Posts Tagged ‘Joseph Henchman’

Tax Roundup, 8/12/15: Bad news: blogging doesn’t make your vacation deductible. And more great stuff!

Wednesday, August 12th, 2015 by Joe Kristan

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Accounting Today visitors: the due date post is here.

Road Trip! I had a great time on vacation last month, but it would have been sweeter if I could figure out a way to deduct it. Maybe if I mentioned it here at the Tax Update Blog? Alas, a Tax Court case this week thwarts my cunning scheme.

The Tax Court takes up the story:

In June 2008 petitioner’s adventure began. Over the next 5-1/2 months, petitioner made his way across the continents of Europe and Africa and even made a foray into the Middle East.

Throughout his journey petitioner updated his blog with anecdotes and pictures from his travels. While petitioner included details about some of the sites he saw, places he stayed, and food he ate, many of his explanations do not give enough details for a reader to find the specific site, lodgings, or restaurant described. For example in petitioner’s Paris blog entry he states: “[W]e hit up The [sic] BEST ice cream in Europe. * * * there are a couple of places that serve it and pricing is much higher at one (the ‘tourist’ one as Jeff put it) than at the other one. We walked past the tourist one, which had a huge crowd and walked down the street about half a block to the other one.” Petitioner does not give any more details about where in Paris the best ice cream in Europe can be found.

Petitioner did keep copies of all his receipts, flight confirmations, lodging confirmations, tour confirmations, rail passes, shuttle confirmations, bank statements, tour vouchers, credit card statements, and other miscellaneous receipts from the trip.

The problem wasn’t so much the recordkeeping, then, but the business plan:

Petitioner realized as he traveled, and even more so after he returned to the United States, that the market was already saturated with international backpacking blogs and that his plan for generating income through affiliate sales from his blog would not be profitable. Petitioner then shifted his focus to writing books about his travels and the insights he gained while traveling.

One way to ease the pain of a bad business plan is to deduct the losses:

Petitioner timely filed his 2008 Federal income tax return (return). He listed “world travel guide” as his principal business on the Schedule C, Profit or Loss From Business, attached to the return. On the Schedule C, petitioner did not report any business gross receipts or gross income. He claimed total expenses of and reported a net business loss of $39,138. As part of his net business loss, petitioner claimed deductions for travel expenses of $19,347, deductible meals and entertainment expenses of $6,314, and other expenses of $5,431.

The IRS threw a wrench in this part of the business plan by disallowing the loss under the Section 183 “hobby loss rules.” These rules disallow losses on business activities not really entered into for profit. The Tax Court reviewed nine factors that are used to distinguish a real business from a hobby, and found against the taxpayer (my emphasis::

Petitioner did not maintain any books or records for the activity. He had no written business plan and no estimate as to when his Web site would be operational, when his books would be published, or when he would begin to earn income from the activity. Although petitioner documented and retained receipts for his travel-related expenses, merely maintaining receipts is not enough to indicate a profit motive…

Furthermore, petitioner did not investigate the activity before embarking on his trip. Petitioner incurred over $39,000 in expenses before doing any research into the activity’s profitability. This is an indication that the activity was not engaged in for profit.

My favorite part of the opinion is this footnote, where the court tells us what a “blog” is:

“Blog” is a truncation of the expression “Web log”, which is a regularly updated Web site or Web page written in an informal or conversational style and typically run by an individual or small group.

So now we know.

The Moral? Travel may be broadening, and fun, but not necessarily deductible. Before spending $39,000 on it, you might want to figure out how to earn it back first.

Cite: Pingel, T.C. Summ. Op. 2015-48.

 

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Tony Nitti, Teacher Fails To Qualify As Real Estate Professional: Who Can Pass The “More Than Half” Test?. Tony discusses the case we covered here yesterday.

Paul Neiffer, Don’t Use Your Product When Preparing a Tax Return. I think it depends a lot on the product, but Paul gets more specific in the text: “…it is apparent that you should not be using marijuana when preparing your income tax return.”

Jack Townsend, Two U.S. Return Preparer Enablers Sentenced for Offshore Account Conspiracy.

Russ Fox, There’s Innocent FBAR Violations, and There’s This. But jailing an occasional real tax violator doesn’t justify shooting jaywalkers.

 

Robert Nadler, Spousal Abuse Continues to Provide a Powerful Basis for Innocent Spouse Relief (Procedurally Taxing).

Robert Wood, Trump, Taxes, Tampons, And Snoop Dogg

TaxGrrrl, Defendants Sentenced For Stealing 9,000 Identities, Including Army Soldiers

 

David Brunori, Taxing Beer (Tax Analysts Blog):

The lowest excise tax rates are in Wyoming, Wisconsin, Pennsylvania, Missouri, and Oregon. To put it in context, Tennessee taxes beer at $1.29 a gallon. Wyoming’s tax is $0.02 a gallon. Buy your beer in Cheyenne.

I wonder if Jack Daniels has an effective lobby in the Tennessee statehouse.

 

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Joseph Henchman, Ten Years of the North Carolina Lottery (and Why It’s In Part a Tax) (Tax Policy Blog):

The Lottery was set up ten years ago as a state enterprise to generate revenue for education programs. 50 percent of gross sales are paid out as prizes, 7 percent paid to retailers as a commission, 8 percent to pay for operations (including advertising, which cannot exceed 1 percent of total revenues), and 35 percent to the state for education funding. Additionally, winners pay income tax on their prizes. The odds are not great – table games in casinos have much better odds – but the Lottery has no real competition as it is state-sanctioned.

Think of it as a tax on people who are bad at math.

 

Howard Gleckman, Clinton Would Tinker With, Not Rewrite, the Tax Code. (TaxVox). And what the tax law really needs is more tinkering, right?

Kay Bell, Is Obamacare headed back to the Supreme Court yet again? I think Justice Roberts has made it clear that he will find a way to protect the mess from all challenges.

TaxProf, The IRS Scandal, Day 825. Today the Prof links to Peter Reilly’s concession that just maybe Lois Lerner ran a biased shop.

 

News from the Profession. New Study Validates Old Accountant Joke (Caleb Newquist, Going Concern).

 

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

Friday, August 7th, 2015 by Joe Kristan

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

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

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

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

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

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

“Clothing” means…

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

“Clothing” does not include…

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

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

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

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

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

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

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

Jason Dinesen, Glossary of Tax Terms: LLC

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

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

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

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

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

And reason never comes out well in the contest.

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

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

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

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

 

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

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

Thursday, June 18th, 2015 by Joe Kristan

 

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

 

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

It’s a good day.

 

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

Monday, June 15th, 2015 by Joe Kristan

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

 

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

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

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

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

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

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

Cite: TD 9725

 

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

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

The most promising of the steps:

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

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

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

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

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

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

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

 

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

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

Annette Nellen, Tax reform for 2015? Seems unlikely

Kay Bell, Lessons learned from being tax Peeping Toms

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

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

Robert Wood, Beware Tax Cops At Farmers’ Markets

 

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

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

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

 

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

 

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

 

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

 

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

Thursday, June 4th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

 

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

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

 

 

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

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

 

TaxProf, The IRS Scandal, Day 756

 

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

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

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

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

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

 

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Tax Roundup, 5/29/15: A distracted IRS takes its eye off the ball. And more Friday goodness.

Friday, May 29th, 2015 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

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

The IRS Fails at Job One(Christopher Bergin, Tax Analysts Blog).

Over the years, as the fight for transparency continues, I’ve marveled that while the IRS was willing to waste hundreds of thousands of dollars to hide information the courts eventually would force it to turn over to the public, it never shirked from its responsibility to protect the truly private information it was entrusted with. I’ve always admired the IRS for its unflinching diligence in putting that job well ahead of its paranoia of public scrutiny regarding how it operates.

But now there’s a chink, and a big one, in that armor.

The IRS has too much to do. It has its hands full just with its primary job of assessing and collecting taxes, issuing refunds, and protecting taxpayer data. But Congress has chosen to use the tax law as the Swiss Army Knife of public policy. As a result, the IRS has become a sprawling superagency with a portolio that includes the nation’s health finance system, industrial policy, welfare for the poor, campaign finance… you name it. It should be no surprise that its real job suffers.

 

William Perez, Identity Theft Statistics from the Latest TIGTA Report. “I was curious, just how big is identity theft, and how much money is leaking out of the Treasury?”

Annette Nellen, IRS Data Breach Unfortunate in Many Ways – PIN? “Why not use of a PIN as is used to access bank data and use credit cards?”

Kay Bell, IRS security breach highlights need to rethink online privacy. “We’ve all to some degree shared details of our lives to broader audiences.”

Justin Gelfand. Most Recent IRS International Hacking Reveals Vulnerability ( Procedurally Taxing). “Perhaps more than anything else, this cyber-attack reveals that stolen identity tax refund fraud is not a problem the Government can prosecute its way out of.”

 

eic 2014Arnold Kling, The EITC in Practice. Mr. Kling quotes Timothy Taylor on some of the practical problems in administering this program, and then considers an alternative:

One of the advantages of a universal benefit is that you give the money to everyone. My idea is that you would then tax some of it back at a marginal rate of 20 or 25 percent. That is, for every dollar that someone earns in the market, they are lose 20 cents or 25 cents in universal benefits. Compared to a marginal tax rate of zero, 25 percent is more complex and has a disincentive. But it is much less complex and de-motivating than our current system of sharp cut-off points for benefits like food stamps and housing assistance. And having a non-zero tax rate allows you to have a higher basic benefit at lower overall budget cost.

