Posts Tagged ‘David Brunori’

Tax Roundup, 7/1/15: Trilobite deduction becomes extinct in Tax Court. And: Indiana throwback thrown out.

Wednesday, July 1st, 2015 by Joe Kristan

 

20150701-1The trilobites roamed the oceans for about 270 million yearsbut a charitable donation of fossils of these ancient arthropods failed to survive a single IRS exam. While scientists still ponder what may have caused these rulers of the seas to vanish, there is no doubt about what doomed the charitable deduction.

The fossils were donated by a California veterinarian, a Dr. Isaacs. He donated four fossilized trilobites to the California Academy of Sciences in 2006 and another 8 in 2007, claiming charitable deductions of $136,500 and $109,800.

When you donate appreciated long-term capital gain property to charity, you are allowed to deduct the fair market value of the property without ever including the appreciation in income — an excellent tax result. Because there is obvious abuse potential in this tax break, Congress has imposed strict valuation documentation rules on contributions of assets other than marketable securities if the claimed deduction exceeds $5,000. The Tax Court explains (citations omitted):

First, for all contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the donee…

Second, for noncash contributions in excess of $500, a taxpayer must maintain reliable written records with respect to each donated item.

Third, for noncash contributions of property with a claimed value of $5,000 or more, a taxpayer must — in addition to satisfying both sets of requirements described above — obtain a “qualified appraisal” of the donated item(s) and attach to his tax return a fully completed appraisal summary on Form 8283.  Generally, an appraisal is “qualified” if it (1) is prepared no more than 60 days before the contribution date by a “qualified appraiser”, and (2) incorporates specified information, including a statement that the appraisal was prepared for income tax purposes, a description of the valuation method used to determine the contributed property’s fair market value, and a description of the specific basis for the valuation.

It’s not three strikes and you’re out; failing any of these requirement kills your deduction. Yet our veterinarian whiffed on all three requirements, according to the Tax Court. Regarding the appraisal, the court says:

Both of Dr. Isaacs’ Forms 8283 bear the signature “Jeffrey R. Marshall” in Part III, “Declaration of Appraiser”. Dr. Isaacs called Jeffrey Robert Marshall as a witness at trial. The Court accepted Mr. Marshall as an expert in the valuation of fossils over respondent’s objection.4

Mr. Marshall identified the signature on Dr. Isaacs’ 2006 Form 8283 as his own. He did not, however, recall signing it. He likewise identified his signature on Dr. Isaacs’ 2007 Form 8283 but could not recall signing the form.

Mr. Marshall similarly identified his signature on two letters, dated December 31, 2006 and 2007, that purported to be appraisals of the fossils Dr. Isaacs donated to CAS in 2006 and 2007. But Mr. Marshall did not write or even recognize the letters, and as Dr. Isaacs offered no testimony from any other expert as to the letters’ author, we did not admit them into evidence.

Courtesy the mad LOLscientist under Creative Commons license

Flickr image Courtesy the mad LOLscientist under Creative Commons license

It’s a bad sign when your appraiser denies doing an appraisal. I hope the appraisal fee wasn’t high.

Although he sought to introduce purported appraisals signed by Jeffrey Marshall, whom the Court accepted as an expert in fossil valuation, Mr. Marshall denied that he had written these purported appraisals, and we did not admit them into evidence. We need not decide whether Mr. Marshall was a “qualified appraiser” within the meaning of the regulations because, even if he was, Dr. Isaacs introduced no evidence that Mr. Marshall rendered any appraisals of the donated fossils for him. Dr. Isaacs offered no evidence of any other appraisals of the donated fossils that could satisfy the statutory requirement.

Even if the appraisals had been accepted, the Tax Court said the deduction failed for lack of a contemporaneous acknowledgement meeting tax law requirements (my emphasis):

Jean F. DeMouthe, on behalf of CAS, acknowledged Dr. Isaacs’ contributions in writing, and these letters, each dated for the date on which Dr. Isaacs made the contribution acknowledged therein, were contemporaneous as required by section 170(f)(8)(A) and (C). Under section 170(f)(8)(B)(ii), however, the letters could suffice as contemporaneous written acknowledgments only if they stated whether CAS had provided any goods or services in exchange. Neither letter includes such a statement.

Taxpayer loses.

The Moral? When deducting charitable donations, details matter a lot. If you give cash or property for which you will claim a deduction over $250, make sure the charity acknowledges the gift with the magic words saying no goods or services were received in exchange for the gift. And if you are donating property for a donation over $5,000, get your tax advisor involved early to make sure the paperwork and appraisals are done properly and your deductions don’t go the way of the trilobite.

Cite: IsaacsT.C. Memo 2015-121.

 

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Ben Bristor, Scott Drenkard, Indiana Tackles Throwback Rule and Personal Property Tax (Tax Policy Blog):

While Indiana has one of the lowest corporate tax burdens in the country, the throwback rule very frequently complicates corporate income taxation. In the process of trying to capture nowhere income, multiple states can claim the right to tax the same income, creating more complexity for tax authorities and businesses. By eliminating the rule, Indiana lawmakers have made a major improvement in the state’s tax treatment of corporations.

Good news for taxpayers with Indiana manufacturing operations.

 

David Brunori, Lessons on How Not to Run Your Government (Tax Analysts Blog):

A very knowledgeable person told me that Brownback set efforts to reduce taxes back 10 years. No one wants to be like Kansas. Liberals might celebrate that outcome — but folks who genuinely believe in more limited government and lower tax burdens will rue the Kansas experiment.

Why would you want to give more power to government when it can even screw up a tax cut?

 

Paul Neiffer, It Pays to Follow the Rules. “The bottom line is that sophisticated estate plans require taxpayers to follow the rules and as indicated by the Webber case, most of them fail at this and sometimes it can cost a lot of money (in Mr. Webber’s case the cost was close to $1 million).”

Robert Wood, Offshore Accounts? Choose OVDP Or Streamlined Despite FATCA

Russ Fox, Mr. Hyatt Goes to Washington…Again. “As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims.”

 

 

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Joseph Thorndike, Jeb Bush Takes a Page From Richard Nixon by Disclosing Personal Tax Returns (Tax Analysts Blog). “As Richard Nixon discovered 63 years ago, financial disclosure can be embarrassing but it’s also good politics.”

Richard Phillips, Chris Christie’s Long History of Opposition to Progressive Tax Policy. (Tax Justice Blog). Considering how high and awful taxes are in New Jersey, I would expect the Tax Justice people to like him more.

Tony Nitti, Expiration Of Bush Tax Cuts Cost Jeb Bush $500,000 In 2013

Kay Bell, Which candidate’s tax return do you most want to see?

 

Len Burman, The Uneasy Case for a Financial Transaction Tax (TaxVox). When finance markets are global, these taxes are a great way to run financial businesses out while collecting very little tax. Still, Mr. Burman musters faint praise: “An FTT is far from an ideal tax. But compared with other plausible ways of raising new revenue, it doesn’t look so bad.”

TaxProf, The IRS Scandal, Day 783

 

News from the Profession. Accounting Professor Who Specialized in Ethics Cheated on Lots of His Papers (Caleb Newquist, Going Concern). I wonder if this is the inventor of the take-home ethics exam.

 

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Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And windy subsidies, IRS stonewalling, more.

Monday, June 29th, 2015 by Joe Kristan

Welcome to the marriage penalty. The Supreme Court has spread Iowa marriage law nationwide. That means more same-sex couples will tie the knot and learn about the sometimes surprising tax results of matrimony. In general, if only one member of the couple has income, it’s a good tax deal, but not so much for two-earner couples. The weird complexity of the tax law means there are lots of exceptions.

The Tax Foundation has an excellent summary of these issues, Understanding the Marriage Penalty and Marriage Bonus. It includes this wonderful piece of abstract art illustrating how marriage can help and hurt a couple’s federal income tax liability:

Marriage penalty tax foundation chart

 

The chart has two axes: the percentage of income earned by each spouse, and the income level. Blue is good, red is bad. If combined income is just short of $100,00, it’s all good, but there is lots of room for tax pain at the top and bottom of the income spectrum for married couples.

Other coverage:

Jason Dinesen, Tax Implications of Friday’s Ruling on Same-Sex Marriage:

This ruling should not have an impact on federal tax returns because couples in same-gender marriages have been able to file as married on their federal tax returns since 2013. This ruling affects state tax returns in states that had bans against same-gender marriage.

Jason, an Iowa enrolled agent, was an early expert in same-sex marriage compliance.

 

TaxProf Blog Op-Ed By David Herzig: The Tax Implications Of Today’s Supreme Court Same-Sex Marriage Decision (TaxProf) “Same-sex couples will now be able to inherit, file joint state tax returns, possess hospital visitation rights and all other state marriage rights as heterosexual married couples.”

Kay Bell, Marriage equality means tweaks to tax code, tax forms. “Sen. Ron Wyden (D-Ore.), the ranking minority member on the Senate Finance Committee, is already working on getting the new nomenclature on the books.”

TaxGrrrl, SCOTUS Legalizes Same Sex Marriage But Questions Remain For Religious Groups & Tax Exempts

 

Wind turbineWindy Subsidy Signed. Governor Branstad has signed HF 645, which establishes a tax credit for wind energy. The credit is 50% of the similar federal credit, up to $5,000. It takes effect retroactively to 2014, giving a windfall to people who bought qualifying systems already. It will do nothing for the environment, but it will do wonders for companies selling wind energy systems.

 

 

 

Christopher Bergin, Why We Just Sued the IRS – Again (Tax Analysts Blog):

For more than two years the IRS has played its old game of hide the ball regarding requests to release Lois Lerner’s e-mails — e-mails that would teach us a lot about what actually went on during the exempt organization scandal. Many of those requests came from the United States Congress: the elected officials who control the IRS budget. The IRS’s stalling tactics have run the gamut from eye-rollingly comical to downright disturbing.

Through this and and other worrisome developments, one thing is clear: the IRS is now in desperate trouble. Most of that trouble it created itself. It would be unfair to call them the gang that couldn’t shoot straight, because when it comes to shooting itself in the foot the IRS is an expert marksman. The IRS is an agency whose initial reaction to almost anything is secrecy.

The IRS needs a big culture change, one starting with a new Commissioner.

 

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Associated Press, Ex-Rep. Mel Reynolds indicted on tax charges. Can you believe a Chicago politician who would sleep with a 16-year old campaign worker would also cheat on his taxes?

 

Russ Fox, A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS:

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

If you outsource your payroll tax, insource regular visits to EFTPS to make sure your payments are made.

 

Peter Reilly, SpongeBob SquarePants In A Tax Case!

Tony Nitti, Sloppy Drafting Saves Obamacare – Supreme Court Upholds Tax Subsidies For All. I think it was more sloppy judging than sloppy drafting that did the trick.

Keith Fogg, Aging Offers in Compromise into Acceptance (Procedurally Taxing).

Jack Townsend, Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA. They want both to be declared unconstitutional. Unfortunately, it seems like a anything the IRS wants is constitutional anymore.

TaxProf, The IRS Scandal, Day 779Day 780Day 781. Still trying to shake out the “lost” emails after 781 days. You’d think they were stalling or something. And efforts to impeach Commissioner Koskinen. It’s not going to happen, but if he had any shame, he would have resigned long ago.

Richard Auxier, Michigan, out of ideas, might ask poor to pick up transportation tab (TaxVox).

 

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Quotable:

The pledge, the brainchild of Grover Norquist, president of Americans for Tax Reform, is a terrible idea for several reasons. First, no leader should promise never to raise taxes because, frankly, there are times when it is necessary. Over 50 Kansas legislators and Brownback, who have signed the pledge, found that out last week. I agree with Norquist philosophically; less government is good. But the pledge only leads to more debt at the federal level and gimmicks in state governments.

David Brunori, Tax Analysts ($link)

 

Career Corner. EY Employee Has Eaten So Many Hours, He’s Gone on Hunger Strike (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/24/15: New obscure dumb forms we choose to do together. And: Wine and Taxes!

Wednesday, June 24th, 2015 by Joe Kristan

20150528-1There’s a new stupid form in town. The Commerce Department this year springs a new form on people with interests in foreign businesses. Form BE-10 was originally due May 31, but the system for filing it crashed, leading to a new June 30 deadline.

BE-10 is a survey, not a tax form. The survey is done every five years, and formerly was required only when you were contacted by the Commerce Department. Now everyone with a 10% or more “direct or indirect” interest in a foreign business is supposed to file it. From Accounting Today:

The form is mainly intended for businesses with foreign investments. Originally individuals only had a filing requirement if they were directly contacted by the bureau, but last November, the government amended its regulations to require any U.S. person who had at least a 10 percent direct or indirect interest in a foreign business enterprise at any time during the U.S. person’s fiscal year to file the Form BE-10. A U.S. person includes individuals, trusts, estates, corporations and partnerships.

“With many of our clients fighting the IRS over FBAR penalties, we err on the side of filing whenever the government requests a U.S. person to file an international information report,” said Carolyn Turnbull, international tax services director at Vestal & Wiler CPAs in Orlando, Fla.

Penalties for failure to file the form range from $2,500 to $25,000. Even worse, individuals who willfully fail to file the form can face fines of up to $10,000 or imprisonment for a maximum of one year, or both.

$2,500 to $25,000 for not filling out a stupid survey. Remember, government is simply a word for the things we decide to do together, like clobber each other with big fines for obscure paperwork violations.

Robert Wood has more.

