Posts Tagged ‘Kay Bell’
Wednesday, April 10th, 2013 by Joe Kristan
Flickr image by Samat Jain under Creative Commons license
Should we just get a bill from the IRS, instead of filing returns? That’s something Janet Novack seems to be thinking about. She has two guest posts on the issue:
Joseph Bankman, The Case For Easy, Free Tax Filing
Arlene Holen, Five Fallacies About Return-Free Tax Filing
Some people fear return-free filing will separate citizens further from the costs of government. I think that is caused by an income tax that now is effectively only on high-income earners. When 51% can send the bill to the other 49%, bad policy seems inevitable.
Mistakes, mistakes. The IRS has issued a list of “Common Errors to Avoid,” ably covered by Jana Luttenegger (Common Errors to Avoid in Tax Returns) and TaxGrrrl (Eight Common Tax Filing Errors And How To Prevent Them).
It makes me wonder: if there are “Errors to avoid,” are there errors we should seek out, or at least not sweat? I can’t think of errors I’d want to make on a tax return, but I can think of some that I wouldn’t lose sleep over:
1. Forgetting to check the “presidential election campaign fund” box. After all, your entire tax bill is basically the federal election campaign fund.
2. Misspelling the name of a stock on Schedule D.
3. Writing a “smiley face” next to the tax refund line.
4. Forgetting to update your “occupation” on the signature line when you change jobs.
Any other ideas?
Kay Bell, Tax returns, refunds running behind last year’s levels
Peter Reilly, GLAD Alerts Same Sex Couples To Act Quickly To Preserve Refund Rights
Clint Stretch, Are Roth IRAs Your Best Choice? (Tax.com) I think that they are if you can’t get a deduction, but not otherwise.
Russ Fox, Bozo Tax Tip #3: Use a Bozo Accountant!
Day traders have their own April 15 deadline. Yesterday’s 2013 filing season tip. Today’s tip goes up later this morning.
Jack Townsend, Lies, Dams Lies and Statistics – DOJ’s Promo Stats.
Jim Maule, How To Protest a Tax: Part Two. It involves dance. If it makes Prof. Maule bust a move, it’s worth it!
Tony Nitti, The Masters: A Tax Break Unlike Any Other. The tax-free Masters windfall for Augusta homeowners.
David Brunori, Prohibition Through Taxation (Tax.com). If you jack up taxes beyond reason, people cheat.
Howard Gleckman, An Opportunity to Really Fix Social Security (TaxVox)
No jest. Shirley man pleads guilty in multimillion-dollar tax fraud scam (Newsday)
No, it’s not me. West Des Moines Man Banned from Bar Until He Can Pay Tab (West Des Moines Patch)
Megan McArdle, There’s No Such Thing As A Free Lunch in Taxland.
The core problem is that the IRS cannot look into the hearts of companies and see which of them really needs to provide free lunch to their employees in order to have a healthy, vibrant company, and which of them is doing this in order to provide a tax-free boon to their workers.
In case anyone asks, donuts are critical to a healthy, vibrant tax practice.
Tags: Anthony Nitti, Arlene Holen, Clint Stretch, David Brunori, Howard Gleckman, Jack Townsend, Jana Luttenegger, Janet Novack, Joseph Bankman, Kay Bell, maule, megan mcardle, Peter Reilly, Russ Fox, tax crime, TaxGrrrl
Posted in Uncategorized | No Comments »
Tuesday, April 9th, 2013 by Joe Kristan
Radio Iowa runs with this headline ”$8.7 million from “Development Fund” creates 600+ jobs.” This headline arises out a “study” paid for by the economic development bureaucracy (meaning: taxpayers) to demonstrate the tremendous job-creating skills of people who give your money to other people. How did this study demonstrate this job creation?
By assuming it.
From the “study”:
A survey of past recipients of Demonstration Fund investments was conducted by the Iowa Innovation Corporation to determine, among other things, how large these companies are now as compared to their pre-investment levels. This growth in size – in annual revenues and in head count – can be attributed in part to the involvement of and investment by the Demonstration Fund.
Furthermore, the resulting economic impact is greater than the direct increase in expenditures and head count, since those increases lead to a series of spillover effects, whereby the impact of new company spending and employee earnings ripples through local economies and supports additional economic activity and job creation. Job impact estimates are determined by using standard input-output methodologies and multipliers, as provided by the US Department of Commerce.
In other words, they assumed:
- that multipliers work – a shaky assumption.
- that the businesses and jobs wouldn’t happen without the wonderful effects of your money being directed by politicians to those businesses.
- that the money wouldn’t have also generated jobs if it had been spent elsewhere.
That’s the same kind of thinking behind the 2009 stimulus spending spree. The results were less than assumed. The dark line is what government projected that spending would do to unemployment, using “standard multipliers.” The lighter blue line was the grim fate awaiting us absent a government binge. The red dots are the actual post-binge unemployment rates.
The study does not have the two words that could have given it credibility: “opportunity cost.” They assume that the money left in the hands of taxpayers would have done nothing. But it would have been spent elsewhere, undirected by politicians; it would have bought things, creating profits and jobs. But as they would have gone unclaimed by economic development officials, no press conference could have been called, so they don’t count.
Jeremy Scott, What Should Be in the Obama Budget (Tax.com):
Obama consistently ignores the statutory timeline for releasing his budget, and this year is the latest he has ever put forward a fiscal proposal. On all things administrative, the president is frequently dilatory. But those waiting with bated breath for Obama’s proposals will be disappointed — the budget will be more of the same and has little chance of actually being passed or even taken up by Congress.
Good news.
Does President Obama Want To Tax Your Retirement? His budget proposes a cap on the size of retirement accounts, but see the item above.
TaxProf, WSJ: Taxing Lunch at Google and Facebook?. Will the IRS start putting free meals for techies on their W-2s? Just don’t tax my busy season office donuts.
Tax Trials, New York’s Highest Court Affirms Constitutionality of Click-Through Nexus
Nostalgia. Today in History: Income Tax Ruled Unconstitutional in Pollock v. Farmers Loan Trust Co. (Joseph Henchman, Tax Policy Blog)
William Gale, Tax Policy Should Consider New Business, Not Small Business (TaxVox)
Martin Sullivan, How Should the U.S. Stop Profit Shifting? (Tax.com)
Trish McIntire, One Week Warning
Kay Bell, Taxes are due in a week! Don’t panic. Use 7-day filing plan
William Perez, What to Do if You Owe Taxes for 2012
Russ Fox, Bozo Tax Tip #4: Procrastinate!
Jim Maule, How Not to Litigate a Tax Case
Peter Reilly, Wesley Snipes Raises Creationist Hopes For Kent Hovind
Definitely not a problem for me this year: Bragging About Winning Your NCAA Pool On Facebook May Cost You Come Tax Time (Tony Nitti)
News you can use: The Definitive ‘I’m Quitting Public Accounting’ Checklist (Going Concern)
Tags: Branstad economic policy, corporate welfare, economic development, Going Concern, Jeremy Scott, Jim Maule, Joseph Henchman, Kay Bell, Martin Sullivan, Peter Reilly, Russ Fox, Tax Trials, TaxProf, Tony Nitti, Trish McIntire, William Gale, William Perez
Posted in Tax Roundup | No Comments »
Monday, April 8th, 2013 by Joe Kristan
Wikipedia image
Greg Mankiw, The President’s Latest Bad Idea:
Apparently, President Obama’s budget is going to include some kind of penalty for people who have accumulated more than $3 million in retirement accounts. The details are not yet known, but I think we know enough to say that this is a terrible idea.
A sizable body of work in public finance suggests that consumption taxes are preferable to income taxes. Completely replacing our tax system with a better one is, however, hard. Retirement accounts, such as IRAs and 401k plans, are one way our tax code has gradually evolved from an income tax toward a consumption tax. The use of these accounts should be encouraged, not discouraged.
Unlike some of his other bad ideas, this one isn’t going anywhere.
William McBride, President Obama’s New Tax Increases (Tax Policy Blog)
TaxProf, NY Times: Former Baucus Staffers Cash in as Finance Committee Tees Up Tax Reform. Ah, the sacrifices of public service. I bet they aren’t proposing the Instapundit revolving door tax. Related: Max Baucus and Dave Camp, Tax Reform Is Very Much Alive and Doable. (Wall Street Journal).
Paul Neiffer. 3%-6%-12%:
One of our last posts indicated that the IRS had issued a notice indicating they might not assess the late payment penalty for returns that are extended and paid after April 15, 2013 if the return included certain forms that were delayed by the new tax law.
However, when you read the fine print, it appears that you still need to accurately estimate your tax and pay in at least 90% of this extra tax to escape the penalty.
The IRS language is:
For each taxpayer who requests or has requested an extension to file a 2012 income tax return that includes one of the forms listed in Exhibit 1 of this Notice, the IRS will deem the taxpayer to have demonstrated reasonable cause and lack of willful neglect, provided a good faith effort was made to properly estimate the tax liability on the extension application, the estimated amount is paid by the original due date of the return, and any tax owed on the return is fully paid no later than the extended due date of the return.
I suspect that the IRS will not be very strict in making taxpayers demonstrate reasonable cause, but if you have the cash, you should pay up.
William Perez, Filing Protective Claims for 2009 Tax Returns for Same-Sex Married Couples
Kay Bell, 6 ways to prepare and e-file your federal taxes for free
TaxGrrrl, Ask The Taxgirl: Home Offices And Capital Improvements
Roberton Williams, How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay?
Peter Reilly, Wesley Snipes Almost Out – Kent Hovind Remains In Prison
Russ Fox, Bozo Tax Tip #5: Don’t Seal the Envelope!
One of her clients mailed his tax return to the IRS but forgot to seal the envelope. The return did make it to the IRS, but without page two of Schedule C. The first that the client found out there was a problem was when the IRS sent him a letter noting the omission. The second time he knew that there was a problem was when she found she was a victim of identity theft.
E-filed returns never fall out of the envelope.
Jack Townsend, Good Overview Article on Financial Issues for Americans Living Abroad
Phil Hodgen, Form 1040NR Filing, Tax Payment Deadlines
The criminal masterminds that the IRS can’t stop. Tampa exotic dancer sentenced for tax fraud (tbo.com)
The Critical Question. News Analysis: Why Are Fee Waivers Like Deep-Fried Twinkies? (Lee Sheppard, Tax Analysts; gated).
Stay tuned for my first 2013 filing season tip going up later this morning!
Tags: greg mankiw, identity theft, Jack Townsend, Kay Bell, Lee Sheppard, Paul Neiffer, Peter Reilly, Phil Hodgen, Roberton Williams, Russ Fox, TaxGrrrl, TaxProf, William McBride, William Perez
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Friday, April 5th, 2013 by Joe Kristan
So a Blonde and a lawyer walk into Tax Court. She loses.
