Posts Tagged ‘Kyle Pomerleau’

Tax Roundup, 3/25/15: Why the casino may not be the place to invest those millions from that Chinese guy.

Wednesday, March 25th, 2015 by Joe Kristan

In the movies, an American who is entrusted with millions from a Chinese shipping magnate, but blows it at casinos, would face unimaginably dire consequences. In real life, he faces the IRS.

20120511-2That’s the story in a weird Tax Court case decided yesterday. The shipping magnate, a Mr Cheung, had fared poorly as an investor. He met a Mr. Sun from Texas and decided that he might be better at investing. He shipped the money to a C corporation and an e-Trade account owned by Mr. Sun, under a handshake deal with fuzzy terms. Judge Paris explains:

The only part of the arrangement that both Mr. Cheung and Mr. Sun consistently agreed on was the general structure of the investment. Mr. Cheung would transfer sums of money through his shipping companies’ bank accounts to Mr. Sun, who would then invest the money in the United States. Mr. Cheung would decide how much money he wished to send, and Mr. Sun had discretion on which investments to pursue with Mr. Cheung’s money.

The remaining terms of the verbal agreement were not memorialized and are unclear. Specifically, Mr. Sun and Mr. Cheung inconsistently described the investment term, the expected return, and enforcement provisions. Mr. Sun believed the term was a minimum of 5 years and did not give a maximum period, whereas Mr. Cheung believed the term was 7 to 10 years. The expected return is also unclear; Mr. Sun believed the return on investment would be a 50-50 split of the net profit with a minimum 10% gain annually, but the return might not be paid annually. Mr. Cheung believed the return would be 10% to 15%, but was uncertain whether that return was annual or total.

Not the sort of investment arrangement Suze Orman or Dave Ramsey would embrace. Nor would they embrace some of the “investments” described in the Tax Court case.

The funds sent to Mr. Sun’s C corporation went into an “officer loan account” for Mr. Sun. And then… well, again from Judge Paris (emphasis mine):

Mr. Sun would either pay his personal expenses directly from the officer loan account or he would remove money and use it at his discretion. For example, in 2008 Minchem paid $135,874.43 for home automation, $158,517.80 for a new Mercedes Benz, and $49,598.81 for personal real estate tax. In total, Minchem’s officer loan account was debited $4,116,414.43 in 2008 and $1,811,127.65 in 2009 for expenses that Mr. Sun identified as personal during his trial testimony.

Some of the personal expenditures included gambling expenses. In 2008 $4,800,100 was transferred to casinos from the officer loan account and $2,394,550 was returned. In 2009 $1 million was transferred to casinos and $1,300,000 was returned. Thus between 2008 and 2009 Mr. Sun transferred $5,800,100 from the officer loan account to casinos and received back $3,694,550; i.e., over the two years in issue Mr. Sun lost $2,105,550 from gambling from the officer loan account.

20120801-2Judge Paris said that the funds never belonged to the C corporation because it was a mere conduit for the cash; that meant the corporation was not taxable on the amounts.

Mr. Sun didn’t get off so easy. Judge Paris said that the funds became income to Mr. Sun when he began spending them for his own purposes (citations omitted):

Whether funds have been misappropriated is a question of fact, but facts beyond “dominion and control” must be considered. More specifically, an individual misappropriates funds when money has been entrusted to the individual for the sole purpose of investing and the individual instead uses the money for personal activities.

Mr. Sun undisputedly treated as his own money held for Mr. Cheung’s benefit and specifically earmarked for investment purposes. For example, Mr. Sun used some of the funds to purchase a personal automobile and a home automation system. Perhaps the most obvious example of Mr. Sun’s misappropriation of the funds is his gambling activities.

The opinion dismissed the idea that the funds were loans because there was no documentation of any sort of loan agreement or terms. The court said that the amounts weren’t gifts because no Form 3520, where U.S.  taxpayers report large foreign gifts, was filed, and because there was no evidence of an intent to make a gift.

While the Tax Court ruled that Mr. Sun misappropriated the money, it ruled that the IRS failed to prove fraud. That meant the penalties were only 25% of the roughly $4.7 million of additional tax, rather than the 75% under the civil fraud rules.

The Moral? Hard to say. Don’t squander millions of dollars entrusted to you for investment at casinos? You didn’t need the Tax Court to tell you that. Maybe it’s a handy reminder to file Form 3520 if you receive large foreign gifts, lest the IRS get the wrong idea (and lest they hit you with a $10,000 penalty for not filing it). And if you have had bad luck with your investments, maybe index funds are a better way to go than a handshake deal with some guy in Texas.

Cite: Minchem International, Inc., et. al., T.C. Memo 2015-56.

 

Kyle Pomerleau, U.S. Taxpayers Face the 6th Highest Top Marginal Capital Gains Tax Rate in the OECD (Tax Policy Blog):

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The United States currently places a heavy tax burden on saving and investment with its capital gains tax. The U.S.’s top marginal tax rate on capital gains, combined with state rates, far exceeds the average rates faced throughout the industrialized world. Increasing taxes on capital income, as suggested in the president’s recent budget proposal, would further the bias against saving, leading to lower levels of investment and slower economic growth. Lowering taxes on capital gains would have the reverse effect, increasing investment and leading to greater economic growth.

But, but, the rich!

 

IMG_1388William Perez covers Various Types of Individual Retirement Accounts.

Paul Neiffer, Tax Court Allows $11 Million Horse Loss to Stand. “Now, though this is a victory for the taxpayer in Tax Court, they are still out over $11 million in losses (or more).  I am not sure if it really is an overall win for the taxpayers.”

TaxGrrrl, Taxes From A To Z (2015): M Is For Municipal Bonds.

Jason Dinesen discusses Recordkeeping Considerations for a Startup Business.

Roger McEowen, USDA Releases Proposed Definition of “Actively Engaged in Farming” That Would Have Little Practical Application. Sounds useful.

Kay Bell, $42 million Montana mansion owner loses property tax fight. Looks like a nice place.

Jim Maule, When Social Security Benefits Aren’t Social Security Benefits: When They Meet Tax. “By reducing social security benefits on account of the state retirement system benefit payments, the Congress causes the portion of the taxpayer’s overall retirement receipts that is treated as taxable pension payments to increase, which in turn not only increases gross income on its own account but generates gross income from a portion of the social security benefits.”

Joni Larson, Proposal to Amend Section 7453 to Provide that the Tax Court Apply the Federal Rules of Evidence (Procedurally Taxing)

 

Tony Nitti, Ted Cruz To Run For President: Why His Plan For A Flat Tax May Doom His Candidacy:

Whether a move to a much more regressive system than the one currently in place is ultimately in the best interest of the economy and country is irrelevant; the Democrats will seize on the shift in the tax burden and continue to paint Republican candidates as seeking only to placate the rich.

I think Hillary Clinton, or whoever the nominee is, will do that to any Republican opponent, regardless of any actual policy positions. The question is whether they will be able to more successfully deal with the issue than Mr. Romney.

Robert Wood, Taxing Stephen King, Taylor Swift And Phil Mickelson

 

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Renu Zaretsky, Tax Struggles and Tax Sneaks. Today’s TaxVox headline roundup has stories about how Orrin Hatch wants tax reform and John Koskinen wants more money.

David Brunori, Louisiana Tax Reform: Some Smart Guys Worth Listening To (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 685.  Today’s post features Media Matters, living proof that the IRS concern over political activity was rather selective.

 

Career Corner. Confirmed: Golf More Difficult Than CPA Exam (Caleb Newquist, Going Concern). But almost as much fun!

 

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Tax Roundup, 3/17/15: St. Patrick didn’t chase the taxes out of Ireland.

Tuesday, March 17th, 2015 by Joe Kristan

20150317-1aTax luck of the Irish. While America celebrates Irish heritage by today by drinking far too much bad dyed beer, we’ll ponder the sober look taken by Kyle Pomerleau at the Irish tax system (my emphasis):

It may be surprising to Americans to hear that Ireland has pretty high taxes. We usually hear about Ireland’s tax system in the context of its corporate income tax rate, which sits a low 12.5 percent, half the average rate of the OECD. We are led to believe that Ireland is a low-tax country in general.

In reality, Ireland’s tax code has some of the highest marginal tax rates, especially on income, in the OECD.

Ireland’s top marginal individual income tax rate is 40 percent on individuals with incomes over 33,800 EUR ($36,236).  On top of that, individuals need to pay payroll taxes of 4 percent on wages and other compensation. Ireland also has “Universal Social Charge,” which tops out at 8 percent (11 percent for self-employed individuals).

Altogether, the top marginal tax rate in Ireland is 52 percent. The average top marginal income tax rate (plus employee-side payroll taxes) is 46 percent in the OECD. Not only is this rate high, it applies at a relatively low level of income ($40,174).

It’s enough to make me glad great-great-great Grandpa took off for North America in the 1840s.*

The tax rate is also high on investment income. Capital gains are taxed at 33 percent, which is significantly higher than the OECD average of about 18.4 percent. Dividends are taxed at ordinary income tax rates of 40 percent plus the 8 percent Universal Social Charge (48 percent).

The US top marginal rate, excluding state taxes, is about 44.588%, considering phase-outs and the Obamacare 3.8% Net Investment Income Tax, but it doesn’t kick in until taxable income reaches $406,750 for single filers and $457,600 on joint returns. Our fully-loaded top capital gain and dividend rate is 19.25%. So if you must drink something, drink to having a less awful top marginal rate than Ireland.

*OK, technically he came from County Tyrone, which is in the U.K., not the Republic of Ireland.

 

daydrinkersMaria Koklanaris reports on a study by the left-side policy shop Good Jobs First (Tax Analysts $link):

There are 11 companies listed in both the top 50 state and local subsidy recipients and the top 50 federal subsidy recipients. They are Boeing, The Dow Chemical Co., Ford Motor Co., General Electric, General Motors, JPMorgan Chase & Co., Lockheed Martin Corp., NRG Energy Inc., Sempra Energy, SolarCity, and United Technologies.

Also, six companies on the top 50 state list are on the list of the top 50 recipients of federal loans, loan guarantees, and bailout assistance — Boeing, Ford Motor, General Electric, General Motors, Goldman Sachs, and JPMorgan Chase. Five companies – Boeing, Ford Motor, General Electric, General Motors, and JPMorgan Chase — are on all three lists.

All companies you just feel good about when you pay extra taxes, so they can pay less. Especially GE and JPMorgan Chase.

 

Christopher Bergin, The IRS Doubles Down on Secrecy (Tax Analysts Blog):

Faced with blistering criticism over how it handled exemption applications, accusations that it wrongly – and, perhaps, even criminally – withheld e-mails from lawmakers and the public, and rising concerns that it is the most secretive government agency we have, what is the Internal Revenue Service’s response?

To become even less transparent. As the saying goes: You can’t make this stuff up.

I think the evidence can lead to only two conclusions about the current IRS commissioner: either he is the most tone-deaf and socially-unskilled administrator in the Federal government, or he wants to make the IRS as unaccountable as possible.

 

TaxProf, The IRS Scandal, Day 677. IRS, fighting transparency tooth and nail.

 

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.

Peter Reilly, Don’t Sic IRS On Racist Frat Boys. “Nobody ever suggests that the Equal Employment Opportunity Commission or the Department of Education should pitch in and help collect taxes, but for some reason the IRS is seen as the Swiss army knife of social policy, ready to further shred its tattered reputation addressing issues that stump other institutions.”

 

 

William Perez, Need to File a Year 2011 Tax Return? Deadlines and Resources

Kay Bell, Filing tips for the 2015 tax deadline that’s just a month away

TaxGrrrl, Taxes From A To Z (2015): I Is For Insolvency. And Illinois, but that’s the same thing.

Robert Wood, Of Obamacare’s Many Taxes, What Hurts Most. So many choices.

Stephen Olsen, Summary Opinions for week ending 02/27/15 (Procedurally Taxing). A roundup of developments in the tax procedure world.

Russ Fox begins his last part of tax season hibernation. Take care of yourself and your clients, Russ. I’ve been tempted to hibernate myself, but since now is when people are most interested in this stuff, I keep at it.

 

Picture by Dan Kristan

Picture of Irish countryside by Dan Kristan

 

Richard Auxier, Can Rube Goldberg Save the Highway Trust Fund? (TaxVox). “In principle, the Highway Trust Fund (HTF) is simple. Drivers pay a federal gas tax when they purchase fuel, the revenue goes to the HTF, and the federal government sends the dollars to states and local governments for highway and transit programs. But in practice the system is a mess and a new proposal by a road builder trade group shows just how tangled this web has become.”

News from the Profession. Accountants Share Their Dreams. (Caleb Newquist, Going Concern)

 

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Tax Roundup, 3/13/15: Making the ultimate sacrifice to tax administration. And: Tax Sadist Tourism!

