Posts Tagged ‘Jack Townsend’

Tax Roundup, 1/29/15: Iowans, fill ’em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.

 

csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.

 

IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.

 

Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.

 

20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled

 

Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)

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David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

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For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

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

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/26/15: Is Iowa 2014 tax season in jeopordy? And: how “trust fund tax” encourages trusts.

Monday, January 26th, 2015 by Joe Kristan

Accounting Today visitors: Here is the accounting method post mentioned by “in the blogs.”

 

20130117-1Uh-oh. Is there a holdup on passing the annual “conformity” bill at the statehouse? This from Republican State Senator Bill Anderson in the Sioux City Journal is a bad sign:

Senate Democrats are playing politics with the issue. The Department of Revenue is recommending accountants tell clients to delay filing their taxes until a decision is made. Senate Democrats’ indecisiveness to pass legislation in a timely manner creates uncertainty for taxpayers and tax professionals, preventing them from filing returns.

I had not heard there was any difficulty here. I hope it’s not serious, but I will be watching it more closely now.

This is another example of why Iowa should have a “floating conformity” rule. I don’t understand why they can’t say they will automatically adopt federal extender changes. If they want to leave out bonus depreciation, that could be done with language excluding that from the automatic conformity. We shouldn’t have to go into February without knowing what the state tax law is for the prior year.

 

Janet Novack, Obama Attack On “Trust Fund Loophole” Could Increase Tax Advantage Of Trusts. “Without step-up, there would, for example, be an even greater tax advantage to putting assets that are likely to explode in value—such as founders’ stock in a hot start-up—into an irrevocable trust for children or grandchildren.”

 

Kay Bell, Capital gains gain in income reporting, but tax hike unlikely

Jack Townsend, Fifth Circuit Rejects Attempt on Direct Appeal to Withdraw Guilty Plea in False Claims Conspiracy Case

Jim Maule, No Agreement? No Alimony Deduction. In divorce, paperwork is everything.

Robert Wood, 10 Crazy Sounding Tax Deductions IRS Says Are Legit. My favorite is “free beer.”

20130607-2Anthony Nitti, IRS Futher Limits Deductions For State-Legal Marijuana Facilities:

Most notably, Section 280E provides that “no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.” Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug.

And it does. Regularly.

I hope nobody really believes this actually prevents any drug crimes. What it does is add a crushing tax debt that helps ensure that anybody who gets involved in drug traffic can never reform and become a productive member of society.

 

Robert Goulder, Should the Mayor of London Pay U.S. Taxes? (Tax Analysts Blog):

True, there are tax treaty protections at play and foreign tax credits available. But the point of the story isn’t double taxation; it’s jurisdictional overreach. Many will argue that a citizenship-based tax regime is unfair and heavy-handed.

The U.S. is the only country that does it. Oh, Eritrea, too.

Stephen Olsen, The Gift that Keeps on Taking–Does Section 6324(b) Limit Gift Tax to the Value of the Gift or Can the IRS Take More? (Procedurally Taxing)

 

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.

Alan Cole, The IRS Has Too Many Responsibilities (Tax Policy Blog):

On one hand, the IRS’s basic responsibilities have gotten less onerous over the years. More and more taxpayers file electronically, which means that everything just zips straight into the IRS’s computer system with little need for human oversight. This should mean that the IRS really doesn’t need to grow, and if anything it could stand to shrink.

But on the other hand, the IRS has been overloaded with all sorts of additional responsibilities. It’s acting as an extension of the Department of Health and Human Services in enforcing the Affordable Care Act. It’s acting as an extension of the Federal Election Commission and regulating political speech (an authority it has perhaps not used so well.) It’s acting as an extension of the Department of Energy with its residential energy credits, and it’s acting as an extension of the Department of Education in offering deductions and credits for teachers and students. It has to figure out who has health insurance and who has children and where the children live. It even has to try to get data from foreign banks, due to the complexity of our worldwide system of taxation. The more arbitrary things find their way into the tax code, the more verification systems the IRS has to put in place.

These are only a few of the non-revenue responsibilities dumped on the IRS that uses the tax law as the Swiss Army Knife of public policy. Beyond the bottle opener and the screwdriver, every gadget you add makes it harder to use it as a knife, and now we have a Swiss Army Knife the size of a railcar.

 

20140919-2Gretchen Tegeler, Benefits and Costs of DARTing Forward  (IowaBiz.com), on the troubling financial structure behind Des Moines’ public tansportaiton:

Despite a nearly 20 percent increase in ridership over this period, there has been no associated increase in fare-based revenue.  If more millennials are riding the bus, why aren’t we seeing an increase in operating revenue?  The absence of growth in operating revenue suggests that all of the recent improvements in service and ridership have been funded by non-users, i.e. from increases in property taxes.  Are we okay with this model? How far should we go with it?

Maybe if they had to rely more on farebox revenue, they would spend less on things like the downtown Palace of Transit.

 

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TaxProf, The IRS Scandal, Day 627

Glenn Reynolds, Middle-class Savings Like Blood in the Water. Paying for “free” college and student loan subsidies by taking money out of the pockets of those who save for college sets up a strange incentive structure.

Megan McArdle, Uncle Sam Is Coming After Your Savings. They need it to buy you “free” stuff.

 

Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 1/22/15: Business-only tax reform: do-able, or doomed? And: Are Iowa taxes all that bad?

Thursday, January 22nd, 2015 by Joe Kristan
paul ryan

Paul Ryan

Business-only tax reform? Tax Analysts reports ($link) that the chief taxwriter in the GOP-controlled House is exploring tax reform ideas with the Obama administration:

As Republican taxwriters look for a way to advance tax reform in the face of White House ambivalence, House Ways and Means Committee Chair Paul Ryan, R-Wis., said he would explore a business-only compromise with the Obama administration, as long as it includes passthroughs.

“I’d like to think that there is perhaps an area for common ground there,” Ryan said on Fox News January 20 after President Obama’s State of the Union address. “We’re going to try to explore it and see if we can find something.”

Ryan said Obama’s recent tax proposals, which involve increasing capital gains taxes and implementing a tax on financial institutions to pay for new and expanded middle-income tax incentives, as well as new spending programs, show he is disinterested in comprehensive reform.

I think “as long as it includes passthoughs” is absolutely the right approach. I also think it will be fatal to the reform effort. A majority of businesses and business income is taxed on 1040s as a result of the increased popularity of passthrough structures like S corporations and limited liability companies.

Source: The Tax Foundation

Source: The Tax Foundation

Any tax reform effort worthy of the name would bring down rates in exchange for a broader base. As the President seems firmly committed to ever-higher rates on “the rich,” I don’t see how this can happen.

 

Is Iowa’s business tax climate really that bad? (Me, IowaBiz.com). Is Iowa ready for tax reform? Ready or not, it’s overdue for it:

Even after all of the explaining, the Tax Foundation’s main points remain true. Iowa’s corporation tax rate is the highest in the U.S. (even taking the deduction for federal income taxes into account). In fact, it is the highest in the developed world. Our individual tax rate is high, even considering the federal tax deduction. All of the special breaks make Iowa’s income tax very complex. And while Iowa has many tax credits, they are often narrowly tailored and require consulting and string-pulling to obtain. Many small businesses don’t qualify for the wonderful tax breaks, but they still have to pay their accountants to comply with the resulting complex and confusing tax system.

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

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

The post begins an exploration of Iowa tax reform options I will be running at IowaBiz.com, the Des Moines Business Record’s Business Professional’s Blog. While longtime readers know my fondness for massive changes to the Iowa tax system, I will also be exploring changes on the margin that would improve and simplify Iowa’s tax system in its existing structure that might be easier to pass.

 

David Brunori, Bad State Tax Ideas Abound – Nebraska, Virginia, and Missouri (Tax Analysts Blog):

Special taxes — those on narrow bases — should be imposed sparingly and only for good reason. The best reason is to pay for externalities. But unlike, say, cigarettes, 99 percent of gun purchases produce no externalities. So they should not be subject to special taxes — unless you really hate guns, gun owners, and the guys from Duck Dynasty.

Not every problem is a tax problem.

 

Via Wikipedia

Via Wikipedia

TaxGrrrl, Taxpayers Urged To Be On ‘High Alert’ For Fraud During Filing Season:

This week, the Treasury Inspector General for Taxpayer Administration (TIGTA) issued a reminder to taxpayers to beware of scammers making calls claiming to represent the Internal Revenue Service (IRS). The scam, which heated up last year, has continued to plague taxpayers.

If you aren’t expecting a call from the IRS, it’s not the IRS.

 

William Perez, Understanding Form W-2, the Annual Wage and Tax statement

Robert Wood, 10 Surprising Items IRS Says To Report On Your Taxes. As a listicle, it will probably generate traffic to crush Forbes’ servers.

Tax Trials, Fourth Circuit Affirms the Tax Court on Conservation Easement Donation.  “In the end, the Fourth Circuit held that while the conservation purpose of the easement was perpetual, the use restriction on the’ real property is not in perpetuity because the taxpayers could remove land from the defined parcel and replace it with other land.”

Robert D. Flach, ONE WAY RETIREES ARE SCREWED ON THE NJ-1040.

Keith Fogg, How Long Does a CDP Case Toll the Statute of Limitations on Collection? (Procedurally Taxing)

Peter Reilly, Bitter CPA Fight Good For Attorneys And Nobody Else. The U.S. Sixth Circuit picks up the tale of one of the worst accounting firm breakups I’ve come across.

Jack Townsend, USAO SDNY Announces Another Offshore Account Client Plea

 

20141201-1Glenn Hubbard, Obama’s Bad Economic Ideas (Via the TaxProf): “Piling up child tax credits and subsidies for health care over narrow household income ranges, as the president proposes, leads to high rates of taxation on earnings from work as assistance is phased out.” In other words, a poverty trap.

Kay Bell, Obama’s ‘won both’ elections State of the Union quip, Republicans’ many responses to the speech (and gibe)

 

The Tax Policy Blog has lots on the Presidents’ doomed tax proposals:

Kyle Pomerleau, Andrew Lundeen, The Basics of President Obama’s State of the Union Tax Plan

Scott A. Hodge, Michael SchuylerWhat Dynamic Analysis Tells Us About the President’s Tax Hike on Capital Gains and Dividends

Stephen J. Entin, President Obama’s Capital Gains Tax Proposals: Bad for the Economy and the Budget

 

TaxVox is also flooding the SOTU zone:

William Gale, David John, Retirement Security a Priority in the 2015 State of the Union

Gene Steuerle, President Obama’s Middle-Class Tax Message in the State of the Union

William Gale, Adjusting the President’s Capital Gains Proposal

 

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TaxProf, The IRS Scandal, Day 623. Today’s installment features an e-mail where scandal figure Lois Lerner shows she’s well aware her unit was under suspicion, and was desparately discouraging further inquiry.

