Posts Tagged ‘greg mankiw’

Tax Roundup, 6/16/15: Extreme tax preparer business development tactic fails. And: Florida man, meet Tax Whiz.

Tuesday, June 16th, 2015 by Joe Kristan


lizard20140826Sadly, there’s plenty of tax work to go around. But not enough for Maria Colvard of Chambersburg, Pennsylvania, it seems. The operator of Tax Max LLC, a tax prep service, Ms. Chambers appears to taken competition to a new level. From a Department of Justice press release (my emphasis):

According to U.S. Attorney Peter Smith, between February and May 2013, Colvard convinced an employee at Tax Max LLC, a tax preparation service owned by Colvard in Chambersburg and Hanover, Pennsylvania, to claim to be a criminal investigator with the Internal Revenue Service to shut down the rival business, known as Christina’s Tax Service, also located in Chambersburg.  The employee, Merarys Paulino, then claimed to be an IRS agent and demanded money from Christina’s Tax Service as well as its client list. Paulino previously entered a guilty plea to impersonating an IRS agent and cooperated in the prosecution of Colvard.

It’s foolproof! What could go wrong? Well, other than that a tax professional would be the least likely person in the world to believe an IRS criminal investigator would just show up without a written notice and demand cash and a client list on the spot. In Pennsylvania, as in Iowa, law enforcement folks don’t spend their days chasing geniuses.

Ms. Colvard was convicted of two counts of extortion and one count of “aiding the impersonation of an employee of the United States” after a four-day trial.


Jason Dinesen, Choosing a Business Entity: Basic Terminology

Robert Wood, FedEx Settles Independent Contractor Mislabeling Case For $228 Million

Hank Stern, On “Losing” Subsidies. “The fact of the matter is, should SCOTUS insist that the law be applied as it was written, then folks in states using the site were never eligible to receive subsidies in the first place.”

Peter Reilly, Exchange Facilitator Does Not Beat Missouri Use Tax On Learjet. “What they learned was that a transaction that qualifies for tax deferral under federal tax principles does not necessarily avoid sales and use tax.”

Kathryn Sedo, Counsel for Ibrahim Explain Last Week’s Important Circuit Court Opinion on Filing Status (Procedurally Taxing). “The question before the 8th Circuit in Isaak Ibrahim v. Commissioner was whether the term ‘separate return’ as used in section 6013(b) is defined as return with the filing status ‘married, filing separately’ or a tax return with any other filing status other than ‘married, filing jointly.'”

Kay Bell, Houston, we could have more flood problems. “OK, how did I wake up today in my Austin house but in South Florida?”


2008 flood 1


Greg Mankiw, considering arguments made by Export-Import Bank supporters, says:

Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don’t need to import other nations’ bad policies.

Substitute “states” for “countries” and “nations” and it is an accurate summary of the foolishness of the state tax credit “incentive” game played by Iowa economic development officials and politicians.

Jeremy Scott, Can the United States Kill BEPS? (Tax Analysts Blog). ” The United States will probably never go along with BEPS the way the rest of the world has gone along with FATCA, but in the end that probably won’t matter. The EU, India, and China will be perfectly happy to find a way to preserve their tax base without U.S. help.”  “BEPS,” by the way, stands for “Base erosion and profit shifting,” the predictable and natural response of taxpayers to pocket-picking tax authorities.

Kayla Kitson, Four Reasons to Expand and Reform the Earned Income Tax Credit (Tax Justice Blog). I don’t buy it. With 25% of its cost going to ineligible people — and no small part of that to thieves — it is at best very inefficient. The post doesn’t even mention the poverty trap created by the way the credit phases out as incomes rise.

TaxProf, The IRS Scandal, Day 768. “The court filing, provided to The Daily Caller, claims the IRS received new Lerner emails from the Treasury Department’s inspector general (TIGTA) but can’t fork over the emails to Judicial Watch, a nonprofit group suing to get the emails. Why? Because the IRS is busy making sure that none of the emails are duplicates  – you know, so as not to waste anyone’s time.”

Renu Zaretsky, Raising or Cutting Taxes: Go Big or Go Home. Today’s TaxVox headline roundup covers presidential candidate tax pledges, as well as tax developments in Kansas, Texas, Florida, New Mexico and Massachusetts.




Florida man meets Tax Whiz. A Florida man filed a tax return prepared by the “Tax Whiz” claiming the American Opportunity Tax Credit. The result was a $1,853 overpayment that the IRS applied to outstanding child support liabilities. The IRS later determined that he didn’t qualify for the credit because he had no qualifying educational expenses. The IRS wanted its $1,843 back.

The man argued that Tax Whiz claimed the credit unbeknownst to him, so he shouldn’t have to pay it back. The Tax Court wasn’t buying:

By his own admission petitioner did not review the return in question. Reliance on a tax return preparer cannot absolve a taxpayer from the responsibility to file an accurate return. See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987) (“As a general rule, the duty of filing accurate returns cannot be avoided by placing responsibility on a tax return preparer.”). Even if Tax Whiz may have claimed the credit without his knowledge, petitioner is still responsible for the resulting deficiency.

The moral? Not a surprising result.  You are responsible for what goes on your return, no matter how much, or how little, you pay your preparer. More surprising is that the taxpayer’s first and middle name is listed as “William Billy.”  I’ve never seen that one.

Cite: Devy, T.C. Memo 2015-110.




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


Material Participation Basics





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.




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).


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.



Tax Roundup, 4/22/15: Mileage logs don’t have to be perfect, but they have to be there. And: taxes and the rich guy.

Wednesday, April 22nd, 2015 by Joe Kristan

20150422-1Keep that logbook. It’s not always enough to incur a deductible expense to earn a documentation. For travel, meals and entertainment, you have to be able to prove it under strict standards. If you fail to properly document the amount, time and place, and business purpose of travel expense, your deduction is lost.

A Minnesota man whose job managing construction projects required substantial travel claimed employee business expense deductions. The IRS disallowed the deductions, and the Tax Court got involved. Judge Marvel explains (my emphasis, citations omitted):

Substantiation by adequate records requires the taxpayer to maintain an account book, a diary, a log, a statement of expense, trip sheets, or a similar record prepared contemporaneously with the use or expenditure and documentary evidence (e.g., receipts or bills) of certain expenditures.  A log that is kept on a weekly basis is considered contemporaneous for this purpose. 

The taxpayer, A Mr. Ressen, recorded business miles and kept a calendar showing his trips, and that carried the day:

With respect to the portion of the disallowed deduction attributable to their claimed use of the 2007 and 2008 Chevys, petitioners introduced copies of the calendar in which Mr. Ressen contemporaneously recorded his weekly mileage as an employee of ICS as well as some information regarding where he was working at various times. Petitioners also introduced copies of the pages in the logbook on which he contemporaneously recorded the beginning and ending miles for the 2007 and 2008 Chevys. Considering the facts and circumstances of Mr. Ressen’s employment arrangement with ICS and his business use of the 2007 and 2008 Chevys we conclude that the calendar is a credible, adequate record of the amount of the business use of the property, the dates of such use, and the business purpose of such use, and the logbook pages are an adequate record of the total use of the property.

It’s odd that the IRS disallowed the deduction and then litigated it. They apparently were trying to hold the taxpayer to some platonic ideal of a log book. The Tax Court was willing to combine the log book with the calendar to determine the time, place and business purpose of the trips — a sensible result.

The moral: Keep that mileage log, or use one of the smart-phone apps created for this purpose, and document your business purpose. Keep that calendar, too. It made the difference for our Minnesotan.

Cite: Ressen, T.C. Summ. Op. 2015-32.




William Perez, Taxes When Hiring Household Help.

Robert Wood, What To Do When IRS Agents Call On You. “Talking to the IRS without a representative is often a mistake.”

Russ Fox, Of Deadlines and Taxes:

This definitely wasn’t the worst Tax Season I’ve gone through, but it was far from the best. For taxpayers, this likely was one of the worst. Unfortunately, I don’t see any improvements on the horizon. The light I see is the oncoming train not the end of the tunnel.



TaxProf, The IRS Scandal, Day 713


Greg Mankiw, Why I favor estate tax repeal. “The estate tax unfairly punishes frugality, undermines economic growth, reduces real wages, and raises little, if any, federal revenue. There are no principles of good tax policy that support this tax…”


Martin Sullivan, As Governor, Jeb Bush Catered Tax Cuts to the Wealthy (Tax Analysts Blog). The formulation “tax cuts for the wealthy” should disappear. The loot and pillage community can call almost any tax cut a “tax cut for the wealthy” simply because the wealthy pay almost all the taxes.


Chart by Tax Foundation



When you consider government benefits, the rich guy pretty much covers the whole thing:

distribution tax spending all taxes

Chart by the Tax Foundation


For your penance, say three “Our Commissioners” and three “Hail Lois.” Santa Clara Co. Priest Indicted on Bank Fraud, Tax Evasion.




Tax Roundup, 11/13/14: Ottumwa Day! And: Elections and State Tax Policy.

Thursday, November 13th, 2014 by Joe Kristan

Ottumwa, Iowa: An old Southeast Iowa industrial and railroad town, home of fictional Corporal Radar O’Reilly, and today host of Day 1 of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m helping out on the Day 1 panel for this year’s schools, along with CALT Director Roger McEowen and former IRS Stakeholder Liaison Kristy Maitre.  We’ll spend the morning on the ACA and it’s compliance requirements and penalties. We’ll spend the rest of the day trying to distract everyone.

It’s cozy and warm in our conference room at Indian Hills Community College.  That’s good, as it’s chilly outside.


We’re in Mason City on Monday, and in Denison and Ames next month. There’s still time to register! And if you can’t make it to Denison, Mason City or Ames, the December 15-16 Ames session will be webcast.


David Brunori, What Do the Recent Elections Mean for State Tax Policy? (Tax Analysts Blog):

Taxes mattered more in Kansas than anywhere else. Gov. Sam Brownback (R) won there comfortably. The tax cuts of Republican Govs. Rick Snyder in Michigan, Paul LePage in Maine, and Scott Walker in Wisconsin were the focus of opponents’ campaigns, and those governors survived as well. The GOP challengers in Illinois, Maryland, and Massachusetts promised to either cut taxes or never raise them. They won. The message was clear: Tax cuts sell politically. One need not be Nate Silver to predict that state political leaders seeking to reduce tax burdens will be emboldened by this election.

