Posts Tagged ‘Jason Dinesen’

Tax Roundup, 4/1/16: No fooling. Taxpayer litigates $3.48. “At least!”

Friday, April 1st, 2016 by Joe Kristan

Accounting Today Visitors: Click here for the laundry appraisal discussion.

 

Worth litigating!

Worth litigating!

It’s the principle of the thing. Well, technically, it’s the interest. Texas is known for big things. A taxpayer from Texas made a big thing in Tax Court out of a very small thing in a decision released yesterday. Judge Goeke explains (my emphasis):

The parties have largely settled the disputed interest, but, as we interpret her position, petitioner continues to assert that she is entitled to interest on $87.08 for at least one year.

That’s not even “she is entitled to 87.08.” It’s “interest on $87.08 for at least one year.” Let’s do the math.

At the current IRS overpayment rate of 4%, the taxpayer insisted the Tax Court resolve a dispute over $3.48. At least.

It didn’t go well:

One might find a dispute of such a small amount trivial, but petitioner is very earnest. Nevertheless, for various reasons petitioner’s claim is not properly remedied by abatement of interest, as we will explain.

No word on whether an appeal is in the works.

The Moral? Sometimes a molehill is just a molehill. Even in Texas.

Cite: Kappos, T.C. Memo. 2016-59

 

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Russ Fox begins the Bozo Tax Tip countdown with Bozo Tax Tip #10: Email Your Social Security Number! “Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number.”

Paul Nieffer, When to Take “Extra” Investment Interest? “I see many more farmers now with investment brokerage accounts.  Some of these farmers have borrowed against these accounts and the margin interest paid is considered investment interest and the tax deduction may be limited.”

William Perez, IRS Launches Contest to Design Futuristic Online Service. “‘The goal of this challenge,’ according to details found at the Tax Design Challenge page at Challenge.gov, ‘is to reimagine the taxpayer experience and design the taxpayer experience of the future.'”

Kristine Tidgren, What’s Been Happening at the Iowa Legislature? (AgDocket). Turtles are involved.

Annette Nellen,2015 Tax Legislation Changes – Lots of Them! “In 2015, over 15 federal laws were enacted, making over 150 changes to the federal tax laws!”

Keith Fogg, When is the Statutory Notice of Deficiency Issued by an Authorized Delegate of the Treasury Secretary (Procedurally Taxing). “What is somewhat remarkable about the remand is that it appears Mr. Muncy made tax protestor type arguments yet convinced the 8thCircuit to issue the remand.”

Jason Dinesen, Taxation of Incentives Received from a Bank. “You open a savings account at a bank and they give you a toaster or a cooler or a coffee cup as a gift. Is this taxable?”

TaxGrrrl, Man Found Guilty Of Selling Stolen Patient Info Used To File False Tax Returns.

No, that about covers it. Win Powerball Lottery, Get Sued, Go Bankrupt, Any Questions?  (Robert Wood)

 

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Kyle Pomerleau, How Would the Presidential Candidates’ Tax Plans Impact Capital Gains? (Tax Policy Blog):

For those taxpayers over $250,000, capital gains would be treated as ordinary income. Since ordinary income tax rate go up under the Sanders plan, the tax rate on capital gains for those earning over $250,000 would go up by a lot. The top marginal tax rate on capital gains would go up from 23.8 percent to 54.2 percent. This is a much higher rate than what we have seen in the United States on capital gains in the past and combined with state and local taxes on capital gains, would make our rate the highest in the developed world.

But think of all the oool free stuff!

 

Howard Gleckman, Note to Federal Tax Reformers: Don’t Forget the States (TaxVox). “Eliminating tax preferences would also wipe out the federal deduction for state and local taxes, a step that could increase voter pressure on states to lower their taxes.”

TaxProf, The IRS Scandal, Day 1058. More on Lois Lerner’s links with the Kafka-esque “John Doe” proceedings in Wisconsin.

 

Kay Bell, Letter from Trump lawyers confirms IRS audits. “Also provides GOP presidential front-runner a legal excuse for not releasing tax returns.” I think Kay misspelled “lame.”

A correspondent suggests that the taxpayer confidentiality rules be amended to allow anyone to access presidential candidate tax returns. I agree. I would further require that all candidates — and all elected federal officials — be required to prepare their returns in a live (and then archived) webcast, with a running comment bar to enable us all to “help.” Ideally, they would have to do it by hand, Robert D. Flach style.
News from the Profession. Texas Accountant Emerges as Early Contender for 2016’s Worst Person (Caleb Newquist, Going Concern). “Specifically, Harris allegedly instructed nurses to give hospice patients overdoses of medications like morphine to hasten their deaths.”

 

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Tax Roundup, 3/30/16: IRA blows up after investing in closely-held business. And: S corporation loan basis!

Wednesday, March 30th, 2016 by Joe Kristan


No Walnut STAnother IRA-owned business disaster. 
We’ve noted the dangers of using your IRA as the owner of your closely-held business. A Tax Court Case yesterday illustrates the dangers.

The married taxpayers rolled over funds from their retirement plans to IRAs, and then used them to fund a new corporation, which in turn bought the assets of another corporation. Part of the purchase was debt-funded, and the couple guaranteed the loan.

Tax Court Judge Marvel found that a prohibited transaction resulted, disqualifying the IRA and triggering a $180,000 deficiency:

In closing, petitioners’ participation in the prohibited transactions on or about June 18, 2003, caused petitioners’ IRAs to cease to be IRAs as of the first day of petitioners’ taxable year in which the prohibited transactions occurred. See sec. 408(e)(2)(A). Furthermore, petitioners are deemed to have received distributions on that first day of amounts equaling the fair market values (on the first day) of the assets in petitioners’ IRAs as of that first day… We also hold that petitioners are liable for the 10% additional tax set forth in section 72(t)(1) with respect to the $432,076.41, because neither petitioner was 59-1/2 years of age or older during 2003.

Using your IRA to fund your business is playing with fire.

Cite: Thiessen, 146 T.C. No. 7

 

BitcoinHow loans to your S corporation can give you basisWe talked yesterday about how S corporation stock basis can enable stockholders to deduct losses. Even if you are out of stock basis, the stockholders might still be able to take a loss — if they have loaned money to the S corporation.

This comes up most often with multiple owner S corporations. You might have one owner who can’t fund capital contributions, or who is passive and can’t use more losses. The other owner might still want to deduct his share of losses; that owner can loan money to the corporation and get a deductible loss.

There are drawbacks. If you repay the loan before the S corporation has earned back the deducted loss, the repayment will trigger taxable income.

EXAMPLE: Joe is an owner of Joebwan Inc., an S corporation. He is out of stock basis at the end of 2015, so he loans the company $30,000 in December 2015 to enable him to deduct his $25,000 share of corporate losses on his 1040. That leaves him $5,000 basis in his loan.