Friday, March 13th, 2015 by Joe Kristan
http://commons.wikimedia.org/wiki/File:SPA51928.JPG#/media/File:SPA51928.JPG

“SPA51928″ by Jan Leineberg – Own work. Licensed under Public Domain via Wikimedia Commons -

Maybe I should leave my office door open. A tax office official in Finland who died at his desk was not found by his colleagues for two days (BBC, via the TaxProf):

The man in his 60s died last Tuesday while checking tax returns, but no-one realised he was dead until Thursday.

The head of personnel at the office in the Finnish capital, Helsinki, said the man’s closest colleagues had been out at meetings when he died.

He said everyone at the tax office was feeling dreadful – and procedures would have to be reviewed.

Procedures? Like what? I can see the memo now:

To: All Employees

From: Pekka Raanta, HR director

Re: New Procedures

The recent unfortunate incident involving our dear colleague highlights a need for new procedures for preventing a recurrence of the incident. The presence of unauthorized dead in the office poses both safety and administrative issues.

To ensure early deduction of deaths among our colleagues, we will initiate the following MANDATORY daily procedures.

1. The office manager is to begin each day by kicking all employees. The receptionist will kick the office manager. Should they not respond, please complete form HR-6-MORT.

2. At 10 am and 2 pm each day, we will have a roll call. THIS IS IMPORTANT. Please do not answer the roll for an absent colleague, as this could inadvertenly conceal a death.

3. Buddy system. You will be assigned a “death buddy” by the H.R. Department. You and your death buddy will be responsible for continuous respiration monitoring. Should you go on break or to the restroom, IT IS YOUR RESPONSIBILITY TO SECURE A SUBSTITUTE. You are also responsible for making mutually satisfactory arrangements to vacation together.

4. ALL EMPLOYEES are required to attend training to enable you to identify dead colleagues. Warning signs such as unusually low productivity and wearing the same outfit for consecutive days will be covered. We realize that it can be difficult to distiguish between the productivity of the dead and the normally-functioning, but there are important signs to look for.

Pihla will complete our colleague’s final time report. Please charge the final two days to “diversity training.” 

I wonder if there is a Purple Heart for tax officials who die at their desks. TaxGrrrl has more on this important story.

 

Foggy Friday at Principal Park. Opening day looms in the fog, April 17!

Foggy Friday at Principal Park. Opening day looms in the fog, April 17!

Russ Fox reminds us that Corporate Tax Deadline is Monday, March 16th and Form 1042 Filing Deadline is Monday, March 16th. Form 1042 reports most foreign withholding, except for partner withholding.

 

Jack Townsend, Judge Posner Confronts a Crackpot in a Tax Crimes Case. “The point is, Judge Posner entertains.”

Jim Maule, Moving? Let the IRS Know. “The lesson is undeniable. Taxpayers who move need to send a change of address notice to the IRS.”

Peter Lowy covers the same case as Prof. Maule in Gyorgy v Comm’r Tees Up Important Procedural issues at Procedurally Taxing.

 

Via Wikipedia

Via Wikipedia

Robert Wood, Fake IRS Agent Scam Targets Public, Even Feds, While Identity Theft Tax Fraud Is Rampant. “Senate testimony shows just how serious fraudsters are at tax time, and just how easy it is for them to get your tax refund.”

Tom Giovanetti,, Blame the IRS and Congress, not software, for tax fraud (The Hill)

Responsibility falls squarely at the feet of the IRS to enforce existing law but ultimately to Congress, as it’s within Congress’s power to reform and simplify programs and restructure administrator incentives to identify and prosecute fraud.

That’s why it’s shameful to see Congress pass the buck and attempt to pin the blame for tax fraud on . . . tax preparation software. That’s right—according to some in Congress, apparently TurboTax is to blame.

Blaming TurboTax for the way the IRS sends billions to thieves every year is like blaming GM for a bank robbery when a Chevy was used as the getaway car.

 

Peter Reilly, Jury Finds Kent Hovind Guilty Of Contempt Of Court No Verdict On Fraud Charges. More on the sago of the founder of the young earth creationist theme park.

 

20130316-1Kyle Pomerleau, Irish Business Leader Calls for Income Tax Reform:

It may be surprising to Americans to hear that Ireland has pretty high taxes. We usually hear about Ireland’s tax system in the context of its corporate income tax rate, which sits a low 12.5 percent, half the average rate of the OECD. We are led to believe that Ireland is a low-tax country in general.

In reality, Ireland’s tax code has some of the highest marginal tax rates, especially on income, in the OECD.

I did not know that.

 

Robert Goulder, Reading Between the Lines (Tax Analysts Blog). “Reading between the lines, we can surmise that conservatives in Congress are now trying to decide which is worse: Camp’s revenue raisers or a federal consumption tax.”

Kay Bell, Old online sales tax bill resurrected in new Senate

TaxProf, The IRS Scandal, Day 673. My high school classmate got pushed around by Lois Lerner in her FEC days, and Politico can’t be bothered to care.

Carl Davis, Nine States and Counting Have Raised the Gas Tax Since 2013 (Tax Justice Blog)

G. William Hoagland, Dynamic Scoring Forum: Overblown Concerns? (TaxVox)

 

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Tony Nitti, House Bill Would Provide Tax Deduction For Gym Membership; Shake Weight. I wonder how long it would take to start qualifying gyms specializing in 12-ounce curls to tap into this?

Alberto Mingardi, Greece and tax sadist tourism (EconLog):

The Greek government apparently announced that it wants to hire part timers as “undercover agents to grab out tax evaders”. Tourists, students and housewives could work armed with wireless devices to catch shopkeepers and service providers who do not issue receipts when they sell goods and services.

The application of the concept to tourists potentially opens up a new whole kind of business: sadistic tourism. Syriza regularly portrays Germans as evil people that want to make the poor Greek suffer: why not turning that into a profitable line of activity for the government? Come to Greece. Ouzo, great sea, beautiful landscapes, moussaka, and you’ll have the pleasure to force dirty little shopkeepers to pay their dues to the government!

If the Treasury Employees Union has a travel office, this could be a popular offering.

 

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Tax Roundup, 3/6/15: Crime Watch Edition. Rashia, still 21.

Friday, March 6th, 2015 by Joe Kristan

It’s the time of the year when exasperated taxpayers and preparers are tempted to say, “bugger all this, I’m going to go for the gusto and cheat on my taxes!” That’s when it’s useful to look in on an old friend of the Tax Update to see how well that’s going.

Rashia says "thanks, Commissioner!"

Rashia says “thanks, Commissioner!”

Let’s look in on Rashia Wilson, who proclaimed herself (on Facebook!) the “Queen of IRS Tax Fraud.” Her reign was cut short by federal identity theft tax refund charges, resulting in a 21-year sentence. And with federal sentences, you have to serve at least 90% of the time.

Ms. Wilson naturally was unhappy with this judicial lèse-majesté, so she appealed, citing procedural irregularities. The trial judge was ordered to reconsider. On further review, the call on the field stands. 21 years.  Robert Wood has more.

Iowa has tax ID fraud too. While South Florida may be the kingdom of tax refund fraud, it has colonies everywhere. Even in Iowa: Cedar Rapids woman charged with filing false tax returns (KWWL.com):

The United States Department of Justice says 33-year-old Gwendolyn Murray is charged with twelve counts of filing false claims for tax refunds, seven counts of theft of government property, and two counts of aggravated identity theft.­ The indictment containing the charges was unsealed on Tuesday.

It is alleged that Murray filed 12 fraudulent tax returns in 2012 and 2013 using other people’s names. She received refunds on seven of those tax returns. The court also alleges that Murray stole the identities of two people.

It’s good to prosecute ID thieves, but it’s far better to keep them from thieving. It’s eye-opening that 7 of the 12 alleged attempts allegedly succeeded. Criminals aren’t known for their impulse control or their ability to anticipate long-term consequences. If they see somebody get a bunch of cash just from keying in some numbers on a computer, they’re going to want some of that bling themselves, and they aren’t going to ponder the likelihood of a prison sentence first.  The IRS is pretty much leaving the door unlocked and the cash register open.

 

Megan McArdle says the culture of “getting a big refund” is part of the problem in Fewer Tax Refunds, Fewer Scams:

If all returns were submitted at the same time, and refunds were held until they could be cross-checked against the IRS’s copies of W-2s and 1099s, then this sort of fraud wouldn’t work very well; the IRS would know it had two returns and could start the process of figuring out which one was fraudulent before it mailed the check. But we love our early refunds, and people often count on getting that check as early as possible.

She offers wise advice:

However, there’s one thing you personally can do to fight tax fraud, and that’s make sure that you don’t give the government more money than you have to. You should never get excited about a tax refund; all it means is that you gave the government a substantial interest-free loan by withholding too much tax throughout the year. You should aim for your refund to be as small as possible — ideally, zero.

A system that sends $21 billion annually to fraudsters — and that number is rising rapidly — can’t continue forever. Part of this will be a technological fix.  My wife can’t buy a dress at Nordstrom in Chicago without triggering phone calls from two credit card companies.  Meanwhile, the IRS happily wires wads of cash to Rashia. One would hope the IRS could learn something from Visa and Discover.

But the IRS is bad at technology, so part of the fix will have to be slower (and ideally, smaller) refunds. This could include lower penalty thresholds for underpayments so that taxpayers will be more willing to risk owing a bit on April 15 — perhaps combined with withholding tables that leave taxpayers owing a bit, rather than getting refunds.

 

What else can you do to protect yourself? 

  • Be careful with your tax information. Never divulge your bank account or credit card info to strangers over the phone.
  • Assume any unexpected call from a tax agency is a scam.
  • Don’t send copies of 1099s and W-2s as e-mail attachments to your preparer, and don’t email a pdf of your 1040 to a loan officer. That leaves your information exposed.
  • When you transmit confidential information, use strong encryption, or better yet upload it via a secure file transfer site, like the FileDrop system we use at Roth & Company.

 

 

20150105-2Peter Reilly, IRS Grossly Unqualified To Make Determinations About Software Related Exempt Applications. The IRS is grossly unqualified for any number of things that Congress gives it to do. Just a very few that come immediately to mind:

– Determining what is “qualified research” for the research credit.

– Determining the energy properties of “green fuels” for the biofuel subsidies.

– Running the nation’s healthcare insurance finance system.

– Policing political speech by tax-exempt organizations.

An outfit that can’t keep two-bit grifters from cashing in billions in tax refunds annually shouldn’t be looking for new things to do.

 

Kay Bell, Tax identity thief mistakenly sends fake refund to real filer. The police don’t spend their days chasing geniuses.

Jack Townsend, More on Light Sentencing for Offshore Account Tax Crimes.

 

Russ Fox provides a valuable service with Online Gambling Addresses Updated for 2015. Taxpayers with offshore online gambling accounts are required to report them on the “FBAR” report of foreign financial accounts (Form 114). The FBAR requires a street address for the account, and these can be hard to find for gambling websites.

William Perez offers advice on how to Communicate Effectively with Your Tax Preparer. We aren’t always the best company this time of year. Come prepared, be efficient, and you can leave our office before we do something bizarre. Other than what we do for a living, of course.

Jason Dinesen, Marriage in the Tax Code, Part 3: Big Changes in 1917

Jim Maule, The IRS and the Taxpayer: Both Wrong. “The taxpayer argued that because the distribution from the IRA was less than the his investment in the IRA, it should be treated as a return of investment. The IRS argued that the entire distribution should be included in the taxpayer’s gross income. The Tax Court concluded that both the taxpayer and the IRS were wrong.”

 

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Kyle Pomerleau, The Rubio-Lee Plan Would be Good for Everyone, Especially Low Income Earners (Tax Policy Blog):

If you take all the pieces of the Rubio-Lee tax plan together, it actually produces the largest increase in after-tax income for the lowest income earners, not the highest.

According to our analysis, the bottom decile of taxpayers will see an increase in after-tax income of 44.2 percent, a percentage increase in income nearly four times larger than the top 1 percent’s increase in after-tax income. But the plan doesn’t just increase the after-tax income of the top and the bottom. All taxpayers will see higher after-tax incomes due to this plan.

The Rubio-Lee plan, with its elimination of the double corporate tax and its business rate reductions, is the most promising tax reform plan to surface in a long time. But its opponents can never see wisdom in anything that benefits “the rich,” even when it benefits everyone else.

 

Renu Zaretsky, Expensive Plans, ACA Developments, and Exercises in Futility. Today’s TaxVox roundup has links to folks hating on Rubio-Lee, Spanish film tax credits, and more.

Patrick Smith, Supreme Court’s Direct Marketing Case May Have Great Significance in Anti-Injunction Act Cases (Procedurally Taxing)

 

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Spring will come!