No, the Tax Court has not started to report petitioner hair color in its decisions, along with the names of the attorneys and the resident state (“petitioner resided in Iowa and was brunette during the tax years at issue but gray at trial”). This taxpayer’s first name is actually Blonde. And she was an attorney, at least until 2006, when she pleaded guilty to failure to file tax returns. From the Tax Court:
Since the only issue currently before the Court is whether Blonde Grayson Hall signed the Form 4549 under duress we will refer to Blonde Grayson Hall as petitioner.
Petitioner attended the University of Michigan Law School and was admitted to practice law in 1982. Petitioner was the chief executive officer of Hall & Associates, LLC, a law firm in Philadelphia, Pennsylvania, from 1995 to 2006.
As part of her plea deal, the taxpayer filed Form 4549 agreeing to assessment of additional tax liabilities for several tax years. She apparently had second thoughts:
Thus, the issue before us is whether Blonde Grayson Hall should be relieved of her agreement in the Form 4549 because it was signed under duress.
Of course, duress is what a plea deal is all about. You accept a bitter pill because you think it could get a lot worse if you go to trial. While this is a fearsome and sometimes abused weapon in the hands of prosecutors, the Tax Court said it wasn’t the kind of duress that makes the Form 4549 go away (my emphasis):
The requirement that petitioner sign the Form 4549 stems from the Government’s efforts to prosecute her for admittedly criminal conduct and to collect taxes and penalties. No doubt, given the circumstances, these efforts were zealous and disadvantageous to petitioner. However, every criminal defendant who is offered a plea agreement faces an equally unpalatable decision — accept a legally authorized plea agreement that will include terms disadvantageous to the criminal defendant or go to trial which may result in significantly worse consequences for the criminal defendant. This unpalatable decision does not constitute duress or involuntariness.
The taxpayer is stuck with the Form 4549 that she signed.
The moral: If you plead guilty to criminal tax charges, it is very hard to fight the assessment for the years covered by the plea. Even if you are a lawyer, and even if you are Blonde.
Cite: Hall, T.C. Memo 2013-93.
Iowa’s loss, Government accounting’s gain. Iowa’s longtime State Auditor David Vaudt is leaving office to head the Government Accounting Standards Board. He’s fought the good fight for honest reporting of state finance. It will be hard to find a replacement as good.
His term in office has covered governors of both parties, all of whom found him more or less annoying with his objections to budgetary games. His office did excellent work in the film credit scandal, issuing a comprehensive report showing that 80% of the credits were improperly granted. Best of luck to him in his new job.
William McBride, Standard Economics Says Capital Income Taxes Should Be Zero (Tax Policy Blog). He quotes Garett Jones:
Under standard, pretty flexible assumptions, it’s impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers.
Not, hard, not inefficient, not socially wasteful, not immoral: Impossible.
Yet the effort to do so never ends. Nor the harm it causes.
Christopher Bergin, ‘Commissioner-Less’ (Tax.com):
The Internal Revenue Service is currently without a Commissioner. Douglas Shulman, the 47th IRS Commissioner stepped down last November.And from what I’m starting to hear, the IRS may not have a new Commissioner for as long as close to two years. That is not a good thing.
Still an improvement over the last one.
Eric Todor, Moving to a Territorial Tax May Not Be the Windfall Multinationals Expect (TaxVox)
David Cay Johnston, Unkind to Charity (Tax.com) “The tax rules on charities, both the many good and the few bad, are about to get much more anti-giving.”
Jack Townsend, District Court Denies Bankruptcy Discharge for BLIPS Shelter Investor
Kay Bell, William Shakespeare, tax cheat
William Perez, GoodApril Online Tax Planning Application
Perverse incentives. Whoa, Cowboy: Tax Laws May Make Romo Highest Paid NFL Player (TaxGrrrl)
News you can use: You Are a Terrible Investor and You Should Stop That (Megan McArdle). Actually, it’s excellent advice that I try to follow.
Russ Fox, Bozo Tax Tip #6: Just Don’t File. It sure didn’t work for the Blonde.
Jim Maule, How to Protest a Tax:
According to this report, dozens of people supporting a bill to repeal a state sales tax on amounts charged by dance establishments decided to dance in protest. According to the report, the protestors demonstrated the salsa, the flamenco, the tango, and even a conga line. Considering the speed with which legislatures get things done, perhaps they engaged in some slow dancing, though the report does not mention it.
First they came after the big bands, but because I was a conga dancer, I did nothing.
Tags: Christopher Bergin, David Cay Johnston, David Vaudt, Eric Todor, Garrett Jones, Jack Townsend, Judge Ruwe, Kay Bell, maule, megan mcardle, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Tuesday, April 2nd, 2013 by Joe Kristan
Not your corporate welfare. Just ours. Iowa Senate taxwriters have been eloquent in criticizing the corporate welfare famously doled out to fertilizer companies over the last year. It turns out, though, that not all corporate welfare is bad, to them. Just that proposed by the other party. The Senate Ways and Means Committee advanced a set of its own welfare programs yesterday, including:
SF 238, which would provide a 30% tax credit (subsidy) “for persons who construct, install, and place in service an electric vehicle facility or a natural gas vehicle facility.” So if you buy a Chevy Volt, Senate Ways and Means wants to pay 30% of the cost of installing special plug-ins.
SSB 1240, which “increases to $50 million from $45 million the amount of historic preservation and cultural and entertainment district tax credits.” These are a cash cow for well-connected developers and rehabbers.
SF 205, which opens up an existing program to divert withheld employee taxes “to create economic incentives that can be directed towards business.” The bill “removes the requirement that an employer…be located in an urban renewal area.” In other words, it makes it just another “incentive” slush fund to pay people to be our friends.
So it’s not a principled opposition to business subsidies. They just want different ones.
Far better to get the state out of the subsidy business and make the tax system good for everyone — not just those with the pull and the consultants to game the system. Far better to enact The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.
Related: New Jersey corporate tax breaks surge, but economy lags: study
The courts haven’t been kind to the IRS preparer regulation power grab, but some preparers welcome our new preparer regulation overlords. An example is Three reasons why the IRS will persist in its mission to regulate tax return preparers (Jim Buttonow)
The article takes for granted that the costs the regulations will impose will exceed the benefits:
Knowledgeable tax return preparers—who are reminded each year through education requirements to conduct effective due diligence on small businesses—can have a much greater impact on compliance than IRS auditors.
That makes an unwarranted assumption: that the IRS can create “knowledgeable tax return preparers.” It can’t. It can make people fill out paperwork, go through the motions of paying for CPE, and take meaningless open book literacy competency tests, but it can’t make anybody competent.
The IRS has limited resources. Semi-literate South Florida grifters are stealing billions through fraudulent refunds. Yet the IRS seems to think its problem is honest preparers.
Smoke ‘em if you can afford ‘em. Monday Map: State Cigarette Tax Rates, 2013 (Nick Kasprak, Tax Policy Blog).
Ben Harris, Hiking Dividend Taxes to Pay for a Corporate Rate Cut (TaxVox):
Finland will lower the corporate rate to 20 percent in 2014, down from the current rate of 24.5 percent (and 26.0 percent in 2011)…
Finland plans to pay for part of the rate cut by boosting the effective investor tax rate on dividends paid by companies listed on the Finnish stock exchange.
Why not instead create a full dividends-paid deduction. It would eliminate the need for a rate preference for dividend inocme while eliminating the destructive double-tax on corproate earnings.
Russ Fox, Bozo Tax Tip #9: Foreign Trusts
Paul Neiffer, The Two Week Check List
Missouri Tax Guy, Residential Energy Tax Credits 2012
William Perez, Tips for SEP-IRA Contributions
Kay Bell, Tax Carnival #115: Final filing crunch 2013
Jeremy Scott, Tim Johnson, Kristi Noem, and the Importance of Moderates to Tax Reform (Tax.com)
The Myth of Crumbling Highways (David Hartgen). A useful counterpoint to the construction interests lobbying for higher gas taxes.
Peter Reilly, Taxpayer Beats Idaho On Domicile But Loses On Community Property
Going Concern had fun yesterday for April Fools day. This one puzzled me, though: Twilight Remake to Feature Auditors Instead of Vampires. Isn’t that like saying the Daytona 500 will feature automobiles instead of cars?
Tags: Ben Harris, Carnival of Taxes, corporate welfare, David Harten, Economic develpment, Going Concern, iowa tax policy, Jeremy Scott, Jim Buttonow, Kay Bell, Missouri Tax Guy, Nick Kasprak, Paul Neiffer, Peter Reilly, preparer regulation, Quick and Dirty Iowa Tax Reform Plan, Russ Fox, William Perez
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Monday, April 1st, 2013 by Joe Kristan
Flickr image courtesy Sean MacEntee under Creative Commons license
April Fools day is a challenge for tax bloggers. No matter how outlandish an idea you have for a joke story, chances are that the legislation has already been proposed. Today’s challenge: Real tax headlines are mixed with fake ones from today’s Tax Policy Blog. Can you pick the real fakes without peeking?
A. Protecting Consumers by Eliminating the Business Deduction for Advertising
B. Could tax breaks keep psychiatrists in Iowa?
C. Proposal would give artists tax credit for fair market value of donated work.
D.President Obama Backs Proposal to Legalize Marijuana, Tax Junk Food
E. Could Taxing Violent Video Games Actually Save Lives?
F. Senator backs off tax on condoms, contact lenses
G. Following Cyprus Lead, Senator Proposes Tax on “Everyone Else”
H. Mexico Considers Border Fence to Halt Californians Fleeing High Taxes
I. California politician proposes tax on email
Answers at bottom of post.
In fact, the research activities credit is noteworthy for its excessive cost — more than $45 million each of the past three years — and the lack of any demonstration of a public benefit. This giveaway is so loosely managed that companies are not even required to disclose how many jobs are related to the taxpayer cost, let alone demonstrate that the jobs would go away without the subsidy.
Related: Your tax dollars at work for somebody else.
David Brunori gets righteous on the “incentives” industry in today’s Tax Notes (unfortunately for subscribers only):
Incentives are inequitable. They’re unnecessary — and hence a waste of money. They distort markets. They breed cronyism. If the players involved weren’t establishment politicians, household name corporations, and prestigious law and accounting firms, we’d describe them as grifters.
Why wouldn’t we describe ”establishment politicians, household name corporations, and prestigious law and accounting firms” as grifters? Redundancy?
