Posts Tagged ‘Janet Novack’

Tax Roundup, 4/21/14: Clearing the wreckage edition. And: Tax Court penalty abuse.

Monday, April 21st, 2014 by Joe Kristan

20140330-2So I took a five-day weekend.  I needed the sleep, and to see something besides the office, my bed, and my commuting route.  So now to clear the debris of the last few weeks from my desk, and my email inbox.

And I come back to see perhaps the dumbest thing ever to come out of the Tax Court.  Janet Novack reports:

“Taxpayers rely on IRS guidance at their own peril,” Judge Joseph W. Nega wrote in an order entered  on April 15th —an order denying a motion that he reconsider his earlier decision to penalize tax lawyer Alvan L. Bobrow for making an IRA rollover move that IRS Publication 590,  Individual Retirement Arrangements (IRAs), says is allowed.

Which is more astounding: he IRS decision to seek penalties against a taxpayer for following IRS guidance, or the Tax Court going along?  A great deal of what we do as professionals, and what taxpayers do, is in reliance on IRS guidance, because often that’s all there is to go on.  If you can get hit with a penalty for following IRS guidance if the IRS changes its mind, we’re all avoiding disaster only as long as the IRS is in a good mood.

This unwittingly goes to the heart of the IRS non-enforcement of the Obamacare employer mandate. The statute provides that the penalty tax on those with 50 or more employees starts this year if they fail to provide specified health insurance.  Nothing in the statute provides otherwise.  The only thing standing between all these employers and massive penalties is IRS guidance — y0u know, the guidance that Judge Nega just said taxpayers rely on “at their own peril.”

The whole Tax Court should reconsider this order.  If they decide that something that stupid really is the law, Congress should reverse with legislation providing that taxpayers relying on written IRS guidance should never be penalized for it.

 

20130419-1Megan McArdle kindly linked to me last week in You Can’t Fight the IRS – specifically, to Tax season tip: when you owe and can’t pay.  She added some thoughtful commentary, including:

 There are basically three types of tax trouble. There is “I was underwithheld at work because my salary changed over the course of the year but didn’t realize it” or “I’m a freelancer or small-business owner, and I forgot to put away enough money for taxes, or I incorrectly estimated what my tax bill would be.” Then there is “I am a small-business owner or otherwise self-employed, and I am on the brink of financial collapse; the money with which I hoped to pay the taxes had to go to keep my creditors (barely) at bay.” And, of course, though I hope this is not you, there is “I have been cheating on my taxes.”

She notes that different troubles require different solutions.

Thanks to her link, and to one from Instapundit to the same post, last week was the busiest around here all year.  My thanks to them, and to everyone who takes the time to link here.  You rock my little world.  If you ever want to link to just a piece of a Tax Roundup, you can do so if it starts in blue bold letters, like the words “Megan McArdle” at the beginning of this segment.

 

While I was too busy to do Tax Roundups at the end of tax season, I missed some excellent Bozo Tax Tips from Russ Fox, including Bozo Tax Tip #1: The Eternal Hobby Loss

 

Greg Mankiw,Transitory Income and the One Percent:

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution….  

-Quoting a NY Times article by Mark Rank

Occupy… yourselves!

 

Jason Dinesen, Another Tax Season Down — 2014 Tax Season Recap 

Paul Neiffer, Another Tax Season Bites the Dust.  “This year was actually much easier on myself and I think most of my compatriots since we did not have Congress passing a tax bill on the last day of the year to mess up the IRS computers (although the computers have other issues to deal with).”

TaxGrrrl, IRS Reports Tax Filing Numbers As Expected, Issues Statement On Refund Delays 

Robert D. Flach, THAT WAS THE TAX SEASON THAT WAS.  “43 down – 7 to go!”  I hope to stop before 43, myself.  Robert is tougher than I am.

In case you missed it, you can see my April 15 interview with local TV station KCCI here.

 

 

Locust Street, Des Moines

Locust Street, Des Moines

Tony Nitti, Tax Geek Tuesday: Tax Planning For Mergers And Acquisitions, Part I.  “…if we spend the time necessary to uncover and understand our clients’ non-tax and tax goals, we will typically find that choosing an ideal transaction structure is largely a process of elimination, and when the dust settles, there will often be only one option that works.”

Peter Reilly, Sawyer Taxi Heirs Midcoast Fortrend Deal – Could Have Been Worse.  It involves a C corporation attempting to have its cake while eating it too, by paying stock-deal tax on an asset sale.

Christopher Bergin, Tax Day – It Just Isn’t Fair (Tax Analysts Blog)  “I suppose the only good news is that in the last several days, there have been dozens of items in the news reporting that the IRS is doing fewer audits.”

Tax Justice Blog, Partners in Crime? New GAO Report Shows that Large Corporate Partnerships Can Operate Without Fear of Audits

Kyle Pomerleau, Why Many People are Wrong about Executive Pay and the Corporate Tax Code.  “A neutral tax code that properly defines business income would place no restriction on how much a business can deduct in compensation.”

Howard Gleckman, If Congress Lets Firms Expense Investments, It Should Take Away Their Interest Deduction.  Fine, if you let them deduct dividends.

 

Going Concern, Utah Man Discovers Liberty Tax Not as Effective as Maury Povich in Determining Paternity.

 

 

Share

Tax Roundup, 3/26/14: Using Bitcoins regularly will get you a really long Form 8949. And: underpants!

Wednesday, March 26th, 2014 by Joe Kristan


Bitcoin
Bitcoins may act like money, but IRS says they aren’t.  
The IRS yesterday announced how that it will treat Bitcoin “virtual currency” as property, rather than currency, for tax purposes.  Notice 2014-21 lays out the IRS treatment of Bitcoin and similar virtual money.  Some key points:

- As property, gains and losses on Bitcoin are normally capital gains and losses, unless the taxpayer is a dealer in Bitcoins.  That means losses are limited to capital gains plus $3,000 for individuals.  This contrasts with currency transactions, which normally generate ordinary income and loss under Section 988.

Transactions in virtual currency will normally generate gains and losses:

If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.

That makes using Bitcoins a hassle for taxpayers who try to follow the law.  Everytime you buy something with Bitcoin, you will have a capital gain or loss, depending on fluctuations in the Bitcoin market.  Imagine if you had to record a little capital gain or loss based on the currency markets anytime you bought anything with cash.  If you use Bitcoins every day you’ll have a horrifying Form 8949 to report all of your gains and losses.

The basis in virtual currency is its value on date of receipt, if you acquire it in a transaction.  That same value is the amount you use to compute income if you are paid in virtual currency

- They point out the obvious:  “A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.” Also, payments in virtual currency are subject to information reporting, same as cash.

Virtual currency “miners” generate ordinary income.  If they do it as a trade or business, it’s subject to self-employment tax.

The TaxProf has more; Accounting Today also has coverage.  Peter Reilly has Bitcoins Not Tax Fairy Dust – Second Life Still A Tax Haven?, wisely noting that the virtual currency isn’t generated by the Tax Fairy.  And TaxGrrrl weighs in with IRS Says Bitcoin, Other Convertible Virtual Currency To Be Taxed Like Stock .

 

Ashlea Ebeling, Supreme Court Says FICA Tax Due On Severance Pay:

What the Supreme Court decision means for employers is that what had long been the case –severance pay is subject to FICA tax—remains the case. And for employees who are laid off, it means that they will continue to get a little less in “take-home” severance because it’s dinged for their share of FICA tax.

It seemed like a reach to say otherwise, but now it’s not even that.

 

 

A hard-working fictional student.

A hard-working fictional student.

O. Kay Henderson, Legislators ponder tax credit for student loan payments.  A truly awful idea.  This credit doesn’t encourage getting higher education; it encourages borrowing to pay for higher education.  As an unintended but obvious consequence, it discourages saving to pay for college — there’s no tax credit for foregoing current consumption to pay for college later.  It’s stunning that lawmakers actually want to encourage more student debt when many students already are entering a brutal job market with crushing loan obligations.

Joseph Henchman has two posts at Tax Policy Blog that should be read together: Wisconsin Approves Income Tax Reduction, Business Tax Reforms and Who Would Pay a Higher Illinois Income Tax?  Not the folks that move to Wisconsin, for sure.

 

Jason Dinesen, More on the 0.9% Medicare Tax and Iowa Tax Returns

Paul Neiffer, Schedule F Reporting Update:

I got some feedback on my previous post on Tax Reform and low Schedule F reporting of income. Several sources of farm income does not show up on a Schedule F. This includes many common sales of farm assets such as breeding stock and equipment. Most of the expenses associated with this income is deducted on Schedule F, however when these assets are sold, none of the gains appears on Schedule F.  Rather, this income is usually reported on Form 4797.

That still doesn’t change the fact that these simple farmers play the cash method like a violin to achieve tax results other businesses can only dream of.

Tony Nitti, Tax Geek Tuesday: Demystifying The Deduction Rules For Accrued Liabilities   

William Perez, Identity Theft and Your Income Taxes

Kay Bell, IRS gives Colorado flood victims until Oct. 15 to file 2012 or 2013 tax returns claiming disaster losses

Janet Novack, Gotcha! Tax Court Penalizes IRA Rollover That IRS Publication Says Is Allowed   

 

David Brunori, Hang On to Your Wallets (Tax Analysts Blog)

Howard Gleckman, Dave Camp’s Plan for the Expired Tax Provisions: An Almost-Good Idea (TaxVox)

TaxProf, The IRS Scandal, Day 321

Tax Justice Blog, State News Quick Hits: To Cut or Not to Cut?

 

Joseph ThorndikeRaising Taxes on the Rich Won’t Balance the Budget — But It’s Still Important (Tax Analysts Blog):

 The modern American fiscal state is predicated on a bargain. During World War II, lawmakers were forced to expand the personal income tax to help pay for the fighting. Over the course of just a few years, they added millions of middle-class Americans to the tax rolls for the first time, transforming the income tax from a rich man’s burden to a middle-class millstone. In return, however, these same lawmakers offered the middle class an implicit (and sometimes nearly explicit) guarantee — rich people would be asked to pony up, too.

Cool story.  Let’s see how that works nowadays:

Top 1 pays more than bottom 90

Chart by Tax Foundation

So now the “rich” aren’t paying their “fair share,” they’re picking up most of the tab.  How does it work if you break it down further?

