Posts Tagged ‘Don Boudreaux’

Tax Roundup, 10/1/2013: Shutdown edition. And two weeks left for 2012 1040s!

Tuesday, October 1st, 2013 by Joe Kristan

Extended 1040s are due two weeks from today! Sorry for not posting yesterday, but I’m sure many of you understand.  I was laying in canned goods and ammo for the government shutdown.

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

The TaxProf has the IRS Shutdown Plan.  You can still file, but the examiners get a day off.

I like Don Boudreaux’s take:

 If I walk into a supermarket to buy a few artichokes and discover that the supermarket has no artichokes for sale that day, I don’t pay the supermarket for the artichokes that I don’t get.  So shouldn’t we taxpayers be relieved of the obligation to pay for the national-government services that we are not now receiving?

It implies the big difference between things we get from businesses and things we get from the government:  if we don’t like what they have at one store, we can go to another, but if we don’t like the service from Uncle Sam’s Essentials, we can’t exactly take our business elsewhere.

 

Andrew Lundeen and Kyle Pomerleau explain What Happens When There Is a Government Shutdown (Tax Policy Blog):

From 1976 to present there have been 17 shutdowns and like this shutdown, many were caused by political disagreement. For instance, the government shutdown for 12 days in 1977 over a political fight between the House and the Senate over Medicaid policy.

The average length of past government shutdowns is 6.4 days, but this is no indication of how long this shutdown will last. During the Reagan administration there were several shutdowns that only lasted one day.

So either it’s not the end of the world, or the world ends a lot.

Glass half-full: Shutdown Will Stop IRS Audits, but Not ACA Implementation (Jeremy Scott, Tax Analysts Blog)

TaxGrrrl, With Shutdown, Taxes Still Due But You Can’t Ask IRS For Help   

Janet Novack,  Federal Government Begins First Shutdown In 17 Years 

Kay Bell, IRS lays out plan to deal with federal government shutdown

 

William Perez,  IRA Recharacterizations Due by October 15th:

“Recharacterizing” means, quite simply, we can change the character of the IRA: if the contribution was made to a traditional IRA, we can re-characterize it to a Roth IRA; and if the contribution was made to a Roth IRA, it can be recharacterized to a traditional IRA.

 

tax fairyTrish McIntire, It’s Here…

The Health Insurance Marketplace (HIM) opened today! The Affordable Care Act (ACA) mandates that almost everyone must have health insurance by January 1, 2014. The HIM is a way for anyone not covered by an employer’s affordable plan to shop for health insurance. Let’s face it the ACA is complicated and the HIM part is no exception. This post will cover the highlights of the Marketplaces to give you an overview of what will happen.

The Health Care Fairy is  the Tax Fairy’s sister.  Believers in either one end up disappointed.

 

Missouri Tax Guy, How To Write Off Travel Expenses As Business Expenses.  ”You can’t go on a one-day business trip and stretch it into a week of sightseeing, and then deduct anything as business-related.”

Point, counterpoint:

4 Reasons the Medical Device Tax is Bad Policy (Kyle Pomerleau, Tax Policy Blog)

The Medical Device Tax Should Not Be Repealed (Tax Justice Blog):

One argument made by the industry against the medical device excise tax is that it singles them out for higher taxes. The reality, however, is that the excise tax was passed as one of many levies on various healthcare sectors to help pay for health insurance expansion. 

That apparently would include the 10% excise tax on tanning booths that is part of Obamacare financing.  They say the tax is paid by something called “various healthcare sectors.”  That’s a fancy way to say “patients.”

 

Jack Townsend, Zwerner Rises to Defense Against Multiple FBAR Penalties:

Readers will recall that, in an unexpected development, Treasury assessed and DOJ Tax sued to collect the 50% FBAR penalty against Carl Zwerner for four years.  Up to that point, based on the information publicly available (principally from offshore account plea convictions), Treasury had only assessed a single FBAR of 50% for the highest year.  Thus, it was of considerable interest — and angst — to taxpayers and practitioners that Treasury would assert 4 years of FBAR penalties.

That could get expensive.

Brian Mahany,  FBAR, FATCA Are Not Dirty Words!  They can certainly trigger some, though.

 

Consolation prizes: Attorney Found Guilty of 28 Tax Charges, but Does Get Nomination for Tax Offender of the Year (Russ Fox)

Peter Reilly,  Has Kent Hovind Given Up Fight Against IRS ?   Mr. Hovind is famous for opening a theme park based on the idea that humans and dinosaurs co-existed.  I suppose if you hang around politicians, you could conclude that.