In another post, he says:

I think that the incentive problems with the current system are so bad that I would like to see the next Administration take its best shot at something better. As you know, my preference is for a negative-income-tax type system, but with the added administrative issue of having the grants be in the form of flexible-benefit dollars that only can be used for food, housing, medical care, and education.

I like that idea much more than refundable credits, which are a fraud magnet.

 

Jason Dinesen, From the Archives: Adjunct Professors and Mileage Deductions

Robert D. Flach has some fresh Friday Buzz!

 

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Megan McArdle. Obamacare’s Intent? Just Read the Law. “Memory is so very terrible, and this law is so very complex. Anyone who tells you that they have a full and accurate memory of the evolution of the various moving parts is lying — at least to themselves.”

Hank Stern, A Quarter Trillion Here, A Quarter Trillion there…  “Obamacare is set to add more than a quarter-of-a-trillion—that’s trillion—dollars in extra insurance administrative costs to the U.S. health-care system”

 

Joseph Henchman, Major Tax Actions in Texas, Illinois, Nevada, and Louisiana (Tax Policy Blog). The Illinois legislature continues its rush to fiscal disaster. Nevada advances an unwise gross receipts tax. Louisiana advances a bill to kill its poorly conceived franchise tax.

Sebastian Johnson, State Rundown 5/28: Deals Made, Dreams Fade (Tax Justice Blog). State tax news from New York and Alabama, where a flat tax proposal has fizzled.

 

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Howard Gleckman, The Perpetual, Immortal, Eternal, Never-Ending Tax Extenders. “The magic number for today is 16. That is, remarkably, the number of times Congress has extended the allegedly temporary research and experimentation tax credit since it was first enacted in 1981.”

Jack Townsend, Former House Speaker Indicted for Stucturing and Lying to Federal Agents. It appears blackmail was involved. Robert Wood has more.

TaxProf, The IRS Scandal, Day 750

 

Well, it’s not brain surgery. Accountants Lack Some Skills (Caleb NewquistGoing Concern).

 

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Tax Roundup, 5/19/15: Is yesterday’s U.S. Supreme Court decision an Iowa refund opportunity? And AICPA looks for love!

Tuesday, May 19th, 2015 by Joe Kristan
The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

The Hoover Office Building, the warm and cuddly home of the Iowa Department of Revenue.

Time for Iowans to claim refunds for local income taxes paid out-of-state? The U.S. Supreme Court yesterday ruled that Maryland was required to allow its residents credit for taxes paid in other states.

State tax systems normally tax resident individuals on 100% of their taxable income. They tax non-residents on only the share of income apportioned or allocated to the state. In order to keep their residents from being clobbered by multiple state income taxes, the states typically allow them a “credit for taxes paid in other states.” This is, roughly, the lesser of the tax paid to the other state or the resident state tax computed on the out-of-state income.

Maryland failed to allow a credit for taxes paid in other states for the “county” portion of its individual income tax. The U.S. Supreme court ordered Maryland to issue such a credit to the plaintiffs, who had out-of-state S corporation income.

Iowa allows a credit for taxes paid in other states, but does not allow such a credit for taxes paid in municipalities or counties. These taxes can be significant. Many Iowans pay taxes in New York City, Kansas City, St. Louis, or Washington, D.C., for example. Many Ohio municipalities also impose income taxes. While the Supreme Court decision doesn’t specifically address such taxes, the court’s logic that double-taxes discriminate against interstate commerce would seem to apply here. A Tax Analysts article ($link) on the decision notes (my emphasis):

Local governments filed an amicus brief  saying Wynne may have implications and that there are many states with long-established tax programs like Maryland’s that do not afford dollar-for-dollar credits to residents for all out-of-state income taxes paid.

That brief identified Wisconsin and North Carolina as states that do not allow a credit against local income taxes, as well as a number of local governments that fail to provide a credit for state taxes paid against local taxes, including Philadelphia; Cleveland; Detroit; Indiana’s counties; Kansas City, Missouri; St. Louis; and Wilmington, Delaware.

I have emailed an Iowa Department of Revenue representative asking how they will respond to the case, and will report whatever I may hear back from them. Meanwhile, taxpayers who extended their 2011 Iowa returns and paid municipal taxes elsewhere should consider filing protective refund claims while their statutue of limitations remains open.

The TaxProf has a roundup of coverage.

Cite: COMPTROLLER OF THE TREASURY OF MARYLAND v. WYNNE ET UX. No 13-485.

supreme courtMore coverage:

Joseph Henchman, A Victory for Taxpayers: SCOTUS Strikes down Maryland Tax Law (Tax Policy Blog). “This is important not just for one Maryland business, but for anyone who does business in more than one state, travels in more than one state, or lives in one state and works in another.”

Howard Gleckman, A Divided Supreme Court Rejects Maryland’s Tax On Out-Of-State Income (TaxVox). “But given the closeness of the decision and the wide gulf between the majority and the minority, today’s ruling may not be the last word in the argument over whether, and how, states can tax out-of-state income.”

Russ Fox, A Wynne for the Dormant Commerce Clause. “This case also highlights the difficulties facing a taxpayer without deep pockets.”

TaxGrrrl, In Landmark Case, Supreme Court Finds Maryland’s Tax Scheme Unconstitutional. “In the end, it all came down to this: “the total tax burden on interstate commerce is higher” under Maryland’s current tax scheme. That double taxation scheme, the Court found, is unconstitutional.”

Kay Bell, Supreme Court tax ruling could cost Maryland $200+ million. Wheneer a taxing authority gets caught imposing an illegal tax, they always moan about how terrible it will be to repay their ill-gotten gains. I’ll give them the same sympathy they typically give a taxpayer who loses a fight with them.

 

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Bloomberg, Iowa Spent $50 Million to Lure IBM. Then the Firings Started. That was $50 million paid by other Iowa businesses and their employees, money they could have used to grow businesses that might not have fled.

 

Jason Dinesen, Why Make Estimated Tax Payments, Part 2. “Here’s the reason: if you’re fully self-employed, you don’t draw a paycheck in the traditional sense.

Paul Neiffer, What Runs Through the Estate! “In many cases, the heirs will use the cost basis from grandpa and not pick up the extra cost from mom and dad.”

Robert D. Flach comes through with fresh Tueesday Buzz, including thoughts on the use of the tax law as a welfare program.

William Perez, 10 Emerging Financial Technology Apps with a Tax-Angle

 

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Peter ReillyFree Kent Hovind Movement Has Big Win. ” Judge Margaret Casey Rodgers has granted Kent Hovind’s motion for a judgment of acquittal on the contempt of court charge that he was convicted of in March.”

Robert Wood, U2’s Bono Sounds Increasingly Like Warren Buffett. That’s OK, pitch correction software can do amazing things.

Andy Grewal, The Un-Precedented Tax Court: Bench Opinions (Procedurally Taxing). “Opinions can’t cause a lot of confusion if no one can find them.”

 

Martin Sullivan, As in Florida, Rubio Pursues ‘Big, Hairy’ Goals in the U.S. Senate (Tax Analysts Blog).

TaxProf, The IRS Scandal, Day 740. Today’s post is a useful corrective to the persistent scandal denialists.

Not that there’s anything wrong with that. AICPA Wants CGMA Love From the C-Suite (Caleb Newquist, Going Concern).

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Tax Roundup, 3/30/15: A Year After the Fire Edition. And: Can fraud be accidental?

Monday, March 30th, 2015 by Joe Kristan

Friends, if your 1040 information isn’t in by now, you’re getting extended. 

It’s been a year since the old Younkers Building burned down. It was kitty-corner from our office at 7th and Walnut in Des Moines. Here is what it looked like a year ago:

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And here is the site yesterday:

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The remaining portion of the site is called the Wilkins Building. The old Younkers store was actually three buildings built at different times and connected as one store. The part that didn’t burn down was built about 20 years after the part that was obliterated.

The building was being remodeled into apartments, and the work was well along when the fire broke out in the wee hours. The sprinkler system had not been turned on, and the building went up too quickly for the fire department to do more than keep it from spreading.

The developers intend to remodel the remaining portion as apartments, retail and a restaurant. Seventh Avenue is again open, providing easy access to our office, but Walnut remains closed indefinitely.

Related:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

 

20150326-2No, you’re not. Two headlines from my Google news feed: Are you accidentally committing tax fraud? And 5 ways you’re accidentally committing tax fraud.

You don’t commit tax fraud “accidentally.” You don’t have to tell yourself “hey, I’ll commit me some fraud” to be a fraudster. But for something to rise to the level of fraud, it has to be more than an accident.

For example, accidentally leaving a $50 1099 off a return isn’t fraud. “Accidentally” omitting one for $1 million just might be, as it’s harder to accidentally forget you made that much.

 

This may be the most depressing tax case I’ve ever seen. From MyFox8.com:

The Parsons are guilty of accepting benefits from the government – benefits intended for Erica – even though Erica was no longer with them.

Erica had gone missing late in 2011, but her disappearance was not reported for nearly two years.

The adoptive mother received 10 years, and the father 8, from a judge convinced they killed their adoptive daughter after years of abuse and covered up the crime to keep collecting her government benefits — on which they failed to pay taxes.

 


tileTaxGrrrl, 
9 Tournament & Tax Tips On The Road To The Final Four. “Betting on the Final Four? Here are a few tax and tournament tips to keep in mind.”

Kay Bell, Some Final Four teams could suffer under seat tax proposal. A proposal to reduce deductions for contributions that get you good seats at the game.

William Perez, What Is the Alternative Minimum Tax?

