Posts Tagged ‘David Brunori’

Tax Roundup, 12/17/15: President supports extenders; bill stops IRS from taxing political donations as gifts. And: More ACA stuff!

Thursday, December 17th, 2015 by Joe Kristan

whitehouse logoWhite House announces support for extender bill. Things seem to be falling into place for passage of the extender bill with an announcement of support from the White House.

The bill has to pass Congress first, but Tax Analysts reports ($link) that passage is eased by splitting the extender bill from the “omnibus” spending bill:

House Speaker Paul D. Ryan, R-Wis., said he expects the House to vote on the extenders package on December 17 and an omnibus spending bill, also introduced as an amendment to H.R. 2029, on December 18.  GOP leaders apparently decided to split the bills into two separate amendments to generate enough support for passage in the House. The spending bill may lose votes from conservative Republicans while the tax bill may lose votes from House Democrats. Those concerns are not shared in the Senate, where Democrats like both bills.

Losing votes from House Democrats doesn’t threaten the extender bill, as there are so few of them. So House vote tomorrow.

 

20150925-2Extender bill ends attempts to tax political donations as gifts. Before it was chastened by the Tea Party scandal, the IRS made moves to treat contributions to Sec. 501(c)(4) political organizations as taxable gifts. The legal justification for treating contributions to independent organizations was weak to begin with, but a provision in the extender bill (Sec. 408) settles the issue going forward by explicitly excluding such contributions from gift tax effective for gifts made after enactment.

What about old gifts?

Nothing in the amendment made by subsection (a) shall be construed to create any inference with respect to whether any transfer of property (whether made before, on, or after the date of the enactment of this Act) to an organization described in paragraph (4), (5), or (6) of section 501(c) of the Internal Revenue Code of 1986 is a transfer of property by gift for purposes of chapter 12 of such Code.

So the IRS could continue to assert its weak position that pre-enactment gifts are taxable. I don’t think they will.

Related: TaxProf, The IRS Scandal, Day 952. Today’s link goes to an op-ed complaining that the extender bill will make it too difficult for the IRS to restrict First Amendment rights by starting gift tax audits of political donors.

 

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IRS addresses more HRA and ACA questions. Yesterday the IRS issued Notice 2015-87, a 31 page bag of buzzwords addressing ACA issues. Disappointingly, the Notice doesn’t back off the extreme position that reimbursement of individual medical insurance premiums paid by employees will normally trigger a $100 per-day, per-employee penalty.

The bill does clarify that “opt-out” payments are normally not subject to the penalty, though they are taken into account to determine the employee cost in calculating whether an employer’s coverage is “affordable” (Q&A 9 of the Notice).

 

Paul Neiffer, Looks Like $500,000 Section 179 is Now Permanent. “One of the key provisions for farmers is to make Section 179 permanent at the $500,000 level.”

Kay Bell, Tax extenders 2015 winners and losers. “It’s a Christmas miracle! Weeks are left in 2015 and Congress has reached a deal on the 50+ tax breaks known as extenders.”

Howard Gleckman, The Hidden Agenda Behind This Year’s Tax Extender Bill (TaxVox):

What is going on here? Why would House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell put so much effort into making permanent a package of tax breaks that could be back on the chopping block a year from now?

Like much of what happens in Congress, it’s all about budget accounting. And in this case, it turns out you can buy bigger tax rate cuts by repealing permanent tax breaks than by swapping out temporary versions of the same subsidies.

I’d like to think this is all a 3-D chess play by geniuses to move the country closer to a better tax system, but I have nagging doubts, somehow.

Jason Dinesen, Glossary: Casualty and Theft Loss. “A casualty and theft loss is a deduction allowed on tax returns for people who suffer property damage or theft.”

Andy Grewal, The Management Fee Waiver Regulations May Be Doomed (Procedurally Taxing). “Prop. Reg. 1.707-2(b)(i) may reflect a good policy (a debatable point), but it does not square with the law.”

Robert Wood, Michael ‘The Situation’ Sorrentino’s Accountant Admits Tax Fraud Conspiracy. All over America, millions who don’t watch television ask, “who is Michael Sorrentino?”

 

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David Brunori, Some things worth pursuing in 2016 (Tax Analysts Blog). I don’t agrere with his support for the earned income tax credit, but he is correct on the importance of independent state tax tribunals, which Iowa lacks. And I think this is absolutely right:

Oppose tax incentives. I know — incentives are seemingly invulnerable in our political system. But the difficulty of the task should not deter the righteous. Tax incentives violate every principle of sound tax policy. They are unnecessary. They are unfair. Liberals should hate them because they waste money that could be used for schools and healthcare. Conservatives should hate them because they are the antithesis of a free market.

The cronies and insiders partnership of Central Iowa disagrees, which pretty much proves David correct.

 

I’m pretty sure the opposite wouldn’t help. Could Having a ‘Pro-CPA Culture’ Backfire on Accounting Firms Desperate for Talent? (Caleb Newquist, Going Concern).

 

Today is the big Star Wars release day. Blogger Syd Gernstein explains that WE HAVE TAXES TO THANK FOR STAR WARS:

To summarize briefly: This first episode of Star Wars started with a tax dispute. The “trade federation” did not like the fact that the republic had imposed a tax on its trade routes, and protested the tax by staging a blockade, and ultimately an invasion, of the peaceful planet of Naboo. Dissatisfied with the Republic’s inability to defend the planet, Naboo’s queen—at the urging of the planet’s then-Senator Palpatine—moved for a vote of no confidence in the Galactic Senate’s Chancellor. Palpatine then exploited the sense of sympathy for Naboo to get himself elected as Chancellor. Over the course of the next movies, Palpatine would then, essentially, transform the republic into a dictatorship, declare himself Emperor, convince Anakin Skywalker to become Darth Vader, build a couple Death Stars, and, evidently, abolish the galactic yellowpages, because it otherwise surely would have occurred to Darth Vader to streamline his epic quest to find his son, the “young Skywalker,” by looking under “S.” 

It’s a plot line convoluted enough to be worthy of The Code.

 

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Tax Roundup, 11/19/15: Play sober, play taxable (updated). And: Administration says no to permanent bonus depreciation.

Thursday, November 19th, 2015 by Joe Kristan

 

20150805-2Gaming while sober: maybe halfway right, but not even halfway exempt. See Update Below. Sobering up is hard to do for alcoholics. That’s why they’re alcoholics in the first place.

One of the hard parts is that many of the things you enjoy may be associated with alcohol.  That’s where GameHearts, A Montana Nonprofit Corporation, came in. The Tax Court picks up the story:

On July 14, 2010, GameHearts filed a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. In the Form 1023 GameHearts provided the following description of its activities:

    GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.

 

The IRS was unmoved:

In a June 3, 2013, letter respondent notified GameHearts of the conclusion that, on the basis of the information provided, GameHearts did not qualify for exemption under section 501(a) as an organization described in section 501(c)(3) because GameHearts was not organized or operated exclusively for exempt purposes. Respondent based this determination on the conclusion that (1) GameHearts failed to establish that it benefited a charitable class; (2) GameHearts’ nonexempt activities were more substantial than its exempt activities; and (3) GameHearts did not meet the requirements of section 1.501(c)(3)-1(d), Income Tax Regs., “because it did not limit activities to addicts with a low income.”

