Posts Tagged ‘Len Burman’

Tax Roundup, 3/30/15: A Year After the Fire Edition. And: Can fraud be accidental?

Monday, March 30th, 2015 by Joe Kristan

Friends, if your 1040 information isn’t in by now, you’re getting extended. 

It’s been a year since the old Younkers Building burned down. It was kitty-corner from our office at 7th and Walnut in Des Moines. Here is what it looked like a year ago:

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And here is the site yesterday:

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The remaining portion of the site is called the Wilkins Building. The old Younkers store was actually three buildings built at different times and connected as one store. The part that didn’t burn down was built about 20 years after the part that was obliterated.

The building was being remodeled into apartments, and the work was well along when the fire broke out in the wee hours. The sprinkler system had not been turned on, and the building went up too quickly for the fire department to do more than keep it from spreading.

The developers intend to remodel the remaining portion as apartments, retail and a restaurant. Seventh Avenue is again open, providing easy access to our office, but Walnut remains closed indefinitely.

Related:

Sunday Morning Skywalks.

Goodbye, Younkers Building.

A VISIT(ATION) TO DOWNTOWN YOUNKERS

DOWNTOWN YOUNKERS PICTURES

 

20150326-2No, you’re not. Two headlines from my Google news feed: Are you accidentally committing tax fraud? And 5 ways you’re accidentally committing tax fraud.

You don’t commit tax fraud “accidentally.” You don’t have to tell yourself “hey, I’ll commit me some fraud” to be a fraudster. But for something to rise to the level of fraud, it has to be more than an accident.

For example, accidentally leaving a $50 1099 off a return isn’t fraud. “Accidentally” omitting one for $1 million just might be, as it’s harder to accidentally forget you made that much.

 

This may be the most depressing tax case I’ve ever seen. From MyFox8.com:

The Parsons are guilty of accepting benefits from the government – benefits intended for Erica – even though Erica was no longer with them.

Erica had gone missing late in 2011, but her disappearance was not reported for nearly two years.

The adoptive mother received 10 years, and the father 8, from a judge convinced they killed their adoptive daughter after years of abuse and covered up the crime to keep collecting her government benefits — on which they failed to pay taxes.

 


tileTaxGrrrl, 
9 Tournament & Tax Tips On The Road To The Final Four. “Betting on the Final Four? Here are a few tax and tournament tips to keep in mind.”

Kay Bell, Some Final Four teams could suffer under seat tax proposal. A proposal to reduce deductions for contributions that get you good seats at the game.

William Perez, What Is the Alternative Minimum Tax?

Jana Luttenegger Weiler, 529A ABLE Account Guidance (Sort Of….) (Davis Brown Tax Law Blog). “The ABLE Act will amend Section 529 of the Internal Revenue Code to create a tax-free savings account for certain individuals who had significant disabilities before turning age 26.”

Jason Dinesen, Marriage in the Tax Code, Part 5: Examples of Taxes in 1920

 

Peter Reilly, Nay Nay We Won’t Pay – Evaders, Protesters and Resisters Versus IRS. “Deliberately not paying your taxes violates the law, so I don’t want to imply that there is an “official” correct way to do it.”

Bob Nadler, Who Won the Sanchez Case? (Procedurally Taxing). “In Sanchez, the taxpayer sought innocent spouse relief in the Tax Court and lost her case because the Court held no joint return was filed.  But the underlying assessment of a joint tax may have been erroneous.  If the assessment is found to be invalid the taxpayer will probably have no tax liability.”

 

Jack Townsend, Third Circuit Affirms Sentence Based on PSR Calculation of Tax Loss In Excess of Stipulated Tax Loss in Plea Agreement. Just because you admit evading one amount of tax doesn’t mean the judge can’t be convinced you evaded more.

No, it’s not. Next question. FATCA Repeal Efforts Just Failed, But Is It A Good Law? (Robert Wood):

FATCA’s massive and systemic overkill is great and vastly expensive. It is an elephant gun aimed at mosquitoes. And it has damaged the lives of over 7 million Americans abroad. Many can no longer open or maintain bank accounts where they live, get mortgages, or run their local businesses or households without difficulty. Many institutions around the world simple will not–perhaps cannot–open and maintain accounts for Americans, financial pariahs.

Its supporters say that international tax evasion justifies it, but like so many laws claiming good intentions, it has horrendous unintended (but easily foreseeable) consequences. Its complexity makes offenders out of ordinary citizens committing personal finance abroad, and its attempt to export U.S. tax enforcement invites other countries to do the same here.

 

Younkers Tea Room in its last week.

Younkers Tea Room in its last week.

Joseph Henchman, Nevada Governor Attacks Tax Foundation Report:

The proposal replaces Nevada’s current $200-flat business license fee with a tiered gross receipts tax.

Governor Sandoval quickly responded with a statement calling our report “utterly irresponsible, intellectually dishonest, and built on erroneous assumptions.” His ally Senator Michael Roberson added that our report “is nothing more than a disingenuous hatchet-job.”

The disappointing ad hominems from Governor Sandoval and Senator Roberson cloud the serious issues raised in our impartial analysis:

  • The BLF proposal has 67 revenue ranges for each of 27 industry categories, totaling 1,811 possible tax brackets.

  • BLF taxpayers will face absurdly high marginal tax rates, reaching over 13 million percent and likely distorting business decisions.

  • If the BLF tax burden were calculated in terms of a state corporate income tax, rates would range wildly from 0.2 percent to a punitive 77 percent.

  • Tax-motivated business restructuring would harm Nevada business competitiveness, and the punitive rate on the railroad industry likely violates federal law.

  • The tax rates for each industry were calculated using Texas data from a single year, which is not representative of Nevada’s economy.

  • The revenue estimates are probably overstated, which will lead to a revenue scramble when the tax underperforms.

Gross receipts and gross profits taxes have an inherent flaw: you can have large gross receipts or gross margins, but still have a net loss after expenses. Nevada doesn’t have an income tax. The politicians seem to want one in the worst way, and they are trying to get one that way.

 

Younkers elevator

 

TaxProf, The IRS Scandal, Day690The IRS Scandal, Day 689The IRS Scandal, Day 688

Len Burman, Do Senators Lee and Rubio Have a Secret Plan to Help Poor Families?

 

Russ Fox begins his annual listing of bad tax ideas with Bozo Tax Tip #10: Email Your Social Security Number. Please, don’t. And don’t sent tax documents with your identifying information as an email attachment. Identity fraud is easy enough without helping the fraudsters that way.

News from the Profession. Deloitte University Is a Cruise Ship Without Swimsuits (Caleb Newquist, Going Concern).

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Tax Roundup, 3/4/15: Big week for trusts. And: Iowa gets its own tax phone scam!

Wednesday, March 4th, 2015 by Joe Kristan

1041Friday is Day 65 of 2015. Though March 6 is just another day to most people, it has always meant something to me (happy birthday, Brother Ed!). It also means something to trustees. The tax law allows trusts to treat distributions made during the first 65 days of the year as having been made in the prior year. This allows complex trusts to control their taxable income with a distribution, because trust distributions carry trust taxable income out of the trust to beneficiary 1040s.

This has become more important since the enactment of the Obamacare 3.8% Net Investment Income Tax. This tax hits trusts with adjusted gross income in excess of $12,150 in 2014. If a trust has beneficiaries below the much-higher NIIT thresholds for individuals, it can make at least some of that tax go away with 65-day rule distributions.

This affects “complex trusts,” which are trusts that are not required to distribute their income annually and which are not otherwise taxed on 1040s. Distributions from such normally carry out ordinary income, but not capital gains. If the trust has income that is not subject to the NIIT, the distribution will be treated as carrying out some of each kind of income, so trustees have to take that into account in their NIIT planning.

