Howard Gleckman « Roth & Company, P.C

Posts Tagged ‘Howard Gleckman’

Tax Roundup, 2/27/2013: Snow surprise edition. And is tax migration a myth?

Wednesday, February 27th, 2013 by Joe Kristan

Well, that commute was fun.

Seventh Avenue, Des Moines, this morning.

They said we wouldn’t get snow. It hasn’t really stopped since 7 am yesterday.

Kyle Pomerleau, Is Tax Migration a Myth? (Tax Foundation). Short answer: no. He comments on a much-noted article by James B. Stewart claiming otherwise:

Mr. Stewart is off the mark if he believes he has uncovered a myth. Besides the posturing of celebrities, no one claims that at the very moment someone whispers “tax increase” one thousand millionaires head to the border. What really happens is that these higher tax burdens cause wealth and income to flee to states and countries with lower burdens and higher economic growth over time. High-tax states such as Vermont, Michigan and Missouri have not been magnets for jobs over the long run. Look over at Europe, which is once again scaring investors. It is a continent with excellent climate, culture and an educated workforce, but its high taxes and spending have stalled population and economic growth for a decade or more. America will go that way if we continue down the same path, driving out investment, businesses, and jobs.

Over the years I have seen people move out of Iowa for tax reasons. Back in the 1980s, when Illinois was a low-tax state, I saw an S corporation owner pay for a fancy new house in East Dubuque in one year by the simple expedient of moving across the river from Dubuque. Tax isn’t always the decisive factor, but to say it’s not a factor at all ignores the most basic tenet of economics: incentives matter.

Their hopes are fulfilled. At least that second one. Wave the jazz hands and hope for the best-Politicians hope that voters are clueless about tax, writes Tim Harford

Richard Morrison, Happy Birthday to the Kennedy Tax Cuts (Tax Foundation)

Congress took up Johnson’s suggestion and passed what became the Revenue Act of 1964, which the President signed on February 26, 1964. The bill dropped the top marginal tax rate from 91% to 70% (and also reduced the corporate tax rate from 52% to 48%). In the wake of this reduction on high-earner households, federal revenue actually increased, rising from $94 billion in 1961 to $153 billion in 1968, an increase of 33 percent in real terms.

Clearly the old rates were on the far side of the Laffer Curve.

Jana Luttenegger, Unfortunate Reminder of the Need for Powers of Attorney (Davis Brown Tax Law Blog):

A recent news story in the Des Moines area covered a family looking for assistance to cover legal bills for a family member who is in a coma following a car accident. The family is unable to get access to bank accounts or insurance information, and unable to pay her bills (or even know what bills exist) as they come due. The only way for family members to get access to this information is to go through the court system and have the court appoint someone to take care of those matters.

This sort of planning isn’t just for rich people.

Paul Neiffer, How Step-Up In Basis Works. On the resetting of basis at date-of-death value when a farmer dies.

Jason Dinesen, A “Standard Deduction” for Sole Proprietors?

TaxGrrrl, 11 Changes You Must Know Before Filing Your Tax Return for 2012

Kay Bell, Tax reform is job 1. Well, HR 1, anyway.

Jim Maule, Special Low Tax Rates Hurt the Economy and Thus the Nation. He doesn’t like low capital gain and dividend rates. How about this, professor: lower the top rate to 20% for all income, allow a corporation dividends-paid deduction, and I’m good with getting rid of a capital gain break. Otherwise you are double-taxing earnings, and to the extent gains result from inflation, you are collecting a tax on treading water.

Andrew Lundeen, Buffet Rule Still Not a Good Solution. (Tax Policy Blog) Never will be:

The low rates we sometimes see from wealthy individuals is because they derive much of their income from investments, which is double taxed anyway. A capital gain or dividend is first taxed at the corporate level, as a corporate profit, then at the shareholder level. The result is a combined average tax rate of 56.7 percent in the United States – higher than every developed country in the world except, France, Denmark, and Italy. This creates a huge disincentive to invest, ultimately slowing economic growth.

David Brunori, Capital Gains from Copenhagen to Bakersfield (Tax.com)

Patrick Temple-West, EU financial transactions tax to go global, and more. Bad idea, as this New York Times piece explains.

Howard Gleckman, What if the Outrage over Excessive Welfare Extended to the Tax Code? (TaxVox).

Me from earlier: Hoarders, wreckers and the Accumulated Earnings Tax. Will the administration use this tax law relic to force corporations to put their cash to work?

From yesterday: IRS issues 2013 vehicle depreciation limits

Mo’ Money might lead to Mo’ time in prison. Mo’ Money Taxes employee pleads guilty to fraud

In case you were wondering. 10 Ways To Become A Victim Of Tax Identity Theft (Janet Novack)

News you can use. Jewish law permits informing on tax evaders. And secular law can make it lucrative.

Tags: Andrew Lundeen, Buffett rule, David Brunori, Howard Gleckman, James B. Stewart, Jana Luttenegger, Janet Novack, Jason Dinesen, Kay Bell, Kyle Poerleau, maule, Patrick Temple-West, Paul Neiffer, Richard Morrison, tax crime, TaxGrrrl, Tim Harford
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Tax Roundup, 2/22/2013: Why California refugees might not choose Iowa. And: to C or not to C?

Friday, February 22nd, 2013 by Joe Kristan

Enjoying a short Des Moines winter commute.

Enjoying a short winter commute in bicycle-friendly Des Moines.

We aren’t scaring them. Governor Branstad is making a trip to California to poach some businesses from the failing Golden State. He’s not scaring one Californian:

Iowa’s top state personal income tax rate is 8.98 percent, compared to 13.3 percent in California. Probably not enough of an improvement to lure millionaires from Pacific Palisades to Dubuque. By contrast, Texas offers zero percent.

The top state corporate income tax rate is 12.5 percent in Iowa, 8.84 percent in California and zero percent in Texas.

Earlier this year, Branstad said he would no longer pursue getting rid of Iowa’s corporate and personal income taxes. Instead, he’s going to focus on cutting property taxes.

Well, California’s property taxes already are fairly low thanks to Proposition 13. Although property prices here are triple those in Iowa and most other states because of our severe restrictions on building.

Bottom line: Iowa doesn’t offer enough incentives to attract many businesses and people to leave California. The Hawkeye State is the Golden State with bad weather.

Ouch. Well, Iowa’s solvent, too, unlike California, which is a fiscal disaster. We also have short commutes. Still, he makes a valid point: it’s not enough to compete with a basket case like California. Golden State refugees have plenty of places to choose from, many of which have better taxes, better weather, or both. I have no thoughts on fixing the weather, but The Quick and Dirty Iowa Tax Reform Plan would take care of the tax problems. With no corporate tax and a 4% individual rate, combined with good employees, education and quality of life, we’d see some Californians.

To C or not to C? The Wall Street Journal reports that taxpayers are revisiting whether to operate businesses as C corporations or pass-through entities. C corporations face a top rate of 35%, where individuals have top rates over 42% as a result of the ill-concieved fiscal cliff and Obamacare tax increases. From the article:

“Even though on the surface you’re looking at 35% versus 39.6%, it’s a deceptive comparison,” says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. “There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit.”

For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.

Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years.

At current rates, a switch to C corporation format is probably still unwise, if tempting, because of the double tax issue. You might have lower tax up front, but getting the money out involves either paying a second tax on the dividends or expensive tax gymnastics, often involving renting to a corporation or potentially “excessive” compensation. C corporations are the Roach Motels of the tax world: they’re a lot easier to check into than check out of. But if there is a significant reduction in corporation rates, the current tax savings will be enough to tip the balance for many taxpayers to C corporation status, double tax or no.

Hat tip: TaxProf Blog.

When Will Tax Complexity Cause a Collapse? (Jason Dinesen).

The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.

When will the complexity cause the system to collapse? And what, exactly, will collapse?

I think it would require a combination of things to “collapse” the tax law. If the perception becomes widespread that it is impossible to comply with the tax law without unreasonable effort, or the rates get intolerably high, and technical advances allow for cash transfers and banking that the government can’t trace, then the game is over.

Tax Analysts is having a conference today on whether, after 100 years, the income tax has run its race.

Elizabeth Malm, Holy Smokes! Washington Loses $376 Million to Cigarette Tax Evasion in 2012. Many states have raised tobacco taxes to a point where smuggling becomes attractive.

Howard Gleckman, Congress May Not Rewrite the Tax Code in 2013, But It Could Make It Simpler (TaxVox). If you can’t do everything, you might still do something.

Kay Bell, Education tax credit form, already pushed into February, now causing filer confusion and more delays in processing

Peter Reilly, Bill Romanowski’s Tax Court Loss Not A Typical Horse Case. We covered it here yesterday.

TaxGrrrl, About Those Leaked Wal-Mart Emails… Is IRS To Blame For Sluggish Sales? Are tax refund delays stopping consumer spending?

Teaching by bad example, Nebraska-style. I examine the tax troubles of a prairie-town lawyer.

Jim Maule, How Tax Falsehoods Get Fertilized. That “70,000-page tax code” really bugs him.

Want to raise the minimum wage? Then apply it to your interns, Congresscritters. (Donald Boudreaux).

Don’t bug Robert D. Flach with requests for free tax help.

It’s probably how he meets girls too. Berlusconi & The Lure of Tax Refunds (Robert Goulder, Tax.com).

CPA exam tip: Calm Down, This CPA Exam Practice Question Isn’t as Dirty as You Think (Going Concern)

Tags: Branstad tax policy, C corporations, California, Donald Boudreaux, Elizabeth Malm, Going Concern, Howard Gleckman, iowa tax policy, Jason Diensen, Kay Bell, maule, Peter Reilly, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, Robert Goulder, S corporations, TaxGrrrl, TaxProf
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Tax Roundup, February 20, 2013: Fire fail and tax reform frenzy!

Wednesday, February 20th, 2013 by Joe Kristan

Flickr Image courtisy Llima under Creative Commons license

If you are going to say the dog ate your tax records, make sure you have a dog. A New Jersey man was having a hard time coming up with records supporting his deductions in Tax Court. He blamed a fire. The success of the argument can be guessed from the Tax Court’s discussion of “Petitioner’s Alleged Fire”:

The circumstances surrounding petitioner’s purported fire are vague, and he has offered no evidence, apart from his testimony, that a fire occurred and that his 2006 tax records were destroyed in such a fire. Significantly, he failed to introduce insurance documentation or third-party testimony describing the alleged events or the extent of any fire.

The Tax Court said the man couldn’t support his deductions.

The Moral? Back up your work. And if you are going to have a fire, something needs to actually burn. (Cite: Mears, T.C. Memo 2013-54)

It looks like the dreaded automatic “sequestration” spending cuts are going to happen, so there is a flurry of proposals to stop this sliver of random spending discipline:

Martin Sullivan, A Proposal to Get Tax Reform Back on Track:

Before earmarking what we will do with the money from limits on chimerical loopholes, our leaders need to clear the path for the painful process of broadening the tax base. President Obama has now poisoned the well by turning Republicans’ tax reform instincts against them. If they were to put any revenue increases on the table, the President would claim the proposals have the Republican seal of approval and incorporate them into his tax hike plans.

