Posts Tagged ‘Grover Norquist’

Tax Roundup, 11/26/2012: Is there a good side to tax evasion? Plus more fiscal cliff jumping!

Monday, November 26th, 2012 by Joe Kristan

Via Wikipedia

Is it better to cheat on business taxes than to be out of business?  A British researcher says much of the UK economy is only possible through tax evasion.  From FastCompany.com:

As he and colleagues argue in a recent paper, the informal economy isn’t just for shady figures looking to squeeze out as much profit as possible; in large measure, it’s inhabited by entrepreneurs whose fledgling businesses might simply fail if they played strictly by the rules.

As taxes and regulations get more complicated and difficult to comply with, more businesses will fall on the wrong side of the law (never a good idea, by the way).  The politicians who make compliance prohibitively difficult and expensive will then blame “greed.”

 

That’s why they are called plea “bargains.”  From the Newport Beach Patch:

A 52-year-old woman who pleaded guilty in 2009 in connection with a $2.5-million tax fraud and money laundering scheme that included two Newport Beach properties and was later allowed to withdraw her plea was convicted today following a jury trial.

Safieh Fard had struck a plea bargain in May 2009 with federal prosecutors that recommended a 30-month prison sentence. Now Fard could face up to 20 years in prison, her attorney Correen Ferrentino said.

Sadly, prosecutors can overcharge to force a plea bargain.  Even when a defendant thinks she is innocent, the risk of a long prison sentence can make it hard to keep fighting.   It will be interesting to see how long the sentence turns out.

 

Really?  Not all tax prosecutions are justified?  No.  Tax Analysts today carries an appalling story from New York State (unfortunately available for now only to subscribers) where a small businessman was falsely accused of evading taxes on $1 million of income.  The indictment was based on shockingly lazy investigation; a close reading of the taxpayer’s return alone would have cleared the taxpayer.

It was almost as though the prosecution believed that once the department demonstrated that Monsour had received the money deposited into his accounts, the burden had somehow shifted to Monsour to prove that the receipts were not taxable income. That approach might have applicability in a civil tax audit, but it has no place in a criminal prosecution. In a criminal case, it is always the people’s burden to prove every element of the offense, whether before the grand jury or at trial, and in this case the people had to show that Monsour knowingly and fraudulently filed a false return that misrepresented his income. Showing that he had received money without also showing that the money received was taxable income was not enough, and the prosecution would have known that mistake if Monsour had been alerted to the investigation before he was indicted.

The taxpayer had borrowed money and sold property (reporting the sales properly on his return), accounting for the bank account deposits that led to the indictment.  Those calling for ever-harsher punishment and looser prosecution standards for tax crimes ought to be the first to experience it.

 

Tom Harkin, cliff jumper.  From thefiscaltimes.com:

In a recent call with reporters, Democratic Sen. Tom Harkin of Iowa signaled he was willing to let the country topple over the fiscal cliff unless President Obama and Congress strike a deal to force wealthy Americans to pay more in taxes and that protects Medicare and Medicaid from deep cuts.

“No deal is better than a bad deal, because things will change after Jan. 1, the positions will change,” Harkin explained. “Quite frankly, if we don’t get a good deal, we’ll just take it up in January or February.”

The deal is already bad.  The only question is how much worse it will get.

TaxProf,  Should the Top Marginal Income Tax Rate Be 73 Percent?  Short answer: no.

Martin Sullivan,   Should CEOs Lobby for a Carbon Tax?  (Tax.com) They might as well lobby for an oxygen tax, for all the good it would do.

Jim Maule,   Is Grover Norquist Singing a New Tax Tune?

Maybe not:  Members of Congress Appear Ready to Break With Anti-Tax Pledge As Norquist Doubles Down (TaxGrrrl)

Peter Reilly,  S To LLC As A Fiscal Cliff Acceleration Strategy ?  That means paying tax on all of your built-in gains now, but at a 15% rate.  It’s a strategy only for taxpayers with cash reserves to pay taxes now.  It makes the most sense if a sale is likely in a few years anyway, but at a higher tax rate.  The biggest risk is that the value of the business will go south before you sell the business, and you pay tax on gain that won’t be there when it’s time to cash out.

Howard Gleckman,  What Happens if Congress Extends Tax Cuts for Those Making $500,000?  (TaxVox)  It just changes where the harmful and futile policy begins.

 

That’s one way to use the $5 million lifetime gift exemption before it goes away next year.   Lindsay Lohan gets $100,000 gift from Charlie Sheen to pay toward IRS bill; Sheen now faces estate, gift tax issues  (Kay Bell)

Paul Neiffer,   IRS Bumps 2013 Standard Mileage Rates by a Penny per Mile

Jack Townsend,   The Cheek Defense in IRS Disbarment Proceedings.  Tax protest guru and former IRS agent Joe Banister is barred from practicing before the IRS; he was unable to convince the Ninth Circuit that his belief in the silly “Section 861 argument” is reasonable.

