Posts Tagged ‘Jack Townsend’

Tax Roundup, 3/31/14: A little fire won’t stop us!

Monday, March 31st, 2014 by Joe Kristan

There was a little disruption around the Tax Update neighborhood over the weekend.  The 115 year-old Younkers Building, kitty-corner from our quarters in The Financial Center, burned over the weekend.  It was being renovated into apartments and shops when it caught fire early Saturday morning.  Here’s how it looked yesterday from one of our conference rooms:

20140330-1

 

While our neighbors in Hub Tower and the EMC Building are closed today, Roth & Company is open for business.  If you need to visit us, you have to enter on the Mulberry Street side; the Walnut side is closed by police order.  You can still reach the parking garage, but you have to come from Mulberry and turn north onto the little stub of Seventh Street left open to allow garage access (it’s normally one-way, Southbound, but it’s one-way northbound until they can re-open Seventh Street, and that doesn’t seem likely for awhile).  We are cut off from the skywalk system, for now. (Update, 8:54: we have Skywalks!  Both to Hub Tower and the EMC building).

Other Tax Update coverage:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

And some sound advice from Brian Gongol: “Make sure you have an offsite, offline backup of your critical work and personal files. You never know when a catastrophe will strike.”

Roger McEowen, U.S. Tax Court Deals Blow to IRS on Application of Passive Loss Rules to Trusts: “The case represents a complete rejection of the IRS position that trust aren’t “individuals” for passive loss purposes and the notion that only the trustee acting in the capacity of trustee can satisfy the test.”

William Perez, April 1st Deadline to Take Required Minimum Distributions for 2013:

Individuals who reached age 70 and a half years old in 2013 are required to begin withdrawing funds from their tax-deferred retirement plans no later than April 1, 2014. This applies to traditional individual retirement accounts (IRAs) and employer-based retirement accounts, such as a section 401(k), 403(b) or 457 plan.

You can get hit with a 50% excise tax on the required distribution amount if you fail to take it.

Jana Luttenegger, FICA Taxes on Severance Payments (Davis Brown Tax Law Blog)

Kay Bell, Selfies used as tax claim documentation, audit defense.  Not a bad idea.

 

20131206-1Arden Dale, A New Reason to Hoard Assets (WSJ):

In particular, taxpayers are taking advantage of a tax break known as the “step-up in basis,” in which the cost basis of a house, stock or other asset is determined by its current market price rather than when the deceased person acquired it.

Heirs get the step-up when they inherit the asset, and it can save them a lot in capital-gains taxes when they sell.

Gift recipients get only the donor’s basis, while the basis of inherited property is the value at the date of death.  Now that couples can die with over $10 million without incurring estate tax, it often makes tax sense to hold low-basis assets until death so heirs can dispose of them without incurring capital gains taxes.

 

Greg Mankiw,  The Growth of Pass-Through Entities:

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don’t know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

This is clearly true.  While I can’t quantify the effect on inequality statistics, it has to make a difference, now that a majority of business income is reported on 1040s:

Source: The Tax Foundation

Source: The Tax Foundation

In 1980, corporate returns reported about 2/3 of all business income; by 2010, the Form 1120-share of business income was down to about 43%.

 

Lyman Stone, Maryland Threatens to Confiscate “House of Cards” Set (Tax Policy Blog).  ”High taxes and big incentives don’t seem to be working very well in Maryland right now.”  They should follow Iowa’s example and limit filmmaker subsidies to three hots and a cot.

BitcoinMegan McArdle, The IRS Takes a Bite Out of Bitcoin

Annette Nellen, Guidance on taxation of virtual currency

TaxProf, The IRS Scandal, Day 326

Tax Justice Blog, Grover Norquist cares a lot about Tennessee taxes. You should too.

Renu Zaretsky, Tax Reform, Tax Expenditures, and Kevin Spacey (TaxVox).  A roundup of tax headlines.

Jack Townsend, Tenth Circuit Opinion on Mens Rea for Tax Obstruction – What Does Unlawful Mean?

 

The Critical Question.  Am I a Hypocrite on Preparer Regulation?  (Jason Dinesen): 

I oppose regulation of tax preparers. But yet, I will tout my own licensing at the expense of an unlicensed preparer if the situation presents itself.

But nobody makes Jason do this, and if somebody wants to pay less for an unlicensed preparer, Jason isn’t preventing that.  If he replaced “but yet, I will” with “I prefer to,” it would be correct.

 

News from the Profession.  Per Criminal, PwC is Preferred Audit Firm for Criminals (Going Concern)

 

Share

Tax Roundup, 3/27/14: NASCAR subsidy heads to Governor. And lots more!

Thursday, March 27th, 2014 by Joe Kristan

20120906-1Don’t worry, our subsidies are carefully crafted to only help Iowans, and only for a limited time.  Until it’s slightly inconvenient.

When they built the big new racetrack in Newton, they had a unique deal: the track got to keep the sales tax it collected.  The deal was crafted to require the track be partly owned by Iowans, and that it would expire at the end of 2015.

Then NASCAR bought the track.  NASCAR is controlled by a wealthy North Carolina family , with nary an Iowan.  No problem!  The Iowa House sent a bill to the Governor yesterday (SF 2341) repealing the Iowa ownership rule and extending the subsidy through 2025.

The stories in Radio Iowa and the Des Moines Register only quoted the giveaway’s supporters.  For example:

Representative Tom Sands, a Republican from Wapello, said it’s a “performance based” tax break because NASCAR won’t get the rebate unless there are on-site sales.

“One of the questions might be: ‘What kind of return do we, taxpayers, get in the state of Iowa?’ And I drive on Interstate 80 twice every week like many of you do coming to Des Moines and have seen the construction that has happened around that Speedway just since it’s been there,” Sands said, “and we’ve got probably lots more of that we can expect into the future.”

The answer to that is: what makes this private business more worthy to keep its sales taxes than anyone else?  It’s a special deal that every other Iowa business competing for leisure dollars doesn’t get.  It’s the government allocating capital, and if anybody thinks the state is good at that, I’d like my Mercedes, please.

While this corporate welfare passed, at least some legislators are starting to wonder about this sort of thing.  14 representatives joined 9 state senators in opposing the bill.  When the Iowa Film Tax Credit passed, there were only three lonely opponents.  The 14 representatives who stood up for the rest of us: Baudler (R, Adair), Fisher (R, Tama), Heddens (D, Story), Highfill (R, Polk), Hunter (D, Polk), Jorgensen (R, Woodbury), Klein (R, Washington), Olson (D, Polk), Pettengill (R, Benton), Rayhons (R, Hancock), Salmon (R, Black Hawk), Schultz (R, Crawford), Shaw (R, Pocahontas) and Wessel-Kroeschell (D, Story).  Maybe we have the makings of a bi-partisan anti-giveaway coalition.

 

20120702-2Jason Dinesen, Iowa Tax Treatment of an Installment Sale of Farmland By a Non-Resident.  ”The capital gain is recognized in the year of the sale and is taxable in Iowa. But what about the yearly interest income the taxpayer receives on the contract going forward?”

TaxGrrrl, Taxes From A To Z (2014): N Is For Name Change   

Paul Neiffer, Painful Form 8879 Process is on its Way.  The IRS, which has forced us to go to e-filing, now plans to make it a time-consuming nightmare for practitioners and clients because of the IRS failure to prevent identity theft.

Tax Trials, U.S. Supreme Court Reverses Sixth Circuit on FICA Withholding for Severance Payments

Margaret Van Houten, Digital Assets Development: IRS Characterizes Bitcoin as Property, Not Currency

William Perez, Tax Reform Act of 2014, Part 2, Income

 

Illinois sealLiz MalmHow much business income would be impacted by Illinois House Speaker Madigan’s Millionaire Tax?

These data indicate that:

  • 54 percent of total partnership and S corporation taxable income in Illinois would be impacted by Speaker’s Madigan’s millionaire surcharge. That’s almost $10 billion of business income.

  • 6 percent of sole proprietorships AGI would be impacted. Important to note here is that not all sole proprietorships earn small amounts of income. Over three thousand would be hit by the millionaire tax, impacting $674 million of income.

  • Taken together, this indicates that 36 percent of pass-through business income is earned at firms with AGI with $1 million or more.

I don’t think this will end well for Illinois.  When you soak “the rich,” you soak employers.  When states do this, it’s easy to escape.

 

Christopher Bergin, Good Grief! Tax Analysts v. Internal Revenue Service (Tax Analysts Blogs)

I have been involved in two Tax Analysts FOIA lawsuits against the IRS. Neither one of them should have gone to federal judges. But the IRS’s secrecy, paranoia, and belief that it has the absolute right to hide information drives it in this area. This lawsuit was a waste of time and money – against an agency that argues that it doesn’t have enough of either — over documents that should have been public from the beginning.

I’m left to quote Charlie Brown: Good grief! What an agency.

Commissioner Koskinen’s pokey response to Congressional document requests needs to be considered in this context.  The IRS has not earned the benefit of the doubt.

Kay Bell, IRS chief Koskinen spars with House Oversight panel

 

Greg Mankiw, Not Class Warfare, Optimal Taxation:

Today’s column by Paul Krugman is classic Paul: It takes a policy favored by the right, attributes the most vile motives to those who advance the policy, and ignores all the reasonable arguments in favor of it.

In this case, the issue is the reduction in capital taxes during the George W. Bush administration. Paul says that the goal here was “defending the oligarchy’s interests.”

Note that when Barack Obama ran for President in 2008, he campaigned on only a small increase in the tax rate on dividends and capital gains. He did not suggest raising the rate on this income to the rate on ordinary income. Is this because Barack Obama also favors the oligarchy, or is it because his advisers also understood the case against high capital taxation?

Oligarchists everywhere.

 

20140327-1Leigh Osofsky, When Can Concentrating Enforcement Resources Increase Compliance? (Procedurally Taxing)

Cara Griffith, Taxing Streaming Video (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 322

Renu Zaretsky, Friendly or Penalty? Taxes on Married Couples, Businesses, and the Uninsured (TaxV0x).  Rounding up the tax headlines.

Jack Townsend, Scope and Limitations of this Blog: It Is a Tax Crimes Blog, not a Tax Crimes Policy Blog.  ”I conceive my blog as a forum to discuss the law as it is, including how it develops.  It is not a tax policy blog addressing issues of what the law ought to be.”

 

Russ Fox, Bozo Tax Tip #9: 300 Million Witnesses Can’t be Right.  Richard Hatch is not widely considered a tax role model.

News from the Profession.  Frustrated EY Employee Vandalizes Office Breakroom in Protest Over March Madness Blocking (Going Concern)

 

Share

Tax Roundup, 3/21/14: Reforming S corporations to a frazzle. And: cleaning up at the laundromat!

Friday, March 21st, 2014 by Joe Kristan

S-SidewalkThe legislative process has been likened to sausage making.  Sausage doesn’t get more appetizing if you keep looking at it closely over a period of weeks, and neither does the Camp “tax reform” plan.  Andrew Lundeen and Kyle Pomerleau at the Tax Policy Blog today highlight some gristly features of the grand effort by the head GOP taxwriter:

The proposal leaves in place high tax rates for many S corporations, subjects them to additional payroll taxes, creates new distortions between types of industries, and produces two tax rate bubbles.

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

Camp’s tax reform package introduces complication with a new 10 percent surtax for non-manufacturing income. To make things more complicated, the additional 10 percent surtax would be calculated on a different income scale: modified adjusted gross income or MAGI. This essentially creates two side by side tax codes, a la the AMT, and individuals and businesses would have to calculate their AGI for one and their MAGI for the other.

As I noted, it doesn’t simplify the code by getting rid of the economically foolish Section 199 production deduction; it just moves it to a different section.

20140321-1

The Difference between Active and Passive Shareholders

The difference between active and passive shareholders is important for determining the marginal tax rates for S corporations under Chairman Camp’s plan.

That’s true now, but you’d expect a “reform” plan to get rid of this sort of gratuitous and difficult-to-enforce difference.

20140321-2

Changes to Self-Employment Taxes: the 70/30 Split Rule for SECA Taxes

Under current law, the IRS requires business owners to pay themselves a reasonable wage in order to prevent people from gaming this income distinction in order to avoid the extra 15.3 percent payroll tax hit.

Camp’s plan would replace the current reasonable wage standard with a 70/30 split, changing the rules for active shareholders. The rule would require that active shareholders of S corporations report 70 percent of their total earning as wage income.

I think it’s just one step on the way to a 100/0 split.

Tax Rate Bubble

Another element of Camp’s tax plan is the creation marginal tax rate bubbles. This occurs when a marginal tax rate, for example, goes from 10 percent to 15 percent and back down to 10 percent. We have a post that discusses the marginal tax rates under Camp’s plan, which you can find here.

When a “reform” plan comes with so many phase-outs and distortions, it’s not actually reforming anything.  I think the Camp plan will come to be seen as a false move and a lost opportunity.

 

TaxGrrrl, Taxes From A To Z (2014): K Is For Keogh Plans   

20140321-3TaxProf, The IRS Scandal, Day 316

William Perez, Average Sales Tax Rates by State: 2014, highlighting a Tax Policy Blog analysis.

Annette Nellen, Revenues versus tax collections.  ”A recent blog post on LinkedIn’s Sales and Use Tax Legislative Updates included a comment from B.J. Pritchett suggesting that what governments collect in taxes should not be called “revenues” because it is not from selling goods and services.”

Tax Justice BlogState News Quick Hits: Don’t Expect Much from Congress.  Always a good idea.