 

 

Cara Griffith, The Use of Big Data in Auditing (Tax Analysts Blog). “For state auditors, big data (like other types of data) could be used to better evaluate and select taxpayers for audit.”

TaxProf, The IRS Scandal, 666

 

Why would he want a job with less power? Former IRS Commissioner Mark Everson To Run For President. Yes, Of The United States (Tony Nitti)

Culture Corner. A Tax Shelter Board Game Is a Thing That Exists (Caleb Newquist, Going Concern).

 

 

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Tax Roundup, 2/26/15: Fifth circuit bails out abandonment. And: gas up before Sunday, Iowa!

Thursday, February 26th, 2015 by Joe Kristan

Fill ‘em up Saturday. Iowa’s Governor Branstad signed a 10-cent per gallon gas tax boost into law yesterday. It takes effect Sunday.

Somewhat related: Replacing the Gas Tax with a Mileage-Based Tax (Kyle Pomerleau, Tax Policy Blog).

 

20131212-1Taxpayer wins $20 million bet. Pilgrim’s Pride Corporation had an offer to sell securities for $20 million. It had a $98.6 million cost in the securities, so it wasn’t a great return, but $20 million is still better than nothing. Well, maybe not.

The taxpayer determined to abandon the securities in the belief that the result would be a $98.6 million ordinary loss — generating a tax savings of around $34.5 million. That seemed like a better deal than taking the cash, because the $78.6 million loss would then be a corporate capital loss — deductible only against capital gains, and expiring after five years.

In December 2012 the Tax Court said that Pilgrims Pride made a losing bet, ruling that Section 1234A made the loss a capital loss. Now the Fifth Circuit Court of Appeals has ruled that the taxpayer made the right bet, reversing the Tax Court:

The primary question in this case is whether § 1234A(1) applies to a taxpayer’s abandonment of a capital asset. The answer is no. By its plain terms, § 1234A(1) applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets). It does not apply to the termination of ownership of the capital asset itself. Applied to the facts of this case, Pilgrim’s Pride abandoned the Securities, not a “right or obligation . . . with respect to” the Securities.

Taxpayers outside the Fifth Circuit still need to be aware that the Tax Court says abandonment doesn’t turn capital losses into ordinary income, but in the right circumstances, it may still be worth a try. In the Fifth Circuit, abandon with, well, abandon.

I find this from the Fifth Circuit opinion interesting, if not necessarily true:

Congress does not legislate in logic puzzles, and we do not “tag Congress with an extravagant preference for the opaque when the use of a clear adjective or noun would have worked nicely.”

Logic puzzles seem to be pretty common in the tax law. Look at the ACA, which provides a $100 per-day, per-employee penalty for Section 105 plans, while Section 105 itself still rewards employees who participate in these plans with a tax benefit. That puzzles me. But I digress.

When the Tax Court first ruled in this case, I wrote:

Presumably the Gold Kist [a company that ended up owning Pilgrim’s Pride] board didn’t decide to go for the ordinary loss on its own.  Somewhere along the way a tax advisor told them that this would work.  That person can’t be very happy today for advising the client to walk away from $20 million in cash.

That’s one tax advisor who had an excellent day yesterday.

Cite: Pilgrim’s Pride Corporation, CA-5, No. 14-60295

Other coverage: Fifth Circuit Reverses Tax Court, Allows $98 Million Deduction To Pilgrim’s Pride (Tony Nitti)

 

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Jason Dinesen ponders What to Do with a K-1 with a Fiscal Year End

Russ Fox, Taxes Impacting the Giants. “There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes.”

TaxGrrrl, Looking For Your Refund? Need To Ask A Question? Finding Answers At IRS.

Peter Reilly, IRS Denies 501(c)(3) Exemption To Booster Club Due To Inurement. Quoting the IRS denial letter:

However, the money that they make in your name does not go into your general budget. Rather, you keep an accounting of how much revenue each member brings in and permit each member to apply that revenue to the cost of athletic competitions for their children.

Peter explains why that doesn’t work.

 

Kay Bell, More forgiving IRS to waive some bad 1095-A tax penalties

 

TaxProf, The IRS Scandal, Day 658. Today’s big story is the $129,000 on bonuses paid to Lois Lerner while Tea Party applications for exemption languished. I’m sure there’s no connection.

Alan Cole, Putting the Puzzle Pieces Together on Corporate Integration (Tax Policy Blog):

The reason that the traditional American C corporation is in decline is that it has faces multi-part tax, with two successive rounds of taxation for the owners. In contrast, the pass-through structure faces only one. That is why American businesses, when possible, are choosing this tax structure. It is now the dominant legal structure for businesses in America. In that structure, the owners of the corporation simply pay ordinary income tax on all the corporation’s income.

The path ahead to fundamental tax reform almost necessarily must lead through corporate integration. Fortunately, my colleague Kyle Pomerleau has done the research that ties this all together. He has found out how some other countries – like Australia and Estonia – have gone about tying together their corporate taxes and their shareholder taxes into one neat single layer.

So simple it just might work!

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Matt Gardner asks whether Goldman Sachs is Too Big to Pay Its Fair Share of Taxes? (Tax Justice Blog).

 

Cara Griffith, The Pinnacle of Secret Law (Tax Analysts Blog). ” That the Colorado Court of Appeals would seek to shield from public view most of the opinions it issues is appalling.”

Richard Auxier, GOP Governors Flirt with Tax Hikes but Still Wedded to Income Tax Cuts (TaxVox). Governor Branstad went boldly beyond flirting yesterday. Does signing the gas tax boost make Governor Branstad an unfaithful husband?

 

Caleb Newquist, Supreme Court Unhooks Fisherman From Conviction Under SOX Anti-Shredding Provision (Going Concern). “Please practice catch and release.”

 

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Tax Roundup, 2/10/15: Iowa House may vote on conformity today. And: pass-through isn’t the same as “small.”

Tuesday, February 10th, 2015 by Joe Kristan

IMG_1284Iowa Conformity Update: No action yesterday in the Iowa House on SF 126, the Senate-passed bill that conforms Iowa income to federal rules, except for bonus depreciation. The house version of the bill, HF 125, is scheduled for debate today in the Iowa House. That means we may have a vote today.

Update, 9:15 a.m. SF 126 passes Iowa House, 94-0. The Senate-passed bill was substituted for HF 125 on the floor and approved. It now goes to the Governor, who is expected to sign.

 

Kyle Pomerleau, Some Pass-Through Businesses are Significant Employers (Tax Policy Blog):

In the United States, most businesses are not C corporations. 95 percent of businesses are what are called pass-through businesses. These businesses are called pass-throughs because their income is passed directly to their owners, who then need to pay individual income taxes on it. Contrast this with C corporations that need to pay the corporate income tax on its income before it passes its earnings to its owners. Combined, pass-through businesses employ 55 percent of all private-sector workers and pay nearly 40 percent of all private-sector payroll.

When business income is taxed on the 1040 and income tax rates are raised, the business has less income to hire and grow.

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Not recognizing the fact that pass-through businesses can be large employers can bring about poor policy choices. For example, increases in the top marginal individual income tax rate will not only hit individuals with high wage income or business income, it may hit a significant number of large employers who are organized as pass-through businesses. Conversely, some policies that are aimed at helping small businesses, such as state-level pass-through business income tax exemptions, could incidentally benefit large established businesses.

Unfortunately, no individual rate is ever high enough for some people.

 

younker elevatorsHoward GleckmanTax Subsidies May Not Help Start-Ups as Much as Lawmakers Think (TaxVox):

But the biggest reason startups may be unable to take advantage of tax subsidies is that they often lose money in their early years. In theory, generous preferences such as Sec. 179, the research and experimentation credit, or even the ability to deduct interest costs are all available to startups. In reality, many cannot use them because they make no profit and, thus, pay no tax.

Firms can carry net operating losses forward for up to 20 years but these NOLs are far less valuable than immediate deductions for three reasons—money loses value over time, some firms never generate enough income to take full advantage of their unused losses, and some lose their NOLs when they are acquired. A 2006 Treasury study found that at least one-quarter of these losses are never used and others lose substantial value.

One way to help this problem would be to increase the loss carryback period. Businesses can only carry net operating losses two years. Corporations in Iowa and some other states can’t carry them back at all.

Consider a business that has income in year one, breaks even in years 2 and 3, and loses enough to go broke in year four. It never gets the year 1 taxes back, even though over its life it lost money.

An increased loss carryback period would be especially useful to pass-through owners, enabling some of them to get tax refunds to keep their businesses alive. But once the government has your money, they hate to give it back.

Loosening the “Sec. 382″ restrictions on loss trafficking would also help. A struggling business would be more likely to get investment funds if the investor could at least count on using some otherwise wasted tax losses. But the government is more interested in protecting its revenue than in helping struggling businesses.

 

Department of Foreseeable Unintended ConsequencesTax Analysts Jennifer DePaul reports ($link):

 While a joint session of the New York State Legislature on February 9 heard Democratic Gov. Andrew Cuomo’s $142 billion budget proposal, the governor released more details about several tax measures included in his budget plan.

Among them was a proposal designed to crack down on tax scofflaws by suspending the driver’s licenses of debtors who owe the state as little as $5,000.

This means taxpayers with relatively small balances due will be deprived of their legal transportation to get to work. This means some taxpayers will have to quit their jobs and never get caught up with their debt, leading to a financial death spiral. Others will try to get to work, get locked up for driving on a suspended license, lose their jobs because they didn’t show up, and go into a financial death spiral. It’s a recipe for locking more people into the underclass because their Governor wants their money faster.

Related: Brian Doherty, Drivers License Suspensions Slamming the Working Poor for No Particular Good Reason in Florida  (Reason.com); Megan McArdle, Cities Dig for Profit by Penalizing the Poor

 

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Russ Fox, Harassing IRS Agents Isn’t a Bright Idea. “Speaking of ways to get in trouble with the IRS, one is to harass an IRS agent. They don’t like it (and it’s a crime).”

Tony Nitti, Are You Exempt From The Obamacare Insurance Penalty?

Robert Wood has 7 Reasons Not To File Your Taxes Early, Even If You’ll Get A Refund. “Measure twice, cut once.”

Paul Neiffer, How Do Repair Regulations Affect My Farm Operation? It does. Find out more when Paul helps present a webinar on the topic for the ISU Center for Agricultural Law and Taxation February 18.

William Perez, How Dividends Are Taxed and Reported on Tax Returns

 

Peter Reilly, Tax Court Hammers IRS CI Who Went Out Into The Cold. The strange, sad saga of Joe Banister.

Leslie Book, Some More Updates on IRS Annual Filing Season Program and Refundable Credit Errors. Leslie thinks that preparer regulation would help. I believe the persistent high rate of incorrect EITC payments in spite of increasing IRS initiatives to bug preparers and force them to document due diligence for EITC clients shows that preparer regulation won’t solve this problem.

Jason Dinesen, Send a 1099-C to a Non-Paying Customer? Updated. Probably unwise.

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Jeremy Scott, Finance Committee Review of 1986 Act Smacks of Desperation (Tax Analysts Blog):

The Senate Finance Committee will try to use history as a guide to break the logjam on tax reform. The Republican-led body will hold a February 10 hearing featuring former Finance Chair Bob Packwood and former Sen. Bill Bradley, who will talk about the process that led to the historic legislation that redefined the tax code and has left its imprint on the minds of would-be tax reformers for almost three decades now. However, looking back at 1986 appears more desperate than inspired because most of the factors that existed then are almost totally absent now.

I think all this Congress can accomplish is to not make things work, and to lay the groundwork for a tax reform that might be enacted in a more congenial political climate.

 

TaxProf, The IRS Scandal, Day 642.

 

Career Corner. Let’s Discuss: Wearing Headphones at the Office (Jesstercpa, Going Concern). You can tell you are moving up in the CPA world if you get an office with a door, and you can use actual speakers. Unless you are in one of those hideous “open offices,” of course.

 

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Tax Roundup, 2/9/15: New York questions its tax incentives. And: where’s the ‘no anthrax’ sign?

Monday, February 9th, 2015 by Joe Kristan

New York FlagNew York Comptroller: nobody tracks whether the state’s corporate welfare tax incentives do any good. Tax Analysts’ Jennifer DePaul reports ($link):

It’s unclear whether the $1.3 billion in incentives and credits doled out annually by New York is creating jobs, a February 5 report by State Comptroller Thomas DiNapoli concluded.

The ESDC, which administers more than 50 economic development programs, provides little public information on taxpayer-funded investments in its initiatives, the report said.

“ESDC makes no public assessment of whether its disparate programs work effectively together, whether such initiatives have succeeded or failed at creating good jobs for New Yorkers, or whether its investments are reasonable in relation to jobs created and retained,” the report said.