I don’t think that’s so true here in Iowa. Now safely re-elected to a sixth term, our GOP governor is making noises about increasing the gasoline tax. But maybe he will go bold and convince a split legislature to go big on income tax reform — maybe starting with The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.


Greg Mankiw, Tax Fact of the Day::


The big difference is the reliance on other countries on a Value Added Tax, which shows up in the Consumption Taxes bar.


Howard Gleckman, Now is the Perfect Time to Raise Gas Taxes (TaxVox).  “Gas prices are at their lowest levels in years and dropping. Consumers would barely notice if they had to pay a bit more now at the pump.”


Andrew Lundeen, Kyle Pomerleau, Economic Growth Has Slowed Since 2000 (Tax Policy Blog). “Since 2000, GDP growth in the U.S. has been persistently low, averaging about 2 percent. This is much lower than the economic growth we saw in the past.”

20141113-3Kay Bell, Tax extenders outlook cloudy in the 2014 lame duck session:

Will there still be some insistence by the GOP on longer-term approaches to expired tax laws in this Congressional session’s waning hours?

Just what is the level of Democratic support of permanence vs. temporary laws?

And just how much pressure will lobbyists be able to exert to gain support of their favorite provisions, especially since some of the members making decisions now will not be around next year?

We simply don’t know yet.

There’s a lot of incentive for congresscritters to pass temporary provisions. They get to pretend they are less expensive than they really are, and they force lobbyists to show up and genuflect every year or two.

Russ Fox, London Calling: The Real Winners of the 2014 World Series of Poker. The Royal Exchequer trumps a royal flush.

TaxGrrrl, Internet Tax Ban Ending Soon: Speaker Boehner Hopes To Keep Internet Tax Free

Keith Fogg, Reinhart Part II – Extending the Statute of Limitations on Collection by Virtue of Being Out of Country (Procedurally Taxing)

20140729-1Paul Neiffer, Final FUTA Tax Rates by State


A new Cavalcade of Risk is up at Terms and Conditions. This edition of the definitive roundup of insurance and risk-management posts covers a lot of ground, including Hank Stern’s Rubber, Road and Lyft: Insurance Crisis? on ride sharing and insurance.

TaxProf, The IRS Scandal, Day 553


The Critical Question. Just What the Hell is Goodwill Anyway? (Adrienne Gonzalez, Going  Concern).




Tax Roundup, 4/21/14: Clearing the wreckage edition. And: Tax Court penalty abuse.

Monday, April 21st, 2014 by Joe Kristan

20140330-2So I took a five-day weekend.  I needed the sleep, and to see something besides the office, my bed, and my commuting route.  So now to clear the debris of the last few weeks from my desk, and my email inbox.

And I come back to see perhaps the dumbest thing ever to come out of the Tax Court.  Janet Novack reports:

“Taxpayers rely on IRS guidance at their own peril,” Judge Joseph W. Nega wrote in an order entered  on April 15th —an order denying a motion that he reconsider his earlier decision to penalize tax lawyer Alvan L. Bobrow for making an IRA rollover move that IRS Publication 590,  Individual Retirement Arrangements (IRAs), says is allowed.

Which is more astounding: he IRS decision to seek penalties against a taxpayer for following IRS guidance, or the Tax Court going along?  A great deal of what we do as professionals, and what taxpayers do, is in reliance on IRS guidance, because often that’s all there is to go on.  If you can get hit with a penalty for following IRS guidance if the IRS changes its mind, we’re all avoiding disaster only as long as the IRS is in a good mood.

This unwittingly goes to the heart of the IRS non-enforcement of the Obamacare employer mandate. The statute provides that the penalty tax on those with 50 or more employees starts this year if they fail to provide specified health insurance.  Nothing in the statute provides otherwise.  The only thing standing between all these employers and massive penalties is IRS guidance — y0u know, the guidance that Judge Nega just said taxpayers rely on “at their own peril.”

The whole Tax Court should reconsider this order.  If they decide that something that stupid really is the law, Congress should reverse with legislation providing that taxpayers relying on written IRS guidance should never be penalized for it.


20130419-1Megan McArdle kindly linked to me last week in You Can’t Fight the IRS — specifically, to Tax season tip: when you owe and can’t pay.  She added some thoughtful commentary, including:

 There are basically three types of tax trouble. There is “I was underwithheld at work because my salary changed over the course of the year but didn’t realize it” or “I’m a freelancer or small-business owner, and I forgot to put away enough money for taxes, or I incorrectly estimated what my tax bill would be.” Then there is “I am a small-business owner or otherwise self-employed, and I am on the brink of financial collapse; the money with which I hoped to pay the taxes had to go to keep my creditors (barely) at bay.” And, of course, though I hope this is not you, there is “I have been cheating on my taxes.”

She notes that different troubles require different solutions.

Thanks to her link, and to one from Instapundit to the same post, last week was the busiest around here all year.  My thanks to them, and to everyone who takes the time to link here.  You rock my little world.  If you ever want to link to just a piece of a Tax Roundup, you can do so if it starts in blue bold letters, like the words “Megan McArdle” at the beginning of this segment.


While I was too busy to do Tax Roundups at the end of tax season, I missed some excellent Bozo Tax Tips from Russ Fox, including Bozo Tax Tip #1: The Eternal Hobby Loss


Greg Mankiw,Transitory Income and the One Percent:

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution….  

-Quoting a NY Times article by Mark Rank

Occupy… yourselves!


Jason Dinesen, Another Tax Season Down — 2014 Tax Season Recap 

Paul Neiffer, Another Tax Season Bites the Dust.  “This year was actually much easier on myself and I think most of my compatriots since we did not have Congress passing a tax bill on the last day of the year to mess up the IRS computers (although the computers have other issues to deal with).”

TaxGrrrl, IRS Reports Tax Filing Numbers As Expected, Issues Statement On Refund Delays 

Robert D. Flach, THAT WAS THE TAX SEASON THAT WAS.  “43 down – 7 to go!”  I hope to stop before 43, myself.  Robert is tougher than I am.

In case you missed it, you can see my April 15 interview with local TV station KCCI here.



Locust Street, Des Moines

Locust Street, Des Moines

Tony Nitti, Tax Geek Tuesday: Tax Planning For Mergers And Acquisitions, Part I.  “…if we spend the time necessary to uncover and understand our clients’ non-tax and tax goals, we will typically find that choosing an ideal transaction structure is largely a process of elimination, and when the dust settles, there will often be only one option that works.”

Peter Reilly, Sawyer Taxi Heirs Midcoast Fortrend Deal – Could Have Been Worse.  It involves a C corporation attempting to have its cake while eating it too, by paying stock-deal tax on an asset sale.

Christopher Bergin, Tax Day – It Just Isn’t Fair (Tax Analysts Blog)  “I suppose the only good news is that in the last several days, there have been dozens of items in the news reporting that the IRS is doing fewer audits.”

Tax Justice Blog, Partners in Crime? New GAO Report Shows that Large Corporate Partnerships Can Operate Without Fear of Audits

Kyle Pomerleau, Why Many People are Wrong about Executive Pay and the Corporate Tax Code.  “A neutral tax code that properly defines business income would place no restriction on how much a business can deduct in compensation.”

Howard Gleckman, If Congress Lets Firms Expense Investments, It Should Take Away Their Interest Deduction.  Fine, if you let them deduct dividends.


Going Concern, Utah Man Discovers Liberty Tax Not as Effective as Maury Povich in Determining Paternity.




Tax Roundup, 3/31/14: A little fire won’t stop us!

Monday, March 31st, 2014 by Joe Kristan

There was a little disruption around the Tax Update neighborhood over the weekend.  The 115 year-old Younkers Building, kitty-corner from our quarters in The Financial Center, burned over the weekend.  It was being renovated into apartments and shops when it caught fire early Saturday morning.  Here’s how it looked yesterday from one of our conference rooms:



While our neighbors in Hub Tower and the EMC Building are closed today, Roth & Company is open for business.  If you need to visit us, you have to enter on the Mulberry Street side; the Walnut side is closed by police order.  You can still reach the parking garage, but you have to come from Mulberry and turn north onto the little stub of Seventh Street left open to allow garage access (it’s normally one-way, Southbound, but it’s one-way northbound until they can re-open Seventh Street, and that doesn’t seem likely for awhile).  We are cut off from the skywalk system, for now. (Update, 8:54: we have Skywalks!  Both to Hub Tower and the EMC building).

Other Tax Update coverage:

Sunday Morning Skywalks.

Goodbye, Younkers Building.



And some sound advice from Brian Gongol: “Make sure you have an offsite, offline backup of your critical work and personal files. You never know when a catastrophe will strike.”

Roger McEowen, U.S. Tax Court Deals Blow to IRS on Application of Passive Loss Rules to Trusts: “The case represents a complete rejection of the IRS position that trust aren’t “individuals” for passive loss purposes and the notion that only the trustee acting in the capacity of trustee can satisfy the test.”

William Perez, April 1st Deadline to Take Required Minimum Distributions for 2013:

Individuals who reached age 70 and a half years old in 2013 are required to begin withdrawing funds from their tax-deferred retirement plans no later than April 1, 2014. This applies to traditional individual retirement accounts (IRAs) and employer-based retirement accounts, such as a section 401(k), 403(b) or 457 plan.

You can get hit with a 50% excise tax on the required distribution amount if you fail to take it.

Jana Luttenegger, FICA Taxes on Severance Payments (Davis Brown Tax Law Blog)

Kay Bell, Selfies used as tax claim documentation, audit defense.  Not a bad idea.


20131206-1Arden Dale, A New Reason to Hoard Assets (WSJ):

In particular, taxpayers are taking advantage of a tax break known as the “step-up in basis,” in which the cost basis of a house, stock or other asset is determined by its current market price rather than when the deceased person acquired it.

Heirs get the step-up when they inherit the asset, and it can save them a lot in capital-gains taxes when they sell.