Jana Luttenegger Weiler, 529A ABLE Account Guidance (Sort Of….) (Davis Brown Tax Law Blog). “The ABLE Act will amend Section 529 of the Internal Revenue Code to create a tax-free savings account for certain individuals who had significant disabilities before turning age 26.”

Jason Dinesen, Marriage in the Tax Code, Part 5: Examples of Taxes in 1920

 

Peter Reilly, Nay Nay We Won’t Pay – Evaders, Protesters and Resisters Versus IRS. “Deliberately not paying your taxes violates the law, so I don’t want to imply that there is an “official” correct way to do it.”

Bob Nadler, Who Won the Sanchez Case? (Procedurally Taxing). “In Sanchez, the taxpayer sought innocent spouse relief in the Tax Court and lost her case because the Court held no joint return was filed.  But the underlying assessment of a joint tax may have been erroneous.  If the assessment is found to be invalid the taxpayer will probably have no tax liability.”

 

Jack Townsend, Third Circuit Affirms Sentence Based on PSR Calculation of Tax Loss In Excess of Stipulated Tax Loss in Plea Agreement. Just because you admit evading one amount of tax doesn’t mean the judge can’t be convinced you evaded more.

No, it’s not. Next question. FATCA Repeal Efforts Just Failed, But Is It A Good Law? (Robert Wood):

FATCA’s massive and systemic overkill is great and vastly expensive. It is an elephant gun aimed at mosquitoes. And it has damaged the lives of over 7 million Americans abroad. Many can no longer open or maintain bank accounts where they live, get mortgages, or run their local businesses or households without difficulty. Many institutions around the world simple will not–perhaps cannot–open and maintain accounts for Americans, financial pariahs.

Its supporters say that international tax evasion justifies it, but like so many laws claiming good intentions, it has horrendous unintended (but easily foreseeable) consequences. Its complexity makes offenders out of ordinary citizens committing personal finance abroad, and its attempt to export U.S. tax enforcement invites other countries to do the same here.

 

Younkers Tea Room in its last week.

Younkers Tea Room in its last week.

Joseph Henchman, Nevada Governor Attacks Tax Foundation Report:

The proposal replaces Nevada’s current $200-flat business license fee with a tiered gross receipts tax.

Governor Sandoval quickly responded with a statement calling our report “utterly irresponsible, intellectually dishonest, and built on erroneous assumptions.” His ally Senator Michael Roberson added that our report “is nothing more than a disingenuous hatchet-job.”

The disappointing ad hominems from Governor Sandoval and Senator Roberson cloud the serious issues raised in our impartial analysis:

  • The BLF proposal has 67 revenue ranges for each of 27 industry categories, totaling 1,811 possible tax brackets.

  • BLF taxpayers will face absurdly high marginal tax rates, reaching over 13 million percent and likely distorting business decisions.

  • If the BLF tax burden were calculated in terms of a state corporate income tax, rates would range wildly from 0.2 percent to a punitive 77 percent.

  • Tax-motivated business restructuring would harm Nevada business competitiveness, and the punitive rate on the railroad industry likely violates federal law.

  • The tax rates for each industry were calculated using Texas data from a single year, which is not representative of Nevada’s economy.

  • The revenue estimates are probably overstated, which will lead to a revenue scramble when the tax underperforms.

Gross receipts and gross profits taxes have an inherent flaw: you can have large gross receipts or gross margins, but still have a net loss after expenses. Nevada doesn’t have an income tax. The politicians seem to want one in the worst way, and they are trying to get one that way.

 

Younkers elevator

 

TaxProf, The IRS Scandal, Day690The IRS Scandal, Day 689The IRS Scandal, Day 688

Len Burman, Do Senators Lee and Rubio Have a Secret Plan to Help Poor Families?

 

Russ Fox begins his annual listing of bad tax ideas with Bozo Tax Tip #10: Email Your Social Security Number. Please, don’t. And don’t sent tax documents with your identifying information as an email attachment. Identity fraud is easy enough without helping the fraudsters that way.

News from the Profession. Deloitte University Is a Cruise Ship Without Swimsuits (Caleb Newquist, Going Concern).

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Tax Roundup, 3/23/15: ACA is five years old today. How’s that working out?

Monday, March 23rd, 2015 by Joe Kristan

Productivity wins! All three Iowa teams are out of the men’s NCAA basketball tournament. Back to those 1040s, fans!

 

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President Obama signs the Affordable Care Act. Image via wikimedia.org

Five years. The Affordable Care Act, or Obamacare, was signed into law five years ago today. Thanks to many delays — some part of the original law, others done in spite of the law to get past the elections — taxpayers and preparers are just beginning to cope with key portions of the law.

This is the first year for returns with the individual mandate — officially, and creepily, the “Individual Shared Responsibility Provision.” While many taxpayers thought this would only amount to $95, taxpayers hit with the penalty are learning that their refunds will get dinged for up to 1% of their AGI over a relatively low threshold.

This is also the first year that taxpayers have to true up overpayments of the advance premium tax credit.  Many taxpayers who bought policies on the ACA exchanges had their monthly premiums reduced based on their estimates of 2014 earnings. This subsidy is actually a tax credit, and it has to be reconciled at year end with the actual earnings.  Taxpayers with earnings in excess of what they estimated are now learning from their preparers that they need to write checks.

20121120-2The premium tax credit is horribly designed, with a stepped, rather than gradual, phaseout. One additional dollar in income can result in a loss of thousands of dollars in premium tax credits, which then have to be repaid with the tax return. H&R Block reports that most taxpayers who claimed the credit have to repay an average of $530. The IRS has tried to patch over some of the unpleasantness, unilaterally waiving penalties this year for taxpayers who have to repay the credits.

Here in Iowa, smaller employers who want to offer ACA-approved health insurance can’t, in the wake of the failure of the heavily-subsidized CoOportunity health insurance carrier. The IRS will still allow Iowa businesses to claim the convoluted credit for small employers for 2015. It required carriers who had signed up with CoOportunity to scramble to find new coverage, and it required many families who had already reached their out-of-pocket limits to start them over with a new carrier.

 

Looming over all this is the Supreme Court’s impending decision in King v. Burwell. The IRS decided to allow the premium tax credit in the 34 states using federal exchanges, in spite of statutory language limiting the credits to exchanges created “by the states.” If the court goes with the way the law is drafted, the premium tax credit will be gone for those 34 states, including Iowa. Employers in those states will be suddenly exempt from the “employer mandate” that begins to take effect in 2015. Millions of taxpayers will also be free of the individual mandate penalty because their insurance will no longer be “affordable.”

If you want to celebrate, head over to Insureblog, where they are always updating the latest developments and unintended consequences of the ACA.

 

 

20150312-1William Perez, Did You Pay Interest on Student Loans? It May be Tax Deductible

TaxGrrrl, Understanding Your Forms: 1098-T, Tuition Statement

Roger McEowen, Are Payments Made to Settle Patent Violations Deductible? (ISU-CALT)

Kay Bell, Tax returns on hold while IRS asks ‘Who Are You?’

Peter Reilly, Ninth Circuit Rules Against War Tax Resister

Jim Maule, Tax Credit for Purchasing a Residence Requires a Purchase. “Nothing in the opinion explains why the taxpayer thought she had purchased the residence. Nor does it explain why the taxpayer, if not thinking that she had purchased the residence, would claim that she did.”

Peter Hardy, Carolyn Kendall, Between the National Taxpayer Advocate and the Courts: Steering a Middle Course to Define “Willfulness” in Civil Offshore Account Enforcement Cases Part 1 (Procedurally Taxing). “The OVD programs have netted many people who may have inadvertently failed to file FBARs, and who are not wealthy people with substantial accounts.”

In other words, shooting jaywalkers while giving international money launderers a good deal.

 

Robert Goulder, When All Else Fails, Blame a Tax Pro (Tax Analysts Blog) “OK, the tax code is a disgrace. I get it. But a member of Congress is blaming tax professionals? Really?”

Congress is sort of like the guy who leaves his food plate on the floor, falls asleep, and then blames the dog for eating it.

 

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Joseph Henchman, 10 Remaining States Provide Tax Filing Guidance to Same-Sex Married Taxpayers. “After the IRS decision to allow gay and lesbian married couples to file joint federal tax returns, we noted that a number of states would have to provide guidance because they require two contradictory things: (1) if you file a joint federal return, you must file a joint state return, and (2) same-sex married couples cannot file jointly.”

Renu Zaretsky, Budget Battles and Filing Follies: The Sagas Continue. Today’s TaxVox headline roundup tells of abundant ACA tax filing headaches and more tax nonsense from the only avowedly-socialist senator, Bernie Sanders.

TaxProf, The IRS Scandal, Day 683Day 682Day 681. “Commissioner John Koskinen, testifying before the House Appropriations subcommittee this week, admitted that nearly a dozen grassroots conservative groups seeking tax-exempt status are still awaiting determination.”

Robert Wood, Report Says Former IRS Employees–Think Lois Lerner–Can Still Peruse Your Tax Returns. Well, that’s reassuring.

 

Career Corner. Going Concern March Madness: More #BusySeasonProblems (Caleb Newquist, Going Concern). Brackets asking important work life questions like Which is the bigger busy season problem? Working Saturdays (#1 seed), or Colleagues who heat up smelly leftovers (16 seed).”

I’ll take the underdog.

 

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Tax Roundup, 12/16/14: Extenders as dessert after the Senate eats its peas.

Tuesday, December 16th, 2014 by Joe Kristan
Flickr image courtesy seriousbri under Creative Commons license.