In January 2016, a customer pays an overdue bill, enabling Joebwan Inc. to pay back the $30,000 advance. The company breaks even in 2016.

Unfortunately for Joe, he has $25,000 gain on the repayment in January 2016; because the corporation had no taxable income, Joe’s basis wasn’t restored before repayment.

Making a new loan at the end of 2016 doesn’t fix this result. Only income does. If Joe’s share of 2016 income had been $30,000, it would have restored the entire $25,000 loss to his loan basis, and he would have had no gain.

Some things to know about debt basis:

-Only loans directly to the corporation from the shareholder work; debt guarantees do not provide S corporation basis.

-If there is gain on the loan repayment, the income is capital gain if the loan is documented with a note; the gain is ordinary if it is for “open account” debt, where no note documents the loan terms.

Complex rules govern “open account” debt repayments, causing taxable gain in unexpected situations.

This is another of our irregular series of 2016 filing season tips, running through the April 18 filing deadline.

 

20120906-1Taxing you to lure and subsidize your competitors. Mason City pork plant snags $15M in state incentives (Donnelle Eller, Des Moines Register):

A proposed $240 million pork processing plant in Mason City received approval for nearly $15 million in state incentives.

The Iowa Economic Development  Authority Board Tuesday agreed to provide Prestage Foods of Iowa nearly $11.5 million in tax incentives, plus $3.3 million in job-training assistance.

It may shock you to know that Iowa already has pork packing plants, ones that opened without getting “nearly $15 million in state incentives.” I’m sure they are thrilled to see their taxes go to fund a competitor.

 

Paul Neiffer, Danger, Will Robinson. Paul explains how a $1 difference income can trigger thousands of dollars of taxes. For health!

Jason Dinesen, Beware of the Deadlines on Amended Tax Returns.

Robert Wood, CEO Faces 5 Years For Spending $6.8M Withheld IRS Employment Taxes. And he still has to find $6.8 million to repay the IRS.

William Perez, Reviews of 18 Tax Preparation Software Programs

Kay Bell, Film industry’s willingness to sacrifice tax breaks helps defeat Georgia’s anti-gay marriage law. They would have taken some other state’s tax breaks instead, those noble filmmakers.

Keith Fogg, The Eleventh Circuit Requires IRS to Hold a Hearing Prior to Making a Trust Fund Recovery Penalty Assessment if Proposed Responsible Officer Makes Timely Request (Procedurally Taxing).

TaxGrrrl, IRS Encourages Taxpayers To Check Refund Status Online (Millions Already Have)

 

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Howard Gleckman, Cruz and Trump Would Slash Taxes on New Business Investment, But Cruz Would Cut Them More (TaxVox).

TaxProf, The IRS Scandal, Day 1056

 

Career Corner. That Time an Accounting Firm Recruiter Told Me That My Personality Sucked (Leona May, Going Concern). Reminds me of the time the first guy at the job interview spray-painted an “X” on the back of my jacket.

 

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Tax Roundup, 3/28/16: Can I deduct that K-1 loss now, later, or never?

Monday, March 28th, 2016 by Joe Kristan

20161120s k-1 cornerBasis, At-Risk, Passive. The Schedule K-1 forms issued to owners of S corporations and partnerships might be the most confusing of the information returns we use to compute our 1040s. That’s because they can embody a lot of obscure tax law that goes into determining how partnership and S corporation income is taxed.

Partnerships and S corporations are “pass-through entities.” That means they normally don’t pay tax on their income. I instead “passes through” to the tax returns of their owners, the partners and shareholders. The owners report the income — and they also deduct the losses. But when they deduct the losses can be very confusing.

Search engine queries related to K-1 losses are one of the Tax Update’s biggest traffic sources, so it seems wise to give the Googlers what they want. Today we will give an overview of the three hurdles taxpayers must clear before they can deduct a K-1 loss. In the coming days we will spend a little more time on each hurdle, and I will update this post with links to those posts, but today we’ll stick to the big picture.

Start with your basis. The tax law first requires you to have enough “basis” in your partnership interest or S corporation stock (or debt, sometimes) to deduct the loss. If you start the year with $1,000 in basis, you have the potential to deduct $1,000 of losses — if you clear the next two hurdles. But if you don’t have basis, you go no further with your loss.

“Basis” can be complicated, but in most cases, it starts with your investment in the pass-through entity. It is increased by income and further investments, and decreased by losses and distributions.

Is your basis “at-risk”? The at-risk rules sometimes seem like a historical curiosity, like gas lines or 8-track tapes. They were enacted in the Ford Administration to attack that era’s mass-marketed tax shelters. But while obscure, they still count.

They add an additional requirement to the rules that require you to have basis to take a loss. They add a rule requiring that basis to be “at-risk.” While some of the rules can be obscure and arbitrary, the basic idea is that if you can’t really lose your own money on the deal, you shouldn’t be allowed a loss, except to the extent the deal generates income in the future. It also treats loans from some related parties or others with interests in the deal as not “at-risk.”

Is your loss “passive?” If you clear the first two hurdles, you still have to contend with the “passive loss” rules. These were enacted to fight the tax shelters of the 1980s by deferring “passive” losses until the taxpayer has “passive” income, or until the “passive activity” (still my favorite tax oxymoron) is sold. Whether an activity is “passive” is usually determined based on how much time you spend during the year working in it. Rental activities are automatically passive for taxpayers other than “real estate” professionals.

Updates in the series:

3/29/16: How you figure S corporation stock basis

How loans to your S corporation can give you basis.

This is another of our irregular series of 2016 filing season tips. We’ll be doing these right up through the April 18 deadline. 

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Andrew Mitchel, Section 911 Housing Cost Amounts Updated for 2016:

Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2016 is $101,300.

Mr. Mitchel goes on to explain the more complicated housing cost amount.

Kay Bell, Problems with prepaid card tax refunds. “But there’s one big problem with these cards. Tax crooks absolutely love them”

Jason Dinesen, Glossary: Iowa Tuition & Textbook Credit. “Almost any expense counts toward the credit.”

Kyle Pomerleau, Why We Should Care About More Than Just Distributional Tables. “Growth, distribution, and revenue are all important aspects of tax policy. If we only focus on one, we miss important policy nuances.”

TaxGrrrl, IRS Commissioner Admits IRS Isn’t A Favorite, Talks Tax Refunds, Budget & Taxpayer Services:

Noting that “the IRS is not anyone’s favorite government institution, and we will not win any popularity contests, especially in an election year,” the Commissioner went on to share that a recent poll indicated that 12% of taxpayers liked Russia’s Vladimir Putin better than the IRS.