 

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Kay Bell, Uncle Sam demands foreign bank account filing by June 30. The $10,000 threshold — and the whole FBAR regime, in fact — is absurd. Like so many regulations, it ensnares otherwise innocent people for paperwork violations while doing next to nothing to affect criminals, who don’t much care about getting the paperwork right.

Robert Wood, Offshore Banks Reveal Account Data, As IRS Amnesty For Many Involves 50% Penalty. Some amnesty.

Russ Fox, FBAR Due in One Week:

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

Russ performs a valuable public service with this address list.

 

 

Samantha Jordan, Scott Drenkard, How High are Wine Taxes in Your State? (Tax Policy Blog). In Iowa, pretty dang high:
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Considering it’s burgeoning wine industry, it’s surprising that there hasn’t been more effort to bring Iowa’s wine tax down. And some of the new Iowa wine isn’t half bad.

 

Jason Dinesen, Marriage in the Tax Code, Part 11: Meet the “Single Penalty”

Peter Reilly, Chief Counsel Gives Narrow Scope To Partnership Liability Regulations. “Note, here, that the taxpayers were insolvent and the field is being told to look harder for a possibly larger assessment.”

Tony Nitti, Tax Geek Tuesday: Navigating The Multiple Definitions Of Nonrecourse And Recourse Liabilities

 

Carl Smith, Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine or Osteopathy? Part 1.

TaxGrrrl, Nevada Pops New Tax On Burning Man, iHeartRadio, Other Music Festivals

 

David Brunori, Rand Paul’s Tax Ideas Are Worth Serious Consideration (Tax Analysts Blog). 

Sen. Rand Paul, R-Ky., a GOP presidential candidate, released his tax plan last week. As expected, some commentators piled on criticism. Howard Gleckman of the Urban Institute said Paul was trying to use the tax proposal to “fundamentally restructure the federal government as we know it.” Bob McIntyre, the director of Citizens for Tax Justice, said Paul’s plan would cost $15 trillion over 10 years. Other, less informed folks resorted to calling Paul names.

This criticism from liberals is neither unexpected nor irrational. These are folks who like to see more government spending and revenue raising. Paul is a small government Republican. Of course he wants to see less government and taxes. So it’s not surprising that his tax plan would, in a vacuum, lose the government money. The Tax Foundation says the cost would be $3 trillion over 10 years on a static basis. But that assumes Paul will keep spending at current levels. I suspect that if he became president, he’d support spending cuts equal to or greater than the cost of his tax plan.

I certainly would.

 

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Howard Gleckman, CBO Has No Idea What Repeal of the ACA Means for the Economy or the Deficit (TaxVox). No more idea than when they said the ACA wouldn’t increase the deficit back when it was enacted.

 

Ethan Greene, Alaska Ends Film Tax Credit Program (Tax Policy Blog). States are beginning to realize that they are being had by the film industry.

TaxProf, The IRS Scandal, Day 776:

In the continuing saga of the IRS, the Department of Justice, and their efforts to hide evidence and obstruct justice to protect Lois Lerner and the administration’s targeting of its political opposition, the IRS now claims that thousands of emails found on backup tapes Commissioner Koskinen told Congress did not exist are not IRS records, the IRS has no control over them, and they can’t produce them. 

The IRS has done nothing but obstruct and stonewall. If a taxpayer treated an IRS exam the way the IRS has treated this investigation, they’d be inviting the criminal agents in.

 

News from the Profession. Life at Deloitte Includes Slow Days (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/17/15: Revenues: every business should have them! And: tax abuse of accidental Americans.

Wednesday, June 17th, 2015 by Joe Kristan

 

dontwalk4A picture of a bad deduction. Early in my career a practitioner confided to me that every 1040 should have a Schedule C, the 1040 report of business income, so that taxpayers could write-off personal expenses. That’s never been the actual tax law, but too many taxpayers believe otherwise.

The actual tax law is that you can’t deduct as business expenses costs without an intent to actually make money. Iowa has been independently enforcing this rule, known informally as the “hobby loss” rule. A newly-released protest resolution has an example of a Schedule C business that may not have been conducted with adequate vigor:

The Business Activity Questionnaire you completed indicated that you spent 8-10 hours per year on the business. That is less than one hour per month. This hardly seems reasonable to have for a successful business. An average photoshoot can last longer than 1 hour including let up and tear down and then most photographers spend additional time editing or developing the photos.

What made the state suspicious? From the protest response (my emphasis)

There is no evidence that the taxpayer has ever been successful in this business. With the exception of 2014, there is no record indicating that you filed a sales tax return or a schedule C showing any receipts since your permit was issued. 

One of the most important parts of a real business is revenue. You could look it up. If you have none, it may be hard to convince the revenue agent you are serious.

You receive some income from other sources, and the losses you report from this activity does lower your income, in some years enough to make you exempt from tax. 

That can be a clincher. If you have “business losses” that never end, but they save you taxes on other income, that’s a likely sign that your real “business” is reducing your taxes.

Cite: Iowa Document Reference 15201018

 

20140815-2William Perez, People Unaware of Their American Citizenship are Being Fined for Not Filing US Tax Returns:

“[The] typical [client I’m] seeing now,” reveals Virginia LaTorre Jeker, a tax attorney in Dubai, is “someone who [was] either born in the US and left as young child, or who has [an] American parent from whom they have acquired citizenship.

The individual will always have another nationality, typically from a Middle Eastern country which they consider as their true home. Most times, these individuals will never have filed a US tax return since they were unaware they had any US tax obligations.”

If you think this sounds insane, you are right. No other country does anything like this.

Robert Wood, FBARs For Foreign Accounts Are Due June 30. Should You File For The First Time? “You don’t want to ignore a filing obligation now that you know about FBARs. But one should consider where you are going long term with your issues, how quickly you plan to act, and whether you have good and accurate information to file now.”

 

Kay Bell, U.K. pays a record amount for tax cheat tips

Jim Maule, How Does a Politician Fix a Tax Law The Politician Doesn’t Understand? Well, they’re obviously perfectly willing to enact tax laws they don’t understand in the first place. Yet for all the demonstrated incompetence of politicians, Prof. Maule wants to put more things under their control.

TaxGrrrl, Banks Quick To Turn Over ‘Abandoned’ Assets To Revenue-Hungry States:

Originally accounts were typically considered abandoned only if they went untouched for decades. But revenue-hungry states have been dramatically shortening that “dormancy” period to get their hands on this booty. 

Because the state politicians want the money don’t trust the private sector to take care of their customers, and they are looking out for you!

Peter Reilly, Campaigning For Bishopric Not A Valid Exempt Purpose – Kent Hovind Update. It’s not? I guess I can skip my mitre-measuring session.

 

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Robert D. Flach, FOUR REASONS TO REMOVE THE EITC FROM THE TAX CODE: “Probably the most important reason – Tax credits, especially refundable credits, are a magnet for tax fraud.” That’s exactly right.

Rachel Rubenstein, Reflections on the General State of Tax-related Identity Theft (Procedurally Taxing). “From 2004 to 2013, the NTA identified tax-related identity theft as one of the “‘Most Serious Problems” faced by taxpayers in nearly every annual report submitted to Congress here.”

David Brunori, The Revolt of the Corporations (Tax Analysts Blog). “The message is clear: Businesses have options and will move to sunnier tax climates.”

Howard Gleckman, The House GOP’s Internal Battle Over Online Sales Taxes (TaxVox).

Tony Nitti, Donald Trump Announces Bid For Presidency: What Is His Tax Plan? And who cares?

 

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Alan Cole, IGM Panel: Real Income Growth is Understated (Tax Policy Blog):

The IGM Forum, a University of Chicago project that surveys academic economists on issues, last month found that economists broadly agree that real median income numbers understate real growth in standards of living.

I think that has to be true. Don Boudreaux likes to compare items in old Sears catalogs with their modern counterparts to show how much better — and cheaper, in terms of hours of work needed to pay for them — the modern goods are:

The list is long of consumer goods that ordinary Americans today can easily afford but that were unavailable commercially to even the wealthiest Americans in the 1950s. This list includes digital cameras, lightweight waterproof sportswear, high-definition televisions, recorded Hollywood movies to play at home, MP3 players, personal computers, cellphones, soft contact lenses, and GPS devices.

We take for granted everyday things, like the internet, flight, automobiles, paved roads between cities, that the richest men of 200 years ago did without.

 

TaxProf, The IRS Scandal, Day 769

News from the Profession. Counteroffers Rarely Work for Employees Jumping Ship (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/10/15: Canada finds tax freedom today. And: limits to states tax reach.

Wednesday, June 10th, 2015 by Joe Kristan

canada flagOh, Canada. The Tax Foundation determined that the U.S. “Tax Freedom Day” was April 24 this year. Our neighbor to the north has had to wait until today, reports the Fraser Institute:

Tax Freedom Day measures the total yearly tax burden imposed on Canadian families by the federal, provincial and local governments.

“Without our Tax Freedom Day calculations, it’s nearly impossible for Canadian families to know all the taxes they pay each year because federal, provincial and local governments levy such a wide range of taxes,” said Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of Canadians Celebrate Tax Freedom Day on June 10, 2015.

The list of taxes includes income taxes, payroll taxes, health taxes, sales taxes, property taxes, fuel taxes, vehicle taxes, profit taxes, import taxes, “sin” taxes and more.

In 2015, the average Canadian family (with two or more people) will pay $44,980 in total taxes or 43.7 per cent of its annual income.

The lateness of the date may surprise some U.S. tax practitioners who are familiar with Canada’s low 15% top corporation tax rate — less than half the U.S. 35% top rate. But Canada more than makes up for it with high provincial taxes and a national sales tax.

 

iowa-illustrated_Page_01Fencing in state tax collectors. A proposed “Business Activity Tax Simplification Act of 2015” (H.R. 2584) would update the rules restricting the ability of states to tax interstate activity:

Business Activity Tax Simplification Act of 2015 Expands the federal prohibition against state taxation of interstate commerce to:


(1) include taxation of out-of-state transactions involving all forms of property, including intangible personal property and services (currently, only sales of tangible personal property are protected); and
(2) prohibit state taxation of an out-of-state entity unless such entity has a physical presence in the taxing state. Sets forth criteria for:
(1) determining that a person has a physical presence in a state, and
(2) the computation of the tax liability of affiliated businesses operating in a state.

Congress last addressed these rules in 1959. The world of multistate commerce today would hardly be recognizable to an Eisenhower-era tax planner. States constantly try to expand their reach to non-voters in other states. State taxes are becoming the largest portion of the tax compliance bill to more and more small businesses. Simplification is way overdue. Unfortunately, this bill will probably go nowhere.

 

Gretchen Tegeler, Public sector health plans are costly for taxpayers (IowaBiz.com):

Health exchange plans try to encourage members to be conscious of the cost of services.  They require subscribers to pay 100 percent of the cost of nearly everything, up to the deductible. The deductibles are set deliberately high — $3,750 for a single plan and $7,500 for a family plan in our example. Public employee plans, on the other hand, which already cost employees very little in premiums, tend to have extremely low co-pays and deductibles. So employees have minimal exposure to the actual cost of services, and minimal incentive to stay healthy.

When you don’t have to compete to stay in business, this is what happens.

 

Another ACA Success Story. The Treasury Inspector General for Tax Administration reports that delays in getting information from insurance exchanges will make it impossible for the IRS to verify all health insurance subsidy claims.

Hank Stern, Yeah, about that promise… (InsureBlog).

 

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Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 3

Timothy Todd, Ninth Circuit Vacates Tax Court Decision On Transferee Liability. The case involves a “Midco” transaction involving the use of a loss company to give a buyer an asset deal and a seller a stock deal in the sale of a C corporation.

TaxGrrrl, Footballer Lionel Messi To Face Trial On Tax Fraud Charges. That’s a soccer player, in case you are trying to remember what NFL team he’s on.

Robert Wood, Hastert Pleads Not Guilty, But Can Write Off Blackmail On His Taxes

Caleb Newquist, Who Wants to Work at a Small Accounting Firm? (Going Concern). If it’s you, let me know.

Jim Maule, The Return of the Lap Dance Tax Challenge. “Despite having a fairly good grasp of tax law generally, and a passable understanding of sales taxation, I would have struggled with this case because, as others can attest, I don’t quite understand art.”

 

20120816-1David Brunori, Brownback Can’t Catch a Break (Tax Analysts Blog).

I think Brownback had the right idea and the wrong approach. He wanted to reduce tax burdens on Kansas citizens. That is laudable for two reasons. First, in the long run, lower taxes will lead to greater economic growth. Second, the money belongs to Kansans. Politicians don’t have an inherent right to people’s property. And it doesn’t matter whether lawmakers’ motivations are noble or venal — it’s not their money.

But I think Brownback made a terrible error when he exempted from tax all income from passthrough entities.

That approach is exactly backwards. You should broaden the base when you lower the rates. And while you should make sure you don’t tax income twice, you want to catch it once.

Kay Bell, Louisiana lawmakers ask D.C. lobbyist for tax hike permission. “Spoiler alert: Americans for Tax Reform’s Grover Norquist says ‘no'”

 

Scott Greenberg, Progressive Policy Institute Calls for Cutting Corporate Tax Rates (Tax Policy Blog). “Right now, companies can take advantage of lower tax rates in Europe by relocating their legal location through an inversion. But, if new international tax rules force companies to actually move jobs overseas to take advantage of Europe’s lower tax rates, companies would likely shift jobs away from the U.S. as well.”

