Posts Tagged ‘Jana Luttenegger’

Tax Roundup, 7/3/2014: Interested generosity edition. And: cheap smokes!

Thursday, July 3rd, 2014 by Joe Kristan

20140703-2If you wouldn’t have gotten the cash if you had kept your clothes on, it may not be a gift.  A “professional adult entertainer” was convicted on tax charges in Sioux Falls last week.  She apparently treated cash thrust upon her in performance as nontaxable gifts, according to the Associated Press writeup. Gifts are good to receive for many reasons, not least because they are not taxable income.  Of course the tax law is pretty strict about what it takes to be a gift, or we would all be working for nontaxable holiday bonuses.   The jury instructions in the case explain what it takes for something to be a gift:

The practical test of whether income is a gift is whether it was received gratuitously and in exchange for nothing.  Where the person transferring the money did not act from any sense of generosity, but rather to secure goods, services, or some other such benefit for himself or for another, there is no gift.

I wonder if it ever struck the professional adult entertainer that while men eagerly stuffed dollars into her garter on stage, they seldom stuffed cash into the elastic of her sweats at the local Hy-Vee.  It must have occurred to her that there was some connection with what she was wearing, or not, on stage and the generosity of her admirers.  If it didn’t before, it probably has now.  Sentencing is set for September.

Liz Emmanuel, Richard Borean, State Cigarette Tax Rates in 2014. (Tax Policy Blog):

20140703-1   Life is good for Missouri cigarette dealers on the Iowa border.   20120531-2

Robert D. Flach brings your Friday Buzz on Thursday in honor of Independence Day.

Jana Luttenegger, New Simplified Application Form for Small Nonprofits and UPDATE: Form 1023 EZ Released for Small Nonprofits (Davis Brown Tax Law Blog)

Tax Trials, IRS Offers New Streamlined Procedures & Reduced Penalties for Foreign Accounts

Trish McIntire, Why E-file a Tax Return…

TaxGrrrl, Money Literally Flying At World Cup: Is It A Clever Attempt At Tax Avoidance?  Strange soccer doings in Ghana.

Jim Maule gets his Tax Myth series underway with The IRS Enacted the Internal Revenue Code and If It’s Not Cash, It’s Not Income.  It always bugs me when congresscritters talk about the “IRS Code.”  It strikes me as sneaky blame-shifting by the perpetrators.

Jason Dinesen, From the Archives: Patient-Centered Outcomes Trust Fund Fee – An Exercise in Bureaucratic Futility

Kay Bell, Fitness enthusiasts exercised over D.C.’s new yoga sales tax

 

 

Cara Griffith, Censorship in New Hampshire? (Tax Analysts Blog):

The DRA can be opposed to the website all it wants. That does not give it the right to monitor it or demand modifications to its content. Yet the DRA is going one step further. It is attempting not only to prohibit the use and publication of information about its general policies, but to impose criminal penalties on the publication of truthful information about a matter of public concern.

It sounds like The New Hampshire Department of Revenue Administration badly needs some exemplary firings.

 

20130912-1Lyman Stone, Happy July 2! 14 States Exempt Flags from Their Sales Taxes (Tax Policy Blog).

Roberton Williams, President Obama’s FY 2015 Budget (TaxVox). “Most of the president’s tax proposals have appeared in previous budgets, but he added four new ones this year. TPC delves into those additions in a separate analysis that accompanies the distributional estimates.” None of them will be enacted during the remainder of the Obama presidency.

 

That would be “zero.”  41 Million July 4th Travelers Would Have a Nicer Trip if Corporations Paid Their Fair Share (Steve Wamhoff, Tax Justice Blog).  Why zero? Scott Sumner explains that “There should be no corporate income taxes, which represent triple taxation of wage income.”

TaxProf, The IRS Scandal, Day 420

Has the NHL lost its focus?  Hockey aiming to tighten tax loophole

Have a great Independence Day!

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Tax Roundup, 6/12/14: Tax Credits run for governor. And: bad day for IRS in CRP tax case?

Thursday, June 12th, 2014 by Joe Kristan

20120906-1Crony tax credits have become an issue in Iowa’s race for Governor, reports The Des Moines Register:

The Republican Governors Association is out today with another TV ad attacking Jack Hatch.

The new ad accuses Hatch of sponsoring legislation to increase the availability of development tax credit while applying for tax credits for a real-estate project in Des Moines.

“Jack, isn’t that a conflict of interest?” the narrator asks.

It’s true that Mr. Hatch has been a successful player in the tax credit game.  It may be the merest coincidence that an awful lot of tax credits go to political insiders like Mr. Hatch and the spouse of Governor Branstad’s opponent in his first election.  But that’s not the way to bet.

While I’m all for anything that spotlights the inherent corruption of targeted tax credits, the Republican Governors Association may be inadvertently bringing friendly fire uncomfortably close to its own man.  For starters, the Governor is a five-term incumbent. If the system is set up to be played by political insiders, the Governor has had plenty of time to do something about it.

More importantly, political insiders can benefit richly from crony tax credits without claiming them on their own tax returns.  They benefit by claiming credit for the “jobs” generated by well-connected businesses that play the system to get the tax credits.  The Governor has played this game tirelessly.  Just off the top of my head

- The $80 million+ in tax breaks for fertilizer companies.

- The sales tax giveaway to the NASCAR track in Newton.

- The rich tax breaks for data centers.

MP branstad

Governor Branstad, pre-mustache

In deals like this, the politicians claim credit for the jobs “created,” with no regard whether the lucky recipients of the breaks would have behaved differently without them, or for the jobs lost by other companies who compete with the winners for resources and customers, or for the jobs that would have been created had the funds been left with taxpayers to use without direction from politicians.

So yes, Governor, by all means call down the artillery on crony tax credits.  Just be sure to keep your helmet on.

Related:

The joys of cronyism

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

Governor’s press conference praises construction of newest great pyramids

 

20130114-1Roger McEowen, Eighth Circuit Hears Arguments in CRP Self-Employment Tax Case. “It would appear that the oral argument went well for the taxpayer.” 

Jana Luttenegger,  IRS Releases Taxpayer Bill of Rights.  “ These rights have always existed, but now the IRS has put the rights together in a clear, understandable list to be distributed to taxpayers.”  If they’ve always existed, they sure haven’t always been respected.

Peter Reilly, Your Son The Lawyer Should Not Be Your Exchange Facilitator.  Peter talks about the case I mentioned earlier this week, including another issue I left out.

 

Tax Justice Blog, Reid-Paul “Transportation Funding Plan” is No Plan at All:

Instead of taking the obvious step of fixing the federal gas tax, Reid and Paul propose a repatriation tax holiday, which would give multinational corporations an extremely low tax rate on offshore profits they repatriate (profits they officially bring back to the United States). The idea is that corporations would bring to the United States offshore profits they otherwise would leave abroad, and the federal government could tax those profits (albeit at an extremely low rate) and put the revenue toward the transportation fund.

Yeah, not a real fix.

Scott Hodge, Likely “Solutions” to Highway Trust Fund Shortfall Violate Sound Tax Policy and User-Pays Principle (Tax Policy Blog)

 

No Walnut STAndrew Lundeen, Higher Marginal Tax Rates Won’t Improve the World (Tax Policy Blog). “The Upshot and Dave Chappelle may be right that for someone with a $100 million that next dollar might not means as much as the first dollar. But that money doesn’t sit collecting dust. It is invested in the broader economy.”

Howard Gleckman, Did Multinationals Use a Foreign Earnings Tax Holiday To Burnish Their Financials Rather Than Reduce Taxes? (TaxVox)

Keith Fogg, Supreme Court’s Decision on Monday in Arkison Could Impact Kuretski Case and Constitutionality of the Removal Clause for Tax Court Judges (Procedurally Taxing)

Jack Townsend, BDO Seidman Personnel Sentenced for B******t Tax Shelter Promotion 

Kay Bell, NBA beats NHL in this year’s jock tax championship 

 

TaxGrrrl, Waffle House Refuses To Allow Waitress To Keep $1,000 Tip   

 

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Tax Roundup, 5/21/14: Practitioner Pitchforks and Torches edition. And: math remains hard!

Wednesday, May 21st, 2014 by Joe Kristan

20140521-1The new identification rules for remote signatures aren’t going over well.   (See update below.)  At a CPE event yesterday former IRS Stakeholder Liaison Kristy Maitre outlined the new e-filing identity match requirement we are supposed to meet (now!  for extended 2013 returns!).  These include “third-party verification” of identities of our long-time clients if they don’t visit the office.  The ones that visit, we only need to see their papers.

The 250 or so practitioners present didn’t appreciate the joke at all.  They asked the obvious question: how do we even comply with this?  It’s not at all clear how we get “third-party verification.”  I can pretty much guarantee that nobody is complying with that requirement now, because few are aware of it, and the ones that are don’t know where to start.

While the requirements are supposed to be part of the IRS war against identity theft, this effort is like responding to the attack on Pearl Harbor by bombing Montreal.  Identity thieves don’t waltz into tax prep offices and pay us to prepare fraudulent refund claims.  They prefer TurboTax.

Yet, there may be a method to the madness, suggested by one practitioner.  What if some outfit is gearing up to provide third-party verification services — say, one of the national tax prep franchises?  And the IRS has quietly created their revenue stream with this absurd rule?  You might say this preparer is cynical; I say he’s been paying attention.

So let’s fight.  Kristy is collecting comments and questions to send to her erstwhile IRS colleagues to try to stop this nonsense.  Send your comments to ksmaitre@iastate.edu.  I believe the IRS will back off if we brandish the electronic torches and pitchforks.

Update, 11:30 a.m.  I received a call from an IRS representative this morning saying that they have been getting phone calls as a result of this post (well-done, readers!).  She tried to reassure me by telling me that the third-party verification doesn’t apply to in-person visits.  I knew that.  I told her that as I read the rules, there are either “in-person” or “remote” transactions, with no third category of, say, “I’ve worked with this client for many years and they’re fine.” She didn’t disagree, though she still thinks I’m overreacting.  She did say IRS field personnel are  “elevating” the issue and seeking “clarification” from the authors of these new rules, including what “authentication” means for in-person visits and what a “remote transaction” is that would require third-party verification.  Keep it up, folks!

Related:

Russ Fox, Yes, Mom, I Need to See Your ID

Jana Luttenegger, Updated E-Filing Requirements for Tax Preparers

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine 

Me, Welcome back, loyal client. IRS says I have to verify that you aren’t a shape-shifting alien.

