Posts Tagged ‘Kay Bell’

Tax Roundup, 9/18/14: The $14.8 million suitcase squeeze. And: Koskinen visits the Hill.

Thursday, September 18th, 2014 by Joe Kristan
Flickr image courtesy Sascha Kohlmann under Creative Commons license

Flickr image courtesy Sascha Kohlmann under Creative Commons license

Accounting Today visitors: click here for the item from the September 17 “In the Blogs.”

When tax-free merger isn’t. Working with family-owned businesses, a common misunderstanding arises: if a deal is tax-free, like an “A” merger or a partnership contribution, there can’t be gift tax, right?  Very wrong, as a New Hampshire couple’s experience in Tax Court shows.

The parents, Mr. and Mrs Cavallero, had a successful S corporation known as Knight Tool Co. Their son Ken set up another business to make liquid dispensing machines, Camelot.  As part of their estate planning, the two companies merged in an income tax-free deal.  From the Tax Court summary:

Ps and their sons merged Knight and Camelot in 1995, and Camelot was the surviving entity. Valuing the two companies in accordance with the advice their professionals had given, Ps accepted a disproportionately low number of shares in the new company and their sons received a disproportionately high number of shares.

It turns out that the estate planners “postulated” a technology transfer earlier in the lives of the companies that would have resulted in most of the value already being in the second generation. One planner explained to a skeptical attorney that “History does not formulate itself, the historian has to give it form without being discouraged by having to squeeze a few embarrassing facts into the suitcase by force.”

The trouble with doing that is that when the latches break, the suitcase spills all over the place. But the planners persisted.  From the Tax Court decision:

As a result of Mr. Hamel’s correspondence campaign, however, the previously separate tracks of advice — one from the accountants at E&Y and Mr. McGillivray, and the other from the attorneys at Hale & Dorr — now came together for the first time. The contradiction was evident to all the professionals: The accountants had assumed no 1987 transfer (and thus believed there was a need for a means to transmit value to the next generation), but the attorneys postulated a 1987 transfer (and subsequent transfers) pursuant to which that value had already been placed in the hands of the next generation. The attorneys eventually prevailed, however, and the accountants acquiesced. Eventually all of the advisers lined up behind Mr. Hamel’s suggestion that a 1987 transfer be memorialized in the affidavits and the confirmatory bill of sale. They provided a draft of the documents, which Mrs. Cavallaro read aloud to Mr. Cavallaro. After they reported a few typographical errors, the attorneys prepared final versions, which Mr. Cavallaro and Ken Cavallaro executed on May 23, 1995.

So in 1995 they executed documents for a 1987 transaction.  What could go wrong? Well, perhaps the IRS could come in and assess $27.7 million in gift taxes, plus fraud penalties.  And they did. The dispute ended up in Tax Court.  The IRS won the main issue — its argument that the valuable technology was not in fact transferred in 1987 — and with that win, predictably also won the battle of appraisers.  The IRS appraiser at trail asserted a $29.6 million gift, which would result in a gift tax of about $14.8 million at 1995 rates. Because of the involvement of the outside experts, the Tax Court declined to uphold penalties.

This shows how important valuation can be even in a “tax-free” deal.  When doing business among family members at different generations in estate planning, you don’t have the conflicting interests that unrelated buyers and sellers have, so you have the possibility of creating a taxable gift if you are careless. It’s natural for family members to believe numbers that help their estate planning, so it’s wise to get an independent appraiser in to provide a reality check.  And if the facts, or values, don’t fit into the suitcase, don’t squeeze; get a bigger suitcase.

Cite: Cavallero, T.C. Memo 2014-189

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Instapundit, IRS COMMISSIONER: Our Story On The IRS Scandal Isn’t Changing. It’s Just, You Know, Evolving Now And Then.  “I’ve taken a dislike to this Koskinen fellow. He seems sleazy even by DC standards.”

TaxProf, The IRS Scandal, Day 497. Mostly coverage of another slippery appearance by Commissioner Koskinen before House investigators.

 

TaxGrrrl, Back To School 2014: American Opportunity Credit

Kay Bell, Private and often untaxed home rentals under fire

Peter Reilly, Need To Show Rental Effort To Deduct Expenses. “I think the way I would put it is ‘If at first and second and third you don’t succeed, try something different.  Otherwise forget about deducting losses.'”

 

David Brunori, Fairness and the Reality of State Tax Systems (Tax Analysts Blog) “etc. This week WalletHub released a rating of the fairest state and local tax systems… I am not doubting the accuracy of WalletHub’s survey. But the results don’t align with political reality.”

Cara Griffith, Single Sales Factor May Be Inevitable, but Is It Fair? (Tax Analysts):

In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining (or returning to) the three factor apportionment method and focus on a less burdensome corporate tax system overall. In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining (or returning to) the three factor apportionment method and focus on a less burdensome corporate tax system overall.

No, they are concerned with ribbon cuttings, press releases, and campaign contributions from those seeing tax credits and carveouts.

 

 

20140805-2Renu Zaretsky, A Hail Mary or Two on the Hill.  The TaxVox tax headline roundup covers inflation adjustments and beating up on the NFL with the tax code, among other things.

Alan Cole, Why do I have Four Different Retirement Accounts? (Tax Policy Blog) “Give us one unlimited saving account, tax it properly, like an IRA, and let us use it how we will.”

Russ Fox, Zuckermans Sentenced; No Word on Fido & Lulu “Unfortunately, members of a board of directors must be human: Fido and Lulu don’t qualify.”

Adrienne Gonzalez, Mad Scientist Gets Prison Time for Using His Dog and Cat in a Tax Avoidance Scheme (Going Concern). PETA couldn’t be reached for comment.

 

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Tax Roundup, 9/17/14: Is 30 years long enough to find a tenant? And more!

Wednesday, September 17th, 2014 by Joe Kristan

20140325-1If you can’t get a tenant in 30 years, maybe you’re doing something wrong.  A Minnesota architect named Meinhardt bought a farmstead in 1976.  He  rented out the cropland to neighboring farmers. He looked for a tenant for the farmhouse, too.  He was still looking in 2007, but never managed to find a cash-rent tenant for the house.

Though he never reported any rental income on the house, he paid for house expenses, including repairs, insurance supplies and utilities, deducting them on Schedule E on a joint return.  The deductions totaled $42,694 from 2005 through 2007.

The IRS decided that the architect failed to demonstrate enough of a profit motive to take the deductions.  The taxpayer argued that the expenses were actually part of renting the farmland, which the IRS agreed was a for-profit enterprise. The taxpayer also argued that he really tried to rent the house, but it just didn’t work out.

The Tax Court sided with the IRS, and now so has the Eighth Circuit.  First addressing the argument that the house expenses should be lumped in with the land rental:

They offered no evidence they ever tried to rent or lease the farmhouse and farmland together. Donald testified the farmhouse could be parceled off and sold separately from the crop and pasture land. The Tax Court did not clearly err in finding that the Meinhardts treated the farmhouse separately from the leased farmland, which was admittedly a business activity, and therefore expenses related solely to the farmhouse could not be deducted as ordinary and necessary expenses of the leased farmland activity.

The hard-luck landlord defense didn’t fare any better:

The Tax Court found that the Meinhardts did not prove the farmhouse was held for the production of income during the tax years in question because they “did nothing to generate revenue during the years in issue [and] had no credible plan for operating it profitably in the future. There was no affirmative act (renting or holding for appreciation in value) to demonstrate that the property was held for the production of income.” (T.C. Memo. citations omitted.) This finding, too, was not clearly erroneous. Without question, the Meinhardts’ expenditures for substantial repair and improvement of the farmhouse over many years, including the tax years in question, increased the value of that property. But they failed to prove that they were holding and improving the property to profit from its rental or its appreciation, as opposed to improving it for personal use.

The clincher:

The reasonableness of this alternative personal-use explanation for the expenditures in 2005-2007 was rather dramatically confirmed when they sold their home in suburban Minneapolis and moved into the farmhouse in 2010. 

Oops.

The Moral? If you hold property for years without generating income, you better have pretty good evidence that you have worked hard to rent it if you want to deduct the costs on your Schedule E. If it’s a rental home that you also use on weekends, you’ll have to work harder. If you hold it for 30 years without a cash tenant and then move in, your battle to convince a judge of your profit motive might be hopeless.

Cite: Meinhardt, CA-8, No. 13-2924 

Tax Court case: Meinhardt, T.C. Memo. 2013-85.

ISU Center for Agricultural Law and Taxation Annotation: No Deduction For Farmhouse-Related Expenses.

 

IMG_1944TaxGrrrl, Back To School 2014: Deducting The Cost Of Playing Sports

William Perez, Repaying the First-Time Homebuyer Tax Credit. The first misbegotten version of the misbegotten First-Time Homebuyer Credit was actually more a loan than a credit, and it must be repaid over 15 years. Some of them will be repaying long after the home was sold, or foreclosed

Kay Bell, Spousal abuse: physical, financial and tax-related

Jason Dinesen, Will Software Really Replace Accountants?  I suppose it’s possible, but not with a tax system anything like we have.

Peter Reilly, Montana Catches Non-filer With Property Tax Break. When you claim a homestead exemption on your property taxes somewhere, that place might just decide that you should pay resident income taxes.

Phil Hodgen ponders the Valuation date for expatriate’s balance sheet. When you expatriate, there’s a tax for that.

 

TaxProf, The IRS Scandal, Day 496.

20140729-2Lyman Stone, New S&P Report Shows Income Taxes Are Volatile, Sales Taxes Need Reform (Tax Policy Blog) “This closely relates to our previous findings on state revenue volatility, where we found that states with high reliance on income taxes, excise taxes, or natural resource taxes experienced some of the highest volatility.”

Howard Gleckman, Congress Cries Wolf Over Internet Access Taxes (TaxVox). “Unable to do anything important before its election season recess, Congress is about to knock down a favorite digital straw man—It will extend for a few months the about-to-expire federal ban on state taxation of Internet access.”

 

It’s campaign season, everything is a lie. PolitiFact: Democrats Are Recycling False Accusation That Republicans Support Tax Breaks for Companies That Ship Jobs Overseas (TaxProf)

Looking forward to after campaign season.  Obamacare 2.0, Outlook Not So Good (Bob Vineyard, Insureblog)

Tony Nitti, Whether You Like The Government Or Not, The IRS Expects Its Tax Revenue.  They sure do.

 

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Tax Roundup, 9/15/14: Extended business returns are due today. And: the great Czech Toilet Paper Caper!

Monday, September 15th, 2014 by Joe Kristan

20130415-1Extended calendar-year 2013 business returns are due today. No more extensions. If you have a 1040, 1065, 1120, or 1120-S filing for 2013, be sure you get it done today.  E-filing is the best. If you want to go the old-fashioned way, get to the post office and send it “Certified Mail, Return Receipt Requested.”  Keep the postmark.

If you can’t get to the post office before it closes, you can still head to a UPS Store, Fed-Ex Kinko’s, or similar place and use a designated private delivery service; be sure to use one of the qualifying services, and make sure your receipt has a time and date designation with today’s date to prove timely filing.

Why does it matter? The penalties are $195 per K-1 per month, so a late S corporation with 10 shareholders overdue six months racks up a late-filing penalty of $11,700 — no matter how little income is reportable on the return.

 

TaxGrrrl, Back To School 2014: Casualty Loss And Theft Deduction.  Also: a chance to win a protective phone case!

Russ Fox, From Owning a Party Mansion to Partying at ClubFed. ” Mr. Verbal and his employees offered customers a unique bonus system: If the return was falsified and the client paid cash, he would get a much larger refund.”

Tony Nitti, Client Sues Tax Advisor For Bad Advice: Is The Settlement Payment Tax-Free?

Annette Nellen, Truncating Taxpayer Identification Numbers – Enough?. “It does nothing about the trillions of documents of all sorts that exist that have people’s SSNs on them.”

Jason Dinesen, Putting Profit First While Planning for Expenses

Kay Bell, What do workers want? At some offices, it’s tax-free lunches

Keith Fogg, A Proposal to Amend Flora or Collection Due Process for Individuals Examined by Correspondence Who Do Not Pick Up or Process Their Mail. (Procedurally Taxing). “When the current procedures for tax administration were built, the rich or upper middle class were the ones interfacing with the tax system.”

lizard20140826Jack Townsend, More on [BS] Corporate Tax Shelters (with Some Rantings):

The large(r) Accounting firms developed substantial practice groups that, overtime (over time also), became an echo chamber that caused or contributed to individuals doing things that they would not do individually.  (For background, this is a major reason that conspiracy is a separate crime.)  Because individuals in these groups were in a echo chamber, they slowly begin to believe the bull shit of the echo chamber.  Had they not been in the echo chamber, they likely would not have done what they did.  But they were in the echo chamber; conduct become less evil or illegal or morally wrong because all these smart people and honorable people were participating in the venture.  Of course, the views of those at senior and more experienced levels were often substantially influenced by the extravagant money that could be made by participating.

It’s hard to see straight through a big pile of cash.

 

Joshua D. McCaherty, The Cost of Tax Compliance (Tax Policy Blog). “All said, Americans spent over 3.24 billion hours, which is about 369,858 years, preparing and filing tax returns in 2012.”