TaxProf, The IRS Scandal, Day 762. He links to a piece arguing “First, the IRS, while effective at collecting taxes, is a poor agency to task with regulating advocacy organizations, especially those, such as the advocacy groups covered under 501(c)(4), that cannot offer donors a tax deduction.” Actually, every non-revenue task assumed by the IRS weakens their effectiveness in collecting taxes.

Playing hard to get. Does Saying “No Chance” Increase the Chances of Reform? Renu Zaretsky’s TaxVox headline roundup covers tax reform, internet taxes, and patent boxes today.

 

News from the Profession. The Greatest Reality TV Accountants, Awarded and Ranked (Leona May, Going Concern). I’d love to see Robert D. Flach do this.

 

 

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Tax Roundup, 6/3/15: Oh, THAT million-dollar rent payment. And: the IRS data breach is on management, not budget.

Wednesday, June 3rd, 2015 by Joe Kristan

 

Flickr image courtesy John Snape under Creative Commons license

Flickr image courtesy John Snape under Creative Commons license

Pay me now, tax me now. A real estate operator agreed to build and lease a building to a tenant, a plasma collection center. The 10-year lease had a provision allowing the tenant to buy down monthly payments by reimbursing the landlord development costs. In 2008, the tenant chose to pay $1 million to the landlord under this lease clause.

Getting a $1 million payment can complicate your tax planning. Tax Court Judge Ruwe explains the simple approach used by the landlord on the joint return he filed:

Petitioners jointly filed a Form 1040, U.S. Individual Income Tax Return, for 2008. On one of the Schedules E attached to the return petitioners reported rents received of $1,151,493 in connection with the plasma collection center rental. Among the deductions that petitioners claimed on this Schedule E was a $1 million “contribution to construct” expense.

The IRS disagreed, saying that the taxpayer should have reported the amount as rent without the “contribution to construct” deduction.

When it got to Tax Court, the taxpayer dropped the deduction argument and instead argued, first, that the $1 million payment wasn’t income in the first place, but an expense reimbursement. The Tax Court said that the use of the payment to buy down rent payments was fatal to that argument.

The taxpayer then argued that the rental income should be spread over 10 years under the “rent levelling” rules of Section 467. This often-overlooked section was enacted to prevent games like tenants front-loading rent deductions via prepayments to tax-indifferent landlords. Judge Ruwe provides some background (some citations omitted):

Congress enacted section 467 to prevent lessors and lessees from mismatching the reporting of rental income and expenses.  Section 467 provides accrual methods for allocating rents pursuant to a “section 467 rental agreement”. In order to qualify as a section 467 rental agreement, an agreement must have: (1) increasing/decreasing rents or deferred/prepaid rents and (2) aggregate rental payments exceeding $250,000.  Both parties agree that the lease in this case qualifies as a section 467 rental agreement.

The court held that the lease didn’t “allocate” the $1 million payment across the ten-year lease term:

Petitioners argue that they should be permitted to use the constant rental accrual method provided in section 467(b)(2) in order to spread their rental income to other years. However, this method is inapplicable because it was intended to allow the Commissioner to rectify tax avoidance situations, and the regulations provide that this method “may not be used in the absence of a determination by the Commissioner”.

That’s a tool for the IRS, not for you, silly taxpayer!

dimeThe court also held that the rent was not “prepaid rent” that could be deferred over the lease term:

In applying this regulation to the facts of this case we first find that the lease in question does not “specifically allocate” fixed rent to any rental period within the meaning of section 1.467-1(c)(2)(ii)(A), Income Tax Regs. However, the lease does provide for a fixed amount of rent payable during the rental period (i.e., rent payable pursuant to the terms of the lease). Accordingly, in the absence of a “specific” allocation in the rental agreement, the amount of rent payable in 2008 must be allocated to petitioners’ 2008 rental period pursuant to section 1.467-1(c)(2)(ii)(B), Income Tax Regs., which provides that “the amount of fixed rent allocated to a rental period is the amount of fixed rent payable during that rental period.” Therefore, petitioners are required to include as gross income the entire $1 million lump-sum payment made pursuant to the terms of the lease for the year of receipt, 2008.

The Moral? Heads they win, tails you lose, when you aren’t extremely careful drafting a funky lease. Section 467 is obscure and, I suspect, frequently overlooked. It usually doesn’t matter, as most leases don’t get fancy. When they do, though — especially when you see big payment variances — you need to pay attention. The tax results may surprise.

 

TaxProf, TIGTA: IRS Ignored Recommended Security Upgrades That Would Have Prevented Last Week’s Hack Of 100,000 Taxpayer Accounts. Prof. Caron quotes the Washington Post:

A government watchdog told lawmakers Tuesday that the Internal Revenue Service has failed to put in place dozens of security upgrades to fight cyberattacks, improvements he said would have made it “much more difficult” for hackers to gain access to the personal information of 104,000 taxpayers in the spring.

“It would have been much more difficult if they had implemented all of the recommendations we made,” J. Russell George, the Treasury Inspector General for Tax Administration, told the Senate Finance Committee at a hearing on the data breach, which the IRS says was part of an elaborate scheme to claim fraudulent tax refunds.

Identity theft has been a neglected problem at the IRS for years. Billions of dollars have been lost both to petty Florida grifters and to “a worldwide criminal syndicate” taking advantage of IRS laxity. Yet the last two commissioners (and, sadly, the Taxpayer Advocate) have spent more effort trying to set up a preparer regulation scheme that would do nothing to stop fraud — but would increase IRS power and the market share of the big franchise preparers. Priorities.

And it’s not a matter of a pinched budget. Ask Commissioner Koskinen (via Tax Analysts, $link): “Koskinen acknowledged before the Finance Committee that the Get Transcript security breach was not a matter of resources, and thus budget, but of management.”

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Russ Fox, The BEA Responds, or Making IRS Customer Service Look Normal (Bad). Russ reports that BEA has extended the deadline for its mandatory “survey” of foreign business ownership to June 30 for most filers.

Peter Reilly, Failure To File Texas Franchise Tax Form Voids Lawsuit. Sometimes ignoring a state tax filing can bite you in a surprising place.

TaxGrrrl, IRS Changes Position On Identity Theft, Will Provide Copies Of Returns To Victims. “Thanks to an inquiry from Sen. Kelly Ayotte (R-NH), IRS will now provide victims of identity theft with copies of the fraudulent tax returns filed using their personal and financial information.”

Robert Wood, If You Handle Cash, IRS Can Seize First, Ask Questions Later. “Even if your bank/cash efforts come from 100% legal money, the IRS says it still  [c]an seize it.”

IJim Maule, Where’s the Promised Trickle-Over? Another example of the illusory nature of the benefits of publicly-funded pro sports venues.

Keith Fogg, Tax Court Continues to Take the Same “Angle” on Attorney’s Fees When IRS Concedes the Case. “I continue to find this line of cases to contradict the purpose of the statute.  Particularly for those of us representing low-income taxpayers where the amount of tax at issue is low but the amount of time spent to prepare a case for trial not inconsequential, this loophole is swallowing the rule.”

Jack Townsend, Third Circuit Reverses Variance to One Day from Guidelines Range of 63 to 78 Months. Apparently one day isn’t close enough to 63 months.

Tony Nitti, Will Caitlyn Jenner’s Gender Reassignment Costs Be Tax Deductible?

 

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David Brunori, Amazon Does the Right Thing (Tax Analysts Blog):

Shakopee was prepared to provide direct incentives to Amazon. But Amazon told Shakopee it didn’t want them. That’s right — Amazon said no to the tax incentives being offered.

Good. Why?

I would like to think Amazon is being a good corporate citizen, but I really like the idea that it may have backed off because of potential political opposition to the incentives. Only politicians can stop the scourge of incentives. So if political hassles lead to fewer tax incentives, let’s have more political hassles.

Amen.

Megan Scarboro, New Hampshire Considering Cuts to Corporate Tax Rate (Tax Policy Blog):

While New Hampshire generally has a good tax code, a tax cut for businesses could improve the state’s economic climate.

Because the state has no tax on wage income or general sales, New Hampshire is ranks 7th overall in our State Business Tax Climate Index, but a notable weakness is that high corporate rates drive a ranking of 48th in the corporate tax rate component.

In case you are wondering, Iowa is #50.

Jeremy Scott, Republican Support for Brownback’s Tax Plan Begins to Erode (Tax Analysts Blog).

 

Howard Gleckman, What’s Up With the No Climate Tax Pledge?

TaxProf, The IRS Scandal, Day 755

 

Career Corner. Study: Faking Long Hours Is Just As Good As Working Long Hours (Greg Kyte, Going Concern).

 

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Tax Roundup, 5/27/15: 104,000 taxpayers compromised by IRS transcript app breach. And: EITC is no free lunch!

Wednesday, May 27th, 2015 by Joe Kristan

20130419-1That took some work. The IRS disclosed yesterday that 104,000 taxpayer accounts have been compromised by identity thieves who did it the hard way. The Wall Street Journal reports:

The IRS said that to access the information, crooks had to clear a multistep authentication process that required prior personal knowledge about the taxpayer, including Social Security information, date of birth, tax filing status and street address before accessing IRS systems. The process also involved answering personal identity-verification questions, such as “What was your high school mascot?”

Mr. Koskinen, when asked how impostors obtained answers to these so-called “out-of-wallet” questions, suggested social media might have played a role.

“This is not a hack or data breach. These are impostors pretending to be someone who has enough information” to get more, said Mr. Koskinen, who said thieves might be using sophisticated programs to aggregate and mine data.

This is much more difficult than your standard ID theft, where all you need is a Social Security number to go with a name, and maybe a birth date. Getting through the IRS transcript access system requires a fair amount of data entry and outside information.

The breach will complicate filing for the 104,000 taxpayers whose data was accessed, and possibly for another 96,000 taxpayers whose records the thieves failed to breach. Tax Analysts reports ($link):

The IRS will provide credit monitoring and protection to the 104,000 victims at the agency’s expense, Koskinen said. Victims will also be given the IRS’s identity protection personal identification numbers so they are not targeted again, he said. All 200,000 of the taxpayers affected by the raid will be sent notification letters from the IRS and will have their accounts flagged on the agency’s core processing systems, he added.

The IRS has been losing the IT security wars for some time. It’s a shame, because the transcript service has been very useful for taxpayers needing return information for loans or to resolve IRS notices. I think the IRS will eventually have to delay refunds and processing so that it will be able to match third-party information — W-2s and 1099s — with returns before issuing refunds. The era of “rapid refunds” is coming to an end.

Lots of coverage of this. The TaxProf has a roundup. Other coverage:

William Perez, IRS Data Breach: Hackers Gain Access Through ‘Get Transcript’ Web App. “The IRS emphasized that taxpayers don’t need to do anything further. The agency will be sending letters to affected taxpayers explaining what to do next.”

TaxGrrrl, IRS Says Identity Thieves Accessed Tax Transcripts For More Than 100,000 Taxpayers “IRS was alerted to the problem when its monitoring systems noted an unusual amount of activity related to the [transcript] application.”

Russ FoxIRS “Get Transcript” Application Hacked; 104,000 Tax Returns Illegally Accessed. ” It would be time consuming but entirely possible for a stranger who had my social security number and date of birth to answer all the other verification questions.”

Accounting Today, IRS Detects Massive Data Breach in ‘Get Transcript’ Application

J.D. Tucille, Details About 100,000 Taxpayer Accounts Stolen From IRS (Reason.com)

“[T]he vast databases held by the IRS, HHS, security agencies, etc, will be leaked on purpose, leaked because of bureaucrat sloppiness, or be hacked. The more they collect, the more that will eventually leak.” Chris Edwards, director of tax policy studies at the Cato Institute, predicted to me last year. That “eventually”—at least, the latest round of it—is now.

Oh, goody.

 

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Kay Bell, Winners of meet-the-candidate contests face tax costs:

True, you won’t pay from your own pocket for the flights, hotel stay, chauffeur or meal with a future president. But the value of those things, like all prizes, is considered taxable by the Internal Revenue Service.

The winners can’t simply ignore the potential tax bill. The political contest organizers should send them, and the IRS, 1099 forms stating the value of the prize.

Well, that’s one tax problem I won’t be having, unless they start paying voters enormous amounts to talk to us. I will meet any candidate who will pay me $100,000 for 10 minutes of my time. Meet me at the Timbuktuu on the EMC Building skywalk.

 

Jason Dinesen, From the Archives: You Won the Dream Home, Part 4 — Changing My Mind

Jack Townsend, Switzerland Publishes Certain Identifying Information of Certain Foreign Depositors in Swiss Banks

Bob Vineyard, Bad Moon Rising (Insureblog). “Obamacare news isn’t good.”

 

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David Brunori, Scalia is Right (Tax Analsyts Blog). “The dormant commerce clause is here to stay, with precedent and established expectations and all, but it would be nice if we just admitted that we made it up.”

Robert Wood, Why Aren’t Those $26.4M Speech Fees Taxable To Bill & Hillary Clinton?

James Kennedy,Pennsylvania Senate Considers Hiking Income and Sales Taxes (Tax Policy Blog). They’re pretty high already.

TaxProf, The IRS Scandal, Day 748

 

Howard Gleckman, Marco Rubio Wasn’t the Only One Who Cashed Out an IRA Last Year (TaxVox). “Substantial assets leak because people under age 59 ½ take early withdrawals or borrow against their IRAs or 401(k). And the problem raises an important and challenging policy question:  Should the money in these accounts be available for non-retirement purposes?”