Flickr image courtesy seriousbri under Creative Commons license.

It appears that the extenders will be served up to the Senate only when the Senators clean their plates. The Hill reports (my emphasis):

Once they are out of the way, Senate aides expect an agreement to confirm Obama’s other pending nominees by midweek.

That would speed up final votes on a package extending a variety of lapsed tax breaks and on the stalled Terrorism Risk Insurance Act.

Senate aides say a one-year extension of expired tax breaks will be one of the last items to move because it has strong support on both sides of the aisle and gives lawmakers incentive to stay in town to complete other work. They predict it will pass quickly once put on the schedule.

So lingering uncertainty about the tax law for taxpayers and advisors is the price we have to pay for the Senate to do its job. Glad to help, guys!

 

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

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

Joseph Henchman, A Big Year for State Tax Reform, and Congrats to COST! (Tax Policy Blog):

All groups who work on state tax reform should feel proud of the accomplishments of 2014. North Carolina simplified and reduced its whole system, Indiana and Michigan cut investment taxes, New York reformed its entire corporate tax system, and even Rhode Island and the District of Columbia enacted tax reductions. Additionally, voters defeated tax increase proposals in Colorado and Nevada, and in the spring a big tax increase proposal in Illinois failed. Maine raised its sales tax, the only tax increase at the state level in 2014.

Iowa is painfully absent from this list, and it needs tax reform as much as any place.

 

buzz20140923Robert D. Flach offers your Tuesday Buzz, with links from all over.

William Perez explains How to Make Sure Your Charity Donation Is Tax-Deductible

Jason Dinesen, Changing the Way I Work with Business Clients. “For all entities, I now require some sort of year-round relationship.”

Keith Fogg, Bankruptcy Court Grants IRS Equitable Tolling and Denies Discharge on Late Return (Procedurally Taxing).

Peter Reilly, Tom Coburn Tax Decoder Takes On Clergy Tax Abuse. “Senator Tom Coburn has served as a deacon in a Southern Baptist church but that has not prevented him from taking a blast at a tax break that benefits the Southern Baptist Convention mightily.”

Kay Bell, Congress’ job rating improves! But just by 1 percentage point.

David Henderson, Deadweight Loss from the New California Gas Tax. Rather than using the money for roads, it goes into a big hole high-speed rail.

 

Martin Sullivan, Will Orrin Hatch Lead on Tax Reform? (Tax Analysts Blog). “. If — as Hatch writes in the preface to the report — “reform is vital and necessary to our nation’s economic well-being”– should he not also go beyond publishing reports and principles and write a real bill?”

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TaxProf, The IRS Scandal, Day 586

 

When there are so many worthy nominees, it’s hard to pick only twenty. 20 Really Stupid Things In The U.S. Tax Code (Robert Wood) I still think the Section 409A deferred comp rules and everything Obamacare should head any such list.

News from the Profession. The Office of the Future Looks Kind of Like a Homeless Encampment Under a Bridge (Adrienne Gonzalez, Going Concern)

 

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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:

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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…

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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.

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Tax Roundup, 10/27/14: IRS visits Arnolds Park restaurant, tips itself.

Monday, October 27th, 2014 by Joe Kristan

20120703-2IRS Commissioner Koskinen likes to say there is nothing wrong with the IRS that a bigger budget can’t cure. A story out of Arnolds Park, Iowa might cause one to question that. The New York Times reports:

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

Banks are required to report “suspicious” deposits under $10,000 because they might be done to evade a required IRS filing. As they get in trouble for non-reporting, they are likely to overreport. And in these cases, that’s all the IRS required before stealing the cash. The victims have legal recourse, but it requires them to sue the federal government, owner of the largest law firm in the world; legal bills routinely run into tens of thousands of dollars.

So, without any evidence, or even suspicion, of a crime, the IRS uses some of its allegedly precious and constrained enforcement resources to steal money from a little Iowa restaurant. The story cites other cash seizure nightmares. One involved an Army sergeant saving for his daughters’ education. Others involved legitimate but cash-intensive businesses.

If this is what the IRS accomplishes with insufficient resources, imagine how much they could steal with full funding.

(via Instapundit)

Related:

Tax Justice Blog,  New Movie Aims to Scare Public by Depicting IRS as Jack-Booted Thugs. Where would anybody get that idea?

Dan Mitchell, Another Example of Government Thuggery – and another Reason Why Decent and Moral People Are Libertarians

Russ Fox, SARs Leading to Forfeiture: The IRS Oversteps

 

20141027-2Jason Dinesen, How Non-Residents or Part-Year Residents Report Federal Refunds on Iowa Tax Returns. One more complication from Iowa’s deduction for federal taxes.

Robert D. Flach, DON’T TRY TO BUY A HOUSE OR CONDO WITH ONLY 5% DOWN!. And don’t try to subsidize that either.

William Perez, Self-Employed Retirement Plans, “If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or a solo 401(k) retirement plan.”

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2014: #9-Tax Court Further Muddies The ‘Dealer Versus Investor’ Issue

 

TaxGrrrl, Fundraising Campaign Ends For ‘Ebola Free’ Nurse, Donors Encouraged To Contribute To Charity

Jana Luttenegger, 2015 Retirement Plan Limits Announced (Davis Brown Tax Law Blog)

Paul Neiffer, 2015 Social Security Wage Base Increases to $118,500

Kay Bell, 6 year-end tax tips for small businesses

Stephen Olsen, Summary Opinions (Procedurally Taxing). Recent cases on whistleblowers, interest abatement, and art valuation.

 

 

Andrew Mitchel, 2014 Third Quarter Published Expatriates – Third Highest Ever. FATCA and the IRS holy war on Americans abroad takes its toll.

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TaxProf, The IRS Scandal, Day 536

 

David Brunori on the inherently corrupt nature of corporate welfare tax incentives, like those so popular with Iowa politicians ($link):

I have no doubt there are more instances of companies contributing to politicians and getting economic development payouts. I’m not naïve. Corporations donate money to governors and lawmakers and expect a return on their investment. While the governors cited above were Republican, corporations and business interests don’t discriminate. Indeed, Lockheed Martin donated lots of money to Democratic governors.

We likely won’t find a smoking gun e-mail reading, “Dear Governor, your check is in the mail, please process my multimillion-dollar handout. Your friend, CEO.” Politicians and business leaders are too smart for that. But growing evidence of tax incentives being granted by politicians who receive money should give everyone pause. It’s unlikely to be a coincidence.

But, jobs! For the middlemen, fixers and lobbyists, anyway.

 

Joseph Henchman, Michigan Senate Advances Film Tax Credit Extension Bill (Tax Policy Blog). Because Detroit has no greater need than to give money to Hollywood.

 

News from the Profession. Meet the Guy Who Prefers Falafel Over PwC (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 8/1/14: Links edition. And: no oppression.

Friday, August 1st, 2014 by Joe Kristan

Today is the annual office golf outing.  It’s also the one time I play golf each year.

For some reason golf is supposed to be fun for everyone, not just the three or four people in the office who actually have enough skill to enjoy the game.  I have proposed alternative field days, including all-office chess tournaments, shooting, rock climbing — things where I might be competitive — and have made no progress.  So golf it must be.

But I will wear my New Mexico hat, that’ll show them.

 

20130114-1Roger McEowen, Minority Shareholder in Closely-Held Farming Corporation Had No Reasonable Expectations that Majority Could Violate – Case Dismissed.

This case generated a controversial Iowa Supreme Court decision on the rights of minority shareholders.  The decision covered in Roger’s article was the trial court’s attempt to apply the Supreme Court’s decision to the facts in the case. Roger concludes:

The trial court’s remand decision is welcome relief for closely-held corporations in Iowa from an Iowa Supreme Court decision that is out-of-step with reality.  To find, as the Iowa Supreme Court did, that there can be shareholder oppression (with the likely result of corporate liquidation) where there isn’t even an allegation of a breach of fiduciary duties by the controlling shareholders would result in, as the trial court’s remand decision points out, oppression of the majority and could also result in corporate liquidation anytime a minority shareholder wants to “cash-out” for personal gain (as in the present case).  The trial court’s decision also upholds the use of bylaws that set forth stock valuation upon buy-out.  In this case, the Iowa Supreme Court allowed the minority shareholder to ignore the bylaw setting forth the valuation methodology for a buy-out (which he drafted), but the trial court held him to it.  That’s more welcome news for closely-held corporations.

This, too, can and probably will be appealed.

 

20140801-2Paul Neiffer, Pay Your Kids; It Saves Taxes!:

A farmer who operates as a sole proprietor may pay their children under age 18 wages and be exempt from payroll taxes.  If the farmer operates as a partnership (either regular or a LLC taxed as a partnership), paying wages to children under age 18 is still exempt from payroll taxes if the only partners of the partnership/LLC are parents of the children. 

But grandpa is out of luck.

From Jim Maule’s Tax Myths series, Retired People Do Not Pay Income Tax

Peter Reilly,Don’t Leave Money To Children Buried Under IRS Liens.  “Leaving money to someone who is subject to IRS liens can be like leaving money to IRS.”

Keith Fogg, When Should Bankruptcy Court Hear a Tax Case (Procedurally Taxing).

TaxGrrrl, Guilty Plea In One Of The Largest, Longest Running Tax Fraud Schemes Ever.  Kelly explains how some New York grifters milked the Treasury for years, stealing $65 million under the nose of Doug Shulman.

 

Joseph Henchman, Maryland Argues There’s No Constitutional Bar to Taxing Over 100% of Residents’ Income.  Maryland argues that it doesn’t have to allow a credit against county taxes for taxes paid in other states.  Joseph argues, I think correctly, that Maryland’s position is an unconstitutional burden on interstate commerce.