Matt Gardner, Adobe Products’ Acrobatic Tax-Dodging Skills (Tax Justice Blog). I would read that as “skills in meeting their fiduciary duty towards their shareholders.”

 

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Tax Roundup, 1/20/2015: What’s with the accounting method changes? And: foot kissing + tax evasion = double trouble.

Tuesday, January 20th, 2015 by Joe Kristan

3115-2009If your business return seems extra thick this year, it could be a result of an “accounting method change” application — Form 3115 — buried in it.

The tax law requires taxpayers to get IRS permission to change a “method of accounting.” Without getting into all of the tedious details, and with great oversimplification, a “method of accounting” occurs when the way you account for something on your tax return affects the timing of income or expense, but not the total amount over time. In other words, it’s temporary vs. permanent differences.

Of course timing is everything in tax planning, and the IRS doesn’t want you to change accounting methods willy-nilly. The IRS doesn’t have the time to consider every accounting method change, though, so it publishes a long list of “automatic” method changes annually. This year’s list is in Rev. Proc. 2015-14.

This year will see more Forms 3115 than usual as a result of the so-called “repair regulations” that are effective for 2014 returns. These rules distinguish between “repair” expenses, which can be deducted, and “improvements,” which have to be capitalized and depreciated.

20140925-2The repair regulations have provisions that let taxpayers treat their building components — HVAC, roofs, elevators, etc — as separate items under these rules. Their effect is to permit deductions for some costs that may have been trapped in the depreciable cost of the building. That makes the automatic method change under these rules (Rev. Proc. 2014-17) a good deal, as it can provide a catch-up deduction for prior capitalized costs. Many returns will also include a method change (Rev. Proc. 2014-16) to reflect updated rules for deducting or capitalizing “materials and supplies.”

Automatic method changes are a good thing; if you have a method change that isn’t automatic, special IRS permission is required, and it doesn’t come cheap. But even an automatic change isn’t free, especially if your preparer has to go through old repair records to determine the catch-up deduction. But if you have significant depreciable real property, it’s probably worth the effort.

 

Russ Fox, Former Mayor (and Current CPA) Learns of Tax Fraud, Joins the Conspiracy

Now, let’s assume you’re a tax professional and you learn that a company is withholding payroll taxes and not paying them to the IRS. Would you:
(a) Tell them that the taxes aren’t being paid, that’s violating the law, and you need to fix this (which could include setting up payment plans with the IRS and Minnesota, or just paying the withheld funds);
(b) Tell them that if they don’t start remitting the withheld funds that he would need to quit the engagement; or
(c) Join the conspiracy. 

An accountant from Stillwater, Minnesota — who happened to also be the Mayor — chose poorly.

 

20121120-2Hank Stern, Counting down the ObamaTax:

Many (most?) folks believe that the tax is a mere $95 this year and, for some people, this may well be the case. But it’s actually just a minimum; the actual rate (this year) is 1% of income:

TurboTax, an online tax service, estimated that the average penalty for lacking health insurance in 2014 will be $301.”

A common misconception.

Robert Wood, Beware Obamacare When Filing Taxes This Year. A roundup of the individual mandate penalty and the net investment income tax.

 

Annette Nellen, Due diligence for preparing 1040s for 2014:

What’s new for due diligence for 2014 individual tax returns?  Virtual currency, Affordable Care Act, FBAR, Airbnb rentals, for sure.  Also, the typical charitable contributions, mortgage interest and 1099-K review.  The biggest new item for 2014 will the new line asking if the individual had health coverage for the year.

More work doesn’t come free. The post lists to a longer article about preparer “due diligence” this tax season.

 

Tim Todd, Tax Court Adopts Functional Test to Define “Bank”. “In sum, the Tax Court held that Moneygram satisfied neither the Staunton functional test nor the § 581 test because it failed to receive deposits, make loans, and was not regarded as a bank by any state or federal regulator. Consequently, Moneygram was not entitled to the reported bad debt deductions of the partial or wholly worthless asset-backed securities.”

Jason Dinesen, A Brief History of Marriage in the Tax Code, Part 2: Taxes in 1913.

 

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part 1. “As you will see, the regime governing partnership distributions is drastically different from the one governing corporate distributions.”

TaxGrrrl, Fun With Taxes: Tax Haiku 2015. How about this:

 insure worker health?

Better not reimburse it

That is expensive.

 Kay Bell, Martin Luther King Jr. Day lessons via “Selma” & “Glory”

Mitch Maahs, IRS Announces New Standard Mileage Rates (Davis Brown Tax Law Blog)

 

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Robert D. Flach, BO SOTU PLANS TO INCREASE TAX ON THE “WEALTHY”. ” BO’s tax proposals, both to help the middle class and punish the wealthy, will never pass in the Republican controlled Congress.”

Matt Gardner, President Obama Takes on the Capital Gains Tax Inequity with New Proposals. By making it worse, of course, though not to hear Mr. Gardner tell it.

Renu Zaretsky, To Build a Better Tax Code, You Could Follow the Money.  The TaxVox headline roundup is heavy on the President’s proposals.

TaxProf, The IRS Scandal, Day 621. This edition cites Stephen Moore’s Op-ed: “Congress needs to hold the IRS accountable and demand the firing of Mr. Kostiken because he has he admitted openly he can’t do his job.”  Unfortunately, the President who hired him thinks he is doing his job, which is to be a partisan scandal goalie.

 

The headline that wins the internet: Foot Kissing Chiropractor Sentenced for Bribing IRS Agent (Jack Townsend)

 

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Tax Roundup, 1/14/15: Education credits to delay refunds? And: it’s not volunteering when you’re paid.

Wednesday, January 14th, 2015 by Joe Kristan
Kristy Maitre

Kristy Maitre

If your tax refund this year seems to take forever to arrive, education credits might be involved. The invaluable Kristy Maitre, former IRS Stakeholder Liaison and now with the Iowa State University Center for Agricultural Law and Taxation, has leaned that the IRS may delay refunds on returns claiming the “American Opportunity Credit.” From an e-mail she has distributed:

If your client is getting the American Opportunity Credit this year you need to be aware of a possible “refund hold” on the credit to verify attendance at the college. At this time we “assume” only that part of the refund will be held and the other part of refund not related to the American Opportunity Credit will be released.

At this time we are not sure who this will impact, IRS appears to want to keep it a BIG secret. Our concern is that the tax preparer will be blamed for the delay of the refund and overall it would make the preparer look bad as well as having to deal with an upset client due to the issue. I was able to find some criteria in a new IRM, but we need more information from IRS.

Your client should be  informed by IRS of the reason the refund is being held and that once the 1098-T from the accredited institution is verified the refund will be released,  or they will receive a Letter 4800C to inform them if further documentation is required to allow the education credit…

The AOTC is a “refundable” credit; if the credit exceeds the tax computed, the IRS will pay you the excess. Given the high incidence of refund fraud involving refundable credits like the AOTC, it’s understandable that the IRS would want to verify eligibility before issuing a refund.

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.

Unfortunately, this verification will come from matching 1098-Ts issued by colleges and universities. These forms, which purport to show tuition paid, are notoriously unreliable. The inevitable matching errors will leave some taxpayers trying to get their refunds fixed well into the summer.

This highlights the unwisdom of using the tax law as the Swiss Army Knife of public policy. It’s hard enough to get taxable income right. Congress also assigns IRS education policy, health care, social welfare, industrial policy, campaign finance regulation, you name it. Like with the Swiss Army Knife, you can only add so many functions before you make it bad at being a knife.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen wants us to blame cuts in his budget for tax refund delays. In a memo to IRS employees, he outlines the dire effects of the cuts in his agency budget, including:

Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week — or possibly longer — to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.

It’s foolish of Congress to pile work onto the IRS and then cut its budget. That said, Mr. Koskinen has brought a lot of this on himself with his combative and tone-deaf response to the Tea Party scandal.

Also, there’s a bit of the Washington Monument Strategy in his memo, by making cuts in areas that inflict pain on taxpayers. I would be more convinced that the IRS is really committed to making taxpayer service a priority if his list of budget adjustments included sending to the field, or laying off, the hundreds of full-time IRS employees who do only union work. He would be more convincing if he said the “voluntary” preparer regulation initiative was on ice until funding improves. Instead, the Commissioner puts the National Treasury Employees Union and his own power grab ahead of processing refunds.

 

No Walnut STVolunteering. I don’t think that word means what you think it means. From Governor Branstad’s 2015 Condition of the State address:

 In addition, I am offering legislation creating the Student Debt Reorganization Tax Credit. This tax credit allows individuals to volunteer for worthy causes within Iowa’s communities and in exchange have contributions made toward their student debt.

There is so much wrong with this, beyond the idea that it’s “volunteering” when you get paid for it. It’s one more random addition to an already ridiculous mishmash of distortive and unwise education subsidies. It’s one more incentive for students to take on debt they can’t otherwise afford. And it misplaces human capital from productive for-profit enterprise to the black hole of the government and non-profit sector.

Iowa Form 148 already lists 32 different tax credits. The Governor thinks adding some more is the solution to Iowa’s problems. I think the credits are a big part of the problem, as they help make the Iowa tax law the complex high-rate mess that it is.

 

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

Kay Bell, Reducing your 2014 tax bill using exemptions, deductions

Jason Dinesen, H&R Block Doesn’t Really Have ACA “Specialists” On Staff. A bold charge, but a convincing one.

Peter Reilly, Can Walgreen Stance On Property Tax Hurt Income Tax Position Of 1031 Investors? Thoughts on getting too cute in analyzing the value of a real estate interest.

Leslie Book, Can IRS Change Taxpayers from Procrastinators to Payors By Drafting Letters that Make Taxpayers Feel Bad? (Procedurally Taxing). Usually people feel bad when they get a letter that says “notice of levy,” but that’s not what he’s talking about.

Robert Wood, Citizenship Renunciation Fee Hiked 422%, And You Can’t Come Back

Jack Townsend, Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation

 

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David Brunori, Using the Poor for Fixing the Roads (Tax Analysts Blog):

The Michigan Legislature passed a bill that would significantly increase the state’s earned income tax credit. Some 800,000 Michigan families will see tax relief. I think that is a good thing. But the change won’t go into effect unless voters approve a sales tax increase from 6 percent to 7 percent.

