Posts Tagged ‘maule’
Thursday, February 21st, 2013 by Joe Kristan
I arrived from out-of-town late, so I’m off to a late start this morning, so the roundup is abbreviated today.
Russ Roberts, Why so many Americans pay no income tax. “I still think we should get rid of the payroll tax and raise income tax rates.”
TaxProf, Supreme Court Hears Oral Argument in PPL Corp. v. Commissioner, involving a foreign tax credit shelter.
Kay Bell, Travel tracking apps, website can help at tax time. Nothing says auto business logs have to be on paper.
Christopher Bergin, Leaving the IRS: A True Tax Pro (Tax.com) On the retirement of Deborah Butler.
Jim Maule, Tax Commercial’s False Facts Perpetuates Falsehood. If the ad’s error on the length of the Internal Revenue Code is the only thing wrong, that may actually be progress, sadly.
TaxGrrrl, Five Ways To Pay Your Taxes When You Don’t Have The Cash
Trish McIntire, OIC Calculator. When you absolutely, positively can’t pay.
William McBride, Bowles Simpson Call for More Taxes, More Growth
Patrick Temple-West, Sequester talks grow harsh, and more (Tax Break)
Sure the murder charges are serious, but don’t let them find out about the offshore bank accounts! Pistorius’ Brother and Lawyer Allegedly Removed Documents from the Crime Scene Related to Offshore Bank Accounts (Jack Townsend).
Paul Neiffer, Good News for Blackberry, Raspberry and Papaya Farmers. You know who you are.
A new Cavalcade of Risk is up at Nerd Wallet.
Today’s career tip: Bad Spelling Can Derail an Otherwise Promising Career in Fraud (Going Concern)
Tags: cavalcade of risk, Christopher Bergin, Going Concern, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Russ Roberts, TaxGrrrl, TaxProf, Trish McIntire, William McBride
Posted in Uncategorized | No Comments »
Wednesday, February 13th, 2013 by Joe Kristan
State of the union: raise taxes more. It will never be enough. If you think we don’t have a spending problem, or think we can solve it through “closing loopholes,” check out three charts gathered by Veronique de Rugy:
The President proposes nothing serious.
Breaking news from yesterday: Look for a Call to End Oil “Subsidies” in Tonight’s State of the Union (Andrew Lundeen, Tax Policy Blog)
Howard Gleckman, Obama’s State of the Union and the Great Deficit Smackdown (TaxVox)
How H&R Block guy got to write preparer regs. Civil Service! Tim Carney reports:
In 2009, the Obama administration hired Mark Ernst, the previous CEO of tax prep giant H&R Block, as IRS deputy commissioner. Ernst became a “co-leader” (in the words of an IRS spokesman) in drafting new regulations for tax preparers.
This seems to clash with President Obama’s executive order barring appointees from working on regulations directly affecting their former employers.
But thanks to a fine legal distinction, these rules didn’t cover Ernst. “Mark Ernst is a civil servant at the IRS; he is not a political appointee,” an IRS spokesman wrote me. “The Presidential Executive order on Ethics Commitments by Executive Branch Personnel only applies to political appointees.”
Nobody here but us chickens.
Jason Dinesen has a new installment about his client whose identity was stolen in the ID theft epidemic that really got rolling while the IRS was busy regulating preparers. “If you hired the best comedy writers and satirists in Hollywood, they couldn’t come up with a more farcical script about government ineptness.”
Speaking of government competence:
Not only will most farmers have to file after March 1, 2013 due to a delay in tax forms by the IRS, we now have an announcement that almost all form 1099s issued by the USDA for Natural Resources Conservation Services payments in 2012 are either wrong or were never issued.
via Paul Neiffer.
David Brunori, If You Hate or Love Excise Taxes Read this New Report:
A new working paper recently released by the Mercatus Center at George Mason University… finds that contrary to conventional wisdom, sin taxes are often not used to correct externalities but rather for general fund spending. My take on that is politicians don’t really care about externalities. They would like to raise money from people whose activities they despise. The report also found that the goal of “sin taxes” has changed from correcting market failures to protecting consumers from their own choices. That is, people are too stupid to run their own lives and they need help. Finally, the report finds that sin taxes are regressive, i.e., they punish the poor. Unfortunately, my liberal friends never get exercised over this issue. Maybe it’s as the great PJ O’Rourke surmised, liberals hate poor people.
If they would just not wear those icky Wal-Mart clothes and watch their weight, like they tell them to… (Tax.com)
Peter Reilly,Even Real Estate Salesman Has Trouble With Passive Loss Exception
Even accepting that he spent 520 hours working on his own properties, he still lost. Two of the properties were short-term vacation rentals and one was being readied for sale. The time spent on those properties could not be grouped with the time spent on properties dedicated to long term rentals.
As Peter notes, this becomes an even more important tax issue with the new 3.8% tax on “passive” income this year.
Kay Bell, When will you get your tax refund? Whenever
Trish McIntire, Child Tax Credit Delays
TaxGrrrl, Spammers Target Taxpayers Expecting Tax Refunds. If you get an email about your refund from the IRS, it’s not from the IRS.
Jack Townsend, Another Bull**** Tax Shelter Bites the Dust
Roger McEowen, Another Court Issues Ruling on Tax Impact of Demutualization.
Tax Trials, Second Circuit: Co-Op Owner Is Entitled to Casualty Loss
Patrick Temple-West, Navigating between tax avoidance and evasion, and more
Gene Steurle, Desperately Needed: A Strong Treasury Department (TaxVox)
Robert Goulder, La Bella Italia: Fast Cars & Loose Taxes (Tax.com)
Jim Maule, When Spending Cuts Meet Asteroids: The Value of Taxes. Taxes and spending can never be too high because, you know, asteroids!
The Critical Question. Minnesota’s Sexiest Accountant Contest: Cute or Creepy? (Going Concern)
Tags: Andrew Lundeen, David Brunori, Gene Steurle, Going Concern, identity theft, Jack Townsend, Jason Dinesen, Kay Bell, maule, Obama Tax Policy, passive losses, Patrick Temple-Wet, Peter Reilly, preparer regulation, Robert Goulder, Roger McEowen, Tax Trials, TaxGrrrl, The Critical Question, Tim Carney, Trish McIntire, Veronique De Rugy
Posted in Tax Roundup | No Comments »
Friday, February 8th, 2013 by Joe Kristan
Flickr image courtesy Dinner Series
About time. IRS Cracking Down on ID Theft, Tax Fraud (AP):
In 2012, the IRS says its investigations and in-house filtering systems prevented $20 billion in would-be fraudulent refunds, up from $14 billion the year before. But [Acting IRS Commissioner] Miller acknowledged that thieves still get away with stealing numerous tax refunds, although the IRS could not provide exact loss figures.
“In terms of how much got past us, we’re quite sure some did,” Miller told reporters in a conference call. “I know it doesn’t approach the number that we stopped.”
How much might that be? Maybe $5 billion a year, maybe more. That’s means about 20% of the fraud gets through. If your “in-house filter” let 1/5 of the grounds of your coffee into the pot, you’d change filters.
This is the first highly-publicized nationwide IRS crackdown on identity theft, years after the problem began to spiral out of control. It’s surely coincidence, but it almost is as if the IRS, now that it has been barred from it’s preparer regulation power grab, has decided that maybe it really should do something about ID theft after all.
Other Coverage: TaxGrrrl, IRS Makes Arrests, Targets Businesses In Massive Identity Theft Crackdown
Governor “likely” to sign Iowa coupling bill. GlobeGazette.com reports:
DES MOINES – The first bill the Iowa Legislature will send to the governor this year will align the Iowa and federal tax codes, a move that will reduce the amount of taxes Iowans pay to the state.
Although Republican Gov. Terry Branstad will thoroughly review the legislation, his spokesman said the governor supports the intent of Senate File 106 “and will likely support it.”
That’s good news. The sooner he signs it, the sooner the state can begin processing 2012 returns with Section 179 deductions, educator expenses, and a number of other provisions affected by the Fiscal Cliff legislation.
Christopher Bergin, More Than an Obstacle to Tax Reform (Tax.com):
Up until now, I’ve given the President the benefit of the doubt about reforming our broken tax system. I just didn’t think tax reform was a big issue for his administraiton. But now I’m beginning to think he doesn’t care about tax policy at all.
What was the tip-off?
No matter the fiscal crisis, the President never misses an opportunity to propose tax increases on “the fat cats.” To the President, the fat cats are the people and the businesses he thinks can pay a “little more” to support their government. I’m not sure I buy his definition of fat cat. But I certainly don’t buy his definition of tax reform. Tax reform is about building a tax system that is fairer, simpler, and more economically efficient. If in the process it raises revenue, I’m fine with that, but I don’t think the primary goal of tax reform is to wring more money from the well-to-do simply because they are doing better than you are.
It’s been blindingly obvious from the beginning that the President has no interest in tax policy. Look at his record:
- Increases in top marginal rates, which creates incentives for more loophole-carving.
- A baffling new tax on “net investment income” just to pretend that “the rich” will be paying for Obamacare.
- New “targeted” tax credits, which are pretty much the opposite of tax reform.
And his big current proposals are to limit deductions for corporate jets and screwing around with how private equity is taxed — symbolic and political gestures that would make the tax law even more complex. Any belief that the Obama administration cares a fig about tax reform requires more unfounded faith than a fourth marriage.
Tax Trials, Conservation Easement Deduction Denied as Quid Pro Quo for Subdivision Approval. Interesting case for developers.
Paul Neiffer, Capital Gains Tax On Inherited Property
Roberton Williams, Finally, a Permanent Estate Tax, Though Just for the Wealthy Few
I’ll bet he does. Stop the Indictment; My Client Wants Off (Jack Townsend).
Dan Meyers, The Second Hundred Years of The Federal Individual Income Tax
Patrick Temple-West, Pharmaceutical makers lower their taxes, and more (Tax Break)
Jim Maule ponders the imponderable: When Is a Tax Increase Not a Tax Increase?
Peter Reilly, Maryland Exempts Residence For Mormon Temple Workers As “Convent”
Kay Bell, ‘Devil’s’ tax form prompts man to quit job. Maybe there should be a Super Bowl ad, “Satan Made a Tax Accountant.”
I don’t condone this behavior, but I understand: Police say people smoking pot, doing taxes at Clay H&R Block (Charleston Daily Mail).
Central Iowa Culture Watch. The State Fairgrounds in Des Moines hosts the cultural event of the season this weekend: the Blue Ribbon Bacon Festival. Tickets routinely sell out in minutes, so if you have to ask, you can’t go. What will you miss? KCCI.com reports:
Start with the dress. It is made of real bacon, created by an East Des Moines dressmaker – and it is actually worn by the Bacon Queen…
“It wildly surpassed anything I thought was achievable. I mean, look at it, it sparkles,” said Porter.