Kay Bell, Senate Finance plans tax extenders vote for week of March 31.  She links to an article quoting a Senate Finance spokeswoman as saying “No decisions have been made on the content of the measure or the timing for a committee session and vote.”

Howard Gleckman, Fiscal Reality Check: Will Congress Pay for the Tax Extenders and the Doc Fix?  Extenders themselves are a scam.  Congress passes them over and over a year at a time so they can pretend that they cost less than they do — funky accounting that would get a public company CFO jail time, but standard procedure in Congress.

 

Jack Townsend, U.S. Attorney Enabler Sentenced for Assisting Offshore Evasion 

 

A new Cavalcade of Risk is up at Insurance Regulatory Law.  The Cavalcade is a venerable roundup of insurance and risk-management posts.  Hank Stern’s contribution, an interview with Neal Halder of Principal Financial Group about their “accelerated underwriting” process for life insurance, is a great read.

Jason Dinesen, Fair Warning: More Baseball Posts to Pop Up this Year.  That’s a good thing.

 

20140321-4Think he reported this income?  Man With Deep Pockets Busted Stealing a Lot of Laundry Money (Going Concern):

Just how many loads of laundry could one do with $460,000 in stolen quarters?

That’s probably not the question asked by public works inspector Thomas Rica, who pleaded guilty this week to stealing that much in quarters from the meter collection room of the New Jersey town for which he worked.

At the laundromats I used back in school, that would have been nearly enough quarters to get your clothes dry.

 

Share

Tax Roundup, 3/10/14: Sioux City $afety Edition. And: rogue dentistry!

Monday, March 10th, 2014 by Joe Kristan

Sioux City Revenue Camera Windfall.  The Des Moines Register today lists the winners from revenue cameras around the state.  Public safety isn’t up there:

Tickets from automatic traffic cameras totaled $19.7 million for nine Iowa cities during the last fiscal year, but more than 34 percent of that money went to out-of-state vendors.

The summary:

20140310-1

Sioux City benefitted richly from Iowa’s status as the only state allowing revenue cameras on interstate highways:

Iowa is the only state in the country that allows speed cameras to be permanently placed on highways and interstates. The data collected by the DOT shows those cameras are the most lucrative: The two placed in a construction zone on Interstate Highway 29 in Sioux City brought in more than $4.5 million for the fiscal year ending in June.

gatsoThe evident failure of the cameras to stop construction zone speeding tells you how much they help public safety.  If they stopped speeding, there wouldn’t be so much revenue.  Of course, Sioux City also has a big incentive to generously define “construction zones” and leave them in place after construction is completed.  I drove through the I-29 zone on a Sunday night (no ticket for me!);  with no no workers around at the time, the only point of the construction zone speed limits when I drove through was camera revenue.

Some good news from the piece: “The number of red-light cameras nationally is dropping, according to a study by the Reason Foundation, a libertarian-leaning think tank.”  That’s because they’re a crock, a corrupt bargain between the operators and the municipalities, and people hate that.

 

William Perez, Need Extra Time to Finish up Your 2013 Tax Return?:

The IRS will grant a person an additional six months to file their tax return. To request this extra time, file an extension with the IRS on or before the deadline.

Filing an extension provides several benefits. Besides extra time to file the tax return, an extension also provides extra time to fund a self-employed retirement plan and to recharacterize IRA contributions.

And, contrary to myth, it doesn’t increase your chances of getting audited.  In contrast, filing an erroneous return to beat the deadline or get a quicker refund definitely increases your audit risk.

TaxGrrrl, Taxes From A To Z (2014): D Is For DRIP   

Kay Bell, Daylight Saving Time + gas taxes = boon for tax collectors, but some money-saving options for added daylight drivers 

Janet Novack, Pensions Create Yet Another Tax Trap For U.S. Expatriates

Russ Fox, False Checks, Trusts, and Ignoring Taxes Lead to Real Prison.  Indeed they do.

 

 Joseph Henchman, State Tax Reforms Are More Than Just Revenue Changes (Tax Policy Blog):

But more to the point, we consider 2013 one of the most successful years for tax reform we’ve seen in a while. We saw North Carolina cut its taxes but, more importantly, massively restructure them to become flatter, simpler, and more competitive. The real improvement in North Carolina wasn’t just the amount of taxes (though they did cut taxes, as noted above), but the structure of the tax code.

Beyond North Carolina’s landmark reform, Indiana under Governor Mike Pence (R) also moved to cut its personal income taxes and abolish its death tax. Wisconsin also made significant income tax cuts accompanied by positive structural changes authored by Representative Dale Kooyenga. Even in states that couldn’t achieve such sweeping reforms, valuable progress was made. Arizona implemented an important simplification of its sales tax code. Governor Martinez of New Mexico worked with her legislature to cut her state’s corporate tax. Texas made some positive reforms to its damaging gross receipts tax, the margin tax.

Notice one state missing there?  Anyone?  Iowa?  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready to go!  How about a 4% top individual rate, repeal of the Iowa corporation tax, and massive simplification — or do you like massive complexity, special favors for special friends, and the nation’s highest stated corporate rate?

 

Eric Todor, Tax Reform’s Quiet Protectionism (TaxVox): “In effect, income from the sale in the United States of goods manufactured overseas by controlled foreign subsidiaries (CFCs) of U.S.-resident multinational companies would be taxed at a higher U.S. rate than other income from the same factory”

 

William Gale, Alan Auerbach, Forgotten but Not Gone: The Long-Term Fiscal Imbalance (TaxVox):

First, ignoring projections for the future, the current debt-GDP ratio is far higher than at any time in U.S. history except for a brief period around World War II. While there is little mystery why the debt-GDP ratio grew substantially over the last six years – largely the recession and, to a smaller extent, countercyclical measures – today’s higher debt-GDP ratio leaves less “fiscal space” for future policy.

Second, while we clearly face no imminent budget crisis, our new projections suggest the 10-year budget outlook remains tenuous and is worse than it was last year, primarily due to changes in economic projections.

And the rich guy can’t pick up the tab.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

George Will, The IRS’s behavior taxes credulity:

Obama breezily says there was nothing more sinister than “boneheaded decisions” by wayward and anonymous IRS underlings. Certainly boneheadedness explains much about this administration. Still, does he consider it interesting that the consequences of IRS boneheadedness were not randomly distributed but thwarted conservatives?

The rules that Obama says befuddled the IRS boneheads — to his benefit — read today exactly as they have read since 1959. For half a century they did not prevent the IRS from processing applications for tax-exempt status in less than three months. Some conservative group should offer $10,000 to anyone who can identify a liberal group that had the experience scores of conservative groups have had — an application delayed more than three years and receipt of an IRS questionnaire containing at least 60 questions.

Believing that there isn’t a “smidgen of corruption” is about as much of an intellectual leap as, say, believing dinosaurs and humans co-existed.

Via Instapundit

TaxProf, The IRS Scandal, Day 305

 

Jack Townsend has a List of 14 Swiss Banks Under Criminal Investigation

Quotable: 

Many smart people think preparers should be regulated. I just don’t agree. There is no market failure. If you don’t like your preparer, find another one. Or better yet, write your representative and ask for a tax system that doesn’t require low-income people to pay preparers.

David Brunori, State Tax Notes ($link)

 

I suspect he won’t need a preparer for awhile now.  From Going Concern:

Xzavier allegedly beat up a tax preparer when he found out the woman he was with wouldn’t be getting her refund in cash. After a security guard intervened, he is accused of whipping out his heat and shooting both the guard and two women. A fourth person was grazed by a bullet but not shot.

I’m sure that really helped her get that refund sooner.

 

Crazy news from Canada: Rogue dentist fined $33,000 for unpaid tax; Tung Sheng Wu practised dentistry illegally in the tri-cities and Burnaby

I’m pretty sure I’ve never seen the phrase “rogue dentist” before.

 

Share

Tax Roundup, 3/7/14: Expanded Iowa 10-and-10 capital gain break advances. And: more rave reviews for Camp plan!

Friday, March 7th, 2014 by Joe Kristan

20130117-1Expansion of Iowa 10-and-10 gain exclusion advances.  The bill to expand the availability of Iowa’s super-long-term capital gain break cleared its first legislative hurdle this week, as a House Ways and Means subcommittee approved H.F. 2129.

Iowa allows an exclusion from state taxable income of certain capital gains when the taxpayer meets both a 10-year material participation test and a ten-year holding period test.  This exclusion is available for liquidating asset sales and the individual tax on corporate liquidations, but is not available if the taxpayer is selling partnership assets or corporation stock to a third party, or for sales of less than “substantially all” of a business.

H.F. 2129 expands the exclusion “to include the sale of all or substantially all of a stock or equity interest in the business, whether the business is held as  a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or other business entity.”

This would be a big change for Iowa entrepreneurs.  Consider how the current law affects a business started by two partners, with one older than the other.  The older partner retires more than ten years and pays full Iowa capital gain tax when he is redeemed out.  A few years later, the younger partner sells the business and retires himself.  The younger guy gets out with no Iowa capital gain tax under current law.  Under H.F. 2129, in contrast the 10-and-10 exemption would be available in both cases.

A “Fiscal Note” prepared by the Legislative Services Agency on the bill provides some statewide numbers:

Using State and federal tax returns of Iowa taxpayers, the Department of Revenue identified 369 tax returns reporting a capital gain for tax year 2012 where the taxpayer had participated in the business for a minimum of 10 years.

The total capital gain identified on those 369 returns that would be eligible under the capital gains exclusion expansion proposed in HF 2129 is $28.0 million.

Is this a good thing?  I think all capital gains should be tax-free, because they represent either a double-tax on the capital invested in them or, worse, a tax on inflation.  Anything that relieves this is arguably a good thing.  Still, it’s a complex carve-out for a limited class of taxpayers, one that creates a lot of errors by taxpayers who take the deduction erroneously or fail to use it when they are eligible; that sort of thing is almost a definition of bad tax policy. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would provide a much better approach.

 

O. Kay Henderson, Two tax cuts passed in 2013 showing up in February’s state tax report (Radio Iowa).  The increase in the Iowa Earned Income Tax Credit is properly understood as an increase in a welfare program and a poverty trap,  not a tax cut.

 

20140307-1Jason Dinesen, Glossary of Tax Terms: Passive Activity/Passive Activity Losses   

William Perez, Need to File a 2010 Tax Return? Deadlines and Resources.  Why 2010?  The statute of limitations for 2010 refunds expires April 15, 2014.

TaxGrrrl, Taxes From A To Z (2014): C Is For Clothing And Costumes.  Good stuff.    Related: Dress for success, but don’t look to the IRS for any fashion help.

Russ Fox, Your Check Might Not be in the Mail:

I used to live in Orange County, California. Earlier this week a US Postal Service caught fire as it was heading toward an airport after leaving the Santa Ana mail sorting center. So if you mailed something on Monday, March 3rd from ZIP Codes starting with 926, 927, 928, 906, 917 and 918, it might have been burnt to a crisp. All the mail the truck was carrying was destroyed (an estimated 120,000 pieces).

Another argument for electronic filing and payment.

Kay Bell, IRS criminal investigators are putting more tax crooks in jail.  If you are cheating on taxes big-time, you are a lot more likely to get caught than you might think.

 

taxanalystslogoThat means it must be a weekday.  More Arrogance and Secrecy From the IRS  (Christopher Bergin, Tax Analysts Blog):

I don’t know if these apparent political decisions were made by Lerner or others either inside or outside the IRS, because trying to get information out of that agency is like trying to get sweat out of a rock. Over the years, it has fought the silliest things. I’m only half kidding when I say that if you asked the IRS to see the kind of staplers it’s using, it would tell you it doesn’t have staplers.

The IRS will go to great lengths not to be scrutinized. And that breeds an atmosphere of no accountability — which leads to arrogance. We have seen that arrogance consistently throughout the congressional investigations of several IRS officials. And where will it lead us? Not to a good place, especially for those of us getting ready to file our yearly income tax returns. A tax collector that treats its “customers” as guilty until proven innocent is a tax collector out of control. That is precisely what the national taxpayer advocate has been warning about. If IRS officials don’t believe they are accountable to Congress, the rest of us don’t stand a chance.

This is part of an excellent and thoughtful post, written more in sorrow than anger by a long-time observer of the agency; you really should read the whole thing.  I’ll add that all of these seemingly endemic problems in IRS should warn us off the Taxpayer Advocate’s awful idea of giving IRS more control over the tax preparers who help taxpayers deal with the out-of-control agency.

 

Jack Townsend, Fifth Amendment and Immunity in Congressional Hearings.  Good discussion of the law, in spite of his calling the Issa investigations a “witch hunt.”  It’s the job of Congress to oversee federal agencies, especially an agency that has already admitted gross misbehavior here.

TaxProf, The IRS Scandal, Day 302

 

20130113-3More rave reviews for the Camp “Tax Reform” plan:

William McBride, Camp and Obama Gang up on Savers

Kyle Pomerleau, Are Capital Gains and Dividend Income Tax Rates Really Lower Under the Camp Tax Reform Plan?  “If you take into account all the phase-outs of deductions and benefits in the Camp plan, marginal tax rates on capital gains and dividends are higher than current law at certain income levels.”

Tax Justice Blog, House Ways and Means Committee Chairman Dave Camp Proposes Tax Overhaul that Fails to Raise Revenue, Enhance Fairness, or End Offshore Tax Shelters

 

Roberton Williams, A Web Tool to Calculate ACA Tax Penalties  (TaxVox).  ”It is often said the tax is $95, but for many people it will be much more.”