Howard Gleckman, How REIT Spinoffs Will Further Erode the Corporate Tax Base‘ (TaxVox).

 

20140801-1

 

Kay Bell, Seersucker Day returns to Capitol Hill, but lawmakers can’t deduct their special summer duds

TaxProf, The IRS Scandal, Day 449

 

Kelly Davis, ales Tax Holidays = Not Worth Celebrating (Tax Justice Blog).  “In the long run, sales tax holidays leave a regressive tax system basically unchanged.”

Iowa’s sales tax holiday for clothing and footwear is today and tomorrow.
News from the Profession.  Teamsters Get Dynamic With a Giant Rat at Grant Thornton’s Downtown NYC Office (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 7/31/14: Tax Holiday Weekend! And: how defined benefit plans hurt Iowa municipal services.

Thursday, July 31st, 2014 by Joe Kristan

20140731-1You’ve had your calendar’s marked for a long time, and here it is: Iowa’s annual sales tax holiday is tomorrow and Saturday.  From the Iowa Department of Revenue:

If you sell clothing or footwear in the State of Iowa, this law may impact your business.

  • Exemption period: from 12:01 a.m., August 1, 2014, through midnight, August 2, 2014.
  • No sales tax, including local option sales tax, will be collected on sales of an article of clothing or footwear having a selling price less than $100.00.
  • The exemption does not apply in any way to the price of an item selling for $100.00 or more
  • The exemption applies to each article priced under $100.00 regardless of how many items are sold on the same invoice to a customer

“Clothing” means…

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

“Clothing” does not include…

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

Stylish tax-savvy shoppers can combine holidays across states.  For example, you can pick up a cute new outfit in Iowa this weekend and wear it to Louisiana for their September firearms tax holiday.

Related:  

Kay Bell, 12 states kick off August 2014 with sales tax holidays

Joseph Henchman, Sales Tax Holidays: Politically Expedient but Poor Tax Policy

 

Robert D. Flach has some sound ADVICE FOR A NEW GRADUATE STARTING OUT IN HIS/HER FIRST FULL-TIME JOB.  One nice bit: “If you have any cash from graduation gifts left over open a ROTH IRA account and use this money to fund your 2014 contribution.”

Jason Dinesen makes it easy to follow his excellent series on one client’s ID theft saga: Find All of My Identity Theft Blog Posts in One Location.

 

 

taxpayers assn logoGretchen TegelerFallout from Iowa public pension shortfalls (IowaBiz.com):

The increase in public spending for pensions has impacted the ability of our state and local governments in Iowa to pay for other services.  The result is a decline in the quality of public services and an increase in property taxes.  For example, all Des Moines libraries have closed an additional day each week just to help cover the cost of police and fire pensions.  Urbandale is raising property taxes.  Some have questioned whether it’s worth the substantial public cost to pay such a generous benefit to so few individuals.  Police and firefighters in our largest 49 cities can retire at age 55, and receive 82 percent of their highest salary each year for the remainder of their lives.  Almost all of the retirees in this system will have a higher standard of living post-retirement than they did during their highest earning years.

This is true even though Iowa’s public-sector pensions are better-funded than those in many other states.  The problem won’t be fixed until public employees go on the same defined contribution model as the rest of us — you get paid the amount that has been funded.  Defined benefit plans are a lie – to the taxpayers about what current public services cost, or to the employees about what they can expect as pension income, or to both.

 

20140731-2Paul Neiffer, Another Cattle Tax Shelter Bites the Dust:

Essentially, Mr. Gardner would issue a promissory note to these entities for the purchase of cattle and/or operating expenses and equipment.  The promissory notes totaled more than a $1 million, however, it appears that Mr. Gardner effectively paid less than $100,000 on any of these promissory notes.  Also, in almost all cases, Mr. Gardner defaulted on all notes and no collection efforts were made to collect.

This is almost quaint.  When I first started working in the 1980s, I saw a few shelters like this.  A cow worth, say, $2,000 would be sold for $50,000, $2,000 down and the rest on a “note” that would never be collected — but the “farmer” would depreciate $50,000, rather than $2,000.  I’m a little surprised it still going on, considering the at-risk rules, passive loss rules, and hobby loss rules against this sort of thing.

 

 

Jim Maule’s “Tax Myths” series includes “Children Do Not Pay Tax.”  He notes “A child of any age, with gross income exceeding whatever standard deduction is available, has federal income tax liability.”

TaxProf, The IRS Scandal, Day 448.  Read this and tell me again how the Tea Party targeting was just a non-partisan, unbiased attempt to clear a backlog of application that was driven by low-level functionaries in Cincinnati.

Jack Townsend notes UBS Continuing Woes, Including Settlement with Germany

 

2140731-3Cara Griffith, Access to Public Records Isn’t a Fundamental Right – But It Should Be (Tax Analysts Blog).  But bureaucrats everywhere prefer to work without witnesses.

Leslie Book, The Tax Law, EITC and Modern Families: A Bad Mix (Procedurally Taxing).  “I read a summary Tax Court case from a few weeks ago that reminds me that the tax laws in general– and the EITC and Child Tax Credit rules in particular– can sometimes lead to unfair results, especially in light of the complicated and at times messy modern family lives.”

Len Burman, What Ronald Reagan Didn’t Say About the EITC (TaxVox).  I bet he didn’t say it was a floor wax or a dessert topping, either.

Peter Reilly, Obamacare Upheld Against Another Challenge – Court Rules Against Sissel.  The origination clause argument was never more than a forlorn hope.

 

Lyman Stone, Kentucky Considers Tax Rebate for Creationist Theme Park (Tax Policy Blog).  Considering how many legislators think they can play God with state economies by means of tax credits, this has a sort of perverse logic going for it.

Adrienne Gonzalez, PwC Report Declares a Future Free From Nine-to-Five Work (Going Concern).  When I worked at PriceWaterhouse, a PwC predecessor, they were already free from nine-to-five work.  Nine-to-five would have been wimp work for a Sunday.

 

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Tax Roundup, 7/30/14: Iowa Illustrated! And: an unhappy take on IRS offshore account enforcement.

Wednesday, July 30th, 2014 by Joe Kristan

iowa-illustrated_Page_01Iowa’s tax system in pictures.  The Tax Foundation yesterday posted “Iowa Illustrated: A Visual Guide to Taxes & the Economy.”  It is a valuable and sobering introduction into Iowa tax policy.  Anybody interested in Iowa’s tax policy mess should start here.

The Tax Foundation summary:

Here are just a few examples of the more than 30 key findings:

  • Iowa relies on federal funding for one-third of its budget
  • Iowa’s sales tax rate has tripled since its creation
  • Iowa’s business taxes rank poorly nationally, and are uncompetitive regionally
  • Iowa has had a net loss of 63,287 people over the last 20 years
  • Effective tax rates in Iowa vary widely across different industries.

By offering a broader perspective of Iowa’s taxes and illustrating some of the lesser-known aspects of Iowa’s business environment, this guide provides the necessary facts for having an honest debate about how to improve the structure of The Hawkeye State’s tax system. 

There’s too much good stuff to summarize, but I will highlight a few items.

This might explain why property tax reform is such a big deal here:

iowa-illustrated_Page_38

 

Raising individual tax rates on “the rich” means taxing employment:

iowa-illustrated_Page_39

 

Despite its highest-in-the-nation corporation tax rate, Iowa’s corporate tax is a sub-par revenue generator:

iowa-illustrated_Page_41

While agriculture is important in Iowa, financial services are a bigger industry:

iowa-illustrated_Page_13

Iowa has a diverse economy, but our tax system still parties like it’s 1983:

iowa-illustrated_Page_40

A lot of the tax receipts go out the back door to the well-connected via tax credits:

iowa-illustrated_Page_42

It’s hard to make a case for the current Iowa tax system.  Maybe the legislature will finally be ready to do something about it next session.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a great place to start.

 

Now to our regular programming:

 

20130419-1Jack TownsendTime for an IRS Ass Kicking? Herein of Lack of Honor and a Dumb Decision in OVDI/P and Streamlined:

So, one could ask, why wouldn’t it be an easy decision for the IRS to let taxpayers in OVDI/P who had not yet signed a Form 906 to proceed fully under Streamlined.  Well, it appears, that the IRS wanted to keep all of the income tax, penalties and interest for closed income tax years and penalties for open years that it was not entitled to, while giving a partial benefit of the Streamlined program (the 5% penalty applied to innocents, many of whom should owe no penalty).  Basically, the IRS wanted something that it was not entitled to. 

Bad faith seems to be a part of the IRS culture in dealing with offshore issues.

 

Peter Reilly, Retailer Can Only Deduct Perks When Redeemed  “I suspect that the accrual is probably not what makes or breaks these programs.”

Jim Maule continued his “Tax Myths” series while I was away.   I like his “The Internal Revenue Code Fills 70,000 Pages” post.

 

David Brunori, Lawyers Whining About Taxes (Tax Analysts Blog):

For the record, I don’t like taxes. But if you’re going to have a government, you should pay for it the right way. Sales tax should be paid by consumers on all their purchases. Business inputs should never be subject to sales tax. Everyone who has ever studied or even thought about consumption taxes knows that. So it makes sense that legal services should be taxed. Lawyers don’t like that because, well, people might use less of their services. That would be a tragedy beyond comprehension.

Not that I’m in a hurry to charge sales taxes to my individual clients, but David is right on the policy.

