Posts Tagged ‘Elaine Maag’

Tax Roundup, 3/9/16: A College Savings Iowa contribution today can reduce 2015 Iowa tax. And: Shoot more jaywalkers!

Wednesday, March 9th, 2016 by Joe Kristan

csi logoYou can still make a College Savings Iowa 2015 contribution. While Section 529 plans provide tax-free earnings for college for taxpayers in all states, Iowans can get an extra tax break for them. 2015 contributions to College Savings Iowa or Iowa Advisor Sec. 529 plans can generate a deduction on Iowa state 1040s up to $3,163 per donee.

For the first time, Iowans can make their 2015 contributions as late as the April 30, 2016 due date of their 2015 tax return. In prior years you had to make the contribution by December 31 to get the deduction.

The $3,163 limit is per donee, per donor. That means a couple with 2 children can get four full deductions for 2015 529 contributions totaling up to $12,652. For a couple at the 8.98% top Iowa rate, that’s a savings of $1,136 on their Iowa return.

This is another of our occasional series of 2016 filing season tips. Collect them all!

 

Jack Townsend, Report on Remarks of AAG Tax and Practitioner Regarding Nonwillfulness and Foreign Account Enablers:

Ciraolo and Bryan Skarlatos questioned whether foreign account holders can remain nonwillful about foreign account reporting obligations at this stage.  The article quotes from her prepared comments (linked above) as follows:

After three very well-publicized voluntary disclosure programs, nearly 200 criminal prosecutions, ongoing criminal investigations and the increasing assessment and enforcement of substantial civil penalties for failure to report foreign financial accounts, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are, quite simply, neither credible nor well-received. 

This is so wrong. Something that is a big deal in the IRS enforcement bureaucracy can be invisible to a person going about their business, maybe taking a temporary position overseas or getting a U.S. green card.

People get in IRS trouble for having an interest in a foreign account they aren’t even aware of. One practitioner I know had to deal with an immigrant from India who paid thousands of dollars in penalties for not reporting an interest in a foreign bank account that her parents back home put her name on as a joint owner without her knowledge, and without her receiving any income from it. Others find themselves in hot water after get an inheritance overseas that they don’t learn about until after the reporting deadline.

The IRS remains clueless about how many people go through their daily financial lives without pondering whether there is an obscure form lurking to ruin them for non-compliance. The system is broken, but the only answer the enforcers have is to continue the beatings until morale improves.

 

20120906-1David Brunori speaks wisely: If You Need Tax Credits, You Shouldn’t Be in Business (Tax Analysts Blog)

Here’s what got me thinking. Iowa — no paradise when it comes to good tax policy — gave 186 companies tax credits worth more than $42 million last year. Those credits were handed out as an incentive to conduct research and development. There are other credits available for businesses. Oh, and the credits are refundable because, like with poor families receiving the earned income tax credit, R&D credits provide a critical safety net. All right, I’m being facetious.

Iowa’s biggest welfare recipient was technology company Rockwell Collins Inc., which received $12 million. Rockwell is a great company, but it has $5 billion in revenue. Giving money to Rockwell isn’t quite the same as giving money to a shoestring nonprofit feeding the homeless in Des Moines.

In all, 20 companies claimed more than $500,000 in R&D credits, including DuPont Co., Deere & Co., and Monsanto Co. I ask them, where is your pride? Do you really want a government handout?

For a full-throated defense of tax credit corporate welfare, today’s IowaBiz.com blogger, Brent Willett, offers Job creation fuel: R&D policy move is important for Iowa. Not surprisingly, the cost of paying these subsidies in increased taxes on less fortunate and less influential Iowa businesses never comes up. The “job creation” part is also weakly defended.

 

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Russ Fox, Online Gambling Addresses Updated for 2016. Russ performs a valuable service in gathering street addresses of offshore online gaming websites. Online gaming accounts at these sites are “foreign financial accounts” for FBAR purposes, and you need a street address to fill out Form 114. They can be hard to find. Hat’s off to Russ.

TaxGrrrl, Tax Season Proving Confusing (Again) For Taxpayers Affected By Obamacare

Kay Bell, Have you received your Obamacare coverage forms yet? “Recipients of the B or C versions want to hang onto these forms as verification that they did have ACA required coverage, which they tell the Internal Revenue Service about by checking the appropriate box on their 1040EZ, 1040A or long form 1040.”

Michelle Drumbl, The Automated Substitute for Return Procedures (Procedurally Taxing) “The ASFR assessment process takes into account all income reported as earned by the taxpayer, but it ignores reported items that would reduce taxable income.”

Robert Wood, Erin Andrews Wins $55M Peephole Verdict But Faces Heavy IRS Tax Hit

Jim Maule, Buying and Selling Dependency Exemptions for Tax Purposes. “It’s too bad Congress cannot be indicted, convicted, and punished for making a mess of the tax system, continuing to make it worse, and refusing to clean it up.”

 

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Annette Nellen, AICPA Advocacy on IRS Funding. It’s hard to see how the IRS gets more funding when it does such an awful job with the funding it has.

TaxProf, The IRS Scandal, Day 1035. “The IRS doesn’t know if its data backups are deleted or not created, and doesn’t test to ensure backups can be used if information is lost, even after a “significant” December 2014 incident, according to a Treasury Inspector General for Tax Administration (TIGTA) report.”

Alan Cole, Tax Policy Must Be Proportionate to Spending Policy (Tax Policy Blog). “This gets to the heart of one of the principles of good tax policy: your tax policy should actually be able to fund the government you want. One way or another, Donald Trump will have to assent to this principle.”

Elaine Maag, Complicated Families: Complicated Tax Returns (TaxVox):

The law is built on the idea that a child lives in a traditional family – married parents with only biologically related siblings. The tax unit it is presumed to include the adults supporting the child.

But increasingly, children live in arrangements that belie that traditional family; children move between homes of divorced or never-married parents in formal and informal custody arrangements; children live with unmarried, cohabiting parents; children live in multigenerational households. In short, children are supported by adults in multiple tax units.

But only one tax unit gets to claim the earned income credit for each child.

 

News from the Profession. Apparently Accountants Are Terrible on the Phone (Caleb Newquist, Going Concern).

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Tax Roundup, 11/2/15: Iowa says airbnb rentals trigger hotel-motel tax. And: IRS backdoor regulation push suffers setback.

Monday, November 2nd, 2015 by Joe Kristan

wdmlogoAt least West Des Moines homeowners won’t have to pay hotel-motel tax. One of my now-departed uncles was a track and field coach in Illinois. Every April he would get together with some of his fellow coaches and drive to Des Moines for the Drake Relays. They always rented the same house in the South of Grand neighborhood in Des Moines while they stayed here. They had a great time, and the homeowners got a little extra cash.

Short term home rentals are nothing new, in other words. The federal tax law has long accommodated them by excluding income from rentals up to two weeks a year from income tax. The practice has become more widespread now that airbnb and Vrbo.com make it easier to match up potential renters and guests.  It shouldn’t surprise us that the tax man has noticed.

An Iowa Department of Revenue policy letter made public last week says short-term home rentals are subject to Iowa’s 5% hotel-motel tax (all emphasis mine):

The Iowa Department of Revenue (“Department”) has received your question about home sharing.  You asked whether a homeowner who occasionally rents the home to others is subject to hotel and motel tax.

