Posts Tagged ‘Leslie Book’

Tax Roundup, 12/8/15: Extenders, fourth and long. Also: No Iowa tax reform expected in 2016. And: Finland!

Tuesday, December 8th, 2015 by Joe Kristan

20150811-1Time to punt? Congressional taxwriters may be on the verge of giving up on passing any permanent extensions of the perpetually-expiring tax provisions this year. It is reported they may go for a two-year extension this week. Tax Analysts reports on comments from House Ways and Means Chairman Kevin Brady ($link):

House Ways and Means Republicans are expected to introduce a two-year tax extenders bill as talks continue on a permanent extenders package without a clear solution, committee Chair Kevin Brady, R-Texas, told reporters on December 7.

“The clock is ticking. We are not going to let the extenders fail before we leave town,” Brady said. Republicans want to make sure they are ready this week with a “fallback” if an agreement isn’t reached between the parties, he said earlier.

They are scheduled to adjourn and leave town Friday, so things will need to happen quickly. The story reports that Senate Finance Committee Chairman Orrin Hatch expects the House to pass a two-year extension.

They had been working to permanently extend at least the research credit and the $500,000 Section 179 deduction, but the Democratic negotiators insistence on expansion of the earned income credit as part of any deal may doom the permanent effort.

Some of the Lazarus provisions that died at the end of 2014 and need to be extended to be available for 2015 filings include:

-The $500,000 limit for Section 179 deductions for otherwise capitalized capital expenditures. The limit will otherwise be $25,000.

-The research credit.

-Bonus depreciation

-The ability to roll up to $100,000 from an IRA directly to charity without it going through the 1040 first.

The full list is here.

Failure, of course, remains an option. The pre-recess crush makes getting anything done uncertain. House Majority Leader McCarthy is quoted as saying that he has a “fear” that the extenders won’t pass. In that case, we may have a retroactive package passed in January, delaying filing season, or no extender bill at all.

Related: Kay Bell, Uncle Sam faces another shutdown if Congress doesn’t reach spending agreement by Dec. 11

 

20151118-1

 

No Iowa Tax Reform again this year. That’s the word from the Iowa Taxpayers Association annual legislative forum, reports the Waterloo-Cedar Falls Courier:

At the Iowa Taxpayers Association’s annual legislative leadership forum, held Friday at Prairie Meadows in Altoona, Democratic and Republican leaders said there is not sufficient state revenue to support new tax breaks or policy changes that would remove money from the budget pie.

“Obviously, when you’re working on tight budget margins, the opportunity for tax reform becomes increasingly difficult,” said Rep. Chris Hagenow, R-Windsor Heights, the new House Majority Leader.

“I’m just going to be very frank: I don’t see this session producing any tax policy changes,” Jochum said. “In terms of any big, new policy changes in taxes … I truly do not see any of that happening.”

That’s no surprise. The continuing split of control between the parties, the resulting ability of either side to veto any tax reform efforts, and seemingly irreconcilable views on tax policy would probably doom any tax reform effort regardless of the budget numbers. The best we can hope is that work continues behind the scenes for when the political climate for tax reform improves. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan is ready whenever they are.

 

buzz20150804Robert D. Flach has fresh Tuesday Buzz, with links including discussion of the futility of regulating the law-abiding to stop the crooks, a lesson with broad application.

Paul Neiffer, Additional De-Minimis Election Update. “Therefore, if a sole proprietor farmer or rancher purchases a large amount of assets that individually cost less than $2,500 AND these assets are likely to appreciate in value, it may be better to not make the de-minimis election for that year.”

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #5- The Role Partnership Liabilities In Foreclosures,

Robert Wood, IRS Private Debt Collectors Are Now Legal: 10 Things You Should Know

TaxGrrrl, Wal-Mart Sues Puerto Rico Over ‘Astonishing And Unsustainable’ Tax Increase. To go with astonishing and unsustainable government spending.

Leslie Book, Summons Enforcement For Undisclosed Offshore Accounts: The I Don’t Have Em Defense Is Not an Easy One to Win

Jack Townsend, New Transportion Bill, FAST, Adds Some Tax Provisions

Of course it does. State Wants Its Share Of The Sharing Economy (Peter Reilly) “This appears to be one of the rare instances where I am providing you breaking news on a matter otherwise neglected by the tax blogosphere.” Au contraire, Pierre Peter!

 

20150731-1Finland is considering replacing its vaunted welfare regime with a guaranteed annual income;

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out €800 ($870) per month—to everyone.

This would deal with the problem of high implicit marginal tax rates that make it too expensive for low-income Finns to go to work — a problem that also exists in the U.S., as Arnold Kling and others have noted.

It may sound counterintuitive, but the proposal is meant to tackle unemployment. Finland’s unemployment rate is at a 15-year high, at 9.53% and a basic income would allow people to take on low-paying jobs without personal cost. At the moment, a temporary job results in lower welfare benefits, which can lead to an overall drop in income.

Related: Tyler Cowen, A guaranteed annual income for Finland?Arnold Kling, Libertarian Scandinavian Welfare State?

 

TaxProf, The IRS Scandal, Day 943. Paul Caron telegraphs an end to this important series. Even when the Tax Prof’s daily coverage ends, the scandal remains unresolved, and Commissioner Koskinen and the administration continue to run out the clock, to the continuing damage of the IRS and to taxpayer service.

Scott Greenberg, A Lesson of Hanukkah: It’s Difficult to Determine Asset Lives: “To spell out the lesson of the story more slowly – the Maccabees came into possession of an asset (a jar of oil). They thought it would lose its value over a certain time period (a single day). However, the asset actually took much longer to depreciate (eight days).”

 

Stop the presses. Donald Trump Tweeted Something About Tax Shelters (Caleb Newquist, Going Concern).

 

Share

Tax Roundup, 12/1/15: Tax fairies, timeshare resale value, and other fables. And more!

Tuesday, December 1st, 2015 by Joe Kristan
Timeshare community near Branson. Flickr image courtesy Tim Rodenburg

Timeshare community near Branson. Flickr image courtesy Tim Rodenburg under Creative Commons license.

Can the Tax Fairy make your time-share go away? Resort timeshares are a lot easier to buy than to sell. You take that “free” trip to Branson, and it seems ungrateful to not buy something from the nice people who bought you dinner. After you sign the papers, it occurs to you that maybe you don’t want to go to Branson every year, but there you are paying maintenance fees every year anyway.

That’s why a promise to take a timeshare off your hands and give you a fat tax deduction can be attractive. Maybe too attractive.

The Justice Department last week filed a lawsuit seeking to enjoin a Montana-based charity from promoting an “allegedly abusive timeshare donation scheme.” From the Justice Department press release:

The United States filed a civil injunction suit seeking to bar James Tarpey, a Montana-based attorney, Project Philanthropy, Inc. (a District of Columbia corporation which does business as Donate for a Cause) and Timeshare Closings, Inc. (a Colorado corporation which does business as Resort Closings, Inc.) from promoting an allegedly abusive timeshare donation scheme, the Justice Department announced today.  The United States also filed suit against three of Tarpey’s associates – Ron Broyles of California, Curt Thor of Washington and Suzanne Crowson of Montana – all of whom, according to the complaint, assisted Tarpey in facilitating the timeshare donation scheme.

