Posts Tagged ‘Joseph Thorndike’

Tax Roundup, 11/24/15: Another Kansas medical practice ESOP blows up. And: tax credits for everything!

Tuesday, November 24th, 2015 by Joe Kristan

20151124-1When you fund an employee stock ownership plan, be sure you have an employee. Another strange ESOP failure out of Kansas emerged from the Tax Court yesterday. A Wichita doctor, whom we will call Dr. F, funded an ESOP for his practice with over $400,000 in 2004, supposedly rolled over from his IRA. But, according to the tax court, the doctor wasn’t qualified to participate, and there was no evidence of a rollover. From the Tax Court (emphasis added, citations omitted, doctor’s name shortened by me):

Dr. F. received no compensation from, and was not employed by, petitioner in 2004 or 2005. A total of 53.06 shares of petitioner’s stock was allocated to his account in these years. Respondent determined that these contributions exceeded the section 415(c) limitation because Dr. F. received no compensation from petitioner in 2004 or 2005. Petitioner alleges that the amounts in Dr. F.’s accounts were rollover contributions from Dr. F.’s individual retirement account and should not be considered for purposes of section 415(c).

In order for a distribution to be considered a rollover contribution, the entire amount received must be paid into a qualified trust for the distributee’s benefit no later than the 60th day after the day that the distribution is received. Petitioner has not provided evidence that a valid rollover took place. Further, because the ESOP trust did not have a bank or brokerage account from May 13, 2004, through December 31, 2009, it was not possible for the distribution from Dr. F.’s individual retirement account to have been paid into an account held by the ESOP trust.

Details, details. But details are everything. The IRS cited multiple reasons for the ESOP revocation, and as the court notes, “Any one of the reasons cited in the final revocation letter would be sufficient alone to cause the ESOP and the ESOP trust to fail…” The ESOP also failed to get a qualified appraisal.

This is the second physician ESOP out of Kansas to fail this year in Tax Court. Iowa has long been the capital of flaky ESOPs, but Kansas seems ready to challenge our dubious supremacy. In fairness, though, the trustee of both ESOPs appears to operate out of Northeast Iowa, so we’re keeping our hand in the game.

The Moral? ESOPs are useful for limited purposes, primarily as a succession vehicle for a closely-held business, but they are complex and dangerous, requiring meticulous compliance to avoid catastrophe. They are a poor tax shelter for a closely-held business when the owner wants to maintain control.

Cite: Fleming Cardiovascular PA, T.C. Memo. 2015-224


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.

Joseph Thorndike, Tax Credits Are Easy – And a Loser’s Game for Liberals (Tax Analysts Blog):

Hilary Clinton’s presidential campaign is still churning out tax proposals at a furious pace. Over the weekend, she proposed a new credit for caretakers—intended, according to her campaign, to “provide support for the millions of families paying for, coordinating, or providing care for aging or disabled family members.”

That sounds great – just like every other tax break Clinton has suggested in the past several months. After all, caring for family members can be hard, and it’s often expensive. Caretakers could definitely use a hand.

But is the tax system the best way to provide it? Probably not.

Home caregivers are wonderful people. But Mr. Thorndike notes the problems with such feel-good credits:

Using tax incentives as a form of hidden spending merely serves to further erode support for more direct forms of government action. Small-bore tax breaks breed more small-bore tax breaks. But they don’t foster any serious rethinking of the role of government.

Nor do they produce meaningful results, even for the narrow problems they target.

There’s another argument that the tax-credits-for-everything crowd glosses over. Each feel-good credit throws another social program to an IRS that is collapsing under its current workload. They can’t really want IRS agents evaluating at-home care, yet it’s baked into that cake. If you don’t audit a lucrative tax credit, it becomes a fraud magnet. So IRS, meet Grandma.


Howard Gleckman, Clinton’s Caregiver Credit Adds To Her List of Tax Breaks, Sharpens Her Contrast With The GOP. “The likely Democratic presidential nominee, Hillary Clinton, would aggressively use the tax code to achieve social and economic goals, cut taxes on many middle-income people, and raise taxes on high-income households. Every Republican presidential hopeful would eliminate most existing tax subsidies, lower rates, and give big tax cuts to those with high-incomes.”




Robert D. Flach has fresh Tuesday Buzz! Lots of links, and spicy observations on the use of the tax law to run social programs.

Tony Nitti, Tax Geek Tuesday: Reminding You That The Gain On That Sale Of Stock May Be Tax Free. “C corporations are like pit bulls and prostate exams — they carry quite the stigma,  but they’re not nearly as bad as they’re made out to be.”

TaxGrrrl, Guilty On Tax & Conspiracy Counts, Couple Faces New Charges For Revenge. Violating the first rule of holes.

Robert Wood, Al Sharpton’s Charity Hikes His Pay 71%, But Tax Liens, Clinton Imprint Remain.


Farley Katz, Joseph Perera, Katy David, Important New Partnership Audit Rules Change Taxation of Partnerships (Procedurally Taxing)

Not only can the partnership owe income tax, the tax will not be based on the income for the year in question, but instead on one or more prior years’ income. Consequently, the economic burden of the tax could be borne by partners who had no interest in the partnership when the income was generated. Conversely, if a partnership overstated its income in a prior year, the benefit of correcting that overstatement will accrue to the current partners, not those who were partners in the earlier year. Finally, if a partnership elects out of the new provisions (assuming it is eligible), the IRS will no longer be able to conduct a centralized audit controlling each partner’s distributive share, but will instead have to audit each partner individually,

Excellent article. These new rules will change the dynamics of partnership exams a great deal when they take effect for 2017 filings.

Jack Townsend, Fifth Circuit Sustains Convictions Despite Trial Judge’s Refusal to Give Proper Cheek Willfulness Instruction




Tyler Cowen, Against a financial transactions tax. He cites a paper documenting that such taxes are unwise:  “This is consistent with earlier findings on Sweden’s transactions tax, and that proposal continues to be one of the more overrated ideas in American Progressive political discourse.”

TaxProf, The IRS Scandal, Day 929

Peter Reilly, Foundation Of Big GOP Donor Loses Tax Court Case Over Political Ads


Career Corner. Let’s Discuss: Non-Equity Partners in Accounting Firms (Caleb Newquist, Going Concern)



Tax Roundup, 10/26/15: No surprise, no Tea Party charges. And: the proposed Iowa graduate tax break.

Monday, October 26th, 2015 by Joe Kristan
Toby Miles, IRS.

Toby Miles, IRS.

You break news on Friday when you want to bury it. And that’s what the Department of Justice did when it told Congress that it would not prosecute Lois Lerner, or anybody else in IRS, as a result of the Tea Party Scandal.

Not that anybody would expect otherwise. The Justice Department continues to act as the Administration’s scandal goalie. The fix was in once the President changed his tune from “this is terrible” to “not even a smidgen of corruption.”

Throughout the investigation, not a single IRS employee reported any allegation, concern, or suspicion that the handling of tax-exempt applications — or any other IRS function — was motivated by political bias, discriminatory intent, or corruption. Among these witnesses were several IRS employees who were critical of Ms. Lerner’s and other officials’ leadership, as well as others who volunteered to us that they are politically conservative. Moreover, both TIGTA and the IRS’s Whistleblower Office confirmed that neither has received internal complaints from IRS employees alleging that officials’ handling of tax-exempt applications was motivated by political or other discriminatory bias.

The Investors Business Daily gets this right:

This is absurd. Lerner was caught red-handed targeting Tea Party and other conservative groups, wrote partisan emails to prove it, then engaged in a massive cover-up effort — with a suspiciously crashed server, an oddly missing BlackBerry and plenty of excuses.

She evaded even more accountability by shielding herself with the Fifth Amendment in Congress.

It was only Tea Party groups that had to wait years for approval. Considering the destroyed emails, “lost” backups, and Ms. Lerner’s peculiar interest in communication methods that could not be traced, there’s too much smoke and ash to believe there was no fire.

TaxProf has more: The IRS Scandal, Day 898Day 899Day 900. The fix is put in, and we’re told that means that there is no scandal.


Robert Wood, Obama Administration Learned From Lois, Dodging IRS Scandal. “Deny, stonewall, deny.”

TaxGrrrl, DOJ Says No Criminal Charges For Lerner, Others In IRS Scandal, Closes Investigation




Jana Luttenegger Weiler, IRS Releases Inflation Adjustments for 2016 (Davis Brown Tax Law Blog).

Kay Bell, Securing taxpayer data is the IRS’ biggest challenge

Russ Fox, Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Robert D. Flach, WHO MUST FILE A 2016, or 2015, TAX RETURN? “FYI, based on the new inflation adjustments recently announced by the Internal Revenue Service, you do not have to file a 2016 Form 1040, or 1040A, unless your “gross income” is at least…” Visit Robert to find the numbers.


Hank Stern, Easy come, easy go:

“[T]he GAO report found that … at least $1.6 billion [is] unaccounted for.”

That’s out of over $5 billion in “loans” sent to states, most of which went for state-based Exchanges (which, per SCOTUS, don’t actually exist).

That must be the “affordable” part of the Affordable Care Act.”




Joseph Thorndike, Mexico Is Having Second Thoughts About the Soda Tax – And So Should Everyone Else (Tax Analysts Blog). “If a big tax dissuades people from drinking Mountain Dew, maybe they will lose weight. But maybe they will continue to scarf down their Twinkies with a cupful of untaxed water – and keep packing on the pounds.”

Scott Greenberg, Reviewing Paul Ryan’s Short Term as Chairman of Ways and Means (Tax Policy Blog). “In the last 10 months, the Ways and Means Committee has brought 52 bills to the House floor, tied for most with the Energy and Commerce Committee. Out of these bills, 15 were passed into law, the most out of any committee.”

Howard Gleckman, Little Difference Between the Cadillac Tax and a Cap on the Tax Exclusion for Employer Health Plans (TaxVox).


Caleb Newquist, Accountant Won’t Be Taking a Walk in the Woods Anytime Soon. “James Hammes, who spent 6 years on the lam walking the Appalachian Trail, pleaded guilty earlier today to wire fraud.”


David Brunori discusses ($link) a tax break proposed by Iowa graduate students for… themselves.

