David Brunori « Roth & Company, P.C

Posts Tagged ‘David Brunori’

Tax Roundup, 12/19/2012: B is for Boehner. And Blizzard.

Wednesday, December 19th, 2012 by Joe Kristan

Plan B. House Speaker Boehner has proposed a “Plan B” that would increase the top rate to 39.6% for taxpayers with taxable income over $1 million. Tax Analysts reports ($link):

Boehner’s Plan B would also permanently extend the alternative minimum tax patch and the current-law estate and gift tax rules with a portable $5 million individual exemption and a 35 percent top rate. Dividends and long-term capital gains would be taxed at 15 percent for income below $1 million and at 20 percent above that threshold. The bill would not renew any tax extenders, emergency unemployment insurance, or the 2 percentage point payroll tax cut, and would not raise the federal debt limit.

It’s nice to see a permanent AMT fix in both the Boehner and Obama plans. I like not renewing any of the “extenders,” but I suspect he plans to do that separately next year anyway. An estate tax fix is also welcome. It looks like there is no hope continuing the 15% rate for dividends or capital gains.

Meanwhile, a blizzard approaches. From KCCI.com:

Six to 12 inches of snow is expected by Thursday morning. The heaviest snow axis will be along a line from near Des Moines to Tama. The lowest amounts are expected near the Missouri border. Snow drifts several feet deep will be possible given the strong winds.

Winds/visibility:

Winds will become very strong Wednesday night from the north northwest. Sustained winds of 25 to 35 mph are expected with gusts over 45 mph possible.

I know what I’m doing tomorrow morning. Hello, shovel.

Fiscal Cliff Notes

Wall Street Journal, Boehner Weighs ‘Cliff’ Backup Plan

Janet Novack, Strange Bedfellows: Boehner, Buffett And Obama All Support Millionaires Only Taxes

Andrew Lundeen, How Many Days of Christmas Could the Fiscal Cliff Buy? (Tax Policy Blog)

Joseph Thorndike, Republicans Shouldn’t Pin Their Hopes on The Origination Clause. “In practice, the Origination Clause is more a nuisance than an obstacle to tax-happy senators.”

Howard Gleckman, What Adjusting the Price Index Would Mean for Taxpayers (TaxVox)

Rudy Penner, How to Control Entitlements: A Challenge Ike Did Not Face (TaxVox)

TaxProf, Fleischer: How Local Tax Rates Affect High-Income Professionals:

The study finds that an increase in the marginal income tax rate leads to a decrease in the average skill of the NBA free agents that migrate to that team. Unlike in baseball, basketball teams in high-tax jurisdictions actually end up with a worse free-agent talent pool, all else equal. …

These papers do serve as a useful reminder that if the goal is to remedy income inequality, state and local taxes are a weak policy instrument. To the extent that tax policy is used to achieve redistribution, redistribution should take place at the federal level.

Despite what Warren Buffett, the President, and the Speaker of the House say, marginal rates matter. That’s also true at the state level; when you have to bribe businesses to locate in your state, as Iowa likes to, you have a sick tax system. Related: David Brunori, If the Shoe Fits: Oregon Lawmakers Get Rolled (Tax.com)

Kay Bell, Cupid says note year-end marital status; Reindeer Year-end Tax Games Tip #6

Paul Neiffer, Annual Exclusion Does Not Eat Into Lifetime Exclusion.

Trish McIntire, Identity Theft PIN

Peter Reilly, Tax Court Not Quick To Find Abuse In Innocent Spouse Case

TaxGrrrl, Lawmakers, Guns and Money: Where Do We Go After Sandy Hook?

Robert Goulder, Starbucks Pays More Tax Than It Owes (Tax.com). That’s silly.

It’s Wednesday, so it’s time for a fresh Buzz. Robert D. Flach obliges.

The world is saved from its most dangerous criminals. Quebec Police Arrest 3 in Maple Syrup Heist

Tags: Andrew Lundeen, David Brunori, Fiscal Cliff, Howard Gleckman, Janet Novack, John Boehner, Joseph Thorndike, Kay Bell, Paul Neiffer, Peter Reilly, Robert D Flach, Robert Goulder, Rudy Penner, TaxGrrrl, TaxProf, Trish McIntire, Victor Fleischer
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 12/12/12: Iowa income tax reform on hold? And Warren calls for more taxes on non-Warrens.

Wednesday, December 12th, 2012 by Joe Kristan

What’s missing here? Governor Branstad had an interview with the Associated Press about his plans for the coming legislative year. Topics covered include

- Property tax reform

- Education reform

- “Accepting” higher spending.

Anything missing? Not a word here about income tax reform. The governor had been talking about income tax reform in the runup to the elections, but hasn’t said much about it since. I’m getting the feeling that Iowa’s chilly business tax climate isn’t warming up anytime soon.

What the current model of the Iowa tax law would look like if it were a car.

They could have thought about that before they voted for it. From Byron York:

Sixteen Democratic senators who voted for the Affordable Care Act are asking that one of its fundraising mechanisms, a 2.3 percent tax on medical devices scheduled to take effect January 1, be delayed. Echoing arguments made by Republicans against Obamacare, the Democratic senators say the levy will cost jobs — in a statement Monday, Sen. Al Franken called it a “job-killing tax” — and also impair American competitiveness in the medical device field.

You mean taxes matter? Who knew? (via Instapundit)

Warren Buffett calls for another tax increase on people who aren’t Warren Buffett. From CNBC:

Warren Buffett isn’t limiting his call for higher taxes to a minimum rate for very rich Americans who get a large chunk of their income from investments.

He’s also one of several dozen wealthy people who have signed a statement calling for a “strong tax on the largest estates.” It’s been released by a group called “United For a Fair Economy.”

Like the income tax hikes he supports, this increase wouldn’t affect him, because he plans to leave his pile to the Bill and Melinda Gates Foundation, where it will escape estate tax. I’ll take him seriously if he calls for reducing or eliminating the estate tax charitable deduction. Going Concern has more.

Peter Reilly, Warren Buffett And George Soros Want Higher Estate Tax Than Obama Proposes

In Iowa he’d have to collect sales tax too. The Tax Court yesterday told a Houston patrolman learned that he was in independent contractor when performing security services off-duty. From the decision (citations omitted):

An employment relationship is indicated when the service recipient has the right to control the details and means by which the worker performs the services. In contrast, independent contractor status is indicated where the opposite is true. This factor is generally critical in determining the nature of a working relationship. Petitioners did not demonstrate that the third parties maintained the requisite right to control Mr. Specks in the performance of the security services.

Also, his ~~employers~~ clients didn’t withhold taxes from his payments. If there’s no withholding, that’s a strong clue that you are not an employee. Off-duty officers in Iowa are also expected to collect sales tax for their services. (Specks, T.C. Memo 2012-343)

Jack Townsend links to a study of plea agreements in federal criminal cases. While much of his post is of interest only to attorneys, this quote from the study should be read by anybody tempted to file a return (or not file) based on the idea that the income tax is unconstitutional (my emphasis):

These constitutional challenges do not work out well for defendants. Almost twenty years ago, the United States Supreme Court held that a considered, fundamental disagreement with the constitutionality of the tax laws does not represent a valid defense to a charge of tax evasion. Yet even with this guidance, many tax resisters remain unwilling to concede the point, and demand to take their cases to trial. One exasperated federal judge catalogued some of the “tired arguments” advanced by these defendants:

That defendants continue to press these arguments in court despite their nonexistent odds of success underscores how many parties simply do not behave as extrapolation from likely trial outcomes might predict.

There’s no point trying to convince tax protesters that they are wrong in theory. All you can point out is that their arguments never work when it matters.

Patrick Temple-West, Boehner tries to keep GOP ranks behind him, and more (Tax Break)

TaxGrrrl, Boehner, Obama Talks Heat Up But Still No Deal On Taxes, Spending

Jason Dinesen, What Couples in Same-Gender Marriages Should Be Doing, Tax-Wise, Before Supreme Court Ruling. I think it’s likely the court will require the IRS to recognize same-sex marriages, and Jason’s post is a must read for affected taxpayers.

Paul Neiffer, File Your Gift Tax Return. It gets the statute of limitations started.