I don’t share David’s enthusiasm for the EITC, but I do appreciate the absurdity of the sales tax link.

Kyle Pomerleau, Representative Van Hollen Releases New $1.2 Trillion Tax Plan.  “Unfortunately, most of Representative Van Hollen’s tax plan would move the U.S. further away from having a competitive, modern tax code.”

TaxProf, The IRS Scandal, Day 615. This installment covers a Tea Party group that has been waiting five years for Lois Lerner’s old office to approve their exemption application.

 

Career Corner. Age and accounting as a second career (Caleb Newquist, Going Concern)

 

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

Wednesday, December 31st, 2014 by Joe Kristan

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

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

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

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

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

 

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

Tax Court Judge Marvel explains (my emphasis):

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

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

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

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

Cite: Ferm, T.C. Summ. Op. 2014-115.

 

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

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

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

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

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

 

Kay Bell, Donating and deducting a car

Jack Townsend, Reasonable Doubt and Jury Nullification

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

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

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

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

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

Annette Nellen,State taxes and bitcoin

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

 

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

TaxProf, The IRS Scandal, Day 601

 

Post-sequester commuting.

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

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

Live it up, Robert!

 

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

 

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Tax Roundup, 12/29/14: Why AMT matters in year-end planning. And: Laffering it up.

Monday, December 29th, 2014 by Joe Kristan

Accounting Today visitors! Click here to find the capital gains planning item from “In the Blogs.”

IMG_1944How AMT can make prepaying state and local taxes a false move. Prepaying state and local taxes is a venerable year-end tax planning move. It can also be a costly one, thanks to the Alternative Minimum Tax. If you are in AMT this year — perhaps thanks to a big non-recurring capital gain — but you won’t be next year, prepaying your state and local taxes might result in your taxes actually being much higher over the two-year period.

An example involving a fictional Iowa married couple shows how this works. The couple has one earner with $150,000 in self-employment earnings in 2014 and 2015. In 2014 the couple generates $300,000 in a one-time capital gain.

If the couple prepays their 2014 state tax on the capital gain, they get a federal tax benefit of precisely zero in 2014; the capital gain causes them to be in AMT whatever they do because the capital gain rates are the same for AMT and regular tax.

In 2015, the couple has no AMT on their $150,000 of self-employment income. Nor do they have AMT even after paying both their 2014 Iowa balance due and their 2015 Iowa estimates. My projection software comes up with these numbers (yes, oversimplified, but the concepts hold):

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This shows that prepaying the taxes would be a $6,043 mistake for the couple.

There are cases where prepaying state taxes makes sense. There are also cases where AMT makes doing so a blunder. Make sure you run the numbers before you mail that check.

 

In case you missed it over the holidays, central Iowa’s only SHOP marketplace insurance provider was taken over by Iowa’s insurance regulators last week.  Read about it here.

 

Younkers ruins 20140610William Perez offers A First Look at ABLE Savings Accounts. These accounts, included in this month’s “extender” bill, allow Section 529-like benefits for accounts set up to pay disability costs.

Robert D. Flach, THE CLOCK IS TICKING. For 2014 Qualified Charitable Distributions from IRAs.

Mitch Maahs, Summary of the Tax Extenders in the Tax Increase Prevention Act (Davis Brown Tax Law Blog)

Kay Bell, Look out for phishing scam from fake Treasury Secretary

Jack Townsend, Tax Return Preparers Convicted of Conspiracy and Failure to File FBARs. They chose badly.

Cara Griffith, Crowdfunding and State Taxation (Tax Analysts Blog). Is Kickstarter funding taxable income or taxable sales?

Tim Todd, 4th Cir. Rejects Conservation Easement with Substitution Provision

Peter Reilly, Phantom Mares And Real Trucks Don’t Make For A Winning Horse Loss Tax Case. Plus, it’s really hard to find good phantom breeding studs.

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Renu Zaretsky, Will Tax Reforming Be Forgot and Never Brought to Mind? This TaxVox headline roundup covers the Kansas struggles with careless tax reform, among other things.

TaxProf, The IRS Scandal, Day 599

 

Stephen MooreThe Laffer Curve turns 40: the legacy of a controversial idea:

To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve”…

Laffer Curve, via Wikipedia

Laffer Curve, via Wikipedia

The idea that tax rates can become so high that they actually reduce net revenue shouldn’t be controversial. If you have a 100% tax rate on an activity, you will avoid that activity, or at least letting the government know about it. Of course, a zero rate will also generate no tax revenue. The revenue-maximizing rate is somewhere in between.

Unfortunately, some people on the right have taken this point and jumped to the conclusion that tax cuts will always cause such increased taxable activity that tax revenues will increase. That’s as much a fallacy as left-side assumptions that increasing taxes can never be economically-harmful or revenue-reducing.

The real issues should be identifying the point at which the harms to economic activity and to revenues occur. It seems likely that the economically-damaging rate is lower than the revenue-maximizing rate, as Megan McArdle discusses here. These points have to differ for different kinds of tax. A 30% income tax rate might not be very destructive to economic activity, but a 30% sales tax would hurt, and a 30% gross receipts tax would be ruinous. The results also differ for state and federal taxes, given how much easier it is for activity to to move between states than between countries.

All this, of course, ignores the obvious question of how much revenue the government needs in the first place. I would argue that a well-run government limited to its proper sphere wouldn’t have to ask these questions all the time.

 

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Tax Roundup, 12/19/14: What to do when capital gain tax is voluntary. And: no signature yet.

Friday, December 19th, 2014 by Joe Kristan

Programming note: The Tax Update will be taking a long weekend. Back Wednesday.

The President hasn’t signed the extender bill yet. Everyone says he will sign HR 5771, but a lot of taxpayers will feel better when its official.  You can frantically refresh the Whitehouse.gov “Signed Legislation” page to watch for it.

 

Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So you cashed out some stock market gains this year. That makes it a good year to cash out your losers too. Capital losses can be deducted on individual returns to the extent of capital gains, plus $3,000.  That means if you have some unrealized losses on other investments, paying tax is optional to that extent.

If you don’t want to volunteer to pay those extra capital gain taxes, here are some tips for deducting your investment losses:

The loss has to be realized in a taxable account. Selling a loser in an IRA or 401(k) plan doesn’t give you a deductible loss.

-Be sure the trades are executed no later than December 31. For long positions, the trade date controls.

-If you have a loss on a short sale, the settlement date has to be no later than December 31.

-You can’t buy the same stock within either 30 days before the sale or 30 days afterwards. If you do, the “wash sale” rules disallow your loss. The IRS says this rule applies even if your loss is in a taxable account and your gain is in a non-taxable IRA.

Related: Topic 409 – Capital Gains and Losses (IRS.gov)

 

20120906-1Robert Wood, Ranking Facebook, Boris Johnson, Google On Taxes (Diplomatically Please). Well, Boris Johnson is the only one who doesn’t collect corporate welfare from me via the State of Iowa.

Kay Bell, Good news: the 2015 tax-filing season will start on timeBad news: It will be pretty miserable for IRS and taxpayers. Whee.

Jack Townsend, The Rub Between Restitution Assessed as a Tax and a Deficiency

Jim Maule, Code Size Claim Shrinks But Not Enough. The code is bad enough. There’s no need to exaggerate.

Peter Reilly, First Circuit Loss For Transgender Prisoner May Have Positive Tax Implications For Others. Peter can find tax implications in places I wouldn’t have thought to look.

Robert D. Flach gets us Buzzing into the big holiday week.

 

20120702-2Kristopher Hauswirth has been pondering the Farm Bill:

Commodity producers with the resources and/or level of sophistication to confidently optimize their farm bill decisions least need the safety net. While the smallest and/or least sophisticated producers will have to stumble into positive outcomes, if they benefit at all.

The greatest beneficiaries of this law are the people who have serve no public interest in benefitting from a program of this nature. They are the people and entities that create the system, unlock the riddle, and administer the program: lobbyists, lawmakers, attorneys, accountants, and government agencies.

So it’s pretty much like the tax law, then.

 

William McBride, New Research Shows Multinational Corporations Have No Tax Advantage Over Domestics (Tax Policy Blog). “The study calls into question policy makers’ emphasis on international “profit shifting,” including the elaborate efforts by the OECD and rich-country governments to crack down on MNCs exclusively.”

William Gale, Magical Thinking on Tax Reform (TaxVox). “Tax reform is important but policy makers and the public should not be misled about its true trade-offs. Unfortunately, the benefits of reform are more modest than its backers sometimes claim and its costs are often higher.”

TaxProf, The IRS Scandal, Day 589

 

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Clint Stretch, Did Next Year’s Holiday Gift Shopping Just Get Easier? (Tax Analysts Blog). “President Obama’s move to normalize relations with Cuba may add Cuban cigars and Cuban rum to next year’s holiday gift possibilities.”

Sebastian Johnson, What to Buy the Discerning Policy Wonk in Your Life: The ITEP/CTJ Holiday Gift-Giving Guide. The Tax Shelter Coloring Book!

Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern). “Now, let’s talk about alcohol. Just because you can get blitzed on Fireball shots doesn’t mean you should.”

 

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Tax Roundup, 12/1/14: Abe Lincoln’s year-end tax wisdom. And: Oh, THOSE e-mails!

Monday, December 1st, 2014 by Joe Kristan

Accounting Today visitors, here is your film tax credit link: Report from the Battle of Scottsdale.

 

Lincoln“If we could first know where we are, and whither we are tending, we could better judge what to do, and how to do it.” Abraham Lincoln’s “House Divided” speech.

I hope you all had a good Thanksgiving. Now it’s December, which means it’s time to begin serious tax planning. President Lincoln’s timeless observation applies very much to year-end tax planning.

To do any tax planning, you have to know where you stand before making any year-end tax planning moves. You need to see where your income, deductions and tax payments are likely to be if you do nothing before year-end — in other words, you need to project your 2014 tax return.  You also need to make your best guess at your 2015 taxes.

If you try to do tax planning tricks without doing a projection, you can actually make things worse. For example, if you prepay state and local taxes in 2014, and you are subject to alternative minimum tax in 2014, you accomplish nothing. If you are also not subject to AMT in 2015, you’ve actually increased your tax bill over the two-year period.