The idea is that if you graduate from any college or university in Iowa and stay in the state, you would get a 50 percent tax break for five years. If you move to a rural part of the state, you get a 75 percent tax reduction. As an Easterner, I learned everything I know about Iowa from Joe Kristan’s blog. But I could have sworn most of the state is rural.

In any event, kids, this is a terrible tax policy idea. It will solve no brain-drain problem — although employers may pay less since these graduates won’t be paying taxes. Here is just one problem: If you’re not paying taxes, someone else is. That someone else is probably a poor guy or gal who didn’t graduate from college and is making a lot less than you. I thought college kids would be more empathetic than that.

While most of the state is rural, but most of the jobs for college graduates aren’t.

David gets the policy exactly right. It’s tough to justify a special deal for a young prosperous couple with accounting or law degrees while the people building their suburban house and watching their kids pay full fare.



Tax Roundup, 9/11/15: The pitfalls of putting loss generators in a tax-exempt entity. And: Robert remembers a client.

Friday, September 11th, 2015 by Joe Kristan

20150911-2When the income isn’t taxable, the losses aren’t deductible. Some stockbrokers like to buy publicly-traded natural resource partnerships as IRA investments. I dislike them because those partnerships can trigger Unrelated Business Income Tax in an otherwise tax-exempt IRA.

An attorney in Virginia illustrated another problem with IRA partnership investments in Tax Court yesterday. From the opinion by Judge Haines:

Petitioner maintained a traditional IRA during 2009 and used it to buy and sell various securities, including shares of two master limited partnerships that were involved in the oil and gas pipeline and storage industry–Atlas Pipeline Partners, L.P. (Atlas), and Crosstex Energy, L.P. (Crosstex). Petitioner received a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., from Atlas reporting a $66,075 ordinary business loss for 2009. The Schedule K-1 indicated “Trad IRA VFTC as Custodian” and stated that the partner was an “IRA/SEP/KEOGH”. Petitioner reported this loss on the Schedule E,  Supplemental Income and Loss, attached to his 2009 Form 1040, U.S. Individual Income Tax Return. Petitioner received a Schedule K-1 from Crosstex reporting a $22,793 ordinary business loss for 2009 and stating that the partner was an “IRA/SEP/KEOGH”. Petitioner also reported this loss on the Schedule E attached to his 2009 Form 1040.

This would have been a remarkable result, if it worked. Individual owners of publicly-traded partnerships have their K-1 losses automatically disallowed under the passive loss rules. Unlike other passive losses, those from publicly-traded partnerships can’t offset other passive income; they can only offset future income from the same partnership, until the partnership is sold.

Within an IRA, though, the losses are never allowed. The tax law allows IRAs to earn income without current tax. The idea is to help taxpayers accumulate funds for retirement. Any tax is deferred until you withdraw funds from the IRA. The downside of this is that losses are also deferred. The only way to deduct a loss from IRA investments is to completely close out the IRA. That only works if you have made non-deductible contributions to the IRA, giving you basis. From, Publication 590b:

If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.

Your basis is the total amount of the nondeductible contributions in your traditional IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Our attorney was having none of that. From the Tax Court:

Petitioner argues, in part, that an IRA has “all of the attributes of a grantor trust and is therefore a pass through entity which makes all items of income, deduction and credit treated as belonging * * * [to him] and reportable on * * * [his] individual tax return”.

I’m sure he would have taken that same principled position if those K-1s generated a bunch of taxable income.

Petitioner advances various tax policy arguments which he believes support this position. For example, he contends that restricting an IRA holder’s ability to deduct a loss that occurs when an investment held by  the IRA is sold thwarts congressional intent to encourage individuals to save for retirement. He also claims that requiring retirees to completely liquidate their IRAs in order to recognize a deductible loss is “unreasonable, arbitrary, capricious and completely unworkable for savers dependent upon IRA/SEP income for their retirement.”

Unfortunately, heads-I-win, tails-you-lose only works for the IRS. Again from the Tax Court:

While petitioner may not agree with the way the law is written and may have reasons that he believes support changing the law, we cannot do that for him.

Silly lawyer. Only the Supreme Court can rewrite tax law.

The Moral: IRA investments in partnerships can give you the worst of both worlds. You can make a tax-exempt entity taxable (or much worse, if you invest in the wrong partnership), but your losses are almost never useful.

Cite: Fish, T.C. Memo 2015-176.


Jared Walczak, Liz Malm, Where Does Your State Stand on State & Local Debt Per Capita? (Tax Policy Blog):


This is one measure where Iowa looks pretty good.


MOE BARRYRobert D. Flach, NEVER FORGET. Robert remembers a client who died 14 years ago today in New York.

Kay Bell, Fantasy football payouts mean real income taxes. Don’t worry, it’s made up for by the lowered income taxes of employers resulting from lost productivity during Fantasy season.

Jim Maule, Tax Client and Tax Return Preparer Meet Up in People’s Court.  “[A] preparer ought not accommodate a client who wants a return that does not comply with the law. It’s that simple.”

Peter Reilly, Jeb Bush And The Spirit Of 1986. “Somebody should tell Jeb Bush that tax accountants don’t write the Internal Revenue Code and it is a lot shorter than he thinks it is.”

Keith Fogg, IRS Inaction in Prior Years Provides Path to Penalty Relief for Substantial Understatement Penalty – Fire and Rain (Procedurally Taxing).

Robert Wood, Marijuana Taxes Go Up In Smoke On Sept. 16. In Colorado, for one day only. Mark your calendars!

TaxGrrrl, Over 2,000 Businesses Send Letter To Congress Demanding Attention To Tax Extenders Bill. They’ll get to it when they get to it, peasants!

Russ Fox, How Should Multiple Buy-Ins for a Poker Tournament be Handled on a W-2G? I have no idea what he’s talking about, but I’m sure many of you do.

Jack Townsend, Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program. If you want to skip taxes with the help of offshore bank secrecy, it’s not likely to work.



Joseph Thorndike, Don’t Bother Fixing the Tax Code Unless You Fix the IRS Too (Tax Analysts Blog). “Because even a good tax law will fail when administered by a bad agency.”

Howard Gleckman, The Cost of the Bush Tax Cuts, and What It Might Mean (TaxVox). “My colleagues at the Tax Policy Center plan to have their own estimates of the distributional and revenue cost of his plan soon. But there is no doubt the plan is a huge tax cut.”

Bob McIntyre, Bush and Trump’s “Populist” Tax Rhetoric Is All Talk (Tax Justice Blog).


TaxProf, The IRS Scandal, Day 855

News from the Profession. AICPA Survey: College Students Overconfident, Exaggerate, Delusional, Etc. Etc. About Their Personal Finance Skills (Caleb Newquist, Going Concern)



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

Thursday, August 27th, 2015 by Joe Kristan

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

Source: The Tax Foundation

Source: The Tax Foundation

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

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


Source: The Tax Foundation

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

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

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

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

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

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

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

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

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

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

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

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

The full report can be found here.


Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan




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

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

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

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


Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate., H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

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

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

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




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


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

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

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


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


Tax Roundup, 8/14/15: IRS won’t tax victims of its data breach on IRS-provided credit monitoring. And: little birds as informants?

Friday, August 14th, 2015 by Joe Kristan

20150814-1That’s sporting of them. The IRS transcript database was hacked this spring. It is offering to pay for credit monitoring to the victims of its negligence in protecting their records. Now, in its beneficence, the IRS says that the victims don’t have to pay tax on the credit monitoring:

The IRS will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach. Additionally, the IRS will not assert that an employer providing identity protection services to employees whose personal information may have been compromised in a data breach of the employer’s (or employer’s agent or service provider’s) recordkeeping system must include the value of the identity protection services in the employees’ gross income and wages. The IRS will also not assert that these amounts must be reported on an information return (such as Form W-2 or Form 1099-MISC) filed with respect to such individuals.

Gee, thanks, guys.

Related: Russ Fox, IRS: Free Identity Protection Services After a Data Breach Isn’t Includable in Income


buzz20150804It’s Friday, so it’s Buzz day at Robert D. Flach’s place, with links on topics from tracking time in activities to S corporations.

TaxGrrrl, Fix The Tax Code Friday: Letting Go Of Tax Deductions: “If we scrapped all of the deductions under the Tax Code except one, which one would you want to hold onto?”

Russ Fox, A Pseudo New Nominee for Tax Offender of the Year:

Well, he probably can’t win my coveted award of Tax Offender of the Year as the alleged crimes have nothing to do with tax. However, the alleged perpetrator is a tax attorney, so there is at least some relation to tax. Robert Howell of Cary, North Carolina is accused of attempted murder, kidnapping, and first degree burglary in Isle of Palms, South Carolina. Mr. Howell is alleged to have followed his ex-girlfriend to South Carolina where he is alleged to have committed the crimes. He’s also accused of assaulting and threatening her the day before this incident in her home in Cary, North Carolina.

But the tax code doesn’t say anything about kidnapping and murder!


TaxProf, The IRS Scandal, Day 827. Poor Lois edition.

Joseph Thorndike, The Clintons Don’t Care About Tax Reform – And Neither Does Anyone Else (Tax Analysts Blog):

Clinton, in other words, is eating the seed corn of tax reform. For the sake of an appealing policy initiative, she’s cannibalizing the budgetary payoff from base broadening – and making general tax reform much less likely.

To be fair, Clinton isn’t the only improvident one. Republicans, too, are eager to raid the piggy bank of tax reform in order to pay for their own needs, specifically highway construction. Some key Democrats have also signed on to this idea.

That’s exactly why clever little tax tricks, like “patent boxes” or “incentive” tax credits, drive me nuts. They narrow the base and create another group with an interest in preserving the current awful tax system.




Steven Entin, Restoring Solvency to the Social Security Retirement Program (Tax Policy Blog).

August 14th marks the 80th anniversary of the signing of the Social Security Act by President Franklin Roosevelt in 1935. The program has done much to alleviate poverty among the elderly. Unfortunately, the system itself is showing its age. The Old Age and Survivors Insurance program (OASI, retirement benefits) is now running cash deficits as the baby boomers are retiring. The Disability Insurance program (DI) has been running deficits for several years, and is about to exhaust its trust fund. The recently released Trustees Report shows that only 93% of current OASI costs are covered by tax revenue, and that when the OASI trust fund runs out in 2034, benefits would have to be cut by more than 20% from projected levels. Longer term, OASI has a funding gap of four percent of payroll, meaning that would require more than a four percentage point rise in the payroll tax to close the funding gap over the next 75 years, or benefits would have to be reduced below promised levels by 27% by 2090.