A Tax Notes story ($link) about Koskinen’s speech quotes him as saying, “But don’t look for a shot of me on CNN, without a shirt, riding a horse.” I don’t think anyone would actually look for such a thing.

 

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David Henderson, To Address the Top One Percent, Allow Competition (Econlog, quoting Jonathan Rockwell):

For lawyers, doctors, and dentists– three of the most over-represented occupations in the top 1 percent–state-level lobbying from professional associations has blocked efforts to expand the supply of qualified workers who could do many of the “professional” job tasks for less pay.

The IRS and its friends in the national tax prep franchise firms want to do the same thing with the tax prep business via their push for preparer regulation.

 

TaxProf, The IRS Scandal, Day 1052Day 1053Day 1054. The Day 1053 link is to It’s Been 513 Days Since Any Big 3 Network Has Touched the IRS Scandal. It’s been longer than that since I’ve watched a Big 3 network news show.

Peter Reilly, Sixth Circuit Looking To Protect Taxpayers From IRS Not IRS From Taxpayers. Peter still thinks the IRS is being picked on.

 

What are these “results” of which you speak? Results Only Work Environments (Caleb Newquist, Going Concern).

 

 

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Tax Roundup, 3/24/16: Executors get until June to file basis reports. And: Don’t foot-fault that charitable deduction!

Thursday, March 24th, 2016 by Joe Kristan

20160122-3Now it’s June. The IRS has again delayed (Notice 2016-27) the new requirement for executors of taxable estates to notify beneficiaries of their basis. The rule is meant to keep the IRS from being whipsawed by having taxpayers use lower values for estate tax filings than for income tax filings.

The rule, which would require the executor to provide Form 8971 to the IRS, has been delayed several times now. The form includes a schedule for each beneficiary of the assets they are inheriting, along with the asset basis reported on the Form 706 filed for estate tax purposes. Each beneficiary is to receive a copy of their own schedule.

The filing is mandatory for estates required to file an estate tax return when the return is filed after July 31, 2015. It had been due March 31. The deadline is now June 30, 2016.

 

Charitable contributions: paperwork or bust. The law isn’t willing to take your word for charitable contributions any more. If you make a charitable contribution of $250 or more, the tax law now says no deduction is allowed unless you have magic words in writing from the charity. From IRS.gov:

The written acknowledgment required to substantiate a charitable contribution of $250 or more must contain the following information:

-Name of the organization;

-Amount of cash contribution;
-Description (but not value) of non-cash contribution;
-Statement that no goods or services were provided by the organization, if that is the case;
-Description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution; and
-Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

In addition, a donor may claim a deduction for contributions of cash, check, or other monetary gifts only if the donor maintains certain written records.

Even if you have a cancelled check for your $250+ gift, if you lack the magic words, your deduction is zero. 

A taxpayer learned this lesson the hard way in a Tax Court opinion released yesterday. The taxpayer’s gift in this case was a conservation easement valued at $350,971. While there are complex additional requirements for deducting such property gifts, those weren’t the problem. The taxpayer never got past the magic words:

Although the conservation deed includes provisions stating that the intent of the parties is to preserve the property, those provisions do not confirm that the preservation of the property was the only consideration because the deed did not include a provision stating that it is the entire agreement of the parties. Without  such a provision, the IRS could not have determined by reviewing the conservation deed whether petitioners received consideration in exchange for the contribution of the conservation easement. We conclude, therefore, that the conservation deed taken as a whole is insufficient to satisfy section 170(f)(8)(B)(ii). Because petitioners’ contemporaneous written acknowledgment does not comply with section 170(f)(8)(B)(ii), petitioners are not entitled to any claimed carryover charitable contribution deductions,

Lacking the magic words, the deduction suddenly went from $350,971 to nothing. 

While this was a six-figure problem in this case, the rule is just as effective for a $250 gift to your church or your favorite charity.

I’ll just get the acknowledgment if I get audited. That doesn’t work. The acknowledgement has to be “contemporaneous.” Tax Court explains:

A written acknowledgment is contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date the return was filed or the due date (including extensions) for filing the return for the year in which the charitable contribution was made.

Many smaller charities, and even a few bigger ones, have been slow to realize the importance of these acknowledgements. If you don’t have one yet, it is wise to get it. If you want the charitable deduction, it’s worth extending your return for.

Cite: French, T.C. Memo 2016-53.

This is another of our irregular series of 2016 filing season tips. They’ll keep coming through the April 18 deadline!

 

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Paul Neiffer, Are You 70 1/2?. “If you have retirement or IRA accounts and you are approaching age 70 1/2, you must be careful to make sure to take your required minimum distributions (RMD) and April 1 can be a key deadline.”

Jason Dinesen, If I Turn 65 in August, Am I 65 on My Tax Return?

TaxGrrrl, Taxes From A To Z (2016): I Is For Inheritance

Robert Wood, Payroll Tax Violators Get Penalties Or Jail, And IRS Is Watching. “The IRS is especially vigorous in going after payroll taxes.”

Nicolas Xanthopoulos, Investigating Assets Prior to Submission of Collection Remedies (Procedurally Taxing). Important work from a practioner dealing with the hard end of the tax law, collections.

Jack Townsend, Interview of Acting Assistant Attorney General Ciraolo on Tax Enforcement. It sounds like they still want to shoot jaywalkers.

Kay Bell, $10,000 crowdsourcing prize available to designer of Future IRS taxpayer accounts website

 

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Howard Gleckman, Paul Ryan and The “Ridiculous Notion” of Tax Distribution (TaxVox):

Last week, House Speaker Paul Ryan said in a CNBC interview that the distributional analysis of tax plans done by the Tax Policy Center, the Joint Committee on Taxation, and others is based on the “ridiculous notion” that the effect of tax changes on different income groups  is important.

Mr. Gleckman thinks Speaker Ryan is wrong, that it is very important to show how much tax changes benefit “the rich.” While that is interesting information, Speaker Ryan is right in that notions of distributional fairness have an outsized impact on tax policy deductions. I get the impression from some people that they would be fine with executing people, seizing their property, and selling their families into slavery, so long as it only affected the top 1% of earners.

David Brunori, How to Save the Corporate Tax (Tax Analysts Blog). “First, get all the states in a big room and have them agree to end all targeted tax incentives.”

TaxProf, The IRS Scandal, Day 1050. Today’s link: Chipping Away at the IRS Stonewall: A Federal Court Scores the Agency For its ‘Continuous Resistance’

 

Humor impairment is a lifestyle, not a crime! White-Collar Crime Watch: Polygamists, Fixed Tennis Matches, An Unfunny Accountant (Leona May, Going Concern).

 

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Tax Roundup, 3/22/16: Iowa couples to 2015 federal Sec. 179 and other changes, except bonus depreciation.

