Posts Tagged ‘Hank Stern’

Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

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For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/20/2015: What’s with the accounting method changes? And: foot kissing + tax evasion = double trouble.

Tuesday, January 20th, 2015 by Joe Kristan

3115-2009If your business return seems extra thick this year, it could be a result of an “accounting method change” application — Form 3115 — buried in it.

The tax law requires taxpayers to get IRS permission to change a “method of accounting.” Without getting into all of the tedious details, and with great oversimplification, a “method of accounting” occurs when the way you account for something on your tax return affects the timing of income or expense, but not the total amount over time. In other words, it’s temporary vs. permanent differences.

Of course timing is everything in tax planning, and the IRS doesn’t want you to change accounting methods willy-nilly. The IRS doesn’t have the time to consider every accounting method change, though, so it publishes a long list of “automatic” method changes annually. This year’s list is in Rev. Proc. 2015-14.

This year will see more Forms 3115 than usual as a result of the so-called “repair regulations” that are effective for 2014 returns. These rules distinguish between “repair” expenses, which can be deducted, and “improvements,” which have to be capitalized and depreciated.

20140925-2The repair regulations have provisions that let taxpayers treat their building components — HVAC, roofs, elevators, etc — as separate items under these rules. Their effect is to permit deductions for some costs that may have been trapped in the depreciable cost of the building. That makes the automatic method change under these rules (Rev. Proc. 2014-17) a good deal, as it can provide a catch-up deduction for prior capitalized costs. Many returns will also include a method change (Rev. Proc. 2014-16) to reflect updated rules for deducting or capitalizing “materials and supplies.”

Automatic method changes are a good thing; if you have a method change that isn’t automatic, special IRS permission is required, and it doesn’t come cheap. But even an automatic change isn’t free, especially if your preparer has to go through old repair records to determine the catch-up deduction. But if you have significant depreciable real property, it’s probably worth the effort.

 

Russ Fox, Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy. 

An accountant from Stillwater, Minnesota — who happened to also be the Mayor — chose poorly.

 

20121120-2Hank Stern, Counting down the ObamaTax:

Many (most?) folks believe that the tax is a mere $95 this year and, for some people, this may well be the case. But it’s actually just a minimum; the actual rate (this year) is 1% of income:

TurboTax, an online tax service, estimated that the average penalty for lacking health insurance in 2014 will be $301.”

A common misconception.

Robert Wood, Beware Obamacare When Filing Taxes This Year. A roundup of the individual mandate penalty and the net investment income tax.

 

Annette Nellen, Due diligence for preparing 1040s for 2014:

What’s new for due diligence for 2014 individual tax returns?  Virtual currency, Affordable Care Act, FBAR, Airbnb rentals, for sure.  Also, the typical charitable contributions, mortgage interest and 1099-K review.  The biggest new item for 2014 will the new line asking if the individual had health coverage for the year.

More work doesn’t come free. The post lists to a longer article about preparer “due diligence” this tax season.

 

Tim Todd, Tax Court Adopts Functional Test to Define “Bank”. “In sum, the Tax Court held that Moneygram satisfied neither the Staunton functional test nor the § 581 test because it failed to receive deposits, make loans, and was not regarded as a bank by any state or federal regulator. Consequently, Moneygram was not entitled to the reported bad debt deductions of the partial or wholly worthless asset-backed securities.”

Jason Dinesen, A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913.

 

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part 1. “As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.”

TaxGrrrl, Fun With Taxes: Tax Haiku 2015. How about this:

 insure worker health?

Better not reimburse it

That is expensive.

 Kay Bell, Martin Luther King Jr. Day lessons via “Selma” & “Glory”

Mitch Maahs, IRS Announces New Standard Mileage Rates (Davis Brown Tax Law Blog)

 

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Robert D. Flach, BO SOTU PLANS TO INCREASE TAX ON THE “WEALTHY”. ” BO’s tax proposals, both to help the middle class and punish the wealthy, will never pass in the Republican controlled Congress.”

Matt Gardner, President Obama Takes on the Capital Gains Tax Inequity with New Proposals. By making it worse, of course, though not to hear Mr. Gardner tell it.

Renu Zaretsky, To Build a Better Tax Code, You Could Follow the Money.  The TaxVox headline roundup is heavy on the President’s proposals.

TaxProf, The IRS Scandal, Day 621. This edition cites Stephen Moore’s Op-ed: “Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job.”  Unfortunately, the President who hired him thinks he is doing his job, which is to be a partisan scandal goalie.

 

The headline that wins the internet: Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (Jack Townsend)

 

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Tax Roundup, 12/30/14: Is prepaying taxes a good bet even without AMT? And: CoOportunity failure ripples.

Tuesday, December 30th, 2014 by Joe Kristan

I’ll gladly pay you today for part of a hamburger tomorrow. In our zeal to pile deductions into this year’s return, it’s easy to overdo it. If you aren’t subject to alternative minimum tax, you can get a 2014 tax benefit by mailing your estimated 2014 state balance due by tomorrow. But does it really make sense to pay a dollar of tax now to get a 35-cent benefit on April 15? at the 35% bracket, the answer would be yes, but for lower brackets, the numbers don’t work as well.

The chart below shows compares the time value lost by sending $1,000 to the government early to the present value of the tax benefit received, using a 2% discount rate.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Green numbers show a present value benefit for prepaying 12/31/14 vs. the statutory due date indicated.

Every situation differs. This table should be used with caution. It does provide some tentative rules of thumb for individuals, assuming you will be in the same bracket in 2014 and 2015, that you itemize, and that AMT does not apply:

– It always makes sense to pay your fourth quarter state estimates in December instead of January.

– If you are an Iowa taxpayer, it makes sense to prepay fourth quarter federal payments at any bracket, but it never makes sense to pay your April 15 balance due in December.

– It only makes sense to prepay your state balance due for April 15 2015 by tomorrow only if you are in at least the 33% bracket, which kicks in for joint filers and $226,850 of taxable income, and for single taxpayers at $$186,350. For Iowa taxes due April 30, it’s about a push, or even a small present value loss.

– It makes sense for taxpayers in the 25% bracket ($73,500 joint, $36,900 single) to prepay their March 1 property tax installments.

– It never makes sense to prepay your September property taxes nine months ahead.

As we discussed yesterday, AMT can make prepayments a much larger blunder, so don’t do anything without running some numbers.

 

cooportunity logoThe failure of Iowa’s federally-funded CoOportunity health care insurance company is drawing national attention. The Wall Street Journal opines in Fannie Med Implodes: “Call it the Solyndra of ObamaCare.”

Meanwhile, Iowans covered by CoOportunity have to deal with the consequences. Des Moines Register, CoOportunity’s crisis could cost members thousands:

Customers who switch out of CoOportunity coverage won’t be able to start their new policies until Feb. 1, because Dec. 15 was the national deadline for obtaining insurance policies that start Jan. 1. In the meantime, many customers would have to start meeting CoOportunity’s annual deductibles and out-of-pocket maximums for 2015. Then, when they switch insurers in February, “they would have to start over, unfortunately,” Commissioner Nick Gerhart said Monday.

If you like your plan…

CoOportunity Health’s troubles could affect whether small Iowa employers can qualify for 2015 tax credits toward workers’ insurance premiums.

Employers with fewer than 25 full-time workers making an average of less than $50,000 are supposed to be eligible for the tax credits, which can amount to 50 percent of the cost of premiums. However, starting in 2015, those credits are to be applied only to policies that are sold on the employer side of the public marketplace, healthcare.gov. In Iowa, CoOportunity was the only carrier selling health policies to Iowa employers on the marketplace. The company has ceased selling new policies because of its financial crunch.

Iowa Insurance Commissioner Nick Gerhart said he’s checking with federal officials to see if there’s another way to let small Iowa employers obtain the tax credit.

The IRS has let taxpayers in some counties without a SHOP provider take the credit. We will see if they grant a similar waiver here.

Related: Hank Stern, SHOP Chop.

 

Robert Wood, 3 Quick Year End Steps Pay Off Big April 15old walnut

Kay Bell, 5 tax-saving moves you can make by Dec. 31

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #1-Obamacare Endures Additional Attacks. Aw, poor thing.

Russ Fox, IRS Announces Tax Season to Start on January 20th

Robert D. Flach, THE YEAR IN TAXES 2014. “Once again the year ended with the idiots in Congress waiting until literally the last minute to pass an extension of all of the expired ‘tax extenders’.”

Melanie Migliaccio, 9th Cir. Rejects IRS’s Transferee Status Recharacterization Argument (Tax Litigation Survey)

 

Iowa Public Radio, Rep. Grimm To Resign After Guilty Plea On Tax Charge.

TaxProf, The IRS Scandal, Day 600

Alan Cole, Au Revoir to the Millionaire’s Tax (Tax Policy Blog). “The French government will quietly allow its millionaire’s tax to expire.”

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If you think I’m unsympathetic to Commissioner Koskinen’s pleas of IRS povertycheck out No Fat to Cut at the IRS? So Take a Chainsaw to the Rest of the Beast. (J.D. Tuccille, Reason.com):

Of course, Koskinen framed it in terms of customer service, and friendly media outlets immediately parroted the message that a $346 million cut, bringing the IRS budget down to $10.9 billion, inevitably means longer wait times on the phone for distraught taxpayers seeking answers for their pressing tax questions.