At the same time Republicans tax reform strategy is wearing thin. Their extravagant claims about cutting the top individual rates below 30 percent are just hollow speechifying as long as they refuse to put specific revenue-raisers on the table.

Inspiring leadership.

Jeremy Scott, Simpson-Bowles Try Again (Tax.com):

Simpson-Bowles is just another deficit reduction plan — and a politically infeasible one at that. Its authors want to make it seem grander by attaching tax reform to it, just like Obama wanted his own proposals (which simply include ways to raise revenue that Democrats have proposed ad infinitum over the years) to sound better when he mentioned tax reform at least three times during the State of the Union. But what they are offering isn’t comprehensive enough to qualify as true tax reform. Deficit reduction has its place, but conflating it with tax reform will stall whatever momentum people like Camp are trying to create for a true tax system overhaul.

They just aren’t serious yet.

Also:

Howard Gleckman, Bowles-Simpson II: A New Plan to Avoid the Sequester (TaxVox)

Patrick Temple-West, Simpson, Bowles revive deficit plan, and more

Jacob Sullum on Obama’s Misguided Vision of Tax Reform (Reason.com)

High taxes are good for us, so infinite taxes will make us perfect. The high-tax advocacy group Citizens for Budget and Policy Priorities has generated a paper that says that state tax cuts do no good:

This paper argues that state personal income tax cuts won’t help small businesses create jobs, and in fact could harm the ability of the small-business sector to contribute to economic growth. For all the reasons stated in this paper, the converse is also true: personal income tax increases, including those on the highest earners, won’t harm small-business job creation.

Really? There is no level of taxation that would discourage economic activity? There is no level of tax increase that would cause economic activity to be located in a neighboring state with lower taxes?

The paper makes the same mistake as the guy who drowned trying to wade across the river that was only two feet deep, on average. You can see it on the headings of the paper: “The vast majority of those who would get a personal income tax cut are in no position to create small-business jobs.” “Most small businesses make too little money for tax cuts to produce enough income to pay new employees.” “Most small business owners are not significant ‘job creators’ and have no plans to be.”

This is the same logic we heard when we were told that individual tax increases wouldn’t hurt business because most small businesses wouldn’t be affected. When you define “small business” to include your office Avon Lady and a manufacturer with dozens or hundreds of employees, of course “most” businesses won’t hire more if taxes are lower. Just the ones that matter.

When you measure by amount of income, the amount of business affected by individual rates is huge:

Sure, relatively few businesses achieve enough success to hire a lot of employees. Yet some do, and they do a lot of hiring. And, contrary to the CBPP paper, their ability to expand does shrink if they have to pay more taxes. As a tax accountant, it’s part of the world I live in. Prices matter in making decisions — including the price of living, doing business and paying taxes in a state. Any argument to the contrary has to overcome the basic rule of economics that incentives matter.

Paul Neiffer, 1031 Tax-Deferred Exchange Does Not Always Defer All Taxes!

Jack Townsend, Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor

Tax Trials, Petition for Writ of Certiorari Filed in Historic Boardwalk Hall Tax Credit Case

Trish McIntire, FASFA?

Kay Bell, Tax Carnival #113: Presidents Day 2013 or maybe you, too, can one day be Acting President of the United States

Breaking news from 1147: Tax Havens: The Second Crusade (Robert Goulder, Tax.com)

Going Concern, The IRS Is Wasting Millions on Unused Blackberrys and Aircards Because Of Course It Is. Meanwhile they prepare to lay off their useful employees when sequestration hits.

Tags: CBPP, Going Concern, Howard Gleckman, Jack Townsend, Jacob Sullum, Jeremy Scott, Judge Thornton, Kay Bell, Martin Sullivan, Patrick Temple-West, Paul Neiffer, Robert Goulder, tax court, Tax Trials
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Tax Roundup, 2/6/2013: 4.5% Iowa tax? Flat chance. And hidden dangers of an IRS exam.

Wednesday, February 6th, 2013 by Joe Kristan

Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):

The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.

But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”

State Tax Notes also tracked down Tax Foundation Economist Elizabeth Malm:

     “Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”

     Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.

     “I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.

Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”

*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.

David Brunori, Who Pays? Who Cares? You Should (Tax.com):

No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.

None of these are incompatible with lower top tax rates.

Tracy Gordon, The Downside of States as Laboratories for Tax Reform (TaxVox)

Needed, but impossible. Tax Notes has a sad-but-true headline that brilliantly summarizes the state of our national tax policy: Urban Institute Panelists Agree Tax Reform Necessary but Unlikely. ($link)

Linda Beale, More on PTINs for previously unregulated tax return preparers:

We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.

The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”

Peter Reilly, Future Baseball Commissioner Tackles Tax Laws As Complex As Infield Fly Rule

Tough tax return choice for 2012: Pay more now to save later? My new post at IowaBiz.com, the Des Moines Business Record Blog for Entrepreneurs, discussing whether maximizing 2012 deductions is really a good idea.

Jason Dinesen, Taxpayer Identity Theft — Part 12 . More Kafkaesque obstacles to resolving an identity theft for his client.

William Perez, IRS Provides Further Disaster Relief for Hurricane Sandy

Kay Bell, Tax Carnival #112: Super Bowl of Taxes

Jim Maule, Tax Ignorance As Persistent as Death and Taxes

Missouri Tax Guy: Missouri does not mail Form 1099-G. You have to get it online. One more little blow to tax compliance for small taxpayers.

Trish McIntire, Low Cost Tax Preparation Options

TaxGrrrl, U.S. Postal Service To Eliminate Saturday Delivery: Will It Save Tax Dollars? Next they’ll shut down the Pony Express.

Patrick Temple-West, Waiting on the phone for the IRS, and more (Tax Break)

Ellen Kant, William McBride, Super Bowl Tax Bill (Tax Policy Blog)

Russ Fox, Will the Third Time be the Charm for Appeals? A case where the “independent” IRS appeals function failed twice.

Howard Gleckman, Can the Income Tax Fund the Government We Want? (TaxVox). I can’t speak for “we,” but it could easily cover all of the government I want.

The Critical Question: Et Tu, Sarkozy? (David Goulder, Tax.com)

If they can spell their address, tax cheating should be easy for them: Massapequa Restaurant Owners Sentenced for Tax Fraud (Massapequa Patch).

Isn’t that conspiracy? Tax fraud: We have a plan, authorities say (Myfoxtampabay.com)

Screwed either way. Taxpayer Sues IRS, Claims Agent Coerced Him Into Having Sex to Avoid Adverse Audit (TaxProf).

But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:

Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.

Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.

No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.

Tags: alternative maximum tax, David Brunori, David Goulder, David Osterberg, Elizabeth Malm, Ellen Kant, Howard Gleckman, iowa tax policy, iowabiz.com, Iowans for Tax Relief, Jason Dinesen, Kay Bell, Linda Beale, maule, Missouri Tax Guy, Patrick Temple-West, Russ Fox, TaxGrrrl, TaxProf, The Critical Question, Tracy Gordon, Trish McIntire, William McBride, William Perez
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Tax Roundup, 1/30/2013: Bah. Humbug. And where states get their cash.

Wednesday, January 30th, 2013 by Joe Kristan

Why so grumpy? Because it’s the first “official” day of tax season as the IRS begins processing returns. But only some of them. The last-minute Fiscal Cliff tax law is delaying the processing of many forms, delaying most business filings until “late February or into March.” They also have delayed processing of returns with education credits until sometime next month.

Oh, and the streets are a mess.

Kay Bell, Tax filing on hold for taxpayers who need 31 federal forms

TaxGrrrl, IRS Opens For Business Today, Many Taxpayers Qualify To File For Free

Taking your money to give to the well connected. From Taxing the Rich to Pay for Big Business Tax Credits by Veronique de Rugy:

Taking from the small businesses, giving to the big business with pull.

Brian Gongol on the decision of Senator Harkin to not seek an umpteenth U.S. Senate term:

Wouldn’t it be wonderful if we could start with a blank slate and ask ourselves (as Iowans): Who is the smartest, most dependable, most thoughtful person we could send to an august body of decision-makers who are challenged with bringing wisdom and sobriety to the decision-making process of government?

Like somebody like that would stand a chance.

Why bother with a state corporate income tax? While state income taxes are a reliable source of work for people like me, they do surprisingly little for the states, according to a new report released by the Tax Foundation yesterday. Nationwide state corporate income taxes accounted for only 3% of 2010 state revenues. In Iowa, it’s even lower. Here are the revenue sources from Iowa and some nearby states:

Source: Tax Foundation

The corporation income tax raises little revenue, is expensive to administer, is exploited by the well-connected and well lobbied, and is almost certainly a job-killer. Why not go for a low-rate, low-loophole system like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan?

TaxProf, A Distributional Analysis of the Tax Systems in All 50 States, passing on a report from the Center on Budget and Policy Priorities says state tax systems are regressive. Keep this in mind:

Source: Heritage Foundation/

If you only look at the distribution of taxes paid and ignore the value of services and cash payments received, you miss a lot.

Janet Novack, IRS Tips Won’t Protect You From Identity Theft Tax Fraud.

Jack Townsend, Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases

Jason Dinesen, An Obligatory 1099-K Post for 2013

Trish McIntire, Before You Sign. A timely reminder that you are responsible for what’s on your return, even when you use a paid preparer.

Patrick Temple-West, Mickelson and the sports star migration, and more (Tax Break)

William McBride, CRS: Tax Rates Do Matter for Profit Shifting (Tax Policy Blog)

Joseph Thorndike, The Income Tax Is Inquisitorial — Get Over It. (Tax.com) May he have a good National Research Project exam in his future.

Robert Goulder, French Budget Minister Caught In Tax Probe (Tax.com)

That wouldn’t take much. Payroll Tax Cuts May Boost the Economy More than You Think (Howard Gleckman, TaxVox)

Bad news, good news: The Twinkie is Dead! Long Live the Twinkie! (Megan McArdle).

News you can use. Tax Law Warning: Don’t Cut Mom a Rent Break (Jim Maule)

Tags: CBPP, Gongol, Howard Gleckman, iowa tax policy, Jack Townsend, Janet Novack, Jason Dinesen, Joseph Thorndike, Kay Bell, maule, megan mcardle, Patrick Temple-West, Quick and Dirty Iowa Tax Reform Plan, Robert Goulder, state tax policy, tax administration, Tax Foundation, TaxGrrrl, Trish McIntire, Veronique De Rugy, William McBride
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Tax Roundup, 1/23/2013: PTIN Paralysis! And: pay Iowa taxes with a cell phone?

Wednesday, January 23rd, 2013 by Joe Kristan

The IRS has turned off its preparer registration initiative following the federal court decision enjoining the program. The Service issued this statement yesterday:

As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.

The second paragraph is the most interesting. While the IRS doesn’t admit that it overreached, this is far short of a vow to fight to the last appeals brief. One can only hope they will reconsider the whole misbegotten regulatory scheme.