Robert D. Flach is Buzzing the government shutdown.

 

Nothing is stopping you from writing a check right now, says a cynical tax blogger.   “Tax Us More!” Say Some Wealthy Pennsylvanians (Jim Maule) Because they can pay more taxes any time they want, they really mean “tax other people more.”

 

Career Corner: Ex-PwC Employee Discovers Just How Limiting a Career-Limiting Move Supporting Terrorism Can Be.  (Going Concern)  I worked there when I was a very green new accountant, and I was frequently terrified.

 

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Tax Roundup, 9/10/2013: If your S corporation numbers aren’t perfect, zero isn’t good enough. And Wonka accounting!

Tuesday, September 10th, 2013 by Joe Kristan

20120511-2As we approach the October 15 extended deadline for 1040s, some taxpayers face a tough call: they still haven’t received all of their K-1s.  Yes, the extended K-1 deadline is normally September 15, but sometimes failure to file on time is an option for partnerships and S corporations, and the K-1s just aren’t done on time.  The tax law tells you to report the income as best you can, and amend if you get better information.  The IRS usually will understand.

Except when you control the S corporation with the delinquent K-1s.

A Californian, Dr. Sampson, owned two S corporations. His preparer hit a wall preparing the S corporation returns, according to the Tax Court (my emphasis):

Mr. Araradian has been preparing returns for Dr. Sampson and the corporations for many years. He receives the information necessary to prepare the corporations’ tax returns from Dr. Sampson’s administrator, who keeps general ledgers for both corporations using a computer program, QuickBooks, which is available to Mr. Araradian electronically. He also receives copies of the actual documents, such as bank statements and payroll reports, underlying the entries in QuickBooks (source documents), which he believes are necessary to verify the data in QuickBooks.  before he will prepare a tax return. For neither of the years in issue did either corporation provide source documents to Mr. Araradian before the respective dates on which their Forms 1120S for those years were due. The corporations’ Forms 1120S for those years were delinquent because, without source documents Mr. Araradian would not prepare those returns. 

Well, he still had the Quickbooks files, so he should be able to throw together a tentative taxable income number for the doctor, right?  Apparently not:

     And since he had not prepared the corporations’ returns by the dates on which petitioners’ 2008 and 2009 Forms 1040, U.S. Individual Income Tax Return (together, original returns), were due, Mr. Araradian did not have the corporations’ Schedules K-1, Shareholder’s Share of Income, Deductions, Credits, etc., from which to enter pass-through items from the corporations on the original returns.

Consequently, Mr. Araradian prepared the original returns omitting any income or losses passed through to petitioners from the corporations. He told Dr. Sampson in each case that he was making a statement on the return saying that pass-through items from the corporations were not being included. The statement that he made on each return is as follows:

      THE ENCLOSED TAX RETURN FOR REGINALD AND GERVEL SAMPSON DOES NOT INCLUDE THE K-1′S FROM MONTEBELLO MEDICAL CENTER, INC. * * * AND REGINALD SAMSPN [sic] MD A PROF CORP * * *. THE * * * [2008/2009] PERSONAL INCOME TAX RETURN FOR REGINALD AND GERVEL SAMPSON WILL BE AMENDED ONCE THE TAXPAYER RECEIVES THE * * * [2008/2009] K-1′S.

So he had the Quickbooks files, but he just used zeros.  For two years.   That turned out to be  less than the income that should have been reported, leading to over $130,000 in additional tax.  The IRS didn’t think that was reasonable and assessed penalties.

The taxpayers argued they filed a “qualified amended returns” for the two years.  The judge pointed out that the amended returns were filed after the IRS had contacted the taxpayers, so they didn’t work.

It seems strange to me that the preparer wouldn’t file a return based on the Quickbooks file alone, though maybe he felt the doctor’s bookkeeping wasn’t to be trusted without support.  Given the penalties for filing late S corporation returns, it’s surprising that the doctor didn’t turn over the “underlying documents.”  Considering that he had quite a bit of information in the Quickbooks files about the K-1 income, it’s surprising that they used zeros on the doctor’s 1040, instead of an estimate based on Quickbooks numbers.  But the tax law can be full of surprises.

The moral?  If you don’t have perfect information, the zero option may not be your next best option.  If you can’t file perfect, it’s better to file something, and to try to make it as close as you can.

Cite: Sampson, T.C. Memo 2013-212.

 

Richard Borean and Kyle Pomerleau,  Monday Map: Top Marginal Tax Rates on Sole Proprietorships and S-corporations (Tax Policy Blog).  Today, S corporations:

20130910-1

Yes, increasing rates on the wealthy also increases tax rates on businesses.