TaxProf, The IRS Scandal, Day 494. “So I’m thinking maybe Anthony Weiner should put his selfie in Lois Lerner’s emails.”

Ajay Gupta, Burning the Inversions Fuse at Both Ends (Tax Analysts Blog). “Here is the ultimate irony in the story: Investment bankers hired by a foreign multinational confronting acquisition by a U.S. corporation alerted the administration, the politicians, and the country to the imperatives of ‘economic patriotism.'”

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Ohio Edition (Tax Justice Blog)

Renu Zaretsky, Taxes Take Center Stage This Week—At Least on the House Floor.  Today’s TaxVox headline roundup covers Nevada’s corporate welfare for Tesla, hearings on retirement savings, and another futile extenders vote coming up this week.

A special Monday Buzz! from Robert D. Flach. Among the topics is an often-overlooked price of “backdoor” Roth IRAs.

 

20140915-1We’ll get to the bottom of this.  Czech special police team flushes out corruption after it seizes millions of toilet paper rolls:

The Czech special police squad Kobra revealed tax evasion estimated at at least 25 million Kč in business involving toilet paper and tissues, representatives of the police and customs officers has told journalists.

The police seized 3.7 million toilet paper rolls from a businessman.

Czech Financial General Directorate Deputy Director Jiří Zezulka said the toilet paper circulated among firms in the European Union while only serving as “the carrier of tax fraud” and was not produced for any final customer.

No word on whether it had special absorbency to carry tax fraud.  I love that the toilet paper caper was uncovered by “Kobra.”
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Tax Roundup, 9/12/14: C Corporation can’t kite checks to owner to wash out income. And: a church of strange idols.

Friday, September 12th, 2014 by Joe Kristan

20120511-2In the misty early days of my tax career, S corporation elections were a big thing. There was a grace period after the passage of the 1986 Tax Reform Act where you could make the election and avoid having to deal with the built-in gain tax.

I remember calling on a prospect C corporation, thinking I could easily sell the merits of escaping the second layer of corporation tax. They were ready for me. They explained that they didn’t need an S corporation election because, as I remember it, they could always W-2 their income to the owner to zero out their taxable income. They then made an entry to record a “loan” or capital contribution for the same amount from the owner to the corporation, so no actual cash changed hands. That’s what they said they always did, and they’d never been audited.

I sputtered, “that doesn’t work,” but it apparently worked fine, as long as the IRS never called. Needless to say, I failed to land the prospect. I went back to the office determined to find a case with the same facts.  I never did find the perfect case — until now.

Yesterday the Tax Court ruled that a version of this trick didn’t work for a Minnesota C corporation architectural practice.  The stakes are higher for “personal service corporations,” including architects, as they don’t get to use the lower C corporation brackets for their taxable income; they pay 35% from dollar one. Many corporations accept that, assuming they can wipe out their taxable income with year-end bonuses to owner-employees; that way they retain a few tax-free fringe benefits unavailable to S corporation shareholders.

The Tax Court explains how the Minnesota taxpayer went about this (my emphasis, footnotes omitted):

In 2008 Vanney Associates paid Mr. Vanney monthly wages totaling $240,000. At the end of each year, it was the Vanneys’ practice to determine Vanney Associates’ remaining profit after paying any outstanding bills and paying bonuses to employees. After determining this amount, Ms. Vanney would prepare a check on behalf of Vanney Associates and pay the remaining profit to Mr. Vanney as a yearend bonus. The Vanneys testified that their intent behind the yearend bonus was only to pay out the remaining profit; it was not to zero out the tax liability of Vanney Associates even if that was the effect.

On December 30, 2008, Vanney Associates paid Mr. Vanney a yearend bonus totaling $815,000. After withholding and paying to the IRS the appropriate Federal income, Social Security, and Medicare taxes, Vanney Associates wrote a check to Mr. Vanney for $464,183. Mr. Vanney signed the check on behalf of Vanney Associates and then endorsed the check in his own name and made it  payable to Vanney Associates. He never attempted to cash the check. Ms. Vanney recorded the payment on the books as a loan from Mr. Vanney, and Vanney Associates repaid Mr. Vanney in March 2009.

Tax Court Judge Buch found that the check was never cashed for good reasons:

Mr. Vanney testified that he “believe[d]” he knew that Vanney Associates did not have the funds necessary to honor the check. However, he maintained that Vanney Associates could have gotten a loan to cover the check.

20131206-1The IRS disallowed the $815,000 bonus expense, and it ended up in Tax Court. The court sided with the IRS:

Mr. Vanney was the sole shareholder of Vanney Associates. Ms. Vanney, as Vanney Associates’ bookkeeper, knew or should have known that Vanney Associates did not have the funds to cover the bonus check to Mr. Vanney, and Mr. Vanney testified to having at least some idea of this as well. Vanney Associates argues that the payment was unconditional and payment occurred when Mr. Vanney took possession of the check. Vanney Associates cites O’Connor v. Commissioner, T.C. Memo. 1954-90, where this Court held that “[t]he essential element is that the control of property distributed by way of a dividend must have passed absolutely and irrevocably”. The Court in O’Connor also relied on the fact that the payee had “unrestricted use” of the money and the “amount was unqualifiedly his, to do with as he wished.” That is not the case before us. If anything, Mr. Vanney had only restricted use of the check. He could not cash it at the bank, use it to pay a debt, or use it to make a loan to someone other than to Vanney Associates. In fact, Mr. Vanney’s only option to make use of the money at that time was to lend it back to Vanney Associates because the check could not be honored. Additionally, we have previously held that although a taxpayer maintains possession of a check, the amount of the check may not be treated as a distribution or may not be included in gross income when the account has insufficient funds to honor the check.

Accordingly, respondent’s disallowance of a portion of the deduction for officer compensation is sustained.

I can’t time travel to the 1980s to show this case to my now-defunct prospect corporation, but I suspect there are plenty of other C corporations that still do this. It only works if the IRS never calls, and if they do, the value of the C corporation fringes is unlikely to cover their additional C corporation taxes.

Cite: Vanney Associates, Inc., T.C. Memo 2014-184.

 

Christopher Bergin, The Church of Corporate Inversions (Tax Analysts Blog): “I never thought I’d miss stories about Lois Lerner. But if we are going to talk about fairness in our tax system and raising enough revenue to support the people’s government, dealing with the increasingly dysfunctional IRS is just one of the problems we face that are far more important than corporate inversions.”

Speaking of worshipping at The Church of Corporate Inversions: New CTJ Report: Congress Should Require Inverting Corporations to Pay Up Taxes They Owe on Profits Held Offshore (Steve Warnhoff, Tax Justice Blog)

 

20140728-1Kay Bell, Tax relief for terrorist attack victims and their families

Paul Neiffer, How Do We Plan For Section 179 in 2014. “Now, we are fairly confident that Section 179 will be increased, but we probably will not know until the last week of the year and we may get 50% bonus depreciation back too.”

Russ Fox, Cash & Carry.  A restaurateur discovers that all receipts are taxable, even if the customer doesn’t use a credit card.

Peter Reilly, Parsonage Supporters Encouraged By Seventh Circuit Oral Arguments

Leslie Book, Technology and Tax Administration: The Appeals Virtual Service Delivery Program (Procedurally Taxing)

 

Amber Athey, House September Agenda Includes Potential Tax Changes (Tax Policy Blog). Mostly extenders, none of which seem to be going anywhere until after the elections.

 

TaxProf, The IRS Scandal, Day 491

 

Donald Marron, Does the Export-Import Bank Make or Lose Money? (TaxVox). Both. It makes money for Boeing, but loses money for those of us not on the corporate welfare rolls.

 

Career Corner. The Obvious Link Between Inadequate Staffing and Stress Explains Why You Hate Your Life (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 9/11/14 – Link and run edition.

Thursday, September 11th, 2014 by Joe Kristan

20120531-2Just links today.

Accounting Today visitors: Go here for the dog/email discussion.

 

TaxGrrrl, Back To School 2014: Commuting Tax Benefits

Peter Reilly, Did Florida County Tax Man For Being Happily Married?

Jason Dinesen, When Does the “1099s to Veterinarians” Rule Start?

Kay Bell, IRS Direct Pay one of many ways to pay estimated taxes.  Remember, third quarter payments are due Monday.

William Perez, Have a Home Office? Here’s How to Deduct It On Your Taxes

 

Cara Griffith, A Win for Transparency (Tax Analysts Blog) ” A Kentucky court has ordered the release of redacted copies of the Department of Revenue’s final letter rulings in a suit Tax Analysts joined seeking release of the documents under the Open Records Act”

Alan Cole, The Estate Tax is a Poor Source for Federal Revenue (Tax Policy Blog)

Howard Gleckman, Don’t Count on Much Economic Growth From Individual Tax Reform…Or From Tax Rate Cuts (TaxVox)

 

Russ Fox, Let’s Give Lois Lerner Credit Where Credit Is Due. “It turns out that Ms. Lerner was upset with an unnamed IRS employee who was paid $138,136 a year and was doing ‘nothing.'”

TaxProf, The IRS Scandal, Day 490

 

The IRS standard.  “Wherever we can, we follow the law.” — IRS Commissioner Koskinen.

Career Corner.  Congratulations, Your Job Has Been Arbritrarily Chosen as One of the Most Underrated of 2014 (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 9/10/14: Another campaign season, another Iowa tax credit proposal. And: a property tax appeal goes very badly.

Wednesday, September 10th, 2014 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

How Iowa’s tax law gets worse and worse, episode 7,433.  From TheGazette.com (my emphasis):

Gov. Terry Branstad and his running mate, Lt. Gov. Kim Reynolds, traveled to college campuses Tuesday offering their plan for making higher education affordable and reducing student debt.

The GOP team proposed offering fixed-price degrees or $10,000 bachelors degree for popular major at public universities to cut costs for al limited number of in-state students and tax credits for being volunteers in qualifying community activities during stops at Iowa State University in Ames and Drake University in Des Moines.

Say that again, slowly: “tax credits for being volunteers in qualifying community activities.”  Paid volunteerism.  What a wonderful concept, like non-alcoholic whiskey.

To reduce debt that is among the nation’s highest for college students, Branstad and Reynolds said they would work with the Legislature in 2015 to create a state tax credit that would allow students to reduce debt by participating in volunteer activities within their community through a qualified Student Debt Reduction Organization.

Details and specifics of the tax credit would be worked out so it would encourage community volunteerism while also maintaining the strength of other successful tax credit programs, such as the Student Tuition Organization Tax Credit, [campaign spokesman Tommy] Schultz said.

Bluto20140910It’s something cooked up to sound good in a re-election campaign.  Well, cooked-up may be too strong a term, when it is admittedly only half-baked (details and specifics to be worked out).  You would give the Department of Revenue a new job of supervising “Student Debt Reduction Organizations.” These organizations would be set up by non-profits and government agencies to spend state money.

Can you think of any way this will end well?  Does anyone really think the “volunteer” time will be well used? Or that these local communities will have useful projects for all these “volunteers?”  And does anyone doubt that local politicians will find ways to use these “volunteers” to help them get re-elected?

But it sounds good. “Promote civic involvement.”  And the Iowa tax law gets another barnacle.

Another fallacy of the Governor’s plan: the idea that the reason college isn’t “affordable” because there aren’t enough government programs and tax credits to subsidize it. Yet every few years there is a new subsidy or tax credit, on top of the old ones.   Pell Grants, student loan subsidies, Lifetime Learning Credits, HOPE Credits, American Opportunity Tax Credits, student loan interest deductions…  all touted as making college “more affordable.”  Yet somehow tuition keeps outpacing inflation.  It should be obvious by now that higher education just raises prices to soak up the subsidies.  More subsidies and tax credits are the problem, not the solution.

 

Why you might want to hire somebody to handle your property tax appeal.  From the Des Moines Register:

An Iowa man angry about his property taxes was fatally shot during a public meeting Tuesday after he pulled a gun from a briefcase and pointed it at the county assessor, law enforcement officials said.

Francis Glaser, a former Maquoketa city manager, had become agitated and vocal about his property taxes going up during a weekly meeting of Jackson County’s board of supervisors in Maquoketa, a town about 30 miles south of Dubuque.

It apparently involved a tax incentive.

 

Paul Neiffer, Will Tax Inversion Debate Yield Permanent Section 179

Peter Reilly, Andrew Kay Passes – Helped Accountants Abandon Pencil Pushing:

 I never knew who he was, but the machine that his company made had a profound influence on tax and accounting practice , at least in my neck of the woods.  Mr. Kay was responsible for the Kaypro.

I never used a Kaypro, but I am probably indebted to Mr. Kay. With my penmanship, I could never have survived in accounting without computers.

 

20140910-1Richard Auxier, Nearly All States Play the Lottery, But None Are Big Winners (TaxVox). “Playing the lottery can be fun. But politicians selling lotteries as a panacea for education spending are just as disingenuous as lotto advertisements promising big wins. And states pushing instant and electronic games on their poorest residents are doubling-down on a bad bet.”

Russ Fox, New Jersey Tries Hail Mary on Sports Betting; Will IRS Intercept?

