The IRS announced yesterday (IR-2013-2) that it will begin processing 1040s January 30. From where I stand that’s right on time, as very few of our clients have their 1099s, W-2s and K-1s before then anyway.
The IRS will be unable to process some returns that soon. From the IRS press release:
There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.
The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.
Form 8582, used to report passive losses, is one of the forms that will cause delays.
State taxes, that will be another matter. As the legislature has to decide whether to accept the retroactive changes to the tax law, many Iowans will have to wait awhile to know what the 2012 Iowa rules are.
Tax Update on Iowa Cable Network tomorrow. I will be giving a rundown Thursday at 6:00 pm on the Fiscal Cliff tax bill and other recent tax developments in an ICN broadcast (is that the right word for a closed-circuit presentation?) for the Institute of Management Accountants. There will be a live audience at 6500 Corporate Drive, Johnston and viewing sessions at Grinnell High School, Marion High School, Keystone AEA (Dubuque) and St. Ambrose University. Contact Kathy Smith, email@example.com, if you are interested.
The TaxProf gives a non-subscriber link to Ethan Yale’s Taxing Market Discount on Distressed Debt, which appeared in Tax Notes yesterday. The paper talks about the weird and ugly issues that arise when a third party buys bad loans and tries to collect. The market discount rules treat the debt as having a real high interest rate, with all payments principal first, based on the difference between the discounted purchase price and the face amount of the debt. The rules also can cause the income on collections to be ordinary, but the losses to be capital.
The paper talks about why these rules don’t make sense for deeply-discounted debt. If you buy a debt at 50% of face due in one year, it doesn’t make sense to assume that it will cash out at a 100% APR return, but that’s how the regulations would work. The paper also covers arguments taxpayers can make to try to ameliorate the harsh treatment that the market discount rules would apply, but there’s no assurance the IRS would buy them.
A 79 year-old widow pleads guilty to concealing overseas bank accounts. She agrees to pay over $20 million in penalties in the plea deal and faces up to six years in prison, according to a Department of Justice press release. Jack Townsend has more.
Fiscal Cliff Notes
Problem solved! Well, not really. You know how the tax increases in the Fiscal Cliff legislation won’t begin to solve the $1.2 trillion deficit? The Congressional Research Service reports that it’s even worse: it will increase the current fiscal year deficit by $330 billion and the cumulative 10-year deficit by $4 trillion. ($link through Tax Analysts)
Howard Gleckman, Grim Predictions about the Fiscal Cliff II and Deficit Reduction (TaxVox):
I spent lunchtime today moderating a thoroughly discouraging Urban Institute panel discussion on the fiscal cliff. The consensus of the speakers—all highly-regarded budget experts—was that the New Year’s cliff deal was pretty lame and the coming round of self-imposed budget crises will be even worse.
Roger McEowen on the Fiscal Cliff bill: A short summary of the most significant provisions.
Paul Neiffer, Reprieve For S Corporations With Built-in Gain
Patrick Temple-West, Insiders benefited from special dividends, and more (Tax Break)
William McBride, Taxes Up, Stocks Up, What Can Go Wrong? (Tax Policy Blog)
Jana Luttenegger, Filing for 2012 Taxes Delayed Until January 30 (Davis Brown Tax Law Blog)
TaxGrrrl, IRS Announces Delayed Tax Filing Season
David Brunori, Good — and Not so Good — Corporate Tax Ideas from New Mexico (Tax.com):
New Mexico Governor Susana Martinez, a rising star among GOP politicians, is calling for a steep reduction in the corporate tax rate. She proposes cutting the rate from 7.6 to 4.9 percent. That is good news. The corporate income tax is — and will likely remain — one of the worst ways to raise revenue for state governments. The tax is inefficient, ineffective, and distorts economic decision making. It would be better if Governor Martinez called for the repeal of the tax, but whittling it down is okay as well.
Repeal of the corporate income tax would be a good idea in Iowa as well, but the influential corporations that get big checks from the state via the tax law aren’t going to jump on the repeal bandwagon.
Jason Dinesen, The IRS — Putting Paperwork Ahead of People. Doug Shulman’s legacy of identity theft nightmares lingers.
Kay Bell, Tax Carnival #110: Happy New Tax Year
It’s Wednesday, so it’s Buzz Day at Robert D. Flach’s place.
Socially-awkward, that’s something else. Great News: Accountants Are Less Likely To Be Psychopaths (Going Concern)
News you can use: The Problem With Libertarian Women is Not Libertarian Men (Megan McArdle)