Tags: bacon, Bacon Fest, Branstad tax policy, Christopher Bergin, Dan Meyers, identity theft, Jack Townsend, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Peter Reilly, Roberton Williams, Satan, tax crime, Tax Trials, TaxGrrrl
Posted in Tax Roundup | No Comments »
Wednesday, February 6th, 2013 by Joe Kristan
Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):
The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.
But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”
State Tax Notes also tracked down Tax Foundation Economist Elizabeth Malm:
“Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”
Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.
“I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.
Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”
*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.
David Brunori, Who Pays? Who Cares? You Should (Tax.com):
No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.
None of these are incompatible with lower top tax rates.
Tracy Gordon, The Downside of States as Laboratories for Tax Reform (TaxVox)
Needed, but impossible. Tax Notes has a sad-but-true headline that brilliantly summarizes the state of our national tax policy: Urban Institute Panelists Agree Tax Reform Necessary but Unlikely. ($link)
Linda Beale, More on PTINs for previously unregulated tax return preparers:
We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.
The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”
Peter Reilly, Future Baseball Commissioner Tackles Tax Laws As Complex As Infield Fly Rule
Tough tax return choice for 2012: Pay more now to save later? My new post at IowaBiz.com, the Des Moines Business Record Blog for Entrepreneurs, discussing whether maximizing 2012 deductions is really a good idea.
Jason Dinesen, Taxpayer Identity Theft — Part 12 . More Kafkaesque obstacles to resolving an identity theft for his client.
William Perez, IRS Provides Further Disaster Relief for Hurricane Sandy
Kay Bell, Tax Carnival #112: Super Bowl of Taxes
Jim Maule, Tax Ignorance As Persistent as Death and Taxes
Missouri Tax Guy: Missouri does not mail Form 1099-G. You have to get it online. One more little blow to tax compliance for small taxpayers.
Trish McIntire, Low Cost Tax Preparation Options
TaxGrrrl, U.S. Postal Service To Eliminate Saturday Delivery: Will It Save Tax Dollars? Next they’ll shut down the Pony Express.
Patrick Temple-West, Waiting on the phone for the IRS, and more (Tax Break)
Ellen Kant, William McBride, Super Bowl Tax Bill (Tax Policy Blog)
Russ Fox, Will the Third Time be the Charm for Appeals? A case where the “independent” IRS appeals function failed twice.
Howard Gleckman, Can the Income Tax Fund the Government We Want? (TaxVox). I can’t speak for “we,” but it could easily cover all of the government I want.
The Critical Question: Et Tu, Sarkozy? (David Goulder, Tax.com)
If they can spell their address, tax cheating should be easy for them: Massapequa Restaurant Owners Sentenced for Tax Fraud (Massapequa Patch).
Isn’t that conspiracy? Tax fraud: We have a plan, authorities say (Myfoxtampabay.com)
Screwed either way. Taxpayer Sues IRS, Claims Agent Coerced Him Into Having Sex to Avoid Adverse Audit (TaxProf).
But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:
Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.
Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.
No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.
Tags: alternative maximum tax, David Brunori, David Goulder, David Osterberg, Elizabeth Malm, Ellen Kant, Howard Gleckman, iowa tax policy, iowabiz.com, Iowans for Tax Relief, Jason Dinesen, Kay Bell, Linda Beale, maule, Missouri Tax Guy, Patrick Temple-West, Russ Fox, TaxGrrrl, TaxProf, The Critical Question, Tracy Gordon, Trish McIntire, William McBride, William Perez
Posted in Tax Roundup | No Comments »
Monday, February 4th, 2013 by Joe Kristan
Not surprisingly, the judge who ordered the IRS to shut down its preparer regulation program declined to stay his order. The IRS asked James Boasberg, the U.S. District Court Judge who ordered the IRS to stop its preparer regulation program, to stay his order pending an appeal. The judge declined:
As the factors beyond likelihood of success do not decisively tilt in favor of the IRS — indeed, they tip somewhat against — the Court sees no basis to lift its injunction pending appeal. Nor does the Court believe it warranted to suspend the injunction for fourteen days to permit the IRS to seek a stay in the Court of Appeals. This would only lead to more confusion for preparers and their clients as the tax season gets underway. While nothing in this decision prevents the IRS from seeking such relief there, the Court sees no benefit of a brief stay while it does so.
So where do things stand? The IRS will be allowed to continue to administer the Registered Tax Return Preparer test and issue PTINs, but it cannot require RTRP tests or CPE, or collect fees for them. Whether the IRS will continue testing on a voluntary basis, or whether there will be takers, remains to be seen.
More coverage from TaxGrrrl: IRS Loses Big In Court (Again), Tax Season Chugs Along; and Russ Fox: IRS Loses Again to Institute for Justice.
You surely didn’t miss the 100th anniversary of the 16th Amendment yesterday. They had a football game and everything to observe it. The 16th Amendment, which gave rise to the current income tax, was ratified by Delaware on February 3, 1913, making it official. And yes, it is official. While some tax protesters insist that the 16th Amendment was never properly ratified, all the federal judges say otherwise — not to mention the folks at IRS, the U.S. Marshals Service and the Bureau of Prisons. So, in any way that matters, it’s official. Still, I can’t bring myself to say “Happy” anniversary.
More from Richard Morrison: 100 Years of the Federal Income Tax (Tax Policy Blog)
Iowa’s oldest judge, age 90, steps down. Ruth Klotz, a Polk County Probate Judge, remains respected by the lawyers I know who practiced in her court. Happy Retirement, Judge Klotz!
Paul Neiffer, Many States Are Delaying Farmer Filing Deadline
Jack Townsend, UBS Depositors Fail on Pleadings in Civil Case Against UBS
Kay Bell, Tips are taxable income
TaxGrrrl, Pay Taxes On Your Super Bowl XLVII Winnings? You Can Bet On It
Trish McIntire, Gambling 1099MISCs. They don’t make your winnings taxable, they just let the IRS in on the secret.
Patrick Temple-West, Early payouts of dividends, bonuses spur a windfall, and more (Tax Break)
Martin Sullivan, Is Aggressive Tax Avoidance Moral? (Tax.com). Strange question. If you are paid to maximize shareholder returns, is it moral to do less than your best to do so?
Rudy Penner, The Risks of Dumbing Down Fiscal Goals (TaxVox). It’s hard to think they could get any dumber than they are now.
Jim Maule, Looking Again at Tax and Political Ignorance:
The study’s conclusion is disheartening. The authors conclude that incumbents can get themselves elected by associating themselves with good news for which they ought not take credit because they are not responsible, support policies that generate good news for their districts even if they are bad for the nation, and to use rhetoric to distract voters from the incumbents’ histories.
Perhaps this will lead the good Professor to reconsider his preference for government solutions over market outcomes.
Linda Beale, Red state tax “reform” and “economic growth”
Robert D. Flach, JUST ONE MORE THING, HE SAID COLUMBO-LIKE
The Critical Question: The Devil Wears Prada, But Does Her Boyfriend Pay Taxes? (Robert Goulder, Tax.com).
What this country needs is a good 25-cent sneaker. Illinois Proposes 25-Cent Sneaker Tax (TaxProf)
It’s the little things. The mark of a true craftsman is attention to detail. Two Ohioans’ alleged failure to mind the details has led to trouble. From the Columbus Dispatch:
Roma L. Sims, 34, and Samantha C. Towns, 30, were arrested on Thursday and charged with aggravated identity theft, conspiracy and wire fraud for using the identities to file tax returns and rake in $1.3 million.
But they misspelled several cities when they listed return addresses: Louieville and Pittsburg, according to the criminal complaint. Those geographic goofs caught the attention of investigators.
So did misspelling some of the occupations they listed on the phony tax returns.
I bet they thought those spelling drills in grade school were pointless.
Tags: 16th Amendment, Institute for Justice, Jack Townsend, Kay Bell, Linda Beale, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, Richard Morrison, Robert D Flach, Robert Goulder, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Critical Question, Trish McIntire
Posted in Tax Roundup | No Comments »
Friday, February 1st, 2013 by Joe Kristan
Iowa legislature goes 0-for-January. The Iowa General Assembly has been completed the first three weeks of its 2013 session without settling what Iowa’s tax law is for last year. The legislation needed to update Iowa’s 2012 tax law for the retroactive federal changes enacted in the Fiscal Cliff bill at the beginning of this year hasn’t cleared either house of the legislature. The Senate Ways and Means Committee at least moved its bill (SF 106) out of committee Wednesday, while House Ways and Means hasn’t even done that much with its bill (HF 110)
Many Iowans were affected by the retroactive changes, including educators and people who made energy-saving home improvements. Almost all businesses are affected by the Federal extension of $500,000 Section 179 expensing of depreciable property for 2012. Yet these taxpayers can’t complete their Iowa 2012 tax returns until the legislature decides what parts of the federal changes to accept.
The silliest part: we pretty much know what the bill will look like. It’s almost certain that it will adopt federal Section 179 rules and the other “extender” rules, without adopting federal “bonus depreciation.” That means there’s no reason to dawdle. But dawdle they do.
50 years for Wasendorf. The Wasll Street Journal reports:
Russell Wasendorf Sr., was sentenced to the maximum 50 years in jail after admitting to orchestrating a fraud at his futures brokerage and misleading regulators for almost 20 years.
Mr. Wasendorf, 64 years old, pleaded guilty last September to the fraud at Peregrine Financial Group Inc. that federal prosecutors said had cost clients $215.5 million and masked a business that never was profitable. He also was ordered to pay the full amount of missing funds in restitution.
Mr. Wasendorf got away with it by forging paper bank statements for the regulators and auditors. The scam blew up when Peregrine was forced to move to electronic account verification. Sadly, the chances of full restitution being paid to his victims are less than the chances he will walk out of prison at the end of his sentence.
But it could be worse. Florida woman faces potential 351 years in prison for tax fraud (CPA Practice Advisor)
Kay Bell, Congressman wants answers from IRS regarding tax preparer registration
TaxGrrrl, Wrong Side Of An Audit: Memo Argues IRS Inflated Numbers, Exaggerated Figures. My favorite part (my emphasis):
The IRS also claimed that it would suffer unspecified “costs associated with . . . finding other positions for the 167 Service employees currently working on the return preparer project.” [Institute for Justice attorney Dan] Alban noted, in response, that just over two weeks ago, the IRS complained about understaffing, since “[o]verall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6% in the past year.” You’d think that the IRS would welcome, not rue, the idea of having nearly 200 employees available for other tasks – like answering the phone (at current staff levels, they only do that about 70% of the time).
The preparer regulation program has always seemed a frivolous use of IRS resources when tax complexity and identity-theft fraud are making the tax law almost impossible to administer.
