Posts Tagged ‘Howard Gleckman’

Tax Roundup, 4/3/15: The no appraisal, no deduction rule for big donations. And: Iowa to reconsider forfeiture?

Friday, April 3rd, 2015 by Joe Kristan

Who is going to appraise those bags of clothes? If you’ve prepared tax returns for a long time, you have probably seen something like this in client tax information:

20150402-1Donation, used clothes, Goodwill: $12,000.

In addition to (probably) failing the charitable documentation requirements we discussed yesterday, another shortcoming would be fatal for the deduction: the lack of a “qualified appraisal.” When you make a non-cash donation exceeding $5,000, the tax law requires the filing of Form 8283 supported by a qualified appraisal for the property. Only a few items, including publicly-traded securities, are exempt from this requirement (details here). Otherwise, it’s no appraisal, no deduction. 

The tax law sets strict requirements for a qualified appraisal.  Some relate to the contents and timing of the appraisal report. For example, an appraisal made more than 60 days before the contribution doesn’t work, and the appraisal can’t be received after the due date of the return, including any extensions received. That means you can’t wait for the IRS to audit you to get the appraisal.

The tax law also doesn’t let just anyone do the appraisal. The appraiser must meet minimum credential requirements and regularly appraise the property type at issue. The appraiser also cannot be:

The donor of the property, or the taxpayer who claims the deduction.

The donee of the property.

A party to the transaction in which the donor acquired the property being appraised, unless the property is donated within 2 months of the date of acquisition and its appraised value is not more than its acquisition price. This applies to the person who sold, exchanged, or gave the property to the donor, or any person who acted as an agent for the transferor or donor in the transaction.

Any person employed by any of the above persons. For example, if the donor acquired a painting from an art dealer, neither the dealer nor persons employed by the dealer can be qualified appraisers for that painting.

Any person related under section 267(b) of the Internal Revenue Code to any of the above persons or married to a person related under section 267(b) to any of the above persons.

 

20150403-1Going back to our clothing donation, good luck getting that stuff you dropped off after last year’s spring cleaning appraised now.  But, you say, that wasn’t one $12,000 donation! There were at least 20 garbage bags of stuff. That’s 20 $600 donations. No problem!

Problem. The Treasury Regulations determine whether the $5,000 limit is met using (my emphasis):

the aggregate amount claimed or reported as a deduction for a charitable contribution… for such items of property and all similar items of property… by the same donor for the same taxable year (whether or not donated to the same donee).

So 20 bags of clothes are still one donation.

The IRS, and the courts, are strict about the appraisal requirement. If you’ve donated something worth more than $5,000 to charity and you don’t have the appraisal, extend your return and get one before it’s too late. Remember, no appraisal, no deduction. 

Related: A gold mine, or just a pile of old clothes? 

Come back every day through April 15 for another 2015 filing season tip!

 

Des Moines RegisterCivil forfeiture gets statehouse attention:

The House Government Oversight Committee plans to hold a public hearing regarding Iowa’s civil forfeiture laws as a result of a series of articles published by The Des Moines Register.

Rep. Bobby Kaufmann, R-Wilton, who chairs the committee, said the panel was discussing future speakers at its Thursday meeting when representatives brought up the articles and expressed interest in the issue.

20150403-3It’s good that they’re looking at it, but Mr. Kaufmann may not have fully grasped the nature of the problem:

“After talking with several members of law enforcement, I feel a supermajority of law enforcement are conducting themselves in the best manner possible and I believe they’re following Iowa’s civil asset forfeiture law,” he said. “But there are outlier cases where there should maybe be a higher standard for when people’s cash can be seized.”

I’m not sure that talking with the beneficiaries of the system is really the way to determine whether it’s unjust. I suspect a poll of Vikings loading their longboats with loot and captives would also find a supermajority feeling they were conducting themselves “in the best manner possible.” It’s also not helpful that they are “following Iowa’s civil asset forfeiture law” if the law is a license to steal.

It’s a matter of due process. Civil forfeiture imposes what amounts to outlandish fines without conviction, or even arrest, and it puts the burden of proof on the citizen, whose resources to fight the forfeiture have, conveniently, been seized by the state.

It’s also a matter of incentives. If a law enforcement agency gets to keep what it seizes, and faces no punishment for seizing items unjustly, their incentive is to take stuff unjustly. And that’s what happens.

 

William Perez, How to Plan for, Minimize, and Report the Self-Employment Tax

Kay Bell, Tax tips for the self-employed small business owner

TaxGrrrl, Taxes From A To Z (2015): V Is For Veterans’ Benefits

 

Jason Dinesen, Should a Business Owner Keep Their Own Books?

 

Peter Reilly, Another Proof That S Corp Can Be Best Choice For Professional Practices:

If you viewed the Tax Court decision in the case of Midwest Eye Center as a wake-up call for people who have highly profitable professional practices inside C corporations, I think you would be mistaken.  The wake-up call was in 1986.  This decision is hitting them over the head with a two by four, particularly coming on top of the Vanney Associates, Inc decision late last summer.

Peter is discussing the case I discussed here.

 

20150403-2

 

Stephen Olsen, Summary Opinions for the weeks of 3/06/15 through 3/20/15 (Procedurally Taxing), rounding up courtroom and administrative tax procedure happenings.

Robert Wood, Real ‘Mystic Pizza’ Owner Pleads Guilty To Tax Evasion, Could Face 15 Years. It’s the time of year when tax prosecutors get busy, to motivate the rest of us.

Liz Malm, Michigan House Lawmakers Pass Bill Ending Film Incentive Program (Tax Policy Blog). Unfortunately for Michigan, the bill may not pass.

Howard Gleckman, For Most Households, It’s About the Payroll Tax, Not the Income Tax (TaxVox)

TaxProf, The IRS Scandal, Day 694

 

Career Corner: Going Concern March Madness: The #BusySeasonProblems Championship — Deteriorating Mental Health vs. That Voice Inside Your Head (Caleb Newquist, Going Concern)

 

Share

Tax Roundup, 4/1/15: No fooling – if you reached 70 1/2 last year, take a distribution by today. And: Freedom on April 17!

Wednesday, April 1st, 2015 by Joe Kristan

IMG_1212They don’t call them “required” distributions for nothing. If you reached 70 1/2 years of age in 2014, first, congratulations! Second, today is the deadline for you to take your first required minimum distribution from your (Non-Roth) IRA or SEP, and, if you have retired, from your defined-contribution retirement plan. The rules for the two types of plans are slightly different.

The tax law doesn’t want your retirement plan assets to be growing tax-free forever. That’s why the RMD rules were enacted. You are required to pull an annual taxable amount out based on your remaining life expectancy, determined by IRS tables.

The first required distribution must be taken by April 1 of the year following the year in which you turn 70 1/2. That means you, if you were born after June 30, 1943 and before July 1, 1944. Subsequent distributions have to be taken by December 31. That means if you are taking your first one today, you’ll need to take another one this year.

If you don’t have a spouse 10 years younger than you, you can compute your IRA distribution at this table. If you do, use this table instead. You will need to know your IRA balance as of December 31, 2014.

And if you don’t take your distribution on time? A 50% penalty tax on the amount you should have withdrawn. That would hurt.

This is the first of our 2015 filing season tips. Come back daily through April 15 for more!

 

Russ Fox, Bozo Tax Tip #9: 300 Million Witnesses Can’t Be Right!:

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Yet, somehow it didn’t land on his 1040. Things went badly.

 

People in Iowa get in tax trouble too. St. Charles man sentenced to prison for filing false tax return (Osceola Sentinel-Tribune).

 

Tax Freedom Day is April 24, The Tax Foundation Announces:

Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income. In 2015, Americans will pay $3.28 trillion in federal taxes and $1.57 trillion in state and local taxes, for a total tax bill of $4.85 trillion, or 31 percent of national income. This year, Tax Freedom Day falls on April 24, or 114 days into the year. 

20150401-1

The big day is a day later than it was last year. As state taxes differ, states have different Tax Freedom Days. The first one is Louisiana, which arrives tomorrow. New York and Connecticut have to wait until May 13. Iowa celebrates fittingly on my next day off, April 16.

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Kay Bell, Time to choose between a Roth or traditional IRA

Jason Dinesen, Iowa Adoption Credit and Deduction. “The Iowa deduction for adoption expenses is also still available, and there is a relationship between the credit and the deduction.”

Robert Wood, Five Ways To Audit Proof Your Tax Return Against The IRS. For example, “Don’t claim flaky deductions.”

TaxGrrrl,Taxes From A To Z (2015): S Is For Scams

 

Keith Fogg, Impact of Bankruptcy Determination of Tax Liability on Tax Court Case and on Assessment Timing (Procedurally Taxing). “When a taxpayer goes into bankruptcy, a new forum for tax litigation opens up, or potentially opens up, based on section 505 of the Bankruptcy Code.”

 

20150401-2

 

TaxProf, The IRS Scandal, Day 692. Today the TaxProf says that Commissioner Koskinen has put all this unpleasantness behind him:

The IRS has fixed its errors, such as improper extra scrutiny of Tea Party groups, and they won’t happen again, the tax agency’s commissioner said Tuesday.

“The changes are so significant throughout the agency that you could hang a sign out at the front of the headquarters saying ‘Under New Management,’” Internal Revenue Service Commissioner John Koskinen said in a speech at the National Press Club in Washington.

Uh-huh. And there were no more Lerner emails, and the Commissioner had made sure he looked very hard for them.

 

Oh, goody. The Rich Are Finally Paying More in Taxes (Jeremy Scott, Tax Analysts Blog). Oddly, he thinks that’s a good thing. But ultimately, the rich guy isn’t buying. And when you try to smack “the rich,” you are really going after employers.

Source: The Tax Foundation

Source: The Tax Foundation

 

David Brunori, Transparency: Good for the Tax System, Critical for Good Government (Tax Analysts Blog):

Modern state tax policy has been dominated by cravenness and cronyism. But every once in a while, politicians muster the courage to do the right thing. Several proposals have been advancing in legislatures that will bring more transparency to state fiscal systems. I cannot overstate the importance of these measures.

Cronies and cockroaches prefer darkness.

 

Howard Gleckman, Is a Consumption Tax Talk Making a Comeback? (TaxVox)

 

Robert D. Flach emerges from his 1040 cave just long enough to do a little Showboating. He’ll get the reference.

 

That’s not funny! Accountants Ruin Joke (Caleb Newquist, Going Concern)

Share

Tax Roundup, 3/27/15: Scammer targets the Tax Update! And: a Des Moines tax crime sentence.

Friday, March 27th, 2015 by Joe Kristan

No Walnut STEnhancements in scam productivity. The IRS-impersonator-scammer community seems to be seeking improved productivity through automation. A robo-call to my house yesterday threatened us with dire consequences, including being sued, for unpaid taxes if we didn’t immediately call a New York City phone number — presumably with credit card and bank account information so they could loot our savings.

It was, of course, a scam call. The last year has seen the rise of the IRS-impersonation phone scam. My wife took the call, and wisely didn’t fall for it, but she found it convincing enough to call me just to make sure I hadn’t gotten us in tax trouble (trust, but verify!).

The IRS doesn’t do this. They will never call unless they write first. You won’t be in dire tax trouble without knowing about it before they call you. If somebody calls you claiming to be from the IRS, assume it’s a scam. Hang up. Provide no personal information, no credit card numbers, no bank info. If you have any questions at all, call your tax pro before you do anything the phone caller asks.

The scam phone number was 347-809-5928, by the way.

The IRS has put up an information page about phone scams. People who receive these calls are encouraged to report them to the Treasury Tax Inspector General for Tax Administration. I did.

Other information:

TaxGrrrl, TIGTA, IRS Warn Phone Scam Continues As Fraudsters Rake In Millions

Laura Saunders, No, That’s Not the IRS Calling. Just Hang Up.

 

baudersA Des Moines tax sentence. I missed this when it happened last month, but a Des Moines pharmacist has been sentenced on drug and tax charges arising out of an investigation of illegal sales of painkillers. The Des Moines Register reports that the pharmacist received a two-year sentence in federal prison.

The tax charges are what I find interesting. The pharmacist apparently went through a lot of work to fool the tax preparer for his small family-owned pharmacy, according to the plea deal:

Prior to providing the monthly credit card statements to the accounting firm, Defendant altered the credit card statement by (1) deleting the personal benefit purchases, and (2) increasing the amounts represented as additional inventory from wholesale distributors. Defendant would then provide the altered credit card statements to the bookkeeper, who entered that information…

He also improperly deducted purchases of sports memorabilia, which he now has to surrender to the Feds as part of his sentence. The federal inmate locator website places him at Leavenworth now. The pharmacy remains open, obviously under new management.