Have a nice day.


Because it’s not his own money. Why Did Scott Walker Commit $400 Million for a Pro Basketball Arena? (Howard Gleckman, TaxVox):

But what’s really wrong is Walker’s economic analysis. He confidently calculates an enormous return on that public investment. According to The Washington Post:

“The return on investment is 3 to 1 on this, so we think this is a good, solid move as a good steward of the taxpayers’ money here in Wisconsin,” Walker said Wednesday morning after he signed the legislation. “This is just simple mathematics.”

It may be simple math, but it isn’t very good economics. And Walker ignores some important parts of the story. He didn’t have to. An April, 2013 report released by the city’s Legislative Reference Bureau did a nice job demolishing claims of big returns from similar projects.

Related: Sports Stadiums Are Bad Public Investments. So Why Are Cities Still Paying for Them? (

Career Corner. CPE, Booze, Jokes: That’s All You Need to Know (Caleb Newquist, Going Concern)



TaxProf, Republicans Seek To Ban Unions For IRS Employees.


New frontiers in public service. A revenue agent from Ohio found a way to combine her day job with her side business venture, according to a report from the Ohio Inspector General. The report says the agent, a Ms. Zhang “accessed tax information for six direct competitors of her personal business on 34 separate occasions.”

Her bosses asked what was going on:

Finally, investigators asked Zhang whether or not she accessed tax records for businesses identified as being direct competitors of her own personal business.  Zhang admitted to doing so in order to create audit leads.  Zhang explained that shortly after her business opened, an unnamed individual approached her in the store and informed her that another similar business was not paying sales tax.  Based on this information, Zhang decided to conduct her own research into the matter. 

Oh, an unnamed individual. All righty, then. I was afraid a little bird told her. All for the public good, I’m sure.



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


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.


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).


Tax Roundup, 7/1/15: Trilobite deduction becomes extinct in Tax Court. And: Indiana throwback thrown out.

Wednesday, July 1st, 2015 by Joe Kristan


20150701-1The trilobites roamed the oceans for about 270 million yearsbut a charitable donation of fossils of these ancient arthropods failed to survive a single IRS exam. While scientists still ponder what may have caused these rulers of the seas to vanish, there is no doubt about what doomed the charitable deduction.

The fossils were donated by a California veterinarian, a Dr. Isaacs. He donated four fossilized trilobites to the California Academy of Sciences in 2006 and another 8 in 2007, claiming charitable deductions of $136,500 and $109,800.

When you donate appreciated long-term capital gain property to charity, you are allowed to deduct the fair market value of the property without ever including the appreciation in income — an excellent tax result. Because there is obvious abuse potential in this tax break, Congress has imposed strict valuation documentation rules on contributions of assets other than marketable securities if the claimed deduction exceeds $5,000. The Tax Court explains (citations omitted):

First, for all contributions of $250 or more, a taxpayer generally must obtain a contemporaneous written acknowledgment from the donee…

Second, for noncash contributions in excess of $500, a taxpayer must maintain reliable written records with respect to each donated item.

Third, for noncash contributions of property with a claimed value of $5,000 or more, a taxpayer must — in addition to satisfying both sets of requirements described above — obtain a “qualified appraisal” of the donated item(s) and attach to his tax return a fully completed appraisal summary on Form 8283.  Generally, an appraisal is “qualified” if it (1) is prepared no more than 60 days before the contribution date by a “qualified appraiser”, and (2) incorporates specified information, including a statement that the appraisal was prepared for income tax purposes, a description of the valuation method used to determine the contributed property’s fair market value, and a description of the specific basis for the valuation.

It’s not three strikes and you’re out; failing any of these requirement kills your deduction. Yet our veterinarian whiffed on all three requirements, according to the Tax Court. Regarding the appraisal, the court says:

Both of Dr. Isaacs’ Forms 8283 bear the signature “Jeffrey R. Marshall” in Part III, “Declaration of Appraiser”. Dr. Isaacs called Jeffrey Robert Marshall as a witness at trial. The Court accepted Mr. Marshall as an expert in the valuation of fossils over respondent’s objection.4

Mr. Marshall identified the signature on Dr. Isaacs’ 2006 Form 8283 as his own. He did not, however, recall signing it. He likewise identified his signature on Dr. Isaacs’ 2007 Form 8283 but could not recall signing the form.

Mr. Marshall similarly identified his signature on two letters, dated December 31, 2006 and 2007, that purported to be appraisals of the fossils Dr. Isaacs donated to CAS in 2006 and 2007. But Mr. Marshall did not write or even recognize the letters, and as Dr. Isaacs offered no testimony from any other expert as to the letters’ author, we did not admit them into evidence.

Courtesy the mad LOLscientist under Creative Commons license

Flickr image Courtesy the mad LOLscientist under Creative Commons license

It’s a bad sign when your appraiser denies doing an appraisal. I hope the appraisal fee wasn’t high.

Although he sought to introduce purported appraisals signed by Jeffrey Marshall, whom the Court accepted as an expert in fossil valuation, Mr. Marshall denied that he had written these purported appraisals, and we did not admit them into evidence. We need not decide whether Mr. Marshall was a “qualified appraiser” within the meaning of the regulations because, even if he was, Dr. Isaacs introduced no evidence that Mr. Marshall rendered any appraisals of the donated fossils for him. Dr. Isaacs offered no evidence of any other appraisals of the donated fossils that could satisfy the statutory requirement.

Even if the appraisals had been accepted, the Tax Court said the deduction failed for lack of a contemporaneous acknowledgement meeting tax law requirements (my emphasis):

Jean F. DeMouthe, on behalf of CAS, acknowledged Dr. Isaacs’ contributions in writing, and these letters, each dated for the date on which Dr. Isaacs made the contribution acknowledged therein, were contemporaneous as required by section 170(f)(8)(A) and (C). Under section 170(f)(8)(B)(ii), however, the letters could suffice as contemporaneous written acknowledgments only if they stated whether CAS had provided any goods or services in exchange. Neither letter includes such a statement.

Taxpayer loses.

The Moral? When deducting charitable donations, details matter a lot. If you give cash or property for which you will claim a deduction over $250, make sure the charity acknowledges the gift with the magic words saying no goods or services were received in exchange for the gift. And if you are donating property for a donation over $5,000, get your tax advisor involved early to make sure the paperwork and appraisals are done properly and your deductions don’t go the way of the trilobite.

Cite: IsaacsT.C. Memo 2015-121.




Ben Bristor, Scott Drenkard, Indiana Tackles Throwback Rule and Personal Property Tax (Tax Policy Blog):

While Indiana has one of the lowest corporate tax burdens in the country, the throwback rule very frequently complicates corporate income taxation. In the process of trying to capture nowhere income, multiple states can claim the right to tax the same income, creating more complexity for tax authorities and businesses. By eliminating the rule, Indiana lawmakers have made a major improvement in the state’s tax treatment of corporations.

Good news for taxpayers with Indiana manufacturing operations.


David Brunori, Lessons on How Not to Run Your Government (Tax Analysts Blog):

A very knowledgeable person told me that Brownback set efforts to reduce taxes back 10 years. No one wants to be like Kansas. Liberals might celebrate that outcome — but folks who genuinely believe in more limited government and lower tax burdens will rue the Kansas experiment.

Why would you want to give more power to government when it can even screw up a tax cut?


Paul Neiffer, It Pays to Follow the Rules. “The bottom line is that sophisticated estate plans require taxpayers to follow the rules and as indicated by the Webber case, most of them fail at this and sometimes it can cost a lot of money (in Mr. Webber’s case the cost was close to $1 million).”

Robert Wood, Offshore Accounts? Choose OVDP Or Streamlined Despite FATCA

Russ Fox, Mr. Hyatt Goes to Washington…Again. “As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims.”





Joseph Thorndike, Jeb Bush Takes a Page From Richard Nixon by Disclosing Personal Tax Returns (Tax Analysts Blog). “As Richard Nixon discovered 63 years ago, financial disclosure can be embarrassing but it’s also good politics.”

Richard Phillips, Chris Christie’s Long History of Opposition to Progressive Tax Policy. (Tax Justice Blog). Considering how high and awful taxes are in New Jersey, I would expect the Tax Justice people to like him more.

Tony Nitti, Expiration Of Bush Tax Cuts Cost Jeb Bush $500,000 In 2013

Kay Bell, Which candidate’s tax return do you most want to see?


Len Burman, The Uneasy Case for a Financial Transaction Tax (TaxVox). When finance markets are global, these taxes are a great way to run financial businesses out while collecting very little tax. Still, Mr. Burman musters faint praise: “An FTT is far from an ideal tax. But compared with other plausible ways of raising new revenue, it doesn’t look so bad.”

TaxProf, The IRS Scandal, Day 783


News from the Profession. Accounting Professor Who Specialized in Ethics Cheated on Lots of His Papers (Caleb Newquist, Going Concern). I wonder if this is the inventor of the take-home ethics exam.



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

Friday, June 26th, 2015 by Joe Kristan


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

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

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

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

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

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

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

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

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

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

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

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

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

Other coverage:

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

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

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

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

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

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

Megan McArdle, Subsidies and All, Obamacare Stays

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

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




Stuff other than the Supreme Court decision:

Jason Dinesen, Choosing a Business Entity: Sole Proprietor

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

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

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

TaxProf, The IRS Scandal, Day 778

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



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.


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.”




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.



Tax Roundup, 6/9/15: A Cedar Rapids ID thief pleads guilty. And: Packing the patent box.

Tuesday, June 9th, 2015 by Joe Kristan

lizard20140826What are the chances of the government recovering any of the fraudulent refunds? WQAD reports on an Iowan who jumped on the ID theft refund fraud gravy train:

A 35-year-old Iowa woman was convicted after she used another person’s identity to file a phony tax return and then cash the $6,000 refund check issued by the IRS.

Gwendolyn Murray, of Cedar Rapids, was initially charged March 3, 2015, with 12 counts of filing false claims for tax refunds, seven counts of theft of government property and two counts of aggravated identity theft. She was accused of preparing fraudulent tax returns between 2008 and 2013, from which she received seven refund checks, according to court documents.

