New U.K. film tax credit indictments. It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. Ic.Scotland.co.uk reports:
Five people are to be charged in connection with a film industry tax relief fraud which cost the public purse around £125 million, the Crown Prosecution Service said.
The group allegedly abused a tax relief that allows investors in the British film industry to offset losses against other tax liabilities in order to cheat the public revenue.
“Around £125 million” translates to around $194 million. And in Iowa film producers are serving time for stealing merely single digits of millions. It just goes to show what you can accomplish with a national effort.
Boo. House bill would give IRS authority to regulate tax pros(Kay Bell) The power grabbers at IRS and their buddies at the national franchise tax prep firms have been thwarted by the courts. Now they are using their congresscritter friends to put in the fix.
Kay sadly falls for it:
The quality independent tax professionals are following tax law changes, staying up to date and providing their clients with reliable tax services. Down the street, however, an inept preparer is undercutting their prices and mucking up the system for all of us — the IRS, tax pros and taxpayers alike.
The IRS can’t regulate anybody into competency. They can make people pass a “competency” test that really is a literacy test. They can make people pay for CPE. But they can’t make anybody competent who wouldn’t be otherwise. What they can do is drive little preparers out of the business with nagging paperwork, red tape and hassles that the big boys can just assign to their compliance departments, and, when necessary, to their lobbyists. This reduces the supply of preparers, increasing the cost of preparation for taxpayers.
The real problem with tax errors isn’t preparers; it’s the horrendous tax law and the inept legislators who make it happen.
In a 2011 paper published by the Mercatus Center at George Mason University, Veronique de Rugy and Adam Thierer recommended “an ‘origin-based’ sourcing rule for any states seeking to impose sales tax collection obligations on interstate vendors.” Under that rule, which mirrors what happens when you buy something while visiting another state, each business collects sales tax on behalf of the state where it is based, no matter where the customer happens to be.
The beauty of this approach is that it treats all retailers equally, eliminates the daunting challenge of dealing with many different taxing authorities, and respects state policy choices while encouraging tax competition between jurisdictions. Evidently the idea makes too much sense for Congress to consider.
That would motivate online sellers to locate in low tax jurisdictions, which is why congresscritters from high-tax places will never allow it to happen.
Film tax credit scams are big news in the U.K. right now. An Irish actress, Aoife Madden, yesterday received a 54-month sentence in her role in scamming a U.K. film tax credit scheme. Irish Times reports:
The group successfully claimed £1.5 million in film tax breaks after they said they intended to make a film titled Landscape of Lives with a £19 million budget, funded by Jordanian backers.
Once they were arrested two years ago, the five hurriedly produced a film called, ironically, Landscape of Lies for just £90,000, which went on to win a Silver Ace award from last year’s Las Vegas Film Festival.
The film, which starred former EastEnders actor Marc Bannerman and Andrea McClean, told the story of a former British soldier’s attempts to discover the truth behind his friend’s murder in an apparent mugging.
Before suspicions had been aroused, Madden’s London film company, Evolved Pictures, told revenue and customs that millions had been spent on Hollywood A-list actors and film crew when it lodged a value added tax repayment application for £1.48 million. It received more than £1 million.
Lost in the coverage is Iowa’s pioneering role in film tax credit scams. A little-known film producer from Minnesota came here and showed the Brits just how it’s done:
Take Iowa. A start-up called Polynation Pictures came looking for backing for a sci-fi flick so lame it would have embarrassed Ed Wood. With a financing scheme worthy of Max Bialystock, the con these folks pulled was nearly as inept as the film they made, but Iowa’s film office was too starry eyed to notice.
…
The $767,250 production Polynation Pictures proposed eventually came in at $3.7 million. This was achieved in part with preposterous expenses. Producers claimed they paid $1,350 to rent six orange road cones. The use of two 6-foot ladders supposedly cost the company $900 (a bargain, as Polynation claimed to have spent another $900 to rent a single 8-foot ladder). Among production necessities was a new Mercedes. The partners set up an array of separate companies and used them to bill themselves extravagantly for work supposedly done on the picture. These were presented to Iowa as “deferred payments”—to be paid if the movie made money (which the enterprise was sure to do when Iowa handed the tax credits over). The only thing missing was a staged rendition of “Springtime for Hitler.”
Polynation mastermind Wendy Weiner Runge received 10 years for her star turn in the film credit program.
The film credit program was touted as a way to make Iowa a leader in the film world. And, in a way, it did.
You might be interested in this interview with Ms. Madden about her role in the film, knowing what we know now. She said this:
This project has been a crazy but wonderful challenge!! I’ve always wanted to produce a feature, and have a number of projects in development, but this was the one I just wanted to lift off the page. I think the biggest challenge was sourcing finance, which is no surprise for an independent film company. We were extremely lucky to find international investors and lobby them to back the project, but this was a lengthy process and has always been a challenge.
A challenge, yes, but I’m not sure they turned out lucky.
Snatching defeat from the jaws of victory. Now that the courts have saved the IRS from itself by shutting down the misguided preparer regulation system, the Senate rides to the rescue to screw everything up again, Accounting Today reports:
The two leaders of the Senate Finance Committee, Chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, have begun developing proposals for reforming the U.S. Tax Code, including giving the Internal Revenue Service the clear statutory authority to regulate tax preparers in case the IRS loses its appeal of a recent court case invalidating its Registered Tax Return Preparer regime.
The IRS can’t answer its phones. Its pockets are being picked to the tune of billions by semi-literate South Florida grifters. And the Senate thinks that preparers are the problem? Preparer regulation is a market-share enhancement program for the national franchise tax prep outfits; the rules were written by a former H&R Block CEO. If Senators Baucus and Hatch want to re-enact these anti-competitive and useless rules, it just shows who they really represent. (Via Going Concern).