Meanwhile, Accounting Today confirms reports the IRS has shut down the PTIN registration system and the Registered Tax Return Preparer testing program. They report the PTIN system is expected to come online again after the RTRP registration system is removed from it. Meanwhile, the Return Preparer Office has apparently turned off its phones.

All of this makes me believe that the IRS is not seeking any emergency stay of Friday’s decision and is planning to do without the RTRP rules for this season, anyway.

TaxGrrrl posts a great interview with the winning attorney in the preparer regulation decision, Dan Alban. She encounters a new perspective on whether regulation actually does more good than harm (my emphasis?:

Finally, with all of the legal niceties out of the way, I asked Alban the really tough questions: What about all of those folks who say that regulation is a good thing? What does this ruling mean for taxpayers? And why would you embrace a scheme that wouldn’t require – at a very basic level – some semblance of regulation to ensure that preparers are competent?

Alban didn’t hesitate. Intent, he says, is key. The intent of any kind of licensing scheme should be to protect the consumer. But Alban, who focuses on a occupational licensing in his practice, noted that frequently, these kinds of laws instead protect established interests from competition. That is, he says, not in the best interest of the consumer.

And with that, I paused. You see, in all of the years that I’ve been writing this blog, I’ve only received a phone call from IRS complaining about a post once. And it was for this one. The IRS wanted to assure me that the exemptions had nothing to do with any special interests. None. Not a whit. Interestingly, many preparers at smaller firms thought differently. I received a number of supportive emails and “off the record” comments about how the new rules felt discriminatory.

Bingo. Regulation always favors the big. It’s no big deal for H&R Block headquarters staff to deal with regulations for all of its franchises. It’s a different story for small operators like Sabina Loving, the solo preparer in a low-income South Side Chicago neighborhood who was lead plaintiff in last week’s decision.

It would appear that attorneys benefited disproportionately from the regulations; as a point of context, the American Bar Association (ABA) has encouraged the regulation of “other” preparers for years. Why is that? Is there maybe something to Alban’s idea that these kinds of laws protect established interests from competition?

And then Alban said something else that struck me: about fifty years ago, only 1 in 20 workers in the U.S. needed government permission (in the way of regulations) to earn a living. Today, that number is 1 in 3. That, he said, is troubling. We are increasingly relying on the government to decide who is qualified to perform services for us. Is that something we want? Does regulation really make someone competent? Or honest?

No, it just gives them one more way to control things.

Russ Fox: Alphabet Soup

Trish McIntire, Voluntary Licensing?

Paying taxes with cell phone money? The Iowa Department of Revenue yesterday announced a venture with Dwolla to enable taxpayers to pay taxes with Dwolla’s mobile device online payment technology. The Des Moines Register Reports:

Dwolla is a cash-based payment network that provides real-time, low-cost, online and mobile payments, officials said. Instead of charging a floating percentage and fixed fee per transaction for goods and services or dealing with administrative issues of checks, Dwolla’s network costs a flat 25-cent fee on any payment over $10, and it’s free for transactions under $10.

…

Iowa Department of Revenue Director Courtney Decker said the state’s first use of Dwolla will allow businesses that already pay more than $100 million in cigarette stamp taxes the option of using the Dwolla network. She added, “This is just the tip of the iceberg” in terms of Dwolla’s potential in state government.

Dwolla’s service is cheaper and safer than mailing and processing a paper check, Decker said, and it will allow participating businesses to receive their tax stamps more quickly. She added that 89 percent of Iowa individual income taxes are filed electronically, but the percentage of people paying taxes electronically to her department is far lower.

Paying online now requires a slow application process and analog mail delivery to receive permission to make electronic payments. The Dwolla system will be a big improvement if the Department enables it for individual income taxes.

IRS wins another demutualization case. The IRS continues to fight the to tax proceeds on the demutualization of insurance companies. They famously lost the Fisherdecision, which held that taxpayers could treat their payments for insurance premiums as basis when they received shares of stock in an insurance company changing from mutual ownership to a stock company. But earlier this month the IRS won a Federal District Court Decision in California rejecting the Fisher“open transaction” scheme. If the IRS wins on appeal, this will likely end up settled by the Supreme Court. This is the second IRS victory since the Fisher decision.

Cite: Reuben, DC CACD, CV 11-09448

Roger McEowen, Two Important Tax Developments:

On January 18, two key tax developments occurred. First, a federal district court wiped out the IRS preparer regulations. Later, IRS announced that farmers aren’t stuck with the March 1 deadline and can file timely by April 15.

David Brunori, Jindal’s Bold Move (Tax.com):

Republican Louisiana Governor Bobby Jindal has made the most provocative tax reform recommendation in many years. Jindal said he was going to overhaul the tax law. If he has his way, he will revolutionize it.

Pay attention, Governor Branstad.

Donald Marron, Five Key Facts about the House Debt Limit Bill (Tax Vox)

Howard Gleckman, How Obama’s Inaugural Address Frames the Policy Debate for the Next Decade (TaxVox). I don’t think so.

Kay Bell, Tax Carnival #111: Countdown to Filing. It’s Kay’s roundup of tax tax-related posts from all over.

Jack Townsend, Steps in OVDI/P Processing and Opting Out. Dealing with the IRS when you have an undisclosed offshore account.

Jason Dinesen, Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed

Patrick Temple-West, Private equity tax breaks in jeopardy, and more (Tax Break)

William McBride, Phil Mickelson’s Tax Rate

Robert D. Flach is Buzzing! He also has posted What to Give Your Tax Preparer at Mainstreet.com.

Jim Maule, Tax Ignorance and Its Siblings. “Tax ignorance, of course, is but one part of political ignorance, as I explored in When Tax Ignorance Meets Political Ignorance.” Yet the good professor insists that 50% + 1 voting by ignorant voters works better than trusting individual decisions in the marketplace.

News you can use: Life After Big 4: What You May Miss and Won’t Miss At All (Going Concern). I don’t miss it one tiny bit.

Tags: Dan Alban, David Brunori, Demutualizaton, Donald Marron., Dwolla, Fisher, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Kay Bell, maule, Patrick Temple-West, preparer regulation, Robert D Flach, Roger McEowen, RTRP, Russ Fox, TaxGrrrl, Trish McIntire, William McBride
Posted in Tax Roundup | 1 Comment »

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

Friday, January 18th, 2013 by Joe Kristan

87 months? Holy Cow!

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

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

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

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

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

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

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

Related: Doing Your Time (Jack Townsend)

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

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

Russ Fox, The Walking Dead Come Back.

Brian Mahany, Taxpayer Advocate Questions OVDI, FBAR Penalties

David Cay Johnston, Foundering Tax Avoidance (Tax.com)

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

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

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

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

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

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

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

Tags: Brian Mahany, Elizabeth Malm, Going Concern, greg mankiw, Holtsinger, Howard Gleckman, identity theft, Jack Townsend, Joseph Henchman, Kay Bell, Nanette Byrnes, Paul Neiffer, Ponzi, Robert D Flach, Russ Fox, tax crime, TaxGrrrl, TIGTA
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Tax Roundup, 1/16/2013: Iowa legislators to push Alternative Maximum Tax? Also: new home office deduction option.

Wednesday, January 16th, 2013 by Joe Kristan

Kraig Paulsen

It looks like the Republican leadership in the Iowa House of Representatives will be pushing income tax changes this year. Unfortunately, it looks like they are pushing the plan I call an “alternative maximum tax” like the one floated by Governor Branstad last year and quietly dropped after the election. O. Kay Henderson reports:

House Republicans are calling for a “flat” state income tax. If their idea becomes law, Iowans would have the option of filing their personal income taxes under the current system — which has a top rate of nearly nine percent — or opting to pay a four-and-a-half percent rate, with no deductions.

The governor has made it clear property tax reform is his top priority,
but House Speaker Kraig Paulsen of Hiawatha, the top Republican in the
legislature, says Branstad hasn’t said no to cutting income taxes.

Any tax practitioner will point out that this will in practice just be one more complication in computing Iowa taxes. Taxpayers will compute their taxes under both the current system and the flat system and choose the one that results in the lower tax. I assume the legislative leaders are resorting to this awkward plan to get around the implacable opposition of the powerful Muscatine-based Iowans for Tax Relief to any tax reform that would repeal the deduction for federal taxes on Iowa returns. Their plan is likely based on that proposed by Iowans for Discounted Taxes.

Far better to just clean up Iowa’s tax law. Repeal the special interest loopholes and corporate welfare tax credits, get rid of all non-federal deductions, get rid of the deduction for federal taxes, tie the tax law to the federal code, drastically lower the rates, and eliminate the corporation income tax entirely. In short, enact The Quick and Dirty Iowa Tax Reform Plan.

Flickr image courtesy e53 under Creative Commons license

Whether or not Governor Branstad wants to deal with income taxes, he may have to. His neighbor in Nebraska may be forcing his hand. 1011Now.com reports:

Gov. Dave Heineman is calling for an overhaul of Nebraska’s tax system, saying the state needs to get rid of its individual and corporate income taxes and make up the lost revenue by shutting off as much as $2.4 billion in tax breaks for businesses.

The Republican governor unveiled his tax plan Tuesday during his annual State of the State address to lawmakers.

Heineman says his plan would keep the state competitive with two neighboring states, Wyoming and South Dakota. Both have no individual income tax.

It sounds much like the plan proposed by Louisiana Governor Jindal this week. If the other states massively improve their income tax systems and Iowa doesn’t, all of the fertilizer tax credits in the world won’t help Iowa’s business climate.

IRS unveils simplified home office deduction for 2013. The IRS yesterday unveiled a new optional way to compute home office deductions. From IR-2013-5:

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

…

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

This will be handy. When you depreciate part of your home for a home office deduction, you lose the ability to exclude that much gain on a later home sale. Home office deductions are also complicated and a magnet for IRS examiners. This looks like it will be useful for the growing ranks of people who run businesses out of their home. Taxpayers will still be allowed to opt out of this new method and compute their home office deductions the old way. Full details are found in Revenue Procedure 2013-13.

Other coverage:

TaxProf, IRS Announces Optional $1,500 Home Office Deduction in Lieu of Depreciation

Russ Fox, Is A Simplified Home Office Deduction Better? “The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.”

Paul Neiffer, Senator Grassley Wants Extension of March 1 Filing Deadline:

Due to the passage of the new tax law, the ability of the IRS to accept most farmers tax returns by March 1 is very uncertain. Senator Grassley’s letter indicates that the IRS has granted an extension in the past, most recently last year when the MF Global mess occurred. In that case, the IRS did not actually extend the filing date, but granted waivers of the penalty for any estimated tax penalty caused by MF Global untimely mailing of form 1099.

Farmers don’t have to make estimated tax payments if they file by March 1. If they can’t do that, the IRS can impose estimated tax penalties on the whole balance due. The late enactment of new tax laws for 2012 may make it impossible for the IRS to process returns by then.

