Posts Tagged ‘Going Concern’

Tax Roundup, 5/28/15: Tax Court doesn’t let auto dealer undo LIFO termination seven years later. And more!

Thursday, May 28th, 2015 by Joe Kristan

 

No Walnut STYou messed up, but you’re stuck with it. A California auto dealer decided to get off LIFO inventory. “Last-in, First-out” inventory accounting generally reduces current income by capitalizing smaller amounts in inventory over time. If you sell your business, however, it catches up with you — those savings all come into income at once.

The auto dealership operated as an S corporation. The owner decided that because he might be selling soon, he would go off LIFO using the automatic method change procedure then offered by the IRS. That procedure, Rev. Proc. 97-37, allowed him to spread the additional income over four years.

Something went wrong. The taxpayer represented on the Form 3115 filed under the IRS procedure that it would value all inventory under the lower of (FIFO) cost or market, but instead it valued its new cars, used cars and parts three different ways. This went unnoticed and unchallenged for a number of years, starting in 2001. Needless to say, the contemplated sale of the dealership did not occur in the meantime.

At some point, the dealership’s tax preparer concluded the different methods might be a problem after attending a seminar. In 2009, they filed amended returns for 2002 through 2007 that said the LIFO termination was ineffective and that as a result the taxable income for those years was overstated – by about $875,000 for 2002 and 2003 alone.

This led to a strange argument, where the taxpayer argued that their failure to properly follow Rev. Proc. 97-37 meant their LIFO termination was never effective. The IRS said the taxpayer’s inadequate compliance was good enough, and the taxpayer is stuck with the no-longer-desired LIFO termination.

Tax Court Judge Wherry decided that the automatic change failed — siding with the taxpayer — but that didn’t settle the issue:

First, we must decide whether, notwithstanding its failure to secure respondent’s automatic consent in 2001, JHH’s filing of its 2001 through 2007 tax returns in accordance with a new method of accounting was a change in method of accounting. If so, second, we must ascertain whether the amended returns reflect a further change in method of accounting for which respondent’s consent is again required. If it is, then because respondent has not consented to the change, JHH may not revert to the LIFO method simply by filing amended returns.

The court decided that the filing of on-LIFO returns for 2001 through 2007 by the taxpayer — referred to as “JHH” —  effected an accounting method change, even though the automatic change was ineffective (citations omitted):

…”a short-lived deviation from an already established method of accounting need not be viewed as a establishing a new method of accounting.” And in that case, “neither the deviation from, nor the subsequent adherence to, the method of accounting would be a change in method of accounting.” 

As we observed in Huffman: “The question, of course, is what is short-lived.”

Seven years wasn’t short enough, to the court:

Regardless of the upper temporal boundary of a “short-lived deviation”, we think that seven years lies beyond it. JHH’s “consistent treatment of an item involving a question of timing * * * establishes such treatment as a method of accounting.”  Notwithstanding its failure to secure respondent’s automatic consent, JHH changed its method of accounting from LIFO by accounting for its vehicles inventory on the specific identification method on its 2001 through 2007 tax returns.

20121212-1The court said the IRS has two choices when confronted with such an unauthorized method change: force the taxpayer to change to the old method, or accept the unauthorized change, imposing any adjustments necessary to avoid double-counting. The IRS chose to accept the change.

That meant the attempt to go back on LIFO was another method change, again requiring IRS consent. The IRS wasn’t going along, and the taxpayer was stuck with FIFO.

The moral? Many taxpayers filed automatic accounting method changes for 2014 under the “repair reg” rules. This case shows that the IRS can enforce the automatic method change conditions and deny benefits to taxpayers who don’t dot all of their “i”s.

It also shows reminds us that if you are doing something wrong for a number of years, it becomes “right,” in that it becomes an accounting method. It might be an improper method, but you still need IRS consent to change it. Many improper methods can be changed automatically, but sometimes advanced IRS permission is required. If you don’t do it “right,” the IRS holds all the cards.

Cite: Hawse, T.C. Memo. 2015-99; No. 8267-12

 

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Tom VanAntwerp, How Hackers Breached the IRS and Stole $50 Million (Tax Policy Blog):

Nicholas Weaver, a researcher at the University of California, Berkeley, previously tried to access his own transcripts without resorting to personal knowledge. Using the real estate website Zillow and personal information site Spokeo, he was able to successfully find answers to the personal questions that only he should have known.

Cybercriminals who specialize in stealing and processing this personal data en masse were able to answer these identifying questions at scale. Much of the information used by the IRS to verify identity is either publicly available or for sale to underground cybercriminals. Hackers can buy access to stolen consumer or financial data, and then write a program to plug answers into the questions asked by the IRS. Once hackers successfully claim an identity, they can use the information from previous years’ tax returns to file new, fraudulent returns and steal tax refunds.

That’s… not comforting.

 

Our friends the Russians. AP sources: IRS believes identity thieves from Russia (KWWL.com)

TaxProf, GAO, TIGTA Warned Of IRS’s Lax Computer Security For Years Before Hack Of 100,000 Taxpayer Accounts On IRS Website.

William Perez, What Can We Do Differently in Light of the IRS Data Breach. Some suggestions for protecting your personal data.

 

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Robert D. Flach, WHAT A DISRUPTIVE DEVELOPMENT THIS IS!. Robert refers to the late arrival of corrected 1099s. “Clients who would normally send me their “stuff” in early or mid-February – allowing for a much smoother work flow during the season – now must wait until mid-March because of the need to “wait and see” if corrected brokerage reports arrive.”

Russ Fox, Surprise! You Heard About that May 29th Filing Deadline, Right?.

TaxGrrrl, Taxpayers Have More Time To File In 2016. “Three more days!”

Robert Wood, Man Gets Prison For Inventing His Own Church, And It’s Not Scientology. Technically, his prison time isn’t for starting a new church — that’s legal — but for using it to evade taxes.

Peter Reilly, Limits Of Hobby Lobby – Priests For Life Denied Rehearing On Contraception Mandate.

Kay Bell, Italy charges Bulgari luxury jewelry heirs with tax evasion

 

Len Burman, The Trouble with the FairTax (TaxVox). Mr. Burman concentrates on its distribution among income classes, rather than its overall implausibility.

TaxProf, The IRS Scandal, Day 749

Career Corner. Reminder: Robots Are Coming For Your Accounting Jobs (Caleb Newquist, Going Concern).

 

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Tax Roundup, 5/14/15: Snowbird fails to melt Iowa Department of Revenue opposition to gain exclusion. And many links!

Thursday, May 14th, 2015 by Joe Kristan

 

Programming note: No posting tomorrow. See you Monday!

 

Iowa's business tax climate, illustrated

Materially-participating in winter

Snowbird loses “material participation” Iowa capital gain exclusion argument. A taxpayer who claimed the unusual Iowa exclusion on very-long-term capital gains failed to convince the Department of Revenue that he “materially participated” in the activity for the minimum of ten years required to qualify for the exclusion.

Iowa allows taxpayers to exclude certain long-term gains from their Iowa taxable income if they meet two requirements:

– They have held the property for ten years, and

– they “materially participated” in the business sold (or in the business holding real property sold) in the ten years preceding the sale.

The “material participation” rule follows the federal “passive activity” material participation definitions. This usually is based on time spent in the activity. Farmers who materially participate in five of the last eight years before they start drawing Social Security payments are considered to materially participate in the farming activity forever. Other taxpayers who retire after working in a business generally are considered to “materially participate” for five years after retirement.

The Iowa ruling letter gives sketchy facts, but it does note (my emphasis):

In determining material participation, only the 10 calendar years immediately prior to the sale are considered and the determination of the participation is limited to that property which is sold.  Both the Department’s rule and the Internal Revenue Code (IRC) require material participation to be regular, continuous, and substantial.  The fact that you wintered in Florida lends serious doubt as to the regular part of that requirement.  Additionally, your daughter was paid for management services.  Rule 701 IAC 40.38(1)(e)(7) states in part, “Management activities of a taxpayer are not considered for purposes of determining if there was material participation if either of the following applies: any person other than the taxpayer is compensated for management services, or any person provides more hours of management services than the taxpayer.”

The letter goes on to say that it’s up to the taxpayer to prove participation, and the taxpayer failed to provide logs, calendars or other evidence that he worked sufficient hours to meet the material participation tests.

The moral? If you want to claim material participation, and you have stepped away from the business, it’s important to keep good records of your participation. The state may not be inclined to take your word for it.

Cite:  Document Reference: 15201008

Related:

Material Participation Basics

IOWA’S SUPER-LONG TERM CAPITAL GAINS DEDUCTION: IF YOU QUIT, DON’T WAIT TOO LONG TO RETIRE

 

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Kay Bell, Don’t ignore that IRS letter and nine other tax notice tips

Robert Wood, Facts About FATCA, America’s Global Disclosure Law. “If you think money anywhere can escape the IRS, think again.”

Jim Maule, When Do Relationships End for Federal Income Tax Purposes?:

The taxpayer argued that the child remains her foster child because they continued their relationship and hold each other out as parent and child. The Tax Court, however, determined that the taxpayer’s guardianship terminated in 2004 when the child attained majority. At that point, the child no longer could be said to be someone who “is placed” with the taxpayer.

Interesting.

 

Robert D. Flach, NO INCOME IS TAXED ALONE

Andrew Mitchel has a new Flowchart – Taxation of Pension Distributions Under UK – US Income Tax Treaty

 

Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog):

Despite its bad reputation, the property tax has numerous benefits. For local governments, the tax provides a relatively stable source of revenue. Local governments also have a fairly high collection success rate. Many property owners have escrow accounts through their mortgage companies, which collect tax monthly and remit it at the appropriate time. Because of that, and the fact that the property tax is attached to something physical, it is hard to avoid or evade.

It’s hard to beat the property tax for funding local services. When the politically-influential carve themselves out of it with TIFs or special exemptions (e.g., special agricultural assessment rules), those that are left footing the bill are understandably unhappy.

 

Renu Zaretsky, Wishes, Dreams, and Bittersweet Denials Today’s TaxVox headline roundup covers thoughts on the effect of reduced refunds on this spring’s retail sales, the failure of a proposed soda tax in California, and the need for more IRS authority to fix bad EITC claims.

Alan Cole, NFIB Survey: Taxes a Top Problem for Business (Tax Policy Blog).

Carl Smith, IRS Plays Cat and Mouse With Tax Court on Its Constitutional Status (Procedurally Taxing).

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Joseph Thorndike, Even Under a Flat Tax, Learn to Love Those Loopholes, Because They’re Here to Stay (Tax Analysts Blog). “Once you win the battle, you have to keep fighting it over and over again.”

Greg Mankiw, Why I invest in index funds. “For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.”

Hank Stern, Cover Cali sputtering. (InsureBlog). “The Golden State’s health exchange (Covered California) continues to burn through tax-payer dollars at an alarming rate.”

 

TaxProf, The IRS Scandal, Day 735

 

Career Corner. Should CPAs Consider an MBA? (Paul Gillis, Going Concern). Not to fix your car, no.

 

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Tax Roundup, 5/13/15: Des Moines tries to speed through a red light. And: Tax Expert, heal thyself.

