Posts Tagged ‘film credits’

Tax Roundup, 4/7/14: Where’s my K-1? And why you should e-file that extension.

Monday, April 7th, 2014 by Joe Kristan

1040 2013The deadline for 2013 1040s is a week from tomorrow, so we may as well start our annual Filing Season Tips feature.  

Many folks arrive here with a search engine query that goes something like “why don’t I have my K-1, should the partnership go to jail?”  A quick reminder of what a K-1 does, and why they often arrive late in the tax season.

K-1s come from partnerships, S corporations and trusts.  Partnerships and S corporation businesses don’t pay the tax on their income.  The income is instead taxed on your 1040.  They have to compute their own taxable income first — as you might imagine, a more complex process than doing the average 1040.  They then have to sort the income into a bunch of different bins so that all the pieces end up on the right spot on the owner 1040s.  The K-1 is best understood as the collection bins for your shares of the various pieces of the business’ income and expense items.

Furthermore, many businesses and trusts that issue K-1s are awaiting K-1s of their own.  Even if they have their own tax information ready, if the business is still waiting on a K-1, it can’t issue yours.

But, but! Aren’t K-1s supposed to be out by January 1?  You’re thinking of 1099s.  K-1s are due with the S corporation returns (March 15) or the partnership returns (April 15), but they can be, and often are, extended to as late as September 15 — legally.

So what to do?  If you don’t have your K-1 yet, try to at least get an idea of what the income will be, and extend your own return accordingly.  It’s always better to extend than to amend.

This is the first 2014 filing season tip — come back for one each day through April 15!

 

Russ Fox, Bozo Tax Tip #6: Just Don’t File

 

e-file logoKristy Maitre, IRS Change in Extension Processing Makes E-Filing That Extension Critical.

The campus could take up to 6 weeks to process a [paper] extension, and it will not show up on the transcript until processed. With that time delay, it is helpful to have the acknowledgement of an e-filed extension.

With the delay in processing of the extensions, remember if you file a return within that 6 week timeframe, it may not show the extension on the module, and your client could get a penalty for filing late if there is a balance due. This will also have an impact on refund returns if they are later picked up for audit, a balance due results, and the extension was not processed properly.

And why, if you do paper file, you shouldn’t bundle extensions for your family or clients to save postage.

TaxGrrrl, Not Ready To File Your Taxes? Don’t Stress Out, File For Extension 

William Perez, Federal Tax Relief for Victims of Washington State Mudslide and Flooding

Jana Luttenegger, DIY Will is a ‘Cautionary Tale’ (Davis Brown Tax Law Blog). “As a result, two of Ann’s nieces received property that it appears clearly from the will and attempted amendment was meant for Ann’s brother instead.”

 

20140321-3Kay Bell, 3 popular refundable tax credits: Are they worth it?  Good question, and no.

Peter Reilly, Easement Valuations Not So Easy Anymore

Keith Fogg, Reliance on Counsel to Avoid Tax Liability.  (Procedurally Taxing).  Not likely to work.

 

TaxProf, The IRS Scandal, Day 333.  Featuring the Washington Post “fact checker” calling shenanigans on IRS Commissioner Koskinen for denying that IRS had “targeted” Tea Party groups.  It’s safe to say Mr. Koskinen has botched his entrance.

Andrew Lundeen, Senate Finance Committee Passes $85 Billion Tax Extenders Bill (Tax Policy Blog)

20121120-2Tax Justice Blog, Five Key Tax Facts About Healthcare Reform.  Ones they like that I despise: “Only two percent of Americans will pay the tax penalty for not having insurance and  “95 percent of the tax increases included to pay for health reform apply solely to businesses or married couples making over $250,000 and single people making over $200,000.”

This attitude is exactly what is awful about the TJB mindset.  No matter how fickle, arbitrary,   unworkable or economically harmful a tax is — and the Obamacare taxes are all of those — we’re supposed to be OK with them as long as they apply only to “the rich.”  Carried to the logical conclusion, it would be just fine to execute the 1-percenters, confiscate their property, and sell their families into slavery — it only affects the rich anyway, and they don’t count.

 

Arnold Kling has a little reminder for folks hung up on inequality, quoting Lawrence Kotlikoff:

The US fiscal gap now stands at an estimated $205 trillion, or 10.3 percent of all future US GDP. Closing this gap is imperative, and requires a fiscal adjustment of an immediate and permanent 37 percent reduction in spending (apart from servicing official debt), an immediate and permanent 57 percent increase in all federal taxes, or some combination of the two. The necessary size of this adjustment increases the longer it is put off.

And remember, the rich guy isn’t picking up the tab.

 

O. Kay Henderson, No traction for increasing state gas tax.  Not happening this year, apparently.

 

haroldJennifer Carr at Tax Analysts has a good summary of the research as to the economic effect of state film tax credits:

The film industry and lawmakers doubtless believe that film credits are a great deal for everyone involved — and that would be fantastic if it were true — but the most credible studies don’t reflect that.

Her article (unfortunately available only to State Tax Notes subscribers) discusses the funky analysis that film credit boosters use to justify the subsidies.  The boosters like to overstate the tourism effects of films and assume fantastical “multiplier” effects of film spending.  They also ignore opportunity costs — assuming that if the taxpayer money was not spent on Hollywood, it would just crawl in a hole and die.

 

Career Corner.  Crime May Not Pay But Whistleblowing Certainly Does (Going Concern)

 

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Tax Roundup, 2/24/14: WSJ highlights tax season ID theft. And: Shock! Film Tax Credit Corruption!

Monday, February 24th, 2014 by Joe Kristan
The "Chromaro" purchased with ID-theft frauds by a Florida thief.

The “Chromaro” purchased with ID-theft frauds by a Florida thief.

The Wall Street Journal covers identity theft today: “Identity Theft Triggers a Surge in Tax Fraud”   It seems to be designed to tell what a great job the authorities are doing to fight the problem.  It’s nice that they’re stepping up the efforts, but the time to do that was four years ago, when the problem started exploding.  But the IRS was too busy with its attempt to regulate practitioners to be bothered with keeping billions from going out the door to two-bit grifters.  The article refers delicately to the grifters:

The scam, which involves repeatedly filing fake tax returns electronically and receiving refunds within days, is so enticing it is attracting suspects not typically associated with white-collar crime. On Friday, two members of an alleged crack-dealing gang in Miami were indicted on charges they also ran a tax-refund scam on the side. Suspects typically steal lists of names and Social Security numbers. Then they file large numbers of electronic returns claiming refunds, and can start getting money before investigators spot the fraud.

The story notes that stealing from the taxpayers is only part of the damage caused:

The crime creates two victims—the U.S. Treasury and individual taxpayers, who only learn of the fraud when they try to file their legitimate returns. Those taxpayers are stuck with the hassle of proving to the IRS that the previous document was a phony claim.

And the process can drag over years, as an ID-theft victim who works with Jason Dinesen would attest.   It’s a disgrace that the IRS has done so poorly at preventing ID theft, and it is doubly disgraceful that they don’t do a better job helping the victims of IRS negligence.

For your part, don’t help the ID thieves.  Never disclose your social security number.  Keep your tax information secure.  Don’t transmit your social security number in an unencrypted email.  If you want to transmit tax documents electronically, don’t send them as an email attachment.  Use a secure file transfer site, like our FileDrop site.

 

haroldDon’t let the door hit you.  ‘House of Cards’ threatens to leave if Maryland comes up short on tax credits (Washington Post, via Politico):

A few weeks before Season 2 of “House of Cards” debuted online, the show’s production company sent Maryland Gov. Martin O’Malley a letter with this warning: Give us millions more dollars in tax credits, or we will “break down our stage, sets and offices and set up in another state.”

That’s the problem with paying people to be your friend.  The price only goes up. In California, the film credit scam industry may be losing a friend, according to Capital Public Radio: Calderon Indicted On Fraud, Bribery Charges:

The Department of Justice announced Friday that State Sen. Ron Calderon (D-Montebello) is facing 24 federal charges including bribery, wire fraud and money laundering. U.S. Attorney Andre Birotte said Calderon solicited and accepted $100,000.