Here’s a new one. A Pakistani company, the Fatima Group, would like to open a fertilizer plant in Indiana. The company, which for all I know makes the Cadillac of fertilizer, is seeking both federal and state incentives to build its factory. The twist is that the Fatima Group’s fertilizer has been used in 80 percent of roadside bombs in Afghanistan. That’s awkward.
Right now Iowa seems to lead the world in fertilizing fertilizer companies with tax money. No doubt explosive growth is just down the road.
Lawrence Zelenak, Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax (via the TaxProf). I’m ready to see if absence might make the heart grow fonder.
Don Beaudreax takes Mr. Zelenak’s thinking to its logical conclusion:
If spending time and effort connecting with tax collectors helpfully “draws our attention to our duties as citizens,” then tax withholding short-circuits that attention. So why not eliminate withholding and oblige each income earner to pay every cent of his or her tax bill by writing personal checks to the IRS? Not only would elimination of withholding make us even more attentive to our “duties as citizens,” we would also – as any behavioral economist would point out – gain a truer and more fully felt sense of the price we pay for Uncle Sam’s splendors.
Reading Don Beaudreax Cafe Hayek blog for one week will make you smarter than all of Iowa’s legislators combined.
Russ Fox begins his annual countown of bad tax ideas with Bozo Tax Tip #10: Report Income That You Didn’t Earn
William Perez, April 1st Deadline to Take Required Minimum Distributions for 2012
Kay Bell, IRS loses latest round in tax preparer regulation lawsuit
Brian Strahle, New York “Amazon Law” Ruled Constitutional: But Wait, There’s More
Trish McIntire, Return Is Done but you Owe.
Peter Reilly, First Circuit Tells Tax Court To Look Harder For Fraudulent Transfer
TaxGrrrl, Taxes From A To Z (2013): P Is For Passive Activity Rules
David Cay Johnston, Spam and Taxes (Tax.com)
Howard Gleckman, Is This a Good Time to Reform the Mortgage Interest Deduction? (TaxVox)
Zumba instructor finds way to draw men to her studio. From RegisterCitizen.com:
The dance instructor who used her Zumba fitness studio as a front for prostitution faces jail time after pleading guilty in a case that captivated a quiet seaside town known for its beaches and picturesque homes.
The plea agreement, which calls for a 10-month sentence, spares Alexis Wright from the prospect of a high-profile trial featuring sex videos, exhibitionism and pornography. She’s scheduled to be sentenced on May 31.
Wright quietly answered “guilty” 20 times on Friday when the judge read the counts, which include engaging in prostitution, promotion of prostitution, conspiracy, tax evasion and theft by deception.
Remember, just because they pay in cash doesn’t make it tax-free.
News you can use. “Just Go Rob the H&R Block Instead, Their Computers Are Nicer” (Going Concern)
Fakes: A, D, G, H.
Tags: Brian Strahle, corporate welfare, David Brunori, David Cay Johnston, Don Boudreaux, economic development, Going Concern, Howard Gleckman, Iowa research credit, Kay Bell, Lawrence Zelenak, Mike Owen, Peter Reilly, Russ Fox, tax crime, TaxGrrrl, Trish McIntire, William Perez, Zumba
Posted in Tax Reform | No Comments »
Thursday, March 28th, 2013 by Joe Kristan
With less than three weeks left in filing season, the US Federal Circuit Court of Appeals has denied the IRS attempt to overturn the injunction against their preparer regulation scheme. From the Wall Street Journal Total Return blog:
The District of Columbia Circuit Court of Appeals denied a renewed request by the Internal Revenue Service to suspend a January 18 injunction against the agency’s effort to license tax preparers.
A three-judge panel upheld U.S. District Court Judge James E. Boasberg’s refusal to lift his injunction against the IRS’s licensing program.
This doesn’t mean the IRS has permanently lost its case, but it does mean that the IRS cannot move forward with its power grab unless and until it convinces the appeals court that it has the authority to regulate preparers.
Meanwhile, filing season continues, with no evidence that taxpayers have been harmed by the availability of preparers who haven’t passed an IRS open-book exam on Publication 17.
You would think that an agency short on staff and plagued by identity theft refund fraud would be grateful for the chance to redirect resources from a futile and wasteful regulation program. Yet they seem to be lobbying the Senate for legislative authorization for their power grab. Shameful, but not surprising.
Congratulations to the Insitute for Justice for another win for consumers.
Iowa preparer indicted – for helping clients report too much income. From KCRG.com (my emphasis):
Keith Rath, of Shellsburg, was arrested last week by IRS agents after a grand jury indicted him on eight counts of aiding in the preparation and presentation of a false tax return.
The indictment says that on eight occasions over the years 2008, 2009 and 2010, Rath helped clients falsely claim thousands of dollars in business income that he knew they did not earn.
Mr. Rath has pleaded not guilty.
You might wonder why anyone would claim business income they didn’t earn. The answer, of course, would be to claim refundable earned income tax credits. A taxpayer with no “earned income” is ineligible for the credit. The EITC is “refundable,” which means that when there is the credit exceeds the computed tax, the IRS will send you a check for the difference. By reporting imaginary Schedule C income, taxpayers can (illegally) increase their refund check.
EIC fraud is a huge problem. It is estimated that as much as 25% of EIC is improperly awarded, resulting in billions of dollars of fraudulent tax refunds. The Iowa Senate wants to make the problem even bigger.
Elizabeth Malm, Minneapolis Star Tribune Editorial Board Warns Legislators Against Higher Taxes on High-Income Earners (Tax Policy Blog). If the Star-Tribune thinks you’ve gone too far in jacking up taxes, you’ve got a problem.
Tony Nitti, Derek Jeter Flees New York, Tax Savings Soon To Follow . But they keep telling us that tax migration is a myth.
Just like capital migration. ‘Legal Enemies of the State’! (Christopher Bergin, Tax.com):
In Tax Notes this week I wrote about abusive transfer pricing and other techniques being used by multinational corporations and their brilliant tax advisors to avoid as much tax as possible. That these techniques are technically legal, and, some would say, actually enabled by governments like the United States and groups such as the Organization of Economic Cooperation and Development (OECD), doesn’t necessarily make them right.
In fact, the OECD itself recently issued a report – known as the BEPS report – on how these techniques create base erosion and profit shifting. The problem is so serious, according to the report, “What is at stake is the integrity of the corporate income tax.”
The “integrity of the corporate income tax” is in the third aisle next to the chastity of the bordello.
Peter Reilly, Tax Court Does Not Buy Vow of Poverty of Prophetess. Her full title is “Prophetess, Teacher, Pastor and Certified Paralegal,” so she has something to fall back on.
Paul Neiffer, You Can Always Do An IRA!
Cara Griffith, The Meaning of a Symbolic Vote (Tax.com). Senate approval of sales tax on internet sales may keep the issue alive.
Tax Trials, Supreme Court to Hear Arguments in DOMA Tax Case
Patrick Temple-West, TurboTax’s lobbying fight, and more
Jack Townsend, Random thoughts on Ethics, Tax Opinions and A Tax Lawyer’s Life at a Big Law Firm
Kay Bell, Don’t fall for these Dirty Dozen tax scams of 2013
TaxGrrrl, IRS Apologizes For Star Trek Video As Congress Jumps At Chance To Criticize Spending. She notes that a trivial expenditure is generating a lot of political preening. As far as I’m concerned, I’d rather they make videos than a lot of other things they do.
Well, it’s a better use of funds than preparer regulation. Dear IRS, Please Make More Parody Videos (Going Concern)
Tags: Anthony Nitti, Cara Griffith, Christoper Bergin, Earned Income Tax Credit, Elizabeth Malm, Going Concern, Institute for Justice, Jack Townsend, Kay Bell, Patrick Temple-West, Paul Neiffer, Peter Reilly, preparer regulation, tax crime, Tax Trials, TaxGrrrl
Posted in Tax Roundup | 1 Comment »
Wednesday, March 27th, 2013 by Joe Kristan
We’re number one! Weekly Map: Top State Corporate Income Tax Rates (Nick Kasprak, Tax Policy Blog):
Just another dubious leadership role for Iowa.
Monday Open Thread: The Tax Man Cometh. (The Other McCain). If you were tax dictator, what would be the first bad tax law to go? I would get rid of (in order) The AMT, Section 409A on deferred compensation, and the new net investment income tax. But there are so many worthy candidates…
Philip Panitz, guest-posting at Janet Novack’s blog, How Real Estate Investors Can Protect Themselves From The IRS:
So save all your expense receipts, try to keep a log, and try to stay friendly with—and maintain contact information for—workers and tenants. You might, for example, need to call as a witness a gardener who can say he got his instructions directly from you instead of a real estate company. And maybe the guy who is always grousing about his plumbing needing fixing or the woman who wonders why the gardener missed a spot in his watering will be asked to testify that they kvetched to you —not a real estate agent–when the toilet needed fixing.
U.S. film festival cancels award to UK film after tax scam. Perhaps the least of actress Aoife Madden’s problems, considering the 54 month prison sentence she got out of it.
Jason Dinesen, Married Filing Separately, Iowa Tax Returns & Itemized Deductions — Am I Missing Something? On the quirks of Iowa’s separate-combined filing status.
Roberton Williams, DOMA’s Tax Hassles for Same-Sex Couples
Clint Stretch, Which Kind of Imbalanced Solution Do You Want? (Tax.com). Mr. Stretch is, or maybe was, a career lobbyist for a national accounting firm that I once worked for. Considering that his career involved crafting loopholes, this is a fascinating observation (my emphasis):
I am no fan of spending through the tax code. Tax expenditures are government grants with the barest of qualification criteria administered by an agency with no subject matter expertise when it comes to the purpose of the incentive. The incentives – from business tax credits to mortgage interest deductions – may influence behavior at the margins,
but many of the beneficiaries are rewarded for doing what they were going to do anyway. Like direct spending; tax expenditures are spending and individuals do benefit. Although a rate reduction or a fiscally sound government might cushion the blow, reducing tax expenditures will be another spending cut that takes resources away from affected taxpayers. We should stop talking about spending versus taxes. Instead, we should work on how to make reasonable, holistic reductions in major areas of government influence.
That’s why I think he must have retired. I don’t think he could say stuff like that if he were still lobbying.
Joseph Thorndike : Why the Tea Party Should Support Soda Taxes. Because it would really annoy people, leading to a tax revolt. It sounds like an underpants gnome approach to me.
Jack Townsend, IRS Identifies Its Dirty Dozen Tax Scams for 2013
Principles of the tax law. Heads They Win – Tails You Lose (Paul Neiffer). The Obamacare tax on wage income cannot be offset with farm losses.
