Posts Tagged ‘Expiring provisions’

Tax Roundup, 11/14/14: Teaching biology is one thing, farming is another. And: parsonage allowances live!

Friday, November 14th, 2014 by Joe Kristan

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Accounting Today visitors: click here for the story about the pharmacist and the painkillers. 

Cash-rent of farmland not “material participation” for Iowa capital gain exclusion. Iowa has an unusual rule that exempts capital gains of business real estate from Iowa’s income tax if the seller meets two tests:

– Holding the property for at least ten years, and

– materially-participating in the business in which the property was used for at least ten years at the time of the sale.

Iowa defines “material participation” using the federal rules for passive loss material participation. A widow who sold 400 acres she held with her late husband claimed the deduction on her 2006 Iowa 1040.  It didn’t work out.  A recently issued protest denial letter from the Iowa Department of Revenue included these key facts:

– The land was first rented to a tenant, a Mr. Goshorn, in 1966; he cash-rented it until the 2006 sale.

– The taxpayer and her husband got full title to the 400 acres in 1990; it had been held by their family dating back to the 19th century.

– The husband died in 2005.

– The land was sold in 2006.

harvestThe taxpayers certainly met the 10-year holding requirement, but the material participation requirement was a problem, as the Department of Revenue explains (my emphasis):

In the protest you also stated, “the activities of the farmer (tenant) could not have continued were it not for the involvement of the taxpayer.”  No evidence was provided to support this statement.  At the beginning of the period ten years prior to the sale, the tenant had been farming nearly 30 years.  It does not seem reasonable that he would need the landlord to tell him how to farm.  Not only did [late husband] not live in the area, he himself had not farmed for well over 30 years.

 

The taxpayer’s daughter stated, “My parents livelihood depended on the success or failure of the farms.”  One of her parents was a biology teacher and the other an x-ray technician.  The farm was not necessary for their livelihood.  Additionally, her parents had guaranteed income by cash renting the land.  The tenant bears the risks of weather, grain prices, etc.

 

So growing things in petri dishes doesn’t count, then?

In your letter dated June 29, 2012, you stated that “The situation involved risk due to the inexperience of the tenant.”  No explanation was provided as to how or why Mr. Goshorn was inexperienced after thirty or forty years of farming.  Also, your letter dated May 9, 2013 exaggerates the risk of the landlord.  There is always a chance of default by the tenant, but it is negligible.  The landlord has legal recourse against that tenant and could find a new tenant the next year.

Thirty years is “inexperienced?” Wow. That’s strict.

Cash rental of farmland is almost impossible to reconcile with material participation.  If you or your spouse aren’t farming yourself, you probably won’t qualify for a capital gain deduction in Iowa on farmland you own.

 

lizard20140826Permanent Extenders? A report by Tax Analsyts today ($link) raises the possibility that some of the perpetually-expiring provisions up for renewal in the lame-duck Congress might be extended permanently:

Senate Finance Committee Chair Ron Wyden, D-Ore., also suggested that the negotiations over extenders could result in some provisions being made permanent and cited his tax reform proposal as evidence that he supports making the research credit permanent. But he pointed out that the cost of doing so would be nearly double the cost of the entire Senate Finance Committee extenders package.

I love how they reckon “cost” in Congress. They act as if extending the same tax break over and over forever for one or two years at a time is somehow cheaper than just enacting the provision once without an expiration date. If you tried to do something like that on your financial statements, you’d go to jail. In Congress, though, it’s just another day.

Ways and Means member Charles W. Boustany Jr., R-La., also told reporters that Republicans are negotiating for permanency on as many provisions as possible. “We sort of took them in order of importance in some respect,” he said, citing the research credit, section 179 expensing, bonus depreciation, the subpart F active financing exception, and the controlled foreign corporation look-through rule as “the top-level ones in my mind.”

That’s good news for fans of the $500,000 Section 179 deduction, which reverts to $25,000 for 2014 if no extension is enacted.

The article doesn’t say whether the President has softened his prior opposition to permanent extenders.  If he vetoes an extender bill, a tax season that already promises to be awful could get much worse.

 

Peter Reilly, Clergy Housing Tax Break Withstands Challenge – Atheist Group Lacks Standing:

For my readers who have not been following this drama I should explain, that the Internal Revenue Code provides that cash housing allowances paid to “ministers of the gospel”, that are spent on housing, are excluded from taxable income. Unlike, arguably similar exclusions for the military and people working abroad. there are no dollar limits on “parsonage” allowances.  Housing allowances for pastors of mega churches can run into the hundreds of thousands dollars.

 

I confess to some surprise at the outcome. Designating cash payment as “housing” always has seemed like a too-good-to-be-true tax break, but it lives. Staff-parish relations committees everywhere will be relieved at the outcome.

 

20140826-1Fresh Friday Buzz is on tap at Robert D. Flach’s place! Links to discussions of extenders and same-sex marriage filings issues are part of the fun.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #7-Buy A Building, Get An Immediate Deduction?

Jason Dinesen, My Experiences at the NAEA Leadership Academy. Jason, an Enrolled Agent, keeps up the fight:

Because there are so few of us, some would say (and some have said) to just let the group die. This cannot happen. EAs in Iowa are small in number … but that’s all the more reason for us to stick together! Most of the EAs I know are solo operators such as me, and we tend to exist in isolation in our own little silos. The number-one thing EAs in Iowa have told me they want is networking and a sense of community. Keeping the Iowa Society alive will help provide that.

The IRS attempt to create a new Registered Tax Return Preparer designation for those who take minimal CPE and pass a literacy test is a mortal threat to the Enrolled Agent brand. Enrolled Agents have to pass a rigorous exam and meet higher continuing education standards.

 

TaxProf, The IRS Scandal, Day 554

Howard Gleckman, How Did Medical Device MaHkers Become Poster Children for Obamacare Critics (TaxVox). Maybe because the medical device tax is such an obviously bad idea, though Mr. Gleckman seems oblivious to that issue.

 

Is that a code section? ‘Redskins’ cited as basis to revoke NFL’s tax-exempt status (Kay Bell)

 

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Tax Roundup, 7/10/14: The sordid history of temporary tax provisions. And: NOLA mayor wins 10-year term!

Thursday, July 10th, 2014 by Joe Kristan

taxanalystslogoLindsey McPherson of Tax Analysts has a great, but unfortunately gated, article today, “Things to Know About the Tax Extenders’ History” ($link) Update: Tax Analysts has ungated the article, so read it all here for free! ( It details four points:

1. Two-Year Retroactive Extensions Are Often Passed Late in Election Years

2. Extenders Are Often Attached to Larger Bills

3. Congress Has Never Fully Offset Extenders Legislation

4. Most Extenders Have Been Renewed at Least 3 Times

What does “most” mean? “Of the 55 expired provisions that are the focus of the current debate, 39 have been around since 2008 or longer and thus have been extended at least three times…”

This implies that Congress has no intention of letting the extenders expire.  It only passes them temporarily to hide their real cost, because Congressional funky accounting doesn’t treat them as permanent.  It also requires lobbyists to come to fund-raising golf outings every year to ensure that they get their pet provisions extended.  Honest accounting would at least treat any provision extended twice as permanent, but accounting you and I would do time for is business as usual on the Hill.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 427.  It has this interesting bit, from the New York Times, Republicans Say Ex-I.R.S. Official May Have Circumvented Email:

Lois Lerner, the former Internal Revenue Service official at the center of an investigation into the agency’s treatment of conservative political groups, may have used an internal instant-messaging system instead of email so that her communications could not be retrieved by investigators, Republican lawmakers said Wednesday.

