Posts Tagged ‘maule’

Tax Roundup, 11/25/15: Don’t bother depreciating things up to $2,500. And: Have a great Thanksgiving!

Wednesday, November 25th, 2015 by Joe Kristan

20141226-1$2,500 is the new $500. The IRS yesterday announced (Notice 2015-82) that it was increasing the maximum “safe harbor” expensing amount from $500 per item to $2,500 for taxpayers without an “applicable financial statement” — that is, most taxpayers. Taxpayers with an AFS can elect to expense items up to $5,000. These safe harbors enable taxpayers to not worry about capitalizing and depreciating items up to these amounts.

The new safe harbor takes effect for years starting January 1, 2016 and later.

The safe harbors are authorized by treasury regulations for taxpayers who have in place at the beginning of the tax year “accounting procedures treating as an expense for non-tax purposes” that expense such “per invoice (or per item as substantiated by invoice)” So make sure you write down somewhere that you have a policy of expensing everything up to $2,500 before December 31.

This is a good, if small, step towards allowing taxpayers to expense capital costs. I object to the “applicable financial statement” requirement for the $5,000 amount, as the tax law shouldn’t care whether you have a CPA-certified audit or that you have to report your financials to a government agency, but at least this closes the gap some.   I should be happy, I suppose, that it gives my auditing brethren a small sales tool.

Related: Russ Fox, IRS Increases De Minimis Expense Threshold to $2,500 from $500 for 2016 OnwardTony Nitti, IRS: Taxpayers May Immediately Deduct The Purchase Of Assets Costing Less Than $2,500.




William Perez, Year End Tax Planning Ideas for Self Employed Persons.

Robert Wood, Passports Required For Domestic Travel In 2016, But IRS Can Revoke Passports For Taxes. Giving IRS control over passports is a horrible idea. They make so many errors, and the errors can be so hard to fix.

Robert D. Flach, MORTGAGE INTEREST LIMITATIONS. “But the Court of Appeals ruled that [unmarried] co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.”


Annette Nellen, Sales Tax as a Penalty? “A proposed California initiative may surprise you.  It calls for a 1000% sales tax on ‘political advertisements.'”

Kay Bell, IRS should focus tax audit efforts on richer taxpayers. Willie Sutton might agree. 

Paul Neiffer, FAFSA Reporting Changes. “The Department of Education has issued new rules that make this process be much less of a hassle; however, you have to wait until 2017 to take advantage of it.  Beginning in that year, your required FAFSA income tax return will be a whole year in arrears.” About time.

Jason Dinesen, From the Archives: Home Offices, Principal Place of Business, and Mileage Deductions

Carl Smith, New, Additional Proposed Innocent Spouse Regulations Issued (Part 1), (Part 2) (Procedurally Taxing)

TaxGrrrl, Don’t Try This At Home: Avoid These 10 Money Missteps That Landed Reality TV Stars In Trouble.




TaxProf, The IRS Scandal, Day 930. Today’s link on the “investigation” of the scandal by the Justice Department.


Scott Hodge, The Simple Solution to the Pfizer Deal: Cut the Rate and Move to a Territorial Tax System (Tax Policy Blog). So, you could actually do something like this that makes sense, or you could listen to….

Richard Phillips, Congress Must Act Now to Stop Pfizer and Other Companies from Inverting (Tax Justice Blog). The “continue the beatings until morale improves” approach.

News from the Profession. A Surprising Number of Accountants Think Accountants Are Incredibly Corrupt (Caleb Newquist, Going Concern).


Programming Note: The Tax Update will be taking the rest of the week off to celebrate Thanksgiving. I am thankful for the many fine tax bloggers I get to read when putting the Tax Roundups together, and I am especially thankful for those of you who stop by to read the Tax Update. Enjoy your Thanksgiving, and maybe start with Jim Maule’s holiday musings: Thanks Again! “For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things.”



Tax Roundup, 11/23/15: Maquoketa! And, bought and paid-for at year-end insufficient for golf-cart credit.

Monday, November 23rd, 2015 by Joe Kristan
A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

A Maquoketa Cave. Picture by Iowa Department of Natural Resources.

Maquoketa! The Day 1 team of the  ISU Center for Agricultural Law and Taxation Farm and Urban Tax Schools is in the northeast Iowa town of Maquoketa, known for its cave system and the 61 Drive-in theater, “one of the few remaining outdoor theaters in the United States.” We then get two weeks off before the penultimate session in Denison, on the other side of the state, and our December 14 final session in Ames. Register here for one of the final schools or for the webcast of the Ames session.


“Ordered” doesn’t cut it for year-end asset purchases. Among the many silly tax rules enacted in the panicked response to the 2008 financial crisis was the tax credit for “low-speed electric vehicles,” more conventionally known as golf carts. This led to panic buying of golf carts to claim the lucrative tax spiff. Last week the Tax Court disappointed one buyer who tried to get a tax credit purchase in under the wire. It provides a lesson for all taxpayers looking at year-end purchases to get a Section 179 deduction or bonus depreciation.

The credit was available only for carts “placed in service” in 2009. Judge Paris sets the stage (all emphasis mine, footnotes omitted):

Respondent determined a deficiency of $6,253 in petitioners’ Federal income tax for 2009. The issue before the Court is whether petitioners are eligible for a New Qualified Plug-in Electric Drive Motor Vehicle tax credit (PEVC) of $6,253 pursuant to section 30D for 2009. The notice of deficiency did not determine a penalty.

The electric vehicle at issue, a Spark NEV-48 EX, was manufactured by Zone Electric Car, LLC (Zone Electric). Pursuant to Notice 2009-54, 2009-26 I.R.B. 1124 (June 29, 2009), Zone Electric submitted a request on October 1, 2009, to the Internal Revenue Service (IRS) to certify that its electric vehicles were qualified plug-in electric vehicles for purposes of section 30D, which as of the date of the notice allowed a tax credit for qualified plug-in electric vehicles placed in service from January 1 to December 31, 2009. On October 7, 2009, the IRS issued a letter to Zone Electric stating that the Spark NEV-48 EX model “meets the requirements of the Qualified Plug-in Electric Vehicle Credit as a Qualified Plug-in Vehicle.

$6,253 off if delivery taken by December 31, 2009!

$6,253 off if delivery taken by December 31, 2009!

So the Spark NEV-48 EX qualified — if it beat the deadline. Back to Judge Paris:

The electric vehicle was delivered to petitioners on June 8, 2010, even though petitioners placed an order for a low-speed electric vehicle reflecting their choice of color, radio, and size from Drive Electric, LLC (Drive Electric), through its Web site on December 21, 2009.

On December 21, 2009, petitioners remitted full payment of $7,786.53 for the vehicle with a credit card and promptly commenced insurance on the vehicle on December 28, 2009.

For charitable contributions and cash-basis business expenses, this would normally be all that is necessary, as a credit card transaction is as good as cash to IRS. But not this time:

Petitioners argue they remitted payment and acquired title to a qualified electric vehicle on December 21, 2009. Petitioners assert that legal title passed to them on the date of purchase and therefore they are entitled to a PEVC for 2009 because the vehicle was acquired before December 31, 2009. However, the statute effective on the date of purchase also required a qualified motor vehicle to be placed in service on or before December 31, 2009. 

Petitioners entered into the transaction for purchase of the vehicle just before the close of the year. As previously discussed, they received a bill of sale, which contained a VIN, and a certificate of origin shortly after they remitted full payment. However, a bill of sale containing a description of the vehicle and a VIN is not sufficient to show the vehicle was ready and available for full operation for its intended use. Petitioners have not offered evidence to show the vehicle was available for their use, much less fully manufactured. In fact, the vehicle was not delivered until June 8, 2010, making it impossible for the vehicle to be available for use until that date. Even if the Court were to assume the vehicle was fully manufactured and operational while awaiting shipment to petitioners, Brown and Noell tell us that the vehicle could not be considered placed in service unless and until the vehicle was readily available to serve its assigned function for petitioners’ personal use on a regular basis. The Court finds that the low-speed electric vehicle was not available for its intended use on a regular basis until it was delivered on June 8, 2010. Consequently, petitioners did not place the vehicle in service in 2009 and are not eligible for a PEVC for that year.

So the taxpayer’s golf cart just went up $6,000 or so in price.

The lesson for year-end tax planning is that the same “placed in service” rule applies to year-end fixed asset purchases by taxpayers wanting Section 179 deductions or bonus depreciation. If your business races to buy a big SUV or a new tractor by year-end, it needs to be in your garage or barn by December 31. A new machine has to be on the shop floor, ready to go.  “Bought and paid-for” isn’t enough.

Cite: Podraza, T.C. Summ. Op. 2015-67.



Peter Reilly, Tax Court Denies Exempt Status To Group Using Trading Card Games To Promote Sobriety. Peter has an in-depth exploration of last week’s Gamehearts Tax Court case. It explains that the organization denied tax exemption in the case was involved in non-casino games, including “Magic: The Gathering and similar games such as Pokemon and World of Warcraft Trading Card Game.” I had assumed that it was more of a gambling thing. I have edited my original post on the case accordingly.

Peter does not agree with the decision:

This is another example to me of the IRS EO group being out of touch with the modern world.  Magic the Gathering has been a thing since 1993.  You will also see IRS giving a hard time to not for profits dedicated to open source software.  It also turned down a sorority that wanted to operate on-line and a group planning to provide free wi-fi.

The whole exempt organization function is in disarray.



Kay Bell, Is Alaska getting closer to enacting a state income tax? The oil bust has clobbered Alaska revenues.

Jason Dinesen, From the Archives: Issuing 1099s to an Incorporated Veterinarian

Jim Maule, Old Tax Returns Have Value. I keep my tax returns forever; Prof. Maule explains why being a tax hoarder can be useful.

Robert Wood, Your Passport Could Be Cancelled If You Owe IRS. Because Congress apparently feels we need one more poorly-considered bill that will hugely inconvenience honest taxpayers and will be impossible to undo.

Russ Fox, The Turf Monster Striketh. With a caution against sending tax ID numbers via e-mail.

TaxGrrrl, Jay Z Loses On Alvarez-Cotto Boxing Bet As Charity Gets Big Win.

Robert D. Flach, YEAR-END TAX UPDATE WORKSHOPS. With some sound year-end planning reminders.


Me, How your calendar might help you beat the IRS. My newest post at, the Des Moines Business Record’s business professional’s blog, covers the importance of keeping track of your time to document “material participation” to take tax losses and to avoid the 3.8% Obamacare Net Investment Income Tax.


TaxProf, The IRS Scandal, Day 926Day 927Day 928, Day 926 discusses the ties between Lois Lerner and the architect of Wisconsin’s Kafkaeske partisan “John Doe” witchhunt.


Steven Rosenthal, Treasury Pulls its Punches on Earnings Stripping (TaxVox). “Treasury made only small technical changes to the definition of an inversion.  News reports suggested something much larger—namely limits on earnings stripping, which would have made inversions (and other combinations of U.S. firms with foreign corporations) much less profitable.”


Career Corner. Let’s Enjoy Some Intern Reviews of Various Accounting Firms (Caleb Newquist, Going Concern).


Tax Roundup, 11/18/15: A 3% Iowa income tax rate? And: Californians, taxes could be worse!