You provided the following facts:  A resident of Iowa City owns a home, which is the homeowner’s primary residence.  On the weekends of homecoming and graduation at the University of Iowa—four nights total each year—the homeowner stays with family members and rents the home to visitors.  You asked if the charges for renting the home are subject to hotel and motel tax.

Iowa imposes a hotel and motel tax “upon the sales price for the renting of any lodging” in Iowa.  Iowa Code § 423A.3.  A city or county may also impose a local hotel and motel tax “upon the sales price from the renting of lodging.”  Id. § 423A.4.  “Sales price” is “the consideration for renting of lodging.”  Id. § 423A.2(1)(f). 

“Lodging” means rooms, apartments, or sleeping quarters in a hotel, motel, inn, public lodging house, rooming house, or manufactured or mobile home which is tangible personal property, or in a tourist court, or in any place where sleeping accommodations are furnished to transient guests for rent, whether with or without meals. Lodging does not include rooms that are not used for sleeping accommodations.

Id. § 423A.2(1)(c).

The homeowner’s home is clearly a “place where sleeping accommodations are furnished to transient guests for rent.”  See id.  The statute does not place a minimum number of nights a place must be rented for it to qualify as “lodging.”  See id.  Accordingly, the rental of the homeowner’s home is subject to hotel and motel tax.  Iowa provides a limited number of exemptions from hotel and motel tax, none of which apply to the facts you provided.  See id. § 423A.5.  Therefore, the homeowner must collect and remit hotel and motel tax for renting the home. 

I suspect the next person to remit hotel-motel tax for a short-term home rental will also be the first. I also suspect that the existence of services like airbnb will make it easier for the state to collect hotel-motel taxes for short-term home rentals. Renters need to also tack on any local hotel taxes; your friendly county board and city council will surely want to share.

20151102-1Except in West Des Moines. I live in this Des Moines suburb, and the City Council has saved me the trouble of collecting hotel-motel tax by banning short-term rentals. The Des Moines Register explains:

In July, the city council passed an ordinance prohibiting the rental of single family homes, including condos, for 31 days or less. Owners can rent their properties only if they are “on-site and present at the time of and for the duration of the rental.” In other words, if someone attending the World Food Prize wants to rent a home in the suburb for a week, the owner must be there, too.

Was West Des Moines cowering in terror from rioting short-term visitors brazenly cutting across our lawns? No. From the Register piece:

Were the few short-term rentals available in West Des Moines creating problems? Were numerous residents lodging complaints with city officials? No. The ordinance was prompted by one complaint from one person.

One person, one moral panic. The resident said there ought to be a law, and in practically no time, the West Des Moines city council enacted one:

[The complaining resident] suggested the council consider adopting an ordinance to address the issue. Within about one month, it did exactly that. It didn’t survey residents. It didn’t contact the Ashworth homeowner. It didn’t do a comprehensive search of other properties that may be listed on several websites. It quickly passed an ordinance that applies to 60,000 residents because a man showed up at a meeting to complain about his neighbor. One man. One complaint.

It passed unanimously. The minutes of the meeting are here. West Des Moines city council elections are tomorrow, but the elections appear to be uncontested.

 

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Russ Fox, AICPA Has Standing Per DC Court of Appeals; IRS’s Annual Filing Season Program In Jeopardy:

The original lawsuit claims by the AICPA look very accurate to me. And there’s a new one: Unenrolled preparers who do not participate in the AFSP will be denied the ability to represent taxpayers’ whose returns they prepared in examinations (as of January 2016). This makes the program look a lot more mandatory than voluntary.

I always assumed the “voluntary” program was preparer regulation by the back door, and that it would be just as voluntary as the United Way contributions were back at my first CPA job.

Robert D. Flach notes Russ’s piece and comments: “The bottom line – the AICPA fears that any government, or other, credential or designation that identifies a person’s competence and currency in 1040 preparation will take business away from CPAs.”

Elaine Maag, The IRS Could Improve EITC Compliance by Regulating Tax Preparers. (TaxVox). Ms. Maag is a big believer in hope over experience.

 

Paul Neiffer, File & Suspend Will Be No More:

The budget bill that was finalized this week eliminates a strategy for social security recipients called “File and Suspend”.  Under this strategy, the high income earner could file for benefits, allow his lower earning spouse to get benefits before full retirement age and then “suspend” their benefits until age 70 to lock in the additional 8% increase per year in benefits. 

Paul links to additional articles on what this means for retirement planning.

 

Peter Reilly, Redstone Family Saga Writ Large In Favorable Tax Court Decision. “Being in the movie business and all you would think the Redstones would have been familiar with the remark attributed to Samuel Goldwyn – ‘A verbal contract isn’t worth the paper it’s written on.'”

 

William Perez discusses Employee Stock Purchase Plans.

Kay Bell, IRS uses cell phone surveillance only in criminal cases. And everybody trusts the IRS.

Jason Dinesen, Corporate Tax Status Determined By Federal Law, Not State Law

Robert Wood, How IKEA Billionaire Legally Avoided Taxes From 1973 Until 2015. In Sweden.

TaxGrrrl, No ‘Candy Tax’ At My House On Halloween. “The candy tax – which is a variation on what parents used to do back in the day and just didn’t call it a tax – is a parenting trend where you purport to teach your kids about responsibility by stealing some of their candy levying a “tax” on their trick or treat loot.”

 

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TaxProf, The IRS Scandal, Day 905Day 906Day 907. Day 906 covers blogger reactions to the resolution to impeach Commissioner Koskinen. This from the Day 905 link describes the larger problem, of which the IRS scandal is only a part:

The federal bureaucracy has always been bad at policing employees, but President Obama bears direct responsibility for the problem getting immeasurably worse. Last year, 47 of the 73 federal inspectors general signed a letter decrying the Obama administration for stonewalling their investigations and in some cases actively intimidating investigators.

The policy has been to fight all transparency and oversight, whether there’s something to hide or not. If there is, the long struggle will make it easier to spin bad news as “old news” by the time the facts emerge. If there is nothing to hide, then it makes the investigators look bad for investigating.

 

Scott Drenkard, Which States Have the Worst Sales Tax Administration? (Tax Policy Blog). It looks like Louisiana, Arizona and Colorado are pretty bad.

 

Bottom story of the day. The New York Times Advances a Poor Argument For Tax Hikes (Alan Cole, Tax Policy Blog).

Career Corner. Survey: Performance Reviews Cause Millennials to Complain, Curse, Cry (Caleb Newquist, Going Concern).

 

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Tax Roundup, 9/14/15: Hatch, Wyden sneak preparer regulation into ID theft bill. And more!

Monday, September 14th, 2015 by Joe Kristan

No Walnut ST“Bipartisanship” means they’re ganging up on you. UtahPolicy reports: Hatch, Wyden Announce Markup of Bipartisan Bill to Prevent Identity Theft and Tax Refund Fraud. In the 20-item summary of the “Chairman’s Mark,” this is buried as item 15 (my emphasis):

In June 2011, the IRS issued final regulations that established a new class of tax practitioners known as “registered tax return preparers” that it sought to regulate for the prepared by these now unregulated tax return preparers. There is substantial evidence indicating that incompetent and unethical tax return preparers are harming both their clients and the government. Most of the tax returns that involve refundable tax credits are prepared by unregulated tax return preparers.

