Posts Tagged ‘Jeremy Scott’

Tax Roundup, 9/1/15: If the taxman takes your car, recode your garage door. And: jobs, $211,111 each.

Tuesday, September 1st, 2015 by Joe Kristan
1974 mercedes

A 1974 Mercedes scheduled for IRS auction 8/31/15 at Bama Jammer Storage, Huntsville, AL.

As if having your car seized by the taxman wasn’t bad enough. The Treasury Inspector General for Tax Administration, in a report on IRS handling of property seized for tax nonpayment, notes a potential problem if the IRS takes your car:

However, during our discussions with IRS employees involved in the seizure process, we determined that there was no guidance on what actions to take if seized vehicles are equipped with installed navigation or garage door opening systems. Additionally, except for one employee, everyone we spoke with had not considered what actions to take if they seized a vehicle with one of these systems. While we do not have any examples in our case reviews of this situation occurring, it is in the taxpayers’ and Government’s best interest that employees are prepared if seizures involve these types of systems. If these systems are not reset to the original factory settings, there is a risk that the third-party purchaser of the vehicle can gain access to the taxpayer’s personal information or property. For example, the purchaser could use the vehicle navigational equipment to locate a taxpayer’s residence and then use the garage door opener to gain access to the home.

I have to admit, it wouldn’t have occurred to me either. It’s easy to forget that cars are also more and more data systems. Still, computerized data probably wasn’t an issue with the 1974 Mercedes pictured above that was scheduled for auction by the IRS yesterday in Huntsville, Alabama.


O. Kay HendersonBranstad defends state tax incentives for new Kum & Go headquarters:

Governor Terry Branstad today called the “Kum & Go” convenience store chain a “great…family-owned”, Iowa-based business and he has no objection to the nearly $19 million in state tax incentives it will get for moving the company headquarters to downtown Des Moines.

The convenience store chain is moving its headquarters about 10 miles from West Des Moines to Downtown Des Moines. It is getting $6.33 for every Iowan for its trouble. I’m sure Kum & Go is a perfectly nice company, and I don’t blame them for taking money the state is giving away, but there are lots of nice employers who don’t get $211,111 in state tax breaks for each new job they create. The unfortunate ones have to pay some of the highest business tax rates in the country to help pay for those who do benefit from tax breaks.

For perspective, check out Jared Walczak, Location Matters: Effective Tax Rates on Corporate Headquarters by State (Tax Policy Blog). “Today we’ll take a look at states’ effective tax rates on new and mature corporate headquarters.”  Have a look:


For this ranking, Iowa is the fourth worst. Giving millions to one company doesn’t fix it for everyone else.


Robert D. Flach has fresh Buzz for us today. Robert buzzes about blog posts he’s found about higher taxes, due dates, and the “Cadillac tax” on high-cost health plans — which seems to be most of them nowadays.

Russ Fox, The Hospital’s Closing; Who Will Notice the Missing Charity Money? Apparently one of the doctors, with unfortunate tax results.

TaxGrrrl asks Which State Has The Highest Property Taxes In America?

Kay Bell, IRS gets so-so rating so far on Yelp. Well, I’d never eat there.

Leslie Book, Legislative Language Directs IRS To Make Self-Prepared EITC Claims More Burdensome (Procedurally Taxing).




TaxProf, The IRS Scandal, Day 845. Today the Prof links to Robert Wood’s Court Orders IRS To Reveal White House Requests About Taxpayers. The White House will surely appeal, waiting until the last minute to file for it, and drag the process out as long as possible. This is good news, though: “Finally, though, the court ruled that the IRS cannot hide behind a law used to shield the very misconduct it was enacted to prohibit.”

The stonewalling doesn’t mean there was misconduct. By stonewalling everything, the administration makes it hard to unearth misdeeds; as an added bonus, when a painful and drawn out process finally forces the administration to yeild innocent information, it makes the investigators look silly while sapping their resources.


Jeremy Scott, Trump’s Lack of Specifics on Tax Is Hardly Unique (Tax Analysts Blog). ” There are many reasons to dislike Trump and his ill-defined platform (which seems mostly based on nativism and reality-show-style demagoguery), but his lack of policy details at this stage of the game is hardly unique.”


News from the Profession. AICPA Lays the Smackdown on Dear Abby (Greg Kyte, Going Concern)



Tax Roundup, 8/18/15: Oh, THOSE 200,000 hacks — the Get Transcript debacle worsens. Also: Crips, blog tax, and more!

Tuesday, August 18th, 2015 by Joe Kristan
This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Get Transcript debacle, revised and extended. IRS Commissioner Koskinen’s perfect record of getting things wrong the first time rolls on. The man who famously assured us that there were no more Tea Party emails, and they weren’t backed up, only to be proven repeatedly wrong, now tells us that the hack of the “Get Transcript” hack was much worse than they had let on. Ars Technica reports:

More than three months after the Internal Revenue Service shut down its online tax transcript service because of a massive identity theft effort, the IRS is now acknowledging that the number of affected taxpayers is more than three times the agency’s initial estimate. And the number of affected taxpayers may continue to grow as the agency digs into logs of hundreds of thousands of connections to its Get Transcript application over the past year. 

Commissioner Koskinen was billed as a “turnaround artist” for a struggling IRS. I guess I just don’t understand art. The IRS continues to send billions of dollars to identity thieves, most far less sophisticated than the (presumably Russian) outfit that hacked the transcript application. For example:

Fourteen reputed gangsters from Plainfield, Elizabeth and Newark have been indicted on charges ranging from tax fraud to murder following a seven-month investigation into alleged financial scams that helped sustain their criminal organization.

All 14 members and associates of the Elizabeth-based 111 Neighborhood Crips street gang were charged under the state’s Racketeer Influenced and Corrupt Organizations statute, or RICO.

If you can’t keep the 111 Neighborhood Crips from electronic tax theft, you don’t stand much chance against Russian organized crime.

The TaxProf has a roundup. More coverage:

Caleb Newquist, IRS Was Just Kidding When It Said Cyber Criminals Tried to Access Tax Return Information for 225,000 Households. “It was quite a few more than that, actually.”

Russ Fox, IRS Data Breach Impacted 334,000, Not 100,000 as IRS First Said. “Being a cynic, I wonder if the IRS’s announcement last week regarding free credit monitoring services has to do with today’s announcement.

TaxGrrrl, IRS Releases Additional Statement On Illegal Access To Taxpayer Accounts

Kay Bell, Uncle Sam, watch TV! You need these kind of tech-savvy staffers to fight growing tax & government website hacking. Actually, it appears the IRS already relies on fictional characters to protect its systems.




Annette Nellen, Highway Trust Fund and Tax Reform

Robert Wood, A $35 Million Wedding? Yes, Before Taxes:

But suppose you’re all about business? Is it possible to write off the cost if you’re inviting all your clients and customers?

Dream on.

Patrick Smith,D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 2). On the bankers’ challenge to FATCA.

Peter Reilly, Travel Blogger Finds Sex, Drugs Even Some Museums But No Tax Deductions. Sex, drugs, but no tax rock ‘n roll.

Paul Neiffer travelblogs the First Day of the Midwest Crop Tour, looking at good corn in South Dakota and Nebraska. No word on how his deductions are doing.


Honey princesses at the Iowa State Fair.

Honey princesses hold court at the Iowa State Fair.


Jeremy Scott, Lessig Is Probably Wrong About Extenders (Tax Analysts Blog):

Maybe some would argue that all this is part of a grand conspiracy. The president, left-leaning think tanks, and Republicans conspire to create a debate over extenders that lets the GOP and its allies (many Democrats do in fact support permanent credits for research, state and local sales taxes, depreciation, and other items) constantly churn money from donors. But that doesn’t seem very plausible.

Maybe not, but it sure does get the lobbyists to show up for the summer golf fund-raisers.


TaxProf, The IRS Scandal, Day 831

News from the Profession. CPA Thought He Was Out, Gets Pulled Back In (Caleb Newquist, Going Concern).

If you were a CPA who testified in the trial of two NYPD officers dubbed the “Mafia Cops,” no one would doubt you if you said, “I could never ever, I will never ever, be a CPA again.”

But he did. It doesn’t appear to be going well.


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

Tuesday, August 11th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

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

MR. RICHMOND: I guess it was.

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

Decision for IRS.

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

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




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

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

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


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

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

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

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

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

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

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

William Perez, Communicate Effectively with Your Tax Preparer




TaxProf, The IRS Scandal, Day 824

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

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



Tax Roundup, 6/23/15: A foolproof tax prep scam! And more.

Tuesday, June 23rd, 2015 by Joe Kristan

One week left! To file your FBAR Form 114 reports of foreign financial accounts.


ice truckDid a Davenport preparer e-file different returns than he showed his clients? That’s what federal prosecutors allege. They have accused a Davenport man of preparing accurate tax returns for clients, but then e-filing different returns claiming larger refunds, diverting the extra refunds to his own account.

If true, the case is interesting in two ways.

First,It appears to have been based on fraudulent Schedule C sole proprietorship filings. These can be used to create sham losses to create extra refunds, or to create sham earned income to generate earned income tax credit. It was most likely an EITC scam, as fake schedule A deductions work as well for deductions, but not at all for generating refundable EITC.

Second, it was a horrible idea. It’s hard to imagine how he thought he would ever get away with filing returns different from what the client approved. Inevitably there would be a notice or other problem that would bring the scam to light. But the cops don’t spend their days chasing geniuses.


Robert Wood, Record 27 Years Prison For Tax Fraud, Beating Tax Fraud Queen’s 21 Years. The guy allegedly collected 7,000 Social Security numbers and scammed $1.8 in stolen refunds. Considering the hassle he created for the rightful holders of those numbers, that sounds about right.

buzz20141017Robert D. Flach has Tuesday Buzz for you, covering the ground from Trump to Kansas.

William Perez, Tax Advice for Cannabis Entrepreneurs. Speaking of buzz.

Hank Stern, CO-OPs: That flushing sound you hear…  It appears that other Obamacare health co-ops may go the way of Iowa’s CoOportunity.

