Posts Tagged ‘Jason Dinesen’

Tax Roundup, 4/10/14: Still plenty of time for an IRA! And Iowa Tax Freedom Day looms.

Thursday, April 10th, 2014 by Joe Kristan

IRAWhen the tax deadline is looming, taxpayers looking for the Tax Fairy to wish away their tax problems often overlook the old-fashioned IRA.  You can still make 2013 IRA contributions through April 15.  An Individual Retirement Account contribution may be able to score you a 2013 deduction (or even a tax credit) for 2013; even if you don’t qualify for current tax savings, they are a nice and cheap way to build-up tax-sheltered savings.

IRAs come in two flavors: “traditional” and “Roth.”  Traditional IRAs build up their income tax-free, but earnings on them are taxable when they come out.  If you meet certain conditions, your traditional IRAs come with sprinkles: – a tax deduction.  If you don’t get the deduction going in, your principal is tax-free going out.

Roth IRAs never offer a deduction, but they leave a sweeter aftertaste: if you hold them long enough, income on Roth IRA assets is never taxed.  And unlike traditional IRAs, you are never forced to start withdrawing funds from the IRA, so the tax-free build-up can go on indefinitely.

Both traditional and Roth IRAs require you to have wage or self-employment net income.  The limits for contributions are the lesser of your taxable compensation or $5,500 ($6,500 if you were 50 by December 31, 2013).  You can contribute to a traditional IRA at any income level, but deductions phase out at higher income levels if you (or your spouse) are covered by a retirement plan at work.  The availability of Roth IRA contributions phases out at higher income levels regardless of whether you participate in another retirement plan.

One very useful way to use Roth IRAs is for teenagers and young adults.  A parent can fund a Roth IRA for them based on part-time job income — no matter what parent income is.  This starts a tax-free retirement fund for the young earner at a very age, giving the power of compound interest lots of time to do its magic.  And from what I’ve seen, parental Roth funding is much appreciated by the recipients.

While time is short, you can still fund a 2013 IRA if you make your contribution no later than April 15.  You can set one up at your friendly community bank or online with a mutual fund company on you lunch hour.  No, it probably won’t make your 2013 taxes go away, but it can be a nice step towards financial security for you or your kids.

This is the latest of our 2014 Filing Season Tips — a new one every day thorugh April 15!

Russ Fox, Bozo Tax Tip #4: Honey, You Don’t Exist!: “Perhaps it’s something in the water, but this year Aaron and I have seen multiple cases of individuals who have ignored that marriage license and filed as single if married.”

 

Kyle Pomerleau, When is My State’s Tax Freedom Day?  (Tax Policy Bl0g) Iowa’s is this Sunday.

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Kristy Maitre, How to Report National Mortgage Settlement Payments

TaxGrrrl, Taxes From A To Z (2014): X Is For XD   

Paul Neiffer, Trusts Can Get You in Trouble

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me, Part 2 

 

Hey, preparers: are you ready to trust the IRS to regulate your livelihood?  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline (Washington Post, via the TaxProf)

Kay Bell, Computer problems for IRS, Canadian tax agency

 

20140401-1Alan Cole, Mainstream Economics Support Low Taxes on Capital Income (Tax Policy Bl0g): “The overwhelming bulk of the evidence is that taxes have a negative effect on economic growth, and that the effect is particularly strong on tax bases that include capital income.”  But, the rich!  Inequality!

Donald Marron, Seven Tax Issues Facing Small Business (TaxVox): “America’s tax system is needlessly complex, economically harmful, and often unfair.”

Cara Griffith, Guidance Today, Gone Tomorrow (Tax Analysts Blog).  ”A recent Arkansas court opinion points out what might be a troubling trend in state taxation: the inability of taxpayers to rely on administrative guidance because the state can retract or supersede it on a moment’s notice.”

TaxProf, The IRS Scandal, Day 336.  It was a big day, with evidence that Lois Lerner was working behind the scenes with the ranking Democrat on the Ways and Means Committee to harass the opposition.

Tax Justice Blog, Is the Obama Administration Blocking International Efforts to Address Corporate Tax Avoidance? 

William Perez, Tax Reform Act of 2014, Part 4, Tax Credits

 

Hank Stern, The ObamaTax Domino Effect.  ”While we’ve all seen the horrendous rate increases caused by the ObamaTax (including on our 1040′s), thee are other victims.”

“Pro-business” isn’t “pro-market,” a distinction utterly lost on Iowa officials.

David Brunori: I’ll Raise a Glass to Lower Booze Taxes (Tax Analysts Blog) ”Jack Daniels is not bourbon, by the way, but Tennessee whiskey. There is apparently a difference, but frankly, after the first glass, I can never tell.”

Next: legislators are terrible at legislating.  GAO Went Undercover to Discover Tax Preparers Are Terrible at Tax Preparing (Going Concern)

 

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Tax Roundup, 4/8/14: So what do I do with the K-1? And: they also serve who go away!

Tuesday, April 8th, 2014 by Joe Kristan

So the K-1 finally showed up from my partnership or S corporation investment.  Now what?

Remember that the K-1 represents your share of the income and expenses of the partnership/S corporation/trust (henceforth “thing”) that issued it.  Different pieces of income and expense are treated differently on your tax return, and the K-1 tells you where your pieces go.  Sort of.  Before you get started plugging in your numbers, you should answer some questions for yourself.

- Do I “materially participate” in this thing? Your level of participation determines the forms you start with in preparing your returns, whether you can deduct losses, and whether your income from the thing is is subject to the Obamacare 3.8% Net Investment Income Tax.  If you spent more than 500 hours working in the thing, that usually means you materially participate; a more complete discussion of material participation is found here.

- Did the thing lose money?  If it lost money, then you have to clear three hurdles to deduct the losses:

1. You have to have basis.  This starts with your investment in the thing.  If you loaned money directly to the thing, you will get basis for the loan.  If you have a partnership, you will get basis for your share of the partnership debt, shown in part L of your K-1.  S corporation shareholders don’t get basis for their share of the corporation’s debt, even if it is guaranteed by hte shareholder.  Your basis is increased for your share of the thing’s income, and it is reduced for losses and distributions.  If you have no basis, you can’t take losses.

2. Your basis has to be “at-risk.”  This normally means that you are out-of-pocket for the investment.  If your basis comes from borrowed funds, you have to be personally on the hook for the debt — but if you borrowed from somebody with an interest in your thing, you might not be “at-risk” even if you will have to pay up if thing defaults.

If your basis comes from a share of the partnership debt, you are normally considered “at-risk” for debt shown on the “Recourse” and “Qualified Nonrecourse financing” lines on part K of your partnership K-1.  Your at-risk amount is computed on Form 6198,

3. You have to materially participate (see above), or have “passive” income from other activities.  If you don’t materially participate, you need to go to Form 8582 to figure how much, if any, of your loss is deductible this year.

 Got that?  Tomorrow we’ll look at what you have to do after you answer these questions.  Come back every day through April 15 for more !