News from the Profession.  Some CPA Exam Candidates Skeptical the Illinois Board of Examiners Can Tell Time (Going Concern)

 

Peter Reilly, Could You Make Tax Protester Theories Work For You?:

If you are willing to entirely discount the quite remote chance of criminal prosecution, it may well be a decent percentage play particularly if you are just about maximizing your current lifestyle rather than accumulating net worth and entirely amoral when it comes to meeting tax obligations…

I still think it is a really terrible idea to enact Hendrickson’s strategy, but that’s just me.

No, it’s not just you, Peter.  And unless your income is generally not subject to third-party reporting like W-2s or 1099s, you will be caught, and then clobbered by back taxes, penalties and interest.

 

 

Share

Tax Roundup, 3/4/14: Des Moines votes on refunding illegal tax. And: life after football!

Tuesday, March 4th, 2014 by Joe Kristan

20121002-2Des Moines voters decide today whether to approve a legal tax to refund a similar tax imposed illegally.  The Des Moines Register reports:

A special election Tuesday will determine how the city pays back a portion of a franchise fee it illegally collected from 2004 to 2009.

The Iowa Legislature gave Des Moines the authority to temporarily increase its franchise fee — a tax assessed on anyone who connects to electric and natural gas utilities — to pay off the judgment.

However, if voters reject the proposal, city officials will be forced to raise property taxes for at least 20 years in order to issue and pay municipal bonds to cover the court judgment.

When the tax was ruled illegal, the city appealed all the way to the U.S. Supreme Court before finally conceding that it would have to issue refunds — incurring enormous legal bills in the process, including a $7 million bill to the winning lawyers on the other side.  From the District Court opinion awarding the fee:

This case has been in our courts since 2004.  To say it was highly contested would be a gross understatement.  The history of this case shows that the City, while it was entitled to do so, erected one barrier after another in an attempt to prevent the class from being successful in obtaining a refund.  Almost without exception, class counsel was successful in dismantling each of those barriers.

It just goes to show that the city will do the right thing, once it has exhausted all appeals.  Maybe next time they won’t be so quick to enact an illegal tax.

The state legislature voted to allow Des Moines to impose the tax legally to repay the illegal tax.  Somehow I doubt the legislature would do a similar favor for taxpayers by letting them, say, legally not pay income tax for a few years to help them repay the taxes they had illegally avoided in prior years.  

 

William Perez, Deducting Work-Related Expenses

TaxGrrrl, Taxes From A To Z (2014): A is for Affordable Care Act

Leslie Book, EITC Snapshot: Overclaims and Commercial Preparer Usage (Procedurally Taxing).  ”In fact, there is a steady decline in the use of paid preparers among EITC claimants, while the rate of paid preparer usage overall has remained fairly steady.”

Another reason why preparer regulation to cut fraud is like pushing on a string.

Jack Townsend, The Scariest Tax Form? Scary Is in the Eye of the Beholder.  I think the article he cites, which chooses Form 5471, makes a good case, considering the almost-automatic $10,000 fine for filing it late.

Kay Bell,  Tax moves to make in March 2014

 

TaxProf, Tax Court Issues 63-Page Opinion Debunking Cracking the Code Book

 

taxanalystslogoTax Analysts Blog is having a tax reform party:

Clint Stretch, 10 Reasons Republicans Should Embrace the Camp Tax Bill.  This is pretty faint praise:  ”2. If they want a credible claim that Obama and Democrats are responsible for the failure of tax reform, they must pass a bill in the House.”

Jeremy Scott, Comparing the Camp and Obama Bank Taxes:

Including the bank tax in his plan is one of Camp’s most intriguing decisions, if only because the gain for him isn’t obvious, even after a closer look. The tax doesn’t raise much money. It is very similar to an Obama proposal that congressional Democrats didn’t really like, meaning it doesn’t buy the chair any bipartisan support. And it comes about four years too late to take advantage of widespread public anger at financial institutions. All Camp seems to have accomplished is legitimizing a revenue raiser for future use by the progressive caucus and undermining his own party’s opposition to this kind of tax increase.

Just… brilliant.  I prefer ending the “too big to fail” subsidy directly, if necessary by denying deposit insurance to such institutions.

Martin Sullivan, 25 Interesting Features of Camp’s New Tax Reform Plan.  ”Biggest disappointment. Camp and fellow House Republicans all but promised to reduce the top rate to 25 percent. They failed.”

Christopher Bergin, Tax Reform Only a Mother Could Love:

Many political observers think the GOP has a good chance of not only increasing its majority in the House, but also taking the majority in the Senate. I’m among those who believe that the Republicans will shoot themselves in the foot before that happens. I’ll bet there are more than a few Republicans this week who fear that Camp just put a bullet in the chamber.

I think the Camp plan will be quietly forgotten long before November, but there is still plenty of time for the GOP to demonstrate its skills with a Glock 40.

Norton Francis, Camp Tax Reform Would Create New Challenges for States (TaxVox).  The repeal of the deduction for state and local taxes and limits on muni bonds won’t win friends in the state capitals.

 

National Review, via InstapunditThe IRS Is the Problem:

Representative Camp’s thou-shalt-not list is fine so far as it goes, and, unlike the IRS bureaucracy, Congress does have the authority to rewrite the law. But his proposal falls short in that it assumes that the IRS is a proper and desirable regulator of political speech. It is not. It is not even particularly admirable in its execution of its legitimate mission, the collection of revenue: Its employees have committed felonies in releasing the confidential tax information of such political enemies as the National Organization for Marriage and Mitt Romney, and the agency itself has perversely interpreted federal privacy rules as protecting the criminal leakers at the IRS rather than the victims of their crimes. 

Instapundit comments: “Abolish governmental immunity and make them personally liable for damages for misconduct.”  Hard to argue with that; it would be a good addition to my “Sauce For the Gander” reforms.  I still don’t understand why a nonprofit should lose its exempt status for being primarily political.  Isn’t freewheeling debate a good thing?  The IRS certainly hasn’t shown itself a neutral observer here.

TaxProf, The IRS Scandal, Day 299

 

Scott Drenkard, Johannes Schmidt, Guess Which State Has the Highest Liquor Taxes in the Nation? (Tax Policy Blog).  Think coffee.

 

Preparing for life after football.  Two former members of a Sioux Falls indoor football league team may have to change their post-athletic career plans.  From the Sioux Falls Argus:

A federal grand jury has indicted six people for conspiracy to defraud the United States and aggravated identity theft.

Two of those indicted – Undra Stewart Franks, 27, and Donta Moore, 28 – are former Sioux Falls Storm players.

The new federal indictment says Moore, Franks and the others conspired to defraud victims by using names, Social Security numbers and dates of birth stolen from others to file fraudulent income tax returns that claimed false income tax refunds.

Identity theft isn’t just a Florida thing.  If you deal with Social Security numbers at work, treat them as valuable confidential data — because that’s what they are.  Guard your own identity by never giving out your social security numbers, protecting your bank account info, and being sure never to transmit those things in unencrypted e-mails.  If you need to send documents with that info electronically, use a secure file transfer site, like our rothcpa.filetransfers.net.

 

News from the Profession.  10 People Not Cut Out to Be Partner (Going Concern)

 

Share

Tax Roundup, 3/3/2014: For whom does the AMT toll this year? And Lois Lerner: will she or won’t she?

Monday, March 3rd, 2014 by Joe Kristan

Laura Saunders, Beware the Stealth Tax; How to minimize the damage of the alternative minimum tax:

…the AMT now applies to eight times as many taxpayers as it did 20 years ago, and common AMT “triggers” often are less esoteric than in the past. “They can be as simple as having three or more children, taking a large capital gain, or—especially—deducting state and local taxes,” says Dave Kautter, managing director at American University’s Kogod Tax Center, who studies the AMT.

20140303-1

That’s pretty much what I see in our practice.  AMT is rare for taxpayers with income under $100,000, and usually occurs in large families.  It can be impossible to avoid AMT in the $200,000 – $500,000 income range, especially in a state with an income tax.  Above $500,000, it typically involves large capital gains.  Both AMT and regular tax have the same 20% tax on capital gains, and the AMT doesn’t let you deduct the related state income taxes, so the AMT will kick in.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Ann Althouse,  Who put “acute political pressure” on Lois Lerner “to crack down on conservative-leaning organizations,” and why did Lerner need a “plan” to avoid “a per se political project”?:

I think it must mean that it was a political project and they were hard at work figuring out how to make it not look like what she knew it was. That’s a smoking gun.

Phony scandal.  Nothing to see here…

TaxProf, The IRS Scandal, Day 298

WSJ, No Change: Former IRS Official to Take the Fifth.  ”A lawyer for former Internal Revenue Service official Lois Lerner said Sunday that she will decline to testify about IRS targeting of grass-roots conservative groups, contradicting a top GOP lawmaker.”  Presumably because there’s not a smidgen of wrongdoing.

 

TaxProf, Mulligan: ObamaCare’s Multiple Taxes Are Shackling the Job Market.  The TaxProf quotes from the University of Chicago’s Casey Mulligan: 

Once we consider that the new law has an employer penalty, too, the labor market will be receiving three blows from the new law: the implicit employment tax, the employer penalty and the implicit income tax. Regardless of how few economists acknowledge the new employment tax, it should be no surprise when the labor market cannot grow under such conditions.20140106-1

It’s funny how the same people can argue for high tobacco taxes to curb smoking insist that employment taxes won’t curb hiring.

 

Jason Dinesen,  Accounting for the 0.9% Medicare Surtax on Iowa Tax Returns

Kay Bell, Delayed Tax Refunds, TC 570 And An Important Distinction .  Don’t jump to conclusions about your delayed refunds.

William Perez, Resources for Filing Corporate Taxes for 2013.  ”March 17th, 2014, is the due date for filing corporate tax returns.”

 Kay Bell, 5 ways to maximize tax-deductible business entertainment

Russ Fox, Former Chairman of Woodland Park, NJ Democratic Committee Bribes His Way to ClubFed

Jack Townsend, IRS CI Is Looking at Renunciations of Citizenship Just in Case .  Looking to take one last shot at the fleeing jaywalkers.

 

Jim Maule, Find Some money, Pay Some Tax:20131017-2

Every now and then we read of someone finding something valuable. This time, it’s a California couple who found a stash of gold coins on their property. According to this story, the couple found eight cans containing 1,400 coins, valued at approximately $10 million.

The joy of the moment is tempered, of course, by the existence of income taxes, both federal and state. Must the couple pay tax? Yes. The value of the coins is included in the couple’s gross income. It is ordinary income. The law is settled. 

Easy come, easy go…

 

Martin Sullivan, The Beginning of the End of Tax Reform (Tax Analysts Blog):

Enactment of the research credit in 1981 was the antithesis of simplification. It has a highly complex incremental structure and, even more problematic, it assigns tax directors and IRS agents the impossible task of distinguishing research from ordinary business expense. The Camp draft retains the credit and eliminates expensing. The opposite approach would be more sensible.

The research credit study industry is full of former Congressional staffers who like things the way they are.

William McBride, Scott Hodge, Top Line Assessment of Camp’s Tax Reform: Increases Progressivity and Taxes on Business and Investment (Tax Policy Blog):

In general, Camp simplifies and lowers tax rates for many taxpayers and businesses, but does so through a net tax increase on businesses and taxpayers earning over $200,000. As a result, the plan makes the individual tax code even more progressive, it increases the amount of redistribution from high-income taxpayers to other taxpayers, and it worsens the current bias against saving and investment—all of which will be a drag on long-run economic growth.

It looks more and more like the Camp plan was a false move.

William Gale, Dave Camp’s pitch to overhaul U.S. taxes: An impossible dream? (TaxVox)

 

It’s getting real in New Jersey, according to the London Daily Mail online:   ’Ready to plead guilty’: Teresa and Joe Giudice set to reach plea deal on 41 charges of fraud and tax evasion.  If they were cheating on taxes, becoming national celebrities could have been a bad move.

 

 

Share

Tax Roundup, 2/28/14: Somber reasoning and copious citation edition. And: tax soda, not pop!

Friday, February 28th, 2014 by Joe Kristan

crackedThe courts rarely spend much time on tax protesters.  While optimistic and deluded folks may spend lots of time submitting documents trying to convince the judge that he is sitting in an admiralty court or something, courts rarely rise to the bait.  They typically dismiss the nonsense filings this way, in language arising from Crain (CA-5, 1984):

We shall not painstakingly address petitioner’s assertions with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.

The Tax Court made an exception yesterday.   A taxpayer whose tax information apparently appears on a well-known tax protester site showed up before Judge Buch, and the judge decided to take advantage of a teaching opportunity:

The Court has taken the time, however, to address those arguments because Mr. Waltner appears to be perpetuating frivolous positions that have been promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The Fascinating Truth About Taxation in America (2007). Indeed, it appears not merely that Mr. Waltner’s positions are predicated on that book but that his returns and return information have been used to promote the frivolous arguments contained in that book. Consequently, a written opinion is warranted.

I have mentioned Mr. Hendrickson before.  His most recent appearance here involved an appeal of his sentence on tax convictions.  Needless to say, if Mr. Hendrickson has “cracked the code,” a lot of good it did him.  Judge Buch addresses some of the contentions Mr. Hendrickson’s book makes, including the idea that most of us aren’t “persons” subject to the tax law and that “private sector” income is non-taxable.  Judge Buch addresses Mr. Hendrickson’s qualifications in tax law (let’s just say they are non-traditional, including a firebombing conviction).