Keith Fogg, Contrasting the Compromise Standards between the Chief Counsel, IRS and the Department of Justice in Litigated Cases (Procedurally Taxing)

Jack Townsend, Two More Swiss Banks Enter DPAs under US DOJ Swiss Bank Program. Swiss bank privacy is over. Taxpayers who have been counting on it need to check in with their attorneys.


Jeremy Scott, Supreme Court Could Create $353 Billion Deficit Problem (Tax Analysits Blog):

The wait continues for the Supreme Court’s decision in King v. Burwell — the Court did not release the opinion on June 22. If the Court decides in favor of King — basically making residents of 34 states ineligible for healthcare credits — that will gut President Obama’s healthcare reform effort, essentially leaving lawmakers with the choice to either fix or repeal the Affordable Care Act. Republicans are eager to do the latter, but the Congressional Budget Office may have made that more difficult. The CBO says that outright repeal would cost $353 billion over 10 years based on a static scoring model.

It’s a bit strange to think that it’s the Republicans’ responsibility to fix a law that was incompetently drafted by a Democratic Congress. And the House and Senate don’t seem inclined to follow that path anyway. 

It’s not the Supreme Court that would create the problem. It would be the administration and its Congressional allies that passed an unworkable and incoherent lawwith no support at all from the other party.

Kay Bell, No Supreme Court word yet on Obamacare subsidies,
but another part of the health care law is closer to repeal
. “The House voted on June 18 to get rid of the medical device tax.”




Dita Aisyah, Tax Extenders: Take Them or Leave Them, Part 2 (Tax Policy Blog):

Currently, all 50 or so tax extenders are expired for 2015, but Congress will likely pass them retroactively as they have in the past.

Some tax extenders are genuinely good policy, while some are bad. However, the concept of an extender is silly. They create unnecessary uncertainty for individuals and businesses who need to make important long term financial plans.

This very uncertainty creates the need for lobbyists to make annual pilgrimages to Congress to beg for another year of tax breaks. I suspect that Congress likes it that way.


Kyle Pomerleau, Senator Rand Paul’s Payroll Tax Swap. “One striking feature of the tax plan is that it eliminates payroll taxes.”

Bob McIntyre, Detractor Dangles Shiny Objects to Obscure Facts about Rand Paul’s Deficit-Inflating Flat Tax Proposal. (Tax Justice Blog). A left-wing tax site calls the Tax Foundation right-wing.

Steven Rosenthal, The Rich get Richer, with a Little Tax Help (TaxVox).

TaxProf, The IRS Scandal, Day 775. Today’s entry covers a non Tea Party organization whose exemption was stalled because it held views disapproved by the Administration.


News from the Profession. There’s a Lack of Talent to Succeed Accounting Firms Because the Talent Doesn’t Exist (Caleb Newquist, Going Concern). “A recent survey of accounting firm partners from the CPA Consultants’ Alliance found that over half of respondents (51.7%) said procrastination or denial was a primary cause for firms’ succession troubles.”



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

Tuesday, June 16th, 2015 by Joe Kristan


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

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

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

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


Jason Dinesen, Choosing a Business Entity: Basic Terminology

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

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

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

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

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


2008 flood 1


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

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

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

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

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

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

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




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

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

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

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

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




Tax Roundup, 5/20/15: April 15 is on April 18 next year. And: exit > voice.

Wednesday, May 20th, 2015 by Joe Kristan

20140805-3It looks like we’ll be working an extra weekend next April. Thanks to the puzzling rules regarding the observance of Emancipation Day in Washington D.C., the deadline for 1040s next year will be April 18 – even though April 15 falls on a Friday. Residents of Massachusetts and Maine get even one more day. From Rev. Rul. 2015-13:

The District of Columbia observes Emancipation Day on Friday, April 15 when April 16 is a Saturday. This makes Monday, April 18, the ordinary due date for filing income tax returns. However, in this situation, Monday, April 18, is the third Monday in April, the date that Massachusetts and Maine observe Patriots’ Day. Because residents of Massachusetts and Maine may elect to hand carry their income tax returns to their local IRS offices, A (a Massachusetts resident) has until the next succeeding day that is not a Saturday, Sunday, or legal holiday to file A’s income tax return. Thus, A has until Tuesday, April 19, to file A’s income tax return.

I suppose I will appreciate the extra time when the deadline comes, but I would really just as soon get it over with.

Kay Bell has more.


Update on Iowa effects of Wynne decision. The Iowa Department of Revenue public information officer responded to my inquiry about the state’s reaction to Monday’s Supreme Court decision requiring states to allow a credit on resident individual returns for taxes paid in other states: “We are in the process of reviewing the decision.”

Not surprising, as it is a new decision. If you have a refund statute of limitations expiring soon, don’t wait on their guidance to file a protective refund claim for income taxes paid in non-Iowa municipalities.


20150504-2Alito on the limits of politicsThe dissent in Wynne said that Maryland resident taxpayers afflicted with a discriminatory double tax on out-of-state income shouldn’t have prevailed becasue they had recourse to the ballot box to protect their interests. Writing for the majority, Justice Alito pointed out that this does little good (my emphasis):

In addition, the notion that the victims of such discrimination have a complete remedy at the polls is fanciful. It is likely that only a distinct minority of a State’s residents earns income out of State. Schemes that discriminate against income earned in other States may be attractive to legislators and a majority of their constituents for precisely this reason. It is even more farfetched to suggest that natural persons with out-of-state income are better able to influence state lawmakers than large corporations headquartered in the State. In short, petitioner’s argument would leave no security where the majority of voters prefer protectionism at the expense of the few who earn income interstate.

This is actually a powerful argument to limit the role of government in the first place. One voter has negligible power to overthrow unfair legislation. In the one-party rule typical of large American cities, political activity for a minority view is futile, Jim Maule notwithstanding.

20140513-1Arnold Kling points out how market institutions, which hold no elections but allow choice, can actually be more empowering for an individual:

Neither my local supermarket nor any of its suppliers has a way for me to exercise voice. They don’t hold elections. They don’t have town-hall meetings where they explain their plans for what will be in the store. By democratic standards, I am powerless in the supermarket.

And yet, I feel much freer in the supermarket than I do with respect to my county, state, or federal government. For each item in the supermarket, I can choose whether to put it into my cart and pay for it or leave it on the shelf. I can walk out of the supermarket at any time and go to a competing grocery.

The exercise of voice, including the right to vote, is not the ultimate expression of freedom. Rather, it is the last refuge of those who suffer under a monopoly.

He argues  that we should be able to choose governing institutions more like we choose other service providers:

In fact, if we had real competitive government, then we would be no more interested in elections and speaking out to government officials than we are in holding elections and town-hall meetings at the supermarket.

He makes this argument more detail in his book Unchecked and Unbalanced). Somehow I don’t think that will go over well with our current officeholders.



Russ Fox, The Real Impact of the Wynne Decision: “However, many states do not give credits for local taxes. Joe Kristan highlighted Iowa today; Kentucky is another state that does not currently offer such tax credits. Under Wynne I believe they’ll be required to offer such credits.”


Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums ($1 Million for acquisition debt and $100,000 for home equity debt – no limit on grandfathered debt), and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.

I firmly believe that 99.5% of taxpayers do not do this. I do not know of any taxpayer who does.

The clients don’t, but that doesn’t mean preparers shouldn’t watch out for these items. When taxpayers have interest on multiple home loans, or very high home interest deductions, alert preparers have to ask questions to make sure the deductions and AMT are determined correctly.

Annette Nellen, Filing season tax updates

Robert Wood, Floyd Mayweather Gambles, Wins, Pays IRS:




Another ACA Co-op on the ropes? Hank Stern reports at Insureblog that the Kentucky health care cooperative is insolvent. That means it may go the way of Iowa’s short lived and expensive catastrophe Co-Oportunity.


Jeremy Scott, Hawkins Casts Powerful Shadow Over OPR (Tax Analysts Blog):

Hawkins will probably always face at least some criticism because of the overreach of the preparer regime, and some accusations that she was too favorable to the large practitioner groups such as the ABA and the American Institute of Certified Public Accountants. But she should more properly be remembered as the person who brought coherence to IRS Circular 230 enforcement and essentially rebuilt OPR from scratch.


In fairness, the preparer regulation overreach was decided above her level.


Scott Sumner, A consumption tax is a wealth tax (Econlog). “For any income tax regime, there is a consumption tax regime of equal progressivity. Unfortunately that equally progressive regime will look much less progressive. This is one of the biggest barriers to tax reform.”

Kyle Pomerleau, What are Flat taxes? (Tax Policy Blog):

When most people hear “Flat Tax,” they usually think a tax system with one, flat tax rate on all income. They also imagine a tax system with little or no deductions or credits. While this is a possible way to design a flat tax, it is not what makes a flat tax a flat tax. The key to a flat tax goes beyond its rates. The key is that it is a consumption tax. You would not call a low-rate tax on all transactions in an economy a flat tax, even though it had one, flat rate.





Howard Gleckman, Are GOP Presidential Candidates Downplaying Tax Cuts Or Hiding The Ball? Referring to Joseph Thorndike, he says: “Joe, who is very much in the watch-what-they-do-not what-they-say (WWTDNWTS) camp, noted that while few GOP presidential hopefuls are talking about tax cuts, many of their proposals are, in fact tax cuts.”

TaxProf, The IRS Scandal, Day 741


Caleb Newquist,  “Just Ask the Guy” Not Always a Futile Fraud Detection Method (Going Concern).  Not foolproof, though.



Tax Roundup, 5/13/15: Des Moines tries to speed through a red light. And: Tax Expert, heal thyself.

Wednesday, May 13th, 2015 by Joe Kristan

DNo Walnut STes Moines plans to sue to keep revenue camera revenue flowing. The Des Moines tax on unwary out-of-town motorists driving past Waveland Golf Course lost another battle yesterday.  The Iowa Department of Transportation turned down the city’s appeal of the Departments order to shut down the city’s freeway speed cameras (Des Moines Register)

As seems to be the practice when it imposes an illegal tax, the City now plans to blow a bunch of money on lawyers rather than obey the law, reports the Register:

Des Moines will appeal the ruling to district court, officials said.

