Posts Tagged ‘Jack Townsend’

Tax Roundup, 1/22/14: Let’s pay it for Hollywood! And: choosing a preparer.

Wednesday, January 22nd, 2014 by Joe Kristan

haroldTaking your money and giving it to Hollywood.  Oscar Nominees Cash In On State Tax Subsidies (Howard Gleckman, TaxVox):

Each of the nine movies nominated for this year’s Oscar for best film may already have taken home a pile of tax subsidies. Seven brought back state goodies from the U.S. and two got cash for their work in the U.K.

And, according to data collected by the Manhattan Institute, the winner is….Wolf of Wall Street. The $100 million black comedy about (irony alert) over-the-top greed among sleazy stockbrokers got a 30 percent tax credit for making the movie in New York State.

The Empire State isn’t even the most generous when it comes to doling out tax incentives to filmmakers. In Louisiana, moviemakers not only get a 30 percent credit against overall in-state production costs but also an additional 5 percent payroll credit. Even better, filmmakers with no state tax liability can monetize the credits by selling them to firms that do owe Louisiana tax or even selling them back to the state at 85 percent of their value.

Iowa used to do this, until its film tax credit program collapsed in scandal and disgrace following revelations that filmmakers were charging fancy cars and personal items to Iowa taxpayers under the guise of “economic development.   Further revelations showed that millions of dollars of pretend expenses were used to claim the credit, taking advantage of credulous administration and almost non-existent oversight.

More from Howard Gleckman:

No doubt these credits are good for filmmakers. And I’m sure residents get a kick out of seeing Leonardo DiCaprio shooting a scene in their neighborhood (assuming they are not steamed over the related traffic jam). But is there an economic payoff in return for these substantial lost tax revenues as supporters claim?

Most studies conclude there is not.

It’s amazing that politicians think Hollywood deserves their taxpayers dollars.  Fortunately, Iowa film subsidies now are limited to housing and meal expenses for filmmakers.

 

Jason Dinesen, Deducting Miles Driven for Charity.  ”Taxpayers can take a deduction of 14 cents/mile for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.”

Tony Nitti, Tax Geek Tuesday: The Sneaky Tax Consequences of Real Estate Repossessions 

 

Choosing a preparer?

Kay Bell, Time to pick the proper tax pro.  She gets one thing wrong about the IRS:  ”For years, the agency has been trying to set up a system under which it register and test tax preparers to help ensure that they meet a minimum competency level.”

No, the agency simply wants to expand its control over preparers and help powerful friends in the big tax prep franchises.  The “minimum competency level” stuff is a weak pretext.

Robert D. Flach, IT’S THAT TIME OF YEAR AGAIN – CHOOSING A TAX PREPARER:

Contrary to the popular “urban tax myth”, unfortunately perpetuated by uninformed journalists and bloggers, just because a person has the initials “CPA” after his/her name does not mean that he/she knows his arse from a hole in the ground when it comes to preparing 1040s.  

True.  But a lot of the best prepaers are CPAs.  Not everybody needs a CPA.  Many folks just need somebody who knows a little more than they do to help them put the W-2 income in the right place.  But if you are doing a complex business return — even on a 1040 — a CPA may be your best bet.

That’s not to say only CPAs are competent preparers.  Enrolled Agents can be very good, and there are many very competent unregulated preparers, like Robert.  I think the competence curve between CPAs and unenrolled preparers would look something like this:

competence curve

The more complex your return, the more likely it is that you will want to bring in an Enrolled Agent or a CPA, but if you already have a strong unregulated preparer who is taking care of your tax needs, you’d be foolish to switch.

 

Paul Neiffer, Average is Important for 2013 Tax Filing.  Farm income averaging, that is.  Another example of a provision that would result in frivolous return penalties for anyone but farmers.

Fairmark.com: Share Identification Under Attack

 

20121120-2Tea Party: Resolved: Obamacare Is Now Beyond Rescue.  Oh, wait, that wasn’t the Tea Party.   It was a debate audience on New York’s Upper West Side.  

TaxProf, The IRS Scandal, Day 258

William Perez, The Number of Sole Proprietors has been Rising for 30 Years

Tax Justice Blog: CTJ Submits Comments on the Finance Committee Chairman Baucus’ International Tax Reform Proposal.  They have very different, and largely opposite, concerns from the Tax Foundation.

Jack Townsend, Tax Notes Article on IRS 2013 Victories in Offshore Evasion

 

gatsoNext: automated pedestrian jaywalking camera fines, for our own safety:  NYC Cops Allegedly Beat Up Jaywalking Elderly Man, Refused to Tell Son Which Hospital He Was In (Ed Krayewski, Reason.com)

But I thought it was about traffic safety, not money…  Council members: Traffic camera revenue helped keep property taxes down, pay for public safety.

 

The importance of philanthropy: Warren Buffett Offers $1 Billion For Perfect March Madness Bracket  (TaxGrrrl)

 

The Critical Question: A Meat Tax? Seriously?  (Joseph Thorndike, Tax Analysts Blog).

News From the Profession: Guy Who Couldn’t Hack Two Years in Public Accounting Needs Validation He Isn’t a Loser (Going Concern)

It’s Academic!  How Not to Use Your Faculty Laptop (TaxProf)

 

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Tax Roundup, 1/21/14: Weaponizing the IRS. And: whither Section 179?

Tuesday, January 21st, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The new, “weaponized” IRS is a focus of Glenn Reynolds, the Instapundit, in a USA Today Column:

Since then, of course, the new “weaponized IRS” has, in fact, come to be seen as illegitimate by many more Americans. I suspect that, over time, this loss of moral legitimacy will cause many to base their tax strategies on what they think they can get away with, not on what they’re entitled to. And when they hear of someone being audited, many Americans will ask not “what did he do wrong?” but “who in government did he offend?”

This is particularly true since the Obama administration is currently changing IRS rules to muzzle Tea Partiers.

While I don’t think it’s that bad yet, it’s headed that way if things don’t change.  And, as Glenn points out, it’s not changing:

Meanwhile, the person chosen to “investigate” the IRS’s targeting of Tea Party groups in 2010-2012 is Barbara Bosserman, a “long-time Obama campaign donor.” So the IRS’s credibility is in no danger of being rebuilt any time soon.

I think this is a terrible and shortsighted mistake by the Administration.  So much of its agenda, especially Obamacare, depends on effective IRS administration, but as the recent budget agreement proved, the GOP isn’t going to fund the IRS when it thinks that’s the same as funding the opposition.

The USA Today piece makes broader points about the effect of the loss of faith in civil servants as apolitical technocrats; read the whole thing.

Via the TaxProf.

Andrew Lundeen at Tax Policy Blog has two new posts on tax reform.  In Tax Reform Should Simplify the Code and Grow the Economy, he says:

We need to eliminate the biases in the code against savings and investment, so individuals have the incentive to add back to the economy, and businesses have the capital to buy new machines, structures, and equipment – all the things that give workers the ability to be more productive and earn higher wages. And we need a tax code that is simple and understandable, so taxpayers know exactly what they pay and why. 

Max Baucus

Max Baucus

We’ve been going the wrong way now for 27 years.  In Responses to Senator Baucus’s Staff Discussion Drafts, he curbs his enthusiasm for the tax reform options offered by outgoing Senate Finance Committee Chairman Baucus:

Generally speaking, we found that the tax reform proposals in these drafts go in the wrong direction. Our modeling shows that they damage economic growth, hurt investment, and, in many instances, violate the principles of sound tax policy: simplicity, transparency, neutrality, and stability.

The post links to a point-by-point examination of the Baucus proposals.

 

 

TaxProf, Martin Luther King, Jr. and the IRS:

This past year, much ado was made about the so-called “IRS-Gate” and concerns that the Obama administration may have used the agency to target Tea Party and other right wing groups. … [W]hat often is not stated during the Martin Luther King Holiday weekend is that King, early in his leadership of the Southern Christian Leadership Conference (SCLC), was routinely subjected to IRS audits of his individual accounts, SCLC accounts as well as accounts of his lawyers, first starting during the administration of President Dwight Eisenhower and continuing through the Kennedy administration.

If you audit me, I shall become more powerful than you can possibly imagine…

Kay Bell, IRS abuse of power, now and in MLK’s day. “Overall, the IRS is paying for its operational indiscretions by receiving less money and more restrictions on how it does spend what funds it has.”

 

Paul Neiffer, Section 179 Update (or Not):

 Here are my official updated odds on when we might know what the actual 2014 Section 179 amounts will be:

By Memorial Day 10 Billion to 1

By Labor Day 10 Million to 1

By the November Mid-Term elections 500 to 1

Between the November Mid-Term Elections and December 15, 2014 25 to 1

After December 15, 2014 and before January 1, 2015 1 to 1

After December 31, 2014 5 to 1

I give about 5 to 1 odds in favor of the current Sec. 179 deduction being extended to $500,000 for 2014, and I think that Paul is right that it is most likely to occur during the lame-duck session.  I think odds are about 50-50 on an extension of 50% bonus depreciation. It’s too bad the Feds have closed Intrade, as this would be a betting market I would like to follow.

 

HelmsleyTaxTrials, Leona Helmsley, Angry Employees Strike Back:

Their mistreatment of employees and squabbles over bills are the stuff of legend and left prosecutors rife with eager witnesses when it came time for trial.

Helmsley was just as arrogant about her taxes, famously telling her housekeeper: “We don’t pay taxes, only the little people pay taxes.”  Helmsley participated in several schemes to avoid paying millions of dollar in income and sales taxes.  

Sometimes that sort of thing comes back and bites you; read the post to see how it bit Helmsley.

 

William Perez on an important topic: Tips for Securely Sending Tax Documents To Your Accountant.  First, don’t send anything with your Social Security Number in an unencrypted email.  Like many firms, Roth & Company offers a secure upload platform to send sensitive information.  If your tax firm has one, use it.  They are the safest way to transmit confidential information and files.

 

Phil Hodgen wonders whether there is a Delay in approving renunciations at State Department?  It’s harder to shoot jaywalkers when they are running away.

Missouri Tax Guy goes back to basics with An Introduction to the Double-Entry Bookkeeping System.  Just remember, Debits are on the door side.

Andrew Mitchel has posted a New Resource Page: 2013 Developments in U.S. International Tax

 

Kay Bell, $4 billion more tax breaks for Boeing from Washington State. Taxing you to give money to folks with good lobbyists.

Jim Maule is appropriately annoyed by the use of the term “IRS Code.”  It’s the Internal Revenue Code, and it’s written by Congress, not the IRS.  Remember that when you vote.

Keith Fogg, Qualified Offers – Is it meaningless to offer what you think a case is worth? (Procedurally Taxing)

Jack Townsend, The New Provision for Tax Restitution and Ex Post Facto

 

The Critical Question: Is Kent Hovind A Tax Protester?  It doesn’t seem like a more promising career path for him than his forays into evolutionary biology.

TaxGrrrl, Hot Tub Tax Machine: News Anchor Takes Plea In Scandal.

 

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Tax Roundup, 1/20/14: If it’s not a scandal, it hurts like one. And: S corporation ESOP play in WSJ.

Monday, January 20th, 2014 by Joe Kristan

The U.S. District Court for the Southern District of Iowa didn’t need my services as a juror this week, so  I will be participating in the Iowa Bar Association webinar this afternoon on new developments for 2014.  It starts at noon.  You can register here and find more information here.   I will join Roger McEowen of the ISU Center for Agricultural Law and Taxation, and Kristie Maitre, IRS Stakeholder Liason for Iowa.

 

20130419-1If the Tea Party scandal is not a scandal, why would it be so damaging to the IRS?  The TaxProf’s IRS Scandal Roundup for Day 255 has some eye-opening quotes from a high-powered panel from a Pepperdine/Tax Analysts Symposium last week:

Donald Korb (Partner, Sullivan & Cromwell; former IRS Chief Counsel):  I think it is incredibly damaging.  Frankly, I see it as one of the seeds of the next tax shelter era. … And in terms of scandal, I don’t think we really know. We have not been permitted to understand exactly what happened. So, who knows.

George Yin (Edwin S. Cohen Distinguished Professor of Law and Taxation, Virginia; former Chief of Staff, Joint Committee on Taxation):  I think there has been tremendous damage.  Almost without regard to what actually happened.  And I actually despair of finding out what actually happened. …

Donald Tobin (Frank E. and Virginia H. Bazler Designated Professor in Business Law, Ohio State):  I think it is awful. I agree with Don and George.  7 or 8.  I think this is ultimately going to have huge implications. …

Ellen Aprill (John E. Anderson Chair in Tax Law, Loyola-L.A.):  I agree with all of that.  I have myself avoided the word “scandal” because I just don’t know.  And some of the people I know personally.  I don’t think that was their political motivation.  So I’ve used “controversy” and “brouhaha” and everything but tried not to go all the way to scandal. …

Korb: … This is very, very damaging.  Maybe we are at a 9.5

You can already see effects in the reduction of the IRS funding request in the latest budget deal.  While Congress makes the IRS the Swiss Army Knife of tax policy, it continues to cut back its resources.  That can’t end well.  But the GOP sees that the IRS has acted as a tool for its political opponents, and it’s asking a lot for them to fund their opposition.

