Posts Tagged ‘Jason Dinesen’

Tax Roundup, 8/31/15: Low income taxes don’t mean high excise taxes. And: planning for President Bernie.

Monday, August 31st, 2015 by Joe Kristan

 

I would expect states without an income tax to have high excise taxes, but it’s not so. Liz Malm, How Much Does Your State Collect in Excise Taxes Per Capita? (Tax Policy Blog).

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Minnesota, with ridiculously high tax rates, also is the third biggest excise tax collector. South Dakota, with no income tax, is only the 26th highest.

 

TaxProf, The IRS Scandal, Day 842843844. There is a lot about the current administration’s approach to transparency. An administration that promised to be “the most transparent in history” resists every information request, even when there is no obvious reason to do so. It is cynical and effective. If after a long fight they finally turn over information that shows no evidence of wrongdoing, they make the investigators look silly. And when wrongdoing does come out, the administration says it’s “old news” — because they did their best to make it so.

More on this from John Hinderaker, Obama’s Stonewall Tactics: A Case Study (Powerline Blog), on the ongoing effort to determine whether administration officials illegally accessed the tax information of the Koch brothers for political reasons.

Related: Russ Fox, Sergeant Schultz to the Rescue!

 

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Peter Reilly ponders Tax Planning For The Risk Of A Bernie Sanders Win. He makes the Vermont socialist sound moderate with this:

The funniest thing about the tax proposals is that this candidate who is as far left as you can go without getting into Green Party territory is promoting a  tax package that would pretty much bring us to the second half of the Reagan administration  when it comes to income and estate tax.

So Bernie Sanders favors a maximum 28% individual rate? No evidence for this in the article. In fact, his campaign, like most of them, offers little specific in the way of tax policy. What it does offer is awful — taxing offshore earnings of U.S. companies, confiscatory estate tax rates, and a financial transactions tax that will only drive trading overseas while making markets less efficient and more costly. I started tax practice in the second half of the Reagan administration, and I’m pretty sure that a Sanders administration tax system would not dramatically lower individual tax rates.

That said, Peter’s article does offer some sound tax planning tips, many of which are worth considering regardless of who wins the White House next year.

 

Jason Dinesen, Due Date of Iowa Partnership and Corporate Tax Returns Unchanged. The Department of Revenue says these will be Due April 30, despite federal due date changes.

Kay Bell, Cadillac tax repeal on Senate’s post-recess to-do list.

Keith Fogg, Time Stands Still for Snow – Expanding Section 7503 on the Last Day to Timely Complete a Task. The issue in this case is interesting: whether a Tax Court petition is considered late if it is delivered late because the Tax Court is closed for weather. It also reinforces the importance of buying the correct delivery method when using an authorized private delivery service.

 

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Robert Wood, Trump As Tax Code King And Hedge Fund Slayer. He’s a floor wax. He’s a dessert topping. He’s whatever you hallucinate him to be.

TaxGrrrl, Ho, Ho, Oh No! Santa’s Office Threatened With Closure Due To Tax Woes. Well, I never understood his business model.

Jack Townsend, Interest and Penalties Issues At Sentencing

 

Renu Zaretsky, Thirty Days Hath September: Stay tuned for tax plans to remember? The TaxVox headline wrapup talks about taxes in the election campaign and Brazil abandoning a planned financial transaction tax. Brazil is a leftist country with a soul-sucking business tax system. Even they realize a transaction tax is unwise, making them more sensible than Bernie Sanders.

 

 

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Tax Roundup, 8/27/15: Iowa cheap for the factory, costly for the headquarters. And: Instant Tax indictments.

Thursday, August 27th, 2015 by Joe Kristan

All the state taxes. The Tax Foundation has issued its 2015 Location Matters report, “a comparative analysis of state tax costs on business.” It provides a summary of the costs of operating different kinds of business, state by state, with wonderful charts like this one for Iowa:

Source: The Tax Foundation

Source: The Tax Foundation

This chart seems to show that Iowa is relatively easy on manufacturing, but a very expensive place for a service business or a distribution center — with an effective state and local rate of around 40% for distribution facilities. It also shows that the corporation income tax really only clobbers retailers and corporate headquarters.

The charts really get interesting when you compare states. Let’s turn to our neighbors in South Dakota:

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Source: The Tax Foundation

While most industries fare much better in South Dakota than in Iowa, capital-intensive manufacturers — especially new ones — do a little worse. This is because South Dakota has a higher sales tax, and, presumably, because of the presence of Iowa’s tax incentives for new manufacturers. Once you settle in, there is little difference.

Here’s what the report says about Iowa (my emphasis):

Despite having the highest top corporate income tax rate in the nation at 12.0 percent, Iowa’s mature capital-intensive manufacturing firm experiences the lowest effective tax burden in the nation at 3.9 percent, due in large part to Iowa’s single sales factor apportionment formula and the lack of a throwback rule, which have the effect of exempting nearly all of a firm’s income from in-state taxation. The operation also experiences a relatively low property tax burden due to the lack of property taxes on equipment and inventory.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa offers a 50 percent deduction for federal income taxes paid, which helps mitigate the burden of the state’s high corporate and individual income taxes but is also responsible for those high rates.

In addition to its favorable apportionment factors for businesses selling goods out of state, Iowa’s benefits-based sourcing rules work to the advantage of Iowa-based firms selling services out of state. However, effective property tax rates can be exceedingly high for some firms—nearly double the national average for mature distribution centers, for instance—greatly increasing overall tax costs. Qualifying new firms (the manufacturing operations and the distribution center) receive a full abatement of the property tax on improvements for three years, though the abatement does not cover taxes on the value of the land itself.

Manufacturing machinery and research and development (R&D) equipment are exempt from the state sales tax, and the R&D facility receives other incentives as well. Iowa also offers generous investment and job creation tax incentives to new firms, though due to the state’s high tax rates, most new firms continue to experience above-average tax burdens.

This offers some lessons for Iowa’s ongoing tax reform debate:

– The Iowa Corporation Income Tax, where it isn’t futile, is a job killer, making it very expensive to locate a corporate headquarters here.

– Iowa’s vaunted tax incentives benefit the lucky and the well connected, while stifling start ups: “most new firms continue to experience above-average tax burdens.”

– Despite the recently enacted property tax reforms, Iowa’s real estate taxes still are a big cost for Iowa businesses.

The full report can be found here.

Related:

Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

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Instant tax unhappinessThe tax prep franchise outfit Instant Tax Service had a colorful history before it was ordered to close by a federal judge. It was notorious for “paystub” returns, prepared to claim refunds for a mostly low-income clientele before they got their W-2s. That’s something preparers aren’t supposed to do.

Yesterday things got worse for the owners of Instant Tax Service with an indictment on tax charges. A Department of Justice Press Release lists some of the allegations (my emphasis):

From about January 2004 through November 2012, Ogbazion and Wade executed a scheme to obstruct the Internal Revenue Service (IRS), wherein numerous ITS franchises filed false federal income tax returns without valid Forms W-2 and without the permission of their taxpayer clients.  The false returns included false and inflated sole proprietorship Schedule C income in an attempt to increase the Earned Income Tax Credit.  Over the course of several years, Ogbazion also instructed an ITS employee to electronically file large volumes of unsigned tax returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations.  In an attempt to obstruct IRS civil compliance audits, ITS maintained and filed false documents with the IRS, including fabricated Forms W-2 created by ITS employees using tax preparation software, and forged client signatures on various false IRS forms.

Earned income tax credit skeptics are often scolded that the 25% rate of improper payments isn’t all due to fraud; it’s because taxes are hard and all. Taxes are hard, but if there isn’t massive fraud, it’s not for lack of trying. Rather than trying to run a welfare system through the tax code, we should be looking at a universal benefit along the lines proposed by Arnold Kling.

Related:

Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate.

 

Vox.com, H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

H&R Block’s entire business model is premised on taxes being confusing and hard to file.

Well, that and promoting IRS preparer regulation to put competitors out of business.

Robert Wood, Trump Firing H&R Block Could Actually Help Immigrants

 

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Jason Dinesen, Things a Business Owner Needs to Know Before Hiring Employees

Robert D. Flach, WHAT DEDUCTIONS WOULD YOU KEEP?

Tony Nitti, 2013 Tax Changes Raised The Tax Bill On The Wealthiest 2 Percent By $60 Billion. “Whether an additional $60 billion in revenue is enough to satisfy the current administration remains to be seen.” No, we already know it won’t.

TaxProf, The IRS Scandal, Day 840. More about Toby Miles. Meanwhile, Commissioner Koskinen dismisses the revelations of Lois Lerner’s canine email address under the “old news” ploy, and tells Tax Analysts ($link) that even though she hates Republicans and Tea Partiers, Lerner’s team was fair and square in dealing with their exemption applications.

Kay Bell, Lois Lerner used her dog’s email to conduct IRS business

 

Joseph Thorndike, When it Comes to Taxes, Americans Are of Two Minds – or Three, or Five or Eight. “While trying to make sense of Donald Trump’s statements on tax policy, I was struck by their disparate quality; to call them random is to exaggerate their coherence.”

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Tax Roundup, 8/25/15: Capital losses, your portfolio disaster silver lining. And: Introducing Toby Miles!

Tuesday, August 25th, 2015 by Joe Kristan
Flickr Image courtesy donjd2 under Creative Commons License.

Flickr Image courtesy donjd2 under Creative Commons License.

So how’s the market doing? Recent days have been unkind to many stock portfolios. Can you make tax lemonade out of the sour lemons in your portfolio?

Let’s make clear that I am in no way saying you should sell your losing stocks right now. If I were smart enough to call the market, you wouldn’t find me doing tax returns in Des Moines in January, as lovely as it is. But I can explain what stock losses do to your income taxes, and how to do it.

First, tax losses are generally useful only when they occur in a taxable account. If your IRA or 401(k) portfolio takes a hit, you are normally out of luck.

Second, you have to actually sell the losing stock to deduct a loss. Just as you don’t pay taxes on appreciated stocks you don’t sell, you don’t get to deduct losses on shares you don’t cash out.

Third, you can’t buy back the shares you sell at a loss for 30 days, under the “wash sale” rules. So if you think that loser is going to bounce back right away, you can’t just buy back other shares of the same stock you sold at a loss if you want the deduction. Nor can you buy the other shares of the same stock in the 30 days before you take the loss. The IRS says buying the offsetting shares in a nontaxable IRA account also triggers wash-sale disallowance.

Finally, individuals may only deduct their capital losses to the extent of capital gains (long-term or short-term), plus $3,000 ($1,500 for married-filing-separately taxpayers). That means you get no tax benefit from overdoing taking losses; the excess of losses of $3,000 carries forward to offset future taxable gains.

But if you have cashed out gains already in your taxable portfolio, it may make sense to sell enough losers to offset the gain, if you have them. Otherwise, you are in effect paying tax on the gains voluntarily — assuming you can live without the loser stock for 30 days.

Related:

TaxGrrrl, As Stocks Tumble, Understanding When A Loss Isn’t Really A Loss

IRS.gov, Topic 409 – Capital Gains and Losses

 

 

Toby Miles, IRS.

Toby Miles, IRS.

TaxProf, The IRS Scandal, Day 838. Today’s installment links to revelations of another Lois Lerner personal account used to conduct official business:

“In addition to emails to or from an email account denominated ‘Lois G. Lerner‘ or ‘Lois Home,’ some emails responsive to Judicial Watch’s request may have been sent to or received from a personal email account denominated ‘Toby Miles,’” Mr. Klimas told Judge Emmet G. Sullivan, who is hearing the case.

It is unclear who Toby Miles is, but Mr. Klimas said the IRS has concluded that was “a personal email account used by Lerner.”