Since 2011, the D.C. District Court (and the D.C. Circuit affirming on appeal) has prevented the IRS from enforcing these regulations on the grounds that the IRS’ authority to regulate practitioners is insufficient to permit regulation of tax return preparers who do not practice or represent taxpayers before an office of the Treasury Department.

The provision provides the Treasury Department and the IRS with the authority to regulate all aspects of Federal tax practice, including paid tax return preparers, and overrides the court decisions described above.

Preparer regulation wouldn't have bothered Rashia.

Preparer regulation wouldn’t have bothered Rashia.

Of course, increasing preparer regulation does absolutely nothing to fight identity theft.  People don’t go to unregulated preparers to arrange to have their identities stolen. Paid preparers aren’t the people who steal identities. That nasty work is done by others. It’s done by organized crime gangs in the old Soviet Union. It’s done by semi-literate street grifters in Florida. It’s done by street gangs. It’s even done by IRS agents.

Fighting ID theft by regulating preparers is like fighting pickpockets by regulating laundromats. Making tax preparers take a competency literacy test won’t touch the ID theft problem. Nor will crooks stop claiming bad refunds because the IRS wants them to take a test.

Fortunately, a powerful senator makes an impassioned argument against giving the IRS more power over preparers:

“Protecting the private information of taxpayers at the Internal Revenue Service should be of highest importance to the agency and Congress. Unfortunately, as we learned this year, highly valuable information housed at the agency is susceptible to cybercriminals.  Since this threat will not end, Congress should take appropriate bipartisan action to implement needed legislative policies that will better protect taxpayers and shield taxpayer dollars from thieves.”

Oh, I’m sorry, that’s Senator Hatch arguing that this incompetent agency should get more power over preparers. Does he even read his own stuff?

The IRS already has tools to deal with bad preparers, as the weekly parade of injunctions and indictments of preparers attests. What the IRS wants is more power and less of that annoying due-process stuff. It’s supported in this by the large tax prep franchise outfits, one of whose executives wrote the rules that the courts struck down. The big tax prep outfits want to increase barriers to entry to grow their own market share. Big companies can spread the cost of regulatory compliance over a large base of business; a sole practitioner has to absorb the cost alone. An IRS paperwork glitch that can ruin a single preparer does nothing to H&R Block. Regulation always favors the big.

The President’s recent report on excessive occupational licensing notes:

There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing.

They certainly aren’t doing so here. They plan to mark up the bill Wednesday morning. Contact your senator and representative to oppose this IRS power grab on behalf of its friends Henry and Richard.

 

TaxProf, The IRS Scandal, Day 856Day 857Day 858. Yes, let’s give these people more power over preparers, they’ve shown we can trust them.

 

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Kay Bell, Congress faces a crowded year-end legislative schedule. Not too crowded to find time to help out Henry and Richard.

William Perez, 5 Tips for the 3rd Estimated Tax Payment of 2015. It’s due tomorrow!

Robert D. Flach, MAKE YOUR LIFE EASIER AT TAX TIME BY SAVING ALL COLLEGE INFO NOW. “FYI – beginning with tax year 2016 (for returns to be prepared in 2017) you must have a Form 1098-T in order to claim an education credit or deduction on your Form 1040 (or 1040A).”

Russ Fox, Defalcations Send Randolph Scott to ClubFed. An estate tax attorney decides he needs the money more than the IRS does.

Jason Dinesen, Iowa Society of EAs to Host CPE Extravaganza. October 19 and 20, West Des Moines. “This seminar is open to any tax pro who needs CPE, so CPAs and attorneys are welcome to attend.”

Annette Nellen, Tell me – hot state tax issue of 2015?

Peter Reilly, Jeb Bush Tax Plan Could Disrupt Real Estate And Small Business. “Bush tax plan calls for elimination of business interest deductions.”

Robert Wood, Marijuana Taxes Go Up In Smoke For One Day In Colorado. Isn’t that the point?

 

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Scott Greenberg, Yahoo Spinoff of Alibaba Sheds Light on Problems with the Corporate Tax System (Tax Policy Blog):

These three obstacles – double taxation, legal complexity, and regulatory uncertainty – are present in many areas of corporate tax law, not just Yahoo’s spinoff of Alibaba. And all three significantly hinder American business operations, slowing down economic growth. The ongoing saga of Yahoo is one more example of why fixing the corporate tax code must be a priority of the federal government.  

I would add that Yahoo also ran into a politicized IRS that was under pressure to kill the deal.

Elaine Maag, Tax Subsidies for Childcare Expenses Target Middle-Income Families, Missing Many Poor Parents. (TaxVox)

 

News from the Profession. This CPA’s Mugshot Will Haunt Your Dreams. (Caleb Newquist, Going Concern).

 

 

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Tax Roundup, 5/21/15: Credits targeting what you would do anyway! And: minimum wage, ACA, and lots more.

Thursday, May 21st, 2015 by Joe Kristan

 

IMG_0603Paying people to do what they would do anyway. Rhode Island is proposing a new credit for “job creators,” reports David Brunori:

It would work the same way other bad tax incentive programs work: A company that creates new jobs in the state would receive a reduction in its income tax. The proposal mirrors a bill introduced earlier this year. Basically, the bill, if signed into law, would reduce the tax rate for companies that hire full-time employees in Rhode Island who work at least 30 hours per week and receive a salary that is at least 250 percent of the prevailing hourly minimum wage in the state. Large companies would be eligible for a 0.25 percent tax incentive off their net income tax rate for every 50 new hires. Smaller companies would be eligible for a 0.25 percent incentive off their personal income tax for every 10 new hires. The rate reduction would be limited to a maximum of 6 percentage points for the applicable income tax rate and to no more than 3 percentage points for the applicable personal income tax rate. Complicated? You bet. But that’s why law firms like the incentive business.

Statewide employment is expected to grow in Rhode Island in the next several years without the political gimmicks of tax incentives. So this bill is unnecessary (no one thinks the incentives will lead to growth greater than what’s expected). In other words, there is no incentive being provided; the state is just making a welfare payment.

This is true of all “job creation” credits. As David points out: “No sane business owner will hire someone for $40,000 simply to save $4,000 on her tax bill. This bill will not create one new job in Rhode Island.”

An Illinois representative has proposed a “Patriot Employer Tax Credit Act,” (Tax Analysts, $link) with a tax credit of up to $1,500 for employers who:

-Invest in American Jobs: Does not move its headquarters overseas or reduce the number or percentage of U.S.-based workers in comparison to workers overseas.

-Pay Fair Wages: Pay 90% or more of U.S. workers an hourly wage of at least $15 per hour.

-Provide Quality Health Insurance: Offer ACA-compliant healthcare to employees.

-Prepare Workers for Retirement: Provide 90% of non-highly compensated U.S. employees a defined benefit plan OR a defined contribution plan and contribute at least 5% of worker compensation.

-Support Our Troops and Veterans: Pay the difference between regular salary and military compensation for all National Guard and Reserve employees called for active duty and have a plan in place to recruit veterans.

-Create a Diverse Workforce: Have a plan in place to recruit employees with disabilities.