The opinion describes Mr. Hendrickson’s main tax tactic:

This misguided view leads to the author’s strategy for filing tax returns, which was mirrored by Mr. Waltner’s returns. The author recommends “correcting” Forms 1099 by including a declaration that nothing that was received was taxable. Mr. Waltner did this. The author recommends creating substitute W-2s by changing only the amount of the reported wages. Mr. Waltner did this. The author recommends filing a Form 1040 based on these inappropriately revised forms. Mr. Waltner did this. The author recommends including FICA taxes amongst the taxes withheld. Mr. Waltner did this. 

In the end, this long Tax Court opinion comes to the same conclusion as all of the shorter ones addressing the same arguments, concluding that they don’t work.  The taxpayer, Mr. Waltner, was hit with a $2,500 penalty for making frivolous arguments.

The Moral:   No matter how many words they throw out there, tax protest arguments don’t work.  Also, it’s unwise to take tax advice from advisors whose arguments can’t keep themselves out of prison.

Cite: Waltner, TC Memo 2014-35

Related: Russ Fox, He Cracked the Code (but Won’t be Happy with the Result)

 

William Perez, Tax Credits for Families with Children

Me, IRS issues 2014 auto depreciation limits; luxury begins at $15,800

Jack Townsend, Another Sentencing of UBS Client.  In case you think bank secrecy still works.

 

20131209-1Len Burman, Hidden Taxes in the Camp Proposal (TaxVox):

The plan resurrects the 1960s era add-on minimum tax—the granddaddy of today’s uber-complex Alternative Minimum Tax. Effectively, the surtax can be0 thought of as an additional tax on certain preference items such as the value of employer-sponsored health insurance, interest on municipal bonds, deductible mortgage interest, the standard deduction, itemized deductions (except charitable contributions), and untaxed Social Security benefits. Although the list of preference items differs from the old add-on minimum tax, the idea is eerily similar.

The more I see of the Camp plan, the less it seems like reform.

 

Clint Stretch, 10 Reasons Democrats Should Like the Camp Tax Bill. (Tax Analysts Blog)  Generally reasons why it doesn’t count as actual reform.

Joseph Rosenberg, How Does Dave Camp Pay for Individual Tax Cuts? By Raising Revenue from Corporations (TaxVox)

Kay Bell, GOP’s tax reform bill DOA

 

TaxProf, The IRS Scandal, Day 295

Johannes Schmidt, New Soda Tax Proposed in Illinois (Tax Policy Blog).  That must mean it only applies in Southern Illinois, because it’s (properly) called “Pop” everywhere else in the state.

20140228-4

News from the Profession: Big 4 Firms Making Necessary March Madness Preparations as Usual (Going Concern)

 

Share

Tax Roundup, 2/27/14: Doomed Tax Reform Frenzy Edition.

Thursday, February 27th, 2014 by Joe Kristan

President Reagan signs PL 99-514, the Tax Reform Act of 1986.
When I think of income tax reform, I think big.  I think of massive elimination of tax deductionPresident Reagan signs PL 99-514, the Tax Reform Act of 1986.s, with great big rate reductions as consolation for taxpayers that lose their breaks.  I look for elimination of alternative ways of tracking income and deductions, with the idea that one way that everyone can understand is better than special breaks for different industries.  I look to eliminate double taxation of income everywhere, including elimination of capital gain taxes and integration of the corporate and individual systems.

By these standards, the tax reform plan put forth by Dave Camp, the chairman of the House Ways and Means Committee, is a disappointment.  While it would make many simplifying changes to the tax law while rates, it would leave behind a system that would still be very recognizable to a Rip Van Taxman who fell asleep in 1993.  It prunes tax complexity, but it doesn’t begin to clear the forest.

Still, politics being what it is, trimming the weed sanctuary is probably the best we can expect.  Maybe better than we can expect.

 

Tony Nitti has already posted detailed walk-throughs of the individual and business parts of the proposal, so there’s no point in me repeating his work.  Instead I will list some of the bigger changes proposed, with my commentary.  I don’t expect anything like the Camp plan to be enacted during the current administration, but I think it gives us an idea of the kinds of changes that could happen after 2016, if the stars align.

Individual Rates.  The bill would have a three-bracket tax system: 10%, 25%, and 35%.  The 35% bracket would replace the current 39.6% bracket, and would only apply to income other than “qualifying domestic manufacturing income.”  Lowering rates is fine, but this would retain the stupid difference between manufacturing income and other income embodied in the current Section 199 deduction.  It’s a complex and economically illiterate break for a favored class of income paid for by higher rates on all other income.

Capital gains and dividends would be taxed as ordinary income, but only after a 40% exclusion.  That would be a 21% net rate on 35% taxable income. (Initially I said 14%, math is hard).

Against the forces that have risen on K Street, there is no victory.

Against the power that has risen on K Street, there is no victory.

Deductions would be trimmed back.  The maximum home mortgage interest debt allowed for deductions would be $500,000, instead of the current $1.1 million.  Medical deductions would go away.  Standard deductions would increase to $11,000 for individuals and $22,000 for joint filers.  Many itemized deductions would reduce taxes only at the 25% rate, rather than the 35% top rate.  Charitable deductions would be simplified, but only deductible to the extent they exceed 2% of AGI.  The deduction for state and local taxes would be eliminated.

The increase in the standard deduction is an excellent idea.  I’m fine with reducing the mortgage interest deduction.   The limiting of deductions to the 25% rate is pointless revenue-raising complexity.  The elimination of the medical deduction will be a real burden on people in skilled nursing care; they are the people who generally can take this deduction.  Taxing them while they burn through their assets paying nursing home costs  will only put them into title 19 that much sooner.

While I am sympathetic with the policy reasons for not allowing a deduction for state and local taxes, those reasons don’t apply to taxes arising from pass-through business income.  State taxes are a cost of doing business for those folks, and should be deductible accordingly.

Alternative Minimum Tax would go away.  About time.

Corporate rates.  The proposal replaces the current multi-rate corporate tax with a flat 25% rate.  Excellent idea, as far as it goes, but it is flawed by the 35% individual top rate; it provides a motivation to game income between the individual and corporate system.

The proposal eliminates a number of energy credits while retaining the research credit.  I think that it would be better to get rid of the research credit and lower rates.  I think the IRS is no more capable of identifying and rewarding research than it is of fairly administering political distinctions.  Unfortunately, the credit seems to be a sacred cow among taxwriters.

Incredibly, the Camp corporate system gets rid of the Section 199 deduction while retaining a similar concept for individual rates.  Here it doesn’t get rid of pointless and economically foolish complexity; it just moves it around in the code.

LIFO inventories go away under the proposal.  As this comes up every proposal, it’s going to happen sometime.

Carried interests become taxable as ordinary income.  This is more complexity, apparently a sop to populist rhetoric.

Pass-throughs would be tweaked.  S corporation elections would be easier to make, and could be delayed until return time.  Built-in gains would only be taxable in the first five years after an S corporation election, instead of ten years.  Basis adjustments on partnership interest transactions would be mandatory, instead of elective.

Fixed assets would have mixed treatment.  While the Secti0n 179 deduction would permanently go to $250,000, depreciation would go to a system more like the pre-1986 ACRS system than the current MACRS system.

20120702-2Cash basis accounting would be more widely available, and fully available to Farmers and sole proprietors.  This is a step in the wrong direction.  Advocates of cash accounting say that it provides “simplicity,” implying that poor farmers just can’t handle inventory accounting.  Meanwhile these “poor” bumpkins play this system like a fiddle, manipulating cash method accounting to achieve results that are only available through fraud to the rest of us.  Modern farm operations with GPS, custom planting and nutrient plans, and multi-million dollar asset bases are as able to handle accrual accounting as any other business of similar size.

There’s plenty more to the plan, but you get the idea.  I find it disappointing that they don’t replace the current system of C and S corporations with a single system with full dividend deductibility.  I find the treatment of preferences and tax credit subsidies half-hearted.  I think there should be fewer deductions, fewer credits, and a much bigger standard deduction.  That’s why I’d never get elected to anything, I suppose.

The TaxProf rounds up coverage of the proposal.  Other coverage:

Peter Reilly, The Only Comment On Camp Tax Proposal You Need To Read – And Some Others

Paul Neiffer, Tax Reform – Part ?????!!!!!  “Since this is a mid-term election year, it has little chance of passing this year, but it is important to note possible changes that Congress is pondering.”

Annette Nellen, Congressman Camp’s Tax Reform Act of 2014 Discussion Draft

Leslie Book, Quick Thoughts on Procedural Aspects of Camp’s Tax Code Overhaul Proposal and the Spate of Important Interest Cases (Procedurally Taxing)

Joseph Thorndike, Democrats and Tax Reform: Can’t Do It With ‘Em, Can’t Do It Without ‘Em (Tax Analysts Blog).  ”If you’re a left-leaning populist, what’s not to like?  Well, at least one big thing: The bill doesn’t raise taxes.”

TaxGrrrl, Camp’s Tax Proposal: The First Thing We Do, Let’s Kill All The Lawyers 

Kyle Pomerleau, Andrew Lundeen, The Basics of Chairman Camp’s Tax Reform Plan (Tax Policy Blog).  ”We’ll have more analysis on the plan soon – it will take us days to get through the 979 pages of legislative text – but in the meantime, here are the basics.”  They note that the plan uses tax benefit phase-outs based on income — a bad idea that creates hidden tax brackets.

Renu Zaretsky, Tax Reform: one foot in front of the other (TaxVox)

 

Other Things:

William Perez, Last Year’s State Tax Refund Might Be Taxable

Jason Dinesen, Glossary of Tax Terms: Depreciation 

Trish McIntire, Brokerage Statements.  ”Actually, my problem is clients who don’t bring in the whole statement.”

 

Jack Townsend, Wow! Ty Warner Is Ty Warner is Not Quite the Innocent Abroad 

Janet Novack, Senate Offshore Tax Cheating Report Skewers Credit Suisse And U.S. Justice Department 

TaxProf, The IRS Scandal, Day 294.  I note that Lois Lerner won’t testify without being immunized from prosecution.  ”Not a smidgeon” of wrongdoing, indeed.

 

Finally, Seven People Who Have a Worse Busy Season Than You, from Going Concern.  That’ll cheer you right up.

 

Share

Tax Roundup, 2/26/14: House tax reform plan expands cash basis, boosts 179 limits. And: $133 million employment tax theft.

Wednesday, February 26th, 2014 by Joe Kristan

Cash basis expansion, permanent Section 179 increase highlight Camp tax reform plan.  The GOP House tax leadership has released their tax reform draft, nicely rounded-up by the TaxProf.  The plan would lower top individual and corporate rates to 25%, while making big changes in business taxation.

They have released two alternate plans for small business taxation.  One plan would tweak S corporation and partnership taxation, making elections easier and easing S corporation penalty taxes.  The other draft would do away with the current pass-through regimes and replace them with a single pass-through tax system.

The Camp draft would also greatly expand the availability of cash method accounting:

20140226-1

I’m not sure how I feel about this.  I do like getting rid of the special rules for farmers and letting everybody have the same opportunity.  I less like the rule giving unlimited cash basis for sole proprietorships, as that would encourage people to keep things on their schedule C for tax reasons even if it is a bad structure otherwise.  Do we really need to preserve cash basis for a $100 million schedule C or Schedule F operation?  If something is that big, the “simplicity” argument doesn’t make sense.

I’m all for getting rid of the Section 263A stuff.

While I doubt that anything will happen with tax reform this year, there is a real possibility that things will start moving after the 2014 elections.

William McBride, Four Things to Look for in Chairman Camp’s Tax Reform Plan (Tax Policy Blog)

Renu Zaretsky, McConnell Throws Cold Water on Camp’s Tax Plan (TaxVox)

 

 

EFTPSTexans sentenced in massive PEO employment tax theft.  From Breitbart.com:

Federal prison sentences were recently handed down to three businessmen by Chief District Judge Fred Biery. The three defendants – John Bean, Pat Mire, and Mike Solis – are going to prison for their roles in a $133 million scheme involving numerous co-conspirators. The FBI and IRS conducted the investigations for the case, which is believed to be the largest criminal tax related case ever prosecuted in western Texas.

Bean and Mire both pled guilty to money laundering and mail fraud conspiracy charges. Solis plead guilty only to a mail fraud conspiracy charge.

The defendants admitted that from 2002 to 2008, they stole more than $133 million from clients of several of the Professional Employer Organizations (PEOs) that they owned and operated.

PEOs actually report client employees as their own, issuing W-2s and filing employment tax returns.  The danger of PEOs is that employers have no way to be sure their employment taxes are being deposited.  If the PEO is stealing them, the IRS will come back to the employers to collect.

With a non-PEO payroll service, the payroll tax returns are prepared for employers, who issue and sign them.  More importantly, non-PEO employers can go online using the Electronic Federal Tax Payment System and verify that their payroll taxes are being paid.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProfThe IRS Scandal, Day 293.  Among the items in his daily scandal roundup is a Wall Street Journal editorial, Liberals vs. the IRS: Even the Left Doesn’t Want the Tax Man Regulating Speech:

In the Nation magazine, Nan Aron of the liberal judicial lobby the Alliance for Justice writes that 501(c)(4)s aren’t merely groups like Karl Rove’s Crossroads GPS, but are “made up of over 86,000 mostly small organizations nationwide” that are active participants in civic life.