But the crashed hard drive epidemic is perfectly normal, isn’t it, Commissioner Koskinen?

 

Tony Nitti, Tax Geek Tuesday(?): The IRS Finally Figures Out The Real Estate Professional Rules.  Tony covers the IRS walk-back from its untenable position on the amount of participation required to be a “real estate professional.”  My coverage is here.

Paul Neiffer, Watch Out for Spousal Inherited IRAs.  “Spouses who inherited IRAs have a couple of elections available to them that non-spouses do not have.  However, care must be taken to make sure that the 10% early withdrawal penalty does not apply when distributions are finally taken.”

Kay Bell, Home sales provide most owners a major tax break

 

 

Accounting Today, IRS Loses Billions on Erroneous Amended Tax Returns.  A report from the Treasury Inspector General for Tax Administration faults IRS procedures to review amended returns.

 

Cara Griffith, The Criminal Side of Sales Tax Compliance (Tax Analysts Blog):

Imagine this scenario: In the middle of an acquisition deal, the due diligence review of a company being acquired reveals that the company has underremitted its sales tax liability. The deal is never finalized because of the problem. The company approaches its tax adviser with the news that it failed to remit some of the sales tax it collected and asks for advice. On hearing that, most state and local tax practitioners would cringe. It doesn’t matter why the company failed to remit the sales tax it collected from customers — the company is in serious trouble and could face both civil collection penalties and criminal prosecution.

You have to be special to legally keep sales tax you collect.

 

20140505-1Len Burman, “Pension Smoothing” is a Sham (TaxVox):

In a nutshell, here’s what it does: Companies can postpone contributions to their pension funds. This means that their tax deductions for pension contributions are lower now, but the actual pension obligations don’t change, so contributions later will have to be higher—by the same amount plus interest. In present value terms (that is, accounting for interest costs), this raises exactly zero revenue over the long run. 

More of that Congressional accounting.

 

Jack Townsend, Interesting Article from the Swiss Bankers Side.

Leslie Book, Recent Tax Court Case Shows Challenges Administering Civil Penalties and the EITC Ban (Procedurally Taxing)

Overnight, if you leave the cap off.  When Will the Soda Tax Go Flat? (Joseph Thorndike, Tax Analysts Blog)

Scott Eastman, $21,000 Tax Bill Just for Some Potato Salad (Tax Policy Bl0g).  I’ve had potato salad that should have been charged more than that.

Adrienne Gonzalez, Tax Superhero and George Michael Among Those Caught Using Tax Shelter in the UK.  This is a different type of shelter than the one that caused Mr. Michael’s prior legal troubles.

 

When they say it’s not about the money, it’s about the money.  From the Washington Post,  Former New Orleans mayor Ray Nagin sentenced to 10 years in prison:

“I’m not in it for the money,” Nagin said after he was elected to the first of two terms in 2002.

Mayor Nagin was convicted on 20 charges, including four charges of filing false tax returns.  Mayor Nagin’s indictment tells a story of pervasive fraud involving kickbacks and bribes for city business, and third-party payment of limo rides and private jet services.  But he did a heck of a job with Hurricane Katrina.

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One interesting thing about the Post piece: it never mentions that Mayor Nagin is a member of a political party.  Unusual, for a politician.  Someone should look into that.

 

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Tax Roundup, 7/8/14: Not in Kansas Anymore edition. And: the latest on bonus depreciation for 2014.

Tuesday, July 8th, 2014 by Joe Kristan

20140409-1What’s the matter with Kansas?  Economist Scott Sumner looks at the controversy over the recent Kansas tax reforms:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.


I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

The Sumner post is there to refute a straw-man argument made by tax fans:

“Why am I even discussing such crazy ideas? Because Paul Krugman seems to want to convince his readers that lots of supply-siders believe such nonsense…”

Actually, supply-siders do not claim that tax cuts pay for themselves, except in very unusual cases. Kansas is not one of those cases. The Laffer curve effect is typically applied to cases of extremely high marginal tax rates.

kansas flagI have long pushed for a combination of rate cuts for Iowa, combined with comprehensive elimination of deductions and cronyist tax credits.  That would keep the state budget from getting clobbered, while making the tax system much easier and cheaper to run and to comply with.  Kansas couldn’t let go of the loopholes, and in fact added new ones.  Joseph Henchman of the Tax Foundation discusses the Kansas tax changes in Governing.com (my emphasis):

Good tax reform broadens the tax base and lowers rates. That’s what Gov. Brownback wanted to do. But the legislature took out the “broaden-the-base” part. They just passed a tax cut, which can be justifiable if you want to reduce the size of government or expect other revenue sources to go up. But they didn’t cut spending and they don’t expect revenue to grow, so it’s just a hole. With the exemption for pass-through entities, if you’re a wage earner, you’re taxed at the top rate, which is currently 4.9 percent in Kansas. If you’re a partnership, an LLC or any form of recognized business entity with limited liability that’s not a corporation, your income is taxed at zero percent. That’s an incentive to game the tax system without doing anything productive for the economy. They think things like the pass-through exemption will encourage small business, and to be fair, it might. But they are doing it in a way that violates the tax principle of neutrality.

So what would happen if my Quick and Dirty Iowa Tax Reform Plan were enacted in Iowa?  My plan would eliminate corporation taxation and allow S corporation owners to elect to be taxed on distributions, rather than on pass-through income.  Properly structured, it wouldn’t hurt Iowa’s tax revenue, as the rate cuts would be offset by fewer deductions and elimination of tax credit giveaways.  I like to think that without a corporation tax and without a culture of begging for tax credits, Iowa would over time do well, considering that its regulatory and labor environment is already business-friendly.  But I don’t expect miracles, and I would not want the rate cuts to be so deep as to depend on a short-term economic boom to keep the state solvent.

 

20130113-3Richard Borean, House to Consider Bonus Depreciation (Tax Policy Blog). “It turns out that  adding permanent bonus expensing to the Camp Plan would boost GDP, wages, job creation, and federal revenue.”

Bonus depreciation is one of the many perpetually-expiring provisions that get renewed every year or two, after enough lobbyists make their offerings to the congressional fundraising idols.  The congresscritters love enacting proposals temporarily because that way they don’t appear to cost as much as officially-permanent provisions, and because it makes the lobbyists come and visit them regularly to get yet another extender bill passed.

Ways and Means Committee Chairman Camp is calling out this game by trying to get some of these provisions extended permanently, officially.  He notes that they really are permanent, and that pretending that they are temporary isn’t fooling anybody.  His opposition in the Senate wants to keep pretending the provisions are temporary, and that the honest step of treating them as permanent is “budget busting.”

None of this helps businesses pricing investment decisions for 2014.  Anyone buying equipment has to guess at the deduction schedule in order to forecast cash flows from the purchase.  Unfortunately, nothing is likely to happen until after the November elections, when a temporary retroactive extension is likely to pass — but might not.