Prior coverage: The crime of deducting Cal Ripken’s bat.

 

Mortgage Credit season. Iowa Finance Authority Announces Launch of 2015 First-Time Home Buyer Tax Credit:

terrace hill 20150321The program provides eligible home buyers with a tax credit against their federal income tax liability every year for the life of their mortgage. The amount of the tax credit for the 2015 program is set at 50 percent of the mortgage interest paid, up to a maximum of $2,000 per year, for up to 30 years. The remaining mortgage interest may be taken as a deduction from taxable income if the home buyer itemizes.

Eligibility for the Take Credit Program requires home buyers to meet household income and purchase price limitations and meet the definition of a first-time home buyer. The federal income limits vary by county, the limits currently range from $65,300 to $111,300 per year.  A purchase price limit of $250,000 applies statewide with the exception of federally Targeted Areas where the limit is $305,000.

I think the credit is bad policy, but if you qualify, it would be silly not to use it.

 

William Perez, Personal Exemptions Reduce Taxable Income

Keith Fogg, More Bad News for Late Filers (Tax Procedure Blog). “The First Circuit in Fahey joins the Fifth and the 10th in holding that the hanging paragraph at the end of Bankruptcy Code Section 523 excepts from discharge the tax liability for any year in which the taxpayer files the return late – even by one minute.”

Robert Wood, NY Tax Preparer Indicted On 31 Tax Counts Could Face 3 Years Prison—For Each. That’s a lot of years.

TaxGrrrl, After BBC Sacks Top Gear’s Clarkson, Viewers Say They Won’t Pay Tax. The UK has an awful tax on televisions to fund the (literally) state-owned media. That system turns programming decisions into political ones.

 

20150327-1

 

Tax Justice Blog, Thank You for Being a Friend: States Make Golden Years a Golden Ticket. This left-side blog shows its righteous side:

Poorly targeted tax breaks for the elderly are a costly commitment for many states—and long-term demographic changes threaten to make these tax breaks unaffordable since older adults are the fastest growing age demographic in the country. Moreover, while poverty has often been associated with advanced age, a 2014 US Census report found that Americans over 65 are less likely to be poor than people in their prime working years, further exacerbating the mismatch between the tax breaks offered and needs within the population.

Despite these concerns, lawmakers in many states have proposed further tax breaks for the elderly (click here to read an ITEP brief on this topic). Here are five states where senior tax proposals are on the table:

Iowa: State Sen. Roby Smith recently filed legislation (SF 277) that would remove pensions, annuities, and retirement income from the personal income tax base. So far, the legislation has 23 cosponsors and a similar bill is being sponsored in the House. Note that Iowa already allows a $6,000 exclusion ($12,000 for married couples) for retirement income…  

If you want to protect the poor from high taxes, fine. But poverty and age aren’t the same thing.

Prior coverage of SF 277 here.

20150327-2

Jim Maule, Yes, Tax Uncertainty Hurts. ” Tax uncertainty causes economic harm. It also cause other problems, not the least of which is taxpayer anxiety and the opportunity for politicians to grandstand on the issues and to use taxpayer fear as leverage for gathering up campaign contributions.”

Howard Gleckman, The Medicare “Doc Fix” That Isn’t. “The doc fix doesn’t fix much, and what it does repair likely will add hundreds of billions of dollars to the debt in coming years.”

TaxProf, The IRS Scandal, Day 687

Jack Townsend, Two Courts’ Approaches to Taxpayer Culpability in the Son-of-Boss B******t Tax Shelter.

 

Caleb Newquist, Let’s All Enjoy This Story of a Rich Guy Who Procrastinated on His Taxes and Missed Out on a $1 Million Refund (Going Concern). It tells of somebody who made estimated payments, but never got his act together to file — costing him $1 million. Ouch.

 

Share

Tax Roundup, 3/20/15: Tax Foundation looks at Iowa Alt Max Tax proposal.

Friday, March 20th, 2015 by Joe Kristan

IMG_1284More on the Iowa Alternative Maximum Tax Proposal. The Tax Foundation’s Jared Walczak discusses HSB 215 in Iowa Considers Alternative Maximum Tax:

The basic idea is that each year, taxpayers get to choose between (1) paying under the current graduated income tax structure, claiming any credits, deductions, or exemptions for which they are eligible; or (2) paying a flat 5 percent rate on all taxable income while foregoing most income subtractions.

Those making the election for a flat rate would still be able to subtract the standard deduction ($6,235 for an individual), plus interest and dividends from federal securities, and federal pension income, but would forego other subtractions. In exchange, they could pay a flat 5 percent rate.

Jared comes to conclusions much like I did when I looked at the 2013 version of this proposal:

Iowa is one of a small number of states that allow a deduction for federal income taxes paid, which can certainly be significant. However, I crunched the numbers on a variety of scenarios, and conservatively estimate that taxpayers with more than $40,000 in taxable income would almost always be better off paying the alternative tax—unless, again, they fall into tax-advantaged categories as farmers, low-income families with children, and the like.

It is not, however, a sure thing. Some high income taxpayers might fare better under the traditional rate structure if they combine that federal deductibility with, say, sizable deductions for charitable contributions. And some low middle-income families might qualify for enough assistance through the tax code to make the standard approach worth their while. This adds complexity to the system, as taxpayers would want to calculate their tax burden both ways.

Jared notes that the proposal would be a revenue loser to the state, adding to its political problems. He also provides an example of another state that has tried a similar setup:

Alternative maximum taxes are rare but not unknown. Rhode Island adopted an alternative flat income tax structure from 2006 – 2011 which culminated in lower overall rates and the elimination of the state’s top brackets. That bill included phased-in reductions in the flat rate, whereas the legislation pending in Iowa sets the rate at 5.0 percent in perpetuity, but like the Rhode Island bill, this Iowa proposal draws upon elements of good tax policy. Ideally, though, Iowa would look at ways to reduce its high income tax burden without making taxpayers calculate their tax burden twice.

While I have not heard anyone in the legislature say so, I believe this is an attempt to provide badly-needed individual tax reform to Iowa withoutIf Iowa's income tax were a car, it would look like this. offending Iowans for Tax Relief.  The self-proclaimed “Taxpayers’ Watchdog” is known as a powerful force in the Iowa GOP, and has been known to set up primary challenges to those falling into its disfavor (though one observer says its influence has waned). ITR is an uncompromising backer of the deduction for federal taxes on Iowa returns. It is very difficult to achieve significant rate reductions while leaving the deduction in place. By leaving the deduction on the books while making it mostly meaningless, the Alt Max Tax backers sneak reform past the watchdog.

Related Tax Update Coverage:

Iowa Alternative Maximum Tax advances to its doom.

The Iowa flat tax proposal: a good deal for middle class and up, but not for lower incomes.

 

Roger McEowen, How Do I Handle Unharvested Crops At Death? (ISU-CALT). “When an individual dies during the growing season, the tax treatment of the crop is tied to the status of the decedent at the time of death.”

William Perez, Did You Pay Interest on Student Loans? It May be Tax Deductible

TaxGrrrl, Understanding Your Forms: 1098-E, Student Loan Interest Statement

Robert Wood, Which Legal Fees Can You Deduct On Your Taxes?

Kay Bell, IRS welcomes tax tip-off time, aka March Madness betting

Jason Dinesen, Glossary: Earned Income Credit

Peter Reilly, Tax Court Rules That Being Accommodation Party In Tax Shelter Is Hard Work. Apparently signing papers can be taxing. I appreciate this:

The Harvard degrees and successful architecture practice were negatives when it came to getting out of the accuracy penalty. Also Mr. Chai had not provided all the correspondence to his tax adviser.  Of late I’ve been thinking that the IRS is too quick to propose the accuracy penalty, a sentiment Joe Kristan shares,  I’ll bet Joe wouldn’t object to this one.  It is actually pretty mild.

Not every wrong tax penalty is negligent or willful, but some certainly are.

 

IMG_1216

 

Keith Fogg, From Lindbergh to Nixon to Stegman – Fixing Information Flow in Identity Theft Cases (Procedually Taxing):

Recently, the United States District Court for the District of Kansas in the case of Kathleen Stegman ruled that the IRS could keep from the taxpayer the return filed by someone using her identifying information.  The sad part here is that the administrative decision to withhold the returns from her and the Court’s decision sustaining the IRS refusal to turn over the information seems to correctly reflect the law as it stands.  The law should change and taxpayers should have the ability to access documents using their identifying information.

It seems that the IRS is very good at hiding behind taxpayer confidentiality to cover its own mistakes.

 

TaxProf, The IRS Scandal, Day 680

Annette Nellen covers the AICPA tax reform suggestions for individuals:

The suggestions address:
1. Simplified Income Tax Rate Structure;
2. Education Incentives;
3. Identity Theft and Tax Fraud;
4. Relief for Missed Elections (9100 Relief); and
5. “Kiddie Tax” Rules.

The AICPA proposal is here.

 

youn-se-thumb

 

Howard Gleckman, Trying to Square the House’s Tax Cuts and Its No-Tax-Cut Budget. “House tax writers seem to be ignoring their own party’s fiscal plan.”

Matt Gardner, House Budget Proposal Silent on Fate of Budget-Busting Tax Extenders (Tax Justice Blog).

Career Corner. The Aftermath of the Ex-PwC Employee Who Got Fired After a Dispute with Comcast Is About What You’d Expect (Caleb Newquist, Going Concern).

 

Today’s Spambox Bargain: “Canadian Nightcrawlers Shipped Direct To You. Live Guarantee.”

Canadian!

Share

Tax Roundup, 3/18/15: In Spite of all the Danger, state shuts down revenue cameras. And more!

Wednesday, March 18th, 2015 by Joe Kristan
Flickr image by Robert Couse-Baker under Creative Commons license

Flickr image by Robert Couse-Baker used under Creative Commons license

Des Moines to lose freeway revenue cameras. The Iowa Department of Revenue moved to reduce the tax on strangers driving through Des Moines yesterday by ordering the city to shut down its speed cameras in I-235. From The Des Moines Register:

Ten of 34 automated traffic enforcement cameras on or adjacent to Iowa highways must be shut down by April 17 because they are not making roads safer, the state’s Department of Transportation ruled Tuesday.

Among the 10 that would be powered down are speed enforcement cameras on eastbound Interstate Highway 235 near Waveland Golf Course in Des Moines.

Department of Transportation traffic and safety director Steve Gent explained:

Gent said that that section of I-235 is safe, with a crash rate that is significantly lower than the state average for urban interstates. In addition, the crash rate there has not changed significantly since the cameras’ installation, he said.

People who live here know where the cameras are. It’s people who are new to town, who have been driving 75 all the way from Omaha, and who hit town when traffic is light, who are likely to get the tickets. Of course, the municipal highwaymen are not pleased:

“We give out 43,000 tickets a year there to people who that are going 11 miles an hour or more over the speed limit,” Des Moines Mayor Frank Cownie said. “It’s amazing to me that the DOT doesn’t think that that is a safety issue.”

Hmmm. The cameras aren’t reducing speeding; the number of tickets issued is holding steady. They aren’t reducing the accident rate. But safety is at risk! The the safety of the municipal revenue stream. “Last year, 43,032 citations were issued, which generated about $1.2 million for the city, officials said.”

Related:

The city needs to pick your pockets for four more years to be sure you are safe.

Des Moines revenue cameras: $32,305 per accident ‘prevented’

 

eic 2014The TaxProf reports GAO: Improper Government Payments Increased 18% in 2014, to $125 Billion; EITC’s 27% Error Rate Is Highest of Any Program. That’s $17.7 billion either misdirected or stolen annually under “our most effective anti-poverty program.” It certainly helps reduce the poverty of the scammers and grifters that rob the program, and the shady preparers who make it easier.

 

 

 

TaxGrrrl, Understanding Your Forms: Form 1098, Mortgage Interest Statement

And probably not YOUR situation. Clothing tax deductions are OK, but just in certain situations (Kay Bell)

Peter Reilly, Dude Ranch Shareholders Stuck With Corporate Tax – It’s All About Execution. A “Midcoast” transaction falls afoul of “transferee liability.”

Robert Wood, There’s Still Time To Turn Your Hobby Into A Tax Write-off. “Will the IRS pay for your hobby? The short answer is no, at least if you ask the question this way. But sometimes, the IRS will foot the bill provided you make your pastime enough of a real business to qualify.”

