Posts Tagged ‘iowa tax policy’

Tax Roundup, 2/8/16: When your password is a key for thieves. And: More Tax Credits!

Monday, February 8th, 2016 by Joe Kristan

20150910-2You need more than one password. Another home tax software company reports that its customers may have had their data stolen. Marketwatch.com reports:

In its letter to affected customers, TaxSlayer said it became aware Jan. 13 that hackers had accessed some of its customers’ accounts. The illegal access took place between Oct.10, 2015, and Dec. 21, 2015.

The letter said an “unauthorized third party may have obtained access to any information you included in a tax return or draft tax return saved on TaxSlayer, including your name and address, your Social Security number, the Social Security numbers of your dependents, and other data contained on your 2014 tax return.”

In its statement, TaxSlayer said it doesn’t believe its own systems were breached. Instead, “user credentials, stolen from other sources, were then used to misrepresent our customers and therefore access our program.”

They’re saying that they got passwords from another site and tried them on TaxSlayer, and they worked. That kind of breach is on the user, not the software company.

Reusing passwords is poor data security hygiene. McAfee Software offers some great tips for good passwords. The tips include a list of things people do that make them vulnerable to data theft, including:

Reuse of passwords across multiple sites: Reusing passwords for email, banking, and social media accounts can lead to identity theft. Two recent breaches revealed a password reuse rate of 31% among victims.

If you use different passwords for your different important accounts, one data breach won’t expose your entire financial life.

Related: TaxSlayer data breach is the 3rd tax software-related security issue so far this filing season (Kay Bell)

 

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Brent Willett, Iowa’s next economic frontier (IowaBiz.com). An unintended but useful followup to my IowaBiz post on Friday on the unwisdom of targeted tax credits, the post boosts a proposed new tax credit that I criticized by name. The post touts a new report promising “Fifty thousand jobs” to Iowa if we just enact a new “Bio-Based Chemicals” tax credit.

The post neatly checks off several items I note in my post:

Might these special favors be better for the economy than some farmer or small business who buys a new tractor or machine? You could make that case, but it would be plausible only if these favors were enacted by a process where the state looked at the vast menu of possible industries to support and carefully evaluated which ones were more persuasive. That never happens. Instead, the credits follow the path of the notorious Iowa film industry credits, where an industry gets some legislators and business boosters excited and builds support — sometimes with “studies” funded by booster groups. There is no evaluation of the opportunity costs, of whether the funds would be better used elsewhere.

No comparison to other industry opportunities? Check. Studies funded by booster groups? Check. Ignoring opportunity costs? Check.

I encourage your to read the Willett post and ponder why a government subsidy is needed if the industry is such a slam-dunk.  Also, consider whether you would get the same article by substituting other industries for bio-chemicals in the post.

 

 

Andrew Mitchel: New Expatriate Record for 2015 – Nearly 4,300 Expatriations:

2015 expatriations

“The escalation of offshore penalties over the last 20 years is likely contributing to the increased incidence of expatriation.”

Related: Record Numbers Renounce Their U.S. Citizenship (Robert Wood)

 

Jason Dinesen, Lots and Lots of Scam E-mails this Year. Jason posts many helpful examples. Be very skeptical of emails you don’t expect, and delete any purporting to come from IRS.

Annette Nellen, Ideas for Retirement Savings Reform. “One overall reform Irecommend is to change the focus of retirement plans from the employer to the employee, making them truly portable from job to job and if in employee or contractor status or both.”

Jim Maule, The Biggest Tax Refund?. Overwithholding will do the trick.

Leslie Book, The Limits of the “One Inspection” of Taxpayers’ Books and Records Rule (Procedurally Taxing). “One limitation on IRS powers is the Code itself, as Section 7605(b) provides that ‘only one inspection of a taxpayer’s books of account shall be made for each taxable year unless ․ the [Treasury] Secretary ․ notifies the taxpayer in writing that an additional inspection is necessary.'”

Robert D. Flach, TAX GUIDE FOR NEW HOMEOWNERS

Russ Fox, It Was Only a 13.33% Kickback. A police chief breaks the tax law.

TaxGrrrl, So About Those Cam Newton ‘Sunday Giveaway’ Game Balls…

 

Only the form of your destructor. What Would Be At Stake In A Trump v. Sanders Election? How About $24 Trillion in Tax Revenue (Tony Nitti).

 

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TaxProf, The IRS Scandal, Day 1003Day 1004Day 1005

Scott Greenberg, White House Calls for Targeting the Cadillac Tax by Location:

Why would the White House propose changes that would weaken the Cadillac Tax – a central part of the administration’s most significant policy achievement? In fact, these changes might be necessary to secure the continued existence of the tax. The White House has been fighting a losing battle to defend the Cadillac Tax, and these proposed changes may placate some of the tax’s opponents, particularly employers in states with high healthcare costs.

We must destroy the Cadillac Tax to save the Cadillac Tax!

Renu Zaretsky, Budget Hearings, Saving, and Entertaining (TaxVox). “There is almost always something perfunctory about the last budget of an outgoing president, but this year’s will generate even less interest than usual. In the ultimate insult, the GOP-run congressional budget committees won’t even invite White House officials to describe their fiscal plan.” And lots more in today’s TaxVox headline roundup.

I reject this false choice. Kentucky Can Attract Tourists Who Like Bible More Than Bourbon Without Violating First Amendment  (Peter Reilly)

 

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Tax Roundup, 2/4/16. Confirmed: Governor opposes coupling to ALL 2015 changes. And: Are hipsters really flocking downtown?

Thursday, February 4th, 2016 by Joe Kristan

coupling20160129Worst Iowa tax policy decision ever. Governor Branstad doesn’t want to conform Iowa’s tax law to any of the extender provisions passed in December for 2015. A reliable source has confirmed our earlier report that the Governor wants to skip coupling entirely for 2015, and then conform to everything except Section 179 and bonus depreciation in 2016 and beyond.

It’s bad enough that he doesn’t want to conform with the $500,000 federal Section 179 for the first time in years — imposing a big tax increase on small businesses and farmers in every county. But conforming to nothing means a whole host of separate Iowa computations for 2015 returns — and 2015 only. Without spending a lot of time, I come up with these:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
Educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Conservation easement deductions
Deduction for food inventory contributions

I have asked the Department of Revenue for a complete list of affected provisions, and I will provide it if they send one.

These will have effects on thousands of taxpayers ranging from minor annoyance and more expensive tax compliance to major unexpected Iowa tax expense. To take a common example, the exclusion fo IRA contributions to charity allows taxpayers aged 70 1/2 or older to have their IRAs make contributions to charity directly. This means the contributions bypass their federal 1040s altogether. But for Iowa, the Governor would have the IRA holder include the contribution in taxable income and then, presumably, add it to their itemized deductions — if the taxpayer itemizes in the first place.

Some of these can be very costly. For example, the exclusion of gain for qualifying C corporation stock sales can apply to up to $10 million of capital gain. The exclusion benefits start-up businesses, which Iowa allegedly supports with at least four separate tax credits. Failure to couple would clobber a $10 million 2015 gain with an unexpected $898,000 tax bill.

There is bipartisan support for coupling with all federal provisions other than bonus depreciation for 2015. The Iowa House of Representatives has already passed such a bill on a bipartisan 82-14 vote. But Governor Branstad and Senate Majority Leader Gronstal have apparently reached a little bipartisan deal of their own to keep the Senate from ever voting on 2015 conformity. The Senate tax committee meeting yesterday was cancelled, which I hope means the Senate leadership is getting pressure to back off this stupid policy.

If you are affected, or if your clients are (they are), I encourage you to let your Iowa Senator know how you feel.

Related Coverage:

Iowa House passes $500,000 Section 179, but prospects bleak in Senate.

Iowa Governor reportedly opposes 2015 coupling for anything.

Branstad budget omits $500,000 Section 179 deduction for Iowa; no 2015 conformity.

 

20130218-1What do you mean, IBM doesn’t stock the vacuum tubes anymore? IRS Systems Outage Shuts Down Tax Processing (Accounting Today):

The Internal Revenue Service said Wednesday evening its tax-processing systems have suffered a hardware failure and that tax processing could be affected into Thursday.

“The IRS experienced a hardware failure this afternoon affecting a number of tax processing systems, which are currently unavailable,” said the IRS. “Several of our systems are not currently operating, including our modernized e-file system and a number of other related systems. The IRS is currently in the process of making repairs and working to restore normal operations as soon as possible. We anticipate some of the systems will remain unavailable until tomorrow.”

The IRS says it’s confident that it will have the system restored by the weekend and that any refund delays will be minor.

Related: IRS Having One of Those Days (Caleb Newquist, Going Concern); TaxGrrrl, IRS Website Hit With Hardware Failure, Some Refund & Payment Tools Unavailable.

 

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Jason Dinesen, The Iowa Trust Fund Tax Credit is $0 for 2015

Robert Wood, Perfectly Legal Tax Write-off? Lawyer Fees — Even $1,200 An Hour

Russ Fox, A Tale of Three States. “Hawaii, Indiana, and Mississippi are three states where daily fantasy sports (DFS) is being debated. The three states are representative of what is likely to occur in every state.”

Keith Fogg, Verification of Bankruptcy Action in a Collection Due Process Case (Procedurally Taxing). “Because Appeals employees often have very little knowledge of bankruptcy, this case points out the need to pay careful attention in CDP cases that follow bankruptcy actions and challenge verifications where the Appeals employee fails to acknowledge the impact of the bankruptcy case.”

Bob Vineyard, Aetna Not Pulling Plug on Obamacare …. Yet (InsureBlog). Many Iowans get coverage through Aetna’s Coventry unit. But as the company expects to lose $1 billion over two years on Exchange policies, their willingness to continue to provide ACA – compliant policies on the exchange will be sorely tried.

Jack Townsend, Another Taxpayer Guilty Plea for Offshore Account Misbehavior

Peter Reilly, Tax Dependency Exemptions For Noncustodial Parents – It Is All About Form 8332. It really is. Form 8332 provides a way for couples to continue fighting long after the divorce is final.

Jim Maule, “Can a Clone Qualify as a Qualifying Child or Qualifying Relative?”

 

Scott Greenberg, The Tax Benefits of Having an Additional Child (Tax Policy Blog). In case your decision hinges on this.

Renu Zaretsky, Debates, Energy, Credits and PrepToday’s TaxVox roundup covers tonight’s Democratic Debate, energy tax policy, and a shutdown of 26 Liberty Tax franchise operations in Maryland.

TaxProf, The IRS Scandal, Day 1,001

 

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Is Hip, Cool Des Moines Really Attracting Migrants? (Lyman Stone). I haven’t seen any local media pick this up, but this is a fascinating look at migration and population patterns Downtown and across Polk County. It is inspired by the recent Politico piece on how hip and all we are (emphasis in original):

In fact, throughout the article, there’s an interesting claim made that the population of downtown Des Moines has risen from 1,000 at some unspecified time in the 1990s, to at least over 10,000 as of 2016. In fact, throughout the article, there’s an interesting claim made that the population of downtown Des Moines has risen from 1,000 at some unspecified time in the 1990s, to at least over 10,000 as of 2016.

The claim turns out to be exaggerated, but only a little:

Downtown Des Moines probably did not gain 10,000 residents from the late 1990s to 2016, nor does it seem likely that it had just 1,000 residents at any time in the last few decades. However, that doesn’t mean the essential claims of Woodard’s story are wrong. Au contraire, Des Moines has gained about 10,000 people since 2000, and has about 9,000 more people than we would expect had 1987 growth rates continued. That’s a meaningful acceleration in urban growth, and a significant number have been headed to the very center of the city.

It’s a great read with some surprising observations about how suburban and downtown growth complement each other.

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Tax Roundup, 1/29/16: Iowa House passes $500,000 Section 179, but prospects bleak in Senate. And: Iowa may give guy a break.

Friday, January 29th, 2016 by Joe Kristan

Accounting Today visitors: Click here to go directly to the newsletter link on cheaper returns.

coupling20160129Accelerating to a stop. When a household is short of cash, the family usually spends less. Iowa has a different approach. They pick your pocket.

The Iowa House of Representatives yesterday voted 82-14 to retroactively couple with all of the 2015 federal tax law changes except bonus depreciation (HF 2092, formerly HSB 535). This would allow Iowa businesses to deduct up to $500,000 in annual purchases of otherwise-depreciable fixed assets under Section 179. Governor Branstad’s budget would limit the deduction to $25,000 — an unexpected departure from Iowa law for the past several years and a significant tax increase.

You would think that an overwhelming bipartisan vote in favor of the $500,000 version would foreshadow quick passage by the Senate. Alas, no.

I talked to some legislators yesterday when I participated in the Iowa Society of CPAs annual Day on the Hill. It appears that Governor Branstad and Senate Majority Leader Gronstal have a little bipartisan deal of their own to kill Section 179 coupling.