Tuesday, March 22nd, 2016 by Joe Kristan

CouplingcrescoSee you next year. 81 days after 2015 ended, Iowa finally has its 2015 tax law. Governor Branstad yesterday signed HF 2433, adopting federal tax law changes for 2015, including the $500,000 Section 179 limit, but not including bonus depreciation.

While Congress enacted the $500,000 limit permanently last year — and indexed it for inflation — Iowa’s coupling is for one year only. That sets up a fight in the 2017 General Assembly not only over bonus depreciation, but over all of the other “expiring provisions” that Congress re-enacted in December.

How we got here. While Iowa’s income tax is based on federal income tax rules, it doesn’t automatically adopt federal tax law changes. Every spring the General Assembly passes a “coupling” bill where they choose whether to adopt federal tax changes made in the prior year. The Congressional habit of enacting important tax provisions for one or two-year periods — to pretend they cost less — has made the annual coupling bill an important part of the legislature’s work.

Since 2010, Iowa has adopted all federal tax law changes except for bonus depreciation. These have included the $500,000 Section 179 deduction for new asset purchases that would otherwise have to be capitalized and depreciated over a period of years — usually three to seven years. In recent years the coupling bill has been one of the first bills to go to the Governor.

This year is different. Governor Branstad surprised the Iowa tax world when he announced on January 13 that there would be no coupling for Section 179 for 2015, on the grounds that the state budget required the revenue. It soon came out that he opposed coupling for anything but the federal research credit. That would have made a major mess out of Iowa tax filing season, affecting a broad range of deductions, including:

Exclusion for IRA distributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

His Republican partisans in the Iowa House of Representatives rebelled. A coupling bill that included Section 179 passed the Iowa house by month-end, 82-14. Notably, not only did all voting Republicans support the bill, but so did a large majority of Democratic representatives.

Yet the prospects for coupling at the time looked grim. Citing the Governor’s opposition, Senate Majority Leader Gronstal (D-Council Bluffs) was set to keep the House-passed bill from ever coming to a Senate vote.

coupling20160213But the natives were restless. The legislators heard from a lot of their constituents that they were unhappy to lose the deduction, which could be worth around $40,000 for many taxpayers. The Des Moines Register reported that “only” 25,000 taxpayers would have lost deductions under that, but that comes out to 250 grumpy business constituents and farmers for every Representative, and 500 per senator. It seems most of them got on the phone and called their legislator. Business groups such as the Iowa Association of Business and Industry pushed for coupling, as did Iowans for Tax Relief.

The message got through. By February 22, Governor Branstad reversed himself and decided Iowa could afford Section 179 coupling for one more year. That left Senator Gronstal as the remaining roadblock to coupling. He extracted a face-saving reduction in the sales tax exemption for manufacturing supplies that the Department of Revenue put into place last year — by accepting a version of the break that he blocked in 2014.

Now it’s time to catch up. The software vendors will scramble to update their tax prep programs to include the coupling, and we can finally start to move all of the Iowa tax returns that have been on hold awaiting the coupling.

Unfortunately, this coupling bill is only for one year — even though $500,000 Section 179 is now a permanent federal tax provision. We can expect both the Governor and Senator Gronstal to oppose Section 179 coupling in the next General Assembly. They have other priorities.

Other coverage:

Gazette.com, Branstad signs tax-policy compromise

Des Moines Register, Branstad signs tax policy compromise

Maria Koklanaris, Iowa Governor Signs Exemption, Federal Conformity Bill

Paul Neiffer, Iowa Governor Branstad Finally Signs Coupling Bill.

 

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Kay Bell, Figuring the tax value of goods you give to charity

TaxGrrrl, The 9 Most Common Tax Filing Mistakes – And How To Avoid Them. “Rushing tends to result in mistakes – and those errors can slow processing of your tax return, resulting in delayed tax refunds or worse, a second glance from Internal Revenue Service (IRS).”

Jason Dinesen, Success Comes Too Easily for a Side Business. “In my experience, most of us who try taking a side business full time end up overwhelmed. A few of us make it through.”

Peter Reilly, AICPA Versus Block Advisors In Spat I Hope They Both Lose. “The reason that the H&R Block ‘Who actually prepares your return?’ question is the money shot is that at many national and large CPA regional firms, the answer will be ‘Somebody in India‘”  All Roth & Company returns are 100% U.S. content, by the way.

Leslie Book, Clarke Case Finally Comes to End: Eleventh Circuit Orders Enforcement But Also Leaves Door Open For Allegations of Improper Purpose (Procedurally Taxing).

Jack Townsend, Ruminations on Inconsistent Verdicts. “The issue of inconsistent verdicts is a big issue.”

 

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Joseph Henchman, U.S. Supreme Court Declines to Hear Case Challenging Colorado Marijuana Law (Tax Policy Blog). “The U.S. Supreme Court today turned down an attempt by Nebraska and Oklahoma to challenge Colorado’s legalization of marijuana, without explanation.”

Renu Zaretsky, Are Presidential Candidates’ Tax Plans Getting Closer Looks? Today’s TaxVox headline roundup covers the millionaires who want to pull up the ladder behind themselves in New York, polling on the Bernie plan, and more.

TaxProf, The IRS Scandal, Day 1048

Jeremy Scott, Scotland Makes the Case That Taxes Pay for Things People Want (Tax Analysts Blog) “The Conservatives were quick to point out that she was essentially putting a ‘higher taxes here’ sign on the border that would encourage migration and tax planning.”

Ajay Gupta, Trump Only Threatens a Trade War, But Obama Might Actually Start a Tax War (Tax Analysts Blog)

 

News from the Profession. This 8-K From Valeant Is Something to Behold (Caleb Newquist, Going Concern).

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Tax Roundup, 3/18/16: The income tax difference between gifts and compensation, illustrated. And: twins!

Friday, March 18th, 2016 by Joe Kristan

Twins! I’m delighted to report that Abby Croll, a Roth & Company Tax Manager, delivered twins yesterday, a boy and a girl. All are well.

 

20160215-1Too darn busy to file? There are many good reasons to stay current on your tax filings. One compelling reason is that failure to file can draw unwanted attention from the IRS. Returns that aren’t there can stand out.

That seems to be how it worked for an entrepreneur in Northwest Iowa, a Ms. Fairchild. An Eighth Circuit panel yesterday upheld her 33-month sentence on tax charges. The court takes us back to the beginning of the investigation (any emphasis is mine):

In 2009, Internal Revenue Service (IRS) Special Agent Daniel Wright opened an investigation on Fairchild and her husband. Agent Wright discovered that Fairchild and her husband had not filed income tax returns since 2004.