Don Boudreaux,  It’s Not Really a Taxingly Difficult Subject (Cafe Hayek): “Among the most economically naive calculations that people (including government officials) make is to estimate the growth in tax revenues based on the assumption that nothing changes beyond a hike in the tax.”

 

TaxGrrrl,  Back To School: Taking Advantage Of The Tuition & Fees Deduction 

Peter Reilly,  Sixth Circuit Highlights S Corporation Perils In Broz Decision  ”Don’t rely on your accountant to straighten every thing out with journal entries.”

Russ Fox,  California to Require Annual Reporting of Like-Kind Exchanges for Out-of-State Property

Trish McIntire, Tip or Service Charge?

Robert D. Flach, When to contact your tax pro.  It’s amazing all the different things your average guy might need a tax pro for.  Robert also has fresh Buzz today!

Joseph Henchman, Wisconsin Offers Constructive Tax Filing Guidance for Same-Sex Couples

Jason Dinesen, Wisconsin State Tax Guidance for Same-Sex Married Couples   

William Perez, Statute of Limitations on Tax Refunds.  ”Did you know that you can claim a tax refund for up to three years after the original deadline?”

Clint Stretch, Healthcare and Tax Reform:  “Repealing the employer-provided healthcare exclusion might make sense in economic theory, but in the practical world, it would accelerate a day of reckoning on healthcare for which we are unprepared.”

Jack Townsend, On Harmless Error

Brian Mahany, FBAR Basics – Foreign Reporting 101

TaxProf,  The IRS Scandal, Day 124

Me, Iowa’s “economic development” policy: bipartisan follies.

 

Kay Bell, Pennsylvania school tax protester pays $7,143 bill with $1 bills

News from the profession: Oh Dear Lord, Grant Thornton’s Belfast Office Has a Willy Wonka Room (Going Concern)

 

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Tax Roundup, 5/22/2013: Don’t blame me, I’m only the boss. Also: tornado tax relief.

Wednesday, May 22nd, 2013 by Joe Kristan
Former IRS Commissioner Shulman, showing how bad he feels about politcal harassment under his watch.

Former IRS Commissioner Shulman, showing how bad he feels about politcal harassment under his watch.

The Worst Commissioner Ever returned to Washington yesterday to testify before a Senate committee on the IRS scandal.  He bravely took responsibility for the targeting of disfavored political groups and apologized to the victims.

Well, not exactly:

 I certainly am not personally responsible for creating a list that had inappropriate criteria on it. And what I know, with the full facts that are out, is from the inspector general’s report, which doesn’t say that I’m responsible for that. With that said, this happened on my watch. And I very much regret that it happened on my watch.

In other words, I was just the boss, and you can’t blame me for what those crazy kids in Cincinnati do.

 

Just exercising the right they encouraged the Tea Partiers to use – silence.  The IRS functionary who announced the scandal in response to a planted question isn’t going to answer real ones.  From the Wall Street Journal:

Lois Lerner, the head of the Internal Revenue Service office that targeted conservative groups, intends to invoke her constitutional right against self-incrimination and decline to answer questions about the matter when questioned by a congressional committee Wednesday.

Ms. Lerner, director of the tax-exempt-organizations division at the IRS, notified the House Committee on Oversight and Government Reform through her attorney that she wouldn’t answer questions on the matter, according to a committee spokesman.

When it comes to the Bill of Rights, better late than never.

 

Is Washington a suburb of Cincinnati?  Oversight from Washington, All Along    (Eliana Johnson)

TaxProf, The IRS Scandal, Day 13

Watchdog.org, Top 10 quotes about Obama’s #scandalpalooza

Via Don Boudreaux, The Real Lesson of the IRS Scandal (Richard Epstein) and The Autocrat Accountants    (Mark Steyn)

Patrick Temple-West,  White House knew of IRS scandal in April, and more (Tax Break)

Clint Stretch, Targeting tax-exempts and tax reform (Tax Analysts Blog)

Joseph Thorndike, A World Without 501(c)(4)s (Tax Analysts Blog)

Russ Fox, Ms. Lerner Knows the Fifth (IRS Scandal Update)

 

In other news:

Kay Bell, Tornado-ravaged areas of Oklahoma declared major disasters, leading to special tax relief from IRS

Trish McIntire,  Oklahoma DIsaster- Tax Relief.

TaxGrrrl, IRS Announces Tax Relief For Oklahoma Tornado Victims

 

Paul Neiffer, Will Excess Farm Loss Rules Apply With New Farm Bill?

