Posts Tagged ‘David Brunori’

Tax Roundup, 11/6/13: Relief for the road warrior? And the futile state corporation income tax

Wednesday, November 6th, 2013 by Joe Kristan
Flickr image courtesy Tom Hilton under Creative Commons license

Flickr image courtesy Tom Hilton under Creative Commons license

Relief for the traveling employee?  Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013″ (S. 1645) was introduced yesterday.  The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days.  From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000.  That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig  – or more likely, saved the need to ignore the filing requirement.

 

Peter Reilly,  Mobile Workforce Act Good Idea But May Need More Limits  ”Over the years I have studied the rules for what invokes state income tax withholding requirement.  It varies substantially from state to state.”

 

Elizabeth Malm, Richard Borean, Map: Share of State Tax Revenues from Corporate Income Tax (Tax Policy Blog)

 20131106-1

Notice that it’s a relatively paltry part of Iowa tax receipts, even in a good year, and even with the highest rate in the nation.  Better to repeal it as part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

David Brunori, Feckless Legislators and Corporate Welfare (Tax Analysts Blog)

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

…if once you have paid him the Dane-geld

You never get rid of the Dane.

 

Tax Justice Blog,  Let’s Face It: Delaware and Other U.S. States Are Tax Havens

 

Paul Neiffer, Crop Insurance Deferral Options.  ”When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.”  Paul explains what the choices are if the recovery relates to a yield loss.

Tony Nitti, Shareholder Computes Basis In S Corporation Stock Incorrectly, $1.5 Million Loss Becomes $2 Million Gain

 

Jana Luttenegger, Interactive Form to Assist in Applying for 501(c)(3) Status (Davis Brown Tax Law Blog) 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

William Perez, CBO: Marginal Tax Rates Faced by Low- and Moderate-Income Individuals.  Helping the poor stay that way.

Andrew Mitchel, 2014 Inflation Adjustments for Individuals in the International Tax Arena

Roger McEowen, Inflation Adjusted Amounts for 2014

TaxProf,  The IRS Scandal, Day 181

TaxGrrrl, Bayern Munich Keeps Winning Even As Their Chief Faces Trial For Tax Evasion.

 

Brian Mahany,  More Guidance on Taxation of Same Sex Marriages

Jack Townsend,  Should You Opt Out of OVDI/P?.  He examines Robert Wood’s discussion of opting out of the IRS “amnesty”

Phil Hodgen’s Exit Tax Book: Chapter 7 – Taxation of Deferred Compensation 

 

Joseph Thorndike, Forget Carried Interest–It’s All About Taxing Capital Gains (Tax Analysts Blog).   He’s right when he says “The only issue that really matters is how we tax capital gains.”  Then he goes off the rails in so many ways.  Read Joseph, and then read Steve Landsberg.

 

A Wednesday Buzz from Robert D. Flach!

May you have this problem.  The Tax Treatment of Olympic Gold Medals (TaxProf)

News from the Profession.  Recruiting Season: Salaries and Offers for the Public Accounting Class of 2014 (Going Concern)

 

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Tax Roundup, 10/30/2013: Beggars night day edition! And why IRAs are scary as start-up investors.

Wednesday, October 30th, 2013 by Joe Kristan
MST3K-2 lantern

Stop by for treats tonight. You can find us by Son’s MST3K-themed pumpkin.

The Des Moines area has an unusual tradition for trick-or-treating on October 30, rather than October 31.   On our “Beggars Night,” it’s customary for the little monsters to tell a joke.  A perennial favorite:

What’s a pirate’s favorite restaurant?

Aaaarghh-bys!

So drive carefully tonight!

 

Speaking of scary, think of having your IRA disqualified and taxed currently, with penalties, for engaging in a prohibited transaction.  That’s what happened to a Missouri man in Tax Court yesterday.

The taxpayer, a Mr. Ellis, rolled $320,000 out of his 401(k) and put it into a self-directed IRA.  The IRA than bought 98% of a corporation (an LLC that elected to be taxed as a corporation) to open a used-car lot, where he began working as the general manager.  It went badly.  From the Tax Court opinion:

In essence, Mr. Ellis formulated a plan in which he would use his retirement savings as startup capital for a used car business. Mr. Ellis would operate this business and use it as his primary source of income by paying himself compensation for his role in its day-to-day operation. Mr. Ellis effected this plan by establishing the used car business as an investment of his IRA, attempting to preserve the integrity of the IRA as a qualified retirement plan. However, this is precisely the kind of self-dealing that section 4975 was enacted to prevent.

The result? $163,000 of taxes and penalties on the $320,000 invested in the used car lot — which, of course, may well not be very liquid, seeing that it’s all invested in a closely-held corporation.

This case has an interesting twist to those of us who follow tax cases too closely.  The IRA plan was apparently the work of  a Kansas City law firm whose attempt to make their practice income largely tax-exempt by funneling it through an ESOP-owned S corporation was shot down in Tax Court in 2011.  I’m just guessing here, but the IRS may have taken a look at that firm’s clients after seeing how aggressive the firm was in using retirement plans to shelter business income.

It’s tempting to have your IRA invest directly to avoid the current tax and 10% penalty that can apply to an early withdrawal.  The results, though, can be a lot scarier than any trick-or-treater.

Cite: Ellis, T.C. Memo 2013-245.

 

59pdhyefMore scary.  Econoblogger Arnold Kling has thoughts on whether Healthcare.gov might be saved:

My opinion of the distribution of likely outcomes is that it is bimodal. There is a high probability that the exchanges will be working at the end of November. I think that there is an even higher probability that they will be working never.

The public pledge where the new savior of the site impresses Mr. Kling, but he thinks the design issues might be intractable.

Andrew Lundeen, Scott Hodge,  The Income Tax Burden Is Very Progressive (Tax Policy Blog):

About half of the nation’s income is reported by taxpayers who make less than $100,000, and half is reported by taxpayers who make more. However, taxpayers who make less than $100,000 collectively pay just 18 percent of all income taxes while those who make more pay over 80 percent of all income taxes.

They have a chart, of course:

20131030-2

 

Howard Gleckman, Who Benefits from Muni Bonds? It’s More Complicated Than You Think (TaxVox) “…while most of the benefit of the tax-exemption goes to high-income investors, lower-income households who hold taxable bonds in their 401(k)s also receive some advantage.”

 

But they’re ready to regulate preparers! TIGTA: IRS Cannot Account for 23% of its IT Assets (TaxProf).

 

Jason Dinesen asks Is There a Way to Protect Yourself from Tax Return Identity Theft?   Use common sense — but if someone in your family dies, ID thieves may be able to get government-published information enabling them to steal the deceased’s identity no matter what you do.

TaxGrrrl, Somebody’s Watching Me: IRS Criminal Investigations Ramp Up Efforts To Thwart Tax ID Thefts   

 

David Brunori offers Tax Advice for State Legislators of All Parties (Tax Analysts Blog).  There’s a lot there, including this:

Both parties should also give serious thought to greater reliance on the property tax. Yes, I know people hate that tax. I also know that politicians find it advantageous to attack it. But the property tax revolts of the late 1970s and the 1980s have badly damaged the fiscal structure of state and local governments.

Don’t expect either party to heed the advice.

 

William Perez,  47% of Individual Taxpayers Earn Under $30,000

TaxProf, The IRS Scandal, Day 174

High-fiber diet.  Tax identity thief who ate debit card evidence is convicted (Kay Bell)

From Phil Hodgen’s series on expat taxes: Chapter 2 – Are You An Expatriate?

Carlton Smith, Byers v Comm’r – CDP Venue In Courts Of Appeals May Be Upended (Procedurally Taxing)

 

Joseph Thorndike, It’s Time to Give Up on Tax Reform (Tax Analysts Blog):

Tax reform? Don’t bet on it. Not this year, and probably not next year either. Tax reform, like everything else in Washington, is on hold pending the resolution of a broader, highly polarized debate about the role of government in American society.

 

Robert D. Flach has his Tuesday Buzz on Wednesday this week.

 

 

20131025-237-yard month penalty for former Eagle Mitchell.  The sentence was handed down yesterday in a Florida federal courtroom, reports the Orlando Sentinel.

The former NFL wide-receiver blamed brain injuries suffered on the field after pleading guilty to a plot where he helped convince Milwaukee Bucks player to use a Florida preparer to file a refund claim, which would be split between the NBA player, Mr. Mitchell, and the preparer.  The claim was fraudulent, and the NBA player wasn’t charged.  Mr. Mitchell also allegedly used an LLC to conceal other fraudulent tax claims.  Brain injuries are funny things.

 

News from the Profession: Dancing Accountant Nearly Thrown Out of a Bank For Dancing To “Money, Money, Money”  (Going Concern)

 

 

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Tax Roundup, 10/23/2013: The Earned income tax credit thief subsidy feature. And: tax season delayed!

Wednesday, October 23rd, 2013 by Joe Kristan

Some smart people are big fans of the Earned Income Tax Credit. Some see it as a way to help the working poor, and some see it as a less destructive way to achieve the goals of minimum wages.

Yesterday the Treasury Inspector General for Tax Administration reported that from 21% to 25% of the earned income credit was paid improperly for the most recent fiscal year, and that $110 to $130 billion has been “paid improperly” over the past decade. That’s a nice way of saying “stolen.”

 

EITC error chart

Just because there is a lot of theft doesn’t by itself make a program bad — though that kind of loss rate would bankrupt anybody in the private sector.   Most people would send food to starving people in a war zone knowing that local warlords will be plundering some of it. But a program that comes at the cost of sending $11 billion annually to thieves needs to otherwise be a very good thing.   That’s not so clear with the EITC.

The credit does help the working poor — as long as they stay poor. As they work their way out of poverty, it becomes a trap. The phase-out of the credit imposes a punishing unstated, but very real, marginal tax rate.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC is only one program that does this; all “means-tested” welfare programs do this to some degree. It’s not uncommon for this implicit tax rate to exceed 100% at some income levels.

I don’t know what the right answer is (Arnold Kling has some ideas), but increasing the EITC, like Iowa did this year, isn’t it.

 

Oh, Goody. 2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume (IRS Press Release)

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. 

20131023-1It’s funny how programming IRS computers isn’t “essential,” but barricading open-air monuments is.

Other coverage:

William Perez, IRS Expects to Delay the Start of the 2014 Filing Season

Kay Bell, IRS won’t accept 2013 tax returns until Jan. 28, 2014

Russ Fox, Sigh: 2014 Tax Season to be Delayed up to Two Weeks

TaxGrrrl, IRS Announces Delayed Start To 2014 Tax Season   

 

Robert D. Flach, HOW TO DEAL WITH THE IRS AND LIVE TO FIGHT ANOTHER DAY

Paul Neiffer,  Taxpayers Want Their Cake, Frosting and Candles! Live by the low estate-tax value, die by the low estate-tax value.

Jack Townsend, Has the U.S. Aided International Tax Evasion?

Russ Fox,  Coming Attractions: When the IRS Writes New Law When They’re Not Allowed To.  A federal judge has allowed a suit challenging the IRS unilaterally extending the tax credit for insurance purchased on state-sponsored exchanges to policies sold on federally-run exchanges.

TaxProf, The IRS Scandal, Day 167

 

President Reagan signs PL 99-514, the Tax Reform Act of 1986.The Tax Policy Blog takes us on a nostalgia tour in  8 Technological Changes Since the 1986 Tax Reform.  Take a trip back to the days of “car phones.”

