Posts Tagged ‘David Hirsanyi’

Tax Roundup, 8/6/14: Telemarketing isn’t an airplane. And: inversion hysteria, always in style.

Wednesday, August 6th, 2014 by Joe Kristan

20120529-2Is your airplane any of your business?  The Tax Court yesterday dealt with a problem that will arise a lot as taxpayers struggle with the new 3.8% Obamacare Net Investment Income Tax: what “activities” can be considered to be part of a single business?

The issue comes up because “passive” activities are subject to the tax, while non-passive activities are exempt.  It is especially important when S corporations are involved because their K-1 income is also exempt from the 2,9 Medicare tax and the .9% Obamacare Medicare surtax.  The status of activities as “non-passive” usually depends on the amount of time spent working in the activity; if you can combine activities they are less likely to be passive.

Tax Court Judge Buch outlines yesterday’s case:

 Mr. Williams is an aviation buff who owns a business that is unrelated to aviation. He purchased an airplane that he made available for rent, used for personal purposes, and used in his other business. On the Williams’ joint tax returns, they offset losses related to the ownership of the airplane against their income from the other business. Respondent disallowed those offsets… 

Passive losses cannot offset non-passive income under the 1986 passive loss rules; they carry forward to offset future income until the activity is sold.  Mr. Williams reported the airplane expenses as part of his business of training telemarketers.  The court reviews the rules on combining activities (footnotes omitted; my emphasis):

Section 1.469-4(c), Income Tax Regs., sets rules for determining what constitutes a single “activity”. That regulation provides: “One or more trade or business activities or rental activities may be treated as a single activity if the activities constitute an appropriate economic unit for the measurement of gain or loss for purposes of section 469.” Whether activities constitute an “appropriate economic unit” depends on the facts and circumstances, giving the following five factors the greatest weight:

(i) Similarities and differences in types of trades or businesses;

(ii) The extent of common control;

(iii) The extent of common ownership;

(iv) Geographic location; and

(v) Interdependencies between or among the activities (for example, the extent to which the activities purchase or sell goods between or among themselves, involve products or services that are normally provided together, have the same customers, have the same employees, or are accounted for with a single set of books and records.)

The judge said the airplane wasn’t part of the same “economic unit” as Mr. Williams’ other business, called WPP:

The fact that there was no meaningful interdependence between the ownership of the airplane and the business of WPP is evidenced in part by the fact that Mr. Williams would rent another airplane for travel because he could earn more from renting WPP’s airplane to other pilots or pilot trainees than he would pay if he or WPP rented another airplane for a trip. Further, most of the airplane’s use and income came from renting the airplane outside WPP, which had no effect on the business of WPP. Likewise, there is no indication that the airplane activity depended on WPP; it was only an occasional user of the airplane. There is no evidence that WPP and the airplane activity had any of the same customers or that the two activities were integrated in any meaningful way.

When the airplane activity was separated his other business, Mr. Williams was unable to muster enough hours to reach “material participation,” making the airplane losses passive and non-deductible.

What does this mean in planning for the NIIT?  Taxpayers get to revisit their activity groupings for 2013 and 2014 returns.  Taxpayers with multiple businesses will want to ponder what things they can realistically combine.  Just because you own both businesses doesn’t mean the tax law will consider them an “appropriate economic unit.”

Cite: Williams, T.C. Memo 2014-158

 

20140805-3Paul Neiffer, IRS Provides Two Optional Methods for SE Health Insurance Deduction.

Jack Townsend, Whistleblower Award for FBAR Penalties?

Jason Dinesen, Kudos to NAEA for Promoting EAs.  Not to sound dumb, but isn’t that what the National Association of Enrolled Agents is supposed to do?

Russ Fox, The IRS Apparently Thinks They Won the Loving Case.  “In Loving v. IRS, the IRS was permanently enjoined from the Registered Tax Return Preparer designation. One would think that the IRS would realize this and remove the designation from forms.”

Keith Fogg, How Bankruptcy Can Create a Pyrrhic Victory out of a Tax Court Win (Procedurally Taxing)

 

Peter Reilly, FAIR Tax Abolishes IRS – Then What?  I have long thought the fair tax was half-baked gimmick, deceptively marketed.  If you want to move to a consumption tax, move to a real consumption tax.

Adam Michel, What is the Consumed Income Tax?  (Tax Policy Blog)

 

 

Allison Christians, Regulating Return Preparers: A Global Problem for the IRS:

The problem of regulating all foreigners in service of U.S. citizenship taxation plagues FATCA in the details, and it will plague the project of tax return preparer regulation as well. It won’t be easily solved unless Congress can accept that the universally practiced norm of residency-based taxation is really the only viable option in a globalized world. If not, as the world adjusts to the ongoing expansion of U.S. regulatory power through more — and more complex — financial regulation, everyone will have to accept that virtually every tax move Congress makes has global implications.

Via the TaxProf.

Just what the world needs: more IRS.