Wednesday, November 18th, 2015 by Joe Kristan

engageiowalogoNew policy group proposes bold Iowa tax reform. In the wake of another Tax Foundation report showing that Iowa’s business tax policy stinks, there is a new proposal to do something about it. Tax Analysts reports ($link):

Iowa’s nine-bracket personal income tax would be flattened to a single rate of about 3 percent under a proposal from a recently formed Iowa policy group.

Engage Iowa, founded in August by Cedar Rapids Mayor Ron Corbett, is calling for changes to the state’s income tax code that it says would improve the state’s business climate and reduce the outflow of high-income taxpayers to states such as Texas and South Dakota.

Like The Tax Update’s Quick and Dirty Iowa Tax Reform Planthe Engage Iowa paper does not advocate a tax cut. It attempts to come up with a rate and tax structure that raises the same amount of tax as the current Iowa tax system. The paper presents several proposals, including one that uses a 1 percentage point increase in the state sales tax rate to reduce the income tax rate.

The plan has a lot going for it. Its one glaring weakness is its omission of any corporation tax reform. Iowa has the highest corporation tax rate in the country, but one so full of loopholes and corporate welfare tax credits that it generates a relatively paltry amount of revenue for the state. Iowa’s 49th place corporation tax rating in the Tax Foundation State Business Tax Climate Index is a big reason for Iowa’s perennially poor ranking.

Naturally the high-tax, high-complexity lobby is unimpressed by the plan. From

Peter Fisher, research director for the left-leaning Iowa Policy Project in Iowa City, on Monday said he applauded Engage Iowa for pointing out that Iowa’s current income tax system is less progressive than it might seem after deductions and credits are factored in. He said the Engage Iowa policy suggestions also might help eliminate “the perception problem” that Iowa has as a higher top income tax rate than it does in practice.

However, Fisher said the Engage Iowa flat tax seems like others of its kind: It lowers taxes for the wealthier and makes up for it with taxes on the lower end of the income earners.

The tax law is a poor vehicle for income redistribution in general, but the state income tax is an awful vehicle in particular, given the ability of high income earners to leave the state. The focus on “the rich” also skates by the reality of who “the rich” are: primarily employers who run their businesses through pass-through entities and pay their business taxes on their 1040s. Bashing “the rich” bashes employment, especially with zero-tax South Dakota right next door.




Russ Fox, Yes, Two States Rank Lower than California. “It’s not all bad news in the Tax Foundation’s 2016 State Business Tax Climate Index for California. You could always be in New York or New Jersey.”

Robert Wood, Man Gets $21.5M Verdict For Door Injury, But IRS Is Biggest Winner. “Damages for physical injuries are tax free, but punitive damages are taxed. For this reason and others, your taxes might be lower if you settle a lawsuit rather than going to verdict.”


Mitch Maahs, Report Highlights IRS Shortcomings Preventing Business ID Theft (Davis Brown Tax Law Blog). “In most cases, an ID thief files a business tax return using an Employer Identification Number (EIN) of an active or inactive business without permission to obtain a fraudulent refund, often claiming extensive refundable tax credits.”

Kay Bell, Tornadoes, other wild November weather: Be ready! “Be ready, on the physical and financial and especially tax fronts, for dangerous weather, this week and any time of the year.”

Janet Novack, After Budget Deal’s Surprise Cuts, Can Boomers Really Count On Social Security? It’s always dangerous to count on a fiscally insane scheme for your retirement security.

Jim Maule, The Fallacy of “Job Creating” Tax Breaks, Yet Again. “Job relocation is not job creation.”




Scott Greenberg, Section 179 Really Does Benefit Small Businesses (Tax Policy Blog). “Ideally, all business investments would be given the same treatment as Section 179 and businesses would be able to deduct all investment costs in the year that they occur. But until the U.S. tax code adopts this ideal, Section 179 remains an important provision that allows some businesses to deduct investment costs as they occur.”

TaxProf, The IRS Scandal, Day 923. And all politicians are honest in Chicago. “President Barack Obama’s public comments appearing to prejudge the outcome of Justice Department investigations don’t affect the decisions in those inquiries, Attorney General Loretta Lynch said Tuesday.”

Renu Zaretsky, Budgeting, Wooing, and Taxing. Today’s TaxVox headline roundup covers highway bill politics and Michigan’s entirely unoriginal idea of bribing companies to lure data centers.

Danshera Cords, Unintentionally Undermining Voluntary Compliance: Balancing Accountability and Budget (Procedurally Taxing). Another call to increase the IRS budget. If you want the IRS budget increased, you want Commissioner Koskinen to resign, because it’s not happening otherwise.


Career Corner. The Toll of Travel: An Interview With a Former Big 4 Advisory Road Warrior  (Leona May, Going Concern)



Tax Roundup, 11/17/15: We’re #40! The new State Business Tax Climate Index comes out today.

Tuesday, November 17th, 2015 by Joe Kristan
If Iowa's income tax were a car, it would look like this.

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

Iowa rises out of bottom ten in State Business Tax Climate index. The Tax Foundation released its 2016 State Business Tax Climate Index today, and Iowa is no longer one of the ten-worst states in the index. Barely.

Maryland and Iowa changed places from last year in the index, making Iowa the 40th state in the annual index of business tax climates. Iowa’s overall score improved slightly, while Maryland got a little worse, especially in its unemployment insurance ranking. Iowa failed to improve its ranking in any of the five components making up the index. Its ranking fell in the sales tax, unemployment tax, and property tax categories, and it maintained its 32nd place individual tax and 49th place in corporation tax. Still, Maryland’s seven-place plunge in its unemployment tax rankings enabled it to crawl underneath Iowa in the index.

The result isn’t surprising, as Iowa’s tax law is nearly unchanged from last year. The split control of the Iowa legislature has blocked any significant tax legislation. I do suspect that the sales tax component will improve in the 2017 index based on the change in the definition of sales tax-exempt manufacturing supplies under an administrative ruling set to take effect July 1 of next year.

Iowa, in short, continues to have a bad system, one changed very little in structure since the 1970s, with high rates and a rat’s nest of feel-good deductions and special interest subsidies producing a hostile system for small businesses lacking expensive advisors and good friends at the statehouse. It’s a system crying for reform. The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a huge improvement.

Map by the Tax Foundation

Map by the Tax Foundation


Fresh Buzz! Tuesday again brings a fresh Buzz roundup from Robert D. Flach, covering ground from accounting nostalgia to changes in this year’s W-2.

Robert Wood, Clinton Foundation Amends 4 Years Taxes, Admits Speech Fees Weren’t Donations. Ah, but better keep an eye on those sneaky Tea Partiers. The laundering of speech fees through the foundation, instead of through Clinton 1040s, seems inherently sketchy.

Jay A. Soled, Kathleen DeLaney ThomasThe Nonreporting of Modern Fringe Benefits (Procedurally Taxing). “But there is a strange phenomenon transpiring with respect to this new breed of fringe benefits. While they generally do not fall within the delineated scope of Code section 132’s enumerated exemptions, they are nevertheless not being reported as income by employers (nor by the employees, who follow suit).”

Jason Dinesen, Glossary: Review (Of Financial Statements). “In a review, the CPA examines a company’s financials to verify that they are free of deficiencies, but the firm does not review internal controls or fraud risks as in an audit.”

Jack Townsend, Is Jury Unanimity Required as to at Least One Obstructive Act for Tax Obstruction?

Paul Neiffer, Trends in Write-Offs of Farm Assets:

The Tax Foundation periodically comes out with good information on tax statistics.  They recently issued a report on corporate investment in equipment for tax year 2012.  My perception has been that most of the equipment purchased during 2012 was new equipment.  Based on this report, my perception may be in error (or not).

I think Paul is correct in believing that Section 179 is a bigger deal for most farmers than bonus depreciation.

Kay Bell, Cell phone service taxes average 18%, an all-time high




Peter Reilly, Bernie Sanders Less Of A Socialist Than Dwight Eisenhower. Peter bases this (absurd) headline on the Sanders statement that he wouldn’t raise income tax rates to the 90% amount seen in the Eisenhower administration. I suspect Peter was being deliberately provocative or sarcastic, as I think he knows his history too well to actually believe that.

UPDATE: Peter corrects my speculation in the comments: “On the not as Socialist as Dwight Eisenhower thing, I was quoting Sanders (or paraphrasing) as I was live blogging the debates.” Peter has a much stronger stomach than I do to actually watch these things.


Jim Maule, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN.  While the good professor focuses on the size of the tax code, I think that’s just a reflection of a much bigger problem — one that would be corrected by my proposal that all politicians, and all candidates, be required to do their returns by hand in a live webcast. I would also require a comment bar so we could all help the politicians — “hey, do you really think your used briefs are worth $3 each?”


Annette Nellen, “Abolish the IRS” Distracts from Needed Reforms.

TaxProf, The IRS Scandal, Day 922. The Attorney General will get to explain why she concludes there were no crimes committed.

Renu Zaretsky, Maybe peace, definitely another patch, and many refunds… Today’s TaxVox headline roundup ranges from prospects for tax legislation this year to refunds of Cleveland’s “Jock Tax.”


News from the Profession. Some Audit Committee Members Just Ignoring Auditors Now (Caleb Newquist, Going Concern). Well, they’re used to it.



Tax Roundup, 11/4/15. Taxpayer Advocate: Koskinen demoralizes IRS, IRS breaks law. Koskinen replies: give me more money!

Wednesday, November 4th, 2015 by Joe Kristan
Nina Olson, Taxpayer Advocate

Nina Olson, Taxpayer Advocate

It’s getting bad when the IRS won’t even talk to its own Taxpayer Advocate. Nina Olson, the head of the IRS Taxpayer Advocate office, ripped the state of the IRS and Commissioner Koskinen’s management in a speech to the AICPA annual tax conference yesterday, Tax Analysts reports  (my emphasis, $link):

Olson said that IRS Commissioner John Koskinen’s oft-repeated mantra — that instead of doing more with less in budget-constrained times, the agency was going to do less with less — was demoralizing the IRS workforce and further eroding customer service.

“What my local taxpayer advocates are telling me is that they have never seen so much resistance to their own work” from the IRS, Olson said. She recounted the story of a local TAS employee who asked the IRS in October to release a taxpayer’s refund that had been held up since February. “The response that [TAS] got back was . . . ‘We have thousands of these cases; get in line,’” Olson said, adding that it was the first time she’d heard such a response from the IRS in her 15 years at the TAS.

The feeling at the IRS that there are some jobs it won’t do because Congress didn’t provide funding, Olson said, “works its way down to the employees, so that they feel like, ‘Well, I’m going to do just this, and I’ve got so much work that I’m only going to be able to get this done.'”

This Koskinen isn't the IRS commissioner, but he'd probably do a better job than the one who is.

This Koskinen isn’t the IRS commissioner, but he’d probably do a better job than the one who is.

The Taxpayer Advocate Office is “an independent organization within the IRS” charged with helping taxpayers who can’t resolved their problems within the normal IRS bureaucracy. We only call on them out of desperation, when the IRS just refuses to do its job. It’s a bad sign if even the Taxpayer Advocate can’t get the time of day from the regular IRS.

Ms. Olson says the IRS mistreatment of the TAS office has risen to the level of lawbreaking:

Olson also protested that the IRS is refusing to grant her and her staff access to taxpayers’ administrative files unless they sign agreements barring them from sharing any of the files’ information, even with the taxpayer. Olson noted that she is bound by the same privacy laws as other IRS employees and said she is entitled to access under section 6103.