David Brunori, Time To Get Rid of the Deduction for State And Local Taxes. (Tax.com) When the taxes arise from business income, like from S corporations and partnerships, I disagree. It any case, it should only come with rate reductions.

Brian Strahle, State Budgets and Taxes: What Will Happen in 2013?

Jim Maule, Ohio as Role Model for Tax Policy

Buzz time! It’s Wednesday somewhere, so Robert D. Flach has a new roundup of good tax stuff.

The Critical Question: Is your response to taxes genetic? (Kay Bell)

Tags: Branstad tax policy, Brian Strahle, David Brunori, Going Concern, Jack Townsend, Jason Dinesen, Judge Kroupa, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Robert D Flach, TaxGrrrl, The Critical Question, Warren Buffett
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Tax Roundup, 12/7/2012: You can’t soak the rich without soaking employers. And: Baby Insane Crips?

Friday, December 7th, 2012 by Joe Kristan

When you tax “the rich,” you tax business. That’s not going to help a struggling economy, but that’s where we’re going. The TaxProf reproduces a great Congressional Budget Office chart that shows how how business income has moved from corporate returns to individual returns, mostly through the use of “pass-through” entities like S corporations, partnerships and LLCs:

Remember when the IRS Commissioner said they are up against sophisticated criminals? Not so much, From the LA Times:

Authorities arrested 11 people and seized piles of cash, guns and vehicles Thursday following an investigation into an alleged $1-million tax fraud scheme operated by a Long Beach street gang.
Thursday’s arrests were the result of “tedious investigative work,” and targeted the Baby Insane Crips, as well as family members and acquaintances, according to Long Beach Police Chief Jim McDonnell. Gang members allegedly used stolen Social Security numbers and other personal information to file false tax returns and then funneled refunds to family members and acquaintances.

When the “Baby Insane Crips” can defeat your financial controls, your controls aren’t that good. Related: Russ Fox, Why Rob Banks?

Indictment of St. Louis CPA unsealed. The indictment of St. Louis-area CPA Frank “Tiger” Zerjav has been made public. Mr. Zerjav survived an IRS attempt to shut down his practice via civil injunction. This is much more serious, alleging the use of falsified Quickbooks files to conceal taxable income.

Bill Straub, 5 Ways The Fiscal Cliff Drama Could Play Out. (Via Instapundit)

Anthony Nitti, The Top Ten Tax Cases Of 2012, #4: S Corporation Reasonable Compensation – How Much Is Enough?. The much discussed Watson case.

Jack Townsend, Is Restitution a Criminal Penalty Requiring the Jury to Speak?

Patrick Temple-West, Some in GOP urge lawmakers to back tax hikes for changes in safety-net programs, and more

David Brunori, The Rich Will Pay for Our Sins. For now. But not forever; the rich guy isn’t buying. (Tax.com)

Christopher Bergin, Fool’s Gold and Loopholes:

There are no silver bullets that can fix the fiscal distress facing our nation. The fact that our politicians are trying to convince us to the contrary is not productive and shows that they are small leaders. Unfortunately for us, the chances that leaders who think small can solve big problems are not good.

It’s not about solving our problems, to them.

It would make putting up with the politicians easier, anyway. Dude, Should Marijuana Be Legalized and Taxed? (Howard Gleckman, TaxVox)

That makes it a better Friday: Robert D. Flach’s Buzz, SPECIAL FRIDAY EDITION

News you can use: The Simpsons’ Montgomery Burns explains (sorta) the fiscal cliff (Kay Bell)

Cruel and unusual punishment: Brazil Prison Gang Conducted 10-Hour Conference Call (Via Going Concern). Egads. I’d rather face thumbscrews.

If she were in Congress, I would believe it. Ex-Chelsea selectwoman accused of tax fraud claims she is illiterate. A novel tax evasion defense.

Tags: Anthony Nitti, Bill Straub, Christoper Bergin, David Brunori, Fiscal Cliff, Going Concern, Howard Gleckman, Instapundit, Jack Townsend, Kay Bell, Patrick Temple-West, Robert D Flach, tax crime, tax policy, TaxProf, Zerjav
Posted in Tax Roundup | 2 Comments »

Tax Roundup, 12/6/12: Putting the “net” in investment income. And Bar time! Well, Bar Association school time…

Thursday, December 6th, 2012 by Joe Kristan

I speak this afternoon at the Iowa Bar Association Bloethe Tax School. I will be talking about “Affordable Healthcare Act for Pass Through Entities” at 3:40. The newly-released proposed regulations on the 3.8% net investment income tax and the .9% Medicare tax will star. If any Tax Update readers are there, please say hello if you get a chance.

Putting the “Net” in the net investment income tax. The Obamacare 3.8% on ”net investment income” for higher income taxpayers has a strange feature that is highlighted in the newly-released proposed regulations. The tax applies the tax to ”Net” investment income to the extent it increases adjusted gross income — not taxable income — over $200,000 for single taxpayers or $250,000 for joint filers. “Investment Income” for this tax is a new combination of interest, rents, royalties, non-qualified annuities, capital gains and “passive” business income, as from K-1s.

So what does “net” mean? The proposed rules (Proposed Regs. 1.1411-4(f)) say that you reduce income by deductions “allocable” to the investment income. That includes Schedule A deductions for investment expenses, to the extent they exceed the 2% of AGI floor. It also includes state income taxes “allocable” to passive K-1 income and other ”investment” income (cites removed for clarity):

In the case of taxes that are deductible… and imposed on both gross income (including net gain)/..and gross income… the portion of the deduction that is properly allocable… may be determined by taxpayers using any reasonable method. For purposes of the prior sentence, an allocation of the deduction based on the ratio of the amount of a taxpayer’s gross income (subject to the tax) to the amount of the taxpayer’s (total) gross income… is an example of a reasonable method.

So even if a taxpayer gets no benefit from a deduction because of alternative minimum tax, it reduces net investment income. Nothing in the regulations incorporates AMT. As long as an itemized deduction is allowed for regular tax, then it reduces investment income. Taxpayers with AMT liability lose the benefit of their state income tax and miscellaneous deductions for most purposes, but not for this silly tax.

By the same token, if a deduction is disallowed for regular tax — by the 2% floor, the passive loss rules, etc. –it does not reduce net investment income. This makes the GOP proposal for a “cap” on itemized deductions that much worse.

Raise rates or limit deductions? Republican Senator Tom Coburn says that he prefers tax rate increases to the deduction cap proposed by some Republicans. From The Hill:

“Personally, I know we have to raise revenue; I don’t really care which way we do it,” Coburn said during an appearance on MSNBC. “Actually, I would rather see the rates go up than do it the other way, because it gives us greater chance to reform the tax code and broaden the base in the future.”

While I am a doubter of the “need” to raise revenue — we don’t need to do that if we would spend at not-insane levels — I agree that if you increase taxes, rate increases are the way to go. It keeps the pain simple and honest. The deduction cap would be much more disruptive to businesses, as owners of pass-through businesses would lose the deduction for much of their state income tax burden. It would greatly complicate tax planning and have unpredictable consequences for business owners, charities and the housing market. It would also be horrible to professional gamblers, whose below-the-line loss deductions would be capped, and to investors with substantial below-the-line investment interest expense. And all just to pretend there is no tax increase.

Of course I have no faith at all that a GOP compromise on tax rates will lead to serious concessions on spending. And the spending is the problem.

TaxGrrrl, Key GOP Senator Says Yes To Higher Tax Rates In Compromise

Robert D. Flach is not impressed by our leaders:

The continued unmoveable hard line on ”resolving” the “fiscal cliff” taken by the two sides is a clear indication that the idiots in Washington do not give a tinker’s damn about the American public.

He’s right. It’s never been about us. It’s about power.

Andrew Lundeen, Fiscal Cliff: Capital Gains and Dividend Tax Increases Pose Greatest Threat to Economy (Tax Policy Blog)

Patrick Temple-West, GOP in a difficult political spot in tax fight, and more (Tax Break)

Howard Gleckman, How to Cut the Charitable Deduction Without Reducing Giving (TaxVox)

David Brunori, Note to Everyone: Business Should Not Pay Sales Tax: (Tax.com)

Only bad things happen when businesses pay sales tax. First, the businesses paying the tax pass the burden on to their customers in the form of higher prices. But the tax is hidden. People do not know they are paying it. Politicians, and perhaps the New York Times, may like that lack of transparency, but it is awful government policy. Second, the higher priced products purchased by consumers are often subject to tax. This gives rise to a tax on a tax. That is awful tax policy. Finally, taxation of business inputs artificially keeps sales tax rates low. People think the sales tax rate is lower than it actually is. None of this is good.