Gift recipients get only the donor’s basis, while the basis of inherited property is the value at the date of death.  Now that couples can die with over $10 million without incurring estate tax, it often makes tax sense to hold low-basis assets until death so heirs can dispose of them without incurring capital gains taxes.


Greg Mankiw,  The Growth of Pass-Through Entities:

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don’t know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

This is clearly true.  While I can’t quantify the effect on inequality statistics, it has to make a difference, now that a majority of business income is reported on 1040s:

Source: The Tax Foundation

Source: The Tax Foundation

In 1980, corporate returns reported about 2/3 of all business income; by 2010, the Form 1120-share of business income was down to about 43%.


Lyman Stone, Maryland Threatens to Confiscate “House of Cards” Set (Tax Policy Blog).  “High taxes and big incentives don’t seem to be working very well in Maryland right now.”  They should follow Iowa’s example and limit filmmaker subsidies to three hots and a cot.

BitcoinMegan McArdle, The IRS Takes a Bite Out of Bitcoin

Annette Nellen, Guidance on taxation of virtual currency

TaxProf, The IRS Scandal, Day 326

Tax Justice Blog, Grover Norquist cares a lot about Tennessee taxes. You should too.

Renu Zaretsky, Tax Reform, Tax Expenditures, and Kevin Spacey (TaxVox).  A roundup of tax headlines.

Jack Townsend, Tenth Circuit Opinion on Mens Rea for Tax Obstruction – What Does Unlawful Mean?


The Critical Question.  Am I a Hypocrite on Preparer Regulation?  (Jason Dinesen): 

I oppose regulation of tax preparers. But yet, I will tout my own licensing at the expense of an unlicensed preparer if the situation presents itself.

But nobody makes Jason do this, and if somebody wants to pay less for an unlicensed preparer, Jason isn’t preventing that.  If he replaced “but yet, I will” with “I prefer to,” it would be correct.


News from the Profession.  Per Criminal, PwC is Preferred Audit Firm for Criminals (Going Concern)



Tax Roundup, 3/27/14: NASCAR subsidy heads to Governor. And lots more!

Thursday, March 27th, 2014 by Joe Kristan

20120906-1Don’t worry, our subsidies are carefully crafted to only help Iowans, and only for a limited time.  Until it’s slightly inconvenient.

When they built the big new racetrack in Newton, they had a unique deal: the track got to keep the sales tax it collected.  The deal was crafted to require the track be partly owned by Iowans, and that it would expire at the end of 2015.

Then NASCAR bought the track.  NASCAR is controlled by a wealthy North Carolina family , with nary an Iowan.  No problem!  The Iowa House sent a bill to the Governor yesterday (SF 2341) repealing the Iowa ownership rule and extending the subsidy through 2025.

The stories in Radio Iowa and the Des Moines Register only quoted the giveaway’s supporters.  For example:

Representative Tom Sands, a Republican from Wapello, said it’s a “performance based” tax break because NASCAR won’t get the rebate unless there are on-site sales.

“One of the questions might be: ‘What kind of return do we, taxpayers, get in the state of Iowa?’ And I drive on Interstate 80 twice every week like many of you do coming to Des Moines and have seen the construction that has happened around that Speedway just since it’s been there,” Sands said, “and we’ve got probably lots more of that we can expect into the future.”

The answer to that is: what makes this private business more worthy to keep its sales taxes than anyone else?  It’s a special deal that every other Iowa business competing for leisure dollars doesn’t get.  It’s the government allocating capital, and if anybody thinks the state is good at that, I’d like my Mercedes, please.

While this corporate welfare passed, at least some legislators are starting to wonder about this sort of thing.  14 representatives joined 9 state senators in opposing the bill.  When the Iowa Film Tax Credit passed, there were only three lonely opponents.  The 14 representatives who stood up for the rest of us: Baudler (R, Adair), Fisher (R, Tama), Heddens (D, Story), Highfill (R, Polk), Hunter (D, Polk), Jorgensen (R, Woodbury), Klein (R, Washington), Olson (D, Polk), Pettengill (R, Benton), Rayhons (R, Hancock), Salmon (R, Black Hawk), Schultz (R, Crawford), Shaw (R, Pocahontas) and Wessel-Kroeschell (D, Story).  Maybe we have the makings of a bi-partisan anti-giveaway coalition.


20120702-2Jason Dinesen, Iowa Tax Treatment of an Installment Sale of Farmland By a Non-Resident.  “The capital gain is recognized in the year of the sale and is taxable in Iowa. But what about the yearly interest income the taxpayer receives on the contract going forward?”

TaxGrrrl, Taxes From A To Z (2014): N Is For Name Change   

Paul Neiffer, Painful Form 8879 Process is on its Way.  The IRS, which has forced us to go to e-filing, now plans to make it a time-consuming nightmare for practitioners and clients because of the IRS failure to prevent identity theft.

Tax Trials, U.S. Supreme Court Reverses Sixth Circuit on FICA Withholding for Severance Payments

Margaret Van Houten, Digital Assets Development: IRS Characterizes Bitcoin as Property, Not Currency

William Perez, Tax Reform Act of 2014, Part 2, Income


Illinois sealLiz MalmHow much business income would be impacted by Illinois House Speaker Madigan’s Millionaire Tax?

These data indicate that:

  • 54 percent of total partnership and S corporation taxable income in Illinois would be impacted by Speaker’s Madigan’s millionaire surcharge. That’s almost $10 billion of business income.

  • 6 percent of sole proprietorships AGI would be impacted. Important to note here is that not all sole proprietorships earn small amounts of income. Over three thousand would be hit by the millionaire tax, impacting $674 million of income.

  • Taken together, this indicates that 36 percent of pass-through business income is earned at firms with AGI with $1 million or more.

I don’t think this will end well for Illinois.  When you soak “the rich,” you soak employers.  When states do this, it’s easy to escape.


Christopher Bergin, Good Grief! Tax Analysts v. Internal Revenue Service (Tax Analysts Blogs)

I have been involved in two Tax Analysts FOIA lawsuits against the IRS. Neither one of them should have gone to federal judges. But the IRS’s secrecy, paranoia, and belief that it has the absolute right to hide information drives it in this area. This lawsuit was a waste of time and money – against an agency that argues that it doesn’t have enough of either — over documents that should have been public from the beginning.

I’m left to quote Charlie Brown: Good grief! What an agency.

Commissioner Koskinen’s pokey response to Congressional document requests needs to be considered in this context.  The IRS has not earned the benefit of the doubt.

Kay Bell, IRS chief Koskinen spars with House Oversight panel


Greg Mankiw, Not Class Warfare, Optimal Taxation:

Today’s column by Paul Krugman is classic Paul: It takes a policy favored by the right, attributes the most vile motives to those who advance the policy, and ignores all the reasonable arguments in favor of it.

In this case, the issue is the reduction in capital taxes during the George W. Bush administration. Paul says that the goal here was “defending the oligarchy’s interests.”

Note that when Barack Obama ran for President in 2008, he campaigned on only a small increase in the tax rate on dividends and capital gains. He did not suggest raising the rate on this income to the rate on ordinary income. Is this because Barack Obama also favors the oligarchy, or is it because his advisers also understood the case against high capital taxation?

Oligarchists everywhere.


20140327-1Leigh Osofsky, When Can Concentrating Enforcement Resources Increase Compliance? (Procedurally Taxing)

Cara Griffith, Taxing Streaming Video (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 322

Renu Zaretsky, Friendly or Penalty? Taxes on Married Couples, Businesses, and the Uninsured (TaxV0x).  Rounding up the tax headlines.

Jack Townsend, Scope and Limitations of this Blog: It Is a Tax Crimes Blog, not a Tax Crimes Policy Blog.  “I conceive my blog as a forum to discuss the law as it is, including how it develops.  It is not a tax policy blog addressing issues of what the law ought to be.”


Russ Fox, Bozo Tax Tip #9: 300 Million Witnesses Can’t be Right.  Richard Hatch is not widely considered a tax role model.

News from the Profession.  Frustrated EY Employee Vandalizes Office Breakroom in Protest Over March Madness Blocking (Going Concern)



Tax Roundup, 12/9/2013: Denison! And 56 cents a mile for 2014.

Monday, December 9th, 2013 by Joe Kristan

The Tax Update is in sunny, but very cold, Denison, Iowa today.


I’m participating in the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School here.  The only remaining session is in Ames next Monday, so register now!


The IRS has issued updated standard mileage rates for 2014:

– 56 cents for business travel (down from 56.5 cents for 2013);

– 23.5 cents for medical travel;

– 14 cents for charitable travel.

Gas is down.  (Notice 2013-80)

Related: Paul Neiffer, IRS Almosts Eliminates the 1/2 cent


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

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

Mickey Kaus, Big Obamacare payoff for tax cheats?:

Doesn’t Obamacare create a big new incentive to fudge your income on your tax returns? The subsidies available on the health care exchanges seem to be based on adjusted gross income (line 37 on Form 1040)– and there’s a huge, conspicuous difference between the subsidy available at, say, a $25,000 income and a $46,000 income. (The subsidy cutoff of is $45,960 for a single person). In California, for the “bronze” policy I’m interested in, at $46,000 I’d pay $507 a month. At $25,000 I’d pay … $63. A difference of $444 a month.

I have mentioned quite often the high hidden marginal rates caused by the phase-out of the earned income tax credit.  The Obamacare subsidy phase-outs worsen this.  The government pays you to stay poor, or to cheat on your taxes if you aren’t poor anymore.  You get what you pay for. (via Instapundit)

William Perez,  Year End Review of Choice of Business Entity. “There is definitely no one-size-fits-all answer when it comes to deciding on an appropriate tax structure for a business.”

Margaret Van Houten, What our Estate Planning Clients Need To Know – What are Digital Assets? (Davis Brown Tax Law Blog).  On the importance of including “digital assets” in your estate planning.

Kay Bell,  Freezing? Home improvements provide warmth, tax savings

Jason Dinesen, Colorado Tax Guidance for Same-Sex Marriage 

Tony Nitti, IRS Addresses Deductibilty Of Organizational And Start-Up Costs Upon Partnership Technical Termination 



Lyman Stone, Missouri Gives In With $2 Billion Incentive to Boeing.  Missouri taxes its residents and existing businesses to give cash to an insider with good lobbyists.