Kay Bell, Will Tax Inversion Debate Yield Permanent Section 179

David Brunori, The Good, the Bad, and the Ugly — Florida Governor Rick Scott’s Tax Ideas (Tax Analysts Blog)

Matt Gardner, Wisconsin Contemplates Property Tax Shift from Business to Homeowners. (Tax Justice Blog). Business don’t ultimately pay taxes. They merely collect them on behalf of customers, employees and owners.

 

Kyle Pomerleau, New Earnings Stripping Bill is Fundamentally Unserious (Tax Policy Blog).  Of course it is. That doesn’t mean it won’t pass someday.

TaxProf, The IRS Scandal, Day 489. Today’s roundup includes this from the Washington Post about Commissioner Koskinen’s duplicity in handling the scandal:

Internal Revenue Service Commissioner John Koskinen testified this summer that he played no part in spreading word of the agency’s controversial missing e-mails to the Treasury Department or the White House. But one of his closest advisers apparently did.

And he wonders why Congress doesn’t want to give him all the money he asks for.

 

Career Corner.  How Failing the CPA Exam Might Actually Help You Succeed (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 9/8/14: One week left for procrastinators. And: there were no abuses, because they abused everyone!

Monday, September 8th, 2014 by Joe Kristan

7004cornerYour extended 2013 corporation, partnership and trust returns are due a week from today.  If you have a pass-through entity and you file late, you have a $195 per month, per K-1 penalty going back to April if you don’t make the extension deadline.

 

TaxProf, The IRS Scandal, Day 487.  Among the links today is one from the Washington Post, Why Did the IRS Clean Out Lois Lerner’s Blackberry as Probes Began? It also quotes this from Russ Fox:

Let’s assume you’re under a court order to find some emails. Your hard drive crashed, but you think that some of them are saved on your Blackberry. Would you:

(a) Try to find them on the Blackberry,
(b) Do nothing, or
(c) Erase the Blackberry.

If you’re the IRS, the answer is (c)

For an agency that insists it has nothing to hide, the IRS sure acts like it is hiding something.  Just to ice the cake, IRS Says It Has Lost Emails From 5 More Employees. Can dogs eat emails?

Meanwhile, Democratic Senators released a report insisting the IRS picked on left-side outfits just as much as right-side ones and slamming Treasury Inspector General Russell George for insisting otherwise.  So let’s go to the stats:

 

targetingstats

No left-side groups have produced evidence of the absurdly-intrusive questioning faced by some right side groups. We can assume that if they existed, they would have come out by now. Mr. George stands by his work.

 

The Iowa Department of Revenue has given its web site a makeover.  Ain’t it pretty?

 

20120703-2Tyler Cowen, Civil forfeiture cash seizures:

Only a sixth of the seizures were legally challenged, in part because of the costs of legal action against the government. But in 41 percent of cases — 4,455 — where there was a challenge, the government agreed to return money. The appeals process took more than a year in 40 percent of those cases and often required owners of the cash to sign agreements not to sue police over the seizures.

Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008.

Civil forfeiture rules in the U.S. allow outrages every day.  It’s very third-world, inherently corrupt, and way overdue for reform.

Phil Hodgen, Renunciation Interviews Not So Intense.  “The State Department justifies the new $2,350 user fee for renunciation by saying ‘Hey, it’s a lotta work. It’s intense. You have to pay me more.'” It looks a lot like civil forfeiture, where the government takes the money because they’re bigger than you, and they can.

 

20140521-2William Perez, How to Adjust Withholding in the Middle of the Year in 9 Steps

Paul Neiffer, A Deduction of Zero is Still Zero:

If the calf was born on the ranch and raised there, the tax deduction due to a death loss is zero.  Since the ranch is allowed to deduct all of the feed and other costs associated with raising the calf, the rancher has a tax basis in the calf of exactly zero.  Therefore, the rancher can deduct zero which is still zero.

It’s the same reason you can’t deduct wages you never received; you never pick them up in income to start with.

Russ Fox, Lies, Deceit, and Nefarious Schemes.  He addresses a VEBA scam:

His plans allowed you to both get the tax deduction and, “then later access the full cash value of their plan contributions by taking out loans against the life insurance policies purchased with plan contributions.” That’s not allowed.

Remember, if it sounds too good to be true, it probably is.

 

nfl logoKay Bell, NFL 2014 season underway, along with the taxable betting.  Kay also has a great map of NFL team affinities by county.  Oddly, it appears central Iowa is Packer Country.

Jack Townsend, Offshore Enabler Nabbed in Sting Operation Sentenced

Peter Reilly, New Hampshire Supreme Court Declines More Power In Tuition Credit Case. The New Hampshire court refused to stop tax credits for contributions to private schools.  Iowa and many other states have instituted such credits.  An athiest group said the credits amounted to an “establishment” of religion. If New Hampshire disallow the credits to the Richard Dawkins Country Day School, they’ll have a better case.

Annette Nellen, Is disclosure of corporate tax information a good idea?  Professor Nellen doesn’t care for proposals to require disclosure of public company returns.

 

 

Ajay Gupta, How Not to Stop an Inversion (Tax Analysts Blog).  “All those proposals focus on the inverting corporate entity—a wonderfully inanimate piñata-like container that can be repeatedly hit for enjoyment and will occasionally yield the candy of additional revenue. None targets the individuals at the helm of the corporation, the men and women who stand to make vast amounts of money from their collective decision to execute an inversion.”

Sebastian Johnson, State Rundown, 9/5: Gun Holiday in Mississippi, Shortfall in Wisconsin, and a Showdown in Washington (Tax Justice Blog)

Renu Zaretsky, Business Tax Reform: Will Patience Be a Vice? This TaxVox headline roundup talks business tax reform, Nevada’s corporate welfare plan for Tesla, and how individual tax revenues will grow, but not as fast as the government will spend them.

 

Tony Nitti, The IRS Cares Not For Your Vow Of Poverty.  “Call me conservative, but if I wanted the IRS to take my vow of poverty seriously, I’d probably refrain from cruising around town in a Mercedes.”

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Tax Roundup, 9/5/14: Obamacare tax credits get a reprieve. And: what’s $14 billion waste for a good cause?

Friday, September 5th, 2014 by Joe Kristan

The U.S. Court of Appeals for the D.C. Circuit will re-hear Halbig.  The full court will re-decide the decision reached by a three-member court panel that limited tax credits under Obamacare to policies purchased through state-established exchanges.  As 36 states have not established exchanges, the decision would have undermined both the employer and employee mandates, which are largely dependent on the tax credits.  Jonathan Adler has more.  Michael Cannon explains the politics behind the decision to re-hear the case.

 

EITC error chartLeslie Book, IRS Issues New Report on EITC Overclaims (Title A).  Leslie covers the recent IRS report on how much of the cost of this welfare program run through tax returns is misspent:

“As a result of the EITC program growth the total overclaims in the study are higher in the 2006-08 Report than in the past 1999 study, with annual overclaim estimates for 2006-08 at $14 billion (lower estimate) or $19.3 billion (higher estimate), compared to 1999 figures of $12.3 billion (lower estimate) and $14 billion (higher estimate).”

The report shows that the errors arise largely from misreporting of income and claiming ineligible dependents.  While some of the errors are attributable to complexity, the skewing of the errors to extra refunds points to widespread cheating.  Complexity errors would tend to be more equally split between overpayments and underpayments, but the vast majority of errors resulted in EITC overpayments.

All of this makes Arnold Kling’s proposal to roll all means-tested welfare programs into a single voucher grant with a uniform phase-out rate look wise.

 

haroldMore on the Iowa Film Credit Settlement with a Rhode Island filmmaker from Maria Koklanaris at Tax Analysts ($link):

The state admits no liability in making the settlement, according to the agreement. An accompanying letter from Adam Humes, a state assistant attorney general, to Joseph Barry of the state Department of Management, says that “the agreement will resolve all claims related to these film projects, and all claims in . . . the civil case in exchange for a cash settlement. After the settlement becomes final, the civil case . . . will be dismissed with prejudice.”

Joe Kristan of Roth & Co. PC of Des Moines said several civil suits arose after the state “slammed the brakes on everything” to do with the film tax credit scandal, which resulted in seven criminal convictions amid revelations that the state had issued $26 million in improper credits.

You gotta like her sources.

 

Sebastian Johnson, Big Oil Wins In Alaska, Hollywood Wins in California.  Because California has plenty of cash to shower on filmmakers…

Russ Fox, $1.25 Billion Attracts Tesla to Nevada

 

Kyle Pomerleau, IRS Aims to Tax Silicon Valley Workers’ Fringe Benefits (Tax Policy Bl0g).

“The IRS and U.S. Treasury Department last week included taxation of “employer-provided meals” in their annual list of top tax priorities for the fiscal year ending next June. The agencies said they intend to issue new ‘guidance’ on the matter, but gave no specifics about timing or what the guidance would say.”

The IRS believes that the regular free meals provided to employees are a fringe benefit and should be taxed like compensation.

You can make a good theoretical argument that a lavish Silicon Valley cafeteria results in taxable income for the employees. It’s much harder to make a good practical arguemnt for taxing that benefit.  There are serious measurement problems, and the amount of revenue at stake hardly seems worth it.

 

buzz20140905It’s Friday!  That means it’s Buzz day for Robert D. Flach, who buzzes from taxing frequent flyer miles to taxing marijuana.  However you get high, there’s a tax for that.

William Perez, How to Deduct Car and Truck Expenses on Your Taxes.  “To prove you are eligible to deduct your car and truck expenses, you should keep a mileage log.”

Paul Neiffer, Partner Must Have Basis to Deduct Loss. “The bottom line is if you show a loss from a partnership, make sure you have enough “basis” to deduct the loss.”

Kay Bell, New NFL players ready for football, IRS ready for their taxes

Peter Reilly, IRS Shows Serious Meatspace Prejudice.  “You would think with all the pressure that it puts on people to file and pay electronically that the IRS would have a forward looking view and a preference for cyberspace.  It does not seem to be that way  in the tax exempt division, where meatspace seems to be much preferred.”

 

Jack Townsend discusses an Article on Swiss Banks in U.S. DOJ Program.  He quotes from the article:

Caught in the crossfire of these strategies, however, are thousands of bank clients who are either innocent of tax evasion offences or were unaware of their reporting responsibilities.

These include US citizens living and working in Switzerland who cannot open bank accounts or take out mortgage loans. In some cases they have been expelled by their banks as involving too much unwanted paperwork and risk.

Well done, Congress.  Your FATCA makes everyday personal finance a miserable challenge for Americans abroad.

Tax Trials, IRS Updates Internal Revenue Manual for Streamlined Offshore Compliance

 

horse 20140905Annette Nellen, Shakespeare, building your vocabulary … and taxes.  She summons up a “parade of horribles” — well, a judge she quotes does.

TaxProf, The IRS Scandal, Day 484

 

Should I show this to my high school junior?  What Every High School Junior Should Know About Going to College (Bryan Caplan).  “College is a good deal for good students, a mediocre deal for mediocre students, and a poor deal for poor students.”

News from the Profession: EY Is No Longer Blocking Sports Websites Just in Time for Football Season (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 9/4/14: IOU? No basis for you! And: IRS may say TANSTAAFL.

Thursday, September 4th, 2014 by Joe Kristan

20120801-2Partner IOUs fail to increase basis.  Just like S corporation shareholders, partners in a partnership can only deduct their share of the entity’s losses to the extent they have basis.  Like S corporation owners, partner basis starts with the basis of property and the amount of cash contributed to the partnership; it is increased by the owner’s share of taxable and tax-exempt income, and is reduced by expenses and distributions.

In a Tax Court case yesterday, partners”contributed” IOU from themselves to the partnership, VisionMonitor Software LLC.; the partners then used the amounts of the IOUs as basis for deducting losses.

Unfortunately for the partners, that doesn’t work.  Judge Holmes explains (minor editing by me):

VisionMonitor argues that the notes in this case, like the assumption of debt in Gefen, were necessary to persuade a third party to kick in more funding to a cash-strapped partnership. But unlike the partner in Gefen, neither Mantor nor Smith were guaranteeing a preexisting partnership debt to a third party. And they did not directly assume any of VisionMonitor’s outside liabilities — these notes are their liability to VisionMonitor, not an assumption or guaranty of VisionMonitor’s debt to a third party…  And there’s also no evidence that Mantor or Smith were personally obliged under the VisionMonitor partnership agreement to contribute a fixed amount for a specific, preexisting partnership liability.

Unlike S corporation shareholders, partners can get basis for debt owed by a partnership to third parties — for example, by providing a guarantee to a third-party lender (watch out for the “at-risk” rules).  But the court held that writing an IOU, by itself, doesn’t rise to the level of creating debt basis for the partner:

 Here… the partners each have no adjusted basis in the notes, and until they are paid, the notes are only a contractual obligation to their partnership. Mantor made a payment under his notes only in 2010, and the record has no evidence that Smith ever did. We therefore find that Mantor’s and Smith’s bases in their promissory notes during the 2007 and 2008 tax years were zero and, accordingly, that VisionMonitor’s basis in the contributed notes was also zero.