January: the month to start your 2013 year-end tax planning! My new post at IowaBiz.com, the Des Moines Business Record’s blog for entrepreneurs.

Jason Dinesen, Rental Properties and Basis Allocation

TaxGrrrl, IRS Announces 2013 Tax Rates, Standard Deduction Amounts and More

Mary Ellen Goode, A Stark Reminder of the Excessive Cost of Complying with the Tax Code

Rush Nigut, Iowa Business Specialty Court Pilot Project. I hope it leads to a specialized Iowa Court for tax cases. Taxpayers are at a huge disadvantage arguing before District Court judges with no tax expertise.

Kay Bell, The 1040 is ready! The 1040 is ready!

Anthony Nitti, Dear America: Your Higher Payroll Taxes Are Not The Result Of A Tax Increase. Only if the multi-year payroll tax break didn’t count as a tax cut.

Janet Novack, 11 Ways To Tap Retirement Cash Early, Without A 10% Penalty

David Brunori, Virginia’s Gas Tax Reform (Tax.com)

Howard Gleckman, A Budget Deal is Staring Them in the Face, But Here’s Why Lawmakers Won’t Compromise in 2013 (TaxVox)

Robert D. Flach has a new Buzz! He responds to my take on his take on CPAs.

Jim Maule, Still More Joys of IRC Section 86.

Kyle Pomerleau, New Paper on Estate Tax Misses the Mark. (Tax Policy Bl0g). It’s about…

Caron & Repetti: Occupy the Tax Code: Using the Estate Tax to Reduce Inequality (TaxProf)

My experience in tax practice convinces me that the estate tax is unnecessary to break up and dissipate large estates. Beneficiaries take care of that just fine.

Hey! I said I was sorry! Defendant Screws Up His Acceptance of Responsibility (Jack Townsend):

Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct. Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial. Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.

If you want the judge on your side, it might be a good idea to stop committing the crime for awhile.

Tags: ', Anthony Nitti, Branstad tax policy, David Brunori, Howard Gleckman, iowabiz.com, Iowans for Discounted Taxes, Iowans for Tax Relief, Jack Townsend, Janet Novack, Jason Dinesen, Kay Bell, Kyle Pomerleau, Mary Ellen Goode, maule, O Kay Henderson, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, rush nigut, Russ Fox, Senator Grassley, tax crime, TaxGrrrl, TaxProf
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 1/9/2013: E-filing gets underway January 30. Also: 79 year-old lady pleads to tax crimes.

Wednesday, January 9th, 2013 by Joe Kristan

The IRS announced yesterday (IR-2013-2) that it will begin processing 1040s January 30. From where I stand that’s right on time, as very few of our clients have their 1099s, W-2s and K-1s before then anyway.

The IRS will be unable to process some returns that soon. From the IRS press release:

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

Form 8582, used to report passive losses, is one of the forms that will cause delays.

State taxes, that will be another matter. As the legislature has to decide whether to accept the retroactive changes to the tax law, many Iowans will have to wait awhile to know what the 2012 Iowa rules are.

Tax Update on Iowa Cable Network tomorrow. I will be giving a rundown Thursday at 6:00 pm on the Fiscal Cliff tax bill and other recent tax developments in an ICN broadcast (is that the right word for a closed-circuit presentation?) for the Institute of Management Accountants. There will be a live audience at 6500 Corporate Drive, Johnston and viewing sessions at Grinnell High School, Marion High School, Keystone AEA (Dubuque) and St. Ambrose University. Contact Kathy Smith, ksmith4dlord@gmail.com, if you are interested.

The TaxProf gives a non-subscriber link to Ethan Yale’s Taxing Market Discount on Distressed Debt, which appeared in Tax Notes yesterday. The paper talks about the weird and ugly issues that arise when a third party buys bad loans and tries to collect. The market discount rules treat the debt as having a real high interest rate, with all payments principal first, based on the difference between the discounted purchase price and the face amount of the debt. The rules also can cause the income on collections to be ordinary, but the losses to be capital.

The paper talks about why these rules don’t make sense for deeply-discounted debt. If you buy a debt at 50% of face due in one year, it doesn’t make sense to assume that it will cash out at a 100% APR return, but that’s how the regulations would work. The paper also covers arguments taxpayers can make to try to ameliorate the harsh treatment that the market discount rules would apply, but there’s no assurance the IRS would buy them.

A 79 year-old widow pleads guilty to concealing overseas bank accounts. She agrees to pay over $20 million in penalties in the plea deal and faces up to six years in prison, according to a Department of Justice press release. Jack Townsend has more.

Fiscal Cliff Notes

Problem solved! Well, not really. You know how the tax increases in the Fiscal Cliff legislation won’t begin to solve the $1.2 trillion deficit? The Congressional Research Service reports that it’s even worse: it will increase the current fiscal year deficit by $330 billion and the cumulative 10-year deficit by $4 trillion. ($link through Tax Analysts)

Howard Gleckman, Grim Predictions about the Fiscal Cliff II and Deficit Reduction (TaxVox):

I spent lunchtime today moderating a thoroughly discouraging Urban Institute panel discussion on the fiscal cliff. The consensus of the speakers—all highly-regarded budget experts—was that the New Year’s cliff deal was pretty lame and the coming round of self-imposed budget crises will be even worse.

Oh, goody.

Roger McEowen on the Fiscal Cliff bill: A short summary of the most significant provisions.

Paul Neiffer, Reprieve For S Corporations With Built-in Gain

Patrick Temple-West, Insiders benefited from special dividends, and more (Tax Break)

William McBride, Taxes Up, Stocks Up, What Can Go Wrong? (Tax Policy Blog)

Jana Luttenegger, Filing for 2012 Taxes Delayed Until January 30 (Davis Brown Tax Law Blog)

TaxGrrrl, IRS Announces Delayed Tax Filing Season

Russ Fox, IRS Announces Tax Season to Start on January 30th

David Brunori, Good — and Not so Good — Corporate Tax Ideas from New Mexico (Tax.com):

New Mexico Governor Susana Martinez, a rising star among GOP politicians, is calling for a steep reduction in the corporate tax rate. She proposes cutting the rate from 7.6 to 4.9 percent. That is good news. The corporate income tax is — and will likely remain — one of the worst ways to raise revenue for state governments. The tax is inefficient, ineffective, and distorts economic decision making. It would be better if Governor Martinez called for the repeal of the tax, but whittling it down is okay as well.

Repeal of the corporate income tax would be a good idea in Iowa as well, but the influential corporations that get big checks from the state via the tax law aren’t going to jump on the repeal bandwagon.

Jason Dinesen, The IRS — Putting Paperwork Ahead of People. Doug Shulman’s legacy of identity theft nightmares lingers.

Kay Bell, Tax Carnival #110: Happy New Tax Year

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

Socially-awkward, that’s something else. Great News: Accountants Are Less Likely To Be Psychopaths (Going Concern)

News you can use: The Problem With Libertarian Women is Not Libertarian Men (Megan McArdle)

Tags: 2012 filing season, David Brunori, Ethan Yale, Fiscal Cliff, Going Concern, Howard Gleckman, IMA, iowa tax policy, Jack Townsend, Jana Luttenegger, Jason Dinesen, Kay Bell, megan mcardle, New Mexico, Patrick Temple-West, Paul Neiffer, Robert D Flach, Roger McEowen, Russ Fox, Tax Analysts, tax crime, TaxGrrrl, TaxProf, William McBride
Posted in Tax Roundup | No Comments »

Tax Roundup, 1/4/2013: How many seconds of federal spending do you cover? And more debris from the bottom of the Fiscal Cliff.

Friday, January 4th, 2013 by Joe Kristan

Spending, by the numbers. Local radio guy Brian Gongol asks, Why do we baffle ourselves with huge numbers instead of talking about budgets in per-person terms? Why, indeed? You could ask 100 people on the street how much money the government spends and how big the deficit is, and you would be lucky to get the size of the budget within a trillion dollars. The numbers are hard to comprehend.

The ability of the politicians to get away with talk about “millionaires and billionaires” proves this — a billion is 1,000 million, and while there are likely people on your street with a net worth of $1 million, you probably haven’t met anybody worth $1 billion. They aren’t remotely the same thing.

In doing year-end tax projections for a client with a once-in-a-lifetime gain from a business sale and a huge resulting tax liability, I wondered how long his enormous (to me) liability would keep the government running. Dividing the 2012 fiscal year spending of $3.796 trillion by the 31,536,000 seconds in a 365-day year, I figure that the federal blob spends $120,370.37 per second. The biggest tax liability I’ve ever seen comes well short of funding 2 minutes of government operations. I probably will never cover a second. Where do you fit?

Fiscal Cliff Webinar! I will be appearing with Roger McEowen on the “Tax Notes From the Fiscal Cliff” webinar at Noon January 14. We will be covering the new legislation and the proposed 3.8% “Net Investment Income Tax” regulations. Register today!

The IRS has published new withholding tables for the Fiscal Cliff Legislation (Accounting today)

Fiscal Cliff Notes:

Wall Street Journal: Cliff Fix Hits Small Business; Many Small Entities or Firms May Face Higher Taxes This Year After the Deal

David Henderson, Pssst: Someone tell the Republicans they won:

So here’s the big news: the anti-tax side won. Sure, Obama would love
to raise taxes even more, especially on people making between $200K and $450K. But now he has almost zero leverage to do that.

I think that’s about right. And now the President has lost his ability to distract attention from the ongoing fiscal calamity with arm-waving about “millionaires and billionaires.”

Derek Thompson, Sorry, Middle Class: In a Few Years, Your Taxes Will Have to Go Up, Too (via Going Concern). You know, we could try spending less. In any case, the rich guy isn’t buying.

Tim Carney: How corporate tax credits got in the ‘cliff’ deal

Katrina Trinko, Hollywood, Electric Scooters Benefit From Tax Breaks in Fiscal Cliff Bill (The Corner)

Brad Plumer, From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill (Wonkblog, via Tyler Cowen).

Chris James, Fiscal Cliff Deal Adjust Capital Gain Rates and Qualified Dividend Rates (Davis Brown Tax Law Blog)

Paul Neiffer, Some More Goodies Buried in the Fine Print

Kay Bell, Redefining ‘wealthy’ for tax purposes

Tax Trials, Fiscal Cliff Legislation – American Taxpayer Relief Act of 2012

Patrick Temple-West, Cliff fix hits small business, and more

Nick Kasprak, 2013 Tax Brackets (Tax Policy Blog)

Roberton Williams, TPC Tax Calculator Shows What Avoiding Fiscal Cliff Means for Taxpayers (TaxV0x)

Howard Gleckman, What the Fiscal Cliff Deal Really Means for Taxes and Spending

TaxProf, More Fiscal Cliff Tax Commentary

In other news…

Jack Townsend, Wegelin & Co. Pleads Guity to Conspiracy

Lynnley Browning, Swiss bank Wegelin to close after guilty plea. They opened in 1741.