The total amount allegedly stolen is unavailable in public records, and the defendant pleaded guilty to only one count. Whatever the amount, the defendant’s need for a public defender doesn’t make recovery of the stolen funds seem likely.


Image by Theroadislong under Creative Commons license, via Wikipedia.

Image by Theroadislong under Creative Commons license, via Wikipedia.

Martin Sullivan, Patent Box: Good Intentions Gone Bad (Tax Analysts Blog):

Now several prominent members of Congress want to provide another tax break for research. At first glance, this seems like a very good idea since the usual objections to tax breaks don’t apply. And most regular people understand that the competitiveness of our nation — or in politics-speak, the availability of high-paying jobs — depends on technology.

The new tax break is called a patent box. (The “box” referred to here is the box checked on tax forms in Europe where this idea originated.) The general idea is that income from technology pays tax at a substantially lower rate than other income. So if under tax reform we could get the corporate rate down to 28 percent, patent box income would be taxed at a 14 percent rate.

The problem with this approach is that no one knows even a halfway good way of identifying “income from technology.”

It’s a ridiculous idea. In a real sense every bit of income is “income from technology.” The technology of animal husbandry and plant cultivation has been around for awhile, but it was a big step up from the Acheulean Hand Axe, which was cutting edge technology (literally) in its day.

The patent box is as arbitrary and nonsensical as the Section 199 deduction for “domestic production income.” Yet Section 199 became and remains part of the tax law, so being absurd won’t necessarily stop it.


Hank Stern, Obama Tax Breakage:

And second, why is it a given that “employer sponsored” health plans are the bee’s knees? As we’ve previously blogged, employers don’t tell us what groceries or house to buy: they pay us our wages and we’re free to make our own choices. Why should health insurance be any different?

The historical accidents that led to employer health as a tax-advantaged fringe benefit are reasonably well-known, but it’s a lot harder to answer why it should be that way.


buzz20141017It’s Tuesday, so it’s Buzz Day! At Robert D. Flach’s, you can rummage through the tax implications of garage sales and see just how much Robert likes “reality TV.”

TaxGrrrl, Hastert, Hovind & FIFA Matters Shed Light On Dangers Of Structuring

Russ Fox, Neymar Wins Championship but Faces Tax Evasion Investigation. Soccer just isn’t getting great press off the field the last week or so.

Robert Wood, Moving To Avoid California Taxes? Be Careful. “Don’t just get a post office box in Nevada. That doesn’t work and you will end up with bills for taxes, interest and penalties or worse.”

Keith Fogg, Update on Dischargeability of Late Filed Tax Returns. It can be hard to get bankruptcy discharge on tax debts if you don’t stay current with your filings.

Kay Bell, The tax costs of maintaining private coastal properties. “It’s time that we faced the reality that we can’t beat Mother Nature, at least not along the coastline. And we need to stop using our tax dollars to subsidize this destined-to-fail effort.”

William Perez, 4 Tips for the 1st Estimated Tax Payment of 2015. The second payment is due June 15.


TaxProf, The IRS Scandal, Day 761. “Judicial Watch announced that Judge Emmet Sullivan of the U.S. District Court for the District of Columbia granted a Judicial Watch request to issue an order requiring the IRS to provide answers by June 12, 2015, on the status of the Lois Lerner emails the IRS had previously declared lost.”




Joseph Thorndike, Carly Fiorina Answers the $59 M Question: Why Should Candidates Release Their Tax Returns? (Tax Analysts Blog). “For many, that disclosure will be unpleasant. But I suspect most candidates have learned a lesson from the Romney debacle: Tax disclosure can hurt, but nondisclosure can be deadly.”

Howard Gleckman, Obama-Era Tax Reform: RIP: “Many Democrats, who have embraced income inequality as their 2016 campaign theme, are likely to back more targeted middle-income tax breaks, not fewer. Their agenda will be tax deform, not tax reform.”


Cameron Williamson, Connecticut Legislature Sends Corporate Tax Hike to Governor. (Tax Policy Blog). This is a step backwards for Connecticut tax policy.

Jared Walczak, Nevada Approves New Tax on Business Gross Receipts (Tax Foundation). A big step backwards for Nevada tax policy. At least it’s paired with a giant step forwards in education policy.


Peter Reilly dives deep into the case of the creationist theme park operator and his seemingly miraculous impending release from prison: The Juror Who Freed Kent Hovind Steps Forward



Tax Roundup, 5/14/15: Snowbird fails to melt Iowa Department of Revenue opposition to gain exclusion. And many links!

Thursday, May 14th, 2015 by Joe Kristan


Programming note: No posting tomorrow. See you Monday!


Iowa's business tax climate, illustrated

Materially-participating in winter

Snowbird loses “material participation” Iowa capital gain exclusion argument. A taxpayer who claimed the unusual Iowa exclusion on very-long-term capital gains failed to convince the Department of Revenue that he “materially participated” in the activity for the minimum of ten years required to qualify for the exclusion.

Iowa allows taxpayers to exclude certain long-term gains from their Iowa taxable income if they meet two requirements:

– They have held the property for ten years, and

– they “materially participated” in the business sold (or in the business holding real property sold) in the ten years preceding the sale.

The “material participation” rule follows the federal “passive activity” material participation definitions. This usually is based on time spent in the activity. Farmers who materially participate in five of the last eight years before they start drawing Social Security payments are considered to materially participate in the farming activity forever. Other taxpayers who retire after working in a business generally are considered to “materially participate” for five years after retirement.

The Iowa ruling letter gives sketchy facts, but it does note (my emphasis):

In determining material participation, only the 10 calendar years immediately prior to the sale are considered and the determination of the participation is limited to that property which is sold.  Both the Department’s rule and the Internal Revenue Code (IRC) require material participation to be regular, continuous, and substantial.  The fact that you wintered in Florida lends serious doubt as to the regular part of that requirement.  Additionally, your daughter was paid for management services.  Rule 701 IAC 40.38(1)(e)(7) states in part, “Management activities of a taxpayer are not considered for purposes of determining if there was material participation if either of the following applies: any person other than the taxpayer is compensated for management services, or any person provides more hours of management services than the taxpayer.”

The letter goes on to say that it’s up to the taxpayer to prove participation, and the taxpayer failed to provide logs, calendars or other evidence that he worked sufficient hours to meet the material participation tests.

The moral? If you want to claim material participation, and you have stepped away from the business, it’s important to keep good records of your participation. The state may not be inclined to take your word for it.

Cite:  Document Reference: 15201008


Material Participation Basics





Kay Bell, Don’t ignore that IRS letter and nine other tax notice tips

Robert Wood, Facts About FATCA, America’s Global Disclosure Law. “If you think money anywhere can escape the IRS, think again.”

Jim Maule, When Do Relationships End for Federal Income Tax Purposes?:

The taxpayer argued that the child remains her foster child because they continued their relationship and hold each other out as parent and child. The Tax Court, however, determined that the taxpayer’s guardianship terminated in 2004 when the child attained majority. At that point, the child no longer could be said to be someone who “is placed” with the taxpayer.




Andrew Mitchel has a new Flowchart – Taxation of Pension Distributions Under UK – US Income Tax Treaty


Cara Griffith, Learn to Love the Property Tax — It’s Not So Bad (Tax Analysts Blog):

Despite its bad reputation, the property tax has numerous benefits. For local governments, the tax provides a relatively stable source of revenue. Local governments also have a fairly high collection success rate. Many property owners have escrow accounts through their mortgage companies, which collect tax monthly and remit it at the appropriate time. Because of that, and the fact that the property tax is attached to something physical, it is hard to avoid or evade.

It’s hard to beat the property tax for funding local services. When the politically-influential carve themselves out of it with TIFs or special exemptions (e.g., special agricultural assessment rules), those that are left footing the bill are understandably unhappy.


Renu Zaretsky, Wishes, Dreams, and Bittersweet Denials Today’s TaxVox headline roundup covers thoughts on the effect of reduced refunds on this spring’s retail sales, the failure of a proposed soda tax in California, and the need for more IRS authority to fix bad EITC claims.

Alan Cole, NFIB Survey: Taxes a Top Problem for Business (Tax Policy Blog).

Carl Smith, IRS Plays Cat and Mouse With Tax Court on Its Constitutional Status (Procedurally Taxing).


Joseph Thorndike, Even Under a Flat Tax, Learn to Love Those Loopholes, Because They’re Here to Stay (Tax Analysts Blog). “Once you win the battle, you have to keep fighting it over and over again.”

Greg Mankiw, Why I invest in index funds. “For investors, 2014 was the sixth consecutive year that hedge funds have fallen short of stock market performance, returning only 3 percent on average.”

Hank Stern, Cover Cali sputtering. (InsureBlog). “The Golden State’s health exchange (Covered California) continues to burn through tax-payer dollars at an alarming rate.”


TaxProf, The IRS Scandal, Day 735


Career Corner. Should CPAs Consider an MBA? (Paul Gillis, Going Concern). Not to fix your car, no.



Tax Roundup, 4/21/15: Loans aren’t taxable, until you don’t have to pay them. And: ACA, dope, and lots of other stuff.

Tuesday, April 21st, 2015 by Joe Kristan

20120511-2Pay me now, tax me later. A hospital in a poor county in Central Florida wanted to recruit an OB-GYN. Rural employers often have to do something extra to recruit good help, so the hospital offered him a $260,000 loan. It came with a sweetener: if certain goals were reached, the loan would be forgiven.

It’s well established that loans aren’t taxable income. That can be pretty sweet to have $260,000 to spend with no withholding and no tax bill. But there’s a catch. You either have to repay the loan (out of your after-tax income), or you have to pay tax on the loan amount if the debt is forgiven.

It’s natural to try to want to have your cake and eat it too — to not pay the loan, and not pay the taxes. That is the very trick behind the leveraged ESOP. But for the rest of us, it’s an elusive goal. It eluded the doctor in Tax Court yesterday.

The doctor met his goals, and $260,000 of debt was cancelled over four years. The doctor didn’t report the income, so the IRS assessed additional tax. The doctor objected. From the Tax Court opinion:

Although the amount that petitioner received from the hospital pursuant to the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not personally liable for its repayment, and that, as a consequence, he did not receive income when the loan was forgiven and canceled by the hospital. The Court disagrees with the premise of petitioner’s argument.