Iowa is the only state in the United States that has permanent speed enforcement cameras on its interstate highways, according to the DOT, which in late 2013 adopted new rules governing the use of the devices on or next to state highways.

A few years ago Des Moines was caught imposing an illegal franchise tax on its residents’ utility bills. Rather than apologizing abjectly and refunding the ill-gotten gains, it appealed all the way to the U.S. Supreme Court, losing every step of the way. In the end it had to repay the tax, the city lawyers, and the taxpayer lawyers for a bunch of pointless litigation. The city still seems to favor that approach.


Flickr image by Ano Lobb under Creative Commons license.

Flickr image by Ano Lobb under Creative Commons license.

The cobbler’s children go barefoot. Mr. Hughes, a U.S. Citizen, had a successful career at one of international accounting firm KPMG. Tax Court Judge Wherry tells of an impressive career arc (my emphasis):

During his tenure at KPMG Mr. Hughes rose through the ranks and moved among KPMG’s international offices. Between September 1979 and 1994 he worked in the firm’s international tax group in Houston, Chicago, and Toronto, earning promotions from staff accountant to manager, from manager to senior manager, and finally, in 1986, to partner. During this period his duties shifted from preparing corporate and partnership Federal income tax returns to advising clients, particularly publicly traded corporations. Mr. Hughes also began to specialize in the international aspects of subchapter C of the Code and cross-border transactions, particularly mergers and acquisitions (M&A). He returned to the Chicago office and continued with his transactional work for publicly traded corporations.

A key aspect of M&A work is gain recognition and the basis consequences of transactions.  Transactions like this:

During 1999 KPMG spun off its consulting business to a newly formed corporation, KCI. The firm retained a direct equity stake of approximately 20% of KCI’s outstanding shares, and these shares were specially allocated among KPMG’s partners, including Mr. Hughes (K-1 shares), in January 2000. KPMG caused KCI to issue shares representing the remaining 80% of its equity to KPMG’s partners, including Mr. Hughes, who received 95,467 shares of KCI stock (founders’ shares) on January 31, 2000. Mr. Hughes did not contribute funds to KPMG in connection with KCI’s formation. He took zero bases in the founders’ shares.

So far, so good. Mr. Hughes along the way married a U.K. national and gave shares to his wife. There things begin to get a little foggy. The shares were sold at a time the couple resided in the U.S. , and the taxpayers did not claim full proceeds in income, on the grounds that the recipient spouse received a tax-free step-up in basis when she received the shares in the U.K. After clearing away some fog, the Judge lays out the remaining issues:

The first two are: (1) whether Mr. Hughes transferred ownership of the KCI shares to Mrs. Hughes, and (2) if so, whether Mrs. Hughes took bases greater than zero in the KCI shares. For petitioners to prevail, we must answer both questions affirmatively.

20120511-2When you give shares, or anything else, to a spouse who is a U.S. citizen, Sec. 1041 applies to provide that no gain is recognized and basis carries over. Sec. 1041 doesn’t apply to non-U.S. spouses. The Tax Court explains what happens:

Where, as here, an interspousal property transfer takes the form of a gift, no gain is realized, so regardless of whether section 1041(a) applies, there is no gain to be recognized…

The donee, on the other hand, realizes an economic gain upon receipt of a gift. His or her wealth increases by the value of the gift. But for tax purposes section 102(a) excludes this gain from the donee’s gross income. To preserve the U.S.’ ability to tax any unrecognized gain in property that is the subject of the gift, section 1015(a) sets the donee’s basis in the property equal to the lesser of the donor’s basis (or that of “the last preceding owner by whom it was not acquired by gift”) or if there is unrecognized loss, then for loss purposes, the property’s fair market value.

The taxpayer, who doubtless guided many clients through harrowing cross-border M&A deals unscathed, failed to achieve that on his own return. The court ruled that not only did he owe additional tax, but also a 40% “gross valuation misstatement penalty”:

Given his extensive knowledge of and experience with U.S. tax law, Mr. Hughes should have realized that the conclusion he reached — that the KCI shares’ bases would be stepped up to fair market value, such that the built-in gain in those shares would never be subject to tax in either the United States or the United Kingdom — was too good to be true.


Cite: Hughes, T.C. Memo 2014-89


Locust Street, Des Moines

Locust Street, Des Moines


Paul Neiffer, “Cost don’t Matter, Except When it Does”

Jason Dinesen, Marriage in the Tax Code, Part 8: 1920s Court Battles

TaxGrrrl, 11 Reasons Why I Never Want To Own A House Again

Calling Baton Rouge. Baton Rouge producer pleads guilty to film tax credit fraud (

Baton Rouge producer pleads guilty to film tax credit fraud:

“Louisiana’s film tax credit program cannot function as intended when people are constantly defrauding it,” said Louisiana Inspector General Stephen Street. “We are continuing to do everything we can to make sure there are criminal consequences when that happens, and today’s guilty plea is the latest example of that.”

Au contraire, as the Cajuns might say. I think that’s pretty much exactly how these things are intended to function.

Kay Bell, Duck Dynasty’s Louisiana state tax credits could be winged


David Brunori, A Flat Income Tax is a Good Thing (Tax Analysts Blog). “Every — and I mean every — tax commission that has ever opined on good tax policy has called for a tax system built on a broad base and low rates.”




Howard Gleckman, Is the GOP’s Enthusiasm for Tax Cuts Going the Way of American Idol? A question answered “no” since at least 1981.

Andy Grewal, The Un-Precedented Tax Court: Part I (Procedurally Taxing) ” Although the court purportedly exercises the judicial power (more on that in a later post), most of its work product is not judge-like.  That is, the Tax Court decides most of its cases as an administrative office would, without setting precedent.”


TaxProf, The IRS Scandal, Day 734, featuring Peter Reilly’s IRS Not Grossly Negligent In Disclosure Of Exempt Application. High standards, not.


Jeremy Scott, Unexpected Tory Victory Has Major Ramifications for Europe (Tax Analysts Blog). “Defying polls, pollsters, and the specter of a hopelessly fractured Parliament, the Conservatives won a resounding victory in the U.K. election last week.” Just note that I arrived in Scotland with Labour leading the Tories 41-1 in Scotland. By the time I landed in Des Moines, the Tories held the same number of Scottish seats as Labour. No wonder I felt so tired.


Graphic from BBC


News from the Profession. Grant Thornton Not Gonna Let Some Rich Guy Drag Its Good Name Through the Mud and Get Away With It (Caleb Newquist, Going Concern).



Tax Roundup, 4/1/15: No fooling – if you reached 70 1/2 last year, take a distribution by today. And: Freedom on April 17!

Wednesday, April 1st, 2015 by Joe Kristan

IMG_1212They don’t call them “required” distributions for nothing. If you reached 70 1/2 years of age in 2014, first, congratulations! Second, today is the deadline for you to take your first required minimum distribution from your (Non-Roth) IRA or SEP, and, if you have retired, from your defined-contribution retirement plan. The rules for the two types of plans are slightly different.

The tax law doesn’t want your retirement plan assets to be growing tax-free forever. That’s why the RMD rules were enacted. You are required to pull an annual taxable amount out based on your remaining life expectancy, determined by IRS tables.

The first required distribution must be taken by April 1 of the year following the year in which you turn 70 1/2. That means you, if you were born after June 30, 1943 and before July 1, 1944. Subsequent distributions have to be taken by December 31. That means if you are taking your first one today, you’ll need to take another one this year.

If you don’t have a spouse 10 years younger than you, you can compute your IRA distribution at this table. If you do, use this table instead. You will need to know your IRA balance as of December 31, 2014.

And if you don’t take your distribution on time? A 50% penalty tax on the amount you should have withdrawn. That would hurt.

This is the first of our 2015 filing season tips. Come back daily through April 15 for more!


Russ Fox, Bozo Tax Tip #9: 300 Million Witnesses Can’t Be Right!:

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Yet, somehow it didn’t land on his 1040. Things went badly.


People in Iowa get in tax trouble too. St. Charles man sentenced to prison for filing false tax return (Osceola Sentinel-Tribune).


Tax Freedom Day is April 24, The Tax Foundation Announces:

Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income. In 2015, Americans will pay $3.28 trillion in federal taxes and $1.57 trillion in state and local taxes, for a total tax bill of $4.85 trillion, or 31 percent of national income. This year, Tax Freedom Day falls on April 24, or 114 days into the year. 


The big day is a day later than it was last year. As state taxes differ, states have different Tax Freedom Days. The first one is Louisiana, which arrives tomorrow. New York and Connecticut have to wait until May 13. Iowa celebrates fittingly on my next day off, April 16.


William Perez, How Saving for Retirement Can Reduce Your Taxes

Kay Bell, Time to choose between a Roth or traditional IRA

Jason Dinesen, Iowa Adoption Credit and Deduction. “The Iowa deduction for adoption expenses is also still available, and there is a relationship between the credit and the deduction.”

Robert Wood, Five Ways To Audit Proof Your Tax Return Against The IRS. For example, “Don’t claim flaky deductions.”

TaxGrrrl,Taxes From A To Z (2015): S Is For Scams


Keith Fogg, Impact of Bankruptcy Determination of Tax Liability on Tax Court Case and on Assessment Timing (Procedurally Taxing). “When a taxpayer goes into bankruptcy, a new forum for tax litigation opens up, or potentially opens up, based on section 505 of the Bankruptcy Code.”




TaxProf, The IRS Scandal, Day 692. Today the TaxProf says that Commissioner Koskinen has put all this unpleasantness behind him:

The IRS has fixed its errors, such as improper extra scrutiny of Tea Party groups, and they won’t happen again, the tax agency’s commissioner said Tuesday.

“The changes are so significant throughout the agency that you could hang a sign out at the front of the headquarters saying ‘Under New Management,’” Internal Revenue Service Commissioner John Koskinen said in a speech at the National Press Club in Washington.