 

Trish McIntire discusses The New Voluntary Tax Preparer Program.  “I’m interested in seeing the numbers of the Filing Season Program come January 2015. Honestly, I don’t think they are going to be as high as the IRS hopes.”

Roberton Williams, IRS Help Line Is Out Of Service (TaxVox) “I needed to double-check an issue concerning withdrawals from my nonagenarian father’s IRA. IRS Publication 590 wasn’t clear so I decided to call the IRS. The experience was illuminating. Not helpful mind you, but illuminating.”

William Perez, What’s Form W-9?  “Independent contractors and other people who work for themselves will often need to give a Form W-9 to their clients. Clients will then use the information on Form W-9 to prepare Form 1099-MISC to report income paid to the independent contractor.”

Jim Maule continues his Tax Myths series with “I’m Getting a Refund and Not Paying Tax.”  He notes “Whether a person has a tax liability cannot be determined simply from the existence of a refund.”

Kay Bell assigns 5 easy tax tasks to take care of in July.

 

20140708-1Brian Mahany, Are FBAR Penalties Unconstitutional? In Many Cases Yes.  “It’s one thing to assess a 50% or 75% penalty but when penalties exceed the total tax owed by a multiple of 50 times like in the Warner case, we believe the penalties are clearly unconstitutional.”

Martin Sullivan, Will States Get a Multibillion-Dollar Windfall From Corporate Tax Reform? (Tax Analysts Blog).  Only if there is actually corporate tax reform.

TaxGrrrl, The Real Cost Of Summer Vacation: Don’t Get Buried In Taxes

Stephen Olsen, Summary Opinions for 6/27/14. (Procedurally Taxing)  Don’t let the date fool you, this roundup of tax procedure news was posted yesterday.

Peter Reilly, City Taxes Trip Up Investment Advisor Restructuring.  Beware New York City.

Jack Townsend, Convicted Politician Did Not Lay a Proper Foundation For Proferred Indirect Testimony of Lack of Intent.  “How does a defendant unwilling to testify as to his intent — thus invoking his Fifth Amendment privilege — introduce indirect evidence of his lack of intent to blunt the Government’s indirect proof of his intent?”

 

TaxProf, The IRS Scandal, Day 425

 

Robert D. Flach brings the Tuesday Buzz.  I like this:

Item #10 on the new IRS-issued Taxpayer Bill of Rights is “The Right to a Fair and Just Tax system”.

In order to assure this right to taxpayers the Tax Code would need to be totally rewritten and all current members of Congress would have to be replaced by competent and intelligent legislators who actually give a damn about the American public.

It’s right as far as it goes, but some members of the executive branch would also need to go, starting with the Commissioner.

 

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Tax Roundup, 5/14/14: Earned income credits, still busted. And: extenders advance.

Wednesday, May 14th, 2014 by Joe Kristan
The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

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

Nope.  Still busted.  From WashingtonExaminer.com comes an update on what some call America’s most successful anti-poverty program:

The Treasury Department has released its latest report  on the fight against widespread fraud in the Earned Income Tax Credit program. The problem is, fraud is still winning. And there’s not even much of a fight.

“The Internal Revenue Service continues to make little progress in reducing improper payments of Earned Income Tax Credits,” a press release from Treasury’s inspector general for Tax Administration says. “The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.”

Wait.  Didn’t the President sign a bill in 2010 to fix all this?

The new report found that the IRS is simply ignoring the requirements of a law called the Improper Payments Elimination and Recovery Act, signed by President Obama in 2010, which requires the IRS to set fraud-control targets and keep improper payments below ten percent of all Earned Income Tax Credit payouts.

Whatever the EITC does to help the working poor, it is a boon to the Grifter-American community.  Fraudulent EITC claims are a staple of ID theft fraud and low-tech tax cheating in general.

It’s worth noting that the high rate of improper EITC payouts has not gone down in spite of the ever-increasing IRS requirements for preparers who issue returns claiming the credits.  This should give pause to folks who think IRS preparer regulations will stop fraud, though it won’t.

It’s also notable that Iowa recently increased its piggyback EITC to 15% of the federal credit — increasing the annual cost of the credit by an estimated $35 million.  Assuming Iowans are just as honest as other Americans, that means about $8 million of additional stimulus to the Iowa grifter economy.

Finally, the phase-out of the EITC functions as a hidden high marginal tax rate on the program’s intended beneficiaries, the working poor.  The effective marginal rate in Iowa exceeds 50% at some income levels.  Combined with other income-based phase-outs, the EITC becomes a poverty trap.

 

Related: Arnold Kling,  SNEP and the EITC. “My priors, which I think are supported by the research cited by Salam, is that trying to use a program like the EITC for social engineering is a mug’s game.”

 

 

Extenders advance in Senate.  Tax Analysts reports ($link)

Legislation that would extend for two years nearly all the tax provisions that expired at the end of 2013 cleared a procedural hurdle in the Senate May 13.

Senators voted 96 to 3 to invoke cloture on the motion to proceed to H.R. 3474, a bill to exempt from the Affordable Care Act’s employer mandate employees with healthcare coverage through the Veterans Benefits Administration or through the military healthcare program TRICARE.

The bill is the legislative vehicle for the tax extenders. It will be amended to include the text of the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014 (S. 2260) and likely that of the Tax Technical Corrections Act of 2014 (S. 2261), both of which the Senate Finance Committee passed April 3 via voice vote.

The bill that passes will probably look much like the Senate bill.  The House has advanced bills to make some of the perpetually-expiring provisions permanent, but the President, pretending that they won’t get passed every year anyway, says permanent extension is fiscally irresponsible.

Among the provisions to be extended yet again, mostly through 2015, are the research credit, new markets credits, wind and biofuel credits, bonus depreciation, and increased Sec. 179 deductions.  The five-year built-in gain tax recognition period is also extended through 2015.

Related: TaxGrrrl, Senate Moves Forward To Extend Tax Breaks For 2014

 

20120906-1O. Kay HendersonKnoxville Raceway ceremony for state tax break of up to $2 million:

Governor Terry Branstad went to Knoxville today to sign a bill into law that gives the Knoxville Raceway a state tax break to help finance improvements at the track.

“This is a great facility,” Branstad told Radio Iowa during a telephone interview right after the event. “Last year, in 2013, they attracted 211,000 visitors, so it’s a big tourism attraction and it’s a good investment and it’s great for the state to partner with the community for a project of this magnitude.”

Here’s how that partnership works: the racetrack will charge sales tax to its customers, and keep the money.  Only two other businesses are special enough to get this sweet deal.  Tough luck for the rest of us who don’t have the good connections and lobbyists.

 

Walnut st flowersJana Luttenegger, Updated E-Filing Requirements for Tax Preparers (Davis Brown Tax Law Blog).  “The handbook is not exactly clear.

Jason Dinesen, Things Tax Preparers Say: S-Corporation Compensation.  “But too many business owners — and their accountants — treat S-corps like a magic wand that can just make taxes disappear completely.”