 

Clint Stretch, Whom Do Tax Reformers Want to Help? (Tax Analysts Blog):

When congressional leaders start talking about tax reform as if it will benefit everyone, someone should be asking: Whom are you trying to help? The answer may be Americans earning more than around $75,000 who have fewer itemized deductions, fewer kids, fewer healthcare benefits, and lower retirement savings than most.

I’m not convinced that’s the right way to look at it.  Getting rid of complexity and lowering rates helps everybody by eliminating dead weight loss and redirecting resources from tax planning and compliance to more useful pursuits.

Andrew Lundeen, A Lot Has Changed in the 27 Years Since the Last Major Tax Reform (Tax Policy Blog).  ”The amount of credits, loopholes, and deductions has increase by 44 percent, from $844 billion (2013 dollars), to over $1.2 trillion (2013 dollars), with much of that growth coming from the expansion of refundable tax credits.”

 

Howard Gleckman, Congress Shouldn’t Forget About Tax Entitlements In Its Search for Deficit Reduction (TaxVox)

 

Tax Justice Blog,  Governor Scott Walker Appropriates State Budget Surplus for Campaign Season Tax Cut.  In Tax Justice World, returning money taken by force of law to the taxpayers is “appropriating” it.

 

David Brunori, Eliminating the Sales Tax Is a Very Good Idea (Tax Analysts Blog) “But ending a tax that preys on the poor and is increasingly difficult to collect may provide the economic boost Rhode Island needs.”

Brian Strahle, BLAMING THE PLAYERS FOR THE RULES.  ”Regardless, most taxpayers are simply trying to comply with the maze and complexity of non-uniform multistate tax laws”

Joseph Thorndike, The Gas Tax Doesn’t Work Because Politicians Broke It (Tax Analysts Blog).  By not raising it, apparently.

 

The Critical Question:  JD Salinger – Was January 27 2010 A Good Day To Die ?  (Peter Reilly)

Career Corner.  First Round Interview Tips for This Fall’s Accounting Recruits (Going Concern)

 

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Tax Roundup, 10/17/2013: They’re baa-aak edition. And getting to know CPA firm decisionmakers.

Thursday, October 17th, 2013 by Joe Kristan
Flickr image courtesy dlofink under Creative Commons license.

Flickr image courtesy dlofink under Creative Commons license.

The shutdown is over!  The Republic is saved!  That means the IRS can resume sending nonsensical notices and attempting to run the small players out of the tax-prep business.  Audits can resume.  Didn’t you miss them?

It’s all good for the Tax Update, as the Tax Court will resume issuing cases and the IRS will issue new guidance — the grist for this mill.  It will be interesting if we see large batches of cases issued today and early next week, or if the Tax Court really stopped altogether.

Howard Gleckman,  The Un-Default: Congress Has Become A Seinfeld Episode.  That explains why the show was cancelled.  (TaxVox)

TaxGrrrl, IRS To Employees: Let’s Get Back To Work! 

Linda Beale,  Senate passes debt increase/shutdown ending bill

 

Paul Neiffer,  Watch Out for Distributions from Coops:

A qualified distribution is treated as a deduction on the cooperative return and the producer picks up the income amount.  On the contrary, the cooperative does not get a tax deduction when a non-qualified distribution is given and the producer does not pay tax on that amount. 

Extending the dividends-paid deduction for co-ops to all dividends from all corporations is an obvious method of tax reform that nobody but me seems to support.

 

Peter Reilly, Lawyers Hosting Event For Judges Does Not Count As Charity

Jack Townsend,  Supreme Court Denies Certiorari in Coplan

 

20121120-2Kyle Pomerleau, Obamacare’s Shaky Funding Sources (Tax Policy Blog)

These include a new 3.8 percent “unearned income Medicare contribution” (UIMC) and a new tax on “Cadillac” health insurance plans. The income thresholds for the UIMC are not indexed for inflation, so under law most workers would eventually be subject to the tax-over 80 percent of workers within 75 years, according to the Medicare trustees.”

Due to the fact that the income threshold for the new Medicare tax on unearned income will remain static and incomes will continue to rise, more and more people will eventually be hit by this tax. It will no longer be a tax just on the rich.

You can’t fund a mass welfare benefit with a class tax.

 

There’s a new Cavalcade of Risk up at Terms + Conditions!  The Cavalcade is a roundup of insurance and risk management posts.  As you might expect, there’s lots of Obamacare there.  Meanwhile Insureblog has been all over this, including Adventures On The Marketplace, on one man’s attempt to enroll.

Oh, boy.  Happy Centennial, Income Tax! (Benjamin J. Gehlhausen, Tax Policy Blog): “There is nothing simple about a work that approaches 74,000 pages and currently requires 6 billion hours of work by professionals to prepare return forms and comply with tax laws.”

 

20131017-2The Critical Question: Are States Addicted to Revenue from Unclaimed Property? (Cara Griffith, Tax Analysts Blog).  “According to the COST score card, revenue from unclaimed property is the state’s third largest revenue source, generating 16 percent of the general revenue fund in fiscal 2013.”  So they have to modify the old joke about the economist explaining why he left a $20 bill on the ground.  The old punchline is “if that really were money, somebody would have already picked it up.”  The new version is “If it really were lost, the State would have it already.”

 

News you can use.  When Liberals Preach Fairness, Hold On to Your Wallet (David Brunori, Tax Analysts Blog) ”I am sure those hardworking, middle-class wage earners who will pay more are very happy that the bored liberal billionaires are looking out for them.”

TaxProf, Freakonomics: Is Charitable Giving Affected by the Attractiveness of Tax Preparers?  Come on.  If that were true, all of my clients would have contribution carryforwards.

 

News from the profession.  Accounting Career Conundrums: Aspiring CPA Concerned Background Check Will Uncover Revealing Past (Going Concern).  It’s about a former stripper. I suspect she already knows more CPA firm hiring partners than she realizes.

 

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Tax Roundup, 10/10/13: Climate change edition. And great moments in web design!

Thursday, October 10th, 2013 by Joe Kristan

Iowa has moved out of the bottom 10 in the Tax Foundation’s State Business Tax Climate Index for 2014.  That’s the good news.  The bad news is that it’s not the result of Iowa’s tax climate improving, but because Connecticut’s got worse.

 

2014 State Business Tax Climate Index

Iowa’s 49th-place rating for Corporation taxes accounts for much of Iowa’s poor showing.  Iowa has the highest stated corporate tax rate, at 12%.  It has a state corporation alternative minimum tax and is full of complexity — yet is so full of loopholes and carve-outs that it generated only around $425 million of Iowa’s $7.8 billion in 2012 tax revenues.  By comparison, Iowa’s (also complex and loophole-ridden) individual income tax generated over $3 billion of that revenue.

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’s Association of Business and Industry has made improving Iowa’s business tax climate its legislative priority for the upcoming session.  Here’s what I think we need:

- Repeal of the futile Iowa corporation income tax.

- Repeal of every last economic development credit, including the refundable research credit and especially including enterprise zone and similar credits.  No company is so important that it should be receiving cash subsidies in excess of taxes paid to Iowa.

-  Drastic simplification of the Iowa individual tax, including repeal the deduction for federal taxes and of as many special breaks and credits as possible, in exchange for rates of 4% or lower.

In other words, the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  We can do a lot worse — in fact, we do now.

Related:

Russ FoxThe 2014 State Business Tax Climate Index: Bring Me the Usual Suspects.  ”And for those who think that taxes don’t matter, I’m in Nevada as a result of taxes and California’s miserable business climate.”

TaxGrrrl, Go West, Young Man: Best States For Businesses Are In The West

Joseph Hechman and Scott Drenkard, A Response to Matt Yglesias on the 2014 State Business Tax Climate Index (Tax Policy Blog):

There is however a brief blog post by Slate’s Matt Yglesias that went up this morning, which is along the lines of (1) there’s businesses in California and New York, (2) Tax Foundation criticizes California and New York for their tax policy, so therefore (3) taxes don’t affect business and individual location decisions. Center for Budget and Policy Priorities’ affiliates have already started spreading around Yglesias’s post on Twitter, and we imagine it will show up in other places.

The answer to this is easy. Those high-tax states also have other non-tax qualities—and often legacy investments and industries—that overcome the obstacle of a broken mess of a tax system for many businesses and individuals.

Taxes aren’t everything, but they’re definitely something.

 

 

The Tax Foundation has helped draft a new tax reform proposal for Nebraska. Some thoughts from David Brunori in A Solid, Albeit Mild, Tax Reform Proposal:

The primary plan is relatively straightforward. It is revenue neutral, reduces personal and corporate income tax rates, reduces incentives, expands the sales tax to more services, and simplifies administration. Moreover, belying the assertion that conservatives hate poor people, it doubles the earned income tax credit, greatly increases the personal exemption, and indexes the tax rates. In other words, the plan is consistent with virtually every notion of sound tax policy. It would make the Nebraska tax system fairer, simpler, and more conducive to retaining people and firms.

I think increases in the earned income credit are unwise because their high hidden marginal rates as taxpayers improve their incomes serve to punish emergence from poverty.  Still, the plan would be a big improvement for Nebraska — and for Iowa, for that matter.

 


Tony Nitti, Custom Homebuilders Are Subject To Section 263A And A Primer On The UNICAP Rules.  “Today is the day we discuss Section 263A, among the more dry topics in the driest area of law known to man”  I covered the case Tony writes about here.

Jason Dinesen, Basics of the Iowa Pension Exclusion

Kay Bell, Avoid common mistakes on your extended Oct. 15 tax filing

Paul Neiffer, Watch our for FBAR.  As Paul points out, you don’t have to be even trying to hide anything from the IRS to get clobbered.

 

 

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Jack Townsend, IRS Information on Operations During Government Shutdown 

William Perez, IRS Shut Down, Week 2


Peter Reilly,  Blame It On the Lawyers – Creating Basis Out Of Thin Air Not The Taxpayer’s Fault   

 

TaxProf, The IRS Scandal, Day 154

Howard Gleckman,  It is Never Good When the U.S. Treasury Gets Compared to Brazil (TaxVox)

Tax Justice Blog, Stop the Presses: Apple Has Not Been Cleared on Tax Avoidance Charges.  So they should seek out new taxes to pay?

Keith Fogg, Vince Fumo: Local Political Corruption Meets Tax Procedure (Procedurally Taxing)

 

Going Concern, The Definitive Guide to Accounting as a Second Career.  Maybe I should consider that.

 

Janet Novack, Dumbest Identity Thief Ever? ”He contacts police looking for wallet he lost stuffed with debit cards issued in 13 stolen names.”  Yes, he may be dumb, but what does it say about the IRS that he and other dummies are stealing $5 billion of our money through identity theft fraud annually?

Great moments in web design.  From Instapundit: “HEALTHCARE.GOV NOT ONLY THE WORLD’S WORST WEBSITE, it’s also the world’s most expensive, with a price tag of $634,320,919.”  The Tax Update website cost approximately 1/400,000 of that, and we may have enrolled as many folks in Obamacare as Healthcare.gov has so far.

 

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Tax Roundup, 10/3/2013: Three-day shutdown retroactively responsible for 8-month ID theft refund delay! And… standards!

Thursday, October 3rd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Never mind the last eight months, it’s the last three days that are the problem.  KCRG.com reports:  Government Shutdown Holding Up Tax Refund for Local Family:

A Cedar Rapids woman and her family have been waiting for a $3,250 tax refund for 8 months now, and with late bills piling up, she doesn’t know how much longer she can hold out.