20131030-2

So not only do “the rich” pay their share of the freight, they pay a lot more than their share of earnings.  And when you take government benefits into account, the whole “fair share” argument is tough to support:

givers and takers

Chart by Tax Foundation

I don’t buy Joseph’s “social contract” thinking.  The whole emphasis on inequality being peddled by the administration is a diversion, an attempt to change the subject from the manifest failures of Obamacare and foreign policy blundering.  No matter how hard they hit “the rich,” or how bad doing so is for the overall economy, there is never a point where the politicians will say the rich are being hit enough.

To the extent “inequality” persists, it’s clearly not a direct function of the tax code or government spending.  Politicians, though, find it useful to encourage the belief that they can spend on whatever pleases the crowd by just by making the rich pay their “fair share” — as if they weren’t already.  It’s the flip side of the widespread belief that the government can just balance the budget by cutting foreign aid.   It’s just an attempt to fool the gullible long enough to win another election.

 

Going Concern, Thrift Shops Issue Specific Guidance on Deduction Amounts for Used Underpants.  I didn’t know there was a deduction for toxic waste.

 

Share

Tax Roundup, 3/18/14: Now it gets serious. And: a foolproof plan goes awry.

Tuesday, March 18th, 2014 by Joe Kristan

 

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

OK, we’ve got all of the corporations done or extended.  Now it gets serious.

For the last several years, our 1040 practice has become more and more a three or four-week death sprint.  Most of our individual returns are business owners or executives, or their families.  That means most of them are waiting on K-1s.  Ever since the enactment of the reduced dividend rate, it has taken longer every year for brokerages to issue their 1099s.  It’s common for “corrected” 1099s to come out several weeks after the originals.  So it just takes longer for our clients to assemble their 1040 data.

While the start of the returns is delayed, April 15 is still April 15.  That means all of the most complicated returns hit in the four weeks after the corporate return deadline.  This isn’t good for many reasons — not least of which is that you don’t want a bleary-eyed tax pro helping you deal with big-dollar decisions, like the grouping options under the passive activity rules that kick in this year.

What I’m getting at: if your tax pro recommends an extension, don’t object.  This stuff is hard — if it wasn’t, you wouldn’t be paying someone else to do it.  You don’t want to risk an expensive mistake by rushing things.  There is nothing to the myth that extensions increase your risk of getting examined.  I have extended my own 1040 every year for 20+ years without an exam.   Errors, on the other hand, absolutely do increase your audit risk.

Your tax return is worth the wait.

 

Russ Fox, The Flavor of the Season

 

20140303-1Paul Neiffer, Real Estate Includes Land but Not For Depreciation Purposes.

William Perez, Alternative Minimum Tax

TaxGrrrl, Taxes From A To Z (2014): I Is For Internal Revenue Code

Leslie Book, Insider Trading and Forfeiture of Millions in Stock Gains Runs into Section 1341 and Issue Preclusion (Procedurally Taxing)

Janet Novack, Former Qwest CEO Could Score $18 Million Tax Refund For Forfeited Insider Trading Profits

Kay Bell, College bowl tax audits and Colorado pot taxes.

 

Marc Ward, Annual Financial Statements Must Now be Delivered to Shareholders:

One of the changes to the Iowa Business Corporation Act that went into effect this year is a new requirement that corporations deliver financial statements to their shareholders. These financial statements must include a balance sheet, an income statement and a statement of changes in shareholders’ equity.  The financial statements must be sent within 120 days of the end of the fiscal year.

I did not know that.

 

taxanalystslogoJeremy Scott asks, Would a Republican Senate Improve the Chances for Tax Reform? (Tax Analysts Blog):

Republican chances for retaking the Senate have improved… 

And that would be good for tax reform proponents, even those who don’t support GOP policies or want to see Republicans in office. Senate Democrats aren’t interested. And they aren’t going to work with a Republican House at all. Tax reform takes a lot of legislative groundwork, and right now at least, the GOP is the only party with any real interest in doing it.

There is, of course, another factor.  I don’t think President Obama will sign anything big coming out of a GOP Congress.

William McBride, Some Questions Regarding the Diamond and Zodrow Modeling of Camp’s Tax Plan. (Tax Policy Blog).

Eric Todor, Who Should Get the Tax Revenue from Apple’s Intellectual Property? (TaxVox)

TaxProf, The IRS Scandal, Day 313

 

Great moments in tax evasion.  A Texan who was worried about being sentenced to prison came up with an ingenious plan: hire someone to murder the sentencing judge.  Because then the court system would just forget about him, or something.

Somehow that plan went awry, and Phillip Ballard was sentenced to 20 years in federal prison yesterday for his trouble. Mr. Ballard is 72.  This will impact his retirement options.  (via Going Concern)

 

Share

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

Thursday, February 27th, 2014 by Joe Kristan

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

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

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

 

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

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

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

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

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

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

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

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

Alternative Minimum Tax would go away.  About time.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Other Things:

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

Jason Dinesen, Glossary of Tax Terms: Depreciation 

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

 

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

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

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

 

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

 

Share

Tax Roundup, 2/6/14: 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.

 

Share

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

Wednesday, January 15th, 2014 by Joe Kristan

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

 

Wikipedia image

Wikipedia image

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

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

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

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

Related:

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

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

 

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

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

Top 1 pays more than bottom 90

 

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

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

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

 

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

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

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

microsoft-apple

 

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

William Perez discusses Prices for Professional Tax Preparation Services.

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

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

 

TaxProf, The IRS Scandal, Day 251

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

 

Share

Tax Roundup, 11/4/13: The price of being acquitted. And more on the Hatch Iowa tax plan.

Monday, November 4th, 2013 by Joe Kristan

daugerdas.jpg

Chilling effects.  Tax Analysts story ($link) about last week’s conviction of tax shelter figure Paul Daugerdas, and the acquittal of the former chairman of BDO on related charges, has a sobering final paragraph:

Regarding Field, Edward M. Robbins Jr. of Hochman, Salkin, Rettig, Toscher & Perez PC noted the difficulty in obtaining an acquittal in the face of multiple tax-related conspiracy counts in federal court. “I looked at the . . . docket sheet for the entire case and wondered how much it cost Mr. Field for his acquittal,” Robbins said. “I’d say at least a couple of million dollars. That’s what it takes to beat a case like this at trial.”

It doesn’t help at all when the government freezes your assets before trial, as they did here.  And if justice can only be had for $2 million, what chance does somebody have who lacks the the kind of wealth these defendants have?

TaxProf, Daugerdas (Jenkens & Gilchrist) Convicted, Field (BDO) Acquitted in Tax Shelter Case

Jack Townsend,  On Retrial, Daugerdas Convicted and Field Acquitted

 

Source: The Tax Foundation

Source: The Tax Foundation

Kathie Obradovich:  Hatch tax-cut proposal has winners, losers (Des Moines Register):

The second thorny issue is that Hatch has decided to raise taxes significantly for the highest income groups. For people making between $250,000 and $1 million, the percentage increase is in the range of 33 percent to 45 percent. That’s a major sticker shock for high-income Iowans. That’s less than 5 percent of taxpayers. But even if it were 1 percent or less, Hatch loses the ability to argue that he won’t raise Iowans’ taxes.

Hatch says he’s trying to make Iowa’s income tax fairer, not just lower. The highest wage-earners are paying a lower percentage of their income, he said. His plan also increases the per-child deduction from $40 to $500 and gives married couples who are both employed a credit of $1,000.

That’s attractive, to be sure, but a plan that at least held higher-income Iowans harmless would have broader political appeal. The arguments about the wealthy paying their fair share just don’t resonate the same way during a time of budget surpluses as they do on the national level in the face of enormous debt.

Of course, a tax on “the rich” means a tax on “business.”  A 33 to 45 percent increase on taxes on Iowa businesses doesn’t promise much in the way of either “fairness” or employment growth in Iowa.

It could be a good thing to have Iowa’s horrible income tax system be a big campaign issue.  It would be nice to get a mandate for serious tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  Probably too much to hope for.

 

Andrew Lundeen, Scott HodgeTop One Percent Pays Twice Income Tax Rate of All Taxpayers (Tax Policy Blog):

20131104-1Despite conventional wisdom that the Bush-era tax cuts disproportionately benefited the wealthy, the reality is that the tax burden on the bottom 99 percent has been falling for more than two decades. Indeed, the average tax rate for the bottom 99 percent of taxpayers is now below 10 percent—well below the average for all taxpayers—thanks to years of targeted tax cuts aimed at the middle class. Meanwhile, the top 1 percent of taxpayers still pays an effective tax rate that is roughly twice the average for all taxpayers.

But politicians insist that raising taxes on “the rich” is always somehow “fairness.”

 

#Paul Neiffer,  Some Thoughts on Section 179 & Bonus Depreciation:

Remember that Section 179 is allowed for new AND used equipment, while bonus is only on NEW equipment.  You cannot take Section 179 on trade-in basis of old equipment, but can use it for bonus.  Section 179 applies to farm equipment and single purpose farm structures and land improvements.  Bonus applies to all farm assets including buildings.

I give about a 60% chance of 2013 bonus depreciation being extended into 2014, and about 80% on Sec. 179.  For planning purposes, though, it’s wise to try to get the assets in service in 2013 if you can.

 

Peter Reilly,  When Planning Never Forget The Alternative Minimum Tax:

I’m hoping that I get some commenters who tell me that they keep meticulous track of all AMT carryovers for their clients and do a detailed reconstruction whenever they take on a new client.  I bet they floss regularly too.

Well, yes and yes.

Tony Nitti, The Definitive Questions And Answers On The New Net Investment Income Tax   

59pdhyef

TaxGrrrl, 11 Uses For Leftover Halloween Candy (And The Resulting Tax Consequences)

Russ Fox, Bubba Paris Sacked, Pleads Guilty to Not Filing a Tax Return

Robert D Flach, 2014 INFLATION-ADJUSTED NUMBERS.  Also, his Friday Buzz last week went up late, but is always worth the wait!

 

Phil Hodgen’s series on expatriate taxation: Chapter 5 – Mark-To-Market Taxation 

Janet Novack, IRS Says Race Car Driver Juan Pablo Montoya Used Sham To Wrongly Deduct Millions

TaxProf, The IRS Scandal, Day 179

Tax Justice Blog, Paul Ryan Says No to Any Revenue Increase, Again.  Good.