Income subject to the NIIT includes interest, dividend, most capital gains, rents, and “passive” income from businesses or K-1s. Retirement plan income received by trusts is normally not subject to the NIIT. A 2014 Tax Court decision makes it easier for trusts to have non-passive income, but trust income is normally passive.

 

20120920-3An Iowacentric tax scamThe Iowa Department of Revenue warns of a scam targeted at Iowans:

The Iowa Department of Revenue has been made aware of a potential scam targeting Iowa taxpayers. The scam begins through an automated phone call, which shows on caller ID as being from 515-281-3114. That phone number is the Department’s general Taxpayer Services number; however, no automated phone calls can originate from that number.

When answering the call, the taxpayer is informed they are eligible for a refund from the Iowa Department of Revenue. The taxpayer is then asked whether the refund should be deposited into the account the Department has on file or if they’d like to donate the refund to an animal charity.

The Iowa Department of Revenue does not make these types of calls. We believe this is an attempt to steal bank account or other personal information. By fraudulently displaying the Department’s phone number on caller ID, the scammer is attempting to convince the taxpayer of the legitimacy of the call.

The Iowa Department of Revenue doesn’t phone you out of the blue. The IRS doesn’t phone you out of the blue — they barely even answer phones anymore. If you get a call from a tax agency, assume it is a scam. It is, unless you have already been in contact with the agency because of a notice you’ve received in the mail

 

Obamacare is again on the dock in the U.S. Supreme CourtThe IRS decision to allow tax credits for policies in the 37 states that did not set up ACA exchanges is up for debate. The law provides for credits only for exchanges “established by a state.”

In a less politically-sensitive context, one could expect a 9-0 or 8-a decision against the IRS. That’s what happened in Gitlitzwhere the court ruled that the IRS couldn’t regulate away a perceived misdrafting of the tax code’s S corporation basis rules that allowed a windfall to taxpayers whose S corporations had debt forgiveness income. “Because the Code’s plain text permits the taxpayers here to receive these benefits, we need not address this policy concern.” But because a decision against IRS here would invalidate key parts of Obamacare in most of the country, politics is a big part of the process.

Those arguing for the IRS interpretation say the chaos will ensue and thousands of people will dieMichael Cannon, a prime architect of the case against the IRS rule, has a more measured discussion of the consequences of a decision against the IRS rule in USA Today. Aside from upholding the rule of law, a decision against the IRS rule could have many benefits.

Related: Megan McArdle, Obamacare Will Not Kill the Supreme Court. For a roundup of posts on the topic, try King v. Burwell — The VC’s Greatest Hits, from the Volokh Conspiracy’s attorney-bloggers.

Update: From Roger McEowen, Would It Really Be That Bad If the U.S. Supreme Court Invalidated the IRS Regulation on the Premium Assistance Tax Credit?

 

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William Perez, Self-employed? SEP IRAs Help Reduce Taxes and Save for Retirement

TaxGrrrl, Taxes From A To Z (2015): A Is For Actual Expense Method

Kay Bell, Some Ohio taxpayers stumped by state’s tax ID theft quiz

Jason Dinesen, Is Chamber of Commerce Membership Worth It?. Our local group functions as an alliance of crony capitalists.

 

TaxProf, The IRS Scandal, Day 664. Today’s edition mentions my high school classmate and junior class president election opponent, Al Salvi, and his outrageous treatment at the hands of Lois Lerner when she was with the Federal Elections Commission. For the record, Lois Lerner had nothing to do with my electoral triumph.

Robert Wood, Warren Buffett To Al Sharpton, The 1% Makes 19% Of All Income, Pays 49% Of All Taxes

Alan Cole, Most Retirement Income Goes To Middle-Class Taxpayers (Tax Policy Blog).

Distribution of Pension Income-02

Clint Stretch wonders whether it is Time to Retire Income Tax Reform? (Tax Analysts Blog). “With income tax reform out of the way, we could focus the conversation on the important issue – the size and scope of government. If eventually we can agree on how much tax we need to collect, we can always ask tax reform to come out of retirement for a little consulting.”

 

Len Burman, Cutting Capital Gains Taxes is a Dead End, Not a Step on the Road to a Consumption Tax. As someone who thinks the proper capital gain rate is zero, I can’t agree.

Career Corner. Starting a CPA Pot Practice Is Your Next Opportunity (Caleb Newquist, Going Concern). “Consider a joint venture, at least.”

 

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

Tuesday, February 3rd, 2015 by Joe Kristan

Economic supergenius

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

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

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

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

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

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

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

– Permanent extension of the refundable Child Tax Credit.

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

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

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

Flicker image courtesy Michael Coghlan under Creative Commons license.

Flicker image courtesy Michael Coghlan under Creative Commons license.

Other Coverage:

TaxProf, Tax Provisions in President Obama’s FY2016 Budget

WSJ, Obama Would Block Strategies to Pump Up Roth IRAs

Accounting Today, Obama Proposes Sweeping Tax Changes in 2016 Budget

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

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

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

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

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

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

Annette Nellen, President Obama’s 2015 Tax Proposals

 

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

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

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

 

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

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

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

 

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

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

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

TaxProf, The IRS Scandal, Day 635

 

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

 

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Tax Roundup, 1/19/15: President announces doomed tax proposals. And: Iowa gets 2015 credit for non-SHOP plans.

Monday, January 19th, 2015 by Joe Kristan

 

Economic supergenius

No, he’s not serious. The President has put forth a new set of tax proposals. So much for any ideas that he would spend his lame-duck last two years reaching out to pass bipartisan bills. The President’s “fact sheet” is a tendentious, partisan collection of slogans and half-truths posing as policy.

The first proposal:

Close the trust fund loophole – the single largest capital gains tax loophole – to ensure the wealthiest Americans pay their fair share on inherited assets. Hundreds of billions of dollars escape capital gains taxation each year because of the “stepped-up” basis loophole that lets the wealthy pass appreciated assets onto their heirs tax-free.

This is just partisan class warrior nonsense. First, it has nothing to do with “trust funds.” That’s just content-free name-calling. It would, according to Peter Reilly, treat death as a taxable sale of assets at fair market value.

The “wealthiest” already pay estate tax at rates up to 40% on the value — not just the gains — on their assets at death. But stepped-up basis applies to everyone, not just the wealthiest. The President’s proposal, if it really does call for elimination the basis step-up at death, affects everyone who inherits property, not just the few who pay estate tax. Everyone would get to try to find out how much Mom and Dad paid for that land or that stock in 1967, not just the wealthy.

Raise the top capital gains and dividend rate back to the rate under President Reagan. The President’s plan would increase the total capital gains and dividends rates for high-income households to 28 percent.

Somehow this proposal omits restoring the Reagan-era 28% top ordinary income rate that was key to allowing the 28% capital gain rate. The proper capital gain rate, of course, is zero.

None of this has a remote chance of passing, so there’s no point in me spending a lot of time on it. If you want more coverage, TaxGrrrl and Robert D. Flach dive into the details.

I’ll just point out that this is all dishonest class warrior nonsense about making “the rich” pay their “fair share.” A fair look at the numbers indicates that the rich guy is already picking up more than his share of the tab.

First, the shares of all taxes paid by different income segments:

Tax foundation Distribution of Federal Taxes in 2014

Next, the share of federal taxes by the dreaded “top 1%” vs. the bottom 90% since 1980:

taxfoundation top 1 vs bottom 90 percent

Maybe you think that “the rich” may pay more tax, but they still don’t pay as much as the rest of us as a share of their income. Nope:

tax foundation income share vs tax share

Finally, the taxes (Federal, state and local) paid by different income levels compared to the government benefits received by those income levels:

tax foundation taxes vs benefits 2012

No matter how much “the rich” have to cough up, as far as the President is concerned, it will never be enough.