Jason Dinesen, Tax Predictions for 2013

Trish McIntire, Disclosing Prisoner Returns

Taxdood, Intrastate iGaming: Federal Reporting and Withholding Tax Obligations

Robert D. Flach, WTF IS THIS AMT EVERYONE IS TALKING ABOUT?

News you can use: “Have Fun and Don’t Be Bored” (Brian Strahle)

Tags: Brad Plumer, Brian Gongol, Brian Strahle, CALT, Chris James, David Henderson, Derek Thompson, Fiscal Cliff, Howard Gleckman, Jack Townsend, Jason Dinesen, Katrina Trinko, Kay Bell, Lynnley Browning, Nick Kasprak, Patrick Temple-West, Paul Neiffer, Robert D Flach, Roberton Williams, Roger McEowen, Tax Trials, Taxdood, TaxProf, Tim Carney, Trish McIntire
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Tax Roundup, 1/2/2013: Yay, we didn’t fall off the cliff! Too bad we’re still doomed.

Wednesday, January 2nd, 2013 by Joe Kristan

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

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

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

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

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

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

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

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

This isn’t exactly going to help hiring.

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

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

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

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

Fiscal Cliff Notes

TaxProf, House Approves Fiscal Cliff Tax Deal

Tyler Cowen, Ross Douthat asks

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

Greg Mankiw, President rejects his bipartisan commission

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

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

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

Journal of Accountacy, Congress passes fiscal cliff act

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

Kay Bell, House passes tax bill to avoid fiscal cliff

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

Robert D. Flach, SURPRISE! SURPRISE! SURPRISE!

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

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

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

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

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

Tags: Andrew Mitchel, Fiscal Cliff, greg mankiw, Howard Gleckman, Joseph Thorndike, Kay Bell, Paul Neiffer, Robert D Flach, Russ Douthat, Stephen Entin, Tax Prof, Tyler Cowen, William Perez
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Tax Roundup, 12/28/2012: Last tax planning weekend of 2012. Also: the crisis of unreported pretend income!

Friday, December 28th, 2012 by Joe Kristan

There’s not much time. There are 366 days in 2012, but only four left. It’s asking a lot of the last four days of the tax year to fix the tax problems of the other 362, but there are a few things you can still do. You can still make charitable contributions that count this year. You can get your last mortgage payment paid this year, making the interest on it deductible. You can pay cash-basis business expenses. You can even start a qualified pension plan, technically (good luck getting it drafted and in place by Monday, though).

Some last-minute rules to keep in mind:

Timely-mailed is timely-paid. If you make a deductible payment by check, the postmark date is the date for deduction. If the check is big enough to matter, take it down to the post office and send it Certified Mail, Return Receipt Requested.

Electronic payments count. The nice thing about an electronic payment is that there is no dispute about when it happened, and it won’t get lost in the mail.

Credit card payments count. If you make a payment – say, a charitable contribution – by credit card before the ball drops Monday night, it counts as a 2012 deduction, even though you won’t pay your credit card bill until next year.

Gifts of stock have to be completed by the end of business Monday. If you want to make a gift of appreciated stock, it needs to be nestled in the recipient charity’s account by the end of the day Monday. That might require some quick action by both your broker and your charity.

Many related parties are on cash basis for deductions, even for accrual taxpayers. If you owe your nephew money out of your S corporation, you need to get him paid by Monday to get the deduction this year.

Capital gains and losses count on the trade date. Except for short sales, which count on the settlement date.

Remember, this year is a bit crazy with the tax increases coming down next year, and with the Fiscal Cliff uncertainty. Income tax rates are rising for higher-income folks, so the usual year-end deferral of income might not be a great idea. With higher rates next year, business deductions might well be worth more then, so the usual frenzy of paying cash-basis business expenses may not be your best bet.

With itemized deductions, it’s very hard to tell. While higher tax rates usually would mean deduction will be worth more next year than this year, plans have been floated to either cap the total amount of itemized deductions — $25,000 and $50,000 have been thrown out — or to cap the tax benefit at, say, 28%, regardless of the top rate. Some taxpayers with big charitable pledges have moved them up to this year to hedge against a deduction cap.

The House of Representatives reconvenes Sunday. Is a Fiscal Cliff deal going to happen before this year closes? Don’t hold your breath, if this story from Tax Notes is any guide ($link):

As President Obama and senators returned to Washington December 27, aides to House Majority Leader Eric Cantor, R-Va., announced that the lower chamber will not return for legislative business until December 30 and that the House may be in session through January 2.

The House schedule suggests that a fiscal cliff deal, if there is one, will not come until sometime between 6:30 p.m. December 30, when first House votes are expected, and late January 2. The 113th Congress is scheduled to convene January 3 at 12 p.m.

The best we can hope for is that they pass something with an AMT patch so that the upcoming tax season isn’t thrown into chaos. There’s no hope that they’ll actually address the incontinent spending that is leading the government to fiscal catastrophe.

Fiscal Cliff Notes

TaxProf, CNBC: Will ‘Fiscal Cliff’ Accelerate Millionaire Deaths?

Kay Bell, Fiscal cliff is important, but don’t forget some 2012 tax laws need attention ASAP

Kevin Drawbaugh, Factbox: Corporate tax breaks in play at “cliff” and beyond

Trish McIntire, Tax’s Perfect Storm:

Congress only has 4 days to do something about taxes (if they’re willing to work the weekend). And the situation has gotten more complicated with Treasury Secretary Geithner’s announcement that the US will reach our debt ceiling on December 31^st. 4 days to do what they refused to do earlier in the year and haven’t been able to do in the last few weeks. I’m not hopeful.

William McBride, The Fiscal Cliff in History (Tax Policy Blog):

As the chart below shows, it will result in the highest tax rate on individual income (39.6 percent) since 2000, the highest tax rate on capital gains (23.8 percent) since 1997, and the highest tax rate on dividends (43.4 percent) since 1986.

David Brunori, Michael Moore and Film Tax Credits (Tax.com)

Paul Neiffer, Farm Income Not Cash Rent!

Russ Fox, Is It Time to Take a Casualty Loss on Absolute Poker/Ultimate Bet?

TaxGrrrl, 12 Days of Charitable Giving 2012: ShelterBox

Robert D. Flach, 2012 – THE YEAR IN TAXES

Robert Goulder, Gérard Depardieu: Tax Exile (Tax.com)

Oh, Goody: 2013 May Be the Year of Perpetual Fiscal Crisis (Howard Gleckman, TaxVox).

Let’s make people file lots of extra forms because I think they’re getting away with something. The TaxProf links to an odd piece in the Washington Post by a Ray D. Madoff. who seems to think the rich are up to something. He’s not sure what, though, so we should have everybody file a bunch of extra tax forms so he can figure it out.

He says sure, the income tax code is progressive:

The IRS recently released its analysis of 2010 tax returns, which shows the allocation of taxes over different income groups. This information is both informative and misleading. According to these latest figures, in 2010 the top 1 percent of earners (those with adjusted gross incomes of at least $369,691) paid about 37 percent of all income taxes but reported just less than 19 percent of all income. Based on these data, the U.S. income tax system looks truly progressive. This lends credence to the view that the wealthy are paying even more than their fair share.

Ah, but what are they hiding?

But statistics can be only as good as the information on which they are based, and here the data are fundamentally misleading. People pay income tax only on amounts that Congress counts as income. This excludes the sources of revenue most commonly enjoyed by the richest Americans: gifts, inheritances, distributions from trusts and proceeds of life insurance.

So what does he propose to do?

It is time for Congress to shine a light on the types of income most enjoyed by the wealthy. Individuals should be required to report all sources of income, including gifts, inheritances, life insurance and distributions from trusts so that we can begin to assess the impact of these exclusions.

First, to point out an obvious error: most distributions from taxable trusts are already reported on two income tax returns. Trust income follows trust distributions. Trusts get a deduction when they make a distribution, so they have to file a K-1 with their 1041 to report the distribution and the allocation of distributed income. The beneficiary reports the K-1 amounts on Form 1040. Income from revocable trusts is reported directly on the grantor’s return, so distributions are irrelevant.

Second, the big inheritances and gifts are already reported — just not on income tax returns. Gifts over the annual exclusion amount are already reported on Form 709, and large estates file Form 706. Does he really want everybody to have to keep track of their birthday presents and gifts from Grandpa for 1040 reporting?

Finally, this stuff isn’t income. A gift is a distribution of wealth; it reduces the donor’s wealth as much as it increases the recipients. It’s a wash, a nothing. Same thing for trust distributions — they are funded by reducing the grantor’s wealth, and the distributions are either income distributions or delayed transfers from the donor. Life insurance proceeds are arguably income, but they are already normally reported on 1099-R.

So what is his point?

Everyone agrees that fairness matters when it comes to income taxes. But we cannot have an honest discussion about tax fairness when we are kept in the dark about how much income people actually receive. Only when full reporting is required can we have an accurate picture of people’s true income. Then we can begin to fashion a tax plan that is fair for all Americans.

It’s nice that he wants to have an “honest” discussion. He could start by honestly saying that he really just wants to raise income taxes on “the rich”, but is hampered by statistics inconveniently showing that they are already paying a lot of taxes. He wants to try to drag in a lot of things that aren’t actually income into the mix to make it look like the rich should be paying more. Sorry: the rich guy isn’t buying.

Tags: Fiscal Cliff, Howard Gleckman, Kay Bell, Kevin Drawbaugh, Ray D Madoff, Robert D Flach, Robert Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire, William McBride, year-end tax planning
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Tax Roundup, 12/24/2012: the coming preparer crash. Also: a modest fiscal cliff proposal.

Monday, December 24th, 2012 by Joe Kristan

IRS preparer rules may create a catastrophic preparer shortage. A press release last week from the IRS urging preparers to take the new Registered Tax Return Preparer examination saves the real news until the end (my emphasis):

So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

It’s likely the population of authorized return preparers will crash. That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block. A reduction in preparer supply will increase prices. It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether. Hardly a step forward for tax administration.

UPDATE, 12/27: The IRS Regulates Mom-and-Pop Tax Preparers Out of Business, Just in Time for Tax Season!

Tyler Cowen: point out that the rich guy isn’t buying. The economist makes an interesting suggestion for the GOP now that “Plan B” has failed (my emphasis):

To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount.

This highlights the frivolous, depressing and maddening nature of the “Fiscal Cliff” crisis. They will solve nothing, regardless of the outcome. The President resolutely ignores the continuing fiscal catastrophe. Nothing he proposes pays for more than rounding error in federal spending. His only concern is scoring political points, not solving the problem. A demoralized GOP lacks the nerve, and perhaps the conviction, to call for the spending cuts needed to approach fiscal sanity.

Of course, “The Rich” simply don’t have enough money to pay for our incontinent government.

Joseph Henchman: Switzerland “Debt Brake” As Consensus Policy Option for America? (Tax Policy Blog)

Fiscal Cliff Notes:

Kay Bell, Average tax bill increase if we fall off the fiscal cliff? $3,446

Patrick Temple-West, Boehner’s budget ‘Plan B’ collapses, and more (Tax Break)

Janet Novack, Obama Plays The Adult In The Room–Before Leaving For Hawaiian Holiday

Peter Reilly, All I Want For Christmas Is An AMT Patch. Me too.

