Posts Tagged ‘David Cay Johnston’

Tax Roundup, 4/11/14. Why we extend. And: Tax Doctor, Tax Fairy?

Friday, April 11th, 2014 by Joe Kristan

4868Some folks just don’t like extensions.  Maybe they want their refund NOW.  Maybe they have never extended their return before, and they think it is somehow against the rules.  Some people believe an extension invites the IRS to come in and audit them.  And some people think they are just so special that they can bring in a complex return missing K-1s on April 10th and the preparers should just drop everything and get them filed somehow.

There isn’t much to do for the last category, except perhaps medication, or a thrashing by a crazed sleep-deprived preparer, but for more sensible folks, a basic understanding of extensions might help.

Extensions aren’t against the rules; the rules specifically provide for them.  Even in simpler times, tax administrators knew that it isn’t always possible for a busy person to put together all of the pieces of a tax return by April 15.

You still should pay up.  While extensions give you more time to file your tax return, they don’t give you extra time to pay.  The tax law asks you to estimate your tax liability and penalizes you  if you don’t have at least 90% of your taxes paid in by the April 15 deadline; the penalty is 1/2 percent per month.

Why bother with an extension if I can’t delay payment?    Probably the most important one is that if you are short of cash, the penalty for late payment on a return that you didn’t bother to extend is 5% per month — ten times the penalty for late payment on an extended return.  It forces you to at least take a stab at guessing your liability, helping you identify what pieces you have to gather to complete your extended return.  It also keeps you in compliance, and once you stop filing on time, it can be a hard habit to break.

But won’t it get me audited?  There’s no evidence that an accurate extended return filed during the extension period is any more likely to be audited than it would be filed on April 15.  The IRS selects returns based on what’s on them, now on whether they are extended.

There’s plenty of evidence that returns with errors are more likely to get extra IRS attention.  A return thrown together at the last minute is more likely to have errors than an extended return done during normal working hours by somebody who’s had some sleep.    For what it’s worth, I have extended my own return every year since 1991 with no IRS examination (knock wood).

Efile logoEfile logoe-file logoHow do I extend?  You file Form 4868 either on paper or electronically, along with any necessary payment, by April 15.  The IRS has more details here. It’s common to pay in enough to also cover your first quarter estimated tax payment with the extension.  It gives you some cushion in case you find more 2013 income while completing your return, and you can apply your return overpayment to your  2014 estimated tax when you do file your 2013 1040.

States have their own rules.  Iowa automatically extends your return without the need to file an extension form if you are at least 90% paid-in by the April 30 due date.  If you need to send them some money to get to 90%, you send it with Form IA 1040-V.

Our series of 2014 Filing Season Tips goes right through April 15.  Check back tomorrow for another one!

Russ Fox, Bozo Tax Tip #3: Be Suspicious!

 

tax fairyBelief in the Tax Fairy peaks at tax time.  The Tax Fairy is that magical sprite who will make all of your taxes go away painlessly while your sucker friends still send checks to the tax man.  It’s amazing what Tax Fairy adherents will believe.  Consider a Californian who worked as a software consultant.  He was put in touch with a “Tax Doctor” (my emphasis):

Early in 2006 petitioner’s friends recommended that he talk to the “Tax Doctor Corporation” (Tax Doctor) operated by a person representing himself to be Dr. Lawrence Murray (Murray). Petitioner spoke with Murray and members of Murray’s staff. Petitioner’s discussions with Murray and his staff consisted mostly of “a bit of a sales pitch”. They explained how they would handle his tax return preparation, what the tax savings would be, and the “structure” they would use.

Murray proposed setting up two corporations and preparing petitioner’s individual and corporate Federal income tax returns. Murray explained to petitioner that one corporation would be “operational” and the other would focus on “management”. Petitioner was unsure at trial which corporation was the operations entity and which was the management entity. Under the agreement with Murray petitioner would pay the Tax Doctor, as a fee for setting up the structure, the amount of the tax savings generated by the use of the structure. 

What could go wrong?

His C.P.A. told him that she was willing to incorporate his business activity but she would not do what the Tax Doctor had proposed because it was very aggressive. Petitioner, despite the advice of his C.P.A., decided to accept the proposal of the Tax Doctor.

I don’t need a CPA, I have a Tax Doctor!

Petitioner filed his 2006 Form 1040, U.S. Individual Income Tax Return, showing taxable income of zero. Nev Edel, one of the corporations the Tax Doctor formed for petitioner, filed a Form 1120, U.S. Corporation Income Tax Return, for the fiscal year ending (FYE) November 30, 2007. Nev Edel reported gross receipts of $285,785, total income of $291,669, and total deductions of $295,214. The largest single deduction was $237,600 for “contracted services”. Smoge Corp., the other corporation the Tax Doctor formed for petitioner, filed a 2006 Form 1120S, U.S. Income Tax Return for an S Corporation. Smoge Corp. reported total income of $186,640 and total deductions of $188,644. The largest single deduction was $172,166 for “contracted services”.

Somehow things went awry.

Murray was prosecuted and convicted in 2010 of Federal crimes associated with the preparation of his own returns and the returns of others.

This presumably led to IRS attention to our consultant’s returns, and a big assessment.  The taxpayer tried to avoid penalties because he relied on the Tax Doctor in good faith.  The Tax Court thought otherwise:

The advice of the C.P.A., who had no financial stake in the outcome of petitioner’s return positions, should have put petitioner on notice that additional scrutiny of Murray’s advice was required.

The moral?  If your tax professional, who does this for a living, says something is bogus, they just might be right.  And there is no Tax Fairy.

Cite: Somogyi, T.C. Summ. Op. 2014-33.

 

20140411-1William Perez, Six Things to Do Before April 15th

Kay Bell, What are ordinary & necessary business expenses? It depends

TaxProf, The IRS Scandal, Day 337.  More a boatload than a smidgen today.

That’s OK, you can just send me a gift card. Christopher Bergin, The Gift That Is Lois Lerner (Tax Analysts Blog):

Something bad happened here. And however bad her behavior, the problem isn’t Lerner. The problem is a culture that allows what she did to continue and that probably allows behavior that’s much, much worse.

Andrew Lundeen, What Could Americans Buy with the $4.5 Trillion They Pay in Taxes? (Tax Policy Blog).  A nice gift card, perhaps.

TaxGrrrl, House Committee Votes To Hold Lerner In Contempt, Others Push For Criminal Prosecution

Joseph Thorndike, How Dave Camp’s Failure Might Be Michael Graetz’s Victory (Tax Analysts Blog)

Peter Reilly, Clergy Out In Force To Defend Their Housing Tax Break   

Sports Corner: David Cay Johnston vs. Tax Girl on Twitter: PLACE YOUR BETS (Going Concern)

 

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Tax Roundup, 4/8/14: So what do I do with the K-1? And: they also serve who go away!

Tuesday, April 8th, 2014 by Joe Kristan

So the K-1 finally showed up from my partnership or S corporation investment.  Now what?

Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it.  Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go.  Sort of.  Before you get started plugging in your numbers, you should answer some questions for yourself.

- Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax.  If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.

- Did the thing lose money?  If it lost money, then you have to clear three hurdles to deduct the losses:

1. You have to have basis.  This starts with your investment in the thing.  If you loaned money directly to the thing, you will get basis for the loan.  If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1.  S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder.  Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions.  If you have no basis, you can’t take losses.

2. Your basis has to be “at-risk.”  This normally means that you are out-of-pocket for the investment.  If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.

If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1.  Your at-risk amount is computed on Form 6198,

3. You have to materially participate (see above), or have “passive” income from other activities.  If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.

 Got that?  Tomorrow we’ll look at what you have to do after you answer these questions.  Come back every day through April 15 for more !

 

Senator Hubert Houser

Senator Hubert Houser

Legislator of the Century.  Yes, the century is young, but it will be hard to beat the accomplishment of Iowa state senator Hubert Houser.  He went home.  From The Des Moines Register:

At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.

Houser was not present in the Senate chamber again on Monday.

Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.

The coverage implies that Sen. Houser is doing a bad thing.  Considering the dubious accomplishments of the ones that do show up, I can’t agree.  We’d be better off if they all went home.  The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.

 

Of course they do.  Iowa House panel OKs $2 million tax break for Knoxville Raceway.  (Des Moines Register)

 

RashiaQueen of IRS tax fraud needs a break.  Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:

Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031. 

Then she’ll really get after it, I’m sure.

 

Peter ReillyNo Money For April 15 1040 Balance Due? Don’t Panic!

Tony Nitti, Where Is Your Tax Home When You Work In A Foreign Land?   

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me.  “I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”

I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980.  I learned that I have a face for radio and a voice for print.

 

Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It

 

Locust Street, Des Moines

Locust Street, Des Moines

TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress.  She gives him more credit than I do.

Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)

Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters.  The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.

Kay Bell, Energy efficient home improvement tax break might be back

TaxProf, The IRS Scandal, Day 334

News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)

News from the Profession.  According to Research, You Are Fat Because Busy Season (Going Concern)

 

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Tax Roundup, 10/7/2013: Not everything the IRS auctions is as glamorous as the Chromaro. And another Tax Fairy sighting!

Monday, October 7th, 2013 by Joe Kristan

Last week we mentioned the Chromaro, a toy seized by the government from a man who tricked out a Camaro with proceeds stolen from the IRS via identity theft refund fraud.  It will eventually be auctioned off to help recoup a small fraction of the stolen money.

The IRS Auction site lists other items the IRS has received from hapless taxpayers, many of which may be more difficult to unload than a Chromaro.  For example, this “Small Town Establishment – Bar/Lounge, 1,764 SF” in Blue Grass, Iowa, “Locally known as 202 W. Mayne Street, Blue Grass, Iowa”:

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202 W. Mayne Street, Blue Grass, Iowa. IRS image.