 

eic 2014Leslie Book offers thoughful consideration of Warrren Buffet’s support for an expanded Earned Income Tax Credit (Procedurally Taxing). You should read the whole thing, I’ll highlight this part:

As Mr. Buffet knows, there is no such thing as a free lunch. Using the tax system to deliver benefits is no silver bullet when it comes to addressing inequality. To administer the tax system as we know it today is no easy task. When Congress asks the IRS to do more, there are costs to taxpayers and the system overall. As Congress considers whether to ratchet up EITC, it should do so with the absence of rhetoric. It should also consider the tools it wants to give IRS to combat errors as well as address what costs it wants to impose on claimants and third parties. The current system passes costs on others, many of which are hidden. As with lunch, someone has to pick up the tab.

Among the costs is the 20-25% improper payment rate. Another cost is the high hidden marginal tax rate caused by the phase-out of the credit as incomes increase — a combined federal and state rate that can exceed 50%. And there is a cost to an already-stressed tax system of administering a social program.

Sebastian Johnson, Some States Support Earned Income Tax Credits for Working Families, Others Fall Short. (Tax Justice Blog) A piece that is oblivious to the issues raised by Leslie Book.

 

News from the Profession. EY Law Continues to Not Threaten Law Firms By Poaching Lawyers (Caleb Newquist, Going Concern).

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Tax Roundup, 5/21/15: Credits targeting what you would do anyway! And: minimum wage, ACA, and lots more.

Thursday, May 21st, 2015 by Joe Kristan

 

IMG_0603Paying people to do what they would do anyway. Rhode Island is proposing a new credit for “job creators,” reports David Brunori:

It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that’s why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what’s expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

This is true of all “job creation” credits. As David points out: “No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.”

An Illinois representative has proposed a “Patriot Employer Tax Credit Act,” (Tax Analysts, $link) with a tax credit of up to $1,500 for employers who:

-Invest in American Jobs: Does not move its headquarters overseas or reduce the number or percentage of U.S.-based workers in comparison to workers overseas.

-Pay Fair Wages: Pay 90% or more of U.S. workers an hourly wage of at least $15 per hour.

-Provide Quality Health Insurance: Offer ACA-compliant healthcare to employees.

-Prepare Workers for Retirement: Provide 90% of non-highly compensated U.S. employees a defined benefit plan OR a defined contribution plan and contribute at least 5% of worker compensation.

-Support Our Troops and Veterans: Pay the difference between regular salary and military compensation for all National Guard and Reserve employees called for active duty and have a plan in place to recruit veterans.

-Create a Diverse Workforce: Have a plan in place to recruit employees with disabilities.

By claiming the word “patriot,” it wraps bad economics in the flag. Because nothing says “I love my country” like tax credits.

 

20150423-1Jana Luttenegger Weiler, Health Savings Accounts: Beneficiaries and Taxes (Davis Brown Tax Law Blog). “As HSAs become more common, it is important to consider the HSA in various capacities, including in premarital agreements, death, and divorce.”

Tony Nitti, Tax Court: In Order To Convert A Home To A Rental, You Should Probably Rent It

Jason Dinesen, Glossary of Tax Terms: AMT.

TaxGrrrl, Taxpayer’s Call To IRS Accidentally Broadcast On Howard Stern’s Radio Show. I’m just amazed the caller reached an actual IRS agent.

Peter Reilly, Tax Girl Challenges Homeownership And You Should Really Listen To Her. “To many of us homeownership is a necessary step in becoming a full-fledged adult and a house that is rented can never be a home.  This book might help you rethink that attitude.”

Jim Maule, The Dependency Exemption Parental Tie-Breaker Rule. “Under the parental tie breaker rule in section 152(c)(4)(B), if the parents claiming a dependency exemption deduction for a qualifying child do not file a joint return, the child is treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during the taxable year, the child is treated as the qualifying child of the parent with the highest adjusted gross income.”

Paul Neiffer, April 18 (or 19), 2016 is Due Date for 2015 tax returns

Jack Townsend, Remaining Swiss Bank Criminal Investigations Likely to Go Into 2016

Robert Wood, Appalling $187 Million Cancer Charity Fraud Case Settles — When 97% Of Money Isn’t For Charity

Keith Fogg, Argument Over Furlough of National Taxpayer Advocate Set for June 2 Before the Federal Circuit (Procedurally Taxing)

 

 

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Cara Griffith, Tax Reform Laboratories (Tax Analysts Blog). “Federal lawmakers could learn a lot from an examination of what has worked and what hasn’t across the nation.”

 

Insureblog, Dear HHS, Will You Share My ACA Success Story?:

  So how has this Obamacare thingy helped my small company:-We have seen an overall decrease in benefits since 2010.
-From November 2010 to our current plan year premiums have increased 58.7%.
-If we would have been forced to an Obamacare compliant plan the increase would have been 116.7%

Tom Vander Well, Placing customers on hold without diminishing satisfaction (IowaBiz.com). The suggestions do not endorse the IRS practice of “courtesy disconnects.”

 

Carl Davis, Sweet Sixteen: States Continue to Take On Gas Tax Reform (Tax Justice Blog). To the Tax Justice folks, tax reform = tax increase.

 

Joseph Thorndike, Republicans Should Embrace the Gas Tax – After All, They Invented It (Tax Analysts Blog). Everyone loves being told what they “should” like.

 

Kay Bell, Will Congress OK highway money before it hits the road?

 

Elaine Maag, A Redesigned Earned Income Tax Credit Could Encourage Work by Childless Adults. (TaxVox). Only if they can re-design it so that it doesn’t squander 25% of the cost on improper payments.

 

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Megan McArdle, $15 Minimum Wage Will Hurt Workers. A well-explained post explaining what should be obvious:

When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.

These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour.

Most people who insist that minimum wage increases are harmless snicker at those who believe in “intelligent design.” Yet they are themselves trying to impose their own design on an eveolutionary system. At least creationists don’t claim to be designing species.

 

TaxProf, The IRS Scandal, Day 742

 

News from the Profession. Accountants Lack Some Skills (Caleb Newquist, Going Concern). “But it’s foolish to expect accounting graduates to have skills for corporate accounting. They don’t have them because they don’t learn them in school and they don’t learn them in public accounting.”

 

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Tax Roundup, 5/12/15: IRS updates list of permitted private delivery services for timely-mailed, timely-filed rule.

Tuesday, May 12th, 2015 by Joe Kristan

UPS 2nd-dayWhen it absolutely, positively has to be postmarked today. While we live in an electronic age, there are still tax things that can only be submitted the old-fashioned way, on dead tree byproduct. That means the “mailbox rule” — timely-mailed means timely-filed — still means something to those of us facing filing deadlines.

The traditional way to document timely filing has been to use Certified Mail, Return Receipt Requested, at the good old post office. Sometimes it’s hard to get to the post office before they close — or before they stop bothering to process certified mail for the day — so many taxpayers have come to rely on “designated private delivery services” to document their filings.

The IRS last week updated its list of permitted private delivery options in Notice 2015-38. It is the first update of the list since 2004 and reflects changes in the offerings of the large delivery services. The approved services (effective May 6, 2015) are:

 

FedEx:

1. FedEx First Overnight

2. FedEx Priority Overnight

3. FedEx Standard Overnight

4. FedEx 2 Day

5. FedEx International Next Flight Out

6. FedEx International Priority

7. FedEx International First

8. FedEx International Economy

 

UPS:

1. UPS Next Day Air Early AM

2. UPS Next Day Air

3. UPS Next Day Air Saver

4. UPS 2nd Day Air

5. UPS 2nd Day Air A.M.

6. UPS Worldwide Express Plus

7. UPS Worldwide Express.

This means DHL no longer offers approved services. It’s UPS, FedEx, or the USPS. Also note that the popular “UPS Ground” service is not on the list. If you use a non-designated service, the filing date is the date the IRS receives it.

For the thrifty among us, it’s worth noting that for both UPS and FedEx, 2nd-day service works just as well as overnight delivery. In either case, the key is to make sure your shipping documents show a ship date that beats the deadline. Also, make sure you use the proper street address; the private services can’t deliver to IRS service center post office boxes.

Related: Russ Fox, Not All Private Delivery Services Are Equal

 

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Just time for a few links today:

 

TaxGrrrl, Tax Deadline Looms For Tax Exempt Organizations

Kay Bell, It’s a bird! It’s a plane! It’s a tax collector!

Robert D. Flach has fresh Tuesday Buzz!

 

David Brunori, The Highest Corporate Tax Rate Should Be Zero (Tax Analysts Blog):

Since 2002 I have been saying that states should repeal their corporate income taxes. I speak practically and am not furthering some ideological agenda. I said then that (1) the corporate income tax did not raise a lot of money; (2) without combined reporting and other safeguards, it would never make a lot of money; (3) it consumed an inordinate amount of resources (planning, litigating, auditing); and (4) it does not matter and we should stop pretending that it does.

Repeal of Iowa’s highest-in-the-developed-world income tax is a key part of the Tax Update Quick And Dirty Iowa Tax Reform Plan.

 

IMG_1557Andrew Lundeen, Let’s Eliminate the Tax Code’s Bias Against Saving with Universal Savings Accounts (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 733, discussing a non Tea Party victim of IRS targeting that took it to court: “Last week a panel of three DC Circuit judges heard the IRS appeal. The hearing did not go well for the IRS. Indeed, it was an exercise in righteous humiliation of the Department of Justice.”

 

News from the Profession. Throwing Money at People Still a Solid Retention Strategy (Going Concern)

 

 

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Tax Roundup, 5/11/15: Returned, recovering, and ranting! Sales taxes, tax credits for special friends pondered by Iowa legislature.

Monday, May 11th, 2015 by Joe Kristan

 

IMG_0983I am back from overseas, and somewhat recovered from a nasty bug that hit me just before it was time to come home. So much to catch up on — if I don’t link your post today, I might get it later this week, as I dig out.

I was saddened to learn that the Iowa legislature is still in session. David Brunori reports ($link) on a proposal to allow Des Moines to vote on increasing its own sales tax without participation of its neighbors:

Iowa Rep. Tom Sands (R), chair of the House Ways and Means Committee, has introduced legislation that would allow greater Des Moines communities to ask voters to approve a 1 percent local option sales tax. I have written about this issue a lot over the years. The reality is that while there are sound reasons for imposing a local option sales tax, the problems far outweigh the benefits.

When Des Moines adopts this tax, the folks who shop in the city will pay. But many of them don’t live within the city limits. It will be people in the surrounding suburbs and rural areas who pay some of the tax. That’s great for Des Moines, but not so good for other jurisdictions. I am unsure why a legislator from a rural area — or even an area without significant retail — would support this measure. Their citizens will pay but won’t see the benefits.

Well, it’s just another example of the delight Des Moines politicians take in picking the pockets of non-voters (Exhibit A: freeway speed cameras). But remembering the result of the last sales tax increase vote in the area — crushed by a 85% “no” vote — I don’t think the municipal highwaymen should count their sales tax loot just yet.

 

Politicians call for more subsidies for their well-connected friends, from your pockets. Iowa leaders call for biochemical tax credits for ethanol, biodiesel (Sioux City Journal).

 

Andrew Lundeen, Pass-through Businesses Employ Most of the Private Sector Workforce (Tax Policy Blog).

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“Pass-though” businesses are those taxed on owner 1040s. When you tax high income individuals, there is no escaping that you are reducing funds available for the nations principal employers to hire and expand.

 

William Perez, Your Guide to the 6 Types of Business for Federal Tax Purposes. “Entrepreneurs can set up their small business as a sole proprietorship, corporation, S-corporation, partnership, non-profit organization, Limited Liability Company, Limited Liability Partnership, and in some states a Professional Limited Liability Company/Partnership.”

Jason Dinesen, Why Make Estimated Tax Payments, Part 1. “People who are new to self-employment are often confused about what estimated tax payments are and why they might need to make these payments.”

Kay Bell, A Mother’s Day tax gift: 10 child care tax credit tips

TaxGrrrl, 11 Things I’ve Learned About Tax From My Mom

Leslie Book, On Mother’s Day Cowan Case Highlights Unfairness of Family Status Tax Rules

Paul Neiffer, Don’t Get Too Greedy! And however greedy you get, you need to follow the appraisal rules if you want to deduct a property donation.

Jack Townsend discusses a Sentencing for Failure to Pay Over Trust Fund Taxes. If you don’t remit withheld payroll taxes, thinking that you are just “borrowing” it, your “interest” might include prison time.

Peter Reilly, Home Schooling Contingency Does Not Kill Alimony Deduction

Robert D. Flach, WHAT TO EXPECT WHEN WRITING TO THE IRS. Not a speedy resolution.

 

 

Andrew Mitchel, The Exodus Continues (2015 1st Quarter Published Expatriates).

We began tracking expatriations in late 2009 because we anticipated that the number of expatriations would increase as a result of changes in U.S. tax laws and due to “saber rattling” by the IRS about the imposition of potential penalties in the wake of the UBS scandal.  Our prediction has been accurate.

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

 

Robert Wood, New Un-American Record: Renouncing U.S. Citizenship

Me, An obscure tax deadline that could cost you big. A discussion of the looming FBAR deadline.

 

 

Kristine Tidgren, Minnesota Producers Impacted by Avian Flu Granted Extra Time to File and Pay Taxes (ISU-CALT Ag Docket)

Hank Stern at Insureblog notes that May is Disability Insurance Awareness Month. Given the stakes, and the relatively low price, it’s shocking that 57% of working adults have no coverage.

Annette Nellen, Narrow exemptions cause inefficiency, inequity and complexity – HR 867 and S. 1179. But they are such a great way to get lobbyists to come to your summer golf fund-raisers.