By claiming the word “patriot,” it wraps bad economics in the flag. Because nothing says “I love my country” like tax credits.

 

20150423-1Jana Luttenegger Weiler, Health Savings Accounts: Beneficiaries and Taxes (Davis Brown Tax Law Blog). “As HSAs become more common, it is important to consider the HSA in various capacities, including in premarital agreements, death, and divorce.”

Tony Nitti, Tax Court: In Order To Convert A Home To A Rental, You Should Probably Rent It

Jason Dinesen, Glossary of Tax Terms: AMT.

TaxGrrrl, Taxpayer’s Call To IRS Accidentally Broadcast On Howard Stern’s Radio Show. I’m just amazed the caller reached an actual IRS agent.

Peter Reilly, Tax Girl Challenges Homeownership And You Should Really Listen To Her. “To many of us homeownership is a necessary step in becoming a full-fledged adult and a house that is rented can never be a home.  This book might help you rethink that attitude.”

Jim Maule, The Dependency Exemption Parental Tie-Breaker Rule. “Under the parental tie breaker rule in section 152(c)(4)(B), if the parents claiming a dependency exemption deduction for a qualifying child do not file a joint return, the child is treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during the taxable year, the child is treated as the qualifying child of the parent with the highest adjusted gross income.”

Paul Neiffer, April 18 (or 19), 2016 is Due Date for 2015 tax returns

Jack Townsend, Remaining Swiss Bank Criminal Investigations Likely to Go Into 2016

Robert Wood, Appalling $187 Million Cancer Charity Fraud Case Settles — When 97% Of Money Isn’t For Charity

Keith Fogg, Argument Over Furlough of National Taxpayer Advocate Set for June 2 Before the Federal Circuit (Procedurally Taxing)

 

 

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Cara Griffith, Tax Reform Laboratories (Tax Analysts Blog). “Federal lawmakers could learn a lot from an examination of what has worked and what hasn’t across the nation.”

 

Insureblog, Dear HHS, Will You Share My ACA Success Story?:

  So how has this Obamacare thingy helped my small company:-We have seen an overall decrease in benefits since 2010.
-From November 2010 to our current plan year premiums have increased 58.7%.
-If we would have been forced to an Obamacare compliant plan the increase would have been 116.7%

Tom Vander Well, Placing customers on hold without diminishing satisfaction (IowaBiz.com). The suggestions do not endorse the IRS practice of “courtesy disconnects.”

 

Carl Davis, Sweet Sixteen: States Continue to Take On Gas Tax Reform (Tax Justice Blog). To the Tax Justice folks, tax reform = tax increase.

 

Joseph Thorndike, Republicans Should Embrace the Gas Tax – After All, They Invented It (Tax Analysts Blog). Everyone loves being told what they “should” like.

 

Kay Bell, Will Congress OK highway money before it hits the road?

 

Elaine Maag, A Redesigned Earned Income Tax Credit Could Encourage Work by Childless Adults. (TaxVox). Only if they can re-design it so that it doesn’t squander 25% of the cost on improper payments.

 

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Megan McArdle, $15 Minimum Wage Will Hurt Workers. A well-explained post explaining what should be obvious:

When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.

These sorts of decisions take a while to make. They still add up, in the end, to deadweight loss — that is, along with a net transfer of money from owners and customers to employees, there will also simply be fewer employees in some businesses. The workers who are dropped have effectively gone from $9 an hour to $0 an hour.

Most people who insist that minimum wage increases are harmless snicker at those who believe in “intelligent design.” Yet they are themselves trying to impose their own design on an eveolutionary system. At least creationists don’t claim to be designing species.

 

TaxProf, The IRS Scandal, Day 742

 

News from the Profession. Accountants Lack Some Skills (Caleb Newquist, Going Concern). “But it’s foolish to expect accounting graduates to have skills for corporate accounting. They don’t have them because they don’t learn them in school and they don’t learn them in public accounting.”

 

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Tax Roundup, 12/15/14: Is today the day the expired provisions arise? And: Ames Day!

Monday, December 15th, 2014 by Joe Kristan

Hey, calendar-year corporations and foundations, your fourth quarter estimates are due today.

lazarus risingCromnibus passes. Extenders today? The monstrous $1.1 trillion ($1,100,000,000,000) government funding bill that had been holding up passage of the one-year “extender” bill finally cleared the Senate over the weekend. We might see the Lazarus provisions rise again as early as today. The 55 provisions that expired at the end of 2013, and which HR 5771 would retroactively extend through the end of this month, include the $500,000 Section 179 limit, 50% bonus depreciation, and the research credit. The bill would also extend the five-year built-in gain tax recognition period and the rule allowing IRAs to contribute to charity.

I’ll be following developments and post if the bill clears today.

Update, 10:54: This from The Hill makes it look like nothing happens on the extenders before late tonight.

 

Ames! Today is the final session of this year’s Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. We expect over 300 attendees here at the conference and another 80 webinar attendees.  I always learn a lot from teaching and hearing from the attendees. Thanks to everyone who attended.

 

Kay Bell, Cutting IRS budget is a bad idea for taxpayers, U.S. Treasury.

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.

Kay is correct. Congress continues to pile more policy into the tax law. The IRS has become a superagency with a portfolio covering everything from industrial policy to historic preservation to running the national health care finance system. Oh, and it’s supposed to collect the revenue to finance the government, too.

Unfortunately, with great power comes great responsibility. The IRS has been abusing the power and scurrying away from the responsibility. The new Commissioner has forfeited any goodwill he had by stonewalling Congressional investigators in the Tea Party scandal. He insisted to Congress that the agency had exhaustively tried to retrieve the missing Lerner e-mails, only to have them turn up on backup tapes.

Also, the IRS undercuts its claims of poverty when it spends on things like the “voluntary” preparer initiative to sneak in the preparer-regulation scheme that the courts have barred.

It’s hardly a surprise that Congress isn’t eager to fund a rogue agency with an untrustworthy leader. Until a new Commissioner can restore trust, IRS will continue to struggle to get funding.

 

20121217-1Robert D. Flach, THE RETURN OF THE GAO UNDERCOVER OPERATION:

In 2006 the Government Accountability Office (GAO) sent undercover operatives to 19 “commercial preparer” branch offices in a major metropolitan area posing as taxpayers looking to have their tax returns prepared. Errors were identified in 19 of the 19 completed federal returns, some “significant”.

As complicated as the tax law has gotten, this is no surprise, and it’s gotten a lot worse since 2006.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #3-Aragona Trust Changes The Way We Look At Real Estate Professionals.   This case is a big deal, and it definitely changes the landscape of trusts under the new 3.8% Net Investment Income Tax.

Robert Wood, IRS Can Audit For Three Years, Six….Or Forever. “Anyone who is hiding income or assets from the taxman should consider how long they need to be looking over their shoulder.

William Perez, What You Need to Know About the Penalty for Not Having Health Insurance

Jason Dinesen, 5 Things You Didn’t Know About EAs, #3: Two Ways to the EA. One requires working for the IRS.

Leslie Book, CDP and Installment Agreements: Sometimes Court Review is Crucial; Other Times Not So Much. “This past week the Tax Court issued an opinion in a collection due process (CDP) case, Hosie v Commissioner. The case is a bad case for those who support CDP.”