With no returns with which to start, Agent Wright did a little digging:

Agent Wright obtained records from Fairchild’s two primary bank accounts dating back to January 1, 2005. These bank records showed that a number of large cashier’s checks had been deposited into her accounts. Specifically, there were 37 deposits of checks from David Karlen totaling $1,103,647.84. Fairchild’s accounts reflected another six checks totaling $50,000 from Paul Pietz deposited into two main accounts in 2008. The bank records also showed $210,348.39 in total cash deposits from 2005 to 2008.

That was enough to pique Agent Wright’s interest. Meanwhile, Ms. Fairchild wasn’t exactly ignoring her tax issues:

In July 2010, Fairchild and her husband filed joint income tax returns for 2005, 2006, 2007, and 2008, apparently unaware of the ongoing IRS investigation. Fairchild, a professional adult entertainer, reported income in each of the respective years as $122,345; $120,000; $120,000; and $151,325. The total income reported of $513,670 was far less than the $1,153,647.84 that Fairchild received from Karlen and Pietz during that same time span. Additionally, the returns did not identify any of Fairchild’s cash deposits during those years as income.

Perhaps a false move, considering that Agent Wright already knew about the deposits. Before long the IRS got copies of these returns to him, and he arranged a chat with Ms. Fairchild:

Agent Wright interviewed Fairchild about her tax returns on July 13, 2011. During that interview, Fairchild explained “that she actually thought all of the money, that every single cashier’s check she received from Mr. Karlen was a gift, but that she had reported some of it to take some of the tax burden off of him.

Very thoughtful.

To determine how much income to claim, Fairchild told Agent Wright that she “ballparked” the amount. In the same interview, Fairchild also claimed that the money from Pietz was a gift and that he had told her that he reported the gift on his income tax return. Even though $30,000 of the money from Pietz was included as income on her 2008 income tax return, Fairchild maintained that it was really a gift that her accountant had mistakenly included as income.

I suppose most people don’t know that gifts don’t show up on income tax returns. Still, one may doubt that gift tax returns were filed for any of these amounts under the circumstances.

In order for a payment to be considered a “gift,” and therefore exempt from income tax, it has to be paid out of “disinterested generosity.” It appears that the benefactors had, um, interests:

According to Karlen, he met Fairchild in 2003 or 2004 while she was dancing. He tipped her money when she danced on stage and paid for private dances inside the club in a private room. Fairchild gave her phone number to Karlen and would call him to tell him when and where she would be dancing. In 2005, Karlen went to watch Fairchild dance at a club; while there, Fairchild asked Karlen if he was interested in paying for sex with her outside of the club. Karlen testified concerning the first time that he met with Fairchild for a “private meeting outside the club.”

You can read the opinion if you care for more details, but they can be condensed into this:

When asked how he “treat[ed] the money that [he] gave to [Fairchild],” Karlen replied, “[f]or her service. . . . For sex.” When asked whether the 37 payments were all for sexual services, Karlen replied, “[e]very one of those.” He later confirmed that “[t]he whole $1.1 million was for sex” and that “[e]verything was for sex.”

Generous, maybe, but not disinterested. It appears that her other benefactor had similar interests.

Ms. Fairchild had an explanation for her late filing:

Fairchild admitted that she did not file income tax returns for 2005 through 2008 until 2010, but she claimed that the delay was due to problems that she experienced during the construction of her new home.

Probably not “reasonable cause,” to IRS thinking. In fairness, it seems she was busy on other things.

20150813-1Now let’s move on to her visit with her tax preparer:

In May 2006, after filing requests with the IRS to file the income tax returns late, [preparer] Anderson met with Fairchild to determine her income. Because Fairchild had no other documentation of her income, she reviewed her bank statements with Anderson to determine which deposits were income. Anderson testified, “I went through and had Veronica [Fairchild] read off the deposits to me, and I ran a tape on my calculator of the number of deposits that she would tell me.

He ran a tape! There’s no school like the old school.

But old school or new, it was all income as far as the IRS was concerned, and it wasn’t reported. Indictment and conviction followed in due course, and yesterday the appeals court upheld a 33-month prison sentence for the underreporting. It perhaps didn’t help that while she didn’t report all of the deposits as income on her 1040, she did report it all to several banks when she applied for loans.

The moral? There are several lessons we can draw. First, file timely. She might have never attracted Agent Wright’s attentions had she filed, unless he was a strip club patron.

Next, beware the tendency to believe what you want to believe about taxable income. Just because the nice man gives you money doesn’t mean he’s doing it because he’s a nice man.

Finally, level with your preparer. The court seems to have held it against her that she didn’t.

Cite: Fairchild, CA-8, No. 14-3517

Prior coverage here.

 

KCRG.com, Iowa Businesses Spend Billions In Tax Coupling

Specifically, agriculture businesses and farms use it for high cost equipment. In 2012 through 2014, agriculture applied that tax law to around 38 percent of their investments. More than twice of any other industry.

In terms of dollars, across all small businesses in Iowa, that’s about $2.7 billion in 2012, $2.7 billion in 2013, and $2.2 billion in 2014. Of that, farm returns claimed between 54 and 66 percent over those three years.

Those numbers come from a white paper by Roger McEowen, a professor of Ag Law at Washburn University and the Midwest Tax Director of CliftonLarsonAllen in West Des Moines.

But what good is it if it never lets a politician issue an economic development press release?

 

The Critical Question: How High Are Beer Taxes in Your State? (Scott Drenkard, Tax Policy Blog). This high:

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Peter Reilly, IRS And Liquor By The Wink. Wherein a glorified bar isn’t a tax-exempt social club.

TaxGrrrl, You Can Thank Excise Taxes For Guinness Stout. That wouldn’t have occurred to me.

Jason Dinesen, Glossary: College Savings Iowa. “It’s a type of529 Plan, where money going into the plan is not tax deductible (for federal taxes) but money coming out not taxed as long as it’s used for qualifying expenses.” And it has an Iowa tax benefit.

Robert Wood, Confusing Personal With Business On Your Taxes Can Mean IRS Penalties Or Jail. Expecially when “confusing” means “pretending.”

Kay Bell, Alexander Hamilton will remain on redesigned $10 bill. Phew.

 

Picture by Dan Kristan

Picture by Dan Kristan

 

William Gale, Taxes on the Rich May Change a Lot in 2017 (TaxVox)

Alex Durante, The U.S. Tax and Transfer System is Very Progressive, New Paper Confirms (Tax Policy Blog). But it is also whimsical: “However, due to the complex system of phase outs of certain tax credits and government transfers, poor households may face marginal tax rates as high as some middle and upper-income households.

All points bulletin! Beware the Slayer of Tax Reform Fantasy (Robert Goulder, Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 1044

Stuart Gibson, Two Steps Forward, Three Steps Back for Europe? (Tax Analysts Blog) “Unfortunately, every time it looks like Europe will unify behind certain tax policies, the member states start circling the wagons and shooting inward.”