The Hawkeye State gets a black eye for being the second worst state for corporate taxes, with a 12 percent rate. It also ranks 37th in property taxes, 33rd in individual income taxes and 34th in unemployment insurance taxes.
They accompany the article with this photo of the “Field of Dreams” — an unwitting illustration of the problems of Iowa tax policy. The Governor last year signed a proposal giving a special sales tax exemption to a private athletic complex being built around the field, made slightly famous in the Kevin Costner movie. It’s special carve-outs like this that make for high rates and complicated taxes all around.
State leaders ballyhooed the plan as a way of moving from old-style industry to new.
Despite tens of millions of dollars in state investment, the promised 3,000-plus jobs didn’t appear. As the Detroit Free Press reported last year, the studio employed only 15-20 people. That isn’t boffo. That’s a bust. The studio has defaulted on interest payments on state-issued bonds, and the guarantors—the state’s already stressed pension funds—may wind up holding the bag. “In retrospect, it was a mistake,” conceded Robert Kleine, the former state treasurer who signed off on the plans in 2010.
He doesn’t neglect Iowa’s film fiasco:
Iowa ended its motion-picture subsidies in 2010, after officials misused $26 million in state money, leading to criminal charges. According to a 2008 investigation by Iowa Auditor David Vaudt, 80% of tax credits issued under the state’s film-subsidy program had been issued improperly (to production companies that weren’t even spending the money in Iowa, for example).
Two film credit recipients are now serving 10-year sentences on theft charges arising from the program. That’s fine, but I really want to see a groveling public apology from the Governor who signed the program into law, the “economic development officials” who turned the keys to the state treasury over to a former Walgreens photo desk clerk in charge of the program, and to the legislators — all but three out of 150 — who voted the moronic program into existence.
“At a minimum, it’s probably going to take longer for people to get through on the phone; it’s going to take longer for refunds to be processed,” said Floyd Williams, a senior tax counsel at Public Strategies Washington.
Williams, who worked for the IRS for nearly two decades and directed the agency’s legislative affairs office for 16 years, says the sequester could also be a boon to those who purposely commit fraud, or accidentally fill out returns incorrectly.
Good thing the IRS can redirect the employees who had been assigned to the preparer regulation program to do something useful, now that the courts have shut down that futile enterprise. The IRS can’t stand their good fortune, though; Tax Analysts reports ($link) that the IRS is appealing the court decision.
It would be even better if Congress stopped using the IRS as the Swiss Army Knife of public policy. Given the agency’s new mandate to take care of our health insurance, their performance at the job of actually collecting taxes is only going to get worse.
Preparers gone bad. Accounting Today rounds up the week in preparer fraud, including a guy in New Mexico who, while serving time for identity theft-related charges, has been hit with 56 counts of fraud and embezzlement. That would be overachieving in underachieving.
Durango man pleaded guilty to tax evasion this week in federal court in New Mexico.
Hak Ghun, 62, is facing 12 to 18 months in prison after signing a plea agreement with the U.S. Attorney’s Office. He also will be required to pay $249,567 in restitution to the Internal Revenue Service.
The man was accused of embezzling from a company that had received investments from the Navajo Nation. For those who don’t get the old TV show reference, here you go.
Either we cut spending or everyone will pay more taxes. This post by Veronique de Rugy puts together in one handy package some points I have been trying to drive home about budget and tax policy. It’s all worth reading, but some key items include:
In my opinion, the problem with the fiscal-cliff debate has been that no one is acknowledging the fact that there is no way out of raising taxes on everyone eventually unless Congress gets serious about addressing our long-term fiscal problem, by restraining spending.
“The Rich” simply don’t have enough income to foot the bill. But borrowing temporarily hides the problem:
This, by the way, is why I thought the Bush years were so toxic. Cutting taxes while increasing spending dramatically — Bush increased real spending by 60 percent, as opposed to Clinton’s increase of 12.5 percent — is a recipe for large deficits leading more taxes later or certainly intense pressure to raise taxes.
What will taxes look like when the bill comes due?
This weekend, Mark Steyn gave us an idea of what that tax bill would look like. He writes:
A couple of years back, Andrew Biggs of the American Enterprise Institute calculated that, if Washington were to increase every single tax by 30 percent, it would be enough to balance the books — in 25 years. If you were to raise taxes by 50 percent, it would be enough to fund our entitlement liabilities — just our current ones, not our future liabilities, which would require further increases.
Finland shows how high taxes have to be to adequately fund a lavish welfare state, as I have noted:
Finland has an extensive welfare state and most years pays for it without budget deficits. It does so with income taxes that reach a 2012 top rate of 29.75% at €70,301, which is about $57,021 at current exchange rates. For a US taxpayer filing single, the 28% rate doesn’t start until taxable income reaches $85,651, and not up to $142,701 on joint returns. On top of that, Finns pay a 23% Value-added tax on most purchases — a tax that is not tied to income. But there’s more! There is a mandatory 4.7% payroll tax on employee gross wages, plus another 18.3% “paid” by the employer — but that necessarily reduces what they can pay the employee after-tax.
I’m not sure all that would go over well here, but that’s what we’re headed for. Anybody who says rich people can pay for all of the free government stuff is either clueless or lying. The rich guy isn’t buying.
Trish McIntire, Do You Have a Spare $2,350? You do? Good, you may need to send it to the IRS in April if Congress doesn’t “patch” the Alternative Minimum Tax for this year.