“My position is that the IRS in those instances has violated the law,” Olson said. “And I do not say that lightly.”

You have problems with the IRS breaking the law? Well, to coin a phrase, get in line.

Commissioner Koskinen responded later in a speech to the same group, in which he did what he always does: ask for more money. “Most of Koskinen’s prepared remarks at the conference were a repeat of his concerns about the IRS’s deteriorating budget position.”

But this Commissioner will never get a budget increase out of this Congress. His glib, arrogant and obstructionist response to the Tea Party scandal, full of denials of the existence of information that subsequently surfaced, has destroyed his credibility. There’s no hope that the IRS will get improved funding as long as he is around to spend it.

Other Coverage: 

Russ Fox, Where I Agree (In Part) With IRS Commissioner John Koskinen. “Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation.”

Accounting Today, IRS Commissioner Sees Budget Cuts Hurting Practitioners, Warns of Delayed Tax Season. A story that weirdly downplays and buries the Taxpayer Advocate’s withering criticisms deep in the article.


Alan Cole, What Places Benefit Most From the Earned Income Tax Credit? (Tax Policy Blog).


It looks like the deep south and Indian country have the biggest proportion of EITC recipients.


TaxGrrrl, Despite Complaints, Past Failures & Opportunities For Fraud, Congress Pushes Private Tax Collection. I think Kelly is too hard on private tax collection. Plenty of preparers deal safely with confidential tax information every day, and I don’t think there’s something special about IRS employees that makes them automatically trustworthy. I think for uncontested and unpaid tax debts, private collection makes sense, especially when the IRS isn’t even trying to collect.

Robert D. Flach emphatically agrees with Kelly, though: NO! NO! A MILLION TIMES NO!. I guess private tax debt collection is one of those unpopular views I hold, like Waylon > Willie.


Wall Street Journal,  IRS Audits of Individuals Drop to 11-Year Low (via the TaxProf, $link).

Kay Bell, Avoid tax turkeys! Check out November Tax Moves

Tony Nitti, The Top Ten Tax Cases (And Rulings) Of 2015: #9 Rental Properties Should Probably Be Rented. “Believe it or not, the IRS doesn’t always require that you rent a home in order to establish that you have converted the home to a for-profit rental activity, but it certainly helps.”




Carl SmithGovernment Inconsistent on Whether Unpublished Tax Court Orders Can Be Cited (Procedurally Taxing). “I’m more a believer in ‘what’s good for the goose is good for the gander’.”

Renu Zaretsky, The Case of the Questionable Tax Incentive: Women and Retirement Savings (TaxVox). “But from what I can tell, the surest way to increase a woman’s savings is to give her a nice raise… and introduce her to my sister.”

David Brunori, Impeaching the IRS Commissioner Is the Wrong Thing to Do (Tax Analysts Blog). “Koskinen may be guilty of being combative with Congress. He may be guilty of caginess during his testimony. He may be guilty of being a lousy commissioner. But none of those are reasons for impeachment.”

TaxProf, The IRS Scandal, Day 909. Today’s link is to an editorial, Yes, the IRS Chief Has Earned Impeachment. I agree, but I still think it’s an unwise exercise when it has no chance of success. Still, the editorial is a concise summary of how awful Commissioner Koskinen has been.

Jim Maule, Taking and Giving Back. “The NFL and its teams, as well as the other professional sports leagues and franchises, do not need financial assistance from the public.”


News from the Profession. Socially Inept Accountant Held Responsible (Caleb Newquist, Going Concern). Is there another kind?




Tax Roundup, 10/30/15: IRS: we didn’t overcharge you, and we won’t do it again. And: Beggars’ Night!

Friday, October 30th, 2015 by Joe Kristan

The IRS yesterday issued rules reducing the fees charged for giving tax preparers for Preparer Tax Identification Numbers, or PTINs. The rules reduce the annual fee from $50 to $33, but raise the fee charged by a third-party vendor that collects the fee from $13 ($14.25 for first time applications) to $17 for all applications.

It’s an interesting move, considering that the IRS is fighting a lawsuit arguing that the IRS has been overcharging preparers for the numbers, which are required for preparers signing tax returns. The IRS claims that the reduction reflects reduced costs for the program.

Dan Alban of the Institute for Justice, the public interest law firm that led the successful fight against the IRS preparer regulations, says that it is an admission that the IRS has been overcharging, and that the IRS cost reduction argument doesn’t hold up. From his Twitter feed:


The IRS has never been straight with us about either preparer regulation — really, a power grab and a move to assist the big tax prep franchise outfits — or the PTIN fee. I look forward to seeing how the judge hearing the PTIN lawsuit reacts to this news.

Related: PTIN User Fee Will Be Lowered (Sally Schreiber, The Tax Adviser).




I’m back from the Santa Monica TIAG conference. TIAG is an international alliance of independent accounting firms that Roth & Company joined last year. There were great sessions on technical and practice management topics, but the best part is to meet and get to know lawyers and accountants around the world. It’s nice to know people in other countries to call when our clients need professional services aboad, and it’s fun to compare notes with our offshore counterparts.


Friday – Buzz Day! Robert D. Flach rounds up interesting tax stuff from all over.

William Perez talks about Itemized Tax Deductions..

Annette Nellen, Poor recordkeeping – complexity or too busy. “Every year there are several tax cases where taxpayers think they’ll get a better result in court despite poor records. They almost always lose.”

Kay Bell, Obama and House reach budget, debt ceiling deal

Jack Townsend, Movie Review of Film on Corporate Offshoring

Jim Maule,Where Do the Poor and Middle Class Line Up for This Tax Break Parade? Properly decrying corporate welfare, the good Professor asks and answers:

So could it be time for “if you can’t beat them, join them”? Not for those of us who lack the resources to sign up for the parade, or perhaps what should be called the corporate gravy train.

What the good Professor hasn’t realized is that this is exactly what we can expect when we give the government more and more authority to run and regulate things. Those with the means and the connections win.


20151030-3TaxProf, The IRS Scandal, Day 903Day 904. This from the Day 904 link sounds about right to me regarding the idea of impeaching Commissioner Koskinen:

The evidence against Koskinen will be convincing, but Democrats and the media will claim that because it all involves his defiance of congressional directives – and in their opinion Congress shouldn’t have been investigating in the first place – he really didn’t do anything wrong. They used the same argument in defense of Bill Clinton. Sure, he lied under oath and obstructed justice, but there never should have been an investigation in the first place.

I think it’s a poor use of limited time and political capital.

Peter Reilly, IRS Commissioner Koskinen Impeachment Trial Would Be Historic. A long but worthwhile discussion of the history and process of impeachment, and its prospects.

Keith Fogg, Notification of IRS as a Junior Creditor (Procedurally Taxing). “Two recent lien decisions demonstrate the power of the federal tax lien and the specific steps that parties must take when trying to address that lien.”

Robert Wood, Last Chance To Report Offshore Accounts To IRS, Penalties Climb To 50%

TaxGrrrl. 5 Things You Need To Know About Paul Ryan’s Rise To House Speaker & Tax Reform.

Jeremy Scott, Paul Ryan Punts on Tax Reform (Tax Analysts Blog). “Paul Ryan is moving on to become speaker, and tax reform might be in a worse spot than it was when Dave Camp’s H.R. 1 went over like a lead balloon.”

Cara Griffith, Why Do We Still Have Unpublished Opinions? (Tax Analysts Blog). “Now unpublished opinions readily appear in online databases. As a result, unpublished opinions are not unpublished in the sense that no one has access to them, but are simply not published in an official reporter and hold less or no precedential value with courts.”


Greg Mankiw, Keep the Cadillac Tax. Better idea — scrap the ACA altogether, give a capped health insurance tax credit for individuals, eliminate interstate barriers to health insurance sales, and let nature take its course.

Career Corner, It’s Time for the Accounting Profession to Get Serious About Mental Illness (Leona May, Going Concern). They aren’t the same thing?




Beggars’ Night! Des Moines and its suburbs don’t trick-or-treat on Halloween. Instead our little goblins go forth on October 30 – “Beggars’ Night.” An explanation: What’s up with Beggars’ Night?:

An article in The Des Moines Register on October 28, 1997, says “Blame World War II.” as well as rowdy youths in the early history of Des Moines. According to this article and other sources, Beggars’ Night was created in 1938 by the Des Moines Playground Commission (later the Parks and Recreation Department) because Halloween night had become a night of vandalism and destructive “tricks” such as setting fires and breaking windows.

Kathryn Krieg, director of recreation for the commission, in 1938 began a campaign to encourage less violent forms of Halloween fun. She declared Beggars’ Night to be October 30 in Des Moines, and further required that children would only receive their treat after earning it by performing a trick or telling a riddle. This too is the opposite of the rest of the country, which traditionally provides the treat in order to avoid being tricked!

So if you need a joke for tonight, you can always rely on the classics, like “What’s the pirate’s favorite restaurant? Arrghhhh-bys!”




Tax Roundup, 10/21/15: The tax law doesn’t care where you are on the autism spectrum. And: Iowa sales tax rule change praised.

Wednesday, October 21st, 2015 by Joe Kristan

20151014-1No Asperger exception to Section 475. It’s heads they win, tails you lose for capital gains and losses. If you have capital gains, they’re happy to tax them, no matter how many you have. If you have capital losses, you are limited to gains plus $3,000 per year, with the remainder carrying forward — even if you have to outlive Methuselah to use them up at $3,000 annually. Many sadder-but-wider former day traders have found themselves with this problem.

Section 475 offers some taxpayers a way out. If you qualify as a “trader,” a Section 475 election makes your losses fully deductible. It makes your gains ordinary, rather than capital, and it requires you to recognize gains and losses on your open positions at year-end, but that’s not a big deal for day traders. They tend to trade short-term, and short-term gains are taxed at ordinary rates anyway, and marking-to-market isn’t normally a big deal to them.

But Section 475 has a strict election requirement. You have to make the election no later than the April 15 of the year you want the election to take effect. For example, a taxpayer wanting to make the election effective for 2015 tax returns would have to make the election on his 2014 timely-filed 1040 due April 15, 2015.

A New York man claimed he made the election on his 2003 1040. Unfortunately, he made two serious mistakes. See if you can spot them in the Tax Court’s summary:

In 2003 on the advice of his accountant, petitioner intended to file a section 475(f) mark-to-market election. Petitioner, however, did not retain a signed copy of any election or any evidence of mailing it. Petitioner filed his Federal income tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a statement that petitioner had made an election pursuant to section 475(f), but did not have a copy of Form 3115, Application for Change in Accounting Method, attached to it.

Error 1: Not keeping a copy of the election (assuming he made it).

Error 2: Not filing until over a year after the due date.

Other cases have shown that the IRS enforces the timely-filing requirements of Section 475 strictly, to keep taxpayers from making the election with the benefit of hindsight.

The Court ruled that he traded enough to qualify as a “trader” under the tax law, but that he blew the election (my emphasis):

We find that petitioner failed to comply with the requirements for the mark-to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner did not submit a copy of any executed version of Form 3115 or any evidence of mailing it. Respondent did not find any record of petitioner’s Form 3115 in his electronic database, but also admitted that in some years not all Forms 3115 received were actually entered in the database. Next, petitioner filed his Federal income tax return for 2003 on July 25, 2005, failing to comply with the filing deadlines.