The problem is that during a government shutdown, there’s no way for her to contact the Internal Revenue Service to find out where her check is.
The troubles began for Autumn Alicea when she filed for her tax return back in February. A while later, she discovered someone in Florida had stolen her identity. Alicea said it took the IRS several weeks to investigate and verify that she was the real Autumn Alicea. “So they said it would take about 8 weeks to process my return now that they knew the one from Iowa was indeed the valid return, and the one from Florida was not.”

So the shut down for the last three days is responsible for the late refund?  Not likely.  It can take a lot longer than eight weeks for the IRS to get a stolen refund back in the right hands in the best of times.  It took 121 weeks to for Jason Dinesen’s widowed ID theft client to get hers.

It’s fascinating what the government considers “essential.”  Paying people to keep 90-year old veterans away from an unstaffed open-air memorial and to barricade private businesses is “essential,” but getting money it fairly owes to honest taxpayers after carelessly mailing it to two-bit grifters, well, that’s strictly optional.

 

More shutdown coverage:

William Gale, It’s Groundhog Day Over the Debt Ceiling

Christopher Bergin, ‘Your Voice at the IRS’ Silenced (Tax Analysts Blog).  Like I said, interesting priorities.

Kay Bell,  ‘Essential’ Representatives, Senators get paid during shutdown.  If they paid truly essential politicians, the federal payroll would go to about zero.

 

 

20131003-1Casey Mulligan, How ObamaCare Wrecks the Work Ethic (Wall Street Journal)

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.

Like many other “anti-poverty” programs, it fights poverty by punishing efforts to escape poverty.

(Via Greg Mankiw)

David Brunori, State Taxes and the Poor (Tax Analysts Blog): “As importantly, ITEP highlights the problems with states reducing their earned income tax credits”  I think the high implied marginal tax rate of EITC phaseouts on taxpayers trying to escape poverty is underappreciated.

 

TaxProf, IRS Waives Individual Mandate for Americans Living Abroad.  Finally a portion of the tax law where Americans abroad actually get better treatment than the rest of us.

 

Wikipedia image

Wikipedia image

It’s official.  Beanie Babies Creator Pleads Guilty to Tax Evasion (Wall Street Journal).  The article cites Tax Crimes Blog proprietor Jack Townsend: 

An analysis done earlier this year found U.S. courts have been more lenient in cases tied to the government crackdown on secret offshore accounts. The average sentence in criminal offshore cases has been about half as long as in tax shelter schemes, according to a comparison of Internal Revenue Service statistics and data compiled by Houston attorney Jack Townsend, who publishes the Federal Tax Crimes blog. In many cases, judges are also opting for shorter sentences than recommended under federal guidelines.

He will have to pay $53.6 million in FBAR penalties under the plea agreement.

 

Related: Jack Townsend, Ty Warner, Beanie Babies Creator, Pleads Guilty

Slightly related:  Green card received in 2006? Give it up in 2013 (Phil Hodgen)

 

Me, Creativity fails to protect custom homebuilder from capitalizing costs.  Section 263A snags custom homebuilder.

Andrew Lundeen, Blank Slate Tax Reform Could Damage Economic Growth (Tax Policy Blog)

Why partisan tax law enforcement is always a scandal.   Vietnam dissident Le Quoc Quan jailed over tax evasion (BBC).  I think “dissident” is key to understanding the “jailed” part.

Tax Justice Blog,  State News Quick Hits: Andrew Cuomo Loves Tax Cuts, So Does ADM, and More

Cara Griffith, Floating on a State Tax Revenue Bubble (Tax Analysts Blog):

According to a report by Lucy Dadayan and Donald Boyd of the Rockefeller Institute, the record income tax receipts are a “temporary ‘bubble.’” 

Related: Iowa tax revenue up 4.1 percent past three months (Des Moines Register)

 

 

Robert D. Flach,  STANDARDS? DON’T MAKE ME LAUGH:

I had to laugh at the H+R official referring to “the same standards as we do”.  I am not aware of any evidence of such standards.  In fact the evidence is to the contrary.

They have high standards of placing their people in high places in the IRS, at least.

 

Speaking of high standards:

Cop used his job to commit identity theft, feds say. (sun-sentinel.com)

Ex-W. Pa. deputy faces fed tax evasion sentence (AP)

 

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Tax Update, 9/25/2013: Preparer regulation has a bad day in court. And the royal consort clarifies the record.

Wednesday, September 25th, 2013 by Joe Kristan


20130121-2
Bad Day for preparer regulation at appeals court? 
Tax Analysts reports ($link) that the judges hearing the IRS appeal of the D.C. District Court’s shutdown of Doug Shulman’s preparer regulation power grab do not appear inclined to reverse it:

The D.C. Circuit during September 24 oral arguments in Loving v. IRS, No. 13-5061 (D.C. Cir. 2013), expressed skepticism that the IRS possesses the statutory authority to implement its tax return preparer program. Stuart J. Bassin of Baker & Hostetler LLP said that the oral arguments did not go well for the government and that it didn’t appear as if the court was “buying what the government was selling.” 

I’ve heard the same thing from two attorneys who attended the session.  Preparers who have followed the story of selective enforcement of tax laws in the Tea Party scandal can’t relish the idea of giving the IRS more control over their practices.  It looks as though we may be spared that, until and unless Congress does something stupid like authorizing such preparer regulation.

Robert D. Flach has more, as does Kay Bell.  I have joined an amicus brief against the preparer regulations in this case.

 

20130925-1Incentives gone wild.  While Iowa’s state-level politicians love taking your money to lure and subsidize your competitors, the politicians in Coralville have taken it to Detroit-like levels, reports IowaWatchdog.org:

The City Council of Coralville has piled up about $280 million in debt in recent years, the highest debt per capita for a city in Iowa.

The $14,511 burden for each of its 19,219 residents is seven times higher than Des Moines or Iowa City. It’s enough to pay for 38 Iowa Hawkeyes football season tickets or three semesters of tuition at the University of Iowa.

Moody’s Investors Service, after having downgraded the city’s debt four times, was, in a recent report, particularly tough on Coralville’s “history of issuing debt of non-essential government purposes, including the construction of a hotel, golf course, performing arts center and brewery, all of which are city owned.”

All in the name of “economic development,” of course.  Or, as the department store ads used to say, the more you spend, the more you save!  Unless you are one of the unlucky owners of the 60% of property in Coralville that isn’t in a tax-priviliged TIF district.

 

Jason Dinesen, IRS Guidance on FICA Refunds for Same-Sex Married Couples   

Jack Townsend,  Government Refusal to Grant Immunity Shifts Burden of Proof to IRS in Tax Court Case.  But he isn’t sure it will do the taxpayer any good.

 

TaxProf, The IRS Scandal, Day 139

Tony Nitti,  Understanding The Impact Of Legalized Recreational Marijuana On State Tax Revenue   Well, it might not seem to matter so much.

William Perez,  Average Child Tax Credit by State

William McBride,  America Loses another Fortune 500 Company due to High Corporate Taxes (Tax Policy Blog).  A US company, Applie Materials, Inc., acquires a Japanese company, and they move combined headquarters to… Holland:

 The U.S. and Japan have the highest statutory corporate tax rates in the developed world, and by most measures the highest effective corporate tax rates as well. In contrast, the Netherlands has a statutory corporate tax rate of 25 percent, compared to 39 percent in the U.S. and 37 percent in Japan. The Netherlands also has the most generous capital allowances for plant and machinery in the developed world, which is particularly important for these two manufacturing firms. Lastly, unlike the U.S., which taxes foreign earnings on a worldwide basis, the Netherlands uses a territorial tax system, which largely exempts foreign earnings from domestic taxation.

Howard Gleckman, An Upcoming Debate on Whether Private Equity Should Pay Higher Taxes.  (TaxVox) Yes, this country needs nothing more than lower returns to capital.   Just ask the people at Applied Materials.

 

David Brunori, Marriage and Religious Freedom Act Promotes Neither (Tax Analysts Blog):

The tax laws should be neutral when it comes to politics. Personally, I would end all tax exemptions for all political groups — gay, straight, or in between. The IRS rightfully took considerable heat when it singled out conservative groups for scrutiny. But the Marriage and Religious Freedom Act isn’t the answer.

More legislation seldom is, unless it just repeals old legislation.

 

Is there anything tax law can’t do?  Russians Consider Boosting Divorce Tax, Citing ‘Moral And Demographic Decline’ (TaxGrrrl)

 

Tax Justice Blog,  ITEP Analysis: Cuccinelli Tax Plan Mostly Benefits Wealthy Virginians – and Cuccinelli.  When the rich pay most of the taxes, any tax cut will “disproportionately benefit the wealthy.”

Taking a stand: Does the Economy Need Stimulus or Austerity? Yes. (Joseph Thorndike, Tax Analysts Blog)

 

 

20130717-1The Royal Consort clarifies the record.  TBO.com reports that the partner-in-crime of Rashia Wilson, self-proclaimed “Queen of IRS tax fraud,” wants to set the record straight:

He may have been her partner in crime, joining forces to steal millions from federal taxpayers.

He may have spent time at her house and shared “romantic liaisons.”

But Maurice Larry wants people to know he most definitely was not the boyfriend of Rashia Wilson, Tampa’s notorious self-dubbed Queen of Tax Fraud.

Just a good friend with benefits.

Wilson, who became known for her brazen Facebook postings taunting authorities about the millions she was stealing from taxpayers through stolen identity tax refund fraud, was sentenced in July to 21 years in federal prison.

Larry, who spent $100,000 covering a Camaro in chrome, was sentenced Tuesday to 14 1/2 years in federal prison, a sentence he is to serve at the same time as an 8-year, 5-month sentence he received Monday in another tax refund fraud case.

A chrome Camaro?  I suppose it went well with Ms. Wilson’s platinum hairdo.

 

That means they aren’t eating at the right places.  Deloitte Study: Accountants Don’t Have Fire in Their Bellies (Going Concern).

 

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Tax Roundup, 9/24/2013: The tax fairy is no cheap date. And nice words about my big mouth.

Monday, September 23rd, 2013 by Joe Kristan

Tax Shelter STARS dims in Claims Court.  The high-priced marketed tax shelter craze that started in the late 1990s by the big national accounting firms and some law firms has produced terrible results in litigation.  The latest failure is the KPMG/Sidley Austin tax shleter “STARS,” which was shot down in the Court of Federal Claims last week.

tax fairyThe shelter was designed to generate foreign tax credits against BB&T Corporation’s U.S. taxes.  While the shelter was put together by some of the biggest names in the tax profession, the judge was unimpressed:

Applying these principles here, the STARS transaction must be seen for what it really is. By creating a trust arrangement with nothing but circular cash flows, and momentarily placing funds in the hands of a U.K. trustee before it is returned, Barclays and BB&T artificially caused a U.K. tax on U.S.-sourced revenue. There was no substantive economic activity occurring in the U.K. to warrant a U.K. tax. Yet, by subjecting the Trust funds to a U.K. tax, Barclays and BB&T were able to share the benefits of foreign tax credits, which resulted in a 51 percent rebate of a Bx payment to BB&T. The surprisingly low interest rate to BB&T on the $1.5 billion Loan, 300 basis points below LIBOR, was made possible solely because of the fruits of the Trust arrangement. In reality, the U.S. Treasury is funding the monetary benefits realized by BB&T, Barclays, and the U.K. Treasury. No aspect of the STARS transaction has any economic reality.