The tax law permits taxpayers to deduct donations of property at fair market value. If the taxpayer claims a deduction for a property donation (other than marketable securities) in excess of $5,000, extra documentation is required. You need a “qualified” appraisal, and you need to file a signed Form 8283 with your return with signatures from the appraiser. The injunction complaint says the timeshare charity failed to meet these requirements (my emphasis):

According to the complaint, which was filed in the U.S. District Court for the District of Montana, the timeshare donation scheme encourages timeshare owners to donate their unwanted timeshares to Donate for a Cause, a tax-exempt entity organized and operated by Tarpey.  The complaint states that customers are falsely promised “generous” tax savings and that the defendants purportedly determine the “fair market value” of the timeshare by selecting an independent, third-party appraiser.  The United States further alleged that Tarpey’s customers (the timeshare owners) pay significant processing fees to Resort Closings, Inc. to transfer the timeshares to Donate for a Cause.  According to the complaint, Tarpey, Broyles, Thor and Crowson appraise the customers’ timeshares in a manner which does not comply with the law and which significantly overvalues the timeshares.  According to the complaint, the appraisals fail to comply with regulations governing appraisals submitted with federal tax returns, contain substantive errors and omissions, fail to comply with generally accepted appraisal standards and grossly overvalue the timeshares.  In addition, Tarpey, Broyles, Thor and Crowson are legally prohibited from appraising the timeshares for which their customers claimed federal tax deductions because they are too closely affiliated with Donate for a Cause, the complaint alleges.

Keeping in mind that these are only allegations and that the defendants have not yet had the opportunity to defend themselves in court, there are still some useful lessons for taxpayers here.

tax fairy-No appraisal, no deduction. It’s important to get a required appraisal for a property deduction before you file the return claiming it. If you don’t, there’s no mulligan — your deduction is zero.

-It matters where you get the appraisal. The tax law requires the appraiser to meet requirements regarding expertise and experience with the property being appraised. The appraiser has to also meet certain independence-related requirements, one of which is that they can’t perform a majority of their appraisals for the charity receiving the property.

-Big cash “fees” to accept a property are fishy. The complaint alleges that in one case a donor was given an appraisal of $14,500 for a Hawaii time share originally bought for $16,900. The complaint alleges that the charity sold the time share for $19 on eBay, according to the complaint, but the donor was charged $3,000 for the transaction. If a property is actually worth something, the charity will normally pay any transaction costs out of the proceeds of the donated property.

-Reality makes a difference. The complaint says the charity would sell the donated timeshares on eBay for a small fraction of the “appraised” price:

The IRS reviewed a sample of 1,557 appraisals that defendants prepared for timeshares that were subsequently sold on eBay in 2012. The average appraisal amount for these timeshares was $10,619, yet they only generated an average sales price of $429 when sold on eBay – only 4% of the appraised amount.

If true, this is a bad fact. If a charity offers an appraisal that’s way out of line with what you could sell something for, that’s a red flag.

The moral? Donations of appreciated property can give good tax results if done right, but there is no tax fairy.

 

20141210-1

 

Robert D. Flach brings fresh Tuesday Buzz, including talk of universal savings accounts and IRAs.

Jason Dinesen, How Many Fraudulent EIC Claims are Prepared by Paid Preparers? “The point I’m trying to make is: the IRS can put all the requirements they want on paid preparers, but it’s not going to stop EIC fraud.”

TaxGrrrl, Germany Investigating Volkswagen Employees For Emissions Scandal Related Tax Evasion

Russ Fox is accepting nominations: Nominations Due for 2015 Tax Offender of the Year. May you never be so honored.

Leslie Book, Is A Claimed Refund the Taxpayer’s Property? Tax Court Holds Yes in the Estate Tax Context (Procedurally Taxing).

Kay Bell, Cyber Monday 2015 is more costly now that most states have enacted online sales tax laws

William Perez, Should I Pay Someone To Do My Taxes?

 

20150121-1

 

Howard Gleckman, Back at the Tax Extender Trough (TaxVox) ”

Making these tax breaks a permanent part of the official congressional budget baseline actually makes rate-cutting tax reform easier.”

Joseph Henchman, Nominations for Outstanding Achievement in State Tax Policy Open! (Tax Policy Blog).

TaxProf, The IRS Scandal, Day 936. Today’s link discusses the “lawfare” waged illegally by Lois Lerner’s friends in Wisconsin, including their trolling for information on national conservative figures.

Robert Wood, Sean Connery’s Wife Could Face Prison In ‘Operation Goldfinger’ Tax Case. The real James Bond would never let this happen.

 

 

Share

Tax Roundup, 11/3/15: Work in Illinois, live in Iowa, pay quarterly. And: fun with FATCA!

Tuesday, November 3rd, 2015 by Joe Kristan

Illinois sealReciprocity = no state wage withholding. A newly-released policy letter from the Iowa Department of Revenue explains how the Iowa-Illinois tax reciprocity agreement works for an Iowan working in Illinois for a non-Iowa company. The letter is addressed to the employer:

Your employee is an Iowa resident, earning income in Illinois, and therefore is exempt from paying Illinois income tax on income earned from salaries, wages, and other compensation. For your employee to pay Iowa income taxes, the employee should make estimated payments by completing Form 1040ES – Estimated Income Tax for Individuals. The employee may also need to file an Illinois form showing that they are an Iowa resident not subject to Illinois withholding under the agreement.

While in theory it should make no economic difference whether you pay taxes through quarterly estimates or withholding, many taxpayers prefer withholding. It just seems less painful to have the money taken out before you see it, and you don’t have to remember to write those estimates. I wonder if the employee really feels better off.

The letter adds:

It is also possible for your business to register for an Iowa Withholding Tax Permit on the Department’s website (https://www.idr.iowa.gov/CBA/start.asp). In that case your Iowa resident employees could have those employees fill out an IA W-4 (available at https://tax.iowa.gov/form-types/withholding-tax) and you as the employer could withhold Iowa tax from their paychecks.

Illinois is the only state with which Iowa has a reciprocity agreement. Other states withhold (if they have an income tax) on Iowa employees, and the Iowans claim a credit for taxes paid in other states on their Iowa 1040s.  That sort of works out like Iowa wage withholding in a way for Iowans working in Wisconsin, Missouri, Nebraska and Minnesota — except with the hassle of completing two full state tax returns. For those crossing the border to South Dakota, which has no income tax, the compliance problem is the same as for the Illinois taxpayer in this policy letter.

20150928-1

 

Wall Street Journal, American Tax Refugees: Why So Many Yanks Are Renouncing Their U.S. Citizenship  (may be subscriber only link):

Fatca requires that foreign banks, brokers, insurers and other financial institutions give the U.S. Internal Revenue Service detailed asset and transaction records for any accounts held by Americans, including corporate accounts controlled by American employees. If a firm fails to comply, the IRS can slap it with a 30% withholding tax on transactions originating in the U.S. Facing such risks and compliance costs, many foreign firms have decided it’s easier to dump their American clients.

So Americans overseas are becoming increasingly unbankable. Not the wealthiest ones, of course, those “fat cat” potential tax evaders whom Democrats rail against. Much more vulnerable are sales reps, English teachers, lawyers, retirees—the overwhelming majority of American expatriates—whose modest finances make them unappealing clients amid Fatca’s compliance costs.