More coverage:

Paul Neiffer, Do Farmers Take Advantage of “Trust Fund” Loopholes

Peter Reilly, President Obama Would Make Death A Taxable Event. “The President’s proposal would close the stepped-up basis loophole by treating bequests and gifts other than to charitable organizations as realization events, like other cases where assets change hands.”

Len Burman. President Obama Targets the “Angel of Death” Capital Gains Tax Loophole. (TaxVox). So dying is a loophole now.

 

cooportunity logoIn case you missed it, the IRS announced Friday that it will allow taxpayers in 85 Iowa counties to claim the small employer health care tax credit in 2015 now that CoOportunity, the sole provider of “SHOP” policies in those counties, has been taken over by insurance regulators. Details here.

 

TaxProf, The IRS Scandal, Day 620. Today’s installment quotes Friday’s Wall Street Journal:

If the IRS continues to stonewall the political targeting investigation, as Mr. Koskinen has, then the only tool Congress has to express disapproval is the power of the purse. In any case it’s hard to imagine the IRS could offer worse service than it already does.

Please, don’t tempt them.

 

Scott Hodge, Don’t Cry for the IRS, We’re Doing Their Work for Them (Tax Policy Blog)

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On the Martin Luther King holiday, a cautionary tale of politically-motivated tax prosecution from Robert Wood.

Annette Nellen, Due diligence for preparing 1040s for 2014

Kay Bell, Terrorism, not taxes, rank high on policy priorities survey. I’ll bet that changes in about two months.

Christopher Bergin, Frack It, Tax It (Tax Analysts Blog)

 

Career Corner. If Your Accounting Firm Uses Timesheets, For the Love of God, Track Your Time Daily (Caleb Newquist, Going Concern)

 

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Tax Roundup, 7/31/14: Tax Holiday Weekend! And: how defined benefit plans hurt Iowa municipal services.

Thursday, July 31st, 2014 by Joe Kristan

20140731-1You’ve had your calendar’s marked for a long time, and here it is: Iowa’s annual sales tax holiday is tomorrow and Saturday.  From the Iowa Department of Revenue:

If you sell clothing or footwear in the State of Iowa, this law may impact your business.

  • Exemption period: from 12:01 a.m., August 1, 2014, through midnight, August 2, 2014.
  • No sales tax, including local option sales tax, will be collected on sales of an article of clothing or footwear having a selling price less than $100.00.
  • The exemption does not apply in any way to the price of an item selling for $100.00 or more
  • The exemption applies to each article priced under $100.00 regardless of how many items are sold on the same invoice to a customer

“Clothing” means…

  • any article of wearing apparel and typical footwear intended to be worn on or about the human body.

“Clothing” does not include…

  • watches, watchbands, jewelry, umbrellas, handkerchiefs, sporting equipment, skis, swim fins, roller blades, skates, and any special clothing or footwear designed primarily for athletic activity or protective use and not usually considered appropriate for everyday wear.

Stylish tax-savvy shoppers can combine holidays across states.  For example, you can pick up a cute new outfit in Iowa this weekend and wear it to Louisiana for their September firearms tax holiday.

Related:  

Kay Bell, 12 states kick off August 2014 with sales tax holidays

Joseph Henchman, Sales Tax Holidays: Politically Expedient but Poor Tax Policy

 

Robert D. Flach has some sound ADVICE FOR A NEW GRADUATE STARTING OUT IN HIS/HER FIRST FULL-TIME JOB.  One nice bit: “If you have any cash from graduation gifts left over open a ROTH IRA account and use this money to fund your 2014 contribution.”

Jason Dinesen makes it easy to follow his excellent series on one client’s ID theft saga: Find All of My Identity Theft Blog Posts in One Location.

 

 

taxpayers assn logoGretchen TegelerFallout from Iowa public pension shortfalls (IowaBiz.com):

The increase in public spending for pensions has impacted the ability of our state and local governments in Iowa to pay for other services.  The result is a decline in the quality of public services and an increase in property taxes.  For example, all Des Moines libraries have closed an additional day each week just to help cover the cost of police and fire pensions.  Urbandale is raising property taxes.  Some have questioned whether it’s worth the substantial public cost to pay such a generous benefit to so few individuals.  Police and firefighters in our largest 49 cities can retire at age 55, and receive 82 percent of their highest salary each year for the remainder of their lives.  Almost all of the retirees in this system will have a higher standard of living post-retirement than they did during their highest earning years.

This is true even though Iowa’s public-sector pensions are better-funded than those in many other states.  The problem won’t be fixed until public employees go on the same defined contribution model as the rest of us — you get paid the amount that has been funded.  Defined benefit plans are a lie – to the taxpayers about what current public services cost, or to the employees about what they can expect as pension income, or to both.

 

20140731-2Paul Neiffer, Another Cattle Tax Shelter Bites the Dust:

Essentially, Mr. Gardner would issue a promissory note to these entities for the purchase of cattle and/or operating expenses and equipment.  The promissory notes totaled more than a $1 million, however, it appears that Mr. Gardner effectively paid less than $100,000 on any of these promissory notes.  Also, in almost all cases, Mr. Gardner defaulted on all notes and no collection efforts were made to collect.

This is almost quaint.  When I first started working in the 1980s, I saw a few shelters like this.  A cow worth, say, $2,000 would be sold for $50,000, $2,000 down and the rest on a “note” that would never be collected — but the “farmer” would depreciate $50,000, rather than $2,000.  I’m a little surprised it still going on, considering the at-risk rules, passive loss rules, and hobby loss rules against this sort of thing.

 

 

Jim Maule’s “Tax Myths” series includes “Children Do Not Pay Tax.”  He notes “A child of any age, with gross income exceeding whatever standard deduction is available, has federal income tax liability.”

TaxProf, The IRS Scandal, Day 448.  Read this and tell me again how the Tea Party targeting was just a non-partisan, unbiased attempt to clear a backlog of application that was driven by low-level functionaries in Cincinnati.

Jack Townsend notes UBS Continuing Woes, Including Settlement with Germany

 

2140731-3Cara Griffith, Access to Public Records Isn’t a Fundamental Right – But It Should Be (Tax Analysts Blog).  But bureaucrats everywhere prefer to work without witnesses.

Leslie Book, The Tax Law, EITC and Modern Families: A Bad Mix (Procedurally Taxing).  “I read a summary Tax Court case from a few weeks ago that reminds me that the tax laws in general– and the EITC and Child Tax Credit rules in particular– can sometimes lead to unfair results, especially in light of the complicated and at times messy modern family lives.”

Len Burman, What Ronald Reagan Didn’t Say About the EITC (TaxVox).  I bet he didn’t say it was a floor wax or a dessert topping, either.

Peter Reilly, Obamacare Upheld Against Another Challenge – Court Rules Against Sissel.  The origination clause argument was never more than a forlorn hope.

 

Lyman Stone, Kentucky Considers Tax Rebate for Creationist Theme Park (Tax Policy Blog).  Considering how many legislators think they can play God with state economies by means of tax credits, this has a sort of perverse logic going for it.

Adrienne Gonzalez, PwC Report Declares a Future Free From Nine-to-Five Work (Going Concern).  When I worked at PriceWaterhouse, a PwC predecessor, they were already free from nine-to-five work.  Nine-to-five would have been wimp work for a Sunday.

 

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Tax Roundup, 7/10/14: The sordid history of temporary tax provisions. And: NOLA mayor wins 10-year term!