 


20140521-2TaxProf, 
The IRS Scandal, Day 377.

News from the Profession.  Crocodile Injured By Falling Circus Accountant in Freak Bus Accident (Going Concern)

Kay Bell, National Taxpayer Advocate joins fight to stop private debt collection of delinquent tax bills.  I’d rather she fight to keep the IRS from implementing its ridiculous e-file verification rules.

TaxGrrrl, Congress, Ignoring History, Considers Turning Over Tax Debts To Private Collection Agencies

Jim Maule, It Seems So Simple, But It’s Tax.  “People are increasingly aware that the chances of getting away with tax fraud are getting better each day.”

Missouri Tax Guy,  NO! The IRS did not call you first.

 

Tax Justice Blog, Legislation Introduced to Stop American Corporations from Pretending to Be Foreign Companies.  How about we just stop taxing them?

Kyle Pomerleau, Tom VanAntwerp, Interactive Map: Where do U.S. Multinational Corporations Report Foreign Taxable Income and Foreign Income Taxes Paid? (TaxPolicy Blog).  Holland does well, as does Canada.

Howard Gleckman, Tax Chauvinism: Who Cares Where a Firm is Incorporated?

So we are left with a sort of financial chauvinism. It is important to some politicians to be able to say that a company is a red-blooded American company. But when it comes to multinational firms in a global economy, why does that matter? 

Because, ‘Merica!

 

Andrew Mitchel now has some online tax quizzes for your amusement.  If they are too tough, the next item might restore your self-esteem.

 

20120905-1If you can’t answer these questions, taxes are the least of your problems.  Tackle these quizzlers (via Alex Taborrok):

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow.

More than $102. Exactly $102,. Less than $102? Do not know. Refuse to answer.

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy.

More than, exactly the same as, or less than today with the money in this account? Do not know. Refuse to answer.

3. Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund.’

T. F. Do not know. Refuse to answer.

I won’t give away the answers, but I shouldn’t have to.  Sadly, most people find these questions hard.  From Alex Taborrok:

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

At least that helps explain Vladimir Putin’s popularity.

 

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Tax Roundup, 5/14/14: Earned income credits, still busted. And: extenders advance.

Wednesday, May 14th, 2014 by Joe Kristan
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.

Nope.  Still busted.  From WashingtonExaminer.com comes an update on what some call America’s most successful anti-poverty program:

The Treasury Department has released its latest report  on the fight against widespread fraud in the Earned Income Tax Credit program. The problem is, fraud is still winning. And there’s not even much of a fight.

“The Internal Revenue Service continues to make little progress in reducing improper payments of Earned Income Tax Credits,” a press release from Treasury’s inspector general for Tax Administration says. “The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.”

Wait.  Didn’t the President sign a bill in 2010 to fix all this?

The new report found that the IRS is simply ignoring the requirements of a law called the Improper Payments Elimination and Recovery Act, signed by President Obama in 2010, which requires the IRS to set fraud-control targets and keep improper payments below ten percent of all Earned Income Tax Credit payouts.

Whatever the EITC does to help the working poor, it is a boon to the Grifter-American community.  Fraudulent EITC claims are a staple of ID theft fraud and low-tech tax cheating in general.

It’s worth noting that the high rate of improper EITC payouts has not gone down in spite of the ever-increasing IRS requirements for preparers who issue returns claiming the credits.  This should give pause to folks who think IRS preparer regulations will stop fraud, though it won’t.

It’s also notable that Iowa recently increased its piggyback EITC to 15% of the federal credit — increasing the annual cost of the credit by an estimated $35 million.  Assuming Iowans are just as honest as other Americans, that means about $8 million of additional stimulus to the Iowa grifter economy.

Finally, the phase-out of the EITC functions as a hidden high marginal tax rate on the program’s intended beneficiaries, the working poor.  The effective marginal rate in Iowa exceeds 50% at some income levels.  Combined with other income-based phase-outs, the EITC becomes a poverty trap.

 

Related: Arnold Kling,  SNEP and the EITC. “My priors, which I think are supported by the research cited by Salam, is that trying to use a program like the EITC for social engineering is a mug’s game.”

 

 

Extenders advance in Senate.  Tax Analysts reports ($link)

Legislation that would extend for two years nearly all the tax provisions that expired at the end of 2013 cleared a procedural hurdle in the Senate May 13.

Senators voted 96 to 3 to invoke cloture on the motion to proceed to H.R. 3474, a bill to exempt from the Affordable Care Act’s employer mandate employees with healthcare coverage through the Veterans Benefits Administration or through the military healthcare program TRICARE.

The bill is the legislative vehicle for the tax extenders. It will be amended to include the text of the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014 (S. 2260) and likely that of the Tax Technical Corrections Act of 2014 (S. 2261), both of which the Senate Finance Committee passed April 3 via voice vote.

The bill that passes will probably look much like the Senate bill.  The House has advanced bills to make some of the perpetually-expiring provisions permanent, but the President, pretending that they won’t get passed every year anyway, says permanent extension is fiscally irresponsible.

Among the provisions to be extended yet again, mostly through 2015, are the research credit, new markets credits, wind and biofuel credits, bonus depreciation, and increased Sec. 179 deductions.  The five-year built-in gain tax recognition period is also extended through 2015.

Related: TaxGrrrl, Senate Moves Forward To Extend Tax Breaks For 2014

 

20120906-1O. Kay HendersonKnoxville Raceway ceremony for state tax break of up to $2 million:

Governor Terry Branstad went to Knoxville today to sign a bill into law that gives the Knoxville Raceway a state tax break to help finance improvements at the track.

“This is a great facility,” Branstad told Radio Iowa during a telephone interview right after the event. “Last year, in 2013, they attracted 211,000 visitors, so it’s a big tourism attraction and it’s a good investment and it’s great for the state to partner with the community for a project of this magnitude.”

Here’s how that partnership works: the racetrack will charge sales tax to its customers, and keep the money.  Only two other businesses are special enough to get this sweet deal.  Tough luck for the rest of us who don’t have the good connections and lobbyists.

 

Walnut st flowersJana Luttenegger, Updated E-Filing Requirements for Tax Preparers (Davis Brown Tax Law Blog).  “The handbook is not exactly clear.

Jason Dinesen, Things Tax Preparers Say: S-Corporation Compensation.  “But too many business owners — and their accountants — treat S-corps like a magic wand that can just make taxes disappear completely.”

Kay Bell, IRS fight to regulate tax preparers officially over…for now

Peter Reilly, Can Somebody Explain Tax Shelters To Thomas Piketty?  In the unlikely event that the Piketty recommendations are ever enacted, Peter notes that “there will be a renaissance of shelter activity.”  Peter provides a “Cliff Notes” summary of this year’s big forgettable book I’ll never read, which I appreciate.  Also: Peter uses the tax-law-as-Swiss Army Knife analogy that I am so fond of.

Robert D. Flach, STILL MORE CLIENTS SCREWED BY THE TAX CODE.  “The list of taxpayers screwed by our current Tax Code is not a short one.  Today I add taxpayers with gambling winnings.”

 

20130110-2Howard Gleckman, How “Dead Men” Fiscal Policy Is Paralyzing Government (TaxVox).  He reviews a new book, Dead Men Ruling, by Gene Steurle:

“We are left with a budget for a declining nation,” Gene writes, “that invests ever-less in our future…and a broken government that presides over archaic, inefficient, and inequitable spending and tax programs.”

All this has happened due to a confluence of two unhappy trends: The first is what the late conservative writer Jude Wanniski memorably described almost four decades ago as the “Two-Santa Theory.”

The Santas are the two parties, each of whom pick our pockets to fill our stockings.

 

Alan Cole, The Simple Case for Tax Neutrality (Tax Policy Blog).  “When states give preferential rates of sales tax to certain goods, the most visible result is the legal bonanza that follows from trying to re-categorize goods into the preferred groupings. ”

David Brunori, Repealing the Property Tax Is an Asinine Idea (Tax Analysts Blog). “Public finance experts are almost unanimous in their belief that the property tax is the ideal way to fund local government services… Most importantly, the property tax ensures local political control.”

William McBride, What is Investment and How Do We Get More of It? (Tax Policy Blog).  “Full expensing for all investment, according to our analysis, would increase the capital stock by 16 percent and grow GDP by more than 5 percent.”

 

TaxProf, The IRS Scandal, Day 370

News from the Profession.  AICPA Tackling the Important Issue of Male CPAs Wanting It All (Going Concern). 

 

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Tax Roundup, 5/9/14: Worst-ever edition. And: It’s Scandal Day 365!

Friday, May 9th, 2014 by Joe Kristan

I was grumpy yesterday when I noticed Tax Analysts correspondent @Meg_Shreve’s live-tweeting of a speech by Doug Shulman, the Worst IRS Commissioner Ever.  So I tweet-grumpted, adding “#worstcommissionerever (fixed)” to one of her posts — the “(fixed)” as a perhaps inadequate attempt to inform the Twitterverse that the tag was my addition, not hers (apologies to Meg Shreve).  That earned this response:

 

20140509-1

 

Ah, where to begin?  How about with identity theft?  Doug Shulman took office with a reputation as an information systems maven.  He then presided over an historic IT debacle.  Tax refund fraud — fundamentally a systems failure —  has let two-bit grifters like Rashia Wilson steal tens of billions of dollars in fraudulent refunds over the years.

This problem has been ramping up for years, and only now, with Shulman gone, is the IRS beginning to take effective action to prevent it.  My wife can’t go shopping in Chicago without me getting a call from the credit card company warning me of a suspicious transaction, but Doug Shulman’s IRS could send 655 refunds to the same apartment in Lithuania without batting an eye.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

While the theft of taxpayer billions is outrageous enough, the inept treatment of ID theft victims makes it even worse.  Only after Doug Shulman left did the IRS even begin to get this right.

The Worst Commissioner Ever was just too darned busy to stop ID theft.  He was busy trying to increase IRS power over preparers with a useless, expensive and unilateral preparer regulation regime.  He reversed the longstanding IRS position that the agency had no such regulatory power, only to be unceremoniously slapped down by the courts.   In the meantime, the prospect of the regulations drove thousands of preparers out of the business, increasing taxpayer costs and driving many taxpayers to self-prepare — and surely causing some to fall out of the system altogether.  The IRS wasted enormous resources on this futile power grab — resources that might have been better-devoted, to, oh, maybe the fight against identity theft.