 

Robert D. Flach ponders whether the Registered Tax Return Preparer designation could be revived as a voluntary credential.  If any group of preparers can unite behind a voluntary credential with self-administered standards, great.  Just keep the IRS out of it.  It’s a poor use of their resources, and they aren’t to be trusted with that sort of power.

 

S imageS imageS-SidewalkESOP S corporation strategy.  The Wall Street Journal (Laura Saunders, via the TaxProf) reports on an S corporation that may have found a way to funnel all of its income to a tax-exempt ESOP via restricted stock for the non-ESOP owners.  Paul Neiffer suspects it may be too good to be true.

It would be a hard needle to thread, giving the severe 409(p) excise tax that can apply to allocations of ESOP shares to owners of closely-held S corporation.  If the strategy does win in the courts, I would expect to see legislation to change the result quickly.

 

Jack Townsend, Eighth Circuit Affirms Offshore Account Related Conviction

 

Joseph Henchman, What Same-Sex Couples Need to Know This Filing Season  (Tax Policy Blog).  He links to a nice Tax Foundation study that tells how each state is approaching same-sex marriage this filing season.

Roberton Williams, Utah Lets Same-Sex Couples File Joint Tax Returns (TaxVox)

Kay Bell, Girl Scout cookies might be tax deductible.  Unfortunately, only if you don’t eat them.

Russ Fox, The Trouble With Bitcoins: Taxation.  ”If you make money with Bitcoins, it is absolutely taxable.”

Jason Dinesen, Issuing 1099s to an Incorporated Veterinarian.  So veterinary services are “medical services.”

So the IRS agrees with Corb Lund.

 

Tax Justice Blog, Oklahoma Shows How Not to Budget.  ”The biggest offender here is one we’ve explained before: the growing trend of funneling general tax revenues toward transportation in order to delay having to enact a long-overdue gas tax increase.”

William Perez, In Honor of Martin Luther King, Jr.  “In 1960, Dr Martin Luther King, Jr., was found not guilty of filing fraudulent state tax returns for the years 1956 and 1958.”  That’s why you don’t want politicized tax enforcement.

TaxGrrrl, Why Justice Matters: The Indictment & Trial Of Dr. Martin Luther King Jr. On Tax Charges   

 

Annette Nellen, Real revenue sources for tax reform.  ”Where can permanent tax increases be generated to offset the desired permanent tax decrease generated from permanent lower rates?”

Good, we need it.  Bloggers = Media for First Amendment Libel Law Purposes (Eugene Volokh).  “To be precise, the Ninth Circuit concludes that all who speak to the public, whether or not they are members of the institutional press, are equally protected by the First Amendment.”

That’s how it should be.

Peter Reilly, Soldier To Tax Accountant – Rachel Millios EA   

 

News from the Profession.  CPA Exam Pass Rates Basically Went Right Off the Cliff at the End of 2013 (Going Concern).  

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Tax Roundup, 1/16/14: Bill would widen Iowa 10-year gain break. And: Obamacare tax credits survive challenge.

Thursday, January 16th, 2014 by Joe Kristan


20130117-1
Iowa Capital Gains Exclusion for stock sales?  
The first income tax bill in the hopper in this session of the Iowa General Assembly is HSB 502, which would expand the current tax break for extra-long term capital gains to stock and partnership interest sales.

Iowa currently allows taxpayers to exclude some capital gains from income when the taxpayer meets each of two 10-year requirements:

- They have to have held the property for at least ten years, and

- They have to have materially participated in the business for at least ten years. Material participation is determined under the federal passive activity rules.

If those requirements are met, a taxpayer can exclude gain on the sale of “substantially all of the assets” of a business, or on the sale of real estate used in the business.  But unless the gain is recognized in a corporate liquidation following an asset sale, stock gains aren’t eligible for the break.  Gains on the sale of partnership interests are never excluded

HSB 502 would extend the break to a sales of “substantially all of the taxpayer’s stock or equity interest in the business, whether the business is held as a sole proprietorship, corporation, partnership, joint venture, trust, limited liability company, or another business entity.”

The provision makes sense to the extent that such a break shouldn’t be dependent on the way you organize your business.  What doesn’t make sense is the way the exclusion is limited by the ten-year material participation requirement.  There is a strong economic case to not tax capital gains at all, but I can’t think of any reason that case is affected by material participation.

The biggest argument against the exclusion is that it is a carve-out of the income tax base for a very limited class of taxpayers that adds to the complexity of the Iowa income tax.  I would favor a broader, or even complete, capital gain exclusion.  I would also be OK with taxing all capital gains in exchange for repeal of the corporation income tax and reduction of the individual rate to under 4% as part of the Quick and Dirty Iowa Tax Reform Plan.

The bill has been referred to a subcommittee of the Iowa House Ways and Means Committee.  While I expect no major tax legislation to move this year, limited provisions like this could advance.

Related: Iowa Capital Gain Deduction: an illustration

 

20121120-2TaxGrrrl, Another Legal Threat To Obamacare Shot Down In Federal Court:

When the Regulations were published, those refundable tax credits which were intended for participants in state exchanges were extended to those individuals under the federal exchanges. The plaintiffs filed suit, arguing that making the credits available to those on the federal exchanges was beyond the scope of the law. The plaintiffs sought, through the lawsuit, to prohibit the IRS from enforcing the Regulations as written.

The D.C. U.S. District Court upheld the regulations yesterday on summary judgement.  An appeal to the D.C. Circuit is likely.

 

 David Henderson quotes economist John Cochrane:

Our current tax code is a chaotic mess and an invitation to cronyism, lobbying, and special breaks. The right thing is to scrap it. Taxes should raise money for the government in the least distortionary way possible. Don’t try to mix the tax code with income transfers or support for alternative energy, farmers, mortgages, and the housing industry, and so on. Like roughly every other economist, I support a two-page tax code, something like a consumption tax. Do government transfers, subsidies, and redistribution in a politically accountable and economically efficient way, through on-budget spending.

But that isn’t going to happen anytime soon.

So wise, and, sadly, so true.  Mr. Cochran has a lot of wise things to say; read the whole thing.  Lynne Kiesling passes on more Cochrane wisdom in Cochrane on ACA’s unravelling: parallels to electricity.

 

Robert D. Flach, TWO RECENT TAX POSTS WORTH DISCUSSING.  ”The idiots in Congress must understand that the purpose of the Tax Code is to raise the money needed to run the government – PERIOD.”

Trish McIntire talks about Choosing A Tax Pro.  ”Just because your previous preparer did something a certain way doesn’t mean that another preparer will run their office the same.”

William Perez, Free Tax Preparation Services

 

HarvestHarvest
harvest
Paul Neiffer, Grain Gifts – How Are They Taxed?:

Since there is no cost allocated to the grain that is gifted, there is no charitable deduction to report.  Rather, since you are reducing your schedule F income by the amount of grain given, this essentially results in your charitable deduction.  You are not allowed to deduct both on schedule F and on schedule A.

Only one deduction counts.

 

Jason Dinesen, Got 1099s to Issue?:

A 1099 may need to be issued if:

  1. You paid $600 or more in total to any 1 person during the year for services provided to your business. This also applies to payments made to businesses organized as partnerships. However, a 1099 does NOT need issued for payments made to a corporation. Payments made to an LLC may or may not require a 1099, depending on how the LLC is taxed.

  2. You paid $600 or more in total to a law firm during the year, regardless of how the law firm is organized. In other words, even if the law firm is a corporation, you would need to issue it a 1099 if you paid the firm $600 or more.

  3. You paid $600 or more in rental or lease payments to an unincorporated person or partnership during the year (similar rules as listed under item #1).

And the deadline is looming.

 

Jack Townsend, Switzerland’s Quixotic Efforts to Close the Stable Door After the Horse Has Left the Barn.  Consider Swiss bank secrecy most sincerely dead.

 

20130419-1Kay Bell, IRS’ fiscal year 2014 budget takes a big hit

TaxProf, The IRS Scandal, Day 252

TaxTrials, Wesley Snipes, A Lesson in Listening to Bad Advice

Keith Fogg, Forum Shopping in the Tax Court – Small Tax Case Procedure and the Rand Decision. (Procedurally Taxing).  Issues when a tax deficiency results solely from refundable tax credits.

Tax Justice Blog, What to Watch for in 2014 State Tax Policy

Scott Drenkard, Open Sky Policy Institute: “Illinois is not an Example for Other States”.  Not exactly going out on a limb, but worth noting.

Roberton Williams, Tax Complications for Same-Sex Couples in Utah (and Elsewhere) (TaxVox)

Cara Griffith, Is Connecticut Ignoring Supreme Court Precedent? (Tax Analysts Blog).  Who do they think they are anyway — Iowa?

 

News from the Profession: How To Not Tick Off Your Public Accounting Colleagues Without Being a Clown About It (Going Concern)

 

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Tax Roundup, 1/15/14: Serving society by shooting jaywalkers, sending billionaires to elementary school.

Wednesday, January 15th, 2014 by Joe Kristan

Don’t forget to mail your 1040 first quarter estimated tax payments today!

 

Wikipedia image

Wikipedia image

“Society will be best served by allowing him to continue his good works.”  So said Federal Judge Charles Kocaras in sentencing Beanie Baby Billionaire Ty Warner to two years of probation and 500 hours of community service.  Mr. Warner admitted evading taxes on more than $3.3 million in income through the use of Swiss accounts in a plea deal, but his total unpaid taxes was in the neighborhood of $5.6 million, according to Bloomberg News.

So Mr. Beanie Baby gets to do good works.  It’s remarkable, considering the federal sentencing guidelines for a $5 million tax loss start at a 51-month sentence.

Meanwhile, an American woman who has lived her adult life in France is terrified that she will be financially ruined if she starts complying with foreign reporting requirements that she had no idea existed.  A Canadian born of an American parent who has never been to the U.S. faces ruinous penalties because he never filed U.S. tax returns or FBAR reports — it never occurred to him that he might have to file U.S. taxes.  A second-generation American who inherited a foreign bank account from her father faces a minimum of $40,000 in penalties after not paying a whopping $100 in income tax on the account, which she didn’t even know existed.

So society is best served by allowing Mr. Beanie Baby to help out in classrooms, while the IRS quietly imposes outrageous penalties on the innocent conduct of non-billionaires for foot-faulting their paperwork?  I think society would be best served by letting people voluntarily come into compliance without facing financial ruin.  I think society would be best served by not imposing insanely severe penalties for failing to report a Canadian bank account on time when no tax was avoided.  I think society would be best served by not terrorizing Americans abroad for committing personal finance.  But I’m not a federal judge, so my idea of what best serves society doesn’t mean much.

Related:

Jack Townsend, The Beanie Baby Man, The Tax Evader Adult Man, Ty Warner, Gets Probation!  “I do ask the question that comes immediately to mind.  What is it about the very rich that seems to resonate with sentencing judges?”

Janet Novack, No Jail Time For Beanie Babies Billionaire Tax Evader Ty Warner   “Even after those payments, he will still, according to an accounting he gave the government, be worth more than $1.8 billion.”

 

Kyle Pomerleau, IRS Data on Income Shifts Shows Progressivity of Federal Individual Income Tax (Tax Policy Blog):

In 1980, the top 1 percent accounted for 8.46 percent of adjusted gross income and 19.06 percent of income taxes paid: a difference of 10.59 percent. By 2011, their share of income increased to 18.7 and their share of all income taxes paid increased to 35.06; the difference increased to 16.35 percent.

Top 1 pays more than bottom 90

 

So increasing taxes on the rich didn’t make things more “equal.”  How about that.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Howard Gleckman, IRS Gets Hammered in the 2014 Budget Agreement (TaxVox):

The Internal Revenue Service is one of the biggest losers in the 2014 budget deal agreed to last night by House and Senate negotiators. Under the agreement, the service would get just $11.3 billion, which is $526 million below its 2013 budget and $1.7 billion less than President Obama requested. 

Congress uses the tax law as the Swiss Army Knife of public policy.  It has a sprawling portfolio that ranges from energy policy to welfare to health care — responsibilities that dwarf many of the cabinet agencies nominally overseeing those areas.  Yet Congress, while increasing the responsibility of the IRS more and more, is cutting its resources.  That won’t end well.

Yet the IRS in a way has itself to blame.  It’s outrageous politicization under Doug Shulman and the resulting Tea Party harassment have had the predictable effect of making the Republicans consider the IRS a political opponent.  Nobody wants to fund the opposition.  And no, I don’t buy Mr. Gleckman’s line that “…the 501(c)(4) mess was caused in part by a lack of resources.”  If you don’t have resources, you don’t spend extra time singling out certain political views for “special” treatment.”

 

David Brunori, Apple and Wal-Mart Are Perfect Together in a World of Bad Tax Policy (Tax Analysts Blog):

In any event, the purveyors of tomorrow’s technology and cheap toiletries recently got together to lobby for a sales tax holiday in Wisconsin. In that regard at least, Apple and Wal-Mart are very much alike. They favor bad tax policy when it helps their bottom line. 