“They weren’t invented in the last election cycle; they’ve been around for generations. Their purpose isn’t to hide donors, it’s to advance policies,” Ms. Aron adds. “These groups are involved in elections, because it’s often impossible to advance a policy cause without being involved in the political process.”

There’s no principle that would justify suppressing political rights of 501(c)(4) outfits that can’t apply equally to other exempt outfits.  Furthermore, there’s no real reason to impose taxes on political outfits.  The answer to speech you don’t like is more speech of your own, not suppressing what you don’t want to hear.

TaxGrrrl, IRS Proposed Rules For Nonprofits Alarm Conservatives and Liberals Alike   

 

IRS fights ID theft with one hand, helps it out with the other.  From PC World:

This tax season you may have more to worry about than how much you owe. A new study from Identity Finder finds the IRS is not properly protecting social security numbers in some tax returns…

The research revealed an alarming failure to safeguard sensitive data. Identity Finder uncovered an estimated 630,000 Social Security numbers exposed online in form 990 tax returns.

The most affected group were tax preparers–many of which used their personal SSN rather than their PTIN (preparer tax identification number). However, directors, trustees, employees, donors, and scholarship recipients were all impacted as well. 

It’s fair to point out that preparers have some responsibilty — they are often including SSNs unnecessarily, especially their own.  But that doesn’t excuse the IRS.

 

uni-logoSome UNI workers filing taxes finding Social Security numbers have been used (WCFcourier.com):

According to UNI officials, more than 20 employees have received “error” messages when filing their individual tax returns online, and their returns were rejected. Others who have yet to file say they called the Internal Revenue Service and found their Social Security numbers had been used. One person reportedly received a refund check at home from the IRS though they hadn’t filed a return yet.

UNI officials are playing down the possibility of identity theft, but that’s how I’d bet.  Any organization that collects social security numbers needs to be very careful with them, restricting access and shredding documents on disposal.

Jack Townsend, Stolen Identity Refund Fraud in the News

 

William Perez, Reporting Social Security Benefits

Kay Bell, Don’t fall prey to the Dirty Dozen tax scams of 2014

David Brunori, Great Opportunity for Tax and Public Finance Students (Tax Analysts Blog). “We are conducting our first student writing competition. You should encourage students who have written quality papers to submit them to studentpapers@tax.org.”

 

Share

Tax Roundup, 2/24/14: WSJ highlights tax season ID theft. And: Shock! Film Tax Credit Corruption!

Monday, February 24th, 2014 by Joe Kristan
The "Chromaro" purchased with ID-theft frauds by a Florida thief.

The “Chromaro” purchased with ID-theft frauds by a Florida thief.

The Wall Street Journal covers identity theft today: “Identity Theft Triggers a Surge in Tax Fraud”   It seems to be designed to tell what a great job the authorities are doing to fight the problem.  It’s nice that they’re stepping up the efforts, but the time to do that was four years ago, when the problem started exploding.  But the IRS was too busy with its attempt to regulate practitioners to be bothered with keeping billions from going out the door to two-bit grifters.  The article refers delicately to the grifters:

The scam, which involves repeatedly filing fake tax returns electronically and receiving refunds within days, is so enticing it is attracting suspects not typically associated with white-collar crime. On Friday, two members of an alleged crack-dealing gang in Miami were indicted on charges they also ran a tax-refund scam on the side. Suspects typically steal lists of names and Social Security numbers. Then they file large numbers of electronic returns claiming refunds, and can start getting money before investigators spot the fraud.

The story notes that stealing from the taxpayers is only part of the damage caused:

The crime creates two victims—the U.S. Treasury and individual taxpayers, who only learn of the fraud when they try to file their legitimate returns. Those taxpayers are stuck with the hassle of proving to the IRS that the previous document was a phony claim.

And the process can drag over years, as an ID-theft victim who works with Jason Dinesen would attest.   It’s a disgrace that the IRS has done so poorly at preventing ID theft, and it is doubly disgraceful that they don’t do a better job helping the victims of IRS negligence.

For your part, don’t help the ID thieves.  Never disclose your social security number.  Keep your tax information secure.  Don’t transmit your social security number in an unencrypted email.  If you want to transmit tax documents electronically, don’t send them as an email attachment.  Use a secure file transfer site, like our FileDrop site.

 

haroldDon’t let the door hit you.  ‘House of Cards’ threatens to leave if Maryland comes up short on tax credits (Washington Post, via Politico):

A few weeks before Season 2 of “House of Cards” debuted online, the show’s production company sent Maryland Gov. Martin O’Malley a letter with this warning: Give us millions more dollars in tax credits, or we will “break down our stage, sets and offices and set up in another state.”

That’s the problem with paying people to be your friend.  The price only goes up. In California, the film credit scam industry may be losing a friend, according to Capital Public Radio: Calderon Indicted On Fraud, Bribery Charges:

The Department of Justice announced Friday that State Sen. Ron Calderon (D-Montebello) is facing 24 federal charges including bribery, wire fraud and money laundering. U.S. Attorney Andre Birotte said Calderon solicited and accepted $100,000.

“Ron Calderon, we allege, took the bribes in return for official acts. Such as, supporting legislation to those that would be favorable to those that paid him bribes and opposing legislation that would harmful to them. The indictment further alleges that Calderon attempted to convince other public officials to do the same.”

~Andre Birotte, U.S. Attorney

The legislation centered on a potential film tax credit and regulation of medical billing. Calderon is accused of accepting cash, trips, dinners and jobs for his children.

I think film tax credits, and all incentive tax credits, are fundamentally corrupt, as they provide better treatment for the well-connected at the expense of everyone else. In Iowa, though, they were able to rely on credulous legislators, without resorting to bribes.

Russ Fox, California State Senator Ron Calderon Indicted on Bribery & Tax Charges.  ”Mr. Calderon is facing a maximum of 396 years at ClubFed if found guilty on all charges.”

 

premier.gov.ru [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

premier.gov.ru [CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

A victim of politically motivated tax prosecution goes free in Ukraine: Freed Ukrainian ex-PM Tymoshenko rallies protesters (CBC).  She had been imprisoned on politically-convenient tax charges by the toppled would-be dictators there.   With the complexity of the tax law, it is way too easy to indict somebody.  That’s why IRS partisanship is so dangerous.

And yes, it can (and has) happened here.

 

 

 

William Perez has the scoop on Reporting Investment Income and Expenses

Jana Luttenegger, Taxing Olympic Winnings.  (Davis Brown Tax Law Blog) Not a problem for the hockey team.

Kay Bell is right when she says Report all your income even if you don’t get a 1099.  The 1099 is a useful reminder, but income doesn’t become tax free if you don’t get one.

TaxGrrrl, IRS Processing Returns, Refunds Faster Than In 2013.

Roberton Williams notes An Updated Marriage Bonus and Penalty Calculator at TaxVox.

 

 

William McBride, Empirical Evidence on Taxes and Growth: A Response to CBPP (Tax Policy Blog).  The Center for Budget and Policy Priorities has never met a tax increase it doesn’t like, as if there never is a point that giving the mule more to carry slows it down. The McBride post mentions an often-overlooked aspect of our government spending:

The thing is in reality the federal government spends only a small fraction of its budget on public investments, such as roads and airports, and instead spends most of the budget on transfer payments, such as social security and healthcare. Transfer payments are unproductive and even harmful to economic growth, according to most studies. So in practice, income taxes mainly go to transfer payments, and this deal is a clear economic loser, according to the IMF and most academic economists. 

Some folks, like Jim Maule, act like any complaint about the level of government spending and taxes means you are against roads, courts and public order — when most of what the government does is takes money from some people and gives it to other people.

 

Jack Townsend, U.S. Authorities Focus on Swiss Insurance Products Used to Hide U.S. Taxpayer Assets and Income

TaxProf, The IRS Scandal, Day 291

The Critical Question.  Sylvia Dion CPA Asks – Where Are The Women? (Peter Reilly)

Going Concern, The Ten Stages of Busy Season.  ”You begin to hate every single human being in your office”

Share

Tax Roundup, 2/17/14: Big tax subsidy edition. And: the $70 million doggie treat!

Monday, February 17th, 2014 by Joe Kristan

20120906-1Do you think the legislature would approve an $12 million annual subsidy to support the operations of a publicly-traded corporation?  Trick question!  They already have.

The Department of Revenue last week released its listing of claims for the Iowa research credit over $500,000 for 2013.  Unlike the federal credit, the Iowa credit is “refundable” — if the company claiming the credit has less tax due than its credit, the state writes the company a check for the difference.  Of the $58.2 million in credits claimed, about 65% of them exceeded taxes due and were granted as refunds, according to the report.

Two John Deere entities combined to claim over $18 million in credits in 2013; assuming the 65% figure applies to them, that means the got a net $12 million subsidy from Iowa taxpayers.

The Des Moines Register reports:

Twelve of Iowa’s major employers accounted for more than 86 percent of tax credit money awarded for research and development last year, according to a new Revenue Department report.

Companies claimed a total of $53.3 million in credits for research and development in 2013, with 12 companies claiming $46.2 million of that amount. Including individuals who claimed credits, the total rises to $58.2 million.

While recipients of the credits will always argue passionately for their virtues, it’s impossible to justify cash operating subsidies from the state for a dozen well-connected corporations.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would benefit all taxpayers, not just those who hire tax credit harvest consultants to get cash for what they would do anyway.

 

Liz Malm, Richard Borean, Lyman Stone, Map, Spirits Excise Tax Rates by State, 2014 (Tax Policy Blog)

20140217-1

It looks like Iowa hits the sauce pretty hard.

 

Annette Nellen, State income tax filing post-Windsor.

Jason Dinesen, Glossary of Tax Terms: Enrolled Agent   

Kay Bell, IRS’ first batch of 2014 tax refund checks averages $3,317

 

Russ Fox, Tax on the Run Owners Run to ClubFed:

Here’s a scheme for you: The government has set up this new tax credit worth thousands of dollars. What if we find some impoverished individuals, have them fill out tax returns claiming this credit, and we pocket all that cash? We’ll just phony up some other parts of the return to make it look real. They’ll never catch us!

As an aside, this sort of thing happens with all refundable tax credits. It’s one of the reasons why they attract fraudsters like moths are drawn to bright lights.

Yes, this really happened…except for the part about never being caught.

But even if you catch them, that money is gone.

 

taxanalystslogoChristopher Bergin, To Fix the IRS, You Have to Fund It (Tax Analysts Blog)

This agency is so mismanaged that there may very well be corruption. But I have no proof of that. I do, however, agree with those who are calling for a special prosecutor. Because the way House Democrats are behaving – ignoring that there is any problem at all – is almost scandalous, and what the Obama administration is doing is useless.

And that brings me to the House Republicans. They think it’s a good idea to punish the IRS by cutting its budget. That won’t fix the problem, and it’s the classic cutting-off-your-nose-to-spite-your-face move.

We tax practitioners deal with the degrading IRS service levels every day, and it’s clear the IRS should be better funded.  It won’t happen, though, unless the IRS finds a way convince Republican appropriators that it isn’t a political arm of the other party.  Dropping the proposed 501(c)(4) regulations is probably a necessary, though not sufficient, first step.

 

TaxProf, The IRS Scandal, Day 284

Tax Justice Blog, Congress Is About to Shower More Tax Breaks on Corporations After Telling the Unemployed to Drop Dead.  Apparently the “extenders” bill is showing some life.

Jack Townsend, Government Files Protective Appeal in Ty Warner Sentencing 

 

Via Wikipedia.

Via Wikipedia.

The $70 million doggie treat.  The greyhound industry is a legacy of the early days of gambling in Iowa, but as opportunities to lose money recreationally have expanded, gamblers have lost interest in the doggies.   Yet state law still requires two casinos to retain their dog tracks.  Now the Des Moines Register reports that the casinos are willing to buy out the dogs for $70 million:

Combined betting on greyhound races in Dubuque and Council Bluffs has dropped from $186 million in 1986 to $5.9 million in 2012, a 97 percent decline. Both dog tracks typically have only a scattering of fans in grandstands that once held thousands of patrons.

The proposed legislation envisions a payment of $10 million annually for seven years for Iowa’s greyhound industry. This would include a total of about $55 million from Horseshoe Casino in Council Bluffs and about $15 million from the smaller Mystique Casino in Dubuque.

The casinos say they are losing $14 million annually on the dogs.   I would guess that horse racing in Iowa has a similarly hopeless economic model.

Somewhat related: Tyler Cowen, Triply stupid policies.

 

News from the Profession: Just What Every Accountant Wants for Valentine’s, Another Calculator (Going Concern)

 

Share

Tax Roundup, 2/13/14: Hatching a tax boost. And: spring training!

Thursday, February 13th, 2014 by Joe Kristan


hatch
Jack Hatch, Candidate for Governor,
yesterday introduced legislative text for his tax plan (SF 2164), which would result in a big tax increase for a lot of voters.

First the good points:  It would increase the minimum income subject to tax from the current $9,000 level to $20,000 for single taxpayers, and to $24,500 from $13,500 for heads of household and surviving  spouses.  It reduces the number of tax brackets from nine to four.  And it eliminates the deduction for federal taxes.  It increases the depended credit to $500, from $40.

