Posts Tagged ‘Judge Jacobs’

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

Tuesday, June 10th, 2014 by Joe Kristan

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

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

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

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

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

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

Cite: Blangiardo, T.C. Memo 2014-110.

 

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

 

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

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

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

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

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

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

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

 

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

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

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

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

 

Robert D. Flach brings your fresh Tuesday Buzz!

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

 

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

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

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

 

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

 

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

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

 

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

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

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

 

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

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

Sounds like a buy to me.

 

Share

Tax Roundup, 9/5/2012: Laying it on thick for the fertilizer plant. Math is hard. So is tax, even with TurboTax.

Wednesday, September 5th, 2012 by Joe Kristan

Governor Branstad’s administration is making a big push to promote STEM education: Science, Technology, Engineering and Math.  This headline in the Des Moines Register today shows how badly we need math education, especially in Iowa’s “Economic Development” bureaucracy:

165 jobs, $110 million in aid

Officials mull boosting incentives to keep $1.3 billion fertilizer plant project in Iowa

This is the worst kind of smokestack chasing, which is always the preferred approach of “economic development officials.”  Never mind that Iowa already has competing fertilizer plants — as Sioux Citian Debi Durham, Iowa chief official economic developer, surely knows.    Never mind that Iowa and Illinois are getting played shamelessly by Orascom, the fertilizer company.  Never mind that the money comes from taxes paid by existing competitors, and by thousands of unsubsidized businesses like ours, and our employees.  Never mind all that — it’s about buying a ribbon-cutting, not about making the state a good place for everyone to do business Unless, of course, Roth & Company gets a nice state check for $21.3 million for the jobs we have already created.

At least some folks are catching on to the game.  From the article:

Orascom has attracted a diverse group of opponents, from parents, environmentalists and liberal groups such as Iowa Citizens for Community Improvement and Iowa Policy Project, to conservative groups such as Public Interest Group, Lee County Tea Party and Americans for Tax Reform.

So there’s agreement from left to right that it’s a bad idea for the state.  But if politicians think it’s a good idea for them, it will go through.

Related: Taking your wife’s purse to buy drinks for the girls and  LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Who catches the identity thieves?  Hint: it’s not Doug Shulman’s IRS.  From the Bradenton (Florida) Patch:

Det. B. Pieper from the police department’s gang unit put together the case by paying close attention during a routine drug bust…

Pieper was one of several detectives watching traffic coming to and from a house where police suspected drugs were sold. He said he and his partner watched a car leave the house and then run a stop sign. When they pulled over the car Brydson was in the passenger seat with a laptop and a bag of marijuana on her lap.

Brydson quickly closed the laptop, which made Pieper suspicious. When he searched her purse, he said he found several TurboTax debit cards with different names on them. He also noticed a 60-step instruction sheet on how to perform tax fraud through TurboTax.

So local cops have to do the IRS’s job of stopping the thieves who take $5 billion of our taxes annually while the IRS is busy building a new preparer regulation bureaucracy at the behest of the national tax prep firms.  Priorities!

 

 Courtney A. Strutt Todd: Congratulations on Your Scholarship. Don’t Forget to Pay Uncle Sam (Davis Brown Tax Law Blog)

TaxProf, Tax Planks in Democratic Party Platform

Andrew Mitchel, Partnership Definition

Martin Sullivan, The Effects of Interest Allocation Rules in a Territorial System (Tax.com)

Linda Beale, Romney and Private Equity’s Questionable Schemes for Paying Very Little Tax

Kay Bell, Tax moves to make in September 2012

Robert D. Flach has a new Buzz roundup of tax blog posts.

Jim Maule offers A Peek at the Production of Tax Ignorance.  It’s booming.

I think spending less than you earn works even betterDo Mandates or Tax Subsidies Do a Better Job of Boosting Savings?

Have a nice dayCBO: Federal Healthcare Spending Will Exceed Discretionary Spending by 2016 (William McBride, Tax Policy Blog)

GIGO: it’s Tax Court Doctrine!  From a case rejecting a taxpayer’s use of TurboTax as an excuse for a bad return:

It is apparent that a portion of the information petitioner entered into the TurboTax program was incorrect; hence the mistakes made (which resulted in the underpayment) were made by petitioner, not TurboTax. TurboTax is only as good as the information entered into its software program. See Bunney v. Commissioner, 114 T.C. 259, 267 (2000). Simply put: garbage in, garbage out.

Tim Geithner, call your office.

Cite:  Bartlett, T.C. Memo 2012-254.

Related:  Reason #17 to Hire Me: Blaming Turbo Tax Can Not Protect You From Penalties (Anthony Nitti)

 

Share

Great moments in the profession

Wednesday, March 9th, 2011 by Joe Kristan

A tax CPA fails to set a shining example in Tax Court:

Petitioner has not demonstrated that there was reasonable cause for the underpayment and that he acted in good faith. Petitioner is a C.P.A. and holds a master’s degree in accounting and taxation. Yet when asked by the examining agent to provide documentation to substantiate his claimed business expenses, he failed to do so. Petitioner asserted that this was not negligence; rather, “it’s more or less when you’re starting out doing something, like a medical doctor doing operations or maybe a lawyer representing somebody in the courtroom, you have a lot to learn. You do make mistakes here and there.” We find petitioner’s cavalier attitude unacceptable. This is not what a reasonable person would do, particularly a C.P.A.

Or, one hopes, “a medical doctor doing operations.” Of course, it’s rarer for doctors to operate on themselves than for CPAs to do their own returns.
Cite: Bangura, T.C. Summ. Op. 2011-23

Share