Uh-huh. And there were no more Lerner emails, and the Commissioner had made sure he looked very hard for them.


Oh, goody. The Rich Are Finally Paying More in Taxes (Jeremy Scott, Tax Analysts Blog). Oddly, he thinks that’s a good thing. But ultimately, the rich guy isn’t buying. And when you try to smack “the rich,” you are really going after employers.

Source: The Tax Foundation

Source: The Tax Foundation


David Brunori, Transparency: Good for the Tax System, Critical for Good Government (Tax Analysts Blog):

Modern state tax policy has been dominated by cravenness and cronyism. But every once in a while, politicians muster the courage to do the right thing. Several proposals have been advancing in legislatures that will bring more transparency to state fiscal systems. I cannot overstate the importance of these measures.

Cronies and cockroaches prefer darkness.


Howard Gleckman, Is a Consumption Tax Talk Making a Comeback? (TaxVox)


Robert D. Flach emerges from his 1040 cave just long enough to do a little Showboating. He’ll get the reference.


That’s not funny! Accountants Ruin Joke (Caleb Newquist, Going Concern)


Tax Roundup, 3/11/15: The $195 pass-through timely-filing incentive. And: taxing your neighbor may just send him your retailers.

Wednesday, March 11th, 2015 by Joe Kristan

7004 cornerExtend your corporations! The deadline for corporation returns looms. This year it’s March 16, as the usual March 15 deadline is on a Sunday.

The need to file or extend C corporation returns by Monday should be obvious. A failure to file penalty starts 5% of any underpayment, up to 25%, and 100% of the corporate tax is due by March 15 even when you extend.

Failing to meet an S corporation deadline can be even more expensive. How can that be? After all, S corporations don’t usually pay tax. What’s the big deal?

Blame Congress, which has used S corporation late-filing penalties as pay-fors for tax breaks. Congress has now made the penalty $195 per month, Per K-1. So an S corporation return with ten shareholders that is one day late racks up a $1,950 penalty. A S corporations can have up to 100 shareholders — and more when family members own shared – you can see that the numbers can get big in a hurry.

Missing filing deadlines has other bad consequences. You lose the ability to make automatic accounting method changes for the late year, for example; this can be costly, especially if you have lots of depreciable assets. You also lose the ability to 20130415-1make many other elections that can only be made on a timely-filed return. And, of course, you increase the risk of audit. While extended returns don’t increase audit risk, late filings certainly do.

Extensions can be obtained automatically on Form 7004, which can be filed electronically. If you must paper file, go Certified Mail, Return Receipt Requested, to prove timely filing.



David Brunori is, as usual, wise in his post Local Sales Taxes are Poor Revenue Options (Tax Analysts Blog). “I think the biggest problem with local option sales taxes is that they afford politicians the ability to export tax burdens.”

I think it might be more accurate to say that it deludes politicians into thinking they can export tax burdens. Over time, the effect is to export retail into the next jurisdiction that doesn’t impose the local option tax. Anyone who has observed the outward march of retail to the suburbs over the last century or so, and the death of the first generation of malls that sucked the retail out of down at the hands of newer malls, knows retail can move. But I’m sure that the localities that drive out their retailers with a local sales tax will try to bribe them back with TIF financing.


IMG_0603Jack Townsend, TRAC Publishes Statistics on Tax and Tax-Related Prosecutions. “Year after year, April consistently has the greatest number of criminal prosecutions as a result of IRS investigations — two-thirds or more higher than those seen in January.”

I’m pretty sure that’s that’s designed to encourage the rest of us.


William Perez, Deducting Health Insurance Premiums When You’re Self-Employed. The nice thing is that when you qualify, this is an “above-the-line” deduction; you don’t have to itemize.

Paul Neiffer, IRS Provides Guidance on Repair Regulations. “Last week, the IRS actually provided some very good practical Q&A guidance on these Regulations that should provide great comfort to many of our tax preparers and farmers.  I wish that this guidance had been provided several months ago, but it is better late than never.”

Peter Reilly, IRS Busts In Las Vegas Tip Case. “I really think the Service would have been better off if they had settled with Mr. Sabolic rather than setting this precedent and encouraging more tipped employees to drop out of the program.”


Annette Nellen covers Use Tax Lookup Tables, which are handy for those good citizens who actually pay their use taxes on mail-order purchases.

Jana Luttenegger Weiler talks about Financial Literacy at Tax Time (Davis Brown Tax Law Blog)

Jason Dinesen shares his Tax Season Tunes: 2015. He’s a Gordon Lightfoot fan. I’m more Punch Brothers and, of course, Fleeting Suns.

Jim Maule, Tax Courses and Food. “At the risk of seeming crude, the idea of tax law making someone want to eat strikes me as the opposite of reality.” Something to drink, I can definitely see.


Richard Borean, Annual Release of “Facts & Figures: How Does Your State Compare?” (Tax Policy Blog). This is a wonderful resource, putting summary information from all of the states, including rates, per-capita tax burdens, business tax climate rankings, and much other data all in one place.




Robert Wood, Feds Launch Internet Sales Tax Again, So Better Click While You Can. I think he’s against the “Marketplace Fairness” bill.


TaxProf, The IRS Scandal, Day 671. This is interesting:

In September 2014, during a House Oversight Committee hearing on the Lerner e-mails, IRS Commissioner John Koskinen said it’s policy not to use personal e-mail.

“One of the things we’re doing is making sure everybody understands that you cannot use your e-mail for IRS business,” he said. “That’s been a policy; we need to reinforce that.”

Say what you will about Lois Lerner, she didn’t set up




You don’t say. Improving Deficit Numbers Don’t Make Obama a Deficit Hawk (Jeremy Scott, Tax Analysts Blog) “The CBO’s new baselines will undoubtedly be touted by President Obama as showing that he is keeping his promise to shrink the deficit, but those who think the president is a deficit hawk should note that the smallest deficit projected during this administration ($462 billion in 2017) is still larger than the deficit he inherited ($458 billion in 2008).”

Howard Gleckman, Watch What You Wish For: Dynamic Scoring Creates More Issues for the GOP (TaxVox)

Caleb Newquist, Accounting Programs, Ranked (Going Concern). None of UNI, Iowa State or Iowa are listed in the U.S. News top 10. That makes it obviously wrong.

Kay Bell, Tourists, students to act as tax spies for Greek government. Greece cements its hold on the title of laughingstock of public finance.



Tax Roundup, 2/24/15: Iowa gas tax boost vote may be today. And: are tax credit subsidies on the way out?

Tuesday, February 24th, 2015 by Joe Kristan

It looks like the gas tax increase will come to a vote today, reports the Des Moines Register:

Rep. Josh Byrnes, R-Osage, who chairs the Iowa House Transportation Committee, said Monday he expects a tight vote. He added that talks were continuing among House Republicans.

“I don’t think we’d bring it up for debate if we didn’t think we had the votes,” Byrnes said.

It sounds like a done deal. At least that’s what they want everyone to think.


20120906-1Iowa has just announced a big new set of tax breaks for an out-of-state company, in the name of  “economic development.” But are “targeted” tax subsidies on the way out? Ellen Harpel says they might be in Beyond tax credits: creating winning incentive packages (


Tax credits have become problematic for several reasons:

  • Tax credits are often presented as no-cost incentives. That is, tax credits are not taken (incentives “paid out”) until the company has met certain thresholds and has started paying the taxes against which the credit is taken. However, as this article in the Wall Street Journal points out, the fiscal costs are substantial. It is not clear to us that other taxes expected to be generated by incentivized projects either materialize or are sufficient to fill the budget gap.
  • One reason might be that tax credits are more important to existing businesses than firms new to a location, based on our review of major incentive deals, so an incentivized project may not generate as much new tax revenue as anticipated.
  • Once the tax credits have been granted, states do not know when businesses will choose to take the credit, wreaking havoc on state budgets, possibly for decades depending on the terms of the tax credit arrangement.
  • Some tax credits are refundable (paid back to the company if their tax liability is not high enough to take the credit) or transferable (sold to another taxpaying entity). Film tax breaks often fall into this category, lowering the taxes paid by other taxpayers that are not the direct target of the incentive.

Using tax credits in this manner is not sustainable. To the extent economic development organizations continue to use tax credits, caps and limits will become the norm.

As long as politicians can get media outlets to run headlines like “New $25 million plant will bring 120 jobs to Iowa,” tax credits remain “sustainable” for vote-buying politicians. If they really wanted to help everybody — not just chase smokestacks — they would enact something like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.



WSJ, Tax-Subsidy Programs Fuel Budget Deficits


If Iowa’s tax climate is so bad, why do businesses locate here? A hint may be found here: J.D. Tucille, Florida, the Freest State in the Country? “California, New York, and New Jersey always rank near the bottom of these lists as intrusive, red tape-bound hellholes.”


Via the John Locke Foundation

Via the John Locke Foundation

Iowa is #13.

The First in Freedom Index actually draws from a lot of the sources that have been cited here before, including the Fraser Institute’s Economic Freedom of North America as well as Mercatus Center’s Freedom in the 50 States, the Tax Foundation’s State Business Tax Climate Index, and measures put together by the Center for Education Reform, among others. To this, the North Carolina group adds its own weight and emphasis. 

Imagine how attractive Iowa could be without a bottom-10 tax climate.


Russ Fox, “Ripping Off Your Refunds” In the Miami Herald. “There is an excellent article in the Miami Herald on the identity theft tax fraud crisis. ”

TaxGrrrl, Tax Professionals Targeted In Latest Bogus IRS Email Scam. You can fool all of the people some of the time.

Robert Wood, Can IRS Seize First, Ask Questions Later? ‘Yes We Can’.

Kay Bell, NASCAR Hall of Fame and homeowner tax breaks collide. Another subsidized municipal boondoggle.

Peter Reilly, Estate Intended For Charity Depleted By Litigation And Income Tax. A sad story, and a cautionary tale for estate planning.