The court pointed out that the terms of the note did make the doctor liable, and added:

Further, although the Court does not accept the premise of petitioner’s contention regarding the nature of the loan, it bears mention that just because a taxpayer is not personally liable for a debt does not mean that cancellation of indebtedness cannot give rise to income…

Under these circumstances, forgiveness and cancellation of the loan gave rise to income.

The Court added in a footnote:

…petitioner argues that when debt is canceled, the creditor should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC. Although this may be so, the fact of the matter is that a bookkeeping error does not serve to negate income arising from the forgiveness or cancellation of debt.

Apparently the hospital knew that there was income, but issued the wrong kind of 1099. But the 1099 doesn’t change the nature of the income.

The moral? Forgivable loans are nice — cash now, tax later. But later happens.

Cite: Wyatt, T.C. Summ. Op. 2015-31.




Megan McArdle, Obamacare’s Tax Day Mystery:

Meanwhile, Louise Radnofsky of the Wall Street Journal offers an example of Effect 3, which I confess hadn’t occurred to me: folks who were covered in 2014, got their refund docked to cover subsidy overpayments, and therefore decided to cancel their insurance for this year.

At first blush, this seems irrational. You don’t need to cancel your insurance to make sure that your tax refund remains intact; you just need to do a better job of estimating your income when you go to buy your insurance so that you don’t end up with overpayments. Of course, the taxpayer in question might not have bought the insurance if she’d known what it was actually going to cost her.

Complex systems have unintended consequences.

Hank Stern, The 4% Solution (Insureblog). “Only 4% of people who signed up for ObamaCare got the correct subsidy”

Christine Speidel, Penalty Relief and Premium Tax Credit Reconciliation (Procedurally Taxing). “This post will describe the penalty relief available under Notice 2015-09 and some of the barriers that may prevent low-income taxpayers from accessing the relief.


William Perez, Taxes When Hiring Household Help

Tony Nitti, IRS Seeks Record $2 Billion In Back Taxes From Prominent Businessman And Philanthropist Sam Wyly. Offshore trusts are involved.

Peter Reilly, Superior Point Of Sale Software Does Not Mix Well With Skimming

Jason Dinesen, Breakeven Analysis for Small Businesses, Part 1

Kay Bell, IRS telephone tax help was a dismal 38.5% this filing season. Part of your Commissioner’s “Washington Monument Strategy” of making taxpayers suffer to boost his budget.


20130607-2TaxGrrrl, 4/20: The Blunt Truth About Marijuana & Taxes

James Kennedy, Marijuana Dispensary Settles Case after IRS Suggests It Engage in Money Laundering (Tax Policy Blog):

Imagine running a small business and being assessed a penalty by the IRS. Then imagine being told by the IRS that the only way to avoid the penalty is to commit a serious felony, laundering money. This Kafkaesque nightmare actually became reality for a Colorado marijuana dispensary called Allgreens when it tried to pay its federal payroll taxes.

At some point this decade or next, marijuana will become more or less legal. I wonder if the tax law will be the last bastion of prohibition.


TaxProf, The IRS Scandal, Day 712. “The IRS Assures an Atheist Group It Will Monitor Churches.” What could go wrong?

Robert Wood, Before IRS Targeting, Lois Lerner Targeted At Federal Election Commission



Paul Neiffer, Senator Wyden Indicates Tax Reform Must Include Flow Through Entities

Joseph Thorndike, Republicans Want to Repeal the Estate Tax Because Too Much Is Never Enough (Tax Analysts Blog).

For my money – and admittedly, it’s not my money, since I don’t expect the tax to be an issue for my heirs – repeal is a bad idea under any circumstances. But it’s an especially bad idea when paired with a continuation of stepped-up basis.

If there is a good argument for the estate tax, it’s to allow basis step up. The “breaking up dynasties” thing is silly. From what I’ve seen in practice, all you need to break up inherited wealth is a second generation.

Eric Toder, Corporate Tax Reform and Small Business (TaxVox).

Sebastian Johnson, State Rundown 4/20: State Houses Consider Cuts (Tax Justice Blog).


Career Corner. The Non-Golfing Accountant’s Guide To Hitting the Links (Leona May, Going Concern)



Tax Roundup, 4/2/15: For gift deductions, it’s not just the thought that counts. It’s the paperwork. And: more!

Thursday, April 2nd, 2015 by Joe Kristan

salvation armyToday’s filing season tip: assemble your contribution documents. For some things, spending the money isn’t enough to put a deduction on your return. You also have to get the paperwork right.

Charitable contributions are very much in this category. And it’s not good enough to find some paperwork when the IRS examiner starts asking questions. You need the documents in hand before you file your return.

For cash contributions of $250 or more, you need to have, in the words of IRS:

…a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. 

That’s true whether you give cash or property. That means if you don’t have a nice note from your donee for your $250 gift, you need to bug them until they give you one. It also means that if you claim a deduction for dumping a bunch of household goods at Salvation Army, you need to get a note from them with a list of the items donated and the “goods or services” statement.

You need an appraisal if you donated property (other than publicly-traded securities) to charity for deductions starting at $5,000. We will talk about that tomorrow.

For more information, See Topic 506 – Charitable Contributions at

Come back every day through April 15 for another 2015 filing season tip!


Russ Fox, Bozo Tax Tip #8: Be Frivolous! “Tax Court judges don’t have the same sense of humor that I do about frivolous arguments.”


atombombAmanda Athanasiou at Tax Analysts reports ($link), FATCA: Swatting Flies With Atom Bombs:

Possible inflation of the offshore tax evasion problem and the staggering costs of the Foreign Account Tax Compliance Act are causing even the most ardent advocates of information sharing and ending bank secrecy to question the U.S. approach.

“For the U.S. to ask countries around the world to spend billions in implementation costs to deliver less than $1 billion per year is, economically, complete nonsense,” said Martin Naville, CEO of the Swiss-American Chamber of Commerce. He referred to FATCA as the least considered program in history and “mind boggling” in its unilateralism. “The net value of FATCA for the U.S. is probably negative,” said Naville, who added that tax compliance is a must but that there are better ways to achieve it.

But it goes after Fat Cats! Don’t you get our clever pun? And besides, how can we go after international money launderers without making it a crime to commit personal finance abroad?

Related: Wall Street Journal, Checking the IRS Overseas (Via the TaxProf). “Even the Obama Administration says the law would capture only $870 million a year in additional tax revenue, which is probably overstated given changes in behavior by Americans and their overseas employers.”




William Perez, Do Your Home Improvements Qualify for the Residential Energy Tax Credits?

TaxGrrrl, Taxes From A To Z (2015): T Is For TIN (Taxpayer Identification Number)

Peter ReillyZombies Can’t File Tax Court Petitions. Making Tax Court headquarters the go-to place for a Zombie Apocalypse.

Kay Bell, IRS’ Koskinen says tax agency’s troubles are over. No joke. Joke.

Kristine Tidgren, Don’t Be Fooled! “While many artless tactics remain (if you just wire this money to Nigeria by Friday…), the emerging scams come wrapped in a cloak of credibility. It’s often difficult for even the wary to separate fact from fiction in this new age.”


TaxProf, The IRS Scandal, Day 693. “The Department of Justice announced yesterday that it will not pursue contempt of Congress charges against Lois Lerner.”  Of course not. That’s not what a scandal goalie does.

Marc Bellemare, Soda taxes don’t seem to work. (via Tyler Cowen)

Renu Zaretsky, A Penny for Your Sugar: Setting a Price on Sin. (TaxVox). “Are we are all aware of our sugar sins?”  Sins? So food nannyism is really a religion.

Not that the current tax law is exactly a shining light.  Ted Cruz and His Dim-Bulb Tax Policy (Joseph Thorndike, Tax Analysts Blog). “Increasingly, Washington is alive with interesting, conservative tax proposals. But none of them are coming from the junior senator from Texas.”

Meg Wiehe, More Than 20 States Considering Detrimental Tax Proposals (Tax Justice Blog). Pretty close to 50, I’d guess.




Christopher Bergin, April Is More Than Just Tax Season (Tax Analysts Blog). “Koskinen announced that so far, the filing season has gone “swimmingly,” which apparently means the IRS answers the phone less than half the time when taxpayers call for help.” 

Today in advanced tax policy debate: How Tax Brackets are Adjusted Explained in Taylor Swift Gifs (Kyle Pomerleau, Dan Carvajal, Tax Policy Blog)


News from the Profession. Deloitte Not Taking Any Chances That Someone Might Burn Their Disneyland to the Ground (Caleb Newquist, Going Concern).



Tax Roundup, 3/19/15: Iowa Alternative Maximum Tax advances to its doom. And: The Tax Foundation doesn’t want your 1040!

Thursday, March 19th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

Iowa House Ways and Means advances Alternative Maximum Tax. The committee voted to send HSB 215 to the House Floor yesterday.  The bill would let taxpayers choose between the current Iowa income tax and a simpler version with a broader base, lower rates, and no deduction for federal taxes.

The ideas in the alternative bill are all good policy. But just adding this to the current awful income tax is like spray painting a car that’s half rusted-through. It’s extra work that does no good.

In the real world, taxpayers would compute both taxes and pay the lower one. This is the opposite of the current alternative minimum tax, where you pay the higher of the regular or alternative tax base. That’s why I call it an Alternative Maximum Tax.

If you want to simplify taxes, simplify the tax system; don’t just tack a simplification module on the existing code.

Really, though, this proposal is just for show, as they know Senator Gronstal will never let it move in the Iowa Senate. If it reinforces the idea that you can lower rates with a broader base and by taking out the deduction for federal taxes, it could even do some good. It might even get them thinking about the  Tax Update Quick and Dirty Iowa Tax Reform Plan.


Filing season tip: Please Don’t Mail Your Tax Returns to the Tax Foundation (Joseph Henchman, Tax Policy Blog):

Someone mailed us their tax returns and documents today. We quickly sent it back to that individual, as we neither process tax returns nor assist individuals with tax planning or preparation. Tax documents contain a lot of private information and everyone should be very careful about to whom they send this information.

We are here for taxpayers but we are unable to assist individuals with tax planning or preparation. Our staff includes scholars who study tax policy and data, not tax preparation professionals.  