Thursday, July 10th, 2014 by Joe Kristan

taxanalystslogoLindsey McPherson of Tax Analysts has a great, but unfortunately gated, article today, “Things to Know About the Tax Extenders’ History” ($link) Update: Tax Analysts has ungated the article, so read it all here for free! ( It details four points:

1. Two-Year Retroactive Extensions Are Often Passed Late in Election Years

2. Extenders Are Often Attached to Larger Bills

3. Congress Has Never Fully Offset Extenders Legislation

4. Most Extenders Have Been Renewed at Least 3 Times

What does “most” mean? “Of the 55 expired provisions that are the focus of the current debate, 39 have been around since 2008 or longer and thus have been extended at least three times…”

This implies that Congress has no intention of letting the extenders expire.  It only passes them temporarily to hide their real cost, because Congressional funky accounting doesn’t treat them as permanent.  It also requires lobbyists to come to fund-raising golf outings every year to ensure that they get their pet provisions extended.  Honest accounting would at least treat any provision extended twice as permanent, but accounting you and I would do time for is business as usual on the Hill.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

TaxProf, The IRS Scandal, Day 427.  It has this interesting bit, from the New York Times, Republicans Say Ex-I.R.S. Official May Have Circumvented Email:

Lois Lerner, the former Internal Revenue Service official at the center of an investigation into the agency’s treatment of conservative political groups, may have used an internal instant-messaging system instead of email so that her communications could not be retrieved by investigators, Republican lawmakers said Wednesday.

But the crashed hard drive epidemic is perfectly normal, isn’t it, Commissioner Koskinen?

 

Tony Nitti, Tax Geek Tuesday(?): The IRS Finally Figures Out The Real Estate Professional Rules.  Tony covers the IRS walk-back from its untenable position on the amount of participation required to be a “real estate professional.”  My coverage is here.

Paul Neiffer, Watch Out for Spousal Inherited IRAs.  “Spouses who inherited IRAs have a couple of elections available to them that non-spouses do not have.  However, care must be taken to make sure that the 10% early withdrawal penalty does not apply when distributions are finally taken.”

Kay Bell, Home sales provide most owners a major tax break

 

 

Accounting Today, IRS Loses Billions on Erroneous Amended Tax Returns.  A report from the Treasury Inspector General for Tax Administration faults IRS procedures to review amended returns.

 

Cara Griffith, The Criminal Side of Sales Tax Compliance (Tax Analysts Blog):

Imagine this scenario: In the middle of an acquisition deal, the due diligence review of a company being acquired reveals that the company has underremitted its sales tax liability. The deal is never finalized because of the problem. The company approaches its tax adviser with the news that it failed to remit some of the sales tax it collected and asks for advice. On hearing that, most state and local tax practitioners would cringe. It doesn’t matter why the company failed to remit the sales tax it collected from customers — the company is in serious trouble and could face both civil collection penalties and criminal prosecution.

You have to be special to legally keep sales tax you collect.

 

20140505-1Len Burman, “Pension Smoothing” is a Sham (TaxVox):

In a nutshell, here’s what it does: Companies can postpone contributions to their pension funds. This means that their tax deductions for pension contributions are lower now, but the actual pension obligations don’t change, so contributions later will have to be higher—by the same amount plus interest. In present value terms (that is, accounting for interest costs), this raises exactly zero revenue over the long run. 

More of that Congressional accounting.

 

Jack Townsend, Interesting Article from the Swiss Bankers Side.

Leslie Book, Recent Tax Court Case Shows Challenges Administering Civil Penalties and the EITC Ban (Procedurally Taxing)

Overnight, if you leave the cap off.  When Will the Soda Tax Go Flat? (Joseph Thorndike, Tax Analysts Blog)

Scott Eastman, $21,000 Tax Bill Just for Some Potato Salad (Tax Policy Bl0g).  I’ve had potato salad that should have been charged more than that.

Adrienne Gonzalez, Tax Superhero and George Michael Among Those Caught Using Tax Shelter in the UK.  This is a different type of shelter than the one that caused Mr. Michael’s prior legal troubles.

 

When they say it’s not about the money, it’s about the money.  From the Washington Post,  Former New Orleans mayor Ray Nagin sentenced to 10 years in prison:

“I’m not in it for the money,” Nagin said after he was elected to the first of two terms in 2002.

Mayor Nagin was convicted on 20 charges, including four charges of filing false tax returns.  Mayor Nagin’s indictment tells a story of pervasive fraud involving kickbacks and bribes for city business, and third-party payment of limo rides and private jet services.  But he did a heck of a job with Hurricane Katrina.

20140710-1

One interesting thing about the Post piece: it never mentions that Mayor Nagin is a member of a political party.  Unusual, for a politician.  Someone should look into that.

 

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Tax Roundup, 3/25/14: Shaky foundations can be costly. And: monitors!

Tuesday, March 25th, 2014 by Joe Kristan

20140325-1Not a firm foundation.  A U.S. District Court case out of Texas last week shows why using a tax-exempt entity can be hazardous to your health.  A Mr. Ziegenhals was “manager, director, trustee, and registered agent” of The Le Tulle Foundation, which was “formed in 1991 as a testamentary trust with the stated purpose of operating ‘exclusively for charitable purposes for the benefit of the citizens of Matagorda County, Texas [and] for no other purposes.'”

The court said an IRS audit found that Mr. Ziegnhals “used funds from the Foundation to obtain personal benefits and pay his expenses unrelated to the purported charitable purposes.”  That triggered a revocation of charitable status and taxes on “self-dealing,”  The total amount of “self-dealing” is alleged as $46,266.21.

What did that cost the alleged self-dealer?  From the decision (my emphasis):

The amount allegedly owed by Ziegenhals — $461,125.44 as of November 29, 2013 — is based on the IRS’s calculations of penalties, statutory additions, and interest that have accrued from his unpaid private foundation excise taxes in 2003 and his unpaid federal income taxes in 2007. See Docket Entry Nos. 42-13, 42-14, 42-15. The current amount owed is much larger than the original unpaid taxes of $46,266.21 from 2003 and $6,829.98 from 2007 because the IRS assessed several statutory taxes and penalties on Ziegenhals as both a self-dealer and foundation manager for each year until he was issued the notice of deficiency in 2009 –– an example of what can happen when someone fails to pay his taxes in the first place and then also does not cooperate in repaying the delinquencies in a timely manner.

For example, the IRS imposed a first tier tax of 5 percent for each act of self-dealing, see 26 U.S.C. § 4941(a)(1), a second tier tax of 200 percent of the amount involved for each act of self-dealing that was not corrected within the taxable period, see § 4941(b)(1), a first tier tax of 2.5 percent against Ziegenhals as the foundation manager, see § 4945(a)(2), and a second tier tax of 50 percent of the amount involved for refusing to agree to corrections, see § 4945(b)(2). In addition, the IRS determined that Ziegenhals’ actions constituted willful and flagrant conduct, and thus imposed a penalty equal to the amount of the private foundation excise taxes pursuant to § 6684. 

I don’t recommend private foundations for taxpayers who lack a huge amount of money.  While it can seem attractive to have something named for you that will outlive you, you need a lot of money to make it worth the hassle.  You have to file very detailed and complicated annual reports with the IRS, with $100 daily penalties for late filing.  Those filings are open to the public.  And if you or your heirs get careless in managing the foundation, the taxes and penalties can explode, as the gentleman from Texas now knows.

It’s much easier to use a donor-advised fund run by a competent charity, like The Community Foundation of Greater Des Moines.  They take care of the filings and hassles, and you get at least as good of a tax benefit as you get from having your own foundation.

Cite: Zeigenhals (USDC SD-TX, 3:11-cv-00464)

 

20120906-1Special interest break approaches the checkered flag.  The bill to extend the special sales tax spiff for the Newton racetrack passed the Iowa Senate yesterday.   The bill lets the track keep sales tax it collects from customers, up to a 5% rate.

