Posts Tagged ‘Kyle Pomerleau’

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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Tax Roundup, 11/11/14: Veterans Day in Red Oak. And: open season on Iowa Snowbirds.

Tuesday, November 11th, 2014 by Joe Kristan
John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

John Kristan, 15th Air Force, 485th Bomb Group, 829th Bomb Squad

Red Oak, Iowa seems as good a place to be on Veterans Day as any.  I’m here today as part of the ISU-CALT Farm and Urban Tax School Day 1 team. Red Oak was hit hard early in World War II when the 168th Infantry, recruited in Southwest Iowa, was crushed in the Battle of Kasserine Pass. From Wikipedia:

In the Battle of the Kasserine Pass in February 1943, forty-five soldiers from Red Oak alone were captured or killed. At the time more than 100 telegrams arrived in Red Oak saying that its soldiers were missing in action. In recognition of Red Oak’s extraordinary sacrifice, the city’s name was given to a “victory ship“. The SS Red Oak Victory has become a floating museum in the shipyard where it was built, in Richmond, California.

It’s hard to imagine going from this little town to the desert, but they’re still doing it — most famously, Iowa’s new senator-elect.

There aren’t many survivors of World War II left. Appreciate them while you can.

Related: 42-78127.blogspot.com, on my Dad’s WWII experience.

 

With the sudden change of weather to bitter cold, Iowa’s snowbirds begin their annual migration south. When they get to Texas or Florida, they often decide that the tax climate sunnier year-round and ponder changing their residency from Iowa. Doing so avoids Iowa tax on all income other than business and rental income sourced to Iowa.

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Today in Red Oak, Iowa.

A recently-released protest response by the Department of Revenue points out some of the pitfalls faced by taxpayers trying to change their residence:

 Once an individual is domiciled in Iowa, that status is retained until such time as the individual takes positive action to become domiciled in another state or country, relinquishes the rights and privileges of residency in Iowa, and meets the criteria set forth in Julson v. Julson, 255 Iowa 301, 122 N.W.2d, 329, 331 (1963).

In reviewing the information you provided to departmental staff and included with your protest, the Review Unit has determined that you are an Iowa resident. This determination is based upon the following facts:

· You have renewed your Iowa driver’s license.

· You have and are still registering vehicles in Iowa.

· You have returned to Iowa to receive medical care.

· You filed federal income tax returns using an Iowa address.

These factors indicate to the Review Unit that you have not abandoned your Iowa domicile. Consequently, the Review Unit takes the position that you are still a resident of Iowa and all of the income you receive is taxable to the state.

This taxpayer made some pretty basic errors. If you vote in Iowa and keep an Iowa drivers license, you make it pretty easy for Iowa to find you. If you file your returns with an Iowa address, you almost guarantee Iowa will wonder why you aren’t filing an Iowa return. Citing the use of Iowa medical care in Iowa seems like piling on; I don’t think is a decisive factor given the other facts.

The Moral? If you want to move your tax home to another state, you need to act like you mean it. If you continue to use an Iowa address on your return, Iowa will not be easily convinced that you are a Texan at heart.

 

buzz20140909TaxProf, The IRS Scandal, Day 551.

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

William PerezThe Basics of the Medicare Tax

Robert D. Flach comes through with a “meaty” Buzz.  He says:

I continue to worry that the anticipated bi-partisan “cooperation” on tax reform in 2015 will be limited to corporate tax reform – with only some minor token, if any, 1040 tax reform instituted – and not the total rewriting of the entire US Tax Code that is needed.

I think we’ll be lucky to get even the corporate reform.

Stephen Olsen has the latest Summary Opinions at Procedurally Taxing, rounding up recent developments in tax procedure.  He points out a great comments thread in a post about IRS cash seizures by an Institute for Justice attorney.

Jason Dinesen, A Little Bit About Sole Proprietorships, Part 2:

Here are some of the advantages of operating as a sole proprietor:

  • They are easy to get into. There’s no real paperwork to fill out. You just start conducting business.
  • They are simpler to administer and therefore your accounting and legal fees will generally be lower.
  • As your business grows you can always convert to something else. As you go up the ladder from sole proprietor to corporation, it’s easy. But it’s hard to go down the ladder from a corporation to a sole proprietorship.

There are also plenty of disadvantages…

Jack Townsend, IRS on Quiet Filings for Offshore Account Delinquencies or Underreporting

Kay Bell, 2015 inflation adjustments for exemptions, deductions, more!

Annette Nellen, Premium Tax Credit Saga – New Developments and Dilemmas

 

 

roses in the snowKyle Pomerleau, How Corporate Integration Increases Transparency and Eliminates Double-Taxation (Tax Policy Blog).  “Under our current system of double-taxation, a corporation that earns $100 needs to pay the corporate income tax (for this example let’s assume a 25 percent corporate tax rate). The after-tax income ($75) is then passed to shareholders and taxed again. The result is a 46.53% tax burden on corporate income.”

Martin Sullivan, Your Quick Guide to Dynamic Scoring in the Next Congress (Tax Analysts Blog)

Renu Zaretsky, ACA Tax Provisions Still Under Fire. This TaxVox headline roundup covers the latest in ACA battles, including a brief filed by some states (including Iowa’s Attorney General Miller) saying they thought they thought being on a federal exchange wouldn’t threaten tax credits for their residents.

 

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Tax Roundup, 10/30/14: Maquoketa! And: I was so upset, I only reported the loss items from my K-1.

Thursday, October 30th, 2014 by Joe Kristan

 

MCSD Cardinal LogoGreetings from Maquoketa, Iowa, home of the Cardinals and the largest cave complex in the state. Today is Day 1 of the second session of the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School. I’m on the Day 1 panel with Roger McEowen and Kristy Maitre, updating practitioners on 2014 developments and the upcoming ACA reporting nightmares. There is still time to register for the schools in Sheldon, Red Oak, Ottumwa, Mason City, Denison and Ames. Register today!

 

 

Emotional stress can have strange effects. But maybe not that strangeA married couple operated two LLCs as partnerships owned entirely between them. They paid a preparer to put together the 1065s and K-1s. But they apparently figured they could handle things from there, self-preparing the 1040s.

Their son took ill on a foreign trip, and they traveled overseas from October 4, 2011, to November 4. Perhaps as a result, they missed the extended return deadline for 2010 and filed late.  Better late, than never, of course.

There was a small problem with the self-prepared return. The K-1s showed about $129,000 in ordinary losses and $553,000 in long-term capital gains. The losses made it on to the self-prepared 1040s, but the capital gains somehow did not.

The IRS notices that sort of thing, and they assessed the additional tax on the gain, as well as a 20% “accuracy-related penalty” on the underpayment. The case ended up in Tax Court, where the taxpayer pleaded — well, I’m not sure how to describe this. From the Tax Court decision:

Petitioners reported in their 2010 return all of the information reflected in [Husband]’s K-1 and [Wife]’s K-1 except for the information relating to “[n]et long-term capital gain (loss)”. At trial, the Court attempted to focus [Husband] on petitioners’ inconsistent reporting in their 2010 return of the information that MMIT reflected in [Husband]’s K-1 and [Wife]’s K-1 by asking him about [the preparer’s} September 15, 2011 letters. The following exchange between the Court and [Husband] took place:
THE COURT: Now, what does it mean to you when a letter to you and to your wife says, this information reflects the amounts you need to complete your income tax return?

THE WITNESS: To be truthful, I never read it.

THE COURT: You never read it?

THE WITNESS: Yes.

THE WITNESS: Yes.

That sort of blew the “reliance on the preparer” defense. The taxpayer fell back on emotional trauma:

We consider now petitioners’ contention that [Husband] was so emotionally distraught about his son’s health at the time that he prepared petitioners’ 2010 return that he was unable to prepare that return properly. We are sympathetic that petitioners’ son was experiencing certain medical problems around the time petitioners’ 2010 return was due and that petitioners were seriously concerned about their son’s health. Nonetheless, on the record before us, we find that petitioners have failed to carry their burden…

 Indeed, petitioners reported in their 2010 return, which [Husband] prepared, all of the information reflected in [Husband]’s K-1 and [Wife]’s K-1 except for the information relating to “[n]et long-term capital gain (loss)”.

Adding the income lines to the 1040 after having to deal with a seriously ill son overseas would seem like emotional piling-on, but that means nothing to the tax law.

The Moral? As traumatic  as reporting a K-1 capital gain may be, you have to report what’s there. And maybe if your tax situation is complex enough to require hired help to prepare your pass-through returns, you might want to spring to have the preparer handle the 1040 too. The fee surely would have been less than the $12,000 penalty.