“Ron Calderon, we allege, took the bribes in return for official acts. Such as, supporting legislation to those that would be favorable to those that paid him bribes and opposing legislation that would harmful to them. The indictment further alleges that Calderon attempted to convince other public officials to do the same.”

~Andre Birotte, U.S. Attorney

The legislation centered on a potential film tax credit and regulation of medical billing. Calderon is accused of accepting cash, trips, dinners and jobs for his children.

I think film tax credits, and all incentive tax credits, are fundamentally corrupt, as they provide better treatment for the well-connected at the expense of everyone else. In Iowa, though, they were able to rely on credulous legislators, without resorting to bribes.

Russ Fox, California State Senator Ron Calderon Indicted on Bribery & Tax Charges.  ”Mr. Calderon is facing a maximum of 396 years at ClubFed if found guilty on all charges.”

 

premier.gov.ru [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

premier.gov.ru [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

A victim of politically motivated tax prosecution goes free in Ukraine: Freed Ukrainian ex-PM Tymoshenko rallies protesters (CBC).  She had been imprisoned on politically-convenient tax charges by the toppled would-be dictators there.   With the complexity of the tax law, it is way too easy to indict somebody.  That’s why IRS partisanship is so dangerous.

And yes, it can (and has) happened here.

 

 

 

William Perez has the scoop on Reporting Investment Income and Expenses

Jana Luttenegger, Taxing Olympic Winnings.  (Davis Brown Tax Law Blog) Not a problem for the hockey team.

Kay Bell is right when she says Report all your income even if you don’t get a 1099.  The 1099 is a useful reminder, but income doesn’t become tax free if you don’t get one.

TaxGrrrl, IRS Processing Returns, Refunds Faster Than In 2013.

Roberton Williams notes An Updated Marriage Bonus and Penalty Calculator at TaxVox.

 

 

William McBride, Empirical Evidence on Taxes and Growth: A Response to CBPP (Tax Policy Blog).  The Center for Budget and Policy Priorities has never met a tax increase it doesn’t like, as if there never is a point that giving the mule more to carry slows it down. The McBride post mentions an often-overlooked aspect of our government spending:

The thing is in reality the federal government spends only a small fraction of its budget on public investments, such as roads and airports, and instead spends most of the budget on transfer payments, such as social security and healthcare. Transfer payments are unproductive and even harmful to economic growth, according to most studies. So in practice, income taxes mainly go to transfer payments, and this deal is a clear economic loser, according to the IMF and most academic economists. 

Some folks, like Jim Maule, act like any complaint about the level of government spending and taxes means you are against roads, courts and public order — when most of what the government does is takes money from some people and gives it to other people.

 

Jack Townsend, U.S. Authorities Focus on Swiss Insurance Products Used to Hide U.S. Taxpayer Assets and Income

TaxProf, The IRS Scandal, Day 291

The Critical Question.  Sylvia Dion CPA Asks – Where Are The Women? (Peter Reilly)

Going Concern, The Ten Stages of Busy Season.  ”You begin to hate every single human being in your office”

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Tax Roundup, 1/23/2014: Ideas edition. And: why are we taxing pot?

Thursday, January 23rd, 2014 by Joe Kristan

20130117-1Bad idea.  Refundable tax credits are the favorite kind of credit for tax fraudsters because they generate tax refunds even when there is no tax paid or withheld.  The earned income tax credit is refundable, and that feature has something to do with 20-25% of the credits issued annually being improper.

An intrepid group of Iowa legislators isn’t letting that stop them.  They have introduced HF 2027 to create a new refundable tax credit in Iowa — a piggyback credit equal to 25% of the als0-refundable (and fraud-ridden) American Opportunity Tax Credit.

The AOTC is based on a percentage of tuition paid for the first four years of college.  It phases out at higher income levels.

Politicians can’t resist using the tax law to pass out political favors.  But even the best-intended ones make the tax law more complicated and, by creating a class with something to lose, they make it that much harder to reform.  When there already countless tuition aid programs, not to mention state-funded colleges and universities, it’s unwise to just throw in one more program willy-nilly.

 

Good idea.  Republican Party to vote for repeal of U.S. anti-tax dodging law (Patrick Temple-West).  

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

I hate the headline on the article.  I would have written it “Republican Party to vote to decriminalize personal finance for Americans abroad.”  FATCA makes outrageous demands of non-U.S. institutions that have made Americans unwelcome at many foreign banks.

Related: Republicans Target FATCA As Another Windmill to Attack  (Jack Townsend)

 

haroldWorse idea: film tax credits.

Accounting Web, Film Credits: Your Tax Dollars at Work Making Movies:

Actor/director Ben Affleck told the Los Angeles Times he’s filming part of Live by Night in Georgia, a state that is popular for its film credit availability.

“It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin,” he said.

Understood – but there’s a disconnect here. Affleck and his fellow actor/director, Matt Damon, both advocate and participate in using film credits to reduce taxes so they can make their movies. But both are also on record saying, because they are wealthy, their taxes should be raised.

What’s wrong with this “picture?”

Why is the film business, of all businesses with thin margins, entitled to special breaks?  Because politicians are suckers for celebrities.

Joseph Henchman, The Economist Reviews State Film Tax Credit Programs (Tax Policy Blog):

The report notes that it’s getting tougher to compete with Louisiana’s 30 percent refundable credit or New York’s $420 million annual budget to subsidize film and TV, and that independent analyses find these do little on net for job creation or economic growth.

But you can’t forget the intangibles!  As a Des Moines columnist breathlessly reported at the high point of the Iowa film credit looting spree:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Fortunately, Iowa is sadder but wiser now.

 

20130916-1Russ Fox, More Work for Tax Professionals: Submission IDs for Efiled Returns:

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

And anybody who’s been around a tax prep office during tax season knows there aren’t all that many extra minutes lying around.

 

TaxGrrrl, 11 Questions To Ask When Hiring A Tax Preparer .  A good list.

Leslie Book, The Ban on Claiming the EITC: A Problematic Penalty (Procedurally Taxing).  ”We have not addressed the special EITC ban that arises when a taxpayer inappropriately claims the EITC.   The following gives some context, with a focus on the two-year ban for reckless or intentional (but not fraudulent) errors.”

William Perez, Which Tax Form to File?

 

Peter Reilly, Is Tax Court Rebelling Against Supreme Court?  Short answer: no.

Tyler Cowen, Income inequality is not as extreme as many citizens think.

TaxProf, The IRS Scandal, Day 259

Cara Griffith, When State Taxes and Interstate Compacts Collide (Tax Analysts Blog).  ”But states can’t have their cake and eat it too; a compact cannot be both binding and offer states significant choices on whether to follow its terms.”

Tax Justice Blog calls the IRS budget cut The Dumbest Spending Cut in the New Budget Deal.  It’s bad policy, but it’s asking a lot of Congressional Republicans to fund an organ of their opposition.

 

20130607-2Because they can.  Why Exactly Are We Taxing Pot? (David Brunori, Tax Analysts Blog):

But I must ask: What is the rationale for imposing special taxes on marijuana? Excise taxes are appropriate to pay for externalities – the costs to society of using the product that are not borne by the market. But it is unclear what, if any, externalities are created by smoking pot.

Economic development in the Doritos aisle?

 

Kay Bell, IRS audit results in $862,000 lawsuit award for taxpayer.  Because he tripped over a phone cord.

 

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Tax Roundup, 1/22/14: Let’s pay it for Hollywood! And: choosing a preparer.

Wednesday, January 22nd, 2014 by Joe Kristan

haroldTaking your money and giving it to Hollywood.  Oscar Nominees Cash In On State Tax Subsidies (Howard Gleckman, TaxVox):

Each of the nine movies nominated for this year’s Oscar for best film may already have taken home a pile of tax subsidies. Seven brought back state goodies from the U.S. and two got cash for their work in the U.K.

And, according to data collected by the Manhattan Institute, the winner is….Wolf of Wall Street. The $100 million black comedy about (irony alert) over-the-top greed among sleazy stockbrokers got a 30 percent tax credit for making the movie in New York State.