Tim Todd, Tax Court Not Limited to Administrative Record in Plan Revocation Action

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TaxProf, The IRS Scandal, Day 585.

Peter Reilly, Did You Hear The One About Lois Lerner Walking Into A Bar?

Elaine Maag, Will Immigrants Get A Tax Windfall From Refundable Credits? (TaxVox)

Alan Cole, The Problem with Free Stuff (Tax Policy Blog):

If you see a promotion for something like 7-Eleven’s Free Slurpee Day, you always end up having to temper your excitement when you realize that you’ll inevitably be waiting in line with the many others who want to enjoy the same treat. This is an unfortunate fact of life, the sort of thing we all reluctantly come to grips with by the time we turn twelve or so.

What puzzles me, then, is why we so often forget that fact of life when we’re sitting in traffic.

Roads are very much like free Slurpees. While roads are certainly not free to construct (much like a Slurpee isn’t free to make) using a road involves relatively little in the way of a user fee.

I’ve driven in Slurpee-like conditions. Good tires are a must.

 

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Tax Roundup, 12/4/14: House passes extenders; Senate alternative appears dead. And: Gas tax fever!

Thursday, December 4th, 2014 by Joe Kristan

Accounting Today visitors: Click here for the Lincoln year-end planning link.

lazarus risingHouse passes extenders; Senate action not yet slated. The House of Representatives yesterday revived the Lazarus provisions of the tax law, passing HR 5771 on a 378-46 vote.

The bill now moves to the Senate, which has not yet scheduled a vote. The Hill reports that Senate Democrats have given up on promoting a competing bill, which probably means they will go along with the House bill. While the President has not said he would sign the House bill, he hasn’t threatened a veto; that probably means he will go along.

The expired tax provisions revived by the bill include the $500,000 Section 179 limit, 50% bonus depreciation, the research credit, and the five-year built-in gain period for S corporations. They also include crony subsidies like energy production credits and accelerated depreciation for racetracks. A compromise plan to extend some of the provisions permanently collapsed when the President threatened to veto it.

The house-passed bill only extends the tax breaks that expired at the end of last year through the end of this month. That means the new Congress will have to do this again in 2015. Let’s hope they get an earlier start than they did this year.

Related:

Wall Street Journal, House Approves Temporary Tax Breaks

Accounting Today, House Passes $42 Billion Plan to Revive U.S. Tax Breaks for 2014

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Gas Tax Fever! The Greater Des Moines Partnership unveiled its legislative agenda yesterday. While it has a few good ideas, like reviewing Iowa’s pension plans for soundness, its priorities are crony-capitalist items like support for economic development tax credits and “public-private partnerships.” Its weak tax reform plank supports the Alternative Maximum Tax, which would allow individuals to choose an optional low-rate, broad base system. You’ll look in vain for anything specific to improve Iowa’s bottom-ten business tax climate — just a general call for lower rates. That may be because many large corporations have learned to use Iowa’s rats nest of special interest breaks and crony tax credits to their advantage.

The agenda also includes support for an increase in the gas tax to fund road projects.  That plank has some policy logic behind it, but it also is a tough sell. Caffeinated Thoughts reports that Iowans for Tax Relief has already come out against it. ITR opposition makes it hard for many GOP legislators to support the increase. Maybe that’s why the Sioux City Journal is reporting “Iowa legislative leaders murky on gas tax increase

 

Robert D. Flach, IT AIN’T NECESSARILY SO – H&R BLOCK CEO ALLEGEDLY CARES ABOUT EFFICIENT AND EFFECTIVE TAX ADMINISTRATION. “Here is what is a good idea for proper efficient and effective tax administration – remove the Earned Income Credit, and all other government social welfare and other benefit programs, from the Tax Code.” Amen, Brother Robert.

 

Jason Dinesen, who is a pioneer in the taxation of same-sex married couples, offers A Brief History of Marriage in the Tax Code: Introduction

Paul Neiffer, Irrigation Systems – Is that 7 or 15 Years?  Depends on whether it’s buried.

Tony Nitti, Sorry Mr. Ryan, But Corporate-Only Tax Reform Doesn’t Work. Somebody tell the President.

Kay Bell, Spend down your flexible spending account by Dec. 31

Jeff Stimpson, In the Blogs: Start Your Engines (Accounting Today)

 

Mark J. PerryTop 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%:

top 400 bottom 50

 

TaxProf, The IRS Scandal, Day 574.  Yes, there are thousands of e-mails that may show the IRS improperly accessed confidential taxpayer records. Releasing them might violate taxpayer confidentiality, so they stay secret. How convenient.

The return confidentiality rules should be amended so that those abusing them can’t also hide behind them.

20140729-1Alan Cole, Bonus Depreciation is a Step Towards Fair Tax Accounting (Tax Policy Blog).

Elaine Maag, Why the More Generous Child and Earned Income Tax Credits Should Be Made Permanent (TaxVox). Because we like having 20% of it wasted or stolen?

Tax Justice Blog, Dave Camp’s Reform Plan Should Not Be the Starting Point for the Tax Debate.

 

Cara Griffith, Transparency Concerns Linger in Washington State (Tax Analysts Blog) Cockroaches and administrators tend to prefer darkness.

 

Career Corner. Protip for Future CPAs: Forging Signatures on Your Work Experience Form is Dumb (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 7/29/14: Whither Halbig and the ACA. And lots more!

Tuesday, July 29th, 2014 by Joe Kristan

20121120-2The Big Tax News while I was on vacation was the Halbig decision by the U.S. Court of Appeals for the D.C. Circuit.  The decision holds invalid the IRS decision allowing tax credit subsidies for policies purchased on federal insurance exchanges.  The impact of the decision was offset by a Fourth Circuit decision the same day coming to the opposite conclusion, but it is still a big deal, especially in light of some subsequent events.

The D.C. circuit has national implications because every taxpayer can come under its jurisdiction by litigating through the Court of Federal Claims.  An alert reader corrects me:

Your post today contains an error.  The  D.C. circuit is not the same as the federal circuit.  The court of federal claims is appealable to the federal circuit. The district court for the D.C. circuit is appealable to the D.C. circuit.  Halbig is a big deal in any event because the dc circuit instructed the district court to vacate the rule.  Vacated means that there is no rule anywhere.  In any event, SCOTUS will make the final call here.

As long as that decision stands — and the IRS will certainly ask the 15-member court to reconsider Halbig, decided by a three-member panel — it threatens not only the tax credits for the 37 states without their own exchanges, but it also invalidates the employer mandate tax in those states and takes much of the bite out of the individual mandate.  The South Carolina Policy Council explains why (my emphasis):

The subsidies are also important for their function as triggers of both the individual and employer mandate portions of the ACA. The ACA imposes a $2,000 per employee penalty for companies with more than 50 employees who do not offer “adequate health insurance” to their workers. This penalty is triggered when an employee accepts an IRS subsidy on a plan purchased through an exchange. If individuals in the 36 states without a state-run exchange are ineligible for subsidies, there will be no trigger to set off the employer mandate.

An absence of subsidies would also allow many people to avoid the ACA’s individual mandate, which requires citizens to maintain health insurance covering certain minimum benefits or pay a fine. This is because the ACA exempts citizens from the individual mandate whose out-of-pocket costs for health insurance exceed 8 percent of their household income. If IRS subsidies are removed, insurance plans offered on exchanges would exceed this cost threshold for many people – thereby providing them an exemption from the mandate.