This is an all-hands-on-deck spin on IRS cuts, with National Taxpayer Advocate Nina Olson (who is theoretically on the victims’ side, despite her government paycheck) recruited to caution that the IRS is “chronically underfunded” with unfortunate implications for taxpayer service and assistance.

Then again, that might not be so horrible an outcome, given that IRS assistance involved giving taxpayers bad advice 22 percent of the time back in 1987, 41 percent of the time in 1989, 22 percent of the time in 2002, and 43 percent of the time in 2003. And no matter the advice dispensed by the tax collectors themselves, taxpayers are on the hook for getting it right.

Via Wikipedia

Via Wikipedia

I can’t help thinking that the cuts to service are an IRS version of the Washington Monument Strategy, where the government responds to budget cuts by closing the most popular and visible tourist attractions. I would find Commissioner Koskinen’s pleas of poverty more convincing if he weren’t spending money on the new “voluntary” preparer program to end-run the Loving decision that shut down the preparer regulation power-grab. It would also be a good signal to put the 200 IRS employees who spend their working days doing union work on the phones instead.

Related: Cromnibus cuts IRS budget, delays extender vote.

 

Career Corner. What If Your Job Title Were Brutally Honest? (Adrienne Gonzalez, Going Concern). I don’t suppose it would be easy to fit “Chronic Blogger Who Does Taxes to Finance It” on a business card.

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Tax Roundup, 12/26/14: Bad SHOP-ing day: Iowa SHOP health insurance provider goes into receivership.

Friday, December 26th, 2014 by Joe Kristan

cooportunity logoSmall businesses wanting to provide health insurance coverage for their employees got a lump of coal in their stocking Christmas Eve with the announcement that CoOportunity Health, Inc. was placed in receivership by the Iowa Insurance Division. The Omaha World Herald reports:

CoOportunity Health, the two-year-old Iowa health insurance cooperative set up with federal loans under the Affordable Care Act, is running out of money and may be liquidated, which raises questions for other health insurance cooperatives nationally.

The company’s 120,000 individual and group customers, most of them in Nebraska and the rest in Iowa, are still covered if they signed up before Dec. 15 and should continue paying premiums to keep coverage in effect, said Nick Gerhart, Iowa’s insurance commissioner.

When the insurance division takes over an insurer, their policies remain in force while the insurer is either reorganized, sold or liquidated. But that doesn’t apply to brand-new enrollees. From the Herald:

But he recommended that policyholders switch to other insurance companies during open enrollment, which ends Feb. 15. People who enroll in new health plans by Jan. 15 would have that coverage in place by Feb. 1.

People who signed up for the first time with CoOportunity after Dec. 15 will not have coverage and should find other insurers, he said. CoOportunity, one of 24 health insurance cooperatives set up under the federal health care law, cannot sell or renew policies.

CoOportunity provided coverage on both the individual healthcare.gov marketplace and the “SHOP” marketplace for small businesses. A FAQ (.doc format) from the Iowa Insurance Division on the takeover has this for small businesses looking for coverage:

If I want to remain in the marketplace and change insurance companies, where do I go?

Contact your agent or broker or go to www.Healthcare.gov.

In central Iowa the website isn’t much help. In our coverage area, CoOportunity was the only SHOP provider, as far as I can tell. I have entered sample information in the SHOP marketplace for our 50309 zip code, and I get this result:

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This makes life complicated for small businesses that don’t currently have “grandfathered” coverage. The “marketplace reforms” of the ACA have a long list of requirements for qualifying coverage. If you provide coverage that fails to meet these rules, you incur an insane penalty of $100 per day, per employee. You need to make sure your broker knows if you don’t qualify for a grandfathered plan.

This also causes problems for employers wishing to take the 50% tax credit for providing employee coverage, as the credit is only available for plans purchased through the SHOP.

Roth & Company considered a plan offered by CoOportunity at our renewal last fall. It was slightly cheaper than our current plan (for which we had a 30%+ premium increase), but we stuck with our grandfathered plan, thinking the disruption to our employees wasn’t worth the minor savings. Bullet dodged.

More coverage:

Des Moines Register, CoOportunity Health falters, taken over by state.

Bob Vineyard, Another One Bites the Dust (InsureBlog).

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Peter Reilly, Tax Court Rules Wounded Warrior Can Take His Time With The Trash – Merry Christmas. Peter discusses a wonderful Tax Court case from earlier this week that treats a disabled veteran as “materially participating” in maintaining three rental properties as a real estate professional. His handicaps, which make his caretaking a slow process, actually helped him achieve better tax results, as Peter explains.

TaxGrrrl offers A Christmas Day Look At Santa’s Tax Bill.

Kay Bell, Merry Christmas 2014

Paul Neiffer, Merry Christmas – 2014

Jason Dinesen, From the Archives: You Won a Home! Now What? Part 3 of the Series

Jim Maule, Enact Tax Laws But Break Them?:

Even if Representative Michael Grimm eventually gives in to the calls for his resignation or is removed in some way from holding office, his failure to step down as part of the plea is an affront to hard-working Americans who do their best to comply with the tax law.

Heck, it’s even an affront to lazy Americans.

 

buzz20141017Robert Wood, IRS Hid Conservative Targeting Until After 2012 Presidential Election. Smidgen Corrupt?

Stephen Olsen, Summary Opinions. It’s the Procedurally Taxing roundup of recent tax procedure developments.

Many folks are taking today off, but Robert D. Flach is Buzzing away with his usual good stuff from around the tax world.

TaxProf, The IRS Scandal, Day 596

 

William McBride, Japan Plans to Cut Corporate Tax Rate, Leaving U.S. Further Behind (Tax Policy Blog):

Japan currently has a corporate tax rate of 37 percent, the second highest in the developed world after the U.S., which has a corporate tax rate of 39.1 percent (federal plus state). With this cut, Japan would be roughly tied with France for the second highest corporate tax rate in developed world, at 34.4 percent.

Iowa has the highest corporate rate in the U.S., which makes us Number 1 in a not-good way.

Howard Gleckman, House GOP Leadership Would Require Dynamic Scoring of Some Tax Bills. Will It Matter?

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Scott Sumner, The French experiment: Laffer >>>>>>> Piketty. (Econlog). France imposed a 75% top rate. Mr. Sumner observes:

Even if you are not a devout supply-sider (and I am a moderate supply-sider, who believes tax increases usually lead to more revenue) it would be hard to deny that this particular tax increase cost revenue, after accounting for the impact of French economic growth.

There are people who seriously insist that a 75%-90% top tax rate would be a good thing. France is Exhibit A.

 

The Cavalcade no longer moves on. The Cavalcade of Risk, the long-running roundup of insurance and risk-management posts is ending. It’s guiding light, Hank Stern, posts the final edition, which includes his own contribution Green Mountain State Blues, on the demise of their attempt at single-payer coverage in one state.

 

 

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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.

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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::

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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).

 

 

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Tax Roundup, 10/15/14: Extended return do or die day – tips on timely filing, and why you should do that.

Wednesday, October 15th, 2014 by Joe Kristan

20130415-1Friends, it’s deadline day. Extended 1040s are due today for U.S. residents. No second extension is available.

What happens if you don’t file?  Nothing good.  A few of the bad things that can happen:

- If you owe money, you can turn a 1/2% per-month late payment penalty into a 5% per month late-filing penalty.

- If you have an election to make that can only be made on a timely-filed return — for example, an election to defer insurance gains, or to carry forward net operating losses – you lose the chance to make that election forever.

- If your return would include a foreign disclosure, such as a Form 8938, Statement of Specified Foreign Financial Assets;  a Form 5471, disclosing an interest in a foreign corporation; or a Form 3520 if you have a foreign trust or a gift from a foreign personlate filing can trigger a $10,000 penalty.

- You don’t start the statute of limitations, so the IRS can come after you indefinitely for the tax year.

- Not filing can cause you to lose refunds. If you don’t file, you lose your ability to get a refund of withheld taxes after two years.

Failure to file is habit forming, and it’s a costly habit. Even if you owe and can’t pay, you still should file; you have options when you owe and can’t pay.

e-file logoWith so much on the line, it’s worth a little effort to make sure your last minute return is treated as timely-filed.  E-filing is the best way to ensure timely filing. There’s no worry about lost mail, and you get quick confirmation from the IRS.

If you must paper file, either out of conviction or because you are filing a form that can only be filed on paper, you should send it Certified mail, return receipt requestedGet down to your friendly post office and get the postmark hand stamped. And get there early; they often aren’t so friendly, or willing to hand-stamp your certified mail postmark, if you show up at closing time. And sometimes they consider that to be approximately “after lunch.”

If you can’t make it to the post office before closingall is not lost. You can go to a FedEx store or a UPS store and use a designated private delivery serviceBe sure to use one of the specified services. For example, “UPS Next Day Air” qualifies, but “UPS Ground” does not.  Get a shipping receipt with today’s date. And remember to use the street address for the IRS service center, as private services can’t deliver to the post-office box addresses.

