of government that they were devising is tough to charge for.
That is why there needs to be some sort of public support for the preservation of historic structures.
I disagree. As much as I like cool old buildings, giving them special tax treatment means other people subsidize my aesthetic preferences. What makes that OK, but wrong to make me subsidize a velvet Elvis? The tax law has enough to do to fund the government; making it the Swiss Army Knife of public policy makes it not very good at anything.
Randy Barker, 59, of Chico, is off to three years and 10 months in federal prison where he can mull over the 16th Amendment to the Constitution, the amendment that established the federal income tax.
He’s associated with the so-called “Tax Challenger” community, a group that believes that the tax laws are unconstitutional or otherwise invalid.
According to testimony presented at trial, Mr. Barker filed an income tax return in February 2009 that falsely claimed more than $1.4 million in interest income and falsely claimed that the same amount had been withheld in tax.
So paying tax returns is unconstitutional, but it’s just fine to file returns claiming that the government is sitting on a bunch of your money? I need to re-read my constitution.
The most interesting part to me:
This combination allowed Mr. Barker to claim a refund of $987,900 in allegedly overpaid income tax.
Evidence showed that, after receiving the refund, Mr. Barker and his wife spent most of the money within weeks by making extensive cash withdrawals and by purchasing a $495,000 house, more than $90,000 in home furnishings, and a truck.
So this guy managed to steal almost $1 million with a laughably stupid tax return. Sure, he got caught, but that money is gone forever. I suppose the IRS is just too busy examining prayers to stop cash from flying out the back door.
To me, the real story is the low status of the Tea Party. As others have pointed out, if the NAACP or the Sierra Club had complained about harassment, politicians and the press would have investigated the story from day one. But I think that it is wrong to think of this as an ideological double standard. If Code Pink or Greenpeace had complained about IRS harassment, nobody would have risen to their defense. My point is that, in the eyes of the establishment, the Tea Party is closer to Code Pink or Greenpeace than to a respectable organization.
While I think Arnold is generally right, I think that Code Pink and Greenpeace would get a lot more establishment love than the Tea Party folks. Constitutionalism and fiscal sanity just aren’t clubbable.
Corporations make location decisions based on three main factors: labor costs, access to markets, and a qualified workforce. Without those factors, no amount of tax incentives will ever persuade a business to invest in a particular place. Scholarly research and a ton of anecdotal evidence show that businesses don’t make location decisions based on tax incentives. – David Brunori, Tax Analysts ($link)
Iowa just increased its tax incentive budget by $50 million.
When the dust settled, Dad was left with a $14,000,000 bill, while his kids were entitled to a nice fat tax deduction. This act of poetic justice should remind all parents that if you’re going to be overbearing and meddle in your kids’ lives, try and confine your fatherly misgivings to hurling empty whiskey bottles at Little League umpires, like my old man.
Rich States, Poor States, an annual analysis of “state competitiveness” by the American Legislative Exchange Council (‘ALEC,”or, to Ed Fallon, “Satan”) is out for 2013. The free-market group ranks Iowa at 25th overall for both “economic performance” and “economic outlook.” Iowa rates well for its right-to-work rules, state debt, and court system, but poorly for its tax system.
Robert D. Flach starts off your short work week with a fresh Buzz!
Better Spam. The spambots made 190 deposits into my spam inbox over the weekend. Usually they have stupid names lie “Swaceague,” “Moncler Jackets” or “Cheap Moncler Jackets,” so I was pleasantly surprised to see “tom waits glitter and doom live” make an entrance. Unfortunately the comment was typically spammy:
My spouse and I stumbled over here from a different web address and thought I might as well check things out. I like what I see so i am just following you. Look forward to looking at your web page again.
Dang. It would be nice if Tom Waits really was spamming me. But I am oddly intrigued that family web-surfing is a theme in spam. “My cousin recommended this web page to me,” etc. “My wife and I were surfing, and awesome commentary here.” Are there really cultures where anybody would say something like that? Is there somewhere on the planet a society where they delight in recommending favorite web sites to shirttail relatives eager to follow up on web recommendations from in-laws?
With all the excitement over tax-exempt entities, it’s worth remembering that their returns — the 990 series — are due today for calendar-year filers. And if an organization fails to file 990s for three years, its exempt status lapses. Extensions are available, but they have to be filed today.
Late filing can be expensive. For small organizations, the penalty is $20 per day of late filing; for those with receipts over $1 million, its $100 per day. That adds up fast.
So let’s get started with this morning’s IRS Scandal news. The TIGTA report whose imminent release triggered the IRS announcement of the scandal last Friday came out yesterday. I covered it in a post last night. Other coverage:
It is no secret. This may hurt my libertarian credentials, but I believe the U.S. Congress should pass the Marketplace Fairness Act. The tax system is sound when built on a broad base and low rates. Broad base means you tax everything without regard to who is lobbying the legislature. It follows – and it really does follow – that the sales tax should be imposed on all personal consumption.
I can see a need for something like this, but I think it should be done by having a single point of compliance for sellers under a uniform set of rules, rather than subjecting internet sellers to the thousands of local tax systems. David minimizes the compliance burden. As somebody who makes a living off of the compliance burden, I can say with confidence that he is mistaken.
Search for the Tax Fairy leads to federal prison. The Tax Fairy, in the imagination of believers, appears in the form of magical legal maneuvers that make your taxes all go away. Your drinking buddies may even claim to have seen it, or that their tax guy knows her.