Allison T. O’Neil, the ex-wife of Michael J. O’Neil, does not want to pay a penny of their joint 2005 federal tax liability because, she says, it [*2] would be inequitable to make her do so.
2 Michael recalls providing Allison with $6,000 to $10,000 per month. Allison recalls getting only $6,000 per month.
Tell me when they get serious about the budget. The federal budget deficit is running about $1 trillion annually. So how does the President propose to address it? Primarily by increasing taxes by $1.6 trillion — over 10 years. And, of course, no real spending cuts. The TaxProflinks this:
President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. …
Kevin Smith, a spokesman for House Speaker John Boehner (R., Ohio), dismissed the president’s opening position for the negotiations. He said Mr. Boehner’s proposal to revamp the tax code and entitlement programs is “consistent with the president’s call for a ‘balanced’ approach.” …
In negotiations between Messrs. Boehner and Obama in mid-2011, the two sides neared agreement on a plan to cut the deficit by $4 trillion over 10 years, including $800 billion in new revenue. The deal fell apart after Mr. Obama asked to raise the revenue component to $1.2 trillion, and to this day each side blames the other for the collapse. Based on that history, some senior GOP aides said they believed a likely compromise would call for about $1 trillion in new tax revenue, possibly from capping deductions for wealthier taxpayers.
As noted here, a straight dollar cap on itemized deductions would still be a tax increase on pass-through businesses. Taxpayers who report business income on their personal returns have to deduct the state income taxes as itemized deductions, rather than as “above-the-line” business expenses. A straight deduction cap would eliminate the deduction for state income taxes on business income.
How would you be able to tell if they are serious? When they admit that to have government benefits for everybody, you have to increase taxes for everybody, and that cutting spending by cutting “fraud, abuse and waste” never happens. The rich guy isn’t buying.
Chart 29. The federal deficit has grown so large that tax increases only on America’s millionaires will not be our silver bullet. Even if the government took all of the income earned by those who have an after-tax income of $1 million or more, the amount of revenue generated would fall far short of eliminating the deficit. The expected federal deficit for 2012 is about $1.2 trillion. The latest IRS data indicates that the total after-tax income for all millionaires is roughly $709 billion. If every penny of that after-tax income were taken by the government through a 100% tax rate, and we assume that no spending cuts are made to accompany the tax increase, this would account for only about 60% of the amount needed to erase the deficit. With numbers like this, one thing is clear: soaking the wealthy with increasingly higher tax rates simply cannot be the only answer to our nation’s fiscal problems.
Meanwhile, this upcoming tax season is likely to be horrible. Acting IRS Commissioner Steven T. Miller tells the IRS that many taxpayers may have to wait until late March next year to file, depending on whether and when an “AMT Patch” is enacted (my emphasis):
Without an AMT patch, about 28 million taxpayers would be faced with a very large, unexpected tax liability for the current tax year (2012). In addition, in order to allow time for the IRS to make the programming changes necessary to conform our processing systems to reflect expiration of the AMT patch and the credit ordering rules, the IRS would, at minimum, need to instruct more than 60 million taxpayers that they may not file their tax returns or receive a refund until the IRS completes the necessary systems changes. Because of the magnitude and complexity of the changes, it is entirely possible that these taxpayers would not be able to file until late March 2013, if not even later. Tens of millions of these taxpayers would unexpectedly have to pay additional income tax for 2012, leaving them with a balance due return or a much smaller refund than expected.
Tax season has become more compressed into the last few weeks before April 15 because 1099s and K-1s are issued later every year as a result of tax law complexity. It looks like it could get much worse.
You Gotti like it. John A. Gotti, son of the convicted organized crime figure, scores a legal victory, convincing the Tax Court not to grant summary judgment for the IRS in a tax case involving a corporation he controls with his wife. It involves a dispute over whether IRS correspondence mailed to a jail address was a proper notification at the taxpayer’s “last known address.”
Another sign of the apocolypse. There is now on online exchange for trading transferable film tax credits. Tax Analysts reports ($link)
The newly launched Online Incentives Exchange LLC (OIX) purports to be the first “truly national, transparent, liquid exchange for the trading of state tax credits,” competing against direct brokerages in the trading of transferable and/or refundable state tax credits.
…
Right now, only Louisiana tax credits are trading on the exchange. Organizers plan to enable trading of California and Georgia credits in December and to eventually list on the exchange transferable and refundable tax credits in the 45 states where those incentives are available.
Promotional image for “The Scientist,” one of the projects of convicted film tax credit recipient Wendy Weiner Runge.
Jailing them instead of bribing them. Iowa has drastically altered its approach to the film industry in the last few years. Where it once lured them with lavish film credits, meaning free cars and cash, it now merely provides lodging. From WHOtv.com:
The Iowa Court of Appeals has affirmed the sentencing of a Minnesota filmmaker who pleaded guilty to fraudulent practices.
Wendy Weiner Runge was sentenced to 10 years in prison after pleading guilty in connection with Iowa’s film tax credit scandal. She was the owner and operator of a film company that applied for tax credits from the Iowa Film Office in 2008.
Ms. Runge said the sentencing judge improperly considered her combative blog posts as evidence of lack of remorse. The appeals court held otherwise:
Similarly, here, the court properly considered Runge’s statements criticizing the court’s process and disparaging the prosecutors and the judge personally in considering her lack of remorse.
You don’t need to go to law school to figure out that if you plead guilty to something, it’s unwise to publicly rip the judge before sentencing.
Iowa spent over $30 million on the film industry via transferable film credits — another way of saying “subsidies.” A state auditor report said that 80% of the credits were improperly granted. It might have been cheaper to just imprison the filmmakers in the first place.