Of course they do.  The real shame is the legislators who make it happen.

microsoft-apple

 

TaxGrrrl, No Criminal Charges Expected In FBI Investigation Into IRS Scandal

William Perez discusses Prices for Professional Tax Preparation Services.

Kay Bell, California has $16 million in undeliverable 2012 tax refunds

Robert D. Flach, THE FUTURE OF THE RTRP DESIGNATION – THE CONVERSATION CONTINUES:  ”To be effective the organization that administers the independent voluntary RTRP credential must have the backing, support, and recognition of the entire industry, and not just one component or organization.”

 

TaxProf, The IRS Scandal, Day 251

If the sentence is carried out on April 16, it’s cruel and unusual punishment.  Governor Christie Redeems Himself By Signing “CPA Death Penalty” Legislation in New Jersey (Going Concern)

 

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Tax Roundup, 1/10/2014: Taxpayer advocate rips IRS penalties and foreign account enforcement. Also: the Code still stinks!

Friday, January 10th, 2014 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

The Taxpayer Advocate’s Annual Report directs some well-deserved fire on two of the worst IRS practices: the penalty-happy approach to examinations and the shoot-the-jaywalkers approach to offshore enforcement.

The report says this about penalties:

The IRS’s decision not to abate inapplicable penalties illustrates its resource-driven approach to them. As we have described in prior reports, the IRS too often proposes accuracy-related penalties automatically when they might potentially apply — before performing a careful analysis of the relevant facts and circumstances — and then burdens taxpayers by requiring them to prove the penalties do not apply.

The IRS should identify and abate all of the accuracy-related penalties that should not apply. It should minimize taxpayer burden when administering the IRC § 6676 penalty (e.g., by not proposing it automatically) and work with the Treasury Department to support a reasonable cause exception.

Amen.  The tax law is hard, and when a taxpayer does what a reasonable person — not a reasonable tax lawyer — should do to pay the right amount, there shouldn’t be an automatic 20% mistake penalty.  Too bad the advocate doesn’t seem to have embraced my “sauce for the gander” penalty, which would make the IRS pay taxpayers the same 20% penalty when the IRS makes an unjustified assessment.

Regarding foreign account enforcement, the report faults the IRS shoot-the-jaywalker approach (my emphasis):

In the 2009 OVD program, the median offshore penalty paid by those with the smallest accounts ($87,145 or less) was nearly six times the tax on their unreported income. Among unrepresented taxpayers with small accounts it was nearly eight times the unpaid tax. The penalty was also disproportionately greater than the amount paid by those with the largest accounts (more than $4.2 million) who paid a median of about three times their unreported tax. When the IRS audited taxpayers who opted out (or were removed), on average, it assessed smaller, but still severe, penalties of nearly 70 percent of the unpaid tax and interest. Given the harsh treatment the IRS applied to benign actors, others have made quiet disclosures by correcting old returns or by complying in future years without subjecting themselves to the lengthy and seemingly-unfair OVD process. Still others have not addressed FBAR compliance problems, and the IRS has not done enough to help them comply.

20121129-1Shooting the jaywalkers so you can slap the bad actors on the wrist.

The IRS should expand the self-correction and settlement options available to benign actors so that they are not pressured to opt out or pay more than they should; do more to educate persons with foreign accounts (e.g., recent immigrants) about the reporting requirements; consolidate and simplify guidance; and reduce duplicative reporting requirements.

The IRS should follow the lead of the states that allow non-resident taxpayers who voluntarily disclose past non-compliance to file and pay five years of prior taxes, with only interest and no penalties — reserving the penalties for those who wait until they are caught.  Tax Analysts quotes one lawyer as saying this would be unfair to the already-wounded jaywalkers:

“It’s very hard to make the program more lenient now without going back and adjusting thousands of [prior] taxpayers’ resolutions since 2009,” he said. That is something the IRS is likely unwilling to do, he added.

Too bad.  That’s exactly what they should do.

 There’s a lot more to the report, including a call for a new taxpayers bill of rights (good) and a renewed call for IRS preparer regulation (a waste of IRS and preparer time).

Related: 

Lynnley  Browning, IRS top cop says the agency is too hard on offshore tax dodgers.  I can’t imagine she wrote that headline.  Any lazy headline writers who call an inadvertent FBAR violator a “tax dodger” should have half their bank account balances seized if they ever forget to report a 1099.

TaxGrrrl, Report To Congress: IRS Is Increasingly Unable To Meet Taxpayer Needs

Jack Townsend,New Taxpayer Advocate Report to Congress Addressing, Inter Alia, OVDI/P Concerns

 

TaxProf, IRS Releases FY2013 2006 Enforcement Stats:

The IRS has released Fiscal Year 2013 Enforcement and Service Results, showing among other things:

  • Individual audit rate:  0.96% (lowest since 2005)

  • Large corporation audit rate: 15.8% (lowest since 2009)

  • Revenue from audits:  $9.8 billion (lowest since 2003)

  • Number of IRS agents:  19,531 (lowest since pre-2000)

  • Conviction rate:  93.1% (highest since pre-2000)

It’s hard to see where the IRS has the resources for making compliant preparers waste their time on preparer regulation busywork.

 

William Perez, Fourth Estimated Tax Payment for 2013 Due on January 15

Paul Neiffer, How Low is Too Low For A Rental Arrangement?  “We had a reader ask the following question: ‘Does leasing cropland to a family member for substantially less than fair market value become “gifting” subject to taxes for value above gifting limit?’”

Jason Dinesen,  Review Your Small Business Operations as Part of Year-End/Year-Beginning Planning

Leslie Book, NTA Annual Report Released (Procedurally Taxing)

 

 

Christopher Bergin, The Tax Code in 2014 – It Still Stinks (Tax Analysts Blog):

I’ve always believed in progressive income taxation. This isn’t it. The conservatives have sold us on the notion that tax is a dirty word, and the liberals have sold us on the notion that class envy is a healthy state of mind.

And that, folks, is why the tax code stinks. And it won’t get any better in the new year.   

There’s more to the stink than that, but it’s a good start.

 

Scott Hodge, Millionaire Taxpayers Tend to be Older.  Well, that’s one good thing about aging, I guess.

20140110-1

Howard Gleckman, Pay to Extend Unemployment Benefits? Why Not Pay to Extend Temporary Tax Breaks Too?  (TaxVox)

Tax Justice Blog,  Reasons Why Congress Should Allow the Deduction for Tuition to Remain Expired

Kay Bell, Marijuana sales, tax collections good for Colorado coffers.

 

The Newest Cavalcade of Risk is up!  Hank Stern participates with an Overseas ObamaTax Conundrum

 

Robert D. Flach brings the Friday Buzz!

Career Corner: This Year, Resolve to Finally Decide What You Want To Be When You Grow Up in Public Accounting (Going Concern)

 

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Tax Roundup, 1/8/2014: Instructions for the Net Investment Income Tax! And new foreign account reporting rules.

Wednesday, January 8th, 2014 by Joe Kristan

20140108-1Almost four years after the passage of the Patient Protection and Affordable Care Act, the IRS has issued draft instructions for the act’s “Net Investment Income Tax” form, Form 8960 — which itself has only been issued as a draft so far.  With work already underway on many returns subject to this tax, especially trust returns, the timing is lame.  But this is one aspect of Obamacare that isn’t going to get punted, so we will have to go to war with the forms we have.

The draft instructions provide worksheets for some of the more baroque computations that will be needed to complete the form, including the net loss computation and the allocation of itemized deductions to net investment income.  Still, much of the work will have to be done off-the-forms on preparer worksheets applying the regulations.  Tony Nitti says:

That is my big takeaway from the instructions – there’s no faking it. When we saw that this new, complex area of the law would ultimately be computed on a one-page form, we anticipated that the meat of the computation would be done off-form in worksheets provided by the instructions. And that’s exactly what happened. But that shifts the onus back to us as tax advisors to make sure our inputs are correct, which means we must understand the nuances of the final regulations.

Based on my review of the instructions, it will be virtually impossible for a tax advisor to accurately compute, for example, the Net Gains and Losses worksheet without a solid understanding of the types of gains and losses the final regulations contemplate being included in and excluded from net investment income.

As with the rest of the ACA, what could possibly go wrong?

 

Russ Fox, FBAR Changes for 2014

First, Form TD F 90-22.1 is no more. The FBAR has a new form number, Form 114.

Second, as of last July the FBAR must be electronically filed. The good news is that as of last October, your tax accountant can file the form for you as long as you complete Form 114a.

Also, notes Russ, the filing requirement now kicks in when the balance of all foreign accounts together exceeds $10,000.  It used to be account-by-account.

 

William Perez offers Resources for Preparing Form 1099-MISC for Small Businesses

Kay Bell says it’s Time to get organized for your 2014 tax filing tasks

Paul Neiffer advises us to Decant a Trust – Not Wine.

 

David Brunori on the unwisdom of subjecting business inputs to sales tax:

Indeed, virtually every state tax commission that has studied this issue has concluded that business inputs should be exempt from tax. Why? When you tax business purchases, the tax becomes part of the cost of doing business, and companies try very hard to pass those costs on to consumers. Two bad things then happen. First, consumers unwittingly pay the tax in the form of higher prices. It is a hidden tax and a most cynical way of financing government. Second, consumers often pay sales tax on the tax embedded in the retail price of the goods they purchase. So we are actually taxing a tax. This “cascading” amounts to awful tax policy.

But, as David points out, that doesn’t stop the demagogues:

Several years ago, I had the opportunity to talk to a group of legislators about sales tax policy. I was asked if I had any ideas for reform. I mentioned the common ideas of broadening the base by taxing services and remote sales, and lowering rates. I also said that states should exempt business purchases from the sales tax. One legislator looked at me like I had three heads and asked, “Do you mean letting corporations off the hook for sales taxes?” He asked where the justice was in a system that would make poor working families pay sales tax but let multinational companies go free.

Not all that different from the Iowa Senate’s approach to income taxes.

 

Andrew Lundeen, The Top 1 Percent Pays More in Taxes than the Bottom 90 Percent (Tax Policy Blog):

An interesting piece of information from the chart below is that after the 01/03 Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1 percent actually increased significantly.

Top 1 pays more than bottom 90

No matter how much you jack up taxes on the “top 1%,” the same people always will say “the rich” aren’t paying “their fair share” and need to indulge in some “shared sacrifice.”

 

Howard Gleckman, Taxing Bitcoin (TaxVox)

What if bitcoin is a currency for tax purposes, the same as, say a euro? In that case, profits from sales would be taxed as ordinary income, with a top rate of 39.6 percent, though all losses could offset other income.

Either way, the mere act of buying something [with Bitcoins] would likely be a taxable event.

Tax Justice Blog, GE Just Lost a Tax Break – and Congress Will Probably Fix That.  That’s what fixers do.

Jack Townsend, Prosecuting the Banks: Does the U.S. Prefer Foreign Banks to U.S. Banks?

 

TaxProf, The IRS Scandal, Day 244

Programming note: I will be doing a tax update program sponsored by the Institute for Management Accountants over the Iowa Cable Network tomorrow evening at 6:00 p.m.  It’s a chance to get your continuing education for 2014 off to a roaring start.  I figure on talking about an hour, with an emphasis on the new Net Investment Income regulations and other 2013 changes we will see this filing season.  I’ll also cover some of the more interesting cases and rulings of the last year.

In case you were wondering, our friends at Going Concern explain How To Tell if Your Accounting Firm is Really a Car Wash

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Tax Roundup, 12/30/2013: Paying for those last-minute write-offs. And: Harold Hill marches on.

Monday, December 30th, 2013 by Joe Kristan


20121228-2
How to pay for those last-minute deductions.
  We’re down to the wire, kids.  2013 ends in less than 48 hours, so if you are going to claim some last-minute deductions, get busy!  Some things to keep in mind:

- A credit card is as good as cash. Better, even, because if you incur a business expense before the end of the year, you have your credit card statement to prove it.

- If you mail a check for a business expense, the check needs to be in the mail and postmarked in 2013 to be a deductible 2013 expense. If it’s a big check, maybe you should spend a little extra to send it Certified Mail so you can document the postmark.

- If you receive a check in the mail, it’s taxable the day you receive it, even if you don’t deposit it.

- There is no “close is good enough” rule for cash basis taxpayers. Just because you could have paid a bill doesn’t get you a deduction if you didn’t pay it before year-end.

- Don’t overdo it. If you prepay expenses more than a year out, you don’t get the deduction until the year to which the payment applies.

- If you are making a gift to a loved one to qualify for the $14,000 annual gift tax exclusion, having the check in the mail isn’t good enough. A check has to be cashed for the gift to count against this year’s exclusion.

And in case you didn’t check in over the weekend:

What you need to pay by year-end to get a 2013 business expense deduction and

Hie thee to the altar! Maybe.

Check in tomorrow for the last 2013 year-end tax tip!