 

Share

Tax Roundup, 11/1/13: Unhappy Halloween for tax shelter maven. And: clunk!

Friday, November 1st, 2013 by Joe Kristan

 

tax fairyGuilty again.  Former Jenkens and Gilchrist tax shelter wizard Paul Daugerdas was again convicted on tax crime charges yesterday arising out of the great tax shelter frenzy of the Clinton and Bush II years.   A previous conviction was overturned on grounds of juror misconduct.  Bloomberg Businessweek reports that he was convicted on seven of 16 counts.

A co-defendant, former BDO Seidman CEO Denis Field, was acquitted.

Mr. Daugerdas built a fortune around tax shelters with clever names like “HOMER,” “CARDs” and “BLISS.”  The shelters typically involved offsetting investment positions, with losses allocated to shelter customers and gains allocated to tax-indifferent offshore entities.  The shelters have fared poorly on exam and in the courts, with a nearly unbroken record of failure in litigated cases.

Mr. Daugerdas built a fortune around selling access to the Tax Fairy, the magical sprite who waves her wand to make tax problems go away.  The news that there is no tax fairy proved costly to his clients, and probably also to him.

Link: Prior Tax Update Daugerdas coverage.

 

20121212-1Clunk.  Cash for Clunkers was an expensive boondoggle, reports the Brookings Institution.  The study estimates that the program cost $1.4 million per “job created” while destroying thousands of perfectly good vehicles and raising transportation costs for those who rely on used cars.

Related:  Braley: “Cash for Clunkers” phenomenally successful (Radio Iowa)

Kyle Pomerleau,  Cash for Clunkers: Not Much of a Stimulus (Tax Policy Blog)

 

TaxGrrrl, IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More   

 

Paul Neiffer,  Calculating Cost Basis Wrong Can Be Costly!

Peter Reilly,  Actuary In Tax Court Beats Northwestern And IRS On Accuracy Of 1099-R.

Janet Novack, Top Social Security Tax To Rise 2.9% In 2014; Benefits Going Up 1.5%

Tax Trials, IRS Resumes Field Exams & Collections.  The shutdown is truly over.

Phil Hodgen’s  series on the expatriate exit tax continues with Chapter 4 – Are You A Covered Expatriate?

TaxProf,  The IRS Scandal, Day 176

Robert D. Flach is celebrating his 60th birthday with a sale.

 

Howard Gleckman,  As Budget Talks Start, Beware the Bogus Revenue Hikes (TaxVox) “But behind the scenes, Washington’s wink-and-nod crowd thinks it has a solution: Raise new tax revenue—at least on paper—without actually increasing taxes. In fact, some of the gimmicks on the table create even darker Halloween magic.”

Tax Justice Blog, Kansas: Dispatches from a Failing Experiment

 

Going Concern,  Career Conundrum: Is a Master’s Degree Worth It?  It’s all relative.  To me it was, because my it was in Accounting, while my  B.A. was in History — a noble field, but one with grim employment prospects.  If you have an undergrad degree, I’m not so sure it’s worth forgoing a year or two of salary.  If you don’t have a job anyway, it may be the edge you need.

 

Kay Bell, A colorful way to ease IRS notice fears:

Adam Chodorow, however, has an idea of how to ease such tax correspondence induced panic attacks.

Chodorow, a professor at Arizona State’s Sandra Day O’Connor College of Law, suggests color-coding so that taxpayers will immediately know the amount of tax trouble they are in. This, he says, could abate taxpayer stress.

If the IRS could be relied on to issue accurate notices, that would be lovely, but incorrect “red” notices would probably induce a rash of taxpayer heart episodes.

 

Share

Tax Roundup, 10/21/2013: Obamacare and Iowa small business. And the spiritual side of tax credit fraud!

Monday, October 21st, 2013 by Joe Kristan

Tomorrow is the 27th Anniversary of the Internal Revenue Code of 1986.  I assume many of you will leave work early today to prepare for the festivities.

20121120-2Things may not be going well for Obamacare when the Des Moines Register finds itself  coping with the concept of unintended consequences, in Few small businesses sign up for tax credits:

 The Affordable Care Act offers a tax credit to entice more small businesses to offer health insurance. But few small-business owners have taken advantage of it so far. And the law could have the unintended effect of prompting small businesses to drop coverage, which would make their employees eligible for individual subsidies on the new health insurance exchanges, insurance experts and business owners told The Des Moines Register.

The article gives a surprisingly realistic view of how Obamacare looks to employers, and why the much-touted small employer tax credit doesn’t work for many employers:

Jesse Patton, a West Des Moines insurance broker and president-elect of the Iowa Association of Health Underwriters, said the tax credit’s confusing rules narrow its appeal.

The credit is available for employers that have fewer than 25 employees making an average of less than $50,000.

“But you start to get a reduction in that credit if you’re over 10 employees and over $25,000 income,” he said.

Also, business owners can’t take the credit for any family members, and many small firms include relatives. Patton’s eight employees include himself, his wife, his son and his daughter-in-law.

“That’s typical for a small business,” he said.

And jumping through the hoops isn’t free:

“Unfortunately, when everybody gets through all of that formula, which is complicated, and pay their accountant $600 to do it, they’d be better off to just take the normal tax deduction versus the credit,” Patton said.

When even the Des Moines Register is starting to get the point about the unintended consequences of Obamacare, it’s in trouble.

 

Megan McArdle has an excellent summary of the current state of the Affordable Care Act in Four Things We Think We Know About Obamacare.  It’s worth reading the whole thing, but this tax nugget is important:

The penalty for being uninsured next year is $95. Again, this is partly true. In fact, the penalty for being uninsured next year is $95 or 1 percent of your income, whichever is higher. So if you make $75,000 a year and you decide to go without insurance, the penalty will be $750. There are a number of things you can do to avoid having to pay it, from deliberately getting your utilities shut off to under-withholding taxes from your paycheck so that they don’t have a refund from which to take out the penalty. But that number is what will go on the books at the Internal Revenue Service, not the $95 you’ve probably heard.

If it remains somewhere between difficult and impossible to buy through the exchanges, this poses an obvious problem.

 

amazon

Joseph Henchman, Illinois Supreme Court Strikes Down “Amazon Tax” (Tax Policy Blog):

Most of the legal challenges to these laws have focused on whether the state power exceeds constitutional limits under the Commerce Clause, but the Illinois Supreme Court focused on this disparity between Internet advertisers and traditional advertisers. Ultimately, the court concluded that because the law requires Internet-based performance marketers to collect tax, but does not require that of traditional performance marketers, it is a discriminatory tax on Internet-based commerce in violation of the federal Internet Tax Freedom Act…

Janet Novack, Illinois High Court Shoots Down Amazon Sales Tax Law; Will SCOTUS Step In?   

 

Paul Neiffer, IRS Releases List of Counties Eligible for Another Year of Livestock Deferral

Kay Bell,  IRS is back and asks for patience as it reopens its doors.  Hey, IRS, do unto others…

Jana Luttenegger, IRS Back to Work, What to Expect (Davis Brown Tax Law Blog):

After 16 days of not opening mail, not processing returns, and not answering phone calls, the IRS is expecting it will take some time to get back to “normal” operations. In fact, the IRS issued a statement urging taxpayers with non-urgent matters to wait to call the IRS. I can only imagine what the call traffic will be like after a 16-day shutdown.  

Not to mention whether the answers you get when you call will be any more accurate.

 

Howard Gleckman, One Modest Path to a No-Drama Budget Deal (TaxVox)

Jack Townsend, Swiss Bank Frey to Close

Brian Mahany, FATCA, FBAR and Opt Outs

 

Leslie Book, Larry Gibbs on Loving v IRS.  Shockingly, a former IRS commissioner thinks IRS commissioners should have all the power they want.

Russ Fox,  One Down, One to Go: DOJ Gets an Injunction, Asks for Another.

One of the more humorous (to me) aspects of the Loving case was hearing the IRS argue that it has no means of disciplining rogue tax preparers. That’s just not true. If I deliberately prepare a bad return, I can be sanctioned and penalized. If I prepare a series of bad returns, the Department of Justice can attempt to have me barred from preparing federal tax returns. As noted at the end of one of the two press releases I’m linking to in this article, “In the past decade, the Justice Department’s Tax Division has obtained more than 500 injunctions to stop tax fraud promoters and tax return preparers.”

They just want to be able to do it by themselves without any of that messy due process stuff.

 

Peter Reilly, Was JD Salinger Facing A Major Estate Tax Problem ? 

TaxGrrrl, How Twitter Hopes To Reduce Its Tax Bill (In 140 Characters Or Less)   
The cobbler’s children always go barefoot.   Attorney Who Claimed Tax Expertise Sentenced to 20 Months in Jail for Understating His Income (TaxProf)

The Critical Question:  Would You Prepare Your Home For A Disaster If It Were Tax Deductible? (Tony Nitti)

 

 

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

Flickr image courtesy Natesh Ramasamy under Creative Commons license.

The sacred side of earned income tax credit fraud.  A Washington tax preparer found an unusual way to get in touch with the spirit world, reports seattlepi.com.  Cleo Reed is scheduled to be sentenced today for preparing fraudulent returns claiming imaginary earned income credits:

Writing the court, Assistant U.S. Attorney Arlen Storm noted Reed had many of his clients claim income for “household help” while claiming to be self-employed. Reed did so for two undercover IRS agents and three fake clients.

During their encounter, Reed explained he pays his recruiters $500 for each young woman with a new child they bring to him, Storm told the court. Agents identified three recruiters who’d brought Reed dozens of clients.

Investigators later determined Reed filed at least 1,305 fraudulent returns in three years, and that the IRS paid out $4.3 million on those claims, Storm continued.

Refundable tax credits are a magnet for fraud, but they are also a path to holiness, it seems:

Writing the court, Reed has denied paying others to recruit clients and claimed he operated in “an ethical manner.” He went on to claim he was only helping his clients “achieve the American dream.”

“I had a spiritual calling to give aid, support, and guidance to the underemployed, disabled, and veterans of this great land,” Reed said in his letter to the court.