From films to fertilizer. The Iowa corporate welfare machine now is focused on a less glamorous industry. On the heels of a huge tax credit grant to build a new fertilizer plant in Eastern Iowa, Iowa announced yesterday an award of up to $70 million of tax credits for a new Sioux City fertilizer plant for a different fertilizer company.
Between the two plants, the state has awarded up to around $180 million in tax credits. This compares to budgeted net receipts for Iowa’s corporate income tax of under $400 million.
The state claims the project will bring 2,000 construction jobs and 100 full-time jobs at the plant. If they max out their tax credits, that works out to about $33,300 per job, or $700,000 per “permanent” job. Heck of a deal. Meanwhile every other business has to cope with a horrendously complex state tax system with high rates to support these big credit grants.
So your investment in that biodiesel plant didn’t go like you had hoped: $400,000 down the tubes. Well, at least you got some nice Iowa investment tax credits.
Then you get a letter from the nice folks at the Iowa Department of Revenue saying that those tax credits you got from the biodiesel plant aren’t good anymore, so please write us a big check for those credits you used to offset your Iowa taxes.
That happened to some unfortunate investors in the East Fork Biodiesel plant in Algona, Iowa. An administrative decision released this week by the Department of Revenue gives some background:
DED approved an investment tax credit of approximately $5.2 million through an enterprise zone agreement with East Fork and Kossuth County. The tax credit was amortized over five-year period. The credit was to be taken in the year the plan was placed in service. The agreement made clear that East Fork would not receive benefits if it failed to comply with the contract terms, including terms regarding job creation and payment of wages.
The East Fork plant was substantially completed in December of 2007 and started production. It produced 1.1 million gallons of biodiesel in December and then shut down due to “adverse market conditions,” that is, an increased price in soy beans. The plant did not reopen.
Well, we got it up and running for a month. That should get us our tax credits, right? Not according to the Department of Revenue. The department notified the partnership owning the plant that it was in default of the job-creation and wage promises made to get the credits, and that the state wanted them back:
The taxpayers had claimed investment tax credits for 2008 and 2009 after East Fork had shut down. In February of 2011, the department filed notices of assessment against each of the taxpayers, claiming repayment of the tax credits and interest. The department sought repayment from the individual taxpayers [owning the] LLCs, so the credits flowed through to the individual members.
The taxpayers filed protests to the assessments. They argue they should be able to claim the credits because the plant was built and is capable of operation. The only reason it closed is the high cost of inputs, which was not expected at the time it was built. They lost their investment, so they are seeking the tax credit to minimize their losses.
It appears that the taxpayer’s interest in East Fork represented about .81% of the deal, worth about $42,000 in tax credits. That by itself would be a poor return on a $400,000 investment, but if the administrative ruling holds up, they won’t get even that (my emphasis):
The taxpayers argue that repayment must come from the “business” as opposed to the individual shareholders. The statute does not support that reading. The statute references the business being eligible for the tax credits, but allows the benefits to flow down to individual taxpayers if the business is an LLC. If the business utilizes the tax credits by allowing the individual partners to claim the credits on their individual tax returns, it necessarily follows that the department would have to seek repayment of the business credits by the same means. This interpretation is supported by the language in section 15E.193(3) allowing the department to recover the “value of state taxes or incentives provided.” The taxpayers received the value of the tax credit provided, so the department can recover the value of that credit from the individual taxpayers.
The Moral? In the wake of the film tax credit fiasco, Iowa has become sensitive to concerns that tax credits aren’t doing their job (though they honored the fraudulently-issued film credits). Many “economic development” credits come with strings attached. If the project fails, Iowa will pull those strings. Taxpayers need to keep that in mind when considering an investment in a project promising tax credits.
More than 10,000 people remain on a waiting list for federally subsidized housing in Hillsborough County.
Not LaSandra Gamble, 27-year-old mother of five.
Last summer, between housing, utilities and food stamps, she drew benefits of $2,363 a month, Tampa Housing Authority files show.
Yet, in August 2011, she put down $9,000 on a black 2006 Lexus GS430, police said. Three days later, they said, she put down another $9,000, this time on a red 2007 Lexus ES 350. Combined, the monthly payments were nearly $2,000.
Gamble, in an interview, said police have it wrong. She said she got the cars because she was involved with the car dealer.
“I didn’t have to put nothing down,” she said. “We were in a relationship.”
Legally, she was in a relationship with her husband, 33-year-old Angelo Juan Pedrosa, whom she had married a year earlier.
Police got involved Oct. 8, when they stopped Pedrosa driving the black Lexus. Pedrosa is a convicted cocaine dealer. Along with marijuana residue, the officers reported finding $6,000 and a dozen debit cards in other people’s names.
Reloadable debit cards, sold online, carry Visa or MasterCard logos. Some people use them to shop on the Internet, control spending or get around poor credit. Tax thieves use them to collect refunds from the IRS.
Police filed a report with the IRS. Ms. Gamble denies any involvement with tax fraud.
The gist of the TampaBay.com story is that the multi-billion dollar refund fraud — much of which is based in Tampa — is largely the work of thieves who are also collecting money from you through public assistance, and a motley array of petty thieves. And Doug Shulman’s IRS is helpless to stop them.
Or maybe they just have priorities other than protecting your tax money. Priorities like expanding the power of the bureaucracy. An opinion piece in today’s Wall Street Journal by Chip Mellor of the Institute for Justice (via the TaxProf):
Under new regulations imposed last year—without congressional approval—the IRS now requires all paid tax preparers to become “registered tax return preparers” by paying extra fees, passing a government exam, and taking continuing-education classes annually. (Exempted from the mandate are attorneys, CPAs and politically powerful “enrolled agents.”) Big tax-preparation firms such as H&R Block and Jackson Hewitt supported the licensing scheme, as did lobbying groups representing CPAs and others who are exempted from new regulation.