 

haroldL.A. Times: Transferable Movie Tax Credits Hurt States, Enrich Studios, Tax Lawyers (TaxProf):

Reitz is one of Hollywood’s new financiers. Just about every major movie filmed on location gets a tax incentive, and Reitz is part of an expanding web of brokers, tax attorneys, financial planners and consultants who help filmmakers exploit the patchwork of state programs to attract film and TV production.

In his case, he takes the tax credits given to Hollywood studios for location filming and sells them to wealthy Georgians looking to shave their tax bills — doctors, pro athletes, seafood suppliers, beer distributors and the like.

Money for Hollywood, fixers, middlemen, and the well-connected, at your expense.  Sort of like every other “economic development” tax credit, only even more so.  Fortunately Iowa, sadder but wiser, has turned to jailing film folks instead of subsidizing them.

 

Russ Fox, Bring Me the Usual Suspects: Small Business Policy Index 2013.  Iowa is 43rd.  Not surprising, when “Of the 47 measures included in the 2013 edition of the Index, 22 are taxes or tax related…”

 

William Perez looks at the Top Tax News Stories of 2013.  His top story took place on the first day of 2013:

1. American Taxpayer Relief Act was passed on January 1, 2013. This tax law instituted at top personal tax rate of 39.6%, bumped up the top capital gains rate to 20%, provided for indexing the alternative minimum tax to inflation, reinstated the phaseouts on itemized deductions and personal exemptions. This law was Congress’s way of dealing with the fiscal-cliff, which was the name applied to the expiration of a several tax laws first enacted during the Bush administration.

I hope nothing so awful happens on the last day of the year.

Robert D. Flach also looks back with 2013: THE YEAR IN TAXES – PART TWO

 

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.

Annette NellenNew IRS Commissioner – Does anyone care?

“Despite running a significant organization with over 92,000 employees that collects over $2.2 trillion of revenue and affects the lives of most people in the U.S., it doesn’t seem to me that anyone really cares about who is running the IRS.”

That’s unfortunate.  As the tax law has become the Swiss Army Knife of public policy, the Commissioner oversees a sprawling portfolio ranging from health policy to campaign finance to industrial policy.  There’s more power in the IRS than in most cabinet agencies.  And as the disastrous regime of Doug Shulman proved, an awful Commissioner can cause a lot of damage to taxpayers and to the agency.

 

Jim Maule, Contracting a Tax Outcome.  ”When a taxpayer signs a contract, the terms of that contract quite often dictate the tax consequence.”

 

 

What could go wrong?  French High Court OKs 75 Percent Tax For Top Earners (Iowa Public Radio)

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Tony Nitti, A Tax On Cycling: Too Steep A Hill To Climb Or Just Around The Corner?  With talk of replacing gas taxes with mileage charges based, presumably, on tracking your whereabouts, it’s not surprising that they want to tax any alternatives to cars.

 

 

 

 

TaxProf, The IRS Scandal, Day 235

Jack Townsend, Judge’s Improper Question of Defendant as Witness is not Reversible 

 

That’s the only way the team overachieved.  St. Louis Rams say they collected too much ticket sales tax (Kay Bell)

 

Oh, this will end well.  “The Game: I’m a pot-smokin’ Tax Fraud“ (TMZ).  The first rule of Tax Fraud Club: don’t talk about Tax Fraud Club.

TaxGrrrl takes a look at Mr. Game’s tax claims in  Game Offers Tax Advice To Rappers: Write Off Strippers, Sneaks And Medical Marijuana:

Next, those Jordans. Clothing is deductible if the only purpose of the clothing/uniform is for business purposes (meaning that you must wear them as a condition of employment) and not suitable for everyday use. Clothing is not deductible if you could wear it outside of your workplace (even if you don’t). Those Jordans? Not merely for business purposes. And Game would totally wear them outside of business. 

In case you’re wondering, rappers are not required to take any tax continuing education.

 

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Tax Roundup, 12/19/2013: Government finally to stop promoting identity theft. And more year-end tips!

Thursday, December 19th, 2013 by Joe Kristan

DMFGovernment shuts down identity theft enabling operation: its own.  The budget compromise headed to the President’s death places new restrictions on the Social Security Death Master File.  While prized by genealogists for their work, it’s prized even more by thieves, who use the information on it to snap up fraudulent tax refunds in the names of the dead.  It’s been a multi-billion dollar problem for years.

The person who stole the identity of the late husband of Jason Dinesen’s client almost certainly did so using DMF information, stealing unknown amounts from the government and disrupting the client’s tax life for years.

Bloomberg Business explains the new restrictions:

The legislation would exempt the records from the federal Freedom of Information Act and give the Commerce Department 90 days to set up a process to certify legitimate users. The public would have access to the data three years after an individual’s death.

The language in the bill was taken from a Senate Finance Committee draft from which lawmakers had asked for comment by mid-January, said Alane Dent, vice president for taxes and retirement security at the American Council of Life Insurers.

While the restrictions seem long overdue, not everyone is happy about them, aside from identity thieves.  Newsweek reports:

“Closing the Death Master File is ludicrous,” said Melinde Lutz Byrne, one of the nation’s top genealogists and part of a small group of forensic researchers at Boston University. They have banded together and for two years have fought similar proposals in Texas and Florida to block public access to the Death Master File.

“It is my opinion that the science of it all has bypassed our elected representatives and even the courts,” she said.

It’s a trade-off, but I think preventing fraud deserves priority here.  Still, the objectors are right about this:

“The IRS is handing out money like candy – and nobody wants to acknowledge it,” said Sharon Sergeant, a forensic researcher, technologist and tax-software programmer who strongly supports the Boston University group. “Why isn’t it checking to make sure dead people aren’t getting tax returns? Somebody who reads the obituaries and makes up a social security number the right way, according to the algorithm, can file a tax return and get a payment. It’s got nothing to do with the Death Master File. It has everything to do with the IRS not doing its job.”

But The Worst Commissioner Ever felt it was more important to expand power over preparers than to stop the thieves.

 

2013 year-end tip: Donate your appreciated stock now!  The tax law allows you to claim a full-value charitable deduction for donating appreciated long-term capital gain securities that are publicly-traded.  It’s a tax-efficient way to donate, as you get the full deduction without ever paying tax on the appreciation.

But there is a hitch: you have to get the stock to your favorite charity’s brokerage account by December 31 to get the deduction.  That can take time, especially when dealing with less-sophisticated smaller charities.  If you want a 2013 deduction, start by contacting the charity and learning how they want you to get the securities to them by year-end. Remind the charity that they need to provide you a written acknowledgement of the gift.  And make sure your own broker knows the transfer has to be completed this year.

Come back tomorrow for another 2013 year-end tax tip!

 

20120906-1Just bluffing.  ”Archer Daniels Midland Co. decided Wednesday to set up its new international headquarters in Chicago even after it failed in its bid for millions of dollars in state tax breaks.”  Next time our politicians claim to have “created jobs” by giving away your money, remember that they are giving their friends money to do things they would be doing anyway.

 

 

Cara Griffith, The Tax Reform Debate…for a Limited Few in Wisconsin (Tax Analysts Blog):

What was advertised as an “outstanding opportunity for the hardworking taxpayers” to engage in discussions about tax reform are also closed to the public…

Making tax proposals available to the public and opening up a dialogue with affected taxpayers can be eye-opening for people who will eventually have to develop and administer the proposal. If tax legislation is enacted, those who wrote the legislation, those who will enforce it, and those who will be affected by it should all understand what the legislation was designed to do. 

Politicians and their friends don’t like company.

 

Christopher Bergin, Transparency Is in Our DNA (Tax Analysts Blog):

Tax Analysts is involved in litigation in the commonwealth of Kentucky to get its Department of Revenue to begin releasing redacted copies of final letter rulings. The agency is resisting that, which is why we are in court.

Bureaucrats and their friends don’t like company either.

 

Chris Stephens, Pressure Mounts Against “Jock Tax” in Tennessee (Tax Policy Blog):

For example, a player at the NBA league minimum of $500,000 who is paid per game would make about $6,097 per game. If the player plays only one game in Tennessee he would pay a tax of $2,500 for that game, which is a tax rate of 41 percent. It is also worth noting that the player would also pay approximately 40 percent in federal income taxes, potentially leaving almost nothing in take home pay.

The states that want to pick the stars’ pockets forget that not everybody is paid like LeBron.  Unfortunately, the federal proposal to prevent state income taxation of employees only in-state for a few days doesn’t cover athletes or entertainers, treating the couch-surfing musician the same as Peyton Manning.

 

20111040logoTaxGrrrl, IRS Finally Announces Start Date To 2014 Tax Filing Season  Filing season starts January 31.

Paul Neiffer,  Tax Filing Begins January 31, 2014

Jason Dinesen, Six Things I’m Talking to My Small Business Clients About at Year-End (Part 1)   

Tony Nitti, With Tax Break Set To Expire, Partnerships Should Consider Converting To C Corporations Before Year End.  This is a 100% exemption on gains for C corporation stock received on original issue held for at least five years.

Kay Bell,  Homeownership tax breaks to take in December

Robert D. Flach, WHAT’S NEW FOR NEW YORK INCOME TAXES FOR 2013

Margaret Van Houten, How to Maintain Records for your Digital Assets  (Davis Brown Tax Law Blog)

 

Janet Novack, Minus Taxes And Hype, $636 Million Jackpot Shrinks To $206 Million — Or Less 

Jim Maule, Let’s Not Extend The Practice of Tax Extenders.  Agreed.

Stephen Olsen, The “IRS Investigations” Scam.  A client he helped through the OVDI “amnesty” program gets targeting by a scammer.  Troubling.

Jack Townsend, Judge Rakoff Speaks on the Dearth of Prosecutions from the Financial Crisis   He quotes the judge: “But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.”

It’s at least as much political fraud as financial fraud, but political fraud is never prosecuted.

 

Tax Justice Blog, Murray-Ryan Budget Deal Avoids Government Shut down but Does Not Close a Single Tax Loophole, Leaves Many Problems in Place

TaxProf, The IRS Scandal, Day 224

 

News from the Profession: Future CPA Seeking the Best CPA Review Course Someone Else’s Money Can Buy (Going Concern)

 

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Tax Roundup, 12/18/2013: Have you made your College Savings Iowa gift? And: la loi, c’est IRS!

Wednesday, December 18th, 2013 by Joe Kristan


csi logo
Year-end is sneaking up on us.
 So it doesn’t catch us completely unawares, the Tax Update will provide a year-end idea each day through December 31.  Today we pass on a reminder that Iowans can deduct contributions to College Savings Iowa, the state’s Section 529 college savings plan, on their Iowa 1040s — but only if they fund their contributions before year-end.  From the State Treasurer:

Contributions to College Savings Iowa must be made by the end of the year to qualify for the 2013 Iowa state tax deduction. Account holders can deduct up to $3,045 for each open account and can contribute online at www.collegesavingsiowa.com.* Contributions sent by mail must postmark checks by December 31, 2013.

College Savings Iowa lets anyone – parents, grandparents, friends and relatives – invest for college on behalf of a child.  Investors do not need to be a state resident and can withdraw their investments tax-free to pay for qualified higher education expenses including tuition, books, supplies and room and board at any eligible college, university, community college or accredited technical training school in the United Sates or abroad.

It’s a great way to help your kids start out in life without a big student loan.

William Perez is doing yeoman’s work on year-end planning at his place; today he has Donating Cash to Charity at Year-End.  

Kay Bell offers Donating appreciated assets to your favorite charity

 

45R credit chartLa Loi, C’est IRS.  It’s not surprising that the IRS would disregard mere vendor rules when it believes it can pass out tax credits to taxpayers who clearly don’t qualify.  That’s exactly what they did yesterday when they announced that it will allow the (ridiculously complex) Sec. 45R small employer health insurance credit in Washington and Wisconsin in 2014, even though those states won’t have the required “Small Business Health Options Program” exchange in place.

The Code clearly requires allows the credit only to employers buying through the exchange starting in 2014, but the IRS has granted “transition relief” waiving that requirement.  Heck, why not just grant the credit to anybody who just has “health” next year.  You know, as a transition rule.

 

No.  Is Obamacare Really an Improvement on the Status Quo?  (Megan McArdle).  ”Bob Laszewski, an insurance industry expert who has become the go-to guy for the news media on the rollout of the Patient Protection and Affordable Care Act (because the insurance industry is extremely reluctant to talk), tells the Weekly Standard that he thinks come Jan. 1, more people will have lost private insurance than gained it…”

 

William McBride, Economists Find Eliminating the Corporate Tax Would Raise Welfare (Tax Policy Blog).  That’s why the Tax Update’s Quick and Dirty Iowa Tax Reform Plan does just that.

 

 

TIGTALeft hand, meet right hand.   The Treasury Inspector General for Tax Administration reports “IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt“:

Federal law generally prohibits agencies from contracting with businesses that have unpaid Federal tax liabilities.

TIGTA reviewed the IRS’s controls over the integrity and validity of vendors receiving payments from the IRS, including the vendor’s tax compliance and suspension and debarment status. TIGTA also reviewed controls over the IRS’s Vendor Master File (VMF), which contains information about vendors that enables them to do business with the IRS.