Kay Bell, IRS fight to regulate tax preparers officially over…for now

Peter Reilly, Can Somebody Explain Tax Shelters To Thomas Piketty?  In the unlikely event that the Piketty recommendations are ever enacted, Peter notes that “there will be a renaissance of shelter activity.”  Peter provides a “Cliff Notes” summary of this year’s big forgettable book I’ll never read, which I appreciate.  Also: Peter uses the tax-law-as-Swiss Army Knife analogy that I am so fond of.

Robert D. Flach, STILL MORE CLIENTS SCREWED BY THE TAX CODE.  “The list of taxpayers screwed by our current Tax Code is not a short one.  Today I add taxpayers with gambling winnings.”

 

20130110-2Howard Gleckman, How “Dead Men” Fiscal Policy Is Paralyzing Government (TaxVox).  He reviews a new book, Dead Men Ruling, by Gene Steurle:

“We are left with a budget for a declining nation,” Gene writes, “that invests ever-less in our future…and a broken government that presides over archaic, inefficient, and inequitable spending and tax programs.”

All this has happened due to a confluence of two unhappy trends: The first is what the late conservative writer Jude Wanniski memorably described almost four decades ago as the “Two-Santa Theory.”

The Santas are the two parties, each of whom pick our pockets to fill our stockings.

 

Alan Cole, The Simple Case for Tax Neutrality (Tax Policy Blog).  “When states give preferential rates of sales tax to certain goods, the most visible result is the legal bonanza that follows from trying to re-categorize goods into the preferred groupings. ”

David Brunori, Repealing the Property Tax Is an Asinine Idea (Tax Analysts Blog). “Public finance experts are almost unanimous in their belief that the property tax is the ideal way to fund local government services… Most importantly, the property tax ensures local political control.”

William McBride, What is Investment and How Do We Get More of It? (Tax Policy Blog).  “Full expensing for all investment, according to our analysis, would increase the capital stock by 16 percent and grow GDP by more than 5 percent.”

 

TaxProf, The IRS Scandal, Day 370

News from the Profession.  AICPA Tackling the Important Issue of Male CPAs Wanting It All (Going Concern). 

 

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Tax Roundup: April 30, 2014: Force of nature edition. And: Extenders move in U.S. House.

Wednesday, April 30th, 2014 by Joe Kristan

Iowa 1040s are due today!  If you are 90% paid in, they extend automatically with no filing.  If you need more time and need to pay in something, use IA 1040-V.

 

20130113-3House votes to make permanent six “expiring” provisions.  The House Ways and Means Committee voted to permanently extend six of the perpetually-expiring tax breaks that Congress renews every year or two.  They include:

  • A simplified version of the research credit
  • The five-year built-in gain tax recognition period for S corporations
  • The $500,000 Section 179 deduction limit
  • A provision reducing the net basis reduction for S corporation donations of appreciated property to the basis of the property.

The committee also voted for two international extenders.

The votes were mostly along party lines, which means they are unlikely to be passed in this form by the Democratic-controlled Senate. The Senate Finance Committee has already approved its own temporary extender package, and my guess is the final extenders package will look like the Finance Committee bill.

Tax Analysts reports ($link) that the committee isn’t done with extenders, but it isn’t clear when it will look at Bonus Depreciation.

The “no” votes for the House package objected to the lack of offsets to the revenue “lost” by the package.   I’m less upset.  While I oppose the research credit on principle, these provisions are permanent anyway; the whole “extender” process is a sham, conducted only to pretend that the tax breaks aren’t permanent so they “cost” less under Congressional accounting rules.  It’s the sort of thing that would be a felony in the private sector, but just another day for our leaders.  At least the House bill drops the pretense that these things won’t get passed every time they expire.

 

Additional coverage available at Accounting Today.

Related:

Tax Justice Blog, Rep. Dave Camp’s Latest Tax Gambit Is “Fiscally Irresponsible and Fundamentally Hypocritical”

Clint Stretch, Dreams of Tax Reform (Tax Analysts Blog)

 

 

20130117-1No gas tax boost this year.  Sioux City Journal reports that a last-gasp attempt to boost Iowa gasoline taxes died last night as the General Assembly continues its pre-adjournment frenzy.

 

David Brunori, Sad Pragmatism and Tax Incentives (Tax Analysts Blog).  “If tax incentives are an unavoidable reality, we should make them as transparent and accountable as possible.”  True, but that doesn’t excuse the politicians who take your money and give it to their special friends.

 

The Iowa State University Center for Agricultural Law and Taxation has released its 2014 summer seminar schedule.  It includes a slate of webinars on topics from Ethics to ACA mandates.  There will also be two big out-of-town events, in West Baden Springs, Indiana, and West Yellowstone, Montana.  I’m not able to participate this year, but they are a hoot and a great learning experience.

 

TaxGrrl, Widow Loses House Over $6.30 Tax Bill.  “A Pennsylvania woman has lost her home for little more than the cost of a Starbucks Frappuccino.”  The law in all its majesty.

Kay Bell, File IRS Form 1040X to correct old tax mistakes

Peter Reilly, Graduation Contingency Kills Alimony Deduction.  It’s very easy to screw up an alimony deduction with bells and whistles, as Peter explains.

 

20120531-1Jason Dinesen, Preparer Regulation and Judging Preparers Based on Size of Refund.  “Anyone who’s worked in this business has experienced the irate client who thinks the preparer screwed up because their refund was less than their friend/co-worker/hair dresser, etc.”

 

TaxProf, The IRS Scandal, Day 356

Jack Townsend, U.S. Congressman Indicted for Tax Related Crime

Joseph Thorndike, Airlines Say Ticket Taxes Would Be More Visible if They Were Better Hidden (Tax Analysts Blog)

Alan Cole, What Gift Cards Can Teach Us About Tax Policy (Tax Policy Blog)

Renu Zaretsky, Funding Tax Breaks, the IRS, and Public Pensions, Safety, and Schools.  The TaxVox headline roundup.

 

News from the Profession.  EY Is Tackling the Important Issue of Dudes’ Need for Flexibility (Going Concern)

 

Clear error is a standard used by appellate courts to review some lower court decisions.  A Tax Court case decided by Judge Paris dealing with horse losses yesterday involved purported destruction of records by an old girlfriend.  Here’s where the clear error comes in:

The wrath of a former girlfriend may be a formidable force, but it is not analogous to a hurricane-like natural disaster, and it does not constitute a reasonable cause outside petitioner’s control.

I’ve met Judge Paris, and I strongly suspect she’s never dealt with a bitter former girlfriend. Anyone who has would never have written such a thing.  But as she pointed out that the petitioner provided no evidence that such destruction occurred, so you oughta know that the case probably still is on solid ground.

 

Cite: Roberts, T.C. Memo 2014-74.  Additional coverage from Paul Neiffer, Partial Taxpayer Victory on Horse Farm Case

 

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Tax Roundup, 4/4/14: Your Honor, nobody follows that law! And: extenders advance.

Friday, April 4th, 2014 by Joe Kristan

20120801-2Maybe that wasn’t the best argument, under the circumstances.  Things went badly for a California man yesterday who tried to tell the Tax Court how things work in the real world.