It can hurt when you find that there is no Tax Fairy. It must hurt for one South Dakota surgeon. From RapidCityJournal.com:
Friends and family described Dr. Edward Picardi as a compassionate, highly skilled surgeon, but the accolades failed to spare the doctor a five-year prison sentence for income tax evasion on Tuesday.
Despite the good the Sturgis man was proclaimed to have done in his life, Picardi, 56, is the same man a federal jury convicted of 13 felonies last October, U.S. Chief District Judge Jeffrey Viken said when he sentenced the doctor.
Picardi was charged with income tax evasion after an exhaustive federal investigation of his financial practices spanning 10 years from 1999 through 2009. He used an elaborate network of dummy corporations and several foreign banks to divert thousands of dollars in income.
The indictment says the scheme was hatched with the aid of a Maryland attorney who set up a phony employee leasing scheme to suck taxable income to shell companies, which the surgeon tapped for cash as needed. This worked fine, until one day it didn’t, and now it’s a five-year unpaid vacation, plus tax, interest and penalties.
There is no Tax Fairy.
Jana Luttenegger, Disclaiming an Inheritance (Davis Brown Tax Law Blog). Sometimes it’s better estate planning to turn down an inheritance and let it go to your kids or some other beneficiary. But you have to do it right:
Most importantly, the disclaimer must be made before you accept any benefit in the gift, and it must be an unqualified disclaimer. (No, you can’t have a party at the house and then decide you don’t want it.) Once the disclaimer is made, it is irrevocable — you can’t change your mind. If you properly disclaim, the property will pass as if you predeceased (you do not get to direct where the property goes).
The looming debate over the federal debt limit is a depressing reminder that we’re living in the Age of the Manufactured Crisis. And it encourages a sort of political nostalgia – a yearning for that bygone era when tough lawmakers made the tough decisions that kept federal debt at manageable levels. Well, sorry to tell you, but there were never any fiscal heroes.
Just politicians who show by their actions that they are happy to spend us to Greece.
Jason Dinesen, Same-Sex Marriage, Community Property, And Multi-State Income — Part 1. ”Indeed, some of the most complicated tax returns I’ve ever prepared have been for same-sex couples that moved from California (a community property state) to Iowa (not a community property state) during the middle of the year.”
Think of it as the ballpark program you pick up before a baseball game. You can watch the game without it, but it is much more fun if you can keep score and know a little something about who plays for the visiting team.
Except much less interesting than baseball, and the players are uglier and less skilled.
David Brunori doesn’t think much of the tax wisdom of the Iowa House of Representatives ($link):
The Iowa House of Representatives recently passed the Iowa Reinvestment Act, which would allow companies to keep sales tax revenue they collect rather than turning it over to the general fund as the citizens think will happen. Basically, the act is designed to allow businesses to recoup the cost of development. The state has done that before to allow the public to help finance a speedway and other projects that apparently can’t be justified in the free market. The vote for that abomination of tax policy was 87 to 9. That’s what we call bipartisan bad tax policy.
Just more of using your money to subsidize the well-lobbied and well-connected.
The idea of the IRS preparing individuals’ returns is a classic example of a theory that cannot survive in a practical world. Like most theories, it deserved an experiment. It had that chance, in California, and it failed, with only a tiny portion of the eligible population deciding to participate.
Making taxpayers’ lives easier is a matter of simplifying the tax law, not enabling the complexities by turning tax preparation over to the IRS.
This strikes me as wise. I just can’t imagine IRS data processing ever making this possible, considering the complexity of the income tax and the way Congress changes it all the time.
On one hand, $3.4 million is a lot of money — nobody should doubt that. But we’re also nearly completely blind in America to how much is “enough” for retirement. Many people would say the word “millionaire” and imagine Uncle Pennybags or Uncle Scrooge. But consider this: If you wanted to get $40,000 a year in retirement income and do it just on interest payments alone (in other words, if you were trying to avoid taking anything out of your nest egg and just live on the interest), then if you had your money in “safe” 10-year Treasuries earning 1.78%, then you’d have to have more than $2.2 million in the bank. Under those conditions, “rich” doesn’t really look so rich anymore.
I don’t think the nation’s biggest problem is people saving too much.
Holding your breath for tax reform? Exhale. Martin Sullivan says tax reform is on the Fast Track to Nowhere. (Tax.com)
We have written several times about the dangers of nontraded or thinly traded REITs. They are a popular way of investing in real estate but they can be difficult to sell or liquidate if an investor suddenly needs cash.
I saw an elderly, ill client with severe cash problems while holding a private REIT investment that he couldn’t cash out. This really does happen. This is not a problem with widely-traded REITs, which are as liquid as any stock.
Jim Maule, Why the “Toss Tax Records After Three (or Seven) Years” Advice is Bad. I never throw away tax returns, and you need to keep records to support the cost of shares and big assets. If you have loss carryforwards, you need to keep the records that support the losses as long as you are using the carryforwards.
Potassium forever? An accused embezzler apparently was in no hurry to stand trial. From StarTribune.com:
A Texas man faces more than 16 years in federal prison for his role in a scheme to bilk nearly $400,000 from his former Eagan employer, Advantage Transportation.
Clayton “Craig” Hogeland, 43, also obstructed justice by faking a life-threatening medical condition, U.S. District Judge Patrick Schiltz found. That caused delays for both his trial and sentencing hearing.