There’s a lot in that paragraph. Perhaps the most important thing is that the IRS admits that it doesn’t always know what you file, so it’s wise to keep your returns forever in case something like this happens. The other thing is that the deadlines matter.

The taxpayer made an unusual argument to get out of penalties: that his Asperger Syndrome made it impossible to meet deadlines. The Tax Court wasn’t convinced:

For a number of years, including 2002 and 2003, petitioner worked as a high school teacher. There is no evidence in the record that at any time from 2001 through 2006 petitioner filed for a disability accommodation while he was employed as a school teacher. In 2007 petitioner was trading in securities. Petitioner’s work station was equipped with six monitors showing the status of his trades. Petitioner was able to collect, analyze, and organize information to base his trades on. Petitioner understood he had a duty to file tax returns but claims that in 2007 he was “despondent” because of the losses he suffered and could not organize himself to file a tax return timely.

We are sympathetic to petitioner’s plight. We cannot find, however, under these circumstances that petitioner’s mental condition prevented him from managing his business affairs.

This is consistent with other cases where the courts have found that if you are able to deal with the challenges of daily life, you are presumed to be able to file your returns on time.

The Moral: File your returns on time, and keep copies of your filings forever.

Cite: Poppe, T.C. Memo 2015-205

Related: TaxProf, Tax Court: Asperger’s Syndrome Does Not Excuse Taxpayer’s Failure To File Tax Return




David Brunori calls the Iowa proposal to broaden the definition of manufacturing supplies subject to exemption from sales tax The Best Tax Policy Proposal of the Year (Tax Analysts Blog):

Taxing what business entities buy is wrong for two important reasons. First, businesses will try to pass the tax they pay on to their customers in the form of higher prices. Almost all succeed. The customers incur the tax burden without knowing it. That’s wrong. Even for those companies that don’t pass the tax along to customers, some person is unwittingly paying the tax. Second, when consumers pay higher prices, they are sometimes subject to tax. Thus, the sales tax is imposed on a value that includes previous sales tax. You may know it as cascading or pyramiding. But it’s wrong.

And that’s why the Iowa proposal is so refreshingly right. It would expand the types of business purchases exempt from sales tax. My understanding is that there is a debate in Iowa about whether the Department of Revenue can expand the number of exempt business purchases administratively. I don’t know the answer to that. I do know that the proposal represents sound tax policy.

Governor Branstad says expects the proposal to be enacted, reports the Sioux City Journal in Branstad: House GOP won’t buck rule change.


Russ Fox, The Wagering Excise Tax and DFS:

I’m focusing on the tax aspects of daily fantasy sports (DFS) this week. It’s beneficial for DFS participants for the activity to be considered gambling. For political reasons (“gambling is a sin”) and regulatory reasons (gambling is regulated, skill contests are not), the DFS sites want to be considered skill games sites. There’s another reason that DFS sites don’t want to be considered gambling: the wagering excise tax.

Picking the right horse at the track is a skill, too, but I’m pretty sure it counts as gambling.


Paul Neiffer, What is a Marginal Tax Bracket. A useful explanation for the non-specialist of how tax brackets work.

Kay Bell, Increased e-filing security planned for 2016 filing season. Better at least five years too late than never, I suppose.

Jim Maule, Beachfront House Rental Deduction Washed Out. When you try to deduct what looks like a beach party, you’d better have excellent documentation.

Eric Rasmusen, Law Suit for Billions Against Citigroup Because of Treasury’s 2009 Waiver of Section 382’s Rule about Losing NOL’s after an Ownership Change. The Administration put the fix in for its friends at Citigroup, and now another taxpayer is suing.




Tax Policy Blog, A Comparison of Presidential Tax Plans and Their Economic Effects.

Renu Zaretsky, “There’s no cut like a tax cut… There’s no cut like a tax cut…” Today’s TaxVox tax headline roundup covers the continuing fiscal pain in Kansas and the IRS patting itself on the back on ID theft after letting it spiral out of control for years.


TaxProf, The IRS Scandal, Day 895



Our media outlets dismiss the opponents of the Ex-Im bank or people who want to wind down Freddie and Fannie as Tea Party nut cases. If you want to stop crony capitalism, what we need are fewer influential media outlets and more Tea Party nut cases.

Arnold Kling



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)




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

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.



Tax Roundup, 10/12/15: Broken Arrow (Trucking) nets CEO 7 1/2 years. And: Last week of tax season!

Monday, October 12th, 2015 by Joe Kristan

Accounting Today visitors, click here to go to the YMCA story.

Last Week! Extended 2014 1040s are due Thursday. That’s it, no more extensions are available.  It should be all over by now, but it’s not. Don’t put your preparer off until Thursday because there might be a $25 charitable contribution you missed, and you are just too darned busy to find it today.


ice truckWrecked. A weird and strange payroll tax crime case wrapped up last week when James Douglas Pielsticker was sentenced to 7 1/2 years in prison.

Mr. Pielsticker was CEO of Arrow Trucking when it failed spectacularly, leaving hundreds of its drivers stranded:

December 24, 2009

Hundreds of truckers nationwide are stranded and trying to get home before Christmas after their company shut down operations with little notice.

Arrow Trucking, based in Tulsa, suspended operations and laid off employees. Arrow is among the largest trucking companies in the nation.

About 900 truckers were left stranded across the country. Many drivers learned that the company had folded only after filling up their rigs and discovering the company’s fuel credit cards would not work.

There was no money to get the drivers home because Mr. Pielsticker was using it for… other things. From the Department of Justice press release (my emphasis):

According to the plea agreement and other court records, in 2009, Pielsticker and others conspired to defraud the United States by failing to account for and pay federal withholding taxes on behalf of Arrow Trucking Company and by making payments to Pielsticker outside the payroll system.  Pielsticker and others withheld Arrow Trucking Company employees’ federal income tax withholdings, Medicare and social security taxes, but did not report or pay over these taxes to the IRS, despite knowing they had a duty to do so. 

The conspirators paid for Pielsticker’s personal expenses with money from Arrow Trucking Company and submitted fraudulent invoices to TAB to induce the bank to pay funds to Arrow Trucking Company that were not warranted.  In total, the conspiracy caused a loss to the United States totaling more than $9.562 million.

What sort of personal expenses? According to the government’s sentencing memorandum, they included:

…expenses related to his Bentley and Maserati automobiles, and trips on private jets…  In 2007, Arrow paid at least approximately $361,000 for Pielsticker’s benefit; in 2008, it was at least approximately $753,000; and in 2009, Arrow paid approximately $1,300,000 for Pielsticker’s benefit in addition to his normal salary. 

The company collapsed under the weight of the looting, and the drivers were left hanging. Fortunately, other drivers and industry players came to their rescue to get them home, showing a lot more consideration than Mr. Pielsticker.

Employment tax fraud is a very stupid crime (not that there are a lot of smart ones). Jack Townsend reports that the government has recently updated its procedures for prosecuting payroll tax fraud, a sign that this is an enforcement priority. Don’t fail to remit withheld taxes. It’s not just a bad financial move; it could get you in criminal trouble.


Pielsticker Criminal Information Document

CEO Gets 7 1/2 Years Prison Over Employment Taxes, Owes $21M In Restitution (Robert Wood)




Call me when you start using the tools you have. We keep hearing how “common sense” preparer regulation is needed to keep us tax pros in line. Yet the IRS Return Preparer Office isn’t even using the authority it actually has, according to a report by the Treasury Inspector General for Tax Administration:

However, the RPO does not revoke PTINs from tax return preparers who are not compliant with their tax filing and payment obligations. In January 2015, the RPO identified 19,496 preparers with PTINs who were potentially noncompliant with these obligations. These preparers had over $367 million in tax due as of January 26, 2015. In addition, the RPO identified 3,055 preparers who failed to file required tax returns for one or more tax years and eight tax return preparers who failed to file required tax returns for five years.

Our review of PTIN holders as of September 30, 2014, identified 3,001 preparers who self reported a felony conviction on their application; 87 reported a crime related to Federal tax matters. Lastly, processes do not ensure that PTINs assigned to prisoners or individuals barred from preparing tax returns are revoked. Specifically, the RPO did not revoke the PTINs assigned to 65 of 445 confirmed prisoners and 15 of 87 individuals who the IRS identified as barred from preparing tax returns.

This supports the case that preparer regulation is more about driving out competitors of the big national tax franchises than it is about promoting quality tax compliance.




Russ Fox, Gilbert Hyatt Goes to Washington…Again:

Back in 2002, the Supreme Court ruled that Gilbert Hyatt could sue the Franchise Tax Board in Nevada. That was after the FTB rummaged through his trash. The FTB was then hit with over $400 million in damages. However, the Nevada Supreme Court threw out much of the decision, though the court upheld that the FTB committed fraud against Mr. Hyatt.

Sauce for the Gander is excellent tax policy. We should get to assess the same penalties against the government that they assess against us.

Mitch Maas, Netting Tax Savings Found to be a Goal of Many NHL Free Agents (Davis Brown Tax Law Blog).

Kay Bell, Computer scientists’ tax code algorithm could make it easier for IRS to catch partnership tax cheats. If nothing else, visit Kay to check out her slick new site design.

Paul Neiffer, How Much Does Section 179 Cost the Government? Or, how much does it save the taxpayer?

Jason Dinesen, Iowa Taxation of Retirement Income

Jim Maule, A Federal Income Tax on Everybody? How Would That Work?

Peter Reilly, Jindal Tax Plan Creates A Wonderland Of Dodging



Scott Hodge, Biggest Challenge To Tax Reformers: Overcoming Our Progressive Tax Code. “But as many of the presidential candidates have found in crafting their tax reform plans, the extreme progressivity of the individual tax code makes broadening the base and lowering the rate an exercise in raising taxes on the poor and cutting taxes on the rich—hardly a winning political message.”

This chart says a lot:

20151011 effective rate chart tax foundation


It’s hard to have an income tax reform that doesn’t disproportionately benefit the folks who pay the tax in the first place.


TaxProf, The IRS Scandal, Day 884Day 885Day 886. The votes are in:



Richard Auxier, Taxes penalize hockey teams? That’s a bad call, eh?

Career Corner, Would You Work for Revenue Share? (Chris Hooper, Going Concern). Well, I sort of do.



Tax Roundup, 10/7/15: Iowa Dept. of Revenue proposes sound policy, protests erupt. And: skating to a low-tax state.

Wednesday, October 7th, 2015 by Joe Kristan

20150122-1The Iowa Department of Revenue proposes broad definitions for industrial sales tax exemption. The chief Democratic taxwriter in the Iowa Senate is unhappy.

The Des Moines Register reports:

State legislators will consider a proposal next week that would reduce the tax burden for manufacturers by up to $46 million in a move critics say bypasses the legislative process.

In an effort to avoid a “double tax,” current law exempts from taxation some items used during the manufacturing process and instead taxes the final product. The proposal would expand the number of items that qualify for that exemption.

The policy behind the exemption is sound. As David Brunori points out,

Only bad things happen when businesses pay sales tax. First, the businesses paying the tax pass the burden on to their customers in the form of higher prices. But the tax is hidden. People do not know they are paying it. Politicians, and perhaps the New York Times, may like that lack of transparency, but it is awful government policy. Second, the higher priced products purchased by consumers are often subject to tax. This gives rise to a tax on a tax. That is awful tax policy. Finally, taxation of business inputs artificially keeps sales tax rates low. People think the sales tax rate is lower than it actually is. None of this is good.