 

Not nearly as shiny as the Chromaro.  Googling the street address generates the result “Harley’s Bar & Grill,” which probably means that it’s not a clubhouse for Kawasaki owners.  Whatever the clientele, it’s not nearly as shiny as the Chromaro.

chromaro

 

Kay Bell,  Audit target? You’re getting a bit of a shutdown break

Janet Novack, Can’t Stop The Machine: During Shutdown, IRS Computers Still Churn Out Tax Liens, Levies And Bills: 

The IRS sends out more than 2 million entirely automated  “math error” notices a year telling taxpayers they made an arithmetic error, omitted a kid’s Social Security number, claimed a credit incorrectly, or otherwise did something the IRS considers a mistake.  These computer generated notices are “summary assessments”—meaning the taxpayer owes the extra money unless he contacts the IRS within 60 days to clear up the issue and to preserve his appeal rights. Good luck with that. No one is answering the phone or reading the mail at the agency.

Funny how it is essential to kick old people out of their private homes just because they are on government land, but it is also essential to not lift a finger to help taxpayers receiving erroneous tax notices from robots.

 

David Cay Johnston, The Importance of Tax Tribunals (via the TaxProf).  Iowa has a poor system of tax appeals that is stacked against the taxpayer, but even Iowa’s flawed system is better than that in many states.  The real answer is a dedicated Iowa tax court to enable Iowans to have their tax cases heard by judges who actually know a little about taxes.

 

Jack Townsend, To Opt Out or Not to Opt Out – That is the Question.  It refers to the IRS offshore “amnesty” program.

Leslie Book,  Court of Federal Claims Holds that Agent’s Fraud Does Not Extend Statute of Limitations (Procedurally Taxing)

TaxGrrrl, Lauryn Hill Leaves Prison Early, Releases New Single All In 24 Hours   

 

tax fairyPeter Reilly, Unveiled God Needs A Lawyer In US District Court :

There is a concept that my blogging buddy, Joe Kristan, calls the Tax Fairy - “the magical sprite that can make your taxes go away with fancy tax footwork”.  Corporation Sole has been a Tax Fairy wannabee for a while.

But, as Peter notes, there is no Tax Fairy.

 

 

Russ Fox,  Yet Another Reminder that a License Doesn’t Always Mean Ethical Behavior

The idea that just because people have licenses that they will all suddenly go the straight and narrow is laughable. There were tax crimes years ago; there will be tax crimes in the years that follow…licensing or not.

But with licenses, the government gives the cheater a seal of approval.

 

Lyman Stone,  The Vicious Cycle of New Jersey Property Taxes (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 151

The Critical Question:  What’s the Matter with Oregon’s New Tax Deal?  (Tax Justice Blog)

 

News from the profession: Accounting Student Struggles with Love, Money, Blemish of Unknown Origin (Going Concern)

 

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Brian Gongol

The Treasury Department does a lot of things, but the original Treasury Act of 1789 didn’t say anything about a responsibility to the economy as a whole; instead, it charged the Treasury with making and keeping accounts by collecting taxes and other revenues and by managing how they are spent. At a time of government shutdown, perhaps it’s worth asking whether we’re keeping the Treasury occupied enough with its essential tasks, and not over-extending the scope of responsibility far more than is healthy for the department (and the country). Mission creep that grows to the extent that the Treasury Secretary thinks his primary job is to manage the economy (rather than to collect taxes and pay the nation’s bills) probably points us in the wrong direction. 

That’s a very diplomatic understatement of the problem.  The federal income tax law, just one subset of the Treasury’s portfolio, is designed to manage the economy in all kinds of ways.  A few, just off the top of my head:

Industrial research

Manufacturing

Ethanol Production

Wind energy

Exports

College education

Subsidizing residential rents

Subsidizing home ownership

Subsidizing old buildings

And now, running the nations health care finance system.

The wisdom of the government in trying to do any of these things at all is at best debatable, and doing it all through the income tax is folly.  Yet the politicians continue to use the income tax as the Swiss Army Knife of public policy.  And like the Swiss Army Knife, if you add too many gadgets to it, it stops being very useful at anything.

 

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Tax Roundup, 7/19/2013: You can run a red light edition. And saving the republic, one tail light at a time.

Friday, July 19th, 2013 by Joe Kristan

gatsoThe first central Iowa town to install revenue cameras has turned them off.  The Des Moines Register reports:

 The Clive City Council on Thursday night voted to discontinue the use of red-light cameras to enforce traffic violations.

The council voted 3-2 to reject a contract with Redflex Traffic Systems Inc., which has provided the city red-light camera service since the program began in 2006. The nine cameras positioned along Hickman Road now will no longer be in service.

So carnage on Hickman Road, now, right?  Yeah, right.  But it’s not over yet:

Mayor Scott Cirksena said after the meeting that city staff would work to reach an agreement with the camera provider that could gather a majority vote.

Council members Ted Weaver and Michael McCoy said they would like to see the city wean itself away from using red-light revenue for general fund expenditures. City Manager Dennis Henderson said the city expects the red-light camera program to bring in approximately $700,000 during the current fiscal year, which began July 1

It’s obviously about the money, though you find the pro-forma claims that ticketing people who don’t quite stop when making a right turn on red at an empty intersection makes us all safer, if you read down to paragraph nine.  Let’s hope Des Moines and Polk County follow suit, but don’t hold your breath.

 

 

Of course they do.  Four Cedar Rapids-Metro Area Mayors Support Local Option Sales Tax Extension (KCRG.com). And RAGBRAI riders support free beer extension.

 

I bet the IRS heard about this guy through the grapevine.  From Star-Telegram.com:

Larry Lake, part owner of Grapevine Drug Mart, and his son, Travis Lake, who managed the drug store, each failed to report income on their federal tax returns, according to a news release from the U.S. Attorney’s office.

Larry Lake was sentenced to 14 years in prison and ordered to pay a $550,000 fine as well as taxes, interest and penalties, which equal about $25 million, the release said.

The Texas men may well have gotten in trouble not just from evading taxes, but from the way they did their banking:

From August 2006 to November 2009, Larry Lake and his spouse, Kathy Lake, agreed to structure hundreds of currency deposits into at least 13 bank accounts, according to a federal indictment. The couple created at least two shell companies that were used to open up the accounts involved in the structuring scheme, which amounted to $9.3 million, federal officials said.

“Structuring” involves breaking cash deposits up into amounts under $10,000 to avoid the rules requiring banks to report currency transactions.  But banks are also required to report if it looks suspiciously like somebody is trying to get around the $10,000 reporting rule.  You come into a bank enough times with wads of cash, but never $10,000, and the tellers will remember you.

 

TaxProf, The IRS Scandal, Day 71.  A bad day for the “nothing to see here” folks.

Robert W. Wood, IRS Inspector Shellacs Oversight Committee About Tea Party Scandal

 

Kay Bell, Tax reform’s chances are better than 50 percent:

Rep. Dave Camp (R-Mich.), head of the Houses Ways and Means Committee, and Sen. Max Baucus (D-Mont.), leader of the Senate Finance Committee, each put the possibility of tax reform passage at greater than 50 percent.

The gung-ho comments were made during an appearance today at the Economic Club of Washington.

I’d agree, if you are talking about in the time before the sun curls into a cold cinder.  If you are talking about this Congress, I’ll bet the other way.

Kyle Pomerleau, Japan to Lower its Corporate Rate Further? (Tax Policy Blog)

David Cay Johnston, More Tax Dollars There, Not Here (Tax Analysts Blog)

 

Jason Dinesen, Patient-Centered Outcomes Trust Fund Fee – An Exercise in Bureaucratic Futility $100 of cost to compute a $3 tax.

Peter Reilly, Real Estate Pro Status Does Not Mix With Full Time Day Job.   Back from the Civil War, Peter has been busy with new tax posts.  This one explains the difficulty of being a “real estate professional” when you have other work.

 

Sean Raisch,  Medicare Taxes on High Earners (Davis Brown Tax Law Blog)

William Perez, IRS Update for July 19, 2013.  Sort of a web weekly bulletin of IRS releases.

 

Greg Mankiw, The Changing Distribution of Income:

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Mark Perry points out:  “Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class.”

It’s Friday, so it’s Buzz Day at Robert D. Flach’s place!

 

The Critical Question:  Do Low-Income Taxpayers Cheat? (TaxVox)  He has a lot more faith in the good nature of humankind than I do.

 

TaxGrrrl, How To Stay Out Of Jail: Lessons Learned From The ‘Queen Of IRS Tax Fraud’:

If you do steal, and you talk about it, don’t do it on Facebook I don’t care what you think you know about privacy settings, when you put something out there on Twitter or on Facebook, it’s not protected. As a taxpayer, that means you should avoid posting personally identifying information like tax ID numbers and your address (the IRS Facebook page won’t allow you to post comments for that reason). And you should certainly avoid posting photos of yourself surrounded by stacks of cash with such gems as:

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Hard to argue with that advice.  Russ Fox has more.

 

Nude drunk guy saves the republic. Police: Drunk naked man broke out car tail lights (press-citizen.com, via The Beanwalker):

According to the complaint, Flaherty broke out the tail lights to three cars and told officers that he was breaking the red in the tail lights because red means danger to the republic.

I’ll have what he’s having.