How did he delay his trial?
Further health-related delays stretched out the trial before his conviction on Dec. 6, 2011. He was placed in custody Jan. 8, 2013, and the erratic blood potassium readings stopped. Six days later, his wife reported to federal authorities that she found in his belongings four zip-top bags of what turned out to be potassium chloride.
Despite his continuing complaints about symptoms after being jailed, tests revealed no abnormal blood potassium levels, the prosecution said.
I’m not sure this was well thought-out. What’s the next move? More potassium? Maybe when you are looking at 16 years in federal prison, delay is its own reward.
New U.K. film tax credit indictments. It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. Ic.Scotland.co.uk reports:
Five people are to be charged in connection with a film industry tax relief fraud which cost the public purse around £125 million, the Crown Prosecution Service said.
The group allegedly abused a tax relief that allows investors in the British film industry to offset losses against other tax liabilities in order to cheat the public revenue.
“Around £125 million” translates to around $194 million. And in Iowa film producers are serving time for stealing merely single digits of millions. It just goes to show what you can accomplish with a national effort.
Boo. House bill would give IRS authority to regulate tax pros(Kay Bell) The power grabbers at IRS and their buddies at the national franchise tax prep firms have been thwarted by the courts. Now they are using their congresscritter friends to put in the fix.
Kay sadly falls for it:
The quality independent tax professionals are following tax law changes, staying up to date and providing their clients with reliable tax services. Down the street, however, an inept preparer is undercutting their prices and mucking up the system for all of us — the IRS, tax pros and taxpayers alike.
The IRS can’t regulate anybody into competency. They can make people pass a “competency” test that really is a literacy test. They can make people pay for CPE. But they can’t make anybody competent who wouldn’t be otherwise. What they can do is drive little preparers out of the business with nagging paperwork, red tape and hassles that the big boys can just assign to their compliance departments, and, when necessary, to their lobbyists. This reduces the supply of preparers, increasing the cost of preparation for taxpayers.
The real problem with tax errors isn’t preparers; it’s the horrendous tax law and the inept legislators who make it happen.
In a 2011 paper published by the Mercatus Center at George Mason University, Veronique de Rugy and Adam Thierer recommended “an ‘origin-based’ sourcing rule for any states seeking to impose sales tax collection obligations on interstate vendors.” Under that rule, which mirrors what happens when you buy something while visiting another state, each business collects sales tax on behalf of the state where it is based, no matter where the customer happens to be.
The beauty of this approach is that it treats all retailers equally, eliminates the daunting challenge of dealing with many different taxing authorities, and respects state policy choices while encouraging tax competition between jurisdictions. Evidently the idea makes too much sense for Congress to consider.
That would motivate online sellers to locate in low tax jurisdictions, which is why congresscritters from high-tax places will never allow it to happen.
Few of the commentators I’ve read have asked themselves what happens to the money after the software has collected the money. Do the sales tax fairies simply whisk it off to the nice folks at the state tax department?
Sadly, no. Rather, as an SBA guidebook for small businesses points out, you have to file a tax return with each and every locality for which you have collected tax. The bill streamlines this a bit, but you’ve still got to keep 50 states’ worth of records and file 40-odd states worth of returns.
…
For Amazon—the actual target of these laws—this is trivial. Its staff of crack accountants can probably roll these things out before their Monday-morning coffee break. For a small vendor, however, that’s a whole lot of paperwork.
Speaking as a cracked accountant, I am sure that while Amazon can handle its sales tax burden, it is far from trivial. It takes an expensive staff and a good organization with excellent systems in place to do reasonably well — and I expect they still get inexplicable notices from states quibbling over obscure tax issues. Good sales tax compliance functions are expensive, affordable only in a large organization. For some guy selling handmade N-scale boxcars out of his basement, it could be painfully expensive, if not ruinously so. Like any expanded regulation, requiring online sellers to collect Internet sales taxes inherently favors the big.
According to the Streamlined Sales Tax agreement, the definition of candy is a “preparation of sugar, honey, or other natural or artificial sweeteners in combination with chocolate, fruits, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. ‘Candy’ shall not include any preparation containing flour and shall require no refrigeration.”
So pursuant to that definition, a sweet with flour is not candy, while a sweet without flour is. For example, a Hershey’s chocolate bar is candy, while a Twix bar is not. Ditto for Kit Kat bars. Makes sense, right? But what about Twizzlers? Seems a solid bet that licorice is candy, but it isn’t because flour is a top ingredient.
In the past when a client got too big a refund I would scold him/her and say that he/she was making an interest free loan to the government. While this is still true, I do not scold any more, considering the pitiful amount of interest being paid on savings account today.
I’m not a big fan of excess withholding, but it’s a lot easier for a client to deal with a refund that’s too big than a tax bill they can’t pay.
Increasingly, I hear stories of relatively wealthy people contemplating moving to states that do not tax their assets upon death. These are not people with private jets or suites at Yankee Stadium. They are just people who had the good fortune to do better financially than most. Do New Jersey or Maryland or the other states with pretty onerous estate taxes really want their elderly wealthy to move?
While motivations for moving are complicated, taxes are one of them. Why do the same people who want higher cigarette taxes to discourage smoking believe that higher income and estate taxes don’t also affect behavior?