The linked Washington Times story also has this:

The use of secret or extra email accounts has bedeviled the Obama administration, which is has tried to fend off a slew of lawsuits involving former Secretary of State Hillary Rodham Clinton and her top aides, the White House’s top science adviser, top Environmental Protection Agency officials and the IRS.

That’s not quite right. It’s not the use of the email accounts that has “bedeviled” the administration. Enough have come to light to make clear that such use is standard operating procedure. It’s the getting caught that does the bedeviling.

 

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Paul Neiffer, IRS Delays New Inherited Property Reporting Requirements Until February 2016. Statements showing the basis of inherited property will not have to be filed with the IRS before the end of February, 2016, at the earliest.

Russ Fox, How to Commit Tax Fraud 101. “Until the IRS makes it far more difficult for the fraudsters, this epidemic will continue. As I’ve said, why rob banks?”

Robert D. Flach, TRY TO REMEMBER . . . End of summer tips on home mortgage interest, alternative minimum tax, and more.

Robert Wood, 10 Ways Trump Is Right About Taxes. When you say random things without regard to other random things you’ve already said, you are likely to be right occasionally. Unlike Mr. Wood, I think the “hedge fund loophole” talk is foolish nonsense.

Kay Bell, Trump trashes tax breaks for ‘paper pushing’ money managers. Featuring the Trump Squirrel.

Peter Reilly, Sending IRS Against Phony Churches Is Bringing A Knife To A Gun Fight. “Fundamentally the IRS cannot base its enforcement actions on the content of an organization’s beliefs.”

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Stephen Olsen, Summary Opinions for July (Procedurally Taxing). Coverage of recent happenings in tax procedure.

Jason Dinesen, Does a Sole Proprietorship Need a Balance Sheet? Technically, no, but it’s foolish not to keep one.

Career Corner. Former Ryan Principal Made a Helluva Career Limiting Move (Caleb Newquist, Going Concern).

 

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Tax Roundup, 8/21/15: Court says the IRS can’t cause a negative gift. And more Friday links!

Friday, August 21st, 2015 by Joe Kristan

20150821-1Gee, thanks. Few of us ever have to pay gift tax. Logically, more people should. Taxable gifts avoid tax when compared to passing an asset through a taxable estate because only the amount given to a donee is subject to gift tax, while the estate is taxable on its whole value — not just the amount that goes to the donee. Confusing? Let’s try a quick example, assuming a 40% estate and gift tax rate.

James has $14 million. He wants to give it all in a taxable gift, saving enough to pay his taxes. He makes a $10 million gift, and he pays 40%, or $4 million in taxes.  

His sister Janet dies with the $14 million, the tax is 40% of $14 million, or $5.6 million. The after-tax inheritance to her beneficiaries is $8.4 million, instead of the $10 million received by James’s heirs.

The giver is supposed to file a gift tax return and pay the gift tax on Form 709.

But what if he doesn’t? Then the IRS will come after the recipients. That happened to the recipients of gifts from James Howard Marshall II, best known as the short-term husband of Anna Nicole Smith. He died without paying the gift taxes, and the estate couldn’t cover them. The IRS then went after the gift recipients, in a big way — demanding more in gift tax payments and interest than the value of the gift actually received.

The Fifth Circuit Court of Appeals ruled on whether the government could do that:

However, the Government brought suit seeking to hold the Marshalls personally liable for almost $75 million beyond the value of the gifts consisting mostly of interest accrued on the unpaid tax liability from 1995. The Marshalls argued that § 6324(b) limits their personal liability to the value of the gifts they received.

It wouldn’t be much of a gift if it cost you money. The Fifth Circuit ruled against the IRS:

A donee is “personally liable” only for “such tax” — the gift tax and accrued interest — “to the extent of the value of such gift.” The statute’s text does not support the Government’s position.

That seems fair, though fairness isn’t required in the tax law. I’m not sure there’s much tax planning to be done around this, other than maybe making sure Grandpa files a gift tax return when he gives it all away.

Cite: Estate of Marshall, CA-5, No. 12-20804.

The TaxProf has more: 5th Circuit: Donee’s Liability For Billionaire’s Unpaid Gift Tax And Interest Cannot Exceed The Amount Of The Gift

 

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TaxGrrrl, Lawyers, Accountants and Administrators, Oh My! Putting Together A Professional Team. “I know what you’re thinking. A professional team costs money. And startups and small businesses are often short on money”

Kay Bell, Taxes as a weapon of mass destruction in historical thriller

Jason Dinesen, Glossary: Asset. “For individuals, an asset is things such as stocks; houses, buildings and land; investments in partnerships; and personal possessions (TVs, electronics, jewelry).”

Jim Maule, Be Careful With Divorce Tax Planning, Part II:

A simple sentence in the agreement, which the parties drafted without assistance of counsel, would have specified whether or not the payment obligation terminated if the former wife died during the 8-year period. There is no way of knowing if they considered the question. There is no way of knowing, if they considered the question, what they wanted the answer to be. There is no way of knowing if they thought that the answer did not require a provision in the agreement. What can be known is that it is risky to draft a divorce agreement without understanding the tax implications.

Risky, and foolish.

Keith Fogg, Who Gets to Decide What is Frivolous (Procedurally Taxing). “After all, if the IRS has unbridled discretion to determine what is frivolous, it could deny even those with arguably non-frivolous arguments from moving forward in the CDP process of seeking collection relief.”

Robert Wood, Trump Bashes $4 Billion In IRS Refunds To Illegals

TaxProf, The IRS Scandal, Day 834

Howard Gleckman, Scott Walker’s Replacement for the ACA Would Leave Many Uninsured. (TaxVox). Of course, so does the ACA.

 

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Scott Greenberg, John Oliver Set Up His Own “Church” to Make a Point about the Tax Code (Tax Policy Blog). “To demonstrate his point, Oliver announced that he had founded his own church, Our Lady of Perpetual Exemption, showing how “disturbingly easy” it was to obtain tax-exempt status for a sham religious organization (the main mission of Our Lady of Perpetual Exemption is to collect donations).”

News from the Profession. Deloitte Doesn’t Want You Wasting Billable Hours Searching for Adulterer Profiles (Caleb Newquist, Going Concern)

 

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Tax Roundup, 8/19/15: Even if it faxes, it’s still a printer in Iowa. And: the rich guy still isn’t buying.

Wednesday, August 19th, 2015 by Joe Kristan

20150813-1All for one, one for all. Iowa has a sales tax exclusion for “Computers used in processing or storage of data or information by an insurance company, financial institution, or commercial enterprise.” But what is a computer anymore, now that everything has a computer in it?

Last week Iowa released a ruling (Document 15300028) holding that Principal Financial Group’s all-in-one devices count as computers and are exempt from sales tax. From the ruling:

The protest was filed due to the Department’s partial denial of a refund claim which involved, among other issues, several multi-function devices which provide copy, print, scan, and fax services.  Your position is that because the multi-function devices are connected to your company’s computers and used in the manner described that these devices qualify as exempt computer peripheral equipment under Iowa’s statutes and administrative code…

Rule IAC 701—18.58(1), which was written, in part, to implement that code section, defines computers as the following:

…stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. Nonexclusive examples of devices fastened by a signal cable or other communication medium are terminals, printers, display units, card readers, tape readers, document sorters, optical readers, and card or tape punchers.

The Department of Revenue had argued that copiers and fax machines don’t qualify, and these functions disqualified the multi-function devices. Principal brought its considerable in-house tax expertise to bear:

However, since the filing date of the protest, you have provided the auditor with the “click count” information for each individual multi-function device included in the refund claim.  This documentation verifies that each unit individually qualifies for exemption because the majority of the usage for each of the devices is for exempt printing and scanning. 

Attached to the protest as Exhibit B was a summary schedule in which you determined that 96.67% of the usage of the devices was for exempt purposes.  This percentage was utilized by Principal to determine the amount of tax under protest ($145,134.80).  However, because each device qualified for exemption, the purchase prices of these units are fully exempt from Iowa sales tax.  Therefore, the Department will refund 100% of the sales tax paid on the purchases of these devices. 

So after a struggle, the Department settles on the right legal answer. The policy answer is only half-right, though. All business inputs should be exempt from sales tax, regardless of whether they are hooked up to a computer.

I rarely fax or copy anything anymore, and I think that this is true nowadays for most businesses. It could say something about how they do things at the Iowa Department of Revenue that they assumed otherwise. In any case, this ruling tells us that fax and copy capability doesn’t make an otherwise exempt scanner/printer subject to sales tax for an Iowa business.

 

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Megan McArdle discusses presidential candidate Scott Walker’s Obamacare replacement (my emphasis):

In this debate, you can see the shape of where our politics may go over the next 20 years. Many Republicans would like a much smaller entitlement state; some Democrats would like a much bigger one, with Sweden-style universal coverage of virtually everything, crib to grave. Neither one is going to get what they want, because Americans are not prepared to give up their Social Security checks, or 60 percent of their paychecks either — and no, there is not enough money to fund these ambitions, or even our existing entitlements, by simply taxing “the rich.”

The discussion is becoming more urgent, as Obamacare as it stands is not working well; the big premium increases and the struggles of the “cooperatives” us that. It could be harder to fix the health insurance market than it was to wreck it in the first place.

 

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Robert D. Flach brings the Tuesday Buzz on Wednesday, covering the tax blog ground from property taxes to the Get Transcript data breach.

Tony Nitti, Tax Court Reminds Us That You Should Never Toy Around With Your Retirement Account:

Section 72 clearly mandates that annuity income is ordinary income, rather than capital gains. Thus, it is immaterial whether, as the taxpayer asserted, the annuity generated most of its income in the form of capital gains. Because once the annuity distributed the cash generated from those capital gains on to the taxpayer, the tax law required it to be treated as ordinary income.

Oops.

 

Jason Dinesen, Why is Self-Employment Tax Based on 92.35% of Self-Employment Income?

William Perez, These 6 states will waive penalties if you pay off your back taxes.

Paul Neiffer, Highway Use Tax Return Due August 31, 2015

Jim Maule, More Tax Fraud in the People’s Court. “It was an attempt to change a non-deductible cost of a boat into a business deduction.”

Kay Bell, A-list performers would get tax credit for New Jersey shows.

Republican Sen. Tom Kean, Jr. this week renewed a push for his bill that would provide a tax break for so-called A-list performers in the Garden State.

Not every problem is a tax problem. Especially this one.

TaxProf, The IRS Scandal, Day 832.

 

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David Brunori, Retroactive Tax Laws Are Just Wrong (Tax Analysts Blog):

There are two fundamental problems with changing the rules retroactively. First, it is patently unfair. People who follow the rules should not be penalized later. We would never stand for it in the criminal context. Why should we accept it for taxes? Second, retroactively changing the rules undermines confidence in the tax system. Most people try to do the right thing. Often they spend a lot of money paying lawyers and accountants to guide them to the right result. The good taxpayers might not be diligent in following the rules if those rules might change.

It’s harder to justify spending money on tax compliance when it doesn’t do any good.

 

Howard Gleckman, New Rules Will Require States to Be More Transparent About Tax Subsidies (TaxVox): “While local governments have complained that the new rules will be complicated and burdensome, it is frankly a scandal that governments have been able to keep these subsidies under wraps for so long.”

 

News from the Profession. Only 20% of Companies Using Creative Accounting to Its Full Potential (Caleb Newquist, Going Concern). “…it’s not technically fraud”

 

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Tax Roundup, 8/17/15: New directions in Iowa tax policy. And lots more!

Monday, August 17th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

This week may see the start a discussion of the future of Iowa tax policy. The Iowa Association of Business and Industry Tax Committee meets Thursday to discuss proposals for the future of the Iowa income tax.

There’s a lot to talk about. The Tax Foundation puts Iowa among the bottom-ten states in its 2015 Business Tax Climate Index. Iowa has the second worst corporate tax ranking and the highest corporation tax rate of any state. We also have a subpar individual tax ranking. Along with the high rates — and made possible by them — the Iowa income tax is full of special favors for influential and sympathetic interests. This makes the taxes expensive and difficult to comply with and not so good at collecting revenue.