Naturally the politicians disagree:

On February 5 Gov. Andrew Cuomo (D) told reporters that he disagreed with the comptroller “fundamentally and on his concept of economic development” and said New York has lost its effectiveness to attract businesses over the past decade.

“We’ve come a long way in the past four years in terms of reversing that and bringing jobs back to New York,” Cuomo said. “To the extent that the comptroller thinks we should go back to the old way where we saw New York losing jobs, I couldn’t disagree more strongly.”

To politicians, the only job creation that matters is the kind that lets them hold issue press releases, hold press conferences, and cut ribbons.

For a brief shining moment in the Iowa’s Culver administration, the film tax credit fiasco made our politicians look at the Iowa’s tax credit programs. A panel of state officials issued a report finding no clear evidence that the tax credits do any good. So Iowa replaced them all and lowered individual and corporate tax rates with the savings.

Actually, no. They just continued enacting new credits. I can dream, though.

Link: The Comptroller Report.

 

dirtyThe Journal of Taxation has a summary of this year’s IRS “Dirty Dozen” tax scams. Number 1 with a bullet are phone call scams from people saying they are IRS agents. Just remember, if the caller claims to be from the IRS, he (or she) isn’t, unless you have been in touch with a specific agent by mail already.

 

Puzzling over the tangible property regulations and the 3115 requirements? The ISU Center for Agricultural Law and Taxation wants to help solve the puzzles. They have scheduled a webinar on on the regs February 18Roger McEowen and Paul Neiffer will host. Registration info available here.

 

Russ Fox celebrates 10 — the tenth anniversary of his excellent Taxable Talk. Congratulations, Russ!

William Perez, How Is Interest Income Taxed and Reported?

Annette Nellen discusses the new IRS Directory of preparers and Annual Filing Season Program (AFSP). Another useless effort by the supposedly impoverished agency.

IMG_1271Leslie Book, Preparers and Due Diligence (Procedurally Taxing)

Kay Bell, Additions to the tax law name roll of [dis]honor? We at Roth & Company would like to claim rights to the name “Roth IRA,” but alas, we had nothing to do with it.

Jason Dinesen, I Like Mowing My Lawn and Shoveling Snow; Do You Like Preparing Your Tax Return?

I see no value in hiring someone else to mow my lawn or shovel my snow.

The same principle holds true for people who choose to prepare their own taxes. If they know what they’re doing and they enjoy doing it, then I encourage people to do it themselves because they won’t see value in the work of a tax professional.

I see no value in hiring someone else to do my lawn and driveway either. That’s what the teen-ager is for.

TaxGrrrl, Brady Passes On Super Bowl Prize As Butler Hauls In Truck & Tax Bill

Jim Maule, So Who Gets Taxed on the Super Bowl Truck?

Peter Reilly, Oil Rig Manager Does Not Qualify As Foreign Resident

Robert Wood, On-Demand Workers: It’s Tax Time, You’re Self-Employed, Audits Are Inevitable

Me, IRS issues 2015 vehicle depreciation limits, updates 2014 limits for Extension of Bonus depreciation

 

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TaxProf, The IRS Scandal, Day 641. Judicial Watch says it has received emails showing the IRS Office of Chief Counsel delayed the investigation into the Tea Party scandal.

The tax law is obese. So the supergenius behind Obamacare, Jonathan Gruber, has floated the idea of taxing folks based on body weightArnold Kling is comments wisely: ” I know that many of my progressive friends would be disgusted by the obesity, but that does not make it a public policy problem.”

That’s right, not every problem is a tax problem. Or even the government’s problem.

David Henderson has more: Jonathan Gruber on Sin Taxes (Econlog)

 

Kyle Pomerleau, Worldwide Taxation is Very Rare (Tax Policy Blog):

At the beginning of the 20th century, 33 countries had a worldwide tax system. That number slowly dropped to 24 countries by the 1980s. By the 2000s, the number of countries switching to territorial systems accelerated, with more than 10 countries switching in 10 short years. Nearly all developed countries have moved to the superior territorial tax system. Today there are only 6 countries that tax corporations on their worldwide income. The President’s proposal would double-down on the U.S.’s current system and push the United States further out of line with the rest of the developed world.

The U.S. is even more of an outlier on worldwide taxation of individual income, with only Eritrea joining us in taxing citizens abroad.

Tracy Gordon, Go Team: Score 1 for Obama on Ending Tax Subsidies for College Sports (TaxVox).

Sebastian Johnson, State Rundown 2/5: State of the States (Tax Justice Blog).

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Career Corner. Let’s Discuss: The Worst of Eating in the Audit Room (Marty, Going Concern)

Brian Gongol says “You’re not allowed to carry a bag of anthrax spores through a mall.” My bad. It won’t happen again.

 

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Tax Roundup, 2/6/15: Iowa pass-through top rate: 47.2%. And: a forgiving IRS!

Friday, February 6th, 2015 by Joe Kristan

Accounting Today visitorsThe post about the convicted filmmaker is here.

 

Taxing employers at high rates? That’s OK, they’re rich! Pass-through Businesses can Face Marginal Tax Rates over 50 percent in Some States (Kyle Pomerleau, Richard Borean, Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

Iowa ranks at about the middle, with a 47.2% combined top rate on pass-through income.

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When lazy politicians think they can cover their incontinent spending just by sending the bill to the rich guy, they don’t tell you that they’re talking about leaving your employer that much less money to hire and pay you.

 

TIGTAI’m sure they’ll be just as forgiving to the rest of us. Accounting Today reports: IRS Rehired Hundreds of Misbehaving Employees with Conduct Problems:

The Internal Revenue Service rehired hundreds of former employees with prior conduct or performance issues, including employees who failed to file their taxes, falsified official forms and misused IRS property, according to a new report. 

The report, from the Treasury Inspector General for Tax Administration, acknowledged that most rehired employees do not have performance or conduct issues associated with prior IRS employment. However, TIGTA said it identified hundreds of former employees with prior substantiated conduct or performance issues ranging from tax issues, unauthorized access to taxpayer information, leave abuse, falsification of official forms, unacceptable performance, misuse of IRS property, and off-duty misconduct.

I like this “second chance” policy. I hope they roll it out to the rest of us.  Robert Wood has more: IRS Rehires Hundreds Of Problem Former Employees.

 

Conformity update: The Iowa House of Representaties went home for the weekend without approving SF 126. The Iowa Senate approved the bill this week. SF 126 continues through 2014 Iowa’s practice of conforming to the extender provisions other than bonus depreciation. This will mean Iowans will be able to claim the $500,000 maximum Section 179 deduction on their state returns. I expect the House to pass it next week.

 

1099-CTax Pros, the IRS isn’t your collection agentThat seems to be the implication of this item sent as an email by the IRS Office of Professional Responsibility to practioners yesterday. It addressed the idea of sending a 1099-C, reporting cancellation of debt income, to deabeats who fail to pay a tax return prep fee:

It is difficult to conceive of a situation in which a tax professional, principally engaged in providing tax services will be an “applicable entity” justifying the use of Form 1099-C to attribute income to an arguably scofflaw client for the nonpayment.

So it’s back to old standbys like cyberstalking and prank phone calls, then.*

*I kid! I kid!

 

TaxGrrrl, Minnesota Stops Accepting Returns Filed With TurboTax, Cites Fraud Concerns. It may be that Turbotax is just too popular with the wrong kind of customer. “Banned in Minnesota” can’t be good for Turbotax sales.

 

IMG_1232William Perez, Tax Refunds by Direct Deposit: How to Do It and Problems to Prevent. Some sage advice: “Triple Check Your Bank Account Information Before Filing Your Tax Return”

Kay Bell, Don’t forget local levies when adding up sales tax deduction

Paul Neiffer, Excessive Claims for Fuel Tax Credits Makes the IRS “Dirty Dozen List”. You mean you didn’t use 1000 gallons in your lawn tractor this summer?

 

Clint Stretch, Defining Tax Reform (Tax Anlaysts Blog):

To date, nearly everyone describing tax reform, from the U.S. Chamber of Commerce to the White House, has called for “a simpler tax code.” Not so the Senate Democrats. When they use the words “tax reform,” those words do not mean simplification but do mean many things conservatives would leave out of their own definition, such as progressive taxation.

It is tempting to think that whoever drafted the letter merely forgot simplification, or assumed it to be understood. But the Democrats’ proposal to have tax incentives “take into account the varying cost of living differences among States and regions” makes it clear: Simplification is not one of their core values.

Oddly, Mr. Stretch doesn’t seem to be a fan of simplification. He spent many years as a lobbyist for a national accounting firm I once worked for, so I suppose that’s unsuprising.

 

TaxProf, The IRS Scandal, Day 638

Howard Gleckman asks, How Will Jeb Bush Turn His Vision of Government into Tax Policy? Maybe by writing letters to his Congressman. It won’t be by becoming President, I’m pretty sure.

 

Peter Reilly has what seems to me an unnatural interest in the tax problems of “young earth creationist” Kent Hovind. In a long piece Peter explains his interest. It’s long, but this is worth noting:

Whenever I think about disputes that are really passionate, there is one thing that I never forget.  If something really awful were to happen in my community there would be an outpouring of support from people across the country.  Many of them would have views that I consider preposterous and dangerous.  Regardless, we are still in it together.

I’m still puzzled at the interest in this particular sad case, but Peter comes across as thoughtful and humane all the way through.

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Career Corner (?). Ex-Crazy Eddie CFO Now Judging Fellow Criminals on Their Criminal Talents or Lack Thereof (Adrienne Gonzalez, Going Concern), quoting Sam Antar on conviction of New York representative Michael Grimm:

My former bosses running Crazy Eddie would never have let an amateur like Grimm participate in our tax-evasion schemes! If you are to engage in any scheme to skim money and evade taxes, there is one golden rule: Never leave an audit trail.

Michael Grimm left behind a body of evidence in the most convenient places for the federal investigators to help bury him.

We discussed that very issue in our discussion of the Arrow Trucking tax plea yesterday. I hate to think I’m starting to think like Mr. Antar.

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Tax Roundup, 2/5/2015: Conformity bill passes Iowa Senate with Sec. 179, but without Bonus. And: buy Maserati, or pay tax?

Thursday, February 5th, 2015 by Joe Kristan

Iowa Senate passes conformity bill. The Iowa Senate sent the 2015 “code conformity” bill (SF 126) to the House yesterday on a 49-0 vote. The bill, conforms Iowa’s 2014 tax law to reflect December’s “extender” legislation, including the $500,000 “Section 179″ deduction, but not including bonus depreciation.

The House could vote on the bill as early as today, though it’s not on this morning’s House debate calendar. Still, with the bill out of the Senate, it seems like a sure thing, even if it has to wait until next week.

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There may have been a flaw in the planThe former owner of Arrow Trucking Company pleaded guilty yesterday to tax charges connected with the 2010 failure of the company.

The “information” containing the charges outlines an energetic looting of the company that brought in a host of helpers — and potential informants. For example:

In about September 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, that’s one witness right there. And here’s another.

In about December 2009, a conspirator asked an Arrow Trucking Company employee to have a telephonic communication with a representative of Transportation Alliance Bank with respect to an audit and to falsely verify the authenticity of fraudulent invoices.

Well, no harm no foul — they had pretty much made sure the IRS would catch up with them, if the information is to be believed. They failed to file the federal Form 941 payroll tax returns for 2009, or to remit the payroll taxes for those quarters. That’s a sure way to attract IRS attention. And once the IRS started sniffing around, they left a lot of clues for the IRS in the alternative uses they made of the withheld taxes. These other things included payment of $20,000 in company funds to an ex-wife. But that didn’t mean the next ex was slighted:

During the year 2009, Arrow Trucking Company funds were used to make payments to The Events Company for a conspirators wedding.

They should have been able to leave the wedding in style:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Bentley automobile for the benefit of a conspirator.

Or maybe, honey, we want something a little sportier:

During 2009, Arrow Trucking Company Funds were used to make payments related to a Maserati automobile for the benefit of a conspirator.

It all seems like fun and games, but that fun led to this:

In December 2009, the carrier left hundreds of its drivers stranded on highways across the United States after a Utah bank voided company fuel cards.

Between halting payroll tax returns, using company funds for lavish toys, and getting employees to lie for them, they pretty much made sure the feds would visit, belt and suspenders. The IRS audit program for businesses is designed to find such things, but it sounds like they left a pretty easy trail to follow.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Peter Reilly, Mr. Koskinen’s Last Chance To End The Form 3115 Madness:

Here is the crisis.  Some very smart people with a lot of influence in the tax industry are telling all the rest of us the following story.  You know those new regulations are telling you to change your accounting methods.  Even if you look at what you’ve done over the years and decide that there is no income or expense to be picked up it is still an accounting method change.  Given all the new concepts you could not possibly have been using those methods.  So if your client has any sort of a trade or business, there are one or more Forms 3115 that have to be filed. 