Flickr image courtesy Tim under Creative Commons license

Flickr image courtesy Tim under Creative Commons license

This would devastate the already shaky economics of Obamacare.

The key ruling in Halbig is its finding that statutory language allowing tax credits through exchanges “established by a State” doesn’t cover the federal exchanges that are used in the 36 states without exchanges.   Critics of Halbig say that Congress couldn’t have been that stupid.  For example, Jonathan Gruber, an architect of the ACA, says“Literally every single person involved in the crafting of this law has said that it`s a typo, that they had no intention of excluding the federal states.”

That assertion has been challenged by a number of observers, notes Megan McArdle.  She cites a January 2012 speech by one Jonathan Gruber, an architect of the ACA:

Only about 10 states have really moved forward aggressively on setting up their exchanges. A number of states have even turned down millions of dollars in federal government grants as a statement of some sort — they don’t support health care reform.

Now, I guess I’m enough of a believer in democracy to think that when the voters in states see that by not setting up an exchange the politicians of a state are costing state residents hundreds and millions and billions of dollars, that they’ll eventually throw the guys out. But I don’t know that for sure. And that is really the ultimate threat, is, will people understand that, gee, if your governor doesn’t set up an exchange, you’re losing hundreds of millions of dollars of tax credits to be delivered to your citizens. [emphasis added] 

The 2012 Jonathan Gruber repeated the story that only state-established exchanges qualify for credits in other forums.   It’s remarkable that two ACA architects named Jonathan Gruber have such divergent views of what the bill does.  It’s even more remarkable that they are the same guy.  This seems like strong support for the D.C. Circuit’s approach.

supreme courtIf the ACA were just another tax bill, it would be pretty easy to predict that the Supreme Court would go with the D.C. Circuit’s approach, based on prior rulings involving statutes that reached results the IRS didn’t care for.  In the Gitlitz case, which arguably provided an unintended windfall for S corporation shareholders when the S corporation incurred non-taxable debt forgiveness income, the Supreme Court said in an 8-1 decision (footnotes and citations omitted, emphasis added):

Second, courts have discussed the policy concern that, if shareholders were permitted to pass through the discharge of indebtedness before reducing any tax attributes, the shareholders would wrongly experience a “double windfall”: They would be exempted from paying taxes on the full amount of the discharge of indebtedness, and they would be able to increase basis and deduct their previously suspended losses.  Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.

In other words, if Congress doesn’t like what it has done, it’s up to Congress to fix it, not the IRS.  Congress did just that with the Gitlitz result within a year of the decision.

Of course, the ACA isn’t typical tax legislation.  Chief Justice Roberts tied himself in knots to find a way to uphold Obamacare in 2012.  Politics makes it unlikely that the Gitlitz approach will be followed by the left side of the Supreme Court, and who knows how Justice Roberts will rule.  But it does appear at least possible that Halbig will be upheld.

What should taxpayers do?  My thought is to assume the mandates remain in effect and pay tax (or reduce your withholding) accordingly.  Then be prepared to file a refund claim if Halbig is upheld by the Supreme Court.  Plan for the worst and hope for the best.

At least one thoughtful commentator says that ultimately if Halbig is upheld, holdout states will fall into line and establish exchanges.  For the reasons laid out here, I don’t think that will happen, and Congress will be forced to clean up its mess.

 

Paul Neiffer, ACA Subsidies: One Court Strikes Down, Another Upholds

Kristy Maitre, IRS Releases Additional ACA Revenue Procedures and Draft Forms  (ISU-CALT)

 

20140729-2Jason Dinesen, Don’t Be “That” Business Owner.  “I see too many with preconceived notions of what they can “get by with.” I’ve seen and read about too many people whose life got turned upside-down when they ended up NOT “getting by with it” after all.”

Russ Fox,  2:42.  “That’s how long I spent on hold on the IRS Practitioner Priority Service (PPS) yesterday–two hours, forty-two minutes.”   It’s a good thing Practitioners are a “Priority,” or who knows how long he’d have been on hold.

Phil Hodgen, Green card holders, treaty elections, and exit tax

Stephen Olsen, Ct. of Fed. Claims Holds Merger Results in “Same Taxpayer” for Net Zero Interest Rate (Procedurally Taxing)

Peter Reilly wonders if it is Time To Let Kent Hovind Go Home?  Peter thinks the former owner of a theme park based on the idea that hominids and dinosaurs co-existed may have suffered enough for his tax misdeeds.

Robert D. Flach brings the fresh Tuesday Buzz!

Well, these things are never tidi.  Spanish Court Moving Forward With Messi Tax Evasion Case  (TaxGrrrl)

 

taxanalystslogoDavid Brunori, Who Wants to Tax a Millionaire? Lots of People (Tax Analysts Blog).  This is full fo good observations about the unwisdom of states soaking the “rich.”  Highlights include:

States do not (and should not) do a lot of redistributing to the very poor.

When states jack up taxes on the “rich,” the money doesn’t exactly go to people sleeping under bridges, as David explains (my emphasis):

I have written about this before.  I noted that “the real beneficiaries of most government spending, certainly at the state level, never come up. No one ever says that we need higher taxes because my friends in the construction business want new contracts. No one ever says that they want new taxes to expand bloated public employee union bureaucracies. Yes, crony capitalism and union bosses drive most calls for higher taxes.” My right-wing friends often criticize liberals calling for higher marginal taxes as delusional. But they know exactly what they’re doing. Often they want higher taxes just so they can give money to their friends.

The money taken from “the rich” goes to the well-connected.  Iowa’s highest-in-the-nation system fleeces those without pull to pay rich subsidies to well-connected politicians and corporations.  Better to throw out the crony subsidies and lower rates for the rest of us — like The Tax Update’s Quick and Dirty Tax Reform Plan would do.

 

Elaine Maag, The “Helping Working Families Afford Child Care Act” Would Help, but Doesn’t Solve the Timing Mismatch (TaxVox).  “Making the CDCTC refundable and increasing allowable expenses is a huge step in improving child care assistance for low-income families.”

 

20140729-1Joseph Thorndike, The Corporate Income Tax Will Never Be ‘Fixed.’ And That’s OK. (Tax Analysts Blog):

Again, I think the corporate income tax is on the way out. But that’s a long-term problem. It doesn’t mean we should throw in the towel right away. The corporate tax may, as McArdle suggests, be an “insane, unwinnable chess game” pitting lawyers against tax collectors. But for the time being, the game is still worth the candle.

I think Megan McArdle has the better case, that the corporation income tax needs to go away, one way or the other.   I like the idea of doing so via a corporation dividends-paid deduction, combined with an excise tax on dividends for otherwise-exempt stockholders, as a way to get there.

Scott Hodge, More on Inversions and the Effective Tax Rates of Foreign-Owned Firms.   “The administration may want to think twice about taking unilateral action without considering the consequences.”

Clint Stretch, Dreams of Tax Reform (Tax Analysts Blog).  Patsy Cline is invoked.