 

20140730-1Howard Gleckman, Are Tax Inversions Really Unpatriotic? (TaxVox)  “Selling war material to an enemy or financing a terrorist organization is unpatriotic—and illegal. Using legal avoidance strategies to reduce taxes may be distasteful or unseemly, but it is not unpatriotic.”

Kay Bell, Defense Department workers, some with top security clearance, owed $730 million in back federal taxes.  So tell me again about corporate tax “deserters.”

 

Annette Nellen, IRS Voluntary Preparer Regulation System – Worthwhile? Legal?

TaxProf, The IRS Scandal, Day 447

 

Because Hollywood needs more taxpayer money!  29 Members of Congress Ask California to Boost Film Tax Credits (Joseph Henchman, Tax Policy Blog).  In a just world, this would automatically cost all 29 of these critters their seats.

 

Rebecca Wilkins, Stop the Bleeding from Inversions before the Corporate Tax Dies (Tax Justice Blog).  Darn, I’ll have to stroll into town for a Band-aid.

 

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Tax Roundup, 7/8/14: Not in Kansas Anymore edition. And: the latest on bonus depreciation for 2014.

Tuesday, July 8th, 2014 by Joe Kristan

20140409-1What’s the matter with Kansas?  Economist Scott Sumner looks at the controversy over the recent Kansas tax reforms:

The past two years Kansas reduced its state income tax rates. As a result, the top rate of income tax faced by Kansas residents (combined state and federal) rose from 41.45% in 2012 to 48.3% in 2013 and then fell a tad to 48.2% in 2014 (if they don’t itemize.) That’s a pretty tiny drop in the top marginal tax rate in 2014, and a much bigger rise in 2013.


I can’t imagine any serious economist predicting that the Kansas rate cut would boost Kansas GDP by 25% or more. Why did I pick that figure? Because the Kansas state income tax top rate fell from 6.45% in 2012 to 4.8% in 2014, which is roughly a 25% rate cut. In order for that rate cut to boost Kansas tax revenues, you’d have to see Kansas GDP rise by more than 25%. That’s obviously absurd.

The Sumner post is there to refute a straw-man argument made by tax fans:

“Why am I even discussing such crazy ideas? Because Paul Krugman seems to want to convince his readers that lots of supply-siders believe such nonsense…”

Actually, supply-siders do not claim that tax cuts pay for themselves, except in very unusual cases. Kansas is not one of those cases. The Laffer curve effect is typically applied to cases of extremely high marginal tax rates.

kansas flagI have long pushed for a combination of rate cuts for Iowa, combined with comprehensive elimination of deductions and cronyist tax credits.  That would keep the state budget from getting clobbered, while making the tax system much easier and cheaper to run and to comply with.  Kansas couldn’t let go of the loopholes, and in fact added new ones.  Joseph Henchman of the Tax Foundation discusses the Kansas tax changes in Governing.com (my emphasis):

Good tax reform broadens the tax base and lowers rates. That’s what Gov. Brownback wanted to do. But the legislature took out the “broaden-the-base” part. They just passed a tax cut, which can be justifiable if you want to reduce the size of government or expect other revenue sources to go up. But they didn’t cut spending and they don’t expect revenue to grow, so it’s just a hole. With the exemption for pass-through entities, if you’re a wage earner, you’re taxed at the top rate, which is currently 4.9 percent in Kansas. If you’re a partnership, an LLC or any form of recognized business entity with limited liability that’s not a corporation, your income is taxed at zero percent. That’s an incentive to game the tax system without doing anything productive for the economy. They think things like the pass-through exemption will encourage small business, and to be fair, it might. But they are doing it in a way that violates the tax principle of neutrality.

So what would happen if my Quick and Dirty Iowa Tax Reform Plan were enacted in Iowa?  My plan would eliminate corporation taxation and allow S corporation owners to elect to be taxed on distributions, rather than on pass-through income.  Properly structured, it wouldn’t hurt Iowa’s tax revenue, as the rate cuts would be offset by fewer deductions and elimination of tax credit giveaways.  I like to think that without a corporation tax and without a culture of begging for tax credits, Iowa would over time do well, considering that its regulatory and labor environment is already business-friendly.  But I don’t expect miracles, and I would not want the rate cuts to be so deep as to depend on a short-term economic boom to keep the state solvent.

 

20130113-3Richard Borean, House to Consider Bonus Depreciation (Tax Policy Blog). “It turns out that  adding permanent bonus expensing to the Camp Plan would boost GDP, wages, job creation, and federal revenue.”

Bonus depreciation is one of the many perpetually-expiring provisions that get renewed every year or two, after enough lobbyists make their offerings to the congressional fundraising idols.  The congresscritters love enacting proposals temporarily because that way they don’t appear to cost as much as officially-permanent provisions, and because it makes the lobbyists come and visit them regularly to get yet another extender bill passed.

Ways and Means Committee Chairman Camp is calling out this game by trying to get some of these provisions extended permanently, officially.  He notes that they really are permanent, and that pretending that they are temporary isn’t fooling anybody.  His opposition in the Senate wants to keep pretending the provisions are temporary, and that the honest step of treating them as permanent is “budget busting.”

None of this helps businesses pricing investment decisions for 2014.  Anyone buying equipment has to guess at the deduction schedule in order to forecast cash flows from the purchase.  Unfortunately, nothing is likely to happen until after the November elections, when a temporary retroactive extension is likely to pass — but might not.

 

Trish McIntire discusses The New Voluntary Tax Preparer Program.  “I’m interested in seeing the numbers of the Filing Season Program come January 2015. Honestly, I don’t think they are going to be as high as the IRS hopes.”

Roberton Williams, IRS Help Line Is Out Of Service (TaxVox) “I needed to double-check an issue concerning withdrawals from my nonagenarian father’s IRA. IRS Publication 590 wasn’t clear so I decided to call the IRS. The experience was illuminating. Not helpful mind you, but illuminating.”

William Perez, What’s Form W-9?  “Independent contractors and other people who work for themselves will often need to give a Form W-9 to their clients. Clients will then use the information on Form W-9 to prepare Form 1099-MISC to report income paid to the independent contractor.”

Jim Maule continues his Tax Myths series with “I’m Getting a Refund and Not Paying Tax.”  He notes “Whether a person has a tax liability cannot be determined simply from the existence of a refund.”

Kay Bell assigns 5 easy tax tasks to take care of in July.

 

20140708-1Brian Mahany, Are FBAR Penalties Unconstitutional? In Many Cases Yes.  “It’s one thing to assess a 50% or 75% penalty but when penalties exceed the total tax owed by a multiple of 50 times like in the Warner case, we believe the penalties are clearly unconstitutional.”

Martin Sullivan, Will States Get a Multibillion-Dollar Windfall From Corporate Tax Reform? (Tax Analysts Blog).  Only if there is actually corporate tax reform.

TaxGrrrl, The Real Cost Of Summer Vacation: Don’t Get Buried In Taxes

Stephen Olsen, Summary Opinions for 6/27/14. (Procedurally Taxing)  Don’t let the date fool you, this roundup of tax procedure news was posted yesterday.

Peter Reilly, City Taxes Trip Up Investment Advisor Restructuring.  Beware New York City.

Jack Townsend, Convicted Politician Did Not Lay a Proper Foundation For Proferred Indirect Testimony of Lack of Intent.  “How does a defendant unwilling to testify as to his intent — thus invoking his Fifth Amendment privilege — introduce indirect evidence of his lack of intent to blunt the Government’s indirect proof of his intent?”

 

TaxProf, The IRS Scandal, Day 425

 

Robert D. Flach brings the Tuesday Buzz.  I like this:

Item #10 on the new IRS-issued Taxpayer Bill of Rights is “The Right to a Fair and Just Tax system”.

In order to assure this right to taxpayers the Tax Code would need to be totally rewritten and all current members of Congress would have to be replaced by competent and intelligent legislators who actually give a damn about the American public.

It’s right as far as it goes, but some members of the executive branch would also need to go, starting with the Commissioner.

 

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Tax Roundup, 6/26/14: Misdirected e-mail edition. And: 15 years for tax fairy medium Daugerdas.

Thursday, June 26th, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The IRS scandal finally found a way to get the Des Moines Register’s attention.  Lois Lerner of IRS sought audit of Grassley, emails say:

The emails show Lerner mistakenly received an invitation to an event that was meant to go to Grassley, a Republican.

The event organizer apparently offered to pay for Grassley’s wife to attend the event.

Instead of forwarding the invitation to Grassley’s office, Lerner emailed another IRS official to suggest referring the matter for an audit, saying it might be inappropriate for the group to pay for his wife.

“Perhaps we should refer to exam?” Lerner wrote.

It was unclear from the emails whether Lerner was suggesting that Grassley or the group be audited — or both.

Grassley-090507-18363- 0032A reader who relies on the Des Moines Register for news might be puzzled over who Lois Lerner is.  A search of the word “Lerner” on the Register’s website only uncovers two other stories related to her role in the scandal: “Steve King calls for abolishing the IRS on Tax Day” (4/15/14) and “Critics: Progress scant after IRS scandal” (3/27/13).  It appears that today’s article would have been the first time Register readers would have learned anything about the mysterious mass deletion of emails relating to the Tea Party scandal.  A devoted Register fan might have been puzzled as to why this seemingly important news hadn’t been mentioned before.

I think there’s a hint down in the article (my emphasis):

Lerner headed the IRS division that processes applications for tax-exempt status. The IRS has acknowledged that agents improperly scrutinized applications by tea party and other conservative groups before the 2010 and 2012 elections. Documents show that some liberal groups were singled out, too.