The Empire State isn’t even the most generous when it comes to doling out tax incentives to filmmakers. In Louisiana, moviemakers not only get a 30 percent credit against overall in-state production costs but also an additional 5 percent payroll credit. Even better, filmmakers with no state tax liability can monetize the credits by selling them to firms that do owe Louisiana tax or even selling them back to the state at 85 percent of their value.

Iowa used to do this, until its film tax credit program collapsed in scandal and disgrace following revelations that filmmakers were charging fancy cars and personal items to Iowa taxpayers under the guise of “economic development.   Further revelations showed that millions of dollars of pretend expenses were used to claim the credit, taking advantage of credulous administration and almost non-existent oversight.

More from Howard Gleckman:

No doubt these credits are good for filmmakers. And I’m sure residents get a kick out of seeing Leonardo DiCaprio shooting a scene in their neighborhood (assuming they are not steamed over the related traffic jam). But is there an economic payoff in return for these substantial lost tax revenues as supporters claim?

Most studies conclude there is not.

It’s amazing that politicians think Hollywood deserves their taxpayers dollars.  Fortunately, Iowa film subsidies now are limited to housing and meal expenses for filmmakers.

 

Jason Dinesen, Deducting Miles Driven for Charity.  ”Taxpayers can take a deduction of 14 cents/mile for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.”

Tony Nitti, Tax Geek Tuesday: The Sneaky Tax Consequences of Real Estate Repossessions 

 

Choosing a preparer?

Kay Bell, Time to pick the proper tax pro.  She gets one thing wrong about the IRS:  ”For years, the agency has been trying to set up a system under which it register and test tax preparers to help ensure that they meet a minimum competency level.”

No, the agency simply wants to expand its control over preparers and help powerful friends in the big tax prep franchises.  The “minimum competency level” stuff is a weak pretext.

Robert D. Flach, IT’S THAT TIME OF YEAR AGAIN – CHOOSING A TAX PREPARER:

Contrary to the popular “urban tax myth”, unfortunately perpetuated by uninformed journalists and bloggers, just because a person has the initials “CPA” after his/her name does not mean that he/she knows his arse from a hole in the ground when it comes to preparing 1040s.  

True.  But a lot of the best prepaers are CPAs.  Not everybody needs a CPA.  Many folks just need somebody who knows a little more than they do to help them put the W-2 income in the right place.  But if you are doing a complex business return — even on a 1040 — a CPA may be your best bet.

That’s not to say only CPAs are competent preparers.  Enrolled Agents can be very good, and there are many very competent unregulated preparers, like Robert.  I think the competence curve between CPAs and unenrolled preparers would look something like this:

competence curve

The more complex your return, the more likely it is that you will want to bring in an Enrolled Agent or a CPA, but if you already have a strong unregulated preparer who is taking care of your tax needs, you’d be foolish to switch.

 

Paul Neiffer, Average is Important for 2013 Tax Filing.  Farm income averaging, that is.  Another example of a provision that would result in frivolous return penalties for anyone but farmers.

Fairmark.com: Share Identification Under Attack

 

20121120-2Tea Party: Resolved: Obamacare Is Now Beyond Rescue.  Oh, wait, that wasn’t the Tea Party.   It was a debate audience on New York’s Upper West Side.  

TaxProf, The IRS Scandal, Day 258

William Perez, The Number of Sole Proprietors has been Rising for 30 Years

Tax Justice Blog: CTJ Submits Comments on the Finance Committee Chairman Baucus’ International Tax Reform Proposal.  They have very different, and largely opposite, concerns from the Tax Foundation.

Jack Townsend, Tax Notes Article on IRS 2013 Victories in Offshore Evasion

 

gatsoNext: automated pedestrian jaywalking camera fines, for our own safety:  NYC Cops Allegedly Beat Up Jaywalking Elderly Man, Refused to Tell Son Which Hospital He Was In (Ed Krayewski, Reason.com)

But I thought it was about traffic safety, not money…  Council members: Traffic camera revenue helped keep property taxes down, pay for public safety.

 

The importance of philanthropy: Warren Buffett Offers $1 Billion For Perfect March Madness Bracket  (TaxGrrrl)

 

The Critical Question: A Meat Tax? Seriously?  (Joseph Thorndike, Tax Analysts Blog).

News From the Profession: Guy Who Couldn’t Hack Two Years in Public Accounting Needs Validation He Isn’t a Loser (Going Concern)

It’s Academic!  How Not to Use Your Faculty Laptop (TaxProf)

 

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Tax Roundup, 12/30/2013: Paying for those last-minute write-offs. And: Harold Hill marches on.

Monday, December 30th, 2013 by Joe Kristan


20121228-2
How to pay for those last-minute deductions.
  We’re down to the wire, kids.  2013 ends in less than 48 hours, so if you are going to claim some last-minute deductions, get busy!  Some things to keep in mind:

- A credit card is as good as cash. Better, even, because if you incur a business expense before the end of the year, you have your credit card statement to prove it.

- If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2013 to be a deductible 2013 expense. If it’s a big check, maybe you should spend a little extra to send it Certified Mail so you can document the postmark.

- If you receive a check in the mail, it’s taxable the day you receive it, even if you don’t deposit it.

- There is no “close is good enough” rule for cash basis taxpayers. Just because you could have paid a bill doesn’t get you a deduction if you didn’t pay it before year-end.

- Don’t overdo it. If you prepay expenses more than a year out, you don’t get the deduction until the year to which the payment applies.

- If you are making a gift to a loved one to qualify for the $14,000 annual gift tax exclusion, having the check in the mail isn’t good enough. A check has to be cashed for the gift to count against this year’s exclusion.

And in case you didn’t check in over the weekend:

What you need to pay by year-end to get a 2013 business expense deduction and

Hie thee to the altar! Maybe.

Check in tomorrow for the last 2013 year-end tax tip!

 

haroldL.A. Times: Transferable Movie Tax Credits Hurt States, Enrich Studios, Tax Lawyers (TaxProf):

Reitz is one of Hollywood’s new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.

In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.

Money for Hollywood, fixers, middlemen, and the well-connected, at your expense.  Sort of like every other “economic development” tax credit, only even more so.  Fortunately Iowa, sadder but wiser, has turned to jailing film folks instead of subsidizing them.

 

Russ Fox, Bring Me the Usual Suspects: Small Business Policy Index 2013.  Iowa is 43rd.  Not surprising, when “Of the 47 measures included in the 2013 edition of the Index, 22 are taxes or tax related…”

 

William Perez looks at the Top Tax News Stories of 2013.  His top story took place on the first day of 2013:

1. American Taxpayer Relief Act was passed on January 1, 2013. This tax law instituted at top personal tax rate of 39.6%, bumped up the top capital gains rate to 20%, provided for indexing the alternative minimum tax to inflation, reinstated the phaseouts on itemized deductions and personal exemptions. This law was Congress’s way of dealing with the fiscal-cliff, which was the name applied to the expiration of a several tax laws first enacted during the Bush administration.

I hope nothing so awful happens on the last day of the year.

Robert D. Flach also looks back with 2013: THE YEAR IN TAXES – PART TWO

 

The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Annette NellenNew IRS Commissioner – Does anyone care?

“Despite running a significant organization with over 92,000 employees that collects over $2.2 trillion of revenue and affects the lives of most people in the U.S., it doesn’t seem to me that anyone really cares about who is running the IRS.”

That’s unfortunate.  As the tax law has become the Swiss Army Knife of public policy, the Commissioner oversees a sprawling portfolio ranging from health policy to campaign finance to industrial policy.  There’s more power in the IRS than in most cabinet agencies.  And as the disastrous regime of Doug Shulman proved, an awful Commissioner can cause a lot of damage to taxpayers and to the agency.

 

Jim Maule, Contracting a Tax Outcome.  ”When a taxpayer signs a contract, the terms of that contract quite often dictate the tax consequence.”