So while petty thieves loot the Treasury, rest assured that Doug Shulman’s IRS is doing what it can for the well-connected. For a taste of what it Doug Shulman is doing for those whose identities are being stolen (darn little), check out the newest installment in Jason Dinesen’ssaga of a client’s identity theft nightmare.
Billy Hamilton of State Tax Notes has a fine history of the Iowa Film Credit up today. Unfortunately at the moment it is only available to State Tax Notes subscribers (here). He uses a “film noir” theme to tell the story:
Unless all of the main characters are dead, life continues past the closing credits, and in Johnny’s case, that means arrest and a return to the Big House. But filmmakers and audiences seldom bother with what is, in effect, the story after the story.
That probably helps to explain why there was minimal press attention when opening arguments began on July 23 in the trial of the last of 10 defendants charged in the Iowa film tax credit scandal that erupted three years ago and was a hot topic at the time in Iowa, in the movie community, and in tax circles.
The business culture that both Romney and Warren Buffett have operated in, as have I at a much less ethereal level, considers overpaying taxes to be irresponsible. That is the story of Romney’s tax returns.
I’ve not encountered a business culture that considers overpaying taxes to be “responsible.” Peter’s post is worth reading for the “It’s a Wonderful Life” references alone.
Still Star-struck in Iowa. Even after Iowa’s embarrassing and disastrous film tax credit fiasco, there are still people who think it’s a nifty idea for taxpayers to subsidize Hollywood, reports the Quad City Times. Take Kent Newman, described as “a former board member with the Iowa Motion Picture Association who does production work in the Des Moines area and remains connected with various aspects of the film business.”:
Newman said there were many positive aspects from the film tax credit program that included considerable training for young people interested in working in the entertainment industry and several projects that successfully used the tax incentives to complete high-quality productions. However, when the incentive program was suspended in 2009 many projects and people moved to Michigan, Louisiana and other places where there were jobs being offered.
Newman said in the current environment that “unless and until Iowa has some level of a competitive incentive program that is well managed, we’re never going to have very much production happening here.”
He said he was hopeful local communities would fill in that void by offering to waive the first month of hotel-motel tax for production crews or other incentives that could entice film projects in the range of $3 million to $10 million that would headquarter in an Iowa city where they would be a short distance from rural locales that would be prime destinations for a film shoot.
In other words, unless we pay Hollywood to be our friends, they won’t like us. Unless every business and employee who is already paying taxes here working for unsubsidized businesses ponies up tax money to bribe the filmmakers to come here, they won’t come here.
If Hollywood wants to make movies here with their own money or money from private investors, fine. We should have a business environment that is welcoming to in-state and out-of-state entrepreneurs. Then you don’t need “incentives” in the first place.
It doesn’t make sense to bribe other businesses either. Some wisdom on Tax Policy from David Brunori ($ link):
As first reported in the Las Vegas Sun, Nevada’s decision to grant Apple $89 million in tax breaks was made by one man. The decision rested with Steve Hill, the state economic development director. Where would one unelected bureaucrat get the power to hand over $89 million to a corporation that has a market capitalization of over $500 billion? Why would Nevada give a dime to a corporation that has revenue of over $110 billion and profit of $26 billion?
In a society that has laws against everything, you’d think there would be some prohibition against handing over public money to fabulously successful private enterprises. Nevada politicians claim that Apple will hire 35 (yes, 35!) employees. Apple will also invest $2 billion over the next 30 years. But the truth is that Apple would have invested in Nevada even without the tax breaks. That’s almost always the case when states give incentives to individual businesses.
Assisted living would have been cheaper. A user of the absurd “1099-OID” tax refund scheme faces expensive but substandard retirement living, according to a Department of Justice Press release:
Richard Kellogg Armstrong, 77, of Prescott, Ariz., was sentenced today by U.S. District Court Judge Robert E. Blackburn to 108 months in prison followed by three years of supervised release. Judge Blackburn ordered the sentence to run consecutively to the 660 day prison term and $1,021,500 of fines cumulatively imposed upon Armstrong as punitive sanctions for 10 acts of contempt of court. He also ordered Armstrong to pay restitution to the Internal Revenue Service (IRS) in the amount of $1,678,834 and to forfeit two residences and a personal aircraft.
He gets to start over when he’s 86. That’ll be fun.
The 1099-OID scheme claims that one way or another the government has a bunch of money for you that you can claim by dummying-up a 1099-OID showing withholding for you. Wikipedia covers it here. You can see an item advocating it here, but good luck trying to make any sense of it.
Back in March I reported on Steven Martinez. Mr. Martinez is a tax preparer who faced charges of stealing $11 million from clients. He decided that the best strategy to fight this charge wasn’t hiring a good attorney, nor was it trying to disprove the charges; rather, he decided to hire a hit man to kill four witnesses. (One reason he didn’t try to disprove the charges is that they were true; Mr. Martinez has admitted he took the $11 million and used it to buy a home in Mexico and other personal expenses.)
The only saving grace about criminals is that their stupid usually undoes their evil.
Herbert Hoover was born 138 years ago in West Branch, Iowa. They haven’t elected another Iowan as President since for some reason. Arnold Kling ponders the Hoover presidency:
Federal budget outlays in real dollars rose 88 percent under Hoover between 1929 and 1932, faster than the growth in the first three years under Roosevelt (although starting from a lower base). Budget deficits under Hoover look more Keynesian than Roosevelt’s deficits, although likely not by Hoover’s design.