Another inadvertent argument for e-filing: those returns are pretty sure to end up in the right place.


TPC logoRoberton Williams, Who’s Afraid of Income Taxes? New Interactive TPC Tools To Help You Understand the 1040. A cool new feature at TaxVox:

In bite-sized pieces, Who’s Afraid of the Form 1040? discusses the main tax form, explaining the different filing statuses, who counts as a dependent, and what income is taxed (and what income isn’t). How do deductions and credits cut your tax bill and how does the AMT boost it? And how does the income tax help you pay for college, health care, and retirement?

With tax trivia (we used to file our returns on the Ides of March) and facts (just 2.9 percent of taxpayers will owe AMT for 2014 but they’ll pay an average of $6,500), the new feature explains many aspects of the income tax. It won’t make it easier to file your taxes but it might make the process a bit more interesting.

We have also updated our Interactive 1040. Inaugurated last year, this web tool allows users to examine each individual line of the 1040 and Schedule A (itemized deductions). Pop-up boxes contain brief explanations and links to distributional tables and other TPC resources on each topic.

It might be a good way to help you understand why that refund you thought you had coming didn’t.


IMG_1322TaxGrrrl, It’s Not A Scam: IRS Is Really Sending Out Identity Verification Letters. Letters, people, not phone calls, not emails. They don’t call without sending a letter first.

Kay Bell, What should be on the IRS’ taxpayer service to-do list? I would start with not sending billions of dollars to ID-fraud scammers.

Me, IRS issues Applicable Federal Rates (AFR) for April 2015.

TaxProf, The IRS Scandal, Day 679.


David Brunori, A Very Good Tax Reform Idea in Louisiana (Tax Analysts Blog).

Louisiana Gov. Bobby Jindal (R) has a tax plan that should be creating buzz all around the country. He wants to convert some of the state’s individual and business tax credits from refundable to nonrefundable. Let’s be clear: Refundable tax credits are government transfers. They are welfare. They merely use the tax code as a vehicle to take money from some people and give it to others. And apart from the earned income tax credit, no refundable credits represent sound policy.

Given that over 25% of the EITC ends up in the wrong hands, I’m not sold on that one either. David is absolutely correct on the unwisdom of refundable credits, and transferable credits are just as bad.




Tony Nitti, AICPA Sends 34 Tax Proposals To Congress

Annette Nellen posts on Need for greater tax literacy and regulation of preparers. Tax literacy, sure. Preparer regulation? Not so much. Massive simplification? Definitely.

Joseph Thorndike, Mike Lee’s Tax Plan Was Promising. Until It Wasn’t. (Tax Analysts Blog). “Are the reformicons done for?”

Matt Gardner, GOP Budget Proposal Once Again Punts Tough Questions (Tax Justice Blog)

Career Corner. Busy Season Zen: The Swish Montage (Caleb Newquist, Going Concern). Ommmm.



Tax Roundup, 2/11/15: Iowa Code Conformity, America’s more selective appeal, and your tax dollars at work in the $1 DVD bin.

Wednesday, February 11th, 2015 by Joe Kristan

IMG_1284The Iowa Code Conformity bill goes to the Governor. The Iowa House yesterday approved the Senate-passed bill, SF 126, to update Iowa’s 2014 tax law for the federal “Extender” legislation approved in December. Iowa will conform to the federal legislation, including the $500,000 Section 179 limit, but will not adopt the federal bonus depreciation.

The Governor is expected to sign the bill.


Our appeal is just getting more selective. 2014 – More Expatriations Than Ever (Andrew Mitchel):

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2014. 

The number of published expatriates for the quarter was 1,062 (second highest quarter ever), bringing the total number of published expatriates in 2014 to 3,415.  The total for the year breaks last year’s record number of 2,999 published expatriates. The number of expatriates for 2014 is a 14% increase over 2013.  

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

Expatriation is often an inconvenient and expensive process. The willingness of so many to go through the hassle is disgraceful evidence of the burden the “shoot the jaywalker” penalties of the foreign account reporting rules and FATCA impose — on top of America’s unique worldwide taxation regime.

Related: Thousands Renounce U.S. Citizenship Hitting New Record, Not Just Over Taxes (Robert Wood)


haroldYour tax dollars at work in HollywoodWhen Sony’s emails were hacked, the companies executives were embarrassed by the emails complaining about “spoiled brat” starlets and other insider dish that was exposed. But Tax Analysts’ Brian Bardwell shows that the state legislators who have approved taxpayer funding around the country for filmmakers also have plenty to be embarrassed about. From the subscriber-only story:

While the broader topic of film incentives comes up daily, it appears that top executives — at Sony, at least — are not usually involved in finding credits for individual projects, but when they are, it may be because the film is unlikely to bring in enough money to justify producing it without a government subsidy.

In other words, taxpayers are financing the marginal direct-to-DVD projects for Hollywood. That comes as no surprise to those of us who followed Iowa’s disastrous Film Tax Credit story. In a story line right out of “The Producers,” inflated expense claims allowed awful films to be made without the need to ever get a paying customer — the sale of the resulting transferable tax credits covered the expenses and generated a profit — not counting the attorney fees and jail time, of course.


Kay Bell, Tax fraud concerns in Minnesota, Connecticut & now Florida:

“The personally identifiable information apparently hacked at Anthem is exactly what tax fraud thieves use to make false refund claims that appear to be legitimate,” said Department of Revenue Services Commissioner Kevin Sullivan. Sullivan is suggesting that residents beat tax ID thieves to the punch.



Peter Reilly, Breaking – Repair Regs – AICPA Says Help On The Way – Maybe. “The only thing that I find really encouraging about the AICPA announcement is that I can show it to my partners and justify my wait and see approach, which now apparently has the imprimatur of the AICPA.”

TaxGrrrl, UNRETIREMENT. “The Social Security and tax laws hold hidden traps and rewards for the growing army of well-off folks who just keep on working.”

Leslie Book, Congress Considering Procedural Legislation (Procedurally Taxing).

Jack Towensend, Judge Jed Rakoff Reviews Brandon Garrett’s Book on Too Big to Jail: How Prosecutors Compromise with Corporations



David Brunori, It’s Time to End Property Tax Exemptions — for Everyone (Tax Analysts Blog).

City governments are usually looking for payments in lieu of taxes rather than ending exemptions. And the nonprofits — particularly universities and hospitals — tenaciously oppose paying. To be sure, some municipalities and exempt organizations have reached a compromise on payments in lieu of taxes, particularly in Boston. But in the vast majority of the nation, universities, nonprofit hospitals, and property owned by religious organizations are exempt from tax.

I propose we end those exemptions. First, let’s be honest — if you narrow the tax base by exempting some property, everyone else pays more. So in Brunswick, Maine, people and businesses pay more property taxes because Bowdoin College doesn’t. And sometimes they pay a lot more.

Sometimes it can be confusing. Des Moines officials will freely complain about the big hospitals not paying property taxes, but they lacked enthusiasm when the two big non-profit hospitals in town opened new hospitals in the suburbs.


Scott Drenkard, Richard Borean, How Many Cigarettes Are Smuggled Into Your State Each Year? (Tax Policy Blog). A lot more since they jacked up the cigarette tax a few years ago.


The threat of lost cigarette revenue is the real reason state officials are so horrified by the vaporous health risks of e-cigarettes.


Renu Zaretsky, Tax Preferences, Investigations, and Settlements. Today’s TaxVox headline roundup covers Senator Hatch on tax reform, financial supergenius Bernie Sanders on Social Security, and more Swiss bank tax troubles.

Sebastian Johnson, State Rundown 2/10: Semi-Encouraging News (Tax Justice Blog)

Joseph Thorndike, When It Comes to Tax Reform, History Tells Us What Might Happen – And Why It Probably Won’t (Tax Analysts Blog). “The 1986 reform happened not because it was wise and prudent and necessary, but because it worked politically. And even then, only barely.”

TaxProf, The IRS Scandal, Day 643


News from the Profession. The Annual Close: The Year in Adverse Accounting Jokes (Adrienne Gonzalez, Going Concern).



Tax Roundup, 2/4/15: Backlashes, Blood and Dollar Bills Edition.

Wednesday, February 4th, 2015 by Joe Kristan

IMG_1236It’s a busy, snowy day, so just links.

Robert Wood, Obamacare Tax Filing Backlash: There Will Be Blood:

This year for the first time, the Affordable Care Act has created a trickier tax season. It is more expensive, as virtually all Americans filing tax returns will have to consider the law’s impact. There will be confusion and many mistakes. 

Well, there are always the “repair regs” to cheer us up.


William Perez, Should Married Couples File Taxes Separately? Joint returns usually get a lower tax on the same income, but joint returns stick you with any snakes hiding in your spouse’s return.

Kay Bell, Tax moves to make in February 2015

Jason Dinesen, Glossary: Varnum Ruling. “Whenever you see or hear reference to the Varnum Ruling in Iowa, it’s referring to the 2009 decision by the Iowa Supreme Court that legalized same-gender marriage in Iowa.”

IMG_2535Jack Townsend reports on the ABA Tax Section Meeting Developments on Streamlined Disclosures. “The IRS representative said that the IRS will not issue additional guidance on the meaning of willfulness in the streamlined program.”

Leslie Book, Tooting Our Own Horn and Remembering Janet Spragens and the Needs of Low Income Taxpayers (Procedurally Taxing). P.T. contributor Keith Fogg received the ABA Tax Section  Spragens Pro Bono Award for “‘outstanding and sustained achievements in pro bono activities’ in tax law.”  Congratulations!


David Brunori, Ignoring the People in Nevada (Tax Analysts Blog):

The state apparently needs money, and the governor is proposing to increase a “fee” on businesses. Specifically, Sandoval is calling for an increase in the state business license fee based on a business’s gross revenue. The current fee is $250 and is justified to cover the administrative costs of registering and regulating business enterprises. Most states have these fees, and they are usually nothing more than small nuisances. But Sandoval would like to impose the fee based on the amount of gross income — not profit — earned by state businesses.

Many folks have moved from California to Nevada to get away from ridiculous taxes. I don’t see the attraction of imitating California like this.