When taxpayers got involved in tax shelters set up by big-name firms, they often did so believing that reliance on well-known national firms will protect them from penalties.  Not here:

KPMG’s overarching advice was that BB&T should engage in an economically meaningless transaction to achieve foreign tax credits for taxes BB&T had not in substance paid. Thus, because KPMG’s advice was based on unreasonable and unsupported assumptions, the Court finds KPMG’s advice unreasonable.

Based on KPMG’s recommendation, BB&T also selected the law firm of Sidley Austin, and in particular, Raymond J. Ruble, to provide tax advice and a formal opinion on STARS… Because Sidley Austin’s tax opinion was premised on the unreasonable and unsupported assumption that technical compliance with U.S. tax law would allow the IRS to give its imprimatur to an economically meaningless transaction, the Court finds Sidley Austin’s advice unreasonable.

So the judge undid $660 million in claimed tax savings and added $112 million in penalties to the bill.

The Moral?  Some of the brightest minds in the tax business thought they had finally found the Tax Fairy, the magical sprite that can make your taxes go away with fancy tax footwork.  They sold their discovery to folks just as eager to believe in the Tax Fairy as they were.  But there is no Tax Fairy.

Cite: Salem Financial, Inc., Ct. Fed. Claims, No. 1:10-cv-00192

Related: Jack Townsend,  Yet Another B***t Tax Shelter Goes Down; BB&T’s Streak on B***t Tax Shelters Continues

 

Iowa: an alcohol-dependent nicotine fiend with a gambling problem. From the Sioux City Journal:

In fiscal 2012, Iowa reaped $710.6 million from so-called “sin taxes.” Although that was 4.8 percent of the state’s total revenues of $14.65 billion, it was far less than the $3.7 billion in individual income taxes and $2.1 billion in sales taxes Iowans paid in fiscal 2011.

Still, it greatly exceeds the net take of Iowa’s complex, high rate and futile corporation income tax, which netted $430.4 million of the state’s $7.42 billion in tax revenues in fiscal 2012.

 

William Perez, Using Tax Refunds to Pay Estimated Taxes.  Applying overpayments to the next year’s estimated taxes is a very useful part of any tax planner’s toolkit.

Phil Hodgen,  Rental Income and Branch Profits Tax. “

Branch profits tax is computed on the corporation’s taxable income. The branch profits tax does not care about your net operating loss.

This means that you can have years where the corporation pays no income tax (because it has a net operating loss from the prior year that eliminates the taxable profit generated in the current year). But the corporation will pay the branch profits tax.

If you deal with offshore corporations with U.S. activity, you should read this.

Russ Fox, The Affordable Care Act and Gamblers: A Bad Bet

 

Janet Novack,  In Reversal, IRS Gives Amnesty To Owners Of Secret Israeli Bank Accounts   

TaxProf,  WSJ: Offshore Accounts: No Place to Hide?.  I think offshore bank secrecy is pretty much done for.

Kay Bell,  7 Internet sales tax principles set for House consideration

Peter Reilly:  TIGTA Finally Stumbles On The Real IRS Scandal   Peter seems to think cronies with undue influence on letter rulings is worth than partisans using the power of the IRS to suppress uncongenial political organizations.

TaxGrrrl,  Government Shutdown 101: What Happens When The Lights Go Off?   

Oh Goody.  Payroll Taxes May Have to Go Up (Andrew Lundeen, Tax Policy Blog).

Elaine Maag,  Senator Lee’s New Reform Plan Focuses on Young Children (TaxVox)

 

A scene from the heydey of Iowa energy independence.

Great moments in energy independence.  Biofuels scam ‘the largest tax fraud scheme in Indiana history’  (Biofuels International)

 

That would do that.  Fraud verdict tarnishes Idaho businesswoman’s bio (SFGate.com)

 

 

News from the profession: Five  Unwritten Rules for Making Partner in a Big 4 Firm (Going Concern).  Spoiler: landing great big audit clients helps a lot.

 

Aw, shucks.  Tax Analysts commenter David Brunori says nice things about me today in State Tax Notes ($link):


Many practitioners are gun-shy when it comes to voicing their opinions on tax policy. They have clients, after all, who might disagree with them. Joe Kristan of Roth CPA, a leading tax and accounting firm in Iowa, is an exception. Kristan, writing for the firm’s blog, routinely speaks truth to power. We here at Tax Analysts appreciate that. 

That’s the nicest way anybody has ever said that I don’t know when to shut up.

Mr. Brunori then discusses my observations of Iowa economic policy director Debi Durham and State Senator Joe Bolkcom:

Durham talks about the tax-incentive imperative, which only the gods of crony capitalism would recognize. But then one would expect a government official who spends her time doling out government welfare to corporations to defend the idea of doling out welfare to corporations. Citing the state’s blue ribbon commission, Kristan pointed out that there is little evidence that tax incentives work.

Kristan has criticized State Sen. Joe Bolkcom (D) for arguing for targeted tax incentives. Targeted incentives violate every notion of sound tax policy and, as Kristan wisely points out, assume the state can wisely allocate investment capital. We need more people who understand how everything works to weigh in on tax policy.

I would be surprised if you could fill a coffee table at the Capitol cafeteria with legislators who could explain the opportunity costs of targeted tax credits.

 

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Tax Roundup, 9/18/2013: No, the rich guy still isn’t buying. And non-phony scandals.

Wednesday, September 18th, 2013 by Joe Kristan

taxanalystslogoJoseph Thorndike gets a lot wrong in Two Cheers for a Government Shutdown (Tax Analysts Blog), but he gets one important thing exactly right (my emphasis):

 Democrats have been much less willing to defend discretionary government spending — the kind of spending that will grind to a halt during a shutdown. The discretionary portion of the federal budget has been slashed to the bone in recent years, and it’s slated for more slashing in the years ahead.

Those cuts are bad for the country in any number of ways. But until Democrats make the case against them, they’ll keep coming.

And here’s the most important point: Defending the value of discretionary spending also means defending the taxes that pay for it. Yet Democrats have been unwilling to defend taxation for decades. Ronald Reagan really was a transformative president — he changed not only the way Republicans talked about taxes, but the way Democrats talked about them, too.

Democrats have always liked taxing the rich. But for decades, they understood that you couldn’t tax only the rich. Anyone who thinks seriously about solving our long-term budget problems comes to the inescapable conclusion that taxes are going up for everyone. At least they will be going up if we hope to continue with a federal government that looks anything like the one we have today.

20121226-1Democrats have to embrace that fact. They have to defend the value proposition of progressive government, not just the feel-good politics of progressive taxation. 

I don’t buy for a moment that discretionary spending has been “slashed to the bone.”  Just visit your friendly money-bleeding post office, airport TSA line, high-speed rail boondoggle, solar subsidy disaster…  But he is exactly right when he points out that the rich guy isn’t buying.

 

Chart by the Tax Foundation

 

When the “Rogue Agents in Cincinnati” defense of the IRS in the Tea Party scandal was discredited, those attempting to minimize the scandal fell back to new defensive positions:

There is no evidence of partisan bias, and

Progressive groups were targeted too.

These assertions appear in a USA Today Story (via Instapundit), IRS list reveals concerns over Tea Party ‘propaganda’.

 Newly uncovered IRS documents show the agency flagged political groups based on the content of their literature, raising concerns specifically about “anti-Obama rhetoric,” inflammatory language and “emotional” statements made by non-profits seeking tax-exempt status.

More than 80% of the organizations on the 2011 “political advocacy case” list were conservative, but the effort to police political activity also ensnared at least 11 liberal groups as of November 2011, including Progressives United, Progress Texas and Delawareans for Social and Economic Justice.

Progressive outfits are unlikely to be caught by a screener looking for “anti-Obama” rhetoric. Given that “over 80%” of the groups picked for extra screening are right-side, it’s hard to accept that there is no political bias in the screening process.  Prior revelations have shown that the few left-side groups that were picked for extra scrutiny got very gentle treatment compared to their right-side counterparts:

7-30-13-irs-targeting-statistics-of-files-produced-by-irs-through-july-29-2-

Nothing phony about this scandal, no matter how much some people devoutly wish otherwise.

 

TaxProf, The IRS Scandal, Day 132

Russ Fox,  IRS Scandal: Lerner, Others Re-Enter Spotlight

 

 

Lynnley Browning, Complying With U.S. Tax Evasion Law Is Vexing Foreign Banks (via the TaxProf).   It’s one more reason why foreign banks are closing their doors to U.S. expats, and why Americans abroad are turning in their passports.

 

Paul Neiffer,  IRS Has Two Sets of De Minimis Rules.  He is discussing final regulations issued last week on what purchases need to be capitalized, rather than written off as expenses:

The first set applies to companies with applicable financial statements (i.e. an audit) and allows the company to expense any fixed asset purchase that does not exceed $5,000.  The second set allows any other taxpayer to expense any fixed asset purchase that does not exceed $500.  Personally, I would have hoped this number would be closer to $2,500, but $500 is better than none.

The Regulations also provide for guidance to IRS agents that they can reach an agreement with a taxpayer during audit to use a de minimis number higher than the ceiling in the Regulations.

I think the distinction between audited financial statements is nonsensical, but at least taxpayers know where they stand.

 

Jason Dinesen: Having a Side Business in Multi-Level Marketing Doesn’t Make Personal Expenses Deductible.  It’s amazing how many people believe that it does.

 

Kay Bell,  Tax deadlines extended to Dec. 2 for Colorado flood victims

Tony Nitti, IRS Provides Tax Relief To Victims Of Colorado Storms   

Trish McIntire,  Disasters and Chutes and Ladders

TaxGrrrl,  2014 Tax Brackets, Exemption Amounts Likely To Save Tax Dollars   

William Perez,  Top Tax Rate Paid by Sole Proprietors by State

Brian Mahany,  Do You Have The Right To Rely on IRS Forms? Court Says “Maybe”

David Brunori, The Conundrum of Taxing Lots of Kids (Tax Analysts Blog)

 

20120924-1

Phil Hodgen, Simplicity:

Reaching for $1,000X of tax savings frequently costs you $2,000X in accounting and legal fees to make the IRS all warm and fuzzy on your tax returns. We saw this last week where a prior year tax election was made that saved $5,000 (!) of tax, but so far has cost $40,000 to fix. Not to mention the time distraction for the principal of the venture.

That’s why I don’t care for things like C corporations that try to manipulate their income to use the lower tax rates when income is under $100,000.  You can save maybe a few thousand in taxes if you do it just right, but at the cost of professional fees and management time best spent elsewhere.

 

The Critical Question: Is the Spies Element for Evasion (i) Tax Deficiency or (ii) the Criminal Tax Number? (Jack Townsend)

 

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Tax Roundup, 9/12/2013: Tax fairies, speedways, and Little Round Top edition.

Thursday, September 12th, 2013 by Joe Kristan


tax fairy
No tax fairy in Iowa City.  
An Iowa City couple and a Nevada accountant have faced tax charges arising out of allegations that they used nominee corporations to help evade taxes.  From 8newsnow.com:

Darlene Taylor McCord and James Bert McCord of Iowa City, Iowa, and accountant Wendell Leroy Waite were charged with one count of conspiracy to defraud the United States. Waite also was charged with one count of income tax evasion and four counts of aiding in the preparation and filing of false and fraudulent federal tax returns.