The conventional wisdom is that Herbert Hoover sat back and did nothing, and then Roosevelt cured the Depression with the New Deal. In fact, I think that economic historians tend to see both Presidents making similar mistakes. The most common view among economists today is that going off the gold standard was President Roosevelt’s best policy move, while many of the other New Deal policies, most especially the National Recovery Administration, were a hindrance.
President Hoover will always be linked to the depression. That’s fair, though the story is much more interesting than the comic-book version of popular history.
State rejects Windsor Heights’ bid for revenue cameras (Des Moines Register):
The portion of I-235 that goes through Windsor Heights has the highest crash rate in the county, according to the city’s proposal.
…
(Windsor Heights Police Chief) McDaniel said that while the cameras will likely pay for themselves, the city wasn’t thinking about additional revenue when they proposed the project. Any potential revenue would go toward equipment purchases for public safety entities, he said.
Windsor Heights has long been notorious as an incorporated speed trap. Why would anyone think that the cameras would be there just for revenue? They are also there to award special favors to other government agencies!
Yes, that stretch has a lot of accidents — because of the design of the road, where having one too few lanes to accommodate three exits in a short stretch causes daily traffic backups. Why are there too few lanes? If my memory serves, it’s because Windsor Heights objected to an extra lane through their fair city.
Yes, government programs require government regulation. The Quad City Times concludes an editorial on the film program this way:
Iowa, like many states, wheels and deals with tens of millions of dollars in tax credits every year to encourage senior housing, economic development, energy efficient homes and businesses and countless other initiatives. Witter’s jury acquitted a professional, degreed and licensed accountant of any criminal culpability for submitting expenses the state auditor later documented as unfounded.
So without extensive government regulation, Iowa’s tax credit programs seem ripe for the picking.
So what government is supposed to regulate a state government program?
It came out in the most recent film credit trial that the man who brokered 2/3 of the $36 million of tax credits issued — 80% of them improperly — received over $400,000 in commissions for his efforts. So while the programs are advertised as benefiting “senior housing, economic development, energy efficient homes and businesses and countless other initiatives,” remember that the real beneficiaries are well-connected fixers and middlemen.
What’s so great about the wind credit? Well, according to Branstad, it has encouraged the construction of wind turbines all over Iowa, which means jobs for Iowans and rental income for Iowa farmers. If that sounds to you a lot like the arguments for subsidizing solar power — and the arguments for every industrial subsidy ever — you’re not alone.
Of course, the really important difference between wind subsidies and solar subsidies is that Iowa is windy and not especially sunny. If the purpose of the federal government is to do nice things for Iowa, then obviously it should prioritize wind over solar.
His solution for the problem of Iowa extortion:
We could reduce Iowan tyranny by taking away its status as the first state to hold presidential caucuses. But Iowa would remain a swing state with outsized influence in the general election. The only way to really be safe is to revoke Iowa’s statehood, returning it to a territory whose representatives in Washington, D.C., would play a purely advisory role — and whose residents would have no part in choosing the president.
OK, we have our faults here, but put California and Illinois in receivership first, then we can talk about Iowa. Update: Josh Barro Declares War on Iowa (Reihan Salam)
The Internal Revenue Service has been looking the other way instead of rooting out fraud when people apply for taxpayer identification numbers, Treasury Department investigators said Wednesday, exposing a shortfall with both financial and national security implications.
A member of Congress who sits on the House’s tax-writing committee responded to the report by calling on IRS Commissioner Douglas Shulman to resign, claiming the IRS is helping illegal immigrants defraud the government.
REPEAL THE HOLLYWOOD TAX CUTS! (LOCAL EDITION): La. film tax break program needs limits, budget group says. “Louisiana has spent more than $1 billion over the past decade to attract movie productions to the state, but hasn’t received much in return besides the prestige of hosting big-name Hollywood actors, according to a report released today. The left-leaning Louisiana Budget Project suggests state lawmakers should put tighter limits on the generous film tax break program, lessening the credits offered and capping the amount of money it can cost the state each year.” Actually, it should be abolished, as should similar programs in almost every other state. And this is something state Tea Party groups might even make common cause with lefties on.
It’s time to register for this year’s ISU Center for Agricultural law and Taxation Farm Tax Schools! I will be on the Day 1 panel at all eight sessions, starting with the October 29 school in Mason City.
Swiss bankers whose names were delivered to the United States in April as part of the crackdown on US tax evaders face the risk of arrest while travelling in some European countries, not just on US soil.
A Polk County jury yesterday acquitted Bettendorf accountant Chad Witter of all charges arising out of his involvement with the defunct Iowa film tax credit. The Sioux City Journal reports:
Witter, the primary accountant for the Changing Horses Productions film company and a tax credit broker for several film projects, had been in that same courtroom for the past two weeks listening as prosecutors blamed him for overbilling the state of Iowa in an attempt to line his own pockets in his role involving the now-shuttered Iowa Film Office.
But it took the jury of seven women and five men less than a day to declare Witter not guilty on charges of fraud, theft and ongoing criminal conduct.
Of course, the real guilty parties in the film fiasco, which cost taxpayers over $30 million, never will face charges. The 143 state legislators who voted to subsidize Hollywood with your money will never be called to apologize for enacting a stupid program and then failing to include minimal protections against waste in the law. The Governor who signed the bill and then turned the keys to the treasury to a Walgreens photo desk clerk will never face a tribunal, and will never be required to publicly apologize for failing to protect taxpayers.