Jason Dinesen, Marriage in the Tax Code, Part 4: Joint Returns Still the Norm in 1917

Tony Nitti, Take The Tax Bracket Challenge: Which Is The Best Code Section Of Them All?. My favorite is Sec. 6313, without which the whole edifice must fall. It reads in full:

In the payment of any tax imposed by this title, a fractional part of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to 1 cent.

 

If only the whole tax law were that clear and easy to understand.

 

20150123-2

 

TaxProf, The IRS Scandal, Day 678. The IRS role in criminalizing political opposition is discussed.

Clint Stretch, How to Make Tax Return Filing Easier (Tax Analysts Blog)

Scott Hodge, A Response to Josh Barro on Dynamic Scoring (Tax Policy Blog).

Howard Gleckman, The House GOP Budget As Can Opener: An Impossible Task and A New Lesson in Dynamic Budget Scoring (TaxVox)

Caleb Newquist, Triple Entry Accounting: Harebrained or Genius? (Going Concern). “I’ve never been to SXSW, but I imagine that all the smart people talking about smart ideas and getting all smart with each other is nauseating.”

 

Hiryu, the fourth and last Japanese aircraft carrier destroyed at the Battle of Midway 70 years ago today.

Hiryu, the fourth and last Japanese aircraft carrier destroyed at the Battle of Midway

Yes, because it worked so well the last time.  Japan should follow wartime slogan to deal with tax evasion, LDP lawmaker says:

Junko Mihara, a House of Councilors member from the ruling party, referred to the slogan hakko ichiu at a meeting of the Upper House Budget Committee on Monday, saying it represented “values Japan has cherished since its founding.”

The term roughly translates as “all the world under one roof.”

During the Sino-Japanese war and World War II, the Japanese government used the slogan to justify its Emperor-centered policies and overseas expansion.

If that doesn’t work, they can always rebrand it as The Greater East Asia Co-Prosperity Sphere. I’m sure neighboring countries would be on board.

 

Share

Tax Roundup, 3/11/15: The $195 pass-through timely-filing incentive. And: taxing your neighbor may just send him your retailers.

Wednesday, March 11th, 2015 by Joe Kristan

7004 cornerExtend your corporations! The deadline for corporation returns looms. This year it’s March 16, as the usual March 15 deadline is on a Sunday.

The need to file or extend C corporation returns by Monday should be obvious. A failure to file penalty starts 5% of any underpayment, up to 25%, and 100% of the corporate tax is due by March 15 even when you extend.

Failing to meet an S corporation deadline can be even more expensive. How can that be? After all, S corporations don’t usually pay tax. What’s the big deal?

Blame Congress, which has used S corporation late-filing penalties as pay-fors for tax breaks. Congress has now made the penalty $195 per month, Per K-1. So an S corporation return with ten shareholders that is one day late racks up a $1,950 penalty. A S corporations can have up to 100 shareholders — and more when family members own shared – you can see that the numbers can get big in a hurry.

Missing filing deadlines has other bad consequences. You lose the ability to make automatic accounting method changes for the late year, for example; this can be costly, especially if you have lots of depreciable assets. You also lose the ability to 20130415-1make many other elections that can only be made on a timely-filed return. And, of course, you increase the risk of audit. While extended returns don’t increase audit risk, late filings certainly do.

Extensions can be obtained automatically on Form 7004, which can be filed electronically. If you must paper file, go Certified Mail, Return Receipt Requested, to prove timely filing.

 

 

David Brunori is, as usual, wise in his post Local Sales Taxes are Poor Revenue Options (Tax Analysts Blog). “I think the biggest problem with local option sales taxes is that they afford politicians the ability to export tax burdens.”

I think it might be more accurate to say that it deludes politicians into thinking they can export tax burdens. Over time, the effect is to export retail into the next jurisdiction that doesn’t impose the local option tax. Anyone who has observed the outward march of retail to the suburbs over the last century or so, and the death of the first generation of malls that sucked the retail out of down at the hands of newer malls, knows retail can move. But I’m sure that the localities that drive out their retailers with a local sales tax will try to bribe them back with TIF financing.

 

IMG_0603Jack Townsend, TRAC Publishes Statistics on Tax and Tax-Related Prosecutions. “Year after year, April consistently has the greatest number of criminal prosecutions as a result of IRS investigations — two-thirds or more higher than those seen in January.”

I’m pretty sure that’s that’s designed to encourage the rest of us.

 

William Perez, Deducting Health Insurance Premiums When You’re Self-Employed. The nice thing is that when you qualify, this is an “above-the-line” deduction; you don’t have to itemize.

Paul Neiffer, IRS Provides Guidance on Repair Regulations. “Last week, the IRS actually provided some very good practical Q&A guidance on these Regulations that should provide great comfort to many of our tax preparers and farmers.  I wish that this guidance had been provided several months ago, but it is better late than never.”

Peter Reilly, IRS Busts In Las Vegas Tip Case. “I really think the Service would have been better off if they had settled with Mr. Sabolic rather than setting this precedent and encouraging more tipped employees to drop out of the program.”

 

Annette Nellen covers Use Tax Lookup Tables, which are handy for those good citizens who actually pay their use taxes on mail-order purchases.

Jana Luttenegger Weiler talks about Financial Literacy at Tax Time (Davis Brown Tax Law Blog)

Jason Dinesen shares his Tax Season Tunes: 2015. He’s a Gordon Lightfoot fan. I’m more Punch Brothers and, of course, Fleeting Suns.

Jim Maule, Tax Courses and Food. “At the risk of seeming crude, the idea of tax law making someone want to eat strikes me as the opposite of reality.” Something to drink, I can definitely see.

 

Richard Borean, Annual Release of “Facts & Figures: How Does Your State Compare?” (Tax Policy Blog). This is a wonderful resource, putting summary information from all of the states, including rates, per-capita tax burdens, business tax climate rankings, and much other data all in one place.

 

IMG_1388

 

Robert Wood, Feds Launch Internet Sales Tax Again, So Better Click While You Can. I think he’s against the “Marketplace Fairness” bill.

 

TaxProf, The IRS Scandal, Day 671. This is interesting:

In September 2014, during a House Oversight Committee hearing on the Lerner e-mails, IRS Commissioner John Koskinen said it’s policy not to use personal e-mail.

“One of the things we’re doing is making sure everybody understands that you cannot use your e-mail for IRS business,” he said. “That’s been a policy; we need to reinforce that.”

Say what you will about Lois Lerner, she didn’t set up LoisLerneremail.com.

 

IMG_1398

 

You don’t say. Improving Deficit Numbers Don’t Make Obama a Deficit Hawk (Jeremy Scott, Tax Analysts Blog) “The CBO’s new baselines will undoubtedly be touted by President Obama as showing that he is keeping his promise to shrink the deficit, but those who think the president is a deficit hawk should note that the smallest deficit projected during this administration ($462 billion in 2017) is still larger than the deficit he inherited ($458 billion in 2008).”

Howard Gleckman, Watch What You Wish For: Dynamic Scoring Creates More Issues for the GOP (TaxVox)

Caleb Newquist, Accounting Programs, Ranked (Going Concern). None of UNI, Iowa State or Iowa are listed in the U.S. News top 10. That makes it obviously wrong.

Kay Bell, Tourists, students to act as tax spies for Greek government. Greece cements its hold on the title of laughingstock of public finance.

 

Share

Tax Roundup, 3/5/15: More tax credits! Also: ACA on the dock again, and good tax news for gamblers.

Thursday, March 5th, 2015 by Joe Kristan

Accounting Today visitorsclick here for the frosty Iowa tax climate post, or go here for a longer treatment.

 

David Brunori has a wise post about Michigan’s disastrous tax credits: Tax Incentives Cause Trouble For More Reasons Than You Might Think (Tax Analysts Blog). “The history of job creation tax credits in Michigan is a story of corporate welfarism.”

20120906-1That’s just as true here in Iowa, where every legislative session seems to bring a new tax credit, to go with the dozens already on the books. From today’s Des Moines Register: New chemical production tax credit bill advances.

For example, companies like Cargill that produce ethanol and other fuels from corn produce corn oil in the process. The tax credit is geared toward companies that take that oil and other byproducts to create higher-value chemicals. Those higher-value chemicals can then be used to produce plastics, paints or pharmaceuticals.

The legislation would provide a credit of 5 cents for every pound of chemical a company produces. It would not apply to chemicals that are used in the production of food, animal feed or fuel.

These byproducts are already used somewhere. That means the credit would do one or more of the following:

– Subsidize companies that are already making the chemicals.

– Divert the byproducts from their current buyers — producers of food and animal feed, for example — to those who would receive subsidies, forcing the current buyers to find more expensive substitutes.

– Create subsidized competition for companies that already produce chemicals from other sources.

In short, they would take money from existing businesses and their customers and give it to someone with a better lobbyist.

The bill is HSB 98. The bill also contains increases in “seed capital” and “angel investor” tax credits, expanding the Iowa’s dubious role as an investment banker that doesn’t care whether it makes money.

 

supreme courtYesterday was the current Obamacare challenge’s day in the Supreme Court. It’s pretty clear that the four liberal justices will vote to uphold the IRS, and the subsidies to taxpayers outside of state exchanges. Justices Scalia, Alito and Thomas will vote no. The decision is in the hands of Justices Kennedy and Roberts, who aren’t giving much away.

I’ll defer to others for coverage of yesterday’s hearing, including:

Megan McArdle, Life or Death. “This morning, someone on Twitter explained that this case really is different because if the Supreme Court rules the wrong way, thousands of people will die. I find this explanation wholly unconvincing, for two reasons.”

Jonathan Adler, Oklahoma’s response to Justice Kennedy and Things we learned at today’s oral argument in King v. Burwell.

 

Russ Fox, IRS Proposes Session Method for Slot Machine Play and a Revision to the Regulations on Gambling Information Returns:

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

This is important for gamblers because gambling winnings are included in Adjusted Gross Income, but losses are itemized deductions. If you treat each play as a separate taxable event, then you inflate both the above-the-line winnings and the below-the-line deductions. Increasing AGI causes all sorts of bad things, including making Social Security Benefits taxable, and at higher levels causing a loss of itemized deductions and exemptions and triggering the Obamacare Net Investment Income Tax of 3.8%. Allowing winnings and losses to be netted over a day reduces this inequity.

 

IMG_1219Where red-light cameras take you. The Ferguson Kleptocracy (Alex Tabarrok, Marginal Revolution). When the role of law enforcement becomes picking the pockets of the citizenry, bad things happen.

 

 

Scott Drenkard offers a link rich state tax policy roundup: More Research against the Texas Margin Tax, New Kansas Pass-Through Carve Out Data, and Capital Gains Taxes in Washington (Tax Policy Blog). It includes this:

Barbara Shelly at the Kansas City Star has a review of the Kansas income tax exclusion for pass through entities that blew a hole in the budget. Kansas expected 191,000 people to take advantage of the exclusion, but 333,000 people ended up taking it, for a loss of $207 million in revenues. I testified today to the Ohio House Ways & Means Committee on a similar provision being considered by Gov. Kasich.

Imagine that.

IMG_1285

 

Kay Bell, Alabama’s GOP governor calls for – gasp! – new, higher taxes

Peter Reilly, Government Focusing On Codefendant Hansen As Kent Hovind Trial Commences. More coverage of the young-earth creationist tax case.

Robert Wood, Despite FATCA, U.S. Companies Stash $2.1 Trillion Abroad—Untaxed

TaxGrrrl, Taxes From A To Z (2015): B Is For Bona Fide Residence Test

 

William McBride, Rubio-Lee Plan Cuts Taxes on Business Investment to Grow the Economy by 15 Percent (Tax Policy Blog):

  1. It cuts the corporate and non-corporate (or pass-through) business tax rate to 25 percent.
  2. It eliminates the double-tax on equity financed corporate investment, by zeroing out capital gains and dividends taxes.
  3. It allows businesses to immediately write-off their investments, instead of requiring a multi-year depreciation.

Also:

Second, the growth in the economy would eventually boost tax revenue, relative to current law. We find after all adjustments (again, about 10 years) that federal tax revenue would be about $94 billion higher on an annual basis. This is our dynamic estimate. Our static estimate, i.e. assuming the economy does not change at all, shows a tax cut of $414 billion per year. We believe the dynamic estimate is much closer to reality.