 

He was also busy shooting jaywalkers.  International tax enforcement is considered Doug Shulman’s greatest success — but there was no reason the pursuit of wealthy international money-launderers had to also terrorize American expatriates whose offenses were to commit everyday personal finance.  Many folks have been hit with ridiculous penalties for not filing FBAR reports that they had no idea existed.  These folks are often people who married overseas or moved out of the U.S. as children, but were presumptively treated as international money-launderers when they tried to come into the system, and were hit with enormous penalties — often when little or no tax had been avoided.

It’s hard to imagine that an agency that can find ways to simply wave away the ACA employer mandate couldn’t find a way to allow expats and individuals without criminal intent to come into the international reporting system without risking financial disaster.  The states that allow non-resident non-filers to come in by paying five years of back taxes provide an obvious model.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

Then there is the scandal.  When Tea Party groups complained about absurd and abusive IRS information requests, sympathetic Congresscritters asked Doug Shulman if the IRS was targeting Tea Party groups.  The Worst Commissioner Ever testified before Congress that the IRS was doing nothing of the sort:

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman said.

That statement, of course, became inoperative when the Treasury Inspector General for Tax Administration reported that the IRS was, in fact, picking on the Tea Party groups.  Subsequent revelations have shown that it was exactly a partisan attempt to fight anti-administration groups.  So Doug Shulman either was too lazy and ineffective to know what his own agency was doing, or he knew, or he didn’t care.  He destroyed the credibility of the agency as a nonpartisan enclave of competent technicians.

Now the party controlling the House of Representatives is on notice that the agency wants to see it lose.  That agency can hardly expect generous appropriations as long as that perception remains (and the new Commissioner has done nothing reassuring on that score).   This will damage the agency’s effectiveness for years — all because The Worst Commissioner Ever was unwilling or unable to run a professional, non-partisan agency.

This is a record of administrative ineptitude and negligence that is unbeaten.  No IRS commissioner has so squandered agency resources and reputation.  If another Commissioner has even come close, I’d sure like to know who it was.

 

Meanwhile, the TaxProf has reached a milestone: The IRS Scandal, Day 365.  The biggest item in this edition is the report that the IRS had not destroyed Tea Party donor lists — after saying it had — and that the IRS has audited 10% of Tea Party donors.  This is a staggering audit rate, if true, and is a tremendous scandal in itself if the IRS doesn’t come up with a good explanation.

TaxGrrrl, House Finds Lerner, Central Figure In Tax Exempt Scandal, In Contempt Of Congress

 

20140509-2Jana Luttenegger, Deadline Approaching to Avoid Losing Tax Exempt Status (Davis Brown Tax Law Blog). Get those 990-series reports filed!

Trish McIntire, EFTPS – Inquiry PIN.  “The Inquiry PIN will allow taxpayers to check and make sure that their federal tax deposits have been made and catch a problem before it becomes a major issue.”  This should be used by all employers.

Peter Reilly, Former Tampa Bay Buccaneers Owner Scores Touchdown In Tax Court.  “It may seem odd to look at a case that ends up with a charitable deduction dis-allowance of nearly $4 million as a victory, but when you consider how taxpayers generally fare in easement cases it really is.”

Leslie Book, Tax Court Jurisdiction to Determine its Jurisdiction: Foreign Taxes and Credits (Procedurally Taxing)

Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)

 

Richard Borean, Tax Freedom Day Arrives in Final Two States: Connecticut and New Jersey (Tax Policy Blog)

Howard Gleckman, Taxing Employer-Sponsored Insurance Would Hike Social Security Benefits But Boost Federal Coffers (TaxVox)

 

Kay Bell, IRS employee arrested after inadvertently following Obama daughters’ motorcade onto White House grounds.  Oops.

Tax Justice Blog, Déjà vu: Oklahoma Enacts Tax Cut Voters Don’t Want.  I’m not sure about the “don’t want” part.

Robert D. Flach has your Friday morning Buzz!

 

News from the Profession.  Deloitte CEO Prefers Traditional Photo Op Over Selfie  (Going Concern)

 

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Tax Roundup, 4/22/14: $418,000 per-job edition! And: AGI and farm subsidies.

Tuesday, April 22nd, 2014 by Joe Kristan

20120906-1Iowa Watchdog reports Iowa to give Microsoft millions in exchange for 86 jobs:

The West Des Moines City Council on March 24 approved asking the IEDA to award Project Alluvion $18 million in sales tax rebates, the maximum amount possible under the IEDA’s High Quality Jobs Program.

Neither the city nor the IEDA questioned why Microsoft, which had $24.5 billion in revenue and $8 billion in profits in the most recent fiscal quarter, needed taxpayers’ support to build its data center.

By the time the new data center opens for business, Microsoft will have received from the state and the city more than $418,000 for each of the 86 jobs it says it will create.

There’s a good argument that businesses shouldn’t have to pay sales taxes on their purchases. There’s no good argument that only businesses who know how to pull strings in city hall and at the statehouses should be able to avoid sales tax on their inputs.  Yet that’s what Iowa’s “economic development” policy is all about: special deals for special friends.  The rest of you suckers without lobbyists and pull, pay up!

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

Tax Justice Blog, State News Quick Hits: Tax Breaks for Expensive Artwork and Apple Inc.

microsoft-apple

 

Roger McEowen, Farm Service Agency Adjusted Gross Income Calculation Could Influence Choice of Entity:

Beginning with the 2014 crop year, producers whose average adjusted gross income (AGI) exceeds $900,000 are not eligible to receive payments or benefits from most programs administered by FSA and the Natural Resources Conservation Service (NRCS). Previous AGI provisions distinguishing between farm and non-farm AGI are no longer utilized.  Average AGI for crop year 2014, for example, will be based on a producer’s AGI from 2010, 2011 and 2012.

This is an incentive for business owners receiving substantial farm subsidies to use C corporations, which don’t increase AGI, at least not immediately.  But C corporations do increase the effective tax rate on business income for most people who have enough AGI to worry about this problem.  It would be a lot easier to get rid of the subsidies and let farmers just grow what the market demands.

 

Yesterday was the national commemoration of The Tax Foundation’s Tax Freedom Day.   Not surprisingly, it’s later than last year.

Tax Freedom Day is “the day when the nation as a whole has earned enough money to pay its total tax bill for year.”  It varies by state.  Iowa’s day was April 13.  Connecticut and New Jersey will be the last states to finish paying their tax bill, on May 9.

Tax Freedom Day 2014 Map_0

 

TaxProf, GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

Jeremy Scott, The Misleading Debate About the Corporate Income Tax (Tax Analysts Blog):

Congress must consider passthroughs when discussing business tax reform. You can’t complain about high U.S. corporate tax rates or declining corporate tax revenues without looking at how the shift to passthrough entities is affecting the U.S. tax system. Passthrough reform is just as critical as corporate reform, even if it doesn’t receive nearly as much attention in congressional speeches or front-page news stories.

It won’t happen until the inane quest to hammer “the rich” is decisively rejected in tax policy debates  – because with pass-throughs, taxing “the rich” means taxing away employment.  Yet the same high-tax redistribution schemes have led to disaster over and over are enjoying a new vogue among people who just can’t stand other people having more money.

 

20140321-3Jack Townsend, GE Ducks Any Penalty for Its (BS) Tax Shelter — For Now 

Brian Mahany, Is the IRS Whistleblower Program a Failure?

TaxGrrrl, Higher Or Lower: How Do You Think Your U.S. Tax Burden Compares To Other Countries?   

Steven Rosenthal, A Flash Tax for the Flash Boys (TaxVox).  Never mind that high-frequency traders make for more efficient markets and lower transaction costs for other traders.  We need to screw up the capital markets even more.

Annette Nellen, Tax Day – April 15, 2014 – It Can Be Easier.  It sure could be.

TaxProf, The IRS Scandal, Day 348

 

William Perez, Obamas, Bidens Release 2013 Tax Returns.  I still say they should have had to prepare them by themselves in a live webcast — as should all congresscritters.

Russ Fox, If You Can’t Get the Refund, Why Not File Some Liens?  After all, it is a foolish and futile gesture, so go for it!

Peter Reilly, Court Approves Tax Sale Of New Mexico Property For Less Than 1% Of Its Value.  Peter sheds light on the sleazy practice of what amounts to stealing property to pay petty amounts of tax.

Jason Dinesen, On Schedule C’s and Setting Rates.  If your 1040 is really a business return, you can’t expect to pay the same as a 1040A filer.   In many ways Schedule C’s are harder, because they rarely have a balance sheet to provide a reality check.

 

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Robert D. Flach’s Buzz is Back!  Welcome back, Robert!

Kay Bell, How are you spending your federal tax refund?

Jana Luttenegger, Are You Curious How Your Tax Dollars Were Spent? (Davis Brown Tax Law Blog)

News you can use.  Timely Filing a Tax Court Petition from Prison (Carl Smith, Procedurally Taxing)

Breaking!  Millennials Don’t Like Grunt Work, Says Millennial Grunt (Going Concern).  Hey Millennials, the rest of us aren’t so crazy about it either.  That’s why they have to pay us to do it.

 

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Tax Roundup, 4/7/14: Where’s my K-1? And why you should e-file that extension.

Monday, April 7th, 2014 by Joe Kristan

1040 2013The deadline for 2013 1040s is a week from tomorrow, so we may as well start our annual Filing Season Tips feature.  

Many folks arrive here with a search engine query that goes something like “why don’t I have my K-1, should the partnership go to jail?”  A quick reminder of what a K-1 does, and why they often arrive late in the tax season.

K-1s come from partnerships, S corporations and trusts.  Partnerships and S corporation businesses don’t pay the tax on their income.  The income is instead taxed on your 1040.  They have to compute their own taxable income first — as you might imagine, a more complex process than doing the average 1040.  They then have to sort the income into a bunch of different bins so that all the pieces end up on the right spot on the owner 1040s.  The K-1 is best understood as the collection bins for your shares of the various pieces of the business’ income and expense items.

Furthermore, many businesses and trusts that issue K-1s are awaiting K-1s of their own.  Even if they have their own tax information ready, if the business is still waiting on a K-1, it can’t issue yours.

But, but! Aren’t K-1s supposed to be out by January 1?  You’re thinking of 1099s.  K-1s are due with the S corporation returns (March 15) or the partnership returns (April 15), but they can be, and often are, extended to as late as September 15 — legally.

So what to do?  If you don’t have your K-1 yet, try to at least get an idea of what the income will be, and extend your own return accordingly.  It’s always better to extend than to amend.