Somehow I think this is one religious belief system that the Bureau of Prisons won’t feel compelled to accommodate.

 

Share

Tax Roundup, 10/7/2013: Not everything the IRS auctions is as glamorous as the Chromaro. And another Tax Fairy sighting!

Monday, October 7th, 2013 by Joe Kristan

Last week we mentioned the Chromaro, a toy seized by the government from a man who tricked out a Camaro with proceeds stolen from the IRS via identity theft refund fraud.  It will eventually be auctioned off to help recoup a small fraction of the stolen money.

The IRS Auction site lists other items the IRS has received from hapless taxpayers, many of which may be more difficult to unload than a Chromaro.  For example, this “Small Town Establishment – Bar/Lounge, 1,764 SF” in Blue Grass, Iowa, “Locally known as 202 W. Mayne Street, Blue Grass, Iowa”:

20131007-1

202 W. Mayne Street, Blue Grass, Iowa. IRS image.

 

Not nearly as shiny as the Chromaro.  Googling the street address generates the result “Harley’s Bar & Grill,” which probably means that it’s not a clubhouse for Kawasaki owners.  Whatever the clientele, it’s not nearly as shiny as the Chromaro.

chromaro

 

Kay Bell,  Audit target? You’re getting a bit of a shutdown break

Janet Novack, Can’t Stop The Machine: During Shutdown, IRS Computers Still Churn Out Tax Liens, Levies And Bills: 

The IRS sends out more than 2 million entirely automated  “math error” notices a year telling taxpayers they made an arithmetic error, omitted a kid’s Social Security number, claimed a credit incorrectly, or otherwise did something the IRS considers a mistake.  These computer generated notices are “summary assessments”—meaning the taxpayer owes the extra money unless he contacts the IRS within 60 days to clear up the issue and to preserve his appeal rights. Good luck with that. No one is answering the phone or reading the mail at the agency.

Funny how it is essential to kick old people out of their private homes just because they are on government land, but it is also essential to not lift a finger to help taxpayers receiving erroneous tax notices from robots.

 

David Cay Johnston, The Importance of Tax Tribunals (via the TaxProf).  Iowa has a poor system of tax appeals that is stacked against the taxpayer, but even Iowa’s flawed system is better than that in many states.  The real answer is a dedicated Iowa tax court to enable Iowans to have their tax cases heard by judges who actually know a little about taxes.

 

Jack Townsend, To Opt Out or Not to Opt Out – That is the Question.  It refers to the IRS offshore “amnesty” program.

Leslie Book,  Court of Federal Claims Holds that Agent’s Fraud Does Not Extend Statute of Limitations (Procedurally Taxing)

TaxGrrrl, Lauryn Hill Leaves Prison Early, Releases New Single All In 24 Hours   

 

tax fairyPeter Reilly, Unveiled God Needs A Lawyer In US District Court :

There is a concept that my blogging buddy, Joe Kristan, calls the Tax Fairy - “the magical sprite that can make your taxes go away with fancy tax footwork”.  Corporation Sole has been a Tax Fairy wannabee for a while.

But, as Peter notes, there is no Tax Fairy.

 

 

Russ Fox,  Yet Another Reminder that a License Doesn’t Always Mean Ethical Behavior

The idea that just because people have licenses that they will all suddenly go the straight and narrow is laughable. There were tax crimes years ago; there will be tax crimes in the years that follow…licensing or not.

But with licenses, the government gives the cheater a seal of approval.

 

Lyman Stone,  The Vicious Cycle of New Jersey Property Taxes (Tax Policy Blog)

TaxProf, The IRS Scandal, Day 151

The Critical Question:  What’s the Matter with Oregon’s New Tax Deal?  (Tax Justice Blog)

 

News from the profession: Accounting Student Struggles with Love, Money, Blemish of Unknown Origin (Going Concern)

 

 

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

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

Brian Gongol

The Treasury Department does a lot of things, but the original Treasury Act of 1789 didn’t say anything about a responsibility to the economy as a whole; instead, it charged the Treasury with making and keeping accounts by collecting taxes and other revenues and by managing how they are spent. At a time of government shutdown, perhaps it’s worth asking whether we’re keeping the Treasury occupied enough with its essential tasks, and not over-extending the scope of responsibility far more than is healthy for the department (and the country). Mission creep that grows to the extent that the Treasury Secretary thinks his primary job is to manage the economy (rather than to collect taxes and pay the nation’s bills) probably points us in the wrong direction. 

That’s a very diplomatic understatement of the problem.  The federal income tax law, just one subset of the Treasury’s portfolio, is designed to manage the economy in all kinds of ways.  A few, just off the top of my head:

Industrial research

Manufacturing

Ethanol Production

Wind energy

Exports

College education

Subsidizing residential rents

Subsidizing home ownership

Subsidizing old buildings

And now, running the nations health care finance system.

The wisdom of the government in trying to do any of these things at all is at best debatable, and doing it all through the income tax is folly.  Yet the politicians continue to use the income tax as the Swiss Army Knife of public policy.  And like the Swiss Army Knife, if you add too many gadgets to it, it stops being very useful at anything.

 

Share

Tax Roundup, 10/2/2013: essential government function edition. And… commas!

Wednesday, October 2nd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

A bunch of federal government workers stayed home yesterday, but enough showed up to try to keep some 90-year olds off the grounds of the World War II memorial in Washington.  They will try to stand up to the guys in wheelchairs again today.  That must be one of those essential government functions.

 

Today’s shutdown roundup:

Kay Bell, Government shuts down. Who, besides citizens, will pay?

Janet Novack,  Federal Government Begins First Shutdown In 17 Years 

TaxGrrrl, Congress Marches Towards Shutdown, Spares Military   

Tax Trials, Tax Court Filing Deadlines during Government Shutdown

Joseph Thorndike, The GOP Is Right About One Thing: Ditch the Medical Device Tax (Tax Analysts Blog):

Narrow excise taxes — even when somehow correlated with special benefits — are not a good way to fund major social programs. Broad programs deserve broad taxes.

True.  But the political magic behind ACA was the idea of a “free” mass welfare benefit  – free to you, anyway, because some rich guy gets the tab.  But as Joseph has pointed out, the rich guy isn’t buying.

Len Burman, Would the Government be Shuttered if Obamacare were Romneycare?

Russ Fox,  The Government Shutdown and Taxes

 

Jason Dinesen,  Life After DOMA: Audits of Prior-Year Returns.  Jason explains how audits work for amended returns of same-sex married couples.

William Perez, How Social Security Benefits are Taxed by State

Jim Maule, Failing to Keep Those Records Can Increase Taxes

It is not implausible that the taxpayers paid more than $2,052 for the support of the wife’s mother. Certainly during the time when she was living with them, a portion of the costs of maintaining the taxpayers’ residence constituted support of the wife’s mother. But apparently the taxpayers did not offer any evidence of those costs.

It’s up to the taxpayer to keep the records needed to support your tax return.

 

TaxProf, Supreme Court Grants Cert. to Decide Whether Severance Pay Is Subject to Payroll Tax.  Is being paid to go away taxed the same way as being paid to work?

Peter Reilly, Court Rules Against Slots Playing As A Business 

Tony Nitti, The Real Winner In The Breaking Bad Finale: The IRS   

 

tax fairyPhil Hodgen, Sooner or later, secrecy fails as a tax planning strategy:

Americans: secrecy is a weak tax planning strategy; stop using it.

What seemed like a good idea 10 years ago has now compounded itself into a seemingly intractable dilemma. I know this because people tell me so every day.

Start looking for what is true, not what you want to be true. When you hear the answer, accept it. Swallow and digest the big chunks of truth.

In other words, there is no Tax Fairy

 

 

Jack Townsend,  Article on DOJ’s Swiss Bank Initiative

Keith Fogg, Representing Clients in Tax Court (Procedurally Taxing)

Robert D. Flach, SOME REMINDERS

 

News from the profession.  BREAKING: Commas To Be Added to the CPA Exam (Going Concern).  “We are adding a comma to the calculator on the CPA Exam. The comma is meant for large numbers such as 1,000 and above to make them easier to read.”  Calculators.  With commas. In my day when we took the exam, we had “fingers.”

 

Share

Tax Roundup, 9/24/2013: The tax fairy is no cheap date. And nice words about my big mouth.

Monday, September 23rd, 2013 by Joe Kristan

Tax Shelter STARS dims in Claims Court.  The high-priced marketed tax shelter craze that started in the late 1990s by the big national accounting firms and some law firms has produced terrible results in litigation.  The latest failure is the KPMG/Sidley Austin tax shleter “STARS,” which was shot down in the Court of Federal Claims last week.

tax fairyThe shelter was designed to generate foreign tax credits against BB&T Corporation’s U.S. taxes.  While the shelter was put together by some of the biggest names in the tax profession, the judge was unimpressed:

Applying these principles here, the STARS transaction must be seen for what it really is. By creating a trust arrangement with nothing but circular cash flows, and momentarily placing funds in the hands of a U.K. trustee before it is returned, Barclays and BB&T artificially caused a U.K. tax on U.S.-sourced revenue. There was no substantive economic activity occurring in the U.K. to warrant a U.K. tax. Yet, by subjecting the Trust funds to a U.K. tax, Barclays and BB&T were able to share the benefits of foreign tax credits, which resulted in a 51 percent rebate of a Bx payment to BB&T. The surprisingly low interest rate to BB&T on the $1.5 billion Loan, 300 basis points below LIBOR, was made possible solely because of the fruits of the Trust arrangement. In reality, the U.S. Treasury is funding the monetary benefits realized by BB&T, Barclays, and the U.K. Treasury. No aspect of the STARS transaction has any economic reality.

When taxpayers got involved in tax shelters set up by big-name firms, they often did so believing that reliance on well-known national firms will protect them from penalties.  Not here:

KPMG’s overarching advice was that BB&T should engage in an economically meaningless transaction to achieve foreign tax credits for taxes BB&T had not in substance paid. Thus, because KPMG’s advice was based on unreasonable and unsupported assumptions, the Court finds KPMG’s advice unreasonable.