Wednesday, May 13th, 2015 by Joe Kristan

DNo Walnut STes Moines plans to sue to keep revenue camera revenue flowing. The Des Moines tax on unwary out-of-town motorists driving past Waveland Golf Course lost another battle yesterday.  The Iowa Department of Transportation turned down the city’s appeal of the Departments order to shut down the city’s freeway speed cameras (Des Moines Register)

As seems to be the practice when it imposes an illegal tax, the City now plans to blow a bunch of money on lawyers rather than obey the law, reports the Register:

Des Moines will appeal the ruling to district court, officials said.

Iowa is the only state in the United States that has permanent speed enforcement cameras on its interstate highways, according to the DOT, which in late 2013 adopted new rules governing the use of the devices on or next to state highways.

A few years ago Des Moines was caught imposing an illegal franchise tax on its residents’ utility bills. Rather than apologizing abjectly and refunding the ill-gotten gains, it appealed all the way to the U.S. Supreme Court, losing every step of the way. In the end it had to repay the tax, the city lawyers, and the taxpayer lawyers for a bunch of pointless litigation. The city still seems to favor that approach.

 

Flickr image by Ano Lobb under Creative Commons license.

Flickr image by Ano Lobb under Creative Commons license.

The cobbler’s children go barefoot. Mr. Hughes, a U.S. Citizen, had a successful career at one of international accounting firm KPMG. Tax Court Judge Wherry tells of an impressive career arc (my emphasis):

During his tenure at KPMG Mr. Hughes rose through the ranks and moved among KPMG’s international offices. Between September 1979 and 1994 he worked in the firm’s international tax group in Houston, Chicago, and Toronto, earning promotions from staff accountant to manager, from manager to senior manager, and finally, in 1986, to partner. During this period his duties shifted from preparing corporate and partnership Federal income tax returns to advising clients, particularly publicly traded corporations. Mr. Hughes also began to specialize in the international aspects of subchapter C of the Code and cross-border transactions, particularly mergers and acquisitions (M&A). He returned to the Chicago office and continued with his transactional work for publicly traded corporations.

A key aspect of M&A work is gain recognition and the basis consequences of transactions.  Transactions like this:

During 1999 KPMG spun off its consulting business to a newly formed corporation, KCI. The firm retained a direct equity stake of approximately 20% of KCI’s outstanding shares, and these shares were specially allocated among KPMG’s partners, including Mr. Hughes (K-1 shares), in January 2000. KPMG caused KCI to issue shares representing the remaining 80% of its equity to KPMG’s partners, including Mr. Hughes, who received 95,467 shares of KCI stock (founders’ shares) on January 31, 2000. Mr. Hughes did not contribute funds to KPMG in connection with KCI’s formation. He took zero bases in the founders’ shares.

So far, so good. Mr. Hughes along the way married a U.K. national and gave shares to his wife. There things begin to get a little foggy. The shares were sold at a time the couple resided in the U.S. , and the taxpayers did not claim full proceeds in income, on the grounds that the recipient spouse received a tax-free step-up in basis when she received the shares in the U.K. After clearing away some fog, the Judge lays out the remaining issues:

The first two are: (1) whether Mr. Hughes transferred ownership of the KCI shares to Mrs. Hughes, and (2) if so, whether Mrs. Hughes took bases greater than zero in the KCI shares. For petitioners to prevail, we must answer both questions affirmatively.

20120511-2When you give shares, or anything else, to a spouse who is a U.S. citizen, Sec. 1041 applies to provide that no gain is recognized and basis carries over. Sec. 1041 doesn’t apply to non-U.S. spouses. The Tax Court explains what happens:

Where, as here, an interspousal property transfer takes the form of a gift, no gain is realized, so regardless of whether section 1041(a) applies, there is no gain to be recognized…

The donee, on the other hand, realizes an economic gain upon receipt of a gift. His or her wealth increases by the value of the gift. But for tax purposes section 102(a) excludes this gain from the donee’s gross income. To preserve the U.S.’ ability to tax any unrecognized gain in property that is the subject of the gift, section 1015(a) sets the donee’s basis in the property equal to the lesser of the donor’s basis (or that of “the last preceding owner by whom it was not acquired by gift”) or if there is unrecognized loss, then for loss purposes, the property’s fair market value.

The taxpayer, who doubtless guided many clients through harrowing cross-border M&A deals unscathed, failed to achieve that on his own return. The court ruled that not only did he owe additional tax, but also a 40% “gross valuation misstatement penalty”:

Given his extensive knowledge of and experience with U.S. tax law, Mr. Hughes should have realized that the conclusion he reached — that the KCI shares’ bases would be stepped up to fair market value, such that the built-in gain in those shares would never be subject to tax in either the United States or the United Kingdom — was too good to be true.

Ouch.

Cite: Hughes, T.C. Memo 2014-89

 

Locust Street, Des Moines

Locust Street, Des Moines

 

Paul Neiffer, “Cost don’t Matter, Except When it Does”

Jason Dinesen, Marriage in the Tax Code, Part 8: 1920s Court Battles

TaxGrrrl, 11 Reasons Why I Never Want To Own A House Again

Calling Baton Rouge. Baton Rouge producer pleads guilty to film tax credit fraud (WAFB.com):

Baton Rouge producer pleads guilty to film tax credit fraud:

“Louisiana’s film tax credit program cannot function as intended when people are constantly defrauding it,” said Louisiana Inspector General Stephen Street. “We are continuing to do everything we can to make sure there are criminal consequences when that happens, and today’s guilty plea is the latest example of that.”

Au contraire, as the Cajuns might say. I think that’s pretty much exactly how these things are intended to function.

Kay Bell, Duck Dynasty’s Louisiana state tax credits could be winged

 

David Brunori, A Flat Income Tax is a Good Thing (Tax Analysts Blog). “Every — and I mean every — tax commission that has ever opined on good tax policy has called for a tax system built on a broad base and low rates.”

 

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Howard Gleckman, Is the GOP’s Enthusiasm for Tax Cuts Going the Way of American Idol? A question answered “no” since at least 1981.

Andy Grewal, The Un-Precedented Tax Court: Part I (Procedurally Taxing) ” Although the court purportedly exercises the judicial power (more on that in a later post), most of its work product is not judge-like.  That is, the Tax Court decides most of its cases as an administrative office would, without setting precedent.”

 

TaxProf, The IRS Scandal, Day 734, featuring Peter Reilly’s IRS Not Grossly Negligent In Disclosure Of Exempt Application. High standards, not.

 

Jeremy Scott, Unexpected Tory Victory Has Major Ramifications for Europe (Tax Analysts Blog). “Defying polls, pollsters, and the specter of a hopelessly fractured Parliament, the Conservatives won a resounding victory in the U.K. election last week.” Just note that I arrived in Scotland with Labour leading the Tories 41-1 in Scotland. By the time I landed in Des Moines, the Tories held the same number of Scottish seats as Labour. No wonder I felt so tired.

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Graphic from BBC

 

News from the Profession. Grant Thornton Not Gonna Let Some Rich Guy Drag Its Good Name Through the Mud and Get Away With It (Caleb Newquist, Going Concern).

 

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Tax Roundup, 5/12/15: IRS updates list of permitted private delivery services for timely-mailed, timely-filed rule.

Tuesday, May 12th, 2015 by Joe Kristan

UPS 2nd-dayWhen it absolutely, positively has to be postmarked today. While we live in an electronic age, there are still tax things that can only be submitted the old-fashioned way, on dead tree byproduct. That means the “mailbox rule” — timely-mailed means timely-filed — still means something to those of us facing filing deadlines.

The traditional way to document timely filing has been to use Certified Mail, Return Receipt Requested, at the good old post office. Sometimes it’s hard to get to the post office before they close — or before they stop bothering to process certified mail for the day — so many taxpayers have come to rely on “designated private delivery services” to document their filings.

The IRS last week updated its list of permitted private delivery options in Notice 2015-38. It is the first update of the list since 2004 and reflects changes in the offerings of the large delivery services. The approved services (effective May 6, 2015) are:

 

FedEx:

1. FedEx First Overnight

2. FedEx Priority Overnight

3. FedEx Standard Overnight

4. FedEx 2 Day

5. FedEx International Next Flight Out

6. FedEx International Priority

7. FedEx International First

8. FedEx International Economy

 

UPS:

1. UPS Next Day Air Early AM

2. UPS Next Day Air

3. UPS Next Day Air Saver

4. UPS 2nd Day Air

5. UPS 2nd Day Air A.M.

6. UPS Worldwide Express Plus

7. UPS Worldwide Express.

This means DHL no longer offers approved services. It’s UPS, FedEx, or the USPS. Also note that the popular “UPS Ground” service is not on the list. If you use a non-designated service, the filing date is the date the IRS receives it.

For the thrifty among us, it’s worth noting that for both UPS and FedEx, 2nd-day service works just as well as overnight delivery. In either case, the key is to make sure your shipping documents show a ship date that beats the deadline. Also, make sure you use the proper street address; the private services can’t deliver to IRS service center post office boxes.

Related: Russ Fox, Not All Private Delivery Services Are Equal

 

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Just time for a few links today:

 

TaxGrrrl, Tax Deadline Looms For Tax Exempt Organizations

Kay Bell, It’s a bird! It’s a plane! It’s a tax collector!

Robert D. Flach has fresh Tuesday Buzz!

 

David Brunori, The Highest Corporate Tax Rate Should Be Zero (Tax Analysts Blog):

Since 2002 I have been saying that states should repeal their corporate income taxes. I speak practically and am not furthering some ideological agenda. I said then that (1) the corporate income tax did not raise a lot of money; (2) without combined reporting and other safeguards, it would never make a lot of money; (3) it consumed an inordinate amount of resources (planning, litigating, auditing); and (4) it does not matter and we should stop pretending that it does.

Repeal of Iowa’s highest-in-the-developed-world income tax is a key part of the Tax Update Quick And Dirty Iowa Tax Reform Plan.

 

IMG_1557Andrew Lundeen, Let’s Eliminate the Tax Code’s Bias Against Saving with Universal Savings Accounts (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 733, discussing a non Tea Party victim of IRS targeting that took it to court: “Last week a panel of three DC Circuit judges heard the IRS appeal. The hearing did not go well for the IRS. Indeed, it was an exercise in righteous humiliation of the Department of Justice.”

 

News from the Profession. Throwing Money at People Still a Solid Retention Strategy (Going Concern)

 

 

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Tax Roundup, 4/2/15: For gift deductions, it’s not just the thought that counts. It’s the paperwork. And: more!

Thursday, April 2nd, 2015 by Joe Kristan

salvation armyToday’s filing season tip: assemble your contribution documents. For some things, spending the money isn’t enough to put a deduction on your return. You also have to get the paperwork right.

Charitable contributions are very much in this category. And it’s not good enough to find some paperwork when the IRS examiner starts asking questions. You need the documents in hand before you file your return.

For cash contributions of $250 or more, you need to have, in the words of IRS:

…a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. 

That’s true whether you give cash or property. That means if you don’t have a nice note from your donee for your $250 gift, you need to bug them until they give you one. It also means that if you claim a deduction for dumping a bunch of household goods at Salvation Army, you need to get a note from them with a list of the items donated and the “goods or services” statement.

You need an appraisal if you donated property (other than publicly-traded securities) to charity for deductions starting at $5,000. We will talk about that tomorrow.

For more information, See Topic 506 – Charitable Contributions at www.irs.gov.

Come back every day through April 15 for another 2015 filing season tip!

 

Russ Fox, Bozo Tax Tip #8: Be Frivolous! “Tax Court judges don’t have the same sense of humor that I do about frivolous arguments.”

