Posts Tagged ‘Maria Koklanaris’

Tax Roundup, 3/22/16: Iowa couples to 2015 federal Sec. 179 and other changes, except bonus depreciation.

Tuesday, March 22nd, 2016 by Joe Kristan

CouplingcrescoSee you next year. 81 days after 2015 ended, Iowa finally has its 2015 tax law. Governor Branstad yesterday signed HF 2433, adopting federal tax law changes for 2015, including the $500,000 Section 179 limit, but not including bonus depreciation.

While Congress enacted the $500,000 limit permanently last year — and indexed it for inflation — Iowa’s coupling is for one year only. That sets up a fight in the 2017 General Assembly not only over bonus depreciation, but over all of the other “expiring provisions” that Congress re-enacted in December.

How we got here. While Iowa’s income tax is based on federal income tax rules, it doesn’t automatically adopt federal tax law changes. Every spring the General Assembly passes a “coupling” bill where they choose whether to adopt federal tax changes made in the prior year. The Congressional habit of enacting important tax provisions for one or two-year periods — to pretend they cost less — has made the annual coupling bill an important part of the legislature’s work.

Since 2010, Iowa has adopted all federal tax law changes except for bonus depreciation. These have included the $500,000 Section 179 deduction for new asset purchases that would otherwise have to be capitalized and depreciated over a period of years — usually three to seven years. In recent years the coupling bill has been one of the first bills to go to the Governor.

This year is different. Governor Branstad surprised the Iowa tax world when he announced on January 13 that there would be no coupling for Section 179 for 2015, on the grounds that the state budget required the revenue. It soon came out that he opposed coupling for anything but the federal research credit. That would have made a major mess out of Iowa tax filing season, affecting a broad range of deductions, including:

Exclusion for IRA distributions to charity
Exclusion of gain from qualified small business stock
Basis adjustment for S corporation charitable contributions
Built-in gain tax five-year recognition period
$250 above-the-line educator expense deduction
Exclusion of home mortgage debt forgiveness
Qualified tuition deduction
Optional sales tax deduction
Conservation easement deductions
Deduction for food inventory contributions

His Republican partisans in the Iowa House of Representatives rebelled. A coupling bill that included Section 179 passed the Iowa house by month-end, 82-14. Notably, not only did all voting Republicans support the bill, but so did a large majority of Democratic representatives.

Yet the prospects for coupling at the time looked grim. Citing the Governor’s opposition, Senate Majority Leader Gronstal (D-Council Bluffs) was set to keep the House-passed bill from ever coming to a Senate vote.

coupling20160213But the natives were restless. The legislators heard from a lot of their constituents that they were unhappy to lose the deduction, which could be worth around $40,000 for many taxpayers. The Des Moines Register reported that “only” 25,000 taxpayers would have lost deductions under that, but that comes out to 250 grumpy business constituents and farmers for every Representative, and 500 per senator. It seems most of them got on the phone and called their legislator. Business groups such as the Iowa Association of Business and Industry pushed for coupling, as did Iowans for Tax Relief.

The message got through. By February 22, Governor Branstad reversed himself and decided Iowa could afford Section 179 coupling for one more year. That left Senator Gronstal as the remaining roadblock to coupling. He extracted a face-saving reduction in the sales tax exemption for manufacturing supplies that the Department of Revenue put into place last year — by accepting a version of the break that he blocked in 2014.

Now it’s time to catch up. The software vendors will scramble to update their tax prep programs to include the coupling, and we can finally start to move all of the Iowa tax returns that have been on hold awaiting the coupling.

Unfortunately, this coupling bill is only for one year — even though $500,000 Section 179 is now a permanent federal tax provision. We can expect both the Governor and Senator Gronstal to oppose Section 179 coupling in the next General Assembly. They have other priorities.

Other coverage:

Gazette.com, Branstad signs tax-policy compromise

Des Moines Register, Branstad signs tax policy compromise

Maria Koklanaris, Iowa Governor Signs Exemption, Federal Conformity Bill

Paul Neiffer, Iowa Governor Branstad Finally Signs Coupling Bill.

 

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Kay Bell, Figuring the tax value of goods you give to charity

TaxGrrrl, The 9 Most Common Tax Filing Mistakes – And How To Avoid Them. “Rushing tends to result in mistakes – and those errors can slow processing of your tax return, resulting in delayed tax refunds or worse, a second glance from Internal Revenue Service (IRS).”

Jason Dinesen, Success Comes Too Easily for a Side Business. “In my experience, most of us who try taking a side business full time end up overwhelmed. A few of us make it through.”