It’s always best to not hide the taxes.

Cara Griffith, New York Times Article Misses the Mark on San Francisco Tax Exemption (Tax.com)

Kay Bell, Many companies paying dividends early; Be sure to plan for taxes on the income

Jana Luttenegger, Last Minute Charitable Gifts. (Davis Brown Tax Law Blog). If they cap itemized deductions, many folks will wish they had given more this year. This post has some good ideas.

Tax Trials, Tax Court: No Penalties for Son of Boss Participants

Trish McIntire, Education Credits Form Changes

I’m way ahead of the science. Science Says You Should Have Multiple Large Monitors. (Going Concern). Too much is almost enough.

My bare-bones workstation.

News you can use: Timesheet Wars: Non-Billable Codes Are Orwellian Busywork (Going Concern)

Tags: Andrew Lundeen, Cara Griffith, David Brunori, Going Concern, Howard Gleckman, Jana Luttenegger, Kay Bell, monitor mania, Net Investment Income Tax, Obamacare, Patrick Temple-West, Robert D Flach, tax policy, Tax Trials, TaxGrrrl, Tom Coburn, Trish McIntire
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Tax Roundup, 12/3/2012: Medicare 3.8% tax guidance issued. Meanwhile, to the cliff!

Monday, December 3rd, 2012 by Joe Kristan

The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday. I will do detailed posts on the in the coming days as I study them.

I’ll note two important items from my first overview of the proposed rules:

The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. ”Passive” business activities are subject to the the 3.8% tax. Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
The rules appear to allow you to pro-rate state income taxes in determining “net” investment income. That’s taxpayer-friendly, but it adds another level of complexity.

For an initial take on the rules, see Anthony Nitti at Forbes.

Related: Obamacare: it’s a tax!

David Brunori of Tax Analysts on the fiscal cliff discussion:

Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.

Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.

You can’t pay for mass welfare benefits with a class tax. The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required. The Rich Guy’s not buying.

Why the fiscal cliff is such a big fall. The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):

He adds:

And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.

Related: ‘Fiscal Cliff’ follies: Why it may pay to take deductions early. My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Nobody’s serious I: No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)

Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit

Iowa admits its capital gain forms were a mess. A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.

The taxpayer had excluded regular capital gains from a brokerage account on her tax return. Iowa properly rejected the deduction, but admitted her mistake was understandable:

Your position relies on the Department’s instructions for completing the tax return. We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above. In any event, the instructions are not controlling.

Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction. It’s a big improvement, but it should be better. There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.

The state examines every capital gain exclusion claim. Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.

NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness (TaxProf):

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

It’s a chump’s game, and we taxpayers are the unwilling chumps. These things are to economic growth what steroids are to long-term fitness.

When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up. A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS. They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment. From the Department of Justice Press Release:

Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.

No doubt it was of the best-quality. Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.

Doug Shulman is no longer IRS Commissioner, but his legacy remains:

ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report

Dayton Daily News, IRS says tax fraud attempts up 39 percent

Greg Mankiw, Some Advice on Tax Planning

Richard Morrison, The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

The Critical Question: Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)

Kay Bell: Time to spend down your medical flexible savings account (FSA)

Paul Neiffer, Senator Baucus Urges Extension of Current Estate Tax Laws

Jim Maule, Passing the Tax Responsibility Buck

Peter Reilly, Who Should Be Accelerating Income Into 2012?

Patrick Temple-West, Most Americans face lower tax burden than in 1980, and more (Tax Break)

Robert D. Flach, DAMNED IF THEY DO AND DAMNED IF THEY DON’T.

Tragedy: Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)

The Tax Update is also on Twitter (@joebwan) and Facebook!

Tags: Anthony Nitti, David Brunori, Ed Krayewski, Elaine Maag, Fiscal Cliff, greg mankiw, Iowa capital gain deduction, Iowa capital gain exclusion, Iowa tax administration, Kay Bell, Lindsay Lohan, maule, Patrick Temple-West, Paul Neiffer, Peter Reilly, Richard Morrison, Robert D Flach, Shulman, tax crime, TaxProf, The Critical Question, the rich guy's not buying
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 11/28/2012: Did you report that 1099-K income? Also: tax deductions and giving levels.

Wednesday, November 28th, 2012 by Joe Kristan

IRS starts data-mining the 1099-Ks. From Tax Analysts ($link):

A new IRS compliance program aimed at finding underreporting of gross receipts by taxpayers who receive Form 1099-K information returns from credit card companies or third-party transaction networks launches this week, a senior IRS official confirmed November 27.

Ruth Perez, deputy commissioner of the IRS Small Business/Self-Employed Division, told Tax Analysts that the first notices under the program will be sent out later in the week of November 26. “Our initial footprint in this area is going to be small while we learn,” she said, adding that the initiative will touch a variety of businesses of different sizes.

If prior matching programs are any guide, many of the notices will be incorrect, giving gray hairs to compliant taxpayers. Even so, it’s likely to smoke out some eBay entrepreneurs who haven’t bothered to report their income. If that sounds like you, now is a good time to get into compliance.

Learning From a Wrongful Criminal Tax Prosecution. Tax Analysts has made available to nonsubscribers a great piece by a New York attorney who defended a business owner from a baseless state tax prosecution that was later recanted by the district attorney. It’s the piece I mentioned earlier this week; kudos to Tax Analysts for making it more widely available. Sobering reading for practitioners and entrepreneurs.

Via the TaxProf, The Millionaires Who Pay the Highest Tax Rate:

The more your make, the more taxes you pay as a percentage of your income. According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4% in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8%, while those who made between $50,000 and $100,000 paid 7.7%. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits. Put another way, millionaires pay a rate that’s more than four times that of the middle class.

The millionaires pay a higher rate than Warren Buffett’s secretary, I’d wager.

Kay Bell, Would a limit on tax deductions mean less charitable giving? Of course it would. The only question is how much.

The guy quoted by Kay doesn’t think it would have a big impact. I think it would, especially for bigger gifts. We can’t know for sure, but a paper in the December 11 National Tax Journal estimates that capping the rate benefit of contributions at 12% would reduce individual giving by 5.8% to 14.2%. A hard deduction cap would reduce the tax benefits of large gifts much more drastically than the 12% credit.

Patrick Temple-West, On ‘fiscal cliff,’ both sides lay groundwork, and more

Wall Street Journal, Dividends Come Early to Avoid Fiscal Cliff:

Faced with a possible tax increase on dividends next year, boards are approving bigger payouts and cutting checks faster to avoid 2013 rates.

On Monday, retailer Dillard’s Inc. and casino operator Las Vegas Sands Corp. LVS -0.26% said they would pay new, one-time dividends next month. Dillard’s also broke with long practice to pay its regular fourth-quarter dividend in December after paying it in the new year for at least a decade.

Wal-Mart did the same thing last week. (Via Tax Break)

Jack Townsend, Daugerdas Denied Access to Funds Subject to Forfeiture. Mr. Daugerdas, whose conviction on tax charges was thrown out based on juror misconduct, says he needs the money to pay for his defense in his retrial.

Jason Dinesen, Are Donations to a 501(c)(4) Deductible? (No.)

Tax Trials, Tax Court: Legal Fees Not Deductible for Conduct of S Corp. Sole Shareholder. This is a great case that I plan to write up in the next few days.

Both? Education Foundation Or Estate Tax Dodge – Remains To Be Seen (Peter Reilly)

Jim Maule, Tithing and Taxing: What is (Gross) Income?

Andrew Mitchel, Summary of Form 8938 Filing Thresholds

Joseph Henchman, Connecticut Revenue Commissioner Admits that “Amazon” Tax Has Raised Zero Revenue

In other news, Wednesday ends with “y”: Another South Carolina Politician Guilty of Tax Charges (Russ Fox)

David Brunori, Fetal Craziness:

The recent craziness in Michigan illustrates all that is wrong with tax policy in America. A group of Republican lawmakers have proposed (HB 5684 and HB 5685) a tax credit for unborn fetuses of 12 weeks gestation. What is wrong with such a measure? Everything. First, Adam Smith, who I doubt was pro choice, said that the tax laws should be used to raise revenue. They should not be used to make political statements. Why do we know this is political statement? Because only a nincompoop would think the tax laws could be administered in such a manner.

