Posts Tagged ‘Harkin’

Tax Roundup, 12/20/2013: S corporation built-in gain window closing? And more!

Friday, December 20th, 2013 by Joe Kristan

S-SidewalkThe S corporation Built-in gain window is closing.  The main benefit of S corporations since 1986 is that their income is only taxed once — when it is earned, on the tax returns of its owners.  After-tax earnings may be distributed to owners without another tax; undistributed earnings increase the basis of the owners’ stock, reducing gains when the stock is sold.

C corporations, in contrast pay a tax on their own income.  C corporation shareholders pay a second tax when the after-tax earnings are distributed; they don’t get a basis step-up for undistributed earnings, so they pay the second tax on undistributed earnings as part of their gain when they sell their shares.

To keep C corporations from becoming S corporations and liquidating the next day, Congress enacted the Built-in Gains Tax in the 1986 tax reforms.  This tax applies to any C corporation that makes an S corporation election.  It hits all “built-in gains” recognized during the “recognition period” following the election at 35%; the after-tax built-in gains are then also taxed on shareholder returns.

“Built-in gains” are any income items accrued as a C corporation as of the day of the S election.  For example, if the corporation owns land with a cost of $10,000 and a value of $15,000 as of the date of the S election, it has a $5,000 built-in gain.  If it sells the land during the “recognition period,” it pays the tax on the lesser of the actual gain or the $5,000 built-in gain.

The recognition period was 10 years when the tax was enacted.  It has been reduced to 5 years by temporary legislation, but absent new legislation it will revert to 10 years starting January 1.  That means S corporations that made elections taking effect in 2004-2007 can sell built-in gain assets before December 31 without the tax, but the same gain will be subject to the tax starting January 1.   That has obvious year-end planning implications.   If you are going to sell soon, it may be best to sell right now, as two weeks from now may be too late.

Yes, it is possible that the five-year period will get extended again, but who wants to count on Congress?

More 2013 year-end tax tips every day through December 31 at the Tax Update!


Why the IRS shouldn’t get political.  People who don’t think the IRS Tea Party scandal is serious need to consider how other places use the tax law.  France24 reports: Putin to pardon jailed tycoon Mikhail Khodorkovsky.

Mr. Khordorkovsky was imprisoned for 10 years on tax evasion charges.  His real offense was opposing Vladimir Putin while wealthy.  The message was surely heard by other wealthy Russians with the means to oppose the regime.

As complicated as the tax law is, it would be easy work for a politicized IRS to make trouble for disfavored opponents.  That’s why the Tea Party scandal is so serious, and why the new proposals to regulate 501(c)(4) outfits are so outrageous.  And yes, it could happen here.  It did.


Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

If it needs a subsidy to happen, it probably shouldn’t happen.  Tax break for wind power is up in the air, advocates say (Des Moines Register)

The wind provision is one of about 50 tax credits that are expected to expire at the end of 2013. U.S. Sen. Chuck Grassley, R-Ia., said the tax credits, which are usually dealt with together, failed to get a vote in Congress this year because key lawmakers thought they could include them as part of a major tax-reform bill.

Grassley told reporters that passage of a more sweeping tax overhaul appears unlikely. Senate Finance Chairman Max Baucus, D-Mont., told him last week that Congress expects to deal with wind and the other tax credits in 2014. “He wasn’t specific on when it would happen, but he said we are going to have to do (extensions of the tax credits) next year,” Grassley told reporters.

These things are passed one year at a time to pretend that they are much less expensive than they are under Congressional budget rules.   A felony in the private sector, business as usual in Congress.


Alan Cole,  Party in the UK (Tax Policy Blog)

Critically, the UK has improved its tax system substantially. It is moving towards a more competitive, more neutral tax base that treats all sorts of economic activity equally. While they have been willing to increase sales taxes – a neutral, simple tax – they are also reducing the costly corporate tax. Corporate taxes tend to substantially reduce the welfare of everyone – both the owners of corporate stock and the workers who depend on heavy capital investments. They have also abolished crippling financial transaction taxes.

Crippling financial transaction taxes like the one supported by Iowa Senator Harkin and his would-be successor Bruce Braley.


Jason Dinesen, Death Master File Changes Coming — Finally!  “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

William Perez,  Using a Donor-Advised Fund to Donate to Charity at Year End

Howard Gleckman,  A New Look at Who Benefits from Tax Expenditures.  “There is a tax expenditure under the holiday tree for just about everyone.”