Peter Reilly, AICPA Versus Block Advisors In Spat I Hope They Both Lose. “The reason that the H&R Block ‘Who actually prepares your return?’ question is the money shot is that at many national and large CPA regional firms, the answer will be ‘Somebody in India‘”  All Roth & Company returns are 100% U.S. content, by the way.

Leslie Book, Clarke Case Finally Comes to End: Eleventh Circuit Orders Enforcement But Also Leaves Door Open For Allegations of Improper Purpose (Procedurally Taxing).

Jack Townsend, Ruminations on Inconsistent Verdicts. “The issue of inconsistent verdicts is a big issue.”

 

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Joseph Henchman, U.S. Supreme Court Declines to Hear Case Challenging Colorado Marijuana Law (Tax Policy Blog). “The U.S. Supreme Court today turned down an attempt by Nebraska and Oklahoma to challenge Colorado’s legalization of marijuana, without explanation.”

Renu Zaretsky, Are Presidential Candidates’ Tax Plans Getting Closer Looks? Today’s TaxVox headline roundup covers the millionaires who want to pull up the ladder behind themselves in New York, polling on the Bernie plan, and more.

TaxProf, The IRS Scandal, Day 1048

Jeremy Scott, Scotland Makes the Case That Taxes Pay for Things People Want (Tax Analysts Blog) “The Conservatives were quick to point out that she was essentially putting a ‘higher taxes here’ sign on the border that would encourage migration and tax planning.”

Ajay Gupta, Trump Only Threatens a Trade War, But Obama Might Actually Start a Tax War (Tax Analysts Blog)

 

News from the Profession. This 8-K From Valeant Is Something to Behold (Caleb Newquist, Going Concern).

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Tax Roundup, 10/20/15: Shock! State tax “incentives” favor the big! And: the 1% surprise.

Tuesday, October 20th, 2015 by Joe Kristan

20120906-1Regulation always favors the big. So do state business incentives. Left-side think tank Good Jobs First demonstrates the big-player bias of state “incentive” tax deals in a new report Shortchanging Small Business: How Big Businesses Dominate State Economic Development IncentivesMaria Koklanaris summarizes the report for State Tax Notes ($link):

Using its own databases and other programs, [Good Jobs First] weeded out awards targeting companies of a specific size, focusing only on those purportedly available regardless of company size. Of those “facially neutral” awards, 90 percent of the dollars went to big businesses, the report said.

“The deals, worth more than $3.2 billion, were granted in recent years by programs that on their faces, are equally accessible to small and large companies,” the report said. “Yet big businesses overall were awarded 90 percent of the dollars from the programs analyzed, indicating a profound bias against small businesses.”

While Iowa’s incentives weren’t among those studied, I am confident the exact same thing is true here. It’s the big and well-connected taxpayers who know how to play the system. They can hire the attorneys and accountants to navigate the system, and the lobbyists to make sure the taxpayer money is steered their way. And it’s the big projects — inherently done by big taxpayers — that attract the politicians. You’ve never heard of a Governor calling a press conference for some little business hiring two people.

A real Iowa tax reform, like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan, would get rid of all of these breaks for insiders and lower the rates and compliance costs for everyone.

 

New York Times, What Could Raising Taxes on the 1% Do? Surprising Amounts.

Scott Greenberg, No, Raising Taxes on the 1% Will Not Lead to “Surprising Amounts” of Revenue (Tax Policy Blog):

Let’s say, for instance, that Congress decided to raise the effective tax rate of the 1% by increasing the top rate on ordinary income. Currently, the top tax bracket on ordinary income is 39.6%. How high would Congress have to raise this rate, in order to raise the effective tax rate of the 1% to 45 percent?

According to our estimates, Congress would have to raise the top rate on ordinary income to 74 percent, in order to raise the effective rate of the 1% from 33.4 percent to 45 percent. This would be a rate hike of over 34 percentage points, or an 87 percent increase in the top rate.

Oh, I think the amounts of revenue raised would be surprising, to the Times. And disappointing. As I’ve noted many times, the rich guy isn’t picking up the tab, because he can’t.

 

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TaxGrrrl, 11 Things I Wish I Could Tell My Younger Self About Taxes. Plenty of good advice here. It’s all worth reading, but I especially like #7, Planning is important:

Tax planning is important. You should take advantage of tax strategies that can help you lower your tax bill, like seeking out tax credits you might have overlooked or making a contribution to a tax-deferred retirement account. And knowing what’s coming down the pike is also important when it comes to payment: having a good idea of what you might owe and making estimated payments will help you avoid writing a big check at the end (trust me) and possibly being subject to underpayment penalties.

This is true for all taxpayers, but it is especially true for the self-employed, who are much more numerous with the growth of the “gig economy.”