TaxGrrrl, All I Needed To Know About Taxes I Learned From My Kids
No, no, that’s not how it works, Senator. You’re supposed to give them money. Bored Politicians Taxing Strippers (David Brunori, Tax.com)
Group that stands to benefit from government spending calls for government spending. (Radio Iowa)
Now the IRS is in trouble. William Shatner ‘appalled’ at IRS Star Trek video spoof (Kay Bell)
News you can use. If You’re Failing the CPA Exam, You’re Not Making the Most of Bathroom Breaks (Going Concern)
Tags: Aoife Madden, Clint Stretch, David Brunori, Going Concern, iowa tax policy, Jack Townsend, Janet Novack, Jason Dinesen, Joseph Thorndike, Kay Bell, Nick Kasprak, Paul Neiffer, Philip Panitz, Radio Iowa, Roberton Williams, TaxGrrrl, The Other McCain
Posted in Tax Roundup | No Comments »
Tuesday, March 26th, 2013 by Joe Kristan
Film tax credit scams are big news in the U.K. right now. An Irish actress, Aoife Madden, yesterday received a 54-month sentence in her role in scamming a U.K. film tax credit scheme. Irish Times reports:
The group successfully claimed £1.5 million in film tax breaks after they said they intended to make a film titled Landscape of Lives with a £19 million budget, funded by Jordanian backers.
Once they were arrested two years ago, the five hurriedly produced a film called, ironically, Landscape of Lies for just £90,000, which went on to win a Silver Ace award from last year’s Las Vegas Film Festival.
The film, which starred former EastEnders actor Marc Bannerman and Andrea McClean, told the story of a former British soldier’s attempts to discover the truth behind his friend’s murder in an apparent mugging.
Before suspicions had been aroused, Madden’s London film company, Evolved Pictures, told revenue and customs that millions had been spent on Hollywood A-list actors and film crew when it lodged a value added tax repayment application for £1.48 million. It received more than £1 million.
Lost in the coverage is Iowa’s pioneering role in film tax credit scams. A little-known film producer from Minnesota came here and showed the Brits just how it’s done:
Take Iowa. A start-up called Polynation Pictures came looking for backing for a sci-fi flick so lame it would have embarrassed Ed Wood. With a financing scheme worthy of Max Bialystock, the con these folks pulled was nearly as inept as the film they made, but Iowa’s film office was too starry eyed to notice.
…
The $767,250 production Polynation Pictures proposed eventually came in at $3.7 million. This was achieved in part with preposterous expenses. Producers claimed they paid $1,350 to rent six orange road cones. The use of two 6-foot ladders supposedly cost the company $900 (a bargain, as Polynation claimed to have spent another $900 to rent a single 8-foot ladder). Among production necessities was a new Mercedes. The partners set up an array of separate companies and used them to bill themselves extravagantly for work supposedly done on the picture. These were presented to Iowa as “deferred payments”—to be paid if the movie made money (which the enterprise was sure to do when Iowa handed the tax credits over). The only thing missing was a staged rendition of “Springtime for Hitler.”
Polynation mastermind Wendy Weiner Runge received 10 years for her star turn in the film credit program.
The film credit program was touted as a way to make Iowa a leader in the film world. And, in a way, it did.
You might be interested in this interview with Ms. Madden about her role in the film, knowing what we know now. She said this:
This project has been a crazy but wonderful challenge!! I’ve always wanted to produce a feature, and have a number of projects in development, but this was the one I just wanted to lift off the page. I think the biggest challenge was sourcing finance, which is no surprise for an independent film company. We were extremely lucky to find international investors and lobby them to back the project, but this was a lengthy process and has always been a challenge.
A challenge, yes, but I’m not sure they turned out lucky.
Snatching defeat from the jaws of victory. Now that the courts have saved the IRS from itself by shutting down the misguided preparer regulation system, the Senate rides to the rescue to screw everything up again, Accounting Today reports:
The two leaders of the Senate Finance Committee, Chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, have begun developing proposals for reforming the U.S. Tax Code, including giving the Internal Revenue Service the clear statutory authority to regulate tax preparers in case the IRS loses its appeal of a recent court case invalidating its Registered Tax Return Preparer regime.
The IRS can’t answer its phones. Its pockets are being picked to the tune of billions by semi-literate South Florida grifters. And the Senate thinks that preparers are the problem? Preparer regulation is a market-share enhancement program for the national franchise tax prep outfits; the rules were written by a former H&R Block CEO. If Senators Baucus and Hatch want to re-enact these anti-competitive and useless rules, it just shows who they really represent. (Via Going Concern).
Howard Gleckman, Congress Has Not Passed A 2014 Budget, and Probably Won’t (TaxVox). Why do that, when Henry and Robert have other chores for them?
Joseph Henchman, Senate Votes on Tax Proposals, Including State Taxation of Internet Commerce. (Tax Policy Blog) Amazon taxes seem inevitable. Otherwise Wal-Mart can’t compete with a guy selling things from his basement on the Internet.
Brian Strahle, The Marketplace Fairness Act: Is It Really Fair?
Kay Bell, Online sales tax a step closer with Senate budget amendment
Thanks, you’ve helped enough already. A New Proposal to Promote American Manufacturing (Martin Sullivan, Tax.com).
Jack Townsend, Supreme Court Will Decide Whether B____t Tax Shelters with Basis Overstatements Draw the 40% Penalty
Tony Nitti, What Are Your Odds Of Being Audited By The IRS?
TaxGrrrl, Taxes From A To Z (2013): N Is For Notice Of Deficiency
Missouri Tax Guy, Social Security Benefits, are they taxable?
Patrick Temple-West, Proposals to tax trades spark financial firm lobbying, and more (Tax Break)
Peter Reilly, Has Scalia Already Thrown In The Towel On Same Sex Marriage ?
Dan Meyer, “Where No Tax Rate Has Gone Before…”
Trish McIntire, That Reminder – 2013. “Your Failure to Plan Is Not My Emergency!” The tax preparer April battle cry.
Tags: Anthony Nitti, Brian Strahle, Dan Meyer, film credits, Going Concern, harold hill, Howard Gleckman, Jack Townsend, Joseph Henchman, Kay Bell, Martin Sullivan, Max Baucus, Missouri Tax Guy, Orrin Hatch, Patrick Temple-West, Peter Reily, preparer regulation, tax crime, TaxGrrrl, Trish McIntire
Posted in Tax Roundup | 1 Comment »
Monday, March 25th, 2013 by Joe Kristan
Ceremonial cross of John Frum cargo cult, Tanna island, New Hebrides (now Vanuatu), 1967 (via Wikipedia)
Heresies of the Cargo Cult. When some remote societies encountered the industrial world in World War II, they had trouble grasping what they were seeing. Wikipedia explains:
Cargo cult activity in the Pacific region increased significantly during and immediately after World War II, when the residents of these regions observed the Japanese and American combatants bringing in large amounts of matériel. When the war ended, the military bases closed and the flow of goods and materials ceased. In an attempt to attract further deliveries of goods, followers of the cults engaged in ritualistic practices such as building crude imitation landing strips, aircraft and faux radio equipment out of bamboo or whatever materials they had at hand, and mimicking the behavior that they had observed of the military personnel operating there.
While it’s easy to mock an islander for building a refrigerator-like box in hopes of conjuring up an icy six-pack, cargo cult behavior also occurs in modern societies. Without describing it as such, tax historian Joseph Thorndike writes about the cargo cult of the 1950s, where modern policy wonks try to conjure up 1950s-style growth through a ritualistic process of duplicating tailfin-era totems. For example, Timothy Noah thinks the crushing stated top marginal rates of that era might help generate those Happy Days results. Mr. Thorndike sees problems with that approach:
We still don’t know if high statutory rates and (relatively) high average rates were a drag on growth. And we can’t know, because we also can’t know what growth might have been in a different tax climate.
Moreover, a range of nontax factors were probably more important in shaping growth patterns in the 1950s. In particular, the economic disruptions of World War II had left the United States in a uniquely dominant position; by one estimate, U.S. manufacturing output constituted 60 percent of the world’s total in 1950.
In other words, it takes more than a bamboo box to conjure up that beer.
After all, the tax system of the Eisenhower era was not a very good one: It paired notionally sky-high rates with a deeply flawed tax base and created distortions both coming and going.
I understand that progressives like Noah are fighting a different battle: They are trying to beat back the rate-cutting mania that often serves as a definition of tax reform these days. But I think we might take a lesson from the tax experts of the 1950s, who understood the problems bedeviling their own tax system. As economist Harold Groves said at the time, “The impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that makes these rates specious.”
Mr. Thorndike is more sympathetic to high rates than I ever will be. Doing taxes for a living, I see first-hand how high rates affect behavior, and I have no patience for academics who say otherwise. But he wisely notes that simply trying to recreate the totems of the 1950s, like high tax rates, misses all of the other things that put cold beer in the refrigerator. Same thing goes for other 1950s fetishes like tail fins, industrial unionism and defined benefit pension plans.
To serve and protect. Former Pittsburgh Police Chief Charged with Conspiracy, Failure to File Federal Tax Returns (FBI Press Release):
Former Pittsburgh Police Chief Nathan E. Harper has been indicted by a federal grand jury in Pittsburgh on charges of conspiracy and willful failure to file income tax returns, U.S. Attorney David J. Hickton announced today.
The five-count indictment named Harper, 60, of Pittsburgh.
According to the indictment, Harper was the chief of the city of Pittsburgh Police Department. From 2009 to 2012, he caused at least $70,628.92 in checks and cash received by the special events office of the department to be diverted to two accounts at the Greater Pittsburgh Police Federal Credit Union. Using Visa debit cards, Harper obtained more than $31,000 in ATM withdrawals and debit purchases, all for his personal benefit. Harper also failed to file federal tax returns for the years 2008 through 2011.
If he’s convicted, maybe the special events office can throw a little party for the occasion.
What could possibly go wrong? James Timothy Turner was convicted last week of masterminding a cunning plan. DothanEagle.com reports:
According to a U.S. Department of Justice press release, Turner was convicted of conspiracy to defraud the U.S., attempting to pay taxes with fictitious financial instruments, attempting to obstruct and impede the Internal Revenue Service, failing to file a 2009 federal income tax return and falsely testifying under oath in a bankruptcy proceeding.
The FBI began investigating Turner in 2010 after he and three other people sent packages to all 50 governors demanding they leave office.
Turner is the president of a group of what prosecutors called “sovereign citizens” known as the “Republic for the united States of America.”
Send “packages” to all of the governors telling them to resign? Well, at least they weren’t trying to hide what they were doing.
Turner toured the country in 2008 and 2009 teaching seminars that instructed attendees how to submit bonds to pay off tax debt.
According to prosecutors, these bonds were completely fictitious and often written for amounts in excess of $1 billion.
