Posts Tagged ‘Jeremy Scott’

Tax Roundup, 10/8/14: Koskinen warns of another hellish filing season. And: FATCA “tormenting” offshore taxpayers.

Wednesday, October 8th, 2014 by Joe Kristan
The Younkers Building ruins, morning, March 29, 2014.

The Younkers Building ruins, morning, March 29, 2014.

Here we go again. We know from bitter experience that Congress might cause tax season delays by passing an election-year “extenders” bill at the last minute. IRS Commissioner Koskinen gave official warning yesterday in a letter to the head of the Senate Finance Committee:

This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers. Moreover, if Congress enacts any policy changes to the existing extenders or adds new provisions, the IRS would have to reprogram systems and make processing changes, which would result in longer delays. If Congress waits until 2015 and then enacts retroactive tax law changes affecting 2014, the operational and compliance challenges would be even more severe — likely resulting in service disruptions, millions of taxpayers needing to file amended returns, and substantially delayed refunds.

It was just such retroactive changes that made the 2013 filing season so awful. Add the first go round for Obamacare penalty computations on tax returns, and we can look forward to an even more wonderful tax season in 2015.

I predict that we will get a last-minute passage of the Lazarus provisions that keep dying and being resurrected, sometime in December. Of course, it could drag into January again. I expect pretty much all of the expiring provisions, including bonus depreciation, to be included. But I never rule out Congress dropping the ball entirely.

Other coverage: Richard Rubin, IRS Warns of Tax-Filing Season Delays If Congress Stalls 

Joint Committee on Taxation, list of expiring provisions 2013-2024 (pdf).

 

20140815-2Taxpayer Advocate: FATCA “Tormenting” TaxpayersTaxpayer Advocate Nina Olson doesn’t seem to be a fan of FATCA. She spoke to the Financial Markets Association yesterday, and it sounds like she foresees bad things ($link, my emphasis.):

“This is a piece of legislation that is so big and so far-reaching, and [has] so many different moving pieces, and is rolling out in an incremental fashion . . . that you really won’t be able to know what its consequences are, intended or otherwise,” Olson said. “I don’t think we’ll know that for years. And by that point we’ll actually be a little too late to go, ‘Oops, my bad, we shouldn’t have done this,’ and then try to unwind it.”

Wait, this was passed by our duly elected representatives. What could possibly go wrong?

Olson also questioned the penalty regime underlying FATCA. The law provides for a $10,000 penalty for failing to disclose a foreign bank account, and up to $50,000 for failing to disclose after IRS notification, she said. For someone with a $51,000 unreported foreign bank account, that could be a $60,000 penalty.

IRS policy states that penalties should be objectively proportioned to the offense, Olson said. “Putting a $60,000 penalty on someone for failing to report a $51,000 account does not seem to me like a penalty that is proportioned objectively to the offense,” she said.

Olson observed that a similar disproportionality emerged in recent IRS offshore voluntary disclosure initiatives, when the highest proportionate fines fell on the smallest accounts. In 2009 the median unreported balance for the smallest accounts was $44,000, she said. The lowest-balance account holders paid an FBAR penalty almost six times the actual tax due, she said. Yet the top 10 percent, with a median unreported balance of $7 million, paid a penalty roughly half the amount of tax owed, she said.

This is actually in keeping with the longstanding IRS policy of shooting jaywalkers while slapping the real international tax evaders on the wrist.

How could our legislative supergeniuses have come up with such an insane and unfair system? Look at the name of the legislation — “FATCA.” For fat cats, get it? They passed it claiming to be going after fat cats, but drafted it in a way that beats up on everybody working or living abroad attempting to commit personal finance. But because they “intended” to go after fat cats, they absolve themselves of guilt for the collateral damage, the financial devastation of the innocent and unwary, the retirements ruined. And they smear the rare politician who points out the insanity of FATCA with accusations of being soft on tax evasion.

 

canada flagThere was some rare good news on the offshore tax compliance front yesterday when the IRS made it easier to get favored tax treatment on Canadian retirement accounts:  IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements:

The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.

In the past, however, taxpayers generally would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.

Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.

But in case you think the risk of fiscal catastrophe related to Canadian accounts is past, the IRS warns:

The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D.

In other words, you can still be assessed a penalty of 50% of the account balance for not filing an FBAR report on the accounts, or a $10,000 penalty for not disclosing a balance on Form 8938 foreign financial asset form. But if you get ruined by these penalties, consider it a sacrifice on the altar of “an improved set of global rules,” you fat cat.

Russ Fox has more: IRS Simplifies Reporting for RRSPs and RRIFs.

 

20141008-1William Perez, Missed the Tax Deadline? Here’s what penalties might apply

Donnie Johnson, Liz Malm, What Does Yesterday’s Supreme Court Same-Sex Marriage Appeal Denial Mean for Same-Sex Couple Tax Filers? (Tax Policy Blog). Maybe taxpayers in Indiana, Oklahoma, Utah, Virginia and Wisconsin could learn from Jason Dinesen’s work here in Iowa.

Kay Bell, Gambling pays out a $38 billion bonus to tax collectors.

Jason Dinesen, Glossary of Tax Terms: IRA

KCCI, Pharmacist’s trial has been moved to next year. The owner of Bauder’s Pharmacy, facing tax and other charges arising out of alleged illegal sales of painkillers, is now set to go on trial in February.

 

Howard Gleckman, How Asset Building Tax Subsidies Miss Their Targets (TaxVox):

Nearly one-third of all federal tax expenditures–$384 billion in 2013 alone– is aimed at various forms of asset building, such as retirement savings, higher education, and home ownership. Yet, according to research by several of my Tax Policy Center and Urban Institute colleagues, these tax breaks do little to help low-and middle-income households build wealth.

Gee, you might conclude that maybe not every problem is a tax problem.

 

Two more TaxGrrrl Guest Posts: The IRS’s Uncharitable Treatment Of Charitable Contributions (Andrew VanSingel) and Roadways And Taxes (Charles Horn III).

David Brunori, Last Stand for Soda Taxes — Hopefully (Tax Analysts Blog). “If they can’t get folks in uber-liberal San Francisco and Berkeley to vote for soda taxes, they should just hang up their hats.”

Sebastian Johnson rounds up some more Tax Proposals on the Ballot this Election Season at Tax Justice Blog.


TaxProf, The IRS Scandal, Day 517

Jeremy Scott, Will the EU Commission Crack Down on Irish Tax Deals? (Tax Analysts Blog).

 

News from the Profession. Some Big 4 Alumni Just Can’t Quit Their Old Firms. (Caleb Newquist, Going Concern). No problem for me.

 

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Tax roundup, 8/26/14: Oh, that backup file. You can’t have that one. And lots more!

Tuesday, August 26th, 2014 by Joe Kristan

perryheadOh, that email backup?  From Today’s TaxProf IRA scandal roundup, The IRS Scandal, Day 474, comes this dazer:

Department of Justice attorneys for the Internal Revenue Service told Judicial Watch on Friday that Lois Lerner’s emails, indeed all government computer records, are backed up by the federal government in case of a government-wide catastrophe.  The Obama administration attorneys said that this back-up system would be too onerous to search. 

Tremendous.  After telling the court that there just was no way on earth those emails survived, now they say there is a backup, but it’s just too much of a hassle for them to use it to comply with the court’s orders.  I find it hard to imagine the brashest private-sector lawyer saying something like that, at least more than once.

But wait, there’s more:

The IRS filing in federal Judge Emmet Sullivan’s court reveals shocking new information. The IRS destroyed Lerner’s Blackberry AFTER it knew her computer had crashed and after a Congressional inquiry was well underway. As an IRS official declared under the penalty of perjury, the destroyed Blackberry would have contained the same emails (both sent and received) as Lois Lerner’s hard drive. 

Yet Commissioner Koskinen says we should just stop bugging him about this silly abuse of power stuff and give him money instead.  Because we can trust the IRS.

Related: TaxGrrrl, Judicial Watch Claims IRS Attorneys Admit Lois Lerner’s ‘Missing’ Emails Exist;  Russ Fox, Remember Those Missing IRS Emails? They Appear to Exist….

 

Peter Reilly, Home Sweet RV Does Not Always Produce Best Tax Result.  Peter discusses the recreational vehicle tax Catch-22 we noted recently.

harvestPaul Neiffer, How to Sell Your Land and Pay No Tax – MAYBE.  It involves stretching out the payments and keeping your other income down.

Jason Dinesen, More Commentary About Year-Round Proactive Services to Clients.  “Those of us who are good professionals rarely demand the respect we have earned. And then we wonder why clients seemingly don’t respect us, don’t value us, don’t listen to our advice, or jump ship the moment you breathe about a rate increase.”

Tony Nitti, Tax Geek Tuesday: Computing Earnings and Profits.  “The primary purpose for computing E&P is to determine whether a distribution represents a taxable dividend, a nontaxable return of shareholder capital, or capital gain to the recipient shareholders.”

 

Leslie Book, A Stolen Check, Mistaken Identity and Prisoners (Procedurally Taxing):

This post considers Hill v US, a case from the Court of Federal Claims involving a prisoner named Mark Hill whose $1182 tax refund was stolen and cashed by another prisoner with the same name after the prison system mistakenly delivered an IRS letter relating to the missing refund check to the wrong Mark Hill. With time on his hands, but no check, the right Mark Hill sought justice in the form of a new check. After getting the runaround from the IRS, the right Mark Hill sued the US to force it to issue a new refund check. For good measure, he also wanted interest and punitive damages.

Turns out the IRS doesn’t get any more helpful if you are behind bars.

 

20140826-1Robert D. Flach serves your fresh Tuesday Buzz, with links about smart giving, educational savings options, and what you can earn working tax season at a national return prep franchise.

That’s a long time.  Cobb County man sentenced to 20 years for ID theft, tax fraud (ajc.com).  The guy is also supposed to pay back $5 million he stole.  Good luck on that.  Sure, the guy should go away for a long time, but the real crime is that the IRS let him steal that much from the taxpayers.

Jeremy Scott, Fracking Taxes Help States Now, but What About the Future?  (Tax Analysts Blog)  “North Dakota has been transformed by its rapidly growing energy sector, but it should be cautious about staking too much of its fiscal future on continually increasing severance taxes.”

 

Andrew Lundeen, Solutions on Inversions and Corporate Tax Reform (Tax Policy Blog).

Steve Warnhoff, Will Congress Let Burger King’s Shareholders Have It Their Way?  (Tax Justice Blog).  If it means we get Tim Horton’s donuts, I’m all for the proposed merger.

 

Renu Zaretsky,  Tax Rates: Growth, Competition, and Debt.  The TaxVox headline roundup ponders the effects of individual rate cuts, the badness of corporate rates in the U.S., and film credits in North Carolina, among other things.

lizard20140826Have a nice day.  1.2 Billion Reasons to Worry: Security firm reports Russian crime ring compromised 1.2 billion usernames and passwords (John Lande, Iowa Banking Law Blog)

News from the Profession.  Extra-Marital Affairs Site Claims Accountants are Kings of Romance Because Their Jobs are Boring (Adrienne GonzalezGoing Concern).

 

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Tax Roundup, 8/12/14: FBAR Filing, some acrobatics required.

Tuesday, August 12th, 2014 by Joe Kristan

No Walnut STThe foreign financial account reporting system is said to be all about keeping people from evading taxes by hiding assets overseas.  I’m starting to think that it is really just a strange sadistic plan to torture random taxpayers for fun and profit.  Consider:

– The FBAR filings are not part of the tax returns everyone files anyway.

– They are due at separate times from regular tax filings.

– The Treasury claims the timely mailed (or transmitted) = timely filed rule doesn’t apply to FBAR filings, unlike all other tax filings.

– The filing system is entirely separate from other tax return systems, including a separate bureaucracy and facilities.

Support for my theory comes from today’s report by Tax Analysts ($link):

Taxpayers cannot file a foreign bank account report electronically if they have a copy of popular software programs such as Adobe Acrobat installed on their computers because the programs conflict with the FBAR electronic filing portal, Tax Analysts has learned.