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 IRS vendors (7 percent) had a combined $589 million of Federal tax debt as of July 2012, the most recent data for which information was available at the time TIGTA conducted the review. Few of the vendors had a current tax payment plan.

That means the IRS breaks its own rules in dealing with about one out of 15 of its vendors — another instance where the IRS breaks the rules with no consequence.  A “Sauce for the Gander” rule, one that would penalize IRS personnel who break rules just like they do for taxpayers, might help here.

 

Sometimes the IRS gets it right.  IRS Provided Some Good Tips this Morning (Russ Fox)

 

Tony Nitti, Tax Geek Tuesday: Profits Interests, Capital Interests, And Restricted Property:

 

In Crescent Holdings v. Commissioner 141 T.C. 15 (2013), the Tax Court doled out three lessons every tax advisor con learn from:

 

  1. How to differentiate between a profits interest and a capital interest in a partnership.

  2. Section 83 applies to the grant of a capital interest,

  3. If a capital interested in a partnership has not yet vested under the meaning of Section 83, the recipient should not be allocated any undistributed income from the partnership.

  4. The income allocable to an unvested capital interest granted by a partnership must be allocated to the remaining partners of the partnership.

Good stuff.

 

TaxProf, Billionaires’ Use of Zeroed-Out GRATs Blows $100 Billion Hole in Estate Tax.  Paul Caron quotes a Forbes article.

Jack Townsend, Raoul Weil Has First U.S. Court Appearance

TaxGrrrl, 12 Days Of Charitable Giving 2013: Sow Much Good

 

 

Robert D. FlachWOULDN’T IT BE NICE.  He discusses the new IRS Commissioner nominee and asks,  ”Wouldn’t it be great to have a person who had actually prepared tax returns for a living in the position?”  What, and have somebody who actually knows something?

20131211-1Robert has a thing about the Tea Party, but I suspect even he would Follow the Tea Party on Stadium Financing Issues (David Brunori, Tax Analysts Blog):

The Atlanta Braves are planning to move their stadium to the suburbs. The Braves blackmailed, threatened, and coerced the backboneless politicians in Cobb County, Ga., to pay for the stadium… As far as I can tell, the only organization to have put up any fight against this insane corporate welfare is the Atlanta Tea Party.”

When the Tea Party movement sticks to the fight for smaller government, there’s a lot to like there.

 

 

Tax Justice Blog, Income Tax Deductions for Sales Taxes: A Step Away from Tax Fairness

Joseph Thorndike, When Is a “Fee” Actually a Tax? When Politicians Say It Isn’t (Tax Analysts Blog)

Peter Reilly,  How To Tax Kody Brown And The Sister Wives And Other Polygamous Families?  He quotes my Twitter feed.  If Peter follows @joebwan, maybe you should too!

 

News From the Profession.  There’s a Hidden Deloitte Auditor in the Airport Cell Phone Crasher Video Making the Rounds (Going Concern)

 

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Tax Roundup, 12/16/2013: Ames! And: if you’re explaining, you’re losing.

Monday, December 16th, 2013 by Joe Kristan

It’s a cold day In Ames, Iowa, but it’s toasty warm with 315 or so eager participants in the last session of this year’s ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools!  

20131216-1

The Ames Crowd!

It’s a fun school, with lots of good attendees with great, challenging questions.  I’ve enjoyed working on the Day 1 panel with emcee Roger McEowen and IRS Taxpayer Liason Kristy Maitre

 

20120906-1“In economic development, if you’re explaining, you’re losing.”  An article at WCFcourier.com makes an often-overlooked point about how economic development spiffs that complicate the tax law end up backfiring:

A simpler tax system may top all other requests from the business groups, said Steve Firman, director of government relations for the Greater Cedar Valley Alliance and Chamber.

Firman pointed out that Iowa ranked 40th among states in the Tax Foundation’s 2014 tax climate comparisons because it is tough to explain the complexity of federal deductibility that blurs Iowa’s true tax picture.

Firman, explaining his position, pulled out a line he said he likes to use:

“In economic development, if you’re explaining, you’re losing,” he said.

Iowa’s byzantine tax system, with its dozens of special breaks, requires a lot of explaining.  The Tax Update’s Quick and Dirty Tax Reform Plan, with low individual rates and no corporate tax, would be a much better sell.

 

William Gale,  The Year in Taxes: From the Fiscal Cliff to Tax Reform Talks (TaxVox):

Although Camp and Baucus do not appear to have reached agreement on how much revenue should be raised or on how to raise it, the two leaders have nonetheless raised some interesting ideas. But the sorry state of tax reform can probably best be summed up by a small business owner who attended the New Jersey stop of a listening tour that the two chairmen held last summer. She urged the two leaders to “get rid of the deductions that don’t affect me.” As long as that attitude prevails, meaningful tax reform will not happen.

The same dynamic is at work in Iowa.

 

TaxGrrrl, Budget Faces Challenge From Senators Wary Of Spending, User Fees To Taxpayers   

William Perez, Use Fundsin a Health Care Flexible Spending Account (Year-End Tax Tips)

Kay Bell, Tax deductible mileage rate drops a half-cent in 2014

Annette Nellen, What’s My Rate? Challenges of Understanding 2013 Federal Taxes

Paul Neiffer, How Many 2013 Tax Brackets

 

IrwinIrwinIrwinirwin.jpgPeter Reilly, Euro Pacific Capital’s Peter Schiff Defends His Tax Protesting Father Irwin Schiff   Peter has a lot of interesting background on tax protester Irwin and his controversial, but much more prudent, son. And: “I can’t blame Peter Schiff for sticking up for his dad.  I would too, if I still had one.”

 

 

Irwin

TaxProf, The IRS Scandal, Day 221

Jack Townsend, Article on New Sentencing Guidelines on Unclaimed Deductions and Credits

 

Robert Rizzo

Robert Rizzo

Russ Fox, Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems:

 In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.ta

Just a humble public servant.

 

News from the Professon:  Grant Thornton Employees Break Out Dynamic Christmas Sweaters for Holiday Party

Jason Dinesen,  North Dakota Taxes, Same-Sex Marriage, And a Really Bizarre Twist 

The party’s over.  Unemployed German couple accused of tax fraud after caught hosting sex parties.   They had a $250, er, cover charge.

 

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Tax Roundup, 12/13/13: Government by Connections edition. And how not to butter up your tax evasion judge.

Friday, December 13th, 2013 by Joe Kristan

20121220-120120906-1A Des Moines Register report on the introduction of the new ownership of the Iowa Speedway in Newton tells us how things work in Iowa:

No one needed super sleuth Sherlock Holmes to figure out one of the first priorities of NASCAR as the new owners of Iowa Speedway introduced themselves Thursday during a press conference.

Three Iowa legislators were parked front and center in a reserved seating area. Multiple times during the news conference, officials thanked Sen. Bill Dotzler and Representatives Dan Kelley and Rob Taylor.

When the event sprinted toward its own finish line, only the trio with desks at the statehouse were publicly asked to jump on stage for a photo with new track president Jimmy Small.

So why do our humble public servants get to hang with big NASCAR celebrities?   Because the ownership group that bought the speedway doesn’t qualify for the special corporate welfare that the legislature enacted just for the speedway a few years ago, and they want it re-enacted:

The law, as it stands, requires Iowa-based ownership. So the spigot that delivers that sales tax benefit, which Dotzler estimates at about $4 million to date, is being shut off as NASCAR grabs the steering wheel.

Dotzler promised to reintroduce the measure when the legislative session roars to life on Jan. 13, adding that he would support extending it beyond the original end date of 2016.

Government by special favor.  And who benefits?  NASCAR is a private company owned by a very wealthy family — one that evidently knows how to play the connections game.    Meanwhile the guy running the pizza joint, the real estate office, the implement dealership, he gets a horribly complicated Iowa tax system with high rates to pay for lots of loopholes for other people.  He gets automatic penalties for every honest mistake made in attempting to comply with this byzantine system.  But hey, NASCAR!

The legislature is just too darn busy to find a way to enact a simple tax system with low rates and low compliance costs for everybody.  But they have plenty of time to go to a press conference to sell a special tax break for a single wealthy out-of-state family.  Priorities.

 

William Perez has been cranking out lots of good stuff lately, including today’s Donating an IRA as a Year-End Tax Strategy.

Margaret Van Houten,  Do your Digital Assets have Value? Are they Important? (Davis Brown Tax Law Blog).  Don’t leave the heirs without the password to your Bitcoin vault.

 

20130419-1Christopher Bergin, Walk the Talk: The IRS Needs a Chief Who Supports Transparency (Tax Analysts Bl0g).  And by that, he means for the IRS, not just for us.

Tax Justice Blog,  New CTJ Report: Congress Should Offset the Cost of the “Tax Extenders,” or Not Enact Them At All.  I like the second alternative best.

Janet Novack,  Congressional Work Undone: Lapse Of Tax Credits Will Hit Job Creators 

Roberton Williams, Where Are Tax Rates Headed? (TaxVox)

 

If you like your kludge, you can keep it.  Obamacare’s Never-Ending Fix-a-Thon (Megan McArdle)

 

TaxProf, The IRS Scandal, Day 218.  ”IRS Targeting: Round Two; The First Time Around, Targeting Conservatives Was a Secret. Now, Not So Much

Jack Townsend, Judge Rakoff, the Wegelin judge, Is Interviewed on the U.S. Initiative Against Swiss Banks

Phil HodgenRenunciation trends in Auckland ”I received an email yesterday from a contact in New Zealand. Renunciations in the Auckland Consulate are apparently way, way up compared to last year.”

Stephen Olsen, Preparer Knappe(s) on the job: Delinquency Penalties, Advisors, and Reasonable Cause (Part 2 — I Finally Get to my point on Thouron). (Procedurally Taxing)

Get your friday Buzz! from Robert D. Flach!

 

ShockerGAO: IRS Lacks Adequate Internal Controls (TaxProf).  Maybe the $5 billion in annual refund fraud tipped them off.

Woo-hoo!  Tax and other fun at deductible office holiday parties (Kay Bell)

News from the Profession.  Aren’t You GLAD For This McGLADrey Holiday Card? (Going Concern)


OtterThe Otter legal strategy.  A tax protester in Texas decided that his already slim chances in federal court would be helped by a really stupid and futile gesture.  It went as you might expect, reports Courthouse News Service:

It took a federal jury just one hour of deliberation to convict a Texas man of hiring a hit man to try to murder the federal judge presiding over his tax-evasion case.

Phillip Monroe Ballard, 72, of Fort Worth, was convicted Wednesday of attempted murder-for-hire, after a two-day trial. He faces up to 20 years in prison.

It’s not the first time a tax protester has tried to improve his case by going after the judge.  If it worked, though, that would have been a first.

 

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Tax Roundup, 12/12/13: Take the $20 million edition. And: Grassley says extenders will pass in 2014.

Thursday, December 12th, 2013 by Joe Kristan

 

20131212-1Next time, take the cash.  A corporation decided a tax deduction from walking away from securities it had paid $98.6 million for would be worth more than the $20 million in cash it had been offered for them.  The Tax Court yesterday told them that they made a big mistake.

Gold Kist, Inc. bought the securities issued by Southern States Cooperative, Inc. and Southern States Capital Trust in 1999.  The issuers offered to redeem the securities from Gold Kist in 2004 for $20 million.  (Gold Kist was later acquired by Pilgrims Pride Corp, which inherited Gold Kist’s tax history.)

Gold Kist believed that it would get an ordinary loss deduction if it simply abandoned the securities, vs. a capital loss on the sale.  Ordinary losses are fully deductible, while corporate capital losses are only deductible against capital gains, and they expire after five years.    A $98.6 million ordinary loss would be worth about $34.5 million in tax savings, which would be worth more than $20 million cash and a capital loss, which can only offset capital gains, and only those incurred in the nine-year period beginning in the third tax year before the loss.

Unfortunately, the Tax Court found a flaw in the plan: Sec. 1234A.  It reads:

§ 1234A – Gains or losses from certain terminations
Gain or loss attributable to the cancellation, lapse, expiration, or other termination of—

(1) a right or obligation (other than a securities futures contract, as defined in section 1234B) with respect to property which is (or on acquisition would be) a capital asset in the hands of the taxpayer, or

(2) a section 1256 contract (as defined in section 1256) not described in paragraph (1) which is a capital asset in the hands of the taxpayer,

shall be treated as gain or loss from the sale of a capital asset. The preceding sentence shall not apply to the retirement of any debt instrument (whether or not through a trust or other participation arrangement).

The taxpayer said that Sec. 1234A didn’t apply, according to the court:

Petitioner’s primary position is that the phrase “right or obligation with respect to property” means a contractual and other derivative right or obligation with respect to property and not the inherent property rights and obligations arising from the ownership of the property. We disagree.

The taxpayer said the legislative history of the section supported their argument.  The Tax Court thought otherwise:

In our view Congress extended the application of section 1234A to terminations of all rights and obligations with respect to property that is a capital asset in the hands of the taxpayer or would be if acquired by the taxpayer, including not only derivative contract rights but also property rights arising from the ownership of the property. 