 

buzz20150804Robert D. Flach is up and running with a fresh and pungent Tuesday Buzz roundup. He covers the recent tax season and the right response to callers claiming to be from the IRS demanding payment, among other things.

Jason Dinesen, Choosing a Business Entity: S-Corporation vs. C-Corporation. “The ‘C’ and ‘S’ refer to how that corporation is taxed, not to its legal standing.”

Tony Nitti, Apple To Issue Restricted Stock To Employees: Siri, What Are The Tax Consequences?

Russ Fox, The Future of DFS. “If you watch any sports television, you’ve almost certainly seen commercials for the two leading daily fantasy sports (DFS) sites, DraftKings and FanDuel.”

Robert Wood, Chef Jamie Oliver Calls For Sugar Tax, While Mexico Eyes Soda Tax Cut. We actually already have a pretty high sugar tax.

Keith Fogg, Contesting the Merits of the Underlying Tax in a Collection Due Process Case – A Convoluted Fact Pattern Leads to Wrong Decision (Procedurally Taxing).

Peter Reilly, Massachusetts Hits Staples For $10 Million On Sham Interest Deductions. “This case is a beautiful illustration of my fourth law of tax planning – Execution isn’t everything, but it is a lot.”

 

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TaxProf, The IRS Scandal, Day 894. On how the President signals Justice Department investigators to back off.

Brian Doherty, Irwin Schiff, R.I.P. (Reason.com). “He was indeed a jolly warrior for a cause he obviously very sincerely believed in, even when it became completely obvious that the federal government was not going to be daunted by his arguments and indeed was going to keep arresting him for practicing them and advocating them.”

Kay Bell, Infamous tax protester Irwin Schiff has died. “His anti-tax tactics live on, as do penalties for those who insist on using them.”

 

Howard Gleckman, Presidential Candidates, “Free Stuff,” and Pixie Dust (TaxVox):

Even in its early stages, the 2016 presidential race looks like it will be remembered for two depressing superlatives. The candidates will spend more money than ever before, and they will promise more costly give-aways than any politicians in history.

Once again demonstrating the wisdom of Arnold Kling.

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Tax Roundup, 10/2/15: What your Health Savings Account can do that your IRA can’t. And: They don’t stay bought.

Friday, October 2nd, 2015 by Joe Kristan

20150803-1Your IRA isn’t an HSA. Last week I was asked whether there was a penalty for taking money from an Individual Retirement Account to pay for surgery. I said there was no penalty, but that it was taxable income. The person who asked was surprised and confused, thinking that penalty and taxation are the same thing. They aren’t.

The Tax Court faced a similar question yesterday. A 47 year-old taxpayer took money from her IRA to pay medical expenses for her non-dependent son. The IRS noticed, presumably via a computer match, and assessed her a 10% early withdrawal penalty, as well as regular income tax. Judge Guy explains the issue:

Generally, if a taxpayer receives a distribution from a qualified retirement plan before attaining age 59-1/2, section 72(t) imposes an additional tax equal to 10% of the portion of the distribution which is includible in the taxpayer’s gross income. Sec. 72(t)(1) and (2). The additional tax is intended to discourage taxpayers from taking premature distributions from retirement plans — actions that frustrate public policy encouraging saving for retirement…

Section 72(t)(2)(B) provides an exception to the imposition of additional tax to the extent that retirement plan distributions “do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).” Section 213 in turn allows as a deduction “the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent…

The “dependent” part was bad news:

The record reflects that petitioner did not claim her son as a dependent for the year in issue and fails to demonstrate that her son met the definition of a dependent provided in section 152. Consequently, we conclude that petitioner is not eligible for the exception under section 72(t)(2)(B) — even assuming that she used the funds in question to pay her son’s medical expenses.

But even if she did qualify to avoid the 10% tax (she didn’t), the withdrawal would still have been subject to income tax.

Health Savings Accounts look a lot like IRAs — they allow tax-free build-up, and they can be tapped penalty free like IRAs for retirement income. But HSA funds withdrawn for medical expenses are tax-free — not just penalty free. As with the IRA, though, the medical expenses have to be the taxpayers, the spouse’s, or a dependent’s. This extra flexibility makes HSAs a better savings vehicle than an IRA for those who qualify.

Not everybody qualifies. You need a “high deductible” health insurance policy to qualify for an HSA. For 2015 a “high deductible plan” is one with an annual deductible of at least $1,300 for single coverage and $2,600 for family coverage.  Annual out-of-pocket costs can’t exceed $6,450 for single coverage and $12,900 for family coverage. The 2015 contribution limits are $3,350 for single coverage and $6,650 for family coverage.