Silly man. Only the Federal Reserve can do that. Unless we’re talking about the $1 trillion magic coin…
Every theater needs a dirctor, including economic development theater. Economic development director accuses senator of engaging in “political theater” over Orascom deal (O. Kay Henderson, via TheBeanwalker)
William Perez, Penalty Relief Available for Some 2012 Federal Tax Returns
Jack Townsend, Ethicist Question About Tax Professionals Exploiting Loopholes:
So, for those tax professionals engaging in such transactions that they know violated a known legal duty, their conduct is illegal and unethical. For those transactions engaging in such transactions where they don’t know (perhaps are willfully ignorant) that the conduct is illegal (ultimately most of the b—-t tax shelters are found to be
illegal), then at least the ethical issues arise. These are smart professionals, paid (supposedly) to predict what a court will do with the b—–t tax shelter. Yet, in the prominent civil cases that swat down b—–t tax shelters, they fail miserably in their predictions.
Kay Bell, A tax lawyer has ethical problems with tax loopholes
Janet Novack, How Much Tax Will You Owe On A $320 Million Powerball Jackpot? A Lot More Than In 2012 . I knew I should have arranged to win that Powerball last year.
Jim Maule, Tax Meets the Chicken and the Egg
Trish McIntire, Extensions
Patrick Temple-West, Athletes’ tough tax bills, and more
TaxGrrrl, Senate Passes Budget, Calls For Nearly $1 Trillion In Tax Increases
You are required to go to the party. The Affordable Care Act Turns 3 (Richard Morrison, TaxVox).
The Critical Question: Who Will Play Margaret Fuller When The Movie Comes Out ? (Peter Reilly)
Tony Nitti, IRS Employees’ Star Trek Parody Is As Wonderfully Awful As It Sounds
Russ Fox, To Boldly Go Where No IRS Employee Has Gone Before…
You mean it’s not a documentary? IRS Releases Gilligan’s Island Parody Training Video (TaxProf).
Frankly, they don’t give a dam. Beavers defiant after convicted of tax evasion (Chicago Tribune)
Tags: Anthony Nitti, Beavers, cargo cult, Jack Townsend, Janet Novack, Joseph Thorndike, Kay Bell, maule, O Kay Henderson, Patrick Temple-West, Peter Reilly, Richard Morrison, Russ Fox, soverign citizens, tax crime, tax protesters, TaxGrrrl, TaxProf, Timothy Noah, Trish McIntire, William Perez
Posted in Tax Roundup | No Comments »
Friday, March 22nd, 2013 by Joe Kristan
IRS waives late payment penalties for returns containing delayed forms. If you can’t file or pay taxes on time, it’s always better to extend your return while you round up the information or the cash. The penalty for filing a late unextended return is 5%, plus an additional 5% for every additional month of late filing. The penalty for paying late on a timely extended return, in contrast, is only 1/2%, plus 1/2% per additional month.
While penalties will be waived, the IRS will charge interest on amounts paid after the deadline.
The notice has a complete list of forms that allow taxpayers to qualify for the late payment exception. The most commonly-seen ones are probably Form 4562, for depreciable assets and the section 179 deduction, and Form 8582 for passive activities.
By issuing this notice early, the IRS has also given taxpayers a planning opportunity. If you have a big balance due on April 15, and you have one of the qualifying forms, you now are eligible for what amounts to a low-interest loan for up to six months, until the October 15 extension deadline. Many taxpayers accelerated income into 2012 to beat the 2013 tax hikes, and they loan might come in handy. The current IRS interest rates:
- three (3) percent for underpayments;
- five (5) percent for large corporate underpayments
But if you have the cash, you probably want to pay up on April 15. There aren’t many places left where you can get a 3% after-tax return on your money for six months.
In a just world, they could sue Congress and the IRS. TurboTax, other Intuit products, now OK to use in Minnesota; H&R Block facing lawsuits over filing snafu, refund delays (Kay Bell)
The tax law is still broken, though. Minnesota Revenue Department Announces TurboTax Problems Have Been Fixed (William Perez)
William McBride, UK Dropping Corporate Rate to 20 Percent, Half the US Rate (Tax Policy Blog). It makes a difference.
Peter Reilly, International Flight Attendant Does Not Score As Well As Sergio Garcia In Tax Court
Ben Harris, Automatic Retirement Saving Inches Forward (TaxVox)
Roger McEowen, Another Development In The Tax Implications of Insurance Company Demutualization
Janet Novack, New Study Using IRS Tax Data Shows Rich Are Staying Richer, Poor Poorer
Jim Maule, So How Does This Tax Plan Add Up?
Howard Gleckman, Why the Tax Cuts in the Senate Budget Don’t Add up (TaxVox)
David Cay Johnston, Level Playing Fields Under Attack. (Tax.com). Because we don’t want Wal-Mart to be at the mercy of some guy selling stuff from his basement.
Patrick Temple-West, Senate votes on tax hikes in budget, and more (Tax Break)
TaxGrrrl, You Are Not Alone: R. Kelly Joins Taxpayers Who Have Lost Homes Due To Foreclosure. I’m sure that makes other foreclosed folks feel better.
The road not taken. I left a national accounting firm to start a new firm. A (purported) alumna of the same firm took a somewhat different path. (Going Concern)
Guilty. Dam Guilty. Beavers Convicted: Loans Require Payback (Russ Fox).
Tags: Ben Harris, David Cay Johnston, extensions, Form 4868, Going Concern, Howard Gleckman, Janat Novack, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Roger McEowen, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Thursday, March 21st, 2013 by Joe Kristan
Most people would say that making low-income taxpayers pay a higher tax rate on each additional dollar they earn would be a funny way of “helping” the poor. Yet that’s just the approach of a bill passed yesterday by the Iowa Senate to raise Iowa’s earned income tax credit (SF 422). The bill would raise the Iowa earned income credit from current 7% of the federal credit to 20%.
The credit phases out as income increases; that means taxpayers who receive the credit have a high hidden tax rate on additional income — their regular tax rate, plus the lost earned income credit. That gives them higher tax rates than the highest earners on each additional dollar of income. Here is a new chart showing the marginal tax rates on an EIC recipient with three children as income rises under SF 422:
The marginal Iowa tax rate on EIC recipients would be around 10%. That compares with an effective rate of just over 6%, counting the deduction for federal taxes, for Iowa’s highest earners. Combined with the federal effective phase-out rate, the EIC earners face marginal rates over 50%. That makes the EIC a poverty trap.
The EIC is a “refundable” credit — which means that if you don’t have enough tax to use the credit, the government writes you a check for the difference. That makes it a welfare program, not a tax cut. Yet the press often gets this wrong:
Omaha.com: Iowa Senate OKs tax cuts for low-income families
KCRG.com: Iowa Senate Approves Tax Break for Low-income Families
Spending is still spending, even when it’s run through a tax return. This spending, though, is likely to get no further; even if the House passes this – very unlikely – the Governor vetoed a similar bill last session.
Cara Griffith, A Culture of Mistrust (Tax.com):
I recently spoke at a conference about transparency in state tax administration. Among other issues that were discussed, I suggested that there is a culture of mistrust between taxpayers and practitioners and state tax officials. When I suggested that the feeling was one of “us” vs. “them,” heads began to nod and many mouthed a silent yes. It
confirmed what I already knew: the culture of mistrust between taxpayers and state tax officials is very real.
…
But state tax authorities seem to perpetuate the culture of mistrust, in part because they have a tendency to play “hide the ball.” That is, they don’t let taxpayers in on the rules by which they are expected to play. The reason is that state taxing officials have a significant amount of discretion to adjust taxpayer incomes yet they don’t provide aroadmap for how and when that discretion will be used.
So true.
In other news:
Me: Taxpayer gets basis of 60% of IPO price in demutualized shares in Arizona case. Taxpayers don’t win it all, but still a defeat for the IRS.
Russ Fox, When a W-2G (or Other Information Return) Is Wrong. It happens.
Kay Bell, Tax penalty relief for some who file for an extension
TaxGrrrl, Taxes From A To Z (2013): K Is For Kidnapped Children
Donald Marron, TPC’s Upcoming Leadership Change (TaxVox)
Ellen Kant, U.S. Corporate Tax Rate Fails to Move with Competition (Tax Policy Blog)
Patrick Temple-West, Tax reform spurs bipartisan lobbying, and more
William Perez, Senate to Begin Tax Reform Hearings
Jack Townsend, Acquittal in Pflueger Involving Offshore Accounts.
David Brunori, Everybody Loves a Drone (Tax.com)
News you can use: Internal Controls Are of the Devil (Or: Why Stealing from the Catholic Church Is So Easy) (Going Concern)
Tags: Cara Griffith, Donald Marron., Earned Income Tax Credit, Going Concern, iowa tax policy, Jack Townsend, Kay Bell, Patrick Temple-West, Russ Fox, TaxGrrrl, William Perez
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Wednesday, March 20th, 2013 by Joe Kristan
Iowa cracking down on RV tax scofflows? Southwestiowanews.com reports:
Iowa lawmakers are putting the brakes on those who avoid paying registration fees when buying expensive vehicles.
Under a bill recently approved by the Senate, tax evaders using so-called out-of-state shell corporations to avoid paying registration fees on RVs or other luxury vehicles will face criminal charges and penalties.
Going to jail to save a few bucks on your vehicle registration seems like a bad bet.
More fertilizer! TheGazette.com reports Iowa, Illinois may have bidding war to land new fertilizer plant:
The (Decatur) Herald & Review reports that, according to Illinois officials, Iowa is offering Cronus Chemical LLC an estimated $35 million in taxpayer subsidies to build a plant in Mitchell County near the Minnesota border.
Illinois lawmakers are considering tax breaks in a proposal by state Rep. Adam Brown, a Republican from Champaign. The plant would be built near Tuscola in the east central part of the state.
Hey, Iowa Economic Development people: Illinois is broke. Busted. Played out. They’re not bidding. We don’t need to be bribing fertilizer plants to come here. Instead give us a tax system that’s not so awful that we have to pay people to like us.
Jason Dinesen, Why Would Any Enrolled Agent Support the RTRP Program? :
It baffles me that the National Association of Enrolled Agents is so in love with the RTRP program.
In their weekly newsletter to EAs last week, NAEA bizarrely referred to the unlicensed preparers who brought suit against the IRS over the RTRP program as people who want “the right to remain incompetent.”
NAEA also kissed the government’s butt by praising the “serious and vigorous” IRS attorneys who are appealing the court ruling that struck down the RTRP program. The flowery kissing-up continued as NAEA went on to opine that the government “delivered its A-game” in the appeal.