I suspect the miscarriage rate would go through the roof, at least as reported on tax returns.

A 529 plan would have worked better: Attorney Disbarred For Submitting Falsified Tax Returns For Financial Aid (TaxGrrrl)

Tags: 1099-K, Andrew Mitchel, David Brunori, Fiscal Cliff, Jack Townsend, Jason Dinesen, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Paul Daugerdas, Peter Reilly, Russ Fox, Tax Trials, TaxGrrrl
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Tax Roundup, 10/3/2012: abbreviated edition

Wednesday, October 3rd, 2012 by Joe Kristan

Sorry, only links this morning:

Des Moines Register, Off-duty police officers dispute Iowa sales tax rationale

TaxProf, TPC: 90% of Americans Face Average $3,500 Tax Increase From Fiscal Cliff; Rich Face Largest Increase

Anthony Nitti,Supreme Court Declines to Hear Watson, A Critical Case on S Corporation Reasonable Compensation

Kay Bell, Rep. Wile E. Coyote, aka a cartoonish Congress teetering on the fiscal cliff edge

Jim Maule, Dependency, Government Spending, Tax Breaks, and Middle School

Jason Dinesen, Would a New Name Help Enrolled Agents?

Phil Hodgen, Property Transfers Between Spouses: Gift Tax

TaxGrrrl, Investigation Into Bank Bailout Fraud Leads to Tax Charges

Richard Morrison, Chart of the Day: Number and Percentage of Nonpayers Has Reached Record Levels (Tax Policy Blog)

David Brunori, Hawaii’s Solar Power Cronyism (Tax.com)

Howard Gleckman, Will Going Over the Fiscal Cliff Make a Budget Deal Possible? (TaxVox)

It’s Wednesday, the day you can catch the Buzz at Robert D. Flach’s place

Tags: Anthony Nitti, David Brunori, Howard Gleckman, Jason Dinesen, Kay Bell, maule, Phil Hodgen, Richard Morrison, Robert D Flach, TaxGrrrl, TaxProf
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Tax Roundup, 9/24/2012: Mitt files! And USA bucks trend of lower corporate rates.

Monday, September 24th, 2012 by Joe Kristan

Mitt Romney filed his extended return on Friday. In addition to remininding us laggards that the extension season will end three weeks from today, it shows us that the Republican nominee has a lot of money. Who knew?

The strangest item may the candidate’s voluntary walking away from a charitable contribution deduction. He did that to ensure the “effective rate” on his adjusted gross income was at least 13%. Of course, he has three years to change his mind and amend his return.

The return has one thing in common with the Obama 1040s: self-employment income. While the Obamas began taking retirement plan contributions based on that income, perhaps because they secretly read the Tax Update, the Romneys do not. They could still set up a SEP plan, amend their returns, and take a 2011 deduction against his director fee income. They may be too busy for that right now, but if you have an extended return with self-employment income, it’s not too late for you!

The campaign also issued a letter from PWC summarizing his taxes over the past 20 years, debunking the foolish innuendo that Harry Reid peddled that Romney had zero-tax years.

The TaxProf has a Romney return roundup. More coverage:

Going Concern: Mitt Romney’s 2011 Tax Returns Reveal He’s the Richest Unemployed Dude You’ve Ever Seen and Footnotes: Romney Tax Returns, Romney Tax Returns and Romney Tax Returns.

Kay Bell, Romney will file an amended 2011 tax return on Nov. 7 … if he loses

Anthony Nitti, Reactions to Romney’s 2011 Tax Return and Romney Forgoes Full Charity Tax Break for 13% 2011 Rate

Janet Novack, On 2011 Federal Income Tax Return, The Romneys Decide Horse Losses Are Personal and Romney Paid At 14% Federal Tax Rate In 2011, Pegs 20 Year Average At 20%

Peter Reilly, Romney Accountant’s Letter – Exercise In Obfuscation ? and Mitt Romney Passing On Nearly Two Million In Charity – Stupidest Thing I Ever Heard

Robert D. Flach, WHOOP-DE-DOO! ROMNEY RELEASED HIS 2011 RETURN!

Meanwhile, in news that matters: Sweden to Lower their Corporate Rate to 22 Percent, 18 Points below Ours (William McBride, Tax Policy Blog).

More coverage of the Iowa guy who filed as a South Dakota resident: Linda Beale, Tax Home–where the heart is, but not necessarily where the taxes are lowest and Russ Fox, Home Is Where the Family Is.

Jack Townsend, Restitution in Tax Cases

Jason Dinesen, “Consumer Reports” Highlights Identity Theft

Jim Maule, Raising the Tax Shame Noise Level

Nanette Byrnes, Essential reading: GOP retreat on taxes likely if Obama wins, and more

Martin Sullivan, The Critical Question. “If the Obama wins, will the Republicans comrpomise or double down?” Maybe we should ask the Ben Bernanke.

Russ Fox, Las Vegas Attorney Accused of Tax Evasion and Structuring

And it wouldn’t be a weekend without a new Buzz from Robert D. Flach.

Quote of the day:

Wind energy tax credits, like all government-sponsored tax incentives, don’t work. They violate every principle of sound tax policy. The wind tax incentives place the risks on the public and promise the rewards to a chosen few. As the insurance company ad said, even a caveman could see that. Nevertheless, there is a bipartisan crescendo building to ensure the wind energy suppliers continue to receive their credits. (David Brunori, Tax Analysts (subscriber link))

Tags: Anthony Nitti, David Brunori, Going Concern, Janet Novack, Jason Dinesen, Jim Maule, Kay Bell, Linda Beale, Martin Sullivan, Mitt Romney, Nanette Byrnes, Peter Reilly, Robert D Flach, Russ Fox, TaxGrrrl
Posted in Tax Roundup | No Comments »

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

Monday, September 10th, 2012 by Joe Kristan

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

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

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

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

The Third Circuit appeals court upheld the Tax Court:

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

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

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

Paul Neiffer, Section 179 for 2013:

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

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

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

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

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

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

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

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

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

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

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

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

Dang. Summer is gone (Daniel Shaviro)

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

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

Tags: Anthony Nitti, corporate welfare, Daniel Shaviro, David Brunori, economic development, Going Concern, Jack Townsend, Joseph Henchman, Kay Bell, Mitt Romney, Paul Neiffer, Peter Reilly, tax crime, TaxGrrrl, Walter Andersonn
Posted in Tax Roundup, Walt | No Comments »

Tax Roundup, 9/4/2012: Kidney edition. Also: stopping refund theft, and more!

Tuesday, September 4th, 2012 by Joe Kristan

Kidney dialysis patient. Photo via Wikipedia Commons.

Dying for a kidney: the limits of tax incentives. A new study in the American Journal of Transplantation says that state tax breaks for live organ donations haven’t increased donation rates. NPR reports:

Seventeen states offer tax incentives to people who donate a kidney, a portion of their liver or bone marrow for transplantation. But a study finds these sweeteners aren’t working.

Researchers looked at what happened in the years before and after these tax incentives were passed and found no increase in organ donation rates.

Why don’t organ donation tax breaks work? NPR approaches the obvious reason:

Typically states offer a deduction of up to $10,000 from taxable income. For a typical family that translates to less than $1,000 in reduced taxes. But the financial burden for a living kidney donor can range from $907 to $3,089, according to one study.

The shortage of donor kidneys kills thousands of patients annually, and many who do finally receive donor organs have to spend years on debilitating and expensive dialysis first. The tax incentives are a well-intentioned workaround to the real problem, mentioned in passing by NPR:

By federal statute, it’s illegal to pay someone for the organ itself.

Thanks largely to Al Gore, it is a serious crime to attempt to save your life by buying a kidney from a willing seller. Under federal law, it’s legal to save somebody’s life by giving them your kidney, fully accepting the inherent medical risks, but it is illegal to be compensated for those risks by the donor. Somewhere there is a market-clearing price that would match donors with the 4,000 or so people who die annually waiting for kidneys. Until and unless the tax benefits of kidney donation reach that price — and the lack of a market makes it impossible to know what that price is — the tax breaks will be a mere gesture, rather than any kind of solution.