20121120-2Hank Stern, More Delays on HRAs:

For example, pre-ACA, small employers could fund “standalone” HRAs that allowed employees to pay for privately purchased health insurance (among other things). This encouraged employees to buy the plan best suited to their needs, and employers could control costs because they weren’t beholden to a group carrier’s annual rate in creases.

Sadly, those days are gone.

Everybody must be forced into the exchanges to participate in the ACA’s cross-generational subsidies.


William Perez, Problems with Form 1095-A

Jared Walczak, Will Mississippi Eliminate Its Antiquated Franchise Tax? (Tax Policy Blog). It’s a tax that can be a nasty surprise to a business entering that state.


Alan Cole ponders The President’s Revenue Problem (Tax Policy Blog):

It’s popular to claim that you’ll fund a big new government program through a tax on investors. The strong ideological priors of the political press tell us that investors are earning huge amounts of money, and that’s where the income is.

But the math tells us otherwise. Here’s what the tax bases for wage income and capital income actually look like in practice, from my recent report on sources of personal income.


Tax Update regular readers already know that the rich can’t pick up the tab.


Jim PagelsNumber of American Corporations Declines for 17th Straight Year (

The report claims that the reduction in the number of incorporated firms is not so much due to inversions, mergers, or bankruptcy, but rather more firms classifying themselves as S Corporations, in which profits pass directly to owners and are taxed as individual income. Individual rates are typically lower than the U.S. corporate tax rate, currently the highest among members of the Organisation for Economic Co-operation and Development at 35 percent federal plus an additional 4.1 percent average rate levied by individual states.

This is why you can’t do a “corporate-only” tax reform.


Jeremy Scott, Does the United States Really Need a Tax Revolution? (Tax Analysts Blog): “Those who say that tax reform doesn’t go far enough and that the nation needs a revolutionary change are probably overstating the problem.”

Martin Sullivan, The Tax Reform Supermarket (Tax Analysts Blog). “Slowly but surely, members of Congress are coming to the painful realization that conventional, Reagan-style tax reform is going nowhere.”


Howard Gleckman, Better Ways to Link the Affordable Care Act with Tax Filing Season (TaxVox). “But since the ACA insurance is so closely linked to tax filing, it only makes sense to synch that sign-up period with tax season.”  I have a better idea: have health insurance purchases be totally unrelated to tax season, by getting rid of the whole misbegotten ACA.



TaxProf, The IRS Scandal, Day 656, quoting the Washington Times:

The White House told Congress last week it refused to dig into its computers for emails that could shed light on what kinds of private taxpayer information the IRS shares with President Obama’s top aides, assuring Congress that the IRS will address the issue — eventually. The tax agency has already said it doesn’t have the capability to dig out the emails in question, but the White House’s chief counsel, W. Neil Eggleston, insisted in a letter last week to House Committee on Ways and Means Chairman Paul Ryan that the IRS would try again once it finishes with the tea party-targeting scandal.

Just like it couldn’t possibly find the 30,000 emails that TIGTA dug up from the back-up tapes.


News from the Profession. The PwC Partner Who (Sorta) Looks Like Matt Damon and Other Public Accounting Doppelgangers (Adrienne Gonzalez, Going Concern)



Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.


Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.



Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.


younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382” restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.


Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (; Megan McArdle, Cities Dig for Profit by Penalizing the Poor




Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns


Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.



Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.


TaxProf, The IRS Scandal, Day 642.


Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.



Tax Roundup, 2/3/15: President announces fresh new hopeless tax proposals!

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

160 tax proposals. Close to 160 doomed tax proposals. The President released the details of the tax proposals for his 2015 budget yesterday. Tax Analysts Reports ($link):

The added details on international reforms the administration is seeking serve as “a significant step forward” to flesh out its business tax reform framework and see if there is an “opportunity for movement” on business reform with Congress, a senior Treasury official told reporters at a February 2 briefing on the release of the Treasury’s green book explanation of the revenue proposals in the budget.

Overall, the fiscal 2016 budget includes roughly 160 tax proposals, of which about 30 are new, 45 are modifications or combinations of old proposals, and 85 are the same or similar to the administration’s fiscal 2015 budget, the Treasury official said.

Almost all of these proposals are doomed for this Congress. As most of these couldn’t pass when Democrats controlled the Senate, they’re hardly likely to pass now that they don’t. A GOP Congress is also not about to pass some of the more publicized class warfare proposals, like the increase in the capital gain rate, the taxation of capital gains at death, increase the estate tax rate to 45% (from 40$) and lowering the estate and gift tax lifetime exclusion to $1 million (from $5+ million).

No Walnut STA few proposals might get a sympathetic hearing on their own from GOP taxwriters. These include:

– Cash basis accounting and repeal of Section 263A inventory capitalization for companies with up to $25 million in gross receipts.

– Permanent extension of the Section 1202 exclusion for qualifying small C corporation stock gains.

– Permanent extension of the refundable Child Tax Credit.

– Increasing the maximum Section 179 deduction from $500,000 to $1 million.

A few other corporate welfare gimmicks that might get a hearing include permanent research credits and permanent New Markets Tax Credits.

While there are a few items that might attract GOP support, overall this batch of proposals is more extreme than the ones that went nowhere before. The President probably won’t let Congress just pick out the tasty bits from his proposals, so I expect little to none of this to actually pass.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

Jeremy Scott, Obama’s Foreign Earnings Tax: 19 Percent Minimum DOA but Deemed Repatriations Key (Tax Analysts Blog)

Kyle Pomerleau, The President’s Tax on Offshore Earnings Represents the Worst of Retroactive Policy (Tax Policy Blog)

Len Burman, Are Accrued Capital Gains Income in the Year You Die? (TaxVox). “But reclassifying exceptionally thrifty middle-class families to the top of the income distribution by counting a lifetime of unrealized gains in income when they die clearly overstates their well-being.”

Tony Nitti, Tax Aspects Of The President’s FY2016 Budget

TaxGrrrl, Obama Budget Proposal Tackles Small Business, Changes To IRS

Kay Bell, Tax highlights in Obama’s FY2016 budget proposal

Annette Nellen, President Obama’s 2015 Tax Proposals



Megan McArdle, Government Blinks Again on Obamacare, a discussion of the IRS announcement that it won’t impose the failure-to-pay penalty on exchange policy purchasers who have to repay some subsidy:

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Affordable Care Act is a lot less strong than the will to distribute the benefits.

It also telegraphs that the IRS expects that a lot of taxpayers who are anticipating a refund will be instead writing a check on April 15.


20140925-2Peter Reilly, Repair Regs And Tax Pros Are Like Headlights And Deer:

For the most part, the people who have been really looking at these regulations have had a large firm perspective.  To be a just a little cynical, they actually kind of like all this complexity, since they can make a case for sending out big bills to entities that can afford to pay them.  My brief time at the national level, not Big 4, but with many former Big 4 people made me realize there is a radically different perspective at that level.  They are used to having a very small number of competitors for any client who more or less sing from the same hymn book.  The client people that they deal with are quite likely fellow members of the Big 4 cult rather than tight fisted entrepreneurs who resent every penny they spend on professionals.

Regulation always favors the big, and the “repair regulations” are no exception.


Russ Fox, Fake Interest Income, Fake Withholding, Real Fraud at the Tax Court. “What is amazing to me is that the petitioner has not, as far as I can tell, been criminally indicted.”

Robert Wood, The Truth About Lying On Your Tax Return.  “…as with your resume, making up something on your tax return is a terrible idea.”

Martin Sullivan, JCT Report Provides New Insight on Competitiveness (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 635


News from the Profession: How Internal Controls Will Keep You Safe From Velociraptors (Leona May, Going Concern).



Tax Roundup, 1/27/15: IRS waives late payment penalty for ACA tax credit recapture. And more!

Tuesday, January 27th, 2015 by Joe Kristan

20140413-1Be thankful for small favors. Perhaps millions of taxpayers will face an unhappy surprise this tax season thanks to the Affordable Care Act. The ACA provides a tax credit to help taxpayers up to 400% of the poverty level pay for insurance purchased on an ACA exchange. The credit is computed based on an estimate of the taxpayer’s household income and paid directly to the insurance company; the premium paid by the taxpayer is reduced by the same amount.

At tax time, the policyholder-taxpayers have to compare their actual income to the income they estimated when they bought the policy. If the actual income is higher than what was estimated, they may have to repay thousands of dollars in credits paid to the insurers.

Yesterday the IRS provided some cold consolation (Notice 2015-9) for these folks, for 2014 returns only. If they can’t come up with the cash to pay the tax on April 15, the IRS will waive the penalty for late payment of taxes if the amount is reported on a timely return. They are also waiving penalties for underpayment of estimated tax attributable to the credit.

20121120-2Taxpayers claiming the waiver are just supposed to file the return without the payment for the recaptured excess credit. Then when the IRS sends an underpayment demanding payment with penalties, they are supposed to respond with a letter saying “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.” That will go over well, I’m sure. They also have pay up by April 15, 2016, with interest.

These waivers don’t cover the separate penalty for failing to carry health insurance — the “individual mandate” — because the IRS can’t assess penalties for not paying it in the first place.

Unfortunately, the IRS has not yet issued a blanket waiver for the much more severe penalties on employers with non-compliant premium reimbursement arrangements (“Section 105 plans“). We’ll see if the IRS wants to tangle with the thousands of 2014 waiver requests they will receive if they don’t issue a blanket waiver, one-at-a-time.


Tony Nitti, IRS: No Penalties For Late Repayments Of The Premium Tax Credit

Megan McArdle, Reality Check on Obamacare Year Two

Me: The ACA and filing season. Be afraid.


Robert D. Flach brings you your fresh Tuesday Buzz, including advice about checking information returns and choosing a preparer.

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole. “Tucked in the middle of the housing bill was a provision that had absolutely nothing to do with housing: a new requirement that banks and credit card merchants to report payments to the IRS.”

Kay Bell, Don’t become a tax identity theft victim. Good idea.

William Perez, A First Look at TaxACT Free File Edition

Russ Fox, The Form 3115 Conundrum: “This year there’s a conundrum faced by tax professionals: Do we need to file a Form 3115 for every taxpayer who has equipment, depreciation, rental property, inventory, etc.?”