Beginning in November 2004, the McCords allegedly deposited $2.7 million into an Asset Protection Group bank escrow account and/or into one of their corporate accounts to hide money from the IRS. In February 2005, the Asset Protection Group allegedly referred the McCords to Waite for accounting and tax purposes. Over the next two years, Waite allegedly filed multiple fraudulent federal tax returns for the McCords and their nominee corporations, concealing their true income and assets.

The government has yet to prove these allegations.  Still, it’s safe to say many people get in this sort of trouble because they believe in the Tax Fairy, who can magically make your taxes go away with trusts or shell companies. There is no Tax Fairy.

 

Another economic development triumph.  The Des Moines Register reports Iowa Speedway lagging on bills, CEO resigns.  The track has an innovative deal where it gets to keep the sales taxes it collects for ten years — which means, really, a state subsidy of one entertainment business at the expense of all others.  Yet the track apparently is struggling anyway.   It’s awful hard for our legislative supergeniuses to keep from subsidizing shiny new things involving celebrities.

Related: Why they do dumb things

 

Cara Griffith, The Survival of the Multistate Tax Commission (Tax Analysts Blog):

The MTC isn’t going anywhere. Perhaps it will take a different shape or assume different tasks, but 10 years from now, the commission will still play an important role in state and local taxation.  

I’m not so sure.  The MTC is set up for co-operation, but state politicians really want to tax income from people out-of-state who don’t vote in your election.  It’s hard to cooperate with people who want to pick your voters’ pockets.

 

The TaxProf passes on word of the new book How Money Walks:

-The nine states with no personal income taxes gained $146.2 billion in working wealth

-The nine states with the highest personal income tax rates lost $107.4 billion

-The 10 states with the lowest per capita state-local tax burdens gained $69.9 billion

-The 10 states with the highest per capita state-local tax burdens lost $139 billion Money and people moved from high-tax states to low-tax ones.

Funny how that works.

 

Tony Nitti, Corporate Tax Filing Deadline Tip: Is Your Net Operating Loss Limited? 

TaxGrrrl, Back To School: When Do I Have To File A Tax Return? 

Kay Bell, Take advantage of education tax breaks

William Perez, SEP-IRA Contributions Due by October 15th

Keith Fogg,  Offer In Compromise Problem of “Form” over Substance (Procedurally Taxing)

 

Wall Street Journal, Lois Lerner’s Own Words:

Emails unearthed by the House Ways and Means Committee between former Director of Exempt Organizations Lois Lerner and her staff raise doubts about IRS claims that the targeting wasn’t politically motivated and that low-level employees in Cincinnati masterminded the operation.

No surprise there.

20130912-1Peter Reilly,  Chamberlain Medal Of Honor Raises Tax Question – Can You Value What Cannot Be Sold ?    Somebody found the Medal of Honor awarded to a legendary Civil War general in a book bought at a church sale.  You can’t sell those.  Does that mean you can’t deduct it if you contribute it to charity?  It can’t be harder than holding Little Round Top, can it?

 

 

Andrew Lundeen, Depreciation, Expensing and Taxes (Tax Policy Blog): “For tax purposes, it would be nice if we still saw depreciation rules as a merely a gimmick and allowed businesses to expense the full cost of capital investments instead.”

Tax Justice Blog,  State News Quick Hits: Tax Benefits for Hawaii’s Gay Couples, Tax Fairness for Coloradans and More

Joseph Thorndike, Republicans Once Hated Debt Even More Than Taxes.  (Tax Analysts Blog)

 

News you can use. Want a Tax Shelter? Just Do It (David Brunori, Tax Analysts Blog)

 

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Tax Roundup, 9/5/2013: Fleeing the state edition. And other good tax policy moves.

Thursday, September 5th, 2013 by Joe Kristan

20130905-1Cara Griffith, Income Migration: What Does It Really Mean for States? (Tax Analysts Blog; my emphasis):

Still, the data seems to strongly suggest that tax policy (more than warm temperatures) does in fact drive income migration. But that statement is not particularly shocking. In addition to the interstate income migration, U.S. citizens have expatriated to avoid federal tax consequences and even abroad, there has been migration among European nations to avoid high tax countries (remember Gerard Depardieu?).

The question is what does this mean? Will we one day end up with the majority of millionaires in a handful of low tax states while those making more meager incomes remain in high tax states? No. It’s highly unlikely. The decision of where to locate is not done in a vacuum. It is the result of many factors, income tax burden being only one of those factors. Employment, family connections, and quality of public services (in particular education and health care) play roles as well. Migration solely because of tax policy is uncommon and likely restricted to the very rich.

But this does not excuse bad tax policy. Good state tax policy dictates a stable system with a broad base and low rates. High income tax rates can cause a small, but wealthy portion of the population to leave and can directly affect small businesses. We have the federal government to worry about income redistribution and business regulation. States should focus on tax systems that will create competitive business climates. That, in the end, will encourage residents to stay put.    

A broad base and low rates equal good tax policy.  Iowa takes the opposite approach, with some of the highest rates and a zillion tax breaks for the well-connected and well-lobbied.  There is another way.

 

Speaking of tax migration,  Americans turn in passports as new tax law hits (CNN Money).  Sometimes the jaywalkers don’t want to be shot.

 

 

Russ Roberts, New York City tax economics (Cafe Hayek):

The top 1% made 34% of the income but paid 43% of the taxes… You’ll often hear how the rich have used their political power to lower their tax burden. Yes, some of the rich have a disproportionate share of political power. But their power must be pretty limited if they still pay 43% of the income taxes collected in New York City.

And really, considering the cost of living there, the next 49% have pretty healthy incomes too.  But the 1% can leave.

 

David Brunori, Feeling Petty About Guns? Tax Them (Tax Analysts Blog)

Davis, Pascrell and their gun control buddies obviously don’t understand some basic concepts of tax policy. They’re proposing a special tax, an excise, on a particular product. Everyone who has ever studied tax policy will tell you that those taxes are warranted only in limited circumstances. The idea is that an excise is appropriate when it’s used to compensate society for the external costs of using a product. In basic tax school, we call those costs externalities. Say I live in rural Virginia, far from any high-crime area. I own a .22 rifle because I like to shoot empty beer cans. And maybe I own a .45 automatic in the unlikely event of a home invasion. I’ve never committed a crime. And let’s stipulate that I’ll never commit a crime because most gun owners never will. And I don’t hunt because I’m a vegetarian and don’t like to shoot critters.

We should impose an excise tax on bad tax policy.  Now there are some externalities.

 

TaxGrrrl, Back To School: Making Sense Of Scholarships, Grants & Fellowships 

Kay Bell, Detroit woman’s good deed rewarded with $5,300 tax bill. Diligent, comprehensive record keeping saves the day

How “joint” is that joint return?  More on Equitable Relief: Review Standards (Leslie Book, Procedurally Taxing). 

TaxProf, The IRS Scandal, Day 119

News you can use.  Kids Don’t Say They Want to Grow Up to Be CPAs Because Kids are Dumb.  (Going Concern).  

 

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Tax Roundup, 8/21/2013: Just scraping by edition.

Wednesday, August 21st, 2013 by Joe Kristan

Time is short today, so just a few highlights:

You know how the IRS is just starved of cash?  They’re being forced to scrape by on about their 2010 funding.  The horror!

20130821-1

Via The TaxProf.  Of course, since Congress has made the IRS into a cross-portfolio superagency, the funds are spread thinner.

 

Jason Dinesen, Work Opportunity Credit Mathematical Computations 

Robert D. Flach, TAXPAYERS SCREWED BY TAX COURT:

If the taxpayer can provide proper documentation that the money was actually given to the charity, via cancelled checks, and that it was an actual charitable donation, via an acknowledgement from the charity, and the charity confirms to the IRS or the Tax Court either in writing or by oral testimony that no goods or services were provided, the deduction should be allowed. 

That would be too sensible.

 

David Brunori, Governor Christie Does Not Understand Tax Policy (Tax Analysts Blog):

Like many governors, New Jersey’s Chris Christie is not well versed in the principles of sound tax policy. In fact, if recent events are an indication, he is ignorant of the basic concepts…

The bill Christie vetoed would have exempted business purchases of various software from sales tax. That is classic good tax policy. His veto is classic bad tax policy.

Sadly, he has plenty of political company.

 

Alan Cole, A Partial Defense of the Mortgage Interest Deduction (Tax Policy Blog):

The mortgage interest deduction is one of the most frequently-criticized elements of the entire tax code. We have written that it distorts investment towards owner-occupied housing. It is also regressive, in that it doesn’t benefit renters or standard deduction filers, both of whom are generally poor. It adds a small layer of complexity to the tax code, which should generally be avoided. It looks for all the world like a social engineering effort.  

All of these accusations, unfortunately, are quite true. And yet, I would stop short of saying the mortgage interest deduction absolutely must be eliminated. A scary truth about our tax system is that owner-occupied housing is one of the few types of capital treated somewhat correctly.

The problem is really the tax system’s abusive taxation of capital.

 

Kay Bell, Reduced municipal bond tax benefits could threaten all governmental credit ratings

TaxGrrrl, Up In Flames: Cigarette Taxes Create Opportunity For Revenue And Crime 

Peter Reilly, IRS Eases Up On War Tax Resisters 

Tax Justice Blog,  Remembering an International Tax Expert and Voice for Tax Justice

Allison Christians, Here is the only reason why Ted Cruz’s citizenship is interesting.

Me, The saga of Canada Cruz.

 

The Critical Question: What If Your Tax Professional Vanishes? (Russ Fox)

I’ll, er, drink to that.  Why Legal Marijuana is a Good Argument for Tax Reform (Howard Gleckman, TaxVox).

 

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Tax Roundup, 8/14/2013: Tax Court Trifecta: IRS agent gets creative on her own 1040, Shareholder stuck, and not quite a real estate pro.

Wednesday, August 14th, 2013 by Joe Kristan

20130121-2More reasons we should trust the IRS to regulate preparers.  The Tax Court yesterday addressed the charitable deductions of a revenue agent with the IRS Manhattan office.   The Tax Court judge found the documentation for the claimed contributions to Living Stone Baptist Church  insufficient (my emphasis):

Petitioner was not a member of LSBC during the years in issue. Pastor Mobley was clear that he knew all his congregants by name and face and that he did not know petitioner. Pastor Mobley apparently first met petitioner in 2011 after the examination of petitioner’s tax returns commenced. It seems improbable that petitioner ever attended LSBC and even less probable that she made donations in any amount. It appears highly probable that petitioner, in concert with her longtime friend and fellow IRS employee, cut and pasted stationery from LSBC and provided the same to the IRS agent examining the returns in an attempt to support the claimed deductions. That attempt failed when the IRS agent attempted to verify the reported contributions with Pastor Mobley. The pastor made clear that he did not authorize the receipts to be prepared or issued on LSBC stationery, nor did he sign any such receipts. Even after these false documents were exposed by the examining revenue agent, petitioner continued to pursue her efforts to obtain documents in support of the reported contributions.

Surely we should all welcome folks like that having the power to control whether we can make a living filing returns.

Cite: Payne, T.C. Summ. OP. 2013-65.