The only way to resolve the problem is to uninstall the conflicting programs and install a copy of Adobe Reader, according to instructionsfrom the Financial Crimes Enforcement Network’s Bank Secrecy Act (BSA) e-filing help desk. The conflict was confirmed by a help desk employee.

FinCEN mandated e-filing of FBARs as of July 1, 2013. According to a FinCEN FAQ, failure to comply with the electronic filing mandate could result in civil penalties, including a $500 fine for each negligent currency transaction.

The FBAR system is way overdue for an overhaul.  Some obvious steps:

– Raise the foreign account filing threshold drastically — say to $100,000 or $200,000 from the current $10,000.  This would keep thousands of Americans working overseas, and thousands more Green Card holders workers from having to risk enormous fines for foot-fault violations.

– Moving the FBAR filing to the regular tax return system, with the same filing locations and due dates.   Currently filing is with “FincCEN,” which is creep-ese for the Financial Crimes Enforcement Network — which helps lead to the government presumption that committing personal finance while overseas is a crime.

– Making sure “timely mailed = timely filed” applies to FBAR reports.

Still better would be to join the developed world in imposing the income tax on a territorial basis, rather than on worldwide income.

Requiring taxpayers to screw around with their computer setup just to meet their FBAR requirements is outrageous.  Even if FBAR filing is not merely a sadistic plot — and it sure acts like one — it seems more designed as a hook to punish violators — purposeful and accidental —  than a way to gather compliance information.  As usual, Congress goes after a small set of violators by firing into the crowd.

 

Russ Fox, Bears Sacked; Lose Court Case Worth $4.1 Million.  “No, Jay Cutler didn’t throw one of his usual interceptions. Instead, Judge Mary Mason of the 1st District Illinois Appellate Court ruled that the Chicago Bears had underpaid Cook County’s Amusement Tax.”

Paul Neiffer, How Does Section 179 Work?

Robert D. Flach has your fresh Tuesday Buzz!

 

20120510-1TaxProf, The IRS Scandal, Day 460

Kyle Pomerleau, Two New Reports on the “New Markets Tax Credit”  (Tax Policy Blog):

This week, the Government Accountability Office (GAO) released a report on “New Markets Tax Credits” (NMTC) at the request of Senator Tom Coburn (R-OK). In addition, Senator Coburn also released a report of his own outlining the program.

New Market Tax Credits were introduced in 2000 as part of the Community Renewal Tax Relief Act of 2000. The NMTC were meant to encourage investment in low-income areas that don’t have access to capital.

The credit works by giving an investor a tax credit equal to 39 percent of the initial investment the investor makes in a project. This means for every $100 in an investment, an investor will receive a $39 tax credit. The credit is distributed over seven years. From 2003 to 2013, the program has cost the federal government $40 billion.

While the credit is meant to help fund projects in low-income areas, it has actually benefitted banks substantially. GAO and Coburn’s report outline significant issues with the program.

Imagine that.

Jeremy Scott,Kansas and Missouri Show the Dangers of Tax Competition (Tax Analysts Blog):

For the last two decades, U.S. states have found themselves competing with their neighbors to attract domestic investment and relocations. And as Missouri and Kansas are learning, the real losers in tax competitions are taxpayers and state budgets.

The winners? The well-connected, fixers, middlemen, and politicians.

Career Corner.  Rat Out Your Employer On Taxes. Win Cash Rewards! (Walter Olson, Reason.com)

 

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Tax Roundup, 7/9/14: It’s an outrage! Oh, we did it? That’s fine. And: Economic development cyanide!

Wednesday, July 9th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

So the taxpayer wants a tax refund.  He calls an IRS agent, who says she will look into it and call back.  Impatient taxpayer calls the agent back five times and tells her she is being uncooperative, finally telling her to “put her money where her mouth is.”  Taxpayer several days later sends the agent a letter telling her that she could issue the tax refund, but chooses not to, and demands the IRS submit some documents.  The IRS schedules a meeting, and the taxpayer insists on the refund now.  The taxpayer attempts to put a lien on the agent’s property for the balance due.

Naturally the taxpayer finds this doesn’t work, and gets hit with all sorts of penalties for this, right?  No, the taxpayer gets off scot-free.  Can you believe it?

Oops, I misspoke.  I got the names backwards.  The IRS was doing this to the taxpayer, and the courts this week refused to impose penalties on the agency for hounding a 71-year-old lady for back taxes on a failed like-kind exchange.

Sauce for the goose really ought to be sauce for the gander.  The IRS has a lot more resources and a lot more ability to follow the law than the average taxpayer.  Yet while the IRS and the courts routinely slap penalties on inadvertent or naive violations of a complex tax law, the courts rarely hold the powerful IRS to the same standards, and it almost never penalizes the agents for misbehavior towards taxpayers.

Cite: Antioco v. United States; USDC CA-ND, No. 3:13-cv-00924

Stephen Olsen, IRS Not Liftin the Penalties — Fed Circuit Denies Taxpayer’s Reasonable Cause Argument (Procedurally Taxing) The courts stack the deck against the taxpayer a little more.

 

20120906-1Don Boudreaux“Damn! My Neighbor Swallowed Cyanide. I Guess I Gotta Swallow Cyanide, Too.”  He’s talking about the crony subsidy Export-Import Bank, but his apt argument applies just as well to state “economic development” tax credits:

Subsidies and other economic privileges weaken the domestic economy.  They do so because, in order to artificially bolster industries that excel at satisfying politicians, such privileges necessarily transfer resources away from industries that excel at satisfying consumers.  Because Mr Summers (like nearly all economists) apparently accepts this sound argument, he especially should see that subsidies are not the economic equivalent of armaments: an armaments build-up does indeed strengthen the country militarily; subsidies, in contrast, weaken the country economically.

So when foreign governments subsidize industries (for example, through export credits of the sort doled out by the Ex-Im Bank), they themselves weaken their own countries’ economies relative to economies whose governments dispense no subsidies or other special privileges.

Taxing your existing taxpayers to lure and fund their competitors is a bad idea, even if Illinois is doing it too.

 

IRAJason Dinesen, ROBS Transactions – Be Very Careful of Using Retirement Funds to Start a Business.  Jason discusses the unwisdom of having your IRA invest in your business.  It can be a catastrophically expensive source of capital.

William Perez, Wage and Salary Income.   How it’s taxed.

Kay Bell, Pot shop seeks Tax Court relief from cash tax payment penalty.  You have to remit your taxes electronically.  We won’t let you have a bank account to transmit it from.  Understand?

Jim Maule’s Tax Myth series continues with “The IRS Gave Me a Refund.”  ” I suppose that those who are concerned that the federal government or a state government might run out of money before the refund is paid are overjoyed when the refund arrives, but as a realistic, practical matter, simply getting one’s money back isn’t a joyous occasion.”

Peter Reilly, Should You Follow The Clintons And Do Your QPRT Sooner Rather Than Later?

Robert W. Wood, Five Stages Of Grief, IRS Version.  I see clients go through all five stages every April.

 

20140508-1Kyle Pomerleau, Bonus Depreciation is a Bonus, but Full Expensing is Ideal (Tax Policy Blog)  “An Ideal tax code would allow the full $100 cost of the oven to be deducted in the year in which it was purchased.”

Howard Gleckman, New TPC Analysis: What Dave Camp’s Tax Reform Plan Would Really Mean (TaxVox)

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Kansas Edition (Tax Justice Blog).  “This Kansas gubernatorial election is shaping up to be a referendum on Governor Sam Brownback’s tax cuts and supply-side economics generally.”

Jeremy Scott, Could EU Probe Signal the End of Sweetheart Tax Deals? (Tax Analysts Blog)  “U.S. tax rules are clearly complicit in multinationals’ ability to lower their tax burden, but the European Union is now examining whether its member states are inappropriately aiding some companies through so-called sweetheart transfer pricing arrangements.”

Accounting Today has your Tax Fraud Blotter.

TaxProf, The IRS Scandal, Day 426

News from the Profession:  Consultant Shares Secrets For Milking the Most Out of CPA Firm Staff (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 7/1/14: Where the IRS budget really goes. And: IRS ends automatic expiration of foreign tax ID numbers.

Tuesday, July 1st, 2014 by Joe Kristan

Dang.  “We do not hold, as the principal dissent alleges, that for-profit corporations and other commercial enterprises can ‘opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.'” — from the majority opinion in yesterday’s Hobby Lobby Supreme Court decision.

Had they allowed a religious exception to the tax law, all the world religions would quickly develop wildly-popular sects with a doctrinal allergy to tax, and, well,  lots of things.

 

Instapundit links to this chart where it looks like IRS spending is out of control

IRS total 20140701 cato

And I think it is — but not in the obvious way.  The Cato Institute, source of the first chart, also provides this:

IRS budget cato 20140701

It shows that almost all of the massive increase in IRS spending is from refundable credits, which are counted as part of IRS spending in the first chart.  But money given away through the Earned Income Tax Credit is not available for auditing taxpayers or buying additional backup tapes.

That, of course, doesn’t excuse the IRS malfeasance in the Tea Party scandal.  It does show that even as Congress has piled more responsibilities on the IRS — especially via Obamacare — it hasn’t provided additional resources.  Now that one party has seen that the IRS has been acting institutionally as its opposition, the agency is unlikely to get significant new resources as long as that party controls one house of Congress — even less so if the GOP takes the Senate, too.

Meanwhile, rather than trying to conciliate and reassure Congressional Republicans, Commissioner Koskinen has been defiant and tone-deaf in his response to the Tea Party and email erasure scandals.  The results for tax administration will not be good.

 

Jeremy Scott, IRS Strategic Plan Highlights Effects of Budget Cuts (Tax Anlaysts Blog):

A crippled tax collector means a damaged tax system. And a damaged tax system only hurts taxpayers and the federal government as a whole. Congress should focus more on punishing those responsible for the various missteps at the IRS and less on gutting the nation’s revenue collection and tax administration system as a whole.

That will require the IRS as a whole to stop acting like a partisan agency.

 

20130419-1IRS does something very sensible.  Credit where credit is due:  the IRS has decided to no longer make non-resident aliens renew their tax ID numbers every five years.   From IR-2014-76:

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and the need to reapply starting in 2018, as was the case under the old policy.
  • To ease the burden on taxpayers and give their representatives and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. As with any ITIN application, original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form.

Very welcome, and long overdue.  Obtaining an ITIN is an inconvenient and burdensome process, involving either mailing passports or national ID cards to the IRS — and trusting them to return the documents — or making the often long trip to a U.S. consulate to apply in person.  For foreign residents with long-term U.S. financial interests, the requirement to renew ITINs every five years was a gratuitous and expensive burden.

(Hat tip: Kristy Maitre).

 

BitcoinRobert Wood, What IRS Calls ‘Willful’ May Surprise You–And Mean Penalties, Even Jail.  The lingering IRS threat to impose fines for “willful” FBAR noncompliance for small amounts is unwise; it seems that they are more concerned with missing a few lawbreakers than in bringing foot-fault violators into compliance.

Jack Townsend, Good Article on the Non-Willfulness Certification for Streamlined and Related Issues

TaxGrrrl, IRS Says Bitcoin Not Reportable On FBAR (For Now)   

 

Paul Neiffer, IRS Releases Final Regulations on ACA Small-Business Tax Credit

Robert D. Flach starts out July with a Buzz!

Kay Bell, Supreme Court finds contraceptive tax costs ‘substantially burdensome’ in its ruling for Hobby Lobby stores

 

 

Martin Sullivan, States Should Cede Some Taxing Power to the Feds (Tax Analysts Bl0g):

Given that states’ corporate taxes are here to stay, we should consider making them as painless and low-cost to businesses as possible. One way to do that is for Congress to exercise its authority under the commerce clause of the Constitution and require states to entirely piggyback their corporate taxes on the federal system.

Canada does this, and it does help, but getting rid of state corporate income taxes would help much more.