So the Tax Court got involved. Unfortunately for sober gamers in Montana, the court sided with the IRS:

While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and “boost the overall market shares of the industry”. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless, consistent with our holdings in Schoger Found. and Wayne Baseball, that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.

We therefore hold that GameHearts does not operate exclusively for charitable purposes within the meaning of section 501(c)(3). 

In other words, if there’s a market niche for sober gaming in Montana, it should be filled by somebody trying to make money.

Update: Peter Reilly has a well-researched post on this case, and he points out that the “gaming” involved was not casino gambling, which I incorrectly assumed in my initial reading of the article. I have made some modifications to my post to remove implications otherwise, and I thank Peter for his correction and for his in depth story.

Cite: GameHearts, T.C. Memo. 2015-218; No. 20303-13X

 

 

Administration opposes extending bonus depreciation. Tax Analysts reports ($link):

The Obama administration does not support a tax extenders package that would make bonus depreciation permanent, Treasury Secretary Jacob Lew told House Ways and Means Committee Democrats on November 18.

The administration is willing to consider making other tax extenders permanent, including the research credit and small business expensing, as long as the American opportunity tax credit and the expanded child tax and earned income tax credits are made permanent, according to House aides.

Secretary Lew didn’t rule out a “temporary” extension of bonus depreciation, and I suspect that’s what we’ll get.

 

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Russ Fox, IRSAC Report Has Hits and Errors:

IRSAC laments IRS funding. While I agree it would be nice to have the IRS fully funded, the problem was caused by the IRS (and especially Chairman Koskinen) and the IRS scandal. Until the IRS comes clean, Republicans in Congress rightly will not allow full funding.

This is why those who want IRS funding increased should insist on Koskinen’s resignation.

TaxGrrrl, Report Accuses IRS Of Encouraging Illegal Immigrants To File Using False Info, Identity Fraud. Well, increase their budget, then!

 

Jason Dinesen, Choosing a Business Entity: S-Corporation. “S-corporations share many of the same characteristics of partnerships. The biggest difference is, owners who work in the business day-to-day are paid a salary.”

Kay Bell, Start your retirement planning and saving ASAP. Starting in your 20s makes a huge difference as you approach your 60s. 

Robert Wood, Lawyer Faces Up To 50 Years Prison Over Payroll Taxes. Always remit your payroll taxes, no matter who else you need to stiff.

 

Dave Nelson, Preparing for a cyberattack or data breach (IowaBiz.com). “In today’s world of nonstop cyberattacks, companies must prepare for when, not if, they are attacked.”

Leslie Book, International Conference on Taxpayer Rights Kicks off Today. (Procedurally Taxing).

Peter Reilly, Ownership Through LLC Kills Local Charitable Property Tax Exemption. “Disregarded For Federal Purposes Does Not Mean Disregarded For Local Purposes”

 

 

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David Brunori, Business Entities Pay a Lot of State Taxes (Tax Analysts Blog):

In 2014 businesses paid about $142 billion in sales tax, or about 20.7 percent of taxes paid. More distressing is that they paid $5.8 billion more than in the prior year. The sales taxation of business inputs remains one of the greatest tax policy failings of the last 100 years. Business entities should not pay sales taxes on their services. Those taxes get passed on to someone else without their knowledge. Hiding the tax burden goes against every principle of transparent good government.

Iowa’s Department of Revenue has taken a small step to reduce the taxation of business inputs, to the outrage of all sorts of goodthinkers.

 

David Greenberg asks How Has Federal Revenue Changed Over Time? (Tax Policy Blog). This picture sums it up:

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The corporation tax continues to decline in importance with the spread in pass-through entities. That won’t change regardless of what economic illiterates would wish.

 

Howard Gleckman, Would Two Year Budgeting Help Break the Fiscal Impasse? I think it would just reschedule the impasses.

 

TaxProf, The IRS Scandal, Day 924

Carl Davis, Congress Searches the Couch Cushions for Road Funding Money (Tax Justice Blog).

 

News from the Profession. At Least One SEC Commissioner Has a Sense of Humor (Caleb Newquist, Going Concern).

 

20151119-2Things that happened on November 19. Today’s the 152nd anniversary of the Gettysburg Address, when President Lincoln dedicated the Gettysburg battlefield cemetery by saying: “The world will little note, nor long remember what we say here; while it can never forget what they did here.”

81 years later on November 19, another war claimed another young man. A little note and a little remembering here.

 

 

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Tax Roundup, 11/4/15. Taxpayer Advocate: Koskinen demoralizes IRS, IRS breaks law. Koskinen replies: give me more money!

Wednesday, November 4th, 2015 by Joe Kristan
Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

It’s getting bad when the IRS won’t even talk to its own Taxpayer Advocate. Nina Olson, the head of the IRS Taxpayer Advocate office, ripped the state of the IRS and Commissioner Koskinen’s management in a speech to the AICPA annual tax conference yesterday, Tax Analysts reports  (my emphasis, $link):

Olson said that IRS Commissioner John Koskinen’s oft-repeated mantra — that instead of doing more with less in budget-constrained times, the agency was going to do less with less — was demoralizing the IRS workforce and further eroding customer service.

“What my local taxpayer advocates are telling me is that they have never seen so much resistance to their own work” from the IRS, Olson said. She recounted the story of a local TAS employee who asked the IRS in October to release a taxpayer’s refund that had been held up since February. “The response that [TAS] got back was . . . ‘We have thousands of these cases; get in line,’” Olson said, adding that it was the first time she’d heard such a response from the IRS in her 15 years at the TAS.

The feeling at the IRS that there are some jobs it won’t do because Congress didn’t provide funding, Olson said, “works its way down to the employees, so that they feel like, ‘Well, I’m going to do just this, and I’ve got so much work that I’m only going to be able to get this done.'”

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Taxpayer Advocate Office is “an independent organization within the IRS” charged with helping taxpayers who can’t resolved their problems within the normal IRS bureaucracy. We only call on them out of desperation, when the IRS just refuses to do its job. It’s a bad sign if even the Taxpayer Advocate can’t get the time of day from the regular IRS.

Ms. Olson says the IRS mistreatment of the TAS office has risen to the level of lawbreaking:

Olson also protested that the IRS is refusing to grant her and her staff access to taxpayers’ administrative files unless they sign agreements barring them from sharing any of the files’ information, even with the taxpayer. Olson noted that she is bound by the same privacy laws as other IRS employees and said she is entitled to access under section 6103.

“My position is that the IRS in those instances has violated the law,” Olson said. “And I do not say that lightly.”

You have problems with the IRS breaking the law? Well, to coin a phrase, get in line.

Commissioner Koskinen responded later in a speech to the same group, in which he did what he always does: ask for more money. “Most of Koskinen’s prepared remarks at the conference were a repeat of his concerns about the IRS’s deteriorating budget position.”

But this Commissioner will never get a budget increase out of this Congress. His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Other Coverage: 

Russ Fox, Where I Agree (In Part) With IRS Commissioner John Koskinen. “Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation.”