As it always does, the IRS tried to stick the partners with a 20% “accuracy-related” penalty. Judge Holmes wisely declined, holding that they relied reasonably on oral advice from their tax man, a Mr. Sympson:

We have little problem in finding that VisionMonitor actually relied on Sympson’s advice — his conclusion that the notes were additions to VisionMonitor’s capital (and the capital accounts of Smith and Mantor) was set out on the company’s returns. And we have little trouble in finding that this reliance was in good faith. In a case like this one — where VisionMonitor secured Smith and Mantor’s promises to increase their personal risk alongside their promise to extend their personal credit to the firm’s vendors — advice from a longtime tax adviser that this increased Smith’s and Mantor’s bases would seem reasonable to Mantor.

This is the sort of standard that the Tax Court should apply.  Taxes are hard — that’s why people hire out their tax work.  If they are open with their tax advisor, and they don’t have reason to think the tax advisor is incompetent, they shouldn’t get hammered with penalties just because the advisor makes a mistake. After all, the IRS makes mistakes too.

The Moral: If you want to get basis in your partnership without putting in cash, you need to get third party debt allocated to you in a way that makes you at-risk.  And: when things get complicated, if you are open with your preparer and follow the advice given, IRS penalties are not automatic.

Cite: VisionMonitor Software LLC, T.C. Memo 2014-182.

Related: How much K-1 loss can I deduct? Start with your basis.

 

TANSTAAFL. (There Aint) No Such Thing As A Free Lunch: IRS Mulls Tax On Employee Meals. (TaxGrrrl)  Just because you can make a theoretical argument that something is taxable doesn’t mean you should tax it.

 

20130121-2So you think regulation of preparers by IRS will stop fraud?  IRS Employee Accused Of Tax Fraud.  If they can’t keep themselves honest, they aren’t likely to prevent preparer cheating. Of course, preparer regulation isn’t about stopping fraud or improving tax compliance. It’s about grabbing power and helping well-placed friends.  Russ Fox has more.

 

Jana Luttenegger, Tax Court Ruling on Frequent Flyer Miles as Income (Davis Brown Tax Law Blog)

Kay Bell, Tax differences between home repairs & home improvements.  It can make a big difference when you sell.

Robert D. Flach tells you WHAT TO ASK A TAX PRO

Jack Townsend, Proof Beyond a Reasonable Doubt – Ramblings

 

David Brunori, Business Pays a Lot of State and Local Taxes (Tax Analysts Blog):

COST recently released its 12th edition of the report. And it continues to influence the state tax debate as much today as it did in 2002. The new report says that businesses paid $671 billion in state and local taxes in 2013, up about 4 percent over the previous year. But business taxes accounted for 45 percent of all state and local taxes.

I note that the amount of tax paid by “business” is deceptive. Businesses do not pay taxes; people pay taxes. And every dime of the $671 billion was paid by some combination of shareholder, owner, employee, customer, or supplier. Those on the left desperately want the burden to fall on shareholders. But there is growing evidence that in a global economy, the burden falls on employees. 

And if it does fall on shareholders, remember that pension funds are also shareholders.

 

20140801-2Lyman Stone, Governor Rick Scott Offers Mixed Bag of Tax Proposals for Florida (Tax Policy Blog). “Governor Scott’s tax proposals offer meaningful improvements in some areas like cell phone and corporate income taxes. But on other issues like the property tax cap, it’s not clear whether or how the plan will work; on sales tax holidays, the proposed “tax cut” would actually make the tax code more complicated and distortionary, while creating little or no economic growth.”

Yes.  Next Question?  Is It Time to Repeal The Corporate Income Tax? (Howard Gleckman, TaxVox) “This view acknowledges that roughly 10 million businesses already have engaged in self-help tax reform by organizing themselves as pass-through firms (where owners at taxed as individuals but bypass the corporate tax entirely).”

 

TaxProf, The IRS Scandal, Day 483

 

News from the Profession.  Ladies Still Need Entire Panels Made Up of Dudes to Talk About Ladies in the Profession (Adrienne Gonzalez, Going Concern)  “Don’t worry, ladies, the guys are ON IT.”

 

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Tax Roundup, 9/3/14: Fight the power edition. And: another Iowa film credit economic triumph!

Wednesday, September 3rd, 2014 by Joe Kristan

It’s good to be back.  Sometimes other things take precedence over work.

 

Fight the Power!  Tax Analysts’ Joseph Thorndike defends the corporation income tax as a bulwark against corporate power ($link):

Popular fondness for taxing corporations may reflect an imperfect understanding of the corporate levy’s incidence. But it also reflects a clear-headed view of where the power lies in American society.

That’s interesting.  Lets see where some major institutions stack up in terms of “power,” measured by revenue (an imperfect measure, but one that is at least available for all of them, unlike net worth).

Google: $55 billion.

Apple: $171 billion.

Microsoft: $23 billion.

BP: $379 billion

State of California: $112 billion

United States Government revenue: $2,770 billion.

United States Government spending: $3,450 billion.

 

In handy graph form:

20140902-1

Of course, only one of these outfits can also send in people with guns to settle disputes with all of the others.  So who is going to impose an income tax to rein in the monster on the Potomac?

 

Economic Development, film style: Iowa pays $2 million to settle film lawsuit (Des Moines Register).  But think of the intangible benefits!

 

Kristy Maitre, Kristine Tidgren, ACA’s Thorny Impact On More-Than-2% S Corporation Shareholders

Consequently, in the absence of further guidance, we believe that if an S corporation chooses to increase wages for its employees to make up for its non-ACA-compliant employer payment plan, the more-than-2% shareholders will now have to pay FICA/FUTA taxes on that compensation, just as the other employees will now have to pay income taxes and FICA taxes on the increased wages. These payments are no longer made pursuant to an employer health plan and cannot be excluded from taxation.

You don’t have to have 50 employees to have Obamacare problems.

 

Peter Reilly, IRS Will Not Tax Forfeited Jackpots Of Compulsive Gamblers.  Mighty kind of them.

Kay Bell, Running errands for mom and other September tax moves

TaxGrrrl, Credit Cards, The IRS, Form 1099-K And The $19,399 Reporting Hole

Tony Nitti, Tax Court Says Bank ‘Thank You’ Points Are Taxable Income   

 

 

Scott Hodge, IRS Data Contradicts Kleinbard’s Warnings of Earnings Stripping from Inversions  (Tax Policy Blog)

Ajay Gupta, Yep, Son, We Have Met the Enemy (Tax Analysts Blog).  Mr. Gupta discusses the FIRPTA precedent for the current inversion hysteria:

It turns out that the enemy in the ‘80s was not the pools of offshore money ready to descend on onshore real estate. Nor will the enemy this time be the many offshore tax havens ready to shelter departing onshore companies. The enemy, as always, is closer to home.

Congress would be a good place to look.

 

Robert D. Flach once again gets to the heart of the matter:  “There is absolutely nothing illegal, immoral, or unethical with trying to ‘dodge’ taxes.  By ‘dodge’ I mean ‘avoid’.”

 

20140527-1Joseph Thorndike, When Do-Gooder Taxes Don’t Do Good (Tax Analysts Blog).

I’m no fan of anti-obesity taxes, whether they target soda, candy bars, or any other junk food. They are regressive and arbitrary, not to mention paternalistic and condescending. Supporters have all sorts of genuine good intentions. But ultimately, these taxes are simply an unfair money grab dressed up as a public health initiative.

Now we have some evidence that they may be ineffective, too.

Imagine that.

 

William Gale, Don’t be fooled: America’s deficit is still a problem

Sebastian Johnson, State Rundown: Sept. 2 (Tax Justice Blog).  A left-side rundown of “Oil tax ballot fails in Alaska, film tax credits pass in California, and Ohio needs to do more on EITC expansion. Also: updates on Iowa gubernatorial election and a new report on airline gas tax breaks.”

TaxProf, The IRS Scandal, Day 482

 

And New Coke marketing genius award goes to…  From Going Concern, news of the boldest marketing move since the Edsel.  (Adrienne Gonzalez)

 

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Tax Roundup, 8/28/14: Frequent flying in the Tax Court. And: you don’t need 50 employees to face Obamacare problems.

Thursday, August 28th, 2014 by Joe Kristan

20120529-2TaxGrrrl, Tax Court Sides With IRS In Tax Treatment Of Frequent Flyer Miles Issued By Citibank.  TaxGrrrl reports on a case this week where a taxpayer was awarded with “points” for opening a bank account, which could be redeemed for airplane tickets.  A couple who cashed in the points for tickets worth over $600 received a 1099 for them and left it off their 1040.

TaxGrrrl reports:

Thankfully, the Tax Court did draw a distinction between the taxability of “Thank You Points” and frequent flyer miles attributable to business or official travel using Announcement 2002-18 (linked above), wherein the IRS made clear that they would not tax frequent flyer miles attributable to business travel. But that’s where the good news for taxpayers stopped.

TaxGrrrl thinks its a bad result:

In a case of what could be characterized as bad facts making bad law, taxpayers didn’t put up much of an argument for not including the income on the tax return: there was no lengthy brief explaining why it might be excludable. Nor did the IRS say much about the inclusion: they more or less took the position that Citibank’s form was enough to prove income, saying “we give more weight to Citibank’s records.”

The Tax Court made this a “reported” decision, which signals that they will side for the IRS in taxing miles that show up on 1099 information returns.

The tax law certainly allows non-cash transactions to be taxable.  If they didn’t, barter exchanges would rule the world.  It’s also true that at some point trying to tax everything of value doesn’t make sense.  You might value the smile from the cute barista on the skywalk, but that doesn’t mean you should pay tax on the extra value received with your coffee.  The hard part now is knowing when you cross the line.

Cite: Shankar, 143 T.C. 5

 

20121120-2Health Reimbursement Plans a danger under Obamacare.  Health Reimbursement Plans Not Compliant with ACA Could Mean Exorbitant Penalties  (Kristine Tidgren):

As of January 1, 2014, a number of long-time options became illegal under the ACA. Lest employers are tempted to ignore this issue, they should know that offering noncompliant plans subjects them to a possible excise tax of $100 per day per employee per violation. ACA violations are no small matter.

In IRS Notice 2013-54, issued last fall, the Treasury Department and the Department of Labor made clear that such plans are no longer allowed. This prohibition applies to a number of long-used standalone health care reimbursement plans that are not integrated with an ACA-compliant group health care plan. Although some exceptions apply, the ACA has made the following types of reimbursement plans illegal (subjecting their sponsors to the possible $100/day/employee/violation penalty tax):

  • Standalone §105 medical reimbursement plans (including Health Reimbursement Arrangements (HRAs))

  • Employer payment of individual health insurance premiums on a pre-tax basis

  • §125 salary-reduction plans for employee health insurance premiums


If you think that you don’t have to worry about Obamacare because you don’t have 50 employees, think again.


Roger McEowen, Structuring the Business: S Corporation or LLC?.  “But, beyond the requirement to pay reasonable compensation, the S classification provides a means for extracting money out of the business without paying employment taxes – there isn’t any employment tax on distributions (dividends) from the S corporation.”


20130311-1Jason Dinesen, Tax Preparer Ethics: Miscellaneous Deductions:

Is it okay to show the purchase as a miscellaneous deduction if the amount is less than 2% of their income and thus isn’t deductible anyway? That way, the taxpayer sees it on their tax return but technically the government hasn’t been harmed because the amount was too small to actually be deducted. Is this okay?

This can be tempting for a practitioner.  You can “take” a deduction for “subscriptions” that are probably Sports Illustrated and appease a pushy taxpayer without actually reducing taxes.  But Jason makes good points as to why it can make it hard to stop taxpayers from pushing for bogus deductions that actually matter.


Peter Reilly, Bank Out 40 Grand When It Allows Withdrawal Two Hours After IRS Levy.  Oops.

Kay Bell, Be tax smart in combining business and personal travel

Phil Hodgen, Toronto Consulate Wait Times Have Ballooned.  They’re lining up to get out from under U.S. taxation.  Phil offers this advice:

Many of you will want to renounce your U.S. citizenship before year-end. You can go anywhere in the world to do it. Start calling Consulates and Embassies to see what the wait time is.

Our experience is that the Caribbean and Central American countries are often good. Southeast Asia seems to be good as well.

That’s a sad commentary on how we tax Americans abroad.  Congress makes financial life miserable for expats, and then calls them “deserters” for doing something about it.

 

Stephen Olsen, Boeri: Not a citizen, never lived or worked in the US? IRS will still keep your money. (Procedurally Taxing).  Of course they will.  They’re bigger than you.

 

 

Remember, these are the people who think we preparers are out of control and in need of regulation.  IRS Ethics Lawyer Facing Possible Disbarment, Accused of Lying (Washington Times):

A lawyer in the IRS ethics office is facing the possibility of being disbarred, according to records that accuse her of lying to a court-appointed board and hiding what she’d done with money from a settlement that was supposed to go to two medical providers who had treated her client.

Of course, given Commissioner Koskinen’s policy of stonewalling and evasion, she might be just the woman he wants for the job.  (Via TaxProf)

 

 

William McBride, Canada’s Lower Corporate Tax Rate Raises More Tax Revenue (Tax Policy Blog):

The natural question is: How much tax revenue did Canada lose?