That time already? It’s Time for Independent Certification for Tax Preparers (Robert D. Flach in Accounting Today)
I hate extra apostrophes. Careful Tax Update readers know that I have a terrible habit of inserting extra apostrophes, creating an unintended possessive. I know the rules, but my fingers betray me when typing. Fortunately I can easily change a blog post to turn “it’s” to “its.” Not everybody is so fortunate.
Unless, of course, Steven owns “Steven’s” building.
Tags: apostrophes, Ben Herris, David Cay Johnston, Downtown Des Moines, HF110, Jack Townsend, Kay Bell, maule, Patrick Temple-West, preparer regulation, Robert D Flach, SF106, tax crime, Tax Trials, TaxGrrrl, Wasendorf
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Wednesday, January 30th, 2013 by Joe Kristan
Why so grumpy? Because it’s the first “official” day of tax season as the IRS begins processing returns. But only some of them. The last-minute Fiscal Cliff tax law is delaying the processing of many forms, delaying most business filings until “late February or into March.” They also have delayed processing of returns with education credits until sometime next month.
Oh, and the streets are a mess.
Kay Bell, Tax filing on hold for taxpayers who need 31 federal forms
TaxGrrrl, IRS Opens For Business Today, Many Taxpayers Qualify To File For Free
Taking your money to give to the well connected. From Taxing the Rich to Pay for Big Business Tax Credits by Veronique de Rugy:
Taking from the small businesses, giving to the big business with pull.
Brian Gongol on the decision of Senator Harkin to not seek an umpteenth U.S. Senate term:
Wouldn’t it be wonderful if we could start with a blank slate and ask ourselves (as Iowans): Who is the smartest, most dependable, most thoughtful person we could send to an august body of decision-makers who are challenged with bringing wisdom and sobriety to the decision-making process of government?
Like somebody like that would stand a chance.
Why bother with a state corporate income tax? While state income taxes are a reliable source of work for people like me, they do surprisingly little for the states, according to a new report released by the Tax Foundation yesterday. Nationwide state corporate income taxes accounted for only 3% of 2010 state revenues. In Iowa, it’s even lower. Here are the revenue sources from Iowa and some nearby states:
Source: Tax Foundation
The corporation income tax raises little revenue, is expensive to administer, is exploited by the well-connected and well lobbied, and is almost certainly a job-killer. Why not go for a low-rate, low-loophole system like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan?
TaxProf, A Distributional Analysis of the Tax Systems in All 50 States, passing on a report from the Center on Budget and Policy Priorities says state tax systems are regressive. Keep this in mind:
Source: Heritage Foundation/
If you only look at the distribution of taxes paid and ignore the value of services and cash payments received, you miss a lot.
Janet Novack, IRS Tips Won’t Protect You From Identity Theft Tax Fraud.
Jack Townsend, Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases
Jason Dinesen, An Obligatory 1099-K Post for 2013
Trish McIntire, Before You Sign. A timely reminder that you are responsible for what’s on your return, even when you use a paid preparer.
Patrick Temple-West, Mickelson and the sports star migration, and more (Tax Break)
William McBride, CRS: Tax Rates Do Matter for Profit Shifting (Tax Policy Blog)
Joseph Thorndike, The Income Tax Is Inquisitorial — Get Over It. (Tax.com) May he have a good National Research Project exam in his future.
Robert Goulder, French Budget Minister Caught In Tax Probe (Tax.com)
That wouldn’t take much. Payroll Tax Cuts May Boost the Economy More than You Think (Howard Gleckman, TaxVox)
Bad news, good news: The Twinkie is Dead! Long Live the Twinkie! (Megan McArdle).
News you can use. Tax Law Warning: Don’t Cut Mom a Rent Break (Jim Maule)
Tags: CBPP, Gongol, Howard Gleckman, iowa tax policy, Jack Townsend, Janet Novack, Jason Dinesen, Joseph Thorndike, Kay Bell, maule, megan mcardle, Patrick Temple-West, Quick and Dirty Iowa Tax Reform Plan, Robert Goulder, state tax policy, tax administration, Tax Foundation, TaxGrrrl, Trish McIntire, Veronique De Rugy, William McBride
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Monday, January 28th, 2013 by Joe Kristan
Iowa is collecting more tax money than it is spending. Iowa House Republicans propose to give the money back as a one-time tax credit. The Des Moines Register reports:
The proposal would capture the state’s estimated $800 million budget surplus, divide it equally among the state’s income tax payers and issue an income tax credit to every taxpayer for his or her share. Senate Republicans said last week the credit amounts to $375 for individuals or $750 for couples who file jointly.
That means, for example, if a married couple’s state income tax liability was $1,000, they would receive a $750 tax credit, reducing the amount they were actually required to pay to $250. If a payer’s burden was less than $375, he would receive a credit equal only to his actual bill.
It’s a simple plan that treats the surplus as a non-recurring event. Unfortunately, there is nothing simple about Iowa’s tax law otherwise. I’d prefer to see it returned as part of a tax reform plan.
House Democrats prefer to spend the money, and the Governor wants some of it to fund his education reform plan. ISU economist David Swenson says the money should be run through the government:
Drawing on a statistical model that predicts economic impacts, he said $780 million in government spending could support roughly 2,000 more jobs than the same amount of spending by households.
Yes, the magical power of the government to transform your money into jobs. If we just gave the government infinite money, we’d get infinite jobs. If that worked, you’d think we’d have more jobs than ever, considering that Federal and state governments are spending more money than ever.
Link: Text of HF 1.
Tax Notes, Preparers in Limbo as IRS Shutters PTIN System After Loving Decision ($link):
Tax return preparers who just recently were rushing to get their preparer tax identification numbers from the IRS before it starts accepting 2012 tax returns on January 30 are in limbo after a federal district court enjoined the Service from enforcing requirements under the registered tax return preparer (RTRP) designation.
The IRS’s online PTIN system appears to be unavailable. People familiar with the system are uncertain why the IRS took it offline and what its unavailability means for the hundreds of thousands of potential PTIN registrants.
“From a practical point of view, [the IRS] has already shut the [PTIN] system down,” said Dan Alban of the Institute for Justice and the lead attorney for the plaintiffs in Loving v. IRS, No. 1:12-cv-00385 (D.D.C. 2013) “Whether they are legally required to do so is the question.”
Well done, IRS! Preparers are required to have a PTIN. The IRS apparently tied it’s PTIN software to the preparer regulation system overturned earlier this month. Another triumph for tax administration.
TaxProf, What’s FATCA Got To Do With It? Tina Turner Renounces U.S. Citizenship. It’s always easier for the wealthy to avoid the ridiculous paperwork the tax law imposes on Americans abroad. It’s the little jaywalkers that get shot to ensure the serious money-launderers get slapped on the wrist.
Andrew Mitchel has posted two videos explaining Form 5471. Think that sounds dull? If you fail to report your interest in a foreign corporation, the $10,000 fine will make it interesting.
Martin Sullivan, UK Conservative Policies in Trouble (Tax.com)
Brian Mahany, Tiger Woods and Tax Migration – The Wealthy Flee High Tax States (tax planning post)
Patrick Temple-West, Republican governors open new front in tax debate, and more
Paul Neiffer, AMT Causes a Few More Capital Gains Tax Rates!
Robert Goulder, The Pepperdine Papers: Advice for Obama’s Second Term (Tax.com)
Kay Bell, Deducting sales tax on your new car … or boat or airplane or home
Jim Maule, Tax Planning: A Chore That Never Sleeps. I think it works better if it does.
Trish McIntire, Who Do You Believe?. If your tax advisor contradicts your bar buddy on a tax issue, go with the tax advisor.
Dan Meyer, Will Tax Benefits Later Cost You Now?
Robert D. Flach, THE RESIDENTIAL ENERGY CREDIT IS BACK FOR 2012 (AND 2013)!
Joseph Henchman, Municipal Bankruptcies Since 1988. (Tax Policy Blog). He lists about 43.
Russ Fox, Cash and Carry Doesn’t Work for Strip Club Owner. I don’t think it’s allowed for the patrons either.
Worth a try. Shop Till Your Taxes Drop (TaxGrrrl)
Tags: Andrew Mitchel, Branstad tax policy, Brian Mahany, Dan Meyer, Joseph Henchman, Kay Bell, Martin Sullivan, maule, Patrick Temple-West, Paul Neiffer, preparer regulation, PTIN, Robert D Flach, Roburt Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire
Posted in Eye on the Legislature, Eye on the Legislature 2013, Tax Roundup | No Comments »
Friday, January 25th, 2013 by Joe Kristan
A proposal to refund part of the state budget surplus. The Des Moines Register reports:
Iowa House and Senate Republican leaders today proposed to give a flat $750 to every Iowa household in an effort to return to taxpayers the state’s $800 million budget surplus.
The money would be returned to taxpayers in the form of a tax credit, said Senate Republican Leader Bill Dix, R-Shell Rock, and House Speaker Kraig Paulsen, R-Hiawatha.
That seems pretty straightforward. Better still to give it back as part of simplifying the tax code, but better that than just spending it. Yet just spending it has its advocates:
Senate Democrats who control their chamber said that since it’s early in the session they are open to talking about the Republicans’ proposal, but they have other ideas.
Sen. Joe Bolkcom, D-Iowa City, who chairs the tax-writing Iowa Senate Ways and Means Committee, said Democrats are interested in providing earned income tax credits for lower-income Iowa families and raising the threshold for filing state income taxes. He added that Iowa needs to invest more tax money to clean up dirty rivers and streams, repair crumbling roads and bridges, upgrade the state’s education system and make other improvements.
The earned income credit is a welfare program run through tax returns, with a tremendous rate of fraud. It’s also a poverty trap. The phase-out of benefits with rising income serves as a stiff tax on improving your income. And spending doesn’t become something else just because you call it “investing.”
Elaine Maag, Earned Income Tax Awareness Day (TaxVox)
Kay Bell reminds us that taxpayers who failed to make a 2012 required minimum distribution from the IRA have a January 31 mulligan. The tax law imposes a stiff penalty on taxpayers who have reached age 70 1/2 who fail to take a minimum amount out by year end. Taxpayers who failed to take their 2012 withdrawal last year can roll the RMD amount to charity by January 31 and avoid the 50% penalty.
Taxpayers who took an IRA distribution in December can also roll that into a charity by January 31 and avoid having the distribution included in 2012 income.
These provisions were part of the Fiscal Cliff tax bill, which extended the tax-free status of IRA rollovers to charity along with a bunch of other expired provisions.
Just because your bank is a country bank doesn’t make the banker a bumpkin. Four Nebraskans have been charged with “structuring” — breaking deposits into chunks under $10,000 to avoid federal cash reporting requirements. Federal law requires banks to report cash transactions over $10,000. Folks who don’t want the government to know about their cash sometimes attempt to use multiple smaller transactions to fly under the radar; that’s illegal. Theindependent.com reports:
Randy L. Evans, 59, of Grand Island is charged in a 15-count indictment. In the first 14 counts, it is alleged that between March 29, 2010, and Dec. 27, 2011, Evans structured financial transactions to evade reporting requirements when he made deposits in the amount of $210,381 at Five Points Bank. Count 15 charges him with structuring financial
transactions to evade reporting requirements when he made 449 transactions between Jan. 4, 2010, and Feb. 28 at Five Points Bank in the amount of $2,030,322.
