Programming note: The Tax Update will be on the road for Thanksgiving starting Wednesday. Have a great weekend, see you Monday.
Extenders as extortion. The administration yesterday complicated the negotiations on the extension of the perpetually-expiring tax provisions by demanding an extension of the refundable child credit and a permanent expansion of the fraud-ridden earned income tax credit, the New York Times reports.
It’s obnoxious to throw a new welfare program provision into the extender negotiations at this late date, but a lame-duck administration has nothing to lose by trying. While I still think the $500,000 Section 179 deduction will be extended retroactively to January 1, this makes me a lot more nervous.
If anything good comes of this extortion attempt, it’s that it highlights the unwisdom of passing tax provisions temporarily if you don’t really want them to be temporary. Every time you need to re-enact them, you open yourself up to just this sort of shakedown.
Other coverage from The Hill: White House skeptical of possible deal on tax breaks and Lew: Avoid ‘wrong approach’ on tax breaks
Appeals court says Instant Tax Service has to stay dead. The Sixth Circuit has upheld the 2013 ruling that put Instant Tax Service out of business. ITS, which had 150 franchise operations in a number of states, primarily in low-income inner-city locations, had shown up frequently in stories alleging shady tax prep practices (like this).
ITS was found to have encouraged its franchisees to prepare “stub returns.” These are returns preparered off of year-end pay stubs, rather than W-2 forms. The injunction also found that the franchisor used deceptive pricing and marketing practices.
ITS and its owner, Fez Ogbazion, argued the injunction was improper and overbroad. The appeals court considered the ITS appeal on the stub return issue:
Defendant Ogbazion agreed during his testimony that “[i]f you prepare a tax return using a pay stub, it’s not always accurate and does not always have all of the information on there,” and “[w]hen using a pay stub to prepare a tax return, the income information can be off for a variety of reasons.” … And ITS employee Boynton, who had been a tax return preparer before she became a manager, agreed during her testimony that she was “aware that tax returns prepared using pay stubs are inaccurate more often than not,” that “the last paycheck stub varies from a W-2 more often than not,” and that “the income reflected on a return prepared on a pay stub can vary from income reflected on a return prepared based on a W-2.”
The court found that the District Court correctly evaluated the stub return issue:
It is clear from this evidence that pay-stub filing often results in understatement of tax liability, and ITS knew it. It is also clear from this and other evidence that pay-stub filing was common at ITS franchises. The district court’s conclusion that understatement of tax liability “inevitably results” may have gone further than we would go, but it is a plausible account of the evidence in the record as a whole.
The Moral? Wait for your W-2 before filing. Don’t try to file off of your pay stub. And if your preparer offers to prepare a return without waiting for your W-2, find another preparer.
Tax Analysts has published a story covering the film tax credit panel I was on last week: NCSL Task Force Needs More Persuading on Merits of Film Incentives
William Perez, Excluding Foreign Wages from US Taxes
Stephen Olsen, Summary Opinions for 11/07/14 & 11/14/14 (Procedurally Taxing). A roundup of tax procedure issues, including a report on IRS hiring of a private law firm to help it audit Microsoft.
Peter Reilly, AAA Does Not Revive With New S Election – Explained By Jelly Beans. Another reason not to terminate an S corporation election carelessly.
Andrew Lundeen, Kyle Pomerleau, Pass-through Businesses Earn More Income than Corporations (Tax Policy Blog) “Pass-throughs now earn over 60 percent of all net business income.” It includes this great chart:
This means higner income taxes on “the rich” are really higher taxes on business and employment.
Jeremy Scott, New GOP W&M Members Send a Mixed Signal (Tax Analysts Blog):
The House Ways and Means Committee is undergoing a major transition. Committee Chair Dave Camp is leaving Congress at the end of the year and will be replaced by Rep. Paul Ryan. That means the end of an era and a possible major reshuffling of committee priorities. But Ways and Means is also getting four new Republican faces. The backgrounds of the new members don’t really send a clear signal on what to expect from the House on tax policy next year.
I hope they figure things out fast.
The Wall Street Journal has posted an Expat Finance & Tax Guide. It collects in one place WSJ pieces on expat-related topics, including FATCA nighmares and renouncing citizenship.
TaxProf, The IRS Scandal, Day 565.
News from the Profession. Why Public Accounting Is Really Just One Long Kegger (Leona May, Going Concern)