Whether the Department has overstepped its authority is a separate question from the tax policy. From the Register story:

But state Sen. Joe Bolkcom, D-Iowa City, pointed out the fiscal effects of the legislation on Monday.

“We’ve been told repeatedly by this governor that we can’t afford to educate our kids, and here he goes again with another big tax cut for Iowa’s largest corporations and putting their needs ahead of our kids,” Bolkcom said. “It’s wrong.”

“I don’t remember ever tax policy being made by the rules committee or being made by the executive branch without the consent of the Legislature,” Bolkcom said. “This is a huge tax policy change that (Gov. Branstad) has unilaterally decided.”

Iowa businesses have long complained about the restrictive definition of “equipment” and “property directly and primarily used in processing.” It seems to me that the new definitions are more in line with business reality and the intent of the exemption. Still, I haven’t seen a fight over proposed regulations like this, so I have no idea how this will play out.

Link: Proposed new Iowa rules.




TaxGrrrl, Hockey Players Ice High Tax Teams In Favor Of Tax Savings:

With teams located in Canada and in the United States, high performing hockey players may be able to negotiate their tax home with their team home in order to choose a more favorable tax result. That is, according to a new report released jointly by the Canadian Taxpayers Federation (CTF) and Americans for Tax Reform (ATR), exactly what’s happening.

According to the report, 54% of the 116 Unrestricted Free Agents (UFA) and 60% of players with no-trade clauses who changed teams picked teams with lower taxes.

Sports free agency is an unusual natural experiment on whether state taxes matter. There are always other factors than taxes in choosing a team.  Winning is worth something. Still, it’s pretty much the same job, just with different taxes. The resulting low-tax preference is what you would predict.


Kay Bell, Fantasy sports: Gambling or just good, clean online fun?  Either way, taxes are due, but deduction options differ.

Jack Townsend, Swiss Asset Manager Settles Up with DOJ Tax. A $295,000 fine. Another example of second prong of the IRS approach to international tax compliance — shoot the jaywalkers so you can slap the big offenders on the wrist.

Tony Nitti, Tax Geek Tuesday: A Buyer’s Best Friend – Understanding The Section 338(h)(10) Election. “What if a buyer could acquire a target’s stock for legal purposes — thereby keeping the target alive and preserving its non-transferable assets — but acquire the target’s assets for tax purposes, giving the buyer the stepped-up basis in the asset it seeks?”


Jim Maule, Putting More Tax Information “Out There” for the Tax Database Thieves:

Until and unless the protection of online data is heightened to a point of 99 percent confidence, the IRS should not create yet another vulnerability, another door through which the robbers can force their way in. In the meantime, why not focus on the problem rather than the symptoms? The underlying cause of some noncompliance is the complexity of the tax laws. Treating the symptoms does not cure the illness.



Stephen Olsen, Summary Opinions for 8/31/15 to 9/11/15. Procedurally Taxing rounds up recent developments in tax procedure, “heavy on estate and gift this week.”




David Brunori, North Carolina Tax Changes — Sort of Good, Kind of Bad (Tax Analysts Blog):

On the good side, the state lowered the personal income tax rate from 5.75 percent to 5.49 percent. Lowering rates is usually good for the economy and for the people paying taxes. I believe that people know how to spend their money in ways that improve the economy much better than the government does. The state also expanded the no-tax exemption to $15,500, providing more relief for low-income taxpayers. In general that is a good thing.

On the super-negative front, the legislature is giving Hollywood moguls $30 million in each of the next two years to make films in North Carolina. I guess they haven’t read any of the studies showing that film credits don’t work. But why let facts stand in the way of policymaking?

It’s probably only a matter of time before they realize the wisdom of Iowa’s enlightened approach to hosting filmmakers.


Joseph Henchman, California Supreme Court Hears Arguments in MTC Case (Tax Policy Blog).

Roberton Williams, New Estimates Of How Many Households Pay No Federal Income Tax (TaxVox). “We now figure it is 45.3 percent, nearly 5 percentage points higher than our 2013 estimate of 40.4 percent.”  Mitt Romney, call your office.


TaxProf, The IRS Scandal, Day 881. Quoting Victor David Hanson: “What now constitutes actionable criminal behavior in the scandals at the IRS, EPA, ICE and a host of other alphabet agencies are not treated as per se violations of the law. Rather, they are judged according to whether the offender and his crime were deemed progressive and well-intended—or reactionary and thus prosecutable.”

Peter Reilly, Paul Caron’s Day By Day IRS Scandal Has Jumped The Shark – Part 1. Sometimes I think the TaxProf has to reach deep to have something to run every day, but his continued focus on the outrageous IRS behavior is a public service. I’m not sure Peter thinks there is a scandal in the first place.


Career Corner. Do PwC Employees Really Like the New Student Loan Perk? (Caleb Newquist, Going Concern). No word on whether the spiff is available in cash for those thrifty students who got by without loans.



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.




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




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).



Tax Roundup, 9/30/15: Taking from rich doesn’t give to the poor; state incentives favor the big.

Wednesday, September 30th, 2015 by Joe Kristan

Today we have two instances where policy tanks that I usually disagree with make important tax policy points.

TPC logoFirst, The center-left Tax Policy Center, a project of the Brookings Institution (which I castigate below), makes an important observation about the overrated problem of income inequality in their paper, Would a significant increase in the top income tax rate substantially alter income inequality? The summary (my emphasis):

The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution. The resulting effects on overall income inequality are exceedingly modest.

I have zero hope that politicians will heed this. Just because you take from the rich doesn’t mean it goes to the poor. It goes to the well-connected, as in the next item.

Second, the not-so-center-left Good Jobs First takes the side of the angels in the battle against state tax incentives, with a survey of small businesses called In Search of a Level Playing Field:

A national survey of leaders of small business organizations reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. 

I think they have this exactly right. It’s not start-ups that get the big deals from the legislature and the Economic Development bureaucrats. It’s the well-connected and wealthy companies that know how to work the system. The rest of us get to pay for it.




Jason Dinesen, The Iowa School Tuition Organization Tax Credit. “Iowa offers dozens of obscure tax credits. The one I get asked about most is the tax credit available for donations to a ‘school tuition organization’ or STO.”

Kay Bell, Maryland issuing court-ordered county tax credit refunds. If you don’t want to repay illegal taxes, don’t collect illegal taxes.

Russ Fox, How to Wynne Your Money Back in Maryland

Paul Neiffer, IRS Provides List of Counties Eligible For Additional Extension on Livestock Replacement

Jim Maule, Taxation of Prizes, Question Two. He quotes a post from a sweepstakes message board:

 I won concert VIP tickets, there is no value on the tickets, so I can’t sell them. If no value is on them, why am I paying taxes on them? 

Mr. Maule explains that there is a value. If there isn’t, then why didn’t the winner give them away?





InsureBlog, Yes, The New York Obamacare Co-op [squandered*] $340 Million. *The actual headline uses a more colorful term.

Robert Wood, Hillary Backs Cadillac Tax Repeal


TaxProf, The IRS Scandal, Day 874. Today’s edition features IRS agents abusing their power on everyday taxpayers. But we can trust them to regulate their tax preparer adversaries, right?

Arnold Kling, Hypocrisy and Cowardice at Brookings. Arnold addresses the firing by the Brookings Institution of Robert Litan, a scholar accused by Senator Elizabeth Warren of “writing a research paper to benefit his corporate patrons.” He is appalled:

1. Robert Litan is one of the most decent individuals in the whole economics profession.

2. Giving Litan’s scalp (sorry for the pun) to Elizabeth Warren does nothing to bolster the integrity of Brookings. It amounts to speaking cowardice to power.

There’s more. The episode is appalling, and it shows the totalitarian tendencies that are barely beneath the surface of Senator Warren’s populism.




Alan Cole, Donald Trump’s Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances (Tax Policy Blog)

Jeremy Scott, Trump’s Tax Plan Is Pretty Much GOP Orthodoxy (Tax Analysts Blog)

Matt Gardner, How Donald Trump’s Carried Interest Tax Hike Masks a Massive Tax Cut for Wealthy Money Managers (Tax Justice Blog)

Peter Reilly, Trump Tax Plan Would Increase Deficit By Over $10 Trillion

Tony Nitti, Love Trump, Hate Romney, But Their Tax Plans Are One And The Same

Renu Zaretsky, Thirty days, goodbye September, shutdown talks—maybe in December. Today’s TaxVox headline roundup covers shutdown politics, plans to use reconciliation procedures to pass bills repealing pieces of Obamacare, and tax Trumpalism.


See you at Hoyt Sherman Place tonight!



Tax Roundup, 9/28/15. IRS logic: A and B are part of set X. A is part of Set X, so B isn’t. And: Blood Moon!

Monday, September 28th, 2015 by Joe Kristan


Flickr image by Sage under Creative Commons license

Flickr image by Sage under Creative Commons license

On further review, it’s silly. I’ve had a weekend to think about last weeks IRS “Action on Decision” to continue trying to collect self-employment tax on Conservation Reserve Program payments in the Eighth Circuit. It’s a poke in the eye of the court, and one that will probably not help the IRS when it inevitably has to defend itself before the Eighth Circuit Court of Appeals.

The gist of the IRS position is that because legislation was enacted in 2008 that specifically stated that CRP payments are payments for renting real estate, and therefore, not self-employment income, to taxpayers collecting Social Security, they suddenly become self-employment income to everyone else.

The Eighth Circuit majority ruled in Morehouse that CRP payments to non-farmers pre-2007 were real estate rentals. Logically, saying that a subset of those payments are real estate rentals shouldn’t by itself make other payments something else. But that’s what the IRS argues.

Unfortunately, the IRS has now made uncertain a seemingly-settled area of the tax law. They did so by taking a position that, if taken by a taxpayer, might trigger negligence penalties. It really is another example of the need for a “Sauce for the Gander” rule that would make the IRS liable to taxpayers for penalties for faulty IRS positions in the same way taxpayers have to pay penalties for bad positions to the IRS.

Prior Coverage at IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.


Scott Sumner has posted an outstanding set of tax policy observations: Our bizarre system of taxing capital (Econlog). You really should read the whole thing, but I’ll give you a taste:

It’s difficult to think of a more bizarre and foolish policy than the practice of taxing capital. Consider:

1. If it were appropriate to pay taxes on capital gains, why wouldn’t it be appropriate to pay negative taxes on capital losses? Economic theories tend to be symmetrical. And yet capital losses do not result in negative taxes, except in certain limited cases. And why only those cases?

2. Economic theory suggests that two people with essentially identical economic outcomes should pay identical taxes. But consider two people who both bought 1000 shares of Apple stock for $50/share at the beginning of the year. One sold the shares on November 9th at $100 and bought them back 5 minutes later at the same price. Both held 1000 Apple shares at year-end. To an economist those two outcomes are essentially identical. But one person must pay a large tax on capital gains, while the other does not. Why?

A fan of capital gain taxes would say that just means we should tax unrealized capital gains. Mr. Sumner is not such a fan:

A simpler and fairer solution would be to abolish all taxes on capital, and start over.

But because that would help “the rich,” it isn’t happening. Nothing is too stupid or counterproductive to do to them.