How do you know that the new proposed 501(c)(4) regulations are designed to silence right-side speech?  The left-side advocacy groups have dropped their lawsuit demanding the IRS enact regulations to silence right-side speech (Huffington Post).

TaxProf, The IRS Scandal, Day 214 and Smith: The Latest IRS Power Grab

Robert D. Flach, HERE’S A THOUGHT – A FEW MORE CENTS ON A VOLUNTARY CREDENTIAL FOR TAX PROS.  “If the IRS does not decide to go ahead with a voluntary RTRP program after it loses the appeal of Loving v IRS, I have proposed an independent industry-based organization to administer a voluntary RTRP-like tax preparer credential in my ACCOUNTING TODAY editorial ‘It’s Time for Independent Certification for Tax Preparers. ”  It would be an improvement over the IRS system.

Peter Reilly, Cigarette Importer Sees $300M Deduction Go Up In Smoke   



Greg Mankiw, The Progressivity of the Current Tax Code :



Jack Townsend,  Swiss Banks Scrambling to Commit to Participation in U.S.Swiss Bank Initiative

TaxGrrrl, IRS To Rapper: It’s Hammertime!  Remember M.C. Hammer?  The IRS does, even if you don’t.



Tax Roundup, 11/13/13: Is more IRS money what we need? And why I’m hoping against hope!

Wednesday, November 13th, 2013 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Is more money the answer to “pitiful” IRS service?   That’s what Taxpayer Advocate Nina Olson believes, based on a story by Tax Analysts ($link):

National Taxpayer Advocate Nina Olson in a November 9 speech decried as pitiful the level of IRS customer service given to taxpayers, which she attributed to inadequate funding that has forced the Service to automate many of the most important tax administration functions and skimp on training employees on taxpayer rights.

Everything else being equal, you can do more with more money.  Yet we all face limits to our resources, so we prioritize.  The IRS — at the urging of Nina Olson — has directed resources unwisely to its misguided attempt to boss the tax prep industry.  It has been a debacle so far, and it appears headed to oblivion in the courts.

The IRS has another administrative problem that the Taxpayer Advocate has pointed out.  The tax law is too complicated to effectively administer even with a much larger budget.  The tax law is seen as the Swiss Army Knife of public policy, and like a knife with too many gadgets, it becomes hard to work as a knife.  This chart from Chris Edwards at the Cato Institute illustrates the problem:

irs budget cato 20131113


Chris Edwards explains:

The chart shows that the IRS has become a huge social welfare agency in recent decades. Handouts have soared from $4.4 billion in 1990 to an estimated $91.1 billion in 2013 (red line). Handouts are down a bit in recent years because some of the refundable credits from “stimulus” legislation have expired. IRS administration costs have grown from $7.7 billion in 1990 to an estimated $15.3 billion in 2013 (blue line). 

How should we reform the IRS budget? First, we should terminate the handout programs. That would save taxpayers more than $90 billion annually and cut the IRS budget by 86 percent. 

The largest IRS handout is the refundable part of the EITC, which is expected to cost $55 billion in 2013.

So true.  Considering that over $10 billion of the $55 billion is stolen or otherwise issued improperly, the EITC is a nightmare.  There would be plenty of funding available for tax administration if EITC could go away.

But the chart also shows something else: if the tax law was no more complicated than it was in 1990 — and believe me, it was plenty complicated — the IRS administrative budget would be adequate.  But with the IRS transformed into a monster multi-portfolio agency charged with healthcare administration, welfare, industrial policy, environmental enforcement, etc., etc., its budget is hopeless.


This will work out well:

This article examines the tax collection process to see how the IRS might enforce the individual mandate under the healthcare reform law. It concludes that resistant taxpayers can generally be forced to pay the tax penalty only if they are entitled to receive refundable tax credits that exceed their net federal tax liability. 

From Jordan BerryThe Not-So-Mandatory Individual Mandate, via the TaxProf.


Don’t trust the Tax Foundation?  Maybe you’ll trust the Congressional Budget Office.  A commenter yesterday took issue with a chart I reproduced showing not only the tax burden at different income levels, but the amount of government spending benefiting different income levels:

It’s not “the first chart for any tax policy debate,” it’s the last chart you should want to find on your side of the debate if you want to have any credibility.

If that doesn’t work for you, maybe this one from the CBO will be less objectionable:

cbo table

This chart is more focused on direct transfers, but it says pretty much the same thing.  It also covers 2006, and the tax law has hit the high end harder since then. (Via Greg Mankiw).


Scott Hodge, Andrew Lundeen,  54 Million Federal Tax Returns Had No Income Tax Liability in 2011 (Tax Policy Blog)


Paul Neiffer,  Sale of CRP Land – Is it Subject to the 3.8% Tax?  It depends a lot on whether an appeals court upholds the Tax Court Morehouse decision imposing self-employment tax on CRP income.  “And if the Morehouse case is overturned on appeal and the CRP is treated as rents, the land sale will also be subject to the 3.8% tax.”


Kay Bell, Tax tips for newlyweds saying “I do” on 11-12-13 or any day

Jack Townsend,  U.S. Banks File Long-Shot Litigation to Block FATCA Reciprocal Requirements

Leslie Book,  Disclosure and the 6-Year Statute of Limitation: S Corp Issues (Procedurally Taxing)

Jason Dinesen,  EAs are Partly to Blame for Our Obscurity  “Yes, we are treated as the red-headed stepchild of the tax world. But a big reason for this is that we ALLOW people to treat us this way.”

Russ Fox, Dan Walters with Another Example of California Dreamin’


TaxProf, The IRS Scandal, Day 188


Hope lives! 

It’s Time to Give Up on Tax Reform” – Joseph Thorndike, October 29, 2013

When Tax Reform Rises From the Dead, What Will It Look Like?Joseph Thorndike, November 12, 2013.

I should note that his vision of resurrected tax reform is hideous.  If that’s what hope for tax reform comes to, I’ll hope against his hope.



Tax Roundup, 10/3/2013: Three-day shutdown retroactively responsible for 8-month ID theft refund delay! And… standards!

Thursday, October 3rd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Never mind the last eight months, it’s the last three days that are the problem. reports:  Government Shutdown Holding Up Tax Refund for Local Family:

A Cedar Rapids woman and her family have been waiting for a $3,250 tax refund for 8 months now, and with late bills piling up, she doesn’t know how much longer she can hold out.

The problem is that during a government shutdown, there’s no way for her to contact the Internal Revenue Service to find out where her check is.
The troubles began for Autumn Alicea when she filed for her tax return back in February. A while later, she discovered someone in Florida had stolen her identity. Alicea said it took the IRS several weeks to investigate and verify that she was the real Autumn Alicea. “So they said it would take about 8 weeks to process my return now that they knew the one from Iowa was indeed the valid return, and the one from Florida was not.”

So the shut down for the last three days is responsible for the late refund?  Not likely.  It can take a lot longer than eight weeks for the IRS to get a stolen refund back in the right hands in the best of times.  It took 121 weeks to for Jason Dinesen’s widowed ID theft client to get hers.

It’s fascinating what the government considers “essential.”  Paying people to keep 90-year old veterans away from an unstaffed open-air memorial and to barricade private businesses is “essential,” but getting money it fairly owes to honest taxpayers after carelessly mailing it to two-bit grifters, well, that’s strictly optional.


More shutdown coverage:

William Gale, It’s Groundhog Day Over the Debt Ceiling

Christopher Bergin, ‘Your Voice at the IRS’ Silenced (Tax Analysts Blog).  Like I said, interesting priorities.

Kay Bell,  ‘Essential’ Representatives, Senators get paid during shutdown.  If they paid truly essential politicians, the federal payroll would go to about zero.



20131003-1Casey Mulligan, How ObamaCare Wrecks the Work Ethic (Wall Street Journal)

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.

Like many other “anti-poverty” programs, it fights poverty by punishing efforts to escape poverty.

(Via Greg Mankiw)

David Brunori, State Taxes and the Poor (Tax Analysts Blog): “As importantly, ITEP highlights the problems with states reducing their earned income tax credits”  I think the high implied marginal tax rate of EITC phaseouts on taxpayers trying to escape poverty is underappreciated.


TaxProf, IRS Waives Individual Mandate for Americans Living Abroad.  Finally a portion of the tax law where Americans abroad actually get better treatment than the rest of us.


Wikipedia image

Wikipedia image

It’s official.  Beanie Babies Creator Pleads Guilty to Tax Evasion (Wall Street Journal).  The article cites Tax Crimes Blog proprietor Jack Townsend: 

An analysis done earlier this year found U.S. courts have been more lenient in cases tied to the government crackdown on secret offshore accounts. The average sentence in criminal offshore cases has been about half as long as in tax shelter schemes, according to a comparison of Internal Revenue Service statistics and data compiled by Houston attorney Jack Townsend, who publishes the Federal Tax Crimes blog. In many cases, judges are also opting for shorter sentences than recommended under federal guidelines.

He will have to pay $53.6 million in FBAR penalties under the plea agreement.


Related: Jack Townsend, Ty Warner, Beanie Babies Creator, Pleads Guilty

Slightly related:  Green card received in 2006? Give it up in 2013 (Phil Hodgen)


Me, Creativity fails to protect custom homebuilder from capitalizing costs.  Section 263A snags custom homebuilder.

Andrew Lundeen, Blank Slate Tax Reform Could Damage Economic Growth (Tax Policy Blog)

Why partisan tax law enforcement is always a scandal.   Vietnam dissident Le Quoc Quan jailed over tax evasion (BBC).  I think “dissident” is key to understanding the “jailed” part.

Tax Justice Blog,  State News Quick Hits: Andrew Cuomo Loves Tax Cuts, So Does ADM, and More

Cara Griffith, Floating on a State Tax Revenue Bubble (Tax Analysts Blog):

According to a report by Lucy Dadayan and Donald Boyd of the Rockefeller Institute, the record income tax receipts are a “temporary ‘bubble.’” 

Related: Iowa tax revenue up 4.1 percent past three months (Des Moines Register)




I had to laugh at the H+R official referring to “the same standards as we do”.  I am not aware of any evidence of such standards.  In fact the evidence is to the contrary.

