Posts Tagged ‘Glenn Reynolds’

Tax Roundup, 10/7/14: Sweet pursuit of Tax Fairy turns sour. And: shut up and get used to FATCA!

Tuesday, October 7th, 2014 by Joe Kristan

tax fairy

Isaac Brock visitors: here is a direct link to what you are looking for.

Not so sweet.  A business owner who turned to a man associated with the JoY Foundation “pure trust” scam in pursuit of the Tax Fairy may be regretting his choice of tax advisors after a bad day in Tax Court yesterday.

The taxpayer had an apparently successful S corporation, Specific Enterprises, specializing in cabinet doors.  In 2002, Mr. Joseph Sweet came up with a cunning plan, starting with a liquidation of Specific Enterprises.  Tax Court Judge Nega takes up the story (footnotes and citations omitted, emphasis added):

On December 3, 2002, an entity called RCC Capital Group (RCC) was formed that purported to be a “PRIVATE, NON-STATUTORY, NON-ASSOCIATED, CONTRACTUAL PURE TRUST (CPT)”…

On January 2, 2003, petitioner and RCC entered into an “Asset Purchase Option Contract” (drafted by petitioner) where petitioner purported to grant RCC options to purchase petitioner’s factory building, the land upon which it was located, and equipment. The exercise price for the contract was $1,650,000, and petitioner accepted $21 (presumably the same $21 conveyed to RCC by Brad R. Scott) plus two promissory notes valued at $700,000 and $950,000 in full consideration of the deal. The contract was also contingent upon a separate rental contract, the “Facility Production Contract”, between RCC and Cabinet Door Shop for Cabinet Door Shop’s use of the factory building, land, and equipment… At the behest of petitioner, RCC did not file income tax returns.

Pursuant to the “Facility Production Contract”, dated January 3, 2003, Cabinet Door Shop made total rental payments of $273,000 and $126,000 to RCC for 2003 and 2004, respectively, although RCC did not exercise the option to purchase the factory building, land, and equipment from petitioner until some time around March 10, 2004. After receiving these rental payments RCC made total payments to petitioner in the exact same amounts: $273,000 in 2003 and $126,000 in 2004.

In 2003 as part of a separate transaction Cabinet Door Shop made monthly installment payments to petitioner totaling $80,798 for the sale of inventory.

“Pure trusts” are a hackneyed and worthless tax scheme that retains a following among tax deniers. The IRS naturally didn’t like the way this stuff was reported, assessing tax on the sale of inventory and sticking the taxpayer with the income earned in the “pure trust.”  First, the inventory:

Petitioner has not provided any facts or details that permit a reasonable estimate of his basis in the inventory. Although petitioner provided respondent with his personal tax returns and tax returns for Specific Enterprises one day before trial, these returns are mere admissions; and we are unwilling to attach significance to them in the absence of corroborating evidence as to petitioner’s basis in his assets. The record does not establish the cost basis of the inventory. The record indicates only that Cabinet Door Shop paid $80,798 to petitioner for the inventory…  Because petitioner has not provided any pertinent information that would help us estimate his basis in the inventory, the Cohan rule does not apply. Consequently, the entire amount paid by Cabinet Door Shop for petitioner’s inventory is includable in petitioner’s gross income for the 2003 taxable year.

A self-inflicted wound. Surely the taxpayer had basis in the inventory, but apparently he didn’t take the Tax Court proceeding seriously enough to document it.

The “pure trust” fared no better, with all of the “rental payments” received by the trust taxed to the taxpayer instead.  The IRS also won 25% penalties for non-filing of returns for 2003 and 2004.

It’s interesting that no tax is assessed for 2002, the year the corporation was liquidated — a corporate liquidation would normally have triggered a lot of tax. I assume the omission of 2002 from the case implies that a return was filed, starting the statute of limitations, though the Tax Court decision doesn’t confirm this. Considering the whole thing was done to start a tax avoidance scheme, it would seem strange for the gain to be properly reported.

The Moral: Beware of trust schemes that say they make your taxes go away. They are just Sweet nothings. If the Tax Court wants you to document something, don’t give them the information the day before trial. And there is no Tax Fairy.

Cite: Wheeler, T.C. Memo. 2014-204

 

No-longer-Acting IRS Commissioner Steven Miller

No-longer-Acting IRS Commissioner Steven Miller

Worst Acting Commissioner Ever says FATCA may not be worth it, but it’s here to stayTax Analysts reports ($link) on a speech by Steve Miller, who was Acting IRS Commissioner when the Lois Lerner scandal broke. He says that while the FATCA offshore disclosure bill may not be worth its cost, it shouldn’t go away:

“I can’t even say with conviction that I’m sure, looking strictly on a cost-benefit basis, that FATCA’s . . . benefits are going to outweigh the cost,” Miller told a lunch crowd at the Securities Industry and Financial Markets Association FATCA Policy Symposium in Washington. “It’s not clear to me that when you look solely at the burden placed on financial institutions and others, versus the amount of revenue that may come into the treasury, that this is going to be a revenue-positive event for the United States.”

