Posts Tagged ‘Eric Toder’

Tax Roundup, 4/21/15: Loans aren’t taxable, until you don’t have to pay them. And: ACA, dope, and lots of other stuff.

Tuesday, April 21st, 2015 by Joe Kristan

20120511-2Pay me now, tax me later. A hospital in a poor county in Central Florida wanted to recruit an OB-GYN. Rural employers often have to do something extra to recruit good help, so the hospital offered him a $260,000 loan. It came with a sweetener: if certain goals were reached, the loan would be forgiven.

It’s well established that loans aren’t taxable income. That can be pretty sweet to have $260,000 to spend with no withholding and no tax bill. But there’s a catch. You either have to repay the loan (out of your after-tax income), or you have to pay tax on the loan amount if the debt is forgiven.

It’s natural to try to want to have your cake and eat it too — to not pay the loan, and not pay the taxes. That is the very trick behind the leveraged ESOP. But for the rest of us, it’s an elusive goal. It eluded the doctor in Tax Court yesterday.

The doctor met his goals, and $260,000 of debt was cancelled over four years. The doctor didn’t report the income, so the IRS assessed additional tax. The doctor objected. From the Tax Court opinion:

Although the amount that petitioner received from the hospital pursuant to the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not personally liable for its repayment, and that, as a consequence, he did not receive income when the loan was forgiven and canceled by the hospital. The Court disagrees with the premise of petitioner’s argument.

The court pointed out that the terms of the note did make the doctor liable, and added:

Further, although the Court does not accept the premise of petitioner’s contention regarding the nature of the loan, it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income…

Under these circumstances, forgiveness and cancellation of the loan gave rise to income.

The Court added in a footnote:

…petitioner argues that when debt is canceled, the creditor should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC. Although this may be so, the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt.

Apparently the hospital knew that there was income, but issued the wrong kind of 1099. But the 1099 doesn’t change the nature of the income.

The moral? Forgivable loans are nice — cash now, tax later. But later happens.

Cite: Wyatt, T.C. Summ. Op. 2015-31.




Megan McArdle, Obamacare’s Tax Day Mystery:

Meanwhile, Louise Radnofsky of the Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her.

Complex systems have unintended consequences.

Hank Stern, The 4% Solution (Insureblog). “Only 4% of people who signed up for ObamaCare got the correct subsidy”

Christine Speidel, Penalty Relief and Premium Tax Credit Reconciliation (Procedurally Taxing). “This post will describe the penalty relief available under Notice 2015-09 and some of the barriers that may prevent low-income taxpayers from accessing the relief.


William Perez, Taxes When Hiring Household Help

Tony Nitti, IRS Seeks Record $2 Billion In Back Taxes From Prominent Businessman And Philanthropist Sam Wyly. Offshore trusts are involved.

Peter Reilly, Superior Point Of Sale Software Does Not Mix Well With Skimming

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 1

Kay Bell, IRS telephone tax help was a dismal 38.5% this filing season. Part of your Commissioner’s “Washington Monument Strategy” of making taxpayers suffer to boost his budget.


20130607-2TaxGrrrl, 4/20: The Blunt Truth About Marijuana & Taxes

James Kennedy, Marijuana Dispensary Settles Case after IRS Suggests It Engage in Money Laundering (Tax Policy Blog):

Imagine running a small business and being assessed a penalty by the IRS. Then imagine being told by the IRS that the only way to avoid the penalty is to commit a serious felony, laundering money. This Kafkaesque nightmare actually became reality for a Colorado marijuana dispensary called Allgreens when it tried to pay its federal payroll taxes.

At some point this decade or next, marijuana will become more or less legal. I wonder if the tax law will be the last bastion of prohibition.


TaxProf, The IRS Scandal, Day 712. “The IRS Assures an Atheist Group It Will Monitor Churches.” What could go wrong?

Robert Wood, Before IRS Targeting, Lois Lerner Targeted At Federal Election Commission



Paul Neiffer, Senator Wyden Indicates Tax Reform Must Include Flow Through Entities

Joseph Thorndike, Republicans Want to Repeal the Estate Tax Because Too Much Is Never Enough (Tax Analysts Blog).

For my money – and admittedly, it’s not my money, since I don’t expect the tax to be an issue for my heirs – repeal is a bad idea under any circumstances. But it’s an especially bad idea when paired with a continuation of stepped-up basis.

If there is a good argument for the estate tax, it’s to allow basis step up. The “breaking up dynasties” thing is silly. From what I’ve seen in practice, all you need to break up inherited wealth is a second generation.

Eric Toder, Corporate Tax Reform and Small Business (TaxVox).