They have high standards of placing their people in high places in the IRS, at least.


Speaking of high standards:

Cop used his job to commit identity theft, feds say. (

Ex-W. Pa. deputy faces fed tax evasion sentence (AP)



Tax Roundup, 9/3/2013: Iowa’s multi-talented revenue examiners. And social media dos and don’ts.

Tuesday, September 3rd, 2013 by Joe Kristan


The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

Iowa income tax examiners don’t just deal with state issues.  In recent years the Iowa Department of Revenue has been examining hobby loss issues by itself.  This is a departure from past practice, where Iowa usually only examined state-specific issues, like residency and allocation of multistate income.

A new protest resolution released last week shows that while the Department may start an examination on hobby loss issues, it doesn’t have to stop there.  The department examined a couple’s horse operation and concluded that it wasn’t operated for profit, disallowing the resulting “hobby losses.”  That’s not a shocking result, as horse operations are often challenged on hobby loss grounds.   But the department wasn’t done (my emphasis):

In regards to the day care business, the Department explained in previous correspondence that the taxpayers cannot take a deduction for the business use of the home, except for real estate taxes and mortgage insurance which are allowable on Schedule A.  The taxpayers have already filed amended returns reducing the meal expense claimed on the original returns.  The Department accepts the amended meal expenses.  The Department also denies several other items because they are not ordinary and necessary business expenses, such as landscaping, auto repair, and picture frames.  All items denied are on the enclosed schedule. 

The final adjustment is to charitable contributions on Schedule A.  The Department denies the  “Haiti” contributions for all three years because there is no evidence the contributions were made to a qualified  charitable organization.  See IRC Sec. 170(c).  Contributions made directly to an individual or to groups of individuals are not deductible.  Also, the Department denies the contributions to Covenant House on the 2009 return.  There is not enough information to confirm that Covenant House is a qualified organization.

If the Department comes for the hobby losses, they just might stay for the whole return.

Cite: Van Veldhuizen, Document Reference: 13201028


Peter Reilly, $10,000,000 North Carolina Domicile Case Shows Importance Of Planning   If you want to move to low-tax Florida before selling a business, you need to do it early and do it right.

Greg Mankiw, Marginal Tax Rates under Obamacare.  He quotes a new paper: “Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform.”

What does that mean?  Tyler Cowen quotes the same paper:

The law increases marginal tax rates by an average of five percentage points (of employee compensation), on top of the marginal tax rates that were already present before the it went into effect. The ACA’s addition to labor tax wedges is roughly equivalent to doubling both employer and employee payroll tax rates for half of the population. 

I’m sure that half is all in the top 1%.

The great Ronald Coase has died at a still too-young 102.  An appreciation. (via Tyler Cowen)

Courtney Strutt-Todd, IRS Provides Answers to Filing Questions for Same-Sex Couples (Davis Brown Tax Law Blog) 

After a big three-Buzz week last week, Robert D. Flach Buzzes again!

20130903-1Finland follies.  Finns normally sensible and wonderful people.  Our Finnish exchange student is terrific.  But like everyone else, they have politicians who won’t mind their own business,  reports Lyman Stone (Tax Policy Blog):
The Wall Street Journal reports that Finland’s 2011 tax on sugary goods is driving ice cream trucks out of business, and that Mexico is considering implementing its own sugar and sweets tax under the auspices of curbing obesity. In 2014, Finland will add more products, like cookies and jam, to its list of taxed goods. These taxes are particularly notable because Mexico has the second highest per capita soda consumption in the world, while Finland has among the highest rates of ice cream consumption.

Finland has some of the worlds highest consumption rates of alcohol and coffee.  And there’s no sugar in vodka.

TaxGrrrl, Would ‘Very High Taxes’ Keep Unemployment Rates Low?  Ask the Finnish ice cream truck drivers.

Career Advice Department, Social Media Section.  In my recent interview, I answered the question “what advice would you offer to the new accountant concerning the role of social media in their profession.”   If I were answering the question today, I would just say don’t do this.



Tax Roundup, 7/19/2013: You can run a red light edition. And saving the republic, one tail light at a time.

Friday, July 19th, 2013 by Joe Kristan

gatsoThe first central Iowa town to install revenue cameras has turned them off.  The Des Moines Register reports:

 The Clive City Council on Thursday night voted to discontinue the use of red-light cameras to enforce traffic violations.

The council voted 3-2 to reject a contract with Redflex Traffic Systems Inc., which has provided the city red-light camera service since the program began in 2006. The nine cameras positioned along Hickman Road now will no longer be in service.

So carnage on Hickman Road, now, right?  Yeah, right.  But it’s not over yet:

Mayor Scott Cirksena said after the meeting that city staff would work to reach an agreement with the camera provider that could gather a majority vote.

Council members Ted Weaver and Michael McCoy said they would like to see the city wean itself away from using red-light revenue for general fund expenditures. City Manager Dennis Henderson said the city expects the red-light camera program to bring in approximately $700,000 during the current fiscal year, which began July 1

It’s obviously about the money, though you find the pro-forma claims that ticketing people who don’t quite stop when making a right turn on red at an empty intersection makes us all safer, if you read down to paragraph nine.  Let’s hope Des Moines and Polk County follow suit, but don’t hold your breath.



Of course they do.  Four Cedar Rapids-Metro Area Mayors Support Local Option Sales Tax Extension ( And RAGBRAI riders support free beer extension.


I bet the IRS heard about this guy through the grapevine.  From

Larry Lake, part owner of Grapevine Drug Mart, and his son, Travis Lake, who managed the drug store, each failed to report income on their federal tax returns, according to a news release from the U.S. Attorney’s office.

Larry Lake was sentenced to 14 years in prison and ordered to pay a $550,000 fine as well as taxes, interest and penalties, which equal about $25 million, the release said.

The Texas men may well have gotten in trouble not just from evading taxes, but from the way they did their banking:

From August 2006 to November 2009, Larry Lake and his spouse, Kathy Lake, agreed to structure hundreds of currency deposits into at least 13 bank accounts, according to a federal indictment. The couple created at least two shell companies that were used to open up the accounts involved in the structuring scheme, which amounted to $9.3 million, federal officials said.

“Structuring” involves breaking cash deposits up into amounts under $10,000 to avoid the rules requiring banks to report currency transactions.  But banks are also required to report if it looks suspiciously like somebody is trying to get around the $10,000 reporting rule.  You come into a bank enough times with wads of cash, but never $10,000, and the tellers will remember you.


TaxProf, The IRS Scandal, Day 71.  A bad day for the “nothing to see here” folks.

Robert W. Wood, IRS Inspector Shellacs Oversight Committee About Tea Party Scandal


Kay Bell, Tax reform’s chances are better than 50 percent:

Rep. Dave Camp (R-Mich.), head of the Houses Ways and Means Committee, and Sen. Max Baucus (D-Mont.), leader of the Senate Finance Committee, each put the possibility of tax reform passage at greater than 50 percent.

The gung-ho comments were made during an appearance today at the Economic Club of Washington.

I’d agree, if you are talking about in the time before the sun curls into a cold cinder.  If you are talking about this Congress, I’ll bet the other way.

Kyle Pomerleau, Japan to Lower its Corporate Rate Further? (Tax Policy Blog)

David Cay Johnston, More Tax Dollars There, Not Here (Tax Analysts Blog)


Jason Dinesen, Patient-Centered Outcomes Trust Fund Fee – An Exercise in Bureaucratic Futility $100 of cost to compute a $3 tax.

Peter Reilly, Real Estate Pro Status Does Not Mix With Full Time Day Job.   Back from the Civil War, Peter has been busy with new tax posts.  This one explains the difficulty of being a “real estate professional” when you have other work.


Sean Raisch,  Medicare Taxes on High Earners (Davis Brown Tax Law Blog)

William Perez, IRS Update for July 19, 2013.  Sort of a web weekly bulletin of IRS releases.


Greg Mankiw, The Changing Distribution of Income:


Mark Perry points out:  “Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class.”

It’s Friday, so it’s Buzz Day at Robert D. Flach’s place!


The Critical Question:  Do Low-Income Taxpayers Cheat? (TaxVox)  He has a lot more faith in the good nature of humankind than I do.


TaxGrrrl, How To Stay Out Of Jail: Lessons Learned From The ‘Queen Of IRS Tax Fraud’:

If you do steal, and you talk about it, don’t do it on Facebook I don’t care what you think you know about privacy settings, when you put something out there on Twitter or on Facebook, it’s not protected. As a taxpayer, that means you should avoid posting personally identifying information like tax ID numbers and your address (the IRS Facebook page won’t allow you to post comments for that reason). And you should certainly avoid posting photos of yourself surrounded by stacks of cash with such gems as:


Hard to argue with that advice.  Russ Fox has more.


Nude drunk guy saves the republic. Police: Drunk naked man broke out car tail lights (, via The Beanwalker):

According to the complaint, Flaherty broke out the tail lights to three cars and told officers that he was breaking the red in the tail lights because red means danger to the republic.

I’ll have what he’s having.


Tax Roundup, 4/8/13: One week to go! And thinking out of the envelope

Monday, April 8th, 2013 by Joe Kristan
Wikipedia image

Wikipedia image

Greg Mankiw,  The President’s Latest Bad Idea:

Apparently, President Obama’s budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts.  The details are not yet known, but I think we know enough to say that this is a terrible idea.

A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes.  Completely replacing our tax system with a better one is, however, hard.  Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax.  The use of these accounts should be encouraged, not discouraged.   

Unlike some of his other bad ideas, this one isn’t going anywhere.

William McBride, President Obama’s New Tax Increases (Tax Policy Blog)


TaxProf,  NY Times: Former Baucus Staffers Cash in as Finance Committee Tees Up Tax Reform.  Ah, the sacrifices of public service.  I bet they aren’t proposing the Instapundit revolving door tax.  Related: Max Baucus and Dave Camp,  Tax Reform Is Very Much Alive and Doable.  (Wall Street Journal).


Paul Neiffer. 3%-6%-12%:

One of our last posts indicated that the IRS had issued a notice indicating they might not assess the late payment penalty for returns that are extended and paid after April 15, 2013 if the return included certain forms that were delayed by the new tax law.