 

TaxProf, The IRS Scandal, Day 446

 

Greg Kyte, Clarifying Sex and Auditor Independence After the EY and Ventas Affair (Going Concern).  Can an auditor be “independent” while sleeping with a CFO?  Well, auditors are supposed to have hearts of stone…

 

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Tax Roundup, 3/12/14: Hundreds of Panthers fear ID-theft. And: more smidgens!

Wednesday, March 12th, 2014 by Joe Kristan

uni-logoID Theft may affect 200 University of Northern Iowa employees.  KWWL.com reports:

In February, when the issue was first discovered, about 50 people had reported issues filing their federal income taxes. Now, University officials say 200 employees have come forward, and but not all of those are fraud. Still, that has psychology department secretary Jan Cornelius concerned. She said her social security number was stolen.

The problem was identified by taxpayers whose returns were rejected because somebody else had already filed under their numbers.  You need to be careful with your Social Security Number, and you should never transmit tax documents as unencrypted email attachments.  Use a secure file transfer portal, like Roth & Company’s Filedrop, to send tax files electronically.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

More Smidgens.  The House Oversight Committee investigating the Tea Party Scandal issued a report yesterday blasting the idea that the IRS stall on right-side 501(c)(4) groups was just a non-political coincidence involving bumblers in Cincinnati.  Using IRS documents and e-mails, the report paints a picture of an effort driven by a highly-political bureaucrat to “do something” through IRS regulation to administratively reverse the Supreme Court’s Citizens United decision.  From the report’s conclusion:

Evidence indicates Lerner and her Exempt Organizations unit took a three pronged approach to “do something about it” to “fix the problem”of nonprofit political speech:

1) Scrutiny of new applicants for tax – exempt status (which began as Tea Party targeting);

2) Plans to scrutinize organizations, like those supported by the “Koch Brothers,” that were already acting as 501(c)(4) organizations; and

3)“[O]ff plan” efforts to write new rules cracking down on political activity to replace those that had been in place since 1959. Even without her full testimony, and despite the fact that the IRS has still not turned over many of her e-mails, a political agenda to crack down on tax-exempt organizations comes into focus. Lerner believed the political participation of tax-exempt organizations harmed Democratic candidates, she believed something needed to be done, and she directed action from her unit at the IRS. Compounding the egregiousness of the inappropriate actions, Lerner’s own e-mails showed recognition that she would need to be “cautious” so it would not be a “per se political project.”

Committee Democrats continue to insist that there is no “political motivation,” and no evidence of White House involvement.  To deny that targeting “Tea Party” and “Koch-funded” organizations is political is to insult our intelligence.  As far as White House involvement, the Chicago Way isn’t for the Boss to pick up the phone and call the Cincinnati service center.  The President’s public in-your-face criticism of the Supreme Court for Citizens United at a State-of-the-Union address gave his supporters in the bureaucracy all the guidance they needed.

The TaxProf has a roundup.

 

roses in the snowWilliam Perez, Deductions for Self-Employed Persons.  “Deductions that go on Schedule C reduce both the self-employment tax and the federal income tax.”

TaxGrrrl, Taxes From A To Z (2014): E Is For EE Bonds   

Russ Fox, The Moral Climate may have Changed but the Law Hasn’t. “Thus, until Congress changes the law a professional gambler cannot deduct gambling losses in excess of wins.”

Kay Bell, Beware tax break bait and switch.  “Yes, gifts to your favorite charity can be deducted, but only if you itemize on Schedule A.”

Paul Neiffer, Permanent Means Permanent:

North Dakota law regarding easements is unique.  It appears to be the only state in the country that limits easements to 99 years by law.  Since the Tax Code requires that the conservation easement be of a permanent nature, the Tax Court ruled in favor of the IRS and disallowed all of the easement charitable donations.

Oops.  Still, I think anything “permanent” should be looked at skeptically.  Nobody knows whether it will seem wise to lock up a parcel 100 years from now.

Tony Nitti, Tax Geek Tuesday: Tackling The Dreaded Section 754 Adjustment   

 

20120906-1David Brunori, Where Is the Outrage? (Tax Analysts Blog):

According to Good Jobs First, there are 514 economic development programs in the 50 states and the District of Columbia. More than 245,000 awards have been granted under those programs. I ask again, where is the outrage? The system is antithetical to the idea of free markets. A quarter of a million times, state governments decided what is best for producers and consumers. That should make us cringe. First, the government is inefficient at providing public goods, and it is terrible at manipulating the markets for private goods. But more importantly, those 514 economic development programs are almost all the result of insidious cronyism. Narrow business interests manipulate government policymakers, and those interests prosper to the detriment of everyone else. Free markets be damned.

And while I’m looking for outrage, where are the liberals? The 965 companies in the report received over $110 billion of public money. Berkshire Hathaway, a company with $485 billion in assets and $20 billion in profits, received over $1 billion of that money. Its chair, William Buffett, is worth about $58 billion. Buffet, by the way, is still a darling of the left. He has some nerve to call for higher taxes. The billion dollars his companies took would pay for a lot of teachers, healthcare, and other public goods. 

They take just a little bit at a time from all of us so we don’t notice, and they give it in big chunks to their well-connected friends, who certainly do notice.   The report David refers to is here.

 

Joseph Henchman, State Sales Tax Jurisdictions Approach 10,000 (Tax Policy Blog).  Small wonder online sellers don’t want to collect everyone’s sales tax.

Elaine Maag, The Many Moving Parts of Camp’s Tax Reform for Low-Income Families (TaxVox)

 

Joseph Thorndike, The Last Time Everyone Gave Up on Tax Reform, It Actually Happened (Tax Analysts Blog).  But not this time:

Ultimately, Reagan agreed to make tax reform a priority. And his support was crucial. No lawmaker, no matter how exalted, well intentioned, or energetic, can move the ball like a president.

Which is one very important reason why 2014 is different from 1984. President Obama has no discernible interest in fundamental tax reform. So conventional wisdom is right: The Camp tax plan is going nowhere fast.

I think that’s right.

 

All it needs is a little pasta and fresh lemon.  Argentina: Authorities investigate tax evasion via garlic exports through shell companies

Career Corner.  It Is Almost Certain You Will One Day Be Replaced by Machines (Going Concern).  

 

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Tax Roundup, 2/6/14: Mortgage credit program revived for Iowa. And: why your state budget surplus is a mirage.

Thursday, February 6th, 2014 by Joe Kristan

IFA logoThe Iowa Finance Authority has opened a program that will allow some Iowans to claim a credit, rather than a deduction, for mortgage interest.  From an IFA press release:

The Iowa Finance Authority has announced that eligible Iowans may buy a home and reduce their federal income tax liability by up to $2,000 a year for the life of their mortgage.

The 2014 Take Credit Mortgage Credit Certificate program will be available beginning this week through IFA Take Credit Program Participating Lenders. Approximately 585 Iowa home buyers are expected to benefit from the program.

It has been some years since these credits were available in Iowa.

The credits aren’t for everyone.  They are targeted to lower-income borrowers, with income limits varying by county.  IFA has a “quick check” page for users to determine eligibility.  But for those who qualify, they are a handy way to reduce mortgage costs.  The credit is claimed on Form 8396.

 

TaxProf, TRAC: IRS Criminal Prosecutions Up 23.4% in Obama Administration.  This is probably due to the explosion in tax-refund theft that was less of a priority than regulating preparers was for the Worst Commissioner Ever and the Obama Administration.