That’s not how Sen. Gronstal explains it. From the Quad City Times:

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said his majority caucus would consider what the House passed, but he expressed doubt about moving ahead with a concept at variance with the governor given a similar course of action last session for education funded ended with a gubernatorial veto.

“I don’t like doing things that I know will get a certain veto,” Gronstal said. “That doesn’t seem to me to make a lot of sense. The governor doesn’t have this in his budget.”

I came away understanding that the voice of the majority caucus is really the voice of Sen. Gronstal, and that Section 179 coupling will never come up for a vote in the Senate. I assume it is because both the Governor and the Majority Leader want the money for their own priorities: more cronyist tax credits for Gov. Branstad, and more spending for Sen. Gronstal.

That’s a crummy deal for the thousands of small businesses that suddenly will see a big unanticipated tax increase. It also seems like a deal that would be vulnerable to an insiders vs. Main Street challenge. The tax credits that the Governor wants to fund go to a narrow set of taxpayers. For example, in 2014 $42.1 million of refundable research credits went to 16 big taxpayers. That’s almost enough to pay for half of Section 179 coupling $90 million cost by itself.

Here is the complete menu of incentive and economic development tax credits in the Governor’s budget:

Iowa credits fy 2017

The refundable sales tax credit goes largely to the big data center companies Facebook, Microsoft and Google. The Enterprise Zone Housing credit and High Quality Jobs credits are big company credits that you have to through the economic development bureaucracy to cash in on. The rest of the credits are mostly for favored industries who get breaks unavailable to the much larger universe of other businesses that have to pay full freight.

It might still be possible to get the Governor and/or the Majority leader to see things differently. That will require taxpayers and practitioners to convince their legislators that small businesses and farmers shouldn’t have to stand in line behind insiders.

It’s not clear to me what form the extension will take under the Governor’s program. I was unable to confirm whether the Senate will skip 2015 conformity entirely, as outlined in Sen. Anderson’s newsletter. I have inquiries in.

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Des Moines Register, Iowa agrees to review man’s $5,000 tax refund request. Some good news in the story we mentioned yesterday of the retired maintenance man who inadvertently conceded to a $5,000 liability he didn’t owe.

 

It’s serious. You know tax season is truly underway when Robert D. Flach posts his last Buzz roundup before disappearing into his hive to make his artisanal hand-crafted 1040s. Im starting to think Robert isn’t Donald Trump’s biggest fan.

TaxGrrrl live-blogged the GOP debate last night. I just did a drive-by, myself. Literally; I drove past the venue on my way home last night. No, I didn’t have it on the radio.

Robert Wood, What To Do If IRS Form 1099 Reports More Than You Received

Peter Reilly, Tax Foundation Analysis Of Sanders Plan Only Shows Downside. On the plus side, you could worry less about your investments, as you wouldn’t have as many.

Jason Dinesen, Having Negative Taxable Income Doesn’t Mean the Government Pays You Extra

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Scott Greenberg, The Sanders Tax Plan Would Make the U.S. Tax Rate on Capital Gains the Highest in the Developed World (Tax Policy Blog).

Renu Zaretsky, No Trump, No Problem. The TaxVox headline roundup today covers Google’s tax travails, “tampon taxes,” and candidate tax plans.

TaxProf, The IRS Scandal, Day 995

News from the Profession. Life at EY Involves Food, Technical Difficulties (Caleb Newquist, Going Concern).

 

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Tax Roundup, 1/28/16: Iowa Governor reportedly opposes 2015 coupling for anything. And: Ethanol execs accused of payroll tax crimes.

Thursday, January 28th, 2016 by Joe Kristan


couplingNo 2015 coupling at all? 
I had been under the impression that Governor Branstad’s budget proposal would not couple Iowa’s tax law for the $500,000 Section 179 limit or bonus depreciation, but would couple otherwise. A newsletter from Northwest Iowa Senate Republican Bill Anderson says I was mistaken:

Last week we learned Governor Branstad’s budget supports updating Iowa tax law to conform with changes in the Internal Revenue Code that resulted from federal legislation enacted during 2015. With three significant exceptions:

1. No tax year 2015 coupling. Meaning most of the changes are effective for federal tax purposes beginning in tax year 2015, the bill will not incorporate recent federal changes until tax year 2016. (Items that may impact you are: deduction for state and local sales taxes, above the line deduction for teacher classroom expenses ($250), above the line deduction for qualified tuition and related expenses, discharge of indebtedness on principal residence excluded from gross income.) The estimated fiscal impact of these changes in total is minimal compared to Section 179.

2. No section 179 expensing for tax year 2015 now or into the future, and

3. No bonus depreciation for now or into the future.

The newsletter also provides some detail of the fiscal impact of coupling:

Estimates project just coupling with Section 179 for one year is an approximate $90 million decrease in FY 2016 budget and a revenue increase in FY 2017 estimated roughly to be more than $20 million

This is a lot of money, but it’s a lot less than the $277.3 million the Governor proposes to spend next year on targeted tax credits. While Section 179 benefits business in every county regardless of whether they hire lobbyists or consultants, the targeted tax credits go to big taxpayers and insiders who know how to work the system. We’ll see which constituency is more important to the General Assembly.

Today is the Iowa Society of CPA’s “Day on the hill.” I will be there pushing for coupling. I will confirm the no-coupling-for 2015 report. I also hope to find out whether Senate Democrats have any interest in Section 179 coupling. The Republican House is expected to pass a bill (HSB 535) with Section 179 coupling (Update, 9:44 am: Full 2015 coupling (except bonus depreciation) passed in the House this morning, 82-14).

Related: Eye on the Legislature 2016.

 

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It’s an awful idea to “borrow” payroll taxes. Iowa Businessmen Indicted for Failing to Pay Employment Taxes (Department of Justice Press Release):

Randy Less, 48, of Hopkinton, Iowa, and Darrell Smith, 59, of Forest City, Iowa, are each charged with multiple counts of willfully failing to truthfully account for, and pay over federal income, social security and Medicare taxes that were withheld from the wages of the employees of Permeate Refining Inc., which was in the business of ethanol production.

According to the allegations in the indictment, Less was the majority owner, a general partner and the general manager of Permeate Refining Inc. in Hopkinton.  In those roles, Less had the responsibility to collect, truthfully account for and pay over to the Internal Revenue Service (IRS) federal income, social security and Medicare taxes withheld from the wages of his employees.  From approximately the fourth quarter of 2009 and continuing through the fourth quarter of 2010, Less is alleged to have willfully failed to pay over to the IRS more than $116,000 in withheld taxes.

The indictment further alleges that a company called Algae Energae purchased an ownership interest in Permeate in September 2009.  After that purchase, it is alleged that Smith, a corporate officer and manager of Algae Energae, also had the responsibility to collect, truthfully account for and pay over to the IRS taxes withheld from the wages of Permeate’s employees.  From approximately the first quarter of 2011 and continuing through the third quarter of 2012, both Less and Smith are alleged to have willfully failed to pay over to the IRS more than $307,000 in withheld taxes.

The IRS has resorted increasingly to criminal charges when payroll taxes go unpaid for a long time. While the defendants in this case are presumed innocent unless and until the IRS proves its case in court, the indictment reminds us that failing to remit payroll taxes is serious business. If you find yourself having to choose who to pay, remember that only the tax man has badges and guns, and that their liability doesn’t go away in bankruptcy.

 

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Robert D. Flach, WHO MUST FILE A 2015 TAX RETURN

TaxGrrrl, ‘Bug’ Exposes Uber Driver’s Tax Info, Including Name and Social Security Number

Kay Bell, Uber oops: driver’s tax info exposed on ride share site

Jack Townsend, More on the U.S. as the World’s Tax Haven

 

David Brunori, Most People Lose When Pols Pick Winners and Losers (Tax Analysts Blog). “Tax systems should have as little impact on economic decision-making as possible.”

TaxProf, The IRS Scandal, Day 994

Alan Cole, New CBO Report Shows Declining Share of C Corporations (Tax Policy Blog):

entity filings chart

Some businesses (but not all businesses, just those with a disfavored legal structure) pay a 35% rate at the entity level, followed by taxes of up to 23.8% at the shareholder level. Others, like partnerships and sole proprietorships, have taxes paid by their owners commensurate with their owners’ income in a single layer of taxation. Of course nobody wants to be a C corporation.

And yet certain politicians tell us that we just need to continue the beatings until corporate morale improves.

Renu Zaretsky, When Sharing is Caring… or Scary. Today’s TaxVox roundup covers candidate tax plans, Google and Facebook taxes, and more.

News from the Profession. I Am a Millennial Accountant, and I Hate Accounting (Chris Hooper, Going Concern)

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Tax Roundup, 1/21/16: Defying Governor, House conformity bill includes $500,000 Section 179 limit.

Thursday, January 21st, 2016 by Joe Kristan

20151118-1Reason to hope, reasons to despair. The Iowa House Ways and Means Chairman introduced a “code conformity” bill yesterday (HSB 535) that includes the federal $500,000 Section 179 limit. This defies the wishes of Governor Branstad, who says the state can’t afford the expanded deduction. He would only allow a $25,000 deduction for asset purchases that would otherwise have to be capitalized and depreciated.

The bill, as expected, does not adopt bonus depreciation for Iowa.

The Section 179 conformity proposal is is good news. It appears that Ways and Means Republicans sense that their business and farm constituents won’t appreciate a big tax increase, especially in a year that looks like it will be a down year around the state. Now attention will turn to the Senate, where Democratic Majority Leader Gronstal controls what legislation reaches the floor. If he supports the legislation, it is likely to pass. The Governor would probably be able to kill it with a veto, but would he?

That brings up my first reason to despair. Unless the Governor backs down or some compromise is reached, the conformity bill is likely to be delayed. Affected taxpayers will have to wait to file their 2015 Iowa returns until they know what the tax law is; if they guess wrong, they will incur the expense of amending their returns. It compresses the filing season into an ever-narrower window and delays refunds.

The biggest issue is likely to be the budget impact. While I haven’t seen a current figure, last year’s Section 179 conformity bill was estimated to reduce state revenues by $88.5 million.

capitol burning 10904I certainly have a list of possible pay-fors, starting with the newest proposed credit, a $10 million  “renewable biochemical tax credit” (SSB 3001). It is refundable, meaning it isn’t just a tax reduction, but an actual cash subsidy to taxpayers whose credit exceeds their Iowa tax. That easily could happen, as it is based on pounds of qualifying stuff produced. It will only go to taxpayers who “enter into an agreement” with the economic development administration. In other words, for insiders who know where to pull strings.

And here is another reason to despair. It appears this new boondoggle is going to slide right on through. From the Des Moines Register (my emphasis):

More than a dozen lobbyists representing businesses, farm organizations, economic development groups and other expressed support, and there was no opposition. Gov. Terry Branstad has listed renewable chemical manufacturing tax credits as a key item in his 2016 legislative agenda.

Under the bill, the maximum amount of state tax credits available annually to any one business for the production of renewable chemicals would be either $1 million or $500,000, depending how long the company has operated in Iowa.

Even Mark Chelgren (R-Ottumwa), who has in the past voted against corporate welfare tax credits, is on board with this one.

It will be very difficult to get the Governor to go along with the higher Section 179 limits without spending or tax credit cuts to offset the revenue loss. The Governor seems dead set against cutting cronyist tax credits. If the legislature agrees with him, Section 179 has a very difficult fight this session. Failure to adopt the federal Section 179 limit would represent a triumph of a handful of insiders over the businesses and farms in every county that would have their taxes increased to pay for subsidies.

 

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Iowa increases security to prevent tax fraud (thegazette.com):

The Iowa Department of Revenue has upped its security game after seeing more than 10,000 fraudulent tax returns last year.

This tax season, the agency will use technology to better track fraudsters, validate bank accounts before making direct deposits and share information with the IRS, other states, software providers and banks.

The story says Iowa stopped $11.6 million in fake refund claims last year on 10,600 fraudulent returns.

 

Hank Stern, O’Care in Real Life (InsureBlog):

So, one of my small group clients just lost the last person on his group plan. It had gotten so expensive that no one could really afford to stay on it. Shopping around didn’t help: everything we looked at was at least as expensive for comparable benefits. And the plan was pretty much bare-bones, not a lot of fat to trim.

Tom has been a client – and friend – for almost 30 years. A small business owner, he was proud to be able to offer his employees coverage. Now that’s gone.

He said “If you like your plan, you can keep your plan.” He didn’t say you could afford it.

Kristine Tidgren, Farm Lease Questions Often Arise This Time of Year (Ag Docket)

Robert D. Flach, A VERY IMPORTANT REMINDER. “Don’t listen to a broker, a banker, an insurance salesman, or your Uncle Charlie!   You wouldn’t ask your butcher for a medical opinion, so why would you accept tax advice from your MD?”

Keith Fogg, Public Policy Cases Accepted by the Taxpayer Advocate Service (Procedurally Taxing). “If you have an issue that raises policy issues for a group of taxpayers, you can bring this to the attention of the NTA in hopes that it will make the policy list and open the doors to TAS assistance.”