 

Senator Hubert Houser

Senator Hubert Houser

Legislator of the Century.  Yes, the century is young, but it will be hard to beat the accomplishment of Iowa state senator Hubert Houser.  He went home.  From The Des Moines Register:

At issue is the fact that Houser, a Republican from Carson in southwest Iowa, hasn’t resigned. He has simply stopped coming to the Statehouse, saying he isn’t needed as a minority caucus member and doesn’t have a role in any legislation. He says it’s more important for him to spend time on his family’s farm, where he is expanding the livestock facilities.

Houser was not present in the Senate chamber again on Monday.

Secretary of the Senate Michael Marshall said Monday that Houser is still receiving his annual salary of $25,000.

The coverage implies that Sen. Houser is doing a bad thing.  Considering the dubious accomplishments of the ones that do show up, I can’t agree.  We’d be better off if they all went home.  The legislators should get all of their pay on Day 1 of the session, and they should get docked if it goes past a month.

 

Of course they do.  Iowa House panel OKs $2 million tax break for Knoxville Raceway.  (Des Moines Register)

 

RashiaQueen of IRS tax fraud needs a break.  Rashia Wilson, who famously held up big wads of cash on her Facebook page and taunted the feds to come and get her, is less liquid nowadays, according to a report by tampabay.com:

Busted down to a federal prison in Aliceville, Ala., she earns just $5.25 a month, she declares in newly filed court papers. That’s a problem because Wilson, 28, was ordered to pay a token $25 per calendar quarter toward the $3.1 million in restitution that she owes the IRS for filing false tax returns using stolen identities. She needs money to buy vitamins and hygiene items, too, she says. So she’s asking U.S. District Judge James S. Moody Jr. to suspend restitution payments until after her release date: Jan. 5, 2031. 

Then she’ll really get after it, I’m sure.

 

Peter ReillyNo Money For April 15 1040 Balance Due? Don’t Panic!

Tony Nitti, Where Is Your Tax Home When You Work In A Foreign Land?   

Jason Dinesen, Tax Court Case Involving Radio DJ Strikes Close to Home for Me.  ”I used to work in radio. I was the news director at KNOD radio station in Harlan, over in the western part of Iowa.”

I had a brief stint as an unpaid intern for KHAK, a country station in Cedar Rapids, in 1980.  I learned that I have a face for radio and a voice for print.

 

Roger McEowen and Kristine Tidgren, Understand That Easement Agreement Before You Sign It

 

Locust Street, Des Moines

Locust Street, Des Moines

TaxGrrrl, New IRS Commissioner Talks Tax, Scandal and Congress.  She gives him more credit than I do.

Andrew Lundeen, Kyle Pomerleau, Americans Pay More in Taxes than on Food, Clothing, and Housing Combined (Tax Policy Blog)

Renu Zaretsky, Ethics and Fairness, Growth and the Environment, Retirement and Tax Shelters.  The TaxVox headline roundup ponders, among other things, whether we should subsidize wind turbines forever.

Kay Bell, Energy efficient home improvement tax break might be back

TaxProf, The IRS Scandal, Day 334

News you can use. How to Cheat on Your Taxes. (David Cay Johnston, via The Taxprof)

News from the Profession.  According to Research, You Are Fat Because Busy Season (Going Concern)

 

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Tax Roundup, 4/2/14: CPA Revenge edition! And more.

Wednesday, April 2nd, 2014 by Joe Kristan

20140330-1Mutually assured destruction.  Accounting firm breakups can generate bad feelings.  Bad feelings can generate bad ideas — like filing bogus 1099′s on your erstwhile colleagues.  That went badly for an Ohioan in a U.S. District Court case reported in today’s Tax Notes ($link). 

When Waldman, Pitcher and Co. broke up, it wasn’t amicable. Lawrence Waldman felt ill-used by departing partners Kenneth Pitcher  and Michael Enders.  Some background from the District Court judge:

This case arises from the acrimonious break-up of the successful accounting firm Waldman, Pitcher, and Co., P.S.C. The individual parties in the present case were formerly partners in that firm. The break-up has spawned numerous related lawsuits, various audits by the Internal Revenue Service (“IRS”), numerous complaints of improper conduct to various professional oversight groups, and protracted contentious litigation of the present case.

Mr. Waldman apparently attempted to enlist the IRS in his fight, using an assignment of uncollected receivables in the break-up agreement (footnotes and other references omitted):

In January 2010, Waldman & Co. issued 1099-MISC forms to Pitcher and Enders personally for tax year 2009, for non-employee compensation in the amount of $111,535.00 for Pitcher and $13,260.00 for Enders. It is undisputed that Waldman and his company had not collected any of the AR/WIP money reflected on those 1099 forms (doc. no. 134, ¶¶ 18-19). Waldman was admittedly angry at Pitcher and Enders and has repeatedly characterized their departure as effectively “stealing” two million dollars from him. As a prominent and experienced CPA, Waldman was familiar with the matching program of the IRS and knew that issuing these 1099s to Pitcher and Enders personally would likely result in IRS audits of their personal income tax returns. Waldman & Co. benefitted by taking a corresponding tax deduction for the reported amounts.

The unhappy 1099 recipients fought back:

In February and March of 2010, Pitcher and Enders complained to the IRS’s Office of Professional Responsibility (“OPR”) that Waldman had issued 1099s containing information that Waldman knew to be inaccurate. They asserted that Waldman had done this “to exact a revenge that he couldn’t otherwise exact during our negotiations.” They filed similar complaints with the Accountancy Board of Ohio and Ohio Society of CPAs . Those groups declined to take disciplinary action against Waldman.

20120509-1It then got even uglier:

In February 2011, Waldman & Co. issued “corrected” 2009 1099s to the plaintiffs, reflecting “zero” for their nonemployee compensation. At the same time, he issued “corrected” W-2s to Pitcher and Enders reflecting increased amounts in Box 1 . For Pitcher, an additional $199,290.00 of reported income was included, reflecting the $111,535.00 for the accounts receivable assigned to KPE, $27,755 for the amount paid to KPE by Waldman & Co., and $60,000.00 for attorney fees paid by Waldman & Co. to plaintiffs’ attorneys… For Enders, an additional $13,260.00 was included, consisting of $13,260.00 for the accounts receivable assigned to KPE. Waldman & Co. took a tax deduction for the increased amounts listed on the corrected W-2s, even though such returns indicated that no federal income taxes had been withheld.

I suppose if you are going to make up compensation on W-2s, you may as well be consistent and deduct the pretend expense.

Much litigation later, the District Court ruled for the departing accountants Pitcher and Enders:

Given his education, knowledge, and business experience as a CPA, [Mr. Waldman] could not have reasonably believed that these information returns were proper to file. He filed these information returns “willfully” in order to obtain tax benefits and harass the plaintiffs. Despite having “settled” a previous lawsuit over the plaintiffs’ departure from the firm, Waldman was dissatisfied and stubbornly believed the plaintiffs had “stolen” two million dollars from him by leaving his firm with clients. In taking on the role of whistleblower, he deliberately misused the IRS reporting system.