And despite the fervent wishes of some in the finance industry, FATCA is here to stay, said Miller, now national director of tax for Alliantgroup. “I don’t see a repeal in the cards,” he said. “FATCA . . . is tied inextricably to offshore evasion work, and that has to be kept in mind as you talk about repeal, as you talk about changes.”

In case you’re wondering, Alliantgroup is a tax consulting company that specializes in tax code complexity exploitation via services like research credit studies.

Miller said he recognized “that the folks in this room are sort of on the wrong end of FATCA implementation and that you’re bearing the cost and not necessarily the benefit of FATCA.”

But Miller added, “The future is an improved global set of rules, [and] I have high hopes that it will create a level playing field that will make it much more expensive and risky to hide assets offshore. And that should be some help at least to compliant financial institutions as people consider where to invest their money into the future.”

FATCA has made ordinary personal finance difficult to impossible for Americans abroad. Americans are losing opportunities to work offshore because foreign employers fear FATCA hassles. U.S. citizens who do find work offshore face hassles and headaches just trying to open a bank account. But that’s a small price to pay for “an improved set of global rules,” right?

Of course, a defense of burdensome tax provisions is no surprise coming from an IRS official going out the revolving door to a company whose business depends on helping taxpayers deal with “the burden placed on financial institutions and others.” It makes Glenn Reynold’s Revolving Door Surtax proposal look very tempting.

 

buzz20140909Robert D. Flach has some fresh Tuesday Buzz,  including a link to a discussion of the prospects for tax reform (dismal) and the immediate future for figures in the T.V. show “Real Housewives of New Jersey” (dismal also).

TaxGrrrl has two new guest posts: Steven Chung, The Vehicle Miles Traveled Tax and Dominic Ferszt, The Accidental Tax Invasion. The second post is an excellent summary of the FATCA nightmares Steven Miller says offshore taxpayers should just suck up and get used to.

Kay Bell, Signs of change for sports league tax exempt status

 

Martin Sullivan, Can Multinationals’ Offshore Cash Fund a U.S. Infrastructure Bank? (Tax Analysts Blog). Apparently fixing a tax code debacle may be doable if we create a domestic spending boondoggle.

 

TaxProf, The IRS Scandal, Day 516

 

20140729-1Scott Drenkard, North Dakota Democrat Tax Commissioner Candidate Proposes Flat Tax—Big Tax Climate Improvement (Tax Policy Blog). In North Dakota, Tax Commissioner is a statewide elective office.

Imagine an Iowa Democrat proposing what Joseph Astrup proposes:

His plan would flatten and simplify the individual income tax to a single bracket, while lowering the top rate from 3.22 percent to 2.52 percent. The exemption would be raised to $40,000 for singles and $80,000 for married filers.

In fairness, I can’t imagine an Iowa Republican proposing something like this, either. But if an Iowa politician does want to take some inspiration from North Dakota, the Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a fine place to start.

 

Tracy Gordon, It’s Not Easy to Escape the Local Pension Vise (TaxVox). Maybe not, but it’s necessary.

Peter Reilly, Tax Court Judge Appreciates Art More Than Your Average Revenue Agent, Which presumably makes a certain art professor appreciate the Tax Court more than the IRS.

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Tax Roundup, 1/21/14: Weaponizing the IRS. And: whither Section 179?

Tuesday, January 21st, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The new, “weaponized” IRS is a focus of Glenn Reynolds, the Instapundit, in a USA Today Column:

Since then, of course, the new “weaponized IRS” has, in fact, come to be seen as illegitimate by many more Americans. I suspect that, over time, this loss of moral legitimacy will cause many to base their tax strategies on what they think they can get away with, not on what they’re entitled to. And when they hear of someone being audited, many Americans will ask not “what did he do wrong?” but “who in government did he offend?”

This is particularly true since the Obama administration is currently changing IRS rules to muzzle Tea Partiers.

While I don’t think it’s that bad yet, it’s headed that way if things don’t change.  And, as Glenn points out, it’s not changing:

Meanwhile, the person chosen to “investigate” the IRS’s targeting of Tea Party groups in 2010-2012 is Barbara Bosserman, a “long-time Obama campaign donor.” So the IRS’s credibility is in no danger of being rebuilt any time soon.

I think this is a terrible and shortsighted mistake by the Administration.  So much of its agenda, especially Obamacare, depends on effective IRS administration, but as the recent budget agreement proved, the GOP isn’t going to fund the IRS when it thinks that’s the same as funding the opposition.