 

 

What could go wrong?  French High Court OKs 75 Percent Tax For Top Earners (Iowa Public Radio)

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Tony Nitti, A Tax On Cycling: Too Steep A Hill To Climb Or Just Around The Corner?  With talk of replacing gas taxes with mileage charges based, presumably, on tracking your whereabouts, it’s not surprising that they want to tax any alternatives to cars.

 

 

 

 

TaxProf, The IRS Scandal, Day 235

Jack Townsend, Judge’s Improper Question of Defendant as Witness is not Reversible 

 

That’s the only way the team overachieved.  St. Louis Rams say they collected too much ticket sales tax (Kay Bell)

 

Oh, this will end well.  “The Game: I’m a pot-smokin’ Tax Fraud“ (TMZ).  The first rule of Tax Fraud Club: don’t talk about Tax Fraud Club.

TaxGrrrl takes a look at Mr. Game’s tax claims in  Game Offers Tax Advice To Rappers: Write Off Strippers, Sneaks And Medical Marijuana:

Next, those Jordans. Clothing is deductible if the only purpose of the clothing/uniform is for business purposes (meaning that you must wear them as a condition of employment) and not suitable for everyday use. Clothing is not deductible if you could wear it outside of your workplace (even if you don’t). Those Jordans? Not merely for business purposes. And Game would totally wear them outside of business. 

In case you’re wondering, rappers are not required to take any tax continuing education.

 

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Tax Update, 10/8/13: One week left! What to do if the K-1 never comes. And: money for Harold Hill!

Tuesday, October 8th, 2013 by Joe Kristan

20130311-1Extended 1040s are due one week from today.  There is no second extension available.

I know, the timing might not be good.  But if it hasn’t been good enough to get your tax information together since January, it will probably never be good.   If you don’t scrape up every loss at the slots or every item you dropped off at Goodwill, it doesn’t matter.

You probably aren’t waiting on K-1s anymore.  Tax returns for partnerships, S corporations and Trusts with income reportable on 1040s  were due September 16.  You should have all of your information in hand, and it’s just a matter of spending an hour or two getting it together and to your waiting preparer.  If you are still “working on it,” you’re either overdoing it or not really working on it.

If you don’t have all of your information — if, for example, you are still missing a K-1 — get ready to file as best you can without it.  If it’s a small K-1, you probably can just ignore it.  If it’s a big one, then talk to your preparer.  If it will only generate a passive loss that you can’t use, just go ahead and file without it by October 15, as it won’t affect the amount of your 2012 tax.  If you believe the K-1 will show taxable income when it is finally released, you should talk it over with your preparer.  Use any information you have to take a shot at what the tax will be.

Big or small, income or loss, be sure to file Form 8082 with your return to tell the IRS that you are filing using numbers that aren’t on a K-1.  It helps protect you from penalties.

In any case, don’t ignore the K-1, or pretend it will be zero when you know better.  That doesn’t work.  File by the extended due date.  You’ll get much better results by filing on time and amending if necessary than by filing late.  The penalties for late payment if you owe on an amended return — if any — won’t exceed 1/2% of the underpayment per month.  The penalties on a late-filed return run to 5% per month.

 

hh44.jpg

Harold Hill gets a check.  The Iowa Film Tax Credit is repealed, but it is still stimulating the economy for Iowa attorneys and small-time filmmakers.  The Des Moines Register reports that the state has agreed to pay $225,000 to a Rhode Island man miffed that Iowa stopped the film credit gravy train:

The settlement is with financers of the movie “2001 Maniacs: Field of Screams,” which is available on Netflix.

The settlement will partially resolve a lawsuit brought by Anthony Gudas of Providence, R.I., who said his company, Tax Credit Finance, invested money in four film projects based on contracts with the state where tax credits were never paid.

The lawsuit for the three other film projects continues.

The film credit program caused a brief frenzy of production activity before it collapsed following revelations of taxpayer funds buying luxury cars for filmmakers.  A state audit showed that about 80% of the $36 million in credits issued by the program were improper and that oversight was almost non-existent.  Seven film figures ultimately copped pleas or were convicted at trial for cheating on the program, with two filmmakers earning 10-year prison terms.

And the three remaining lawsuits?  From the Register story:

Deputy Attorney General Jeffrey Thompson in December said for three of the films, producers had not submitted documentation the state needed for the projects to qualify for the credits.  And, in the fourth, state officials said the producer, Harel Goldstein of California, had created false invoices. Goldstein later pled guilty to felony fraud and forgery charges in connection to the invoices.

So the program was looted; “But some benefits can’t just be measured on a dollar-for-dollar basis.” Don’t you wish we were giving more money to Hollywood?

 

Grover’s coming to town.   Tax opponent Grover Norquist to speak in Iowa Wednesday.  (Des Moines Register). I won’t be able to attend, but it should be interesting.

 

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

TaxGrrrl, The View From The Trenches: What The Shutdown Has Meant So Far For Taxpayers:

My advice to taxpayers: pretend things are normal. Yes, that feels nearly impossible. But to the extent possible, file as usual and make payments as usual. But don’t get too complacent: all of those meetings, calls and audits will be rescheduled eventually: it’s a delay, not a complete reprieve.

Sound advice.

William Perez, IRS Shut Down, Week 2

 

Jason Dinesen, Glossary of Tax Terms: Medical Dependent 

 

Kay Bell, Tax Carnival #121: TaxtoberFest 2013.  Looks delicious!

 

20131003-1Andrew Lundeen,  Obamacare Raises Marginal Tax Rates above 50 Percent.  Not just for “the rich,” either.

Megan McArdle,  Republicans Didn’t Sabotage Health Exchanges, Obama Did.  ”In short, the administration passed a law with an unrealistically aggressive implementation schedule. And because of the way it passed it, it had no way to finesse that deadline.”  But it would be horrible blackmail for Congress to delay it for a year.

 

 

 

Clint Stretch, Tax Reform Is on Furlough (Tax Analysts Blog).   ”As long as Congress is fighting over a continuing resolution and the debt limit, there is no oxygen in the room for other initiatives. Members will be stuck on their talking points, and constituents won’t be thinking about tax reform.”

Robert W. Wood, Bitcoin Is Biggest Loser In Silk Road Meltdown—IRS Wins Big

TaxProf, The IRS Scandal, Day 152

Jeremy Scott, It Isn’t Time to Bury the Income Tax Just Yet (Tax Analysts Blog)

Tax Justice Blog,  State News Quick Hits: Brownback Under Fire, and More

 

The Critical Question: Should Small Business Have Veto Power Over Corporate Tax Reform? (Martin Sullivan, Tax Analysts Blog)

Robert D. Flach has his Tuesday Buzz on!

 

Note: There will be no Tax Roundup tomorrow.  See you Thursday!

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Tax Roundup, 3/26/2013: Snatching defeat from the jaws of preparer-regulation victory. And: Iowa leads, UK follows on film.

Tuesday, March 26th, 2013 by Joe Kristan

20130326-1Film tax credit scams are big news in the U.K. right now.  An Irish actress, Aoife Madden, yesterday received a 54-month sentence in her role in scamming a U.K. film tax credit scheme.  Irish Times reports:

The group successfully claimed £1.5 million in film tax breaks after they said they intended to make a film titled Landscape of Lives  with a £19 million budget, funded by Jordanian backers.     

Once they were arrested two years ago, the five hurriedly produced a film called, ironically, Landscape of Lies for just £90,000, which went on to win a Silver Ace award from last year’s Las Vegas Film Festival.     

The film, which starred former EastEnders actor Marc Bannerman and Andrea McClean, told the story of a former British soldier’s attempts to discover the truth behind his friend’s murder in an apparent mugging.     

Before suspicions had been aroused, Madden’s London film company, Evolved Pictures, told revenue and customs that millions had been spent on Hollywood A-list actors and film crew when it lodged a value added tax repayment application for £1.48 million. It received more than £1 million.

Lost in the coverage is Iowa’s pioneering role in film tax credit scams.  A little-known film producer from Minnesota came here and showed the Brits just how it’s done:

Take Iowa. A start-up called Polynation Pictures came looking for backing for a sci-fi flick so lame it would have embarrassed Ed Wood. With a financing scheme worthy of Max Bialystock, the con these folks pulled was nearly as inept as the film they made, but Iowa’s film office was too starry eyed to notice.