Paul Neiffer, Top 10 Reasons You Might Need Accrual Accounting. “Although this list is designed to be humorous, the reality is that all farmers should consider using accrual accounting to manage their farm operation.”

Kay Bell, Smooth tax season start? Not for some TaxAct users. “Just a few days before the filing season and Free File opened for business, the tax software manufacturer sent a letter to about 450 customers, notifying them of a data breach.”

Jack Townsend, Should Proof of No Tax Evaded Be Admissible as Defense in Crime Not Requiring Tax Evaded as an Element

 

Tony Nitti, An Ode To Tax Season: How To Bid Farewell To Your Family.

Tax season is here. Tax season is the worst. But don’t just abandon your family for the next three months with no explanation; make them aware of the series of mistakes that were set into motion long ago that led you to this self-imposed hell. And tell them with rhymes! 

That may be why my grown kid is a musician, and the high schooler wants to be one.

 

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David Brunori, Good Government Developments in the Tax World (Tax Analysts Blog). No Iowa items make the list.

David Henderson, The Economics of the Cadillac Health Care Tax, Part IPart II. “But now that I have done a more careful analysis with some plausible numbers, I am seriously undecided.”

Kyle Pomerleau, Senator Hatch To Introduce Corporate Integration Plan (Tax Policy Blog). “Not only does the double tax on equity investment increase the cost of capital, it creates economic distortions. The most obvious one is the distortion towards debt-financed investments.”

Renu Zaretsky, Market Woes and the Price of Breaks. Today’s TaxVox headline roundup covers stupid things from proposed financial transaction taxes to the ongoing Kansas budget and tax policy disaster.

 

Robert Wood, IRS Wipes Another Hard Drive Defying Court Order…But You Must Keep Tax Records. Darn right, peasant!

 

TaxProf, The IRS Scandal, Day 987.

 

Career Corner. Stop Doing Other People’s Work Because It Saves Time (Leona May, Going Concern). A classic symptom of Senior Accountant’s Disease.

 

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Tax Roundup, 1/15/16: Tax credits and their opportunity costs. And: a turnaround in IRS service!

Friday, January 15th, 2016 by Joe Kristan

haroldReport: Tax credit for me would benefit me. Report: Tax credit would help Iowa biochemical industry (Des Moines Register).

The argument that this industry, above the thousands of industries out there, deserves funding at the expense of other businesses in the state, and that Iowa’s elected officials are just the ones to figure that out, is hard to credit. It might almost be plausible if it came at the end of a careful and systematic process where the state looked at all of the possible industries that would be good for the state to have and then carefully selected finalists based on objective and unbiased review.

That never happens.

Instead, the Bio-renewables credit is following a path blazed by the film industry and other credit recipients. Somebody decides a tax credit would be a good thing. It’s never hard to get the industry that would receive the subsidy on board. Local business boosters climb on because they know of a local business that would benefit. They fund studies to prove that this industry offers extraordinary benefits. Economic development officials join in, because that’s what they do. Politicians like giving away money, and soon you have amazing results.

I don’t fault businesses for using state tax credits. If somebody gives you money, you take it. But that doesn’t make it good policy for the rest of us.

There are two little words that credit boosters never bring up: opportunity costs. The money spent on the favored industry isn’t conjured into existence out of thin air. It is taken from somebody else. This year it’s taken from every Iowa business that uses the $500,000 Section 179 limit, which the Governor says the state can no longer afford. There are businesses in every county that will pay higher taxes if Iowa reduces its Section 179 limit to $25,000. Those businesses lose the opportunity to use funds to grow their own businesses and hire their own employees.

If there is to be any benefit here, it’s that it might actually teach the General Assembly about the opportunity costs of benefiting sympathetic industries. Here, it’s the cost of the lost Section 179 benefit to constituents statewide.

Related:

LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

List of Iowa incentive tax credits budgeted for 2017.

 

Service: It’s in our nameA new report from the Government Accountability Office documents the decline in IRS service that we’ve all experienced under Turnaround Artist John Koskinen:

The Internal Revenue Service (IRS) provided the lowest level of telephone service during fiscal year 2015 compared to prior years, with only 38 percent of callers who wanted to speak with an IRS assistor able to reach one. This lower level of service occurred despite lower demand from callers seeking live assistance, which has fallen by 6 percent since 2010 to about 51 million callers in 2015. Over the same period, average wait times have almost tripled to over 30 minutes. IRS also struggled to answer correspondence in a timely manner and assistors increasingly either failed to send required correspondence to taxpayers or included inaccurate information in correspondence sent.

The picture they draw isn’t pretty:

 

gao chart service 20160115

When you turn around, it’s important to turn in the right direction.

Related: TaxProf, GAO:  Only 38% Of Taxpayers Who Called IRS Got Through In 2015 (Down From 74% In 2010); Wait Time Increased From 11 To 31 Minutes

 

buzz20150804Robert D. Flach has your Friday Buzz! He covers ground from choosing a tax professional to extenders to a certain presidential candidate.

William Perez, How to Know if You Should Hire a Tax Attorney

Matthew McKinney, Iowa’s open records law – who, what, when, and why? (IowaBiz.com).

Kay Bell, N.J. Gov. Chris Christie kills film & TV tax credits. Good. 

Jack Townsend, Updated FAQs for SFOP and SDOP Streamlined Processes. “The IRS has updated the FAQs for the Streamlined Domestic and Streamlined Foreign Offshore Procedures.”

Leslie Book, State of the Union: Tax Administration a Small But Important Part of the Speech

Robert Wood, Beware: IRS Now Has Six Years To Audit Your Taxes, Up From Three. “The three years is doubled to six if you omitted more than 25% of your income.”

Peter Reilly, Conservation Easement Tax Deductions And Valuation Abuse. “I think this is another instance of what Joe Kristan calls using the Tax Code as the Swiss Utility Knife of public policy.”

 

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Megan McArdle, Gaming of Obamacare Poses a Fatal Threat. “The problem: People signing up during ‘special enrollment’ (the majority of the year that falls outside of the annual open enrollment period) were much sicker, and paying premiums for much less time, than the rest of the exchange population.”

Scott Greenberg, The Cadillac Tax will Now Be Deductible. Here’s What That Means. (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 981. “Today, the Government Accountability Office (GAO) released two new reports regarding serious flaws in the Internal Revenue Service’s (IRS) audit selection processes. GAO confirmed that these flaws mean the IRS could continue to unfairly target American taxpayers based on their political beliefs and other First Amendment protected views.”

Robert Goulder, India’s Long Journey to a VAT (Tax Analysts Blog)

Renu Zaretsky, Winners, Losers, and Movers. Today’s TaxVox headline roundup covers last night’s presidential debate, Missouri earnings taxes, and  innovation boxes.

 

Jim Maule, Powerball, Taxes, and Math:

The expectation that widened my eyes is a meme circulating on facebook, and elsewhere, I suppose, that claims splitting the $1.4 billion evenly among all Americans would give each person $4.33 million. Good grief! This is just so wrong. The responses pointing out the error are themselves amusing, with the best one pointing out that it would generate $4.33 per person, enough to buy a calculator.

This meme:

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This explains more about the political process than I care to contemplate.

 

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Tax Roundup, 1/14/16: Branstad budget omits $500,000 Section 179 deduction for Iowa; no 2015 conformity.

Thursday, January 14th, 2016 by Joe Kristan

IMG_1291Priorities. Governor Branstad yesterday told a business group that he is leaving Section 179 conformity out of the new Iowa state budget. That means Iowans will be unable to claim the $500,000 maximum Section 179 deduction for 2015 returns, assuming the legislature doesn’t override this.

The Governor dropped this little bomb after touting a new $15 million incentive tax credit for “bio-renewable chemical production” to members of the Iowa Association of Business and Industry. He said the new credit will be “revenue neutral,” taking its funding from existing incentive credit programs. (Note: I was there, so this is all firsthand). He said that there just isn’t room for it in the budget.

The Governor has inadvertently highlighted the priorities of a tax policy dedicated to directing economic activity using tax credits. My my count, the Governor budgets $277.3 million in fiscal year 2017 to steer economic activity towards favored activities via tax credits:

Iowa credits fy 2017

Presumably the new bio-renewables credit is buried in here somewhere.

By definition, these credits go to a few lucky taxpayers. The largest one, the refundable research credit, goes overwhelmingly to a few big companies — and mostly as cash grants. The Department of Revenue’s calendar 2014 research credit report showed that $42.1 million of the $56.9 million in credits claimed went to 16 taxpayers. About 2/3 of the 2014 credits were “refunds,” meaning that the credit exceeded the taxpayer’s liability for the year, so the state issued a check for the difference.

20120906-1The Section 179 deduction, by contrast, is available to any non-rental business that buys fixed assets and has taxable income. It requires no negotiation with the Department of Economic Development. It’s available regardless of whether your business is bio-chemical, renewable fuels, or whatever else is the economic development flavor of the month. It’s simple to administer – you just use the number you claim on your federal return. But it has one dreadful flaw: it provides no opportunities for politicians to issue press releases or attend ribbon cuttings.

While I don’t have exact numbers for the tax revenue cost to the state for FY 2017, the Legislative Service Bureau estimated an $88.5 million revenue loss in fiscal year 2015 from the last Section 179 conformity bill.

Of course, all Section 179 revenue losses are a matter of timing. By denying Section 179 deductions, the state has a revenue gain in the first year of the asset’s life, but gives it all back through depreciation over the rest of the asset life. By contrast, tax credits are forever. They never turn around.

There is so much disheartening about this development. Failure to conform on the $500,000 Section 179 limit — after doing so for a number of years — suddenly increases the Iowa tax for thousands of Iowans who purchased equipment in 2015. Because Congress made the Section 179 deduction permanent, it signals that Iowa will permanently de-couple and use its own computation — an inherently bad policy. It requires Iowans to maintain a separate Iowa fixed asset schedule for assets that would otherwise have been written off. And, if the legislature tries to reverse the Governor’s decision, it leaves Iowans uncertain of their 2015 tax law until well into the filing season.

But perhaps most disheartening is the stark way that it shows how Iowa’s tax system, with its high rates and special favors for the well-connected, mistreats the regular taxpayers who are just going about their business, hiring people, and paying their taxes. Lots of taxes.

Related: Hide the spoons, hold your wallets. The General Assembly is back.

 

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Robert D. Flach reports that a certain national tax prep outfit has A NEW GIMMICK.

Robert Wood, Powerball Losers Make Lemonade By Selling Losing Lottery Tickets

Paul Neiffer, Planted Vines and Trees Qualify for Bonus Depreciation

Kay Bell, Final 2015 estimated tax payment is due Friday, Jan. 15

 

TaxProf, The IRS Scandal, Day 980

Cara Griffith, Waiting on the Court to Figure Out How to Tax Remote Sales (Tax Analysts Blog)

Jared Walczak, What Percentage of Lottery Winnings Would Be Withheld in Your State?

Howard Gleckman, Clinton and Sanders Face Off Over Who Should Pay for New Social Programs (TaxVox).

 

Career Corner. An Introvert’s Guide to Surviving Team Lunches (Leona May, Going Concern)

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Tax Roundup, 1/11/2016: Hide the spoons, hold your wallets. The General Assembly is back.

Monday, January 11th, 2016 by Joe Kristan
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.

Same recipe, same dish. The 2016 session of the 86th General Assembly of Iowa convenes today. As the membership is about the same as last year’s session, we can expect pretty much the same tax policy results. There will be no fundamental reappraisal of Iowa’s dysfunctional income tax this year. If anything, it might get a little worse.

Iowa’s tax system is a rat’s nest of high rates and complexity, full of special-interest loopholes, feel-good spiffs for sympathetic groups, and subsidies for the well-connected. It’s a great deal for the insiders who can work the system, paid for by high rates on those of us without lobbyists and tax credit consultants.

What Iowa needs is an overhaul that lowers the rates significantly, paying for them by simplifying the rules and swearing off subsidies like the notorious Orascom deal and the now-defunct film tax program. In other words, something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

What Iowa is likely to get is more special interest tax subsidies. In a story about 10 issues likely to spark debate in Iowa Legislature, The Des Moines Register reports:

A host of Iowa business and farm groups are lobbying for state tax credits to attract investment in renewable chemical manufacturing and advanced bio-refining. The goal is to build upon Iowa’s renewable fuels industry. Iowa needs to move swiftly because of competition for businesses looking to invest in the industry, business lobbyists say.

“If we are looking at a game changer for this session, this is it. It is absolutely huge,” said Jay Byers, chief executive officer of the Greater Des Moines Partnership. Legislation to provide renewable chemical manufacturing tax credits was approved by the House last session, but failed to pass the Senate.

20120906-1A “game changer?” New tax credits? The dozens of tax credits we already have haven’t done the trick, so we need more?