For another (non-dynamic?) view, there’s Howard Gleckman, The Rubio-Lee Tax Reform Plan Raises Important Issues But Would Add Trillions to the Debt. (Tax Vox)

 

IMG_1277

 

Accounting Today, Senate Report Blames Tax Pros for Unfair Tax Code. I think that’s a little like criminals blaming their victims for their crimes. I agree with Tony Nitti: Senate Report Blames Tax Professionals For Inequities In The Tax Code; Is Completely Insane.

 

TaxProf, The IRS Scandal, Day 665.

Joseph Thorndike, Voters Are Confused About the Difference Between Tax Avoidance and Evasion – Because Politicians Blur the Line (Tax Analysts Blog)

 

News from the Profession. PwC Concludes Female Millennials Are Great For Vague, Pointless Research (Adrienne Gonzalez, Going Concern). “It’s the 3% that don’t care about work/life balance I’m worried about…”

 

Share

Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

20150210-1

 

Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382” restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

IMG_1277

 

Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

IMG_1282 

 

Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

Share

Tax Roundup, 2/6/15: Iowa pass-through top rate: 47.2%. And: a forgiving IRS!

Friday, February 6th, 2015 by Joe Kristan

Accounting Today visitorsThe post about the convicted filmmaker is here.

 

Taxing employers at high rates? That’s OK, they’re rich! Pass-through Businesses can Face Marginal Tax Rates over 50 percent in Some States (Kyle Pomerleau, Richard Borean, Tax Policy Blog):

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

Iowa ranks at about the middle, with a 47.2% combined top rate on pass-through income.

20150206-1

When lazy politicians think they can cover their incontinent spending just by sending the bill to the rich guy, they don’t tell you that they’re talking about leaving your employer that much less money to hire and pay you.

 

TIGTAI’m sure they’ll be just as forgiving to the rest of us. Accounting Today reports: IRS Rehired Hundreds of Misbehaving Employees with Conduct Problems:

The Internal Revenue Service rehired hundreds of former employees with prior conduct or performance issues, including employees who failed to file their taxes, falsified official forms and misused IRS property, according to a new report. 

The report, from the Treasury Inspector General for Tax Administration, acknowledged that most rehired employees do not have performance or conduct issues associated with prior IRS employment. However, TIGTA said it identified hundreds of former employees with prior substantiated conduct or performance issues ranging from tax issues, unauthorized access to taxpayer information, leave abuse, falsification of official forms, unacceptable performance, misuse of IRS property, and off-duty misconduct.

I like this “second chance” policy. I hope they roll it out to the rest of us.  Robert Wood has more: IRS Rehires Hundreds Of Problem Former Employees.

 

Conformity update: The Iowa House of Representaties went home for the weekend without approving SF 126. The Iowa Senate approved the bill this week. SF 126 continues through 2014 Iowa’s practice of conforming to the extender provisions other than bonus depreciation. This will mean Iowans will be able to claim the $500,000 maximum Section 179 deduction on their state returns. I expect the House to pass it next week.

 

1099-CTax Pros, the IRS isn’t your collection agentThat seems to be the implication of this item sent as an email by the IRS Office of Professional Responsibility to practioners yesterday. It addressed the idea of sending a 1099-C, reporting cancellation of debt income, to deabeats who fail to pay a tax return prep fee:

It is difficult to conceive of a situation in which a tax professional, principally engaged in providing tax services will be an “applicable entity” justifying the use of Form 1099-C to attribute income to an arguably scofflaw client for the nonpayment.

So it’s back to old standbys like cyberstalking and prank phone calls, then.*

*I kid! I kid!

 

TaxGrrrl, Minnesota Stops Accepting Returns Filed With TurboTax, Cites Fraud Concerns. It may be that Turbotax is just too popular with the wrong kind of customer. “Banned in Minnesota” can’t be good for Turbotax sales.

 

IMG_1232William Perez, Tax Refunds by Direct Deposit: How to Do It and Problems to Prevent. Some sage advice: “Triple Check Your Bank Account Information Before Filing Your Tax Return”

Kay Bell, Don’t forget local levies when adding up sales tax deduction

Paul Neiffer, Excessive Claims for Fuel Tax Credits Makes the IRS “Dirty Dozen List”. You mean you didn’t use 1000 gallons in your lawn tractor this summer?

 

Clint Stretch, Defining Tax Reform (Tax Anlaysts Blog):

To date, nearly everyone describing tax reform, from the U.S. Chamber of Commerce to the White House, has called for “a simpler tax code.” Not so the Senate Democrats. When they use the words “tax reform,” those words do not mean simplification but do mean many things conservatives would leave out of their own definition, such as progressive taxation.

It is tempting to think that whoever drafted the letter merely forgot simplification, or assumed it to be understood. But the Democrats’ proposal to have tax incentives “take into account the varying cost of living differences among States and regions” makes it clear: Simplification is not one of their core values.

Oddly, Mr. Stretch doesn’t seem to be a fan of simplification. He spent many years as a lobbyist for a national accounting firm I once worked for, so I suppose that’s unsuprising.

 

TaxProf, The IRS Scandal, Day 638

Howard Gleckman asks, How Will Jeb Bush Turn His Vision of Government into Tax Policy? Maybe by writing letters to his Congressman. It won’t be by becoming President, I’m pretty sure.

 

Peter Reilly has what seems to me an unnatural interest in the tax problems of “young earth creationist” Kent Hovind. In a long piece Peter explains his interest. It’s long, but this is worth noting:

Whenever I think about disputes that are really passionate, there is one thing that I never forget.  If something really awful were to happen in my community there would be an outpouring of support from people across the country.  Many of them would have views that I consider preposterous and dangerous.  Regardless, we are still in it together.

I’m still puzzled at the interest in this particular sad case, but Peter comes across as thoughtful and humane all the way through.

IMG_1233

Career Corner (?). Ex-Crazy Eddie CFO Now Judging Fellow Criminals on Their Criminal Talents or Lack Thereof (Adrienne Gonzalez, Going Concern), quoting Sam Antar on conviction of New York representative Michael Grimm:

My former bosses running Crazy Eddie would never have let an amateur like Grimm participate in our tax-evasion schemes! If you are to engage in any scheme to skim money and evade taxes, there is one golden rule: Never leave an audit trail.

Michael Grimm left behind a body of evidence in the most convenient places for the federal investigators to help bury him.

We discussed that very issue in our discussion of the Arrow Trucking tax plea yesterday. I hate to think I’m starting to think like Mr. Antar.

Share

Tax Roundup, 2/2/15: Film trial sequel ends badly for a main character. And: Iowa conformity bills advance.

Monday, February 2nd, 2015 by Joe Kristan
Dennis Brouse

Dennis Brouse

They got him for the trailer. The filmmaker who got more transferable tax credits under the Iowa film tax credit program than anyone else was convicted Friday of first degree fraud with respect to the program. From the Des Moines Register:

Dennis Brouse, 64, could face up to 10 years in prison at a sentencing hearing scheduled for March 23. Brouse owned Changing Horses Productions, a company that received $9 million in tax credits from the scandal-ridden Iowa Film Office. Brouse starred in the company’s main series, “Saddle Up With Dennis Brouse.”

Prosecutors claim Brouse bought a 38-foot camper trailer from an elderly couple, Wayne and Shirley Weese, for $10,500 in cash. But prosecutors charged that Brouse claimed the trailer cost twice that much in a statement for tax credits that he turned in to the state.

The State Auditor’s Report on the program reported that Changing Horses claimed 50% tax credits for many other doubtful items. For example, they claimed a $1 million value for a “sponsorship” awarded to a feed company that had refused to sign a document with that value on the grounds that it was “grossly overvalued.” This enabled the company to get tax credits that likely were more than 100% of the money spent in Iowa by the filmmaker.

Mr. Brouse had a prior conviction on charges related to the film program overturned, and his attorney says he will appeal this conviction.

While Iowa’s film credit program was spectacularly mismanaged, it was only one extreme example of the unwisdom of the state legislature attempting to manage Iowa’s economy via the tax law.

 

Via Wikipedia

Via Wikipedia

Iowa conformity bills advance The bill to update Iowa’s income tax to reflect the December federal “extenders” bill cleared both the House and Senate taxwriting committees. I think than means the bills won’t be delayed, and we can get on with Iowa’s tax season. Both bills conform for pretty much everything in the federal tax law, including the increased Section 179 deduction, but do not conform to federal bonus depreciation.

 

Dahls checks outThe central Iowa grocery chain was broken up Friday in a bankruptcy liquidation. Seven stores will re-open under another name.

Perhaps the greatest victims of the failure are longtime Dahls employees who owned the company through their Employee Stock Ownership Plan. They get nothing, or close to it.

Iowa passed a special break for sales of companies to ESOPs in 2012. Proponents pointed to the employee ownership of Dahl’s major competitor, Hy-Vee, in support of the bill.

The Dahls example shows a dark side of employee ownership — the way it concentrates a large portion of employee retirement assets in a single vulnerable asset.

 

Jason Dinesen, Do I Have to Have Form 1095-A Before I Can File? “Yes, you need the Form 1095-A if you got premiums through an insurance exchange.”

William Perez, Need More Time? How to File for a Tax Extension with the IRS

20150105-1Jim Maule, When Is A Building Placed in Service? “Because the taxpayer presented undisputed evidence that certificates of occupancy had been issued, that the buildings were substantially complete, and that the buildings were fully functionally to house the shelving and merchandise, they had been placed in service within the required time period.”

Jana Luttenegger Weiler, Sharing Financial Responsibility at Tax Time (Davis Brown Tax Law Blog). “Whatever your situation, it is important to keep good records so that someone else can pick up where you left off, if needed.

Kay Bell, Is Belichick’s coaching style like tax avoidance or tax evasion?

Paul Neiffer, $500,000 Permanent Section 179 Could be Coming Soon! “The House Ways and Means Committee is expected to vote on seven expired tax provisions on February 4, including making permanent Section 179 expensing at the $500,000 level.” Given the politics involved, I’m not holding my breath.

Robert Wood: Receipts Rule IRS Keeps Quiet: They’re Optional. Well, sometimes they aren’t optional, and they always help.

TaxGrrrl, Salaries, Ads & Security: What’s The Real Cost Of Super Bowl XLIX?

Russ Fox, This Never Works…:

Patrick White is the owner of R & L Construction in Yonkers, New York. He liked his home and he liked to gamble. There’s nothing wrong with that. He took payroll taxes withheld from his business and used that money for his homes and for gambling. There’s a lot wrong with that, especially when it totals $3,758,000. Mr. White pleaded guilty to one count of failing to pay over payroll taxes to the government. He’ll be sentenced in May.

Russ throws in some good advice about using EFTPS.

Robert D. Flach regales us with THE TWELVE DAYS OF TAX SEASON

Stephen Olsen, “Summary Opinions for 1/6/15-1/23/15” (Procedurally Taxing). News from the tax procedure world.

 

IMG_0543Christopher Bergin, Robin Hood and Other Fables (Tax Analysts Blog):

When it comes to taxation, President Obama has his own particular points of view. He may use terms such as “middle-class economy” or say things like “the rich can pay a little more,” but at the core he views the tax system as either a mechanism that helps the rich hang on to their ill-gotten gains or as a “honey pot” to fund his political ideas and base. It’s all politics. And that’s why we will see no progress – regarding the gas tax, taxation of businesses, or any other kind of real tax reform – until there has been a change in administrations.

In fact, the major lesson we’ve learned from this latest episode is that when it comes to of tax reform, the Obama administration has the “tinnyist” of tin ears. Whether the merry men and women at the White House believe that section 529 tuition savings plans benefit the ”rich,” they should know that when American voters actually recognize and identify with a tax break by its code section number (in this case, 529), be careful — very, very careful. You usually can’t sneak a fast one into the tax code when taxpayers know the section by number.

Hard to argue with this.

 

Arnold Kling, 529: Popular != Good Policy. “529 plans subsidize affluent people for doing what they would have done anyway–send their kids to exclusive, high-priced colleges.” Maybe, but it still is better than rewarding borrowing by subsidizing it.

Howard Gleckman, Obama’s Failure to Kill 529 Plans May Say Less About Tax Reform Than You Think (TaxVox). “But the survival of these education subsidies does not mean that a rate-cuts-for-base-broadening swap will never be possible.”

 

IMG_1249

 

TaxProf, The IRS Scandal, Day 634

Matt Gardner, Facebook’s Record-Setting Stock-Option Tax Break (Tax Justice Blog). 595 words on the evils of the deduction for stock option compensation without one word noting that every dollar of “phantom” deduction for the issuing corporation is also a dollar of “phantom” income to the employees — and usually at higher rates than the corporation pays.