 

Kay Bell, Tax Day 2014, the sequel: Oct. 15 Filing Extension Panic

Jason Dinesen, My Response to the IRS Saying I Can’t Speak On My Own Behalf

Peter Reilly, UnFair – One Night Stand Tonight – Exposing IRS Or Fair Tax Infomercial?

 

Keith Fogg, Picking the Wrong Collection Due Process Notice to Petition (Procedurally Taxing)

TaxGrrrl, Ireland Declares ‘Double Irish’ Tax Scheme Dead

 

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William McBride, U.S. Companies Continue to Flee Uncompetitive U.S. Tax System (Tax Policy Blog)

Matt Gardner, The Inversion Parade Continues: Steris Announces Pretend Move to Britain (Tax Justice Blog)

Howard Gleckman, The Small, Happy World of Supersized IRAs (TaxVox)

Joseph Thorndike, Forget Privacy — It’s Time to Tax Miles, Not Gas (Tax Analysts blog).  How do I put this politely? No, it’s not.

 

David Brunori, Schooling the Governors (Tax Analysts Blog) “Back when my libertarianism was still in the closet, I wrote critically of the Cato report card. I now regret my harsh critiques of the project because I believe Cato does the nation a great service by analyzing, assessing, and rating state executives.”

 

TaxProf, The IRS Scandal, Day 524

The new Cavalcade of Risk is up at Chatswood ConsultingThe ancient and venerable roundup of insurance and risk management posts has many highlights, including Hank Stern on Ebola and your health coverage.

 

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Tax Roundup, 8/7/14: Imitation and Flattery edition. And: How to get California to want your $800.

Thursday, August 7th, 2014 by Joe Kristan

20130819-1You might be surprised just how easy it can be to get sucked into tax in another state.  Cara Griffith explains how easy it is to get California to come after you for their $800 minimum return fee in Doing Business in California (Tax Analysts Blog):

The California Franchise Tax Board recently issued Legal Ruling 2014-01, which addresses when a business entity with a membership interest in a limited liability company is required to file a California return and pay applicable taxes. The ruling comes while a case is pending on that very issue.

The case is Swart Enterprises Inc. v. California Franchise Tax Bd. (Fresno County Superior Court, Case No. 13 CE CG 02171 (July 9, 2013)). Swart operates a farm in Kansas and provides farm labor contractors. The company is incorporated in Iowa, has estimated annual revenues of $280,000, and has three employees.

Swart has no physical presence in California. It doesn’t have employees in California and it doesn’t own real or personal property there. Swart did, however, own a 0.02 percent interest in a California limited liability company that invested and traded in capital equipment. Swart was not the manager of the fund and was not involved in the management or operation of the fund. Yet its status as a member is enough for the FTB to allege that Swart is doing business in California. 

The post explains that California would have let Swart off the hook if they owned in interest in a limited partnership, rather than an LLC.  So if your business sneezes in the general direction of California, make sure you stick an old-fashioned limited partnership in the ownership chain somewhere, or California will shake you down for $800, or maybe a lot more.

This should especially make businesses wary about buying interests in publicly-traded or broker marketed LLCs.  Most of these have at least a little bit of California income, and they might just make a California filer out of your LLC or corporation.  And it’s not just California — wherever the LLC might be, so might you be also.  It can mean increased state taxes, not to mention increased tax return prep fees.

 

TaxGrrrl, Son Of Powerful Congressman Charged With Bank & Tax Fraud.

Howard Gleckman, Does Congress Really Care About the Deficit? Not When It Comes to Vets and Highways (TaxVox).  The answer would have been correct if it stopped after the first two letters.

Annette Nellen, Push for state film credits from Congress.  They don’t care about state solvency either.

 

Peter Reilly, FAIR Tax Abolishes IRS – Then What?

Paul Neiffer, Another Conservation Easement Tax Court Case – Mostly in Taxpayer’s Favor:

When valuing a conservation easement, you must determine the value of the property before the easement and the value after the easement.  The difference in value becomes the charitable deduction amount.  In the case of the Schmidt’s, their apprisal determined the before easement value was $1.6 million and the after easement value was $400,000 for a net contribution deduction of $1.2 million…

The IRS appraiser valued the property at $750,000 for the before easement value and $270,000 for the after easement value for a net deduction of $480,000. 

The deduction came down a little, but the IRS lost its bid for penalties.

Me, Obamacare mandates: What’s a taxpayer to do? (IowaBiz.com, where I discuss what the Halbig decision on tax credits for policies purchased on federal exchanges means now for taxpayers subject to the individual and employer mandates.

TaxProf, The IRS Scandal, Day 455

 

There’s a new Cavalcade of Risk.  This edition of the venerable roundup of insurance and risk-management posts is up at The Population Health Blog. Among the worthy posts is Hank Stern’s Rideshare Tricks – An Update, on the insurance implications of participating in ride-share services like Uber.

 

nra-blue-eagleBut Mr. President, imitation is the sincerest form of flattery!  Accounting Today reports on yesterday’s presidential press conference in Obama Blames Accountants for Inversion Trend:

During a press conference Wednesday following a summit with African leaders, Obama said, “You have accountants going to some big corporations—multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States—and these accountants are saying, you know what, we found a great loophole—if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.”

Wherever would anyone get the idea to do such a thing?  Well, Accounting Today points to a suspect: Obama Aides Let Delphi Avoid Taxes with Tactic President Assails:

 President Barack Obama says U.S. corporations that adopt foreign addresses to avoid taxes are unpatriotic. His own administration helped one $20 billion American company do just that.

As part of the bailout of the auto industry in 2009, Obama’s Treasury Department authorized spending $1.7 billion of government funds to get a bankrupt Michigan parts-maker back on its feet—as a British company. While executives continue to run Delphi Automotive Plc from a Detroit suburb, the paper headquarters in England potentially reduces the company’s U.S. tax bill by as much as $110 million a year.

One might almost get the impression that this whole inversion panic isn’t really a serious policy effort, but instead a desperate diversion by a foundering politician and his partisans.

Kay Bell, Walgreens decides to keep U.S. tax residency

 

The problem might be the tax system, not wobbly patriotism.  Record Numbers of Americans Are Renouncing Their U.S. Citizenship (TaxProf).  Paul Caron links to Andrew Mitchel’s report on the latest quarterly numbers of published expatriates, which includes this chart:

20140807-1

 

Our worldwide tax system makes it difficult, dangerous and expensive to be a U.S. taxpayer abroad.  Rather than impugning their patriotism, the President ought to try to make it affordable.

 

Bob McIntyre of the Tax Justice Blog makes perhaps the worst appeal to authority ever seen in the tax literature: Woody Guthrie on Corporate Tax Inversions.  Woody Guthrie’s economic gurus weren’t exactly cutting-edge .

 

The Iowa State Fair Starts today!  

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If you show up on Saturday, look for me at the Sertoma booth at the Varied Industries Building from 1-5; I will be distributing educational hearing safety info and ear plugs, and you may even be able to get a free hearing screening from a trained audiologist.  And you might want some music to fire you up for a really big show!

 

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Tax Roundup, 7/11/14: Wilderness edition. And: the hazards of doing it yourself.

Friday, July 11th, 2014 by Joe Kristan
Photo courtesy Philmontscoutranch.org

Photo courtesy Philmontscoutranch.org

Programming note.  The Tax Update goes untended for the next two weeks, as I head to Philmont Scout Ranch with my younger son and others for a 10-day backpacking odyssey.  It’s my first visit to New Mexico and my first extended backpacking trip.  Horses, carabiners, and black powder rifles will be encountered.  Whatever remains of me will be back here July 28.  The lovely and talented folks in the blogroll to the right will keep the tax world under control in the meantime.

 

Accounting Today visitors: if you followed the newsletter link here, you probably are looking for this: July 5, 1944.

 

Does the tax law cause people to do work on rental properties that they really should hire out?   That’s one conclusion you could draw from a Tax Court case yesterday, where a landlord says she chose do herself work that, based on the time she says she spent, should have gone to a contractor.

The tax law says real estate losses are normally “passive,” and when adjusted gross income exceeds $150,000, they are only deductible to the extent of other passive income.  A special rule lets “materially participating real estate professionals” out of the “per-se passive” rules; these taxpayers test whether their real estate activity is passive under the rules that apply to other business activities, based on time spent.

There’s a serious catch.  To qualify as a real estate pro, you have to work at least 750 hours in real estate, and more hours than in anything else you do.  If you have a full-time day job, this doesn’t work.

20140325-1But taxpayers attempting to get to 750 hours might be tempted to do work they would otherwise outsource.  That would be the generous interpretation of these facts in the Tax Court (my emphasis):

Petitioner claimed to have spent a total of 772 hours working on her rental properties in 2009. In support of her assertion, petitioner provided activity logs purporting to document the time she spent on her rental activities. Some of the activities included painting, cleaning apartments, shoveling snow, communicating with tenants on various issues, placing rental ads in the local newspaper, picking up mail, and paying bills. Although some log entries reference a specific apartment or property, many log activities do not specifically identify a particular rental unit. In addition, the number of hours noted on petitioner’s logs appears to be significantly inflated. For example, in one instance petitioner claims to have spent 8 to 12 hours per day for 10 days staining the “deck and siding” of what appears to be one apartment at the Pulaski property.