Flickr image by Samat Jain under Creative Commons license
Should we just get a bill from the IRS, instead of filing returns? That’s something Janet Novack seems to be thinking about. She has two guest posts on the issue:
Some people fear return-free filing will separate citizens further from the costs of government. I think that is caused by an income tax that now is effectively only on high-income earners. When 51% can send the bill to the other 49%, bad policy seems inevitable.
It makes me wonder: if there are “Errors to avoid,” are there errors we should seek out, or at least not sweat? I can’t think of errors I’d want to make on a tax return, but I can think of some that I wouldn’t lose sleep over:
1. Forgetting to check the “presidential election campaign fund” box. After all, your entire tax bill is basically the federal election campaign fund.
2. Misspelling the name of a stock on Schedule D.
3. Writing a “smiley face” next to the tax refund line.
4. Forgetting to update your “occupation” on the signature line when you change jobs.
The core problem is that the IRS cannot look into the hearts of companies and see which of them really needs to provide free lunch to their employees in order to have a healthy, vibrant company, and which of them is doing this in order to provide a tax-free boon to their workers.
In case anyone asks, donuts are critical to a healthy, vibrant tax practice.
Flickr image courtesy Sean MacEntee under Creative Commons license
April Fools day is a challenge for tax bloggers. No matter how outlandish an idea you have for a joke story, chances are that the legislation has already been proposed. Today’s challenge: Real tax headlines are mixed with fake ones from today’s Tax Policy Blog. Can you pick the real fakes without peeking?
In fact, the research activities credit is noteworthy for its excessive cost — more than $45 million each of the past three years — and the lack of any demonstration of a public benefit. This giveaway is so loosely managed that companies are not even required to disclose how many jobs are related to the taxpayer cost, let alone demonstrate that the jobs would go away without the subsidy.
Incentives are inequitable. They’re unnecessary — and hence a waste of money. They distort markets. They breed cronyism. If the players involved weren’t establishment politicians, household name corporations, and prestigious law and accounting firms, we’d describe them as grifters.
Why wouldn’t we describe ”establishment politicians, household name corporations, and prestigious law and accounting firms” as grifters? Redundancy?
Here’s a new one. A Pakistani company, the Fatima Group, would like to open a fertilizer plant in Indiana. The company, which for all I know makes the Cadillac of fertilizer, is seeking both federal and state incentives to build its factory. The twist is that the Fatima Group’s fertilizer has been used in 80 percent of roadside bombs in Afghanistan. That’s awkward.
Right now Iowa seems to lead the world in fertilizing fertilizer companies with tax money. No doubt explosive growth is just down the road.
If spending time and effort connecting with tax collectors helpfully “draws our attention to our duties as citizens,” then tax withholding short-circuits that attention. So why not eliminate withholding and oblige each income earner to pay every cent of his or her tax bill by writing personal checks to the IRS? Not only would elimination of withholding make us even more attentive to our “duties as citizens,” we would also – as any behavioral economist would point out – gain a truer and more fully felt sense of the price we pay for Uncle Sam’s splendors.
Reading Don Beaudreax Cafe Hayek blog for one week will make you smarter than all of Iowa’s legislators combined.
Zumba instructor finds way to draw men to her studio. From RegisterCitizen.com:
The dance instructor who used her Zumba fitness studio as a front for prostitution faces jail time after pleading guilty in a case that captivated a quiet seaside town known for its beaches and picturesque homes.
The plea agreement, which calls for a 10-month sentence, spares Alexis Wright from the prospect of a high-profile trial featuring sex videos, exhibitionism and pornography. She’s scheduled to be sentenced on May 31.
Wright quietly answered “guilty” 20 times on Friday when the judge read the counts, which include engaging in prostitution, promotion of prostitution, conspiracy, tax evasion and theft by deception.
Remember, just because they pay in cash doesn’t make it tax-free.
So save all your expense receipts, try to keep a log, and try to stay friendly with—and maintain contact information for—workers and tenants. You might, for example, need to call as a witness a gardener who can say he got his instructions directly from you instead of a real estate company. And maybe the guy who is always grousing about his plumbing needing fixing or the woman who wonders why the gardener missed a spot in his watering will be asked to testify that they kvetched to you —not a real estate agent–when the toilet needed fixing.
Clint Stretch, Which Kind of Imbalanced Solution Do You Want? (Tax.com). Mr. Stretch is, or maybe was, a career lobbyist for a national accounting firm that I once worked for. Considering that his career involved crafting loopholes, this is a fascinating observation (my emphasis):
I am no fan of spending through the tax code. Tax expenditures are government grants with the barest of qualification criteria administered by an agency with no subject matter expertise when it comes to the purpose of the incentive. The incentives – from business tax credits to mortgage interest deductions – may influence behavior at the margins, but many of the beneficiaries are rewarded for doing what they were going to do anyway. Like direct spending; tax expenditures are spending and individuals do benefit. Although a rate reduction or a fiscally sound government might cushion the blow, reducing tax expenditures will be another spending cut that takes resources away from affected taxpayers. We should stop talking about spending versus taxes. Instead, we should work on how to make reasonable, holistic reductions in major areas of government influence.
That’s why I think he must have retired. I don’t think he could say stuff like that if he were still lobbying.
I will fight for the right to tax you to subsidize other people. Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant. Radio Iowa reports:
“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”
Never mind the high possibility that the plant would have been built without our tax money. Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders. Never mind that political allocations of investment capital are always and everywhere unwise. Forget the lost opportunities for taxpayers to spend the money on their own projects. Jobs!