The man had claimed $5,309 in vehicle expenses for his real estate sales business.  Vehicle and travel expenses are subject to the special rules of Section 274, which requires corroborating records of the amount, time, place and business purpose of travel expenses.  The judge found the taxpayer’s evidence wanting (my emphasis):

Petitioner provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009. Petitioner, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents. Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. (While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135″, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.) Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense. Because petitioners failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

The IRS asserted negligence penalties for claiming an undocumented deduction.  The taxpayer tried to tell the judge that nobody does that stuff:

Petitioner did not argue reasonable cause or good faith. Instead, petitioner argued at trial that no one keeps records in accordance with the “IRS code”.

Well, OK, then, screw Section 274!  Well, no:

That argument is unpersuasive, and the section 6662(a) penalty will be sustained.

The IRS is serious about documenting business miles.  If you have them, keep a log, a calendar, or use a smart-phone app to record the time, place, cost and business purposes of your travels as you go.  If “no one keeps records in accordance with the ‘IRS code,'” no one is going to be happy with the results when they get audited.

Cite: Chapin, T.C. Summ Op. 2014-31

 

20130113-3Tax Extenders Legislation Advances in Senate (Accounting today):

 The Senate Finance Committee voted to revive almost all of the 55 tax breaks that expired Dec. 31, providing benefits for wind energy, U.S.-based multinational corporations and motor sports track owners.

Motor sports track owners have lots of friends in high places.

It’s not just motor sports lobbyists who did will in the Finance Committee.  Almost all
“expired” provisions of this lobbyist right-to-work vehicle were renewed, including the renewable fuel credits.  The only expiring provisions that actually expire are the credit for energy-efficient appliances and a provison for oil refinery property, so there remains some lobbying to do.

But wait, there’s more!  Tax Analysts reports ($link) that this Christmas in April bill includes a provision to “expand the research credit to allow passthroughs with no income tax liability to apply the credit, up to $250,000, to their payroll tax liability.”  It also would renew the reduction of the S corporation built-in gain tax “recognition period” at five years through 2015.

While the House still hasn’t acted on any of this, the passage of all of this stuff on a bipartisan basis would seem to indicate that something like this is likely to pass.  Still, Kay Bell thinks the House tax leadership may be reluctant to follow the Senate’s lead.

The reason Congress pretends these provisions are “temporary” is that under their rules, Congress can pretend that they will only cost as much as they will cost before they are renewed again, regardless of the probability that they will be renewed forever.  It’s the kind of accounting that would get us thrown in jail if we tried it with the IRS or SEC, but it’s just another Thursday in Congress.

Link: “Summary of Modified Chairman’s Mark.”

 

20091010-2.JPGKristy Maitre, E-Filed Return Rejected at Deadline? Don’t Panic

Paul Neiffer, Patronage Dividend Notices Can Be Sent by Email or Posted to a Website

Jason Dinesen, Accounting for the Work Opportunity Credit on an Iowa Tax Return 

TaxGrrrl, Taxes From A To Z (2014): T Is For Tip Income   

Leslie Book, ACA and Victims of Domestic Abuse (Procedurally Taxing)

Russ Fox, Yes, Online Poker Players Must Pay Taxes

 

TaxProf, The IRS Scandal, Day 330

William Perez, State and Local Tax Burdens as a Percentage of Income for 2011

Lyman Stone, Missouri Senate Passes Problematic Income Tax Cut Plan (Tax Policy Blog).  “Missouri’s state Senate this week passed a $621 million tax cut including a 0.5 percentage point income tax reduction and a special carveout to deduct up to 25 percent of business income.”

Howard Gleckman, Two Ways to Fix the Corporate Income Tax: Internationalize it or Kill It. (TaxVox).  I vote “kill.”

 

There’s a new Cavalcade of Risk up!  At Insurance Writer. Don’t miss Insureblog’s contribution about how those making health care policy don’t know what they’re talking about.

 

20120906-1Corporate Welfare Watch:

Iowa city prepares to give mystery company millions. (Foxnews.com)  “West Des Moines city officials have cued up $36 million in local and state tax incentives for a company, but won’t tell its citizens who that company is.”

Iowa senator calls BS on attempt to limit tax credits for fertilizer plant (Watchdog.org)

Iowa View: From wind to solar, clean power is good for Iowa (Joe Bolkcom, Mike Breitbach).  Green corporate welfare is still corporate welfare.

 

News from the Profession: Deloitte Declares Weekends Are Not For Working, Unless You Are Working (Going Concern)

 

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Tax Roundup, 12/12/13: Take the $20 million edition. And: Grassley says extenders will pass in 2014.

Thursday, December 12th, 2013 by Joe Kristan

 

20131212-1Next time, take the cash.  A corporation decided a tax deduction from walking away from securities it had paid $98.6 million for would be worth more than the $20 million in cash it had been offered for them.  The Tax Court yesterday told them that they made a big mistake.

Gold Kist, Inc. bought the securities issued by Southern States Cooperative, Inc. and Southern States Capital Trust in 1999.  The issuers offered to redeem the securities from Gold Kist in 2004 for $20 million.  (Gold Kist was later acquired by Pilgrims Pride Corp, which inherited Gold Kist’s tax history.)

Gold Kist believed that it would get an ordinary loss deduction if it simply abandoned the securities, vs. a capital loss on the sale.  Ordinary losses are fully deductible, while corporate capital losses are only deductible against capital gains, and they expire after five years.    A $98.6 million ordinary loss would be worth about $34.5 million in tax savings, which would be worth more than $20 million cash and a capital loss, which can only offset capital gains, and only those incurred in the nine-year period beginning in the third tax year before the loss.

Unfortunately, the Tax Court found a flaw in the plan: Sec. 1234A.  It reads:

§ 1234A – Gains or losses from certain terminations
Gain or loss attributable to the cancellation, lapse, expiration, or other termination of—

(1) a right or obligation (other than a securities futures contract, as defined in section 1234B) with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer, or

(2) a section 1256 contract (as defined in section 1256) not described in paragraph (1) which is a capital asset in the hands of the taxpayer,

shall be treated as gain or loss from the sale of a capital asset. The preceding sentence shall not apply to the retirement of any debt instrument (whether or not through a trust or other participation arrangement).

The taxpayer said that Sec. 1234A didn’t apply, according to the court:

Petitioner’s primary position is that the phrase “right or obligation with respect to property” means a contractual and other derivative right or obligation with respect to property and not the inherent property rights and obligations arising from the ownership of the property. We disagree.

The taxpayer said the legislative history of the section supported their argument.  The Tax Court thought otherwise:

In our view Congress extended the application of section 1234A to terminations of all rights and obligations with respect to property that is a capital asset in the hands of the taxpayer or would be if acquired by the taxpayer, including not only derivative contract rights but also property rights arising from the ownership of the property. 

The taxpayer also said that if that’s what Congress meant, the IRS would have revised Rev. Rul. 93-80, which allows an ordinary loss on certain abandonments of partnership interests.  The Tax Court responded:

The ruling makes clear that, if a provision of the Code requires the transaction to be treated as a sale or exchange, such as when there is a deemed distribution attributable to the reduction in the partner’s share of partnership liabilities pursuant to section 752(b), the partner’s loss is capital. Rev. Rul. 93-80, supra, was issued four years before section 1234A was amended in 1997 to apply to all property that is (or would be if acquired) a capital asset in the hands of the taxpayer. As we previously stated, the Commissioner is not required to assert a particular position as soon as the statute authorizes such an interpretation, whether that position is taken in a regulation or in a revenue ruling. 