To get a few press releases, politicians have to break a few citizens eggs.

 

Robert Wood, U.S. Ranks As Top Tax Haven, Refusing To Share Tax Data Despite FATCA. As long as the U.S. intrudes on other countries’ banks, the other countries will want to reciprocate.

Jack Townsend, National Taxpayer Advocate Nina Olsen Comments on FATCA and OVDP. Quoting the Taxpayer Advocate: “The problem with FATCA is that it imposes burdens on taxpayers at all sorts of levels, and it’s not clear what benefits we’re really going to get from it or what we’ll be able to do.” It’s not about “we,” unless we are a politician looking for a cheap headline.

 

20150918-3

 

Robert D. Flach comes through with more Tuesday Buzz, with links to posts on minimum IRA distributions and small business money mistakes, among other things.

Kristine Tidgren, Tax Court Says 1972 Settlement Transfer Was Not a Gift (The Ag Docket). “One takeaway of this case for those outside of the Redstone family is recognition of the cold, hard fact that no statute of limitations applied to prevent the IRS from collecting taxes on this alleged 1972 gift.”

TaxGrrrl, Court Switches Gears, Says AICPA Can Sue IRS Over Tax Preparer Credentials. The IRS “voluntary” preparer regulation scheme hits a bump.

 

Russ Fox, I’m Sure Their Vacation in Arizona Will Impress the Sentencing Judge. “Mr. Joling wanted to be on “biblical safe ground” (he was a pastor) so he didn’t pay taxes.” Biblically safe, perhaps, but not legally, for sure.

Peter Reilly, Democratic Presidential Candidate Drops Out Without Releasing Tax Plan. And almost without anyone noticing.

Leslie Book, Halloween Special: Third Circuit Case Affirms Preparer’s Conviction For Aiding in Preparing False Tax Returns (Procedurally Taxing). “Despite the promise of oversight and its enhancing greater visibility, prosecuting bad apple preparers is an important after the fact way of ensuring that those who abuse the system know that their actions have consequences beyond bringing in fees for raiding the fisc.”

Jason Dinesen, Glossary: Gross Income/Gross Profit

William Perez discusses the new 401(k) Contribution Limits.

 

20140929-1

 

Joseph Henchman, Voters in Five States Consider Tax-Related Initiatives (Tax Policy Blog). Colorado ponders its marijuana tax windfall, Ohio considers approving one for itself.

Jonathan Ackerman, Rosanne Altshuler, Jeffrey Kupfer Bipartisan tax reform is possible: Lessons learned from President Bush’s reform panel (TaxVox). “Our antiquated business tax system has failed to keep up with an economy that has changed dramatically as a result of globalism, technology, and new capital flows.”
Scott Greenberg, The Bush Tax Reform Panel, Ten Years Later (Tax Policy Blog). “The Bush Panel was an important moment in recent tax policy history, because it provided one possible roadmap for a bipartisan tax reform agreement in the future.”

Matt Gardner, Apple Shifts a Record $50 Billion Overseas, Admits It Has Paid Miniscule to No Tax on Offshore Cash (Tax Justice Blog). Showing once again that Apple management isn’t stupid.

 

Career Corner. Accounting Firms Need To Have More Transparent Conversations With Employees About Compensation (Caleb Newquist, Going Concern)

 

Share

Tax Roundup, 10/16/15: Is the Earned Income Credit really all that great? And: Ed Brown house back on the block.

Friday, October 16th, 2015 by Joe Kristan

20150929-1Can a program that wastes 25% of its cost be worthwhile? While many economists left and right say the Earned Income Credit is a great poverty fighting tool, some of us who do tax for a living aren’t so sure. Now two scholars at the libertarian Cato Institute have published a report that fleshes out some of these doubts: Earned Income Tax Credit: Small Benefits, Large Costs. The report provides this background:

While the EITC is administered through the tax code, it is primarily a spending program. The EITC is “refundable,” meaning that individuals who pay no income taxes are nonetheless eligible to receive a payment from the U.S. Treasury. Of the $69 billion in benefits this year, about 88 percent, or $60 billion, is spending.

Articles by liberal and conservative pundits regarding the EITC often make it seem as if there are few downsides to the program. The EITC is aimed at reducing poverty and encouraging work. Who could be against that?

Alas, there is no free lunch with subsidy programs. The EITC has a high error and fraud rate, and for most recipients it creates a disincentive to increase earnings.

The waste and the “disincentive effects” are the things that bother me the most. The phase out of the benefits makes it very expensive to earn a little more, after a certain low-income point. My computation of the Iowa marginal rates on EITC recipients is in chart:eic 2014

That’s a 55% tax on every dollar earned, which doesn’t exactly encourage you to earn more dollars. And I don’t try to account for the hidden tax resulting from the loss of other welfare benefits as income increases.

Unfortunately, the study doesn’t really address what should replace the EITC, other than calling for generic good tax policy: “For example, cutting the corporate income tax rate would boost business capital investment. That would generate higher demand for labor, and thus raise wages and create more opportunities for American workers over time.”

I wish they had discussed the “universal benefit” that Arnold Kling and others have set forth. Arnold describes this version:

For a universal benefit, I propose something like $6000 for each adult in a household and $4000 for each child. [Charles] Murray proposed $10,000 per adult and zero per child.

Murray described the program as a cash grant. I describe it as flex-dollars that can only be used for “merit” goods, meaning health care, food, housing, and education.

Each of us presumes that people will purchase health insurance. I am explicit that catastrophic health insurance would be mandatory.

I propose something like a 20 percent marginal tax rate, or phase-out rate, for the universal benefit.

Arnold would have the phase-out as an addition to the income tax; I would couple it with the standard deduction so it phases out as part of the income tax, not as an addition to it. In any case, it would address many of the fraud and administration problems we see in the EITC.

 

honey princesses 2014

 

Robert D. Flach has your fresh Friday Buzz! Last minute filing, neglected beneficiary designations, and Dance Moms are highlighted.

Laura Saunders, Beware of Tax Surprises Lurking in Mutual Funds (Wall Street Journal). “Here’s why: By law, each year mutual funds must pay out to investors nearly all their income, which includes interest, dividends and net realized capital gains—in short, the profits on their trades minus offsetting losses… Already, one fund has announced the largest capital-gains payout some experts can remember.”

William Perez, I don’t make too much money, does the new health insurance rule apply to me?

Annette Nellen, Worker Voice, Classification and Taxes. “One of many things the “on demand” economy means is more clear and consistent rules on worker classification.”

Jason Dinesen, Glossary: S-corporation. “S-corporation is a tax term that refers to a corporation or an LLC that elects to be taxed under the rules of Subchapter S of the Internal Revenue Code.”

Jim Maule, Taxes, Consumption, Soda, and Obesity. “It is not unlikely that people who find soda to be too expensive because of the tax will spend their dollars on pies, cakes, candy, doughnuts, cookies, ice cream, and similar items.”

Leslie Book, Tax Court Holds Preparer Who Placed Truncated Social Security Number on Returns Subject to Penalties. He didn’t use a PTIN or Social Security Number on the returns he signed. The penalty is $50 per return. He prepared 134 returns in 2009. I’ll leave the math as an exercise for the reader.