The last Iowa film tax credit trial went to the jury Friday, so we may see a verdict as soon as today. Chad Witter, a Bettendorf accountant who brokered transferable film credits from the filmmakers to those seeking a discount on their Iowa taxes, is charged with Fraudulent Practice, Theft and Ongoing Criminal Conduct arising out of the disastrous Iowa film tax credit program. The Quad City Times reports:
Defense attorney Richard McConville conceded that “some people did cheat” the state, but Witter was not one of them. He contended the charges against Witter were based on “guilt by association” with people previously convicted of wrongdoing by prosecutors who were under pressure to make state elected officials and policy-makers look good in the wake of the debacle.
…
However, prosecutor Robert Sand of the Iowa Attorney General’s Office said Witter played a key role in gaining the trust of former Iowa film office manager Tom Wheeler and reducing state scrutiny of invoices that included charges of $225 for a push broom, $900 for a ladder and other claims in connection with several projects where the defendant tried to minimize his involvement to appear to be “the low man on the totem pole” in schemes to defraud the state.
The stakes are very high for Mr. Witter. Two of his filmmaker clients, Wendy Weiner-Runge and Dennis Brouse, have received 10-year sentences on charges of looting the film program. The offenses he is charged with could carry an even longer sentence if he is found guilty.
While a jury will decide Mr. Witter’s guilt or innocence, those who bear the heaviest responsibility for the looting of taxpayer dollars have dodged accountability. The Iowa legislators who approved the ridiculous subsidy for Hollywood with no built-in controls by a 143-3 margin will never be forced to answer for their negligence. The Governor and his economic development director who turned the keys to the state treasury to a man whose training in managing a state agency consisted of a stint as a Walgreens photo desk clerk will never be called to explain why they left the safe open. And the media cheerleaders who were so caught up in the excitement of having starlets in town that they missed the story until the program exploded in scandal and disgrace will never have to sit before a jury of their subscribers to explain why they failed to pay attention.
Iowa Supreme Court rules that film budget summaries for film tax credit recipients are public information. The court ruled that the state must release the summaries, reversing a lower court decision that the information was confidential.
Technically the trial of film tax credit figure Chad Witter is also public information, but if you are looking for coverage in Iowa media, it might as well be top secret. The trail enters its second week today. Whatever revelations are in the trial about the shadowy world of brokers and middlemen who market tax credits, local reporters don’t think they’re worth mentioning.
Meanwhile, Iowa taxpayers still are coughing up cash to Hollywood, reports thegazette.com:
Judgments paid by the state of Iowa spiked to nearly $13.2 million last fiscal year as attorneys negotiated settlements to resolve claims and disputes caused by employee mistakes, workplace misconduct or other damages involving government operations.
Nearly half of the payout approved by the State Appeal Board in fiscal 2012 involved pre-litigation settlements with film projects that sought state tax credits under an ill-fated state incentive program that was shut down in 2009 after an audit showed millions of dollars worth of tax credits were awarded improperly.
That tells you who the tax credit programs are really for. From CSMonitor.com:
Lee Schafer of the Minneapolis Star Tribune called me the other day to see if I had any information on the effectiveness of angel investment tax credits for a story he was writing.
I told him that all that the tax credit programs do is speed up or slow down investments (to take advantage of their timing). There is no evidence that they increase angel investment whatsoever. They are not the job creator politicians claim when enacting these programs. (See my arguments in my editorial at the WSJ).
In his investigation of the program in Minnesota he found strong support among politicians for the program, but very little support from entrepreneurs.
State tax incentive programs are usually a head fake, especially in high-tax states like Minnesota and Iowa. The politicians use them to pretend they are “pro-business” while leaving a business-unfriendly tax system in place.
Because why would they do something simple and sensible? Tax Analysts reports ($link):
Practitioners should not expect a simplified estate tax return for electing portability, said James Hogan, branch 4 chief, IRS Office of Associate Chief Counsel (Passthroughs and Special Industries), on July 23.
The current estate tax law, which expires at year-end absent Congressional action, allows a surviving spouse to use a deceased spouse’s unused lifetime estate tax exemption — but only if an estate tax return is filed electing the carryforward for the deceased spouse’s estate. In many cases neither spouse will owe estate tax, but there’s always the chance that the widow will win the lottery, so executors are filing a lot of these otherwise unneeded estate tax returns in self-defense. It looks like that silly state of affairs will continue.
What happens when non-taxpayers run the show (Tax Foundation):
Killed by corporate welfare? An interesting item via Going Concern about Curt Schilling’s ill-fated video game venture:
Desperate to gain outside funding, Schilling used his fame to gain meetings with investors “practically every week for the company’s first three or four years.” But no one bought in, scared off by the company’s amateurish business plan and lack of experience. So when Rhode Island came calling with a sweetheart business development loan, 38 Studios jumped at the chance—even if it meant opening up a new office and hiring more employees, which hastened its demise.
If a business plan is any good, it will probably find funding without government help. If it needs government help, it probably isn’t a great idea to start with.
No, the government doesn’t really have a big pot of cash waiting for you to claim it. Two more taxpayers have pleaded guilty for their involvement in a Missouri-based scheme to claim $100 million in fraudulent refunds under the “1099-OID” scam.
So the guy who swindled customers in his commodity brokerage in Cedar Falls also swindled Iowa “economic development” smokestack chasers. From QCTimes.com and AP (via State 29):
Even before its dramatic collapse last week, an Iowa-based brokerage implicated in a $200 million fraud scandal had defaulted on the terms of a $1.24 million state incentives package that helped the firm build a state-of-the-art headquarters, newly released records show.
The Iowa Economic Development Authority warned Peregrine Financial Group, Inc. in March that it had violated its contract by paying employees lower salaries than promised and must pay back some of its aid immediately, according to a letter released in response to a request from The Associated Press.