If he was as keen on preserving limited IRS resources as he keeps telling Congress, he would announce that taxpayers could adopt the new accounting methods without a 3115 by attaching an election to their return, if they prefer it that way. That would save forests, and enormous amounts of IRS storage space.  But if he were serious about maximizing agency resources, he also wouldn’t allow 200 IRS employees to collect government checks for union work, and he wouldn’t divert IRS resources into a “voluntary” preparer regulation scheme.

 

TaxProf, The IRS Scandal, Day 637. This edition links to a Bloomberg piece about the Commissioner’s recent Senate testimony: IRS Chief: I Don’t Want to Be Seen As Influencing 2016. I take that as meaning he wouldn’t mind influencing  the elections; he just doesn’t want to be seen doing so.

 

Robert Wood, Coming Soon: No Travel Or Passport If You Owe IRS. What could go wrong?

 

Kay Bell, Seven tax extenders approved by Ways & Means Committee. Similar to the permanent extenders that passed the house and died last year, they can be seen as a counter to the President’s tax proposals in his budget.

Robert Goulder, Smart Tax Reform: Parity for Passthroughs (Tax Analysts Blog):

An obvious difficulty in business-only tax reform is devising a means to level the playing field between corporate and noncorporate entities. The overwhelming majority of commercial enterprises in the United States (roughly 90 percent) are not organized as corporations. They take alternate forms such as S corporations, partnerships, LLCs, or sole proprietorships. The primary difference, of course, is the lack of entity-level taxation for noncorporate businesses.

Unless you hate pass-throughs, as the administration seems to.

 

Kyle Pomerleau, The President Proposes Changing the International Tax System for Corporations (Tax Policy Blog)

 

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Cara Griffith, Texas Comptroller to Look to Legislature for Guidance on Taxing Aircraft (Tax Analysts Blog)

Tracy Gordon, A Fuller Accounting of How State and Local Governments Fared in the Great Recession (TaxVox).

 

News from the Profession. Let’s Catch This PwC Partner Up on the Fun Stuff She Missed Over the Last 20 Years (Adrienne Gonzalez, Going Concern)

 

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

Wednesday, February 4th, 2015 by Joe Kristan

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

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

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

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

 

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

Kay Bell, Tax moves to make in February 2015

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

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

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

 

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

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

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

 

IMG_0940TaxProf, The IRS Scandal, Day 636

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

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

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

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

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

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

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

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

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Tax Roundup, 2/3/15: President announces fresh new hopeless tax proposals!

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

160 tax proposals. Close to 160 doomed tax proposals. The President released the details of the tax proposals for his 2015 budget yesterday. Tax Analysts Reports ($link):

The added details on international reforms the administration is seeking serve as “a significant step forward” to flesh out its business tax reform framework and see if there is an “opportunity for movement” on business reform with Congress, a senior Treasury official told reporters at a February 2 briefing on the release of the Treasury’s green book explanation of the revenue proposals in the budget.

Overall, the fiscal 2016 budget includes roughly 160 tax proposals, of which about 30 are new, 45 are modifications or combinations of old proposals, and 85 are the same or similar to the administration’s fiscal 2015 budget, the Treasury official said.

Almost all of these proposals are doomed for this Congress. As most of these couldn’t pass when Democrats controlled the Senate, they’re hardly likely to pass now that they don’t. A GOP Congress is also not about to pass some of the more publicized class warfare proposals, like the increase in the capital gain rate, the taxation of capital gains at death, increase the estate tax rate to 45% (from 40$) and lowering the estate and gift tax lifetime exclusion to $1 million (from $5+ million).

No Walnut STA few proposals might get a sympathetic hearing on their own from GOP taxwriters. These include:

– Cash basis accounting and repeal of Section 263A inventory capitalization for companies with up to $25 million in gross receipts.

– Permanent extension of the Section 1202 exclusion for qualifying small C corporation stock gains.

– Permanent extension of the refundable Child Tax Credit.

– Increasing the maximum Section 179 deduction from $500,000 to $1 million.

A few other corporate welfare gimmicks that might get a hearing include permanent research credits and permanent New Markets Tax Credits.

While there are a few items that might attract GOP support, overall this batch of proposals is more extreme than the ones that went nowhere before. The President probably won’t let Congress just pick out the tasty bits from his proposals, so I expect little to none of this to actually pass.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

Jeremy Scott, Obama’s Foreign Earnings Tax: 19 Percent Minimum DOA but Deemed Repatriations Key (Tax Analysts Blog)

Kyle Pomerleau, The President’s Tax on Offshore Earnings Represents the Worst of Retroactive Policy (Tax Policy Blog)

Len Burman, Are Accrued Capital Gains Income in the Year You Die? (TaxVox). “But reclassifying exceptionally thrifty middle-class families to the top of the income distribution by counting a lifetime of unrealized gains in income when they die clearly overstates their well-being.”

Tony Nitti, Tax Aspects Of The President’s FY2016 Budget

TaxGrrrl, Obama Budget Proposal Tackles Small Business, Changes To IRS

Kay Bell, Tax highlights in Obama’s FY2016 budget proposal

Annette Nellen, President Obama’s 2015 Tax Proposals

 

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Megan McArdle, Government Blinks Again on Obamacare, a discussion of the IRS announcement that it won’t impose the failure-to-pay penalty on exchange policy purchasers who have to repay some subsidy:

The IRS emphasizes that this is a one-time-only deal, just for 2014. But I’m not sure if you should believe that. This emphasizes one of the problems we’ve spoken about a lot in this space: The political will to impose the costs of the Affordable Care Act is a lot less strong than the will to distribute the benefits.

It also telegraphs that the IRS expects that a lot of taxpayers who are anticipating a refund will be instead writing a check on April 15.

 

20140925-2Peter Reilly, Repair Regs And Tax Pros Are Like Headlights And Deer:

For the most part, the people who have been really looking at these regulations have had a large firm perspective.  To be a just a little cynical, they actually kind of like all this complexity, since they can make a case for sending out big bills to entities that can afford to pay them.  My brief time at the national level, not Big 4, but with many former Big 4 people made me realize there is a radically different perspective at that level.  They are used to having a very small number of competitors for any client who more or less sing from the same hymn book.  The client people that they deal with are quite likely fellow members of the Big 4 cult rather than tight fisted entrepreneurs who resent every penny they spend on professionals.

Regulation always favors the big, and the “repair regulations” are no exception.

 

Russ Fox, Fake Interest Income, Fake Withholding, Real Fraud at the Tax Court. “What is amazing to me is that the petitioner has not, as far as I can tell, been criminally indicted.”

Robert Wood, The Truth About Lying On Your Tax Return.  “…as with your resume, making up something on your tax return is a terrible idea.”

Martin Sullivan, JCT Report Provides New Insight on Competitiveness (Tax Analysts Blog)

TaxProf, The IRS Scandal, Day 635

 

News from the Profession: How Internal Controls Will Keep You Safe From Velociraptors (Leona May, Going Concern).

 

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Tax Roundup, 1/28/15: President scurries away from plan to tax college savings. And: more hard-hitting journalism!

Wednesday, January 28th, 2015 by Joe Kristan

csi logoAccounting Today reports: Obama Said to Drop Proposal to Repeal 529 College Tax Break. Good.

This was perhaps the most obnoxious of the proposals in the President’s budget, and that’s saying something. Promoting “free” community college tuition, while punishing those who actually save for college to avoid government loans, is a model of awful incentives and policy.

I can’t let pass this item from the Accounting Today report (my emphasis):

The administration’s quick retreat on the proposal emphasizes the difficulty of changing popular tax breaks, even in ways that lower the overall tax burden.

Yes, hard-hitting journalism in the form of making excuses for the President. It what way does repealing the exclusion for Section 529 plan withdrawals from taxation help “lower the overall tax burden?” The CBO estimates the President’s proposals would increase taxes by over $1 trillion over ten years.

Speaking of hard hitting journalism, we have this from the Des Moines Register today:

bowtie

For those who no longer take the print edition, be assured that this important story is also available to internet readers.

Related: Annette Nellen, President Obama’s 2015 Tax Proposals

 

William Perez, Tips for Green Card Holders and Immigrants Who are Filing a US Tax Return. “Being a resident for tax purposes doesn’t necessarily mean you actually live here full time. As long as you have a green card, for example, you are responsible for reporting and paying tax on your worldwide income.”

Jason Dinesen, Iowa Trust Fund Tax Credit for 2014 Tax Returns. $15 per person this year.

Kay Bell, New IRS Form 1095-A among tax docs that are on their way. ACA adds a new wrinkle to this year’s filings.

Robert D. Flach, OBAMACARE AND 2014 TAX RETURNS

 

1099misc2014TaxGrrrl, Where Are My Tax Forms? Due Dates For Forms W-2, 1099, 1098 & More. Including a reminder that K-1s from S corporations, partnerships and trusts are not due when 1099s and W-2s are.

Leslie Book, Thumbs Up on No Income Even When IRS Serves up 1099 DIV: Ebert v Commissioner (Procedurally Taxing)

Robert Wood, Disagree With An IRS Form 1099? Here’s What To Do. “What happens if the issuer won’t cooperate?”

 

Jim Maule on The Taxation of Egg Donations. “The Court’s conclusion makes sense, and not simply because it reaches the conclusion I advocated for reasons I suggested relying on cases on which I relied.”

Russ Fox, One Good Crime Deserved Another:

Let’s say you’re involved in a 20-year scheme that has successfully evaded millions of dollars in payroll and income taxes for your largest client. However, you’ve only had minor profits from the scheme. So why not embezzle millions of dollars from that client?

Russ offers some pretty good reasons why not.

 

cooportunity logoHank Stern, CoOpportunity assumes room temp (InsureBlog). More on the demise of Iowa’s sole SHOP provider, set up with millions in government grants and loans. Underwriting is hard.

Jack Townsend asks Why the Lenient Sentencing for Offshore Account Tax Crimes. “But, from my perspective, it seems to me that one can fairly question the notion that commission of tax crimes via offshore accounts is any less blameworthy — i.e., punishable — than commission of tax crimes in other contexts.”

 

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Kyle Pomerleau, Richard Borean, Pass-through Businesses Account for More than $1.6 Trillion of Payroll (Tax Policy Blog):

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

These are businesses taxed on owner 1040s. Remember that when politicians want to raise rates on “the rich” even more — they are hammering employers when they do this.

Richard Auxier, Pitching, Defense, and State Tax Policy (TaxVox): “So is Max Scherzer saving money in DC? Yes. Are the District’s tax laws a big reason why he signed with the Nationals? I doubt it.”

TaxProf, The IRS Scandal, Day 629

News from the Profession. Jilted Girlfriend Has Totally Had It With Cheap Accountant Boyfriend and His Stupid Spreadsheet (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 1/22/15: Business-only tax reform: do-able, or doomed? And: Are Iowa taxes all that bad?

Thursday, January 22nd, 2015 by Joe Kristan
paul ryan

Paul Ryan

Business-only tax reform? Tax Analysts reports ($link) that the chief taxwriter in the GOP-controlled House is exploring tax reform ideas with the Obama administration:

As Republican taxwriters look for a way to advance tax reform in the face of White House ambivalence, House Ways and Means Committee Chair Paul Ryan, R-Wis., said he would explore a business-only compromise with the Obama administration, as long as it includes passthroughs.

“I’d like to think that there is perhaps an area for common ground there,” Ryan said on Fox News January 20 after President Obama’s State of the Union address. “We’re going to try to explore it and see if we can find something.”

Ryan said Obama’s recent tax proposals, which involve increasing capital gains taxes and implementing a tax on financial institutions to pay for new and expanded middle-income tax incentives, as well as new spending programs, show he is disinterested in comprehensive reform.

I think “as long as it includes passthoughs” is absolutely the right approach. I also think it will be fatal to the reform effort. A majority of businesses and business income is taxed on 1040s as a result of the increased popularity of passthrough structures like S corporations and limited liability companies.

Source: The Tax Foundation

Source: The Tax Foundation

Any tax reform effort worthy of the name would bring down rates in exchange for a broader base. As the President seems firmly committed to ever-higher rates on “the rich,” I don’t see how this can happen.

 

Is Iowa’s business tax climate really that bad? (Me, IowaBiz.com). Is Iowa ready for tax reform? Ready or not, it’s overdue for it:

Even after all of the explaining, the Tax Foundation’s main points remain true. Iowa’s corporation tax rate is the highest in the U.S. (even taking the deduction for federal income taxes into account). In fact, it is the highest in the developed world. Our individual tax rate is high, even considering the federal tax deduction. All of the special breaks make Iowa’s income tax very complex. And while Iowa has many tax credits, they are often narrowly tailored and require consulting and string-pulling to obtain. Many small businesses don’t qualify for the wonderful tax breaks, but they still have to pay their accountants to comply with the resulting complex and confusing tax system.