Think about it. The idea that the state can constructively direct investment capital assumes that the insiders that make up the Greater Des Moines Partnership and the small town politicians who run the state legislature have some unique insight on what the industries of the future are. If so, they should be investing their own money in these “game changers,” because there’s obviously a great profit opportunity to be had. Instead they want to spend your money, and mine, on it. That tells you something important.

Remember, these are the same people who told us it would be a great idea to subsidize Iowa’s film industry with tax credits (page 6 at the link), and that worked out just great.

The only constructive thing likely to come out of the legislature is a “code conformity” bill that updates Iowa’s 2015 income tax rules for the retroactive passage of the federal “extenders” bill in December. The Department of Revenue cautions taxpayers to not file returns using the extended provisions until the conformity bill is passed. The Section 179 deduction, the educator expense deduction, and tax-free IRA gifts are key provisions that are affected. Last year the code conformity bill was one of the first bills passed, in mid-February.

 

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TaxGrrrl, Taxpayers Get A Breather On Passport Requirement For Domestic Travel As REAL ID Requirement Delayed:

The key date to know is January 22, 2018. That’s the date on which air travelers with a driver’s license or identification card issued by a state that does not meet the requirements of the REAL ID Act (unless that state has been granted an extension to comply with the Act) must present an alternative form of identification acceptable to the Transportation Security Administration (TSA) in order to fly domestic. Acceptable identification would include a passport or passport card, Global Entry card, U.S. military ID, airline or airport-issued ID, federally recognized tribal-issued photo ID.

Congress last year passed a provision allowing IRS to revoke passports for non-payment of taxes. And of course the IRS never makes mistakes.

 

William Perez, How Soon Can We Begin Filing Tax Returns?

Annette Nellen, PATH and Many Tax Changes – PL 114-113

Kay Bell, 24 top taxpayer problems of 2015. “IRS electronic approach to customer service tops National Taxpayer Advocate’s annual list”

Jack Townsend, Hawaii Businessman Sentenced to 46 Months

Peter Reilly, Poor Return Preparation Kills Facade Easement Tax Deduction. “Often the buildings already have so much restriction on them already that promising not to alter them is a little like me renouncing my super powers

Robert D. Flach has thoughts on FINDING A TAX PROFESSIONAL.

Russ Fox, Fraudster Tries Alchemy; Will Have 20 Years to Think That Over:

Joseph Furando of Montvale, New Jersey thought he had the perfect way of performing alchemy. He took biodiesel fuel that wasn’t eligible for two tax credits and magically turned it into biodiesel fuel that was eligible for the tax credits:

Tax Credits, fraudulent? Unthinkable!

 

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Scott Drenkard, Businesses Love Texas, Except this One Tax that Holds the State Back (Tax Policy Blog)

Renu ZaretskyLooking ahead to 2016 and beyond? It’s blurry. (Today’s TaxVox headline roundup covers the upcoming State of the Union Address, the Taxpayer Advocate report from last week, and more.

TaxProf, The IRS Scandal, Day 977

 

Something to look forward to. Winner Of $1.3 Billion Powerball May Face Suits By Friends, Co-Workers, Family (Robert Wood).

Career Corner. Unhappy Accountants: Go Get a 10% Raise (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/8/15: Extenders, fourth and long. Also: No Iowa tax reform expected in 2016. And: Finland!

Tuesday, December 8th, 2015 by Joe Kristan

20150811-1Time to punt? Congressional taxwriters may be on the verge of giving up on passing any permanent extensions of the perpetually-expiring tax provisions this year. It is reported they may go for a two-year extension this week. Tax Analysts reports on comments from House Ways and Means Chairman Kevin Brady ($link):

House Ways and Means Republicans are expected to introduce a two-year tax extenders bill as talks continue on a permanent extenders package without a clear solution, committee Chair Kevin Brady, R-Texas, told reporters on December 7.

“The clock is ticking. We are not going to let the extenders fail before we leave town,” Brady said. Republicans want to make sure they are ready this week with a “fallback” if an agreement isn’t reached between the parties, he said earlier.

They are scheduled to adjourn and leave town Friday, so things will need to happen quickly. The story reports that Senate Finance Committee Chairman Orrin Hatch expects the House to pass a two-year extension.

They had been working to permanently extend at least the research credit and the $500,000 Section 179 deduction, but the Democratic negotiators insistence on expansion of the earned income credit as part of any deal may doom the permanent effort.

Some of the Lazarus provisions that died at the end of 2014 and need to be extended to be available for 2015 filings include:

-The $500,000 limit for Section 179 deductions for otherwise capitalized capital expenditures. The limit will otherwise be $25,000.

-The research credit.

-Bonus depreciation

-The ability to roll up to $100,000 from an IRA directly to charity without it going through the 1040 first.

The full list is here.

Failure, of course, remains an option. The pre-recess crush makes getting anything done uncertain. House Majority Leader McCarthy is quoted as saying that he has a “fear” that the extenders won’t pass. In that case, we may have a retroactive package passed in January, delaying filing season, or no extender bill at all.

Related: Kay Bell, Uncle Sam faces another shutdown if Congress doesn’t reach spending agreement by Dec. 11

 

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No Iowa Tax Reform again this year. That’s the word from the Iowa Taxpayers Association annual legislative forum, reports the Waterloo-Cedar Falls Courier:

At the Iowa Taxpayers Association’s annual legislative leadership forum, held Friday at Prairie Meadows in Altoona, Democratic and Republican leaders said there is not sufficient state revenue to support new tax breaks or policy changes that would remove money from the budget pie.

“Obviously, when you’re working on tight budget margins, the opportunity for tax reform becomes increasingly difficult,” said Rep. Chris Hagenow, R-Windsor Heights, the new House Majority Leader.

“I’m just going to be very frank: I don’t see this session producing any tax policy changes,” Jochum said. “In terms of any big, new policy changes in taxes … I truly do not see any of that happening.”

That’s no surprise. The continuing split of control between the parties, the resulting ability of either side to veto any tax reform efforts, and seemingly irreconcilable views on tax policy would probably doom any tax reform effort regardless of the budget numbers. The best we can hope is that work continues behind the scenes for when the political climate for tax reform improves. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready whenever they are.

 

buzz20150804Robert D. Flach has fresh Tuesday Buzz, with links including discussion of the futility of regulating the law-abiding to stop the crooks, a lesson with broad application.

Paul Neiffer, Additional De-Minimis Election Update. “Therefore, if a sole proprietor farmer or rancher purchases a large amount of assets that individually cost less than $2,500 AND these assets are likely to appreciate in value, it may be better to not make the de-minimis election for that year.”

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #5- The Role Partnership Liabilities In Foreclosures,

Robert Wood, IRS Private Debt Collectors Are Now Legal: 10 Things You Should Know

TaxGrrrl, Wal-Mart Sues Puerto Rico Over ‘Astonishing And Unsustainable’ Tax Increase. To go with astonishing and unsustainable government spending.

Leslie Book, Summons Enforcement For Undisclosed Offshore Accounts: The I Don’t Have Em Defense Is Not an Easy One to Win

Jack Townsend, New Transportion Bill, FAST, Adds Some Tax Provisions

Of course it does. State Wants Its Share Of The Sharing Economy (Peter Reilly) “This appears to be one of the rare instances where I am providing you breaking news on a matter otherwise neglected by the tax blogosphere.” Au contraire, Pierre Peter!

 

20150731-1Finland is considering replacing its vaunted welfare regime with a guaranteed annual income;

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out €800 ($870) per month—to everyone.

This would deal with the problem of high implicit marginal tax rates that make it too expensive for low-income Finns to go to work — a problem that also exists in the U.S., as Arnold Kling and others have noted.

It may sound counterintuitive, but the proposal is meant to tackle unemployment. Finland’s unemployment rate is at a 15-year high, at 9.53% and a basic income would allow people to take on low-paying jobs without personal cost. At the moment, a temporary job results in lower welfare benefits, which can lead to an overall drop in income.

Related: Tyler Cowen, A guaranteed annual income for Finland?Arnold Kling, Libertarian Scandinavian Welfare State?

 

TaxProf, The IRS Scandal, Day 943. Paul Caron telegraphs an end to this important series. Even when the Tax Prof’s daily coverage ends, the scandal remains unresolved, and Commissioner Koskinen and the administration continue to run out the clock, to the continuing damage of the IRS and to taxpayer service.

Scott Greenberg, A Lesson of Hanukkah: It’s Difficult to Determine Asset Lives: “To spell out the lesson of the story more slowly – the Maccabees came into possession of an asset (a jar of oil). They thought it would lose its value over a certain time period (a single day). However, the asset actually took much longer to depreciate (eight days).”

 

Stop the presses. Donald Trump Tweeted Something About Tax Shelters (Caleb Newquist, Going Concern).

 

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Tax Roundup, 12/2/15: A defender of tax credits makes his case. Also: escalating the war on offshore taxpayers.

Wednesday, December 2nd, 2015 by Joe Kristan

 

20120906-1Bribe them and they will come. The Atlantic asks Why Are There So Many Data Centers in Iowa?. “When I’ve asked data center operations managers, the answer has varied from approximately forty characteristics to a blunt four: ‘Networks, land, power, and taxes'” By “taxes,” that generally means “tax incentives,” or special breaks unavailable to the rest of us.

In a post at IowaBiz.com, Brent Willett makes an unabashed argument for more of the same in Economic development has an image problem (IowaBiz.com). It’s an interesting piece. Its premise is that people think that special tax deals to lure companies are shady, but that we would feel otherwise if incentive boosters just made a better case.

For an attempt to make the case that incentives are a good thing, the post is  short of actual evidence. It instead makes flat assertions that incentives are necessary and proper, and are obviously good because everybody does them. For example (emphasis in original):

Incentives play a fundamental role in securing job- and wealth-creation projects for communities in every corner of this country and in many countries of the world. This is pure, unadulterated fact.

If it were pure unadulterated fact, you might think that it would be easy to marshal some data that says so. Yet in the only attempt ever made by Iowa to quantify the value of its dozens of tax credit giveaways, by a blue-ribbon committee appointed in the wake of the Iowa Film Tax Credit fiasco, failed to identify a single tax credit that clearly was worth more than it cost.

The two magic words omitted by defenders of tax credits are “opportunity cost.” They point to projects that receive tax credits, assert they would not have happened anyway, and ignore the idea that the money used for the credits would have been used elsewhere. They also ignore the cost to all businesses of the tax law complexity and high rates that inevitably accompany special interest tax breaks.

It’s not just accidental that tax incentives have a bad image. They are like a guy who takes his wife’s purse to the bar to buy drinks for the girls. The girls might accept the free drinks (development success!), but it doesn’t help the person who foots the bill. Nor is it impressive, and any of the girls won over by this tactic aren’t likely to be real prizes. In any case, his image is unlikely to be helped by a better explanation when his wife finds out.

Related: Local CPA Firm vows to swallow pride, accept $28 million

 

Best done by not giving them in the first place. States Can Avoid the Fiscal Risks Tax Incentives Create, Pew Report Says (LexisNexis Legal Newsroom).

Jim Maule, Tax Credit Giveaways Don’t Deserve Credit, “If the Michigan tax credit had done what it was promised to do, the increased tax revenues should have more than offset the cost of the credit. But that hasn’t happened, as evidenced by the budget deficits that were spiraling out of control on account of the tax credit giveaway.”

 

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Andrew Mitchel, The Escalation of Offshore Penalties Over the Last 20 Years. An excellent summary of the unconscionable increase in foot-fault penalties for paperwork violations of foreign reporting rules. He describes the same “violations” taking place in 1995 and now.

In 1995, the individual was only required to file two forms (the FBAR and Form 5471) and would be subject to penalties totaling $2,000. In 2011, the same individual was required to file six forms (the FBAR, Forms 3520, 3520-A, 5471, 8865, 8938) and would be subject to penalties totaling $70,000.

Read the whole thing.

Peter Reilly, IRS Trying To Make It Harder To Qualify As Real Estate Pro. An excellent, in-depth discussion of a taxpayer victory in the eternal IRS war against deducting real estate losses.

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return

Kay Bell, Charitable donation tax deduction rules apply on Giving Tuesday and year-round. A good summary of rules on year-end charitable giving.

Amanda Klopp, A Snow Holiday? Not if the IRS Can Help It. (Procedurally Taaxing).

TaxGrrrl, Congress Moves Towards Granting IRS Authority To License Tax Preparers. “Representatives Diane Black (R-TN) and Pat Meehan (R-PA) have introduced H.R. 4141, the Tax Return Preparer Competency Act.”  When taxwriters demonstrate competency, then they can complain about preparers.

Russ Fox, My Love/Hate Relationship with the FTB. “Yet for all the excellence in how the FTB communicates some of the FTB’s practices leave a lot to be desired.”

Robert D. Flach, NEW JERSEY LLC FAQ

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #6 – More Bad News For The Marijuana Industry.