Liz Emmanuel, Millionaires’ Tax Clears New Jersey Legislature, Faces Likely Veto (Tax Policy Blog)

Renu Zaretsky,The Tax Man Cometh, But Sometimes Collects Less.  The TaxVox headline roundup covers the formal effective date of FATCA (today), Kansas budget woes, and a link to an interactive tool to track state budgets.

 

Russ Fox, IRS Didn’t Tell a Court About the Missing Lerner Emails

TaxProf, The IRS Scandal, Day 418

 

20140508-1I wouldn’t try asking one this question.  What Type of Fruit is a Polar Bear? Petaluma and Interpretive Choice (Andy Grewal, Procedurally Taxing)

Career Corner.  How to Create a CPA Exam Study Schedule That Guarantees Failure (Adrienne Gonzalez, Going Concern)

News from the Profession.  San Diego CPA convicted in elaborate tax evasion scheme:

A federal jury deliberated for 30 minutes before finding Lloyd Irving Taylor, 71, guilty of all 19 counts against him, including aggravated identity theft, making false statements to a financial institution, evading taxes, corruptly impeding the Internal Revenue Service and making false statements on U.S. passport applications.

According to evidence presented at trial, Taylor, who has been in custody since April 2013, stole the identities of deceased minors, used them as aliases and obtained fraudulent passports and other identification papers.

Oh, that’s illegal?

According to witnesses who testified, Taylor failed to report $5 million in income during the span of the fraud and owed the IRS about $1.6 million. During his 42 years of working, Taylor had filed a total of seven tax returns, according to trial testimony.

That’s one every six years.  It took awhile, but the IRS eventually notices something was amiss.

At a bond hearing last year, a judge ordered Taylor detained pending trial based on a number of factors, including his international travel on his false passports, the millions of dollars he controlled through dozens of bank accounts and his numerous false statements to banks.

I suppose the man felt invincible, given how long he apparently went without drawing IRS attention.  Eventually that comes around, though he had quite a 42-year run.  But he did get caught, possibly because of better computer matching and more comprehensive bank reporting.  Don’t count on stringing the IRS out for 42 years yourself.

 

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Tax Roundup 6/24/14: Koskinen’s political gifts. And: in case you didn’t think Hitler was bad already…

Tuesday, June 24th, 2014 by Joe Kristan

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Just the man to build bridges to Republicans who fund the IRS.  From Bryan Preston, IRS Chief Koskinen Has Donated Big to Democrats Over the Years:

According to the Washington Free Beacon, Koskinen has donated about $100,000 to Democrat candidates and committees since his first donation in 1979. His donor recipients include Gary Hart, the Democratic National Committee, the Democratic nominee in each presidential campaign since 1980 (which would even include Walter Mondale, who stood no chance of beating President Ronald Reagan in 1984), the Democratic Congressional Campaign Committee, and Hillary Clinton’s and Barack Obama’s campaigns. He most recently donated $2,500 to Sen. Mark Warner (D-VA) in 2013.

He has given no money to Republicans.

It’s hard to believe how tone-deaf he is to the Tea Party scandal, but this helps explain it.  (Via Instapundit)

 

Jeremy Scott, Lost Lerner E-mails Latest Example of IRS Death Wish (Tax Analysts Blog), my emphasis:

In contrast to their GOP colleagues, Democrats rushed to Koskinen’s defense. That is, perhaps, understandable, even though much of what the IRS has done during this scandal is indefensible. Democrats probably want to defend their president’s pick to head the IRS, and maybe they want to try to change the narrative heading into a potentially disastrous midterm election. But the reality is that the IRS isn’t doing them any favors. There’s only so much incompetence and disingenuous behavior that can be run through a political spin machine. The Democrats’ reflexive defense of Lerner (whose conduct can’t be excused) and their apparent willingness to accept any explanation from Koskinen (who didn’t even try to adequately explain why he hid information on the lost e-mails from February until late June) is baffling. Democrats weakly attempted to paint the GOP as on a witch hunt for a conspiracy, as though the IRS’s mismanagement and appearance of bias weren’t enough to justify congressional inquiry.

The IRS isn’t doing Democratic congresscritters any favors, nor are they doing any for the IRS.  They are just making the IRS look more like a partisan agency, which could cripple tax administration for years.

 

TaxProf, The IRS Scandal, Day 411

 

20140507-1Kay Bell, Save space and trees: Digitize your tax records.  That way if you lose them, the IRS will surely understand.

Russ Fox has some valuable information for online gamblers trying to stay FBAR compliant: Online Gambling Addresses (Updated for 2014)

Robert D. Flach has a Tuesday Buzz for you!

Tony Nitti, How State Taxes Could Play A Role In Carmelo Anthony’s Landing Spot.  Nah, state taxes don’t matter…

Peter Reilly, Step Kids Remain Step Kids After Divorce.  So you may still have a dependent, if not a spouse.

Jack Townsend, Comments by IRS Personnel on New Streamlined and OVDP Procedures.  “The new procedures were designed to ‘encourage folks who are considering quiet disclosures to come in with their hands up’ and avoid taxpayers coming into OVDP with the intention to opt out.”

Annette Nellen, Bitcoin Taxation – Clarity and Mystery, “If you are a tax practitioner and don’t think you need to deal with it, I’d be surprised if none of your clients uses bitcoin.”

William Perez, Backup Withholding.

 

Tyler Dennis, The Clinton’s Estate Tax Planning Demonstrates the Arcane Nature of the Estate Tax (Tax Policy Blog):

When the Clintons created the trust in 2011, their property’s assessed value was $1.8 million.  Without a residential trust, the future appreciation between 2011 and 2021 would count against the gift tax. If the property appreciated at a 4% annual rate and reached $2.6 million by 2021, that’s the amount that would count. With the residential trust, though, the Clintons were able to “lock in” the value of the home at its 2011 value of $1.8 million without actually relinquishing the property to the beneficiary of the trust.

Most supporters of higher taxes assume that they won’t have to pay them.

 

Renu Zaretsky, Disbelief, Devolution, and Death Benefits.  The TaxVox headline roundup talks about the Koskinen appearance before the Issa committee, and about how a surprising proportion of new life insurance is taken out on employees.

Andrew Lundeen, The Average U.S. Worker Pays over $16,000 in Income and Payroll Taxes (Tax Policy Blog):

The tax burden is a combination of income taxes at the federal, state, and local levels as well as the employee and the employer payroll taxes. Of the 31.3 percent tax burden, 15.4 percent is due to income taxes and 15.9 percent is due to payroll taxes, over half of which is paid by the employer on the employee’s behalf. (Workers pay the cost of the employer-side payroll taxes through lower wages.) 

Heck of a deal.

 

Stephanie Hoffer, Kuretski, the Tax Court, and the Administrative Procedure Act (Procedurally Taxing).

 

Another great tax planning idea down the tubes.  Kidnapping Prostitutes Is Not a Good Way to Claim Dependents for Tax Purposes (Greg Kyte, Going Concern)

If you didn’t think he was a bad guy already…  Adolf Hitler: Billionaire tax-dodger?

 

 

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Tax Roundup, 6/10/14: When doing a like-kind exchange, keep the kids away. And: Iowa biofuel credit claw-backs?

Tuesday, June 10th, 2014 by Joe Kristan

20120511-2Keep your friends close, and your relatives far away.  The tax law often assumes that any financial transaction between relatives is untrustworthy.  Many transactions that work just fine with a stranger become tax disasters when family is involved.  A New York man got a hard education in this yesterday in Tax Court.

The man was selling property at a $1.5 million gain, and he wanted to use the Section 1031 “like-kind exchange” rules to defer the gain by using the proceeds to acquire new property.  The tax regulations let you do so under the right facts as long as you follow rules on escrowing funds or using a “qualified intermediary,” and you meet deadlines for identifying and closing on the new “replacement property.”

For example (a very simplified example), if you sell an investment property and the proceeds are held by a “qualified intermediary,” and you identify the property within 30 days and close on it within 180 days, using the funds held by the intermediary in the purchase, the gain on the original property is transferred to the new property, to be only recognized if and when that property is sold.  But the IRS insists you go by the book.

These deals only work if you use a “qualified” intermediary.  The taxpayer in this case used his son.  Game over, said the Tax Court:

Petitioner acknowledges that there was no direct exchange of like-kind property; property A was sold and property B was purchased with proceeds from the sale of property A. Petitioner also acknowledges that the intermediary used in the transaction was his son. However, petitioner asserts that he meets the requirements of the regulation’s safe harbor because (1) his son is an attorney; (2) the funds from property A were held in an attorney trust account; and (3) the real estate documents refer to the transaction as a section 1031 exchange. We do not accept petitioner’s argument. The regulation is explicit: A lineal descendant is a disqualified person, and the regulation makes no exception based on his/her profession. Consequently, petitioner’s disposition of property A and subsequent acquisition of property B is not a deferred exchange within the purview of section 1031, and he must recognize income on the gain from the sale of property A.

There are a number of reputable firms that specialize in serving as intermediaries and escrow agents in like-kind exchanges.   They can make a potentially complicated deal go much more smoothly.  And they are probably not your son. Yes, they charge for their services, but when a $1,512,000 taxable gain is at stake, as it was here, it can be a real bargain.

Cite: Blangiardo, T.C. Memo 2014-110.

 

In other legal news, the Supreme Court declined to hear Wells-Fargo’s appeal of a 2013 decision striking down a lease tax shelter designed to generate a $423 million capital loss.

 

20120906-1Iowa wants some tax credits back.  Agweek reports:

 The Iowa Department of Revenue has warned at least one investor who owns shares in Energae LP of Clear Lake, Iowa, that tax credits for the company’s green energy production couldn’t be verified for 2012, and the credits must be paid back.

In a letter dated May 20, 2014, David Keenan, a revenue examiner for the compliance division of the Iowa Department of Revenue, told an unidentified taxpayer from Iowa to pay back $1,131.73. Victoria Daniels, public information officer for the agency, declined to comment on what might have disqualified the credits, or whether the denial affects only 2012. She also declined to comment on whether the department’s decision was focused on just one audited person or whether it will be extended to others who used the credits.

The Department has clawed back credits in cases where ethanol producers have failed or otherwise not met the requirements for the credits.

The article shows that the state subsidies encourage careless investing.  An attorney in a lawsuit on the matter is quoted:

“They offered a dollar-for-dollar tax credit, so people thought, ‘How can you lose?’ They may find out. I hope things come to a head soon because it seems to me there’s a lot of confusion and misinformation in the investing public. I think there needs to be some clarity.”

While this is only one side of the story, it’s easy to see where an investor might overlook due diligence when a “dollar-for-dollar tax credit” makes the deal seem like a free play.

 

The Onion is a satirical publication, but it’s hard to tell sometimes:   States Now Offering Millions In Tax Breaks To Any Person Who Says ‘High-Tech Jobs’

ST. PAUL, MN—In an effort to spur their local economies, many state governments are now offering tens of millions of dollars in tax breaks to any person who simply says the words “high-tech jobs,” according to a survey by the Pew Research Center published Monday. “We must do what it takes to draw potential innovators to the great state of Minnesota, which means granting lucrative tax credits and loan guarantees to any individual—whoever they may be—who utters the phrase ‘high-tech jobs’ in any context whatsoever,” said Minnesota governor Mark Dayton, whose office has reportedly joined numerous other states in doling out tax exclusions, low-interest municipal loans, full income tax exemption for 10 years or more, and other valuable incentives to thousands of people who have spoken such phrases as “biotech,” “innovation center,” “high-skilled workers,” and “tomorrow’s economy.”

If the story were written about Iowa, the magic words would include “renewables,” “wind-energy,” and “fertilizer.”

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 397.  The stories today mostly cover a huge illegal transfer of confidential 501(c)(4) taxpayer data to the FBI.  The House committee investigating the Tea Party scandal revealed  communications between Lois Lerner and FBI representatives arranging the illegal transfer.  This is a big deal, making it clear that the activities involving Ms. Lerner weren’t accidental, and were far more sinister than the “phony scandal” crowd would have you believe.