Accounting Today, IRS Commissioner Sees Budget Cuts Hurting Practitioners, Warns of Delayed Tax Season. A story that weirdly downplays and buries the Taxpayer Advocate’s withering criticisms deep in the article.

 

Alan Cole, What Places Benefit Most From the Earned Income Tax Credit? (Tax Policy Blog).

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It looks like the deep south and Indian country have the biggest proportion of EITC recipients.

 

TaxGrrrl, Despite Complaints, Past Failures & Opportunities For Fraud, Congress Pushes Private Tax Collection. I think Kelly is too hard on private tax collection. Plenty of preparers deal safely with confidential tax information every day, and I don’t think there’s something special about IRS employees that makes them automatically trustworthy. I think for uncontested and unpaid tax debts, private collection makes sense, especially when the IRS isn’t even trying to collect.

Robert D. Flach emphatically agrees with Kelly, though: NO! NO! A MILLION TIMES NO!. I guess private tax debt collection is one of those unpopular views I hold, like Waylon > Willie.

 

Wall Street Journal,  IRS Audits of Individuals Drop to 11-Year Low (via the TaxProf, $link).

Kay Bell, Avoid tax turkeys! Check out November Tax Moves

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #9 Rental Properties Should Probably Be Rented. “Believe it or not, the IRS doesn’t always require that you rent a home in order to establish that you have converted the home to a for-profit rental activity, but it certainly helps.”

 

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Carl SmithGovernment Inconsistent on Whether Unpublished Tax Court Orders Can Be Cited (Procedurally Taxing). “I’m more a believer in ‘what’s good for the goose is good for the gander’.”

Renu Zaretsky, The Case of the Questionable Tax Incentive: Women and Retirement Savings (TaxVox). “But from what I can tell, the surest way to increase a woman’s savings is to give her a nice raise… and introduce her to my sister.”

David Brunori, Impeaching the IRS Commissioner Is the Wrong Thing to Do (Tax Analysts Blog). “Koskinen may be guilty of being combative with Congress. He may be guilty of caginess during his testimony. He may be guilty of being a lousy commissioner. But none of those are reasons for impeachment.”

TaxProf, The IRS Scandal, Day 909. Today’s link is to an editorial, Yes, the IRS Chief Has Earned Impeachment. I agree, but I still think it’s an unwise exercise when it has no chance of success. Still, the editorial is a concise summary of how awful Commissioner Koskinen has been.

Jim Maule, Taking and Giving Back. “The NFL and its teams, as well as the other professional sports leagues and franchises, do not need financial assistance from the public.”

 

News from the Profession. Socially Inept Accountant Held Responsible (Caleb Newquist, Going Concern). Is there another kind?

 

 

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Tax Roundup, 10/28/15: Tax Court blocks IRS assessment of Gremlin-era gift tax. And: Impeachment is too good for him.

Wednesday, October 28th, 2015 by Joe Kristan
Wikipedia image ploaded by GrapedApe under Creative Commons license.

Wikipedia image uploaded by GrapedApe under Creative Commons license.

Closing the book on tax disputes arising in the Nixon administration, the Tax Court ruled this week that a taxpayer — the brother of Viacom mogul Sumner Redstone — did not make a taxable gift in 1972 when he transferred corporation shares to a trust as part of a lawsuit settlement.

The facts are confusing. Sumner Redstone’s father Mickey capitalized a business in 1959 but named his sons Sumner and Edward as 1/3 owners. When Edward wanted out and tried to sell his shares, the father refused to provide the certificates, saying that they were held in trust for Mickey’s children. Tax Analysts ($link) explains the result:

Mickey claimed that in 1959, when he created NAI, the shares had been held in an oral trust created at the same time. After months of negotiations, the parties agreed to settle by giving one-third of Edward’s shares to trusts in the benefit of his two children. His remaining shares were sold back to NAI for $5 million.

Edward didn’t consider this a gift, and he never filed a gift tax return for 1972. This left the statute of limitations open on the gift, and the IRS assessed gift tax on Edward’s estate after he died in 2011.

The tax law says there is no gift when property is transferred for full consideration and with no benevolent intent. The IRS says that because the beneficiaries of the trust, Edward’s children, paid nothing for the shares they received in the settlement, the transfer was a taxable gift. The Tax Court disagreed:

The evidence clearly established that Edward transferred stock to his children, not because he wished to do it, but because Mickey demanded that he do it…

Respondent’s argument focuses on whether the transferees provided consideration. But that is not the question the regulation asks. It asks whether the transferor received consideration, that is, whether he made the transfer “for a full and adequate consideration” in money or money’s worth. Sec. 25.2511-1(g)(1), Gift Tax Regs. (emphasis added). We have determined that Edward received “a full and adequate consideration” for his transfer — namely, the recognition by Mickey and Sumner that Edward was the outright owner of 66 2/3 NAI shares and NAI’s agreement to pay Edward $5 million in exchange for those shares. Section 2512(b) and its implementing regulations require that the donor receive “an adequate and full consideration”; they make no reference to the source of that consideration.

Decision for taxpayer.

The Moral? First, there’s no gift to the thief who points a gun at you, and there’s no gift when you transfer shares because you have to.

Perhaps more importantly, gift tax can be assessed forever if you don’t file a gift tax return. If there is any question on whether a gift might have happened, or realistic risk that the IRS will challenge the amount of a gift, it’s wise to file a gift tax return even when it doesn’t appear gift tax is owed. Otherwise the statute of limitations never starts running, and you might be fighting a forty-years war with the tax man.

Cite: Estate of Edward S. Redstone, 145 T.C. No. 11

 

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TaxProf, The IRS Scandal, Day 902. A resolution has been introduced to impeach IRS Commissioner Koskinen. While his conduct in office has been awful, I hope they don’t really try to make it happen. It could backfire, and even if he were impeached, there will never be a conviction. I would rather they spend the time and energy reducing the powers of all IRS commissioners by reducing the power of the IRS through tax reform.

Russ Fox, Chaffetz Introduces Impeachment Resolution of IRS Commissioner Koskinen. “My view of this is simple: Mr. Koskinen has become a mouthpiece of the Administration rather than an independent head of the IRS… The IRS’s budget does need to be increased, but that’s not happening until Mr. Koskinen leaves the agency (and the scandal is resolved).

Kay Bell, House GOP seeks impeachment of IRS commissioner

Robert Wood, Impeach IRS Chief, Say Republicans Alleging Lies, Obstruction

 

William Perez, What Every Small Business Owner Should Know About the Health Care Tax Credit

Peter Reilly, Maureen O’Hara’s Ill Fated Cuban Oil Tax Shelter

 

20151028-2Joseph Henchman is Remembering the Deceased Iowa Pumpkin Tax You Helped End (Tax Policy Blog). “It’s a weird tax system that taxes the same item differently depending on the buyer’s intent. I’m sure Iowa pumpkin patches have better things to do than quiz their customers on future pumpkin uses.”

David Brunori, Billionaires Who Want to Tax Poor People (Tax Analysts Blog) “Second, and just to show you that it really is all about the money, the initiative will impose significant taxes on electronic cigarettes. If people really cared about the health risks of smoking, they would be encouraging — indeed subsidizing — electronic cigarettes.”