IMG_0940TaxProf, The IRS Scandal, Day 636

Joseph Thorndike, Obama Abandons the Gas Tax – Just Like Everyone Else (Tax Analysts Blog):

The Obama plan would break with the long tradition of using gas taxes to pay for roads (and some mass transit, as conservatives are quick to point out). Over the decades, this tradition has served the nation well, funding the construction and maintenance of the interstate highway system, among other things. And it has assigned the cost of building all those roads to the people and businesses that actually use them.

Funny, I thought the 2009 “stimulus” fixed all the roads.

Kyle Pomerleau, Obama Budget would Increase Top Marginal Capital Gains Tax Rate in California to 37.2 percent. Of course, it’s worse than that, as capital gains normally have already been taxed once.

Renu Zaretsky, Taxed Reactions and Revenue Rules. Today’s TaxVox headline roundup covers Treasury Secretary Jack Lew’s dislike of pass-through entities and John Koskinen’s “what scandal, give me money!” testimony before the Senate Finance Committee.

Amber Erickson, Obama’s Progressive Plan to Simplify and Expand Education Tax Credits (Tax Justice Blog). Subsidies for higher education have led to $60,000 annual tuition. What do you think more subsidies will do?



Career Corner. How to be More or Less Happy as an Accountant. (Jennifer, Going Concern)

TaxGrrrl, Texas Man Arrested After Attempt To Pay Taxes With Dollar Bills. I hope he brings pennies next time.


Tax Roundup, 1/29/15: Iowans, fill ’em up now. And: lessons from the Obama Sec. 529 retreat.

Thursday, January 29th, 2015 by Joe Kristan

dimeFill me up. ‘Overall consensus’ toward 10-cent hike in state gas tax O. Kay Henderson reports:

 Key legislators say a 10-cent increase in the state gas tax has a good chance of passing the legislature in February and going into effect as early as March.

“I think the overall consensus is to go 10 cents now…We’re so far behind that we need to implement it right away,” Senator Tod Bowman, a Democrat from Maquoketa who is chairman of the Senate Transportation Committee, said this morning.

At the opening of this session of the General Assembly, I guessed that there would be no gas tax boost. It’s looking more likely every day that I was wrong. I asked a few legislators and lobbyists about it when I attended the Iowa ABI Legislative Reception, and they all said a 10-cent gas tax boost was a done deal.

That would test my alternative forecast – that if there was a gas tax boost, it meant Governor Branstad will not run for a seventh term.


csi logoAlan Cole, President’s Plan to Tax 529s Was Not a Distraction (Tax Policy Blog):

While the issue was, perhaps, a distraction from the administration’s priorities on community college, it was not at all a distraction from the administration’s priorities on tax policy. It is deeply philosophically consistent with virtually every tax policy proposal, proposed or enacted, from the administration.

The administration’s proposals all tend to follow a particular blueprint for tax policy: simply put, that when Americans save by investing in some kind of asset, that they should be taxed at ordinary income rates on both the initial value of the asset and all the future returns on the asset. (For example, with 529 plans, the initial investment is taxed, and the Obama Administration’s proposal is to tax the returns as well.) This view is mistaken, in that a financial asset’s value is precisely in its future returns. The value of the financial asset, then, is taxed twice. 

The difference here is that the administration has dressed up its tax grabs by saying only “the rich” would have to pay. That’s never really true, but it was so obviously wrong here that even the President’s allies couldn’t support it with a straight face.


IRAJoseph Thorndike, What Obama’s 529 Flip-Flop Says About Your Roth IRA (Tax Analysts Blog):

The bursting of the 529 trial balloon should serve as an object lesson for anyone hoping to rein in other tax preferences. In particular, proposals to scale back Roth IRAs – popular among liberal analysts – seem hopeless in the extreme.

I think the dumbest thing was pairing the elimination of a tool to enable people to save for education costs with the unwise “free” community college proposal. That was pretty much saying those who want to pay their own way through college without government grants are chumps.

TaxProf, The IRS Scandal, Day 630. It has become an issue in the hearings for the Attorney General nominee.


Jason Dinesen, What I’m Asking My Clients Regarding the ACA. Pretty much what we are asking our clients.

TaxGrrrl, Form 3115 Adds Confusion & Cost – But May Be Required For 2015. “Since there’s no user fee – and virtually no risk – I tend to agree with those who suggest that businesses owning real and/or tangible property err on the side of caution and file form 3115 to obtain automatic consent.”

Robert Wood, Missing A Form 1099? Why You Shouldn’t Ask For It “Nevertheless, if you don’t receive a Form 1099 you expect, don’t ask for it. Just report the income.”

Tony Nitti, Super Bowl XLIX Tax Tale Of The Tape: Who Ya’ Got? Meh. My football rooting interest ended in Seattle. But for socially-awkward tax nerds (but I repeat myself) who are going to Super Bowl gatherings, Tony has a lifeline.


20140512-1Peter Reilly, Don’t Use The IRS To Address Koch Political Spending. Whether it’s Tom Steyer, George Soros, or the Brothers Who Must Not Be Named, the government has no business telling them what causes they can fund.

Russ Fox, Caesars Wins Round One: Chicago, not Delaware. Caesars Entertainment’s bankruptcy litigation, that is.

Carl Smith, Unpublished CDP Orders Dwarf Post-trial Bench Opinions in Uncounted Tax Court Rulings (Procedurally Taxing). Insight on what Tax Court judges do that those of us who don’t do that sort of litigation for a living don’t see.

Jack Townsend, Unreported Offshore Accounts Remains on IRS Dirty Dozen” List

Kay Bell, Illinois shoppers to start paying state sales tax on Amazon purchases on Feb. 1; federal online tax bill still stalled


Tax Trials: Georgia Tax Tribunal Rules that Electric Utility’s Machinery and Equipment Used in Transmission and Distribution System Not Exempt from Georgia Sales & Use Tax. Bad tax policy all over. Business inputs should not be subject to sales tax.

Cara Griffith, Tax Appeal Reform May Be a Possibility in Washington State (Tax Analysts Blog)


David Brunori, Regressive Taxes Are Neither New Nor Good (Tax Analysts Blog): “States should also broaden the sales tax base to tax things rich folks buy, while lowering the tax rates on the things the poor consume the most. But the rich will remain rich.”

Steven Rosenthal, Is Obama Closing Retirement Savings Loopholes or Just Curbing Congress’ Generosity? (TaxVox). How about another choice – he’s just looking to increase taxes on “the rich” any way he can get away with?

Richard Phillips, Congress Should Pass the Stop Tax Haven Abuse Act to Combat International Tax Avoidance. (Tax Justice Blog). I have a better idea: a less onerous tax system that would make international tax avoidance less attractive.


Career Corner. The Public Accountant’s Definitive Guide to Disclosure of Past Convictions (Adrienne Gonzalez, Going Concern)


Tax Roundup, 1/7/15: Resolve to monitor your payroll taxes this year. And: searching for gray.

Wednesday, January 7th, 2015 by Joe Kristan

EFTPSIf you’re an employer, here’s a new year’s resolution: “I will verify that my tax payments have been made on time every payroll by logging into EFTPS.”

The customers of Riverside, California payroll service Paycare are wishing they had made and kept that resolution. From The Press Enterprise:

The co-owner of a Riverside-based payroll service, Paycare, Inc., pleaded guilty Monday to failure to pay federal payroll taxes and embezzlement from a federally-funded program, the Internal Revenue Service reported.

Scott Willsea, 56, entered the guilty plea in federal court before U.S. District Judge Manuel L. Real, according to a press release from IRS spokeswoman Linda Lowery.

Willsea allegedly prepared quarterly payroll taxes for 15 different client companies in the 2009 and 2010 tax years, including All Mission Indian Housing Authority and Of One Mind, LLC, and failed to account for or pay the full amount of tax owed to the IRS by each company.

The IRS and the states want those payroll taxes; after all, they issue refunds to the employees based on the reported withholdings, paid or not. If your payroll provider steals your payroll taxes, you have to pay them again. That can ruin a struggling business,and cripple a strong one.

That’s why employers who use a payroll service should still log onto their accounts with the Electronic Federal Tax Payroll System to verify that the payments have been made. If you do payroll taxes in-house, it’s good financial hygiene to do the same thing.

It’s also a reason for extra due diligence if you consider a “professional employer organization” to meet your payroll needs. These outfits pay your payroll taxes under their own account, and you can’t use EFTPS to monitor your payments. That can work out badly.


FranceflagAndrew Mitchel, A Reminder for Green Card Holders Living Outside the U.S.:

U.S. lawful permanent residents (“green card holders”) who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. 

Sad and true.


Jason Dinesen, Sorry, But There Really Isn’t a “Gray Area” for Most Taxpayers to Push:

NEWSFLASH: for the vast majority of taxpayers, there is no gray area to be pushed.

Your income is whatever your W-2 says it is.

Your deductions are whatever they are. Mortgage, property taxes, charitable, car registration. I suppose there could be a gray area if someone is claiming employee business expenses. But even then, those expenses are not likely to end up being deductible anyway.

No matter what the H & R Block commercials say, there is no magic wand that a tax preparer can wave to make a bigger tax refund appear.

Absolutely true. And if a preparer boasts otherwise, it’s likely that there is a perfectly bad explanation.


20141231-1Tim Todd, Late Tax Return Precludes Bankruptcy Discharge. One more reason to file timely.

Russ Fox, Varagiannis Gets 15 Months for Tax Evasion. In Nevada, pimping is OK, but only if you pay your income taxes.

Robert D. Flach has word of ANOTHER UNTRUE TAX EMAIL making the rounds. You mean we can’t trust spam emails? Next thing you’ll tell me that people post things on Facebook that aren’t precisely true.


Joseph Thorndike, Planned Disasters Are Here to Stay – and Probably the Only Hope for Tax Reform (Tax Analysts Blog).

All in all, it seems likely that the new GOP majority will need to gin up some potent crises if they hope to get anything done over the next two years.

I would think we have plenty of crises to go around already.


Kay Bell, Tax reform is part of new GOP Congress’ agenda


David Brunori is full of wisdom today in Want Bad Tax Policy? Here’s a Blueprint (Tax Analysts Bl0g):

Washington Gov. Jay Inslee recently released his proposed budget. It illustrates a lot of what is wrong with tax policy in the states. The governor wants to raise taxes by $1.4 billion over the next two years. Conservatives may think this is terrible — and it is. But the problem is how Inslee wants to raise the new revenue. He wants to impose a 7 percent capital gains tax on a narrow band of Washington residents. Specifically, he wants to impose the tax on the earnings sales of stocks, bonds, and other assets above $25,000 for individuals and $50,000 for those filing jointly. It would affect “only” an estimated 32,000 people who live in Washington.