I think we will need many 3115 filings, but I don’t think they are required for everyone. As Russ notes, nobody seems to know for sure.

Robert Wood, How Yahoo’s Alibaba ‘Sale’ Skirts Tax Billions, Buffett-Like.

Peter Reilly, A Free Kent Hovind Might Have Backing For A Bigger Better Dinosaur Theme Park. It really is an amazing world.


Stephen Entin, The President Proposes a Second Tax on Estates (Tax Policy Blog):

The step-up in basis is no loophole. The step-up is needed to prevent double or triple taxation of the same assets. Without it, the president’s plan could result in a 68 percent tax rate on capital gains upon death (the inheritance would be taxed at the 40 percent estate tax rate plus the proposed 28 percent tax rate on capital gains).

It’s worse than that, considering inflation and the fact that those assets were purchased with after-tax income in the first place.

Jeremy Scott, Three Early Signs of What to Expect From Congress (Tax Analysts Blog): “It will be unpredictable.”

IMG_1116TaxProf, The IRS Scandal, Day 628 “The pattern begins with blatant denials — bald lies — and stonewalling. … Next in the pattern, when the lies fail, comes the attribution of responsibility to the lowest level of bureaucrat. …”

Martin Sullivan, Is There Now a Window of Opportunity for Tax Reform? (Tax Analysts Blog). Spoiler: “We will have to wait until 2017 for any real progress on tax reform. And by no means is there any guarantee of movement then.”

Howard Gleckman, Is Dynamic Scoring of Tax Bills Ready For Prime Time?

Sebastian Johnson, Sam Brownback’s White Whale. “Little did Kansas voters know that in reelecting Sam Brownback they were actually voting for a vengeful old sea captain obsessed with one issue above all others – eliminating the state’s personal income tax.”


Career Corner. Stop Using These Played Out Words in Your LinkedIn Profile Immediately (Adrienne Gonzalez, Going Concern)



Tax Roundup, 1/13/15: Another bad day for Mr. Banister in Tax Court.

Tuesday, January 13th, 2015 by Joe Kristan

Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.

lizard20140826“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.

In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.

This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):

During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.

The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.

It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.

Mr. Banister tried to use his own medicine to fight the IRS:20120511-2

During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.

It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.

Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly  to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.

The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.

I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.

Cite: Banister, T.C. Memo 2015-10

Russ Fox has more: The Second Time Wasn’t the Charm


20120620-1Busy day, so just some quick links.

Robert D. Flach has fresh Tuesday Buzz,  with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.

Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.


Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).

Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:

Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.

Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.


Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):

TaxProf, The IRS Scandal, Day 614


Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)


Tax Roundup, 12/17/14: Lazarus rises! For two weeks, anyway. Senate passes extender bill.

Wednesday, December 17th, 2014 by Joe Kristan

The Senate has passed the extender bill and sent it to the President. The Hill reports:

By a 76 to 16 vote, the Senate passed a measure that would extend more than four dozen tax breaks for both businesses and individuals just through 2014.

Republicans and Democrats latched on to the one-year deal after the White House undercut negotiations on a broader bipartisan package, underscoring divisions between Democrats in the wake of this year’s heavy losses at the polls. Senators from both parties said Tuesday that they would have preferred legislation that restored the tax breaks through 2015.

20130113-3The President is expected to sign. That means we now know what the 2014 tax law is with two weeks left in the year. Unfortunately, all of the revived provisions die again on January 1, and Congress will have to go through this whole exercise to raise Lazarus again.

What does this do for year-end planning?

Fixed asset frenzy. Taxpayers who can place fixed assets in service between now and year-end can qualify for the $500,000 Section 179 deduction or 50% bonus depreciation.

The Section 179 rule allows taxpayers to fully deduct the cost of up to $500,000 in assets placed in service during 2014 that would otherwise be capitalized and depreciated over a period of years. It can apply no new or used property. It is normally unavailable for real estate or rental property. It is limited to taxable income, and it phases out dollar-for-dollar as fixed asset acquisitions exceed $500,000.

Bonus depreciation enables taxpayers to deduct 50% of the cost of qualifying property in the year in which it is placed in service. The remaining cost is depreciated under normal depreciation rules. It is only available for new property with a life up to 20 years, but it is not limited by taxable income or amount of assets placed in service, so it can generate net operating losses.

Remember that the tax law applies special limits to both Section 179 and bonus depreciation for vehicles.

S-SidewalkS corporation Built-in gains. The tax law requires S corporations to pay a 35% corporate-level tax on “built-in gains” included in taxable income during the “recognition period” after the convert from C corporation status. “Built-in gains” are income items, including appreciation of asset values, that exist at the time a C corporation becomes an S corporation.

This rule was enacted in 1986 with a ten-year “recognition period.” The tax goes away after the recognition period is over. The bill reduced the recognition period to five years for gains recognized in 2014. That opens tax planning doors. Taxpayers that have been S corporations for more than five years can unload appreciated assets. Taxpayers in their fifth S corporation year can reduce their taxable income to push any gains recognized this year past the recognition period — assuming this provision is extended to 2015.

IRA donations. The extender bill revives the provision allowing IRAs owned by individuals subject to the minimum distribution rules to make direct donations of up to $100,000 to charity. These donations do not show up as income or as itemized deductions on the owner returns.

Other tax breaks revived through the end of 2014 include the research credit, the deduction for state and local sales taxes, the educator expense deduction, charitable donations of conservation easements, and energy production tax credits. The Tax Policy Blog has more coverage, including a complete list of the extended benefits.

Other coverage:

Paul Neiffer, Senate Passes Tax Extender Bill 76-16

Robert D. Flach, FINALLY!



20130426-1Neil GandalWhy Does Uncle Sam Hate American Expats?  (Wall Street Journal, via the TaxProf):

The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.

But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.

The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back.

Our thumbless Congress, eager to to score cheap political points by cracking down on international “millionaires and billionaires,” has inadvertently, but effectively, made it ridiculously difficult for ordinary Americans working overseas to commit personal finance. They have enacted horrific financial penalties for petty paperwork violations. And the IRS has enforced these penalties under the assumption that everyone with an overseas account is a crook.


Tony Nitti, Have You Heard The One About The Tax Credit That You Pay To The IRS? It’s the premium tax credit under ACA that many taxpayers will have to repay with their tax returns in April.

Kay Bell, Noah’s Ark park loses state tax breaks (but Christmas is safe)


taxanalystslogoJeremy ScottSlashed Budget Shows IRS’s Failure to Build Political Support (Tax Analysts Blog, my emphasis):

Republicans made it clear that the cuts to the IRS were in response to the agency’s recent actions. The GOP has a long laundry list of complaints: the payment of IRS bonuses, the failure to accurately and timely answer questions about the exempt organization scandal, old training videos, and the cost of Obamacare implementation. With the exception of the last item, the Service has been tone-deaf in its response to Republicans. In fact, one might even call some of its vague and misleading answers outright defiance of the House majority. That’s an odd strategy for an agency crying out for more resources to take.

Regular readers know that this is my view also. I agree with this too:

Those who criticize the GOP’s handling of the various IRS scandals have a point. But lost in their reflexive defense of the Service are valid Republican complaints about the IRS’s lack of transparency and responsiveness. For whatever reason, the Service decided that it wouldn’t cooperate with Republicans over the scandal. Maybe it thought the GOP wouldn’t be reasonable. Maybe it thought giving clear answers and admitting obvious wrongdoing would be more damaging to its prospects than being opaque and evasive. Well, it was wrong — both in hindsight, given the budget passed over the weekend, and at the time, given the agency’s duty to be nonpartisan.

Read Mr. Scott’s whole piece. The result will be bad for taxpayers, but the IRS leadership can look in the mirror for someone to blame.

Howard Gleckman, The War on the IRS. As Jeremy Scott notes, the IRS is its own worst enemy in this war.


TaxProf, The IRS Scandal, Day 587. Featuring a contrarian take on the scandal from Peter Reilly.

Robert Wood, 20 Facts About IRS Targeting, Those Emails And The White House


News from the Profession. Going Concern Presents: The Worst of Auditing 2014 (Adrienne Gonzalez, Going Concern)



Tax Roundup, 12/9/14: Just because your manager steals your payroll taxes doesn’t get you out of them. And: Rashia!

Tuesday, December 9th, 2014 by Joe Kristan

No news on extenders yet. 


EFTPSDouble the pain: Idaho business manager steals payroll taxes, but IRS still wants them. An implement dealer in Idaho hired a manager to run day-to-day operations. He learned the hard way that while you can delegate your payroll tax function, you can’t escape it.

The taxpayer, a Mr. Shore, hired Mr. Lewis to run Bear River Equipment, Inc. (BRE), a McCormick Tractors dealership. Mr. Lewis had managed the dealership before Mr. Shore acquired it, so it seemed a sensible hiring decision.

Things started to go wrong quickly. Mr. Lewis failed to remit payroll taxes in his first year running the dealership. Mr. Shore kept up with the business by phone and made quarterly visits, according to a U.S. District Court judge, and he also reviewed financial results. This process enabled him to note unpaid taxes in 2005, the first year of operations, and he had Mr. Lewis get them caught up.  As owner, Mr. Shore had checkbook authority, but he let Mr. Lewis take care of it for him.

The judge explains how things went very wrong (my emphasis):

In August 2007, Shore received notice from an Internal Revenue Service Agent that there were some serious issues with BRE’s employment taxes for 2006 and 2007. This notice was the first time Shore became aware that BRE’s 2006 and 2007 payroll taxes had not been paid. Shore subsequently learned that Lewis had been embezzling from BRE, failing to pay creditors or pay BRE’s taxes, and stealing BRE’s assets. Upon discovering Lewis’ fraud, Shore fired Lewis and took over management of BRE.

Not a good hire, in hindsight. It proved fatal to the business:

Shore ultimately decided to close BRE because he believed he could not pay all of the liabilities and contribute sufficient working capital to keep the company going. Before closing the company, however, Shore allowed more than $120,000 from BRE’s checking accounts to be paid to unsecured creditors other than the United States.