Howard Gleckman, Gimmicks Galore Litter the Boehner/Obama Budget Deal (TaxVox) “But one thing seems certain: This deal is far worse for fiscal conservatives that the Grand Bargain that Boehner and President Obama nearly reached in July 2012, a deal the speaker never could sell to his restive caucus.”

Caleb Newquist, Florida Still Cranking Out Unsophisticated Tax Schemes (Going Concern): “If you or someone you know is thinking about concocting a haphazard tax fraud, it may be tempting to go with a tried and true method that goes something like this…”

 

Programming Note: My travel schedule will keep me from posting a Tax Roundup tomorrow. See you Friday!

 

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Tax Roundup, 10/26/15: No surprise, no Tea Party charges. And: the proposed Iowa graduate tax break.

Monday, October 26th, 2015 by Joe Kristan
Toby Miles, IRS.

Toby Miles, IRS.

You break news on Friday when you want to bury it. And that’s what the Department of Justice did when it told Congress that it would not prosecute Lois Lerner, or anybody else in IRS, as a result of the Tea Party Scandal.

Not that anybody would expect otherwise. The Justice Department continues to act as the Administration’s scandal goalie. The fix was in once the President changed his tune from “this is terrible” to “not even a smidgen of corruption.”

Throughout the investigation, not a single IRS employee reported any allegation, concern, or suspicion that the handling of tax-exempt applications — or any other IRS function — was motivated by political bias, discriminatory intent, or corruption. Among these witnesses were several IRS employees who were critical of Ms. Lerner’s and other officials’ leadership, as well as others who volunteered to us that they are politically conservative. Moreover, both TIGTA and the IRS’s Whistleblower Office confirmed that neither has received internal complaints from IRS employees alleging that officials’ handling of tax-exempt applications was motivated by political or other discriminatory bias.

The Investors Business Daily gets this right:

This is absurd. Lerner was caught red-handed targeting Tea Party and other conservative groups, wrote partisan emails to prove it, then engaged in a massive cover-up effort — with a suspiciously crashed server, an oddly missing BlackBerry and plenty of excuses.

She evaded even more accountability by shielding herself with the Fifth Amendment in Congress.

It was only Tea Party groups that had to wait years for approval. Considering the destroyed emails, “lost” backups, and Ms. Lerner’s peculiar interest in communication methods that could not be traced, there’s too much smoke and ash to believe there was no fire.

TaxProf has more: The IRS Scandal, Day 898Day 899Day 900. The fix is put in, and we’re told that means that there is no scandal.

Also:

Robert Wood, Obama Administration Learned From Lois, Dodging IRS Scandal. “Deny, stonewall, deny.”

TaxGrrrl, DOJ Says No Criminal Charges For Lerner, Others In IRS Scandal, Closes Investigation

 

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Jana Luttenegger Weiler, IRS Releases Inflation Adjustments for 2016 (Davis Brown Tax Law Blog).

Kay Bell, Securing taxpayer data is the IRS’ biggest challenge

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Robert D. Flach, WHO MUST FILE A 2016, or 2015, TAX RETURN? “FYI, based on the new inflation adjustments recently announced by the Internal Revenue Service, you do not have to file a 2016 Form 1040, or 1040A, unless your “gross income” is at least…” Visit Robert to find the numbers.

 

Hank Stern, Easy come, easy go:

“[T]he GAO report found that … at least $1.6 billion [is] unaccounted for.”

That’s out of over $5 billion in “loans” sent to states, most of which went for state-based Exchanges (which, per SCOTUS, don’t actually exist).

That must be the “affordable” part of the Affordable Care Act.”

 

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Joseph Thorndike, Mexico Is Having Second Thoughts About the Soda Tax – And So Should Everyone Else (Tax Analysts Blog). “If a big tax dissuades people from drinking Mountain Dew, maybe they will lose weight. But maybe they will continue to scarf down their Twinkies with a cupful of untaxed water – and keep packing on the pounds.”

Scott Greenberg, Reviewing Paul Ryan’s Short Term as Chairman of Ways and Means (Tax Policy Blog). “In the last 10 months, the Ways and Means Committee has brought 52 bills to the House floor, tied for most with the Energy and Commerce Committee. Out of these bills, 15 were passed into law, the most out of any committee.”

Howard Gleckman, Little Difference Between the Cadillac Tax and a Cap on the Tax Exclusion for Employer Health Plans (TaxVox).

 

Caleb Newquist, Accountant Won’t Be Taking a Walk in the Woods Anytime Soon. “James Hammes, who spent 6 years on the lam walking the Appalachian Trail, pleaded guilty earlier today to wire fraud.”

 

David Brunori discusses ($link) a tax break proposed by Iowa graduate students for… themselves.

The idea is that if you graduate from any college or university in Iowa and stay in the state, you would get a 50 percent tax break for five years. If you move to a rural part of the state, you get a 75 percent tax reduction. As an Easterner, I learned everything I know about Iowa from Joe Kristan’s blog. But I could have sworn most of the state is rural.

In any event, kids, this is a terrible tax policy idea. It will solve no brain-drain problem — although employers may pay less since these graduates won’t be paying taxes. Here is just one problem: If you’re not paying taxes, someone else is. That someone else is probably a poor guy or gal who didn’t graduate from college and is making a lot less than you. I thought college kids would be more empathetic than that.

While most of the state is rural, but most of the jobs for college graduates aren’t.

David gets the policy exactly right. It’s tough to justify a special deal for a young prosperous couple with accounting or law degrees while the people building their suburban house and watching their kids pay full fare.

 

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Tax Roundup, 10/21/15: The tax law doesn’t care where you are on the autism spectrum. And: Iowa sales tax rule change praised.

Wednesday, October 21st, 2015 by Joe Kristan

20151014-1No Asperger exception to Section 475. It’s heads they win, tails you lose for capital gains and losses. If you have capital gains, they’re happy to tax them, no matter how many you have. If you have capital losses, you are limited to gains plus $3,000 per year, with the remainder carrying forward — even if you have to outlive Methuselah to use them up at $3,000 annually. Many sadder-but-wider former day traders have found themselves with this problem.

Section 475 offers some taxpayers a way out. If you qualify as a “trader,” a Section 475 election makes your losses fully deductible. It makes your gains ordinary, rather than capital, and it requires you to recognize gains and losses on your open positions at year-end, but that’s not a big deal for day traders. They tend to trade short-term, and short-term gains are taxed at ordinary rates anyway, and marking-to-market isn’t normally a big deal to them.

But Section 475 has a strict election requirement. You have to make the election no later than the April 15 of the year you want the election to take effect. For example, a taxpayer wanting to make the election effective for 2015 tax returns would have to make the election on his 2014 timely-filed 1040 due April 15, 2015.

A New York man claimed he made the election on his 2003 1040. Unfortunately, he made two serious mistakes. See if you can spot them in the Tax Court’s summary:

In 2003 on the advice of his accountant, petitioner intended to file a section 475(f) mark-to-market election. Petitioner, however, did not retain a signed copy of any election or any evidence of mailing it. Petitioner filed his Federal income tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a statement that petitioner had made an election pursuant to section 475(f), but did not have a copy of Form 3115, Application for Change in Accounting Method, attached to it.

Error 1: Not keeping a copy of the election (assuming he made it).