Keep in mind that this is a state without an income tax. Certainly not a way to encourage their population of tech millionaires to stick around.


Inslee is also proposing a new excise tax on e-cigarettes and vapor products at 95 percent of the taxable sales price. Yes, 95 percent of the taxable sales price. If the government cared about the health of the poor, it would be subsidizing e-cigarettes.

States hate the idea of losing their tobacco revenue stream.


Andrew Lundeen, Kansas Would Have Benefited from Dynamic Scoring (Tax Policy Blog):

The tax cuts didn’t pay for themselves. Instead, they left Kansas was left with a hole in the budget. (You can read about what Kansas could have done better here and here.)

This isn’t because individual tax cuts are bad for the economy; they’re just expensive. If the governor had used dynamic scoring, he would have known this.

Iowa has a lot of room to improve its tax system, but they could always screw it up even worse.


Howard Gleckman offers Nine Tax Stories to Watch in 2015 (TaxVox), including this:

Tax extenders: They are, after a resurrection of two weeks, once again expired. This is tiresome to even write about, but the best bet is Congress will once again delay action on these 50-plus tax breaks until at least next fall, when the budget wars are likely to come to a head. After that, well, don’t ever bet against another short-term extension.



TaxProf, The IRS Scandal, Day 608Peter Reilly is featured.


Robert Wood, Taxman Is Funny In UK, Why Not IRS? Must not be in the budget.

Career Corner. Skip the Shout Outs and Other Helpful Farewell Email Advice (Adrienne Gonzalez, Going Concern). “Quitting your job is a part of life in public accounting. Unless you’re one of those sick, carrot-chasing freaks sticking around until partner, that is.”



Tax Roundup, 12/11/14: Cromnibus cuts IRS budget, delays extender vote. And: Mileage goes to 57.5 cents.

Thursday, December 11th, 2014 by Joe Kristan

The “Cromnibus” train-wreck spending bill process seems to be holding up everything else, including the extender vote. The 55 Lazarus provisions awaiting revival are on hold while Congress struggles to avert a government “shutdown” at midnight tonight.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Outgoing Senate Majority Leader Reid has said that the Senate will finish the Cromnibus before voting on the extender bill, HR 5771. The house-passed bill would extend dozens of tax breaks that expired at the end of 2013 retroactively through the end of this month. Business provisions in the bill include the $500,000 Section 179 deduction, 50% bonus depreciation, the R&D credit, and the 5-year built-in gain period for S corporations. The provision allowing IRA charitable donations is among the individual breaks at stake.

There is no indication that the Senate will fail to eventually pass HR 5771, or that the President will veto it, but politics are uncertain, and I’ll feel better about things when they do pass it. It appears the hope they would finish up today is wishful thinking, though; this Wall Street Journal story says the House is expected to pass a two-day funding bill today to give the Senate extra time to approve the spending bill.

The IRS faces a 3.1% funding cut in the bill. That’s a tribute to the tone-deaf and confrontational attitude of IRS Commissioner Koskinen, who has responded to the Tea Party scandals pretty much by saying “give us more money!” Given the increased responsibilities given the IRS by Congress, cutting their budget seems strange. Yet as long as the Commissioner keeps antagonizing his funders, and keeps finding money to fund his “voluntary” preparer regulation program to get around the Loving decision, he can expect similar appropriation success.

Related: Paul Neiffer, Tax Extender Bill May Be Punted to Weekend


Mileage rate goes to 57.5 centsWith gas prices falling, the standard IRS mileage rate is naturally going… up. The IRS yesterday released (Notice 2014-79) the 2015 standard mileage rates:

– 57.5 cents per mile for business miles. This is 56 cents for 2014.

– 14 cents per mile for charity miles, same as in 2014.

– 23 cents per mile for medical and moving miles. This rate is 23.5 cents for 2014.

Related: William Perez, How to Deduct Car and Truck Expenses on Your Taxes


20130819-1Peter Reilly, Iowa Corporation Not Liable For California Corporate Tax From Ownership Of LLC Interest. It discusses a California court ruling that mere ownership of a California LLC interest isn’t enough to make the corporate owner subject to California’s $800 minimum franchise tax. If it holds up, it will be good news for many taxpayers dinged by this stupid fee.

Jim Maule, Do-It-Yourself Tax Preparation? Better? Paid preparers didn’t do an impressive job handling the GAO’s secret shoppers.

Kay Bell, Mortgages offer nice tax breaks, but in limited parts of the U.S.


The new Cavalcade of Risk is up! at  Always good stuff in the venerable roundup of insurance and risk-management blog posts; this edition features Hank Stern’s take on the “creepy” ACA site.


Bryan Caplan, The Inanity of the Welfare State:

While taxes are highly progressive, transfers have an upside-down U-shape.  Households in the middle quintile get the most money.  The richest households actually get more money than the poorest.  Think about how many times you’ve heard about government’s great mission to “help the poor.”  Could there be any clearer evidence that such claims are mythology?

Eye-opening. Read the whole thing.



Robert Wood, Obama Justice Department Was Involved In IRS Targeting, Lerner Emails Reveal

TaxProf, The IRS Scandal, Day 581


EITC error chartAlan Cole, Treasury Report: Improper Payments Remain a Problem in EITC, Child Credit (Tax Policy Blog)

David Brunori, Mississippi’s Very Good Idea to Help its Poor (Tax Analysts Blog). It’s an earned income tax credit. Given the massive EITC fraud and error rate, I’m not convinced.

Tax Justice Blog, Update on the Push for Dynamic Scoring: Will Ryan Purge Congress’s Scorekeepers?

Joseph Thorndike, Wall Street Journal Prefers Ignorance to Expertise (Tax Analysts Blog). It’s about the CBO.




Robert Goulder, Taxing Diverted Profits: The Empire Strikes Back (Tax Analysts Blog).  “The message is this: Once people realize what a functional territorial regime looks like, they suddenly become less enamored with the concept. One of several reasons why U.S. tax reform won’t be easy.”

Chris Sanchirico, A Repatriation Tax Holiday for US Multinationals? Four Contagious Illusions (TaxVox)


News from the Profession. The AICPA Can’t Figure Out Why Record Numbers of Accounting Grads Aren’t Taking the CPA Exam (Adrienne Gonzalez, Going Concern).



Tax Roundup, 11/12/14: IRAs, IRS, and the Liar’s Paradox. And: mass benefit, class tax.

Wednesday, November 12th, 2014 by Joe Kristan

You trusted us.

The Liar’s Paradox, IRS Version. If somebody says “I am lying,” can he be telling the truth? It’s a puzzler. So are many tax law rules, like the rules governing IRA rollovers.

The tax law does not subject an IRA withdrawal to tax if it is reinvested in an IRA within 60 days. It can only be done once each year. The IRS publication on such “rollovers” said from 1984 though 2013 that the one year restriction applied to each IRA, so a taxpayer with multiple IRAs could make multiple rollovers.

Alvin Bobrow made multiple IRA rollovers in 2008 consistent with this guidance. On examination, the IRS said the once-a-year rule applied per taxpayer, not per IRA, and assessed him tax and penalties.  The Tax Court upheld the assessment and penalties, in spite of the published IRS position. This is a classic example of the unfair, penalty-happy nature of the IRS examination process, too often abetted by the courts.

While manifestly unfair, the IRS long ago won the right to bait-and-switch via its publications. As the Tax Court said years ago, “well established precedent confirms that taxpayers rely on such publications at their peril.”

Even the IRS apparently is a little embarrassed by this. On Monday it issued Announcement 2014-32, saying it would not enforce the position it took in Bobrow for distributions before 2015. That seems fair to other taxpayers, if not to the Bobrows.

But here is where the liars paradox comes in. Announcement 2014-32 is mere “administrative guidance,” just like an IRS publication, and it has no more legal standing. Technically, nothing but a sense of self-restraint keeps the IRS from saying “fooled you!” on examination, just like they did in Bobrow. Does that make anyone else a little nervous?


The Tax Foundation has issued a wonderful new publication, A Visual Guide to Business, Taxes, and the Economy. It is full of wonderfully-illustrated insights on the economy and taxes. I love this illustration:


Source: Tax Foundation, "Business in America Illustrated"

Source: Tax Foundation, “Business in America Illustrated”

The chart shows that most business income subject to tax is reported on 1040s, not on corporate returns. That means every increase in taxes on high-income individuals is a tax on businesses and a tax on employers — not just on some guy lighting cigars with $100 bills.


20131209-1Paul Neiffer, Sheldon Iowa is Cold. It is indeed, at least this week.

Andrew Mitchel, New Rules for Canadian RRSPs & RRIFs

Kay Bell, A question for Congress on Veterans Day: Will the business tax break for hiring returning military members be renewed?

Jason Dinesen, Same-sex Marriage, Amended Tax Returns and Filing Status. “So if you’re in a same-sex marriage and you’re amending a 2011 or 2012 tax return, you can file that amended return as married or keep your filing status as single.”

Peter Reilly, Tax Court Goes To Webster For Definition Of Construction – And Watch That NAICS Code. The courts have been placing an undeserved significance on the business code you put on your tax return.

TaxGrrrl, 14 Ways To Show Your Thanks To Our Military On Veterans Day. “Here are 14 ways to show your thanks to our vets – and some of them come with a nice tax benefit to boot.”


20130121-2Good. IRS Power To Regulate Tax Practitioners Slipping Away (Christopher Rezek, Procedurally Taxing). The author appears to think this is somehow a bad thing.

TaxProf, The IRS Scandal, Day 552


Joseph Thorndike, Democrats Getting What They Deserve on Medical Device Tax (Tax Analysts Blog):

If Democrats eventually face a funding crisis for Obamacare, they have only themselves to blame. After all, they should have known better. It was a Democrat, Franklin Roosevelt, who conclusively established that broad spending programs deserve broad taxes.

Precisely. You can’t fund a mass entitlement with a class tax, but that’s exactly what Obamacare tries to do.