"Blod moon" photos by Jose Guerrero, taken in Columbia. Used by permission.

“Blood moon” photos by Jose Guerrero, taken in Colombia. Used by permission.



A client should not take the finished returns from his/her tax professional and just sign and mail without actually looking at them. The client should carefully review all the forms and schedules that make up the returns before signing the return, and ask the preparer if there is something that he/she does not understand.

And that is the problem with clients who wait until the very last minute — I mean October 15, when no further extensions are available — to finish their tax information. They obviously aren’t going to give the return a good review when they have to immediately sign the e-file authorization or run it to the post office. But if there is something seriously wrong, the IRS isn’t going to take “I didn’t have time to review before filing” as an excuse.


Kay Bell, Electric vehicle tax credits favor the wealthy. You don’t see many Teslas, or for that matter Chevy Volts, in poor neighborhoods.

Paul Neiffer, Involuntary Conversion of Livestock. “If a farmer sells livestock because of consequences of a drought, the payment of income tax on the taxable gain from the sale may be postponed.”

Jason Dinesen, How to Calculate an RMD. If you don’t start withdrawing from your IRA when you hit 70 1/2, the penalties pile up.

Jim Maule, Taxation of Prizes, Question One. “So a person wins a prize, tells the company awarding it that the winner cannot accept it because it will be taxed, creating a liquidity problem, and the company spokesperson says, in effect, ‘Not a problem, it’s not in cash, we won’t send a Form 1099.'”

Peter Reilly, A Slick Estate Planning Trick And Intimations Of Mortality. “The Tax Court decision in the case of Jean Steinberg is a great example of planners taking a rule that is meant to prevent taxpayers from getting away with something and using it to, well, get away with something.”

Russ Fox, Neymar Tax Evasion Investigation Continues; Judge Freezes $48 Million of Assets. Considering how impossible Brazil’s tax system is, it would be surprising if somebody there weren’t guilty of a tax crime.


brazil chart 2


Tony Nitti, House Bill Would Give Tax Deduction, Credit In Exchange For Learning Science And Math. The tax law. Is there anything it can’t do?


Jack Townsend, GE Asks the Supreme Court to Screw Up Again to Bless a BS* Tax Shelter. *Expletive deleted.

Leslie Book, Fifth Circuit Tackles Intersection of TAO Rules and Statutes of Limitation (Procedurally Taxing). “Earlier this week in Rothkamm v US, the Fifth Circuit issued an opinion that considered whether a wife’s application for a Taxpayer Assistance Order (TAO) concerning a recovery of funds levied from her bank account to satisfy her husband’s tax debt tolled the nine-month wrongful levy statute of limitations.”




David Brunori on historic preservation credits ($link): “Nothing says boondoggle like giving rich folks tax dollars to fancy up old buildings.”

TaxProf, The IRS Scandal, Day 870Day 871Day 872. Including musings about how the IRS gagged on Tea Party gnats but swallows Clinton Foundation camels.

Scott Greenberg, Senate Democrats’ Bill Would Overhaul the Treatment of Energy in the Tax Code (Tax Policy Blog):

Currently, nearly every source of energy is subsidized to some extent by the federal government. This means that the U.S. economy is more energy-heavy than it would be under normal market conditions, leading to an inefficient allocation of resources. The Senate Democrats’ bill would continue to heavily subsidize energy production in the United States.

In general, tax expenditures, such as energy subsidies, leave the federal government with less revenue, requiring higher tax rates overall on individuals and businesses.

Anybody who thinks Congress will wisely allocate these subsidies to create our optimal energy use mix for the country hasn’t been paying attention in recent decades.

Renu Zaretsky, A Resignation, and… Resignation. Today’s TaxVox headline roundup covers the implications of Speaker Boehner’s resignation, a politician promising more tax credits! and the sublime awfulness of trying to pay business taxes in Brazil.


News from the Professon. Deloitte Dabbles in Orwellian Tracking Devices (Greg Kyte, Going Concern). “The gadget looks and works like what you would expect if an ID badge had sex with an iPhone.”



Tax Roundup, 9/25/15: IRS: Post-2007 CRP payments remain self-employment income unless you collect Social Security.

Friday, September 25th, 2015 by Joe Kristan

binIRS says not farming is just like farming, for self-employment tax purposes. Last year the Eighth Circuit Court of Appeals ruled that non-farmers are not subject to self-employment tax on conservation reserve program payments received for not planting land. The IRS yesterday announced (AOD 2015-02) that it disagrees with the decision. It said that it will follow the decision only within the Eighth Circuit, and even there only for pre-2008 payments.

The Eighth Circuit panel said that CRP payments are properly treated for non-farmers as rentals from real estate, which are not subject to SE tax. The IRS says it still disagrees, and it said that a 2008 law change “clarified” things (my emphasis):

In addition, the 2008 amendment to section 1402(a)(1) to treat CRP payments made to Social Security recipients as rentals from real estate effective for tax years beginning after December 31, 2007, served to clarify that other CRP payments are not excluded as rentals from real estate. Congress neither enacted a blanket exclusion with respect to CRP payments (or CRP payments made to non-farmers) nor evidenced any disagreement with the analysis of the Sixth Circuit in Wuebker. Although the statutory amendment does not apply to the years at issue in Morehouse, the implication is that prior to the amendment, CRP payments to farmers and non-farmers alike are not excludible from self-employment income as rentals from real estate. If these payments were already excluded as rental payments then the amendment would have been unnecessary. After the amendment, the implication is that CRP payments to farmers and non-farmers alike are not excludible from self-employment income unless made to Social Security recipients.

That conclusion may not go unchallenged. Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation had a different take after the Eighth Circuit decision came down:

For CRP rents paid after 2007, the question is whether the recipient is a materially participating farmer.

That means the IRS can be expected to reject refund claims for SE tax paid by those not receiving Social Security payments. From the AOD:

We recognize the precedential effect of the decision in Morehouse to cases appealable to the Eighth Circuit. Accordingly, we will follow Morehouse within the Eighth Circuit only with respect to cases in which the CRP payments at issue were both (1) paid to an individual who was not engaged in farming prior to or during the period of enrollment of his or her land in CRP and (2) paid prior to January 1, 2008 (i.e., the effective date of the 2008 amendment to section 1402(a)(1)). We will continue to litigate the IRS position in the Eighth Circuit in cases not having these specific facts. We will also continue to litigate the IRS position in all cases in other circuits.

This means the whole issue will assuredly end up back in the courts sooner or later. For now, though, we are on notice that the IRS considers current CRP payments to be subject to SE tax in all circuits.

Robert D. Flach has a fresh Friday Buzz roundup of tax bog posts, with items including the awfulness of the coming tax season, state tax fairness, and the savers tax credit.

TaxGrrrl, 7 Budget & Tax Related Reasons We May Be Headed Towards A Government Shutdown.

Kay Bell, Bartering is a great — and taxable — way to buy and sell. A lack of cash doesn’t mean a lack of tax.

Jim Maule, In What Year Should a Prize Be Reported as Gross Income?. “The question is simple. When a person wins a prize, in what year should the person report the income on the federal income tax return?”

Sheldon Kay, “Judging Litigating Hazards – Another View” (Procedurally Taxing). “He [Keith Fogg] also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.”

Annette Nellen, Challenges of base broadening


Alan Cole, Cadillac Tax Working as Planned on Auto Workers (Tax Policy Blog). ”

The situation above is not a mistake in the Affordable Care Act; rather, it is the Cadillac tax fulfilling both of its intended goals.

The first goal is to encourage substitution from employer health benefits back towards ordinary compensation, like wages and salaries…

The second goal of the Cadillac Tax is to raise revenue.

By delaying the painful parts, the bill fooled enough people long enough to get enacted. Now the rubes are catching on, but it’s too late.

Robert Wood, Bernie Sanders And Republicans Both Urge Cadillac Tax Repeal




TaxProf, The IRS Scandal, Day 869

Norton Francis, The Trouble with State Tax Triggers (TaxVox). “Here’s how a tax trigger works: A state cuts taxes over a period of years. There may be an initial tax cut that takes effect right away but future reductions are tied to some other benchmark, typically (but not always) achieving an overall revenue target.”

Sebastian Johnson, Maine Republicans Double Down on Tax Cut Fervor (Tax Justice Blog).


If only he had been regulated by the IRS. Oh, wait… IRS Agent Busted for Extorting Money From Marijuana Dispensary Owner (High Times, Via the TaxProf)



Tax Roundup, 9/15/15: Today is a big due date. Also: more on preparer regulation, and Outlaw outlawry!

Tuesday, September 15th, 2015 by Joe Kristan

e-file logoExtended corporation, partnership and trust returns are due today! E-file is the best way to be sure to timely file. If you can’t, or won’t, e-file, Certified Mail, Return Receipt Requested, does the trick; save the postmark.

If you don’t get to the post office before they take their last smoke break for the day, you can go to the Fed-Ex or UPS store and use a designated private delivery service; be sure the shipping method you select is one of the “designated” ones at the link. Make sure the shipping bill shows that you dropped it off today, and make sure it is addressed to the proper IRS service center street address, as the private services can’t use the P.O. box service center addresses.

Third quarter estimated tax payments are also due today for calendar year filers.

Related: Paul Neiffer, September 15 is Worse Than April 15, “Most people who wait to file on September 15 or October 15 are, shall we say, not quite so efficient with their record keeping and thus, it is much tougher for us to get information and to get the tax return done.” Paul is absolutely right.


20130121-2Russ Fox, The NAEA Won’t Like This Post:

I’m a member of the National Association of Enrolled Agents. Generally, I’m supportive of their policies. However, I am not a fan of mandatory preparer regulation. Other than giving the IRS more money and getting rid of the lowest hanging of the bad preparers, preparer regulation won’t accomplish many positives for the general public.

The NAEA’s support of preparer regulation is baffling. The idea of the IRS certifying all preparers strikes me as a deadly threat to the Enrolled Agent brand.

Right now, EAs are the only professionals who have to pass an IRS administered test, one much more rigorous than the one in the abortive Registered Tax Return Preparer plan under the defunct preparer regulations. EAs also have much more serious continuing education rules.

For all this the EA designation is not nearly as well-known as the CPA designation, which isn’t even a tax-specific credential. The RTRP designation threatens to further obscure the EA brand.  Both EAs and RTRPs will be “IRS approved,” and given their failure to establish the EA brand so far, it’s likely to be impossible to get clients to appreciate the superior EA credential.


buzz20150804Buzz! With Robert D. Flach, a fresh tax blog roundup with Robert’s own inimitable style. Topics include this year’s slow-walk of the extenders legislation and the Senate push to regulate preparers.


TaxGrrrl, Congress May Give IRS Authority To Regulate Tax Preparers:

It’s my feeling that the bad guys are the bad guys: forcing you to take ethics courses doesn’t change that. Incompetent and lazy preparers are incompetent and lazy: forcing someone to sit through continuing education courses (likely while text messaging, trust me, I’ve been a speaker at these things) doesn’t make that person smarter or more conscientious. 

It’s another “bootleggers and Baptists” play. Prohibition was supported by do-gooders who naively thought they were making the world a better place, and by bootleggers, who profited from prohibition. Here the Baptist elder is Taxpayer Advocate Nina Olsen, and the bootleggers are the big national tax prep franchise outfits.