Russ Fox, Perhaps This Is Why Lois Lerner Is Taking the Fifth.  “Based on what I just read, if anyone is expecting the IRS’s budget to increase this year, well, that has as much chance as it snowing here in Las Vegas tomorrow. (The high is expected to reach just 105 F.)”

Leslie Book, Exploding Packages and IRS Disclosure of Confidential Tax Return Information (Procedurally Taxing)

 

Robert D. Flach brings your fresh Tuesday Buzz!

Kay Bell, Lowest U.S. property tax bill? Probably $2 in coastal Georgia

 

Jack Townsend, Court Holds Online Poker Accounts are FBAR Reportable:

The two issues were:  (1) whether the accounts with the three entities were “bank, securities or other financial account[s]” that must be reported on an FBAR; and (2) whether each of the three accounts was in a foreign country  The Court answered both questions yes.

A potentially expensive result for a lot of folks, if it holds up.

 

Gerald Prante, Deductions for Executive Pay Is Not a Subsidy. (Tax Policy Blog)  “Essentially, IPS and ATF are starting from a baseline that assumes all executive pay should be capped at $1 million and any deviation from this is a subsidy.”

 

taxanalystslogoJeremy Scott, Whistleblower Highlights Undue Influence at the IRS (Tax Analysts Blog)  “He claimed that granting credits for the use of black liquor was opposed by most of chief counsel, but that a few senior managers changed the policy, allowing paper manufacturers to take advantage of a true tax loophole.”

But we are supposed to trust them to regulate preparers without fear or favor.

 

Tax Justice Blog, State News Quick Hits: Keeping Score? Real Tax Reform 0. Tax Cuts 2

Martin A. Sullivan, How Not to Tax the Rich (Tax Analysts Blog).  “The liberal case for corporate taxation has been severely weakened by capital mobility.”

Renu Zaretsky, Repatriation, Havens, and Tax Reform Abroad.  The TaxVox daily headline roundup talks about extenders, tax havens and the costs of repatriation tax holidays.

 

Peter Reilly, Confidence Games – How The Most Prestigious Accounting Firms Raided The Treasury: 

 Now thanks to Tanina Rostain and Milton C. Regan, Jr. you can read all about it in “Confidence Games – Lawyers, Accountants, and the Tax Shelter Industry”. It is a sad story with no heroes and only one villain, who is colorful enough to be engaging – Paul Dauugerdas, who is still awaiting sentencing on his second conviction (He got a do-over on his trial due to juror misconduct).  The book is a must read for all tax professionals and others may enjoy it too.  

Sounds like a buy to me.

 

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Tax Roundup, 6/3/14: The joys of cronyism. And why Warren’s math is off.

Tuesday, June 3rd, 2014 by Joe Kristan

 

20120906-1When states “target” tax breaks, the little guy gets caught in the crossfire.  That’s the conclusion of a terrific new study on why special tax favors to special friends of the government hurt state economies and corrode good government.  The paper, by the free-market think-tank Mercatus Institute, is the best distillation of the case against luring businesses with special tax favors.

The study describes how big companies skillfully play state politicians for subsidies.  It shows how Wal-Mart has received at least 260 special tax breaks worth over $1 billion.  It describes the $370 million in North Carolina subsidies to Apple to create a whopping 50 jobs — $7.4 million each.  These come at the expense of small companies who pay full-ride on their tax bill as they lack the lobbyists and clout to play the system.

It discusses how the only way states can make a case for their special breaks is to ignore opportunity costs.  States assume that money spent to lure a well-connected company would otherwise be buried or something, generating no economic activity.  As the study says, “Labor and capital are scarce resources and they are rarely left idle.”  It’s a point Tax Update readers may be familiar with.

The study notes how the subsidies hurt the companies who don’t get the benefits, even if they are not direct competitors of the corporate welfare recipients: “When new companies receive extra money to invest, they raise the price of capital and drive up wages, which imposes an additional cost on unsubsidized companies in the state.”  This refutes the fallacy that “Smith’s tax credit doesn’t cost Jones a cent.”

microsoft-apple

They also point out how targeted tax breaks create a crony culture in statehouses.  The study cites the example of Texas (citations omitted, emphasis added):

As companies direct more of their resources to securing special benefits, they need more people who can lobby or who have other rent-seeking skills.  There is already a whole industry of “location consultants,” some of whom demand a commission of up to 30 percent on the subsidies that they can negotiate with local governments.  Consultant G. Brint Ryan in Texas is a good representative of this industry.  Texas allocates corporate benefits exceeding $19 billion per year, more than any other state.  Ryan realized the profit opportunity in serving as a consultant to companies seeking to obtain these benefits.  He has since secured benefits for ExxonMobil, Samsung, and Wal-Mart, among others.  Ryan also illustrates the importance of having political networks for securing targeted benefits.  In 2012, the Texas legislature set up a commission to evaluate the impact of state investments in development projects.  Ryan, who donated more than $150,000 to the campaign of the state’s lieutenant governor, was appointed to the commission by the lieutenant governor.

The same dynamic is playing out in Iowa, as the economic development bureaucracy has spawned a cottage industry of attorneys and consultants to tap into taxpayer funds.

What should states do?  The report says:

Four policy implications for state governments follow from our analysis:

- Allow for current targeted benefits to expire, and abolish state programs that grant them on a regular basis.

- Make sure that targeted benefits cannot be granted by individual policymakers on an ad hoc or informal basis

- Broadly lower tax rates to encourage company investments and obtain a more efficient allocation of resources.

- Cooperate with other states to form an agreement about dismantling targeted benefits.

Sounds a lot like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

Other coverage:

Joe Carter, How Enterprise Zones Lead to Cronyism

Kenric Ward, Study: Cronyism Increasingly Lucrative for Politicians and Businesses

Related:  Governor’s press conference praises construction of newest great pyramids.

 

20140603-1Tax Justice Blog, State News Quick Hits: Gas Taxes, NJ Budget Woes, Madison Square Gardens’ Sizable Tax Break

 

Jason Dinesen has Yet Another Post About Regulation of Tax Preparers.  “Preparer regulation is a bad idea. ”

Kay Bell, Tax moves to make in June 2014

Robert D. Flach has your fresh Tuesday Buzz!

 

Andrew Lundeen, The Common Misconception about the Lower Rate on Capital Gains and Dividends (Tax Policy Blog):

What is not easily seen is that the $100 that Mr. Buffett earns in dividends has already been taxed at the corporate level. In fact, Mr. Buffett’s $100 didn’t start at $100, it started as $153.85.

To receive his $100 dividend payment, Mr. Buffett must own shares in a corporation, which we will call Company A. Company A earned $153.85 in profits on Mr. Buffett’s behalf. This $153.85 is then subject to the federal corporate tax of 35 percent, or $53.85.

The corporation pays the $53.85 to the federal government on behalf of Mr. Buffett and then passes the remaining $100 to him in the form of a dividend. This is the $100 we discussed earlier, on which, Mr. Buffett pays $23.80 in dividend taxes.

Warren Buffett knows this.  But raising individual rates helps keep down those small guys whose businesses report their taxes on the owner 1040s — and, incidentally, makes it easier for Warren’s insurance business to sell tax-advantaged products.

 

Jeremy Scott, Camp Waves the White Flag (Tax Analysts Blog). “Camp tried to reform the tax system — and failed.”

Martin Sullivan, Corporate Expatriations: More Deals Are Likely (Tax Analysts Blog).  ” It is unlikely that any known or yet-to-be-made-public deals will be slowed by Democrats’ efforts.”

TaxProf, The IRS Scandal, Day 390

 

TaxGrrrl, John Daly Relied On Tax Records To Figure $90 Million Gambling Losses.  “Despite tens of millions of dollars in gambling losses, Daly doesn’t seem to regret his behavior, saying, ‘I had a lot of fun doing it.'”

 

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Tax Roundup, 5/20/14: Credit Suisse, felon. And: yes, tax credits are subsidies.

Tuesday, May 20th, 2014 by Joe Kristan

 

credit suisse logoThe big news in the tax world today is the Credit Suisse guilty plea.  From the Wall Street Journal:

Credit Suisse Group became the first financial institution in more than a decade to plead guilty to a crime Monday when the Swiss bank admitted it conspired to aid tax evasion and agreed to pay $2.6 billion to settle a long-running probe by the U.S. Justice Department. The criminal charge filed Monday in federal court outlined a decades-long, concerted attempt by Credit Suisse to “knowingly and willfully” help thousands of U.S. clients open accounts and conceal their “assets and income from the IRS.”

This has to make some folks nervous:

While Credit Suisse isn’t turning over names of account holders as part of the agreement, they are handing over information that Deputy Attorney General James Cole said would lead to specific account holders.

Swiss bank secrecy is dead, and bank secrecy anywhere is pining for the fjords.  Proceed accordingly.

The TaxProf rounds up coverage.

Jack Townsend, Credit Suisse Pleads to One Count of Conspiracy to Aiding and Assisting 

 

Wind turbineI hate it when I have to disagree with somebody I respectbut I have to disagree with this from A. Barton Hinkle, writing about wind energy credits:

A tax credit is just that: a credit against the amount a taxpayer owes. As the IRS explains, a tax credit “reduces the amount of tax for which you are liable.” That is vastly different from a direct grant, in which the government takes money from Jones and gives it to Smith. In the case of a tax credit, none of Jones’ money goes into Smith’s pocket. Rather, Smith gets to keep more of his own money. Smith’s tax credit doesn’t cost Jones a cent.

Let’s assume that Jones and Smith are competitors.  Because of the tax credit, Smith can charge less than he otherwise would and still makes more than Jones.  Jones finds his margins are squeezed.  This tax credit absolutely costs Jones money.  A big enough credit to Smith can put Jones out of business.  And in a free market, there’s a Jones for every Smith.

Yes, some tax credits are more egregious than others.  Refundable credits, like the Iowa research credit, and transferable credits, like the defunct Iowa film credit, are the worst.  They are little more than government scrip generated by filing tax returns.

Non-refundable credits are slightly less bad, because they are only available to people who actually pay taxes.  Still, they are economically equivalent to special-purpose vouchers issued by governments that can be applied to pay taxes — limited purpose subsidies.  If the government issued vouchers that could only be used to, say, buy housing or cell phones, nobody would dispute they are subsidies.

Special purpose deductions are less distortive still.  But all special tax favors have a common flaw — they all involve the government allocating investment capital.  The 20th Century proved that to be a poor idea.  And running the subsidies through a tax return doesn’t make them any less subsidies; they only become easier to hide.

Related: Governor’s press conference praises construction of newest great pyramids

 

20140520-2Jason Dinesen, If You’re a Sole Proprietor, There’s No Such Thing as a “Salary” for Tax Purposes:

When a sole proprietorship accounts for its net income, it does so by taking gross income minus expenses. Those expenses DO NOT include draws. So, the proprietor is taxed on the net income of the business and gets no deduction for the draws.

You may think that’s obvious, but I’ve had to explain this to clients.

 

Russ Fox, One Good Crime Deserves Another.  “Oft evil will shall evil mar.”

Kay Bell, I’ll take tax code section 179 for $500, Alex

Peter Reilly, TIGTA Alimony Report May Cause Crisis Of Conscience Among Tax Professionals .  “I have to tell Terry that the IRS will notice the discrepancy, but the odds are 25 to 1 that they won’t do anything about it.”

Robert D. Flach is right on time with his Tuesday Buzz.  He notes the AICPA oppostion to the proposed “voluntary” preparer regulation system:

Clearly the AICPA is afraid, and rightfully so, that a voluntary RTRP certification would take 1040 business away from its members – because the designation would identify individuals who have proven competence specifically in 1040 preparation.  Currently the taxpayer public erroneously thinks that the initials CPA are an indication of a person’s competence in 1040 preparation, which is simply not true. 

I can’t speak for the AICPA, but I think they are right to oppose it.  In addition to destroying whatever is left of the Enrolled Agent brand, I think the “voluntary” program will be voluntary in the same way that donations to United Way were voluntary at a prior employer.  “It’s voluntary, and we always have 100% participation.”  And considering how bad the IRS is at what it is supposed to be doing, it really doesn’t need to take on new tasks.