 

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TaxProf, The IRS Scandal, Day 732. “Every time we turn around we get more emails.” Two years, and Commissioner Koskinen is still tired of your complaining.

Russ Fox,730:

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

The day Commissioner Koskinen resigns is the first day the IRS might start to figure it out.

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog)

Howard Gleckman, Congress Has Not Passed A 2016 Budget. It Has Only Begun The Process.

 

Career Corner. The Monthly Close: White Collar Crime Should Be a Fun and Scary Surprise (Going Concern)

 

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Tax Roundup, 4/20/15: Cheer up, it could have been even worse!

Monday, April 20th, 2015 by Joe Kristan

20140929-1Tax Season is over. For me, the end is officially the moment I transmit my e-file extension to the IRS. Now it’s time to pick up the threads of the life and tax practice that are put aside in the final three-week frantic trudge.

Tax Season has become, for me, all about the last three weeks. That’s when everybody finally has their corrected 1099s, most of the public partnership K-1s are in, and the pass-through closely-held businesses are mostly done. No matter how well I keep up until then, suddenly I am a week behind and working frantically to catch up. Inevitably something unexpected snarls the works — maybe an unexpected client crisis, or a business transaction unhappily timed to coincide with filing season. As the tax law gets more complex every year, it compresses the filing season for many clients to a narrower period beginning closer to April 15 every year.

Robert D. Flach has posted his paper-filed thoughts on the recent filing season: “It certainly wasn’t the worst, or the best, in my 44 years.”

It wasn’t the worst I’ve seen. That was the one two years ago, when a January 1, 2013 tax law changed the rules for 2012, and Iowa dawdled in updating its code references to incorporate the federal changes — leading to filing season chaos.

Our worst fears of tax season weren’t realized, thanks to last-minute filing relief for ACA victims participants owing money, a one-year waiver of the deadly penalties for ACA non-compliance by small-employer insurance reimbursement arrangements, and an 11th-hour waiver of the “repair regs” accounting method change filing for smaller businesses.

Still, it was pretty bad. Probably the worst part of this season was the exponential increase in identity theft. The continuing failure of the IRS to deal with this problem is disgraceful. The failure of Congress to address it is nearly as bad.

No, the solution isn’t to give Commissioner Koskinen all the money he wants. It’s a systems and controls problem, and the last time the IRS got a blank check for systems upgrades, they boggled it entirely. And nothing Mr. Koskinen has done gives any confidence that he can be trusted with it.

20140910-1The solution starts with a new commissioner. It will include slower refunds. It will include system upgrades that will, for example, reject e-filings claiming earned-income credits for somebody who habitually files returns with adjusted gross income in the millions (We had multiple ID thefts of six and seven-figure filers this year). It will include a long-term system upgrade, with long-term funding to be released only in steps as progress is made. And maybe the solution includes changing the culture that thinks tax refunds are a good thing.

Related: Fix The Tax Code Friday: Delaying Tax Refunds To Stop Fraud (TaxGrrrl). “Would you be willing to wait a few more weeks for your refund to allow for forms matching if it slowed down the incidents of tax fraud?”

 

Tony Nitti, How (Not) To Spend Your Tax Refund. “The goal with sound tax planning should never be to generate the largest refund; after all, the bigger the refund, the more of your hard-earned money you loaned, interest-free, to the IRS for a period of months.”

Jason Dinesen, Tax Season Recap 2015: What a Strange Season, Part 1

William Perez, What To Do if You Missed the Tax Deadline. “There were the usual issues here and there with getting info from clients, and a few clients were surly or price-sensitive. But it wasn’t too bad overall.”

Kay Bell, Missed April 15 tax deadline? Got an extension? Now what?

Robert Wood, You Just Filed Your Taxes, Is It Too Early To Amend?

Peter Reilly, Heir Of Honduran Timber Fortune Wins Large Refund In Tax Court. “Using the IRS as a weapon in a business dispute is, well, not good business.”

 

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While I took a break, the IRS Tea Party Scandal rolled on. The TaxProf continued his IRS Scandal Series: The IRS Scandal, Day 711Day 710Day 709Day 708Day 707.

 

David Brunori, The Arrogant and the Greedy Team Up to Take Your Money (Tax Analysts Blog). David explains (my emphasis)  the real reason why certain people have their dresses over their heads about the menace of e-cigarettes:

E-cigarette taxation best illustrates the confluence of arrogance and avarice. Those who cannot keep themselves from playing nanny have already begun to bar e-cigarettes from public places (to prevent the dreaded secondhand water vapor). And of course we have the obligatory restrictions on their use by kids. But the tobacco abolitionists would like to tax e-cigarettes with the knowledge that if you tax something, you get less of it. Don’t be fooled. These people do not care about your health. They care about lording over you.

But there are others (like Bowser) who cast a covetous eye on electronic smokes. Two factors drive that thinking. If people smoke real cigarettes less, the states will lose tens of millions of dollars. E-cigarettes need to be taxed to replace that revenue (because it really isn’t about your health). Since a lot of tobacco tax revenue is earmarked for schools, taxing e-cigarettes is all about the kids. Raising real taxes to pay for public services is hard. Teaming up with the prohibitionists is much easier.

It’s Baptists and bootleggers all the way down.

 

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Gretchen Tegeler, There’s more to the story than tax rates (IowaBiz.com). “Property taxes are a combination of the property tax rate, applied to the portion of a property’s assessed value that is taxable. Even if a city keeps a constant rate, it may be collecting a lot more property tax revenue (with property owners paying a lot more, too), if there’s more valuation to tax.”

Career Corner. What Did You Learn This Busy Season? (Caleb Newquist, Going Concern).

 

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Tax Roundup, 4/13/15: Tips for those caught cash-short for April 15. And: bad tax policy, the busybody’s friend!

Monday, April 13th, 2015 by Joe Kristan

dimeI owe how much? As April 15 approaches, more taxpayers than usual are finding that not only is no refund on its way, but they are supposed to send the IRS more money. For many, it’s because they are required to repay the advance premium credit on their Obamacare policies. For others, they just didn’t have enough withheld from their taxes. Whatever the cause, it’s a cash problem they can’t solve over the next three days. What to do?

First, make sure you either file or extend by Wednesday. The problem of owing the IRS money doesn’t go away by ignoring it. In fact, it can get a lot worse.

If you file a return (or extension) and don’t pay at least 90% of the tax owing, the penalty is 1/2% per month, plus interest, on the amount due — the “failure to pay” penalty. But if you don’t file or extend, then you get the 5% per month “failure to file” penalty, plus interest, on the underpayment, maxing out at 25%. That can make a big difference.

Also, if your underpayment is solely the result of repayment of the premium tax credit, the IRS is waiving the failure to pay penalty, as long as you file or extend timely.

Pay what you can. If you can pay 90% of what you owe, then you only pay interest on the balance at the IRS underpayment rate, currently 3% annually. That’s significantly better than the approximately 8% combined interest rate and underpayment penalty.

Consider borrowing. If you have a home equity line, that can be a good deal. The rates will likely be competitive with the IRS rates, especially taking penalties into account — and unlike IRS debt, you can deduct interest on most home equity loan payments.

Watch your rates. While you want to pay the IRS down, there are worse creditors. You don’t want to take a credit card cash advance or car title loan at 18% to pay off the IRS at 3-8%. But if that is competitive with what your credit card charges, use the card. Credit card companies are easier to deal with than IRS collections. The can be reached by phone, for one thing.

20140321-4Take advantage of a 120-day grace period the IRS offers. There is a toll-free number (800-829-1040), but you are likely to have better luck using the IRS Online Payment Agreement Application.

Consider an IRS “installment agreement.” If you owe under $50,000, you can fill out the request online and get a monthly payment plan going. There is a $120 user fee. Once you get on the plan, be prepared to stick with it, as they can get unpleasant if you default. If you owe more than $50,000, you probably need a tax pro. You don’t think you need one? Come on, you owe more than $50,000, that should tell you that you aren’t doing a great job of tax planning on your own.

Fix the problem for 2015. Many two-earner couples chronically under-withhold. If you and your spouse each have six figure incomes and you are both withholding at 15% or less, you shouldn’t be surprised that you are paying on April 15.

IRS resources:

Tips for Taxpayers Who Can’t Pay Their Taxes on Time.

Ways to Pay Your Federal Income Tax

Three days left – that means after today there are only two more Tax Update . Don’t miss a one!

 

 

20140321-3Russ Fox, Bozo Tax Tip #1: Let Your IRS Notice Age Like Fine Wine!. Like I said, ignoring them won’t make them go away.

William Perez, 8 Reasons to Ask the IRS for a Tax Extension. Good reasons.

TaxGrrrl, 5 Things Taxpayers Are Irrationally Afraid Of – And Shouldn’t Be

Tony Nitti, IRS To Waive Penalties For Taxpayers With Delayed Or Inaccurate Obamacare Insurance Information. Again, this releif is only available if you file or extend on time.

 

Kay Bell, Obamacare, NYPD donations offer new tax considerations

Annette Nellen, Challenges of taxing gambling winnings. Winnings above the line, losses are itemized deductions. What’s wrong with this picture?

Jason Dinesen offers Tips for Choosing Bookkeeping Software

Peter Reilly, Tax Court Allows Multimillion Multiyear Arabian Horse Losses

Robert Wood, 10 Notorious Tax Cheats: Real Housewives Stars Teresa And Joe Giudice Faced A Staggering 50 Years

 

Jack Townsend, Taxpayer Right to Be Present at Interview of Federally Authorized Practitioner. “Therefore, the Court concludes that a taxpayer does not have an absolute right to be present at a third party IRS summons proceeding concerning the taxpayer’s liabilities.”

7-30 fountain

 

TaxProf, The IRS Scandal, Day 702Day 703Day 704. From Day 704: “Lois Lerner, former director of the Exempt Organizations Unit at the Internal Revenue Service (IRS), warned other IRS officials that lower-level employees ‘are not as sensitive as we are to the fact that anything we write can be public–or at least be seen by Congress,’ according to documents obtained by Judicial Watch and released on Thursday.” Because she had nothing to hide, of course.

 

Alan Cole, Taxes Are Not Handouts (Tax Policy Blog):

At times I really struggle to understand the way taxes are covered on Wonkblog, but a post yesterday, listing government handouts for the rich, reached a new level.

Some of the items listed seem like poor examples. (Do rich people really take lots of deductions for their gambling losses?) But the one that really threw me for a loop was the estate tax, a tax levied on only the most valuable estates. It is literally the opposite of a handout for the rich.

When start from the premise that everything is a handout for the rich, then you can believe just about anything. Like this next guy:

Richard Phillips, What We Know About Hillary Clinton’s Positions on Tax Issues (Tax Justice Blog) “Taken together, Clinton has frequently shown a willingness to take a stand for tax fairness but has never fleshed out a clear agenda on these issues and has occasionally embraced regressive or gimmicky tax policies.” Of course, the the “tax justice” crowd, “fairness” is just another word for taking your money.

 

David Wessel, How much does the tax code reduce inequality? (TaxVox). “n other words, the U.S. tax system does reduce inequality, but there’s still a lot of it left after taxes.”

Poverty is a problem. Inequality isn’t the same thing, and if you are more worried about inequality, your priorities are misplaced.

 

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David Brunori is my favorite tax policy commentator ($link):

There is a theory that says the tax laws should be used to do one thing — raise revenue to pay for public services. Taxes should not be used to engineer society, promote social agendas, foster economic development, or help anyone in particular. This theory has merit. Adherence would lead to less cronyism, fewer economic distortions, and less regulation through the tax code. State governments, of course, violate these principles all the time.

Who are the perpetrators? Those striving for bad tax policy represent an odd coalition of people who want to run your life, and people who simply want your money.

Extra points to David for correctly distinguishing a “blog” from a “blog post.” A blog contains posts, and a single post isn’t a “blog.” Now get off my lawn.

 

Career Corner. Long Hours Are the Root of All Your Busy Season Problems (Caleb Newquist, Going Concern). If you think you have a problem working long hours, try getting these things done without working long hours.

 

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Tax Roundup, 4/9/15: April 15 is also a day-trader deadline. And: Grant 1, Lee 0.

Thursday, April 9th, 2015 by Joe Kristan

daydrinkersTechnology has made made sophisticated stock trading tools that exchange floor pros once could only dream of available to every home. It has democratized the ability to make, and lose, money playing the markets.

It can be tempting to chuck the desk job and run off with Maria Bartiromo and TD Ameritrade. Sadly, more than one trader has emerged from the relationship with nothing to show for it but a lifetime of capital loss carryforwards.

That’s where today’s filing season tip comes in. If you qualify as a “trader,” April 15 is your deadline for choosing whether to make the “mark-to-market election” on your trading positions for 2015. If you don’t qualify as a trader, you can’t make the election.

If you make the mark-to-market election, you are required to recognize all of your open positions at year-end on your tax return as if you had cashed them out. More importantly, all of your gains and losses are ordinary, rather than capital.

That may seem like an inherently bad idea. Aren’t capital gains taxed at a lower rate? Yes, they are, but only if they are long-term, on assets held for over one year. That’s not the kind of gain day-traders are going for. Short-term gains are taxed at the same rates as ordinary income.

Ordinary losses, on the other hand, are a good thing. Well, on your tax return, anyway, if not in any other way. While individual capital losses are deductible only against capital gains, plus $3,000 per year, ordinary losses are fully deductible, and can even generate loss carrybacks.