Error 2: Not filing until over a year after the due date.

Other cases have shown that the IRS enforces the timely-filing requirements of Section 475 strictly, to keep taxpayers from making the election with the benefit of hindsight.

The Court ruled that he traded enough to qualify as a “trader” under the tax law, but that he blew the election (my emphasis):

We find that petitioner failed to comply with the requirements for the mark-to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner did not submit a copy of any executed version of Form 3115 or any evidence of mailing it. Respondent did not find any record of petitioner’s Form 3115 in his electronic database, but also admitted that in some years not all Forms 3115 received were actually entered in the database. Next, petitioner filed his Federal income tax return for 2003 on July 25, 2005, failing to comply with the filing deadlines.

There’s a lot in that paragraph. Perhaps the most important thing is that the IRS admits that it doesn’t always know what you file, so it’s wise to keep your returns forever in case something like this happens. The other thing is that the deadlines matter.

The taxpayer made an unusual argument to get out of penalties: that his Asperger Syndrome made it impossible to meet deadlines. The Tax Court wasn’t convinced:

For a number of years, including 2002 and 2003, petitioner worked as a high school teacher. There is no evidence in the record that at any time from 2001 through 2006 petitioner filed for a disability accommodation while he was employed as a school teacher. In 2007 petitioner was trading in securities. Petitioner’s work station was equipped with six monitors showing the status of his trades. Petitioner was able to collect, analyze, and organize information to base his trades on. Petitioner understood he had a duty to file tax returns but claims that in 2007 he was “despondent” because of the losses he suffered and could not organize himself to file a tax return timely.

We are sympathetic to petitioner’s plight. We cannot find, however, under these circumstances that petitioner’s mental condition prevented him from managing his business affairs.

This is consistent with other cases where the courts have found that if you are able to deal with the challenges of daily life, you are presumed to be able to file your returns on time.

The Moral: File your returns on time, and keep copies of your filings forever.

Cite: Poppe, T.C. Memo 2015-205

Related: TaxProf, Tax Court: Asperger’s Syndrome Does Not Excuse Taxpayer’s Failure To File Tax Return

 

20151021-1

 

David Brunori calls the Iowa proposal to broaden the definition of manufacturing supplies subject to exemption from sales tax The Best Tax Policy Proposal of the Year (Tax Analysts Blog):

Taxing what business entities buy is wrong for two important reasons. First, businesses will try to pass the tax they pay on to their customers in the form of higher prices. Almost all succeed. The customers incur the tax burden without knowing it. That’s wrong. Even for those companies that don’t pass the tax along to customers, some person is unwittingly paying the tax. Second, when consumers pay higher prices, they are sometimes subject to tax. Thus, the sales tax is imposed on a value that includes previous sales tax. You may know it as cascading or pyramiding. But it’s wrong.

And that’s why the Iowa proposal is so refreshingly right. It would expand the types of business purchases exempt from sales tax. My understanding is that there is a debate in Iowa about whether the Department of Revenue can expand the number of exempt business purchases administratively. I don’t know the answer to that. I do know that the proposal represents sound tax policy.

Governor Branstad says expects the proposal to be enacted, reports the Sioux City Journal in Branstad: House GOP won’t buck rule change.

 

Russ Fox, The Wagering Excise Tax and DFS:

I’m focusing on the tax aspects of daily fantasy sports (DFS) this week. It’s beneficial for DFS participants for the activity to be considered gambling. For political reasons (“gambling is a sin”) and regulatory reasons (gambling is regulated, skill contests are not), the DFS sites want to be considered skill games sites. There’s another reason that DFS sites don’t want to be considered gambling: the wagering excise tax.

Picking the right horse at the track is a skill, too, but I’m pretty sure it counts as gambling.

 

Paul Neiffer, What is a Marginal Tax Bracket. A useful explanation for the non-specialist of how tax brackets work.

Kay Bell, Increased e-filing security planned for 2016 filing season. Better at least five years too late than never, I suppose.

Jim Maule, Beachfront House Rental Deduction Washed Out. When you try to deduct what looks like a beach party, you’d better have excellent documentation.

Eric Rasmusen, Law Suit for Billions Against Citigroup Because of Treasury’s 2009 Waiver of Section 382’s Rule about Losing NOL’s after an Ownership Change. The Administration put the fix in for its friends at Citigroup, and now another taxpayer is suing.

 

20151021-2

 

Tax Policy Blog, A Comparison of Presidential Tax Plans and Their Economic Effects.

Renu Zaretsky, “There’s no cut like a tax cut… There’s no cut like a tax cut…” Today’s TaxVox tax headline roundup covers the continuing fiscal pain in Kansas and the IRS patting itself on the back on ID theft after letting it spiral out of control for years.

 

TaxProf, The IRS Scandal, Day 895

 

Quotable: 

Our media outlets dismiss the opponents of the Ex-Im bank or people who want to wind down Freddie and Fannie as Tea Party nut cases. If you want to stop crony capitalism, what we need are fewer influential media outlets and more Tea Party nut cases.

Arnold Kling

 

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Tax Roundup, 10/15/2015: How to do that last-minute filing right. And: C.R. ID thief sentenced, Iowa sales tax rule delayed.

Thursday, October 15th, 2015 by Joe Kristan

certifiedFile! Today is the last, final, immutable deadline for filing an extended 2014 1040.* What are the stakes for getting that return in today?

  • If you owe federal taxes, it’s the difference between a late payment penalty of 3% (1/2% per month since April 15) and a late filing penalty of 25% (5% per month, capped at 25%).
  • It’s the last chance to make a free grouping election of your activities for the ne investment income tax and passive loss rules.
  • If you have an international reporting form on your return — a 5471, 8865, 3520, 8938, or 8891, for example — it’s the only way to avoid an automatic $10,000 late penalty on your filing. These forms may be due if you own an interest in a foreign corporation, partnership or trust; if you received a foreign gift or inheritance; if you have foreign financial assets, like a loan to an overseas person; or if you have an interest in a Canadian retirement plan.

So how to file? If you haven’t started yet (ugh), Russ Fox has some tips. If your return is done and you just need to file, e-file if at all possible. That gives you the assurance that your return has arrived on time and saves you the hassle of a trip to the post office or the UPS or FedEx store. And I feel safer if my return doesn’t have to be touched by an actual IRS employee.

OK, you ask, why can’t I just drop it in the mail or use the office postage meter? After all, the Mailbox Rule says “timely mailed, timely filed.”

Because then you have no proof that you filed on time. If the letter gets lost, or delayed, the IRS can call it “late” and you have no way to prove otherwise. If you have anything at stake with a timely-filing, it’s foolish to rely on the competence of the postal service and the goodwill of someone at the IRS service center.

If you aren’t e-filing, the best thing to do is to go to the post office, spring for Certified Mail, Return Receipt Requested, and get a hand-stamped postmark. Save it and keep it with the return receipt when that comes back. That will ward off late-filing vampires. Filling out the certified mail slip and running it through the office postage meter or using a Stamps.com postmark doesn’t work.