Unfortunately, the way he adjusts the brackets will result in a big tax increase for taxpayers at not very high income levels.  His 6.2% bracket would kick it at taxable income of $42,091.  Under current law, 6.2% is roughly the highest Iowa effective rate when you take the deduction for federal taxes into account.  Under current law, that starts at $67,230 for 2014.  With a top rate of 8.8%, the Hatch plan means about a 25% increase in the top rate at the highest brackets — and his top rate begins at taxable income of only $88,822.

I did some quick computations on four very simplified taxpayers — single filers with one item of ordinary income.  The results are below:

 

hatch2014

The result is a small tax cut at the lower brackets, but some big increases in higher brackets.  Remember that much of the income taxed at higher brackets is pass-through business income.  That makes it a big tax increase on employers.  It’s hard to see how this will sell.

 

20121120-2Megan McArdle, Latest Obamacare Delay Is Probably Illegal:

That doesn’t mean that the courts are going to step in. Courts don’t just swoop down and body-check the executive branch or Congress every time one of them oversteps its constitutional powers. They wait for someone to sue. And in order to sue, you need to have legal standing, which, Adler points out, no one seems to. It’s not enough to say that your taxes will be higher, or your government measurably less constitutional, because of the government’s actions. You need to prove that you have been substantially harmed, and it’s not clear that anyone can.

Unlike Megan, I think a successful lawsuit is a real possibility.   There are surely employers just over the 100-employee limit who will be at a disadvantage compared to those who are just under, and who therefore don’t have to comply with the mandate.  While I am not a lawyer and far from a specialist in “standing,” that seems like somebody who would have it.

 

TaxGrrrl, The IRS, The Refund Process and That Pesky 1121 Code.  It appears earned income credit refunds are getting held up.  Considering the level of fraud and error in the program, it’s hard to fault the IRS here.

Jason Dinesen, Iowa Charitable “Checkoffs”

Something that a lot of taxpayers (and tax preparers — including me) in Iowa often overlook is the “charitable checkoffs” a taxpayer can make on their Iowa tax return. Taxpayers can choose to donate money on their Iowa return to these causes:

  1. Fish and Wildlife: donations made here go towards Iowa’s Wildlife Diversity Program, which monitor’s the state’s “non-game” wildlife.

  2. Iowa State Fair Foundation: donations made here help fund improvements to the Iowa State Fairgrounds.

  3. Firefighters/Veterans Trust Fund: donations made here are split 50/50 between helping volunteer fire departments with training and helping veterans with things such as job training.

I like the wildlife one best.

 

Paul Neiffer ponders IRS Data by Zip Code and County.  It’s full of interesting stuff, and I hope to post about our local zip codes and their 2011 tax data.

Kay Bell, IRS options after losing tax preparer regulation appeal. Um, do their job, and don’t try to revive the failed power grab?

William Perez looks at the Percentage of Tax Returns Claiming Itemized Deductions.

 

Andrew Lundeen, The Economics of Senator Wyden’s Tax Reform Plan (Tax Policy Blog):

Though the plan does simplify the individual side of the tax code, the most important measure of tax reform plans should be the growth it produces. On that measure, this plan falls short predominately due to its treatment of capital.

It does go the wrong way.

 

Jack Townsend, Article Analyzes Counter-Intuitive Effects of IRS Offshore Penalty Structure.  ”As the authors note, ‘the GAO Report indicates [that] taxpayers with little or no criminal or civil fraud exposure were punished proportionately in higher amounts than those who participated and had true criminal tax exposure.’”

Of course.  You have to shoot the jaywalkers so you can be nice to the real crooks.

 

Peter Reilly, Pilot To Black Panther To Pastor Calls For Financial Transparency In Churches.

TaxProf, The IRS Scandal, Day 280

 

Career Corner.  If No One Will Hire You, Maybe It’s Because Your Parents Aren’t Offering to Pay Them   (Going Concern).  Probably not, though.

Bleacher Nation, Chicago Cubs Pitchers and Catchers: REPORT!!!  Let’s do this.

 

Share

Tax Roundup, 2/12/14: Lawless and Unregulated edition. And: Lincoln!

Wednesday, February 12th, 2014 by Joe Kristan

20130121-2As we reported yesterday, the IRS preparer-regulation power grab failed in the D.C. Court of Appeals.  The three-judge panel unanimously ruled that “The IRS may not unilaterally expand its authority through such an expansive, atextual, and ahistorical reading” of the law.

One grumpy IRS person told us that we would regret it, that Congress will pass a worse IRS-run preparer regulation regime.  While it’s possible, I don’t think Congress is in any mood to give the IRS more power right now (see TaxProf, The IRS Scandal, Day 279).

It’s a victory for taxpayers, for preparers, and for the rule of law.  One hope it is a good omen for future court decisions on the on-the-fly rewrites of the Obamacare effective dates.

My endzone dance is here.  The Tax Prof has a roundup of coverage, as well as a guest op-ed: Johnson: The D.C. Circuit Rejects the IRS’s Regulation of Tax Return Preparerswhich says “At bottom, Loving stands for the proposition that exigency does not excuse illegality.” 

Other tax bloggers weigh in:

Russ Fox, DC Court of Appeals Rules Against IRS: Loving Decision Upheld.  ”The real problem is the huge complexity of the Tax Code, and the biggest villain here is Congress. Rather than regulating tax professionals, we need to regulate (gut) the Tax Code itself.”

Leslie Book, Initial Reactions to the Government’s Loss in Loving (Procedurally Taxing):  ”The government may seek to get Supreme Court review of the matter, or may work with Congress to get specific legislative authority. I offer no views on the odds of the government seeking cert, but its sound beating in two opinions leaves the possibility of obtaining cert and a victory in the Supreme Court seemingly small.”

Joseph Henchman, Big Win for Taxpayers: IRS Loses Effort to Expand Power Over Tax Preparers (Tax Policy Blog).  ”In May 2013, we filed a brief opposing an IRS appeal of a court decision striking down their regulation of small tax preparers.”  That’s the brief I joined, along with fellow tax bloggers Russ Fox and Jason Dinesen.

Trish McIntire, The IRS Lost!  “I don’t know if there can be any more appeals (not a lawyer) but I bet there will be a tax preparer bill in Congress soon.”

 

20130419-1Paul Neiffer, When Farmers Barter.  While bartering is taxable, Paul muses: “Some of these barter transactions are properly reported, however, my educated guess is that much higher percentage is not.”

William Perez, How to Handle Owing the IRS

Tony Nitti, Tax Geek Tuesday: Allocation of Partnership Liabilities ”Admit it. Nobody really understands what’s going on in this remote corner of the K-1; typically, most tax preparers just apply the tried-and-true “same as last year” approach to allocating liabilities, and trust that it won’t matter in the end.”  Oh, it does, it does.

Jana Luttenegger, “Extensive Wait Times” Ahead with the IRS (Davis Brown Tax Law Blog).  And it’s not like they were brief before.

Kay Bell, The pros and cons of tax refunds.  While logically you don’t want to let the taxman sit on your money, clients always seem happiest with a fat refund.  That leads many tax advisors to sandbag a bit on payments.

TaxGrrrl, Yes, Olympic Wins Are Taxable (And Should Stay That Way) 

 

Peter Reilly, Pilot To Black Panther To Pastor Calls For Financial Transparency In Churches 

 

Jack Townsend, Corporate Corruption Case Charged With Swiss Bank Accounts to Hide the Loot 

Tax Trials, The Tax Education of Lauryn Hill

Annette Nellen links to the Video of IRS Commissioner Koskinan on the filing season.

 

The Iowa Department of Revenue has a Facebook page!  It’s a good idea, and they actually answer questions, like this:

 20140212-1

It’s great that they are answering disgruntled taxpayers for everyone to see.  Best thing is that it’s available to anybody, not just Facebookers.  You don’t have to bring yourself to “like” the Department of Revenue to read it.

 

David Brunori, Tax Breaks for Lawyers — No Joke (Tax Analysts Blog):

I read recently in the Kansas City Business Journal that Missouri gave a big law firm $2.8 million in tax incentives to move to Kansas City. I thought there must be some kind of mistake. Certainly, no politician would agree to give citizens’ hard-earned money to lawyers. And certainly, they would not give citizen money to big-firm, wealthy lawyers. But once again, reality trumps good tax policy. The Missouri Department of Economic Development gave the nearly $3 million to attract the international law firm Sedgwick LLP to downtown Kansas City. 

Must be a rough neighborhood if that’s considered an improvement.  Or, more likely, Missouri has completely lost its mind.

 

Tax Justice Blog, The States Taking on Real Tax Reform in 2014.  One blog’s “real tax reform” is another blog’s march to madness.

News from the Profession: Big 4 Dude Says Dudes at His Firm Rewarded For Treating Non-Dudes Like Dudes (Going Concern)

 

LincolnToday is Abraham Lincoln’s birthday.  He was born 205 years ago today in Kentucky, before anybody thought of an income tax.  His presidency saw the first U.S. federal income tax, passed to finance the Civil War.  The Revenue Act of 1861, Section 49, imposed a flat 3% levy “upon the annual income of every person residing in the United States, whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever” over $800.  It was replaced by a progressive levy in 1862, with a 3% rote on income over $600, with a 5% rate kicking in at $10,000.

The tax expired under its own terms in 1866, after Lincoln’s death.  Lincoln never came back, but the income tax returned to stay in March 1913.

 

Share

Tax Roundup, 2/10/14: The New Mexico double-dip edition. And: we got it right. We’ll fix that!

Monday, February 10th, 2014 by Joe Kristan

bureauofprisonsTwo bites at the apple were two too many for a New Mexico man.  Evading $25 million in federal taxes is bad enough, but illegally collecting $225,000 in farm subsidies on top of that seems like piling on.  From a Department of Justice Press Release:

Bill Melot, a farmer from Hobbs, N.M., was sentenced to serve 14 years in prison today to be followed by three years of supervised release for tax evasion, program fraud and other crimes, the Justice Department, Internal Revenue Service (IRS) and U.S. Department of Agriculture’s (USDA) Office of Inspector General announced today.  Melot was also ordered to pay $18,469,998 in restitution to the IRS and $226,526 to the USDA. 

Melot was previously convicted of tax evasion, failure to file tax returns, making false statements to the USDA and impeding the IRS following a four-day jury trial in Albuquerque, N.M.  According to court documents and evidence presented at trial and at sentencing, Melot has not filed a personal income tax return since 1986, and owes the IRS more than $25 million in federal taxes and more than $7 million in taxes to the state of Texas.  In addition, Melot has improperly collected more than $225,000 in federal farm subsidies from the USDA by furnishing false information to the agency.  

He had been sentenced to only five years, but the appeals court decided he needed some more time before putting in another crop.

For a little farmer, Mr. Melot got around:

  Additionally, Melot maintained a bank account with Nordfinanz Zurich, a Swiss financial institution, which he set up in Nassau, Bahamas, in 1992, and failed to report the account to the U.S. Treasury Department as required by law.

If the government’s sentencing memorandum is to believed, Mr. Melot isn’t down with this whole paying taxes thing, filing a blizzard of “baseless” motions and attempting to conceal assets.  For example:

Defendant’s disregard for this Court commenced immediately… Within 24 hours of his release, between August 21 to August 24, 2009, Defendant and his immediate family were observed purchasing 19 money orders for $1000 each at a Moneygram counter, which is located at the Walmart in Hobbs, New Mexico.

a. Each money order was for $1,000.
b. Each money order listed “Bill Melot” in the memo line. The money orders also each listed Defendant’s home address, 2805 E. Rose Road.
c. Each money order was payable to Mueller, Inc., a Ballinger, Texas company, which builds outdoor sheds.

Videos from Walmart showed Defendant wearing the same clothing that he wore when he was released from custody. The money orders, along with an additional $5,260.94 in cash, were used to pay off the balance due on a metallic shed for Defendant’s farm, which he claimed not to own in his statement to Pretrial Services. The purchase of this barn flatly contradicted Defendant’s earlier claim of near indigence

The appeals panel seems to have believed the prosecution, as Mr. Melot got the full sentence requested.

Russ Fox has more at Really Big Tax Evasion Leads to Really Long Sentence at ClubFed.

 

Via Wikipedia

Via Wikipedia

Oops.  It appears the Iowa legislature accidentally repealed the state sales tax on heavy equipment purchases in 1998, reports Siouxcityjournal.com:

The inadvertent change – which slipped by the department, the legislative code editors, and lawmakers and their staffs in the vetting process — didn’t come to light until last summer, when an attorney contacted the department about the Iowa Code section. At that time, legal staff at the department and the Iowa Attorney General’s office determined that the 2008 action had “rendered that tax obsolete,” Daniels said.

“It was not the department’s intention, nor do we believe that it was the Legislature’s intention, to remove that tax or repeal that tax,” said Daniels, whose agency has asked lawmakers in Senate Study Bill 3117 to restore the sales tax on heavy equipment retroactive to July 1, 2008. 

Sound tax policy tells the legislature to expand the exemption, rather than repeal it.  The heavy equipment will normally be used in business, and business inputs shouldn’t be subject to sales taxes.  It just shows that the General Assembly can occasionally get it right, but will immediately take corrective action when it finds out.

 

 

William Perez offers An Overview of the Income, Deductions, Tax and Payment Sections of the Tax Return

Kay Bell comes through with 6 steps to help you become the best tax client. She omits step number seven: pay your preparer promptly.  No matter how good you are with the first six steps, omitting step seven disqualifies you from the “best” list.

TaxGrrrl, Delayed Tax Refunds, The EITC & How We’re Getting It Wrong   

 And despite its original intent, if the idea is to encourage taxpayers to work more, the current iteration of the EITC fails miserably. As you earn more, your benefits go down, not up. At some point, the incentive to work more is mitigated by the specter of a lesser credit.