Answer: None.

canada corp revenue chart

You shouldn’t assume that the lower rate caused the revenue increases.  Still, when our current rates clearly incentivize tax-saving moves like inversions, you shouldn’t assume rate cuts will be big revenue losers, either.  The revenue-maximizing rate has to be influenced by rates charged in other jurisdictions.

 

Cara Griffith, Is the Dormant Commerce Clause in Jeopardy? (Tax Analysts Blog)  “In matters of state taxation, the dormant commerce clause provides a much stronger defense against discriminatory taxation than the due process clause.”

Kelly Davis, Cumulative Impact of Ohio Tax Changes Revealed (Tax Justice Blog)

 

TaxProf, The IRS Scandal, Day 476

 

News from the Profession.  California Board of Accountancy Moves to Stop Incarcerated CPA From Providing Exceptional Client Service in Prison

 

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Tax Roundup, 8/27/14: Inversions! Fire! Flee! FIRPTA! Edition. And: state credits and the race for Governor.

Wednesday, August 27th, 2014 by Joe Kristan

20140815-2DOOM! PANIC!  Corporate inversions!  DO SOMETHING!  This isn’t the first time politicians have gotten their dresses over their heads in a pseudo-patriotic panic over legal transactions, as Ajay Gupta explains for Tax Analysts ($link):

FIRPTA is a statute conceived in xenophobia and dedicated to the proposition that not all investors are created equal. It is nothing more or less than the embodiment of a congressional desire to limit the grasp of foreign investors on domestic real estate.

“FIRPTA” is the Foreign Investment in Real Property Tax Act, and it requires buyers of U.S. real estate to withhold 10% of the gross purchase price paid to non-U.S. sellers.  In practice, it functions as a trap for unwary U.S. buyers who fail to withhold, leaving them liable for the withholding liability on top of their purchase price.  It arose out of the panic over a wave of Japanese purchases of U.S. real estate — a panic that we can now see clearly as madness.  Yet FIRPTA lives on, long after the Japanese moved on to other things.

Things like this tell us that the best way to deal with the current panics, like corporate inversions, is to not “do something” that will surely be half-baked and haunt the tax law forever.

 

Megan McArdle, Burger King and the Whopper About Taxes (my emphasis):

As my colleague Matt points out, most Americans — including a lot of journalists who write about this — seem to be under the misimpression that companies that invert, or people who renounce their citizenship, are doing so to get a lower tax rate on income they earn here. And in a few intellectual-property-based businesses, which can make aggressive use of transfer pricing strategies to declare most of their income in low- or no-tax countries, these complaints have some basis. In most cases, however, including Burger King, they’re doing it because the U.S. inexplicably insists on taking a big chunk off the top of all their foreign income, and making their lives miserable in the process.

But, but, deserters!  Traitors!

 

canada flagIf you are wondering why Burger King might be attracted to Canada,  read How Much Lower are Canada’s Business Taxes? (William McBride, Tax Policy Blog):

First, Canada has a much lower corporate tax rate: 15 percent at the federal level plus another 11 percent on average from provincial corporate taxes. Compare that to the U.S. federal corporate tax rate of 35 percent plus an average state corporate tax rate of about 4 percent.

Second, Canada has a territorial tax system, meaning there is no additional repatriation tax on foreign profits. The U.S. has a worldwide tax system, which applies a repatriation tax to foreign profits when those profits are brought back to the U.S. The repatriation tax is basically the difference between the foreign corporate tax rate and the U.S. corporate tax rate, which is typically more than 10 percent. The average foreign corporate tax rate in the developed world is 25 percent.

Third, the U.S. is not particularly competitive in terms of taxing shareholders. Canada integrates its corporate tax with shareholder taxes to avoid double-taxation. In the U.S. it just piles up, so the integrated corporate tax rate on equity financed investment is over 50 percent.

A corporation pays 35% federal tax on its net income, leaving 65% for the shareholders.  If it gets distributed to a top-bracket taxpayer, it gets hit at 20%, plus the 3.8% Obamacare surtax. That is a combined effective rate of 50.47% — and that’s low, as it doesn’t count phase-outs or state taxes. Yet congresscritters profess astonishment that anybody would find that a problem worth solving.

 

Howard Gleckman, Could The U.S. Fix Taxation of Multinational Corporations With A Sales-Based Formula? (TaxVox) “Instead of focusing on the real disease—an increasingly dysfunctional corporate income tax—we are obsessing over a symptom—firms such as Burger King engaging in self-help reform by relocating their legal residences overseas.”

Joseph Thorndike, Warren Buffett Is a Tax Avoider. Good for Him. (Tax Analysts Blog). Now Mr. communitarian billionaire who wants high taxes for other people is a deserter too.  Is nothing sacred?

 

20140729-2Paul Neiffer,  $563 Cost a Taxpayer $6,320:

If the taxpayers had simply paid the $563 of additional tax owed on the original assessment, that is all they would have been out-of-pocket.  However, when they went to court, the IRS determined that they had made a math error in their original calculation of AMT and reassessed the tax owed from $563 to $6,883 or an increase of $6,320.  Since this calculation was now correct, the Tax Court honored the IRS calculation and suddenly the taxpayers suddenly owed another $6,320 just for going to court.

Oops.

 

TaxProf, The IRS Scandal, Day 475.  It links to this from George Will: “The IRS is the most intrusive and potentially punitive institution of the federal government and it is a law enforcement institution and it is off the rails and it is now thoroughly corrupted.”

And the IRS Commissioner thinks all his agency needs is more money.

 

Kay Bell, IRS, betting that expired state and local sales tax deduction will be renewed, hires firm to calculate Schedule A tables

TaxGrrrl, IRS Still Struggling With Tax Treatment Of Immigrants, Changes Rules Again   

Jack Townsend, BASR Briefs On Issue of Unlimited Statute of Limitations for NonTaxpayer Fraud

David Brunori, Repealing the Bad Franchise Tax is a Good Idea (Tax Analysts Blog).  “Eighteen states still impose a franchise tax; they shouldn’t.”

 

MP branstadBy all means, lets make state tax credits an issue.  The Branstad re-election campaign is making a big deal about how his campaign opponent, Jack Hatch, bottled up a GOP bill that would have reduced developer fees in tax credit deals — fees that Mr. Hatch makes a good living collecting.

Senator Hatch could truthfully explain that his committee snuffed every GOP tax bill last session, so that bill didn’t receive special treatment.  Still, it doesn’t look good.

Yet this ignores the real scandal with state incentive credits: they are inherently corrupt.

For starters, the credits for low-income housing and historic rehabilitation go disproportionately to well-connected insiders who know people and know how to pull strings — at the expense of real estate owners without the connections — and arguably at the expense of renters who might benefit more from housing aid not run through developers.

But also that’s true of the other credits.  Special deals go to Microsoft, Google and Facebook because they are big and they know how to play the system.  Tax credits go to big fertilizer companies for doing what they would do anyway, while other poor schmucks without lobbyists and fixers pay full-freight on their income and property taxes.  NASCAR and the Field of Dreams played on glamour and celebrities to keep sales taxes they collect, while other sellers of amusements have to collect the same sales taxes and turn them over to the state.  And Governor Branstad has handed out these tax credits generously.

I’m fine with the Governor’s criticism of Senator Hatch for tax credit deals; I don’t care for them either.  Still, the Governor should keep his old MP helmet handy, because he is calling down fire near his own position.

 

Claire Celsi, PR is like pork scraps and pickle juice (IowaBiz.com).  Sounds yummy.

 

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Tax Roundup, 8/25/14: Tax Credits for not killing a puppy. Well, another puppy. And: mind your spelling!

Monday, August 25th, 2014 by Joe Kristan
Flickr Image courtisy Llima under Creative Commons license

Flickr Image courtesy Llima under Creative Commons license

Wisconsin finds a new frontier in incentive tax credits.  From madison.com:

The board overseeing the state’s flagship job-creation agency has quietly approved a $6 million tax credit for Ashley Furniture Industries with a condition allowing the company to eliminate half of its state workforce.

As approved by the Wisconsin Economic Development Corp. board, the award would allow the Arcadia-based global furniture maker to move ahead with a $35 million expansion of its headquarters and keep 1,924 jobs in the state.

Stop me with tax incentives, or I’ll fire some more people!

Of course, all of these tax credits are paid for by people who, by definition, aren’t getting their taxes wiped out with special tax breaks that allow politicians to show up for a ribbon cutting.  Politicians know that they’ll get attaboys for “creating jobs,” and nobody will call then out for the jobs they cost by taxing people to give money to their special friends.

Thanks to an alert reader for the tip.

Related: IF TRUTH IN ADVERTISING APPLIED TO ECONOMIC DEVELOPMENT AGENCIES

 

Peter Reilly reports on tax pro who thinks a case we discussed last week may have been wrongly decided.  I think the court probably got it right, but it’s a good read.  If the taxpayer wins on appeal, it will be very helpful for tax planning.

 

Does that make this a tax shelter?

Does that make this a tax shelter?

Audit the Pope, then?  New Tax Head Says She Knows Why Italians Don’t Pay Taxes: They’re Catholic (TaxGrrrl)

Kay Bell, Coverdell Education Savings Account’s pre-college options.

Jason Dinesen, Bridging the Gap Between What Clients Want … And What They’ll Pay For. “Sure, people “want” a proactive approach. But it seems to me like few are actually willing to PAY for the service.”

Russ Fox, Tax Preparers Behaving Badly, “There’s a common thread among these tax professionals: You’ll be getting a refund. That sounds good until you realize that you really shouldn’t have, and that you will likely get in trouble later.”

Robert D. Flach,  OOPS! THEY DID IT AGAIN.  “The State wants taxpayers, and preparers, to submit income tax returns electronically – but when they do the returns and payments therefor are not properly processed.”

Jack Townsend, Criminal Justice Article of U.S. Global Tax Enforcement

Tony Nitti, Your Complete Guide To Every Tax Reference In ‘The Simpsons’ Marathon 

 

TaxProf, The IRS Scandal, Day 473

Ajay Gupta, Carbon Taxes and the White Man’s Burden (Tax Analysts  Blog):

 China, which surpassed the United States as the world’s largest emitter of CO2 in 2006, has made it clear that it has no intention of agreeing to any reduction quotas “because this country is still at an early stage of development.” India, which now ranks third, behind China and the United States in total CO2 emissions, has similarly rejected the notion of subjecting itself to binding reductions.

Yet the carbon tax lobby in the West remains unfazed in the face of this repudiation of responsibility by the developing world. Among the grounds advanced for pressing ahead with unilateral action is one that relies on the residence time of CO2. For several decades, the West pumped much more CO2 into the earth’s atmosphere than China, India, or any other developing county. Unilateralists argue that those historical emissions and their persisting warming effects ensure that the West will remain the largest contributor to climate change for years to come.

That argument has more than a whiff of reparations.

Frack away.

 

2140731-3Matt Gardiner, Kinder Morgan Doesn’t Want to Be a Limited Partnership Anymore–But They’re One of the Few (Tax Justice Blog).  Paying one tax is better than paying two, other things being equal.

William McBride, More Jobs versus More Children:

I, like most humans, think that children are blessing. I am also one to think we as a society should have more kids. I also think that in the very long run, say decades, demographics are destiny, i.e. we cannot expect to be a large, flourishing economy a generation from now if our birth rate continues to be at or below the replacement rate.

However, boosting the birth rate is not as simple as boosting the child credit. 

Not every problem can be solved with a tax credit.

 

Howard Gleckman, How Much Would An Individual Tax Rate Cut Add to the Deficit, and Who Would Benefit? (TaxVox).  “A one percentage point across-the-board reduction in tax rates would add $662 billion to the budget deficit over 10 years—about $40 billion in 2015 rising to more than $85 billion by 2024.”

 

Donald Boudreax is not a happy taxpayer:

 I pay what I “owe” in taxes not because I have a “responsibility” to do so but, instead, only because government threatens to use violence against me if I don’t pay what it demands.  I stand in the same relation to the tax-gatherer as I stand in relation to any common thug who points a gun, knife, or fist at me demanding my money.  [I actually prefer the common thug, for he neither insults my intelligence by telling me that his predation is for my own good nor spends the money he takes from me to fund schemes to further interfere in my life.] 

I suppose that illusion-free approach probably applies to most of us, if you think about it.

 

Career Corner.  Use All Your Vacation Days, Even If It Means Making Less Money (Caleb Newquist, Going Concern)

 

dictionarySpelling is important.  Even for identity theives.  From Dispatch.com:

A $3.5 million bogus tax-refund scheme that unraveled because the conspirators couldn’t spell the names of well-known cities has resulted in a federal-prison sentence of more than eight years for the scam’s mastermind.

Sims and Towns misspelled the names of several cities when they listed return addresses, including “Louieville” and “Pittsburg.” That caught the attention of Internal Revenue Service investigators.

I love how they call somebody who committed a stupid crime in a stupid way — and showed up for a sentencing hearing drunk, apparently —  a “mastermind.”