Cite: Singhal, T.C. Summ. Op. 2014-102

 

Kyle Pomerleau, Most of the Private Sector Workforce is Employed by Pass-through Businesses (Tax Policy Blog):

In the past three decades, the importance of “pass-through” businesses has grown substantially. The combined net income of sole proprietors, LLCs, Partnerships, and S corporations has increased fivefold and now accounts for more than 50 percent of all business income. C corporations now earn less than half of all business income.

Pass Through Employment by state

It you jack up taxes on “the rich,” you jack up taxes on employers. If you tax something more, you get less of it.

 

Friday is Thursday this week at Robert D. Flach’s place – with an early Buzz covering the AICPA’s loss on its suit against the “voluntary” IRS preparer program and on IRS cash seizures.

Kay Bell, Voters get their say Nov. 4 on myriad ballot initiatives

Peter Reilly, Government Coming Down Harder On Kent Hovind. Bad science isn’t a tax crime.

Joseph Thorndike, Can Jeb Bush Save Conservatism by Compromising It? (Tax Analysts Blog). If recent polls are any indication, having their opponents in power seems to be “saving” conservatism already.

Steve Warnhoff, Senator Rob Portman: Case Study in Radical, Rightwing Arguments for Slashing Corporate Taxes (Tax Justice Blog). Remember, TJB is part of Citizens for Tax Justice, a “non-partisan” exempt organization.

 

taxanalystslogoCara Griffith, Benefit Corporations: The Corporate Entity of the Future? (Tax Analysts Blog):

Those who shop at Patagonia or Etsy are likely aware of a new type of business entity that is growing in popularity. These companies and a thousand more have chosen to organize as either B corporations or benefit corporations…

 Still, the number of benefit corporations is relatively small. The reason for this is – ironically – a lack of benefits. Benefit corporations are not given tax, incentive, or procurement preferences by state or federal lawmakers. While nonprofits receive substantial benefits for their chosen entity type, benefit corporations receive no such benefits. They are taxed like c corporations – at least for now. 

This is new to me. A business structure built around moral vanity seems implausible to me, but I’ve never shopped Etsy.

 

TaxProf, The IRS Scandal, Day 539.

 

News from the Profession. Let’s Talk About Creative Accounting Themed Halloween Costumes (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 10/24/14: IRS attorney says revolving door spins away billions. And: pass-through isn’t always small.

Friday, October 24th, 2014 by Joe Kristan

20130129-1Taxes are for the little people without connections. A sensational open letter to the top Treasury tax brass from an IRS attorney alleges that the agency routinely shuts off promising examinations of big well-connected taxpayers. From Raw Story (via the TaxProf):

In a letter to Treasury Secretary Jacob Lew, IRS commissioner John A. Koskinen, and IRS chief counsel William Wilkins, Jane J. Kim, an attorney in the IRS Office of the Chief Counsel in New York, accused IRS executives of “deliberately” facilitating multi-billion dollar tax giveaways. The letter, dated October 19, will add further pressure on the agency, which is under fire for allegedly targeting conservative and Tea Party groups.

The letter describes three cases where Ms. Kim says the IRS walked away from large well-founded assessments of big corporate taxpayers raised by whistleblowers. The story implicates the revolving door between big law and accounting firms and the top levels of the IRS as a key to the strange taxpayer friendliness.

Bill Henck, who has worked for over 26 years in the IRS Office of the Chief Counsel, agreed. “The senior executives drive the train on all this and pal around with lobbyists,” he said. “Treasury was involved with both the Elmer’s Glue scam and the black liquor taxability issue. IRS executives look out for themselves, which usually means protecting corporate interests, since they hire lobbyists and are close to politicians.”

Backing up Henck’s concerns, the private sector lawyer and ex-IRS attorney explained that since 1998, IRS restructuring has focused on bringing in “outside people.” This led to the employment of an extra layer of executives who were previously “partners from big accounting firms.” Citing active IRS criminal agents, the ex-IRS attorney said: “Almost every large firm or corporation has a person inside the IRS. It’s a revolving door, with the top two or three management layers all from big accounting and law firms, and this is why they won’t work big billion-dollar cases criminally. Private bar attorneys are, in effect, controlling the IRS. It’s a type of corruption – that’s the word used by one IRS agent I’m in touch with whose case was shut down by higher ups without cause.”

This Koskinen isn't the IRS commissioner

This Koskinen isn’t the IRS commissioner

That brings to mind Commissioner Koskinen’s view of the revolving door:

So I’ve always said the best testimonial to a good place to work is people are forever coming in and trying to steal your people. And so I would be delighted to have young people come here for two or three years and some of them get recruited away because they were so good and the training is so good, because the more of that that happens, the more people are going to stand in line to get here. And as I say, the experience is, because it would be a great place to work, is the capture rate would be terrific.

So the Commissioner thinks the revolving door is a good thing. That probably means Ms. Kim’s letter isn’t exactly going to trigger reforming zeal from Mr. Koskinen. And don’t expect that you can skip out on taxes without your own mole in the IRS, chump.

 

 

Robert D. Flach has your fresh Friday Buzz! Including depressing news that Congresscritters are going to wait until January 2015 to enact the tax laws for 2014.

Kay Bell, Some retirement plan contribution, AGI limits go up in 2015

Brett Bloom, Dismantling a Partnership: The IRS’s Toolbox (Tax Litigation Survey)

William Perez, How to Plan for, Minimize, and Report the Self-Employment Tax

TaxGrrrl, IRS Gets Big Win In Court As Judge Dismisses Tea Party Targeting Cases

Peter Reilly, National Organization For Marriage – No Recovery Of Attorney Fees In Case Against IRS

TaxProf, The IRS Scandal, Day 533

 

Kyle PomerleauPass-Through Businesses are not Always Small Businesses (Tax Policy Blog). This article is a good read for anyone who thinks increases in top rates don’t hurt business because most pass-throughs are small. While that may be true, there a lots of large ones:

Compared to c corporations, pass-through businesses are still much smaller on average. The same Census data shows that 1.6 percent of corporate businesses employ 100 or more employees and 0.36 percent employ 500 or more employees. 44 percent employ between 1 and 100 employees.

However, in absolute terms, there are about as many pass-through businesses with 500 or more employees than there are traditional c corporations. According to the Census, there are approximately 9573 pass-through businesses with 500 or more employees and 9434 c corporations with 500 or more employees.

20141024-1

Source: Tax Foundation

So when you increase taxes on high-income individuals, you are also increasing taxes on employers, which isn’t likely to do good things for employment.

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Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog) Other countries just might want to poke into foreign accounts the way we do.

Howard Gleckman, Why Tax Lawyers and Tax Economists Can’t Communicate (TaxVox)

 Megan McArdle,  Can’t Afford a House? Don’t Buy One. Wise advice, but politicians think we should have a program to buy a pony for everyone.

Tax Justice Blog asks What Horrors Await Us in Congress after the Election?  And will they be better or worse horrors than the current bunch of congresscritters?

 

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Tax Roundup, 10/17/14: If they don’t want the money back, it’s not a loan. And: the state of your IRS “rights.”

Friday, October 17th, 2014 by Joe Kristan

20120511-2Loans aren’t income. But income isn’t loans either. A Tennessee woman struggled with the difference, but the Tax Court straightened her out yesterday.

The taxpayer did consulting work for the medical practice of a Dr. Quisling. Somehow linked to this, she got payments over an eight-year period from around $25,000 to $56,000 annually.  She didn’t file tax returns for any of these years.

The taxpayer took a strange approach to the payments. We’ll let Judge Kerrigan explain (my emphasis):

Petitioner sent Dr. Quisling a memorandum entitled “Memorandum of Understanding on Loan Terms and Conditions”. This memorandum states:

    It has been revealed to me that the action of Blue Cross Blue Shield of Tennessee, Inc., * * * has created a financial burden upon your medical practice, because the medical services rendered by your medical practice rely upon payment(s) received by BCBST. Therefore, I am willing to develop a loan package * * * for the short-range and long-range impact upon the delivery of medical services by the “in-network-provider” as well as the “out-of-network provider” * * *.

The memorandum further states “[a] reasonable expectation of this Memorandum of Understanding on Loan Terms and Conditions is that the loan proceedings will be based upon a) your ability to loan and b) the completion of the research which will result in profit to the undersigned in order that the loan can be repaid.”

This memorandum, dated April 1, 2003, includes the signature of petitioner but not the signature of Dr. Quisling. Petitioner sent Dr. Quisling a followup letter to the memorandum requesting a memorandum of acceptance. The memorandum of acceptance includes a signature alleged to be Dr. Quisling’s, but this signature is not his.

20120801-2See, loans aren’t income, so we don’t have to tell IRS! But Judge Kerrigan notes a flaw in this cunning plan:

Petitioner did not make payments to Dr. Quisling. Neither Dr. Quisling nor Mrs. Quisling demanded payment from petitioner.

Yes, repayment is a key part of a loan agreement. You give me money, I give it back later. Without the second part, it’s either a “gift” or “income.”