That makes the mark-to-market election useful for day traders. They give up capital gain treatment that they can’t use anyway, and if they have a bad year — and many beginners do — they at least get to deduct all of their losses. For example, a famous trial lawyer who left the bar for day trading used the mark-to-market election to deduct $25 million in losses.

It’s already too late to make the election, also known as the “Section 475(f) election, for 2014. But you have until April 15 to make the election for 2015. You make the election either with either an unextended 2014 1040 or with the Form 4868 extension for the 2014 return. You may not make the election on an extended 1040.

The election is made on a statement with the following information:

  1. That you are making an election under section 475(f);
  2. The first tax year for which the election is effective; and
  3. The trade or business for which you are making the election.

So if you are spending your days with CNBC and your trading program, you might want to hedge your tax risks by making a 2015 475(f) election by April 15.

Related: The lure of a Sec. 475 election (Journal of Accountancy)

This is another of our series of 2015 Filing Season Tips — one daily through April 15!

 

Russ Fox, Bozo Tax Tip #3: Just Don’t File

 

Flickr image courtesy Easa Shamih under Creative Commons license

Flickr image courtesy Easa Shamih under Creative Commons license

Tax Court judges can do math too.We talked last week about the need to properly document charitable deductions.  The Tax Court talked about it yesterday, disallowing claimed deductions of $37,315 for lack of substantiation — most of it for purported contributions of household goods. From the decision:

Petitioners did not provide to the IRS or the Court a “contemporaneous written acknowledgment” from any of the four charitable organizations. Petitioners produced no acknowledgment of any kind from the Church or Goodwill. And the doorknob hangers left by the truck drivers from Vietnam Veterans and Purple Heart clearly do not satisfy the regulatory requirements. These doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.

So if you claim property deductions for gifts of $250 or more, you need to have something from the charity that, even if it doesn’t show the value, shows what you gave. So why not claim you just gave only gifts under $250? From the Tax Court (my emphasis):

Petitioners contend that they did not need to get written acknowledgments because they made all of their contributions in batches worth less than $250. We did not find this testimony credible. Petitioners allegedly donated property worth $13,115 to the Church; this donation occurred in conjunction with a single event, the Church’s annual flea market. Petitioners’ testimony that they intentionally made all other contributions in batches worth less than $250 requires the assumption that they made these donations, with an alleged value of $24,200, on 97 distinct occasions. This assumption is implausible and has no support in the record.

Hey, I drive a Smart car, it takes a lot of trips!

Cite: Kunkel, T.C. Memo 2015-71.

 

20140401-1Jana Luttenegger Weiler, Special Tax Deduction for Contributions to Support Families of Slain NY Officers. (Davis Brown Tax Law Blog). A 2014 deduction that you can still fund today.

TaxGrrrl, Taxes From A To Z (2015): Z Is For Zloty. On paying taxes while abroad and you need to use a foreign currency.

Robert Wood, Newest Tax Fraud Threat? Your Payroll Tax. A good reminder of the need to use EFTPS to monitor your payroll tax service, to make sure your company payroll taxes are getting deposited with the government.

Jason Dinesen, Marriage in the Tax Code, Part 6: Community Property Laws

Kay Bell, IRS headquarters hit by brief Washington, D.C., power outage. A reminder that even if you e-file, you don’t want to wait until the very last minute.

William Perez, Requesting Additional Time to File a State Tax Return

Jack Townsend, Tax Shelter Salesman Avoids Fraud Finding for Investment in Tax Shelter. You’ll have to follow the link for the more accurate, but less printable, version of the headline.

 

David Brunori, Greed, Piracy, and Cowardice (Tax Analsyts Blog):

I have written about 100 articles on tax incentives, all of them critical. I don’t blame the “greedy” corporations. State and local taxes are a relatively small part of the cost of doing business. Corporations are handed opportunities to minimize their tax burdens — legally. And rationally, they take advantage of those opportunities. The biggest factors in deciding where to invest are labor costs and broad access to markets. If we ended all tax incentives tomorrow, there would be virtually no effect on the economy. Corporations would still be investing where they are investing.

It’s politicians responding to the incentives. Those of us who want better tax policy, broad tax bases, and low rates for all don’t show up at the legislator’s golf fund raisers. Those looking for a special deal for their company or their industry have low handicaps for a reason.

 

TaxProf, The IRS Scandal, Day 700. 700 days, no scandal here, move along.

 

Bloomberg, An Emotional Audit: IRS Workers Are Miserable and Overwhelmed. A visit to one of the few places where they still offer on-site service. (Via the TaxProf)

 

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History alert. General Lee surrended to General Grant 150 years ago today at Appomatox Court House, Virginia. Fellow tax blogger Peter Reilly is there, and I am insanely jealous.  I am contenting myself by re-reading Lee’s Last Retreatthe best book I’ve seen about the last frantic days of the Army of Northern Virginia. It makes you feel like you are there with the crumbling confederate army as it tried to escape after shattering defeats around Richmond. It also punctures a lot of romantic myths around those events.

After tax season, I will be happy to bore you with my thoughts on why Grant is grievously underrated for his Civil War achievements, and why he is also an underappreciated president. Next week.

 

News from the Profession: CPA Firm Managing Partner Charged in Embezzlement Scheme (Accounting Today):

Patrick H. Oki, managing partner at the Honolulu-based firm was charged Monday with theft in the first degree, money laundering, use of a computer in the commission of a separate crime, and forgery in the second degree, according to the office of Prosecuting Attorney Keith M. Kaneshiro.

Mr. Oki is reported to be both a CPA and a Certified Fraud Examiner. I can only imagine the awkwardness at the next partner meeting.

 

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Tax Roundup, 4/6/15: I don’t have my K-1 yet. Is that illegal? Or, why K-1s are slower.

Monday, April 6th, 2015 by Joe Kristan

k1corner2014I have my W-2. Why don’t I have my K-1? Tax practitioners hear some version of this every year. The short answer is that employers are required to provide W-2s by the end of January, but most K-1 issuers can legally wait until September 15.

The long answer is that K-1s can be much harder to prepare. For a W-2, you only need to have the wage, withholding and benefit information for the employee — not always super-simple, but usually easy enough with a good payroll system.

To issue a K-1, in contrast, a business has to determine its taxable income, and then it has to determine how to allocate it among its owners. Most businesses don’t even have a clean close on their books until well into January. Many then have their auditors in to opine on the financial statements, sometimes with adjustments that change the results. Then the tax preparers show up.

The tax preparers have to determine where the financial statement books have to be changed to get to taxable income. They have to evaluate elections as to the timing of assets and present them to the business, which then has to make a decision. They may have to prepare accounting method changes that require a review of years of fixed asset additions and disposals. If ownership has changed, they have to determine how the income is to be allocated based on the differing ownership during the year. If property has been contributed, they may have to allocate income and deductions for that property differently than for everything else in the business.

20140321-3Then it’s time for state returns. Every state tax system has its own quirks, and the preparer has to determine whether a business needs to file in a state, how to allocate or apportion the business income to the state, and then to identify where the state computes income differently from federal income.

Oh, and they have to do this for more clients than just the one that issues your K-1.

So it’s not a crime for you to not have your K-1 yet. There are a lot of good reasons, from the complexity to the tax law to the rules that require most K-1 issuers to have their work done at the same time, that delay K-1s. If you are missing a K-1 and April 15 is looming, an extension is likely to be your best option. There’s no evidence that the IRS pays special attention to extended returns, but they definitely notice if you file a return that leaves out a K-1. And you’d much rather file an extended return with a correct K-1 than to amend a return because a K-1 prepared in haste was wrong.

Tomorrow we start to talk about what to do with your K-1 when it does show up as part of our series of , one a day through April 15. Don’t miss a one!

 

Russ Fox, Bozo Tax Tip #6: Nevada Corporations. “If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.”

TaxGrrrl, Taxes From A To Z (2015): W Is For Withholding From Wages

 

William Perez, The Penalty for Not Having Health Insurance

Robert Wood, Know IRS Audit Risks Before Filing Your Taxes. Your audit risk is a lot less if you don’t make a prep mistake. If extending helps you avoid mistakes, extend.

Jack Townsend, Court Approves FBAR NonWillful Penalty Merits But Wants Further Development of APA Issues. ” The IRS disregarded its own promise and assessed the penalty before Mr. Moore could request an ‘appeal.'”

 

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David Brunori has thoughts on state tax incentives ($link):

To the extent blame is to be assigned, it rests solely on our political leaders. Governors, and to a larger extent legislators, have the power to grant or deny incentives. If they adhered to the principles of sound tax policy, they would build tax systems on a broad base with low rates. There would be little, if any, special treatment. But they don’t, because they are driven by two human conditions — greed and fear. They want a big corporation with thousands of employees to move to their state. They believe, incorrectly, that the way to achieve that is to give tax breaks that are unavailable to the rest of us. Conversely, they fear that a company might leave and take the jobs with it. They believe the only way to do that is through the tax code. I have said that politicians are unimaginative cowards when it comes to incentives. I don’t think that is too strong a statement. Of course, we put them in power. So perhaps the real blame lies with us.

The other reason is that nobody shows up at your golf fund-raiser to lobby for broad bases and low rates, but they do when they want a special deal.

 

TaxProf, The IRS Scandal, Day 697Day 696Day 695. Thoughts on how this scandal would have been viewed if it occurred under a President Bush, and a victory for a group suing for a complete list of entities targeted by IRS for their politics.

Jared Walczak, Legislators Take on the Taxing Logic of Nevada’s Live Entertainment Tax (Tax Policy Blog). How Nevada puts musicians out of work.

Annette Nellen, Designing sales tax exemptions – what is necessary?

Robert Goulder, Stateless Income Revisited: Kleinbard, Herzfeld, and BEPS (Tax Analysts Blog)

Richard Phillips, Will this Tax Day be the First and Last Including Premium Tax Subsidies for Millions of Americans? (Tax Justice Blog).

 

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Kay Bell, Mad Men’s Pete Campbell complains about 1970’s tax rates. “In 1970, when the midseason premiere is set, the top tax rate was 70 percent on, for a single filer like Pete, income of more than $100,000.”

Career Corner. Ten Days Until Tax Day: How To Tell Inconsiderate Clients You’ll Be Extending Their Returns (Tony Nitti). “Yet, despite presumably possessing the ability to comprehend the standard Gregorian calendar, here you are, dropping off all of your information mere days before the deadline — just as you did last year, and the year before that — and leaving me a Post-It note thanking me for ‘squeezing you in.'”

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Tax Roundup, 4/1/15: No fooling – if you reached 70 1/2 last year, take a distribution by today. And: Freedom on April 17!

Wednesday, April 1st, 2015 by Joe Kristan

IMG_1212They don’t call them “required” distributions for nothing. If you reached 70 1/2 years of age in 2014, first, congratulations! Second, today is the deadline for you to take your first required minimum distribution from your (Non-Roth) IRA or SEP, and, if you have retired, from your defined-contribution retirement plan. The rules for the two types of plans are slightly different.

The tax law doesn’t want your retirement plan assets to be growing tax-free forever. That’s why the RMD rules were enacted. You are required to pull an annual taxable amount out based on your remaining life expectancy, determined by IRS tables.

The first required distribution must be taken by April 1 of the year following the year in which you turn 70 1/2. That means you, if you were born after June 30, 1943 and before July 1, 1944. Subsequent distributions have to be taken by December 31. That means if you are taking your first one today, you’ll need to take another one this year.

If you don’t have a spouse 10 years younger than you, you can compute your IRA distribution at this table. If you do, use this table instead. You will need to know your IRA balance as of December 31, 2014.

And if you don’t take your distribution on time? A 50% penalty tax on the amount you should have withdrawn. That would hurt.

This is the first of our 2015 filing season tips. Come back daily through April 15 for more!

 

Russ Fox, Bozo Tax Tip #9: 300 Million Witnesses Can’t Be Right!:

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Yet, somehow it didn’t land on his 1040. Things went badly.

 

People in Iowa get in tax trouble too. St. Charles man sentenced to prison for filing false tax return (Osceola Sentinel-Tribune).

 

Tax Freedom Day is April 24, The Tax Foundation Announces:

Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income. In 2015, Americans will pay $3.28 trillion in federal taxes and $1.57 trillion in state and local taxes, for a total tax bill of $4.85 trillion, or 31 percent of national income. This year, Tax Freedom Day falls on April 24, or 114 days into the year. 

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The big day is a day later than it was last year. As state taxes differ, states have different Tax Freedom Days. The first one is Louisiana, which arrives tomorrow. New York and Connecticut have to wait until May 13. Iowa celebrates fittingly on my next day off, April 16.

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Kay Bell, Time to choose between a Roth or traditional IRA

Jason Dinesen, Iowa Adoption Credit and Deduction. “The Iowa deduction for adoption expenses is also still available, and there is a relationship between the credit and the deduction.”

Robert Wood, Five Ways To Audit Proof Your Tax Return Against The IRS. For example, “Don’t claim flaky deductions.”

TaxGrrrl,Taxes From A To Z (2015): S Is For Scams

 

Keith Fogg, Impact of Bankruptcy Determination of Tax Liability on Tax Court Case and on Assessment Timing (Procedurally Taxing). “When a taxpayer goes into bankruptcy, a new forum for tax litigation opens up, or potentially opens up, based on section 505 of the Bankruptcy Code.”

 

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TaxProf, The IRS Scandal, Day 692. Today the TaxProf says that Commissioner Koskinen has put all this unpleasantness behind him:

The IRS has fixed its errors, such as improper extra scrutiny of Tea Party groups, and they won’t happen again, the tax agency’s commissioner said Tuesday.