So it’s a capital loss only for the taxpayer.

Presumably the Gold Kist board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

Cite: Pilgrim’s Pride Corp, 141 TC No. 17.

 

Grassley-090507-18363- 0032Quad City Times reports Grassley predicts tax credits extensions, but not until 2014:

 There won’t be any extension before Christmas, Grassley predicted, but not because of political opposition to the credits. Based on past performance, he said, Congress will return after the New Year and approve four dozen or more tax credits.

“There are a lot of economic interests” represented in the tax credits, he said. Those interest groups collectively “put a lot of pressure on Congress to re-institute the credits.”

The delay, Grassley said, can be attributed to the ongoing discussion about “massive tax reform.”

Senator Grassley has more insight about what will happen than I do, but I can”t share his faith that the lobbyists will overcome Congressional dysfunction.  I had hoped any extenders would be included in the budget deal announced this week, and they weren’t.

Actually, I would prefer that the extenders not be extended at all rather than passed temporarily once again.   The whole process of passing temporary tax breaks is a brazen accounting lie.  Congressional budget rules score temporary provisions as if they will really expire, even when they have been extended every time they expire.  Once again, behavior that would lead to prison in the private sector is just another day in Congress.

 

Roberton Williams, Budget Deal Doesn’t Raise Taxes But Many Will Still Pay More:

The budget deal announced Tuesday wouldn’t raise taxes—members of Congress can vote for it without violating their no-tax pledges. But the plan will collect billions of dollars in new revenue by boosting fees and increasing workers’ contributions to the Federal Employee Retirement System (FERS). To people paying them, those higher fees and payments will feel a lot like tax hikes. 

 

David Brunori, States Should Just Say No to Boeing (Tax Analysts Blog):

Boeing is acting rationally — politicians are willing to give things away, and Boeing is willing to accept those things. But politicians should try saying no once in a while. Maybe we would respect them a little more.

Well, it would be hard to respect them less.

 

 

Source: The Tax Foundation

Source: The Tax Foundation

William McBride, Obama: Cut the Corporate Tax Rate to Help the Poor (Tax Policy Blog):

Indeed, cutting the corporate tax rate is probably the best way to increase hiring and grow wages. The President cited no studies to support this, because it is not really in dispute among economists. So why not cut the corporate rate, period, without any conditions or offsetting corporate tax increases elsewhere?

Corporate rate cuts would be a good thing, but don’t forget that most business income nowadays is reported on individual returns.

 

Joseph Thorndike, Congress Is Making a Bad Deal on the Budget, but One Republican Has a Better Idea (Tax Analysts Blog)

It’s amazing what passes for success in Washington these days. Budget negotiators on Capitol Hill have delivered a non-disaster, cobbling together a pathetic half-measure that pleases no one and accomplishes almost nothing.

True, it allows Democrats and Republicans to avoid abject failure, which is no small thing, given recent history. These days, just keeping the wheels from flying off qualifies as statesmanship.

Considering what happens when Congress “accomplishes” something (Obamacare, anyone?), let us praise them for doing as little as possible.

 

Robert D. Flach has wise counsel for clients:  PUT IT IN WRITING.

So if you have a tax question you want to ask your preparer, instead of picking up the phone submit the question in an email, with all the pertinent facts.  And if you receive a notice from the IRS or your state, mail it to your tax pro immediately.

Yes.

 

William Perez, Donating Appreciated Securities to Charity as a Year-End Tax Strategy

Paul Neiffer, Is it Time for an IC-DISC.  If you produce for export, an IC-DISC can turn some ordinary income into dividend income, taxed at a lower rate.

Tony Nitti, IRS The Latest To Send Manny Pacquiao To The Mat: Boxer Reportedly Owes $18 Million

Kyle Pomerleau, Senator Baucus’s Plan for Cost Recovery Heads in the Wrong Direction

TaxProf, The IRS Scandal, Day 217

Cara Griffith, Improving the Transparency of New York’s Tax Collection Process (Tax Analysts Blog)

Jack Townsend, Are Brady Violations Epidemic?  A federal appeals judge says prosecutors routinely withhold evidence that would help defendants.

 

News from the Profession: The PCAOB Is Grateful To The PCAOB For the PCAOB’s Work (Going Concern)

 

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Tax Roundup, 12/11/13: Iowa DOT restricts revenue cameras. And: whither extenders?

Wednesday, December 11th, 2013 by Joe Kristan


gatso
Department of Transportation enacts tax reduction.  
From the Des Moines Register:

Cities and counties would have to prove the need for traffic enforcement cameras on major highways under rules approved Tuesday by the Iowa Transportation Commission.

The new rules — which could take effect as early as February — would force a re-evaluation of all speeding and red-light cameras now placed on interstate highways, U.S. highways and state highways and require any new cameras to first win the Department of Transportation’s approval.

It’s not clear what effect this will have on the revenue cameras, like the one on Eastbound I-235 by Waveland Golf Course, but given the howls from the affected municipal pickpockets who profit from the cameras in the runup to the rules, I suspect it means fewer cameras.   The municipalities like their tax on passing motorists, at least those who aren’t “special.”

Of course they always invoke safety, in spite of inconclusive or contradictory evidence.  But if it really were about safety, you would see them experimenting with other solutions, like all-red phases at red lights and longer yellows.   When they have to say it’s not about the money, it’s about the money.

 

Howard Gleckman,  Whither the Tax Extenders? (TaxVox):

If published reports are correct–and if the deal does not fall apart–Congress would partially replace the hated automatic across-the-board spending cuts (the sequester) with more traditional targets for each federal agency. In effect, it would freeze discretionary spending at about $1 trillion-a-year for the next two years. Without a new agreement the 2014 level would be $967 billion.

The deal would replace the sequester cuts with a grab-bag of other reductions in planned spending and a bunch of increased fees for airline travelers and others.

But the “t” word will go unspoken in this agreement. There will reportedly be no tax hikes in the bargain. But neither will there be a continuation of expiring provisions. And there is no chance they will be extended in any other bill in calendar 2013.

That likely means no action on the “expiring provisions” until after the 2014 elections.  That means we might not know whether a bunch of tax breaks we have gotten used to will be extended into 2014 until next December, or maybe even later.  A few of the biggies:

  • The Section 179 limit on expensing otherwise depreciable property falls to $25,000 next year, from the current $500,000, absent an extender bill.
  • 50% bonus depreciation goes away.
  • The research credit disappears, as do a bunch of biofuel and wind credits.
  • The current five-year “recognition period” for built-in gains in S corporations goes back to ten years, from the current five-year period.

My money is still on an extension of these provisions, effective January 1, 2014, even if enacted later, but my confidence is wavering.

 

20121220-3William Perez, Selling Profitable Investments as Part of a Year-End Tax Strategy. “Taxpayers in the two lowest tax brackets of 10% and 15% may especially want to consider selling profitable long-term investments.”  Why?  Zero taxes on capital gains, as William explains.