The best way to start your projection is with a copy of your 2013 return. Identify income and expense items that are likely to be different in 2014 and 2015. Then review your pay stub and for income and withholding and see where you are likely to end up for the year on those items.  If you have a business, you need to forecast your income at year end. The you know where you are and whither you are tending, and you and your tax advisor can better judge what to do and how to do it.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

TaxProf, The IRS Scandal, Day 571. It seems the Treasury Inspector General for Tax Administration found Lois Lerner’s missing e-mails on backup tapes that Commissioner Koskinen said didn’t exist. Commissioner Koskinen’s effort to find the missing e-mails rivals O.J. Simpson’s search for the real killer.

Robert W. Wood, In ‘Lost’ Trove Of IRS Emails, 2,500 May Link White House To Confidential Taxpayer Data.

 

TaxGrrrl’s Interview with Commissioner Koskinen: Miserable, Awful & Delayed: Commissioner, Tax Advocate Talk 2015 Tax Season:

Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”

 

But the Commissioner still thinks he has the spare resources for a “voluntary” preparer regulation scheme.

Russ Fox, One Ringy Dingy, Two Ringy Dingies… “Yes, I was on hold for two hours today on the IRS Practitioner Priority Service before my call was picked up.”  Good thing his call was a priority, then.

 

Tony Nitti, The Four Tax Breaks (And Two Senators) That Killed The Tax Extender Deal. The immigration action is also implicated.

Robert D. Flach, OOPS – THEY DID IT AGAIN! “Well, it is December. And the idiots in Congress have not yet dealt with the issue of the ‘tax extenders’.”

Kyle Pomerleau, Why Not Just Get Rid of Them All? (Tax Policy Blog). “While most tax extenders are wasteful, there are a few that are worth keeping and would actually be part of a flat tax.”

 

20140814-1Kristine Tidgren offers A Few Year-End Tax Planning Tips for Farmers.

Alan Perez, Tax Planning for Clergy. The post includes a nice checklist for clergy tax planning.

Jason Dinesen, From the Archives: How to Properly Calculate Taxability of a Federal Refund on Your Iowa Tax Return

Peter Reilly, Motocross Racing With Tax Deductible Dollars Works This Time

Keith Fogg, IRS Makes Novel Use Of Outside Contractors—To Audit Microsoft (Procedurally Taxing):

The IRS has changed the regulation concerning who can participate in an examination to include private contractors.  It has hired a private law firm as an expert.  Microsoft appears to be the first examination using private contractors to become public.  The issue deserves attention in order to determine if this represents a new and better way to examine complex returns or a capitulation of what was previously considered a governmental function.

I’m still waiting for the people who got all upset about the IRS using private collection agencies to say something about this.

 

Jeff Stimpson of Accounting Today has posted his “In the Blogs” roundup for the week. Lots of good tax links.

Annette Nellen discusses Inflation adjustments in the tax law. “Our federal income tax is not consistent regarding the need to prevent bracket creep for all taxpayers.”

Kay Bell, IRS’ positive public perception picking up a bit. It would be hard to make it sink lower.

Jack Townsend notes the WAPO Article on Expatriate Taxation – The Mayor of London.

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Cheap liquor likely to remain a focus for alcoholics. Nonresident Income Taxes Likely to Remain a Focus for State Tax Authorities (Cara Griffith, Tax Analysts Blog). The post discusses states aggressive assessment of non-residents who sneeze near state lines, and the so-far failed push for Congress to provide uniform rules.

Alan Cole, Confusing Income with Taxable Income (Tax Policy Blog): “The rest of America is quite a bit richer, and quite a bit better at earning capital income, than Wonkblog gives it credit for.”

Joseph Thorndike, The Best Hopeless Idea in Washington (Tax Analysts Blog). That would be a carbon tax.

Norton Francis, What Falling Oil Prices Will Mean for State Budgets (TaxVox)

 

No Takers for the Brown house. The IRS can’t seem to unload property seized from Ed and Elaine Brown after their armed tax protest standoff. It seems buyers want some assurance that they won’t be killed by stray booby-traps.

Career Corner, So You Failed the CPA Exam Before the Holidays, Now What? (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/20/14: ACA and filing season pessimism revisited.

Thursday, November 20th, 2014 by Joe Kristan

Programming note: The Tax Update will take tomorrow off. I will be in Phoenix tomorrow on a panel on state film tax credits sponsored by the National Conference of State Legislators.  The panel will include, among others, Joseph Henchman of the Tax Foundation. Normal programming resumes Monday.

 

guillotineACA frenzy! Thanks to a kind Twitter mention from Megan McArdle (who you really should follow at @asymmetricinfo), my Tuesday post on ACA and filing-season dread made it to a wider audience than usual, including the readers of Real Clear Politics. A cousin who I normally only see at family weddings and funerals saw it and sent me a note (Hi, Bob!), so I know it really got around.

It has also generated questions in the comments and the Twitterverse that are worth addressing. We’ll start with this from Alan in the comments:

In a few months when people receive their W2’s they will get a real shock when all the employer paid share of the company paid share of health care plan is included in their gross pay and now they must pay taxes on all that extra income.

Obamacare is ugly, but it isn’t that ugly. While many (but not all) employers will disclose the cost of coverage on W-2 box 12 (code DD), it will not be included in W-2 Box 1, “taxable wages.” From IRS.gov, Employer-Provided Health Coverage Informational Reporting Requirements: Questions and Answers:

Q1. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?

A. No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.

20121120-2From Ms. McArdle on Twitter:

Any chance it won’t be that bad?

I suppose that depends on what “that bad” means. Blood seeping from the walls, shape-shifting brain-eaters from Planet Zargon, cats and dogs living together– probably not that bad. But there’s still plenty of bad to go around. The things that worry me:

– Many taxpayers will not have the information handy to determine their health insurance status for all 12-months of 2014. Only those who buy insurance on the exchanges will have Form 1095, the information return on insurance status.  Others are supposed to get information from employers, but they are likely to lose track of it, especially this first year.

– Lacking any matching documents, taxpayers will be tempted to claim coverage where there is none, or maybe wasn’t for part of the year, to avoid penalties. There won’t be an easy way to verify this. Preparers will either have to take taxpayers at their word or send them back for proof (or, inadvertently, to another preparer). It’s always bad when taxpayers feel they should lie to preparers. Yet as the IRS will often have no way to detect false claims of coverage, they will feel like chumps for telling the truth.

– Taxpayers with penalties for non-coverage will be irate when they find they get no refund. As Ms. McArdle wisely put it, “I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.” Experience shows that the taxpayer’s first instinct is that the preparer screwed up.

– It will be even worse when we have to tell people to repay advance health-care tax credits paid to insurers to lower consumer out-of-pocket costs. This can happen when actual taxable income exceeds the amounts estimated when coverage was obtained on the exchanges. As the taxpayer never “saw the money” — it was paid to the insurer, not to the taxpayer directly — she may not be easily convinced that she has an excess benefit to repay.

20140521-1– Preparers haven’t had to deal with this before. Any new tax provision has a learning curve, and this is a complicated one that will apply to almost everyone. In many cases, preparers will mess up, being human. Getting it right will take extra time that is hard to come by during tax season.

– This doesn’t even touch the problems that many small employers are going to be dealing with as they realize their Section 105 individual coverage premium reimbursement plans, and their cafeteria plans funding premium payments on individual policies obtained by employees, are considered non-compliant under the ACA “market reforms.” At $100 per employee, per day, the penalties could be ruinous. While taxpayers are encouraged to report the penalties on Form 8928 and zero them out with a “reasonable cause” claim, we don’t know yet how generous the IRS will be in granting reasonable cause relief. Figuring out what to do here will be time-consuming and nerve-wracking for taxpayers and preparers, unless the IRS issues a blanket penalty waiver for 2014 (as it should).

On top of all this, we will probably have another late “extender” bill like we had two seasons ago, which made for an awful tax season by itself. Maybe things will go well this season, but so many things seem likely to go wrong that it’s hard to be optimistic.

 

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #6-The IRS (Finally) Figures Out The Real Estate Professional Rules. It’s an excellent lesson on the tax rules covering “real estate professionals” and passive losses — and by extension, the 3.8% net investment income tax.

TaxGrrrl, Al Sharpton Denounces Claims He Owes Millions In Taxes To IRS, New York.

Jack Townsend, Another UBS/Wegelin Related Indictment in SDNY

Peter Reilly, Kent Hovind And Creation Science Evangelism – How Not To Run A Ministry. When it gets you imprisoned, you may well be doing it wrong.

Kay Bell, Former GOP VP candidate Paul Ryan to head House tax panel

Jason Dinesen, I Don’t Have Time to Write Grant Proposals or Meet with Donors … But Give Me Money Anyway!  OK, then…

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Work proceeds in clearing the ruins of the Younkers department store, which burned in March.

 

TaxProf, The IRS Scandal, Day 560.

Cara Griffith, Bad News for State Public Pension Plans (Tax Analysts Blog). “New research has come out revealing the level at which state public pension plans are underfunded, and it’s not good news.”

The denial of reality in administering public pensions is amazing. Public defined benefit plans are a lie. Either the public is being lied to about how much current public services cost, or current employees are being lied to about their retirement benefits. Maybe both.

 

20140910-1Alan Cole, Extenders and the Opportunity for Tax Reform (Tax Policy Blog):

The Examiner characterizes many of the extenders as “repugnant carve-outs.” This is undeniably true, but it is also the case that some – but not all – of the tax extenders are genuinely good policy. Particularly, Bonus Depreciation and Section 179 are important for moving the tax code towards proper treatment of new investment.

In any case, the current system of pretending tax provisions are “temporary” to hide their true cost is dishonest and should end.

Renu Zaretsky, “Dead Reform Walking:” On Fairness, Immigration, and Spending. The TaxVox headline roundup covers developments in the Marketplace Fairness Act, extenders and immigration, among other things.

 

News from the Profession. KPMG Gives the Department of Homeland Security a Clean Audit Opinion Because of Course They Did (Adrienne Gonzalez, Going Concern). “I don’t know about you but I feel safer already.”

 

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

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

Boris Johnson and an unidentified IRS agent.

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

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

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

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

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

 

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

Paul Neiffer, Another Section 179 Update:

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

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

So true.

 

Russ Fox, IRS Clarifies Electronic Signature Requirements:

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

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

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

That’s good news.

 

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

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

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

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

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

 

TaxProf, The IRS Scandal, Day 559

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

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

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

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

 

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

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

Here are the awful comments:

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

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

 

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

 

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Tax Roundup, 11/11/14: Veterans Day in Red Oak. And: open season on Iowa Snowbirds.