A lot of good it did them.  They were each awarded $15,000 in damages, but not attorney fees:

In light of the unusually hostile litigation history between the parties, the Court observes that plaintiffs have certainly played a significant role in creating the bitter circumstances of this case. This case has also been marked by needlessly contentious discovery battles, repetitive briefing, and unfortunate personal attacks. In view of the animosity between the parties, the Court in its discretion declines to award attorneys’ fees to the plaintiffs. The Court is aware that, absent such an award, this may be a Pyrrhic victory for plaintiffs. Nonetheless, the Court is convinced that this is a just result under the unusual circumstances of this case.

It’s hard to believe that the plaintiffs came out ahead on this, especially when their time is taken into account.

The Moral: breaking up is hard to do, even for accountants.

Cite: Kenneth B. Pitcher et al. v. Lawrence Waldman et al., DC-SD Ohio, No. 1:11-cv-00148

 

20140307-1Jason Dinesen, Life After DOMA: Estate Tax   

Kay Bell, No April Fools’ joke: No capital gains taxes for some investors

William Perez, Extended Time for Choosing When to Deduct Colorado Flooding Losses

TaxGrrrl, Taxes From A To Z (2014): R Is For Royalties   

Leslie Book, What is a Fair CDP Hearing: Courts Push Back on IRS

 

William McBride, French Economist Wants Top Tax Rate of 80 Percent to Fix Inequality (Tax Policy Blog).  No, it’s not an April Fools joke, and some people who should know better take this serously.  The “French economist” is Thomas Picketty, who is big into the whole “inequality” hand-waving being used to distract us from our real problems.   The post illustrates the folly of the whole war on millionaires with this chart:

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He could have added that an increasingly progressive tax system has coincided with increasing inequality.

 

Howard Gleckman, House Republicans Punt on Tax Reform (TaxVox): “…it effectively turns its back on the tax reform plan drafted by Dave Camp, the GOP chairman of the House Ways & Means Committee.”

Tax Justice Blog, ITEP Predicts Illinois Tax Reform Debate…and Then Puts Crystal Ball Away

 

TaxProf, The IRS Scandal, Day 328

Name that Party!, tax edition.  Instapundit has a recurring gag poking fun at news stories of corrupt politicians whose political affiliation is left mysteriously unstated.  Here’s an example from the tax world: Gary councilman sentenced to prison.

 

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

Monday, March 31st, 2014 by Joe Kristan

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

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

Other Tax Update coverage:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

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

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

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

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

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

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

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

 

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

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

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

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

 

Greg Mankiw,  The Growth of Pass-Through Entities:

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

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

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

Source: The Tax Foundation

Source: The Tax Foundation

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

 

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

BitcoinMegan McArdle, The IRS Takes a Bite Out of Bitcoin

Annette Nellen, Guidance on taxation of virtual currency

TaxProf, The IRS Scandal, Day 326

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

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

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

 

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

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

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

 

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

 

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

Thursday, March 27th, 2014 by Joe Kristan

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

These data indicate that:

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

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

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

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

 

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

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

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

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

Kay Bell, IRS chief Koskinen spars with House Oversight panel

 

Greg Mankiw, Not Class Warfare, Optimal Taxation:

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

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

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

Oligarchists everywhere.

 

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

Cara Griffith, Taxing Streaming Video (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 322

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

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

 

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

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

 

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

Friday, March 21st, 2014 by Joe Kristan

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

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

They note these major S corporation changes:

Creates Different Tax Treatment for Manufacturing and Non-Manufacturing Industries

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

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

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The Difference between Active and Passive Shareholders

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

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

20140321-2

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

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

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

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

Tax Rate Bubble

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

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

 

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

20140321-3TaxProf, The IRS Scandal, Day 316

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

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

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

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

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

 

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

 

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

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

 

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

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

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

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

 

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Tax Roundup, 3/20/14: An optional mandate? And: baseball-tax convergence!

Thursday, March 20th, 2014 by Joe Kristan


20121120-2
Is the Obamacare individual mandate penalty now optional?  
 A couple of weeks ago the Wall Street Journal editorial page published ObamaCare’s Secret Mandate Exemption; HHS quietly repeals the individual purchase rule for two more years.  That’s a pretty bold statement, especially because the Administration has adamantly rejected calls for a delay in the individual mandate, after having delayed the business mandate twice.  If there is no mandate, Obamacare will likely lead to huge losses for insurers (to be subsidized by taxpayers), who need the forced patronage of the healthy to cover the sick that they can no longer exclude or charge risk-adjusted premiums.  Did they really do that and not tell anyone?

Here’s what WSJ says happened:

But amid the post-rollout political backlash, last week the agency created a new category: Now all you need to do is fill out a form attesting that your plan was cancelled and that you “believe that the plan options available in the [ObamaCare] Marketplace in your area are more expensive than your cancelled health insurance policy” or “you consider other available policies unaffordable.”

This lax standard—no formula or hard test beyond a person’s belief—at least ostensibly requires proof such as an insurer termination notice. But people can also qualify for hardships for the unspecified nonreason that “you experienced another hardship in obtaining health insurance,” which only requires “documentation if possible.” And yet another waiver is available to those who say they are merely unable to afford coverage, regardless of their prior insurance. In a word, these shifting legal benchmarks offer an exemption to everyone who conceivably wants one.

Did this really happen? The IRS has just issued Tax Tip 2014-04, The Individual Shared Responsibility Payment – An Overview.  It says:

You may be exempt from the requirement to maintain qualified coverage if you:

  • Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than eight percent of your household income,

  • Have a gap in coverage for less than three consecutive months, or

  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement.

So what kind of “hardship” would that involve?  The list of eligible hardships at Healthcare.gov provides a long list of qualifying hardships, including “You recently experienced the death of a close family member.”  I’m sure you can come up with one, but if that doesn’t work, try “You experienced another hardship in obtaining health insurance.”  Like, “Healthcare.gov” crashed, for example?  It’s your word against — whose?

So how do you claim “hardship?”  The first way is “You can claim these exemptions when you fill out your 2014 federal tax return, which is due in April 2015.”   

So somebody fills out the form and finds out the government wants hundreds of dollars in penalties for not buying insurance.  I bet they’ll come up with either a loss in the family or a hardship in a hurry.  There will be tens of thousands of these.  The IRS can’t possibly police this.

It appears the Wall Street Journal is on to something.  Considering the high cost of policies on the exchanges, a struggling young single really would incur hardship buying mandated coverage.  And if you feel it’s a hardship, they are practically inviting you to opt out.  It’s hard to see this ending well.

This also poses ethical issues for practitioners, which I’ll address another time.

 

IRS Bars Appraisers from Valuing Facade Easements for Federal Tax Purposes for Five Years (IRS Press Release):

The appraisers prepared reports valuing facade easements donated over several tax years. On behalf of each donating taxpayer, an appraiser completed Part III, Declaration of Appraiser, of Form 8283, Noncash Charitable Contributions, certifying that the appraiser did not fraudulently or falsely overstate the value of such facade easement. In valuing the facade easements, the appraisers applied a flat percentage diminution, generally 15 percent, to the fair market values of the underlying properties prior to the easement’s donation.