TaxGrrrl, ‘Dance Moms’ Star Abby Lee Miller Accused Of Hiding Income, Indicted On Fraud Charges. So many TV shows I’ve never seen, so many indictments.

They both eat brains. Presidential candidate debates outdraw zombies (Kay Bell)

 

20151016-1

 

Howard Gleckman, The Debt Limit: Here We Go Again (TaxVox):

The House is largely leaderless and a significant minority of its Republican caucus will oppose any increase in the federal borrowing limit. In the Senate, CNN reports that GOP leader Mitch McConnell wants major concessions from the White House on such hot button issues as Social Security and Medicare before he moves a debt bill. And a lame-duck President Obama seems increasingly disinclined to negotiate with Hill Republicans on any issue. 

Pass the popcorn.

 

Jeremy Scott, Democrats Offer Nothing Much on Tax Reform (Tax Analysts Blog):

Taxes were discussed. Bernie, of course, wants to use them to reduce the gap between the rich and the poor, something it’s not clear his plan even addresses. Chafee wants a new 45 percent bracket on higher incomes. And Hillary talked some about the numerous small tax provisions she would like to enact to accomplish extremely specific, targeted goals. But nothing said onstage Tuesday night should give any tax reform observers hope that a Democratic White House in 2017 will be any more behind a broad tax reform effort than President Obama has been.

A complicated tax code that meddles in everything is exactly what you would expect from big government fans. There’s no reason to expect reform from the avowed party of big government.

 

Kyle Pomerleau, Governor Lincoln Chafee’s Modest Tax Proposal (Tax Policy Blog).

Bob McIntyre, Although He Left out Key Details, It’s Clear Kasich’s Tax Plan Is a Deficit-Busting Giveaway to the Wealthy (Tax Justice Blog). We don’t need no stinking key details.

 

TaxProf, The IRS Scandal, Day 890

News from the Profession. Will the CPA Exam Become Optional? (Caleb Newquist, Going Concern)

 

The Brown house. Photo from IRS Auction web site.

The Brown house. Photo from IRS Auction web site.

6,000 Sq. Ft., Handyman’s and Ordnance Clearance Specialist’s Dream! The IRS is going to once again try to auction the home of Ed and Elaine Brown, the couple serving loooong prison terms as a result of an armed standoff following their conviction on tax charges. It has some unusual features, reports WMUR.com:

In the back of a closet, a hidden door can be found. A ladder leads to a small bunker with a passageway that leads just outside. Dirt hides the manhole cover that provides an exit to the passage.

Admit it, you’ve always wanted one of those.

“There’s a lot of stuff that you need to look at and say, ‘Do I want to finish it that way? Do I want to go a different direction?'” said Roger Sweeney, liquidation specialist for the IRS. “But it also comes with 100 acres, and with that price, it’s a heck of a deal.”

There are solar panels and a wind turbine on the land, but investigators have found explosive devices, as well. A warning is included in the notice of sale.

The article has a little photo tour of the property. You can learn more at the IRS auction website. The starting bid is only $125,000.

Related: Tax Update Blog Ed Brown coverage.

 

Share

Tax Roundup, 10/8/15: Your tax preparer has to protect your confidential info. IRS, not so much. And more!

Thursday, October 8th, 2015 by Joe Kristan

TIGTAIRS Basically Plastering Your Social Security Numbers on Billboards Now, Because Why Not? (Peter Suderman, Reason.com):

The IRS continues to recklessly print Social Security Numbers (SSNs) on hundreds of millions of notices and letters, despite warnings that this practice dangerously exposes sensitive personal information, and years of pressure to reduce the use of SSNs on documentation.

In fact, the tax agency doesn’t even have procedures in place to fully track its use of SSNs, according to a report by the Treasury Inspector General for Tax Administration (TIGTA), a tax agency watchdog.

This is a problem because of the identity theft epidemic. Every document from IRS sitting untended in your mailbox that has your Social Security number is an ID theft vulnerability. Private parties have changed their practices to protect ID numbers. One example is the adoption of secure password-protected web portals to send anything with an SSN. Another is the decline of the practice of identifying tax returns on the outside of mailing envelopes. The increased risk of attracting an ID thief outweighs the risk a taxpayer might not bother opening an unmarked envelope.

Yet TIGTA says IRS is behind the curve. From their press release:

TIGTA found that as of January 2015, the IRS estimates that it has removed SSNs from 58 (2 percent) of the 2,749 types of letters and 93 (48 percent) of the 195 types of notices it issues.

“A person’s Social Security Number is the most valuable piece of personal data identity thieves can obtain.” said J. Russell George, Treasury Inspector General for Tax Administration. “The fact that the IRS does not have processes and procedures to accurately identify all correspondence that contain Social Security Numbers remains a concern.”

Businesses have to be careful with taxpayer information because we could lose business, or be sued, or worse. The IRS doesn’t have that motivation, and it shows.

 

20151008 tax incidenceTaxProf, Who Benefits From State Corporate Tax Cuts? Firm Owners (40%), Workers (35%), Landowners (25%). The Prof links to a study of “tax incidence,” or who “really” bears the burden of the corporation tax. While politicians and activists like to talk about corporations as tax-avoiding fat cats, it’s a fact that corporations ultimately don’t pay any tax; it comes out of the pocket of an actual human somewhere. Economists will endlessly debate whether its owners, customers or workers who bear the burden. Whoever it is, it’s not a free lunch for the tax man.

 

Russ Fox, Tax Relief for South Carolinians. “Note that the relief is automatic; impacted taxpayers need not do anything.”

Robert Wood, Skimming Cash — Even From Yourself — Can Mean Prison For Tax Fraud:

Prosecutors said the Horners owned Topcat Towing and Recovery Inc., a towing business in Georgia. Between 2005 and 2008, they skimmed $1.5 million in cash from the businesses, depositing into their personal bank account without disclosing the income on their corporate or personal tax returns filed with the IRS. They tried to conceal their cash deposits from the government by “structuring,” splitting up cash deposits that exceed $10,000.

Unwise. Banks have great incentive to report “structuring,” and they do.

 

Jason Dinesen, Glossary: Audit (Of Financials)

Leslie Book, Senate Again Takes Aim at Improper Payments in Federal Programs. The government wants to use the IRS inability to stop issuing fraudulent payments as an excuse to regulate preparers.

Jack Townsend, U.S. Senators on Senate Finance Committee Probe the Tax Aspects of the Volkswagen Debacle. “As often in tax-related and other potential criminal settings, the prosecutor has a panoply of provisions to choose from.”

Kay Bell, NHL players’ goal: Play in low or no income tax states

 

Jared Walczak, How Much Does Your State Collect in Taxes Per Capita? (Tax Policy Blog).

20151008-1

 

Iowa is #20.

 

Cara Griffith, Why Is It So Hard to Fund Schools? (Tax Analysts Blog). This article actually highlights the dangers when judges meddle in the appropriation process.

Renu Zaretsky, Questions, Subsidies, Deductions, and Profits. Today’s TaxVox headline roundup has stories on whether Volkswagen’s emission test rigging got them clean air tax credits, questions on the need to subsidize wind turbines, and much more.