The taxpayer also said that if that’s what Congress meant, the IRS would have revised Rev. Rul. 93-80, which allows an ordinary loss on certain abandonments of partnership interests.  The Tax Court responded:

The ruling makes clear that, if a provision of the Code requires the transaction to be treated as a sale or exchange, such as when there is a deemed distribution attributable to the reduction in the partner’s share of partnership liabilities pursuant to section 752(b), the partner’s loss is capital. Rev. Rul. 93-80, supra, was issued four years before section 1234A was amended in 1997 to apply to all property that is (or would be if acquired) a capital asset in the hands of the taxpayer. As we previously stated, the Commissioner is not required to assert a particular position as soon as the statute authorizes such an interpretation, whether that position is taken in a regulation or in a revenue ruling. 

So it’s a capital loss only for the taxpayer.

Presumably the Gold Kist board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

Cite: Pilgrim’s Pride Corp, 141 TC No. 17.

 

Grassley-090507-18363- 0032Quad City Times reports Grassley predicts tax credits extensions, but not until 2014:

 There won’t be any extension before Christmas, Grassley predicted, but not because of political opposition to the credits. Based on past performance, he said, Congress will return after the New Year and approve four dozen or more tax credits.

“There are a lot of economic interests” represented in the tax credits, he said. Those interest groups collectively “put a lot of pressure on Congress to re-institute the credits.”

The delay, Grassley said, can be attributed to the ongoing discussion about “massive tax reform.”

Senator Grassley has more insight about what will happen than I do, but I can”t share his faith that the lobbyists will overcome Congressional dysfunction.  I had hoped any extenders would be included in the budget deal announced this week, and they weren’t.

Actually, I would prefer that the extenders not be extended at all rather than passed temporarily once again.   The whole process of passing temporary tax breaks is a brazen accounting lie.  Congressional budget rules score temporary provisions as if they will really expire, even when they have been extended every time they expire.  Once again, behavior that would lead to prison in the private sector is just another day in Congress.

 

Roberton Williams, Budget Deal Doesn’t Raise Taxes But Many Will Still Pay More:

The budget deal announced Tuesday wouldn’t raise taxes—members of Congress can vote for it without violating their no-tax pledges. But the plan will collect billions of dollars in new revenue by boosting fees and increasing workers’ contributions to the Federal Employee Retirement System (FERS). To people paying them, those higher fees and payments will feel a lot like tax hikes. 

 

David Brunori, States Should Just Say No to Boeing (Tax Analysts Blog):

Boeing is acting rationally — politicians are willing to give things away, and Boeing is willing to accept those things. But politicians should try saying no once in a while. Maybe we would respect them a little more.

Well, it would be hard to respect them less.

 

 

Source: The Tax Foundation

Source: The Tax Foundation

William McBride, Obama: Cut the Corporate Tax Rate to Help the Poor (Tax Policy Blog):

Indeed, cutting the corporate tax rate is probably the best way to increase hiring and grow wages. The President cited no studies to support this, because it is not really in dispute among economists. So why not cut the corporate rate, period, without any conditions or offsetting corporate tax increases elsewhere?

Corporate rate cuts would be a good thing, but don’t forget that most business income nowadays is reported on individual returns.

 

Joseph Thorndike, Congress Is Making a Bad Deal on the Budget, but One Republican Has a Better Idea (Tax Analysts Blog)

It’s amazing what passes for success in Washington these days. Budget negotiators on Capitol Hill have delivered a non-disaster, cobbling together a pathetic half-measure that pleases no one and accomplishes almost nothing.

True, it allows Democrats and Republicans to avoid abject failure, which is no small thing, given recent history. These days, just keeping the wheels from flying off qualifies as statesmanship.

Considering what happens when Congress “accomplishes” something (Obamacare, anyone?), let us praise them for doing as little as possible.

 

Robert D. Flach has wise counsel for clients:  PUT IT IN WRITING.

So if you have a tax question you want to ask your preparer, instead of picking up the phone submit the question in an email, with all the pertinent facts.  And if you receive a notice from the IRS or your state, mail it to your tax pro immediately.

Yes.

 

William Perez, Donating Appreciated Securities to Charity as a Year-End Tax Strategy

Paul Neiffer, Is it Time for an IC-DISC.  If you produce for export, an IC-DISC can turn some ordinary income into dividend income, taxed at a lower rate.

Tony Nitti, IRS The Latest To Send Manny Pacquiao To The Mat: Boxer Reportedly Owes $18 Million

Kyle Pomerleau, Senator Baucus’s Plan for Cost Recovery Heads in the Wrong Direction

TaxProf, The IRS Scandal, Day 217

Cara Griffith, Improving the Transparency of New York’s Tax Collection Process (Tax Analysts Blog)

Jack Townsend, Are Brady Violations Epidemic?  A federal appeals judge says prosecutors routinely withhold evidence that would help defendants.

 

News from the Profession: The PCAOB Is Grateful To The PCAOB For the PCAOB’s Work (Going Concern)

 

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Tax Roundup, 12/11/13: Iowa DOT restricts revenue cameras. And: whither extenders?

Wednesday, December 11th, 2013 by Joe Kristan


gatso
Department of Transportation enacts tax reduction.  
From the Des Moines Register:

Cities and counties would have to prove the need for traffic enforcement cameras on major highways under rules approved Tuesday by the Iowa Transportation Commission.

The new rules — which could take effect as early as February — would force a re-evaluation of all speeding and red-light cameras now placed on interstate highways, U.S. highways and state highways and require any new cameras to first win the Department of Transportation’s approval.

It’s not clear what effect this will have on the revenue cameras, like the one on Eastbound I-235 by Waveland Golf Course, but given the howls from the affected municipal pickpockets who profit from the cameras in the runup to the rules, I suspect it means fewer cameras.   The municipalities like their tax on passing motorists, at least those who aren’t “special.”

Of course they always invoke safety, in spite of inconclusive or contradictory evidence.  But if it really were about safety, you would see them experimenting with other solutions, like all-red phases at red lights and longer yellows.   When they have to say it’s not about the money, it’s about the money.

 

Howard Gleckman,  Whither the Tax Extenders? (TaxVox):

If published reports are correct–and if the deal does not fall apart–Congress would partially replace the hated automatic across-the-board spending cuts (the sequester) with more traditional targets for each federal agency. In effect, it would freeze discretionary spending at about $1 trillion-a-year for the next two years. Without a new agreement the 2014 level would be $967 billion.

The deal would replace the sequester cuts with a grab-bag of other reductions in planned spending and a bunch of increased fees for airline travelers and others.

But the “t” word will go unspoken in this agreement. There will reportedly be no tax hikes in the bargain. But neither will there be a continuation of expiring provisions. And there is no chance they will be extended in any other bill in calendar 2013.

That likely means no action on the “expiring provisions” until after the 2014 elections.  That means we might not know whether a bunch of tax breaks we have gotten used to will be extended into 2014 until next December, or maybe even later.  A few of the biggies:

  • The Section 179 limit on expensing otherwise depreciable property falls to $25,000 next year, from the current $500,000, absent an extender bill.
  • 50% bonus depreciation goes away.
  • The research credit disappears, as do a bunch of biofuel and wind credits.
  • The current five-year “recognition period” for built-in gains in S corporations goes back to ten years, from the current five-year period.

My money is still on an extension of these provisions, effective January 1, 2014, even if enacted later, but my confidence is wavering.

 

20121220-3William Perez, Selling Profitable Investments as Part of a Year-End Tax Strategy. “Taxpayers in the two lowest tax brackets of 10% and 15% may especially want to consider selling profitable long-term investments.”  Why?  Zero taxes on capital gains, as William explains.

Tony Nitti, Tax Geek Tuesday: Tax Treatment of Commuting Costs   

Kay Bell, Standard tax deduction amounts bumped up for 2014

Jana Luttenegger, 2014 Mileage Rates (Davis Brown Tax Law Blog)

Jason Dinesen, Philosophical Question About Section 108, Principal Residences and Cancelled Debt  “My question is. what if the homeowner moves out before the foreclosure process is complete?”

TaxGrrrl, You’re A Mean One, Mr. Grinch: Christmas Tree Tax Proposal Returns 

Russ Fox,  Bank Notice on IRS Tax Refund Fraud.  ”While I salute the IRS (and the banks) for doing something, this effort is equivalent to patching one hole in a roof that has over a hundred leaks.”

Robert D. Flach offers SOME GOOD CONVERSATIONS ON TAX PROFESSIONAL ISSUES

 

 

Leslie Book,  TEFRA and Affected Items Notices of Deficiency (Procedurally Taxing).  ”In this post, I will attempt to give readers a map as to how IRS can move from shamming a partnership-based tax shelter to assessing tax against the partner or partners that were attempting to game the system.”

 

Kyle Pomerleau, High Income Households Paid an Effective Tax Rate 16 times Higher than Low Income Households in 2010 (Tax Policy Blog).  He provides more commentary on a recent Congressional Budget Office report (my emphasis):

In 2010, the average effective tax rate for all households was 18.1 percent. This is the average combined effective rate of individual income taxes, social security taxes, corporate income taxes, and excise taxes. The top income quintile paid an average effective tax rate of 24 percent.  The lowest quintile had an average effective rate of 1.5 percent. The top quintile’s effective tax rate of 24 percent is 16 times higher than 1.5 percent for those in the lowest quintile.

cbo rates by income group

This is why any federal tax cut “disproportionately benefits the wealthy.”  You can only cut taxes for people who pay taxes.

 

The Critical Question: When Does the Conspiracy End? (Jack Townsend)

News from the Profession: Deloitte Associate Exercises Powers of Persuasion; Scores Firm-Subsidized Xbox One (Going Concern)

 

20131211-1Atlanta county gives money to prosperous media company.  Cobb County, Future Home of the Atlanta Braves, Strikes Out (Elia Peterson, Tax Policy Blog, my emphasis):

The county is projected to have to finance around $300 million for the development.  This includes a one-time $14 million transportation improvement subsidy, a $10 million commitment from the Cumberland Community Improvement District (CID), and payments worth $276 million of a bond issue. The bonds are financed by redirecting funds from two existing taxes (hotel & property taxes) and creating three new revenue sources (a rental car tax, a property tax in the Cumberland CID, and a hotel fee) combined to the tune of $17.9 million annually for the next 30 years.

Liberty Media, the owner of the Braves, despite being a very successful company (owning stakes in SiriusXM, Barnes & Noble, and Time Warner) had their investment subsidized by Cobb County taxpayers. Liberty Media retains most of the rights to the stadium and profits while Cobb County gets next to nothing except the promise of “surefire” economic development (the city won’t even be allowed access to the stadium they built except for special occasions).

Build it and you can’t come!

 

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Tax Roundup, 12/9/2013: Denison! And 56 cents a mile for 2014.

Monday, December 9th, 2013 by Joe Kristan

The Tax Update is in sunny, but very cold, Denison, Iowa today.

20131209-1

I’m participating in the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School here.  The only remaining session is in Ames next Monday, so register now!

 

The IRS has issued updated standard mileage rates for 2014:

- 56 cents for business travel (down from 56.5 cents for 2013);

- 23.5 cents for medical travel;

- 14 cents for charitable travel.

Gas is down.  (Notice 2013-80)

Related: Paul Neiffer, IRS Almosts Eliminates the 1/2 cent

 

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

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

Mickey Kaus, Big Obamacare payoff for tax cheats?:

Doesn’t Obamacare create a big new incentive to fudge your income on your tax returns? The subsidies available on the health care exchanges seem to be based on adjusted gross income (line 37 on Form 1040)– and there’s a huge, conspicuous difference between the subsidy available at, say, a $25,000 income and a $46,000 income. (The subsidy cutoff of is $45,960 for a single person). In California, for the “bronze” policy I’m interested in, at $46,000 I’d pay $507 a month. At $25,000 I’d pay … $63. A difference of $444 a month.

I have mentioned quite often the high hidden marginal rates caused by the phase-out of the earned income tax credit.  The Obamacare subsidy phase-outs worsen this.  The government pays you to stay poor, or to cheat on your taxes if you aren’t poor anymore.  You get what you pay for. (via Instapundit)

William Perez,  Year End Review of Choice of Business Entity. “There is definitely no one-size-fits-all answer when it comes to deciding on an appropriate tax structure for a business.”

Margaret Van Houten, What our Estate Planning Clients Need To Know – What are Digital Assets? (Davis Brown Tax Law Blog).  On the importance of including “digital assets” in your estate planning.

Kay Bell,  Freezing? Home improvements provide warmth, tax savings

Jason Dinesen, Colorado Tax Guidance for Same-Sex Marriage 

Tony Nitti, IRS Addresses Deductibilty Of Organizational And Start-Up Costs Upon Partnership Technical Termination 

 

 

Lyman Stone, Missouri Gives In With $2 Billion Incentive to Boeing.  Missouri taxes its residents and existing businesses to give cash to an insider with good lobbyists.