The break was first passed when the track opened, with requirement that 25% of the ownership be from Iowa and with a 2016 expiration.  When NASCAR bought the track, that ended the deal.  SF 2341 extends the deal through 2025 and lets NASCAR, owned by a wealthy out-of-state family, keep this special deal that is unavailable for any other tourist and entertainment facilities competing for Iowa dollars (though an athletic facility under construction in Dyersville will have a similar break).  I’m sure they have a good story why they needed to pass this, but I don’t buy it; the track isn’t going anywhere, and NASCAR bought it knowing they didn’t qualify.

Like much bad legislation, it had bipartisan support, passing 36-9.  There is a glimmer of good news.  The total of nine “no” votes is the most I’ve seen for an “economic development” giveaway.  Hats off to Senators Behn (R, Boone), Bowman (D, Jackson), Chapman (R, Dallas), Chelgren (R, Wappelo), Guth (R, Hancock) , Quirmbach (D, Story), Schneider (R, Dallas), Smith (R, Scott) and Whitver (R, Polk).

 

Time for Project Oblivion!  The Des Moines Register reports West Des Moines data center project gets $18 million in incentives:

Iowa’s next major data center prospect seeking state-incentive money is headed to the Iowa Economic Development Authority with a stamp of approval from the West Des Moines City Council.

The council on Monday endorsed “Project Alluvion” as a consent agenda item without any discussion, offering up to $18 million in local incentives to land the major project.

Council documents show Project Alluvion would create at least 84 jobs and a minimum of $255 million in taxable valuation.

“People might say, ‘Geez, giving $18 million for only 84 jobs.’ The jobs are important, but it’s more than the jobs,” Councilman Russ Trimble said after Monday’s meeting. “It’s going to help us build the tax base and keep property taxes down.”

That’s 214,285.71 per “job.”   So, if we were to move our firm to West Des Moines, that would qualify us for about $7.5 million.  Hey, we use computers — we’re high-tech!  We’d even call it a cool name, like Project Oblivion!  Or Des Moines can pay us to stay, whatever.

Related:  LOCAL CPA FIRM VOWS TO SWALLOW PRIDE, ACCEPT $28 MILLION

 

Joseph Henchman, Wisconsin Approves Income Tax Reduction, Business Tax Reforms (Tax Policy Blog).

 

Kris20140321-3ty Maitre, Changes Coming for IRA Rollovers in 2015. (ISU-CALT)  ” So going forward, advise your client to make only one IRA rollover per tax year, or to be on the safe side one rollover every 366 days.”

Peter Reilly, No Margin For Error When Using IRA Rollover As Bridge Loan   

Kay Bell, IRS offers an easier way to deduct your home office 

TaxGrrrl, Taxes From A To Z (2014): M Is For Medicare Payments   

Paul Neiffer, One More Reason Why Tax Reform is Going After Cash Method:

 I ran across a posting on the net farm income and loss reported by Schedule F farmers for 2011 and 2012.  During each of these years, the USDA estimated that farmers had net farm income in excess of $120 billion.

However, on schedule Fs reported by individual farmers, they showed a net loss in 2011 of about $7.11 billion and for 2012 a net loss of $5.06 billion. 

Yeah, “simplification” is really why farmers need accrual accounting.  Not paying tax is a lot simpler.

 

Jeremy Scott, Portman’s Disappointing Tax Reform Plan (Tax Analysts Blog).

Len Burman, Profiles in Courage at the IRS (Really) (TaxVox).  It’s a good post, once you get past the manifestly false statement that the current scandals are “fake.”  And you’ll notice that Doug Shulman, unlike the hero of the Burman post, left on his own terms.

TaxProf, The IRS Scandal, Day 320

 

 

Going ConcernThe Debate Heats Up Over How Many Computer Monitors You Should Have.  The good folks at GC quote some loser who says nobody needs more than one monitor.  Here’s how I feel about the issue:

monitors

Now if the one monitor was, oh, 3′ x 5′, I’d reconsider.

 

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Tax Roundup, 3/14/14: Unhappy with your state revenue exam? Iowans can appeal to the examiner’s boss! And: stealing the wrong identity.

Friday, March 14th, 2014 by Joe Kristan

 

Via Wikipedia

Via Wikipedia

How would you feel about going to court and finding out that if you win, the appeal will be heard by your opponent?  That’s pretty much how the Iowa internal tax appeals process works.  And while a reform bill is getting attention in the legislature, that feature isn’t going to change just yet, reports Maria Koklanaris in a State Tax Analysts article

In a letter to legislators, DOR Director Courtney Kay-Decker said the department was able to successfully draft legislation for some of the priorities outlined in the report, including implementing a small claims process and eliminating the State Board of Tax Review for all matters except property tax protests. But she said it could not come up with language this year for what she called her highest priority, which is also the top priority of taxpayers in the eyes of many.
“Most importantly, we were unable to cohesively and comprehensively incorporate the recommendation to remove the Director from the appeals process,” Kay-Decker said in her letter. “This is disappointing as it was perhaps my highest priority.”

The Council on State Taxation gives the current Iowa system failing marks.  From Tax Analysts:

Ferdinand Hogroian, tax and legislative counsel at the Council On State Taxation, said Iowa’s tax appeals process is the only area in which the state earns poor marks in COST’s most recent report on tax administration.  The report specifies the director’s involvement in tax appeals as a major problem.
“Although an Administrative Law Judge of the Department of Inspections and Appeals conducts evidentiary hearings, IA DOR can retain jurisdiction and override,” the report says.

Attorney Bruce Baker, who frequently does battle against the Department of Revenue, points out the obvious problem with the current system: “I’ve often joked that my clients would like to be able to appeal to the chairman of the board.”  But the Department of Revenue will retain that option, at least for now.

While the legislation they are working on (SSB 3203) is an improvement, I still think Iowa needs an independent tax court — perhaps three judges from around the state who will agree to serve as tax judges as part of their caseloads to develop expertise.  It could be modeled on the specialty business litigation court that Iowa is experimenting with.  Now if you leave the current internal Department of Revenue Process — appealable by the Department to the Director of the Department — you litigate before generalists judges who may have never heard a tax case before.  They tend to defer to the Department, even when it seems clear the department is wrong.

 

Paul Neiffer, A Bad Day in Court.  A bookie who tried to hide funds overseas does poorly.

Tony Nitti, Professional Gambler Bets Wrong In Tax Court – Takeout Expenses Are Gambling Losses, Not Business Expenses   

TaxGrrrl, Taxes From A To Z (2014): G Is For Garnished Wages .  I hope not yours or mine!

Kay Bell, Sorry tax pros, more taxpayers filing on their own.  Taxpayers always have that option, and preparer regulation would drive more taxpayers to do so by increasing the cost of preparers.  Whether that will improve compliance is left as an exercise for the reader.

 

taxanalystslogoChristopher Bergin, It’s Not Just About Lois Lerner (Tax Analysts Blog):

But we need to remind ourselves that there is a lot more potential abuse going on at the IRS than what’s been associated with Lois Lerner. Here are a few examples. I talk to many practitioners who (a) don’t want to be identified, probably for fear of retaliation, and (b) question the independence of the IRS Appeals Office. That is a big problem.

In 2012 a high-ranking IRS executive said in a speech that she believes the government has a higher duty than that of a private litigant. “The government,” the executive said, “represented by the tax administrator, should not pursue a particular outcome and then look for interpretations in the law that support it. The tax administrator should do nothing more or less than find the law and follow it, regardless of outcome. The separation of powers, a bedrock principle of our Constitution, demands it.”