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Tax Roundup, 6/28/2013: Not dead yet edition

Friday, June 28th, 2013 by Joe Kristan

20120928-2Thought the IRS scandal was dead? IRS Inspector Firm on One-Sided Targeting; Small Number Faced Extra Scrutiny, While All Tea-Party Applications Were Reviewed (Wall Street Journal):

Internal Revenue Service employees flagged for extra scrutiny fewer than a third of progressive groups applying for tax exemptions from mid-2010 through mid-2012, compared with 100% of conservative applicants, an IRS inspector general said.

The new data, released in a letter to Democratic lawmakers that was dated Wednesday, appear to support Republicans’ contention that conservative groups were subjected to more IRS scrutiny, and undercut Democrats’ case that the IRS treated left-leaning and right-leaning groups similarly.

Just saying it’s over doesn’t make it so.

TaxProf, The IRS Scandal, Day 50

Christopher Bergin, Get to the Bottom of It  (Tax Analysts Blog)

Clearly, there is a problem at the IRS, a serious one. And that does not just apply to exempt organizations, which, frankly, have always been the third rail of national tax administration. What’s going on is not funny or entertaining. What’s going on means the country is in trouble.

While I am more easily entertained then Christopher, I agree with his conclusion.

David Cay Johnston, Revelations Show Lois Lerner Blew It  (Tax Analysts Blog)

 

Linda Beale isn’t on board with the IRS “apology payment” plan floated by the Taxpayer Advocate:

This seems to me to be a very very bad idea.  Creating payments for jobs not perfectly done implies a perfection that simply isn’t achievable in large institutions with multi-faceted functions.

OK, fine — but if it’s not achievable for a giant institution with enormous resources and all the time in the world, maybe it’s not achievable for small institutions with with “multi-faceted functions” and far fewer resources under severe time constraints — like your average business or your local Tea Party run by activists in their free time.  Maybe the IRS shouldn’t so routinely assert penalties on audit deficiencies.  Until they stop, though, I say sauce for the goose, sauce for the gander.

 

Remember when the state-run Iowa Cable Network was going to make Iowa the cutting edge tech state?  Iowa tries to sell ICN, but gets bids from only one prospect (Thegazette.com, via Gongol)

 

More DOMA demise fallout

William Perez, Tax Issues of the Supreme Court Ruling that DOMA is Unconstitutional

Margaret Van Houten, Tax Implications of DOMA Ruling   (Davis Brown Tax Law Blog)

Peter Reilly, DOMA Decision May Affect Civil Unions

Tax Justice Blog, What Are the Tax Implications of the Supreme Court Ruling on Marriage Equality?

 

In other news…

Trish McIntire, Amortizing Your Life:

I get asked occasionally if a client can take the value of their time as a deduction. They’ve done the repairs on a rental house themselves and they want to deduct what they would have paid someone else to do it or they have worked for a charity and would like to use their time as a charitable deduction. Of course, the value of one’s time is not deductible. 

Philip Hammersley, Elizabeth Malm, Pennsylvania’s Family Business Death Tax on Life Support (Tax Policy Blog)

Howard Gleckman,  Can The Baucus-Hatch Blank Slate Plan Jump Start Tax Reform?  (TaxVox)

TaxGrrrl, What Back Taxes? Senate Passes Immigration Reform Bill, Goes Easy On Tax Repayment

Robert D. Flach is ready with your Friday Buzz!

 

Going Concern, Oregon Department of Revenue Sensitive to the Fact That Some Religious Groups Think Filing Tax Forms Electronically Is of the Devil.  There are days when I think that’s right if you leave the word “Electronically” out.

 

It looks like I have to update my blogroll for Megan McArdle for what — the fifth time?  But Megan was one of the first economics bloggers, and she’s well worth following to her new blog home.

 

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Tax Roundup, 5/10/2013: Pork and Tequila edition.

Friday, May 10th, 2013 by Joe Kristan

Politicians advance plan to allow politicians to give more tax money to private businesses.  From TheGazette.com:

Iowa communities would be able to designate special 25-acre development zones and use a share of sales tax and hotel-motel tax revenues to assist private projects of at least $10 million under legislation that’s getting bipartisan support.

House File 641 would establish reinvestment districts designed to spur development of “big ideas,” said Sen. Matt McCoy, D-Des Moines, who led a Senate Ways and Means subcommittee that revamped the bill representatives approved 87-9 last month.

This is, of course, an awful idea.  Politicians are notoriously bad at allocating investment capital, and they tend to make sure it goes to their cronies and contributors.  But when the state’s Governor, a member of the purported small government party, does an end-zone dance over a giant federal subsidy to a private utility controlled by a billionaire, the battlefield is left to the crony capitalists.  The House version of HF 641 passed 87-9.

 

 

David Cay Johnston, No Bang for the Buck (Tax.com)

New York State’s comptroller says giving $2.8 billion in tax breaks over  five years added more than a million jobs, which would be great news except that the state lost jobs.

I’m confident Iowa’s job-creating tax breaks work just as well.

 

Kyle Pomerleau,  Suggested (Large) Tax Increase on Investors is Far From International Standards (Tax Policy Blog)

For capital gains, the current law is already out-of-step with international standards. After the fiscal cliff, combined state and federal capital gains rates increased from 19.1 percent to 28 percent. This is more than 10 percentage points higher than the international average. One suggestion, of course, is to tax capital gains at the rate at the 1986 rate of 28 percent. This would push America’s average combined federal and state capital gains rate to more than 35 percent, more than double the international average.

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Kay Bell,  Tax-writing committee chairmen launch tax reform website

Howard Gleckman,  Will the Slowdown in Health Cost Growth Change the Budget Debate?  (TaxVox)

Patrick Temple-West,  Tax collections from wealthy are saving government, and more (Tax Break).

Russ Fox,  How Long Should You Keep Your Tax Returns For?

Jim Maule, It’s Not a New Tax

Robert D. Flach offers your Friday Buzz.

 

Jack Townsend,  IRS, UK and Australia Joint Efforts on Offshore Accounts

Linda Beale,  Moving in the right direction: US, UK, Aussies to share tax info

 

Inspirational tax blogging.  No, really:  Five Years After A Brain Aneurysm, Fear Of Dying Can’t Make Me Quit Living  (Tony Nitti).  Inspiring and moving.

 

News you can use.  Book On New Jersey Wines Does Not Support Deducting Trips To France (Peter Reilly)

 

Her sister Everclear wasn’t implicated.  From nbc-2.com, Ft. Meyers:

A chance traffic stop on I-75 in Lee County uncovers a massive tax fraud scheme. Deputies say the woman accused used her job to steal personal information – even stealing from people who were dead.

Thursday, 23-year-old Tequila Gordon was sitting in the Lee County Jail. Her bond was set at $72,000. 

Prosecutors say she worked at liberty tax services in 2009 and stole personal information from dozens of people.

I would think having a first name of “Tequila” would make getting a good job challenging.  It won’t be any easier now.

 

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Tax Roundup, 5/6/2013: Iowa tax policy receives recognition! And – potassium forever?

Monday, May 6th, 2013 by Joe Kristan

20130117-1David Brunori doesn’t think much of the tax wisdom of the Iowa House of Representatives ($link):

The Iowa House of Representatives recently passed the Iowa Reinvestment Act, which would allow companies to keep sales tax revenue they collect rather than turning it over to the general fund as the citizens think will happen. Basically, the act is designed to allow businesses to recoup the cost of development. The state has done that before to allow the public to help finance a speedway and other projects that apparently  can’t be justified in the free market. The vote for that abomination of tax policy was 87 to 9. That’s what we call bipartisan bad tax policy.

Just more of using your money to subsidize the well-lobbied and well-connected.

Related: David Cay Johnston, Subsidies – Good News and Not So Good (Tax.com)

 

Jim Maule leaps from his blog to Tax Notes, IRS-Prepared Tax Returns: A Theory That Doesn’t Work in Practice.  (Via the TaxProf):

The idea of the IRS preparing individuals’ returns is a classic example of a theory that cannot survive in a practical  world. Like most theories, it deserved an experiment. It had that chance, in California, and it failed, with only a tiny portion of the eligible population deciding to participate.

Making taxpayers’ lives easier is a matter of simplifying the tax law, not enabling the complexities by turning tax preparation over to the IRS.

This strikes me as wise.  I just can’t imagine IRS data processing ever making this possible, considering the complexity of the income tax and the way Congress changes it all the time.

 

Brian Gongol on the Obama Administration’s proposed $3.4 million cap on retirement account accumulations:

On one hand, $3.4 million is a lot of money — nobody should doubt that. But we’re also nearly completely blind in America to how much is “enough” for retirement. Many people would say the word “millionaire” and imagine Uncle Pennybags or Uncle Scrooge. But consider this: If you wanted to get $40,000 a year in retirement income and do it just on interest payments alone (in other words, if you were trying to avoid taking anything out of your nest egg and just live on the interest), then if you had your money in “safe” 10-year Treasuries earning 1.78%, then you’d have to have more than $2.2 million in the bank. Under those conditions, “rich” doesn’t really look so rich anymore.

I don’t think the nation’s biggest problem is people saving too much.

 

Holding your breath for tax reform?  Exhale.  Martin Sullivan says tax reform is on the Fast Track to Nowhere. (Tax.com)

Donald Marron,  Immigration, Dynamic Scoring, and CBO (TaxVox)

 

Kay Bell,  5 tax tips for Cinco de Mayo

Brian Mahany,  FINRA Issues Warning On Nontraded REITs – Stockbroker Fraud Post

We have written several times about the dangers of nontraded or thinly traded REITs. They are a popular way of investing in real estate but they can be difficult to sell or liquidate if an investor suddenly needs cash.