 

Keith Fogg, Private Debt Collection – An Idea Whose Time Will Never Come (Procedurally Taxing).  “My concerns about the proposal fall into four broad categories mentioned above: training, accountability, system impact and proper incentives.”

I would permit private collection in limited circumstances —  for undisputed debts that the IRS isn’t bothering to collect.  With proper controls, I think it could work.  There is nothing magical about having official government employees do it.   But the Treasury Employees Union will make sure it never happens.

 

taxanalystslogoJeremy Scott, The Medical Device Excise Tax Derails Extenders (Tax Analysts Bl0g).  “Political games involving the medical device excise tax threaten to completely derail the passing of an extenders package in the near future.” Come on, the extenders are just a political game to begin with, using Calvinball rules.

Renu Zaretsky, A Pleading Bank, a Rejected Offer, and Taxing Gas and Pot.  The TaxVox headline roundup covers Uruguay’s nurturing a surprising local industry.

TaxProf, The IRS Scandal, Day 376

Alan Cole, When Broad Bases Are Actually Narrow Bases (Tax Policy Blog):

If I rent out my property to you, I pay taxes income used to buy the property, and I pay taxes on the rental income derived from it. In contrast, if I lived in the property myself, I would not have to pay the additional layer of taxes. It’s the same house either way, but because people are eager to “broaden” the base, they end up taxing it twice in some circumstances, and only once in others. A true “broad” base is a tax on personal expenditures – one that ultimately falls on the people who actually consume.

That’s precisely why “preferential” capital gain rates are really just piling on, and why the proper rate for them is probably zero.

Going Concern, The AICPA Has Nuked The CPA2Biz Brand in Favor of CPA.com.  Now if they can just do something about that disturbing mascot.

 

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

Tuesday, April 22nd, 2014 by Joe Kristan

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

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

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

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

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

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

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

microsoft-apple

 

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

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

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

 

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

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

Tax Freedom Day 2014 Map_0

 

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

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

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

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

 

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

Brian Mahany, Is the IRS Whistleblower Program a Failure?

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

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

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

TaxProf, The IRS Scandal, Day 348

 

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

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

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

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

 

20120620-1

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

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

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

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

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

 

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Tax Roundup, 4/9/14: Common K-1 problems. And: if the preparer doesn’t have a brain, give him a diploma!

Wednesday, April 9th, 2014 by Joe Kristan

S-SidewalkSo you read yesterday’s post and you’re still preparing your own return?  You’ve answered the questions you need to ask yourself before starting to put numbers from your S corporation/Partnership/Trust (collectively, “thing”) K-1 onto your 1040 schedules?  OK, if you are intrepid enough to be doing your own return here, you are mostly on your own.  Don’t shortcut it.  This is one chore where you really should read the instructions (S corporation, Partnership, Trust), rather than just opening the box and putting pieces together.

There’s no point in me trying to walk through the whole K-1 with you; that’s what the instructions are for.  I will point out a few items on the K-1 (or left out) that frequently cause errors and trigger questions.

On the partnership K-1 the ending capital account is probably not your “basis.” The capital account is frequently useless in measuring basis.  It might be the same as your basis if the “Tax basis” box is checked, but the only sure way to track your basis is to keep your own running basis schedule year-by-year.  S corporation shareholders can find their basis computation schedule here.

Don’t double-count your gains.  The “Unrecaptured Section 1250 gain” in Box 8c of your S corporation K-1  (9c of the partnership return) is a part of the “Net Section 1231 gain” (S corporation box 9, partnership box 10).  The total income is the Section 1231 gain, not the sum of the unrecaptured 1250 and 1231 amounts.  You use the “Unrecaptured 1250 gain” on your Schedule D worksheet to figure out how much of your Section 1231 gain is taxed at a 25% rate, rather than the normal 20% top capital gain rate.

Don’t double count “investment income.”  If you have interest, dividends or capital gains on your K-1, the partnerships is required to tell you how much of that is “investment income” with a code “A” in the “other information” box on the K-1.  You only need that number if you are computing an investment interest expense deduction on Form 4952.  You don’t add it as additional income on your return.

Beware the “net investment income” disclosure, code “Y” in the “other information” section.  The partnership and S corporation instructions for computing this came out late, and this number is likely to be wrong.  If you have to fill out Form 8960 to compute your Obamacare net investment income tax, you shouldn’t count on this number, especially for a K-1 with trade or business income.  Use instead the separate items from the K-1 that are investment income for Form 8960 purposes.

Be careful out there, and come back tomorrow for a new 2014 filing season tip!

 

20140307-1Russ Fox, Bozo Tax Tip #5: Procrastinate.  You mean waiting won’t solve my tax problems?

Tony Nitti, Tax Geek Tuesday: Are Those S Corporation Distributions Taxable?

 

William Perez, Tax Freedom Day 2014.  April 21.

Kay Bell, Being DIFferent could prompt a tax audit.  Kay points out things that can attract IRS attention on your 1040.

Jeremy Scott, Audit Electability (Tax Analysts Blog).  “However, a taxpayer’s choice of entity can have broad tax ramifications, including some consequences unintended even by the complicated U.S. tax regime.”

Stephen Olsen, Summary Opinions for 4/4/2014.  (Procedurally Taxing), A good roundup of some recent tax cases, including coverage of the Ohio accounting firm’s unpleasant breakup that we covered last week.

 

20140409-1The IRS Commissionerwho apparently can’t regulate his own employees sufficiently to provide subpoenaed documents to Congress, still wants to regulate tax preparers.

The idea is no more than what the Wizard of Oz told the scarecrow: regulated preparers wouldn’t be any smarter, but they would have a diploma.  An IRS-issued Doctorate in Thinkology doesn’t make an inept preparer competent, any more than granting a CPA or a JD makes somebody a good tax preparer.  I would much sooner have uncredentailed Robert D. Flach do my 1040 than any number of fully-credentialed CPAs and attorneys I know.   All regulation would accomplish would be to raise prices, lining the pockets of the big tax prep franchises while driving many taxpayers to self-prepare or stop filing.

TaxGrrrl, House Committee Gunning For Criminal Charges In IRS Scandal

TaxProf, The IRS Scandal, Day 335

 

Roberton Williams, If You Have High Income, Your Taxes Are Going Up (TaxVox)

Tax Justice Blog, “Tax Extenders” Would Mean Even Lower Revenue than the Ryan Plan

Jim Maule, How Shocking is Tax Evasion?

Radio Iowa, Senator Grassley says fouled up tax system is depressing.  He’s depressed?  As a senior taxwriter for most of the last three decades, he’s answerable for a lot of the depression.

 

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Tax Roundup, 4/1/14: Two weeks to go edition. And: neglected spouses!

Tuesday, April 1st, 2014 by Joe Kristan


4868
April 15 is two weeks from today.  You should already be well along the way in getting your taxes done.  If you aren’t,  you need to get to work – and you should be pondering an extension.

Even an extension isn’t a free lunch.  As Trish McIntire explains below, extensions extend the filing deadline, not the payment deadline, so you need to have at least an idea of your current tax situation even to extend.

Start with your 2012 return.  Make sure you have all of the items you reported on that return — W-2s, K-1s, 1099s.  Then think through what might have changed since last year.  New kid?  New spouse?  Lose an old spouse?  Won the lottery?

Then pencil out a return, or hurry down to your preparer.  If your preparer tells you to extend, don’t fight it.  An extended return is not a “red flag” to the IRS.  And when figuring out how much to pay with your Form 4868, round up.  This time of year, it seems most surprises are the bad kind, so assume the worst.

 

20120511-2If you want to know what does work as a red flag for the IRS, the Tax Court yesterday had a good example:

Petitioner’s 2010 Form 1040, U.S. Individual Income Tax Return, was prepared by H and R Block. On Schedule C, Profit or Loss From Business, petitioner reported gross income of $1,274, office expense of $142, and car and truck expenses of $17,978, for a net loss of $16,846.

A schedule C with just a little income and a big loss caused mostly by car and truck expenses probably goes straight to the “audit me” bin, because the IRS knows that many taxpayers are like this one:

Although petitioner provided his 2009-10 mileage log, he nevertheless failed to provide any corroborating receipts or other records that substantiated the statements made in the log. Petitioner’s mileage log did not address the business purpose of each trip. Guessing as to where he may have gone in 2010, petitioner added the places of business travel to his log in 2012. The log was thus not contemporaneous, and the reconstruction was not reliable.

If you want to take car deductions, you need to keep track of them as you go, in a log, a calendar, or a smart-phone app.  Otherwise you, like the taxpayer in this case, won’t stand much of a chance against the IRS.

Cite: Houchin, T.C. Summ. Op. 2014-29.

 

20140401-1William Perez, Retroactive Charitable Donations for Typhoon Haiyan Relief:

Taxpayers can take a deduction on their 2013 tax return for cash donations made between March 26, 2014, and April 14, 2014, to charities providing disaster relief to areas impacted by Typhoon Haiyan.

Normally, charitable donations can be deducted only if the donation is made by the end of the year. But the recently enacted Philippines Charitable Giving Assistance Act (HR 3771) gives taxpayers the option of deducting donations for Typhoon Haiyan relief on their 2013 tax returns.

William explains what you need to do to claim the retroactive deduction.

TaxGrrrl, Taxes From A To Z (2014): Q Is For QDRO

Trish McIntireThe Annual Extension Post:

So what if you can’t get your return done in time to file by then? You can file an extension. It can be done electronically or by filing a paper Form 4868 by April 15th. And it does have to be postmarked or electronically filed by April 15th. After that time, the extension won’t help you.

Remember, an extended return does not attract IRS attention; a late or erroneous return does.

 

Kay Bell, America’s pastimes: Baseball, ballpark proposals and taxes

 

Ways and Means Chairman Dave Camp Won’t Seek Reelection (Accounting Today).  That can’t be a good sign for his misconceived tax reform plan.

Jeremy Scott, Fair Shot for Everyone’ Contains Details for No One (Tax Analysts Blog):

Setting a new low for lack of detail and specificity, Senate Democrats unveiled their “Fair Shot for Everyone” agenda last week. Only loosely a set of real proposals, the agenda is merely a series of talking points designed to distract voters from President Obama’s lagging approval numbers and the continuing unpopularity of the Affordable Care Act.

Not a glowing review.

Howard Gleckman, Should Tax Reform Be Sold on Values Instead of Economics?

 

20120906-1Paul Brennan, In Iowa, your taxes help corporations not pay theirs (Iowa Watchdog.org):

Of course, $950,000 isn’t much more than chicken feed to a company like Tyson, which posted $583 million in profits in 2013. It also doesn’t compare with the tens of millions of tax dollars the state paid out to big companies through the Research Activities Credit last year.

But it is probably enough to leave tax payers feel well and truly plucked.

Nobody notices a few missing feathers.

Des Moines Register, Branstad will sign Iowa Speedway tax break in Newton ceremony Wednesday.  Because NASCAR has better lobbyists than you do.

Tax Justice Blog, State News Quick Hits: State Lawmakers Not Getting the Message

 

BitcoinAlan Cole, Bitcoin’s IRS Troubles (Tax Policy Blog:

The price of the virtual currency Bitcoin has fallen to about $461 from a closing price of $586 last Monday. This decline of about 21% came in the wake of an IRS ruling that net gains from Bitcoin transactions will be taxed as capital gains.

Nobody wants a Schedule D item for every purchase.

TaxProf, The IRS Scandal, Day 328.  April Fools edition, unfortunately.

News from the Profession: The Forgotten Spouses of Public Accounting (Going Concern).  I’m sure mine is around here somewhere.

 

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Tax Roundup, 3/25/14: Shaky foundations can be costly. And: monitors!

Tuesday, March 25th, 2014 by Joe Kristan

20140325-1Not a firm foundation.  A U.S. District Court case out of Texas last week shows why using a tax-exempt entity can be hazardous to your health.  A Mr. Ziegenhals was “manager, director, trustee, and registered agent” of The Le Tulle Foundation, which was “formed in 1991 as a testamentary trust with the stated purpose of operating ‘exclusively for charitable purposes for the benefit of the citizens of Matagorda County, Texas [and] for no other purposes.'”