(Disclosure: I served for several years on the board of the Iowa Donor Network, the “OPO” organization that oversees organ donation and distribution in Iowa. I am not currently on the board, and I don’t speak for them in any way. Sally Satel powerfully makes the case for compensated donation here.)

Related: A Kidney For A Tax Break? (TaxGrrrl)

How can Congress stop giving billions annually to thieves? At the Tax Policy Blog will Freeland explains the basics:

IRS’s National Taxpayer Advocate found that tax code complexity is a contributing factor to the estimated $10 billion to $12 billion in fraudulent or erroneous overpayments made to those claiming the refundable earned income tax credit in 2006. Rather than invest in a costly system of fraud reduction, these social assistance payments could be administered with more oversight by the Social Security Administration or State public assistance offices—agencies that already have such fraud reduction systems in place.

The purpose of taxes should be to fund the necessary functions of government, not to incentivize behavior or pay out social assistance. A simpler tax code that focuses on this core purpose will reduce fraud, in addition to lowering compliance costs and removing economic inefficiencies.

Unfortunately, politicians don’t mind wasting billions of your dollars on thieves while preening their concern for the downtrodden.

Quote of the day. David Brunori speaks wisely (subscriber link):

Legislative auditors in New Mexico discovered that the state, through its economic development incentives, is spending $31,000 for every job created. The problem is that the jobs purported to have been created pay on average $41,000 a year. What’s more, the legislative staff found that the state did a pretty lousy job of evaluating the incentive programs.

The head of the Economic Development Department blasted the auditors, calling their assessment wildly inaccurate. I, too, am skeptical of the numbers, but for different reasons. I don’t believe the state is providing any incentive for job creation. Businesses create jobs when they think they’ll get a return on the investment. Although it’s impossible to be sure, I believe that most of those jobs would have been created anyway.

The legislative auditors called for some good government changes to the incentive programs. For example, the audit report calls for more public disclosure, sunset provisions, and clawbacks. Those are all good policies, of course. But what someone should recommend is that New Mexico stop giving tax dollars to private companies.

That’s just as true in Iowa, whether the tax breaks go to movies, fields of dreams, or windmills.

Patrick Temple-West, Essential reading: Candidates split over tax credit for wind energy, and more (Tax Break)

TaxProf, WaPo: Mitt Romney Exited Bain Capital With Rare Tax Benefits in Retirement

Russ Fox, Joseph Pleads Guilty. Fortunately it was some other Joseph.

Jack Townsend, IRS Data-Mining Program re Offshore Accounts; with a Diversion to the Real Golden Rule

William Perez has some tips for Finishing up 2011 Tax Returns for the October 15th Deadline. Remember, non-1040 extended returns are due September 15.

Kay Bell offers Tax Carnival #106: Labor Day 2012,

We had a long weekend — but you can still catch a Buzz from Robert D. Flach!

Jim Maule, Tax Labor

It’s a blog, not the 1040 instructions: Please Do Not Prepare Your Tax Return Based on Anything You Read Here (Anthony Nitti)

It was declared out of order by the rules committee? What Happened to Tax Reform at Mitt Romney’s Convention? (Howard Gleckman)

That clears things up: Google Plays Bess Truman To Jill Stein As Harry (Peter Reilly)

That’s kind of personal. Are You “Whipped”? (Brian Strahle)

Tags: Anthony Nitti, Brian Strahle, corporate welfare, David Brunori, economic development, Howard Gleckman, Jack Townsend, Kay Bell, Patrick Temple-West, Peter Reilly, Robert D Flach, Russ Fox, Sally Satel, TaxGrrrl, William Perez
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 8/17/2012: Politicians, thieves — but I repeat myself

Friday, August 17th, 2012 by Joe Kristan

Compared to what? The TaxProf covers a spat between the Tax Policy Center and the Wall Street Journal. TPC says that Mitt Romney’s tax plan would require tax increases to the middle and lower classes. The Wall Street Journal argues that it doesn’t have to.

When almost half of taxpayers don’t pay income tax, and the top 1 percent of taxpayers paying more federal taxes than the bottom 90 percent, it wouldn’t be surprising if any given tax reform plan shifted some of the burden to lower incomes. But if spending isn’t cut by a lot in the next few years, that’s going to happen anyway. Why? Because the “rich” simply don’t have enough income to pay the bill.

While you can defer the tax increases for awhile by borrowing, eventually that will get cut off. Then you have to pay the bill. Taking even 100% of the income of “the rich” doesn’t cover the annual budget deficit — without starting to work down the $14 trillion national debt. The only way to pay that sort of bill is to dramatically increase taxes on everybody, like they do in Europe. The rich guy isn’t buying. So the question isn’t just whether Romney will increase taxes on the “non-rich.” It’s also whether he will do so less than the alternative.

So much for the “honor among thieves” thing. Gino Carlucci, an Arizona man, could have a tough time finding a joint venture partner. Mr. Carlucci was sentenced to 188 months in federal prison this week for charges, including tax charges, arising out of a scheme where he defrauded and double-crossed another fraudster. The Department of Justice press release tells this story:

According to the evidence presented at trial, Carlucci and his co-defendant, Wayne Mounts, stole large sums of money and assets from Joseph Flickinger, a tax return preparer in Ohio who had himself defrauded multiple clients of their life savings in a fraudulent investment scheme. Flickinger pleaded guilty to federal charges in a separate case and was sentenced to 70 months in prison. After defrauding Flickinger of the money, Carlucci and Mounts devised a scheme to have Flickinger arrested by federal officials, and then used the money for their own personal benefit.

I don’t suppose Mr. Carlucci remains on Mr. Flickinger’s Christmas card list.

In addition to money, Carlucci and Mounts defrauded Flickinger out of several high-end vehicles and a condo near Lake Erie, Ohio, which they quickly sold for $210,000. Carlucci had some of the funds transferred into bank accounts held in the name of his wife and father-in-law. Carlucci’s wife and Mounts withdrew more than $300,000 in cash over several months in increments of $10,000 or less so that they could avoid having the bank report their withdrawals to authorities. Carlucci and Mounts spent an additional $150,000 of the funds to buy a 43-foot luxury boat whose existence Carlucci concealed from the government for over two years.

Unfortunately the press release doesn’t tell us how Mr. Carlucci got caught. I suspect the cash withdrawals had something to do with it.

Kay Bell, Romney-Ryan tax plan details to be revealed after the election.

Peter Reilly, 13% Of What Mr. Romney ?

David Brunori, Shame on Companies Who Use the Tax Laws To Stifle Competition. When a state government develops a nicotine addiction, it goes out of its way to help its pushers.

Anthony Nitti, Wells Fargo Denied Deduction in District Court, Immediately Raises All ATM Fees to $17 to Make Up Difference* (but follow the asterisk)

TaxGrrrl, IRS Offers Tool to Help Students With Financial Aid. It automatically fills out part of the FAFSA form.

Leaving Saly. From Going Concern, “Same As Last Year” and Inept Senior Auditors Are Failures of the Audit Industry.

Credentials aren’t everything. Just ask the CPA/former IRS agent who had a bad day in Tax Court yesterday. Russ Fox has the scoop.

Tags: Anthony Nitti, David Brunori, Going Concern, Kay Bell, Mitt Romney, Peter Reilly, Russ Fox, tax crime, TaxGrrrl, the rich guy's not buying
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 8/13/2012: Let the film credit revisionism begin! Also: a study in retirement planning.

Monday, August 13th, 2012 by Joe Kristan

Still Star-struck in Iowa. Even after Iowa’s embarrassing and disastrous film tax credit fiasco, there are still people who think it’s a nifty idea for taxpayers to subsidize Hollywood, reports the Quad City Times. Take Kent Newman, described as “a former board member with the Iowa Motion Picture Association who does production work in the Des Moines area and remains connected with various aspects of the film business.”:

Newman said there were many positive aspects from the film tax credit program that included considerable training for young people interested in working in the entertainment industry and several projects that successfully used the tax incentives to complete high-quality productions. However, when the incentive program was suspended in 2009 many projects and people moved to Michigan, Louisiana and other places where there were jobs being offered.