 

News you can use:  SWANS ARE EXPENSIVE! (Robert D. Flach)

I would have read the article, but I decided not to risk it.  Optometrists warn: Don’t stare at your computer screen too long (Radio Iowa, via The Beanwalker)

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Tax Roundup, 11/20/2012: Obamacare guidance high on IRS to-do list. Plus: Grover takes hostages!

Tuesday, November 20th, 2012 by Joe Kristan

Obamacare rules prominent in IRS plans for new guidance.  The Treasury and IRS have released their “Priority Guidance Plan” for the current fiscal year.  Tax Analysts reports ($link)

The plan contains 18 healthcare-reform-related projects that will likely take up a considerable portion of Treasury and the IRS’s time. Some time-consuming, tax-related portions of that law, such as the net investment income tax, the excise tax on some medical devices, and the indoor tanning tax, become effective on January 1.

Actually, the tanning tax has been in effect since 2009.  The Section 1411 tax on investment income is a huge tax planning issue.  Three years after the enactment of Obamacare, many basic questions about the tax remain unanswered, including:

  • Will “self-charged” rental income that is non-passive under the passive loss rules be subject to the 3.8% tax?
  • Will rental income earned by “materially participating real estate professionals” be subject to the tax as rent, or exempted as business income?
  • Will pass-through interest earned by S corproation banks be interest, subject to the tax, or business income exempt from the tax for materially-participating shareholders?
  • Will farmers be taxed at the 3.8% on CRP and crop share income?

We should expect at least a set of temporary regulations next month.

 

Norquist: some Democratic senators will rebel against letting high-income tax cuts expire.  From The Hill:

Conservative anti-tax advocate Grover Norquist says the 20 Senate Democrats facing re-election in 2014 will be the “hostages” who will ensure that President Obama does not raise the Bush-era tax rates.

That isn’t the party line, as Democrats have said they would go over the fiscal cliff before letting “the rich” keep current tax rates.  Grover thinks not:

But Norquist thinks vulnerable senators up for re-election in two years will force Democrats to back down, as they did in 2010 by extending virtually all of the Bush tax cuts for two years.

 “Last time Republicans won the House and [were] a little strengthened in the Senate and Obama folded completely. We’re going to be stronger this time than after last time; our hostages are the 20 Democrats up in ’14.

Grover is an astute observer, but President Obama may play the role of Russian special forces in this hostage drama, ensuring destruction all around.

 

Patrick Temple-West,   Investors rush to beat threat of higher taxes, and more (Tax Break)

Paul Neiffer,   Talk Brewing of Extending the Payroll Tax Cut.  That would be news, as this had not been part of the year-end tax legislation discussion.  It seems unwise to accelerate the demise of social security by reducing funding, but wisdom isn’t found much in our political class.

William Perez,   Possible Delay to Filing Season Due to Late-Passing Legislation, IRS Warns.  Nice way of saying “we’re doomed.”

 

Nick Kasprak,  Monday Map: Dividend Income by State:

Iowa ranks a lowly 43rd in percentage of gross income made up of dividends.

 

Peter Reilly,   IRS Position On Wandry Decision Makes 2012 Gifting More Difficult.  With free Dr. Who references!

Seems unwise.   Paying more in taxes to burnish EPS  (Nanette Byrnes, Tax Break)

That might explain why we’re still working.  Most of us who plan to retire aren’t yet financially ready for it (Kay Bell)

 

Ex-lineman suspended from life for 28 months.  While everyone who goes through big-time college football programs can claim some level of higher education, it doesn’t always do a lot of good.  A case in point:

Former Syracuse University lineman Louis Gachelin has been sentenced to 28 months in federal prison in an undercover FBI tax fraud investigation.

The U.S. Attorney’s Office reports that the 31-year-old Gachelin was sentenced Monday. He pleaded guilty in July to theft of government money and identity theft.

It apparently doesn’t go better for players in “skill” positions.  The same report says two former NFL players, including a running back,  have pleaded guilty in related cases out of an FBI sting using an “undercover check cashing store in North Miami” to catch identity thieves.