Trich McIntire, Congressional Con

Jim Maule, Tax Pledges: Never Say Never.

He’s a little people now. From an FBI press release:

John J. McCauley Jr., 54, owner and co-operator of McCauley and L’Europa Public Adjusters LLC and PIA Restoration LLC in Providence Rhode Island, and longtime Rhode Island state legislator, was sentenced today to 27 months in federal prison for conspiracy to defraud the United States of more than $500,000 and filing false tax returns…

Like some other politicians, he can take the taxes, but he can’t dish them out. He was Deputy Speaker of the Rhode Island House, according to this report.

TaxProf, Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings

Jason Dinesen, New Preparer Requirements on Earned Income Credit = Higher Fees for Clients

12 Days of Charitable Giving 2012: Fisher House Foundation

Jack Townsend, Evasion of Payment Statute of Limitations Runs from the Last Affirmative Act

Russ Fox, Fat Joe Takes the Rap

Merry Christmas! TaxVox’s 2012 Lump of Coal Awards (Howard Gleckman)

Wow. From the TaxProf:

Yesterday morning, my son was on a bus on I-80 with 52 other Grinnell College students heading to the Des Moines airport to fly home for the Christmas holiday when the driver suffered a fatal heart attack. The bus veered off the highway to the right, into a snowbank from the 12 inches of snow that fell in Iowa last Thursday. Miraculously, none of the students were injured, and after being transported to the hospital in Newton, Iowa, Grinnell arranged for alternative transportation for the students to the airport.

My older son drove that route yesterday coming home from school in Chicago. Happily, his trip was unexciting. I hope all of you who are traveling this week arrive safely.

That would be sexy indeed. Too Sexy for Iowa (The Other McCain).

Tags: Howard Gleckman, Jack Townsend, Janet Novack, Jason Dinesen, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Peter Reilly, preparer regulation, RTRP, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Other McCain, the rich guy's not buying, Trish McIntire, Tyler Cowen
Posted in Tax Roundup | 1 Comment »

Tax Roundup, 12/21/2012: Plan B breaks, Tiger tamed.

Friday, December 21st, 2012 by Joe Kristan

Plan C through Z? House Speaker Boehner’s effort to pressure the White House into compromise with “Plan B,” a proposal to retain 2001 tax rates on incomes below $1 million, died last night. The Speaker cancelled a vote on the plan when it was clear that it lacked enough support to pass. The Wall Street Journal reports:

After pulling his bill without taking a formal vote, Mr. Boehner unexpectedly disbanded the House until after Christmas, leaving behind
uncertainty about whether Congress and President Barack Obama would be able to avoid $500 billion in spending cuts and tax increases that begin in January.

So what now?

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Mr. Boehner said in a written statement after a brief meeting with House Republicans. “Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff.”

Is it time to panic? Will we see a filing season delayed until the end of March, a big 2012 AMT hit, and tax increases all around? Joe Weisenthal at Business Insider says we aren’t over the cliff yet:

Indeed. If Boehner couldn’t even get the GOP to support a law that would let taxes revert on millionaires, how is he going to get GOP support on a deal that would let taxes revert on those making $250K or $400K, as the President would like to sign?

Here’s the thing with that. Boehner doesn’t need to get all of his caucus, because in the end, if Obama supports the ultimate compromise, then it’s safe to say that the Democrats will bring about 100+ votes in the house to support the bill. And this was always true. It was always the case that the eventual compromise would see Boehner lose 70 or more Republicans, to be made up with Democrat support. So nothing changes on that front.

There’s 10 days left before 2012 expires. Even then it’s possible that they will make a retroactive deal next year with the new Congress. The legislative and leadership malpractice continues.

Fiscal Cliff Notes:

TaxProf, The Competing Obama and Boehner Tax Plans

Kay Bell, Republicans reject Boehner’s fiscal cliff Plan B, House breaks for Christmas

TaxGrrrl, Boehner Fails To Push Through Plan B Before House Walks

Christopher Bergin, Fiscal Surrender (Tax.com):

So, I would suggest that while General Boehner wants things to look like he is negotiating a budget deal, he is actually seeking the best surrender terms that he can get. And if the President is a good enough general to understand his position, he will not try to over-exploit it.

Paul Neiffer, Farmers Might Delay Higher Tax Rates for Three Years? Thanks to income averaging, a trick available only for farmers, “…you might be able to earn $1 million from farming and have most of it still subject to the old lower tax rates” if rates go up next year.

Nanette Byrnes, Blue states lose: how avoiding the U.S. fiscal cliff hits some states harder than others (Tax Break)

Tax Policy Blog, Tax Cut Expiration Would Impact States Unevenly

Janet Novack, A Closer Look At Boehner’s Plan B: Tax Hikes For Parents And Workers

Howard Gleckman, Should Working Class Families Pay Higher Tax so High Income People Can Pay Less? (TaxVox)

Jim Maule, The Postponed Pain of Foolish Tax and Spending Decisions

St. Louis area preparer “Tiger” Zerjav pleads guilty to tax crimes. A St. Louis-area CPA who survived an IRS effort to shut down his practice through a civil suit lost a much bigger fight yesterday. Frank “Tiger” Zerjav pleaded guilty to four tax crime counts in Federal District Court. Courthouse News Service reports:

Frank L. “Tiger” Zerjav Jr., 39, of Wildwood, Mo., pleaded guilty to four counts of tax evasion from 2001 to 2004, prosecutors said.
He and his father, Frank L. Zerjav Sr., were principals in two entities: Zerjav & Company, a full service accounting firm, and the Advisory Group USA, which offered tax planning and asset protection strategies. Zerjav admitted that he funneled his income into several S-corporations and failed to include that income on his tax returns.

The IRS attempted to enjoin the Zerjavs from tax practice in 2008, alleging that they set up S corporations for their clients and then deducted personal expenses on corporation tax returns — including a “Precious Moments” figurine collection. The Zerjavs settled under what appeared to be favorable terms in 2010.

The plea agreement is not yet public. Sentencing is set for March 26. Related: Copy of indictment.

Jason Dinesen, New Preparer Requirements on Earned Income Credit = Higher Fees for Clients. That’s on top of the increase in fees that will result from the massive contraction of the preparer industry that we may be in for thanks to the IRS preparer regulation regime.

News you can use: Pot Business May Be Legal In Washington State But There Are Still Rules (Peter Reilly)

The Critical Question: Are Holiday Weddings a Form of Tax Planning? (Jana Luttenegger, Davis Brown Tax Law Blog):

Your marital status for tax purposes is determined as of December 31. That means if you get married on New Year’s Eve, you are considered married for the entire year and can file as a married couple. Likewise, if a divorce is finalized by the end of the year, you will be considered unmarried for the entire year. Trust me, I am not the only one that has wondered if certain people getting married on New Year’s Eve did it for tax purposes.

It’s a special Friday Buzz at Robert D. Flach’s place!

Madoff’s brother sentenced on tax charges (Wall Street Journal, via Going Concern)

Not so Fat Joe not so good at taxes. A rapper who performs as “Fat Joe” is in tax trouble, reports AP. The story says Joseph Cartagena pleaded guilty yesterday to not reporting nearly $3 million in income over two years.

Oddly, he’s not so fat, according to the story:

Wearing a navy suit, Cartagena looked fit and considerably slimmer than the former size that had earned him his rapper nickname. He has been very public about his efforts to shed weight after fellow rap stars died from obesity-related issues and was recently in Newark to speak to schoolchildren about health and fitness.

It’s nice that the schools find such good role models for the kids.

Tags: Christopher Bergin, Fat Joe, Fiscal Cliff, Howard Gleckman, Jana Luttenegger, Janet Novack, Jason Dinesen, Jim Maule, Joe Weisenthal, John Boehner, Kay Bell, Nanette Byrnes, Paul Neiffer, Peter Reilly, preparer regulation, Robert D Flach, tax crime, Tax Policy Blog, TaxGrrrl, TaxProf, The Critical Question, Zerjav
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Tax Roundup, 12/19/2012: B is for Boehner. And Blizzard.

Wednesday, December 19th, 2012 by Joe Kristan

Plan B. House Speaker Boehner has proposed a “Plan B” that would increase the top rate to 39.6% for taxpayers with taxable income over $1 million. Tax Analysts reports ($link):

Boehner’s Plan B would also permanently extend the alternative minimum tax patch and the current-law estate and gift tax rules with a portable $5 million individual exemption and a 35 percent top rate. Dividends and long-term capital gains would be taxed at 15 percent for income below $1 million and at 20 percent above that threshold. The bill would not renew any tax extenders, emergency unemployment insurance, or the 2 percentage point payroll tax cut, and would not raise the federal debt limit.

It’s nice to see a permanent AMT fix in both the Boehner and Obama plans. I like not renewing any of the “extenders,” but I suspect he plans to do that separately next year anyway. An estate tax fix is also welcome. It looks like there is no hope continuing the 15% rate for dividends or capital gains.

Meanwhile, a blizzard approaches. From KCCI.com:

Six to 12 inches of snow is expected by Thursday morning. The heaviest snow axis will be along a line from near Des Moines to Tama. The lowest amounts are expected near the Missouri border. Snow drifts several feet deep will be possible given the strong winds.

Winds/visibility:

Winds will become very strong Wednesday night from the north northwest. Sustained winds of 25 to 35 mph are expected with gusts over 45 mph possible.

I know what I’m doing tomorrow morning. Hello, shovel.

Fiscal Cliff Notes

Wall Street Journal, Boehner Weighs ‘Cliff’ Backup Plan

Janet Novack, Strange Bedfellows: Boehner, Buffett And Obama All Support Millionaires Only Taxes

Andrew Lundeen, How Many Days of Christmas Could the Fiscal Cliff Buy? (Tax Policy Blog)

Joseph Thorndike, Republicans Shouldn’t Pin Their Hopes on The Origination Clause. “In practice, the Origination Clause is more a nuisance than an obstacle to tax-happy senators.”

Howard Gleckman, What Adjusting the Price Index Would Mean for Taxpayers (TaxVox)

Rudy Penner, How to Control Entitlements: A Challenge Ike Did Not Face (TaxVox)

TaxProf, Fleischer: How Local Tax Rates Affect High-Income Professionals:

The study finds that an increase in the marginal income tax rate leads to a decrease in the average skill of the NBA free agents that migrate to that team. Unlike in baseball, basketball teams in high-tax jurisdictions actually end up with a worse free-agent talent pool, all else equal. …

These papers do serve as a useful reminder that if the goal is to remedy income inequality, state and local taxes are a weak policy instrument. To the extent that tax policy is used to achieve redistribution, redistribution should take place at the federal level.