The state legislature has not seriously addressed income tax reform in recent years. There has been no movement against the awful corporation tax that I am aware of. The Republican caucus has pushed an individual “alternative maximum tax,” one with lower rates and a broader base — that would co-exist with the current system. That has an obvious flaw — everyone would compute their tax both ways and pay the lower tax. That makes the system more complex. But all tax reform has been bottled up by the Democrat-controlled Iowa Senate.

What are the ingredients for Iowa tax reform? A good tax reform discussion should consider:

Repeal of the Iowa corporation income tax. The Iowa corporation tax provided $438 million of the the state’s 2014 revenue, out of $7.545 billion. Corporation income taxes discourage in-state growth and are expensive to enforce. The state would be better off without it.

Repeal of all incentive tax credits. The state has many tax credits, some of which are refundable, including the R&D tax credit. Simply eliminating the tax credits would recoup some of the lost revenue from a corporation income tax repeal.

Move the individual income tax to an AGI-based system. Eliminate state itemized deductions and special state deductions and use the savings to lower the rates. Such as system would only retain a few itemized deductions to prevent abuse of taxpayers, principally the deduction for gambling losses.

Don’t be Kansas. That state enacted a poorly conceived tax reform effort a few years ago, and it has been a mess. Ambitions for tax reform have to be reconciled to revenue needs. While I think the state should spend less than it does, we can’t assume it will do so. Tax reformers need to present a plan that is revenue-neutral, or close to it.

Related:

Is Iowa’s business tax climate really that bad?

Baby steps towards fixing Iowa’s business tax climate

What an Iowa income tax might look like with a fresh start.

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

Jared Walczak, How High Are Property Taxes in Your State? (Tax Policy Blog). With this map:

 

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Iowa still has relatively high property taxes, even after the recent property tax reforms. But we have high income and sales taxes too.

 

Russ Fox, Two Sets of Returns Aren’t Better than One:

Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?

This is what Russ might call a Bozo tax offense. It’s not like this sort of thing will go very long without someone noticing.

 

Jason Dinesen, Glossary: Estimated Tax Payments

Annette Nellen, Innovation box tax reform proposal, A good explanation of a bad idea.

Kay Bell, IRS says free identity theft protection services are tax-free. “That’s very good news for me, since I was part of the huge OPM hack”

TaxGrrrl, IRS Offers Tax Guidance On Free Identity Theft Protection Services

Paul Neiffer is on the road on The ProFarmer Midwest Crop Tour.

Jim Maule, Rebutting Arguments Against Mileage-Based Road Fees. I think an expansion of tolling is more likely, but I don’t think that is very likely either.

Jack Townsend, Ninth Circuit Requires a Filing for Tax Perjury Charge. “Under the facts, Boitana had merely presented the false return to the agent, but that presentation was not a filing.”

Peter Reilly, Let Irwin Schiff Die With His Family Not In Prison:

You don’t have to agree with Irwin Schiff’s views on the federal income tax, to feel sympathy for Peter Schiff’s request that his father be released from prison. Irwin, now 87, has been diagnosed with lung cancer and it seems likely that he will not live to see his July 26, 2017 release date.

I think the government has made its point.

 

Patrick J. Smith, D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1) (Procedurally Taxing):

The weakness of the majority opinion in Florida Bankers, together with the strength of a dissenting opinion filed in the case, as well as the inconsistency of the majority opinion not only with the Supreme Court’s Direct Marketing decision but also with other D.C. Circuit opinions, all make the Florida Bankers case a strong candidate for en banc review. 

The suit challenges the FATCA rules on foreign reporting.

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TaxProf, The IRS Scandal, Day 828Day 829Day 830

Matt Gardner, Latest Inversion Attempt Illustrates U.S. Can’t Compete with a 0 % Corporate Tax Rate (Tax Justice Blog). It could with a zer-percent rate of its own.

Renu Zaretsky, Tax plans and presidential candidates: The future [may or may not be] now. The TaxVox headline roundup talks about presidential candidate tax plans and the bleak outlook for the IRS budget under the current Commissioner.

Quotable:

If you think of government programs as technology, they are hopelessly behind. We regulate communications using the FCC, which is 1930s regulatory technology. We address health care for the elderly with Medicare, which is 50-year-old technology.

In the private sector, when an enterprise becomes technologically obsolete, it falls by the wayside. In government, it gets larger.

Arnold Kling

 

News from the Profession. Yep, Almost All Accounting Firm Partners Are Still White Guys (Caleb Newquist, Going Concern). Well, I still am, anyway, and I don’t see that changing.

 

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Tax Roundup, 8/13/15: IRS makes it hard to extend the W-2 deadline; Iowa makes it easy to extend a farm lease.

Thursday, August 13th, 2015 by Joe Kristan

20150813-1IRS ends automatic extensions for W-2s. Tax Analysts reports ($link) that IRS will no longer allow automatic extensions for W-2s. Non-automatic extensions will be allowed only in dire circumstances, according to the report:

Under the new rules, the IRS will grant the nonautomatic extension only when the filer demonstrates “extraordinary circumstances or catastrophe,” such as loss of record from fire or natural disaster.

It is an attempt to get wage information in sooner to make it easier to match refund claims to withholding, to help prevent identity theft. It’s a nice thought, but it is nowhere near enough. E-filed W-2s can be filed as late as the end of March – far too late to do much matching before refunds are issued.

Fighting identity theft will require more. It will probably require delays in refunds. It may also require a change in the culture that thinks big tax refunds are a good thing.

It will also require the IRS to raise its game in fraud prevention in its return processing. Russ Fox, Why Rob Banks, Redux:

From Los Angeles comes the news that the California Attorney General’s Office, along with the Long Beach Police and the US Postal Inspection Service did a “takedown” of the “Insane Crip” street gang; 22 members are in custody on charges that include 283 counts of conspiracy, 299 counts of identity theft, and 226 counts of grand theft.”

I doubt there is a lot of sophisticated computer savvy in the Insane Crip ranks. That the IRS is losing billions to street criminals says a lot about how poor the IRS anti-theft systems are.

 

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Kristine Tidgren, Remember the September 1 Lease Termination Notice Deadline (Ag Docket):

Perhaps the most misunderstood portion of Iowa farm lease law is that governing the proper termination of a lease. Iowa law is unique in that under Iowa Code §562.6, a farm lease renews automatically—under the same terms and conditions as the original lease—absent specific action by one or both parties to the lease. The automatic renewal provision applies to both oral and written leases. 

Kristine explains what to do to end a bad lease.

 

Robert D. Flach, ONE REASON YOU SHOULD KEEP COPIES OF YOUR TAX RETURNS FOREVER. “I recently came across an excellent example of the benefit of keeping copies forever.”

Jason Dinesen, Choosing a Business Entity: Partnership. “A partnership can exist — for both tax and legal purposes — even if there’s no written agreement in place.”

Kay Bell, Don’t miss the tax break for college textbooks. “The American Opportunity Tax Credit, or AOTC, covers expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution.”

 

TaxGrrrl, Gun & Ammo Tax Aims At Reducing Violence In Seattle:

It wouldn’t be the only such tax in the country. A similar tax in Cook County, Illinois, was adopted after much controversy in 2012. The hope was that it would slow gun violence. However, according to reports in the Chicago Tribune, gun violence continues to escalate in the city of Chicago with the numbers of persons shot in 2015 so far on pace to top those shot in 2014.

This is the same community that is pricing the poor out of the job market with minimum wage increases.  In both cases, moral preening is substituted for sound policy.

 

Peter Reilly, Church Attendance Held Against Taxpayer In Maryland Domicile Case. Though I suspect attendance at the Secular Humanist Club down the street would have gotten the same result.

 

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Kyle Pomerleau, Senator Carper Introduces Gas Tax Increase Paired With EITC and Child Tax Credit Expansion (Tax Policy Blog). “Paired with an EITC expansion, however, a gas tax increase becomes distributionally progressive: low-income taxpayers receive a net tax cut while middle and upper-income taxpayers receive a slight tax increase.”

TaxProf, The IRS Scandal, Day 826

Career Corner. Can an Accounting Firm Be a ‘Guilt-Free Zone’? (Caleb Newquist, Going Concern)

 

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Tax Roundup, 8/11/15: Extreme Time Management fails in Tax Court. And: the rise of scam-by-mail.

Tuesday, August 11th, 2015 by Joe Kristan

20150811-1Dedication. The tax law “passive loss” rules generally treat real estate rental as automatically passive. If losses are passive, they can’t be deducted until either the taxpayer has passive income or the taxpayer sell the “passive activity” (think about that phrase for a minute).

There are two exceptions to this “per-se passive” rule. One rule allows up to $25,000 in rental losses to “active” real estate owners, but this phases out between $100,000 and $150,000 in adjusted gross income. The other exception applies to “materially participating real estate professionals.”

It’s hard to qualify as a real estate pro. There are two big hurdles:

– You have to spend at least 750 hours in a year working on real estate activities in which you have an ownership interest, and

– You have to spend more time in your real estate activities than in your other work or business activities.

The second condition is a tough hurdle for taxpayers with full-time jobs outside of real estate to clear, as a Los Angeles teacher learned yesterday in Tax Court. The teacher presented logs to the court to show that he spent more time on his real estate than on his teaching job. This from the Tax Court decision gives you an idea how that went (my emphasis):

In addition to the obvious understatement in the logs of hours petitioner spent as a teacher for each year in issue, the reliability of the logs is also called into question by what appear to be exaggerated amounts of time shown for relatively routine, recurring events, such as check writing. During petitioner’s cross-examination respondent’s counsel pointed out numerous instances of entries showing one to several hours for such activities. The Court does not exist in a vacuum, and we cannot divorce ourselves from our own experiences of daily life, such as the time it takes to review a mortgage statement and/or bill and pay the item by check. We reject petitioner’s claim that the dozens, if not hundreds, of checks that he wrote over the years in issue each took at least an hour to prepare.

Other entries pointed out by respondent’s counsel during petitioner’s cross-examination add to our concerns. Rather than point out each one, however, suffice it to note the following exchange during petitioner’s cross-examination after respondent’s counsel totaled the hours shown in the logs for time spent on various activities on a particular day:

MR. RICHMOND [respondent’s counsel]: And on November 30th [2007], you worked a 25-hour day on your rental properties?

WITNESS [petitioner]: Well, I guess it was a big day.

MR. RICHMOND: I guess it was.

So the Tax Court has something against the time-traveler-American community?

Decision for IRS.

The moral? A long-ago and now deceased big-firm partner/boss once told me “you can create hours with a pencil.” While that may be valid in big-firm public accounting, it doesn’t work so well in Tax Court.

Cite: Escalate, T.C. Summ. Op. 2015-47

 

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Robert D. Flach has fresh Tuesday Buzz, including this wise advice:

For years I have also been telling you that whenever you receive any correspondence from the IRS or a state tax agency give it to your tax preparer immediately. Do not send any money to anyone without first checking with your tax pro.

It appears scammers are starting to use the postal service, so watch out.

 

Russ Fox, Up In Smoke…Again. Tax life is hard for Marijuana businesses, even legal ones.

Tony Nitti, Ninth Circuit: Unmarried Cohabitants Each Entitled To Deduct Interest On $1,100,000 Mortgage Limit

Robert Wood, New IRS Guidance Suggests Obamacare 40% Cadillac Tax Could Get Even Worse

Keith Fogg, Ninth Circuit Reverses Tax Court on Qualified Offer Case and Holds That a Concession is not a Settlement (Procedurally Taxing)

Jim Maule, This Tax Change Will Help But It Won’t End the Problem. Thoughts on the new partnership return due dates.