An interesting observation. Iowa spent $32 million, of which $28 million was pretty much pure waste and/or fraud, based on the state auditor’s report on the film program. For that we trained people who moved away. Success!

Newman said in the current environment that “unless and until Iowa has some level of a competitive incentive program that is well managed, we’re never going to have very much production happening here.”

He said he was hopeful local communities would fill in that void by offering to waive the first month of hotel-motel tax for production crews or other incentives that could entice film projects in the range of $3 million to $10 million that would headquarter in an Iowa city where they would be a short distance from rural locales that would be prime destinations for a film shoot.

In other words, unless we pay Hollywood to be our friends, they won’t like us. Unless every business and employee who is already paying taxes here working for unsubsidized businesses ponies up tax money to bribe the filmmakers to come here, they won’t come here.

If Hollywood wants to make movies here with their own money or money from private investors, fine. We should have a business environment that is welcoming to in-state and out-of-state entrepreneurs. Then you don’t need “incentives” in the first place.

It doesn’t make sense to bribe other businesses either. Some wisdom on Tax Policy from David Brunori ($ link):

As first reported in the Las Vegas Sun, Nevada’s decision to grant Apple $89 million in tax breaks was made by one man. The decision rested with Steve Hill, the state economic development director. Where would one unelected bureaucrat get the power to hand over $89 million to a corporation that has a market capitalization of over $500 billion? Why would Nevada give a dime to a corporation that has revenue of over $110 billion and profit of $26 billion?

In a society that has laws against everything, you’d think there would be some prohibition against handing over public money to fabulously successful private enterprises. Nevada politicians claim that Apple will hire 35 (yes, 35!) employees. Apple will also invest $2 billion over the next 30 years. But the truth is that Apple would have invested in Nevada even without the tax breaks. That’s almost always the case when states give incentives to individual businesses.

And don’t get me started on wind tax credits.

Sure they’re humble now. Humble church founders convicted of tax fraud. (Chron.com).

Assisted living would have been cheaper. A user of the absurd “1099-OID” tax refund scheme faces expensive but substandard retirement living, according to a Department of Justice Press release:

Richard Kellogg Armstrong, 77, of Prescott, Ariz., was sentenced today by U.S. District Court Judge Robert E. Blackburn to 108 months in prison followed by three years of supervised release. Judge Blackburn ordered the sentence to run consecutively to the 660 day prison term and $1,021,500 of fines cumulatively imposed upon Armstrong as punitive sanctions for 10 acts of contempt of court. He also ordered Armstrong to pay restitution to the Internal Revenue Service (IRS) in the amount of $1,678,834 and to forfeit two residences and a personal aircraft.

He gets to start over when he’s 86. That’ll be fun.

The 1099-OID scheme claims that one way or another the government has a bunch of money for you that you can claim by dummying-up a 1099-OID showing withholding for you. Wikipedia covers it here. You can see an item advocating it here, but good luck trying to make any sense of it.

Jim Maule watches People’s Court and ponders tax and other implications.

Jana Luttenegger, Taxing Gold Meals (Davis Brown Tax Law Blog)

It’s Romney-Ryan,and the tax bloggers are on it:

Kay Bell, Don’t look for GOP vice presidential nominee Paul Ryan’s tax returns either

TaxGrrrl, Romney, Ryan and Reagan: The Winning Team?

Anthony Nitti, What Does Paul Ryan Mean For Potential Tax Reform?

Tax Break, Essential reading: Attack targets Romney’s role in Marriott tax deals, and more

Peter Reilly: Son Of Boss – Don’t Blame Romney Blame His Tax Pros

Robert D. Flach keeps Buzzing his roundups of tax blog posts from his new Pennsylvania lair.

Finally, Russ Fox tells us that the Accountant Who Solicited Hit Man Pleads Guilty:

Back in March I reported on Steven Martinez. Mr. Martinez is a tax preparer who faced charges of stealing $11 million from clients. He decided that the best strategy to fight this charge wasn’t hiring a good attorney, nor was it trying to disprove the charges; rather, he decided to hire a hit man to kill four witnesses. (One reason he didn’t try to disprove the charges is that they were true; Mr. Martinez has admitted he took the $11 million and used it to buy a home in Mexico and other personal expenses.)

The only saving grace about criminals is that their stupid usually undoes their evil.

Tags: corporate welfare, David Brunori, economic development, harold hill, Jana Luttenegger, Kay Bell, Kent Newman, maule, Robert D Flach, Russ Fox, State Auditor film credit report, tax crime, tax protesters, TaxGrrrl
Posted in Tax Roundup | No Comments »

Tax Roundup, 7/25/2012: Thrifty thief sentenced; trashy trusts; fleeing France

Wednesday, July 25th, 2012 by Joe Kristan

Thrifty thief gets 5 1/2 years. The woman who got a fraudulent $2.1 million tax refund from Oregon and who subsequently went on the thriftiest spending spree ever was sentenced yesterday to 5 1/2 years behind bars. From the Huffington Post:

Before her June 6 arrest, Reyes’ spending spree included about $1,800 in cash to buy a 1999 Dodge Caravan and spending $851 on tires and wheels.

She did allow herself a few little luxuries, too:

The affidavit says other purchases included a queen-sized air mattress, a deep fryer, an air conditioner and a cream and gray floral rug. She bought a sofa and recliner with brown leather trim.

Sadly, she was more careful with the money than the state was:

The return was set aside for review by processing staff and managers for potential fraud. But “some time later,” the affidavit said, a Revenue employee overrode the flagged payment and the refund was issued.

By policy, three agency employees are required to verify the override, the newspaper said. However, according to the affidavit, no one responsible for reviewing the return opened the file to look at it or looked at the W-2 form Reyes filed.

Call me when the state fills out its vehicle fleet with 12-year old used cars.

In Sod We Trust. From ArgusLeader.com:

The owner of a Sioux Falls sod business ducked taxes for almost 10 years before investigators caught on to the trust fund scheme he had used to evade capture, federal prosecutors said.

Jerome Adrian, 70, was arrested and appeared Friday in U.S. District Court in South Dakota on one count of conspiracy to defraud the United States, 12 counts of willful failure to collect or pay over tax, two counts of evasion of payment, five counts of tax evasion, four counts of willful failure to file tax returns, and one count of false tax refund.

Bogus trusts are an IRS ”Dirty Dozen” tax scam. They don’t work, though they might seem like they do until you get caught. Russ Fox has more.

Congress is pretending to address Taxmageddon, the expiration of the Bush-Obama era tax cuts at the end of the year. Coverage includes Anthony Nitti’s Republicans Propose Their Own Way of Dealing With the Bush Tax Cuts, Kay Bell’s Republican definition of ‘temporary’ tax breaks depends on your income bracket, and Howard Gleckman’s Senate Democrats Would Keep Dividend Taxes Low, But Why?

“Tax Fairness” advocates, like the President and Citizens for Tax Justice, seem to think that there can never be bad consequences for jacking up taxes on “the rich.” France is about to give a lab test on such ideas, including a 75% rate on income exceeding €1 million. Veronique de Rugy, a newly-naturalized U.S. citizen who got out of France while the getting was good, explains the Consequences of High Taxes: French Edition.

Surprise! IRS Audits of S Corporation Returns: No-Change Rate Remains High, TIGTA Finds. But there has to be a pony in there somewhere.

The Iowa Department of Revenue has issued its summary of 2012 lowa tax law changes.

I hate to disagree with anything in Peter Reilly’s space, but I can’t abide the notion that it is the fault of the taxpayers and their advisors that the IRS is valuing at $65 million an artwork that cannot legally be sold. The artwork contains an American Eagle, the sale of which is subject to severe penalties. But read “‘Canyon’ Controversy – Blame The Advisers Not The IRS,” a guest piece in Peter’s space by Matthew Erskine, and decide for yourself.

Robert D. Flach has a new “Buzz” roundup of tax news.

Jason Dinesen: Same-Sex Marriage, Community Property, and Self-Employment Earnings

Jim Maule concludes a riveting 14-part series on the idea of having the IRS prepare returns for individuals using third party information reporting.

Where to start? What is Wrong with the Press? (David Brunori,Tax.com).