The $767,250 production Polynation Pictures proposed eventually came in at $3.7 million. This was achieved in part with preposterous expenses. Producers claimed they paid $1,350 to rent six orange road cones. The use of two 6-foot ladders supposedly cost the company $900 (a bargain, as Polynation claimed to have spent another $900 to rent a single 8-foot ladder). Among production necessities was a new Mercedes. The partners set up an array of separate companies and used them to bill themselves extravagantly for work supposedly done on the picture. These were presented to Iowa as “deferred payments”—to be paid if the movie made money (which the enterprise was sure to do when Iowa handed the tax credits over). The only thing missing was a staged rendition of “Springtime for Hitler.”

Polynation mastermind Wendy Weiner Runge received 10 years for her star turn in the film credit program.

The film credit program was touted as a way to make Iowa a leader in the film world.  And, in a way, it did.

You might be interested in this interview with Ms. Madden about her role in the film, knowing what we know now.  She said this:

This project has been a crazy but wonderful challenge!! I’ve always wanted to produce a feature, and have a number of projects in development, but this was the one I just wanted to lift off the page. I think the biggest challenge was sourcing finance, which is no surprise for an independent film company. We were extremely lucky to find international investors and lobby them to back the project, but this was a lengthy process and has always been a challenge.

A challenge, yes, but I’m not sure they turned out lucky.

 

Snatching defeat from the jaws of victory. Now that the courts have saved the IRS from itself by shutting down the misguided preparer regulation system, the Senate rides to the rescue to screw everything up again, Accounting Today reports:

The two leaders of the Senate Finance Committee, Chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, have begun developing proposals for reforming the U.S. Tax Code, including giving the Internal Revenue Service the clear statutory authority to regulate tax preparers in case the IRS loses its appeal of a recent court case invalidating its Registered Tax Return Preparer regime.

The IRS can’t answer its phones.  Its pockets are being picked to the tune of billions by semi-literate South Florida grifters.  And the Senate thinks that preparers are the problem?   Preparer regulation is a market-share enhancement program for the national franchise tax prep outfits;  the rules were written by a former H&R Block CEO.  If Senators Baucus and Hatch want to re-enact these anti-competitive and useless rules, it just shows who they really represent.  (Via Going Concern). 

 

Howard Gleckman,  Congress Has Not Passed A 2014 Budget, and Probably Won’t (TaxVox).  Why do that, when Henry and Robert have other chores for them?

Joseph Henchman,  Senate Votes on Tax Proposals, Including State Taxation of Internet Commerce.  (Tax Policy Blog) Amazon taxes seem inevitable.  Otherwise Wal-Mart can’t compete with a guy selling things from his basement on the Internet.

Brian Strahle,  The Marketplace Fairness Act:  Is It Really Fair?

Kay Bell,  Online sales tax a step closer with Senate budget amendment

Thanks, you’ve helped enough already.  A New Proposal to Promote American Manufacturing (Martin Sullivan, Tax.com).

 

Jack Townsend, Supreme Court Will Decide Whether B____t Tax Shelters with Basis Overstatements Draw the 40% Penalty

Tony Nitti,  What Are Your Odds Of Being Audited By The IRS?

TaxGrrrl, Taxes From A To Z (2013): N Is For Notice Of Deficiency

Missouri Tax Guy,  Social Security Benefits, are they taxable?

Patrick Temple-West, Proposals to tax trades spark financial firm lobbying, and more (Tax Break)

Peter Reilly,  Has Scalia Already Thrown In The Towel On Same Sex Marriage ?

Dan Meyer, “Where No Tax Rate Has Gone Before…”

Trish McIntire,  That Reminder – 2013. “Your Failure to Plan Is Not My Emergency!”  The tax preparer April battle cry.

 

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Tax Roundup, February 25, 2013: And the award for the dumbest economic development tax credit goes to…

Monday, February 25th, 2013 by Joe Kristan

20130225-1

Field of bad dreams.  TheFiscalTimes.com says Iowa is the ninth worst state for taxes:

The Hawkeye State gets a black eye for being the second worst state for corporate taxes, with a 12 percent rate. It also ranks 37th in property taxes, 33rd in individual income taxes and 34th in unemployment insurance taxes.

 They accompany the article with this photo of the “Field of Dreams” — an unwitting illustration of the problems of Iowa tax policy.  The Governor last year signed a proposal giving a special sales tax exemption to a private athletic complex being built around the field, made slightly famous in the Kevin Costner movie.  It’s special carve-outs like this that make for high rates and complicated taxes all around.

 

Speaking of movie-related scams, Instapundit Glenn Reynolds writes in the Wall Street Journal The Hollywood Tax Story They Won’t Tell at the Oscars.  Here he talks about how it worked out in Michigan:

State leaders ballyhooed the plan as a way of moving from old-style industry to new.           

Despite tens of millions of dollars in state investment, the promised 3,000-plus jobs didn’t appear. As the Detroit Free Press reported last year, the studio employed only 15-20 people. That isn’t boffo. That’s a bust. The studio has defaulted on interest payments on state-issued bonds, and the guarantors—the state’s already stressed pension funds—may wind up holding the bag. “In retrospect, it was a mistake,” conceded Robert Kleine, the former state treasurer who signed off on the plans in 2010.

He doesn’t neglect Iowa’s film fiasco:

Iowa ended its motion-picture subsidies in 2010, after officials misused $26 million in state money, leading to criminal charges. According to a 2008 investigation by Iowa Auditor David Vaudt, 80% of tax credits issued under the state’s film-subsidy program had been issued improperly (to production companies that weren’t even spending the money in Iowa, for example).

 

Two film credit recipients are now serving 10-year sentences on theft charges arising from the program.  That’s fine, but I really want to see a groveling public apology from the Governor who signed the program into law, the “economic development officials” who turned the keys to the state treasury over to a former Walgreens photo desk clerk in charge of the program, and to the legislators — all but three out of 150 — who voted the moronic program into existence.

 

 

Sequestration panic at the IRS.  Politico adds IRS cuts to the least of things we’re supposed to freak out about in the face of the tiny impending sequestration spending cuts:
“At a minimum, it’s probably going to take longer for people to get through on the phone; it’s going to take longer for refunds to be processed,” said Floyd Williams, a senior tax counsel at Public Strategies Washington.

Williams, who worked for the IRS for nearly two decades and directed the agency’s legislative affairs office for 16 years, says the sequester could also be a boon to those who purposely commit fraud, or accidentally fill out returns incorrectly.

Good thing the IRS can redirect the employees who had been assigned to the preparer regulation program to do something useful, now that the courts have shut down that futile enterprise.  The IRS can’t stand their good fortune, though; Tax Analysts reports ($link) that the IRS is appealing the court decision.

It would be even better if Congress stopped using the IRS as the Swiss Army Knife of public policy.  Given the agency’s new mandate to take care of our health insurance, their performance at the job of actually collecting taxes is only going to get worse.


Preparers gone bad.  Accounting Today rounds up the week in preparer fraud, including a guy in New Mexico who, while serving time for identity theft-related charges, has been hit with 56 counts of fraud and embezzlement.  That would be overachieving in underachieving.

 

Hak Ghun will travel.  To Club Fed. From DurangoHerald.com:

Durango man pleaded guilty to tax evasion this week in federal court in New Mexico.

Hak Ghun, 62, is facing 12 to 18 months in prison after signing a plea agreement with the U.S. Attorney’s Office. He also will be required to pay $249,567 in restitution to the Internal Revenue Service.

The man was accused of embezzling from a company that had received investments from the Navajo Nation. For those who don’t get the old TV show reference, here you go.


 

Paul Neiffer,  Safe to File After March 1

If a fire is worth fighting, it’s worth fighting in style.  But the firefighter still can’t deduct the Benz.  My new post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Janet Novack,  The Forbes 2013 Tax Guide

Peter Reilly, Don’t Be Fooled By E-Mail ‘From IRS’ – But Don’t Ignore Their Snailmail

Jim Maule,  Tax Law Provision Enforceable Even if Unwise.  That would be most of them.  For example…

Tax Effects of the Health Care Act (Missouri Tax Guy)

Patrick Temple-West, Payroll tax’s return hits retailers, and more (Tax Break)


These guys are what I call real public servants.  Vigilantes fighting revenue-driven traffic enforcement (The Telegraph, London).