I saw an elderly, ill client with severe cash problems while holding a private REIT investment that he couldn’t cash out.  This really does happen.  This is not a problem with widely-traded REITs, which are as liquid as any stock.

Jim Maule,  Why the “Toss Tax Records After Three (or Seven) Years” Advice is Bad.  I never throw away tax returns, and you need to keep records to support the cost of shares and big assets.  If you have loss carryforwards, you need to keep the records that support the losses as long as you are using the carryforwards.

Trish McIntire, RAL Fees in Court

Scott Hodge, In Memorial: Gordon Paul Smith.  We lose an important tax scholar.

 

Jack Townsend,  Article on Singapore Crackdown on Singapore Bank Accounts Used for Other Country Evasion

 

The tax law: is there anything it can’t do?  Scientist Pitches Proposal to Curb Bird Deaths: A Tax On Cats  (TaxGrrrl)

 

Potassium forever?  An accused embezzler apparently was in no hurry to stand trial.  From StarTribune.com:

A Texas man faces more than 16 years in federal prison for his role in a scheme to bilk nearly $400,000 from his former Eagan employer, Advantage Transportation.

Clayton “Craig” Hogeland, 43, also obstructed justice by faking a life-threatening medical condition, U.S. District Judge Patrick Schiltz found. That caused delays for both his trial and sentencing hearing.

How did he delay his trial?

Further health-related delays stretched out the trial before his conviction on Dec. 6, 2011. He was placed in custody Jan. 8, 2013, and the erratic blood potassium readings stopped. Six days later, his wife reported to federal authorities that she found in his belongings four zip-top bags of what turned out to be potassium chloride.

Despite his continuing complaints about symptoms after being jailed, tests revealed no abnormal blood potassium levels, the prosecution said.

I’m not sure this was well thought-out.   What’s the next move?  More potassium?  Maybe when you are looking at 16 years in federal prison, delay is its own reward.

 

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Yes, let’s talk about the IRS budget.

Thursday, May 2nd, 2013 by Joe Kristan
One place where the IRS spends its money.

One place where the IRS spends its money.

Going Concern tells us that David Cay Johnston Would Like To See More News Articles About More IRS.  He thinks the reduction in IRS funding from the sequester should be treated as a bigger deal.

Fine.  It’s important.   Let’s expand our discussion and talk about how the IRS is spending the money it already has. For example, it is spending lots of money to go to court to expand its power over tax preparers.  It is spending money lobbying Congress to overturn the court decision thwarting its preparer regulation power grab.  If it succeeds, it will spend millions imposing busy work requirements on preparers that will cost taxpayers many millions more while lining the pockets of the big franchise tax prep firms.

It is spending money prosecuting a widow who tried to come clean on foreign bank accounts she inherited.  It spends money beating up on honest taxpayers who innocently run afoul of obscure foreign account rules.

While it spends money on these things, it sends billions of dollars of your tax money to identity thieves each year.  It sends over $10 billion annually to earned income tax credit scammers.  It spends very little to help the honest taxpayers whose identities are stolen, and what it spends isn’t very effective.

So yes, let’s talk about IRS spending.  And let’s talk about what they should be spending it on.  Spending more on not sending money to thieves would be a good start.

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Tax Roundup, 5/2/2013: Peter Fisher takes on The Tax Foundation. And I’m a video star.

Thursday, May 2nd, 2013 by Joe Kristan
Peter Fisher

Peter Fisher

Cage Match: Iowan Peter Fisher takes on the Tax Foundation.  Mr. Fisher has written a study for Good Jobs First, a left side advocacy group.  Mr. Fisher who shows up in The Tax Update occasionally, doesn’t care for the Tax Foundation’s Business Tax Climate Index:

The TF, on the other hand, despite claims to the contrary, ignores the consensus approach to assessing business taxes in the economic literature and attempts to portray the effect of state and local tax law on business profits in an entirely different fashion: by stirring together no less than 118 features of the tax law and producing out of that stew a single, arbitrary index number. That number turns out to bear very little relationship to what businesses actually pay.

Here Mr. Fisher makes the same mistake he makes when he defends Iowa’s highest-rate-in-the nation corporate income tax, which collects very little net revenue because it clobbers some taxpayers while paying generous subsidies to the well-connected and well-lobbied.  He concludes that means Iowa’s corporation tax doesn’t matter because of the low net collection.

A good business tax climate, to the Tax Foundation, doesn’t take money from some businesses and give most of it to other businesses; good policy is based on “simplicity, neutrality, transparency, and stability.”  I agree.

As the Tax Foundation explains in its response to Mr. Fisher:

 The problem here is that we do not claim to measure business tax burdens. We measure and rank tax structures, and this because the size of a tax is less important than the economic distortions it creates. This is a fundamental error in Fisher’s understanding of tax policy.

Mr. Fisher seems more focused on “equity,” whatever that means.  But even if you think the tax law should be used to punish the rich and reward low incomes, cross-border mobility makes state tax systems an awful place to to that.

 
Tony Nitti,  Overview Of The New 3.8% Investment Income Tax, Part 3: Gains From The Sale Of Property.   Tony discusses the ridiculous proposed rules on sales of pass-through businesses, among other things.

TaxGrrrl,  IRS Rolls Out More Proposed Regulations On Health Care As “Train Wreck” Comments Continue To Make Rounds.   “Train wreck” is a term that frequently makes the rounds in the vicinity of train wrecks.  This batch of regs covers “minimum value” for determining whether coverage disqualifies individuals from premium credits.

Trish McIntire,  First Time Penalty Abatement.  The IRS will usually abate minor penalties for first-time infractions, but they don’t like to talk about it.

 

Jen Carrigan,  Should You Expect an Audit?  A guest poster at Missouri Tax Guy’s place explains the IRS exam process.

Jason Dinesen,  Another Example of a Tax Scam E-Mail.   The IRS never contacts taxpayers by e-mail.

Kay Bell,  Tax moves to make in May 2013

 

Janet Novack,  U.S. Demands Wells Fargo Records To Identify Tax Cheats Using Caribbean Havens

Cara Griffith, Feeling the Impact of Impact Fees (Tax.com).

 

Paul Neiffer,  From 80 to 45 in 40 miles.  Temperature, not speed.  I get to meet Paul tomorrow, it should be fun.

Catch a Thursday Buzz from Robert D. Flach.

 

Video!  The Iowa Bar Association now is selling DVDs of “Notes from the Fiscal Cliff,” a January webcast I did with Roger McEowen of the ISU Center for Agricultural Law and Taxation.  The outline is here. Supply your own popcorn.

 

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Tax Roundup, 4/26/2013: The Earned Income Credit elephant in the room.

Friday, April 26th, 2013 by Joe Kristan
The Ultimate Swiss Army Knife. Flickr Image courtesy redjar under Creative Commons license.

The Ultimate Swiss Army Knife. Flickr Image courtesy redjar under Creative Commons license.

Christopher Bergin, Dilemma – The Earned Income Tax Credit (Tax.com).  An excellent summary of the problems with the tax law’s biggest welfare program:

Our politicians have tried to do too much through the tax law. And that has created a complicated mess of winners and losers that makes the task of trying to reform it, even to some level of sensible, a daunting one.The poster child for this mess is the Earned Income Tax Credit. Like it or not, the EITC is welfare administered through the tax system. Do we really want our tax system to do that?

The tax law works best if it is seen solely as a tool to finance the government.  Much of its hideous complexity comes from using it is the Swiss Army Knife of public policy.  As you add more gadgets it becomes less useful at being a knife.

Mr. Bergin isn’t afraid to mention the elephant in the room:

And there is another huge problem. The EITC program leaks like a sieve. More bluntly and honestly stated, well-intentioned as it may be, the EITC has been corrupted. Don’t take my word for it. Recently, the Treasury Inspector General for Tax Administration released a report stating that up to one-quarter of EITC payments made in fiscal 2012 were improper. How much does that represent? Try $13.6 billion. In one year. Using a ten-year budget window, that’s $136 billion, and that’s just the tainted stuff.

Supporters say the EITC is a program that “works.”  Can you say that something “works” when it sprays billions to thieves every year?

Read the whole thing.

 

Fairness:

 But the compliance costs imposed by the Marketplace Fairness Act would place smaller upstarts at a distinct disadvantage, which is, I suspect, one reason that market incumbents such as Amazon support the tax. The real cost of taxes is not the revenue out the door to the taxman; it’s the revenue out to the door to the taxman plus all of the costs involved in complying with the tax code.

- Kevin Williamson, via Instapundit

 

Megan McArdle draws  Lessons from Curt Schilling’s Failed Business.  I would add one more: states shouldn’t finance private businesses.  Iowa hasn’t gotten the memo.

Peter Reilly,  How 38 Studios LLC Turned A CPA Into A Warrior

 

Paul Neiffer,  What About Those 1099s?!

Kay Bell,  Sony deal could help singer Lauryn Hill pay delinquent tax bill

Me: But how can we slap money launderers on the wrist if we don’t throw the book at widows?

Phil Hodgen,  How to Compute Net Tax Liability for Form 8854

Patrick Temple-West,  UK’s Cameron fights tax evasion, and more

TaxGrrrl,  H&R Block Offers Apology, Cash To Make Up For Filing Snafu

Howard Gleckman,  Will the Retirement of Max Baucus Open the Door to Tax Reform?

 

Jim Maule, When Taxes Are Cheaper:

And perhaps the short-sightedness and narrow-mindedness is compounded by  the “freedom” mentality that has taken such a hold in modern culture

Yes, let’s all get on board with the new hip “docile submission” mentality.  Because the government knows best!

David Cay Johnston,  Taxpayers Subsidize Rich Anti-Taxers (Tax.com).  Speaking up against the ALEC bogeyman.