Tags: Anthony Nitti, David Brunori, France, Howard Gleckman, Jason Dinesen, Jim Maule, Kay Bell, Peter Reilly, Robert D Flach, Russ Fox, scams, tax crime, trusts, Veronique De Rugy
Posted in Iowa Tax Law, Tax Roundup | 5 Comments »

Tax Roundup, 7/12/2012: S corporation distributions aren’t fraudulent conveyance. Also: why Amazon will pay sales taxes; Daffy Chuck

Thursday, July 12th, 2012 by Joe Kristan

Bankruptcy court rules that S corporation payment of shareholder taxes not a fraudulent conveyance. S corporations don’t pay taxes; their income is taxed on shareholder returns. Shareholders rely on distributions from the corporations to enable them to pay the taxes.

A Virginia S corporation paid shareholder taxes attributable to the S election, and not long afterwards ended up in bankruptcy. The bankruptcy trustee sued to recover the the taxes from IRS, saying they were “fraudulent conveyances” made without consideration.

Fortunately, the bankruptcy judge was sensible:

Broadly stated, “as long as the unsecured creditors are no worse off because the debtor, and consequently the estate, has received an amount reasonably equivalent to what it paid, no fraudulent transfer has occurred.”

…

In this instance, it is clear that there is a benefit derived by the corporation from this arrangement. The summary judgment record shows a taxable income of $1,559,954, which was passed through to the shareholders. The IRS calculated the tax that would have been paid by the corporation had it been a chapter C corporation and not a chapter S corporation. The benefit to the corporation of the election was significant.

It would be a planning nightmare if taxpayers who thought they had paid their taxes had them pulled back from the IRS in bankruptcy. Cite: In Re Kenrob Information Technology Solutions, Inc., Bankruptcy Court, ED-VA

Will the push to make Amazon pay local sales taxes destroy local retail? Slate reports:

In response to pressure from local businesses, many states have passed laws that aim to force Amazon to collect sales taxes (the laws do so by broadening what it means for a company to have a physical presence in the state)… But suddenly, Amazon has stopped fighting the sales-tax war.

Why?

Now that it has agreed to collect sales taxes, the company can legally set up warehouses right inside some of the largest metropolitan areas in the nation. Why would it want to do that? Because Amazon’s new goal is to get stuff to you immediately—as soon as a few hours after you hit Buy… It’s hard to overstate how thoroughly this move will shake up the retail industry.

Be careful what you lobby for. (Via Megan McArdle’s twitter feed)

Roger McEowen: Court Says IRS Position Wrong on Tax Impact of Insurance Company Demutualization. But as we noted yesterday, it didn’t care for the taxpayer’s position either.

Anthony Nitti also weighs in with District Court Refuses to Apply Open Transaction Doctrine to Insurance Company Demutualization

Kay Bell, Home sale profits usually don’t create any tax bills for residential sellers

David Brunori: Free the Puppies, Tax a Millionaire (Tax.com)

In Defense of Lindsey Graham—and (Legal) Tax Evasion (David A. Graham, The Atlandtic)

Really? Fight Over Tax Rates Is Meaningless, Really (TaxGrrrl)

Jason Dinesen allitetively addresses Deducing Whether Deductibles are Deductible

Because it’s the biggest issue facing the country, right? Essential reading: Attacks on Romney for offshore assets, taxes heat up, and more (Nanette Byrnes)

News you can use: Julian Block Explains How To Save Taxes While Being Kind To Animals (Peter Reilly)

Schumer would know despicable. From Phil Hodgen:

I was interviewed today for the NBC Nightly News. They did a story about expatriation (focusing on Denise Rich). The best feature — Charles “Despicable” Schumer’s usual ad hominem attacks. He labels people who expatriate of being “despicable” (watch the video). Senator Schumer’s remark so reminded me of Daffy Duck. (YouTube).

How dare the jaywalkers not stand still while we shoot at them!

Tags: Amazon, Anthony Nitti, David A. Graham, David Brunori, Jason Dinesen, Kay Bell, Peter Reilly, Phil Hodgen, Roger McEowen, S corporations, TaxGrrrl
Posted in Tax Roundup | No Comments »

Tax Roundup, June 28, 2012: Obamacare Judgement Day and other masterminded schemes

Thursday, June 28th, 2012 by Joe Kristan

Flickr image courtesy Evil Erin under Creative Commons license.

Haven’t filed your FBAR Form TD F 90.22-1 for foreign financial accounts? File it now! It’s due June 30.

Today is Judgement Day for the Supreme Court decision on the Affordable Care Act, AKA Obamacare. Key tax-related provisions on the line:

- A .9% surtax on single taxpayer wages over $200,000 and joint wages over $250,000, effective in 2013.

- A 3.8 % surtax on “unearned” income – interest, dividends, capital gains and “passive” income from pass-through business activities, when AGI exceeds $200,000 for single filers and $250,000 for joint filers, effective in 2013.

- A $2,500 limit in flexible spending account contributions, effective in 2013

- Increase in the AGI floor for medical deductions starting in 2013 from 7.5% of AGI to 10%. The increase will be deferred through 2016 for taxpayers over age 65.

- The IRS-enforced penalties for failure to buy health insurance, effective in 2014.

Of course, the 10% tax on tanning booths has been in effect for some time. We will post on the decision later today.

Why are capital gains taxed at a lower rate? The Tax Policy Blog has a post appropriately-titled “Why Capital Gains are taxed at a Lower Rate.”

First, the tax is not adjusted for inflation, so any appreciation of assets is taxed at the nominal instead of the real value. This means investors must pay tax not only on the real return but also on the inflation created by the Federal Reserve.

Second, the capital gains tax is merely part of a long line of federal taxation of the same dollar of income. Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains. This puts corporations at a disadvantage relative to pass through business entities, whose owners pay personal income tax on distributed profits, instead of taxes on corporate income, capital gains, and dividends. One way corporations mitigate this excessive taxation is through debt rather than equity financing, since interest is deductible. This creates perverse incentives to over leverage, contributing to the boom and bust cycle.

Finally, a capital gains tax, like nearly all of the federal tax code, is a tax on future consumption. Future personal consumption, in the form of savings, is taxed, while present consumption is not. By favoring present over future consumption, savings are discouraged, which decreases future available capital and lowers long term growth.

The capital gain rate is the biggest reason why the highest-income taxpayers have a lower effective rate. The reason their income is high is usually becuase they have a once-in-a-lifetime windfall from the sale of a business or asset. It is the biggest reason used for the push for the inane “Buffett rule.” As the Tax Policy Blog post points out, though, the U.S. already has one of the highest effective tax rates on capital gains amoung the major economies, behind only Italy, Denmark and France.

Tax Court Denies Charitable Deduction for Home Demolished by Fire Department in Training Exercise (TaxProf) The Tax Court once again held that allowing a fire department to burn down a home is not the same thing as giving a home to the fire department. The right to burn a building is a very different thing than full ownership of the building. The decision should be no surprise, as we discussed back in February. More from Anthony Nitti.

Why you should use the EFTPS program to monitor your payroll tax deposits online, even if you outsource your payroll function: Operator of Payroll Companies Charged in North Carolina with Federal Fraud and Money Laundering Crimes. If your payroll service steals money you set aside for payroll taxes, the IRS still wants you to pay up.

Tennessee to bribe Hollywood to shoot a movie about Nashville in Nashville (David Brunori).

TaxGrrrl: Another Tax Break Grinding, Er, Whimpering to a Halt

Peter Reilly: Will IRS Whistleblower Program Start Picking Up Steam ?

Jason Dinesen, Planning for Alternative Minimum Tax in 2012. If Congress doesn’t re-enact the “AMT Patch,” you might have an $8000 or so tax increase due in April.

Watching the watchdogs: Tax Court Finds IRS Compliance Officer Liable for Civil Fraud Penalty (Jack Townsend). She claimed deductions that the court decided were bogus.

Kay Bell: Kids, summer jobs and taxes

Is it right to call somebody who organizes a really stupid crime a “mastermind?” From Kansascity.com:

A California man pleaded guilty Tuesday to a tax fraud scheme that federal prosecutors allege was masterminded by a Kansas City man.

The plea of John V. Perdido of Temecula, Calif., is the second among 14 defendants in the alleged conspiracy to receive nearly $100 million in fraudulent refunds from the Internal Revenue Service. Perdido received a refund of $805,749 and spent more than half of it on property and a car in the Philippines among other things.