 

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Jeremy Scott, Congress Gives Up on Paying for Extenders . . . And That’s Fine (Tax Analysts Blog). “Taking a few of the most popular extenders off the table by making them permanent would only help with a limited legislative calendar, which could give some juice to tax reform efforts or at least end the silly end-of-the-year, Mock Turtle-like dance Congress has performed for most of the last 30 years.”

Renu Zaretsky, The Case of the Mislabeled ABLE Account (TaxVox). “Here’s the catch: There’s a good chance that by the time she reaches 18 the value of her account will exceed $102,000. If her nest egg tops that amount, the state would suspend her SSI benefits until her account fell below that threshold.”

TaxProf, The IRS Scandal, Day 937.

Richard Phillips, Congress Should Embrace the International Consensus to Crack Down on Corporate Tax Avoidance (Tax Justice Blog). Um, no.

News from the Profession. Tax Nerds Set Record Straight on Tax Code vs. NFL Rulebook Complexity (Caleb Newquist, Going Concern).

 

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Tax Roundup, 11/17/15: We’re #40! The new State Business Tax Climate Index comes out today.

Tuesday, November 17th, 2015 by Joe Kristan
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 rises out of bottom ten in State Business Tax Climate index. The Tax Foundation released its 2016 State Business Tax Climate Index today, and Iowa is no longer one of the ten-worst states in the index. Barely.

Maryland and Iowa changed places from last year in the index, making Iowa the 40th state in the annual index of business tax climates. Iowa’s overall score improved slightly, while Maryland got a little worse, especially in its unemployment insurance ranking. Iowa failed to improve its ranking in any of the five components making up the index. Its ranking fell in the sales tax, unemployment tax, and property tax categories, and it maintained its 32nd place individual tax and 49th place in corporation tax. Still, Maryland’s seven-place plunge in its unemployment tax rankings enabled it to crawl underneath Iowa in the index.

The result isn’t surprising, as Iowa’s tax law is nearly unchanged from last year. The split control of the Iowa legislature has blocked any significant tax legislation. I do suspect that the sales tax component will improve in the 2017 index based on the change in the definition of sales tax-exempt manufacturing supplies under an administrative ruling set to take effect July 1 of next year.

Iowa, in short, continues to have a bad system, one changed very little in structure since the 1970s, with high rates and a rat’s nest of feel-good deductions and special interest subsidies producing a hostile system for small businesses lacking expensive advisors and good friends at the statehouse. It’s a system crying for reform. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a huge improvement.

Map by the Tax Foundation

Map by the Tax Foundation

 

Fresh Buzz! Tuesday again brings a fresh Buzz roundup from Robert D. Flach, covering ground from accounting nostalgia to changes in this year’s W-2.

Robert Wood, Clinton Foundation Amends 4 Years Taxes, Admits Speech Fees Weren’t Donations. Ah, but better keep an eye on those sneaky Tea Partiers. The laundering of speech fees through the foundation, instead of through Clinton 1040s, seems inherently sketchy.

Jay A. Soled, Kathleen DeLaney ThomasThe Nonreporting of Modern Fringe Benefits (Procedurally Taxing). “But there is a strange phenomenon transpiring with respect to this new breed of fringe benefits. While they generally do not fall within the delineated scope of Code section 132’s enumerated exemptions, they are nevertheless not being reported as income by employers (nor by the employees, who follow suit).”

Jason Dinesen, Glossary: Review (Of Financial Statements). “In a review, the CPA examines a company’s financials to verify that they are free of deficiencies, but the firm does not review internal controls or fraud risks as in an audit.”

Jack Townsend, Is Jury Unanimity Required as to at Least One Obstructive Act for Tax Obstruction?

Paul Neiffer, Trends in Write-Offs of Farm Assets:

The Tax Foundation periodically comes out with good information on tax statistics.  They recently issued a report on corporate investment in equipment for tax year 2012.  My perception has been that most of the equipment purchased during 2012 was new equipment.  Based on this report, my perception may be in error (or not).

I think Paul is correct in believing that Section 179 is a bigger deal for most farmers than bonus depreciation.

Kay Bell, Cell phone service taxes average 18%, an all-time high

 


TaxFoundation-2015-SBTCI

 

Peter Reilly, Bernie Sanders Less Of A Socialist Than Dwight Eisenhower. Peter bases this (absurd) headline on the Sanders statement that he wouldn’t raise income tax rates to the 90% amount seen in the Eisenhower administration. I suspect Peter was being deliberately provocative or sarcastic, as I think he knows his history too well to actually believe that.

UPDATE: Peter corrects my speculation in the comments: “On the not as Socialist as Dwight Eisenhower thing, I was quoting Sanders (or paraphrasing) as I was live blogging the debates.” Peter has a much stronger stomach than I do to actually watch these things.

 

Jim Maule, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN.  While the good professor focuses on the size of the tax code, I think that’s just a reflection of a much bigger problem — one that would be corrected by my proposal that all politicians, and all candidates, be required to do their returns by hand in a live webcast. I would also require a comment bar so we could all help the politicians — “hey, do you really think your used briefs are worth $3 each?”

 

Annette Nellen, “Abolish the IRS” Distracts from Needed Reforms.

TaxProf, The IRS Scandal, Day 922. The Attorney General will get to explain why she concludes there were no crimes committed.

Renu Zaretsky, Maybe peace, definitely another patch, and many refunds… Today’s TaxVox headline roundup ranges from prospects for tax legislation this year to refunds of Cleveland’s “Jock Tax.”

 

News from the Profession. Some Audit Committee Members Just Ignoring Auditors Now (Caleb Newquist, Going Concern). Well, they’re used to it.

 

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Tax Roundup, 10/21/15: The tax law doesn’t care where you are on the autism spectrum. And: Iowa sales tax rule change praised.

Wednesday, October 21st, 2015 by Joe Kristan

20151014-1No Asperger exception to Section 475. It’s heads they win, tails you lose for capital gains and losses. If you have capital gains, they’re happy to tax them, no matter how many you have. If you have capital losses, you are limited to gains plus $3,000 per year, with the remainder carrying forward — even if you have to outlive Methuselah to use them up at $3,000 annually. Many sadder-but-wider former day traders have found themselves with this problem.

Section 475 offers some taxpayers a way out. If you qualify as a “trader,” a Section 475 election makes your losses fully deductible. It makes your gains ordinary, rather than capital, and it requires you to recognize gains and losses on your open positions at year-end, but that’s not a big deal for day traders. They tend to trade short-term, and short-term gains are taxed at ordinary rates anyway, and marking-to-market isn’t normally a big deal to them.

But Section 475 has a strict election requirement. You have to make the election no later than the April 15 of the year you want the election to take effect. For example, a taxpayer wanting to make the election effective for 2015 tax returns would have to make the election on his 2014 timely-filed 1040 due April 15, 2015.

A New York man claimed he made the election on his 2003 1040. Unfortunately, he made two serious mistakes. See if you can spot them in the Tax Court’s summary:

In 2003 on the advice of his accountant, petitioner intended to file a section 475(f) mark-to-market election. Petitioner, however, did not retain a signed copy of any election or any evidence of mailing it. Petitioner filed his Federal income tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a statement that petitioner had made an election pursuant to section 475(f), but did not have a copy of Form 3115, Application for Change in Accounting Method, attached to it.

Error 1: Not keeping a copy of the election (assuming he made it).

Error 2: Not filing until over a year after the due date.

Other cases have shown that the IRS enforces the timely-filing requirements of Section 475 strictly, to keep taxpayers from making the election with the benefit of hindsight.

The Court ruled that he traded enough to qualify as a “trader” under the tax law, but that he blew the election (my emphasis):

We find that petitioner failed to comply with the requirements for the mark-to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner did not submit a copy of any executed version of Form 3115 or any evidence of mailing it. Respondent did not find any record of petitioner’s Form 3115 in his electronic database, but also admitted that in some years not all Forms 3115 received were actually entered in the database. Next, petitioner filed his Federal income tax return for 2003 on July 25, 2005, failing to comply with the filing deadlines.

There’s a lot in that paragraph. Perhaps the most important thing is that the IRS admits that it doesn’t always know what you file, so it’s wise to keep your returns forever in case something like this happens. The other thing is that the deadlines matter.

The taxpayer made an unusual argument to get out of penalties: that his Asperger Syndrome made it impossible to meet deadlines. The Tax Court wasn’t convinced:

For a number of years, including 2002 and 2003, petitioner worked as a high school teacher. There is no evidence in the record that at any time from 2001 through 2006 petitioner filed for a disability accommodation while he was employed as a school teacher. In 2007 petitioner was trading in securities. Petitioner’s work station was equipped with six monitors showing the status of his trades. Petitioner was able to collect, analyze, and organize information to base his trades on. Petitioner understood he had a duty to file tax returns but claims that in 2007 he was “despondent” because of the losses he suffered and could not organize himself to file a tax return timely.

We are sympathetic to petitioner’s plight. We cannot find, however, under these circumstances that petitioner’s mental condition prevented him from managing his business affairs.

This is consistent with other cases where the courts have found that if you are able to deal with the challenges of daily life, you are presumed to be able to file your returns on time.

The Moral: File your returns on time, and keep copies of your filings forever.

Cite: Poppe, T.C. Memo 2015-205

Related: TaxProf, Tax Court: Asperger’s Syndrome Does Not Excuse Taxpayer’s Failure To File Tax Return

 

20151021-1

 

David Brunori calls the Iowa proposal to broaden the definition of manufacturing supplies subject to exemption from sales tax The Best Tax Policy Proposal of the Year (Tax Analysts Blog):

Taxing what business entities buy is wrong for two important reasons. First, businesses will try to pass the tax they pay on to their customers in the form of higher prices. Almost all succeed. The customers incur the tax burden without knowing it. That’s wrong. Even for those companies that don’t pass the tax along to customers, some person is unwittingly paying the tax. Second, when consumers pay higher prices, they are sometimes subject to tax. Thus, the sales tax is imposed on a value that includes previous sales tax. You may know it as cascading or pyramiding. But it’s wrong.

And that’s why the Iowa proposal is so refreshingly right. It would expand the types of business purchases exempt from sales tax. My understanding is that there is a debate in Iowa about whether the Department of Revenue can expand the number of exempt business purchases administratively. I don’t know the answer to that. I do know that the proposal represents sound tax policy.

Governor Branstad says expects the proposal to be enacted, reports the Sioux City Journal in Branstad: House GOP won’t buck rule change.

 

Russ Fox, The Wagering Excise Tax and DFS:

I’m focusing on the tax aspects of daily fantasy sports (DFS) this week. It’s beneficial for DFS participants for the activity to be considered gambling. For political reasons (“gambling is a sin”) and regulatory reasons (gambling is regulated, skill contests are not), the DFS sites want to be considered skill games sites. There’s another reason that DFS sites don’t want to be considered gambling: the wagering excise tax.

Picking the right horse at the track is a skill, too, but I’m pretty sure it counts as gambling.

 

Paul Neiffer, What is a Marginal Tax Bracket. A useful explanation for the non-specialist of how tax brackets work.

Kay Bell, Increased e-filing security planned for 2016 filing season. Better at least five years too late than never, I suppose.

Jim Maule, Beachfront House Rental Deduction Washed Out. When you try to deduct what looks like a beach party, you’d better have excellent documentation.

Eric Rasmusen, Law Suit for Billions Against Citigroup Because of Treasury’s 2009 Waiver of Section 382’s Rule about Losing NOL’s after an Ownership Change. The Administration put the fix in for its friends at Citigroup, and now another taxpayer is suing.

 

20151021-2

 

Tax Policy Blog, A Comparison of Presidential Tax Plans and Their Economic Effects.

Renu Zaretsky, “There’s no cut like a tax cut… There’s no cut like a tax cut…” Today’s TaxVox tax headline roundup covers the continuing fiscal pain in Kansas and the IRS patting itself on the back on ID theft after letting it spiral out of control for years.

 

TaxProf, The IRS Scandal, Day 895

 

Quotable: 

Our media outlets dismiss the opponents of the Ex-Im bank or people who want to wind down Freddie and Fannie as Tea Party nut cases. If you want to stop crony capitalism, what we need are fewer influential media outlets and more Tea Party nut cases.

Arnold Kling

 

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Tax Roundup, 10/7/15: Iowa Dept. of Revenue proposes sound policy, protests erupt. And: skating to a low-tax state.

Wednesday, October 7th, 2015 by Joe Kristan

20150122-1The Iowa Department of Revenue proposes broad definitions for industrial sales tax exemption. The chief Democratic taxwriter in the Iowa Senate is unhappy.

The Des Moines Register reports:

State legislators will consider a proposal next week that would reduce the tax burden for manufacturers by up to $46 million in a move critics say bypasses the legislative process.

In an effort to avoid a “double tax,” current law exempts from taxation some items used during the manufacturing process and instead taxes the final product. The proposal would expand the number of items that qualify for that exemption.