Some people just are perfectionists.

The log also indicates that [petitioner’s husband] helped stain the deck and siding on those dates. In that instance, petitioners together spent between 160 to 240 hours staining the deck and siding of one apartment. There are several other instances in 2009 where petitioner claims to have spent many hours staining and painting decks and front porches of the rental properties. Petitioner’s log for July 2009 indicates that she spent approximately 77 hours over an eight-day period to paint a back porch. Petitioner’s log for November 2009 indicates that she spent more than 105 hours over a 12-day period on the flooring for one apartment and that on one specific day she worked 16 hours.

While a misguided attempt to reach 750 hourse might have motivated this sort of effort, the judge decided that something else was going on:

 Although petitioner claims she acted reasonably and in good faith with respect to her position that she was a real estate professional in the years in issue, we have concluded that petitioner’s records are not accurate or reliable and likely inflated the hours she spent in real estate activities. We have also concluded that the logs relating to her activity as an employee and her self-employment were not accurate.

If you want to document time for showing an activity is non-passive, it is wise to track it in a daily contemporaneous calendar.  It is also wise to not push the limits of believability.

Cite: Materano, T.C. Summ. Op. 2014-64

Material participation hours tests can be found here.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 428.  It features  from the Wall Street Journal U.S. Judge Orders IRS to Explain How it Lost Lerner’s Emails:

A federal judge on Thursday ordered the Internal Revenue Service to explain how it lost two years’ worth of a former official’s emails, and tapped a magistrate judge to find out whether the documents can be obtained from other sources.

At a hearing in a conservative group’s lawsuit, U.S. District Judge Emmet Sullivan gave the IRS until Aug. 10 to provide a sworn declaration explaining how the email loss occurred. The IRS previously has said that the emails were lost because the top agency official’s computer crashed in 2011, and backup tapes were routinely reused after six months.

These practices violated federal recordkeeping procedures and, likely, federal law.  In spite of Ms. Lerner’s evident concern about the possibility of  her emails being found, Commissioner Koskinen says it’s silly to think anything more suspicious than a remarkable rash of hard-drive failures is to blame.

 

A new study by the Mercatus Institute says state taxes matter.  A summary says “The study finds that higher state taxes correlate with lower economic performance, even when controlling for various factors.”  It says that higher taxes lower economic growth, affect migration patterns, and reduce business startups. (hat tip: Maria Koklanaris, State Tax Notes ($link‘))

 

Carl O’Donnell, How The $1 Billion Kennedy Family Fortune Defies Death And Taxes.  Most politicians who vote for higher taxes do so assuming they won’t have to pay them. (via the TaxProf)

 

Kyle Pomerleau, Bill to be Introduced that Seeks to Reduce EITC Payment Error (Tax Policy Blog).  Unfortunately, fraud and error are baked into this cake.  You might as well try to take the chocolate out of toll house cookies.

 

20140513-1Jim Maule continues his Tax Myth series with Tips Aren’t Taxed Because They Are Gifts.  “Most people who collect tips are paid very little, rely on the tips to make a living, and are unhappy to learn that tips are included in gross income.”

Jason Dinesen, Glossary of Tax Terms: Head of Household   

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

Keith Fogg, Revoking the Release of the Federal Tax Lien and Appointing a Receiver (Procedurally Taxing)

 

TaxGrrrl, Who Should Pay For Schools? Answer Remains Unclear As Cigarette Tax Boost On Hold   Smoke ‘em if you got ‘em.  For the children!

Renu Zaretsky,  Games, Spins, Ignorance and Patience.  Today’s TaxVox headline roundup covers, among other things,  Highway Trust Fund games, corporate inversions.

Steve Warnhoff, House Poised to Throw $276 Billion “Bonus” at Businesses.  (Tax Justice Blog).  He’d rather throw it at the government.

Kay Bell, LeBron ‘King’ James’ return to Cleveland could be a win-win for fans and the so-called Win Tax

 

20140711-2

 

A new Cavalcade of Risk is up!  R.J. Weiss hosts this edition of the blog world’s venerable roundup of insurance and risk management posts, including Hank Stern on Kidnap & Ransom Insurance.

I’ll bet he does.  Beanie Babies creator defends sentence of probation, no prison time, for tax evasion (Brandon Sun)

News from the Profession.  Just How Many CPA Roommates Can You Fit In a Single Apartment? (Leona May, Going Concern)

 

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Tax Roundup, 6/27/14: IRS tries preparer regulation through the back door. And: why was Lerner at IRS?

Friday, June 27th, 2014 by Joe Kristan

20130121-2IRS tries “voluntary” end run around the law.  The IRS yesterday announced that it doesn’t need no stinking law (IR-2014-75):

The Annual Filing Season Program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing education (CE), including a course in basic tax filing issues and updates, ethics and other federal tax law courses.

“This voluntary program will be a step to help protect taxpayers during the 2015 filing season,” said IRS Commissioner John Koskinen. “About 60 percent of tax return preparers operate without any type of oversight or education requirements. Our program will give unenrolled return preparers a way to stay to up-to-date on tax laws and changes, which we believe will improve service to taxpayers.”

Tax return preparers who elect to participate in the program and receive a record of completion from the IRS will be included in a database on IRS.gov that will be available by January 2015 to help taxpayers determine return preparer qualifications.

The database will also contain information about practitioners with recognized credentials and higher levels of qualification and practice rights. These include attorneys, certified public accountants (CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

So the Commissioner is keeping a little list of his friends.  And if you aren’t on his list of friends, you are on his list of not-friends.  It’s obvious what is going on here.  Through PR and subtle or non-so-subtle IRS preference for those on the Friends List, they will make life unpleasant for the non-friends, encouraging them to submit to “voluntary” CPE, testing, and ultimately, IRS control.  The IRS is trying to achieve its preparer regulation, ruled illegal by the courts, through other means.  This eagerness to take on a new program that nobody wants must mean the IRS is adequately funded, and its cries for more resources can safely be ignored.

Other coverage:

IRS Offers Voluntary Tax Preparer Education Program (Accounting Today)

Adrienne Gonzalez, IRS Goes Ahead With Voluntary Tax Preparer Program Despite AICPA Objection (Going Concern)

Leslie Book, IRS Announces Voluntary Education Program For Return Preparers (Procedurally Taxing)

Robert D. Flach, IT’S JUST STUPID  “This program will do little to ‘encourage education and filing season readiness’. ”

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Why did Lois Lerner work at the IRS?

This question came to mind in discussing the Lerner emails with a reader, who noted how a Politico piece about the Grassley email chain revealed this week pointed out this high-level IRS leader’s evident lack of tax skills:

Former ex-IRS tax exempt division chief Marcus Owens said the email chain shows Lerner knew very little about tax law, as there would have been nothing wrong with Grassley and his wife attending such an event, so long as the income was reported.

“It is nothing that rises to the level of referral for examination,” Owens said.

It is a mystery.  Her Wikipedia biography shows that she was a cum laude graduate of Northeastern University and the Western New England College of Law.  She worked as a high-level attorney at the Federal Election Commission, but moved to IRS as “Director Rulings and Agreements” in the exempt organizations branch of the IRS.  She rose to Director of Exempt Organizations in 2006.

Her resume, then, is that of a bureaucrat, rather than a tax practitioner or specialist.  She apparently never practiced tax law before moving into her important policy position — important in the tax world, anyway.

This sort of thing may be common in the federal bureaucracy.  It’s likely that she got a raise for the move, or something.  But it seems that while you could take the girl out of the FEC, you couldn’t take the FEC out of the girl.  She took it upon herself to monitor the electoral process with the tools of the tax law.

Megan McArdle explains why that was a bad idea:

This exchange suggests that Lois Lerner not only didn’t have a good, basic grasp of the tax law she was supposed to be administering, but also viewed her job as an extension of her work at the Federal Election Commission.

That’s not what the IRS is for. The IRS is not given power over nonprofit status in order to root out electoral corruption or the appearance of it. It is given power over nonprofit status in order to make sure that the Treasury gets all the revenue to which it’s entitled

Unfortunately, politicians see the tax law as the Swiss Army Knife of public policy, and it’s unsurprising that an IRS bureaucrat would see it the same way.

Moreover, Lerner’s overbroad instincts also seemed to kick into high gear when Republican politicians were involved. Of course, such reports might well be survivor bias — Republicans are complaining about Lerner, while Democrats who also had run-ins with her may be keeping quiet for fear of fueling the fire. At this point, however, the fire is burning merrily on its own. If Democrats who encountered Lerner’s overzealous use of her powers are out there, they’d do well to come forward and tell their stories to reassure Americans that even if her actions were overbroad, they weren’t broadly partisan.

They would have emerged by now.  The stats, as we noted yesterday, demonstrate one-sided enforcement.

It’s unlikely that Ms. Lerner came to the IRS with the idea of using her position to harass the opposition.  She just happened to be in a position to do so when applications from groups she didn’t like — perhaps that she even saw as dangerous and wrong — came across her desk.  It’s possible that she did it entirely on her own.  And that’s the scariest thing — a bureaucracy that moves on its own to squash ungoodthinkers is much more dangerous than a top-down conspiracy.  It may be hard to replace an administration, but it’s almost impossible to replace a bureaucracy.