Via Wikimedia Commons

Via Wikimedia Commons

As it turns out, that was a false move. The tax man gets really, really upset when payroll taxes aren’t remitted to the IRS. The business was incorporated, which protects owners from most liabilities incurred inside the corporation. The tax law, though, allows the IRS to collect payroll taxes from “responsible persons,” regardless of the existence of the corporation, if there is a “willful” failure to remit. The court held that Mr. Shore was a “responsible person” even though he didn’t run the business day-to-day:

…despite delegating his authority to Lewis and permitting him to run BRE’s daily affairs, Shore remained a “responsible person” because he had effective control of the corporation and the effective power to direct the corporation’s business choices, including the withholding and payment of trust fund taxes.

It’s not enough to be “responsible.” The tax law requires “willful” nonpayment of employment taxes to assess them against a responsible person. The $120,000 payment was a bad fact, according to the court:

Here it is undisputed that Shore learned of BRE’s unpaid tax liability in August 2007. It is also undisputed that BRE paid more than $120,000 to unsecured creditors after Shore learned of BRE’s tax liability. Shores’ failure to remedy the payroll tax deficiencies upon learning of their existence in August 2007, while subsequently allowing corporate payments to be made elsewhere, including to unsecured creditors, constitutes “willful” conduct under § 6672.

The Moral? There are a number of lessons to be drawn here. One is basic accounting controls. It appears that the manager had far too much control over the accounting function and bank accounts, enabling him to loot the company, and the payroll tax account, before the owner caught on.

Even with poor accounting controls, though, the owner could have detected the non-payment of payroll taxes. These are supposed to be remitted under the Electronic Federal Tax Payment System (EFTPS). Users of EFTPS can log into their payroll tax account and monitor their payments. Had Mr. Lewis done so, he might have detected the failure to make payments that ultimately ballooned into a million-dollar payroll tax deficiency.

Cite: Shore v. U.S., DC-ID, No 1:13-cv-00220


Gas Tax Fever: Branstad Weighs Proposed Gas Tax ( “On Monday Governor Branstad said he would keep an open mind on raising the tax if a bipartisan plan came to his desk and he’s hopeful lawmakers can come to some agreement this coming year.”


Mason City Sundog Morning. It’s cold here today.

Peter Reilly, Chief Counsel Advice Provides Timely Warning About 1099 Filing Requirements. “A recently released memo from the IRS Chief Counsel – CCA 201447025 – drives home for me the point that there is probably a lot of exposure out there from not filing 1099s.”

Robert D. Flach has your Tuesday Buzz, with a typically rich set of tax links, including one to Prof. Maule’s thoughts on being nice to siblings.

Jason Dinesen, 5 Things About EAs: We’ve Been Around Since 1884

Paul Neiffer, Are We Getting Section 179 Fatigue? “After purchasing a lot of equipment over the last 4 years to take advantage of Section 179, I am not sure how much capital is still available to purchase even more equipment to get the Section 179 deduction.”

Kay Bell, Attention older IRA owners, your RMD is due by Dec. 31

Michael Schuyler, The Government’s Tax-Transfer System Is Extremely Progressive (Tax Policy Blog):

In November, the Congressional Budget Office (CBO) released the latest annual edition of its report on the distribution of household income and federal taxes, with data for 2011. The CBO study confirms that the federal tax system is progressive. It further shows that government transfers to households are also progressive.

It appears that way:

transfer-tax ratios

Chart from Tax Policy Blog


Jeremy Scott, The New GOP Congress and the Congressional Budget Office (Tax Analysts Blog). “If Republicans accept the premise that shaking up congressional staff would make it look like they are rigging the process in favor of their proposals, that undermines the logic behind their priorities to begin with.”

Isabel Sawhill, The Lee-Rubio Family-Friendly Tax Is a Disappointment (TaxVox)

Martin Sullivan, Rand Paul Puts Chokehold on Cigarette Taxes — He’s Got a Point (Tax Analysts Blog).:

But there are still 42 million smokers in the United States. Nicotine is extremely addictive. These folks should elicit our compassion, not our contempt. And if we are going to fine them for their sins, the revenues should not inure to our benefit.

State governments are loathe to give up their nicotine fix.


TaxProf, The IRS Scandal, Day 579


Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

Rashia gets time off. The self-proclaimed “Queen of IRS Tax Fraud” will return from exile a little sooner, thanks to an appeals court decision yesterday. From Tampa Bay Online:

A federal appeals court has thrown out Wilson’s two sentences, ruling that senior U.S. District Judge James S. Moody Jr. made procedural errors that may have increased her total prison term by more than 3 1/2 years.

Her convictions stand and Moody retains discretion. But he must recalculate the formula he used to determine punishment and he must resentence Wilson, now 29, at a future hearing.

Ms. Wilson is unlikely to be coming home right away. She is serving a 21-year sentence on charges related to identity theft refund fraud. She got in trouble after taunting the IRS on her Facebook, which also included photos of her posing with wads of stolen cash.  The article explains the background for the sentencing reduction:

The original sentencing was especially complex because Wilson was indicted twice in 2012. In one case, she pleaded guilty to possessing guns, illegal for a felon. In another, she admitted to netting more than $3 million through aggravated identity theft and wire fraud.

When using social media, sometimes it pays to be discreet.



Tax Roundup, 11/25/14: Administration complicates extender negotiations. And: Instant Tax Service has to stay dead.

Tuesday, November 25th, 2014 by Joe Kristan

Programming note: The Tax Update will be on the road for Thanksgiving starting Wednesday. Have a great weekend, see you Monday. 


Economic supergenius

Nice Section 179 deduction you have there. Hate to see something bad happen to it.

Extenders as extortion. The administration yesterday complicated the negotiations on the extension of the perpetually-expiring tax provisions by demanding an extension of the refundable child credit and a permanent expansion of the fraud-ridden earned income tax credit, the New York Times reports.

It’s obnoxious to throw a new welfare program provision into the extender negotiations at this late date, but a lame-duck administration has nothing to lose by trying. While I still think the $500,000 Section 179 deduction will be extended retroactively to January 1, this makes me a lot more nervous.

If anything good comes of this extortion attempt, it’s that it highlights the unwisdom of passing tax provisions temporarily if you don’t really want them to be temporary. Every time you need to re-enact them, you open yourself up to just this sort of shakedown.

Other coverage from The Hill: White House skeptical of possible deal on tax breaks and Lew: Avoid ‘wrong approach’ on tax breaks


TaxGrrrl, 10 Expired Tax Provisions That Might Affect You In 2014 and Kay Bell, Congress fighting over which business and individual tax extenders to make permanent


"Fez" Ogbasion, Instant Tax Service CEO.

“Fez” Ogbazion, Instant Tax Service CEO.

Appeals court says Instant Tax Service has to stay deadThe Sixth Circuit has upheld the 2013 ruling that put Instant Tax Service out of business. ITS, which had 150 franchise operations in a number of states, primarily in low-income inner-city locations, had shown up frequently in stories alleging shady tax prep practices (like this).

ITS was found to have encouraged its franchisees to prepare “stub returns.” These are returns preparered off of year-end pay stubs, rather than W-2 forms. The injunction also found that the franchisor used deceptive pricing and marketing practices.

ITS and its owner, Fez Ogbazion, argued the injunction was improper and overbroad. The appeals court considered the ITS appeal on the stub return issue:

Defendant Ogbazion agreed during his testimony that “[i]f you prepare a tax return using a pay stub, it’s not always accurate and does not always have all of the information on there,” and “[w]hen using a pay stub to prepare a tax return, the income information can be off for a variety of reasons.” …  And ITS employee Boynton, who had been a tax return preparer before she became a manager, agreed during her testimony that she was “aware that tax returns prepared using pay stubs are inaccurate more often than not,” that “the last paycheck stub varies from a W-2 more often than not,” and that “the income reflected on a return prepared on a pay stub can vary from income reflected on a return prepared based on a W-2.”

The court found that the District Court correctly evaluated the stub return issue:

It is clear from this evidence that pay-stub filing often results in understatement of tax liability, and ITS knew it. It is also clear from this and other evidence that pay-stub filing was common at ITS franchises. The district court’s conclusion that understatement of tax liability “inevitably results” may have gone further than we would go, but it is a plausible account of the evidence in the record as a whole.

The Moral? Wait for your W-2 before filing. Don’t try to file off of your pay stub. And if your preparer offers to prepare a return without waiting for your W-2, find another preparer.

Cite:  United States v. ITS Financial LLC et al (CA-6, Case No. 13-4341)


Tax Analysts has published a story covering the film tax credit panel I was on last week: NCSL Task Force Needs More Persuading on Merits of Film Incentives


20141125-2We’ve done a little blogroll updating. We’ve cut some blogs that haven’t been updated in months, and added Tax Litigation Survey and Forbes tax blogger Robert W. Wood.

Tony Nitti, The Top Ten Tax Cases (And Rulings) of 2014: #5-Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain?

William Perez, Excluding Foreign Wages from US Taxes

Robert Wood, Jersey Shore’s Mike ‘The Situation’ Sorrentino Tax Evasion Trial Delayed

Stephen Olsen, Summary Opinions for 11/07/14 & 11/14/14 (Procedurally Taxing). A roundup of tax procedure issues, including a report on IRS hiring of a private law firm to help it audit Microsoft.

Peter Reilly, AAA Does Not Revive With New S Election – Explained By Jelly Beans. Another reason not to terminate an S corporation election carelessly.

Jack Townsend, Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)?

Jason Dinesen, From the Archives: Win a Home On TV, Find a Tax Collector in the Attic


Andrew Lundeen, Kyle Pomerleau, Pass-through Businesses Earn More Income than Corporations (Tax Policy Blog) “Pass-throughs now earn over 60 percent of all net business income.”  It includes this great chart:


This means higner income taxes on “the rich” are really higher taxes on business and employment.