Despite what Warren Buffett, the President, and the Speaker of the House say, marginal rates matter. That’s also true at the state level; when you have to bribe businesses to locate in your state, as Iowa likes to, you have a sick tax system. Related: David Brunori, If the Shoe Fits: Oregon Lawmakers Get Rolled (Tax.com)

Kay Bell, Cupid says note year-end marital status; Reindeer Year-end Tax Games Tip #6

Paul Neiffer, Annual Exclusion Does Not Eat Into Lifetime Exclusion.

Trish McIntire, Identity Theft PIN

Peter Reilly, Tax Court Not Quick To Find Abuse In Innocent Spouse Case

TaxGrrrl, Lawmakers, Guns and Money: Where Do We Go After Sandy Hook?

Robert Goulder, Starbucks Pays More Tax Than It Owes (Tax.com). That’s silly.

It’s Wednesday, so it’s time for a fresh Buzz. Robert D. Flach obliges.

The world is saved from its most dangerous criminals. Quebec Police Arrest 3 in Maple Syrup Heist

Tags: Andrew Lundeen, David Brunori, Fiscal Cliff, Howard Gleckman, Janet Novack, John Boehner, Joseph Thorndike, Kay Bell, Paul Neiffer, Peter Reilly, Robert D Flach, Robert Goulder, Rudy Penner, TaxGrrrl, TaxProf, Trish McIntire, Victor Fleischer
Posted in Tax Roundup | 1 Comment »

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

Friday, December 14th, 2012 by Joe Kristan

Flickr image courtesy seriousbri under Creative Commons license.

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

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

So far, so good. But then:

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

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

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

Fiscal Cliff Notes

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

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

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

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

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

Martin Feldstein, The Tax Hike Canard (via Mankiw)

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

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

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

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

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

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

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

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

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

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

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

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

Tags: Andrew Mitchel, corporate welfare, economic development, greg mankiw, Howard Gleckman, iowa tax policy, Janet Novack, Jason Dinesen, Kay Bell, Martin Feldstein, maule, megan mcardle, Patrick Temple-West, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Savers Credit, The Critical Question
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Tax Roundup, 12/7/2012: You can’t soak the rich without soaking employers. And: Baby Insane Crips?

Friday, December 7th, 2012 by Joe Kristan

When you tax “the rich,” you tax business. That’s not going to help a struggling economy, but that’s where we’re going. The TaxProf reproduces a great Congressional Budget Office chart that shows how how business income has moved from corporate returns to individual returns, mostly through the use of “pass-through” entities like S corporations, partnerships and LLCs:

Remember when the IRS Commissioner said they are up against sophisticated criminals? Not so much, From the LA Times:

Authorities arrested 11 people and seized piles of cash, guns and vehicles Thursday following an investigation into an alleged $1-million tax fraud scheme operated by a Long Beach street gang.
Thursday’s arrests were the result of “tedious investigative work,” and targeted the Baby Insane Crips, as well as family members and acquaintances, according to Long Beach Police Chief Jim McDonnell. Gang members allegedly used stolen Social Security numbers and other personal information to file false tax returns and then funneled refunds to family members and acquaintances.

When the “Baby Insane Crips” can defeat your financial controls, your controls aren’t that good. Related: Russ Fox, Why Rob Banks?

Indictment of St. Louis CPA unsealed. The indictment of St. Louis-area CPA Frank “Tiger” Zerjav has been made public. Mr. Zerjav survived an IRS attempt to shut down his practice via civil injunction. This is much more serious, alleging the use of falsified Quickbooks files to conceal taxable income.

Bill Straub, 5 Ways The Fiscal Cliff Drama Could Play Out. (Via Instapundit)

Anthony Nitti, The Top Ten Tax Cases Of 2012, #4: S Corporation Reasonable Compensation – How Much Is Enough?. The much discussed Watson case.

Jack Townsend, Is Restitution a Criminal Penalty Requiring the Jury to Speak?

Patrick Temple-West, Some in GOP urge lawmakers to back tax hikes for changes in safety-net programs, and more

David Brunori, The Rich Will Pay for Our Sins. For now. But not forever; the rich guy isn’t buying. (Tax.com)

Christopher Bergin, Fool’s Gold and Loopholes:

There are no silver bullets that can fix the fiscal distress facing our nation. The fact that our politicians are trying to convince us to the contrary is not productive and shows that they are small leaders. Unfortunately for us, the chances that leaders who think small can solve big problems are not good.

It’s not about solving our problems, to them.

It would make putting up with the politicians easier, anyway. Dude, Should Marijuana Be Legalized and Taxed? (Howard Gleckman, TaxVox)

That makes it a better Friday: Robert D. Flach’s Buzz, SPECIAL FRIDAY EDITION

News you can use: The Simpsons’ Montgomery Burns explains (sorta) the fiscal cliff (Kay Bell)

Cruel and unusual punishment: Brazil Prison Gang Conducted 10-Hour Conference Call (Via Going Concern). Egads. I’d rather face thumbscrews.

If she were in Congress, I would believe it. Ex-Chelsea selectwoman accused of tax fraud claims she is illiterate. A novel tax evasion defense.

Tags: Anthony Nitti, Bill Straub, Christoper Bergin, David Brunori, Fiscal Cliff, Going Concern, Howard Gleckman, Instapundit, Jack Townsend, Kay Bell, Patrick Temple-West, Robert D Flach, tax crime, tax policy, TaxProf, Zerjav
Posted in Tax Roundup | 2 Comments »

Tax Roundup, 12/6/12: Putting the “net” in investment income. And Bar time! Well, Bar Association school time…

Thursday, December 6th, 2012 by Joe Kristan

I speak this afternoon at the Iowa Bar Association Bloethe Tax School. I will be talking about “Affordable Healthcare Act for Pass Through Entities” at 3:40. The newly-released proposed regulations on the 3.8% net investment income tax and the .9% Medicare tax will star. If any Tax Update readers are there, please say hello if you get a chance.

Putting the “Net” in the net investment income tax. The Obamacare 3.8% on ”net investment income” for higher income taxpayers has a strange feature that is highlighted in the newly-released proposed regulations. The tax applies the tax to ”Net” investment income to the extent it increases adjusted gross income — not taxable income — over $200,000 for single taxpayers or $250,000 for joint filers. “Investment Income” for this tax is a new combination of interest, rents, royalties, non-qualified annuities, capital gains and “passive” business income, as from K-1s.

So what does “net” mean? The proposed rules (Proposed Regs. 1.1411-4(f)) say that you reduce income by deductions “allocable” to the investment income. That includes Schedule A deductions for investment expenses, to the extent they exceed the 2% of AGI floor. It also includes state income taxes “allocable” to passive K-1 income and other ”investment” income (cites removed for clarity):

In the case of taxes that are deductible… and imposed on both gross income (including net gain)/..and gross income… the portion of the deduction that is properly allocable… may be determined by taxpayers using any reasonable method. For purposes of the prior sentence, an allocation of the deduction based on the ratio of the amount of a taxpayer’s gross income (subject to the tax) to the amount of the taxpayer’s (total) gross income… is an example of a reasonable method.

So even if a taxpayer gets no benefit from a deduction because of alternative minimum tax, it reduces net investment income. Nothing in the regulations incorporates AMT. As long as an itemized deduction is allowed for regular tax, then it reduces investment income. Taxpayers with AMT liability lose the benefit of their state income tax and miscellaneous deductions for most purposes, but not for this silly tax.

By the same token, if a deduction is disallowed for regular tax — by the 2% floor, the passive loss rules, etc. –it does not reduce net investment income. This makes the GOP proposal for a “cap” on itemized deductions that much worse.

Raise rates or limit deductions? Republican Senator Tom Coburn says that he prefers tax rate increases to the deduction cap proposed by some Republicans. From The Hill:

“Personally, I know we have to raise revenue; I don’t really care which way we do it,” Coburn said during an appearance on MSNBC. “Actually, I would rather see the rates go up than do it the other way, because it gives us greater chance to reform the tax code and broaden the base in the future.”

While I am a doubter of the “need” to raise revenue — we don’t need to do that if we would spend at not-insane levels — I agree that if you increase taxes, rate increases are the way to go. It keeps the pain simple and honest. The deduction cap would be much more disruptive to businesses, as owners of pass-through businesses would lose the deduction for much of their state income tax burden. It would greatly complicate tax planning and have unpredictable consequences for business owners, charities and the housing market. It would also be horrible to professional gamblers, whose below-the-line loss deductions would be capped, and to investors with substantial below-the-line investment interest expense. And all just to pretend there is no tax increase.

Of course I have no faith at all that a GOP compromise on tax rates will lead to serious concessions on spending. And the spending is the problem.

TaxGrrrl, Key GOP Senator Says Yes To Higher Tax Rates In Compromise

Robert D. Flach is not impressed by our leaders:

The continued unmoveable hard line on ”resolving” the “fiscal cliff” taken by the two sides is a clear indication that the idiots in Washington do not give a tinker’s damn about the American public.

He’s right. It’s never been about us. It’s about power.

Andrew Lundeen, Fiscal Cliff: Capital Gains and Dividend Tax Increases Pose Greatest Threat to Economy (Tax Policy Blog)

Patrick Temple-West, GOP in a difficult political spot in tax fight, and more (Tax Break)

Howard Gleckman, How to Cut the Charitable Deduction Without Reducing Giving (TaxVox)

David Brunori, Note to Everyone: Business Should Not Pay Sales Tax: (Tax.com)

Only bad things happen when businesses pay sales tax. First, the businesses paying the tax pass the burden on to their customers in the form of higher prices. But the tax is hidden. People do not know they are paying it. Politicians, and perhaps the New York Times, may like that lack of transparency, but it is awful government policy. Second, the higher priced products purchased by consumers are often subject to tax. This gives rise to a tax on a tax. That is awful tax policy. Finally, taxation of business inputs artificially keeps sales tax rates low. People think the sales tax rate is lower than it actually is. None of this is good.

It’s always best to not hide the taxes.

Cara Griffith, New York Times Article Misses the Mark on San Francisco Tax Exemption (Tax.com)

Kay Bell, Many companies paying dividends early; Be sure to plan for taxes on the income

Jana Luttenegger, Last Minute Charitable Gifts. (Davis Brown Tax Law Blog). If they cap itemized deductions, many folks will wish they had given more this year. This post has some good ideas.

Tax Trials, Tax Court: No Penalties for Son of Boss Participants

Trish McIntire, Education Credits Form Changes

I’m way ahead of the science. Science Says You Should Have Multiple Large Monitors. (Going Concern). Too much is almost enough.

My bare-bones workstation.

News you can use: Timesheet Wars: Non-Billable Codes Are Orwellian Busywork (Going Concern)

Tags: Andrew Lundeen, Cara Griffith, David Brunori, Going Concern, Howard Gleckman, Jana Luttenegger, Kay Bell, monitor mania, Net Investment Income Tax, Obamacare, Patrick Temple-West, Robert D Flach, tax policy, Tax Trials, TaxGrrrl, Tom Coburn, Trish McIntire
Posted in Tax Roundup | No Comments »

Tax Roundup, 11/30/2012: IRS makes life difficult for ID-theft victims and Americans abroad, but they make compliance hard for foreigners too!