 

It’s Friday, you aren’t being productive anyway.  Let’s Play a Game of Accountant/Not an Accountant! (Going Concern)

 

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Tax Roundup, 4/22/13: IRS unpaid holidays. And buying a round for the State.

Monday, April 22nd, 2013 by Joe Kristan

Sharing your drink with the state.  The Tax Foundation maps how happy your state is when you wet your whistle:

 

20130422-1

Iowa is #6.

 

 

Just because an LLC is taxed like a partnership doesn’t mean that every LLC owner can act like a general partner, as Colleen MacRae explains:

Last week the Iowa Court of Appeals in Three Minnows, LLC v. Cream LLC, held that a non-managing member did not have the authority to bind an LLC to a contract the member signed on behalf of the limited liability company. 

Not every LLC member can obligate an LLC.

 

TaxProf,  IRS to Close to Public for Five Days Due To Employee Furloughs.  That doesn’t mean the Public can close to the IRS for five days, unfortunately.  Yet another example of how the preparer regulation initiative is a colossal waste of agency resources needed elsewhere.  Related: David Cay Johnston, IRS To Close for Five Days (Tax.com).

 

Peter Reilly,  IRS Not Screening Informant Reports Well .   They have other priorities than dealing with the tax collection opportunities dropped right in their laps.

 

Jim Maule,  The “Rain Tax”?

Kay Bell,  World governments mounting global effort against tax evasion.

TaxGrrrl,  As Many Celebrate 4/20, Feds Still Won’t Budge on Regulation and Taxation of Marijuana.   As long as Sec. 280E keeps even legal pot dealers from deducting expenses, it will be a tough business to make a living in, after tax.

Martin Sullivan, Horse Racing and International Tax (Tax.com)

Russ Fox,  Bayern Munich Head Reports Self for Tax Evasion.  Swiss bank accounts are involved.

Tax Trials,  IRS Announces Special Filing Extension for Boston Area Taxpayers

 

The Critical Question:  Is There Such Thing as a Free Lunch? (Ellen Kant, Tax Policy Blog)

 

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Tax Roundup, 4/12/2013: Friday frenzy edition

Friday, April 12th, 2013 by Joe Kristan

20130104-1We’re down to the wire, so we’re going with a bare-bones roundup today.  Filing deadline is Monday, kids!

 

Kay Bell, 3 ways to e-pay your tax bill

Peter Reilly,  April 15 What To Do If You Don’t Have The Dough

TaxGrrrl,  Last Minute Tax Filing Tips

Russ Fox,  Bozo Tax Tip #1: Don’t Be Suspicious!

Me: Does my share of partnership debt let me deduct K-1 losses?  Yesterday’s 2013 Filing Season Tip.  One-a-day through Monday.  Today’s goes up later this morning.  Collect them all!

 

Kyle Pomerleau, TPC, What About the “Pass-Throughs?”. (Tax Policy Blog). Measuring business taxes needs to look beyond corporation taxes when most businesses are taxed on 1040s.

20130412-1

Nanette Byrnes,  Middle class tax hikes loom in Obama proposal despite pledge, and more (Tax Break)

Janet Novack, Could Obama’s Plan To Curb The Boss’ Tax Breaks Hurt Workers’ Retirements?   They want you to save, unless you are too good at it.

Roberton Williams,  Taxing Millionaires: Obama’s Buffett Rule (TaxVox)  “But it turns out that setting a floor on the taxes rich people pay is not so easy.”

David Cay Johnston, Promises, Promises (Tax.com).  “Candidate Obama promised in 2008 to reform the Alternative Minimum Tax, and President Obama promised at least an honest accounting in his first budget, but his proposed budget for Fiscal 2014 is silent on the issue.”

Tax Trials,  Can the IRS Read Your Email?

Jack Townsend,  Restitution, Relevant Conduct, Counts of Conviction.  What gets counted when a judge orders a tax criminal to pay restitution?

 

Unclear on the concept:  When you steal somebody’s identity and claim their tax refund, having the refund check mailed to the victim’s home defeats your purpose.

 

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Tax Roundup, 4/5/2013: Illegally Blonde edition. And: Vaudtitor vacates.

Friday, April 5th, 2013 by Joe Kristan

20130405-1So a Blonde and a lawyer walk into Tax Court.  She loses.

No, the Tax Court has not started to report petitioner hair color in its decisions, along with the names of the attorneys and the resident state (“petitioner resided in Iowa and was brunette during the tax years at issue but gray at trial”).   This taxpayer’s first name is actually Blonde.  And she was an attorney, at least until 2006, when she pleaded guilty to failure to file tax returns. From the Tax Court:

Since the only issue currently before the Court is whether Blonde Grayson Hall signed the Form 4549 under duress we will refer to Blonde Grayson Hall as petitioner.

Petitioner attended the University of Michigan Law School and was admitted to practice law in 1982. Petitioner was the chief executive officer of Hall & Associates, LLC, a law firm in Philadelphia, Pennsylvania, from 1995 to 2006.

As part of her plea deal, the taxpayer filed Form 4549 agreeing to assessment of additional tax liabilities for several tax years.  She apparently had second thoughts:

Thus, the issue before us is whether Blonde Grayson Hall should be relieved of her agreement in the Form 4549 because it was signed under duress.

Of course, duress is what a plea deal is all about.  You accept a bitter pill because you think it could get a lot worse if you go to trial.  While this is a fearsome and sometimes abused weapon in the hands of prosecutors, the Tax Court said it wasn’t the kind of duress that makes the Form 4549 go away (my emphasis):

The requirement that petitioner sign the Form 4549 stems from the Government’s efforts to prosecute her for admittedly criminal conduct and to collect taxes and penalties. No doubt, given the circumstances, these efforts were zealous and disadvantageous to petitioner. However, every criminal defendant who is offered a plea agreement faces an equally unpalatable decision — accept a legally authorized plea agreement that will include terms disadvantageous to the criminal defendant or go to trial which may result in significantly worse consequences for the criminal defendant. This unpalatable decision does not constitute duress or involuntariness.

The taxpayer is stuck with the Form 4549 that she signed.

The moral: If you plead guilty to criminal tax charges, it is very hard to fight the assessment for the years covered by the plea.  Even if you are a lawyer, and even if you are Blonde.

Cite: Hall, T.C. Memo 2013-93.

 

Iowa’s loss, Government accounting’s gain.  Iowa’s longtime State Auditor David Vaudt is leaving office to head the Government Accounting Standards Board.  He’s fought the good fight for honest reporting of state finance.  It will be hard to find a replacement as good.

His term in office has covered governors of both parties, all of whom found him more or less annoying with his objections to budgetary games.  His office did excellent work in the film credit scandal, issuing a comprehensive report showing that 80% of the credits were improperly granted.  Best of luck to him in his new job.

 

William McBride,  Standard Economics Says Capital Income Taxes Should Be Zero (Tax Policy Blog).  He quotes Garett Jones:

Under standard, pretty flexible assumptions, it’s impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers.    

Not, hard, not inefficient, not socially wasteful, not immoral: Impossible

Yet the effort to do so never ends.  Nor the harm it causes.

 

Christopher Bergin, ‘Commissioner-Less’ (Tax.com):

The Internal Revenue Service is currently without a Commissioner. Douglas Shulman, the 47th IRS Commissioner stepped down last November.And from what I’m starting to hear, the IRS may not have a new Commissioner for as long as close to two years. That is not a good thing.

Still an improvement over the last one.

 

Eric Todor, Moving to a Territorial Tax May Not Be the Windfall Multinationals Expect (TaxVox)

David Cay Johnston, Unkind to Charity (Tax.com) “The tax rules on charities, both the many good and the few bad, are about to get much more anti-giving.”

 

Jack Townsend, District Court Denies Bankruptcy Discharge for BLIPS Shelter Investor

Kay Bell, William Shakespeare, tax cheat

William Perez, GoodApril Online Tax Planning Application

Perverse incentives.  Whoa, Cowboy: Tax Laws May Make Romo Highest Paid NFL Player (TaxGrrrl)

 

News you can use: You Are a Terrible Investor and You Should Stop That (Megan McArdle).  Actually, it’s excellent advice that I try to follow.

Russ Fox,  Bozo Tax Tip #6: Just Don’t File.  It sure didn’t work for the Blonde.

Jim Maule,  How to Protest a Tax:

According to this report,  dozens of people supporting a bill to repeal a state sales tax on amounts charged by dance establishments decided to dance in protest. According to the report, the protestors demonstrated the salsa, the flamenco, the tango, and even a conga line. Considering the speed with which legislatures get things done, perhaps they engaged in some slow dancing, though the report does not mention it.

First they came after the big bands, but because I was a conga dancer, I did nothing.

 

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Tax Roundup, 4/1/2013. Taxes are due two weeks from today. No fooling. And…Zumba!

Monday, April 1st, 2013 by Joe Kristan
Flickr image courtesy Sean MacEntee under Creative Commons license

Flickr image courtesy Sean MacEntee under Creative Commons license

April Fools day is a challenge for tax bloggers.  No matter how outlandish an idea you have for a joke story, chances are that the legislation has already been proposed.   Today’s challenge:  Real tax headlines are mixed with fake ones from today’s Tax Policy Blog.  Can you pick the real fakes without peeking?

A. Protecting Consumers by Eliminating the Business Deduction for Advertising

B. Could tax breaks keep psychiatrists in Iowa?

C. Proposal would give artists tax credit for fair market value of donated work.

D.President Obama Backs Proposal to Legalize Marijuana, Tax Junk Food

E. Could Taxing Violent Video Games Actually Save Lives?

F.  Senator backs off tax on condoms, contact  lenses

G. Following Cyprus Lead, Senator Proposes Tax on “Everyone Else”

H. Mexico Considers Border Fence to Halt Californians Fleeing High Taxes

I. California politician proposes tax on email

Answers at bottom of post.