Jason Dinesen, The Jason Dinesen Plan for Preparer Regulation. “Which begs the question of why they need a regulatory program — mandatory or voluntary — at all.”

Kay Bell, Cleveland to take Ohio jock tax ruling to U.S. Supreme Court

William Perez, Communicate Effectively with Your Tax Preparer

 

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TaxProf, The IRS Scandal, Day 824

Jeremy Scott, Jeb Bush’s Troubling Reversal on Taxes (Tax Analysts Blog).

Career Corner. Why You Should (and Shouldn’t) Accept a Full-Time Offer From a Public Accounting Firm (Amber Setter, Going Concern)

 

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Tax Roundup, 8/7/15: Iowa sales tax takes a holiday, and other brutal assaults on reason.

Friday, August 7th, 2015 by Joe Kristan

20150807-1Today is the firm field day. Once again my proposal for an all-office open chess tournament failed to win support, so it’s golf again.

The annual Iowa sales tax holiday for clothing and footwear is today and tomorrow. Details from the Iowa Department of Revenue:

-Exemption period: from 12:01 a.m., August 7, 2015, through midnight, August 8, 2015.

-No sales tax, including local option sales tax, will be collected on sales of an article of clothing or footwear having a selling price less than $100.00.

-The exemption does not apply in any way to the price of an item selling for $100.00 or more

-The exemption applies to each article priced under $100.00 regardless of how many items are sold on the same invoice to a customer

“Clothing” means…

-any article of wearing apparel and typical footwear intended to be worn on or about the human body.

“Clothing” does not include…

-watches, watchbands, jewelry, umbrellas, handkerchiefs, sporting equipment, skis, swim fins, roller blades, skates, and any special clothing or footwear designed primarily for athletic activity or protective use and not usually considered appropriate for everyday wear.

Sales tax holidays are a bad policy, for reasons explained well by Joseph Henchman and Liz Malm, including this:

Political gimmicks like sales tax holidays distract policymakers and taxpayers from genuine, permanent tax relief. If a state must offer a “holiday” from its tax system, it is a sign that the state’s tax system is uncompetitive. If policymakers want to save money for consumers, then they should cut the sales tax rate year-round

The Federation of Tax Administrators has a complete list of sales tax holidays for 2015. Mississippi and Louisiana have holidays for firearms purchases September 4-6, so you can dress up in Iowa and drive south to do your weapons shopping in Iowa style.

Related: Kay Bell, 13 state sales tax holidays on tap this weekend

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Robert D. Flach brings the Friday Buzz, including a special offer on THE NEW SCHEDULE C NOTEBOOK, his tax Baedeker for the sole proprietor.

William Perez, Changes in Tax Deadlines to Take Effect in 2017 (Plus Deadlines for 2015 and 2016)

Jason Dinesen, Glossary of Tax Terms: LLC

Keith Fogg, The Room of Lies (Procedurally Taxing). No, it’s not about debate settings, Congress or the White House Press Briefing Room. It’s about the process the government uses in deciding whether to appeal tax cases.

Robert Wood, Mo’ Indictments For Mo’ Money Taxes, 20 Years Prison Possible. “Indeed, the fallout for innocent taxpayers patronizing a tax preparation shop that is in trouble can be far-reaching.”  Yes, that’s why taxpayers should be wary of a shop that seems to always get bigger refunds than anyone else.

Tony Nitti, If You Hired Mo’ Money Taxes To Prepare Your Return, You Continue To Have Mo’ Problems.  “The most institutionally corrupt organization south of the New England Patriots…”

TaxGrrrl Live-blogged the GOP presidential debate last night. As the political season seems to be fully underway, it’s time to express my joy of the season, best stated by Arnold Kling:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

And reason never comes out well in the contest.

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Renu Zaretsky, “If at first you don’t succeed, try, try, again.” Today’s TaxVox headline roundup covers international tax reform, gas taxes, and sales tax holidays.

TaxProf, The IRS Scandal, Day 820. Lots of reaction to the Senate Finance report on the scandal.

Peter Reilly, IRS Scandal – Blame It All On Lois Lerner And Move On?

Joseph Thorndike, Clinton Should Keep It Simple and Just Propose Repealing the Capital Gains Preference (Tax Analysts). No, no, no. She should keep it simple and propose repealing the capital gain tax.

 

Career Corner. The “I’m Leaving” Conversation (Green Dot Peon, Going Concern).

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Tax Roundup, 8/3/15: Due date scramble edition, with extendable FBARs!

Monday, August 3rd, 2015 by Joe Kristan

20150803-1Highway bill scrambles business return due dates. A “short term highway funding bill” (HR 22) has switched some tax return filing due dates from what they have been pretty much forever. The bill, signed last week by the President, responds to complaints that K-1s are arriving too late by accelerating the partnership return due date and delaying C corporation due dates — with one bizarre exception.

The changes, which take effect for years beginning after December 31, 2015:

1065 (Partnership) returns: Currently due April 15, or 3 1/2 months after year-end, with a five-month extension. The new due date is March 15 (or 2 1/2 months after year-end), with a six-month extension.

1120 (C corporation) returns: Currently due March 15, or 2 1/2 months after year-end, with a six-month extension available. The new law makes the due date April 15 (or 3 1/2 months after year-end), with a six-month extension. Except, weirdly, for C corporations with a June 30 year-end, which retain the old deadlines through 2025.

FBAR (form 114) reports of foreign financial accounts. These have been due on June 30, with no extension available. They will be due on April 15, but with a six-month extension available.

1041 (estate and trust income tax) returns retain their April 15 due date, but their extension period is shortened from six months to 5 1/2 months.

It’s not entirely clear yet how this will work. I hope the FBARs will be considered automatically extended if the 1040 or other return is extended, to help avoid paperwork foot-faults.

The bill is an empty gesture to 1040 filers who get frustrated waiting on K-1s. They won’t get issued any faster. K-1s aren’t delayed because people are sitting around waiting for the due date. They are delayed because the tax law is hard, businesses can be complex, and it takes time to get the work done. On top of that, everybody is on a calendar year, thanks to Congress, so the professionals are trying to get all the returns completed at the same time.

All this means is that more partnership returns will be extended. It won’t get the K-1s out any sooner. The only way to change that is to simplify the tax law and to once again enable pass-throughs to have tax years ending on dates other than December 31.

Additional coverage:

Robert Wood: Many IRS Tax Return Due Dates Just Changed, FBARs Too

Russ Fox, Deadline Changes for 2016 Tax Returns and 2016 FBAR. “It is unclear whether a separate extension for the FBAR will need to be filed. The reference to Treasury Regulation 1.6081-5 is for the automatic two-month extension of time to file for those residing outside the United States, so it appears those who do so reside will have a June 15th deadline for filing the FBAR (with a four-month extension available until October 15th).”

Kay Bell, Highway bill drives home some new tax laws

Paul Neiffer, Tax Return Due Date Changes and Other Items. “For estates required to file an estate tax return, they will now be required to report to the IRS basis information for all assets included in the estate.”

Kyle Pomerleau, Senate Approves Three-Month Highway Trust Fund Extension (Tax Policy Blog).

 

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Congratulations to TaxGrrrl Kelly Phillips Erb. She has ditched tax practice to write on taxes full-time for Forbes.com. Well done!

William Perez, Every State’s Sales Tax Holiday for 2015

Jason Dinesen, New Nebraska Guidance on Same-Sex Marriage and Taxes

Matt McKinney, Do equal, 50/50 shareholders owe each other fiduciary duties? (IowaBiz.com)

Annette Nellen, Importance of lease terms for desired results. “If you want a particular tax result, be sure the lease agreement supports that result.”

Jana Luttenegger Weiler, NFL Decides to Give up Tax-Exempt Status (Davis Brown Tax Law Blog)

 

David Brunori, Michigan’s Wrongheaded Approach to Tax Policy. (Tax Analysts Blog):

Advocates of raising corporate taxes are assuming that people will want to stick it to corporate fat-cat shareholders. This is right out of the ‘‘tax the rich and give to the poor’’ playbook. Except in this case, proponents want to tax the rich and give it to construction contractors.

They want to tax the rich to give it to their friends — and that doesn’t mean the poor.

 

TaxProf, The IRS Scandal, Day 816

 

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Peter Reilly, Judicial Watch Reveals That They Read Tax Blogs At IRS:

At the time Joe Kristan thought that the IRS was wrong to raise the issue and that Senators were right to call the Service to account about it. And this is the part of the document dump that I found most interesting.  Paul Caron summarized Joe’s post  and that was apparently printed out numerous times at the IRS as there are multiple copies in the document dump.

The IRS reads the Tax Update, so you should too!

 

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Tax Roundup, 6/30/15: It’s FBAR Day! Foreign and gaming account owners, do or die.

Tuesday, June 30th, 2015 by Joe Kristan

 

fincen logoForm 114 or bust. Today is the unextendable deadline to file Form 114, the “FBAR” report of foreign financial accounts. It’s required if you own foreign financial accounts whose value reached $10,000 anytime in 2014. Penalties for failing to file can run to half the value of the account, so if it applies, you want to get it done. The form must be filed electronically.

Foreign financial accounts include bank or brokerage accounts held outside, even in an offshore branch of a U.S. bank. They also include online gaming accounts for sites located outside the U.S. More details on what is included is available at the IRS FBAR page.

You will need the mailing address of the branch where your foreign account is located. Russ Fox has done a great job of finding many street addresses for online gaming sites.

Is the Form 114 filing requirement absurd? Yes. The filing threshold is far too low, and it works to make regulatory violators out of Americans living and working overseas for the crime of committing personal finance abroad. Meanwhile, I would be surprised if any actual criminals are actually caught using Form 114; instead, it’s just used to increase penalties on those whose tax violations are found in other ways. Oh, and to extort money out of people who didn’t realize they were supposed to file the thing. Unfortunately, absurdity is what the IRS is all about.

Speaking of absurd, The Commerce Department BE-10 survey for those owning at least 10% of an offshore business is also due for e-filing today, with penalties into the thousands of dollars for non-filers.

Related: Russ Fox, Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

 

Arnold Kling reports on what seems to me a very unwise idea: State Nullification of the Federal Income Tax?, involving the idea of “nullifying” the federal income tax by providing a state credit for whatever the federal income tax is, funded by state sales taxes. Arnold points out some of the obvious problems: “For example, if this were enacted, then residents would have no incentive to minimize their tax liability. Go ahead and realize all of your capital gains, because when you pay more Federal taxes, your state sends you a credit.”

 

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Forest fires in Canada give Iowa a spooky sky today.

 

William Perez, Tax Implications of Supreme Court’s Same-Sex Marriage Ruling. “Together, [Jason] Dinesen and I came up with a list of all the tax things we should be concerned about as a result of the Supreme Court’s decision in Obergefell v. Hodges (pdf).”

Robert D. Flach brings his Tuesday Buzz, along with the less cheerful news that his Gmail account has been compromised. He ponders whether IRS Commissioner Koskinen is worse than his predecessor, Worst Commissioner Ever Shulman. I still give the prize to Shulman, but Koskinen is making a heck of a case for the honor.

Kay Bell, IRS ‘incompetence’ blamed for lost Lois Lerner emails. That’s certainly plausible, but the incompetence all seems to be on the side of hampering the investigation.

Robert Wood, If Uber, FedEx, Other Workers Are Employees, Who Pays What?

Joni Larson, Failing to Prove the Attorney-Client Privilege Applies (Procedurally Taxing). Some conversations you’d rather not share with the IRS.

Peter Reilly, Mario Biaggi’s Criminal Case Followed By Tax Travails. In some ways the tax decision coming on top of the criminal conviction really makes me think there might have been something to Biaggi’s contention that he was a victim of Giuliani’s ambition.  When you look at the big picture of the transactions, nobody seems to have been getting away with anything from an income tax perspective.”