Sebastian Johnson, State Rundown 4/20: State Houses Consider Cuts (Tax Justice Blog).


Career Corner. The Non-Golfing Accountant’s Guide To Hitting the Links (Leona May, Going Concern)



Tax Roundup, 11/25/14: Administration complicates extender negotiations. And: Instant Tax Service has to stay dead.

Tuesday, November 25th, 2014 by Joe Kristan

Programming note: The Tax Update will be on the road for Thanksgiving starting Wednesday. Have a great weekend, see you Monday. 


Economic supergenius

Nice Section 179 deduction you have there. Hate to see something bad happen to it.

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


TaxGrrrl, 10 Expired Tax Provisions That Might Affect You In 2014 and Kay Bell, Congress fighting over which business and individual tax extenders to make permanent


"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Appeals court says Instant Tax Service has to stay deadThe 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.

Cite:  United States v. ITS Financial LLC et al (CA-6, Case No. 13-4341)


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


20141125-2We’ve done a little blogroll updating. We’ve cut some blogs that haven’t been updated in months, and added Tax Litigation Survey and Forbes tax blogger Robert W. Wood.

Tony Nitti, The Top Ten Tax Cases (And Rulings) of 2014: #5-Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain?

William Perez, Excluding Foreign Wages from US Taxes

Robert Wood, Jersey Shore’s Mike ‘The Situation’ Sorrentino Tax Evasion Trial Delayed

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.

Jack Townsend, Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)?

Jason Dinesen, From the Archives: Win a Home On TV, Find a Tax Collector in the Attic


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.


Eric Toder, Reforming Corporate Taxation (TaxVox) “The U.S. corporate tax system is broken.”
Annette Nellen, EU’s New VAT “MOSS” – Relevance for MFA? “MFA” is the Marketplace Fairness Act, the effort by states to collect taxes on internet commerce.


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)



Tax Roundup, May 1, 2013: Brittannia gets behind filmmakers in a big way. Also: IRS power grab takes a new direction.

Wednesday, May 1st, 2013 by Joe Kristan

hh44.jpgNew U.K. film tax credit indictments.  It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. reports:

Five people are to be charged in connection with a film industry tax relief fraud which cost the public purse around £125 million, the Crown Prosecution Service said.

The group allegedly abused a tax relief that allows investors in the British film industry to offset losses against other tax liabilities in order to cheat the public revenue.

“Around £125 million” translates to around $194 million.  And in Iowa film producers are serving time for stealing merely single digits of millions.  It just goes to show what you can accomplish with a national effort.


Boo.  House bill would give IRS authority to regulate tax pros (Kay Bell)  The power grabbers at IRS and their buddies at the national franchise tax prep firms have been thwarted by the courts.  Now they are using their congresscritter friends to put in the fix.

Kay sadly falls for it:

The quality independent tax professionals are following tax law changes, staying up to date and providing their clients with reliable tax services. Down the  street, however, an inept preparer is undercutting their prices and mucking up the system for all of us — the IRS, tax pros and taxpayers alike.

The IRS can’t regulate anybody into competency.  They can make people pass a “competency” test that really is a literacy test.  They can make people pay for CPE.  But they can’t make anybody competent who wouldn’t be otherwise.    What they can do is drive little preparers out of the business with nagging paperwork, red tape and hassles that the big boys can just assign to their compliance departments, and, when necessary, to their lobbyists.  This reduces the supply of preparers, increasing the cost of preparation for taxpayers.

The real problem with tax errors isn’t preparers; it’s the horrendous tax law and the inept legislators who make it happen.


Jacob Sullum on the Burden of Online Sales Taxes (

In a 2011 paper published by the Mercatus Center at George Mason University, Veronique de Rugy and Adam Thierer recommended “an ‘origin-based’ sourcing rule for any states seeking to impose sales tax collection obligations on interstate vendors.” Under that rule, which mirrors what happens when you buy something while visiting another state, each business collects sales tax on behalf of the state where it is based, no matter where the customer happens to be.

The beauty of this approach is that it treats all retailers equally, eliminates the daunting challenge of dealing with many different taxing authorities, and respects state policy choices while encouraging tax competition between jurisdictions. Evidently the idea makes too much sense for Congress to consider.  

 That would motivate online sellers to locate in low tax jurisdictions, which is why congresscritters from high-tax places will never allow it to happen.


Scott Drenkard,  California Considers Soda Tax in 2013, Forgetting Resounding Defeat in 2012 (Tax Policy Blog)

Joseph Thorndike, When Tax Reform Means Soaking the Rich (

Eric Toder,  How to Improve the Tax Subsidy for Home Ownership.  (TaxVox).  Maybe by eliminating it?