 

The Tax Court released two other interesting decisions yesterday:

You may still be a shareholder!  In Kumar, a radiologist had a falling out with his fellow shareholders in his medical practice S corporation, and was frozen out of the business.  Yet he still owned shares in the company and still received his K-1, and was eventually redeemed out in a settlement.  He failed to report income from one of his K-1s, claiming he no longer really owned the shares.  The Court ruled otherwise:

Thus, Dr. Kumar retained the beneficial ownership of the PSLV shares. There was no agreement giving Dr. Woody any rights to Dr. Kumar’s stock during the year at issue, and Dr. Woody’s interference with Dr. Kumar’s participation in PSLV did not deprive Dr. Kumar of the economic benefit of his PSLV shares. Thus, we conclude that the beneficial ownership test does not relieve Dr. Kumar  from passthrough of PSLV profits and petitioners must report $215,920 of income and $2,344 of interest income from PSLV. 

If you get the K-1, you probably have to report the income.

 

If you want to prove your participation, log your time.  In Williamsa taxpayer tried to convince the Tax Court that he met the two tests for being a real estate professional under the passive loss rules, and could therefore deduct his rental losses as non-passive.  To meet the tests, you have to spend at least 750 hours during the tax year participating in a “real property trade or business,” and that has to exceed the time you spend in other activities.  It’s up to the taxpayer to show the time spent, and the judge wasn’t convinced:

Mr. Williams testified he spent over 800 hours and more than one-half of his time performing personal services in the rental property activity for each year at issue. Petitioners failed to introduce documentation or other credible evidence corroborating Mr. Williams’ testimony.

Moreover, respondent’s cross-examination of Mr. Williams revealed that his testimony was inconsistent with other credible evidence and unreliable. 

“Documentation or other credible evidence” means a log, calendar or spreadsheet prepared currently during the tax year.  For an example of a taxpayer who kept records sufficient to win his case, go here.

 

TaxGrrrl,  IRS Proposes To Permanently Ease Restrictions For Innocent Spouse Relief   

Kay Bell, Social Security same-sex benefits limited (for now)  to states where such marriages are legal. Will IRS follow suit?

TaxProf,  The IRS Scandal, Day 97

Lori Bullock,  Social Media, the Internal Revenue Service and You (Davis Brown Tax Law Blog).  Now IRS has a Tumblr.

Paul Neiffer discusses the legislative progress of  The New Farm Bill.  You’d think that 70 years after the Depression ended, Congress might allow anti-depression measures to expire.

 

Kyle Pomerleau,  Japan Further Discusses Lowering Their Corporate Rate (Tax Policy Blog)

Roberton Williams, Paying for Corporate Tax Rate Cuts is Hard (TaxVox)

David Brunori, I Like the Internet, Taxed or Not (Tax Analysts Blog). “But come on. We are still trying to give a special tax break to the Internet?”

Tax Justice Blog,  State News Quick Hits: Texas, New York and Hollywood:

Between 2003 and 2012 the average Hollywood movie earned a 452 (!) percent return on investment. Still, 40-some states offer generous film tax credits in a misguided effort to invite productions.

But, parties!

 

Me, The perils of an unorthodox approach to tax crime explained.

 

He won’t ride his dinosaur into the sunset.  Doctor Dino – Kent Hovind May Lose In Court But Will Never Give Up (Peter Reilly)

Tax Planning the hard way:  People Are Having Babies Earlier to Max Out Tax Benefits (Going Concern)

Answering the Critical Question:  ‘Little House’ Is Not a Big Libertarian Conspiracy (Megan McArdle)

 

Note to readers: Tax Update posts are cross-posted to the Tax Update Facebook page, My LinkedIn page, and my GooglePlus feed.  Also on Twitter at @joebwan!

 

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Tax Roundup, 8/7/2013: Tax credits! That’s the ticket! And: would low-income workers be better off without the earned income credit?

Wednesday, August 7th, 2013 by Joe Kristan
Tax Credits! - The Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

Tax Credits! – The Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Whatever the question, some folks answer “tax credits!”   From The Des Moines Register:

A former state lawmaker says he will try to rally school, city and county associations to support legislation that would provide tax credits to those who buy empty or abandoned public buildings and create jobs.

Clarence Hoffman, a Denison Republican who served in the Iowa House from 1998 to 2008, said a Des Moines Register Reader’s Watchdog column that raised the question of what to do with abandoned schools across Iowa was the catalyst for his renewed interest in seeking the legislation.

Tax credits!  Problem solved!  Except for the new ones, like:

- Once more the tax law is more complicated, and tax enforcement resources have to be spread even thinner to keep this new credit from being a fraud magnet, like so many others.

- The price of neighboring buildings owned by private owners will be depressed by subsidies offered for the competing public property.  The credit will “solve” the problem of hard-to sell public property by taking money out of the pockets of other property owners.  Maybe Mr. Hoffman can offer still another tax credit to solve that problem.

 

Would low income taxpayers be better off with no earned income tax credit and lower tax rates?  That intriguing possibility is raised in a new Tax Foundation study of the economic effects of repealing the fraud-ridden EITCRichard Morrison discusses the study in the Tax Policy Blog (my emphasis):

The credit does help workers with very low incomes. For workers with higher earnings, the credit continues to raise incomes until it is fully phased out. The phase-out, however, does discourage workers from accepting more hours worked by reducing the amount of additional pay they would otherwise receive. As a result, our research suggests that the negative impact of the phase-out depresses the labor supply by more than the phase-in bolsters it. 

The EITC serves as a poverty trap by imposing a high hidden marginal tax rate because of the way increasing income reduces the credit.  Iowa makes the problem worse by pairing its EITC with the federal credit, leading to marginal tax rates as high as those of the highest income earners:

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

 

More from Mr. Morrison:

It is possible that tax reformers in Congress could alter the Earned Income Tax Credit in any number of ways rather than eliminating it, but in the spirit of our Economics of the Blank Slate analysis series, we modeled a scenario in which it was dropped from the code entirely. It’s important to remember, though, that our analysis also found that pairing an EITC repeal with an across-the-board tax cut would increase GDP by $125 billion per year and add 783,000 full-time jobs. Those additional opportunities would also be good for low-income workers.

But what about the poor grifters who siphon off 25% or so of the EITC?  How can we help them?

 

Jason Dinesen,  Iowa Tuition and Textbook Credit and Back-to-School Shopping

William Perez, Anspach on the Benefits of Roth IRA Conversions

Missouri Tax Guy,  Tax Planning for Freelancers: Are You Prepared?  “One of the most common mistakes that freelancers make is that they don’t properly budget for taxes.”

Peter Reilly,  Internet Password Protocol Not A Charitable Activity

 

Quotable:

With the possible exception of Uncle Sam’s continual – and often horrendous – misuse of its military prowess, no government policy in America is as uncivilized – as offensive to common decency – as destructive of property rights – as arbitrary in its justification and in its applicationas incompatible with freedom – as conducive to corruption – as downright sickening and maddening as is civil forfeiture.

-Donald Beaudreax

 

TaxProf, The IRS Scandal, Day 90.

David Brunori, Lotteries are Winners, Except for the People (Tax Analysts Blog):

You see the lottery system is a big fat scam. It takes money from poor people. Am I the only person who finds it bizarre that the government would raise money from a regressive lottery and then celebrate by giving the money back to the poor and dispossessed in the form of scholarships?

It’s like so many government “benefits” — they take your money, and then they tell you how wonderful it is when they give some of it back.  That’s just as true for “economic development” tax credits.

 

Howard Gleckman, A Summer Update on Tax Reform (TaxVox)

Anthony Nitti, The Problem With Corporate-Only Tax Reform

TaxGrrrl, NC Lawmakers Reckon With The Three Rs: Reading, Writing & (Tax) Reform

Tax Justice Blog,  State News Quick Hits: Irresponsible Tax Promises in Gubernatorial Campaigns – and More

 

Is it really wise to smoke them?  Treating Twinkies Like Crack (Joseph Thorndike, Tax Analysts Blog)

The Critical Question:  NORTH CAROLINA TAX REFORM:  GOOD OR BAD??  (Brian Strahle)

Kay Bell, ‘Racist’ tanning tax assailed by GOP Representative. Racist?  How about plain old stupid?

 

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Tax Roundup, 7/31/2013: Cross-agency co-operation edition. And a new look for the TaxProf!

Wednesday, July 31st, 2013 by Joe Kristan

Nothing to see here, phoney scandal.  E-mails Suggest Collusion Between FEC, IRS to Target Conservative Groups (Eliana Johnson, The Corner):

Embattled Internal Revenue Service official Lois Lerner and an attorney in the Federal Election Commission’s general counsel’s office appear to have twice colluded to influence the record before the FEC’s vote in the case of a conservative non-profit organization, according to e-mails unearthed by the House Ways and Means Committee and obtained exclusively by National Review Online.  The correspondence suggests the discrimination of conservative groups extended beyond the IRS and into the FEC, where an attorney from the agency’s enforcement division in at least one case sought and received tax information about the status of a conservative group, the American Future Fund, before recommending that the commission prosecute it for violations of campaign-finance law.

Remember, Ms. Lerner used to work at the FEC.

 

Check out the new look at the TaxProf’s place.  It’s worth the trip for many reasons, including The IRS Scandal, Day 83

 

Tony Nitti,  President Obama’s Plan For Corporate Tax Reform: A ‘Grand Bargain’ Or Simply Another Name For An Old Proposal?

Howard Gleckman, Obama’s New Corporate Tax Offer is Another Dead End

Richard Morrison, Obama Corporate Tax Proposal Limits Potential Economic Growth (Tax Policy Blog)

TaxGrrrl, Baucus & Camp Talk Reform As Tax Road Show Rolls On

Tax Justice Blog, Best and Worst Ideas for “Blank Slate” Tax Reform

Me, Grand bargains and other mistakes

 

Clint Stretch,  In the Trade or Business of Generating Capital Gains? (Tax Analysts Blog)

Kay Bell, Werfel makes IRS budget case at Texas tax preparers meeting.   Good luck with that.

 

David Brunori, Sales Tax Holidays and the Planet of the Apes (Tax Analysts Blog):

Touted as a middle class break for “hard working families,” the holidays only encourage retailers to raise prices. Because rational people change the days they shop during the holiday (rather then spend more), consumers pay more, the government loses revenue, and the retailers get a small windfall. That is why retailers lobby hard for the holiday.   

Trish McIntire,  Kansas Taxes – Even More Changes

From Robert D. Flach, SOME SHAMELESS SELF-PROMOTION.

 

Can’t we all just get along? The War Against the Billable Hour Goes Mainstream (Going Concern)

 

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Tax Roundup, 7/24/2013: Iowa corporate tax cuts? And a Carbondale caper.

Wednesday, July 24th, 2013 by Joe Kristan

20130117-1Todd Dorman, Another view on corporate income tax cuts:

I wrote yesterday about Gov. Terry Branstad’s call for corporate income taxes, and how I’d be OK with a deal that cuts rates but also eliminates credits/loopholes.

Mike Owen, executive director of the Iowa Policy Project (congrats on the recent promotion) took some issue with my conclusions in an email…

You might not be surprised that the Iowa Policy Project thinks there’s a perfectly reasonable explanation for Iowa’s highest-in-the-nation corporation tax rate, and that taxes should be higher.  You may also know how I feel about that.

 

Kyle Pomerleau, Another Understatement of the Corporate Tax Rate:

The U.S. News and World Report published an article today titled “The Global Race to the Bottom in Corporate Taxes.” …

It also outlines the vast complexity of the tax system. According to one tax advisory cited in the article, his firm’s clients are “horrified by complexity and cost of filing their taxes in the U.S.”

20130724-1

Welcome to the U.S.