Jason Dinesen, From the Archives: Are Donations to a 501(c)(4) Deductible?

 

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Elizabeth Malm, A Quick Primer on Personal Income Taxes (with GIFs!) (Tax Policy Blog). They’re nice, but no dancing cats. A great little post for anybody wanting an overview of state income taxes.

Gene Steuerle, Combined Tax Rates and Creating a 21st Century Social Welfare Budget (TaxVox).

Dalton Lane, Obergefell v. Hodges: Supreme Court Upholds Same-Sex Marriage (Tax Policy Blog):

The Supreme Court’s ruling has definitely simplified the tax system. Whether a same-sex marriage, or a opposite-sex marriage, the tax treatment is the same. Furthermore, same-sex couples will no longer have any difference in filing status between their state income taxes and federal income taxes.

It will make Jason Dinesen’s life easier, for sure.

Caleb Newquist, PwC Walks a Fine Line Between Its People and Clients on Same-Sex Marriage (Going Concern).

TaxProf, The IRS Scandal, Day 782

 

TaxGrrrl, 8 Signs That It’s Time To Get A New Tax Professional. They are all good signs, especially number 8.

 

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Tax Roundup, 6/29/15: Congratulations, newlyweds, here’s your tax bill! And windy subsidies, IRS stonewalling, more.

Monday, June 29th, 2015 by Joe Kristan

Welcome to the marriage penalty. The Supreme Court has spread Iowa marriage law nationwide. That means more same-sex couples will tie the knot and learn about the sometimes surprising tax results of matrimony. In general, if only one member of the couple has income, it’s a good tax deal, but not so much for two-earner couples. The weird complexity of the tax law means there are lots of exceptions.

The Tax Foundation has an excellent summary of these issues, Understanding the Marriage Penalty and Marriage Bonus. It includes this wonderful piece of abstract art illustrating how marriage can help and hurt a couple’s federal income tax liability:

Marriage penalty tax foundation chart

 

The chart has two axes: the percentage of income earned by each spouse, and the income level. Blue is good, red is bad. If combined income is just short of $100,00, it’s all good, but there is lots of room for tax pain at the top and bottom of the income spectrum for married couples.

Other coverage:

Jason Dinesen, Tax Implications of Friday’s Ruling on Same-Sex Marriage:

This ruling should not have an impact on federal tax returns because couples in same-gender marriages have been able to file as married on their federal tax returns since 2013. This ruling affects state tax returns in states that had bans against same-gender marriage.

Jason, an Iowa enrolled agent, was an early expert in same-sex marriage compliance.

 

TaxProf Blog Op-Ed By David Herzig: The Tax Implications Of Today’s Supreme Court Same-Sex Marriage Decision (TaxProf) “Same-sex couples will now be able to inherit, file joint state tax returns, possess hospital visitation rights and all other state marriage rights as heterosexual married couples.”

Kay Bell, Marriage equality means tweaks to tax code, tax forms. “Sen. Ron Wyden (D-Ore.), the ranking minority member on the Senate Finance Committee, is already working on getting the new nomenclature on the books.”

TaxGrrrl, SCOTUS Legalizes Same Sex Marriage But Questions Remain For Religious Groups & Tax Exempts

 

Wind turbineWindy Subsidy Signed. Governor Branstad has signed HF 645, which establishes a tax credit for wind energy. The credit is 50% of the similar federal credit, up to $5,000. It takes effect retroactively to 2014, giving a windfall to people who bought qualifying systems already. It will do nothing for the environment, but it will do wonders for companies selling wind energy systems.

 

 

 

Christopher Bergin, Why We Just Sued the IRS – Again (Tax Analysts Blog):

For more than two years the IRS has played its old game of hide the ball regarding requests to release Lois Lerner’s e-mails — e-mails that would teach us a lot about what actually went on during the exempt organization scandal. Many of those requests came from the United States Congress: the elected officials who control the IRS budget. The IRS’s stalling tactics have run the gamut from eye-rollingly comical to downright disturbing.

Through this and and other worrisome developments, one thing is clear: the IRS is now in desperate trouble. Most of that trouble it created itself. It would be unfair to call them the gang that couldn’t shoot straight, because when it comes to shooting itself in the foot the IRS is an expert marksman. The IRS is an agency whose initial reaction to almost anything is secrecy.

The IRS needs a big culture change, one starting with a new Commissioner.

 

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Associated Press, Ex-Rep. Mel Reynolds indicted on tax charges. Can you believe a Chicago politician who would sleep with a 16-year old campaign worker would also cheat on his taxes?

 

Russ Fox, A Peabody, Massachusetts Tax Preparer Gives an Unwitting Endorsement for EFTPS:

Mr. Ginsberg operated a traditional payroll service. It’s fairly easy to check on your payroll company if you use such a service: Enroll in EFTPS. Using EFTPS you can verify that your payroll company is making the payroll deposits they say they are. That’s a good idea–trust but verify. The DOJ Press release notes:

To cover up his scheme, Ginsberg falsified his clients’ tax returns, which he was hired to prepare, indicating that the clients’ payroll taxes had been paid in full, when they had not. When asked by clients about their mysterious IRS debts, Ginsberg gave them a litany of false excuses, including blaming the IRS and his own staff.

None of those excuses work hold up with EFTPS. Today, payroll tax deposits with the IRS are all made electronically. Is it possible for one to get messed up? Yes, but it’s very unlikely. Indeed, most payroll companies just make sure the deposits are made from your payroll bank account.

If you outsource your payroll tax, insource regular visits to EFTPS to make sure your payments are made.

 

Peter Reilly, SpongeBob SquarePants In A Tax Case!

Tony Nitti, Sloppy Drafting Saves Obamacare – Supreme Court Upholds Tax Subsidies For All. I think it was more sloppy judging than sloppy drafting that did the trick.

Keith Fogg, Aging Offers in Compromise into Acceptance (Procedurally Taxing).

Jack Townsend, Rand Paul and Expatriates to Sue IRS and Treasury Over FBAR and FATCA. They want both to be declared unconstitutional. Unfortunately, it seems like a anything the IRS wants is constitutional anymore.

TaxProf, The IRS Scandal, Day 779Day 780Day 781. Still trying to shake out the “lost” emails after 781 days. You’d think they were stalling or something. And efforts to impeach Commissioner Koskinen. It’s not going to happen, but if he had any shame, he would have resigned long ago.

Richard Auxier, Michigan, out of ideas, might ask poor to pick up transportation tab (TaxVox).

 

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Quotable:

The pledge, the brainchild of Grover Norquist, president of Americans for Tax Reform, is a terrible idea for several reasons. First, no leader should promise never to raise taxes because, frankly, there are times when it is necessary. Over 50 Kansas legislators and Brownback, who have signed the pledge, found that out last week. I agree with Norquist philosophically; less government is good. But the pledge only leads to more debt at the federal level and gimmicks in state governments.

David Brunori, Tax Analysts ($link)

 

Career Corner. EY Employee Has Eaten So Many Hours, He’s Gone on Hunger Strike (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/26/15: Supreme Court saves ACA subsidies — and taxes.

Friday, June 26th, 2015 by Joe Kristan

 

supreme courtThe Supreme Court upholds new punitive taxes on thousands of Iowa employers and uninsured individuals. That’s the flip side of the decision yesterday ruling that tax credits remain available for health insurance purchased on the federal exchanges, despite the language of the Obamacare statute — a ruling characterized by the Des Moines Register as “Obamacare ruling protects 40,000 Iowans’ subsidies.

Here’s what it means to those footing the bill:

– The employer mandates will take effect in all states as scheduled. The “Employer Shared Responsibility provisions” require employers to purchase “adequate” health coverage for employees.  It applied in 2014 to employers with over 100 “full-time equivalent” employees in 2013.  In 2015, it applies to employers who had over 50 full-time equivalent employees in 2014. It applies to government and non-profit employers, as well as to businesses.

Employers who fail to offer coverage to 95% of their FTEs and dependents are subject to a $2,000 penalty, pro-rated for months where coverage is lacking, for non-covered FTEs, with a 30-employee exemption. “Full-time Equivalent” means 30 hours per week.

The penalties kick in only if at least one employee claims the coverage tax credit. Yesterday’s decision ensures the mandate applies in all states — rather than just the 14 with state-run exchanges — because the triggering credits will remain available nationwide.

The individual mandate tax applies fully in all states. The “Individual Shared Responsibility Provision” penalizes individuals who aren’t covered at work and who fail to purchase “adequate” and “affordable” coverage. The penalty for 2015 is the greater of $325 ($162.50 for those under 18) or 2% of “household” income. It is prorated if coverage is obtained for some months and not others.

Yesterday’s decision broadens the reach of the tax because the penalty only applies if available coverage is “affordable.” The tax credits are used in computing “affordability,” so the availability of the credits nationwide broadens the tax to many more taxpayers.

20121120-2The Section 36B tax credit remains available nationwide. This is the refundable credit that was the subject of yesterday’s decision. It is estimated when coverage is obtained and applied against coverage costs for the year. It is “trued up” when the taxpayer files their 1040 for the coverage year — a process that can sometimes mean more credit, but that sometimes triggers a big balance due.  Because the credit phases out in steps, one extra dollar of income can trigger thousands of dollars of additional taxes:

Consider a middle-aged married couple earning $62,040, 400 percent of the FPL for a two-person household ($15,510.) If the second cheapest Silver plan in their area costs $1,200 per month, they would receive a subsidy of $8,506 in order to cap that plan’s price at 9.5 percent of their income. However, if they earned $62,041—only a dollar more—the entire subsidy would evaporate. 

Because the $8,506 would have been applied to health premiums, the household would have to pay it back on April 15.

What do I think of the decision? In March I wrote:

In a less politically-sensitive context, one could expect a 9-0 or 8-1 decision against the IRS. That’s what happened in Gitlitz, where the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

That means I think the Scalia dissent gets it right, but we don’t get to file tax returns based on the dissent. It should give pause to those who write legislation, though — there’s no telling how the Supremes will read their work if they don’t like what it does.

Other coverage:

William Perez, What You Need to Know about the Premium Assistance Tax Credit

TaxGrrrl, Supreme Court Upholds King, Says Obamacare Tax Credits Apply To All States

Kay Bell, Let the Affordable Care Act repeal efforts begin (again)

Hank Stern, SCOTUScare Fallout. “Obamacare Ruling May Have Just Killed State-Based Exchanges

Andy Grewal, Grewal: King v. Burwell — The IRS Isn’t An Expert? (TaxProf Blog)

Tyler Cowen, King vs. Burwell, and other stuff. “So on net I take this to be good news, although arguably it is bad news that it is good news.”

Megan McArdle, Subsidies and All, Obamacare Stays

Alan Cole, James Kennedy, King v. Burwell: Supreme Court Upholds Subsidies to Federal Exchanges (Tax Policy Blog)

Roger McEowen,  The U.S. Supreme Court and Statutory Construction – Words Don’t Mean What They Say (AgDocket)

 

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Stuff other than the Supreme Court decision:

Jason Dinesen, Choosing a Business Entity: Sole Proprietor

Joseph Thorndike, Rand Paul’s Tax Plan May Be Radical, But It’s Not Impossible (Tax Analysts Blog) “But radical doesn’t mean impossible. Since proportionality lies at the heart of Paul’s plan, history suggests it might have a shot.”

Ethan Greene, Net Investment Income Tax Handicaps Those Meant to Benefit (Tax Policy Blog). “The irony of the NIIT is it taxes the very demographic it was intended to aid; that is, retirees relying on their savings and investment, and those with disabilities, counting on trust income or estate inheritance to maintain their quality of life.”

Donald Marron, Everything You Should Know about Taxing Carbon. (TaxVox)

TaxProf, The IRS Scandal, Day 778

Caleb Newquist, The Accounting Profession’s Murky Future (Going Concern)

 

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Tax Roundup, 6/24/15: New obscure dumb forms we choose to do together. And: Wine and Taxes!