Based on KPMG’s recommendation, BB&T also selected the law firm of Sidley Austin, and in particular, Raymond J. Ruble, to provide tax advice and a formal opinion on STARS… Because Sidley Austin’s tax opinion was premised on the unreasonable and unsupported assumption that technical compliance with U.S. tax law would allow the IRS to give its imprimatur to an economically meaningless transaction, the Court finds Sidley Austin’s advice unreasonable.

So the judge undid $660 million in claimed tax savings and added $112 million in penalties to the bill.

The Moral?  Some of the brightest minds in the tax business thought they had finally found the Tax Fairy, the magical sprite that can make your taxes go away with fancy tax footwork.  They sold their discovery to folks just as eager to believe in the Tax Fairy as they were.  But there is no Tax Fairy.

Cite: Salem Financial, Inc., Ct. Fed. Claims, No. 1:10-cv-00192

Related: Jack Townsend,  Yet Another B***t Tax Shelter Goes Down; BB&T’s Streak on B***t Tax Shelters Continues

 

Iowa: an alcohol-dependent nicotine fiend with a gambling problem. From the Sioux City Journal:

In fiscal 2012, Iowa reaped $710.6 million from so-called “sin taxes.” Although that was 4.8 percent of the state’s total revenues of $14.65 billion, it was far less than the $3.7 billion in individual income taxes and $2.1 billion in sales taxes Iowans paid in fiscal 2011.

Still, it greatly exceeds the net take of Iowa’s complex, high rate and futile corporation income tax, which netted $430.4 million of the state’s $7.42 billion in tax revenues in fiscal 2012.

 

William Perez, Using Tax Refunds to Pay Estimated Taxes.  Applying overpayments to the next year’s estimated taxes is a very useful part of any tax planner’s toolkit.

Phil Hodgen,  Rental Income and Branch Profits Tax. “

Branch profits tax is computed on the corporation’s taxable income. The branch profits tax does not care about your net operating loss.

This means that you can have years where the corporation pays no income tax (because it has a net operating loss from the prior year that eliminates the taxable profit generated in the current year). But the corporation will pay the branch profits tax.

If you deal with offshore corporations with U.S. activity, you should read this.

Russ Fox, The Affordable Care Act and Gamblers: A Bad Bet

 

Janet Novack,  In Reversal, IRS Gives Amnesty To Owners Of Secret Israeli Bank Accounts   

TaxProf,  WSJ: Offshore Accounts: No Place to Hide?.  I think offshore bank secrecy is pretty much done for.

Kay Bell,  7 Internet sales tax principles set for House consideration

Peter Reilly:  TIGTA Finally Stumbles On The Real IRS Scandal   Peter seems to think cronies with undue influence on letter rulings is worth than partisans using the power of the IRS to suppress uncongenial political organizations.

TaxGrrrl,  Government Shutdown 101: What Happens When The Lights Go Off?   

Oh Goody.  Payroll Taxes May Have to Go Up (Andrew Lundeen, Tax Policy Blog).

Elaine Maag,  Senator Lee’s New Reform Plan Focuses on Young Children (TaxVox)

 

A scene from the heydey of Iowa energy independence.

Great moments in energy independence.  Biofuels scam ‘the largest tax fraud scheme in Indiana history’  (Biofuels International)

 

That would do that.  Fraud verdict tarnishes Idaho businesswoman’s bio (SFGate.com)

 

 

News from the profession: Five  Unwritten Rules for Making Partner in a Big 4 Firm (Going Concern).  Spoiler: landing great big audit clients helps a lot.

 

Aw, shucks.  Tax Analysts commenter David Brunori says nice things about me today in State Tax Notes ($link):


Many practitioners are gun-shy when it comes to voicing their opinions on tax policy. They have clients, after all, who might disagree with them. Joe Kristan of Roth CPA, a leading tax and accounting firm in Iowa, is an exception. Kristan, writing for the firm’s blog, routinely speaks truth to power. We here at Tax Analysts appreciate that. 

That’s the nicest way anybody has ever said that I don’t know when to shut up.

Mr. Brunori then discusses my observations of Iowa economic policy director Debi Durham and State Senator Joe Bolkcom:

Durham talks about the tax-incentive imperative, which only the gods of crony capitalism would recognize. But then one would expect a government official who spends her time doling out government welfare to corporations to defend the idea of doling out welfare to corporations. Citing the state’s blue ribbon commission, Kristan pointed out that there is little evidence that tax incentives work.

Kristan has criticized State Sen. Joe Bolkcom (D) for arguing for targeted tax incentives. Targeted incentives violate every notion of sound tax policy and, as Kristan wisely points out, assume the state can wisely allocate investment capital. We need more people who understand how everything works to weigh in on tax policy.

I would be surprised if you could fill a coffee table at the Capitol cafeteria with legislators who could explain the opportunity costs of targeted tax credits.

 

Share

Tax Roundup, 9/11/2013: Gutterball edition. And states where they get more than you do.

Wednesday, September 11th, 2013 by Joe Kristan

Flickr image by Heisenberg Media under Creative Commons licenseBowling and tax planning don’t have much in common.  Bowling is a lot more fun to play, but to me, it’s only a little more fun to watch (sorry, Robert!).  But the two are rarely confused.  Which makes a Tax Court case from yesterday stand out.

Mr. Phillips, a retired postal worker from Maryland, took up bowling with a vengeance.  The Tax Court takes up the story:

 Mr. Phillips is a self-taught bowler who began bowling in the early 1990s. His gross winnings over the years were:

           Year                          Gross winnings
 _____________________________________________________________________

           2000                                $50,000 to $65,000
           2001                                -0-
           2002                                 0 to 3,700
           2003                                 13,000
           2004                                 0 to 300
           2005                                 0 to 300
           2006                                -0-
           2007                                -0-
           2008                                -0-

In 2008, a year with no bowling earnings, the IRS looked at his tax return:

     On his Form 1040, U.S. Individual Income Tax Return, for the year 2008 Phillips reported that he earned $67,171 in wages from his postal service position. Mr. Phillips attached a Schedule C, for the “business or profession” of “bowling”. He reported that he earned no gross receipts from bowling and that he incurred $28,243 in expenses. 

The Tax Court noted one hint of possible trouble for our bowler:

Mr. Phillips’ tax-return preparer refused to sign the 2008 return because he was afraid of an audit. 

But Mr. Phillips went for the tax equivalent of a 7-10 split and filed the return, with unfortunate consequences.  The IRS came calling and he ended up in Tax Court, where it was nothing but gutterballs:

At trial Mr. Phillips admitted that some of the checked line items on the seven pages of bank statements were not related to bowling. He was unable to point to any line items that were related to bowling. Mr. Phillips admitted that he did not create or keep any records (other than the seven pages of bank statements) related to any of the expenses reported on his Schedule C. He admitted that some of the reported expenses (both in the “other expenses” category and in the category of the remaining expenses) were for “personal business” and for “gambling”

The Tax Court decided that our bowler lost two ways.  First, the court ruled that the losses were “hobby losses,” deductible only as miscellaneous deductions and only to the extent of income:

 None of the factors weigh towards the existence of a profit motive, and all relevant factors weigh against the existence of a profit motive. Mr. Phillips earned a profit in only one tax year. He did not conduct the activities in a businesslike manner or make an effort to increase the profitability of his bowling activities. He decreased the amount of time and effort he expended in 2004 after changing shifts at his primary place of employment where he earned a substantial income. We therefore conclude that Mr. Phillips did not engage in his bowling activities for profit.

Then, just to rub it in, the court said that even if the losses weren’t hobby losses, they weren’t substantiated well enough to deduct anyway.  Decision for IRS, with the 20% “accuracy related penalty” imposed.

Cite: Phillips, T.C. Memo 2013-215.

 

Tax Policy Blog Monday Map, part 2:

20130911-1

 

In New York and California, the government might keep more of that next dollar you earn on your Schedule C than you do.

 

Congratulations to the TaxProf and Going Concern’s Caleb Newquist on being named to Accounting Today’s list of the 100 Most Influential People in Tax and Accounting. Iowans making the list include David Vaudt, in his new role as the head of the Government Accounting Standards Board, and Senator Chuck Grassley, in his old role as a Senate taxwriter.

 

Janet Novack, 10 Tough Lessons For College And Retirement Savers–And Tax Reform   Her number one lesson is important both for legislators and folks whose tax planning gets too elaborate:  “Tax complexity creates hidden costs.”

Peter Reilly, Wisconsin Will Tax Its Native Wandering Stars – The Stickiness Of Domicile: 

Domicile is “sticky”.  To change it, you need to not only uproot, but also to settle down, at least for a while, someplace else. If you are thinking about becoming a wandering star, you should consider carefully where you will push off from.  If it is a high tax state, be prepared for them to want to hang on to you.

Related: Home is where the heart is. And the house, wife, kids, cars…

 

TaxGrrrl, Back To School: Deducting Interest Paid On Student Loans (Even If You Don’t Pay The Loans) 

 

Tax Justice Blog, It Wasn’t Property Taxes that Cost DC Residents their Homes.  It was just not paying them.

Howard Gleckman, The Demise of Estate Tax Planning (TaxVox): “With the estate tax exemption now up to $5.25 million ($10.5 million for couples) estate tax lawyers are running out of work.”   Like it was with Mark Twain (at least at first), I think this report is exaggerated.

 

Robert D. Flach,  TAX BLOGOSPHERE BUDDIES – TRACY SHANNON LEVEY

Russ Fox,  The Apprentice, IRS Style

Kay Bell, Marijuana tax opponents hand out pot at Denver rally.  “Admit it. You wish you had been in Denver yesterday.”

 

 

Share

Tax Roundup, 8/19/2013: You may already be a Californian! And the amazing tax secrets of Jeff Bezos.

Monday, August 19th, 2013 by Joe Kristan

20130819-1California is so short of cash, they aren’t just looking under their sofa cushions for spare change.  They’re looking under yours, too. Paul Neiffer reports that California is Out of Control!

In Swart Enterprises, Inc. v. Franchise Tax Board, the taxpayer was an Iowa  corporation with a farming activities in Kansas and Nebraska.  They also had various passive business investments including an .02% interest in a California LLC (Cypress) that acquired, held, leased and disposed of capital equipment in various states.  This LLC had 435 members of which 384 members were out-of-state.