I have a few questions. How many private tax litigators believe that’s actually how the IRS operates? If this noble statement is taken seriously by others in the IRS, why did Tax Analysts have to go to court to get training materials? And why is the IRS being questioned so strongly by Congress on its belief – or, more accurately, the lack thereof – in the bedrock principle of the separation of powers?

The results-driven IRS approach to non-political issues doesn’t lead you to think Lois Lerner was acting with Olympian detachment in the Tea Party scandal.

TaxProf, The IRS Scandal, Day 309

Len Burman, How the Tax System Could Help the Middle Class (TaxVox)

My most “innovative”—some would say “radical”—policy option would replace across-the-board price indexing, which exists under current law, with indexation that reflects changes in economic inequality.

An awful idea.  The tax code will never “solve” the problem of inequality.  This is a clever-sounding idea that will do nothing but create complexity.

 

Sauce for the gander, indeed.  Identity Thief Sentenced for Filing Tax Returns in the Names of the Attorney General and Others:

A federal judge sentenced Yafait Tadesse to one year and one day in prison for using the identities of over ten individuals, including the Attorney General of the United States, to file false and fraudulent tax returns.

I don’t wish identity theft on anybody, not even a politician.  It can lead to all kinds of expensive and time-consuming inconveniences and embarrassments.  But if it had to happen to someone, why couldn’t it have been Doug Shulman, who let identity theft spin out of control while he pursued his futile and misguided preparer regulation crusade?

 

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Tax Roundup, 2/28/14: Somber reasoning and copious citation edition. And: tax soda, not pop!

Friday, February 28th, 2014 by Joe Kristan

crackedThe courts rarely spend much time on tax protesters.  While optimistic and deluded folks may spend lots of time submitting documents trying to convince the judge that he is sitting in an admiralty court or something, courts rarely rise to the bait.  They typically dismiss the nonsense filings this way, in language arising from Crain (CA-5, 1984):

We shall not painstakingly address petitioner’s assertions with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.

The Tax Court made an exception yesterday.   A taxpayer whose tax information apparently appears on a well-known tax protester site showed up before Judge Buch, and the judge decided to take advantage of a teaching opportunity:

The Court has taken the time, however, to address those arguments because Mr. Waltner appears to be perpetuating frivolous positions that have been promoted and encouraged by Peter Hendrickson’s book Cracking the Code: The Fascinating Truth About Taxation in America (2007). Indeed, it appears not merely that Mr. Waltner’s positions are predicated on that book but that his returns and return information have been used to promote the frivolous arguments contained in that book. Consequently, a written opinion is warranted.

I have mentioned Mr. Hendrickson before.  His most recent appearance here involved an appeal of his sentence on tax convictions.  Needless to say, if Mr. Hendrickson has “cracked the code,” a lot of good it did him.  Judge Buch addresses some of the contentions Mr. Hendrickson’s book makes, including the idea that most of us aren’t “persons” subject to the tax law and that “private sector” income is non-taxable.  Judge Buch addresses Mr. Hendrickson’s qualifications in tax law (let’s just say they are non-traditional, including a firebombing conviction).

The opinion describes Mr. Hendrickson’s main tax tactic:

This misguided view leads to the author’s strategy for filing tax returns, which was mirrored by Mr. Waltner’s returns. The author recommends “correcting” Forms 1099 by including a declaration that nothing that was received was taxable. Mr. Waltner did this. The author recommends creating substitute W-2s by changing only the amount of the reported wages. Mr. Waltner did this. The author recommends filing a Form 1040 based on these inappropriately revised forms. Mr. Waltner did this. The author recommends including FICA taxes amongst the taxes withheld. Mr. Waltner did this. 

In the end, this long Tax Court opinion comes to the same conclusion as all of the shorter ones addressing the same arguments, concluding that they don’t work.  The taxpayer, Mr. Waltner, was hit with a $2,500 penalty for making frivolous arguments.

The Moral:   No matter how many words they throw out there, tax protest arguments don’t work.  Also, it’s unwise to take tax advice from advisors whose arguments can’t keep themselves out of prison.

Cite: Waltner, TC Memo 2014-35

Related: Russ Fox, He Cracked the Code (but Won’t be Happy with the Result)

 

William Perez, Tax Credits for Families with Children

Me, IRS issues 2014 auto depreciation limits; luxury begins at $15,800

Jack Townsend, Another Sentencing of UBS Client.  In case you think bank secrecy still works.

 

20131209-1Len Burman, Hidden Taxes in the Camp Proposal (TaxVox):

The plan resurrects the 1960s era add-on minimum tax—the granddaddy of today’s uber-complex Alternative Minimum Tax. Effectively, the surtax can be0 thought of as an additional tax on certain preference items such as the value of employer-sponsored health insurance, interest on municipal bonds, deductible mortgage interest, the standard deduction, itemized deductions (except charitable contributions), and untaxed Social Security benefits. Although the list of preference items differs from the old add-on minimum tax, the idea is eerily similar.

The more I see of the Camp plan, the less it seems like reform.

 

Clint Stretch, 10 Reasons Democrats Should Like the Camp Tax Bill. (Tax Analysts Blog)  Generally reasons why it doesn’t count as actual reform.

Joseph Rosenberg, How Does Dave Camp Pay for Individual Tax Cuts? By Raising Revenue from Corporations (TaxVox)

Kay Bell, GOP’s tax reform bill DOA

 

TaxProf, The IRS Scandal, Day 295

Johannes Schmidt, New Soda Tax Proposed in Illinois (Tax Policy Blog).  That must mean it only applies in Southern Illinois, because it’s (properly) called “Pop” everywhere else in the state.

20140228-4

News from the Profession: Big 4 Firms Making Necessary March Madness Preparations as Usual (Going Concern)

 

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Tax Roundup, 10/2/2013: essential government function edition. And… commas!

Wednesday, October 2nd, 2013 by Joe Kristan
Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

A bunch of federal government workers stayed home yesterday, but enough showed up to try to keep some 90-year olds off the grounds of the World War II memorial in Washington.  They will try to stand up to the guys in wheelchairs again today.  That must be one of those essential government functions.

 

Today’s shutdown roundup:

Kay Bell, Government shuts down. Who, besides citizens, will pay?

Janet Novack,  Federal Government Begins First Shutdown In 17 Years 

TaxGrrrl, Congress Marches Towards Shutdown, Spares Military   

Tax Trials, Tax Court Filing Deadlines during Government Shutdown

Joseph Thorndike, The GOP Is Right About One Thing: Ditch the Medical Device Tax (Tax Analysts Blog):

Narrow excise taxes — even when somehow correlated with special benefits — are not a good way to fund major social programs. Broad programs deserve broad taxes.

True.  But the political magic behind ACA was the idea of a “free” mass welfare benefit  — free to you, anyway, because some rich guy gets the tab.  But as Joseph has pointed out, the rich guy isn’t buying.

Len Burman, Would the Government be Shuttered if Obamacare were Romneycare?

Russ Fox,  The Government Shutdown and Taxes

 

Jason Dinesen,  Life After DOMA: Audits of Prior-Year Returns.  Jason explains how audits work for amended returns of same-sex married couples.

William Perez, How Social Security Benefits are Taxed by State

Jim Maule, Failing to Keep Those Records Can Increase Taxes

It is not implausible that the taxpayers paid more than $2,052 for the support of the wife’s mother. Certainly during the time when she was living with them, a portion of the costs of maintaining the taxpayers’ residence constituted support of the wife’s mother. But apparently the taxpayers did not offer any evidence of those costs.

It’s up to the taxpayer to keep the records needed to support your tax return.

 

TaxProf, Supreme Court Grants Cert. to Decide Whether Severance Pay Is Subject to Payroll Tax.  Is being paid to go away taxed the same way as being paid to work?