Wednesday, June 24th, 2015 by Joe Kristan

20150528-1There’s a new stupid form in town. The Commerce Department this year springs a new form on people with interests in foreign businesses. Form BE-10 was originally due May 31, but the system for filing it crashed, leading to a new June 30 deadline.

BE-10 is a survey, not a tax form. The survey is done every five years, and formerly was required only when you were contacted by the Commerce Department. Now everyone with a 10% or more “direct or indirect” interest in a foreign business is supposed to file it. From Accounting Today:

The form is mainly intended for businesses with foreign investments. Originally individuals only had a filing requirement if they were directly contacted by the bureau, but last November, the government amended its regulations to require any U.S. person who had at least a 10 percent direct or indirect interest in a foreign business enterprise at any time during the U.S. person’s fiscal year to file the Form BE-10. A U.S. person includes individuals, trusts, estates, corporations and partnerships.

“With many of our clients fighting the IRS over FBAR penalties, we err on the side of filing whenever the government requests a U.S. person to file an international information report,” said Carolyn Turnbull, international tax services director at Vestal & Wiler CPAs in Orlando, Fla.

Penalties for failure to file the form range from $2,500 to $25,000. Even worse, individuals who willfully fail to file the form can face fines of up to $10,000 or imprisonment for a maximum of one year, or both.

$2,500 to $25,000 for not filling out a stupid survey. Remember, government is simply a word for the things we decide to do together, like clobber each other with big fines for obscure paperwork violations.

Robert Wood has more.

 

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Kay Bell, Uncle Sam demands foreign bank account filing by June 30. The $10,000 threshold — and the whole FBAR regime, in fact — is absurd. Like so many regulations, it ensnares otherwise innocent people for paperwork violations while doing next to nothing to affect criminals, who don’t much care about getting the paperwork right.

Robert Wood, Offshore Banks Reveal Account Data, As IRS Amnesty For Many Involves 50% Penalty. Some amnesty.

Russ Fox, FBAR Due in One Week:

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

Russ performs a valuable public service with this address list.

 

 

Samantha Jordan, Scott Drenkard, How High are Wine Taxes in Your State? (Tax Policy Blog). In Iowa, pretty dang high:
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Considering it’s burgeoning wine industry, it’s surprising that there hasn’t been more effort to bring Iowa’s wine tax down. And some of the new Iowa wine isn’t half bad.

 

Jason Dinesen, Marriage in the Tax Code, Part 11: Meet the “Single Penalty”

Peter Reilly, Chief Counsel Gives Narrow Scope To Partnership Liability Regulations. “Note, here, that the taxpayers were insolvent and the field is being told to look harder for a possibly larger assessment.”

Tony Nitti, Tax Geek Tuesday: Navigating The Multiple Definitions Of Nonrecourse And Recourse Liabilities

 

Carl Smith, Does Rev. Proc. 99-21 Validly Restrict Proof of Financial Disability, for Purposes of Extending the Refund Claim SOL, to Letters From Doctors of Medicine or Osteopathy? Part 1.

TaxGrrrl, Nevada Pops New Tax On Burning Man, iHeartRadio, Other Music Festivals

 

David Brunori, Rand Paul’s Tax Ideas Are Worth Serious Consideration (Tax Analysts Blog). 

Sen. Rand Paul, R-Ky., a GOP presidential candidate, released his tax plan last week. As expected, some commentators piled on criticism. Howard Gleckman of the Urban Institute said Paul was trying to use the tax proposal to “fundamentally restructure the federal government as we know it.” Bob McIntyre, the director of Citizens for Tax Justice, said Paul’s plan would cost $15 trillion over 10 years. Other, less informed folks resorted to calling Paul names.

This criticism from liberals is neither unexpected nor irrational. These are folks who like to see more government spending and revenue raising. Paul is a small government Republican. Of course he wants to see less government and taxes. So it’s not surprising that his tax plan would, in a vacuum, lose the government money. The Tax Foundation says the cost would be $3 trillion over 10 years on a static basis. But that assumes Paul will keep spending at current levels. I suspect that if he became president, he’d support spending cuts equal to or greater than the cost of his tax plan.

I certainly would.

 

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Howard Gleckman, CBO Has No Idea What Repeal of the ACA Means for the Economy or the Deficit (TaxVox). No more idea than when they said the ACA wouldn’t increase the deficit back when it was enacted.

 

Ethan Greene, Alaska Ends Film Tax Credit Program (Tax Policy Blog). States are beginning to realize that they are being had by the film industry.

TaxProf, The IRS Scandal, Day 776:

In the continuing saga of the IRS, the Department of Justice, and their efforts to hide evidence and obstruct justice to protect Lois Lerner and the administration’s targeting of its political opposition, the IRS now claims that thousands of emails found on backup tapes Commissioner Koskinen told Congress did not exist are not IRS records, the IRS has no control over them, and they can’t produce them. 

The IRS has done nothing but obstruct and stonewall. If a taxpayer treated an IRS exam the way the IRS has treated this investigation, they’d be inviting the criminal agents in.

 

News from the Profession. Life at Deloitte Includes Slow Days (Caleb Newquist, Going Concern).

 

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Tax Roundup, 6/22/15: Iowa shovels more economic development fertilizer. And: Paul flat tax fever!

Monday, June 22nd, 2015 by Joe Kristan

 

20120906-1It’s getting deep. The giant pile of tax credits for the big Lee County fertilizer plants got a little deeper last week. The Iowa Economic Development Board Friday voted for an additional $21.5 million in tax credits for the project. The Quad City Times compares that appropriation to other state spending:

Iowa’s elected legislators negotiated for five months on Iowa school funding, before reaching a compromise that provided $55 million in one-time money that will only assure the status quo: No one expects improvements.

On Friday, Gov. Terry Branstad’s Iowa Economic Development Board added another $21.5 million in tax credits to the $85 million in state incentives already lavished on a foreign fertilizer company under construction in Lee County.

No legislative vote.

No deliberation by elected officials.

Not even a hint of how this new pile of Iowa taxpayer money will help Iowans. Representatives of the parent firm Orascom, of Egypt, said the $21.5 million in tax credits will add 11 jobs to the 180 expected at the plant.

This latest giveaway brings local, state and federal taxpayer investment to $500 million in the $1.9 billion project. That’s right, taxpayers are covering 25 percent of Orascom’s project.

So almost $2 million per “job.” And that assumes they wouldn’t have completed the project without a little more cash from the state, which is improbable. That’s $21.5 million from those of us without connections at the state to fertilize an already richly-subsidized project. We can be confident that some wee portion of that $21.5 million will go to attorneys and consultants who pulled the strings to make it happen.

The state board also wasted $8 million in tax credits on ribbon cutting opportunities in Sioux City involving a convention center and hotel — which experience nationwide shows will be a fiscal nightmare. Because who better to allocate investment capital than politicians who are spending other people’s money?

Iowa’s cronyist tax credit boondoggle is long overdue for the scrapyard. It lures and subsidizes the influential and the well-lobbied at the expense of their less well-connected competitors and their employees. It’s time for something like the Quick and Dirty Iowa Tax Reform Plan to improve Iowa’s abysmal business tax climate for everyone — not just the cronies.

 

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Russ Fox, Arbitrage Is Legal, But You Better Pay the Taxes. It looks at the tax troubles of a recently-indicted Tennessee politician.

Annette Nellen, Uber, Lyft and others – worker classification in the 21st Century. I used Uber over the weekend visiting my son in Chicago, and it’s pretty slick. It’s also here in Des Moines. A few weekends ago, my other son was playing music in the Court Avenue entertainment district on the street and an Uber driver stopped, got out a guitar, and started jamming with them. That doesn’t sound like an employee to me.

Kay Bell, Tax gift for Father’s Day: help paying for child care

Jason Dinesen, Iowa Adoption Credit and Special-Needs Adoptions

Peter Reilly, Joan Farr Claims IRS Denial Of Exempt Status Is Example Of Persecution Of Christians

 

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Presidential Candidate Rand Paul has proposed a 14.5% flat tax. I haven’t had a chance to study it, but its base-broadening, rate-lowering approach is promising. The Tax Policy Blog looks at the plan in The Economic Effects of Rand Paul’s Tax Reform Plan (Andrew Lundeen, Michael Schuyler) and No, Senator Paul’s Plan Will Not ‘Blow a $15 Trillion Hole in the Federal Budget’ (Kyle Pomerleau). The second one is in response to Bob McIntyre’s post in Tax Justice Blog, Rand Paul’s Tax Plan Would Blow a $15 Trillion Hole in the Federal Budget.

Howard Gleckman, Rand Paul’s Tax Cut Isn’t Quite What It Seems (TaxVox)

 

TaxProf, The IRS Scandal, Day 771Day 772Day 773, Day 774.

News from the Profession. Ex-BDO CEO’s Quest to Get Firm to Pony Up for His Legal Bills Not Going So Well (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 6/18/15: Bill protecting multi-state employees advances. Also: crowdfunding taxes, poker reporting and lots more!

Thursday, June 18th, 2015 by Joe Kristan

 

Programming Note: No Tax Roundup tomorrow. See you Monday!

 

20140923-1The House Judiciary Committee advanced three bills: The Digital Goods and Services Tax Fairness Act (H.R. 1643), The Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315), and The Business Activity Tax Simplification Act (H.R. 2584).  Joseph Henchman provides some explanation in Activity in Congress on Key State Tax Bills (Tax Policy Blog):

The Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315) limits states from imposing or collecting individual income tax on those who are in the state for less than 30 days. Most states technically require such payments when someone is in the state for even a day, and even withholding to be set up in advance, and we’re increasingly hearing horror stories of states trying to collect these sums. Since all states provide a credit for taxes paid to another state, making people fill out 20 or 30 tax returns for a net national wash is lunacy. Most everyone, except New York officials and state tax administrators, support this legislation…

The Digital Goods and Services Tax Fairness Act (H.R. 1643) establishes national standards for when and how states can tax digital goods and services…

The Business Activity Tax Simplification Act (H.R. 2584) limits state power to impose corporate income taxes and gross receipts taxes to businesses with physical presence in the state for at least 14 days. While that is the historical standard, states have begun shifting to an “economic nexus” standard, imposing taxes on businesses with no connection to the state except that they have sales there. This exporting of tax burdens adds complexity, litigation, compliance costs, and uncertainty. We hear lots of horror stories of states suddenly imposing years’ of back taxes on companies who had no expectation of owing taxes in that state because they have no property or employees there.

Iowa is among the states aggressively going after out-of-state businesses with very weak ties to the state.

The Digital Goods act seems the least controversial, so the most likely to advance. The Mobile Workforce bill — a long overdue effort to save cross-state workers from expensive annual compliance nightmares — passed 23-4, opposed only by three New Yorkers and a Californian. That’s a sign that it could advance. The Business Activity Simplification Act passed only on a party-line vote, which means it is likely doomed for this session of Congress.

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Jason Dinesen, Same-sex Marriage and Paycheck Withholdings – An Unpleasant Surprise on 2014 Tax Returns. “Some of my clients went from getting a refund of several-thousand dollars in prior years to owing several-thousand dollars on their 2014 tax return.”

TaxGrrrl, Crowdfunding As An Investment Tool: Is Trouble Brewing? If the proceeds are a “gift,” they are non-taxable, but it’s not clear that they qualify.

Robert Wood, Amazingly, IRS Collects 30 Year Old Tax Debt Despite 3 Year Statute Of Limitations. This shows how hard it is to shake off liability for unpaid payroll taxes. It reminds us how unwise it is to “borrow” withheld taxes from the IRS.

Russ Fox, Form 8300 and Poker:  “If you’re a business and you receive a payment of $10,000 or more in cash or like funds (this would include casino chips but would not include a cashier’s check), you have a reporting requirement: You must file Form 8300 with the IRS.”