It’s yet more evidence for what I’ve long said about “economic development incentives”:
When Iowa tries to pay other businesses to come here, it’s like a guy who brings his wife’s purse into a bar to buy drinks for the girls. The girls aren’t impressed, and any he does pick up aren’t worth much.
Airball. The former owner of a Kansas City minor league basketball team will go away for 51 months for crimes that included not remitting payroll tax withholidngs, reports CJOnline.com:
James Clark, 53, of Overland Park, a former owner of the Kansas City Knights basketball team, pleaded guilty to one count of tax fraud and one count of bank fraud. Clark admitted that he withheld payroll taxes from employees of his company, SWISH Holding Corp., while failing to pay more than $502,000 to the Internal Revenue Service. He diverted the funds and used them for his own purposes, including the operation of the basketball franchise.
Many people think that they are just “borrowing” money when they fail to remit withheld taxes. It can be tempting when suppliers are howling for cash. This case shows that failure to remit withholdings can have consequences much more serious than cash late penalties and interest.
The last scheduled trial of an Iowa film tax credit fiasco figure is slated to start today. Chad Witter, an accountant who worked as a middleman in obtaining and marketing film credits, will go on trial in Polk County District Court on charges of theft, fraudulent practice and ongoing criminal conduct. Dennis Brouse, a producer who worked with Mr. Witter, was sentened to ten years in prison earlier this year on charges arising out of the disastrous program to bribe filmmakers to come to Iowa with transferable tax credits.
True, social welfare programs provide a valuable safety net for the very poor. For instance, the Earned Income Tax Credit and the Child Tax Credit are important income supports for low-income families.
But because these safety net programs phase out as incomes rise, some people face marginal tax rates as high as 80 percent for getting a better job or even a raise. A new Urban Institute calculator shows how this works.
U.S. District Judge Joe Anderson is a judge who’s willing to give criminals at least a tiny break at sentencing if they show any remorse.
But Tuesday, when Hopkins tax cheat Dorothy Anderson (no relation to the judge) began to lecture him on the law and said she didn’t consider herself a crook even though a jury had pronounced her guilty, Anderson gave her the maximum prison sentence allowed by law – 75 months.
“The prosecutor has said I’m a convicted felon,” Dorothy Anderson whined to Judge Anderson at her sentencing hearing Tuesday.
The judge replied, “With all due respect, ma’am, the jury has said you are a convicted felon.”
That whining defendant! I don’t mind biased journalism, most of it is. Just own it!
Be calm, all is well: “According to one CBO budget scenario, federal debt would exceed the GDP by 90% in 2022 and would approach 200% in 2037. ” (C-span) Related: The Better Base Case (Joseph Rosenberg).
A former police officer was sentenced to more than six years in federal prison and ordered to pay more than $874,000 in restitution for helping conspirators in a Tampa tax fraud scheme to cash U.S. Treasury checks.
Investigators say Dana Brown used his access as an Ocala police officer to look up personal information in a state driver’s license database that could be used to produce fake identifications matching the names on the Treasury checks.
Via tbo.com of Tampa Bay, at the unlikely ground zero of ID-theft tax refund fraud.
They do it because keeping U.S. citizenship is getting more expensive, in economic and non-economic terms. Many of the non-economic reasons people expatriate are due to tax enforcement policies and a culture of fear encouraged by the IRS.
Just keep shooting the jaywalkers, Commissioner Shulman.
I think it’s better for the economy to jail Hollywood people than to give them taxpayer money. Of course, Iowa is probably just a few years ahead of Ohio here.
The Iowa General Assembly is in a frenzy of legislation. Yesterday the Iowa House passed its version of property tax reform (HF 2475). It differs from the Senate bill in several important ways. The House bill imposes a limit on tax increases based partly on the Consumer Price Index. Its increases the Iowa Earned Income Credit to 10% of the federal credit, vs. the 20% proposed by the Senate (SF 2161). The increase would be retroactive to the beginning of this year.
The House also approved a bill modifying the Iowa trust code and making minor changes in the Iowa inheritance tax, but without the controversial repeal of Iowa’s rule against perpetuities — a repeal supported by Iowa bank trust departments who have been losing trusts to neighboring states with looser rules.
Both houses yesterday approved HF 2337, a bill that among other things formally repeals the Iowa Film Tax Credit. While the disastrous credit was originally enacted over three dissenting votes, the repeal drew 14 no votes in the Senate and 15 in the house.
Lest we think the repeal of the film credit shows that the legislature finally understands the unwisdom of corporate welfare through the Iowa tax code, the Iowa House signed off on SF 2342. This bill provides tax credits for 20% of the cost of “geothermal heat pumps” and 50% of the federal tax credit for “solar energy systems.” The House passed the bill 82-14; the Senate version passed over only one dissent.
The trial of film credit broker Chad Witter was delayed this week after prosecutors disclosed new evidence, reports the Des Moines Register:
Rick McConville, one of Witter’s defense attorneys, said prosecutors disclosed Wednesday morning the existence of a computer hard drive they were not aware of previously. The hard drive belongs to a horse broker who did business with a corporation run by Dennis Brouse.
A status conference will be held May 18, at which time the trial is expected to be rescheduled.
Dennis Brouse is a producer who was convicted on charges arising from the disastrous Iowa Film Tax Credit program. He is scheduled to be sentenced May 2.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Disclaimer
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
New U.K. film tax credit indictments. It appears that the Brits are slowly moving towards the Iowa approach of jailing filmmakers instead of subsidizing them. Ic.Scotland.co.uk reports:
Still Star-struck in Iowa. Even after Iowa’s embarrassing and disastrous film tax credit fiasco, there are still people who think it’s a nifty idea for taxpayers to subsidize Hollywood, 
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