 

atombombAmanda Athanasiou at Tax Analysts reports ($link), FATCA: Swatting Flies With Atom Bombs:

Possible inflation of the offshore tax evasion problem and the staggering costs of the Foreign Account Tax Compliance Act are causing even the most ardent advocates of information sharing and ending bank secrecy to question the U.S. approach.

“For the U.S. to ask countries around the world to spend billions in implementation costs to deliver less than $1 billion per year is, economically, complete nonsense,” said Martin Naville, CEO of the Swiss-American Chamber of Commerce. He referred to FATCA as the least considered program in history and “mind boggling” in its unilateralism. “The net value of FATCA for the U.S. is probably negative,” said Naville, who added that tax compliance is a must but that there are better ways to achieve it.

But it goes after Fat Cats! Don’t you get our clever pun? And besides, how can we go after international money launderers without making it a crime to commit personal finance abroad?

Related: Wall Street Journal, Checking the IRS Overseas (Via the TaxProf). “Even the Obama Administration says the law would capture only $870 million a year in additional tax revenue, which is probably overstated given changes in behavior by Americans and their overseas employers.”

 

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William Perez, Do Your Home Improvements Qualify for the Residential Energy Tax Credits?

TaxGrrrl, Taxes From A To Z (2015): T Is For TIN (Taxpayer Identification Number)

Peter ReillyZombies Can’t File Tax Court Petitions. Making Tax Court headquarters the go-to place for a Zombie Apocalypse.

Kay Bell, IRS’ Koskinen says tax agency’s troubles are over. No joke. Joke.

Kristine Tidgren, Don’t Be Fooled! “While many artless tactics remain (if you just wire this money to Nigeria by Friday…), the emerging scams come wrapped in a cloak of credibility. It’s often difficult for even the wary to separate fact from fiction in this new age.”

 

TaxProf, The IRS Scandal, Day 693. “The Department of Justice announced yesterday that it will not pursue contempt of Congress charges against Lois Lerner.”  Of course not. That’s not what a scandal goalie does.

Marc Bellemare, Soda taxes don’t seem to work. (via Tyler Cowen)

Renu Zaretsky, A Penny for Your Sugar: Setting a Price on Sin. (TaxVox). “Are we are all aware of our sugar sins?”  Sins? So food nannyism is really a religion.

Not that the current tax law is exactly a shining light.  Ted Cruz and His Dim-Bulb Tax Policy (Joseph Thorndike, Tax Analysts Blog). “Increasingly, Washington is alive with interesting, conservative tax proposals. But none of them are coming from the junior senator from Texas.”

Meg Wiehe, More Than 20 States Considering Detrimental Tax Proposals (Tax Justice Blog). Pretty close to 50, I’d guess.

 

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Christopher Bergin, April Is More Than Just Tax Season (Tax Analysts Blog). “Koskinen announced that so far, the filing season has gone “swimmingly,” which apparently means the IRS answers the phone less than half the time when taxpayers call for help.” 

Today in advanced tax policy debate: How Tax Brackets are Adjusted Explained in Taylor Swift Gifs (Kyle Pomerleau, Dan Carvajal, Tax Policy Blog)

 

News from the Profession. Deloitte Not Taking Any Chances That Someone Might Burn Their Disneyland to the Ground (Caleb Newquist, Going Concern).

 

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Tax Roundup, 2/16/15: Titanic saved! Well, except for the iceberg thing. Or, the regs are dead, long live the repair regs!

Monday, February 16th, 2015 by Joe Kristan

20140925-2So is the tax season saved? The IRS gave us a big “never mind” Friday afternoon with the issuance of Rev. Proc. 2015-20, letting taxpayers of the hook for countless Forms 3115 under the “repair regs.”

The main points:

“Small” trades or businesses — those with either average 3-year gross receipts under $10 million or assets under $10 million — can adopt the most common methods under the repair regulations without having to file an accounting method change. In fact, the Rev. Proc. requires no special statement or disclosure to adopt the new methods.

The “Small” tests are based on the size of the “trade or business,” not the size of the taxpayer. This means taxpayers who exceed these limits may still qualify if their component “trades or businesses” qualify.

Taxpayers may pay a price for not filing a 3115. If you skip the 3115 for the common method changes, you aren’t allowed to get the most lucrative one – the “late partial disposition election” for real estate and machinery improvements. This is the one Peter Reilly notes as having the potential to generate “biblical” deductions. That means if you want to claim this biblical deductions for any trade or business, you need to file the most common method changes for all of them, regardless of whether they qualify otherwise under Rev. Proc. 2015-20

For the details of the new rules, I have two dedicated posts:

IRS drops “Form 3115″ requirement for smaller taxpayers under tangible property rules, and

List of Rev. Proc. 2015-20 method changes.

No Walnut STPeter Reilly says John Koskinen Saves Tax Season With Form 3115 Relief For Small Business. Well sure.  Except maybe for the entirely out-of-control epidemic of identity theft refund fraud, the continuing confusion and almost certain widespread inicidence of the new individual mandate penalty, the sticker shock that millions will face when they recompute their ACA exchange plan tax credits, and the financial disaster looming for small businesses for the horrible crime of reimbursing employee health insurance. But other than that, yes, it’s all hunky-dory.

Other Coverage: 

Russ Fox, IRS Announces Small Business Relief for Form 3115 (Property Regulation Issue)

Tony Nitti, Repair Regulation Relief: What Does It Really Mean? (Not As Much As You Think):

You don’t have to file a Form 3115. But remember, the three safe harbors that we started with 4,000 words ago — the $5,000/$500 de minimus, small building, and routine maintenance exceptions — are annual elections that apply only on a go forward basis. These still must be attached to the returns.

Paul Neiffer, You Don’t Need to File Those Form 3115s After All

 

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William Perez has Your Helpful Guide to Capital Gains Tax Rates and Losses

Jason Dinesen, Handling Franchise Fees on a Tax Return. He gives an example involving a $5,000 franchise fee: “The $5,000 franchise fee is considered an asset. The $5,000 is deducted over 180 months (15 years). This is true even though the franchise agreement is only 5 years long.”

Annette Nellen, Taxable income of a marijuana business. That’s pretty much the same as gross income.

Jana Luttenegger Weiler, Facebook Allows Users to Designate “Legacy Contact”

Kay Bell, 5 things to check when hiring a tax preparer

Stephen Olsen has his newest Summary Opinions, rounding up recent developments in tax procedure (Procedurally Taxing).

"Boris Johnson -opening bell at NASDAQ-14Sept2009-3c cropped" by Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg: *Boris Johnson -opening bell at NASDAQ-14Sept2009.jpg: Think Londonderivative work: Snowmanradio (talk)derivative work: Off2riorob (talk) - Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c.jpg. Licensed under CC BY 2.0 via Wikimedia Commons - http://commons.wikimedia.org/wiki/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg#mediaviewer/File:Boris_Johnson_-opening_bell_at_NASDAQ-14Sept2009-3c_cropped.jpg

Via Wikipedia.

Robert Wood, Savvy London Mayor Boris Johnson Paid IRS, Is Now Renouncing U.S. Citizenship. Considering what it costs him, it’s not surprising.

TaxGrrrl, Filing As Single Or Married: When ‘It’s Complicated’ Isn’t A Choice On Your Tax Return. As a filing status, that is.

 

TaxProf, The IRS Scandal, Day 648

Renu Zaretsky, No Hitting the Brakes for Tax Breaks… Today’s TaxVox headline roundup covers early movement on extending the “expiring tax provisions.”  Remember, they only got extended through the end of last year. Also links to discussions on Section 529 deductions, tax reform, and the romantic side of spreadsheets.

 

News from the Profession. Nearly Half of Accountants Surveyed Hooked Up With a Colleague (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/7/15: Resolve to monitor your payroll taxes this year. And: searching for gray.

Wednesday, January 7th, 2015 by Joe Kristan

EFTPSIf you’re an employer, here’s a new year’s resolution: “I will verify that my tax payments have been made on time every payroll by logging into EFTPS.”

The customers of Riverside, California payroll service Paycare are wishing they had made and kept that resolution. From The Press Enterprise:

The co-owner of a Riverside-based payroll service, Paycare, Inc., pleaded guilty Monday to failure to pay federal payroll taxes and embezzlement from a federally-funded program, the Internal Revenue Service reported.

Scott Willsea, 56, entered the guilty plea in federal court before U.S. District Judge Manuel L. Real, according to a press release from IRS spokeswoman Linda Lowery.

Willsea allegedly prepared quarterly payroll taxes for 15 different client companies in the 2009 and 2010 tax years, including All Mission Indian Housing Authority and Of One Mind, LLC, and failed to account for or pay the full amount of tax owed to the IRS by each company.

The IRS and the states want those payroll taxes; after all, they issue refunds to the employees based on the reported withholdings, paid or not. If your payroll provider steals your payroll taxes, you have to pay them again. That can ruin a struggling business,and cripple a strong one.

That’s why employers who use a payroll service should still log onto their accounts with the Electronic Federal Tax Payroll System to verify that the payments have been made. If you do payroll taxes in-house, it’s good financial hygiene to do the same thing.

It’s also a reason for extra due diligence if you consider a “professional employer organization” to meet your payroll needs. These outfits pay your payroll taxes under their own account, and you can’t use EFTPS to monitor your payments. That can work out badly.

 

FranceflagAndrew Mitchel, A Reminder for Green Card Holders Living Outside the U.S.:

U.S. lawful permanent residents (“green card holders”) who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. 

Sad and true.

 

Jason Dinesen, Sorry, But There Really Isn’t a “Gray Area” for Most Taxpayers to Push:

NEWSFLASH: for the vast majority of taxpayers, there is no gray area to be pushed.

Your income is whatever your W-2 says it is.

Your deductions are whatever they are. Mortgage, property taxes, charitable, car registration. I suppose there could be a gray area if someone is claiming employee business expenses. But even then, those expenses are not likely to end up being deductible anyway.

No matter what the H & R Block commercials say, there is no magic wand that a tax preparer can wave to make a bigger tax refund appear.

Absolutely true. And if a preparer boasts otherwise, it’s likely that there is a perfectly bad explanation.

 

20141231-1Tim Todd, Late Tax Return Precludes Bankruptcy Discharge. One more reason to file timely.

Russ Fox, Varagiannis Gets 15 Months for Tax Evasion. In Nevada, pimping is OK, but only if you pay your income taxes.

Robert D. Flach has word of ANOTHER UNTRUE TAX EMAIL making the rounds. You mean we can’t trust spam emails? Next thing you’ll tell me that people post things on Facebook that aren’t precisely true.

 

Joseph Thorndike, Planned Disasters Are Here to Stay – and Probably the Only Hope for Tax Reform (Tax Analysts Blog).

All in all, it seems likely that the new GOP majority will need to gin up some potent crises if they hope to get anything done over the next two years.

I would think we have plenty of crises to go around already.

 

Kay Bell, Tax reform is part of new GOP Congress’ agenda

 

David Brunori is full of wisdom today in Want Bad Tax Policy? Here’s a Blueprint (Tax Analysts Bl0g):

Washington Gov. Jay Inslee recently released his proposed budget. It illustrates a lot of what is wrong with tax policy in the states. The governor wants to raise taxes by $1.4 billion over the next two years. Conservatives may think this is terrible — and it is. But the problem is how Inslee wants to raise the new revenue. He wants to impose a 7 percent capital gains tax on a narrow band of Washington residents. Specifically, he wants to impose the tax on the earnings sales of stocks, bonds, and other assets above $25,000 for individuals and $50,000 for those filing jointly. It would affect “only” an estimated 32,000 people who live in Washington.