The court said an IRS audit found that Mr. Ziegnhals “used funds from the Foundation to obtain personal benefits and pay his expenses unrelated to the purported charitable purposes.”  That triggered a revocation of charitable status and taxes on “self-dealing,”  The total amount of “self-dealing” is alleged as $46,266.21.

What did that cost the alleged self-dealer?  From the decision (my emphasis):

The amount allegedly owed by Ziegenhals – $461,125.44 as of November 29, 2013 — is based on the IRS’s calculations of penalties, statutory additions, and interest that have accrued from his unpaid private foundation excise taxes in 2003 and his unpaid federal income taxes in 2007. See Docket Entry Nos. 42-13, 42-14, 42-15. The current amount owed is much larger than the original unpaid taxes of $46,266.21 from 2003 and $6,829.98 from 2007 because the IRS assessed several statutory taxes and penalties on Ziegenhals as both a self-dealer and foundation manager for each year until he was issued the notice of deficiency in 2009 -- an example of what can happen when someone fails to pay his taxes in the first place and then also does not cooperate in repaying the delinquencies in a timely manner.

For example, the IRS imposed a first tier tax of 5 percent for each act of self-dealing, see 26 U.S.C. § 4941(a)(1), a second tier tax of 200 percent of the amount involved for each act of self-dealing that was not corrected within the taxable period, see § 4941(b)(1), a first tier tax of 2.5 percent against Ziegenhals as the foundation manager, see § 4945(a)(2), and a second tier tax of 50 percent of the amount involved for refusing to agree to corrections, see § 4945(b)(2). In addition, the IRS determined that Ziegenhals’ actions constituted willful and flagrant conduct, and thus imposed a penalty equal to the amount of the private foundation excise taxes pursuant to § 6684. 

I don’t recommend private foundations for taxpayers who lack a huge amount of money.  While it can seem attractive to have something named for you that will outlive you, you need a lot of money to make it worth the hassle.  You have to file very detailed and complicated annual reports with the IRS, with $100 daily penalties for late filing.  Those filings are open to the public.  And if you or your heirs get careless in managing the foundation, the taxes and penalties can explode, as the gentleman from Texas now knows.

It’s much easier to use a donor-advised fund run by a competent charity, like The Community Foundation of Greater Des Moines.  They take care of the filings and hassles, and you get at least as good of a tax benefit as you get from having your own foundation.

Cite: Zeigenhals (USDC SD-TX, 3:11-cv-00464)

 

20120906-1Special interest break approaches the checkered flag.  The bill to extend the special sales tax spiff for the Newton racetrack passed the Iowa Senate yesterday.   The bill lets the track keep sales tax it collects from customers, up to a 5% rate.

The break was first passed when the track opened, with requirement that 25% of the ownership be from Iowa and with a 2016 expiration.  When NASCAR bought the track, that ended the deal.  SF 2341 extends the deal through 2025 and lets NASCAR, owned by a wealthy out-of-state family, keep this special deal that is unavailable for any other tourist and entertainment facilities competing for Iowa dollars (though an athletic facility under construction in Dyersville will have a similar break).  I’m sure they have a good story why they needed to pass this, but I don’t buy it; the track isn’t going anywhere, and NASCAR bought it knowing they didn’t qualify.

Like much bad legislation, it had bipartisan support, passing 36-9.  There is a glimmer of good news.  The total of nine “no” votes is the most I’ve seen for an “economic development” giveaway.  Hats off to Senators Behn (R, Boone), Bowman (D, Jackson), Chapman (R, Dallas), Chelgren (R, Wappelo), Guth (R, Hancock) , Quirmbach (D, Story), Schneider (R, Dallas), Smith (R, Scott) and Whitver (R, Polk).

 

Time for Project Oblivion!  The Des Moines Register reports West Des Moines data center project gets $18 million in incentives:

Iowa’s next major data center prospect seeking state-incentive money is headed to the Iowa Economic Development Authority with a stamp of approval from the West Des Moines City Council.

The council on Monday endorsed “Project Alluvion” as a consent agenda item without any discussion, offering up to $18 million in local incentives to land the major project.

Council documents show Project Alluvion would create at least 84 jobs and a minimum of $255 million in taxable valuation.

“People might say, ‘Geez, giving $18 million for only 84 jobs.’ The jobs are important, but it’s more than the jobs,” Councilman Russ Trimble said after Monday’s meeting. “It’s going to help us build the tax base and keep property taxes down.”

That’s 214,285.71 per “job.”   So, if we were to move our firm to West Des Moines, that would qualify us for about $7.5 million.  Hey, we use computers — we’re high-tech!  We’d even call it a cool name, like Project Oblivion!  Or Des Moines can pay us to stay, whatever.

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

 

Joseph Henchman, Wisconsin Approves Income Tax Reduction, Business Tax Reforms (Tax Policy Blog).

 

Kris20140321-3ty Maitre, Changes Coming for IRA Rollovers in 2015. (ISU-CALT)  ” So going forward, advise your client to make only one IRA rollover per tax year, or to be on the safe side one rollover every 366 days.”

Peter Reilly, No Margin For Error When Using IRA Rollover As Bridge Loan   

Kay Bell, IRS offers an easier way to deduct your home office 

TaxGrrrl, Taxes From A To Z (2014): M Is For Medicare Payments   

Paul Neiffer, One More Reason Why Tax Reform is Going After Cash Method:

 I ran across a posting on the net farm income and loss reported by Schedule F farmers for 2011 and 2012.  During each of these years, the USDA estimated that farmers had net farm income in excess of $120 billion.

However, on schedule Fs reported by individual farmers, they showed a net loss in 2011 of about $7.11 billion and for 2012 a net loss of $5.06 billion. 

Yeah, “simplification” is really why farmers need accrual accounting.  Not paying tax is a lot simpler.

 

Jeremy Scott, Portman’s Disappointing Tax Reform Plan (Tax Analysts Blog).

Len Burman, Profiles in Courage at the IRS (Really) (TaxVox).  It’s a good post, once you get past the manifestly false statement that the current scandals are “fake.”  And you’ll notice that Doug Shulman, unlike the hero of the Burman post, left on his own terms.

TaxProf, The IRS Scandal, Day 320

 

 

Going ConcernThe Debate Heats Up Over How Many Computer Monitors You Should Have.  The good folks at GC quote some loser who says nobody needs more than one monitor.  Here’s how I feel about the issue:

monitors

Now if the one monitor was, oh, 3′ x 5′, I’d reconsider.

 

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

Tuesday, March 18th, 2014 by Joe Kristan

 

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

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

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

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

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

Your tax return is worth the wait.

 

Russ Fox, The Flavor of the Season

 

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

William Perez, Alternative Minimum Tax

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

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

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

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

 

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

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

I did not know that.

 

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

Republican chances for retaking the Senate have improved… 

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

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

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

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

TaxProf, The IRS Scandal, Day 313

 

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

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

 

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

Tuesday, March 11th, 2014 by Joe Kristan

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

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

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

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

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

wells fargo arena

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

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

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

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

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

Related: The Convention Center Shell Game.

 

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

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

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

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

 

William Perez, Free Tax Software Available Through IRS Free File

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

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

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

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

 

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

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

 

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

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 306

 

Quotable:

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

Milton Friedman, via David Henderson.

 

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

 

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Tax Roundup, 3/4/14: Des Moines votes on refunding illegal tax. And: life after football!

Tuesday, March 4th, 2014 by Joe Kristan

20121002-2Des Moines voters decide today whether to approve a legal tax to refund a similar tax imposed illegally.  The Des Moines Register reports:

A special election Tuesday will determine how the city pays back a portion of a franchise fee it illegally collected from 2004 to 2009.

The Iowa Legislature gave Des Moines the authority to temporarily increase its franchise fee — a tax assessed on anyone who connects to electric and natural gas utilities — to pay off the judgment.

However, if voters reject the proposal, city officials will be forced to raise property taxes for at least 20 years in order to issue and pay municipal bonds to cover the court judgment.

When the tax was ruled illegal, the city appealed all the way to the U.S. Supreme Court before finally conceding that it would have to issue refunds — incurring enormous legal bills in the process, including a $7 million bill to the winning lawyers on the other side.  From the District Court opinion awarding the fee:

This case has been in our courts since 2004.  To say it was highly contested would be a gross understatement.  The history of this case shows that the City, while it was entitled to do so, erected one barrier after another in an attempt to prevent the class from being successful in obtaining a refund.  Almost without exception, class counsel was successful in dismantling each of those barriers.

It just goes to show that the city will do the right thing, once it has exhausted all appeals.  Maybe next time they won’t be so quick to enact an illegal tax.

The state legislature voted to allow Des Moines to impose the tax legally to repay the illegal tax.  Somehow I doubt the legislature would do a similar favor for taxpayers by letting them, say, legally not pay income tax for a few years to help them repay the taxes they had illegally avoided in prior years.  

 

William Perez, Deducting Work-Related Expenses

TaxGrrrl, Taxes From A To Z (2014): A is for Affordable Care Act

Leslie Book, EITC Snapshot: Overclaims and Commercial Preparer Usage (Procedurally Taxing).  “In fact, there is a steady decline in the use of paid preparers among EITC claimants, while the rate of paid preparer usage overall has remained fairly steady.”

Another reason why preparer regulation to cut fraud is like pushing on a string.

Jack Townsend, The Scariest Tax Form? Scary Is in the Eye of the Beholder.  I think the article he cites, which chooses Form 5471, makes a good case, considering the almost-automatic $10,000 fine for filing it late.

Kay Bell,  Tax moves to make in March 2014

 

TaxProf, Tax Court Issues 63-Page Opinion Debunking Cracking the Code Book

 

taxanalystslogoTax Analysts Blog is having a tax reform party:

Clint Stretch, 10 Reasons Republicans Should Embrace the Camp Tax Bill.  This is pretty faint praise:  “2. If they want a credible claim that Obama and Democrats are responsible for the failure of tax reform, they must pass a bill in the House.”

Jeremy Scott, Comparing the Camp and Obama Bank Taxes:

Including the bank tax in his plan is one of Camp’s most intriguing decisions, if only because the gain for him isn’t obvious, even after a closer look. The tax doesn’t raise much money. It is very similar to an Obama proposal that congressional Democrats didn’t really like, meaning it doesn’t buy the chair any bipartisan support. And it comes about four years too late to take advantage of widespread public anger at financial institutions. All Camp seems to have accomplished is legitimizing a revenue raiser for future use by the progressive caucus and undermining his own party’s opposition to this kind of tax increase.

Just… brilliant.  I prefer ending the “too big to fail” subsidy directly, if necessary by denying deposit insurance to such institutions.

Martin Sullivan, 25 Interesting Features of Camp’s New Tax Reform Plan.  “Biggest disappointment. Camp and fellow House Republicans all but promised to reduce the top rate to 25 percent. They failed.”

Christopher Bergin, Tax Reform Only a Mother Could Love:

Many political observers think the GOP has a good chance of not only increasing its majority in the House, but also taking the majority in the Senate. I’m among those who believe that the Republicans will shoot themselves in the foot before that happens. I’ll bet there are more than a few Republicans this week who fear that Camp just put a bullet in the chamber.

I think the Camp plan will be quietly forgotten long before November, but there is still plenty of time for the GOP to demonstrate its skills with a Glock 40.

Norton Francis, Camp Tax Reform Would Create New Challenges for States (TaxVox).  The repeal of the deduction for state and local taxes and limits on muni bonds won’t win friends in the state capitals.

 

National Review, via InstapunditThe IRS Is the Problem:

Representative Camp’s thou-shalt-not list is fine so far as it goes, and, unlike the IRS bureaucracy, Congress does have the authority to rewrite the law. But his proposal falls short in that it assumes that the IRS is a proper and desirable regulator of political speech. It is not. It is not even particularly admirable in its execution of its legitimate mission, the collection of revenue: Its employees have committed felonies in releasing the confidential tax information of such political enemies as the National Organization for Marriage and Mitt Romney, and the agency itself has perversely interpreted federal privacy rules as protecting the criminal leakers at the IRS rather than the victims of their crimes. 