 

TaxProf, The IRS Scandal, Day 882

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Conclusion. “I fear that the series which serves as a great resource is in danger of having its quality diluted.” I worry that the administration will succeed in running out the clock on the outrageous IRS misconduct.

Tax Justice Blog, New CTJ Report: 358 or 72% of Fortune 500 Companies Used Tax Havens in 2014, Alternate headline: 72% of Fortune 500 Companies try not to squander shareholder value.

 

Finally: Arrieta, Cubs ace Wild Card test vs. Bucs

Not tax related? Oops.

 

Share

Tax Roundup, 9/22/15: A resounding call to document your mileage. And: preparer regulation, IRS service, lots more!

Tuesday, September 22nd, 2015 by Joe Kristan

 

No Walnut STYou know you’re having a bad day in Tax Court when:

After concessions, the remaining issue relating to deductions claimed on petitioner’s Schedule A is whether she is entitled to deduct an additional $1,616 of mileage expense that she claimed as part of her unreimbursed employee business expense deduction. The answer is a resounding no.

I’m pretty sure that the Tax Court judges never read their opinions out loud, so I don’t think it was literally resounding. Still, it’s fun to imagine Judge Marvel calling the court into session, calling out a booming “NO!” and then adjourning.

The “no” may hae been resounding because of a little error the Judge detected in the taxpayer’s evidence. The taxpayer claimed mileage deductions for going between work locations. Travel expenses have to meet the special substantiation requirements of Sec. 274(d), where the taxpayer maintains evidence, such as calendars or mileage logs, to prove the deduction. This taxpayer went through a lot of effort generating a log from her work history. However…

Petitioner testified at length regarding how she prepared the reconstructed log. She testified under oath that she had worked for both ATC and MSN throughout 2007 and carefully explained her work assignments for each employer, including her work assignments for ATC from January through September 2007. Unfortunately for petitioner, the document that ATC provided to her summarizing her work history with ATC shows that she did not start her employment at ATC until October 2007. That document demolished any credibility that petitioner’s reconstructed log and her sworn testimony might otherwise have had. [emphasis added]

The Moral? No matter how much effort goes into reconstructing your unreimbursed work mileage, it doesn’t help you if you didn’t actually have the job.

Cite: Spjute, T.C. Summ. Op. 2015-58

 

20150922-1

 

Bryan Camp has a long piece in Tax Notes today ($link) arguing that the IRS can and should “cut and paste” its way into a new preparer regulation regime. I won’t argue the legalisms, though I think if the IRS thought it plausible, it would have tried it already.

I will point out that in an article with 101 footnotes, there is no discussion of additional costs to the taxpayers, or whether the benefits exceed those costs. He discusses evidence that “unregulated” preparers make more errors, and he assumes that regulation will fix the problem. That’s not necessarily so. It’s hard to imagine the perfunctory examination and CPE requirements of the old RTRP program would improved preparation. You can make somebody take a test, but you can’t make them competent.

Mr. Camp also ignores the unintended but predictable effects of the inevitably-increased price of preparation on the quality of tax returns received by IRS. If prep price goes up, more taxpayers will do their own returns, almost certainly at a higher error rate than from paid-for preparation. Other taxpayers will drop out of the system rather than pay higher prep costs.

In short, regulation advocates assume regulation will solve the problems of inaccurate returns. That’s unproven but unlikely. It is likely, though, that it will increase taxpayer costs and push customers away from paid preparers, which creates a new set of problems.

Related: Leslie Book, AICPA Defends CPA Turf and Challenges IRS Efforts to Regulate Unenrolled Preparers (Procedurally Taxing)

 

buzz20140909Robert D. Flach has fresh Buzz today, with links ranging from silly tax proposals to silly home office deductions.

Paul Neiffer, What About Those AFRs? “Periodically I will get a question from a client asking me ‘How much interest they have to charge on a loan to their child or some other related party?’. ”

Kay Bell, Meet Obamacare deadlines or pay the higher tax price. “If you don’t file last year’s return, you won’t be able to claim an advance premium tax credit to help you pay for your 2016 Obamacare coverage.”

William Perez, What Tax Documents to Bring to Your Accountant?

 

Tony Nitti, Tax Geek Tuesday: Making Sense Of Partnership Book-Ups. A primer on adjusting capital accounts to reflect the price paid when partners enter or leave a partnership.

Russ Fox, We Don’t Need No Stinkin’ Phone Calls.

So let’s translate this into reality. In the 2013 fiscal year, 22,363,345 phone calls were attempted to various IRS toll-free lines; 15,609,615 were answered (69.8%). In the 2015 fiscal year, 22,013,468 phone calls were attempted to various IRS toll-free lines; 8,277,064 were answered (37.6%). As for the time on hold allegedly decreasing to 23.5 minutes, perhaps that’s after excluding all the time some of the 7 million people who called but whose calls were dropped or who hung up spent on the phone.

I think the IRS cuts in customer service are a sort of “Washington Monument Strategy” of cutting the most visible and useful aspects of taxpayer service to pressure Congress into providing more funds. I’ll believe the IRS is serious about its customer service issues when the IRS takes its 200 employees who spend all of their time doing Treasury Employee Union work and puts them on the phones.

Robert Wood, Let’s Tax Churches. I’m sure that won’t be controversial…

Peter Reilly, The Tax Code Explained & Why It Matters In This Presidential Race (No, It’s Not 70K Pages)

Jack Townsend, Wyly Brothers Seek Bankruptcy Relief from Disgorgement Order from Offshore Shenanigans

 

20150922-2

 

TaxProf, The IRS Scandal, Day 866

Martin Sullivan, Donald Buffett? (Tax Analysts Blog). Looking for tax wisdom in all the wrong places.

Renu Zaretsky, Inversions, Schools, and Supermarkets. Today’s TaxVox roundup covers the ground from tax increases in Chicago to tax favors for supermarkets in Baltimore.

 

Sebastian Johnson, Progressive Era Reform Can Be Anything But Progressive (Tax Justice Blog). “Supermajority requirements and tax and spending limits, two frequently proposed ballot measures, are not designed to promote the well-being of states.”

The point isn’t the well being of the state; it’s the well-being of the citizens.

 

News from the Profession. Accountant Hiding on the Appalachian Trail Has the Mugshot to Prove It (Caleb Newquist, Going Concern). “If you were an accountant accused of making off with about $9 million of your employer’s money, I can think of few places better to hide than the wilderness.”

 

Share

Tax Roundup, 9/8/15: One Week to the 15th. And: First-world tax payment problems.

Tuesday, September 8th, 2015 by Joe Kristan

20150803-1September 15 is one week away. If you have extended partnership, corporation or trust returns, time is running short. There are many reasons to file on time:

  • Tax elections made on a late return, including automatic accounting method changes, may not count. With all of the “repair regulation” method changes this year, that could be a big deal.
  • If you owe money, late filing turns a 1/2% per month late-payment penalty into a 5% per month (up to 25%) late filing penalty.
  • If you have a pass-through entity, late-filing triggers a $195 per K-1 per month penalty.

Remember to e-file, or to document timely paper filing via Certified Mail, return receipt requested, or with a shipping bill from an authorized private delivery service.