Keep in mind that this is a state without an income tax. Certainly not a way to encourage their population of tech millionaires to stick around.

Also:

Inslee is also proposing a new excise tax on e-cigarettes and vapor products at 95 percent of the taxable sales price. Yes, 95 percent of the taxable sales price. If the government cared about the health of the poor, it would be subsidizing e-cigarettes.

States hate the idea of losing their tobacco revenue stream.

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Andrew Lundeen, Kansas Would Have Benefited from Dynamic Scoring (Tax Policy Blog):

The tax cuts didn’t pay for themselves. Instead, they left Kansas was left with a hole in the budget. (You can read about what Kansas could have done better here and here.)

This isn’t because individual tax cuts are bad for the economy; they’re just expensive. If the governor had used dynamic scoring, he would have known this.

Iowa has a lot of room to improve its tax system, but they could always screw it up even worse.

 

Howard Gleckman offers Nine Tax Stories to Watch in 2015 (TaxVox), including this:

Tax extenders: They are, after a resurrection of two weeks, once again expired. This is tiresome to even write about, but the best bet is Congress will once again delay action on these 50-plus tax breaks until at least next fall, when the budget wars are likely to come to a head. After that, well, don’t ever bet against another short-term extension.

Yuk.

 

TaxProf, The IRS Scandal, Day 608Peter Reilly is featured.

 

Robert Wood, Taxman Is Funny In UK, Why Not IRS? Must not be in the budget.

Career Corner. Skip the Shout Outs and Other Helpful Farewell Email Advice (Adrienne Gonzalez, Going Concern). “Quitting your job is a part of life in public accounting. Unless you’re one of those sick, carrot-chasing freaks sticking around until partner, that is.”

 

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Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.

 

FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258

 

Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.

 

Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS

 

Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers

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TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.

 

News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)

 

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Tax Roundup, 10/29/14: Iowa Business Tax Climate worsens. And: Ex-IRS man does a Reddit AMA.

Wednesday, October 29th, 2014 by Joe Kristan

41st out of 50. Iowa reclaimed its bottom-10 standing among the states in the 2015 Tax Foundation Business Tax Climate Index released yesterday. Iowa’s standing fell one spot from 2014.

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The Tax Foundation report mentions Iowa’s highest-in-the-nation corporation tax rate, its high individual rates, and its complicated tax system.  Iowa was rated as having the second-worst corporation tax system.

The Tax Foundation explains how the worst states got that way:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Even though Iowa’s complex and dysfunctional income tax is a long-standing embarrassment, it has been a non-issue in the current race for Governor. While he has occasionally said Iowa needs a better tax code, Governor Branstad’s administration has more avid about handing out tax credits to buy ribbon-cuttings than about fixing a tax law that burdens businesses lacking the pull to swing special deals. The tax law as it is seems to suit the Governor’s needs well enough now.

His opponent, Senator Hatch, is a big beneficiary of tax credits in his development business. As he makes a good living out of the tax law, he is an unlikely candidate for tax reform.

The report does hold out hope. North Carolina’s ranking jumped from 44th to 16th as a result of reforms enacted this year. If they can do it, maybe Iowa can too. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would eliminate the corporation tax and drastically reduce individual rates by getting rid of Iowa’s rats nest of politically-convenient deductions and credits, would be a great place to start.

Other coverage:

TaxProf, 2015 Business Tax Climate: Chilliest in Blue States

Russ Fox, The 2015 State Business Tax Climate Index: Not Much Has Changed

 

20120906-1David Brunori, Yes, More Problems with Tax Incentives (Tax Analysts Blog):

People who have studied tax incentives know everything that’s wrong with them: They don’t work (companies choose where to locate for other reasons); they’re unfair (some companies get them, others don’t, and their benefits inure to the haves rather than the have-nots); they’re inefficient (government bureaucrats can’t make decisions better than the market). There are many more.

We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.

Indeed.

 

Iowa saved from giving away $30 million in corporate welfare. Iowa loses $1.4 billion fertilizer plant to Illinois (Des Moines Register) “Previous news reports have said both Iowa and Illinois offered Cronus tax incentives of about $30 million.”

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Robert D. Flach reports on THE SAVER’S CREDIT NUMBERS FOR 2015. This is an underused credit that rewards frugality by lower-income taxpayers.

Jason Dinesen, IRS Oops on E-Services E-mail. “That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.”

Jim Maule, How Not to File a Tax Court Petition “First, stand in line and get that hand-stamped postmark. Second, avoid the need to learn the first lesson by treating the petition as due EIGHTY days after it is mailed. That provides a cushion of time, an allowance for unforeseen circumstances, and contingency insurance.”

Jack Townsend, IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits.

TaxGrrrl, IRS Announces PTIN Renewals, Registration For Voluntary Certification

Peter Reilly, There Is An Accountant Art Expert – Who Knew?

Kay Bell, Desert island bipartisanship, sort of, on new reality TV show. Apparently a reality show left two Senators stranded on a desert island for six days. A good start.

 

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Howard Gleckman, Is There Any Chance Congress Will Pass Business Tax Reform Next Year? (TaxVox). “The chances are not zero. But the odds are very long.”

William McBride, White House Claims U.S. Effective Corporate Tax Rate is Competitive (Tax Policy Blog). Yes, the way the Giants were competitive last night in Kansas City.

 

News from the Profession. Things You Should NOT Say to a Brand New CPA (Leona May, Going Concern).

 

Recently-retired IRS agent Michael Gregory did an “ask me anything” on Reddit. It apparently didn’t impress everyone, if this report is to be believed:

Gregory accused Rep. Darrell Issa (R-CA), who has been leading the investigation of IRS misdoings, of playing politics with IRS funding, which led one Reddit user to offer a “summary” of Gregory’s comments:

From what I’ve seen so far

Lerner did nothing wrong
Darrel Issa is the devil
Throw more money at the IRS
Lack of criminal charges proves everything was just peachy and not politically driven
It’s all congress’ fault
Patriots pay taxes
The flat tax will let evil millionaires kill and eat babies

The IRS couldn’t ask for a better ‘leaker’

Other Reddit users agreed, with one complaining, “[Gregory] might as well have titled this AMA ‘having left the IRS, I am free now to reveal the IRS would be perfect if Congress just paid us more.’ I get that the IRS may be underfunded but this leaker might as well be an IRS lobbyist.”

The IRS seems to have taken the funding issue into its own hands.

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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Tax Roundup, 8/19/14: Will people just quit paying taxes? And how far does your $100 go in Iowa?

Tuesday, August 19th, 2014 by Joe Kristan
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.

Some folks are worried that we’ll all suddenly stop paying taxes, according to a Tax Analysts story today (subscriber link only):

Richard Lavoie of the University of Akron School of Law, who studies tax ethics, says voluntary compliance rates have remained relatively high because paying taxes is an accepted social norm. Withholding plays a large role in compliance, but it does not explain everything, according to Lavoie.

Lavoie said the recent controversies surrounding the IRS, such as accusations that the agency targeted conservative groups for political reasons, and other factors such as worsening income inequality have all eroded the public’s trust in a fair tax system. If those pressures continue, it could cause taxpayer attitudes to change virtually overnight, he said. “At some point that all adds up, and what was a stable norm that we collect 83 or so percent of taxes voluntarily could flip,” he said.

I think Mr. Lavoie is identifying things he doesn’t like, such as “income inequality” and the Tea Parties, and dreaming up dreadful consequences.  For example, “Lavoie argued in his 2012 paper that antitax rhetoric such as that espoused by the Tea Party also has the potential to unbalance the tax system.”

Mr Lavoie talks about “accusations” of IRS malfeasance and “anti-tax rhetoric” as the dangers — not the well-documented abuses themselves, or the IRS stonewalling of investigations into the abuses, or the former Commissioner’s dishonest response to the scandal, or the current Commissioner’s intransigence, or the President’s “joke” about auditing his opponents.  These damage faith in the IRS much more than anything the Tea Party could come up with.

The article finds some people who get closer to identifying the real problem:

National Taxpayer Advocate Nina Olson in recent remarks also warned that the habit of voluntary compliance may be at risk. Like Koskinen, she cited the IRS’s budget situation, saying that if Congress continues to restrict the agency’s budget, it may lead to a downward spiral in voluntary compliance rates.

While the poor customer service and declining enforcement are related to funding, funding still isn’t the real problem.  The IRS budget would be just fine if the IRS were treated as just a revenue agency.  Instead Congress has made the tax system into the Swiss Army Knife of public policy.  The IRS has a portfolio that ranges from industrial policy to education to retirement security to, famously, health care.  The IRS policy roles can dwarf those of agencies with nominal responsibility for policy areas.  Giving so many jobs to the IRS necessarily makes it less capable of doing its real job, tax collection.

Unfortunately, there’s no sign that anybody is going to take away the agency’s many non-revenue tasks.  And a GOP Congress isn’t about to increase funding for the IRS as long as it seems unapologetic about going after groups opposed to the administration.  To the extent IRS intransigence causes a compliance crash, the agency has only itself to blame.

 

Alan Cole, Lyman Stone, Richard Borean, The Real Value of $100 in Each State (Tax Policy Blog):

 

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This map makes Iowa look pretty good.  When you consider average incomes compared to the cost of living, Iowa looks even better.

 

Robert D. Flach’s Tuesday Buzz covers inheritance taxes, tax robots, and the large number of people who seem to rely on lottery winnings for retirement funding.

 

20140728-1TaxGrrrl, Investment Opportunity: Possibly Booby-Trapped Property Remains Unsold.  Ed and Elaine Brown forfeited their property after their armed stand-off with the IRS, but the agency can’t find anybody willing to buy it.  There is some fear of booby traps, but I suspect potential buyers would also be a bit concerned about the reaction of Brown supporters.

Peter Reilly, The OID Fraud And Criminal Gullibility:

I have to say that I have some sympathy with the perspective that a reasonable person seeing the refund checks might want to take another look at the scheme.  If they were incapable of understanding the reasoning behind the scheme and what OID actually is, it could be hard to resist.

The OID scheme is absurd.  I realize some people really are gullible enough to believe in it — but only with a leap of faith that is, literally, criminally stupid.

 

Kay Bell, Pot tourism’s potential tax payoff for states with legal weed.  Iowa’s Governor just says no.

Richard Auxler, Do Sales Tax Holidays Ever Make Sense? (TaxVox).  “In some situations, sales tax holidays can make sense. But generally, they’re bad tax policy unless the alternative is large tax cuts with dubious growth assumptions, and not just for a weekend but for the whole year.”

Erica Brady, Final Whistleblower Regulations Create Administrative Review of Rejected and Denied Claims (Procedurally Taxing)

TaxProf, The IRS Scandal, Day 467

 

News from the Profession: TIL: Ancient Greeks Used Slaves as Auditors So They Could Be Beaten When They Screwed Up (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 7/1/14: Where the IRS budget really goes. And: IRS ends automatic expiration of foreign tax ID numbers.

Tuesday, July 1st, 2014 by Joe Kristan

Dang.  “We do not hold, as the principal dissent alleges, that for-profit corporations and other commercial enterprises can ‘opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.'” — from the majority opinion in yesterday’s Hobby Lobby Supreme Court decision.