“The changes are so significant throughout the agency that you could hang a sign out at the front of the headquarters saying ‘Under New Management,’” Internal Revenue Service Commissioner John Koskinen said in a speech at the National Press Club in Washington.

Uh-huh. And there were no more Lerner emails, and the Commissioner had made sure he looked very hard for them.

 

Oh, goody. The Rich Are Finally Paying More in Taxes (Jeremy Scott, Tax Analysts Blog). Oddly, he thinks that’s a good thing. But ultimately, the rich guy isn’t buying. And when you try to smack “the rich,” you are really going after employers.

Source: The Tax Foundation

Source: The Tax Foundation

 

David Brunori, Transparency: Good for the Tax System, Critical for Good Government (Tax Analysts Blog):

Modern state tax policy has been dominated by cravenness and cronyism. But every once in a while, politicians muster the courage to do the right thing. Several proposals have been advancing in legislatures that will bring more transparency to state fiscal systems. I cannot overstate the importance of these measures.

Cronies and cockroaches prefer darkness.

 

Howard Gleckman, Is a Consumption Tax Talk Making a Comeback? (TaxVox)

 

Robert D. Flach emerges from his 1040 cave just long enough to do a little Showboating. He’ll get the reference.

 

That’s not funny! Accountants Ruin Joke (Caleb Newquist, Going Concern)

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Tax Roundup, 3/19/15: Iowa Alternative Maximum Tax advances to its doom. And: The Tax Foundation doesn’t want your 1040!

Thursday, March 19th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa House Ways and Means advances Alternative Maximum Tax. The committee voted to send HSB 215 to the House Floor yesterday.  The bill would let taxpayers choose between the current Iowa income tax and a simpler version with a broader base, lower rates, and no deduction for federal taxes.

The ideas in the alternative bill are all good policy. But just adding this to the current awful income tax is like spray painting a car that’s half rusted-through. It’s extra work that does no good.

In the real world, taxpayers would compute both taxes and pay the lower one. This is the opposite of the current alternative minimum tax, where you pay the higher of the regular or alternative tax base. That’s why I call it an Alternative Maximum Tax.

If you want to simplify taxes, simplify the tax system; don’t just tack a simplification module on the existing code.

Really, though, this proposal is just for show, as they know Senator Gronstal will never let it move in the Iowa Senate. If it reinforces the idea that you can lower rates with a broader base and by taking out the deduction for federal taxes, it could even do some good. It might even get them thinking about the  Tax Update Quick and Dirty Iowa Tax Reform Plan.

 

Filing season tip: Please Don’t Mail Your Tax Returns to the Tax Foundation (Joseph Henchman, Tax Policy Blog):

Someone mailed us their tax returns and documents today. We quickly sent it back to that individual, as we neither process tax returns nor assist individuals with tax planning or preparation. Tax documents contain a lot of private information and everyone should be very careful about to whom they send this information.

We are here for taxpayers but we are unable to assist individuals with tax planning or preparation. Our staff includes scholars who study tax policy and data, not tax preparation professionals.  

Another inadvertent argument for e-filing: those returns are pretty sure to end up in the right place.

 

TPC logoRoberton Williams, Who’s Afraid of Income Taxes? New Interactive TPC Tools To Help You Understand the 1040. A cool new feature at TaxVox:

In bite-sized pieces, Who’s Afraid of the Form 1040? discusses the main tax form, explaining the different filing statuses, who counts as a dependent, and what income is taxed (and what income isn’t). How do deductions and credits cut your tax bill and how does the AMT boost it? And how does the income tax help you pay for college, health care, and retirement?

With tax trivia (we used to file our returns on the Ides of March) and facts (just 2.9 percent of taxpayers will owe AMT for 2014 but they’ll pay an average of $6,500), the new feature explains many aspects of the income tax. It won’t make it easier to file your taxes but it might make the process a bit more interesting.

We have also updated our Interactive 1040. Inaugurated last year, this web tool allows users to examine each individual line of the 1040 and Schedule A (itemized deductions). Pop-up boxes contain brief explanations and links to distributional tables and other TPC resources on each topic.

It might be a good way to help you understand why that refund you thought you had coming didn’t.

 

IMG_1322TaxGrrrl, It’s Not A Scam: IRS Is Really Sending Out Identity Verification Letters. Letters, people, not phone calls, not emails. They don’t call without sending a letter first.

Kay Bell, What should be on the IRS’ taxpayer service to-do list? I would start with not sending billions of dollars to ID-fraud scammers.

Me, IRS issues Applicable Federal Rates (AFR) for April 2015.

TaxProf, The IRS Scandal, Day 679.

 

David Brunori, A Very Good Tax Reform Idea in Louisiana (Tax Analysts Blog).

Louisiana Gov. Bobby Jindal (R) has a tax plan that should be creating buzz all around the country. He wants to convert some of the state’s individual and business tax credits from refundable to nonrefundable. Let’s be clear: Refundable tax credits are government transfers. They are welfare. They merely use the tax code as a vehicle to take money from some people and give it to others. And apart from the earned income tax credit, no refundable credits represent sound policy.

Given that over 25% of the EITC ends up in the wrong hands, I’m not sold on that one either. David is absolutely correct on the unwisdom of refundable credits, and transferable credits are just as bad.

 

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Tony Nitti, AICPA Sends 34 Tax Proposals To Congress

Annette Nellen posts on Need for greater tax literacy and regulation of preparers. Tax literacy, sure. Preparer regulation? Not so much. Massive simplification? Definitely.

Joseph Thorndike, Mike Lee’s Tax Plan Was Promising. Until It Wasn’t. (Tax Analysts Blog). “Are the reformicons done for?”

Matt Gardner, GOP Budget Proposal Once Again Punts Tough Questions (Tax Justice Blog)

Career Corner. Busy Season Zen: The Swish Montage (Caleb Newquist, Going Concern). Ommmm.

 

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Tax Roundup, 3/11/15: The $195 pass-through timely-filing incentive. And: taxing your neighbor may just send him your retailers.

Wednesday, March 11th, 2015 by Joe Kristan

7004 cornerExtend your corporations! The deadline for corporation returns looms. This year it’s March 16, as the usual March 15 deadline is on a Sunday.

The need to file or extend C corporation returns by Monday should be obvious. A failure to file penalty starts 5% of any underpayment, up to 25%, and 100% of the corporate tax is due by March 15 even when you extend.

Failing to meet an S corporation deadline can be even more expensive. How can that be? After all, S corporations don’t usually pay tax. What’s the big deal?

Blame Congress, which has used S corporation late-filing penalties as pay-fors for tax breaks. Congress has now made the penalty $195 per month, Per K-1. So an S corporation return with ten shareholders that is one day late racks up a $1,950 penalty. A S corporations can have up to 100 shareholders — and more when family members own shared – you can see that the numbers can get big in a hurry.

Missing filing deadlines has other bad consequences. You lose the ability to make automatic accounting method changes for the late year, for example; this can be costly, especially if you have lots of depreciable assets. You also lose the ability to 20130415-1make many other elections that can only be made on a timely-filed return. And, of course, you increase the risk of audit. While extended returns don’t increase audit risk, late filings certainly do.

Extensions can be obtained automatically on Form 7004, which can be filed electronically. If you must paper file, go Certified Mail, Return Receipt Requested, to prove timely filing.

 

 

David Brunori is, as usual, wise in his post Local Sales Taxes are Poor Revenue Options (Tax Analysts Blog). “I think the biggest problem with local option sales taxes is that they afford politicians the ability to export tax burdens.”

I think it might be more accurate to say that it deludes politicians into thinking they can export tax burdens. Over time, the effect is to export retail into the next jurisdiction that doesn’t impose the local option tax. Anyone who has observed the outward march of retail to the suburbs over the last century or so, and the death of the first generation of malls that sucked the retail out of down at the hands of newer malls, knows retail can move. But I’m sure that the localities that drive out their retailers with a local sales tax will try to bribe them back with TIF financing.

 

IMG_0603Jack Townsend, TRAC Publishes Statistics on Tax and Tax-Related Prosecutions. “Year after year, April consistently has the greatest number of criminal prosecutions as a result of IRS investigations — two-thirds or more higher than those seen in January.”

I’m pretty sure that’s that’s designed to encourage the rest of us.

 

William Perez, Deducting Health Insurance Premiums When You’re Self-Employed. The nice thing is that when you qualify, this is an “above-the-line” deduction; you don’t have to itemize.

Paul Neiffer, IRS Provides Guidance on Repair Regulations. “Last week, the IRS actually provided some very good practical Q&A guidance on these Regulations that should provide great comfort to many of our tax preparers and farmers.  I wish that this guidance had been provided several months ago, but it is better late than never.”

Peter Reilly, IRS Busts In Las Vegas Tip Case. “I really think the Service would have been better off if they had settled with Mr. Sabolic rather than setting this precedent and encouraging more tipped employees to drop out of the program.”

 

Annette Nellen covers Use Tax Lookup Tables, which are handy for those good citizens who actually pay their use taxes on mail-order purchases.

Jana Luttenegger Weiler talks about Financial Literacy at Tax Time (Davis Brown Tax Law Blog)

Jason Dinesen shares his Tax Season Tunes: 2015. He’s a Gordon Lightfoot fan. I’m more Punch Brothers and, of course, Fleeting Suns.

Jim Maule, Tax Courses and Food. “At the risk of seeming crude, the idea of tax law making someone want to eat strikes me as the opposite of reality.” Something to drink, I can definitely see.

 

Richard Borean, Annual Release of “Facts & Figures: How Does Your State Compare?” (Tax Policy Blog). This is a wonderful resource, putting summary information from all of the states, including rates, per-capita tax burdens, business tax climate rankings, and much other data all in one place.

 

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Robert Wood, Feds Launch Internet Sales Tax Again, So Better Click While You Can. I think he’s against the “Marketplace Fairness” bill.

 

TaxProf, The IRS Scandal, Day 671. This is interesting:

In September 2014, during a House Oversight Committee hearing on the Lerner e-mails, IRS Commissioner John Koskinen said it’s policy not to use personal e-mail.

“One of the things we’re doing is making sure everybody understands that you cannot use your e-mail for IRS business,” he said. “That’s been a policy; we need to reinforce that.”

Say what you will about Lois Lerner, she didn’t set up LoisLerneremail.com.

 

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You don’t say. Improving Deficit Numbers Don’t Make Obama a Deficit Hawk (Jeremy Scott, Tax Analysts Blog) “The CBO’s new baselines will undoubtedly be touted by President Obama as showing that he is keeping his promise to shrink the deficit, but those who think the president is a deficit hawk should note that the smallest deficit projected during this administration ($462 billion in 2017) is still larger than the deficit he inherited ($458 billion in 2008).”

Howard Gleckman, Watch What You Wish For: Dynamic Scoring Creates More Issues for the GOP (TaxVox)

Caleb Newquist, Accounting Programs, Ranked (Going Concern). None of UNI, Iowa State or Iowa are listed in the U.S. News top 10. That makes it obviously wrong.

Kay Bell, Tourists, students to act as tax spies for Greek government. Greece cements its hold on the title of laughingstock of public finance.

 

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Tax Roundup, 3/5/15: More tax credits! Also: ACA on the dock again, and good tax news for gamblers.

Thursday, March 5th, 2015 by Joe Kristan

Accounting Today visitorsclick here for the frosty Iowa tax climate post, or go here for a longer treatment.

 

David Brunori has a wise post about Michigan’s disastrous tax credits: Tax Incentives Cause Trouble For More Reasons Than You Might Think (Tax Analysts Blog). “The history of job creation tax credits in Michigan is a story of corporate welfarism.”

20120906-1That’s just as true here in Iowa, where every legislative session seems to bring a new tax credit, to go with the dozens already on the books. From today’s Des Moines Register: New chemical production tax credit bill advances.

For example, companies like Cargill that produce ethanol and other fuels from corn produce corn oil in the process. The tax credit is geared toward companies that take that oil and other byproducts to create higher-value chemicals. Those higher-value chemicals can then be used to produce plastics, paints or pharmaceuticals.

The legislation would provide a credit of 5 cents for every pound of chemical a company produces. It would not apply to chemicals that are used in the production of food, animal feed or fuel.

These byproducts are already used somewhere. That means the credit would do one or more of the following:

– Subsidize companies that are already making the chemicals.

– Divert the byproducts from their current buyers — producers of food and animal feed, for example — to those who would receive subsidies, forcing the current buyers to find more expensive substitutes.

– Create subsidized competition for companies that already produce chemicals from other sources.

In short, they would take money from existing businesses and their customers and give it to someone with a better lobbyist.

The bill is HSB 98. The bill also contains increases in “seed capital” and “angel investor” tax credits, expanding the Iowa’s dubious role as an investment banker that doesn’t care whether it makes money.

 

supreme courtYesterday was the current Obamacare challenge’s day in the Supreme Court. It’s pretty clear that the four liberal justices will vote to uphold the IRS, and the subsidies to taxpayers outside of state exchanges. Justices Scalia, Alito and Thomas will vote no. The decision is in the hands of Justices Kennedy and Roberts, who aren’t giving much away.

I’ll defer to others for coverage of yesterday’s hearing, including:

Megan McArdle, Life or Death. “This morning, someone on Twitter explained that this case really is different because if the Supreme Court rules the wrong way, thousands of people will die. I find this explanation wholly unconvincing, for two reasons.”