News from the Profession. Cyber Extortion: Leprechauns vs. Accountants (Megan Lewczyk, Going Concern)

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Tax Roundup, 3/16/16: Coupling heads to the Governor. And: Trainwrecks, brackets, and that dreaded DNA!

Wednesday, March 16th, 2016 by Joe Kristan

coupling20160213Almost Coupled. Both houses of the Iowa General Assembly passed the bill to couple the Iowa tax law to federal tax law for 2015, with the exception of bonus depreciation (HF 2433). The House of Representatives vote was overwhelming, and the Senate was unanimous.

The debates before the votes featured complaints about how school funding is suffering because businesses get the same Section 179 deduction on their Iowa returns as on their federal returns. Yet not one school-funder mentioned any other ideas about finding additional $97.6 million funding lost to the Fiscal 2016 budget. For example:

Iowa credits fy 2017

So apparently school kids are important, but less so than, say, the Geothermal Heat Pump tax credit. (Related: What Iowa considers more important than Sec. 179.)

The bill also repeals the manufacturing supplies sales tax rule set forth by the Department of Revenue that was set to take effect in July. It replaced it with the manufacturing supplies tax exemption passed by the house in 2014, only to die in the Iowa Senate.

In addition to Section 179 coupling, the bill also allows on Iowa 1040s a number of other provisions enacted by Congress in December, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

The Des Moines Register coverage of yesterday’s votes makes it appear that the Governor is on board, though he hasn’t said so in so many words. It quotes spokesman Ben Hammes:

“As the chief executive, it is the governor’s job to look at how this bill fits into the bigger budget picture and how it will impact jobs and Iowa taxpayers and he will review it accordingly. The governor is pleased that the Legislature was able to come together and find resolution on these key issues,” Hammes said.

So he doesn’t exactly say he’ll sign. I think he will, but I will feel better when he does.

Unfortunately, the bill only applies to 2015, so we have to do it all again next year.

 

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Hank Stern, More (bad) trainwreck news (InsureBlog):

As we mentioned at the end of January, Open Enrollment v3.0 was pretty much doomed from the start:

“About 6 million people have signed up for health coverage that will take effect on Jan. 1 in the states that use the [404Care].gov enrollment.”

That was way off the (implausibly) predicted 21 million anticipated to sign up. But it’s also only part of the story…

It’s not affordable, and they don’t care.

 

Mitch Maahs, Tax Brackets: Revisiting the Tax on Gambling Winnings just in Time for the NCAA Tourney (Davis Brown Tax Law Blog). “Note however that losses may only be deducted to offset gambling winnings, and are only deductible up to the amount of winnings for the year.”

William Perez, New Rules for Deducting Repairs and Maintenance. “The IRS increased the threshold for deducting repairs and maintenance expenses under the safe harbor election from $500 to $2,500.”

TaxGrrrl, FBAR, FATCA Filings Top 1 Million As IRS Increases Scrutiny On Foreign Accounts. “The penalties for noncompliance may, under the law, result in civil penalties, criminal penalties or both: the list of potential penalties that may apply is distressingly long. It’s all very draconian but it’s also very real.”

 

Jack Townsend, Tax Court Holds FBAR Penalty Collected Is Not in the $2,000,000 Threshold for Whistleblower Award under § 7623(b)

Jason Dinesen, What is a 501(c)(3) and What’s the Big Deal? “First of all, the terms not-for-profit and tax-exempt are not interchangeable.”

A. Levar Taylor, Update On The “Late Return” Dischargeability Litigation: 9th Circuit To Hold Oral Argument in Smith Case (Procedurally Taxing)

Robert Wood, What To Provide When IRS Requests Documents

 

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Caleb Newquist, That Time One of Donald Trump’s Companies Got in Trouble for Reporting Ludicrously Deceptive Non-GAAP Results (Going Concern).

TaxProf, The IRS Scandal, Day 1042. Timely thoughts of what happens when the power to abuse taxpayers goes to a new abuser-in-chief.

David Brunori, Immigrants Continue to Be Good for Us (Tax Analysts Blog). “In a report, the Institute on Taxation and Economic Policy says immigrants who entered the country illegally paid roughly $11.6 billion in state and local taxes in 2013.”

Renu Zaretsky, Budget Battles Continue. Today’s TaxVox headline roundup covers federal proposed budget and Pennsylvania’s no budget, among other news.

 

If you are perplexed by voter choices this year, this may help explain things. 80% of Americans Support Mandatory Labels on “Food Containing DNA” (Ilya Somin)

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Tax Roundup, 3/14/16: Coupling week! And: remember your March 15 federal and state deadlines.

Monday, March 14th, 2016 by Joe Kristan

coupling20160213Coupling! We expect the Iowa General Assembly to pass the 2015 tax coupling bills this week, and the Governor is expected to sign. You can follow their progress at the General Assembly site. The extender bills have been renamed SF 2303 and HF 2433.

We will be following the developments and will post news as it happens.

 

March 15 looms. Tomorrow is the first real big deadline of the filing season. Corporate 1120 and 1120-S corporation returns are due.

If you can file on time, you should extend. The penalties for late filing without an extension can be painful, and you may miss the opportunity to make important elections that are only available on a timely-filed original return.

But it’s not just federal returns. While many states, like Iowa, have April due dates for corporations returns, 23 states  want the returns on March 15. Even if you are filing an S corporation return, where the corporation itself doesn’t file, many states require payment anyway — either as a misbegotten corporation tax, as in California, or as withholding on individual income taxes of non-resident shareholders.

Source: RIA Checkpoint.

Source: RIA Checkpoint.

Extensions can be tricky too. Many states either accept the federal extension or, like Iowa, automatically extend a return if the tax for the year is sufficiently paid by the original due date. But other states require a separate extension filing. States requiring a separate extension filing, even when no payment is due, include Arkansas, Connecticut, D.C., Florida, Massachusetts, Maryland, Michigan, Missouri, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, New York, New York City, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont and West Virginia.

It’s already late — don’t put off those extensions any longer.

 

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Gretchen Tegeler, Can taxpayers ever get a break? (IowaBiz.com). “Alas, even the best-intentioned measures can be twisted into an argument to compound the taxpayer burden.”

Kristine Tidgren, Iowa Utilities Board Has Approved Bakken Pipeline (AgDocket).

Kay Bell, Filing deadline for 2012 taxes — and almost $1 billion in unclaimed tax refunds — is April 18

Jason Dinesen, Glossary of Tax Terms: Pass-Through Entity, “In tax terminology, a pass-through entity is a business where the end results of operations ‘pass through’ to the owners and are reported on the owners’ personal tax returns.”