Had they allowed a religious exception to the tax law, all the world religions would quickly develop wildly-popular sects with a doctrinal allergy to tax, and, well,  lots of things.

 

Instapundit links to this chart where it looks like IRS spending is out of control

IRS total 20140701 cato

And I think it is — but not in the obvious way.  The Cato Institute, source of the first chart, also provides this:

IRS budget cato 20140701

It shows that almost all of the massive increase in IRS spending is from refundable credits, which are counted as part of IRS spending in the first chart.  But money given away through the Earned Income Tax Credit is not available for auditing taxpayers or buying additional backup tapes.

That, of course, doesn’t excuse the IRS malfeasance in the Tea Party scandal.  It does show that even as Congress has piled more responsibilities on the IRS — especially via Obamacare — it hasn’t provided additional resources.  Now that one party has seen that the IRS has been acting institutionally as its opposition, the agency is unlikely to get significant new resources as long as that party controls one house of Congress — even less so if the GOP takes the Senate, too.

Meanwhile, rather than trying to conciliate and reassure Congressional Republicans, Commissioner Koskinen has been defiant and tone-deaf in his response to the Tea Party and email erasure scandals.  The results for tax administration will not be good.

 

Jeremy Scott, IRS Strategic Plan Highlights Effects of Budget Cuts (Tax Anlaysts Blog):

A crippled tax collector means a damaged tax system. And a damaged tax system only hurts taxpayers and the federal government as a whole. Congress should focus more on punishing those responsible for the various missteps at the IRS and less on gutting the nation’s revenue collection and tax administration system as a whole.

That will require the IRS as a whole to stop acting like a partisan agency.

 

20130419-1IRS does something very sensible.  Credit where credit is due:  the IRS has decided to no longer make non-resident aliens renew their tax ID numbers every five years.   From IR-2014-76:

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

Very welcome, and long overdue.  Obtaining an ITIN is an inconvenient and burdensome process, involving either mailing passports or national ID cards to the IRS — and trusting them to return the documents — or making the often long trip to a U.S. consulate to apply in person.  For foreign residents with long-term U.S. financial interests, the requirement to renew ITINs every five years was a gratuitous and expensive burden.

(Hat tip: Kristy Maitre).

 

BitcoinRobert Wood, What IRS Calls ‘Willful’ May Surprise You–And Mean Penalties, Even Jail.  The lingering IRS threat to impose fines for “willful” FBAR noncompliance for small amounts is unwise; it seems that they are more concerned with missing a few lawbreakers than in bringing foot-fault violators into compliance.

Jack Townsend, Good Article on the Non-Willfulness Certification for Streamlined and Related Issues

TaxGrrrl, IRS Says Bitcoin Not Reportable On FBAR (For Now)   

 

Paul Neiffer, IRS Releases Final Regulations on ACA Small-Business Tax Credit

Robert D. Flach starts out July with a Buzz!

Kay Bell, Supreme Court finds contraceptive tax costs ‘substantially burdensome’ in its ruling for Hobby Lobby stores

 

 

Martin Sullivan, States Should Cede Some Taxing Power to the Feds (Tax Analysts Bl0g):

Given that states’ corporate taxes are here to stay, we should consider making them as painless and low-cost to businesses as possible. One way to do that is for Congress to exercise its authority under the commerce clause of the Constitution and require states to entirely piggyback their corporate taxes on the federal system.

Canada does this, and it does help, but getting rid of state corporate income taxes would help much more.

Liz Emmanuel, Millionaires’ Tax Clears New Jersey Legislature, Faces Likely Veto (Tax Policy Blog)

Renu Zaretsky,The Tax Man Cometh, But Sometimes Collects Less.  The TaxVox headline roundup covers the formal effective date of FATCA (today), Kansas budget woes, and a link to an interactive tool to track state budgets.

 

Russ Fox, IRS Didn’t Tell a Court About the Missing Lerner Emails

TaxProf, The IRS Scandal, Day 418

 

20140508-1I wouldn’t try asking one this question.  What Type of Fruit is a Polar Bear? Petaluma and Interpretive Choice (Andy Grewal, Procedurally Taxing)

Career Corner.  How to Create a CPA Exam Study Schedule That Guarantees Failure (Adrienne Gonzalez, Going Concern)

News from the Profession.  San Diego CPA convicted in elaborate tax evasion scheme:

A federal jury deliberated for 30 minutes before finding Lloyd Irving Taylor, 71, guilty of all 19 counts against him, including aggravated identity theft, making false statements to a financial institution, evading taxes, corruptly impeding the Internal Revenue Service and making false statements on U.S. passport applications.

According to evidence presented at trial, Taylor, who has been in custody since April 2013, stole the identities of deceased minors, used them as aliases and obtained fraudulent passports and other identification papers.

Oh, that’s illegal?

According to witnesses who testified, Taylor failed to report $5 million in income during the span of the fraud and owed the IRS about $1.6 million. During his 42 years of working, Taylor had filed a total of seven tax returns, according to trial testimony.

That’s one every six years.  It took awhile, but the IRS eventually notices something was amiss.

At a bond hearing last year, a judge ordered Taylor detained pending trial based on a number of factors, including his international travel on his false passports, the millions of dollars he controlled through dozens of bank accounts and his numerous false statements to banks.

I suppose the man felt invincible, given how long he apparently went without drawing IRS attention.  Eventually that comes around, though he had quite a 42-year run.  But he did get caught, possibly because of better computer matching and more comprehensive bank reporting.  Don’t count on stringing the IRS out for 42 years yourself.

 

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Tax Roundup 6/24/14: Koskinen’s political gifts. And: in case you didn’t think Hitler was bad already…

Tuesday, June 24th, 2014 by Joe Kristan

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Just the man to build bridges to Republicans who fund the IRS.  From Bryan Preston, IRS Chief Koskinen Has Donated Big to Democrats Over the Years:

According to the Washington Free Beacon, Koskinen has donated about $100,000 to Democrat candidates and committees since his first donation in 1979. His donor recipients include Gary Hart, the Democratic National Committee, the Democratic nominee in each presidential campaign since 1980 (which would even include Walter Mondale, who stood no chance of beating President Ronald Reagan in 1984), the Democratic Congressional Campaign Committee, and Hillary Clinton’s and Barack Obama’s campaigns. He most recently donated $2,500 to Sen. Mark Warner (D-VA) in 2013.

He has given no money to Republicans.

It’s hard to believe how tone-deaf he is to the Tea Party scandal, but this helps explain it.  (Via Instapundit)

 

Jeremy Scott, Lost Lerner E-mails Latest Example of IRS Death Wish (Tax Analysts Blog), my emphasis:

In contrast to their GOP colleagues, Democrats rushed to Koskinen’s defense. That is, perhaps, understandable, even though much of what the IRS has done during this scandal is indefensible. Democrats probably want to defend their president’s pick to head the IRS, and maybe they want to try to change the narrative heading into a potentially disastrous midterm election. But the reality is that the IRS isn’t doing them any favors. There’s only so much incompetence and disingenuous behavior that can be run through a political spin machine. The Democrats’ reflexive defense of Lerner (whose conduct can’t be excused) and their apparent willingness to accept any explanation from Koskinen (who didn’t even try to adequately explain why he hid information on the lost e-mails from February until late June) is baffling. Democrats weakly attempted to paint the GOP as on a witch hunt for a conspiracy, as though the IRS’s mismanagement and appearance of bias weren’t enough to justify congressional inquiry.

The IRS isn’t doing Democratic congresscritters any favors, nor are they doing any for the IRS.  They are just making the IRS look more like a partisan agency, which could cripple tax administration for years.

 

TaxProf, The IRS Scandal, Day 411

 

20140507-1Kay Bell, Save space and trees: Digitize your tax records.  That way if you lose them, the IRS will surely understand.

Russ Fox has some valuable information for online gamblers trying to stay FBAR compliant: Online Gambling Addresses (Updated for 2014)

Robert D. Flach has a Tuesday Buzz for you!

Tony Nitti, How State Taxes Could Play A Role In Carmelo Anthony’s Landing Spot.  Nah, state taxes don’t matter…

Peter Reilly, Step Kids Remain Step Kids After Divorce.  So you may still have a dependent, if not a spouse.

Jack Townsend, Comments by IRS Personnel on New Streamlined and OVDP Procedures.  “The new procedures were designed to ‘encourage folks who are considering quiet disclosures to come in with their hands up’ and avoid taxpayers coming into OVDP with the intention to opt out.”

Annette Nellen, Bitcoin Taxation – Clarity and Mystery, “If you are a tax practitioner and don’t think you need to deal with it, I’d be surprised if none of your clients uses bitcoin.”

William Perez, Backup Withholding.

 

Tyler Dennis, The Clinton’s Estate Tax Planning Demonstrates the Arcane Nature of the Estate Tax (Tax Policy Blog):

When the Clintons created the trust in 2011, their property’s assessed value was $1.8 million.  Without a residential trust, the future appreciation between 2011 and 2021 would count against the gift tax. If the property appreciated at a 4% annual rate and reached $2.6 million by 2021, that’s the amount that would count. With the residential trust, though, the Clintons were able to “lock in” the value of the home at its 2011 value of $1.8 million without actually relinquishing the property to the beneficiary of the trust.

Most supporters of higher taxes assume that they won’t have to pay them.

 

Renu Zaretsky, Disbelief, Devolution, and Death Benefits.  The TaxVox headline roundup talks about the Koskinen appearance before the Issa committee, and about how a surprising proportion of new life insurance is taken out on employees.

Andrew Lundeen, The Average U.S. Worker Pays over $16,000 in Income and Payroll Taxes (Tax Policy Blog):

The tax burden is a combination of income taxes at the federal, state, and local levels as well as the employee and the employer payroll taxes. Of the 31.3 percent tax burden, 15.4 percent is due to income taxes and 15.9 percent is due to payroll taxes, over half of which is paid by the employer on the employee’s behalf. (Workers pay the cost of the employer-side payroll taxes through lower wages.) 

Heck of a deal.

 

Stephanie Hoffer, Kuretski, the Tax Court, and the Administrative Procedure Act (Procedurally Taxing).

 

Another great tax planning idea down the tubes.  Kidnapping Prostitutes Is Not a Good Way to Claim Dependents for Tax Purposes (Greg Kyte, Going Concern)

If you didn’t think he was a bad guy already…  Adolf Hitler: Billionaire tax-dodger?

 

 

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Tax Roundup, 6/23/14: Making no friends edition.

Monday, June 23rd, 2014 by Joe Kristan
Rose Mary Woods checks her e-mail in the Nixon administration.

Rose Mary Woods checks her e-mail in the Nixon administration.

New IRS Commissioner Koskinen isn’t exactly making new friends for the agency in Congress.  His testimony Friday on the implausible rash of hard-drive failures that hit the IRS just as Congress began looking at Tea Party harassment amounted to an insistence that Congress take the IRS at its word, and give it more money.  From Tax Analysts ($link):

     “I don’t think an apology is owed,” Koskinen answered. “Not a single e-mail has been lost since the start of this investigation.”

Regarding the six other IRS employees who have experienced computer failures since the investigation began, Koskinen said technology experts told him that 3 to 5 percent of hard drives can be expected to fail during their warrantied lifetimes. 