There’s a lot of interesting things here.  For example, they never mention the name of the appraiser group.  It would seem like that would be useful information to taxpayers.  Sometimes people who seem to be barred from a line of work apparently neglect to mention that to prospective clients.

It also shows that you can’t count on a too-good-to-be-true result just because a lot of other people have gotten it.  They just might not have been caught yet.  You can be sure the IRS is working its way down the appraisal group’s client list.

 

Principal Park, as seen from my office window.

Principal Park, as seen from my office window.

Baseball-Tax Convergence.  Over at Cubs Fan site Bleacher Nation, Proprietor Brett yesterday posted The Chicago Cubs Financial Story: the Payroll, the Debt, and the Syncing of Baseball and Business Plans.  A lawyer by training, Brett digs deep into the leverage partnership deal where the Ricketts family bought the Cubs in a way structured to defer taxes to the Tribune Company:

In a leveraged partnership, a “seller” partners with a “buyer” to form a new entity, which takes on the assets and distributes cash to the “seller.” In its formation, the partnership takes on a great deal of debt, which is guaranteed by the seller. Doing so allows the “seller” to receive the cash distribution, and defer the taxes associated with the sale of the asset. 

At least that’s the idea. Brett notes that the IRS doesn’t have to agree, and that they didn’t when the Trib tried a similar trick when it sold Newsday.  After tax season, and after I wander down to Principal Park for the noon I-Cubs game on April 16, I’ll try to explain this.

 

Tony Nitti, What Are The Penalties For Failing To File Your Tax Return On Time? .  A lot more than failing to pay.  It’s worth getting that extension in, even if you can’t pay right now.

Kay Bell, Missing your 2010 tax refund? Claim deadline is 4-15-2014

William Perez, Tax Reform Act of 2014, Part 1, Tax Rates

Russ Fox, IRS Releases New Forms W-8BEN and W-8ECI.  Important if you find you are doing business with an offshore payee.

Iowa Public Radio, State Tax Laws ‘A Mess’ For Same-Sex Couples And Employers.  That’s where specialists like Jason Dinesen can really help.

TaxProf, The IRS Scandal, Day 315

Bloomberg, Buffett Cuts Tax Bill, Tells Others Not to Complain.  He’s tired of hearing you complain about subsidizing him, peasant. (Via TaxProf)

Chris Sanchirico, As American as Apple Inc. (TaxVox).  A complaint that Apple doesn’t voluntarily increase its own taxes.

ThinkAdvisor offers 8 Tax Evaders Who Should’ve Known Better — public servants biting the hand that feeds them.

 

Scott Drenkard, Richard Borean, Cigarette Smuggling Across the States (Tax Policy Blog) “Smuggled cigarettes make up substantial portions of cigarette consumption in many states, and greater than 25 percent of consumption in twelve states.”

 

20140320-1

Almost one in five Iowa smokes are smuggled.

 

Cara Griffith, City of Tacoma Considers Contingent-Fee Auditors (Tax Analysts Bl0g) It’s a bad idea, but it’s hard to see where it’s any different from red-light cameras, where the camera companies collect a bounty of their own.

TaxGrrrl, 10 Tips For Making The Most Of March Madness  My strategy is to ignore it.

 

The Critical Question. Can the IRS Tell a Good Story? (Susan Morse, Procedurally Taxing)

 

 

20130419-1You lied to the IRS all these years, but you’re telling me the truth?  Sometimes business owners get away with tax evasion for years.  Then they try to sell their business.

A Henderson, Nevada auto body shop owner decided it was time to cash out.  KTNV reports:

Robert E. D’Errico, 64, was sentenced Wednesday morning to six-months in federal prison for tax evasion.

According to the plea agreement, D’Errico owned Sunset Collision Center in Henderson. In 2009, he began listing the business for sale on small business listing sites and with small business brokers. D’Errico stated in his listings that, “Seller states that his discretionary take-home cash is $150,000 per year and has receipts to prove it.”

When contacted by a potential buyer, D’Errico re-iterated, “Seller’s discretionary cash take home beyond stated net income is approx. $150,000 avg. per year and is verifiable with receipts.”

During a meeting with a potential buyer, D’Errico stated he stopped accepting checks and was taking cash deductibles from customers, as well as selling excess inventory for cash. 

Either the “potential buyer” ratted him out, or he was an IRS secret shopper.  The IRS got a search warrant, found the real ledgers, and things got ugly.  

Tax returns are sometimes the only financial statements a small business has.  Buyers naturally want to see them, and it can be awkward trying to convince a buyer that they aren’t the “real” financial statements.  But it can get a lot more awkward than that.

 

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Tax Roundup, 3/17/14: Celebrate the corporation due date responsibly! And more.

Monday, March 17th, 2014 by Joe Kristan


daydrinkers
Corporate 2013 returns are due today! Or at least the extensions.  It looks like massive celebrations are in store this year, for some reason, but be sure to get your filing in before you hit the bars.  A late S corporation return results in a stiff penalty: $195 per K-1.  That penalty will be repeated for each additional month the filing is late.

C corporations have their own late filing penalty, 5% of any deficiency.  If you owe but can’t pay, you should still file or extend; then the penalty is only 1/2% of the deficiency.

How should I file or extend?  Glad you asked.  Electronic filing is the best and safest way, because you can get electronic confirmation.  No trip to the post office, no holding on to a postmarked receipt, no worrying about the mail truck going up in flames.

If you prefer not to e-file, then take the trouble to get proof of filing.  The cheapest is to go to the post office and mail your return or extension Certified Mail, Return Receipt Requested.  Get a stamped postmark for your package and put it in a safe place.  It also helps to write the certified mail receipt number on top of the return or extension before sealing the envelope for additional proof.

If you lose track of time because of all the festive distractions today, and you find the local post office has closed, you still may be able to get your filing in.  The IRS treats shipping on the due date by a designated private delivery service as a timely filing.  That means your local Fed-Ex office or UPS store might be able to take care of you.  If you do go that route, be sure you use one of the specific services approved by the IRS, and make sure the shipping slip uses today’s date.  You also will need the street address for the IRS service center that your filing is going to, as private delivery services can’t use P.O. Box addresses.

Oh, and apparently green is the official color for corporate return day this year.

Russ Fox, The Other March 17th Deadline: Form 1042s. “The form 1042 series (1042, 1042-S, and 1042-T) is used to report annual withholding for US-source income of foreigners.”

 

20120906-1The revival of the sales tax subsidy for the Iowa Speedway advances in the legislaturereports The Des Moines Register:

The Newton track has received a tax break since it opened in 2006 — a 5 percent rebate of state sales tax collected at the track, totaling about $3.5 million so far. But the law authorizing the tax break required that the facility must be owned at least 25 percent by Iowans.

The purchase by NASCAR, stock-car racing’s sanctioning body, means ownership is 100 percent from outside Iowa. A law change is required to keep the tax-rebate money flowing. Supporters of the tax break say it will help bolster Iowa tourism and spur the state’s economy.

Of course, this favors the track over every other entertainment and tourist venue in Iowa, none of whom get to keep the sales taxes they collect.