The Governor also hinted at darker forces opposing the tax credits, reports KCCI.com:
And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.
So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers. Who knew?
David Brunori, Things to Read, Sites to Visit. (Tax.com). He shares some online resources, but tragically fails to mention the Tax Update.
Peter Reilly, No Fans Of Sister Wives At The IRS ? As far as I’m concerned, the possibility of consolidated individual returns should be all the argument needed against polygamy.
A tailor who counted star athletes including Rickey Henderson and Wilt Chamberlain among his clients has pleaded guilty to skirting about $2 million in sales and income taxes.
Mohanbhai Ramchandani pleaded guilty on Tuesday, state Attorney General Eric Schneiderman said. His company, Mohan’s Custom Tailors Inc., also has had local stars Patrick Ewing and Darryl Strawberry among its clients and made an appearance on Bravo’s “The Real Housewives of New York City.”
The charges say that he failed to pay $1.7 million in sales taxes starting in 2001, and he failed to pay $256,000 of income taxes from 2007 through 2009. I didn’t know tailoring could be so lucrative. But this is unusual:
Authorities said a whistle-blower first raised concerns over Ramchandani’s tax practices. They said one indication of fraud was the use of numbers on his tax forms that added up to multiples of 10, an outgrowth of his belief in numerology.
Once in a while you prepare a return that happens to foot to a round number somewhere. It looks funny, but it will happen occasionally just by chance. But when they are all round, apparently the tax people might notice.
As strange as Mr. Ramchandani’s approach to numbers is, Iowa gives him a run for his money. Iowa’s lead tax credit pusher, Debi Durham, has issued a press release touting the economic wonders of enormous tax credits granted Orascom, an Egyptian company, to build a fertilizer plant in Southeast Iowa. The release bases its conclusions on “ the Regional Economic Modeling Inc. (REMI) analysis for the Iowa Fertilizer Co. project.” From the release:
“The REMI analysis of the Iowa Fertilizer Co. project speaks for itself,” said Debi Durham, director of the Iowa Economic Development Authority (IEDA). “On the front end, Iowa Fertilizer Co. will inject $1.4 billion of capital investment into our state and create at least 165 permanent jobs and thousands of construction-related jobs. Now we know that the benefits of that project will serve Iowans for years to come.”
It speaks for itself and it says nothing. It says nothing about whether the project would have gone ahead without the credits, but Iowa’s claims that Illinois was hot after the plant with its own incentives lack credibility.
The analysis really betrays itself by omitting two key words: “opportunity cost.” It claims every projected benefit from the project without asking whether any benefits would be available if the money were used for something else. It certainly doesn’t say what Iowa loses by having a complex tax system with high rates to pay big subsidies to the well-connected.
I’ve said it before: using taxpayer money to lure businesses is like a guy taking his wife’s purse to the bar to buy drinks for the girls. It’s not impressive. They might let the guy buy the drinks, but they realize he’ll treat them like he is treating his wife if he gets the chance. And anybody he goes home with isn’t likely to be much of a prize.
Egypt taking a different approach to Orascom. The Orascom executives do better in Iowa than back home, reports SiouxCityJournal.com:
An Egyptian billionaire behind one of the largest and most controversial projects in the state is being investigated for tax evasion and has been barred from leaving his country.
According to an article published Tuesday in Construction Week Online, Orascom Construction CEO Nassef Sawiris and his father, Onsi Sawiris, are barred from travel until a resolution is reached regarding the sale of an Orascom subsidiary and the taxes from that sale.
As hard as it is to deal with Iowa and federal tax authorities, they are probably downright reasonable compared to Egyptian revenuers. I suspect that the “resolution” being sought is much like that sought by a kidnapper.
The TaxProf links to this from the New York Times Dealbook: Why Carried Interest Is a Capital Gain. It is as good an explanation as I’ve seen of why capital gain on private equity isn’t a crime against humanity:
Typically private equity investors are paid a 2% management fee, on which they pay ordinary income tax rates, and a 20% carried interest of the partnership’s profits that is only paid after limited partners receive a preferred return of 8%.
Carried interest, therefore, is the profits share on the sale of a capital asset and not “ordinary income” as some would have it treated. In other words, it is a capital gain within a partnership and is rightfully taxed at the long-term capital gains rate — provided that the asset, or company, is held for more than one year.
…
The underlying principle is no different than two friends who partner together to purchase a restaurant. One might bring capital and the other brings expertise. The restaurant could be in disrepair or a great concept that needs additional capital to expand. The chef identifies the restaurant to buy and possesses the skills to manage the restaurant and add value to the enterprise over time. The friend has the capital to invest, but doesn’t possess the operational or investment skills to generate a return.
When they sell the restaurant years later, both partners receive capital gains treatment on their long-term investment. A private equity partnership works in the same way. This is Partnership Law 101.
Exactly. And it’s not like a salary, where somebody writes you a check. The private equity investor is taking a risk, and on any given investment is likely to get nothing. It’s not like, say, a tenured law school faculty paycheck that comes every two weeks.
ProTip: Don’t take your tax advice from rappers. This from Going Concern:
As you might expect, TMZ has the scoop and it quotes a number of artists who are currently considering tips for strippers as a legit deduction and therefore a serious tax strategy. And who doesn’t love creative tax planning? But how might they rationalize this idea?