 

In fact, the research activities credit is noteworthy for its excessive cost — more than $45 million each of the past three years — and the lack of any demonstration of a public benefit. This giveaway is so loosely managed that companies are not even required to disclose how many jobs are related to the taxpayer cost, let alone demonstrate that the jobs would go away without the subsidy.

Related:  Your tax dollars at work for somebody else.

 

David Brunori gets righteous on the “incentives” industry in today’s Tax Notes (unfortunately for subscribers only):

Incentives are inequitable. They’re unnecessary — and hence a waste of money. They distort markets. They breed cronyism. If the players involved weren’t establishment politicians, household name corporations, and prestigious law and accounting firms, we’d describe them as grifters.

Why wouldn’t we describe  “establishment politicians, household name corporations, and prestigious law and accounting firms” as grifters?  Redundancy?

    Here’s a new one. A Pakistani company, the Fatima Group, would like to open a fertilizer plant in Indiana. The company, which for all I know makes the Cadillac of fertilizer, is seeking both federal and state incentives to build its factory. The twist is that the Fatima Group’s fertilizer has been used in 80 percent of roadside bombs in Afghanistan. That’s awkward.

Right now Iowa seems to lead the world in fertilizing fertilizer companies with tax money.  No doubt explosive growth is just down the road.

 

Lawrence Zelenak, Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax (via the TaxProf).  I’m ready to see if absence might make the heart grow fonder.

Don Beaudreax takes Mr. Zelenak’s thinking to its logical conclusion:

If spending time and effort connecting with tax collectors helpfully “draws our attention to our duties as citizens,” then tax withholding short-circuits that attention.  So why not eliminate withholding and oblige each income earner to pay every cent of his or her tax bill by writing personal checks to the IRS?  Not only would elimination of withholding make us even more attentive to our “duties as citizens,” we would also – as any behavioral economist would point out – gain a truer and more fully felt sense of the price we pay for Uncle Sam’s splendors.

Reading Don Beaudreax Cafe Hayek blog for one week will make you smarter than all of Iowa’s legislators combined.

 

Russ Fox begins his annual countown of bad tax ideas with  Bozo Tax Tip #10: Report Income That You Didn’t Earn

 

William Perez,  April 1st Deadline to Take Required Minimum Distributions for 2012

Kay Bell,  IRS loses latest round in tax preparer regulation lawsuit

Brian Strahle,  New York “Amazon Law” Ruled Constitutional:  But Wait, There’s More

Trish McIntire,  Return Is Done but you Owe.

Peter Reilly,  First Circuit Tells Tax Court To Look Harder For Fraudulent Transfer

TaxGrrrl, Taxes From A To Z (2013): P Is For Passive Activity Rules

David Cay Johnston, Spam and Taxes (Tax.com)

Howard Gleckman,  Is This a Good Time to Reform the Mortgage Interest Deduction? (TaxVox)

 

Zumba instructor finds way to draw men to her studio.  From RegisterCitizen.com:

The dance instructor who used her Zumba fitness  studio as a front for prostitution faces jail time after pleading guilty  in a case that captivated a quiet seaside town known for its beaches  and picturesque homes.

The plea agreement, which calls for a  10-month sentence, spares Alexis Wright from the prospect of a  high-profile trial featuring sex videos, exhibitionism and pornography.  She’s scheduled to be sentenced on May 31.

Wright quietly answered  “guilty” 20 times on Friday when the judge read the counts, which  include engaging in prostitution, promotion of prostitution, conspiracy,  tax evasion and theft by deception.

Remember, just because they pay in cash doesn’t make it tax-free.  

 

News you can use.  “Just Go Rob the H&R Block Instead, Their Computers Are Nicer” (Going Concern)

 

Fakes: A, D, G, H.

 

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Tax Roundup, 3/22/2013: IRS makes it easy for many taxpayers to pay late. And Beavers at the end of the pond.

Friday, March 22nd, 2013 by Joe Kristan

20130322-1IRS waives late payment penalties for returns containing delayed forms.  If you can’t file or pay taxes on time, it’s always better to extend your return while you round up the information or the cash.  The penalty for filing a late unextended return is 5%, plus an additional 5% for every additional month of late filing.  The penalty for paying late on a timely extended return, in contrast, is only 1/2%, plus 1/2% per additional month.

  While penalties will be waived, the IRS will charge interest on amounts paid after the deadline.

The notice has a complete list of forms that allow taxpayers to qualify for the late payment exception.  The most commonly-seen ones are probably Form 4562, for depreciable assets and the section 179 deduction, and  Form 8582 for passive activities.

By issuing this notice early, the IRS has also given taxpayers a planning opportunity.  If you have a big balance due on April 15, and you have one of the qualifying forms, you now are eligible for what amounts to a low-interest loan for up to six months, until the October 15 extension deadline.   Many taxpayers accelerated income into 2012 to beat the 2013 tax hikes, and they loan might come in handy.  The current IRS interest rates:

  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments

But if you have the cash, you probably want to pay up on April 15.  There aren’t many places left where you can get a 3% after-tax return on your money for six months.

 

In a just world, they could sue Congress and the IRS.   TurboTax, other Intuit products, now OK to use in Minnesota; H&R Block facing lawsuits over filing snafu, refund delays (Kay Bell)

The tax law is still broken, though.  Minnesota Revenue Department Announces TurboTax Problems Have Been Fixed (William Perez)

 

William McBride, UK Dropping Corporate Rate to 20 Percent, Half the US Rate (Tax Policy Blog).  It makes a difference.

Peter Reilly, International Flight Attendant Does Not Score As Well As Sergio Garcia In Tax Court

Ben Harris,  Automatic Retirement Saving Inches Forward (TaxVox)

 

Roger McEowen, Another Development In The Tax Implications of Insurance Company  Demutualization

Janet Novack, New Study Using IRS Tax Data Shows Rich Are Staying Richer, Poor Poorer

Jim Maule,  So How Does This Tax Plan Add Up?

Howard Gleckman,  Why the Tax Cuts in the Senate Budget Don’t Add up (TaxVox)

David Cay Johnston, Level Playing Fields Under Attack(Tax.com).  Because we don’t want Wal-Mart to be at the mercy of some guy selling stuff from his basement.

Patrick Temple-West, Senate votes on tax hikes in budget, and more (Tax Break)

TaxGrrrl, You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure.  I’m sure that makes other foreclosed folks feel better.

 

The road not taken.  I left a national accounting firm to start a new firm.  A (purported) alumna of the same firm took a somewhat different path. (Going Concern)

Guilty.  Dam Guilty. Beavers Convicted: Loans Require Payback  (Russ Fox).

 

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Tax Roundup, 3/11/2013: Five weeks left edition. And Accumulated Earnings Tax agitation.

Monday, March 11th, 2013 by Joe Kristan

20130311-1The 1040 filing deadline is five weeks from today.  The 1120 and 1120S deadline is this Friday.  The penalty for filing an 1120-S late is $195 per shareholder, with the penalty repeated each additional month the return is late.  Proceed accordingly.

 

A Des Moines tax lawyer lets us know what we are in for:  Just a Little Bit More? Yeah Right. Get Ready to Pay More Taxes in 2013 (William Brown).  He illustrates what will happen to one of his clients, “Fred,” when he pays his 2013 taxes:

Fred’s federal taxes have increased by 9% with no change in his earnings.  If Fred does not increase his distributions from his business to pay these increased taxes, his disposable income will decrease by 19%.  Might these increased taxes have no substantial impact on the prospects of his small business and its employees?  Not a chance.

Read the whole thing.  Related:  Phil, we have altered the deal.  Pray we don’t alter it further.

 

David Cay Johnston pushes for harsher accumulated earnings tax.  As I predicted, we’re starting to see people pushing for enforcement of the Accumulated Earnings Tax to deal with the pretend problem of corporations “hoarding” cash.  Mr Johnston takes the podium in an (unfortunately gated) article in Tax Notes:

     American nonfinancial corporations held more than $2.2 trillion of cash and near cash offshore at the end of 2010 in current dollars, IRS and Federal Reserve data shows. And that is on top of the almost $1.7 trillion of liquid assets owned by firms and subsidiaries with U.S. addresses that we will see when the 2012 corporate income tax data becomes available in a few years. That global cash and near cash pile of almost $4 trillion came to $12,600 per American — well more than triple the $3,500 in per capita federal income tax revenues that year.

     There is no possible business justification for that much cash. As Tax Court Judge David Laro wrote in Haffner’s Service Stations Inc. v. Commissioner, T.C. Memo. 2002-38  “a need to retain earnings must be directly connected with the needs of the corporation itself and must be for bona fide business purposes.”

No “possible” business justification for that much cash?  It’s pretty easy to come up with potential justifications.  If you are a corporation sitting on a lot of cash, you have a lot to think about.   You have unusual opportunities, which you need to evaluate carefully.  The imposition of the shareholder-level tax on earnings is certainly a factor.  Does that mean I trust corporate management and boards?  No.  But I trust them a lot more than second-guessers at the IRS.

The Judge Laro cite that Mr. Johnston uses only restates the legal background of the accumulated earnings tax — not the economics of it.

If you want to really encourage corporations to free up their cash, end the double-taxation of corporate income by allowing full deductibility of dividend payments — with an excise withholding tax on non-profit and non-U.S. distributees to ensure the income is taxed once.  That will give corporations a powerful incentive to distribute cash they aren’t using – one that will work a lot better than beefing up the IRS Second-Guess Division.