It just happened to all the hard drives of the people most involved in beating up on the Tea Party.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen (correctly) points out that the IRS is underfunded for all of the chores (unwisely) given it by Congress.  With Congressional Republicans understandably reluctant to fund an agency it percieves, with justification, as its opposition, Mr. Koskinen ought to be going out of his way to assure them that he is making sure to eliminate political bias in the agency and to fully cooperate with the investigation.  He is doing nothing of the sort, and he may have already irretreivably lost his opportunity to convince GOP appropriators that he can be trusted.

IRS stonewalling isn’t a new thing.  As the many lawsuits filed by Tax Analysts to get the IRS to release its internal documents show, covering up is a way of life in the agency.  Christopher Bergin, in The Coverup Is Usually Worse Than the Crime (Tax Analysts Blog), gives some background:

Maybe it’s just sloppy record-keeping, which would be bad enough. Most of the government’s business is now conducted digitally, and those records need to be properly handled. Or is it worse? Is the IRS deliberately keeping things from the public? Excuse my cynicism, but the IRS’s penchant for secrecy is what led Tax Analysts, using the new Freedom of Information Act, to sue the agency in the 1970s to force it to release private letter rulings. There have been several subsequent lawsuits to pry records that should have been public out of the agency’s hands.

The idea that IRS emails are public records requiring preservation is nothing new, and was well-established at the time Ms. Lerner was busy.  It’s either negligent and outrageous incompetence or criminal destruction of public records, and to say that the IRS owes no apologies is to say that at least one of these unpleasant choices is just fine with him.

 

 

20140623-1TaxProf, The IRS Scandal, Day 410

Megan McArdle, An IRS Conspiracy? Not Likely … Yet.  “To be clear, of course six tragic hard drive failures in a relatively short period of time would make it very hard to believe in a benign explanation.”

Brian Gongol, Backing up your email isn’t hard to do.  “Someone should tell the IRS, which is making excuses for losing administrative emails — excuses that wouldn’t pass muster in an IRS audit

Russ Fox, We Don’t Need No Stinkin’ Backups

 

TaxGrrrl, Raking It In At Summer Yard Sales: Does Uncle Sam Get A Cut?   

Roger McEowen, U.S. Supreme Court Says Inherited IRA’s Not Exempt in Bankruptcy

Jason Dinesen, Bedside Manner is Important for Tax Pros, Too

Peter Reilly, Does Sixth Circuit ABC Decision Give Tenants Incentive To Buy?  “ABC Beverage Corporation is entitled to deduct the premium portion of the price it paid for the real estate as a cost of terminating the lease.”

 

Keith Fogg, D.C. Circuit Upholds the Constitutionality of Presidential Removal Powers of Tax Court Judges (Procedurally Taxing)

I think it’s only half-baked.  Stick a Fork in It: Is the Corporate Income Tax Done? (Joseph Thorndike, Tax Analysts Blog)

It’s not just a problem in Florida.  Seven indicted in Minnesota identity theft ring (TwinCities.com).

 

Wind turbineQuad City Times, Tax credits boost solar power in Iowa

David Henderson, Low-Carbon Alternatives: Solar and Wind Suck (Econlog).  “[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less–nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar.”

 

Roberton Williams, U.S. Taxes Have Changed A Lot Since 1929 (TaxVox)

Steve Wamhoff,  Good and Bad Proposals to Address the Highway Trust Fund Shortfall (Tax Justice Blog).  The TJB has started putting individual author names on their posts, so I’ll do so too.

David Brunori, Tax Policy Is Not the Way to Deal With an Ass (Tax Analsyts Blog).  Not every problem is a tax problem.

Going Concern, IRS Can’t Afford to Upgrade to Windows 7 But Can Afford to Pay Microsoft to Use XP

 

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Tax Roundup, 6/17/14: Hiring witnesses to your tax crimes. And: some folks just aren’t into Valentines Day.

Tuesday, June 17th, 2014 by Joe Kristan

Programming note:  The Tax Update will be on the road the rest of this week, so this is probably the last tax roundup this week.  Unless I change my mind.

 

Via Wikipedia

Via Wikipedia

Sure, the more witnesses to my crime the merrier.  What could go wrong?  Every time I see a case in which an employer gets in trouble for evading payroll taxes by paying employees in cash, I have to wonder how much they thought things through.  Every employee becomes a potential informant, and it’s hard to imaging not having either a disgruntled employee turn you in or a careless one reveal the secret in the wrong place.

The Department of Justice yesterday announced a guilty plea yesterday:

   Sonny Pilcher of Casper, Wyoming, pleaded guilty to tax fraud today in the U.S. District Court for the District of Wyoming, the Justice Department and Internal Revenue Service (IRS) announced.  The sentencing hearing was set for Oct. 28, 2014 before U.S District Judge Alan B. Johnson.

 According to the charging document, Pilcher attempted to obstruct and impede the IRS.  Pilcher did this by claiming a false bad debt expense of $258,000 on his 2008 Form 1040 tax return, and by paying his employees in cash to evade paying employment taxes.  Pilcher faces a statutory maximum sentence of 36 months in prison, a $250,000 fine and may be ordered to pay restitution to the IRS. 

The inclusion of the “bad debt” in the charge is interesting.  You frequently see cases where people claim a non-business bad debt — which is a capital loss — as an ordinary fully-deductible business bad debt.  While you might see a civil penalty in such a case, I have never seen that called a criminal matter.  This presumably was something more serious than an argument over what kind of bad debt it was.

 

20120801-2If you have a full-time job, you probably aren’t a “real estate professional” who can deduct rental losses.  And if that’s so, don’t embarrass yourself in front of a Tax Court judge.  A taxpayer from California made that mistake in a Tax Court case issued yesterday.

Real estate rental losses are normally passive, meaning that they only are deductible to the extent of passive income (there is a special allowance for taxpayers with adjusted gross income under $150,000).  If you are a “real estate professional,” the losses are not automatically passive, but you have to meet two difficult tests to be one:

– You have to work at least 750 hours in the year in a real estate trade or business which you own, and

– your real estate business has to consume more of your time than anything else you do.

If you have a full-time day job, it is nearly impossible to rise to that standard (unless you have a pretty undemanding day job).  That didn’t keep the intrepid Californian who had three rental properties — all single-family houses — from giving it a try, as the Tax Court judge explains (my emphasis):

Even if we assume that petitioner worked 1,760 hours and 1,752 hours in 2009 and 2010, respectively, for Northrop Grumman, we do not accept his activity log coupled with this testimony relating to the rental activities as reliable or credible. A review of the activity log and testimony relating to the rental activities leads us to the conclusion the petitioner did not spend more hours at the real estate activity than at his full-time employment at Northrop Grumman. According to petitioner’s logs he spent almost every spare hour in those years working on the rental properties, including 10 hours on July 4 of each year, 12 and 10 hours on February 14, 2009 and 2010, respectively, and 9 and 10 hours, respectively, on December 25 of each year.

Hey, not everybody is a romantic.  And I’ll keep Christmas in my own way, thank you very much!

Although he managed three rental properties in each year, throughout 2009 alone petitioner’s records reflect that he repaired or worked on the sprinkler systems on any of the given properties on 64 separate occasions, and throughout 2010 he worked on sprinkler systems on 20 separate occasions. In addition, on March 16 and 17, 2009, the records reflect eight hours to prepare and deliver an eviction notice to be filed in court. Coincidentally, on March 15 and 16 of the next year, petitioner’s records reflect that he performed the very same activity for the same exact amount of time. A review of petitioner’s activity logs leads to the conclusion that the logs are inaccurate and exaggerated.

Maybe he just wasn’t very good at sprinkler systems?  Whatever you might think of Tax Court judges, you can be sure that they didn’t get their jobs by being gullible.

Cite: Bogner, T.C. Summ. Op. 2014-53.

 

 

20130114-1Kristy Maitre, Treasury Issues Changes to Circular 230 (Treasury Decision 9668):

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing.  Often the disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.

Treasury said they anticipate that the removal of the requirement will eliminate the use of a Circular 230 disclaimer in e-mail and other writings because Section 10.37 rules on written opinions don’t include the disclosure provisions in the covered opinion rules.

Good news.  I always thought the routine disclaimers were futile and I never used them.  They seemed like the email equivalent of a rabbit’s foot — it might make you feel better, but it still was mere superstition.  Yet I bet that we’ll still be getting emails from our fellow practitioners with the Circular 230 disclaimer years from now.

Russ Fox, Soon: No More Circular 230 Notices

 

Jason Dinesen, Iowa Taxes: Filing Separately and Allocating Dependents.  “In general, a typical married couple can allocate the dependency exemptions in whatever manner they choose.”

William Perez, Child and Dependent Care Tax Credit

Peter Reilly, Paul Reddam’s KPMG Tax Shelter Stunk In More Ways Than One 

TaxGrrrl, World Cup Mania: Figuring Out FIFA, Soccer & Tax.  So there’s a soccer tournament, I hear.

Robert D. Flach starts Tuesday with a Buzz!

 

20140513-1Martin Sullivan, Big Deal by Low-Tax Medtronic Has Even Bigger Implications (Tax Analysts Blog).  “The main benefit to Medtronic after the inversion will be that the billions of profits it generates outside the United States each year can now be deployed to pay dividends and to buy other U.S. companies without paying U.S. tax.”   Sounds like good corporate stewardship to me.

William McBride, Medtronic Embarks on Self-help Tax Reform (Tax Policy Blog).  “The high U.S. corporate tax rate is causing serious economic distortions, chasing away businesses, investment and jobs. The only way to deal with it effectively is to bring the corporate tax rate down to competitive levels, which is the path chosen by virtually every other country.”

 

Renu Zaretsky,  Tax Freedom, Tax Avoidance.  The TaxVox headline roundup covers the Medtronic inversion and internet taxes.

TaxProf, The IRS Scandal, Day 404

Kay Bell, IRS says possible Tea Party emails lost in computer crash. “Conspiracy or clowns?”

 

News from the Profession.  Here’s Your Authoritative Guide for Likening Game of Thrones to Public Accounting (Going Concern)

 

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Tax Roundup, 6/16/14: The dog ate my email edition. And: mail those estimates!

Monday, June 16th, 2014 by Joe Kristan

Mail your second quarter 1040 and 1041 estimates today! (Or pay them online).

 

Rose Mary Woods checks her e-mail in the Nixon administration.

Rose Mary Woods checks her e-mail in the Nixon administration.

If the IRS demanded your emails, and you said the computer “crashed” and ate them, they’d buy that, right?  

The IRS expects us to believe that they so monumentally incompetent at information technology that they can’t produce Lois Lerner’s emails from January 2009 through April 2011.  No backups?  No RAID duplication?  No way to reconstruct them out of the bad hard drive?

Even the best possible interpretation of this — taking the IRS at its word — is a damning indictment of the agency.  It would show that basic network hygiene used by the private sector since the last century still is too advanced for the biggest taxing agency in the world.

But you may be excused for suspecting evil instead of incompetence here.  Congressional investigators have been looking for these emails for months.  Evidence has been building of an interagency effort between the IRS and the Justice Department to shut down, and even prosecute, unfriendly organizations.  Now, suddenly, poof, no more emails.  I don’t buy it.

The IRS statement says “In the course of collecting and producing Ms. Lerner’s additional emails, the IRS determined her hard drive crashed in 2011.”  What email system does the IRS use where the emails live on individual hard drives, rather than an email server?  Do any of you readers use your PC as your email server?  If so, do you never back it up?