Breaking:  Women Are Not Men: A New Freakonomics Radio Podcast

Today’s Going Concern employment tip: Accountant on Probation for Embezzlement Still More Employable Than the Average Non-Accountant (Temporarily)

 

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Tax Roundup, 12/5/2012: Happy Repeal Day! Too bad it’s not the tax code.

Wednesday, December 5th, 2012 by Joe Kristan

Happy National Repeal Day!

 

Either we cut spending or everyone will pay more taxes.  This post by Veronique de Rugy puts together in one handy package some points I have been trying to drive home about budget and tax policy.  It’s all worth reading, but some key items include:

 In my opinion, the problem with the fiscal-cliff debate has been that no one is acknowledging the fact that there is no way out of raising taxes on everyone eventually unless Congress gets serious about addressing our long-term fiscal problem, by restraining spending.

“The Rich” simply don’t have enough income to foot the bill.  But borrowing temporarily hides the problem:

This, by the way, is why I thought the Bush years were so toxic. Cutting taxes while increasing spending dramatically — Bush increased real spending by 60 percent, as opposed to Clinton’s increase of 12.5 percent — is a recipe for large deficits leading more taxes later or certainly intense pressure to raise taxes.

What will taxes look like when the bill comes due?

This weekend, Mark Steyn gave us an idea of what that tax bill would look like. He writes:

A couple of years back, Andrew Biggs of the American Enterprise Institute calculated that, if Washington were to increase every single tax by 30 percent, it would be enough to balance the books — in 25 years. If you were to raise taxes by 50 percent, it would be enough to fund our entitlement liabilities — just our current ones, not our future liabilities, which would require further increases.

Finland shows how high taxes have to be to adequately fund a lavish welfare state, as I have noted:

Finland has an extensive welfare state and most years pays for it without budget deficits.  It does so with income taxes that reach a 2012 top rate of 29.75% at €70,301, which is about $57,021 at current exchange rates.  For a US taxpayer filing single, the 28% rate doesn’t start until taxable income reaches $85,651, and not up to $142,701 on joint returns.  On top of that, Finns pay a 23% Value-added tax on most purchases — a tax that is not tied to income.  But there’s more!  There is a mandatory 4.7% payroll tax on employee gross wages, plus another 18.3% “paid” by the employer — but that necessarily reduces what they can pay the employee after-tax.

I’m not sure all that would go over well here, but that’s what we’re headed for.  Anybody who says rich people can pay for all of the free government stuff is either clueless or lying.  The rich guy isn’t buying.

 

Megan McArdle,  Who Gets More Damaged If We Go Over the Fiscal Cliff?  At least there’s a drink at the bottom.

At least the weather’s nice.  Oh, maybe not…  Top Federal Marginal Tax Rate Will Exceed 50% in California, New York, and Hawaii in 2013 (TaxProf)

Amy Feldman,  Getting ready for the Medicare tax on investment income   (Reuters)

Don’t think he actually plans to pay the higher taxes he supports.  Warren Buffett Makes Money On Tax Breaks He Discredits (Steve Stanek, IBD)

Joseph Thorndike, Moral Abdication Dressed Up Like Hard-Nosed Realism (Tax.com)

 

But think of the intangible benefits of the Iowa film tax credit program! Film financier sues state over unpaid film credits (AP)  The producer of one of the films involved in the suit pleaded guilty to felony chargesarising from tax credits for the film.

Joseph Henchman,New York Times Tells the Tale of Michigan’s Bankrupt State-Backed Film Studio (Tax Policy Blog Oh, and Happy 75th Birthday to the Tax Foundation! 

 

Kay Bell, Tax Carnival #109: Tax Stocking Stuffers

TaxGrrrl,  12 Days of Charitable Giving 2012: Be An Elf

Russ Fox,Nominations Due for 2012 Tax Offender of the Year.  ‘Tis the Season!

Must be a Cubs fan. Hapless Mr. Williams Loses Again (Jack Townsend)

Nor do I.  No, I Don’t Plan to Take the RTRP Exam (Jason Dinesen). 

Jim Maule, The Hidden Government Spending Game.  Spending doesn’t become something else just because you run it through a tax return.

Trish McIntire, Do You Have a Spare $2,350?  You do?  Good, you may need to send it to the IRS in April if Congress doesn’t “patch” the Alternative Minimum Tax for this year.

Peter Reilly, Hobby Losses – Need To Convince Tax Court You Love Money More Than The Game

Robert D. Flach has his Wednesday Buzz roundup of tax posts up!

 

 

Holistic auto healing?  Cadillac chiropractor sent to prison for tax fraud  (Mlive.com)

The Critical Question:  Bartlett: The Fiscal Cliff and the Debt Limit — What Would Lincoln Do? (TaxProf)

Judge Holmes Quote of the day. 

Allison T. O’Neil, the ex-wife of Michael J. O’Neil, does not want to pay a penny of their joint 2005 federal tax liability because, she says, it [*2] would be inequitable to make her do so.

2 Michael recalls providing Allison with $6,000 to $10,000 per month. Allison recalls getting only $6,000 per month.

Cite: O’Neil, T.C. Memo 2012-339

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Tax Roundup, 11/2/2012: Iowa’s new approach to filmmakers affirmed. And more fertilizer!

Friday, November 2nd, 2012 by Joe Kristan

Promotional image for “The Scientist,” one of the projects of convicted film tax credit recipient Wendy Weiner Runge.

Jailing them instead of bribing them.  Iowa has drastically altered its approach to the film industry in the last few years.  Where it once lured them with lavish film credits, meaning free cars and cash, it now merely provides lodging.  From WHOtv.com:

The Iowa Court of Appeals has affirmed the sentencing of a Minnesota filmmaker who pleaded guilty to fraudulent practices.

Wendy Weiner Runge was sentenced to 10 years in prison after pleading guilty in connection with Iowa’s film tax credit scandal. She was the owner and operator of a film company that applied for tax credits from the Iowa Film Office in 2008.

Ms. Runge said the sentencing judge improperly considered her combative blog posts as evidence of lack of remorse.  The appeals court held otherwise:

Similarly, here, the court properly considered Runge’s statements criticizing the court’s process and disparaging the prosecutors and the judge personally in considering her lack of remorse.

You don’t need to go to law school to figure out that if you plead guilty to something, it’s unwise to publicly rip the judge before sentencing.

Iowa spent over $30 million on the film industry via transferable film credits — another way of saying “subsidies.”  A state auditor report said that 80% of the credits were improperly granted.  It might have been cheaper to just imprison the filmmakers in the first place.

Link: Appeals court opinion.

 

From films to fertilizer.  The Iowa corporate welfare machine now is focused on a less glamorous industry.  On the heels of a huge tax credit grant to build a new fertilizer plant in Eastern Iowa, Iowa announced yesterday an award of up to $70 million of tax credits for a new Sioux City fertilizer plant for a different fertilizer company.

Between the two plants, the state has awarded up to around $180 million in tax credits.  This compares to budgeted net receipts for Iowa’s corporate income tax of under $400 million.

The state claims the project will bring 2,000 construction jobs and 100 full-time jobs at the plant.  If they max out their tax credits, that works out to about $33,300 per job, or $700,000 per “permanent” job.  Heck of a deal.  Meanwhile every other business has to cope with a horrendously complex state tax system with high rates to support these big credit grants.

The politicians love these press conferences when they can brag about bribing new jobs to the state.  Too bad they don’t have to call press conferences every time the state’s dysfunctional tax system costs a job.  But they wouldn’t have time for a press conference every day.

 

TaxProf,  WSJ: Owners Race to Sell Their Businesses by Year-End to Avoid 67% Capital Gains Tax Increase.  If you are going to sell anyway, I understand.  If you don’t already have a buyer, though, it’s probably too late to beat the rush.