Robert Wood, IRS Offshore Account Penalties Expand, More Banks Sign.

Jim Maule, A New Tax Specialty: Porn:

 According to this report, the Alabama House Ways and Means Committee, trying to deal with a budget shortfall, has approved legislation imposing a 40 percent excise tax on, well, it depends on whose explanation is accepted. Some are calling it a tax on porn.

Well, at least they won’t have trouble recruiting auditors.

Jack Townsend, Another B   S   Tax Shelter Bites the Dust. Fill in the blanks.

Kay Bell, 3 ways to navigate estimated tax penalty safe harbors


TaxProf, The IRS Scandal, Day 859

Huaqun Li, Stephen J. Entin, China to Remove Dividend Tax for Long-Term Shareholders (Tax Policy Blog)




Well, they were called the “Outlaws.” David Allen Coe was part of the “Outlaw” country music movement led by Waylon Jennings, Willie Nelson, Johnny Cash, and Hank Williams Jr. Now, like Willie, Mr. Coe has some tax problems. reports:

Country singer David Allan Coe owes the IRS nearly a half-million dollars for taxes due as far back as 1993. The singer pleaded guilty to one count of obstructing the due administration of the IRS on Monday (Sept. 14) and could face three years in prison plus a $250,000 fine.

Coe, known for his hit “Take This Job and Shove It,” owes more than $466,000, according to the Cincinnati Enquirer. This includes taxes from 2008 to 2013 when he either failed to file income tax returns or didn’t pay taxes owned. Interest and penalties are part of the figure.

Mr. Coe had a little run-in with the law at a Des Moines area casino a few years back (arrest video here), but the disorderly conduct charges were dismissed. This outlawry promises to be a little more troublesome, but now all he needs is mom, pickup trucks, trains and a drink for a perfect country and western song.



Tax Roundup, 9/11/15: The pitfalls of putting loss generators in a tax-exempt entity. And: Robert remembers a client.

Friday, September 11th, 2015 by Joe Kristan

20150911-2When the income isn’t taxable, the losses aren’t deductible. Some stockbrokers like to buy publicly-traded natural resource partnerships as IRA investments. I dislike them because those partnerships can trigger Unrelated Business Income Tax in an otherwise tax-exempt IRA.

An attorney in Virginia illustrated another problem with IRA partnership investments in Tax Court yesterday. From the opinion by Judge Haines:

Petitioner maintained a traditional IRA during 2009 and used it to buy and sell various securities, including shares of two master limited partnerships that were involved in the oil and gas pipeline and storage industry–Atlas Pipeline Partners, L.P. (Atlas), and Crosstex Energy, L.P. (Crosstex). Petitioner received a Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., from Atlas reporting a $66,075 ordinary business loss for 2009. The Schedule K-1 indicated “Trad IRA VFTC as Custodian” and stated that the partner was an “IRA/SEP/KEOGH”. Petitioner reported this loss on the Schedule E,  Supplemental Income and Loss, attached to his 2009 Form 1040, U.S. Individual Income Tax Return. Petitioner received a Schedule K-1 from Crosstex reporting a $22,793 ordinary business loss for 2009 and stating that the partner was an “IRA/SEP/KEOGH”. Petitioner also reported this loss on the Schedule E attached to his 2009 Form 1040.

This would have been a remarkable result, if it worked. Individual owners of publicly-traded partnerships have their K-1 losses automatically disallowed under the passive loss rules. Unlike other passive losses, those from publicly-traded partnerships can’t offset other passive income; they can only offset future income from the same partnership, until the partnership is sold.

Within an IRA, though, the losses are never allowed. The tax law allows IRAs to earn income without current tax. The idea is to help taxpayers accumulate funds for retirement. Any tax is deferred until you withdraw funds from the IRA. The downside of this is that losses are also deferred. The only way to deduct a loss from IRA investments is to completely close out the IRA. That only works if you have made non-deductible contributions to the IRA, giving you basis. From, Publication 590b:

If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.

Your basis is the total amount of the nondeductible contributions in your traditional IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Our attorney was having none of that. From the Tax Court:

Petitioner argues, in part, that an IRA has “all of the attributes of a grantor trust and is therefore a pass through entity which makes all items of income, deduction and credit treated as belonging * * * [to him] and reportable on * * * [his] individual tax return”.

I’m sure he would have taken that same principled position if those K-1s generated a bunch of taxable income.

Petitioner advances various tax policy arguments which he believes support this position. For example, he contends that restricting an IRA holder’s ability to deduct a loss that occurs when an investment held by  the IRA is sold thwarts congressional intent to encourage individuals to save for retirement. He also claims that requiring retirees to completely liquidate their IRAs in order to recognize a deductible loss is “unreasonable, arbitrary, capricious and completely unworkable for savers dependent upon IRA/SEP income for their retirement.”

Unfortunately, heads-I-win, tails-you-lose only works for the IRS. Again from the Tax Court:

While petitioner may not agree with the way the law is written and may have reasons that he believes support changing the law, we cannot do that for him.

Silly lawyer. Only the Supreme Court can rewrite tax law.

The Moral: IRA investments in partnerships can give you the worst of both worlds. You can make a tax-exempt entity taxable (or much worse, if you invest in the wrong partnership), but your losses are almost never useful.

Cite: Fish, T.C. Memo 2015-176.


Jared Walczak, Liz Malm, Where Does Your State Stand on State & Local Debt Per Capita? (Tax Policy Blog):


This is one measure where Iowa looks pretty good.


MOE BARRYRobert D. Flach, NEVER FORGET. Robert remembers a client who died 14 years ago today in New York.

Kay Bell, Fantasy football payouts mean real income taxes. Don’t worry, it’s made up for by the lowered income taxes of employers resulting from lost productivity during Fantasy season.

Jim Maule, Tax Client and Tax Return Preparer Meet Up in People’s Court.  “[A] preparer ought not accommodate a client who wants a return that does not comply with the law. It’s that simple.”

Peter Reilly, Jeb Bush And The Spirit Of 1986. “Somebody should tell Jeb Bush that tax accountants don’t write the Internal Revenue Code and it is a lot shorter than he thinks it is.”

Keith Fogg, IRS Inaction in Prior Years Provides Path to Penalty Relief for Substantial Understatement Penalty – Fire and Rain (Procedurally Taxing).

Robert Wood, Marijuana Taxes Go Up In Smoke On Sept. 16. In Colorado, for one day only. Mark your calendars!

TaxGrrrl, Over 2,000 Businesses Send Letter To Congress Demanding Attention To Tax Extenders Bill. They’ll get to it when they get to it, peasants!

Russ Fox, How Should Multiple Buy-Ins for a Poker Tournament be Handled on a W-2G? I have no idea what he’s talking about, but I’m sure many of you do.

Jack Townsend, Another Swiss Bank Obtains NPA Under DOJ Swiss Bank Program. If you want to skip taxes with the help of offshore bank secrecy, it’s not likely to work.



Joseph Thorndike, Don’t Bother Fixing the Tax Code Unless You Fix the IRS Too (Tax Analysts Blog). “Because even a good tax law will fail when administered by a bad agency.”

Howard Gleckman, The Cost of the Bush Tax Cuts, and What It Might Mean (TaxVox). “My colleagues at the Tax Policy Center plan to have their own estimates of the distributional and revenue cost of his plan soon. But there is no doubt the plan is a huge tax cut.”

Bob McIntyre, Bush and Trump’s “Populist” Tax Rhetoric Is All Talk (Tax Justice Blog).


TaxProf, The IRS Scandal, Day 855

News from the Profession. AICPA Survey: College Students Overconfident, Exaggerate, Delusional, Etc. Etc. About Their Personal Finance Skills (Caleb Newquist, Going Concern)



Tax Roundup, 9/10/15: True crime edition; or, how to get the IRS to pay attention.

Thursday, September 10th, 2015 by Joe Kristan

IMG_0603How to make sure the IRS comes looking for your tax fraud. A Minnesota man will have 6 years to ponder mistakes he made diverting employment and excise taxes he owed to finance good times. From

Fifty-seven-year-old Bartolemoea Montanari, formerly of Bayport, was sentenced Wednesday. Montanari was also ordered to pay mandatory restitution of $100,000 and, additionally, to pay more than $1.5 million as a special assessment for the taxes, interest and penalties owed.

According to court documents, from 2009 until January 2012, Montanari willfully evaded the payment of employment and excise taxes owed by him and the three businesses he controlled: St. Croix Development, Emlyn Coal Processing, and Montie’s Resources.

He was convicted on the three counts of an indictment accusing him of diverting funds to a shell company from his legitimate businesses, and then withdrawing funds from the shell company to finance, well, stuff:

During sentencing, the judge noted Montanari used the money he stole to finance an “incredibly flamboyant lifestyle,” that this was “not a single error of judgment,” and that Montanari had “many chances” to correct his behavior, but did not. 

The indictment says the lifestyle included a $1.4 million home in Tennessee and “numerous personal vehicles.”

The defendant would seem to have made two mistakes to help ensure that the IRS would come snooping. First would be the “incredibly flamboyant lifestyle.” Taxgrrrl notes a Pennsylvania tax investigation apparently started when federal agents noticed a fancy house from the air. If the feds don’t notice themselves, envious or annoyed neighbors or associates might bring their questions about a flamboyant lifestyle to their attention.

More importantly, he failed to pay over employment taxes. His employees certainly  wouldn’t have failed to report their W-2 wages and claim their refunds. Despite its information processing shortcomings, the IRS can and does notice that. The main difference between committing employment tax fraud and confessing to it is the amount of work the IRS has to do before pressing charges.




Speaking of foolproof crimes: Hot Lotto rigger sentenced to 10 years (Des Moines Register). The case involved an alleged inside job by an IT professional at the Multi-State Lottery:

The case has enthralled Iowans and gained national attention since late December 2011, when a New York attorney tried to claim — just hours before it would expire — a Hot Lotto ticket worth $14.3 million on behalf of a trust incorporated in Belize. The identity of the original ticket purchaser was a mystery.

Authorities with the Iowa Division of Criminal Investigation began looking into Tipton after several people identified him as the hooded man in a video showing the ticket being purchased at a Des Moines QuikTrip. At the time, Tipton was the information security director for the Urbandale-based Multi-State Lottery Association that provides games such as Hot Lotto to lotteries nationwide.

[Assistant Attorney General] Sand told jurors at trial that Tipton installed a self-deleting software program, called a rootkit, onto lottery drawing computers to manipulate the outcome of a Dec. 29, 2010, draw. Tipton then filtered the winning ticket he bought through a friend, Robert Clark Rhodes II, from Texas in an attempt to claim the money, Sand said.

There’s a reason lottery workers aren’t allowed to play the lottery. The lawyer and Belize trust didn’t help the whole thing slip by unnoticed.


Tony Nitti, How To Talk About The Yahoo Spin-Off Without embarrassing Yourself. A walk through the mysteries of tax-free corporate separations.

Russ Fox, IRS Removes Social Security Number from Some Notices But…:

The reason for this is the problem of identity theft. And I give kudos to the IRS for this. Unfortunately, the IRS hasn’t executed this that well.

Today I opened an IRS notice that was sent to a client. The good: The social security number in the header had only the last four digits. The bad: Right below the header the IRS put in a bar code–presumably to make processing of the return mail easier. Below the bar code in relatively small print (but easily readable by me, and I wear glasses) was the deciphering of the code. Of course, it contained the social security number.