Jack Townsend,  John Doe Summons Issued to Wells Fargo for Records of CIBC FirstCaribbean International Bank Correspondent Account

Patrick Temple-West,  FATCA hurts Americans abroad, and more (Tax Break)


J.D. Tuccille, If High Cigarette Taxes Fuel a Booming Black Market, What Will High Marijuana Taxes Do?  (

David Brunori, Pancho Villa and Three Hundred Million Joints (


News you can use:  How Not to Deduct 85,491 Miles (Russ Fox)

 The Critical Question:  Has Microsoft Excel Ruined the World? (Going Concern)


Tax Roundup, 12/11/2012: Red Oak! And impossible dreams.

Tuesday, December 11th, 2012 by Joe Kristan

The Tax Update is in Red Oak, Iowa today for the seventh tour date for the Iowa State University Center for Agriculture and Taxation Farm and Urban Tax School.  This is our first visit to Red Oak.  From Wikipedia:

Red Oak is a city in and the county seat of Montgomery County, Iowa, United States,[3] located along the East Nishnabotna River. The population was 5,742 in the 2010 census, a decline from the 6,197 population in the 2000 census.[4][5]


The community has had a disproportionate number of casualties in the Civil War and World War II.

In the American Civil War, the area provided more Union troops per capita than any other in the state.[10] Company M (which also included residents from Montgomery County had 160 casualties among its 250 members; 52 men were killed in action.[11]

Early World War II battles claimed a disproportionate number of soldiers from Red Oak (although the final casualty statistics tend to disprove the oft-repeated statement that Red Oak suffered more losses per capita than any other American community).[10][12][13] In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed.[14] At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action.[15]

Here is the crowd:


I can confidently endorse the Red Oak coffee and donuts.  Register now for the last session next Monday in Ames!


Eric Toder,  The Coming AMT Debacle. (TaxVox)   If Congress fails to pass an alternative minimum tax “patch,” the AMT is slated to rise drastically for 2012:

Overall, AMT liability will rise from $34 billion to $120 billion. Of that $86 billion increase, new AMT taxpayers will owe $64 billion—an average of about $2,250–while those currently on the tax will pay another $22 billion—an increase of about $5,500 each over the nearly $8,500 average they would pay with a patch.

If you suspect that a tax that affects 32 million households is not limited to the rich, you are right. It is true the enhanced AMT will hit upper middle-income taxpayers the hardest – 98 percent of those with adjusted gross income between $200,000 and $500,000 will pay an average of almost $11,000 in AMT on top of their regular tax liability.

With our political class, failure is always an option. 


David Henderson, When Taxes are Cut, What Does Regressive Mean?:

The bottom line is this: Start with any system of progressive taxation, cut everyone’s taxes by the same percent, and you will have implemented, by their standard, a regressive tax cut.

Exactly.  If you only tax rich people, any tax cut “disproportionately benefits the rich.”

Greg MankiwMake Your Own Deficit-Reduction Plan, links to a Wall Street Journal’s interactive graphic featuring deficit reduction options.

Janet Novack, Gucci Match: Fiscal Cliff Tax Fight Pits The 2% Against The 0.1% And The Richest 400

Anthony Nitti,   Here’s Your Update On The Fiscal Cliff Negotiations: Both Parties Agree That the Other Party’s Proposal Stinks.  This time, they’re both right.


Paul Neiffer,   Watch Your Timing On Year-End Gifts 

Brian Strahle, D.C. Ruling Presents Franchise Tax Opportunity

Jack Townsend, I Should At Least Mention Stolen Identity Refund Fraud

To dream the impossible dream… Musical theater maven Robert D. Flach tilts at a windmill:

I have a dream that our elected officials in Washington can create a simple and fair Tax Code.
I have a dream that our elected officials in Washington are really not just self-centered and self-absorbed idiots.

That’s right up there with my dream of winning the Triple Crown. As a horse.

No, we’ve been trying that for a long time here.  Can tax on witch-doctors cure Swaziland’s fiscal pain? (Nanette Byrnes, Tax Break)

That’ll work:  Alan Simpson goes ‘Gangnam Style’ in deficit reduction video effort  (Kay Bell)

Sacre Bleu!  Gerard Depardieu Leaves France After Tax Increases (Joseph Henchman, Tax Policy Blog)

Robert Goulder,  Timeless Tax Policy & The Other Colbert (

It might someday help him clear the AGI floor for health cost deductions:  Law Student Wins Krispy Kreme Doughnuts for a Year and Wonders: What Are the Tax Consequences? (Tax Prof)