Instapundit comments: “Abolish governmental immunity and make them personally liable for damages for misconduct.”  Hard to argue with that; it would be a good addition to my “Sauce For the Gander” reforms.  I still don’t understand why a nonprofit should lose its exempt status for being primarily political.  Isn’t freewheeling debate a good thing?  The IRS certainly hasn’t shown itself a neutral observer here.

TaxProf, The IRS Scandal, Day 299

 

Scott Drenkard, Johannes Schmidt, Guess Which State Has the Highest Liquor Taxes in the Nation? (Tax Policy Blog).  Think coffee.

 

Preparing for life after football.  Two former members of a Sioux Falls indoor football league team may have to change their post-athletic career plans.  From the Sioux Falls Argus:

A federal grand jury has indicted six people for conspiracy to defraud the United States and aggravated identity theft.

Two of those indicted – Undra Stewart Franks, 27, and Donta Moore, 28 – are former Sioux Falls Storm players.

The new federal indictment says Moore, Franks and the others conspired to defraud victims by using names, Social Security numbers and dates of birth stolen from others to file fraudulent income tax returns that claimed false income tax refunds.

Identity theft isn’t just a Florida thing.  If you deal with Social Security numbers at work, treat them as valuable confidential data — because that’s what they are.  Guard your own identity by never giving out your social security numbers, protecting your bank account info, and being sure never to transmit those things in unencrypted e-mails.  If you need to send documents with that info electronically, use a secure file transfer site, like our rothcpa.filetransfers.net.

 

News from the Profession.  10 People Not Cut Out to Be Partner (Going Concern)

 

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Tax Roundup, 2/25/14: Temporary Permanence Edition. And: Reform week?

Tuesday, February 25th, 2014 by Joe Kristan

20120511-2Some of us just have jobs.  Others have callings.  If you feel you have a calling, it can be very difficult to sway you from your vocation.  Sometimes not even a permanent federal court injunction will do the trick.  

A permanent injunction apparently didn’t stop an Iowan whose calling appears to be to spread the gospel of ESOP.  John L. Henss was already promoting his vision of Employee Stock Ownership Plans when I moved to Iowa as a young CPA in 1985.  By a remarkable coincidence, Iowa had more than its share of tax litigation involving flawed ESOPs over the years (see, for example, here, here and here).

One of the most remarkable cases was the 1992 case of Martin v. Feilen (CA-8, 965 F.2d 660), involving alleged self-dealing and fiduciary breaches among the trustees and administrators of Feilen Meats, an Iowa packer.  Among the defendants was John L. Henss.

Judge Loken authored the decision of the Eighth Circuit on the case, a decision that went badly for Mr. Henss (my emphasis):

Henss was the dominant decision-maker for FMC and the ESOP with respect to all or nearly all the transactions discussed in this opinion. He also holds himself out as an ERISA expert who has structured and provided other services and advice to hundreds of ESOPs. In addition to engaging in the actionable self-dealing we have described, Henss’s trial testimony displayed an appalling insensitivity to the proper role of ESOPs and ESOP fiduciaries. For example, Henss stated repeatedly his view that ESOP fiduciaries are exempt from ERISA’s “prudent man” rule when investing plan assets in an employer’s stock or property.

To summarize, we affirm the district court’s judgment that Henss and Stephen Thielking, and their personal corporations, breached their ERISA fiduciary duties in causing the ESOP to engage in the above-described Transactions Subject to ERISA, and we affirm the district court’s permanent injunction against Stephen Thielking and Stephen K. Thielking, C.P.A., P.C. We modify the permanent injunction against John Henss and John L. Henss C.P.A., P.C., to further enjoin them from acting as a service provider to any ERISA plan. 

So that ended Mr. Henss’ career in the ESOP field, right?  Never underestimate the tenacity of a man with a calling.  His name reappeared in another ESOP case yesterday in Tax Court.  It was a remarkable case, actually, in that a partnership had an Employee Stock Ownership Plan.  But when you have a calling, a lack of a corporation with actual stock won’t stand between you and an ESOP.  But mere tenacity isn’t enough, according to Judge Kerrigan (my emphasis):

Respondent contends that because K.H. Co. was a partnership for tax purposes, it did not have qualifying employer securities. The parties do not dispute that K.H. Co. was a partnership at all relevant times. Indeed, K.H. Co. admits that it filed Forms 1065, U.S. Return of Partnership Income, for tax years ended September 30, 1995 through 2004. Because K.H. Co. was a partnership for tax purposes and did not have any stock, it did not have any qualifying employer securities for purposes of sections 409(l) and 4975(e)(7) and (8) in which the plan could invest. Therefore, petitioner failed to operate as an ESOP pursuant to its terms when K.H. Co. became its employer, sponsor, and administrator. 

But aside from the obvious one, what problems might this ESOP have?  Perhaps the required ESOP stock appraisal, performed for 2000, 2001 and 2002 by none other than John L. Henss.  Apparently “permanent” had already worn off by then.  From the Tax Court:

John L. Henss was chosen to appraise K.H. Co. The administrative record includes appraisals and appraisal summaries for only 2000, 2001, and 2002. Written on “JLH” letterhead, the cover letter of each appraisal states: “At your request, we have prepared an appraisal valuation of KH Company, L.L.C.” The cover letters refer to the “appraised value of common stock of KH Company, L.L.C.” The cover letters are all dated, but none of them are signed.

Mr. Henss’ qualifications are not described in the appraisals. The appraisal summaries state merely: “The undersigned holds himself out to be an appraiser. The undersigned is an accountant who is familiar with the assets being appraised.” Mr. Henss did not sign or date the appraisals or the appraisal summaries. 

     Petitioner claims that Mr. Henss has degrees in English, accounting, and law. Petitioner further claims that Mr. Henss “has been preparing appraisals of stock for employee stock ownership plans for many clients for several years” and that he is the author of a book on ESOPs. Petitioner also contends that Mr. Henss was in all other respects a person who was “independent” as set forth in the statute, the regulations, and the Commissioner’s announcements on the subject.

Section 1.170A-13(c)(5)(i)(A), Income Tax Regs., provides that a qualified appraiser is an individual who includes on the appraisal summary a declaration that he or she holds himself or herself out to the public as an appraiser or performs appraisals regularly. Because there is no signature below the statement on the appraisal summaries that the “undersigned holds himself out to be an appraiser”, the plan failed to meet this requirement. 

Not to mention that he had been enjoined from providing services to ERISA plans — a term that would seem to cover appraisal services.

Whatever the nature of his calling, things haven’t universally gone well in court for clients who have used Mr. Henss.   Perhaps when selecting an ESOP service provider, one might well take federal court injunctions into consideration.

Cite: K.H. Co. LLC Employee Stock Ownership Plan, T.C. Memo 2014-31.

 

taxanalystslogoIt appears the House GOP will release its tax reform plan today.  Tax Analysts Blog is on it:

Martin Sullivan, Can Dynamic Scoring Save Tax Reform? Don’t Count on It

Jeremy Scott, How to Pay for Camp’s Tax Reform Plan

Clint Stretch, The Tax Reform Blame Game

Renu Zaretsky, House GOP Tax Plan Hits This Week; IRS Getting Worked Over But It’s Still Working.  This is a new daily news roundup at TaxVox.

Tax Justice Blog, State Tax Breaks Pile Up.  Government by special favor always has its fans.

 

William Perez, Reporting Unemployment Compensation Benefits

S-SidewalkTony Nitti, Tax Geek Tuesday: 2013 Tax Planning Is Not Finished For S Corporations – How To Purge Problematic Earnings and Profits   

Kay Bell, Most taxpayers support tax preparer competency standards.  I find this a meaningless result, a question posed to people who have given approximately no thought to the issue and who have more developed views of Miley Cyrus than John Koskinen.

Peter Reilly,  New Jersey Gets To Second Guess IRS On Estate Tax Marital Deduction 

TaxGrrrl, Pharrell Williams & The Ultimate Charitable Hat Trick   

 

Liz Malm, Mississippi Lawmakers Consider Firearm Sales Tax Holiday (Tax Policy Blog).  Even for a good cause, sales tax holidays are a bad idea.

TaxProf, The IRS Scandal, Day 292

Is there nothing the tax law can’t do?  Meanwhile in Canada, You Get a Tax Credit For Not Stinking the Joint Up (Going Concern)

 

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Tax Roundup, 2/11/14: Employer mandate “shared responsibility” delayed for some. And: fresh scam!

Tuesday, February 11th, 2014 by Joe Kristan

20121120-2It’s such a disaster, we’re only going to force some employers to do it right now. The IRS has issued final regulations on the employer health insurance mandate that delay their impact on companies with 50-100 employees until 2016.  The “shared responsibility provisions” — such a creepy name — will still apply to employers with 100 “full-time equivalent” employees in 2015.  The Wall Street Journal reports:

 Under the original 2010 health law, employers with the equivalent of at least 50 full-time workers had to offer coverage or pay a penalty starting at $2,000 a worker beginning in 2014. Last year, the administration delayed the requirement for the first time by moving it to 2015.

The new rules for companies with 50 to 99 workers would cover about 2% of all U.S. businesses, which include 7% of workers, or 7.9 million people, according to 2011 Census figures compiled by the Small Business Administration. The rules for companies with 100 or more workers affect another 2% of businesses, which employ more than 74 million people.

You’ll look in vain in either Sec. 4980H, the “shared responsibility” tax code section, or Sec. 1513 of the Affordable Care Act, which enacted 4980H, for anything that says the provision can take effect later than 2014.  Once again the administration is making it up as it goes in a tacit admission that Obamacare is a half-baked mess.  I hope somebody with 100 employees sues the IRS on equal-protection grounds to enjoin this politically-motivated selective enforcement.   To me it’s another clue that the individual mandate will also be delayed, and ultimately abandoned.

Paul Neiffer, Some ACA Relief for Employers with 50 to 99 Employees

Jason Dinesen, The Affordable Care Act and Small Businesses   

Martin Sullivan, Forget Obamacare for a Minute. Here’s Some Good News About Health Policy (Tax Analysts Blog).  

 

Via Wikipedia

Via Wikipedia

New filing season, same old scams.  Our area IRS Taxpayer Liason says this email is circulating:

Dear Applicant,

An Income Tax repayment is a refund of tax that you’ve overpaid.
Internal Revenue Service  ( IRS ) has received new information about your taxable
income you’ve overpaid too much tax through your job or pension in previous years.

There was a mistake with your tax, which an error occurred on your tax return,
and therefore your income reduced. Your employer also used the wrong tax code.

You are eligible to receive a refund of $2670.48 USD as your recent tax refund.
IRS will send you a repayment. You’ll get the repayment either by cheque in the post or by bank transfer.

Please click here to get your tax refund on your Visa or Mastercard now.

Note : Your refund can be delayed for a variety of reasons. For example submitting
invalid records or applying after the deadline.

Best Wishes,

IRS Tax Refund Service Team
Internal Revenue Service.

Of course it is a scam.  Some obvious clues: a real IRS notice doesn’t have to tell you that it’s dealing in “USD.”  We say “checks” in the US; you get “cheques” in Canada, the UK, or other old Commonwealth countries.  IRS doesn’t do refunds on credit cards.  And, of course, the most important clue:  the IRS will never initiate contact you with an e-mail or phone call.  If an email says it’s from the IRS, it’s not.

 

TaxGrrrl, Understanding Your Tax Forms: The W-2   

 

haroldHooray for Hollywood!  Movie Producer Peter Hoffman Charged With Film Tax Credit Fraud.  It involves Louisiana, which continues its co-dependent relationship with Hollywood with film tax subsidies.  Iowa, sadder but wiser, now prefers producer room and board subsidies to Film Tax Credits.