 

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Tax Roundup, 8/21/14: IRS says saving the company still “passive;” Tax Court says otherwise And: the $105.82 c-note!

Thursday, August 21st, 2014 by Joe Kristan

Programming note: No Tax Roundup will appear tomorrow, August 22.   I will be up in Ames helping teach the ISU Center for Agricultural Law and Taxation class “Affordable Care Act (ACA): What Practitioners Need to Know in the morning.  Webinar registration is closed, but you can still  attend as a walk-in.

 

S imageS imageS-SidewalkYou saved the company.  Big deal.  Apparently pulling the company you started from the brink of failure wasn’t enough to convince the IRS that a taxpayer “materially participated” and could deduct losses on his tax return.

Charles Wade was a founder of Thermoplastic Services, Inc. and Paragon Plastic Sheeting, both S corporations.  After his son Ashley took over daily management of the business, he still owned a significant stake in the company.  He never really retired, though.  From the Tax Court (my emphasis, footnotes omitted in all Tax Court quotes):

With Ashley there to handle day-to-day management, Mr. Wade became more focused on product and customer development. He did not have to live near business operations to perform these duties, so petitioners moved to Navarre, Florida. After the move he continued to make periodic visits to the facilities in Louisiana and regularly spoke on the phone with plant personnel.

In 2008 TSI and Paragon began struggling financially as prices for their products plummeted and revenues declined significantly. Mr. Wade’s involvement in the businesses became crucial during this crisis. To boost employee morale, he made three trips to the companies’ industrial facility in DeQuincy, Louisiana, during which he assured the employees that operations would continue. He also redoubled his research and development efforts to help TSI and Paragon recover from the financial downturn. During this time Mr. Wade invented a new technique for fireproofing polyethylene partitions, and he developed a method for treating plastics that would allow them to destroy common viruses and bacteria on contact. In addition to his research efforts, Mr. Wade ensured the companies’ financial viability by securing a new line of credit. Without Mr. Wade’s involvement in the companies, TSI and Paragon likely would not have survived.

Slacker.  At least according to the IRS, who said that this participation failed to rise to the level of “material participation” and disallowed over $3 million in pass-through losses on Mr. Wade’s return.

The Tax Court took a different view.  Judge Goeke explains :

A taxpayer materially participates in an activity for a given year if, “[b]ased on all of the facts and circumstances * * * the individual participates in the activity on a regular, continuous, and substantial basis during such year.” A taxpayer who participates in the activity for 100 hours or less during the year cannot satisfy this test, and more stringent requirements apply to those who participate in a management or investment capacity.  The record reflects that Mr. Wade spent over 100 hours participating in TSI and Paragon during 2008, and his participation consisted primarily of nonmanagement and noninvestment activities. Ashley managed the day-to-day operations of the companies; Mr. Wade focused more on product development and customer retention.

Although Mr. Wade took a step back when Ashley became involved in the companies’ management, he still played a major role in their 2008 activities. He researched and developed new technology that allowed TSI and Paragon to improve their products. He also secured financing for the companies that allowed them to continue operations, and he visited the industrial facilities throughout the year to meet with employees about their futures. These efforts were continuous,  regular, and substantial during 2008, and we accordingly hold that Mr. Wade materially participated in TSI and Paragon. 

20120801-2It’s notable that the judge did not require Mr. Wade to produce a daily log.  Apparently there was enough testimony and evidence to show that his participation crossed the 100 hour threshold.

The 100 hours might not have been considered enough under some circumstances.  Usually the IRS holds taxpayers to the default 500-hour test for material participation.  This case is unusual in its use of the fall-back 100-hour “facts and circumstances” test. It’s good to see the Tax Court use it, as the IRS seems to think this test never applies.

It’s also interesting that the efforts at “customer retention” were counted.  This could be useful in planning for the 3.8% Obamacare Net Investment Income Tax.  The NIIT taxes “passive” income, defined the same way as the passive loss rules.  A semi-retired S corporation owner who still calls on some of old accounts after turning daily operations over to successors might be able to avoid the NIIT under the logic of this case.  If so, though, it would be wise to keep a calendar to prove it.

Cite: Wade, T.C. Memo. 2014-169

Related:

Russ Fox, A Passive Activity Case Goes to the Taxpayers.  “Hopefully the IRS can get more of these cases right at audit and appeals–they’ll be dealing with many more of these over the coming years.”

Paul Neiffer, More than 100 but Less than 500.  “It is nice to see that a subjective test went in the taxpayer’s favor.”

Material participation basics.

 

How far does $100 go in your city?  Last week the Tax Foundation issued a map showing how far $100 goes in different states.  Now they have issued a new map in The Real Value of $100 in Metropolitan Areas (Tax Policy Bl0g).  It is wonderful — just scroll your cursor over your town.

In Des Moines, $100 is good for $105.82.  In New York, it gets you $81.83.

 

TaxGrrrl, Anna Nicole Smith’s Estate Loses Yet Another Run At The Marshall Fortune

Tony Nitti, Could The IRS Disallow Ice Bucket Challenge Charitable Contributions?  Go ahead, IRS, just try it.  You’re just too popular.

William McBride, Earnings Stripping, Competitiveness, and the Drive to Further Complicate the Corporate Tax (Tax Policy Blog)

Roberton Williams, One Downside Of Inversions: Higher Tax Bills For Stockholders (TaxVox)

Kay Bell, How does the U.S. corporate tax rate compare to other countries?  Poorly.

TaxProf, The IRS Scandal, Day 469

 

David Brunori, Using Local Cigarette Taxes for Schools Is Silly (Tax Analysts Blog).  Smoke ‘em if you got ‘em.  For the children!

Cara Griffith, Was Oregon’s Tax Incentive Deal With Intel Unnecessary? (Tax Analysts Blog).  No, it was absolutely necessary to enable the Governor of Oregon to issue this press release and YouTube announcement.  That’s the point, after all.

 

Quotable:

The United States gets little tax from Americans overseas today. Most of them live in high-tax countries and have no U.S. income tax in any event because of FTCs and the section 911 foreign earned income exclusion. But as we all know, Congress couldn’t care less about this subject, and this is all a non-starter. Better to place your money on a genetically modified flying pig.

Robert L. Williams in Tax Analysts ($link)

 

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Tax Roundup, 8/20/14: Keeping time reports isn’t just for CPAs anymore.

Wednesday, August 20th, 2014 by Joe Kristan

20120511-2Track your hours now, not when you get audited.  Doing time reports is no fun.  If I had a nickel for every CPA who left public accounting and told me how fun it is to not do time reports, I’d have multiple nickels.

Unfortunately, the tax law might make time sheets necessary for people who don’t charge by the hour.  The passive loss rules disallow losses if you don’t spend enough time on a loss activity to “materially participate.”  Obamacare uses the same rules to impose a 3.8% “Net Investment Income Tax” on “passive” income.

It’s up to the taxpayer to prove they spent enough time to “materially participate,” as a Mr. Graham from Arkansas learned yesterday in Tax Court.

The taxpayer wanted to convince Judge Nega that he met the tax law’s stiff tests to be a “real estate professional,” enabling him to deduct real estate rental losses.  If you are not a “professional,” these losses are automatically passive, and therefore deferred until there is passive income.  To be a real estate professional, the taxpayer has to both:

– Work at least 750 hours in real estate trades or businesses, and

– performs more than one-half of all personal services during the year in real property trades or businesses in which the taxpayer materially participates.

That’s a high bar to clear for a taxpayer with a day job.  Mr. Graham gave it a good try, providing a judge with spreadsheets to show that he did that work.  The judge remained unconvinced:

Mr. Graham did not keep a contemporaneous log or appointment calendar tracking his real estate services. His spreadsheets were created later, apparently in connection with the IRS audit. 

There were other problems:

Furthermore, the entries on the spreadsheets were improbable in that they were excessive, unusually duplicative, and counterfactual in some instances. As all petitioners’ rental properties were single-family homes, reporting 7 hours to install locks or 30 hours to place mulch on a single property (amongst other suspect entries) are overstatements at best. Performing maintenance for a tenant that did not pay rent for an entire year with no record of “past due rent” or any attempt to collect rent (as Mr. Graham would note on entries for other rental properties) seems dubious.

The judge ruled that the taxpayer failed to meet the tests.  Worse, the court upheld a 20% penalty: “We conclude that the exaggerated entries in petitioners’ spreadsheets negate their good faith in claiming deductions for rental real estate losses against their earned income.”

The Moral?  Maintain your time records now.  When the IRS comes calling, it’s too late.  And play it straight; the Tax Court didn’t just fall off the turnip truck.

Cite: Graham, T.C. Summ. Op. 2014-79. 

 

20130426-1Russ Fox, FBAR Filing Follies:

Joe Kristan reported last week that you cannot use Adobe Acrobat to file the FBAR; you must use Adobe Reader. In fact, if you have Adobe Acrobat installed on your computer and use Adobe Reader it won’t work either. Well, I have some mild good news about this.

Mild is right.

 

Peter Reilly, Robert Redford’s New York Tax Trouble Provides Lessons For Planners.  “You dodge non-resident state taxes, either on purpose or by accident, at the peril of missing out on a credit against the tax of your home state.”

Jason Dinesen, S-Corporation Compensation Revisited.  “But what should the salary be? And what if the year has ended and the W-2 deadlines have passed, but the corporate tax return still needs filed?”

Keith Fogg, Postponing Assessment and Collection of the IRC 6672 Liability (Procedurally Taxing).  Issues on the “trust fund” penalty imposed for not remitting withholding.

TaxGrrrl, Flipping Through History: Online Retailers Owe Popularity And Tax Treatment To Mail Order Catalogs:

Online shopping is again changing the way that we look at nexus but for now, more or less the same kinds of principles that ruled in the day of mail order catalogs are still good law. The law remains settled that in states that impose a sales tax, retailers that have established nexus must charge sales tax to customers in that state.

And just like in the old days, states want to extend their reach no matter how flimsy the nexus.

20140729-1Lyman Stone, New Upshot Tool Provides Historical Look at Migration (Tax Policy Blog):

Prominent changes in the data suggest that taxes may have a role in affecting migration, though certainly taxes are just one of many important variables, and probably not even the biggest factor. As always, talking about migration isn’t simple: migration data is challenging to measure and represent, and even more difficult to interpret.

I will be seeing Mr. Stone speak at the Iowa Association of Business and Industry Tax Committee this morning.  I’m geeking out already.

 

Jim Maule, “Give Us a Tax Break and We’ll Do Nice Things.” Not.  It seems the subsidized Yankees parking garages don’t stop with picking taxpayer pockets.

Kay Bell, Is it time for territorial taxation of businesses and individuals?  “Territorial taxation advocates hope that long local journey has at least now started.”

 

Howard Gleckman, Is Treasury About to Curb Tax Inversions on Its Own? (TaxVox).  If the law is whatever the current administration says it is, I look forward to the $20 million estate tax exclusion next time the GOP takes power.

Daniel Shaviro, The Obama Administration’s move towards greater unilateral executive action.  “And the conclusion might either be that one should tread a bit lightly after all, or that we are in big trouble whether one side unilaterally does so or not, given the accelerating breakdown of norms that, as Chait notes, are no less crucial than our express constitutional and legal structure to ‘secur[ing] our republic.'”

20130422-2The best and the brightest in action.  TIGTA: ObamaCare Medical Device Tax Is Raising 25% Less Revenue Than Expected, IRS Administration of Tax Is Rife With Errors (TaxProf)

 

TaxProf, The IRS Scandal, Day 468

 

News from the Profession.  AICPA Celebrates 400,000th Member Just Because (Caleb Newquist, Going Concern)

I can verify that a Kindle absorbs less coffee than paper.  Do readers absorb less from a Kindle than from paper? (Tyler Cowen)

 

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Tax Roundup, 8/19/14: Will people just quit paying taxes? And how far does your $100 go in Iowa?

Tuesday, August 19th, 2014 by Joe Kristan
The income tax, the Ultimate Swiss Army Knife of public policy.  Flickr Image courtesy redjar under Creative Commons license.

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

Some folks are worried that we’ll all suddenly stop paying taxes, according to a Tax Analysts story today (subscriber link only):

Richard Lavoie of the University of Akron School of Law, who studies tax ethics, says voluntary compliance rates have remained relatively high because paying taxes is an accepted social norm. Withholding plays a large role in compliance, but it does not explain everything, according to Lavoie.

Lavoie said the recent controversies surrounding the IRS, such as accusations that the agency targeted conservative groups for political reasons, and other factors such as worsening income inequality have all eroded the public’s trust in a fair tax system. If those pressures continue, it could cause taxpayer attitudes to change virtually overnight, he said. “At some point that all adds up, and what was a stable norm that we collect 83 or so percent of taxes voluntarily could flip,” he said.

I think Mr. Lavoie is identifying things he doesn’t like, such as “income inequality” and the Tea Parties, and dreaming up dreadful consequences.  For example, “Lavoie argued in his 2012 paper that antitax rhetoric such as that espoused by the Tea Party also has the potential to unbalance the tax system.”