However, when you read the fine print, it appears that you still need to accurately estimate your tax and pay in at least 90% of this extra tax to escape the penalty.

The IRS language is:

For each taxpayer who requests or has requested an extension to file a 2012 income tax return that includes one of the forms listed in Exhibit 1 of this Notice, the IRS will deem the taxpayer to have demonstrated reasonable cause and lack of willful neglect, provided a good faith effort was made to properly estimate the tax liability on the extension application, the estimated amount is paid by the original due date of the return, and any tax owed on the return is fully paid no later than the extended due date of the return.

I suspect that the IRS will not be very strict in making taxpayers demonstrate reasonable cause, but if you have the cash, you should  pay up.


William Perez,  Filing Protective Claims for 2009 Tax Returns for Same-Sex Married Couples

Kay Bell, 6 ways to prepare and e-file your federal taxes for free

TaxGrrrl, Ask The Taxgirl: Home Offices And Capital Improvements

Roberton Williams, How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay?


Peter Reilly,  Wesley Snipes Almost Out – Kent Hovind Remains In Prison

Russ Fox, Bozo Tax Tip #5: Don’t Seal the Envelope!

One of her clients mailed his tax return to the IRS but forgot to seal the envelope.  The return did make it to the IRS, but without page two of Schedule C.  The first that the client found out there was a problem was when the IRS sent him a letter noting the omission.  The second time he knew that there was a problem was when she found she was a victim of identity theft.

E-filed returns never fall out of the envelope.


Jack Townsend,  Good Overview Article on Financial Issues for Americans Living Abroad

Phil Hodgen,  Form 1040NR Filing, Tax Payment Deadlines


The criminal masterminds that the IRS can’t stop.  Tampa exotic dancer sentenced for tax fraud (

The Critical Question.  News Analysis: Why Are Fee Waivers Like Deep-Fried Twinkies? (Lee Sheppard, Tax Analysts; gated).


Stay tuned for my first 2013 filing season tip going up later this morning!



Tax Roundup, 1/18/2013: Iowan gets 87 months on Ponzi, tax charges.

Friday, January 18th, 2013 by Joe Kristan
87 months?  Holy Cow!

87 months? Holy Cow!

Iowan gets 7 years on Ponzi scheme, tax charges.  An Ottumwa man who used funds he was supposed to invest to finance his online dating life was sentenced yesterday to 87 months in federal prison on federal fraud and tax charges.  John Holtsinger, 52, will serve the federal sentence after he completes a state OWI sentence.

Mr. Holtsinger entered a guilty plea last year.   The indictment said he sold this improbable investment opportunity:

After conducting trades on behalf of investors for a short period of  time, Holtsinger offered and sold investments to the investors in the form of promissory notes.  He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death.  The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.

“High returns with no risk” is a rare beast indeed, nearly as rare as the Unicorn.  I doubt if they show up in Ottumwa very often.


IRS stimulates prison system economy by $35 million in 2010.  From a report by the Treasury Inspector General for Tax Administration:

Refund fraud committed by prisoners remains a significant problem for tax administration. The number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in Calendar Year 2004 to more than 91,000 tax returns in Calendar Year 2010. The refunds claimed on these tax returns increased from $68 million to $757 million. Although the IRS prevented the issuance of $722 million in fraudulent tax refunds during Calendar Year 2010, it released more than $35 million.

The new IRS regulation of tax preparers isn’t going to do much for this problem.  (via the TaxProf)

Related: Doing Your Time (Jack Townsend)


TaxGrrrl, As We Creep Closer To The Debt Ceiling Limit, Is Your Tax Refund At Risk?

Kay Bell, Government report fuels fear (again) of federal mileage tax proposal

Russ Fox, The Walking Dead Come Back.

Brian Mahany,  Taxpayer Advocate Questions OVDI, FBAR Penalties

David Cay Johnston, Foundering Tax Avoidance (

Paul Neiffer,  Watch Out For Those Retroactive State Tax Gotchas!

Nanette Byrnes, Facebook’s slump hits California’s budget, and more (Tax Break)

Joseph Henchman and Elizabeth Malm, New Report: Gasoline Taxes and Tolls Pay for Only a Fraction of Road Spending (Tax Policy Blog)

Catch your weekend Buzz early!  From Robert D. Flach.

Howard Gleckman,  A Tiny Little Blog Post on a Tiny Little Tax Bracket. (TaxVox).  Hey, I noticed it first!

News you can use:  Retaining CPAs Is As Easy As Letting Them Work in PJs and Attend Boring Meetings, Says Guy (Going Concern)


When outsourcing goes too far.  A story of how a model employee outsourced his own job. (Greg Mankiw).  Nice work if you can get paid while some guy in China does the dirty work.


Tax Roundup, 1/3/2013: Now Iowa’s filing season is a mess.

Thursday, January 3rd, 2013 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Fiscal Cliff Bill complicates Iowa tax returns for 2012.  Iowa doesn’t automatically adopt federal tax law changes, so some retroactive tax law provisions in the Fiscal Cliff bill won’t apply to Iowa state income taxes absent action by the Iowa General Assembly.  From an Iowa Department of Revenue e-mail to practitioners yesterday:

The federal legislation passed on January 1, 2013 to avert the “fiscal cliff” included provisions for what are commonly referred to as the federal “extenders.” The federal “extenders” are not currently reflected on Iowa tax forms for 2012 and will require approval by the Iowa legislature before being allowed for Iowa tax purposes. Should legislative approval be given, Iowa online forms will be updated accordingly. The federal extender provisions include:

  • Educator Expenses (Line 24; IA 1040)
  • Tuition and Fees (Line 24; IA 1040)
  • Itemized Deduction for State Sales /Use Tax Paid (Line 4; IA Schedule A)
  • Treatment of mortgage insurance premiums as qualified residence interest (line 11, schedule A)
  • The federal section 179 expensing limit of $500,000 for 2012 and 2013 

Iowa income tax returns must be filed based upon current Iowa law. Therefore, the extenders should not be included on Iowa returns at this time.

Let’s hope the legislature acts quickly to pass conformity legislation, or we will have another messy Iowa tax season.


Why 12%?  Today’s Des Moines Register story on reactions by Iowa business people to the Fiscal Cliff bill quotes me as saying that Iowa businesses may face a 12% reduction in their after-tax income.  Where did I get that number?

I started by computing the after-tax amount of a dollar earned by a top-bracket taxpayer under 2012 law, assuming full detectability of Iowa taxes on the federal return and vice-versa.  That results in a combined rate of 38.92%, leaving 60.18 cents in the taxpayer’s pocket.  Under the same assumptions using the 2013 39.6% top rate and the 3.8% surtax on “passive” income, the combined federal-state effective rate goes up to 46.39%, leaving 53.61 cents after-tax.  That’s a 7.48 cent reduction in after-tax income — 12.24% of the 60.18 cent 2012 after-tax number.

The 12.24% number is actually too low because it doesn’t account for the phase-out of itemized deductions for high-income taxpayers in the new bill.  For top-bracket taxpayers, itemized deductions will be reduced 3 cents for each additional dollar of income.  The result is a hidden 1.188% additional tax.  Plugging that into our tax computation gives a combined federal and Iowa rate of 47.46%, leaving 52.54 cents after-tax.  That reduces after tax income from 2012 law by 8.54 cents, or 13.99%.

Should I assume the 3.8% passive income tax, like I do in the above examples?  It won’t apply to K-1 income if all owners “materially participate” in a pass-through business.  Those taxpayers face “only” an 8.41% reduction in their after-tax income.  If you don’t think that’s significant, consider whet your reaction would be if your employer said that your after-tax pay was going down that much.

But the 3.8% tax will apply to family members that don’t participate in the business, like out-of-town siblings, retired founders, or children of owners.  The business has to distribute at least enough to let owners pay their taxes, which means the taxpayer in the highest bracket has to be covered.  For that reason many family-owned businesses will have to distribute enough to cover the 3.8% Obamacare net investment income tax, making the combined 47.46% rate their real rate.


Fiscal Cliff Notes

TaxProf,  House Approves Fiscal Cliff Tax Deal

Megan McArdle, After the Fiscal Cliff: What do Democrats Want?  “I submit that just as Republicans are more interested in entitlement cuts as talking points than as actual new laws, Democrats will prove much more interested in tax hikes in theory than in practice.”


William McBride, Fiscal Cliff Resolved, Still Likely to Get Downgraded

TaxGrrrl, The World Will Keep Turning, Even With The Expiration Of The Payroll Tax Cuts

Patrick Temple-West, Cliff bill means some pay more taxes, and more

Trish McIntire, American Taxpayer Relief Act of 2012

Paul Neiffer, Help! What Is My Capital Gains Tax Rate?!

Kay Bell,  What’s your 2013 tax rate and other fiscal cliff tax bill questions

Margaret Van Houten,  Estate and Gift Law Tax Aspects of Fiscal Cliff Legislation (Davis Brown Tax Law Blog)

Courtney A. Strutt Todd,  A Permanent Fix to the AMT Problem (Davis Brown Tax Law Blog)

Jana Luttenegger, Individual Tax Rates, Deductions, and Credits (Davis Brown Tax Law Blog)


Greg Mankiw has a pithy post that I hope he doesn’t mind me reproducing in full:

Here are the effective federal tax rates (total taxes as a percentage of
income) for 2013 under the new tax law, as estimated by the Tax Policy Center, for various income groups:

Bottom fifth: 1.9
Second fifth: 9.5
Middle fifth: 15.6
Fourth fifth: 19.0
Top fifth: 28.1

80-90 percentile: 21.5
90-95 percentile: 23.4
95-99 percentile: 26.3
Top 1 percent: 36.9
Top 0.1 percent: 39.6


Russ Fox,  Your Mileage Log: Start It Now!  Great advice.  If you travel on business and the IRS comes by, you’ll be glad you have that log.

David Brunori,   Only Tax Professionals Benefit from the State Corporate Tax.  (Tax Analysts Blog) Well, the loophole lobbyists do pretty well by it too.

Peter Reilly, Form 8332 – Don’t Let The Kids Live In Another Home Without One ?