 

Joseph Thorndike, Wealth Taxes to Cure Inequality? How About Tax Reform Instead.  (Tax Analysts Blog).  How about questioning whether inequality is something that needs a “cure,” or even can be cured?  Then ask whether the tax law is safe and effective medicine.  I’d argue no.

TaxProf,  The IRS Scandal, Day 76

David Brunori, Don’t Cheat the Tax Man (wink, wink) ITax Analysts Blog):

What the nanny staters in Washington don’t understand is that prohibition, whether direct or indirect through the tax laws, doesn’t work. It did not work for alcohol. It did not work for marijuana. It will not work for cigarettes. Prohibition does not work because free men and women want to make their own decision about what they drink, smoke, eat, etc.  And they act rationally.

If only legislation did so.

 

Jason Dinesen, When Do Dependents Have to File a Tax Return?

Robert D. Flach, THE BIGGEST LOSER, on the tax laws mistreatment of gambling income.

The new Cavalcade of Risk is up!  For your insurance and risk-management reading pleasure.  Don’t miss Hank Stern’s Scamster Tricks.

Jack Townsend, Taxpayer’s Counsel Attending IRS CI Interviews of Third Party Witness

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

Tax Justice Blog, New CTJ Report: Reforming Individual Income Tax Expenditures

TaxGrrrl, Remembering The ‘Hot Dog Tax’ On National Hot Dog Day

Me, Man who supported someone else’s kid gets attaboy, but no tax credit.

 

They really don’t want this guy to set up shop again.  A July 23 press release from the Department of Justice says:

The Justice Department announced today that it has asked a federal court to bar Ronald Manis of Carbondale, Ill., from preparing tax returns for others.  The civil injunction suit, filed in the U.S. District Court for the Southern District of Illinois, alleges that Manis routinely prepares federal tax returns for individuals and corporations improperly claiming deductions that result in his customers understating their federal tax liabilities.

Nothing extraordinary there, other than that there would be anything untowards happening in Carbondale.  But further down in the press release there’s this (my emphasis):

In September 2011, Manis pleaded guilty to willfully failing to file his own federal income tax returns for 2003, 2004, 2005 and 2006, and was sentenced to three months in prison. According to the government complaint, Manis was released from federal prison on July 20, 2013.

They don’t seem to want to let him participate in the upcoming tax season at all.

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Tax Roundup, 7/17/2013: Stories of wounded jaywalkers. And: checking in on Rashia.

Wednesday, July 17th, 2013 by Joe Kristan

taxanalystslogoMarie Sapirie of Tax Analysts has an excellent piece about how the IRS offshore account enforcement program treats the thousands of ordinary Americans abroad — and many green card holders living in the U.S. —  as presumptive tax criminals when they try to remedy foot-fault paperwork violations in reporting offshore accounts.  She tells the stories of four “minnows” who tried to remedy inadvertent minor violations of the foreign account rules.  Get a load of the advice they gave “Taxpayer 3:”

The taxpayer, like many others, sought help from a congressional representative in reaching a satisfactory resolution with the IRS. The response that the lawmaker received from the IRS — that the taxpayer could renounce U.S. citizenship — was disappointing. “I lived in the U.S. for 30 years; I never was treated unfairly for 30 years. I was proud of it. And here the IRS is telling me to renounce my citizenship
because it may be the best solution considering my situation,” the taxpayer said.

When the IRS is telling people to expatriate themselves, something is very wrong.

The article discusses the headaches involved in clearing up FBAR reporting, including the delays caused because IRS agents aren’t allowed to make international phone calls.

The IRS should imitate programs for state non-filers for FBAR violations: allow taxpayers to come in penalty-free anytime if they file disclose their accounts and amend returns for five years back to report any unreported offshore income.  Time to stop shooting the jaywalkers.

20130717-1

Rashia Wilson in happier times.

While Doug Shulman’s IRS was busy shooting jaywalkers, the grifters were running wild.  TampaBay.com has an update on the woman who boasted on her Facebook page that she was the “queen of IRS tax fraud”: IRS loss to fraud’s ‘first lady’ may have hit $20 million:

Rashia Wilson may have duped the IRS out of as much as $20 million before her arrest on stolen identity refund fraud charges.

That’s according to a court document, filed in advance of her sentencing today, that estimates the government’s loss at $7 million to $20 million.

What kind of criminal mastermind could break through the internal controls at IRS to loot that kind of money?

“YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD,” reads a May posting on her Facebook page described in the affidavits. “IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!”

Well done, Shulman!  Criminal masterminds like Ms. Wilson are robbing the Treasury of $5 billion annually, and you are busy telling taxpayers trying to come into compliance to renounce their citizenship.

Prior tax update coverage: Identity theft tax fraud: women’s work?

Jason Dinesen, Taxpayer Identity Theft — Part 16. “The IRS still has not processed Brian and Wendy’s final joint tax return for 2010.”

 

Inspector General finds “willful” rummaging through political “candidate or donor” records, but Justice Department declines to prosecute.  This is a big deal.  All we know is that it is sometime after 2006.  Failing to prosecute that is shocking; it’s hard to imagine a good excuse.  Tax Analysts reports today ($link) that IRS denies any of its employees were involved.

TaxProf, The IRS Scandal, Day 69

Kay Bell, Justice Department refusal to prosecute IRS disclosure of taxpayer information prompts inquiry from GOP Senator

Janet Novack,  Former IRS Auditor Gets Probation For Taxpayer Info Leak, Conflict Of Interest.  ”Dennis Lerner admitted disclosing information about an audit of
Commerzbank AG and seeking a job with the German bank even as he was still negotiating a $210 settlement with it.”

 

William Perez, Same Sex Marriage, the Windsor Case and Estate Planning

Paul Neiffer, Capital Gains Questions on Selling Farmland

Missouri Tax Guy, Choose your tax pro? A rundown on the difference between CPAs, Enrolled Agents and other preparers.

 

Kay Bell, IRS will be fully staffed July 22 as furlough day is canceled

TaxGrrrl, IRS To Remain Open For Business As Furlough Day Is Canceled

 

Joseph Thorndike, Tax Expenditures Should Be Attacked Head On, Not Through the Backdoor (Tax Analysts Blog).

David Brunori, Immigrants are Good for Us (Tax Analysts Blog)

Howard Gleckman, Will Obamacare Delays Encourage Health Exchange Cheating?  (TaxV0x). Just because we can’t verify that you’re not cheating won’t result in massive cheating, according to Mr. Gleckman.  Let’s ask Rashia about that.

Russ Fox, The Most Ridiculous Tax Ever.  He’s talking about the insane “PCORI” fee.

Tax Justice Blog, North Carolina Facing Disastrous New Tax Laws.   The “disatrous” changes include reduction of the individual rate to 5.75% (currently 7.75%) and the corporate rate to 5% (from 6.9%).  If that’s a disaster, here’s hoping for one in Iowa.

Elizabeth Malm, More Details Released on North Carolina Compromise Plan and North Carolina House, Senate, and Governor Announce Tax Agreement (Tax Policy Blog).

 

Jack Townsend,  UBS Client, 78 Years Old, Sentenced to One Year and One Day

There are no athiests in taxholes.  Economist who dodged tax due to ‘religious objection’ gets four years behind bars (New York Post)

 

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Tax Roundup, 7/10/13: No tax on foreign losers. And rounding up the tax criminals!

Wednesday, July 10th, 2013 by Joe Kristan

slots.jpgEveryone who is good at math knows that if you play the slots a lot, you will lose.  Sure, you will occasionally get a payoff, but over time the house wins.  That’s why they let you play.

Yet the IRS didn’t let that get in the way of taxing non-resident gamblers.  It says that non-residents have to pay a 30% tax on every winning play, regardliess of the losers.  The Tax Court upheld that position in the case of a Korean gambler, but now the D.C. Circuit Court of Appeals has ruled in the gambler’s favor, allowing him to compute the tax on a “per session” basis, rather than per bet, so that the day’s losses and winnings can be offset.  The court threw the logic of a IRS 2008 technical memo back at the agency:

     The IRS has persuasively interpreted the term “gains” in Section 165(d) to allow U.S. citizens to measure gains on a per-session basis. The IRS stated that “gain or loss may be calculated over a series of separate plays or wagers.” Memorandum AM2008-11, Office of Chief Counsel, Internal Revenue Service 4 (2008) (emphasis added). In the IRS’s words: “We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate” her net gains. Id. Because gain or loss may be calculated over a series of wagers, a “taxpayer who plays the slot machines[] recognizes a wagering gain or loss at the time she redeems her tokens.” Id. Therefore, U.S. citizens do not “treat every play or wager as a taxable event.” Id. The result is that U.S. citizens can measure their gambling winnings and losses on a per-session basis…

     Nothing in the IRS’s Section 165(d) ruling on “gains” turned on the fact that the gamblers were U.S. citizens.

TaxDood has more in Nonresident Gamblers Take a Step Closer to Equality

Cite: Park v. Commissioner, No. 12-1058 (D.C. Ct. App. 2013).

Update: The TaxProf has a roundup.

 

Russ Fox, A Gambler Gambles to Tax Court…and Loses

Trish McIntire, Gambling Rumor.  No, they aren’t disalllowing gambling losses.

 

Lots of tax crime news today.  From New Jersey, we learn that skimming business receipts is not sexy.  A Justice Department press release reports:

A Middlesex County, N.J., man who co-owns  and operates a wholesale merchandise business in New York selling adult  paraphernalia was sentenced today to 19 months in prison for concealing more  than $1.2 million in income in various domestic and foreign bank accounts, New  Jersey U.S. Attorney Paul J. Fishman and Assistant Attorney General Kathryn  Keneally of the Justice Department’s Tax Division announced.

From 2006 through 2009, Gupta diverted $822,916 of the business’  receipts into 17 different personal bank accounts held in the names of various  individuals, including himself and family members. He directed more than  $250,000 of those diverted funds into six different accounts held offshore at a  branch of HSBC in India. From 2007 through 2009, Gupta caused 22 J.S. Marketers  corporate checks to be made payable to
himself and family members in amounts  identical to invoices from the
business’ suppliers. Gupta endorsed those  checks, which totaled $375,138, and deposited them into bank accounts that he  controlled.

17 accounts?  That’s a lot of work that didn’t work out well.

Meanwhile in Oregon, things go badly for a tax protester:  Former Gladstone business owner jailed 97 months for tax evasion, reports the Portland Tribune:

Chester Evans Davis, a 56-year-old Oregon City corporate tax defier, got sentenced to more than eight years in federal prison starting Monday for not filing a corporate tax return five times for his Gladstone business and then trying to obstruct Internal Revenue Service laws.

Davis transferred money from his company to various shell corporations and a warehouse bank, and then used the money to purchase more than $5 million in gold bars and coins. IRS special agents seized over $1 million of that gold, as well as approximately $115,000 in cash, while executing search warrants at Davis’ residence and business.

Again, a lot more effort than filing and paying taxes, and a lot worse result.

Meanwhile in Illinois, the Rockford Register Star reports Tax evading Rockford chiropractor sentenced to prison:

Todd R. Cevene, 42, of Caledonia, was sentenced Tuesday to 10 months in prison by U.S. District Judge Frederick J. Kapala for federal income tax evasion.

Cevene admitted in his plea agreement that during a four-year period between 2004 and 2007, he intentionally evaded payment of his federal income taxes by transferring substantial amounts of Cevene Care Clinic’s income to Cevene Management Group, Todd Cevene Alaska Preservation Trust, and Cevene Enterprises.