If you can’t make it to the post office before they close, then you can go to the FedEx Store or UPS store and use a “designated private delivery service.” This is trickier. You have to use one of the delivery methods specified by IRS Rev. Proc. . For example, “UPS Ground” doesn’t work, but “UPS 2nd Day Air” does work. Make sure the shipping paperwork shows today’s date. Be sure to use the proper IRS service center street address, because the private services can’t use the IRS post office box addresses.

*Unless you are a South Carolina flood victim, a war zone resident, or a non-resident alien.

Related: CERTIFIED MAIL: THE HIDE YOU SAVE MAY BE YOUR OWN

 

20151015-2

 

Five years for Cedar Rapids ID ThiefKWWL.com reports an Iowa woman will go away for 61 months after pleading guilty to one count of ID theft. The Government’s sentencing memorandum says Gwendolyn Murray prepared “at least 136 false and fraudulent returns.” Ninety-four of them were processed, netting over $380,000 in refunds.

And that’s the real crime. The IRS has such poor controls that an amateur, probably using an off-the-shelf tax prep software package, could help herself to that much taxpayer money before getting caught. The chances of getting that back are about the same as my chances of a pro baseball career. And yet the IRS says the real problem is that honest preparers don’t have to take a compentency literacy test and submit a fee and paperwork.

Related: TIGTA: 1,300 IRS Computers, 50% Of IRS Servers Are Running Outdated Operating Systems, Putting Taxpayer Data At Risk (TaxProf)

 

Iowa Sales Tax Rule for Manufacturing Supplies to be delayed six months. It will now take effect July 1, 2016, reports AP.

 

Gretchen Tegeler, Ask questions about your property taxes (IowaBiz.com):

You may not realize you are supporting not only your city, county and school district, but also Broadlawns Medical Center, Des Moines Area Regional Transit (DART) and the Des Moines Area Community College (DMACC).

For instance, 8.6 percent of the property taxes my husband and I pay on our home are going to Broadlawns. The single largest percentage increase in our property taxes (and this would be the case for most everyone in Polk County) is for DART, a whopping 10.4 percent!  

I’m sure it’s worth every penny…

 

Roger McEowen, Obamacare; Reimbursement of Health Insurance Premiums; and Limited (and Inconsistent) Transitional Relief (AgDocket). On the incomplete and confusing relief for “Section 105 plans” being clobbered by insane ACA regulations.

 

Paul Neiffer, What about Partnerships?:

The ACA mandates an $100 per day per employee penalty for providing non-qualified health insurance to more than one employee.  Many of our farm operations operate as S corporations and partnerships.  There is specific IRS guidance that allows shareholders and partners to deduct these health insurance premiums for owners and since this guidance did not line up with the guidance on the imposition of the $100 per day penalty, the IRS issued a notice earlier this year that indicated S corporations could continue to file their returns the same way until the end of this year.

However, this notice appeared to be silent on the treatment for partnerships and partners. 

They had to pass it for us to find out what was in it.

 

Peter Reilly, Santorum 20/20 Flat Tax Might Be Hard On Many Small Businesses. “I don’t understand why there does not seem to be more excitement about the elimination of business interest deductions.” Maybe because it’s Rick Santorum.

Robert WoodU.S. Tax 35%, Ireland 12.5%, New Irish Tech Rate 6.25%, Any Questions?

Kay Bell, Be like Trump: Pay as little tax as possible

 

20151015-3

 

David Brunori, Getting Taxpayers to Rat on Each Other: Uncool (Tax Analysts Blog):

Private citizens should not be in the business of administering or enforcing the tax laws. The most obvious reason is that they do not have the expertise or the context to judge whether taxes are being evaded rather than, say, avoided. It is hard enough for trained tax professionals to ascertain the difference between tax fraud and very aggressive tax planning. That task should be left to the professionals.

Not to mention the free play it gives to bitter ex-lovers or spouses, shakedown artists, and parasites in general.

 

TaxProf, The IRS Scandal, Day 889

 

A big thank you to Gretchen Tegeler and the Taxpayers Association of Central Iowa for inviting me to be on a panel last night on small business tax and regulation last night. I wish I could have lingered to chat longer, and enjoy some of that delicious Lucca food, but it being October 14 and all, I couldn’t stick around. It was a good session with lots fo great discussion.

 

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Tax Roundup, 10/7/15: Iowa Dept. of Revenue proposes sound policy, protests erupt. And: skating to a low-tax state.

Wednesday, October 7th, 2015 by Joe Kristan

20150122-1The Iowa Department of Revenue proposes broad definitions for industrial sales tax exemption. The chief Democratic taxwriter in the Iowa Senate is unhappy.

The Des Moines Register reports:

State legislators will consider a proposal next week that would reduce the tax burden for manufacturers by up to $46 million in a move critics say bypasses the legislative process.

In an effort to avoid a “double tax,” current law exempts from taxation some items used during the manufacturing process and instead taxes the final product. The proposal would expand the number of items that qualify for that exemption.

The policy behind the exemption is sound. As David Brunori points out,

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.

Whether the Department has overstepped its authority is a separate question from the tax policy. From the Register story:

But state Sen. Joe Bolkcom, D-Iowa City, pointed out the fiscal effects of the legislation on Monday.

“We’ve been told repeatedly by this governor that we can’t afford to educate our kids, and here he goes again with another big tax cut for Iowa’s largest corporations and putting their needs ahead of our kids,” Bolkcom said. “It’s wrong.”

“I don’t remember ever tax policy being made by the rules committee or being made by the executive branch without the consent of the Legislature,” Bolkcom said. “This is a huge tax policy change that (Gov. Branstad) has unilaterally decided.”

Iowa businesses have long complained about the restrictive definition of “equipment” and “property directly and primarily used in processing.” It seems to me that the new definitions are more in line with business reality and the intent of the exemption. Still, I haven’t seen a fight over proposed regulations like this, so I have no idea how this will play out.

Link: Proposed new Iowa rules.

 

20151007-1

 

TaxGrrrl, Hockey Players Ice High Tax Teams In Favor Of Tax Savings:

With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.

According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes.

Sports free agency is an unusual natural experiment on whether state taxes matter. There are always other factors than taxes in choosing a team.  Winning is worth something. Still, it’s pretty much the same job, just with different taxes. The resulting low-tax preference is what you would predict.

 

Kay Bell, Fantasy sports: Gambling or just good, clean online fun?  Either way, taxes are due, but deduction options differ.

Jack Townsend, Swiss Asset Manager Settles Up with DOJ Tax. A $295,000 fine. Another example of second prong of the IRS approach to international tax compliance — shoot the jaywalkers so you can slap the big offenders on the wrist.

Tony Nitti, Tax Geek Tuesday: A Buyer’s Best Friend – Understanding The Section 338(h)(10) Election. “What if a buyer could acquire a target’s stock for legal purposes — thereby keeping the target alive and preserving its non-transferable assets — but acquire the target’s assets for tax purposes, giving the buyer the stepped-up basis in the asset it seeks?”

 

Jim Maule, Putting More Tax Information “Out There” for the Tax Database Thieves:

Until and unless the protection of online data is heightened to a point of 99 percent confidence, the IRS should not create yet another vulnerability, another door through which the robbers can force their way in. In the meantime, why not focus on the problem rather than the symptoms? The underlying cause of some noncompliance is the complexity of the tax laws. Treating the symptoms does not cure the illness.

Agree.