Scott Drenkard, Gov. Kasich’s Plan May Be A Tax Cut, But It’s Still Poor Policy. (Tax Policy Blog) “Unfortunately, the plan which is set to be announced next Monday by Governor Kasich isn’t going to address any of these problems and will probably make them worse.”

 

Career Corner. You Should Take a Nap This Afternoon Because Science (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.

Related:

Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.

 

Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.

 IMG_1178

Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”

 

Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 1/23/2015: Egg donor compensation taxable payment for services. Meanwhile, kidney donor compensation is a felony.

Friday, January 23rd, 2015 by Joe Kristan
"White-&-Brown-Eggs" by Evan-Amos - Own work. Licensed under Public Domain via Wikimedia Commons

“White-&-Brown-Eggs” by Evan-Amos – Own work. Licensed under Public Domain via Wikimedia Commons

The big news in the tax world today is a Tax Court case ruling that payments to an egg donor were compensation for services. The case turned on the language of the contract of between the egg donor and the agency that procured the eggs. Tax Court Judge Holmes ruled that the payments were not excludible as payments for physical damages because there was no tort claim involved.

There are plenty of places you can read more details on this case, including Russ Fox and Tony Nitti. The TaxProf has a roundup.

So there is an organized and legal market for donor eggs, which, if all goes well, turn into an entire new human. That’s a good thing. But if an agency paid you for one of your kidneys to save the life of an already-born child on the kidney donor list, they would face a $50,000 fine and five years in prison under the Gore-Hatch National Organ Transplant Act of 1984.

The National Kidney Foundation reports that 12 people die daily waiting for a donor kidney, and that 4,453 died waiting for a kidney transplant in 2013.  It’s a felony to save any of those lives by buying a kidney from a healthy, willing and fully-informed seller. Meanwhile, nobody dies waiting for a donated egg.

Cite: Perez, 144 T.C. No. 4

Related: The Case for Paying Organ Donors (Sally Satel)

 

Kyle Pomerleau, Richard Borean, More than Half of all Private Sector Workers are Employed by Pass-through Businesses:

53.7% of Iowans work for pass-through businesses taxed on 1040s.

53.7% of Iowans work for pass-through businesses taxed on 1040s.

“Pass-through” income is income earned by S corporations and partnerships, including LLCs. This income is taxed on 1040s. Those who favor ever-increasing individual taxation of “the rich” by definition favor increasing the tax on employment.

 

buzz20140923Robert D. Flach has your Friday Buzz, including thoughts on avoiding scammers claiming to be from IRS and on Wal-Mart’s cash tax refund program: “My advice – avoid this program.”

Kay Bell, IRS gets $1.3 million for Darryl Strawberry’s Mets annuity

Paul Neiffer, IRS Scammers Net $14 Million from 3,000 Victims. If the e-mail says it’s from the IRS, it’s not. If you aren’t expecting a call from the IRS, the caller isn’t from the IRS.

Jason Dinesen, Ridiculous IRS Situations I’ve Recently Dealt With. A continuing series.

Leslie Book, Tax Court Addresses Verification Requirement in Trust Fund CDP Case (Procedurally Taxing)

Robert Wood, Washington Nationals $210M Pitching Contract For Max Scherzer Is About Taxes. “The Home Rule Act prohibits the District from imposing a commuter tax on non-residents.”

Peter ReillyExclusive – Kent Hovind Claims Congressmen Are Looking Into His Case. All you could possibly want to know about the case of the guy who thinks the Flintstones was actually a documentary series.

20150123-2

Robert Goulder, Reading the Tea Leaves: China’s Jurisdictional Tax Claims (Tax Analysts Blog). Contrary to some reports, even Communist China doesn’t plan to tax worldwide income of non-resident Chinese. The U.S. stands alone in doing that.

Howard Gleckman, A Look at the Territorial Tax Systems in Four Countries Finds No Magic Bullets (TaxVox). No magic beans, either, I’ll bet.

TaxProf, The IRS Scandal, Day 624

 

Career Corner. Here Are Just a Few Questions You’ll Be Asked in a Big 4 Interview (Adrienne Gonzalez, Going Concern).

 

Share

Tax Roundup, 1/21/15: The Peculiar Case of the Trucking Tax Turtle. And more SOTU reaction, oh boy.

Wednesday, January 21st, 2015 by Joe Kristan

tbtTurtles carry their home on their back. So do some taxpayers. The Tax Court yesterday ruled that a truck driver who claimed Minnesota residency was a tax turtle, carrying his tax home on his back.

It matters because you can only deduct meal and lodging expenses for travel “away from home.” When you’re a tax turtle, you’re never away from home — you live on the road.

Judge Holmes takes up the story.

Shalom Jacobs has been a truck driver since 2002. His trips were mainly long haul “over the road” — meaning he spent a significant number of weeks and months on the road and was paid by the mile…

When he wasn’t on the road, Jacobs considered his home to be in Cottage Grove, Minnesota, where he stayed in the guest room of his longtime friend and fellow expat, Shimon Casper. Casper and Jacobs were both born in Israel and reared on kibbutzim. According to Jacobs, the Caspers’ Cottage Grove home was an American-style kibbutz, where Casper, his wife and children, and Jacobs recreated the communal life of their homeland with everyone contributing everything they had and taking only what each needed.

I don’t think the kibbutz  life is the life for me, but if it were, I think I would stay in Israel, where the weather is better. But that doesn’t address our deduction issue. Judge Holmes, again (my emphasis, citations omitted):

Flickr image by USFWS Mountain Prairie under Creative Commons license

Flickr image by USFWS Mountain Prairie under Creative Commons license

The Code is a little peculiar in defining a person’s “home.” Normal people think of their home as the place where they spend their personal and family lives, but a “home” in tax law is usually where a taxpayer has his principal place of employment. Tax law defines a home as the permanent residence at which a taxpayer incurs substantial continuing living expenses only if he doesn’t have a principal place of employment But what if a taxpayer is constantly on the move? Cases decided over many decades give us the answer — a taxpayer who’s constantly in motion is a “tax turtle” — that is, someone with no fixed residence who carries his “home” with him.  Such a taxpayer is not entitled to business deductions for traveling expenses under section 162.  The burden of proof is on the taxpayer if he disagrees with the Commissioner, and that is a high hurdle for a tax turtle to clear.

Turtles aren’t typically seen in hurdle events, and this one failed to clear that high hurdle. Judge Holmes said the taxpayer failed to show that his friend’s home was, in fact, communal, that he actually paid household expenses, or that he used that address for voter registration. This is a good reminder of the importance of documentation in tax controversy; the judge is more likely to take your word if it agrees with a cancelled check.

The Moral: To deduct meals and lodging away from home, you need to leave your home behind. And Tax Turtles will clear a hurdle only if they have a ladder of good records to help them get over it.

Cite:  Jacobs, T.C. Summ. Op. 2015-3

 

buzz20140905Actually, that’s yesterday now. Reminder: Worst Tax Season Ever Starts Today (Adrienne Gonzalez, Going Concern)

Kay Bell, Tax filing season 2015 is here

William Perez, The Penalty for Not Having Health Insurance. “Here are details on how the individual shared responsibility payment is calculated.”

Jason Dinesen, Does Nebraska Recognize Same-Sex Marriages for Taxes?

Robert Wood, Why IRS Form 1099 Is So Dangerous To Your Tax Bill. “Failing to report one is asking for an audit.”

Tuesday Buzz is just as good on Wednesday. A belated Buzz from Robert D. Flach, including coverage of the recent Taxpayer Advocate’s report.

 

Stephen Olsen offers Summary Opinions for 12/19/14 to 1/05/15 at Procedurally Taxing. This rounds up tax procedure happenings.

Paul Neiffer, 2 Senators Work to Eliminate Capital Gains Tax on Chapter 12 Bankruptcies.

The US Supreme Court ruled in 2012 that the capital gains generated by these sales are subject to income tax.  The two senators do not believe this was the original intent of Congress when the wrote the original law during the 1980s farm debt crisis, so this new bill is designed to eliminate the imposition of capital gains or other taxes on the sale of property due to the Chapter 12 bankruptcy.

The two senators are Grassley and Franken.

20150121-1

 

TaxGrrrl liveblogged the State of the Union address. I live-slept it

Howard Gleckman, The Tax Reform Gap Between Obama and the GOP is Widening (TaxVox):

But it isn’t hard to see where the two parties are headed. Obama does not want an anodyne debate over tax reform. Rather, he’s using reform rhetoric to support a “middle-class economics”agenda aimed at using the tax code to redistribute some income from the rich to working-class households. For their part, Republicans want to use reform talk as a framework for a business-oriented growth agenda leavened by some targeted breaks for working families. 

That should be “some more income.

Scott Hodge, Will Obama’s New Plan to Help the Middle-Class Succeed When $1.5 Trillion in Redistribution Has Not?. Spoiler: no.

Tony Nitti, Why Republicans Should Embrace A 28% Tax On Capital Gains. I’m not remotely convinced; the correct rate is zero, as that income is already after tax money. But if you can get the ordinary rate down to 28% too, I’ll listen.

 

TaxProf, The IRS Scandal, Day 622

Peter Reilly, Will Kent Hovind Become This Year’s Cliven Bundy? If I knew who Cliven Bundy is, I might have an opinon on that.

 

Share

Tax Roundup, 1/16/15: Insurance reimbursements may trigger $100/day penalty, but at least they’re not on W-2.

Friday, January 16th, 2015 by Joe Kristan

20121120-2Letter to Congressman says insurance reimbursements that trigger $100/day Obamacare penalty still excludible from W-2. 

Small employers have long used “Section 105” plans to reimburse employee purchases of individual health insurance, in lieu of setting up an employer group health plan. Such reimbursements were excludible from employee W-2 taxable income.

Under the Administration’s interpretation of the Affordable Care Act, such plans trigger a $100 per-day, per-employee penalty starting in 2014. Many employers are just learning that they had disqualified plans last year and are scrambling to comply; fixing a plan within 30 days of compliance may enable such taxpayers to avoid the $36,500 hit for each employee on “reasonable cause” grounds.

One question that has hung over this is whether the employer has to put the reimbursements that trigger the penalties on employee W-2s as income. A letter to an Illinois Congressman reprinted today in Tax Analysts says they don’t. From the letter  (my emphasis and links):

Prior to the ACA, an employer could reimburse employees for the medical expenses of the employee and the employee’s family and exclude those amounts from the employee’s income and wages under section 105(b) of the Code. The ACA has not changed the tax treatment of the reimbursement for employee medical expenses. However, these arrangements, under the ACA, are considered to be group health plans and must satisfy the market reform rules for them.

The guidance that we provided in Notice 2013-54 did not change the tax results described in Revenue Ruling 61-146. This ruling says that under certain conditions if an employer reimburses an employee’s substantiated premiums for individual health insurance policies, the payments are excluded from the employee’s gross income under section 106 of the Code. This exclusion also applies if the employer pays the premiums directly to the insurance company.

W2Note that the exclusion “applies.” That’s present tense, meaning it’s still alive.

Some employers responded to Notice 2013-54 by treating reimbursements as taxable, but subsequent guidance issued in November last year said that didn’t work to make the $100/day penalty go away.

While they scramble to terminate their now horrifyingly expensive Sec. 105 reimbursement arrangements and figure out how to get out of the penalties, employers still have to issue W-2s this month. Now they know they can at least leave the reimbursements off employee W-2s. Given how widespread the problems seems to be, and how terrible the penalties, the IRS ought to just issue a blanket penalty waiver on this for everyone for 2014 if the non-compliance is disclosed.

Why wasn’t this printed as guidance? This letter went to Congressman Lipinski in September. A similar letter went to Kansas Congressman Goodlatte about the same time. Obviously the IRS knew from the Congressional inquiries that guidance was needed, but until Tax Analysts published this guidance, the IRS had never explained how to handle the W-2s. They still haven’t published guidance telling employers how to  “correct” the erroneous plans, as required on the penalty waiver instructions to the penalty reporting form, Form 8929.

 

IMG_0598Yeah, like he’d admit that. From Tax Analysts ($link):

The IRS is not pursuing a “Washington monument” strategy of discontinuing taxpayer services to protest recent congressional budget cuts, Commissioner John Koskinen told reporters at a press conference on January 15.