 

Brutal Assault on Reason Watch: 

Tax stakes for entrepreneurs next TuesdayMy latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Going Concern, Grover Norquist: No Matter What, Taxes Aren’t Going Up

Howard Gleckman, A Disappointing Presidential Campaign Comes to an End (TaxVox).

Kay Bell,  Making Obama, Romney tax plans add up

Linda Beale,  What natural disasters like Sandy teach us about taxes and government, and why NY City Mayor Bloomberg endorse Obama

Anthony Nitti, The Top Ten Tax Cases of 2012: #9 -The Mortgage Interest Limitation Is More Complicated Than You Realize

Jack Townsend,  Relevant Conduct in Tax Cases

Robert D. Flach starts the weekend early with WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – SPECIAL FRIDAY EDITION

News you can use: 10 (er, 11) Uses For Leftover Halloween Candy (TaxGrrrl).  I heartily endorse the first two suggestions.

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Tax Roundup, 8/10/12: Herbert Hoover birthday edition!

Friday, August 10th, 2012 by Joe Kristan

Herbert Hoover was born 138 years ago in West Branch, Iowa.  They haven’t elected another Iowan as President since for some reason.  Arnold Kling ponders the Hoover presidency:

Price V. Fishback and John Joseph Wallis write,

Federal budget outlays in real dollars rose 88 percent under Hoover between 1929 and 1932, faster than the growth in the first three years under Roosevelt (although starting from a lower base). Budget deficits under Hoover look more Keynesian than Roosevelt’s deficits, although likely not by Hoover’s design.

The conventional wisdom is that Herbert Hoover sat back and did nothing, and then Roosevelt cured the Depression with the New Deal.  In fact, I think that economic historians tend to see both Presidents making similar mistakes.  The most common view among economists today is that going off the gold standard was President Roosevelt’s best policy move, while many of the other New Deal policies, most especially the National Recovery Administration, were a hindrance.

President Hoover will always be linked to the depression.  That’s fair, though the story is much more interesting than the comic-book version of popular history.

 

State rejects Windsor Heights’ bid for revenue cameras (Des Moines Register):

The portion of I-235 that goes through Windsor Heights has the highest crash rate in the county, according to the city’s proposal.

(Windsor Heights Police Chief) McDaniel said that while the cameras will likely pay for themselves, the city wasn’t thinking about additional revenue when they proposed the project. Any potential revenue would go toward equipment purchases for public safety entities, he said.

Windsor Heights has long been notorious as an incorporated speed trap.  Why would anyone think that the cameras would be there just for revenue?  They are also there to award special favors to other government agencies!

Yes, that stretch has a lot of accidents — because of the design of the road, where having one too few lanes to accommodate three exits in a short stretch causes daily traffic backups.  Why are there too few lanes?  If my memory serves, it’s because Windsor Heights objected to an extra lane through their fair city.

 

Yes, government programs require government regulation.  The Quad City Times concludes an editorial on the film program this way:

Iowa, like many states, wheels and deals with tens of millions of dollars in tax credits every year to encourage senior housing, economic development, energy efficient homes and businesses and countless other initiatives. Witter’s jury acquitted a professional, degreed and licensed accountant of any criminal culpability for submitting expenses the state auditor later documented as unfounded.

So without extensive government regulation, Iowa’s tax credit programs seem ripe for the picking.

So what government is supposed to regulate a state government program?

It came out in the most recent film credit trial that the man who brokered 2/3 of the $36 million of tax credits issued — 80% of them improperlyreceived over $400,000 in commissions for his efforts.  So while the programs are advertised as benefiting “senior housing, economic development, energy efficient homes and businesses and countless other initiatives,”  remember that the real beneficiaries are well-connected fixers and middlemen.

 

Josh Barro asks, “Is Iowa Necessary?”

What’s so great about the wind credit? Well, according to Branstad, it has encouraged the construction of wind turbines all over Iowa, which means jobs for Iowans and rental income for Iowa farmers. If that sounds to you a lot like the arguments for subsidizing solar power — and the arguments for every industrial subsidy ever — you’re not alone.

Of course, the really important difference between wind subsidies and solar subsidies is that Iowa is windy and not especially sunny. If the purpose of the federal government is to do nice things for Iowa, then obviously it should prioritize wind over solar.

His solution for the problem of Iowa extortion:

 We could reduce Iowan tyranny by taking away its status as the first state to hold presidential caucuses. But Iowa would remain a swing state with outsized influence in the general election. The only way to really be safe is to revoke Iowa’s statehood, returning it to a territory whose representatives in Washington, D.C., would play a purely advisory role — and whose residents would have no part in choosing the president.

OK, we have our faults here, but put California and Illinois in receivership first, then we can talk about Iowa.  Update: Josh Barro Declares War on Iowa (Reihan Salam)

 

Kay Bell: IRS ignored fake tax ID numbers, potentially costing Treasury billions.  Good thing we have open-book competency exams for tax preparers.  More from Peter Pappas.  Meanwhile, Jason Dinesen has a new installment of the saga of how IRS negligence on the refund fraud front led to a nightmare for a widowed client.  A Ways and Means Republican has called for the resignation of IRS Commissioner Shulman to resign in the wake of the new revelations of IRS malfeasance.  It’s long overdue.

Russ Fox, What a Drag:

Write a business plan, have a separate bank account, and keep good records!  Trust me, you’ll be happy you did

If you want to deduct your expenses, that is.

Howard Gleckman, The Bowles-Simpson and Romney Tax Plans Have Almost Nothing in Common (TaxVox)

Jim Maule, You Get What You Vote For.  The good professor just can’t imagine why voters would distrust the government to spend more money wisely.

But you still have to pay the rent somehow. It Is Never Unreasonable to Quit a “Good Job” If You Hate Your Life   (Going Concern)

News you can use: Strippers of America, Get Your W-4s Ready. You’re Employees Now(Anthony Nitti)

 

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Witter acquitted of charges arising out of the Iowa film credit

Tuesday, August 7th, 2012 by Joe Kristan

A Polk County jury yesterday acquitted Bettendorf accountant Chad Witter of all charges arising out of his involvement with the defunct Iowa film tax credit.  The Sioux City Journal reports:

Witter, the primary accountant for the Changing Horses Productions film company and a tax credit broker for several film projects, had been in that same courtroom for the past two weeks listening as prosecutors blamed him for overbilling the state of Iowa in an attempt to line his own pockets in his role involving the now-shuttered Iowa Film Office.

But it took the jury of seven women and five men less than a day to declare Witter not guilty on charges of fraud, theft and ongoing criminal conduct.

The state got convictions or guilty pleas in seven of the ten cases in which they pressed criminal charges against film credit figures, though the conviction against former film office director Tom Wheeler was pretty minor, and he received a suspended sentence.  Two filmmakers received ten-year sentences for looting the program, which was shut down after the state auditor found that 80% of the credits were improperly awarded or insufficiently documented.  The Des Moines Register reports that Mr. Witter “brokered roughly $24 million of the $32 million in tax credits that were issued before the state ended the program.”

Of course, the real guilty parties in the film fiasco, which cost taxpayers over $30 million, never will face charges.  The 143 state legislators who voted to subsidize Hollywood with your money will never be called to apologize for enacting a stupid program and then failing to include minimal protections against waste in the law.  The Governor who signed the bill and then turned the keys to the treasury to a Walgreens photo desk clerk will never face a tribunal, and will never be required to publicly apologize for failing to protect taxpayers.

Finally, the credulous media that got so excited over celebrity sightings on your dime won’t apologize for missing the story, or for failing to provide detailed coverage of the film trials after the program blew up.

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Tax Roundup, 7/24/2012: Why should death be simple? Film trial starts; did corporate welfare doom Curt Schilling?

Tuesday, July 24th, 2012 by Joe Kristan

Because why would they do something simple and sensible?  Tax Analysts reports ($link):

Practitioners should not expect a simplified estate tax return for electing portability, said James Hogan, branch 4 chief, IRS Office of Associate Chief Counsel (Passthroughs and Special Industries), on July 23.