It’s a poverty trap.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

 

TaxProf, The IRS Scandal, Day 277

Sounds like a good reason to me.  Broken Tax Code Offered as Reason for Reform (Annette Nellen)

Peter Reilly, Benefit Of Clergy – Why Special Tax Treatment For Ministers Needs To Go.  Constitutional Does Not Equal Sound Tax Policy”

Stephen Olsen, Summary Opinions for 02/07/2014 (Procedurally Taxing).  It’s a roundup of tax procedure cases and posts.

Jack Townsend, Germany Moves Against Offshore Bank Evaders 

An unwarranted meattax approach: Scientist Proposes Discouraging Meat Consumption with New Tax (Joseph Henchman, Tax Policy Blog).

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

 

Career Corner.  No Shirt, No Shoes, No Accounting Degree, No Probl– Actually, Small Problem (Going Concern).

 

Share

Tax Roundup, 2/7/14: Love it or leave it edition! And: Coralville tax scam.

Friday, February 7th, 2014 by Joe Kristan


20140207-1
Making America a better place to leave.  
2013 Expatriations Increase by 221% (Andrew Mitchel):

We do not believe that the primary reason for the increase in expatriations is for political purposes or for individuals to reduce taxes.  Instead, we believe that there are likely three principal reasons for the recent increases in the number of expatriations:

  1. Increased awareness of the obligation to file U.S. tax returns by U.S. citizens and U.S. tax residents living outside the U.S.;
  2. The ever-increasing burden of complying with U.S. tax laws; and
  3. The fear generated by the potentially bankrupting penalties for failure to file U.S. tax returns when an individual holds substantial non-U.S. assets.

The increase in expatriations may also be partly due to a 2008 change in the expatriation rules.

When a foot-fault can break you, you might not want to play the game anymore.  When they start shooting you for jaywalking, you might not want to be on that street at all.

 

20140106-1It’s never too cold for a tax scam.  From CBS2Iowa.com:

Coralville police say they’re receiving more reports of a telephone tax scam. CBS 2 News first told you about the scam last month. The IRS says the scam targets taxpayers, especially recent immigrants. A caller claims to be an IRS agent and says the victim owes money. The victim is told to repay the money using a preloaded debit card or a wire transfer. If the victim refuses, the caller threatens to arrest or deport them or suspend his or her drivers license. The scammer uses a fake name and fake IRS badge number. The caller has found a way to make caller IDs show the number as the IRS toll-free line. To appear more legitimate, the scammer may also send a fake email or recite part of the victim’s social security number. After threatening the victim, the caller may hang up. A second scammer may later call the victim, pretending to be from the local police department or DMV.

It sounds like the scam described in this IRS web page.  If they haven’t sent you a letter first, the IRS isn’t going to call you.  Nor will they contact you via e-mail.  The IRS gives this advice:

  • If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
  • If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

Paying taxes you actually owe is enough fun without sending extra to scammers.

 

20121120-2

Fiduciary Income Tax Blog, 65-Day Rule — 2014:

Fiduciaries of estates and complex trusts have the option to treat certain distributions as having occurred last year. An election can be made with respect to distributions made within 65 days after the end of a tax year. The 65th day of 2014 is Thursday, March 6.

Think of it as a trust mulligan.  With the 3.8% Obamacare Net Investment Income Tax applying at around $12,000 of trust income, many trusts will want to use the 65-day rule to get the income to beneficiaries whose income is under the thresholds.

 

William Perez, Understanding Personal Exemptions

Jason Dinesen, Financing a Small Business: 4 Items to Remember.  ”Don’t spend money just to get tax deductions.”

Kay Bell, Federal itemized deduction claims state-by-state

TaxGrrrl, Looking For Your Tax Refund? What You Need To Know So Far For 2014 

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Christopher Bergin, New IRS Commissioner Wants to Move Forward – We Should Let Him (Tax Analysts Blog):

Koskinen needs the time and space to do what everybody agrees must be done: Fix the IRS. The investigations must continue. But the new commissioner needs to move forward as well. That means not avoiding the problems, but going at them in a positive, not in a negative way. That’s what good leaders do. We should give the man a chance to show us he is one.

He could hardly be worse than the last one.

Howard Gleckman, Individual Income Taxes May Soon Generate Half of All Federal Tax Revenue (TaxVox)

CBO explains much of the rise in individual income taxes by expected increases in real incomes produced by a recovering economy, including higher wages, salaries, capital gains, and income to owners of pass-through firms, who report their taxes on their individual returns. CBO also expects a significant increase in distributions from retirement accounts for at least the next few years, driven in part by higher asset values.

Two other reasons: Higher tax rates for upper-income households (including the surtax in the Affordable Care Act) and the phenomenon known as real bracket creep. Tax brackets are adjusted for inflation but not economic growth. For at least the next few years, CBO figures incomes will grow faster than those inflation-adjusted brackets.

Oddly, these projections assume the expiring provisions actually expire.  Not likely.

Joseph Henchman, Response to Jesse Myerson’s Land Tax Idea (Tax Policy Blog).  Nice effort, but I’m not sure you need to respond to somebody who says Communism gets a bad rap.

TaxProf, The IRS Scandal, Day 274

Jack Townsend, Another Swiss Bank Enabler Indicted in SDNY

J. Richard Harvey, Jr., Surprising Statistics on Corporate Disclosures of Uncertain Tax Positions (UTP) (Procedurally Taxing):

 

The Critical Question: Does the NFL Need a Billion Dollar Subsidy Annually from Taxpayers? (Tax Justice Blog)

Career Corner.  Protip to Government Accountants: If You’re Into Kiddie Porn, You Probably Shouldn’t Watch It At Work (Going Concern)

 

Share

Tax Roundup, 2/5/14: Tax Credits do it all! And: advice from a champion.

Wednesday, February 5th, 2014 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

The income tax, the Ultimate Swiss Army Knife of public policy. Flickr Image courtesy redjar under Creative Commons license.

Tax Credits! Is there nothing they can’t do?  Bill offering tax credits to rehab abandoned public buildings advances (Jason Noble, Des Moines Register):

House Study Bill 540 adds abandoned public buildings to the list of properties eligible for tax breaks under the state’s Redevelopment Tax Credits program, meaning businesses or nonprofits could obtain state aid for such projects as they currently can on renovations of industrial or commercial properties.

It’s an idea that Gov. Terry Branstad highlighted in his Condition of the State Address last month, and appears to have bipartisan support.

This is a back-door appropriation to help out school districts and local governments, but running it through tax return hides it from those pesky taxpayers who foot the bill.  As with Congress, the Iowa General Assembly sees the tax law as the Swiss Army Knife of public policy.

 

20121120-2Arnold Kling exposes the vastness of the Right Wing Conspiracy:

The Congressional Budget Office, a Koch-funded organization known to be affiliated with the Tea Party, writes,

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

A conspiracy so vast…

 

James Schneider, guest-posting at Econlog, discusses why we pay our taxes in  The Sucker Tax:

Imagine a state of anarchy (a lack of government not a house full of boys). An evil genius announces that he will impose a sucker tax. Everyone will be taxed ten dollars, and the proceeds will be redistributed back to all the citizens in equal shares without reference to who paid the tax. In a certain sense, this tax maximizes unfairness. It serves no other purpose than to punish people in direct proportion to how much of the tax they paid. To make tax compliers feel even more ridiculous, the evil genius announces that he will make no effort to punish “tax cheats.” A fair outcome of the game requires that there be no suckers. This will occur if everyone evades the tax. However, it will also occur if everyone pays the tax. Under this scenario, you probably wouldn’t pay the tax (even if you believed in fairness) because you would assume that no one else was going to pay the tax.

Now imagine that the evil genius announces that unless everyone pays the tax one person will be punished.

Read the whole thing.  I especially like this: “Compliance does not mean consent.”

 

20121220-3TaxGrrrl, Baby, It’s Cold Outside: Surviving The Winter With Some Tax Help From Uncle Sam

Paul Neiffer considers One Possible Section 179 Strategy. A reader asks Paul, “Should I wait to buy section 179 property until the date 179 property is raised from $25,000 to whatever?”  He has a way for farmers to plan around the uncertainty.

William Perez, Filing Form 1040A May Help Parents Qualify for the Simplified Needs Test.  For college financial aid.

Jason Dinesen asks, Why Doesn’t the IRS Push the EA Designation?:

The IRS already oversees the EA program. There’s no new infrastructure to put in place. No new exams to create. The infrastructure and exams already exist.

Yet throughout the IRS’s ill-fated attempts at creating the “Registered Tax Return Preparer” designation, the IRS rarely mentioned the EA program, except as a side note of “CPAs, EAs and attorneys are exempt from the RTRP testing.”

I think it’s because it would be inconvenient to their efforts to regulate all preparers.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Peter ReillyThe Dog That Did Not Bark – IRS Issues Adverse 501(c)(4) Rulings To Deafening Silence:

An interesting question about the whole scandal narrative is how it would look if it turned out that many of the groups that the IRS “targeted”  were in fact inappropriately claiming 501(c)(4) status.  Tea Party Patriots Inc, for example, spends a lot of energy talking about how all those intrusive questions were harassment, but what if it turns that, in fact, all those phone calls that TPP Inc made telling people that November 2012 was the last chance to stop Obamacare from turning the country into a cradle to grave welfare state could be viewed as political? 

I think Peter is missing the point.  The issue isn’t whether every right-wing group qualified under the standards historically used for 501(c)(4) outfits.  It’s whether the rules were selectively enforced against right-side applicants —  as seems to be the case.   After all, it wouldn’t be OK to examine 1040s of only Republicans even if it turned out some of them were tax cheats.

 

TaxProf, The IRS Scandal, Day 272

 

David Brunori, Casino Taxes for Horses or Children? (Tax Analysts Blog):

Horse racing has been a dying sport since Nathan Detroit bet on a horse named Paul Revere in Guys and Dolls. In Pennsylvania, the schools are broke. So naturally, when governments need money, they turn to a moribund pastime to pay the bills. 

For the children!

 

William McBride, New CBO Projections Understate the Average Corporate Tax Rate. “Particularly, the CBO is using as their corporate tax base measure domestic economic profits from the BEA, which includes both C and S corporations, even though S corporations are pass-through entities not subject to the corporate tax.”  Well, that’s just nuts.

Tax Justice Blog, Gas Tax Remains High on Many States’ Agendas for 2014

 

Joseph Thorndike, Debt Limit Debates Are Good for Theater, Not For Policy Reform. (Tax Analysts Blog)

Jack Townsesnd, TRAC Posts Statistics on Criminal Tax Enforcement Related to IRS Referrals   ”[A] surge in IRS criminal investigations referred under Obama has fueled an increase in the number of cases prosecuted.”

 

Answering the Critical Question: What Kids Peeing in the Pool Can Teach Us About Tax Compliance (Leslie Book, Procedurally Taxing)

News from the Profession: McGladrey Interns Are Busy Learning Their Colleagues Are Boring, How to Use an Ice Cream Truck (Going Concern)

 

Nice Work, Champ.  It’s funny how hard it can be for some people to heed their own good advice.  Take this North Carolina man:

Prosecutors said Larry Hill, who coined himself “the people’s champ” for his efforts to keep local children out of trouble, didn’t live by his own message and that his case represented “disturbing hypocrisy.”

In a YouTube clip posted in November 2012, Hill says, “I want all my young people to think before you act. Trouble is too easy to get into, and once you get into trouble, you’ll be all by yourself.”

Federal Judge Earl Britt sentenced Hill to 100 months in prison for conspiracy to defraud the U.S. government and 18 months for filing false tax returns.

If it’s any comfort, Mr. Hill will have plenty of company where he’s going.  But he will have to get used to a more spartan existence:

The judge agreed to the lower sentence of 100 months but said Hill deserved the “most severe punishment to reflect the seriousness of the offense,” pointing out that Hill used much of the money to buy himself expensive jewelry and cars, including a Maserati. The judge also noted that Hill was on supervised release from an insurance fraud prison term when he committed the tax fraud.

That doesn’t make his advice any less sound:

He should follow it sometime.  Russ Fox has more on Mr. Hill.

 

Share

Tax Roundup, 1/27/14: Job destruction incentives. And: did you ride your bike today?

Monday, January 27th, 2014 by Joe Kristan

 

Flickr image courtesy Retrofresh! under Creative Commons license.

Flickr image courtesy Retrofresh! under Creative Commons license.

You mean state tax credits aren’t magic beans for economic development?  A frequent commenter on the Econlog blog, Daniel Kuehn, shares some early work on a paper he is preparing on “job creation tax credits” (my emphasis):

 The paper is on the employment and earnings effects of job creation tax credits (and actually investment credits… I’ve recently found out they were phased in using the same selection rule so I can’t distinguish the two, which is fine I guess).

My prior was that they would create jobs and raise wages. I have a good identification strategy – an RDD model. But one thing lacking in the existing literature on it is a way of dealing with displacement effects (in other words, person A gets the job from the tax credit by displacing person B who was not eligible for the credit). I can deal with that (at least within-county displacement). I expected that would reduce the effect somewhat of course, but I was sure even after accounting for displacement the credits would still generate jobs.

So far, they seem to reduce employment. Displacement appears to be a big problem.