This is the first 2014 filing season tip — come back for one each day through April 15!

 

Russ Fox, Bozo Tax Tip #6: Just Don’t File

 

e-file logoKristy Maitre, IRS Change in Extension Processing Makes E-Filing That Extension Critical.

The campus could take up to 6 weeks to process a [paper] extension, and it will not show up on the transcript until processed. With that time delay, it is helpful to have the acknowledgement of an e-filed extension.

With the delay in processing of the extensions, remember if you file a return within that 6 week timeframe, it may not show the extension on the module, and your client could get a penalty for filing late if there is a balance due. This will also have an impact on refund returns if they are later picked up for audit, a balance due results, and the extension was not processed properly.

And why, if you do paper file, you shouldn’t bundle extensions for your family or clients to save postage.

TaxGrrrl, Not Ready To File Your Taxes? Don’t Stress Out, File For Extension 

William Perez, Federal Tax Relief for Victims of Washington State Mudslide and Flooding

Jana Luttenegger, DIY Will is a ‘Cautionary Tale’ (Davis Brown Tax Law Blog). “As a result, two of Ann’s nieces received property that it appears clearly from the will and attempted amendment was meant for Ann’s brother instead.”

 

20140321-3Kay Bell, 3 popular refundable tax credits: Are they worth it?  Good question, and no.

Peter Reilly, Easement Valuations Not So Easy Anymore

Keith Fogg, Reliance on Counsel to Avoid Tax Liability.  (Procedurally Taxing).  Not likely to work.

 

TaxProf, The IRS Scandal, Day 333.  Featuring the Washington Post “fact checker” calling shenanigans on IRS Commissioner Koskinen for denying that IRS had “targeted” Tea Party groups.  It’s safe to say Mr. Koskinen has botched his entrance.

Andrew Lundeen, Senate Finance Committee Passes $85 Billion Tax Extenders Bill (Tax Policy Blog)

20121120-2Tax Justice Blog, Five Key Tax Facts About Healthcare Reform.  Ones they like that I despise: “Only two percent of Americans will pay the tax penalty for not having insurance and  “95 percent of the tax increases included to pay for health reform apply solely to businesses or married couples making over $250,000 and single people making over $200,000.”

This attitude is exactly what is awful about the TJB mindset.  No matter how fickle, arbitrary,   unworkable or economically harmful a tax is — and the Obamacare taxes are all of those — we’re supposed to be OK with them as long as they apply only to “the rich.”  Carried to the logical conclusion, it would be just fine to execute the 1-percenters, confiscate their property, and sell their families into slavery — it only affects the rich anyway, and they don’t count.

 

Arnold Kling has a little reminder for folks hung up on inequality, quoting Lawrence Kotlikoff:

The US fiscal gap now stands at an estimated $205 trillion, or 10.3 percent of all future US GDP. Closing this gap is imperative, and requires a fiscal adjustment of an immediate and permanent 37 percent reduction in spending (apart from servicing official debt), an immediate and permanent 57 percent increase in all federal taxes, or some combination of the two. The necessary size of this adjustment increases the longer it is put off.

And remember, the rich guy isn’t picking up the tab.

 

O. Kay Henderson, No traction for increasing state gas tax.  Not happening this year, apparently.

 

haroldJennifer Carr at Tax Analysts has a good summary of the research as to the economic effect of state film tax credits:

The film industry and lawmakers doubtless believe that film credits are a great deal for everyone involved — and that would be fantastic if it were true — but the most credible studies don’t reflect that.

Her article (unfortunately available only to State Tax Notes subscribers) discusses the funky analysis that film credit boosters use to justify the subsidies.  The boosters like to overstate the tourism effects of films and assume fantastical “multiplier” effects of film spending.  They also ignore opportunity costs — assuming that if the taxpayer money was not spent on Hollywood, it would just crawl in a hole and die.

 

Career Corner.  Crime May Not Pay But Whistleblowing Certainly Does (Going Concern)

 

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

Monday, March 31st, 2014 by Joe Kristan

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

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

Other Tax Update coverage:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

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

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

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

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

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

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

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

 

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

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

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

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

 

Greg Mankiw,  The Growth of Pass-Through Entities:

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

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

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

Source: The Tax Foundation

Source: The Tax Foundation

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

 

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

BitcoinMegan McArdle, The IRS Takes a Bite Out of Bitcoin

Annette Nellen, Guidance on taxation of virtual currency

TaxProf, The IRS Scandal, Day 326

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

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

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

 

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

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

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

 

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

 

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Tax Roundup, 3/19/14: Are taxes turning Iowa red? And: Statehouse Update!

Wednesday, March 19th, 2014 by Joe Kristan

Is Iowa really a red state?  According to personal finance site WalletHub, Iowa is a red state.  But didn’t Iowa vote for Obama the last two elections?  Not that kind of red state.  WalletHub’s map has states with the most burdensome taxes as red states, and those with less burdensome taxes as green:

 

WalletHub

From WalletHub:

 WalletHub analyzed how state and local tax rates compare to the national median in the 50 states as well as the District of Columbia.  We compared eight different types of taxation in order to determine:  1) Which states have the highest and lowest tax rates; 2) how those rates compare to the national median; 3) which states offer the most value in terms of low taxation and high cost-of-living adjusted income levels.

WalletHub says Iowans have a tax burden 26% above the national average.  They note, though, that when the rank is adjusted based on our cost of living, Iowa improves 10 places on their rankings.

This is a different measurement than the Tax Foundations well-known Business Tax Climate Indexwhich places Iowa at 11th-worst.  Either way, it’s not a healthy system.  And nothing major is likely to happen to change it anytime soon.  Still, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan shows the way!

 

20130117-1Supplies sales tax exemption advances.  The Iowa General Assembly isn’t entirely idle on the tax front.  Sometimes that’s a good thing, as in the House passage yesterday of HF 2443, exempting supplies used in manufacturing from sales tax.  Business inputs in general should not be subject to sales tax, as they are likely to be taxed again when the finished product is sold.

Other than that, there isn’t a lot else to report on the Iowa tax legislative scene.  The speedway tax break remains alive.  The bill to broaden the Iowa capital gain “ten and ten” exclusion hasn’t cleared the committee level.  Silly legislation continues to be introduced, like a 50% state tax credit for payments of principal and interest on student loans (HSB 673).  Let’s encourage crushing student debt burdens!

But sometimes its best when the legislature does nothing.  It’s hard to complain that HF 2770, the bill to pay doctors at their average charge rates with tax credits for “volunteering,” has languished.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

The TaxProf notes the Death of Former IRS Commissioner Randoph Thrower; Was Fired for Refusing President’s Request to Audit His Enemies, quoting a New York Times story:

The end came in January 1971, after Mr. Thrower requested a meeting with the president, hoping to warn him personally about the pressure White House staff members had been placing on the IRS to audit the tax returns of certain individuals. Beginning with antiwar leaders and civil rights figures, the list had grown to include journalists and members of Congress, among them every Democratic senator up for re-election in 1970, Mr. Thrower told investigators years later. He was certain the president was unaware of this and would agree that “any suggestion of the introduction of political influence into the IRS” could damage his presidency, he said.

Mr. Thrower received two responses. The first was a memo from the president’s appointments secretary saying a meeting would not be possible; the second was a phone call from John D. Ehrlichman, the president’s domestic affairs adviser, telling him he was fired.

I’ll just note here that Doug Shulman, worst commissioner ever, left on his own terms.

 

David Brunori, Hawaii Tax Credit Craziness (Tax Analysts Blog):

According to some excellent reporting in the Honolulu Civil Beat, the Legislature is considering a slew of tax incentives to promote manufacturing in the state. Yes, there are those (particularly established manufacturers) who would like to promote something other than tourism, hosting of naval bases, and pineapple production. The main proposal (SB 3082) would provide tax credits for employee training and some equipment purchases. The goal is to turn Hawaii into 1960s Pittsburgh or Flint Mich., in their heyday. I have my doubts. 

I don’t think that really plays to Hawaii’s strengths.

 

20120817-1Howard Gleckman, A Terrible Response to the Internet Tax Mess (TaxVox)

Under the plan, the federal government would let retailers collect tax based on the levy where the seller is located, no matter where the purchaser resides. This would apply to all retailers, as long as they had no physical presence in the consumer’s state.

A firm could base its “home jurisdiction” on the state where it has the most employees, the most physical assets, or the state it designates as its principal place of business for federal tax purposes.

Given the nature of online sellers, changing locations to a no-sales-tax state would be fairly easy.

Interesting.  I wonder if a “universal mail order sales tax rate” might ultimately be the answer.  You could set this universal rate at, say, the average national sales tax rate, collect it from all buyers, and remit it to the delivery state through a clearinghouse run by the state revenue agencies.

 

Paul Neiffer, Cash Rents Equals Extra 3.8% on Sale. “However, once you are done farming and are simply renting the ground to other farmers (including relatives), then the rental income will be subject to the tax and even worse, selling the farmland for a large gain will result in extra tax.”

Jana Luttenegger, Filing From Home, and Health Insurance Reporting on W-2s (Davis Brown Tax Law Blog)

TaxGrrrl, Taxes From A To Z (2014): J Is For Jury Duty Pay   

 

Everything is spinning out of control! Suburban Cleveland Councilman Denies Getting in Brawl With Liberty Tax Sign Spinner (Going Concern)

 

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

~Andre Birotte, U.S. Attorney

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

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

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

 

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

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

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

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

 

 

 

William Perez has the scoop on Reporting Investment Income and Expenses

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

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

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

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

 

 

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

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

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

 

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

TaxProf, The IRS Scandal, Day 291

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

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

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Tax Roundup, 2/6/14: Mortgage credit program revived for Iowa. And: why your state budget surplus is a mirage.

Thursday, February 6th, 2014 by Joe Kristan

IFA logoThe Iowa Finance Authority has opened a program that will allow some Iowans to claim a credit, rather than a deduction, for mortgage interest.  From an IFA press release:

The Iowa Finance Authority has announced that eligible Iowans may buy a home and reduce their federal income tax liability by up to $2,000 a year for the life of their mortgage.

The 2014 Take Credit Mortgage Credit Certificate program will be available beginning this week through IFA Take Credit Program Participating Lenders. Approximately 585 Iowa home buyers are expected to benefit from the program.

It has been some years since these credits were available in Iowa.