 

taxanalystslogoChristopher Bergin, The IRS Has Been Set Up (Tax Analysts Blog):

I don’t know if the IRS has been politicized. Until recently that possibility would have been unthinkable. But the potential of the 501(c)(4) rules to be a setup for the politicization of the IRS is enormous. You simply can’t have the tax collector refereeing the people who provide it with its budget. 

Christopher calls for the repeal of 501(c)(4).

TaxProf, The IRS Scandal, Day 414

Johnnie M. Walters, Ex-IRS Chief, Dies at 94 (New York Times):  “Johnnie M. Walters, a commissioner of the Internal Revenue Service under President Richard M. Nixon who left office after refusing to prosecute people on Nixon’s notorious “enemies list,” died on Tuesday at his home in Greenville, S.C. He was 94.”

Funny how nobody is doing that anymore.

 

Jason Dinesen, I Can’t Do Much to Help You Once the Transaction Is Completed.  “The point is: the time to ask for tax advice about something that will generate a massive tax bill is beforehand, not afterwards.”

Russ Fox, FBAR Deadline Is June 30th, but It’s Not a Midnight Deadline.  “My advice is simple: File the FBAR asap–it at all possible by Saturday.”

TaxGrrrl, Kentucky Fried Hoax: What Happens To The Cash?

Peter Reilly, Kuretski – Was Legal Dream Team Really Trying To Help The Taxpayers?

Jack Townsend, False Statements Crime Element of “Knowingly and Willfully” Requires Proving Knowledge that Making False Statement Is Illegal

Robert D. Flach brings the Friday Buzz!

 

This happened in 2008.  It's raining again.

This happened in 2008. It’s raining again.

 

Lyman Stone, Pennsylvania House of Representatives Passes Suspension of Tax Credits (Tax Policy Blog). “Most of these credits amount to narrow carve-outs for favored industries and firms, and thus their elimination would generally be good tax policy as a way to make the tax code more neutral.”

Richard Phillips, Clinton Family Finances Highlight Issues with Taxation of the Wealthy (Tax Justice Blog).

Scott Eastman, Tax Inversions are a Symptom, Corporate Tax Reform is the Cure (Tax Policy Blog).

Howard Gleckman, CRFB’s New Online Budget Simulator (TaxVox).  “Neither Congress nor the White House seem to care much about the budget deficit these days, but if you do, the Committee for a Responsible Federal Budget has created an updated online budget simulator that lets you try to get a handle on fiscal policy.”

 

The new Cavalcade of Risk is up at Worker’s Comp Insider.  Good stuff always at the blog world’s roundup of insurance and risk management — including Hank Stern on a potential diabetes breakthrough.

Oops. U.K. tax system errors mean 3.5 million unexpectedly owe (Kay Bell)

 

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

Friday, June 13th, 2014 by Joe Kristan

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

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

 

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

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

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

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

 

Jason Dinesen, HRAs and the Affordable Care Act:

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

The short answer to the question is: NO.

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

 

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

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

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

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

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

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

 

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

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

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

 

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

 

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

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

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

 

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Looking north on 6th Street.

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

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

 

TaxProf, The IRS Scandal, Day 400

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

 

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

 

 

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Tax Roundup, 5/1/14: Iowa remains on top! Oh, that’s bad.

Thursday, May 1st, 2014 by Joe Kristan

The Iowa House of Representatives has adjourned for the year.  That makes it official: Iowa will continue to have the highest corporation income tax rate in the U.S. for another year, as shown on this map from The Tax Foundation:

2014 Corporate Income Tax Rates

The U.S has the highest corporation tax rate of all OECD countries, so that means right here in Iowa we have the highest corporation income tax rate in the entire developed world.  That’s true even taking into account Iowa’s 50% deduction for federal corporation tax.  Whoopee.  That must mean that Iowa receives just gushers of corporate cash, right?

Wrong.  The Iowa corporation tax generated $403.6 million net revenue in calendar 2013, amounting to about 5.3% of state tax revenues.  The individual income tax, by contrast, generated $3.45 billion net revenue in the same period. (Figures available here.)

The net is so low because the corporation tax, like the Iowa income tax, is riddled with special credits and deductions for the well-connected and well-lobbied.  Some of the biggest corporations in Iowa pay no tax and, in fact, actually get multi-million dollar checks out of the Department of Revenue.

There’s nothing good about this system.  It’s brutal for small corporations without the lobbyists and pull to land big breaks.  Meanwhile, big corporations use their resources to skip around the tax, or even to profit from it.  The high rates and complexity drives away corporations who don’t want to play the influence game, while luring those who play it like a fiddle.  Far better to wipe out the tax and the accompanying subsidies with something like The Tax Update Quick and Dirty Iowa Tax Reform Plan!

Related: David Brunori, I Will Ask Again, Why Are We Taxing Corporate Income? (Tax Analysts Blog). “There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages.”

 

Peter Reilly, Alimony That Does Not Look Like Alimony.  “So if an agreement says that the payments are to be treated as alimony for tax purposes, that really means nothing.  What matters is whether the requirements are met…”

 


20130114-1Roger McEowen, 
Analyzing Hedging under Obamacare’s Net Investment Income Tax Final Regulations.  “… a sole proprietor farmer’s income from hedging activity, or hedging income of a farming entity structured as pass-through entity is not subject to the NIIT, because the farmer or entity is engaged in the trade or business of farming and not the trade or business of trading in commodities.” 

William Perez, Tax Reform Act of 2014, Part 7, IRS Administrative Proposals Impacting Individuals.

Annette Nellen, How sales tax exemptions can waste one’s time.  “Recent litigation in Missouri over whether converting frozen dough into baked goods is “processing,” such that the electricity used is exempt from sales tax, shows the time and money that can be wasted with pointless rules.”

TaxGrrrl, Considering The Death Penalty: Your Tax Dollars At Work.  It should give pause to those who think the government should be the provider of health care when it can’t even kill somebody well.

Um, to save hundreds of millions of shareholder dollars?  Why Does Pfizer Want to Renounce Its Citizenship? (Tax Justice Blog). 

 

20121004-1Renu Zaretsky, Competition and Tax Reform: A Thorn in Everybody’s Side.  The TaxVox headline roundup.

Kay Bell, Amazon begins collecting sales tax from Florida buyers May 1; Will the online retailing giant lose even more customers?

Stephen Olsen, Did Donald Rumsfeld Just Invalidate His Return?  (Procedurally Taxing) “…he just wanted to be able to understand how his tax bill was computed.  Overall, not an unreasonable position, but perhaps a pipedream.”

Jack Townsend, Another Credit Swiss Related Bank Enabler Pleads Guilty

 

taxanalystslogoCara Griffith, The Problem With Outcome-Based Jurisprudence (Tax Analysts Blog).  ” It is not for the court to worry about how the state will fashion a remedy. Its task is to interpret and enforce the state’s laws and strike down those that are unconstitutional.”

 

The newest Cavalcade of Risk is up!  The roundup of insurance and risk management posts is hosted this time by Rebecca Shafer.  Our old friend Hank Stern contributes with bad news on the ACA computer security front: My Bleeding (404Care.gov) Heart

 

TaxProf,  The IRS Scandal, Day 357.  For a “phony scandal,” it’s awfully persistent.

 

The soft bigotry of low expectations.  IRS Commish Reminds Senator That Hill Staffers Have Worse Tax Compliance Than IRS Employees (Going Concern)

 

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Tax Roundup, 4/10/14: Still plenty of time for an IRA! And Iowa Tax Freedom Day looms.

Thursday, April 10th, 2014 by Joe Kristan

IRAWhen the tax deadline is looming, taxpayers looking for the Tax Fairy to wish away their tax problems often overlook the old-fashioned IRA.  You can still make 2013 IRA contributions through April 15.  An Individual Retirement Account contribution may be able to score you a 2013 deduction (or even a tax credit) for 2013; even if you don’t qualify for current tax savings, they are a nice and cheap way to build-up tax-sheltered savings.

IRAs come in two flavors: “traditional” and “Roth.”  Traditional IRAs build up their income tax-free, but earnings on them are taxable when they come out.  If you meet certain conditions, your traditional IRAs come with sprinkles: – a tax deduction.  If you don’t get the deduction going in, your principal is tax-free going out.

Roth IRAs never offer a deduction, but they leave a sweeter aftertaste: if you hold them long enough, income on Roth IRA assets is never taxed.  And unlike traditional IRAs, you are never forced to start withdrawing funds from the IRA, so the tax-free build-up can go on indefinitely.

Both traditional and Roth IRAs require you to have wage or self-employment net income.  The limits for contributions are the lesser of your taxable compensation or $5,500 ($6,500 if you were 50 by December 31, 2013).  You can contribute to a traditional IRA at any income level, but deductions phase out at higher income levels if you (or your spouse) are covered by a retirement plan at work.  The availability of Roth IRA contributions phases out at higher income levels regardless of whether you participate in another retirement plan.