 

Stephen Olsen, Summary Opinions for 8/31/15 to 9/11/15. Procedurally Taxing rounds up recent developments in tax procedure, “heavy on estate and gift this week.”

 

20151007-2

 

David Brunori, North Carolina Tax Changes — Sort of Good, Kind of Bad (Tax Analysts Blog):

On the good side, the state lowered the personal income tax rate from 5.75 percent to 5.49 percent. Lowering rates is usually good for the economy and for the people paying taxes. I believe that people know how to spend their money in ways that improve the economy much better than the government does. The state also expanded the no-tax exemption to $15,500, providing more relief for low-income taxpayers. In general that is a good thing.

On the super-negative front, the legislature is giving Hollywood moguls $30 million in each of the next two years to make films in North Carolina. I guess they haven’t read any of the studies showing that film credits don’t work. But why let facts stand in the way of policymaking?

It’s probably only a matter of time before they realize the wisdom of Iowa’s enlightened approach to hosting filmmakers.

 

Joseph Henchman, California Supreme Court Hears Arguments in MTC Case (Tax Policy Blog).

Roberton Williams, New Estimates Of How Many Households Pay No Federal Income Tax (TaxVox). “We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent.”  Mitt Romney, call your office.

 

TaxProf, The IRS Scandal, Day 881. Quoting Victor David Hanson: “What now constitutes actionable criminal behavior in the scandals at the IRS, EPA, ICE and a host of other alphabet agencies are not treated as per se violations of the law. Rather, they are judged according to whether the offender and his crime were deemed progressive and well-intended—or reactionary and thus prosecutable.”

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Part 1. Sometimes I think the TaxProf has to reach deep to have something to run every day, but his continued focus on the outrageous IRS behavior is a public service. I’m not sure Peter thinks there is a scandal in the first place.

 

Career Corner. Do PwC Employees Really Like the New Student Loan Perk? (Caleb Newquist, Going Concern). No word on whether the spiff is available in cash for those thrifty students who got by without loans.

 

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Tax Roundup, 10/1/15: Carried interests are good for you. State tax incentives aren’t.

Thursday, October 1st, 2015 by Joe Kristan

Public domain image via WikipediaSympathy for the Devil. The devil is “carried interest” taxation of partnerships interests. Megan McArdle discusses this devilry in Sure, Debate Carried-Interest Taxes. Or Something That Matters.:

It’s fundraising gold for Democrats, and a perennial talking point for liberal columnists: hedge funders pay taxes on some of their income at the lower rate for capital gains, rather than the higher rates assessed on “ordinary income” (read: money you earn by working).

If you only know about it from politicians, you get the idea that the only beneficiaries of the carried interest are hedge fund managers who light their cigars with $100 bills. If you see it in tax practice, though, it looks different.

The “carried interest” is really a profits interest, or a preferential allocation of profits, to an employee or manager of a partnership. A private equity manager might get no current equity in an investment, but a portion of the profits. The same rule lets a partnership give an interest in future earnings to the business’s managers or employees. It’s a partnership version of stock options (options are allowed for partnerships, but the differences between partnership and corporation taxation makes options less attractive in partnerships).

Carried interest opponents find this “abusive” when the business does well and gets sold. The result is a portion of the gain on the sale of the business goes to the managers and employees with carried interests, who may have not put cash into the business. But it’s the same total amount of gain taxed. It’s just that some of it gets allocated from the investors to the managers. The investors are presumably fine with it because they have gain to share — that’s why they cut the managers and employees into the deal in the first place.

But isn’t this abusive because it treats “compensation” as capital gain rather than ordinary? Not really — the investors are forgoing the same ordinary deduction, so the net effect is the same. There’s no conceptual reason why a profits interest — which by definition has no value when granted — can’t generate capital gain. (Of course, I think taxing capital gains in the first place is the real abuse). And in many cases the carry includes an allocation of ordinary business income in tax years prior to the sale, so for that part of the deal, there’s not even a conceptual abuse.

Ms. McArdle is puzzled about the attention the issue gets:

The carried interest issue is thus a convenient way for Democrats making stump speeches to claim that they’re really going to do something about inequality and cronyism, and maybe fund some important new spending on hard-working American families. With the entrance of Jeb Bush and Donald Trump into the arena, it is also a way for Republicans to seem tough on rich special interests while simultaneously proposing tax plans that will help affluent Americans hold on to a lot more of their income and wealth.

As with most Washington Issues, my actual level of concern about carried-interest taxation hovers somewhere between “neighbor’s bathroom grout drama” and “Menudo reunion tour.” Nonetheless, I’m beginning to wish that Congress would get rid of it without demanding anything in return, just to force politicians to talk about something that actually matters.

I’m less willing to just go along. Any “reform” of carried interest will complicate an already byzantine partnership tax law. It will inevitably create traps that will cause tax pain for people just trying to run their business and put beans on the table. At worst, it can become a potential nightmare like the Section 409A rules, which were enacted to punish long-defunct Enron, but which now menace any employees who have a deferred comp deal with their employer.

And of course any carried interest “reform” won’t shut up those who want to jack up taxes on “the rich” for more than a moment before they find another hate totem.

Related, but not agreeing: Peter Reilly, President Obama Could End Special Tax Treatment For Two Twenty Guys

 

20151001-1

Don Boudreaux, a blogging economics professor, makes a good case against the Export-Import Bank that works just as well against state “economic development” subsidies and tax credits (my emphasis):

Second, subsidies doled out by governments weaken, not strengthen, their economies.  To see why, suppose that other governments conscript all 22-35 year olds within their borders and force these conscripts to work at subsistence wages for the industries located within those countries.  Further suppose that the results are beneficial for corporate shareholders in those countries: their companies export more and rake in higher profits than they would without such conscription.  Should Uncle Sam therefore follow suit? 

Economically, the only difference between export subsidies as they exist today in reality and the above hypothetical is that real-world export subsidies are less extreme than is conscription.  Yet no essential economic difference separates real-world subsidies from such hypothetical conscription: each is a government policy of forcibly seizing resources from some people in order to bloat the purses and wallets of other people.

Substitute “economic development tax credits” for “subsidies” and “other states” for “other countries,” and you have the case against the tax credits paid for by Iowa taxpayers to lure and subsidize their competitors.

 

David Brunori, A Word of Advice for Legislators of All Stripes (Tax Analysts Blog). You should read the whole thing, but I especially like this: “That politicians can impose economic policy through tax incentives is more akin to a Soviet five-year plan than to anything Adam Smith ever said.”

 

Robert D. Flach, IRS UPDATES PER DIEM RATES FOR BUSINESS TRAVEL

Russ Fox, TIGTA: “IRS Can’t Track International Correspondence.” IRS: “So What.” “It turns out that the IRS doesn’t know what happens to much of the mail the agency sends overseas.” And it doesn’t much care.

TaxGrrrl, Government Shutdown Avoided For Now: Funding Bill Only Temporary.

Kay Bell, Federal government funded for 10 more weeks

 

20151001-2

 

TaxProf, The IRS Scandal, Day 875. Today’s installment features Robert Wood on newly-revealed bonuses to IRS employees:

As you read about bonuses, you might recall other reports saying that 61% of IRS employees caught willfully violating the tax law aren’t fired, but may get promoted.