The doctor wisely did not play along, but unwisely failed to issue 1099s.. The doctor terminated the consulting relationship in 2011 when she refused belated requests for her Social Security number.

The taxpayer denied performing services. She said the money was given her for other things:

Petitioner contends that payments made by Quisling were loans. Petitioner testified that she needed the money to fund the research for a book that she was writing. However, petitioner produced no evidence of the book including the potential for publishing the book or any other evidence of her ability to repay. Dr. Quisling testified that the payments were not loans and that he did not expect to be repaid.

On February 5, 2011, petitioner faxed Dr. Quisling a letter referencing an alleged purchase of medical equipment that Quisling made from petitioner’s deceased husband. On February 25, 2011, Dr. Quisling’s attorney and the attorney for Quisling, Vincent Zuccaro, sent petitioner a letter stating that Quisling had not purchased any equipment from her husband or received a gift of property from her or her husband.

The Tax Court had little trouble finding that the taxpayer received income, rather than loans, upholding the tax assessment and various penalties.

The Moral? If you get income, calling it a “loan” doesn’t make it one. Especially when the “lender” doesn’t think it’s a loan and never asks for repayment.

Cite: Fisher, T.C. Memo 2014-219.

 

20130419-1Amber Athey, Is the IRS Upholding Your Taxpayer Rights? (Tax Policy Blog). Some better than others:

2. The Right to Quality Service:

While the opportunities for outreach seem robust, in 2012, only 66 percent of taxpayers trying to call the IRS reached a representative, and callers waited on average of 17 minutes, up from 12 minutes in 2011. An article from April of 2014 stated the wait time was up to 30 minutes, largely due to budget cuts.

And:

8. The Right to Confidentiality

Any information disclosed to the IRS may not be shared with anyone else unless authorized by the taxpayer or by law. The IRS struggles with protecting the confidentiality of taxpayers. Numerous information scandals have plagued the IRS, including the posting of 100,000 names and social security numbers on their website and an unencrypted thumb drive loaded with social security numbers being taken home by an employee.

In the first six months of 2013, 1.6 million taxpayers were affected by identity theft, compared to 271,000 in 2010. Thefts have resulted in billions of dollars in potentially fraudulent refunds, as the IRS issues refunds before they’re sure the filing was done by the person whose name is on the form. In 2011, fraudulent refunds totaled $3.6 billion.  Serious improvements in security measures need to occur in order for taxpayers to feel confident that the IRS can protect their information.

But Amber Athey still thinks the IRS “Taxpayer Bill of Rights” is a good thing:

The IRS has room to improve in protecting the rights of taxpayers, but the implementation of the Taxpayer Bill of Rights is a great first step in this process. A clear outline of rights is also highly beneficial to the IRS and taxpayers as a means setting expectations for the function of the IRS.

I suppose having something to aspire to is a good thing, but it would be a lot better if there was somebody who would actually enforce these rights and impose costs on the IRS for falling short.

 

buzz20141017buzz20141017Robert D. Flach has a friday “Buzz Light,” linking to tax things.

Jason Dinesen, Updated Wisconsin Tax Guidance for Same-Sex Married Couples

Kay Bell, Are you willing to pay more to cover Airbnb taxes?

Paul Neiffer invites you to an Ag Summit in Chicago on December 7 with Andy Biebl and Lance Woodbury on “Farm Retirement and Transition Planning.”

 

Kyle Pomerleau, The Pease Limitation on Itemized Deductions Is Really a Surtax (Tax Policy Blog). It’s also a lie. It works like a rate increase, but more complicated and without the honesty.

Howard Gleckman, Taxes and Spending Return To “Normal”– But Not For Long (TaxVox)

Robert Goulder, Early Results Are In: Inversions Aren’t Going Away (Tax Analysts Blog) “It’s too early to draw a definitive conclusion here, but it seems the world’s multinationals haven’t yet thrown in the towel on inverting to low-tax jurisdictions.”

Richard Phillips, Ireland’s Soft Pedaling Tax Avoidance Crack Down (Tax Justice Blog)

TaxProf, The IRS Scandal, Day 526

Me, IRS Issues Applicable Federal Rates (AFR) for November 2014

Career Corner. A Quick and Dirty Guide to Getting Away With Insider Trading (Leona May, Going Concern)

 

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Tax Roundup, 9/30/14: IRS handling of uncollected taxes slammed. And: ISU TaxPlace goes live!

Tuesday, September 30th, 2014 by Joe Kristan

Priorities.  While allowing billions of false refunds to go to two-bit grifters via ID-theft refund fraud, the IRS also manages to not correctly follow up on billions of unpaid assessed taxes, according to a new report by the Treasury Inspector General for Tax Administration.  “Of a stratified sample of 250 cases reviewed, there was no evidence that employees completed all of the required research steps for 57 percent of the cases prior to their closing.”

How much money was potentially involved?  A chart from the report:

20140930-1

This is what happens when the tax law is treated as the Swiss Army Knife of public policy, rather than as a simple tax collection and enforcement mechanism. It doesn’t help when successive commissioners are more concerned with expanding the agency’s power and suppressing political opponents than with collecting revenue and properly issuing refunds.

The TaxProf has more.

 

20130114-1TaxPlace goes liveThe ISU Center for Agricultural Law and Taxation has launched TaxPlace:

We are very excited to introduce TaxPlace, a 24-7 resource for tax professionals, especially those preparing farm tax returns. For a limited time, we are offering a yearly subscription for the low introductory price of $150. 

What does that include?

This one-year subscription to TaxPlace entitles you and your staff to one calendar year of unlimited access to all TaxPlace materials and services, including:

A searchable database of timely articles and seminar materials explaining basic, new, and complex tax issues, with a particular emphasis on issues impacting farmers, ranchers, and ag-businesses.

Unlimited replays of recorded seminars and webinars addressing timely and challenging farm and urban tax and estate and business planning concepts.

Access to “Ask a Question,” a personal connection with a professional knowledgeable in farm tax requirements. (“Ask a question” is not a gateway for legal advice and does not substitute for services from a legal or accounting professional.)

Tables, charts, explanations of procedures and forms, and contact information to simplify your interaction with the Internal Revenue Service or state tax departments.

Access to a weekly blog and to future archives of “the Scoop,” a bi-monthly live webinar addressing new tax laws and procedures as they develop and providing attendees with an opportunity to ask questions.

A bargain for $150.

 

TaxGrrrlHow To Get Away With Tax Fraud. No, she hasn’t gone over to the dark side. She is outlining some rookie mistakes made by a Ms. Jackson, who tried to cash a $94 million tax refund check she received. Revenue agents were waiting for her at the grocery store where she tried to cash the check:

Among the basic mistakes TaxGrrrl points out is this:

 Unless you are due a lot of refundable tax credits (more on that later), you’ll want to make sure that your math makes sense. I didn’t see Jackson’s tax return. And I’m not licensed in Georgia. But even I can figure from peeking at the Georgia Department of Revenue’s web site that the highest income tax rate for individuals is 6%. To have paid in $94 million of tax, the amount of her refund claim, you’d have to have earned about $1.56 billion in income – in one year (assuming no carry forward or carry back). That kind of money should have landed Jackson on the newly released Forbes’ 400 Richest Americans list. Spoiler alert: she’s not on the list.

And no, it doesn’t appear that she sandbagged a little too much on her estimated tax payments.  Another basic mistake: real tax thieves prefer direct deposit. But, as a man once said to police here in Des Moines, “You don’t spend your days chasing geniuses, do you?’

 

Peter Reilly, New York Springs Sales Tax Trap On Passive LLC Members. Apparently New York is holding LLC members personally liable for sales taxes owed by the LLC. If the Empire State wants businesses and investors to stay far away, this is a pretty good step. Oddly, S corporation owners don’t have this problem.

 

Fresh Buzz is available from Robert D. Flach, including links to stories on retiree taxation and Roberts side project, The Tax Professional.

Carl Smith discusses The Congressman James Traficant Memorial Code Section at Procedurally Taxing.  Well, if it’s like most code sections, it will outlast all of us.

 

J.D. Tuccille, Yet More IRS Employees Busted for Stealing Taxpayers’ Identities (Reason.com):

Have I mentioned that people signing for health coverage under the Affordable Care Act are supposed to update the government on any major life changes, including marriage status, employment, finances…? Oh wait, yes I have.

I wonder if that information will be better protected.

Remain calm, all is well.

 

20130111-1Andrew Lundeen, Kyle PomerleauEstonia has the Most Competitive Tax System in the OECD. (Tax Policy Blog). The posts tells of a fascinating feature of the Estonian tax law:

Additionally, Estonia only taxes distributed profits and at a 21 percent tax rate. This means that if a business in Estonia earns $100 and pays that $100 to its shareholders, the business would be required to pay a tax of $21 on the distributed profit. Instead, if that business decides to reinvest that $100, the business would not have to pay tax on that $100.