One very useful way to use Roth IRAs is for teenagers and young adults.  A parent can fund a Roth IRA for them based on part-time job income — no matter what parent income is.  This starts a tax-free retirement fund for the young earner at a very age, giving the power of compound interest lots of time to do its magic.  And from what I’ve seen, parental Roth funding is much appreciated by the recipients.

While time is short, you can still fund a 2013 IRA if you make your contribution no later than April 15.  You can set one up at your friendly community bank or online with a mutual fund company on you lunch hour.  No, it probably won’t make your 2013 taxes go away, but it can be a nice step towards financial security for you or your kids.

This is the latest of our 2014 Filing Season Tips — a new one every day thorugh April 15!

Russ Fox, Bozo Tax Tip #4: Honey, You Don’t Exist!: “Perhaps it’s something in the water, but this year Aaron and I have seen multiple cases of individuals who have ignored that marriage license and filed as single if married.”

 

Kyle Pomerleau, When is My State’s Tax Freedom Day?  (Tax Policy Bl0g) Iowa’s is this Sunday.

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Kristy Maitre, How to Report National Mortgage Settlement Payments

TaxGrrrl, Taxes From A To Z (2014): X Is For XD   

Paul Neiffer, Trusts Can Get You in Trouble

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me, Part 2 

 

Hey, preparers: are you ready to trust the IRS to regulate your livelihood?  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline (Washington Post, via the TaxProf)

Kay Bell, Computer problems for IRS, Canadian tax agency

 

20140401-1Alan Cole, Mainstream Economics Support Low Taxes on Capital Income (Tax Policy Bl0g): “The overwhelming bulk of the evidence is that taxes have a negative effect on economic growth, and that the effect is particularly strong on tax bases that include capital income.”  But, the rich!  Inequality!

Donald Marron, Seven Tax Issues Facing Small Business (TaxVox): “America’s tax system is needlessly complex, economically harmful, and often unfair.”

Cara Griffith, Guidance Today, Gone Tomorrow (Tax Analysts Blog).  “A recent Arkansas court opinion points out what might be a troubling trend in state taxation: the inability of taxpayers to rely on administrative guidance because the state can retract or supersede it on a moment’s notice.”

TaxProf, The IRS Scandal, Day 336.  It was a big day, with evidence that Lois Lerner was working behind the scenes with the ranking Democrat on the Ways and Means Committee to harass the opposition.

Tax Justice Blog, Is the Obama Administration Blocking International Efforts to Address Corporate Tax Avoidance? 

William Perez, Tax Reform Act of 2014, Part 4, Tax Credits

 

Hank Stern, The ObamaTax Domino Effect.  “While we’ve all seen the horrendous rate increases caused by the ObamaTax (including on our 1040’s), thee are other victims.”

“Pro-business” isn’t “pro-market,” a distinction utterly lost on Iowa officials.

David Brunori: I’ll Raise a Glass to Lower Booze Taxes (Tax Analysts Blog) “Jack Daniels is not bourbon, by the way, but Tennessee whiskey. There is apparently a difference, but frankly, after the first glass, I can never tell.”

Next: legislators are terrible at legislating.  GAO Went Undercover to Discover Tax Preparers Are Terrible at Tax Preparing (Going Concern)

 

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Tax Roundup, 3/21/14: Reforming S corporations to a frazzle. And: cleaning up at the laundromat!

Friday, March 21st, 2014 by Joe Kristan

S-SidewalkThe legislative process has been likened to sausage making.  Sausage doesn’t get more appetizing if you keep looking at it closely over a period of weeks, and neither does the Camp “tax reform” plan.  Andrew Lundeen and Kyle Pomerleau at the Tax Policy Blog today highlight some gristly features of the grand effort by the head GOP taxwriter:

The proposal leaves in place high tax rates for many S corporations, subjects them to additional payroll taxes, creates new distortions between types of industries, and produces two tax rate bubbles.

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

Camp’s tax reform package introduces complication with a new 10 percent surtax for non-manufacturing income. To make things more complicated, the additional 10 percent surtax would be calculated on a different income scale: modified adjusted gross income or MAGI. This essentially creates two side by side tax codes, a la the AMT, and individuals and businesses would have to calculate their AGI for one and their MAGI for the other.

As I noted, it doesn’t simplify the code by getting rid of the economically foolish Section 199 production deduction; it just moves it to a different section.

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The Difference between Active and Passive Shareholders

The difference between active and passive shareholders is important for determining the marginal tax rates for S corporations under Chairman Camp’s plan.

That’s true now, but you’d expect a “reform” plan to get rid of this sort of gratuitous and difficult-to-enforce difference.

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Changes to Self-Employment Taxes: the 70/30 Split Rule for SECA Taxes

Under current law, the IRS requires business owners to pay themselves a reasonable wage in order to prevent people from gaming this income distinction in order to avoid the extra 15.3 percent payroll tax hit.

Camp’s plan would replace the current reasonable wage standard with a 70/30 split, changing the rules for active shareholders. The rule would require that active shareholders of S corporations report 70 percent of their total earning as wage income.

I think it’s just one step on the way to a 100/0 split.

Tax Rate Bubble

Another element of Camp’s tax plan is the creation marginal tax rate bubbles. This occurs when a marginal tax rate, for example, goes from 10 percent to 15 percent and back down to 10 percent. We have a post that discusses the marginal tax rates under Camp’s plan, which you can find here.

When a “reform” plan comes with so many phase-outs and distortions, it’s not actually reforming anything.  I think the Camp plan will come to be seen as a false move and a lost opportunity.

 

TaxGrrrl, Taxes From A To Z (2014): K Is For Keogh Plans   

20140321-3TaxProf, The IRS Scandal, Day 316

William Perez, Average Sales Tax Rates by State: 2014, highlighting a Tax Policy Blog analysis.

Annette Nellen, Revenues versus tax collections.  “A recent blog post on LinkedIn’s Sales and Use Tax Legislative Updates included a comment from B.J. Pritchett suggesting that what governments collect in taxes should not be called “revenues” because it is not from selling goods and services.”

Tax Justice BlogState News Quick Hits: Don’t Expect Much from Congress.  Always a good idea.

Kay Bell, Senate Finance plans tax extenders vote for week of March 31.  She links to an article quoting a Senate Finance spokeswoman as saying “No decisions have been made on the content of the measure or the timing for a committee session and vote.”

Howard Gleckman, Fiscal Reality Check: Will Congress Pay for the Tax Extenders and the Doc Fix?  Extenders themselves are a scam.  Congress passes them over and over a year at a time so they can pretend that they cost less than they do — funky accounting that would get a public company CFO jail time, but standard procedure in Congress.

 

Jack Townsend, U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion 

 

A new Cavalcade of Risk is up at Insurance Regulatory Law.  The Cavalcade is a venerable roundup of insurance and risk-management posts.  Hank Stern’s contribution, an interview with Neal Halder of Principal Financial Group about their “accelerated underwriting” process for life insurance, is a great read.

Jason Dinesen, Fair Warning: More Baseball Posts to Pop Up this Year.  That’s a good thing.

 

20140321-4Think he reported this income?  Man With Deep Pockets Busted Stealing a Lot of Laundry Money (Going Concern):

Just how many loads of laundry could one do with $460,000 in stolen quarters?

That’s probably not the question asked by public works inspector Thomas Rica, who pleaded guilty this week to stealing that much in quarters from the meter collection room of the New Jersey town for which he worked.

At the laundromats I used back in school, that would have been nearly enough quarters to get your clothes dry.

 

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Tax Roundup, 1/24/14: Executive stock spiff proposed for Iowa. And: Haiku!

Friday, January 24th, 2014 by Joe Kristan

20130117-1Legislators propose to exempt employer stock gains from employee Iowa income tax.   S.F. 2043 would exclude from taxation capital gains from stock received by an “employee-owner” of a company “on account of employment” with the corporation, and acquired while the taxpayer was still employed..  While it isn’t entirely clear from the legislation, it would appear to include long or short-term gains, and would include stock acquired by exercise of options or stock bonus plans.  It’s not clear that it would apply to gains on ESOP shares, which are generally issued to owners or redeemed on retirement, but I suspect it would.

It’s an astonishingly broad exclusion.  Once elected, it would apply to stock gifted by the employee-owner to spouses and lineal descendants.  It wouldn’t apply to many family owned companies, because it requires five shareholders, at least two unrelated under IRC Section 318 attribution.  Interestingly, the bill misstates Sec. 318, saying:

Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly.

No, that would be Section 267 attribution, and only for pass-throughs.  Section 318 only makes a taxpayer related to:

his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents. 

No siblings, nieces or nephews to be seen.  If they can’t even read the Code, should they really be messing with the state income tax?

If the Iowa income tax is so awful that we need to carve out a special exemption to executive stockholders to get them to come to Iowa, we should fix it for everyone, not just for them.  Does anybody really doubt that Iowa would be more attractive to business with no corporate income tax and a 4% top individual income tax rate than with the current system plus a new executive spiff?  Come on, legislators:  take the Tax Update’s Quick and Dirty Iowa Tax Reform Plan off the shelf!

Related: Iowa House advances one-time stock gain bill, on a similar bill introduced last year.