The IRS, protecting your identity since 1913.

Jason Dinesen, From the Archives: Will Obamacare Tax Your Home Sale?

Paul Neiffer, Don’t Forget Those Fuel Tax Credits. “Most farmers obtain dyed diesel without having to paying federal and in most cases state excise taxes.  However, there can be many other uses on the farm that will allow a farmer to claim a fuel tax credit on Form 4136.”

Kay Bell, Tax diplomas, computer games and soap operas. “Will informing folks about the role of taxes in their countries, especially starting at an early age, help create more tax responsible citizens?”

Jim Maule, It’s a Failure of Some Sort, But It’s Not a Tax Failure. The professor reminds us not to believe everything you read on the internet.






TaxProf, The IRS Scandal, Day 854

Howard Gleckman, Jeb Bush’s Tax Plan: High Marks for Transparency But Key Questions Remain (TaxVox). “At first glance, GOP presidential hopeful Jeb Bush’s tax reform plan is a standard lower-the-rates, broaden-the-base overhaul of the revenue code. But a closer look shows a something-for-everyone stew filled with interesting ingredients—most basic GOP fare but seasoned with a few surprising ideas.”


Well, it’s not my thing, but if it’s for the kids…  Let’s Get High for the Children (David Brunori, Tax Analysts Blog):

Every proposal, like the one in Arizona, calls for dedicating marijuana tax revenue to schools, which is a terrible idea. Perhaps everyone will be stoned and won’t care, but aren’t schools important enough to pay for with real, broad-based taxes on income, sales, or property?

Politicians might look for a way to legalize slavery if they thought it would give them more revenue.

Joseph Henchman, Colorado Suspends Marijuana Tax for One Day on September 16 (Tax Policy Blog).


News from the Profession. Rihanna and 50 Cent Need New Accountants (Going Concern)



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 ( Disturbing trends on the inability of the Des Moines-area public transportation service to cover its operations through fares: 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:


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.




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.




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.



Tax Roundup, 8/28/15: Reverse Danegeld. And: stealing a Congressional tax refund!

Friday, August 28th, 2015 by Joe Kristan
Flickr image courtesy stu_spivack under Creative Commons license

Flickr image courtesy stu_spivack under Creative Commons license

May I have another Danish? It’s a lot less fun to be a Dane than it might have been 1,000 years ago. Back then, cowering kings paid a Danegeld, a payment to keep the fearsome Danish Vikings away. From Wikipedia:

The Danegeld (/ˈdn.ɡɛld/;[1] “Danish tax”, literally “Dane tribute”) was a tax raised to pay tribute to the Viking raiders to save a land from being ravaged. 

Now the money is going the other way, it appears, because the Danish tax agency is outdoing the IRS in sending money to thieves, no questions asked. reports Danes stunned by €800mn tax fraud:

Criminals have duped Denmark’s tax authority into incorrectly refunding €830 million in the past three years, by filling out an online form for tax refunds under double taxation agreements.

The fraud was alerted to police on Wednesday (26 August) and appears to be the country’s biggest tax scam ever, with little chance for the state to recover the money.

They apparently made it easy:

With most of Danish taxes administrated online, it was easy for the fraudsters to fill in the one-page, so-called 06.020 form on the tax authority’s homepage and then claim refunds for taxes paid on stock revenues from Danish companies held by foreign companies.

The fraud would have been easily revealed if the tax authority cross-checked the ownership of shares with Danish companies.

Denmark has about 5 million people, so it’s as though the scammers had taken $185 from every Dane. That would translate to about a $55 billion theft loss in the U.S. Actual annual losses from U.S. tax refund fraud are estimated to run in the neighborhood of $5-6 billion annually.

Being better than Denmark doesn’t seem to comfort one congressman very much. Deseret News reports Congressman Jason Chaffetz is victim of tax return scam:

Chaffetz, chairman of the House Oversight Committee, is using the incident to add fuel to his call for the firing of IRS Commissioner John Koskinen.

The congressman asked President Barack Obama last month to remove Koskinen, saying he has obstructed congressional investigations into the treatment of conservative groups. Chaffetz said not only has Koskinen ignored a congressional subpoena but has shown an inability to manage a large organization and protect sensitive data.

“There has to be a better, smarter way to authenticate who somebody is. Social Security numbers are floating out there everywhere,” the congressman said.

While the refund fraud debacle started before Koskinen became IRS Commissioner, he sure hasn’t gotten it under control.


A loss in the Iowa tax policy world: Co-founder of Iowans for Tax Relief dies.

buzz20150827Friday Buzz! from Robert D. Flach, rounding up stories from the tax uses of capital losses to catching up on retirement savings.

Russ Fox, Will the Last One Out Turn the Lights Off? “Nearly four years ago my business–and the one whole employee in the Bronze Golden State (me)–left for Nevada because sometimes silver is better than gold.” And their politicians are primed to make California taxes worse still.

Annette Nellen, Sales tax on short-term rentals? Maybe! “The ease of listing your home, vacation property or a room on Airbnb or similar web platform has turned a lot of individuals into landlords.”

Paul Neiffer, Midwest Cropland Values Continue to Drop

Kay Bell, Still waiting for tax extenders. Is money the holdup?

Jim Maule, Traffic Ticket Fines Based on Income? “So my bottom line is, yes, conceptually it is an interesting idea with some valid arguments in support, and with some valid arguments in opposition. But when I turn to practical reality, a benchmark too often overlooked, the answer for me is clearly, ‘No, it’s not worth it.'”

Keith Fogg, Quiet the Title before You Sell (Procedurally Taxing)

Robert Wood, Under Obamacare, Does Everyone Drive A Cadillac?. That’s nothing. Under President Vermin Supreme, everyone gets a pony.

Me, Who should own the bricks?. My latest at, the Des Moines Business Record’s business professionals’ blog, discusses the problems of structuring ownership of business real estate.




Scott Greenberg, Here’s How Much Taxes on the Rich Rose in 2013 (Tax Policy Blog):

So, in 2012, the wealthy had higher-than-usual levels of capital gains income. Therefore, because capital gains are taxed at a lower rate, overall tax rates on high-income Americans were lower than usual in 2012. In 2013, because high-income Americans had much less income from capital gains, their effective tax rates rose significantly.

But some people, including those in the White House now, never beleive the rates are high enough.


Howard Gleckman, CBO Sees a Big Increase in Individual Income Tax Revenues Over the Next Decade. They’ll always want more.

TaxProf, The IRS Scandal, Day 841


News from the Profession. CohnReznick’s Golf Event Won’t Solve Gender Inequality (Greg Kyte, Going Concern)



Tax Roundup, 8/26/15: The Twins defeat the IRS, so IRS may try to change the rules. Also: EITC fraud, and more!

Wednesday, August 26th, 2015 by Joe Kristan

20150826-2The Minnesota Twins have won five in a row. Six, if you count a recent IRS victory by the family that owns the ballclub. It is recounted by Ashlea Ebeling, Estate Of Late Minnesota Twins Owner Carl Pohlad Settles With IRS (via the TaxProf):

The main issue in the estate tax case was how to value Pohlad’s stake in the Minnesota Twins at the time of Pohlad’s death in January 2009 (he was 93). The Pohlad estate valued it as just $24 million for tax purposes, while IRS auditors pegged it at $293 million. Pohlad used typical wealth transfer techniques to limit estate taxes: splitting ownership and control of assets to theoretically reduce what an unrelated buyer would pay for them. 

But the administration doesn’t approve of valuing split interests based on their actual value:

Estate planning with family entities (family limited partnerships and limited liability companies) and the accompanying availability of valuation discounts is in the spotlight. Advisors have been warning clients all summer that the Treasury Department may be coming out with proposed regulations curtailing discounts by next month, and that the new rules could be effective immediately.

That will surely lead to litigation, as it isn’t clear the IRS has that power. It does add great uncertainty to succession planning, which is uncertain enough to begin with.




The St. Louis Post Dispatch reports on tax preparers indicted on allegations of earned income tax credit fraud. The charges say the operators of a business known as Tax King are alleged to have:

…trained Tax King employees how to falsify certain information to maximize returns.

Clients, for example, were allegedly encouraged to fill in false business information in order to qualify for earned income credits. They were allegedly also instructed to submit false education expenses, as well as inaccurate information regarding fuel taxes in order to qualify for tax credits.

Up to 25% of earned income tax credits are paid “improperly.” We are regularly assured that “improperly” doesn’t mean “fraudulently.” Taxes are hard, and all that. Well, if they aren’t stolen, it’s not for lack of effort.


William Perez, What to Do if You Contributed Too Much to Your Roth IRA. “There are four ways to fix this problem that are all pretty straightforward.”

TaxGrrrl, Making Sure You Eat: Paying Yourself As A Small Business Owner

Tony Nitti, Tax Geek Tuesday: Understanding Partnership Distributions, Part II –The Mixing Bowl Rules. “If a partner contributes property with a built-in gain or loss to a partnership and the partnership later distributes the property to a partner other than the contributing partner within seven years of the contribution, the contributing partner recognizes gain or loss equal to the built-in gain or loss…”

Kay Bell, NRA lawsuit takes aim at Seattle’s new gun and ammo taxes. A “gun violence” tax on guns and ammo makes as much sense as “drunk driving tax” on all alcohol purchases. It doesn’t tax what it purports to tax.

Peter Reilly, About That Kenneth Copeland Mansion You Saw On John Oliver. On abusive parsonage allowances.

Carl Smith, Tenth Circuit Hook Opinion: Interest and Penalties Must Also Be Paid to Satisfy Flora Full Payment Rule (Procedurally Taxing).  You can’t sue for a refund of a tax you haven’t paid.

Jack Townsend, Category 2 Banks under DOJ Swiss Bank NPA Program. A listing of the Swiss banks that have cut deals with the U.S. tax authorities.



Scott Greenberg, Four Tax Takeaways from the Most Recent CBO Report (Tax Policy Blog).

Over the last fifty years, on average, the federal government has collected 17.4% of GDP in revenues. Yet over the next ten years, the federal government is expected to take in 18.3% of GDP in revenues, nearly a whole percentage point higher than the historical average. The CBO forecasts that, in 2016, the federal government will collect 18.9% of GDP in taxes, higher than any year since 2000.

I don’t think that’s a good thing.


Howard Gleckman, Should College Endowments Be Taxed? (TaxVox).

But why not just make the endowments taxable and use some of the huge revenue windfall to boost tuition assistance and other supports for those students who really need it?

Maybe taxing amounts that aren’t used to reduce tuition. A rich university shouldn’t be saddling its students with debt — or asking for more federal subsidies — while its money managers are living high.


TaxProf, The IRS Scandal, Day 839. Toby Miles figures prominently.

Robert Wood, IRS Reveals Lois Lerner’s Secret Email Account Named For Her Dog.


The dangers of premature tweeting:


Oops. An hour later, the Dow closed down another 204 points.


Jim Maule, A Rudeness Tax?:

Modern American tax policy, which is in tatters, is of such a wrecked nature that it is only a matter of time before someone proposes a refundable politeness credit. The form would be fun, would it not? “How many times during 2017 did you hold a door open for another person?” Even better, the audits and the Tax Court litigation.

Prof. Maule is right: not every problem is a tax problem. Yet the politicians propose a tax solution for every problem anyway.