The alleged conspirators filed for big federal refunds based on the idea that we all have huge amounts of cash on deposit with the federal government in our names, which we can tap if we file the right tax forms. Another Professor Moriarty, that mastermind.

Tags: ACA, corporate welfare, David Brunori, economic development, EFTPS, FBAR, Jack Townsend, Jason Dinesen, Kay Bell, masterminds, Obamacare, Peter Reilly, tax court, Tax Policy Blog, TaxGrrrl, TaxProf
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The preparer regulation power grab, explained

Wednesday, March 28th, 2012 by Joe Kristan

David Brunori unleashes righteous anger on the IRS preparer regulation power grab in a wonderful Tax Analyists piece — one that is, unfortunately, only available right now to Tax Analysts subscribers (Update, 4/4/12: Tax Analysts has made the post available here.). A taste:

IRS Commissioner Douglas Shulman praised the regulations when they were first proposed, saying they would “help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system.” Really? The irony of the IRS wanting to ensure preparer competency is palpable. The Service is notorious for handing out incorrect information to ordinary citizens who call for help. Millions of Americans rely on IRS advice at their peril, yet the agency is worried about the competency of the preparers?

He correctly identifies the real forces behind the rules:

H&R Block and Jackson Hewitt were tripping over themselves in support of the regulations. They know that onerous regulations will impose a cost on paid preparers, particularly individuals. That cost will force many preparers out of business. The big preparer companies cannot wait to get their hands on the millions of Americans who will be looking for tax help. Even more outrageous is the fact that H&R Block and other big companies will be exempt from some of the regulations. If a preparer is supervised by a lawyer or CPA, he is deemed both ethical and competent (although he still must register for a preparer tax identification number). So H&R Block and Jackson Hewitt not only escape the burdens of the regulations, but their direct competitors will be put out of business.

And, of course, it required high-placed wire pulling:

The Podesta Group, led by former Obama administration official Tony Podesta, was lobbying for the regulations on behalf of H&R Block. That is the way Washington works.

Meanwhile, 2 million returns are not being processed because electronic filing identity theft is completely out of control this year. Software “glitches” have bogged down the processing of the honest returns that do come through. But at least the IRS is issuing preparer ID numbers.

Preparer regulation: justified by its ‘mere existence’?

Preparer regulation: prepare for a mess.

Tags: David Brunori, prepaers, preparer regulation, Shulman, tax administration
Posted in Uncategorized | 2 Comments »

How could I disagree with this?

Tuesday, February 14th, 2012 by Joe Kristan

David Brunori at Tax.com (my emphasis):

My friends at Roth & Company

Tags: David Brunori, egomania
Posted in Uncategorized | 2 Comments »

Is there such a thing as a libertarian income tax?

Tuesday, January 17th, 2012 by Joe Kristan

I’m a fan of libertarian-ish tax and spending policies, but I suppose that many movement libertarians think anyone who does income taxes for a living isn’t sincere. It’s a very long way from here to a libertarian tax policy — which would spend a lot less on a much smaller government. But if you can make changes at the margin, what sort of changes should libertarians get behind?
David Brunori — no libertarian himself — has some thoughts (unfortunately only available to Tax Analysts subscribers for now):

The current Libertarian Party platform simply calls for the abolition of the income tax and elimination of the IRS. But wholesale rejection of the government’s single largest revenue source — and the organization that collects it — is not sound tax policy. The size of the federal government, and indeed of many state governments, requires an income tax at least for the foreseeable future.
However, there are ways to design tax policy that are consistent with the notion of limited government. Here are the basics:
1. Pay for Government — With Taxes

What does that mean?

(more…)

Tags: David Brunori, libertarianism, tax policy
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It’s futile and wasteful. Why do they do it? To show they care.

Thursday, January 12th, 2012 by Joe Kristan

State corporation income taxes don’t work. Iowa’s corporation income tax has the highest rate in the country, but it contributes only about $366 million to the state’s $6 billion in tax revenues.
State tax expert David Brunori wonders why the states bother:

It’s not the fault of departments of revenue. Their staffs do Herculean work against well financed adversaries. But no amount of enforcement dollars will change the fact that the state corporate tax laws do not work. And truth be told, they never will.
The tax does not raise a lot of revenue, a mere $36 billion (out of $1 trillion of state revenue) in 2010. But it consumes an inordinate amount of resources. So we cannot say we impose the tax to raise revenue. There are better ways to do that. The corporate tax laws reward companies for building and investing in the state. That may be a good thing. But it belies the argument that the corporate tax is designed to make companies pay for government services. And we are not ever sure who pays the tax. There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages. If that is true, the tax can hardly be said to increase progressivity.

I think it’s for show. Politicians want to say they are sticking it to the big bad corporations, to assure the people who are really paying the bills with their sales taxes and property taxes that they are also going after the fat cats. Never mind that it’s futile and inefficient; it’s the show that counts. It’s like airport security that way.
In Iowa the contingent liability for tax credits — things like economic development subsidies, research credits and historic building credits — was $362.7 million for 2012. That’s almost the same amount as the net take from corporate taxes. Getting rid of both would do more for Iowa’s economy — and the “bottom 99% — than the tax credits and corporate tax ever will. But the usual caring suspects will bulldoze an Occupy encampment before they will let those evil corporations stop paying income taxes.
Related: This doesn’t look like the year they’ll fix Iowa’s income tax

Tags: David Brunori, iowa tax policy, state tax policy
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Jambalaya westerns

Tuesday, November 15th, 2011 by Joe Kristan

David Brunori of Tax Analysts reports ($link) that millionaire filmmaker Jerry Bruckheimer is threatening to move production of a Lone Ranger film to Louisiana if New Mexico fails to match Louisiana’s subsidies. Mr. Brunori suggests the correct response:

If the New Mexico political leaders had any courage (like, say, the Lone Ranger), they would tell Bruckheimer to go to Louisiana. Call his bluff. Let him film his western in the bayou or during Mardi Gras. By the way, Bruckheimer is worth $800 million. Why should the people of New Mexico (or Louisiana, for that matter) give him a dime?

Indeed. I’d like to see them film a gator roundup.
Louisiana’s film program has also been plagued by corruption rivaled only by the Iowa program. You know, the Iowa and Louisiana film credit programs might make a good movie, if you could get Mel Brooks or the South Park people to do it.

Tags: corporate welfare, David Brunori, economic development, film credits, harold hill, Jerry Bruckheimer, Louisiana, New Mexico
Posted in Uncategorized | No Comments »

Posts Tagged ‘David Brunori’

Tax Roundup, 12/19/2012: B is for Boehner. And Blizzard.

Tax Roundup, 12/12/12: Iowa income tax reform on hold? And Warren calls for more taxes on non-Warrens.

Tax Roundup, 12/7/2012: You can’t soak the rich without soaking employers. And: Baby Insane Crips?

Tax Roundup, 12/6/12: Putting the “net” in investment income. And Bar time! Well, Bar Association school time…

Tax Roundup, 12/3/2012: Medicare 3.8% tax guidance issued. Meanwhile, to the cliff!

Tax Roundup, 11/28/2012: Did you report that 1099-K income? Also: tax deductions and giving levels.

Tax Roundup, 10/3/2012: abbreviated edition

Tax Roundup, 9/24/2012: Mitt files! And USA bucks trend of lower corporate rates.

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

Tax Roundup, 9/4/2012: Kidney edition. Also: stopping refund theft, and more!

Tax Roundup, 8/17/2012: Politicians, thieves — but I repeat myself

Tax Roundup, 8/13/2012: Let the film credit revisionism begin! Also: a study in retirement planning.

Tax Roundup, 7/25/2012: Thrifty thief sentenced; trashy trusts; fleeing France

Tax Roundup, 7/12/2012: S corporation distributions aren’t fraudulent conveyance. Also: why Amazon will pay sales taxes; Daffy Chuck

Tax Roundup, June 28, 2012: Obamacare Judgement Day and other masterminded schemes

The preparer regulation power grab, explained

How could I disagree with this?

Is there such a thing as a libertarian income tax?

It’s futile and wasteful. Why do they do it? To show they care.

Jambalaya westerns

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