Peter Reilly, Court Rules Against Slots Playing As A Business 

Tony Nitti, The Real Winner In The Breaking Bad Finale: The IRS   

 

tax fairyPhil Hodgen, Sooner or later, secrecy fails as a tax planning strategy:

Americans: secrecy is a weak tax planning strategy; stop using it.

What seemed like a good idea 10 years ago has now compounded itself into a seemingly intractable dilemma. I know this because people tell me so every day.

Start looking for what is true, not what you want to be true. When you hear the answer, accept it. Swallow and digest the big chunks of truth.

In other words, there is no Tax Fairy

 

 

Jack Townsend,  Article on DOJ’s Swiss Bank Initiative

Keith Fogg, Representing Clients in Tax Court (Procedurally Taxing)

Robert D. Flach, SOME REMINDERS

 

News from the profession.  BREAKING: Commas To Be Added to the CPA Exam (Going Concern).  “We are adding a comma to the calculator on the CPA Exam. The comma is meant for large numbers such as 1,000 and above to make them easier to read.”  Calculators.  With commas. In my day when we took the exam, we had “fingers.”

 

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Tax Roundup, 1/22/2013: Phil, we have altered the deal. Pray we don’t alter it further.

Tuesday, January 22nd, 2013 by Joe Kristan
Wikipedia image

Wikipedia image

What’s it cost to be a successful golfer in California?  Phil Mickelson says his tax rate in California for 2013 is 62%.  He doesn’t like it.  Naturally he is called a whiny rich guy and told to suck it up.

What is his real rate?  He will be paying a real federal rate, considering the itemized deduction phase-out, of 40.788%.  His California rate will be an insane 13.3%.  That will be deductible on his federal return, so the net combined income tax rate is about 48.662%,

But there’s more!  Golfers are independent contractors, so they have to pay self-employment taxes. That rate is 3.8% in 2013, but 1.45% can be deducted on the federal return, so the net is about 3.19%.  That gets his rate up to about 51.856%, or so.

In 2011, Lefty’s combined rate worked out to about 42.589%.  That means his effective rate increased by about 9.266%.  But that understates it.  Think of Phil Mickelson as a business.  His after-tax profit on a given income level has taken a real hit.  Where after-tax income was about 57.411 cents out of every dollar in 2011, now its about 48.144%.  That means his after-tax income has fallen by about 16% – nearly 1/6.  Don’t think it matters? Try it sometime with your own after-tax income.

A 16% cut in margins would be a worry in any business.  Mr. Mickelson is in a business where he can boost his margins by nearly 8% with a moving van.  He’d be an odd businessman indeed if he didn’t give the idea serious consideration.  And he will have plenty of company.

 

Jason Dinesen,  Further Thoughts on Preparer Regulation:

My concern is more for the EA [Enrolled Agent] name itself. I really fear that EAs are getting pushed further and further to the margins. We’ve always been on the margins, so how much further can we be pushed?

The problem is, there’s no good solution for how to enhance and protect the EA name, because there’s so few of us.

So again, where do EAs fit in? There’s just not a good answer or good solution.

I thought the RTRP designation was a mortal threat to the EA brand.  Enrolled Agents have to pass a much harder IRS-administered test and more rigorous CPE than the RTRPs would face.  Yet few people know what an enrolled agent is.  If IRS wants to improve the caliber of tax preparers, they should give more publicity to the existing EA designation and make it more desirable.  But that doesn’t help them expand their power over all preparers.

Robert D. Flach proposes a voluntary Registered Tax Return Preparer designation.    I have no problem with a voluntary branding, and if Robert and other unenrolled preparers can make a brand of it, more power to them.   I don’t see it happening, though, as it would do nothing for the big franchise preparation companies, who already have their own brands.

Martin Sullivan, “Now it’s about loopholes.”

Republicans want to use revenues from base-broadening solely to reduce rates. Democrats want to use revenues from base-broadening solely to raise revenue. (The quote in the title of this post is from senior Obama advisor David Plouffe.)

We will never be able to begin the tax reform process in earnest until Republicans and Democrats settle their differences on the total amount of revenue the federal government can collect. It was actually Bowles and Simpson who outlined the process: First, you settle on a number for the amount of revenue you want to raise (if any). In their case the amount of revenue was $800 billion over 10 years (using a different baseline).  Second, you broaden the base as much as possible. The money from base-broadening is first devoted to deficit reduction and whatever is left over is used for rate reduction.

That requires agreement on how much we can afford to spend.  Until that answer changes from “MOAR!” it won’t be enough.

 

Brian Strahle, ALERT:  California Sales Tax Refund Opportunity: Optional Service Contracts.  If you bought a service contact on a Dell and paid California sales tax, you may have a refund coming.

Peter Reilly,  Tax Planning – Repairman Jack Style

Missouri Tax Guy,  Tax Issues with early Distributions from Retirement savings.

William Perez,  Qualified Charitable Distributions from IRAs for 2012.  You have until January 31.

Kay Bell, Alternative minimum tax still around, but now indexed for inflation

Jack Townsend,  More on Conscious Avoidance

Yes.  Are Taxes Progressive in the US? (Paul Neiffer)

Not if you are Phil Mickelson.  Can You Use the 1040EZ? (Trish McIntire)

News you can use: JUST SAY “NO” TO HENRY AND RICHARD  (Robert D. Flach)

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Tax Roundup, 11/5/2012: Last week for the commissioner!

Monday, November 5th, 2012 by Joe Kristan

Soon-to-be-former-IRS Commissioner Douglas Shulman

Little disasters every day, courtesy Doug Shulman’s IRS.  We shouldn’t be surprised that the federal government is once again making a hash out of disaster relief.  They can’t even handle one-victim disasters at the IRS.  Jason Dinesen has posted two more installments (9, 10) of the infuriating saga of a client’s struggle with identity theft after her husband died.  From the latest installment:

I then proceeded to point out that it’s been 33 months since Brian died, 18 months since we filed the tax return, and 12+ months since we sent the original Form 14039 to the IRS. Again, can’t they use common sense and wrap this up?

The answer was, no.

Contrast that with the prompt issuance of a tax refund to the identity thief over a year ago.

Jason’s client ID theft problem was almost certainly the result of a glaring problem that has been known in the agency for years involving the use of social security numbers of recently-dead taxpayers published by the government by identity thieves.  The IRS is only now taking steps to fight it, while billions of tax dollars continue to go out to the thieves annually.  Meanwhile, they’ve found time to institute an expensive and futile preparer regulation scheme and power-grab.  They have their priorities, after all.

One thing voters of all parties can look forward to this week is the Friday expiration of the term of Doug Shulman, The Worst IRS Commissioner Ever.

 

Richard Morrison,   Chart of the Day: Trends in Business Income (Tax Policy Blog)

 

Brutal Assault on Reason Watch: 

TaxGrrrl,  Election Day Primer: Comparing the Obama and Romney Tax Plans

TaxProf,  Johnson: Tax Reform and the Presidential Election

Kay Bell, Voters get their say Nov. 6 on 30 tax-related state ballot initiatives

Joseph Thorndike,  Muzzling CRS is a Bad Idea — Even for Republicans (Tax.com)

Len Burman,  Which presidents spend the most? You might be surprised. (TaxVox)  For some reason he stops in 2001.

Paul Neiffer,  Get Ready For The New Medicare Tax Increase on Earned Income

Anthony Nitti,  Victims of Superstorm Sandy May Be Able To Exclude Assistance Payments From Taxable Income

Jack Townsend notes an Article on Erosion of Swiss Secrecy

Peter Reilly,  Unfair Tax Court Decisions On Life Insurance Are Tip Of Unclaimed Property Iceberg

Missouri Tax Guy,  Advantages of Filing a Tax Return Extension

Robert D. Flach,  TOP TEN LIST ADDENDUM.  This is so true:

More than half of the balance due notices that are sent out by the Internal Revenue Service and state tax agencies are incorrect.  If you receive such a notice send it to your tax professional ASAP.