 

William Perez, Itemizing Deductions. “If the total of all these itemized deductions is higher than the standard deduction, then a person usually obtains the least amount of tax by itemizing.”

TaxGrrrl, Taxes From A To Z (2014): H Is For Holding Period

Kay Bell, Dealing with a 1099-K for tax-free residential rental income

Jason Dinesen, Glossary of Tax Terms: Refundable Credits  “The term “refundable credit” refers to a tax credit that can produce a tax refund even if your tax liability is $0.”

Peter Reilly, Building Repair Deductions – Thirty Per Cent Of What?  ”All the toilets together perform a discrete and critical function in the operation of the plumbing system” is the best line that I could find in the ninety odd pages of Regulation 1.263(a)-3 “Amounts paid to improve tangible property”commonly known as the “repair regs”.    Peter makes a good effort at explaining a brutally boring set of rules that is actually also important.

Keith Fogg, Confusing Lien and Levy (Procedurally Taxing).  May you never need to know the difference.

Tony Nitti, Online Sportsbook Founder Held Liable for $36 Million In Tax And Penalties

 

20130121-2Annette Nellen, Brick wall hit by IRS in its efforts to regulate all return preparers.  Too bad, so sad.

TaxProf, The IRS Scandal, Day 312

Alan Cole, Cadillac Tax Confirms: Employers Respond to Tax Changes (Tax Policy Blog). “According to the report, many companies are already making changes in anticipation of the tax, converting to less generous plans.”

Bill Gale, Howard Gleckman, Dave Camp’s Most Valuable Contribution to Tax Reform (TaxVox):

 Still, the 1000-page bill puts his plan out there in all its gory detail. It shows just how tough it is to pull together a reform that cuts rates and trims tax preferences while maintaining today’s revenue and the distribution of burdens.

It will be easier if you worry less about “maintaining today’s distribution of burdens.”  As far as I know, we haven’t achieved some perfect distributional model that should never be messed with.

 

From the Wall Street Journal comes Audit Bait: The Dirty Dozen — Moves That Could Trigger IRS Scrutiny:

  1. Forget to claim reported income.
  2. Take outsize deductions, especially for charitable gifts or travel and entertainment.
  3. Hide offshore accounts.
  4. Claim certain items on small-businesses returns.
  5. Pretend a money-losing pastime is a business.
  6. Use suspiciously round numbers.
  7. File an amended return.
  8. Use a dubious tax preparer.
  9. Be a tax protester.
  10. Provoke a whistleblower.
  11. Fail to claim canceled debt as income.
  12. Fail to file.

Yes, all those things are true.  But if you really want to get examined, you might consider putting your returns claiming refunds on absurd grounds on a website that purports to “crack the code.”  Just a thought, in case you don’t find your life exciting enough. (Hat tip: TaxProf.)

 

News from the Profession. Deloitte Exec Gets Six-Week Vacation Thanks to Wife’s Heavy Foot, Russian Frivolity (Going Concern)

I hear his parents are upset.  32-yr-old Playboy ‘playmate of the year’ in trouble over 90-YEAR-OLD BOYFRIEND (Malaysia Times)

 

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Tax Roundup, 3/11/14: The Taxpayer Hotel Edition. And: private-sector Kristy!

Tuesday, March 11th, 2014 by Joe Kristan

Des Moines public officials think a fancy new convention center hotel is just what we need to hang with the cool kids, reports KCCI.com:

A plan to build a four-star hotel next to Hy-Vee Hall and Wells Fargo Arena won’t happen unless Des Moines city leaders can convince the state’s economic development authority to fork over millions in tax incentives for the project.

Des Moines Assistant City Manager Matthew Anderson said this week is a prime example that proves why a hotel is needed next to the Iowa Events Center.

Fans from across the state are coming to downtown Des Moines in droves to cheer on their favorite teams at the boy’s state basketball tournament.

Cindy Curran said there’s something missing. “Accommodations to stay overnight,” said Curran. “A nice hotel with restaurants in there, amenities to go with that.”

wells fargo arena

A casual reader could be forgiven for thinking that there are no hotels within a few blocks of Wells Fargo Arena.  They might think that the Des Moines Marriot Downtown, with its own nice restaurant and bar, had suddenly vanished.  They might think the historic Renaissance Savery Hotel, home of Bos Restaurant, had closed down.  They might think the new Hyatt Place in the Liberty Building had already failed.  And has the historic Hotel Fort Des Moines and its Django Restaurant disappeared after all these years?

Nope, they’re all going strong, and all still connected to Wells Fargo Arena by an enclosed all-weather skywalk system.  In fact, Downtown Des Moines has more restaurants and places to stay than ever.  They need a new competitor, apparently, but one that can’t happen  without $34 million in subsidies tax incentives.

If a business can’t happen without taxpayer subsidies, that’s a sure sign that it shouldn’t happen in the first place.  Convention centers have been a money pit for governments around the country, as the think tank Heartland Institute reports:

As convention planners seek to have large new hotels and related facilities built for their events, taxpayers are often stuck footing the bill for what could be a building that sits empty much of the year.

It’s always easier to support a new business when you invest somebody else’s money.

Related: The Convention Center Shell Game.

 

KristyMaitreIowa’s IRS stakeholder liaison privatizes herself.   From the Iowa State University Center for Agricultural Law and Taxation:

CALT is pleased to announce that Kristy Maitre, the former IRS Senior Stakeholder Liaison for the State of Iowa, has joined our staff. Kristy brings 27 years of IRS experience to her role as CALT’s new tax specialist.

Practitioners who have attended our seminars are already familiar with Kristy and her vast breadth of practical knowledge of tax and estate planning. Kristy has taught hundreds of continuing education classes to tax practitioners around the country. At CALT, she will continue to offer training through live seminars, but will expand her reach with frequent webinars and other educational offerings through the CALT website. Stay tuned as CALT will soon unveil more exciting changes enabling us to better serve the tax practitioner community.

Great news for Kristy and ISU-CALT, bad news for IRS service.

 

William Perez, Free Tax Software Available Through IRS Free File

Russ Fox, Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course)

potleafTaxGrrrl, It’s No Toke: Colorado Pulls In Millions In Marijuana Tax Revenue.  I think popular support for pot prohibition, with its attendant violence, prison crowding, and other social costs, will continue to decline.  At some point the lure of revenue will overcome the reflexive instinct of politicians to preserve control over things.

Jason DinesenWhat’s So Bad About More People Preparing Their Own Taxes?  “My goal is to have clients who actually need a professional preparer, or at the very least, people who could prepare their own taxes but who like the comfort provided by having a professional take care of it for them.”

One of these is not like the others  Filing season 2014: Death, taxes, root canals and refunds.  (Kay Bell)

 

Carlton Smith, Tax Court dodges CDP record rule ruling (Procedurally Taxing)

Jim Maule, Cracking the Tax Protest Movement.  ”The unfortunate thing about the tax protest movement is that most of the people in it are vulnerable folks who fall for the siren song of the ringleaders, just as those who support special tax breaks, even without benefitting from them, have fallen for the siren songs of those who procure special tax breaks for themselves and their clients.”