The USA Today piece makes broader points about the effect of the loss of faith in civil servants as apolitical technocrats; read the whole thing.

Via the TaxProf.

Andrew Lundeen at Tax Policy Blog has two new posts on tax reform.  In Tax Reform Should Simplify the Code and Grow the Economy, he says:

We need to eliminate the biases in the code against savings and investment, so individuals have the incentive to add back to the economy, and businesses have the capital to buy new machines, structures, and equipment – all the things that give workers the ability to be more productive and earn higher wages. And we need a tax code that is simple and understandable, so taxpayers know exactly what they pay and why. 

Max Baucus

Max Baucus

We’ve been going the wrong way now for 27 years.  In Responses to Senator Baucus’s Staff Discussion Drafts, he curbs his enthusiasm for the tax reform options offered by outgoing Senate Finance Committee Chairman Baucus:

Generally speaking, we found that the tax reform proposals in these drafts go in the wrong direction. Our modeling shows that they damage economic growth, hurt investment, and, in many instances, violate the principles of sound tax policy: simplicity, transparency, neutrality, and stability.

The post links to a point-by-point examination of the Baucus proposals.

 

 

TaxProf, Martin Luther King, Jr. and the IRS:

This past year, much ado was made about the so-called “IRS-Gate” and concerns that the Obama administration may have used the agency to target Tea Party and other right wing groups. … [W]hat often is not stated during the Martin Luther King Holiday weekend is that King, early in his leadership of the Southern Christian Leadership Conference (SCLC), was routinely subjected to IRS audits of his individual accounts, SCLC accounts as well as accounts of his lawyers, first starting during the administration of President Dwight Eisenhower and continuing through the Kennedy administration.

If you audit me, I shall become more powerful than you can possibly imagine…

Kay Bell, IRS abuse of power, now and in MLK’s day. “Overall, the IRS is paying for its operational indiscretions by receiving less money and more restrictions on how it does spend what funds it has.”

 

Paul Neiffer, Section 179 Update (or Not):

 Here are my official updated odds on when we might know what the actual 2014 Section 179 amounts will be:

By Memorial Day 10 Billion to 1

By Labor Day 10 Million to 1

By the November Mid-Term elections 500 to 1

Between the November Mid-Term Elections and December 15, 2014 25 to 1

After December 15, 2014 and before January 1, 2015 1 to 1

After December 31, 2014 5 to 1

I give about 5 to 1 odds in favor of the current Sec. 179 deduction being extended to $500,000 for 2014, and I think that Paul is right that it is most likely to occur during the lame-duck session.  I think odds are about 50-50 on an extension of 50% bonus depreciation. It’s too bad the Feds have closed Intrade, as this would be a betting market I would like to follow.

 

HelmsleyTaxTrials, Leona Helmsley, Angry Employees Strike Back:

Their mistreatment of employees and squabbles over bills are the stuff of legend and left prosecutors rife with eager witnesses when it came time for trial.

Helmsley was just as arrogant about her taxes, famously telling her housekeeper: “We don’t pay taxes, only the little people pay taxes.”  Helmsley participated in several schemes to avoid paying millions of dollar in income and sales taxes.  

Sometimes that sort of thing comes back and bites you; read the post to see how it bit Helmsley.

 

William Perez on an important topic: Tips for Securely Sending Tax Documents To Your Accountant.  First, don’t send anything with your Social Security Number in an unencrypted email.  Like many firms, Roth & Company offers a secure upload platform to send sensitive information.  If your tax firm has one, use it.  They are the safest way to transmit confidential information and files.

 

Phil Hodgen wonders whether there is a Delay in approving renunciations at State Department?  It’s harder to shoot jaywalkers when they are running away.

Missouri Tax Guy goes back to basics with An Introduction to the Double-Entry Bookkeeping System.  Just remember, Debits are on the door side.

Andrew Mitchel has posted a New Resource Page: 2013 Developments in U.S. International Tax

 

Kay Bell, $4 billion more tax breaks for Boeing from Washington State. Taxing you to give money to folks with good lobbyists.

Jim Maule is appropriately annoyed by the use of the term “IRS Code.”  It’s the Internal Revenue Code, and it’s written by Congress, not the IRS.  Remember that when you vote.

Keith Fogg, Qualified Offers – Is it meaningless to offer what you think a case is worth? (Procedurally Taxing)

Jack Townsend, The New Provision for Tax Restitution and Ex Post Facto

 

The Critical Question: Is Kent Hovind A Tax Protester?  It doesn’t seem like a more promising career path for him than his forays into evolutionary biology.

TaxGrrrl, Hot Tub Tax Machine: News Anchor Takes Plea In Scandal.

 

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Tax Roundup, 9/17/2013: Public pensions, floods and flamingos.