Unlike employer “flex-plan” arrangments, there is no “use it or lose it” feature in HSAs. You can accumulate contributions and save them for a year with large medical expenses, or for retirement. You don’t have to withdraw the funds in the same year as the medical expenses, either; if you had medical expenses in year 1, you can wait until year 2 to withdraw the amount and still have it tax-free.

Cite: Ireland, T.C. Summary Opinion 2015-60

Related Links:

IRS publication 969.

Kiplinger, FAQs about Health Savings Accounts.

 

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Maria Koklanaris, ConAgra Foods, Winner of Largest-Ever Nebraska Incentive Package, Moving to Illinois (Tax Analysts, subscriber link):

ConAgra Foods Inc., recipient of the largest tax incentive package ever awarded in Nebraska, announced October 1 that it would move its corporate headquarters from Omaha to Chicago, cutting at least 1,500 jobs in the process.

As I’ve said before, incentive tax credits are like taking your wife’s purse to the bar to buy drinks for the girls. It cheats the person who’s paying, the girls aren’t impressed, and if you leave with one, she’s not the type to be faithful.

 

It’s Friday! It’s Buzz Day for Robert D. Flach. Trumpmania figures prominently.

Jason Dinesen, How to Protect a Deceased Person’s Identity. “Thankfully, Congress has now limited access to the Death Master File, which was the cause of much of the identity theft relating to deceased people.”

Paul Neiffer, Form 1099-G Does Not Always Require Schedule F Reporting. “The key thing to remember is just because USDA or a cooperative issues a Form 1099 does not mean the income has to be fully reported on Schedule F and subject to full self-employment tax.”

Jim Maule, Taxation of Prizes, Question Three. “The question, however, also referred to the local or state sales tax. The awarding of a prize is not a sale, so the sales tax ought not apply.”

Kay Bell, Hurricane Joaquin intensifies, threatens East Coast…maybe. Maybe you should dust off your disaster recovery plan once in awhile.

Leslie Book, Restitution Based Assessment and Tax Return Preparers: An Uneasy Mix (Procedurally Taxing). On the problems the IRS has in getting restitution from crooked preparers.

Robert Wood, Marijuana Goes Native American And Tax Free

 

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David Henderson, via Don Boudreaux:

Herbert Hoover, in the midst of the Great Depression, more than doubled the top [income-tax] rate to 63 percent and increased the bottom rate by more than nine times to 4 percent.  He did this in spite of the fact that raising income tax rates during a depression lengthens the depression.  Franklin Roosevelt carried on Hoover’s policy throughout the 1930s and increased tax rates further.  By 1940, he had raised the top tax rate to 81.1 percent on incomes over $5 million.

Putting the “great” in the Great Depression.

 

Stephen Entin, Expensing: The Right Tax Treatment for All Investment Regardless of Financing Arrangements (Tax Policy Blog)

Howard Gleckman, How Investment Managers (And Maybe You) Would Benefit From Trump’s Tax Plan (TaxVox).

Cara Griffith, Idaho Legislators Shamed Into Good Behavior (Tax Analysts) Politicians, bureaucrats and cockroaches prefer darkness.

Carl Davis, Michigan Becomes the 26th State Where Online Retailers like Amazon Must Collect Sales Tax (Tax Justice Blog).

 

TaxProf, The IRS Scandal, Day 876. Lois Lerner and the Wisconsin witch hunt.

 

The Critical Question. Is Technology Making Accountants Dumb and Lazy? (Chris Hooper, Going Concern).

 

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

Tuesday, March 17th, 2015 by Joe Kristan

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

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

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

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

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

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

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

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

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

 

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

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

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

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

 

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

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

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

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

 

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

 

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

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

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

 

 

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

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

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

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

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

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

 

Picture by Dan Kristan

Picture of Irish countryside by Dan Kristan

 

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

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

 

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

Friday, September 5th, 2014 by Joe Kristan

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

 

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

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

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

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

 

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

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

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

You gotta like her sources.

 

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

Russ Fox, $1.25 Billion Attracts Tesla to Nevada

 

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

TaxProf, The IRS Scandal, Day 484

 

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

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

 

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

Monday, August 11th, 2014 by Joe Kristan

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

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

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

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

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

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

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

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

 

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

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

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

 

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

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

 

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

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

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

 

 

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

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

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

 

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

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

 

2140731-3TaxProf, The IRS Scandal, Day 459

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

 

 

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

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

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

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

 

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

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

Photo courtesy Philmontscoutranch.org

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

 

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

 

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

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

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

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

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

Some people just are perfectionists.

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

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

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

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

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

Material participation hours tests can be found here.

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

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

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

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

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

 

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

 

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

 

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

 

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

Jason Dinesen, Glossary of Tax Terms: Head of Household   

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

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

 

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

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

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

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

 

20140711-2

 

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

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

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

 

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Tax Roundup, 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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