The Washington monument strategy refers to claims made by some media outlets during the October 2013 government shutdown that various federal agencies seemed to be closing highly visible public services as a protest against the shutdown.

Koskinen denied that any such calculations entered into the IRS’s decision-making regarding service and enforcement constraints that he said were induced by Congress’s $346 million cut (to $10.9 billion) to the IRS budget for fiscal 2015.

I’ll believe that he’s serious when he closes the “voluntary” preparer registration program and stops paying IRS employees to work full-time for the Treasury Employees Union.

James Taranto at the Wall Street Journal doesn’t deny that the IRS needs more money, but doesn’t have much sympathy anyway (WSJ subscription may be required to access original):

It’s all rather comical—but also galling. The IRS’s abuse of power in its harassment of conservative nonprofits aimed in substantial part at suppressing opposition to ObamaCare. That is, the IRS traduced the free-speech rights of citizens in order to preserve a law expanding IRS power and creating more work for IRS agents.

Now the commissioner complains that the IRS has too much work and not enough resources and threatens to make life even more difficult for taxpayers. It’s like the guy who killed his parents and then pleaded for mercy because he was an orphan.

And an unapologetic one.

IMG_0543

Robert D. Flach has your Friday Buzz, with a warning for users of off-the-shelf software.

William Perez, The Penalty for Not Having Health Insurance. Don’t think it’s just $95.

Robert Wood. 3 Reasons Filing Taxes Sucks? Obamacare, Obamacare & Obamacare. I can think of a lot of others, myself, but these are definitely three of them.

Alan Cole, The Employer Mandate Reduces Hours Worked (Tax Policy Blog). Not by tax preparers, it doesn’t.

 

Kay Bell, IRS Free File opens Friday, Jan. 16, for eligible taxpayers, four days ahead of Jan. 20 full tax season start

Russ Fox, If You Do Government Work, It Pays to Treat the Government Well

TaxProf, The IRS Scandal, Day 617

Howard Gleckman, What To Make of the Senate Finance Committee’s Tax Reform Workgroups 

 

Keith Fogg, Eskimos and the IRS: A Winter’s Tale (Procedurally Taxing) “This post is not about tax procedure issues in the native American population in Alaska but a recent Treasury Inspector General for Tax Administration (TIGTA) report concerning frozen credits at the IRS made me think about the number of ways Eskimos have to say snow.”

 

News from the Profession. Ron Baker: You Can Put Lipstick on Billing by the Hour But Don’t Call It Value Pricing (Adrienne Gonzales, Going Concern).

 

Share

Tax Roundup, 1/7/15: Resolve to monitor your payroll taxes this year. And: searching for gray.

Wednesday, January 7th, 2015 by Joe Kristan

EFTPSIf you’re an employer, here’s a new year’s resolution: “I will verify that my tax payments have been made on time every payroll by logging into EFTPS.”

The customers of Riverside, California payroll service Paycare are wishing they had made and kept that resolution. From The Press Enterprise:

The co-owner of a Riverside-based payroll service, Paycare, Inc., pleaded guilty Monday to failure to pay federal payroll taxes and embezzlement from a federally-funded program, the Internal Revenue Service reported.

Scott Willsea, 56, entered the guilty plea in federal court before U.S. District Judge Manuel L. Real, according to a press release from IRS spokeswoman Linda Lowery.

Willsea allegedly prepared quarterly payroll taxes for 15 different client companies in the 2009 and 2010 tax years, including All Mission Indian Housing Authority and Of One Mind, LLC, and failed to account for or pay the full amount of tax owed to the IRS by each company.

The IRS and the states want those payroll taxes; after all, they issue refunds to the employees based on the reported withholdings, paid or not. If your payroll provider steals your payroll taxes, you have to pay them again. That can ruin a struggling business,and cripple a strong one.

That’s why employers who use a payroll service should still log onto their accounts with the Electronic Federal Tax Payroll System to verify that the payments have been made. If you do payroll taxes in-house, it’s good financial hygiene to do the same thing.

It’s also a reason for extra due diligence if you consider a “professional employer organization” to meet your payroll needs. These outfits pay your payroll taxes under their own account, and you can’t use EFTPS to monitor your payments. That can work out badly.

 

FranceflagAndrew Mitchel, A Reminder for Green Card Holders Living Outside the U.S.:

U.S. lawful permanent residents (“green card holders”) who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. 

Sad and true.

 

Jason Dinesen, Sorry, But There Really Isn’t a “Gray Area” for Most Taxpayers to Push:

NEWSFLASH: for the vast majority of taxpayers, there is no gray area to be pushed.

Your income is whatever your W-2 says it is.

Your deductions are whatever they are. Mortgage, property taxes, charitable, car registration. I suppose there could be a gray area if someone is claiming employee business expenses. But even then, those expenses are not likely to end up being deductible anyway.

No matter what the H & R Block commercials say, there is no magic wand that a tax preparer can wave to make a bigger tax refund appear.

Absolutely true. And if a preparer boasts otherwise, it’s likely that there is a perfectly bad explanation.

 

20141231-1Tim Todd, Late Tax Return Precludes Bankruptcy Discharge. One more reason to file timely.

Russ Fox, Varagiannis Gets 15 Months for Tax Evasion. In Nevada, pimping is OK, but only if you pay your income taxes.

Robert D. Flach has word of ANOTHER UNTRUE TAX EMAIL making the rounds. You mean we can’t trust spam emails? Next thing you’ll tell me that people post things on Facebook that aren’t precisely true.

 

Joseph Thorndike, Planned Disasters Are Here to Stay – and Probably the Only Hope for Tax Reform (Tax Analysts Blog).

All in all, it seems likely that the new GOP majority will need to gin up some potent crises if they hope to get anything done over the next two years.

I would think we have plenty of crises to go around already.

 

Kay Bell, Tax reform is part of new GOP Congress’ agenda

 

David Brunori is full of wisdom today in Want Bad Tax Policy? Here’s a Blueprint (Tax Analysts Bl0g):

Washington Gov. Jay Inslee recently released his proposed budget. It illustrates a lot of what is wrong with tax policy in the states. The governor wants to raise taxes by $1.4 billion over the next two years. Conservatives may think this is terrible — and it is. But the problem is how Inslee wants to raise the new revenue. He wants to impose a 7 percent capital gains tax on a narrow band of Washington residents. Specifically, he wants to impose the tax on the earnings sales of stocks, bonds, and other assets above $25,000 for individuals and $50,000 for those filing jointly. It would affect “only” an estimated 32,000 people who live in Washington.

Keep in mind that this is a state without an income tax. Certainly not a way to encourage their population of tech millionaires to stick around.

Also:

Inslee is also proposing a new excise tax on e-cigarettes and vapor products at 95 percent of the taxable sales price. Yes, 95 percent of the taxable sales price. If the government cared about the health of the poor, it would be subsidizing e-cigarettes.

States hate the idea of losing their tobacco revenue stream.

20140106-1

Andrew Lundeen, Kansas Would Have Benefited from Dynamic Scoring (Tax Policy Blog):

The tax cuts didn’t pay for themselves. Instead, they left Kansas was left with a hole in the budget. (You can read about what Kansas could have done better here and here.)

This isn’t because individual tax cuts are bad for the economy; they’re just expensive. If the governor had used dynamic scoring, he would have known this.

Iowa has a lot of room to improve its tax system, but they could always screw it up even worse.

 

Howard Gleckman offers Nine Tax Stories to Watch in 2015 (TaxVox), including this:

Tax extenders: They are, after a resurrection of two weeks, once again expired. This is tiresome to even write about, but the best bet is Congress will once again delay action on these 50-plus tax breaks until at least next fall, when the budget wars are likely to come to a head. After that, well, don’t ever bet against another short-term extension.

Yuk.

 

TaxProf, The IRS Scandal, Day 608Peter Reilly is featured.

 

Robert Wood, Taxman Is Funny In UK, Why Not IRS? Must not be in the budget.

Career Corner. Skip the Shout Outs and Other Helpful Farewell Email Advice (Adrienne Gonzalez, Going Concern). “Quitting your job is a part of life in public accounting. Unless you’re one of those sick, carrot-chasing freaks sticking around until partner, that is.”

 

Share

Tax Roundup, 12/31/14: Last minute tax moves: losses, gifts, and… weddings? Timing is everything!

Wednesday, December 31st, 2014 by Joe Kristan

20140608_2So.  2014 is down to its last few hours. What can we do today to make April 15, 2015 a little happier? Well, maybe less bad. It’s asking too much of one day to fix a year’s worth of tax problems, but today might still make a difference. A few things you can do yet today:

– Sell stocks at a loss to offset capital gains. It’s the trade date that counts in determining when a loss is incurred (except on a short sale). That means if you have incurred capital gains in 2014, you can sell loss stocks today and reduce your taxable gains for the year. Most individuals can deduct capital losses on a 1040 to the extent of your gains, plus $3,000. To the extent you fail to offset capital gains with the losses sitting in your portfolio, you are paying taxes voluntarilyJust make sure you make the trade in a taxable account and don’t repurchase the losers for 30 days.

– Consider making your state 4th quarter estimated tax payment today (and your federal payment, if you are an Iowan). Don’t do this rashly, as alternative minimum tax can make this a bad move for some taxpayers. Also, time value considerations can make this a bad move. But in the right circumstances, you can save a lot in April by getting your payment in the mail today.

– Make a charitable gift today, if you are so inclined. Gifts (and other deductions) paid with a credit card today are deductible, even if the credit card isn’t paid off until next year. Checks postmarked today are deductible this year. If you don’t know where to make your gifts, I have some suggestions; if you don’t like those, TaxGrrrl has some others.

– And if you are fanatical about tax planning, and someone else, you can change your marital status today. Your marital status on December 31 is your status for the whole year, as far as the IRS is concerned. But if you are seriously considering this, you definitely need to bring someone else into the discussion.

 

20120511-2A Tax Court Case yesterday shows how important year-end timing can beA Minnesota couple paid $2,150.85 of community college tuition for their daughter’s Spring 2011 semester on December 28, 2010. That normally would have qualified for an American Opportunity Tax Credit of about $2,037 — a dollar-for-dollar reduction fo their 2011 taxes. But they were four days too soon.

Tax Court Judge Marvel explains (my emphasis):

Generally, the American opportunity credit is allowed only when payment is made in the same year that the academic period begins. Sec. 1.25A-5(e)(1), Income Tax Regs. For cash method taxpayers, such as petitioners, qualified education expenses are treated as paid in the year in which the expenses are actually paid.

Because the semester didn’t begin until 2011, the 2010 payment didn’t count. Judge Marvel explains that close isn’t close enough:

We realize that the statutory requirements may seem to work a harsh result in a case such as this where a four-day delay in making the December 28, 2010, payment would have engendered a different result. However, the Court must apply the statute as written and follow the accompanying regulations when consistent therewith.

The Moral? When it comes to tax planning, the difference between December 31 and January 1 is one year, not one day. If timing matters, be sure to get on the right side of the line, and be sure you can document your timing. If you are mailing a big check, go Certified mail, return receipt requested, and save that postmark.

Cite: Ferm, T.C. Summ. Op. 2014-115.

 

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa rated 8th worst small business environment. The Small Business & Entrepreneurship Council has ranked the entrepreneurial environment of the 50 states. Iowa does poorly:

Iowa is the nation’s number one producer of corn. Unfortunately, it’s costly policy climate works against production from free enterprise and entrepreneurship in general. Iowa ranks 43rd in terms of its public policy climate for entrepreneurship and small business among the 50 states, according the 2014 “Small Business Policy Index.” While Iowa’s entrepreneurs, businesses, investors and workers benefit from fairly low crime rate and a low level of government debt, there are many negatives, such as high individual capital gains taxes; very high corporate income and capital gains taxes; high unemployment taxes; and a high level of government spending.

While I think overall Iowa is better than 43rd, our awful tax environment hurts. Our system of high rates with dozens of carve-out credits for the well-advised and well-connected works great for insiders, but not so well for the rest of us. Maybe 2015 will be the year Iowa considers serious tax reform, like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Kay Bell, Donating and deducting a car

Jack Townsend, Reasonable Doubt and Jury Nullification

Jason Dinesen lists his Top 5 Blog Posts of 2014. My favorite is his #5, Having a Side Business in Multi-Level Marketing Doesn’t Make Personal Expenses Deductible

Tony Nitti warns us of Five Traps To Avoid When Deducting Mortgage Interest

Robert D Flach shares: MY NEW YEAR’S EVE TRADITIONS: “I type W-2s and 1099s.” Don’t get too wild, Robert!