 

taxanalystslogoCara Griffith, The Myth of the Budget Surplus (Tax Analysts Blog):

There seems to be a lot of good news about state budgets lately. Newspaper headlines have changed from doom and gloom over budget crises during the recession to questions about how states will manage budget surpluses. Unfortunately, there are financial problems lurking beneath the surface, and one of the largest may be the underfunding of state and local government pension and healthcare plans.

Even Iowa’s relatively well-funded pension plan is 20% underfunded actuarially, and even that uses an absurd assumption of 7.5% investment returns.  The Taxpayers Association of Central Iowa has a lengthy, but excellent, analysis.  Public defined benefit plans are a lie.  They are a lie to taxpayers understating the cost of current pension accruals, a lie to public employees about what they will get after retirement, or both.

 

Elaine Maag of TaxVox raises Questions About Expanding the Childless EITC:

The EITC is often criticized for its built-in marriage penalty. Imagine a single mom with three kids who earns $17,500. Prior to marriage, she qualifies for the maximum credit of $6,143. But if she marries someone with identical earnings, the additional income will reduce her EITC to just $3,670.

If the childless EITC were expanded and the husband had his own EITC, he would lose all or part of his benefit when the couple married, magnifying the tax increase this couple would face relative to when they were not married. As long as the EITC phases out at higher incomes and is tied to joint income, this will remain an issue.

Not to mention the massive level of EITC fraud and the punitive marginal tax rates on taxpayers working their way out of poverty.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

 

Jana Luttenegger, Expired Housing-Related Tax Rules (Davis Brown Tax Law Blog).  The exclusion for forgiven mortgage debt is the biggie.

William Perez, Finding the Right Filing Status.  If you are legally married, it’s either joint returns or married filing separate.  Single status is unavailable, even for same-sex couples married in a state that allows them to get married who live in a state that doesn’t.  William provides some excellent explanation.

 

20130419-1Janet Novack, IRS: Don’t Call Us, Look It Up On IRS.Gov.  Well, you might actually get a correct answer that way.

Kay Bell, What the ‘Taxman’ does and doesn’t collect 

 

TaxProf, The IRS Scandal, Day 273

Howard Gleckman, The Cruel Political Paradox of Deficit Reduction (TaxVox)

Carl Smith provides Another Update on Rand Cases in Tax Court at Procedurally Taxing.  The Rand cases hold that an “underpayment” for purposes of penalties does not include the portion of refundable tax credits that tax tax below zero.

Going Concern, Pot Taxes May Not Be Such a Cash Cow Due to, Well, the Cash.  Not to mention the disallowance of all non cost-of-goods-sold deduction for legal dealers.

 

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Tax Roundup, 9/20/2013: Dressing up your tax return. And look out, Ethiopia!

Friday, September 20th, 2013 by Joe Kristan
"Garcia" character in "Criminal Minds," via Wikipedia

“Garcia” character in “Criminal Minds,” via Wikipedia

I can’t prove my deductions, but you should allow them because I’m sure I have them, and it’s not that much in the big scheme of things.   An actress took a novel approach to convince the Tax Court to let her deduct clothing, makeup and other items that she said were business expenses in her acting career:

 Instead of relating particular exhibits to particular deductible categories in her brief, she repeated her claims that all of the disputed expenses were related to her employment and supported by the disorganized documents. She did not respond to respondent’s specific analysis of the documents and explanation of the applicable Code sections. Overall petitioner argues that she should be given special leeway because she obviously incurred deductible expenses and the amount of the deficiency is small.  

Cut me a break, what’s my little deficiency to a trillion-dollar deficit?  The court was unconvinced.  With respect to her deductions for clothing and makeup, the court noted:

Petitioner resided in California when she filed her petition. During 2009, petitioner was an actress, a writer, and a college student. She was a stand-in for a character known as Garcia on the television show “Criminal Minds.”

Petitioner also claimed as business expenses items including makeup and beauty expenses, wardrobe expenses, and laundry and cleaning expenses. She claims that these expenses were necessary because of the unique dress and makeup of the character Garcia.

Expenses relating to clothing, dry cleaning, and personal beauty items are deductible only if they are “not suitable for general or personal wear and not so worn”. Yeomans v. Commissioner, 30 T.C. 757, 767-769 (1958). Neither petitioner’s records nor her testimony tied specific items of expense to the type of clothing and related items that would not be suitable for everyday wear. To the extent that items cannot be tied to petitioner’s job with “Criminal Minds”, her arguments about the uniqueness of Garcia are not persuasive.

The moral?  Unless you have to buy a uniform, it’s hard to deduct clothes, as TV anchor Anietra Hamper learned the hard way.  And whatever you deduct, you need to have some way to support the deduction.  The argument that your small deduction is immaterial in the big scheme of things doesn’t work well.

Cite: McGovern, T.C. Summ. Op. 2013-74

 

James Taranto, who runs the Wall Street Journal’s “Best of the Web” feature (with a format suspiciously like the Tax Update’s Tax Roundup), has some good observations on the evolution of the IRS Tea Party scandal.  He suggests how the agency could come to target the President’s political opponents without anybody having to tell them to do so:

The memo presents no evidence that the White House directly ordered the IRS to crack down on political opponents. Instead, it is consistent with the theory, described here in May, that IRS personnel responded to “dog whistles” (in Peggy Noonan’s metaphor) in public statements from the president and his supporters.

That’s much more depressing than if the White House had issued such orders.  That means the problem is part of the IRS culture, making it very difficult to fix.

TaxProf, The IRS Scandal, Day 134

Eliana Johnson, Senior Treasury Department Officials Knew of IRS Targeting in Spring 2012, Documents Suggest

 

Tony Nitti, One Mortgage, No Home Equity Loan: How Much Interest Can You Deduct?

TaxGrrrl, Forget Kiddie Tax, New Senate Proposal Would End ‘Parent Tax’

 

20130920-2

Haile Selassie, Emperor of Ethiopia

William McBride,  World Economic Forum: U.S. Still Sliding (Tax Policy Blog):

America’s least competitive areas include taxes and government debt. The U.S. ranks 69th, right behind Ethiopia, in terms of the impact taxes have on incentives to work and invest. The U.S. ranks 103rd of 144 countries in terms of the total tax rate as a percent of profits.

 Look out, Ethiopia.

 

Tax Justice Blog, Stop Tax Haven Abuse Act Would Curb Some of the Worst Multinational Corporations’ Tax Dodges.  This would be less of a problem if the problems noted in the previous item were addressed.

Elaine Maag, Senator Lee’s New Reform Plan Focuses on Young Children (TaxVox)

Andrew Lundeen, Roughing the Passer: Congress Won’t Find Much Revenue from Taxing the NFL (Tax Policy Blog)

Jack Townsend, Atypical Offshore Account Plea for Art Dealer

Leslie Book, Remands and the Nature of CDP Hearings (Procedurally Taxing)

 

Robert D. Flach has a mighty “meaty” Friday Buzz!

The Critical Question: Did Tax Court Just Say That There Are Thousands Of Unfiled Oil Partnership Returns ?  (Peter Reilly)

News from the profession: Accountants Love Their Jobs Because They Get to Manipulate Numbers All Day Long, Says Guy (Going Concern)

 

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