Compare that to the U.S., where the corporations pay tax on income when it is earned, and potentially another tax if earnings are not distributed.  Still another tax is paid when the earnings are distributed; in Estonia, there is no second tax.

If you were designing a tax system to actually make sense, it would look a lot more like the Estonian setup than the U.S. income tax.  You also wouldn’t have the inversion problem people fret about so.

Martin Sullivan, Can Congress Pass Tax Reform That Would Stop Inversions? (Tax Analysts Blog). “Right now the U.S. tax system favors foreign owned corporations over U.S. owned corporations.”

 

Donald Marron, The $300 billion question: How should we budget for federal lending? (TaxVox)

 

TaxProf, The IRS Scandal, Day 509

 

Liz Malm, Businesses Paid Nearly $671 Billion in State and Local Taxes Last Year (Tax Policy Blog)

 

Career Corner. Let’s Waste Some Chargeable Hours Comparing Chargeable Hour Goals (Adrienne Gonzalez, Going Concern)

 

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Tax Roundup, 9/29/14: Obamacare fines can hit $12,000 for a family for 2014. And: tax-evading Congressman beamed up.

Monday, September 29th, 2014 by Joe Kristan

20121120-2Laura Saunders, Penalty for Not Having Health Coverage Can Be Thousands of Dollars; The ACA Penalty Can Top $12,000 for a High-Income Family of Five:

For a family of five, the penalty could be as high as $12,240 for the 2014 tax year, experts say. And for many people, the penalty will rise sharply in 2015 and 2016.

The massive health-care changes passed in 2010 are phasing in, and this is the first year most Americans must have approved health insurance. Those who don’t will owe a penalty under the Individual Shared Responsibility Provision. It’s due with your income taxes, payable by April 15, 2015.

For your own good, of course.  And even if you get the coverage, you can get surprised by a tax bill at year-end if you mis-estimated your income for the year.  (Via the TaxProf). 

 

TraficantBeamed up. When Congresscritters are called “colorful,” it implies they are harmless and almost cute. James Traficant was often described as a “colorful” Congresscritter.  He would give speeches with the tag line “beam me up.”  Russ Fox reports that his request has been granted; the former Congressman died last week.

His colorful career came to a bad end with seven years in prison for tax evasion and other charges. He was accused of accepting bribes and not paying taxes as a sheriff before he made it to Congress; his defense was that he was conducting a secret undercover investigation of the bribe-givers.  He was convicted and expelled from the House. You have to achieve a pretty high standard of low to be expelled from that wretched hive of scum and villainy.

As his release date neared, a minor league baseball team prepared to celebrate with a “Traficant Release Night” promotion, until they got cold feet and cancelled.

It’s fun to laugh at these antics, and it’s healthy to mock politicians. Yet even an ineffective Congresscritter wields an enormous amount of power, with a 1/535 say in a trillion-dollar federal budget. The real laugh is on the taxpayers who put such power in such hands.

Update: Peter Reilly has a detailed history of Mr. Traficant’s tax troubles: James Traficant Jr. And The Taxpayer’s Burden

 

Russ Fox, California Mandates E-Filing of Business Returns:

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

Impossibility has never been an excuse with California.

 

TaxGrrrl, Back To School 2014: Saving & The Kiddie Tax.

Kay BellLying to your tax pro could result in a bad tax situation. Shockingly, this appears to be an issue with the Jersey Shore guy’s tax problems. I mean, if you can’t trust a guy from Jersey Shore, what’s left to trust?

William Perez, Investing in a 401(k)? Learn Your Yearly Maximum Contribution Amounts

Peter Reilly, Scholarships Do Not Make Beauty Pageant A Charity.  No, but 501(c)(3) also exempts “educational” institutions, and without the Miss U.S.A. pageant, I would have never been educated on the use of red cups as musical instruments.

 

Phil Hodgen, Your expatriation tax return when U.S. income is zero. It’s sad that our insane and abusive treatment of offshore Americans is making this a common issue.

Jack Townsend, Wylys Ordered to Disgorge Hundreds of Millions of Tax Benefits With Interest

Jason Dinesen, The IRS Says I’m Not Authorized to Speak On My Own Behalf:

So to recap:

  1. The IRS says I am not my own authorized representative so they can’t make the changes I requested

  2. The IRS sent me a duplicate copy of their letter because I am my authorized representative

But I’m sure preparer regulation would go smoothly…

 

20140929-1Kyle Pomerleau, Always Be Careful with IRS Income Data (Tax Policy Blog):

The U.S. tax code only accounts for capital income (capital gains, specifically) when it is realized. This means that someone may have been accumulating capital gains for 40 years in an investment portfolio, but the IRS only sees the final (sometimes massive) realization. Suppose an individual invested in stock. Each year, the gains were small, but in the 41st year, he realized all of the past years’ gains and earned $1 million in income. IRS data would show that this taxpayer was a millionaire one year (and part of the 1 percent).

And he’d be the Devil, for one year.

 

Renu Zaretsky, Pressure, Power, and a New View on Cuts. Today’s TaxVox headline roundup covers unintended consequences of the new inversion rules and the changing politics of tax cuts.

 

TaxProf, The IRS Scandal, Day 508. Speculation on whether there is a link between the IRS scandal and the Holder resignation.

 

Department of Unfortunate Examples.  Econlog’s Scott Sumner has an interesting post addressing why pay disparities that seem puzzling on the surface might make sense: Don’t jump to conclusions (markets are smarter than you or I)

It’s a wise post, but I wish he’d have found a different example:

You might think that a secretary is a secretary and a janitor is a janitor. Not so, they vary quite a bit in competence. Goldman Sachs has much more to lose from an incompetent secretary than does a small accounting firm in Des Moines.

I prefer to think that our “small accounting firm in Des Moines” doesn’t have to pay as much as Goldman Sachs because people here don’t have to work with people from Goldman Sachs.

 

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

It apparently involved a tax incentive.

 

Paul Neiffer, Will Tax Inversion Debate Yield Permanent Section 179

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

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

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

 

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

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

Kay Bell, Will Tax Inversion Debate Yield Permanent Section 179

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

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

 

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

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

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

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

 

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

 

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Tax Roundup, 9/9/14: The $63 Question Edition. And: is there such thing as an influential accountant?

Tuesday, September 9th, 2014 by Joe Kristan

20140321-4Asking the judge the 63-dollar question.  CPA practitioners sue to stop PTIN fees (Journal of Accountancy):

Two CPAs have filed suit in the U.S. district court for the District of Columbia, asking the court to stop the IRS from charging fees for issuing preparer tax identification numbers (PTINs), to obtain refunds of fees paid in the past, and to enjoin the IRS from asking for more information than needed to issue preparer tax identification numbers (PTINs)…

Although the IRS claims that the excess fees are intended to be used to pay the costs of the registration cards sent to each preparer, the costs of forms and other guidance provided to preparers, and the costs of tax compliance and suitability checks, the plaintiffs point out that none of this has been done or should be done. No registration cards have been sent, the IRS does not normally charge to issue other tax forms and instructions, and it has not conducted suitability checks because attorneys and CPAs are not subject to those requirements. In fact, CPAs are subject to their own requirements to prove that they are fit and competent. 

While I think the plaintiffs are correct in saying the $63 fee far exceeds any benefit we get from it, I suspect the attorneys will be the real winners in this suit.

 

TaxProf, The IRS Scandal, Day 488

 

AndersenlogoFrancine McKenna, Arthur Ashes:

Arthur Andersen is back from the dead. A group of former partners from the accounting firm is reviving the brand a dozen years after its demise. It’s a display of hubris that attempts to give credence to some revisionist history about Andersen.

Enron was no isolated event. Andersen was implicated in cases involving Sunbeam, WorldCom and others. Its settlement with the U.S. Securities and Exchange Commission over Waste Management was at the time, in early 2001, a rare fraud case against a big accounting firm.

With only four “major” accounting firms left, it’s hard to imagine any of them going the way of Andersen.  It’s also hard to imagine that the Andersen brand will be worth more than, say, the Enron brand.

 

EITC error chartKyle Pomerleau, IRS Releases More Detail on EITC Over-Payments:

One of the major issues with the Earned Income Tax Credit is that is suffers from a high amount of payment error. In any given year, the error can amount to approximately 25% of total payments and cost $14 billion dollars.

It is usually not clear exactly why these errors occur. There are two common stories behind them. The first story is about plain fraud. Taxpayers, or the preparers that help them file taxes, are purposefully misrepresenting their information in order to receive the EITC, or increase their EITC.

The second story is that EITC filers, which are typically lower-income individuals with lower levels of education, are making a high number of mistakes when filing. For instance, they may claim their child as a dependent (which leads to a much larger EITC), but their ex-spouse may have claimed their child as well. The result being that one parent is non-compliant.