 

Joseph Henchman,  Idaho Considering Complicated and Gimmicky Job Creation Tax Credit.  (Tax Policy Blog) The best tax incentive is a simple, low-rate tax system without gimmicky incentives.

taxanalystslogoMartin Sullivan, If the Camp Tax Reform Bill Won’t Pass, Why Is It So Important? (Tax Analysts Blog):

The Camp discussion draft has changed the tax policy landscape like no other single document in the last three decades, for two reasons. First, it has burst the bubble of all the feel-good tax reformers who have been wasting our time promoting unrealistic tax plans. The Camp plan is the ultimate reality check on tax reform. It is far more complicated and painful than marketers of tax reform have told the public to expect. It is unlikely that any realistic tax reform would be any shorter or sweeter than the Camp draft.

The second reason the Camp reform is monumentally important is the extensive and detailed workmanship that went into it.   

I’m not convinced — I think the initial draft of a tax reform plan should be a lot more idealistic.  The cynical, politically-necessary modifications will arrive soon enough on their own, and conceding so many of them up front only invites more.

 

Jeremy Scott, Camp Hits Popular Deductions Hard (Tax Analysts Blog).  ”The elimination of the state and local tax deduction is one of the larger revenue raisers in Camp’s plan.”

TaxProf, The IRS Scandal, Day 306

 

Quotable:

When the law interferes with people’s pursuit of their own values, they will try to find a way around. They will evade the law, they will break the law, or they will leave the country. Few of us believe in a moral code that justifies forcing people to give up much of what they produce to finance payments to persons they do not know for purposes they may not approve of. When the law contradicts what most people regard as moral and proper, they will break the law–whether the law is enacted in the name of a noble ideal such as equality or in the naked interest of one group at the expense of another. Only fear of punishment, not a sense of justice and morality, will lead people to obey the law.

Milton Friedman, via David Henderson.

 

News from the Profession: The Profession is Really Reaching For the “I Still Let My Mom Pick Out My Outfits” Demographic (Going Concern)

 

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

Friday, March 7th, 2014 by Joe Kristan

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

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

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

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

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

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

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

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

 

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

 

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

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

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

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

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

Another argument for electronic filing and payment.

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

 

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 302

 

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

William McBride, Camp and Obama Gang up on Savers

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

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

 

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

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

 

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

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

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

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

 

 

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Tax Roundup, 1/5/14: President proposes $1 million Sec. 1031 cap. And: other doomed stuff!

Wednesday, March 5th, 2014 by Joe Kristan
Economic supergenius

0-99, 0-414

The President trotted out his old petty tax increases in his 2015 budget yesterday, and a few new ones.  The  new taxes would go towards, among other spending increases, an increase in the Earned Income Tax Credit welfare program for childless taxpayers.

If history is a guide, the Obama budget isn’t going to do well in Congress.  His own party leadership in the Senate has already pledged to pass no budget at all.  When his 2013 budget plan came up for a vote in Congress, it was rejected 99 -0 in the Senate and 414-0 in the House.

Still, it is worth mentioning some of the tax proposals, just so you are aware of them and their low likelihood of passage anytime soon.  Also, in light of the recent Camp “tax reform” proposal, apparently no tax provision is too dumb to get bipartisan consideration, so some of these might even pass someday.

S corporations: the bill would tax as self-employment income 100% of K-1 income from professional S corporations and partnerships of materially-participating owners.  Businesses covered would include health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, brokerage services, and lobbying.  For some reason, regular compensation would no longer be wages, but would instead be self-employment income.  That would wreak havoc on everybody’s 401(k) and profit-sharing plans.

- Like-kind exchange benefits would be capped at $1 million per taxpayer per year.  That won’t be popular with the real estate industry.

The bill also drags out dozens of the old proposals from his prior budgets, including LIFO repeal, ordinary income treatment for carried interests, capping the value of deductions at 28%, and capping build-ups in retirement plans.  Nothing at all is likely to happen before the next election on these proposals, but as many Obama proposals are also included in some form in the GOP Camp plan, they all have to be considered viable next time a major tax bill shows signs of moving.

The TaxProf has a good link-filled roundup.  The official explanation of the revenue-raisers is here.

Other coverage:

Kay Bell, Obama budget proposes more child care help for younger kids

Leslie Book, President’s Budget Proposes Major Procedural and Administrative Changes (Procedurally Taxing).  ”The popular media has generally described the plan overall the way Reuters did in reporting that it ‘stands little or no chance of being approved as is by Congress, where Republicans, who control the House of Representatives, disagree with the president’s policy priorities.’”

 

Des Moines Register, Voters OK increasing franchise fee in Des Moines.  The vote is the result of the city being ordered to repay an illegally-collected utility tax:

The money raised by increasing the franchise fee to 7.5 percent from 5 percent for seven years will be used to pay off about $40 million in bonds issued by the city to pay for the refund and administrative costs.

Among the “administrative costs” is $7 million in legal fees Des Moines was ordered to pay to the winning taxpayer attorneys after a scorched-earth court battle by the city to avoid repaying the illegal tax.  Next time, don’t collect an illegal tax, and pay up if you’re called on it.

 

Alan Cole, True Marginal Tax Rates under Chairman Camp’s Proposal (Tax Policy Blog).  Full of high-income phase-outs, it creates all sorts of goofy marginal rate anomalies:

Marginal Tax Rates Camp Tax Reform

Note the spike in rates at the low-end as a result of the earned-income tax credit phase-out.  That doesn’t even include the effect of the state EITCs that piggyback on the federal credit.  All of this is the opposite of tax reform.  Apparently neither party is ready for reform.

William Gale and Donald Marron, The Macro Effects of Camp’s Tax Reform (TaxVox): “How would Camp’s plan increase growth, and why is the range of estimates so wide?”

 

Paul Neiffer, Additional Tax Reform Items.  ”Remember, this is just a proposal and nothing will happen this year.”

Gene Steurle, A Camp-ground for Tax Reformers (TaxVox).

 

20130419-1Russ Fox, Deadlines for Us, but Not for Them:

For practitioners, the current state of the IRS is such that you can expect a lot of delays in responding to notices. Think months instead of weeks. Expect to have to call the IRS to verify that your response was received, and make sure clients are aware that the IRS is moving like molasses rolling uphill. Make sure anything you send is documented: certified mail with proof of receipt if by mail; if faxing, make sure you have the proof of receipt. Given the lengthy delays our clients are going to be in fear for far longer…

For taxpayers, you need to be aware that expediency is not part of today’s IRS. You have to be expedient in responding to notices but don’t expect the IRS to be expedient in getting back to you. Do not worry if it takes a long, long time to resolve something with the IRS. That’s just par for the course today.

Unfortunately, clients generally assume that if the IRS has sent a letter, that means the practitioner screwed up.  Many people, especially old folks, just pay up when they get an IRS notice.

 

William Perez, Tax-Deductible Relocation Expenses

TaxGrrrl, Taxes From A To Z (2014): B Is For Basis   

David Brunori, Taxing Coca Cola while Exempting Broccoli is Bad Policy Even for Native Americans (Tax Analysts Blog):

 In any event, several newspapers reported that one of the sponsors of the proposal was himself obese. He decided to change his life and lost 100 pounds. And he did it without any tax increases or help from the government.