Tony Nitti, Tax Geek Tuesday: Tax Treatment of Commuting Costs   

Kay Bell, Standard tax deduction amounts bumped up for 2014

Jana Luttenegger, 2014 Mileage Rates (Davis Brown Tax Law Blog)

Jason Dinesen, Philosophical Question About Section 108, Principal Residences and Cancelled Debt  “My question is. what if the homeowner moves out before the foreclosure process is complete?”

TaxGrrrl, You’re A Mean One, Mr. Grinch: Christmas Tree Tax Proposal Returns 

Russ Fox,  Bank Notice on IRS Tax Refund Fraud.  “While I salute the IRS (and the banks) for doing something, this effort is equivalent to patching one hole in a roof that has over a hundred leaks.”

Robert D. Flach offers SOME GOOD CONVERSATIONS ON TAX PROFESSIONAL ISSUES

 

 

Leslie Book,  TEFRA and Affected Items Notices of Deficiency (Procedurally Taxing).  “In this post, I will attempt to give readers a map as to how IRS can move from shamming a partnership-based tax shelter to assessing tax against the partner or partners that were attempting to game the system.”

 

Kyle Pomerleau, High Income Households Paid an Effective Tax Rate 16 times Higher than Low Income Households in 2010 (Tax Policy Blog).  He provides more commentary on a recent Congressional Budget Office report (my emphasis):

In 2010, the average effective tax rate for all households was 18.1 percent. This is the average combined effective rate of individual income taxes, social security taxes, corporate income taxes, and excise taxes. The top income quintile paid an average effective tax rate of 24 percent.  The lowest quintile had an average effective rate of 1.5 percent. The top quintile’s effective tax rate of 24 percent is 16 times higher than 1.5 percent for those in the lowest quintile.

cbo rates by income group

This is why any federal tax cut “disproportionately benefits the wealthy.”  You can only cut taxes for people who pay taxes.

 

The Critical Question: When Does the Conspiracy End? (Jack Townsend)

News from the Profession: Deloitte Associate Exercises Powers of Persuasion; Scores Firm-Subsidized Xbox One (Going Concern)

 

20131211-1Atlanta county gives money to prosperous media company.  Cobb County, Future Home of the Atlanta Braves, Strikes Out (Elia Peterson, Tax Policy Blog, my emphasis):

The county is projected to have to finance around $300 million for the development.  This includes a one-time $14 million transportation improvement subsidy, a $10 million commitment from the Cumberland Community Improvement District (CID), and payments worth $276 million of a bond issue. The bonds are financed by redirecting funds from two existing taxes (hotel & property taxes) and creating three new revenue sources (a rental car tax, a property tax in the Cumberland CID, and a hotel fee) combined to the tune of $17.9 million annually for the next 30 years.

Liberty Media, the owner of the Braves, despite being a very successful company (owning stakes in SiriusXM, Barnes & Noble, and Time Warner) had their investment subsidized by Cobb County taxpayers. Liberty Media retains most of the rights to the stadium and profits while Cobb County gets next to nothing except the promise of “surefire” economic development (the city won’t even be allowed access to the stadium they built except for special occasions).

Build it and you can’t come!

 

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A step away from the fiscal cliff?

Friday, August 3rd, 2012 by Joe Kristan

Huge parts of the tax law either have technically expired already or will do so at year end, thanks to our congresscritters habit of enacting  tax breaks “temporarily.”  This looming calamity is variously called “Taxmageddon” or the “Fiscal Cliff.”   Congress has no intention of letting these breaks actually expire, but they can pretend the breaks are less expensive than they are under Congressional accounting that way.

That works out fine when they are in a mutual back-scratching mood, but this election year the ‘critters are snarly, and they aren’t getting much done.  That’s why yesterday’s bi-partison vote in the Senate Finance Committee to approve an extenders bill is important — it may signal that at least the normal expiring provisions will see action this year.

Some of the key items included in the Finance Committee bill:

- Extension of the “AMT patch” to keep 20 million or so individuals from facing a tax increase of up to around $8,000 for 2012.

Extension of the charitable break for conservation easement donations through 2012

- Tax-free IRA distributions for charity through 2012.

Research tax credits, which expired at the end of 2011.

Work opportunity credits, which also expired at the end of 2011.

Extend the $500,000 Sec 179 deduction through 2013.  Current law limits the deduction to $125,000 this year and $25,000 next year.

Reduction in the built-in gain period for S corporations to five years after the S corporation election.  Former C corporations are subject to a 35% corporate tax on “built-in gains” for the first ten years following their S corporation election.  The bill would make this a five-year period for 2012 and 2013 sales of “built-in gain” property.

15-year depreciation for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements placed in service in 2012. 

-And, of course, the key to the entire economy, seven-year depreciation for motorsports entertainment complexes, also known as “racetracks.”

The bill does nothing to address the scheduled increase in top marginal tax rates to 39.6% starting next year, or to mitigate the 3.8% Obamacare surtax on investment income also scheduled to take effect in January.  Even the items in this bill are no sure bet, considering how difficult it is to pass anything this year.  Still, this shows that there may actually be a serious attempt to pass an extender bill this summer.  If they do, it will probably look a lot like this.

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Sometimes three strikes are too many

Tuesday, January 31st, 2012 by Joe Kristan

Legendary Oakland A’s owner Charles Finley proposed to shake up baseball by awarding walks on three balls and strikeouts after two strikes. It never caught on in baseball, but there’s a place for it in the tax law.
Every year or two Congress passes 70 or so “extenders” — tax breaks provisions enacted with an expiration date, but which they have no intention of letting expire. By pretending the breaks are temporary, they avoid facing up to the true revenue cost.
Len Burman proposes a “three-strikes” rule for Extenders:

I propose a

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Happy 2012! Your taxes may have just gone up!

Tuesday, January 3rd, 2012 by Joe Kristan

Is this the year “temporary” actually means it?
It’s an old joke that nothing is as permanent as a temporary tax break. The research tax credit has been on borrowed time, one or two years at a time, since the 1980s, to allow congresscritters to pretend that it doesn’t really cost much. This congressional lie has now been extended to dozens of tax breaks, most of which Congress has no intention of letting expire. Yet expire they will if Congress fails to take action. With both Congress and the President in full electile dysfunction mode, failure is always an option.
The recent incentives for fixed asset purchases are perhaps the most likely candidates for expiration. While 100% bonus depreciation and the $500,000 limit on the Section 179 deduction are popular with businesses, they are also big revenue losers. With Congress spending about $1.67 for each dollar of revenue, it may find it easy to let this one go. It failed to pass this before year-end with the payroll tax cut extension, which shows that extending these breaks are not the top item on their to-do list.
The least-likely candidate for actual expiration is the “AMT Patch.” This is the recurring increase in the individual alternative minimum tax exemption to prevent inflation and the Bush-era regular rate reductions (which themselves have become another regularly-expiring provision, but not for 2012) from throwing over 20 million additional taxpayers into AMT. Affected taxpayers would see an average annual tax increase of $3,900 on average according to the Congressional Budget Office, and some would see an increase of over $8,000.
The Research Credit is also technically dead as of January 1. It has been extended, with one temporary exception, since the 1980s, and is likely to be again extended retroactively.
The fate of some 50 other “temporary” breaks
that expired January 1, including 15-year depreciation for “qualified restaurant buildings” and “qualified leasehold improvements” and seven-year depreciation for “motorsports entertainment complexes” is less certain. The more often they are extended, the less likely it is that they will be permitted to die, but with the continuing budget disaster, only the AMT Patch and the research credit seem like sure bets for continuation this year.
If Congress wanted to honestly budget these items, they would treat any provision extended more than once as permanent for budgeting purposes. That would require them to face up to the real effects of these items, and limit the regular enactment of permanent tax increases to pay for “temporary” breaks. It would also simplify the tax law and remove uncertainty from taxpayer lives. Yet it is clearly in the interest of congresscritters to force beneficiaries of these provisions to have to beg for them to be extended every year or two, so expect the lie to continue.
Link: Joint Committee on Taxation list of expiring provisions.