Given that the errors result in overpayments of the credit, you have to think fraud is a big part of it.  If the errors were random, you would expect about the same amount of underpayment errors as overpayment errors. Human nature itself plays a role, too; a disappointed taxpayer might keep working the numbers until a happy answer — an overpayment — is reached.  A taxpayer who reaches a happy answer right away is less likely to re-run the numbers.

 


buzz20140909TaxGrrrl, 
Back To School 2014: Expired Educator Expenses & Unreimbursed Employee Expenses

Jason Dinesen ponders What Responsibilities Do Tax Preparers Have in Assessing ACA Penalties?  “Just because we think a law is stupid doesn’t mean we don’t deal with it.” If we didn’t, we would have very little to do.

Peter Reilly, Joan Rivers Made Tax History

Robert D. Flach brings your early-in-the-week Buzz! Today he returns to the hive withmore news of the anti-PTIN fee lawsuit, among other topics.

 

Martin Sullivan, How Much Do Converted and Nontraditional REITs Cost the U.S. Treasury? (Tax Analysts Blog)

Howard Gleckman, Treasury’s Lew Says Anti-Inversion Decision Will Come Soon, But Offers No Hints About What Or When.  While we don’t know what the decision will be, we can be confident that it will leave the real problems — high rates and worldwide taxation of U.S. taxpayers — untouched.

 

Accounting Today has issued its annual list of the 100 Most Influential People in Tax and Accounting.  Somehow I missed the cut again, though I follow a few on Twitter. I hope I can make the “100 most influential accountants in Polk County” list, but I may have to do some lobbying.

Congratulations to TaxProf Paul Caron and Going Concern’s Caleb Newquist, but the omission of Caleb’s crony Adrienne Gonzalez is a crime that cries out for justice.

 

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

Friday, September 5th, 2014 by Joe Kristan

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

 

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

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

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

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

 

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

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

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

You gotta like her sources.

 

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

Russ Fox, $1.25 Billion Attracts Tesla to Nevada

 

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 484

 

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

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

 

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Tax Roundup, 8/15/14: Sell Iowa land, pay Iowa tax. And: more inversion diversion!

Friday, August 15th, 2014 by Joe Kristan

20120920-3

Accounting Today visitors, the ALEC story link you want is here: Tax Roundup, 8/11/14: Don’t you dare agree with me edition.

 

It’s not just Iowa.  If you sell land for a gain, the state where the land is will want to tax you.  A Letter of Findings (Document 14201016issued by the Iowa Department of Revenue this week  gave the bad news to a Wisconsin man.  From the letter:

Your income tax assessment for 2002 was based upon the fact that you sold property in Iowa for that year and the gain from the sale of that property was never reported as taxable income in Iowa.  Your Protest seems largely based on the argument that you are not a citizen or resident of Iowa.

You don’t have to live in a state to be taxed there.  States can tax income from non-residents if it has enough connection to the state.  The letter explains:

 Despite the fact that you are currently a nonresident, you still owe Iowa income tax on the capital gain related to the sale of property in Iowa. 

This is important to a lot of non-Iowans who have inherited farmland here.  Farmland values have spiked in recent years, making it tempting to cash out.  The Department of Revenue will be looking for its cut.

 

Kyle Pomerleau asks How Much Will Corporate Tax Inversions Cost the U.S. Treasury? (Tax Policy Blog):

The Joint Committee on Taxation in May released their estimate of the revenue gained from passing the “Stop Corporate Inversions Act of 2014.” This law alters rules and makes it harder for corporations to invert and move overseas. The JCT estimates that this will raise approximately $19.5 billion over fiscal years 2015 and 2024.

Compare this to the Congressional Budget Office’s fiscal outlook that estimates that the corporate income tax is estimated to raise approximately $4.5 trillion over the same period.

That is a 0.4 percent loss to our corporate tax base due to corporate inversions. Hardly the doom and gloom many in the press and Congress make it out to be.

Or, in handy graphical form:

20140815-1

 

The whole contrived inversion panic is best understood as a diversion, an attempt to create a hate totem to divert attention from the disastrous effects of other policies.

 

20140815-2Jim Maule isn’t taking inversions very well:

Furchtgott-Roth asks, “What is more American than doing what is best for your company?” The answer is, doing what is best for America no matter what it does to the company. That is what America did during World War II. If today’s generation of “capitalists” were the folks around back in the 1940s, we’d be speaking German or Japanese.

The good Professor Maule makes some basic mistakes here.  First, he assumes that people didn’t try to keep their taxes low back in the 1930s and 1940s.  I have boxes of dusty old tax casebooks that say otherwise.

A more fundamental mistake is his assumption that paying more taxes than the tax law requires is “best for America no matter what it does to the company.”  The President and our 535 Congressional supergeniuses have no magical insight on what’s “best for America.”  Reasonable minds may differ on “what’s best” without being traitors.

Professor Maule seems to make the default assumption that whatever gives more revenue to the government is “best for America no matter what it does to the company.”  By that logic, corporations should liquidate and turn their proceeds over to the IRS.  Forget the products those corporations make, the needs they meet, the jobs they provide.  Screw the pensioners with pension plans funded with corporation stock.  Because America!

 

TIGTA reports Some Contractor Personnel Without Background Investigations Had Access to Taxpayer Data and Other Sensitive Information.  Remember how everyone was all up in arms that a private company was hired to call on tax delinquents that the agency couldn’t be bothered with, on privacy and security grounds?  Good thing confidential tax data is secure now.

 

20120620-1TaxGrrrl, TIGTA, IRS Warn Phone Scam Continues As Fraudsters Rake In Millions   

William Perez, How to Make Sure Your Charity Donation Is Tax-Deductible.

Kay Bell, California tax deduction bill aimed at former NBA owner Donald Sterling advances.  California forgets that not every problem is a tax problem, and being a jerk isn’t a taxable event.

Russ Fox, Lawsuits Against FATCA in Canada

It’s Friday, so Robert D Flach has fresh Buzz!

 

Arnold Kling points out this from the Wall Street Journal:

Employers in many countries are reluctant to hire on permanent contracts because of rigid labor rules and sky-high payroll taxes that go to funding the huge pension bill of their parents.

He adds: “Don’t think it couldn’t happen here.”  It’s already starting to.

Because giving money to politicians is more important than your retirement. Amazing Waste: Tax Subsidies To Qualified Retirement Plans, (Calvin Johnson, at Tax Analysts, via the TaxProf): 

Qualified plans are ineffective or counterproductive for their given rationales, which makes them a rich source of revenue when the United States needs money.

Mr. Johnson has a strange hobby of finding ways to give more of your money to the government by making tax rules even worse.  Apparently he is convinced that politicians and bureaucrats have better things to do with your money than you do.  (via the TaxProf)

 

TaxProf, The IRS Scandal, Day 463

Kelly Davis, Hey Missouri, You’re the Show Me State, But Don’t Follow Kansas’s Lead.  (Tax Justice Bl0g).  Shouldn’t that be “so,” no “but?”

 

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Tax Roundup, 8/12/14: FBAR Filing, some acrobatics required.

Tuesday, August 12th, 2014 by Joe Kristan

No Walnut STThe foreign financial account reporting system is said to be all about keeping people from evading taxes by hiding assets overseas.  I’m starting to think that it is really just a strange sadistic plan to torture random taxpayers for fun and profit.  Consider:

– The FBAR filings are not part of the tax returns everyone files anyway.

– They are due at separate times from regular tax filings.

– The Treasury claims the timely mailed (or transmitted) = timely filed rule doesn’t apply to FBAR filings, unlike all other tax filings.

– The filing system is entirely separate from other tax return systems, including a separate bureaucracy and facilities.

Support for my theory comes from today’s report by Tax Analysts ($link):

Taxpayers cannot file a foreign bank account report electronically if they have a copy of popular software programs such as Adobe Acrobat installed on their computers because the programs conflict with the FBAR electronic filing portal, Tax Analysts has learned.

The only way to resolve the problem is to uninstall the conflicting programs and install a copy of Adobe Reader, according to instructionsfrom the Financial Crimes Enforcement Network’s Bank Secrecy Act (BSA) e-filing help desk. The conflict was confirmed by a help desk employee.

FinCEN mandated e-filing of FBARs as of July 1, 2013. According to a FinCEN FAQ, failure to comply with the electronic filing mandate could result in civil penalties, including a $500 fine for each negligent currency transaction.

The FBAR system is way overdue for an overhaul.  Some obvious steps:

– Raise the foreign account filing threshold drastically — say to $100,000 or $200,000 from the current $10,000.  This would keep thousands of Americans working overseas, and thousands more Green Card holders workers from having to risk enormous fines for foot-fault violations.