Like so many reformed smokers/overeaters/drinkers, he has become annoying about it.

Tax Justice Blog, State News Quick Hits: State Policy Makers Need a Tax History Lesson

 

TaxProf, The IRS Scandal, Day 300.

 

Cheer up!  Filing Your Tax Return Is Terrible — But It Was Worse 100 Years Ago (Joseph Thorndike, Tax Analysts Blog).

News from the Profession.  The Real Loser at the Oscars This Year Was PwC.  (Going Concern)

20140305-1Jason Dinesen shares his Tax Season Tunes:

Here’s a sampling of other tunes I listen to while working when not getting my Gordon Lightfoot fix:

  • Neil Diamond. Generally not his “famous” songs. I detest — and I mean absolutely revile — “Sweet Caroline,” for example. The original recording is okay, but he’s turned it into a hokey, over-the-top, karaoke show-tune over the last few decades. Blech. I like the more introspective songs like “Shilo,” “If You Know What I Mean,” “Stones,” pretty much anything from his relatively new “12 Songs” and “Home Before Dark” albums,  and a host of other Neil Diamond songs that most people have probably never heard of.

  • An mix of songs that include Billy Joel, pop rock from the 60s and early 70s, Elvis, Willie Nelson, Conway Twitty, AC/DC, Juanes, Bon Jovi, CCR, Johnny Cash and Jimmy Buffett.

In case you were wondering, I believe Jason works alone.

 

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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.

 

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

~Andre Birotte, U.S. Attorney

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

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

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

 

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

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

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

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

 

 

 

William Perez has the scoop on Reporting Investment Income and Expenses

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

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

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

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

 

 

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

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

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

 

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

TaxProf, The IRS Scandal, Day 291

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

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

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

Monday, February 17th, 2014 by Joe Kristan

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

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

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

The Des Moines Register reports:

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

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

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

 

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

20140217-1

It looks like Iowa hits the sauce pretty hard.

 

Annette Nellen, State income tax filing post-Windsor.

Jason Dinesen, Glossary of Tax Terms: Enrolled Agent   

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

 

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

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

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

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

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

 

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

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

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

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

 

TaxProf, The IRS Scandal, Day 284

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

Jack Townsend, Government Files Protective Appeal in Ty Warner Sentencing 

 

Via Wikipedia.

Via Wikipedia.

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

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

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

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

Somewhat related: Tyler Cowen, Triply stupid policies.

 

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

 

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

Thursday, February 13th, 2014 by Joe Kristan


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

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

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

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

 

hatch2014

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

 

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

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

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

 

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

Jason Dinesen, Iowa Charitable “Checkoffs”

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

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

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

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

I like the wildlife one best.

 

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

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

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

 

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

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

It does go the wrong way.

 

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

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

 

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

TaxProf, The IRS Scandal, Day 280

 

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

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

 

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

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

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

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

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

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

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

 

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

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

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

A conspiracy so vast…

 

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

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

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

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

 

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

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

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

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

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

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

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

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

 

TaxProf, The IRS Scandal, Day 272

 

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

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

For the children!

 

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

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

 

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

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

 

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

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

 

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

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

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

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

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

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

That doesn’t make his advice any less sound:

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

 

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Tax Roundup, 2/3/14: The Fable of the Wife’s Purse and your legislature. And: start with the right name!

Monday, February 3rd, 2014 by Joe Kristan

20120906-1Why do state legislators enact such dumb laws?  After speaking to a group of State Senate Presidents, David Brunori has some thoughts ($link, unfortunately) on why they persist in enacting special incentive breaks for their special friends:

I said that tax incentives are largely unnecessary because business location decisions are mainly determined by labor costs and access to markets (Boeing proved that to some extent). But several senators quickly asked about industries such as filmmaking or high-tech, in which labor costs and market access aren’t nearly as important: Taxes would matter more, yes? I had to fall back on the “government still shouldn’t be picking winners and losers” argument, which I think is a powerful one. But it doesn’t resonate well with those who pick winners and losers all the time — in all aspects of public policy.

My response would be giving tax breaks to one business or industry means screwing all of your other constituents to pay for it.  It’s like taking your wife’s purse to the bar to buy drinks for the girls — yes, there are winners, but somebody loses too, and even the winners don’t respect you.

I like this “destroy the village to save it” argument:

 One senator asked whether widespread use of tax incentives would eventually make the corporate tax so irrelevant that its repeal would be easy. Again, indignantly, I explained all that is wrong with incentives. The senator said he agreed and was merely pointing out that the widespread use of incentives was a sure way to eliminate the corporate tax.

If that were true, I think we’d have seen at least one corporate tax collapse under the weight of its loopholes.  If any state corporation tax were ripe for collapse, it would be Iowa’s.  It has the highest rate in the nation, but its loopholes and credits make it pretty much useless, raising less than 5% of Iowa’s tax revenue.  Yet it still is going strong.

The best explanation for our bad tax policies are found in the “Public Choice” analysis of public policy pioneered by Gordon Tullock and James Buchanan.  They say that public officials, like everyone else, respond to incentives.  The incentives for legislators and their executive-branch enablers are to give money to well-connected constituents who will reward them with campaign cash.  They understand and appreciate the largesse, and the taxpayers whose pockets are being picked don’t notice the little larcenies that make the largesse possible.

Or, in my Fable of the Wife’s Purse, the girls at the bar know who’s buying, but the wife doesn’t, so the incentives are all in favor of the bar girls.

 

taxanalystslogoChristopher Bergin, The State of Our Union: My, My, My (Tax Analysts Blog):

The only thing new about the myRA is that it’s being done by executive fiat, which makes it lamer still. That leads me to a question: Shouldn’t we have the Treasury Department working on reforming our tax code instead of running around placing fig leaves over tough truths, such as the fact that many of us don’t save enough for retirement? A suggested starting point: Treasury should study why the myriad provisions already in the tax code that are designed to provide incentives to save for retirement aren’t working.

Oh, I’m sure the next tax code change will work so much better than all of them so far.

 

20111040logoWilliam Perez, Getting Your Name Right on the Tax Return:

If a person changed their name last year, now is a good time to check their Social Security card. The name shown on a person’s Social Security card is the name the IRS expects to see on the tax return. If a person’s name has changed, the person will first need to update their name with Social Security before using their new name on their tax return.

This problem comes up every year.  If you get married, or divorced, and you change your name, you need to file under the name that Social Security has if you e-file.  Even if you paper-file, using the “wrong” name can delay your refund.

 

Jason Dinesen,Life After DOMA: Gift Tax

Russ Fox, Tax “Professionals” Behaving Badly.  Russ recaps tax pros gone off the rails.

Annette Nellen passes on Tax mistakes to avoid – WSJ article.  I wonder if the WSJ will follow up with “Tax mistakes to seek.”

Kay Bell, Married couples filing joint returns share all tax liability, too.

 

Scott Drenkard, Indiana House and Senate Pass Business Personal Property Tax Reform.  ”Taxes on business personal property are more distortive than other means of collecting revenue.”