Tuesday, September 17th, 2013 by Joe Kristan

 Monday Map: Funded Ratio of State Public Pension Plans (Joseph Henchman, Richard Borean, Tax Policy Blog).  It looks at the funding of state pension plans using the 3.2% 15-year Treasury Bond rate to discount pension obligations.  This is a conservative rate, but a lot closer to reality than the 8% rate still used in some states.

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Iowa’s pension obligations are only 43/% funded under this standard — and that’s better than most states.  Public defined benefit plans are a menace and, ultimately, a lie.

Related  Defined benefit badminton

 

Glenn Reynolds,  Clean up the IRS:

 Emails recovered by the House Ways and Means Committee demonstrate that the targeting of Tea Party groups — and of voter-integrity groups — was orchestrated from the top of the agency. Rather than being conducted by a few rogue employees in the Cincinnati office of the IRS, the Tea Party targeting was regarded by Lerner as something “very dangerous” politically, and she observed that “Cincy should probably NOT have these cases.”

The emails also reveal Lerner’s concerns that the Democrats might lose their Senate majority, and her hopes that the Federal Election Commission might “save the day” by interfering with right-leaning grassroots activity. The IRS also shared information with the FEC, something not permitted by statute, raising questions about just how politicized both agencies were.

Ms. Lerner, of course, is a former FEC staffer who may have used her position there to try to run politicians she didn’t like out of the business.  So much for the “Rogue agents in Cincinnati” story.

 

Joseph Henchman,  Detroit Free Press Explains Why Detroit Went Bankrupt.  They list a lot of mistakes, but this one jumps out:

Outrageously high payments to incentivize economic development deals, with extensive bureaucracy slowing down approvals of everything.

I’m not at all convinced that Iowa can do this any better.

 

Martin Sullivan, U.S. Tax Exceptionalism (Tax Analysts Blog):

A new study from the OECD shows how the world is cutting corporate taxes and raising consumption taxes. By refusing to budge in this direction, the United States is becoming less competitive…

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For economists this is a no-brainer. The corporate tax–with its arbitrary and excessive burden on the profits of certain businesses–is our most damaging tax. A broad-based consumption tax, like a VAT — which unlike the income tax is not inherently biased against saving and investment — causes the least harm to the economy.

Economists do favor consumption taxes, but there are two potentially insurmountable obstacles to a U.S. VAT.  It would not be “progressive” enough for liberals, and conservatives and libertarians will suspect that it will just be on top of income taxes, rather than a replacement for them.

 

Tony Nitti, IRS Provides Tax Relief To Victims Of Colorado Storms

Kay Bell, Deadly flooding devastates Colorado

William Perez, Missing a Tax Document for 2012?

TaxGrrrl,  Are You Ready For Some (Charity) Football? Defense, Donations & Deductions 

Leslie Book, IRS Issues New Guidance on Requests for Equitable Relief (Procedurally Taxing)

 

TaxProf, Michael Jackson’s Estate Raises Novel Issue of Valuation of Celebrity Images

Russ Fox,   California Is #1…For Highest Marginal Tax Rates for S-Corps

 

Jeremy Scott, The Faltering Financial Transaction Tax and the Future of Wall Street (Tax Analysts Blog):

Whether a tax on transactions is better than a tax on activities or a direct levy on banks isn’t really important. What is important is that the financial sector, which bears a disproportionate share of the blame for the deep recession that is still affecting employment and growth, share in the costs of insuring against future bailouts and be forced to restructure itself to better insulate the rest of the economy from excessive risk.

How about we stop bailing them out instead?

 

Peter Reilly,  Occupy Wall Street Anniversary Focuses On Robin Hood Tax.   That’s “a financial transaction tax of 0.5% that will raise hundreds of billions of dollars a year that puts people before profit and helps stabilize the financial markets.”  Yeah, right.

I think Robin Hanson gets the real motivation for such a tax:

So somehow, conveniently, we just wouldn’t find that their unequal wealth evoked as much deeply felt important-social-issue-in-need-of-discussing moral concern in us. Because, I hypothesize, in reality those feelings only arise as a cover to excuse our grabbing, when such grabs seem worth the bother.

 

It’s Tuesday, so it’s Buzz Day at Robert D. Flach’s Place.  This edition includes a link to Jim Maule’s 20-part series on partnership tax.

 

Why I favor pink flamingos.  From KCCI.com:

Police say a rare copper sculpture from the front yard of a Des Moines home last week has been found cut into pieces at an area scrap metal yard.

The Des Moines Register reports that the abstract sculpture by the French artist Dominique Mercy had been valued at nearly $8,000.

Police say it was stolen sometime early Friday. Police found the sculpture at a scrap yard on Monday, but it had already been ruined.

The sculpture weighed between 40 and 50 pounds and was taken from the pedestal it sat on.

It must have been pretty abstract if the scrapyard couldn’t figure out that it was art, instead of scrap.
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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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