I would love to see an accounting of how much revenue the government steals from taxpayers who write checks because they are afraid of the revenue agencies, or because the amounts are known to be wrong, but the taxpayer doesn’t think they are worth the fight.

 

Bad News you can Use:  Bad News for German Poker Players (Russ Fox)

 

Richman, Dumdum man.  The story you are about to read is true.  Then names have been left the same to protect the humor.  CBSlocal from Chicago reports:

He wasn’t too smart about paying federal income taxes, and now Rimando Dumdum man is going to prison. 

WBBM’s Bernie Tafoya reports the 44-year-old Morton Grove tax preparer, who came to the U.S. from the Philippines in 1989, owned a company called “Richman Tax Solutions.”

Apparently it’s easier for a camel to pass through the eye of a needle than for a Richman to get a tax return right.  But all things are possible:

According to his plea agreement, he helped clients illegally trim an average of $1,400 from their tax bills. In all, between his clients’ returns, and his own tax fraud, Dumdum cheated the federal government out of $232,000 in all.

However, prosecutors said he likely helped clients evade $3.5 million in taxes, citing an audit showing his company falsified 99 percent of the tax returns it filed.

The way he looks out for the 99%, he should be a favorite of the Occupy people.  I wonder if the 1% of his customers who didn’t get phony returns feels cheated somehow.

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Tax Roundup, 5/30/2012: life among the jaywalkers. What rich folk don’t pay taxes? And does having someone else cover your losses make a bad investment a good one?

Wednesday, May 30th, 2012 by Joe Kristan

What the war on “international tax cheats” means to the cowering civilians in the bombing area. International tax planning attorney Phil Hodgen dined with some Americans working abroad and reports:

For you, the American living overseas, tax return preparation is an order of magnitude more complicated than for someone living at home in the USA. There are extra forms to fill out. Extra stuff to report. Big, big penalties if you fluff things up. So you either spend an inordinate amount of your free time doing the tax returns yourself, or you pay a lot of money to an accountant to do the work for you. I don’t know what the people around the table last night spend, but it would be common to see tax bills of $3,000 – $4,000 in my experience. Let’s say you only spend $2,000. Lucky you.

The amount of tax that the IRS typically collects from people living in Europe and other high tax countries is ZERO. The foreign tax credit (PDF) ensures this. So does the foreign earned income exclusion (PDF).

Short story? You pay $2,000 or maybe much more to do a tax return that yields zero revenue for the U.S. government. And you burn up a lot of nights and weekends doing the paperwork.

Then you hear some Senator yammering about people like you and how you should be paying your “fair share” to the U.S. Treasury. 

The whole post is very much worth reading.  The pointless burden put on innocent taxpayers by the IRS shoot-the-jaywalkers enforcement of the already ridiculous international reporting rules is most disgraceful of IRS Commissioner Shulman’s many policy blunders.

And Here You Thought It Was Just Peasants Not Paying Any Income Taxes (Going Concern).  They quote a Bloomberg article:

 The percentage of U.S. taxpayers reporting adjusted gross income exceeding $200,000 who paid no U.S. income taxes increased in 2009 to 0.53 percent from 0.51 percent, meaning that one in 189 high earners avoided taxation, an Internal Revenue Service study found. The filers reported tax-exempt interest along with deductible charitable contributions, medical expenses and other items to legally reduce their taxable income.

Of course, the article is wrong in blaming muni bonds, which aren’t included in AGI in the first place.  So how do $200,000 AGI taxpayers get to zero tax?  It’s often where net income is overstated because the gross is in AGI but the expense generating the “income” is an itemized deduction.  Some candidates come to mind:

  • People with big margin interest accounts or other borrowing costs.  If you have $200,000 if interest income, you can deduct $200,000 of expense incurred to buy the interest-generating assets.  The income is “above the line” and included in AGI, but the deduction is a below-the-line itemized deduction.
  •  Gamblers.  A busy slots player can easily burn through $200,000 in “winnings,” which are above the line, offset by below-the-line gambling itemized deductions.

Another likely example is Old folks in a full-time nursing home. The medical costs can go through the roof. 

Readers – if you have other candidates, I’d love to hear about them in the comments.  Related: somehow Linda Beale gets from 1 in 189 high-income taxpayers paying no federal tax to one in fourNot a chance.  I’d say it was a typo, but she makes the assertion both in her headline and in the article text (UPDATE, 5/31: corrected now)

 

New state tax credits making solar a better investment for Iowans. (Sioux City Journal). Nonsense. It doesn’t make it a better investment, it just shifts the loss on the “investment” to us chump Iowa taxpayers who have to pay for other peoples’ solar toys.

Because Congressional accounting is always so reliable? FASB under political heat from Congress over lease accounting (TaxBreak)

 You man people have to pay for something on their own? Hot, Hot, Hot: Air Conditioning Tax Credits Have Disappeared (TaxGrrrl)

Paul Neiffer: Be Careful if You Have a Foreign Account

Jack Townsend: Why We Cheat and Lie — Taxes Included

 Len Burman: Billions in Tax Refund Fraud–and How to Stop Most of it

Howard Gleckman: Tax Reform: Going Long v. Going Prudent

Catch Robert D Flach’s Wednesday Buzz roundup of tax posts.

Dan Meyer: Am”Bushed” by Taxes? Keep or Let Die the Decade-Old Tax Cuts?

Next time he should proclaim himself “Lord Vader of the South” instead.  “Self-proclaimed “Governor” of Alabama Sentenced to Ten Years in Federal Prison for Tax Fraud.”  Just one more bit of proof that “sovereign citizen” tax schemes don’t work.

 At least it’s an aim that any legislator can achieve.  “Legislators aim at tax fraud

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Sometimes three strikes are too many

Tuesday, January 31st, 2012 by Joe Kristan

Legendary Oakland A’s owner Charles Finley proposed to shake up baseball by awarding walks on three balls and strikeouts after two strikes. It never caught on in baseball, but there’s a place for it in the tax law.
Every year or two Congress passes 70 or so “extenders” — tax breaks provisions enacted with an expiration date, but which they have no intention of letting expire. By pretending the breaks are temporary, they avoid facing up to the true revenue cost.
Len Burman proposes a “three-strikes” rule for Extenders:

I propose a

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Surely? You jest.

Monday, December 5th, 2011 by Joe Kristan

It looks as though the “temporary” tax cut to employee FICA taxes will be extended another year as a re-election stimulus measure. Len Burman at TaxVox argues for the extension:

With the economy producing almost a trillion dollars less than its capacity, there

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The jaywalker slayers would be more popular if they had a Twitter account

Friday, August 26th, 2011 by Joe Kristan

When billionaire Warren Buffet again climbed on his high horse to complain that other rich people should pay more taxes, fellow billionaire Harvey Golub was having none of it:

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Len Burman of the Tax Policy Center says that there is something to Mr. Golub’s complaint, but that he wouldn’t be so grumpy if the government just explained itself better — maybe with Facebook or something:

More importantly, the government does a terrible job explaining what it does well. I think in large part it

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We’re doomed. Have a nice day.

Thursday, June 23rd, 2011 by Joe Kristan

Len Burman is just full of good cheer at TaxVox as he evaluates the latest edition of the CBO’s “The Long-Term Budget Outlook”:

Translation: big tax increases or spending cuts right now would be a bad idea given the fragile state of the economy, but committing to serious debt reduction that will take effect once the economy has recovered is urgent if we are to avoid a budget catastrophe.

If you find anybody in charge acting “serious” or doing anything “urgent,” let me know.

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