Kay Bell, IRS looks at $600 slots, bingo & keno reporting threshold

Jack Townsend, On Ignorance – Deliberate or Otherwise. Sometimes, when telling clients that they did something that will cost them taxes, I have gotten the feeling the client wished I was a little more ignorant.

Mitch Maahs, National Society of Accountants Proposes a Tax Practitioners Bill of Rights (Davis Brown Tax Law Blog). “While this Bill of Rights would represent a vast improvement for tax practitioners and their clients, the gravity of these improvements in customer service, combined with the crippling level of IRS budget cuts, may render the Tax Practitioners Bill of Rights an unattainable goal.”

 

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Joseph Thorndike, First They Taxed Soda; Now They’re Coming for Your Water (Tax Analysts Blog). First they tax pop, and now they want to discourage a healthy and convenient alternative to sugary drinks. What they really want is more money and more power over the people foolish enough to keep electing them.

TaxProf, The IRS Scandal, Day 77. E-mail stalling figures prominently.

That can’t be true. It was the “Affordable” Care Act. Five Years Later: ACA’s Branded Prescription Drug Fee May Have Contributed to Rising Drug Prices (Scott Greenberg, Tax Policy Blog).

Renu Zaretsky, On Havens and Stalemates. Today’s TaxVox talks about Wal-Mart’s tax structure, an EU tax haven “blacklist,” and a TIGTA report on how budget cuts are affecting IRS enforcement efforts. Also, a lame employment tax credit plan from Hilary Clinton.

 

Career Corner. Donald Trump’s Accountants Should Quit (Caleb Newquist, Going Concern)

It’s a good day.

 

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Tax Roundup, 6/16/15: Extreme tax preparer business development tactic fails. And: Florida man, meet Tax Whiz.

Tuesday, June 16th, 2015 by Joe Kristan

 

lizard20140826Sadly, there’s plenty of tax work to go around. But not enough for Maria Colvard of Chambersburg, Pennsylvania, it seems. The operator of Tax Max LLC, a tax prep service, Ms. Chambers appears to taken competition to a new level. From a Department of Justice press release (my emphasis):

According to U.S. Attorney Peter Smith, between February and May 2013, Colvard convinced an employee at Tax Max LLC, a tax preparation service owned by Colvard in Chambersburg and Hanover, Pennsylvania, to claim to be a criminal investigator with the Internal Revenue Service to shut down the rival business, known as Christina’s Tax Service, also located in Chambersburg.  The employee, Merarys Paulino, then claimed to be an IRS agent and demanded money from Christina’s Tax Service as well as its client list. Paulino previously entered a guilty plea to impersonating an IRS agent and cooperated in the prosecution of Colvard.

It’s foolproof! What could go wrong? Well, other than that a tax professional would be the least likely person in the world to believe an IRS criminal investigator would just show up without a written notice and demand cash and a client list on the spot. In Pennsylvania, as in Iowa, law enforcement folks don’t spend their days chasing geniuses.

Ms. Colvard was convicted of two counts of extortion and one count of “aiding the impersonation of an employee of the United States” after a four-day trial.

 

Jason Dinesen, Choosing a Business Entity: Basic Terminology

Robert Wood, FedEx Settles Independent Contractor Mislabeling Case For $228 Million

Hank Stern, On “Losing” Subsidies. “The fact of the matter is, should SCOTUS insist that the law be applied as it was written, then folks in states using the 404Care.gov site were never eligible to receive subsidies in the first place.”

Peter Reilly, Exchange Facilitator Does Not Beat Missouri Use Tax On Learjet. “What they learned was that a transaction that qualifies for tax deferral under federal tax principles does not necessarily avoid sales and use tax.”

Kathryn Sedo, Counsel for Ibrahim Explain Last Week’s Important Circuit Court Opinion on Filing Status (Procedurally Taxing). “The question before the 8th Circuit in Isaak Ibrahim v. Commissioner was whether the term ‘separate return’ as used in section 6013(b) is defined as return with the filing status ‘married, filing separately’ or a tax return with any other filing status other than ‘married, filing jointly.'”

Kay Bell, Houston, we could have more flood problems. “OK, how did I wake up today in my Austin house but in South Florida?”

 

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Greg Mankiw, considering arguments made by Export-Import Bank supporters, says:

Other countries give similar subsidies to their firms. So what? If other nations engage in corporate welfare, that is no reason for the United States to follow suit in the name of a level playing field.  We don’t need to import other nations’ bad policies.

Substitute “states” for “countries” and “nations” and it is an accurate summary of the foolishness of the state tax credit “incentive” game played by Iowa economic development officials and politicians.

Jeremy Scott, Can the United States Kill BEPS? (Tax Analysts Blog). ” The United States will probably never go along with BEPS the way the rest of the world has gone along with FATCA, but in the end that probably won’t matter. The EU, India, and China will be perfectly happy to find a way to preserve their tax base without U.S. help.”  “BEPS,” by the way, stands for “Base erosion and profit shifting,” the predictable and natural response of taxpayers to pocket-picking tax authorities.

Kayla Kitson, Four Reasons to Expand and Reform the Earned Income Tax Credit (Tax Justice Blog). I don’t buy it. With 25% of its cost going to ineligible people — and no small part of that to thieves — it is at best very inefficient. The post doesn’t even mention the poverty trap created by the way the credit phases out as incomes rise.

TaxProf, The IRS Scandal, Day 768. “The court filing, provided to The Daily Caller, claims the IRS received new Lerner emails from the Treasury Department’s inspector general (TIGTA) but can’t fork over the emails to Judicial Watch, a nonprofit group suing to get the emails. Why? Because the IRS is busy making sure that none of the emails are duplicates  – you know, so as not to waste anyone’s time.”

Renu Zaretsky, Raising or Cutting Taxes: Go Big or Go Home. Today’s TaxVox headline roundup covers presidential candidate tax pledges, as well as tax developments in Kansas, Texas, Florida, New Mexico and Massachusetts.

 

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Florida man meets Tax Whiz. A Florida man filed a tax return prepared by the “Tax Whiz” claiming the American Opportunity Tax Credit. The result was a $1,853 overpayment that the IRS applied to outstanding child support liabilities. The IRS later determined that he didn’t qualify for the credit because he had no qualifying educational expenses. The IRS wanted its $1,843 back.

The man argued that Tax Whiz claimed the credit unbeknownst to him, so he shouldn’t have to pay it back. The Tax Court wasn’t buying:

By his own admission petitioner did not review the return in question. Reliance on a tax return preparer cannot absolve a taxpayer from the responsibility to file an accurate return. See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987) (“As a general rule, the duty of filing accurate returns cannot be avoided by placing responsibility on a tax return preparer.”). Even if Tax Whiz may have claimed the credit without his knowledge, petitioner is still responsible for the resulting deficiency.

The moral? Not a surprising result.  You are responsible for what goes on your return, no matter how much, or how little, you pay your preparer. More surprising is that the taxpayer’s first and middle name is listed as “William Billy.”  I’ve never seen that one.

Cite: Devy, T.C. Memo 2015-110.

 

 

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Tax Roundup, 6/15/15: IRS declines to make estate tax easy for surviving spouses. And: New ID theft measures!

Monday, June 15th, 2015 by Joe Kristan

Due Today: Second Quarter estimated tax payments; returns for U.S. citizens living abroad.

 

Funeral home signIRS declines to make the estate tax portability election easy. There’s no such thing as a joint estate tax return. That means if one spouse has all of the assets, the other spouse’s lifetime estate tax exemption — $5,430,000 for 2015 deaths — can be lost.

Congress changed the tax law to allow a surviving spouse to inherit the deceased spouse’s unused estate tax exemption, for use on when the surviving spouse files an estate tax return. unfortunately, this treatment is not automatic. It is only available if a Form 706 estate tax return is filed for the first spouse to die. The IRS on Friday issued final regulations rejecting any short-cuts in this process.

There are many problems with this approach. The most obvious is the lottery winner problem. A couple might be living in a trailer, and when the first spouse dies, there seems to be no point in filing an estate tax return when their combined assets are a small fraction of the amount triggering estate tax. Then the surviving spouse wins the Powerball, and suddenly the first spouse’s estate tax exemption becomes very valuable — but it’s lost, because no return was filed.

The IRS rejected allowing any pro-forma or short-cut estate tax returns for such situations:

The Treasury Department and the IRS have concluded that, on balance, a timely filed, complete, and properly prepared estate tax return affords the most efficient and administrable method of obtaining the information necessary to compute and verify the DSUE amount, and the alleged benefits to taxpayers from an abbreviated form is far outweighed by the anticipated administrative difficulties in administering the estate tax. In

The IRS did say it would be generous in allowing “Section 9100” late-filing relief for taxpayers who die with assets below the exclusion amount, but they did not provide any sort of automatic election. The result is a trap for the unwary executors of small estates.

Cite: TD 9725

 

20130419-1IRS announces ID-theft refund fraud measuresThe IRS last week announced (IR-2015-87) steps it promised in March to fight refund fraud in cooperation with tax preparers and software makers:

The agreement — reached after the project was originally announced March 19 — includes identifying new steps to validate taxpayer and tax return information at the time of filing. The effort will increase information sharing between industry and governments. There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to identify fraud schemes and locate indicators of fraud patterns. And there will be continued collaborative efforts going forward.

The most promising of the steps:

Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:

-Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.

-Reviewing computer device identification data tied to the return’s origin.

-Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.

-Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

These are important because they might actually prevent fraudulent refunds from being issued. Measures to help identify fraud after it happens don’t do much, especially when the fraud occurs abroad. Catching the fraudulent returns before the refunds are issued is the only way to really deal with the problem, and the only way to keep innocent taxpayers whose identification has been stolen from having to go through the annoying and sometimes lengthy process of recovering their overpayments.

The sad thing – I see nothing here that couldn’t have been done five years ago, when ID theft refund fraud was already becoming a problem. But the Worst Commissioner Ever was too busy trying to impose preparer regulations on behalf of the big franchise tax prep outfits to pay attention. Priorities.

 

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Bob Vineyard, Best Kept Secrets About Obamacare (Insureblog). “About half of those living in Kentucky and classified as poor were not aware of the basics of Obamacare.”

TaxGrrrl, Spain’s King Felipe Strips Sister Of Royal Title As Tax Evasion Charges Proceed. What good is being regal if things like this happen?

Annette Nellen, Tax reform for 2015? Seems unlikely

Kay Bell, Lessons learned from being tax Peeping Toms

Jason Dinesen, Marriage in the Tax Code, Part 10: Filing Statuses Arrive in 1948

Peter Reilly, Why Is Multi-State Tax Compliance So Hard? “Don’t get me wrong.  I believe that the prudent thing is to try to be in pretty good, if not perfect, compliance.  Just don’t expect anybody to make it really easy any time soon.”

Robert Wood, Beware Tax Cops At Farmers’ Markets

 

20120816-1Joseph Henchman, State of the States: Special Session Edition and Kansas Approves Tax Increase Package, Likely Will Be Back for More (Tax Policy Blog). Mr. Henchman rounds up end-of-session tax moves from around the country. Kansas may have made the biggest changes, including a small retreat from its exemption of pass-throughs from the income tax:

Kansas in 2012 completely exempted the income from such individuals, who now total over 330,000 exempt entities. Efforts to repeal this unusual and non-neutral total exclusion of pass-through income earned a veto threat from Governor Brownback. The guaranteed payments provision is estimated to generate approximately $20 million per year.

Taxing guaranteed payments will hardly plug the fiscal hole created by the blanket pass-through exemption. Joseph concludes: “But overall, it is a grab bag of ideas that does little to address the problems underlying Kansas’s tax and budgetary instability. Absent more fundamental changes, legislators will likely have to return in coming years to address budget gaps.”