Tuesday, November 11th, 2014 by Joe Kristan
John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

Red Oak, Iowa seems as good a place to be on Veterans Day as any.  I’m here today as part of the ISU-CALT Farm and Urban Tax School Day 1 team. Red Oak was hit hard early in World War II when the 168th Infantry, recruited in Southwest Iowa, was crushed in the Battle of Kasserine Pass. From Wikipedia:

In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed. At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action. In recognition of Red Oak’s extraordinary sacrifice, the city’s name was given to a “victory ship“. The SS Red Oak Victory has become a floating museum in the shipyard where it was built, in Richmond, California.

It’s hard to imagine going from this little town to the desert, but they’re still doing it — most famously, Iowa’s new senator-elect.

There aren’t many survivors of World War II left. Appreciate them while you can.

Related: 42-78127.blogspot.com, on my Dad’s WWII experience.

 

With the sudden change of weather to bitter cold, Iowa’s snowbirds begin their annual migration south. When they get to Texas or Florida, they often decide that the tax climate sunnier year-round and ponder changing their residency from Iowa. Doing so avoids Iowa tax on all income other than business and rental income sourced to Iowa.

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Today in Red Oak, Iowa.

A recently-released protest response by the Department of Revenue points out some of the pitfalls faced by taxpayers trying to change their residence:

 Once an individual is domiciled in Iowa, that status is retained until such time as the individual takes positive action to become domiciled in another state or country, relinquishes the rights and privileges of residency in Iowa, and meets the criteria set forth in Julson v. Julson, 255 Iowa 301, 122 N.W.2d, 329, 331 (1963).

In reviewing the information you provided to departmental staff and included with your protest, the Review Unit has determined that you are an Iowa resident. This determination is based upon the following facts:

· You have renewed your Iowa driver’s license.

· You have and are still registering vehicles in Iowa.

· You have returned to Iowa to receive medical care.

· You filed federal income tax returns using an Iowa address.

These factors indicate to the Review Unit that you have not abandoned your Iowa domicile. Consequently, the Review Unit takes the position that you are still a resident of Iowa and all of the income you receive is taxable to the state.

This taxpayer made some pretty basic errors. If you vote in Iowa and keep an Iowa drivers license, you make it pretty easy for Iowa to find you. If you file your returns with an Iowa address, you almost guarantee Iowa will wonder why you aren’t filing an Iowa return. Citing the use of Iowa medical care in Iowa seems like piling on; I don’t think is a decisive factor given the other facts.

The Moral? If you want to move your tax home to another state, you need to act like you mean it. If you continue to use an Iowa address on your return, Iowa will not be easily convinced that you are a Texan at heart.

 

buzz20140909TaxProf, The IRS Scandal, Day 551.

Kristy Maitre, Kristine Tidgren, ACA’s Thorny Impact On More-Than-2% S Corporation Shareholders

William PerezThe Basics of the Medicare Tax

Robert D. Flach comes through with a “meaty” Buzz.  He says:

I continue to worry that the anticipated bi-partisan “cooperation” on tax reform in 2015 will be limited to corporate tax reform – with only some minor token, if any, 1040 tax reform instituted – and not the total rewriting of the entire US Tax Code that is needed.

I think we’ll be lucky to get even the corporate reform.

Stephen Olsen has the latest Summary Opinions at Procedurally Taxing, rounding up recent developments in tax procedure.  He points out a great comments thread in a post about IRS cash seizures by an Institute for Justice attorney.

Jason Dinesen, A Little Bit About Sole Proprietorships, Part 2:

Here are some of the advantages of operating as a sole proprietor:

  • They are easy to get into. There’s no real paperwork to fill out. You just start conducting business.
  • They are simpler to administer and therefore your accounting and legal fees will generally be lower.
  • As your business grows you can always convert to something else. As you go up the ladder from sole proprietor to corporation, it’s easy. But it’s hard to go down the ladder from a corporation to a sole proprietorship.

There are also plenty of disadvantages…

Jack Townsend, IRS on Quiet Filings for Offshore Account Delinquencies or Underreporting

Kay Bell, 2015 inflation adjustments for exemptions, deductions, more!

Annette Nellen, Premium Tax Credit Saga – New Developments and Dilemmas

 

 

roses in the snowKyle Pomerleau, How Corporate Integration Increases Transparency and Eliminates Double-Taxation (Tax Policy Blog).  “Under our current system of double-taxation, a corporation that earns $100 needs to pay the corporate income tax (for this example let’s assume a 25 percent corporate tax rate). The after-tax income ($75) is then passed to shareholders and taxed again. The result is a 46.53% tax burden on corporate income.”

Martin Sullivan, Your Quick Guide to Dynamic Scoring in the Next Congress (Tax Analysts Blog)

Renu Zaretsky, ACA Tax Provisions Still Under Fire. This TaxVox headline roundup covers the latest in ACA battles, including a brief filed by some states (including Iowa’s Attorney General Miller) saying they thought they thought being on a federal exchange wouldn’t threaten tax credits for their residents.

 

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Tax Roundup, 11/6/14: You pretend to complete the form, we’ll pretend to care. And: election mania!

Thursday, November 6th, 2014 by Joe Kristan

Accounting Today visitorsthe godawful link you seek is here.

 

20120905-1Don’t worry about getting it right, just make it look good. IRS personnel trying to appease angry practitioners at an AICPA Tax Division gathering had some strange and annoying things to say yesterday.

Practitioners are upset at the IRS insistence on Form 3115 accounting method change applications with 2014 returns from everyone moving into compliance with the new rules on repair and capitalization costs.  Tax Analysts reports ($link):

Participants in the tax methods and periods panel at the American Institute of Certified Public Accountants fall Tax Division meeting in Washington said that some taxpayers don’t want to pay the high costs associated with going through years’ worth of records to calculate a precise section 481(a) adjustment required under the final regulations (T.D. 9636). The cost of that level of compliance could be more than the entire cost of preparing their returns, practitioners said, adding that the taxpayers are considering filing their method changes with corresponding section 481(a) adjustments of zero.

The piece cites Scott Dinwiddie, special counsel, IRS Office of Associate Chief Counsel (Income Tax and Accounting):

Taxpayers were taking aggressive positions, so the government didn’t want to provide an across-the-board cutoff in the final regulations, he said. Instead, it required 481(a) adjustments as a way to allow field agents to examine taxpayers’ aggressive positions, he said.

So because some taxpayers were taking positions you didn’t like, you want to require everyone to do a bunch of wasteful and meaningless busy work during our busiest time of the year. Got it.

Dinwiddie said that, barring a situation in which the taxpayer has taken aggressive positions in the past or has in no way applied a proper capitalization method, the IRS is unlikely to have much interest in examining a taxpayer’s section 481(a) adjustment now.

So we pretend to file an accurate Form 3115, and they pretend to care. Well, you have to admit that considering the budget and enforcement restraints on the IRS, this approach is… absolutely insane. Taxpayers have to pay for a bunch of nonsense compliance, and the IRS doesn’t care whether it’s right. The IRS still has to incur processing costs. I’d love to see the IRS cost-benefit worksheets on this one.

 

20120810-1The TaxProf has a roundup of observations on the whether tax reform can happen in the new Congress, including this from William Gale:

It is a good bet that the new Republican Congress will continue to talk about tax reform. That is safe ground for Republicans generally. And, of course, seemingly impossible things do sometimes happen. But I wouldn’t bet on tax reform. 

A wise non-bet.

 

TaxGrrrl, What Matters Most When It Comes To Tax Reform? Hint: It’s Not Control Of Congress:

What is interesting, however, is that most of the significant tax policy changes in the modern era are more closely tied to the length of presidential terms. Every president has a budget – and an agenda – but real shifts in rates and policies tend to happen during a second term (or en route to a second term) no matter which party is in control. 

I don’t expect it to happen this time.

 

Scott Drenkard, What Do the 2014 Midterm Election Results Mean for State Tax Policy? “My prediction is that this means that taxes will be one of the biggest, if not the biggest issue in state policy next legislative session, and that tax reform will become even more of a bipartisan issue.”  I’m afraid that’s not true here in Iowa.

Russ Fox, Nevada Goes Deep Red. “Do you remember 1928? Well, that was the last time Nevada had a Republican governor, a Republican State Assembly, a Republican State Senate, and Republicans holding all major statewide offices.”

Paul Neiffer, A Christmas Present?! “They will meet over the next six weeks or so and around Christmas time we will get the final tax package.”

 

 

20120702-2Arnold Kling’s characteristically wise observation on the election results:

Conventional wisdom is that, relatively speaking, Democrats have a structural advantage in Presidential elections, because those elections attract more turnout. In other words, they do much better among disengaged voters. One could spin this positively for the Democrats, saying that they get support from the weaker segments of society. One could spin this negatively and say that they rely on a segment of the electorate that is poorly informed and easily bamboozled, which I believe is the case. The counter to that would be that Republicans also rely on a segment of the electorate that is poorly informed and easily bamboozled, which I also believe is the case.

While I don’t agree with all of what he says, the whole post is brief and well worth reading. So is this from Don Boudreaux:

I advise freedom-loving and free-market-appreciating Americans (of which I am unashamedly one) to be good Tullockians about the results of yesterday’s landslide wins for the G.O.P.  The Republicans who won those elections are, after all, politicians – and it is the rare politician, of whatever party, who reliably puts principle above personal interest.  As a rule, politicians are untrustworthy, duplicitous, and cowardly; they are people who have an unusually powerful craving for power and fame; and the successful among them typically posses an unusual talent for camouflaging their craving for power and fame as a saintly calling to ‘serve the people.’

Pretty much. But some are less bad than others, enough so that I do bother to vote.

Renu Zaretsky, Don’t Call It a Comeback… Yet.  The TaxVox headline roundup is full of post-election links, including news of Berkeley, California, passing an idiotic soda tax. When they start taxing mocha lattes, I’ll believe they’re such taxes are about public health than moral vanity.

 

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And some folks are actually talking about things other than the election:

Jana Luttenegger, Even Startups Need to Have the Conversation (Davis Brown Tax Law Blog).

Jason Dinesen tells us A Little Bit About Sole Proprietorships, Part 1

William Perez, Dividends: Taxes and Reporting

Robert D. Flach recounts EXPLAINING MORTGAGE INTEREST AND INVESTMENT INTEREST FOR A CLIENT

Jim Maule discusses how Mortgage Loan Modification Can Imperil Interest Deduction

Stephen Olsen at Procedurally Taxing as a new round of Summary Opinions., with links to news from the world of tax procedure.