Bankers are required to report suspicious transactions, and if you make yourself a regular, they’ll notice — especially in a small-town bank.
Regrettably, yes. Libertarian writer Sheldon Richman breaks the bad news: just because the income tax is a bad thing doesn’t make it unconstitutional:
Where does this leave liberty’s advocates? First, we have to face the facts. Like it or not, the U.S. Constitution empowers the Congress to levy any tax it wants. Anyone is free to come up with a contrary interpretation, but the constitutionally endowed courts have spoken. Reading one’s libertarian values into the Constitution is futile. For better or worse, the Constitution means what the occupants of the relevant constitutional offices say it means.
In other words, it doesn’t matter if you think the income tax is unconstitutional if the IRS, the federal judge, the Marshals Service and the Bureau of Prisons think otherwise. Fighting the income tax by not filing ruins your finances without hurting the Leviathan one little bit.
Luring and subsidizing your competitors with your tax money. Left-side advocacy group Good Jobs First has released a report slamming “incentive” tax breaks like those used for two fertilizer companies in Iowa last year. The report doesn’t mention Iowa’s programs, but it provides a depressing list of corporate bribery in other states, including subsidies to lure employers from Kansas City, Kansas across the river to Kansas City, Missouri, and vice-versa. Their press release gets it right:
Interstate job piracy is not a fruitful strategy for economic growth, [report author Greg] LeRoy noted: “The costs are high and the benefits are low, since a tiny number of companies get huge subsidies for moving what amounts to an insignificant number of jobs.” LeRoy added: “The flip side is job blackmail: the availability of relocation subsidies makes it possible for companies that have no intention of moving to extract payoffs from their home states to stay put.”
For all the abuse, the organization’s recommendations are modest. I would eliminate all such subsidies and replace them with a simple low-rate tax system for everyone. The Tax Update Quick and Dirty Iowa Tax Reform would be a great start here.
TaxProf, House Ways & Means Chair Proposes Mark-to-Market Tax on Financial Derivatives
IRS Asks Judge To Suspend Injunction Barring It From Regulating Tax Preparers
Jim Maule, A Tax Question: So What Do You Do With Your Time?. A good discussion of the ”material participation” rules that take on extra importance under the new Obamacare Net Investment Income Tax.
Anthony Nitti, The Tax Impact of Obamacare On The Passthrough Income of Small Business Owners
Patrick Temple-West, Firms keep stockpiles of ‘foreign’ cash in U.S., and more (Tax Break)
Joseph Henchman, Tax Foundation and CBPP Agree: States Need Strong Rainy Day Funds (Tax Policy Blog)
Jamaal Solomon, Tax Organizer for Entertainers. Independent entertainers who cross state lines can find their taxes complicated, so good recordkeeping is essential.
Robert W. Wood, Shhh, Home Office and other IRS Audit Trigger Secrets
David Cay Johnston, Missing Half the Cash (Tax.com)
Start your weekend early with a Friday Buzz from Robert D. Flach!
News you can use: Stuff Creepy Accountants Like (Going Concern). Wisconsin!
Tags: Anthony Nitti, Bill Dix, corporate welfare, David Cay Johnston, economic development, EITC, Elaine Maag, Going Concern, Good Jobs First, iowa tax policy, IRA, Jamaal Soloman, Joe Bolkcom, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Quick and Dirty Iowa Tax Reform Plan, RMD, Robert D Flach, Robert Wood, Sheldon Richman, structuring, tax crime, TaxProf
Posted in Tax Roundup | No Comments »
Wednesday, January 23rd, 2013 by Joe Kristan
The IRS has turned off its preparer registration initiative following the federal court decision enjoining the program. The Service issued this statement yesterday:
As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.
The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.
The second paragraph is the most interesting. While the IRS doesn’t admit that it overreached, this is far short of a vow to fight to the last appeals brief. One can only hope they will reconsider the whole misbegotten regulatory scheme.
Meanwhile, Accounting Today confirms reports the IRS has shut down the PTIN registration system and the Registered Tax Return Preparer testing program. They report the PTIN system is expected to come online again after the RTRP registration system is removed from it. Meanwhile, the Return Preparer Office has apparently turned off its phones.
All of this makes me believe that the IRS is not seeking any emergency stay of Friday’s decision and is planning to do without the RTRP rules for this season, anyway.
TaxGrrrl posts a great interview with the winning attorney in the preparer regulation decision, Dan Alban. She encounters a new perspective on whether regulation actually does more good than harm (my emphasis?:
Finally, with all of the legal niceties out of the way, I asked Alban the really tough questions: What about all of those folks who say that regulation is a good thing? What does this ruling mean for taxpayers? And why would you embrace a scheme that wouldn’t require – at a very basic level – some semblance of regulation to ensure that preparers are competent?
Alban didn’t hesitate. Intent, he says, is key. The intent of any kind of licensing scheme should be to protect the consumer. But Alban, who focuses on a occupational licensing in his practice, noted that frequently, these kinds of laws instead protect established interests from competition. That is, he says, not in the best interest of the consumer.
And with that, I paused. You see, in all of the years that I’ve been writing this blog, I’ve only received a phone call from IRS complaining about a post once. And it was for this one. The IRS wanted to assure me that the exemptions had nothing to do with any special interests. None. Not a whit. Interestingly, many preparers at smaller firms thought differently. I received a number of supportive emails and “off the record” comments about how the new rules felt discriminatory.
Bingo. Regulation always favors the big. It’s no big deal for H&R Block headquarters staff to deal with regulations for all of its franchises. It’s a different story for small operators like Sabina Loving, the solo preparer in a low-income South Side Chicago neighborhood who was lead plaintiff in last week’s decision.
It would appear that attorneys benefited disproportionately from the regulations; as a point of context, the American Bar Association (ABA) has encouraged the regulation of “other” preparers for years. Why is that? Is there maybe something to Alban’s idea that these kinds of laws protect established interests from competition?
And then Alban said something else that struck me: about fifty years ago, only 1 in 20 workers in the U.S. needed government permission (in the way of regulations) to earn a living. Today, that number is 1 in 3. That, he said, is troubling. We are increasingly relying on the government to decide who is qualified to perform services for us. Is that something we want? Does regulation really make someone competent? Or honest?
No, it just gives them one more way to control things.
Russ Fox: Alphabet Soup
Trish McIntire, Voluntary Licensing?
Paying taxes with cell phone money? The Iowa Department of Revenue yesterday announced a venture with Dwolla to enable taxpayers to pay taxes with Dwolla’s mobile device online payment technology. The Des Moines Register Reports:
Dwolla is a cash-based payment network that provides real-time, low-cost, online and mobile payments, officials said. Instead of charging a floating percentage and fixed fee per transaction for goods and services or dealing with administrative issues of checks, Dwolla’s network costs a flat 25-cent fee on any payment over $10, and it’s free for transactions under $10.
…
Iowa Department of Revenue Director Courtney Decker said the state’s first use of Dwolla will allow businesses that already pay more than $100 million in cigarette stamp taxes the option of using the Dwolla network. She added, “This is just the tip of the iceberg” in terms of Dwolla’s potential in state government.
Dwolla’s service is cheaper and safer than mailing and processing a paper check, Decker said, and it will allow participating businesses to receive their tax stamps more quickly. She added that 89 percent of Iowa individual income taxes are filed electronically, but the percentage of people paying taxes electronically to her department is far lower.
Paying online now requires a slow application process and analog mail delivery to receive permission to make electronic payments. The Dwolla system will be a big improvement if the Department enables it for individual income taxes.
IRS wins another demutualization case. The IRS continues to fight the to tax proceeds on the demutualization of insurance companies. They famously lost the Fisherdecision, which held that taxpayers could treat their payments for insurance premiums as basis when they received shares of stock in an insurance company changing from mutual ownership to a stock company. But earlier this month the IRS won a Federal District Court Decision in California rejecting the Fisher“open transaction” scheme. If the IRS wins on appeal, this will likely end up settled by the Supreme Court. This is the second IRS victory since the Fisher decision.
Cite: Reuben, DC CACD, CV 11-09448
Roger McEowen, Two Important Tax Developments:
On January 18, two key tax developments occurred. First, a federal district court wiped out the IRS preparer regulations. Later, IRS announced that farmers aren’t stuck with the March 1 deadline and can file timely by April 15.
David Brunori, Jindal’s Bold Move (Tax.com):
Republican Louisiana Governor Bobby Jindal has made the most provocative tax reform recommendation in many years. Jindal said he was going to overhaul the tax law. If he has his way, he will revolutionize it.
Pay attention, Governor Branstad.
Donald Marron, Five Key Facts about the House Debt Limit Bill (Tax Vox)
Howard Gleckman, How Obama’s Inaugural Address Frames the Policy Debate for the Next Decade (TaxVox). I don’t think so.
Kay Bell, Tax Carnival #111: Countdown to Filing. It’s Kay’s roundup of tax tax-related posts from all over.
Jack Townsend, Steps in OVDI/P Processing and Opting Out. Dealing with the IRS when you have an undisclosed offshore account.
Jason Dinesen, Home Office Deduction: IRS Offers a Simplified Calculation Option, But the Qualifying Rules Haven’t Changed
Patrick Temple-West, Private equity tax breaks in jeopardy, and more (Tax Break)
William McBride, Phil Mickelson’s Tax Rate
Robert D. Flach is Buzzing! He also has posted What to Give Your Tax Preparer at Mainstreet.com.
Jim Maule, Tax Ignorance and Its Siblings. “Tax ignorance, of course, is but one part of political ignorance, as I explored in When Tax Ignorance Meets Political Ignorance.” Yet the good professor insists that 50% + 1 voting by ignorant voters works better than trusting individual decisions in the marketplace.
News you can use: Life After Big 4: What You May Miss and Won’t Miss At All (Going Concern). I don’t miss it one tiny bit.
Tags: Dan Alban, David Brunori, Demutualizaton, Donald Marron., Dwolla, Fisher, Going Concern, Howard Gleckman, Jack Townsend, Jason Dinesen, Kay Bell, maule, Patrick Temple-West, preparer regulation, Robert D Flach, Roger McEowen, RTRP, Russ Fox, TaxGrrrl, Trish McIntire, William McBride
Posted in Tax Roundup | 1 Comment »
Wednesday, January 16th, 2013 by Joe Kristan
Kraig Paulsen
It looks like the Republican leadership in the Iowa House of Representatives will be pushing income tax changes this year. Unfortunately, it looks like they are pushing the plan I call an “alternative maximum tax” like the one floated by Governor Branstad last year and quietly dropped after the election. O. Kay Henderson reports:
House Republicans are calling for a “flat” state income tax. If their idea becomes law, Iowans would have the option of filing their personal income taxes under the current system — which has a top rate of nearly nine percent — or opting to pay a four-and-a-half percent rate, with no deductions.