Mr Lavoie talks about “accusations” of IRS malfeasance and “anti-tax rhetoric” as the dangers — not the well-documented abuses themselves, or the IRS stonewalling of investigations into the abuses, or the former Commissioner’s dishonest response to the scandal, or the current Commissioner’s intransigence, or the President’s “joke” about auditing his opponents.  These damage faith in the IRS much more than anything the Tea Party could come up with.

The article finds some people who get closer to identifying the real problem:

National Taxpayer Advocate Nina Olson in recent remarks also warned that the habit of voluntary compliance may be at risk. Like Koskinen, she cited the IRS’s budget situation, saying that if Congress continues to restrict the agency’s budget, it may lead to a downward spiral in voluntary compliance rates.

While the poor customer service and declining enforcement are related to funding, funding still isn’t the real problem.  The IRS budget would be just fine if the IRS were treated as just a revenue agency.  Instead Congress has made the tax system into the Swiss Army Knife of public policy.  The IRS has a portfolio that ranges from industrial policy to education to retirement security to, famously, health care.  The IRS policy roles can dwarf those of agencies with nominal responsibility for policy areas.  Giving so many jobs to the IRS necessarily makes it less capable of doing its real job, tax collection.

Unfortunately, there’s no sign that anybody is going to take away the agency’s many non-revenue tasks.  And a GOP Congress isn’t about to increase funding for the IRS as long as it seems unapologetic about going after groups opposed to the administration.  To the extent IRS intransigence causes a compliance crash, the agency has only itself to blame.

 

Alan Cole, Lyman Stone, Richard Borean, The Real Value of $100 in Each State (Tax Policy Blog):

 

20140819-1

 

This map makes Iowa look pretty good.  When you consider average incomes compared to the cost of living, Iowa looks even better.

 

Robert D. Flach’s Tuesday Buzz covers inheritance taxes, tax robots, and the large number of people who seem to rely on lottery winnings for retirement funding.

 

20140728-1TaxGrrrl, Investment Opportunity: Possibly Booby-Trapped Property Remains Unsold.  Ed and Elaine Brown forfeited their property after their armed stand-off with the IRS, but the agency can’t find anybody willing to buy it.  There is some fear of booby traps, but I suspect potential buyers would also be a bit concerned about the reaction of Brown supporters.

Peter Reilly, The OID Fraud And Criminal Gullibility:

I have to say that I have some sympathy with the perspective that a reasonable person seeing the refund checks might want to take another look at the scheme.  If they were incapable of understanding the reasoning behind the scheme and what OID actually is, it could be hard to resist.

The OID scheme is absurd.  I realize some people really are gullible enough to believe in it — but only with a leap of faith that is, literally, criminally stupid.

 

Kay Bell, Pot tourism’s potential tax payoff for states with legal weed.  Iowa’s Governor just says no.

Richard Auxler, Do Sales Tax Holidays Ever Make Sense? (TaxVox).  “In some situations, sales tax holidays can make sense. But generally, they’re bad tax policy unless the alternative is large tax cuts with dubious growth assumptions, and not just for a weekend but for the whole year.”

Erica Brady, Final Whistleblower Regulations Create Administrative Review of Rejected and Denied Claims (Procedurally Taxing)

TaxProf, The IRS Scandal, Day 467

 

News from the Profession: TIL: Ancient Greeks Used Slaves as Auditors So They Could Be Beaten When They Screwed Up (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 8/18/14: Tax Credits for housing. And for Elvis!

Monday, August 18th, 2014 by Joe Kristan

The Des Moines Register is running a series on Jack Hatch, the Democratic nominee for Iowa Governor, focusing on subsidized housing projects he developed.  The stories include Jack Hatch’s record shows no clear conflicts of interest and Review shows Hatch followed public financing rules.

The Register finds no evidence of illegality in Sen. Hatch’s tax credit-driven deals.  That’s unsurprising, as the tax credits are shared with investors, who want clean tax projects and impeccable tax breaks.  As usual with tax incentives, though, the scandal is what is perfectly legal.

The series describes the financing of some projects.  For example:

20140816-1

 

A $6.5 million development with over $8 million in government aid.  A sweet deal, if you are one of the lucky participants of an oversubscribed subsidy program.

While such projects are touted as achieving “affordable housing,” the real beneficiaries are arguably well-connected developers and tax shelter investors.  It’s all legal, and all paid for by the rest of us.

If the real goal is to help the poor, there are better ways than a Rube Goldberg tax credit system running the aid through tax shelter developers and investors.  Arnold Kling’s idea to provide the poor with a universal flexible benefit “to replace all forms of means-tested assistance, including food stamps, housing subsidies, Medicaid, and the EITC, with a single cash benefit,”  is a more promising approach.  It is what a program designed to help the poor, rather than the connected, would look like.

 

Elvis20140818-3Kay Bell, Elvis estate seeks tax breaks for Graceland expansion.  Or what?  Graceland is going to leave Tennessee?  Elvis will leave the building?  But, but, jobs!  Or something.

Robert D. Flach, KEEP COPIES OF YOUR W-2s FOREVER!  Robert explains how he was able to use old W-2s to help a client show that his retirement contributions were “after tax” for New Jersey purposes, preventing a second tax on withdrawal.

Tony Nitti, New Opportunities Exist For S Corporation Shareholders To Deduct Losses

William Perez, Got a Call From the IRS? It’s Probably Not the IRS.  A client of our office got such a scam call last week.  We told them to hang up if they call back.

Jack Townsend, Tidbits on the New Streamlined Procedures

Annette Nellen, Better identity theft efforts – S. 2736

 

20140818-1Jason Dinesen, Why an LPA?  Jason answers the question “Why did I pursue an Iowa “Licensed Public Accountant” designation? LPAs are an obscure lot, in that we only really exist in 3 states (Iowa, Delaware and Minnesota).”

Peter Reilly, IRS Stampedes A Cattle Shelter.  Peter explains why losing a hobby loss case is extra bad.  With a bonus quote from me (Thanks, Peter!).

Tax Trials, Record Your Easement: Tax Court Adjusts Timing & Valuation of New York Facade Easement

 

TaxGrrrl, From AR-15s To Rubber Bullets: How Did Police End Up With Military Gear On American Streets?  Your tax dollars at work.  Amazingly, no tax credits appear to be involved.

TaxProf, The IRS Scandal, Day 466.  It appears the judge who told the IRS to explain what happened to the Lois Lerner emails isn’t yet satisfied with the IRS response.  More from Russ Fox: Judge Sullivan Not Impressed by the “Dog Ate my Homework” Excuse.

20140818-2Ajay Gupta, Demagoguing the ‘I’ Words. (Tax Analysts Blog) “If an inversion exploits a loophole, then so does every other corporate reorganization that painstakingly adheres to the requirements of the code and regs.”

Steven Rosenthal, Can Obama slow corporate inversions? Yes he can.  Silly rabbit.  The idea isn’t to slow corporate diversions; it’s to demonize them for political fun and profit.  And his idea of reviving the moribund Sec. 385 debt-equity regulations for this purpose shows how much the inversion panic has parted from reality.

 

News from the Profession.  Here’s Further Proof That Accounting Firms Need a Charge Code for “Wasting Time on Internet” (Caleb Newquist, Going Concern)

 

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Tax Roundup, 8/14/14: Department of Revenue says: no SE Tax, no Iowa gain exclusion on CRP ground. Cash rents also fail.

Thursday, August 14th, 2014 by Joe Kristan

20140814-1Cash Rent, failure to pay self-employment tax ruled fatal to Iowa capital gain exclusion.  Iowa has an unusual capital gain exemption on sales of farm and business property for taxpayers meeting both a 10-year holding-period requirement and a ten year “material participation” test.  The Iowa Department of Revenue yesterday released three rulings holding that taxpayers failed to meet the second requirement on sales of farm ground.  The material participation rules are for the most part the same as in the federal “passive loss” rules.

Cash rent.  Document 14201019  holds that you don’t “materially participate” if all you do is rent farm ground:

The issue raised in the protest involves whether a capital gain deduction from the sale of farmland was properly disallowed on the Iowa individual income tax return for the 2009 tax year.  The farmland, which was held in the name of two partnerships, West Side Acres and East Side Acres, was involved in a cash rent arrangement.  There is no dispute that the farmland was held for more than ten years, but the Department contended that the ten year material participation test was not met.

The taxpayers claimed they spent more than 100 hours managing their farm rentals, but the Department said that activity didn’t count (my emphasis):

The Department notes that most of the hours spend by protester in the farming operation that was provided in the January 29, 2014 letter related to maintenance of business financial records, including review of property tax estimates and assessments and payment of expenses.  The Stoos decision stated that actions of paying the mortgage, preparing taxes and other financial work is not materially related to the farming operation, and these hours were considered “investor-type” activities which were not part of the day-to-day operation of the farm.  Therefore, those hours do not count toward material participation, and the 100 hour test has not been met by protester.  

This is the result I would have predicted.  Cash rent of farm land is not normally considered  “farming” under the passive loss rules.

binConservation Reserve and Self-employment Tax.  Documents 14201020 and 14201017 deny the capital gain exclusion to two taxpayers because they failed to pay self-employment tax on CRP payments.  The liability of CRP recipients for self-employment tax is controversial; a pending Eighth Circuit case seems likely to hold that the tax doesn’t apply to CRP recipients who do not otherwise farm.

The rulings say that the Department goes by the treatment of the payments reported on the taxpayers returns: if they taxpayer paid SE tax on CRP payments, they are considered to have materially-participated in those years, but not otherwise.  From Document 14201017 (my emphasis)

The Department first notes that the Federal Court of Appeals for the Sixth Circuit in Weubker v. Commissioner, 205 F.3d 897 (2000) held that CRP payments were net income from self-employment because they were received in exchange for performing tasks “that are intrinsic to the farming trade or business” such as tilling, seeding, fertilizing and weed control. Subsequently, the Internal Revenue Service issued Notice 2006-108 which states that CRP payments either to a farmer who either personally fulfills the CRP obligations or who isn’t an active farmer and fulfills this obligation through a third party are both includible in self-employment income and are not excludible as rentals from real estate.

Therefore, the Department contends that self-employment tax was clearly due on these CRP payments.

Since protester did not pay self-employment tax on this CRP income, the Department contends that the material participation test was not met. In addition, protester does not meet the retired farmer exception regarding material participation for 5 of the 8 years prior to retirement since self-employment tax was not paid on the CRP acres prior to you receiving social security benefits in 2003. Therefore, the Department contends that you do not meet the qualifications for the capital gain exclusion since you did not materially participate in the CRP activity for ten years.

The liability for SE tax on CRP payments was never as open-and-shut as the Department says. Some commentators have argued that Weubker is wrong, and that CRP, by itself, doesn’t constitute farming (see here and here).  Even so, it is also a stretch to say that the minimal maintenance required on CRP ground rises to the level of “material participation.”

The Department here is saying in effect that they will take your word for it — as shown on your tax filings.  If you paid SE tax on your CRP income, you’re a farmer as far as they are concerned, and you qualify for the exclusion.  Given the stratospheric cost of farm ground nowadays, taxpayers may find it worth paying a little SE tax to qualify for the Iowa gain exclusion.

Related:

Material Participation Basics.

Iowa Capital Gain Deduction: an illustration

 

Canadians born in U.S. sue Ottawa over tax fraud law (TheStar.com):

Canada has violated the charter rights of nearly a million Canadians by agreeing to share their financial details with authorities in the United States, two Ontario women allege in a new lawsuit.

FATCA sponsor Charlie Rangel, D-NY

FATCA sponsor Charlie Rangel, D-NY

They are talking about “FATCA,” the outrageous Congressional overreach into the operations of banks around the world.

Gwen Deegan of Toronto and Ginny Hillis of Windsor, Ont., have launched a claim against the Attorney General of Canada.

In it, they accuse Ottawa of breaching the Constitution by complying with a sweeping new American tax fraud law, known as the Foreign Account Tax Compliance Act.

Under the terms of the legislation that took effect last month, banks must share all personal and joint account details of anyone deemed to be a “U.S. person.” This includes American citizens and people born in the U.S., even those with no existing ties to the country.

I wonder what the reaction in the U.S. would be if, say, Russia demanded the bank account information of every American it said was a “Russian person.”  I don’t think it would be popular. Yet our Congress thinks it is entitled to demand that non-U.S. banks cough up whatever information it feels like asking for.

The response has been to make financial life difficult for Americans overseas, as dealing with U.S. persons becomes more of a hassle than their business is worth.  It also restricts employment opportunities abroad for Americans by making their employment inconvenient.

Charlie Rangel was one of the main sponsors of FATCA.  He would know a little about not paying taxes.

 

20140814-2Paul Neiffer, Sale of Gifted Grain Can Be Tax Free:

When the donee sells this grain, it will be reported as a capital gain.  If time after harvest of the grain and the time of sale is less than a year, it is short-term.  If this time is greater than a year, then it is long-term. 

If the donee is in a low-enough bracket, long-term capital gains are taxed at zero.  But watch out for the “Kiddie Tax.”

 

Jason Dinesen, Proper Documentation of Business Expenses:

In most circumstances, you can prove your expenses even if you don’t have a receipt. But again, I feel that receipts AND other documents are the safest way to go.