Jack Townsend, Tax Obstruction Conviction Permits Inclusion in Tax Loss of Penalties and Interest. “That issue was whether the conviction for obstructing the collection of tax could include penalties and interest within the scope of the financial harm Black intended to inflict on the IRS by his obstructive acts.”

TaxGrrrl, On Pi Day, A Peek At Your Piece Of The National Tax Pie. “You can see your personalized taxpayer receipt by the dollars from the White House by plugging in the tax you paid in 2014 here.”

Andrew Mitchel, Rev. Rul. 2016-8: Tax Aspects of the Cuban Thaw

Robert Wood, As U.S. Passports For Domestic Flights Loom, IRS Can Now Revoke Passports. What could go wrong?

Leslie Book, Using Craigslist to Fish For Bogus Dependents (Procedurally Taxing)

Jim Maule, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just A Need for More Revenue?. Come now. Putin is just concerned for the health of his beloved people.

 

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TaxProf, The IRS Scandal, Day 1038Day 1039Day 1040.

Howard Gleckman, The Challenges of Modeling Presidential Tax Plans (TaxVox) “How much do tax changes affect the economy, and, in turn, what do those economic effects mean for the revenue cost of a reworked tax code?”

 

Just what kind of CPA are you? Take this quiz from the AICPA and find out. You want to know!

 

 

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Tax Roundup, 3/10/16: Coupling deal may trade one-year Sec. 179 coupling for reduced manufacturing sales tax exemption.

Thursday, March 10th, 2016 by Joe Kristan

coupling20160213

Update, 10:23 a.m. The Senate Ways and Means Committee cleared SSB 3171 this morning unanimously, according to the Iowans for Tax Relief Twitter feed. They also report that House Ways and Means is meeting now to discuss HSB 642, which I believe is identical to SSB 3171.

Update, 11:30 a.m. O. Kay Henderson posted Statehouse leaders announce tentative deal on taxes. Looking at the statements, it appears that the deal is between leaders of the two legislative chambers, with Governor Branstad as a bystander. Makes me nervous, but I assume they wouldn’t go to the trouble without having the Governor on board somehow.

A deal, maybe. A bill rumored as the outline of a bi-partisan deal coupling 2015 federal tax changes to the Iowa income tax law was introduced by chief Senate taxwriter Joe Bolkcom yesterday. SSB 3171 would allow taxpayers to deduct up to $500,000 of equipment purchases on their 2015 Iowa returns that would otherwise be capitalized and depreciated over a period of years. This would match up the 2015 Iowa maximum “Section 179” deduction to the amount enact in December for 2015 and beyond in federal law. It would also enact for 2015 Iowa returns a number of other “expired” provisions, including:

Exclusion for IRA contributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

The matching would only be for one year. The price to get Senate Democrats to go along would be repeal of the sales tax administrative rules for manufacturers set to take effect July 1. They would be replaced by a smaller sales tax break passed by the Iowa House in 2014 that died in the Senate.

Iowa is not expected to couple with federal bonus depreciation.

While rumors say that this is close, with legislative movement likely as early as today, there remains uncertainty. The Governor is said to be unhappy with the deal, and he will go along only grudgingly, if at all, according to people I’ve heard from.

Rod Boshart reports at TheGazette.com:

“We’re ready to move ahead with those three elements: the coupling, rescinding the governor’s rules and picking up the consumable supplies bill that the House passed in 2014. That would be in one package,” Bolkcom said.

Republicans who control the Iowa House and Democrats who hold a majority in the Iowa Senate also were working to resolve a dispute over state funding for schools with negotiators looking at a deal that could boost state aid in fiscal 2017 by 2.25 percent and provide other categorical increases that would bring the overall funding growth closer to 2.5 percent, according to legislators close to the talks.

“There’s no deal yet, but we are meeting with House Republicans on the big issues,” said Sen. Bob Dvorsky, D-Coralville, chairman of the Senate Appropriations Committee, who declined to discuss specific numbers. “The good news is we are meeting and talking.”

The sales tax exemption has been a sore point with Senate Democrats since it was proposed by the Department of Revenue. Going with the 2014 house-passed language (HF 2443) reduces the break, giving the Senate Leadership a symbolic victory. Still, the 2014 death of HF 2443 indicates that they really didn’t want to keep any of the rule changes.

I haven’t figured out exactly what parts of the sales tax exemption will be lost under the bill introduced yesterday. The exemptions for items such as jigs, tools, dies, coolants and lubricants would survive.

This issue will be back next session. Even if the compromise passes, the section 179 coupling issue will be up again next year. SF 3171 is only for one year, while the federal legislation makes the federal change permanent. There seems to be no discussion yet of cutting back corporate welfare tax credits to “pay for” the Section 179 deduction used by 25,000 Iowa farmers and small businesses. Maybe next year.

I will update this post today as events warrant.

 

Scott Drenkard, Nicole Kaeding, How High Are Sales Taxes in Your State? (Tax Policy Blog):

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Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain.

That’s the tragedy about scaling back Iowa’s manufacturing exemption. Rather than scaling it back, the legislature should be looking to expand it to other business inputs.

 

Paul Neiffer, Two Opportunities for Farm and Estate Tax Education. While Roger McEowen will sadly no longer be part of the Iowa State University Center for Agricultural Law and Taxation, he will continue to teach his summer seminars: this year in Alaska and North Carolina. These are excellent seminars in nice settings, and a nice way to mix continuing education with leisure.

 

Robert Wood, Cayman Companies Plead Guilty To U.S. Tax Evasion, Handing Over American Accounts. Bank secrecy is still dead.

Jason Dinesen, More on Business Proactive Planning in the Real World. “The thing the “experts” miss is, most of us are trying to be proactive … but it’s hard when the client won’t be an active participant in the process.” I find that some clients want you to be pro-active, as long as you don’t charge any time for it.

Tony Nitti, With Summer Olympics Nearing: Should Athletes Pay Tax On Their Winnings?. “Few people realize this, but with an Olympic medal comes a cash payout: $25,000 for a gold, $15,000 for  a silver, and $10,000 for a bronze.” Somehow I doubt that it covers costs for, say, the Modern Pentathlon champions.

Kay Bell, Is Trump ‘poor’ enough to get NY property tax break?:

Crain’s New York Business may have shed some light on why Donald J. Trump doesn’t want us to see his tax returns.

The magazine reports that the billionaire real estate developer got a property tax break designed for New Yorkers making less than $500,000 a year.

People with a lot of wealth in real estate investments can have surprisingly low taxable incomes, after depreciation and interest deductions. Of course, so can people who aren’t really so wealthy.

 

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Jeremy Scott, Romney Cared About the 47 Percent Because He Cared About Deficits (Tax Analysts Blog). “Unlike 2016’s candidates, Romney was trying to push economic and tax policy that didn’t add too much to the national debt, and made Democrats seem financially irresponsible.”