TaxTV, IRS Penalty Relief-First Time Penalty Abate Program

Robert Goulder, The Unspoken Tax Expenditure (Tax Analysts Blog)

Jack Townsend, New Article on the Emerging Consensus for Taxing Offshore Accounts

William Perez,  Social Security Tax For 2013


Career planning news you can use:  Life After Public Accounting: Harassing Auditors For a Living Isn’t a Bad Gig If You Can Get It  (Going Concern)


Tax Roundup, 1/2/2013: Yay, we didn’t fall off the cliff! Too bad we’re still doomed.

Wednesday, January 2nd, 2013 by Joe Kristan

So tax season can go on.  The IRS will have to activate some of the “reserved” boxes on its forms, but with the passage of HR 8 yesterday, filing season should be able to continue without catastrophic disruption.  I summarized the key pieces yesterday here.

So what did they accomplish?  They permanently “patched” the alternative minimum tax, and that is a real accomplishment.  Far better to repeal a deeply dishonest tax, but at least now they have stopped placing a time bomb in the tax law set to go off every year or two.

They raised the top marginal rate on “the rich” to something over 40%, with a stated top rate of 39.6% and the dishonest phase-outs of itemized deductions and personal exemptions.  They redefined “rich” as single filers with incomes over $400,000 and married taxpayers over $450,000.

They raised the top dividend and capital gain rate to something over 24%, taking into account the 3.8% Obamacare levy, the 20% rate on the rich, as newly defined, and the phase-outs of deductions and personal exemptions.  In doing so, they left the top rate at 15% (or 18.8%) for other taxpayers.

They delivered another kick in the teeth to successful entrepreneurs.  Taxpayers who operate successfully as pass-through entities represent much of the income hit by the new tax rates, and much of business income in general.  They have that much less after tax income to take chances on new locations, new employees, new products.  That means there will be less of all of these.


Source: Tax Foundation, “Putting a Face on America’s Tax Returns: A Chartbook

Most people don’t realize just how big a part of the economy pass-throughs run by “the rich” are.  This might give you an idea:


Source: Tax Foundation, ‘Putting a Face on America’s Tax Returns: A Chartbook”

This isn’t exactly going to help hiring.

They once again passed the dishonest batch of “expiring provisions.”  These provisions, from the windmill subsidy and research credits to special breaks for speedways, are passed with annual expiration dates, enabling the politicians to pretend that they are temporary so they don’t have to face the real costs of these breaks for their freinds.

What they failed to accomplish is just as important.  They failed to pass the wretched ideas of dollar caps on itemized deductions or a limit on the rate benefit of the deductions.  They failed to apply the top rates to incomes of $200,000 and up, which was their initial plan.

Most importantly, they utterly failed to address the ongoing fiscal catastrophe.  The new revenues will barely touch the $1.2 trillion annual deficit.  It’s not clear whether there will even be any deficit reduction when all of the pieces of the deal are added together.  That means we careen almost immediately to a new debt-ceiling battle and ultimately to a confrontation with arithmetic.

Perhaps that will ultimately be the benefit of this deal, though not one that is intended.  The President finally got his tax hikes on “millionaires and billionaires,” and they won’t do a thing to deal with the fiscal crisis.  If people finally realize that the choice is between bringing spending and entitlements under control or higher taxes on everybody, there might actually be some value to this mess.  After all, the rich guy isn’t buying.


Fiscal Cliff Notes

TaxProf, House Approves Fiscal Cliff Tax Deal

Tyler Cowen, Ross Douthat asks

If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public programs sustainable for the long run?

Greg Mankiw, President rejects his bipartisan commission

Stephen Entin, Measuring the Economic and Distributional Effects of the Final Fiscal Cliff Bill (Tax Policy Blog)

Howard Gleckman, Congress Kicks the Fiscal Can off the Front Stoop (TaxVox)

William Perez,House Approves the American Taxpayer Relief Act of 2012

Journal of Accountacy, Congress passes fiscal cliff act

Andrew Mitchel, Senate Fiscal Cliff Bill Includes Retroactive Reinstatement of CFC Look-Thru Rule

Kay Bell, House passes tax bill to avoid fiscal cliff

Paul Neiffer, Some Major Tax “Goodies” in Senate Bill For Farmers!


Joseph Thorndike, Is Obama the Worst Legislative Negotiator of the Last Century?

Finally, this from Daniel Shaviro, a tax man of the left, on the fiscal cliff and the larger budget picture:

The biggest problem, as others have noted, is that Obama appears to be a once-in-a-generation lame and inept bargainer, who can take even a strong hand and not get all that much, because he is so predictably ready to fold.  But again this is not mainly an issue about the New Year’s Eve deal itself, which is more or less defensible as a one-off solution.  Rather, it’s about the debt ceiling crisis to come in a few weeks.

That is the one that really counts.  I think the Administration should play that, not merely as hard as they are saying they will now, but about 20 levels harder.  I would not just refuse to negotiate, but would have Administration officials use words such as treason, sabotage, and terrorism.

Mr. Shaviro is a very bright man.  He knows that the present fiscal course is unsustainable.  The solutions are some mix of spending less or taxing more.  If a guy that smart is ready to equate “spending less” with “treason, sabotage and terrorism,” the debate will get very ugly.  Maybe we aren’t far behind Argentina and Greece.


Tax Roundup, 12/31/2012: No cliff deal yet. And Branstad won’t try to fix income tax this year.

Monday, December 31st, 2012 by Joe Kristan

No cliff deal.  As of this morning, the President and Congress continue to fail to to make a “fiscal cliff” deal.  Rest assured, though, that even when they cobble together a lame and harmful deal, as they will today or weeks from now, they won’t even begin to address the real fiscal calamity — the government’s incontinent spending.

The unforgivable sin of the current president, and the last one, and their Congressional enablers, is spreading the idea that the government can buy us all free stuff, and the rich guy will pick up the tab.  Sorry.  The rich guy isn’t buying.


Income taxes: the redheaded stepchild of Branstad tax policy?  It looks more and more like the Branstad agenda for the 2013 Iowa legislative session  won’t include income tax reform.  From the Sioux City Journal:

Asked during a recent interview if there was room in all that for income tax reductions during the 2013 session, Branstad replied: “Probably not.”

“Honestly, property tax would be my priority and I’d love to do income tax, too, and maybe, if revenues exceed expectation, we could provide some income tax relief in addition,” Branstad said. “But I think I would rather focus and get something permanent done on the property tax. That’s the place where we’re the least competitive.”

That’s a shame.  Given the economically unwise attitude of the Senate leader, maybe nothing is possible:

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said he would need more details but at first blush he doubted it would go very far in the legislative process if it proved to be “just a way for the wealthiest Iowans to cut their taxes dramatically” while middle-class families picked up a greater share of the tab for the cost of state government.

That’s just silly.  The rich guy isn’t buying for Iowa either.  The wealthiest Iowans always can dramatically cut their taxes with a moving van, until Senator Gronstal figures out a way to keep them from escaping to zero-tax South Dakota or Florida.

Iowa’s income tax is way overdue for replacement.   Instead, it will get more Bondo and bumper stickers.

If Iowa's tax law were a car, it would look like this.

If Iowa’s tax law were a car, it would look like this.


Fiscal Cliff Notes:

Greg Mankiw, New York Times:

When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.       

Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans.

Think Finland.  Unless we choose to be Greece or Argentina.

Gongol: Fiscal Cliff…not resolved. I note a false choice:

The people who make the decisions at the highest level in this republic are either dishonest or utterly economically incompetent if they don’t say the following out loud: “We are demanding more out of our government than we can presently afford. We need to pay more, get less, or both.”

“Either?”  I say “both.”

Kay Bell: Senate ready for some football; adjourns Sunday without reaching fiscal cliff deal

TaxGrrrl, Budget Talks Stall As Reid Calls Latest GOP Move A ‘Poison Pill’

Kevin Drawbaugh, Fiscal cliff talks down to the wire (Tax Break)

Nick Kasprak, 2012 Likely to be First Year Without AMT Patch

Peter Reilly, Dysfunctional Congress – At Least They Are Not Maiming One Another.  If they don’t, maybe we should.


The roundup:

Cara Griffith, What Will Become of Physical Presence? (

Paul Neiffer,  Be Careful Of Fiscal Year Section 179 Issues!

Jason Dinesen,  6 Tax Predictions for 2012 — How Did I Do?

Tres Bien. French Court:  75% Tax Rate on Millionaires Is Unconstitutional (TaxProf)

Robert Goulder, Gérard Depardieu: Tax Exile (

TaxGrrrl, Congress Hasn’t Fixed The Budget Yet, Getting A Raise Anyway.  Courtesy of the President, who maybe thinks they make him look good by comparison.

Chris Sanchirico, New Ways to Think About a Tax on Public Companies

Insureblog,  Cavalcade of Risk #173: Post-Mayan Apocalypse Edition

The Critical Question: Is This Tax Preparation Nightmare Reawakening? (Jim Maule)

Tax Roundup, 12/17/2012: Ames! And fixing the cliff by fudging withholding.

Monday, December 17th, 2012 by Joe Kristan

The expectant crowd gathers in Ames, Iowa for the final 2012 session of the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School. 


350 practitioners are signed up, and the coffee’s on!


Fiscal Cliff Notes

 Because writing big checks in April is always popular.  A few commenters have said that the Treasury Secretary can prevent Fiscal Cliff disaster by just setting the withholding tables to pretend that the tax law isn’t changing January 1.  Marie Sapirie of Tax Notes says it’s not that simple ($link)

Commentators have suggested that Geithner may even be able to prospectively implement the administration’s policy of raising taxes on taxpayers making more than $250,000 per year by increasing withholding only on income above that level. That is almost certainly wishful thinking. Whatever the “most appropriate” amount of withholding to reflect the tax rates in section 1 may be, section 3402(a) does not give the Treasury secretary the power to create withholding tables that have no basis in current or recently expired law.

Of course Secretary Geither hasn’t always been big on following the tax law.

TaxProf,  NY Times: Itemized Deduction Cap: Popular, But Unfair 

KayBell,   National Taxpayer Advocate Nina Olson discusses fiscal cliff tax complications

TaxGrrrl,  Budget Resolution May Come Down To One Question

Steven Rosenthal,  Paying Taxes on Capital Gains Early: How Investors are Avoiding Tax Hikes (TaxVox): “All of this planning suggests that sophisticated taxpayers are outracing Congress again.” 