The credits aren’t for everyone.  They are targeted to lower-income borrowers, with income limits varying by county.  IFA has a “quick check” page for users to determine eligibility.  But for those who qualify, they are a handy way to reduce mortgage costs.  The credit is claimed on Form 8396.

 

TaxProf, TRAC: IRS Criminal Prosecutions Up 23.4% in Obama Administration.  This is probably due to the explosion in tax-refund theft that was less of a priority than regulating preparers was for the Worst Commissioner Ever and the Obama Administration.

 

taxanalystslogoCara Griffith, The Myth of the Budget Surplus (Tax Analysts Blog):

There seems to be a lot of good news about state budgets lately. Newspaper headlines have changed from doom and gloom over budget crises during the recession to questions about how states will manage budget surpluses. Unfortunately, there are financial problems lurking beneath the surface, and one of the largest may be the underfunding of state and local government pension and healthcare plans.

Even Iowa’s relatively well-funded pension plan is 20% underfunded actuarially, and even that uses an absurd assumption of 7.5% investment returns.  The Taxpayers Association of Central Iowa has a lengthy, but excellent, analysis.  Public defined benefit plans are a lie.  They are a lie to taxpayers understating the cost of current pension accruals, a lie to public employees about what they will get after retirement, or both.

 

Elaine Maag of TaxVox raises Questions About Expanding the Childless EITC:

The EITC is often criticized for its built-in marriage penalty. Imagine a single mom with three kids who earns $17,500. Prior to marriage, she qualifies for the maximum credit of $6,143. But if she marries someone with identical earnings, the additional income will reduce her EITC to just $3,670.

If the childless EITC were expanded and the husband had his own EITC, he would lose all or part of his benefit when the couple married, magnifying the tax increase this couple would face relative to when they were not married. As long as the EITC phases out at higher incomes and is tied to joint income, this will remain an issue.

Not to mention the massive level of EITC fraud and the punitive marginal tax rates on taxpayers working their way out of poverty.

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

 

Jana Luttenegger, Expired Housing-Related Tax Rules (Davis Brown Tax Law Blog).  The exclusion for forgiven mortgage debt is the biggie.

William Perez, Finding the Right Filing Status.  If you are legally married, it’s either joint returns or married filing separate.  Single status is unavailable, even for same-sex couples married in a state that allows them to get married who live in a state that doesn’t.  William provides some excellent explanation.

 

20130419-1Janet Novack, IRS: Don’t Call Us, Look It Up On IRS.Gov.  Well, you might actually get a correct answer that way.

Kay Bell, What the ‘Taxman’ does and doesn’t collect 

 

TaxProf, The IRS Scandal, Day 273

Howard Gleckman, The Cruel Political Paradox of Deficit Reduction (TaxVox)

Carl Smith provides Another Update on Rand Cases in Tax Court at Procedurally Taxing.  The Rand cases hold that an “underpayment” for purposes of penalties does not include the portion of refundable tax credits that tax tax below zero.

Going Concern, Pot Taxes May Not Be Such a Cash Cow Due to, Well, the Cash.  Not to mention the disallowance of all non cost-of-goods-sold deduction for legal dealers.

 

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

Monday, January 27th, 2014 by Joe Kristan

 

Flickr image courtesy Retrofresh! under Creative Commons license.

Flickr image courtesy Retrofresh! under Creative Commons license.

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

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

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

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

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

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

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

It’s the old broken window thing.

Related: IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

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

 

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

Kay Bell, Tax filing checklist 2014

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

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

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

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

 

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

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

 

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

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

 

TaxProf, The IRS Scandal, Day 263

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

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

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

 

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Tax Roundup, 1/6/2014: Start this year’s year-end planning now! And lots more.

Monday, January 6th, 2014 by Joe Kristan

20140106-1I’m back.  It was good to take a little time off after year-end planning season and before the 2013 return season starts.  But now that it’s 12 below with howling winds, I might as well be at the office.

It was sort of a busman’s holiday, though, as I got an early start on my 2014 year-end tax planning.   While December year-end planning is important, it’s asking a lot of one month to do the work of all 12.  You can do some important tax planning in January that will pay off all year long.  For example:

- You can fund your 2014 Individual Retirement Account right now.  If you are married, you can also fund your spousal IRA.  The maximum contribution is $5,500, or $6,500 if you will reach at least age 50 by December 31, 2014.

- You can fund your 2014 Health Savings Account today too.  The HSA limit for taxpayers with a high-deductible plan and family coverage is $6,550 this year; for a single plan, the limit is $3,300.  You need to have a qualifying high-deductible insurance policy, but if you do, you can deduct your contribution and withdraw funds for tax-deductible expenses tax-free.  If you leave the funds in, they accumulate tax-free and can be withdrawn tax-free later for qualifying health costs.  If you stay too healthy to use the funds on medical care, withdrawals are taxed much like IRA withdrawals.

Using spousal IRAs and an HSA, a 50-year old with family coverage can tuck away a combined $19,550 right now and have it earn interest or dividends tax free right away — 15 1/2 months sooner than if you wait until April 15, 2015, the last day you can make these contributions.  And by saving it now, you won’t be tempted to spend it later in the year.

A few other things that you can do right away to get some of your 2014 year-end planning out of the way:

- If you care about estate planning, nothing keeps you from making the $14,000 maximum 2014 exempt gift to your preferred family donees right now.

- Make sure you’ve maxed out your 2014 401(k) deferral with your HR people — or at the very least, be sure you are deferring as much as you can get your employer to match.

- If you are an Iowan with kids, you can make a 2014 College Savings Iowa contribution that you can deduct on your 2014 Iowa 1040.  The maximum deductible contribution is $3,098 per donor, per beneficiary, so a married couple with two kids can put away $12,392 right now.  The Iowa tax benefit works like an 8.98% bonus to you for putting money in your college savings pocket.

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 242: Lois Lerner Is 2013 Tax Person of the Year.  The TaxProf provides access to a Tax Analysts piece that says:

     While many of the Service’s problems were not necessarily its own fault, the exempt organization scandal was an almost entirely self-inflicted wound. No one personifies that scandal more than Lois Lerner.

Lerner ignited a political and media firestorm when she confessed in May that the exempt organizations unit of the IRS Tax-Exempt and Government Entities Division inappropriately handled many Tea Party groups’ exemption applications.

The now former exempt organizations director’s admission and subsequent refusal to testify before Congress contributed to her becoming the public face of the scandal. Although Lerner does not bear sole responsibility for the IRS’s missteps in processing conservative groups’ exemption applications, the publicity of her role in one of the year’s biggest news stories earns her the distinction of being Tax Notes’ 2013 Person of the Year. 

And in spite of much wishful thinking, it is a scandal.

It’s worth noting that Tax Analysts gives an honorable mention to Dan Alban, the Institute for Justice attorney behind the District Court defeat for the IRS preparer regulation power grab.

 

1040 2013William Perez, How Soon Can a Person File Their 2013 Tax Return?: “The Internal Revenue Service plans to begin processing personal tax returns on Friday, January 31, 2014, for the tax year 2013 (IR-2013-100).”  But don’t even try to get it done until you have your W-2s and 1099s all in hand.

Jana Luttenegger, Reinstating Tax-Exempt Organizations  (Davis Brown Tax Law Blog). She explains new IRS procedures for organizations that have lost their exemption by failing to file annual reports with the IRS.

Kay BellSocial Security taxable earnings cap in 2014 is $117,000. Thousands have already hit that tax limit.

Jason Dinesen, Small Business Planning: Got Your Financial Statements and Budget Done Yet?

Paul Neiffer, Remember Your Simplified Home Office Deduction

TaxGrrrl, What You Need To Know About Taxes In 2014: Expired Tax Breaks, Obamacare Penalties & More.

Russ Fox, 1099 Time.  A look at who has to issue information returns, and who gets them.

 

Robert D. Flach poses AN ETHICAL, AND PERHAPS LEGAL, DILEMMA:

Beginning with the 2014 Form 1040, am I legally, or ethically, required to assess my client a penalty for not having health insurance coverage?  Or can I, as I do with the penalty for underpayment of estimated tax, ignore the issue and leave it to the IRS to determine if a penalty is appropriate?  Will I face a potential preparer penalty if I ignore the issue?

It’s a good question.  I suspect they plan to make us ask the question, under the same sort of rules that make preparers unpaid social workers for the earned income tax credit.  I don’t expect to ever have to ask the question, though, as I think this dilemma will resolve itself by an indefinite delay, and eventual repeal, of the individual mandate as Obamacare falls apart.

 

David Brunori, State Tax Reform Advice for 2014 – Think About Spending (Tax Analysts Blog). Sometimes I think that’s all they think about.  But hear David out:

But in thinking about tax reform efforts in the past year, I am more convinced than ever that our refusal to rethink the size of government makes fixing problems with the tax code impossible. Here is what we know. Cutting government programs is difficult because each program has a constituency that will fight like a gladiator to protect its access to public money. So when the topic of tax reform comes up, conservatives and liberals vow to find a fix that will neither raise nor decrease spending. But we also know that politicians – the majority anyway – generally hate raising taxes. This reflects the fact that most of their constituents hate the idea of paying more taxes. But the costs of government continue to increase. And that leads to worse tax policy as states look to gimmicks, excises, gambling, and other junk ways of collecting revenue. It also ensures that some horrible tax policies are never fixed.

If the government dialed back spending to population-and-inflation adjusted 1990 numbers, I don’t think mass famines would result.

Scott Hodge, Despite Rising Inequality, Tax Code is at Most Progressive in Decades (Tax Policy Blog). I’m not sure “despite” is the right word here.

Annette Nellen, Continued bonus depreciation or tax reform?

Cara Griffith, Cyclists: The Next Great Source of Tax Revenue? (Tax Analysts Blog):

 While I strongly believe taxes should not be used to encourage or discourage behavior, the effect of requiring cyclists to register their bikes is not the big problem with these types of proposals. The real problem is that they don’t raise any revenue. Dowell’s suggestion that a bike registration fee would raise some $10 million for the city of Chicago is a pipe dream. Almost every cent would be used simply to administer the program.

From the interests of the bureaucrats proposing the program, just funding new patronage jobs is a perfectly acceptable result.

Howard Gleckman, Time To Park The Commuter Tax Subsidy (TaxVox)

Peter Reilly, Are IRS Property Seizures The Stuff Of Reality TV?   Now there’s some grim viewing.

The ISU Center for Agricultural Law and Taxation has a shiny new look at its website.

Tony Nitti, Yes Virginia, There Is A Tax Extender Bill In Congress.