 

David Henderson, Steve Moore’s Alternative Maximum Tax (Econlog).  Governor Branstad floated a plan to allow taxpayers to choose between Iowa’s current baroque income tax and a simpler one with lower rates, before abandoning it prior to the opening of the legislative session.   I thought I was being clever by calling an alternative maximum tax.  David reports that Steve Moore came up with both the idea and the name for a proposal he made for the federal tax system in the 1990s.

I still don’t care for it.  In practice we would be computing the tax both ways and paying the lesser amount.  By adding another computation to the process, it would actually make things harder.  The only way it would work would be if it resulted in lower taxes for everyone; then in a few years they could repeal the regular income tax without anyone noticing.

 

20120531-1The 200th edition of the Cavalcade of Risk is up!  This milestone edition of the long-lived roundup of insurance and risk management posts is at Rootfin.  Congratulations to Hank Stern, the evil genius behind the Cavalcade; he participates in this edition with Hacktastic!, on the security troubles of Healthcare.gov, and government’s efforts to hush them up:

See, the problem isn’t the wide-open portal, it’s the folks trying to alert the folks who run it that there is, in fact, a problem. I’m reminded of a certain Middle East river.

More alarming still, though, is that that it’s not just the state folks yelling “burn the witch:” now the FBI has warned Mr Hermansen to zip his lips. That’ll sure make the problem go away.

Your healthcare is in the very best of hands.

 

Jim Maule, How Not to Compute a Casualty Loss Deduction:

The taxpayer claimed a $12,020 casualty loss deduction on account of the loss of the vehicle. The taxpayer computed the deduction by subtracting the $48,000 from $60,020, the original value of the vehicle. However, the first step in computing the amount of a casualty loss deduction is to subtract the insurance recovery from the difference between the value of the property immediately before the casualty and the value of the property immediately after the casualty, unless the taxpayer chooses to use cost of repairs as a substitute measure, though that was not relevant in this case.  Because the taxpayer did not provide evidence of those values, and because the Tax Court was unwilling to assume that the vehicle’s value immediately before the accident was the same as its value when it was new, it upheld the determination of the IRS that the taxpayer was not entitled to a casualty loss deduction.

The IRS often examines casualty loss deductions, so you need to do your legwork on getting the valuations documented before you file.

 

Jason Dinesen, Small Businesses — Review Those Benefit Programs  “When was the last time your small business reviewed the benefit programs your business offers?”

William Perez weighs in on Finding the Right Tax Professional.

Kay Bell, Tax season is tax scam, tax identity theft season. “If you get any unexpected communication in any form that is purportedly from the IRS, especially at the start of tax season, be wary.”  And they will never initiate contact by phone or email.

Paul Neiffer, Cash Does Not Equal Gain.  You can’t make taxable gain go away by using it to pay off loans.

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

Kyle Pomerleau, High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season.  Be glad we don’t take it all, serf!  He computes Iowa’s top combined rate at 47.4%.

 

taxanalystslogoChristopher Bergin, Fortress Secrecy – No News Here (Tax Analysts Blog).

Anyone familiar with my writing knows that I have bent over backwards to give the IRS the benefit of the doubt in this black eye some call the “exemption scandal.” I must admit I’m getting a little tired of bending.

Back in the day, as the saying goes, I often referred to the IRS as Fortress Secrecy, a term meant to describe the agency’s obsession with hiding as much of its operations as it can get away with. I am not a casual observer, and I have never seen things this bad. Everything the IRS has done in addressing the exemption scandal leads to just one conclusion: that this agency now believes it is accountable to no one other than itself.

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

Howard Gleckman, Fiscal Magic: Paying for New Highways by Cutting Corporate Taxes (TaxVox)

 

Frank Agostino, Jairo G. Cano, and Crystal Loyer.  Guest posters at Procedurally Taxing, including the prolific Tax Court litigator Frank Agostino, discuss how IRS rules against giving false testimony bolstered an IRS man’s own case, in Section 1203 to Bolster a Taxpayer’s Credibility at Trial.

Jack Townsend, Required Records IRS Summons Enforced Again

 

News from the Profession.  Pulling Back the Curtain on Making Partner in a Big 4 Firm. Just sell, baby!

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

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Tax Roundup, 8/29/2013: Individual mandate regs go final. And: the office velociraptor!

Thursday, August 29th, 2013 by Joe Kristan

20121120-2Avik Roy,  White House Publishes Final Regulations For Obamacare’s Individual Mandate — Seven Things You Need To Know.  Key points:

You pay a fine if your spouse and kids are uninsured.

If you claim dependents on your tax return, you’re responsible for paying the mandate fines if your dependents don’t have health insurance.

This provision takes on special importance because of its interaction with Obamacare’s employer mandate. Under the health law, employers with more than 50 full-time-equivalent workers are required to offer health coverage to their employees and employees’ dependents under the age of 26. Employers are not required to offer coverage to employees’ spouses. Hence, a worker who gets coverage through his job will be forced, under the individual mandate, to purchase coverage on his own for his spouse, if he or she doesn’t have other sources of coverage. A worker who doesn’t get coverage through his job will need to purchase coverage not only for himself, but also his dependents.

But all is not lost:

The IRS can’t go after you if you don’t pay the fine.

Basically, the only thing the IRS can do to make you pay the mandate fine is to withhold it from your tax refund, if you’re due one. So if you carefully calibrate your withholdings, such that you aren’t due a refund at the end of the year, the IRS has no way to collect the mandate fine.

That is, until you overpay some year, or they change the rules.

Related: Health Care Act And The Road To Good Intentions  A guest post by Scott Lovingood at TaxGrrrl’s place.

Also: Ask The Taxgirl: Taxing Health Care Benefits   

 

TaxProf,  Seventh Circuit Joins Majority of Circuits in Upholding Valuation Misstatement Penalties in DAD Tax Shelter.  The “distressed asset debt” shelter would purportedly allow people who needed tax losses to get them by acquiring interests in partnerships with worthless South American consumer debt, using pretend basis from notes.  Judge Posner found it unconvincing:

The intention was simply to create the appearance that the investors’ interest in the partnership had a high enough basis to enable the entire built-in loss that the shelter investors had acquired to be offset against their taxable income. But all this means is that the investors should not have been permitted to deduct their entire built-in loss — yet in fact they shouldn’t have been permitted to deduct any part of it, because the partnership was a sham.

The DADs were among the least plausible of the mass-marketed shelters, and that’s saying something.

Cite: Superior Trading LLC, CA-7, No. 12-3367.

 

Phil Hodgen,  Green card received in 2007? Expatriate in 2013 or else.  Give us your huddled masses.  We’ll fix them!

20130607-2Sometimes the author and the story are made for one another.  Roche: Taxation of Medical Marijuana Businesses (TaxProf).  The story explains why the tax law isn’t kind to these folks:

Section 280E represents a departure from the longstanding practice of generally taxing illegal businesses in the same manner as legal businesses and effectively causes medical marijuana businesses to be taxed on their gross income rather than their net income. Medical marijuana businesses are, however, allowed to reduce their gross revenue by cost of goods sold in arriving at gross income. This puts medical marijuana businesses in the unusual position of wanting to capitalize as many of their otherwise deductible expenses to inventory as possible, unlike most businesses, which would prefer a current deduction.

It would be interesting to see an IRS exam where they want you to capitalize less to inventory.

 

Paul Neiffer, What’s my tax on selling equipment?  If it’s a gain, usually it’s ordinary income.

William Perez,  2012 Corporate Returns Due September 16.  Also, extended 1041s and 1065s.

 

Jack Townsend, Switzerland Reportedly Strikes Deal with U.S. for the “Other” Banks; Implications for U.S. Depositors.

Linda Beale, Swiss and US Apparently Reach Deal on Bank Disclosures related to Tax Evasion

 

Bounty hunting in Pennsylvania?  Philadelphia’s Use of Contingent Fee Auditors (Cara Griffith, Tax Analysts Blog)

 

I’m late to the new Cavalcade of Risk at My Personal Finance Journey.  Lots of good risk management items, including Hank Stern’s The Down Syndrome Conundrum.

What this country needs… What We Need Is a Godless Tax Code! (Christopher Bergin, Tax Analysts Blog)  Doesn’t Satanic count?

Kay Bell, State taxes, assorted fuel fees, drive up cost of a gallon of gas

 

Peter Reilly,   Tea Party Patriots Inc And IRS – Who Is Being Unreasonable ?  Peter seems to think that the IRS wasn’t clearly unreasonable in holding up Tea Party applications.  I think he misses the point — the whole process was one-sided.  Only right-side groups got the IRS slow-walk, while “progressive” applications skated through;

7-30-13-irs-targeting-statistics-of-files-produced-by-irs-through-july-29-2-Peter is right, though, when he says “We Really Should Not Have Accountants Trying To Figure This Stuff Out.”  John Kass explains how this stuff works in IRS scandal a reminder of how I learned about The Chicago Way

 

Career Advice: Would I Recommend the Tax Prep Industry to a Young Person? Probably Not  (Jason Dinesen:

Going Concern, Let’s Play Another Round of Accountant/Not an Accountant!  I found the first one too frightening to continue.