Jason Dinesen, How to Allocate the Deduction for Federal Estimated Tax Payments on Your Iowa Tax Return

Robert D. Flach, TRUE TAX TIME TALES – IRA WITHDRAWALS

 

Brian Strahle,  MARYLAND:  WYNNE CASE UPDATE

On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller’s motion for reconsideration in Comptroller v. Wynne,  which struck down the state’s application of credits against pass through income from S corporations; however, the court stayed implementation of the ruling to allow the comptroller to petition the U.S. Supreme Court for certiorari.

Peter Reilly,  RVania Resident Taxed By New Mexico.  State tax problems of folks who live on the road.

 

Kaye Thomas,  Self-Directed IRA Implodes.  The same case I discussed here.

 

 Jack Townsend, Tax Perjury and FBAR Charges Related to Illegal Income Fake Art Case

Jim Maule, Taxation is Not Theft.  It’s not theft when the government does it.

 

 

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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, 12/27/2012: Why the rich don’t like being soaked. And how to make a fortune by copyrighting your name!

Thursday, December 27th, 2012 by Joe Kristan

 

From a Tax Foundation chartbook, “Putting a Face on America’s Tax Returns”

What happens as you ratchet up the top rate. A timely explanation of the effect of raising already high tax rates from Megan McArdle:

Taking your tax rate from 5% to 10% decreases your after tax income by 5.26%.  But by the time your tax rate is 50%, you’re only keeping half of your income.  So increasing the tax rate by 5% decreases your after-tax income by 10%: you used to take home 50 cents out of every dollar, but now you only take home 45 cents.  

If you were surprised that Gerard Depardieu decided to leave France rather than pay the new 70% top rate, think of it this way: the rate increase was only 30%, but it was going to cut his income in half. Yes, that would still leave him with more money than you and I live on.  But people don’t think this way: if the government came and took half your after-tax income away, that would still leave you with more money than a middle-class family in Bangalore lives on, and you would still be hopping mad, not to mention panicking about how the mortgage was going to get paid.  Even if they only took half of your marginal after-tax income away–an extra 50% of every dollar you made over $40,000 say–you would be pretty upset, because you’ve probably already earmarked uses for those dollars.

With the people in the highest-income states already pushing a 50% marginal rate under current law (and also, under what I take to be the negotiation outcome desired by most of the Democratic Party), every 10% tax hike is a 20% decrease in the after-tax value of extra work.

Applying that analysis to Iowa, the combination of the fiscal cliff and the Obamacare 3.8% “net investment income” tax can reduce the after-tax value of additional income of a top-rate Iowa taxpayer by 12.24%  — about 1/8.   For Iowa businesses that pay their taxes on owner returns — that is, partnerships, LLCs and S corporations — that’s a 1/8 reduction in their cash flow, their ability to finance expansion, their ability to service new debt.  It’s also a 1/8 reduction in the returns to taking a chance on a new product, a new location, a new employee.  That makes for fewer chances taken.

Worse, soaking the rich doesn’t even begin to solve the spending problem or close the deficit, no matter how hard you try.  The rich guy isn’t buying.

 

Fiscal Cliff Notes

Veronique de RugyA Little Symbolism to Fight Fiscal Denial (The Corner)

TaxGrrrlTreasury Advises That U.S. Will Hit Its Debt Limit In 5 Days

 

Cara Griffith,  The Promise of Tax Stability (Tax.com).  For one company, anyway; tough for the rest of Oregon.

Peter Reilly,  Retired IRS Officer Launches Petition Against Clergy Tax Benefit

Robert D. FlachWHAT’S NEW FOR NJ INCOME TAXES FOR 2012

Anthony NittiThe Top Ten Tax Cases Of 2012, #1: Obamacare Is Constitutional Because The Individual Insurance Mandate Is Both A Penalty And A Tax. Wait…What?

Romney won?  How You Can Lose Money on Paper And Still Win at Tax Time Like Romney (TaxGrrrl). 

As bad as today’s news is, it could be worse.  And it was, actually, as Don Boudreaux reminds us in  Cataloging Our Progress: Men’s Business Wear (Cafe Hayek)

 

Yeah, that’ll work.  Man jailed in federal tax fraud, bills paper for using his ‘copyrighted’ name.   A convicted tax cheat sent a $6 million invoice to the local paper for using his name twice in a news story reporting his guilty plea on tax charges.  Doesn’t he know that if he collects they’ll send him a 1099? (vindy.com)

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