There is no magical formula using trusts that makes your taxes go away.

The reeducation of Lauryn Hill.  The singer reported to a federal prison this week to begin serving a three-month sentence on tax charges.

 

Health care taxes: what’s delayed, what isn’t.  My new post at IowaBiz.com, the Des Moines Business Record group blog for entrepreneurs.

Susan Freed, Play or Pay Rules Delayed (Davis Brown Health Care Reform Blog)

 

Joseph Thorndike, House Republicans Would Rather Pander than Fix the IRS (Tax Analsysts Blog):

At the end of the day, they would rather score a few cheap political points than do something to actually fix the IRS.

Yes, the IRS should be adequaately funded.  Yet when the agency proves itself your electoral enemy, you aren’t exactly motivated to fund it.

 

TaxProf, The IRS Scandal, Day 62

William Perez,  Researcher Finds Social Securty Numbers Posted on IRS Public Database

TaxGrrrl, As Second IRS Official Pleads The Fifth, Congress Pushes For ‘Lerner Rule’

 

Jeremy Scott, Summers Pushes for Tax Break on Foreign Profits (Tax Analysts Blog)

Kay Bell, Hurricane season costs tax collectors as well as homeowners

Jason Dinesen, The Oddities of State Taxes — Wisconsin Student Loan Deduction and Nonresident Tax Returns

David Brunori, Taxing Teen Texts and Other Terrible Tax Things (Tax Analysts Blog):

 In addition to fat kids, skinny kids, and kids that climb on rocks, rich kids and poor kids use wireless devices. If everyone is using them, a flat tax is regressive. It is strange that liberal New York and Washington, states purportedly looking out for the little guy, are so enamored with a regressive tax. 

Of course they aren’t looking out for the little guy.  That’s just for the rubes.

Andrew Lundeen, Links: Lap Dance Taxes and Tax Reform Options (Tax Policy Blog).  Lap Dances, marijuana taxes and Warren Buffet, all in one place!

Howard Gleckman, Not All Curbs on Tax Preferences Are Created Equal (TaxVox)

Robert D. Flach,  MY CORRESPONDENCE WITH THE WHITE HOUSE ON TAX REFORM

Brian Maharry, Cell Captive Insurance – Legit Insurance Tool or Abusive Tax Shelter:

The scam promotions typically offer to shelter a large sum of money by calling it an insurance premium. The premium is usually the same dollar amount as the deduction you seek. The promoter offers “insurance” on a highly improbable risk. Hurricane insurance in Nebraska, anyone? Magically, you get a big deduction and in a few years you are promised the ability to get back your money in the form of a “premium refund” or dividend.

It gets windy in Nebraska, especially during football season, but not like that.

 

Oh Noes!  Horror Stories From the CPA Exam: The Prometric Nose Bleed (Going Concern)

 

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Tax Roundup, 7/3/2013: Effective rate edition. And Pickett’s Charge!

Wednesday, July 3rd, 2013 by Joe Kristan

gao-logoA GAO study of effective tax rates has created some comment in the tax policy blog world.  For example, Howard Gleckman,  Large U.S. Firms Paid a 16.6 Percent Federal Tax Rate (TaxVox):

A new analysis by the Government Accountability Office finds that in 2010 large U.S. corporations paid an average effective tax rate on their worldwide income of 22.7 percent and U.S. federal tax of only about 16.6 percent.  The federal rate was less than half of the 35 percent statutory rate.

Large firms that made a profit that year paid an even lower effective rate—an average of 16.9 percent in worldwide taxes and only 12.6 percent in U.S. federal tax.

The always moderate and restrained Linda Beale chimes in with Corporations Never Had It So Good.

William McBride from the Tax Policy Blog doesn’t see it quite that way in GAO Compares Apples to Oranges to Find Low Corporate Effective Tax Rate:

A new study by the Government Accountability Office (GAO) claims the corporate effective tax rate (ETR) was 12.6 percent in 2010, which is about half the standard estimate found in other studies cited by the GAO and summarized here, here, and here. Based on IRS data, the corporate effective tax rate is about 26 percent  on average, though it dropped in the most recent year of data, 2009, to a little over 22 percent, due to the recession and temporary tax incentives meant to stimulate investment.

Why the difference?

So how did GAO come up with such a low effective tax rate? Mainly by comparing apples and oranges. Particularly, GAO takes the smallest measure of taxes paid and divides it by the largest measure of net income according to financial statements, even though this net income is not the tax base that the corporate tax was meant to apply to. The corporate tax rate applies to taxable income, as defined in the tax code. According to GAO, taxable income in 2010 was $863 billion for profitable corporations, while financial statement income was $1.443 trillion.

It’s true that effective rates on taxable income will never be as high as the stated rate because of tax credits, but the GAO numbers show a misleadingly low burden.

 

The Obamacare employer mandate has been delayed.  My coverage and a roundup: Don’t fire employee #50 just yet: Obamacare employer mandate delayed until 2015

 

Jason Dinesen, Do Iowa Taxes Change as a Result of the DOMA Ruling?  ”The answer is: very little changes on Iowa taxes.”

Trish McIntire, DOMA is Dead

 

Joseph Thorndike, Milton Friedman Didn’t Believe in Tax Reform (Tax Analysts Blog).  Getting rid of loopholes, the argument goes, just makes room for new ones.

TaxProf, The IRS Scandal, Day 55 and IRS Hits Tyco With $1 Billion Tax Bill

Janet Novack, IRS Calls Foul Against Estate Of Late Minnesota Twins Owner Carl Pohlad.   “Carl Pohlad’s heirs contend his stake in the MLB club was worth just $24 million. The IRS pegs it at more than 12 times that.”

Zerjav update:  I have updated my post on the St. Louis tax advisor who was sentenced to 18 months in prison to include information from a U.S. Attorneys press release on the details of how the evasion was done.

David Brunori, Cuccinelli’s Corporate Tax Plan Does Not Go Far Enough (Tax Analysts Blog:

The state would be far better off repealing the tax and either 1) reducing spending by $800 million, or 2) finding other sources of revenue. An increase in the personal income or sales tax would be a better idea than trying to tax corporate income.

Amen.

 

Tax Justice Blog, Bad Budgets Become Law in Ohio and Wisconsin.  That probably means the opposite.

Peter Reilly continues to report breaking news from the Battle of Gettysburg:  Did Doris Kearns Goodwin Blow It At Gettysburg ?  I am insanely jealous.  I assume he will torture me with coverage of today’s 150th anniversary of Pickett’s charge.

 

News you can use. The Screaming at EY Has Stopped (Going Concern)

I don’t see what his orientation has do with anything.  Century old barn may’ve been started on fire by flaming raccoon (Radio Iowa)

 

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Tax Roundup, 6/14/2013: Resort wear edition. And: Iowa income tax reform, finally?

Friday, June 14th, 2013 by Joe Kristan

Today is probably the last post until June 24 as I take a summer hiatus.  It is also the last day of our Traverse City, Michigan seminar.  It’s been a great time, and Traverse City is a beautiful resort town.

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Co-panelist Paul Neiffer covers Day 1 at Traverse City

 

Will 2014 be the Iowa’s Income Tax Reform Year?  Now that he has signed the property tax reform bill, Governor Branstad signals a shift to income tax reform.  Radio Iowa reports:

“I think it’s very likely we’ll be looking at reducing the income tax further,” Branstad says. “When I became governor, the income tax rate in Iowa was 13 percent. We now have it down to 8.98 percent, plus we have full federal deductability…Remember, the top federal tax is 38.5 percent, so the effective rate in Iowa is only about 5.5 percent. We’d like to see that go lower.”

The top federal rate is actually 39.6%, not including deduction phase-outs, or 43.4% considering the Obamacare Net Investment Income Tax.  That leads to an effective top Iowa rate of somewhere between 5.2% and 5.6%.

The way to income tax reform would be to repeal Iowa’s corporate income tax, its rat’s nest of corporate welfare deductions, and its mess of well-intended but ineffective social welfare tax incentives.  You could get a 0% corporate rate and a 4% individual rate, and an Iowa 1040 that fits on a postcard.  You could get the Quick and Dirty Iowa Tax Reform Plan, in other words.

That would require the Governor to swear off the corporate welfare giveaways so beloved by the Iowa “economic development” bureaucracy, and the associated fertilizer plant ribbon cuttings.  Yet I think 4% individual rate and 0% corporate rate would do a lot more for Iowa’s economy than the dozens of “targeted” economic development tax credits and deductions  — though not so much for Iowa’s middlemen, fixers and economic development officials.

Lyman Stone,  Iowa Approves Property Tax Reductions, New Tax Credits (Tax Policy Blog):

 However, the large reduction in property taxes coupled with a smaller reduction in income taxes will shift the burden of taxation more heavily onto income: a less stable and more distortionary tax. Furthermore, SF 295 creates or expands several new credits, funds, and preferential treatments in the tax code, exacerbating the problem of non-neutrality, and its distortionary effects.

In sum, the law is a mixed bag. The Governor has indicated another look will be taken at the income tax later this year: hopefully the problem of excessive and distortionary credits can be resolved then. And, if not, then Iowa may have to sit tight at 42nd on our State Business Tax Climate Index, maintaining the 4th highest top income tax in the nation, and the highest corporate tax rate.

Indeed.

 

Bleeding Heartland, Five perspectives on Iowa’s new property tax law

 

Michael Giberson looks at Iowa’s (misguided) disaster “price gouging” policies:

Portable toilet price gouging gets mentioned in several Attorney General news releases. It may be the case that the Iowa law is the only one that specifically lists “sanitation supplies” among the good covered.

The same newspaper story mentioned, “soybean price futures have jumped 25 percent and corn futures 10 percent over the past month as crop losses have spread across Illinois, Iowa and Missouri. That means farmers outside the flood zone will get far more for their crops than normal….” The state didn’t have a price gouging law until later that year. But if the price increase happened this year, would farmers in the affected counties be in violation of state law?

Higher prices are nature’s way of directing resources to their most important uses, and restricting their use when supplies are tight.  Price gouging laws mess with Mother Nature.

 

Peter Reilly,  Need Strong Documentation Of Time Spent To Claim Real Estate Losses.  Peter covers the same issues we covered here, and he points out that the same issues of documenting time you spend in an activity become even more important under the Obamacare Net Investment Income Tax.

TaxProf, The IRS Scandal, Day 36

The IRS is closed today.  The scoop from Kay Bell, who also reminds you Where to mail your estimated tax 1040-ES form due Monday.

Jack Townsend, Quiet Disclosures That Don’t Stay Quiet – Civil E xaminations

Jason Dinesen,  Glossary: DOMA

Howard Gleckman, As Marriage Changes, Should Joint Filing Go The Way of Ozzie And Harriet?

Patrick Temple-West,  REIT status questioned by IRS, and more

TaxGrrrl, Did Spanish Taxing Authorities Target Messi To Send A Message To The World?   A message like “who is Messi?”

David Brunori, The Myth of State Balanced Budgets

Tony Nitti,  Former PwC Partner Falls Victim To ‘Hot Asset’ Rules In Tax Court

Robert D. Flach has your Friday Buzz!

 

Going Concern, Georgia Man Discovers IRS Wasn’t Joking About the Possibility of His Fake Treasury Bond, Fraudulent Tax Return, Bogus Refund Landing Him in Jail

See you after vacation!

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