Me, IRS issues Applicable Federal Rates (AFR) for January 2015

20141231-1

G. Brint Ryan, Who’s Afraid of the IRS? When Business Fights Back Against Government Overreach and Wins (Procedurally Taxing)

Annette Nellen,State taxes and bitcoin

Robert Wood, No Mickey Mouse Taxes On Jim Harbaugh’s $48M Michigan Deal And 49ers Exit. “Jim Harbaugh’s 49ers contract may be history, but his $48M Michigan deal has tax components that you might not expect.”

 

Howard Gleckman, Taxes, Charitable Gifts, the ACA, and Ineffective Deadlines (TaxVox).  “Scrambling to make a last-minute charitable donation to beat the New Year’s Eve deadline for a 2014 tax deduction? Take a deep breath and ask yourself, ‘Why am I going through this craziness now?'”

TaxProf, The IRS Scandal, Day 601

 

Post-sequester commuting.

Not excited about all the wild New Years Eve hoopla? Maybe you prefer a more low-key celebration, like the one Robert D. Flach relates in MY NEW YEAR’S EVE TRADITIONS:

Every year during the day on New Year’s Eve I do the same thing I do during the day on Christmas Eve – I type W-2s and 1099s.

Live it up, Robert!

 

And Happy New Year to all of you Tax Update readers! This is it for 2014 here.  See you next week, and next year.

 

Share

Tax Roundup, 12/24/14: Giving season edition! How to give, avoiding traps, and suggestions for the perplexed.

Wednesday, December 24th, 2014 by Joe Kristan

The extender bill was signed while I was away, as you have probably figured out already. While the extenders remain awful policy, at least we go into the year-end knowing what the tax law is. We should be grateful for our presents; even a lump of coal can help keep us warm.

Related: Kristine Tidgren, Tax Increase Prevention Act of 2014 Revives Tax Breaks, But Only for 2014Paul Neiffer, It’s Official.

IMG_2493

 

Tax tips for the giving seasonAs the business week winds down early on Christmas Eve, many taxpayers find themselves feeling generous to charity. Here are some things to keep in mind as you go about your charitable gifting

Gifts of appreciated long-term capital gain property are often the most tax-efficient. Such gifts, done properly, give you a full fair market value deduction without ever taxing you on the appreciation. If you are not gifting publicly-traded securities, however, appraisal requirements for gifts over $5,000, and just the paperwork that may be involved in transferring ownership, may make it impossible to complete such a gift this year.

Even gifts of traded securities can be hard to pull off this late in the year. You have to get the securities into the donee’s brokerage account by the close of business December 31. I’ve seen attempts to get this done fail more than once. It is especially troublesome in dealing with small or unsophisticated charities, who might not even have a brokerage account available to use.

Congress renewed the IRA break in the extender bill, but it needs to happen by December 31, and there are some restrictions. The IRS explains:

  • If you are an IRA owner age 70½ or older you have until Dec. 31 to make a qualified charitable distribution, or QCD.
  • A QCD is direct transfer of part or all of your IRA distributions to an eligible charity. You may transfer up to $100,000 per year.
  • You may exclude the distributed amounts from your income. You can claim this benefit regardless of whether you itemize your deductions. If you do exclude the QCD from your income, you can’t also deduct it as a charitable contribution on Schedule A if you do itemize.
  • You can count your QCDs in determining whether you meet the IRA’s required minimum distribution.
  • The provision had expired at the end of 2013. The new law is retroactive for 2014. This means any eligible QCD in 2014 will qualify.
  • Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

If you want to give cash, the “mailbox rule” applies. The postmark date controls whether a mailed check is deductible this year.  If you don’t care to take chances, a gift by credit card is deductible in the year the credit card is charged, even if the credit card bill isn’t paid until next year.

If you give any charity a gift over of $250 or more, you need to insist on a written receipt declaring that you received no value for your contribution — or disclosing the amount of any value. No receipt, no deduction.

Of course, your gift has to go to an actual charity to be deductible. The IRS list of qualified Section 501(c)(3) organizations can help you make sure your intended donee qualifies.

If you feel generous, but don’t know what to do, I humbly submit for your consideration a few worthy organizations I donate to:

salvation armySalvation ArmyThey take care of many of the most needy and down-and-out with very little leakage to internal bureaucracy.

Institute for JusticeThis organization shut down the IRS preparer regulation power grab, winning a battle all good-thinking people considered hopeless and frivolous. They made the IRS give back the money they stole from the owner of a little restaurant in Arnolds Park, Iowa while forcing a change in their abusive use of their cash account seizure powers. They also support the little guy when the government abuses its eminent domain powers on behalf of the powerful and well-connected.

Tax FoundationThese guys do wonderful work in helping to form better tax policy. While it is difficult to get politicians to make tax policy for everyone, rather than just the well-lobbied, their 2014 successes in North Carolina, Indiana, Michigan and New York show that the good guys win sometimes.

ISU Center for Agricultural Law and TaxationRoger, Kristine, Kristy and Tiffany do great work helping keep the taxpayers and tax preparers of Iowa in compliance and out of trouble. If you use them, like I do, you should help them out.

 

William PerezQualified Charitable Distributions

Peter Reilly, The Wheels On The Easement Void The Deduction

 

 

20131209-1TaxProf, The IRS Scandal, Day 594. This edition covers the new report by the House Oversight Committee on the scandal.

There is a lot to the report, which I hope to spend more time on. The item that jumps out at me is that 2011 IRS assessments of gift taxes on contributions to 501(c)(4) organizations were no accident, but were instead part of the IRS effort to fight conservative 501(c)(4) organizations.  The Wall Street Journal reports:

The then-IRS commissioner, Doug Shulman, denied at the time that the IRS was making a broad effort to assess gift tax on donors to such tax-exempt groups, which are formed under section 501(c)(4) of the tax code. Mr. Shulman said in a May 2011 letter to lawmakers that the audits were initiated by a single IRS employee and were “not part of any broader effort to look at donations” to these organizations.

The new report from GOP lawmakers says that “although the IRS denied any broader attempt to tax gifts to 501(c)(4) groups, “internal documents suggest otherwise.” It notes that in May 2011, an attorney in the IRS chief counsel’s office wrote to his superiors that the “plan is to elevate the issue of asserting gift tax on donors to 501(c)(4) organizations,” and seek a decision from the commissioner and the IRS chief counsel.

It’s clear that Shulman at best didn’t care enough to learn the truth before testifying. At worst he gave false information on purpose. Either answer burnishes his crown as Worst Commissioner Ever.

Related: Can political contributions really be taxable gifts?

 

Grimm tidings. A Congressman pleads guilty to tax fraud involving a restaurant he owned. From the New York Times:

Michael G. Grimm, the Republican representing New York’s 11th Congressional District, who carried the burden of a 20-count federal indictment to a landslide re-election in November, pleaded guilty on Tuesday to a single felony charge of tax fraud.

Representative Grimm said he had no intention of stepping down. “Absolutely not,” he said.

My limited experience with felons is that they are cursed with grossly excessive self-esteem. That certainly seems to be the case here.

 

20141201-1Robert D. Flach brings the Holiday Buzz! Good tax stuff from around the tax blogs just in time for Christmas.

Kay Bell, Christmas tree ‘tax’ delayed again. Effort to end it continues

Jason Dinesen, From the Archives: Tax Court: Vacant House Can Still Qualify as Rental

Robert Goulder, The Vatican Bank, Christmas Cheer, and FATCA (Tax Analysts Blog). “The pontiff is cool with tax transparency.”

Tony Nitti, IRS To Sell The Right To Collect Darryl Strawberry’s Remaining New York Mets Salary.

Russ Fox, Nominations Due for 2014 Tax Offender of the Year

 

Amy Frantz, How the Grinch Taxed Your Christmas Candy in Iowa (Caffeinated Thoughts)

Howard Gleckman, The Tax Vox Lump of Coal Awards: The 10 Worst Tax Ideas of 2014 (TaxVox). My list would differ, but there are so many worthy ideas from which to choose.

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 12/10/14: Extender bill lives, permanent charitable extender bill doesn’t. And: don’t just buy it; install it!

Wednesday, December 10th, 2014 by Joe Kristan

lizard20140826Whither the extender bill? HR 5771, the bill to extend retroactively through the end of this month the 55 or so tax breaks that expired at the end of 2013, has been “placed on the Senate Legislative Calendar.” That means it appears to be proceeding to a vote, though I find nothing on when that will happen. Tax Analysts reports ($link) that outgoing Senate Majority Leader Reid says he will take up the extender bill ” after finishing work on a defense authorization bill and a government funding measure.”

Meanwhile, the President has threatened to veto a separate attempt to permanently extend three charitable breaks in the extender bill, including the break for IRA contributions. While that’s bad for those breaks, it implies that the White House will not oppose HR 5771’s one-year extension.

 

20130422-2Because it looks as though the “extender” bill will clear the Senate, taxpayers looking to add fixed assets have extra incentive to get it done this year. The bill extends through 2014 — and only through 2014 — the $500,000 limit on Section 179 deductions and 50% bonus depreciation. These breaks allow taxpayers to deduct over half (bonus depreciation) or all (Section 179) of the cost of fixed assets that are otherwise capitalized, with their deductions spread over 3 to 20 years.

Taxpayers should remember that it’s not enough to order or pay for a new asset by the end of 2014 to qualify for these breaks. The asset has to be “placed in service” by year end.

A Tax Court case from last December drives home the point, where a taxpayer lost an $11 million bonus depreciation deduction in 2003 because an asset bought at year-end wasn’t “placed in service” on time.  Judge Holmes takes up the story:

On December 30, 2003, an insurance salesman named Michael Brown1 took ownership of a $22 million plane in Portland, Oregon. He flew from there to Seattle to Chicago — he says for business meetings — and then back to Portland. Brown says these flights put the plane in service in 2003, and entitle him to a giant bonus-depreciation allowance. But a few days later he had the plane flown to a plant in Illinois where it underwent additional modifications that were completed about a month later.

The IRS argued that the need for modifications meant the airplane wasn’t “placed in service” before year end. The taxpayer argued that the airplane was “fully functional” as purchased, and therefore was “placed in service” when acquired and used for its first flight on December 30, 2003. The court agreed with the IRS:

While acknowledging in his briefs that those modifications made the Challenger “more valuable to him” and allowed him to “more comfortably conduct business” as a passenger, he says they have “nothing to do with the Challenger’s assigned function of transporting him for his business.” The problem is that this posttrial framing just doesn’t square with the trial testimony, in which Brown testified that those two modifications were “needed” and “required”. We therefore find that the Challenger simply was not available for its intended use on a regular basis until those modifications were installed in 2004. Brown thus didn’t place the Challenger in service in 2003 and can’t take bonus depreciation on it that year.

A new asset doesn’t actually have to be used during the year to be “placed in service,” but it has to be ready to go. A new machine should be on the floor and hooked up, not just in a crate on the dock, or in a trailer on the way in, if you want to depreciate it. If the new asset is a vehicle, you need to take delivery to get the deduction. If the asset is a farm building, it needs to be assembled and in place, not in boxes on the ground.

Cite: Brown, T.C. Memo 2013-275

 

20141210-1

 

The TaxProf reports on a new Treasury Inspector General report, TIGTA: IRS Has 25-30% Error Rate In Refundable Child Tax Credits, Mistakenly Pays $6-7 Billion:

The IRS has continually rated the risk of improper ACTC payments as low. However, TIGTA’s assessment of the potential for ACTC improper payments indicates the ACTC improper payment rate is similar to that of the EITC. Using IRS data, TIGTA estimates the potential ACTC improper payment rate for Fiscal Year 2013 is between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion. In addition, IRS enforcement data show the root causes of improper ACTC payments are similar to those of the EITC.

So at least 1/4 of the credit is claimed fraudulently or illegally. This is one of the provisions the President insists be made permanent as a price for permanently extending business provisions. He killed the permanent extender compromise when it didn’t also make the child credit permanent.

 

Wind turbineIowa Public Radio reports Grassley Wants Wind Tax Credit to Go Further. He should read Bryan Caplan’s review, The Moral Case for Fossil Fuels: We Owe Civilization to Fossil Fuels. “And despite decades of government favoritism, alternative fuels have yet to deliver.”

 

Peter Reilly, Seventh Circuit Will Not Let Tax Protester Blame His Lawyer For Conviction:

James Stuart thought that Peter Hendrickson had “cracked the code” – the Internal Revenue Code, that is. Joe Kristan would characterize it as finding the tax fairy – that magical sprite who make your taxes go away painlessly while your sucker friends send checks to the tax man.   