Well, Bizzy Bone considers these young ladies to be like his family:
Bizzy Bone tells TMZ, “I’m giving charity to females who need their light bills paid. So, of course, that’s a write-off. You write off your kids, don’t you?”
Um, no. Mr. Bone might want to ponder the stories of Ja Rule, Fat Joe, and Beanie Sigel, to name a few, before he gets too smug about his tax deductions.
They said we wouldn’t get snow. It hasn’t really stopped since 7 am yesterday.
Kyle Pomerleau, Is Tax Migration a Myth? (Tax Foundation). Short answer: no. He comments on a much-noted article by James B. Stewart claiming otherwise:
Mr. Stewart is off the mark if he believes he has uncovered a myth. Besides the posturing of celebrities, no one claims that at the very moment someone whispers “tax increase” one thousand millionaires head to the border. What really happens is that these higher tax burdens cause wealth and income to flee to states and countries with lower burdens and higher economic growth over time. High-tax states such as Vermont, Michigan and Missouri have not been magnets for jobs over the long run. Look over at Europe, which is once again scaring investors. It is a continent with excellent climate, culture and an educated workforce, but its high taxes and spending have stalled population and economic growth for a decade or more. America will go that way if we continue down the same path, driving out investment, businesses, and jobs.
Over the years I have seen people move out of Iowa for tax reasons. Back in the 1980s, when Illinois was a low-tax state, I saw an S corporation owner pay for a fancy new house in East Dubuque in one year by the simple expedient of moving across the river from Dubuque. Tax isn’t always the decisive factor, but to say it’s not a factor at all ignores the most basic tenet of economics: incentives matter.
Congress took up Johnson’s suggestion and passed what became the Revenue Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.
Clearly the old rates were on the far side of the Laffer Curve.
A recent news story in the Des Moines area covered a family looking for assistance to cover legal bills for a family member who is in a coma following a car accident. The family is unable to get access to bank accounts or insurance information, and unable to pay her bills (or even know what bills exist) as they come due. The only way for family members to get access to this information is to go through the court system and have the court appoint someone to take care of those matters.
This sort of planning isn’t just for rich people.
Paul Neiffer, How Step-Up In Basis Works. On the resetting of basis at date-of-death value when a farmer dies.
Jim Maule, Special Low Tax Rates Hurt the Economy and Thus the Nation. He doesn’t like low capital gain and dividend rates. How about this, professor: lower the top rate to 20% for all income, allow a corporation dividends-paid deduction, and I’m good with getting rid of a capital gain break. Otherwise you are double-taxing earnings, and to the extent gains result from inflation, you are collecting a tax on treading water.
The low rates we sometimes see from wealthy individuals is because they derive much of their income from investments, which is double taxed anyway. A capital gain or dividend is first taxed at the corporate level, as a corporate profit, then at the shareholder level. The result is a combined average tax rate of 56.7 percent in the United States – higher than every developed country in the world except, France, Denmark, and Italy. This creates a huge disincentive to invest, ultimately slowing economic growth.
How H&R Block guy got to write preparer regs. Civil Service! Tim Carney reports:
In 2009, the Obama administration hired Mark Ernst, the previous CEO of tax prep giant H&R Block, as IRS deputy commissioner. Ernst became a “co-leader” (in the words of an IRS spokesman) in drafting new regulations for tax preparers.
This seems to clash with President Obama’s executive order barring appointees from working on regulations directly affecting their former employers.
But thanks to a fine legal distinction, these rules didn’t cover Ernst. “Mark Ernst is a civil servant at the IRS; he is not a political appointee,” an IRS spokesman wrote me. “The Presidential Executive order on Ethics Commitments by Executive Branch Personnel only applies to political appointees.”
Nobody here but us chickens.
Jason Dinesen has a new installment about his client whose identity was stolen in the ID theft epidemic that really got rolling while the IRS was busy regulating preparers. “If you hired the best comedy writers and satirists in Hollywood, they couldn’t come up with a more farcical script about government ineptness.”
A new working paper recently released by the Mercatus Center at George Mason University… finds that contrary to conventional wisdom, sin taxes are often not used to correct externalities but rather for general fund spending. My take on that is politicians don’t really care about externalities. They would like to raise money from people whose activities they despise. The report also found that the goal of “sin taxes” has changed from correcting market failures to protecting consumers from their own choices. That is, people are too stupid to run their own lives and they need help. Finally, the report finds that sin taxes are regressive, i.e., they punish the poor. Unfortunately, my liberal friends never get exercised over this issue. Maybe it’s as the great PJ O’Rourke surmised, liberals hate poor people.
If they would just not wear those icky Wal-Mart clothes and watch their weight, like they tell them to… (Tax.com)
Even accepting that he spent 520 hours working on his own properties, he still lost. Two of the properties were short-term vacation rentals and one was being readied for sale. The time spent on those properties could not be grouped with the time spent on properties dedicated to long term rentals.
Meanwhile, somewhere an ID thief is trying to get cash from an ATM with a peanut butter sandwich. TBO.com reports:
A 6-year-old pupil at Symmes Elementary School in Riverview was asked to take her homework out of her backpack, according to Cpl. Bruce Crumpler of the Hillsborough County Sheriff’s Office.
The girl reached into her bag and pulled out a baggie containing 52 debit cards, Crumpler said.
The cards, which can be used as accounts for depositing tax refunds are commonly used by people who use stolen personal identities to file tax returns to obtain fraudulent refunds.