There is one other explanation I’m investigating now. You have to create full time jobs to get the credit, so it is possible that I’m seeing a negative employment effect because part time jobs are being replaced with full time jobs. I’m investigating that now with individual level data. So in the end, it may create full time jobs and destroy more part time jobs, in which case it would be interesting to look at the impact on total hours.

I’m not sure how it will all shake out in the end, but I am definitely less confident in policy than I was before I started this.

Mr. Kuehn should be respected for following his data in spite of his prior assumptions, but that’s the result I would have expected.  The money going to the subsidized jobs has to come from somewhere, and much of it comes from unsubsidized businesses.  The politicians like to point to the jobs they “create” with “Economic development” incentives, but they ignore the loss of jobs in competing businesses and from the increased taxes on the unsubsidized.

It’s the old broken window thing.

Related: IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

Scott Drenkard, Indiana House Unanimously Approves Incentive Study Commission.  Iowa did this a few years ago, and the study panel was unable to identify any clear economic benefit to the giveaways.  And they just went on enacting more giveaways.

 

William Perez points out some Resources for Getting Organized for Tax Time

Kay Bell, Tax filing checklist 2014

Paul Neiffer reminds us that You Must Start IRAs Draws at Age 70 1/2!.  Except for Roth IRAs, of course.

Jana Luttenegger, Taxing Bike Share Programs.  She discusses the expiration of a tax break for bike commuters, but notes:  ” With our recent below-zero weather, the bikes likely aren’t being used much currently… “

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Russ Fox answers the question, It’s Only $1,300; Do You Really Have To Send Me the 1099?

 

Annette Nellen, Minnesota Storage Tax Problems.  She discusses an expansion of Minnesota sales taxes:  ”Any base broadening should only cover consumption of individuals (non-businesses).”

Peter Reilly, Obama Administration Weak On Church State Separation? Clergy Housing Allowance Appeal.  The Department of Justice has appealed the Wisconsin District Court Ruling disallowing tax-free cash “housing allowances” for pastors.  The ruling is stayed pending the appeal.  I suspect this is just a maneuver to get through this tax season with minimal disruption to existing plans.  I think it is likely that the District Court ruling will be upheld, and churches should plan accordingly.

 

tax fairyJack Townsend, Yet Another B***S*** Tax Shelter Goes Down Flaming.    There is no tax fairy.

Stephen Olsen, Summary Opinions for 1/24/2014 (100th Post!!!), a roundup of tax procedure news.

 

TaxProf, The IRS Scandal, Day 263

That’s a funny way to aid the nurses.  Second Nurses Aide Sentenced for Conspiracy to Defraud the Government (U.S. Attorney press release)

Tax Trials, Willie Nelson, The IRS’s Most Talented Musician.  Talk about not building expectations.

News from the Profession: The SEC Bans Big 4 Member Firms in China For Failing to Show Their Work (Going Concern)

 

Share

Tax Roundup, 1/24/14: Executive stock spiff proposed for Iowa. And: Haiku!

Friday, January 24th, 2014 by Joe Kristan

20130117-1Legislators propose to exempt employer stock gains from employee Iowa income tax.   S.F. 2043 would exclude from taxation capital gains from stock received by an “employee-owner” of a company “on account of employment” with the corporation, and acquired while the taxpayer was still employed..  While it isn’t entirely clear from the legislation, it would appear to include long or short-term gains, and would include stock acquired by exercise of options or stock bonus plans.  It’s not clear that it would apply to gains on ESOP shares, which are generally issued to owners or redeemed on retirement, but I suspect it would.

It’s an astonishingly broad exclusion.  Once elected, it would apply to stock gifted by the employee-owner to spouses and lineal descendants.  It wouldn’t apply to many family owned companies, because it requires five shareholders, at least two unrelated under IRC Section 318 attribution.  Interestingly, the bill misstates Sec. 318, saying:

Two persons are considered related when, under section 318 of the Internal Revenue Code, one is a person who owns, directly or indirectly, capital stock that if directly owned would be attributed to the other person, or is the brother, sister, aunt, uncle, cousin, niece, or nephew of the other person who owns capital stock either directly or indirectly.

No, that would be Section 267 attribution, and only for pass-throughs.  Section 318 only makes a taxpayer related to:

his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and

(ii) his children, grandchildren, and parents. 

No siblings, nieces or nephews to be seen.  If they can’t even read the Code, should they really be messing with the state income tax?

If the Iowa income tax is so awful that we need to carve out a special exemption to executive stockholders to get them to come to Iowa, we should fix it for everyone, not just for them.  Does anybody really doubt that Iowa would be more attractive to business with no corporate income tax and a 4% top individual income tax rate than with the current system plus a new executive spiff?  Come on, legislators:  take the Tax Update’s Quick and Dirty Iowa Tax Reform Plan off the shelf!

Related: Iowa House advances one-time stock gain bill, on a similar bill introduced last year.

 

David Henderson, Steve Moore’s Alternative Maximum Tax (Econlog).  Governor Branstad floated a plan to allow taxpayers to choose between Iowa’s current baroque income tax and a simpler one with lower rates, before abandoning it prior to the opening of the legislative session.   I thought I was being clever by calling an alternative maximum tax.  David reports that Steve Moore came up with both the idea and the name for a proposal he made for the federal tax system in the 1990s.

I still don’t care for it.  In practice we would be computing the tax both ways and paying the lesser amount.  By adding another computation to the process, it would actually make things harder.  The only way it would work would be if it resulted in lower taxes for everyone; then in a few years they could repeal the regular income tax without anyone noticing.

 

20120531-1The 200th edition of the Cavalcade of Risk is up!  This milestone edition of the long-lived roundup of insurance and risk management posts is at Rootfin.  Congratulations to Hank Stern, the evil genius behind the Cavalcade; he participates in this edition with Hacktastic!, on the security troubles of Healthcare.gov, and government’s efforts to hush them up:

See, the problem isn’t the wide-open portal, it’s the folks trying to alert the folks who run it that there is, in fact, a problem. I’m reminded of a certain Middle East river.

More alarming still, though, is that that it’s not just the state folks yelling “burn the witch:” now the FBI has warned Mr Hermansen to zip his lips. That’ll sure make the problem go away.

Your healthcare is in the very best of hands.

 

Jim Maule, How Not to Compute a Casualty Loss Deduction:

The taxpayer claimed a $12,020 casualty loss deduction on account of the loss of the vehicle. The taxpayer computed the deduction by subtracting the $48,000 from $60,020, the original value of the vehicle. However, the first step in computing the amount of a casualty loss deduction is to subtract the insurance recovery from the difference between the value of the property immediately before the casualty and the value of the property immediately after the casualty, unless the taxpayer chooses to use cost of repairs as a substitute measure, though that was not relevant in this case.  Because the taxpayer did not provide evidence of those values, and because the Tax Court was unwilling to assume that the vehicle’s value immediately before the accident was the same as its value when it was new, it upheld the determination of the IRS that the taxpayer was not entitled to a casualty loss deduction.

The IRS often examines casualty loss deductions, so you need to do your legwork on getting the valuations documented before you file.

 

Jason Dinesen, Small Businesses — Review Those Benefit Programs  “When was the last time your small business reviewed the benefit programs your business offers?”

William Perez weighs in on Finding the Right Tax Professional.

Kay Bell, Tax season is tax scam, tax identity theft season. “If you get any unexpected communication in any form that is purportedly from the IRS, especially at the start of tax season, be wary.”  And they will never initiate contact by phone or email.

Paul Neiffer, Cash Does Not Equal Gain.  You can’t make taxable gain go away by using it to pay off loans.

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

Kyle Pomerleau, High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season.  Be glad we don’t take it all, serf!  He computes Iowa’s top combined rate at 47.4%.

 

taxanalystslogoChristopher Bergin, Fortress Secrecy – No News Here (Tax Analysts Blog).

Anyone familiar with my writing knows that I have bent over backwards to give the IRS the benefit of the doubt in this black eye some call the “exemption scandal.” I must admit I’m getting a little tired of bending.

Back in the day, as the saying goes, I often referred to the IRS as Fortress Secrecy, a term meant to describe the agency’s obsession with hiding as much of its operations as it can get away with. I am not a casual observer, and I have never seen things this bad. Everything the IRS has done in addressing the exemption scandal leads to just one conclusion: that this agency now believes it is accountable to no one other than itself.

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

Howard Gleckman, Fiscal Magic: Paying for New Highways by Cutting Corporate Taxes (TaxVox)

 

Frank Agostino, Jairo G. Cano, and Crystal Loyer.  Guest posters at Procedurally Taxing, including the prolific Tax Court litigator Frank Agostino, discuss how IRS rules against giving false testimony bolstered an IRS man’s own case, in Section 1203 to Bolster a Taxpayer’s Credibility at Trial.

Jack Townsend, Required Records IRS Summons Enforced Again

 

News from the Profession.  Pulling Back the Curtain on Making Partner in a Big 4 Firm. Just sell, baby!

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

Share

Tax Roundup, 1/23/2014: Ideas edition. And: why are we taxing pot?

Thursday, January 23rd, 2014 by Joe Kristan

20130117-1Bad idea.  Refundable tax credits are the favorite kind of credit for tax fraudsters because they generate tax refunds even when there is no tax paid or withheld.  The earned income tax credit is refundable, and that feature has something to do with 20-25% of the credits issued annually being improper.

An intrepid group of Iowa legislators isn’t letting that stop them.  They have introduced HF 2027 to create a new refundable tax credit in Iowa — a piggyback credit equal to 25% of the als0-refundable (and fraud-ridden) American Opportunity Tax Credit.

The AOTC is based on a percentage of tuition paid for the first four years of college.  It phases out at higher income levels.

Politicians can’t resist using the tax law to pass out political favors.  But even the best-intended ones make the tax law more complicated and, by creating a class with something to lose, they make it that much harder to reform.  When there already countless tuition aid programs, not to mention state-funded colleges and universities, it’s unwise to just throw in one more program willy-nilly.

 

Good idea.  Republican Party to vote for repeal of U.S. anti-tax dodging law (Patrick Temple-West).  

Approved in 2010 after a tax-avoidance scandal involving a Swiss bank, FATCA requires most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more.

Criticized by banks, libertarians and some Americans living abroad as a costly and unneeded government overreach, FATCA is on the books, but its effective date has been delayed repeatedly, with enforcement now set to start on July 1.

I hate the headline on the article.  I would have written it “Republican Party to vote to decriminalize personal finance for Americans abroad.”  FATCA makes outrageous demands of non-U.S. institutions that have made Americans unwelcome at many foreign banks.

Related: Republicans Target FATCA As Another Windmill to Attack  (Jack Townsend)

 

haroldWorse idea: film tax credits.

Accounting Web, Film Credits: Your Tax Dollars at Work Making Movies:

Actor/director Ben Affleck told the Los Angeles Times he’s filming part of Live by Night in Georgia, a state that is popular for its film credit availability.

“It comes down to the fact that you have X amount of money to make your movie in a business where the margins are really thin,” he said.

Understood – but there’s a disconnect here. Affleck and his fellow actor/director, Matt Damon, both advocate and participate in using film credits to reduce taxes so they can make their movies. But both are also on record saying, because they are wealthy, their taxes should be raised.

What’s wrong with this “picture?”

Why is the film business, of all businesses with thin margins, entitled to special breaks?  Because politicians are suckers for celebrities.

Joseph Henchman, The Economist Reviews State Film Tax Credit Programs (Tax Policy Blog):

The report notes that it’s getting tougher to compete with Louisiana’s 30 percent refundable credit or New York’s $420 million annual budget to subsidize film and TV, and that independent analyses find these do little on net for job creation or economic growth.

But you can’t forget the intangibles!  As a Des Moines columnist breathlessly reported at the high point of the Iowa film credit looting spree:

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Fortunately, Iowa is sadder but wiser now.

 

20130916-1Russ Fox, More Work for Tax Professionals: Submission IDs for Efiled Returns:

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

And anybody who’s been around a tax prep office during tax season knows there aren’t all that many extra minutes lying around.

 

TaxGrrrl, 11 Questions To Ask When Hiring A Tax Preparer .  A good list.

Leslie Book, The Ban on Claiming the EITC: A Problematic Penalty (Procedurally Taxing).  ”We have not addressed the special EITC ban that arises when a taxpayer inappropriately claims the EITC.   The following gives some context, with a focus on the two-year ban for reckless or intentional (but not fraudulent) errors.”

William Perez, Which Tax Form to File?

 

Peter Reilly, Is Tax Court Rebelling Against Supreme Court?  Short answer: no.

Tyler Cowen, Income inequality is not as extreme as many citizens think.

TaxProf, The IRS Scandal, Day 259

Cara Griffith, When State Taxes and Interstate Compacts Collide (Tax Analysts Blog).  ”But states can’t have their cake and eat it too; a compact cannot be both binding and offer states significant choices on whether to follow its terms.”

Tax Justice Blog calls the IRS budget cut The Dumbest Spending Cut in the New Budget Deal.  It’s bad policy, but it’s asking a lot of Congressional Republicans to fund an organ of their opposition.

 

20130607-2Because they can.  Why Exactly Are We Taxing Pot? (David Brunori, Tax Analysts Blog):

But I must ask: What is the rationale for imposing special taxes on marijuana? Excise taxes are appropriate to pay for externalities – the costs to society of using the product that are not borne by the market. But it is unclear what, if any, externalities are created by smoking pot.

Economic development in the Doritos aisle?

 

Kay Bell, IRS audit results in $862,000 lawsuit award for taxpayer.  Because he tripped over a phone cord.

 

Share