 

Norton Francis, How Would the Kansas Senate Close the State’s Budget Gap? Mostly by Taxing Poor People (TaxVox)

 

TaxProf, The IRS Scandal, Day 765The IRS Scandal, Day 766The IRS Scandal, Day 767

 

Career Corner. Reminder: Parents Meddling in Your Careers Will Not Help You (Caleb Newquist, Going Concern)

 

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Tax Roundup, 6/8/15: Hush money edition. And: IRA invests in IRA owner’s business, disaster ensues.

Monday, June 8th, 2015 by Joe Kristan
"Dennis Hastert 109th pictorial photo" by United States Congress - Licensed under Public Domain via Wikimedia Commons

“Dennis Hastert 109th pictorial photo” by United States Congress – Licensed under Public Domain via Wikimedia Commons

The TaxProf and I are cited in a New York Times article on the tax implications of former House Speaker Hastert’s hush money scandal: If Hastert Was Extorted, He Could Deduct Some Losses From His Taxes.

Mr. Hastert has been indicted on charges of “structuring” deposits to avoid reporting rules as part of a plan to pay for silence from “Individual A” for alleged sexual contact pre-Congress. From the article:

While extortion payments would be taxable for Individual A, they would actually be partly deductible for Mr. Hastert, said Paul Caron, a tax law professor at Pepperdine University. It’s right there in I.R.S. Publication 17, Chapter 25: You get to deduct losses because of theft, to the extent those losses exceed 10 percent of your adjusted gross income. Blackmail and extortion count as theft.

But to claim the deduction, Mr. Hastert would have to convince the I.R.S. or a court he had been extorted, which could be difficult.

”Sometimes judges will find a way to disallow deductions for what they find unsavory behavior,” said Joe Kristan, a tax accountant with the Roth C.P.A. firm. He noted a case in which a divided Ninth Circuit panel denied a tax deduction for extortion to a man who said he paid hush money to his mistress.

For the record, I have no personal experience in deducting extortion and hush money payments.

Related: Jack Townsend, Article on Structuring to Avoid Bank Currency Reporting Requirements, on the structuring charges of the Hastert case.

 

No Walnut STTaxpayer’s IRA-owned corporation leads to tax disaster. The Eighth Circuit appeals court has upheld horrendous tax penalties against a taxpayer who had an IRA capitalize his business as an investor.

A Mr. Ellis rolled his 401(k) plan into an IRA, which invested about $310,000 in CST, a C corporation. CST started an auto dealership and employed Mr. Ellis as General Manager. That led to unfortunate tax results. From the court opinion (my emphasis):

The tax court properly found that Mr. Ellis engaged in a prohibited transaction by directing CST to pay him a salary in 2005. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. See 26 U.S.C. § 4975(c)(1)(D), (E); 29 C.F.R. § 2509.75-2(c) (“[I]f a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation . . . will ordinarily be a prohibited transaction if the plan may, by itself, require the corporation . . . to engage in such transaction.”)

While the investment itself wasn’t ruled a prohibited transaction, things got messy once the IRA-owned corporation started paying Mr. Ellis a salary — an “indirect transfer” occurred.

The consequences? The prohibited transaction terminated the IRA. That means the whole value of the IRA became taxable income, with no cash made available to cover the taxes. With penalties, the bill will exceed $160,000.

The Moral? Direct business investments from IRAs are dynamite. If you must use retirement plan funds for a business start-up, it may be wiser to take a taxable withdrawal and use the after-tax funds to make the investment. If there is any way to fund it without retirement plan funds, that would be wiser still.

Cite: Ellis, CA-8, No. 14-1310 

Prior coverage here.

 

20150528-1Margaret Van Houten, Legislature Passes Bill Affecting Iowa Trusts and Estates (Davis Brown Tax Law Blog).  “Beginning on July 1, 2016, a step grandchild will no longer be subject to Iowa Inheritance Tax.  Currently, direct ancestors and descendants, including stepchildren, were exempt from the tax, while step grandchildren were grouped with other individuals, such as siblings, nieces and nephews and unrelated individuals and were subject to the tax.”

TaxGrrrl, The Not So Skinny On National Doughnut Day. That’s every day!

Jason Dinesen, Breakeven Analysis for Small Businesses — Service Providers and Not-for-Profits

Annette Nellen, More on marijuana businesses and tax ethics. “Despite state actions, the production, sale and use of marijuana is a crime under federal law. Thus, for licensed practitioners, there is concern about ethical violations of helping someone commit a crime.”

Kay Bell, H&R Block explores virtual tax preparation.

Peter Reilly, A New York Day Is Like A New York Minute At Least For Taxes:

In the case of John and Janine Zanetti, the New York Supreme Court Appellate Division agreed with the Commissioner of Taxation and Finance that a New York day can be less than 24 hours.  The point of the decision was to determine whether the Zanettis had spent enough time in New York to be considered statutory residents for the year 2006.

Lovely.

Jim Maule asks Is the Federal Income Tax Progressive? He focuses on the “low” federal effective rate on the “Top .001%.” Of course, the reason people get to those rates is normally because of a one-time event, typically the sale of a corporation, that is taxed at long-term capital gain rates. Such taxpayers are normally at that income level only once in their life. Of course, Prof. Maule ignores the built-in double tax hidden in these figures.

Leslie Book, DC Circuit Criticizes Government in Case Alleging an Israel Special Policy for Tax Exemptions (Procedurally Taxing). “As IRS has increased responsibility beyond its paramount mission of collecting revenues, the historical reasons for the discretion IRS has exercised have lessened.”

Robert Wood, Are On Demand Workers Independent Contractors In Name Only?

Tony Nitti, Put It On The Card! Congressman Proposes To Make Credit Card Debt Forgiveness Tax Free

Russ Fox, Another Las Vegas Preparer Gets In Trouble Over the Foreign Earned Income Exclusion. “I’d say it was something in the water but Las Vegas is in a desert.”

 

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TaxProf, The IRS Scandal, Day 758Day 759Day 760. The IRS treatment of the Tea Partiers is compared and contrasted with that of the Clinton Foundation.

 

Arnold Kling, Payroll Taxes in Europe. ” I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.”

David Henderson responds:

I don’t find it hard to reconcile the two. The reason: Germany has had high payroll tax rates for a long time–for decades, actually. So real wages have had a long time to adjust.

I understand this as saying the total employment cost is about the same, but the employee gets less of it.

 

Kyle Pomerleau, CRS Outlines Four Important Aspects of the EITC. “The EITC enjoys bipartisan support among lawmakers. This is due to the fact it both reduces poverty among families with children and has a positive impact on the labor force for certain individuals. Yet, the EITC is not without its flaws. It’s benefit phase-out has a negative impact on the labor force and it suffers from high error rate and overpayment.”

Richard Auxier, Choose your tax system: progressive vs. regressive (TaxVox). A critique of the “Fair Tax” and other national sales tax proposals.

 

News from the Profession. Pope Figured The Lord’s Work Could Use a Good Auditor (Caleb Newquist, Going Concern)

 

 

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Tax Roundup, 6/4/15: Iowa session-end frenzy: What if a young farmer drives his ATV to the laundromat?

Thursday, June 4th, 2015 by Joe Kristan

IMG_1291Sound tax policy? What’s that? Three minor tax bills advanced in the Iowa General Assembly yesterday in the pre-adjournment frenzy. They are all examples of the pursuit of tax legislation unmoored from consideration of sound tax policy.

ATVs. Iowa farmers don’t have to pay sales tax on equipment used “directly and primarily” in the production of agricultural products. The Iowa Department of Revenue holds that the exemption doesn’t apply to general-purpose all-terrain vehicles used to get around the farm — say, to check on crops or livestock (or, incidentally, to go to the good pheasant-hunting spots). The Iowa Senate passed SF 512 yesterday to exempt ATVs “used primarily in agricultural production” from sales tax.

Too bad this isn’t part of a broader movement to exempt all business inputs from sales tax. To the extent that ATVs are a business input, exempting them from sales tax is good policy. I suspect, though, that everyteenage farm boy will have an ATV used primarily in agriculture.

Young Farmers. HF 624 makes minor changes in the tax credit available for custom farming contracts with beginning farmers. No amount of tax credits will change the fundamental difficulties involved in getting into farming. It’s a capital-intensive business that has been consolidating for over a century into larger and more expensive units. This bill isn’t that big a deal, but “Young Farmer” tax credits have no more policy justification than “Young Factory Owner” credits or “Young Cold Storage Warehouse Operator” credits.

20140611-2To the cleaners. Probably the worst tax policy to advance yesterday was HF 603, which excludes the use “self-pay” washing machines from sales tax. While business inputs should not be subject to sales tax, all final consumer expenditures should be. A broader base enables lower rates for everyone. O. Kay Henderson reports on this break:

Representative Josh Byrnes, a Republican from Osage, has met with a couple from St. Ansgar who sold their laundromats in Iowa and opened coin-operated laundromats in Minnesota, which does not charge the sales tax.

“The other part of this is just economic development in general,” Byrnes says. “We have a company that manufactures self-pay units in Fairfield, Iowa, called Dexter and actually they’re looking at some expansion and growth of their company I believe that this will help them get over that hump and help to further their business as well.”

You can make the same “economic development” argument for pretty much anything manufactured in Iowa, including the home laundry machines historically made by Iowa manufacturers Maytag and Amana. It takes a leap of faith to think this will sell even one additional washing machine.

 

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Joseph Henchman, Illinois Governor Suspends New Film Tax Credits, Makes Other Spending Cuts (Tax Policy Blog):

With the two sides at a stalemate, Rauner announced that he is issuing administrative orders to cut $400 million in spending wherever he can. Including:

  • Immediate suspension of all future incentive offers to companies for business attraction and retention, including EDGE credits and the film tax credit program. Commitments already made will be honored.

Unilateral disarmament in the incentive wars is actually doing a big favor for Illinois taxpayers. Those credits enable the well-connected to pick the pockets of the rest of the taxpayers. It is excellent public policy. I hope Iowa decides it needs to ditch its crony tax credits to compete with Illinois.

 

Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 2. “HRAs are often — but not always — a good strategy for sole proprietors. Here are some numbers that lay it out.”

Robert Wood, Another Tax-Exempt Marijuana Church—Green Faith Ministry

Kay Bell, IRS working with tax industry, states to upgrade security

 

Dean Zerbe, Tax Court Decision – Good News For Whistleblowers (Procedurally Taxing). “This decision and the actions of the IRS in this case are not going to make administration of the IRS whistleblower program easier – and could have easily been prevented by the IRS.”

Jack Townsend, Whistleblower Case Apparently Involving Wegelin. “Perhaps most interesting for many readers of this blog is that the underlying criminal prosecution and guilty plea appears to involve Wegelin Bank, the Swiss Bank that met its demise for its U.S. tax cheat enabler activities.”

 

 

Renu Zaretsky, There’s Always Room for Improvement. Today’s TaxVox headline roundup covers the IRS data breach, climate-change tax promises, and charitable tax deduction policy, among other things.

Kelly Davis, Kansas Considers Tax Hikes on the Poor to Address Budget Mess (Tax Justice Blog).

 

TaxProf, The IRS Scandal, Day 756

 

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So tell me again how IRS regulation of preparers will fight fraud? IRS Employee Files Hundreds of Fraudulent Tax Returns:

The former IRS worker, 38-year-old Demetria Michele Brown, stole names, birth dates and social security numbers, and provided false information about wages, deductions, addresses and workplaces in order to obtain the refunds.

The documents were filed from her computer and the money returned by the IRS was sent to bank accounts controlled by Brown, St. Louis newspaper reports.

According to prosecutors, the fraudster carried out the activity from 2008 until 2011 and collected $326,000 / €290,000.

I’m sure it wouldn’t have happened if she had to take an ethics exam.

 

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