The Critical Question: If You Won the Lottery Tomorrow, Would You Still Go to Work? (Going Concern).  Only to clean out my desk, and laugh.

 

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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, 11/25/13: Burning down the parsonage (allowance). And: Red Oak!

Monday, November 25th, 2013 by Joe Kristan

The Tax Update comes from beautiful Red Oak, Iowa, in the Southwest part of the state.  This is the sixth stop in the ISU Center for Agricultural Law and Taxation Farm and Urban Tax School tour for 2013.  Register now if you want a seat in one of the final schools in Denison and Ames!

Flickr image courtesy dvs under Creative Commons license

Flickr image courtesy dvs under Creative Commons license

Sorry, Parson.   A U.S. District Court in Wisconsin ruled Friday that the Sec. 107 parsonage allowance exclusion violates the Establishment Clause of the constitution.  The allowance gives “ministers of the gospel” a much broader tax exemption for housing than is available to other employees.  The “parsonage allowance” even allows tax-free treatment for cash payments when no parsonage is supplied.

Sec. 107 reads in full:

In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

The decision overturns the cash allowance exclusion, but does not affect the exclusion when an actual parsonage is supplied.  That would leave ministers a more generous exclusion than is otherwise provided under Sec. 119, which only allows employees to exclude housing from income if it is provided “for the convenience of the employer” and “on the business premises of his employer as a condition of his employment.”  Many parsonage are not attached to the church, so that’s an important difference.

The decision “shall take effect at the conclusion of any appeals… or the expiration of [the] deadline for filing an appeal,” so for now there is no effect.   But it’s not clear what happens next.  As the losing defendant, there’s no requirement for the Treasury to file an appeal.  Presumably they would at least file an appeal, if only to not disrupt the upcoming filing season, but then they could drop it.  We should know soon whether an appeal will be pursued.

Cite: Freedom From Religion Foundation v. Lew (W.D. Wisc. Nov. 22, 2013)

Peter Reilly provides background, and the TaxProf has a roundup.

 

EFTPSDo you know whether your payroll taxes are up to date?  Some Texas businesses learned the hard way they are not.  Courthouse News Service reports:

A Texas businessman admitted his role in a $133 million payroll scam that prosecutors called the largest fraud in San Antonio history.

Charles Pircher, 61, pleaded guilty Thursday to tax fraud conspiracy and mail fraud conspiracy. He faces up to 20 years in federal prison on the tax charge and up to 5 years for mail fraud…

Pircher managed several San Antonio-based professional employer organizations. From 2002 to 2008 they entered into staff leasing agreements with client companies to manage payroll and insurance programs.

If you use a “professional employer organization” for your payroll service, you may not be able to be sure.  PEOs typically operate as the nominal “employer” of their clients’ employees, so all employees are reported under the PEO’s number.  That makes it impossible for clients to go online on EFTPS, the Electronic Federal Tax Payment System, to check that their payroll taxes are being paid.  PEO clients need to find other ways to be sure their tax payments are getting made, as the IRS will still want their money from the “real” employer if the PEO pockets funds provided to make the payments.

 

Jana Luttenegger, IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog)

TaxProf, The IRS Scandal, Day 200

Kay Bell, Senate Finance chair wants to hear your tax reform thoughts

Paul Neiffer, Senate “Pool” Process to Increase SE Taxes? Sales of equipment would no longer be exempt.

Annette Nellen, California advertising its use tax

Scott Drenkard,  The Tax Bite on Thanksgiving Travel (Tax Policy Blog)

Tony Nitti,  As New Jersey Prepares To Launch Internet Gambling, Congress Has Plan To Tax The Industry

 

Russ Fox wisely advises us Don’t Try This at Home.  He quotes from a Department of Justice Press Release:

If clients were audited by the IRS, THORNDIKE would provide them with blank Goodwill receipts as well as instructions as to how they should create a list of charitable donations that would correspond with the donation value THORNDIKE had entered on their returns. He also would direct his clients to create mileage logs that would support deductions he had entered for employment-related travel.

You need to prepare the return based on the documentation, not the other way around.

 

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Tax Roundup, 11/22/13: Baucus proposes end of depreciation as we know it; also targets LIFO, cash-method farming.

Friday, November 22nd, 2013 by Joe Kristan
Max Baucus

Max Baucus

Baucus aims at LIFO, depreciation.  Senator Max Baucus has issued a tax reform proposal that slows depreciation and eliminates LIFO.  While it is a long way from becoming law — and certainly won’t become law in its current form — it will help shape the next round of tax reform.  Some key points:

-Depreciation for non-real estate assets would be computed not asset by assets, but in “pools,” with a set percentage of the amount of assets in each pool deducted during the year.  If the pool goes negative with dispositions, income is recognized.  There would be four “pools” with varying recovery percentages.

- Buildings would be depreciated under current rules, but over 43 years.

- The annual Section 179 limit would be $1 million, but with a phaseout starting at $2 million of assets placed in service.

- Research expenses would be capitalized and amortized over five years.

- LIFO would be repealed.

- Advertising costs would only be half deductible currently with the rest amortized over 5 years.

- Farmers would lose their exemption from accrual-basis accounting.

I think this goes the wrong way, adding complexity and lengthening lives.  I would prefer more immediate expensing.  LIFO repeal, and maybe the farm rule,  are the only proposals that seem to actually simplify anything.  The rest seem like high-toned revenue grabs.  If the revenue all goes to reduce rates, that wouldn’t be so bad, but I doubt that’s the idea.

 

Victor Fleischer, Tax Proposal for an Economy No Longer Rooted in Manufacturing:

The Baucus proposal aims to make the tax system match economic reality, removing the tax distortions from the equation. It would group tangible assets into just four different pools, with a fixed percentage of cost recovery applied to the tax basis of each pool each year, ranging from 38 percent for short-lived assets to 5 percent for certain long-lived assets.

It would be hard to make the case for giving the priority to tangible assets, and yet that is precisely what current law does by allowing rapid depreciation. At a minimum, the tax depreciation system should strive for neutrality and not discourage investment in intangibles and human capital.

That’s true.  Yet it’s hard to see how the Baucus proposal to require R&D costs to be amortized over five years, or the proposal to require 20-year amortization of intangibles instead of the current 15 years, encourages investments in intangibles and human capital.

Via Lynnley Browning’s Twitter feed.

The TaxProf has a roundup of the plan:  Senate Finance Committee Releases Depreciation and Accounting Tax Reform Plan 

William Perez, Draft Tax Reform Proposals from the Senate Finance Committee

Paul Neiffer, MAJOR Farm Tax Law Changes Proposed by Senate

Leslie Book, Senator Baucus Releases Proposals to Reform Administration of Tax Laws (Procedurally Taxing.

 

St. Louis loses another preparer.  From a Department of Justice Press Release:

A federal district judge in St. Louis has permanently barred defendants Joseph Burns, Joseph Thomas and International Tax Service Inc. from preparing federal tax returns for others, the Justice Department announced today…

According to the complaint, the defendants repeatedly fabricated expenses and deductions on customers’ returns and falsely claimed head of household status for customers who were married in order to illegally understate their customers’ federal tax liabilities and to obtain fraudulent tax refunds. The complaint also alleged that the defendants falsely claimed that some of their customers earned income from businesses that the defendants fabricated or increased the amount of business income their customers earned in order to illegally claim the maximum earned income tax credit on customers’ returns.

The IRS has certainly given their clients’ returns a good going over.  That’s the risk of going with a preparer whose results are too good to be true.

 

Scott Hodge, Andrew Lundeen, America Has Become a Nation of Dual-Income Working Couples (Tax Policy Blog)

20131122-1

Though its a brave man who tells the stay-at-home she’s not “working” after a day spent between taking care of an elderly parent and little kids.

 

Jason Dinesen,  Life After DOMA: What if You Amend One Year But Not the Next?

TaxGrrrl, When Mom and Dad Move In: The ‘Granny-Flat Tax Exemption’ For the Sandwich Generation 

Jana Luttenegger, Electronic Signatures, What’s Next? (Davis Brown Tax Law Blog).  E-filing of wills?

Phil Hodgen, U.S. brokerage accounts after you expatriate

Russ Fox, It’s All Greek to Me. Don’t gamble in Greece, seems to be the point.

 

20121120-2Kay Bell, Ways & Means’ tax plays in GOP anti-Obamacare game plan

Howard Gleckman,  How Washington May Turn June Into Fiscal February (TaxVox).  Yes they’ll be running out of our money again soon.

Christopher Bergin, The End of the Era of Multinationals (Tax Analysts Blog)

Tax Justice Blog, Scott Walker’s Tax Record Will Be on the Wisconsin Ballot Next Year.  Shockingly, TJB doesn’t like Walker.

Tony Nitti, International Tax Reform For Dummies 

Visit Robert D. Flach for fresh Friday Buzz!

 

News from the Profession: New Audit Associate Looking For Prank Ideas, Possibly a New Job in Near Future (Going Concern)

Oh, one more thing: Magnus!

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Tax Roundup, 11/8/13: Kyle Orton gets the bad news about the Tax Fairy. And: how many Lithuanians can you fit into a mailbox?

Friday, November 8th, 2013 by Joe Kristan

tax fairyKyle Orton’s old lawyer fails to find the Tax Fairy, departs the tax business.  From a Department of Justice press release:

A federal court has permanently barred Gary J. Stern from promoting tax fraud schemes and from preparing related tax returns, the Justice Department announced today.  The civil injunction order, to which Stern consented without admitting the allegations against him, was entered by Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois.  The order permanently bars Stern from preparing various types of tax returns for individuals, estates and trusts, partnerships or corporations (IRS Forms 1040, 1041, 1065, and 1120), among others. 

According to the complaint, Stern designed at least three tax-fraud schemes that helped hundreds of customers falsely claim over $16 million in improper tax credits and avoid paying income tax on at least $3.4 million.  Stern allegedly promoted the schemes to customers, colleagues, and business associates.  The complaint alleges that his customers included lawyers, entrepreneurs and professional football players, and some of the latter, including NFL quarterback Kyle Orton, have sued Stern in connection with the tax scheme, alleging fraud, breach of fiduciary duty and professional malpractice. 

Mr. Stern seems to have led his clients on a merry chase after the Tax Fairy, the legendary sprite who can wave her wand and make your taxes disappear.  Kyle Orton is a graduate of Southeast Polk High School near Des Moines, where the truth about the Tax Fairy apparently was not in the syllabus.