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53 tax breaks slated to die tomorrow. As if.

Friday, December 30th, 2011 by Joe Kristan

Expiring tax breaks rarely die, and if they do, they rise like Lazarus. TaxVox explains:

But Congress has made a habit of letting these measures expire and then bringing them back to life, no matter how useless they are. In the end, most of those who benefit from these temporary provisions will likely keep their tax breaks. It

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Baucus extender bill adopts House S corporation tax increase

Wednesday, June 9th, 2010 by Joe Kristan

Senate Finance Chair Max Baucus has embraced the moronic tax increase on professional S corporations in his version of the “extenders” bill. The Baucus version of H.R. 4213, chock-full of extensions of special interest tax breaks and subsidies, modifies the “carried interest” provisions passed by the House in hopes of getting the needed 60 Senate votes.
It’s not yet clear whether it will work. Tax Analysts reports ($link):

Unhappy that the bill would add to the deficit, Sen. Ben Nelson, D-Neb., said he was “not sure” whether he would vote to break a filibuster with the legislation in its current form. With the economy rebounding, “we have to begin to look more closely at how we stop deficit spending,” Nelson said.
Senate taxwriter Olympia J. Snowe, R-Maine, considered by Democrats to be a potential crossover vote, also expressed displeasure with the bill’s spending and tax increases.

Kay Bell has more. The Wall Street Journal discusses the carried interest issues here.
Apparently the Senate isn’t even considering axing any of the 70 “expiring provisions” in the bill — not even the “qualfied motor sports facilities” tax break This pretty well debunks the argument that temporary tax provisions are a good thing because they come up for review annally. The only “review” is the annual search for new permanent tax increases to pay for another year of the extenders. Because NASCAR is more important to Senator Baucus than your professional practice.
As the vote in the Senate may still be up in the air, it’s important to contact your Congresscritters, especially your Senators, to speak up against the S corporation tax. You can find how to reach them here. Iowans can call Senator Grassley at (202) 224-3744 and Senator Harkin at (202) 224-3254.
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Why politicians don’t apply truth-in-labeling laws to themselves

Thursday, May 27th, 2010 by Joe Kristan

Howard Gleckman at TaxVox on the “extender” bill: How a Jobs-Creating, Loophole-Closing Tax Bill Does Little of Either

…there is something about the joint Ways & Means/ Senate Finance Committee bill

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Both pedals to the floor at the same time

Friday, December 11th, 2009 by Joe Kristan

TaxVox points out how tax breaks, like those in the House “extender” bill, often work at cross-purposes:

Finally, there are my favorites

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House extends Extenders

Thursday, December 10th, 2009 by Joe Kristan

The House of Representatives approved the extension of 45 “expiring” provisions for 2010. These provisions include tax breaks ranging from the Research Credit to seven-year depreciation for “qualified motor sports facilities.”
One tax scholar says temporary provisions like this are a good idea because they allegedly make Congress reconsider them every year. Unfortunately for that theory, Charlie Rangel was just too darned busy this year to take a hard look at any of them, so they all just passed them all for another year. Worse, the House bill has a permanent tax increase on hedge funds and private equity funds to “pay for” a temporary extension of tax goodies. Because Nascar is more important for economic recovery than private equity.
The bill still has to clear the Senate; while it will take awhile, it’s likely to happen.
The TaxProf has a roundup. More from Kay Bell and TaxGrrrl.

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House extender bill doesn’t include Sec. 179 and bonus depreciation, but Obama ‘Stimulus II’ will

Wednesday, December 9th, 2009 by Joe Kristan

The TaxProf reports that the House will vote today on extending for one year 45 expiring tax provisions, including the all-important seven-year depreciation for qualified motor sports facilities. They will “pay” for this temporary extension of these provisions with a permanent increase in tax on hedge funds and private equity partnerships. Because Nascar is more important to the economy than private equity.
While the temporary bonus depreciation and $250,000 Sec. 179 deduction provisions are not in the extender bill, President Obama yesterday said he would include these in his newest stimulus proposal, so there is a good chance they will continue through 2010. TaxVox is underwhelmed by Stimulus II.

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Beating on private equity to save NASCAR

Friday, December 4th, 2009 by Joe Kristan

Tax scofflaw and Ways and Means Chair Charlie Rangel proposes to “pay for” the extension of forty five tax provisions that expire every year or so with an increase on the taxes on hedge funds and private equity funds.
Among the 45 provisions are special depreciation rules for “motorsports entertainment complexes” and an “alternative motor vehicle credit for heavy hybrids.” Because heaven knows we need NASCAR and heavy hybrids more than we need private equity investment.
Of course, these are permanent tax increases, to pay for temporary provisions. They are only passed one-year at a time so Congress can pretend that they cost much less than they do. They have no intention of actually letting these things expire.

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Theory, Meet Practice

Friday, November 20th, 2009 by Joe Kristan

Sometimes a great idea in the lab doesn’t work so well in the field.
George Yin, former Chief of Staff of the Congressional Joint Committee on Taxation, thinks temporary legislation — such as the perpetually-expiring AMT patch and research credit — is a good thing:

Consequently, enactment of temporary-effect rather than permanent legislation would promote more political accountability and may result in greater fiscal restraint. In addition, when temporary-effect legislation expires, the legislative process fully takes into account the cost of any extension. Extension of such legislation, therefore, competes with, and potentially displaces, adoption of other legislation. By contrast, the cost of continuing permanent programs largely disappears in the legislative process, and therefore continuation of such programs produces little or no crowding-out effect.

Here’s how that’s working out in the field, as reported by Tax Analysts ($link):

The House Ways and Means Committee will likely approve renewals of the full set of so-called tax extenders, panel Chair Charles B. Rangel, D-N.Y., told reporters November 19.
Rangel said he was embarrassed not to let at least some of the incentives expire as scheduled but said the committee lacks the time this year to hold hearings on the matter.
“It would really cause more of a problem in excising them with this short period of time we have,” Rangel said. “We can’t just say we don’t like [extenders]. We have to ask you to justify why it’s in the code.”

So much for accountability and fiscal restraint. Charlie Rangel is just too darn busy.

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Teaching a lesson in piddly deductions and tax policy

Thursday, May 14th, 2009 by Joe Kristan

The Des Moines Register notices that our crackerjack legislature has caused thousands of Iowa teachers to botch their tax returns:

Iowa educators who took a state tax deduction this year for school supply expenses will be required to pay a few dollars back to the state, tax leaders say.
Iowa legislators this year declined to adopt the deduction filed by many of Iowa

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