The Franchise Tax Board asserted that Swart had enough business activity through their .02% interest in the Cypress LLC to require the filing of a California LLC tax return.  Normally LLC’s filed as a partnership do not owe any state tax, however, California charges $800 simply for the privilege of filing a return.  In addition, based upon the gross revenue of the LLC an additional fee is owed.  Since Swart was a corporation, that particular fee would not apply, but they would owe the $800 filing fee plus interest and penalties plus paying a person to prepare the tax return.

 That’s one of the dangers of investing in a partnership.  You buy the chance to pay state taxes in any state where the partnership does business.  In most states it may not matter because it the tax may round down to zero, but even a whiff of California can cost you $800.

Russ Fox has more at California Goes After Flow-Throughs with Passive Investments in California.

 

Stephen J. Dunn, Fraudulent Tax Returns?:

The IRS most commonly learns of alleged fraud in a tax return from an insider—a disgruntled former employee, spouse, or romantic interest of the taxpayer.  In one case, the taxpayer’s estranged daughter came to the taxpayer and asked him for a job.  The taxpayer hired her, and eventually placed her in charge of a business.  But the daughter mismanaged the business, and the taxpayer closed it.  The prodigal daughter became enraged, and reported her father to the Internal Revenue Service. 

Business tax fraud is hard to do without accomplices.  Each “helper” is one more chance for the IRS, one more potential informer.  Payroll fraud, where you pay employees “in cash,” with no taxes, may be the worst, as it gives every employee an opportunity to snitch.

 

Is the concept of “deadweight loss” a right-wing conspiracy?  “I am sorry, but this is absurd” (Tyler Cowen).  

Deadweight loss” is economic loss from tax, as  Megan McArdle explains here.  Mr. Cowan says it exists, even if fellow economist Charles Manski doesn’t care for it:

Manski also ignores that a belief in deadweight loss is fully compatible with the view that government spending may bring economic benefits.  In fact you often cannot understand the benefits of (some) government spending without first grasping the deadweight loss concept.

If you don’t think taxes have a cost, then there’s no helping you.

 

Kay Bell,  Employers in 17 states could face higher unemployment taxes

 

Missouri Tax Guy,  DOMAs Death, There Are Questions.  “It’s been nearly two months since the United States Supreme Court struck down the Defense of Marriage Act, but there are still many things we don’t know when it comes to how this affects the taxes of couples in same-gender marriages.”

 

Jack Townsend,  Simon’s Last Hurrah / Fizzle?  “So I am not sure what lessons it teaches except as a variation of the old saying, ‘Bulls make money, bears make money, pigs get slaughtered.’”

Phil Hodgen, Email and Encryption.  An interesting discussion of the problem of preserving email confidentiality in a world of hackers and NSA snooping.

TaxGrrrl, Death & Taxes: Elvis Presley Topped Charts And Tax Brackets  

Janet Novack,  IRS Agent Faked Pastor’s Letter To Claim Charity Deduction 

Russ Fox, IRS Scandal Update

TaxProf, The IRS Scandal, Day 101

 

Martin Sullivan, A Dark Cloud Over Silicon Valley (Tax Analysts Blog)

 Nobody in Washington D.C. has a wish to make enemies with tech companies that are the crown jewels of the American economy. Nobody is deliberately targeting them. But there is a basic dynamic of corporate tax reform that will be hard even for the tech sector to overcome: those who are the biggest winners under the current system have the most to lose from tax reform.

Of course.

 

Alan Cole, The Standard Deduction Undermines Itemized Deductions (Tax Policy Blog):

The standard deduction makes a lot of sense, though, if you believe itemized deductions are arbitrary and confusing. In that case, the standard deduction restores some fairness and reduces paperwork, bringing the tax code more in line with our Principles of Sound Tax Policy – particularly, neutrality and simplicity.

The standard deduction is an interesting half-step towards eliminating itemized deductions, suggesting that America is actually quite ambivalent about them.

There’s something to be said for eliminating itemizing.  It adds a lot of complexity, especially with AMT and phaseouts.  If a deduction is really needed, move it above the line and make it available to everyone.

 

Robert D. Flach, WHAT CONGRESS SHOULD DO, BUT PROBABLY WON’T.  “I have recommended limiting the mortgage interest deduction to acquisition debt on a principal primary residence.”

Me, Walnut Street is back! For lunch, anyway and Because your safety is the most important thing.

 

Tax Justice Blog,  Washington Post Owner Jeff Bezos Does Not Believe in Taxes:

As an organization that follows tax policy, we went looking for the track record on taxes and, as it turns out, Bezos and his company have consistently demonstrated a contempt for taxes and an aggressive interest in avoiding them.  

Sounds suspiciously like almost every client ever.

 

 

Share

Tax Roundup, 7/29/2013: If the embezzler had used the money for figurines, would they sue Precious Moments?

Monday, July 29th, 2013 by Joe Kristan

20130729-1Blame the casino for the thief?  A Nebraska business may be taking an oddly-forgiving view towards employee theft.  The Associated Press reports that the Colombo Candy and Tobacco Wholesale Company (now there’s a product combo for everyone) declined to press charges against a former employee for allegedly stealing $4.1 million.  Instead they are suing a Casino for leading her unto temptation.

But the Nebraska Department of Revenue is less willing to let bygones be bygones, reports KETV.com:

The Nebraska Department of Revenue and the Sarpy County attorney have decided to pursue criminal charges against 54-year-old Caroline Richardson of Gretna.

Sarpy County Attorney Lee Polikov said this is a case he doesn’t see every day.

“I think it’s interesting for people to know that stolen money is considered income and has to be reported on your income tax,” Polikov said.  “If you don’t report it and don’t pay it, you’ll be prosecuted for it.”

In a civil filing where Richardson is identified as “Jane Doe,” Colombo Candy argued the blame should be less on Richardson and more on an Iowa Casino.

A more cynical view would be that the candy company knows that the accused thief has no money, so it’s going for the deep pockets.

 

Paul Neiffer, Help Prevent SE tax on CRP Rents!  Paul wants CRP recipients to help fund an appeal of the recent Tax Court Morehouse case, holding CRP income to be self-employment income.

The Morehouse case needs be appealed because the case sets a bad precedent for all owners of CRP across the country. Anyone who fails to treat CRP as self-employment income is subject to penalty for underpayment of Federal tax.

However, appeals cost money, and the dollars at risk for Morehouse personally (only $6,000) just aren’t enough for him to justify paying for the appeal. It is important enough that I want to spread the word, and request my readers who have ground in CRP to share in the cost.

If you have CRP ground and want to help the cause, Paul tells you how.

 

TaxGrrrl, Bolt Strikes At Diamond League Games, Says UK Races Hinge On Tax Laws 

Usain Bolt said he wouldn’t race in the U.K. after the Olympics unless they changed their tax laws… and they did, extending the laws in place for the Olympics for the Diamond Games.

Tough luck if you aren’t famous, I guess.

 

Phil Hodgen is launching Web-Based Seminar: U.S. Tax Solutions for Non-Filers Abroad.  It looks like a great resource for the innocents abroad caught up in the FBAR fiasco.

 

Jack Townsend,  Must a Defendant Prove Innocence of Uncharged Crime to Reverse Wrongful Conviction?  That’s insane.

TaxProf, The IRS Scandal, Day 81.  They’ll keep calling it a “phoney” scandal, but the Inspector General still says otherwise.  So did the President, until it became awkward.

Instapundit:

JACK LEW:  There’s No IRS Scandal, But I Won’t Say Whether I Talked To Wilkins About Targeting.

Those who keep saying there’s no scandal here need to acknowledge that the IRS admitted targeting conservative groups months ago.

 

Kay Bell, Scholarships and grants get better grades than borrowing and tax breaks as ways to pay college costs

William Perez, IRS Update for July 26, 2013

 

Joseph Henchman, Massachusetts to Have Second Highest Cigarette Tax, Rare Tax on Computer Services, Higher Gas Tax (Tax Policy Blog)

Brian Strahle, RECENT CALIFORNIA LLC FEE ISSUES AND WARNING FOR NONFILERS:  HERE COMES THE NOTICE!!  California is looking for nickels under your sofa cushions.

 

Christopher Bergin, Our Secretive Senate. (Tax Analysts Blog).  Not a fan of the 50-year memory hole for tax reform ideas.

Peter Reilly, Why Tax Reform Is Impossible

 

Jim Maule, Tax Law and National Defense: Hush Now!

Linda Beale, Proposals for Cutting the IRS Budget.

 

Janet Novack, U.S. Seeks PNC, Wells Fargo, JP Morgan Records To Find Tax Cheats–From Norway   Look out, Decorah.

Share

Tax Roundup, 7/18/2013: Cincinnati, D.C. edition. And: the Redflex auto dealer tax.

Thursday, July 18th, 2013 by Joe Kristan

chief counsel shieldI didn’t know the IRS Chief Counsel worked out of Cincinnati.  The “nothing to see here” apologists for the IRS harassment of right-wing exempt organizations have always said that nothing wrong happened, and it was the work of rogue employees in the Cincinnati hinterlands anyway.  Perhaps not.  Tax Analysts reports ($link):

Embattled IRS official Lois Lerner directed a multilayered review of Tea  Party groups’ exemption applications that reached all the way to the IRS chief counsel’s office and led to lengthy delays in processing the applications, according to testimony from an IRS attorney released July 17 by House committees investigating the matter.

Carter Hull, a “Washinton IRS tax law specialist,” says the IRS Chief Counsel’s office was involved:

     Hull testified that at the August 2011 meeting, officials from the chief counsel’s office told him they needed updated information on the applications and suggested that a template letter be developed for future processing of applications. He said he told the officials that a template was impractical given the differences in the various applications.

     Hull told investigators that in his 48 years working at the IRS, he had never been asked to send a case he was working to Lerner’s senior adviser or to the chief counsel’s office before he received the request to elevate the Tea Party cases.

Mr. Hull is scheduled to testify at Congressional hearings today.  Nothing to see here, move along.

Wall Street Journal, The IRS Goes to Washington.

 

It’s OK, she’s a witch anyway.  Failed Republican Senate Candidate Christine O’Donnell may have been one of the candidates for political office whose tax records were breached, based on a Washington Times story.  The report says Ms. O’Donnell has been contacted by the Treasury telling her that a Delaware state official improperly accessed her federal tax records.   During her campaign for Senate, she was hit with a false federal tax lien on the day she announced her candidacy.