And people wonder why anyone might not want this organization regulating tax preparers.

 

News from the Profession. Accounting Had a Toxic Culture Before It Was Cool (Leona May, Going Concern). “As ‘The Great Email Chain of 2013’ demonstrates, the public accounting workaholic culture has spawned a whole bunch of work-obsessed, white-collar monsters.”

Well, our little firm isn’t so monstrous. If you feel abused and would like to live in Central Iowa, drop me a line. We might be able to improve things for you.

 

 

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Tax Roundup, 9/28/15. IRS logic: A and B are part of set X. A is part of Set X, so B isn’t. And: Blood Moon!

Monday, September 28th, 2015 by Joe Kristan

 

Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

On further review, it’s silly. I’ve had a weekend to think about last weeks IRS “Action on Decision” to continue trying to collect self-employment tax on Conservation Reserve Program payments in the Eighth Circuit. It’s a poke in the eye of the court, and one that will probably not help the IRS when it inevitably has to defend itself before the Eighth Circuit Court of Appeals.

The gist of the IRS position is that because legislation was enacted in 2008 that specifically stated that CRP payments are payments for renting real estate, and therefore, not self-employment income, to taxpayers collecting Social Security, they suddenly become self-employment income to everyone else.

The Eighth Circuit majority ruled in Morehouse that CRP payments to non-farmers pre-2007 were real estate rentals. Logically, saying that a subset of those payments are real estate rentals shouldn’t by itself make other payments something else. But that’s what the IRS argues.

Unfortunately, the IRS has now made uncertain a seemingly-settled area of the tax law. They did so by taking a position that, if taken by a taxpayer, might trigger negligence penalties. It really is another example of the need for a “Sauce for the Gander” rule that would make the IRS liable to taxpayers for penalties for faulty IRS positions in the same way taxpayers have to pay penalties for bad positions to the IRS.

Prior Coverage at IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.

 

Scott Sumner has posted an outstanding set of tax policy observations: Our bizarre system of taxing capital (Econlog). You really should read the whole thing, but I’ll give you a taste:

It’s difficult to think of a more bizarre and foolish policy than the practice of taxing capital. Consider:

1. If it were appropriate to pay taxes on capital gains, why wouldn’t it be appropriate to pay negative taxes on capital losses? Economic theories tend to be symmetrical. And yet capital losses do not result in negative taxes, except in certain limited cases. And why only those cases?

2. Economic theory suggests that two people with essentially identical economic outcomes should pay identical taxes. But consider two people who both bought 1000 shares of Apple stock for $50/share at the beginning of the year. One sold the shares on November 9th at $100 and bought them back 5 minutes later at the same price. Both held 1000 Apple shares at year-end. To an economist those two outcomes are essentially identical. But one person must pay a large tax on capital gains, while the other does not. Why?

A fan of capital gain taxes would say that just means we should tax unrealized capital gains. Mr. Sumner is not such a fan:

A simpler and fairer solution would be to abolish all taxes on capital, and start over.

But because that would help “the rich,” it isn’t happening. Nothing is too stupid or counterproductive to do to them.

 

"Blod moon" photos by Jose Guerrero, taken in Columbia. Used by permission.

“Blood moon” photos by Jose Guerrero, taken in Colombia. Used by permission.

 

Robert D. Flach, WHAT ARE THE OBLIGATIONS OF A CLIENT?

A client should not take the finished returns from his/her tax professional and just sign and mail without actually looking at them. The client should carefully review all the forms and schedules that make up the returns before signing the return, and ask the preparer if there is something that he/she does not understand.

And that is the problem with clients who wait until the very last minute — I mean October 15, when no further extensions are available — to finish their tax information. They obviously aren’t going to give the return a good review when they have to immediately sign the e-file authorization or run it to the post office. But if there is something seriously wrong, the IRS isn’t going to take “I didn’t have time to review before filing” as an excuse.

 

Kay Bell, Electric vehicle tax credits favor the wealthy. You don’t see many Teslas, or for that matter Chevy Volts, in poor neighborhoods.

Paul Neiffer, Involuntary Conversion of Livestock. “If a farmer sells livestock because of consequences of a drought, the payment of income tax on the taxable gain from the sale may be postponed.”

Jason Dinesen, How to Calculate an RMD. If you don’t start withdrawing from your IRA when you hit 70 1/2, the penalties pile up.

Jim Maule, Taxation of Prizes, Question One. “So a person wins a prize, tells the company awarding it that the winner cannot accept it because it will be taxed, creating a liquidity problem, and the company spokesperson says, in effect, ‘Not a problem, it’s not in cash, we won’t send a Form 1099.'”

Peter Reilly, A Slick Estate Planning Trick And Intimations Of Mortality. “The Tax Court decision in the case of Jean Steinberg is a great example of planners taking a rule that is meant to prevent taxpayers from getting away with something and using it to, well, get away with something.”

Russ Fox, Neymar Tax Evasion Investigation Continues; Judge Freezes $48 Million of Assets. Considering how impossible Brazil’s tax system is, it would be surprising if somebody there weren’t guilty of a tax crime.

 

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Tony Nitti, House Bill Would Give Tax Deduction, Credit In Exchange For Learning Science And Math. The tax law. Is there anything it can’t do?

 

Jack Townsend, GE Asks the Supreme Court to Screw Up Again to Bless a BS* Tax Shelter. *Expletive deleted.

Leslie Book, Fifth Circuit Tackles Intersection of TAO Rules and Statutes of Limitation (Procedurally Taxing). “Earlier this week in Rothkamm v US, the Fifth Circuit issued an opinion that considered whether a wife’s application for a Taxpayer Assistance Order (TAO) concerning a recovery of funds levied from her bank account to satisfy her husband’s tax debt tolled the nine-month wrongful levy statute of limitations.”

 

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David Brunori on historic preservation credits ($link): “Nothing says boondoggle like giving rich folks tax dollars to fancy up old buildings.”

TaxProf, The IRS Scandal, Day 870Day 871Day 872. Including musings about how the IRS gagged on Tea Party gnats but swallows Clinton Foundation camels.

Scott Greenberg, Senate Democrats’ Bill Would Overhaul the Treatment of Energy in the Tax Code (Tax Policy Blog):

Currently, nearly every source of energy is subsidized to some extent by the federal government. This means that the U.S. economy is more energy-heavy than it would be under normal market conditions, leading to an inefficient allocation of resources. The Senate Democrats’ bill would continue to heavily subsidize energy production in the United States.

In general, tax expenditures, such as energy subsidies, leave the federal government with less revenue, requiring higher tax rates overall on individuals and businesses.

Anybody who thinks Congress will wisely allocate these subsidies to create our optimal energy use mix for the country hasn’t been paying attention in recent decades.

Renu Zaretsky, A Resignation, and… Resignation. Today’s TaxVox headline roundup covers the implications of Speaker Boehner’s resignation, a politician promising more tax credits! and the sublime awfulness of trying to pay business taxes in Brazil.

 

News from the Professon. Deloitte Dabbles in Orwellian Tracking Devices (Greg Kyte, Going Concern). “The gadget looks and works like what you would expect if an ID badge had sex with an iPhone.”

 

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