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.

The post begins an exploration of Iowa tax reform options I will be running at IowaBiz.com, the Des Moines Business Record’s Business Professional’s Blog. While longtime readers know my fondness for massive changes to the Iowa tax system, I will also be exploring changes on the margin that would improve and simplify Iowa’s tax system in its existing structure that might be easier to pass.

 

David Brunori, Bad State Tax Ideas Abound – Nebraska, Virginia, and Missouri (Tax Analysts Blog):

Special taxes — those on narrow bases — should be imposed sparingly and only for good reason. The best reason is to pay for externalities. But unlike, say, cigarettes, 99 percent of gun purchases produce no externalities. So they should not be subject to special taxes — unless you really hate guns, gun owners, and the guys from Duck Dynasty.

Not every problem is a tax problem.

 

Via Wikipedia

Via Wikipedia

TaxGrrrl, Taxpayers Urged To Be On ‘High Alert’ For Fraud During Filing Season:

This week, the Treasury Inspector General for Taxpayer Administration (TIGTA) issued a reminder to taxpayers to beware of scammers making calls claiming to represent the Internal Revenue Service (IRS). The scam, which heated up last year, has continued to plague taxpayers.

If you aren’t expecting a call from the IRS, it’s not the IRS.

 

William Perez, Understanding Form W-2, the Annual Wage and Tax statement

Robert Wood, 10 Surprising Items IRS Says To Report On Your Taxes. As a listicle, it will probably generate traffic to crush Forbes’ servers.

Tax Trials, Fourth Circuit Affirms the Tax Court on Conservation Easement Donation.  “In the end, the Fourth Circuit held that while the conservation purpose of the easement was perpetual, the use restriction on the’ real property is not in perpetuity because the taxpayers could remove land from the defined parcel and replace it with other land.”

Robert D. Flach, ONE WAY RETIREES ARE SCREWED ON THE NJ-1040.

Keith Fogg, How Long Does a CDP Case Toll the Statute of Limitations on Collection? (Procedurally Taxing)

Peter Reilly, Bitter CPA Fight Good For Attorneys And Nobody Else. The U.S. Sixth Circuit picks up the tale of one of the worst accounting firm breakups I’ve come across.

Jack Townsend, USAO SDNY Announces Another Offshore Account Client Plea

 

20141201-1Glenn Hubbard, Obama’s Bad Economic Ideas (Via the TaxProf): “Piling up child tax credits and subsidies for health care over narrow household income ranges, as the president proposes, leads to high rates of taxation on earnings from work as assistance is phased out.” In other words, a poverty trap.

Kay Bell, Obama’s ‘won both’ elections State of the Union quip, Republicans’ many responses to the speech (and gibe)

 

The Tax Policy Blog has lots on the Presidents’ doomed tax proposals:

Kyle Pomerleau, Andrew Lundeen, The Basics of President Obama’s State of the Union Tax Plan

Scott A. Hodge, Michael SchuylerWhat Dynamic Analysis Tells Us About the President’s Tax Hike on Capital Gains and Dividends

Stephen J. Entin, President Obama’s Capital Gains Tax Proposals: Bad for the Economy and the Budget

 

TaxVox is also flooding the SOTU zone:

William Gale, David John, Retirement Security a Priority in the 2015 State of the Union

Gene Steuerle, President Obama’s Middle-Class Tax Message in the State of the Union

William Gale, Adjusting the President’s Capital Gains Proposal

 

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TaxProf, The IRS Scandal, Day 623. Today’s installment features an e-mail where scandal figure Lois Lerner shows she’s well aware her unit was under suspicion, and was desparately discouraging further inquiry.

Matt Gardner, Adobe Products’ Acrobatic Tax-Dodging Skills (Tax Justice Blog). I would read that as “skills in meeting their fiduciary duty towards their shareholders.”

 

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Tax Roundup, 1/14/15: Education credits to delay refunds? And: it’s not volunteering when you’re paid.

Wednesday, January 14th, 2015 by Joe Kristan
Kristy Maitre

Kristy Maitre

If your tax refund this year seems to take forever to arrive, education credits might be involved. The invaluable Kristy Maitre, former IRS Stakeholder Liaison and now with the Iowa State University Center for Agricultural Law and Taxation, has leaned that the IRS may delay refunds on returns claiming the “American Opportunity Credit.” From an e-mail she has distributed:

If your client is getting the American Opportunity Credit this year you need to be aware of a possible “refund hold” on the credit to verify attendance at the college. At this time we “assume” only that part of the refund will be held and the other part of refund not related to the American Opportunity Credit will be released.

At this time we are not sure who this will impact, IRS appears to want to keep it a BIG secret. Our concern is that the tax preparer will be blamed for the delay of the refund and overall it would make the preparer look bad as well as having to deal with an upset client due to the issue. I was able to find some criteria in a new IRM, but we need more information from IRS.

Your client should be  informed by IRS of the reason the refund is being held and that once the 1098-T from the accredited institution is verified the refund will be released,  or they will receive a Letter 4800C to inform them if further documentation is required to allow the education credit…

The AOTC is a “refundable” credit; if the credit exceeds the tax computed, the IRS will pay you the excess. Given the high incidence of refund fraud involving refundable credits like the AOTC, it’s understandable that the IRS would want to verify eligibility before issuing a refund.

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.

Unfortunately, this verification will come from matching 1098-Ts issued by colleges and universities. These forms, which purport to show tuition paid, are notoriously unreliable. The inevitable matching errors will leave some taxpayers trying to get their refunds fixed well into the summer.

This highlights the unwisdom of using the tax law as the Swiss Army Knife of public policy. It’s hard enough to get taxable income right. Congress also assigns IRS education policy, health care, social welfare, industrial policy, campaign finance regulation, you name it. Like with the Swiss Army Knife, you can only add so many functions before you make it bad at being a knife.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

Commissioner Koskinen wants us to blame cuts in his budget for tax refund delays. In a memo to IRS employees, he outlines the dire effects of the cuts in his agency budget, including:

Delays in refunds for some taxpayers. People who file paper tax returns could wait an extra week — or possibly longer — to see their refund. Taxpayers with errors or questions on their returns that require additional manual review will also face delays.

It’s foolish of Congress to pile work onto the IRS and then cut its budget. That said, Mr. Koskinen has brought a lot of this on himself with his combative and tone-deaf response to the Tea Party scandal.

Also, there’s a bit of the Washington Monument Strategy in his memo, by making cuts in areas that inflict pain on taxpayers. I would be more convinced that the IRS is really committed to making taxpayer service a priority if his list of budget adjustments included sending to the field, or laying off, the hundreds of full-time IRS employees who do only union work. He would be more convincing if he said the “voluntary” preparer regulation initiative was on ice until funding improves. Instead, the Commissioner puts the National Treasury Employees Union and his own power grab ahead of processing refunds.

 

No Walnut STVolunteering. I don’t think that word means what you think it means. From Governor Branstad’s 2015 Condition of the State address:

 In addition, I am offering legislation creating the Student Debt Reorganization Tax Credit. This tax credit allows individuals to volunteer for worthy causes within Iowa’s communities and in exchange have contributions made toward their student debt.

There is so much wrong with this, beyond the idea that it’s “volunteering” when you get paid for it. It’s one more random addition to an already ridiculous mishmash of distortive and unwise education subsidies. It’s one more incentive for students to take on debt they can’t otherwise afford. And it misplaces human capital from productive for-profit enterprise to the black hole of the government and non-profit sector.

Iowa Form 148 already lists 32 different tax credits. The Governor thinks adding some more is the solution to Iowa’s problems. I think the credits are a big part of the problem, as they help make the Iowa tax law the complex high-rate mess that it is.

 

William Perez, How Soon Can We Begin Filing Tax Returns?

Kay Bell, Reducing your 2014 tax bill using exemptions, deductions

Jason Dinesen, H&R Block Doesn’t Really Have ACA “Specialists” On Staff. A bold charge, but a convincing one.

Peter Reilly, Can Walgreen Stance On Property Tax Hurt Income Tax Position Of 1031 Investors? Thoughts on getting too cute in analyzing the value of a real estate interest.

Leslie Book, Can IRS Change Taxpayers from Procrastinators to Payors By Drafting Letters that Make Taxpayers Feel Bad? (Procedurally Taxing). Usually people feel bad when they get a letter that says “notice of levy,” but that’s not what he’s talking about.

Robert Wood, Citizenship Renunciation Fee Hiked 422%, And You Can’t Come Back

Jack Townsend, Another UBS Depositor Sentence; Consideration of the Role of Potential Deportation

 

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David Brunori, Using the Poor for Fixing the Roads (Tax Analysts Blog):

The Michigan Legislature passed a bill that would significantly increase the state’s earned income tax credit. Some 800,000 Michigan families will see tax relief. I think that is a good thing. But the change won’t go into effect unless voters approve a sales tax increase from 6 percent to 7 percent.

I don’t share David’s enthusiasm for the EITC, but I do appreciate the absurdity of the sales tax link.

Kyle Pomerleau, Representative Van Hollen Releases New $1.2 Trillion Tax Plan.  “Unfortunately, most of Representative Van Hollen’s tax plan would move the U.S. further away from having a competitive, modern tax code.”

TaxProf, The IRS Scandal, Day 615. This installment covers a Tea Party group that has been waiting five years for Lois Lerner’s old office to approve their exemption application.

 

Career Corner. Age and accounting as a second career (Caleb Newquist, Going Concern)

 

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Tax Roundup, 1/13/15: Another bad day for Mr. Banister in Tax Court.

Tuesday, January 13th, 2015 by Joe Kristan

Sometimes people with ideas that are shocking and revolutionary are ahead of their time. And sometimes they are just wrong.

lizard20140826“Tax Honesty” figure Joe Banister has been in the second category for some time, as far as the Tax Court is concerned. The former KPMG accountant and IRS criminal division agent made an unusual career change, becoming a guru for those who insist there is no federal income tax. His biggest success may have been winning an acquittal on criminal tax charges in 2005. His courtroom ventures have been less rewarding since.

In 2008, the Tax Court ruled that he owed tax on about $24,000 in unreported income from 2002. Yesterday they hit him harder.

This case picked up Mr. Banister’s unfiled return string in 2003. From the Tax Court’s opinion (emphasis mine):

During 2003, 2004, 2005, and 2006, petitioner earned income from his tax consultation services, speeches, book sales, and other business activities promulgating his views of the Federal income tax system. In 2006 he received $71,497 in nonemployee compensation. He deposited his income into six bank accounts over which he maintained control. He earned interest income on some of them. Deposits into those accounts totaled $280,270.01, $522,418.98, $247,666.61, and $118,608.72 for 2003, 2004, 2005, and 2006, respectively. Petitioner did not file Federal income tax returns or pay taxes for any of those years.

The IRS commenced an audit for petitioner’s 2003 through 2006 tax years. Petitioner failed to submit for examination complete and adequate books and accounts for the years under audit. He resisted IRS efforts to obtain bank records through the use of summonses. The IRS ultimately prepared substitutes for returns under section 6020(b), determining petitioner’s correct adjusted gross income for each year by the bank deposits analysis method. The IRS determined that taxable deposits into the six bank accounts were $143,607.46, $177,402.24, $130,502.24, and $87,389.49 for 2003, 2004, 2005, and 2006, respectively. Those amounts were used in the statutory notice sent to petitioner.

It appears that giving odd tax advice is at least as lucrative as being a criminal agent. But maybe not after tax and penalties, as we will see.

Mr. Banister tried to use his own medicine to fight the IRS:20120511-2

During the course of this case, petitioner did not deny receipt of the income determined in the statutory notice and did not identify deductions that had not been allowed. His arguments, his motions, his attempts to conduct discovery, and his cross-examination of respondent’s witnesses at trial have been directed to his claim that the statutory notice was invalid because it was not signed by an authorized person and that, as a result, this Court lacks jurisdiction over his case. In his pretrial memorandum he also asserted that his U.S. income was not subject to tax and that he had no obligation to file tax returns, repeating or restating the arguments that had led to his disqualification to practice before the IRS and his loss of his certified public accountant’s license. Petitioner refused to testify at trial, citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a “motion for offer of proof” that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.

It didn’t work, and the Tax Court upheld deficiencies of $176,786. They tacked on 25% failure to file penalties and 75% fraud penalties, and estimated tax underpayment penalties, about doubling the bill. Then for good measure they penalized him $25,000 for making “frivolous” arguments in Tax Court.