Absolutely.  Jason has some tips for keeping track of them.

 

Kay Bell, School’s back. So are some, but not all, education tax breaks

 

Andrew Lundeen, Alan Cole, The Inequality Debate Ignores How Incomes Change Over the Life Cycle (Tax Policy Blog):  “Income data from the IRS and the Census Bureau have their uses, but measuring equality isn’t one of them.”

 

Joseph Thorndike, How ISIS Is Using Taxes to Build a Terrorist State (Tax Analysts Blog)

TaxGrrrl, Tax Revenues Still On Pace To Break Records In 2014   

 

TaxProf, The IRS Scandal, Day 462

Career Corner.  Study: Working in a Windowless Cube is Ruining Your Life (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 8/13/14: Tax Fairies in the graveyard? And: another payroll service goes bad.

Wednesday, August 13th, 2014 by Joe Kristan

Funeral home signOf course cemetery lots are shooting up in value.  People are dying to get in!  Taxpayers seek the Tax Fairy in the strangest places.  The Tax Fairy is the mythical spirit who can make taxes go away magically, for a reasonable price to a tax wizard who claims to be able to summon her.  A Tax Court case yesterday found taxpayers looking for her in cemeteries (Emphasis mine; slightly edited for readability).

Judge Nega’s overview:

Heritage Memorial Park Associates 1995-2, Heritage Memorial Park Associates 1995-3 , and Heritage Memorial Park Associates 1995-4 (collectively, partnerships) are Maryland general partnerships. The partnerships were established to acquire cemetery sites, to hold the sites for over one year, and then to contribute the sites to qualified charitable organizations, with the aim to provide individuals who invested in the partnerships with charitable contribution deductions equal to the appraised values of the sites as of the times of the contributions. Glenn R. Johnston and his colleagues promoted the partnerships to wealthy individuals as a way for them to receive a return of tax benefits in the form of passthrough deductions or losses worth significantly more than the amounts invested. 

What sort of deductions?

…(petitioner) invested $37,500 in each partnership. He made these investments to increase the amounts of his charitable contributions for the subject years and, more particularly, to receive promoted tax benefits worth significantly more than his investments. He expected that his investments would return him tax benefits worth $50,000 for each subject year. 

HMPA 1995-2 claimed the $1,864,850 charitable contribution deduction on that return. Petitioner was allocated $135,127 of that deduction, and petitioners deducted the $135,127 on their 1996 individual return as a charitable contribution. HMPA 1995-2 reported on its 1996 Form 1065 that HMPA 1995-2 had no income or expenses for 1996 (but for the charitable contribution deduction).

So: invest $35,000, deduct $135,000, save (conservatively) 1/3 of $135,000, or $45,000.  What could go wrong?

On September 29, 2005, Mr. Johnston was indicted on (1) one count of conspiracy to defraud the United States by selling, claiming, and causing others to sell and claim millions of dollars in false and fraudulent tax deductions for charitable contributions and concealing from the IRS income from the sales of the fraudulent deductions and (2) multiple counts of aiding and assisting in the filing of false returns by investors in the partnerships so that the investors claimed charitable contribution deductions in amounts substantially greater than allowable. These charges involved the partnerships, among one or more other entities. Mr. Johnston pleaded guilty to the first count on April 12, 2007.

Sure, it’s a criminal enterprise, but the deductions are still good, right?  And didn’t the statute run?  Nope.  The court ruled that the IRS met the procedural requirements to keep the statute of limitations open by properly initiating partnership-level proceedings.  The court also ruled that the taxpayer couldn’t claim a business loss for the partnership investments:

tax fairyPetitioners argue secondarily that they may deduct a $37,500 loss for each year as to petitioner’s investments in the partnerships. To that end, petitioners assert, petitioner’s ownership interests in the partnerships were worthless as of the end of the corresponding years in which the partnerships operated, and he knew that the interests were worthless as of those times and abandoned his interests as of those times. Petitioners add that petitioner invested in the partnerships to make a profit and in furtherance of a legislative intent to encourage charitable contributions.

But the court ruled that seeking charitable deductions isn’t a “trade or business,” and that no business loss was available.  $35,000 spent to net a tax savings of nothing.

The Moral?  This thing should never have passed the “too good to be true” test.  The deductions depended on incredible post-contribution appreciation in graves.  Anybody thinking this sort of thing might actually work really needs to get out more.  And there is no tax fairy.

Cite: McElroy, T.C. Memo 2014-163.

Related:  Three Years is the Normal Statute of Limitations, But Not Always (Paul Neiffer).

 

EFTPSAnother payroll service makes off with employers’ payroll tax payments.  From emissourian.com:

 

A Washington man pleaded guilty this week to federal mail fraud and money laundering charges.

Bradley Ferguson, 48, owner of Paymaster Business Solutions in Fenton, is scheduled to be sentenced Nov. 6 in U.S. District Court. 

He pleaded guilty to one felony count of mail fraud and one felony count of money laundering before U.S. District Judge E. Richard Webber.

Ferguson is accused of withdrawing money from the bank accounts of business clients to pay federal, state and local taxes but did not make the payments, according to a federal grand jury indictment.

While it makes sense for many taxpayers to outsource payroll functions, the tax law still holds the employers responsible for getting withholdings to the IRS.  If you outsource your payroll taxes, you should use Electronic Federal Tax Payment System (EFTPS) online access to make sure your payroll tax remittances are actually hitting your account.  If you use a service that doesn’t allow you to do this — like many “professional employer organizations” who “co-employ” their clients’ workers — you need to make other arrangements, like bonding, to protect yourself.

 

Peter Reilly, Alimony Deduction Requires Good Substantiation.  “It turns out that taxpayers are routinely whipsawing the IRS.”

William Perez, How to Get a Federal Tax Credit for the Cost of Child Care.

Kay Bell, James-Love NBA combo is tax boon to two Cleveland towns.

TaxGrrrl, Think Before You Post: The Dangers Of Seeking Tax Advice On The Internet:

I was pretty shocked at how much information folks were willing to share on the internet about their tax evasion questions, strategies and justifications. Sometimes, these folks are regular forum posters who happily share their location and other identifying information while others clearly try to remain somewhat anonymous.

In case you were wondering, the IRS has internet access.

 

Jason Dinesen, Rare Home Office Deduction Win in Tax Court

Carl Smith, In Some Cases IRS Seeks to Conflict Out Lawyers Who Represented Taxpayers in CDP Hearings (Procedurally Taxing).  CDP stands for “collections due process.”  The IRS is bigger than you, peasant.

 

Tony Nitti, Final IRS Rules On Partnership Technical Terminations Will Surprise Some Tax Pros

 

20140813-1David Brunori: Congress Shouldn’t Make State Tax Systems Worse (Tax Analysts Blog)

As my colleague Maria Koklanaris reported, 29 Democratic members of Congress asked leaders of the California State Legislature to reauthorize and expand the state’s film tax credit. Led by Rep. Adam B. Schiff, D-Calif., the federal lawmakers asked California to extend a very bad tax policy, saying that if it doesn’t, film jobs will be lost forever to other states. 

Why film credits? Why not some other industry? Politicians are the worst at determining what’s best for the marketplace. Despite the studies funded by the Motion Picture Association of America that say otherwise, film tax credits don’t work. In virtually every state that has them, there’s no discernible economic effect — that is, the tax giveaway did not result in more economic activity than would have occurred without it.

Iowa has some lessons to teach here.

 

TaxProf, The IRS Scandal, Day 461

 

There’s only one left? Owner of the Pickle pleads guilty to federal tax fraud.

Because you invited clients?   PwC’s Bob Moritz on Why You Shouldn’t Miss Your Kid’s Birthday Party for Work (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 8/11/14: Don’t you dare agree with me edition.

Monday, August 11th, 2014 by Joe Kristan

microsoft-appleDavid Brunori notes ($link) some odd behavior by Good Jobs First, a left-side outfit that has been on the side of the angels by highlighting the baneful effects of corporate welfare tax incentives.  The American Legislative Exchange Council came out with a report blasting cronyist tax incentives, and rather than embracing the report, Good Jobs First ripped it — because the Koch Brothers are the Devil:

Yet, Good Jobs First slams ALEC because many recipients of tax incentives have close ties to ALEC. But so what? The fact that corporations, including those run by the Koch brothers, provide support to ALEC doesn’t diminish the argument that incentives are terrible.

Weirdly, Good Jobs First primarily blames the recipients of corporate welfare for taking the money, rather than the politicians who give it away:

Moreover, Good Jobs First inexplicably says that ALEC is wrong to blame policymakers rather than the companies that receive incentives. But the blame for those horrible policies rests squarely on the shoulders of lawmakers and governors who perpetuate them. In a world where the government is handing out benefits to anyone who asks, it’s hard to fault the people who line up for the handout. No one has been more critical of tax incentives than I, but I’ve never blamed the corporations. Nor do I blame the army of consultants and lawyers who grease the wheels to make incentives happen. There’s no blame for anyone other than the cowardly politicians from both parties who can’t seem to resist using those nefarious policies.

Precisely correct.  When somebody is handing out free money, it’s hard to turn it down when your competitors are taking all they can.

I have seen smart people I respect do everything short of donning tin-foil hats when talking about the Koch Brothers and their dreadful agenda of influencing the government to leave you alone.  Maybe everyone needs an Emmanuel Goldstein.

Adam Michel, Scott Drenkard, New Report Quantifies “Tax Cronyism” (Tax Policy Blog)

Annette Nellen, What about accountability? California solar energy property.  Green corporate welfare is still corporate welfare.

 

20130121-2Russ Fox, Where Karen Hawkins Disagrees With Me…  The Director of the IRS Office of Preparer Responsibility commented on Russ’ post “The IRS Apparently Thinks They Won the Loving Case.”  Russ replies to the comment:

Ms. Hawkins is technically correct that Judge Boasberg’s order says nothing about the use of an RTRP designation. However, the Order specifically states that the IRS has no authority to create such a regulatory scheme. If there isn’t such a regulation, what’s the use of the designation?

The courts closed the front door to preparer regulation, so the IRS is trying to find an unlocked window.

 

TaxGrrrl, IRS Imposes New Limits On Tax Refunds By Direct Deposit.  “Effective for the 2015 tax season, the IRS will limit the number of refunds electronically deposited into a single financial account (such as a savings or checking account) or prepaid debit card to three.”

This seems like a measure that should have been put in place years ago.  The Worst Commissioner Ever apparently had other priorities.

 

Kay Bell, Actor Robert Redford sues NY tax office over $1.6 million bill.  The actor gets dragged into New York via a pass-through entity in which he had an interest — a topic we mentioned last week.

Renu Zaretsky, August Avoidance: Corporate Taxes and Budget Realities.  The TaxVox headline roundup covers inversions, gridlock, and Kansas.

Peter Reilly, Org Tries Exempt Status Multiple Choice – IRS Answers None Of The Above

 

 

20140811-1Ajay Gupta, The Libertarian Case for BEPS (Tax Analysts Blog)  BEPS stands for “Base Erosion and Profit Shifting.”

Matt Gardiner, Inversions Aside, Don’t Lose Sight of Other Ways Corps. Are Dodging Taxes (Tax Justice Blog).  Don’t worry, Matt.  If I did, my clients would take their business elsewhere.

Robert D. Flach, HEY MR PRESIDENT – DON’T SHOOT THE MESSENGER!  “If there is something wrong with the Tax Code do not blame the accountant or tax professional.  We have a moral and ethical responsibility to bring to our clients’ attention all the legal deductions, credits, loopholes, techniques, and strategies that are available to reduce their federal and state tax liabilities to the least possible amounts.”

 

Roger McEowen, Federal Court, Contrary To U.S. Supreme Court, Says ACA Individual Mandate Not a Tax.

Jack Townsend, U.S. Forfeits Over $480 Million Stolen by Former Nigerian Dictator.  The headline is misleading — the U.S. received the cash in a forfeiture — they seized it, rather than forfeiting it.

 

2140731-3TaxProf, The IRS Scandal, Day 459

Instapundit, GANGSTER GOVERNMENT: Inspectors general say Obama aides obstruct investigations.  The majority of the 78 federal inspectors general took the extraordinary step of writing an open letter saying the Administration is blocking their work as a matter of course.  The IRS stonewalling on the Tea Party scandal is part of the pattern.

 

 

News from the Profession. It’s Completely Understandable Someone Might Sign Over 200 Audit Reports By Mistake (Adrienne Gonzalez, Going Concern)

You mean they didn’t shift to organic carrot juice?  “From Coke to Coors: A Field Study of a Fat Tax and its Unintended Consequences” (Via Maria Koklanaris at Tax Analysts):

Could taxation of calorie-dense foods such as soft drinks be used to reduce obesity? To address this question, a six-month field experiment was conducted in an American city of 62,000 where half of the 113 households recruited into the study faced a 10% tax on calorie-dense foods and beverages and half did not. The tax resulted in a short-term (1-month) decrease in soft drink purchases, but no decrease over a 3-month or 6-month period. Moreover, in beer-purchasing households, this tax led to increased purchases of beer.

I’m sure the politicians who want to run everyone’s diet will angrily demand higher beer taxes in response.

 

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