Jack Townsend, The Honorable Jed Rakoff on Why Innocent People Plead Guilty. He quotes Judge Rakoff: “…the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains.”

Kay Bell, 5 tax record keeping questions … and answers!

TaxProf, The IRS Scandal, Day 546

News from the Profession. McGladrey Reminds Audit Staff to Stay Billable This Busy Season (Caleb Newquist, Going Concern)

 

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Tax Roundup, 11/4/14. Vote. Or don’t. And: Pittsburgh police 1, IRS Agent 0.

Tuesday, November 4th, 2014 by Joe Kristan
Flickr image courtesy Letta Page under Creative Commons license

Flickr image courtesy Letta Page under Creative Commons license

Today is election day. Vote if you think you know what you’re doing.  But ask yourself: do you know, without looking it up, the names of both of your Senators, your congresscritter, your Governor, the President and Vice-President, and can you properly identify their political parties? Can you name the three branches of the Federal government? If not, you should ponder whether you really ought to be doing this.

Jared Walczak, Voters to Consider Tax Ballot Initiatives in Eighteen States Tomorrow. (Tax Policy Blog) That would be today now.

Election days are on Tuesdays, so you can catch a fresh Buzz from Robert D. Flach before you hold your nose and vote. His roundup today includes links to a story about tax initiatives up for a vote around the country, among other good stuff.

 

Peter ReillyWhat If Lois Lerner Was Right About The Tea Party?

 If there is a pretty compelling case that Tea Party Patriots Inc was intended from day 1 to be a political organization, rather than a social welfare organization, would that make any difference in how we view Lois Lerner?

No. “Tea Party Patriots Inc.” was one organization that appropriated the “Tea Party” name, but the Tea Party movement is not any one organization. It was (and is) an amorphous grassroots reaction to the percieved overreach of the Obama administration. Lois Lerner went after a range of groups with “Tea Party” and other words she associated with small government activism– like “constitution.” The IRS held up the applications of those groups, harassing them with improper and ridiculously intrusive questions. Meanwhile, the applications of “progressive” groups flew right on through.

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The issue was never whether Tea Party Patriots Inc. abused tax-exempt status. The issue is whether the IRS discriminated against groups opposed to the Administration. The answer is clearly yes. If you only enforce laws against people you disagree with (and it’s clear she didn’t like the Tea Party), that’s abuse of power.

 

Jason Dinesen, Joe the Window Washer Gets a Reality Check:

For example, here are a few realities Joe will have to face:

  • In Iowa, if Joe cleans windows on commercial property, he has to collect sales tax.

  • He has to file an income tax return.

  • While not necessarily required, it would be good for Joe to talk to an insurance agent about having a business liability policy in case he accidentally damages a customer’s property.

It’s amazing how complicated washing windows can be.

 

Russ Fox, Math Is Hard (Tax Court Edition). When the judge tells you to keep it to 75 pages and you file an 88 page brief, you might as well not file one at all. It saves paper, and you get to the same place.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #8-A Big Break For Home Builders

 

20130426-1Michelle Feit, Failure to File Required International Information Return Suspends Statute of Limitations on Entire Return until the Information Return is Filed (Procedurally Taxing):

Thus, if a taxpayer is required to report on interests in, control over, transfers to, or distributions from foreign accounts, corporations, partnerships, entities or trusts (as provided for in the above-listed sections), the three-year statute of limitations will not start running until the taxpayer submits that foreign information report to the IRS.

And, since March 2010, the extended limitations period generally applies to the entire return applicable to that Taxpayer, not simply to the liabilities associated with the information that was not filed.

It’s not enough to get clobbered with a $10,000 penalty for not filing a return they won’t read. You keep the whole year open indefinitely too.

 

Kay Bell, November tax moves to help you avoid tax turkeys

Jack Townsend, Raoul Weil Found Not Guilty. A high-profile Swiss bank prosecution fails.

 

Jeremy Scott, Is the IRS Office of Professional Responsibility in Decline? (Tax Analysts Blog) “Hawkins’s legacy as OPR chief might end up being defined more for the IRS’s overreach and what she didn’t accomplish than the numerous things she has.”

Mr. Scott’s post does have an error, or at least a badly-worded sentence.  He says:

Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012.

While the Institute for Justice did help the preparers, the implication that it was formed by preparers is incorrect. IJ is a public-interest law firm with a libertarian bent that was around before the preparer case. It continues to do righteous work on behalf of victims of asset forfeiture (including the Arnolds Park  IRS victim) and in battles against regulations that protect existing busiensses from competition.  I support it with my donations, and you can too.

 

Martin Sullivan, Immigration Reform in 2015? We Could Use the Money (Tax Analysts Blog). I don’t think this issue is really about the tax revenue, but if it is, it would be more direct to just sell admission.

 

This will sure attract outside investment. Argentina accuses Procter & Gamble of tax fraud, says suspends operations

TaxProf, The IRS Scandal, Day 544

Revecca Wilkins, New Filing This Week Reveals Apple Continues to Divert Profits to Tax Havens (Tax Justice Blog). In other news, heavy things fall to the floor if you let go of them.

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News from the Profession. Deloitte, Please Stop Trying to Be the Walmart of Professional Services (Adrienne Gonzalez, Caleb Newquist, Going Concern).  I’m not even sure what that would mean. Retired partners offering a friendly greeting at the door?

 

The best and the brightest. Police: Man Arrested For Kicking Heinz Field Barriers, Trying To Bribe Officers (CBS Pittsburgh):

A man was arrested after injuring a woman by kicking a steel barrier at Heinz Field Sunday evening.

According to police, 29-year-old Stephen Sapp was intoxicated at the time of the incident.

According to the criminal complaint, Sapp stated, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”

The officers informed Sapp that he could not attempt to bribe them, but Sapp continued.

“Look, I am an IRS agent and I can help you in other ways if you let me go home and make this go away.”

Was an IRS agent, anyway. (via Instapundit)

 

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Tax Roundup, 11/3/14: Elections tomorrow; good riddance. And: $3,000 unmentionables!

Monday, November 3rd, 2014 by Joe Kristan

20121006-1Tomorrow is Election Day. Good Riddance.  Tomorrow ends the current Festival of Democracy. Because I share Arnold Kling’s view of election seasons as “brutal assaults on reason,” I look forward to it ending.

However unreasoning, elections do affect policy. Some of the tax policy issues in play this year:

Is it better to give that to receive? Iowa’s incumbent Governor Branstad is an avid distributor of corporate welfare tax credits. His challenger is an avid recipient. If the polls are to be believed, it is truly better to give than to receive.

What about the extenders? We practitioners just want to have a tax law for Christmas, or sooner, so a tax season that we already expect to be bad won’t be just godawful. It’s not clear whether a Republican takeover of the Senate will affect the timing of the extender bill, but it is possible that it might spur the incumbent Democratic leadership into action to pass bills more to their liking than they would see from their successors.

What about federal tax reform? The 1986 tax reforms were passed by a Congress led by one party and signed by a president of the other party. The possibility of this happening if the Senate goes Republican seems absurdly small.

What about Iowa Tax Reform? Iowa once again is in the bottom 10 in having a bad business tax climate. A Republican takeover of the Iowa Senate would make serious tax reform efforts possible. It wouldn’t make it likely, though, given the Governor’s affinity for giving away tax credits.

Whatever the results, I predict that politicians will continue to give away tax credits to businesses that will proceed to do what they were going to do anyway; the politicians will then claim credit for the jobs they “create.”  Other politicians will say that there is nothing wrong with spending money that taking more from “the rich” won’t cure.

So vote away, if you are so inclined. But don’t count on any big changes as a result.

 

Flickr image courtesy David Goehring under Creative Commons license

Flickr image courtesy David Goehring under Creative Commons license

Jack Townsend, IRS and FinCEN Form 8300 and Geographic Targeting Order: “Recently, FinCEN issued a Geographic Targeting Order, here, imposing additional reporting and recordkeeping requirements on a relatively small (but apparently financially active) area of Los Angeles, California.”

Very strange, to me. The order imposes special rules on accepting cash for a wide variety of businesses in part of L.A. I didn’t know there was such a rule. I wonder how they are letting all of these stores — including “lingerie stores” — know they suddenly have a new reporting obligation if somebody spends $3,000 in cash there.  And I wonder who spends $3,000 on lingerie.

 

 

The Des Moines Register adds to the coverage of the seizure of cash from an Arnolds Park, Iowa restaurant owner.

Robert D. Flach, TO EXTEND, OR NOT TO EXTEND. THAT IS THE QUESTION. “If a tax benefit is appropriate it should be permanent – except in response to serious natural disasters, the idiots in Congress should never enact temporary tax measures.”

Amen, Brother Robert.

 

William Perez, Investing in or Spending Bitcoin? Learn about the Tax Implications

 

harvestPaul Neiffer, IRS Announces Various Inflation Adjusted Items:

Last night I rode in the combine in Northeastern Iowa from about 7 pm to about 2:30 am.  We cut about 10,000 bushels of corn with a John Deere S680 and I must admit there is something therapeutic about seeing corn come into the combine and then get dumped into the grain cart. 

Take 10,000 bushels and call me in the morning.

 

Annette Nellen, Damages: Deductible?

It’s a fact of life that businesses get sued. Even if they win, there are legal and related fees. What if they lose and have to pay compensatory and perhaps also punitive damages? Perhaps also some fines to the government?  What is deductible for tax purposes? A recent case from the First Circuit Court dealt with an action involving the False Claims Act with total damages of just over $486 million!

I don’t think generally one sort of damages should be more tax-beneficial than another. The income tax should base should measure capacity to pay taxes, not moral fiber or good citizenship.

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Jana Luttenegger, More 2015 Tax Numbers Released, Including Tax Brackets (Davis Brown Tax Law Blog)

 

Keith Fogg, Promoting, Not Discouraging, Tax Compliance (Procedurally Taxing). “Don’t we want to introduce our young citizens into a tax system that is rational and just? The current model does precisely the opposite.”

Kay Bell’s “Don’t Mess with Taxes” is sporting a new look. Go read Best states for business tend to have no or low taxes and check it out.

 

TaxProf, The IRS Scandal, Day 543

 

tax fairyRuss Fox, Perhaps She’ll Cover the Guilty Plea in the Second Edition:

Her book, The Prosperity Principles: Secrets to Developing and Maintaining Generational Wealth, notes that business should be run, “…where everything you can do can be deducted from your reportable income as a business expense.”