Maybe she’s the little princess of tax fraud. Meanwhile, the same TBO.com has an update on Rashia Wilson, who allegedly proclaimed herself the “Queen of IRS Tax Fraud:”
Wilson may not have been the biggest player in Tampa’s income tax fraud explosion, but she was one of the most brazen — “flashy,” a sheriff’s investigator called her, “in your face about it.”
The affidavits show Wilson even had a picture of herself with a cool smile on her face, wearing an oversized jewel-encrusted pendant spelling out her first name as she held bundles of cash.
“YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD,” reads a May posting on her Facebook page described in the affidavits. “IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!”
Easier than she thought, apparently. She has been indicted on 57 federal tax fraud charges for collecting $1.3 million through fake tax returns, apparently claiming earned income credits and refundable education credits. That should make the politicians think twice before they expand these fraud-ridden credits, but it won’t.
How many lawyers does it take to lose a tax case? 15. At least that’s how many lawyers were listed on the losing side yesterday in Bank of New York Mellon Corp., a Tax Court case disallowing foreign tax credits in a tax shelter case. Six lawyers are listed on the IRS side, for a total of 21. The losing side was led by former IRS Chief Counsel B. John Williams. If nothing else, the legal expense deductions should take a bite out of the losing side’s tax bill. The TaxProfhas more.
Iowa’s push for a 4.5% optional flat tax — which I call an “alternative maximum tax” – puzzles David Brunori ($link)
Many liberals in Iowa are complaining that a flat tax wouldn’t require the rich to pay their fair share, whatever that means. But a lot of those people seem more interested in soaking the rich than in helping the poor. Personally, I am much more in favor of reducing the tax burdens on the poor and dispossessed than I am in making rich people suffer.
I think a flat income tax with few deductions (and a sizable exemption for low-income people) is the way to go. I’m unsure why the state would continue its horribly complicated personal income tax system that benefits return preparers, tax lawyers, and tax accountants.
It’s because of a peculiarity of Iowa politics. The powerful lobbying group Iowans for Tax Relief opposes a repeal of the Iowa deduction for federal taxes paid. ITR has shown that it can provoke successful primary challenges of Republican legislators who displease the Muscatine-based lobby. Yet significant rate reduction is impossible if the deduction is retained. Making the lower rate an “alternative” rather than a replacement appeases Muscatine, though at a cost in incoherence.
Will we see a revival in enforcement of the accumulated earnings tax? The obscure depression-era tax on C corporations that retain cash in excess of their “needs,” as second-guessed by the IRS, is rarely asserted. With left-side economists like Paul Krugman asserting that corporate cash-hoarding is one reason why the economy remains weak, don’t be surprised if his friends in the Obama administration try to revive enforcement of this archaic and foolish penalty tax. (Via Tyler Cowen).
As the chart below shows, mandatory spending represents the majority of the federal budget, and the part that has grown most dramatically in recent years. Mandatory spending was about 10 percent of GDP for most of the 30 years prior to 2008. It leapt to 15 percent of GDP in 2009 and now remains at 13.1 percent. It is projected to increase to 14.1 percent of GDP by 2023. Meanwhile, discretionary spending, on programs like defense, roads, and other infrastructure, is on a steady decline. Discretionary spending is now 8.3 percent of GDP and set to go to a 50 year low of 5.5 percent of GDP by 2023.
No spending is really “mandatory.” Congress and the President can always change the “mandatory” programs. And they will, or we will face fiscal disaster and crushing taxes.
Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):
The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.
But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”
State Tax Notes also tracked down Tax Foundation Economist Elizabeth Malm:
“Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”
Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.
“I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.
Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”
*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.
No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.
None of these are incompatible with lower top tax rates.
We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.
The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”
But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:
Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.
Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.
No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.
Today is the last day to make a charitable IRA rollover for 2012. Yes, 2012 is over, but taxpayers who are required to make IRA minimum annual distributions may still have one 2012 transaction left in them.
- Taxpayers who are born before July 1, 1942 who took cash from an IRA in December 2012 can contribute up to $100,000 to a charity today and have it excluded from their 2012 income.
- Taxpayers who have failed to take their required minimum 2012 distribution can avoid the 50% penalty for failing to take their distribution by arranging for the IRA to transfer the minimum amount, up to $100,000, to a charity today.
For an example of the disruption routinely caused by the IRS’s misadministration of the RTRP regulations, see Alban Decl., Ex. 3 (the comments from preparers are illustrative and reference previous examples of similar disruptions); see also Joe Kristan, IRS quietly delays CPE requirement under new preparer regulation scheme , Tax Update Blog (January 8, 2013), http://rothcpa.com/2013/01/irs-quietly-delays-cpe-requirement-under-new-preparer-regulationscheme/ (describing IRS message as “a quiet admission of failure”).
With the Tax Update Blog on their side, who can be against them?
What does a poor college student have that could be lucrative to a thief? A Social Security number. From the Memphis Business Journal:
With tax season bearing down, the IRS has a warning about a new refund scam aimed at college students, seniors and church members.
The Internal Revenue Service said Tuesday the scam tries to get students to give their personal identification and file tax returns claiming fraudulent refunds. It has sent misleading and bogus refund claims using the American Opportunity Education Tax Credit on college campuses throughout the Southeast.