 

Finally – if you think you’ve had a bad day at the office, it could have been worse:

(via Lynnley Browning’s Twitter feed)

 

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Tax Roundup, 7/12/13: We get scam email. And flappers!

Friday, July 12th, 2013 by Joe Kristan

Don’t be stupid.  Yes, you hardly need to consult your CPA for that advice, but I think of it every time I get spam email like this:

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Somewhere I read that email scammers make their pitches stupid on purpose to identify the dumbest marks, as they are easiest to fleece.  This one certainly does so.  Some signs of stupid:

  • The email address: smoggiest@HELP.STATE.TX.US.GOV.    Come on.
  • The salutation:  “Dear Accountant Officer.”  It sounds like it’s addressing somebody who issues parking tickets to CPAs.
  • The English of someone not brought up speaking English: “Hereby you are notified…”
  • The use of “please” by a revenue agency.  Please…

Folks, the IRS and state taxing agencies don’t send notices like this via email.  When you get one, delete it — and never click the links.

 

TaxProf, The IRS Scandal, Day 64

Janet Novack, 4 Steps To Take Now That Stretch IRAs Are Endangered:

But the new stretch IRA limits, which Finance Committee Chairman Max Baucus (D-Mont.)  first floated in the Senate last year, would require most retirement accounts inherited by anyone other than a spouse to be distributed (and in the case of non-Roth accounts taxed) within five years of the owner’s death…

The limit on stretch IRAs, which also appeared in President Obama’s most recent budget proposals, would raise $4.6 billion over 10 years, Congress’ Joint Committee on Taxation estimates.  

Janet explains how this possibility can affect your thinking about beneficiary designations and Roth conversions, among other things.

 

Christopher Bergin, Jaws (Tax Analysts Blog):

Clearly, the IRS did some inappropriate things in handling the applications for exemption for tea-party groups and others. But I would prefer to have congressional committees working on making sure our tax agency operates fairly and efficiently rather than going on witch-hunts.

Christopher is right, and as a practitioner I don’t want to see tax adminstration get any worse.   Still, you can’t ignore the long-term benefit for punishing bureaucratic misbehavior.  It would require a suicidal level of tolerance for GOP legislators to let bygones be bygones after the outrageous behavior of the IRS in the Tea Party scandal.  Maybe some budget haircut is needed to make the IRS less eager to take sides next election.

 

Howard Gleckman,  How Not to Fix the IRS:
Forgive me, but let’s try to apply a dash of common sense to the agency’s problems. After months of looking, the IRS’ most vocal critics have found no evidence that its poor processing of requests by political organizations seeking tax-exempt status was politically-motivated.
It was, however, real. And its cause seems to be a staff that suffered from low skills, poor training, low morale, a shortage of resources, and bad management. It is hard to see how cutting an organization’s budget by one-third will fix any of these problems.

Saying that it wasn’t politically-motivated over and over doesn’t make it so.  As the Treasury Inspector General has reaffirmed, the IRS treated right-side outfits far worse than left-side outfits.  That doesn’t just happen — the thing speaks for itself.   And considering Lois Lerner’s partisan past with the Federal Election Commission, the circumstantial evidence of bias is overwhelming.  The “overworked and underfunded” defense of IRS behavior doesn’t fit these facts.

Still, it would be nice if Congress would use its funding power carefully to punish bad behavior, rather than as a meataxe that will harm innocent taxpayers as much as guilty bureaucrats.

 

Kay Bell, States could get more money by modernizing sales tax laws

Brian Mahany, TICs and REITS – “Accidents Waiting To Happen”  Many REITs are perfectly good investments.  I like them myself.  But illiquid ones can lock up your money while generating big liquid fees to a broker.

Tax Justice Blog, Undocumented Immigrants Pay Taxes, and Will Pay More Under Immigration

TaxGrrrl, Parents Sue School For Art Auction Gone Bad.  Some parents apparently shouldn’t be allowed to run around loose.

 

There’s a new Cavalcade of Risk up at Workerscompensation.com! Don’t miss Hank Stern’s Hunger Games and the MVNHS©, about ingenious health care cost savings innovations across the pond.

Via Wikipedia

Via Wikipedia

Robert D. Flach has your Friday Buzz ready!

Great Grandpa knew this.  Not all flappers are created equal (Rob Smith, IowaBiz.com)

The Critical Question: Is Diet Soda Worse than Regular Soda? (Scott Drenkard, Tax Policy Blog)

 

 

Friday workplace fun.  Let’s Discuss: Big 4 Bullies (Going Concern):

Probably the most irritating thing, according to this study, is that these people get ahead. We’ve all seen it.

That’s about how I remember it.  They rarely get the comeuppance they deserve, but when they do, it’s awesome.

 

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Fall is here Cavalcade!

Monday, September 24th, 2012 by Joe Kristan

It’s officially autumn, the mornings are getting chilly — so warm up at the new Cavalcade of Risk!

Jeff Rosen hosts the latest edition of the blog world’s roundup of insurance and risk management.  Don’ t miss Hank Stern’s contribution about a program offering free term insurance for struggling families.

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State fair cavalcade!

Friday, August 10th, 2012 by Joe Kristan

It’s State Fair week!

Don’t be a big boar.  Head straight to the newest edition of the Cavalcade of Risk — this week at Workers’ Comp Insider —  for the best the blog world has to offer on insurance and risk managment.  Don’t miss Hank Stern on insuring risks in countries with, er, special needs.

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Wildfire Cavalcade

Tuesday, July 3rd, 2012 by Joe Kristan

It’s a wildfire-themed Cavalcade of Risk at the Colorado Health Insurance Insider!

Wikipedia image.

Stay cool with the blog world’s roundup of insurance and risk-management.  I find comfort in Hank Stern’s post showing that dark chocolate is a key to good health.

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Tax Roundup, 6/29/2012: Supreme Court Frenzy edition

Friday, June 29th, 2012 by Joe Kristan

 Janet Novack: How Health Insurance Individual Mandate Quacks Like A Tax:

Roberts concludes the mandate functions more like a tax than the “penalty” for not buying insurance the Patient Protection and Affordable Care Act labels it as, because in most cases “the amount due will be far less than the price of insurance,’’ and the IRS is “not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution,’’ to enforce it.

Because the penalty is so low as to be ineffective, it invites actuarial disaster.  Because insurers can’t reject you for a pre-exisiting condition, it will be cheaper to wait until you are sick to get “insurance.”

Peter Reilly: Julian Block On The Tax In The Health Care Act That Everybody Knew Was A Tax. He notes an anomoly in the wage and “unearned income” surtaxes:

Whether by design or inadvertence, Congress created rules that require a person to pay more Medicare surtaxes solely because he or she is married. Congress allows two cohabitating singles to each have up to $200,000 in wages without exceeding the threshold for the 0.9 percent tax. Congress penalizes them if they marry. Wages above $250,000 exposes them to the 0.9 percent tax. Similarly, two cohabitating singles each can have MAGI of as much as $200,000 without exceeding the threshold for the 3.8 percent tax. If they marry, MAGI above $250,000 exposes them to the 3.8 percent tax. Their reward for a walk down the aisle is that they could become liable for both surtaxes.

The question answers itself.   “So here’s my issue. What if our politicians are giving us a health care system that is as screwed up as our tax system? I’m just asking.”  (Christopher Bergin).

Unintended Consequences: Hank Stern explains the Obamacare “50th Employee problem” at Insureblog:

Here’s the problem: if you currently employ 49 people, you’re not going to be hiring that 50th guy, because that would cancel your exemption. Which means your current workforce is either going to have to work harder (to make up for that missing 50th employee), or you’re going to need to scale back even further.

The Eve of Destruction “The Supreme Court once acknowledged that the ‘power to tax is the power to destroy.’ Let the destruction begin!” (David Windish)

Howard Gleckman at TaxVox, The Supreme Court Says the Health Care Mandate is a Constitutional Tax:

But the Court rejected the White House’s main legal argument—that Congress has the authority under the Commerce Clause to require people to get insurance. It will be interesting to see how legal scholars read this in the coming weeks: Is the Court saying that tax policy is the only tool Congress has to enact certain social welfare programs? If so, it would put an already-stressed tax code under even greater pressure.  

I get an Instapundit mention No link, alas… (update: linked now, thanks Instapundit!)

And a floor wax and a dessert topping!  The Individual Insurance Mandate is Constitutional Because it is Both a Penalty and a Tax. Wait…What?  (Anthony Nitti)

Martin Sullivan: The Great Anti-Climax: Using Tax Law to Deliver Economic Incentive is Constitutional

Kay Bell: Tax component saves health care act

Paul Neiffer: ObamaCare Survives The Supreme Court!  “For  now, the most immediate effect facing farmers is the imposition of the Medicare Surtax on earned income and unearned income starting January 1, 2013.”

TaxGrrrl: When Is A Penalty A Tax? Sorting Through The SCOTUS Health Care Decision.

Tax Policy Blog has a Roundup of Reactions to Supreme Court Health Care Ruling

If you want to read about something besides yesterday’s Supreme Court decision:

Hiring the Right Accountants For Your Business (Missouri Tax Guy)

Russ Fox:  eFile an FBAR? Use Internet Explorer, Not Firefox or Chrome.  Remember, it’s due tomorrow.

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