I have never seen anything good for enrolled agents in the IRS preparer regulations. Enrolled Agents have been around a long time, and they have to meet much higher standards than the RTRPs would. Yet the EA designation is not well understood by the public, and having the IRS officially sanction a lesser credential will probably make it even harder for EAs to get their story out.
William McBride, Tax Policy Center Espouses Minority View on Capital Income Taxes (Tax Policy Blog):
The preponderance of evidence points to corporate taxes being the most harmful to economic growth, followed by personal income taxes, consumption taxes, and property taxes. Notice a pattern? The corporate tax is the largest tax on capital income in most countries, while the personal income tax is the largest tax on labor although it also taxes
capital.
He’s referring to this post we linked on Monday.
Jeremy Scott, Paul Ryan Borrows a Page From Obama’s Playbook (Tax.com): “ Much like Obama, Ryan keeps releasing the same budget every year, knowing full well that it has no chance of becoming law.”
Howard Gleckman, What the Tax Policy Center Really Said About the Ryan Budget (TaxVox). “To the Democrats who so enthusiastically embraced our analysis, thank you for your support. However, we did not say what you wish we had said.”
Jana Luttenegger, Does the IRS Have Your 2009 Refund? (Davis Brown Tax Law Blog)
Kay Bell, 13-plus ways to cut your taxes without itemizing
Paul Neiffer, Don’t Forget Farm Income Averaging. Another break for farmers that nobody else gets.
Jim Maule, The Aggravation of Tax Paperwork
Peter Reilly, Only Modest Valuation Discounts Allowed On Estate Artwork
TaxGrrrl, States, Local Governments Consider Aggressive Tax Collection Efforts To Plug Budget Holes
Joseph Thorndike, It’s Not Too Late for a War Tax (Tax.com)
The Ellen DeGeneres constituency. I thought it funny to see Peter Reilly’s Ellen DeGeneres Speaks Out For Spanish-American War Widowers . But it’s not as far-fetched as I thought. From today’s Des Moines Register:
There are 10 living recipients of benefits tied to the 1898 Spanish-American War at a total cost of about $50,000 per year.
The Civil War payments are going to two children of veterans — one in North Carolina and one in Tennessee — each for $876 per year.
Remember the Maine!
Tags: corporate welfare, economic development, Howard Gleckman, Jana Luttenegger, Jason Dinesen, Jeremy Scott, Joseph Thorndike, Kay Bell, maule, Paul Neiffer, Peter Reilly, TaxGrrrl, William McBride
Posted in Tax Roundup | 2 Comments »
Friday, March 15th, 2013 by Joe Kristan
Calendar-year corporation returns are due today! They are easy to extend on Form 7004 if you can’t finish them today. If you don’t extend an S corporation return and you file late, the penalty starts at $195 for each late K-1, and $195 each for every additional month the return is late.
If Iowa’s tax law were a car, it would look like this.
Joseph Henchman, Iowa House Passes Alternative Maximum Tax: Income Tax Option Clear of Carveouts (Tax Policy Blog). Joseph has some good things to say about the Iowa alternative tax that passed the house this week (HF 478):
I’ve never filled out an Iowa income tax form but it looks like one of the harder state tax returns. Iowa allows you to deduct what you pay in federal income tax, which is nice but is that much more calculation work (and probably drives up tax rates). There are lines for the lump-sum tax, the minimum tax, the K-12 textbook credit, the school district surtax, the motor fuel tax credit, and the earned income tax credit. I’m sure each one of these has their explanations of necessity but together it sounds like a lot of paperwork, record-keeping, and Tax Filing Day frustration.
…
Hence, I’m impressed by a bill passed yesterday (House File 478) by the Iowa House which would offer an alternative to all Iowa taxpayers: a 4.5 percent tax on all income above about $15,000, which no further deductions or exemptions. It’s not perfect: our friend Joe Kristan pointed out that a credit for taxes paid to another state and a deduction for federal interest are probably constitutionally required, and offsetting deductions to certain kinds of income (allowing gambling losses if you tax gambling winnings) is good policy. But as Joe said, the bill “is a welcome step towards improving Iowa’s income tax.”
I’m hoping it’s a step towards the Tax Update Quick and Dirty Iowa Tax Reform Plan.
It’s a myth, so they’re cracking down on it!
Huffington Post, The Millionaire Migration Myth: Don’t Fall for This Anti-Tax Scare Tactic.
Bloomberg News, States Crack Down on Top Earners Who Flee as Levies Rise: Taxes
If they feel have to “crack down” on something, maybe there’s something to that myth.
The Ultimate Swiss Army Knife. Flickr Image courtesy redjar under Creative Commons license.
Janet Novack, Blame Congress, As Well As H&R Block And IRS, For College Tax Credit Mess. Oh, I do! From the article:
Far be it from me to let either the Internal Revenue Service or tax prep giant H&R Block off the hook for the current mess which has delayed refunds for more than 600,000 taxpayers claiming college tax credits by up to eight weeks. In addition to their operational missteps, both did a poor job (at least initially) of communicating with taxpayers who desperately need those refunds to pay tuition or other bills.
But let’s put some of the blame where it rightly belongs: on the Washington politicians. For more than two decades, Congress has been expanding “tax expenditures” with little regard for how complicated such provisions might be for taxpayers to use and for the IRS to administer, let alone for whether they do enough good to justify their cost and the economic distortions they create. A new 1065-page Congressional Research Service compendium lists 250 different tax expenditures. Happy reading.
Every little break like this diverts IRS resources from actually collecting income taxes and makes the income tax a little less effective and useful. Yet Congress still sees the tax law as the Swiss Army Knife of public policy.
Jim Maule, Tax Depreciation: Do the Math:
No matter how well a student in the basic tax course masters the depreciation deduction to the extent it is studied, that student knows that the total depreciation with respect to a property cannot exceed its cost. All of the students would find themselves bewildered by the proposition that depreciation deductions on a property that cost $34,799 would total $56,000.
So was the Tax Court.
Tony Nitti, Golfer Sergio Garcia Comes Up Short In Tax Court, But Is The Decision A Victory For Other Athletes? He won on his endorsement royalty income, so while he may not have had an undisputed win, he did OK, like a PGA golfer who gets second-place prize money.
William Perez, Delays in Issuing Tax Refunds Related to Education Tax Credits
Going Concern, IRS Won’t Be Sorry If You Never Get Around to Claiming Your Refund. Over $900 million in 2009 refunds will be out of reach of their rightful recipients after April 15, when the 3-year window for claiming them expires.
Trish McIntire, Don’t Lose Your 2009 Refund
Paul Neiffer, Will Large Farmers Be Able to Use Cash Method in the Future?! Farmers should get the same tax rules and breaks everyone else does, no less and no more.
Kay Bell, Will a relationship neutral tax code save traditional marriage?. Not every problem is a tax problem.
Howard Gleckman, The Ideological Chasm Between the House and Senate Budgets
William McBride, Dave Camp Floats a Rewrite of Small Business Tax Rules (Tax Policy Blog)
Jack Townsend, U.S. Taxpayer Pleads to FBAR and Tax Perjury Violation
Brian Mahany, IRS Agent May Be Headed To Prison For Info Leak – Whistleblower Protection
Brian Strahle, State Tax Revenues: Corporate Income Tax Not That Important?
Oh, Goody. Applying for Obamacare Subsidies Will Be as Complicated as Doing Your Taxes (Megan McArdle)
Argo pay your taxes. It turns out Iowa isn’t the only government whose film tax credits attract scammers. From London comes this via Boston.com:
In some ways ‘‘A Landscape of Lies’’ was a typical indie film, with a tiny budget, a B-list cast and an award from an American film festival.
What made it special is that it was created solely to cover up a huge tax fraud.
…
In fact, officials say, the project was a sham, set up to claim almost 1.5 million pounds in goods and services tax for work that had not been done, as well as 1.3 million pounds under a government program that allows filmmakers to claim back up to 25 percent of their expenditure as tax relief.
No word on whether Leo Bloom prepared the fraudulent returns.
News you can use: Polish Up Your Guccis. (Christopher Bergin, Tax.com).
Will there be tax reform? I think there has to be. But I don’t think it will look like theTax Reform Act of 1986 because, in short, it’s not 1986, and we don’t have the same problems or even the same tax system. That doesn’t mean there aren’t a lot of lessons to be learned from the ’86 experience. But I don’t think tax reform will happen soon. And a few of the reasons I think that come right out of “Gucci Gulch.”
I have a copy of Showdown at Gucci Gulch, the book about how the 1986 tax reforms were enacted. I haven’t brought myself to open it; it seems too much like reading about my job.
TaxGrrrl, Arrest of Dancing Mascot Puts Liberty Tax Wavers In The Spotlight
He should have hidden the cash across the pond. Opening statements underway in Beavers tax evasion trial (WGNtv.com)
Tags: Anthony Nitti, Beavers, Brian Mahany, Brian Strahle, Christopher Bergin, film tax credits, Going Concern, Howard Gleckman, iowa tax policy, Jack Townsend, Janet Novack, Joseph Henchman, Kay Bell, maule, megan mcardle, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, TaxGrrrl, Trish McIntire, William McBride, William Perez
Posted in Uncategorized | 1 Comment »
Thursday, March 14th, 2013 by Joe Kristan
The Iowa House of Representatives approved an Alternative Maximum Tax yesterday. It won’t get anywhere in the Iowa Senate. But that’s probably not the point.
The 4.5% tax on AGI, with no credits and no deduction for federal income taxes, would be an alternative to the current multi-rate, high-loophole system. Taxpayers could choose which way to file.
Of course, taxpayers would compute their taxes both ways and pay the lower amount — making it an Alternative Maximum Tax. With the Alternative Minimum Tax, taxpayers compute their tax two ways and pay the higher amount. It would add one more complication to an already complex system. And, as I have noted, AGI is a flawed measure of taxable income.
The bill has just about no chance in the Iowa Senate, absent some incriminating photos of Democratic senators falling into Republican hands. Bill opponents made dreary but predictable soak-the-rich arguments against the bill:
Democrats, however, criticized the bill for affecting just a fraction of Iowa taxpayers or for providing far more benefits to high-income earners.
Citing the Department of Revenue data, they noted about 5,000 income earners making more than $500,000 stand to save as much from the flat tax – around $90 million – as the 326,000 earners making less than $90,000 a year.
They aren’t saying that the lower earners don’t benefit. They are just saying that the high earners benefit too much. Of course, it means the high income earners pay a lot more tax than the lower earners right now. It’s a silly argument — even sillier if you consider that state taxes are an awful tool for income redistribution. My analysis indicates the bill would benefit most filers, not just the “rich.”