Related: Jack Townsend, Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes 

 

20131108-1Maybe Lithuanian apartments are crowded?  USA Today reports:

The Internal Revenue Service sent 655 tax refunds to a single address in Kaunas, Lithuania — failing to recognize that the refunds were likely part of an identity theft scheme. Another 343 tax refunds went to a single address in Shanghai, China.

Thousands more potentially fraudulent refunds — totaling millions of dollars — went to places in Bulgaria, Ireland and Canada in 2011.

In all, a report from the Treasury Inspector General for Tax Administration today found 1.5 million potentially fraudulent tax returns that went undetected by the IRS, costing taxpayers $3.2 billion.

When your controls don’t notice something like that, you have a lot more urgent problems than regulating preparers.   Yet Congress and the Administration think the IRS is ready to take on overseeing your health insurance purchases.  What could go wrong?

Tony Nitti is moved to offer the IRS a proposition:

MR. IRS,

REQUEST FOR URGENT BUSINESS RELATIONSHIP

FIRST, I MUST SOLICIT YOUR STRICTEST CONFIDENCE IN THIS TRANSACTION. THIS IS BY VIRTUE OF ITS NATURE AS BEING UTTERLY CONFIDENTIAL AND ‘TOP SECRET’.

Heh.

 

 

S-SidewalkCosting taxpayers by not taking their money.  Tax Analysts reports ($link):

Democrats seeking to raise revenue in ongoing budget talks have circulated a list of tax preferences they would like to see eliminated, including a provision that allows some wealthy individuals to avoid large payroll taxes, the carried interest preference, and the tax break for expenses businesses incur when moving operations overseas. 

The “provision that allows some wealthy individuals to avoid large payroll taxes” is called Subchapter S.  Form 1120-S K-1 income has never been subject to payroll or self-employment tax.  This bothers the congresscritters (my emphasis):

Commonly known as the “Newt Gingrich/John Edwards” loophole, it is most often used by owners of Subchapter S corporations to avoid the 3.9% Medicare tax on earnings, which costs taxpayers hundreds of millions of dollars every year.  Many S corporation shareholders receive both wages from the S corporation and a share of the S corporation’s profits, but they pay payroll tax only on their wages.

“Costs” taxpayers?  From my point of view, and from that of my S corporation clients, it saves taxpayers hundreds of millions of dollars every year — but keeps it out of the hands of grasping politicians, so it’s perceived as a bad thing, by grasping politicians.

The versions of this “loophole closer” proposed in the past have been lame.  When all they have to offer on tax policy is warmed over lameness like these, they aren’t serious.

 

 

TaxProf, Brunson: Preventing IRS Abuse of the Tax System.  The TaxProf quotes a new article by Samuel D. Brunson:

The IRS can act in ways that violate both the letter and the intent of the tax law. Where such violations either provide benefits to select groups of taxpayers without directly harming others, or where the harm to taxpayers is de minimis, nobody has the ability or incentive to challenge the IRS and require it to enforce the tax law as written.

Congress could control the IRS’s abuse of the tax law. Using insights from the literature of administrative oversight, this Article proposes that Congress provide standing on third parties to challenge IRS actions. If properly designed and implemented, such “fire-alarm oversight” would permit oversight at a significantly lower cost than creating another oversight board. At the same time, it would be more effective at finding and responding to IRS abuse of the tax system and would generally preserve the IRS’s administrative discretion in deciding how to enforce the tax law.

Right now the IRS — and by extension the administration in power — can pick and choose what parts of the law it wants to apply.  For example, the current administration has chosen to allow tax credits for participants in federal insurance exchanges, which the law does not authorize, while unilaterally delaying the employer insurance mandate but not the individual mandate.  Somebody should be able to challenge this sort of fiat government.

 

More on the shutdown of Instant Tax Service, a story we covered yesterday:Irwin

Department of Justice press release: Federal Court in Ohio Shuts Down Nation’s Fourth-Largest Tax-Preparation Firm and Bars CEO from Tax-Preparation Business

 

Irwinirwin.jpgPeter Reilly, Ninth Circuit Rules Against Irwin Schiff Sentence Appeal:

Irwin Schiff is probably one of the more famous alternate tax thinkers.  His seminal work “How Anyone Can Stop Paying Income Taxes” is available in hardcover on Amazon for one cent.

Mr. Schiff appealed his sentence on tax crimes on the basis that his attorney failed to raise a “bipolar disorder” defense and what an attorney I know calls the “good faith fraud” defense — the Cheek argument that you really thought the wacky stuff you were saying is true.  Peter wisely notes:

The problem with the Cheek defense is that you have to be smart to raise it, but if you show that you are too smart, then it does not work.

Its a fine line — smart enough to spend “thousands of hours” researching the tax law, but not smart enough to avoid a massive misunderstanding of it.

 

Jana Luttenegger,  IRS Change to Use-Or-Lose Rule for FSA Accounts (Davis Brown Tax Law Blog): “New IRS rules permit employers to allow participants in a health Flexible Spending Arrangement (FSA) to carry over unused amounts up to $500 from one plan year to the next.”

 

Paul Neiffer, Trusts Get Hit with New 3.8% Tax too. And hard.

Kay Bell, It could be time to harvest capital gains and future tax savings

Rush Nigut,  Careful Planning Necessary When Using Retirement Monies to Fund Startup Business

Brian Strahle, IGNORANCE MAY NOT BE BLISS WHEN IT COMES TO ‘ZAPPERS’  These are software apps designed to hide point-of-sale receipts from the taxman.

Phil Hodgen’s Exit Tax Book: Chapter 9 – Estate and Gift Tax for the Covered Expatriate

Catch your Friday Buzz with Robert D. Flach!

TaxGrrrl,  Former NFL Star Cites Concussions, Receives Prison Sentence For Role In Tax Fraud 

Leslie Book,  TIGTA Report on VITA Errors (Procedurally Taxing)

 

Howard Gleckman,  Can Expiring Tax Provisions Save the Budget Talks? (TaxVox).  “Sadly, it is hard to see how.”

 

Not strictly tax-related, but good reading anyway:  How to Put the Brakes on Consumers’ Debt(Megan McArdle).  Megan points out the wisdom of spending less than you take in, in preference to trying to get the government to cover your shortfalls.

 

News you can use: 3 ways to screw up your next website (Josh Larson at IowaBiz.com)

News from the Profession: Failed PwC Auditor Finds Success in Burning Bridges With This Ridiculous Farewell Email (Going Concern)

 

Quick thinking.  From The Des Moines Register:

A Des Moines man awoke to find a stranger in his living room Thursday afternoon, police said. When the victim confronted the burglar, the suspect reportedly offered to mow the victim’s lawn for $5.

Guy needs to work on his pricing model.

 

 

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Tax Roundup, 11/6/13: Relief for the road warrior? And the futile state corporation income tax

Wednesday, November 6th, 2013 by Joe Kristan
Flickr image courtesy Tom Hilton under Creative Commons license

Flickr image courtesy Tom Hilton under Creative Commons license

Relief for the traveling employee?  Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013″ (S. 1645) was introduced yesterday.  The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days.  From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000.  That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig  – or more likely, saved the need to ignore the filing requirement.

 

Peter Reilly,  Mobile Workforce Act Good Idea But May Need More Limits  “Over the years I have studied the rules for what invokes state income tax withholding requirement.  It varies substantially from state to state.”

 

Elizabeth Malm, Richard Borean, Map: Share of State Tax Revenues from Corporate Income Tax (Tax Policy Blog)

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Notice that it’s a relatively paltry part of Iowa tax receipts, even in a good year, and even with the highest rate in the nation.  Better to repeal it as part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

David Brunori, Feckless Legislators and Corporate Welfare (Tax Analysts Blog)

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

…if once you have paid him the Dane-geld

You never get rid of the Dane.

 

Tax Justice Blog,  Let’s Face It: Delaware and Other U.S. States Are Tax Havens

 

Paul Neiffer, Crop Insurance Deferral Options.  “When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.”  Paul explains what the choices are if the recovery relates to a yield loss.

Tony Nitti, Shareholder Computes Basis In S Corporation Stock Incorrectly, $1.5 Million Loss Becomes $2 Million Gain

 

Jana Luttenegger, Interactive Form to Assist in Applying for 501(c)(3) Status (Davis Brown Tax Law Blog) 

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.

William Perez, CBO: Marginal Tax Rates Faced by Low- and Moderate-Income Individuals.  Helping the poor stay that way.

Andrew Mitchel, 2014 Inflation Adjustments for Individuals in the International Tax Arena

Roger McEowen, Inflation Adjusted Amounts for 2014

TaxProf,  The IRS Scandal, Day 181

TaxGrrrl, Bayern Munich Keeps Winning Even As Their Chief Faces Trial For Tax Evasion.

 

Brian Mahany,  More Guidance on Taxation of Same Sex Marriages

Jack Townsend,  Should You Opt Out of OVDI/P?.  He examines Robert Wood’s discussion of opting out of the IRS “amnesty”

Phil Hodgen’s Exit Tax Book: Chapter 7 – Taxation of Deferred Compensation 

 

Joseph Thorndike, Forget Carried Interest–It’s All About Taxing Capital Gains (Tax Analysts Blog).   He’s right when he says “The only issue that really matters is how we tax capital gains.”  Then he goes off the rails in so many ways.  Read Joseph, and then read Steve Landsberg.

 

A Wednesday Buzz from Robert D. Flach!

May you have this problem.  The Tax Treatment of Olympic Gold Medals (TaxProf)

News from the Profession.  Recruiting Season: Salaries and Offers for the Public Accounting Class of 2014 (Going Concern)

 

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Tax Roundup, 10/31/13: A scary Iowa tax proposal, just in time for Halloween!

Thursday, October 31st, 2013 by Joe Kristan

 

hatchJack Hatch’s income tax plan would raise taxes on all but very small businesses.  

It’s all in the spin.  My headline is just as accurate as the headline in the Des Moines Register on the tax plan announced by Senator Jack Hatch, a Democratic candidate for Iowa Governor.  The Register’s article, though, spins the way the candidate would like: “Jack Hatch’s income tax plan would give break to all but most wealthy Iowans.”  From the article:

Hatch’s plan would get rid of federal deductibility, which allows taxpayers to deduct federal taxes from their state return. His plan would also raise filing thresholds. It would raise the per-child tax credit from $40 to $500. Married couples who are both employed would get a new $1,000 a year tax credit.