There has been no prosecution for the illegal access:

Treasury officials have refused to give Mr. Grassley any specifics on the cases or to describe the disposition of Ms. O’Donnell’s case, claiming even people who improperly access tax records have an assumption of privacy under federal tax laws.

That will be news to Dennis Lerner, a former IRS agent who this week received a three-year probation sentence for improperly disclosing confidential tax information.

Instapundit has more.

Christopher Bergin, IRS: Victim, Football, Both? (Tax Analysts Blog)


 

gatsoClive reconsidering its revenue camera auto-dealer tax.  The Des Moines Register reports that the future of the Des Moines suburb’s contract with red-light camera operator Redflex is in doubt, now that City Councilman Michael McCoy has joined another member of the five-person council in opposing the cameras.

Most of the cameras are along a strip of Hickman Road that has some car dealerships.  Guess what happens?

McCoy said businesses have raised concerns about the program to him. He said car dealerships are incurring fees when customers test drive their vehicles — the program mails tickets based on license plates. “That doesn’t seem like a way to be business friendly and invite new business into our community,” McCoy said.

But what good are customers if the local municipality can’t pick their pockets?

 

Tax Justice Blog, Are Special Tax Breaks Worthwhile? Rhode Island Intends to Find Out:

Rhode Island is about to put seventeen of its “economic development” tax breaks under the microscope, thanks to a new law (PDF) signed by Governor Chafee last week.  This reform is a welcome step forward in a national landscape where states often do nothing at all to figure out whether narrow tax breaks are really helping their economies.

After Iowa’s film tax program collapsed in disgrace and scandal, a blue ribbon commission was unable to identify any definite benefit to Iowa’s dozens of targeted corporate welfare tax breaks.  Yet Iowa continues to pass them out like Tootsie Rolls at a parade.

 

Cara Griffith, Break Out the Champagne (Tax Analysts Blog).  State revenues are up.

Jack Townsend, Interview of Swiss Bank Whistleblower

Kay Bell, Werfel does his own tax returns, Lerner still under fire and other tidbits from House hearing on IRS small business audits

Me: Long live the Queen! 21 years for the “Queen of IRS Tax Fraud”

 

Mitch Maahs, Deducting Job Search Expenses (Davis Brown Tax Law Blog)

William Perez, Same-Sex Spouses and Small Business: What’s Changed?

 

‘Merica!  U.S. Tax System Ranks 94th in the World (Andrew Lundeen, Tax Policy Blog)

Career Corner.  If All Else Fails, You Can Still Become an Internal Auditor (Going Concern)

News you can use.  Get Ready To Shop: State Sales Tax Holidays Are Back! (TaxGrrrl)

Reports: he’s not happy any more. Reports: Happy’s Pizza founder, others indicted for fraud, tax evasion (theoaklandpress.com)

 

Share

Tax Roundup, 7/17/2013: Stories of wounded jaywalkers. And: checking in on Rashia.

Wednesday, July 17th, 2013 by Joe Kristan

taxanalystslogoMarie Sapirie of Tax Analysts has an excellent piece about how the IRS offshore account enforcement program treats the thousands of ordinary Americans abroad — and many green card holders living in the U.S. —  as presumptive tax criminals when they try to remedy foot-fault paperwork violations in reporting offshore accounts.  She tells the stories of four “minnows” who tried to remedy inadvertent minor violations of the foreign account rules.  Get a load of the advice they gave “Taxpayer 3:”

The taxpayer, like many others, sought help from a congressional representative in reaching a satisfactory resolution with the IRS. The response that the lawmaker received from the IRS — that the taxpayer could renounce U.S. citizenship — was disappointing. “I lived in the U.S. for 30 years; I never was treated unfairly for 30 years. I was proud of it. And here the IRS is telling me to renounce my citizenship
because it may be the best solution considering my situation,” the taxpayer said.

When the IRS is telling people to expatriate themselves, something is very wrong.

The article discusses the headaches involved in clearing up FBAR reporting, including the delays caused because IRS agents aren’t allowed to make international phone calls.

The IRS should imitate programs for state non-filers for FBAR violations: allow taxpayers to come in penalty-free anytime if they file disclose their accounts and amend returns for five years back to report any unreported offshore income.  Time to stop shooting the jaywalkers.

20130717-1

Rashia Wilson in happier times.

While Doug Shulman’s IRS was busy shooting jaywalkers, the grifters were running wild.  TampaBay.com has an update on the woman who boasted on her Facebook page that she was the “queen of IRS tax fraud”: IRS loss to fraud’s ‘first lady’ may have hit $20 million:

Rashia Wilson may have duped the IRS out of as much as $20 million before her arrest on stolen identity refund fraud charges.

That’s according to a court document, filed in advance of her sentencing today, that estimates the government’s loss at $7 million to $20 million.

What kind of criminal mastermind could break through the internal controls at IRS to loot that kind of money?

“YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD,” reads a May posting on her Facebook page described in the affidavits. “IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!”

Well done, Shulman!  Criminal masterminds like Ms. Wilson are robbing the Treasury of $5 billion annually, and you are busy telling taxpayers trying to come into compliance to renounce their citizenship.

Prior tax update coverage: Identity theft tax fraud: women’s work?

Jason Dinesen, Taxpayer Identity Theft — Part 16. “The IRS still has not processed Brian and Wendy’s final joint tax return for 2010.”

 

Inspector General finds “willful” rummaging through political “candidate or donor” records, but Justice Department declines to prosecute.  This is a big deal.  All we know is that it is sometime after 2006.  Failing to prosecute that is shocking; it’s hard to imagine a good excuse.  Tax Analysts reports today ($link) that IRS denies any of its employees were involved.

TaxProf, The IRS Scandal, Day 69

Kay Bell, Justice Department refusal to prosecute IRS disclosure of taxpayer information prompts inquiry from GOP Senator

Janet Novack,  Former IRS Auditor Gets Probation For Taxpayer Info Leak, Conflict Of Interest.  “Dennis Lerner admitted disclosing information about an audit of
Commerzbank AG and seeking a job with the German bank even as he was still negotiating a $210 settlement with it.”

 

William Perez, Same Sex Marriage, the Windsor Case and Estate Planning

Paul Neiffer, Capital Gains Questions on Selling Farmland

Missouri Tax Guy, Choose your tax pro? A rundown on the difference between CPAs, Enrolled Agents and other preparers.

 

Kay Bell, IRS will be fully staffed July 22 as furlough day is canceled

TaxGrrrl, IRS To Remain Open For Business As Furlough Day Is Canceled

 

Joseph Thorndike, Tax Expenditures Should Be Attacked Head On, Not Through the Backdoor (Tax Analysts Blog).

David Brunori, Immigrants are Good for Us (Tax Analysts Blog)

Howard Gleckman, Will Obamacare Delays Encourage Health Exchange Cheating?  (TaxV0x). Just because we can’t verify that you’re not cheating won’t result in massive cheating, according to Mr. Gleckman.  Let’s ask Rashia about that.

Russ Fox, The Most Ridiculous Tax Ever.  He’s talking about the insane “PCORI” fee.

Tax Justice Blog, North Carolina Facing Disastrous New Tax Laws.   The “disatrous” changes include reduction of the individual rate to 5.75% (currently 7.75%) and the corporate rate to 5% (from 6.9%).  If that’s a disaster, here’s hoping for one in Iowa.

Elizabeth Malm, More Details Released on North Carolina Compromise Plan and North Carolina House, Senate, and Governor Announce Tax Agreement (Tax Policy Blog).

 

Jack Townsend,  UBS Client, 78 Years Old, Sentenced to One Year and One Day

There are no athiests in taxholes.  Economist who dodged tax due to ‘religious objection’ gets four years behind bars (New York Post)

 

Share

Tax Roundup, 7/12/13: We get scam email. And flappers!

Friday, July 12th, 2013 by Joe Kristan

Don’t be stupid.  Yes, you hardly need to consult your CPA for that advice, but I think of it every time I get spam email like this:

20130712-1

Somewhere I read that email scammers make their pitches stupid on purpose to identify the dumbest marks, as they are easiest to fleece.  This one certainly does so.  Some signs of stupid:

  • The email address: smoggiest@HELP.STATE.TX.US.GOV.    Come on.
  • The salutation:  “Dear Accountant Officer.”  It sounds like it’s addressing somebody who issues parking tickets to CPAs.
  • The English of someone not brought up speaking English: “Hereby you are notified…”
  • The use of “please” by a revenue agency.  Please…

Folks, the IRS and state taxing agencies don’t send notices like this via email.  When you get one, delete it — and never click the links.

 

TaxProf, The IRS Scandal, Day 64

Janet Novack, 4 Steps To Take Now That Stretch IRAs Are Endangered:

But the new stretch IRA limits, which Finance Committee Chairman Max Baucus (D-Mont.)  first floated in the Senate last year, would require most retirement accounts inherited by anyone other than a spouse to be distributed (and in the case of non-Roth accounts taxed) within five years of the owner’s death…

The limit on stretch IRAs, which also appeared in President Obama’s most recent budget proposals, would raise $4.6 billion over 10 years, Congress’ Joint Committee on Taxation estimates.  

Janet explains how this possibility can affect your thinking about beneficiary designations and Roth conversions, among other things.

 

Christopher Bergin, Jaws (Tax Analysts Blog):

Clearly, the IRS did some inappropriate things in handling the applications for exemption for tea-party groups and others. But I would prefer to have congressional committees working on making sure our tax agency operates fairly and efficiently rather than going on witch-hunts.

Christopher is right, and as a practitioner I don’t want to see tax adminstration get any worse.   Still, you can’t ignore the long-term benefit for punishing bureaucratic misbehavior.  It would require a suicidal level of tolerance for GOP legislators to let bygones be bygones after the outrageous behavior of the IRS in the Tea Party scandal.  Maybe some budget haircut is needed to make the IRS less eager to take sides next election.

 

Howard Gleckman,  How Not to Fix the IRS:
Forgive me, but let’s try to apply a dash of common sense to the agency’s problems. After months of looking, the IRS’ most vocal critics have found no evidence that its poor processing of requests by political organizations seeking tax-exempt status was politically-motivated.
It was, however, real. And its cause seems to be a staff that suffered from low skills, poor training, low morale, a shortage of resources, and bad management. It is hard to see how cutting an organization’s budget by one-third will fix any of these problems.