That’s just another way of saying that there is a Tax Fairy. There is no Tax Fairy.

 

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Tax Roundup, 10/29/14: Iowa Business Tax Climate worsens. And: Ex-IRS man does a Reddit AMA.

Wednesday, October 29th, 2014 by Joe Kristan

41st out of 50. Iowa reclaimed its bottom-10 standing among the states in the 2015 Tax Foundation Business Tax Climate Index released yesterday. Iowa’s standing fell one spot from 2014.

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The Tax Foundation report mentions Iowa’s highest-in-the-nation corporation tax rate, its high individual rates, and its complicated tax system.  Iowa was rated as having the second-worst corporation tax system.

The Tax Foundation explains how the worst states got that way:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Even though Iowa’s complex and dysfunctional income tax is a long-standing embarrassment, it has been a non-issue in the current race for Governor. While he has occasionally said Iowa needs a better tax code, Governor Branstad’s administration has more avid about handing out tax credits to buy ribbon-cuttings than about fixing a tax law that burdens businesses lacking the pull to swing special deals. The tax law as it is seems to suit the Governor’s needs well enough now.

His opponent, Senator Hatch, is a big beneficiary of tax credits in his development business. As he makes a good living out of the tax law, he is an unlikely candidate for tax reform.

The report does hold out hope. North Carolina’s ranking jumped from 44th to 16th as a result of reforms enacted this year. If they can do it, maybe Iowa can too. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, which would eliminate the corporation tax and drastically reduce individual rates by getting rid of Iowa’s rats nest of politically-convenient deductions and credits, would be a great place to start.

Other coverage:

TaxProf, 2015 Business Tax Climate: Chilliest in Blue States

Russ Fox, The 2015 State Business Tax Climate Index: Not Much Has Changed

 

20120906-1David Brunori, Yes, More Problems with Tax Incentives (Tax Analysts Blog):

People who have studied tax incentives know everything that’s wrong with them: They don’t work (companies choose where to locate for other reasons); they’re unfair (some companies get them, others don’t, and their benefits inure to the haves rather than the have-nots); they’re inefficient (government bureaucrats can’t make decisions better than the market). There are many more.

We also know why politicians support incentives, despite the mountains of criticism from people who know of what they say. Traditionally, it comes down to fear and greed. No politician wants to lose a company on his watch. Similarly, every politician wants to cut the ribbon opening a new plant. Then there is just cowardice. Taking a stand on principle is a rare commodity.

Indeed.

 

Iowa saved from giving away $30 million in corporate welfare. Iowa loses $1.4 billion fertilizer plant to Illinois (Des Moines Register) “Previous news reports have said both Iowa and Illinois offered Cronus tax incentives of about $30 million.”

 

William Perez, How Saving for Retirement Can Reduce Your Taxes

Robert D. Flach reports on THE SAVER’S CREDIT NUMBERS FOR 2015. This is an underused credit that rewards frugality by lower-income taxpayers.

Jason Dinesen, IRS Oops on E-Services E-mail. “That’s quite a mistake to “inadvertently” send an e-mail to practitioners, implying that online services were available again when they really aren’t. Especially since the IRS doesn’t intend to send a follow-up retraction to all of us who got the original e-mail.”

Jim Maule, How Not to File a Tax Court Petition “First, stand in line and get that hand-stamped postmark. Second, avoid the need to learn the first lesson by treating the petition as due EIGHTY days after it is mailed. That provides a cushion of time, an allowance for unforeseen circumstances, and contingency insurance.”

Jack Townsend, IRS CI Modifies Its Policy Regarding Forfeitures for Structuring on Bank Deposits for Legal Source Deposits.

TaxGrrrl, IRS Announces PTIN Renewals, Registration For Voluntary Certification

Peter Reilly, There Is An Accountant Art Expert – Who Knew?

Kay Bell, Desert island bipartisanship, sort of, on new reality TV show. Apparently a reality show left two Senators stranded on a desert island for six days. A good start.

 

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Howard Gleckman, Is There Any Chance Congress Will Pass Business Tax Reform Next Year? (TaxVox). “The chances are not zero. But the odds are very long.”

William McBride, White House Claims U.S. Effective Corporate Tax Rate is Competitive (Tax Policy Blog). Yes, the way the Giants were competitive last night in Kansas City.

 

News from the Profession. Things You Should NOT Say to a Brand New CPA (Leona May, Going Concern).

 

Recently-retired IRS agent Michael Gregory did an “ask me anything” on Reddit. It apparently didn’t impress everyone, if this report is to be believed:

Gregory accused Rep. Darrell Issa (R-CA), who has been leading the investigation of IRS misdoings, of playing politics with IRS funding, which led one Reddit user to offer a “summary” of Gregory’s comments:

From what I’ve seen so far

Lerner did nothing wrong
Darrel Issa is the devil
Throw more money at the IRS
Lack of criminal charges proves everything was just peachy and not politically driven
It’s all congress’ fault
Patriots pay taxes
The flat tax will let evil millionaires kill and eat babies

The IRS couldn’t ask for a better ‘leaker’

Other Reddit users agreed, with one complaining, “[Gregory] might as well have titled this AMA ‘having left the IRS, I am free now to reveal the IRS would be perfect if Congress just paid us more.’ I get that the IRS may be underfunded but this leaker might as well be an IRS lobbyist.”

The IRS seems to have taken the funding issue into its own hands.

 

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Tax Roundup, 10/23/14: Iowa Tax Crime Edition. And: USPS > Stamps.com, in Tax Court.

Thursday, October 23rd, 2014 by Joe Kristan

Tax crime happens in Iowa too. While Iowa doesn’t seem to get the same attention from tax prosecutors as some other places, tax evasion can get Iowans the same prison time as anyone else. Two Iowa entrepreneurs are learning that lesson now.

Via Wikipedia

Via Wikipedia

The operator of a venerable Des Moines pharmacy and soda fountain apparently will plead guilty to tax evasion on charges arising out of back-door sales of hydrocodone pills, according to reports.  The Des Moines Register article on the plea deal provides insight on how the charges against pharmacist Mark Graziano came about, and on the inherent dangers of tax crime:

The allegations came to light after admitted drug user Kirby Small called state regulators in 2011 and told them Graziano and Enloe were selling wholesale quantities of hydrocodone pills out of Bauder’s back door. State agents raided the business in 2012, and the Iowa Board of Pharmacy filed administrative charges against Graziano and the pharmacy. Federal officials filed criminal charges last spring.

Small, in an interview Tuesday, said that he called the pharmacy board because he was angry at Enloe, who had been a longtime friend. Enloe and Graziano had been selling Small pills, but cut him off over money issues, Small said. Then Enloe called Small’s probation officer and said that Small had been taking drugs, Small said. So Small decided to get back at them.

“You call the cops on an east-sider, what do you expect?” he said, chuckling.

The pharmacy is on the west side, for the record.

Tax crimes by businesses are almost impossible to commit without somebody besides the perpetrator finding out. Those who pay employees in cash to avoid payroll taxes create a potential informant with every new hire. Those who ask for cash payment for sales, as illegal drug sellers normally do, create a potential informant with every new customer. And if the customer falls behind on payments, it is unwise for someone committing crimes to summon the authorities.

The reports say Mr. Graziano is likely to receive a 24-37 month sentence.

 

20141023-1Stripped-down gross incomeA Northwest Iowa entrepreneur will go to prison for 33 months on charges of evading over $214,000 in taxes, reports the Sioux Falls Argus Leader:

Veronica Fairchild, 42, collected $1.1 million between 2005 and 2008, mostly from a wealthy client named David Karlen.

She declared only 45 percent of that money as income on her tax returns for those years, which she didn’t file until 2010. The remaining $643,648 was declared as a gift.

At her trial in June, Karlen testified that he’d paid Fairchild to dance, and later for sex. He claimed to have paid between $1,000 and $5,000 for a variety of sexual acts.

Ms. Fairchild, who reportedly owns a strip club in Okoboji, Iowa, denies sleeping with Mr. Karlen:

She said Karlen invented the stories about sexual encounters to cover for his failure to pay taxes on the monetary gifts.

The jury apparently concluded that that payments were for something other than disinterested generousity.

 

On the lighter sidethe usual suspects showed up at a Des Moines Burger King to protest the Kingdom’s proposed merger with Canadian donut empire Tim Hortons. The Des Moines Register reports:

About 15 Iowans rallied outside of a Des Moines Burger King Tuesday to protest the company’s plans to move its headquarters to Canada.

“About” 15? For a crowd that size, I think greater precision is possible. It would have been about 16 if Ed Fallon weren’t traveling. If you missed the rally, you can show your support by asking for large fries with your next Whopper.

 

20130415-1USPS > Stamps.comThe Tax Court ruled against a man who used Stamps.com on March 3 to buy postage to mail his Tax Court Petition on the March 3 filing deadline. The postal service postmark was March 4, and the court said that was the controlling date.  From the case:

In support of his argument petitioner provided a statement by the third party who prepared the petition for mailing and then delivered it to the post office. In her statement the third party describes how on Monday, March 3, 2014, after being “given documents to mail”, she printed postage using Stamps.com software, added extra postage for certified mail, and then took the petition to the U.S. Post Office in Bountiful, Utah, for deposit into the mail. The third party candidly states that in order to “avoid[ ] the long lines” at the post office, she dropped the petition off without having a certified mail receipt stamped by a Postal Service employee and that as a consequence “the sender has no documentation showing * * * [the post office] received the certified package” on March 3, 2014.

The moral? When your down to a mailing deadline, take no shortcuts. Go Certified Mail, Return Receipt Requested, and get the hand-stampted postmark — even if you have to wait in line.  If the line is really too long, use a Designated Private Delivery Service and get a timely shipping receipt. I bet the “third party” wishes she had done so.

Cite: Sanchez, T.C. Memo 2014-223.

 

Joseph Thorndike, What if Congress Raised Taxes and Nobody Cared – Or Even Noticed? (Tax Analysts Blog). I think Joseph is operating from a false premise:

In 2011 and 2012, Congress cut the Social Security payroll tax by two points. More specifically, lawmakers reduced the portion of the tax levied on employees from 6.2 percent of taxable wages to 4.2 percent. (The portion paid by employers remained at 6.2 percent; most economists believe that this other half of the tax is also ultimately borne by workers in the form of lower wages.)

The payroll tax cut was explicitly designed to be temporary – a one-year shot in the arm for the struggling economy. After a year, lawmakers agreed to extend the cut for another 12 months. But on January 1, 2013, the payroll cut expired, and workers began paying the full 6.2 percent again.