Speaking of trees.  O Christmas Tree, O Christmas Tree, Please Congress don’t tax our Christmas Trees (Kay Bell)

TaxGrrrl,  12 Days Of Charitable Giving 2013: Helping Hands Center For Special Needs   


TaxProf, The IRS Scandal, Day 225

Tax Justice Blog,  State News Quick Hits in Wisconsin, Illinois, Kentucky and Oklahoma

News from the Profession.  Short Sellers, Moms, Son of God, all Credited with Encouraging PwC’s Vigorous Audit of Herbalife (Going Concern)

Get your Friday Buzz from Robert D. Flach!


IrwinIrwinirwin.jpgQuotable me.  From Peter Reilly, Andrew Schiff Does Not Recommend That You Imitate His Father Irwin:

When I asked Joe Kristan for his thoughts on the matter he summed up the realist perspective pretty well:

“Oh, my.

“I don’t care to go down the rabbit hole on the tax protester arguments. However convincing they may seem to adherents, they just don’t work. Given the choice between Irwin Schiff’s theories and all the federal judges that have ruled on these arguments – and they’ve been put before the courts countless times – a wise taxpayer goes with what the judges say. Every time. You can believe there is no income tax, but if the IRS agent, the federal judge, the federal marshals, and the Bureau of Prisons say otherwise, for all practical purposes there is an income tax.”

Yep, I said that.  Thanks, Peter!


Mom can’t share everything.  Mothers are famous for sharing all with their kids, but sometimes it doesn’t work out.  From

A Creve Coeur venture capitalist was sentenced to five years in federal prison Thursday on a tax evasion charge for dodging millions of dollars in taxes from 2006-2009, the U.S. Attorney’s office said.

Burton Douglas Morriss, 50, should have paid $5.5 million, prosecutors said, but used $18 million in tax losses in 2007 alone to reduce the amount he claimed to owe. The companies that incurred the losses “were established as single member limited liability companies for Morriss’s mother” and she had already claimed those losses in past returns, prosecutors said.

Five years is the maximum sentence for a one-count tax evasion plea.   It’s not nice to steal Momma’s tax losses.



Tax Roundup, 9/20/12: Minnetonkan voted off the island. Also: 6 million health insurance scofflaws.

Wednesday, September 19th, 2012 by Joe Kristan

Twin Cities hotel magnate gets 4 1/2 years accommodation.  From

Local real estate developer Jeffrey Wirth was sentenced Wednesday to four-and-a-half years in prison for tax evasion, Minnesota’s U.S. Attorney’s Office said.

In addition, U.S. District Judge Ann D. Montgomery ordered Wirth to pay $6.46 million in restitution to the U.S. Internal Revenue Service (IRS).

Wirth, owner and CEO of Brooklyn Center-based The Wirth Companies, is also the former owner of the Grand Hotel in downtown Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington—as well as nearly 30 other businesses, according the U.S. Attorney’s Office.

Mr. Wirth is known for his purchase of a $2 million island in Minnetonka, where he built a $3 million house that now sits derelict.  How did he get in such trouble?

They often recorded personal expenses as business expenses and claimed false “management fees” in an effort to “reduce the company’s overall taxable income to nearly zero,” the U.S. Attorney’s Office said. Wirth also admitted to understating his own salary to the IRS.

That didn’t go well at all.

Prior coverage here. In unrelated Minnesota news,  Prince Fails to Comply With Tax Summons (TaxGrrrl)


$.0113 billion down, 5.1887 billion to go.   Fourteen arrested in U.S. tax fraud, identity theft ring  (Reuters):

“The defendants in this case allegedly tried to steal $65 million using stolen identities to obtain refunds to which they were not entitled,” U.S. Attorney Paul Fishman said in a statement. They succeeded in getting $11.3 million in refunds.

The Treasury Inspector General for Tax Administration says identity theft refund fraud is a $5.2 billion annual problem.  At this rate, it’s going to take a long time to solve.


Thanks, Justice Roberts!  ObamaCare “Penalty Tax” Now Estimated to Hit 6 Million Mostly Low- and Middle-Income Americans (William McBride, Tax Policy Blog).



We didn’t mean to screw it up so badly. Senator Grassley says the wave of firings of low-level bank employees for ancient minor legal problems wasn’t what they had in mind.  From the Des Moines Register:

U.S. Sen. Chuck Grassley, R-Ia., said the way the new rules are being applied goes against legislative intent and undermines the federal government’s credibility with citizens. The low-level firings are even more problematic given the failure of the Obama administration to arrest even a single big bank executive for professional misconduct, he said.

“There’s a real disconnect between letting bank executives get away with malfeasance on the criminal front and regulations that lead to the firing of rank-and-file workers over minor infractions from decades ago that had nothing to do with bank fraud,” Grassley said.