Ben Harris, Variation in EITC Take-up, County by County:

The regional variation in the EITC is stark. The counties with the highest share of taxpayers taking up the EITC are overwhelming located in the Southeast. As can be seen in the accompanying map, a large share of counties in Alabama, Georgia, and Mississippi have over half of their taxpayers claiming the EITC. With few exceptions, almost all counties with high rates of EITC take-up are located in the South.

Half?  Wow.

 

nfl logo

TaxGrrrl, Ads Score Big At Super Bowl And At Tax Time, Too   

Peter Reilly, Flap About NFL Tax Exemption Seems Silly.  Not as silly as Denver’s first play from scrimmage yesterday.

Tony Nitti, Super Bowl Tax Tale Of The Tape: Who Ya’ Got?  ”When the party winds down late Sunday night, we’re greeted with the reality that we’re mere hours away from starting another hellacious ‘busy season’ work week, this one with a bit of a hangover.”

 

TaxProf, The IRS Scandal, Day 270

Jack Townsend, Administration Insists that FATCA Will Not Be Further Delayed.  We must make personal finance a huge hassle for Americans abroad as quickly as possible.

 

On Friday Going Concern wished you a Happy First Day of the Tax Filing Season!

 

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Tax Roundup, 1/30/14: Gas tax increase advances. And: IRS starts to accept 1040s, but not issuing refunds yet.

Thursday, January 30th, 2014 by Joe Kristan

 

Via Wikipedia

Via Wikipedia

They’re still trying to increase Iowa’s gas tax, reports William Petroski of the Des Moines Register:

An Iowa House subcommittee voted 5-0 today to approve a 10-cent increase in the state’s gasoline tax, although the proposal still faces steep odds of winning final approval this session.

The bill, managed by Rep. Josh Byrnes, R-Osage, would raise the fuel tax by three cents the first year, an additional three cents and following year, and four cents the third year. When fully implemented, the tax increase would generate $230 million annually for city, county and state roads.

It’s always hard to increase taxes in an election year.  There is a good argument that gas taxes are the way to pay for roads, and that Iowa’s tax needs updating, but so far Iowa’s road spending is in line with most other states, and the talk of a “crisis” isn’t convincing everyone.

 

Iowa Farmer Today, Little action expected on taxes in Legislature.  It quotes my co-presenter at the Farm and Urban Tax Schools, Roger McEowen:

McEowen, head of the Center for Agricultural Law and Taxation (CALT) at Iowa State University, says it is always possible the state might do something to clean up its tax code, but it appears unlikely this year.

“Frankly, I don’t think anything important is going to happen on taxes, not in this legislative session,” he says.

It is a sentiment echoed by many other legislative observers.

Like me.

 

 

20130419-1TaxGrrrl, IRS Accepting Returns As Part Of Test Program, Not Issuing Refunds Early

Trish McIntire, Yes, You Have to Wait.  If you haven’t received your W-2, you can’t file using your last 2013 pay stub.

Jason Dinesen, Iowa Firefighter/EMS Tax Credit.  A $50 spiff to volunteer firefighters and EMS people. One more feel-good provision that clutters up the tax law but is too small to enforce.

Brian Strahle, SALT PRACTICES: WHAT PEOPLE THINK, BUT DO NOT SAY.  ”SALT” is “State And Local Taxes.”

Paul Neiffer looks at the predictably expensive and absurd farm bill: How To Make an Extra $100 Per Acre!  It brings to mind the old joke:  ”How did the farmer double his income?  He bought a second mailbox.”

Related: Billionaires Received Millions From Taxpayer Farm Subsidies: Analysis (Huffington Post)

William Perez, Earned Income Credit Recipients by State

 

 

Phil Hodgen, How Many Appointments in Buenos Aires to Expatriate?  The State Department doesn’t always make it easy to shed U.S. citizenship.

Brian Strahle, FATCA and Unintended Consequences.  A story of an American in Switzerland who is losing the ability to commit personal finance because of this anti-”fatcat” legislation.

 

taxanalystslogoDavid Brunori, A Sales Tax Conundrum (Tax Analysts Blog):

The sales tax has been a blessing and a curse. One of its great virtues is that it is collected by the vendor, which then remits it to the state. Neither the taxpayer nor the tax agency has much to do except pay and collect. The vendor does the work. The success of the sales tax for the last 90 years is largely attributable to vendor collection. But if the vendor doesn’t collect and remit the appropriate tax, it is liable for the amounts. The vendor will have to pay the unremitted tax and could face severe penalties and even criminal charges.

So if a vendor is unsure about the status of an item it’s selling, it will collect the tax. Better to collect and remit tax not owed than to face the consequences of a mistake.

David notes that online vendors will have to deal with many states, with very confusing rules, and that over-collection of sales taxes is the inevitable result.  Not that the states mind.

Cara Griffith wonders, Are State Tax Authorities Hiding the Ball? (Tax Analysts Blog).  ”I’ve noticed an emerging trend in some state departments of revenue – a move toward secret law. In a time when transparency has become a buzzword, some revenue departments are doing what they can to avoid transparency.”

 

William McBride, State of the Union: Corporations Continue to Flee (Tax Policy Blog)

Tax Justice Blog, Why the Business Tax Reform Proposal in Obama’s SOTU Is Not as Great as It Sounds

Kay Bell, Taxes touched on lightly in State of Union via EITC, MyRA

Joseph Thorndike, The War on Wealth Is Not New.  (Tax Analysts Blog).  True.  And it has always been dishonest, disgraceful, corrupt, and impoverishing.

 

The Critical Question.  What Happens When You Mix a Seedy Strip Club, an Unsophisticated Taxpayer and the Tax Court? (Going Concern).  I’m sure if it was one of those real elegant and distinguished strip clubs, there wouldn’t have been a problem…

 

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

Friday, January 24th, 2014 by Joe Kristan

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

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

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

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

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

(ii) his children, grandchildren, and parents. 

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

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

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

 

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

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

 

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

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

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

Your healthcare is in the very best of hands.

 

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

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

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

 

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

William Perez weighs in on Finding the Right Tax Professional.

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

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

Trish McIntire, Kansas Taxes – Sneaky Changes.

Robert D. Flach brings the Friday Buzz!

 

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

 

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

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

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

Because shut up, peasant.

 

TaxProf, The IRS Scandal, Day 260

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

 

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

Jack Townsend, Required Records IRS Summons Enforced Again

 

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

TaxGrrrl has Fun With Taxes: Tax Haiku 2014.

I’ll try it.

Here comes tax season

April 15 arrives swiftly

I need a stiff drink.

OK, I’ll keep the day job.

 

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

Monday, January 20th, 2014 by Joe Kristan

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

 

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

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

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

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

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

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

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

 

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

 

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

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

 

Jack Townsend, Eighth Circuit Affirms Offshore Account Related Conviction

 

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

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

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

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

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

So the IRS agrees with Corb Lund.

 

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

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

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

 

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

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

That’s how it should be.

Peter Reilly, Soldier To Tax Accountant – Rachel Millios EA   

 

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

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