Saying that it wasn’t politically-motivated over and over doesn’t make it so.  As the Treasury Inspector General has reaffirmed, the IRS treated right-side outfits far worse than left-side outfits.  That doesn’t just happen — the thing speaks for itself.   And considering Lois Lerner’s partisan past with the Federal Election Commission, the circumstantial evidence of bias is overwhelming.  The “overworked and underfunded” defense of IRS behavior doesn’t fit these facts.

Still, it would be nice if Congress would use its funding power carefully to punish bad behavior, rather than as a meataxe that will harm innocent taxpayers as much as guilty bureaucrats.

 

Kay Bell, States could get more money by modernizing sales tax laws

Brian Mahany, TICs and REITS – “Accidents Waiting To Happen”  Many REITs are perfectly good investments.  I like them myself.  But illiquid ones can lock up your money while generating big liquid fees to a broker.

Tax Justice Blog, Undocumented Immigrants Pay Taxes, and Will Pay More Under Immigration

TaxGrrrl, Parents Sue School For Art Auction Gone Bad.  Some parents apparently shouldn’t be allowed to run around loose.

 

There’s a new Cavalcade of Risk up at Workerscompensation.com! Don’t miss Hank Stern’s Hunger Games and the MVNHS©, about ingenious health care cost savings innovations across the pond.

Via Wikipedia

Via Wikipedia

Robert D. Flach has your Friday Buzz ready!

Great Grandpa knew this.  Not all flappers are created equal (Rob Smith, IowaBiz.com)

The Critical Question: Is Diet Soda Worse than Regular Soda? (Scott Drenkard, Tax Policy Blog)

 

 

Friday workplace fun.  Let’s Discuss: Big 4 Bullies (Going Concern):

Probably the most irritating thing, according to this study, is that these people get ahead. We’ve all seen it.

That’s about how I remember it.  They rarely get the comeuppance they deserve, but when they do, it’s awesome.

 

Share

Tax Roundup, 7/3/2013: Effective rate edition. And Pickett’s Charge!

Wednesday, July 3rd, 2013 by Joe Kristan

gao-logoA GAO study of effective tax rates has created some comment in the tax policy blog world.  For example, Howard Gleckman,  Large U.S. Firms Paid a 16.6 Percent Federal Tax Rate (TaxVox):

A new analysis by the Government Accountability Office finds that in 2010 large U.S. corporations paid an average effective tax rate on their worldwide income of 22.7 percent and U.S. federal tax of only about 16.6 percent.  The federal rate was less than half of the 35 percent statutory rate.

Large firms that made a profit that year paid an even lower effective rate—an average of 16.9 percent in worldwide taxes and only 12.6 percent in U.S. federal tax.

The always moderate and restrained Linda Beale chimes in with Corporations Never Had It So Good.

William McBride from the Tax Policy Blog doesn’t see it quite that way in GAO Compares Apples to Oranges to Find Low Corporate Effective Tax Rate:

A new study by the Government Accountability Office (GAO) claims the corporate effective tax rate (ETR) was 12.6 percent in 2010, which is about half the standard estimate found in other studies cited by the GAO and summarized here, here, and here. Based on IRS data, the corporate effective tax rate is about 26 percent  on average, though it dropped in the most recent year of data, 2009, to a little over 22 percent, due to the recession and temporary tax incentives meant to stimulate investment.

Why the difference?

So how did GAO come up with such a low effective tax rate? Mainly by comparing apples and oranges. Particularly, GAO takes the smallest measure of taxes paid and divides it by the largest measure of net income according to financial statements, even though this net income is not the tax base that the corporate tax was meant to apply to. The corporate tax rate applies to taxable income, as defined in the tax code. According to GAO, taxable income in 2010 was $863 billion for profitable corporations, while financial statement income was $1.443 trillion.

It’s true that effective rates on taxable income will never be as high as the stated rate because of tax credits, but the GAO numbers show a misleadingly low burden.

 

The Obamacare employer mandate has been delayed.  My coverage and a roundup: Don’t fire employee #50 just yet: Obamacare employer mandate delayed until 2015

 

Jason Dinesen, Do Iowa Taxes Change as a Result of the DOMA Ruling?  “The answer is: very little changes on Iowa taxes.”

Trish McIntire, DOMA is Dead

 

Joseph Thorndike, Milton Friedman Didn’t Believe in Tax Reform (Tax Analysts Blog).  Getting rid of loopholes, the argument goes, just makes room for new ones.

TaxProf, The IRS Scandal, Day 55 and IRS Hits Tyco With $1 Billion Tax Bill

Janet Novack, IRS Calls Foul Against Estate Of Late Minnesota Twins Owner Carl Pohlad.   “Carl Pohlad’s heirs contend his stake in the MLB club was worth just $24 million. The IRS pegs it at more than 12 times that.”

Zerjav update:  I have updated my post on the St. Louis tax advisor who was sentenced to 18 months in prison to include information from a U.S. Attorneys press release on the details of how the evasion was done.

David Brunori, Cuccinelli’s Corporate Tax Plan Does Not Go Far Enough (Tax Analysts Blog:

The state would be far better off repealing the tax and either 1) reducing spending by $800 million, or 2) finding other sources of revenue. An increase in the personal income or sales tax would be a better idea than trying to tax corporate income.

Amen.

 

Tax Justice Blog, Bad Budgets Become Law in Ohio and Wisconsin.  That probably means the opposite.

Peter Reilly continues to report breaking news from the Battle of Gettysburg:  Did Doris Kearns Goodwin Blow It At Gettysburg ?  I am insanely jealous.  I assume he will torture me with coverage of today’s 150th anniversary of Pickett’s charge.

 

News you can use. The Screaming at EY Has Stopped (Going Concern)

I don’t see what his orientation has do with anything.  Century old barn may’ve been started on fire by flaming raccoon (Radio Iowa)

 

Share

Tax Roundup, 7/2/2013: Apologies, newlyweds and civil wars!

Tuesday, July 2nd, 2013 by Joe Kristan
Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Kay Bell doesn’t much care for the Taxpayer Advocate’s “apology payment” proposal,  where the IRS would pay $1,000 as a token of apology to taxpayers who had gotten the runaround from the agency:

In order to avoid spurring an apology payment, employees could be reluctant to challenge taxpayers in situations where such added attention is warranted. The ensuring refusal by workers to aggressively, but fairly, go after taxpayers will make for a less, not more, effective tax enforcement agency.

So instead of establishing an apology payment system, the $1 million should instead go to the IRS for it to do its job, albeit do it better. That’s also recommended by Olson in her report.

So Kay probably wouldn’t much care for my “sauce for the gander” rule, which would impose penalties on the IRS, payable to the taxpayer, anytime the IRS maintains an unreasonable position on audit.  I would also apply it automatically anytime the IRS asserts an accuracy-related penalty and then loses in court on the underlying issue.

 

Jana Luttenegger, IRS Statement on DOMA and Tax Tips for Newlyweds (Davis Brown Tax Law Blog).

The IRS quietly issued a statement on June 27. Quite, likely because it was of little value to any taxpayers. The statement is available from the IRS Newsroom, and essentially states they are reviewing the recent decision, and will “move swiftly to provide revised guidance in the near future.”

In what may or may not be a coincidence, the IRS Summer Tax Tip released today relates to Tax Tips for Newlyweds.

So maybe the IRS does have a sense of humor.

TaxGrrrl, As Taxpayers Scramble To Make Sense Of DOMA, IRS Issues Statement

 

Russ Fox,  Licensing Stops All Tax Preparer Fraud…Well, No.  But it does make it fraud with a government seal of approval.

 

Howard Gleckman,  New Study: Tax Subsidies Do Little To Reduce Greenhouse Gas Emissions.  But they do help keep stray birds out of foreign airspace.

Missouri Tax Guy, Travel Expenses.  Why these expenses are not like the others.

TaxProf, IRS Scandal, Day 54.

Jack Townsend, Depositor Pleads to Failse Return; Depositor in Luxembourg Branch of Israeli Bank

William Perez, “Blank-Slate” Tax Reform Proposed by Baucus, Hatch

Tax Justice Blog, Top Senate Tax-Writers’ Call for “Blank Slate” Approach to Tax Reform Avoids Most Crucial Issue

Martin Sullivan, Tax Reform: Coming Around the Clubhouse Turn? (Tax Analysts Blog)

Clint Stretch, Tax Reform or Shotgun Wedding? (Tax Analysts Blog)

Tax reform, we are told, will encourage economic growth by reducing complexity, inefficiency, and unfairness.  It probably could, but there are no guarantees.  I have had to read most of the tax legislative histories written in the past 40 years.  I cannot recall any instance in which the committee reports confessed that the wrong balance of fairness, economic growth, and simplification was struck.

Yet it would have been true every time.

 

Kyle Pomerleau, Misleading Corporate Tax Talk: (Tax Policy Blog)

When a company pays employees, either through wages or stock options, they are legitimately allowed to deduct that compensation.

It is not like this money is never taxed. This compensation is taxed as ordinary income at the individual level.

A point often overlooked when they talk about stock option “loopholes.”

 

Janet Novack, GAO: Big Companies Paid A 12.6% Effective Federal Income Tax Rate

Jeremy Scott, Obama’s Climate Change Proposals Lack Major Tax Component (Tax Analysts Blog).  They also lack a snowball’s chance in a high-carbon Hades.

TaxDood, GAO: Bitcoin Presents Tax Compliance Risks

It’s Tuesday, so it’s time for a fresh Buzz from Robert D. Flach. 

 

grant126

Grant at work.

Peter Reilly is taking a few days off from his usual tax topics to cover commemorations of the 150th anniversary of the Battle of Gettysburg, which occurred July 1-3, 1863:Hopes of Our Country Were on Our Bayonets

Gettysburg Day 1 – First Shot – Where Fate Meets History

Gettysburg Day 1 – Passing Into Legend And History With The Iron Brigade

I’m sure there will me more great posts.  But remember that this week is also the 150th anniversary of the fall of Vicksburg to General Grant  — a more spectacular campaign and arguably a more important achievement, but not so well-remembered as Gettysburg.

 

 

Share