The policy behind the exemption is sound. As David Brunori points out,

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

Whether the Department has overstepped its authority is a separate question from the tax policy. From the Register story:

But state Sen. Joe Bolkcom, D-Iowa City, pointed out the fiscal effects of the legislation on Monday.

“We’ve been told repeatedly by this governor that we can’t afford to educate our kids, and here he goes again with another big tax cut for Iowa’s largest corporations and putting their needs ahead of our kids,” Bolkcom said. “It’s wrong.”

“I don’t remember ever tax policy being made by the rules committee or being made by the executive branch without the consent of the Legislature,” Bolkcom said. “This is a huge tax policy change that (Gov. Branstad) has unilaterally decided.”

Iowa businesses have long complained about the restrictive definition of “equipment” and “property directly and primarily used in processing.” It seems to me that the new definitions are more in line with business reality and the intent of the exemption. Still, I haven’t seen a fight over proposed regulations like this, so I have no idea how this will play out.

Link: Proposed new Iowa rules.

 

20151007-1

 

TaxGrrrl, Hockey Players Ice High Tax Teams In Favor Of Tax Savings:

With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.

According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes.

Sports free agency is an unusual natural experiment on whether state taxes matter. There are always other factors than taxes in choosing a team.  Winning is worth something. Still, it’s pretty much the same job, just with different taxes. The resulting low-tax preference is what you would predict.

 

Kay Bell, Fantasy sports: Gambling or just good, clean online fun?  Either way, taxes are due, but deduction options differ.

Jack Townsend, Swiss Asset Manager Settles Up with DOJ Tax. A $295,000 fine. Another example of second prong of the IRS approach to international tax compliance — shoot the jaywalkers so you can slap the big offenders on the wrist.

Tony Nitti, Tax Geek Tuesday: A Buyer’s Best Friend – Understanding The Section 338(h)(10) Election. “What if a buyer could acquire a target’s stock for legal purposes — thereby keeping the target alive and preserving its non-transferable assets — but acquire the target’s assets for tax purposes, giving the buyer the stepped-up basis in the asset it seeks?”

 

Jim Maule, Putting More Tax Information “Out There” for the Tax Database Thieves:

Until and unless the protection of online data is heightened to a point of 99 percent confidence, the IRS should not create yet another vulnerability, another door through which the robbers can force their way in. In the meantime, why not focus on the problem rather than the symptoms? The underlying cause of some noncompliance is the complexity of the tax laws. Treating the symptoms does not cure the illness.

Agree.

 

Stephen Olsen, Summary Opinions for 8/31/15 to 9/11/15. Procedurally Taxing rounds up recent developments in tax procedure, “heavy on estate and gift this week.”

 

20151007-2

 

David Brunori, North Carolina Tax Changes — Sort of Good, Kind of Bad (Tax Analysts Blog):

On the good side, the state lowered the personal income tax rate from 5.75 percent to 5.49 percent. Lowering rates is usually good for the economy and for the people paying taxes. I believe that people know how to spend their money in ways that improve the economy much better than the government does. The state also expanded the no-tax exemption to $15,500, providing more relief for low-income taxpayers. In general that is a good thing.

On the super-negative front, the legislature is giving Hollywood moguls $30 million in each of the next two years to make films in North Carolina. I guess they haven’t read any of the studies showing that film credits don’t work. But why let facts stand in the way of policymaking?

It’s probably only a matter of time before they realize the wisdom of Iowa’s enlightened approach to hosting filmmakers.

 

Joseph Henchman, California Supreme Court Hears Arguments in MTC Case (Tax Policy Blog).

Roberton Williams, New Estimates Of How Many Households Pay No Federal Income Tax (TaxVox). “We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent.”  Mitt Romney, call your office.

 

TaxProf, The IRS Scandal, Day 881. Quoting Victor David Hanson: “What now constitutes actionable criminal behavior in the scandals at the IRS, EPA, ICE and a host of other alphabet agencies are not treated as per se violations of the law. Rather, they are judged according to whether the offender and his crime were deemed progressive and well-intended—or reactionary and thus prosecutable.”

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Part 1. Sometimes I think the TaxProf has to reach deep to have something to run every day, but his continued focus on the outrageous IRS behavior is a public service. I’m not sure Peter thinks there is a scandal in the first place.

 

Career Corner. Do PwC Employees Really Like the New Student Loan Perk? (Caleb Newquist, Going Concern). No word on whether the spiff is available in cash for those thrifty students who got by without loans.

 

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Tax Roundup, 9/30/15: Taking from rich doesn’t give to the poor; state incentives favor the big.

Wednesday, September 30th, 2015 by Joe Kristan

Today we have two instances where policy tanks that I usually disagree with make important tax policy points.

TPC logoFirst, The center-left Tax Policy Center, a project of the Brookings Institution (which I castigate below), makes an important observation about the overrated problem of income inequality in their paper, Would a significant increase in the top income tax rate substantially alter income inequality? The summary (my emphasis):

The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

I have zero hope that politicians will heed this. Just because you take from the rich doesn’t mean it goes to the poor. It goes to the well-connected, as in the next item.

Second, the not-so-center-left Good Jobs First takes the side of the angels in the battle against state tax incentives, with a survey of small businesses called In Search of a Level Playing Field:

A national survey of leaders of small business organizations reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. 

I think they have this exactly right. It’s not start-ups that get the big deals from the legislature and the Economic Development bureaucrats. It’s the well-connected and wealthy companies that know how to work the system. The rest of us get to pay for it.

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Related: LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Jason Dinesen, The Iowa School Tuition Organization Tax Credit. “Iowa offers dozens of obscure tax credits. The one I get asked about most is the tax credit available for donations to a ‘school tuition organization’ or STO.”

Kay Bell, Maryland issuing court-ordered county tax credit refunds. If you don’t want to repay illegal taxes, don’t collect illegal taxes.

Russ Fox, How to Wynne Your Money Back in Maryland

Paul Neiffer, IRS Provides List of Counties Eligible For Additional Extension on Livestock Replacement

Jim Maule, Taxation of Prizes, Question Two. He quotes a post from a sweepstakes message board:

 I won concert VIP tickets, there is no value on the tickets, so I can’t sell them. If no value is on them, why am I paying taxes on them? 

Mr. Maule explains that there is a value. If there isn’t, then why didn’t the winner give them away?

Robert D. Flach, WON’T YOU TAKE THIS ADVICE I HAND YOU LIKE A BROTHER: MY BEST TAX ADVICE FROM OVER 40 YEARS’ EXPERIENCE PREPARING 1040s.

 

20150930-1

 

InsureBlog, Yes, The New York Obamacare Co-op [squandered*] $340 Million. *The actual headline uses a more colorful term.

Robert Wood, Hillary Backs Cadillac Tax Repeal

 

TaxProf, The IRS Scandal, Day 874. Today’s edition features IRS agents abusing their power on everyday taxpayers. But we can trust them to regulate their tax preparer adversaries, right?

Arnold Kling, Hypocrisy and Cowardice at Brookings. Arnold addresses the firing by the Brookings Institution of Robert Litan, a scholar accused by Senator Elizabeth Warren of “writing a research paper to benefit his corporate patrons.” He is appalled:

1. Robert Litan is one of the most decent individuals in the whole economics profession.

2. Giving Litan’s scalp (sorry for the pun) to Elizabeth Warren does nothing to bolster the integrity of Brookings. It amounts to speaking cowardice to power.

There’s more. The episode is appalling, and it shows the totalitarian tendencies that are barely beneath the surface of Senator Warren’s populism.

 

20150930-2

 

Alan Cole, Donald Trump’s Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances (Tax Policy Blog)

Jeremy Scott, Trump’s Tax Plan Is Pretty Much GOP Orthodoxy (Tax Analysts Blog)

Matt Gardner, How Donald Trump’s Carried Interest Tax Hike Masks a Massive Tax Cut for Wealthy Money Managers (Tax Justice Blog)

Peter Reilly, Trump Tax Plan Would Increase Deficit By Over $10 Trillion

Tony Nitti, Love Trump, Hate Romney, But Their Tax Plans Are One And The Same

Renu Zaretsky, Thirty days, goodbye September, shutdown talks—maybe in December. Today’s TaxVox headline roundup covers shutdown politics, plans to use reconciliation procedures to pass bills repealing pieces of Obamacare, and tax Trumpalism.

 

See you at Hoyt Sherman Place tonight!

 

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Tax Roundup, 9/9/15: Meredith HQ stays in Iowa despite taxes. And: Walter Mitty, Chiropractor — not Ghostbuster.

Wednesday, September 9th, 2015 by Joe Kristan

 

20150608-1

A part of the Meredith campus in Downtown Des Moines.

Meredith Corporation will keep its headquarters in Des Moines, reports the Des Moines Register. The Des Moines-based media company yesterday announced its acquisition by Media General, a Virginia-based company. From the Register report:

Virginia-based Media General will acquire Meredith in a cash-and-stock sale, forming a new company — Meredith Media General — that will combine Meredith’s list of women-focused magazines and 17 local TV stations with Media General’s 71 TV stations and digital media assets.

“We have our corporate headquarters in Des Moines, my management team … we all live in Des Moines, our staff are in Des Moines. We will continue to be in Des Moines,” Lacy said. He will serve as CEO and president of the new company.

Meredith Media General will be incorporated in Virginia, but have corporate offices in both Richmond, Va., and Des Moines.

It’s an interesting compromise. With the CEO of the combined company already located in Des Moines, it’s unsurprising that he will run things from here, everything else being equal.

Yet not everything is equal. Des Moines is an expensive place tax-wise to run a corporate headquarters, according to the Tax Foundation’s Location Matters report. Iowa is the 4th most expensive state in which to locate a corporate headquarters, while Virginia is the 12th cheapest. 20150901-1

Fortunately for Des Moines, non-tax factors apparently outweighed the tax issues. These might include the in-place infrastructure for Meredith’s publishing arm, including Better Homes and Gardens and Martha Stewart Living. Still, those 900 Des Moines Meredith jobs might be more secure with a better tax environment. Quick and Dirty Iowa Tax Reform Plan, anyone?

 

Tony Nitti, Child’s Unauthorized Incorporation Of Father’s Business Proves Costly In Tax Court. “Raising kids comes with some well-known hazards: sleepless nights, spit-up stained clothes, and of course, the occasional flailing elbow to the genitalia. What you probably don’t anticipate upon the miracle of childbirth, however, is that one day your kid will take it upon himself to incorporate your business via the internet, costing you tens of thousands in tax deductions.”

Robert D. Flach, THE NATP TAX FORUM AND EXPO IN PHILADELPHIA – PART I. “The one thing that is missing from the NATP Tax Forum offering is the IRS perspective.”

Kay Bell, Tax scam callers now spoofing telephone numbers

TaxGrrrl, IRS To Refuse Checks Greater Than $100 Million Beginning In 2016

 

Scott Greenberg, The Carried Interest Debate is Mostly Overblown (Tax Policy Blog). Mostly? Almost entirely.

TaxProf, The IRS Scandal, Day 854

Career Corner. 5 Ways Accountants Can Protect Themselves from the Accountapocalypse (Chris Hooper, Going Concern)

 

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Who knew being a Chiropractor could be so exciting? James Thurber created the character Walter Mitty, “… a meek, mild man with a vivid fantasy life: in a few dozen paragraphs he imagines himself a wartime pilot, an emergency-room surgeon, and a devil-may-care killer.”

A Minnesota chiropractor, a Mr. Laudon, seems to have reprised the Mitty role on his tax return. If his Tax Court testimony is to believed, chiropractic practice can be pretty exciting. From the Tax Court:

He said that his patients often called him a psychiatrist, chauffeur, physician, peace officer, or even a pheasant hunter.2 Some of Laudon’s stated reasons for making these trips strain credibility: for example, driving to a “schizophrenic” patient who was — on more than one occasion — “running scared of demons” down a rural Minnesota highway, or driving to a patient’s home in a Minneapolis suburb — expensing 261 miles — because he had received a call from police that she had overdosed on OxyContin prescribed by her physician. Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform.

Laudon contends that the Commissioner failed to classify certain deposits as nontaxable, including insurance payments for damage to several vehicles, one of which was involved in a “high speed police chase” with a man “high on meth and cocaine.”

IMG_1583Note that footnote 2, we’ll get to that in a minute. I never knew that a chiropractor could have such an exciting life. Law enforcement, mental health, high-speed chases — even exorcism, it seems.  Is there anything he couldn’t do? Well, back to footnote 2:

But not a ghostbuster. The Commissioner rhetorically asserted that some of Laudon’s trips might have made more sense if he was claiming to be a ghostbuster. Laudon then disclaimed any employment as a ghostbuster. In his reply brief the Commissioner conceded that Laudon was not “employed or under contract to perform work as a ghostbuster during the tax years at issue in this case.” We therefore need make no finding on the existence of a market for “supernatural elimination” in west-central Minnesota. See “Ghostbusters” (Columbia Pictures 1984).