It’s always fun to be named-checked by a Forbes blogger.

Jana Luttenegger Weiler, Tax Tips for Gifts to Charity (Davis Brown Tax Law Blog).

Robert D. Flach, DONOR ADVISED FUNDS. For at least 99.99% of taxpayers, these are far better than setting up a private foundation.

Kay Bell, Sen. Tom Coburn’s parting gift: a tax code decoder

Paul Neiffer, Watch Your Crop Insurance Form 1099s This Year

Jason Dinesen, 5 Things You Didn’t Know About EAs, #2: We Don’t Work for the IRS

Brad Ridlehoover, The Grinch That Stole Their Reasonable Cause… (Procedurally Taxing)

Tim Todd, IRS Erred in Making Notice of Tax Lien a Condition to Installment Agreement

 

TaxProf, The IRS Scandal, Day 580. Lois Lerner appears to have been scheming to sic the Justice Department on the Tea Partiers as early as 2010, according to newly-unearthed e-mails.

 

Howard Gleckman asks Why Does Congress Pay For Some Tax Cuts and Not Others? (TaxVox). “It can’t be the merits of the recipients. By now, TaxVox readers know that the expired tax breaks included such worthies as preferences for race horse owners, Puerto Rican rum manufacturers, and TV and film producers.”

Eric Cederwall asks What is the Simplest Tax System? (Tax Policy Blog). “Normative economics aside, a per-person tax is one of the most economically efficient taxes for raising revenue.”  Not happening, though.

 

Adrienne Gonzalez, Kids These Days Trust the IRS More Than Olds Do (Going Concern). Like Santa Claus and the Tooth Fairy, they’ll figure it out eventually.

Share

Tax Roundup, 12/3/14: House voting on extenders today. Are Senate, White House on board?

Wednesday, December 3rd, 2014 by Joe Kristan

20130113-3The House will likely pass one-year extender bill today. Will the Senate and White House go along? Multiple reports say that the House of Representatives is expected to approve HR 5771 today, reviving 55 perennially-resurected tax breaks through 2014. The breaks, which include bonus depreciation, the $500,000 Section 179 deduction, and the research credit, all expired at the end of 2013.

While the fate of the bill in the Senate and the White House are not entirely clear, I expect the House bill to pass, given the lack of alternatives.  The Wall Street Journal reports:

Senate Finance Committee Chairman Ron Wyden (D., Ore.) used a weekly Senate Democratic luncheon Tuesday to push for an alternative that would extend expiring tax breaks through 2015.

But his Republican counterpart on the committee, Utah Sen. Orrin Hatch, brushed that aside, saying time was running out. Mr. Hatch—on whom Mr. Wyden frequently relies when crafting deals—came out in favor of the short-term fix, saying the only alternative he would support at this point was the one worked out between Senate Majority Leader Harry Reid (D., Nev.) and House Ways and Means Committee Chairman Dave Camp (R., Mich.) and drew a White House veto threat last week. If the Senate advanced a new version, “there will be no bill” because “the House is going to leave,” Mr. Hatch said.

The full text of Sen. Hatch’s statements can be found here.

The Hill reports that the White House appears ready to go along with the House bill. Given the way the White House threatened a veto of the House-Senate deal that would have extended some of the breaks permanently, I think the lack of a veto threat means the President is likely to sign this version. While there appears to be some unhappiness with the House bill — Senator Grassley is not a fan of the one-year approach —  I expect the lame-duck Senate to pass it anyway. Unfortunately, it’s not clear when the Senate will act.

Congress has for years passed these provisions for one or two years at a time because Congressional budget rules allow them to pretend they are less expensive than they really are. Unfortunately, that often leaves taxpayers uncertain as to what the tax law is for the year until the year is almost over — or, in 2012, until the year was over. That makes it hard to evaluate the economics of important fixed-asset decisions. The abortive House-Senate deal would have ended this game for several key provisions, but the White House chose scoring cheap political points over an improved business tax environment.

Related:

Paul Neiffer, Is an One-Year Extension of Section 179 all we get?!

Howard Gleckman, How To End the Tax Extender Drama: Stop Calling Them Extenders—And Make Congress Pay For Them

Kay Bell, Tax extenders compromise: OK expired breaks for 2014 only

 

20121108-1Peter Reilly, Repair Regs – A Hellish Tax Season And Refunds Of Biblical Magnitude. Peter discusses the need, or not, for massive filing of useless accounting method changes to implement the new “repair regulations.” He also touches on a potential boon for owners of commercial real estate.

Robert D. Flach, TAKING ADVANTAGE OF THE 0% TAX RATE

William Perez, What You Need to Know about the Premium Assistance Tax Credit

Russ Fox notes A Rare Piece of Efficiency from the IRS

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #4-IRS Rules on Self-Employment Income Of LLC Members.

 

Robert Wood, What IRS Calls ‘Willful’–Even A Smidgen–Can Mean Penalties Or Jail

TaxGrrrl, Feeling Spendy This Year? ’12 Days Of Christmas’ Slightly More Expensive

 

microsoft-appleSound Advice. David Brunori offers Advice for the New Republican Legislative Majorities (Tax Analysts Blog). It’s full of sound advice, but I especially like this:

Republicans should become the party of virtue, courage, and honesty when it comes to taxes. They should fight crony capitalism, as there is nothing more abhorrent to the free market than the government picking winners and losers. Yet state governments do just that all the time. The proliferation of tax incentives represents horrible tax policy. That politicians can decide economic policy through tax incentives is more akin to a Soviet five-year plan than to Adam Smith’s invisible hand. True conservatives should fight attempts to use tax policy to further economic objectives. Broad-based taxes and low rates will always serve the conservative cause better than the existing nonsensical tax laws. Standing on principle to ensure a broad tax base is hard — and neither party has been able to do it. But it is a stand worth taking.

That would be wonderful advice here in Iowa, but our newly re-elected GOP governor has been up to his mustache in crony tax breaks to chase high-profile businesses. Meanwhile Iowa’s home-grown businesses don’t get the big subsidies. They are dragged down by the highest corporation tax rate in the developed world, baroque complexity, and a bottom-ten business tax environment.

A real pro-business tax reform in Iowa might look something like The Tax Update’s Quick and Dirty Iowa Tax Reform.

 

TaxProf, The IRS Scandal, Day 573.

 

lizard20140826Leslie BookH&R Block CEO Asks IRS To Make it Harder to Self-Prepare Tax Returns and Why That is Good for the Tax System.  “Yet, as I explain here, I think the changes he proposes would likely be good for the tax system because they could enhance visibility and accountability, principles the IRS should emphasize with issues that tend to have sticky error rates.”

H&R Block has been trying to pad its income for years on the backs of retail taxpayers. Its former CEO authored the illegal tax preparer regulations system the IRS tried to force on the industry — a system that would have run many of Henry and Robert’s competitors out of the buisness. Now they want to force the lowest-income earners through their doors.

I think the right approach to advice from an outfit that so shamelessly promotes its interests at the expense of taxpayers may be to carefully note it, and to do exactly the opposite.

 

Stephen Entin, No Mystery that Investment Slump Hurts Workers, Lowers Productivity and Wages (Tax Policy Blog)

 

News from the Profession. Why Is Everyone in Public Accounting Obsessed with Sports? (Adrienne Gonzalez, Going Concern)

 

Share

Tax Roundup, 11/19/14: Mayor of London, U.S. tax delinquent. And: sticks, stones, and IRS.

Wednesday, November 19th, 2014 by Joe Kristan
Boris Johnaon and an unidentified IRS agent.

Boris Johnson and an unidentified IRS agent.

I thought the Revolution was fought to get away from the English, not to tax them. From Robert W. Wood comes a story that says volumes about how absurd America’s system of worldwide taxation is:

London’s Mayor Boris Johnson is English, but being born in New York means he’s American too. Turns out he never gave up his U.S. citizenship, as the BBC confirmed. Sure, he threatened to renounce in a column for the Spectator, but he renewed his U.S. passport instead.

And on his recent book tour, in a Diane Rehm Show Interview, November 13, 2014, Mr. Johnson even said a thing or two about the American global tax regime. He thinks it is outrageous to tax U.S. citizens everywhere no matter what. He hasn’t lived in the U.S. since he was 5 years old, he notes. Still, the IRS wants money.

Only the U.S. tax law is stupid enough to consider Boris Johnson an American taxpayer. Of course, the U.S. tax law says he’s taxable on his worldwide income as a U.S. Citizen, and that means he’s delinquent on U.S. tax on everything he’s ever earned. Of course, the IRS also claims FBAR penalties on “foreign” financial accounts that would render the Mayor of London a pauper.  He could renounce his U.S. citizenship, but Mr. Wood notes that “When you exit you must certify five years of U.S. tax compliance to the IRS. And any tax for the current or prior years must be paid.”

Boris Johnson is only the most prominent victim of a system supposedly designed to catch international financial fraud, but that works much better in making financial criminals and paupers out of ordinary people for committing personal finance while abroad. And yet there seems to be no movement at all to fix this horrible system. Because Swiss banks, or something.

 

20140106-1William Perez, Excluding Foreign Wages from US Taxes

Paul Neiffer, Another Section 179 Update:

Whenever, I indicate that we should know what the final number should be around Christmas or even New Years, I get emails back saying doesn’t Congress know that taxpayers really can’t make informed equipment decisions without knowing what Section 179 is.

The quick answer is that “Congress does not care!”

So true.

 

Russ Fox, IRS Clarifies Electronic Signature Requirements:

The IRS released a new version of Publication 1345 today (html version only is available for now). Included in it is the following:

Note: An electronic signature via remote transaction does not include handwritten signatures on Forms 8878 or 8879 sent to the ERO by hand delivery, U.S. mail, private delivery service, fax, email or an Internet website.

Thus, if a client signs a signature document in ink, hands it to me, mails it to me, faxes it to me, or uploads it to me via our web portal (or even if he emails it to me), it’s not an electronic signature and I don’t have to check id, etc. (So, mom, I don’t need to see your ID.)   

That’s good news.

 

20140808-1

Kay Bell, States continue efforts to tax e-cigarettes as vaping grows. E-cigs threaten the states’ tobacco settlement gravy train. That’s why politicians hate them. All of the vaporous public health claims used against E-cigarettes is just blowing smoke.

 Peter Reilly, What’s In A Name? Should Naming Rights Reduce Charitable Deductions?

TaxGrrrl, Top Ten Area Codes Making Spam Calls: Are They Dialing You Up? If you aren’t expecting a call from the IRS, it’s not the IRS.

Robert D. Flach, DON’T BE A NON-FILER! “It is much “more better” to submit a balance due return with no payment than to submit nothing at all.”

Jack Townsend, IRS Documents On OVDI/P From FOIA Request.

 

TaxProf, The IRS Scandal, Day 559

Alan Cole, Obamacare’s Contradictory Tax Incentives (Tax Policy Blog):

All too often, the motives behind Obamacare’s taxes are incoherent. We don’t like the distortion towards employer-provided health insurance, so we levy taxes on it. But we also do like the distortion towards employer-provided health insurance, so much so that we will actually mandate it!

The real motivation was to pass something and let IRS work out the details.

Howard Gleckman, Will Obama’s Executive Action on Immigration Kill Tax Reform? Hint: You Can’t Kill Something That’s Already Dead (TaxVox)

 

Hello, IRS readers! Apparently the IRS reads the blogs. Legal Insurrection reports that the IRS is trying to avoid disclosing names of their personnel in a lawsuit because of things said about Lois Lerner in that blog’s comments:

In a federal FOIA lawsuit by Judicial Watch seeking records of Lerner emails and IRS efforts to retrieve the emails, the IRS used two of the comments to the Legal Insurrection Reader Poll post to justify the IRS no longer disclosing the identities of IRS personnel.

Here are the awful comments:

20141119-1

Juvenile? Sure, but pretty tame stuff for political blogs. Go hang out at Daily Kos if you think otherwise. By the standard the IRS is using here, you would have to conceal the names of just about anybody remotely connected with the government or politics. I’ve been called a “hamburger chomping, malleable moron in the comments,” with no ill consequences other than now I’m self-conscious at McDonalds.

But all the same, be nice in the comments here.

 

Career Corner. Your Open Office May Be Making You a Crappy Worker (Adrienne Gonzalez, Going Concern).

 

Share