Be very cautious about giving anybody but your employer, your bank, a medical provider or the IRS your Social Security number. And never give it to a scammer.
So the pro tax people managed to shut Mickelson up. Rather than engaging in a discussion about why it is okay to take his money, they stifled him.
Shut up, they explained.
Paul Neiffer points out that now that penalties are waived for farmers who file after March 1, they may not want to file by their usual deadline: File Your Return After March 1 Not Before!
Have you mailed your 1099s and W-2s? Today is the deadline for sending them to recipients. Russ Fox has the scoop.
The IRS has turned off its preparer registration initiative following the federal court decision enjoining the program. The Service issued this statement yesterday:
As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.
The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.
The second paragraph is the most interesting. While the IRS doesn’t admit that it overreached, this is far short of a vow to fight to the last appeals brief. One can only hope they will reconsider the whole misbegotten regulatory scheme.
Meanwhile, Accounting Today confirms reports the IRS has shut down the PTIN registration system and the Registered Tax Return Preparer testing program. They report the PTIN system is expected to come online again after the RTRP registration system is removed from it. Meanwhile, the Return Preparer Office has apparently turned off its phones.
All of this makes me believe that the IRS is not seeking any emergency stay of Friday’s decision and is planning to do without the RTRP rules for this season, anyway.
TaxGrrrl posts a great interview with the winning attorney in the preparer regulation decision, Dan Alban. She encounters a new perspective on whether regulation actually does more good than harm (my emphasis?:
Finally, with all of the legal niceties out of the way, I asked Alban the really tough questions: What about all of those folks who say that regulation is a good thing? What does this ruling mean for taxpayers? And why would you embrace a scheme that wouldn’t require – at a very basic level – some semblance of regulation to ensure that preparers are competent?
Alban didn’t hesitate. Intent, he says, is key. The intent of any kind of licensing scheme should be to protect the consumer. But Alban, who focuses on a occupational licensing in his practice, noted that frequently, these kinds of laws instead protect established interests from competition. That is, he says, not in the best interest of the consumer.
And with that, I paused. You see, in all of the years that I’ve been writing this blog, I’ve only received a phone call from IRS complaining about a post once. And it was for this one. The IRS wanted to assure me that the exemptions had nothing to do with any special interests. None. Not a whit. Interestingly, many preparers at smaller firms thought differently. I received a number of supportive emails and “off the record” comments about how the new rules felt discriminatory.
Bingo. Regulation always favors the big. It’s no big deal for H&R Block headquarters staff to deal with regulations for all of its franchises. It’s a different story for small operators like Sabina Loving, the solo preparer in a low-income South Side Chicago neighborhood who was lead plaintiff in last week’s decision.
It would appear that attorneys benefited disproportionately from the regulations; as a point of context, the American Bar Association (ABA) has encouraged the regulation of “other” preparers for years. Why is that? Is there maybe something to Alban’s idea that these kinds of laws protect established interests from competition?
And then Alban said something else that struck me: about fifty years ago, only 1 in 20 workers in the U.S. needed government permission (in the way of regulations) to earn a living. Today, that number is 1 in 3. That, he said, is troubling. We are increasingly relying on the government to decide who is qualified to perform services for us. Is that something we want? Does regulation really make someone competent? Or honest?
No, it just gives them one more way to control things.
Paying taxes with cell phone money? The Iowa Department of Revenue yesterday announced a venture with Dwolla to enable taxpayers to pay taxes with Dwolla’s mobile device online payment technology. The Des Moines Register Reports:
Dwolla is a cash-based payment network that provides real-time, low-cost, online and mobile payments, officials said. Instead of charging a floating percentage and fixed fee per transaction for goods and services or dealing with administrative issues of checks, Dwolla’s network costs a flat 25-cent fee on any payment over $10, and it’s free for transactions under $10.
…
Iowa Department of Revenue Director Courtney Decker said the state’s first use of Dwolla will allow businesses that already pay more than $100 million in cigarette stamp taxes the option of using the Dwolla network. She added, “This is just the tip of the iceberg” in terms of Dwolla’s potential in state government.
Dwolla’s service is cheaper and safer than mailing and processing a paper check, Decker said, and it will allow participating businesses to receive their tax stamps more quickly. She added that 89 percent of Iowa individual income taxes are filed electronically, but the percentage of people paying taxes electronically to her department is far lower.
Paying online now requires a slow application process and analog mail delivery to receive permission to make electronic payments. The Dwolla system will be a big improvement if the Department enables it for individual income taxes.
IRS wins another demutualization case. The IRS continues to fight the to tax proceeds on the demutualization of insurance companies. They famously lost the Fisherdecision, which held that taxpayers could treat their payments for insurance premiums as basis when they received shares of stock in an insurance company changing from mutual ownership to a stock company. But earlier this month the IRS won a Federal District Court Decision in California rejecting the Fisher“open transaction” scheme. If the IRS wins on appeal, this will likely end up settled by the Supreme Court. This is the second IRS victory since the Fisherdecision.
On January 18, two key tax developments occurred. First, a federal district court wiped out the IRS preparer regulations. Later, IRS announced that farmers aren’t stuck with the March 1 deadline and can file timely by April 15.
Republican Louisiana Governor Bobby Jindal has made the most provocative tax reform recommendation in many years. Jindal said he was going to overhaul the tax law. If he has his way, he will revolutionize it.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Disclaimer
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
New U.K. film tax credit indictments. It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. 
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