I don’t believe the Alt Max Tax was seriously intended to become law. I think it was designed to try to keep the cause of income tax reform alive in a year that the Governor has no interest in it. It may also be a trial balloon to see if a proposal that lacks federal tax deductibility would draw fatal fire from the powerful lobbying group Iowans for Tax Relief. So far, no. While the bill (formerly HF 3, now HF 478) is flawed, maybe it advances the debate. Maybe next year, they’ll take up something like The Quick and Dirty Iowa Tax Reform Plan.
IRS extends certification rule, making Work Opportunity Credits available for all of 2012. Congress retroactively extended the Work Opportunity Credit to 2012 at the beginning of 2013. Unfortunately, one of the qualifications for taking the credit is to certify that an employee qualifies for the credit within 28 days of hiring. That made the credit useless for most of 2012.
The IRS has now given employers until April 29, 2013 to file the necessary paperwork with the local Job Service offices. Notice 2013-14 has the details. Accounting Today has more.
If they can’t keep their own in line, how well would they do at regulating preparers? Jury convicts former IRS worker of tax fraud (philly.com)
Andrew Lundeen, Deficits Per Person Expected to Fall, Then Rise over Budget Window (Tax Policy Blog). With charts:
Cara Griffith, Will Tax Free Shopping Be a Way of the Past in Oregon? (Tax.com)
TaxGrrrl, Ask the taxgirl: Paying For Kindergarten
Phil Hodgen, Apartment security deposits and Form 8938. Is a security deposit a foreign financial asset?
Jack Townsend, Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance
Patrick Temple-West, Senate Democrats propose new taxes, and more (Tax Break)
Paul Neiffer, When Congress Says “Simplified” Watch Out!. “WARNING – THIS IS MY LONGEST POST EVER”
Kay Bell, Cap tax deductions, says former Reagan economic adviser
Daniel Shaviro, Corporate tax reform?
It was the profanity. One of them said “dam.” Judge puts gag order on attorneys in Beavers case (Chicago Tribune)
Tony Nitti, District Court Rules That TurboTax Can Continue Making Fun Of H&R Block In Its Commercials (Again)
Going Concern, A CPA’s Guide to a Successful Observance of St. Patrick’s Day. I prefer to observe it from a safe distance.
When you are running a big criminal tax conspiracy, never hit “reply all”. From Bloomberg News:
Everybody knows the danger of sending things inadvertently in an e-mail. Beda Singenberger’s case shows you also have to be pretty careful when you mail things the old-fashioned way.
Over an 11-year period, federal prosecutors charge, Swiss financial adviser Singenberger helped 60 people in the U.S. hide $184 million in secret offshore accounts bearing colorful names like Real Cool Investments Ltd. and Wanderlust Foundation.
Then, according to a prosecutor, Singenberger inadvertently mailed a list of his U.S. clients, including their names and incriminating details, which somehow wound up in the hands of federal authorities.
Via the TaxProf.
Corporate returns are due tomorrow. That means you have to queue up your extension or balance due payments on EFTPS today!
Tags: Andrew Lundeen, Anthony Nitti, Cara Griffith, Daniel Shaviro, Going Concern, HF 478, HF3, iowa tax policy, Jack Townsend, Kay Bell, Patrick Temple-West, Paul Neiffer, Phil Hodgen, Quick and Dirty Iowa Tax Reform Plan, tax crime, TaxGrrrl, TaxProf
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | 1 Comment »
Wednesday, March 13th, 2013 by Joe Kristan
I will fight for the right to tax you to subsidize other people. Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant. Radio Iowa reports:
“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”
Never mind the high possibility that the plant would have been built without our tax money. Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders. Never mind that political allocations of investment capital are always and everywhere unwise. Forget the lost opportunities for taxpayers to spend the money on their own projects. Jobs!
The Governor also hinted at darker forces opposing the tax credits, reports KCCI.com:
And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.
So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers. Who knew?
The EITC is a refundable credit, which means the tax man writes checks to folks with no taxes. Naturally EITC fraud is rampant.
TaxGrrrl, Hundreds Of Thousands Of Taxpayers Thought To Be Impacted By Education Credit Snafu
IRS agent pleads guilty to charges resulting form selling out a whistleblower. Jack Townsend has the scoop.
Kay Bell, 2013 tax filing season gets crazier for some H&R Block, TurboTax customers
Jason Dinesen, Small Business Health Insurance Credit, Part 2
Elizabeth Malm, Texas Considering Drastic Modifications to Margin Tax (Tax Policy Blog). Good.
Patrick Temple-West, Yankees embrace frugality to dodge tax, and more. Who says taxes don’t influence behavior?
Jeremy Scott, Carl Levin Changed the Face of Tax Enforcement (Tax.com)
Howard Gleckman, Taxes and Paul Ryan’s Budget (TaxVox)
William Gale, A Carbon Tax is a Win-Win for the Economy and the Environment (TaxVox)
David Brunori, Things to Read, Sites to Visit. (Tax.com). He shares some online resources, but tragically fails to mention the Tax Update.
Peter Reilly, No Fans Of Sister Wives At The IRS ? As far as I’m concerned, the possibility of consolidated individual returns should be all the argument needed against polygamy.
The Critical Question: Why Is My Refund Short? (Trish McIntire)
News you can use. Note to Drivers: All Wheel Drive Does Not Give You Superpowers, Just a Dangerous Overconfidence (Megan McArdle).
So you think you’re having a bad busy season? It could be worse: Upstanding San Leandro Accountant Finds Himself on Oakland’s Most Wanted List. Going Concern has the news of law enforcement gone awry.
Tags: Branstad tax policy, corporate welfare, David Brunori, Earned Income Tax Credit, economic development, Elizabeth Malm, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Jeremy Scott, Joe Bolkcom, Kay Bell, megan mcardle, Patrick Temple-West, Peter Reilly, TaxGrrrl, The Critical Question, Trish McIntire, William Gale
Posted in Eye on the Legislature, Eye on the Legislature 2013, Uncategorized | 1 Comment »
Tuesday, March 12th, 2013 by Joe Kristan
It just doesn’t work. The “Tax Honesty Movement” got excited a few years back when Louisiana attorney Tom Cryer was acquitted on criminal tax charges. For example:
The Internal Revenue Service has lost a lawyer’s challenge in front of a jury to prove a constitutional foundation for the nation’s income tax, and the victorious attorney now is setting his sights higher.
“I think now people are beginning to realize that this has got to be the largest fraud, backed up by intimidation and extortion and by the sheer force of taking peoples property and hard-earned money without any lawful authorization whatsoever,” lawyer Tom Cryer told WND just days after a jury in Louisiana acquitted him of two criminal tax counts.
There’s just one problem with the idea that this struck a death blow to the income tax: he still owes the taxes. Even though he’s dead. Being aquitted in a criminal tax case doesn’t make it legal to not pay taxes any more than the O.J. Simpson acquittal legalized multiple homicides in Brentwood.
The Tax Court yesterday ruled that Mr. Cryer owes taxes, interest and civil fraud penalties for tax years for which he didn’t file income tax returns. From the Tax Court:
In essence, Mr. Cryer claimed that the income he received during the tax years at issue from certain “sources” was taxable under Louisiana law, but not under Federal law. In United States v. Clayton, 506 F.3d 405, 412 (5th Cir. 2007), the Court to which an appeal would lie in this case, cited and followed its prior unpublished opinion holding that “the argument that income derived from sources within the United States” is not taxable under Federal law is “patently frivolous” and “absurd”.
The moral: No matter how convincing they are on the Internet, “Tax Honesty” arguments don’t work. They will not keep the IRS from taxing you. When “winning” means staying out of jail but paying 75% civil fraud penalties, you set the bar for victory too low.
Cite: Cryer, T.C. Memo. 2013-69
Related: Daniel B. Evans, The Tax Protester FAQ
Prior Coverage: ‘NOT GUILTY’ DOESN’T MEAN ‘NOT TAXABLE’
Nick Kasprak, Weekly Map: State and Local Sales Tax Rates, 2013 (Tax Policy Blog)
Peter Reilly, Carried Interest Debate Heats Up Without Much Light . A reasonable outline of the issues involved in the so-called “loophole” for private equity:
If “carried interest” were really just a loophole it would not need such an elaborate fix. In fact, it is based on fundamental principles of partnership taxation.
I don’t think it’s a problem, so I don’t think it needs fixing. Related: New York Times Dealbook, Why Carried Interest Is a Capital Gain.
Tony Nitti, Contrarian Tax Planning: Increasing Income To Take Advantage Of The AMT
Missouri Tax Guy, Is that Gift Taxable?
Martin Sullivan, Showdown in Kansas: Realtors vs. Governor (Tax.com). Will Kansas eliminate the home mortgage deduction on its state returns?
Jeffrey M. Kadet, Tax And Territoriality: The Corporate 99% Versus The Law School 1%
William Perez, IRS Plans Spending Cuts Due to Sequestration. They can’t answer their phones, but they still want to regulate preparers.
Kay Bell, NYC soda ban overturned. Would a soda tax have been better? Maybe better, but still unwise.
TaxGrrrl, Former Detroit Mayor Found Guilty On Multiple Counts, Including Tax Charges. Poor Detroit.
Tax News from the Animal Kingdom.
Beavers’ tax-evasion trial to begin (WGNTV.com)
Former Bear Chris Zorich charged in tax case (WGNTV.com)
Fmr. Eagle Freddie Mitchell pleads guilty in tax scheme (6ABC.com)
Remember, Calendar 2012 1120 and 1120-S returns are due Friday!
Tags: Anthony Nitti, Jeffrey Kadet, Judge Goeke, Kay Bell, Martin Sullivan, Missouri Tax Guy, Nick Kasprak, Peter Reilly, tax court, tax protesters, TaxGrrrl, William Perez
Posted in Tax Roundup | No Comments »
Monday, March 11th, 2013 by Joe Kristan
The 1040 filing deadline is five weeks from today. The 1120 and 1120S deadline is this Friday. The penalty for filing an 1120-S late is $195 per shareholder, with the penalty repeated each additional month the return is late. Proceed accordingly.
A Des Moines tax lawyer lets us know what we are in for: Just a Little Bit More? Yeah Right. Get Ready to Pay More Taxes in 2013 (William Brown). He illustrates what will happen to one of his clients, “Fred,” when he pays his 2013 taxes:
Fred’s federal taxes have increased by 9% with no change in his earnings. If Fred does not increase his distributions from his business to pay these increased taxes, his disposable income will decrease by 19%. Might these increased taxes have no substantial impact on the prospects of his small business and its employees? Not a chance.
Read the whole thing. Related: Phil, we have altered the deal. Pray we don’t alter it further.