Nobody buys that last sentence.  While a few “liberal” words were on the list of buzzwords to identify political organizations, no liberal outfits had their donor lists illegally released, or had their exemption applications held up indefinitely with demands for ridiculous detail of the organizations — including the content of their prayers.   Here are the stats:

targetingstats

Now maybe the Register will begin to get its readers up to speed.  If not, the Tax Update is available to Register subscribers at no extra charge!

Meanwhile, the IRS will have to explain to senior Senate taxwriter Grassley just why it needs more resources.  That may be slightly awkward.

TaxProf, The IRS Scandal, Day 413

Russ Fox, Lerner Appears to Have Targeted Iowa Senator Grassley  “Of course, President Obama said earlier this year just that–that there is not even a smidgen of corruption…”

 

tax fairyThe Tax Fairy fails a true believer.  Paul Daugerdas, the Jenkens & Gilchrist attorney who generated over $90 million in fees selling tax shelters, was sentenced to 15 years in federal prison yesterday for his troubles.  Bloomberg reports:

The tax shelters at the center of the case were sold from 1994 to 2004 to almost 1,000 people, creating $7 billion in fraudulent tax deductions and more than $1 billion in phony losses for customers, the U.S. said.

It appears unlikely that Mr. Daugerdas will come out ahead on his tax shelter efforts:

Daugerdas was ordered to forfeit $164.7 million and help pay restitution, with other conspirators, of $371 million. 

While he wasn’t the only Tax Fairy guide during the great turn-of-the-century Tax Shelter frenzy, he was perhaps the most prominent, inventing tax shelters with names like HOMER and COBRA.  The shelters found eager customers among businesses and individuals looking for the Tax Fairy, the legendary sprite believers insist will wave her magic wand and make taxes go away, for a very reasonable fee.    Now Jenkens & Gilchrist is dead, the believers are out their money, plus penalties, and there still is no Tax Fairy.

The Tax Analysts story on the sentencing ($link) had one item that I hadn’t seen before:  “The jurors said that Daugerdas was convicted solely on counts for which the government presented evidence of backdating, when Daugerdas agreed to prepare false tax returns that reported as 2001 losses transactions that occurred in 2002, the defense memo says.”  Way back in 2009, I said this could be his biggest problem at trial: Is backdating the fatal flaw for Daugerdas?:

If the government can prove backdating, it might be much easier for a juror to vote for conviction. Tax is hard, and a good defense lawyer has a lot of opportunities to give jurors a reasonable doubt in a case involving short sales, derivatives and currency options. But anybody can understand backdating.

This sort of thing separates “aggressive tax planning” from plain fraud.

Related: 

Department of Justice Press Release

Jack Townsend, Daugerdas Gets 15 Year Sentence

TaxGrrrl, Daugerdas Sentenced To Prison, Ending Biggest Tax Prosecution Ever

This one is probably coincidental, but Jason Dinesen, 138 Years Ago Today: Custer’s Last Stand

 

IMG_0216Robert D. Flach, A SUMMER TAX TIP FOR SCHEDULE C FILERS

William Perez, Single Filing Status.  “A person is considered unmarried for tax related purposes if on the last day of the year the person is not married to any other person or is legally separated from a spouse under a divorce or separate maintenance decree.”

Kay Bell, Kids, summer camp tax breaks and our personal X Games site

Peter Reilly, Facade Easement Valuation Cannot Be Percentage Rule Of Thumb 

Cara Griffith, Ohio Enacts Legislation Allowing Creation of Captive Insurance Companies (Tax Analysts Blog).

The answer is clearly more tax credits.  The New Jersey Casino That Tax Credits Could Not Save  (Adam Michel, Tyler Dennis, Joseph Henchman, Tax Policy Blog)

Renu Zaretsky, Expanding a Credit, Simplifying a Break, and Cutting Off a Nose to Spite a Face.  Today’s TaxVox headline roundup covers  IRS funding, student debt, and same-sex marriage complications.

 

 

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Tax Roundup, 6/11/14: IRS Bill of Rights: just words? And: when your state got its income tax.

Wednesday, June 11th, 2014 by Joe Kristan

billofrightsTalk is cheap.  The North Korean constitution has a whole bunch of rights,  per Wikisource.  For example:

Article 70. Citizens have the right to work. All able-bodied citizens choose occupations in accordance with their wishes and skills and are provided with stable jobs and working conditions. Citizens work according to their abilities and are paid in accordance with the quantity and quality of their work.

Article 75. Citizens have freedom of residence and travel.

Article 78. Marriage and the family shall be protected by the State. The State pays great attention to consolidating the family, the basic unit of social life.

 

So written declaration of rights are just empty words when there is nothing behind them. That’s why I can’t get too excited about the big Taxpayer Bill of Rights announced by IRS Commissioner Koskinen and Taxpayer Advocate Olson yesterday.

Nothing to disagree with on the list, but what will the IRS do to make it more than empty words?  Going down the list:

The Right to Be Informed.  The IRS is infamously secretive.  Will they no longer require Tax Analysts to sue them to make public their positions and procedures?  Will the required compensation for S corproation employee- shareholders be only known to the whim of the examining agent?

The Right to Quality Service.  The IRS continues to get worse at answering taxpayer questions.  It seems like they are worse than ever at dealing with correspondence.  It has become nearly impossible to reach IRS personnel in D.C. by phone to ask technical questions. Is the Commissioner going to change any of this?

The Right to Pay No More than the Correct Amount of Tax.  The nearly-automatic assertion of penalties for every asserted deficiency will have to end for this to mean anything.

The Right to Challenge the IRS’s Position and Be Heard.  The consolidation of appeals offices and their seeming loss of independence will have to be reversed for this to mean something.

The Right to Appeal an IRS Decision in an Independent Forum.  See you in Tax Court…

The Right to Finality.  Does this mean IRS will enable offshore FBAR foot-faulters to come into compliance without facing financial ruin?

The Right to Privacy and The Right to Confidentiality. These are a big ones, and the IRS hasn’t been doing so well at them lately.

The Right to Retain Representation.  Yet the IRS wants to choose who gets to do this for you. When the IRS can shut down your representative, he may not be a really zealous advocate.

The Right to a Fair and Just Tax System.  This is something that the IRS can’t ultimately reach on its own — Congress designs the system — but it could sure do a lot better.  When the IRS routinely assesses $10,000 penalties for filing Form 5271 one day late, when they effectively loot foreign pension accounts of expats for inconsequential paperwork violations, it’s hard to see the fairness and justice.

Taxpayer Advocate Nina Olsen

Taxpayer Advocate Nina Olsen

Other coverage:

TaxProf has a roundup.

Kay Bell, Would the newly adopted Taxpayer Bill of Rights have prevented the IRS Tea Party scandal?

Robert W. Wood, IRS Reveals Taxpayer Bill Of Rights

Joseph Henchman, IRS Approves List of Taxpayer Rights (Tax Policy Blog).  “My own addition is that much as requiring police to know and inform arrestees of “Miranda” warnings has increased awareness of those rights, so too will this.”

TaxGrrrl,  IRS Releases Much Anticipated ‘Taxpayer Bill Of Rights’  “With the wrap up of filing season, the IRS is now in its peak correspondence mailing season. This was, according to Koskinen and Olson, the perfect time to introduce the rights since they will be mailed out together with those correspondences.”

Russ Fox, IRS Adopts “Taxpayer Bill of Rights;” Will Anything Change?  “Until the IRS comes clean on the IRS scandal, what was released today makes a great sound bite but is otherwise nothing new. The IRS appears to have violated six of the ten rights, and is still stonewalling Congress on the scandal. The IRS’s budget won’t be increased because of today’s press release.”

 

Scott Drenkard, Richard Borean, When Did Your State Adopt Its Income Tax? (Tax Policy Blog):

20140611-1

No, they haven’t been around forever, it just feels that way.  Wisconsin was first.

 

Jason Dinesen, Same-Sex Marriage and Amending Prior-Year Returns.  “A broader way of asking the question is: if someone who’s in a same-sex marriage amends a prior-year return that they had previously filed as a single person due to the Defense of Marriage Act, must that amended return show a filing status of married?”

Tony Nitti, District Court: Lone Sale Of Undeveloped Land Generates Ordinary Income, Jeopardizing Land Banking Transactions   

William Perez, Home Office Deduction

Keith Fogg, Government Drops Appeal in Rand Case (Procedurally Taxing).  This is the case where the Tax Court ruled that a recovery of refundable credits in excess of income tax was not a “deficiency” for computing penalties.

Jack Townsend, Reminder: Category 2 Banks Will Serve Up Their U.S. Depositors .  Consider banking secrecy dead.

Brian Strahle provides a list of state and local tax blog resources. 

 

20140611-2Alan Cole, Japan’s Tax Reforms and its Blockbuster GDP Growth (Tax Policy Blog):

Paired together, theory would predict that these two tax changes create a structural shift in the Japanese economy; the more favorable corporate tax climate would encourage investment, and some income would be spent on that new investment instead of immediate consumption. Over the long term, this will boost Japanese wealth and productivity, and eventually allow for a higher standard of living than before.

The data fit this theory so far; private nonresidential investment grew at a “blockbuster” rate of 7.6% in the first quarter of 2014. 

 

David Brunori, A Coke and a Smile and a Tax (Tax Analysts Blog). ” It would tax a can of Coke, but if you went to Starbucks and dumped five teaspoons of sugar into your latte, there would be no additional tax.”