 

Gretchen TegelerDART: A property tax funded amenity (IowaBiz.com). Disturbing trends on the inability of the Des Moines-area public transportation service to cover its operations through fares:

...it does appear the service expansions are generating more ridership  However, as was noted last year, property taxes are basically covering the cost of these additional riders. Total operating revenue was 10.1 percent below projections for the year that closed June 30th, 2015; with fixed route operating revenue being 8.65% percent short of budget.

The overall trends have not changed much from a year ago. Total operating revenue is still less than it was four years ago despite substantial service expansions and improvements since that time. Basically, as it weighs future improvements for DART, the community will need to decide if it is willing to continue to raise property taxes to fund them.

The post includes this chart:

20150908-1

That doesn’t include the cost of the recently-completed $18 million Palace of Transit.

 

TaxGrrrl, Mega-Mansion Attracts Notice By Feds, Results In Criminal Charges:

According to local sources, federal agents flying in and out of Pittsburgh noticed the size and scope of a mansion belonging to Joe Nocito, Sr., and started asking questions. Those questions eventually led to a guilty plea last week from Ann E. Harris, the personal assistant, secretary and bookkeeper for Nocito, in a tax evasion scheme thought to involve as much as $250 million.

If you are a tax evader, it’s unwise to flaunt your wealth, especially to the point of attracting attention from passing aircraft. But maybe that would take the fun out of the thing.

 

20150810-2

 

Russ Fox, The Family that Commits Tax Evasion Together Goes to ClubFed Together. “This is yet another reminder for everyone who uses a payroll service to join EFTPS and make sure your payroll deposits are being made. Trust but verify is excellent practice in payroll.”

Kay Bell, Labor Day tax tip: Union dues might be tax deductible

Scott Greenberg, This Labor Day, How High is the Tax Burden on American Labor? (Tax Policy Blog). “In 2014, the average wage worker saw his or her labor income decrease by 31.5 percent due to federal, state, and local taxes, according to the OECD.”

Tony Nitti, Tax Geek Tuesday: Excluding Gain On Sale Of Home, And Recognizing Gain On Repossession

Jason Dinesen, From the Archives: Tax Implications of the Unlicensed Daycare Provider

Jim Maule, “Who Knows Taxes Better Than Me?” Professor Maule notes that Donald Trump’s understanding of tax law and economics might not be all that Mr. Trump thinks it is.

Peter Reilly, From Russia With Built In Losses. “There is a certain irony to the whole thing as it seems like financiers were too focused on looting the US treasury with phony shelters to see the probably larger upside of distressed Russian assets.”

Robert D. Flach, DONALD TRUMP FOR PRESIDENT IS A LOT LIKE OBAMACARE, That isn’t meant as a compliment.

 

20150804-1

 

Leslie Book, Tax Court Opinion Reaffirming Validity of Regulations Addressing Foreign Earned Income Exclusion Illustrates Chevron Application (Procedurally Taxing)

Robert Wood, IRS Gets Tax Data From India As Black Money Hunt Hits Americans Too

Jack Townsend, IRS and DOJ Tax Conferences Before Indictment. That doesn’t sound like fun at all.

TaxProf, The IRS Scandal, Day 849850851852

 

Renu Zaretsky, Deals, Dreams, and Data. Today’s TaxVox headline roundup covers the ground from A (Amazon’s sweet Illinois tax credit deal and Apple’s Irish strategy) to Zaretsky.

Cara Griffith, Why Is It So Hard to Find Information on the Sharing of Taxpayer Information? (Tax Analysts Blog). “Taxpayers are expected to blindly provide massive amounts of information to tax authorities, but are then not allowed to know the process through which one state or municipality shares information with another.”

 

I’ll make sure not to have this problem when I file in April:

Effective January 1, 2016, the IRS will not accept any payment greater than $99,999,999.00. Two or more checks will be required, or we recommend that the taxpayers use Fed Wire to make their payments.

If I did owe more than $100 million, I would be tempted to write one of the checks for $99,999,999.01, just to see if they are serious. Not to give away my income secrets, but I’m pretty sure my 2015 taxable income will spare me the temptation.

Cite: Announcement 2015-23.

 

Share

Tax Roundup, 9/1/15: If the taxman takes your car, recode your garage door. And: jobs, $211,111 each.

Tuesday, September 1st, 2015 by Joe Kristan
1974 mercedes

A 1974 Mercedes scheduled for IRS auction 8/31/15 at Bama Jammer Storage, Huntsville, AL.

As if having your car seized by the taxman wasn’t bad enough. The Treasury Inspector General for Tax Administration, in a report on IRS handling of property seized for tax nonpayment, notes a potential problem if the IRS takes your car:

However, during our discussions with IRS employees involved in the seizure process, we determined that there was no guidance on what actions to take if seized vehicles are equipped with installed navigation or garage door opening systems. Additionally, except for one employee, everyone we spoke with had not considered what actions to take if they seized a vehicle with one of these systems. While we do not have any examples in our case reviews of this situation occurring, it is in the taxpayers’ and Government’s best interest that employees are prepared if seizures involve these types of systems. If these systems are not reset to the original factory settings, there is a risk that the third-party purchaser of the vehicle can gain access to the taxpayer’s personal information or property. For example, the purchaser could use the vehicle navigational equipment to locate a taxpayer’s residence and then use the garage door opener to gain access to the home.

I have to admit, it wouldn’t have occurred to me either. It’s easy to forget that cars are also more and more data systems. Still, computerized data probably wasn’t an issue with the 1974 Mercedes pictured above that was scheduled for auction by the IRS yesterday in Huntsville, Alabama.

 

O. Kay HendersonBranstad defends state tax incentives for new Kum & Go headquarters:

Governor Terry Branstad today called the “Kum & Go” convenience store chain a “great…family-owned”, Iowa-based business and he has no objection to the nearly $19 million in state tax incentives it will get for moving the company headquarters to downtown Des Moines.

The convenience store chain is moving its headquarters about 10 miles from West Des Moines to Downtown Des Moines. It is getting $6.33 for every Iowan for its trouble. I’m sure Kum & Go is a perfectly nice company, and I don’t blame them for taking money the state is giving away, but there are lots of nice employers who don’t get $211,111 in state tax breaks for each new job they create. The unfortunate ones have to pay some of the highest business tax rates in the country to help pay for those who do benefit from tax breaks.

For perspective, check out Jared Walczak, Location Matters: Effective Tax Rates on Corporate Headquarters by State (Tax Policy Blog). “Today we’ll take a look at states’ effective tax rates on new and mature corporate headquarters.”  Have a look:

20150901-1

For this ranking, Iowa is the fourth worst. Giving millions to one company doesn’t fix it for everyone else.

 

Robert D. Flach has fresh Buzz for us today. Robert buzzes about blog posts he’s found about higher taxes, due dates, and the “Cadillac tax” on high-cost health plans — which seems to be most of them nowadays.

Russ Fox, The Hospital’s Closing; Who Will Notice the Missing Charity Money? Apparently one of the doctors, with unfortunate tax results.

TaxGrrrl asks Which State Has The Highest Property Taxes In America?

Kay Bell, IRS gets so-so rating so far on Yelp. Well, I’d never eat there.

Leslie Book, Legislative Language Directs IRS To Make Self-Prepared EITC Claims More Burdensome (Procedurally Taxing).