 

Howard Gleckman, Incoming Senate Finance Chair Wyden Outlines His Tax Agenda (TaxVox):

Speaking in Los Angeles to a conference sponsored jointly by the USC Gould School of Law and the Tax Policy Center, Wyden framed his tax agenda around several key issues:

Narrow the gap between taxation of investment income and ordinary income.

Significantly increase the standard deduction.

Simplify and enhance the refundable Child Tax Credit and Earned Income Tax Credit.

Revise savings incentives by creating a new investment account for all Americans at birth, shift savings subsidies from high-income taxpayers to low- and moderate-income households, and consolidate and simplify the current tangle of existing tax-preferred savings incentives.

Enhance job training.

Restore Build America Bonds—a short-lived idea that partially replaced tax-exempt state and local bonds with direct federal subsidies. He’d also seek ways to encourage business to funnel overseas earnings into domestic infrastructure investment.

It’s a disappointing agenda from somebody considered a thoughtful center-left voice on tax policy.   Any tax on investment income is best understood as a double-tax, and I don’t think by “narrowing the gap” he means lowering ordinary inocme rates.  His second, third and fourth points are fine, but the “Enhance job training” and “Build America Bond” proposals are just political pinatas to be broken open by insiders.  If you want to see what jobs training dollars really accomplish, I refer you to Iowa’s own CIETC.

 

TaxProf, The IRS Scandal, Day 278

checkboxJeremy Scott, Check the Box for Tax Avoidance (Tax Analysts Blog).  

The check-the-box rules allowed multinationals to create entities that were treated one way in a foreign jurisdiction and another by the United States. These entities, so-called hybrids, are at the core of companies like Apple’s tax strategies, and they have been used to bring about obscenely low effective tax rates (2.3 percent on $700 billion in foreign earnings, according to the Obama administration).

I think any corporate above zero is obscenely high.

 

Kyle Pomerleau, Proposal to Exempt Olympians’ Prize Money from Taxation: Good Politics, Wrong Solution (Tax Policy Blog)

Kay Bell, IRS takes a bite out of U.S. Olympic medalists’ winnings

 

Keith Fogg, Holding People Hostage for the Payment of Tax – Writ Ne Exeat Republica (Procedurally Taxing). No, he’s not talking about tax season.

 

News from the Profession: PwC Will Probably Be the First Accounting Firm to Replace Interns With Robots.  (Going Concern).  Makes sense, as they were the first to do so with partners.

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Tax Roundup, 2/4/14: Sometimes the tax crime isn’t the worst crime. And the Carnival moves on.

Tuesday, February 4th, 2014 by Joe Kristan

WashingtonRule 23 of George Washington’s Rules of Civility has a lot going for it:

When you see a Crime punished, you may be inwardly Pleased; but always show Pity to the Suffering Offender.

Yet even the Father of His Country might have had a hard time suppressing a smile over a federal tax sentencing in California yesterday.  From the Contra Costa Times:

A former San Ramon family law attorney was sentenced to two years in prison Monday for evading taxes and illegally eavesdropping on a client’s estranged spouse with the help of a now-incarcerated private investigator who set up divorcing men for drunken-driving arrests.

Mary Nolan, 62, of Oakland, already relinquished her law license and paid $469,000 in back taxes Sept. 27 after she pleaded guilty to four counts of tax evasion and one count of illegal eavesdropping.

Nolan represented the ex-wives of two men who were arrested after [the private investigator's] attractive female employees lured them into drinking and driving. Those convictions were expunged after the scheme became known in 2011, when Butler and jailed former Contra Costa Narcotics Enforcement Team Commander Norman Wielsch were caught selling drug evidence and admitted to pimping and robbery, among other crimes.

Oddly, the sentencing judge not only failed to impose the 33-month sentence requested by the prosecution, but he also seemed to think the tax charge was more serious than the honey-trap thing, reports Concord Patch:

Breyer told Nolan during the sentencing today, “To eavesdrop on conversations that clearly weren’t intended for an adversary to hear is a
very unfair thing to do.”

But he said he was especially concerned about the failure of Nolan, as a lawyer, to pay the taxes due.

“What I find most troubling is the fact that you were a lawyer. Lawyers have that special responsibility not just to know the law but to follow it,” he told Nolan.

Yes, evading $400,000 of taxes is a bad thing, whether or not you are a lawyer.  Still, ruining lives setting up and framing people to win divorce cases strikes me as worse than making the IRS work hard for its money.   Maybe when you’re a federal judge, things start to look a bit funny.

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Well, technically “a bunch” isn’t “a smidgeon.”   ‘Not Even a Smidgeon of Corruption’ at IRS, Obama Says.  (Tax Analysts, $link).   If so, it sure is funny how Lois Lerner was so quick to invoke her 5th amendment right against self-incrimination.  

Clint Stretch, Dumb Mistakes Aren’t Crimes.  (Tax Analysts Blog)  He says “IRS employees will not knowingly do someone’s political bidding.”  History shows otherwise.

 

 

TaxProf, OMB: EITC Is 4th Most Error-Prone Federal Program, With 22.7% Error Rate.  If it makes you feel better, the three worse ones are all Medicaid or Medicare.  Makes you want the government and IRS to pay in a bigger role in health care, for sure.

 

Minnesota:  Come for lovely winter weather, and stay for the annual tax hit!  The Minnesota Center for Fiscal Excellence has computed the annual cost for a high-earning individual of life in the tundra.  It’s not cheap:

MNvIA

Of course, beautiful Iowa doesn’t have a lot to crow about, as it looks good only by comparison with Minnesota.  While the hypothetical taxpayer could only buy a nice new sedan annually for the savings of moving from Minnesota to Des Moines, she could buy some really nice wheels every year with a move to Sioux Falls.

 

Tony Nitti, Tax Geek Tuesday: Reasonable Compensation In The S Corporation Arena:

The IRS Fact Sheet provides “The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property…did go to the shareholder…the level of salary must be reasonable and appropriate.”  This language would seem to indicate that there is no requirement that compensation be paid to a shareholder-employee provided the shareholder also foregoes distributions. Even with that bit of guidance from the IRS, it is prudent advice to encourage a profitable S corporation to start making reasonable salary payments to its shareholder-employees as soon as it has the means to do so.

Unfortunately, the IRS has shown that it will attempt to force a salary even when the means are lacking.

Paul Neiffer, You Can File Income Tax Returns Now (Maybe)

 

Jeremy Scott, Making Tax Reform a Partisan Issue (Tax Analysts Blog):

And it isn’t hard to see why. Linking tax reform to the debt ceiling risks making it a partisan issue. Forcing Congress to take up reform is a GOP victory, because it causes Democrats to give up on a clean bill. So Democrats, many of whom are sympathetic to the tax reform process, will have to oppose tax changes because Republicans have politicized the debate, defining tax reform as a win for their side.

Ah, the majesty of government.

 

Lyman Stone, New Study: High Excise Taxes Drive Cigarette Smuggling in Boston, New York, Providence (Tax Policy Blog).  That has to be the most predictable news of the day.

Sad news from Kay Bell “The time has come, however, to put the Tax Carnival on hiatus.”  It’s a lot of work to put one together.  Thanks, Kay, for all of the help you’ve given tax bloggers over the years with the Carnival of Taxes.  So until she feels like reopening the Carnival, let’s have one last ride on the Midway.

20120829-1

 

Going Concern, Here Is a Short List of People Less Deserving of Bonuses Than IRS Employees.  Hard to argue with the list, especially the first two, but I would throw in the other branches as well.

 

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Tax Roundup, 1/14/2014: 4th quarter payment time! And: minimally-effective legislation.

Tuesday, January 14th, 2014 by Joe Kristan

Hey, corporations: federal estimated taxes are due for the fourth quarter of 2013 tomorrow, so you will need to set up your EFTPS payment today!  Individual fourth-quarter payments are also due tomorrow.  Kay Bell explains How to avoid estimated tax penalties.

Via Wikipedia

Via Wikipedia

Misdirected priorities.  The Iowa Senate will reliably prevent any worthwhile income tax reform this year, while making a futile effort to increase Iowa’s minimum wage.  O. Kay Henderson reports:

Democrats like House Minority Leader Mark Smith of Marshalltown plan to press for an increase in the state’s minimum wage.

“Today, many Iowa parents are working two or three jobs that are low-paying, trying to put food on the table and pay the bills,” Smith said. “…We owe it to Iowa to raise the minimum wage, perhaps a dollar an hour now and more in the future. Our experience in Iowa has shown that raising the minimum wage has little effect on businesses, but gives working Iowans hope for a better future.”

David Henderson discusses a new study indicating that the Senate is pursuing an unwise idea:

- Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
– A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
– Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

So a minimum wage boost, even on its own terms, isn’t really there to help the poor.  Of course the price of wages can no more be set effectively by decree than any other price.  It will result in either job loss, benefit loss, or increased workloads.  As one of the studies authors notes:

Because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation. Burkhauser notes that such an effect will not show up in the government data because the data do not measure these non-money parts of the compensation package. But that is small comfort to those who would find themselves with higher-paying but reduced-benefit jobs.

But because that obvious effect is hard for senators to understand, they’ll just pretend it isn’t there.

 

Scott Hodge, The U.S. Has More Individually Owned Businesses than Corporations.  And they earn more income, too:

20130412-1

 

That’s why efforts to make “the rich” pay “their fair share” are job killers.

 

Looking to get Medicaid to pay for Grandma’s nursing home?  Be careful.  Roger McEowen reports “Iowa Supreme Court Reaffirms Extensive Reach of Medicaid Recovery in Granting Department’s Claim against Irrevocable Trust“:

This case again warns practitioners of the limitations of income-only irrevocable trusts in protecting assets from Medicaid recovery in Iowa. Even if clients are willing to (1) risk the look-back period, (2) pay potential gift taxes, (3) forfeit control of their assets, and (4) deprive their heirs of a stepped-up basis at death, they still may not achieve asset protection.

And really, “free” care isn’t necessarily all that great.

 

Courts uphold FATCA rules.  Court Rejects Banking Associations’ Challenge to Regulations Addressing Offshore Tax Avoidance.  (Department of Justice Tax Release) “The regulations require U.S. banks to report to the Internal Revenue Service (IRS) information about accounts earning more than $10 of interest beginning in 2013 that are held by nonresident aliens of all countries with which the United States has a tax treaty or other information exchange agreement.”

20130419-1Of course not.  The IRS Scandal, Day 250: FBI Says No Criminal Charges in IRS Probe. (TaxProf)  They didn’t even contact the victims until recently, and they have apparently decided that, with respect to the disclosure of confidential information to ProPublica, the left-side reporting outfit, was just one of those things.  I doubt if you or I would get a pass for something like that.  That’s what happens when you have a Justice Department that is more a lookout than a watchdog.

 

Tony Nitti, Tax Geek Tuesday: Using ‘Land Banking’ To Minimize Tax On Property Development   

Martin Sullivan, Stop Beating on the IRS.  (Tax Analysts Blog) I think the IRS gives at least as good as it gets.

So true: The IRS Has Better Things To Do than the RTRP Designation (Russ Fox)

William Perez discusses the Taxpayer Advocate’s 2013 Annual Report to Congress

Jason Dinesen, But Seriously — How Do Taxes Work If You’re Married to More than One Person?  Interesting question, but anybody in that situation has more pressing non-tax issues.

TaxGrrrl, Will Overstock Force IRS To Make Up Its Mind About Bitcoin? 

Jeremy Scott, Financial Product Reform Might Not Be Imminent (Tax Analysts Blog)

 

The Critical Question:  Should It Bother Us that Boeing Says It Needs a Tax Incentive to Make Its Planes Safe? (Tax Justice Blog).  It should bother us that they realistically think legislatures are dumb enough to believe that.

Good luck with that.  Monte Jackel Puts Tax Blog Behind Subscriber Firewall, reports the TaxProf, with a $350 annual subscription rate.  I am embarrassed to learn of this blog just now, and I wish him luck.  Meanwhile the Tax Update subscription rate continues to be $0.00 (except for those wonderful folks who pay a nominal monthly charge to get it delivered to their Kindle).  In light of Mr. Jackel’s move, though, I may double that rate.

 

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