And if you buy the IRS story, then tell my why on earth this exceptionally inept agency should be responsible for administering the nation’s health insurance system through the ACA.  Or even the income tax, for that matter.

Sheryl Attkinson has some follow-up questions for the IRS:

Please provide a timeline of the crash and documentation covering when it was first discovered and by whom; when, how and by whom it was learned that materials were lost; the official documentation reporting the crash and federal data loss; documentation reflecting all attempts to recover the materials; and the remediation records documenting the fix. This material should include the names of all officials and technicians involved, as well as all internal communications about the matter.

Please provide all documents and emails that refer to the crash from the time that it happened through the IRS’ disclosure to Congress Friday that it had occurred.

Please provide the documents that show the computer crash and lost data were appropriately reported to the required entities including any contractor servicing the IRS. If the incident was not reported, please explain why.

Please provide a list summarizing what other data was irretrievably lost in the computer crash. If the loss involved any personal data, was the loss disclosed to those impacted? If not, why?

Please provide documentation reflecting any security analyses done to assess the impact of the crash and lost materials. If such analyses were not performed, why not?

Please provide documentation showing the steps taken to recover the material, and the names of all technicians who attempted the recovery.

Please explain why redundancies required for federal systems were either not used or were not effective in restoring the lost materials, and provide documentation showing how this shortfall has been remediated.

Please provide any documents reflecting an investigation into how the crash resulted in the irretrievable loss of federal data and what factors were found to be responsible for the existence of this situation.

For a phony scandal, it’s amazing how real they’re making it look.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Other Coverage:

Russ Fox, The Two Year Gap. “Either the IRS is deliberately lying or they have the worst IT department and policies of any company, organization, or government entity in the world.”

Ron Fournier, Did The IRS Really Lose Lois Lerner’s Emails? Let a Special Prosecutor Find Them.  “The announcement came late Friday, a too-cute-by-half cliche of a PR strategy to mitigate backlash. ‘The IRS told Congress it cannot locate many of Lois Lerner’s emails prior to 2011 because her computer crashed during the summer of that year,’  The Associated Press reported.

Althouse, “Did The IRS Really Lose Lois Lerner’s Emails? Let a Special Prosecutor Find Them.”  “Give us a special prosecutor, because it’s not acceptable to tell us we’re supposed to believe this story of disappearing evidence….”

The Blaze, Veteran IT Professional Gives Six Reasons Why the IRS’ Claim That It ‘Lost’ Two Years of Lois Lerner’s Emails Is ‘Simply Not Feasible’

TaxProf, The IRS Scandal, Day 403, rounding up blog and big-media coverage.

Peter Reilly, Personal Goodwill Avoids Corporate Tax Exposure:

The IRS does not like the concept of “personal goodwill”, but courts have often approved it.  In the Tax Court decision in the case of Bross Trucking, the concept was confirmed again, helping to save the taxpayer from what appears to me to be a real overreach on the part of the IRS. 

An interesting case involving a group of family businesses.

 

Younkers ruins 20140610Robert D. Flach, FINE WHINE: WHY MUST WE PUT UP WITH LATE ARRIVING CORRECTED 1099-DIVs EACH TAX SEASON?

Kay Bell, A Father’s Day gift for single dads: 5 tax breaks

Jack Townsend, 11th Circuit Holds Clear and Convincing Evidence Required for Section 6701 Penalty; Can Reasoning be Extended to FBAR Willful Penalty?

Phil Hodgen, Maximum account value determination for trust beneficiaries for FinCen Form 114.   Useful information ahead of the June 30 FBAR deadline.

Andy Grewal, TEFRA Jurisdiction and Sham Partnerships — Again? (Procedurally Taxing).  A guest post by a University of Iowa law prof.

 

Howard Gleckman, The Strange Fruit of the House’s Bonus Depreciation Bill (TaxVox).  “If I had read the bill more carefully, I would have noticed that while it applied to fruit that grows on trees and vines, it inexplicably excluded fruit that grows on bushes. As a blueberry lover, I am shocked and outraged.”

TaxGrrrl, House Votes To Make Small Business Tax Break Permanent.  “The bill would make the [$500,000] cap retroactive to January 1, 2014.”

Scott Drenkard, Donald Sterling Might Not Be Able to Write Off $2.5 Million Fine as a Business Expense (Tax Policy Blog).

Going Concern, What’s a Day in the Life of a Typical Audit Intern?  You’ve been dying to know!

 

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Tax Roundup, 6/13/14: Extenders advance, estimates loom.

Friday, June 13th, 2014 by Joe Kristan

Remember, second-quarter estimates are due Monday.  If you are a business paying through EFTPS with a payment due Monday, you need to set your payment up today to have it go through on time.

Kay Bell, Second estimated tax payment of 2014 is due June 16

 

S imageS imageS-SidewalkExtenders for Sec. 179, S corporations advance in House.  

The House of Representatives voted yesterday to make permanent $500,000 Section 179 expensing, a five-year built-in gain tax recognition period for S corporations, and the basis adjustment for S corporation contributions of appreciated property.

The President has said he will veto these permanent items, so this is more symbolic.  The Democrats want to keep pretending these are temporary measures to avoid counting their cost in long-term budget computations.   It is interesting, though, that it appears that these items are expected to be extended indefinitely, whether a year at a time or honestly.  They were initially passed in an anti-recession “temporary” measure.  It just shows that there are few things as permanent as a temporary tax break.

Still, until the Senate and the House agree on a bill, none of these provisions are in effect this year, so don’t spend your savings from these provisions just yet.

 

Jason Dinesen, HRAs and the Affordable Care Act:

An insurance agent recently asked me the following question: can a small business that currently offers insurance to its employees drop the insurance and instead form a Health Reimbursement Arrangement (HRA, sometimes called a “Section 105 plan”) to reimburse employees for medical expenses?

The short answer to the question is: NO.

This is an issue that came up a lot in our Farm and Urban Tax Schools last fall.

 

Jordan Yahiro, The Obamacare Cadillac Tax and its Mixed Bag of Consequences (Tax Policy Blog):

Roberton Williams, Good And Bad News About The ACA Penalty Tax (TaxVox). “So what’s the bad news? Of the 7 million people who will owe tax, CBO says more than 40 percent won’t pay.”  And of those who do pay, about 60 percent won’t qualify for subsidies.

billofrightsChristopher Bergin, Taxpayer Bill of Rights or Mission Statement? (Tax Analysts Blog):

Is the taxpayer bill of rights a “Bill of Rights”? I don’t think so. If it were, Congress would need to provide remedies. The best thing I can say is that the IRS’s statement this week may be a good start at articulating principles the IRS should plan to follow.

Exactly.  My clients have already received notices since it was issued that violate this “bill of rights” by assessing penalties without offering explanation or appeal — and which are erroneous.  If we could turn around and make IRS pay us penalties when they erroneously assess us, or otherwise violate our supposed rights, it might mean something.

Keith Fogg, The Taxpayer Rights the IRS Says We Have (Procedurally Taxing).  “I am ready to be pleasantly surprised by the results of IRS TBOR and see little downside in this administrative effort to set out its view of the rights and expectations citizens should have of their tax administrators.”

 

Joseph Thorndike, Congress Should Abolish All Tax Breaks for Higher Education (Tax Analysts Blog):

There are at least 12 tax preferences targeting higher education, Guzman notes. Many are complex in their own right. When combined, however, they became a hopeless nightmare of complexity.

And it’s probable that the colleges just hoover up the subsidies with higher tuitions.

 

Cara Griffith, Tax Analysts Files Suit to Demand Transparency in California (Tax Analysts Blog).  Sometimes the bureaucracy likes the dark best.

 

TaxGrrrl,  Seattle Area Biz Tacks ‘Living Wage Surcharge’ Onto Receipts In Response To $15/Hour Minimum Wage.  Price controls always fail, and minimum wages are price controls.

Anthony Kim, Curtis Dubay, FATCA Hurts Law-Abiding Americans Living Abroad.  Sometimes you have to sow chaos and despair on the innocent break a few eggs to score some cheap political points make an omelet.

Tax Justice Blog, Senate Democrats, Joined by Three Republicans, Come Up Short on Buffett Rule, Student Loan Bill.  Too bad, so sad.

 

20140613-1

Looking north on 6th Street.

The new Cavalcade of Risk is up!  This edition of the venerable roundup of insurance and risk-management posts comes from France, but is assembled from U.S.-made parts — like Hank Stern’s post on a Ballsy Insurance Carrier Trick.  Global warming is involved.

Peter Reilly, Will National Grid Try Dumping Its Electrons Into Boston Harbor? 

 

TaxProf, The IRS Scandal, Day 400

Robert D. Flach starts your weekend early with a Friday Buzz!

 

Going Concern, Listen to a Fake IRS Agent Try Telling Ex-Crazy Eddie CFO He’s About to Be Arrested.  It’s hard to scam a scammer.

 

 

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Tax Roundup, 6/9/14: The great Illinois privatized tax shakedown. And lots more!

Monday, June 9th, 2014 by Joe Kristan

The wedding was beautiful, and great fun.  Introducing the new married couple.

 

Illinois sealGreat moments in state taxation.  Tax Analysts has a disturbing story ($link) about how an Illinois law firm is using the “qui tam” recovery procedures of the state’s False Claims Act against out-of-state taxpayers.  In a “qui tam” proceeding, an outside party, known as a “relator,” can file a lawsuit alleging fraud against the state and then share in the recovery — up to 25%, according to the story.

And they actually may be hurting state tax collection efforts, according to the story:

“The cases have clearly interfered with the administration and enforcement of tax law and may have even ultimately cost the state money, though it’s impossible to quantify how much,” said Mark Dyckman, the Illinois Department of Revenue’s deputy general counsel for sales tax litigation.

The story says the firm involved “is responsible for 99 percent of the qui tam tax litigation in Illinois.”

The story says Illinois may encouraged the suits initially, apparently thinking it could get some easy money out of the deal.  In other states where the firm tried the same thing, state Attorneys General won dismissals of the initial suits, discouraging further efforts.  The firm is also incentivized by the ability of a relator to share in outsized false claim penalties:

Second, while the treble damages for back taxes under false claims acts naturally attract the most attention, [taxpayer attorney Jordan] Goodman said the civil penalty — generally $5,000 to $10,000 per false claim under the federal law and $5,500 to $11,000 per false claim under the Illinois statute — can be just as oppressive, depending on what counts as a false claim. If each monthly sales tax return is a false claim carrying a $10,000 penalty, and 12 returns are filed in one year, that’s a $120,000 penalty. If every failure to collect taxes on shipping and handling is a false claim, and the business averages 10 sales into the state per month for 120 false claims, that’s a $1.2 million penalty for the year, which can turn into $12 million for the 10-year period covered by the false claims act.

Wikipedia image of Tams

Wikipedia image of Tams

The story says that one tactic used by the Illinois law firm is to make out-of-state purchases over the internet, and then to file suits if no sales tax is collected.  As the law covering remote sales remains unclear, it’s difficult to consider these items “false claims.”  That’s especially true in suits in which the taxpayer either was following published guidance or an audit settlement with Illinois.

These cases have apparently been going on since 2002, and the legislature and the state have yet to stop what would appear to be a purely abusive and parasitic practice.  If there ever was a case for universal application of a “sauce for the gander” rule, in which a losing plaintiff had to pay the same amount of penalties asserted against the winning defendant, this would be it.