David Cay Johnston pushes for harsher accumulated earnings tax. As I predicted, we’re starting to see people pushing for enforcement of the Accumulated Earnings Tax to deal with the pretend problem of corporations “hoarding” cash. Mr Johnston takes the podium in an (unfortunately gated) article in Tax Notes:
American nonfinancial corporations held more than $2.2 trillion of cash and near cash offshore at the end of 2010 in current dollars, IRS and Federal Reserve data shows. And that is on top of the almost $1.7 trillion of liquid assets owned by firms and subsidiaries with U.S. addresses that we will see when the 2012 corporate income tax data becomes available in a few years. That global cash and near cash pile of almost $4 trillion came to $12,600 per American — well more than triple the $3,500 in per capita federal income tax revenues that year.
There is no possible business justification for that much cash. As Tax Court Judge David Laro wrote in Haffner’s Service Stations Inc. v. Commissioner, T.C. Memo. 2002-38 “a need to retain earnings must be directly connected with the needs of the corporation itself and must be for bona fide business purposes.”
No “possible” business justification for that much cash? It’s pretty easy to come up with potential justifications. If you are a corporation sitting on a lot of cash, you have a lot to think about. You have unusual opportunities, which you need to evaluate carefully. The imposition of the shareholder-level tax on earnings is certainly a factor. Does that mean I trust corporate management and boards? No. But I trust them a lot more than second-guessers at the IRS.
The Judge Laro cite that Mr. Johnston uses only restates the legal background of the accumulated earnings tax — not the economics of it.
If you want to really encourage corporations to free up their cash, end the double-taxation of corporate income by allowing full deductibility of dividend payments — with an excise withholding tax on non-profit and non-U.S. distributees to ensure the income is taxed once. That will give corporations a powerful incentive to distribute cash they aren’t using – one that will work a lot better than beefing up the IRS Second-Guess Division.
Update: Mr. Johnston e-mails:
I have written in favoring of restoring tax-free dividends for modest sums or encourage savings, partly because most Americans have little saved in the tax system and even though only one in four gets dividends directly: [$link Ed.]
And I called for a two-year test of dividend deductions in this column a few months later, arguing that dividends have the virtue of separating actual value-added managers from those who play accounting games since you need need cash to make dividend payouts. [gated links here and here. Ed.].
Unfortunately I don’t have links to free versions of the original articles.
Related: Garett Jones, Redistributing from Capitalists to Workers: An Impossibility Theorem, on why the economically-optimal rate of tax on capital is zero. (Econlog)
No more paper Internal Revenue Bulletins. The IRS has discontinued its old paper Internal Revenue Bulletin, where it published tax guidance. From Announcement 2013-12:
The IRB is available on IRS.gov before printed copies are available. Also, the majority of items (about two-thirds) that appear in the IRB are released with a News Release about a month ahead of when the item appears in the IRB. Since all items in the IRB are available electronically, almost a month in advance of being available in the printed IRB, we are eliminating the printing of paper copies of the IRB, which are distributed directly from the IRS. The cost savings to printing and postage would be $148,000 annually.
It makes sense. Another bit of my accumulated tax training goes the way of the Dodo.
Russ Fox, If You’re a Sole Proprietor, Get an EIN…Now!. Otherwise it’s too easy to get your identity stolen.
William Perez, Minnesota Revenue Department Finds “Unacceptable” Errors in TurboTax.
TaxGrrrl, IRS Explains Delays In Processing Some Returns Claiming Education Credits
Kay Bell, Federal workers owe $3.5 billion in back taxes; Expect renewal of legislative efforts to fire federally-employed tax debtors. Some people don’t buy the “better to give than to receive” thing.
Brian Mahany, IRS Begins Rejecting OVDI Filings – Important News For Fence Sitters
Jack Townsend, Bank Leumi U.S. Clients Rejected from OVDP
Robert Goulder: Taxation & Morality: Odd Bedfellows (Tax.com)
Peter Reilly, Render Unto Caesar – Mormon Tithe Not A Necessary Expense In IRS Collection Case
Patrick Temple-West, Tax haven hunter Levin to retire, and more
The Critical Question: Who Are Your Tax Policy Friends? (Jim Maule)
Going Concern, No, We Can’t Help You Pass the Ethics Exam. When I took it, it was mailed to successful CPA candidates to do at home and mail in. No wonder there are no ethical problems with our generation. Oh, wait…
Tags: Accumulated Earnings Tax, Brian Mahany, David Cay Johnston, Garett Jones, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Peter Reilly, Robert Goulder, Russ Fox, TaxGrrrl, The Critical Question, William Brown, William Perez
Posted in Tax Roundup | 1 Comment »
Friday, March 8th, 2013 by Joe Kristan
Illegal procedure. Former Chicago Bear Chris Zorich has been flagged. CBS Chicago reports:
Zorich, 43, was charged Thursday with four misdemeanor counts of failing to file federal income tax returns, for the years 2006 through 2009, according to the U.S. Attorney’s office. During that time, he allegedly had an income of more than $1 million.
Federal prosecutors said Zorich was cooperating with the investigation and has agreed to plead guilty.
His lawyer says that he owes no more than $70,000 after withholding on the non-filed years is applied.
I wonder why he was charged. While it’s a bad idea, it’s not extremely rare for people to just get behind on filing their returns. It doesn’t usually lead to criminal charges. Much of his income for the years at issue was W-2 income, so it wasn’t as though the IRS would miss him.
Perhaps he did something to annoy an examiner enough to call in the Criminal Division. Maybe it’s because he is an attorney [update: he apparently never passed the bar exam]. Or maybe he’s just unlucky to be famous-enough for the IRS to use his celebrity to frighten the rest of us into getting our returns done. (Via Reason 24/7)
Update: This Chicago Tribune report suggests that self-dealing with his charitable foundation may have been a factor.
In other tax crime news:
Jack Townsend: Article on Deterrence Through Criminal Enforcement and Defining Tax Shelters
Miami Vice: Two Miami Officers Accused Of Tax Refund Fraud (CBS Miami)
William Perez, Tips for Preparing Form 1040-EZ
Janet Novack, IRS Yanks Criminal Amnesty Deal From Taxpayers With Secret Bank Leumi Accounts. If the IRS turns on taxpayers who turned themselves in under an amnesty, not many folks will participate in another one.
Russ Fox, When the IRS Changes the Rules Midstream in a Legal Matter…
J.D. Tuccile, As Government Grasps For Taxes, Brace for an Unwinnable War Against You (Reason.com). It’s a long-form essay on the way getting all sorts of social services from the government doesn’t make people happy to pay their taxes. This is interesting:
Those who think tax increases alone can solve our ongoing fiscal disaster are just kidding themselves.
Paul Neiffer, What Are W2 Wages for DPAD? You have to have paid W-2 wages to use the Section 199 deduction. But they don’t all work:
These wages cannot include wages paid to your children under age 18 (if a sole proprietor farmer) and commodity wages. However, wages paid in cash to spouses and children over age 17 are allowed as part of these wages.
If you are a schedule F farmer with no employees, the W-2 requirement makes the Section 199 deduction worthless.
Jim Maule, Selecting a Tax Return Preparer. All sound advice, including this:
Seventh, ask the tax professional about data security. Where and how is paper data stored while in the hands of the preparer? Where is the digital data stored? What precautions are in place to minimize the chances of a third party breaking into the office or the digital servers and obtaining information? If the individual hands over paper records without keeping copies, which is an unwise move, what happens if the tax professional’s office burns down?
Something to think about.
Nanette Byrnes, State defections impact U.S. interstate tax compact (Tax Break)
TaxGrrrl, Taxes From A To Z (2013): D Is For Disaster Relief
William McBride, Latest IRS Data Shows Taxable Returns Remain Below 1997 Levels (Tax Policy Blog). The income tax burden falls on fewer and fewer returns.
Howard Gleckman, Build America Bonds, the Medicaid Expansion, and Trust Between the States and the Feds
Tony Nitti, Congress Looks To The Wealthy To Bail Out Social Security. But the rich guy isn’t buying.
If you ever wonder why California is the Titanic of state governments, you might want to read Kay Bell’s latest, Tax on email suggested as way to help fund U.S. Postal Service:
Berkeley City Councilman Gordon Wozniak has tossed out the idea of an email tax to help save snail mail.
The financial straits of the U.S. Postal Service became an issue for Berkeley lawmakers when the paper mail delivery system proposed closing that northern California city’s downtown post office and selling the building.
It won’t happen, but a state where somebody who thinks it could happen can be elected to public office is pretty much doomed.
Tags: Anthony Nitti, Chris Zorich, Howard Gleckman, identity theft, J.D. Tuccile, Jack Townsend, Janet Novack, Kay Bell, maule, Nanette Byrnes, Paul Neiffer, Russ Fox, tax crime, TaxGrrrl, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Tuesday, March 5th, 2013 by Joe Kristan
“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.
The Iowa income tax as Swiss Army Knife. The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week. The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.
SSB 1064 cleared the committee unanimously. After all, who would vote against the “Hire a Hero Tax Credit?” But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.
Nobody will hire an employee just to get a $1,500 tax credit. You hire somebody because you have work to do. Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500. It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.” Will the state really examine that? Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.
Still, why not make a nice gesture to show our voters how much we care? Because every feel-good tax break has a cost. It costs money to comply with and enforce. It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it. It makes a good tax system for everyone just a little bit harder.
The primary purpose of the tax law is to finance government operations. When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.
Swiss Bank corpse fined $58 million for tax cheating. The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes. Robert W. Wood has more.
Patrick Temple-West, Wegelin withers under U.S. tax scrutiny, and more (Tax Break)
While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards. While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:
In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”
What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.
Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.
Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.
William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog) “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”
Russ Fox, IRS Opens for All. We can e-file all the forms.
TaxGrrrl,IRS Now Accepting All Individual Returns
Paul Neiffer, IRS Announces They Are Processing All Remaining Tax Forms
Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s? (Tax.com). “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”
Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply
Linda Beale, Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work
Yes. Minnesota Tax Reform: Poorly Designed?? (Brian Strahle).
Kay Bell, Tax Carnival #114: March 2013 Tax Lions and Lambs
Good. Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern). If you want to do tax work for a living, why waste two years doing audit work that you hate?
I don’t condone the behavior, but I bet every bus driver dreams it. From WQAD.com:
Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.
According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.
The students were first graders from Iowa Falls. Nobody was hurt.
I might not make a very good bus driver. I’d probably always be racing…
Tags: Brad Birkenfeld, Brian Strahle, Going Concern, Grassley, iowa tax policy, Jack Tomwsend, Jeremy Scott, Kay Bell, Linda Beale, Patrick Temple-West, Paul Neiffer, Robert Wood, Russ Fox, Swiss Army Knife, TaxGrrrl, William McBride
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