– Moving the FBAR filing to the regular tax return system, with the same filing locations and due dates.   Currently filing is with “FincCEN,” which is creep-ese for the Financial Crimes Enforcement Network — which helps lead to the government presumption that committing personal finance while overseas is a crime.

– Making sure “timely mailed = timely filed” applies to FBAR reports.

Still better would be to join the developed world in imposing the income tax on a territorial basis, rather than on worldwide income.

Requiring taxpayers to screw around with their computer setup just to meet their FBAR requirements is outrageous.  Even if FBAR filing is not merely a sadistic plot — and it sure acts like one — it seems more designed as a hook to punish violators — purposeful and accidental —  than a way to gather compliance information.  As usual, Congress goes after a small set of violators by firing into the crowd.

 

Russ Fox, Bears Sacked; Lose Court Case Worth $4.1 Million.  “No, Jay Cutler didn’t throw one of his usual interceptions. Instead, Judge Mary Mason of the 1st District Illinois Appellate Court ruled that the Chicago Bears had underpaid Cook County’s Amusement Tax.”

Paul Neiffer, How Does Section 179 Work?

Robert D. Flach has your fresh Tuesday Buzz!

 

20120510-1TaxProf, The IRS Scandal, Day 460

Kyle Pomerleau, Two New Reports on the “New Markets Tax Credit”  (Tax Policy Blog):

This week, the Government Accountability Office (GAO) released a report on “New Markets Tax Credits” (NMTC) at the request of Senator Tom Coburn (R-OK). In addition, Senator Coburn also released a report of his own outlining the program.

New Market Tax Credits were introduced in 2000 as part of the Community Renewal Tax Relief Act of 2000. The NMTC were meant to encourage investment in low-income areas that don’t have access to capital.

The credit works by giving an investor a tax credit equal to 39 percent of the initial investment the investor makes in a project. This means for every $100 in an investment, an investor will receive a $39 tax credit. The credit is distributed over seven years. From 2003 to 2013, the program has cost the federal government $40 billion.

While the credit is meant to help fund projects in low-income areas, it has actually benefitted banks substantially. GAO and Coburn’s report outline significant issues with the program.

Imagine that.

Jeremy Scott,Kansas and Missouri Show the Dangers of Tax Competition (Tax Analysts Blog):

For the last two decades, U.S. states have found themselves competing with their neighbors to attract domestic investment and relocations. And as Missouri and Kansas are learning, the real losers in tax competitions are taxpayers and state budgets.

The winners? The well-connected, fixers, middlemen, and politicians.

Career Corner.  Rat Out Your Employer On Taxes. Win Cash Rewards! (Walter Olson, Reason.com)

 

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Tax Roundup, 7/11/14: Wilderness edition. And: the hazards of doing it yourself.

Friday, July 11th, 2014 by Joe Kristan
Photo courtesy Philmontscoutranch.org

Photo courtesy Philmontscoutranch.org

Programming note.  The Tax Update goes untended for the next two weeks, as I head to Philmont Scout Ranch with my younger son and others for a 10-day backpacking odyssey.  It’s my first visit to New Mexico and my first extended backpacking trip.  Horses, carabiners, and black powder rifles will be encountered.  Whatever remains of me will be back here July 28.  The lovely and talented folks in the blogroll to the right will keep the tax world under control in the meantime.

 

Accounting Today visitors: if you followed the newsletter link here, you probably are looking for this: July 5, 1944.

 

Does the tax law cause people to do work on rental properties that they really should hire out?   That’s one conclusion you could draw from a Tax Court case yesterday, where a landlord says she chose do herself work that, based on the time she says she spent, should have gone to a contractor.

The tax law says real estate losses are normally “passive,” and when adjusted gross income exceeds $150,000, they are only deductible to the extent of other passive income.  A special rule lets “materially participating real estate professionals” out of the “per-se passive” rules; these taxpayers test whether their real estate activity is passive under the rules that apply to other business activities, based on time spent.

There’s a serious catch.  To qualify as a real estate pro, you have to work at least 750 hours in real estate, and more hours than in anything else you do.  If you have a full-time day job, this doesn’t work.

20140325-1But taxpayers attempting to get to 750 hours might be tempted to do work they would otherwise outsource.  That would be the generous interpretation of these facts in the Tax Court (my emphasis):

Petitioner claimed to have spent a total of 772 hours working on her rental properties in 2009. In support of her assertion, petitioner provided activity logs purporting to document the time she spent on her rental activities. Some of the activities included painting, cleaning apartments, shoveling snow, communicating with tenants on various issues, placing rental ads in the local newspaper, picking up mail, and paying bills. Although some log entries reference a specific apartment or property, many log activities do not specifically identify a particular rental unit. In addition, the number of hours noted on petitioner’s logs appears to be significantly inflated. For example, in one instance petitioner claims to have spent 8 to 12 hours per day for 10 days staining the “deck and siding” of what appears to be one apartment at the Pulaski property.

Some people just are perfectionists.

The log also indicates that [petitioner’s husband] helped stain the deck and siding on those dates. In that instance, petitioners together spent between 160 to 240 hours staining the deck and siding of one apartment. There are several other instances in 2009 where petitioner claims to have spent many hours staining and painting decks and front porches of the rental properties. Petitioner’s log for July 2009 indicates that she spent approximately 77 hours over an eight-day period to paint a back porch. Petitioner’s log for November 2009 indicates that she spent more than 105 hours over a 12-day period on the flooring for one apartment and that on one specific day she worked 16 hours.

While a misguided attempt to reach 750 hourse might have motivated this sort of effort, the judge decided that something else was going on:

 Although petitioner claims she acted reasonably and in good faith with respect to her position that she was a real estate professional in the years in issue, we have concluded that petitioner’s records are not accurate or reliable and likely inflated the hours she spent in real estate activities. We have also concluded that the logs relating to her activity as an employee and her self-employment were not accurate.

If you want to document time for showing an activity is non-passive, it is wise to track it in a daily contemporaneous calendar.  It is also wise to not push the limits of believability.

Cite: Materano, T.C. Summ. Op. 2014-64

Material participation hours tests can be found here.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 428.  It features  from the Wall Street Journal U.S. Judge Orders IRS to Explain How it Lost Lerner’s Emails:

A federal judge on Thursday ordered the Internal Revenue Service to explain how it lost two years’ worth of a former official’s emails, and tapped a magistrate judge to find out whether the documents can be obtained from other sources.

At a hearing in a conservative group’s lawsuit, U.S. District Judge Emmet Sullivan gave the IRS until Aug. 10 to provide a sworn declaration explaining how the email loss occurred. The IRS previously has said that the emails were lost because the top agency official’s computer crashed in 2011, and backup tapes were routinely reused after six months.

These practices violated federal recordkeeping procedures and, likely, federal law.  In spite of Ms. Lerner’s evident concern about the possibility of  her emails being found, Commissioner Koskinen says it’s silly to think anything more suspicious than a remarkable rash of hard-drive failures is to blame.

 

A new study by the Mercatus Institute says state taxes matter.  A summary says “The study finds that higher state taxes correlate with lower economic performance, even when controlling for various factors.”  It says that higher taxes lower economic growth, affect migration patterns, and reduce business startups. (hat tip: Maria Koklanaris, State Tax Notes ($link‘))

 

Carl O’Donnell, How The $1 Billion Kennedy Family Fortune Defies Death And Taxes.  Most politicians who vote for higher taxes do so assuming they won’t have to pay them. (via the TaxProf)

 

Kyle Pomerleau, Bill to be Introduced that Seeks to Reduce EITC Payment Error (Tax Policy Blog).  Unfortunately, fraud and error are baked into this cake.  You might as well try to take the chocolate out of toll house cookies.

 

20140513-1Jim Maule continues his Tax Myth series with Tips Aren’t Taxed Because They Are Gifts.  “Most people who collect tips are paid very little, rely on the tips to make a living, and are unhappy to learn that tips are included in gross income.”

Jason Dinesen, Glossary of Tax Terms: Head of Household   

It’s Friday, it’s Buzz Day at Robert D. Flach’s place.

Keith Fogg, Revoking the Release of the Federal Tax Lien and Appointing a Receiver (Procedurally Taxing)

 

TaxGrrrl, Who Should Pay For Schools? Answer Remains Unclear As Cigarette Tax Boost On Hold   Smoke ‘em if you got ‘em.  For the children!

Renu Zaretsky,  Games, Spins, Ignorance and Patience.  Today’s TaxVox headline roundup covers, among other things,  Highway Trust Fund games, corporate inversions.

Steve Warnhoff, House Poised to Throw $276 Billion “Bonus” at Businesses.  (Tax Justice Blog).  He’d rather throw it at the government.

Kay Bell, LeBron ‘King’ James’ return to Cleveland could be a win-win for fans and the so-called Win Tax

 

20140711-2

 

A new Cavalcade of Risk is up!  R.J. Weiss hosts this edition of the blog world’s venerable roundup of insurance and risk management posts, including Hank Stern on Kidnap & Ransom Insurance.