 

Alligator bait.  The New Orleans Advocate reports on a Film tax credit promoter sentenced to 70 months.  It’s remarkable what high quality entrepreneurs these state tax giveaways attract.

 

20130114-1The ISU Center for Agricultural Law and Education is setting up a “Tax Place” feature on its website.  They seek your input.

Paul Neiffer reminds us that FBAR Filing Deadline is Near

Peter Reilly, CPA Faces Prison For Letting Client Deduct Personal Expenses.  It makes you want to carefully consider the work you want to take on.

Russ Fox, Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts.  More incomprehensible foreign tax enforcement.

 

Cara Griffith, Protecting Confidentiality When Information Is Exchanged Between Tax Authorities  (Tax Analysts Blog)

TaxGrrrl, As NBA Finals Continue, Tax Incentives Lure 76ers Into New Jersey   

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

Kyle Pomerleau, CTJ and U.S. PIRG Mislead with New Report on Corporate Taxes (Tax Policy Blog):  “USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.

Tax Justice Blog, Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors.  Never let the facts get in the way of what is “widely known.”

 

Howard Gleckman, Are Domestic Partnerships A Way For Heterosexual Couples To Avoid The Marriage Tax Penalty?   (TaxVox) This sort of thing makes makes me question the usefulness of “nudge” strategies to use the tax code to encourage behavior.  There are always perverse unintended consequences.

 

News from the Profession.  Public Accounting Firms, Ranked by CEO Hotness (Going Concern).  A tallest midget competition.

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Tax Roundup, 5/30/15: Antidumping edition. And: permanent bonus depreciation advances.

Friday, May 30th, 2014 by Joe Kristan

20121120-2Iowa Public Radio, Can Employers Dump Workers On Health Exchanges? Yes, For A Price:

The latest tweak from the Internal Revenue Service essentially prohibits employers from giving workers tax-free subsidies to buy policies in the online public marketplaces created by the health law. The New York Times first reported the rule.

But the headline on the story, “I.R.S. Bars Employers From Dumping Workers Into Health Exchanges,” overstates the case. Nothing stops employers from canceling company plans and leaving workers to buy individual policies sold through the exchanges — as long as the companies pay the relevant taxes and penalties, said Christopher Condeluci, a Venable lawyer specializing in benefits and taxes. Those would vary according to a company’s size and circumstances.

The ACA requires employers with more than 50 “full-time equivalent” employees to provide “adequate” coverage.  The IRS says that subsidizing employees to use the ACA exchanges doesn’t work.  This, of course, is the same IRS that arbitrarily and unlawfully just waived the requirement in the first place through 2014, and for those with under 100 employees through 2015.  Some laws are more equal than others.

It’s fascinating that the Administration refers to the practice of sending employees to buy policies on the exchanges as “dumping.”  The exchanges are a centerpiece of Obamacare, touted as an important step in making affordable coverage available for everyone.  Suddenly they are a “dump.”  Obamacare fines individuals for not patronizing that very dump.

 

20130422-2Permanent bonus depreciation advances in House.  Tax Analysts reports  ($link, my emphasis)):

Camp said the extenders the committee considered had been renewed enough times that most of them have been or soon will have been extended for at least 10 years, the budget window period. “If we’ve extended something for 10 years, let’s call it what it is, [and] that’s permanent policy,” he said. “We shouldn’t have to raise taxes other places in the economy to keep current tax law.”

The costliest bill the committee approved was H.R. 4718, introduced by Ways and Means Committee member Patrick J. Tiberi, R-Ohio. That bill would permanently extend bonus depreciation, allowing businesses to immediately deduct 50 percent of qualified purchased property. The bill, passed on a 23-11 vote, would expand the definition of qualified property to include owner-occupied retail stores. It would lift restrictions to allow for more unused corporate alternative minimum tax credits, which businesses can claim in lieu of bonus depreciation, to be used for capital investment.

Expiring provisions are a lie.  Any extension of an “expiring” provision should be counted as permenent under budget rules, as they pretty much are.

Related: Dave Camp’s Great Bonus Depreciation Flip-Flop (Howard Gleckman, TaxVox);  Negative GDP Growth Illustrates the Need for Bonus Depreciation (Alan Cole, Tax Policy Blog)

 

Wind turbineOne of these is not like the other.  The Des Moines Register coverage of last night’s Iowa GOP Senate Primary debate has something I never expected to see in a story about a candidate for statewide office:

Whitaker stands out because he doesn’t support the Renewable Fuel Standard, or any tax breaks for any energy source. “If we don’t believe in mandates for health care, we shouldn’t believe in mandates as it relates to energy,” he said.

All other candidates in both parties genuflect to the Renewables Subsidy idol.  In Iowa, ethanol apostasy is rare; more typical is the GOP governor who is all about picking winners and losers, when the winners are an influential local constituency.

Related: Governor’s press conference praises construction of newest great pyramids.

 

The IRS needs to regulate these people to stamp out fraud.  “Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that six former employees of the Internal Revenue Service have pleaded guilty to receiving unemployment benefits while they worked at the agency.” (Department of Justice press release)

Robert D. Flach serves up your Friday Buzz.  “Who would have guessed that I would agree with a group of CPAs?”

TaxProf, The IRS Scandal, Day 386

 

20140516-1

 

 

And now they’ve proved it.  A Minneapolis husband and wife who ran a website called imarriedanidiot.com were convicted last week on federal tax charges.” (TwinCities.com)

Across the road, of course.  Where are all the Chickens?  (Paul Neiffer)

News from the Profession.  This Big 4 Firm Just Ruined Selfies for Everyone (Going Concern)

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Tax Roundup, 5/29/14: Supreme Court ponders crediting city income taxes on state returns. And: more jeers for “voluntary” preparer regulation.

Thursday, May 29th, 2014 by Joe Kristan

supreme courtThe U.S. Supreme Court will decide a case on whether states must allow a credit for taxes paid to municipalities.  The Supreme Court yesterday agreed to hear an appeal of Maryland v. Wynne, where a Maryland court ruled that the state must allow a credit against Maryland taxes for taxes paid in non-Maryland cities by Maryland residents.

State generally allow their residents credits for taxes paid to other states, to the extent the taxes don’t exceed resident-state tax on the same income.  Iowans compute this credit on Form 130.  This keeps residents with out-of-state income from doubling-up their state taxes.  Municipal taxes don’t necessarily get the same treatment.  An Iowa Department of Revenue representative outlined the state’s position:

Iowa Code section 422.8(1), which provides for the out-of-state tax credit, only refers to tax paid to another state or foreign country.  “State” is defined in Iowa Code section 4.1(32) as including the District of Columbia and its territories.  Therefore, based on the Iowa statute, Iowa would take the position that the out-of-state tax credit is not allowed for municipal taxes.

I have no idea how the court will rule on this.  Both Maryland and the Obama administration urged the court to take the case, which might indicate the court is sympathetic to them.  Or it might not.  For its own reasons, the Court may be looking for a vehicle to clarify the law of multistate income tax.

A brief from an organization of municipality attorneys describes the Maryland holding being appealed:

1. First, in order to avoid substantial interference in interstate commerce, the dormant Commerce Clause of the United States Constitution requires every state and subdivision thereof to give its residents a full tax credit for all income taxes paid in another state or subdivision; and

2. Second, the receipt of Subchapter S pass-through income in Maryland is “interstate commerce” which is being substantially affected by Maryland’s tax structure, in violation of the dormant Commerce Clause.

Both of those points seem perfectly reasonable to me.  If the court rules against the taxpayer, states may try to raise money be limiting their credit for taxes paid to other states.

In any case, it would be prudent for Iowans who have paid taxes to non-Iowa municipalities to file protective refund claims for open years.  For taxpayers who extended 2010 returns, that year is still open; otherwise, 2011 is the earliest open year.  The court will hear the case in its term beginning in October.

The TaxProf has a coverage roundup.  TaxGrrrl reports in Supreme Court Agrees To Hear Landmark Case On Whether States May Tax Income Earned In Other States, with a good discussion of the history of the case.

 

20130121-2Another supporter of preparer regulation comes out against “voluntary” certification.  The American Institute of Certified Public Accountants came out against the IRS “voluntary” preparer certification system this week.  Now the National Association of Enrolled Agents, which like the AICPA was a fan of the now-defunct IRS mandatory preparer regulation scheme, has also come out against the “voluntary” program proposed by Commissioner Koskinen.  Robert D. Flach reports:

It appears that the main objection of NAEA to the current IRS proposal is the replacement of the original initial competency test used in the pre-Loving mandatory RTRP program with a “50-question ‘knowledge based comprehension test’ to be created by individual CE providers”.

It goes on to say –

“CE by itself, even in combination with a ‘knowledge based comprehension test’, fails to provide a taxpayer with any assurance that the person preparing his or her return is even minimally competent to do so.”

I think this is just another way for the IRS to help its friends at the national tax prep franchises to get something to put on their windows without helping taxpayers.  Considering its limited financial resources, it is absurd for the IRS to be taking on a new program.  Taxpayers can already choose CPAs or Enrolled Agents if they want “certified” preparers, and nothing stops unenrolled preparers from setting up their own system.  You have to have a lot of unwarranted faith in IRS goodwill to believe that the “voluntary” program won’t really be mandatory, as the IRS gives little perks to the “volunteers” and little hassles to everyone else.

 

 

Kay Bell, Actual auto expenses or standard mileage rate? Which business deduction method will cut your taxes more?

William Perez, IRS.gov’s Direct Pay.  “Unlike the Electronic Federal Tax Payment System (EFTPS), people using Direct Pay do not need to register to use the service.”

 

20140328-1Russ Fox, Punt Blocked; National Audit Defense Network Heading to ClubFed.

Cara Griffith, How Much Knowledge Is in an Audit Manual? (Tax Analysts Blog).  “Yet while the IRS and several states make their audit manuals available online, other states, including Louisiana, do not. Taxpayers should not have to make a public records request to obtain manuals that will provide guidance on how a state conducts an audit. ”

Leslie Book, TEFRA Outside Basis and Tax Court Jurisdiction (Procedurally Taxing). “Periodically, like a kid forced to eat spinach, I will tackle TEFRA developments.”

Peter Reilly, Z Street Suit On IRS Israel Targeting Can Move Forward. “This lawsuit much like Teapartygate confirms me in my view, that the evaluation of whether an organizations purposes should allow it exempt status is not something that the IRS should be doing.”

Jack Townsend, Zwerner Jury Verdict — FBAR Willfulness for 3 Years

TaxProf, The IRS Scandal, Day 385

 

guillotineAndrew Lundeen, France’s 75 Percent Tax Rate Offers a Lesson in Revenue Estimating (Tax Policy Blog):

Since elected, French President Francois Hollande has raised the income tax, corporate tax and VAT. The government forecasted that these tax increases would lead to an increase in revenue of 30 billion euros.

As reported by the BBC, those estimates were off by about half:

“The French government faces a 14bn-euro black hole in its public finances after overestimating tax income for the last financial year.”

You can’t expect people just to stand still for something like that.

 

Adele Morris, Three Options for Better Climate Policy (TaxVox) Carbon Taxes, State carbon taxes, or no carbon tax.

 

Going Concern, IRS Throws Hissy Fit About Not Being Able to Regulate Preparers, Gives Up On Everything.

 

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