And hardly anybody noticed.

Trust me, people noticed. I got the phone calls.

 

20141023-2Robert D. Flach, THIS JUST IN – SOCIAL SECURITY COLA INCREASE FOR 2015

Me, FICA Max increases to $118,500 for 2015

Jason Dinesen, Meet Joe the Window Washer. Joe will be used for life lessons in small business tax compliance.

Jack Townsend, Blog on the Disqualification of Some Canadian “Snowbirds” from Streamlined Treatment

 

Cara Griffith, Drop Shipping Is Popular With Retailers, but Can Create Tax Challenges (Tax Analysts Blog). “From a sales and use tax perspective, if the retailer has nexus with a particular state or is voluntarily registered in the state where the sale took place, the retailer is required to collect sales tax on the transaction with the customer. Conversely, if neither the retailer nor the shipper has nexus with the state in which the sale took place, neither can be required to collect sales tax.”

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

 

TaxProf, The IRS Scandal, Day 532

Richard Phillips, New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs (Tax Justice Blog) Not to defend the movie (which Peter Reilly watched so I don’t have to), but it’s not always easy to portray the IRS as, say, unicorn nurses.

Career Corner. Let’s End the Big 4 or Bust Myth Once and For All (Tony Nitti, Going Concern)

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Tax Roundup, 10/16/14: Tax-free public pensions proposed. And: Goodbye, 2010!

Thursday, October 16th, 2014 by Joe Kristan

And the statute of limitations now closes for extended 2010 1040s. That’s all water under the bridge now.

 

Accounting Today visitors, the corporate tax rate piece you seek from the newsletter is here.

 

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

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

Brutal Assault on Reason Watch.* As the political campaigns plunge into their dreary final frenzy, we can look forward to silly tax proposals intended to buy a few votes from the gullible. Proposals like this from an Iowa candidate for Governor: Hatch proposes tax exemption for public pensions:

Democratic gubernatorial candidate Jack Hatch on Tuesday proposed to exempt public pensions from state income taxation.

In a speech to the Iowa State Police Association in Ames, Hatch said his Tax-Exempt Public Service Pensions Act would cover Iowa Public Employees Retirement System benefits, police and fire retirement benefits, judicial pensions and other smaller state, county and city pension system recipients.

Why just public pensions?

“I understand the nature of public employee bargaining,” Hatch said. “I know the contracts you negotiate include retirement as part of the bargain. You have foregone wage increases and other benefits to guarantee a strong pension, and I will honor that bargain.

“I know most of you are like a lot of public servants in that you could make a lot more money doing something else,” he added. “I want to make sure we place the proper value on your decision to serve and that we honor the contracts you have made for the long term.”

So somebody who gets a six-figure income as a local school district superintendent would get a tax-free pension, while somebody who took a much smaller salary to run a local private school would have a taxable pension. Because public service.

20130110-2There are many bad assumptions underlying this proposal. While there are many hard-working public employees, a government job implies no special moral credit. Public employees have defined benefit plans, which are nearly extinct in the private sector, and they already artificially increase public sector compensation. In general, public sector workers make more than their private sector counterparts. And the idea that people who work for the government are doing it for the public good, instead of for selfish motives, is difficult to credit.

For tax policy purposes, such carve-outs are awful. They necessarily increase the taxes on those not eligible for the benefit. That increases their motivation to carve out their own special deals, causing higher rates, causing more special deals. You end up with a completely dysfunctional system — one that looks a lot like what Iowa has now, as a matter of fact. Unfortunately, Jack Hatch’s opponent, Governor Branstad, also seems quite comfortable with the system we have.

*Click here for explanation of the “brutal assault on reason” theme.

 

Donnie Johnson, Liz Malm, Same-Sex Couples Gain More Clarity Regarding Their State Taxes (Tax Policy Blog).

William Perez, State Tax Amnesties in 2014

Tim Todd, Affiliated Group Can Use Graduated Tax Rates Even If Personal Service Corp. Is a Member. Mr. Todd is a law professor who runs the Tax Litigation Survey, which he has recently brought to my attention. I look forward to following it for its regular coverage of Tax Court cases and other tax litigation.

Diana Leyden, Not Being in Filing Compliance Can Trip Your Client Up at the CDP Level (Procedurally Taxing). Just one of many problems that arise when you get into the non-filing habit.

 

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Jack Townsend, An Example of the Difference Between Pleading and Not Pleading:

Over 95% of federal criminal cases are resolved by plea agreement.  One of the reasons is that, in the Sentencing Guidelines calculations, defendants who plead will usually qualify by the plea for the acceptance of responsibility two or three level decrease in the Guidelines calculation.  Moreover, by pleading, the defendant may make himself or herself more attractive for a Booker downward variance from the reduced Guidelines range already reduced for acceptance of responsibility.  Conversely, by going to trial, a defendant generally forgoes any realistic hope of an acceptance of responsibility adjustment or any favorable Booker downward adjustment and may behave at trial in a way that will not endear the sentencing judge to the defendant.

He covers a case where a defendant ended up with a 405-month sentence, where a co-defendant was limited to 180 months (15 years) by plea deal. So plea deals are good if you are really guilty, while pressuring the innocent to confess on the threat of spending life in prison.

 

Annette Nellen, States without an income tax – good idea?

TaxProf, The IRS Scandal, Day 525

 

News from the Profession. PwC’s Bob Moritz Thinks Millennials Ask Way Too Many Questions (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/13/14: Appeals Court holds CRP payments not Self-employment income to non-farmers. And: Extended due date looms!

Monday, October 13th, 2014 by Joe Kristan

binNot farming isn’t farming. That is one way to look at Friday’s decision by the Eighth Circuit in Morehouse that Conservation Reserve Program payments to non-farmers are not self-employment income. Overturning a Tax Court decision, a split three-judge panel rejected the IRS assessment of self-employment tax on landowners who enrolled in the CRP when they were not engaged in the trade or business of farming. The appeals panel said the CRP payments to hold erodable land out of production are instead rental payments with respect to non-farmers; real estate rental income is not subject to self-employment tax.

Roger McEowen, who worked on the case from the taxpayer’s side, has a detailed analysis of the case and its history. He summarizes the state of CRP law:

 Now, the Eighth Circuit’s reversal of the Tax Court means that non-farmers do not have to pay self-employment tax on CRP payments. That’s the case at least within the Eighth Circuit.  Active Farmers still have to pay on CRP payments unless the 2008 Farm Bill provision applies to them. But, non-farmers and non-materially participating farm landlords are given relief within the Eighth Circuit. For CRP rents paid after 2007, the question is whether the recipient is a materially-participating farmer.

The “2008 Farm Bill provision” holds that CRP payments are not self-employment income for recipients receiving Social Security payments.

In Iowa, taxpayers might want to think twice before taking their CRP payments out of self-employment income. Iowa has a special exclusion of capital gain income for taxpayers who have held land for ten years and who have also “materially participated” in a business with the land for ten years. The Iowa Department or Revenue in a recently-released decision said that it would consider a taxpayer to be “materially participating” in CRP ground if self-employment tax were paid. Given how much appreciation there has been on farm ground in recent years, paying a little self-employment tax might be worth it to avoid Iowa tax on a big farm sale gain.

Cite: Morehouse, CA-8, No. 13-3110.

Paul Neiffer has more: Morehouse Appeal is Released – Taxpayer Victory

 

20140513-1Making crashes more likely, for your safety The Chicago Tribune reports that Chicago shortened yellow light times to increase red-light camera revenues.  As Brian Gongol notes, this demolishes the argument that the cameras are for safety, rather than revenue: “It’s quite simple: If you want to cut down on red-light running and consequent crashes, you lengthen yellow lights and increase the gap between the red in one direction and the onset of green in the other.

Our local politicians never seemed very concerned about dangerous intersections until they found a way to make money off of them. Nor did they experiment with non-revenue safety options, like longer yellow cycles and a delay between the red one way and the green light the other, before turning on the revenue cameras.

 

Russ Fox, You Filed That Extension, And Only Now Are Realizing the Deadline is Wednesday… “First, in most cases tax professionals say it’s better to extend than amend. But extending is now out [1], so it’s better to get a reasonable return in.”

Peter Reilly, Paper Filing 1040 On October 15th? Go To The Post Office! Use Certified Mail:

 It is almost October 15th.  October 15 is the extended due date of your federal individual tax return.  If, like me, you still have not filed it and you are planning, unlike me, to paper file, use certified mail and save the return card when it comes back – especially if you owe money.

I e-file, myself, but if you are filing to claim a refund on a 2010 extended return, paper filing may be your only option — and then you absolutely should go certified mail, return receipt requested.

If you are an American abroad, Phil Hodgen explains how to obtain an Income Tax Return Extension Until December 15, 2014

TaxGrrrl, Trying To Reach IRS? Hold On Until Tuesday. Columbus Day, plus they shut down their computers for the weekend.

Tony Nitti, A Tale Of Two Activities: How To Beat The Hobby Loss Rules 

Jack Townsend, Bitcoins Update

Jason Dinesen, Glossary: Filing Status

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TaxProf, The IRS Scandal, Day 522

William McBride, EPI Perpetuates Myth of Low Corporate Taxes. (Tax Policy Blog). A lesson on the dangers of ignoring the ascendance of pass-through entities.

Daniel Shaviro, Frontiers of quasi-tax fraud. “Because (a) partnership tax rules are so complex that only a handful of people really understand them – perhaps a thousand across the entire country? – and (b) people at the IRS generally don’t understand them, and (c) the audit rate for partnership tax returns is below 1%, compliance with partnership tax rules that are meant to block abusive tax planning that contradicts the actual tenor of the rules has pretty much completely collapsed.”

Renu Zaretsky, Cheap Talk, Scoring, and Promises, No, it’s not another night at the singles bar; today’s TaxVox headline roundup covers developments in the medical device tax repeal effort, loophole closers, and talk (just talk) of tax reform.

Sebastian Johnson, State Rundown 10/10: Lottery Bust, Music Credits on the Table (Tax Justice Blog). New York considers expanding corporate welfare to record companies, of all things.

 

Unlike the politicians, they at least give you what you pay for. A summary of tax cases involving prostitutes in the wake of the Cartagena Hooker scandal from Robert Wood.

News from the Profession. Which Accounting Firm Fired an Employee for His Dispute with Comcast? A: PwC (Caleb Newquist, Going Concern). And they fired me when I didn’t even have cable.

 

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