 

20150901-2

 

TaxProf, The IRS Scandal, Day 845. Today the Prof links to Robert Wood’s Court Orders IRS To Reveal White House Requests About Taxpayers. The White House will surely appeal, waiting until the last minute to file for it, and drag the process out as long as possible. This is good news, though: “Finally, though, the court ruled that the IRS cannot hide behind a law used to shield the very misconduct it was enacted to prohibit.”

The stonewalling doesn’t mean there was misconduct. By stonewalling everything, the administration makes it hard to unearth misdeeds; as an added bonus, when a painful and drawn out process finally forces the administration to yeild innocent information, it makes the investigators look silly while sapping their resources.

 

Jeremy Scott, Trump’s Lack of Specifics on Tax Is Hardly Unique (Tax Analysts Blog). ” There are many reasons to dislike Trump and his ill-defined platform (which seems mostly based on nativism and reality-show-style demagoguery), but his lack of policy details at this stage of the game is hardly unique.”

 

News from the Profession. AICPA Lays the Smackdown on Dear Abby (Greg Kyte, Going Concern)

 

Share

Tax Roundup, 6/8/15: Hush money edition. And: IRA invests in IRA owner’s business, disaster ensues.

Monday, June 8th, 2015 by Joe Kristan
"Dennis Hastert 109th pictorial photo" by United States Congress - Licensed under Public Domain via Wikimedia Commons

“Dennis Hastert 109th pictorial photo” by United States Congress – Licensed under Public Domain via Wikimedia Commons

The TaxProf and I are cited in a New York Times article on the tax implications of former House Speaker Hastert’s hush money scandal: If Hastert Was Extorted, He Could Deduct Some Losses From His Taxes.

Mr. Hastert has been indicted on charges of “structuring” deposits to avoid reporting rules as part of a plan to pay for silence from “Individual A” for alleged sexual contact pre-Congress. From the article:

While extortion payments would be taxable for Individual A, they would actually be partly deductible for Mr. Hastert, said Paul Caron, a tax law professor at Pepperdine University. It’s right there in I.R.S. Publication 17, Chapter 25: You get to deduct losses because of theft, to the extent those losses exceed 10 percent of your adjusted gross income. Blackmail and extortion count as theft.

But to claim the deduction, Mr. Hastert would have to convince the I.R.S. or a court he had been extorted, which could be difficult.

”Sometimes judges will find a way to disallow deductions for what they find unsavory behavior,” said Joe Kristan, a tax accountant with the Roth C.P.A. firm. He noted a case in which a divided Ninth Circuit panel denied a tax deduction for extortion to a man who said he paid hush money to his mistress.

For the record, I have no personal experience in deducting extortion and hush money payments.

Related: Jack Townsend, Article on Structuring to Avoid Bank Currency Reporting Requirements, on the structuring charges of the Hastert case.

 

No Walnut STTaxpayer’s IRA-owned corporation leads to tax disaster. The Eighth Circuit appeals court has upheld horrendous tax penalties against a taxpayer who had an IRA capitalize his business as an investor.

A Mr. Ellis rolled his 401(k) plan into an IRA, which invested about $310,000 in CST, a C corporation. CST started an auto dealership and employed Mr. Ellis as General Manager. That led to unfortunate tax results. From the court opinion (my emphasis):

The tax court properly found that Mr. Ellis engaged in a prohibited transaction by directing CST to pay him a salary in 2005. The record establishes that Mr. Ellis caused his IRA to invest a substantial majority of its value in CST with the understanding that he would receive compensation for his services as general manager. By directing CST to pay him wages from funds that the company received almost exclusively from his IRA, Mr. Ellis engaged in the indirect transfer of the income and assets of the IRA for his own benefit and indirectly dealt with such income and assets for his own interest or his own account. See 26 U.S.C. § 4975(c)(1)(D), (E); 29 C.F.R. § 2509.75-2(c) (“[I]f a transaction between a party in interest and a plan would be a prohibited transaction, then such a transaction between a party in interest and such corporation . . . will ordinarily be a prohibited transaction if the plan may, by itself, require the corporation . . . to engage in such transaction.”)

While the investment itself wasn’t ruled a prohibited transaction, things got messy once the IRA-owned corporation started paying Mr. Ellis a salary — an “indirect transfer” occurred.

The consequences? The prohibited transaction terminated the IRA. That means the whole value of the IRA became taxable income, with no cash made available to cover the taxes. With penalties, the bill will exceed $160,000.

The Moral? Direct business investments from IRAs are dynamite. If you must use retirement plan funds for a business start-up, it may be wiser to take a taxable withdrawal and use the after-tax funds to make the investment. If there is any way to fund it without retirement plan funds, that would be wiser still.

Cite: Ellis, CA-8, No. 14-1310 

Prior coverage here.

 

20150528-1Margaret Van Houten, Legislature Passes Bill Affecting Iowa Trusts and Estates (Davis Brown Tax Law Blog).  “Beginning on July 1, 2016, a step grandchild will no longer be subject to Iowa Inheritance Tax.  Currently, direct ancestors and descendants, including stepchildren, were exempt from the tax, while step grandchildren were grouped with other individuals, such as siblings, nieces and nephews and unrelated individuals and were subject to the tax.”

TaxGrrrl, The Not So Skinny On National Doughnut Day. That’s every day!

Jason Dinesen, Breakeven Analysis for Small Businesses — Service Providers and Not-for-Profits

Annette Nellen, More on marijuana businesses and tax ethics. “Despite state actions, the production, sale and use of marijuana is a crime under federal law. Thus, for licensed practitioners, there is concern about ethical violations of helping someone commit a crime.”

Kay Bell, H&R Block explores virtual tax preparation.

Peter Reilly, A New York Day Is Like A New York Minute At Least For Taxes:

In the case of John and Janine Zanetti, the New York Supreme Court Appellate Division agreed with the Commissioner of Taxation and Finance that a New York day can be less than 24 hours.  The point of the decision was to determine whether the Zanettis had spent enough time in New York to be considered statutory residents for the year 2006.

Lovely.

Jim Maule asks Is the Federal Income Tax Progressive? He focuses on the “low” federal effective rate on the “Top .001%.” Of course, the reason people get to those rates is normally because of a one-time event, typically the sale of a corporation, that is taxed at long-term capital gain rates. Such taxpayers are normally at that income level only once in their life. Of course, Prof. Maule ignores the built-in double tax hidden in these figures.

Leslie Book, DC Circuit Criticizes Government in Case Alleging an Israel Special Policy for Tax Exemptions (Procedurally Taxing). “As IRS has increased responsibility beyond its paramount mission of collecting revenues, the historical reasons for the discretion IRS has exercised have lessened.”

Robert Wood, Are On Demand Workers Independent Contractors In Name Only?

Tony Nitti, Put It On The Card! Congressman Proposes To Make Credit Card Debt Forgiveness Tax Free

Russ Fox, Another Las Vegas Preparer Gets In Trouble Over the Foreign Earned Income Exclusion. “I’d say it was something in the water but Las Vegas is in a desert.”

 

20150608-1

 

TaxProf, The IRS Scandal, Day 758Day 759Day 760. The IRS treatment of the Tea Partiers is compared and contrasted with that of the Clinton Foundation.

 

Arnold Kling, Payroll Taxes in Europe. ” I find it hard to reconcile Germany’s relatively low unemployment rate with this high payroll tax rate.”