 

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Moonshine run through a tax return is still moonshine

Thursday, June 16th, 2011 by Joe Kristan

Congress failed this week to end the ethanol subsidy, largely because the subsidy is in form a tax credit. Grover Norquist therefore deems its elimination a “tax increase” and a violation of the Americans for Tax Reform’s “no tax increase” pledge.
In real life, it’s spending run through a tax return. The credit is refundable, as explained in IRS Publication 510 (page 24):

To the extent the alcohol fuel mixture credit, biodiesel mixture credit, renewable diesel mixture credit, alternative fuel credit, and alternative fuel mixture credit exceed taxable fuel liability, a payment is allowed and may be taken as a credit on Schedule C (Form 729), as a refund on Schedule 3 (Form 8849), or as an income tax credit…

So producers who have no taxes otherwise can file a form and get government money back, just like in a welfare office. Because the IRS functions as the welfare office, Mr. Norquist says that cutting the subsidy is a tax increase.
The episode provides a valuable lesson to corporate welfare seekers: get your subsidies through the tax code, so Grover Norquist will be on your side.
Other coverage:
Tax Policy Blog: The Ethanol Tax Credit and Sound Tax Policy
Investors Business Daily: Big Corn Eats GOP
Tax Vox: The GOP, Ethanol, and the No-Tax Pledge
Tax.com: It’s Time to Lose Grover
Related: Spending run through a tax return is still spending

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You’re not writing me another big check? You tax hiker!

Saturday, April 2nd, 2011 by Joe Kristan

Some folks are adamant that reducing a tax credit is always a “tax increase,” rather than a spending cut. Grover Norquist is perhaps the most notable champion of this view, but not the only one.
Then how about this “tax cut”:

Even their tax preparer, the owner of H&R Block in North Carolina, couldn’t believe her eyes.
But a couple making $39,000 annually who have adopted five children in recent years qualifies for a $54,000 tax refund. That’s because an adoption tax credit of $13,170 per child became refundable this year. Hence, David and Thelma Ward will be paid the amount left over after the credit is applied to their tax bill, reports CNN Money.

Another CPA informs me that he had a couple who got a $26,000 adoption credit refund for 2010 with taxable income of zero.
It’s crazy to say that the family that doesn’t get a $26,000 check next year with no taxable income is getting a $26,000 tax increase.
While the refundable adoption credit is a dramatic example of the absurdity of calling a subsidy a “tax reduction” just because it comes through your 1040, it’s not the only one. The earned income credit is a long-standing example of a welfare program run through the tax system. Refundable credits at the corporate level, like Iowa’s research credit, are subsidies in the same way — when you pay no tax and get a state check, it’s a subsidy as sure as if the legislature voted you an appropriation.
Very similar are “transferable” credits, like most film credits. Because film companies are set up to disappear after the production, they rarely have tax to pay of their own. By being allowed to sell their credits to parties that do owe tax, they can turn the credits to cash. They sell them at a discount to make the deal worthwhile to the buyer. The economics are that the state allows the film company to factor state tax receivables at a discount. It’s spending state assets just the same as writing a check, except with a loss for the discount.
It’s unfortunate how many people who sincerely want to shrink out-of-control government spending are blind to spending run through tax returns. Whether the government check is authorized by an appropriation or a tax code section, it still is money coming out of the pockets of the rest of us.
UPDATE, 4/4: I forgot to thank Taxdood for the Twitter hat-tip. Thanks!
Related:
Hiding government spending by running it through tax returns
Taking the credit isn’t Sarah Palin’s problem; signing it is.

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April Fools fun

Friday, April 1st, 2011 by Joe Kristan

While the Tax Update is too humor-impaired at this point in tax season to play April Fools jokes, those crazy Tax Foundation guys are up to the job:
Obama Urges Biden Gaffe Tax to Close Budget Deficit
New York Demands Income Tax from Orbiting Astronauts
D.C. Predicts Sales Tax Holiday Will Boost Baseball Wins
Parody is hard in the tax law, as their Congress Choosing Between Big-Government Newspaper Subsidy and Free-Market Newspaper Tax Credit shows. The story says a congresscritter named Papershill is proposing a 50% subsidy for publishing newspapers. Other critters come back with a “free market” alternative:

The counterproposal would provide a tax credit to each newspaper equivalent to 50% of expenses. Newspapers would submit their expenses for approval by a a subcommittee of elected officials to be eligible for the tax credit.
“Our idea is completely different from Papershill’s,” the sponsors said. “We’re giving tax cuts, not a subsidy program, while still saving newspapers, creating lots of jobs, and making sure newspapers are supportive of what we in Congress say and do.”
Early indications are that, while Papershill’s plan is doomed to failure, the compromise is likely to pass.
“If it lowers someone’s taxes, I’m all for it,” said one congressman. “Those who are opposed to this tax credit are just big government lackeys who want to tax America’s newspapers to death.”

While the Tax Foundation is engaging in satire, Grover Norquist is supposed to be serious. Yet he sounds a lot like the fictional Tax Foundation congresscritter when he acts as though just because the ethanol subsidy is run through tax returns, it is no longer a subsidy:

Mr. Norquist said his group opposed revoking the ethanol measure unless it was offset with another tax break, because that would constitute a net tax increase. He said that is the purpose of the group’s pledge, which dates from the mid-1980s.

By that logic, all you have to do is call any spending measure a tax credit, and any future cut in the subsidy becomes a tax increase. For Mr. Norquist and Americans For Tax Reform, that makes every day April Fools Day.

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