I’ll bet he does.  Beanie Babies creator defends sentence of probation, no prison time, for tax evasion (Brandon Sun)

News from the Profession.  Just How Many CPA Roommates Can You Fit In a Single Apartment? (Leona May, Going Concern)

 

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Tax Roundup, 7/9/14: It’s an outrage! Oh, we did it? That’s fine. And: Economic development cyanide!

Wednesday, July 9th, 2014 by Joe Kristan
Via Wikipedia

Via Wikipedia

So the taxpayer wants a tax refund.  He calls an IRS agent, who says she will look into it and call back.  Impatient taxpayer calls the agent back five times and tells her she is being uncooperative, finally telling her to “put her money where her mouth is.”  Taxpayer several days later sends the agent a letter telling her that she could issue the tax refund, but chooses not to, and demands the IRS submit some documents.  The IRS schedules a meeting, and the taxpayer insists on the refund now.  The taxpayer attempts to put a lien on the agent’s property for the balance due.

Naturally the taxpayer finds this doesn’t work, and gets hit with all sorts of penalties for this, right?  No, the taxpayer gets off scot-free.  Can you believe it?

Oops, I misspoke.  I got the names backwards.  The IRS was doing this to the taxpayer, and the courts this week refused to impose penalties on the agency for hounding a 71-year-old lady for back taxes on a failed like-kind exchange.

Sauce for the goose really ought to be sauce for the gander.  The IRS has a lot more resources and a lot more ability to follow the law than the average taxpayer.  Yet while the IRS and the courts routinely slap penalties on inadvertent or naive violations of a complex tax law, the courts rarely hold the powerful IRS to the same standards, and it almost never penalizes the agents for misbehavior towards taxpayers.

Cite: Antioco v. United States; USDC CA-ND, No. 3:13-cv-00924

Stephen Olsen, IRS Not Liftin the Penalties — Fed Circuit Denies Taxpayer’s Reasonable Cause Argument (Procedurally Taxing) The courts stack the deck against the taxpayer a little more.

 

20120906-1Don Boudreaux“Damn! My Neighbor Swallowed Cyanide. I Guess I Gotta Swallow Cyanide, Too.”  He’s talking about the crony subsidy Export-Import Bank, but his apt argument applies just as well to state “economic development” tax credits:

Subsidies and other economic privileges weaken the domestic economy.  They do so because, in order to artificially bolster industries that excel at satisfying politicians, such privileges necessarily transfer resources away from industries that excel at satisfying consumers.  Because Mr Summers (like nearly all economists) apparently accepts this sound argument, he especially should see that subsidies are not the economic equivalent of armaments: an armaments build-up does indeed strengthen the country militarily; subsidies, in contrast, weaken the country economically.

So when foreign governments subsidize industries (for example, through export credits of the sort doled out by the Ex-Im Bank), they themselves weaken their own countries’ economies relative to economies whose governments dispense no subsidies or other special privileges.

Taxing your existing taxpayers to lure and fund their competitors is a bad idea, even if Illinois is doing it too.

 

IRAJason Dinesen, ROBS Transactions – Be Very Careful of Using Retirement Funds to Start a Business.  Jason discusses the unwisdom of having your IRA invest in your business.  It can be a catastrophically expensive source of capital.

William Perez, Wage and Salary Income.   How it’s taxed.

Kay Bell, Pot shop seeks Tax Court relief from cash tax payment penalty.  You have to remit your taxes electronically.  We won’t let you have a bank account to transmit it from.  Understand?

Jim Maule’s Tax Myth series continues with “The IRS Gave Me a Refund.”  ” I suppose that those who are concerned that the federal government or a state government might run out of money before the refund is paid are overjoyed when the refund arrives, but as a realistic, practical matter, simply getting one’s money back isn’t a joyous occasion.”

Peter Reilly, Should You Follow The Clintons And Do Your QPRT Sooner Rather Than Later?

Robert W. Wood, Five Stages Of Grief, IRS Version.  I see clients go through all five stages every April.

 

20140508-1Kyle Pomerleau, Bonus Depreciation is a Bonus, but Full Expensing is Ideal (Tax Policy Blog)  “An Ideal tax code would allow the full $100 cost of the oven to be deducted in the year in which it was purchased.”

Howard Gleckman, New TPC Analysis: What Dave Camp’s Tax Reform Plan Would Really Mean (TaxVox)

Kelly Davis, Tax Policy and the Race for the Governor’s Mansion: Kansas Edition (Tax Justice Blog).  “This Kansas gubernatorial election is shaping up to be a referendum on Governor Sam Brownback’s tax cuts and supply-side economics generally.”

Jeremy Scott, Could EU Probe Signal the End of Sweetheart Tax Deals? (Tax Analysts Blog)  “U.S. tax rules are clearly complicit in multinationals’ ability to lower their tax burden, but the European Union is now examining whether its member states are inappropriately aiding some companies through so-called sweetheart transfer pricing arrangements.”

Accounting Today has your Tax Fraud Blotter.

TaxProf, The IRS Scandal, Day 426

News from the Profession:  Consultant Shares Secrets For Milking the Most Out of CPA Firm Staff (Adrienne Gonzalez, Going Concern).

 

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Tax Roundup, 6/9/14: The great Illinois privatized tax shakedown. And lots more!

Monday, June 9th, 2014 by Joe Kristan

The wedding was beautiful, and great fun.  Introducing the new married couple.

 

Illinois sealGreat moments in state taxation.  Tax Analysts has a disturbing story ($link) about how an Illinois law firm is using the “qui tam” recovery procedures of the state’s False Claims Act against out-of-state taxpayers.  In a “qui tam” proceeding, an outside party, known as a “relator,” can file a lawsuit alleging fraud against the state and then share in the recovery — up to 25%, according to the story.

And they actually may be hurting state tax collection efforts, according to the story:

“The cases have clearly interfered with the administration and enforcement of tax law and may have even ultimately cost the state money, though it’s impossible to quantify how much,” said Mark Dyckman, the Illinois Department of Revenue’s deputy general counsel for sales tax litigation.

The story says the firm involved “is responsible for 99 percent of the qui tam tax litigation in Illinois.”

The story says Illinois may encouraged the suits initially, apparently thinking it could get some easy money out of the deal.  In other states where the firm tried the same thing, state Attorneys General won dismissals of the initial suits, discouraging further efforts.  The firm is also incentivized by the ability of a relator to share in outsized false claim penalties:

Second, while the treble damages for back taxes under false claims acts naturally attract the most attention, [taxpayer attorney Jordan] Goodman said the civil penalty — generally $5,000 to $10,000 per false claim under the federal law and $5,500 to $11,000 per false claim under the Illinois statute — can be just as oppressive, depending on what counts as a false claim. If each monthly sales tax return is a false claim carrying a $10,000 penalty, and 12 returns are filed in one year, that’s a $120,000 penalty. If every failure to collect taxes on shipping and handling is a false claim, and the business averages 10 sales into the state per month for 120 false claims, that’s a $1.2 million penalty for the year, which can turn into $12 million for the 10-year period covered by the false claims act.

Wikipedia image of Tams

Wikipedia image of Tams

The story says that one tactic used by the Illinois law firm is to make out-of-state purchases over the internet, and then to file suits if no sales tax is collected.  As the law covering remote sales remains unclear, it’s difficult to consider these items “false claims.”  That’s especially true in suits in which the taxpayer either was following published guidance or an audit settlement with Illinois.

These cases have apparently been going on since 2002, and the legislature and the state have yet to stop what would appear to be a purely abusive and parasitic practice.  If there ever was a case for universal application of a “sauce for the gander” rule, in which a losing plaintiff had to pay the same amount of penalties asserted against the winning defendant, this would be it.

 

Alligator bait.  The New Orleans Advocate reports on a Film tax credit promoter sentenced to 70 months.  It’s remarkable what high quality entrepreneurs these state tax giveaways attract.

 

20130114-1The ISU Center for Agricultural Law and Education is setting up a “Tax Place” feature on its website.  They seek your input.

Paul Neiffer reminds us that FBAR Filing Deadline is Near

Peter Reilly, CPA Faces Prison For Letting Client Deduct Personal Expenses.  It makes you want to carefully consider the work you want to take on.

Russ Fox, Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts.  More incomprehensible foreign tax enforcement.

 

Cara Griffith, Protecting Confidentiality When Information Is Exchanged Between Tax Authorities  (Tax Analysts Blog)

TaxGrrrl, As NBA Finals Continue, Tax Incentives Lure 76ers Into New Jersey   

 

 

20140321-3TaxProf, The IRS Scandal, Day 396

Kyle Pomerleau, CTJ and U.S. PIRG Mislead with New Report on Corporate Taxes (Tax Policy Blog):  “USPIRG also doesn’t mention that their ideal corporate tax code has been tried in other countries with negative results. New Zealand attempted ending deferral as USPIRG suggested. The results were devastating to their economy.