How do you know that the new proposed 501(c)(4) regulations are designed to silence right-side speech?  The left-side advocacy groups have dropped their lawsuit demanding the IRS enact regulations to silence right-side speech (Huffington Post).

TaxProf, The IRS Scandal, Day 214 and Smith: The Latest IRS Power Grab

Robert D. Flach, HERE’S A THOUGHT – A FEW MORE CENTS ON A VOLUNTARY CREDENTIAL FOR TAX PROS.  ”If the IRS does not decide to go ahead with a voluntary RTRP program after it loses the appeal of Loving v IRS, I have proposed an independent industry-based organization to administer a voluntary RTRP-like tax preparer credential in my ACCOUNTING TODAY editorial ‘It’s Time for Independent Certification for Tax Preparers. ”  It would be an improvement over the IRS system.

Peter Reilly, Cigarette Importer Sees $300M Deduction Go Up In Smoke   

 

 

Greg Mankiw, The Progressivity of the Current Tax Code :

20131209-2

 

Jack Townsend,  Swiss Banks Scrambling to Commit to Participation in U.S.Swiss Bank Initiative

TaxGrrrl, IRS To Rapper: It’s Hammertime!  Remember M.C. Hammer?  The IRS does, even if you don’t.

 

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Tax Roundup, 12/6/2013: Fools Gold Edition. And: corporations can have their identity stolen too!

Friday, December 6th, 2013 by Joe Kristan


20131206-1
We’ve all had narrow misses with bad ideas.  For example, the general manager of the Yankees and Red Sox owner went out drinking and negotiated a trade of Ted Williams for Joe DiMaggio, only to call it off in the light of day.  Think of the time you almost went into business with your brother-in-law.  Fortunately, we usually think better of it in time to avoid disaster.

Not Robert Kahre.  He got this great idea to pay employees in gold and silver coins, which are worth far more than their original face value, while reporting the income and paying taxes at the face value.

Kahre met John Nelson (Nelson), who authored books and taught classes about the IRS and the monetary system, and Nelson’s ideas influenced Kahre to develop the payment system at issue.

According to Kahre, he developed his gold payroll system because the United States government had debauched the national currency and utilized inflation to confiscate the wealth of U.S. citizens. Kahre relied on court cases and the Gold Bullion Coin Act of 1985 that approved gold coins as legal tender. Kahre devised the independent contractor agreements to reflect that the IRS was a foreign agent for the World Bank and the International Monetary Fund (IMF). In Kahre’s view, by collecting taxes for the IRS, employers illegally served as foreign agents for the World Bank and IMF. Kahre relied on several federal statutes, regulations, and “Presidential Documents” in the process of developing his payroll system to avoid the collection of taxes on behalf of foreign agents.

How do you suppose that worked out?  Well, the above description comes from a federal appeals court decision upholding a 190-month prison sentence for Mr. Kahre, if that’s any indication.   More from the decision:

Appellants contend that the district court erred in denying their motions to dismiss the indictments because they did not know that their use of gold and silver coins for payroll payments was illegal under the tax laws. Appellants specifically maintain that the district court’s tax valuation predicated on the fair market value of the gold and silver coins unfairly imputed criminal intent to their unknowing actions.

A footnote helps show why the court wasn’t persuaded (citations omitted, emphasis added.):

Appellants contend that gold and silver coins are statutorily valued at face value. However, this appeal does not really concern the statutory value of gold and silver coins when utilized as legal tender. Instead, this appeal addresses Appellants’ payment of wages in gold and silver coins in a scheme to avoid payroll taxes, as evidenced by the facts that Kahre’s employees were required to immediately return the coins for cash and, that if an employee retained the coins, his wages were reduced by the fair market value of the coins.

Oops.

The moral?  The tax law isn’t required to believe every ridiculous thing you read, and there is no Tax Fairy.

Cite: Kahre, CA-9, NO. 09-10471

 

TIGTAIt’s not just individual identity theft.  TIGTA: IRS Issues $2.3 Billion/Year in Fraudulent Tax Refunds Based on Phony Employer Identification Numbers. (TaxProf). Considering this, and the identity theft epidemic, and their worsening taxpayer service, their wish to devote resources to regulating preparers is hard to take.

 

Now there’s a shocker.  Democrats, liberals pan Gov. Terry Branstad’s flat tax idea (Jason Noble).  If you can’t get the cooperation you need to pass even a half-way plan, you can at least change the terms of the debate by going bold.

 

Jason Dinesen, Stock Losses and Taxes:

Beware of “wash sales.”  A wash sale occurs when you sell stock at a loss and then buy the same stock within 30 days before or after the sale.  (Example:  you sell Stock A at a loss on August 1 and then re-purchase Stock A on August 15.  This is a wash sale and the August 1 loss is not currently deductible but instead adjusts the basis of the stock you purchased on August 15.)

Year-end loss sales are a common tax planning move, but you need to be willing to do without the shares for 30 days.

 

Kay Bell,  Low corporate tax rates don’t guarantee more jobs.  No, but you won’t convince anybody that high corporate taxes help.’

Kyle Pomerleau, New Report on Corporate Income Taxes and Employment Doesn’t Come Close (Tax Policy Blog).  ”Their conclusion is akin to blindly picking two jellybeans from a bag of 1,000, getting two red ones, and then concluding that the rest of the jellybeans in the bag must be red.”

 

Dueling cronyism.  Missouri Lawmakers to Washington: We’ll See Your $8.7 Billion, And… (Tax Justice Blog)

William Perez,  Year End Deduction Strategies for the Self Employed

 Andrew Mitchel,  New Resource Page: Monetary Penalties for Failure to File Common U.S. International Tax Forms.  They’re quite ugly.

 

Elaine Maag,  Analyzing Taxes and Transfers Together (TaxVox)

Keith Fogg,  What is a return – the long slow fight in the bankruptcy courts (Procedurally Taxing)

Jack Townsend,  Economic Substance Uncertainty in Civil Cases

Tax Trials, Supreme Court Adopts IRS Position on Jurisdiction and Application of Partnership Penalties

 

Courtesy Gateway Pundit.

Courtesy Gateway Pundit.

Fiduciary Income Tax Blog,  Valuation of Indirect Ownership Through a Trust

Brian Strahle,  UDITPA REWRITE NECESSARY, BUT WILL STATES LISTEN?

TaxProf, The IRS Scandal, Day 211

 

Robert D. Flach has a meaty Friday Buzz!

TaxGrrrl,  Flushing Out The Toilet Paper Tax Exemption   

News from the Profession.  Former CPA and Procrastinator Ordered By the State to Get Around to Removing “CPA” From All Her Stuff (Going Concern)

 

Happy St. Nicholas Day!

 

 

 

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Tax Roundup, 12/4/2013: Justice Scalia doesn’t believe in the Tax Fairy. And sure, the IRS can run another tax credit!

Wednesday, December 4th, 2013 by Joe Kristan

 

tax fairyThe Supreme Court wrapped a bow around the IRS victories in the turn-of-the-century tax shelter wars by unanimously ruling that the 40% “gross valuation misstatement” penalty applied to a tax understatement caused by the “COBRA” tax shelter.

COBRA relied on contributing long and short currency options to a partnership, but claiming basis for the long position, and ignoring the liability caused by the short position.  The shelter was cooked up in Paul Daugerdas’ tax shelter lab at now-defunct Jenkens & Gilchrist and marketed by Ernst & Young.  The shelter was designed to generate $43.7 million in tax losses for a cash investment of $3.2 million.

COBRA, like so many other shelters of the era,  was ruled a sham and the losses disallowed, but the Fifth Circuit Court of Appeals ruled that the 40% penalty did not apply.  Other circuits ruled that it did, so the Supreme Court took the case to settle the issue.

Writing for a unanimous court, Justice Scalia disposed of the Fifth Circuit’s position (citations omitted, my emphasis):

     In the alternative, Woods argues that any underpayment of tax in this case would be “attributable,” not to the misstatements of outside basis, but rather to the determination that the partnerships were shams — which he describes as an “independent legal ground.”  That is the rationale that the Fifth and Ninth Circuits have adopted for refusing to apply the valuation-misstatement penalty in cases like this, although both courts have voiced doubts about it.

We reject the argument’s premise: The economic substance determination and the basis misstatement are not “independent” of one another. This is not a case where a valuation misstatement is a mere side effect of a sham transaction. Rather, the overstatement of outside basis was the linchpin of the COBRA tax shelter and the mechanism by which Woods and McCombs sought to reduce their taxable income. As Judge Prado observed, in this type of tax shelter, “the basis misstatement and the transaction’s lack of economic substance are inextricably inter twined,” so “attributing the tax underpayment only to the artificiality of the transaction and not to the basis over valuation is making a false distinction.”  In short, the partners underpaid their taxes because they overstated their outside basis, and they overstated their outside basis because the partnerships were shams. We therefore have no difficulty concluding that any underpayment resulting from the COBRA tax shelter is attributable to the partners’ misrepresentation of outside basis (a valuation misstatement). 

tack shelterI see the basis-shifting shelters of the 1990s as elaborate incantations designed to to get the Tax Fairy to magically wish away tax liabilities.  Like any good witch doctor, the shelter designers relied on lots of elaborate hand-waving and dark magic to do their work, and they collected a lot of cash for their work.  But there is no Tax Fairy.  Justice Scalia has let Tax Fairy believers know that pursuing her is not just futile, but potentially very expensive.

 

Cite: United States v. Woods, Sup. Ct. No. 12-562.

The TaxProf has a roundup and an update.  Stephen Olsen weighs in at Procedurally Taxing.

 

 

Blue Book Blues.   One digression by Justice Scalia in Woods is worth a little extra attention.   From the opinion (citations omitted, my emphasis):

Woods contends, however, that a document known as the “Blue Book” compels a different result…Blue Books are prepared by the staff of the Joint Committee on Taxation as commentaries on recently passed tax laws. They are “written after passage of the legislation and therefore d[o] not inform the decisions of the members of Congress who vot[e] in favor of the [law].” While we have relied on similar documents in the past, …our more recent precedents disapprove of that practice. Of course the Blue Book, like a law review article, may be relevant to the extent it is persuasive.

Back in the early national firm days of my career, one of my bosses was a former national firm lobbyist who was exiled to The Field when a merger with another firm left room in Washington for only one lobbyist in the combined firm.  I remember him telling clients that he could get around unpleasantness in the tax code by arranging for helpful language in the Blue Book.  From what Justice Scalia says, he would have done as well by writing a law review article.

Jack Townsend also noticed this.

 

A new tax credit for the IRS to administer.  What could possibly go wrong?  A lot, as the IRS’s experience with the fraud-ridden refundable credits and ID-theft fraud has shown.  Now a new Treasury Inspector General’s report warns that IRS systems aren’t yet prepared to stop premium tax credit fraud under Obamacare, reports Tax Analysts ($link):

EITC error chart     While the IRS has existing practices to address ACA-related fraud, the agency’s approach is not part of an established fraud mitigation strategy for ACA systems, the report says. The IRS has two systems under development to lessen ACA tax refund fraud risk, but until those systems are completed and tested, “TIGTA remains concerned that the IRS’s existing fraud detection system may not be capable of identifying ACA refund fraud or schemes prior to the issuance of tax return refunds,” it says.

IRS Chief Technology Officer Terence Milholland said in a response included in the report that fraud prevention plans will be put in place as ACA systems are released.

The IRS loses $10 billion annually to Earned Income Tax Credit Fraud alone.  This isn’t reassuring.

 

Paul Neiffer, Losses Can Offset Investment Income:

  1. If you have a net capital loss for the year, the regular tax laws limit this loss to $3,000.  The final regulations allow this up to $3,000 loss to offset other investment income.
  2. If you have a passive loss such as Section 1231 losses, as long as that loss is allowed for regular income tax purposes, you will be allowed to offset that against other investment income.
  3. Finally, if you have a net operating loss carry forward that contains some amount of net investment losses, you will be allowed to use that portion of the NOL to offset other investment income.

A big improvement over the propsed regulations.

 

20120920-3Jason Dinesen,  Same-Sex Marriage, IRAs and After-Tax Basis:

It’s clear that for 2013 and going forward, couples in same-sex marriage will only need to apply “married person” rules to IRAs (and to everything else relating to their taxes).

What’s less clear is what happens with differences between federal and state basis for prior years.

 

Robert D. Flach,  A YEAR END TIP FOR MUTUAL FUND INVESTMENTS.  ”If you want to purchase shares in a mutual fund during the fourth quarter of the year, wait until after the capital gain dividend has been issued, and the NAV has dropped, before purchasing the shares.”

 

Janet Novack,  Insurance Agent To Forbes 400 Concedes Understating Taxable Income By $50 Million

David Brunori, Indexing the State Income Tax Brackets Makes Sense (Tax Analysts Blog)

Missouri Rep Paul Curtman (R) wants to index his state’s income tax brackets to inflation. Of all the tax ideas presented this year, this is among the best. Missouri imposes its top rate of 6 percent on all incomes over $9,000. Nine grand was a lot of money in 1931 – and the top tax rate was aimed at the very wealthiest Missourians. But that threshold hasn’t changed since Herbert Hoover was president. 