Friday, November 30th, 2012 by Joe Kristan

When your identity is stolen, the IRS will be happy to bounce you around the bureacracy. The Taxpayer Advocate testified yesterday at a House hearing on identity theft. The IRS, which does a bang-up job of rapidly mailing fraudulent refunds, is less streamlined when it comes to helping taxpayers whose identities are stolen:

“Yet today the IRS is moving backward toward a decentralized approach, creating specialized identity theft units within 21 separate functional areas,” Olson told the House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management. “If, as seems likely, the IRS reduces the role of the IPSU and directs taxpayers to deal directly with the 21 specialized units, I am deeply concerned that we will revert to back where we were in 2008, with large numbers of taxpayers that have cross-functional issues unable to get their problems resolved without multiple contacts with multiple functions, and that would in my opinion be a disaster for the victims.”

She says that the IRS will have to choose between fast refunds and stopping fraud:

Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly. Under current circumstances, I have come to the conclusion that it is simply not possible for the IRS both to process legitimate returns rapidly and to combat refund fraud effectively at the same time.

So it’s too much to ask for the IRS to make better use of existing resources by not wasting them on the futile and expensive return preparer registration program — a program unwisely supported by the Taxpayer Advocate.

IRS makes doing business in the U.S. even more of a hassle for foreigners. The IRS and Congress are doing their best to make it impossible for Americans to do business abroad with FATCA and the offshore compliance jihad. Now they are doing a bit of the same for foreigners trying to do business here with new rules for International Tax Identifiction Numbers (ITINs).

ITINs are needed when foreigners invest in US real property or other assets where a US tax identification number is needed. U.S. taxpayers just use their Social Security numbers. The process is a hassle, with exacting documentation requirements that often require applicants to send passports to the IRS for extended periods while the IRS processes the paperwork.

While the new rules provide more options for applying for the paperwork, they now make the ITINs expire after five years, requiring taxpayers to repeat the whole process to stay in tax compliance. This hassle isn’t just an issue for offshore taxpayers; it also makes compliance more difficult for U.S. taxpayers with offshore investors. Just another little effort by the IRS does to make staying legal as difficult as possible.

Related: Trish McIntire, Finalized ITIN Rules

The injunction didn’t go through, so on to the indictment. A few years ago the IRS tried to close down the practice of a St. Louis-area tax preparer after making spectacular allegations of malfeasance. The effort ended in a settlement that looked much like a victory for the preparer. The IRS apparently didn’t take that well. Stltoday.com reports:

Frank L. “Tiger” Zerjav, Jr., 39, of Wildwood, has been indicted for allegedly submitting four years of false tax returns and trying to dodge $182,000 in taxes, the U.S. Attorney’s office said Thursday.

Zerjav was indicted on four charges of federal income tax evasion for the returns covering 2001-2004. He also faces an obstruction of justice charge for allegedly producing altered computerized accounting records after receiving a grand jury subpoena.

They couldn’t put Mr. Zerjav out of business through civil procedures. A tax fraud conviction would do the trick. They’ll need to make a much more convincing showing than they apparently were able to do on the injuction effort. This does remind us that if you get on the bad side of the IRS, your own filings had better be squeaky clean.

Better this fiscal cliff than the next, bigger one? Bring On the Fiscal Cliff! (Megan McArdle):

Unless something changes, we’re headed toward one of two uncomfortable places. Either we veer over the fiscal cliff and the economy crashes—or we keep going down the road we’ve been taking for more than a decade, delaying hard choices while assuring voters that no really hard choices need to be made. That road probably ends in an even nastier smashup.

So how are Iowa’s congresscritters dealing with this nasty reality? “Senator Harkin says the “fiscal cliff” doesn’t exist.” (Radio Iowa)

Howard Gleckman, What to Read While Hanging Out at the Fiscal Cliff (TaxVox)

Richard Morrison, The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

Martin Sullivan, How To Limit the Deduction for State and Local Taxes (Tax.com)

Jim Maule, Tax Rates and Deduction Caps

Jack Townsend, Major CA2 Decision on E&Y Tax Shelter Convictions. Two E&Y guys go free.

Jana Luttenegger, Tax Implications of Holiday Bonuses (Davis Brown Tax Law Blog) Don’t think that Wal-mart gift card for the employees is tax-free.

Kay Bell, Lottery dreams and tax realities

The Critical Question: How Much Tax Would You Owe On A $550 Million Powerball Jackpot? (Janet Novack)

Brian Strahle, DC Combined Reporting and the Real Estate Investment Industry: Unintended Consequences?

Tax Trials, Michigan Court of Appeals Rejects IBM’s MTC Election

Robert D. Flach, at his “The Tax Professional” blog, is not thrilled with the “due dilegence” requirements for returns with the Earned Income Tax Credit:

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.
At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form. In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.

Tags: Brian Strahle, Howard Gleckman, identity theft, ITINs, Jana Luttenegger, Janet Novack, Kay Bell, Martin Sullivan, maule, megan mcardle, Nina Olson, preparer regulation, Preparers, Richard Morrison, Robert D Flach, Tax Trials, Taxpayer Advocate, The Critical Question, Trish McIntire, Zerjav
Posted in Tax Roundup | No Comments »

Tax Roundup, 11/27/2012: Rocking Sheldon! And billionaires and millionaires

Tuesday, November 27th, 2012 by Joe Kristan

The Tax Update is in Sheldon, in the Northwest Iowa, helping out at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School today.

Some of the happy practitioners at today’s Farm and Urban Tax School in Sheldon, Iowa.

Two schools are left: Red Oak and Ames. Register today!

How easy is it for rich folks to avoid higher rates? Florida Senator and potential presidential candidate Marco Rubio said that tax rate increases would be largely futile. From Huffington Post:

WASHINGTON — Sen. Marco Rubio (R-Fla.) said Thursday there isn’t much point in raising tax rates on the wealthy, because they also have the money to hire people who will help them get out of paying taxes.

“The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how not to pay those higher rates,” Rubio told National Journal’s Major Garrett at The Atlantic Washington Ideas Forum. “The people that are going to get stuck by that bill are the small businesses, the partnerships, the S corporations, that cannot hire the lawyers to get them out of it.”

Is it really possible for “billionaires and millionaires” to get out of taxes through the best efforts of their lawyers? To some extent. Greg Mankiw explains how Warren Buffett does it:

1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings. So the return on this investment is entirely in the form of capital gains. By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain. His unrealized capital gains are untaxed.

3. He is giving away much of his wealth to charity. He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

All of these are useful only to people who don’t need their cash right away. If you want to use your cash, these aren’t very useful. And many of these items are fraught with danger for taxpayers with less pull than Warren. For example, a closely-held C corporation that pays no dividends runs the risk of being hit with the Accumulated Earnings Tax. Many other tax-sheltering opportunities have been shut down through various crackdowns on tax shelters over the years, like the passive loss rules.

The real futility of taxing the rich is that it does so little to address the government’s insolvency. Letting the tax cuts for “the rich” expire only covers about $80 billion of the $1,200 billion annual budget deficit. The big attempt to tax “the rich” is just a distraction; the rich guy isn’t buying.

Tax Prof Poll: Taxes and the Fiscal Cliff (TaxProf)

Joseph Henchman, Chambliss, Others Distance Themselves from ATR Tax Pledge (Tax Policy Blog)

Patrick Temple-West, Consensus on increasing tax revenue, a wide gulf on how to do it, and more (Tax Break)

Daniel Shaviro, Broadening the base versus raising the rate

I vote yes: Can We Kill the Death Master File? (Russ Fox). The publication of dead folk’s Social Security numbers is a boon for identity thieves.

TaxGrrrl, Tax Breaks For Medical Expenses Under ObamaCare. Hint: they are fewer and smaller.

Paul Neiffer, 2012 May Be Last Year for Section 179 Flexibility. “What many farmers do not know about is the ability to go back and amend their tax return to change their Section 179 deduction.”

Trish McIntire, Document Your Holiday Giving. If you give over $250, no receipt=no deduction.

William Perez, Tax Tips for Charitable Giving During the Holidays

Anthony Nitti, Could Tax Savings Expedite Free Agent Baseball Signings?

Jack Townsend, Swiss Bank Pictet & Cie On DOJ Tax Radar Screen

Robert D. Flach didn’t let Thanksgiving weekend stop his Buzz!

Howard Gleckman, How Can 98 Percent of Us be Middle-Class? (TaxVox)

Angus Young (Wikipedia image)

Kay Bell, More Cyber Monday shoppers this year are paying state sales taxes

News you can use: Tax Dodger Alert: Your Friend in the Senate (Robert Goulder, Tax.com)

Jeremy Scott, Why the Finance Committee Needs Angus King. (Tax.com) I prefer Angus Young.

Tags: Accumulated Earnings Tax, Angus King, Angus Young, Anthony Nitti, CALT, Daniel Shaviro, greg mankiw, Howard Gleckman, Huffington Post, identity theft, Jack Townsend, Jeremy Scott, Joseph Henchman, Kay Bell, Marco Rubio, Patrick Temple-West, Paul Neiffer, Robert D Flach, Robert Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire, Warren Buffett, William Perez
Posted in Tax Roundup | No Comments »

Posts Tagged ‘Howard Gleckman’

Tax Roundup, 2/27/2013: Snow surprise edition. And is tax migration a myth?

Tax Roundup, 2/22/2013: Why California refugees might not choose Iowa. And: to C or not to C?

Tax Roundup, February 20, 2013: Fire fail and tax reform frenzy!

Tax Roundup, 2/6/2013: 4.5% Iowa tax? Flat chance. And hidden dangers of an IRS exam.

Tax Roundup, 1/30/2013: Bah. Humbug. And where states get their cash.

Tax Roundup, 1/23/2013: PTIN Paralysis! And: pay Iowa taxes with a cell phone?

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

Tax Roundup, 1/16/2013: Iowa legislators to push Alternative Maximum Tax? Also: new home office deduction option.

Tax Roundup, 1/9/2013: E-filing gets underway January 30. Also: 79 year-old lady pleads to tax crimes.

Tax Roundup, 1/4/2013: How many seconds of federal spending do you cover? And more debris from the bottom of the Fiscal Cliff.

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

Tax Roundup, 12/28/2012: Last tax planning weekend of 2012. Also: the crisis of unreported pretend income!

Tax Roundup, 12/24/2012: the coming preparer crash. Also: a modest fiscal cliff proposal.

Tax Roundup, 12/21/2012: Plan B breaks, Tiger tamed.

Tax Roundup, 12/19/2012: B is for Boehner. And Blizzard.

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

Tax Roundup, 12/7/2012: You can’t soak the rich without soaking employers. And: Baby Insane Crips?

Tax Roundup, 12/6/12: Putting the “net” in investment income. And Bar time! Well, Bar Association school time…

Tax Roundup, 11/30/2012: IRS makes life difficult for ID-theft victims and Americans abroad, but they make compliance hard for foreigners too!

Tax Roundup, 11/27/2012: Rocking Sheldon! And billionaires and millionaires

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