Assuming the IRS accurately assessed Mr. Banister’s income, he netted $152,801 after tax for four years — though California will surely want some of that. Assuming conservatively that 20% of what’s left after taxes and penalties goes to the Golden State coffers, Mr. Banister nets about $122,000 after tax and penalties for four year’s work — an amount that probably compares poorly  to what he would have pocketed with less trouble had he stuck it out at IRS. Of course, there might be other cash income out there that never hit the IRS bank account computation.

The funny thing is, Mr. Banister could have filed his tax returns and cut his tax bill in half — and nobody would have been the wiser, except for the IRS. It may have been foolish consistency for him to take his own advice, but consistency it was.

I doubt Mr Banister is done in court. It’s not typical of hard-core “tax honesty” adherents to just pay assessments. The IRS is likely to have to slog through the dreary process of levy and asset seizure now. For those who think that Mr. Banister actually understands the tax law, this dismal record of assessment and collection litigation should be instructional. Unfortunately, anybody who still buys tax protest thinking is by definition a slow learner.

Cite: Banister, T.C. Memo 2015-10

Russ Fox has more: The Second Time Wasn’t the Charm

 

20120620-1Busy day, so just some quick links.

Robert D. Flach has fresh Tuesday Buzz,  with links to Jason Dinesen and thoughts on national franchise tax prep firm marketing.

Kay Bell, Senate Finance Democratic duo introduces bill that would give IRS regulatory authority over paid tax preparers. Fine, if the Senators require themselves and their House colleagues to do their own returns on a live webcast, by hand, with a rolling comment screen so their regulated preparers can chime in with all kinds of helpful advice.

 

Kyle Pomerleau, The Earned Income Tax Credit Still Faces High Error Rate (Tax Policy Blog).

Jeremy Scott, Nunes Plan Ignores Base Erosion Concerns:

Republican House taxwriter Devin Nunes released a business tax reform plan last week that would gradually lower tax rates to 25 percent and move to full expensing. Nunes’s plan shifts U.S. international tax rules toward territoriality and imposes a 5 percent tax on a company’s undistributed earnings. He says that when it is scored, it will be revenue neutral. Sounds great, right? Well, Nunes has decided to completely ignore the problem of U.S. tax base erosion, saying when pressed that those concerns are “irrelevant” because he is creating a new tax code.

Tax reform in this Congress seems unlikely, but if 2016 adds a Republican President to a GOP Senate and House, things they’re talking about now could turn into law in a hurry.

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Martin Sullivan, Would Congress Dare Pass the Nunes Plan? (Tax Analysts Blog):

TaxProf, The IRS Scandal, Day 614

 

Career Corner. So You Passed the CPA Exam; What Do You Want, a Cookie? (Adrienne Gonzalez, Going Concern)

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Tax Roundup, 1/6/15: Why the snake oil guy doesn’t use his own stuff.

Tuesday, January 6th, 2015 by Joe Kristan
Via Wikipedia

Via Wikipedia

When  the man selling the snake oil out of the patent medicine wagon takes a deep draught of his inventory, it tells you he believes it at least won’t hurt him. But if he then keels over and goes into convulsions, he’ll find sales tough to come by.

This explains why it might be harder for Peymon Mottahedeh to recruit additional “students” to his “Freedom Law School” after his visit to Tax Court last week. The gentleman is well-known in “tax honesty” circles — enough to have earned him a spot in the Quatloos “Hall of Shame.”

Mr. Mottahedeh’s law school has what the bar association might consider an unorthodox curriculum. Judge Morrison explains (footnotes omitted):

Since at least 1999, the Freedom Law School has organized conferences attended by hundreds of people. The Freedom Law School charged fees to the attendees. The Freedom Law School also sold books, tapes, CDs, and DVDs. It also sold packages of services, including:

-the “Simple Freedom Package” (for an initial fee of $4,000);

-the “Royal Freedom Package” (for an initial fee of $6,000).

The Freedom Law School also offered multilevel marketing arrangements, including:

-“Freedom Fighter in Training”;

-“Freedom Promoter”;

-“Freedom Leader”; and

-“Master Freedom Leader”.

You have to admit, not every law school gives you MLM opportunities.

 

FLS logoThrough its conferences, materials, and service packages, the Freedom Law School promoted various techniques for evading the payment of federal income taxes. The techniques included:

-Minimize financial records.

-Do not give information to the IRS.

-Do not file tax returns.

Mr. Mottahedeh apparently took his own advice, and that worked out about as well as you would expect. The Tax Court allowed the IRS to statistically estimate his spending, in the absence of bank and financial. The taxpayer objected, but the judge explains:

The Mottahedehs counter that in reconstructing their income the revenue agent should have considered only the income reflected in their bank and credit-union records. But the Mottahedehs tried to avoid the use of banks. Their bank records would not provide sufficient information about their income. Furthermore, even the bank records that the revenue agent obtained were incomplete. The revenue agent was unable to obtain records of all of the deposits to the Mottahedehs’ accounts. For these reasons, focusing exclusively on the income reflected in their bank records would underestimate the Mottahedehs’ income. The revenue agent had to find other methods of estimating their income. The revenue agent chose to use average spending statistics supplemented by estimates of actual spending amounts. The courts have permitted the IRS to rely on the use of average spending statistics when, as here, the taxpayer fails to cooperate with the IRS

The bottom line: $93,187 in tax, along with another $47,303 in penalties.

If the patent medicine man doesn’t die, expect him to just find another crowd and open up shop again.

Cite: Mottahedeh, T.C. Memo 2014-258

 

Seventh Avenue, Des Moines, this morning.

Pierre Lemieux“The Economics of Tax Dodging,” (via David Henderson):

From the vantage point of orthodox public finance, dodging taxes is naturally considered bad because the burden of financing essential public expenditures is transferred to compliant taxpayers. Bad taxpayers free ride on good ones, who become the suckers. In our public choice model, however, dodging taxes provides a built-in check on Leviathan. Tax dodgers are not free-riding on other taxpayers; on the contrary, taxpayers benefit from tax dodgers’ resistance. They benefit because potential tax resistance prevents Leviathan from increasing everybody’s tax burden even more.

I think both views are likely true.

 

Kyle Pomerleau, Report: 3.4 Million ACA Subsidy Recipients May have Reduced Refunds (Tax Policy Blog). I can’t wait to tell my affected clients…

William Perez reminds us of Critical Tax Deadlines in 2015

Robert D. Flach has the Buzz! Avoiding scams, New Year tax tips, and more.

Robert Wood, Big Winner Of 4,000% Tips For Jesus? IRS

 

Christopher Bergin, Would You Settle for Flowers in Place of Help From the IRS? (Tax Analysts Blog). Considering what they do to us, we should also insist on dinner and drinks.

Norton Francis, Oklahoma Pulls the Trigger on an Unaffordable Tax Cut (TaxVox): “The state triggered a major rate reduction by tying it to an essentially meaningless revenue target.”

Kay Bell, U.S. debate on Internet taxes looms in 2015, but new digital tax rules now in place for European Union electronic shoppers

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TaxProf, The IRS Scandal, Day 607. Today’s issue quotes Robert Wood:

Even if it is, the second IRS scandal, the alleged release of confidential taxpayer data to the White House, is far more debilitating. It too isn’t just alleged. We know it happened. What we do not know is how much was released, whose tax records they were, or who over at the White House requested them.

Oh, I’m sure they just wanted to make sure Republicans got all of the refunds they deserved.

Peter Reilly, Report On IRS Targeting Of Conservatives – No Christmas Pony For Darrell Issa. Peter seems to think the real scandal is that we aren’t paying more attention to whether one of the unfairly-targeted organizations might actually guilty of something.

 

News from the Profession. Here Are the Things the Accounting Profession Will Continue to Give Lip Service to in 2015 (Going Concern)

 

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Tax Roundup, 12/2/14: Dead provisions to arise for just a few weeks? And: Shocker! IRS Commissioner wants more $$$

Tuesday, December 2nd, 2014 by Joe Kristan

lazarus risingCongress to let the Lazarus provisions make it to the end of 2014? The White House’s threat to veto the Senate’s deal to permanently extend some of the perennially expiring tax provisions has killed that proposal. Now it looks like Congress will take up a bill to extend the provisions, which expired at the end of 2013, through the end of this year. That means we get to do this all over again next year. The Hill reports:

The vote on a short-term extension, expected as soon as this week, would come after a veto threat from President Obama derailed a developing $400 billion deal between Senate Majority Leader Harry Reid (D-Nev.) and House Ways and Means Chairman Dave Camp (R-Mich.) that would have extended some expired tax breaks indefinitely, as well as others for two years.

Republicans on both side of the Capitol suggested the move showed that a one-year deal was the only proposal with a chance of becoming law.

The article says “practically all” of the provisions that expired at the end of 2013 will be included. The Lazarus provisions that will come back to life include, among many others:

– A $500,000 Section 179 deduction for asset purchases that would otherwise be capitalized and depreciated.

– 50% “bonus depreciation”

– The research credit

– The five-year built-in gain period.

– The allowance of tax-free distributions from IRAs to charities.

The full text of the bill is available here: (HR 5771)

So we will get a 2014 tax law just as 2014 comes to an end. Because there is no election, there is hope that we won’t have to wait until December 2015 to know what the tax law is for 2015. Not exactly a shining moment in tax policy.

The bill also includes technical corrections for tax bills going back to 2004.

Related:

How the White House torpedoed Harry Reid’s tax deal (The Hill)

The Politics and Policy of Tax Extenders (Len Burman, TaxVox). “In theory, allowing tax provisions to expire periodically could precipitate a careful reexamination of the effectiveness of each program in light of our fiscal situation and priorities. In practice, the expiration of popular temporary provisions such as the R&E credit creates a vehicle for all sorts of budget-busting mischief.”

 

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.

TaxGrrrl has posted another installment of her interview with IRS Commissioner KoskinenYou may not be astounded to hear that he wants more money:

With spending cuts already taking a toll on taxpayer services, the agency is bracing itself for another tough season. In fact, Koskinen cites funding the IRS as his biggest challenge since taking office last December.

“It’s a serious problem for us,” he says. “I don’t know who got our $500 million but I’ll bet they’re not gonna give you back the $2-3 billion we would have if we had it.”

Given that the Congress has used the tax law as the Swiss Army Knife of public policy, with responsibilities including attempting to run the broken Obamacare machine, it’s not unreasonable to think IRS has increased needs for funds.

That said, the Commissioner has nobody to blame but himself. His tone-deaf and confrontational tone with Republicans investigating the political abuse of the Exempt Organizations function has earned him no friends in the party that controls the purse strings. The sudden appearance of 30,000 Lois Lerner e-mails that he insisted could not be recovered killed any credibility he had left. Only a new commissioner has any hope of turning that around.

The Commissioner also says he has cut spending to the bone:

The agency is already down 3,000 employees last year. Another 2,000-3,000 are on their way out by the end of this year. The current rate of replacement is one new employee for every five employees who leave… 
What gets cut next? The Commissioner is clear that it will be more personnel. That is, he noted, all that’s left.

Well, maybe. I’d be more convinced of that if he decided there just wasn’t enough cash lying around for his “voluntary” tax preparer initiative — a blatant attempt to get around the Loving decision shutting down mandatory preparer regulation.

Related: Robert Wood, Horrible Bosses, IRS EditionPeter Reilly, Restoring Trust In IRS Is A National Imperative

 

buzz20141017Robert D. Flach has posted his fresh Tuesday Buzz, including a link to his post at The Tax Professional on tax preparer civil disobedience in ACA enforcement. I will have more to say about this topic later this week.

William Perez explains Itemized Tax Deductions

Russ Fox, Mundane Tax Fraud Downs Friend of Cicero Town President

Keith Fogg, Appeals Fumbles CDP Case and Resulting Resolution Demonstrates Power of Installment Agreement (Procedurally Taxing)

Jason Dinesen, 5 Things You Didn’t Know About Enrolled Agents

Jack Townsend, More on Willfulness. You can’t break the law if you aren’t trying.

Kay Bell, December to-do list: shopping, family visits and tax tasks

 

TaxProf, The IRS Scandal, Day 572

Andrew Lundeen, Kyle Pomerleau, Less Than One Percent of Businesses Employ Half of the Private Sector Workforce (Tax Policy Blog). “On the other hand, while only 0.4 percent of all firms have over 500 employees, this small group of businesses employs 50.6 percent of the nation’s private sector workforce, with most of those employees working for C corporations.”

News from the Profession. This Timesheet-Addicted Managing Partner Will Make You Grateful Not to Work For Him (Adrienne Gonzalez, Going Concern). A charming threat of dismissal issued the day before Thanksgiving will always make you thankful for an updated resume.

 

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Tax Roundup, 12/1/14: Abe Lincoln’s year-end tax wisdom. And: Oh, THOSE e-mails!

Monday, December 1st, 2014 by Joe Kristan

Accounting Today visitors, here is your film tax credit link: Report from the Battle of Scottsdale.