Or they could just go with one flat rate.

 

TaxProf, The IRS Scandal, Day 209

William McBride, Summary of Baucus Discussion Draft to Reform International Business Taxation (Tax Policy Blog)

Kay Bell, Where do your residential property taxes rank nationally? 

Howard Gleckman,  The Supreme Court Opens The Door to Sales Tax Collections by Online Sellers (TaxVox)

They were too busy fighting the shelter wars to notice.  The Cold War Is Over, but No One Told the IRS  (Joseph Thorndike, Tax Analysts Blog)

Career Corner: A Friendly Reminder to Slobbering Drunks: Be Less Slobbery and Drunk at Your Company Holiday Party (Going Concern)

 

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Tax Roundup, 11/21/13: Would you trust a state legislator to spend your $54?

Thursday, November 21st, 2013 by Joe Kristan

I’m on the road today, so we’ll make this quick.

Sen. Bolkcom

Sen. Bolkcom

I can spend your $54 better than you can.  The Des Moines Register reports Iowans can get $54 tax credit; some want it used for roads,  The “some” definitely include politicians:

Many Iowans will be eligible for a new $54 tax credit when they file 2013 taxes, according to a calculation from the Department of Revenue, but a key Democratic senator says the money would be better spent fixing crumbling roads and bridges.

State Sen. Joe Bolkcom, D-Iowa City, chairman of the Iowa Senate’s tax-writing Ways and Means Committee, said Wednesday that Republican Gov. Terry Branstad has failed to provide leadership to establish new sources of critically needed road construction revenue.

“Critically needed?”  Maybe not.  I doubt if the Grand Avenue Bridge to Eternity would have been done faster if they had just spent more money on it.  In any case, the politicians’ need for cash is elastic and infinite, no matter how much they have to start with.  It bugs them when they already have your money, like the $54, and they have to give it back.

 

Andrew Lundeen, Kyle Pomerleau, The U.S. Ranks Poorly on Cost Recovery (Tax Policy Blog):

 It is common knowledge that the United States has the highest corporate income tax rate in the industrialized world, but it is less well known that our cost recovery system ranks poorly as well.

Currently, the U.S. tax code only allows businesses to recover an average of 62.4% of a capital investment (investments in machinery, industrial buildings, intangibles, etc.). This is lower than the average capital allowance of 66.5% across the OECD…

Ideally, businesses should be able to recovery 100 percent of their investment costs. We could achieve this by shifting to a system of full expensing (which allows complete write off of capital expenses in the first year) or introducing a system of Neutral Cost Recovery (which indexes the investment write-offs for inflation and a real discount rate).

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I’d be happy if they’d just stop changing the rules every year.

 

Going Concern,  Baucus Proposal Would Give ‘Legal Authority’ to Regulate Tax Preparers.  Buried in with a bunch of other stuff, as expected.  If Sen. Baucus would look in the mirror, he’d see where the real problem with  the tax system is.  Maybe that’s why he wants to regulate preparers instead.

Cara Griffith, Hitting the Jackpot (Tax Analysts Blog)

Tax Justice Blog, Why Everyone Is Unhappy with Senator Baucus’s Proposal for Taxing Multinational Corporations

TaxProf, The IRS Scandal, Day 196

Jack Townsend, Fourth Circuit Reverse Tax Obstruction Conviction Because of Bad Instruction and Affirms Denial of Good Faith Instruction for False Claim Conviction.  Even tax protesters are entitled to good jury instructions.

Kay Bell, Mo’ Money tax franchisee gets 20 months in jail for tax fraud.

 

Best spam commenter name ever: “2011 Energy Tax Credits Day Diet Plan When Weight Loss” posted a spam to my spam box this morning.  I look forward to learning more about that plan. 

 

And the muskrats are furious.  Sentenced to 6 months, Beavers still swaggering (Chicago Tribune)

More tomorrow!

 

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Tax Roundup, 11/18/13: Waterloo day! And Iowa’s new $54 individual credit.

Monday, November 18th, 2013 by Joe Kristan

The ISU Farm and Urban Tax School is in Waterloo, Iowa today for another sold-out session.   Only Red Oak, Denison and Ames after this, so register now!  Then I drive to Cedar Rapids to talk about the Net Investment Income Tax and how it affects trusts before heading home tonight.  Coffee vendors all over Iowa will have a good day today.

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Today seems like a different kind of Waterloo for IRS — their web site is down this morning.

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Iowa “Trust fund” tax credit $54 for 2013.  The Department of Revenue has announced the new individual income tax  credit enacted last session as part of the property tax reforms:

In order to claim the Credit, a 2013 Return must be filed by October 31, 2014, which is the extended due date.  To avoid penalty, Iowa income tax returns normally must be filed by and 90% of any tax owed must be paid by April 30. The Credit will be applied to the computed Iowa tax after first applying any other refundable and nonrefundable tax credits.  Any amount of the Credit that is in excess of the tax due is not refundable and cannot be carried back or carried forward to another tax year.

The $54 Credit amount and additional information will be reflected in the IA 1040 instructions for the 2013 tax year. 

I won’t turn down the $54, but it’s not anything like real tax reform.  That would be the Tax Update’s Quick and Dirty Iowa Tax Reform.


Paul Neiffer, CPR for Section 179:

For all farms since 2007, the percentage of Section 179 to total depreciation averaged about 70% and in 2012 the number was slightly over 75%.  For purchases over $100,000 the percentages has been even higher.  Based on this table, it appears that most farmers have just about fully depreciated their farm equipment purchases over the last few years using Section 179. 

Section 179 limits are slated by law to fall to $25,000 next year.  I think it’s likely that Congress will eventually extend the $500,000 limit currently in effect to 2014, but it will make a big difference if they don’t.

 

tax fairyPeter Reilly, Charitable Foundation Haunted By 1999 Corporate Tax Assessment:

It turns out that the “Midco” intermediaries were relying on variations of what Joe Kristan calls the Tax Fairy - the magical sprite that can make your taxes go away with fancy tax footwork.  Of course as someone who just sold their corporation to someone, that’s not your problem – or so you would like to think.  The IRS has been thinking otherwise.  Since the corporations that have been sold are dry husks by the time taxes are assessed the IRS has been asserting transferee liability against selling shareholders.  Results have been mixed.

There is no Tax Fairy.

 

Jeffrey Dorfman, Obamacare Will Lift Tax Fraud To A Whole New Level.  That’s just what we need, a better class of tax fraud.

Annette Nellen, Affiliate nexus legislation – everyone loses

Jack Townsend,  Watch the Refund Statute of Limitations on OVDP Payments Related to Income Tax 

Phil Hodgen has a New tax ebook for nonresident freelancers.

Paul Caron, The IRS Scandal, Day 193

 

Crisis!  U.S. MexiCoke fans fear effect of Mexico’s new soda tax.  (Kay Bell)

 

bureauofprisons

How could they be so frivolous?  The Department of Justice announces that a California couple has

been indicted for, among other things, filing liens against the IRS Commissioner.  Everyone knows that you can’t just file baseless liens.

Only they can do that.

TaxGrrrl reports on a Michigan couple whose bank account was emptied by the IRS when they suspected they were “structuring” bank deposits to stay below the $10,000 disclosure limit.  She takes up the story:

Instead, they insist that the deposits were generally less than $10,000 because their insurance policy covers the theft of cash only up to that sum. As a result, they do not let their employees carry more than that amount at any time, including walking deposits to the local bank.

That didn’t stop the feds from seizing the Dehkos’ remaining funds. Using a process called civil forfeiture, the federal government can seize assets on the basis of suspicion: there is no requirement for firm evidence nor are the property owners entitled to notice. The government didn’t ask the Dehkos about their deposits or they would have found out about the insurance policy.

Months after the seizure, prosecutors had never offered any evidence to prove that the Dehkos were engaged in money laundering or that they were avoiding income tax. In fact, a Bank Secrecy Act examination from last year resulted in a notice stating that “no violations were identified.”

Fortunately, the Institute for Justice stepped up and financed court action by the Dehkos, who run a grocery store in Michigan.   The IRS has said it will return their funds.  But unlike the California couple who went after the Commissioner, nobody at the IRS will ever be disciplined for slapping a lien on the Michigan grocers and seizing their cash, with no due process and, admittedly, for nothing.   This sort of thing will continue until there is a Sauce for the Gander Rule, where taxpayers can sue IRS officials who make baseless filings on the same basis the IRS can sue taxpayers.

 

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Tax Roundup, 11/15/2013: Trains, Zeppelins and Fertilizer edition.

Friday, November 15th, 2013 by Joe Kristan

 

20121226-1What, no zeppelin port?   A candidate for Iowa governor proposes a gas tax increase for, well, a bunch of stuff, reports QCTimes.com:

Democratic gubernatorial hopeful state Sen. Jack Hatch is proposing to phase in a 10-cent gas tax increase to pay for overdue road and bridge improvements, build passenger rail links, construct flood protection, reduce the backlog of school construction projects and expand broadband service in rural Iowa.

The increase would amount to less than $50 a year for most Iowans, he said.

Infrastructure, in all of its forms, is one of the most basic parts of state and local government, Hatch said Thursday in announcing his Building a Better Iowa infrastructure plan.

The idea of a continuing “infrastructure crisis” is a standard political assertion, even though it isn’t true.   If it were, though, you’d stop the list of crisis projects after “bridge and road improvements.”   The idea that blowing millions to construct an unneeded and money-losing passenger rail system is an infrastructure priority is laughable.  Local school districts can finance improvements whenever their voters think they’re worth a bond issue.  And rural broadband, supplied by the government?  Because satellites don’t cover rural Iowa?

 

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Using your wife’s money to buy drinks for your new girlfriends.  Sen. Hatch wants to run against Governor Branstad next November, who has some economic issues of his own.  These are spotlighted by the Governor’s selection as “Politician of the Year” by Site Selection Magazine.

Based on its website, Site Selection Magazine seems to be the trade journal of the little industry of fixers and middlemen who harvest taxpayer money for clients choosing to relocate or expand. Governor Branstad was “honored” for giving over $80 million of tax credits to the Orascom fertilizer plant in Southeast Iowa to build a plant they were probably going to put there anyway.  The credits add up to around $500,000 per “permanent” job.

These sorts of giveaways are great for the companies that can play the system to milk the fisc, but they aren’t so great for the rest of us who pay for them.  They are the government equivalent of the guy who takes his wife’s bar to the bar to buy drinks for the girls.  He may think he’s doing great things, but it’s neither impressive to the girls nor helpful to the wife.

Somebody out there is saying, “but what about the jobs?”  Even if you assume that the spending is responsible for the jobs — a stretch — that money wasn’t just conjured up.  It comes from the rest of us, who would have used it to create jobs through spending or investing.  If you think the state can wisely allocate investment capital, I have a nice film credit program to discuss with you.  You shouldn’t talk about the jobs you attract by giving away money without talking about the jobs that you lost.

 

Arnold Kling, It’s Implementation, Stupid:

The problems with implementation are under-rated and always have been. The Obama Administration has spent 3 years bulldozing the individual market in health insurance. Now, they expect the health insurance companies to rebuild it in 30 days.

This will not end well.  But while I expect enormous changes in the ACA law, given its evident failure, I don’t expect repeal of the new 3.8% net investment income tax or .9% additional medicare tax to happen.  Clearing the wreckage will be expensive.

Des Moines Register,  136 Iowans buy private health plans through online marketplace.  Not looking good.

Why not just kill me now?  Why Not Use Tax Preparers as a Portal to Health Exchanges?  (Howard Gleckman, TaxVox)

 

TaxProf, Number of Taxpayers Who Renounced U.S. Citizenship Skyrockets to All-Time Record High.  This doesn’t strike me as a good thing.

 

Kay Bell,  EITC claim issues prompt IRS letters, visits to tax pros.  If you prepare a lot of EITC claims, your documentation needs to be meticulous.

Jack Townsend, IRS Indian Initiative for Persons Outside OVDP; Also on Quiet Disclosures

Linda Beale, IRS will issue summonses for offshore bank account info

William Perez,  How Much Government Do People Get Compared to How Much Taxes They Pay?

 

TaxGrrrl, Braves New World? Taxpayer Funding Remains A Concern As Atlanta Rushes Towards New Stadium.  If I were an Atlanta taxpayer, I’d be concerned.

Tony Nitti, Did The Sale Of Stan Musial’s Memorabilia Give Rise To A Hefty Tax Bill?   

 

Kyle Pomerleau, Don’t Forget the Facts If You Want to Raise Taxes on the Rich (Tax Policy Blog)

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Christopher Bergin, The IRS: A Greek Tragedy (Tax Analysts Blog)  ”I mostly also agree with Olson that much of the impairment at the IRS is caused by Congress continuing to force the agency to do more with less.”

TaxProf, The IRS Scandal, Day 190

Robert D. Flach has your Friday Buzz!

News from the Profession:  Perhaps Comparing the CPA Exam to Actual War Isn’t The Best Idea (Going Concern)

 

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