Nick Kasprak,Alternative Minimum Tax Increase Looming Over Fiscal Cliff Negotiations (Tax Policy Blog)


Remain calm, all is well.  Deficit Hysteria and Debt Denialism (Joseph Thorndike,


TaxProf,  Sullivan: Why the SALT Deduction Is Always Under Attack

Megan McArldle discusses an interesting pension funding approach:

Big news in pensions today: Silverdex, a major US-based conglomerate with fingers in just about every economic pie, from mining to solar cells, turns out to have been stuffing its main pension fund full of… it’s own corporate bonds

Just kidding. 

I don’t really know how to say this, but sorry, I lied a little bit.  I’m not talking about a private company at all, because of course, if a private company did this, it would be completely and totally illegal.  Regulators would have shut this down decades ago and probably at least a few lower-level executives would have spent a little time in the pokey.  Instead this is, of course, a description of how the United States Social Security “trust fund” works.

Like so many things: private sector does it, it’s scandal and ruin.  Government does it, it’s Tuesday.

Courtney A. Strutt-Todd,  Tax Law Blog: Attacks on the Exemption for Municipal-Bond Interest and Why it is Important to the Average Taxpayer (Davis Brown Tax Law Blog)

Paul Neiffer,  Another Nice Feature of a Living Trust

Brian Strahle,  D.C. Combined Reporting: How Much Will it Cost Your Company?

Missouri Tax Guy,   Capital Gains, What you need to know 

Trish McIntire links to the annoying new 2013 EIC Interview Sheet, so practitioners can double up as welfare caseworkers.

Russ Fox,  What Happens When Cigarette Taxes go Through the Roof?

Martin Sullivan,  Capital Gains Frustration for Tax Reformers (  His “reformers” want to increase the problems inherent in capital gains taxes by increasing them.  May their frustrations endure.

The Critical Question:  Naming Spousal IRAs After Senator Hutchison – Is That A Priority ?  (Peter Reilly)  I still think Roth & Company should get royalties for the Roth IRA…

Linda Beale,   Goggle’s Bermuda hideaway/HSBC’s too-big status: time to rein in the corporations!  Too big, eh?  Google’s entire market capitalization is about $234 billion this morning.  That’s how much the federal government spends in 23 days.  And it’s Google that’s too big? 

 Sorry, I think there’s already a mortgage on it.  A New Way to Reduce Our National Debt — Sell Alaska. (Greg Mankiw)


Tax Roundup, 12/14/2012: I want to lose weight. And I want more dessert!

Friday, December 14th, 2012 by Joe Kristan

Flickr image courtesy seriousbri under Creative Commons license.

Cause and effect: the Iowa Chamber Alliance can’t quite put them together.  The umbrella group for Iowa’s chambers of commerce has issued its 2013 legislative agenda.  The Des Moines Register reports (my emphasis):

TAXES: Iowa’s tax system is among the highest for businesses, the alliance contends, and commercial and property tax relief are needed. In addition, the group supports addressing unfunded mandates, public employee pensions and other measures to help offset rollback effects on local governments. The alliance also supports efforts to simplify and reduce corporate income taxes, and to streamline the personal income tax code.

So far, so good.  But then:

ECONOMIC DEVELOPMENT: The Iowa Economic Development Authority needs money for flexible incentives to compete for investments and jobs, the allliance said. It backs a variety of tax credits to retain, grow and attract investments in Iowa, including restoration of the $185 million cap on economic development tax credits.

Let’s spell this out: Iowa’s tax code needs simplification because it is larded with “economic development” provisions, including dozens of “economic development tax credits.”  The rates are high because if they weren’t, the special breaks would keep it from raising any revenue.  To say you want lower rates, a simpler tax code, and economic development credits is like saying you want to lose weight and you want some more cookies.

There is a better way: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.


Fiscal Cliff Notes

Tax Offer for Firms Pits Big vs. Small (Wall Street Journal):

If ideas proposed by the White House take hold—a long shot—rates for big companies likely would fall next year while those paid by many small-business owners through the individual tax system would rise.

That potential gap could encourage more companies to organize as corporations. For now, the prospect is strengthening alliances between Democrats and big-company CEOs on the one hand, and Republicans and small-business groups on the other.

It’s Warren Buffett and Goldman Sachs vs. the entrepreneur — influence and pull vs. the rest of us.

Patrick Temple-West,  Tax offer pits big companies against small, and more (Tax Break)

Martin Feldstein,  The Tax Hike Canard (via Mankiw)

Janet Novack,  Will Your Retirement Be Thrown Off The Fiscal Cliff?

Howard Gleckman,  Why the Senate’s Tax Bill is No Way Out of the Fiscal Impasse


IRS reminds taxpayers of “Savers Credit” (IR-2011-121)  This non-refundable credit matches as much as 50% of taxpayer contributions to their IRA or 4o1(k) accounts.  It works on joint returns with incomes up to $57,500 and single filers with incomes up to $28,750.  Savings made when young can do great things when compounded over a career, and this credit makes it painful.  Giving your recent grad starting out in the world some cash to fund an IRA can help build a nest egg and net a nice tax refund.


Andrew Mitchel,  Doctrine of Constructive Receipt.  You can’t avoid the income this year by waiting until next year to cash the check.

Kay Bell,  Reindeer year-end tax tip games 2012: Dasher says use up your FSA funds

Paul Neiffer,  Some Interesting Ag Cooperative Facts.  Iowa leads the nation with total co-op sales of $22.4 billion.

Jason Dinesen,  This Accountant’s Idea for Eliminating Kickoffs in the NFL.  Without kicking, where does the “F” in NFL go?

The Critical Question:  When a Tax Argument is Nonsense, Why Not Say So? (Jim Maule?

Why not?   The 2012 Holiday Kitchen Gift Guide (Megan McArdle)

I can quit any time.  I just need six more drinks.  Wind Energy Association Says Industry Can Survive Without Tax Credit” (Tax Analysts, $link):

The wind energy industry could be self-sustaining over the long term if its primary federal incentive is renewed in 2013 and then gradually phased out over six years, the industry’s trade association said December 12.

Because the last 20 years of the tax credit just weren’t enough for a good buzz.


Tax Roundup, 12/11/2012: Red Oak! And impossible dreams.

Tuesday, December 11th, 2012 by Joe Kristan

The Tax Update is in Red Oak, Iowa today for the seventh tour date for the Iowa State University Center for Agriculture and Taxation Farm and Urban Tax School.  This is our first visit to Red Oak.  From Wikipedia:

Red Oak is a city in and the county seat of Montgomery County, Iowa, United States,[3] located along the East Nishnabotna River. The population was 5,742 in the 2010 census, a decline from the 6,197 population in the 2000 census.[4][5]


The community has had a disproportionate number of casualties in the Civil War and World War II.

In the American Civil War, the area provided more Union troops per capita than any other in the state.[10] Company M (which also included residents from Montgomery County had 160 casualties among its 250 members; 52 men were killed in action.[11]

Early World War II battles claimed a disproportionate number of soldiers from Red Oak (although the final casualty statistics tend to disprove the oft-repeated statement that Red Oak suffered more losses per capita than any other American community).[10][12][13] In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed.[14] At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action.[15]

Here is the crowd:


I can confidently endorse the Red Oak coffee and donuts.  Register now for the last session next Monday in Ames!


Eric Toder,  The Coming AMT Debacle. (TaxVox)   If Congress fails to pass an alternative minimum tax “patch,” the AMT is slated to rise drastically for 2012:

Overall, AMT liability will rise from $34 billion to $120 billion. Of that $86 billion increase, new AMT taxpayers will owe $64 billion—an average of about $2,250–while those currently on the tax will pay another $22 billion—an increase of about $5,500 each over the nearly $8,500 average they would pay with a patch.

If you suspect that a tax that affects 32 million households is not limited to the rich, you are right. It is true the enhanced AMT will hit upper middle-income taxpayers the hardest – 98 percent of those with adjusted gross income between $200,000 and $500,000 will pay an average of almost $11,000 in AMT on top of their regular tax liability.

With our political class, failure is always an option. 


David Henderson, When Taxes are Cut, What Does Regressive Mean?:

The bottom line is this: Start with any system of progressive taxation, cut everyone’s taxes by the same percent, and you will have implemented, by their standard, a regressive tax cut.

Exactly.  If you only tax rich people, any tax cut “disproportionately benefits the rich.”

Greg MankiwMake Your Own Deficit-Reduction Plan, links to a Wall Street Journal’s interactive graphic featuring deficit reduction options.

Janet Novack, Gucci Match: Fiscal Cliff Tax Fight Pits The 2% Against The 0.1% And The Richest 400

Anthony Nitti,   Here’s Your Update On The Fiscal Cliff Negotiations: Both Parties Agree That the Other Party’s Proposal Stinks.  This time, they’re both right.


Paul Neiffer,   Watch Your Timing On Year-End Gifts 

Brian Strahle, D.C. Ruling Presents Franchise Tax Opportunity

Jack Townsend, I Should At Least Mention Stolen Identity Refund Fraud

To dream the impossible dream… Musical theater maven Robert D. Flach tilts at a windmill:

I have a dream that our elected officials in Washington can create a simple and fair Tax Code.
I have a dream that our elected officials in Washington are really not just self-centered and self-absorbed idiots.

That’s right up there with my dream of winning the Triple Crown. As a horse.

No, we’ve been trying that for a long time here.  Can tax on witch-doctors cure Swaziland’s fiscal pain? (Nanette Byrnes, Tax Break)

That’ll work:  Alan Simpson goes ‘Gangnam Style’ in deficit reduction video effort  (Kay Bell)

Sacre Bleu!  Gerard Depardieu Leaves France After Tax Increases (Joseph Henchman, Tax Policy Blog)

Robert Goulder,  Timeless Tax Policy & The Other Colbert (

It might someday help him clear the AGI floor for health cost deductions:  Law Student Wins Krispy Kreme Doughnuts for a Year and Wonders: What Are the Tax Consequences? (Tax Prof)