That’s wonderful, Senator.  You guys wrote a stupid law, and now that it’s being enforced, you say you didn’t mean to do that.  It’s like if a logger tried his hand at surgery and things went predictably bad; “I didn’t mean to do that” wouldn’t cut it.  Yet you guys routinely take your legislative chainsaw to the economy, with horrific results like Dodd-Frank, and Section 409A.  Oh, you didn’t mean to do that.


Math is hard.   Harkin: The ‘47 percent’ pay higher tax rate than Romney.  True? False.

Nick Kasprak,  Some Nonpayers Do Pay Income Tax:


Robert D. Flach,  THE FAULT, DEAR READER, IS NOT IN OURSELVES, BUT IN OUR CONGRESS.  Of course, we elect them.

Matchmaker.  About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea (Howard Gleckman, TaxVox)

Dan Shaviro,  Don’t know much about history


Jack Townsend, DOJ Tax Budget Request:  Promo Piece with Some Statistics

Linda Beale,  Are lower taxes on “savings” good for the economy?  Heritage, CRS and the “Matthew Effect”

News you can use:  Facing exorbitant higher education costs? Your Uncle Sam might be able to help  (Kay Bell).  Of course our Uncle Sam is a big part of why the costs are so high in the first place.


Tax Roundup, 4/26/2012

Thursday, April 26th, 2012 by Joe Kristan

Overstating basis isn’t understating gross income, rules the Supreme Court.  This means that the statute of limitations for many turn-of-the-20th Century-era tax shelters is three years, rather than the six year statute for substantial understatements of gross income.  More from Going Concern, Peter ReillyJack Townsend and the Wall Street Journal.  The TaxProf has a roundup.  (U.S. V. Home Concrete & Supply, LLC)

Since their original proposal isn’t going anywhere anyway.  Tax Analysts reports ($link) that Tom Harkin is “open to considering alternative ways to pay for a student loan interest bill other than taxing subchapter S corporations.”  The proposal we covered yesterday would only reduce student loan rates for one year.  It’s never a good idea to enact a permanent tax to cover an expense temporarily.

Tax Court behind the times?Powerful but obscure Tax Court lags on access” (Reuters)

Jason Dinesen ponders “What to Do About Student Loan Debt?”  My advice: don’t incur it, especially to earn a major that won’t help you pay it back.  Don’t expect those of us who have saved for our own kids to graduate debt-free to want to help you pay your loans.  And allow student debt to be discharged in bankruptcy, but only if the colleges themselves have to pay part of the defaulted amount.  State 29 has some pungent thoughts.

Kay Bell: Made a tax mistake?  Make amends!

Paul Neiffer asks out loud a question usually only whispered: What is the Right Equipment Size?

World’s least-promising crime strategy: impersonating an internal auditor (Going Concern)

Senator Cardin unnecessary because we have smart phones. “Senator Cardin: Tax Simplification Unnecessary Because We Have Computers” (Tax Policy Blog)


Sometimes they’re not after your tax refund

Wednesday, January 25th, 2012 by Joe Kristan

Fraudulent tax refunds are a big moneymaker for identity thieves. The Justice Department tax division so far this week has announced nine indictments, convictions or sentencings for identity thieves.
Here in Iowa, identity theft apparently can have other uses. From an Iowa Department of Criminal Investigation press release:

Today, Friday, January 20, 2012, Zachary Edwards, age 29, from Des Moines, Iowa, was arrested and criminally charged with Identity Theft, an Aggravated Misdemeanor (Iowa Code 715A.8(2))…
According to the Criminal Complaint, on June 24, 2011, Edwards fraudulently used, or attempted to use, the identity of Iowa Secretary of State Matt Schultz and/or Secretary Schultz


Bush-era rate extension bill clears Senate, 81-19.

Wednesday, December 15th, 2010 by Joe Kristan

The Senate this afternoon passed HR 4853, the train-wreck year-end tax bill, 81-19.
The bill extends the Bush-era top income tax rates at all levels, including the 35% rate for ordianry income and the 15% top rate for capital gains and dividends. It revives the estate tax at a 35% top rate with a $5 million lifetime exclusion. It also “patches” the AMT for 2010 and 2011 and extends dozens of special-interest tax breaks through next year, including the research credit and biofuel subsidies.
Iowa’s Senators split on the final bill. Senator Grassley voted for the bill, as expected, but Senator Harkin, who had voted yes on a key procedural vote on the bill, voted against final passage.
The Hill reports that a House vote is expected tomorrow.
UPDATE: Kay Bell has more.
BIll Text
Senate Roll Call
Prior Tax Update coverage:
True confession
2010 100% bonus depreciation, Extenders, $5 million portable gift-estate tax exemption in ‘Framework’ text