The governor has made it clear property tax reform is his top priority,
but House Speaker Kraig Paulsen of Hiawatha, the top Republican in the
legislature, says Branstad hasn’t said no to cutting income taxes.
Any tax practitioner will point out that this will in practice just be one more complication in computing Iowa taxes. Taxpayers will compute their taxes under both the current system and the flat system and choose the one that results in the lower tax. I assume the legislative leaders are resorting to this awkward plan to get around the implacable opposition of the powerful Muscatine-based Iowans for Tax Relief to any tax reform that would repeal the deduction for federal taxes on Iowa returns. Their plan is likely based on that proposed by Iowans for Discounted Taxes.
Far better to just clean up Iowa’s tax law. Repeal the special interest loopholes and corporate welfare tax credits, get rid of all non-federal deductions, get rid of the deduction for federal taxes, tie the tax law to the federal code, drastically lower the rates, and eliminate the corporation income tax entirely. In short, enact The Quick and Dirty Iowa Tax Reform Plan.
Flickr image courtesy e53 under Creative Commons license
Whether or not Governor Branstad wants to deal with income taxes, he may have to. His neighbor in Nebraska may be forcing his hand. 1011Now.com reports:
Gov. Dave Heineman is calling for an overhaul of Nebraska’s tax system, saying the state needs to get rid of its individual and corporate income taxes and make up the lost revenue by shutting off as much as $2.4 billion in tax breaks for businesses.
The Republican governor unveiled his tax plan Tuesday during his annual State of the State address to lawmakers.
Heineman says his plan would keep the state competitive with two neighboring states, Wyoming and South Dakota. Both have no individual income tax.
It sounds much like the plan proposed by Louisiana Governor Jindal this week. If the other states massively improve their income tax systems and Iowa doesn’t, all of the fertilizer tax credits in the world won’t help Iowa’s business climate.
IRS unveils simplified home office deduction for 2013. The IRS yesterday unveiled a new optional way to compute home office deductions. From IR-2013-5:
The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.
…
Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.
This will be handy. When you depreciate part of your home for a home office deduction, you lose the ability to exclude that much gain on a later home sale. Home office deductions are also complicated and a magnet for IRS examiners. This looks like it will be useful for the growing ranks of people who run businesses out of their home. Taxpayers will still be allowed to opt out of this new method and compute their home office deductions the old way. Full details are found in Revenue Procedure 2013-13.
Other coverage:
TaxProf, IRS Announces Optional $1,500 Home Office Deduction in Lieu of Depreciation
Russ Fox, Is A Simplified Home Office Deduction Better? “The reality is that $5 per square foot understates the cost of most home offices, especially when factoring in depreciation.”
Paul Neiffer, Senator Grassley Wants Extension of March 1 Filing Deadline:
Due to the passage of the new tax law, the ability of the IRS to accept most farmers tax returns by March 1 is very uncertain. Senator Grassley’s letter indicates that the IRS has granted an extension in the past, most recently last year when the MF Global mess occurred. In that case, the IRS did not actually extend the filing date, but granted waivers of the penalty for any estimated tax penalty caused by MF Global untimely mailing of form 1099.
Farmers don’t have to make estimated tax payments if they file by March 1. If they can’t do that, the IRS can impose estimated tax penalties on the whole balance due. The late enactment of new tax laws for 2012 may make it impossible for the IRS to process returns by then.
January: the month to start your 2013 year-end tax planning! My new post at IowaBiz.com, the Des Moines Business Record’s blog for entrepreneurs.
Jason Dinesen, Rental Properties and Basis Allocation
TaxGrrrl, IRS Announces 2013 Tax Rates, Standard Deduction Amounts and More
Mary Ellen Goode, A Stark Reminder of the Excessive Cost of Complying with the Tax Code
Rush Nigut, Iowa Business Specialty Court Pilot Project. I hope it leads to a specialized Iowa Court for tax cases. Taxpayers are at a huge disadvantage arguing before District Court judges with no tax expertise.
Kay Bell, The 1040 is ready! The 1040 is ready!
Anthony Nitti, Dear America: Your Higher Payroll Taxes Are Not The Result Of A Tax Increase. Only if the multi-year payroll tax break didn’t count as a tax cut.
Janet Novack, 11 Ways To Tap Retirement Cash Early, Without A 10% Penalty
David Brunori, Virginia’s Gas Tax Reform (Tax.com)
Howard Gleckman, A Budget Deal is Staring Them in the Face, But Here’s Why Lawmakers Won’t Compromise in 2013 (TaxVox)
Robert D. Flach has a new Buzz! He responds to my take on his take on CPAs.
Jim Maule, Still More Joys of IRC Section 86.
Kyle Pomerleau, New Paper on Estate Tax Misses the Mark. (Tax Policy Bl0g). It’s about…
Caron & Repetti: Occupy the Tax Code: Using the Estate Tax to Reduce Inequality (TaxProf)
My experience in tax practice convinces me that the estate tax is unnecessary to break up and dissipate large estates. Beneficiaries take care of that just fine.
Hey! I said I was sorry! Defendant Screws Up His Acceptance of Responsibility (Jack Townsend):
Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct. Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial. Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.
If you want the judge on your side, it might be a good idea to stop committing the crime for awhile.
Tags: ', Anthony Nitti, Branstad tax policy, David Brunori, Howard Gleckman, iowabiz.com, Iowans for Discounted Taxes, Iowans for Tax Relief, Jack Townsend, Janet Novack, Jason Dinesen, Kay Bell, Kyle Pomerleau, Mary Ellen Goode, maule, O Kay Henderson, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Robert D Flach, rush nigut, Russ Fox, Senator Grassley, tax crime, TaxGrrrl, TaxProf
Posted in Tax Roundup | 1 Comment »
Monday, December 31st, 2012 by Joe Kristan
No cliff deal. As of this morning, the President and Congress continue to fail to to make a “fiscal cliff” deal. Rest assured, though, that even when they cobble together a lame and harmful deal, as they will today or weeks from now, they won’t even begin to address the real fiscal calamity — the government’s incontinent spending.
The unforgivable sin of the current president, and the last one, and their Congressional enablers, is spreading the idea that the government can buy us all free stuff, and the rich guy will pick up the tab. Sorry. The rich guy isn’t buying.
Income taxes: the redheaded stepchild of Branstad tax policy? It looks more and more like the Branstad agenda for the 2013 Iowa legislative session won’t include income tax reform. From the Sioux City Journal:
Asked during a recent interview if there was room in all that for income tax reductions during the 2013 session, Branstad replied: “Probably not.”
“Honestly, property tax would be my priority and I’d love to do income tax, too, and maybe, if revenues exceed expectation, we could provide some income tax relief in addition,” Branstad said. “But I think I would rather focus and get something permanent done on the property tax. That’s the place where we’re the least competitive.”
That’s a shame. Given the economically unwise attitude of the Senate leader, maybe nothing is possible:
Senate Majority Leader Mike Gronstal, D-Council Bluffs, said he would need more details but at first blush he doubted it would go very far in the legislative process if it proved to be “just a way for the wealthiest Iowans to cut their taxes dramatically” while middle-class families picked up a greater share of the tab for the cost of state government.
That’s just silly. The rich guy isn’t buying for Iowa either. The wealthiest Iowans always can dramatically cut their taxes with a moving van, until Senator Gronstal figures out a way to keep them from escaping to zero-tax South Dakota or Florida.
Iowa’s income tax is way overdue for replacement. Instead, it will get more Bondo and bumper stickers.
If Iowa’s tax law were a car, it would look like this.
Fiscal Cliff Notes:
Greg Mankiw, New York Times:
When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.
Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans.
Think Finland. Unless we choose to be Greece or Argentina.
Gongol: Fiscal Cliff…not resolved. I note a false choice:
The people who make the decisions at the highest level in this republic are either dishonest or utterly economically incompetent if they don’t say the following out loud: “We are demanding more out of our government than we can presently afford. We need to pay more, get less, or both.”
“Either?” I say “both.”
Kay Bell: Senate ready for some football; adjourns Sunday without reaching fiscal cliff deal
TaxGrrrl, Budget Talks Stall As Reid Calls Latest GOP Move A ‘Poison Pill’
Kevin Drawbaugh, Fiscal cliff talks down to the wire (Tax Break)
Nick Kasprak, 2012 Likely to be First Year Without AMT Patch
Peter Reilly, Dysfunctional Congress – At Least They Are Not Maiming One Another. If they don’t, maybe we should.
The roundup:
Cara Griffith, What Will Become of Physical Presence? (Tax.com)
Paul Neiffer, Be Careful Of Fiscal Year Section 179 Issues!
Jason Dinesen, 6 Tax Predictions for 2012 — How Did I Do?
Tres Bien. French Court: 75% Tax Rate on Millionaires Is Unconstitutional (TaxProf)
Robert Goulder, Gérard Depardieu: Tax Exile (Tax.com)
TaxGrrrl, Congress Hasn’t Fixed The Budget Yet, Getting A Raise Anyway. Courtesy of the President, who maybe thinks they make him look good by comparison.
Chris Sanchirico, New Ways to Think About a Tax on Public Companies
Insureblog, Cavalcade of Risk #173: Post-Mayan Apocalypse Edition
Tags: Branstad tax policy, Cara Griffith, Chris Sanchirico, Finland, Fiscal Cliff, Gongol, greg mankiw, insureblog, iowa tax policy, Jason Dinesen, Kay Bell, Kevin Drawbaugh, maule, Mike Gronstal, Nick Kasprak, Paul Neiffer, Peter Reilly, Robert Goulder, TaxGrrrl, TaxProf, The Critical Question
Posted in Tax Roundup | 2 Comments »
Wednesday, December 26th, 2012 by Joe Kristan
Iowa’s legislators get $800 million to play with for Christmas. Naturally, many of them think they can spend it better than those of us who gave it to them, based on a Des Moines Register report today quoting a bunch of prominent state politicians.
For example, Joe Bolkcom, Iowa City Democrat and Chair of the Senate Ways and Means Committee:
“We have a silent crisis in the number of kids and the number of our children living in poverty in our state,” Bolkcom said. “One of my top priorities will be addressing that crisis as a matter of tax policy. We need to use some of this tax surplus to make a substantial boost in the earned income tax credit.”
Bolkcom also favors appropriating $20 million as a state match to help secure an $87 million Federal Railroad Administration grant to establish passenger train service between the Quad Cities and Iowa City, a move he says would create hundreds of jobs.