TaxProf, The IRS Scandal, Day 398

Going Concern, Ex-BDO Vice Chairman Given 16 Months to Think About His Choices. He will retire to a Bureau of Prisons meditation facility.

He was ashen after the sentence was announced.  Gray man sentenced to 18 months for tax evasion

 

 

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Tax Roundup, 5/23/14: We’re sorry. Can we have our funding now?

Friday, May 23rd, 2014 by Joe Kristan
Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

The IRS wants its budget back.  The agency has withdrawn the proposed regs that would institutionalize its mistreatment of Tea Party groups.  Accounting Today reports:

The announcement Thursday came in response to the unprecedented number of comments—over 150,000—the IRS received on the proposed rules, which were supposed to govern the types of political activity that would be permissible for groups to maintain tax-exempt status as “social welfare” organizations under Section 501(c)4 of the Tax Code (see Treasury and IRS Issue Guidance for 501(c)4 Tax-Exempt Social Welfare Organizations). The issue has roiled the IRS since last year, when the former director of the IRS’s Exempt Organizations unit, Lois Lerner, admitted that the IRS had used terms such as “Tea Party” and “Patriot” to screen applications from conservative groups applying for tax-exempt status. Those revelations led to the departures of Lerner and a number of other high-ranking officials at the IRS, along with a series of contentious hearings, subpoenas and contempt of Congress charges against Lerner.

The new commissioner, John Koskinen, indicated back in February that the proposed regulations are not likely to be finalized anytime soon and would be subject to heavy revision in response to the thousands of comments the agency received (see IRS Commissioner Koskinen Says Proposed Tax-Exempt Rules Won’t Be Finalized Soon). Republican lawmakers in Congress introduced legislation in February to block the proposed regulations (see Congress Considers Legislation to Block IRS’s Proposed 501(c)4 Regulations).

I suspect it will be a loooong time before they come out with a new set of proposed regulations — comparable to the wait for the final regulations on self-employment taxation of LLC members, which have been “proposed” now since 1997.  This is probably a necessary first step for the IRS to get its full funding restored, given how much it has done lately to demonstrate that it is institutionally opposed to the GOP.  Maybe it would help also to demonstrate some fiscal discipline by dropping its costly pursuit of preparer regulation by “voluntary” means.

 

Related: TaxProf, The IRS Scandal, Day 379

 

Jim Maule, No Deduction If Entitled to Reimbursement.  “It is a long-established principle of federal income tax law that a taxpayer is not permitted to deduct an otherwise deductible expense to the extent that the taxpayer is entitled to reimbursement from the taxpayer’s employer.”

Kay Bell, Summer travel time is prime tax time

Peter Reilly, American Atheists Denied Standing To Challenge Church Tax Breaks.

Robert D. Flach come’s through with the week’s third Buzz!

 

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Christopher Bergin, The Punishment of Credit Suisse Is Not Enough (Tax Analysts Blog). “People need to start going to jail for these types of abuses.”  No, our tax authorities prefer to shoot jaywalkers so we can gently chastise the international money-launderers.

Jack Townsend, Credit Suisse Update – The Aftermath for Credit Suisse #1.  The Federal Tax Crimes blog rounds up coverage of the Credit Suisse plea.

Stephen Olsen, Summary Opinions for 5/16/14 (Procedurally Taxing). The most interesting item to me in this roundup of tax procedure posts is “IRS is doing limited audits on Section 409A plans, and Winston and Straw has some coverage here.”  The horrible Section 409A rules haven’t triggered many audits.  That may be ending, and 20% penalties, plus income taxes, on funds never received will then be on the way as a result of foot-fault violations of the insanely-complex rules governing non-qualified deferred compensation plan distributions.

 

Joseph Henchman, IRS Considering Change in Tax Treatment of Travel Loyalty Points (Tax Policy Blog). What could go wrong?

Len Burman, Why Not Ditch the Medical Device Excise Tax and Boost Cigarette Taxes? You know, if we really wanted to promote public health, we should consider promoting e-cigarettes to get people off the real thing.  Instead, the government wants to tax and restrict them just like real coffin nails.

 

Adam Weinstein, Why Our Political System’s Screwed, in One Very Basic Chart:

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Via Nick Gillespie.

 

News from the Profession: Ex-KPMG Partner Who Gave Insider Tips to His Former Golf Buddy Is Going to Talk About Ethics Before He Goes to Prison (Going Concern)

 

Have a great Memorial Day Weekend!

 

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Tax Roundup, 4/25/14: Why the move to tax return selfies? And: Iowa’s unhappy high ranking.

Friday, April 25th, 2014 by Joe Kristan


Supply and demand curves

Supply and demand curves

IRS stats show more people are preparing their own returns, reports Tax Analysts ($link):

The IRS’s latest data, released April 11, show electronic filing from paid tax professionals fell 0.3 percent from the same time last year. That follows a 1.8 percent drop in April 2013, and a 1.7 percent drop in April 2012. By contrast, the IRS said, self-prepared e-filing of returns rose 4.5 percent through April 11 compared with last year, 3.1 percent in April 2013, and 5 percent in April 2012.

It seems like an odd trend.  It’s not like the tax law is getting any easier.  One possibility raised in the story is that it’s those wacky youngsters:

 Self-preparation may be a response to a younger generation’s ease with computers and software, said [retired Enrolled Agent Sandra] Martin. “That’s more of a permanent reason why people aren’t using preparers,” she said.

She also raises a much less logical possibility:

Martin said the IRS’s inability to regulate return preparers makes matters worse. Taxpayers are not only uncertain about the qualifications of their preparers, she said; some are afraid, haunted by stories of fraudulent preparers ripping off return filers and deciding the do-it-yourself path may be safest.

I think the failed IRS preparer regulation power grab is a big part of the cause, but not for the reasons cited by Ms. Martin.  As Dan Alban, slayer of the preparer regulations, testified before the U.S. Senate taxwriting committee:

In fact, IRS data released last summer shows a dramatic drop in the number of tax preparers in recent years — a sudden loss of more than 200,000 preparers from 2010 to 2012 — following the recent imposition of a series of burdensome IRS regulations on preparers (the e – file mandate and the Return Preparer Initiative, which included both the PTIN registration requirement and RTRP licensing)

If your preparer gets out of the business, maybe you will stop using a preparer.  With fewer preparers, the law of supply and demand predicts that costs will rise.  As costs rise, consumers seek substitutes.  It’s what I predicted back in 2010:

Rather than pay the increased costs, some taxpayers will stop getting help on their returns altogether and either self-prepare or drop out of the system. These dropouts certainly won’t see improved service, though the regulators will never admit responsibility for that.

Supply and demand: it’s not just a good idea, it’s the law!

 

Supply and Demand

Lyman Stone, Joseph Henchman, Richard BoreanTop State Income Tax Rates in 2014 (Tax Policy Blog):

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The colors on the map get darker as the rates get higher.  You’ll notice that Iowa’s 8.98% top rate gives it quite the purple tan.  It’s misleading, in that the effective rate is closer to 6% taking deductiblility of federal taxes into account; that would give Iowa a more lovely lavender tint, like Missouri and Louisiana.  Yet Iowa refuses to build the federal deductibility into lower rates.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would address that.

 

Christopher BerginThe IRS and the Tax System: Integrity and Fairness for Whom? (Tax Analysts Blog):

The IRS’s mission statement couldn’t be clearer:

    Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

If some of the tax cops aren’t playing by the rules – and getting bonuses for it – how does that provide us taxpayers “top quality service” and help us understand and meet our tax responsibilities? The two most important words in this mission statement are “integrity” and “fairness.” The one thing largely missing from our tax code is fairness. And the one thing now beginning to disappear from the agency charged with administering that tax code is integrity.   

Nah.  Compliance is for the peons, not the overlords.

 

Howard GleckmanLen Burman’s Brief for a Health Care VAT:

Len, the director of Tax Policy Center (and, thus, my boss), argues that a dedicated—and fully transparent–health care VAT would increase public support for efforts to slow the growth of medical costs. That’s because the VAT would rise, for all to see, with increases in government health spending.

I have another idea: let’s sever the link between employment and healthcare, authorize interstate sales of high-deductible health insurance, and have people pay for routine care out-of-pocket.  We don’t have to resort to a VAT to keep prices down for, say, beer and groceries — or for non-covered health costs, like LASIX procedures.  Removing the layers between consumer and payment just might work for other health costs too.  Seeing increase in your spending from your own pocketbook is a lot better motivator to reduce costs than watching government budget numbers.

 

Gene Steurle, Dave Camp’s Tax Reform Could Kill Community Foundations:

The proposal would effectively eliminate most donor advised funds (DAFs), the major source of revenues to community foundations, so they could no longer provide long-term support for local and regional charitable activities. Instead, those funds would need to pay out all their assets over a period of five years.

Iowa has a special tax credit for gifts to community foundations, which is often oversubscribed.

 

 

20140411-1Kay Bell, Doctors are target of an income tax fraud scheme; the rest of us need to watch out for a new e-file phishing attempt

TaxGrrrl, Payback Is Forever: Tax Refund Offset Law Remains On The Books 

Or anybody else.  Piketty’s Tax Hikes Won’t Help the Middle Class (Megan McArdle)

Tax Justice Blog, Trend Toward Higher Gas Taxes Continues in the States

TaxProf, The IRS Scandal, Day 351

Robert D. Flach brings the Friday Buzz!

 

Going Concern, Now We’re Creatively Interpreting Sarbanes-Oxley to Include Fish.  Well, the whole thing has always been fishy.

Keith Fogg, Collection of Restitution Payments by the IRS (Procedurally Taxing)

 

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