Tax Justice Blog, Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors.  Never let the facts get in the way of what is “widely known.”

 

Howard Gleckman, Are Domestic Partnerships A Way For Heterosexual Couples To Avoid The Marriage Tax Penalty?   (TaxVox) This sort of thing makes makes me question the usefulness of “nudge” strategies to use the tax code to encourage behavior.  There are always perverse unintended consequences.

 

News from the Profession.  Public Accounting Firms, Ranked by CEO Hotness (Going Concern).  A tallest midget competition.

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Tax Roundup, 5/21/14: Practitioner Pitchforks and Torches edition. And: math remains hard!

Wednesday, May 21st, 2014 by Joe Kristan

20140521-1The new identification rules for remote signatures aren’t going over well.   (See update below.)  At a CPE event yesterday former IRS Stakeholder Liaison Kristy Maitre outlined the new e-filing identity match requirement we are supposed to meet (now!  for extended 2013 returns!).  These include “third-party verification” of identities of our long-time clients if they don’t visit the office.  The ones that visit, we only need to see their papers.

The 250 or so practitioners present didn’t appreciate the joke at all.  They asked the obvious question: how do we even comply with this?  It’s not at all clear how we get “third-party verification.”  I can pretty much guarantee that nobody is complying with that requirement now, because few are aware of it, and the ones that are don’t know where to start.

While the requirements are supposed to be part of the IRS war against identity theft, this effort is like responding to the attack on Pearl Harbor by bombing Montreal.  Identity thieves don’t waltz into tax prep offices and pay us to prepare fraudulent refund claims.  They prefer TurboTax.

Yet, there may be a method to the madness, suggested by one practitioner.  What if some outfit is gearing up to provide third-party verification services — say, one of the national tax prep franchises?  And the IRS has quietly created their revenue stream with this absurd rule?  You might say this preparer is cynical; I say he’s been paying attention.

So let’s fight.  Kristy is collecting comments and questions to send to her erstwhile IRS colleagues to try to stop this nonsense.  Send your comments to ksmaitre@iastate.edu.  I believe the IRS will back off if we brandish the electronic torches and pitchforks.

Update, 11:30 a.m.  I received a call from an IRS representative this morning saying that they have been getting phone calls as a result of this post (well-done, readers!).  She tried to reassure me by telling me that the third-party verification doesn’t apply to in-person visits.  I knew that.  I told her that as I read the rules, there are either “in-person” or “remote” transactions, with no third category of, say, “I’ve worked with this client for many years and they’re fine.” She didn’t disagree, though she still thinks I’m overreacting.  She did say IRS field personnel are  “elevating” the issue and seeking “clarification” from the authors of these new rules, including what “authentication” means for in-person visits and what a “remote transaction” is that would require third-party verification.  Keep it up, folks!

Related:

Russ Fox, Yes, Mom, I Need to See Your ID

Jana Luttenegger, Updated E-Filing Requirements for Tax Preparers

Jason Dinesen, Hold the Phone on the IRS E-file Outrage Machine 

Me, Welcome back, loyal client. IRS says I have to verify that you aren’t a shape-shifting alien.

 


20140521-2TaxProf, 
The IRS Scandal, Day 377.

News from the Profession.  Crocodile Injured By Falling Circus Accountant in Freak Bus Accident (Going Concern)

Kay Bell, National Taxpayer Advocate joins fight to stop private debt collection of delinquent tax bills.  I’d rather she fight to keep the IRS from implementing its ridiculous e-file verification rules.

TaxGrrrl, Congress, Ignoring History, Considers Turning Over Tax Debts To Private Collection Agencies

Jim Maule, It Seems So Simple, But It’s Tax.  “People are increasingly aware that the chances of getting away with tax fraud are getting better each day.”

Missouri Tax Guy,  NO! The IRS did not call you first.

 

Tax Justice Blog, Legislation Introduced to Stop American Corporations from Pretending to Be Foreign Companies.  How about we just stop taxing them?

Kyle Pomerleau, Tom VanAntwerp, Interactive Map: Where do U.S. Multinational Corporations Report Foreign Taxable Income and Foreign Income Taxes Paid? (TaxPolicy Blog).  Holland does well, as does Canada.

Howard Gleckman, Tax Chauvinism: Who Cares Where a Firm is Incorporated?

So we are left with a sort of financial chauvinism. It is important to some politicians to be able to say that a company is a red-blooded American company. But when it comes to multinational firms in a global economy, why does that matter? 

Because, ‘Merica!

 

Andrew Mitchel now has some online tax quizzes for your amusement.  If they are too tough, the next item might restore your self-esteem.

 

20120905-1If you can’t answer these questions, taxes are the least of your problems.  Tackle these quizzlers (via Alex Taborrok):

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow.

More than $102. Exactly $102,. Less than $102? Do not know. Refuse to answer.

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy.

More than, exactly the same as, or less than today with the money in this account? Do not know. Refuse to answer.

3. Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund.’

T. F. Do not know. Refuse to answer.

I won’t give away the answers, but I shouldn’t have to.  Sadly, most people find these questions hard.  From Alex Taborrok:

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

At least that helps explain Vladimir Putin’s popularity.

 

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Tax Roundup, 5/2/14: Film credit trial remake edition. And: Senator Otter, taxwriter.

Friday, May 2nd, 2014 by Joe Kristan


harold
An Iowa appeals court this week threw out the conviction of TV-show producer Dennis Brouse
on charges arising out of the Iowa film tax credit scandal.  The court ruled 2-1 that unclear jury instructions rendered the guilty verdict untenable.  From the decision:

After examining the jury instruction and finding it so confusing, we conclude that it was not possible for the jury to find sufficient evidence to convict pursuant to a general verdict that implicated the joint criminal conduct instruction. 

The case was remanded to the trial court.  I believe the state can appeal this decision to the Iowa Supreme Court.  I am not sure whether the state can retry Mr. Brouse if the ruling stands.  The reversal would leave Wendy Weiner-Runge as the only person hit with serious prison time in the scandal.

In any case, the real offenders in this case will go free.  No charges will be filed against the legislators who voted overwhelmingly to create a cash-filled pinata for out-of-state filmmakers.  The Governor who was to oversee the program will never have to answer for appointing a former drugstore film clerk to run it.  The clerk’s immediate supervisor faces no charges for letting the clerk run wild, committing taxpayer dollars by the millions virtually without documentation or control.

The real crime is that the 150 legislative supergeniuses feel competent to take money from taxpayers and give it to people who convince them they will use it better.

Other coverage: KCCI.com

Cite: State v. Brouse, No. 12-1076  [3-1192]

 

 

 

Andrew Mitchel, 2014 First Quarter Published Expatriates – Second Highest Ever:

 

Chart by Andrew Mitchel LLC

Chart by Andrew Mitchel LLC

Considering how poorly the U.S. tax system treats Americans abroad, it’s no surprise.

 

Jason Dinesen, On Tax Refunds and “Not Owing Tax,” Part 1  “Just because you got a refund it doesn’t necessarily mean you didn’t owe taxes.”

Kay Bell, Tax moves to make in May 2014

Peter Reilly, IRS Chief Counsel Checks 1986 Committee Reports To Give Break On Foreclosed Real Estate   

TaxProf, The IRS Scandal, Day 358

Russ Fox, Once Again, Bring Me the Usual Suspects: 2014 Small Business Tax Index.  Iowa does poorly.

Robert D. Flach brings your Friday Buzz!

 

Kyle Pomerleau, It Takes 175 hours for a U.S. Business to Comply with U.S. Taxes (Tax Policy Blog).  For bigger businesses, that’s way low.

Howard Gleckman, The Tax Extenders: Yes, Virginia, They Really Are Tax Cuts (TaxVox).

 

 

Not Senator Wyden

Not Senator Wyden

 Senator Wyden, meet Animal House.

Otter: ” But you can’t hold a whole fraternity responsible for the behavior of a few, sick twisted individuals. For if you do, then shouldn’t we blame the whole fraternity system? And if the whole fraternity system is guilty, then isn’t this an indictment of our educational institutions in general? I put it to you, Greg – isn’t this an indictment of our entire American society? Well, you can do whatever you want to us, but we’re not going to sit here and listen to you badmouth the United States of America.”

Senator Ron Wyden:At the same time, the potential misconduct of a small group of IRS employees should not tarnish the overwhelming majority of hard working agency employees who do play by the rules.”

 

I did not have tax with that state, New York.  Bill Clinton: ‘I Thank God Every Day That Hillary and I Live in NY and Pay the Highest Aggregate Tax Rate in America’  (TaxProf)

 

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