And Iowa’s eight rates and brackets, which range from 0.36 percent to 8.98 percent, would be reduced to four.

The top rate would fall slightly to 8.8 percent, although the income at which that rate begins would be raised by 26 percent, according to an analysis of Hatch’s plan by the nonpartisan Legislative Services Agency. The lowest rate would be 3 percent.

Taxes would go up for Iowans who make an adjusted gross income above $200,000, the Legislative Services Agency analysis says. The wealthiest taxpayers would see a small drop in the highest marginal tax rate, but their taxes would go up because they’d lose federal deductibility.

There are two things I hate about this plan and the way it is covered.  First, it makes no mention that a tax on “the wealthy” is really a tax on business.  Most business income is now reported on individual returns:

Source: The Tax Foundation

Source: The Tax Foundation

 

And 72% of that is reported by taxpayers with AGI over $200,000:

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Cutting through the soak-the-rich stuff, what he’s really proposing is a great big tax increase on business.  How that helps Iowa’s economy isn’t explained — I suppose because it doesn’t.

The other part I hate is the whole idea that hurting “the rich” on behalf of “the middle class” is presumed to be just fine.   Heck, let’s go shoplifting at Wal-Mart, they have plenty of money — and it’s for the middle class!

 

I suppose I couldn’t expect Sen. Hatch to embrace the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  I suspect it makes too much sense for any politician to embrace it.

 

This would be a good thing for Iowa: The Benefits of Independent Tax Tribunals (Cara Griffith, Tax Analysts Blog):

States are increasingly turning to independent tax tribunals. Most states now have either a judicial-branch tax court or an administrative-level tax tribunal that is independent of the state’s tax authority. Taxpayers and practitioners have pressed states for independent decision-making bodies for several reasons, including that the judges or administrative law judges who write decisions are impartial and knowledgeable in tax issues and that the opinions should more consistently and transparently apply the tax law because they will be published. 

Iowa, unfortunately, has only administrative tribunals and regular courts.  The judges know little about taxes, especially income taxes, and tend to defer to the State, even when it tortures law and logic.

 

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

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

TaxProf, NY Times: The Marginal Tax Rate Mess.  Even the New York Times is noticing the high implicit marginal tax rates on means-tested welfare programs, like the earned income tax credit:

As a result of losing eligibility for means-tested benefits, low-income and middle-income families sometimes experience much higher marginal effective tax rates (sometimes exceeding 90 percent) than those at the top of the income distribution. Phase-outs for any one program may not be large, but participation in several programs creates a cumulative effect. 

They “help the poor,” as long as they stay that way.

 

 

 

 

59pdhyef59pdhyefJoseph Henchman, Remembering the Deceased Iowa Pumpkin Tax You Helped End (Tax Policy Blog).

59pdhyefTaxGrrrl,  Social Security Benefits Will Not Keep Pace With Tax Contributions In 2014 

59pdhyef

Jana Luttenegger, Social Security Benefits to Increase in 2014 (Davis Brown Tax Law Blog)

Robert D. Flach,  HAPPY HALLOWEEN – SOME TREATS FROM THE SOCIAL SECURITY ADMINISTRATION

Phil Hodgen, Chapter 3 – Paperwork for Expatriates and Covered Expatriates

Kay Bell, Colorado taxpayer group files lawsuit to overturn candy tax

Me, IRA is to startup funding as dynamite is to kindling.  My new post at IowaBiz.com, the Des Moines Business Record Business Professionals Blog.

 

Christopher Bergin, What’s a UDITPA? (Tax Analysts Blog)

Andrew Lundeen, Scott Hodge,  The Income Tax Code Is More Progressive than It Was 20 Years Ago (Tax policy Blog).  “The top 1 percent of taxpayers pay a greater share of the income tax burden than the bottom 90 percent combined, which totals more than 120 million taxpayers. In 2010, the top 1 percent of taxpayers—which totals roughly 1.4 million taxpayers—paid about 37 percent of all income taxes.”

Tax Justice Blog, Bruce Bartlett Is Wrong: New Conclusions on the Corporate Income Tax Change Nothing.  Nothing ever changes at TJB!

Government officials defend increased funding for their agencies.  Iowa police chiefs defend traffic cameras (KWWL.com)

 

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Tax Roundup, 10/25/13: No production deduction for direct-mailer. And: the brain-damage excuse.

Friday, October 25th, 2013 by Joe Kristan


199
Direct mail operator fails to qualify for “Domestic Production Activity Deduction.”  
One of the sillier parts of the tax law is the 9% deduction for nothing given to “producers” of manufactured, constructed, raised or mined property.  If all you do is manufacture, you get 9% off the top of your taxable income under Section 199.

In a modern interconnected economy, distinguishing between “manufacturing” and other activities is silly.  The law is made more silly because it has special interest provisions allowing some architects and engineers to take the deduction.  Sure you need them for a construction project, but just try getting a building up without lawyers and accountants, too.

The law’s unwise distinction between “production” activities and other activities encourages taxpayers to try to qualify, and forces the courts to try to draw distinctions.  That happened yesterday when the Tax Court looked at a direct mail operator’s Section 199 deduction.  From the Tax Court opinion:

 During 2005, 2006, and 2007, ADVO distributed direct mail advertising in the United States. Direct mail advertisers such as ADVO distribute advertising material through the U.S. Postal Service (USPS) to residential recipients, who are the targeted potential customers for the products and services sold by ADVO’s clients, the advertisers. The advertising material can be either “solo direct mail” or “cooperative direct mail”. For solo direct mail, the printed advertising material of a single advertiser is delivered in a stand-alone envelope or as a postcard to a residential recipient. For cooperative direct mail, also known as a shared mail package, the printed advertising material for several different advertisers is consolidated into a single delivery mechanism (such as an envelope or sleeve) and delivered as a single unit to residential recipients.

The court had to go through an elaborate analysis of whether ADVO was a “manufacturer.”  Judge Wherry concluded:

After careful review of all of the aforementioned factors in the light of the specific facts and circumstances of this case, we find that ADVO did not have the benefits and burdens of ownership while the advertising material was printed.

This implies ADVO was a “contract manufacturer,” and that its customers might have qualified.  It also implies that if ADVO had structured its paperwork differently, it might have won.  If this deduction is repealed in return for lower rates for everyone, we’ll all win.

Cite: ADVO, Inc. and Subsidiaries, 141 T.C. No. 9

Related: TREASURY ISSUES ‘PRODUCTION DEDUCTION’ PROPOSED REGULATIONS and LINK TO SECTION 199 POWERPOINT SLIDES

 

Iowa announces business property credit applications open.  From a Department of Revenue Press Release:

Applications for credit against 2013 property tax assessments must be received by the county or city assessor by January 15, 2014.  The actual amount of credit each property unit will receive depends in part upon the total value of all property units and the average consolidated rates in each unit.  The credit calculation is designed to spend ninety-eight percent of the amount appropriated by the Legislature to the Business Property Tax Credit Fund.  For the first year of the credit $50 million was appropriated to the Fund.  The Legislative Services Agency has estimated that the maximum first year credit amount will be approximately $523.

It applies to “certain commercial, industrial, and railroad properties.  More information here.

 

Careful fiscal stewardship.  A judge awarded $7 million in attorney fees for the legal team that forced Des Moines to refund $40 million in illegally-collected taxes.  The city fought the refund to the supreme court, so they incurred hefty legal fees on top of those they are paying for the plaintiffs.   Well done, Des Moines!  It could have been worse, as the attorneys requested twice the amount — and some attorneys in the story linked above think they may get it on appeal.

It will be interesting to see whether this is an issue in next month’s city elections.

 

Andrew Lundeen,  Income Taxes Account for the Largest Share of Federal Revenue (Tax Policy Blog):

20131025-1

 

Paul Neiffer, 180 Months Means 180 Months!:

In Estate of Helen Trombetta vs. Commissioner, the Tax Court essentially ruled creating a grantor trust with retained interests having a term of 180 months, you better make sure you live for at least 181 months if you want to save on estate taxes.

Hang in there, in other words.

 

Jason Dinesen, Insolvency and Canceled Debt: Make Sure You Can Prove It!  You really have to be tapped out to exclude debt-cancellation income from taxes.

TaxProf, The IRS Scandal, Day 169

Christopher Bergin, Loving You Is Easy (Is It?) (Tax Analysts Blog).  He unwisely thinks IRS regulation of tax preparers will do more good than harm.

Oh, boy.  New Comprehensive Tax Reform Plan from Citizens for Tax Justice (Tax Justice Blog)

Jana Luttenegger, Estate Planning Awareness Week, Oct 20-26 (Davis Brown Tax Law Blog)

Kay Bell, Obamacare to blame for the 2014 tax filing season delay?

Jack Townsend, Switzerland as Club Fed for Swiss Enablers of U.S. Tax Crimes  Given the alternatives, confinement to Switzerland isn’t the worst thing that could happen.

 

Quotable.  David Henderson:

By preventing insurance companies from pricing for pre-existing conditions, Obama has almost destroyed the market for individual insurance. He has taken one of the few parts of the health care that worked pretty well–the market for individual insurance–and badly wounded it. Unless this part of ObamaCare is repealed, we will still have a mess on our hands.    

Sadly, that magical thinking provision will be the hardest to undo.

 

Catch your Friday Buzz from Robert D. Flach!

 

TaxGrrrl,  Vatican Suspends ‘Bishop Of Bling’ Over $40 Million Home Renovation.  How?  “In Germany, churches are largely funded by taxes – there is no direct prohibition between mixing Church and State as there is in the United States.”

 

News from the Profession: McGladrey Tax Associate Opts for Pedantry in His Farewell Email (Going Concern)

 

20131025-2My brain made me do it.  Former football star says brain injury spurred tax evasion.  WFTV.com reports:

That former football star, Freddie Mitchell, hoped an Orlando federal judge would show him mercy Tuesday.

Mitchell, a retired Philadelphia Eagles wide receiver, was convicted in an elaborate tax fraud scheme in which he cheated the government out of millions of dollars.

AccountingWeb.com reports that Mr. Mitchell pleaded guilty to help recruit an NBA player for whom a co-conspirator claimed false refunds, which Mr. Mitchell claimed a share.  He allegedly claimed over $2 million in other false refunds through an LLC.

So the brain was damaged enough to commit crime, but not so much that it kept him from a drawn-out plan to defraud people and to use an LLC to do it.  It’s funny how nobody ever blames brain injuries for, say, giving their life savings to charity.

 

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