In case you couldn’t tell, this is a Judge Holmes opinion.

Walter Mitty’s dreams didn’t go well, as his fantasy life had him in front of a fantasy firing squad. Things went badly for our chiropractor too. The court found both his documentation and his credibility lacking, including this about his mileage logs:

Laudon claimed to have driven hundreds of miles per day — sometimes without a valid license — to see patients, but several of these trips were for medical procedures he was not licensed to perform. Even his testimony about multiple entries in the logs where he wrote “DUI” was not credible: He claimed that these were not references to being stopped by police while under the influence, or driving while his license was suspended, but instead were his misspellings of a patient named “Dewey” — a supposed patient of his. He testified that he took one business trip to pick up a patient left stranded due to a domestic dispute with his girlfriend. And he even testified about trips he made to test his patients’ urine:

    Absolutely we do * * * [test urine]. It’s part of the — I believe it’s Federal, you know, that they have — we have to abide by that. It’s specific gravity. You’re basically, looking for sugar, let alone height, weight, blood pressure. Make sure they’re not drunk, doing illegal drugs.

We find Laudon not credible in his testimony regarding his business mileage, and this finding affects our views of his testimony’s credibility on every other issue in the case.

The taxpayer reported taxable losses from 2007-2009 ranging from $60,000 to $84,000. That alone is a challenge to credibility. The IRS added $346,000 to his income for the three years, and the Tax Court upheld the IRS with only minor changes. Among the disallowed expenses were “a Microsoft Xbox 360, Nintendo Wii, and numerous pieces of hair-salon equipment.” So, a barber, too.

The Moral? There might be more to that mild-mannered chiropractor than you imagined. But if there is, he needs to keep good records when the IRS comes calling.

Cite: Laudon, T.C. Summ. Op. 2015-54

Russ Fox is also on the case: Ghost Hunter, Pheasant Hunter, or Deduction Hunter: No Matter, He Loses at Tax Court

 

 

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Tax Roundup, 8/28/15: Reverse Danegeld. And: stealing a Congressional tax refund!

Friday, August 28th, 2015 by Joe Kristan
Flickr image courtesy stu_spivack under Creative Commons license

Flickr image courtesy stu_spivack under Creative Commons license

May I have another Danish? It’s a lot less fun to be a Dane than it might have been 1,000 years ago. Back then, cowering kings paid a Danegeld, a payment to keep the fearsome Danish Vikings away. From Wikipedia:

The Danegeld (/ˈdn.ɡɛld/;[1] “Danish tax”, literally “Dane tribute”) was a tax raised to pay tribute to the Viking raiders to save a land from being ravaged. 

Now the money is going the other way, it appears, because the Danish tax agency is outdoing the IRS in sending money to thieves, no questions asked. EUObserver.com reports Danes stunned by €800mn tax fraud:

Criminals have duped Denmark’s tax authority into incorrectly refunding €830 million in the past three years, by filling out an online form for tax refunds under double taxation agreements.

The fraud was alerted to police on Wednesday (26 August) and appears to be the country’s biggest tax scam ever, with little chance for the state to recover the money.

They apparently made it easy:

With most of Danish taxes administrated online, it was easy for the fraudsters to fill in the one-page, so-called 06.020 form on the tax authority’s homepage and then claim refunds for taxes paid on stock revenues from Danish companies held by foreign companies.

The fraud would have been easily revealed if the tax authority cross-checked the ownership of shares with Danish companies.

Denmark has about 5 million people, so it’s as though the scammers had taken $185 from every Dane. That would translate to about a $55 billion theft loss in the U.S. Actual annual losses from U.S. tax refund fraud are estimated to run in the neighborhood of $5-6 billion annually.

Being better than Denmark doesn’t seem to comfort one congressman very much. Deseret News reports Congressman Jason Chaffetz is victim of tax return scam:

Chaffetz, chairman of the House Oversight Committee, is using the incident to add fuel to his call for the firing of IRS Commissioner John Koskinen.

The congressman asked President Barack Obama last month to remove Koskinen, saying he has obstructed congressional investigations into the treatment of conservative groups. Chaffetz said not only has Koskinen ignored a congressional subpoena but has shown an inability to manage a large organization and protect sensitive data.

“There has to be a better, smarter way to authenticate who somebody is. Social Security numbers are floating out there everywhere,” the congressman said.

While the refund fraud debacle started before Koskinen became IRS Commissioner, he sure hasn’t gotten it under control.

 

A loss in the Iowa tax policy world: Co-founder of Iowans for Tax Relief dies.

buzz20150827Friday Buzz! from Robert D. Flach, rounding up stories from the tax uses of capital losses to catching up on retirement savings.

Russ Fox, Will the Last One Out Turn the Lights Off? “Nearly four years ago my business–and the one whole employee in the Bronze Golden State (me)–left for Nevada because sometimes silver is better than gold.” And their politicians are primed to make California taxes worse still.

Annette Nellen, Sales tax on short-term rentals? Maybe! “The ease of listing your home, vacation property or a room on Airbnb or similar web platform has turned a lot of individuals into landlords.”

Paul Neiffer, Midwest Cropland Values Continue to Drop

Kay Bell, Still waiting for tax extenders. Is money the holdup?

Jim Maule, Traffic Ticket Fines Based on Income? “So my bottom line is, yes, conceptually it is an interesting idea with some valid arguments in support, and with some valid arguments in opposition. But when I turn to practical reality, a benchmark too often overlooked, the answer for me is clearly, ‘No, it’s not worth it.'”

Keith Fogg, Quiet the Title before You Sell (Procedurally Taxing)

Robert Wood, Under Obamacare, Does Everyone Drive A Cadillac?. That’s nothing. Under President Vermin Supreme, everyone gets a pony.

Me, Who should own the bricks?. My latest at IowaBiz.com, the Des Moines Business Record’s business professionals’ blog, discusses the problems of structuring ownership of business real estate.

 

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Scott Greenberg, Here’s How Much Taxes on the Rich Rose in 2013 (Tax Policy Blog):

So, in 2012, the wealthy had higher-than-usual levels of capital gains income. Therefore, because capital gains are taxed at a lower rate, overall tax rates on high-income Americans were lower than usual in 2012. In 2013, because high-income Americans had much less income from capital gains, their effective tax rates rose significantly.

But some people, including those in the White House now, never beleive the rates are high enough.

 

Howard Gleckman, CBO Sees a Big Increase in Individual Income Tax Revenues Over the Next Decade. They’ll always want more.

TaxProf, The IRS Scandal, Day 841

 

News from the Profession. CohnReznick’s Golf Event Won’t Solve Gender Inequality (Greg Kyte, Going Concern)

 

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Tax Roundup, 8/27/15: Iowa cheap for the factory, costly for the headquarters. And: Instant Tax indictments.

Thursday, August 27th, 2015 by Joe Kristan

All the state taxes. The Tax Foundation has issued its 2015 Location Matters report, “a comparative analysis of state tax costs on business.” It provides a summary of the costs of operating different kinds of business, state by state, with wonderful charts like this one for Iowa:

Source: The Tax Foundation

Source: The Tax Foundation

This chart seems to show that Iowa is relatively easy on manufacturing, but a very expensive place for a service business or a distribution center — with an effective state and local rate of around 40% for distribution facilities. It also shows that the corporation income tax really only clobbers retailers and corporate headquarters.

The charts really get interesting when you compare states. Let’s turn to our neighbors in South Dakota:

20150827sd

Source: The Tax Foundation

While most industries fare much better in South Dakota than in Iowa, capital-intensive manufacturers — especially new ones — do a little worse. This is because South Dakota has a higher sales tax, and, presumably, because of the presence of Iowa’s tax incentives for new manufacturers. Once you settle in, there is little difference.

Here’s what the report says about Iowa (my emphasis):

Despite having the highest top corporate income tax rate in the nation at 12.0 percent, Iowa’s mature capital-intensive manufacturing firm experiences the lowest effective tax burden in the nation at 3.9 percent, due in large part to Iowa’s single sales factor apportionment formula and the lack of a throwback rule, which have the effect of exempting nearly all of a firm’s income from in-state taxation. The operation also experiences a relatively low property tax burden due to the lack of property taxes on equipment and inventory.

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 offers a 50 percent deduction for federal income taxes paid, which helps mitigate the burden of the state’s high corporate and individual income taxes but is also responsible for those high rates.

In addition to its favorable apportionment factors for businesses selling goods out of state, Iowa’s benefits-based sourcing rules work to the advantage of Iowa-based firms selling services out of state. However, effective property tax rates can be exceedingly high for some firms—nearly double the national average for mature distribution centers, for instance—greatly increasing overall tax costs. Qualifying new firms (the manufacturing operations and the distribution center) receive a full abatement of the property tax on improvements for three years, though the abatement does not cover taxes on the value of the land itself.

Manufacturing machinery and research and development (R&D) equipment are exempt from the state sales tax, and the R&D facility receives other incentives as well. Iowa also offers generous investment and job creation tax incentives to new firms, though due to the state’s high tax rates, most new firms continue to experience above-average tax burdens.

This offers some lessons for Iowa’s ongoing tax reform debate:

– The Iowa Corporation Income Tax, where it isn’t futile, is a job killer, making it very expensive to locate a corporate headquarters here.

– Iowa’s vaunted tax incentives benefit the lucky and the well connected, while stifling start ups: “most new firms continue to experience above-average tax burdens.”

– Despite the recently enacted property tax reforms, Iowa’s real estate taxes still are a big cost for Iowa businesses.

The full report can be found here.

Related:

Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

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Instant tax unhappinessThe tax prep franchise outfit Instant Tax Service had a colorful history before it was ordered to close by a federal judge. It was notorious for “paystub” returns, prepared to claim refunds for a mostly low-income clientele before they got their W-2s. That’s something preparers aren’t supposed to do.

Yesterday things got worse for the owners of Instant Tax Service with an indictment on tax charges. A Department of Justice Press Release lists some of the allegations (my emphasis):

From about January 2004 through November 2012, Ogbazion and Wade executed a scheme to obstruct the Internal Revenue Service (IRS), wherein numerous ITS franchises filed false federal income tax returns without valid Forms W-2 and without the permission of their taxpayer clients.  The false returns included false and inflated sole proprietorship Schedule C income in an attempt to increase the Earned Income Tax Credit.  Over the course of several years, Ogbazion also instructed an ITS employee to electronically file large volumes of unsigned tax returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations.  In an attempt to obstruct IRS civil compliance audits, ITS maintained and filed false documents with the IRS, including fabricated Forms W-2 created by ITS employees using tax preparation software, and forged client signatures on various false IRS forms.

Earned income tax credit skeptics are often scolded that the 25% rate of improper payments isn’t all due to fraud; it’s because taxes are hard and all. Taxes are hard, but if there isn’t massive fraud, it’s not for lack of trying. Rather than trying to run a welfare system through the tax code, we should be looking at a universal benefit along the lines proposed by Arnold Kling.

Related:

Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate.

 

Vox.com, H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

H&R Block’s entire business model is premised on taxes being confusing and hard to file.

Well, that and promoting IRS preparer regulation to put competitors out of business.

Robert Wood, Trump Firing H&R Block Could Actually Help Immigrants

 

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Jason Dinesen, Things a Business Owner Needs to Know Before Hiring Employees

Robert D. Flach, WHAT DEDUCTIONS WOULD YOU KEEP?

Tony Nitti, 2013 Tax Changes Raised The Tax Bill On The Wealthiest 2 Percent By $60 Billion. “Whether an additional $60 billion in revenue is enough to satisfy the current administration remains to be seen.” No, we already know it won’t.

TaxProf, The IRS Scandal, Day 840. More about Toby Miles. Meanwhile, Commissioner Koskinen dismisses the revelations of Lois Lerner’s canine email address under the “old news” ploy, and tells Tax Analysts ($link) that even though she hates Republicans and Tea Partiers, Lerner’s team was fair and square in dealing with their exemption applications.

Kay Bell, Lois Lerner used her dog’s email to conduct IRS business

 

Joseph Thorndike, When it Comes to Taxes, Americans Are of Two Minds – or Three, or Five or Eight. “While trying to make sense of Donald Trump’s statements on tax policy, I was struck by their disparate quality; to call them random is to exaggerate their coherence.”

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Tax Roundup, 8/20/15: Can Iowa tax reform happen?

Thursday, August 20th, 2015 by Joe Kristan
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 Tax Reform – doable? I will spend much of today at the Iowa Association of Business and Industry Tax Committee meeting. The topic is Iowa tax reform. Regular readers know that I have strong feelings about the topic. Iowa’s income tax is a mess, and it doesn’t have to be.

Or does it?

There are always forces that push a tax system to complexity. I think any tax system will always have insiders trying to cut special deals for themselves. This leads to higher taxes on everyone else, but the insiders are good at protecting their special deals. Iowa’s dozens of incentive tax credits are classic examples.