Update: Mr. Johnston e-mails:

            I have written in favoring of restoring tax-free dividends for modest sums or encourage savings, partly because most Americans have little saved in the tax system and even though only one in four gets dividends directly: [$link Ed.]

And I called for a two-year test of dividend deductions in this column a few months later, arguing that dividends have the virtue of separating actual value-added managers from those who play accounting games since you need need cash to make dividend payouts. [gated links here and here. Ed.].

Unfortunately I don’t have links to free versions of the original articles.

Related: Garett Jones,  Redistributing from Capitalists to Workers: An Impossibility Theorem, on why the economically-optimal rate of tax on capital is zero. (Econlog)

 

 

No more paper Internal Revenue Bulletins.  The IRS has discontinued its old paper Internal Revenue Bulletin, where it published tax guidance.  From Announcement 2013-12:

The IRB is available on IRS.gov before printed copies are available. Also, the majority of items (about two-thirds) that appear in the IRB are released with a News Release about a month ahead of when the item appears in the IRB. Since all items in the IRB are available electronically, almost a month in advance of being available in the printed IRB, we are eliminating the printing of paper copies of the IRB, which are distributed directly from the IRS. The cost savings to printing and postage would be $148,000 annually.

It makes sense.  Another bit of my accumulated tax training goes the way of the Dodo.

 

Russ Fox,  If You’re a Sole Proprietor, Get an EIN…Now!.  Otherwise it’s too easy to get your identity stolen.

William Perez,  Minnesota Revenue Department Finds “Unacceptable” Errors in TurboTax.

TaxGrrrl, IRS Explains Delays In Processing Some Returns Claiming Education Credits

Kay Bell,  Federal workers owe $3.5 billion in back taxes; Expect renewal of legislative efforts to fire federally-employed tax debtors.  Some people don’t buy the “better to give than to receive” thing.

Brian Mahany,  IRS Begins Rejecting OVDI Filings – Important News For Fence Sitters

Jack Townsend,  Bank Leumi U.S. Clients Rejected from OVDP

Robert Goulder: Taxation & Morality: Odd Bedfellows (Tax.com)

 

Peter Reilly,  Render Unto Caesar – Mormon Tithe Not A Necessary Expense In IRS Collection Case

Patrick Temple-West,  Tax haven hunter Levin to retire, and more

 

The Critical Question: Who Are Your Tax Policy Friends? (Jim Maule)

Going Concern,  No, We Can’t Help You Pass the Ethics Exam.  When I took it, it was mailed to successful CPA candidates to do at home and mail in.  No wonder there are no ethical problems with our generation.  Oh, wait…

 

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Tax Roundup, 3/4/2013: Eight years for tax shelter lawyer. Plus: employee tax fraud, employer tax bill.

Monday, March 4th, 2013 by Joe Kristan

20130304-1A federal judge Friday sentenced a key player in the once-lucrative Jenkens & Gilchrist tax shelter practice to eight years in prison.  From the AP:

U.S. District Judge William H. Pauley III sentenced 52-year-old Donna Guerin, of Scottsdale, Ariz., after she pleaded guilty to conspiracy to defraud the United States and tax evasion. He ordered her to pay $190 million in restitution besides the $1.6 million she agreed to forfeit when she pleaded guilty in September.             

Guerin, a former partner at Jenkens & Gilchrist, a Texas-based law firm with offices throughout the United States, had admitted that she helped market tax shelters from 1994 through 2004 to some of the world’s richest investors, including the late sports entrepreneur Lamar Hunt, trust fund recipients, investors, a grandson of the late industrialist Armand Hammer and one of the earliest investors in Microsoft Corp.

The biggest prosecution target at Jenkens, Paul Daugerdas, faces his second trial on the charges in September.  His 2011 trial was voided because of juror misconduct.

Jenkens was one of the big players in the tax shelter industry that sprung up among big law and accounting firms in the 1990s.  It shut down in 2007 after entering a non-prosecution agreement with the Justice Department.

Sort of related:  Ernst & Young Admits That Some of Its Partners Were Running a Tax Shelter Factory (Going Concern);  Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution (Janet Novack)

 

Robert Goulder, Questioning the Longevity of the Income Tax (Tax.com):

Dare we attempt to guess what the income tax might look like in another 100 years? 

Personally I think it will still exist, but it will have company. The big question for policymakers is whether it should operate as a “mass” tax — as it strives to do today —  or whether it will function as a “class” tax that applies only to the upper income strata. Given that roughly 47% of American households currently don’t pay the income tax (distinguished from payroll taxes, which almost everyone pays), one could argue it is already starting to resemble a class tax. Perhaps the future is already here. 

I can state with some confidence that if there is an income tax in 2113, I won’t be preparing returns.

 

Jack Townsend,  Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply.  This is an ugly result caused by an in-house accountant who stole funds meant for payroll taxes.  The Second Circuit overturned the Tax Court and held that the employee’s fraud meant that the employer’s statute of limitations never closed for tax assessment purposes.

 

Russ Fox has a helpful tip: A Sure-Fire Way to Get Indicted

There are many ways to get in trouble with tax law.  As I have said in the past, if you want to get indicted it’s a bit harder.  It helps to be a celebrity, have a very large tax debt, not report large amounts of funds in foreign financial accounts, or abscond with trust fund taxes.  I need to add another item to that list: File liens against IRS employees  who are investigating you.

For some reason, they respond badly to that.

 

William McBride,  BEA: Personal Income Drops 3.6 Percent in January, the Most since the Clinton Tax Increase of 1993  (Tax Policy Blog).  It wouldn’t be shocking if a lot of folks moved income up to 2012 to avoid the 2013 tax increases.

Kay Bell, Don’t forget about your traditional or Roth 401(k)

Paul Neiffer,  When an UPREIT Might Make Sense

Trish McIntire,  Catching Up On the News, a rundown of issues practitioners are running into during filing season.

TaxGrrrl,  If You Qualify, File Your Taxes For Free

Tony Nitti,  Competing Senate Bills Fail; Sequestration Is Here (For Now)

Howard Gleckman,Sequester, We Hardly Knew Ye (TaxVox)

Kaye Thomas,  The Mindbending World of Wash Sale Calculations.

David Cay Johnston, Good News for Investors and Taxpayers (Tax.com)

Martin Sullivan, Red Hot REITs Fire-up Low Tech (Tax.com)

 

Peter Reilly,  Time To Eliminate Joint Filing ? No, it’s not actually related to the next article.

News you can use.  Leff: Medical Marijuana Providers Can Beat Oppressive Federal Taxes by Operating as Non-Profits (TaxProf)

 

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Tax Roundup, 2/15/2013: Governor couples Iowa taxes to fiscal cliff bill. Also: 19 years for municipal thief.

Friday, February 15th, 2013 by Joe Kristan

20130117-1Governor Branstad has signed the bill conforming Iowa’s tax law to federal changes enacted last month.  The Governor signed SF 106 yesterday afternoon.

The bill allows taxpayers to use several federal provisions in computing their 2012 Iowa taxes, including:

- The federal Section 179 deduction of up to $500,000.

- The federal above-the-line deductions for tuition and educator expenses.

- The exclusion for IRA distributions to charity for taxpayers who have reached age 70 1/2, and the transitional rules for January 2013 charitable rollovers of IRA distributions.

- The optional deduction for state and local sales taxes.

The bill does not conform Iowa to federal bonus depreciation; Iowa filers will normally use federal standard MACRS depreciation instead.

 

Tony Nitti,  Senate Proposal for Tax Reform Part II: Democrats Seek To End S Corporation Payroll Tax Loophole.  It’s similar to nonsensical proposals put forward in prior years to tax S corporation K-1 income when 75% or more of revenues are “attributable” to three or fewer shareholders — an impossible standard to evaluate in many cases, and one that discriminates against the smallest S corporations.  It shows they are lazy — the problems with the approach are well known, yet the won’t make the effort to correct, instead trotting out the same old bill.  It just shows they aren’t serious.

David Cay Johnston finds the cuts to IRS funding that would result from the impending sequester “Particularly Devastating” (Tax.com)

 

Going Concern,  Former Dixon Comptroller Rita Crundwell Gets Nearly 20 Years.  She stole over $50 million from an Illinois municipality of 15,000 people going back to 1990.  And nobody noticed for over 20 years.

Kay Bell,  IRS’ Where’s My Refund? site swamped by impatient refund tracking taxpayers.

Taxpayers overwhelmed with compliance demands, asks government to slow down.  IRS Overwhelmed With Refund Requests, Asks Taxpayers To Slow Down(TaxGrrrl)

Paul Neiffer, Another Bill to Reduce Farm Payments is Introduced!

Jack Townsend, Swiss and US Sign IGA.  An agreement under the “FATCA” foreign bank reporting rules.

Patrick Temple-West, Married couples face tough taxes, and more (Tax Break)

Russ Fox, Nevada Looks to Tax Online Poker Tournaments

Donald Marron,  The Balanced Budget Amendment’s $300 Billion Error

News you can use.  Retire Rich: The Forbes 2013 Antiretirement Guide (Janet Novack)

Nick Kasprak,  Happy Valentine’s Day! Will You Marry Me (For Tax Reasons?) (Tax Policy Blog).

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Some people are just incurable romantics!

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Tax Roundup, 2/1/2013: What’s Iowa’s 2012 tax law? And you thought 50 years was bad? How about 351?