 

nra-blue-eagleDavid Brunori, Keep the Inversion Hysteria Out of the States (Tax Analysts Blog).  “A company’s decision to invert is no different from an individual’s decision to live in a state without an income tax or to buy a house rather than rent to take advantage of a tax break.”  But, but, what about your loyalty oath?  You must hate America!  Or, worse, Iowa!

Scott Hodge, More Perspective on Inversions: Not a Threat to the Tax Base but the Face of U.S. Uncompetiveness (Tax Policy Blog)

Bob McIntyre, Statement: Despite Walgreens’ Decision, Emergency Action Is Still Needed to Stop Corporate Inversions (Tax Justice Blog, where inversion hysteria is always in style).

Eric Toder, How Political Gridlock Encourages Tax Avoidance (TaxVox)

 

Joseph Thorndike, The Origination Clause? Let It Go (Tax Analysts Blog).  Since the courts allow the Senate to strip any house bill of its text and replace it with revenue provisions, it’s pretty much dead already.  And that’s a shame.

 

Your legislators at work: 

Chicago lawmaker pleads to misdemeanor; faced 17 felonies. ““I’m sorry I underestimated my taxes.”

Fattah Jr. released on bail following U.S. indictment on theft, fraud and tax-evasion charges.  The son of a Congresscritter has tax issues? The apple doesn’t fall far from the tree.

 

TaxProf, The IRS Scandal, Day 454

Career Corner.  Career Limiting Moves: A Beginner’s Guide (Leona May, Going Concern).

 

Share

Tax Roundup, 10/12/2012: Megafauna Friday! Also: reversing the tax documentation process.

Friday, October 12th, 2012 by Joe Kristan

Not a Registered Tax Return Preparer

Never defraud a mammoth.  Feds Charge Colleyville Pharmacist and Wife In Mammoth Tax Fraud Scheme (DallasObserver.com)

 

 

 

 

 

You use the information from the supporting documents to prepare the returns, not the other way around.  A former IRS agent-turned-preparer is in trouble after mixing up this basic rule of tax return preparation, reports the Hartford Courant.com (my emphasis):

A former IRS agent abruptly pleaded guilty to tax fraud Thursday, moments after a federal prosecutor accused him in an opening statement to jurors of claiming deductions that included the price of treats for his dog and a ring he was stuck with after a broken engagement.

Thomas Thorndike, 62, of Milford operated the profitable tax preparation and financial services business Cornerstone Financial Services in Woodbury after leaving the IRS.

Why was his business profitable?

Assistant U.S. Attorney Christopher M. Mattei told jurors Thursday that Cornerstone was a high volume, high profit business. During tax season, he said, Thorndike collected as much as $12,000 a day by preparing 40 returns daily, one every 15 minutes. The secret to high-volume was big refunds, Mattei said.

Impressive productivity.  How did he get the big refunds?

But Mattei said the audit showed that many refunds were based on unsupportable deductions for mileage and donations of old clothing. A Waterbury police officer reported commuting 4,000 miles to work in 2006. A high percentage of Thorndike clients reported giving between $3,000 and $4,000 in clothing to Goodwill Industries during the same year and had receipts purportedly signed by the same Goodwill employee.

Just an overworked Goodwill employee?  Maybe not:

When Thorndike learned the IRS was examining the returns, Mattei said he instructed clients to manufacture phony supporting documents.

Oops.  That’s definitely against the rules.  Many people think the charitable deduction for used clothing is a freebie deduction.  It’s not.  You need to document the deduction, and the clothing has to be at least in good used condition.  As this case shows, overdoing it can attract IRS attention.  And if you don’t have the documentation to start with, you can’t invent it later.

 

Tax Policy Blog  Chart of the Day: Payroll Taxes and Refundable Credits:

 

 

Water is wet, too. IRS Audits Deter Corporate Tax Avoidance. (TaxProf) 

A coveted heh for the Tax Update.

Brutal Assault on Reason Watch: 

Anthony Nitti,  Reactions to the Biden – Ryan Debate

TaxGrrrl,  Vice Presidential Debate, 2012 – Live Blog

David Hirsanyi,  Democrats Are the Real Tax Ideologues  (Reason.com)

Howard Gleckman,  Can Romney Cut Taxes for the Rich Without Reducing Their Share of Taxes? Yes, but….  (TaxVox)

Jason Dinesen,  IRS Releases FAQ for Same-Sex Married Couples:

It’s refreshing to see the IRS publish this FAQ. The IRS does a lot of things wrong, but on the topic of same-sex marriage, the IRS has been surprisingly open-minded.

Now if only the Iowa Department of Revenue would publish a similar FAQ — or give us SOMETHING.

Better specify that “something.”

 

Kay Bell,  Double check dependents, filing status

Jack Townsend,  Another Plea Related to Offshore Activity

Martin Sullivan,  Business Overstates Its Case on International Taxation

Courtney A. Strutt-Todd,  Using Tax-Exempt Bonds as a Way to Finance Your Next Project (Davis Brown Tax Law Blog)

Going Concern,  City of Detroit’s Finance Department Makes Case for Most Hysterically Pitiful Internal Control System in Recent Memory

Share