Iowa has other factors that help stymie efforts to lower tax rates by eliminating deductions and special tax breaks. On the right side of the aisle, Iowans for Tax Relief has always opposed any tax reform that eliminates the deductibility of federal income taxes. This is almost unknown outside of Iowa, and its repeal is probably essential if we are going to significantly reduce Iowa’s very high 8.98% individual rate.

On the left side of the aisle, the politicians have an unhealthy focus on soaking the rich. With control of the state senate, Iowa Democrats have bottled up all efforts that would reduce Iowa’s high rates because they help “the rich” — better known as “employers.”

I think Iowa may overcome these obstacles. Elimination of corporate tax and much lower individual might persuade insiders to give up special deals, or at least make them not worth fighting for. I think Iowa business is tired of its perpetually poor business tax climate.  Iowans for Tax Relief may soften its stance on federal deductibilty, or legislators may find the arguments for reform more persuasive. And a broad-based tax simplification could have non-partisan appeal, especially if it has a large low-income exemption.

But I think it has to be ambitious. A small plan isn’t going to persuade anybody to give up their special deals, or to modify long-held views. That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan is a good place to start.

 

Scott Drenkard, State Sales Tax Holidays in 2015 (Tax Policy Blog):

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“Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round.”

 

Kay Bell, Does your state have unusual, confusing tax laws? Probably.

 

Victor Fleisher, Stop Universities From Hoarding Money:

Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment.

In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at four other endowments I researched: Harvard, the University of Texas, Stanford and Princeton.

For some reason, you hear less about inequality in college endowments than you do about income inequality.

 

 

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Two Headlines from Tax Notes this morning (unfortunately links only work for subscribers):

Tax Community Questions Proposal to End IRS Union Representation

No Evidence of IRS Partisanship Has Been Found, NTEU Says

To me, the second headline pretty much confirms the error of the “tax community” cited in the first one. To read the Lerner emails and conclude that she was “non-partisan” indicates a reading comprehension problem. NTEU, the IRS employee union, gives 96% of of its donations to, er, non-Republicans. Sounds nonpartisan to me…

 

 

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TaxGrrrl, LLCs, S Corps & PCs: Choosing A Business Entity:

Entity selection is more important than you think. Your choice of entity can affect the number and identity of shareholders and partners, equity structure, control and management, as well what kind of funding you might be eligible to receive.

If you can’t make up your mind, start with the most flexible one — an LLC not taxed as a corporation– so you can change your mind without too much pain and suffering

Peter Reilly, Does Ninth Circuit Mortgage Interest Decision Create Special Rights? Well, it creates an incentive for people with multi-million-dollar houses to get divorces.

Carl Smith, Tax Court Again Refuses to Apply One Part of Equitable Innocent Spouse Relief Rev. Proc. 2013-34 (Procedurally Taxing)

Paul Neiffer, Wohttp://www.farmcpatoday.com/2015/08/19/wow/w! Paul is seeing lots of 200-bushel corn in Southwest Iowa on his Midwest Crop Tour.

TaxProf, The IRS Scandal, Day 833

 

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Tax Roundup, 8/17/15: New directions in Iowa tax policy. And lots more!

Monday, August 17th, 2015 by Joe Kristan
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.

This week may see the start a discussion of the future of Iowa tax policy. The Iowa Association of Business and Industry Tax Committee meets Thursday to discuss proposals for the future of the Iowa income tax.

There’s a lot to talk about. The Tax Foundation puts Iowa among the bottom-ten states in its 2015 Business Tax Climate Index. Iowa has the second worst corporate tax ranking and the highest corporation tax rate of any state. We also have a subpar individual tax ranking. Along with the high rates — and made possible by them — the Iowa income tax is full of special favors for influential and sympathetic interests. This makes the taxes expensive and difficult to comply with and not so good at collecting revenue.

The state legislature has not seriously addressed income tax reform in recent years. There has been no movement against the awful corporation tax that I am aware of. The Republican caucus has pushed an individual “alternative maximum tax,” one with lower rates and a broader base — that would co-exist with the current system. That has an obvious flaw — everyone would compute their tax both ways and pay the lower tax. That makes the system more complex. But all tax reform has been bottled up by the Democrat-controlled Iowa Senate.

What are the ingredients for Iowa tax reform? A good tax reform discussion should consider:

Repeal of the Iowa corporation income tax. The Iowa corporation tax provided $438 million of the the state’s 2014 revenue, out of $7.545 billion. Corporation income taxes discourage in-state growth and are expensive to enforce. The state would be better off without it.

Repeal of all incentive tax credits. The state has many tax credits, some of which are refundable, including the R&D tax credit. Simply eliminating the tax credits would recoup some of the lost revenue from a corporation income tax repeal.

Move the individual income tax to an AGI-based system. Eliminate state itemized deductions and special state deductions and use the savings to lower the rates. Such as system would only retain a few itemized deductions to prevent abuse of taxpayers, principally the deduction for gambling losses.

Don’t be Kansas. That state enacted a poorly conceived tax reform effort a few years ago, and it has been a mess. Ambitions for tax reform have to be reconciled to revenue needs. While I think the state should spend less than it does, we can’t assume it will do so. Tax reformers need to present a plan that is revenue-neutral, or close to it.

Related:

Is Iowa’s business tax climate really that bad?

Baby steps towards fixing Iowa’s business tax climate

What an Iowa income tax might look like with a fresh start.

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

Jared Walczak, How High Are Property Taxes in Your State? (Tax Policy Blog). With this map:

 

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Iowa still has relatively high property taxes, even after the recent property tax reforms. But we have high income and sales taxes too.

 

Russ Fox, Two Sets of Returns Aren’t Better than One:

Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?

This is what Russ might call a Bozo tax offense. It’s not like this sort of thing will go very long without someone noticing.

 

Jason Dinesen, Glossary: Estimated Tax Payments

Annette Nellen, Innovation box tax reform proposal, A good explanation of a bad idea.

Kay Bell, IRS says free identity theft protection services are tax-free. “That’s very good news for me, since I was part of the huge OPM hack”

TaxGrrrl, IRS Offers Tax Guidance On Free Identity Theft Protection Services

Paul Neiffer is on the road on The ProFarmer Midwest Crop Tour.

Jim Maule, Rebutting Arguments Against Mileage-Based Road Fees. I think an expansion of tolling is more likely, but I don’t think that is very likely either.

Jack Townsend, Ninth Circuit Requires a Filing for Tax Perjury Charge. “Under the facts, Boitana had merely presented the false return to the agent, but that presentation was not a filing.”

Peter Reilly, Let Irwin Schiff Die With His Family Not In Prison:

You don’t have to agree with Irwin Schiff’s views on the federal income tax, to feel sympathy for Peter Schiff’s request that his father be released from prison. Irwin, now 87, has been diagnosed with lung cancer and it seems likely that he will not live to see his July 26, 2017 release date.

I think the government has made its point.

 

Patrick J. Smith, D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1) (Procedurally Taxing):

The weakness of the majority opinion in Florida Bankers, together with the strength of a dissenting opinion filed in the case, as well as the inconsistency of the majority opinion not only with the Supreme Court’s Direct Marketing decision but also with other D.C. Circuit opinions, all make the Florida Bankers case a strong candidate for en banc review. 

The suit challenges the FATCA rules on foreign reporting.

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TaxProf, The IRS Scandal, Day 828Day 829Day 830

Matt Gardner, Latest Inversion Attempt Illustrates U.S. Can’t Compete with a 0 % Corporate Tax Rate (Tax Justice Blog). It could with a zer-percent rate of its own.

Renu Zaretsky, Tax plans and presidential candidates: The future [may or may not be] now. The TaxVox headline roundup talks about presidential candidate tax plans and the bleak outlook for the IRS budget under the current Commissioner.

Quotable:

If you think of government programs as technology, they are hopelessly behind. We regulate communications using the FCC, which is 1930s regulatory technology. We address health care for the elderly with Medicare, which is 50-year-old technology.

In the private sector, when an enterprise becomes technologically obsolete, it falls by the wayside. In government, it gets larger.

Arnold Kling

 

News from the Profession. Yep, Almost All Accounting Firm Partners Are Still White Guys (Caleb Newquist, Going Concern). Well, I still am, anyway, and I don’t see that changing.

 

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Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And windy subsidies, IRS stonewalling, more.

Monday, June 29th, 2015 by Joe Kristan

Welcome to the marriage penalty. The Supreme Court has spread Iowa marriage law nationwide. That means more same-sex couples will tie the knot and learn about the sometimes surprising tax results of matrimony. In general, if only one member of the couple has income, it’s a good tax deal, but not so much for two-earner couples. The weird complexity of the tax law means there are lots of exceptions.

The Tax Foundation has an excellent summary of these issues, Understanding the Marriage Penalty and Marriage Bonus. It includes this wonderful piece of abstract art illustrating how marriage can help and hurt a couple’s federal income tax liability:

Marriage penalty tax foundation chart

 

The chart has two axes: the percentage of income earned by each spouse, and the income level. Blue is good, red is bad. If combined income is just short of $100,00, it’s all good, but there is lots of room for tax pain at the top and bottom of the income spectrum for married couples.

Other coverage:

Jason Dinesen, Tax Implications of Friday’s Ruling on Same-Sex Marriage:

This ruling should not have an impact on federal tax returns because couples in same-gender marriages have been able to file as married on their federal tax returns since 2013. This ruling affects state tax returns in states that had bans against same-gender marriage.

Jason, an Iowa enrolled agent, was an early expert in same-sex marriage compliance.

 

TaxProf Blog Op-Ed By David Herzig: The Tax Implications Of Today’s Supreme Court Same-Sex Marriage Decision (TaxProf) “Same-sex couples will now be able to inherit, file joint state tax returns, possess hospital visitation rights and all other state marriage rights as heterosexual married couples.”

Kay Bell, Marriage equality means tweaks to tax code, tax forms. “Sen. Ron Wyden (D-Ore.), the ranking minority member on the Senate Finance Committee, is already working on getting the new nomenclature on the books.”

TaxGrrrl, SCOTUS Legalizes Same Sex Marriage But Questions Remain For Religious Groups & Tax Exempts

 

Wind turbineWindy Subsidy Signed. Governor Branstad has signed HF 645, which establishes a tax credit for wind energy. The credit is 50% of the similar federal credit, up to $5,000. It takes effect retroactively to 2014, giving a windfall to people who bought qualifying systems already. It will do nothing for the environment, but it will do wonders for companies selling wind energy systems.

 

 

 

Christopher Bergin, Why We Just Sued the IRS – Again (Tax Analysts Blog):

For more than two years the IRS has played its old game of hide the ball regarding requests to release Lois Lerner’s e-mails — e-mails that would teach us a lot about what actually went on during the exempt organization scandal. Many of those requests came from the United States Congress: the elected officials who control the IRS budget. The IRS’s stalling tactics have run the gamut from eye-rollingly comical to downright disturbing.

Through this and and other worrisome developments, one thing is clear: the IRS is now in desperate trouble. Most of that trouble it created itself. It would be unfair to call them the gang that couldn’t shoot straight, because when it comes to shooting itself in the foot the IRS is an expert marksman. The IRS is an agency whose initial reaction to almost anything is secrecy.

The IRS needs a big culture change, one starting with a new Commissioner.

 

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Associated Press, Ex-Rep. Mel Reynolds indicted on tax charges. Can you believe a Chicago politician who would sleep with a 16-year old campaign worker would also cheat on his taxes?

 

Russ Fox, A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS:

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

If you outsource your payroll tax, insource regular visits to EFTPS to make sure your payments are made.

 

Peter Reilly, SpongeBob SquarePants In A Tax Case!

Tony Nitti, Sloppy Drafting Saves Obamacare – Supreme Court Upholds Tax Subsidies For All. I think it was more sloppy judging than sloppy drafting that did the trick.

Keith Fogg, Aging Offers in Compromise into Acceptance (Procedurally Taxing).

Jack Townsend, Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA. They want both to be declared unconstitutional. Unfortunately, it seems like a anything the IRS wants is constitutional anymore.

TaxProf, The IRS Scandal, Day 779Day 780Day 781. Still trying to shake out the “lost” emails after 781 days. You’d think they were stalling or something. And efforts to impeach Commissioner Koskinen. It’s not going to happen, but if he had any shame, he would have resigned long ago.

Richard Auxier, Michigan, out of ideas, might ask poor to pick up transportation tab (TaxVox).

 

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Quotable:

The pledge, the brainchild of Grover Norquist, president of Americans for Tax Reform, is a terrible idea for several reasons. First, no leader should promise never to raise taxes because, frankly, there are times when it is necessary. Over 50 Kansas legislators and Brownback, who have signed the pledge, found that out last week. I agree with Norquist philosophically; less government is good. But the pledge only leads to more debt at the federal level and gimmicks in state governments.

David Brunori, Tax Analysts ($link)

 

Career Corner. EY Employee Has Eaten So Many Hours, He’s Gone on Hunger Strike (Caleb Newquist, Going Concern).

 

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