The current estate tax law, which expires at year-end absent Congressional action, allows a surviving spouse to use a deceased spouse’s unused lifetime estate tax exemption — but only if an estate tax return is filed electing the carryforward for the deceased spouse’s estate.  In many cases neither spouse will owe estate tax, but there’s always the chance that the widow will win the lottery, so executors are filing a lot of these otherwise unneeded estate tax returns in self-defense.   It looks like that silly state of affairs will continue.

Casting Call.   Attorneys interview prospective jurors in Iowa film tax credit trial (Rod Boshart, QCTimes.com).  The report says the trial is expected to take about two weeks, with the panel to be seated today.  The charges against film-credit broker Chad Witter can be found here.

What happens when non-taxpayers run the show (Tax Foundation):

 Killed by corporate welfare?  An interesting item via Going Concern about Curt Schilling’s ill-fated video game venture:

Desperate to gain outside funding, Schilling used his fame to gain meetings with investors “practically every week for the company’s first three or four years.” But no one bought in, scared off by the company’s amateurish business plan and lack of experience. So when Rhode Island came calling with a sweetheart business development loan, 38 Studios jumped at the chance—even if it meant opening up a new office and hiring more employees, which hastened its demise.

If a business plan is any good, it will probably find funding without government help.  If it needs government help, it probably isn’t a great idea to start with.

No, the government doesn’t really have a big pot of cash waiting for you to claim it.  Two more taxpayers have pleaded guilty for their involvement in a Missouri-based scheme to claim $100 million in fraudulent refunds under the “1099-OID” scam.

Overruled.  Las Vegas Lawyer Pleads Guilty to Tax Evasion (USDOJ)

Steve Sink explains why rising tax rates may make this the year to sell your business (IowaBiz.com).

Peter Reilly: Romney’s Olympic Horse Not Jumping Through The Last Hoop Of Deductibility

Eh? Is the American Girl Really (Gasp) Canadian? (TaxGrrrl)

Firms Pass Up Tax Breaks Due to Hassles and Costs (Paul Neiffer). The elaborate “targeting” of tax breaks often misses the mark.

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Last film credit trial slated to begin today

Monday, April 16th, 2012 by Joe Kristan

The trial of CPA/film tax credit broker Chad Witter is set to start today in Polk County district court.  Mr. Witter is the last defendant scheduled for trial in the scandal arising out of Iowa’s disastrous film tax credit program. 

hh44.jpgIf the papers bother to cover this trial (they pretty much sat out the recent trial of Dennis Brouse, which was probably the biggest trial of a film industry figure), we could learn a lot about the cottage industry of brokers and middlemen who are the real beneficiaries of Iowa’s economic development credits.  The film credits were “transferable,” like a number of other Iowa tax credits.  That allowed the itinerant filmmakers, who didn’t plan to stick around to incur any Iowa taxes of their own, to sell the credits at a discount for cash.   Mr. Witter matched up filmmakers with interested taxpayers looking for a discount on their tax bill.

It is, of course, perfectly legal to buy and sell credits.  Mr. Witter is charged with “Ongoing Criminal Conduct (Class B felony), two counts of Theft in the First Degree (Class C felony), and two counts of Fraudulent Practice in the First Degree (Class C felony),” according to the Attorney General’s website.  His name came up in the Brouse trial and the State Auditor’s report, which said he approached potential film sponsors to get them to claim inflated values for their sponsorships.

Does anybody think that the film tax credit is the only tax credit ever abused in Iowa?

Link: Trial Information document

Related: Harold Hill gulls the House

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Is there life after tax credits?

Tuesday, March 27th, 2012 by Joe Kristan

Is it possible to start a business without government subsidies?  To listen to lawmakers voting more corporate welfare, you’d think not, but the maker of the “Iowa Nice” video may be showing otherwise.  From the Des Moines Register:

Siepker and Benedict shot the short film “guerilla style,” with only two guys, a camera and a plan. For “Marooned,” they launched a Kickstarter campaign asking for $2,000. They wanted to prove it doesn’t take a fancy studio and a big budget to produce a show worth watching.

They raised the money within three days.

“Marooned” is a story of actors moving to Iowa to cash in on the tax credits, only to be stuck here when the program collapsed in scandal and disgrace

Raising money in innovative ways from the private sector without tax credits?  What a concept. 

 

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Recipient of $9 million in film tax credits convicted of looting Iowa treasury

Friday, March 16th, 2012 by Joe Kristan

The biggest beneficiary of Iowa’s film tax credit boondoggle is in for more Iowa hospitality than he hoped for. Dennis Brouse faces up to 10 years in prison after a Polk County jury convicted him yesterday on a charge of “fraudulent practice” for claiming improper tax credits from the Iowa Film Program. He was acquitted on two other charges.
In happier times, Mr. Brouse had programs on up to 170 public TV stations, according to the Des Moines Register.
The prosecution charged that Mr. Brouse claimed inflated values for expenditures on films produced in Iowa. The state awarded him $9.2 million in transferable tax credits for the pretend spending, which he sold to investors at a discount for cash. From the Register’s story:

Brouse made $3.1 million after his expenses were paid and he obtained the state

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Another film credit criminal trial winds down

Tuesday, March 13th, 2012 by Joe Kristan

The trial of Dennis Brouse, known to public TV viewers for his shows about horses, is winding down, according to a story by Lee Rood in the Des Moines Register, which apparently just started printing coverage. Before the trial closes, accountant Chad Witter, who served as a broker for film tax credits, is expected to testify today.
It appears the trial centers around non-cash “expenditures” used to claim millions of dollars in transferable film tax credits, which could be cashed out by selling them at a discount to investors. From the Register’s story:

Brouse

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Meet the new Iowa tax ideas, just like the old Iowa tax ideas

Monday, January 30th, 2012 by Joe Kristan

Iowa again scored in the D-/F range on the Tax Foundation’s new State Business Tax Climate Index released last week. Iowa did move up from 45 to 41 on the survey, but not because its tax policy improved; it barely changed. Iowa looks better only because other states, notably Illinois, got much worse.
Why is Iowa’s business climate perennially awful? Because we have high rates and a complex tax system. The high rates and complexity finance a bunch of deductions and tax credits for favored constituencies. So what what will Iowa do about it?
More Tax Credits! The Des Moines Register reports:

Iowa business leaders, hoping to jump-start a proposed $100 million seed fund, are expected to ask lawmakers to sweeten the tax credits available to lure investors into backing startup companies.
What wouldn

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Iowa filmmaker gets light sentence, but has to repay $4 million

Thursday, December 22nd, 2011 by Joe Kristan

An Iowan who pleaded guilty to a charge arising out of the Iowa film tax credit program received his sentence yesterday, reports The Des Moines Register:

Filmmaker Bruce Elgin, 42, of Washington, Ia., dodged a prison sentence Wednesday morning when he was given a deferred judgment and two years

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IRS: Sale, use of transferable tax credits can generate taxable gain

Tuesday, November 29th, 2011 by Joe Kristan

One aspect of the Iowa film tax credit fiasco that hasn’t been much discussed is the tax treament of buyers and sellers of the things. An IRS ruling on similar Massachusetts credits explains what should have happened.
The magic of the Iowa film tax credits was that they were “transferable.” The filmmakers could sell the tax credits at a discount to raise ready cash. Iowa’s tax credits were often issued before the filmmakers had even incurred the expenses, providing up-fron tax credits.
To attract buyers, the filmmakers had to sell the credits at a discount; with no discount, the buyers would have no reason to just pay their taxes in cash, rather than with purchased credits. This begs two questions:
- Is there taxable income when the fimmaker sells the credits, and
- Is there taxable gain when the credit buyer pays tax with credits purchased at a discount?
The ruling says that the answer to both questions is “yes”:

The amount of the tax credit is not included in the taxpayer’s federal gross income, or otherwise treated as a payment from the state. Rev. Rul. 79-315, 1979-2 C.B. 27. Consequently, the federal tax effect of such a state tax credit is normally to reduce any deduction for payment of state tax the taxpayer may otherwise have had under

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