TaxProf, The IRS Scandal, Day 1036

Cara Griffith, Should Tax Settlement Agreements Be Publicly Available? (Tax Analysts Blog). “Yet if it is conventional wisdom that good cases settle while bad cases go to trial, isn’t there a lot that could be learned if lawsuit settlements were made available for public scrutiny?” The good thing is that it would shine light on “secret” law. The bad news is that it might make deals harder to reach.

Renu Zaretsky, Schemes, Scams and States’ Fights. Today’s TaxVox headline roundup says some big company payroll departments fell victim to ID-theft scam emailers mimicking CEOs asking for employee information. Be careful, people.

 

Career Corner. Most Managers Would Prefer If You Could Just Read Their Minds (Caleb Newquist, Going Concern). We would, you know.

 

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Tax Roundup, 3/8/16: Getting robbed, and again. And: IRS allows retroactive WOTC certification for 2015.

Tuesday, March 8th, 2016 by Joe Kristan

walnutstreet20160308It’s not enough to get robbed; you have to time it right. A “pump-and-dump” securities fraud victim claimed a theft loss deduction. The IRS said “yep, you were robbed.” But they also said that they didn’t time their robbery deduction properly, and therefore were out of luck. And, it turns out, they were.

Court of Federal Claims Judge Sweeney explains (my emphasis, citations and footnotes omitted):

There is no dispute that plaintiffs discovered the theft loss in 2002.31 And, neither plaintiffs nor defendant disputes that in 2002, there existed “a claim for reimbursement with respect to which there [was] a reasonable prospect of recovery Plaintiffs filed their arbitration claim against Donald & Co., Mr. Stetson, Mr. Volman, and Mr. Ingrassia in February 2002, and by the end of that year, they had neither sought to adjourn the proceedings nor withdrawn their claim. Accordingly, in light of the ongoing arbitration proceedings, plaintiffs could not claim a theft loss deduction in 2002. Instead, they were required to delay their deduction until the “year in which it [could] be ascertained with reasonable certainty whether or not” they would receive reimbursement of their losses from their arbitration claim. Plaintiffs determined that the proper year to claim their theft loss was 2004, and filed amended federal income tax returns reflecting the deduction. The IRS disallowed plaintiffs’ refund claim, and takes the position in this litigation that 2004 was not the proper year for plaintiffs to claim their theft loss deduction.

The court said the victims didn’t prove that they were entitled to the deduction:

Plaintiffs claim that they sustained the loss in 2004 because by the end of that year, they had no reasonable prospect of recovering on their arbitration claim. However, under the factual circumstances presented in this case, the test is not whether plaintiffs had a reasonable prospect of recovering on their arbitration claim in 2004, but is instead whether, in 2004, plaintiffs could have ascertained with reasonable certainty that they would not recover on their arbitration claim. To satisfy their burden under the latter test, plaintiffs were required to produce objective evidence that they abandoned their arbitration claim in 2004. They failed to do so. In the absence of such evidence, plaintiffs are not entitled to a theft loss deduction for the 2004 tax year.

The opinion doesn’t say whether the victims filed protective refund claims for subsequent years to preserve their refund rights. It would be another robbery if they were unable to get their theft loss deduction because they got the year right. The statute in such cases should allow taxpayers to recover in the proper year if the IRS successfully second-guesses the timing of a theft loss.

The Moral? If you are a fraud or theft victim, the timing of the loss deduction is very important. If the IRS disputes the loss on examination, be sure to file protective refund claims for open years to protect your rights.

Cite: Adkins, Ct. Fed. Claims No. 10-851T.

 

Speaking of getting robbed twice: IRS shuts down ID-thief assistance portal. A week after The Tax Foundation pointed out that the IRS IP-PIN online portal made identity theft victims vulnerable to being victimized a second time, the IRS has temporarily shut it down:

As part of its ongoing security review, the Internal Revenue Service temporarily suspended the Identity Protection PIN tool on IRS.gov. The IRS is conducting a further review of the application that allows taxpayers to retrieve their IP PINs online and is looking at further strengthening the security features on the tool.

Nothing to see here, move along.

 

Work Opportunity Credit guidance updated for retroactive 2015 credits. Congress re-enacted the expired Work Opportunity Tax Credit retroactively for 2015. To claim the credit for hiring certain classes of hard to employ workers, employers have to get the employee eligibility verified within 28 days. As this was impossible for an expired credit, the IRS yesterday gave employers until June 29 of this year to get the certification for 2015 hires (Notice 2016-22)

 

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Russ Fox, What Part of “Permanent Injunction” Didn’t You Understand? “Mr. Herrera is being held at ClubFed until he closes his business and complies with the injunction.” That should do it.

TaxGrrrl, Understanding Your Tax Forms 2016: 1099-B, Proceeds From Broker & Barter Exchange Transactions

William Perez, How to Mail Tax Returns to the Internal Revenue Service

Keith Fogg, Making Claims and Spending Refunds in Bankruptcy. “The 9th Circuit recently affirmed the district court opinion granting summary judgment to the IRS in a case brought by Mr. Stanley Burrell aka M C Hammer seeking to equitably estop the IRS from collecting on taxes for two years which it failed to include on the proof of claim in his bankruptcy case.”

Jack Townsend, Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals

 

Tony Nitti, Would Hillary Clinton’s Tax Plan Kill The Incentive Stock Option?. Actually, AMT has done that pretty well already.

Robert Wood, President Hillary Won’t Cut Tax Deductions To Charities Like Clinton Foundation. Of course not.

Peter Reilly, Chasm Of Class And Privilege – Clinton Tax Plan Hits Top 1% – Sanders Plan Hits Top 5%. “What I find really interesting is the way in which the proposals reflect the difference in the Sanders and Clinton constituencies.”

Kay Bell, Trump is last holdout as Kasich releases tax returns

 

Jason Dinesen, 6 Things You Might Not Know About Enrolled Agents. “2. We Don’t Work for the IRS

 

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Renu Zaretsky, Budget Chaos, Tax Breaks, Loopholes, and Incentives. Today’s TaxVox headline roundup covers EU tax investigations of multinationals, IRS tax investigations of multinationals, and scoundrels “patriotic millionaires” against carried interests.

TaxProf, The IRS Scandal, Day 1034

Stuart Gibson, Competition Policy and Tax Policy in The Twilight Zone (Tax Analysts Blog). “From a tax perspective in the U.S. (and probably Europe), this is simply a garden-variety case of a taxpayer negotiating a good deal with a foreign tax authority. From a European competition perspective, the answer is a bit more complicated.”

 

News from the Profession. Why Accountants Suck at Marketing (Blake Oliver, Going Concern)

 

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