Eric Toder, Reforming Corporate Taxation (TaxVox) “The U.S. corporate tax system is broken.”
Annette Nellen, EU’s New VAT “MOSS” – Relevance for MFA? “MFA” is the Marketplace Fairness Act, the effort by states to collect taxes on internet commerce.


Jeremy Scott, New GOP W&M Members Send a Mixed Signal (Tax Analysts Blog):

The House Ways and Means Committee is undergoing a major transition. Committee Chair Dave Camp is leaving Congress at the end of the year and will be replaced by Rep. Paul Ryan. That means the end of an era and a possible major reshuffling of committee priorities. But Ways and Means is also getting four new Republican faces. The backgrounds of the new members don’t really send a clear signal on what to expect from the House on tax policy next year.

I hope they figure things out fast.


The Wall Street Journal has posted an Expat Finance & Tax Guide. It collects in one place WSJ pieces on expat-related topics, including FATCA nighmares and renouncing citizenship.

TaxProf, The IRS Scandal, Day 565.


News from the Profession. Why Public Accounting Is Really Just One Long Kegger (Leona May, Going Concern)



Tax Roundup, 11/4/14. Vote. Or don’t. And: Pittsburgh police 1, IRS Agent 0.

Tuesday, November 4th, 2014 by Joe Kristan
Flickr image courtesy Letta Page under Creative Commons license

Flickr image courtesy Letta Page under Creative Commons license

Today is election day. Vote if you think you know what you’re doing.  But ask yourself: do you know, without looking it up, the names of both of your Senators, your congresscritter, your Governor, the President and Vice-President, and can you properly identify their political parties? Can you name the three branches of the Federal government? If not, you should ponder whether you really ought to be doing this.

Jared Walczak, Voters to Consider Tax Ballot Initiatives in Eighteen States Tomorrow. (Tax Policy Blog) That would be today now.

Election days are on Tuesdays, so you can catch a fresh Buzz from Robert D. Flach before you hold your nose and vote. His roundup today includes links to a story about tax initiatives up for a vote around the country, among other good stuff.


Peter ReillyWhat If Lois Lerner Was Right About The Tea Party?

 If there is a pretty compelling case that Tea Party Patriots Inc was intended from day 1 to be a political organization, rather than a social welfare organization, would that make any difference in how we view Lois Lerner?

No. “Tea Party Patriots Inc.” was one organization that appropriated the “Tea Party” name, but the Tea Party movement is not any one organization. It was (and is) an amorphous grassroots reaction to the percieved overreach of the Obama administration. Lois Lerner went after a range of groups with “Tea Party” and other words she associated with small government activism– like “constitution.” The IRS held up the applications of those groups, harassing them with improper and ridiculously intrusive questions. Meanwhile, the applications of “progressive” groups flew right on through.


The issue was never whether Tea Party Patriots Inc. abused tax-exempt status. The issue is whether the IRS discriminated against groups opposed to the Administration. The answer is clearly yes. If you only enforce laws against people you disagree with (and it’s clear she didn’t like the Tea Party), that’s abuse of power.


Jason Dinesen, Joe the Window Washer Gets a Reality Check:

For example, here are a few realities Joe will have to face:

  • In Iowa, if Joe cleans windows on commercial property, he has to collect sales tax.

  • He has to file an income tax return.

  • While not necessarily required, it would be good for Joe to talk to an insurance agent about having a business liability policy in case he accidentally damages a customer’s property.

It’s amazing how complicated washing windows can be.


Russ Fox, Math Is Hard (Tax Court Edition). When the judge tells you to keep it to 75 pages and you file an 88 page brief, you might as well not file one at all. It saves paper, and you get to the same place.

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #8-A Big Break For Home Builders


20130426-1Michelle Feit, Failure to File Required International Information Return Suspends Statute of Limitations on Entire Return until the Information Return is Filed (Procedurally Taxing):

Thus, if a taxpayer is required to report on interests in, control over, transfers to, or distributions from foreign accounts, corporations, partnerships, entities or trusts (as provided for in the above-listed sections), the three-year statute of limitations will not start running until the taxpayer submits that foreign information report to the IRS.

And, since March 2010, the extended limitations period generally applies to the entire return applicable to that Taxpayer, not simply to the liabilities associated with the information that was not filed.

It’s not enough to get clobbered with a $10,000 penalty for not filing a return they won’t read. You keep the whole year open indefinitely too.


Kay Bell, November tax moves to help you avoid tax turkeys

Jack Townsend, Raoul Weil Found Not Guilty. A high-profile Swiss bank prosecution fails.


Jeremy Scott, Is the IRS Office of Professional Responsibility in Decline? (Tax Analysts Blog) “Hawkins’s legacy as OPR chief might end up being defined more for the IRS’s overreach and what she didn’t accomplish than the numerous things she has.”

Mr. Scott’s post does have an error, or at least a badly-worded sentence.  He says:

Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012.

While the Institute for Justice did help the preparers, the implication that it was formed by preparers is incorrect. IJ is a public-interest law firm with a libertarian bent that was around before the preparer case. It continues to do righteous work on behalf of victims of asset forfeiture (including the Arnolds Park  IRS victim) and in battles against regulations that protect existing busiensses from competition.  I support it with my donations, and you can too.


Martin Sullivan, Immigration Reform in 2015? We Could Use the Money (Tax Analysts Blog). I don’t think this issue is really about the tax revenue, but if it is, it would be more direct to just sell admission.


This will sure attract outside investment. Argentina accuses Procter & Gamble of tax fraud, says suspends operations

TaxProf, The IRS Scandal, Day 544

Revecca Wilkins, New Filing This Week Reveals Apple Continues to Divert Profits to Tax Havens (Tax Justice Blog). In other news, heavy things fall to the floor if you let go of them.


News from the Profession. Deloitte, Please Stop Trying to Be the Walmart of Professional Services (Adrienne Gonzalez, Caleb Newquist, Going Concern).  I’m not even sure what that would mean. Retired partners offering a friendly greeting at the door?


The best and the brightest. Police: Man Arrested For Kicking Heinz Field Barriers, Trying To Bribe Officers (CBS Pittsburgh):

A man was arrested after injuring a woman by kicking a steel barrier at Heinz Field Sunday evening.

According to police, 29-year-old Stephen Sapp was intoxicated at the time of the incident.

According to the criminal complaint, Sapp stated, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”

The officers informed Sapp that he could not attempt to bribe them, but Sapp continued.

“Look, I am an IRS agent and I can help you in other ways if you let me go home and make this go away.”

Was an IRS agent, anyway. (via Instapundit)



Tax Roundup, 10/28/14: Back-to-school edition! And: IRS says it will stop stealing.

Tuesday, October 28th, 2014 by Joe Kristan

The 2014 tour of Iowa begins. I am helping Roger McEowen and Kristy Maitre teach Day 1 of the Farm and Urban Tax School this year, and this morning we are starting the first of eight sessions in Waterloo. We hit Maquoketa Thursday.  Other sessions will be in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. It’s two great days of CPE, and it’s a bargain. Get your details and sign up for a convenient session at the ISU Center for Agricultural Law and Taxation today.  Here is the crowd this morning:


Looks like fun, no?

f you are a Tax Update reader, come see me (Hi, Kevin!). You qualify for a discount! Well, not really, but I can get you a free postcard from the DNR Chickadee Checkoff booth…



Have a nice day. We’re All Flies in the IRS’s Widening WebMegan McArdle on the IRS’s sudden turnabout on asset seizures stealing from innocent businesses after the New York Times reported on it:

It’s as if the IRS just noticed that they were grotesquely abusing their power in order to punish people who appear to have done nothing actually wrong. Did this not occur to them when the victims’ lawyers pointed it out? Did none of their thousands of employees wonder aloud whether they really needed to make war on America’s college funds?

I’m sure it was forced on them by budget cuts.

So think about what has happened to our government agencies. We passed a law, to raise taxes, or curb the usage of addicting drugs. That law didn’t work as well as we wanted, because a lot of people were evading it. So we passed new laws, to make it easier to enforce the original one, like requiring banks to report all transactions over $10,000. And then people evaded that, so we made another rule … and now people who had no criminal intent find themselves coughing up tens of thousands of dollars they shouldn’t owe. 

There’s a lot of that in the tax law. FATCA and the FBAR foreign financial account reporting requirements are classic examples of laws nominally aimed at big-time tax evaders that destroy the finances of thousands of innocent foot-faulters.

As in the case of the fly, we were better off leaving the original ailment alone. No, I’m not saying that we shouldn’t try to catch tax evasion. I’m saying we shouldn’t try so hard that we end up criminalizing a lot of innocent behavior. There are worse things than a country with some tax fraud. And one of those things is a government with vast and arbitrary power to punish people who have done no wrong. 

And a willingness to use it carelessly.

Joseph Henchman, IRS Promises to Curtail Property Seizures After Abuses Come to Light (Tax Policy Blog)

Kay Bell, IRS seizes honest taxpayers’ assets under forfeiture program. “Oh my Lord, IRS. What in the hell were you thinking?”


buzz20140909Paul Neiffer, IRS Disagrees With Morehouse Ruling (Of Course). It looks like they will continue to assess SE tax on non-farmers with CRP income outside the Eighth Circuit.

Robert D. Flach has fresh Tuesday Buzz!!

Tax Prof, Tax Revolving Door Enriches Former IRS Officials Who Cash in by Navigating Inversions Through Rules They Wrote. And Commissioner Koskinen approves.


Leslie Book, A Combo Notice of Deficiency Claim Disallowance Highlights Tax Court Refund Jurisdiction (Procedurally Taxing)


Jeremy Scott, Will a Graduated Income Tax Sink Martha Coakley? (Tax Analysts Blog)

Steve Warnhoff, Senators Defend LIFO, a Tax Break that Obama and Camp Want to Repeal (Tax Justice Blog)


TaxProf, The IRS Scandal, Day 537. Today’s scandal roundup features Bob Woodward saying “If I were young, I would take Carl Bernstein and move to Cincinnati where that IRS office is and set up headquarters and go talk to everyone.


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.