That’s two awful ideas. As we have pointed out, increasing Iowa’s earned income credit would impose a brutal combined effective income tax rate of over 50% on low income workers — rewarding dependency and punishing taxpayers for emerging from poverty.
And for the passenger rail plan — that’s ten kinds of crazy. With the Megabus making three daily runs between Chicago and Iowa City for no more than $39.50 — and for as little as $1.50 — it’s hard to imagine a less urgent priority than pouring $20 million into a $310 million federal-state boondoggle to establish rail service that will lose millions annually selling $42 tickets for slower service.
Unfortunately, none of the politicians quoted by the Register proposes using the surplus to overhaul Iowa’s dysfunctional and business-hostile income tax. There is a better way: Lower the rates, simplify the system, repeal the job-killing corporation income tax, and eliminate the corporate welfare deductions and tax credits. In other words, The Quick and Dirty Iowa Tax Reform Plan.
Related: You’d better waste your $20 million, or we won’t waste our $80 million!
Fiscal Cliff Notes
Kay Bell, With the Mayan end of world threat over, it’s time to focus on the fiscal cliff
Can I return it? AMT, the Gift You Don’t Have to Wrap! (Trish McIntire)
Paul Neiffer, One Week to Go Checklist
Missouri Tax Guy, Can an LLC be Taxed as an S Corp
Jason Dinesen, Dinesen Tax Greatest Hits – The 5 Most Popular Blog Posts of 2012
Scott Hodge, Taxing Guns to Pay for Cops in Classrooms? A bad idea to fund another bad idea.
That’s the way to bet, anyway. Sometimes the Cynics Are Right (Russ Fox)
Loss carryforwards? Why Santa Won’t Owe Any Income Taxes This Year (TaxGrrrl)
Robert D. Flach won’t let the post-holiday letdown kill his Buzz!
Because I want to finish reading the phone book first? Why Not Read the Entire Sales Tax Statute? (Jim Maule)
Tags: EITC, Fiscal Cliff, iowa tax policy, Jason Dinesen, Joe Bolkcom, Kay Bell, maule, Megabus, Missouri Tax Guy, passenger rail, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Quick and Dirty Tax Reform Plan, Robert D Flach, Russ Fox, Scott Hodge, TaxGrrrl, Trish McIntire
Posted in Tax Roundup | No Comments »
Monday, December 24th, 2012 by Joe Kristan
IRS preparer rules may create a catastrophic preparer shortage. A press release last week from the IRS urging preparers to take the new Registered Tax Return Preparer examination saves the real news until the end (my emphasis):
So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.
Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.
There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.
It’s likely the population of authorized return preparers will crash. That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block. A reduction in preparer supply will increase prices. It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether. Hardly a step forward for tax administration.
UPDATE, 12/27: The IRS Regulates Mom-and-Pop Tax Preparers Out of Business, Just in Time for Tax Season!
Tyler Cowen: point out that the rich guy isn’t buying. The economist makes an interesting suggestion for the GOP now that “Plan B” has failed (my emphasis):
To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount.
This highlights the frivolous, depressing and maddening nature of the “Fiscal Cliff” crisis. They will solve nothing, regardless of the outcome. The President resolutely ignores the continuing fiscal catastrophe. Nothing he proposes pays for more than rounding error in federal spending. His only concern is scoring political points, not solving the problem. A demoralized GOP lacks the nerve, and perhaps the conviction, to call for the spending cuts needed to approach fiscal sanity.
Of course, “The Rich” simply don’t have enough money to pay for our incontinent government.
Joseph Henchman: Switzerland “Debt Brake” As Consensus Policy Option for America? (Tax Policy Blog)
Fiscal Cliff Notes:
Kay Bell, Average tax bill increase if we fall off the fiscal cliff? $3,446
Patrick Temple-West, Boehner’s budget ‘Plan B’ collapses, and more (Tax Break)
Janet Novack, Obama Plays The Adult In The Room–Before Leaving For Hawaiian Holiday
Peter Reilly, All I Want For Christmas Is An AMT Patch. Me too.
Trich McIntire, Congressional Con
Jim Maule, Tax Pledges: Never Say Never.
He’s a little people now. From an FBI press release:
John J. McCauley Jr., 54, owner and co-operator of McCauley and L’Europa Public Adjusters LLC and PIA Restoration LLC in Providence Rhode Island, and longtime Rhode Island state legislator, was sentenced today to 27 months in federal prison for conspiracy to defraud the United States of more than $500,000 and filing false tax returns…
Like some other politicians, he can take the taxes, but he can’t dish them out. He was Deputy Speaker of the Rhode Island House, according to this report.
TaxProf, Deconstruction Deduction: Home Disassembly and Charitable Donation Rather Than Demolition Yields Big Tax Savings
Jason Dinesen, New Preparer Requirements on Earned Income Credit = Higher Fees for Clients
12 Days of Charitable Giving 2012: Fisher House Foundation
Jack Townsend, Evasion of Payment Statute of Limitations Runs from the Last Affirmative Act
Russ Fox, Fat Joe Takes the Rap
Merry Christmas! TaxVox’s 2012 Lump of Coal Awards (Howard Gleckman)
Wow. From the TaxProf:
Yesterday morning, my son was on a bus on I-80 with 52 other Grinnell College students heading to the Des Moines airport to fly home for the Christmas holiday when the driver suffered a fatal heart attack. The bus veered off the highway to the right, into a snowbank from the 12 inches of snow that fell in Iowa last Thursday. Miraculously, none of the students were injured, and after being transported to the hospital in Newton, Iowa, Grinnell arranged for alternative transportation for the students to the airport.
My older son drove that route yesterday coming home from school in Chicago. Happily, his trip was unexciting. I hope all of you who are traveling this week arrive safely.
That would be sexy indeed. Too Sexy for Iowa (The Other McCain).
Tags: Howard Gleckman, Jack Townsend, Janet Novack, Jason Dinesen, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Peter Reilly, preparer regulation, RTRP, Russ Fox, tax crime, TaxGrrrl, TaxProf, The Other McCain, the rich guy's not buying, Trish McIntire, Tyler Cowen
Posted in Tax Roundup | 1 Comment »
Friday, December 14th, 2012 by Joe Kristan
Flickr image courtesy seriousbri under Creative Commons license.
Cause and effect: the Iowa Chamber Alliance can’t quite put them together. The umbrella group for Iowa’s chambers of commerce has issued its 2013 legislative agenda. The Des Moines Register reports (my emphasis):
TAXES: Iowa’s tax system is among the highest for businesses, the alliance contends, and commercial and property tax relief are needed. In addition, the group supports addressing unfunded mandates, public employee pensions and other measures to help offset rollback effects on local governments. The alliance also supports efforts to simplify and reduce corporate income taxes, and to streamline the personal income tax code.
So far, so good. But then:
ECONOMIC DEVELOPMENT: The Iowa Economic Development Authority needs money for flexible incentives to compete for investments and jobs, the allliance said. It backs a variety of tax credits to retain, grow and attract investments in Iowa, including restoration of the $185 million cap on economic development tax credits.
Let’s spell this out: Iowa’s tax code needs simplification because it is larded with “economic development” provisions, including dozens of “economic development tax credits.” The rates are high because if they weren’t, the special breaks would keep it from raising any revenue. To say you want lower rates, a simpler tax code, and economic development credits is like saying you want to lose weight and you want some more cookies.
There is a better way: The Tax Update’s Quick and Dirty Iowa Tax Reform Plan.
Fiscal Cliff Notes
Tax Offer for Firms Pits Big vs. Small (Wall Street Journal):
If ideas proposed by the White House take hold—a long shot—rates for big companies likely would fall next year while those paid by many small-business owners through the individual tax system would rise.
That potential gap could encourage more companies to organize as corporations. For now, the prospect is strengthening alliances between Democrats and big-company CEOs on the one hand, and Republicans and small-business groups on the other.
It’s Warren Buffett and Goldman Sachs vs. the entrepreneur — influence and pull vs. the rest of us.
Patrick Temple-West, Tax offer pits big companies against small, and more (Tax Break)
Martin Feldstein, The Tax Hike Canard (via Mankiw)
Janet Novack, Will Your Retirement Be Thrown Off The Fiscal Cliff?
Howard Gleckman, Why the Senate’s Tax Bill is No Way Out of the Fiscal Impasse
IRS reminds taxpayers of “Savers Credit” (IR-2011-121) This non-refundable credit matches as much as 50% of taxpayer contributions to their IRA or 4o1(k) accounts. It works on joint returns with incomes up to $57,500 and single filers with incomes up to $28,750. Savings made when young can do great things when compounded over a career, and this credit makes it painful. Giving your recent grad starting out in the world some cash to fund an IRA can help build a nest egg and net a nice tax refund.
Andrew Mitchel, Doctrine of Constructive Receipt. You can’t avoid the income this year by waiting until next year to cash the check.
Kay Bell, Reindeer year-end tax tip games 2012: Dasher says use up your FSA funds
Paul Neiffer, Some Interesting Ag Cooperative Facts. Iowa leads the nation with total co-op sales of $22.4 billion.
Jason Dinesen, This Accountant’s Idea for Eliminating Kickoffs in the NFL. Without kicking, where does the “F” in NFL go?
The Critical Question: When a Tax Argument is Nonsense, Why Not Say So? (Jim Maule?
Why not? The 2012 Holiday Kitchen Gift Guide (Megan McArdle)
I can quit any time. I just need six more drinks. “Wind Energy Association Says Industry Can Survive Without Tax Credit” (Tax Analysts, $link):
The wind energy industry could be self-sustaining over the long term if its primary federal incentive is renewed in 2013 and then gradually phased out over six years, the industry’s trade association said December 12.
Because the last 20 years of the tax credit just weren’t enough for a good buzz.
Tags: Andrew Mitchel, corporate welfare, economic development, greg mankiw, Howard Gleckman, iowa tax policy, Janet Novack, Jason Dinesen, Kay Bell, Martin Feldstein, maule, megan mcardle, Patrick Temple-West, Paul Neiffer, Quick and Dirty Iowa Tax Reform Plan, Savers Credit, The Critical Question
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Wednesday, December 12th, 2012 by Joe Kristan
What’s missing here? Governor Branstad had an interview with the Associated Press about his plans for the coming legislative year. Topics covered include
- Property tax reform
- Education reform
- “Accepting” higher spending.
Anything missing? Not a word here about income tax reform. The governor had been talking about income tax reform in the runup to the elections, but hasn’t said much about it since. I’m getting the feeling that Iowa’s chilly business tax climate isn’t warming up anytime soon.
What the current model of the Iowa tax law would look like if it were a car.
They could have thought about that before they voted for it. From Byron York:
Sixteen Democratic senators who voted for the Affordable Care Act are asking that one of its fundraising mechanisms, a 2.3 percent tax on medical devices scheduled to take effect January 1, be delayed. Echoing arguments made by Republicans against Obamacare, the Democratic senators say the levy will cost jobs — in a statement Monday, Sen. Al Franken called it a “job-killing tax” — and also impair American competitiveness in the medical device field.