Jonathan Adler, Oklahoma’s response to Justice Kennedy and Things we learned at today’s oral argument in King v. Burwell.

 

Russ Fox, IRS Proposes Session Method for Slot Machine Play and a Revision to the Regulations on Gambling Information Returns:

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

This is important for gamblers because gambling winnings are included in Adjusted Gross Income, but losses are itemized deductions. If you treat each play as a separate taxable event, then you inflate both the above-the-line winnings and the below-the-line deductions. Increasing AGI causes all sorts of bad things, including making Social Security Benefits taxable, and at higher levels causing a loss of itemized deductions and exemptions and triggering the Obamacare Net Investment Income Tax of 3.8%. Allowing winnings and losses to be netted over a day reduces this inequity.

 

IMG_1219Where red-light cameras take you. The Ferguson Kleptocracy (Alex Tabarrok, Marginal Revolution). When the role of law enforcement becomes picking the pockets of the citizenry, bad things happen.

 

 

Scott Drenkard offers a link rich state tax policy roundup: More Research against the Texas Margin Tax, New Kansas Pass-Through Carve Out Data, and Capital Gains Taxes in Washington (Tax Policy Blog). It includes this:

Barbara Shelly at the Kansas City Star has a review of the Kansas income tax exclusion for pass through entities that blew a hole in the budget. Kansas expected 191,000 people to take advantage of the exclusion, but 333,000 people ended up taking it, for a loss of $207 million in revenues. I testified today to the Ohio House Ways & Means Committee on a similar provision being considered by Gov. Kasich.

Imagine that.

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Kay Bell, Alabama’s GOP governor calls for – gasp! – new, higher taxes

Peter Reilly, Government Focusing On Codefendant Hansen As Kent Hovind Trial Commences. More coverage of the young-earth creationist tax case.

Robert Wood, Despite FATCA, U.S. Companies Stash $2.1 Trillion Abroad—Untaxed

TaxGrrrl, Taxes From A To Z (2015): B Is For Bona Fide Residence Test

 

William McBride, Rubio-Lee Plan Cuts Taxes on Business Investment to Grow the Economy by 15 Percent (Tax Policy Blog):

  1. It cuts the corporate and non-corporate (or pass-through) business tax rate to 25 percent.
  2. It eliminates the double-tax on equity financed corporate investment, by zeroing out capital gains and dividends taxes.
  3. It allows businesses to immediately write-off their investments, instead of requiring a multi-year depreciation.

Also:

Second, the growth in the economy would eventually boost tax revenue, relative to current law. We find after all adjustments (again, about 10 years) that federal tax revenue would be about $94 billion higher on an annual basis. This is our dynamic estimate. Our static estimate, i.e. assuming the economy does not change at all, shows a tax cut of $414 billion per year. We believe the dynamic estimate is much closer to reality.

For another (non-dynamic?) view, there’s Howard Gleckman, The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt. (Tax Vox)

 

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Accounting Today, Senate Report Blames Tax Pros for Unfair Tax Code. I think that’s a little like criminals blaming their victims for their crimes. I agree with Tony Nitti: Senate Report Blames Tax Professionals For Inequities In The Tax Code; Is Completely Insane.

 

TaxProf, The IRS Scandal, Day 665.

Joseph Thorndike, Voters Are Confused About the Difference Between Tax Avoidance and Evasion – Because Politicians Blur the Line (Tax Analysts Blog)

 

News from the Profession. PwC Concludes Female Millennials Are Great For Vague, Pointless Research (Adrienne Gonzalez, Going Concern). “It’s the 3% that don’t care about work/life balance I’m worried about…”

 

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Tax Roundup, 2/25/15: Iowa gas tax boost goes to Governor. And: an appointment with Sauron.

Wednesday, February 25th, 2015 by Joe Kristan

IMG_1284Both houses of the Iowa General Assembly approved a 10-cent per gallon gas tax increase yesterday. The Des Moines Register reports:

The fuel tax increase has had strong support from a coalition representing farm groups, business organizations and local government officials. Iowa Farm Bureau members flooded the Capitol last week to lobby legislators to encourage a vote in favor of the gas tax increase. They contended better roads are crucial to the state’s economy and that gas taxes — 20 percent of which are paid by out-of-state motorists — offered the best solution.

The legislation was opposed by Iowans for Tax Relief and Americans for Prosperity, a conservative advocacy group, as well as truck stop operators and convenience store owners who worry retailers on Iowa’s borders will lose business to competitors in neighboring states. Opponents suggested lawmakers needed to better prioritize state spending, and proposed tapping revenues from the state’s general fund to pay for highway projects.

While I think gas taxes are a good way to pay for roads — they put the cost on the users — I am unconvinced that the state uses the funds wisely. By ramming the bill through committee by stacking it with yes votes, the legislature leadership made sure such concerns would not be addressed.

I expect the Governor to sign the bill. The legislature wouldn’t have gone through the trouble if they had any doubt. I have predicted that his approval of a gas tax increase means he won’t run for another term. But I also predicted the gas tax wouldn’t pass.

Somewhat related: Jim Maule, So Who Should Pay for Roads?

 

IMG_0543Why not exempt everyone? Tax Analysts reports ($link) that taxpayers who have filed returns based on incorrect ACA 1095-A forms will not have to pay any additional tax based on the corrected forms:

Tax return filers who purchased health insurance from federal marketplaces set up under the Affordable Care Act and who then filed tax returns based on erroneous information contained in Forms 1095-A will not need to file amended returns with the IRS to stay compliant, the Treasury Department said in a February 24 statement.

“The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected [1095-A] forms,” the Treasury statement said.

It’s yet another example of the IRS making up rules for Obamacare when its flaws become too obvious. I’m not one to complain when the IRS fails to enforce a dumb tax, but does anybody think the IRS would be as understanding for, say, failing to amend based on a corrected K-1?

Related: Robert Wood, Wrong Obamacare Form Tax Filers Get Relief From IRS. “Unfortunately, the 750,000 people who were sent erroneous form but who haven’t yet filed their taxes are being told to wait until the corrected forms arrive in March.”

 

TaxGrrrl, IRS Testing Taxpayer Appointments At Some Taxpayer Assistance Centers. Why appointments?

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Tax season is saved! Majority of Taxpayers with Obamacare Premium Tax Credits Need to Pay Back Portion (Accounting Today). I’m sure that’s popular.

Howard Gleckman, So Far, Affordable Care Act Users Are Managing Tax Filing, Many Uninsured May Use New Enrollment Period (TaxVox)

Jason Dinesen, Is Iowa Filing Status Tied to Federal Filing Status When You’re Married?

Annette Nellen explains Bitcoin transaction reporting. If you use Bitcoins regularly, you’ll need a bigger tax return.

Kay Bell, New York city, state lawmakers seek pet adoption tax credit. Not every problem is a tax problem, folks.

Leslie Book, Taxpayer Rights: A Look Back to Congressional Testimony of Michael Saltzman and Nina Olson

Jack Townsend, Cono Namorato to Be DOJ Tax AAG.

 

Enjoying a short Des Moines winter commute.

Snow warning today!

 

Scott Drenkard, Utah Is Eyeing An E-Cigarette Tax, But Its Reasoning Is Faulty (Tax Policy Blog). States have a pretty sweet deal with the tobacco devil, getting a cut of tobacco revenues. They hate the idea of e-cigs cuttting into that.

 

David Brunori, Sorry Folks — Clothes Should Be Taxable (Tax Analysts Blog):

The sales tax should fall on all final personal consumption. Everything you buy, be it tangible personal property or services, should be subject to the tax. Such a broad base minimizes economic distortions, allows for overall lower rates, and makes both administration and compliance easier.

But it minimizes the opportunities for legislators to do favors for friends.

TaxProf, The IRS Scandal, Day 657

 

Caleb Newquist, Accountants vs. Lawyers: A Pointless Debate (Going Concern). “A lawyer and an accountant walk into a bar. Everyone else in the bar doesn’t care.”

 

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Tax Roundup, 2/23/15: 800,000 blown ACA reporting forms; tens of thousands of already-filed returns are wrong. And more!

Monday, February 23rd, 2015 by Joe Kristan
The Younkers Building ruins, morning, March 29, 2014.

Be calm. All is well.

Tax Season is Saved! 800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace (Accounting Today):

“About 20 percent of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium cost —about 800,000 (< 1% of total tax filers) —will soon receive an updated Form 1095-A because the original version they were issued listed an incorrect benchmark plan premium amount,” said a blog post on the Web site of the Centers for Medicare and Medicaid Services. “Based upon preliminary estimates, we understand that approximately 90-95% of these tax filers haven’t filed their tax return yet. We are advising them to wait until the first week of March when they receive their new form or go online for correct information before filing. For those who have filed their taxes—approximately 50,000 (< 0.05% of total tax filers) —the Treasury Department will provide additional information soon.”

It says something about how screwed up this tax season is that the IRS can issue:

– A blanket waiver for the $100 per-day penalty for health insurance reimbursement arrangements;

– A small business waiver the Form 3115 filing requirement for “repair reg” accounting method changes;

– A blanket waiver for late payment penalties for advanced Obamacare tax credit clawbacks;

And still have a filing season full of “mayhem.”

Related: 

Caleb Newquist, You Won’t Mind if Your Tax Refund Is a Little Late, Will You? (Going Concern)

Ellen Steele, The Affordable Care Act Tax Filing Season: A View From the Trenches (TaxVox). “Filing is not simple, even for our volunteers who all undergo rigorous training in tax law.”

Paul Neiffer, Perhaps 800,000 or More Form 1095-A Are Wrong

 

Tax Season is saved! Ripping off your refunds: One little number fuels South Florida’s tax-fraud explosion (MiamiHerald.com

Tax Season is saved! Wow! The IRS Will Pay Out This Much in Fraudulent Tax Refunds By 2016 (Motley Fool)


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Iowa Public Radio, Administration Grants Tax Time Reprieve For Obamacare Procrastinators:

The Obama administration said Friday it will allow a special enrollment period from March 15 to April 30 for consumers who realize while filling out their taxes that they owe a fee for not signing up for coverage last year.The special enrollment period applies to people in the 37 states covered by the federal marketplace, though some state-run exchanges are also expected to follow suit.People will have to attest that they first became aware of the tax penalty for lack of coverage when they filled out their taxes.

Megan McArdle called it. So once again they bend the ACA rules because following the law as enacted would be unpalatable. It’s as if the entire legislation is optional. Here are other made-up-on-the-fly amendments to ACA decreed by the Administration that I can think of off the top of my head:

– Waiving the $100/day penalty for employer insurance reimbursement arrangements.

– Waiving tax penalties for failure to pay the premium credit clawbacks.

– Rolling back the employer mandate penalty by a whole year — two for smaller employers.

– Allowing premium tax credits in states using federal exchanges when the statute only allows them where there is an exchange “established by a state.”

You almost might conclude that they didn’t really think things through very well when they enacted ACA.

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William Perez, Social Security Benefits are Partially Taxable: How Much Depends on Your Other Income.

Roger McEowen, Primer on the Income Taxation of Trusts and Estates (ISU-CALT)

Peter Reilly, You And Your Shadow Do Not A Partnership Make. “I don’t think it is news that you can’t create a partnership with yourself and a disregarded entity, but it is a point that bears repeating.”

Russ Fox, Solely a Way to Go to ClubFed. “As always, the usual warning applies: If it sounds too good to be true, it probably is. If you use a corporation sole as a vehicle to avoid taxes, you’re heading down a road that leads to ClubFed.”

Jack Townsend, Another UBS Customer Pleads

Rashia says "thanks, Commissioner!"

Someday this may seem quaint.

TaxGrrrl, What If Tax Refund Theft Isn’t Really About Refund Theft?:

In the case of Anthem, the hack was massive. Potentially 80 million customers had their data compromised, prompting the state of Connecticut to warn taxpayers that it might be to their advantage to file their taxes early.

That, security experts say, isn’t the work of a small time hack. It’s not folks working out of a van with stolen laptops or a teenage kid in a basement. It’s bigger. It’s been suggested that the hack could be related to an international crime group or perhaps even an international government. I spoke with experts in tech and security arenas – who, like Jim, wished to remain anonymous – and they’ve suggested that they would not be surprised to find that the hacks were orchestrated by the Chinese government.

Have a nice day.

David Henderson, From 2007 to 2012-13, The Income Share of Top 1% Fell (EconLog).

Andrew Lundeen, A Cut in the Corporate Tax Rate Would Provide a Significant Boost to the Economy (Tax Policy Blog). “The corporate tax rate is, in effect, a tax on corporate investment; a high corporate tax rate discourages investment, whereas a low corporate tax rate encourages investment.”

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David Brunori ($link): 

A California company that makes cans is demanding a 20-year, 100 percent property tax exemption in return for opening a plant in Iowa. The plant will employ 120 people. The company, Silgan Containers, makes metal cans (think the containers that hold vegetables and dog food). I’m sure it’s a great company. But why should it be relieved of paying its just share of taxes? And if its demand is met, what does the Iowa government say to the companies that are already in place and employing 120 or more people? There is nothing good about this.

“Economic development” is pretty much taking money from you and your employees to lure and subsidize your competitors.

 

TaxProf, The IRS Scandal, Day 653The IRS Scandal, Day 654The IRS Scandal, Day 655

Kay Bell, All of 2015’s best picture Oscar nominees got tax break help. We would like to thank all of the chumps, er, taxpayers of the various states that help us buy these $168,000 swag bags. We wouldn’t want to do it without you.

 

 

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