Friday, February 1st, 2013 by Joe Kristan

20130117-1Iowa legislature goes 0-for-January.  The Iowa General Assembly has been completed the first three weeks of its 2013 session without settling what Iowa’s tax law is for last year.  The legislation needed to update Iowa’s 2012 tax law for the retroactive federal changes enacted in the Fiscal Cliff bill at the beginning of this year hasn’t cleared either house of the legislature.  The Senate Ways and Means Committee at least moved its bill (SF 106) out of committee Wednesday, while House Ways and Means hasn’t even done that much with its bill (HF 110)

Many Iowans were affected by the retroactive changes, including educators and people who made energy-saving home improvements.  Almost all businesses are affected by the Federal extension of $500,000 Section 179 expensing of depreciable property for 2012.  Yet these taxpayers can’t complete their Iowa 2012 tax returns until the legislature decides what parts of the federal changes to accept.

The silliest part: we pretty much know what the bill will look like.  It’s almost certain that it will adopt federal Section 179 rules and the other “extender” rules, without adopting federal “bonus depreciation.”  That means there’s no reason to dawdle.  But dawdle they do.

50 years for Wasendorf.  The Wasll Street Journal reports:

Russell Wasendorf Sr., was sentenced to the maximum 50 years in jail after admitting to orchestrating a fraud at his futures brokerage and misleading regulators for almost 20 years.

Mr. Wasendorf, 64 years old, pleaded guilty last September to the fraud at Peregrine Financial Group Inc. that federal prosecutors said had cost clients $215.5 million and masked a business that never was profitable.  He also was ordered to pay the full amount of missing funds in restitution.

Mr. Wasendorf got away with it by forging paper bank statements for the regulators and auditors.  The scam blew up when Peregrine was forced to move to electronic account verification.  Sadly, the chances of full restitution being paid to his victims are less than the chances he will walk out of prison at the end of his sentence.

 

But it could be worse.  Florida woman faces potential 351 years in prison for tax fraud (CPA Practice Advisor)

 

Kay Bell, Congressman wants answers from IRS regarding tax preparer registration

 

TaxGrrrl,  Wrong Side Of An Audit: Memo Argues IRS Inflated Numbers, Exaggerated Figures.  My favorite part (my emphasis):

The IRS also claimed that it would suffer unspecified “costs associated with . . . finding other positions for the 167 Service employees currently working on the return preparer project.” [Institute for Justice attorney Dan] Alban noted, in response, that just over two weeks ago, the IRS complained about understaffing, since “[o]verall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6% in the past year.” You’d think that the IRS would welcome, not rue, the idea of having nearly 200 employees available for other tasks – like answering the phone (at current staff levels, they only do that about 70% of the time).

The preparer regulation program has always seemed a frivolous use of IRS resources when tax complexity and identity-theft fraud are making the tax law almost impossible to administer.

That time already?  It’s Time for Independent Certification for Tax Preparers (Robert D. Flach in Accounting Today)




David Cay Johnston, Tax To Defend a Tax Haven (Tax.com)

Ben Harris,  Deficits After ATRA (TaxVox)

Patrick Temple-West,  U.S. is preparing more tax-evasion cases, and more.  Bad news for Swiss bank account holders who haven’t come forward.



Jim Maule,  Another “Flat Tax” Proposal That Falls Flat.  The professor slays more straw men.

I hate extra apostrophes.  Careful Tax Update readers know that I have a terrible habit of inserting extra apostrophes, creating an unintended possessive.  I know the rules, but my fingers betray me when typing.  Fortunately I can easily change a blog post to turn “it’s” to “its.”  Not everybody is so fortunate.

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Unless, of course, Steven owns “Steven’s” building.
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Tax Roundup, 1/25/2013: Only a few days left for IRA distribution mulligan. And: A $750 check for each Iowa household?

Friday, January 25th, 2013 by Joe Kristan

A proposal to refund part of the state budget surplus.  The Des Moines Register reports:

Iowa House and Senate Republican leaders today proposed to give a flat $750 to every Iowa household in an effort to return to taxpayers the state’s $800 million budget surplus.

The money would be returned to taxpayers in the form of a tax credit, said Senate Republican Leader Bill Dix, R-Shell Rock, and House Speaker Kraig Paulsen, R-Hiawatha.

20120504-1That seems pretty straightforward.  Better still to give it back as part of simplifying the tax code, but better that than just spending it.  Yet just spending it has its advocates:

Senate Democrats who control their chamber said that since it’s early in  the session they are open to talking about the Republicans’ proposal, but they have other ideas.

Sen. Joe Bolkcom, D-Iowa City, who chairs the tax-writing Iowa Senate Ways and Means Committee, said Democrats are interested in providing earned income tax credits for lower-income Iowa families and raising the threshold for filing state income taxes. He added that Iowa needs to invest more tax money to clean up dirty rivers and streams, repair crumbling roads and bridges, upgrade the state’s education system and make other improvements.

The earned income credit is a welfare program run through tax returns, with a tremendous rate of fraud.  It’s also a poverty trap.  The phase-out of benefits with rising income serves as a stiff tax on improving your income.  And spending doesn’t become something else just because you call it “investing.”

Elaine Maag,  Earned Income Tax Awareness Day (TaxVox)

 

Kay Bell reminds us that taxpayers who failed to make a 2012 required minimum distribution from the IRA have a January 31 mulligan.   The tax law imposes a stiff penalty on taxpayers who have reached age 70 1/2 who fail to take a minimum amount out by year end.  Taxpayers who failed to take their 2012 withdrawal last year can roll the RMD amount to charity by January 31 and avoid the 50% penalty.

Taxpayers who took an IRA distribution in December can also roll that into a charity by January 31 and avoid having the distribution included in 2012 income.

These provisions were part of the Fiscal Cliff tax bill, which extended the tax-free status of IRA rollovers to charity along with a bunch of other expired provisions.

 

Just because your bank is a country bank doesn’t make the banker a bumpkin.  Four Nebraskans have been charged with “structuring” — breaking deposits into chunks under $10,000 to avoid federal cash reporting requirements.  Federal law requires banks to report cash transactions over $10,000.  Folks who don’t want the government to know about their cash sometimes attempt to use multiple smaller transactions to fly under the radar; that’s illegal.    Theindependent.com reports:

 Randy L. Evans, 59, of Grand Island is charged in a 15-count indictment.  In the first 14 counts, it is alleged that between March 29, 2010, and Dec. 27, 2011, Evans structured financial transactions to evade reporting requirements when he made deposits in the amount of $210,381 at Five Points Bank. Count 15 charges him with structuring financial
transactions to evade reporting requirements when he made 449 transactions between Jan. 4, 2010, and Feb. 28 at Five Points Bank in the amount of $2,030,322.

Bankers are required to report suspicious transactions, and if you make yourself a regular, they’ll notice — especially in a small-town bank.

 

Regrettably, yes.  Libertarian writer Sheldon Richman breaks the bad news: just because the income tax is a bad thing doesn’t make it unconstitutional:

Where does this leave liberty’s advocates? First, we have to face the facts. Like it or not, the U.S. Constitution empowers the Congress to levy any tax it wants. Anyone is free to come up with a contrary interpretation, but the constitutionally endowed courts have spoken. Reading one’s libertarian values into the Constitution is futile. For better or worse, the Constitution means what the occupants of the relevant constitutional offices say it means.

In other words, it doesn’t matter if you think the income tax is unconstitutional if the IRS, the federal judge, the Marshals Service and the Bureau of Prisons think otherwise.  Fighting the income tax by not filing ruins your finances without hurting the Leviathan one little bit.

 

Luring and subsidizing your competitors with your tax money.  Left-side advocacy group Good Jobs First has released a report slamming “incentive” tax breaks like those used for two fertilizer companies in Iowa last year.  The report doesn’t mention Iowa’s programs, but it provides a depressing list of corporate bribery in other states, including subsidies to lure employers from Kansas City, Kansas across the river to Kansas City, Missouri, and vice-versa.  Their press release gets it right:

Interstate job piracy is not a fruitful strategy for economic growth, [report author Greg] LeRoy noted: “The costs are high and the benefits are low, since a tiny number of companies get huge subsidies for moving what amounts to an insignificant number of jobs.” LeRoy added: “The flip side is job blackmail: the availability of relocation subsidies makes it possible for companies that have no intention of moving to extract payoffs from their home states to stay put.”

For all the abuse, the organization’s recommendations are modest.  I would eliminate all such subsidies and replace them with a simple low-rate tax system for everyone.  The Tax Update Quick and Dirty Iowa Tax Reform would be a great start here.

 

TaxProf,  House Ways & Means Chair Proposes Mark-to-Market Tax on Financial Derivatives

IRS Asks Judge To Suspend Injunction Barring It From Regulating Tax Preparers

Jim Maule,  A Tax Question: So What Do You Do With Your Time?. A good discussion of the “material participation” rules that take on extra importance under the new Obamacare Net Investment Income Tax.

Anthony Nitti,  The Tax Impact of Obamacare On The Passthrough Income of Small Business Owners

Patrick Temple-West,  Firms keep stockpiles of ‘foreign’ cash in U.S., and more (Tax Break)

Joseph Henchman,  Tax Foundation and CBPP Agree: States Need Strong Rainy Day Funds (Tax Policy Blog)

Jamaal Solomon, Tax Organizer for Entertainers.  Independent entertainers who cross state lines can find their taxes complicated, so good recordkeeping is essential.

Robert W. Wood, Shhh, Home Office and other IRS Audit Trigger Secrets

David Cay Johnston, Missing Half the Cash (Tax.com)

Start your weekend early with a Friday Buzz from Robert D. Flach!

News you can use:  Stuff Creepy Accountants Like (Going Concern).  Wisconsin!

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