You mean taxes matter? Who knew? (via Instapundit)
Warren Buffett calls for another tax increase on people who aren’t Warren Buffett. From CNBC:
Warren Buffett isn’t limiting his call for higher taxes to a minimum rate for very rich Americans who get a large chunk of their income from investments.
He’s also one of several dozen wealthy people who have signed a statement calling for a “strong tax on the largest estates.” It’s been released by a group called “United For a Fair Economy.”
Like the income tax hikes he supports, this increase wouldn’t affect him, because he plans to leave his pile to the Bill and Melinda Gates Foundation, where it will escape estate tax. I’ll take him seriously if he calls for reducing or eliminating the estate tax charitable deduction. Going Concern has more.
Peter Reilly, Warren Buffett And George Soros Want Higher Estate Tax Than Obama Proposes
In Iowa he’d have to collect sales tax too. The Tax Court yesterday told a Houston patrolman learned that he was in independent contractor when performing security services off-duty. From the decision (citations omitted):
An employment relationship is indicated when the service recipient has the right to control the details and means by which the worker performs the services. In contrast, independent contractor status is indicated where the opposite is true. This factor is generally critical in determining the nature of a working relationship. Petitioners did not demonstrate that the third parties maintained the requisite right to control Mr. Specks in the performance of the security services.
Also, his employers clients didn’t withhold taxes from his payments. If there’s no withholding, that’s a strong clue that you are not an employee. Off-duty officers in Iowa are also expected to collect sales tax for their services. (Specks, T.C. Memo 2012-343)
Jack Townsend links to a study of plea agreements in federal criminal cases. While much of his post is of interest only to attorneys, this quote from the study should be read by anybody tempted to file a return (or not file) based on the idea that the income tax is unconstitutional (my emphasis):
These constitutional challenges do not work out well for defendants. Almost twenty years ago, the United States Supreme Court held that a considered, fundamental disagreement with the constitutionality of the tax laws does not represent a valid defense to a charge of tax evasion. Yet even with this guidance, many tax resisters remain unwilling to concede the point, and demand to take their cases to trial. One exasperated federal judge catalogued some of the “tired arguments” advanced by these defendants:
That defendants continue to press these arguments in court despite their nonexistent odds of success underscores how many parties simply do not behave as extrapolation from likely trial outcomes might predict.
There’s no point trying to convince tax protesters that they are wrong in theory. All you can point out is that their arguments never work when it matters.
Patrick Temple-West, Boehner tries to keep GOP ranks behind him, and more (Tax Break)
TaxGrrrl, Boehner, Obama Talks Heat Up But Still No Deal On Taxes, Spending
Jason Dinesen, What Couples in Same-Gender Marriages Should Be Doing, Tax-Wise, Before Supreme Court Ruling. I think it’s likely the court will require the IRS to recognize same-sex marriages, and Jason’s post is a must read for affected taxpayers.
Paul Neiffer, File Your Gift Tax Return. It gets the statute of limitations started.
David Brunori, Time To Get Rid of the Deduction for State And Local Taxes. (Tax.com) When the taxes arise from business income, like from S corporations and partnerships, I disagree. It any case, it should only come with rate reductions.
Brian Strahle, State Budgets and Taxes: What Will Happen in 2013?
Jim Maule, Ohio as Role Model for Tax Policy
Buzz time! It’s Wednesday somewhere, so Robert D. Flach has a new roundup of good tax stuff.
The Critical Question: Is your response to taxes genetic? (Kay Bell)
Tags: Branstad tax policy, Brian Strahle, David Brunori, Going Concern, Jack Townsend, Jason Dinesen, Judge Kroupa, Kay Bell, maule, Patrick Temple-West, Paul Neiffer, Robert D Flach, TaxGrrrl, The Critical Question, Warren Buffett
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Monday, December 3rd, 2012 by Joe Kristan
The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday. I will do detailed posts on the in the coming days as I study them.
I’ll note two important items from my first overview of the proposed rules:
- The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. ”Passive” business activities are subject to the the 3.8% tax. Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
- The rules appear to allow you to pro-rate state income taxes in determining “net” investment income. That’s taxpayer-friendly, but it adds another level of complexity.
For an initial take on the rules, see Anthony Nitti at Forbes.
Related: Obamacare: it’s a tax!
David Brunori of Tax Analysts on the fiscal cliff discussion:
Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.
Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.
You can’t pay for mass welfare benefits with a class tax. The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required. The Rich Guy’s not buying.
Why the fiscal cliff is such a big fall. The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):
He adds:
And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.
Related: ‘Fiscal Cliff’ follies: Why it may pay to take deductions early. My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.
Nobody’s serious I: No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)
Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit
Iowa admits its capital gain forms were a mess. A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.
The taxpayer had excluded regular capital gains from a brokerage account on her tax return. Iowa properly rejected the deduction, but admitted her mistake was understandable:
Your position relies on the Department’s instructions for completing the tax return. We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above. In any event, the instructions are not controlling.
Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction. It’s a big improvement, but it should be better. There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.
The state examines every capital gain exclusion claim. Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.
Related: Iowa Capital Gain Break: how it works when you rent property to your business
NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness (TaxProf):
A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.
The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.
It’s a chump’s game, and we taxpayers are the unwilling chumps. These things are to economic growth what steroids are to long-term fitness.
When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up. A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS. They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment. From the Department of Justice Press Release:
Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.
No doubt it was of the best-quality. Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.
Doug Shulman is no longer IRS Commissioner, but his legacy remains:
ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report
Dayton Daily News, IRS says tax fraud attempts up 39 percent
Greg Mankiw, Some Advice on Tax Planning
Richard Morrison, The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)
The Critical Question: Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)
Kay Bell: Time to spend down your medical flexible savings account (FSA)
Paul Neiffer, Senator Baucus Urges Extension of Current Estate Tax Laws
Jim Maule, Passing the Tax Responsibility Buck
Peter Reilly, Who Should Be Accelerating Income Into 2012?
Patrick Temple-West, Most Americans face lower tax burden than in 1980, and more (Tax Break)
Robert D. Flach, DAMNED IF THEY DO AND DAMNED IF THEY DON’T.
Tragedy: Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)
The Tax Update is also on Twitter (@joebwan) and Facebook!
Tags: Anthony Nitti, David Brunori, Ed Krayewski, Elaine Maag, Fiscal Cliff, greg mankiw, Iowa capital gain deduction, Iowa capital gain exclusion, Iowa tax administration, Kay Bell, Lindsay Lohan, maule, Patrick Temple-West, Paul Neiffer, Peter Reilly, Richard Morrison, Robert D Flach, Shulman, tax crime, TaxProf, The Critical Question, the rich guy's not buying
Posted in Tax Roundup | 1 Comment »
Friday, November 30th, 2012 by Joe Kristan
When your identity is stolen, the IRS will be happy to bounce you around the bureacracy. The Taxpayer Advocate testified yesterday at a House hearing on identity theft. The IRS, which does a bang-up job of rapidly mailing fraudulent refunds, is less streamlined when it comes to helping taxpayers whose identities are stolen:
“Yet today the IRS is moving backward toward a decentralized approach, creating specialized identity theft units within 21 separate functional areas,” Olson told the House Oversight and Government Reform Subcommittee on Government Organization, Efficiency and Financial Management. “If, as seems likely, the IRS reduces the role of the IPSU and directs taxpayers to deal directly with the 21 specialized units, I am deeply concerned that we will revert to back where we were in 2008, with large numbers of taxpayers that have cross-functional issues unable to get their problems resolved without multiple contacts with multiple functions, and that would in my opinion be a disaster for the victims.”
She says that the IRS will have to choose between fast refunds and stopping fraud:
Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly. Under current circumstances, I have come to the conclusion that it is simply not possible for the IRS both to process legitimate returns rapidly and to combat refund fraud effectively at the same time.
So it’s too much to ask for the IRS to make better use of existing resources by not wasting them on the futile and expensive return preparer registration program — a program unwisely supported by the Taxpayer Advocate.
IRS makes doing business in the U.S. even more of a hassle for foreigners. The IRS and Congress are doing their best to make it impossible for Americans to do business abroad with FATCA and the offshore compliance jihad. Now they are doing a bit of the same for foreigners trying to do business here with new rules for International Tax Identifiction Numbers (ITINs).
ITINs are needed when foreigners invest in US real property or other assets where a US tax identification number is needed. U.S. taxpayers just use their Social Security numbers. The process is a hassle, with exacting documentation requirements that often require applicants to send passports to the IRS for extended periods while the IRS processes the paperwork.
While the new rules provide more options for applying for the paperwork, they now make the ITINs expire after five years, requiring taxpayers to repeat the whole process to stay in tax compliance. This hassle isn’t just an issue for offshore taxpayers; it also makes compliance more difficult for U.S. taxpayers with offshore investors. Just another little effort by the IRS does to make staying legal as difficult as possible.
Related: Trish McIntire, Finalized ITIN Rules
The injunction didn’t go through, so on to the indictment. A few years ago the IRS tried to close down the practice of a St. Louis-area tax preparer after making spectacular allegations of malfeasance. The effort ended in a settlement that looked much like a victory for the preparer. The IRS apparently didn’t take that well. Stltoday.com reports:
Frank L. “Tiger” Zerjav, Jr., 39, of Wildwood, has been indicted for allegedly submitting four years of false tax returns and trying to dodge $182,000 in taxes, the U.S. Attorney’s office said Thursday.
Zerjav was indicted on four charges of federal income tax evasion for the returns covering 2001-2004. He also faces an obstruction of justice charge for allegedly producing altered computerized accounting records after receiving a grand jury subpoena.
They couldn’t put Mr. Zerjav out of business through civil procedures. A tax fraud conviction would do the trick. They’ll need to make a much more convincing showing than they apparently were able to do on the injuction effort. This does remind us that if you get on the bad side of the IRS, your own filings had better be squeaky clean.
Better this fiscal cliff than the next, bigger one? Bring On the Fiscal Cliff! (Megan McArdle):
Unless something changes, we’re headed toward one of two uncomfortable places. Either we veer over the fiscal cliff and the economy crashes—or we keep going down the road we’ve been taking for more than a decade, delaying hard choices while assuring voters that no really hard choices need to be made. That road probably ends in an even nastier smashup.
So how are Iowa’s congresscritters dealing with this nasty reality? “Senator Harkin says the “fiscal cliff” doesn’t exist.” (Radio Iowa)
Howard Gleckman, What to Read While Hanging Out at the Fiscal Cliff (TaxVox)
Richard Morrison, The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)
Martin Sullivan, How To Limit the Deduction for State and Local Taxes (Tax.com)
Jim Maule, Tax Rates and Deduction Caps
Jack Townsend, Major CA2 Decision on E&Y Tax Shelter Convictions. Two E&Y guys go free.