David Henderson responds:

I don’t find it hard to reconcile the two. The reason: Germany has had high payroll tax rates for a long time–for decades, actually. So real wages have had a long time to adjust.

I understand this as saying the total employment cost is about the same, but the employee gets less of it.

 

Kyle Pomerleau, CRS Outlines Four Important Aspects of the EITC. “The EITC enjoys bipartisan support among lawmakers. This is due to the fact it both reduces poverty among families with children and has a positive impact on the labor force for certain individuals. Yet, the EITC is not without its flaws. It’s benefit phase-out has a negative impact on the labor force and it suffers from high error rate and overpayment.”

Richard Auxier, Choose your tax system: progressive vs. regressive (TaxVox). A critique of the “Fair Tax” and other national sales tax proposals.

 

News from the Profession. Pope Figured The Lord’s Work Could Use a Good Auditor (Caleb Newquist, Going Concern)

 

 

Share

Tax Roundup, 5/27/15: 104,000 taxpayers compromised by IRS transcript app breach. And: EITC is no free lunch!

Wednesday, May 27th, 2015 by Joe Kristan

20130419-1That took some work. The IRS disclosed yesterday that 104,000 taxpayer accounts have been compromised by identity thieves who did it the hard way. The Wall Street Journal reports:

The IRS said that to access the information, crooks had to clear a multistep authentication process that required prior personal knowledge about the taxpayer, including Social Security information, date of birth, tax filing status and street address before accessing IRS systems. The process also involved answering personal identity-verification questions, such as “What was your high school mascot?”

Mr. Koskinen, when asked how impostors obtained answers to these so-called “out-of-wallet” questions, suggested social media might have played a role.

“This is not a hack or data breach. These are impostors pretending to be someone who has enough information” to get more, said Mr. Koskinen, who said thieves might be using sophisticated programs to aggregate and mine data.

This is much more difficult than your standard ID theft, where all you need is a Social Security number to go with a name, and maybe a birth date. Getting through the IRS transcript access system requires a fair amount of data entry and outside information.

The breach will complicate filing for the 104,000 taxpayers whose data was accessed, and possibly for another 96,000 taxpayers whose records the thieves failed to breach. Tax Analysts reports ($link):

The IRS will provide credit monitoring and protection to the 104,000 victims at the agency’s expense, Koskinen said. Victims will also be given the IRS’s identity protection personal identification numbers so they are not targeted again, he said. All 200,000 of the taxpayers affected by the raid will be sent notification letters from the IRS and will have their accounts flagged on the agency’s core processing systems, he added.

The IRS has been losing the IT security wars for some time. It’s a shame, because the transcript service has been very useful for taxpayers needing return information for loans or to resolve IRS notices. I think the IRS will eventually have to delay refunds and processing so that it will be able to match third-party information — W-2s and 1099s — with returns before issuing refunds. The era of “rapid refunds” is coming to an end.

Lots of coverage of this. The TaxProf has a roundup. Other coverage:

William Perez, IRS Data Breach: Hackers Gain Access Through ‘Get Transcript’ Web App. “The IRS emphasized that taxpayers don’t need to do anything further. The agency will be sending letters to affected taxpayers explaining what to do next.”

TaxGrrrl, IRS Says Identity Thieves Accessed Tax Transcripts For More Than 100,000 Taxpayers “IRS was alerted to the problem when its monitoring systems noted an unusual amount of activity related to the [transcript] application.”

Russ FoxIRS “Get Transcript” Application Hacked; 104,000 Tax Returns Illegally Accessed. ” It would be time consuming but entirely possible for a stranger who had my social security number and date of birth to answer all the other verification questions.”

Accounting Today, IRS Detects Massive Data Breach in ‘Get Transcript’ Application

J.D. Tucille, Details About 100,000 Taxpayer Accounts Stolen From IRS (Reason.com)

“[T]he vast databases held by the IRS, HHS, security agencies, etc, will be leaked on purpose, leaked because of bureaucrat sloppiness, or be hacked. The more they collect, the more that will eventually leak.” Chris Edwards, director of tax policy studies at the Cato Institute, predicted to me last year. That “eventually”—at least, the latest round of it—is now.

Oh, goody.

 

20150527-1

 

Kay Bell, Winners of meet-the-candidate contests face tax costs:

True, you won’t pay from your own pocket for the flights, hotel stay, chauffeur or meal with a future president. But the value of those things, like all prizes, is considered taxable by the Internal Revenue Service.

The winners can’t simply ignore the potential tax bill. The political contest organizers should send them, and the IRS, 1099 forms stating the value of the prize.

Well, that’s one tax problem I won’t be having, unless they start paying voters enormous amounts to talk to us. I will meet any candidate who will pay me $100,000 for 10 minutes of my time. Meet me at the Timbuktuu on the EMC Building skywalk.

 

Jason Dinesen, From the Archives: You Won the Dream Home, Part 4 — Changing My Mind

Jack Townsend, Switzerland Publishes Certain Identifying Information of Certain Foreign Depositors in Swiss Banks

Bob Vineyard, Bad Moon Rising (Insureblog). “Obamacare news isn’t good.”

 

20150527-2

 

David Brunori, Scalia is Right (Tax Analsyts Blog). “The dormant commerce clause is here to stay, with precedent and established expectations and all, but it would be nice if we just admitted that we made it up.”

Robert Wood, Why Aren’t Those $26.4M Speech Fees Taxable To Bill & Hillary Clinton?

James Kennedy,Pennsylvania Senate Considers Hiking Income and Sales Taxes (Tax Policy Blog). They’re pretty high already.

TaxProf, The IRS Scandal, Day 748

 

Howard Gleckman, Marco Rubio Wasn’t the Only One Who Cashed Out an IRA Last Year (TaxVox). “Substantial assets leak because people under age 59 ½ take early withdrawals or borrow against their IRAs or 401(k). And the problem raises an important and challenging policy question:  Should the money in these accounts be available for non-retirement purposes?”

 

eic 2014Leslie Book offers thoughful consideration of Warrren Buffet’s support for an expanded Earned Income Tax Credit (Procedurally Taxing). You should read the whole thing, I’ll highlight this part:

As Mr. Buffet knows, there is no such thing as a free lunch. Using the tax system to deliver benefits is no silver bullet when it comes to addressing inequality. To administer the tax system as we know it today is no easy task. When Congress asks the IRS to do more, there are costs to taxpayers and the system overall. As Congress considers whether to ratchet up EITC, it should do so with the absence of rhetoric. It should also consider the tools it wants to give IRS to combat errors as well as address what costs it wants to impose on claimants and third parties. The current system passes costs on others, many of which are hidden. As with lunch, someone has to pick up the tab.

Among the costs is the 20-25% improper payment rate. Another cost is the high hidden marginal tax rate caused by the phase-out of the credit as incomes increase — a combined federal and state rate that can exceed 50%. And there is a cost to an already-stressed tax system of administering a social program.

Sebastian Johnson, Some States Support Earned Income Tax Credits for Working Families, Others Fall Short. (Tax Justice Blog) A piece that is oblivious to the issues raised by Leslie Book.

 

News from the Profession. EY Law Continues to Not Threaten Law Firms By Poaching Lawyers (Caleb Newquist, Going Concern).

Share