 

Lincoln“If we could first know where we are, and whither we are tending, we could better judge what to do, and how to do it.” Abraham Lincoln’s “House Divided” speech.

I hope you all had a good Thanksgiving. Now it’s December, which means it’s time to begin serious tax planning. President Lincoln’s timeless observation applies very much to year-end tax planning.

To do any tax planning, you have to know where you stand before making any year-end tax planning moves. You need to see where your income, deductions and tax payments are likely to be if you do nothing before year-end — in other words, you need to project your 2014 tax return.  You also need to make your best guess at your 2015 taxes.

If you try to do tax planning tricks without doing a projection, you can actually make things worse. For example, if you prepay state and local taxes in 2014, and you are subject to alternative minimum tax in 2014, you accomplish nothing. If you are also not subject to AMT in 2015, you’ve actually increased your tax bill over the two-year period.

The best way to start your projection is with a copy of your 2013 return. Identify income and expense items that are likely to be different in 2014 and 2015. Then review your pay stub and for income and withholding and see where you are likely to end up for the year on those items.  If you have a business, you need to forecast your income at year end. The you know where you are and whither you are tending, and you and your tax advisor can better judge what to do and how to do it.

 

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

TaxProf, The IRS Scandal, Day 571. It seems the Treasury Inspector General for Tax Administration found Lois Lerner’s missing e-mails on backup tapes that Commissioner Koskinen said didn’t exist. Commissioner Koskinen’s effort to find the missing e-mails rivals O.J. Simpson’s search for the real killer.

Robert W. Wood, In ‘Lost’ Trove Of IRS Emails, 2,500 May Link White House To Confidential Taxpayer Data.

 

TaxGrrrl’s Interview with Commissioner Koskinen: Miserable, Awful & Delayed: Commissioner, Tax Advocate Talk 2015 Tax Season:

Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”

 

But the Commissioner still thinks he has the spare resources for a “voluntary” preparer regulation scheme.

Russ Fox, One Ringy Dingy, Two Ringy Dingies… “Yes, I was on hold for two hours today on the IRS Practitioner Priority Service before my call was picked up.”  Good thing his call was a priority, then.

 

Tony Nitti, The Four Tax Breaks (And Two Senators) That Killed The Tax Extender Deal. The immigration action is also implicated.

Robert D. Flach, OOPS – THEY DID IT AGAIN! “Well, it is December. And the idiots in Congress have not yet dealt with the issue of the ‘tax extenders’.”

Kyle Pomerleau, Why Not Just Get Rid of Them All? (Tax Policy Blog). “While most tax extenders are wasteful, there are a few that are worth keeping and would actually be part of a flat tax.”

 

20140814-1Kristine Tidgren offers A Few Year-End Tax Planning Tips for Farmers.

Alan Perez, Tax Planning for Clergy. The post includes a nice checklist for clergy tax planning.

Jason Dinesen, From the Archives: How to Properly Calculate Taxability of a Federal Refund on Your Iowa Tax Return

Peter Reilly, Motocross Racing With Tax Deductible Dollars Works This Time

Keith Fogg, IRS Makes Novel Use Of Outside Contractors—To Audit Microsoft (Procedurally Taxing):

The IRS has changed the regulation concerning who can participate in an examination to include private contractors.  It has hired a private law firm as an expert.  Microsoft appears to be the first examination using private contractors to become public.  The issue deserves attention in order to determine if this represents a new and better way to examine complex returns or a capitulation of what was previously considered a governmental function.

I’m still waiting for the people who got all upset about the IRS using private collection agencies to say something about this.

 

Jeff Stimpson of Accounting Today has posted his “In the Blogs” roundup for the week. Lots of good tax links.

Annette Nellen discusses Inflation adjustments in the tax law. “Our federal income tax is not consistent regarding the need to prevent bracket creep for all taxpayers.”

Kay Bell, IRS’ positive public perception picking up a bit. It would be hard to make it sink lower.

Jack Townsend notes the WAPO Article on Expatriate Taxation – The Mayor of London.

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Cheap liquor likely to remain a focus for alcoholics. Nonresident Income Taxes Likely to Remain a Focus for State Tax Authorities (Cara Griffith, Tax Analysts Blog). The post discusses states aggressive assessment of non-residents who sneeze near state lines, and the so-far failed push for Congress to provide uniform rules.

Alan Cole, Confusing Income with Taxable Income (Tax Policy Blog): “The rest of America is quite a bit richer, and quite a bit better at earning capital income, than Wonkblog gives it credit for.”

Joseph Thorndike, The Best Hopeless Idea in Washington (Tax Analysts Blog). That would be a carbon tax.

Norton Francis, What Falling Oil Prices Will Mean for State Budgets (TaxVox)

 

No Takers for the Brown house. The IRS can’t seem to unload property seized from Ed and Elaine Brown after their armed tax protest standoff. It seems buyers want some assurance that they won’t be killed by stray booby-traps.

Career Corner, So You Failed the CPA Exam Before the Holidays, Now What? (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/18/14: The ACA and filing season. Be afraid.

Tuesday, November 18th, 2014 by Joe Kristan

20121120-2Megan McArdle, Reality Check on Obamacare Year Two:

Another thing to keep in mind, however: This open enrollment period isn’t the biggest test for Obamacare in the next 12 months.  The biggest test will be what happens on or around April 15th.  That’s the first time all the people who didn’t buy insurance will get hit with the individual mandate penalty, and the ones who thought that it was a nominal $95 fee are in for a nasty shock .  April 15th will also be the first time that people who got too much in subsidies are going to be asked to pay back some of that money.  I do not have hard figures on this, but my basic experience in personal finance and tax reporting suggests that approximately zero percent of those affected will be expecting the havoc it will wreak on their tax refund.  Brace for a wave of taxpayers angrily complaining to congressmen and their local newspapers.  

After completing the first six sessions as a panelist in continuing education for tax preparers around Iowa, I completely agree. Preparers learning about the process of computing the individual mandate penalty and the tax credit adjustments are appalled.

The first question we receive is: how are we going to get people to pay for this? The taxpayers who will have the biggest issues here will be the ones who formerly had the simplest returns and who will not be excited about paying for an extra 1-4 hours of preparer time.  A chart prepared by the ISU Center for Agricultural Law and Taxation to guide preparers through the client interview process for ACA return issues looks like this:

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Courtesy Iowa State University Center for Agricultural Law and Taxation. Full-size version available to TaxPlace subscribers.

 

But it’s worse than even Ms. McArdle knows. It’s not just individual taxpayers who look to get clobbered by this. Based on what I’ve seen at our sessions, dozens or hundreds of Iowa small businesses are starting to figure out that they have had non-compliant health insurance plans so far in 2014 as a result of the ACA “market reforms.”  Non-compliance carries a penalty of $100 per day, per employee. At $36,500 per employee per year, it doesn’t take too much of this to bankrupt a small business. And it’s not as though these employers are doing something abusive; they have just continued funding employee insurance the way they always had, but in ways the “Departments” that run Obamacare no longer like. Or they just might have done all the right things, except for properly notifying employees of their coverage options in writing. Trivial violations, crushing penalties.

While there is a provision to have the penalty waived for reasonable cause, that’s not very comforting in a state where the IRS is willing to loot a restaurant’s bank account without any indication of wrongdoing.  In addition to dealing with a parade of irate individuals with sticker shock from their return fees, let alone their new taxes and penalties, preparers also have to tell noncompliant business-owning clients that they suddenly have a potentially devastating tax liability.

If taxpayers are upset after tax season as practitioners are before it, Obamacare will be about as popular as Ebola by April 15.

 

 

Today in Red Oak.Kay Bell, IRS offers tax relief in certain Ebola situations

Robert D. Flach discusses TAX EFFICIENT INVESTING

Leslie Book, Living With Your Decisions: Delinquent Mortgage Debt (Procedurally Taxing). “Courts and IRS put the kibosh on deductions when the new loan comes from the same lender as the old delinquent loan; the theory in those cases is that the taxpayer has not really gone out of pocket and that there is just a shuffling of papers.”

 

Martin Sullivan, Why the Upcoming Battle Over Expiring Tax Provisions Matters — A Lot (Tax Analysts Blog). “Extenders legislation is not just about the fate of a grab bag of miscellaneous tax provisions this year. If Republicans can get expensive expiring provisions permanently extended, the chances for enactment of tax reform will be significantly improved.”

Steve Warnhoff, New CBO Report: Yes, the Rich Are Paying “a Bit” More (Tax Justice Blog). How much more, Steve?  “New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share.” (Via Instapundit):

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Kyle Pomerleau, CBO: Overall Federal Taxing and Spending is Progressive (Tax Policy Blog)

 

Donald Marron, Spin Alert: DOE Loans Are Losing Money, Not Making Profits (TaxVox). Of course they are losing money. If they were profitable, they wouldn’t need the feds to make the loans.

TaxProf, The IRS Scandal, Day 558

 

News from the Profession. You’re Not Really as Busy as You Claim (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 11/13/14: Ottumwa Day! And: Elections and State Tax Policy.

Thursday, November 13th, 2014 by Joe Kristan

Ottumwa, Iowa: An old Southeast Iowa industrial and railroad town, home of fictional Corporal Radar O’Reilly, and today host of Day 1 of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m helping out on the Day 1 panel for this year’s schools, along with CALT Director Roger McEowen and former IRS Stakeholder Liaison Kristy Maitre.  We’ll spend the morning on the ACA and it’s compliance requirements and penalties. We’ll spend the rest of the day trying to distract everyone.

It’s cozy and warm in our conference room at Indian Hills Community College.  That’s good, as it’s chilly outside.

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We’re in Mason City on Monday, and in Denison and Ames next month. There’s still time to register! And if you can’t make it to Denison, Mason City or Ames, the December 15-16 Ames session will be webcast.

 

David Brunori, What Do the Recent Elections Mean for State Tax Policy? (Tax Analysts Blog):

Taxes mattered more in Kansas than anywhere else. Gov. Sam Brownback (R) won there comfortably. The tax cuts of Republican Govs. Rick Snyder in Michigan, Paul LePage in Maine, and Scott Walker in Wisconsin were the focus of opponents’ campaigns, and those governors survived as well. The GOP challengers in Illinois, Maryland, and Massachusetts promised to either cut taxes or never raise them. They won. The message was clear: Tax cuts sell politically. One need not be Nate Silver to predict that state political leaders seeking to reduce tax burdens will be emboldened by this election.

I don’t think that’s so true here in Iowa. Now safely re-elected to a sixth term, our GOP governor is making noises about increasing the gasoline tax. But maybe he will go bold and convince a split legislature to go big on income tax reform — maybe starting with The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Greg Mankiw, Tax Fact of the Day::

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The big difference is the reliance on other countries on a Value Added Tax, which shows up in the Consumption Taxes bar.

 

Howard Gleckman, Now is the Perfect Time to Raise Gas Taxes (TaxVox).  “Gas prices are at their lowest levels in years and dropping. Consumers would barely notice if they had to pay a bit more now at the pump.”

 

Andrew Lundeen, Kyle Pomerleau, Economic Growth Has Slowed Since 2000 (Tax Policy Blog). “Since 2000, GDP growth in the U.S. has been persistently low, averaging about 2 percent. This is much lower than the economic growth we saw in the past.”

20141113-3Kay Bell, Tax extenders outlook cloudy in the 2014 lame duck session:

Will there still be some insistence by the GOP on longer-term approaches to expired tax laws in this Congressional session’s waning hours?

Just what is the level of Democratic support of permanence vs. temporary laws?

And just how much pressure will lobbyists be able to exert to gain support of their favorite provisions, especially since some of the members making decisions now will not be around next year?

We simply don’t know yet.

There’s a lot of incentive for congresscritters to pass temporary provisions. They get to pretend they are less expensive than they really are, and they force lobbyists to show up and genuflect every year or two.

Russ Fox, London Calling: The Real Winners of the 2014 World Series of Poker. The Royal Exchequer trumps a royal flush.

TaxGrrrl, Internet Tax Ban Ending Soon: Speaker Boehner Hopes To Keep Internet Tax Free

Keith Fogg, Reinhart Part II – Extending the Statute of Limitations on Collection by Virtue of Being Out of Country (Procedurally Taxing)

20140729-1Paul Neiffer, Final FUTA Tax Rates by State

 

A new Cavalcade of Risk is up at Terms and Conditions. This edition of the definitive roundup of insurance and risk-management posts covers a lot of ground, including Hank Stern’s Rubber, Road and Lyft: Insurance Crisis? on ride sharing and insurance.

TaxProf, The IRS Scandal, Day 553

 

The Critical Question. Just What the Hell is Goodwill Anyway? (Adrienne Gonzalez, Going  Concern).

 

 

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