Jana Luttenegger, Tax Implications of Holiday Bonuses (Davis Brown Tax Law Blog) Don’t think that Wal-mart gift card for the employees is tax-free.
Kay Bell, Lottery dreams and tax realities
The Critical Question: How Much Tax Would You Owe On A $550 Million Powerball Jackpot? (Janet Novack)
Brian Strahle, DC Combined Reporting and the Real Estate Investment Industry: Unintended Consequences?
Tax Trials, Michigan Court of Appeals Rejects IBM’s MTC Election
Robert D. Flach, at his “The Tax Professional” blog, is not thrilled with the “due dilegence” requirements for returns with the Earned Income Tax Credit:
At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form. In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!
Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.
Tags: Brian Strahle, Howard Gleckman, identity theft, ITINs, Jana Luttenegger, Janet Novack, Kay Bell, Martin Sullivan, maule, megan mcardle, Nina Olson, preparer regulation, Preparers, Richard Morrison, Robert D Flach, Tax Trials, Taxpayer Advocate, The Critical Question, Trish McIntire, Zerjav
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Wednesday, November 28th, 2012 by Joe Kristan
IRS starts data-mining the 1099-Ks. From Tax Analysts ($link):
A new IRS compliance program aimed at finding underreporting of gross receipts by taxpayers who receive Form 1099-K information returns from credit card companies or third-party transaction networks launches this week, a senior IRS official confirmed November 27.
Ruth Perez, deputy commissioner of the IRS Small Business/Self-Employed Division, told Tax Analysts that the first notices under the program will be sent out later in the week of November 26. “Our initial footprint in this area is going to be small while we learn,” she said, adding that the initiative will touch a variety of businesses of different sizes.
If prior matching programs are any guide, many of the notices will be incorrect, giving gray hairs to compliant taxpayers. Even so, it’s likely to smoke out some eBay entrepreneurs who haven’t bothered to report their income. If that sounds like you, now is a good time to get into compliance.
Learning From a Wrongful Criminal Tax Prosecution. Tax Analysts has made available to nonsubscribers a great piece by a New York attorney who defended a business owner from a baseless state tax prosecution that was later recanted by the district attorney. It’s the piece I mentioned earlier this week; kudos to Tax Analysts for making it more widely available. Sobering reading for practitioners and entrepreneurs.
Via the TaxProf, The Millionaires Who Pay the Highest Tax Rate:
The more your make, the more taxes you pay as a percentage of your income. According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4% in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8%, while those who made between $50,000 and $100,000 paid 7.7%. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits. Put another way, millionaires pay a rate that’s more than four times that of the middle class.
The millionaires pay a higher rate than Warren Buffett’s secretary, I’d wager.
Kay Bell, Would a limit on tax deductions mean less charitable giving? Of course it would. The only question is how much.
The guy quoted by Kay doesn’t think it would have a big impact. I think it would, especially for bigger gifts. We can’t know for sure, but a paper in the December 11 National Tax Journal estimates that capping the rate benefit of contributions at 12% would reduce individual giving by 5.8% to 14.2%. A hard deduction cap would reduce the tax benefits of large gifts much more drastically than the 12% credit.
Patrick Temple-West, On ‘fiscal cliff,’ both sides lay groundwork, and more
Wall Street Journal, Dividends Come Early to Avoid Fiscal Cliff:
Faced with a possible tax increase on dividends next year, boards are approving bigger payouts and cutting checks faster to avoid 2013 rates.
On Monday, retailer Dillard’s Inc. and casino operator Las Vegas Sands Corp. LVS -0.26% said they would pay new, one-time dividends next month. Dillard’s also broke with long practice to pay its regular fourth-quarter dividend in December after paying it in the new year for at least a decade.
Wal-Mart did the same thing last week. (Via Tax Break)
Jack Townsend, Daugerdas Denied Access to Funds Subject to Forfeiture. Mr. Daugerdas, whose conviction on tax charges was thrown out based on juror misconduct, says he needs the money to pay for his defense in his retrial.
Jason Dinesen, Are Donations to a 501(c)(4) Deductible? (No.)
Tax Trials, Tax Court: Legal Fees Not Deductible for Conduct of S Corp. Sole Shareholder. This is a great case that I plan to write up in the next few days.
Both? Education Foundation Or Estate Tax Dodge – Remains To Be Seen (Peter Reilly)
Jim Maule, Tithing and Taxing: What is (Gross) Income?
Andrew Mitchel, Summary of Form 8938 Filing Thresholds
Joseph Henchman, Connecticut Revenue Commissioner Admits that “Amazon” Tax Has Raised Zero Revenue
In other news, Wednesday ends with “y”: Another South Carolina Politician Guilty of Tax Charges (Russ Fox)
David Brunori, Fetal Craziness:
The recent craziness in Michigan illustrates all that is wrong with tax policy in America. A group of Republican lawmakers have proposed (HB 5684 and HB 5685) a tax credit for unborn fetuses of 12 weeks gestation. What is wrong with such a measure? Everything. First, Adam Smith, who I doubt was pro choice, said that the tax laws should be used to raise revenue. They should not be used to make political statements. Why do we know this is political statement? Because only a nincompoop would think the tax laws could be administered in such a manner.
I suspect the miscarriage rate would go through the roof, at least as reported on tax returns.
A 529 plan would have worked better: Attorney Disbarred For Submitting Falsified Tax Returns For Financial Aid (TaxGrrrl)
Tags: 1099-K, Andrew Mitchel, David Brunori, Fiscal Cliff, Jack Townsend, Jason Dinesen, Joseph Henchman, Kay Bell, maule, Patrick Temple-West, Paul Daugerdas, Peter Reilly, Russ Fox, Tax Trials, TaxGrrrl
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Monday, November 26th, 2012 by Joe Kristan
Via Wikipedia
Is it better to cheat on business taxes than to be out of business? A British researcher says much of the UK economy is only possible through tax evasion. From FastCompany.com:
As he and colleagues argue in a recent paper, the informal economy isn’t just for shady figures looking to squeeze out as much profit as possible; in large measure, it’s inhabited by entrepreneurs whose fledgling businesses might simply fail if they played strictly by the rules.
As taxes and regulations get more complicated and difficult to comply with, more businesses will fall on the wrong side of the law (never a good idea, by the way). The politicians who make compliance prohibitively difficult and expensive will then blame “greed.”
That’s why they are called plea “bargains.” From the Newport Beach Patch:
A 52-year-old woman who pleaded guilty in 2009 in connection with a $2.5-million tax fraud and money laundering scheme that included two Newport Beach properties and was later allowed to withdraw her plea was convicted today following a jury trial.
Safieh Fard had struck a plea bargain in May 2009 with federal prosecutors that recommended a 30-month prison sentence. Now Fard could face up to 20 years in prison, her attorney Correen Ferrentino said.
Sadly, prosecutors can overcharge to force a plea bargain. Even when a defendant thinks she is innocent, the risk of a long prison sentence can make it hard to keep fighting. It will be interesting to see how long the sentence turns out.
Really? Not all tax prosecutions are justified? No. Tax Analysts today carries an appalling story from New York State (unfortunately available for now only to subscribers) where a small businessman was falsely accused of evading taxes on $1 million of income. The indictment was based on shockingly lazy investigation; a close reading of the taxpayer’s return alone would have cleared the taxpayer.
It was almost as though the prosecution believed that once the department demonstrated that Monsour had received the money deposited into his accounts, the burden had somehow shifted to Monsour to prove that the receipts were not taxable income. That approach might have applicability in a civil tax audit, but it has no place in a criminal prosecution. In a criminal case, it is always the people’s burden to prove every element of the offense, whether before the grand jury or at trial, and in this case the people had to show that Monsour knowingly and fraudulently filed a false return that misrepresented his income. Showing that he had received money without also showing that the money received was taxable income was not enough, and the prosecution would have known that mistake if Monsour had been alerted to the investigation before he was indicted.
The taxpayer had borrowed money and sold property (reporting the sales properly on his return), accounting for the bank account deposits that led to the indictment. Those calling for ever-harsher punishment and looser prosecution standards for tax crimes ought to be the first to experience it.
Tom Harkin, cliff jumper. From thefiscaltimes.com:
In a recent call with reporters, Democratic Sen. Tom Harkin of Iowa signaled he was willing to let the country topple over the fiscal cliff unless President Obama and Congress strike a deal to force wealthy Americans to pay more in taxes and that protects Medicare and Medicaid from deep cuts.
“No deal is better than a bad deal, because things will change after Jan. 1, the positions will change,” Harkin explained. “Quite frankly, if we don’t get a good deal, we’ll just take it up in January or February.”
The deal is already bad. The only question is how much worse it will get.
TaxProf, Should the Top Marginal Income Tax Rate Be 73 Percent? Short answer: no.
Martin Sullivan, Should CEOs Lobby for a Carbon Tax? (Tax.com) They might as well lobby for an oxygen tax, for all the good it would do.
Jim Maule, Is Grover Norquist Singing a New Tax Tune?
Maybe not: Members of Congress Appear Ready to Break With Anti-Tax Pledge As Norquist Doubles Down (TaxGrrrl)
Peter Reilly, S To LLC As A Fiscal Cliff Acceleration Strategy ? That means paying tax on all of your built-in gains now, but at a 15% rate. It’s a strategy only for taxpayers with cash reserves to pay taxes now. It makes the most sense if a sale is likely in a few years anyway, but at a higher tax rate. The biggest risk is that the value of the business will go south before you sell the business, and you pay tax on gain that won’t be there when it’s time to cash out.
Howard Gleckman, What Happens if Congress Extends Tax Cuts for Those Making $500,000? (TaxVox) It just changes where the harmful and futile policy begins.
That’s one way to use the $5 million lifetime gift exemption before it goes away next year. Lindsay Lohan gets $100,000 gift from Charlie Sheen to pay toward IRS bill; Sheen now faces estate, gift tax issues (Kay Bell)
Paul Neiffer, IRS Bumps 2013 Standard Mileage Rates by a Penny per Mile
Jack Townsend, The Cheek Defense in IRS Disbarment Proceedings. Tax protest guru and former IRS agent Joe Banister is barred from practicing before the IRS; he was unable to convince the Ninth Circuit that his belief in the silly “Section 861 argument” is reasonable.
News you can use: SWANS ARE EXPENSIVE! (Robert D. Flach)
I would have read the article, but I decided not to risk it. Optometrists warn: Don’t stare at your computer screen too long (Radio Iowa, via The Beanwalker)
Tags: Fiscal Cliff, Grover Norquist, Howard Gleckman, Jack Townsend, Kay Bell, Martin Sullivan, maule, Paul Neiffer, Peter Reilly, Radio Iowa, Robert D Flach, tax crime, tax policy, TaxGrrrl, TaxProf, The Beanwalker
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